<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 24, 1995.
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PHOTRONICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
CONNECTICUT 06-0854886
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
1061 EAST INDIANTOWN ROAD
JUPITER, FLORIDA 33477
(407) 747-4163
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JEFFREY P. MOONAN, ESQ.,
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
1061 EAST INDIANTOWN ROAD
JUPITER, FLORIDA 33477
(407) 747-4163
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
Copies to:
<TABLE>
<S> <C>
STEVEN L. WASSERMAN, ESQ. ALAN K. AUSTIN, ESQ.
REID & PRIEST LLP GREGORY M. PRIEST, ESQ.
40 WEST 57TH STREET WILSON, SONSINI, GOODRICH & ROSATI, P.C.
NEW YORK, NEW YORK 10019 650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
REGISTERED REGISTERED PER SHARE(1) PRICE(1) REGISTRATION FEE
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share........... 2,300,000 shares(2) $23.625 $54,337,500 $18,737.07
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</TABLE>
(1) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457, based upon the average of the high and low sale prices
of the Registrant's Common Stock on the Nasdaq National Market on March 22,
1995.
(2) Includes 300,000 shares which may be purchased by the Underwriters to cover
over-allotments, if any.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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--------------------------------------------------------------------------------
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 24, 1995
[LOGO]
PHOTRONICS, INC.
2,000,000 SHARES
COMMON STOCK
Of the 2,000,000 shares of Common Stock offered hereby, 1,465,900 shares
are being issued and sold by Photronics, Inc. ("Photronics" or the "Company")
and 534,100 shares are being sold by the Selling Shareholders. See "Principal
and Selling Shareholders." On March 23, 1995, the last sale price of the
Company's Common Stock as reported on the Nasdaq National Market was $23.50 per
share. See "Price Range of Common Stock." The Common Stock is quoted on the
Nasdaq National Market under the symbol "PLAB."
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
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UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS COMPANY(1) SHAREHOLDERS
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<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
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Total(2)...................... $ $ $ $
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</TABLE>
(1) Before deducting expenses payable by the Company, estimated at $250,000.
(2) The Company has granted the several Underwriters a 30-day option to purchase
up to an additional 300,000 shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ and $ ,
respectively.
------------------------
The Common Stock is offered by the Underwriters as stated herein, subject
to receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of Robertson, Stephens & Company, L.P. ("Robertson, Stephens
& Company"), San Francisco, California, on or about , 1995.
ROBERTSON, STEPHENS & COMPANY
PRUDENTIAL SECURITIES INCORPORATED
NEEDHAM & COMPANY, INC.
The date of this Prospectus is , 1995
<PAGE> 3
* * * * * * * * * * * * * * * Photronics * * * * * * * * * * * * * * *
* * is a leading * *
* * manufacturer * *
* * of photomasks, * *
* Person looking * which are high * Person looking *
* through * precision * at plate *
* photomask * quartz plates * cassettes *
* * containing * inside machine *
* * microscopic * *
* * images of * *
* * electronic * *
* * * * * * * * * * * * * * * circuits. * * * * * * * * * * * * * * *
* * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* *
* *
* *
* *
* Photomask Semiconductor *
* Interface *
* *
* *
* *
* *
* * * * * * * * * * * * * * * * * * * * * * * * * * * * *
Photomasks are a key element in the manufacture of semiconductors and
are used as masters to transfer circuit patterns onto semicondutor wafers.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * *
* * * *
* * * *
* Person sitting at * * Person looking inside *
* machine console * * machine *
* * * *
* * * *
* * * *
* * * *
* * * *
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS, IF ANY, OR THEIR AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING
TRANSACTIONS IN THE COMMON STOCK OF THE COMPANY ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 4
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING DESCRIBED HEREIN, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING SHAREHOLDERS OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THOSE SPECIFICALLY OFFERED HEREBY OR AN OFFER TO ANY
PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALES MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Incorporation of Certain Documents by Reference................................................. 3
Prospectus Summary.............................................................................. 4
Risk Factors.................................................................................... 6
The Company..................................................................................... 10
Use of Proceeds................................................................................. 10
Price Range of Common Stock..................................................................... 11
Dividend Policy................................................................................. 11
Capitalization.................................................................................. 12
Selected Consolidated Financial Data............................................................ 13
Management's Discussion and Analysis of Results of Operations and Financial Condition........... 14
Business........................................................................................ 22
Management...................................................................................... 28
Principal and Selling Shareholders.............................................................. 30
Underwriting.................................................................................... 32
Legal Matters................................................................................... 33
Experts......................................................................................... 33
Available Information........................................................................... 33
Index to Consolidated Financial Statements...................................................... F-1
</TABLE>
------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed by the Company with the
Securities and Exchange Commission (the "Commission") (File Number 0-15451)
pursuant to the Securities Exchange Act of 1934, as amended (the "1934 Act"),
are incorporated herein by reference: (i) the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 1994; (ii) the Company's Current
Reports on Form 8-K, dated December 5, 1994 and March 24, 1995; (iii) the
Company's Current Report on Form 8-K/A Amendment 1, dated January 27, 1995; (iv)
the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended January
31, 1995; and (v) the description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A, dated March 3, 1987, pursuant to
Section 12 of the 1934 Act. All documents filed by the Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the 1934 Act, after the date of this
Prospectus and prior to the termination of this offering shall be deemed to be
incorporated by reference and to be a part hereof from the respective dates of
filing. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus. The Company will
furnish, without charge, to each person, including any beneficial owner, to whom
a copy of this Prospectus is delivered, upon the written or oral request of such
person, a copy of any or all of the foregoing documents incorporated herein by
reference (other than certain exhibits). Requests for such documents should be
directed to Michael W. McCarthy, Manager of Investor Relations, Photronics,
Inc., P.O. Box 5226, 15 Secor Road, Brookfield, Connecticut, 06804, telephone
(203) 775-9000.
3
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements incorporated by reference and
appearing elsewhere in this Prospectus. All applicable share and per share
numbers reflect a 3-for-2 stock split and an increase in authorized shares of
Common Stock to 20,000,000 effected in March 1995. Unless otherwise indicated,
the information in this Prospectus assumes no exercise of the Underwriters'
over-allotment option.
THE COMPANY
Photronics, Inc. ("Photronics" or the "Company") is a leading manufacturer
of photomasks, which are primarily used by the semiconductor industry in the
manufacture of integrated circuits. The Company's photomasks, which are high
precision photographic quartz plates containing microscopic images of electronic
circuits, are manufactured in Photronics' four manufacturing facilities in the
United States in accordance with circuit designs provided on a confidential
basis by its customers. The Company images circuit patterns onto photomasks
using laser-based or electron beam technologies and, to a lesser degree,
optical-based technologies.
Photomasks are a key element in the manufacture of semiconductors and are
used as masters to transfer circuit patterns onto semiconductor wafers during
the fabrication of integrated circuits and, to a lesser extent, other types of
electronic components. Each circuit consists of a series of separate patterns,
each of which is imaged onto a different photomask. The resulting series of
photomasks is then used to successively layer the circuit patterns onto the
semiconductor wafer. Demand for photomasks is driven both by semiconductor
design activity and the complexity of integrated circuits. As the complexity of
integrated circuits has increased, the number of photomasks used in the
manufacture of a single circuit also has increased. According to Dataquest, in
1994 worldwide semiconductor sales exceeded $100 billion. Based upon industry
estimates, photomask sales for 1994 exceeded $300 million in North America.
Photomasks are manufactured by independent manufacturers, like the Company,
and captives, which are semiconductor manufacturers that produce almost
exclusively for their own fabrication of integrated circuits. Since the
mid-1980s, there has been in the United States a trend toward the divestiture or
closing of captive photomask operations by semiconductor manufacturers. As a
result, the share of the market served by independents increased significantly.
During the same period, due in part to competitive pressures and increasing
capital requirements, the number of significant independent manufacturers
decreased from approximately 12 in the mid-1980s to four in 1994. In response to
these trends, the Company has completed a number of strategic acquisitions,
including acquisitions of operations in Dallas, Texas in October 1993 and in
Sunnyvale, California in December 1994. These two recent acquisitions were
primarily responsible for the significant increases in the Company's net sales
and net income in fiscal 1994 and the first three months of fiscal 1995.
The Company's objective is to expand its position as a leader in the
manufacture of photomasks. The Company's strategy includes ensuring strong
customer relationships through high levels of customer satisfaction, maintaining
technological leadership through investment in state-of-the-art manufacturing
capabilities and leveraging the Company's network of manufacturing facilities to
provide timely product delivery and rapid response to customer demands. The
Company has expanded sales in international markets by serving customers from
its facilities in the United States and by forming strategic alliances with
photomask manufacturers in certain foreign countries. In March 1995, the Company
announced that it will establish a facility in Singapore, and it intends to
continue to increase its presence in selected international markets.
The Company sells its products primarily through a direct sales force. The
Company conducts its sales activities from 11 locations in the United States and
one in the United Kingdom. The Company's customers include Advanced Micro
Devices, Inc., Cypress Semiconductor Corporation, LSI Logic Corporation, Micron
Technology, Inc., Motorola, Inc., National Semiconductor Corporation, Orbit
Semiconductor, Inc., Raytheon Company, Texas Instruments Incorporated, VLSI
Technology, Inc. and Zilog, Inc.
4
<PAGE> 6
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company................. 1,465,900 shares
Common Stock Offered by the Selling Shareholders.... 534,100 shares
Common Stock Outstanding after the Offering(1)...... 11,423,416 shares
Use of Proceeds..................................... Capital expenditures for establishment
and expansion of manufacturing
facilities, including in Texas and
Singapore, and general corporate
purposes.
Nasdaq National Market Symbol....................... PLAB
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED OCTOBER 31, ENDED JANUARY 31,
------------------------------- ----------------------
1992 1993 1994 1994 1995(2)
------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Net sales........................... $41,305 $48,363 $80,696 $18,857 $26,176
Operating income.................... 5,868 6,991 14,237 2,921 4,868
Income before income taxes.......... 6,719 7,436 15,301 2,997 5,202
Net income(3)....................... 4,367 4,908 10,336 2,275 3,267
Net income per common share(3)...... $ 0.55 $ 0.59 $ 1.03 $ 0.23 $ 0.32
Weighted average number of common
shares outstanding................ 7,998 8,372 10,062 9,938 10,256
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31, 1995
-----------------------
OCTOBER 31, AS
1994 ACTUAL ADJUSTED(4)
----------- -------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments.... $27,627 $ 21,609 $ 54,192
Working capital...................................... 32,329 26,907 60,092
Property, plant and equipment........................ 36,948 42,066 42,066
Total assets......................................... 98,346 113,176 145,759
Long-term debt, less current portion................. 495 1,855 1,855
Total shareholders' equity........................... 80,402 86,283 119,468
</TABLE>
---------------
(1) Excludes 359,098 shares reserved for issuance pursuant to currently
exercisable options with a weighted average exercise price of $4.52 per
share.
(2) On December 1, 1994, the Company acquired substantially all of the assets of
Hoya Micro Mask, Inc. ("Micro Mask"), an independent photomask manufacturer
with manufacturing operations located in Sunnyvale, California. The
consolidated statement of earnings for the three months ended January 31,
1995 includes the operating results of the acquired Micro Mask operations
only from December 1, 1994. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition" and Note 13 of Notes to
Consolidated Financial Statements.
(3) The Company adopted Statement of Financial Accounting Standards No. 109
("SFAS 109"), "Accounting for Income Taxes," effective November 1, 1993. The
cumulative effect of adopting SFAS 109 was an increase in income of
$237,000, or $0.02 per share, for both fiscal 1994 and the three months
ended January 31, 1994. See Note 1 of Notes to Consolidated Financial
Statements.
(4) As adjusted to give effect to (i) the sale of 1,465,900 shares of Common
Stock offered hereby by the Company at an assumed public offering price of
$23.50 per share (the last sale price of the Company's Common Stock as
reported on the Nasdaq National Market on March 23, 1995), (ii) the exercise
by certain Selling Shareholders of options to purchase, in the aggregate,
84,100 shares of Common Stock at exercise prices ranging from $1.83 to $6.17
per share and of a warrant to purchase 7,500 shares of Common Stock with an
exercise price of $5.24 per share, all of which shares will be sold in this
offering and (iii) the application of the estimated net proceeds therefrom.
See "Use of Proceeds" and "Capitalization."
5
<PAGE> 7
RISK FACTORS
In addition to the other information in this Prospectus, the following
should be considered carefully in evaluating the Company and its business before
purchasing the Common Stock offered by this Prospectus.
UNCERTAIN DEMAND FOR PHOTOMASKS; CYCLICAL NATURE OF SEMICONDUCTOR INDUSTRY
The Company believes that, during the early 1990s, unit sales of photomasks
were relatively flat, and the Company and other independent manufacturers
experienced price reductions. Although demand for photomasks increased in 1994,
there can be no assurance that demand will not decline or that pressure to
reduce prices will not continue. In addition, substantially all of the Company's
net sales are derived from customers in the semiconductor industry. This
industry is highly cyclical and has been characterized by periodic downturns,
which in some cases have had severe effects on suppliers to the industry. There
can be no assurance that any of the foregoing factors will not have a material
adverse effect on the Company's business and results of operations. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" and "Business--Industry Overview."
DEPENDENCE ON MAJOR CUSTOMERS
Approximately 36% of the Company's net sales in fiscal 1994 was derived
from sales to Texas Instruments Incorporated ("Texas Instruments"). An
additional 18% of net sales in fiscal 1994 was derived from sales to the
Company's next four largest customers, no one of which accounted for more than
approximately 5% of net sales. None of the Company's customers has contracts
requiring it to purchase any minimum quantity of photomasks from the Company,
and any loss of, or significant reduction in, orders from any of these
customers, particularly Texas Instruments, could have a material adverse effect
on the Company's business and results of operations. The Company currently
supplies substantially all of the photomasks used by the operations of Texas
Instruments in North America. Large semiconductor manufacturers typically have
multiple sources of supply of photomasks, and Texas Instruments could utilize
additional sources of supply in the future, which could have a material adverse
effect on the Company's business and results of operations. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition" and
"Business--Customers."
MANAGEMENT OF EXPANDING OPERATIONS; LIMITED ADDITIONAL ACQUISITION OPPORTUNITIES
The Company has recently experienced rapid expansion of its operations,
primarily due to its acquisitions of the photomask manufacturing operations of
Toppan Printronics (USA), Inc. ("TPI") in October 1993 and Micro Mask in
December 1994. In addition, the Company currently is expanding its manufacturing
capacity and plans to relocate its Texas manufacturing operations to a new
facility and establish a manufacturing facility in Singapore. The Company also
from time to time evaluates and enters into negotiations with respect to
potential acquisitions, and the Company may make additional acquisitions in the
future. This expansion has placed, and is expected to continue to place,
significant demands on the Company's administrative, operational and financial
personnel and systems. The Company has in the past experienced, and could in the
future experience, difficulties and delays in ramping up new production
facilities. Managing acquired operations entails numerous operational and
financial risks, including difficulties in the assimilation of acquired
operations, diversion of management's attention to other business concerns,
amortization of acquired intangible assets and potential loss of key employees
of acquired operations. Sales of acquired operations also may decline following
the acquisition, particularly if there is an overlap of customers served by the
Company and the acquired operation, and such customers transition to another
vendor in order to ensure a second source of supply. In this respect, the
Company believes that there was some degree of overlap between the Company's
customers and those of Micro Mask, and some of these customers may transition to
second sources of supply. Furthermore, in connection with any future
acquisitions, the Company would be required to utilize its cash reserves and/or
issue new securities, which could have a dilutive effect on the Company's
earnings per share, particularly during the initial integration of the acquired
operations into the Company's operations. Any failure of the Company to
successfully manage its
6
<PAGE> 8
expanding operations could have a material adverse effect on the Company's
business and results of operations.
A substantial majority of the Company's increases in net sales and net
income in fiscal 1994 and the three months ended January 31, 1995 were
attributable to the acquisitions of TPI and Micro Mask, respectively. The
Company believes that there are limited remaining opportunities to acquire
significant photomask operations in the United States. Any future growth in net
sales in the United States therefore will substantially depend upon growth in
the Company's existing business, and there can be no assurance that such growth
will occur. See "Management's Discussion and Analysis of Results of Operations
and Financial Condition."
FLUCTUATIONS IN QUARTERLY PERFORMANCE
In the past, the Company experienced fluctuations in its quarterly
operating results, and it anticipates that such fluctuations will continue and
could intensify in the future. Fluctuations in operating results may result in
volatility in the price of the Common Stock. Operating results may fluctuate as
a result of many factors, including size and timing of orders and shipments,
product mix, sales of equipment (which have widely varying gross margins),
technological change, competition, loss of significant customers and general
economic conditions. The Company's customers generally order the Company's
products on an as-needed basis, and substantially all of the Company's net sales
in any quarter are dependent on orders received during that quarter. Since the
Company operates with a limited backlog and the rate of new orders may vary
significantly from month to month, the Company's capital expenditures and
expense levels are based primarily on sales forecasts. Consequently, if
anticipated sales in any quarter do not occur when expected, capital
expenditures and expense levels could be disproportionately high, and the
Company's operating results would be adversely affected. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition" and
Note 12 of Notes to Consolidated Financial Statements.
EXPANSION INTO INTERNATIONAL MARKETS
In fiscal 1994, international sales accounted for approximately 13% of the
Company's net sales. The Company believes that achieving significant additional
international sales will require it, among other things, to develop a local
presence in the markets on which it is focused, which would require a
significant investment of financial, management, operational and other
resources. In March 1995, the Company announced plans to establish a facility in
Singapore. In international markets, existing independent photomask suppliers,
including, in certain markets, DuPont Photomasks, Inc. ("DuPont"), have
significant local presences and market share. Accordingly, the Company expects
to encounter significant competition which could affect the Company's success in
establishing a significant presence in international markets that it targets.
Operations outside the United States are subject to inherent risks,
including fluctuations in exchange rates, political and economic conditions in
various jurisdictions, unexpected changes in regulatory requirements, tariffs
and other trade barriers, difficulties in staffing and managing foreign
operations, longer accounts receivable payment cycles and potentially adverse
tax consequences. There can be no assurance that such factors will not have a
material adverse effect on the Company's ability to generate sales outside the
United States and, consequently, on the Company's business and results of
operations. See "Management's Discussion and Analysis of Results of Operations
and Financial Condition" and "Business--Strategy."
TECHNOLOGICAL CHANGE
The photomask industry has been and is expected to continue to be
characterized by technological change and evolving industry standards. In order
to remain competitive, the Company will be required to continually anticipate,
respond to and utilize changing technologies. In particular, the Company
believes that as semiconductor geometries continue to become smaller, the
Company will be required to manufacture optical proximity correction and
phase-shift photomasks. These technologies currently are in developmental stages
and the Company has not yet manufactured these types of
7
<PAGE> 9
photomasks in volume. In addition, demand for photomasks has been and in the
future could be adversely affected by changes in methods of semiconductor
manufacturing (which could affect the type or quantity of photomasks utilized)
or market acceptance of alternative methods of transferring circuit designs. If
the Company were unable, due to resource, technological or other constraints, to
anticipate, respond to or utilize these or other changing technologies, the
Company's business and results of operations could be materially adversely
affected. See "Business--Research and Development."
FUTURE CAPITAL NEEDS UNCERTAIN
The manufacture of photomasks requires a significant investment in capital
equipment. The Company expects that it will be required to continue to make
significant capital expenditures in connection with its operations in the United
States. The Company also has initiated a strategy to increase its presence in
certain international markets in which it does not yet have a significant
presence. Any expansion of the Company's operations in these markets would
require significant additional investment in new manufacturing facilities. There
can be no assurance that the Company will be able to obtain any additional
capital required in connection with such expansion on reasonable terms, or at
all, or that any such expansion will not have a material adverse effect on the
Company's business and results of operations, particularly during the start-up
phase of new operations. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition."
COMPETITION
The photomask industry is highly competitive, and most of the Company's
customers utilize more than one photomask supplier. In the United States, the
Company competes primarily with DuPont and, to a lesser extent, with other
smaller independent photomask suppliers. The Company also competes with
semiconductor manufacturers' captive photomask manufacturing operations. The
Company expects to face continued competition from these and other suppliers in
the future. DuPont, which has competed aggressively in the past, and certain
potential competitors in international markets have substantially greater
financial, technical, sales, marketing and other resources, as well as greater
name recognition, than the Company.
The Company's ability to compete primarily depends upon the consistency of
product quality and timeliness of delivery, as well as pricing, technical
capability and service. The Company also believes that proximity to customers is
an important competitive factor in certain markets. In the past, competition led
to pressure to reduce prices which, the Company believes, contributed to the
decrease in the number of independent manufacturers. There can be no assurance
that pressure to reduce prices will not continue. See "Business--Competition."
DEPENDENCE ON SUPPLIERS
Raw materials utilized by the Company generally include high precision
quartz plates, which are used as photomask blanks, pellicles, which are
protective transparent cellulose membranes, and electronic grade chemicals used
in the manufacturing process. The Company has established purchasing
arrangements with each of Hoya Corporation USA, the parent of Micro Mask
("Hoya"), and Toppan Printing Co., Ltd. ("Toppan") pursuant to which the Company
purchases substantially all of its photomask blanks. The Company expects that it
will continue to purchase substantially all of its photomask blanks from Hoya
and Toppan so long as their price, quality and delivery and service are
competitive. Any delays or quality problems in connection with significant raw
materials, particularly photomask blanks from either Hoya or Toppan, could cause
delays in shipments of photomasks which could adversely affect the Company's
business and results of operations. The fluctuation of exchange rates with
respect to prices of significant raw materials used in manufacturing also could
have a material adverse effect on the Company's business and results of
operations, although the Company has not experienced any such effect to date.
See "Business--Materials and Supplies."
8
<PAGE> 10
CONTROL BY MANAGEMENT
Following the offering made hereby, officers and directors of the Company
and their affiliates will beneficially own approximately 33% of the Company's
outstanding Common Stock, including shares held by Toppan that are subject to an
agreement with the Company which, among other things, requires Toppan to vote
its shares for nominees for director proposed by the Company's board. This
concentration of ownership will enable management to exercise substantial
influence over the election of directors and other corporate transactions
requiring shareholder approval, including mergers, consolidations or other
significant transactions. This concentration of ownership could prevent or delay
a change in control of the Company. See "Principal and Selling Shareholders."
DEPENDENCE ON MANAGEMENT AND TECHNICAL PERSONNEL
The Company's success depends upon, in part, key managerial, engineering
and technical personnel, as well as its ability to continue to attract and
retain additional personnel. The loss of certain key personnel could have a
material adverse effect upon the Company's business and results of operations.
There can be no assurance that the Company can retain its key managerial,
engineering and technical employees or that it can attract similar additional
employees in the future. While the Company believes that it provides competitive
compensation and incentive packages, it does not have written employment
agreements with employees. See "Business--Employees" and "Management."
FLUCTUATIONS IN STOCK PRICE
The trading prices of the Company's Common Stock have fluctuated
significantly. The prices at which the Common Stock trades are determined in the
marketplace and may be influenced by many factors, including the performance of,
and investor expectations for, the Company, the trading volume in the Common
Stock and general economic and market conditions. In addition, in recent years
the stock market in general, and the shares of technology companies in
particular, have experienced extreme price and volume fluctuations. This
volatility has substantially affected the market prices of securities issued by
many companies for reasons unrelated to their operating performance. These broad
market fluctuations may adversely affect the market price of the Company's
Common Stock. There can be no assurance as to the price at which the Common
Stock will trade in the future. See "Price Range of Common Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 11,423,416 shares
of Common Stock outstanding. Of these shares, 7,989,516 shares will be freely
tradable without restriction or further registration under the Securities Act of
1933, as amended (the "1933 Act"), and 3,433,900 shares will be "restricted"
securities within the meaning of Rule 144. Due to lock-up agreements and
restrictions under the 1933 Act, none of the restricted shares will be eligible
for sale before 90 days after the date of this Prospectus. Beginning 90 days
after the date of this Prospectus (or earlier upon release by Robertson,
Stephens & Company from lock-up agreements), 1,843,900 of such restricted shares
will be eligible for sale in the open market under and subject to restrictions
contained in Rule 144. Robertson, Stephens & Company reserves the right to
release the holders of such shares from such lock-up agreements at any time
without notice. The Company is unable to estimate the number of shares that may
be sold pursuant to the foregoing methods of sale because such sales will depend
on the market price for the Common Stock, the personal circumstances of sellers
and other factors. In addition, options to purchase 986,528 shares of Common
Stock were outstanding as of January 31, 1995. The holder of 1,590,000 shares of
Common Stock has certain demand and piggyback registration rights beginning in
1996. Any sale of substantial amounts of Common Stock in the open market may
significantly reduce the market price of the Common Stock. See "Underwriting."
9
<PAGE> 11
THE COMPANY
The Company is a Connecticut corporation, organized in 1969. The Company
changed its name in April 1990 from Photronics Labs, Inc. Its principal
executive offices are located at 1061 East Indiantown Road, Jupiter, Florida
33473, telephone (407) 747-4163.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,465,900 shares of
Common Stock offered by the Company hereby, after deducting estimated
underwriting discounts, commissions and offering expenses payable by the
Company, are expected to be approximately $32.3 million ($39.0 million if the
Underwriters' over-allotment option is exercised in full). The Company also will
receive approximately $279,000 upon the exercise of options and a warrant by
certain Selling Shareholders but will not receive any of the proceeds from the
sale of the Common Stock by the Selling Shareholders.
The Company intends to use such proceeds to provide (i) approximately $20
million for the construction of a new state-of-the-art facility in Allen, Texas,
a suburb of Dallas, to relocate the operations acquired by the Company in
October 1993 and to fund the expansion of manufacturing and research and
development capacity in existing manufacturing facilities, (ii) approximately
$10 million for the establishment of a new facility in Singapore and (iii) the
balance for general corporate purposes, including working capital. The foregoing
represents the Company's best estimate of the allocation of the net proceeds of
this offering based upon current economic and industry conditions and the
current state of its business operations and plans. The application of proceeds
for any particular purpose will depend on a number of factors, including the
timing of expenditures and the availability of funds from operations or other
sources. As a result, the Company may find it desirable, and reserves the right,
to change the allocation of funds. In addition, from time to time the Company
evaluates and enters into negotiations with respect to potential acquisitions of
the equipment and other assets of both captive and independent photomask
manufacturers and may, as opportunities become available, make such acquisitions
in the future. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition." Pending such uses, proceeds will be
invested in short-term instruments.
10
<PAGE> 12
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been quoted on the Nasdaq National Market
under the symbol "PLAB" since the Company's initial public offering in March
1987. The following table sets forth the high and low sale prices for the Common
Stock as reported on the Nasdaq National Market for the periods indicated,
adjusted to reflect a 3-for-2 stock split effected on March 20, 1995.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Fiscal year ended October 31, 1993
First quarter........................................................... $10 $ 5 13/16
Second quarter.......................................................... 9 13/16 8 5/16
Third quarter........................................................... 9 11/16 6 1/2
Fourth quarter.......................................................... 9 1/2 6 13/16
Fiscal year ended October 31, 1994
First quarter........................................................... $12 $ 9
Second quarter.......................................................... 14 1/2 11
Third quarter........................................................... 14 11/16 10 13/16
Fourth quarter.......................................................... 18 3/16 11 5/16
Fiscal year ending October 31, 1995
First quarter........................................................... $20 1/2 $15 13/16
Second quarter (through March 23, 1995)................................. 24 1/2 19 3/16
</TABLE>
On March 23, 1995, the last sale price for the Common Stock as reported on
the Nasdaq National Market was $23.50 per share. As of December 31, 1994, there
were 273 shareholders of record.
DIVIDEND POLICY
The Company has not paid any cash dividends to date and, for the
foreseeable future, anticipates that earnings will continue to be retained for
use in its business. The terms of the Company's financing agreements contain
certain financial covenants, including covenants that require the maintenance of
minimum net worth and compliance with ratios of (i) total unsubordinated
liabilities to tangible net worth, (ii) accounts receivable and cash to current
liabilities and (iii) earnings before interest and taxes to consolidated
interest and the current portion of long-term debt, which could have the effect
of limiting the payment of dividends.
11
<PAGE> 13
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
January 31, 1995 and as adjusted to give effect to (i) the sale of 1,465,900
shares of Common Stock being offered by the Company hereby at an assumed public
offering price of $23.50 per share (the last sale price of the Company's Common
Stock as reported on the Nasdaq National Market on March 23, 1995) and (ii) the
issuance of 91,600 shares of Common Stock upon the exercise of options and a
warrant by certain Selling Shareholders.
<TABLE>
<CAPTION>
JANUARY 31, 1995
-------------------------
ACTUAL AS ADJUSTED
------- -----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Long-term debt, less current portion................................. $ 1,855 $ 1,855
------- -----------
Shareholders' equity:
Preferred Stock $0.01 par value, 2,000,000 shares authorized; none
issued and outstanding.......................................... -- --
Common Stock, $0.01 par value, 20,000,000 shares authorized;
10,002,416 shares issued and outstanding; 11,559,916 shares
issued and outstanding as adjusted(1)........................... 100 116
Additional paid-in capital......................................... 41,419 74,588
Retained earnings.................................................. 37,605 37,605
Unrealized gains on investments(2)................................. 8,020 8,020
Treasury stock, 136,500 shares, at cost............................ (245) (245)
Deferred compensation on restricted stock(3)....................... (616) (616)
------- -----------
Total shareholders' equity...................................... 86,283 119,468
------- -----------
Total capitalization.......................................... $88,138 $ 121,323
======= ========
</TABLE>
---------------
(1) Excludes 359,098 shares reserved for issuance pursuant to currently
exercisable options with a weighted average exercise price of $4.52 per
share.
(2) Reflects unrealized gains on the Company's shares in two publicly-held
technology companies. All of such shares were acquired in private
transactions and are subject to restrictions on transfer under the 1933 Act.
See Notes 1 and 2 of Notes to Consolidated Financial Statements.
(3) See Note 8 of Notes to Consolidated Financial Statements.
12
<PAGE> 14
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of the Company as of
October 31, 1990, 1991, 1992, 1993 and 1994 and for each of the years then ended
have been derived from the audited consolidated financial statements of the
Company. The financial statements as of October 31, 1993 and 1994 and for each
of the years in the three year period ended October 31, 1994, and the report of
Deloitte & Touche LLP, independent auditors, with respect to such periods, are
included elsewhere in this Prospectus. The selected consolidated financial data
as of January 31, 1995 and for the three months ended January 31, 1994 and 1995
have been derived from the Company's unaudited consolidated financial statements
which, in the opinion of the Company, include all adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation of such data.
Results for the three months ended January 31, 1995 are not necessarily
indicative of results that may be expected for the full year. The data are
qualified by reference to, and should be read in conjunction with, "Management's
Discussion and Analysis of Results of Operations and Financial Condition" and
the Consolidated Financial Statements and related notes and other financial
information appearing elsewhere in this Prospectus or incorporated by reference
herein.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED OCTOBER 31, JANUARY 31,
----------------------------------------------- -----------------
1990 1991 1992 1993 1994 1994 1995(1)
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Net sales.......................................... $37,370 $42,158 $41,305 $48,363 $80,696 $18,857 $26,176
Costs and expenses:
Cost of sales.................................... 23,100 25,853 27,142 32,048 51,204 12,525 16,417
Selling, general and administrative.............. 5,442 4,986 5,746 6,580 10,517 2,274 3,543
Research and development......................... 2,468 2,613 2,549 2,744 4,738 1,137 1,348
------- ------- ------- ------- ------- ------- -------
Operating income................................... 6,360 8,706 5,868 6,991 14,237 2,921 4,868
Gain on insurance settlements...................... -- 1,479 -- -- -- -- --
Interest and other income (expense), net........... (57) 747 851 445 1,064 76 334
------- ------- ------- ------- ------- ------- -------
Income before income taxes......................... 6,303 10,932 6,719 7,436 15,301 2,997 5,202
Provision for income taxes(2)...................... 2,332 4,155 2,352 2,528 4,965 722 1,935
------- ------- ------- ------- ------- ------- -------
Net income(2)...................................... $ 3,971 $ 6,777 $ 4,367 $ 4,908 $10,336 $ 2,275 $ 3,267
======== ======== ======== ======== ======== ======== ========
Net income per common share(2)..................... $ 0.69 $ 0.89 $ 0.55 $ 0.59 $ 1.03 $ 0.23 $ 0.32
======== ======== ======== ======== ======== ======== ========
Weighted average number of common shares
outstanding...................................... 5,721 7,562 7,998 8,372 10,062 9,938 10,256
======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 31,
----------------------------------------------- JANUARY 31,
1990 1991 1992 1993 1994 1995
------- ------- ------- ------- ------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments...................................... $ 6,653 $19,913 $16,703 $11,722 $27,627 $ 21,609
Working capital.................................... 11,121 23,506 20,771 17,577 32,329 26,907
Property, plant and equipment...................... 14,801 17,097 24,168 40,218 36,948 42,066
Total assets(3).................................... 32,617 47,850 52,026 74,441 98,346 113,176
Long-term debt, less current portion............... 2,452 1,758 1,698 1,051 495 1,855
Total shareholders' equity(3)...................... 22,537 39,384 44,011 62,626 80,402 86,283
</TABLE>
---------------
(1) On December 1, 1994, the Company acquired substantially all of the assets of
Micro Mask. The Consolidated Statement of Earnings for the three months
ended January 31, 1995 includes the operating results of the acquired Micro
Mask operations only from December 1, 1994. See "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and Note 13 of
Notes to Consolidated Financial Statements.
(2) The Company adopted SFAS 109 effective November 1, 1993. The cumulative
effect of adopting SFAS 109 was a benefit of $237,000, or $0.02 per share,
for both fiscal 1994 and the three months ended January 31, 1994. See Note 1
of Notes to Consolidated Financial Statements.
(3) Under Statement of Financial Accounting Standards No. 115, which the Company
adopted effective October 31, 1994, equity investments are included in
assets at fair market value and unrealized gains on investments, net of tax,
are reported as a separate component of total shareholders' equity. See
Notes 1 and 2 of Notes to Consolidated Financial Statements.
13
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
The Company is a leading manufacturer of photomasks which are a key element
in the manufacture of semiconductors. The market for photomasks consists
primarily of semiconductor manufacturers and designers, including manufacturers
that have the capability to manufacture photomasks. During the past several
years, a number of factors resulted in the divestiture or closing of captive
manufacturing operations by semiconductor manufacturers in the United States and
the consolidation of market share among a small number of independent
manufacturers. In response to these trends, the Company completed a number of
strategic acquisitions, including acquisitions of TPI in October 1993 and of
Micro Mask in December 1994. These two recent acquisitions were primarily
responsible for the significant increases in the Company's net sales and net
income in fiscal 1994 and the first three months of fiscal 1995. For further
information concerning the terms of the Micro Mask acquisition, see
"Business--Properties." The Company believes that there are limited remaining
opportunities to acquire significant photomask operations in the United States.
Any future growth in net sales in the United States therefore will substantially
depend upon growth in the Company's existing business, and there can be no
assurance that such growth will occur. Managing acquired operations entails
numerous operational and financial risks. See "Risk Factors--Management of
Expanding Operations; Limited Additional Acquisition Opportunities."
The Company intends to increase its manufacturing capabilities and its
market presence by investing in facilities and state-of-the-art equipment and
acquiring, where appropriate, the operations of other manufacturers. As part of
the Company's expansion into Texas, the Company is constructing a new
state-of-the-art facility in the Dallas area to relocate the Texas operations
acquired in 1993.
The Company also has expanded sales in international markets by serving
customers from current facilities and by forming strategic partnerships with
overseas photomask manufacturers. Foreign sales accounted for approximately 2%
of the Company's net sales for fiscal 1992, 8% for fiscal 1993 and 13% for
fiscal 1994. As part of its strategy to increase international sales, the
Company announced in March 1995 that it would establish a facility in Singapore.
The Company believes that, during the early 1990s, unit sales of photomasks
were relatively flat, and the Company and other independent manufacturers
experienced price reductions. Although demand for photomasks increased in 1994,
there can be no assurance that demand will not decline or that pressure to
reduce prices will not continue.
14
<PAGE> 16
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of net sales represented by certain items in the Company's Consolidated
Statement of Earnings for each period:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED OCTOBER 31, JANUARY 31,
------------------------- ---------------
1992 1993 1994 1994 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales.................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales............................ 65.7 66.3 63.4 66.4 62.7
Selling, general and administrative...... 13.9 13.6 13.0 12.1 13.5
Research and development................. 6.2 5.6 5.9 6.0 5.2
----- ----- ----- ----- -----
Operating income........................... 14.2 14.5 17.7 15.5 18.6
Interest and other income, net............. 2.1 0.9 1.3 0.4 1.3
----- ----- ----- ----- -----
Income before income taxes................. 16.3 15.4 19.0 15.9 19.9
Provision for income taxes(1).............. 5.7 5.2 6.2 3.8 7.4
----- ----- ----- ----- -----
Net income(1).............................. 10.6% 10.2% 12.8% 12.1% 12.5%
===== ===== ===== ===== =====
</TABLE>
---------------
(1) Includes a benefit from the adoption of SFAS 109 of $237,000 for both fiscal
1994 and the three months ended January 31, 1994, or 0.3% and 1.3%,
respectively.
Three months ended January 31, 1995 and 1994
A significant portion of the material changes in each category of the
Company's results of operations for the three months ended January 31, 1995, as
compared to the same period in the prior fiscal year, is attributable to the
acquisition, on December 1, 1994, of the photomask manufacturing operations and
assets of Micro Mask in Sunnyvale, California.
Net sales. Net sales for the three months ended January 31, 1995 increased
38.8% to $26.2 million compared with $18.9 million in the same period in the
prior fiscal year. The increase is attributable to the inclusion of two months'
sales by the Company's new Sunnyvale facility and generally stronger demand from
its existing customer base.
Cost of sales. Cost of sales for the three months ended January 31, 1995
increased 31.1% to $16.4 million compared to $12.5 million for the same period
in the prior fiscal year, resulting primarily from increased sales, together
with higher employee incentive compensation expenses resulting from the
Company's performance. In addition, employee benefit costs for the three months
ended January 31, 1995 increased as the majority of the employees at the Texas
facility were not yet eligible for benefits in the three months ended January
31, 1994. As a percentage of net sales, cost of sales decreased to 62.7% for the
three months ended January 31, 1995 as compared with 66.4% in the prior fiscal
year quarter. The decrease was primarily due to improved capacity utilization
and greater operating efficiencies resulting from sales volume increases at the
Company's existing facilities in Brookfield, Dallas and Milpitas. This
improvement was offset somewhat by a change in the Company's business mix and
lower margins in the Sunnyvale operation. The Company anticipates that its fixed
operating costs will increase in connection with its planned expansion of
capacity.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 55.8% to $3.5 million for the three months
ended January 31, 1995 compared with $2.3 million for the same period in the
prior fiscal year. The increase was due largely to higher employee incentive
compensation expense provisions as a result of performance and the inclusion of
two months' expenses of the Sunnyvale facility. Furthermore, the Company overall
had increases in staffing levels, as well as general increases in wages and
other expenses. As a percentage of net sales, selling, general and
15
<PAGE> 17
administrative expenses increased to 13.5% in the three months ended January 31,
1995 compared with 12.1% in the corresponding fiscal 1994 period.
Research and development expenses. Research and development expenses for
the three months ended January 31, 1995 increased 18.6% to $1.3 million compared
to $1.1 million for the same period for the prior fiscal year, primarily as a
result of several advanced technology photomask projects. However, as a
percentage of net sales, research and development expenses declined to 5.2% for
the three months ended January 31, 1995 compared to 6.0% in the corresponding
prior fiscal year period, reflecting increased net sales. The Company expects to
increase its research and development efforts.
Interest and other income, net. Interest and other income, net, for the
three months ended January 31, 1995 increased to $334,000 compared to $76,000
for the same period for the prior fiscal year due principally to increases in
interest income resulting from higher levels of funds available for investment,
coupled with higher prevailing interest rates. In addition, the Company had net
gains on the disposition of investments during the three months ended January
31, 1995.
Provision for income taxes. For the three months ended January 31, 1995
the Company provided Federal and state income taxes at an estimated combined
effective annual rate of approximately 37% as compared to 32% in the same period
for the prior fiscal year. The increase in the Company's estimated tax rate is
primarily due to a larger portion of income being subject to the 35% incremental
Federal income tax rate and a greater portion of the Company's income being
generated in California. For the three months ended January 31, 1994, the
Company recognized the cumulative effect of the adoption of SFAS 109, resulting
in a benefit of $237,000 or $0.02 per share.
Fiscal years ended October 31, 1994, 1993 and 1992
A significant portion of the changes in each category of the Company's
results of operations for fiscal 1994 as compared to the prior fiscal year is
attributable to the acquisition, on October 1, 1993, of the photomask
manufacturing operations and assets of TPI in Dallas, Texas. As a result of the
acquisition, Texas Instruments became the Company's largest customer in fiscal
1994.
Net sales. Net sales for fiscal 1994 increased 66.8% to $80.7 million
compared with net sales of $48.4 million in the prior fiscal year. The increase
is primarily attributable to the first full year of sales by the Company's new
Texas facility. Furthermore, the Company experienced stronger demand generally
throughout the year from its existing customer base as well as higher export
sales. Approximately 36% of the Company's net sales in fiscal 1994 was derived
from sales to Texas Instruments, and an additional 18% was derived from sales to
the Company's next four largest customers, no one of which accounted for more
than approximately 5% of net sales. Any loss of, or reduction in orders from any
of these customers, particularly Texas Instruments, could have a material
adverse effect on the Company's business and results of operations. See "Risk
Factors--Dependence on Major Customers." Net sales for fiscal 1993 represented
an increase of 17.1% over 1992 sales of $41.3 million. The increase in fiscal
1993 was attributable to various factors including sales, commencing October 1,
1993, from the Company's new Texas facility as well as sales from a company
which became a wholly-owned subsidiary in the second quarter of fiscal 1993.
Shipments to customers from existing facilities were also higher as a result of
stronger demand generally.
Cost of sales. In fiscal 1994, cost of sales increased 59.8% to $51.2
million compared to $32.0 million for the prior fiscal year principally as a
result of the increase in sales. However, as a percentage of sales, cost of
sales decreased to 63.4% compared with 66.3% in fiscal 1993. The decrease was
primarily due to the improved capacity utilization afforded by sales volume
increases and a more favorable product mix. Cost of sales for fiscal 1993
increased 18.1% to $32.0 million compared to $27.1 million for fiscal 1992. As a
percentage of net sales, cost of sales increased to 66.3% in fiscal 1993 from
65.7% in fiscal 1992. This was primarily due to business mix changes which
resulted in higher material costs, as well as higher overhead costs from
substantial renovations, improvements and technological enhancements completed
by the Company.
16
<PAGE> 18
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 59.8% to $10.5 million in fiscal 1994 compared
to $6.6 million for fiscal 1993. The increase was due to the Company's new Texas
operations, as well as a provision for higher employee incentive compensation
expense resulting from the Company's performance. In addition, the Company had
increases in staffing levels, coupled with general increases in wages and other
expenses. As a percentage of net sales, selling, general and administrative
expenses decreased to 13.0% for fiscal 1994 compared to 13.6% in the prior
fiscal year. Selling, general and administrative expenses in fiscal 1993
increased 14.5% to $6.6 million compared to $5.7 million for the prior fiscal
year. The increase was primarily attributable to higher personnel costs and the
addition of the Texas operations in October 1993. As a percentage of net sales,
selling, general and administrative expenses remained relatively flat in fiscal
1993 as compared to fiscal 1992.
Research and development expenses. Research and development expenses for
fiscal 1994 increased 72.7% to $4.7 million from $2.7 million for the prior
fiscal year primarily due to the Company's new Texas facility and the
commencement of several projects dealing with advanced technology photomasks. As
a percentage of net sales, such costs were largely unchanged from the prior
fiscal year. Research and development expenses increased 7.7% to $2.7 million in
fiscal 1993 compared to $2.5 million in fiscal 1992. Research and development
expenses declined slightly as a percentage of net sales, however, to 5.6% in
fiscal 1993 from 6.2% of net sales in fiscal 1992.
Interest and other income, net. For fiscal 1994, interest and other
income, net, increased to $1.1 million as compared to $445,000 for the prior
fiscal year. The increase resulted from capital gains on the disposition of
investments in the third and fourth quarters of fiscal 1994. There were no such
gains in fiscal 1993. Beginning October 31, 1994, unrealized gains on
investments are recorded as a separate component of total shareholders' equity.
See Notes 1 and 2 of Notes to Consolidated Financial Statements. Interest and
other income, net, in fiscal 1993 decreased to $445,000 from $851,000 for the
previous fiscal year. The decrease was primarily attributable to lower interest
income due to a shift to tax-favored investments, lower prevailing interest
rates and lower dividends earned.
Provision for income taxes. For fiscal 1994, the Company provided Federal
and state income taxes at an estimated combined effective annual tax rate of
34%. In the first quarter of fiscal 1994, the Company recognized the cumulative
effect of the adoption of SFAS 109. This adoption resulted in a benefit of
$237,000, or $0.02 per share, for fiscal 1994. The Company's effective income
tax rates for fiscal years 1993 and 1992 were 34% and 35%, respectively.
17
<PAGE> 19
QUARTERLY RESULTS
The following tables present unaudited quarterly consolidated financial
data for each of the nine quarters in the period ended January 31, 1995 and such
data as a percentage of net sales. This data has been prepared on a basis
consistent with the audited consolidated financial statements appearing
elsewhere in this Prospectus, and in the opinion of management, includes all
necessary adjustments (consisting only of normal recurring adjustments) to
present fairly the unaudited quarterly results when read in conjunction with the
audited consolidated financial statements of the Company and notes thereto
appearing elsewhere in this Prospectus. The results of operations for any
quarter are not necessarily indicative of results to be expected for any future
period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------------------------------
JANUARY 31, APRIL 30, JULY 31, OCTOBER 31, JANUARY 31, APRIL 30, JULY 31, OCTOBER 31, JANUARY 31,
1993 1993 1993 1993 1994 1994 1994 1994 1995
----------- --------- -------- ----------- ----------- --------- -------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales..... $11,279 $10,644 $ 11,665 $14,775 $18,857 $18,641 $ 21,313 $21,885 $26,176
Costs and
expenses:
Cost of
sales..... 7,625 7,042 7,638 9,743 12,525 12,177 13,096 13,406 16,417
Selling,
general
and
administrative. 1,523 1,502 1,720 1,835 2,274 2,259 3,088 2,896 3,543
Research and
development... 652 672 688 732 1,137 1,105 1,254 1,242 1,348
----------- --------- -------- ----------- ----------- --------- -------- ----------- -----------
Operating
income...... 1,479 1,428 1,619 2,465 2,921 3,100 3,875 4,341 4,868
Interest and
other
income,
net......... 152 121 140 32 76 95 405 488 334
----------- --------- -------- ----------- ----------- --------- -------- ----------- -----------
Income before
income
taxes....... 1,631 1,549 1,759 2,497 2,997 3,195 4,280 4,829 5,202
Provision for
income
taxes(1).... 556 527 598 847 722 1,084 1,515 1,644 1,935
----------- --------- -------- ----------- ----------- --------- -------- ----------- -----------
Net
income(1)... $ 1,075 $ 1,022 $ 1,161 $ 1,650 $ 2,275 $ 2,111 $ 2,765 $ 3,185 $ 3,267
========= ======= ======= ========= ========= ======= ======= ========= =========
Net income per
common
share(1).... $ 0.13 $ 0.13 $ 0.14 $ 0.19 $ 0.23 $ 0.21 $ 0.27 $ 0.31 $ 0.32
========= ======= ======= ========= ========= ======= ======= ========= =========
Weighted
average
number of
common
shares
outstanding
(000s)...... 7,942 8,262 8,240 8,802 9,938 10,034 10,098 10,180 10,256
========= ======= ======= ========= ========= ======= ======= ========= =========
PERCENTAGE OF
NET SALES:
Net sales..... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and
expenses:
Cost of
sales..... 67.6 66.2 65.5 65.9 66.4 65.3 61.4 61.3 62.7
Selling,
general
and
administrative. 13.5 14.1 14.7 12.4 12.1 12.1 14.5 13.2 13.5
Research and
development... 5.8 6.3 5.9 5.0 6.0 6.0 5.9 5.7 5.2
----------- --------- -------- ----------- ----------- --------- -------- ----------- -----------
Operating
income...... 13.1 13.4 13.9 16.7 15.5 16.6 18.2 19.8 18.6
Interest and
other
income,
net......... 1.3 1.1 1.2 0.2 0.4 0.5 1.9 2.2 1.3
----------- --------- -------- ----------- ----------- --------- -------- ----------- -----------
Income before
income
taxes....... 14.4 14.5 15.1 16.9 15.9 17.1 20.1 22.0 19.9
Provision for
income
taxes(1).... 4.9 4.9 5.1 5.7 3.8 5.8 7.1 7.5 7.4
----------- --------- -------- ----------- ----------- --------- -------- ----------- -----------
Net
income(1)... 9.5% 9.6% 10.0% 11.2% 12.1% 11.3% 13.0% 14.5% 12.5%
========= ======= ======= ========= ========= ======= ======= ========= =========
</TABLE>
---------------
(1) Includes a benefit of $237,000 ($.02 per share) for the three months ended
January 31, 1994 resulting from the cumulative effect of adoption of SFAS
109.
18
<PAGE> 20
Net sales have increased over the last two fiscal years, with significant
quarterly increases in net sales commencing in the fourth quarter of fiscal 1993
and in the first quarter of fiscal 1995 due primarily to the acquisition of the
Company's Texas operations in October 1993 and of the Sunnyvale operations in
December 1994, respectively. Cost of sales as a percentage of net sales
generally decreased in fiscal 1993 and fiscal 1994, from 67.6% in the first
quarter of fiscal 1993 to 61.3% in the fourth quarter of fiscal 1994, primarily
as a result of greater utilization of manufacturing capacity. Cost of sales as a
percentage of net sales increased to 62.7% in the first quarter of 1995,
primarily as a result of higher costs associated with the Sunnyvale operations.
In the past, the Company experienced fluctuations in its quarterly
operating results and it anticipates that such fluctuations will continue and
could intensify in the future. Operating results may fluctuate as a result of
many factors, including size and timing of orders and shipments, product mix,
sales of equipment (which have widely varying gross margins), technological
change, competition, loss of significant customers and general economic
conditions. The Company's customers generally order the Company's products on an
as-needed basis, and substantially all of the Company's net sales in any quarter
are dependent on orders received during that quarter. Since the Company operates
with a limited backlog and the rate of new orders may vary significantly from
month to month, the Company's capital expenditures and overhead expense levels
are based primarily on sales forecasts. Consequently, if anticipated sales and
shipments in any quarter do not occur when expected, capital expenditures and
overhead expense levels could be disproportionately high and the Company's
operating results would be adversely affected. In addition, substantially all of
the Company's net sales are derived from customers in the semiconductor
industry. This industry is highly cyclical and has been characterized by
periodic downturns, which in some cases have had severe effects on suppliers to
the industry. There can be no assurance that any of the foregoing factors will
not have a material adverse effect on the Company's business and results of
operations.
19
<PAGE> 21
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and short-term investments increased
$15.9 million during fiscal 1994. Operating activities contributed $21.0
million, and financing activities provided another $744,000. These increases in
liquidity were offset principally by cash used for deposits on and purchases of
property and equipment aggregating $6.2 million. The Company's cash, cash
equivalents and short-term investments decreased $6.0 million during the three
months ended January 31, 1995. During the first quarter, the Company utilized
cash of $7.4 million for the Micro Mask acquisition. Excluding the Micro Mask
acquisition, investing activities used cash totaling $3.3 million, principally
for deposits on and purchases of property and equipment, and financing
activities used an additional $328,000. These decreases in liquidity were offset
by $3.3 million of cash provided by operating activities after utilizing
approximately $2.0 million for initial working capital at the Sunnyvale site.
Accounts receivable were $9.8 million, $10.2 million and $15.3 million at
October 31, 1993 and 1994 and January 31, 1995, respectively. The increases in
receivables, at October 31, 1994 and at January 31, 1995, from the respective
preceding fiscal period ends reflected increased sales, particularly from the
new Sunnyvale operations in the three months ended January 31, 1995. Inventory,
which declined from $2.9 million at October 31, 1993 to $2.5 million at October
31, 1994, included several manufacturing systems held by the Company's
subsidiary Beta Squared, Inc. ("Beta") which were sold during fiscal 1994.
Inventories increased to $3.5 million at January 31, 1995 as a result of the
addition of the Sunnyvale facility.
Other current assets increased at October 31, 1994 from October 31, 1993
and at January 31, 1995 primarily as a result of increases in various prepaid
expenses because of the first full year of the Company's Texas operations,
together with assets acquired from several captive photomask operations.
Property, plant and equipment and intangible assets at October 31, 1994
decreased from October 31, 1993 due to normal depreciation and amortization,
offset by $4.4 million of fixed and intangible asset additions. Property, plant
and equipment and intangible assets at January 31, 1995 increased from October
31, 1994, principally due to the acquisition of $5.1 million of fixed assets and
$5.7 million of intangible assets in connection with the Micro Mask acquisition.
Other assets increased from October 31, 1993 to October 31, 1994, primarily due
to deposits on property and equipment purchases.
Investments increased from $1.4 million at October 31, 1993 to $11.1
million at October 31, 1994 as a result of unrealized gains recorded in
connection with the adoption of a new accounting principle. See Notes 1 and 2 of
Notes to Consolidated Financial Statements. Investments increased at January 31,
1995 from October 31, 1994 due to additional unrealized gains recorded in the
three months ended January 31, 1995 as a result of the increased fair value of
the Company's investments, net of dispositions, during the quarter.
Accounts payable decreased during fiscal 1994 primarily due to payment of
prior equipment purchases. Accrued salaries and wages increased from October 31,
1993 principally as a result of provisions for incentive and vacation pay
expense. Other accrued liabilities increased mainly due to expenses related to a
full year of the Company's new Texas operations, including commissions to TPI on
certain of those operations' sales. Current income taxes payable increased to
$567,000 due to the results of operations, the Company's tax estimates and its
normal income tax payment practices.
Accounts payable at January 31, 1995 increased from October 31, 1994
primarily due to the addition of the Sunnyvale operations and increased payables
related to equipment purchases. Accrued salaries and wages decreased from
October 31, 1994 principally as a result of the payment during the three months
ended January 31, 1995 of prior year incentive compensation. This decrease was
offset by the addition of the Sunnyvale operations and provisions for incentive
compensation for fiscal 1995. Other accrued liabilities at January 31, 1995
decreased from October 31, 1994 due to the payment, in the three months ended
January 31, 1995, of certain fiscal 1994 expenses, offset by increases resulting
from the addition of the Sunnyvale operations. Current income taxes payable
increased to $1.9 million
20
<PAGE> 22
due to the results of operations, the Company's tax estimates and its normal
income tax payment practices.
The current portion of long-term debt decreased at October 31, 1994 from
October 31, 1993 due to a balloon payment which was paid during fiscal 1994.
Long-term debt, less the current portion, declined due to regular debt
retirement requirements. Deferred income taxes increased by $4.5 million to $7.1
million at October 31, 1994. Of this increase, $4.1 million was provided on the
unrealized gains on investments. The balance of the increase in deferred taxes
resulted mainly from the increase in depreciation expense currently deductible
for income tax purposes but not yet deductible for financial reporting purposes.
Other liabilities increased primarily due to the acquisition by Beta of a
license from Texas Instruments related to plasma-based semiconductor
manufacturing equipment activities formerly conducted by Texas Instruments.
As a result of obligations incurred in connection with the Micro Mask
acquisition (including $3.0 million due in June 1995), net of a $400,000 balloon
payment which was paid, short-term debt and the current portion of long-term
debt increased by $2.6 million and long-term debt, less the current portion,
increased $1.4 million (net of imputed interest on the Micro Mask debt) during
the three months ended January 31, 1995. Deferred income taxes at January 31,
1995 increased $1.8 million from October 31, 1994 to $8.9 million largely due to
amounts provided on the unrealized gains on investments. See Notes 1 and 2 of
Notes to Consolidated Financial Statements.
The Company's commitments represent investments in additional manufacturing
capacity, as well as advanced equipment for research and development of the next
generation of high end, more complex photomasks. As of January 31, 1995, the
Company had commitments for the purchase or lease of property, plant and
equipment with an acquisition cost of approximately $24.4 million, of which
approximately $4.8 million had been paid at that date. Included in commitments
are $6.6 million related to the construction of the Company's new facility in
the Dallas area. Additional commitments for construction as well as the
relocation of the Company's current Texas operations and the proposed Singapore
operations will be incurred later in fiscal 1995.
The Company will use its working capital, bank credit lines, leasing
arrangements and the net proceeds of this offering to finance its capital
expenditures. The Company believes that the proceeds of this offering, together
with the currently available resources, are sufficient to satisfy its cash
requirements for the foreseeable future. The manufacture of photomasks requires
a significant investment in capital equipment. There can be no assurance that
the Company will be able to obtain any additional capital it may require on
reasonable terms or at all. See "Risk Factors--Future Capital Needs Uncertain."
In March 1995, the Company entered into a new unsecured revolving credit
facility that provides for borrowings of up to $10 million per year in each of
the next three years, subject to a carryover in the second and third year of up
to the lesser of $3 million and the amount of borrowing capacity not used in the
prior year. Such borrowings are convertible into term loans, payable in equal
quarterly installments over five years. The new facility provides for
essentially the same terms and conditions as the Company's previous revolving
credit agreement, including compliance with and maintenance of certain financial
covenants and ratios.
21
<PAGE> 23
BUSINESS
Photronics, Inc. ("Photronics" or the "Company") is a leading manufacturer
of photomasks, which are primarily used by the semiconductor industry in the
manufacture of integrated circuits. The Company's photomasks, which are high
precision photographic quartz plates containing microscopic images of electronic
circuits, are manufactured in Photronics' four manufacturing facilities in the
United States in accordance with circuit designs provided on a confidential
basis by its customers. The Company images circuit patterns onto photomasks
using laser-based or electron beam technologies and, to a lesser degree,
optical-based technologies.
INDUSTRY OVERVIEW
Photomasks are a key element in the manufacture of semiconductors and are
used as masters to transfer circuit patterns onto semiconductor wafers during
the fabrication of integrated circuits and, to a lesser extent, other types of
electrical components. Each circuit design consists of a series of separate
patterns, each of which is imaged onto a different photomask. The resulting
series of photomasks is then used to successively layer the circuit patterns
onto the semiconductor wafer.
The market for photomasks consists primarily of semiconductor manufacturers
and designers in the United States, Europe and Pacific Rim. According to
Dataquest, in 1994 worldwide semiconductor sales exceeded $100 billion. Based
upon industry estimates, in 1994 photomask sales exceeded $300 million in North
America.
Photomasks are manufactured by independent manufacturers and by captives,
which are semiconductor manufacturers that produce almost exclusively for their
own fabrication of integrated circuits. Since the mid-1980s, there has been in
the United States a trend towards the divestiture or closing of captive
photomask operations by semiconductor manufacturers. The Company believes this
trend was attributable to increasing capital requirements and costs related to
these operations, the presence of a cost-effective source of supply from
independent suppliers and a general desire by semiconductor manufacturers to
focus on core business matters. As a result, the share of the market served by
independents increased significantly. During the same period, due in part to
competitive pressures and increasing capital requirements, the number of
significant independent manufacturers decreased from approximately 12 in the
mid-1980s to four in 1994.
During the early 1990s, the total photomask market was relatively flat.
This resulted from a number of factors, including: (i) recessionary pressures on
the semiconductor industry; (ii) improvements in design technology, which
reduced the number of design iterations required to create a functioning
semiconductor design; and (iii) shortened photomask delivery cycles (sometimes
less than 24 hours), which reduced the need for back-up photomask sets. These
factors, along with excess available capacity, also led to competitive
pressures, forcing manufacturers to reduce prices.
Beginning in late 1993, independent manufacturers experienced increased
demand as a result of several factors. First, the Company believes that
semiconductor design activity increased due both to new generic semiconductor
designs and proliferating use of application-specific integrated circuits
("ASICs"), each of which requires a separate set of photomasks. Furthermore, as
the complexity of integrated circuits has increased, the number of photomasks
used in the manufacture of a single circuit also has increased. According to
industry statistics, a typical 16 Mb DRAM in production today utilizes 18 masks
compared to 14 masks for a 1 Mb DRAM. Finally, the Company believes factors that
adversely affected the photomask industry in the early 1990s were no longer
significantly affecting the growth in demand for photomasks.
22
<PAGE> 24
STRATEGY
The Company's strategy to expand its position as a leader in the
manufacture of photomasks consists of the following elements:
Ensure Strong Customer Relationships. Critical to the Company's position
as an industry leader is its focus on developing and maintaining high levels of
customer satisfaction. Because each photomask is specific to a particular
circuit design and customers expect rapid delivery, the Company believes that
consistency of product quality and timeliness of delivery are critical to its
success. The Company works closely with each customer to ensure that its
specific needs are properly reflected in the final product.
Maintain Technological Leadership. Maintaining technological leadership in
photomask manufacture is important to the Company's long term success. The
Company believes that it has established the critical mass necessary to support
the increased research and development efforts required by advancing
semiconductor manufacturing technology. The Company recently has invested in
several state-of-the-art manufacturing systems and is devoting significant
resources to the development of technologies for the manufacture of advanced
photomasks, including optical proximity correction and phase-shift photomasks.
Leverage Strategically Located Manufacturing Facilities. The Company
believes that in certain markets proximity to customers is an important
competitive factor. The Company has established multiple manufacturing
facilities in key locations to accelerate delivery times and respond to customer
demands. In addition, the Company currently is in the process of relocating its
Texas facility and establishing operations in Singapore.
Provide Global Solution. As the semiconductor industry becomes
increasingly global, the Company believes that it must be able to satisfy
customers' requirements in multiple markets throughout the world. The Company
has pursued strategic alliances with photomask manufacturers abroad and intends
to establish international manufacturing operations, including its proposed
Singapore operations, in order to achieve these objectives.
PRODUCTS AND SERVICES
The Company's photomasks are manufactured in accordance with circuit
designs provided on a confidential basis by its customers. Each circuit design
consists of a series of separate patterns, each of which is imaged onto a
different photomask. The resulting series of photomasks is then used by the
customer to successively layer the patterns onto a semiconductor wafer.
The Company currently manufactures photomasks using laser-based or electron
beam technologies and, to a lesser degree, optical-based technologies. A
laser-based or electron beam system is capable of producing the finer line
resolution, tighter overlay and larger die size for the larger and more complex
circuits currently being designed. Laser and electron beam generated photomasks
can be used with the most advanced processing techniques to produce very large
scale integrated circuit devices. Compared to laser or electron beam generated
photomasks, the production of photomasks by the optical method is less
expensive, but also less precise. The optical method is traditionally used on
less complex and lower priced photomasks. The Company currently owns a number of
ETEC CORE laser writing systems and ETEC MEBES electron beam systems and has
made commitments to purchase additional advanced systems and system upgrades to
maintain technological superiority. The ETEC CORE laser-based systems and the
ETEC MEBES electron beam systems are the predominant lithography systems used
for photomask manufacture.
The first several levels of photomasks frequently are required to be
delivered by the Company within 24 hours of receiving a customer's design. The
ability to manufacture high quality photomasks within short time periods is
dependent upon efficient manufacturing methods, high yields and high equipment
reliability. The Company has made significant investments in manufacturing and
data processing systems and statistical process control methods to optimize the
manufacturing process and reduce cycle times.
23
<PAGE> 25
Quality control is an integral part of the photomask manufacturing process.
Photomasks are manufactured in temperature, humidity and particulate controlled
cleanrooms because of the high level of precision, quality and yields required.
Each photomask is inspected several times during the manufacturing process to
ensure compliance with customer specifications. The Company has made a
substantial investment in equipment to inspect and repair photomasks and to
insure that customer specifications are met. After inspection and any necessary
repair, the Company utilizes technological processes to clean the photomasks
prior to shipment.
In addition to the manufacture of photomasks, the Company, through Beta,
manufactures, sells and services a wafer plasma etching system used in the
processing of semiconductor wafers. The system was developed by Texas
Instruments which licensed the right to manufacture and sell it to Beta. Beta
also sells refurbished semiconductor manufacturing equipment, engineering
services and replacement parts and field service for such equipment on a
third-party basis. Such activities represented less than 4% of the Company's net
sales during fiscal 1994.
SALES AND MARKETING
The Company conducts its marketing activities through a staff of full-time
sales personnel and customer service representatives who work closely with the
Company's general management and technical personnel. In addition to the sales
personnel at the Company's manufacturing facilities in Milpitas and Sunnyvale,
California, Brookfield, Connecticut and Dallas, Texas, the Company has sales
offices in Carlsbad, California, Fort Collins, Colorado, Jupiter, Florida,
Derry, New Hampshire, Raleigh, North Carolina, Beaverton, Oregon, Austin, Texas
and the United Kingdom.
The Company typically negotiates an established price for a customer's
orders based on the customer's specifications in order to expedite the placement
of individual purchase orders. Some of these prices may remain in effect for up
to one year. The Company also negotiates prices, and occasionally enters into
purchase arrangements, based on the understanding that, so long as the Company's
performance is competitive, the Company will receive a specified percentage of
that customer's photomask requirements. As part of the acquisition in October
1993 of operations in Texas, the Company assumed an agreement with Texas
Instruments, which continues until March 31, 2000 and provides that the Company
is Texas Instruments' principal photomask supplier so long as the Company's
price, quality, service and delivery are competitive. The agreement also
requires the Company to insure that prices charged to Texas Instruments are not
less favorable than those otherwise extended by the Company to other customers
with similar specifications, volume, delivery and other requirements.
In addition to sales to domestic customers, the Company has been marketing
its products in international markets. The Company has sub-contract
manufacturing arrangements in France and Taiwan, a sales representative in the
United Kingdom and arrangements with an independent sales representative in
Korea. The Company considers its presence in international markets important to
attracting new customers, to providing global solutions to existing customers
and to servicing certain customers' manufacturing foundries outside of the
United States, principally in the Pacific Rim.
24
<PAGE> 26
CUSTOMERS
The Company sells its products primarily to leading semiconductor
manufacturers, including the following:
Advanced Micro Devices, Inc.
Alliance Semiconductor Corp.
American Microsystems, Inc.
Analog Devices, Inc.
Atmel Corporation
Cypress Semiconductor Corporation
Harris Semiconductor
LSI Logic Corporation
Lattice Semiconductor Corporation
Micron Technology, Inc.
Motorola, Inc.
National Semiconductor Corporation
Orbit Semiconductor, Inc.
Raytheon Company
Silicon Systems, Inc.
Symbios Logic Inc. (formerly NCR Microelectronics)
Texas Instruments Incorporated
Toppan Printing Company, Ltd.
VLSI Technology, Inc.
Zilog, Inc.
Since 1987, the Company has expanded its customer base and in fiscal 1994
sold its products and services to approximately 225 customers. However, as a
result of the acquisition of the Texas operations in 1993, Texas Instruments has
become a more significant customer of the Company, representing approximately
36% of net sales in fiscal 1994, and the loss of Texas Instruments or a
significant decrease in the amount of the purchases by Texas Instruments from
the Company could have a material adverse effect on the business and results of
operations of the Company. An additional 18% of net sales in fiscal 1994 was
derived from sales to the Company's next four largest customers, no one of which
accounted for more than approximately 5% of net sales. Foreign sales accounted
for approximately 2% of the Company's net sales in fiscal 1992, 8% in fiscal
1993 and 13% in fiscal 1994. Current international customers include companies
in Taiwan, Singapore, the United Kingdom, Canada, Germany, Japan, Switzerland,
Italy and Australia.
RESEARCH AND DEVELOPMENT
The photomask industry has been and is expected to continue to be
characterized by technological change and evolving industry standards. In order
to remain competitive, the Company will be required to continually anticipate,
respond to and utilize changing technologies. The Company has an ongoing
research and development program which is intended to improve continually the
Company's level of technology and manufacturing efficiency. The Company has
increased its commitment to research and development activities and current
efforts include phase-shift and optical proximity correction photomasks for
advanced semiconductor manufacturing. The Company incurred expenses of $2.5
million, $2.7 million and $4.7 million for research and development in fiscal
1992, 1993 and 1994, respectively. In addition, the Company leverages the
investments in research and development made by its equipment and material
suppliers. See "Risk Factors--Technological Change."
While the Company believes that it possesses valuable proprietary
information, the Company does not believe that patents are a material factor in
the photomask manufacturing business and only holds one patent. The Company
relies on non-disclosure agreements with employees and vendors to protect its
proprietary processes. There can be no assurance that the Company's means of
protecting its proprietary rights will be adequate or that the Company's
competitors will not independently develop similar processes. In addition, there
can be no assurance that third parties will not claim that the Company's current
or future products infringe on their proprietary rights. Any such claim, with or
without merit, could result in costly litigation or might require the Company to
enter into licensing agreements. Such agreements, if required, may not be
available on terms acceptable to the Company or at all.
25
<PAGE> 27
MATERIALS AND SUPPLIES
Raw materials utilized by the Company generally include high precision
quartz plates, which are used as photomask blanks, primarily obtained from Hoya
and Toppan; pellicles, which are protective transparent cellulose membranes; and
electronic grade chemicals used in the manufacturing process. The Company has
established purchasing arrangements with each of Toppan and Hoya pursuant to
which the Company purchases substantially all of its photomask blanks from Hoya
and Toppan so long as their price, quality, delivery and service are
competitive. Any delays or quality problems in connection with significant raw
materials, in particular photomask blanks purchased from either Hoya or Toppan,
could cause delays in shipments of photomasks, which could adversely affect the
Company's business and results of operations. The fluctuation of exchange rates
with respect to prices of significant raw materials used in manufacturing also
could have a material adverse effect on the Company's business and results of
operations, although the Company has not experienced any such effect to date.
COMPETITION
The photomask industry is highly competitive, and most of the Company's
customers utilize more than one photomask supplier. In the United States, the
Company competes primarily with DuPont and, to a lesser extent, with other
smaller independent photomask suppliers. The Company also competes with
semiconductor manufacturers' captive photomask manufacturing operations. The
Company expects to face continued competition from these and other suppliers in
the future. DuPont, which has competed aggressively in the past, and certain
potential competitors in international markets have substantially greater
financial, technical, sales, marketing and other resources, as well as greater
name recognition, than the Company.
The Company's ability to compete primarily depends upon the consistency of
product quality and timeliness of delivery, as well as pricing, technical
capability and service. The Company also believes that proximity to customers is
an important competitive factor in certain markets. In the past, competition led
to pressure to reduce prices which, the Company believes, contributed to the
decrease in the number of independent manufacturers. There can be no assurance
that pressure to reduce prices will not continue.
EMPLOYEES
As of January 31, 1995, the Company employed a total of approximately 590
persons on a full-time basis, including 56 engaged in engineering, 416 in
manufacturing and technical services, 45 in sales, and 73 in administrative
activities. The Company believes that it offers competitive compensation and
other benefits and that its employee relations are good. None of the Company's
employees is represented by a union. The Company's success depends upon, in
part, key managerial, engineering and technical personnel, as well as its
ability to continue to attract and retain additional personnel. The loss of
certain key personnel could have a material adverse effect upon the Company's
business and results of operations. See "Risk Factors--Dependence on Management
and Technical Personnel."
PROPERTIES
The Company's principal executive offices are located in Jupiter, Florida.
The Company owns one of the buildings in which its Connecticut manufacturing
facility is located and leases a second building at that site. Both are modern
buildings of approximately 19,600 square feet and 20,000 square feet,
respectively. The building that is owned by the Company is subject to a mortgage
of approximately $520,000 as of January 31, 1995. The second building, which
houses service and manufacturing support functions and general administrative
staff, is leased by the Company until August 2004. The leased building is owned
by a partnership controlled by Constantine S. Macricostas, the Chairman of the
Board and Chief Executive Officer of the Company. The Company leases a parcel of
land contiguous to these buildings, under a lease which expires in November
2005, from an entity controlled by Mr.
26
<PAGE> 28
Macricostas. The foregoing leases are at fixed lease rates which were determined
by reference to fair market value rates at the beginning of the respective lease
terms.
The Company's Milpitas, California manufacturing facility is located in two
leased buildings aggregating approximately 49,000 square feet under leases which
expire in March 2001 and March 1996, respectively, subject in each case to one
five-year renewal option. The Company's Sunnyvale, California manufacturing
facility is located in three contiguous buildings owned by the Company with an
aggregate of approximately 40,000 square feet. The Company's manufacturing
facility in Texas currently is located in Dallas in a leased facility of
approximately 32,000 square feet under a lease with Texas Instruments which
expires in June 1995. The Company has purchased property in Allen, Texas, a
suburb of Dallas, and is constructing a facility of approximately 55,000 square
feet to relocate its operations. The Company also leases small amounts of office
and manufacturing space in Dallas, Texas, Carlsbad, California and Austin,
Texas.
Other than new manufacturing systems which have not yet been placed into
service, the Company believes it substantially utilized its facilities during
the 1994 fiscal year.
On December 1, 1994, the Company acquired substantially all of the assets
of Micro Mask, an independent photomask manufacturer with manufacturing
operations located in Sunnyvale, California. The transaction included the
purchase of land, buildings (described above), inventory and certain assets
other than cash and receivables. In addition, significant manufacturing systems
owned by Micro Mask were leased by the Company from Micro Mask. The acquisition
was financed with the Company's available cash reserves and involved the payment
of approximately $7.2 million in cash at closing and the obligation to pay $3.0
million and $1.8 million, without interest, six months and four years after the
closing, respectively. The lease of the manufacturing systems has terms ranging,
depending on the system leased, from 44 to 62 months, with the right to purchase
the leased system at its then fair market value at the expiration of the lease
period.
27
<PAGE> 29
MANAGEMENT
The names of the officers and directors of the Company are set forth below,
together with the positions held by each person in the Company and their ages as
of March 23, 1995. All officers are elected annually by the Board of Directors
and serve until their successors are duly elected and qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION
---------------------------- --- -----------------------------------------------
<S> <C> <C>
Constantine S. Macricostas 59 Chairman of the Board, Chief Executive Officer
and Director
Michael J. Yomazzo 52 President, Chief Operating Officer and Director
Jeffrey P. Moonan 39 Senior Vice President, General Counsel and
Secretary
Robert J. Bollo 50 Vice President--Finance and Chief Financial
Officer
David C. Heilman 56 Vice President--Sales and Marketing
Barry F. Hopkins 51 Vice President--California Operations
Jack P. Moneta 52 Vice President--Texas Operations
Walter M. Fiederowicz 48 Director
Joseph A. Fiorita, Jr. 50 Director
Masahiro Fujii 63 Director
</TABLE>
Constantine S. Macricostas, a founder of the Company, served as Treasurer
and Chief Financial Officer of the Company from 1974 until September 1987 and as
President from 1974 until November 1990. Mr. Macricostas also serves as a
Director of Nutmeg Federal Savings and Loan Association, Colonial Data
Technologies Corp., a distributor of telecommunications equipment, and of Orbit
Semiconductor, Inc., a semiconductor manufacturer and foundry.
Michael J. Yomazzo has served as President and Chief Operating Officer
since January 1994. From November 1990 until January 1994, he served as
Executive Vice President and Chief Financial Officer, and from July 1989 until
November 1990, he served as Senior Vice President--Finance and Planning.
Jeffrey P. Moonan has served as Senior Vice President since January 1994
and General Counsel and Secretary since July 1988. From July 1989 until January
1994, he served as Vice President--Administration.
Robert J. Bollo has served as Vice President--Finance and Chief Financial
Officer since November 1994. From August 1994 to November 1994, he served as
Director of Finance. From April 1992 to July 1994, he was a Principal of CFO
Associates, Inc., a financial management firm. Prior to April 1992, he was with
Kollmorgen Corporation, serving as a Vice President since January 1990 and
Controller and Chief Accounting Officer since February 1985.
David C. Heilman has served as Vice President--Sales and Marketing since
September 1993. Prior to joining the Company, he served in various capacities
for more than five years with DuPont, including as Executive Vice President and
Chief Operating Officer, Vice President, Sales and Marketing and most recently
as General Manager of DuPont's Kokomo, Indiana facility.
Barry F. Hopkins has served as Vice President--California Operations since
April, 1994. From February 1994 until April 1994, he served as Director of
California Operations. Prior to joining the Company he served in various
capacities for more than five years with DuPont, serving as the Manager of their
Rousset, France operation and, most recently, as General Manager of West Coast
Operations.
Jack P. Moneta has served as Vice President--Texas Operations since January
1994. From August 1992 to January 1994, he served as Director of Texas
Operations. He served in various capacities with
28
<PAGE> 30
International Business Machines Corporation for 25 years, including most
recently as the General Manager of IBM's U.S. photomask operations with overall
responsibility for coordinating IBM's worldwide photomask operations.
Walter M. Fiederowicz has served as chairman of Colonial Data Technologies
Corp., (a distributor of telecommunications equipment) since August 1994. From
January 1991 until July 1994, he held various positions, including executive
vice president and chairman and served as director of Conning and Company (the
parent company of an investment firm). From 1979 to December 1988, he was a
partner of the law firm of Cummings & Lockwood and from 1989 until September
1990, he was of counsel to such firm. Mr. Fiederowicz was chairman and director
of Covenant Mutual Insurance Company, a property and casualty insurance company
("Covenant"), from 1989 until March 1993, and was president and chief executive
officer of Covenant from 1989 until December 1992. Covenant was placed in
rehabilitation by the Insurance Commissioner of the State of Connecticut in 1993
and subsequently liquidated as a result of losses in connection with insurance
claims relating to Hurricane Andrew.
Joseph A. Fiorita, Jr. has been a partner in Fiorita, Kornhaas and Van
Houten, P.C., independent certified public accountants, for more than the past
five years.
Masahiro Fujii has served as Managing Director of Toppan since June 1993
and for five years prior to June 1993, he served as a director of such company.
Toppan is a diversified manufacturing company with operations in the printing
and electronics industries (including photomask manufacture).
29
<PAGE> 31
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information known to the Company
regarding the beneficial ownership of the Common Stock of Photronics, Inc. as of
March 1, 1995 and after giving effect to the offering. Information is presented
with respect to (i) shareholders owning five percent or more of the outstanding
Common Stock and (ii) the Selling Shareholders.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO SHARES BENEFICIALLY
OFFERING OWNED AFTER OFFERING
NAME AND ADDRESS OF --------------------- SHARES TO BE ---------------------
BENEFICIAL OWNER NUMBER PERCENT SOLD NUMBER PERCENT
----------------------------------- --------- ------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
Constantine S. Macricostas 2,421,291(1) 24.1% 242,500(1) 1,978,791 17.0%
1061 East Indiantown Road
Jupiter, Florida 33477
Constantine S. Macricostas 208,900 2.1 100,000 108,900 *
Personal Income Trust for the
benefit of George Macricostas
c/o Chemical Bank FSB, Trustee
205 Royal Palm Way
Palm Beach, Florida 33480
Constantine S. Macricostas 208,900 2.1 100,000 108,900 *
Personal Income Trust for the
benefit of Stephen Macricostas
c/o Chemical Bank FSB, Trustee
205 Royal Palm Way
Palm Beach, Florida 33480
Toppan Printing Co., Ltd 1,590,000 16.1 -- 1,590,000 13.9
1, Kanda Izumi-cho
Chiyoda-Ku
Tokyo, Japan 101
First Pacific Advisors, Inc.(2) 780,000 7.9 -- 780,000 6.8
11400 West Olympic Boulevard
Suite 1200
Los Angeles, California 90064
Michael J. Yomazzo 241,969(3) 2.4 59,100 182,869 1.6
1061 East Indiantown Road
Jupiter, Florida 33477
Jeffrey P. Moonan 76,875(4) * 25,000 51,875 *
1061 East Indiantown Road
Jupiter, Florida 33477
VLSI Technology, Inc. 7,500(5) * 7,500(5) -- *
1100 McKay Drive
San Jose, California 95131
</TABLE>
---------------
* Represents less than 1%.
(1) Includes (i) 417,800 shares owned by the Constantine S. Macricostas Personal
Income Trust for the benefit of George Macricostas and the Constantine S.
Macricostas Personal Income Trust for the benefit of Stephen Macricostas
(the "Personal Income Trusts"), from which Mr. Macricostas currently has the
right to receive income, and 260,907 shares owned by two other trusts for
the benefit of Mr. Macricostas' children from which Mr. Macricostas has the
right to receive certain distributions, (ii) 18,000 shares owned by Mr.
Macricostas' wife, as to which Mr. Macricostas disclaims beneficial
ownership, and (iii) 193,500 shares of Common Stock subject to currently
30
<PAGE> 32
exercisable stock options and 22,500 shares of Common Stock subject to
forfeiture under restricted stock award grants. Shares to be sold by Mr.
Macricostas do not include shares shown in the table as being sold by the
Personal Income Trusts.
(2) Information based upon Amendment No. 3 to Schedule 13G filed with the
Commission in February 1995.
(3) Includes (i) 94,350 shares of Common Stock subject to currently exercisable
stock options, (ii) 22,500 shares of Common Stock subject to forfeiture
under restricted stock award grants, (iii) 33,000 shares held by Mr.
Yomazzo's wife, and (iv) 3,510 shares owned by Mr. Yomazzo's children. Mr.
Yomazzo disclaims beneficial ownership of the shares held by his wife and
children.
(4) Includes (i) 65,625 shares of Common Stock subject to currently exercisable
stock options and (ii) 7,500 shares of Common Stock subject to forfeiture
under restricted stock award grants.
(5) Represents shares issuable upon exercise of a warrant.
Mr. Macricostas is Chairman of the Board, Chief Executive Officer and a
Director of the Company. Mr. Yomazzo is President, Chief Operating Officer and a
Director of the Company. Mr. Moonan is Senior Vice President, General Counsel
and Secretary of the Company.
VLSI Technology, Inc. was one of the Company's five largest customers in
fiscal 1994 and has an ongoing purchasing arrangement with the Company.
In October 1993, the Company sold 1,590,000 shares of Common Stock to
Toppan in connection with the Company's acquisition of the photomask
manufacturing business of TPI, a subsidiary of Toppan. Under the terms of the
stock purchase agreement, Toppan may not acquire additional shares of the
Company's Common Stock if, after such acquisition, Toppan beneficially will own
more than 19% of the Company's outstanding Common Stock. The Company has granted
Toppan certain demand and piggyback registration rights with respect to shares
of Common Stock owned by it commencing in 1996. The stock purchase agreement
restricts sales of Common Stock by Toppan until 1998 and grants to the Company
rights of first refusal with respect to proposed sales to unaffiliated third
parties, with certain exceptions. Such restrictions and rights of first refusal
terminate in 1998, or earlier if at any time Toppan owns less than 5% of the
Company's Common Stock or if certain other events occur. Under the stock
purchase agreement, the Company is required to use its best efforts to nominate
a director designated by Toppan for as long as it owns at least 1,500,000 shares
of Common Stock and such holdings represent at least 15% of the outstanding
shares of the Company's Common Stock on a fully diluted basis. Toppan is
required to vote all voting securities of the Company that Toppan beneficially
owns in favor of each nominee for election to the Board who has been recommended
by the Board. As a result of the sale of 1,465,900 shares of Common Stock by the
Company in this offering and the issuance of 91,500 shares of Common Stock upon
the exercise of options and a warrant by certain Selling Shareholders, Toppan
would own 13.9% of the Company's Common Stock.
31
<PAGE> 33
UNDERWRITING
The Underwriters named below, acting through their representatives,
Robertson, Stephens & Company, L.P., Prudential Securities Incorporated and
Needham & Company, Inc. (the "Representatives"), have severally agreed with the
Company and the Selling Shareholders, subject to the terms and conditions of the
Underwriting Agreement, to purchase the number of shares of Common Stock set
forth opposite their respective names below. The Underwriters are committed to
purchase and pay for all such shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
------------------------------------------------------------------ ---------
<S> <C>
Robertson, Stephens & Company, L.P. ..............................
Prudential Securities Incorporated................................
Needham & Company, Inc. ..........................................
---------
Total................................................... 2,000,000
========
</TABLE>
The Representatives have advised the Company and the Selling Shareholders
that the Underwriters propose to offer the shares of Common Stock to the public
at the public offering price set forth on the cover page of this Prospectus and
to certain dealers at such price less a concession of not in excess of $
per share, of which $ may be reallowed to other dealers. After the public
offering, the public offering price, concession and reallowance to dealers may
be varied by the Representatives. No such change shall change the amount of
proceeds to be received by the Company and the Selling Shareholders as set forth
on the cover page of this Prospectus.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to 300,000
additional shares of Common Stock, at the same price per share as the Company
and the Selling Shareholders will receive for the 2,000,000 shares that the
Underwriters have agreed to purchase. To the extent that the Underwriters
exercise such option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage of such additional shares that the
number of shares of Common Stock to be purchased by it shown in the above table
represents as a percentage of the 2,000,000 shares offered hereby. If purchased,
such additional shares will be sold by the Underwriters on the same terms as
those on which the 2,000,000 shares are being sold. The Underwriting Agreement
contains covenants of indemnity among the Underwriters, the Company and the
Selling Shareholders against certain civil liabilities, including liabilities
under the 1933 Act.
Each executive officer and director of the Company, and certain other
persons that beneficially own or have dispositive power over shares of the
Company's Common Stock, have agreed with the Representatives until 90 days from
the date of this Prospectus (the "Lock-Up Period"), subject to certain
exceptions, not to offer to sell, contract to sell, or otherwise sell, dispose
of, loan, pledge or grant any rights with respect to any shares of Common Stock,
any options to purchase any shares of Common Stock or any securities convertible
into or exchangeable for shares of Common Stock now owned by or hereafter
acquired directly by such holders or with respect to which they have or
hereafter acquire the power of disposition, without the prior written consent of
Robertson, Stephens & Company, which may, in its sole discretion and at anytime
without notice, release all or any portion of the securities subject to lock-up
agreements. In addition, the Company has agreed that during the Lock-Up Period,
the Company will not, without prior written consent of Robertson, Stephens &
Company, subject to certain exceptions, issue, sell, contract to sell or
otherwise dispose of, any shares of Common Stock, any options to purchase any
shares of Common Stock or any securities convertible
32
<PAGE> 34
into, exercisable for or exchangeable for shares of Common Stock other than the
Company's sales of shares in this offering.
The rules of the Commission generally prohibit the Underwriters and other
members of the selling group from making a market in the Company's Common Stock
during the "cooling-off" period immediately preceding the commencement of sales
in the offering. The Commission has, however, adopted an exemption from these
rules that permits passive market making under certain conditions. These rules
permit an Underwriter or other member of the selling group, if any, to continue
to make a market in the Company's Common Stock subject to the conditions, among
others, that its bid not exceed the highest bid by a market maker not connected
with the offering and that its net purchases on any one trading day not exceed
prescribed limits. Pursuant to these exemptions, certain Underwriters and other
members of the selling group, if any, may engage in passive market making in the
Company's Common Stock during the cooling-off period.
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon for the
Company by Reid & Priest LLP, New York, New York. Certain legal matters will be
passed upon for the Underwriters by Wilson, Sonsini, Goodrich & Rosati, P.C.,
Palo Alto, California.
EXPERTS
The consolidated financial statements as of October 31, 1993 and 1994 and
for each of the three years in the period ended October 31, 1994 included in
this Prospectus and the related financial statement schedule incorporated by
reference herein have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports appearing herein and incorporated by
reference herein. Such financial statements and financial statement schedule
have been included herein and incorporated by reference herein in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing.
The financial statements of Hoya Micro Mask, Inc. as of March 31, 1993 and
March 31, 1994, and for the years then ended, have been incorporated by
reference herein and in the Registration Statement in reliance upon the report
of KPMG Peat Marwick LLP, independent certified public accountants, and upon the
authority of said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement") under the 1933 Act, with respect to the
shares of Common Stock offered hereby. This Prospectus, which constitutes a part
of the Registration Statement, does not contain all of the information set forth
in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and such shares of Common Stock,
reference is hereby made to such Registration Statement and to the exhibits and
schedules thereto. The Company is subject to the informational requirements of
the 1934 Act, and, in accordance therewith, files reports, proxy statements, and
other information with the Commission. Such Registration Statement, reports,
proxy statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following
Regional Offices of the Commission: New York Regional Office, Seven World Trade
Center, 13th Floor, New York, New York 10048; and Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates.
33
<PAGE> 35
(This page intentionally left blank)
<PAGE> 36
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PHOTRONICS, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheet at October 31, 1993 and 1994 and unaudited at January 31,
1995................................................................................ F-3
Consolidated Statement of Earnings for the years ended October 31, 1992, 1993 and 1994
and the unaudited three months ended January 31, 1994 and 1995...................... F-5
Consolidated Statement of Shareholders' Equity for the years ended October 31, 1992,
1993 and 1994 and the unaudited three months ended January 31, 1995................. F-6
Consolidated Statement of Cash Flows for the years ended October 31, 1992, 1993 and
1994 and the unaudited three months ended January 31, 1994 and 1995................. F-7
Notes to Consolidated Financial Statements............................................ F-8
</TABLE>
F-1
<PAGE> 37
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Photronics, Inc.
Jupiter, Florida
We have audited the accompanying consolidated balance sheets of Photronics,
Inc. and its subsidiaries as of October 31, 1993 and 1994, and the related
consolidated statements of earnings, shareholders' equity and cash flows for
each of the three years in the period ended October 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of Photronics, Inc.
and its subsidiaries as of October 31, 1993 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
October 31, 1994 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1994
the Company changed its method of accounting for investments and income taxes.
As discussed in Note 14 to the consolidated financial statements, on March 20,
1995 the Company effected a three-for-two stock split. All applicable share and
per share amounts have been adjusted to reflect the stock split.
DELOITTE & TOUCHE LLP
Hartford, Connecticut
December 13, 1994 (except as to Note 14 which date is March 20, 1995)
F-2
<PAGE> 38
PHOTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 31,
----------------- JANUARY 31,
1993 1994 1995
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $ 8,226 $25,092 $ 17,361
Short-term investments...................................... 3,496 2,535 4,248
Accounts receivable (less allowance for doubtful accounts of
$115 in 1993, $135 in 1994 and $155 in 1995)............. 9,846 10,218 15,289
Inventories................................................. 2,906 2,469 3,505
Other current assets........................................ 1,102 2,140 2,449
------- ------- -----------
Total current assets................................ 25,576 42,454 42,852
Property, plant and equipment................................. 40,218 36,948 42,066
Intangible assets (less accumulated amortization of $423 in
1993, $1,117 in 1994 and $1,351 in 1995).................... 5,787 5,523 10,989
Investments................................................... 1,425 11,095 15,116
Other assets.................................................. 1,435 2,326 2,153
------- ------- -----------
$74,441 $98,346 $ 113,176
======= ======= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 39
PHOTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JANUARY 31,
OCTOBER 31, 1995
------------------- -----------
1993 1994 (UNAUDITED)
------- -------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt..... $ 646 $ 467 $ 3,034
Accounts payable.......................................... 5,465 5,053 7,695
Accrued salaries and wages................................ 1,341 2,615 1,942
Other accrued liabilities................................. 547 1,423 1,336
Income taxes payable...................................... -- 567 1,938
------- ------- -----------
Total current liabilities......................... 7,999 10,125 15,945
Long-term debt.............................................. 1,051 495 1,855
Deferred income taxes....................................... 2,553 7,077 8,854
Other liabilities........................................... 212 247 239
------- ------- -----------
Total liabilities................................. 11,815 17,944 26,893
------- ------- -----------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value, 2,000,000 shares
authorized, none issued and outstanding................ -- -- --
Common stock, $.01 par value, 10,000,000 shares authorized
in 1993 and 1994 and 20,000,000 shares authorized in
1995, 6,483,515 issued in 1993, 6,659,929 issued in
1994 and 10,002,416 issued in 1995..................... 65 67 100
Additional paid-in capital................................ 38,804 41,338 41,419
Retained earnings......................................... 24,002 34,338 37,605
Unrealized gains on investments........................... -- 5,608 8,020
Treasury stock, 91,000 shares in 1993 and 1994 and 136,500
shares in 1995, at cost................................ (245) (245) (245)
Deferred compensation on restricted stock................. -- (704) (616)
------- ------- -----------
Total shareholders' equity........................ 62,626 80,402 86,283
------- ------- -----------
$74,441 $98,346 $ 113,176
======= ======= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 40
PHOTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED OCTOBER 31, JANUARY 31,
------------------------------- -------------------
1992 1993 1994 1994 1995
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales................................ $41,305 $48,363 $80,696 $18,857 $26,176
Costs and expenses:
Cost of sales.......................... 27,142 32,048 51,204 12,525 16,417
Selling, general and administrative.... 5,746 6,580 10,517 2,274 3,543
Research and development............... 2,549 2,744 4,738 1,137 1,348
------- ------- ------- ------- -------
Operating income......................... 5,868 6,991 14,237 2,921 4,868
Interest income.......................... 866 547 568 89 248
Interest expense......................... (102) (101) (75) (21) (32)
Other income (expense), net.............. 87 (1) 571 8 118
------- ------- ------- ------- -------
Income before income taxes and
cumulative effect of change in
accounting
for income taxes....................... 6,719 7,436 15,301 2,997 5,202
Provision for income taxes............... 2,352 2,528 5,202 959 1,935
------- ------- ------- ------- -------
Income before cumulative effect of change
in accounting for income taxes......... 4,367 4,908 10,099 2,038 3,267
Cumulative effect of change in accounting
for income taxes....................... -- -- 237 237 --
------- ------- ------- ------- -------
Net income............................... $ 4,367 $ 4,908 $10,336 $ 2,275 $ 3,267
======= ======= ======= ======= =======
Net income per common share:
Income before cumulative effect of
change in accounting for income
taxes............................... $ 0.55 $ 0.59 $ 1.01 $ 0.21 $ 0.32
Cumulative effect of change in
accounting for income taxes......... -- -- 0.02 0.02 --
------- ------- ------- ------- -------
Net income............................. $ 0.55 $ 0.59 $ 1.03 $ 0.23 $ 0.32
======= ======= ======= ======= =======
Weighted average number of common shares
outstanding............................ 7,998 8,372 10,062 9,938 10,256
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 41
PHOTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
(INFORMATION AS OF JANUARY 31, 1995 AND FOR THE THREE MONTHS ENDED JANUARY 31,
1995 IS UNAUDITED)
<TABLE>
<CAPTION>
DEFERRED
COMPENSA-
COMMON STOCK ADDITIONAL UNREALIZED TION ON TOTAL
--------------- PAID-IN RETAINED GAINS ON TREASURY RESTRICTED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS INVESTMENTS STOCK STOCK EQUITY
------ ------ ---------- -------- ----------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at November 1, 1991....... 5,344 $ 53 $ 24,849 $14,727 $ -- $ (245) $ -- $39,384
Net income...................... -- -- -- 4,367 -- -- -- 4,367
Exercise of common stock
warrants and options.......... 37 1 259 -- -- -- -- 260
------ ------ ---------- -------- ----------- -------- ---------- -------------
Balance at October 31, 1992....... 5,381 54 25,108 19,094 -- (245) -- 44,011
Net income...................... -- -- -- 4,908 -- -- -- 4,908
Issuance of common stock related
to acquisition................ 1,060 11 13,398 -- -- -- -- 13,409
Sale of common stock through
employee stock option and
purchase plans................ 43 -- 298 -- -- -- -- 298
------ ------ ---------- -------- ----------- -------- ---------- -------------
Balance at October 31, 1993....... 6,484 65 38,804 24,002 -- (245) -- 62,626
Net income...................... -- -- -- 10,336 -- -- -- 10,336
Sale of common stock through
employee stock option and
purchase plans................ 124 1 1,478 -- -- -- -- 1,479
Restricted stock awards......... 52 1 1,056 -- -- -- (1,057) --
Amortization of restricted stock
to compensation expense....... -- -- -- -- -- -- 353 353
Cumulative effect of change in
accounting for investments.... -- -- -- -- 5,608 -- -- 5,608
------ ------ ---------- -------- ----------- -------- ---------- -------------
Balance at October 31, 1994....... 6,660 67 41,338 34,338 5,608 (245) (704) 80,402
Net income...................... -- -- -- 3,267 -- -- -- 3,267
Sale of common stock through
employee stock option and
purchase plans................ 8 -- 114 -- -- -- -- 114
Amortization of restricted stock
to compensation expense....... -- -- -- -- -- -- 88 88
Unrealized gains on
investments................... -- -- -- -- 2,412 -- -- 2,412
Three-for-two stock split....... 3,334 33 (33) -- -- -- -- --
------ ------ ---------- -------- ----------- -------- ---------- -------------
Balance at January 31, 1995....... 10,002 $100 $ 41,419 $37,605 $ 8,020 $ (245) $ (616) $86,283
====== ======== ========== ======== =========== ======== ========= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 42
PHOTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED OCTOBER 31, JANUARY 31,
------------------------------- -------------------
1992 1993 1994 1994 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income......................................... $ 4,367 $ 4,908 $10,336 $ 2,275 $ 3,267
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of property, plant
and equipment.................................. 5,182 5,538 7,953 2,009 2,069
Amortization of intangible assets................ 52 102 694 161 234
Gain on disposition of investments............... -- -- (831) -- (388)
Deferred income taxes............................ (142) 339 847 (229) (54)
Cumulative effect of change in accounting for in-
come taxes..................................... -- -- (237) (237) --
Other............................................ 213 355 403 -- 258
Changes in assets and liabilities, net of effects
of acquisitions:
Accounts receivable............................ 944 (4,911) (372) 466 (5,071)
Inventories.................................... (229) (292) 437 354 (156)
Other current assets........................... (713) 374 (533) (722) (141)
Accounts payable and accrued liabilities....... (427) 4,081 1,738 (1,971) 1,882
Income taxes payable........................... -- -- 567 1,131 1,371
------- ------- ------- ------- -------
Net cash provided by operating activities.......... 9,247 10,494 21,002 3,237 3,271
------- ------- ------- ------- -------
Cash flows from investing activities:
Acquisitions of photomask operations............. -- (5,308) -- -- (7,400)
Expenditures for property, plant and
equipment...................................... (11,664) (8,801) (4,123) (1,576) (1,308)
Deposits on equipment............................ (1,250) (1,367) (2,064) -- (656)
Proceeds from sale of property, plant
and equipment ................................. -- 322 23 -- --
Net change in short-term investments............. 5,910 3,535 961 1,087 (1,713)
Proceeds from sale of investments................ 901 -- 615 -- 410
Other............................................ (5) 25 (292) (6) (7)
------- ------- ------- ------- -------
Net cash used in investing activities.............. (6,108) (11,594) (4,880) (495) (10,674)
------- ------- ------- ------- -------
Cash flows from financing activities:
Repayment of long-term debt...................... (699) (644) (735) (161) (442)
Proceeds from issuance of common stock........... 260 298 1,479 158 114
------- ------- ------- ------- -------
Net cash provided by (used in) financing
activities....................................... (439) (346) 744 (3) (328)
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents...................................... 2,700 (1,446) 16,866 2,739 (7,731)
Cash and cash equivalents at beginning of period... 6,972 9,672 8,226 8,226 25,092
------- ------- ------- ------- -------
Cash and cash equivalents at end of period......... $ 9,672 $ 8,226 $25,092 $10,965 $17,361
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 43
PHOTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JANUARY 31, 1995 AND FOR THE THREE
MONTHS ENDED JANUARY 31, 1994 AND 1995 IS UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The accompanying consolidated financial statements include the accounts of
Photronics, Inc. and its subsidiaries. All significant intercompany balances and
transactions have been eliminated.
Cash Equivalents
Cash equivalents include all highly liquid investments purchased with an
original maturity of three months or less.
Investments
Investments with maturities greater than three months are considered
short-term investments and are carried at cost, which approximates market value.
The Company adopted Statement of Financial Accounting Standards No. 115
(SFAS 115), "Accounting for Certain Investments in Debt and Equity Securities,"
as of October 31, 1994. Under the provisions of SFAS 115, the Company's
"available-for-sale" debt and equity investments are carried at fair value.
Unrealized gains and losses, net of tax, are reported as a separate component of
Shareholders' Equity. Gains and losses are included in income when realized,
determined based on the disposition of specifically identified investments.
Prior to October 31, 1994, investments were carried at cost.
Inventories
Inventories, principally raw materials, are stated at the lower of cost,
determined under the first-in, first-out (FIFO) method, or market.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost less accumulated
depreciation. Repairs and maintenance as well as renewals and replacements of a
routine nature are charged to operations as incurred, while those which improve
or extend the lives of existing assets are capitalized. Upon sale or other
disposition, the cost of the asset and accumulated depreciation are eliminated
from the accounts, and any resulting gain or loss is reflected in income.
For financial reporting purposes, depreciation and amortization are
computed on the straight-line method over the estimated useful lives of the
related assets. Buildings and improvements are depreciated over 15 to 30 years,
machinery and equipment over 3 to 10 years and furniture, fixtures and office
equipment over 3 to 5 years. Leasehold improvements are amortized over the life
of the lease or the estimated useful life of the improvement, whichever is less.
For income tax purposes, depreciation is computed using various accelerated
methods and, in some cases, different useful lives than those used for financial
reporting.
Intangible Assets
Goodwill represents the excess of cost over fair value of assets acquired
and is being amortized on a straight-line basis over 15 to 20 years. Costs
allocated to sales, non-compete and technology
F-8
<PAGE> 44
PHOTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JANUARY 31, 1995 AND FOR THE THREE
MONTHS ENDED JANUARY 31, 1994 AND 1995 IS UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
agreements arising from business acquisitions and other intangible assets are
being amortized on a straight-line basis over the respective agreement periods
which range from 3 to 10 years. The future economic benefit of the carrying
value of goodwill is reviewed periodically and any change in its useful life or
impairment in its value would be recorded in the period so determined.
Income Taxes
The provision for income taxes is computed on the basis of consolidated
financial statement income. The Company adopted Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes,"
effective November 1, 1993. SFAS 109 requires an asset and liability approach
for financial reporting rather than the deferral method previously required.
Deferred income taxes reflect the tax effects of differences between the
carrying amounts of assets and liabilities for financial reporting and the
amounts used for income tax purposes. The cumulative effect of adopting SFAS 109
was an increase in income of $237, or $0.02 per share, for fiscal 1994 and the
three months ended January 31, 1994.
Net Income Per Common Share
Net income per common and common equivalent share is calculated using the
weighted average number of common and common equivalent shares outstanding
during each year. When dilutive, stock options and stock purchase warrants are
included as common equivalent shares using the treasury stock method. See Note
14, "Subsequent Events."
NOTE 2 -- INVESTMENTS
Short-term investments consist principally of municipal bond holdings and
money market and bond funds. It is the Company's policy to maintain a
diversified investment portfolio consisting of high quality financial
instruments in order to limit its credit exposure.
Other investments consist of equity securities of publicly traded
technology companies. The Company is a supplier to one of the investee
companies. Unrealized gains on investments were determined as follows:
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
1994 1995
----------- -----------
<S> <C> <C>
Fair value................................................. $11,095 $15,116
Cost....................................................... 1,342 1,168
----------- -----------
9,753 13,948
Income tax effect.......................................... 4,145 5,928
----------- -----------
Net unrealized gains....................................... $ 5,608 $ 8,020
========== =========
</TABLE>
F-9
<PAGE> 45
PHOTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JANUARY 31, 1995 AND FOR THE THREE
MONTHS ENDED JANUARY 31, 1994 AND 1995 IS UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 3 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------- JANUARY 31,
1993 1994 1995
-------- -------- -----------
<S> <C> <C> <C>
Land.............................................. $ 467 $ 900 $ 2,200
Buildings and improvements........................ 5,126 5,253 8,318
Machinery and equipment........................... 53,953 57,546 59,987
Leasehold improvements............................ 4,518 4,743 5,100
Furniture, fixtures and office equipment.......... 701 924 948
-------- -------- -----------
64,765 69,366 76,553
Less accumulated depreciation and amortization.... (24,547) (32,418) (34,487)
-------- -------- -----------
Property, plant and equipment..................... $ 40,218 $ 36,948 $ 42,066
======== ======== =========
</TABLE>
NOTE 4 -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
--------------- JANUARY 31,
1993 1994 1995
------ ---- -----------
<S> <C> <C> <C>
Acquisition indebtedness payable December 1, 1998, net
of interest of $431 imputed at 7.45%................. $ -- $ -- $ 1,369
Industrial development bonds secured by equipment,
payable in December 1994, with interest at 70% of
prime rate (6% at October 31, 1993 and 7.75% at
October 31, 1994).................................... 1,138 434 --
Industrial development mortgage note, secured by
building, with interest at 6.58%, payable through
November 2005........................................ 559 528 520
------ ---- -----------
1,697 962 1,889
Less current portion................................... 646 467 34
------ ---- -----------
Long-term debt......................................... $1,051 $495 $ 1,855
====== ==== =========
</TABLE>
The industrial development bonds were issued through the Connecticut
Development Authority and the proceeds were used for the purchase of equipment.
Under the terms of the agreements, a portion of the Company's property, plant
and equipment was pledged as collateral and the Company was required to comply
with certain financial covenants including maintaining certain financial ratios.
The bonds were also guaranteed by a significant shareholder of the Company.
At January 31, 1995, long-term debt matures as follows: 1996--$27;
1997--$38; 1998--$41; 1999--$1,413; years after 1999--$336.
At October 31, 1994, the Company maintained an unsecured revolving credit
agreement with a bank under which it could borrow up to $6.5 million in calendar
year 1994. Borrowings under such agreement were convertible into five-year term
loans payable in twenty equal consecutive quarterly
F-10
<PAGE> 46
PHOTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JANUARY 31, 1995 AND FOR THE THREE
MONTHS ENDED JANUARY 31, 1994 AND 1995 IS UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 4 -- LONG-TERM DEBT (CONTINUED)
installments. The Company was required to pay a commitment fee of 0.25% per
annum on the average unused amount of the available credit and had to comply
with certain financial covenants, including maintaining certain financial
ratios. At October 31, 1994, the Company had not borrowed any amounts under this
agreement. See Note 14, "Subsequent Events."
Cash paid for interest was $102, $101 and $75 in 1992, 1993 and 1994,
respectively, and $21 and $13 for the three months ended January 31, 1994 and
1995, respectively.
NOTE 5 -- SHAREHOLDERS' EQUITY
On October 1, 1993, the Company issued 1,590,000 shares of common stock as
part of the acquisition price for the assets and operations of Toppan
Printronics (USA), Inc. See Note 6, "Acquisition of Photomask Operations of
Toppan Printronics (USA), Inc."
In 1987, the Company issued warrants to acquire an aggregate of 240,000
shares of common stock at exercise prices which ranged from $4.53 to $6.40. In
1991, 210,000 warrants were exercised, and in 1992, the remaining 30,000
warrants were exercised.
Warrants to purchase 7,500 shares of common stock at $5.24 per share until
expiration on December 31, 1996, were issued in fiscal 1992 and were outstanding
and exercisable at October 31, 1994.
NOTE 6 -- ACQUISITION OF PHOTOMASK OPERATIONS OF TOPPAN PRINTRONICS (USA), INC.
In October 1993, the Company acquired the photomask manufacturing
operations and assets of Toppan Printronics (USA), Inc. ("TPI") located in
Dallas, Texas. The acquisition was financed through the issuance of 1,590,000
shares of common stock of the Company valued at $13.4 million, the payment of
$4.7 million in cash and the agreement to pay commissions on certain sales.
Additionally, the Company incurred $0.7 million in expenses in connection with
the acquisition. The operations and assets acquired encompassed a full service
state-of-the-art photomask manufacturing facility. Under the terms of the
agreement, the Company is required to pay TPI annual commissions of from 1% to
2.5% of sales over $3 million to Texas Instruments Incorporated, over a ten-year
period. Such commissions amounted to $0.3 million in 1994.
The acquisition was accounted for as a purchase and, accordingly, the
acquisition price was allocated to property, plant and equipment as well as
certain intangible assets based on relative fair value. The consolidated
statement of earnings includes the operating results of the acquisition of TPI's
operations from October 1, 1993, the effective date of the acquisition.
The following unaudited consolidated pro forma information reflects the
results of the Company's operations for each of the two years ended October 31,
1993 as though the purchase had been made as of the beginning of the year:
<TABLE>
<CAPTION>
1992 1993
------- -------
<S> <C> <C>
Net sales........................................................ $62,899 $72,046
Net income....................................................... 4,202 6,313
Net income per share............................................. $ 0.44 $ 0.64
</TABLE>
F-11
<PAGE> 47
PHOTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JANUARY 31, 1995 AND FOR THE THREE
MONTHS ENDED JANUARY 31, 1994 AND 1995 IS UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 6 -- ACQUISITION OF PHOTOMASK OPERATIONS OF TOPPAN PRINTRONICS (USA), INC.
(CONTINUED)
The pro forma results of operations are not necessarily indicative of the
actual operating results that would have occurred had the transaction been
consummated at the beginning of the year, or of the future operating results of
the combined companies.
NOTE 7--INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1992 1993 1994
------ ------ ------
<S> <C> <C> <C>
Current:
Federal................................................ $2,135 $1,877 $3,722
State.................................................. 359 312 633
------ ------ ------
2,494 2,189 4,355
------ ------ ------
Deferred:
Federal................................................ (129) 275 832
State.................................................. (13) 64 15
------ ------ ------
(142) 339 847
------ ------ ------
$2,352 $2,528 $5,202
====== ====== ======
</TABLE>
The provision for income taxes differs from the amount computed by applying
the statutory U.S. Federal income tax rate to income before taxes as a result of
the following:
<TABLE>
<CAPTION>
1992 1993 1994
------ ------ ------
<S> <C> <C> <C>
U.S. Federal income tax at statutory rate................ $2,284 $2,528 $5,255
State income taxes, net of Federal benefit............... 228 245 428
Tax benefits of tax exempt income........................ -- (141) (168)
Other, net............................................... (160) (104) (313)
------ ------ ------
$2,352 $2,528 $5,202
====== ====== ======
</TABLE>
F-12
<PAGE> 48
PHOTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JANUARY 31, 1995 AND FOR THE THREE
MONTHS ENDED JANUARY 31, 1994 AND 1995 IS UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 7--INCOME TAXES (CONTINUED)
The Company's net deferred tax liability consists of the following:
<TABLE>
<CAPTION>
NOVEMBER 1, OCTOBER 31, JANUARY 31,
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Deferred income tax liabilities:
Property, plant and equipment.............. $ 1,947 $ 3,072 $ 3,085
Investments................................ -- 4,145 5,928
Other...................................... 29 38 36
----------- ----------- -----------
Total deferred tax liability....... 1,976 7,255 9,049
----------- ----------- -----------
Deferred income tax assets:
Reserves not currently deductible.......... 197 445 490
Other...................................... 163 203 222
----------- ----------- -----------
Total deferred tax asset........... 360 648 712
----------- ----------- -----------
Net deferred tax liability.............. $ 1,616 $ 6,607 $ 8,337
=========== ========== =========
</TABLE>
Cash paid for income taxes was $2.1 million, $2.2 million and $3.7 million
in 1992, 1993 and 1994, respectively, and $19 and $567 for the three months
ended January 31, 1994 and 1995, respectively.
NOTE 8 -- EMPLOYEE STOCK PURCHASE AND OPTION PLANS
In March 1994, the shareholders approved the adoption of the 1994 Stock
Option Plan which includes provisions allowing for the award of qualified and
non-qualified stock options and the granting of restricted stock awards. A total
of 450,000 shares of common stock may be issued pursuant to options or
restricted stock awards granted under the Plan. Restricted stock awards do not
require the payment of any cash consideration by the recipient, but shares
subject to an award may be forfeited unless conditions specified in the grant
are satisfied.
The Company has adopted a series of other stock option plans under which
incentive and non-qualified stock options for a total of 1,350,000 shares of the
Company's common stock may be granted to employees and directors. All plans
provide that the exercise price may not be less than the fair market value of
the common stock at the date the options are granted and limit the maximum term
of options granted to a range of from five to ten years.
F-13
<PAGE> 49
PHOTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JANUARY 31, 1995 AND FOR THE THREE
MONTHS ENDED JANUARY 31, 1994 AND 1995 IS UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 8 -- EMPLOYEE STOCK PURCHASE AND OPTION PLANS (CONTINUED)
The following table summarizes activity under the stock option plans:
<TABLE>
<CAPTION>
EXERCISE
STOCK OPTIONS PRICES
------------- --------------
<S> <C> <C>
Balance at November 1, 1991.................................... 558,845 $ 1.83-10.50
Granted...................................................... 476,550 6.17- 8.17
Exercised.................................................... (25,575) 1.83- 3.50
Cancelled.................................................... (153,488) 1.83-10.50
-------------
Balance at October 31, 1992.................................... 856,332 1.83- 6.17
Granted...................................................... 155,400 7.50- 8.67
Exercised.................................................... (39,015) 1.83- 6.17
Cancelled.................................................... (8,100) 2.50- 6.17
-------------
Balance at October 31, 1993.................................... 964,617 1.83- 8.67
Granted...................................................... 247,650 10.17-14.83
Exercised.................................................... (166,017) 1.83- 8.67
Cancelled.................................................... (123,862) 6.17-13.42
-------------
Balance at October 31, 1994.................................... 922,388 1.83-14.83
Granted...................................................... 94,140 18.67
Exercised.................................................... (12,562) 3.50- 7.50
Cancelled.................................................... (17,438) 6.17-14.83
-------------
Balance at January 31, 1995.................................... 986,528 $ 1.83-18.67
============
</TABLE>
At October 31, 1994, 277,838 stock options were available for grant.
In 1994, restricted stock awards representing a total of 78,750 shares were
awarded to certain key employees. The market value of the grant amounted to $1.1
million at the date of grant and was charged to "Deferred Compensation on
Restricted Stock," a component of Shareholders' Equity. Such amount is amortized
as compensation expense over the three-year period during which the shares under
these awards are subject to forfeiture.
In 1992, the shareholders approved the Company's adoption of an Employee
Stock Purchase Plan (Purchase Plan), under which 300,000 shares of common stock
are reserved for issuance. The Purchase Plan enables eligible employees to
subscribe, through payroll deductions made over a twelve-month period, to
purchase shares of the Company's common stock at a purchase price equal to 85%
of the lower of the fair market value on the commencement date of the offering
and the last day of the twelve-month payment period. At October 31, 1994, 45,118
shares had been issued and 18,162 shares were subject to outstanding
subscriptions under the Purchase Plan.
NOTE 9--EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) Savings and Profit-Sharing Plan (the "Plan")
which covers all employees who have completed six months of service and are
eighteen years of age or older. Under the terms of the Plan, an employee may
contribute up to 15% of their compensation which will be matched
F-14
<PAGE> 50
PHOTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JANUARY 31, 1995 AND FOR THE THREE
MONTHS ENDED JANUARY 31, 1994 AND 1995 IS UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 9--EMPLOYEE BENEFIT PLANS (CONTINUED)
by the Company at 50% of the employee's contributions which are not in excess of
4% of the employee's compensation. Employee and employer contributions vest
fully upon contribution. Employer contributions amounted to $0.2 million, $0.2
million and $0.3 million in 1992, 1993 and 1994, respectively.
The Company maintains a cafeteria plan to provide eligible employees with
the option to receive non-taxable medical, dental, disability and life insurance
benefits. The cafeteria plan is offered to all active full-time employees and
their qualifying dependents. The Company's contribution amounted to $1.0 million
in 1992, $0.9 million in 1993 and $1.2 million in 1994.
NOTE 10--LEASES
The Company leases various real estate and equipment under non-cancelable
operating leases. Rental expense under such leases amounted to $1.1 million in
1992, $1.0 million in 1993, and $2.0 million in 1994. Included in such amounts
were $0.2 million in 1992, $0.1 million in 1993, and $0.1 million in 1994 to
affiliated entities, which are owned, in part, by certain significant
shareholders of the Company.
Future minimum lease payments under non-cancelable operating leases with
initial or remaining terms in excess of one year amounted to $3.6 million at
October 31, 1994, as follows:
<TABLE>
<S> <C> <C> <C>
1995......................... $631 1998......................... $ 449
1996......................... 576 1999......................... 431
1997......................... 456 Thereafter................... 1,056
</TABLE>
Included in such future lease payments are amounts to affiliated entities
of $0.1 million in each year from 1995 to 1999, and $0.6 million in years
thereafter.
NOTE 11--COMMITMENTS AND CONTINGENCIES
The Company and a significant shareholder have jointly guaranteed a loan
totaling approximately $0.7 million as of October 31, 1994, on certain real
estate which is being leased by the Company.
On October 27, 1994, the Company agreed to acquire certain assets of an
independent photomask manufacturer in Sunnyvale, California (see Note 13). In
addition, at October 31, 1994, the Company had commitments for the purchase or
lease of equipment with an acquisition cost of approximately $12.0 million and
against which approximately $2.0 million was paid in fiscal 1994.
Financial instruments that potentially subject the Company to credit risk
consist principally of trade receivables and temporary cash investments. The
Company sells its products primarily to manufacturers in the semiconductor and
computer industries in North America, Europe and Asia. Sales to customers in
California accounted for 52%, 50% and 36% of the Company's total net sales in
1992, 1993 and 1994, respectively. Foreign sales accounted for less than 2% of
sales in 1992, 8% in 1993 and approximately 13% in 1994. The Company's largest
single customer represented approximately 10% of total net sales in 1993 and 36%
in 1994. No single customer represented more than 10% of net sales in 1992. The
Company believes that the concentration of credit risk in its trade receivables
is substantially mitigated by the Company's ongoing credit evaluation process
and relatively short
F-15
<PAGE> 51
PHOTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JANUARY 31, 1995 AND FOR THE THREE
MONTHS ENDED JANUARY 31, 1994 AND 1995 IS UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 11--COMMITMENTS AND CONTINGENCIES (CONTINUED)
collection terms. The Company does not generally require collateral from
customers. The Company establishes an allowance for doubtful accounts based upon
factors surrounding the credit risk of specific customers, historical trends and
other information. Historically, the Company has not incurred any significant
credit related losses.
NOTE 12--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table sets forth certain unaudited quarterly financial data:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH YEAR
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
1993:
Net sales...................... $11,279 $10,644 $11,665 $14,775 $48,363
Gross profit................... 3,654 3,602 4,027 5,032 16,315
Net income..................... $ 1,075 $ 1,022 $ 1,161 $ 1,650 $ 4,908
Net income per share........... $ 0.13 $ 0.13 $ 0.14 $ 0.19 $ 0.59
1994:
Net sales...................... $18,857 $18,641 $21,313 $21,885 $80,696
Gross profit................... 6,332 6,464 8,217 8,479 29,492
Net income..................... $ 2,275(1) $ 2,111 $ 2,765 $ 3,185 $10,336(1)
Net income per share........... $ 0.23(1) $ 0.21 $ 0.27 $ 0.31 $ 1.03(1)
</TABLE>
---------------
(1) Includes a benefit of $237 ($0.02 per share) resulting from the cumulative
effect of adoption of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
NOTE 13--ACQUISITION OF PHOTOMASK OPERATIONS OF HOYA MICRO MASK, INC.
On December 1, 1994, the Company acquired certain assets held by Hoya Micro
Mask, Inc. ("Micro Mask"), an independent photomask manufacturer with
manufacturing operations located in Sunnyvale, California. The transaction
included the purchase of the land, buildings, inventory and certain assets other
than cash and receivables. In addition, significant manufacturing systems owned
by Micro Mask were leased by the Company from Micro Mask. The acquisition was
financed through available cash reserves and involved the payment of
approximately $7.2 million in cash at closing and the obligation to pay $3.0
million and $1.8 million, without interest, six months and four years after the
closing, respectively. The operating lease of the significant manufacturing
systems has a term ranging from 44 to 62 months and includes the right to
purchase the systems at fair market value at the end of the lease.
The acquisition was accounted for as a purchase and, accordingly, the
acquisition price was allocated to property, plant and equipment as well as
certain intangible assets based on relative fair value. Certain items and
contingencies with respect to the acquisition are still pending and additional
costs may be incurred which could affect the final purchase price.
The consolidated statement of earnings includes the operating results of
Micro Mask's operations from December 1, 1994. The consolidated results of the
Company's operations on a pro forma basis
F-16
<PAGE> 52
PHOTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JANUARY 31, 1995 AND FOR THE THREE
MONTHS ENDED JANUARY 31, 1994 AND 1995 IS UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 13--ACQUISITION OF PHOTOMASK OPERATIONS OF HOYA MICRO MASK, INC.
(CONTINUED)
(unaudited) for the year ended October 31, 1994, as though the purchase had been
made as of the beginning of the year, would have reflected sales of
approximately $106 million and net income of approximately $11 million, or $1.10
per common share before the change in accounting for income taxes. The pro forma
results of operations are not necessarily indicative of the actual operating
results that would have occurred had the transaction been consummated at the
beginning of the year, or of the future operating results of the combined
companies.
As a result of the Micro Mask transaction, the Company is committed to
additional future minimum lease payments aggregating $11.8 million under
non-cancelable operating leases (see Note 10) of $2.5 million in 1995, $2.7
million in 1996 and 1997, $2.4 million in 1998, $1.2 million in 1999 and $0.3
million in 2000.
NOTE 14--SUBSEQUENT EVENT
In January 1995, the Company's Board of Directors approved a three-for-two
stock split which became effective on March 20, 1995. On March 16, 1995, the
shareholders approved an amendment to the Company's Certificate of Incorporation
increasing the number of common shares, $.01 par value, which the Company is
authorized to issue from 10 million shares to 20 million shares. Shareholders of
record on March 20, 1995 received three shares of commons stock for each two
they owned on that date. A total of 3.3 million shares were issued in connection
with the stock split which was effected in the form of a dividend. The
accompanying financial statements have been adjusted to give effect to the stock
split as though it had taken place in the first quarter of 1995. All applicable
share and per share data reflected in the financial statements have been
adjusted to reflect the stock split.
In March 1995, the Company entered into a new unsecured revolving credit
facility that provides for borrowings of up to $10 million per year in each of
the next three years, subject to a carryover in the second and third year of up
to the lesser of $3 million and the amount of borrowing capacity not used in the
prior year. Such borrowings are convertible into term loans, payable in equal
quarterly installments over five years. The new facility provides for
essentially the same terms and conditions as the Company's previous revolving
credit agreement, including compliance with and maintenance of certain financial
covenants and ratios.
F-17
<PAGE> 53
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<PAGE> 55
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<PAGE> 56
Inside Back Cover
* * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* *
* *
* *
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* Person sitting at machine *
* console *
* *
* *
* *
* *
* * * * * * * * * * * * * * * * * * * * * * * * * * * * *
Demand for photomasks is driven both * * * * * * * * * * * * * * *
by semiconductor design activity and the * *
increase in the complexity of integrated * *
circuits. As the complexity of integrated * *
circuits has increased, the number of * Rendering of an *
photomasks used in the manufacture of * integrated *
a single circuit has also increased. * circuit *
* *
* *
* *
* *
* * * * * * * * * * * * * * *
32 BIT MICROPROCESSOR
16 PHOTOMASK LEVELS
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * *
* * * *
* * * *
* Rendering of an * * Rendering of an *
* integrated * * integrated *
* circuit * * circuit *
* * * *
* * * *
* * * *
* * * *
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
256 MB DRAM 64 MB DRAM
27 PHOTOMASK LEVELS 23 PHOTOMASK LEVELS
<PAGE> 57
[LOGO]
PHOTRONICS
<PAGE> 58
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses in connection with the issuance and distribution of the
securities being registered, other than underwriting discounts and commissions,
are:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............... $ 18,737
NASD filing fee................................................... 5,934
Legal fees and expenses........................................... 80,000
Accounting fees and expenses...................................... 65,000
Blue Sky fees and expenses (including fees of counsel)............ 15,000
Printing and engraving fees....................................... 50,000
Miscellaneous..................................................... 15,329
--------
Total........................................................ $250,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Connecticut Stock Corporation Act (the "Act") provides for
indemnification of directors, officers, shareholders, employees and agents of a
corporation. Under the Act, a corporation is required to indemnify a director
against judgments and other expenses of litigation when he is sued by reason of
his being a director in any proceeding brought, other than on behalf of the
corporation, if a director is successful on the merits in defense, or acted in
good faith and in a manner reasonably believed to be in the best interests of
the corporation, or in a criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful. In a proceeding brought on behalf of a
corporation (a derivative action), a director is entitled to be indemnified by
the corporation for reasonable expenses of litigation, if the director is
finally adjudged not to have breached his duty to the corporation. In addition,
a director is entitled to indemnification for both derivative and non-derivative
actions, if a court determines, upon application, that the director is fairly
and reasonably entitled to be indemnified.
Article Ninth of the Company's Certificate of Incorporation limits
directors' monetary liability for actions or omissions made in good faith, which
are later determined to be a breach of their duty as directors of the Company.
Article Ninth does not eliminate or limit a director's liability for breaches of
fiduciary duty for actions or omissions which (i) involved a knowing and
culpable violation of law; (ii) enabled a director or an associate (as defined
in the Act) to receive an improper personal economic gain; (iii) showed a lack
of good faith and conscious disregard for his duty as a director under
circumstances where the director was aware that his actions created an
unjustifiable risk of serious injury to the Company; (iv) constituted a
sustained and unexcused pattern of inattention that amounted to an abdication of
his duty; or (v) involved the improper distribution of Company assets to its
shareholders or an improper loan to an officer, director or 5% shareholder.
Article Ninth also does not preclude suits for equitable relief, such as an
injunction, nor would it shield directors from liability for violations of the
federal securities laws. Moreover, Article Ninth does not limit the liability of
directors for any act or omission that occurred prior to the date the Article
became effective and does not limit the potential liability of officer-directors
in their capacity as officers.
The Company has purchased directors' and officers' liability insurance
covering certain liabilities incurred by its directors in connection with the
performance of their duties.
The Underwriting Agreement filed herewith as Exhibit 1 contains provisions
by which the Underwriters agree to indemnify the Company, each person who
controls the Company within the
II-1
<PAGE> 59
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, each
director of the Company, and each officer of the Company who signs this
Registration Statement with respect to information furnished in writing by the
Underwriters for use in the Registration Statement.
ITEM 16. EXHIBITS.
<TABLE>
<S> <C> <C>
1. -- Proposed form of Underwriting Agreement.
4. -- Form of Stock Certificate.(1)
5. -- Opinion of Reid & Priest LLP.
23(a). -- Consent of Deloitte & Touche LLP.
23(b). -- Consent of Reid & Priest LLP (Included in Exhibit 5).
23(c). -- Consent of KPMG Peat Marwick LLP.
24. -- Power of Attorney. (Included at page II-4).
</TABLE>
---------------
(1) Filed as an exhibit to the Company's Registration Statement on Form S-1,
File Number 33-11694, which was declared effective by the Commission on
March 10, 1987, and incorporated herein by reference.
ITEM 17. UNDERTAKINGS.
(a) 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.
(b) The undersigned Registrant hereby undertakes:
(1) That 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 of 1933 shall be deemed
to be part of this registration statement as of the time it was declared
effective.
(2) That 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.
(c) The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the Prospectus, to each person to whom the Prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the Prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the Prospectus, to deliver, or
cause to be delivered to each person to whom the Prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the Prospectus to provide such interim financial information.
II-2
<PAGE> 60
(d) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement 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-3
<PAGE> 61
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Brookfield, State of Connecticut, on the 23rd day of
March, 1995.
PHOTRONICS, INC.
By /s/ CONSTANTINE S. MACRICOSTAS
------------------------------------
Constantine S. Macricostas,
Chairman of the Board and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Michael J. Yomazzo and Jeffrey P. Moonan, and
each of them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, to act, without the other, for him and in his
name, place and stead, in any and all capacities, to sign any or all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, their substitute or substitutes may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
------------------------------------------ --------------------------------- ---------------
<S> <C> <C>
/s/ CONSTANTINE S. MACRICOSTAS Chairman of the Board of March 23, 1995
------------------------------------------ Directors, Chief Executive
Constantine S. Macricostas Officer and Director (Principal
Executive Officer)
/s/ MICHAEL J. YOMAZZO President and Director March 23, 1995
------------------------------------------
Michael J. Yomazzo
/s/ ROBERT J. BOLLO Vice President/Finance Chief March 23, 1995
------------------------------------------ Financial Officer (Principal
Robert J. Bollo Financial and Accounting Officer)
/s/ WALTER M. FIEDEROWICZ Director March 23, 1995
------------------------------------------
Walter M. Fiederowicz
</TABLE>
II-4
<PAGE> 62
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
------------------------------------------ --------------------------------- ---------------
<S> <C> <C>
/s/ JOSEPH A. FIORITA, JR. Director March 23, 1995
------------------------------------------
Joseph A. Fiorita, Jr.
/s/ MASAHIRO FUJII Director March 23, 1995
------------------------------------------
Masahiro Fujii
</TABLE>
II-5
<PAGE> 63
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
------ ------------------------------------------------------------------------ ------------
<S> <C> <C> <C>
1. -- Proposed form of Underwriting Agreement. ...............................
4. -- Form of Stock Certificate.(1)...........................................
5. -- Opinion of Reid & Priest LLP. ..........................................
23(a). -- Consent of Deloitte & Touche LLP. ......................................
23(b). -- Consent of Reid & Priest LLP (Included in Exhibit 5). ..................
23(c). -- Consent of KPMG Peat Marwick LLP. ......................................
24. -- Power of Attorney. (Included at page II-4). ............................
</TABLE>
---------------
(1) Filed as an exhibit to the Company's Registration Statement on Form S-1,
File Number 33-11694, which was declared effective by the Commission on
March 10, 1987, and incorporated herein by reference.
<PAGE> 1
Exhibit 1
2,000,000 Shares(1)
PHOTRONICS, INC.
Common Stock
UNDERWRITING AGREEMENT
April __, 1995
ROBERTSON, STEPHENS & COMPANY, L.P.
PRUDENTIAL SECURITIES INCORPORATED
NEEDHAM & COMPANY, INC.
As Representatives of the several Underwriters
c/o Robertson, Stephens & Company, L.P.
555 California Street
Suite 2600
San Francisco, California 94104
Ladies/Gentlemen:
Photronics, Inc., a Connecticut corporation (the "Company"), and certain
shareholders of the Company named in Schedule B hereto (hereafter called the
"Selling Shareholders") address you as the Representatives of each of the
persons, firms and corporations listed in Schedule A hereto (herein collectively
called the "Underwriters") and hereby confirm their respective agreements with
the several Underwriters as follows:
1. Description of Shares. The Company proposes to issue and sell
1,465,900 shares of its authorized and unissued Common Stock, par value $.01 per
share, to the several Underwriters. The Selling Shareholders, acting severally
and not jointly, propose to sell an aggregate of 534,100 shares of the Company's
authorized and outstanding Common Stock to the several Underwriters. The
1,465,900 shares of Common Stock, par value $.01 per share, of the Company to be
sold by the Company are hereinafter called the "Company Shares" and the 534,100
shares of Common Stock, par value $.01 per share, to be sold by the Selling
Shareholders are hereinafter called the "Selling Shareholder Shares." The
Company Shares and the Selling Shareholder Shares are hereinafter collectively
referred to as the "Firm Shares." The Company also proposes to grant to the
Underwriters an option to purchase up to 300,000 additional shares of the
Company's Common Stock, par value $.01 per share, (the "Option Shares"), as
provided in Section 7 hereof. As used in this Agreement, the term "Shares" shall
include the Firm Shares and the Option Shares. All shares of Common Stock, par
value $.01 per share of the Company to be outstanding after giving effect to the
sales contemplated hereby, including the Shares, are hereinafter referred to as
"Common Stock."
2. Representations, Warranties and Agreements of the Company and the
Selling Shareholders.
I. The Company represents and warrants to and agrees with each
Underwriter and each Selling Shareholder that:
------------------
(1) Plus an option to purchase up to 300,000 additional shares from the
Company to cover over-allotments.
<PAGE> 2
(a) A registration statement on Form S-3 (File No.
33-________________) with respect to the Shares, including a prospectus subject
to completion, has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
applicable rules and regulations (the "Rules and Regulations") of the Securities
and Exchange Commission (the "Commission") under the Act and has been filed with
the Commission; such amendments to such registration statement and such amended
prospectuses subject to completion as may have been required prior to the date
hereof have been similarly prepared and filed with the Commission; and the
Company will file such additional amendments to such registration statement and
such amended prospectuses subject to completion as may hereafter be required.
Copies of such registration statement and amendments and of each related
prospectus subject to completion (the "Preliminary Prospectuses"), including all
documents incorporated by reference therein, have been delivered to you. The
Company and the transactions contemplated by this Agreement meet the
requirements for using Form S-3 under the Act.
If the registration statement relating to the Shares has been
declared effective under the Act by the Commission, the Company will prepare and
promptly file with the Commission the information omitted from the registration
statement pursuant to Rule 430A(a) of the Rules and Regulations pursuant to
subparagraph (1) or (4) of Rule 424(b) of the Rules and Regulations or as part
of a post-effective amendment to the registration statement (including a final
form of prospectus). If the registration statement relating to the Shares has
not been declared effective under the Act by the Commission, the Company will
prepare and promptly file an amendment to the registration statement, including
a final form of prospectus. The term "Registration Statement" as used in this
Agreement shall mean such registration statement, including financial
statements, schedules and exhibits, in the form in which it became or becomes,
as the case may be, effective (including, if the Company omitted information
from the registration statement pursuant to Rule 430A(a) of the Rules and
Regulations, the information deemed to be a part of the registration statement
at the time it became effective pursuant to Rule 430A(b) of the Rules and
Regulations) and, in the event of any amendment thereto after the effective date
of such registration statement, shall also mean (from and after the
effectiveness of such amendment) such registration statement as so amended. The
term "Prospectus" as used in this Agreement shall mean the prospectus relating
to the Shares as included in such Registration Statement at the time it becomes
effective (including, if the Company omitted information from the Registration
Statement pursuant to Rule 430A(a) of the Rules and Regulations, the information
deemed to be a part of the Registration Statement at the time it became
effective pursuant to Rule 430A(b) of the Rules and Regulations), except that if
any revised prospectus shall be provided to the Underwriters by the Company for
use in connection with the offering of the Shares that differs from the
prospectus on file with the Commission at the time the Registration Statement
became or becomes, as the case may be, effective (whether or not such revised
prospectus is required to be filed with the Commission pursuant to Rule
424(b)(3) of the Rules and Regulations), the term "Prospectus" shall refer to
such revised prospectus from and after the time it is first provided to the
Underwriters for such use. Any reference to the Registration Statement or the
Prospectus shall be deemed to refer to and include the documents incorporated by
reference therein pursuant to Item 12 of Form S-3 under the Act, as of the date
of the Registration Statement or the Prospectus, as the case may be, and any
reference to any amendment or supplement to the Registration Statement or the
Prospectus shall be deemed to refer to and include any documents filed after
such date under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), which, upon filing, are incorporated by reference therein, as required by
paragraph (b) of Item 12 of Form S-3. As used in this Agreement, the term
"Incorporated Documents" means the documents which at the time are incorporated
by reference in the Registration Statement, the Prospectus or any amendment or
supplement thereto.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus or instituted proceedings for that
purpose, and each such Preliminary Prospectus has conformed in all material
respects to the requirements of the Act and the Rules and Regulations and, as of
its date, has not included any untrue statement of a material fact or omitted to
state a material fact
[2]
<PAGE> 3
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and at the time the Registration
Statement became or becomes, as the case may be, effective and at all times
subsequent thereto up to and on the Closing Date (hereinafter defined) and on
any later date on which Option Shares are to be purchased, (i) the Registration
Statement and the Prospectus, and any amendments or supplements thereto,
contained and will contain all material information required to be included
therein by the Act and the Rules and Regulations and will in all material
respects conform to the requirements of the Act and the Rules and Regulations,
(ii) the Registration Statement, and any amendments or supplements thereto, did
not and will not include any 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 not misleading, and (iii) the Prospectus, and any amendments
or supplements thereto, did not and will not include any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that none of the representations and warranties
contained in this subparagraph (b) shall apply to information contained in or
omitted from the Registration Statement or Prospectus, or any amendment or
supplement thereto, in reliance upon, and in conformity with, written
information relating to any Underwriter furnished to the Company by such
Underwriter specifically for use in the preparation thereof.
The Incorporated Documents heretofore filed, when they were filed (or,
if any amendment with respect to any such document was filed, when such
amendment was filed), conformed in all material respects with the requirements
of the Exchange Act and the rules and regulations of the Commission thereunder;
any further Incorporated Documents so filed will, when they are filed, conform
in all material respects with the requirements of the Exchange Act and the rules
and regulations of the Commission thereunder; no Incorporated Document when it
was filed (or, if an amendment with respect to any such document was filed, when
such amendment was filed), contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; and no such further Incorporated
Document or amendment, when they are filed, will contain any 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 not misleading.
(c) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation with full power and authority
(corporate and other) to own, lease and operate its properties and conduct its
business as described in the Prospectus; the Company owns all of the outstanding
capital stock of its subsidiaries free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest; each of the Company and its
subsidiaries is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which the ownership or leasing of its
properties or the conduct of its business requires such qualification, except
where the failure to be so qualified or be in good standing would not have a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise; no proceeding has been instituted in any such
jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or
curtail, such power and authority or qualification; each of the Company and its
subsidiaries is in possession of and operating in compliance with all
authorizations, licenses, certificates, consents, orders and permits from state,
federal and other regulatory authorities which are material to the conduct of
its business, all of which are valid and in full force and effect; neither the
Company nor any of its subsidiaries is in violation of its respective charter or
bylaws or in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any material bond,
debenture, note or other evidence of indebtedness, or in any material lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint venture or
other agreement or instrument to which the Company or any of its subsidiaries is
a party or by which it or any of its subsidiaries or their respective properties
may be bound; and neither the Company nor any of its subsidiaries is in material
violation of any law, order, rule, regulation, writ, injunction, judgment or
decree of any court, government or governmental agency or body,
[3]
<PAGE> 4
domestic or foreign, having jurisdiction over the Company or any of its
subsidiaries or over their respective properties of which it has knowledge. The
Company does not own or control, directly or indirectly, any corporation,
association or other entity other than those subsidiaries listed in Exhibit 21
to the Company's Annual Report on Form 10-K filed with the Commission and
incorporated by reference into the Registration Statement.
(d) The Company has full legal right, power and authority to enter
into this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company and is
a valid and binding agreement on the part of the Company, enforceable in
accordance with its terms, except as rights to indemnification hereunder may be
limited by applicable law and except as the enforcement hereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles; the performance of this Agreement and the consummation of
the transactions herein contemplated will not result in a material breach or
violation of any of the terms and provisions of, or constitute a default under,
(i) any bond, debenture, note or other evidence of indebtedness, or under any
lease, contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which it or any of its subsidiaries or their
respective properties may be bound, (ii) the charter or bylaws of the Company or
any of its subsidiaries, or (iii) any law, order, rule, regulation, writ,
injunction, judgment or decree of any court, government or governmental agency
or body, domestic or foreign, having jurisdiction over the Company or any of its
subsidiaries or over their respective properties. No consent, approval,
authorization or order of or qualification with any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or over their respective properties is
required for the execution and delivery of this Agreement and the consummation
by the Company or any of its subsidiaries of the transactions herein
contemplated, except such as may be required under the Act, the Exchange Act (if
applicable), or under state or other securities or Blue Sky laws, all of which
requirements have been satisfied in all material respects.
(e) There is not any pending or, to the best of the Company's
knowledge, threatened action, suit, claim or proceeding against the Company, any
of its subsidiaries or any of their respective officers or any of their
respective properties, assets or rights before any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or over their respective officers or
properties or otherwise which (i) might result in any material adverse change in
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise or might materially and adversely affect their properties, assets or
rights, (ii) might prevent consummation of the transactions contemplated hereby
or (iii) is required to be disclosed in the Registration Statement or Prospectus
and is not so disclosed; and there are no agreements, contracts, leases or
documents of the Company or any of its subsidiaries of a character required to
be described or referred to in the Registration Statement or Prospectus or any
Incorporated Document or to be filed as an exhibit to the Registration Statement
or any Incorporated Document by the Act or the Rules and Regulations or by the
Exchange Act or the rules and regulations of the Commission thereunder which
have not been accurately described in all material respects in the Registration
Statement or Prospectus or any Incorporated Document or filed as exhibits to the
Registration Statement or any Incorporated Document, as the case may be.
(f) Except as set forth in the proviso to this sentence, all
outstanding shares of capital stock of the Company (including the Selling
Shareholder Shares) have been duly authorized and validly issued and are fully
paid and nonassessable, have been issued in compliance with all federal and
state securities laws, and were not issued in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase securities,
provided that, with respect to Selling Shareholder Shares to be issued upon
exercise of options and warrants subject to the Irrevocable Election Agreement
(hereinafter
[4]
<PAGE> 5
defined), such Selling Shareholder Shares, upon exercise of such options and
warrants, will be duly authorized and validly issued and will be fully paid and
nonassessable, will be issued in compliance with all federal and state
securities laws, and will not be issued in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase securities. The
authorized and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" and conforms in all material
respects to the statements relating thereto contained in the Registration
Statement and the Prospectus and any Incorporated Document (and such statements
correctly state the substance of the instruments defining the capitalization of
the Company); the Company Shares and the Option Shares to be purchased from the
Company hereunder have been duly authorized for issuance and sale to the
Underwriters pursuant to this Agreement and, when issued and delivered by the
Company against payment therefor in accordance with the terms of this Agreement,
will be duly and validly issued and fully paid and nonassessable, and will be
sold free and clear of any pledge, lien, security interest, encumbrance, claim
or equitable interest; and no preemptive right, co-sale right, registration
right, right of first refusal or other similar right exists with respect to any
of the Shares or the issuance and sale thereof other than those that have been
expressly waived prior to the date hereof and those that will automatically
expire upon and will not apply to the consummation of the transactions
contemplated on the Closing Date. No further approval or authorization of any
shareholder, the Board of Directors of the Company or others is required for the
issuance and sale or transfer of the Shares except as may be required under the
Act, the Exchange Act or under state or other securities or Blue Sky laws. All
issued and outstanding shares of capital stock of each subsidiary of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable, and were not issued in violation of or subject to any preemptive
right, or other rights to subscribe for or purchase shares and are owned by the
Company free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest. Except as disclosed in by the Prospectus or the
financial statements of the Company, and the related notes thereto, included or
incorporated by reference in the Prospectus, neither the Company nor any
subsidiary has outstanding any options to purchase, or any preemptive rights or
other rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell, shares of
its capital stock or any such options, rights, convertible securities or
obligations. The description of the Company's stock option, stock bonus and
other stock plans or arrangements, and the options or other rights granted and
exercised thereunder, set forth or incorporated by reference in the Prospectus
accurately and fairly presents the information required to be shown with respect
to such plans, arrangements, options and rights.
(g) Deloitte & Touche LLP ("Deloitte & Touche") which has examined the
consolidated financial statements of the Company, together with the related
schedules and notes, as of October 31, 1994 and 1993 and for each of the years
in the three (3) years ended October 31, 1994 filed with the Commission as a
part of or incorporated by reference into the Registration Statement, which are
included or incorporated by reference in the Prospectus, are independent
accountants within the meaning of the Act and the Rules and Regulations; the
audited consolidated financial statements of the Company, together with the
related schedules and notes, and the unaudited consolidated financial
information, forming part of the Registration Statement and Prospectus, fairly
present the financial position and the results of operations of the Company and
its subsidiaries at the respective dates and for the respective periods to which
they apply; all audited consolidated financial statements of the Company,
together with the related schedules and notes, and the unaudited consolidated
financial information, filed with the Commission as part of or incorporated by
reference into the Registration Statement, have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved except as may be otherwise stated therein; and the pro forma
financial statement and other pro forma financial information filed with the
Commission as part of or incorporated by reference into the Registration
Statement present fairly the information shown therein, have been prepared in
all material respects in accordance with the Commission's rules and guidelines
with respect to pro forma financial statements, have been properly compiled on
the pro forma bases described therein, and in the opinion of the Company, the
assumptions used in the preparation thereof are reasonable and the adjustments
used therein are appropriate to give effect
[5]
<PAGE> 6
to the transactions or circumstances referred to therein. The selected and
summary financial and statistical data included or incorporated by reference in
the Registration Statement present fairly the information shown therein and have
been compiled on a basis consistent with the audited financial statements
presented therein. No other financial statements or schedules are required to be
included or incorporated by reference in the Registration Statement.
(h) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been (i) any
material adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise, (ii) any transaction that is material to the
Company and its subsidiaries considered as one enterprise, except transactions
entered into in the ordinary course of business, (iii) any obligation, direct or
contingent, that is material to the Company and its subsidiaries considered as
one enterprise, incurred by the Company or its subsidiaries, except obligations
incurred in the ordinary course of business, (iv) any change in the capital
stock or outstanding indebtedness of the Company or any of its subsidiaries that
is material to the Company and its subsidiaries considered as one enterprise,
(v) any dividend or distribution of any kind declared, paid or made on the
capital stock of the Company or any of its subsidiaries, or (vi) any loss or
damage (whether or not insured) to the property of the Company or any of its
subsidiaries which has been sustained or will have been sustained which has a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise.
(i) Except as set forth in the Registration Statement and Prospectus
and any Incorporated Document, (i) each of the Company and its subsidiaries has
good and marketable title to all properties and assets described in the
Registration Statement and Prospectus and any Incorporated Document as owned by
it, free and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest, other than such as would not have a material adverse effect
on the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise, (ii) the agreements to which the Company or any of its subsidiaries
is a party described in the Registration Statement and Prospectus and any
Incorporated Document are valid agreements, enforceable by the Company and its
subsidiaries (as applicable), except as the enforcement thereof may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or by general
equitable principles and, to the best of the Company's knowledge, the other
contracting party or parties thereto are not in material breach or material
default under any of such agreements, and (iii) each of the Company and its
subsidiaries has valid and enforceable leases for all properties described in
the Registration Statement and Prospectus and any Incorporated Document as
leased by it, except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles. Except as set forth in the Registration Statement and Prospectus and
any Incorporated Document, the Company owns or leases all such properties as are
necessary to its operations as now conducted or as proposed to be conducted.
(j) The Company and its subsidiaries have timely filed all necessary
federal, state and foreign income and franchise tax returns and have paid all
taxes shown thereon as due, and there is no tax deficiency that has been or, to
the best of the Company's knowledge, might be asserted against the Company or
any of its subsidiaries that might have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise; and
all tax liabilities are adequately provided for on the books of the Company and
its subsidiaries.
(k) The Company and its subsidiaries maintain insurance with insurers
of recognized financial responsibility of the types and in the amounts generally
deemed adequate for their respective
[6]
<PAGE> 7
businesses and consistent with insurance coverage maintained by similar
companies in similar businesses, including, but not limited to, insurance
covering real and personal property owned or leased by the Company or its
subsidiaries against theft, damage, destruction, acts of vandalism and all other
risks customarily insured against, all of which insurance is in full force and
effect; neither the Company nor any such subsidiary has been refused any
insurance coverage sought or applied for; and neither the Company nor any such
subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries considered as one enterprise.
(l) To the best of Company's knowledge, no labor disturbance by the
employees of the Company or any of its subsidiaries exists or is imminent; and
the Company is not aware of any existing or imminent labor disturbance by the
employees of any of its principal suppliers, value added resellers,
subcontractors, original equipment manufacturers, or international distributors
that might be expected to result in a material adverse change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries considered as one enterprise. No collective
bargaining agreement exists with any of the Company's employees and, to the best
of the Company's knowledge, no such agreement is imminent.
(m) Each of the Company and its subsidiaries owns or possesses
adequate rights to use all patents, patent rights, inventions, trade secrets,
know-how, trademarks, service marks, trade names and copyrights which are
necessary to conduct its businesses as described in the Registration Statement
and Prospectus and any Incorporated Document; the expiration of any patents,
patent rights, trade secrets, trademarks, service marks, trade names or
copyrights would not have a material adverse effect on the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company and its subsidiaries considered as one enterprise; the Company has not
received any notice of, and has no knowledge of, any infringement of or conflict
with asserted rights of the Company by others with respect to any patent, patent
rights, inventions, trade secrets, know-how, trademarks, service marks, trade
names or copyrights; and the Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of others
with respect to any patent, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names or copyrights which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, might
have a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise.
(n) The Common Stock is registered pursuant to Section 12(g) of the
Exchange Act and is listed on The Nasdaq National Market System under the symbol
"PLAB", and the Company has taken no action designed to, or likely to have the
effect of, terminating the registration of the Common Stock under the Exchange
Act or delisting the Common Stock from The Nasdaq National Market, nor has the
Company received any notification that the Commission or the National
Association of Securities Dealers, Inc. ("NASD") is contemplating terminating
such registration or listing.
(o) The Company has been advised concerning the Investment Company Act
of 1940, as amended (the "1940 Act"), and the rules and regulations thereunder,
and has in the past conducted, and intends in the future to conduct, its affairs
in such a manner as to ensure that it will not become an "investment company" or
a company "controlled" by an "investment company" within the meaning of the 1940
Act and such rules and regulations.
(p) The Company has not distributed and will not distribute prior to
the later of (i) the Closing Date, or any date on which Option Shares are to be
purchased, as the case may be, and
[7]
<PAGE> 8
(ii) completion of the distribution of the Shares, any offering material in
connection with the offering and sale of the Shares other than any Preliminary
Prospectuses, the Prospectus, the Registration Statement and other materials, if
any, permitted by the Act.
(q) Neither the Company nor any of its subsidiaries has at any time
during the last five (5) years (i) made any unlawful contribution to any
candidate for foreign office or failed to disclose fully any contribution in
violation of law, or (ii) made any payment to any federal or state governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments required or permitted by the laws of the United
States or any jurisdiction thereof.
(r) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares.
(s) Each executive officer and director of the Company, each Selling
Shareholder, except VLSI Technology, Inc. ("VLSI"), and each such beneficial
owner of shares of Common Stock as has been requested by the Representatives has
agreed in writing that such person will not, for a period of 90 days from the
date that the Registration Statement is declared effective by the Commission
(the "Lock-up Period"), offer to sell, contract to sell, or otherwise sell,
dispose of, loan, pledge or grant any rights with respect to (collectively, a
"Disposition") any shares of Common Stock, any options or warrants to purchase
any shares of Common Stock or any securities convertible into or exchangeable
for shares of Common Stock (collectively, "Securities") now owned or hereafter
acquired directly by such person or with respect to which such person has or
hereafter acquires the power of disposition, otherwise than (i) as a bona fide
gift or gifts, provided the donee or donees thereof agree in writing to be bound
by this restriction, (ii) as a distribution to partners or shareholders of such
person, provided that the distributees thereof agree in writing to be bound by
the terms of this restriction, or (iii) with the prior written consent of
Robertson, Stephens & Company, L.P. The foregoing restriction has been expressly
agreed to preclude the holder of the Securities from engaging in any hedging or
other transaction which is designed to or reasonably expected to lead to or
result in a Disposition of Securities during the Lock-up Period, even if such
Securities would be disposed of by someone other than such holder. Such
prohibited hedging or other transactions would include, without limitation, any
short sale (whether or not against the box) or any purchase, sale or grant of
any right (including, without limitation, any put or call option) with respect
to any Securities or with respect to any security (other than a broad-based
market basket or index) that includes, relates to or derives any significant
part of its value from Securities. Furthermore, such person has also agreed and
consented to the entry of stop transfer instructions with the Company's transfer
agent against the transfer of the Securities held by such person except in
compliance with this restriction. The Company has provided to counsel for the
Underwriters a complete and accurate list of all security holders of the Company
and the number and type of securities held by each security holder. The Company
has provided to counsel for the Underwriters true, accurate and complete copies
of all of the agreements pursuant to which its executive officers, its directors
and each Selling Shareholder, except VLSI, and each beneficial owner of shares
of Common Stock as has been requested by the Representative have agreed to such
or similar restrictions (the "Lock-up Agreements") presently in effect or
effected hereby. The Company hereby represents and warrants that it will not
release any of its executive officers, directors or other shareholders from any
Lock-up Agreements currently existing or hereafter effected without the prior
written consent of Robertson, Stephens & Company, L.P.
(t) Except as set forth in the Registration Statement and Prospectus
and any Incorporated Document, (i) the Company is in compliance with all rules,
laws and regulations relating to the use, treatment, storage and disposal of
toxic substances and protection of health or the environment ("Environmental
Laws") which are applicable to its business, (ii) the Company has received no
notice from any governmental authority or third party of an asserted claim under
Environmental Laws, which claim is
[8]
<PAGE> 9
required to be disclosed in the Registration Statement and the Prospectus and
any Incorporated Document, (iii) the Company will not be required to make future
material capital expenditures to comply with Environmental Laws and (iv) no
property which is owned, leased or occupied by the Company has been designated
as a Superfund site pursuant to the Comprehensive Response, Compensation, and
Liability Act of 1980, as amended (42 U.S.C. ss. 9601, et seq.), or otherwise
designated as a contaminated site under applicable state or local law.
(u) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(v) There are no outstanding loans, advances (except normal advances
for business expenses in the ordinary course of business) or guarantees of
indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of them,
except as disclosed in the Registration Statement and the Prospectus and any
Incorporated Document.
(w) The Company has complied with all provisions of Section 517.075,
Florida Statutes relating to doing business with the Government of Cuba or with
any person or affiliate located in Cuba.
II. Each Selling Shareholder, severally and not jointly, represents and
warrants to and agrees with each Underwriter and the Company that:
(a) Such Selling Shareholder now has, or with respect to Selling
Shareholder Shares to be issued upon exercise of options and warrants subject to
the Irrevocable Election Agreement will have, and in either case on the Closing
Date will have valid marketable title to the Shares to be sold by such Selling
Shareholder, free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest other than pursuant to this Agreement; and upon
delivery of such Shares hereunder and payment of the purchase price as herein
contemplated, each of the Underwriters will obtain valid marketable title to the
Shares purchased by it from such Selling Shareholder, free and clear of any
pledge, lien, security interest pertaining to such Selling Shareholder or such
Selling Shareholder's property, encumbrance, claim or equitable interest,
including any liability for estate or inheritance taxes, or any liability to or
claims of any creditor, devisee, legatee or beneficiary of such Selling
Shareholder.
(b) Such Selling Shareholder has duly authorized (if applicable),
executed and delivered, in the form heretofore furnished to the Representatives,
an irrevocable Power of Attorney (the "Power of Attorney") appointing Michael J.
Yomazzo and Jeffrey P. Moonan as attorneys-in-fact (collectively, the
"Attorneys" and individually, an "Attorney") and a Letter of Transmittal and
Custody Agreement (the "Custody Agreement") with _________, as custodian (the
"Custodian") and, if such Selling Shareholder intends to deliver pursuant to
this Agreement Selling Shareholder Shares issuable upon exercise of options and
warrants not exercised prior to the date of this Agreement, an Irrevocable
Election Agreement (the "Irrevocable Election Agreement") pursuant to which such
Selling Shareholder irrevocably elected to receive shares of Common Stock in
respect of such options and warrants prior to the Closing Date; each of the
Power of Attorney, the Custody Agreement and, if applicable, the Irrevocable
Election Agreement constitutes a valid and binding agreement on the part of such
Selling Shareholder, enforceable in accordance with its terms, except as the
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights
[9]
<PAGE> 10
generally or by general equitable principles; and each of such Selling
Shareholder's Attorneys, acting alone, is authorized to execute and deliver this
Agreement and the certificate referred to in Section 6(h) hereof on behalf of
such Selling Shareholder, to determine the purchase price to be paid by the
several Underwriters to such Selling Shareholder as provided in Section 3
hereof, to authorize the delivery of the Selling Shareholder Shares under this
Agreement and to duly endorse (in blank or otherwise) the certificate or
certificates representing such Shares or a stock power or powers with respect
thereto, to accept payment therefor, and otherwise to act on behalf of such
Selling Shareholder in connection with this Agreement.
(c) All consents, approvals, authorizations and orders required for
the execution and delivery by such Selling Shareholder of the Power of Attorney,
the Custody Agreement and, if applicable, the Irrevocable Election Agreement,
the execution and delivery by or on behalf of such Selling Shareholder of this
Agreement and the sale and delivery of the Selling Shareholder Shares under this
Agreement (other than, at the time of the execution hereof (if the Registration
Statement has not yet been declared effective by the Commission), the issuance
of the order of the Commission declaring the Registration Statement effective
and such consents, approvals, authorizations or orders as may be necessary under
state or other securities or Blue Sky laws) have been obtained and are in full
force and effect; such Selling Shareholder, if other than a natural person, has
been duly organized and is validly existing in good standing under the laws of
the jurisdiction of its organization as the type of entity that it purports to
be; and such Selling Shareholder has full legal right, power and authority to
enter into and perform its obligations under this Agreement and such Power of
Attorney, Custody Agreement and, if applicable, the Irrevocable Election
Agreement, and to sell, assign, transfer and deliver the Shares to be sold by
such Selling Shareholder under this Agreement.
(d) Such Selling Shareholder will not, during the Lock-up Period,
effect the Disposition of any Securities now owned or hereafter acquired
directly by such Selling Shareholder or with respect to which such Selling
Shareholder has or hereafter acquires the power of disposition, otherwise than
(i) as a bona fide gift or gifts, provided the donee or donees thereof agree in
writing to be bound by this restriction, (ii) as a distribution to partners or
shareholders of such Selling Shareholder, provided that the distributees thereof
agree in writing to be bound by the terms of this restriction, or (iii) with the
prior written consent of Robertson, Stephens & Company, L.P. The foregoing
restriction is expressly agreed to preclude the holder of the Securities from
engaging in any hedging or other transaction which is designed to or reasonably
expected to lead to or result in a Disposition of Securities during the Lock-up
Period, even if such Securities would be disposed of by someone other than the
Selling Shareholder. Such prohibited hedging or other transactions would
include, without limitation, any short sale (whether or not against the box) or
any purchase, sale or grant of any right (including, without limitation, any put
or call option) with respect to any Securities or with respect to any security
(other than a broad-based market basket or index) that includes, relates to or
derives any significant part of its value from Securities. Such Selling
Shareholder also agrees and consents to the entry of stop transfer instructions
with the Company's transfer agent against the transfer of the securities held by
such Selling Shareholder except in compliance with this restriction.
Notwithstanding the foregoing, this Section 2.II.(d) shall not apply to VLSI.
(e) Certificates in negotiable form for all Shares to be sold by such
Selling Shareholder under this Agreement, together with a stock power or powers
duly endorsed in blank by such Selling Shareholder, have been placed in custody
or, with respect to Selling Shareholder Shares to be issued upon exercise of
options and warrants subject to the Irrevocable Election Agreement, will be
placed in custody upon exercise of such options or warrants, as the case may be,
with the Custodian for the purpose of effecting delivery hereunder.
(f) This Agreement has been duly authorized by each Selling
Shareholder that is not a natural person and has been duly executed and
delivered by or on behalf of such Selling Shareholder and is a valid and binding
agreement of such Selling Shareholder, enforceable in accordance with its terms,
[10]
<PAGE> 11
except as rights to indemnification hereunder may be limited by applicable law
and except as the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles; and the
performance of this Agreement and the consummation of the transactions herein
contemplated will not result in a breach or violation of any of the terms and
provisions of or constitute a default under any bond, debenture, note or other
evidence of indebtedness, or under any lease, contract, indenture, mortgage,
deed of trust, loan agreement, joint venture or other agreement or instrument to
which such Selling Shareholder is a party or by which such Selling Shareholder,
or any Selling Shareholder Shares hereunder, may be bound or, to the best of
such Selling Shareholders' knowledge, result in any violation of any law, order,
rule, regulation, writ, injunction, judgment or decree of any court, government
or governmental agency or body, domestic or foreign, having jurisdiction over
such Selling Shareholder or over the properties of such Selling Shareholder, or,
if such Selling Shareholder is other than a natural person, result in any
violation of any provisions of the charter, bylaws or other organizational
documents of such Selling Shareholder.
(g) Such Selling Shareholder has not taken and will not take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.
(h) Such Selling Shareholder has not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Shares.
(i) All information furnished by or on behalf of such Selling
Shareholder relating to such Selling Shareholder and the Selling Shareholder
Shares that is contained in the representations and warranties of such Selling
Shareholder in such Selling Shareholder's Power of Attorney or set forth in the
Registration Statement or the Prospectus is, and at the time the Registration
Statement became or becomes, as the case may be, effective and at all times
subsequent thereto up to and on the Closing Date (hereinafter defined) and any
later date on which Option Shares are to be purchased, was or will be, true,
correct and complete, and does not, and at the time the Registration Statement
became or becomes, as the case may be, effective and at all times subsequent
thereto up to and on the Closing Date will not, contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make such information not misleading.
(j) Such Selling Shareholder will review the Prospectus and will
comply with all agreements and satisfy all conditions on its part to be complied
with or satisfied pursuant to this Agreement on or prior to the Closing Date
(hereinafter defined) and any later date on which Option Shares are to be
purchased, and will advise one of its Attorneys and Robertson, Stephens &
Company, L.P. prior to the Closing Date (hereinafter defined) and any later date
on which Option Shares are to be purchased, if any statement to be made on
behalf of such Selling Shareholder in the certificate contemplated by Section
6(h) would be inaccurate if made as of the Closing Date (hereinafter defined).
(k) Such Selling Shareholder does not have, or has waived prior to the
date hereof, any preemptive right, co-sale right or right of first refusal or
other similar right to purchase any of the Shares that are to be sold by the
Company or any of the other Selling Shareholders to the Underwriters pursuant to
this Agreement; such Selling Shareholder does not have, or has waived prior to
the date hereof, any registration right or other similar right to participate in
the offering made by the Prospectus, other than such rights of participation as
have been satisfied by the participation of such Selling Shareholder in the
transactions to which this Agreement relates in accordance with the terms of
this Agreement; and such Selling Shareholder does not own any warrants, options
or similar rights to acquire, and does not have any right or arrangement to
acquire, any capital stock, rights, warrants, options or other securities from
the Company, other than those described in the Registration Statement and the
Prospectus and any Incorporated Document.
[11]
<PAGE> 12
(l) Such Selling Shareholder is not aware that (i) any of the
representations and warranties of the Company set forth in Section 2.I. above is
untrue or inaccurate in any material respect or (ii) at the time the
Registration Statement became or becomes, as the case may be, effective and at
all times subsequent thereto up to and on the Closing Date (hereinafter defined)
and on any later date on which Option Shares are to be purchased, (A) the
Registration Statement, and any amendments or supplements thereto, and any
Incorporated Document includes or will include any untrue statement of a
material fact or omits or will omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(B) the Prospectus, and any amendment or supplements thereto, and any
Incorporated Document includes or will include any untrue statement of a
material fact or omits or will omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
3. Purchase, Sale and Delivery of Shares. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company and the Selling Shareholders
agree, severally and not jointly, to sell to the Underwriters, and each
Underwriter agrees, severally and not jointly, to purchase from the Company and
the Selling Shareholders, respectively, at a purchase price of $_____ per share,
the respective number of Company Shares as hereinafter set forth and Selling
Shareholder Shares set forth opposite the names of the Company and the Selling
Shareholders in Schedule B hereto. The obligation of each Underwriter to the
Company and to each Selling Shareholder shall be to purchase from the Company or
such Selling Shareholder that number of Company Shares or Selling Shareholder
Shares, as the case may be, which (as nearly as practicable, as determined by
you) is in the same proportion to the number of Company Shares or Selling
Shareholder Shares, as the case may be, set forth opposite the name of the
Company or such Selling Shareholder in Schedule B hereto as the number of Firm
Shares which is set forth opposite the name of such Underwriter in Schedule A
hereto (subject to adjustment as provided in Section 10) is to the total number
of Firm Shares to be purchased by all the Underwriters under this Agreement.
The certificates in negotiable form for the Selling Shareholder Shares
have been placed in custody (for delivery under this Agreement) under the
Custody Agreement or, with respect to Selling Shareholder Shares to be issued
upon exercise of options or warrants on or after the date of this Agreement,
such options or warrants, as the case may be, are subject to the Irrevocable
Election Agreement and, upon exercise, such Selling Shareholder Shares thereupon
issued shall be placed in custody (for delivery under this Agreement) under the
Custody Agreement. Each Selling Shareholder agrees that the certificates for the
Selling Shareholder Shares of such Selling Shareholder so held in custody and
the options and warrants subject to the Irrevocable Election Agreement are
subject to the interests of the Underwriters hereunder, that the arrangements
made by such Selling Shareholder for such custody or election, including the
Power of Attorney, are to that extent irrevocable and that the obligations of
such Selling Shareholder hereunder shall not be terminated by the act of such
Selling Shareholder or by operation of law, whether by the death or incapacity
of such Selling Shareholder or the occurrence of any other event, except as
specifically provided herein or in the Custody Agreement or the Irrevocable
Election Agreement. If any Selling Shareholder should die or be incapacitated,
or if any other such event should occur, before the delivery of the certificates
for the Selling Shareholder Shares hereunder, the Selling Shareholder Shares to
be sold by such Selling Shareholder shall, except as specifically provided
herein or in the Custody Agreement or the Irrevocable Election Agreement, be
delivered by the Custodian in accordance with the terms and conditions of this
Agreement as if such death, incapacity or other event had not occurred,
regardless of whether the Custodian shall have received notice of such death or
other event.
Delivery of definitive certificates for the Firm Shares to be purchased
by the Underwriters pursuant to this Section 3 shall be made against payment of
the purchase price therefor by the several Underwriters by certified or official
bank check or checks drawn in next-day funds, payable to the order of the
Company with regard to the Shares being purchased from the Company, and to the
order of the
[12]
<PAGE> 13
Custodian for the respective accounts of the Selling Shareholders with regard to
the Shares being purchased from such Selling Shareholders (and the Company and
such Selling Shareholders agree not to deposit and to cause the Custodian not to
deposit any such check in the bank on which it is drawn until the day following
the date of its delivery to the Company or the Custodian, as the case may be),
at the offices of Reid & Priest LLP, 40 West 57th Street, New York, NY 10019 (or
at such other place as may be agreed upon among the Representatives, the Company
and the Attorneys), at 7:00 A.M., local San Francisco time, on the fifth (5th)
full business day following the first day that Shares are traded or at such
other time and date not later than seven (7) full business days following the
first day that Shares are traded as the Representatives and the Company, the
Attorneys may determine (or at such time and date to which payment and delivery
shall have been postponed pursuant to Section 10 hereof), such time and date of
payment and delivery being herein called the "Closing Date." The certificates
for the Firm Shares to be so delivered will be made available to you at such
office or such other location including, without limitation, in New York City,
as you may reasonably request for checking at least two (2) full business days
prior to the Closing Date and will be in such names and denominations as you may
request, such request to be made at least three (3) full business days prior to
the Closing Date. If the Representatives so elect, delivery of the Firm Shares
may be made by credit through full fast transfer to the accounts at The
Depository Trust Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the Closing
Date for the Firm Shares to be purchased by such Underwriter or Underwriters.
Any such payment by you shall not relieve any such Underwriter or Underwriters
of any of its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make an initial public offering (as such term is
described in Section 11 hereof) of the Firm Shares at an initial public offering
price of $_____ per share. After the initial public offering, the several
Underwriters may, in their discretion, vary the public offering price.
The information set forth in the last paragraph on the front cover
page (insofar as such information relates to the Underwriters), on the inside
front cover, concerning stabilization and over-allotment by the Underwriters,
and under the first, second, fifth and sixth paragraphs under the caption
"Underwriting" in any Preliminary Prospectus and in the Prospectus constitutes
the only information furnished by the Underwriters to the Company for inclusion
in any Preliminary Prospectus, the Prospectus or the Registration Statement or
any Incorporated Document, and you, on behalf of the respective Underwriters,
represent and warrant to the Company and the Selling Shareholders that the
statements made therein do not include any 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.
4. Further Agreements of the Company. The Company agrees with the
several Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date that
this Agreement is executed and delivered by the parties hereto, to become
effective as promptly as possible; it will notify you, promptly after it shall
receive notice thereof, of the time when the Registration Statement or any
subsequent amendment to the Registration Statement has become effective or any
supplement to the Prospectus has been filed; if the Company omitted information
from the Registration Statement at the time it was originally declared effective
in reliance upon Rule 430A(a) of the Rules and Regulations, the Company will
provide evidence
[13]
<PAGE> 14
satisfactory to you that the Prospectus contains such information and has been
filed, within the time period prescribed, with the Commission pursuant to
subparagraph (1) or (4) of Rule 424(b) of the Rules and Regulations or as part
of a post-effective amendment to such Registration Statement as originally
declared effective which is declared effective by the Commission; if for any
reason the filing of the final form of Prospectus is required under Rule
424(b)(3) of the Rules and Regulations, it will provide evidence satisfactory to
you that the Prospectus contains such information and has been filed with the
Commission within the time period prescribed; it will notify you promptly of any
request by the Commission for the amending or supplementing of the Registration
Statement or the Prospectus or for additional information; promptly upon your
request, it will prepare and file with the Commission any amendments or
supplements to the Registration Statement or Prospectus which, in the opinion of
counsel for the several Underwriters ("Underwriters' Counsel"), may be necessary
or advisable in connection with the distribution of the Shares by the
Underwriters; it will promptly prepare and file with the Commission, and
promptly notify you of the filing of, any amendments or supplements to the
Registration Statement or Prospectus which may be necessary to correct any
statements or omissions, if, at any time when a prospectus relating to the
Shares is required to be delivered under the Act, any event shall have occurred
as a result of which the Prospectus or any other prospectus relating to the
Shares as then in effect would include any untrue statement of a material fact
or omit to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading; in
case any Underwriter is required to deliver a prospectus nine (9) months or more
after the effective date of the Registration Statement in connection with the
sale of the Shares, it will prepare promptly upon request, but at the expense of
such Underwriter, such amendment or amendments to the Registration Statement and
such prospectus or prospectuses as may be necessary to permit compliance with
the requirements of Section 10(a)(3) of the Act; and it will file no amendment
or supplement to the Registration Statement or Prospectus or the Incorporated
Documents, or, prior to the end of the period of time in which a prospectus
relating to the Shares is required to be delivered under the Act, file any
document which upon filing becomes an Incorporated Document, which shall not
previously have been submitted to you a reasonable time prior to the proposed
filing thereof or to which you shall reasonably object in writing, subject,
however, to compliance with the Act and the Rules and Regulations, the Exchange
Act and the rules and regulations of the Commission thereunder and the
provisions of this Agreement.
(b) The Company will advise you, promptly after it shall receive
notice or obtain knowledge, of the issuance of any stop order by the Commission
suspending the effectiveness of the Registration Statement or of the initiation
or threat of any proceeding for that purpose; and it will promptly use its best
efforts to prevent the issuance of any stop order or to obtain its withdrawal at
the earliest possible moment if such stop order should be issued.
(c) The Company will use its best efforts to qualify the Shares for
offering and sale under the securities laws of such jurisdictions as you may
designate and to continue such qualifications in effect for so long as may be
required for purposes of the distribution of the Shares, except that the Company
shall not be required in connection therewith or as a condition thereof to
qualify as a foreign corporation or to execute a general consent to service of
process in any jurisdiction in which it is not otherwise required to be so
qualified or to so execute a general consent to service of process. In each
jurisdiction in which the Shares shall have been qualified as above provided,
the Company will make and file such statements and reports in each year as are
or may be required by the laws of such jurisdiction.
(d) The Company will furnish to you, as soon as available, copies of
the Registration Statement (three of which will be signed and which will include
all exhibits), each Preliminary Prospectus, the Prospectus and any amendments or
supplements to such documents, including any prospectus prepared to permit
compliance with Section 10(a)(3) of the Act, and the Incorporated Documents
(three of which will include all exhibits), all in such quantities as you may
from time to time reasonably request.
[14]
<PAGE> 15
(e) The Company will make generally available to its security holders
as soon as practicable, but in any event not later than the forty-fifth (45th)
day following the end of the fiscal quarter first occurring after the first
anniversary of the effective date of the Registration Statement, an earnings
statement (which will be in reasonable detail but need not be audited) complying
with the provisions of Section 11(a) of the Act and covering a twelve (12) month
period beginning after the effective date of the Registration Statement.
(f) During a period of five (5) years after the date hereof, the
Company will furnish to its shareholders as soon as practicable after the end of
each respective period, annual reports (including financial statements audited
by independent certified public accountants) and unaudited quarterly reports of
operations for each of the first three quarters of the fiscal year, and will
furnish to you and the other several Underwriters hereunder, upon request (i)
concurrently with furnishing such reports to its shareholders, statements of
operations of the Company for each of the first three (3) quarters in the form
furnished to the Company's shareholders, (ii) concurrently with furnishing to
its shareholders, a balance sheet of the Company as of the end of such fiscal
year, together with statements of operations, of shareholders' equity, and of
cash flows of the Company for such fiscal year, accompanied by a copy of the
certificate or report thereon of independent certified public accountants, (iii)
as soon as they are available, copies of all reports (financial or other) mailed
to shareholders, (iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, any securities
exchange or the National Association of Securities Dealers, Inc. ("NASD"), (v)
every material press release and every material news item or article in respect
of the Company or its affairs which was generally released to shareholders or
prepared by the Company or any of its subsidiaries, and (vi) any additional
information of a public nature concerning the Company or its subsidiaries, or
its business which you may reasonably request. During such five (5) year period,
if the Company shall have active subsidiaries, the foregoing financial
statements shall be on a consolidated basis to the extent that the accounts of
the Company and its subsidiaries are consolidated, and shall be accompanied by
similar financial statements for any significant subsidiary which is not so
consolidated.
(g) The Company will apply the net proceeds from the sale of the
Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if necessary under
the jurisdiction of incorporation of the Company, a registrar (which may be the
same entity as the transfer agent) for its Common Stock.
(i) If the transactions contemplated hereby are not consummated by
reason of any failure, refusal or inability on the part of the Company or any
Selling Shareholder to perform any agreement on their respective parts to be
performed hereunder or any failure to be fulfilled of any condition of the
Underwriters' obligations hereunder, or if the Company shall terminate this
Agreement pursuant to Section 11(a) hereof, or if the Underwriters shall
terminate this Agreement pursuant to Section 11(b)(i), the Company will
reimburse the several Underwriters for all out-of-pocket expenses (including
fees and disbursements of Underwriters' Counsel) incurred by the Underwriters in
investigating or preparing to market or marketing the Shares.
(j) If at any time during the ninety (90) day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, forthwith prepare, consult with you concerning the substance of and
disseminate a press release or
[15]
<PAGE> 16
other public statement, reasonably satisfactory to you, responding to or
commenting on such rumor, publication or event.
(k) During the Lock-up Period, the Company will not, without the
prior written consent of Robertson Stephens & Company, L.P., effect the
Disposition of, directly or indirectly, any Securities other than the sale of
the Company Shares and the Option Shares to be sold by the Company hereunder and
the Company's issuance of options or Common Stock under the Company's presently
authorized 1986 Amended and Restated Incentive Stock Option Plan, 1986
Non-Qualified Stock Option Plan, and 1988 Non-Qualified Stock Option Plan, 1992
Stock Option Plan and 1994 Stock Option Plan (the "Option Plans").
(l) During a period of ninety (90) days from the effective date
of the Registration Statement, the Company will not file a registration
statement registering shares under the Option Plans or other employee benefit
plan.
5. Expenses.
(a) The Company and the Selling Shareholders agree with each
Underwriter that:
(i) The Company and the Selling Shareholders will pay and
bear all costs and expenses in connection with the preparation, printing and
filing of the Registration Statement (including financial statements, schedules
and exhibits), Preliminary Prospectuses and the Prospectus and the Incorporated
Documents and any amendments or supplements thereto; the printing of this
Agreement, the Agreement Among Underwriters, the Selected Dealer Agreement, the
Preliminary Blue Sky Survey and any Supplemental Blue Sky Survey, the
Underwriters' Questionnaire and Power of Attorney, and any instruments related
to any of the foregoing; the issuance and delivery of the Shares hereunder to
the several Underwriters, including transfer taxes, if any, the cost of all
certificates representing the Shares and transfer agents' and registrars' fees;
the fees and disbursements of counsel for the Company; all fees and other
charges of the Company's independent certified public accountants; the cost of
furnishing to the several Underwriters copies of the Registration Statement
(including appropriate exhibits), Preliminary Prospectus and the Prospectus and
the Incorporated Documents, and any amendments or supplements to any of the
foregoing; NASD filing fees and the cost of qualifying the Shares under the laws
of such jurisdictions as you may designate (including filing fees and fees and
disbursements of Underwriters' Counsel in connection with such NASD filings and
Blue Sky qualifications); and all other expenses directly incurred by the
Company or the Selling Shareholders in connection with the performance of their
obligations hereunder. Any additional expenses incurred as a result of the sale
of the Shares by the Selling Shareholders will be borne collectively by the
Company and the Selling Shareholders. The provisions of this Section 5(a)(i) are
intended to relieve the Underwriters from the payment of the expenses and costs
which the Selling Shareholders and the Company hereby agree to pay, but shall
not affect any agreement which the Selling Shareholders and the Company may
make, or may have made, for the sharing of any of such expenses and costs. Such
agreements shall not impair the obligations of the Company and the Selling
Shareholders hereunder to the several Underwriters.
(ii) In addition to its other obligations under Section 8(a)
hereof, the Company agrees that, as an interim measure during the pendency of
any claim, action, investigation, inquiry or other proceeding described in
Section 8(a) hereof, it will reimburse the Underwriters on a monthly basis for
all reasonable legal or other expenses incurred in connection with investigating
or defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Company's obligation to reimburse the Underwriters for
such expenses and the possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been
[16]
<PAGE> 17
improper, the Underwriters shall promptly return such payment to the Company
together with interest, compounded daily, determined on the basis of the prime
rate (or other commercial lending rate for borrowers of the highest credit
standing) listed from time to time in The Wall Street Journal which represents
the base rate on corporate loans posted by a substantial majority of the
nation's thirty (30) largest banks (the "Prime Rate"). Any such interim
reimbursement payments which are not made to the Underwriters within thirty (30)
days of a request for reimbursement shall bear interest at the Prime Rate from
the date of such request.
(iii) In addition to their other obligations under Section 8(b)
hereof, each Selling Shareholder agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
described in Section 8(b) hereof relating to such Selling Shareholder, it will
reimburse the Underwriters on a monthly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the absence
of a judicial determination as to the propriety and enforceability of such
Selling Shareholder's obligation to reimburse the Underwriters for such expenses
and the possibility that such payments might later be held to have been improper
by a court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Underwriters shall
promptly return such payment to the Selling Shareholders, together with
interest, compounded daily, determined on the basis of the Prime Rate. Any such
interim reimbursement payments which are not made to the Underwriters within
thirty (30) days of a request for reimbursement shall bear interest at the Prime
Rate from the date of such request.
(b) In addition to their other obligations under Section 8(c)
hereof, the Underwriters severally and not jointly agree that, as an interim
measure during the pendency of any claim, action, investigation, inquiry or
other proceeding described in Section 8(c) hereof, they will reimburse the
Company and each Selling Shareholder on a monthly basis for all reasonable legal
or other expenses incurred in connection with investigating or defending any
such claim, action, investigation, inquiry or other proceeding, notwithstanding
the absence of a judicial determination as to the propriety and enforceability
of the Underwriters' obligation to reimburse the Company and each such Selling
Shareholder for such expenses and the possibility that such payments might later
be held to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have been
improper, the Company and each such Selling Shareholder shall promptly return
such payment to the Underwriters together with interest, compounded daily,
determined on the basis of the Prime Rate. Any such interim reimbursement
payments which are not made to the Company and each such Selling Shareholder
within thirty (30) days of a request for reimbursement shall bear interest at
the Prime Rate from the date of such request.
(c) It is agreed that any controversy arising out of the operation
of the interim reimbursement arrangements set forth in Sections 5(a)(ii),
5(a)(iii) and 5(b) hereof, including the amounts of any requested reimbursement
payments, the method of determining such amounts and the basis on which such
amounts shall be apportioned among the reimbursing parties, shall be settled by
arbitration conducted under the provisions of the Constitution and Rules of the
Board of Governors of the New York Stock Exchange, Inc. or pursuant to the Code
of Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or a written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Any such arbitration will be limited to the operation of
the interim reimbursement provisions contained in Sections 5(a)(ii), 5(a)(iii)
and 5(b) hereof and will not resolve the ultimate propriety or enforceability of
the obligation to indemnify for expenses which is created by the provisions of
Sections 8(a), 8(b) and 8(c) hereof or the obligation to contribute to expenses
which is created by the provisions of Section 8(e) hereof.
[17]
<PAGE> 18
6. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Shares as provided herein shall
be subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased, as the case may be, of
the representations and warranties of the Company and the Selling Shareholders
herein, to the performance by the Company and the Selling Shareholders of their
respective obligations hereunder and to the following additional conditions:
(a) The Registration Statement shall have become effective not
later than 2:00 P.M., local San Francisco time, on the date following the date
of this Agreement, or such later date as shall be consented to in writing by
you; and no stop order suspending the effectiveness thereof shall have been
issued and no proceedings for that purpose shall have been initiated or, to the
knowledge of the Company, any Selling Shareholder or any Underwriter, threatened
by the Commission, and any request of the Commission for additional information
(to be included in the Registration Statement, the Prospectus or any
Incorporated Document or otherwise) shall have been complied with to the
satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in
connection with this Agreement, the form of Registration Statement and the
Prospectus, and the registration, authorization, issue, sale and delivery of the
Shares, shall have been reasonably satisfactory to Underwriters' Counsel, and
such counsel shall have been furnished with such papers and information as they
may reasonably have requested to enable them to pass upon the matters referred
to in this Section.
(c) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date or any later date on which Option Shares are to be
purchased, as the case may be:
(i) there shall not have been any change in the condition
(financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one
enterprise from that set forth in the Registration Statement or
Prospectus, which, in your sole judgment, is material and adverse
and that makes it, in your sole judgment, impracticable or
inadvisable to proceed with the public offering of the Shares as
contemplated by the Prospectus; and
(ii) there shall not have occurred any downgrading, nor shall
any notice have been given of any intended or potential downgrading
or of any review for a possible change that does not indicate the
direction of the possible change, in the rating accorded any of the
Company's securities by any "nationally recognized statistical
rating organization," as such term is defined for purposes of Rule
436(g)(2) under the Act.
(d) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, the
following opinion of counsel for the Company and the Selling Shareholders, dated
the Closing Date or such later date on which Option Shares are to be purchased
addressed, as the case may be, to the Underwriters and with reproduced copies or
signed counterparts thereof for each of the Underwriters, to the effect that:
(i) The Company and each subsidiary has been duly
incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation;
(ii) The Company and each subsidiary has the corporate power
and authority to own, lease and operate its properties and to
conduct its business as described in the Prospectus;
[18]
<PAGE> 19
(iii) The Company and each subsidiary is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction,
if any, in which the ownership or leasing of its properties or the conduct of
its business requires such qualification, except where the failure to be so
qualified or be in good standing would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations or business of the
Company and its subsidiaries considered as one enterprise. To such counsel's
knowledge, the Company does not own or control, directly or indirectly, any
corporation, association or other entity other than Photronics International
Engineering, Inc., Photronics California, Inc., Photronics Texas, Inc.,
Photronics Financial Services, Inc., Photronics Investment Services, Inc.,
Photronics-Toppan Texas, Inc., Beta Squared, Inc., PLI Management Corp. and
Photronics Singapore Pte Ltd.;
(iv) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus under the caption "Capitalization" as
of the dates stated therein, the issued and outstanding shares of capital stock
of the Company (including the Selling Shareholder Shares) have been duly and
validly issued and are fully paid and nonassessable, and, to such counsel's
knowledge, have not been issued in violation of or subject to any preemptive
right, co-sale right, registration right, right of first refusal or other
similar right;
(v) All issued and outstanding shares of capital stock of each
subsidiary of the Company have been duly authorized and validly issued and are
fully paid and nonassessable, and, to such counsel's knowledge, have not been
issued in violation of or subject to any preemptive right, co-sale right,
registration right, right of first refusal or other similar right and are owned
by the Company free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest;
(vi) The Firm Shares or the Option Shares, as the case may be, to be
issued by the Company pursuant to the terms of this Agreement have been duly
authorized and, upon issuance and delivery against payment therefor in
accordance with the terms hereof, will be duly and validly issued and fully paid
and nonassessable, and will not have been issued in violation of or subject to
any preemptive right, co-sale right, registration right, right of first refusal
or other similar right;
(vii) The Company has the corporate power and authority to enter
into this Agreement and to issue, sell and deliver to the Underwriters the
Shares to be issued and sold by it hereunder;
(viii) This Agreement has been duly authorized by all necessary
corporate action on the part of the Company and has been duly executed and
delivered by the Company and, assuming due authorization, execution and delivery
by you, is a valid and binding agreement of the Company, enforceable in
accordance with its terms, except insofar as indemnification provisions may be
limited by applicable law and except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
or affecting creditors' rights generally or by general equitable principles;
(ix) The Registration Statement has become effective under the Act
and, to such counsel's knowledge, no stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings for that purpose
have been instituted or are pending or threatened under the Act;
[19]
<PAGE> 20
(x) The Registration Statement and the Prospectus, and each
amendment or supplement thereto (other than the financial statements (including
supporting schedules) and financial and statistical data derived therefrom, as
to which such counsel need express no opinion), as of the effective date of the
Registration Statement, complied as to form in all material respects with the
requirements of the Act and the applicable Rules and Regulations; and each of
the Incorporated Documents (other than the financial statements (including
supporting schedules) and the financial and statistical data derived therefrom,
as to which such counsel need express no opinion) complied when filed pursuant
to the Exchange Act as to form in all material respects with the requirements of
the Act and the Rules and Regulations and the Exchange Act and the applicable
rules and regulations of the Commission thereunder;
(xi) The information contained in the Company's Registration
Statement on Form 8-A, dated March 3, 1987, incorporated by reference in the
Prospectus, to the extent that it constitutes matters of law or legal
conclusions, has been reviewed by such counsel and is a fair summary of such
matters and conclusions; and the forms of certificates evidencing the Common
Stock and filed as exhibits to the Registration Statement comply with
Connecticut law;
(xii) The description in the Registration Statement and the
Prospectus of the charter and bylaws of the Company and of statutes are accurate
and fairly present the information required to be presented by the Act and the
applicable Rules and Regulations;
(xiii) To such counsel's knowledge, there are no agreements,
contracts, leases or documents to which the Company is a party of a character
required to be described or referred to in the Registration Statement or
Prospectus or any Incorporated Document or to be filed as an exhibit to the
Registration Statement or any Incorporated Document which are not described or
referred to therein or filed as required;
(xiv) The performance of this Agreement and the consummation of the
transactions herein contemplated (other than performance of the Company's
indemnification obligations hereunder, concerning which no opinion need be
expressed) will not (a) result in any violation of the Company's charter or
bylaws or (b) to such counsel's knowledge, result in a material breach or
violation of any of the terms and provisions of, or constitute a default under,
any bond, debenture, note or other evidence of indebtedness, or any lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint venture or
other agreement or instrument known to such counsel to which the Company is a
party or by which its properties are bound, or any applicable statute, rule or
regulation known to such counsel or, to such counsel's knowledge, any order,
writ or decree of any court, government or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries, or over any of their
properties or operations;
(xv) No consent, approval, authorization or order of, or
qualification with, any court, government or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries, or over any of their
properties or operations is necessary in connection with the consummation by the
Company of the transactions herein contemplated, except such as have been
obtained under the Act or such as may be required under state or other
securities or Blue Sky laws in connection with the purchase and the distribution
of the Shares by the Underwriters;
(xvi) To such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened against the Company or any of its
subsidiaries of a
[20]
<PAGE> 21
character required to be disclosed in the Registration Statement or the
Prospectus or any Incorporated Document by the Act or the Rules and Regulations
or by the Exchange Act or the applicable rules and regulations of the Commission
thereunder, other than those described therein;
(xvii) To such counsel's knowledge, neither the Company nor any of
its subsidiaries is presently (a) in material violation of its respective
charter or bylaws, or (b) in material breach of any applicable statute, rule or
regulation known to such counsel or, to such counsel's knowledge, any order,
writ or decree of any court or governmental agency or body having jurisdiction
over the Company or any of its subsidiaries, or over any of their properties or
operations;
(xviii) To such counsel's knowledge, except as set forth in the
Registration Statement and Prospectus and any Incorporated Document, no holders
of Common Stock or other securities of the Company have registration rights with
respect to securities of the Company and, except as set forth in the
Registration Statement and Prospectus, all holders of securities of the Company
having rights known to such counsel to registration of such shares of Common
Stock or other securities, because of the filing of the Registration Statement
by the Company have, with respect to the offering contemplated thereby, waived
such rights or such rights have expired by reason of lapse of time following
notification of the Company's intent to file the Registration Statement or have
included securities in the Registration Statement pursuant to the exercise of
and in full satisfaction of such rights;
(xix) Each Selling Shareholder which is not a natural person has
full right, power and authority to enter into and to perform its obligations
under the Power of Attorney, the Custody Agreement and the Irrevocable Election
Agreement to be executed and delivered by it in connection with the transactions
contemplated herein; the Power of Attorney, the Custody Agreement and, if
applicable, the Irrevocable Election Agreement of each Selling Shareholder that
is not a natural person has been duly authorized by such Selling Shareholder;
the Power of Attorney, the Custody Agreement and, if applicable, the Irrevocable
Election Agreement of each Selling Shareholder has been duly executed and
delivered by or on behalf of such Selling Shareholder; and the Power of Attorney
and Custody Agreement of each Selling Shareholder constitutes the valid and
binding agreement of such Selling Shareholder, enforceable in accordance with
its terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles;
(xx) Each of the Selling Shareholders has full right, power and
authority to enter into and to perform its obligations under this Agreement and
to sell, transfer, assign and deliver the Shares to be sold by such Selling
Shareholder hereunder;
(xxi) This Agreement has been duly authorized by each Selling
Shareholder that is not a natural person and has been duly executed and
delivered by or on behalf of each Selling Shareholder; and
(xxii) Upon the delivery of and payment for the Shares as
contemplated in this Agreement, each of the Underwriters will receive valid
marketable title to the Shares purchased by it from such Selling Shareholder,
free and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest. In rendering such opinion, such counsel may assume that the
Underwriters are without notice of any defect in the title of the Shares being
purchased from the Selling Shareholders.
[21]
<PAGE> 22
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters were
discussed, and although they have not verified the accuracy or completeness of
the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which leads them to believe
that, at the time the Registration Statement became effective and at all times
subsequent thereto up to and on the Closing Date and on any later date on which
Option Shares are to be purchased, as the case may be, the Registration
Statement and any amendment or supplement thereto and any Incorporated Document
(other than the financial statements including supporting schedules and other
financial and statistical information derived therefrom, as to which such
counsel need express no comment), contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or at the Closing Date
or any later date on which the Option Shares are to be purchased, as the case
may be, the Registration Statement, the Prospectus and any amendment or
supplement thereto and any Incorporated Document (except as aforesaid) contained
any untrue statement of a material fact or omitted to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading. Such counsel shall also state that
the conditions for the use of Form S-3 set forth in the General Instructions
thereto have been satisfied.
Counsel rendering the foregoing opinion may rely as to questions of
law not involving the laws of the United States or the States of New York or
Delaware upon opinions of local counsel, and as to questions of fact upon
representations or certificates of officers of the Company, the Selling
Shareholders or officers of the Selling Shareholders (when the Selling
Shareholder is not a natural person), and of government officials, in which case
their opinion is to state that they are so relying and that they have no
knowledge of any material misstatement or inaccuracy in any such opinion,
representation or certificate. Copies of any opinion, representation or
certificate so relied upon shall be delivered to you, as Representatives of the
Underwriters, and to Underwriters' Counsel.
(e) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, an opinion
of Wilson Sonsini Goodrich & Rosati, Professional Corporation, in form and
substance satisfactory to you, with respect to the sufficiency of all such
corporate proceedings and other legal matters relating to this Agreement and the
transactions contemplated hereby as you may reasonably require, and the Company
shall have furnished to such counsel such documents as they may have requested
for the purpose of enabling them to pass upon such matters.
(f) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, a letter
from Deloitte & Touche addressed to the Underwriters, dated the Closing Date or
such later date on which Option Shares are to be purchased, as the case may be,
confirming that they are independent certified public accountants with respect
to the Company within the meaning of the Act and the applicable published Rules
and Regulations and based upon the procedures described in such letter delivered
to you concurrently with the execution of this Agreement (herein called the
"Original Letter"), but carried out to a date not more than five (5) business
days prior to the Closing Date or such later date on which Option Shares are to
be purchased, as the case may be, (i) confirming, to the extent true, that the
statements and conclusions set forth in the Original Letter are accurate as of
the Closing Date or such later date on which Option Shares are to be purchased,
as the case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter which are necessary
to reflect any changes in the facts described in the Original Letter since the
date of such letter, or to reflect the availability of more recent financial
statements, data or information. The letter shall not disclose any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise from
that set forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse
[22]
<PAGE> 23
and that makes it, in your sole judgment, impracticable or inadvisable to
proceed with the public offering of the Shares as contemplated by the
Prospectus. The Original Letter from Deloitte & Touche shall be addressed to or
for the use of the Underwriters in form and substance satisfactory to the
Underwriters and shall (i) represent, to the extent true, that they are
independent certified public accountants with respect to the Company within the
meaning of the Act and the applicable published Rules and Regulations, (ii) set
forth their opinion with respect to their examination of the consolidated
balance sheet of the Company as of October 31, 1994 and 1993 and related
consolidated statements of operations, shareholders' equity, and cash flows for
the three (3) years ended October 31, 1994, (iii) state that Deloitte & Touche
has performed the procedures set out in Statement on Auditing Standards No. 71
("SAS 71") for a review of interim financial information and providing the
report of Deloitte & Touche as described in SAS 71 on the financial statements
for each of the quarters in the nine-quarter period ended January 31, 1995 (the
"Quarterly Financial Statements"), (iv) state that in the course of such review,
nothing came to their attention that leads them to believe that any material
modifications need to be made to any of the Quarterly Financial Statements in
order for them to be in compliance with generally accepted accounting
principles, (v) state that nothing came to their attention that caused them to
believe that the pro forma financial statements and notes thereto contained in
the Company's Current Report on Form 8-K/A Amendment 1, dated January 27, 1995,
incorporated by reference in the Registration Statement and Prospectus do not
comply as to form in all material respects with the applicable accccounting
requirements of Rule 11-02 of Regulation S-X, and that the pro forma adjustments
thereto have not been properly applied to the historical amounts in the
compilation of such statements, and (vi) address other matters agreed upon by
Deloitte & Touche and you. In addition, you shall have received from Deloitte &
Touche a letter addressed to the Company and made available to you for the use
of the Underwriters stating that their review of the Company's system of
internal accounting controls, to the extent they deemed necessary in
establishing the scope of their examination of the Company's consolidated
financial statements as of October 31, 1994, did not disclose any weaknesses in
internal controls that they considered to be material weaknesses.
(g) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, a
certificate of the Company, dated the Closing Date or such later date on which
Option Shares are to be purchased, as the case may be, signed by the Chief
Executive Officer and Chief Financial Officer of the Company, to the effect
that, and you shall be satisfied that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date
or any later date on which Option Shares are to be purchased, as the case
may be, and the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at
or prior to the Closing Date or any later date on which Option Shares are
to be purchased, as the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or threatened under the Act;
(iii) When the Registration Statement became effective and at
all times subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus, and any amendments or
supplements thereto, and the Incorporated Documents contained all
material information required to be included therein by the Act and the
Rules and Regulations or the Exchange Act and the applicable rules and
regulations of the Commission thereunder, as the case may be, and in all
material respects conformed to the requirements of the Act and the Rules
and Regulations or the Exchange Act and the applicable rules and
regulations of the Commission thereunder, as the case may be, the
Registration
[24]
<PAGE> 24
Statement, and any amendment or supplement thereto, did not and does not
include any 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 not misleading, the Prospectus, and any amendment or
supplement thereto, did not and does not include any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, and, since the effective date of the
Registration Statement, there has occurred no event required to be set
forth in an amended or supplemented Prospectus which has not been so set
forth; and
(iv) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been
(a) any material adverse change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the
Company and its subsidiaries considered as one enterprise, (b) any
transaction that is material to the Company and its subsidiaries
considered as one enterprise, except transactions entered into in the
ordinary course of business, (c) any obligation, direct or contingent,
that is material to the Company and its subsidiaries considered as one
enterprise, incurred by the Company or its subsidiaries, except
obligations incurred in the ordinary course of business, (d) except for
the issuance of shares of Common Stock upon the exercise of the optios
subject to the Irrevocable Election Agreements, any change in the capital
stock or outstanding indebtedness of the Company or any of its
subsidiaries that is material to the Company and its subsidiaries
considered as one enterprise, (e) any dividend or distribution of any
kind declared, paid or made on the capital stock of the Company or any of
its subsidiaries, or (f) any loss or damage (whether or not insured) to
the property of the Company or any of its subsidiaries which has been
sustained or will have been sustained which has a material adverse effect
on the condition (financial or otherwise), earnings, operations, business
or business prospects of the Company and its subsidiaries considered as
one enterprise.
(h) You shall be satisfied that, and you shall have received a
certificate, dated the Closing Date, or any later date on which Option
Shares are to be purchased, as the case may be, from the Attorneys for
each Selling Shareholder to the effect that, as of the Closing Date, or
any later date on which Option Shares are to be purchased, as the case
may be, they have not been informed that:
(i) The representations and warranties made by such Selling
Shareholder herein are not true or correct in any material
respect on the Closing Date; or
(ii) Such Selling Shareholder has not complied with any
obligation or satisfied any condition which is required to be
performed or satisfied on the part of such Selling Shareholder at
or prior to the Closing Date or any later date on which Option
Shares are to be purchased, as the case may be.
(i) The Company shall have obtained and delivered to you an
agreement in writing prior to the date hereof from each executive officer and
director of the Company, each Selling Shareholder, except VLSI, and each
beneficial owner of shares of Common Stock as you shall have requested that such
person will not, during the Lock-up Period, effect the Disposition of any
Securities now owned or hereafter acquired directly by such person or with
respect to which such person has or hereafter acquires the power of disposition,
otherwise than (i) as a bona fide gift or gifts, provided the donee or donees
thereof agree in writing to be bound by this restriction, (ii) as a distribution
to partners or shareholders of such person, provided that the distributees
thereof agree in writing to be bound by the terms of this restriction, or (iii)
with the prior written consent of Robertson, Stephens & Company, L.P. The
foregoing restriction shall have been expressly agreed to preclude the holder of
the Securities from engaging in any hedging or other transaction which is
designed to or reasonably expected to lead to or result in a Disposition of
[24]
<PAGE> 25
Securities during the Lock-up Period, even if such Securities would be disposed
of by someone other than the such holder. Such prohibited hedging or other
transactions would include, without limitation, any short sale (whether or not
against the box) or any purchase, sale or grant of any right (including, without
limitation, any put or call option) with respect to any Securities or with
respect to any security (other than a broad-based market basket or index) that
includes, relates to or derives any significant part of its value from
Securities. Furthermore, such person will have also agreed and consented to the
entry of stop transfer instructions with the Company's transfer agent against
the transfer of the Securities held by such person except in compliance with
this restriction.
(j) The Company and the Selling Shareholders shall have
furnished to you such further certificates and documents as you shall reasonably
request (including certificates of officers of the Company, the Selling
Shareholders or officers of the Selling Shareholders (when the Selling
Shareholder is not a natural person)) as to the accuracy of the representations
and warranties of the Company and the Selling Shareholders herein, as to the
performance by the Company and the Selling Shareholders of their respective
obligations hereunder and as to the other conditions concurrent and precedent to
the obligations of the Underwriters hereunder.
All such opinions, certificates, letters and documents will be
in compliance with the provisions hereof only if they are reasonably
satisfactory to Underwriters' Counsel. The Company and the Selling Shareholders
will furnish you with such number of conformed copies of such opinions,
certificates, letters and documents as you shall reasonably request.
7. Option Shares.
(a) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company hereby grants to the several Underwriters, for the purpose of
covering over-allotments in connection with the distribution and sale of the
Firm Shares only, a nontransferable option to purchase up to an aggregate of
300,000 Option Shares at the purchase price per share for the Firm Shares set
forth in Section 3 hereof. Such option may be exercised by the Representatives
on behalf of the several Underwriters on one (1) or more occasions in whole or
in part during the period of thirty (30) days after the date on which the Firm
Shares are initially offered to the public, by giving written notice to the
Company. The number of Option Shares to be purchased by each Underwriter upon
the exercise of such option shall be the same proportion of the total number of
Option Shares to be purchased by the several Underwriters pursuant to the
exercise of such option as the number of Firm Shares purchased by such
Underwriter (set forth in Schedule A hereto) bears to the total number of Firm
Shares purchased by the several Underwriters (set forth in Schedule A hereto),
adjusted by the Representatives in such manner as to avoid fractional shares.
Delivery of definitive certificates for the Option Shares to be
purchased by the several Underwriters pursuant to the exercise of the option
granted by this Section 7 shall be made against payment of the purchase price
therefor by the several Underwriters by certified or official bank check or
checks drawn in next-day funds, payable to the order of the Company (and the
Company agrees not to deposit any such check in the bank on which it is drawn
until the day following the date of its delivery to the Company). Such delivery
and payment shall take place at the offices of Reid & Priest LLP, 40 West 57th
Street, New York, NY 10019 or at such other place as may be agreed upon among
the Representatives and the Company (i) on the Closing Date, if written notice
of the exercise of such option is received by the Company at least three (3)
full business days prior to the Closing Date, or (ii) on a date which shall not
be later than the fifth (5th) full business day following the date the Company
receives written notice of the exercise of such option, if such notice is
received by the Company less than three (3) full business days prior to the
Closing Date.
[25]
<PAGE> 26
The certificates for the Option Shares to be so delivered will
be made available to you at such office or such other location including,
without limitation, in New York City, as you may reasonably request for checking
at least two (2) full business days prior to the date of payment and delivery
and will be in such names and denominations as you may request, such request to
be made at least three (3) full business days prior to such date of payment and
delivery. If the Representatives so elect, delivery of the Option Shares may be
made by credit through full fast transfer to the accounts at The Depository
Trust Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the date of
payment and delivery for the Option Shares to be purchased by such Underwriter
or Underwriters. Any such payment by you shall not relieve any such Underwriter
or Underwriters of any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in Section 7(a)
hereof, the obligations of the several Underwriters to purchase such Option
Shares will be subject (as of the date hereof and as of the date of payment and
delivery for such Option Shares) to the accuracy of and compliance with the
representations, warranties and agreements of the Company and the Selling
Shareholders herein, to the accuracy of the statements of the Company, the
Selling Shareholders and officers of the Company made pursuant to the provisions
hereof, to the performance by the Company and the Selling Shareholders of their
respective obligations hereunder, to the conditions set forth in Section 6
hereof, and to the condition that all proceedings taken at or prior to the
payment date in connection with the sale and transfer of such Option Shares
shall be satisfactory in form and substance to you and to Underwriters' Counsel,
and you shall have been furnished with all such documents, certificates and
opinions as you may request in order to evidence the accuracy and completeness
of any of the representations, warranties or statements, the performance of any
of the covenants or agreements of the Company and the Selling Shareholders or
the satisfaction of any of the conditions herein contained.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject (including, without
limitation, in its capacity as an Underwriter or as a "qualified independent
underwriter" within the meaning of Schedule E of the Bylaws of the NASD), under
the Act, the Exchange Act or otherwise, specifically including, but not limited
to, losses, claims, damages or liabilities, (or actions in respect thereof)
arising out of or based upon (i) any breach of any representation, warranty,
agreement or covenant of the Company herein contained, (ii) any untrue statement
or alleged untrue statement of any material fact contained in the Registration
Statement or any amendment or supplement thereto, including any Incorporated
Document, 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, or (iii) any untrue statement or alleged untrue statement of any
material fact contained in any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, including any Incorporated Document, or the
omission or alleged omission to state therein 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, and agrees to
reimburse each Underwriter for any legal or other expenses reasonably incurred
by it in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, such Preliminary Prospectus or the Prospectus, or any
such amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to
[26]
<PAGE> 27
any Underwriter furnished to the Company by such Underwriter, directly or
through you, specifically for use in the preparation thereof and, provided
further, that the indemnity agreement provided in this Section 8(a) with respect
to any Preliminary Prospectus shall not inure to the benefit of any Underwriter
from whom the person asserting any losses, claims, damages, liabilities or
actions based upon any untrue statement or alleged untrue statement of material
fact or omission or alleged omission to state therein a material fact purchased
Shares, if a copy of the Prospectus in which such untrue statement or alleged
untrue statement or omission or alleged omission was corrected had not been sent
or given to such person within the time required by the Act and the Rules and
Regulations, unless such failure is the result of noncompliance by the Company
with Section 4(d) hereof.
The indemnity agreement in this Section 8(a) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each person, if
any, who controls any Underwriter within the meaning of the Act or the Exchange
Act. This indemnity agreement shall be in addition to any liabilities which the
Company may otherwise have.
(b) Each Selling Shareholder, severally and not jointly, agrees to
indemnify and hold harmless each Underwriter against any losses, claims, damages
or liabilities, joint or several, to which such Underwriter may become subject
(including, without limitation, in its capacity as an Underwriter or as a
"qualified independent underwriter" within the meaning of Schedule E of the
Bylaws of the NASD) under the Act, the Exchange Act or otherwise, specifically
including, but not limited to, losses, claims, damages or liabilities (or
actions in respect thereof) arising out of or based upon (i) any breach of any
representation, warranty, agreement or covenant of such Selling Shareholder
herein contained, (ii) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment or
supplement thereto, including any Incorporated Document, 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, or (iii) any untrue
statement or alleged untrue statement of any material fact contained in any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
including any Incorporated Document, or the omission or alleged omission to
state therein a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading, in the
case of subparagraphs (ii) and (iii) of this Section 8(b) to the extent, but
only to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company or such Underwriter by such Selling
Shareholder, directly or through such Selling Shareholder's representatives,
specifically for use in the preparation thereof, and agrees to reimburse each
Underwriter for any legal or other expenses reasonably incurred by it in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement provided in
this Section 8(b) with respect to any Preliminary Prospectus shall not inure to
the benefit of any Underwriter from whom the person asserting any losses,
claims, damages, liabilities or actions based upon any untrue statement or
alleged untrue statement of a material fact or omission or alleged omission to
state therein a material fact purchased Shares, if a copy of the Prospectus in
which such untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been sent or given to such person within the time
required by the Act and the Rules and Regulations, unless such failure is the
result of noncompliance by the Company with Section 4(d) hereof; and provided,
further, that, with respect to any indemnification arising out of or based upon
any breach of any representation contained in Section 2 hereof, the Underwriters
agree to exhaust their remedies against the Company before proceeding against
the Selling Shareholders.
The indemnity agreement in this Section 8(b) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each person, if
any, who controls any Underwriter within the meaning of the Act or the Exchange
Act. This indemnity agreement shall be in addition to any liabilities which such
Selling Shareholder may otherwise have.
[27]
<PAGE> 28
(c) Each Underwriter, severally and not jointly, agrees to indemnify
and hold harmless the Company and each Selling Shareholder against any losses,
claims, damages or liabilities, joint or several, to which the Company or such
Selling Shareholder may become subject under the Act or otherwise, specifically
including, but not limited to, losses, claims, damages or liabilities, (or
actions in respect thereof) arising out of or based upon (i) any breach of any
representation, warranty, agreement or covenant of such Underwriter herein
contained, (ii) any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement or any amendment or supplement
thereto, including any Incorporated Document, 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, or (iii) any untrue
statement or alleged untrue statement of any material fact contained in any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
including any Incorporated Document, or the omission or alleged omission to
state therein a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading, in the
case of subparagraphs (ii) and (iii) of this Section 8(c) to the extent, but
only to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by such Underwriter, directly or
through you, specifically for use in the preparation thereof, and agrees to
reimburse the Company and each such Selling Shareholder for any legal or other
expenses reasonably incurred by the Company and each such Selling Shareholder in
connection with investigating or defending any such loss, claim, damage,
liability or action.
The indemnity agreement in this Section 8(c) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each officer of the
Company who signed the Registration Statement and each director of the Company,
each Selling Shareholder and each person, if any, who controls the Company or
any Selling Shareholder within the meaning of the Act or the Exchange Act. This
indemnity agreement shall be in addition to any liabilities which each
Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against any indemnifying
party under this Section 8, notify the indemnifying party in writing of the
commencement thereof but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under this Section 8 and, without limiting the generality of the
foregoing, shall not relieve it of any liability it may have to any indemnified
party under this Section 8, except to the extent that it has been prejudiced by
such omission. In case any such action is brought against any indemnified party,
and it notified the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the extent
that it shall elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party; provided, however, that if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, the indemnified
party or parties shall have the right to select separate counsel to assume such
legal defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties. Upon receipt of notice from the
indemnifying party to such indemnified party of the indemnifying party's
election so to assume the defense of such action and approval by the indemnified
party of counsel, the indemnifying party will not be liable to such indemnified
party under this Section 8 for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) approved by the
indemnifying party representing all the indemnified parties under Section 8(a),
8(b) or 8(c) hereof who are parties to such action), (ii) the indemnifying party
shall not have
[28]
<PAGE> 29
employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of commencement of the
action or (iii) the indemnifying party has authorized the employment of counsel
for the indemnified party at the expense of the indemnifying party. In no event
shall any indemnifying party be liable in respect of any amounts paid in
settlement of any action unless the indemnifying party shall have approved the
terms of such settlement; provided that such consent shall not be unreasonably
withheld. No indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened proceeding
in respect of which any indemnified party is or could have been a party and
indemnification could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on all claims that are the subject matter of such
proceeding.
(e) In order to provide for just and equitable contribution in any
action in which a claim for indemnification is made pursuant to this Section 8
but it is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 8 provides for
indemnification in such case, all the parties hereto shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that, except as set forth
in Section 8(f) hereof, the Underwriters severally and not jointly are
responsible pro rata for the portion represented by the percentage that the
underwriting discount bears to the initial public offering price, and the
Company and the Selling Shareholders are responsible for the remaining portion,
provided, however, that (i) no Underwriter shall be required to contribute any
amount in excess of the amount by which the underwriting discount applicable to
the Shares purchased by such Underwriter exceeds of the amount of damages which
such Underwriter has otherwise been required to pay and (ii) no person guilty of
a fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. The contribution agreement in this Section 8(e)
shall extend upon the same terms and conditions to, and shall inure to the
benefit of, each person, if any, who controls any Underwriter, the Company or
any Selling Shareholder within the meaning of the Act or the Exchange Act and
each officer of the Company who signed the Registration statement and each
director of the Company.
(f) The liability of each Selling Shareholder under the
representations, warranties and agreements contained herein and under the
indemnity and contribution agreements contained in the provisions of this
Section 8 shall be limited to an amount equal to the initial public offering
price of the Selling Shareholder Shares sold by such Selling Shareholder to the
Underwriters minus the amount of the underwriting discount paid thereon to the
Underwriters by such Selling Shareholder. The Company and such Selling
Shareholders may agree, as among themselves and without limiting the rights of
the Underwriters under this Agreement, as to the respective amounts of such
liability for which they each shall be responsible.
(g) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 8, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 8 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act. The parties are advised that federal or state public policy, as interpreted
by the courts in certain jurisdictions, may be contrary to certain of the
provisions of this Section 8, and the parties hereto hereby expressly waive and
relinquish any right or ability to assert such public policy as a defense to a
claim under this Section 8 and further agree not to attempt to assert any such
defense.
[29]
<PAGE> 30
9. Representations, Warranties, Covenants and Agreements to Survive
Delivery. All representations, warranties, covenants and agreements of the
Company, the Selling Shareholders and the Underwriters herein or in certificates
delivered pursuant hereto, and the indemnity and contribution agreements
contained in Section 8 hereof shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any Underwriter
or any person controlling any Underwriter within the meaning of the Act or the
Exchange Act, or by or on behalf of the Company or any Selling Shareholder, or
any of their officers, directors or controlling persons within the meaning of
the Act or the Exchange Act, and shall survive the delivery of the Shares to the
several Underwriters hereunder or termination of this Agreement.
10. Substitution of Underwriters. If any Underwriter or Underwriters
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such Firm
Shares in accordance with the terms hereof, and if the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective commitments
hereunder, to take up and pay for the Firm Shares of such defaulting Underwriter
or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters agreed
but failed to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for
twenty-four (24) hours to allow the several Underwriters the privilege of
substituting within twenty-four (24) hours (including non-business hours)
another underwriter or underwriters (which may include any nondefaulting
Underwriter) satisfactory to the Company. If no such underwriter or underwriters
shall have been substituted as aforesaid by such postponed Closing Date, the
Closing Date may, at the option of the Company, be postponed for a further
twenty-four (24) hours, if necessary, to allow the Company the privilege of
finding another underwriter or underwriters, satisfactory to you, to purchase
the Firm Shares which the defaulting Underwriter or Underwriters so agreed but
failed to purchase. If it shall be arranged for the remaining Underwriters or
substituted underwriter or underwriters to take up the Firm Shares of the
defaulting Underwriter or Underwriters as provided in this Section 10, (i) the
Company shall have the right to postpone the time of delivery for a period of
not more than seven (7) full business days, in order to effect whatever changes
may thereby be made necessary in the Registration Statement or the Prospectus,
or in any other documents or arrangements, and the Company agrees promptly to
file any amendments to the Registration Statement, supplements to the Prospectus
or other such documents which may thereby be made necessary, and (ii) the
respective number of Firm Shares to be purchased by the remaining Underwriters
and substituted underwriter or underwriters shall be taken as the basis of their
underwriting obligation. If the remaining Underwriters shall not take up and pay
for all such Firm Shares so agreed to be purchased by the defaulting Underwriter
or Underwriters or substitute another underwriter or underwriters as aforesaid
and the Company shall not find or shall not elect to seek another underwriter or
underwriters for such Firm Shares as aforesaid, then this Agreement shall
terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 10, neither the Company nor any Selling
Shareholder shall be liable to any Underwriter (except as provided in Sections 5
and 8 hereof) nor shall any Underwriter (other than an Underwriter who shall
have failed, otherwise than for some reason permitted under this Agreement, to
purchase the number of Firm Shares agreed by such Underwriter to be purchased
hereunder, which Underwriter shall remain liable to the Company, the Selling
Shareholders and the other Underwriters for damages, if any, resulting from such
[30]
<PAGE> 31
default) be liable to the Company or any Selling Shareholder (except to the
extent provided in Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 10.
11. Effective Date of this Agreement and Termination.
(a) This Agreement shall become effective at the earlier of (i)
6:30 A.M., local San Francisco time, on the first full business day following
the effective date of the Registration Statement, or (ii) the time of the
initial public offering of any of the Shares by the Underwriters after the
Registration Statement becomes effective. The time of the initial public
offering shall mean the time of the release by you, for publication, of the
first newspaper advertisement relating to the Shares, or the time at which the
Shares are first generally offered by the Underwriters to the public by letter,
telephone, telegram or telecopy, whichever shall first occur. By giving notice
as set forth in Section 12 before the time this Agreement becomes effective,
you, as Representatives of the several Underwriters, or the Company, may prevent
this Agreement from becoming effective without liability of any party to any
other party, except as provided in Sections 4(i), 5 and 8 hereof.
(b) You, as Representatives of the several Underwriters, shall
have the right to terminate this Agreement by giving notice as hereinafter
specified at any time on or prior to the Closing Date or on or prior to any
later date on which Option Shares are to be purchased, as the case may be, (i)
if the Company or any Selling Shareholder shall have failed, refused or been
unable to perform any agreement on its part to be performed, or because any
other condition of the Underwriters' obligations hereunder required to be
fulfilled is not fulfilled, including, without limitation, any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise from
that set forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse, or (ii) if additional material governmental
restrictions, not in force and effect on the date hereof, shall have been
imposed upon trading in securities generally or minimum or maximum prices shall
have been generally established on the New York Stock Exchange or on the
American Stock Exchange or in the over the counter market by the NASD, or
trading in securities generally shall have been suspended on either such
exchange or in the over the counter market by the NASD, or if a banking
moratorium shall have been declared by federal, New York or California
authorities, or (iii) if the Company shall have sustained a loss by strike,
fire, flood, earthquake, accident or other calamity of such character as to
interfere materially with the conduct of the business and operations of the
Company regardless of whether or not such loss shall have been insured, or (iv)
if there shall have been a material adverse change in the general political or
economic conditions or financial markets as in your reasonable judgment makes it
inadvisable or impracticable to proceed with the offering, sale and delivery of
the Shares, or (v) if there shall have been an outbreak or escalation of
hostilities or of any other insurrection or armed conflict or the declaration by
the United States of a national emergency which, in the reasonable opinion of
the Representatives, makes it impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus. Any termination
pursuant to any of subparagraphs (ii) through (v) above shall be without
liability of any party to any other party except as provided in Sections 5 and 8
hereof. In the event of termination pursuant to subparagraph (i) above, the
Company shall also remain obligated to pay costs and expenses pursuant to
Sections 4(i), 5 and 8 hereof.
If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company by telephone, telecopy or telegram, in each case confirmed by
letter. If the Company shall elect to prevent this Agreement from becoming
effective, the Company shall promptly notify you by telephone, telecopy or
telegram, in each case, confirmed by letter.
[31]
<PAGE> 32
12. Notices. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall be
mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to you c/o Robertson, Stephens & Company, L.P., 555
California Street, Suite 2600, San Francisco, California 94104, telecopier
number (415) 781-0278, Attention: Brian Bean, with a copy to Wilson Sonsini
Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California 94304, telecopier
number (415) 496-4084, Attention: Alan K. Austin; if sent to the Company or one
or more of the Selling Shareholders, such notice shall be mailed, delivered,
telegraphed (and confirmed by letter) or telecopied (and confirmed by letter) to
Photronics, Inc., 15 Secor Road, P.O. Box 5226, Brookfield, Connecticut 06804,
telecopier number (203) 775-5601, Attention: Jeffrey Moonan, General Counsel.
13. Parties. This Agreement shall inure to the benefit of and be binding
upon the several Underwriters, the Company and the Selling Shareholders and
their respective executors, administrators, successors and assigns. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any person or entity, other than the parties hereto and their respective
executors, administrators, successors and assigns, and the controlling persons
within the meaning of the Act or the Exchange Act, officers and directors
referred to in Section 8 hereof, any legal or equitable right, remedy or claim
in respect of this Agreement or any provisions herein contained, this Agreement
and all conditions and provisions hereof being intended to be and being for the
sole and exclusive benefit of the parties hereto and their respective executors,
administrators, successors and assigns and said controlling persons and said
officers and directors, and for the benefit of no other person or entity. No
purchaser of any of the Shares from any Underwriter shall be construed a
successor or assign by reason merely of such purchase.
In all dealings with the Company and the Selling Shareholders under
this Agreement, you shall act on behalf of each of the several Underwriters, and
the Company and the Selling Shareholders shall be entitled to act and rely upon
any statement, request, notice or agreement made or given by you jointly or by
Robertson, Stephens & Company, L.P. on behalf of you.
14. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California.
15. Counterparts. This Agreement may be signed in several counterparts,
each of which will constitute an original.
[32]
<PAGE> 33
If the foregoing correctly sets forth the understanding among the
Company, the Selling Shareholders and the several Underwriters, please so
indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement among the Company, the Selling Shareholders
and the several Underwriters.
Very truly yours,
PHOTRONICS, INC.
By________________________
SELLING SHAREHOLDERS
By________________________
Attorney-in-Fact for
the Selling Shareholders
named in Schedule B
hereto.
Accepted as of the date first above written:
ROBERTSON, STEPHENS & COMPANY, L.P.
PRUDENTIAL SECURITIES INCORPORATED
NEEDHAM & COMPANY, INC.
On their behalf and on behalf of each of the
several Underwriters named in
Schedule A hereto.
By: ROBERTSON, STEPHENS & COMPANY, L.P.
By: ROBERTSON, STEPHENS & COMPANY, INC.
By _____________________________________
Authorized Signatory
[33]
<PAGE> 34
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Firm Shares
To Be
Underwriters Purchased
------------------------------------------------------------------------------ -----------
<S> <C>
Robertson, Stephens & Company, L.P........................................................
Prudential Securities Incorporated
Needham & Company, Inc. --------
Total................................................................................ ========
</TABLE>
<PAGE> 35
SCHEDULE B
<TABLE>
<CAPTION>
Number of
Company
Shares To
Company Be Sold
-------------------------------------------------------------------------- ----------
<S> <C>
Photronics, Inc. 1,465,900
Total.................................................................................. 1,465,900
Number of
Selling
Shareholder
Shares
Name of Selling Shareholder To Be Sold
------------------------------------------------------------------------ -----------
<S> <C>
Constantine S. Macricostas 242,500
Constantine S. Macricostas Personal Income Trust for the 100,000
benefit of George Macricostas, c/o Chemical Bank, Trustee
Constantine S. Macricostas Personal Income Trust for the 100,000
benefit of Stephen Macricostas, c/o Chemical Bank, Trustee
Jeffrey P. Moonan 25,000
Michael J. Yomazzo 59,100
VLSI Technology, Inc. 7,500
-------
Total.................................................................................. 534,100
=======
</TABLE>
<PAGE> 1
Exhibit 5
Reid & Priest LLP
40 West 57th Street
New York, New York 10019
New York, New York
March 24, 1995
Photronics, Inc.
1061 East Indiantown Road, Suite 318
Jupiter, Florida 33477
Re: Photronics, Inc.
Registration Statement on Form S-3
----------------------------------
Dear Sirs:
We have acted as counsel for Photronics, Inc., a Connecticut
corporation (the "Company"), in connection with the preparation and filing of a
Registration Statement on Form S-3 under the Securities Act of 1933, as amended
(the "Act"), with respect to the proposed offering of up to 2,300,000 shares of
Common Stock, par value $.01 per share (the "Common Stock"), including (i)
1,765,900 shares of Common Stock to be issued and sold by the Company,
including 300,000 shares of Common Stock that are the subject of an
over-allotment option granted to the Underwriters, and (ii) 534,100 shares of
Common Stock by certain selling shareholders (the "Selling Shareholders"),
including (a) 84,100 shares of Common Stock (the "Option Shares") to be issued
by the Company upon the exercise of certain currently exercisable stock options
(the "Stock Options") and (b) 7,500 shares of Common Stock (the "Warrant
Shares") to be issued by the Company upon the exercise of a warrant (the
"Warrant") and sold by certain Selling Shareholders.
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of the Certificate of Incorporation and By-laws
of the Company, each as amended, and the proposed underwriting agreement among
the Company, the Selling Shareholders and the
<PAGE> 2
Photronics, Inc.
March 24, 1995
Page 2
representatives of the several Underwriters in the form filed as Exhibit 1 to
the Registration Statement (the "Underwriting Agreement") and such other
documents, corporate records, certificates of public officials and instruments
as we have considered necessary or advisable for the purpose of this opinion.
We have assumed the authenticity of all documents submitted to us as originals
and the conformity to original documents of all documents submitted to us as
copies. We have not independently verified such information and assumptions.
We are not members of the Bar of any jurisdiction other than
the State of New York, and we express no opinion as to the law of any
jurisdiction other than the laws of the State of New York. Insofar as our
opinion concerns Connecticut law, we have relied upon the opinion of Cohen and
Wolf, P.C., which we have attached hereto, and our opinion is subject to such
qualifications and assumptions set forth in such opinion, which are incorporated
herein.
Subject to the foregoing, and based on such examination and
review, we are of the opinion that:
1. The Company is a corporation organized and existing
in good standing under the laws of the State of Connecticut.
2. The 1,765,900 shares of Common Stock proposed to be
offered by the Company, when issued and delivered upon payment therefor in
accordance with the terms and conditions of the Underwriting Agreement, will be
duly authorized, validly issued, fully paid and non-assessable.
3. Of the 534,100 shares of Common Stock proposed to be
offered by the Selling Shareholders (i) 422,500 shares of Common Stock have been
duly authorized, are validly issued, fully paid and non-assessable, and (ii)
84,100 shares of Common Stock issuable upon exercise of the Stock Options have
been duly authorized and reserved for issuance, and, when issued in accordance
with the terms and conditions thereof, such Option Shares will be validly
issued, fully paid and non-assessable and (iii) 7,500 shares of Common Stock
issuable upon exercise of the Warrant have been duly authorized and reserved
for issuance, and, when issued in accordance with the terms and conditions
thereof, such Warrant Shares will be validly issued, fully paid and
non-assessable.
<PAGE> 3
Photronics, Inc.
March 24, 1995
Page 3
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference to us contained under the
heading "Legal Matters" in the Prospectus which forms part of the Registration
Statement. In giving the foregoing consent, we do not thereby admit that we
belong to the category of persons whose consent is required under Section 7 of
the Act, or the rules and regulations promulgated by the Securities and
Exchange Commission thereunder.
Very truly yours,
/s/ Reid & Priest LLP
<PAGE> 4
Cohen and Wolf, P.C.
March 23, 1995
Reid & Priest LLP
40 West 57th Street
New York, NY 10019
Re: Photronics, Inc.
----------------
Ladies and Gentlemen:
We have been requested by Photronics, Inc., a Connecticut corporation
(the "Company"), to furnish you our opinion in connection with the public
offering (the "Offer") of up to 1,765,900 shares of the Company's common stock,
par value $.01 per share (the "Common Stock"), by the Company, including up to
300,000 shares that are the subject of an over-allotment option granted to the
several underwriters (the "Underwriters"), and of up to 534,100 shares of
Common Stock by certain shareholders (the "Selling Shareholders") whose names
are set forth in the Registration Statement (as defined below), including
91,600 shares (the "Option Shares") to be issued by the Company upon the
exercise of certain options (the "Options") and a warrant (the "Warrant"). The
shares of Common Stock to be sold by the Company and the Selling Shareholders
are sometimes referred to herein, as applicable, as the "Securities." The
Offer is to be made pursuant to a Registration Statement on Form S-3 (the
"Registration Statement"), under the Securities Act of 1933, as amended.
In connection with rendering this opinion, we have examined originals,
or copies certified or otherwise identified to our satisfaction, of such
corporate records and other instruments as we have deemed necessary or
appropriate for the purposes of rendering this opinion, including: (a) the
Certificate of Incorporation, as amended, of the Company; (b) the by-laws, as
amended, of the Company; (c) the minutes of meetings or written consents of the
Board of Directors of the Company (the "Board"), including the resolutions
adopted by the Board on March 16, 1995 with respect to the Offer; (d) the draft
underwriting agreement among the Company, the Selling Shareholders and the
representatives of the several Underwriters in the form filed as Exhibit 1 to
the Registration Statement (the "Underwriting Agreement"); (e) the Registration
Statement; (f) two separate Trust Agreements, each dated June 3, 1988, with
respect to the Constantine S. Macricostas Personal Income Trust f/b/o George
Macricostas and with respect to the Constantine S. Macricostas Personal Income
Trust f/b/o Stephen Macricostas (each as in existence
<PAGE> 5
March 23, 1995
Page 2
on April 26, 1991); (g) the Company's 1988 Non-Qualified Stock Option
Plan and 1992 Stock Option Plan (the "Plans") and the Non-Qualified Stock
Option Agreements (collectively, the "Option Agreements") between the Company
and certain of the Selling Shareholders evidencing the Option Shares; and (h)
the Warrant issued by the Company to VLSI Technology, Inc. to purchase 7,500
shares of Common Stock (the "Warrant Shares"). We have also examined such
other documents, records, certificates of public officials and such other
matters of law as we have deemed necessary or appropriate for the purposes of
this opinion.
In our examination of the foregoing instruments, certificates and other
documents, we have assumed that: (a) the statements of facts made therein are
accurate and complete; (b) the signatures on documents and instruments submitted
to us as originals are authentic; (c) the required consideration for shares of
Common Stock to be sold by the Selling Shareholders has been fully paid to the
Company; and (d) documents submitted to us as copies of original documents
conform with the originals thereof and the originals thereof are authentic.
Based upon the foregoing and in reliance thereon, and subject to the
assumptions, exceptions, qualifications and limitations set forth herein, we
are of the opinion that:
1. The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Connecticut.
2. The Securities to be sold by the Company have been duly
authorized by all necessary corporate action of the Company and, when issued
and delivered to and paid for by the Underwriters pursuant to the Underwriting
Agreement, will be validly issued, fully paid and non-assessable.
3. Of the shares of Common Stock proposed to be offered by the
Selling Shareholders (i) 442,500 shares of Common Stock have been duly
authorized, are validly issued, fully paid and non-assessable, (ii) 84,100
shares of Common Stock issuable upon exercise of the Option Agreements have been
duly authorized and reserved for issuance and, when issued in accordance with
the terms and conditions thereof and the Plans, such Option Shares will be
validly issued, fully paid and non-assessable and (iii) 7,500 shares of Common
Stock issuable upon exercise of the Warrant have been duly authorized and
reserved for issuance and, when issued in accordance with the terms and
conditions thereof, such Warrant Shares will be validly issued, fully paid and
non-assessable.
The opinions expressed herein are qualified in their entirety insofar
as no opinion is expressed herein with respect to laws other than the laws of
the State of Connecticut.
<PAGE> 6
March 23, 1995
Page 3
We understand that you will be relying upon this opinion to enable you
to opine with respect to the validity of the Securities included in the Offer,
and that your opinion will be included as an exhibit to the Registration
Statement. We hereby consent to such reliance.
Very truly yours,
COHEN AND WOLF, P.C.
By: /s/ Richard A. Krantz
---------------------
Richard A. Krantz
Vice President
RK:clh
<PAGE> 1
EXHIBIT 23(A)
Independent Auditors' Consent
We consent to the use in this Registration Statement of Photronics, Inc. on
Form S-3 of our report dated December 13, 1994 (March 20, 1995 as to note 14)
appearing in the Prospectus, which is part of this Registration Statement, and
to the incorporation by reference of our report dated December 13, 1994 relating
to the financial statement schedule incorporated by reference in this
Registration Statement and to the reference to us under the headings "Selected
Financial Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Hartford, Connecticut
March 23, 1995
<PAGE> 1
EXHIBIT 23(C)
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Photronics, Inc.:
We consent to the incorporation by reference in the Registration Statement
on Form S-3 of Photronics, Inc. of our report dated November 18, 1994, except as
to Note 8 which is as of November 30, 1994, with respect to the balance sheet of
Hoya Micro Mask, Inc. as of March 31, 1994 and 1993, and the related statements
of operations and accumulated deficit, and cash flows for the years then ended,
which report appears in the Form 8-K/A of Photronics, Inc. dated January 27,
1995 and to the reference to our firm under the heading "Experts" in the
prospectus.
KPMG Peat Marwick LLP
San Jose, California
March 23, 1995
