<PAGE>
As filed with the Securities and Exchange Commission on January 21, 2000
Registration No. 333-88739
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
to
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
PHOTRONICS, INC.
(Exact name of registrant as specified in its charter)
Connecticut 3861 06-0854886
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation) Classification Code Number) Identification No.)
1061 East Indiantown Road
Jupiter, Florida 33477
(561) 745-1222
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Jeffrey P. Moonan, Esq.
Executive Vice President and General Counsel
Photronics, Inc.
15 Secor Road
Brookfield, CT 06804
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Steven L. Wasserman, Esq. Richard A. Boehmer, Esq.
Paul, Hastings, Janofsky & Walker LLP O'Melveny & Myers LLP
399 Park Avenue 400 South Hope Street
New York, New York 10022-4697 Los Angeles, California 90017
(212) 318-6000 (213) 430-6000
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the consummation of the Merger (as defined below).
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_] _____
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [_] ______
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
<S> <C> <C> <C> <C>
Title of each class of Amount to be Proposed maximum Proposed maximum Amount of
securities to be registered registered (1) offering price per share aggregate offering price (2) registration fee (2)
====================================================================================================================================
Common Stock, par value 4,426,392 shares Not Applicable __________ __________
$.01 per share.............
</TABLE>
(1) Represents the estimated number of shares of common stock, par value
$.01 per share ("Photronics Common Stock"), issuable by the
Registrant upon consummation of the merger (the "Merger") of a
subsidiary of the Registrant with and into Align-Rite International,
Inc. ("Align-Rite"). Registrant previously registered 5,725,669
shares of common stock and previously paid $26,872.76.
(2) Pursuant to Rules 457(f)(1) and 457(c), the registration fee was
computed on the basis of (a) the average of the high and low prices
of the common stock of Align-Rite as reported on the Nasdaq National
Market on January 14, 2000 ($21.25) multiplied by (b) 5,207,521 the
maximum number of shares of Align-Rite common stock which will be
converted into shares of Photronics common stock pursuant to the
merger.
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.
<PAGE>
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 State.
Subject to Completion, dated January 21, 2000
MERGER PROPOSED-- YOUR VOTE IS IMPORTANT.
As you may know, the board of directors of Align-Rite International,
Inc. has agreed on a merger with Photronics, Inc. that will create the world's
largest photomask manufacturer. If we complete the merger, Align-Rite will
become a wholly owned subsidiary of Photronics and Align-Rite shareholders will
receive Photronics common stock in exchange for their Align-Rite common stock.
Upon completion of the merger, you will receive .85 of a share of Photronics
common stock for each share of Align-Rite common stock that you own. The market
value of the Photronics common stock that you will receive in the merger for
each share of Align-Rite common stock would be $24.225 based upon the Photronics
closing stock price of $28.50 on January 10, 2000.
Photronics common stock is traded on the Nasdaq National Market under
the symbol "PLAB." The maximum number of shares of Photronics common stock to be
issued in the merger is 4,426,392 shares.
Our board of directors believes that the merger is advisable and in
your best interest and unanimously recommends that you vote for the proposals
relating to the merger.
For a description of significant considerations in connection with
the merger and related matters described in this document, see "Risk Factors"
beginning on page ..
Neither the Securities and Exchange Commission nor any state
securities regulators has approved or disapproved of the Photronics common stock
to be issued in the merger or determined whether this document is accurate or
adequate. Any representation to the contrary is a criminal offense.
This proxy statement/prospectus is dated January o, 2000 and is being mailed to
Align-Rite shareholders on January o, 2000.
<PAGE>
ALIGN-RITE INTERNATIONAL, INC.
2428 Ontario Street
Burbank, California 91504
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 29, 2000
-------------------------
A special meeting of shareholders of Align-Rite International, Inc.
will be held on February 29, 2000, at [_______] a.m., local time, at the
[_______________], [____________________], [______], [_________], [_________]
for the purposes of considering and acting on the following proposals:
1. A proposal to approve and adopt the principal terms of the Agreement
and Plan of Merger, dated as of September 15, 1999, among Photronics,
Inc., AL Acquisition Corp., a wholly-owned subsidiary of Photronics,
and Align-Rite International, Inc., as amended, as of January 10,
2000. A copy of the merger agreement and of Amendment No. 1 to the
merger agreement are attached to the accompanying Proxy
Statement/Prospectus as Annexes A and B.
2. To transact such other business as may properly be presented at the
special meeting of shareholders or any adjournment or postponement
thereof.
Holders of record of the Align-Rite common stock at the close of
business on January 6, 2000 are entitled to notice of and to vote at the special
meeting of shareholders.
The board of directors of Align-Rite unanimously recommends that
shareholders vote FOR approval of the principal terms of the merger agreement,
as amended, and the merger. The affirmative vote of the holders of a majority of
the outstanding shares of Align-Rite common stock is required to approve the
principal terms of the merger agreement, as amended, and approve the merger. The
merger will not be completed unless the merger is approved by the Align-Rite
shareholders.
The accompanying Proxy Statement/Prospectus gives you more
information about the merger. We have enclosed a proxy card for you to cast your
vote.
<PAGE>
Whether or not you plan to attend the special meeting of shareholders
in person, please complete, date, sign and return the enclosed proxy card in the
enclosed envelope. You may revoke your proxy in writing or in person at any time
before the special meeting of shareholders in accordance with the instructions
in the accompanying Proxy Statement/Prospectus. If your proxy card is signed,
dated and returned without specifying your choice, the shares will be voted as
recommended by the directors.
By Order of the Board of Directors
Petar N. Katurich
Secretary
Burbank, California
January o, 2000
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
Section Page
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER................................................................................... 1
SUMMARY .............................................................................................................. 4
RISK FACTORS............................................................................................................. 18
The value of Photronics common stock to be received in the merger will
fluctuate..................................................................................................... 18
The merger may be terminated if Photronics' stock price falls
substantially................................................................................................. 18
We may have difficulties in combining the operations of Photronics and
Align-Rite.................................................................................................... 19
We depend on demand for integrated circuit design activity by the
semiconductor industry, which fluctuates...................................................................... 19
We may experience fluctuations in our quarterly operating results............................................. 19
Rapid technological change may affect our operations.......................................................... 20
Our operations require significant capital investments........................................................ 20
Photronics depends on major customers, the loss of which could adversely
affect its operating results and financial condition......................................................... 21
Photronics depends on major suppliers and the inability to obtain
equipment or raw materials when required could affect adversely its
business and results of operations............................................................................ 21
Our acquisition strategy could place significant demands on our
management and systems........................................................................................ 22
Our operations in international markets could pose risks...................................................... 22
We will depend on key personnel of Photronics and Align-Rite.................................................. 23
Forward-looking statements.................................................................................... 23
THE SPECIAL MEETING..................................................................................................... 25
Time and Place; Purposes..................................................................................... 25
Record Date; Voting Rights................................................................................... 25
Vote Required................................................................................................. 25
Quorum .................................................................................................... 25
Proxies; Revocation of Proxies................................................................................ 26
Solicitation of Proxies....................................................................................... 27
Share Ownership of Management................................................................................. 27
INFORMATION ABOUT ALIGN-RITE............................................................................................. 28
Beneficial Ownership of Align-Rite Common Stock............................................................... 28
INFORMATION ABOUT PHOTRONICS.................................................................................. 29
Beneficial Ownership of Photronics Common Stock............................................................... 31
THE MERGER .............................................................................................................. 33
Structure of the Merger....................................................................................... 33
</TABLE>
i
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<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
Merger Consideration.......................................................................................... 33
No Fractional Shares.......................................................................................... 33
Effective Time of the Merger.................................................................................. 34
Background of the Merger...................................................................................... 34
Align-Rite Board Reasons for the Merger; Recommendation of the Align-Rite
Board............................................................................................... 39
Opinions of Financial Advisors................................................................................ 41
Interests of Key Persons in the Merger........................................................................ 71
U.S. Federal Income Tax Consequences.......................................................................... 73
Anticipated Accounting Treatment ; Sale of 1,000,000 Shares of Photronics
Common Stock.........................................................................................76
Regulatory Approvals.......................................................................................... 77
Percentage Ownership Interest of Align-Rite Shareholders After the Merger..................................... 77
Dissenters' Rights............................................................................................ 78
Nasdaq National Market Listing................................................................................ 80
Consequences of the Merger.................................................................................... 81
Management After the Merger................................................................................... 81
Resales of Photronics Common Stock............................................................................ 81
TERMS OF THE MERGER AGREEMENT............................................................................................ 81
Conversion of Shares in the Merger............................................................................ 81
Exchange Agent; Procedures for Exchange of Certificates....................................................... 82
Representations and Warranties................................................................................ 83
Conduct of Business Pending the Merger........................................................................ 85
Other Covenants............................................................................................... 87
Shareholders meeting..........................................................................................88
Access to Information; Confidentiality........................................................................ 88
Filings; Other Actions........................................................................................ 88
No Solicitation............................................................................................... 89
Sale of Shares by Photronics.................................................................................. 90
Conditions to the Merger...................................................................................... 90
Indemnification of Directors and Officers..................................................................... 92
Termination................................................................................................... 93
Fees and Expenses............................................................................................. 94
Termination Fee............................................................................................... 94
Amendment .................................................................................................... 95
Waiver .................................................................................................... 95
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS....................................................................... 95
COMPARISON OF THE RIGHTS OF HOLDERS OF ALIGN-RITE
COMMON STOCK AND PHOTRONICS COMMON STOCK..................................................................... 105
EXPERTS ............................................................................................................. 120
LEGAL OPINIONS ...................................................................................................... 120
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SHAREHOLDER PROPOSALS................................................................................................... 120
OTHER MATTERS........................................................................................................... 120
WHERE YOU CAN FIND MORE INFORMATION..................................................................................... 121
</TABLE>
ANNEX A Agreement and Plan of Merger, dated as of
September 15, 1999 among Photronics, Inc., AL
Acquisition Corp. and Align-Rite International, Inc.
ANNEX B Amendment No. 1 to Agreement and
Plan of Merger,
dated January 10, 2000, among Photronics, Inc.
Al Acquisition Corp. and Align-Rite
International, Inc.
ANNEX C Opinion of CIBC World Markets Corp.
ANNEX D Opinion of Banc of America Securities LLC
ANNEX E Chapter 13 of the California General Corporation
Law
------------------------
This document incorporates important business and financial information about
Photronics and Align-Rite that is not included in or delivered with this
document. Shareholders may obtain this information from the appropriate company
without charge upon written or oral request to the following:
Photronics, Inc. Align-Rite International, Inc.
15 Secor Road 2428 Ontario Street
Brookfield, CT 06804 Burbank, California 91504
Attention: Michael W. McCarthy Attention: Petar N. Katurich
(203) 775-9000 (818) 843-7220
If you would like to request documents from us, please do so by o, 1999 so that
you may receive them before the special shareholder meetings. If you request any
incorporated documents, we will mail them to you by first class mail or other
equally prompt means as soon as practicable after we receive your request.
iii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: Why do Photronics and Align-Rite want to merge?
A. We believe that the merger will enable Photronics and Align-Rite to
more effectively operate in the photomask industry by creating a
larger company that will be better able to fund increased capital
expenditures and research and development costs necessary to remain
competitive and to serve customers in global markets. For more
detailed reasons for the merger, see Pages . through ..
Q: What will Align-Rite common shareholders receive in the merger?
A: We will exchange each outstanding share of Align-Rite common stock
for 0.85 of a share of Photronics common stock . Align-Rite
shareholders will not receive any fractional shares. Instead, they
will receive cash based on the market value of a share of Photronics
common stock multiplied by the appropriate fraction in lieu of any
fractional shares.
Q: What percentage of Photronics common stock will be received by
Align-Rite shareholders?
A: Align-Rite shareholders would own approximately 15% of the
outstanding Photronics common stock after the merger based on the
number of outstanding shares of Align-Rite and Photronics common
stock on December 31, 1999. The percentage assumes the exercise of
options and other rights to purchase approximately 530,000 shares of
Align-Rite common stock. The percentage also gives effect to the sale
by Photronics of 1,000,000 shares of its common stock in order for
the merger to qualify for pooling of interests treatment.
Q: What are the tax consequences of the merger to Align-Rite
shareholders?
A: The exchange of shares of Align-Rite shareholders will be tax-free to
them for U.S. federal income tax purposes, except for taxes payable
on any gain recognized as a result of receiving cash in lieu of
fractional shares of Photronics common stock. A summary of the
material federal income tax consequences of the merger is included in
the section "The Merger-- U.S. Federal Income Tax Consequences" on
page ..
Q: When do you expect to complete the merger?
A: We expect to complete the merger
1
<PAGE>
as soon as possible after the shareholders meeting if we obtain the
required shareholder approval at the meeting. However, we cannot
complete the merger until we satisfy numerous additional conditions.
We cannot predict when we will complete the merger since we do not
know when we will satisfy all of the conditions. For example, federal
and state antitrust authorities must complete the review of the
merger. However, either company can terminate the merger agreement,
as amended if we do not complete the merger by March 31, 2000.
Q: What do I need to do now?
A: After reviewing this document, indicate on your proxy card how you
want to vote, sign it and mail it in the enclosed return envelope as
soon as possible so that the proxyholder may vote your shares at your
shareholders meeting.
Q: How will my shares be voted if I return a blank proxy card?
A: If you sign and send in your proxy card and do not indicate how you
want to vote, we will count your proxy as a vote in favor of the
proposal submitted at the === shareholders meeting.
Q: What will be the effect if I do not vote?
A: If you fail to return your properly executed proxy card or abstain
from voting it will have the same effect as voting against the
merger.
Q: Can I vote my shares in person?
A: Yes. You may attend the === shareholders meeting and vote your shares
in person, rather than signing and mailing your proxy card.
Q: Can I revoke my proxy and change my vote?
A: Yes. You may revoke the proxy on or before the day of the
shareholders meeting by following the directions on page .. Then you
can either change your vote or attend the shareholders meeting and
vote in person.
Q: If my shares are held in "street name" by my broker, will my broker
vote my shares for me?
A: Your broker will vote your shares only if you instruct your broker on
how to vote. Your broker will send you directions on how you can
instruct your broker to vote. Your broker cannot vote your
2
<PAGE>
shares without instructions from you.
Q: Should I send in my stock certificates now?
A: No. After we complete the merger, we will send Align-Rite
shareholders written instructions to exchange their stock
certificates for certificates evidencing Photronics common stock.
Who Can Help Answer Your Questions
If you have more questions about the merger you should contact:
Align-Rite International, Inc.
Investor Relations
2428 Ontario Street
Burbank, California 91504
Attention: Petar N. Katurich
(818) 843-7220
If you would like additional copies of this document, or if you have
other questions about the merger, you may contact Align-Rite's proxy solicitor,
D.F. King & Co., Inc.: 800-755-7250 (a toll-free number).
3
<PAGE>
SUMMARY
This summary highlights selected information from this document and
may not contain all of the information that is important to you. To understand
the terms of the merger fully and for a more complete description of these
terms, you should read carefully this entire document, including the annexes and
the documents we have referred you to. All references to the merger agreement
shall be deemed to incorporate amendment no. 1 throughout the entire document.
See "Where You Can Find More Information" on page ..
The Companies (see page .)
Photronics, Inc.
1061 East Indiantown Road
Jupiter, Florida 33477
Photronics is a leading global manufacturer of photomasks. Based upon
available market information, Photronics believes that it is one of the largest
photomask manufacturers in the world.
Align-Rite International, Inc.
2428 Ontario Street
Burbank, California 91504
Align-Rite manufactures and markets photomasks for the global
semiconductor industry. Align-Rite currently serves more than 250 customers
located in 21 countries from four manufacturing facilities in Burbank,
California, Melbourne, Florida, Bridgend, Wales and Heilbronn, Germany.
Photronics believes that the merger will result in the combined
companies becoming the world's largest photomask manufacturer. Both companies
currently operate manufacturing facilities in the United States, the United
Kingdom and in Germany. Photronics also operates manufacturing facilities in
Switzerland and Singapore. The companies believe that the merger will enable the
combined company to improve utilization of existing facilities, reach higher
levels of manufacturing efficiencies and shorten production and delivery times
to customers. The combined company will have a larger manufacturing network than
either Photronics or Align-Rite currently has. Photronics believes that the
combined company will be better able to fund capital expenditures and research
and development costs that are necessary to maintain a leading position in the
industry.
Our Recommendation To
Shareholders (see page .)
The Align-Rite board of directors believes that the merger is advisable
and is in your best interest and unanimously recommends that you vote FOR the
Align-Rite merger
4
<PAGE>
proposal to approve the principal terms of the merger agreement and the
merger.
Opinions of Financial Advisors
(see page .)
In deciding to approve the merger, we considered an opinion from our
respective advisors as to the fairness of the conversion ratio from a financial
point of view to the Align-Rite shareholders and Photronics . Align-Rite
received an opinion from CIBC World Markets and Photronics received an opinion
from Banc of America Securities. These opinions are attached as ANNEXES C and D
to this document. We encourage you to read them in their entirety and consider
these opinions.
Interests of Align-Rite
Executive Officers and Directors
in the Merger (see page .)
When considering the recommendation of the board of directors of
Align-Rite regarding the merger, you should be aware of the interest that key
executive officers and directors of Align-Rite have in the merger that are
different from your and their interests as shareholders generally.
Risks Related to the Merger
(see page .)
Please note that once the merger is completed, the combined company
is subject to risks as discussed in the section "Risk Factors" on Pages .
through .. These risks include:
. possible difficulties in combining
two companies that were previously
operated independently;
. cyclicality of demand for
photomasks by semiconductor
manufacturers;
. fluctuations in quarterly operating
results;
. rapid technological changes;
. the continuing need for significant
investment in our business;
. dependence on major customers and
suppliers;
. demands on our management and
systems as a result of our acquisition
strategy;
. risks posed by our international
operations; and
. dependence on key personnel.
Align-Rite Shareholder Approval
(see page .)
Approval of the principal terms of the merger agreement requires the
affirmative vote of the holders of a majority of the outstanding shares of
Align-Rite common stock.
On January 6, 2000, directors and executive officers of Align-Rite
and their affiliates beneficially owned
5
<PAGE>
approximately 15.92% of the outstanding shares of Align-Rite common stock,
including shares issuable pursuant to options.
In conjunction with the execution of the merger agreement, Align-Rite
shareholders who hold an aggregate of approximately 11.9% of the outstanding
Align-Rite common stock as of the date of this proxy statement/prospectus
entered into a voting agreement with Photronics to vote all Align-Rite common
stock that they are entitled to vote in favor of approving the merger proposal.
In conjunction with the execution of the amendment to the merger agreement, such
shareholders reaffirmed the voting agreement with Photronics. These shareholders
are James L. MacDonald, Chairman of the Board, President and Chief Executive
Officer of Align-Rite and a trust for the benefit of members of his family.
The Merger
The merger agreement is attached as Annex A to this document and
amendment no. 1 is attached as Annex B. We encourage you to read the merger
agreement and amendment no. 1 because together, they are the legal documents
that govern the merger.
Conditions to the Merger (see page .)
We will not complete the merger until we have satisfied numerous
conditions. Some of the conditions are listed below:
. the Align-Rite shareholders approve the merger proposal;
. no law or court order prohibits the merger;
. the federal antitrust authorities complete their review of the merger
and do not seek to prohibit the merger;
. Photronics and Align-Rite each receives letters from its independent
auditors stating their concurrence with the respective management's
conclusion as to the appropriateness of pooling of interests
accounting treatment for the merger;
. Photronics and Align-Rite each receives opinions from its counsel
that the merger qualifies as a tax-free reorganization under the
Internal Revenue Code; and o there are not effective demands for
payment of dissenters' rights by shareholders of Align-Rite for five
percent or more of its outstanding shares.
Any of the conditions may be waived by the company entitled to assert
the condition.
Regulatory Approvals (see page .)
Under the Hart-Scott-Rodino Antitrust Improvements Act, we must
furnish information and materials relating to the business of each of the
companies to the Department of Justice
6
<PAGE>
and the Federal Trade Commission and wait a specified period of time before we
can complete the merger. The Department of Justice or the Federal Trade
Commission has the authority to challenge the merger on antitrust grounds before
or after we complete the merger. We filed premerger notification forms with the
Department of Justice and the Federal Trade Commission on October 1, 1999. In
cooperation with the Department of Justice, Photronics withdrew and subsequently
refiled on October 28, 1999 such notification report form. This procedure
provided to the Department of Justice an additional 30 days to conduct its
preliminary review of the merger. On November 24, 1999, Photronics and
Align-Rite received a request for additional information from the Department of
Justice. The receipt of the requests tolls the thirty-day waiting period for the
proposed transaction pending submission of the requested additional information.
The Department of Justice must approve or disapprove of the proposed transaction
no later than 20 days after it deems the responses to the request submitted by
the parties to be complete.
We cannot predict whether we will obtain the required regulatory approvals
within the time frame specified in the merger agreement, or on conditions that
would not be detrimental to either of us or the combined company.
Termination of the Merger Agreement
(see page .)
The board of directors of both companies jointly can agree to terminate
the merger agreement at any time without completing the merger. In addition,
either company can individually terminate the merger agreement if we do not
complete the merger by March 31, 2000 or the shareholders of Align-Rite fail to
approve the merger proposal. Align-Rite also has termination rights if it
receives a superior acquisition proposal or if the average of the daily average
per share high and low sales prices of one share of Photronics common stock
during a specified period falls below $18.82. Both companies have additional
termination rights more specifically described in the section "Terms of the
Merger Agreement -- Termination. "
If the average sales price of Photronics common stock falls below $18.82,
Align-Rite's board, consistent with the its exercise of its business judgment
and its fiduciary duties, will consult with its financial and other advisors and
will consider various factors in deciding whether to exercise its right to
terminate the merger agreement. These factors include Align-Rite's prospects as
a stand-alone company, the benefits and disadvantages of a business combination
with Photronics despite the decrease in the value of the Photronics common stock
and the then-current prices of both companies' shares of common stock.
Consistent with its fiduciary duties, Align-Rite's board currently does not plan
to submit to a further shareholder vote the Board's decision whether to
terminate the merger agreement or
7
<PAGE>
proceed with the merger if Photronics common stock falls below such $18.82
average.
Align-Rite must pay Photronics a termination fee of $3,640,000 if the
merger agreement is terminated by Align-Rite because it receives a superior
proposal or by Photronics because the Align-Rite board withdraws or adversely
modifies its recommendation to shareholders or Align-Rite breaches its
representations, warranties, covenants or agreements. Align-Rite also must pay
the fee if (1) an alternative acquisition proposal is made by a third party
before the shareholders' meeting, (2) shareholders reject the merger and (3)
Align-Rite enters into a definitive agreement with the third party presenting
the alternative acquisition onsubstantially the terms proposed within six months
of the termination of the merger agreement with Photronics and the acquisition
is completed within 18 months of such termination.
Accounting Treatment (see page .)
Photronics expects to account for the merger as a pooling of
interests. Under this accounting method, Photronics will restate its
consolidated financial statements to include the assets, liabilities,
shareholders' equity and results of operations of Align-Rite. In order for the
merger to qualify for pooling of interests treatment, Photronics must sell
1,000,000 shares of its common stock that it acquired within the two years
before the transaction prior to the closing date of the merger.
Dissenters' Rights (see page .)
If holders of 5% or more of the outstanding shares of Align-Rite
common stock
. vote against the merger;
. make a written demand to Align-Rite for the purchase of their shares;
and
. take other action required to secure their dissenters' rights;
they would be entitled to receive the fair market value in cash of
their shares of Align-Rite common stock as of the date prior to the
announcement of the proposed terms of the merger. However, this would
allow Photronics to terminate the merger agreement.
8
<PAGE>
Photronics, Inc.
Selected Historical Financial Data
The following selected financial data for Photronics is derived from
its consolidated financial statements. This selected historical financial data
is only a summary and should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and related notes to those financial
statements contained in Photronics' Annual Report on Form 10-K for the year
ended November 1, 1998 and Quarterly Report on Form 10-Q for the quarter and
nine months ended August 1, 1999. All share and per share amounts have been
adjusted for a two-for-one stock split for shareholders of record on November
17, 1997.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
--------------------------------------------------------------------- -------------------------
Oct. 31, Oct. 31, Oct. 31, Nov. 2 Nov. 1, Aug. 2, Aug. 1,
1994 1995 1996 1997 1998 1998 1999
---------- ----------- ----------- ---------- ---------- ---------- ----------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales...................... $80,696 $125,299 $160,071 $197,451 $222,572 $169,920 $160,675
Operating costs and expenses 66,459 101,709 127,806 157,047 183,314 136,529 148,346
Non-recurring restructuring
charge..................... - - - - 3,800 3,800 -
---------- ----------- ----------- ---------- ---------- ---------- ----------
Operating income........... 14,237 23,590 32,265 40,404 35,458 29,591 12,329
Other income (expense), net 1,064 6,252 1,638 1,032 (2,376) (1,458) (2,704)
Income before income taxes 15,301 29,842 33,903 41,436 33,082 28,133 9,625
Provision for income taxes 4,965* 11,210 12,900 15,800 12,600 10,700 3,700
---------- ----------- ----------- ---------- ---------- ---------- ----------
Net income................. $10,336* $18,632 $21,003 $25,636 $20,482 $17,433 $5,925
========== =========== =========== ========== ========== ========== ==========
Earnings per share:
Basic...................... $0.53* $0.87 $0.89 $1.07 $0.84 $0.72 $0.25
========== =========== =========== ========== ========== ========== ==========
Diluted.................... $0.51* $0.83 $0.87 $1.03 $0.84 $0.70 $0.25
========== =========== =========== ========== ========== ========== ==========
Weighted average number of
common shares outstanding:
Basic...................... 19,488 21,504 23,496 23,910 24,350 24,356 23,966
========== =========== =========== ========== ========== ========== ==========
Diluted.................... 20,124 22,414 24,202 26,628 28,958 29,082 23,966
========== =========== =========== ========== ========== ========== ==========
</TABLE>
* Includes cumulative effect of change in accounting for income
taxes of $237, or $0.01 per basic and diluted share.
<TABLE>
<CAPTION>
As of
--------------------------------------------------------------------------------------------------
October 31, October 31, October 31, November 2, November 1, August 1,
1994 1995 1996 1997 1998 1999
----------- ----------- ----------- ----------- ----------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................. $32,329 $49,653 $21,613 $81,398 $36,871 $17,197
Property, plant and equipment.... 39,205 72,063 123,666 203,813 251,381 280,919
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Total assets....................... 98,346 174,218 211,903 365,212 371,549 387,075
Long-term debt..................... 495 1,809 1,987 106,194 104,261 115,799
Shareholders' equity............... 80,402 134,045 156,417 185,975 200,430 204,114
</TABLE>
Recent Developments
Photronics' sales for the fourth quarter of 1999 were $63.0 million, an increase
of 20% from the $52.7 million for the fourth quarter of 1998. Photronics' net
income for the fourth quarter of 1999 was $4.7 million compared to $3.0 million
in the fourth quarter of fiscal 1998. Diluted earnings per share was $0.20
during the fourth quarter of 1999 and $0.13 in the fourth quarter of the prior
year.
Photronics' sales for the 1999 fiscal year were $223.7 million, an increase of
1% compared to $222.6 million for fiscal 1998. Photronics' net income was $10.7
million for 1999 compared to $20.5 million for 1998. Diluted earnings per share
for 1999 was $0.45, while diluted earnings per share for 1998 amounted to
$0.84.
Photronics' 1998 results included a non-recurring after-tax charge of $2.4
million, or $0.08 per diluted share, in connection with the restructuring plan
of the Photronics North American operations and the disposition of its Large
Area Mask business in Colorado Springs, Colorado.
10
<PAGE>
Align-Rite International, Inc.
Selected Historical Financial Data
Set forth below is selected financial data for Align-Rite for and as of the
periods indicated. This selected historical financial data is only a summary and
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements and related notes to those consolidated financial statements
contained in Align-Rite's Annual Report on Form 10-K for the year ended March
31, 1999 and Quarterly Report on Form 10-Q for the quarter ended September 30,
1999.
<TABLE>
<CAPTION>
Fiscal Years Ended March 31, Six Months Ended
------------------------------------------------------------- -------------------------
September September
30, 30,
1995 1996 1997 1998 1999 1998 1999
--------- --------- --------- --------- --------- ---------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales............................. $25,404 $33,290 $38,001 $46,721 $52,443 $27,683 $28,934
Operating costs and expenses 20,402 26,260 29,935 37,187 43,946 21,944 25,318
--------- --------- --------- --------- --------- ---------- ---------
Operating income .................. 5,002 7,030 8,066 9,534 8,497 5,739 3,616
Interest income (expense), net........ (200) 325 315 254 (124) 38 (378)
--------- --------- --------- --------- --------- ---------- ---------
Income before income tax
provisions and minority interest... 4,802 7,355 8,381 9,788 8,373 5,777 3,238
Income tax provision.................. 1,216 2,219 3,056 3,688 3,069 2,181 1,166
Minority interest..................... 162 172 - - - - -
--------- --------- --------- --------- --------- ---------- ---------
Net income............................ $3,424 $4,964 $5,325 $6,100 $5,304 $3,596 $2,072
========= ========= ========= ========= ========= ========== =========
Basic earnings per share.............. $3.05 $1.46 $1.21 $1.37 $1.18 $0.80 $0.45
========= ========= ========= ========= ========= ========== =========
Shares used in per share
computation........................ 1,123 3,393 4,386 4,439 4,495 4,473 4,591
========= ========= ========= ========= ========= ========== =========
Diluted earnings per share............ $1.17 $1.12 $1.11 $1.25 $1.09 $0.74 $0.42
========= ========= ========= ========= ========= ========== =========
Shares used in per share
computation........................ 2,933 4,446 4,799 4,865 4,869 4,869 4,899
========= ========= ========= ========= ========= ========== =========
<CAPTION>
As of March 31 As of September 30,
------------------------------------------------------------- -------------------------
1995 1996 1997 1998 1999 1999
--------- --------- --------- --------- --------- -------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............. $3,861 $12,707 $6,734 $5,523 $6,328 $6,846
Working capital....................... 3,849 17,254 10,727 6,636 2,130 8,993
Property and equipment, net........... 6,506 8,517 22,089 33,575 61,333 65,987
Total assets.......................... 17,261 30,422 38,781 51,158 80,292 96,653
Long-term debt, less current
portion*........................... 1,905 - - - 15,208 31,578
Total shareholders' equity............ 5,977 25,285 31,373 37,766 43,302 46,430
</TABLE>
11
<PAGE>
*As of March 31, and September 30, 1999, includes $10,008,000 and $8,089,000,
respectively of equipment payables to be financed utilizing existing bank lines
of credit.
On January 10, 2000, Align-Rite announced that it expects revenues
for the third quarter ended December 31, 1999 to be approximately $14.2 million,
which represents an increase of 16% over the same period in the prior year but a
decrease over the immediately preceding quarter. As a result of the lower than
anticipated revenue levels, Align-Rite expects its third quarter diluted
earnings per share to be in the range $0.10 to $0.12 compared to the range of
analysts' estimates of $0.18 - $0.19. It is anticipated that revenues in the
quarter will be lower than expected from several customers due in part to the
postponement of product qualification programs with new customers, following the
announcement on September 15, 1999 of the agreement to merge with Photronics.
During the quarter, Align-Rite experienced a continued decline in photomask
demand from its customers in the thin film head industry.
14
<PAGE>
Summary Unaudited Pro Forma Combined Financial Data
The following summary unaudited pro forma combined financial data
gives effect to the merger, which we will account for as a pooling of interests
in accordance with generally accepted accounting principles. The operating data
assumes that the merger was completed at the beginning of the periods presented,
and the balance sheet data assumes that the merger was completed as of August 1,
1999. The summary unaudited pro forma combined financial data does not reflect
any cost savings and other synergies which may result from the merger and is not
necessarily indicative of the results of operations or the financial position
which would have occurred had the merger been completed on the dates indicated,
nor is it necessarily indicative of future results or financial position. This
information is only a summary and you should read the information presented
below in conjunction with the historical financial statements of Photronics and
Align-Rite contained in their annual and quarterly reports incorporated by
reference and the unaudited pro forma financial statements and the related notes
included in this proxy statement/prospectus.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
--------------------------------------------- ---------------------------------
October 31, November 2, November 1, August 2, August 1,
1996 1997 1998 1998 1999
----------- ----------- --------------- -------------- ----------------
(in thousands, except per-share amounts)
OPERATING DATA: (1)
<S> <C> <C> <C> <C> <C>
Net sales............................... $198,072 $244,172 $274,936 $210,595 $202,287
=========== =========== ========== ========== =========
$26,328 $31,736 $27,239 $22,710 $8,900
Net income.............................. =========== =========== ========== ========== =========
Earnings per share:
Diluted................................. $0.93 $1.09 $0.94 $0.77 $0.31
=========== =========== ========== ========== =========
Basic................................... $0.97 $1.15 $0.97 $0.81 $0.31
=========== =========== ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
As of
August 1,
1999
-------------
<S> <C>
BALANCE SHEET DATA:
Total assets............................. $503,728
Long-term debt........................... 147,377
Shareholders' equity..................... 267,544
</TABLE>
13
<PAGE>
Summary Per Share Data
We have summarized below the per share information of Photronics and
Align-Rite on a historical, pro forma combined and pro forma equivalent basis.
The information should be read in conjunction with the historical financial
statements and related notes to those financial statements of Photronics and
Align-Rite that are incorporated by reference in this proxy
statement/prospectus. For information on where you can find more information
about Photronics and Align-Rite, see Pages . and ..
You should be aware that pro forma information may not be indicative of what
actual results will be in the future or what results would have been had
Photronics and Align-Rite been merged for the periods presented.
<TABLE>
Year Ended Six Months Ended
March 31, September 30,
1997 1998 1999 1998 1999
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Align-Rite Historical
Income per common share, basic................. $1.21 $1.37 $1.18 $0.80 $0.45
Income per common share, diluted............... 1.11 1.25 1.09 0.74 0.42
Cash dividends declared per share.............. - - - - -
Book value per share (1)....................... 9.54 9.93
====
</TABLE>
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
-------------------------------------------------- ---------------------------
October 31, November 2, November 1, August 2, August 1,
1996 1997 1998 1998 1999
Photronics Historical
<S> <C> <C> <C> <C> <C>
Income per common share, basic................. $0.89 $1.07 $0.84 $0.72 $0.25
Income per common share, diluted............... 0.87 1.03 0.84 0.70 0.25
Cash dividends declared per share.............. - - - - -
Book value per share (1)....................... 8.29 8.54
</TABLE>
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
------------------------------------------------- --------------------------
October 31, November 2, November 1, August 2, August 1,
1996 1997 1998 1998 1999
------------- ------------------------------- ----------- -----------
Unaudited pro forma combined (2):
<S> <C> <C> <C> <C> <C>
Income per common share, basic............. $0.97 $1.15 $0.97 $0.81 $0.31
Income per common share, diluted........... 0.93 1.09 0.94 0.77 0.30
Cash dividends declared per share.......... - - - - -
Book value per share....................... - - 8.58 - 9.59
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Align-Rite per share equivalent (3):
Income per common share, basic............. $0.82 $0.98 $0.82 $0.69 $0.26
Income per common share, diluted........... 0.79 0.93 0.80 0.65 0.26
Cash dividends declared per share.......... - - - - -
Book value per share....................... - - 7.29 - 8.15
</TABLE>
(1) Historical book value per share is computed by dividing shareholders'
equity by the number of shares of common stock outstanding at the end of
each period.
(2) For purposes of the unaudited pro forma combined share data, Align-Rite's
financial information has been conformed to within 93 days of Photronics'
financial information for the year ended November 1, 1998. The nine months
ended August 1, 1999 and August 2, 1998 include the results of Align-Rite
for the nine months ended September 30 (as adjusted).
(3) The equivalent pro forma share amounts of Align-Rite are calculated by
multiplying unaudited pro forma combined income per share and book value
per share amounts by the conversion ratio of .85.
15
<PAGE>
Comparative Per Share Market Price and Dividend Information
Photronics common stock is traded on the Nasdaq National Market under
the symbol "PLAB." Align-Rite common stock is traded on the Nasdaq National
Market under the symbol "MASK."
The table below sets forth, for the calendar quarters indicated, the
reported high and low sale prices of Photronics common stock and Align-Rite
common stock each as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
Photronics
Common Align-Rite
Stock Common Stock
Sale Price Sale Price
--------------------- --------------------------
High Low High Low
---- ----- ----- ------
1997
<S> <C> <C> <C> <C>
First Quarter................................................. $19.1250 $13.9375 $13.7500 $11.3750
Second Quarter................................................ 23.8750 13.7500 14.7500 9.9375
Third Quarter................................................. 31.3750 22.8750 23.8750 12.0000
Fourth Quarter................................................ 29.5000 17.5625 24.0000 12.7500
1998
First Quarter................................................. 31.0000 20.0625 17.1250 13.0025
Second Quarter................................................ 37.0625 20.1250 17.2500 13.2500
Third Quarter................................................. 24.2500 12.6250 15.0625 9.8750
Fourth Quarter................................................ 24.9375 9.5000 14.5000 8.6875
1999
First Quarter................................................. 28.1250 18.6250 14.1250 11.5625
Second Quarter................................................ 25.8125 19.1250 14.0000 11.1250
Third Quarter................................................. 29.5000 22.4380 19.6250 13.0000
Fourth Quarter ............................................... 30.375 17.5000 21.6250 16.0000
2000
First Quarter (through January 14, 2000)...................... 28.6250 25.0000 21.8750 18.5000
</TABLE>
16
<PAGE>
On September 15, 1999, the last full trading day prior to the public
announcement of the execution and delivery of the merger agreement, the closing
price per share of: (1) Photronics common stock was $24.25 and (2) Align-Rite
common stock was $14.75. On January 10, 2000, the last full trading day prior to
the public announcement of the execution and delivery of the amendment to the
merger agreement, the closing per share of (1) Photronics common stock was
$28.50 and (2) Align-Rite common stock was $20. On January 14, 2000, the most
recent practicable date prior to the date of this document, the closing price
per share of: (1) Photronics common stock was $27.75 and (2) Align-Rite common
stock was $21.25. We urge shareholders to obtain current market quotations
before making any decision with respect to the merger.
Neither Photronics nor Align-Rite has declared a cash dividend on its
common stock since it became a public company. Photronics intends to retain
future earnings for use in its business and does not anticipate paying any
dividends on Photronics common stock in the foreseeable future. Photronics'
credit facility limits its ability to pay dividends, other than dividends
payable wholly in Photronics common stock. Under Align-Rite's existing credit
facilities, Align-Rite is limited from paying cash dividends on Align-Rite's
common stock.
There were approximately o holders of record of Align-Rite common
stock on the record date for the special meeting of the Align-Rite shareholders.
Following the completion of the merger, shares of Photronics common
stock will continue to be traded on the Nasdaq National Market, and shares of
Align-Rite common stock will cease to be traded on the Nasdaq National Market.
17
<PAGE>
RISK FACTORS
In making your determination as to how to vote on the merger
proposals, you should consider the following factors:
The value of Photronics common stock to be received in the merger will
fluctuate.
The number of Photronics shares to be received in the merger for each
Align-Rite common stock is fixed. Therefore, because the market price of
Photronics common stock is subject to fluctuation, the value at the time of the
merger of the Photronics common stock to be received by Align-Rite shareholders
will depend on the market price of Photronics common stock at that time. There
can be no assurance as to the value of Photronics common stock at that time.
The merger may occur at a date later than the date of the special meeting, and
there can be no assurance that the market price of Photronics common stock on
the date of the special meeting will reflect the market price of Photronics
common stock at the time of the merger. The market price of the common stock has
been, and may continue to be, volatile. In addition to conditions that affect
the market for stocks of high technology companies generally, factors such as
quarterly fluctuations in Photronics' operating results and challenges
associated with integration of businesses may have a significant impact on the
market price of Photronics common stock . These conditions could cause the price
of Photronics shares to fluctuate substantially over short periods.
The merger may be terminated if Photronics' stock price falls substantially.
If the average of the daily average per share high and low sales
price of one share of Photronics common stock as quoted on the Nasdaq National
Market falls below $18.82 during the 20 consecutive trading days ending on the
third trading day before the Align-Rite shareholders meeting, or if the closing
of the merger is more than five business days after the meeting, the closing
date, Align-Rite's board of directors has the authority to terminate the merger
agreement. Align-Rite's board will consider various factors in deciding whether
to exercise its right to terminate the merger agreement, but, consistent with
its fiduciary duties, currently does not plan to submit to a further shareholder
vote the Board's decision whether to terminate the merger agreement or proceed
with the merger if Photronics common stock falls below such $18.82 average.
18
<PAGE>
We may have difficulties in combining the operations of Photronics and
Align-Rite.
Photronics may not be able to combine successfully the operations of
Align-Rite with its own operations. There are a large number of systems that
must be integrated including management information, purchasing, accounting and
finance, sales, billing and payroll and benefits. The integration of Photronics
and Align-Rite also will require significant attention from management, possibly
reducing its ability to focus on other operations or projects. Any delays or
increased costs of combining the two companies could adversely affect Photronics
and disrupt its operations. As a result of the merger, Photronics and/or
Align-Rite may experience the loss of key personnel.
We depend on demand for integrated circuit design activity by the semiconductor
industry, which fluctuates.
Photronics and Align-Rite sell substantially all of their photomasks
to semiconductor designers and manufacturers. We believe that the demand for
photomasks primarily depends on integrated circuit design activity rather than
the volume of semiconductor sales. Consequently, an increase in semiconductor
sales does not necessarily result in a corresponding increase in photomask
sales. In addition, the reduced use of customized integrated circuits or other
changes in the technology or methods of manufacturing semiconductors could
reduce demand for photomasks even if demand for semiconductors increases.
Further, advances in semiconductor and photomask design and semiconductor
production methods could reduce the demand for photomasks. During the early
1990s, these factors contributed to flat demand for photomasks despite increased
semiconductor design activity. Although demand for photomasks increased
beginning in late 1993, a cyclical slow down in the semiconductor industry
occurred beginning in late 1997, which began to adversely affect Photronics
during the third fiscal quarter 1998. We experienced weakness in photomask
demand and accentuated competitive pressures, especially for more mature
technologies during 1998. We cannot assure you that any of the preceding factors
will not have a material adverse effect on our business and results of
operations.
We may experience fluctuations in our quarterly operating results.
Photronics and Align-Rite have experienced fluctuations in their
quarterly operating results and we anticipate that such fluctuations will
continue and could intensify in the future. Fluctuations in operating results
may result in volatility in the price of our common stock. Our operating results
may fluctuate as a result of many factors, including:
o size and timing of orders and shipments;
19
<PAGE>
o loss of significant customers;
o product mix;
o technological change;
o competition; and
o general economic conditions.
Our customers generally order our products on an as-needed basis, and
substantially all of our net sales in any quarter are dependent on orders
received during that quarter. Since we operate with a limited backlog and the
rate of new orders may vary significantly from month to month, our 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
our operating results would be adversely affected. This occurred during the
second half of Photronics' 1998 fiscal year and 1999 fiscal year, as sales did
not increase as anticipated and capital expenditure commitments were incurred,
which contributed to the substantially lower operating income compared to
Photronics' first half of fiscal year 1998. Due to these factors, we believe
that period-to-period comparisons of our operating results are not necessarily
meaningful and that such comparisons cannot be relied upon as indicators of
future performance. In addition, in some future quarters our operating results
could be below the expectations of public market analysts and investors, which,
in turn, could materially adversely affect the market price of our common stock.
Rapid technological change may affect our operations.
To remain competitive, we will be required to continually anticipate,
respond to and utilize changing technologies occurring within the photomask
industry. In particular, we believe that as semiconductor geometries continue to
become smaller, we will be required to manufacture more technologically advanced
photomasks. These technologies currently are in developmental stages and we have
not yet manufactured these types of photomasks in significant volume. In
addition, demand for photomasks has been and could in the future be adversely
affected by changes in methods of semiconductor manufacturing, which could
affect the type or quantity of photomasks utilized, or increased market
acceptance of alternative methods of transferring circuit designs onto
semiconductor wafers which could reduce or eliminate the need for photomasks. If
we were unable to anticipate, respond to or utilize these or other changing
technologies, our business and results of operations could be materially
adversely affected.
Our operations require significant capital investments.
The manufacture of photomasks requires a significant investment in
fixed assets. Photronics expects that it will be required to continue to make
significant capital
20
<PAGE>
expenditures to expand and improve its operations. If Photronics cannot
make such expenditures, it could adversely affect its ability to satisfy
customer requirements. We cannot assure you that we will be able to obtain any
additional capital on reasonable terms, or at all, or that any such expenditures
will not increase our costs without corresponding increases in revenues or net
income.
Photronics depends on major customers, the loss of which could adversely affect
its operating results and financial condition.
Approximately 43% of Photronics' net sales in fiscal 1998 was derived
from sales to its five largest customers. Although Photronics has arrangements
which assure it a specified amount of some customers' requirements so long as
its performance is satisfactory, Photronics generally does not have contracts
requiring customers to purchase any minimum quantity of photomasks. Any loss of,
or significant reduction in, orders from any of these customers could have a
material adverse effect on Photronics' business and results of operations.
Photronics depends on major suppliers and the inability to obtain equipment or
raw materials when required could affect adversely its business and results of
operations.
Photronics relies on a limited number of photomask equipment
manufacturers to develop and supply the equipment used in the photomask
manufacturing process. Photronics uses significant manufacturing systems that
usually are built to order and typically have order lead times that can exceed
one year. Further, Photronics relies on equipment suppliers to develop future
generations of manufacturing systems to support its requirements. The inability
to obtain equipment when required could have a material adverse affect on our
business and results of operations.
Photronics uses high precision quartz photomask blanks, protective
transparent cellulose membranes and electronic grade chemicals in our
manufacturing processes. Any delays or quality problems in connection with
significant raw materials, particularly photomask blanks, could cause delays in
shipments of photomasks which could adversely affect our 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 our business and results of operations, although they have not
been material to date.
21
<PAGE>
Our acquisition strategy could place significant demands on our management and
systems.
Photronics has rapidly expanded its operations, primarily by
acquisitions of existing photomask manufacturing operations. This expansion has
placed, and will continue to place, significant demands on our administrative,
operational and financial personnel and systems. Managing acquired operations,
including Align-Rite, 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 an acquisition,
particularly if there is an overlap of customers served by us and the acquired
operation, and such customers transition to another vendor in order to ensure a
second source of supply. In addition, we have experienced in the past, and could
experience in the future, difficulties and delays in ramping up new production
facilities. Our failure to successfully manage our expanding operations could
have a material adverse effect on our business and results of operations.
Our operations in international markets could pose risks.
Sales in international markets account for significant portions of
both Photronics' and Align-Rite's revenues and we plan to continue to expand our
international operations. Revenues from operations in international markets
accounted for 16.5% of Photronics' revenues for its fiscal year ended November
1, 1998. Net sales of Align-Rite's European operations accounted for 42.5% of
net sales for its fiscal year ended March 31, 1999. We believe that achieving
additional international sales in markets in which we have no manufacturing
presence requires us to develop, among other things, a local presence in these
markets. Such a strategy requires a significant investment of financial,
management, operational and other resources. In international markets where we
do not have a significant presence, existing independent photomask suppliers
have local presences and market share. Accordingly, we would likely experience
competition as we expand to new markets which could adversely affect our ability
to establish a significant presence in the international markets that we target.
In addition, existing and any new operations outside the United States can be
affected by:
o fluctuations in exchange rates;
o political and economic conditions in various countries;
o unexpected changes in regulatory requirements;
o tariffs and other trade barriers;
o difficulties in staffing and managing foreign operations; and
22
<PAGE>
o longer accounts receivable payment cycles and potentially
adverse tax consequences.
To date, none of these factors has significantly affected the operations or
results of Photronics or Align-Rite. However, Photronics continues to consider
expansion in international markets, including into markets that have experienced
economic instability in recent years. We cannot assure you that these factors
will not have a material adverse effect on our ability to generate sales outside
the United States in our current markets or in markets to which we choose to
expand. Consequently, these factors may have a material adverse effect on our
business and results of operations.
We will depend on key personnel of Photronics and Align-Rite.
Our success, in part, depends upon key managerial, engineering and
technical personnel of Photronics and Align-Rite, as well as our ability to
continue to attract and retain additional personnel. The loss of key personnel
could have a material adverse effect upon our business and results of
operations. The photomask industry depends on the ability to provide to
customers prompt and cost effective service. Customers frequently require that
orders be filled within 24 hours of being placed. The loss of sales personnel to
competitors could result in the loss of revenues. The loss of engineering and
technical personnel could diminish manufacturing efficiency. We cannot assure
you that Photronics can retain its key managerial, sales, engineering and
technical employees and those of Align-Rite or that we can attract similar
skilled employees in the future.
Forward-looking statements
Several statements about Photronics, Align-Rite and the combined
company contained in this proxy statement/prospectus, including statements
containing the words "believes", "anticipates", "intends", "expects", and words
of similar import, constitute "forward-looking statements" within the meaning of
Section 21E of the Securities Exchange Act of 1934. These forward-looking
statements involve numerous known or unknown risks, uncertainties and other
factors that may cause the actual results, performance or achievements to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Important factors that
could cause actual results to differ materially from those in forward looking
statements, many of which are beyond the control of Photronics, Align-Rite or
the combined company, include:
23
<PAGE>
o general economic and business conditions, both nationally and
internationally and including in those localities in which
Photronics or Align-Rite operates manufacturing facilities;
o uncertain demand for photomasks and the cyclical nature of the
semiconductor industry;
o rapid technological changes;
o competition;
o the need for capital to fund expansion;
o the ability to manage expanding operations;
o dependence on customers and suppliers; and
o other factors referenced in this proxy statement/prospectus or
in our reports incorporated by reference.
Given these uncertainties, you are cautioned not to place undue
reliance on such forward-looking statements. We disclaim any obligation to
update any such factor or to publicly announce the results of any revisions to
any of the forward-looking statements contained here to reflect future events or
developments.
24
<PAGE>
THE SPECIAL MEETING
This document is furnished in connection with the solicitation of
proxies from Align-Rite common shareholders by the Align-Rite board for
use at the Align-Rite shareholders meeting.
Time and Place; Purposes
The Align-Rite shareholders meeting will be held on February 29,
2000, at o a.m., local time, at o, o, o, o. The purpose of the Align-Rite
shareholders meeting is to consider and vote upon the Align-Rite merger proposal
to approve the principal terms of the merger agreement and approve the merger
and to transact any other business which properly comes before the meeting or
any adjournment or postponement.
Record Date; Voting Rights
Only holders of Align- Rite common stock at the close of business on
January 6, 2000 are entitled to receive notice of and to vote at the
Align-Rite shareholders meeting. At the close of business on January 6, 2000,
there were 4,678,786 shares of Align-Rite common stock outstanding. Each share
of Align-Rite common stock is entitled to one vote at the Align-Rite
shareholders meeting.
Vote Required
California law requires the affirmative vote of holders of a majority
of the outstanding shares of Align-Rite common stock for the approval of the
principal terms of the merger agreement and approval of the merger.
Quorum
The presence in person or by proxy of the holders of a majority of
the Align-Rite common stock issued, outstanding and entitled to vote at the
Align-Rite shareholders meeting will constitute a quorum for the transaction of
business. The shares of Align-Rite common stock present at the Align-Rite
shareholders meeting that abstain from voting or that are the subject of broker
non-votes will be included for the purpose of determining a quorum and will have
the effect of a vote against the Align-Rite merger proposal. A broker non-vote
occurs when a nominee holding stock for a beneficial owner does not vote on a
particular matter because the nominee does not have discretionary voting power
with respect to the matter and has not received voting instructions from the
beneficial owner. If a quorum is not present at the Align-Rite shareholders
meeting, the Align-Rite board will likely adjourn or postpone the meeting to
solicit additional proxies.
25
<PAGE>
Proxies; Revocation of Proxies
The Align-Rite board is soliciting proxies for the Align-Rite
shareholders meeting to enable its shareholders to vote upon the Align-Rite
merger proposal, whether or not they attend the Align-Rite shareholders meeting.
For all shares of Align-Rite common stock represented by a properly executed
proxy received before or at the Align-Rite shareholders meeting, the proxy
holders will vote in accordance with the instructions on the proxies. If no
voting instructions are indicated on a proxy, then the proxy holders will vote
the shares represented by the proxy in favor of approval of the principal terms
of the merger agreement and approval of the merger.
In addition, the proxy holders will have discretion to vote on any
other matters properly presented at the Align-Rite shareholders meeting. If
Align-Rite proposes to adjourn the Align-Rite shareholders meeting, the proxy
holders will vote all shares for which they have voting authority in favor of
adjournment, except for those shares that were voted against the Align-Rite
merger proposal. The Align-Rite board requests Align-Rite shareholders to
complete, sign, date and promptly return the enclosed proxy card in the enclosed
postage-prepaid envelope. Brokers who hold shares of Align-Rite common stock as
nominees will not have discretionary authority to vote the shares in the absence
of instructions from the beneficial owners. Broker non-votes will not be counted
as votes cast, but will have the same effect as votes cast against the
Align-Rite merger proposal.
An Align-Rite shareholder may revoke his or her proxy at any time
before the proxy is exercised by filing a revoking instrument with the secretary
of Align-Rite or by executing another proxy bearing a later date. An Align-Rite
shareholder who executed a proxy may suspend the powers of the proxy holders
with respect to his shares by attending the Align-Rite shareholders meeting in
person and voting or requesting the suspension. If an Align-Rite shareholder
executes two or more proxies with respect to the same shares, the proxy bearing
the most recent date will be honored if otherwise valid. Attendance at the
Align-Rite shareholders meeting will not, in itself, revoke a proxy.
If Align-Rite shareholders make a proper motion to adjourn or
postpone the Align-Rite shareholders meeting to another time and/or place for
the purpose of soliciting additional proxies in favor of the Align-Rite merger
proposal, the proxy holder will vote upon the motion as determined in the proxy
holder's discretion; provided, however, that any proxies voted against the
merger proposal will not be voted in favor of a motion to adjourn or postpone
the Align-Rite shareholders meeting if the purpose of such adjournment or
postponement is to solicit additional proxies to be voted in favor of the merger
proposal. If Align-Rite shareholders postpone or adjourn the Align-Rite
shareholders meeting for any reason, at any subsequent reconvening of the
Align-Rite shareholders meeting, the proxy holders will vote all shares
represented by a proxy in the same manner as they would have been voted at the
initial convening of the Align Rite
26
<PAGE>
shareholders meeting, even if they were voted on the same or any other matter at
a previous meeting. However, the proxy holders will not vote those shares
represented by a proxy which was revoked or withdrawn before the reconvened
meeting.
In connection with the Align-Rite shareholders meeting, holders of
Align-Rite common stock should not return to Align-Rite any stock certificates
with their proxy cards. We will inform you when and how to return your stock
certificates after the merger.
Solicitation of Proxies
Align-Rite will bear the cost of proxy solicitation for the
shareholders meeting, including the reasonable expenses of brokers, fiduciaries
and other nominees in forwarding solicitation material to beneficial owners. In
addition to solicitation by mail, directors, officers and employees of Align-
Rite may solicit proxies personally or by telephone, facsimile transmission or
otherwise. Align-Rite will not pay additional compensation to these directors,
officers and employees for their solicitation but may reimburse them for out-of-
pocket expenses. We expect to incur nominal expenses, if any, to engage in such
solicitation Align-Rite has retained D.F. King & Co., Inc. at an estimated cost
of approximately $9,000, plus reimbursement of out-of-pocket expenses, to assist
in solicitation of proxies . We will make arrangements with brokerage houses and
other custodians, nominees, fiduciaries and shareholders of record to forward
proxy solicitation materials to the beneficial owners of the stock held of
record by such persons. We may reimburse these solicitors for reasonable out-of-
pocket expenses.
Share Ownership of Management
At the close of business on January 6, 2000 directors and executive
officers of Align-Rite and their affiliates beneficially owned an aggregate of
approximately 776,843 shares or approximately 15.92% of the Align-Rite common
stock then outstanding, including 201,093 shares issuable pursuant to options
for Align-Rite common stock. See "Beneficial Ownership of Align-Rite Common
Stock" and "The Merger - Interests of Key Persons in the Merger." In conjunction
with the execution of the merger agreement, James L. MacDonald, and Robin A.
MacDonald, as trustees of the family trusts, and Mr. MacDonald, individually,
have entered into a voting agreement with Photronics. Pursuant to the voting
agreement, each of these Align-Rite shareholders agreed to vote all shares of
Align-Rite common stock they are entitled to vote in favor of approving the
merger and approving the principal terms of the merger agreement. In conjunction
with the execution of the amendment to the merger agreement, James L. MacDonald
and Robin A. MacDonald, as trustees of the family trust, and Mr. MacDonald,
reaffirmed the voting agreement with Photronics. See "The Merger - Interests of
Key Persons in the Merger"
27
<PAGE>
and "Information about Align-Rite - Beneficial Ownership of Align-Rite Common
Stock."
INFORMATION ABOUT ALIGN-RITE
Align-Rite manufactures and markets photomasks for the global
semiconductor industry. Photomasks are required for the manufacturing of
virtually all integrated circuits, which are essential components in consumer
and industrial electronic products. Photomasks are precision photographic quartz
or glass plates containing microscopic images of integrated circuits. Align-Rite
manufactures photomasks for more than 250 customers located in 21 countries
using electron beam, laser beam and optical microlithography methods at its
manufacturing facilities in Burbank, California, Melbourne, Florida, Bridgend,
Wales and Heilbronn, Germany.
Align-Rite's principal executive offices are located at 2428 Ontario
Street, Burbank, California 91504 (telephone (818) 843-7220).
Beneficial Ownership of Align-Rite Common Stock
The following table sets forth, as of January 6, 2000, the number of
shares and percentage of Align-Rite common stock beneficially owned by each
person who Align-Rite knows to be the beneficial owner of more than 5% of
Align-Rite common stock, by Align-Rite's directors, and by all of Align-Rite's
executive officers and directors as a group.
The mailing address for all directors and officers of Align-Rite is:
Align-Rite International, Inc., 2428 Ontario Street, Burbank, CA 91504.
Except as otherwise noted, each shareholder has sole voting and
investment power with respect to the shares beneficially owned.
28
<PAGE>
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial
Name of Beneficial Owner Ownership Percent of Class
- ---------------------------------------------------------------------- ---------------------------- -----------------------------
<S> <C> <C>
Fidelity Management and Research (1)........................ 448,000 9.58
Brinson Partners, Inc. (2).................................. 402,200 8.60
State of Wisconsin Investment Board (3)..................... 261,800 5.60
Dimensional Fund Advisors, Inc. (3)......................... 238,400 5.10
James L. MacDonald (4)...................................... 722,808 14.92
Petar N. Katurich (5)....................................... 22,367 *
Alan G. Duncan (6).......................................... 20,667 *
George Wells (7)............................................ 9,667 *
William Elder (8)........................................... 1,334 *
All directors and executive officers as a group 776,843 15.92
(five persons) (9)..........................................
</TABLE>
- -------------------
<TABLE>
<CAPTION>
<S> <C>
* Less than 1%.
(1) Reflects ownership as reported on a Schedule 13G by Fidelity
Management ("Fidelity"), dated as of February 10, 1999, filed with
the Securities and Exchange Commission.
(2) Reflects ownership as reported on a Form 13F filed November 12,
1999.
(3) Reflects ownership as reported on a Form 13F filed October 27,
1999.
(4) Includes 164,558 shares subject to options that are currently
exercisable or will become exercisable before March 7, 2000.
(5) Includes 14,867 shares subject to options that are currently
exercisable or will become exercisable before March 7, 2000.
(6) Includes 10,667 shares subject to options that are currently
exercisable or will become exercisable before March 7, 2000.
(7) Constitutes 9,667 shares subject to options that are currently
exercisable or will become exercisable before March 7, 2000.
(8) Constitutes 1,334 shares subject to options that are currently
exercisable or will become exercisable before March 7, 2000.
(9) Includes 201,093 shares subject to options that are currently
exercisable or will become exercisable before March 7, 2000. See
Notes 4 through 8.
</TABLE>
INFORMATION ABOUT PHOTRONICS
Photronics is a leading manufacturer of photomasks, which are used
primarily by the semiconductor industry in the manufacture of integrated
circuits. Based upon
29
<PAGE>
available market information, Photronics believes that it is one of the largest
photomask manufacturers in the world.
During fiscal 1998 and 1999, Photronics continued to invest in its
global manufacturing network and enhance its technological and manufacturing
capabilities. In the United States, its new Austin, Texas facility became
operational in early 1998. In addition, on December 31, 1997, Photronics
acquired the internal photomask manufacturing operations of Motorola, Inc. in
Mesa, Arizona. The assets acquired include modern manufacturing systems capable
of supporting a wide range of photomask technologies. Additionally, Photronics
entered into a supply agreement whereby it will supply the photomask
requirements previously provided by the acquired operation. Photronics continues
to operate the facility in place, but anticipates moving the operations to a
leased facility in Phoenix, AZ in the first half of the year 2000.
During 1998, Photronics also re-organized its Silicon Valley
operations and consolidated its Colorado Springs operations (other than its
large area mask operations) into its other North American facilities. The large
area mask operation was not significant to Photronics and was sold in January
1999. Further, due to market conditions, Photronics delayed the commencement of
construction of its proposed Hillsboro, Oregon facility.
In March 1999, Photronics acquired from Cirrus Logic, Inc., a leading
supplier of semiconductor products, substantially all of the assets of its mask
engineering group. As part of this acquisition, Photronics established a new
business unit, "D2W." D2W offers mask-related technology consulting and data
processing services to the semiconductor industry. D2W is based in Fremont, CA
and is staffed primarily by those employees formerly with Cirrus Logic, Inc.'s
mask engineering group.
In July 1999, Photronics announced that it was engaging in a joint
research and development venture with IBM related to "next generation
lithography" technology at the mask center of competency at IBM's Burlington,
Vermont facility. The purpose of the venture is to develop and provide a
commercialization strategy for photomasks to be used in "next generation" wafer
exposure systems.
In addition to its other efforts during 1998 and 1999, Photronics
increased its research and development activities and continued to invest in
advanced manufacturing equipment to allow it to meet future technological and
volume demands.
Photronics' principal executive offices are located at 1061 East
Indiantown Road, Jupiter, Florida 33477 (telephone (561) 745-1222).
30
<PAGE>
Beneficial Ownership of Photronics Common Stock
The following table sets forth, as of January 6, 2000, the number of
shares and percentage of Photronics common stock beneficially owned by
Photronics' directors, Photronics' executive officers, Photronics' directors and
executive officers as a group, and each person known to Photronics to
beneficially own more than 5% of the Photronics common stock outstanding.
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percentage
of Beneficial Owner Beneficial Ownership (l) of Class
- ------------------------- -------------------------------------- ------------------
<S> <C> <C>
Robert J. Bollo
1061 East Indiantown Road 58,410 (2) *
Jupiter, FL 33477
Walter M. Fiederowicz
39 Painter Hill Road 58,580 (2) (3) *
Woodbury, CT 06798
Joseph A. Fiorita, Jr.
146 Deer Hill Avenue 46,650 (2) (4) *
Danbury, CT 06810
Constantine S. Macricostas
1061 East Indiantown Road 2,993,742 (2) (5) 12.5
Jupiter, FL 33477
Macricostas Partners, L.P.
1122 Bel Air 2,280,000 9.5
Allen, TX 75013
Jeffrey P. Moonan
1061 East Indiantown Road 152,834 (2) *
Jupiter, FL 33477
James R. Northup
1061 East Indiantown Road 89,435 (2) *
Jupiter, FL 33477
Toppan Printing Co., Ltd.
1, Kanda Izumi-cho 1,915,000 8.0
Chiyoda-ku
Tokyo, Japan 101
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percentage
of Beneficial Owner Beneficial Ownership (l) of Class
- ------------------------- -------------------------------------- ------------------
<S> <C> <C>
Michael J. Yomazzo
1061 East Indiantown Road 454,584 (2) (6) 1.8
Jupiter, FL 33477
Directors and Executive 3,854,235 (7) 15.6
Officers as a group
(seven persons)
- -------------------
* Less than 1%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
(1) Except as otherwise indicated, the named person has the sole voting
and investment power with respect to the shares of the Photronics'
Common Stock set forth opposite such person's name.
(2) Includes shares of common stock subject to stock options exercisable
as of March 7, 2000 as follows: Mr. Bollo (58,125); Mr.Fiederowicz
(39,950); Mr. Fiorita (32,750); Mr. Macricostas (76,250); Mr. Northup
(88,500); Mr. Yomazzo (236,550); and Mr. Moonan (130,000). Also
includes shares subject to forfeiture under restricted stock award
grants as follows: Mr. Fiederowicz (4,000) and Mr. Fiorita
(4,000).
(3) Includes 12,050 shares owned by the wife of Mr. Fiederowicz and 800
shares owned by his child, as to which shares he disclaims beneficial
ownership.
(4) Includes 300 shares owned by the wife of Mr. Fiorita, as to which
shares he disclaims beneficial ownership.
(5) Includes 34,000 shares held by the wife of Mr. Macricostas as to
which shares he disclaims beneficial ownership. Also includes
2,280,000 shares owned by Macricostas Partners, L.P., of which Mr.
Macricostas is a limited partner and 50,618 shares owned by the
corporate general partner of such partnership of which Mr.
Macricostas is President and Director and a significant shareholder.
Mr. Macricostas disclaims beneficial ownership of those shares not
represented by his ownership interests.
(6) Includes 46,000 shares held by the wife of Mr. Yomazzo as to which
shares he disclaims beneficial ownership. Also includes 86,000 shares
owned by Yomazzo Associates Limited Partnership of which Mr. Yomazzo
is a general partner and a limited partner. Mr. Yomazzo disclaims
beneficial ownership of those shares not represented by his ownership
interests.
(7) Includes the shares listed in notes (2), (3), (4), (5), (6), and (7)
above.
</TABLE>
32
<PAGE>
THE MERGER
The information in this document summarizes all material terms of the
merger agreement, as amended. We urge you to read the merger agreement , and the
amendment to the merger agreement which, together, are the legal documents that
govern the merger and which are attached hereto as Annexes A and B and
incorporated by reference into this document.
Structure of the Merger
At the time the merger becomes effective, Align-Rite will merge with
and into a wholly-owned subsidiary of Photronics, with Align-Rite as the
surviving corporation. Photronics' merger subsidiary and Align-Rite are both
incorporated in California.
Merger Consideration
We will convert each share of Align-Rite common stock outstanding
immediately before the effective time of the merger into .85 of a share of
Photronics common stock .
No Fractional Shares
Photronics will not issue fractional shares of Photronics common
stock to Align-Rite shareholders. Instead, for each fractional share, Photronics
will pay an amount of cash determined by multiplying the fractional share
interest to which such Align-Rite shareholder would otherwise be entitled by the
last sale price of Photronics common stock reported on the Nasdaq National
Market on the last trading day before the completion of the merger. For more
information regarding the conversion of Align-Rite common stock, see "Terms of
the Merger Agreement -- Conversion of Shares in the Merger."
Treatment of Stock Options
All outstanding Align-Rite stock options that are not vested will
vest when the merger is completed. Each Align-Rite stock option will become an
option to purchase Photronics common stock. Each option will entitle its holder
to receive upon exercise the same number of shares of Photronics common stock as
the holder would receive if he exercised the option immediately before the
merger. The exercise price for each option will be equal to (x) the aggregate
exercise price for the Align-Rite common stock purchasable upon exercise of the
option divided by (y) the number of shares of Photronics common stock
purchasable under the option.
33
<PAGE>
Effective Time of the Merger
The merger will become effective when we file the merger agreement
with the California Secretary of State. We will file the merger agreement as
soon as practicable after all conditions in the merger agreement are waived or
satisfied. For more information regarding these conditions, see "Terms of the
Merger Agreement-- Conditions to the Merger."
Background of the Merger
In May 1999, Constantine Macricostas, Chairman of the Board of
Photronics, contacted James MacDonald, the Chairman of the Board, Chief
Executive Officer and President of Align-Rite, and discussed generally the
possibility of a transaction between the two companies. Mr. MacDonald agreed to
schedule a meeting between representatives of Align-Rite and representatives of
Photronics. Mr. Macricostas and William Elder, a director of Align-Rite,
subsequently met at an unrelated function at which Mr. Elder confirmed that he
would attend such a meeting.
On June 13 through June 15, 1999, Mr. MacDonald, Mr. Elder, Petar N.
Katurich, the Vice President of Finance, Chief Financial Officer and a director
of Align-Rite, and George Wells, a director of Align-Rite, met with
representatives of Photronics, including Mr. Macricostas, Michael J. Yomazzo,
Vice Chairman of Photronics, Walter Fiederowicz, a director of Photronics, and
Robert Bollo, the Vice President/Finance and Chief Financial Officer of
Photronics. The parties discussed a possible transaction, including the possible
form of a transaction and the possible value.
On June 22, 1999, Mr. MacDonald informed Alan Duncan, the remaining
director of Align-Rite, of the nature and substance of the discussions with
Photronics. Also on June 22, 1999, counsel for Align-Rite provided to counsel
for Photronics forms of confidentiality agreements to be executed by each of
Photronics and Align-Rite. On June 24, 1999, counsel for Photronics commented on
the draft confidentiality agreements.
On June 25, 1999, counsel for Photronics provided to counsel for
Align-Rite a draft of a merger agreement.
On July 8 and July 9, 1999, representatives of Align-Rite and
Photronics and their respective counsel met to discuss further the structure and
terms of a possible transaction. Counsel for Align-Rite also provided comments
on the draft merger agreement.
On July 16, 1999, each of Align-Rite and Photronics entered into
confidentiality agreements which provide, among other things, that non-public
information made available to a party will be kept confidential and, for a
period of 18 months, neither party
34
<PAGE>
will take action to seek to take control or influence the management of the
other party without the other party's consent.
On July 26, 1999, representatives of Align-Rite and Photronics held a
conference call to discuss the status of the discussions to date and to schedule
meetings to conduct due diligence and discuss further the draft merger agreement
and a proposed voting agreement requested from Mr. MacDonald in his capacity as
a shareholder of Align-Rite.
On July 30, 1999, a special telephonic meeting of the board of
directors of Align-Rite was held. Mr. MacDonald informed the board regarding the
progress of the transaction. Representatives of CIBC World Markets Corp. made a
presentation regarding their experience in rendering fairness opinions. Counsel
for Align-Rite reviewed with the board the terms of the proposed merger
agreement and voting agreement and the remaining open issues. Copies of the
draft merger agreement and voting agreement had previously been provided to the
directors. Mr. MacDonald also informed the board regarding the proposed terms of
amendments to the existing employment agreements between Align-Rite and Messrs.
MacDonald and Katurich and new arrangements with other officers and key managers
of Align-Rite that would be in effect if a merger was consummated with
Photronics. The board authorized management to engage CIBC World Markets to
render a fairness opinion regarding a possible transaction with Photronics if an
agreement could be reached with Photronics.
On August 2 through August 4, 1999, representatives of Photronics
conducted due diligence with respect to Align-Rite and counsel for Align-Rite
and Photronics met to discuss the terms of the proposed merger agreement and
voting agreement. On August 9, 1999, representatives of Align-Rite and
Photronics and their respective counsel participated in a conference call to
establish a schedule for further discussions.
Representatives of Align-Rite and Photronics and their respective
counsel met on August 11 through August 13, 1999 to negotiate the terms of a
possible transaction between the parties. During these discussions,
representatives of Photronics proposed a fixed value per share of Align-Rite
common stock with the conversion ratio based upon the average price per share of
Photronics common stock during a measuring period preceding the Align-Rite
shareholders meeting to be held to consider the merger. Photronics proposed that
each share of Align-Rite be valued at $23.09, a price consistent with valuations
discussed by the companies in June and July. Photronics also proposed that there
not be any adjustment to the conversion ratio if the average price of Photronics
common stock was either greater or less than specified percentages of the
proposed value per Align-Rite share. Align-Rite's representatives proposed that
there not be any limit on the number of shares that could be issued based on a
decline in the price of Photronics common stock but that an increase in the
price not result in a reduction in the shares to be issued for Align-Rite common
stock . After Photronics rejected this proposal, Align-Rite's
35
<PAGE>
representatives counter proposed that the ratio for exchanging Align-Rite common
stock for Photronics' common stock be a fixed ratio. Photronics' representatives
subsequently proposed a lesser fixed ratio or alternatively that the ratio be
calculated as Photronics originally proposed.
On August 13, 1999, a special telephonic meeting of the board of
directors of Align-Rite was held. Mr. MacDonald and counsel for Align-Rite
described for the directors the status of the negotiations and the remaining
issues, including the method of determining the number of shares of Photronics
common stock to be exchanged for each share of Align-Rite common stock. Mr.
MacDonald also discussed with the Align-Rite board the proposed terms of
amendments to the employment agreements between Align-Rite and Messrs. MacDonald
and Katurich and new arrangements with otherofficers and key managers of Align-
Rite that would be in effect if a merger was consummated with Photronics.
On August 13, 1999, a special meeting of the Photronics board was
held to review and discuss the negotiations with Align-Rite. The Photronics
board reviewed the substance of the discussions and the impact the transaction
would have on Photronics. The Photronics board also evaluated and discussed
various issues with its counsel and Banc of America Securities regarding, among
other things, the role of Align-Rite employees in the combined company. The
Photronics board directed the officers to continue with negotiations.
After the meetings of the boards of directors of Align-Rite and
Photronics, representatives of Align-Rite and Photronics continued to negotiate
a possible transaction, however the parties could not reach agreement on the
method of determining the number of shares of Photronics common stock to be
received by the shareholders of Align-Rite and the discussions terminated. Mr.
MacDonald contacted each member of the board of directors of Align-Rite to
advise them as to the negotiations and that an agreement had not been reached.
On September 1, 1999, a regular meeting of the board of directors of
Align-Rite was held. At that meeting, the Align-Rite board concluded that
Photronics should be contacted to determine if Photronics had an interest in
participating in further discussions. On September 3, 1999, George Wells, a
director of Align-Rite, contacted Walter Fiederowicz, a director of Photronics,
and Mr. MacDonald contacted Mr. Macricostas. The parties concluded that further
discussions were appropriate.
On September 10, 1999, representatives of Align-Rite and Photronics
and their respective investment bankers met to discuss a possible transaction.
At that meeting, it tentatively was agreed that the conversion ratio would be
calculated based on a fixed value per share of Align-Rite common stock of
$23.09 per share, divided by the average price
36
<PAGE>
per share of Photronics common stock over a 20-day measuring period. Align-Rite
also requested that Mr. Macricostas enter into an agreement with Align-Rite to
vote his shares of Photronics in favor of the proposed transaction if an
agreement was reached and the transaction was brought before the shareholders of
Photronics.
On September 13, 1999, representatives of Align-Rite and Photronics
and their respective counsel participated in a conference call to identify the
remaining open issues and to resolve a number of those issues.
On September 14, 1999, a special telephonic meeting of the board of
directors of Align-Rite was held. At that meeting, counsel for Align-Rite
summarized the terms of the proposed merger agreement, voting agreement and the
agreement with Mr. Macricostas to vote for the proposed transaction at the
Photronics shareholders meeting. CIBC World Markets reviewed with the board
specific information regarding the value of Align-Rite and the value of
Photronics common stock using a variety of valuation techniques. The proposed
terms of the employment agreements with Messrs. MacDonald and Katurich and other
key officers and managers of Align-Rite were discussed.
On September 15, 1999, a special telephonic meeting of the board of
directors of Align-Rite was held. Counsel for Align-Rite described the final
terms of the proposed merger agreement, the voting agreement and the agreement
with Mr. Macricostas. CIBC World Markets summarized for the Board specific
information regarding their valuation of Align-Rite and Photronics. CIBC World
Markets then rendered an oral opinion (subsequently confirmed in writing on that
date) to the board of directors of Align-Rite to the effect that, as of that
date, the conversion ratio was fair to the shareholders of Align-Rite from a
financial point of view. The board of directors of Align-Rite then approved the
merger agreement. Mr. William Elder did not participate in the meeting but later
that day confirmed his approval of the merger agreement.
On September 15, 1999, a special telephonic meeting of the board of
directors of Photronics was held. The Photronics board of directors considered
the final terms of the proposed merger agreement, the voting agreement and the
agreement with Mr. Macricostas. Representatives of Banc of America Securities
reviewed the financial analysis of the merger and orally opined (which opinion
was subsequently confirmed in writing on that date) that the conversion ratio
was fair to Photronics from a financial point of view as of that date. The
Photronics board of directors approved the merger.
Thereafter, the merger agreement, the voting agreement and the
agreement from Mr. Macricostas were executed and delivered.
In the second half of December 1999, preliminary results of
operations for Align-Rite indicated that revenues would be lower in Align-Rite's
third quarter ending
37
<PAGE>
December 31, 1999 when compared to the previous quarter. This projected decline
in revenues was believed by Align-Rite to be as a result of a decline in
incremental orders from several customers and the postponement of product
qualification programs with new customers, following the announcement of the
merger agreement. Align-Rite also was experiencing a continued decline in
photomask demand from its customers in the thin film head industry. This
information was communicated to Photronics.
Photronics indicated that it was concerned that Photronics' stock
price might be adversely affected by the announcement of Align-Rite's
anticipated results of operations and that, in turn, would inappropriately
increase the number of shares of Photronics common stock to be received by the
shareholders of Align-Rite under the existing method of determining the
conversion ratio. Photronics also indicated that a material adverse change, as
defined in the merger agreement, had occurred which, Photronics asserted, gave
it a right to terminate the merger agreement. Align-Rite disputed Photronics'
position that a material adverse change had occurred.
In late December 1999 and early January 2000, representatives of
Align-Rite and Photronics attempted to negotiate an amendment to the merger
agreement, to establish a fixed conversion ratio, thus eliminating any increase
in the number of shares of Photronics common stock to be received by the
shareholders of Align-Rite attributable to adverse developments in Align-Rite's
results of operations. Align-Rite also proposed to make other changes to state
that the projected decline in revenues disclosed to Photronics did not
constitute a material adverse change. The boards of Photronics and Align-Rite
were kept informed by their respective managements regarding the progress of the
negotiations.
On January 3, 2000, a special telephonic meeting of the board of
directors of Photronics was held. Members of management reviewed information
obtained in the discussions with Align-Rite and discussed the various
negotiations held with Align-Rite about amending the merger agreement. The board
authorized management to continue to negotiate an amendment to the merger
agreement whose terms would include changing the exchange ratio to a fixed ratio
of .85 of a share of Photronics common stock for each share of Align-Rite common
stock; extending the termination date from February 25, 2000 to March 31,2000;
modifying the "Material Adverse Change" definition to exclude the information
regarding Align-Rite's anticipated financial results disclosed to Photronics;
and modifying the average trading value of Photronics common stock, below which
Align-Rite had the right to terminate the merger agreement.
At a special telephonic meeting held on January 5, 2000, Photronics'
management reported to the board about the progress of negotiations. In addition
to terms authorized at its meeting on January 3, 2000, the board of directors
authorized an increase to $18.82 for the average trading value of Photronics
common stock below which Align-Rite had the right to terminate the merger
agreement.
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<PAGE>
At a special telephonic meeting of Photronics' board held on January
7, 2000, Photronics' financial advisor, Banc of America Securities, gave a
presentation and rendered its opinion that the exchange ratio set forth in the
proposed amendment to the merger agreement was fair, from a financial
perspective, to Photronics as of that date. The board then authorized and
approved the amendment of the merger agreement containing terms previously
approved by the board at its meetings on January 3, 2000 and January 5,
2000.
On January 10, 2000, a special telephonic meeting of the board of
directors of Align-Rite was held. Counsel for Align-Rite described the proposed
terms of the amendment to the merger agreement, that would, among other things,
establish a fixed conversion ration of 0.85 of a share of Photronics common
stock for each share of Align-Rite common stock and would allow Align-Rite to
terminate the merger agreement, if the average trading value of Photronics
common stock was less than $18.82. The proposed amendment would also extend the
termination date of the merger agreement, to March 31, 2000. Counsel for
Align-Rite also noted that approval by the shareholders of Photronics would no
longer be required and, accordingly, the voting agreement with Mr. Macricostas
would be terminated. The voting agreement with Mr. MacDonald and a trust for the
benefit of his family would be reaffirmed. CIBC World Markets then reviewed with
the board of Align-Rite certain information regarding the value of Align-Rite
and the value of Photronics common stock using a variety of valuation
techniques. CIBC World Markets then rendered an oral opinion (subsequently
confirmed in writing on that date) to the board of Align-Rite to the effect
that, as of that date, the revised conversion ratio reflected in the proposed
amendment to the merger agreement was fair to the shareholders of Align-Rite
from a financial point of view. The board of Align-Rite then unanimously
approved the amendment to the merger agreement.
Thereafter, the amendment to the merger agreement was executed and
delivered.
Align-Rite Board Reasons for the Merger; Recommendation of the Align-Rite Board
In reaching their conclusion to approve the merger agreement, the
board of directors of Align-Rite considered the following information:
o Discussions with the management of Align-Rite during the past year
regarding the business, operations, financial condition, business
strategy and prospects of Align-Rite
o The financial presentations by CIBC World Markets (including the
assumptions and methodology underlying the financial information
presented) and the written opinion of CIBC World Markets to the
effect that, as of September 15, 1999, the conversion ratio was fair
to the shareholders of Align-Rite from a financial point of view and
the written opinion of CIBC World Markets to the effect that, as
of
39
<PAGE>
January 10, 2000, the revised conversion ratio was fair to the
shareholders of Align-Rite from a financial point of view;
o Presentations by CIBC World Markets regarding Align-Rite, Photronics
and the valuation of Align-Rite using different valuation techniques;
o Presentations by and discussions with counsel for Align-Rite
regarding the duties and obligations of the Align-Rite board in
considering transactions of this type; and
o Discussions of the terms and conditions of the merger agreement and
the voting agreement with senior executives of Align-Rite, counsel
for Align-Rite and representatives of CIBC World Markets.
The Align-Rite board, in making its determination that the merger
agreement was in the best interest of Align-Rite's shareholders, considered the
following factors, which constitute all the material factors considered by the
Align-Rite board:
o The Align-Rite board's belief that a business combination with a
financially stronger company was in the best interest of the Align-
Rite shareholders due to the financial position of Align-Rite, the
likelihood that there would be a requirement for significant capital
expenditures over the next two years as a result of technological
advances in the semi-conductor industry, the corresponding need to
purchase costly new equipment and tools and the increased cost of
such new equipment and tools;
o When the merger agreement was initially entered into in September
1999, the Align-Rite board relied on the $23.09 value implicit in the
conversion ratio, which represented a 57% premium over the closing
price of the Align-Rite common stock on September 15, 1999, the last
trading day before the announcement of the merger;
o When the amendment to the merger agreement was entered into in early
January 2000, the Align-Rite board relied on the $22.79 value
implicit in the conversion ratio of 0.85 based on the closing price
of Photronics common stock on January 7, 2000, the last trading day
before the Align-Rite board approved the amendment to the merger
agreement;
o The Align-Rite board's belief that the analysis and opinion of CIBC
World Markets supported the Align-Rite board's conclusion that the
conversion ratio is fair from a financial point of view to, and in
the best interest of, the shareholders of Align-Rite;
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<PAGE>
o The provisions of the merger agreement that are structured so as to
(i) accommodate additional bona fide unsolicited offers to acquire
Align-Rite and specifically to permit the Align-Rite board to provide
information to and negotiate with other interested parties that make
a superior proposal and (ii) enable the Align-Rite board to terminate
the merger agreement, and accept a better offer, = subject to the
payment of a $3,640,000 termination fee and compliance with the other
provisions of the merger agreement;
o Current and historical market prices and trading information with
respect to the Align-Rite common stock and the Photronics common
stock; and
o The fact that, under the merger agreement, the merger is expected to
be treated as a tax-free reorganization under the Internal Revenue
Code of 1986, as amended.
The foregoing discussion of the information and factors considered by
the Align-Rite board is not intended to be exhaustive. The information and
factors were considered by the Align-Rite board in connection with its review of
the merger agreement and voting agreement. In view of the variety of factors
considered in connection with the evaluation of the merger agreement, the
Align-Rite board did not find it practical to, and did not, quantify or
otherwise assign relative weights to the specific factors considered in its
determination. In addition, individual members of the Align-Rite board may have
given different weights to different factors.
Based upon this analysis, the Align-Rite board determined that the
merger was in the best interest of the shareholders of Align-Rite.
The Align-Rite board unanimously recommends that Align-Rite
shareholders vote in favor of the Align-Rite merger proposal at the Align-Rite
shareholders meeting.
Opinions of Financial Advisors
Opinion of Financial Advisor to Align-Rite Board
CIBC World Markets Corp. has acted as financial advisor to Align-Rite
in connection with the merger. At the request of Align-Rite, CIBC World Markets
delivered an oral opinion to the Align-Rite board on January 10, 2000, which was
subsequently confirmed by a written opinion , that, based upon and subject to
the various assumptions, limitations and other matters set forth in the opinion,
as of such date, the merger's conversion ratio is fair to the shareholders of
Align-Rite from a financial point of view. No limitations were imposed by
Align-Rite upon CIBC World Markets with respect to
41
<PAGE>
investigations made or procedures followed by CIBC World Markets in rendering
its opinion.
The full text of the written opinion of CIBC World Markets dated
January 10, 2000, which sets forth assumptions made, general procedures
followed, matters considered and limits on the scope of the review undertaken by
CIBC World Markets is attached as ANNEX C and is incorporated herein by
reference. CIBC World Markets has consented to the references to it and its
opinion in this proxy statement/prospectus. Align-Rite's shareholders are urged
to and should read and carefully consider the entire opinion. The summary set
forth herein of the opinion of CIBC World Markets is qualified in its entirety
by reference to the full text of the opinion attached hereto as ANNEX C.
The opinion of CIBC World Markets addresses only the fairness to the
holders of shares of Align-Rite common stock, from a financial point of view, of
the conversion ratio used to calculate the number of shares of Photronics common
stock that the shareholders of Align-Rite will receive pursuant to the merger
and does not constitute a recommendation to any shareholder as to how such
shareholder should vote on any matters relating to the merger. CIBC World
Markets has not expressed any opinion as to the underlying valuation, future
performance or long term viability of Photronics' or Align-Rite's operations
following the merger, or the price at which Photronics common stock will trade
subsequent to the merger.
CIBC World Markets reviewed the merger agreement, as amended by
Amendment No. 1 to Agreement and Plan of Merger, in the preparation of its
opinion.
In connection with rendering its opinion, CIBC World Markets:
o reviewed the amended merger agreement ;
o reviewed the audited financial statements of Align-Rite for the
fiscal years ended March 31, 1998 and 1999, and the unaudited
financial statements of Align-Rite for the six months ended September
30, 1998 and 1999 and the nine months ended December 31, 1998;
o reviewed the audited financial statements of Photronics for the
fiscal years ended November 2, 1997 and November 1, 1998, and certain
unaudited financial information of Photronics for the quarter ended
October 31, 1999;
o reviewed financial projections for Align-Rite, prepared and supplied
by Align- Rite's management, for the fiscal quarter ended December
31, 1999 and the fiscal years ending March 31, 2000 and 2001;
o reviewed financial projections for Photronics, prepared and supplied
by Photronics' management, for the fiscal years ending October 31,
2000 and 2001;
42
<PAGE>
o held discussions with senior management of Align-Rite and Photronics
with respect to the business and prospects for future growth of
Align-Rite and Photronics;
o reviewed and analyzed publicly available financial data and
historical trading price information for companies CIBC World Markets
deemed comparable to Align-Rite and Photronics;
o reviewed and analyzed certain publicly available information for
transactions that CIBC World Markets deemed comparable to the merger;
o performed discounted cash flow analyses of Align-Rite using
assumptions of future performance provided to CIBC World Markets by
the management of Align-Rite;
o performed discounted cash flow analyses of Photronics using
assumptions of future performance provided to CIBC World Markets by
the management of Photronics;
o reviewed selected publicly available research analyst reports on
Align-Rite and Photronics;
o reviewed historical market prices, trading volume and relative price
performance for shares of Align-Rite common stock and Photronics
common stock;
o utilized estimates for the future financial performance of Align-Rite
and Photronics, provided by the managements of Align-Rite and
Photronics, to calculate the relative contributions of Align-Rite and
Photronics to the pro forma combined company, and reviewed the pro
forma stock ownership and pro forma enterprise value of the combined
company;
o analyzed the pro forma impact of the merger on Photronics' earnings
per share for the fiscal years ending October 31, 2000 and October
31, 2001, based on financial projections provided by the managements
of Align-Rite and Photronics;
o reviewed publicly available information concerning Align-Rite and
Photronics that CIBC World Markets deemed relevant; and
o performed such other analyses and reviewed such other information as
CIBC World Markets deemed appropriate.
In the course of its review, CIBC World Markets at the direction of
Align-Rite, relied upon and assumed, without independent verification or
investigation, the accuracy and completeness of all of the financial and other
information reviewed by it, as well as all of the financial and other
information provided to or discussed with it by Align-Rite and Photronics and
their employees, representatives and affiliates. With respect to forecasts of
future financial condition and operating results, and assumptions for the future
performance, of Align-Rite and Photronics provided to CIBC World Markets or
discussed with it, CIBC World Markets assumed, at the direction of Align- Rite's
management, without independent verification or investigation, that such
forecasts were reasonably prepared on bases reflecting the best available
information, estimates and judgments of Align- Rite's or Photronics' management,
as the case may be, and provided a reasonable
43
<PAGE>
basis upon which CIBC World Markets could form its opinion. CIBC World Markets
further relied upon the assurance of management of Align-Rite and Photronics
that they are unaware of any facts that would make the information provided to
CIBC World Markets incomplete in any meaningful respect or misleading in any
respect. CIBC World Markets expresses no view as to the reasonableness of any
forecasts or the information or assumptions on which they are based.
CIBC World Markets neither made nor was provided with any independent
valuations or appraisals of any assets or liabilities of Align-Rite or
Photronics and made no physical inspection of the properties and facilities of
Align-Rite or Photronics. CIBC World Markets further made assumptions, with the
consent of Align-Rite, including that:
o the representations and warranties of the parties contained in the
amended merger agreement are true and correct;
o the merger will be consummated in accordance with the terms described
in the amended merger agreement and related agreements, without any
further amendments to those terms;
o the merger will qualify as a tax-free reorganization pursuant to
Section 368(a) of the Internal Revenue Code;
o the merger will be accounted for under the pooling of interests
method in accordance with generally accepted accounting principles;
and
o the merger will be consummated in a manner that complies in all
material respects with all applicable federal, foreign, state and
local statutes, rules, regulations and other laws.
The opinion of CIBC World Markets was necessarily also based upon the
information reviewed by it and general economic, financial and stock market
conditions and circumstances as they existed on the date of its opinion.
In connection with rendering its opinion to the Align-Rite board,
CIBC World Markets performed a variety of financial analyses, the material
portions of which are summarized below. The summary set forth below does not
purport to be a complete description of the analyses performed by CIBC World
Markets. In addition, CIBC World Markets believes that its analyses must be
considered as a whole and that selecting portions of such analyses and the
factors considered in those analyses, without considering all factors and
analyses, could create an incomplete view of the analyses and processes on which
CIBC World Markets' opinion was based. Some of the financial analyses summarized
below include information presented in tabular format. In order to understand
CIBC World Markets' financial analysis fully, the tables must be read together
with the text of each summary. Considering the data set forth in the tables
below without considering the full narrative description of the financial
analyses, including the
44
<PAGE>
methodologies and assumptions underlying the analyses, could create a misleading
or incomplete view of the financial analysis of CIBC World Markets.
The preparation of a fairness opinion is a complex process involving
subjective judgments and is not susceptible to partial analysis or summary
description. CIBC World Markets performed specific procedures, including each of
the financial analyses described below, and reviewed with the management of
Align-Rite the assumptions on which the analyses were based and other factors,
including historical, current and projected financial results. The forecasts and
assumptions for Align-Rite and Photronics in published research reports and the
forecasts and assumptions for Align-Rite and Photronics provided by their
respective managements are forward looking, are not necessarily indicative of
future results or values, which may be significantly more or less favorable, and
are subject to numerous risks and uncertainties. Estimates of values of
companies do not purport to be appraisals or necessarily reflect the prices at
which companies or their securities may be sold.
The following is a brief summary of all material financial analyses
performed by CIBC World Markets in connection with its presentation to the
Align-Rite board on January 10, 2000.
Comparable Companies Analysis
Using publicly available information, CIBC World Markets compared
financial information for Align-Rite with similar information for selected
companies in the photomask/maskmaking industry. The companies consisted of
DuPont Photomasks, Inc., Etec Systems, Inc. and Photronics. These companies were
selected because they are either a manufacturer of photomasks or a manufacturer
of equipment used to make photomasks. CIBC World Markets chose only companies it
believed to have significant similarities with Align-Rite. For each of these
companies, CIBC World Markets calculated firm value, which is defined as market
value of equity plus net debt, of the comparable companies as a multiple of
their estimated revenues for calendar year 2000, firm value as a multiple of
their estimated earnings before interest and taxes ("EBIT") for calendar year
2000, and stock price as a multiple of their estimated earnings per share for
calendar year 2000. These calculations produced the following range of
multiples.
<TABLE>
<CAPTION>
Multiple Range
-----------------------------------------
Low Mean High
--- ---- ----
<S> <C> <C> <C>
Estimated 2000 Revenues 2.1x 2.3x 2.6x
Estimated 2000 EBIT 9.6x 14.3x 19.3x
</TABLE>
45
<PAGE>
<TABLE>
<S> <C> <C> <C>
Estimated 2000 Earnings Per Share 21.2x 24.6x 29.6x
</TABLE>
The multiples in the above table were applied to the estimated
revenues, EBIT and earnings per share for Align-Rite for the calendar year 2000
to produce a reference range of per common share equity values. To take into
consideration a market discount for Align-Rite's small market capitalization, as
well as Align-Rite's historical trading discount relative to an index of the
photomask/maskmaking group, a 40% discount was applied to the reference range
which produced an adjusted reference range of per common share equity values of
between $12.18 and $19.28.
To determine the appropriate small market capitalization discount,
CIBC World Markets calculated firm value as a multiple of estimated revenues for
calendar year 1999, firm value as a multiple of estimated revenues for calendar
year 2000, and stock price as a multiple of estimated earnings per share for
calendar year 2000 for two groups of companies: semiconductor equipment
companies with large market capitalizations and semiconductor equipment
companies with small market capitalizations. The semiconductor equipment group
with large market capitalizations consisted of Applied Materials, Inc.,
KLA-Tencor Corporation, Lam Research Corporation, Novellus Systems, Inc. and
Teradyne, Inc. The semiconductor equipment group with small market
capitalizations consisted of GaSonics International Corp., LTX Corporation,
Mattson Technology Inc. and Nanometrics Incorporated. These companies were
selected because they manufacture semiconductor equipment and they have similar
operating characteristics to Align-Rite. CIBC World Markets calculated the
average discount of the small market capitalization multiples to the large
market capitalization multiples to be 40.5%.
In addition, CIBC World Markets reviewed historical price to earnings
ratios of Align-Rite versus an index of the companies in the
photomask/maskmaking group over the period from January 3, 1997 to January 10,
2000. On average, Align-Rite has traded at a discount of 51% to the index of
photomask/maskmaking companies.
Because of the inherent differences between the businesses,
operations, financial conditions and prospects of Align-Rite and the businesses,
operations, financial conditions and the prospects of the companies included in
its comparable company groups, CIBC World Markets believes that it is
inappropriate to rely solely on the quantitative results of the analysis, and
accordingly, also made qualitative judgments concerning differences between the
financial and operating characteristics of Align-Rite and the comparable
companies that would affect the public trading values of Align-Rite and the
comparable companies.
Using publicly available information, CIBC World Markets compared
financial information for Photronics with similar information for selected
companies in the photomask/maskmaking industry. The companies consisted of
Align-Rite, DuPont
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<PAGE>
Photomasks, Inc. and Etec Systems, Inc. These companies were selected because
they are either a manufacturer of photomasks or a manufacturer of equipment used
to make photomasks. CIBC World Markets chose only companies it believed to have
significant similarities with Photronics. For each of these companies, CIBC
World Markets calculated firm value as a multiple of their estimated revenues
for calendar year 2000, firm value as a multiple of their estimated EBIT for
calendar year 2000 and stock price as a multiple of their estimated earnings per
share for calendar year 2000. These calculations produced the following range of
multiples with Align-Rite excluded from the multiple calculations as it was
deemed to be an outlier from the multiples calculated for the other companies.
<TABLE>
<CAPTION>
Multiple Range
-----------------------------
Low Mean High
<S> <C> <C> <C>
Calendar Year 2000 Revenues 2.1x 2.3x 2.4x
Calendar Year 2000 EBIT 9.6x 14.5x 19.3x
Calendar Year 2000 Earnings 21.2x 25.4x 29.6x
Per Share
</TABLE>
The multiples in the above table were applied to the estimated
revenues, EBIT and earnings per share for Photronics for the calendar year 2000
to produce a reference range of per common share equity values . To take into
consideration that Photronics has traded at a premium on average to an index of
the photomask/maskmaking group, a 15% trading premium was applied to the
reference range which produced an adjusted reference range of per common share
equity values of between $19.93 and $30.68. To determine the appropriate trading
premium, CIBC World Markets reviewed historical price to earnings ratios of
Photronics versus an index of the companies in the photomask/maskmaking group
over the period from January 3, 1997 to January 10, 2000. On average, Photronics
has traded at a premium of 15% to the index of the photomask/maskmaking
companies.
Because of the inherent differences between the businesses,
operations, financial conditions and prospects of Photronics and the businesses,
operations, financial conditions and the prospects of the companies included in
its comparable company group, CIBC World Markets believes that it is
inappropriate to rely solely on the quantitative results of the analysis, and
accordingly, also made qualitative judgments concerning differences between the
financial and operating characteristics of Photronics and the comparable
companies that would affect the public trading values of Photronics and the
comparable companies.
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<PAGE>
CIBC World Markets calculated a range of conversion ratios based on
the comparable companies analysis. The low per share equity value for Align-Rite
common stock was divided by the high per share equity value for Photronics
common stock. The high per share equity value for Align-Rite common stock was
divided by the low per share equity value for Photronics common stock. These
calculations resulted in a conversion ratio range of 0.3971 to 0.9675. CIBC
World Markets noted that the merger's conversion ratio of 0.85 is within this
range.
Discounted Cash Flow Analysis
Using a discounted cash flow analysis based on forecasts provided by
Align-Rite's management, CIBC World Markets estimated the present value of the
future streams of free cash flows that Align-Rite could produce during the six
fiscal years ending March 31, 2005. In this analysis, CIBC World Markets
estimated the terminal value based on multiples of 7.5 to 8.5 times Align-Rite's
estimated earnings before interest, taxes, depreciation and amortization
("EBITDA") for the twelve months ended March 31, 2005. The free cash flows and
terminal values were discounted to present values using rates of 14%, 16% and
18%. After deducting net debt, preferred and minority interest from, and adding
back cash to, the present value of free cash flows and terminal values, this
analysis produced a range of per common share equity values for Align-Rite
common stock of between $15.97 and $23.07.
Using a discounted cash flow analysis based on forecasts provided by
Photronics' management, CIBC World Markets estimated the present value of the
future streams of free cash flows that Photronics could produce during the five
fiscal years ending October 31, 2004. In this analysis, CIBC World Markets
estimated the terminal value based on multiples of 9.0 to 11.0 times Photronics'
estimated EBITDA for the twelve months ended October 31, 2004. The free cash
flows and terminal values were discounted to present values using rates of 14%,
16% and 18%. After deducting net debt, preferred and minority interest from, and
adding back cash to, the present value of free cash flows and terminal values,
this analysis produced a range of per common share equity values for Photronics
common stock of between $19.97 and $30.54.
CIBC World Markets calculated a range of conversion ratios based on
the discounted cash flow analysis. The low per share equity value for Align-Rite
common stock was divided by the high per share equity value for Photronics
common stock. The high per share equity value for Align-Rite common stock was
divided by the low per share equity value for Photronics common stock. These
calculations resulted in a conversion ratio range of 0.5231 to 1.1555. CIBC
World Markets noted that the merger's conversion ratio of 0.85 is within this
range.
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Precedent Transactions Analysis
CIBC World Markets compared the financial terms of the merger to the
financial terms, to the extent publicly available, of 22 transactions CIBC World
Markets believed to be comparable that occurred within the semiconductor capital
equipment industry since September 5, 1995. For each of these transactions, CIBC
World Markets calculated, to the extent possible:
o the firm value, which is defined as the offer value for the equity
plus the net debt of the acquired company, as a multiple of the last
twelve months revenues of the acquired company prior to the date of
the announcement of the transaction;
o the firm value of the acquired company as a multiple of the last
twelve months EBITDA of the acquired company prior to the date of the
announcement of the transaction;
o the offer value per share for the acquired equity as a multiple of
the last twelve months earnings per share of the acquired company
prior to the date of the announcement of the transaction;
o the firm value of the acquired company as a multiple of the estimated
revenues for the next fiscal year following the date of the
announcement of the transaction;
o the firm value of the acquired company as a multiple of the estimated
EBITDA for the next fiscal year following the date of the
announcement of the transaction;
o the offer value per share for the acquired equity as a multiple of
the estimated earnings per share for the next fiscal year following
the date of the announcement of the transaction; and
o the control premium per share paid, or proposed to be paid in the
case of pending transactions, by the acquiror compared to the share
price of the target company as of five days prior to the announcement
of the transaction.
These analyses produced the following range of multiples and
premiums:
<TABLE>
<CAPTION>
Multiple Range
--------------------------------
Low Mean High
--- ---- ----
<S> <C> <C> <C>
Last Twelve Months Revenues 0.9x 2.3x 4.0x
Last Twelve Months EBITDA 5.3x 10.1x 14.7x
Last Twelve Months Earnings Per 11.0x 16.8x 21.9x
Share
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fiscal Year+1 Revenues 0.8x 2.2x 3.7x
Fiscal Year+1 EBITDA 8.8x 12.9x 16.5x
Fiscal Year+1 Earnings Per Share 14.0x 22.0x 27.7x
Control Premium 9.9% 49.2% 80.3%
</TABLE>
Using the multiples and control premiums in the above table and
applying them to the last twelve months revenues, EBITDA and earnings per share,
the fiscal year 2000 estimated revenues, EBITDA and earnings per share and the
September 14, 1999 closing stock price for Align-Rite produced a range of per
common share equity values of between $11.07 and $31.16, based on the average of
the low per share equity values and the average of the high per share equity
values.
CIBC World Markets calculated a range of conversion ratios based on
the precedent transactions analysis for Align-Rite and the comparable companies
analysis for Photronics. The low per share equity value for Align-Rite common
stock calculated using precedent transactions was divided by the high per share
equity value for Photronics common stock calculated using the comparable
companies. The high per share equity value for Align-Rite common stock
calculated using precedent transactions was divided by the low per share equity
value for Photronics common stock calculated using the comparable companies.
These calculations resulted in a conversion ratio range of 0.3611 to 1.5634.
CIBC World Markets noted that the merger's conversion ratio of 0.85 is within
this range.
CIBC World Markets calculated a range of conversion ratios based on
the precedent transactions analysis for Align-Rite and the discounted cash flow
analysis for Photronics. The low per share equity value for Align-Rite common
stock calculated using precedent transactions was divided by the high per share
equity value for Photronics common stock calculated using discounted cash flows.
The high per share equity value for Align-Rite common stock calculated using
precedent transactions was divided by the low per share equity value for
Photronics common stock calculated using discounted cash flows. These
calculations resulted in a conversion ratio range of 0.3628 to 1.5601. CIBC
World Markets noted that the merger's conversion ratio of 0.85 is within this
range.
Because the reasons for and the circumstances surrounding each of the
transactions analyzed were so diverse and because of the inherent differences in
the business, operations, financial condition and prospects of Align-Rite and
the businesses, operations, financial conditions and prospects of the companies
included in the precedent transactions group, CIBC World Markets believes that a
purely quantitative comparable transaction analysis would not be particularly
meaningful in the context of the merger. CIBC World
50
<PAGE>
Markets believes that the appropriate use of comparable transaction analysis in
this instance involves qualitative judgments concerning the differences between
the characteristics of these transactions and the merger that affect the
acquisition values of the acquired companies and Align-Rite.
Average Conversion Ratio
CIBC World Markets calculated a range of conversion ratios based on
averaging the low conversion ratios and averaging the high conversion ratios
calculated from the comparable companies, discounted cash flows and precedent
transactions analyses. These calculations resulted in a conversion ratio range
of 0.4110 to 1.3116. CIBC World Markets noted that the merger's conversion ratio
of 0.85 is within this range.
Research Price Targets
CIBC World Markets reviewed publicly available research analyst
reports on Align-Rite to determine a range of research price targets. This
review resulted in a range of per common share equity values for Align-Rite
common stock of between $18.00 and $24.00.
CIBC World Markets reviewed publicly available research analyst reports on
Photronics to determine a range of research price targets. This review resulted
in a range of per common share equity values for Photronics common stock of
between $29.00 and $35.00.
Fifty-two Week Trading Range
CIBC World Markets reviewed the closing trading prices for Align-Rite
common stock for the fifty-two week period ending January 5, 2000. During this
period, Align- Rite's common stock closed at a low of $11.13 per share and a
high of $22.00 per share.
CIBC World Markets reviewed the closing trading prices for Photronics
common stock for the fifty-two week period ending January 5, 2000. During this
period, Photronics' common stock closed at a low of $17.88 per share and a high
of $29.50 per share.
Historical Conversion Ratio Analysis
CIBC World Markets compared historical ratios of the closing trading
price or average closing trading prices for Align-Rite common stock to the
closing trading price or average closing trading prices for Photronics common
stock for the period from September 14, 1998 to September 14, 1999. CIBC World
Markets calculated historical conversion ratios based on the respective closing
trading prices as of September 14, 1999
51
<PAGE>
and the respective average closing trading prices for the one month, two months,
six months and one year preceding September 14, 1999.
The following table presents the results of these calculations:
<TABLE>
<CAPTION>
One Two Six One
As of Month Month Month Year
9/14/99 Average Average Average Average
<S> <C> <C> <C> <C> <C>
Ratio of closing prices for
Align-Rite common stock to 0.5680 0.5420 0.5578 0.5898
Photronies common stock 0.5934
Premium of 0.85 to the above 43.3% 49.6% 56.8% 52.4% 44.1%
ratios
</TABLE>
CIBC World Markets noted that the merger's conversion ratio of 0.85
is greater than each of these historical conversion ratios.
Contribution Analysis
CIBC World Markets utilized estimates for the future financial
performance of Align-Rite and Photronics, provided by the management of Align-
Rite and Photronics, to calculate the relative contributions of Align-Rite and
Photronics to the pro forma combined company with respect to revenues, EBITDA,
EBIT and unadjusted net income, for the fiscal years ending October 31, 2000 and
October 31, 2001. CIBC World Markets also reviewed the pro forma stock ownership
and the pro forma enterprise value of the combined company.
<TABLE>
<CAPTION>
Fiscal Year End 10/31
------------------------------
Align-Rite Contribution: 2000E 2001E
- ----------------------- ----- -----
<S> <C> <C>
Percentage of Combined Revenues 20.2% 20.6%
Percentage of Combined EBITDA 17.1% 17.1%
Percentage of Combined EBIT 19.2% 19.2%
Percentage of Combined Net Income 18.8% 18.3%
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Stock Ownership: %
- ------------------------- -
<S> <C>
Align-Rite 14.7%
Photronics 85.3%
Pro Forma Enterprise Value: %
-
Align-Rite 15.3%
Photronics 84.7%
</TABLE>
Pro Forma Merger Analysis
CIBC World Markets analyzed the pro forma impact of the merger on
Photronics' earnings per share for the fiscal years ending October 31, 2000 and
October 31, 2001, based on financial projections provided by the management of
Align-Rite and Photronics. As a result of these analyses, CIBC World Markets
concluded the merger excluding any benefit from synergies would be accretive in
both the fiscal year ending October 31, 2000 and the fiscal year ending October
31, 2001.
The foregoing is a summary of the financial analyses used by CIBC
World Markets in connection with rendering its opinion but does not purport to
be a complete description of the analyses performed by CIBC World Markets. The
preparation of a fairness opinion is a complex process and involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances,
and therefore is not necessarily susceptible to a partial analysis or summary
description. CIBC World Markets believes that its analyses must be considered as
a whole and that selecting portions of its analyses, without considering the
analyses taken as a whole, would create an incomplete view of the process
underlying the analyses set forth in the opinion. In addition, CIBC World
Markets considered the results of all such analyses and did not assign relative
weights to any of the analyses, so that the ranges of valuations resulting from
any particular analysis described above should not be taken to be CIBC World
Markets' view of Align-Rite, Photronics or the combined entity. No company used
in the comparable company analyses summarized above is identical to Align-Rite
or Photronics, and no transaction used in the comparable transaction analysis is
identical to the merger. Any analysis of the fairness of the merger, from a
financial point of view, to the shareholders of Align-Rite involves
complex considerations and judgments concerning differences in the potential
financial and operating characteristics of the comparable companies and
transactions and other factors
53
<PAGE>
in relation to the trading and acquisition values of comparable companies.
Analyses based upon forecasts of future results are not necessarily indicative
of actual future results, which may be significantly more or less favorable than
those suggested by such analyses. As described above, the opinion of CIBC World
Markets and the related presentation to the Align-Rite board on January 10, 2000
was one of many factors taken into consideration by the Align-Rite board in
making its determination to approve the amended merger agreement.
CIBC World Markets was selected by Align-Rite because of its
familiarity with Align-Rite and its business and CIBC World Markets'
qualifications and expertise in the semiconductor capital equipment industry and
in providing valuations of businesses and securities in connection with
acquisitions and mergers, underwritings, secondary distributions of securities,
private placements and valuations for other purposes. In its ordinary course of
business, CIBC World Markets acts as a market maker and broker in the publicly
traded securities of Align-Rite and Photronics, and also provides research
coverage for Align-Rite and Photronics. In its ordinary course of business, CIBC
World Markets and its affiliates may actively trade securities of Align-Rite and
Photronics for their own accounts and for the accounts of their customers and,
accordingly, may at any time hold long or short positions in such securities.
CIBC World Markets may in the future provide investment banking or other
financial advisory services to Align-Rite or Photronics.
Align-Rite engaged CIBC World Markets to act as its financial advisor
in connection with the merger and paid CIBC World Markets an opinion fee of
$250,000 for delivering the opinion dated September 15, 1999. In addition,
Align-Rite agreed to pay CIBC World Markets an additional opinion fee of
$250,000 in connection with the delivery of the second opinion, plus a
transaction fee of $250,000, payable in cash on the closing date of a
transaction if, during the term of the engagement or within 12 months
thereafter, a transaction is consummated with Photronics and Align-Rite does not
request that CIBC World Markets advise it with respect to proposals by other
parties. If another party submits a proposal that Align-Rite determines in good
faith to be a bona fide written proposal, and a transaction is then consummated
with another party or with Photronics, Align-Rite has agreed to pay CIBC World
Markets a transaction fee of $750,000 plus 4% of the transaction value in excess
of the transaction value payable in the merger as described in this proxy
statement/prospectus. Align-Rite has also agreed to reimburse CIBC World Markets
for expenses incurred and to indemnify CIBC World Markets against liabilities,
including liabilities under United States federal securities laws.
In furnishing its opinion, CIBC World Markets does not admit that it
is an expert within the meaning of the term "expert" as used in the Securities
Act, nor does it admit that its opinion constitutes a report or valuation within
the meaning of the Securities Act.
54
<PAGE>
Opinion of Financial Advisor to Photronics Board
In July 1999, the Photronics board retained Banc of America
Securities to act as its financial advisor in connection with the possible
acquisition of, or business combination involving, Align-Rite. Banc of America
Securities is a nationally recognized investment banking firm. Banc of America
Securities is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. Photronics
selected Banc of America Securities to act as its financial advisor on the basis
of Banc of America Securities' experience in transactions similar to the
merger.
Banc of America Securities delivered an opinion to the Photronics
board on September 15, 1999, stating that the conversion number under the terms
of the draft merger agreement available at that time was fair to Photronics from
a financial point of view as of that date. After the parties renegotiated the
terms of the merger, Banc of America Securities delivered a subsequent opinion
to the Photronics board on January 7, 2000 stating that the conversion number
under the terms of the merger agreement as amended by the draft amendment to the
merger agreement was fair to Photronics from a financial point of view as of
that date. The Photronics board did not limit the investigations made or
procedures followed by Banc of America Securities in rendering either
opinion.
We have attached the full text of Banc of America Securities' written
opinion dated January 7, 2000 to the Photronics board as ANNEX D, which is
hereby incorporated in its entirety with the consent of Banc of America
Securities, which is attached as an exhibit. You should read this opinion
carefully and in its entirety in connection with this proxy
statement/prospectus. However, we have also included the following summary of
the January 7, 2000 opinion of Banc of America Securities, which is qualified in
its entirety by reference to the full text of the opinion.
Banc of America Securities' opinion is directed to the Photronics
board. It does not constitute a recommendation to you on how to vote with
respect to the merger. The opinion addresses only the financial fairness of the
conversion number to Photronics. The opinion does not address the relative
merits of the merger or any alternatives to the merger, the underlying decision
of the Photronics board to proceed with or effect the merger or any other aspect
of the merger. In furnishing its opinion, Banc of America Securities did not
admit that it is an expert within the meaning of the term "expert" as used in
the Securities Act, nor did it admit that its opinion constitutes a report or
valuation within the meaning of the Securities Act. Statements to such effect
are included in Banc of America Securities' opinion.
55
<PAGE>
Banc of America Securities:
<TABLE>
<CAPTION>
<S> <C>
o reviewed publicly available financial statements and other business
and financial information of Align-Rite and Photronics,
respectively;
o reviewed internal financial statements and other financial and
operating data concerning Align-Rite and Photronics, respectively;
o analyzed initial and updated financial forecasts prepared by the
management of Align-Rite with respect to Align-Rite and initial and
updated financial forecasts for Photronics prepared by the
management of Photronics;
o reviewed and discussed with senior executives of Photronics
information relating to potential strategic, financial and
operational benefits anticipated from the transactions contemplated
by the merger agreement, as amended, prepared by the managements of
Align-Rite and Photronics, respectively;
o discussed the past and current operations, financial condition and
prospects of Align-Rite with senior executives of Align-Rite and
discussed the past and current operations, financial condition and
prospects of Photronics with senior executives of Photronics;
o reviewed the pro forma impact of the contemplated transactions on
the earnings per share, cash flow, consolidated capitalization and
financial ratios of Photronics;
o reviewed and considered in its analysis, information prepared by
members of senior management of Align-Rite and Photronics relating
to the relative contributions of Align-Rite and Photronics to the
combined company;
o reviewed the reported prices and trading activity for Align-Rite
common stock and Photronics common stock;
o compared the financial performance of Align-Rite and Photronics and
the prices and trading activity of Align-Rite common stock and
Photronics common stock with that of other publicly traded companies
which Banc of America Securities deemed relevant;
o participated in discussions with representatives of Align-Rite and
Photronics and their financial and legal advisors;
o reviewed the merger agreement and the draft amendment to the merger
agreement; and
o performed other analyses and considered other factors which Banc of
America Securities deemed appropriate.
</TABLE>
Banc of America Securities reviewed the final merger agreement and
the January 7, 2000 draft of the amendment to the merger agreement in its
preparation of its opinion. While Photronics and Align-Rite had the opportunity
to agree to materially add, delete or alter material terms of the amendment to
the merger agreement prior to its execution, the final amendment to the merger
agreement was substantially similar to the January 7, 2000 draft of the
amendment to the merger agreement.
56
<PAGE>
Banc of America Securities did not assume any responsibility to
independently verify the information listed above. Instead, with the consent of
the Photronics board, Banc of America Securities relied on the information as
being accurate and complete in all material respects. Banc of America Securities
also made the following assumptions with the consent of the Photronics
board:
<TABLE>
<CAPTION>
<S> <C>
o with respect to the financial forecasts for Align-Rite and Photronics
provided to Banc of America Securities by the management of each
company, upon the advice of Photronics management, that (a) the
forecasts were reasonably prepared on bases reflecting the best
available estimates and judgments of the managements of Photronics
and Align-Rite at the time of preparation as to the future financial
performance of both companies and (b) the forecasts provided a
reasonable basis upon which Banc of America Securities could form its
opinion;
o that there were no material changes in the assets, financial
condition, results of operations, business or prospects of either of
Photronics or Align-Rite since the respective dates of their last
financial statements made available to Banc of America Securities;
o that the acquisition would be consummated in a manner that complies
in all respects with the applicable provisions of the Securities Act
of 1933, the Securities Exchange Act of 1934, and all other
applicable federal and state statutes, rules and regulations;
o that the merger would be recorded as a pooling of interests
transaction under generally accepted accounting principles and would
be treated as a tax-free reorganization or exchange or both pursuant
to the Internal Revenue Code of 1986, as amended; and
o that the merger would be consummated in accordance with the terms
described in the final merger agreement and the January 7, 2000 draft
amendment to the merger agreement, without any further amendments to
the merger agreement, and without waiver by Photronics of any of the
conditions to its obligations that are contained in the merger
agreement, as it was proposed to be amended.
</TABLE>
Photronics and Align-Rite do not publicly disclose internal
management forecasts of the type provided to Banc of America Securities by the
managements of each of Photronics and Align-Rite in connection with Banc of
America Securities' review of the merger. Such forecasts were not prepared with
a view toward public disclosure. In addition, the forecasts were based upon
numerous variables and assumptions that are inherently uncertain, including
factors related to general economic and competitive conditions. Accordingly,
actual results could vary significantly from the results set forth in the
forecasts.
In addition, for purposes of its opinion, Banc of America
Securities:
57
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
o relied on advice of counsel and independent accountants to Photronics
as to all legal and financial reporting matters with respect to
Photronics, the merger, the merger agreement and the January 7, 2000
draft amendment to the merger agreement; and
o did not assume any responsibility for making an independent
evaluation, appraisal or physical inspection of any of the assets or
liabilities, contingent or otherwise, of Align-Rite or Photronics nor
did Banc of America Securities receive any appraisals.
</TABLE>
Banc of America Securities' opinion was based on economic, monetary,
market and other conditions in effect on, and the information made available to
it as of, the date of the January 7, 2000 opinion.
The following represents a brief summary of the material financial
analyses performed by Banc of America Securities in connection with providing
its January 7, 2000 opinion to the Photronics board. Some of the summaries of
financial analyses performed by Banc of America Securities include information
presented in tabular format. In order to fully understand the financial analyses
performed by Banc of America Securities, you should read the tables together
with the text of each summary. The tables alone do not constitute a complete
description of the financial analyses. Considering the data set forth in the
tables without considering the full narrative description of the financial
analyses, including the methodologies and assumptions underlying the analyses,
could create a misleading or incomplete view of the financial analyses performed
by Banc of America Securities.
Valuation Analyses Regarding Photronics
Comparable Company Analysis.
Based on public and other available information, Banc of America
Securities calculated the multiples of aggregate value to revenues for estimated
calendar year 1999 and projected calendar year 2000 and the multiples of equity
value to net income for estimated calendar year 1999 and projected calendar year
2000 for companies that Banc of America Securities deemed to be comparable to
Photronics. Banc of America Securities defined aggregate value to mean:
o equity value, defined as the product of the number of fully diluted
shares of common stock outstanding for a company multiplied by its
stock price; plus
o outstanding debt; less
o cash and cash equivalents.
58
<PAGE>
Banc of America Securities calculated multiples for one manufacturer
of photomasks and one manufacturer of equipment used to make photomasks:
o DuPont Photomasks Inc., and
o Etec Systems Inc
Each company was selected because (a) it had an active public trading
market for its equity securities, (b) was either a manufacturer of photomasks or
a manufacturer of equipment used to make photomasks, and (c) Banc of America
Securities believed the company had operating characteristics similar to those
of Photronics.
The following table sets forth the multiples indicated by this
analysis for these two companies:
<TABLE>
<CAPTION>
Aggregate Value to: Range of Multiples Median Mean
- ------------------ ------------------ ------ ----
<S> <C> <C> <C>
Estimated calendar year 1999
revenues 2.6x to 4.0x 3.3x 3.3x
Projected calendar year 2000
revenue 2.1x to 2.5x 2.3x 2.3x
Equity Value to: Range of Multiples Median Mean
- ------------------ ------------------ ------ ----
<S> <C> <C> <C>
Estimated calendar year 1999
net income 32.0x to 32.0x 32.0x 32.0x
Projected calendar year 2000
net income 23.0x to 24.7x 23.9x 23.9x
</TABLE>
The comparable company analysis compared Photronics to the two comparable
companies on the basis that the companies selected were the most relevant given
the factors considered above. Consequently, Banc of America Securities did not
include every company that could be deemed to be a participant in the same
industry.
Banc of America Securities noted that based on the results of
Photronics for calendar year 1999 ended October 31, 1999, the aggregate value of
Photronics on January 5, 2000 implied a multiple of 3.5x calendar year revenues
and the equity value of Photronics on that same date implied a multiple of 61.3x
calendar year 1999 net income. Banc of America Securities also noted that, based
on financial forecasts contained in Needham & Company research reports, the
aggregate value of Photronics on January 5, 2000 implied a multiple of 2.9x
projected calendar year 2000 revenues and that the equity value of Photronics on
that date implied a multiple of 29.9x projected calendar year 2000
59
<PAGE>
net income. Using the financial forecasts provided to Banc of America Securities
by the management of Photronics, the aggregate value of Photronics, on January
5, 2000 implied a multiple of 3.0x projected calendar year 2000 revenues and the
equity value of Photronics on that same date implied a multiple of 30.4x
projected calendar year 2000 net income. Banc of America Securities noted that
these multiples exceeded the respective median multiples indicated in the
analysis of the two comparable companies.
Comparable Transactions Analysis.
Based on public and other available information, Banc of America
Securities calculated the multiples of aggregate value to the last twelve months
revenues and equity value to the last twelve months net income based on the most
recent financial reporting period for the target company implied in eighteen
semiconductor capital equipment and materials company acquisitions announced
between February 1998 and December 1999. While Photronics is the acquiror in the
merger, Banc of America Securities compared the aggregate value to revenue
multiple and equity value to net income multiple of Photronics to the aggregate
value to revenue multiple and equity value to net income multiple of the target
companies as a method to analyze the aggregate and equity values of Photronics.
Aggregate value for purposes of the comparable transactions analysis excludes
the value of options. Aggregate value for a target company was taken to equal
equity value if information on the target company's net debt was not publicly
available.
Banc of America Securities calculated multiples for the following
comparable company acquisitions:
<TABLE>
<CAPTION>
Acquiror Target Announcement Date
-------- ------ -----------------
<S> <C> <C>
Oerlikon-Buhrle Holding AG Plasma-Therm December 20, 1999
Cerprobe Corporation OZ Technologieset December 3, 1999
ATMI INC. MST Analytics November 30, 1999
Veeco Instruments Ion Tech October 15, 1999
The BOC Group, Inc. Chemical Management June 9,1999
Division of FSI International,
Inc.
ATMI, Inc. Delatech, Inc. June 1, 1999
Applied Materials, Inc. Obsidian, Inc. May 28, 1999
ATMI, Inc. Delatech, Inc. June 1, 1999
Electro Scientific Industries, MicroVision Corporation February 1, 1999
STEAG Electronic Systems AG Associates January 19, 1999
GmbH
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
Acquiror Target Announcement Date
-------- ------ -----------------
<S> <C> <C>
FEI Company Micrion Corporation December 3, 1998
PRI Automation, Inc. Promis Systems Corporation, November 25, 1998
Ltd.
SpeedFam-IPEC, Inc. Integrated Process November 23, 1998
Equipment Corporation
Advanced Energy Industries, RF Power Products, Inc. June 2, 1998
Inc.
Helix Technology Granville-Phillips Company April 17, 1998
Corporation
ADE Corporation Phase Shift Technology, Inc. March 17, 1998
ATMI, Inc. NOW Technologies, Inc. February 20, 1998
Veeco Instrument, Inc. Digital Instruments, Inc. February 9, 1998
Danaher Corporation Pacific Scientific Company February 2, 1998
</TABLE>
Each transaction was selected because:
o Banc of America Securities believed the target company had similar
operating characteristics to those of Photronics; and
o the transaction was relatively recent and the target company was of a
comparable size to Photronics in terms of aggregate value and equity
value.
Transactions where the target company had an aggregate value less
than $25 million or where aggregate and equity values for the target company
were not publicly available were excluded.
The following table sets forth the multiples indicated by this
analysis for these eighteen acquisitions:
<TABLE>
<CAPTION>
Aggregate Value to: Range of Multiples Median Mean
- ------------------ ------------------ ====== ====
Last twelve months revenues 0.8x to 3.8x 1.7x 2.2x
Equity Value to: Range of Multiples Median Mean
- --------------- ------------------ ------ ----
<S> <C> <C> <C>
Last twelve months net income 11.1x to 45.9x 16.2x 21.6x
</TABLE>
The comparable transactions analysis compared the merger to all
eighteen acquisitions on the basis that the transactions selected were the most
relevant given the
61
<PAGE>
factors considered above. Consequently, Banc of America Securities did not
include every transaction that could be deemed to have occurred in the
industry.
Banc of America Securities noted that the aggregate value of
Photronics on January 5, 2000 implied a multiple of 3.5x last twelve months
revenues. Banc of America Securities also noted that the equity value of
Photronics on January 5, 2000 implied a multiple of 61.3x last twelve months net
income. Banc of America Securities also noted that these multiples exceeded the
respective median multiples indicated in the analysis of the eighteen
acquisitions.
No company or transaction used in the comparable company or
comparable transactions analyses is identical to Photronics or the merger.
Accordingly, an analysis of the foregoing results is not mathematical. Rather,
it involves complex considerations and judgments concerning differences in
financial and operating characteristics of the companies and other factors that
could affect the public trading value or purchase price of the companies to
which Photronics and the merger are being compared.
Discounted Cash Flow Analysis.
Banc of America Securities used financial cash flow forecasts for
Photronics, (a) as estimated by the management of Photronics for calendar years
2000 through 2004 and (b) as obtained from Needham & Company research for
calendar years 2000 and 2001, and as estimated by applying the growth rates
estimated by Needham & Company to calendar year 2001 to forecast cash flows for
calendar years 2002 through 2004, to perform a discounted cash flow analysis. In
conducting this analysis, Banc of America Securities estimated the terminal
value of Photronics at the end of 2004 by applying multiples to Photronics'
projected 2004 revenues, which multiples ranged from 3.0x to 4.0x. Banc of
America Securities then discounted the cash flows and terminal value to present
values using rates ranging from 15.4% to 22.4%. Banc of America Securities
selected the range of terminal value multiples based on the multiples of
comparable public companies and comparable transactions, Photronics' current and
historical multiples, and by applying judgment based upon its prior experience.
Banc of America Securities selected the range of discount rates by estimating
the weighted average cost of capital for Photronics.
Using financial cash flow forecasts for Photronics for calendar years
2000 through 2004 as estimated by the management of Photronics, this analysis
indicated a range of equity value for Photronics as follows:
62
<PAGE>
<TABLE>
<CAPTION>
Implied Equity Value
(dollar amounts in thousands)
- -----------------------------------------------------------------------------------------------------------------------------
Discount Rate Terminal Value of Terminal Value of Terminal Value of
3.0x Projected 3.5x Projected 4.0x Projected
Calendar Year 2004 Calendar Year 2004 Calendar Year 2004
Revenue Revenue Revenue
- --------------- ----------------------- ----------------------- -------------------------
<S> <C> <C> <C>
15.4% $762,011 $893,718 $1,025,425
18.9% 644,685 758,121 871,557
22.4% 546,185 644,309 742,432
</TABLE>
Using financial cash flow forecasts for Photronics for calendar years
2000 through 2004 as estimated by the management of Photronics, this analysis
indicated a range of equity value on a price per share basis for Photronics by
dividing the implied equity values indicated above by the number of outstanding
shares of Photronics common stock (calculated on a fully-diluted basis) as
follows:
<TABLE>
<CAPTION>
Implied Price Per Share
- -----------------------------------------------------------------------------------------------------------------------------
Discount Rate Terminal Value of Terminal Value of Terminal Value of
3.0x Projected 3.5x Projected 4.0x Projected
Calendar Year 2004 Calendar Year 2004 Calendar Year 2004
Revenue Revenue Revenue
- --------------- ----------------------- ----------------------- -------------------------
<S> <C> <C>
15.4% $30.54 $35.81 $41.09
18.9% 25.83 30.38 34.93
22.4% 21.89 25.82 29.75
</TABLE>
Using financial cash flow forecasts for Photronics obtained from
Needham & Company research for calendar years 2000 and 2001, and as estimated by
applying the growth rates estimated by Needham & Company to calendar year 2001
to forecast cash flows for calendar years 2002 through 2004, this analysis
indicated a range of equity value for Photronics as follows:
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<PAGE>
<TABLE>
<CAPTION>
Implied Equity Value
(dollar amounts in thousands)
- ---------------------------------------------------------------------------------------------------------------------------------
Discount Rate Terminal Value of Terminal Value of Terminal Value of
3.0x Projected 3.5x Projected 4.0x Projected
Calendar Year 2004 Calendar Year 2004 Calendar Year 2004
Revenue Revenue Revenue
- ------------------------ ------------------------- -------------------------------- -------------------------
<S> <C> <C> <C>
15.4% $667,399 $796,331 $925,263
18.9% 560,233 671,279 782,324
22.4% 470,444 566,500 662,555
</TABLE>
Using financial cash flow forecasts for Photronics obtained from
Needham & Company research for calendar years 2000 and 2001, and as estimated by
applying the growth rates estimated by Needham & Company to calendar year 2001
to forecast cash flows for calendar years 2002 through 2004, this analysis
indicated a range of equity value on a price per share basis for Photronics by
dividing the implied equity values indicated above by the number of outstanding
shares of Photronics common stock (calculated on a fully-diluted basis) as
follows:
<TABLE>
<CAPTION>
Implied Price Per Share
- ---------------------------------------------------------------------------------------------------------------------------------
Discount Rate Terminal Value of Terminal Value of Terminal Value of
3.0x Projected 3.5x Projected 4.0x Projected
Calendar Year 2004 Calendar Year 2004 Calendar Year 2004
Revenue Revenue Revenue
- ------------------------- ------------------------------- ---------------------------- -------------------------
<S> <C> <C> <C>
15.4% $26.74 $31.91 $37.08
18.9% 22.45 26.90 31.35
22.4% 18.85 22.70 26.55
</TABLE>
Banc of America Securities noted that the equity value of Photronics
on January 5, 2000 was $682 million and the price per share of Photronics on
January 5, 2000 was $27.31. The equity value of Photronics and the price per
share of Photronics on January 5, 2000 were within the ranges of equity value
and price per share indicated by the analyses.
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<PAGE>
Valuation Analysis of Align-Rite
Comparable Company Analysis.
Based on public and other available information, Banc of America
Securities calculated the multiples of aggregate value to each of (a) revenues
and (b) earnings before interest and taxes ("EBIT"), each for the last twelve
months and the multiples of aggregate value to revenue for estimated calendar
year 1999 and projected calendar year 2000 and the multiples of equity value for
net income for estimated calendar year 1999 and projected calendar year 2000 for
companies that Banc of America Securities deemed to be comparable to
Align-Rite.
Banc of America Securities calculated multiples for one manufacturer
of photomasks and one manufacturer of equipment used to make photomasks:
o DuPont Photomasks Inc., and
o Etec Systems Inc
Each company was selected because (a) it had an active public trading
market for its equity securities, (b) was either a manufacturer of photomasks or
a manufacturer of equipment used to make photomasks, and (c) Banc of America
Securities believed the company had operating characteristics similar to those
of Align-Rite.
The following table sets forth the multiples indicated by this
analysis for these two companies:
<TABLE>
<CAPTION>
Aggregate Value to: Range of Multiples Median Mean
- ------------------ ------------------ ====== ====
<S> <C> <C> <C>
Last twelve months revenue 2.7x to 4.2x 3.4x 3.4x
Last twelve months EBIT 24.6x to 24.6x 24.6x 24.6x
Estimated calendar year 1999 2.6x to 4.0x 3.3x 3.3x
revenue 2.1x to 2.5x 2.3x 2.3x
Projected calendar year 2000
revenue
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
Equity Value to: Range of Multiples Median Mean
- --------------- ------------------ ====== ====
<S> <C> <C> <C>
Estimated calendar year 1999 32.0x to 32.0x 32.0x 32.0x
net income
Projected calendar year 2000 net 23.0x to 24.7x 23.9x 23.9x
income
</TABLE>
The comparable company analysis compared Align-Rite to the two
comparable companies on the basis that the companies selected were the most
relevant given the factors considered above. Consequently, Banc of America
Securities did not include every company that could be deemed to be a
participant in the same industry.
Banc of America Securities noted that the aggregate value of
Align-Rite on January 5, 2000 implied multiples of 2.7x last twelve months
revenues and 22.4x last twelve months EBIT. Using the financial forecasts
provided to Banc of America Securities by the management of Align-Rite, the
aggregate value of Align-Rite, on January 5, 2000 implied multiples of 2.6x
estimated calendar year 1999 revenue and 2.1x projected calendar year 2000
revenue. Using the same financial forecasts, the equity value of Align-Rite on
that date implied multiples of 31.8x projected calendar year 2000 net income and
21.1x projected calendar year 2000 net income. Banc of America Securities noted
that these multiples were below the respective median multiples indicated in the
analysis of the two comparable companies.
Comparable Transactions Analysis.
Based on public and other available information, Banc of America
Securities calculated the multiples of aggregate value to the last twelve months
revenues and equity value to the last twelve months net income based on the most
recent financial reporting period for the target company implied in eighteen
semiconductor capital equipment and materials company acquisitions announced
between February 1998 and December 1999. Aggregate value for purposes of the
comparable transactions analysis excludes the value of options. Aggregate value
for a target company was taken to equal equity value if information on the
target company's net debt was not publicly available.
Banc of America Securities calculated multiples for the comparable
company acquisitions in the same manner as described above for Photronics:
<TABLE>
<CAPTION>
Acquiror Target Announcement Date
- ------- ------ -----------------
<S> <C> <C>
Oerlikon-Buhrle Holding AG Plasma-Therm December 20, 1999
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
Acquiror Target Announcement Date
-------- ------ -----------------
<S> <C> <C>
Cerprobe Corporation OZ Technologies December 3, 1999
ATMI Inc. MST Analytics November 30, 1999
Veeco Instruments Ion Tech October 15, 1999
The BOC Group, Inc. Chemical Management June 9, 1999
Division of FSI International,
Inc.
ATMI, Inc. Delatech, Inc. June 1, 1999
Applied Materials, Inc. Obsidian, Inc. May 28, 1999
ATMI, Inc. Advanced Chemical Systems May 17, 1999
International, Inc.
Electro Scientific Industries, MicroVision Corporation February 1, 1999
Inc.
STEAG Electronic Systems AG Associates January 19, 1999
GmbH
FEI Company Micrion Corporation December 3, 1998
PRI Automation, Inc. Promis Systems Corporation, November 25, 1998
Ltd.
SpeedFam-IPEC, Inc. Integrated Process November 23, 1998
Equipment Corporation
Advanced Energy Industries, RF Power Products, Inc. June 2, 1998
Inc.
Helix Technology Granville-Phillips Company April 17, 1998
Corporation
ADE Corporation Phase Shift Technology, Inc. March 17, 1998
ATMI, Inc. NOW Technologies, Inc. February 20, 1998
Veeco Instrument, Inc. Digital Instruments, Inc. February 9, 1998
Danaher Corporation Pacific Scientific Company February 2, 1998
</TABLE>
Each transaction was selected because:
. Banc of America Securities believed the target company had similar
operating characteristics to those of Align-Rite;
. the transaction involved a change of control in ownership of the target
company; and
. the transaction was relatively recent and of a size comparable to the
contemplated merger.
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<PAGE>
Transactions where the target company had an aggregate value less
than $25 million or where aggregate and equity values for the target company
were not publicly available were excluded.
The following table sets forth the multiples indicated by this
analysis for these eighteen acquisitions:
Aggregate Value to: Range of Multiples Median Mean
- ------------------ ------------------ ------ ----
Last twelve months revenues 0.8x to 3.8x 1.7x 2.2x
Equity Value to: Range of Multiples Median Mean
- --------------- ------------------ ------ ----
Last twelve months net income 11.1x to 45.9x 16.2x 21.6x
The comparable transactions analysis compared the merger to all
eighteen acquisitions on the basis that the transactions selected were the most
relevant given the factors considered above. Consequently, Banc of America
Securities did not include every transaction that could be deemed to have
occurred in the industry.
Banc of America Securities noted that the aggregate value of
Align-Rite on January 5, 2000 implied a multiple of 2.7x last twelve months
revenues. Banc of America Securities also noted that the equity value of
Align-Rite on January 5, 2000 implied a multiple of 30.2x last twelve months net
income. Banc of America Securities also noted that these multiples were within
the range of multiples indicated in the analysis of the eighteen acquisitions.
No company or transaction used in the comparable company or
comparable transactions analyses is identical to Align-Rite or the merger.
Accordingly, an analysis of the foregoing results is not mathematical. Rather,
it involves complex considerations and judgments concerning differences in
financial and operating characteristics of the companies and other factors that
could affect the public trading value or purchase price of the companies to
which Align-Rite and the merger are being compared.
Discounted Cash Flow Analysis.
Banc of America Securities used financial cash flow forecasts for
Align-Rite for calendar years 2000 through 2004, as estimated by the management
of Align-Rite, to perform a discounted cash flow analysis. In conducting this
analysis, Banc of America Securities estimated the terminal value of Align-Rite
at the end of 2004 by applying multiples to Align-Rite's projected 2004
revenues, which multiples ranged from 3.0x to
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<PAGE>
4.0x. Banc of America Securities then discounted the cash flows and terminal
value to present values using rates ranging from 14.4% to 21.4%. Banc of America
Securities selected the range of terminal value multiples based on the multiples
of comparable public companies and comparable transactions, Align-Rite's current
and historical multiples, and by applying judgment based upon its prior
experience. Banc of America Securities selected the range of discount rates by
estimating the weighted average cost of capital for Align-Rite.
Using financial cash flow forecasts for Align-Rite for calendar years
2000 through 2004 as estimated by the management of Align-Rite, this analysis
indicated a range of equity value for Align-Rite as follows:
Implied Equity Value
(dollar amounts in thousands)
- --------------------------------------------------------------------------------
Discount Rate Terminal Value of Terminal Value of Terminal Value of
3.0x Projected 3.5x Projected 4.0x Projected
Calendar Year 2004 Calendar Year 2004 Calendar Year 2004
Revenue Revenue Revenue
------------- ----------------- ----------------- -----------------
14.4% $207,537 $239,514 $271,491
17.9% 177,633 205,136 232,638
21.4% 152,479 176,238 199,996
Using financial cash flow forecasts for Align-Rite for calendar years
2000 through 2004 as estimated by the management of Align-Rite, this analysis
indicated a range of equity value on a price per share basis for Align-Rite by
dividing the implied equity values indicated above by the number of outstanding
shares of Align-Rite common stock (calculated on a fully-diluted basis) as
follows:
Implied Price Per Share
- --------------------------------------------------------------------------------
Discount Rate Terminal Value of Terminal Value of Terminal Value of
3.0x Projected 3.5x Projected 4.0x Projected
Calendar Year 2004 Calendar Year 2004 Calendar Year 2004
Revenue Revenue Revenue
------------- ----------------- ----------------- -----------------
14.4% $41.67 $48.09 $54.51
17.9% 35.67 41.19 46.71
21.4% 30.62 35.39 40.16
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<PAGE>
Banc of America Securities noted that the equity value of Align-Rite
on January 5, 2000 was $116 million and the price per share of Align-Rite on
January 5, 2000 was $23.22. The equity value of Align-Rite and the price per
share of Align-Rite on January 5, 2000 were below the ranges of equity value and
price per share indicated by the analyses.
As noted above, the foregoing is merely a summary of the analyses and
examinations that Banc of America Securities considered to be material to its
January 7, 2000 opinion. It is not a comprehensive description of all analyses
and examinations actually conducted by Banc of America Securities. The
preparation of a fairness opinion is not susceptible to partial analysis or
summary description. Banc of America Securities believes that its analyses and
the summary above must be considered as a whole. Banc of America Securities
further believes that selecting portions of its analyses and of the factors
considered, without considering all analyses and factors, would create an
incomplete view of the process underlying the analyses set forth in its
presentation to the Photronics board of directors. Banc of America Securities
did not assign any specific weight to any of the analyses described above. The
fact that any specific analysis has been referred to in the summary above is not
meant to indicate that such analysis was given greater weight than any other
analysis. Accordingly, the ranges of valuations resulting from any particular
analysis described above should not be taken to be Banc of America Securities'
view of the actual value of either Photronics or Align-Rite.
In performing its analyses, Banc of America Securities made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of Photronics
and Align-Rite. The analyses performed by Banc of America Securities are not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than those suggested by these analyses.
These analyses were prepared solely as part of Banc of America Securities'
analysis of the financial fairness of the consideration to be paid by Photronics
in the merger and were provided to the Photronics board of directors in
connection with the delivery of Banc of America Securities' opinion. The
analyses do not purport to be appraisals or to reflect the prices at which a
company might actually be sold or the prices at which any securities may trade
at any time in the future.
As described above, Banc of America Securities' opinion and
presentation to the Photronics board of directors were among the many factors
taken into consideration by the Photronics board of directors in making its
determination to approve, and to recommend that Photronics shareholders approve,
the merger and the merger agreement, as amended.
Photronics agreed to pay Banc of America Securities a sale
transaction fee, with a fee of $400,000 contingent upon the execution of the
merger agreement and fee of
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<PAGE>
$400,000 contingent upon the consummation of the merger. Photronics also agreed
to pay Banc of America Securities a percentage-based fee for its services as a
private placement agent in a sale of approximately 1.0 million shares of
Photronics common stock, subject to a minimum fee of $1 million. As of January
19, 2000, based on the assumption that shares sold in the private placement
would be sold at Photronics' closing stock price, this fee would be $1.56
million. The Photronics board of directors was aware of this fee structure and
took it into account in considering Banc of America Securities' fairness opinion
and in approving the merger. The engagement letter also calls for Photronics to
reimburse Banc of America Securities for its reasonable out-of-pocket expenses.
Pursuant to a separate letter agreement, Photronics has agreed to indemnify Banc
of America Securities, its affiliates, and their respective partners, directors,
officers, agents, consultants, employees and controlling persons against certain
liabilities, including liabilities under the federal securities laws.
Interests of Key Persons in the Merger
In considering the recommendations of the Align-Rite board regarding
the merger, you should be aware of the interests that key directors and
executive officers have in the merger that are different from your interests and
the interests of shareholders of Align-Rite. In this regard, you should
consider, among other things, the following information.
James L. MacDonald - Align-Rite's Chairman of the Board, Chief
Executive Officer and President, has entered into an amendment to his existing
employment agreement with Align-Rite. This amendment will be effective only if
the merger occurs and provides that Mr. MacDonald will be appointed to the
Photronics board and become a member of the Office of the Chief Executive of
Photronics. His base annual salary will be increased from $260,000 to $300,000
per annum and he will receive options to acquire 50,000 shares of Photronics
common stock. The exercise price of the options will be equal to the market
price of Photronics common stock on the date of grant and the options will vest
over a four-year period. Mr. MacDonald has agreed that, during the first 12
months after the merger is completed, he will not exercise the right under his
existing employment agreement to terminate his employment as a result of a
change in control of Align-Rite, which would occur if the merger is completed.
Petar N. Katurich - Align-Rite's Vice President of Finance, Chief
Financial Officer and Secretary and a director of Align-Rite, has entered into
an amendment to his existing employment agreement with Align-Rite. The amendment
will be effective only if the merger occurs and provides that his base salary
will increase from $120,000 to $125,000 per annum and that he will receive
options to acquire 12,000 shares of Photronics
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<PAGE>
common stock. The exercise price of these options will be equal to the market
price of Photronics common stock on the date of grant and the options will vest
over a four-year period. Align-Rite also has agreed to pay Mr. Katurich a "stay"
bonus of $100,000 if the merger is completed and, prior to September 15, 2000,
he does not voluntarily terminate his employment with Align-Rite or is not
terminated for cause.
Align-Rite entered into the amendments with Messrs. MacDonald and
Katurich to confirm the roles and responsibilities of Messrs. MacDonald and
Katurich following completion of the merger and to provide incentives for each
to remain with the combined company following completion of the merger.
Align-Rite and Photronics believe that the compensation and incentives are
comparable to those for executives with similar roles and responsibilities in
similarly sized companies.
Align-Rite has entered into agreements or amendments to existing
employment agreements with a total of nine other officers and key managers of
Align-Rite that provide for "stay" bonuses if the merger is completed and the
officer or key manager does not voluntarily terminate his employment with
Align-Rite or is not terminated for cause prior to September 15, 2000. The
aggregate amount of these "stay" bonuses is approximately $180,000. In addition,
if the merger is completed, these officers and key managers will be entitled to
receive options to acquire an aggregate of 88,000 shares of Photronics common
stock. The exercise price of these options will be equal to the market price of
Photronics common stock on the date of grant and the options will vest over a
four-year period.
Under the terms of existing option agreements, upon consummation of
the merger, stock options to purchase an aggregate of 510,652 shares of
Align-Rite common stock will become immediately exercisable and will be
exchanged for options to purchase the same number of shares of Photronics common
stock. The following are the stock options held by directors and executive
officers:
James L. MacDonald - 241,396 shares
Petar N. Katurich - 22,800 shares
Alan G. Duncan - 17,000 shares
William Elder - 7,000 shares
George Wells - 16,000 shares
Photronics has agreed to continue in effect the indemnification
currently in effect for Align-Rite's directors and officers indefinitely and to
continue in effect directors and officers insurance for a period of six years
after the merger subject to limitations. For
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<PAGE>
more information, see "Terms of the Merger Agreement - Other Covenants -
Indemnification of Directors and Officers."
Mr. MacDonald and a family trust for which he acts as co-trustee have
entered into a voting agreement with Photronics to vote all shares of Align-Rite
common stock they are entitled to vote in favor of approving the merger and
approving the principal terms of the merger agreement. In conjunction with the
execution of the amendment of the merger agreement, Mr. MacDonald and Robin A.
MacDonald, as trustee of the family trust, and Mr. MacDonald reaffirmed the
voting agreement with Photronics. The agreement with Photronics provides that if
the merger agreement is terminated because of the existence of a third party
proposal to acquire Align-Rite and, within six months after the termination of
the merger agreement, Align-Rite enters into an agreement for, and within 18
months consummates, specified business combinations involving Align-Rite, then
if Mr. MacDonald or the trust receives more than $23.09 per share in value in
that business combination, they will pay Photronics any amount received for
their shares of Align-Rite common stock above $23.09 per share, up to an
aggregate amount of $360,000.
U.S. Federal Income Tax Consequences
This tax discussion presents the material federal income tax consequences
of the merger , which merger in the opinions of Paul, Hastings, Janofsky &
Walker LLP, counsel to Photronics and of O'Melveny & Myers LLP, counsel to
Align-Rite, will be treated as a tax-free "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended. These opinions
have been provided to Photronics and Align-Rite, respectively, and filed with
the SEC as exhibits to the registration statement related to this proxy
statement/prospectus. In rendering their opinions, counsel to each of Align-Rite
and Photronics have relied upon the representations made by Align-Rite and
Photronics. Neither the tax opinions nor this discussion will bind the Internal
Revenue Service and the Internal Revenue Service is not precluded from asserting
a contrary position. The parties have not requested and will not request a
ruling from the Internal Revenue Service as to the consequences of the merger.
The discussion addresses only shareholders who hold their shares as
capital assets within the meaning of Section 1221 of the Internal Revenue Code.
It is based upon current provisions of the Internal Revenue Code, existing
regulations promulgated under the Internal Revenue Code and current rulings and
court decisions, all of which are subject to change, possibly with retroactive
effect. Tax consequences under state, local and foreign laws are not addressed.
The discussion does not address all aspects of federal income taxation that may
be important to shareholders who are subject to special rules, such as
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<PAGE>
o financial institutions,
o tax-exempt organizations,
o insurance companies,
o dealers in securities or foreign currencies,
o traders in securities who elect to apply a mark-to-market method of
accounting,
o foreign holders,
o persons who hold shares as a hedge against currency risk or as part of
a straddle, constructive sale or conversion transaction, or
o holders who acquired their shares upon the exercise of employee stock
options or otherwise as compensation
As a result of the qualification of the merger as a "reorganization"
within the meaning of Section 368(a) of the Internal Revenue Code, the tax
implications will be as follows:
U.S. Federal Income Tax Implications to Align-Rite Shareholders
No gain or loss will be recognized for federal income tax purposes by
holders of Align-Rite common stock who exchange their Align-Rite common stock
for Photronics common stock pursuant to the merger, except with respect to cash
received in lieu of fractional shares. The aggregate tax basis of the Photronics
common stock to be received by an Align-Rite shareholder in the merger will be
the same as such shareholder's aggregate tax basis in the Align-Rite common
stock surrendered in the exchange (reduced by any amount allocable to a
fractional share of Photronics common stock as discussed below).
The holding period of the Photronics common stock to be received by
an Align-Rite shareholder as a result of the merger will include the period
during which such shareholder held the Align-Rite common stock exchanged. Cash
received by a holder of Align-Rite common stock instead of a fractional share of
Photronics common stock will be treated as received in exchange for such
fractional share interest, and gain or loss will be recognized for federal
income tax purposes, measured by the difference between the amount of cash
received and the portion of the basis of the Align-Rite common stock allocable
to the fractional share interest. Such gain or loss will be capital gain or loss
provided that the shares of Align-Rite common stock were held as capital assets
and will be long term capital gain or loss if the Align-Rite common stock had
been held for more than one year at the time of the merger. The amount of such
gain or loss will be the
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<PAGE>
difference between the amount of cash received for such fractional share and the
amount of such tax basis.
U.S. Federal Income Tax Implications of the Merger to Align-Rite,
Photronics and AL Acquisition Corp.
No gain or loss will be recognized for United States federal income tax
purposes by Align-Rite, Photronics or AL Acquisition Corp. as a result of the
merger.
U.S. Federal Income Tax Implications of the Merger to Dissenting
Shareholders
Holders of Align-Rite common stock who exercise and perfect their
dissenters' rights with respect to their shares will be treated as if such
shares were exchanged for the amount of cash received. Accordingly, dissenting
shareholders will recognize gain or loss as a result of the merger equal to the
difference between the cash received and the shareholder's basis in such shares.
If the shares are held as a capital asset at the time of the exchange, the gain
or loss will be capital gain or loss provided the payment neither is essentially
equivalent to a dividend within the meaning of Section 302 of the Internal
Revenue Code nor has the effect of a dividend within the meaning of Section
356(a)(2) of the Internal Revenue Code. A sale of shares pursuant to an exercise
of dissenters' rights will not be a dividend within the meaning of Section
356(a)(2) of the Internal Revenue Code or have the effect of a dividend within
the meaning of Section 356(a)(2) of the Internal Revenue Code, if, as a result
of such exercise, the Align-Rite common shareholder owns no shares of Photronics
common stock (either actually or constructively within the meaning of Section
318 of the Code). Shareholders considering exercising their dissenters' rights
are strongly urged to consult their tax advisors as to the particular tax
consequences to them of such actions.
Backup Withholding
Under the Internal Revenue Code, a holder of Align-Rite common stock may be
subject to backup withholding at a rate of 31% with respect to the amount of
cash, if any, received unless the holder provides proof of an applicable
exemption or a correct taxpayer identification number, and otherwise complies
with applicable requirements of the backup withholdings rules. Any amounts
withheld under the backup withholding rules are not an additional tax and may be
refunded or credited against the holder's federal income tax liability, provided
the required information is furnished to the Internal Revenue Service.
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<PAGE>
The United States federal income tax discussion set forth above does
not address tax consequences which may vary with, or are contingent on,
individual circumstances. Moreover, this discussion does not address any tax
consequences of the disposition of Align-Rite common stock before the merger or
the disposition of Photronics common stock after the merger. This discussion is
directed to investors who are United States citizens or residents or domestic
corporations. No attempt has been made to determine any tax that may be imposed
on a shareholder by the country, state or jurisdiction in which the holder
resides or is a citizen other than the material United States federal income tax
consequences discussed herein. Holders of Align-Rite common stock are advised to
consult their own tax advisors regarding the federal income tax consequences in
light of their personal circumstances and the consequences under applicable
state, local and foreign tax laws.
Anticipated Accounting Treatment; Sale of 1,000,000 Shares of Photronics Common
Stock
The merger is intended to qualify as a pooling of interests for
financial reporting purposes in accordance with generally accepted accounting
principles. Consummation of the merger is conditioned upon receipt by Photronics
and Align-Rite of letters from Deloitte & Touche LLP, Photronics' independent
auditors, and PricewaterhouseCoopers LLP, Align-Rite's independent auditors,
reaffirming the firms' concurrence with Photronics and Align-Rite management's
conclusion as to the appropriateness of pooling of interests accounting for the
merger under APB No. 16, if consummated in accordance with the merger agreement.
In addition, in order for the merger to qualify for pooling of
interests treatment, Photronics must sell 1,000,000 shares of its common stock
that it acquired within the two years before the transaction. Photronics has
engaged Banc of America Securities as private placement agent for the sale of
the 1,000,000 shares of common stock. Photronics has instructed Banc of America
Securities to place the shares with a limited number of investors, all of which
will be qualified institutional buyers. Photronics expects that there will be
ten or fewer investors and that the sales will be at a discount to market price,
reflecting restrictions on transfer under the Securities Act of 1933. There will
not be any other transfer restrictions and Photronics expects that, as part of
the sale, it will agree to file promptly a registration statement for the resale
of the shares. If Photronics is unable to sell such shares prior to the merger
date, the merger may not qualify as a pooling of interests and Deloitte & Touche
LLP and PricewaterhouseCoopers LLP would not be able to deliver the letters. The
receipt of the letters is a condition to Photronics' obligation to consummate
the merger.
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Regulatory Approvals
We must comply with all applicable antitrust laws and regulations
before we can complete the merger. The Federal Trade Commission and the
Department of Justice will review the potential effects of the merger on
competition in the markets where we operate. If they determine that the merger
will substantially reduce competition, they can challenge all or specific
aspects of the merger and seek to block the merger or impose restrictive
conditions on the merger.
It can be a lengthy process to obtain the requisite clearances and
approvals needed. Therefore, we initiated the formal process of obtaining the
required regulatory approvals by filing on October 1, 1999 a notification report
with the Federal Trade Commission and Department of Justice pursuant to the
Hart-Scott Rodino Anti-Trust Improvements Act. In cooperation with the
Department of Justice, Photronics withdrew and subsequently refiled on October
28, 1999 such notification report form. This procedure provided to the
Department of Justice an additional 30 days to conduct its preliminary review of
the merger. On November 24, 1999, Photronics and Align-Rite received a request
for additional information from the Department of Justice. The receipt of the
requests tolls the thirty-day waiting period for the proposed transaction
pending submission of the requested additional information. The Department of
Justice must approve or disapprove of the proposed transaction no later than 20
days after it deems the responses to the request submitted by the parties to be
complete.
We cannot predict whether we will obtain the required regulatory
approvals within the time frame specified in the merger agreement, as amended or
on conditions that would not be detrimental to either of us or the combined
company.
Percentage Ownership Interest of Align-Rite Shareholders After the Merger
In the merger, Align-Rite shareholders will become shareholders of
Photronics. Based on the number of shares of Photronics and Align-Rite common
stock outstanding as of December 31, 1999, we estimate that the Photronics
common stock to be issued to Align-Rite shareholders will represent
approximately 15% of the outstanding Photronics common stock after the merger
(and giving effect to the sale by Photronics of 1,000,000 shares of its common
stock and also assuming the exercise of options and other rights to purchase
approximately 530,000 shares of Align-Rite common stock).
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Dissenters' Rights
If you hold Align-Rite common stock and you do not wish to accept the
merger consideration, as described in this proxy statement/prospectus, then
Chapter 13 (Sections 1300 through 1312) of the California General Corporation
Law provides that you may elect instead to receive cash in the amount of the
"fair market value" of your shares (exclusive of any appreciation or
depreciation in connection with the proposed merger) determined as of the day
before the first announcement of the terms of the proposed merger if dissenters'
rights are available. Dissenters' rights will be available if demands for
payment are properly filed with Align-Rite with respect to 5% or more of
Align-Rite's outstanding shares on or prior to the date of Align-Rite's special
shareholders meeting. The closing price of Align-Rite common stock on the Nasdaq
National Market on September 14, 1999, the day before the first announcement of
the proposed merger for purposes of determining fair market value, was $14.50
per share.
Chapter 13 is set forth in its entirety in Appendix E to this proxy
statement/ prospectus. If you wish to exercise your dissenters' rights or to
preserve the right to do so, you should carefully review Appendix E. If
dissenters' rights are available and you fail to comply with the procedures
specified in Chapter 13 in a timely manner, you may lose your dissenters'
rights. Because of the complexity of these procedures, you should seek the
advice of counsel if you are considering exercising your dissenters' rights.
If you wish to exercise your dissenters' rights under Chapter 13, you
must satisfy each of the conditions described below:
Demand for Purchase. You must deliver to Align-Rite or its transfer
agent a written demand for purchase of your shares of Align-Rite common stock,
and it must be received not later than the date of Align-Rite's special
shareholders meeting. This written demand is in addition to and separate from
any proxy or vote against the principal terms of the merger agreement. Merely
voting against the approval of the principal terms of the merger agreement will
not constitute a demand for appraisal within the meaning of Chapter 13.
The demand for purchase must be made in writing and must be mailed or
delivered to either: Align-Rite, 2428 Ontario Street, Burbank, California 91504,
Attention: Corporate Secretary, or its transfer agent, o, Attention: o. The
demand must state the number and class of shares you hold of record that you
demand to be purchased and the amount claimed to be the "fair market value" of
those shares on September 14, 1999, the day before the announcement of the
merger (exclusive of any appreciation or depreciation in connection with the
proposed merger). The statement of the fair market value will
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constitute an offer by you to sell such dissenting shares at that price.
Voting Your Dissenting Shares Against the Merger. You must vote
your dissenting shares against the merger.
Submission of Stock Certificates. If it is determined that
dissenters' rights are available, you must deliver your shares to Align-Rite or
the transfer agent within 30 days after the date on which notice of shareholder
approval of the merger is mailed to you by Align-Rite. The certificates
representing the shares will be stamped or endorsed with a statement that they
are dissenting shares. The notice will be mailed by Align-Rite within 10 days
after the approval of the merger and will contain a statement of the price which
Align-Rite has determined to be the fair market value of Align-Rite common stock
on September 14, 1999, the day before the first announcement of the merger. The
statement of price will constitute an offer to purchase any dissenting shares at
that price.
Disagreement Regarding Dissenting Shares of Fair Market Value. If
Align-Rite denies that the shares are dissenting shares or if you disagree with
Align-Rite as to the calculation of "fair market value," you must file a
petition in the Superior Court of the appropriate county demanding a
determination of the fair market value of your shares of Align-Rite common
stock. This petition must be filed by either you or Align-Rite within six months
of the notice of approval of the merger described above. If a suit is filed to
determine the fair market value of the shares of Align-Rite common stock, the
costs of the action will be assessed or apportioned as the court concludes is
equitable, provided that Align-Rite must pay all such costs if the value awarded
by the court is more than 125% of the price offered by Align-Rite. You will
continue to have all the rights and privileges incident to your dissenting
shares until the fair market value of the shares is agreed upon or determined or
you lose your dissenters' rights.
If dissenters' rights are available and you properly demand appraisal
of your shares of Align-Rite common stock under Chapter 13 but you fail to
perfect or withdraw your right to appraisal, your shares of Align-Rite common
stock will be converted as described in "Terms of the Merger Agreement
Conversion of Shares in the Merger" on page ..
You will lose your right to require Align-Rite to purchase your
shares of Align-Rite common stock if
o the merger is terminated,
o you transfer the dissenting shares prior to submitting them for
endorsement as
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dissenting shares,
o you and Align-Rite do not agree upon the status of the shares as
dissenting shares or upon the purchase price, and neither you nor
Align-Rite files a complaint or intervenes in a pending action within
six months after the date on which notice of approval of merger was
mailed to shareholders or
o with the consent of Align-Rite, you withdraw your demand for purchase.
Photronics is not obligated to complete the merger, and could
terminate the merger agreement if there are effective demands for payment of
dissenters' rights by shareholders of Align-Rite than five percent or more of
the outstanding shares.
Dissenters' rights cannot be validly exercised by persons other than
shareholders of record regardless of the beneficial ownership of the shares. If
you are a beneficial owner of shares that are held of record by another person,
such as a broker, a bank or a nominee, and you want to dissent from approval of
the merger, you should instruct the record holder to follow the procedures in
ANNEX E for perfecting your dissenters' rights.
If you are considering exercising your dissenters' rights, you should
be aware that the fair market value of your shares of Align-Rite common stock as
determined under Chapter 13 could be greater than, the same as, or less than the
merger consideration. The opinion delivered by CIBC World Markets is not an
opinion as to fair market value under Chapter 13.
The foregoing is a summary of the provisions of Chapter 13 of the
General Corporation Law of the State of California and is qualified in its
entirety by reference to the full text of Chapter 13, which is included as
Appendix E.
Nasdaq National Market Listing
As a condition to the merger, the Nasdaq National Market must
authorize the listing of the Photronics common stock to be issued in the merger.
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Consequences of the Merger
Following the merger, Align-Rite common stock will no longer be
traded on the Nasdaq National Market, will be deregistered under the Securities
Exchange Act of 1934, and will no longer be publicly traded.
Management After the Merger
At the time Photronics' merger subsidiary merges into Align-Rite, the
directors of Photronics' merger subsidiary immediately before the merger will
remain the directors of the surviving corporation, and the officers of
Align-Rite immediately before the merger will become the officers of the
surviving corporation.
Resales of Photronics Common Stock
All shares of Photronics common stock to be issued in the merger will
be freely transferable, except for shares received by any person who may be
deemed to be an affiliate of Align-Rite under Rule 145 under the Securities Act
of 1933, such as directors and key executive officers of Align-Rite. Under Rule
145, an affiliate of Align-Rite may not resell his or her shares of Photronics
common stock received in the merger except in transactions permitted by Rule 145
or as otherwise permitted under the Securities Act, including selling such
shares pursuant to an effective registration statement. Align-Rite will deliver
to Photronics a list setting forth the names of all persons who are, in
Align-Rite's reasonable judgment, affiliates of Align-Rite.
TERMS OF THE MERGER AGREEMENT
Conversion of Shares in the Merger
As of the effective time of the merger, by virtue of the merger and
without any additional action on the part of the Align-Rite shareholders or the
shareholders of Photronics' merger subsidiary:
o each share of Align-Rite common stock issued and outstanding
immediately before the effective time of the merger (other than
dissenting shares) will be converted into .85 of a share of
Photronics common stock. Photronics will not issue any fractional
shares of its common stock to Align-Rite shareholders. Rather,
Photronics will pay the Align-Rite shareholders cash
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for these fractional shares. For more information regarding fractional
shares, see "The Merger-- No Fractional Shares";
o each share of common stock of Photronics' merger subsidiary
outstanding immediately before the effective time of the merger will
become one share of common stock of the surviving corporation; and
o each share of Align-Rite common stock held immediately before the
effective time of the merger by Photronics, Photronics' merger
subsidiary or any other subsidiary of Photronics, will automatically
be canceled and retired and will cease to exist, and Photronics will
pay no consideration for these shares.
The Align-Rite common stock converted as described above will no
longer be outstanding, will automatically be canceled and retired, and will
cease to exist. Each holder of Align-Rite common stock (other than any holder of
dissenting shares) will cease to have any rights in Align-Rite common stock,
except the right to receive the appropriate number of shares of Photronics
common stock, cash in lieu of fractional shares and dividends, if any, declared
with a record date after the effective time of the merger. For information
regarding how to exchange Align-Rite common stock, see "-- Exchange Agent;
Procedures for Exchange of Certificates."
Exchange Agent; Procedures for Exchange of Certificates
After the merger, Photronics will appoint a bank or trust company to
serve as the exchange agent and will deliver to the exchange agent certificates
representing the number of shares of Photronics common stock to be issued to
Align-Rite shareholders in the merger. The exchange agent will, according to
irrevocable instructions, deliver to the Align-Rite shareholders the Photronics
common stock, any dividends or other distributions relating to such stock, and
any cash in lieu of fractional shares.
The exchange agent will mail to each Align-Rite shareholder a letter
of transmittal and instructions to surrender their certificates representing
Align-Rite common stock in exchange for certificates representing Photronics
common stock or cash in lieu of fractional shares. After an Align-Rite
shareholder surrenders his or her Align-Rite common stock certificate along with
a duly executed and properly completed letter of transmittal and other required
documents, the exchange agent will deliver to such shareholder the following:
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o a certificate representing the number of whole shares of Photronics
common stock to which such shareholder is entitled;
o cash in lieu of any fractional shares of Photronics common stock; and
o the amount of any dividends or other distributions declared on
Photronics common stock with a record date after the effective time of
the merger and a payment date before surrender of the Align-Rite
common stock.
Align-Rite shareholders receiving Photronics common stock in the
merger will receive a payment at the appropriate payment date of the amount of
dividends or other distributions declared on Photronics common stock with a
record date after the effective time of the merger and a payment date after
surrender of the Align-Rite common stock.
The surviving corporation and the exchange agent may deduct and
withhold from the consideration payable to Align-Rite shareholders amounts
required to be deducted and withheld under the Internal Revenue Code, or any
provision of state, local or foreign tax law. If the surviving corporation or
the exchange agent deducts or withholds any amounts so required to be deducted
or withheld, then these amounts will be treated, for all purposes of the merger
agreement, as having been paid to the Align-Rite shareholders with respect to
whom such amounts were deducted or withheld.
Align-Rite shareholders should not forward their Align-Rite common
stock certificates with the enclosed proxy card nor should they forward their
Align-Rite common stock certificates to the exchange agent until they have
received the packet of information, including a letter of transmittal, described
above. Representations and Warranties
The merger agreement contains various representations and warranties
of Photronics, Align-Rite and Photronics' merger subsidiary, relating to, among
other things, the following:
o their incorporation, existence, good standing, corporate power and
similar corporate matters;
o their capitalization;
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o their authorization, execution, delivery, and performance and the
enforceability of the merger agreement and related matters, and the
absence of violations;
o the documents, reports and financial statements filed with the
Securities and Exchange Commission and the accuracy and completeness
of the information contained therein;
o the absence of undisclosed liabilities;
o compliance with laws, ordinances and regulations;
o environmental matters;
o employee benefit matters;
o the absence of material changes or events since March 31, 1999, in the
case of Align-Rite and November 1, 1998, in the case of Photronics;
o pending or threatened investigations or litigation;
o the registration statement and this document and the accuracy and
completeness of the information contained in this registration
statement and this document and in the merger agreement;
o accounting and tax matters;
o the receipt of opinions of financial advisors;
o required vote of shareholders;
o insurance; and
o material contracts.
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In addition, the merger agreement contains representations and
warranties of Align-Rite relating to, among other things, intellectual property,
relationships with suppliers and vendors and year 2000 matters.
Conduct of Business Pending the Merger
The merger agreement requires that until completion of the merger or
termination of the merger agreement, Photronics, Align-Rite and their
subsidiaries will conduct their operations according to their ordinary and usual
course of business. The merger agreement does not, however, limit Photronics'
discretion with respect to the issuance of debt or equity securities or
acquisitions.
Furthermore, the merger agreement specifies that Align-Rite and its
subsidiaries will:
o consistent with past practice, preserve its business organization and
goodwill, keep available the services of its officers and employees
as a group, subject to changes in the ordinary course, and maintain
satisfactory relationships with its customers, suppliers,
distributors and others having business relationships with it;
o notify Photronics promptly of:
o any complaints, investigations or hearings of any governmental
body or authority;
o any actions, suits or proceeding initiated or threatened against
or affecting Align-Rite or any of its subsidiaries or any of
their respective properties or before any federal, state, local
or foreign governmental entity which could have in the aggregate
a material adverse effect on Align-Rite;
o any complaint, charge or claim against Align-Rite or any of its
subsidiaries filed with any public or governmental authority,
arbitrator or courts with respect to labor matters; and
o any claims with respect to Align-Rite's intellectual property
rights, any trade secret material to Align-Rite or any of its
subsidiaries or third party intellectual property rights which
could have in the
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aggregate, a material adverse effect on Align-Rite;
o not adopt any amendments to its corporate charter or bylaws or authorize or
pay any dividends or distributions on its outstanding shares of capital
stock;
o not enter into or amend any severance or similar agreements or arrangements
(including by amendment of any existing agreement or arrangement);
o except in the ordinary course of business consistent with past practice,
not enter into any new employment, consulting or salary continuation
agreements with any officers, directors or employees or other than
increases in the ordinary course of business, grant any increases in the
compensation or benefits to officers, directors and employees;
o subject to Align-Rite's right to respond to unsolicited acquisition
proposals, not authorize, propose or announce an intention to authorize or
propose or enter into an agreement for a merger, consolidation or business
combination, any acquisition of a material amount of assets or securities,
any disposition of assets or securities, or any release or relinquishment
of any material contract rights not in the ordinary course of business;
o not issue any shares of its common stock, except upon exercise of rights,
warrants or options issued pursuant to the existing stock plan and stock
purchase plan, effect any stock split or otherwise change Align-Rite's
capitalization;
o not grant, confer or award any additional, or amend or modify any existing
options, warrants, conversion rights or other rights to acquire any shares
of its common stock;
o not purchase or redeem any shares of its stock;
o not amend the terms of their respective employee benefit plans or
arrangements that exist on the date of the merger agreement or adopt any
new employee benefit plans, programs or arrangements, except as required by
law or to maintain tax-qualified status, or as requested by the Internal
Revenue Service to receive a determination letter;
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o not incur or assume any long-term debt or, except in the ordinary course of
business, incur or assume any short-term indebtedness in amounts not
consistent with past practice;
o not amend any existing loan agreement or enter into any new loan agreement;
o not assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of
another person;
o not make any loans, advances or capital contributions to another person;
o not enter into any agreement, commitment or transaction (including with
respect to capital expenditures or purchase, sale or lease of assets or
real estate) with aggregate consideration of $250,000 or more;
o not enter into an agreement with any affiliate of Align-Rite, any family
member of any affiliate of Align-Rite or any Align-Rite shareholder who
owns more than 5% of the outstanding common stock of Align-Rite;
o not make any material tax election or settle or compromise any material tax
liability or make any significant change in any tax or accounting methods
or system of internal accounting control, except as may be appropriate to
conform to changes in tax laws or generally accepted accounting principles;
o not enter into or amend any material collective bargaining or other labor
agreement, except as required by law; and
o not buy, sell or trade any Photronics equity security, including entering
into any put, call, option, swap, collar or other similar derivative
transaction.
Other Covenants
Under the merger agreement Photronics and Align-Rite agreed to the
following additional covenants:
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Shareholders meeting
Align-Rite will duly call, give notice of, and hold a special meeting
of its shareholders to approve the merger proposal. Align-Rite will use
reasonable efforts to cause its shareholders meeting to occur within 45 days
after the effective date of the registration statement relating to the
Photronics common stock to be issued in the merger.
Access to Information; Confidentiality
Align-Rite and Photronics will each afford the other, and that
party's officers, employees, accountants, legal counsel, financial advisors and
other representatives, reasonable access during normal business hours in a
manner so as not to interfere with normal operations, to all of its personnel,
properties, books, contracts, commitments and records. Align-Rite will not be
required to provide customer specific pricing information, other than any
commitment for specific pricing for more than 360 days and performance data.
Also, Align-Rite will provide to Photronics:
o copies of registration statements and other documents filed by it or
its subsidiaries pursuant to applicable federal or state securities
laws;
o copies of all internally prepared interim financial statements,
reports or memoranda; and
o all other information concerning its business, financial results and
condition, properties and personnel as Photronics may reasonably
request.
Each party will keep the information provided to it by the other
party confidential in accordance with the terms of the confidentiality
agreements in effect between Photronics and Align-Rite.
Filings; Other Actions
Before we can complete the merger, we must satisfy all regulatory
requirements and obtain the approval of all regulatory agencies having
jurisdiction over the merger. To facilitate the regulatory review and approval
process, we have each agreed to promptly make all necessary filings, seek all
required approvals of relevant regulatory agencies and use reasonable efforts to
take all actions necessary to complete the merger. Accordingly, we must make
filings and other required submissions under the Hart-Scott-Rodino Act.
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We will also make any other filings or submissions and seek the approval of all
other applicable regulatory agencies. This includes our prompt compliance with
requests by these agencies for additional information or documentation following
our initial filings or submissions.
Furthermore, we have each agreed to take all actions to resolve objections
to the merger raised by regulatory agencies.
During the regulatory review process, each party will consult with the
other, permit the other to review all material communications with regulatory
agencies and will give the other the opportunity to participate in all
conferences and meetings with regulatory agencies.
No Solicitation
Align-Rite and its subsidiaries will not solicit, initiate, encourage or
participate in any negotiations regarding any proposal for a merger,
consolidation, liquidation, reorganization, tender offer or other business
combination involving Align-Rite or any proposal to acquire at least 50% of the
voting securities of Align-Rite or all or substantially all of the assets of
Align-Rite or any of its subsidiaries. Furthermore, Align-Rite and its
subsidiaries will not disclose information in response to such a proposal.
However, the board of directors of Align-Rite is not prohibited from, at
any time prior to approval of the principal terms of the merger agreement by the
Align-Rite shareholders, providing information to, or discussing or negotiating
with, any person that makes an unsolicited bona fide written acquisition
proposal if the following conditions are satisfied:
o the person must enter into a confidentiality agreement on terms no less
favorable to Align-Rite or no less restrictive than contained in the
confidentiality agreement from Align-Rite to Photronics;
o the Align-Rite board of directors determines after consultation with
outside legal counsel that failure to engage in discussions or negotiations
would create a reasonable possibility of a breach of their fiduciary
duties; and
o the board of directors determines in good faith, after consultation with
its financial advisor, that the acquisition proposal, if accepted,
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o is likely to be consummated, taking into account all legal,
financial and regulatory aspects of the proposal and the person
making it and
o would be more favorable from a financial point of view to the
Align-Rite shareholders than the merger.
Before initially furnishing information or discussing or negotiating with
that person, Align-Rite must give Photronics two business days' advance written
notice. Also, if Align-Rite receives any inquiries, offers or proposals from any
person with respect to any acquisition proposal, then Align-Rite will notify
Photronics of the inquiry, offer or proposal within 24 hours after Align-Rite
receives it. In addition, Align-Rite will give Photronics five business days'
advance notice of any agreement to be entered into with the person that made the
inquiry, offer or proposal.
The merger agreement does not prohibit Align-Rite from disclosing to Align-
Rite shareholders the statement required by Rule 14e-2(a) under the Securities
Exchange Act of 1934 with respect to an acquisition proposal by means of a
tender offer.
Sale of Shares by Photronics
Photronics will sell shares of its common stock that it acquired within the
two years before the merger so that accounting for the merger as a pooling of
interests will not be adversely affected.
Conditions to the Merger
We are not obligated to complete the merger unless the following conditions
are satisfied or waived:
o the Securities and Exchange Commission declares Photronics' registration
statement effective for the registration of the Photronics common stock to
be issued in the merger and does not issue a stop order suspending
effectiveness or initiate any proceedings for that purpose;
o the requisite number of Align-Rite shareholders approve the principal terms
of the merger agreement and the merger;
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o the applicable waiting period under the Hart-Scott Rodino Act expires or is
terminated;
o the parties obtain all consents and approvals necessary for the merger,
other than those that in the aggregate are not material; and
o the shares of Photronics common stock to be issued in the merger have been
authorized for trading in the Nasdaq National Market.
Furthermore, neither Photronics and its merger subsidiary nor Align-Rite is
obligated to complete the merger unless the other party's representations and
warranties in the merger agreement are true and correct in all respects on the
effective date of the merger and the other party has materially performed all of
its material agreements and covenants required to be performed or complied with
before the effective time of the merger. However, exceptions to a party's
representations and warranties that, in the aggregate, would not materially and
adversely affect such party will not give the other party the right to prevent
the completion of the merger. A party may waive unsatisfied conditions if such
party is entitled to require the satisfaction of such condition before the
completion of the merger.
In addition, Photronics is not obligated to complete the merger:
o if there are effective demands for payment of dissenters' rights by
shareholders of Align-Rite for more than five percent of the outstanding
shares;
o unless each of Photronics and Align-Rite receives pooling letters from each
of their respective independent accountants; and
o unless each of Photronics and Align-Rite receives an opinion from its legal
counsel regarding tax matters.
Employee Matters
The surviving corporation and its subsidiaries will honor all existing
employment, severance, consulting and salary continuation agreements between
Align-Rite or any of its subsidiaries and any current or former officer,
director, employee or consultant of Align-Rite or any of its subsidiaries. The
surviving corporation and its subsidiaries will provide benefits, plans and
programs to its employees which are no less favorable in the aggregate than
those generally available to similarly situated employees of Photronics in the
same jurisdiction of Photronics and its subsidiaries.
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Indemnification of Directors and Officers
The merger agreement provides that all rights to indemnification and
all limitations on liability that exist for any officer, director or employee of
Align-Rite or any of its subsidiaries and that are provided in Align-Rite's
charter, bylaws or any agreement will survive the merger and continue in full
force and effect. To the extent permitted by California law, the Align-Rite
charter and bylaws or any indemnity agreement, advancement of expenses pursuant
to their terms will be mandatory rather than permissive, and the surviving
corporation and Photronics must advance costs in connection with such
indemnification. Photronics will cause the surviving corporation to honor the
terms of all indemnity agreements.
The merger agreement also provides that, for six years after the
merger, Photronics will, and will cause the surviving corporation to, maintain
officers' and directors' liability insurance and fiduciary liability insurance
covering those officers, directors or employees who are covered as of the date
of the merger agreement, by Align-Rite's existing liability insurance policies.
The terms of the new insurance policies will be no less advantageous to such
officers, directors or employees than the existing insurance policies. However,
if neither Photronics nor the surviving corporation can obtain coverage
equivalent to the existing insurance policies at an annual premium equal to or
less than a specified ceiling, then Photronics or the surviving corporation will
maintain policies that in Photronics' good faith judgment provide maximum
coverage at an annual premium equal to the specified ceiling.
The merger agreement also requires that for a period of six years
after the merger, Photronics and the surviving corporation will indemnify
Align-Rite's former directors and officers for losses, claims, damages and other
expenses relating to their service as officers, directors or employees of
Align-Rite on or before the effective time of the merger. Photronics and the
surviving corporation will make advances to such directors and officers for all
expenses incurred in connection with any such indemnifiable claim. Unless
otherwise provided in any indemnity agreement, Photronics or the surviving
corporation may require an indemnitee to provide an undertaking to repay any
expense advances if a court ultimately determines that this indemnitee is not
entitled to indemnification from Photronics or the surviving corporation.
The obligations of Photronics, Align-Rite and the surviving
corporation are binding on all their successors and assigns and survive the
completion of the merger.
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Termination
The merger agreement may be terminated at any time before the effective
time of the merger as follows:
o by mutual written consent of Photronics and Align-Rite;
o unless Photronics is in material breach of any representation, warranty,
covenant or agreement in the merger agreement by Photronics if Align-Rite
breaches any of its representations, warranties, covenants or agreements in
the merger agreement or if any representation or warranty of Align-Rite
becomes untrue, and such breach or untruth continues for ten days following
notice to Align-Rite of such breach or untruth, and the nature of such
breach or untruth is such that conditions to Photronics' obligations to
consummate the merger would be incapable of being satisfied by March 31,
2000;
o unless Align-Rite is in material breach of any representation, warranty,
covenant or agreement in the merger agreement by Align-Rite if Photronics
breaches any of its representations, warranties, covenants or agreements in
the merger agreement or if any representation or warranty of Photronics
becomes untrue, and such breach or untruth continues for ten days following
notice to Photronics of such breach or untruth, and the nature of such
breach or untruth is such that the conditions to Align-Rite's obligations
to consummate the merger would be incapable of being satisfied by March 31,
2000;
o by either Photronics or Align-Rite if any governmental entity shall have
issued an order, decree or ruling, or taken any other action, permanently
enjoining, restraining or otherwise prohibiting the consummation of the
merger, and this order, decree, ruling or other action shall have become
final and nonappealable;
o by either Photronics or Align-Rite if the merger does not occur by March
31, 2000, unless the merger does not occur due to a breach of a covenant,
or a material breach of a representation or warranty, in the merger
agreement by the party seeking to terminate;
o by Align-Rite, if before the Align-Rite shareholders meeting, a third party
presents a superior proposal. However, before Align-Rite may terminate the
merger agreement, it must give Photronics notice of the proposed
termination and the opportunity for Photronics to amend the merger
agreement to make it substantially similar to the third party superior
proposal. Align-Rite may terminate the merger agreement if Photronics and
Align-Rite do not reach an agreement to amend the merger agreement within
five days following Photronics' receipt of Align-Rite's
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termination notice;
o by Photronics if the Align-Rite board (A) withdraws or modifies adversely
its recommendation of the merger, (B) recommends an alternative acquisition
proposal to Align-Rite shareholders, or (C) fails to call or hold the
Align-Rite shareholders meeting because Align-Rite received an alternative
acquisition proposal; and
o by Align-Rite by notice delivered to Photronics if the average per share
high and low sales price of Photronics common stock as reported on the
Nasdaq National Market during the 20 consecutive trading days ending the
third trading day before the Align-Rite shareholders meeting or if the
closing of the merger is more than five business days after the meeting,
the closing date, is less than $18.82.
The party desiring to terminate the merger agreement must give written
notice of such termination to the other party.
Fees and Expenses
Except as described in "-- Termination Fee" below, the party incurring
costs and expenses will pay all such costs and expenses incurred in connection
with the merger agreement and the transactions contemplated by the merger
agreement.
Termination Fee
Align-Rite must pay Photronics $3,640,000 as a result of the termination of
the merger agreement under any of the following circumstances:
o Align-Rite terminated the merger agreement because it received a superior
proposal and it did not reach agreement with Photronics to amend the merger
agreement so as to make it substantially similar to the alternative
proposal;
o Photronics terminated the merger agreement because Align-Rite's board
withdrew or adversely modified its recommendation to its shareholders;
o Photronics terminated the merger agreement because Align-Rite breached any
of its representations, warranties, covenants or agreements;
o An alternative acquisition proposal was made before the Align-Rite
shareholders meeting, the Align-Rite shareholders do not approve the
Align-Rite merger proposal. Align-Rite must pay the $3,640,000 termination
fee if within six months after the termination of the merger agreement
Align-Rite enters into an agreement
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with the third party presenting the alternative acquisition proposal and
completes an acquisition with such third party within 18 months after the
termination of the merger agreement on substantially the same terms as
presented in the alternative acquisition proposal.
Amendment
Align-Rite and Photronics may amend or supplement the merger agreement in
writing at any time, except that following approval by the Align-Rite
shareholders and Photronics shareholders, there may be no amendment to the
merger agreement that by law requires further approval by the Align-Rite
shareholders and Photronics shareholders unless Align-Rite or Photronics, as
applicable, first obtains such approval.
Waiver
The merger agreement permits Align-Rite, Photronics and Photronics' merger
subsidiary at any time before the effective time of the merger to:
o extend the time to perform any of the obligations or other acts of the
other parties;
o waive any inaccuracies in the representations and warranties contained in
the merger agreement or in any document delivered pursuant to the merger
agreement; and
o waive compliance with any of the agreements or conditions of the other
party contained in the merger agreement unless, if such party waives
compliance after approval by the Align-Rite shareholders and the Photronics
shareholders, as applicable, and such waiver would require approval by the
Align-Rite shareholders, or the Photronics shareholders, as applicable,
such party first obtains such approval, in each case pursuant to a written
instrument.
The failure of any party to the merger agreement to assert any of its
rights thereunder or otherwise will not constitute a waiver of those rights.
UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
The following unaudited pro forma combined financial information gives
effect to the merger using the pooling of interests method of accounting, after
giving effect to the
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pro forma adjustments described in the accompanying notes. The unaudited pro
forma combined financial information should be read in conjunction with the
audited historical consolidated financial statements and related notes of
Photronics and Align-Rite, which are incorporated by reference into this proxy
statement/prospectus.
The unaudited pro forma combined balance sheet gives effect to the
merger as if it had occurred on August 1, 1999, the balance sheet date. The
unaudited pro forma combined balance sheet combines Photronics' August 1, 1999
unaudited consolidated balance sheet with Align-Rite's September 30, 1999
unaudited consolidated balance sheet. The unaudited pro forma combined
statements of operations give effect to the merger as if it had occurred at the
beginning of the periods presented. The unaudited pro forma combined statements
of operations combine Photronics' historical operating results for the nine
months ended August 1, 1999 and August 2, 1998 and for the fiscal years ended
November 1, 1998, November 2, 1997 and October 31, 1996 with the corresponding
Align-Rite period as shown in the following table:
Photronics Period Ended Align-Rite Period Ended
- ----------------------- -----------------------
Nine months ended August 1, 1999 Nine months ended September 30, 1999
Nine months ended August 2, 1998 Nine months ended September 30, 1998
Year ended November 1, 1998 Twelve months ended September 30, 1998
Year ended November 2, 1997 Year ended March 31, 1998
Year ended October 31, 1996 Year ended March 31, 1997
Photronics most recent fiscal year-end for which unaudited pro forma
combined financial information is presented was November 1, 1998. Accordingly,
Align-Rite's financial statements for the most recent year have been conformed
so that the twelve months end within 93 days of the Photronics most recent
year-end. Earlier periods are shown as previously reported.
For purposes of the preparation of the unaudited pro forma combined
balance sheet, merger-related expenses (which the companies estimate will be
approximately $3 million on a pre-tax basis) were included. The estimate of
merger-related expenses is preliminary and subject to change.
The financial statement balances of Align-Rite, have been
reclassified to conform with Photronics financial statement presentation.
The unaudited pro forma combined financial information is presented
for illustrative purposes only and does not purport to be indicative of the
operating results or financial position that would have actually occurred if the
merger had been in effect on the
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dates indicated, nor is it necessarily indicative of future operating results or
financial position of the merged companies. The pro forma adjustments are based
on the information and assumptions available as of the date of this proxy
statement/prospectus. The unaudited pro forma combined financial statements do
not give effect to any cost savings or synergies which may result from the
integration of Photronics and Align-Rite operations.
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Photronics Inc.
Unaudited Pro Forma Balance Sheet
August 1, 1999
(in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30,
AUGUST 1, 1999 1999 PRO FORMA PRO FORMA
PHOTRONICS ALIGN-RITE ADJUSTMENTS COMBINED
----------- ----------- ----------- -----------
Assets
- ------
Current assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents................ $ 7,574 $ 6,846 $ 20,000 $ 34,420
Accounts receivable (less allowances for
doubtful accounts)....................... 37,173 9,606 46,779
Inventories.............................. 13.417 3,556 16,973
Deferred income taxes.................... 5,923 - 5,923
Other current assets..................... 3,348 1,499 4,847
----------- ----------- ----------- -----------
Total current assets................ 67,435 21,507 20,000 108,942
Property, plant and equipment, net....... 280,919 65,987 346,906
Intangible assets, net................... 23,402 8,518 31,920
Investments.............................. 10,123 10,123
Other assets............................. 5,196 641 5,837
----------- ----------- ----------- -----------
$ 387,075 $ 96,653 $ 20,000 $ 503,728
=========== =========== =========== ===========
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Current portion of long-term debt........ $ 264 $ 1,313 1,577
Accounts payable......................... 39,048 6,116 45,164
Accrued salaries and wages............... 3,270 3,270
Accrued interest payable................. 1,100 1,100
Other accrued liabilities................ 5,759 3,327 3,000 12,086
Income taxes payable..................... 797 1,758 2,555
----------- ----------- ----------- -----------
Total current liabilities........... 50,238 12,514 3,000 62,752
Long-term debt................................ 115,799 31,578 147,377
Deferred income taxes......................... 12,546 5,355 17,901
Other liabilities............................. 4,378 776 5,154
----------- ----------- ----------- -----------
Total liabilities........................ 182,961 50,223 3,000 236,184
----------- ----------- ----------- -----------
Shareholders' equity:
Preferred stock.......................... - -
Common stock............................. 239 47 100 386
Additional paid-in capital............... 79,536 19,295 19,900 118,731
Retained earnings........................ 126,016 26,171 (3,000) 149,187
Other comprehensive income (loss)........ (1,604) 917 - (687)
Deferred compensation.................... (73) (73)
----------- ----------- ----------- -----------
Total shareholders' equity.......... 204,114 46,430 17,000 267,544
----------- ----------- ----------- -----------
$ 387,075 $ 96,653 $ 20,000 $ 503,728
=========== =========== =========== ===========
</TABLE>
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Photronics, Inc.
Unaudited Pro Forma Statement of Earnings
for the Nine Months Ended August 1, 1999
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
SEPTEMBER 30,
AUGUST 1, 1999 1999 PRO FORMA PRO FORMA
PHOTRONICS ALIGN-RITE ADJUSTMENTS COMBINED
--------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net sales...................................... $ 160,675 $ 41,612 $ 202,287
====== =======
Costs and expenses:
Cost of sales............................ 114,190 28,719 142,909
Selling, general and 22,899 6,941 29,840
administrative
Research and development................. 11,257 838 12,095
--------------- ----------------- ---------------- ----------------
Operating income....................... 12,329 5,114 - 17,443
Other income and expense:
Interest income.......................... 774 (11) 763
Interest expense......................... (4,592) (107) (4,699)
Other income, net........................ 1,114 (347) 767
--------------- ----------------- ---------------- ----------------
Income before income taxes..................... 9,625 4,649 - 14,274
Provision for income taxes..................... 3,700 1,674 5,374
--------------- ----------------- ---------------- ----------------
Net income............................... $ 5,925 $ 2,975 $ - $ 8,900
=============== ================= ================ ================
Earnings per share:
Basic.................................... $ 0.25 $ 0.65 - $ 0.31
=============== ================= ================ ================
Diluted.................................. $ 0.25 $ 0.61 - $ 0.31
=============== ================= ================ ================
Weighted average number of
common shares outstanding:
Basic.................................... 23,966 4,573 134 28,673
=============== ================= ================ ================
Diluted.................................. 23,966 4,887 87 28,940
=============== ================= ================ ================
</TABLE>
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<PAGE>
Photronics, Inc.
Unaudited Pro Forma Statement of Earnings
for the Nine Months Ended August 2, 1998
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
SEPTEMBER
AUGUST 2, 1998 30, 1998 PRO FORMA PRO FORMA
PHOTRONICS ALIGN-RITE ADJUSTMENTS COMBINED
----------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Net sales.....................................$ 169,920 $ 40,675 $ 210,595
Costs and expenses:
Cost of sales........................... 105,415 25,462 130,877
Selling, general and administrative..... 21,699 6,394 28,093
Research and development................ 9,415 579 9,994
Non-recurring restructuring charge...... 3,800 - 3,800
----------------- --------------- ----------------- ---------------
Operating income...................... 29,591 8,240 - 37,831
Other income and expense:
Interest income......................... 2,056 122 2,178
Interest expense........................ (4,457) - (4,457)
Other income, net....................... 943 96 1,039
----------------- --------------- ----------------- ---------------
Income before income taxes.................... 28,133 8,458 - 36,591
Provision for income taxes.................... 10,700 3,181 13,881
----------------- --------------- ----------------- ---------------
Net income..............................$ 17,433 $ 5,277 $ - $ 22,710
================= =============== ================= ===============
Earnings per share:
Basic...................................$ 0.72 $ 1.18 - $ 0.81
================= =============== ================= ===============
Diluted.................................$ 0.70 $ 1.08 - $ 0.77
================= =============== ================= ===============
Weighted average number of common shares
outstanding:
Basic................................... 24,356 4,487 (673) 28,170
================= =============== ================= ===============
Diluted................................. 29,082 4,877 (732) 33,227
================= =============== ================= ===============
</TABLE>
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Photronics, Inc.
Unaudited Pro Forma Statement of Earnings
for the Year Ended November 1, 1998
(in thousands, except per share amounts)
Prior to the combination, Align-Rite's fiscal year end was March 31. To
conform the reporting periods to within 93 days of Photronics' fiscal year end
has resulted in Align-Rite's operating results for the period from October 1,
1997 to March 31, 1998 being included in the pro forma combined results in each
of the years ended November 1, 1998 and November 2, 1997 . Sales and net income
of $24,681 and $3,162, respectively, have been included in each of those
periods.
<TABLE>
<CAPTION>
NOVEMBER 1, SEPTEMBER
1998 30, 1998 PRO FORMA PRO FORMA
PHOTRONICS ALIGN-RITE ADJUSTMENTS COMBINED
----------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Net sales.....................................$ 222,572 $ 52,364 $ 274,936
Costs and expenses:
Cost of sales........................... 141,628 32,802 174,430
Selling, general and administrative..... 28,793 8,262 37,055
Research and development................ 12,893 712 13,605
Non-recurring restructuring charge...... 3,800 - 3,800
----------------- --------------- ----------------- ---------------
Operating income...................... 35,458 10,588 - 46,046
Other income and expense:
Interest income......................... 2,721 104 2,825
Interest expense........................ (6,143) - (6,143)
Other income, net....................... 1,046 143 1,189
----------------- --------------- ----------------- ---------------
Income before income taxes.................... 33,082 10,835 - 43,917
Provision for income taxes.................... 12,600 4,078 16,678
----------------- --------------- ----------------- ---------------
Net income..............................$ 20,482 $ 6,757 $ - $ 27,239
================= =============== ================= ===============
Earnings per share:
Basic...................................$ 0.84 $ 1.51 - $ 0.97
================= =============== ================= ===============
Diluted.................................$ 0.84 $ 1.39 - $ 0.94
================= =============== ================= ===============
Weighted average number of
common shares outstanding:
Basic................................... 24,350 4,463 (619) 28,194
================= =============== ================= ===============
Diluted................................. 28,958 4,876 (681) 33,153
================= =============== ================= ===============
</TABLE>
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<PAGE>
Photronics, Inc.
Unaudited Pro Forma Statement of Earnings
for the Year Ended November 2, 1997
(in thousands, except per share amounts)
Prior to the combination, Align-Rite's fiscal year end was March 31. To
conform the reporting periods to within 93 days of Photronics' fiscal year end
has resulted in Align-Rite's operating results for the period from October 1,
1997 to March 31, 1998 being included in the pro forma combined results in each
of the years ended November 1, 1998 and November 2, 1997 . Sales and net income
of $24,681 and $3,162, respectively, have been included in each of those
periods.
<TABLE>
<CAPTION>
NOVEMBER 2, MARCH 31,
1997 1998 PRO FORMA PRO FORMA
PHOTRONICS ALIGN-RITE ADJUSTMENTS COMBINED
----------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Net sales.....................................$ 197,451 $ 46,721 $ 244,172
Costs and expenses:
Cost of sales........................... 121,502 29,236 150,738
Selling, general and administrative..... 24,940 7,442 32,382
Research and development................ 10,605 509 11,114
----------------------------------------------------------------------------------
Operating income...................... 40,404 9,534 - 49,938
Other income and expense:
Interest income......................... 2,424 122 2,546
Interest expense........................ (2,466) - (2,466)
Other income, net....................... 1,074 132 1,206
----------------- --------------- ----------------- ---------------
Income before income taxes.................... 41,436 9,788 - 51,224
Provision for income taxes.................... 15,800 3,688 19,488
----------------- --------------- ----------------- ---------------
Net income..............................$ 25,636 $ 6,100 $ - $ 31,736
================= =============== ================= ===============
Earnings per share:
Basic...................................$ 1.07 $ 1.37 - $ 1.15
================= =============== ================= ===============
Diluted.................................$ 1.03 $ 1.25 - $ 1.09
================= =============== ================= ===============
Weighted average number of
common shares outstanding:
Basic................................... 23,910 4,439 (666) 27,683
================= =============== ================= ===============
Diluted................................. 26,628 4,865 (730) 30,763
================= =============== ================= ===============
</TABLE>
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<PAGE>
Photronics, Inc.
Unaudited Pro Forma Statement of Earnings
for the Year Ended October 31, 1996
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
OCTOBER 31, MARCH 31,
1996 1997 PRO FORMA PRO FORMA
PHOTRONICS ALIGN-RITE ADJUSTMENTS COMBINED
---------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Net sales.....................................$ 160,071 $ 38,001 $ 198,072
Costs and expenses:
Cost of sales........................... 98,267 23,530 121,797
Selling, general and administrative..... 21,079 6,072 27,151
Research and development................ 8,460 333 8,793
---------------- --------------- ----------------- ---------------
Operating income...................... 32,265 8,066 - 40,331
Other income and expense:
Interest income......................... 1,601 308 1,909
Interest expense........................ (160) - (160)
Other income, net....................... 197 7 204
---------------- --------------- ----------------- ---------------
Income before income taxes.................... 33,903 8,381 - 42,284
Provision for income taxes.................... 12,900 3,056 15,956
---------------- --------------- ----------------- ---------------
Net income..............................$ 21,003 $ 5,325 $ - $ 26,328
================ =============== ================= ===============
Earnings per share:
Basic...................................$ 0.89 $ 1.21 - $ 0.97
================ =============== ================= ===============
Diluted.................................$ 0.87 $ 1.11 - $ 0.93
================ =============== ================= ===============
Weighted average number of
common shares outstanding:
Basic................................... 23,496 4,386 (658) 27,224
================ =============== ================= ===============
Diluted................................. 24,202 4,799 (720) 28,281
================ =============== ================= ===============
</TABLE>
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Photronics, Inc.
Notes to Unaudited Pro Forma Combined
Financial Information
The unaudited pro forma combined financial information reflects the
merger and gives effect to the following assumptions:
(a) In connection with the merger, Photronics will sell 1,000,000
shares of common stock at an estimated net price of $20 per share, or
$20,000,000. The net price per share was determined based on the
October 1, 1999 closing price, adjusted for a discount to reflect the
sale of 1,000,000 shares and the cost of such sales. As a result of
the timing of the purchase of the one million shares between
September 1998 and March 1999, 820,000 common shares have been
included in the pro forma adjustment for basic and diluted shares
outstanding for the nine months ended August 1, 1999 and 50,000
shares have been included in the pro forma adjustment for the year
ended November 1, 1998.
(b) It is estimated that approximately $3,000,000 will be incurred
for direct costs of the merger, consisting primarily of transactions
costs for investment banking, legal and accounting fees. The
unaudited pro forma combined balance sheet gives effect to these
expenses as if they had been incurred as of August 1, 1999, but the
unaudited pro forma combined statement of operations do not give
effect to any merger related costs.
(c) Unaudited pro forma combined basic and diluted earnings per share
is based on the combined weighted average shares of both Photronics
and Align-Rite, with Align-Rite shares included based upon the
conversion ratio of .85.
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<PAGE>
COMPARISON OF THE RIGHTS OF HOLDERS OF ALIGN-RITE COMMON
STOCK AND PHOTRONICS COMMON STOCK
As a result of the merger, Align-Rite common shareholders will become
holders of Photronics common stock. Align-Rite is a California corporation and
Photronics is a Connecticut corporation. The rights of Align-Rite shareholders
are currently governed by Align-Rite's articles of incorporation and bylaws and
the laws of California. Following the merger, the rights of all former holders
of Align-Rite common stock will be governed by the Photronics certificate of
incorporation and bylaws and the laws of Connecticut. The following is a summary
comparison of the material differences between the rights of holders of
Align-Rite common stock and holders of Photronics common stock and more
particularly the material differences between the provisions of the Photronics
certificate of incorporation and the Align-Rite articles of incorporation, the
Photronics bylaws and the Align-Rite bylaws, and between the provisions of the
Connecticut Business Corporation Act and the California General Corporation Law.
For information on how to obtain copies of the Photronics certificate
of incorporation, the Photronics bylaws, the Align-Rite articles of
incorporation, and the Align-Rite bylaws, see "Where You Can Find More
Information." Furthermore, the description of the differences between
Connecticut law and California law is a summary only and is not a complete
description of the differences between Connecticut law and California law.
Authorized Capital
The total number of authorized shares of capital stock of Photronics
is 77,000,000, consisting of 75,000,000 shares of Photronics common stock, par
value $0.01 per share, and 2,000,000 shares of Preferred Stock, par value $0.01
per share. As of January 10, 2000, 23,976,930 shares of Photronics common stock
were outstanding and no shares of Preferred Stock were outstanding.
The authorized capital stock of Align-Rite consists of 35,000,000
shares of common stock, par value $0.01 per share, of which 4,677,869 shares
were issued and outstanding as of January o, 2000.
Number of Directors; Removal; Vacancies
Number of Directors. Connecticut law provides that a corporation's
board of directors must consist of one or more members, with the number
specified in or fixed in accordance with the certificate of incorporation or the
bylaws. In addition, Connecticut law provides that the number of directors may
be increased or decreased from time to time by amendment to, or in the manner
provided in, the certificate of incorporation or the bylaws.
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<PAGE>
The Photronics bylaws state that the number of directors shall be
between three and fifteen. The number at any time shall be the number most
recently determined by the board of directors or the shareholders or, absent
such action, shall be the number of directors elected at the preceding annual
meeting, plus the number of directors elected since the meeting, if any, to fill
a vacancy created by an increase in the size of the board. There are currently
four directors serving on the Photronics board.
Connecticut law provides that directors are elected by a plurality of
the votes cast by the shares entitled to vote at a meeting where a quorum is
present, and shareholders do not have the right to cumulate their votes unless
the certificate of incorporation so provides. The Photronics certificate of
incorporation does not provide for cumulative voting.
California law provides that a corporation's board of directors must
consist of one or more members, with the number specified in or fixed in
accordance with the articles of incorporation or the bylaws. In addition,
California law provides that the number of directors may be increased or
decreased from time to time by amendment to, or in the manner provided in, the
articles of incorporation or the bylaws. The Align-Rite bylaws state that the
number of directors shall be between five and nine members. There are currently
five directors serving on the Align-Rite board.
California law requires corporations to provide for cumulative voting
in the election of directors unless the articles of incorporation or bylaws
eliminate cumulative voting. The Align-Rite articles of incorporation
specifically prohibits cumulative voting.
Removal. Under Connecticut law, a director may be removed by
shareholders with or without cause unless the certificate of incorporation
provides that directors may be removed only for cause. Additionally, a director
may be removed by shareholders only at a meeting called for the purpose of
removing that director, and the notice calling the meeting must state that the
purpose or one of the purposes of the meeting is removal of the director. The
Photronics bylaws provide that a director may be removed with or without cause
by a vote of the holders of a majority of the stock entitled to vote.
Under California law, the holders of at least 10% of the outstanding
shares of any class of stock may initiate a court action to remove any director
for cause. In addition, any or all of the directors of a California corporation
may be removed without cause by the affirmative vote of a majority of the
outstanding shares entitled to vote. However, no director may be removed, unless
the entire board is removed, when the votes cast against removal would be
sufficient to elect the director if voted cumulatively at an election at which
the same total number of votes were cast and the entire number of the directors
authorized at the time of the director's most recent election were then being
elected.
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Vacancies. Under Connecticut law, unless the certificate of
incorporation provides otherwise, any vacancy in a board of directors may be
filled by either the shareholders, the board of directors, or, if the directors
remaining in office constitute fewer than a quorum of the board, by the
affirmative vote of a majority of all the directors remaining in office. The
Photronics certificate of incorporation conforms with the requirements of
Connecticut law.
Under California law, unless otherwise provided in the articles of
incorporation or bylaws and except for a vacancy created by the removal of a
director, vacancies on the board of directors may be filled by approval of the
board. In addition, any vacancies on the board resulting from the removal of
directors may be filled by the affirmative vote of a majority of the shares
represented and voting at a meeting at which a quorum is present (or by consent
signed by holders of shares having not less than the minimum number of votes
required at a meeting at which all shares entitled to vote were present and
voted). The Photronics by-laws provide that vacancies occurring on the board as
a result of the death or resignation of a director shall be filled by a majority
of the remaining directors. A vacancy on the board occurring as a result of the
removal of a director shall be filled by the majority vote of the shareholders
as provided under California law.
Charter Amendments
Under Connecticut law, a corporation's certificate of incorporation
may be amended in some limited respects by the board of directors of that
corporation without shareholder action. A corporation may also amend its
certificate of incorporation in any respect by (a) recommendation of the board
of directors (unless the board determines that because of conflict of interest
or other special circumstances it should make no recommendation and communicates
the basis for its determination to the shareholders with the amendment), and (b)
unless the certificate of incorporation or directors require a greater vote, by
approval of either (x) a majority of the votes entitled to be cast on the
amendment by each voting group, if any, with respect to which the amendment
would create dissenter's rights, or (y) a majority of the votes cast by every
other voting group entitled to vote on the amendment. The Photronics certificate
of incorporation does not require the vote of a greater number of shares than
provided under Connecticut law.
Under California law, a corporation's articles of incorporation may
be amended by the board of directors and the shareholders if (a) the board of
directors approves the proposed amendment; and (b) the holders of at least a
majority of the outstanding shares entitled to vote approve such amendment by
affirmative vote, unless the corporation's articles of incorporation require the
vote of a greater number of shares. In addition, each class of stock affected by
such a proposed amendment, even if such stock would not otherwise have such
rights, must approve by at least a majority vote amendments which make specified
changes to the rights of such class of capital stock. The Align-Rite articles of
incorporation do not require a number of shares different from California law to
approve an amendment to the Align-Rite articles of incorporation.
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Bylaw Amendments
Under Connecticut law, a corporation's board of directors may amend
or repeal the bylaws unless either the corporation's certificate of
incorporation or specified provisions of the Connecticut Business Corporation
Act reserve this power exclusively to the shareholders in whole or in part, or
the shareholders, in amending or repealing a particular bylaw, expressly
provided that the board of directors may not amend or repeal that bylaw. The
Photronics certificate of incorporation does not reserve the power to amend the
bylaws exclusively to the shareholders. In addition, no bylaw enacted by
Photronics's shareholders expressly provides that the board may not amend or
repeal such bylaw.
Under California law, a corporation's bylaws may be adopted, amended
or repealed either by the vote of a majority of the outstanding shares entitled
to vote or by the approval of the board of directors except (a) if the number of
directors is set forth in the articles of incorporation, in which case this
number may be changed only by an amendment to the articles of incorporation, and
(b) after the issuance of shares, a bylaw specifying or changing a fixed number
of directors or the maximum or minimum number or changing from a fixed to a
variable board or vice versa may be adopted by approval only of the outstanding
shares, provided that an amendment reducing the number of directors to less than
five cannot be adopted if the votes cast against adoption (or not consenting)
equal or exceed 16 2/3% of the outstanding shares entitled to vote. The
Align-Rite bylaws provide that the bylaws may be amended either by approval of
the outstanding shares or, other than changes increasing or decreasing the size
of the board of directors or altering the method of election and term of
directors, by the approval of the board of directors.
Special Meetings of Shareholders
Under Connecticut law, a corporation is required to hold a special
meeting of shareholders if (a) the board of directors calls such a meeting; or
(b) holders of at least ten percent of all votes entitled to be cast on any
issue proposed to be considered at the special meeting make a written demand for
the meeting to the corporation's secretary describing the purpose for the
proposed special meeting; provided, that if the corporation has a class of
voting stock registered pursuant to Section 12 of the Securities Exchange Act of
1934, and no person held ten percent or more of such votes on February 1, 1998,
the corporation need not hold such a special meeting except upon demand of the
holders of not less than thirty five percent of such votes.
Unless the corporation's certificate of incorporation or Connecticut
law provides otherwise, a majority of the votes entitled to be cast on a matter
constitutes a quorum for action on that matter. Connecticut law further provides
that unless Connecticut law or a corporation's certificate of incorporation
requires a greater number of affirmative votes, if a quorum exists, action on a
matter, other than the election of directors, is approved if the majority of
votes cast favor of the action.
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In addition to the requirements of Connecticut law, the Photronics
bylaws provide that special meetings of the shareholders may also be called by
the President or the Secretary of the corporation. A quorum under the Photronics
bylaws consists of the holders of a majority of the stock entitled to vote,
represented in person or by proxy.
California law provides that a special meeting of shareholders may be
called by the board of directors, the chairman of the board, the president or
the holders of shares entitled to cast not less than ten percent of the votes at
the meeting or such additional persons as may be provided in the articles of
incorporation of bylaws (there being none specified in the Align-Rite articles
of incorporation or bylaws). Under California law and the Align-Rite articles of
incorporation, a quorum for a special meeting of shareholders is a majority of
the shares entitled to vote.
Cumulative Voting
Under Connecticut law, shareholders do not have a right to cumulate
their votes for directors unless the certificate of incorporation so provides.
The Photronics certificate of incorporation does not provide for cumulative
voting.
California law requires corporations to provide for cumulative voting
for the election of directors unless, in the case of a listed corporation,
bylaws are amended to eliminate cumulative voting. The Align-Rite articles of
incorporation specifically provide that cumulative voting is not permitted.
Shareholder Action Without a Meeting
Under Connecticut law, shareholders may take action without a meeting
(a) by unanimous written consent of all the persons who would be entitled to
vote upon that action at a meeting, or (b) if the certificate of incorporation
so provides, by written consent of a majority of the persons who would be
entitled to vote upon that action at a meeting. The Photronics' bylaws provide
for any action which may be taken at a meeting of shareholders may be taken
without a meeting provided this action is consented to in writing by all persons
entitled to vote at such a meeting.
Under California law, unless otherwise provided in the articles of
incorporation, any action which may be taken at a meeting of shareholders may
also be taken without a meeting and without prior notice by the execution of a
written consent of the holders of at least the same number of outstanding shares
as would be necessary to take such action at a meeting on which all shares
entitled to vote were present and voted, except that the election of directors
by written consent requires the unanimous consent of all shares entitled to vote
in such election. The Align-Rite articles of incorporation, however,
specifically prohibit shareholder action without a meeting.
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Required Vote for Specific Transactions
Extraordinary Transactions. Under Connecticut law, in order for a
plan of merger or share exchange to be approved, the board of directors must
adopt the plan of merger or share exchange and recommend it to the shareholders
for approval, unless the board determines that, due to a conflict of interest or
other special circumstances, it should make no recommendation and communicates
the basis for its determination to the shareholders. For corporations
incorporated before January 1, 1997, a plan of merger or share exchange must be
approved by each voting group entitled to vote separately on the plan by at
least two-thirds of the voting power of such voting group, unless the
certificate of incorporation provides otherwise. Photronics' certificate of
incorporation does not contain such an alternative.
California law requires approval of the board of directors and a
majority of shares outstanding for mergers, exchanges, sales of assets (other
than sales in the ordinary course of business) or share exchange tender offers.
California law generally requires that, unless all shareholders of a class or
series consent, each share of a class or series of any party to a merger must be
treated equally with respect to any distribution of cash, property, rights or
securities.
Absence of Required Vote for Corporate Mergers and Reorganizations.
Connecticut law does not require a vote of the shareholders of a corporation
surviving a merger to approve a merger if:
o the agreement of merger does not amend the certificate of
incorporation of such corporation, except for certain
enumerated amendments;
o each shareholder of the surviving corporation whose shares
were outstanding immediately before the effective date of
the merger will hold the same number of shares with
identical designations, preferences, limitations and
relative rights, immediately thereafter;
o the number of voting shares outstanding immediately after
the merger, plus the number of voting shares issuable as a
result of the merger, will not exceed by more than twenty
percent the total number of shares outstanding immediately
before the merger; and
o the number of participating shares, outstanding immediately
after the merger, plus the number of participating shares
issuable as a result of the merger, will not exceed by more
than twenty percent the total number of participating
shares outstanding immediately before the merger.
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However, the merger does not require approval by Photronics
shareholders under Connecticut law because the merger involves a merger of AL
Acquisition Corp., a California corporation and a wholly-owned subsidiary of
Photronics, and Align-Rite, a California corporation.
California law does not require a vote of the shareholders of a
corporation surviving a reorganization (defined as mergers, share exchange
transactions and/or acquisitions of securities) to approve such reorganization
if such corporation, or its shareholders immediately before the reorganization,
or both, shall own (immediately after the reorganization) equity securities
other than any warrant or right to subscribe to or purchase such equity
securities, of the surviving or acquiring corporation or a parent party
possessing more than five-sixths of the voting power of the surviving or
acquiring corporation or parent party.
State Takeover Legislation
Connecticut law provides for limitations and prohibitions on defined
"business combinations." Under Connecticut law, a "business combination"
includes:
o mergers,
o combinations,
o transfers or issuances of equity securities to " interested
shareholders" (generally defined as the beneficial owner of ten percent or more
of the voting power of the outstanding shares of voting stock of a corporation)
and their affiliates,
o liquidation/dissolution resolutions passed by interested
shareholders and their affiliates, or
o reclassifications of securities that result in the proportionate
increase of ownership of outstanding shares by interested shareholders and their
affiliates.
Connecticut law generally requires that in addition to any vote
otherwise required by law or a corporation's certificate of incorporation, a
business combination must first be approved by a corporation's board of
directors and then be approved by the affirmative vote of at least:
(a) the holders of 80% of the voting power of the outstanding shares
of the corporation; and
(b) the holders of two-thirds of the voting power of the outstanding
shares of the corporation (other than shares held by the interested shareholder
and any affiliates.).
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Connecticut law also generally prohibits a resident domestic
corporation from engaging in any business combination with any interested
shareholder for a period of five years following the date that such shareholder
became an interested shareholder, unless (a) prior to such date the board of
directors of the corporation and a majority of such corporation's non-employee
directors (of which there must be at least two) approved either the business
combination or the transaction which resulted in the shareholder becoming an
interested shareholder, or (b) the business combination is otherwise exempted
from the five-year prohibition by applicable provisions of Connecticut law.
Finally, Connecticut law permits transactions involving a Connecticut
corporation and an interested director of that corporation so long as
(a) the transaction is approved by an affirmative vote of a majority,
but no fewer than two, of those qualified directors (defined as a director who
is not interested or a director who is not an affiliate of an interested
director) on the board of directors or on a duly empowered committee of the
board who voted on the transaction after the existence and nature of the
directors' conflicting interest and all facts known to him respecting the
subject matter of the conflicting interest transaction that an ordinarily
prudent person would reasonably believe to be material to a judgment about
whether or not to proceed with the transaction are known or disclosed to them,
(b) a majority of the votes entitled to be cast by the holders of all
qualified shares (defined as shares that are not owned or controlled by an
interested director or an affiliate of an interested director) were cast in
favor of the transaction after the existence and nature of the director's
conflicting interest and all facts known to the interested director respecting
the subject matter of the conflicting interest transaction that an ordinarily
prudent person would reasonably believe to be material to a judgment about
whether or not to proceed with the transaction are known or disclosed to the
holders of such shares, or
(c) the transaction, judged according to the circumstances at the
time of commitment, is established to have been fair to the corporation.
Connecticut law contains no provisions explicitly treating conflict-of-interest
transactions with officers of a corporation.
California law requires that an "interested party"(defined below) in
a corporation provide such corporation's shareholders with copies of a fairness
opinion if such interested party and the corporation enter into various forms of
transactions, including a merger transaction. An "interested party" for purposes
of California law means a person who is a party to the transaction and (a)
directly or indirectly controls the corporation, (b) is or is directly or
indirectly controlled by, an officer or director of the corporation or (c) is an
entity in which a material financial interest is held by any director or
executive officer of the corporation.
California law also provides that contracts or transactions between a
corporation
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and (a) any of its directors or (b) a company in which a director has a material
financial interest are not void or voidable if the material facts as to the
transaction and as to the director's interest are fully disclosed and either (x)
approved by vote of a majority of the share represented at a meeting (or
consented to by shares sufficient in number to approve the matter at a meeting),
excluding shares owned by the director or other interested party; or (y)
approved or ratified by vote of the directors sufficient, without counting the
vote of the interested director, to adopt the matter and the contract or
transaction is just and reasonable as to the corporation at the time of the
vote. Alternatively, the person asserting the validity of the contract or
transaction may sustain the burden of proving that the contract or transaction
was just and reasonable as to the corporation at the time it was authorized,
approved or ratified.
Standard of Conduct for Directors
Connecticut law requires that a director of a corporation discharge his
duties as a director in good faith, with the care an ordinarily prudent person
in a like position would exercise under similar circumstances, and in a manner
such director reasonably believes to be in the best interests of the
corporation. In connection with the director's consideration of business
combination transactions, Connecticut law requires that a director consider, in
determining what such director reasonably believes to be in the best interests
of the corporation,
(a) the long-term as well as the short-term interests of the corporation,
(b) the interests of the shareholders, long-term as well as short-term,
including the possibility that these interests may be best served by the
continued independence of the corporation,
(c) the interests of the corporation's employees, customers, creditors, and
suppliers, and
(d) community and societal considerations including those of any community
in which any office or other facility of the corporation is located. A director
may also use his discretion in considering any other factors he reasonably
considers appropriate in determining what he reasonably believes to be in the
best interests of the corporation with respect to such a businesses combination.
California law requires that a director discharge his duties, including
duties as a member of any committee of the board upon which the director may
serve, in good faith, in a manner such director believes to be in the best
interests of the corporation and its shareholders and with such care, including
reasonable inquiry, as an ordinarily prudent person in a like position would use
under similar circumstances. In performing the duties of a director, a director
is entitled to rely on information, opinions, reports or statements, including
financial statements and other financial data, in each case prepared or
presented
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by any of the following:
(a) one or more officers or employees of the corporation whom the
director believes to be reliable and competent in the matters presented;
(b) counsel, independent accountants or other persons as to matters
which the director believes to be within such person's professional and expert
competence; and
(c) a committee of the board upon which the director does not serve,
as to matters within its designated authority, which committee the director
believes to merit confidence, so long as, in any such case, the director acts in
good faith, after reasonable inquiry when the need therefor is indicated by the
circumstances and without knowledge that would cause such reliance to be
unwarranted.
Indemnification of Directors and Officers
Unless the certificate of incorporation provides otherwise,
Connecticut law provides that a corporation formed prior to January 1, 1997
(such as Photronics) shall indemnify its officers, directors, employees or
agents against liability incurred by them in connection with proceedings, if
they acted in good faith and, in the case of conduct in their official capacity,
in a manner they reasonably believed to be in the best interests of the
corporation and, in all other cases, that their conduct was at least not opposed
to the best interest of the corporation, and with respect to criminal
proceedings, had no reasonable cause to believe that their conduct was unlawful.
A corporation may advance expenses to its officers, directors, employees or
agents prior to final adjudication, as long as they deliver to the corporation a
written affirmation of their good faith belief that they have satisfied the
required standard of conduct and undertake to repay the amounts advanced if it
is ultimately determined that they were not entitled to be indemnified. Finally,
Connecticut law permits a corporation to purchase liability insurance for
directors and officers.
The Photronics bylaws provide that shareholders, directors, officers,
employees and agents shall be entitled to indemnification as provided by
Connecticut law.
Under California law, a corporation has the power to indemnify, with
specific exceptions, any agent who is a party to any action, other than an
action by or in the right of the corporation to procure a judgment in its favor,
against expenses, judgments fines and settlements if that person acted in good
faith and in a manner that person reasonably believed to be in the
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best interests of the corporation and, in the case of a criminal proceeding, had
no reasonable cause to believe his or her conduct was unlawful. In addition, a
corporation has the power to indemnify, with specific exceptions, any agent who
is a party to any action by or in the right of the corporation against expenses
actually and reasonably incurred by that person in connection with the defense
or settlement of the action if that person acted in good faith and in a manner
that person believed to be in the best interests of the corporation and its
shareholders. An agent of a corporation for purposes of California law includes
directors, officers and employees of such corporation. The indemnification
authorized by California law is not exclusive and a corporation may grant its
directors additional rights to indemnification.
Furthermore, California law provides, upon receipt of an undertaking
to reimburse the corporation if indemnification is ultimately determined to be
inappropriate, that a corporation may advance expenses of defense. In addition,
a corporation must reimburse a successful defendant for expenses, actually and
reasonably incurred in connection with their defense. California law also
permits a corporation to purchase liability insurance for its directors and
officers. California law provides that a corporation may not indemnify for any
matter as to which a person has been adjudged to be liable to the corporation,
but only to the extent a court determines that the person is entitled to
indemnity.
Align-Rite's articles of incorporation and by-laws provide that
Align-Rite shall provide indemnification to its agents to the fullest extent
permissible under California law. Align-Rite also has entered into indemnity
agreements with its directors and officers that obligate Align-Rite to indemnify
the director or officer to the fullest extent permitted under California law.
Limitation of Personal Liability of Directors and Officers
Under Connecticut law, a corporation is permitted to limit the
personal liability of a director to the corporation or its shareholders for
money damages for breach of duty as a director to an amount that is not less
than the compensation received by the director for serving the corporation
during the year of the violation if such breach did not
(a) involve a knowing or culpable violation of law by the director,
(b) enable the director or an associate to receive improper personal
economic gain,
(c) show a lack of good faith and a conscious disregard for the duty
of the director to the corporation under circumstances in which the director was
aware that his conduct or omission created an unjustifiable risk of serious
injury to the corporation,
(d) constitute a sustained and unexcused pattern of inattention that
amounted to an abdication of the director's duty to the corporation, or
(e) create liability for unlawful distributions. The Photronics
certificate of incorporation provides for the limitation on director's liability
to the maximum extent permitted by law.
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Under California law, a corporation's articles of incorporation may
eliminate all monetary liability of each director to the corporation or its
shareholders for conduct in the performance of such director's duties other than
conduct specifically excluded from protection. California law does not, however,
permit any limitation of liability of a director for specific acts, including:
(a) acts or omissions that involve intentional misconduct or a
knowing and culpable violation of law;
(b) acts or omissions that a director believes to be contrary to the
best interests of the corporation or its shareholders or that involve the
absence of good faith on the part of the director;
(c) any transaction from which a director derived a improper
personal benefit;
(d) acts or omissions that show a reckless disregard for the
director's duty to the corporation or its shareholders in circumstances in which
the director was aware, or should have been aware, in the ordinary course of
performing a director's duties to the corporation or its shareholders; and
(e) acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the
corporation or its shareholders. The Align-Rite charter eliminates the
monetary liability of Align-Rite's directors to the fullest extent permitted by
law.
Appraisal and Dissenters' Rights
Under Connecticut law, a shareholder is entitled to dissent from, and
receive the fair value of shares owned in the event of a plan of merger or share
exchange to which the corporation is a party as the corporation whose shares
will be acquired, if shareholder approval is required for the merger or the
share exchange and the shareholder is entitled to vote on the transaction.
Connecticut law also provides for appraisal rights in the case of (a) a sale or
exchange of all, or substantially all, of the property of the corporation other
than in the ordinary and regular course of business if the shareholder is
entitled to vote on the sale, with judicially ordered and other special sales
excluded (b) amendments to the certificate of incorporation that materially and
adversely affect the dissenters' rights in respect of such dissenters' shares;
and c) any corporate action taken pursuant to a shareholder vote to the extent
the certificate of incorporation, bylaws or a board resolution provides that
shareholders are entitled to dissent and obtain payment for their shares.
Neither Photronics' certificate of incorporation nor its bylaws contain
provisions concerning appraisal and dissenters' rights.
Generally, under California law, a shareholder of a corporation has
(a) the right to
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dissent from any reorganization or disposition to which such corporation is a
party if California law requires a shareholder vote; and (b) appraisal rights
upon compliance with the statutory procedures. If appraisal rights are available
after compliance with the prescribed statutory procedures, a shareholder is
entitled to receive from the corporation cash equal to the "fair market value"
of his shares (exclusive of any appreciation or depreciation in connection with
the proposed merger) determined as of the day before the announcement of the
proposed corporate action. Neither the Align-Rite charter nor its bylaws contain
provisions concerning appraisal of dissenter's rights. See "The Merger -
Dissenters Rights" for a discussion of the rights of Align-Rite shareholders in
connection with the merger.
Preemptive Rights
Under Connecticut law, shareholders do not generally have preemptive
rights unless the corporation's certificate of incorporation specifically grants
such rights. The Photronics certificate of incorporation provides that no
Photronics shareholder shall have any preemptive or preferential rights to
subscribe for, purchase or receive any shares of stock of or any obligation
convertible into shares of stock of the corporation, including warrants,
subscription rights, or options to acquire share, which Photronics may issue or
sell.
Under California law, a shareholder does not have preemptive rights
unless the articles of incorporation specifically grants such rights. The
articles of incorporation of Align-Rite do not provide for preemptive rights.
Voting Rights of Classes of Stock
Connecticut law provides that holders of the outstanding shares of a
class of stock shall be entitled to vote as a separate voting group upon a
proposed amendment to the certificate of incorporation, whether or not entitled
to vote thereon by the certificate of incorporation, if the amendment would
(a) increase or decrease the aggregate number of authorized shares
of the class;
(b) effect an exchange or reclassification of all or part of the
shares of the class into shares of another class;
(c) effect an exchange or reclassification, or create the right of
exchange, of all or part of the shares of another class into shares of the
class;
(d) change the designations, rights, preferences or limitations of
all or part of shares of the class;
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(e) change the shares of all or part of the class into a different
number of shares of the same class;
(f) create a new class of shares having rights or preferences with
respect to distributions or to dissolution that are prior, superior or
substantially equal to the shares of the class;
(g) increase the rights, preferences or number of authorized shares
of any class that, after giving effect to the amendment, have rights or
preferences with respect to distributions or to dissolution that are prior,
superior or substantially equal to the shares of the class;
(h) limit or deny an existing preemptive right of all or part of the
shares of the class; or
(i) cancel or otherwise affect rights to distributions or dividends
that have accumulated but not yet been declared on all or part of the shares of
the class.
California law provides that holders of each class of shares are
entitled to vote as a class upon a proposed amendment to the articles of
incorporation, whether or not entitled to vote thereon by the articles of
incorporation, if the amendment would
(a) increase or decrease the aggregate number of authorized shares
of such class;
(b) effect an exchange, reclassification, or cancellation of all or
part of the shares of such class;
(c) effect an exchange, or create a right of exchange, of all or part
of the shares of another class into the shares of such class;
(d) change the rights, preferences, privileges or restrictions of the
shares of such class;
(e) create a new class of shares having rights, preferences or
privileges prior to the shares of such class, or increase the rights,
preferences or privileges or the number of authorized shares of any class having
rights, preferences or privileges prior to the shares of such class;
(f) in the case of preferred shares, divide the shares of any class
into series having different rights, preferences, privileges or restrictions or
authorize the board to do so; or
(g) cancel or otherwise affect dividends on the shares of such class
which have accrued but have not been paid.
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Payment of Dividends
Under Connecticut law, a corporation may make distributions,
including dividends, to its shareholders subject to restriction by its
certificate of incorporation unless, after giving effect to the dividend or
distribution, either the corporation would not be able to pay its debts as they
become due in the usual course of business or the corporation's total assets
would be less than the sum of its total liabilities plus, unless its certificate
of incorporation permits otherwise, the amount that would be needed, if the
corporation were to be dissolved at that time, to satisfy the preferential
rights of shareholders whose rights are superior to those shareholders receiving
the dividend or distribution. Neither Photronics' amended certificate of
incorporation nor its bylaws contain a limitation on such powers.
Generally, a California corporation may pay dividends or repurchase
shares out of retained earnings. Dividends or repurchases of shares may also be
made if, immediately after giving effect thereto, the sum of (a) the assets
(excluding goodwill and other assets) of the corporation are at least equal to
1.25 times its liabilities (excluding deferred credits) and (b) the current
assets of the corporation are at least equal to its current liabilities or, if
the average of the earnings of the corporation before taxes and interest expense
for the two preceding fiscal years were less than the average of the interest
expense of such corporation for such fiscal years, at least equal to 1.25 times
its current liabilities. There are exceptions to the foregoing rules for
repurchases of shares in connection with rescission actions or pursuant to
employee stock plans. Neither Align-Rite's articles of incorporation nor its
bylaws contain any limitations on such powers.
Inspection of Books and Records
Under Connecticut law, a shareholder is entitled to inspect and copy
the list of shareholders provided he gives the corporation at least five days
written notice, and his demand is in good faith, for a proper purpose, and the
records are directly connected with his purpose. Additionally, Connecticut law
entitles a shareholder to inspect and copy corporate records such as the
certificate of incorporation, bylaws, shareholder meeting minutes, and the list
of current directors and officers.
California law allows any shareholder upon written demand to inspect
a corporation's shareholders' list for a purpose reasonably related to such
person's interests as a shareholder. In addition, California law provides an
absolute right to inspect and copy the corporation's shareholders' list to
persons holding an aggregate of 5% or more of a corporation's voting shares, or
shareholders holding an aggregate of 1% or more of such shares who have filed a
Schedule 14A with the Securities and Exchange Commission.
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EXPERTS
The financial statements of Photronics, Inc. as of November 1, 1998 and November
2, 1997, and for each of the three years in the period ended November 1, 1998,
incorporated in this proxy statement/prospectus by reference from Photronics'
Annual Report on Form 10-K for the year ended November 1, 1998, have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report which is incorporated herein by reference, and is incorporated in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
The consolidated financial statements of Align-Rite International, Inc.
incorporated in this proxy statement/prospectus by reference to the Align-Rite
International, Inc. Annual Report on Form 10-K for the year ended March 31, 1999
, have been so incorporated in reliance on the report of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
LEGAL OPINIONS
The legality of the shares of Photronics common stock to be issued in connection
with the merger will be passed upon by Paul, Hastings, Janofsky & Walker LLP.
Federal income tax consequences of the merger will be passed upon for Align-Rite
by O'Melveny & Myers LLP and for Photronics by Paul, Hastings, Janofsky & Walker
LLP.
SHAREHOLDER PROPOSALS
Align-Rite will hold an annual meeting of shareholders in the year 2000 if the
merger is not consummated before the time of such meeting. In the event that
such a meeting is held, any proposals of shareholders intended to be presented
at the 2000 annual meeting of Align-Rite shareholders must have been received by
the Secretary of Align-Rite no later than May 17, 2000 in order to be considered
for inclusion in its proxy materials.
OTHER MATTERS
As of the date of this proxy statement/prospectus, the Align-Rite board knows of
no matters that will be presented for consideration at the Align-Rite
shareholders meeting other than as described in this proxy statement/prospectus.
If any other matters shall properly come before either the Align-Rite
shareholders meeting or any adjournments or postponements thereof and be voted
upon, the enclosed proxies will be deemed to confer discretionary authority on
the individuals named as proxies therein to vote the shares represented by such
proxies as to any such matters. The persons named as proxies intend
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to vote or not to vote in accordance with the recommendation of the management
of Align-Rite.
WHERE YOU CAN FIND MORE INFORMATION
Align-Rite and Photronics file annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any reports, statements or other information we file at
the Securities and Exchange Commission's public reference rooms in Washington,
D.C., New York, New York and Chicago, Illinois. Please call the Securities and
Exchange Commission at 1-800-SEC-8330 for further information on the public
reference room. Our Securities and Exchange Commission filings are also
available to the public from commercial document retrieval services and at the
web site maintained by the Securities and Exchange Commission at
http://www.sec.gov.
Photronics filed a registration statement on Form S-4 to register with the
Securities and Exchange Commission the Photronics common stock which Photronics
will issue to the Align-Rite shareholders in the merger. This document is part
of that registration statement and constitutes a prospectus of Photronics in
addition to being a proxy statement for Align-Rite for its shareholders meeting.
As allowed by the Securities and Exchange Commission rules, this document does
not contain all of the information you can find in the registration statement or
the exhibits to the registration statement.
The Securities and Exchange Commission allows Photronics and Align-Rite to
incorporate by reference information into this document, which means that
Photronics and Align-Rite can disclose important information to you by referring
to another document filed separately with the Securities and Exchange
Commission. The information incorporated by reference is deemed to be part of
this document, except for any information superseded by information in this
document.
This document incorporates by reference the documents set forth
below:
Photronics Securities and Exchange Commission filings:
1. Registration Statement on Form 8-A, dated March 31, 1987
2. Annual Report on Form 10-K, as amended, for the fiscal year ended November
1, 1998
3. Quarterly Reports on Form 10-Q for the quarters ended January 31, May 2 and
August 1, 1999
4. Current Report on Form 8-K, dated September 24, 1999
5. Current Report on Form 8-K, dated November 4, 1999
6. Current Report on Form 8- K, dated November 15, 1999
7. Current Report on Form 8-K, dated November 29, 1999
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8. Current Report on Form 8-K, dated January 14, 2000
Photronics is also incorporating by reference any additional documents that it
may file with the Securities and Exchange Commission between the date of this
document and the date of the shareholders meetings.
Align-Rite Securities and Exchange Commission filings:
1. Annual Report on Form 10-K for the fiscal year ended March 31, 1999
2. Quarterly Reports on Form 10-Q for the quarters ended June 30, 1999 and
September 30, 1999 (as amended)
3. Current Report on Form 8-K, dated July 16, 1999
4. Current Report on Form 8-K, dated September 27, 1999
5. Current Report on Form 8-K, dated November 4, 1999
6. Current Report on Form 8-K, dated November 29, 1999
7. Current Report on Form 8-K, dated January 13, 2000
The documents incorporated by reference by Photronics and Align-Rite
are available from Photronics and Align-Rite, as applicable, without charge,
excluding all exhibits unless the exhibits have specifically been incorporated
by reference in this document. Shareholders may obtain documents listed above by
requesting them in writing from the appropriate company at the following
address:
Photronics, Inc. Align-Rite International, Inc.
Investor Relations 2428 Ontario Street
15 Secor Road Burbank, California 91504
Brookfield, CT 06804 Attention: Petar N. Katurich
Attention: Michael W. McCarthy (818) 843-7220
(203) 775-9000
If you would like to request documents from us, please do so by January o, 2000
so that you may receive them before the shareholders meetings. You should rely
on the information contained in this document to vote on the proposals submitted
by the Align-Rite board. We have not authorized anyone to provide you with
information that is different from what is contained in this document. This
document is dated January o, 2000. You should not assume that the information
contained in this document is accurate as of any date other than such date, and
neither the mailing of this document to shareholders of Align-Rite nor the
issuance of Photronics common stock in the merger shall create any implication
to the contrary.
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You are urged to sign, date and promptly mail the enclosed proxy in the enclosed
prepaid envelope. Prompt return of your proxy may save Align-Rite and Photronics
additional solicitation expense.
We encourage all shareholders of Align-Rite to attend the special shareholders
meeting on February 29, 2000.
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ANNEX A
AGREEMENT AND PLAN OF MERGER
among
PHOTRONICS, INC.,
AL ACQUISITION CORP.
and
ALIGN-RITE INTERNATIONAL, INC.
Dated as of September 15, 1999
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TABLE OF CONTENTS
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ARTICLE I
The Merger
Section 1.1 The Merger................................................................ 2
Section 1.2 Closing................................................................... 2
Section 1.3 Effective Time............................................................ 2
Section 1.4 Effects of the Merger..................................................... 2
Section 1.5 Articles of Incorporation and By Laws of the Surviving Corporation........ 2
Section 1.6 Directors................................................................. 2
Section 1.7 Officers.................................................................. 2
ARTICLE II
Effect of the Merger on the Capital Stock of the
Constituent Corporations; Exchange of Certificates
Section 2.1 Capital Stock of Merger Sub............................................... 3
Section 2.2 Cancellation of Parent Owned Stock........................................ 3
Section 2.3 Conversion of Company Common Stock........................................ 3
Section 2.4 Exchange of Certificates.................................................. 4
Section 2.5 Dissenters' Rights........................................................ 6
Section 2.6 Stock Transfer Books...................................................... 7
ARTICLE III
Representations and Warranties of the Company
Section 3.1 Organization, Qualification, Etc.......................................... 7
Section 3.2 Capital Stock............................................................. 8
Section 3.3 Corporate Authority Relative to this Agreement. No Violation............. 8
Section 3.4 Reports and Financial Statements.......................................... 9
Section 3.5 No Undisclosed Liabilities................................................ 10
Section 3.6 No Violation of Law....................................................... 10
Section 3.7 Environmental Laws and Regulations........................................ 10
Section 3.8 Employees; No Undisclosed Employee Benefit Plan Liabilities or
Severance Arrangements.................................................... 11
Section 3.9 Absence of Certain Changes or Events...................................... 12
Section 3.10 Investigations; Litigation................................................ 12
Section 3.11 Joint Proxy Statement; Registration Statement; Other Information.......... 12
Section 3.12 Accounting and Tax Matters................................................ 13
Section 3.13 Taxes..................................................................... 13
Section 3.14 Opinion of Financial Advisor.............................................. 14
Section 3.15 Required Vote of the Company Shareholders................................. 14
Section 3.16 Insurance................................................................. 14
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Section 3.17 Property........................................................................ 15
Section 3.18 Personnel; Labor Relations...................................................... 15
Section 3.19 Intellectual Property........................................................... 16
Section 3.20 Material Contracts.............................................................. 16
Section 3.21 Suppliers and Customers......................................................... 17
Section 3.22 Year 2000 Matters............................................................... 17
ARTICLE IV
Representations And Warranties of Parent And Merger Sub
Section 4.1 Organization, Qualification, Etc................................................ 17
Section 4.2 Capital Stock................................................................... 18
Section 4.3 Corporate Authority Relative to this Agreement. No Violation.................... 18
Section 4.4 Reports and Financial Statements................................................ 19
Section 4.5 No Undisclosed Liabilities...................................................... 20
Section 4.6 No Violation of Law............................................................. 20
Section 4.7 Environmental Laws and Regulations.............................................. 20
Section 4.8 No Undisclosed Employee Benefit Plan Liabilities or Severance Arrangements...... 20
Section 4.9 Absence of Certain Changes or Events............................................ 21
Section 4.10 Investigations; Litigation...................................................... 21
Section 4.11 Joint Proxy Statement; Registration Statement; Other Information................ 21
Section 4.12 Accounting and Tax Matters...................................................... 21
Section 4.13 Tax Matters..................................................................... 22
Section 4.14 Vote of Parent Shareholders..................................................... 22
Section 4.15 Opinion of Financial Advisor.................................................... 23
Section 4.16 Material Contracts.............................................................. 23
ARTICLE V
Covenants
Section 5.1 Conduct of Business by the Company or Parent.................................... 23
Section 5.2 Proxy Material; Registration Statement.......................................... 26
Section 5.3 Shareholders' Meeting........................................................... 26
Section 5.4 Approvals and Consents; Cooperation............................................. 26
Section 5.5 Access to Information; Confidentiality.......................................... 27
Section 5.6 Affiliates...................................................................... 28
Section 5.7 Rights Under Stock Plans........................................................ 28
Section 5.8 Filings; Other Action........................................................... 29
Section 5.9 Further Assurances.............................................................. 29
Section 5.10 Company Acquisition Proposals................................................... 29
Section 5.11 Director and Officer Liability.................................................. 30
Section 5.12 Accountants' "Comfort" Letters.................................................. 31
Section 5.13 Additional Reports.............................................................. 31
Section 5.14 Tax Treatment; Plan of Reorganization........................................... 32
Section 5.15 Public Announcements............................................................ 32
Section 5.16 Employee Plans and Benefits..................................................... 32
Section 5.17 Sale of Shares by Parent........................................................ 33
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ARTICLE VI
Conditions to the Merger
Section 6.1 Conditions to the Obligations of Each Party................. 33
Section 6.2 Conditions to the Obligations of Parent and Merger Sub...... 34
Section 6.3 Conditions to the Obligations of the Company................ 34
ARTICLE VII
Termination, Amendment and Waiver
Section 7.1 Termination................................................. 35
Section 7.2 Effect of Termination....................................... 36
Section 7.3 Amendment................................................... 37
Section 7.4 Extension; Waiver........................................... 37
Section 7.5 Termination Fee............................................. 37
ARTICLE VIII
General Provisions
Section 8.1 Nonsurvival of Representations.............................. 37
Section 8.2 Notices..................................................... 38
Section 8.3 Definitions................................................. 38
Section 8.4 Counterparts................................................ 41
Section 8.5 Entire Agreement, No Third-Party Beneficiaries.............. 41
Section 8.6 Assignment.................................................. 42
Section 8.7 Governing Law............................................... 42
Section 8.8 Enforcement................................................. 42
Section 8.9 Severability................................................ 42
Section 8.10 Interpretation.............................................. 42
Section 8.11 Finders or Brokers.......................................... 42
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This AGREEMENT AND PLAN OF MERGER, dated as of September 15, 1999, is
entered into by and among PHOTRONICS, INC., a Connecticut corporation
("Parent"), AL ACQUISITION CORP., a California corporation and a wholly owned
subsidiary of Parent ("Merger Sub"), and ALIGN-RITE INTERNATIONAL, INC., a
California corporation (the "Company").
WITNESSETH:
WHEREAS, the respective Boards of Directors of Parent, Merger Sub and the
Company and Parent as the sole shareholder of Merger Sub have approved the
acquisition of the Company by Parent upon the terms and subject to the
conditions set forth in this Agreement and Plan of Merger, including, without
limitation, the exhibits attached hereto (collectively, the "Agreement");
WHEREAS, the respective Boards of Directors of Parent, Merger Sub and the
Company have determined that it is advisable and in the best interests of their
respective shareholders for Merger Sub to merge with and into the Company as set
forth below (the "Merger") upon the terms and subject to the conditions set
forth in this Agreement, whereby each issued and outstanding share of common
stock, par value $.01 per share, of the Company ("Company Common Stock"), other
than Dissenting Shares (as defined in Section 2.5) and shares owned directly or
indirectly by Parent, Merger Sub or by the Company, will be converted into
shares of common stock, par value $.01 per share, of Parent (the "Parent Common
Stock") in accordance with the provisions of Article II of this Agreement;
WHEREAS, as a condition and inducement to Parent's willingness to enter
into this Agreement, concurrently with the execution and delivery of this
Agreement, Parent and certain shareholders of the Company (the "Voting
Shareholders") are entering into a voting agreement dated as of the date of this
Agreement (the "Voting Agreement") pursuant to which such shareholder agrees to
vote his shares of Company Common Stock in favor of the proposal to approve and
adopt the Merger and this Agreement;
WHEREAS, for federal income tax purposes, the Merger is intended to qualify
as a reorganization under the provisions of Section 368(a) of the Code;
WHEREAS, for financial accounting purposes, it is intended that the Merger
shall be accounted for as a "pooling-of-interests;" and
WHEREAS, Parent, Merger Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe certain conditions to the Merger.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent, Merger Sub and the Company hereby agree as follows:
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ARTICLE I.
The Merger
Section 1.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement and the California General Corporation Law (the "CGCL"),
Merger Sub shall be merged with and into the Company at the Effective Time (as
defined in Section 1.3) of the Merger. Following the Merger, the separate
corporate existence of Merger Sub shall cease, and the Company shall continue as
the surviving corporation (the "Surviving Corporation") and shall succeed to and
assume all the rights and obligations of Merger Sub in accordance with the CGCL.
Section 1.2 Closing. The closing of the Merger (the "Closing") shall
take place at 10:00 a.m. on a date to be specified by the parties which shall be
no later than the third business day after the satisfaction or waiver of the
conditions set forth in Article VI (other than those conditions that by their
nature are to be satisfied at the Closing, but subject to the fulfillment or
waiver of those conditions) (the "Closing Date") at such place as the parties
may mutually agree.
Section 1.3 Effective Time. On the Closing Date, the parties shall
execute and file in the office of the Secretary of State of California this
Agreement and a duly executed officers' certificate by each of the Company and
Merger Sub in accordance with the CGCL and shall make all other filings or
recordings, and take such other and further action as may be required under the
CGCL. The Merger shall become effective upon the filing of this Agreement and
such officers' certificates (such time as the Merger becomes effective is
referred to herein as the "Effective Time").
Section 1.4 Effects of the Merger. The Merger shall have the effects set
forth in the CGCL.
Section 1.5 Articles of Incorporation and By Laws of the Surviving
Corporation.
(a) The Amended and Restated Articles of Incorporation of the Company
as in effect immediately prior to the Effective Time shall become the Amended
and Restated Articles of Incorporation of the Surviving Corporation after the
Effective Time, and thereafter may be amended as provided therein and as
permitted by law.
(b) The by laws of the Merger Sub as in effect immediately prior to
the Effective Time shall become the by laws of the Surviving Corporation after
the Effective Time, and thereafter may be amended as provided therein and as
permitted by law.
Section 1.6 Directors. The directors of the Merger Sub immediately prior
to the Effective Time shall become the directors of the Surviving Corporation,
until the earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be.
Section 1.7 Officers. The officers of the Company immediately prior to
the Effective Time shall become the officers of the Surviving Corporation, until
the earlier of their resignation or removal or until their respective successors
are duly elected and qualified, as the case may be.
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ARTICLE II.
Effect of the Merger on the Capital Stock of the
Constituent Corporations; Exchange of Certificates
Section 2.1 Capital Stock of Merger Sub. At the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
shares of Company Common Stock or any shares of capital stock of Merger Sub,
each share of common stock, par value $.01 per share, of Merger Sub issued and
outstanding immediately prior to the Effective Time shall be converted into and
become one fully paid and nonassessable share of common stock, par value $.01
per share, of the Surviving Corporation.
Section 2.2 Cancellation of Parent Owned Stock. At the Effective Time,
by virtue of the Merger and without any action on the part of the holder of any
shares of Company Common Stock or any shares of capital stock of Merger Sub,
each share of Company Common Stock that is owned by Parent, Merger Sub or any
other subsidiary of Parent, shall automatically be canceled and retired and
shall cease to exist, and no consideration shall be delivered in exchange
therefor.
Section 2.3 Conversion of Company Common Stock. At the Effective Time,
by virtue of the Merger and without any action on the part of the holder of any
shares of Company Common Stock or any shares of capital stock of Merger Sub,
subject to this Section 2.3 and Section 2.4(f), each share of Company Common
Stock issued and outstanding immediately prior to the Effective Time (other than
shares to be canceled in accordance with Section 2.2 (the "Canceled Shares") and
Dissenting Shares) shall be converted into a number (the "Conversion Number") of
duly authorized, validly issued and nonassessable shares of Parent Common Stock
(the "Merger Consideration") determined by dividing $23.09 by the average of the
daily average per share high and low sales prices of one share of Parent Common
Stock as reported on the Nasdaq National Market (as reported in the New York
City edition of The Wall Street Journal or, if not reported thereby, another
authoritative source) for each of the 20 trading days ending on the third
trading day prior to the Company Meeting (as defined in Section 5.3, so long as
the Closing Date occurs within five business days of the Company Meeting or, if
the Closing Date is more than five business days after the Company Meeting, the
Closing Date) rounded to the nearest cent (the "Average Parent Price"), provided
that (i) if the Average Parent Price is less than $21.00, the Conversion Number
shall be 1.0995; and (ii) if the Average Parent Price is greater than $28.25,
the Conversion Number shall be 0.8173; provided, however, that, in any event, if
between the date of this Agreement and the Effective Time, the outstanding
shares of Parent Common Stock shall have been changed into a different number of
shares or a different class, by reason of any declared or completed stock
dividend, subdivision, reclassification, recapitalization, split, combination or
exchange of shares, the Conversion Number shall be adjusted correspondingly to
the extent appropriate to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares.
At the Effective Time, all such shares of Company Common Stock (other than
Dissenting Shares) shall no longer be outstanding and automatically shall be
canceled and retired and shall cease to exist, and each holder of a certificate
which immediately prior to the Effective Time represented outstanding shares of
Company Common Stock (other than Dissenting Shares) shall cease to have any
rights with respect thereto, except the right to receive the Merger
Consideration.
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Section 2.4 Exchange of Certificates.
(a) Exchange Agent. Promptly after the Effective Time, Parent shall
deposit, or cause to be deposited, with an exchange agent designated by Parent
and reasonably satisfactory to the Company (the "Exchange Agent"), for the
benefit of the holders of shares of Company Common Stock for exchange in
accordance with this Article II, through the Exchange Agent, certificates
evidencing such number of shares of Parent Common Stock issuable to holders of
Company Common Stock in the Merger pursuant to Section 2.3 and cash in an amount
required to be paid pursuant to Sections 2.4(d) and 2.4(f) (such certificates
for shares of Parent Common Stock, together with any dividends or distributions
with respect thereto and cash, being hereinafter referred to as the "Exchange
Fund"). The Exchange Agent, pursuant to irrevocable instructions, shall deliver,
out of the Exchange Fund, to holders of Company Common Stock the Parent Common
Stock contemplated to be issued pursuant to Section 2.3 (and any dividends or
other distributions to which such holder is entitled pursuant to Section 2.4(d))
and the cash in lieu of fractional shares of Parent Common Stock to which such
holders are entitled to pursuant to Section 2.4(f) hereof out of the Exchange
Fund.
(b) Exchange Procedures. As promptly as practicable after the
Effective Time, Parent shall cause the Exchange Agent to mail to each holder of
record of a certificate or certificates (the "Certificates") which immediately
prior to the Effective Time represented outstanding shares of Company Common
Stock (other than Canceled Shares and Dissenting Shares) (i) a letter of
transmittal (which shall be in customary form and shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon proper delivery of the Certificates to the Exchange Agent) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for certificates evidencing shares of Parent Common Stock, or cash in lieu of
fractional shares of Parent Common Stock to which such holder is entitled
pursuant to Section 2.4(f) hereof.
(c) Exchange of Certificates. Upon surrender to the Exchange Agent of
a Certificate for cancellation, together with such letter of transmittal, duly
executed and completed in accordance with the instructions thereto, and such
other documents as may be reasonably required pursuant to such instructions, the
holder of such Certificate shall be entitled to receive in exchange therefor a
certificate representing that number of whole shares of Parent Common Stock
which such holder's shares of Company Common Stock have been converted into
pursuant to this Article II (and any cash in lieu of any fractional shares of
Parent Common Stock to which such holder is entitled pursuant to Section 2.4(f))
and any dividends or other distributions to which such holder is entitled
pursuant to Section 2.4(d)), and the Certificate so surrendered shall forthwith
be canceled. In the event of a transfer of ownership of shares of Company Common
Stock which is not registered in the transfer records of the Company, shares of
Parent Common Stock, cash in lieu of any fractional shares of Parent Common
Stock to which such holder is entitled pursuant to Section 2.4(f) and any
dividends or other distributions to which such holder is entitled pursuant to
Section 2.4(d) may be issued to a transferee if the Certificate representing
such shares of Company Common Stock is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
by evidence that any applicable stock transfer taxes have been paid. Until
surrendered as contemplated by this Section 2.4, each Certificate shall be
deemed at all times after the Effective Time to represent only the right to
receive upon such surrender the number of whole shares of Parent Common Stock
into which the shares of Company Common Stock formerly represented thereby have
been converted, cash in lieu of any fractional shares of Parent Common Stock to
which such holder is entitled pursuant to Section 2.4(f) and any dividends or
other distributions to which such holder is entitled pursuant to Section 2.4(d).
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(d) Distributions with Respect to Unexchanged Shares of Parent Common
Stock. No dividends or other distributions declared or made after the Effective
Time with respect to Parent Common Stock with a record date after the Effective
Time shall be paid to the holder of any unsurrendered Certificate with respect
to the shares of Parent Common Stock represented thereby, and no cash payment in
lieu of any fractional shares shall be paid to any such holder pursuant to
Section 2.4(f), until the holder of such Certificate shall surrender such
Certificate. Subject to the effect of escheat, tax or other applicable laws,
following surrender of any such Certificate, there shall be paid to the holder
of the certificates representing whole shares of Parent Common Stock issued in
exchange therefor, without interest, (i) promptly, the amount of any cash
payable with respect to a fractional share of Parent Common Stock to which such
holder is entitled pursuant to Section 2.4(f) and the amount of dividends or
other distributions with a record date after the Effective Time and theretofore
paid with respect to such whole shares of Parent Common Stock, and (ii) at the
appropriate payment date, the amount of dividends or other distributions, with a
record date after the Effective Time but prior to surrender and a payment date
occurring after surrender, payable with respect to such whole shares of Parent
Common Stock.
(e) No Further Rights in Company Common Stock. All shares of Parent
Common Stock issued upon conversion of the shares of Company Common Stock in
accordance with the terms hereof (including any cash paid pursuant to Section
2.4(d) or (f)) shall be deemed to have been issued in full satisfaction of all
rights pertaining to such shares of Company Common Stock.
(f) No Fractional Shares.
(i) No certificates or scrip representing fractional shares of
Parent Common Stock shall be issued upon the surrender for exchange of
Certificates, no dividend or distribution of Parent shall relate to
such fractional share interests and such fractional share interests
will not entitle the owner thereof to vote or to any rights of a
stockholder of Parent.
(ii) In lieu of the issuance of fractional shares, each holder
of Company Common Stock shall be entitled to receive an amount in cash
equal to the product obtained by multiplying (A) the fractional share
interest to which such holder (after taking into account all shares of
Company Common Stock held at the Effective Time by shareholder) would
otherwise be entitled by (B) the last sale price for a share of Parent
Common Stock on the Nasdaq National Market (as reported in The Wall
Street Journal or, if not reported thereby, any other authoritative
source) on the last trading day prior to the Closing Date.
(g) Termination of Exchange Fund. Any portion of the Exchange Fund
(including any shares of Parent Common Stock) which remains undistributed to the
holders of Company Common Stock for 180 days after the Effective Time shall be
delivered to Parent, upon demand, and any holders of Company Common Stock who
have not theretofore complied with this Article II shall thereafter look only to
Parent for, and Parent shall deliver, the applicable Merger Consideration, any
cash in lieu of fractional shares of Parent Common Stock to which they are
entitled pursuant to Section 2.4(f) and any dividends or other distributions
with respect to the Parent Common Stock to which they are entitled pursuant to
Section 2.4(d), upon due surrender of their shares of Company Stock (or
affidavits of loss in lieu thereof), in each case, without any interest thereon.
Any portion of the Exchange Fund remaining unclaimed by holders of shares of
Company Common Stock as of a date which is immediately prior to such time as
such amounts would otherwise escheat to or become property of any government
entity, to
5
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the extent permitted by applicable law, shall become the property of Parent,
free and clear of any claims or interest of any person previously entitled
thereto.
(h) No Liability. None of the Exchange Agent, Parent nor the Surviving
Corporation shall be liable to any holder of shares of Company Common Stock for
any such shares of Parent Common Stock (or dividends or distributions with
respect thereto) or cash delivered to a public official pursuant to any
abandoned property, escheat or similar law.
(i) Withholding Rights. Each of the Surviving Corporation and the
Exchange Agent shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any holder of shares of Company
Common Stock such amounts as it is required to deduct and withhold with respect
to the making of such payment under the Code, or any provision of state, local
or foreign tax law. To the extent that amounts are so withheld by the Surviving
Corporation or the Exchange Agent, as the case may be, such withheld amounts
shall be treated for all purposes of this Agreement as having been paid to the
holder of the shares of Company Common Stock in respect of which such deduction
and withholding was made by the Surviving Corporation or the Exchange Agent, as
the case may be.
(j) Lost, Stolen or Destroyed Certificates. If any Certificate shall
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming such Certificate to be lost, stolen or destroyed
and, if required by the Surviving Corporation, the posting by such person of a
bond, in such reasonable amount as the Surviving Corporation may direct, as
indemnity against any claim that may be made against it with respect to such
Certificate, the Exchange Agent or the Parent, as the case may be, will issue in
exchange for such lost, stolen or destroyed Certificate the applicable Merger
Consideration, and any cash in lieu of fractional shares of Parent Common Stock
to which the holders thereof are entitled pursuant to Section 2.4(f) and any
dividends or other distributions to which the holders thereof are entitled
pursuant to Section 2(d).
(k) Further Assurances. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of either of the Merger Sub or the Company acquired or to
be acquired by the Surviving Corporation as a result of, or in connection with,
the Merger or otherwise to carry out this Agreement, the officers of the
Surviving Corporation shall be authorized to execute and deliver, in the name
and on behalf of each of the Merger Sub and the Company or otherwise, all such
deeds, bills of sale, assignments and assurances and to take and do, in such
names and on such behalves or otherwise, all such other actions and things as
may be necessary or desirable to vest, perfect or confirm any and all right,
title and interest in, to and under such rights, properties or assets in the
Surviving Corporation or otherwise to carry out the purposes of this Agreement.
Section 2.5 Dissenters' Rights. Notwithstanding anything in this
Agreement to the contrary, shares of Company Common Stock outstanding
immediately prior to the Effective Time and constituting "dissenting shares" (as
defined in Section 1300 of the CGCL) ("Dissenting Shares"), shall not be
converted into the right to receive the Merger Consideration, as provided in
Section 2.3 hereof, unless and until such holder fails to perfect or effectively
withdraws or otherwise loses his or her right to appraisal and payment under the
CGCL. If, after the Effective Time, any such holder fails to perfect or
effectively withdraws or loses his or her right to appraisal, such Dissenting
Shares thereupon shall be treated as if they had been converted as of the
Effective Time into the right to receive the Merger
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Consideration to which such holder is entitled, without interest thereon. The
Company shall give Parent (i) prompt written notice of any demands received by
the Company for appraisal of any shares of Company Common Stock, attempted
withdrawals of such demands and any other instruments served, pursuant to
applicable law received by the Company relating to dissenters' rights and (ii)
the opportunity to direct all negotiations with respect to dissenters under the
CGCL. The Company shall not, without the prior written consent of Parent,
voluntarily make any payment with respect to Dissenting Shares, offer to settle
or settle any such demands or approve any withdrawal of such demands.
Section 2.6 Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed and there shall be no further
registration of transfers of shares of Company Common Stock thereafter on the
records of the Company. From and after the Effective Time, the holders of
Certificates representing shares of Company Common Stock outstanding immediately
prior to the Effective Time shall cease to have any rights with respect to such
shares of Company Common Stock, except as otherwise provided herein or by law.
On or after the Effective Time, any Certificates presented to the Exchange Agent
(or Parent for any reason) shall be converted into shares of Parent Common
Stock, any cash in lieu of fractional shares of Parent Common Stock to which the
holders thereof are entitled pursuant to Section 2.4(f) and any dividends or
other distributions to which the holders thereof are entitled pursuant to
Section 2.4(d).
ARTICLE III.
Representations and Warranties of the Company
The Company hereby represents and warrants to Parent and Merger Sub that,
except as set forth in the corresponding sections or subsections of the
disclosure letter delivered by the Company to Parent and Merger Sub on the date
hereof (the "Company Disclosure Letter"):
Section 3.1 Organization, Qualification, Etc. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California and has all requisite corporate power and authority
to own its properties and assets and to carry on its business as it is now being
conducted and is duly qualified to do business and is in good standing in each
jurisdiction in which the ownership of its properties or the conduct of its
business requires such qualification, except for such jurisdictions in which
such failure to be so qualified or to be in good standing in the aggregate,
would not have a Material Adverse Effect on the Company. The Company Disclosure
Letter lists the locations of all offices of the Company or any of its
Subsidiaries. The copies of the Company's Restated and Amended Articles of
Incorporation and by laws which have been made available to Parent are complete
and correct and in full force and effect on the date hereof. Each of the
Company's Subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation or
organization, has all requisite corporate power and authority to own its
properties and to carry on its business as it is now being conducted, and is
duly qualified to do business and is in good standing in each jurisdiction in
which the ownership of its property or the conduct of its business requires such
qualification, except for such jurisdictions in which such failure to be so
qualified or to be in good standing would not have a Material Adverse Effect on
the Company. All the outstanding shares of capital stock of, or other ownership
interests in, the Company's Subsidiaries are validly issued, fully paid and non-
assessable and are owned by the Company, directly or indirectly, free and clear
of all liens, claims, charges or encumbrances. There are no existing options,
rights of first refusal, preemptive rights, calls or commitments of any
character relating to the issued or unissued capital stock or other securities
of, or other ownership interests in, any Subsidiary of the Company. The Company
has made available to Parent a complete and correct copy of the charter and by
laws or other organizational documents of each
7
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of the Subsidiaries, each as amended to the date hereof and each such document
is in full force and effect. As used in this Agreement, "Subsidiary" means with
respect to the Company, Parent or Merger Sub, as the case may be, any entity,
whether incorporated or unincorporated, of which at least a majority of the
securities or ownership interests having by their terms ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions is directly or indirectly owned or controlled by such party or by one
or more of its respective Subsidiaries or by such party and one or more of its
respective Subsidiaries.
Section 3.2 Capital Stock. The authorized capital stock of the Company
consists of 35,000,000 shares of the Company Common Stock. As of September 10,
1999, 4,677,869 shares of the Company Common Stock were issued and outstanding.
All the outstanding shares of the Company Common Stock have been validly issued
and are fully paid and non-assessable. There are no outstanding subscriptions,
options, warrants, rights or other arrangements or commitments obligating the
Company to issue any shares of its stock other than options and other rights to
receive or acquire an aggregate of 509,652 shares of the Company Common Stock
pursuant to the 1987 Employee Share Option Scheme and the 1995 Stock Option Plan
(together, the "Company Stock Plans") and the right to purchase up to 20,000
shares of the Company Common Stock pursuant to the Company's Employee Stock
Purchase Plan (the "Stock Purchase Plan").
Except for the issuance of shares of the Company Common Stock pursuant to
the options and other rights referred to in this Section 3.2, since March 31,
1999, no shares of the Company Common Stock have been issued. The Company
Disclosure Letter contains a list, which is complete and accurate, of each
outstanding option or other right to purchase or acquire shares of the Company
Common Stock under each of the Company Stock Plans and the Stock Purchase Plan,
identifying the plan, the holder, date of grant, exercise or purchase price and
number of shares of Company Common Stock subject thereto.
Section 3.3 Corporate Authority Relative to this Agreement. No Violation.
(a) The Company has full corporate power and authority to enter into
this Agreement and, subject to receipt of the Company Shareholder Approval (as
defined in Section 5.3), to carry out its obligations hereunder. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by the Board of
Directors of the Company and, except for the Company Shareholder Approval, no
other corporate proceedings on the part of the Company are necessary to
authorize this Agreement and the transactions contemplated hereby. The Board of
Directors of the Company has determined that the transactions contemplated by
this Agreement are advisable and in the best interest of its shareholders and,
subject to Section 5.10 hereof, to recommend to such shareholders that they vote
in favor thereof. This Agreement has been duly and validly executed and
delivered by the Company and, assuming this Agreement has been duly and validly
executed and delivered by the other parties hereto and subject to obtaining
Company Shareholder Approval, this Agreement constitutes the valid and binding
agreement of the Company, enforceable against the Company in accordance with its
terms (except insofar as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally, or by principles governing the availability of equitable
remedies). Other than in connection with or in compliance with the provisions of
the CGCL, the Securities Act of 1933, as amended (the "Securities Act"), the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), any non-United States competition, antitrust and investment laws and the
securities or blue sky laws of the various states and other jurisdictions, and,
other than the filing of this Agreement and a duly executed
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officers' certificate by each of the Company and the Merger Sub with the
California Secretary of State and any necessary state filings to maintain the
good standing or qualification of the Surviving Corporation (collectively, the
"Company Required Approvals"), no authorization, consent or approval of, or
filing with, any governmental body or authority is necessary on the part of the
Company for the consummation by the Company of the transactions contemplated by
this Agreement, except for such authorizations, consents, approvals or filings,
the failure to obtain or make would not in the aggregate have a Material Adverse
Effect on the Company; provided that the Company makes no representation with
respect to such of the foregoing as are required by reason of facts specifically
pertaining to Parent or any of its Subsidiaries.
(b) The execution, delivery and performance of this Agreement by the
Company do not, and the consummation by the Company of the Merger and the other
transactions contemplated hereby will not, constitute or result in (i) a breach
or violation of, or a default under, the Amended and Restated Articles of
Incorporation or by laws of the Company or the comparable governing instruments
of any of its Subsidiaries, (ii) a breach or violation of, or a default under,
the acceleration of any obligations or the creation of a lien, pledge, security
interest or other encumbrance on the assets of the Company or any of its
Subsidiaries (with or without notice, lapse of time or both) pursuant to, any
agreement, lease, contract, note, mortgage, indenture, arrangement or other
obligation ("Contracts") binding upon the Company or any of its Subsidiaries,
any law, ordinance, regulation, decree or order of any governmental body or
authority to which the Company or any of its Subsidiaries is subject, any
governmental or non-governmental permit or license to which the Company or any
of its Subsidiaries is subject or (iii) any change in the rights or obligations
of any party under any of the Contracts, except, in the case of clause (ii) or
(iii) above, for any breach, violation, default, acceleration, creation or
change that, in the aggregate, would not have a Material Adverse Effect on the
Company. The Company Disclosure Letter sets forth, a list of Contracts pursuant
to which consents or waivers are or may be required prior to consummation of the
transactions contemplated by this Agreement, except for such consents or waivers
the failure to obtain would not have in the aggregate a Material Adverse Effect
on the Company.
Section 3.4 Reports and Financial Statements. The Company has delivered
or made available to Parent true and complete copies of each registration
statement, report, proxy statement or information statement prepared by it since
April 1, 1997, including:
(a) the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission (the "SEC") for the years ended March 31, 1998 and 1999;
(b) the Company's Quarterly Report on Form 10-Q filed with the SEC for
the quarter ended June 30, 1999;
(c) each definitive proxy statement filed by the Company with the SEC
since April 1, 1997;
(d) each final prospectus filed by the Company with the SEC since
April 1, 1997; and
(e) all Current Reports on Form 8-K filed by the Company with the SEC
since April 1, 1997.
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As of their respective dates, such reports, proxy statements, and
prospectuses filed on or prior to the date hereof (collectively, the "Company
SEC Reports") (i) complied as to form in all material respects with the
applicable requirements of the Securities Act, the Exchange Act and the rules
and regulations promulgated thereunder and (ii) did 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 the statements therein, in light of the
circumstances under which they were made, not misleading; provided, that the
foregoing clause (ii) shall not apply to the financial statements included in
the Company SEC Reports (which are covered by the immediately following
sentence). The audited consolidated financial statements and unaudited
consolidated interim financial statements included in the Company SEC Reports
(including any related notes and schedules) fairly present in all material
respects the financial position of the Company and its consolidated Subsidiaries
as of the dates thereof and their results of operations and cash flows for the
periods or as of the dates then ended (subject, where appropriate, to normal
year-end adjustments), in each case in accordance with past practice and
generally accepted accounting principles in the United States ("GAAP")
consistently applied during the periods involved (except as otherwise disclosed
in the notes thereto and except that the unaudited financial statements therein
do not contain all of the footnote disclosures required by GAAP). Since April
1, 1997, the Company has timely filed all reports, registration statements and
other filings required to be filed by it with the SEC under the rules and
regulations of the SEC.
Section 3.5 No Undisclosed Liabilities. As of the date of this
Agreement, neither the Company nor any of its Subsidiaries has any liabilities
or obligations of any nature, whether or not accrued, contingent or otherwise,
and there is no existing condition, situation or set of circumstances which
reasonably could be expected to result in such a liability or obligation except
(i) liabilities or obligations reflected in any of the Company SEC Reports and
(ii) liabilities or obligations which would not in the aggregate have a Material
Adverse Effect on the Company.
Section 3.6 No Violation of Law. The businesses of the Company and its
Subsidiaries are not being conducted in violation of any law, ordinance,
regulation, decree or order of any governmental body or authority except (a) as
described in any of the Company SEC Reports and (b) for violations or possible
violations which would not in the aggregate have a Material Adverse Effect on
the Company. The Company and its Subsidiaries have all permits, licenses and
governmental authorizations necessary or appropriate for ownership or occupancy
of their respective properties and assets and the carrying on of their
respective businesses, except for such permits, licenses and governmental
authorizations the failure of which to have would not have, in the aggregate, a
Material Adverse Effect on the Company.
Section 3.7 Environmental Laws and Regulations. Except as described in
any of the Company SEC Reports, (a) the Company and each of its Subsidiaries is
in compliance with all applicable federal, state, local and foreign laws and
regulations relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata) (collectively, "Environmental Laws"),
except for non-compliance which would not in the aggregate have a Material
Adverse Effect on the Company, which compliance includes, but is not limited to,
the possession by the Company and its Subsidiaries of permits and other
governmental authorizations required under applicable Environmental Laws, and
compliance with the terms and conditions thereof, (b) neither the Company nor
any of its Subsidiaries (i) has received written notice of, or, to the Knowledge
of the Company, is the subject of, any actions, causes of action, claims,
investigations, demands or notices by any Person alleging liability under or
non-compliance with any Environmental Law or that the Company or any Subsidiary
is a potentially responsible party at any Superfund site or state equivalent
site ("Environmental Claims") which would in the aggregate have a Material
Adverse Effect on the Company, (c) to the Knowledge of the Company, there are no
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circumstances that are likely to prevent or interfere with such compliance in
the future, (d) the Company and its Subsidiaries have not disposed of or
released hazardous materials (at a concentration or level which requires
remedial action under any Environmental Law) at any real property currently
owned or leased by the Company or any Subsidiary or at any other real property,
except for such disposals or releases as would not have in the aggregate a
Material Adverse Effect on the Company, and (e) neither the Company nor its
Subsidiaries have agreed to indemnify any predecessor or other party with
respect to any environmental liability.
Section 3.8 Employees; No Undisclosed Employee Benefit Plan
Liabilities or Severance Arrangements. The Company Disclosure Letter includes a
correct and complete list of all "employee benefit plans," as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") (including any multi-employer plan as defined in Section 3(37) of
ERISA), currently or within the six year period ending on the Closing Date,
maintained or contributed to by the Company or its Subsidiaries and, except as
described in the Company's SEC Reports, such plans have been, during the six
year period ending on the Closing Date, in compliance with all applicable
provisions of ERISA, the Code and any other applicable laws except for
violations that would not in the aggregate have a Material Adverse Effect on the
Company. None of the Company nor its Subsidiaries with respect to such plans has
engaged in a "prohibited transaction" within the meaning of Section 4975 of the
Code or Title 1, Part 4 of ERISA except for transactions (a) which are exempt
under applicable law, regulations and administrative exemptions or (b) which in
the aggregate would not have a Material Adverse Effect on the Company. The
Company and its Subsidiaries do not have any liabilities or obligations with
respect to any such employee benefit plans, whether or not accrued, contingent
(including any potential material withdrawal liability with respect to any such
multi-employer plans) or otherwise, except (a) as described in any of the
Company SEC Reports or previously disclosed in writing to Parent and (b) for
liabilities or obligations that would not in the aggregate have a Material
Adverse Effect on the Company. No employee of the Company will be entitled to
any additional benefits or any acceleration of the time of payment or vesting of
any benefits under any employee incentive or benefit plan, program or
arrangement as a result of the transactions contemplated by this Agreement. The
Company has previously made available to Parent a true and correct copy of the
Company's 401(k) plan as currently in effect, the three most recent Forms 5500,
the related audit reports with respect to the 401(k) plan and the most recent
401(k) summary plan description. The Company, its Subsidiaries and any entity
required to be aggregated with the Company or any of its Subsidiaries under Code
Section 414(b), (c), or (m) do not maintain or contribute to, and have not
within the six-year period ending on the Closing Date, maintained or contributed
to, any employee benefit pension plan which is subject to Section 302 or Title
IV of ERISA. The Company's 401(k) plan is the only plan maintained or
contributed to by the Company or its Subsidiaries that is intended to be
qualified under Section 401(a) of the Code. The Company received a favorable
determination letter from the Internal Revenue Service that the 401(k) plan, as
in effect on October 11, 1995, satisfied the requirements of Section 401(a) of
the Code and, to the Knowledge of the Company, nothing has occurred subsequent
to such date or otherwise with respect to the operation of such plan which could
cause the loss of such qualification or exemption or the imposition of any lien,
penalty, or tax under ERISA or the Code which would in the aggregate have a
Material Adverse Effect on the Company. The Company and its Subsidiaries have
not received any notice from the Internal Revenue Service, the Department of
Labor or the Pension Benefit Guaranty Corporation ("PBGC") within the four years
preceding the date of this Agreement that the 401(k) plan is not so qualified.
None of the Company nor any Subsidiary has incurred any outstanding liability
under Section 4062 of ERISA to the PBGC, to a trust established under Section
4041 or 4042 of ERISA, or to a trustee appointed under Section 4042 of ERISA.
None of the Company's employee benefit plans contain any provisions which would
prohibit the transactions contemplated by this Agreement. Neither the Company
nor any of its Subsidiaries provide (or have made any commitment to provide)
benefits to any employee following
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termination of employment under any "employee welfare benefit plan" as such term
is defined in ERISA Section 3(1), other than continuation coverage required by
ERISA Section 601. No such employee welfare benefit plan is funded through a
"welfare benefit fund," as such term is defined in Code Section 419(e), or other
funding mechanism, and each such plan may be amended or terminated without
material liability to the Company at any time after the Closing Date.
Section 3.9 Absence of Certain Changes or Events. Other than as
disclosed in the Company SEC Reports since March 31, 1999, the businesses of the
Company and its Subsidiaries have been conducted in all material respects in the
ordinary course and there has not been any event, occurrence, development or
state of circumstances or facts that has had a Material Adverse Effect on the
Company. Since March 31, 1999, no dividends or distributions have been declared
or paid on or made with respect to the shares of capital stock or other equity
interests of the Company or its Subsidiaries nor have any such shares been
repurchased or redeemed, other than dividends or distributions paid to the
Company or a Subsidiary.
Section 3.10 Investigations; Litigation. Except as disclosed in any of
the Company SEC Reports:
(a) no investigation or review by any Governmental Entity with
respect to the Company or any of its Subsidiaries which would in the aggregate
have a Material Adverse Effect on the Company is pending nor, to the Knowledge
of the Company or any of its Subsidiaries, has any Governmental Entity notified
the Company or any of its Subsidiaries of an intention to conduct the same; and
(b) the Company Disclosure Letter lists all of the pending litigation
of the Company and its Subsidiaries, as of the date of this Agreement, and there
are no actions, suits or proceedings pending or, to the Company's Knowledge,
threatened against or affecting the Company or its Subsidiaries, or any of their
respective properties or before any federal, state, local or foreign
governmental body or authority, which could have in the aggregate a Material
Adverse Effect on the Company.
Section 3.11 Joint Proxy Statement; Registration Statement; Other
Information. None of the information with respect to the Company or its
Subsidiaries to be included in the Joint Proxy Statement (as defined in Section
5.2) or the Registration Statement (as defined in Section 5.2) will, in the case
of the Joint Proxy Statement or any amendments thereof or supplements thereto,
at the time of the mailing of the Joint Proxy Statement or any amendments or
supplements thereto, and at the time of the Company Meeting (as defined in
Section 5.3), or, in the case of the Registration Statement, at the time it
becomes effective or at the time of any post-effective amendment, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
that no representation is made by the Company with respect to information
supplied in writing by Parent or any affiliate of Parent specifically for
inclusion in the Joint Proxy Statement. The Joint Proxy Statement will comply as
to form in all material respects with the provisions of the Exchange Act and the
rules and regulations promulgated thereunder.
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Section 3.12 Accounting and Tax Matters. Neither the Company nor any of
its Affiliates has taken or agreed to take any action, nor does the Company have
any Knowledge of any fact or circumstance, that would prevent Parent from
accounting for the business combination to be effected by the Merger as a
"pooling-of-interests" or prevent the Merger and the other transactions
contemplated by this Agreement from qualifying as a "reorganization" within the
meaning of Section 368(a) of the Code. Company has received written confirmation
from PricewaterhouseCoopers LLP, a copy of which has been provided to Parent,
that (a) PricewaterhouseCoopers LLP has undertaken a review of the Company and
based upon the work undertaken to the date of such confirmation, and subject to
the qualifications set forth therein, it is not aware of any items or
transactions that would preclude the Company from accounting for the Merger as a
pooling of interests and (b) attaching a draft of the letter (the "Company
Pooling Opinion") that PricewaterhouseCoopers LLP would issue upon consummation
of the Merger.
Section 3.13 Taxes.
(a) All federal, state, local and foreign Tax Returns required to be
filed by or on behalf of the Company, each of its Subsidiaries, and each
affiliated, combined, consolidated or unitary group of which the Company or any
of its Subsidiaries is a member (a "Company Group") have been timely filed or
requests for extensions to file such returns or reports have been timely filed
and granted and have not yet expired, and all Tax Returns filed were complete
and accurate except to the extent any failure to file or any inaccuracies in
filed returns would not, in the aggregate, have a Material Adverse Effect on the
Company; all Taxes due and owing by the Company, any Subsidiary of the Company
or any Company Group have been paid, or adequately reserved for, except to the
extent any failure to pay or reserve would not in the aggregate, have a Material
Adverse Effect on the Company; none of the Company, any Subsidiary of the
Company or any Company Group currently is the beneficiary of any extension of
time within which to file any Tax Return; there is no audit examination,
deficiency, refund litigation, proposed adjustment or matter in controversy with
respect to any Taxes due and payable by the Company, any Subsidiary of the
Company or any Company Group nor has the Company or any Subsidiary filed any
waiver of the statute of limitations applicable to the assessment or collection
of any Tax, in each case, which would, individually or in the aggregate, have a
Material Adverse Effect on the Company; all assessments for Taxes due and
payable by the Company, any Subsidiary of the Company or any Company Group with
respect to completed and settled examinations or concluded litigation have been
paid; neither the Company nor any Subsidiary of the Company (i) has been a
member of an affiliated group of corporations within the meaning of Section
1504, other than the affiliated group of which the Company is the common parent
or (ii) has any liability for the Taxes of any Person (other than the Company
and its Subsidiaries) under Treasury Regulation Section 1.1502-6 promulgated
under the Code (or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise; neither the Company nor any
Subsidiary is a party to any tax indemnity agreement, tax sharing agreement or
other agreement under which the Company or any Subsidiary could become liable to
another Person as a result of the imposition of a Tax upon any Person, or the
assessment or collection of a Tax, except for such agreements as would not have
a Material Adverse Effect on the Company; and the Company and each of its
Subsidiaries has complied with all rules and regulations relating to the
withholding of Taxes, except to the extent any such failure to comply would not,
in the aggregate, have a Material Adverse Effect on the Company. The Company has
provided Parent with written schedules of (i) the taxable years of the Company
for which the statutes of limitations with respect to federal income Taxes have
not expired, and (ii) with respect to federal income Taxes, those years for
which examinations have been completed, those years for which examinations are
presently being conducted, and those years for which examinations have not yet
been initiated.
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(b) Neither the Company nor any Subsidiary of the Company has
distributed the stock of any corporation in a distribution of stock qualifying
for Tax-free treatment under Section 355 of the Code.
(c) No claim has been made in writing by a Tax authority in a
jurisdiction where neither the Company nor any Subsidiary of the Company files
Tax Returns that the Company or any Subsidiary of the Company is or may be
subject to taxation in that jurisdiction. Neither the Company nor any Subsidiary
of the Company is a party to any contract, agreement or other arrangement which
provides for the payment of any amount which would not be deductible by reason
of Section 162(m) or Section 280G of the Code.
(d) The Company and each of its Subsidiaries are not currently and
have not been within the last five years a "United States real property holding
corporation" within the meaning of Section 897(c) of the Code. Neither the
Company nor any Subsidiary of the Company has filed a consent under Section
341(f) of the Code concerning collapsible corporations.
Section 3.14 Opinion of Financial Advisor. The Board of Directors of the
Company has received the opinion of CIBC World Markets Corp. dated the date of
this Agreement, to the effect that, as of such date, the Exchange Ratio (as
defined therein) is fair to the Company's shareholders from a financial point of
view. A copy of the written opinion of CIBC World Markets Corp. will be
delivered to Parent as soon as practicable after the date of this Agreement.
Section 3.15 Required Vote of the Company Shareholders. The affirmative
vote of the holders of a majority of the outstanding shares of the Company
Common Stock is required to approve the Merger. No other vote of the
shareholders of the Company is required by law or the Amended and Restated
Articles of Incorporation or by laws of the Company in order for the Company to
consummate the Merger and the transactions contemplated hereby.
Section 3.16 Insurance. The Company Disclosure Letter sets forth a true
and complete list of the insurance policies or binders insuring the property,
assets or liabilities of Company and its Subsidiaries as of the date of this
Agreement. All such policies or binders are in full force and effect and no
premiums due and payable thereon are delinquent. There are no pending claims
against such insurance by the Company or any of its Subsidiaries as to which the
insurers have denied liability. The Company and its Subsidiaries have complied
with the provisions of such policies, there exist no claims under such insurance
policies or binders with respect to any of the assets of the Company or its
Subsidiaries that have not been properly and timely submitted by the Company or
its Subsidiaries to their respective insurers, and there is no inaccuracy in any
application for such policies or binders which would render such policies or
binders invalid or unenforceable.
Section 3.17 Property.
(a) The Company Disclosure Letter sets forth a correct and complete
list of all real property owned by the Company or any of its Subsidiaries (the
"Real Property"). Except as set forth in the Company Disclosure Schedule, the
Company or its Subsidiaries has good and marketable title to the Real Property,
free and clear of all liens, claims, restrictions and encumbrances
("Encumbrances"), other than Encumbrances that do not and would not have a
Material Adverse Effect.
(b) The Company Disclosure Letter sets forth a correct and complete
list (including the amount of rents called for and a description of the leased
property) of all leases under which the
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Company or any Subsidiary is a lessee. The Company and each of its Subsidiaries
enjoys peaceful and undisturbed possession under all such leases, all of such
leases are valid and subsisting and none of them is in default in any material
respect.
(c) The Company Disclosure Letter sets forth a correct and complete
list (including the location of each) as of the date of this Agreement of all
capital equipment used or leased by the Company or any Subsidiary with book
value exceeding $200,000.
Section 3.18 Personnel; Labor Relations.
(a) The Company Disclosure Letter contains a correct and complete
list, as of the date of this Agreement, of: (i) all employees, including for
each his or her employee identification number or the last four digits of his or
her social security number, such Person's title and the amount and nature of all
compensation and benefits payable by the Company or any of its Subsidiaries to
such Person; (ii) all employment, severance, bonus, profit sharing, incentive
compensation and pension or retirement plans; stock purchase and stock option
plans; all contracts or agreements with present or former directors, officers or
employees; all consulting agreements, to which the Company or any of its
Subsidiaries is a party or by which they are bound as of the date of this
Agreement; (iii) all group insurance programs in effect for employees of the
Company and its Subsidiaries; and (iv) all accrued but unused vacation, holiday
and sick-time on the account of each employee of the Company and its
Subsidiaries. All material government filings, participant disclosure documents,
contracts and operative plan documents related to the above obligations
previously have been provided to Parent. Neither the Company nor any of its
Subsidiaries is in default with respect to any of its obligations listed above.
(b) The Company has made available to Parent all labor or collective
bargaining agreements in effect as of the date of this Agreement which pertain
to the employees of the Company and its Subsidiaries. The Company Disclosure
Letter contains a correct and complete list of all pending complaints, charges
or claims against the Company or any of its Subsidiaries filed as of the date of
this Agreement with any public or Governmental Entity, arbitrator or courts, (x)
based upon the employment or termination by the Company of any individual, (y)
asserting that the Company or any of its Subsidiaries has committed an unfair
labor practice (within the meaning of the National Labor Relations Act or
comparable state law) or (z) seeking to compel the Company or any of its
Subsidiaries to bargain with any labor organization as to wages or conditions of
employment (collectively "Company Labor Matters"). There is not any strike or
other labor dispute involving the Company or any Subsidiary pending or, to the
Knowledge of the Company, threatened nor, to the Knowledge of the Company, is
there any activity involving any of their respective employees seeking to
certify a collective bargaining unit or engaging in any other organization
activity.
Section 3.19 Intellectual Property.
(a) The Company and/or each of its Subsidiaries owns, or is licensed
or otherwise possesses legally enforceable rights to use all patents,
trademarks, trade names, service marks, copyrights and any applications
therefor, technology, know-how, computer software programs or applications, and
tangible or intangible proprietary information or materials that are used in the
business of the Company and its Subsidiaries as currently conducted, except for
any such failures to own, be licensed or possess that would not have in the
aggregate a Material Adverse Effect on the Company, and to the Knowledge of the
Company, all patents, trademarks, trade names, service marks and copyrights held
by the Company and/or its Subsidiaries are valid and subsisting.
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(b) Except as disclosed in Company SEC Reports filed prior to the
date hereof or as would not have, in the aggregate, a Material Adverse Effect on
the Company:
(i) the Company is not, nor will it be as a result of the execution
and delivery of this Agreement or the performance of its obligations
hereunder, in violation of any licenses, sublicenses and other agreements
as to which the Company or any of its Subsidiaries is a party and pursuant
to which the Company is authorized to use any third-party patents,
trademarks, service marks, and copyrights ("Third-Party Intellectual
Property Rights");
(ii) no claims with respect to (I) the patents, registered and
material unregistered trademarks and service marks, registered copyrights,
trade names, and any applications therefor owned by the Company or any of
its Subsidiaries (the "Company Intellectual Property Rights"); (II) any
trade secret material to the Company or any of its Subsidiaries; or (III)
Third-Party Intellectual Property Rights, as of the date of this Agreement,
are pending or, to the Knowledge of the Company, are threatened by any
Person;
(iii) the Company does not Know of any valid grounds for any bona fide
claims (I) to the effect that the sale, licensing or use of any product as
now used, sold or licensed or proposed for use, sale or license by the
Company or any of its Subsidiaries, infringes on any copyright, patent,
trademark, service mark or trade secret; (II) against the use by the
Company or any of its Subsidiaries, of any trademarks, trade names, trade
secrets, copyrights, patents, technology, know-how or computer software
programs and applications used in the business of the Company or any of its
Subsidiaries as currently conducted or as proposed to be conducted; (III)
challenging the ownership, validity or effectiveness of any of the Company
Intellectual Property Rights or other trade secret material to the Company;
or (IV) challenging the license or legally enforceable right to use of the
Third-Party Intellectual Rights by the Company or any of its Subsidiaries;
and
(iv) to the Knowledge of the Company, there is no unauthorized use,
infringement or misappropriation of any of the Company Intellectual
Property Rights by any third party, including any employee or former
employee of the Company or any of its Subsidiaries.
Section 3.20 Material Contracts. All of the material Contracts
of the Company and its Subsidiaries that are required to be described in the
Company SEC Reports or to be filed as exhibits thereto are described in the
Company SEC Reports or filed as exhibits thereto and are in full force and
effect. True and complete copies of all such material Contracts have been
delivered or have been made available by the Company to Parent. Neither the
Company nor any of its Subsidiaries nor, to the Knowledge of the Company, any
other party is in breach of or in default under any such contract, except for
such breaches and defaults as in the aggregate have not had and will not have a
Material Adverse Effect on the Company. Neither the Company nor any of its
Subsidiaries is party to any agreement containing any provision or covenant
limiting in any material respect the ability of the Company or any of its
Subsidiaries to (A) sell any products or services of or to any other person, (B)
engage in any line of business or (C) compete with or to obtain products or
services from any person or limiting the ability of any person to provide
products or services to the Company or any of its Subsidiaries. The Company
Disclosure Letter contains a correct and complete list of each agreement or
commitment providing for the expenditure by the Company or any of its
Subsidiaries pursuant thereto of more than $200,000.
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Section 3.21 Suppliers and Customers. Since April 1, 1998, no material
licensor, vendor, supplier or customer of the Company or any of its Subsidiaries
has canceled or otherwise modified its relationship with the Company or its
Subsidiaries and, to the Knowledge of the Company, no such Person has any
intention to do so. The Company has not received written notice from any such
material licensor, vendor, supplier or customer that consummation of the
transactions contemplated hereby will adversely affect such relationships.
Section 3.22 Year 2000 Matters. Any reprogramming required to
permit the proper functioning in and following the year 2000 of computer systems
and other equipment containing embedded microchips, in either case owned or
operated by Company or any of its Subsidiaries or used or relied upon in the
conduct of their respective businesses (including any such systems and other
equipment supplied by others or with which the computer systems of Company or
any of its Subsidiaries interface) has been completed. The testing of all such
systems and other equipment as so reprogrammed has been completed. The costs to
Company and its Subsidiaries that have not been recognized as of or by June 30,
1999 for such reprogramming and testing and for other reasonably foreseeable
consequences to them of any improper functioning of other computer systems and
equipment containing embedded microchips due to the occurrence of the year 2000
will not have a Material Adverse Effect.
ARTICLE IV
Representations And Warranties of Parent And Merger Sub
Parent and Merger Sub hereby jointly and severally represent and
warrant to the Company, that except as set forth in the corresponding sections
or subsections of the Parent Disclosure Letter delivered to the Company on the
date hereof:
Section 4.1 Organization, Qualification, Etc. Each of Parent and Merger
Sub is a corporation duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization and has all requisite corporate
power and authority to own its properties and assets and to carry on its
business as it is now being conducted and is duly qualified to do business and
is in good standing in each jurisdiction in which the ownership of its
properties or the conduct of its business requires such qualification, except
for such jurisdictions in which the failure to be so qualified or to be in good
standing would not in the aggregate have a Material Adverse Effect on Parent or
Merger Sub. The copies of Parent's certificate of incorporation, as amended, and
by laws, as amended, and Merger Sub's certificate of incorporation and by laws
which have been made available to the Company are complete and correct and in
full force and effect on the date hereof. Each of Parent's Subsidiaries is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization, has all requisite corporate power
and authority to own its properties and to carry on its business as it is now
being conducted, and is duly qualified to do business and is in good standing in
each jurisdiction in which the ownership of its property or the conduct of its
business requires such qualification, except for jurisdictions in which such
failure to be so qualified or to be in good standing would not in the aggregate
have a Material Adverse Effect on Parent or Merger Sub. All the outstanding
shares of capital stock of, or other ownership interests in, Parent's
Subsidiaries and Merger Sub are validly issued, fully paid and non-assessable
and are owned by Parent, directly or indirectly, free and clear of all liens,
claims, charges or encumbrances, except as set forth in the Parent Disclosure
Letter. Except as disclosed in the Parent SEC Reports, there are no existing
options (except for those set forth in Section 4.2 below), rights of first
refusal, preemptive rights, calls or commitments of any character relating to
the issued or unissued capital stock or other securities of, or other ownership
interests in, any Subsidiary of Parent or Merger Sub.
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Section 4.2 Capital Stock. The authorized capital stock of Parent
consists of 75,000,000 shares of Parent Common Stock, and 2,000,000 shares of
Preferred Stock, par value $.01 per share. The shares of Parent Common Stock to
be issued in the Merger or upon the exercise of the Company stock options,
warrants, conversion rights or other rights or upon vesting or payment of other
Company equity-based awards will, when issued, be validly issued fully paid and
non-assessable. As of August 1, 1999, 23,907,120 shares of Parent Common Stock
and no shares of Parent Preferred Stock were issued and outstanding. All the
outstanding shares of Parent Common Stock have been validly issued and are fully
paid and non-assessable. As of August 1, 1999, there were no outstanding
subscriptions, options, warrants, rights or other arrangements or commitments
obligating Parent to issue any shares of its capital stock other than options
and other rights to receive or acquire shares of Parent Common Stock pursuant
to:
(a) employee stock purchase or option plans of Parent;
(b) various other restricted stock awards to officers or employees of
the Parent or the Parent's Subsidiaries; and
(c) Parent's 6.00% Convertible Subordinated Notes due 2004,
convertible into Parent Common Stock.
Section 4.3 Corporate Authority Relative to this Agreement. No
Violation.
(a) Each of Parent and Merger Sub has full corporate power and
authority to enter into this Agreement and, subject to receipt of Parent
Shareholder Approval (as defined in Section 5.3), to carry out its obligations
hereunder. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly authorized by
the Boards of Directors of Parent and Merger Sub and by Parent as sole
stockholder of Merger Sub and, except for Parent Shareholder Approval, no other
corporate or stockholder proceedings on the part of Parent or Merger Sub are
necessary to authorize this Agreement, the issuance of the Parent Common Stock
and the other transactions contemplated hereby. This Agreement has been duly and
validly executed and delivered by Parent and Merger Sub and, assuming this
Agreement has been duly and validly executed and delivered by the other parties
hereto, and subject to the Parent Shareholder Approval, this Agreement
constitutes the valid and binding agreements of Parent and Merger Sub,
enforceable against each of them in accordance with its terms (except insofar as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally, or by principles governing the availability of equitable remedies).
Other than in connection with or in compliance with the provisions of the CGCL,
the Securities Act, the Exchange Act, the HSR Act, any non-United States
competition, antitrust and investments laws and the securities or blue sky laws
of the various states and other jurisdictions, and, other than the filing of
this Agreement and a duly executed officers' certificate by each of the Company
and the Merger Sub with the California Secretary of State and any necessary
state filings to maintain the good standing or qualification of the Surviving
Corporation (collectively, the "Parent Required Approvals"), no authorization,
consent or approval of, or filing with, any governmental body or authority is
necessary on the part of Parent or Merger Sub for the consummation by Parent or
Merger Sub of the transactions contemplated by this Agreement, except for such
authorizations, consents, approvals or filings, the failure to obtain or make
which would not in the aggregate have a Material Adverse Effect on Parent or
Merger Sub; provided that Parent makes no representation with respect to such of
the foregoing as are required by reason or facts specifically pertaining to
Company or any of its Subsidiaries.
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(b) The execution, delivery and performance of this Agreement by
Parent and Merger Sub do not, and the consummation by Parent and Merger Sub of
the Merger and the other transactions contemplated hereby will not, constitute
or result in (i) a breach or violation of, or a default under, the charter or by
laws of Parent and Merger Sub or the comparable governing instruments of any of
Parent's Subsidiaries, (ii) a breach or violation of, or a default under, the
acceleration of any obligations or the creation of a lien, pledge, security
interest or other encumbrance on the assets of Parent or any of its Subsidiaries
(with or without notice, lapse of time or both) pursuant to, any Contracts
binding upon Parent or any of its Subsidiaries or any law, ordinance,
regulation, decree or order of any governmental body or authority to which
Parent or any of its Subsidiaries is subject or governmental or non-governmental
permit or license to which Parent or any of its Subsidiaries is subject or (iii)
any change in the rights or obligations of any party under any of the Contracts,
except, in the case of clause (ii) or (iii) above, for any breach, violation,
default, acceleration, creation or change that, individually or in the
aggregate, would not have a Material Adverse Effect on Parent or prevent,
materially delay or materially impair the ability of Parent or Merger Sub to
consummate the transactions contemplated by this Agreement.
Section 4.4 Reports and Financial Statements. Parent has delivered or
made available to the Company true and complete copies of:
(a) Parent's Annual Reports on Form 10-K filed with the SEC for each
of the years ended November 2, 1997 and November 1, 1998;
(b) Parent's Quarterly Reports on Form 10-Q filed with the SEC for
the quarters ended January 31, 1999, May 2, 1999 and August 1, 1999;
(c) each definitive proxy statement filed by Parent with the SEC
since November 2, 1997;
(d) each final prospectus filed by Parent with the SEC since November
2, 1997; and
(e) all Current Reports on Form 8-K filed by Parent with the SEC
since November 2, 1997.
As of their respective dates, such reports, proxy statements and
prospectuses filed on or prior to the date hereof (collectively, "Parent SEC
Reports") (i) complied as to form in all material respects with the applicable
requirements of the Securities Act, the Exchange Act, and the rules and
regulations promulgated thereunder and (ii) did 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 the statements therein, in light of the
circumstances under which they were made, not misleading; provided, that the
foregoing clause (ii) shall not apply to the financial statements included in
the Parent SEC Reports (which are covered by the following sentence). The
audited consolidated financial statements and unaudited consolidated interim
financial statements included in the Parent SEC Reports (including any related
notes and schedules) fairly present in all material respects the financial
position of Parent and its consolidated Subsidiaries as of the dates thereof and
the results of their operations and their cash flows for the periods or as of
the dates then ended (subject, where appropriate, to normal year-end
adjustments), in each case in accordance with GAAP consistently applied during
the periods involved (except as otherwise disclosed in the notes thereto and
except that the unaudited financial statements therein do not contain all of the
footnote disclosures required by GAAP). Since November 2, 1997,
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Parent has timely filed all material reports, registration statements and other
filings required to be filed by it with the SEC under the rules and regulations
of the SEC.
Section 4.5 No Undisclosed Liabilities. As of the date of this
Agreement, neither Parent nor any of its Subsidiaries has any liabilities or
obligations of any nature, whether or not accrued, contingent or otherwise, and
there is no existing condition, situation or set of circumstances which
reasonably could be expected to result in such a liability except (a)
liabilities or obligations reflected in any of the Parent SEC Reports and (b)
liabilities or obligations which would not in the aggregate have a Material
Adverse Effect on Parent.
Section 4.6 No Violation of Law. The businesses of Parent and its
Subsidiaries are not being conducted in violation of any law, ordinance,
regulation, decree or order of any governmental body or authority except (a) as
described in any of the Parent SEC Reports and (b) for violations or possible
violations which would not in the aggregate have a Material Adverse Effect on
Parent.
Section 4.7 Environmental Laws and Regulations. Except as described in
any of the Parent SEC Reports, (a) Parent and each of its Subsidiaries is in
compliance with all applicable Environmental Laws, except for non-compliance
which would not in the aggregate have a Material Adverse Effect on Parent, which
compliance includes, but is not limited to, the possession by Parent and its
Subsidiaries of permits and other governmental authorizations required under
applicable Environmental Laws, and compliance with the terms and conditions
thereof, (b) neither Parent nor any of its Subsidiaries has received written
notice of, or, to the Knowledge of Parent, is the subject of, any Environmental
Claims which, in the aggregate, would have a Material Adverse Effect on Parent;
(c) to the Knowledge of Parent, there are no circumstances that are likely to
prevent or interfere with such material compliance in the future; and (d) the
Parent and its Subsidiaries have not disposed of or released hazardous materials
(at a concentration level which requires remedial action under any Environmental
Law) at any real property currently owned or leased by Parent or any Subsidiary
or at any other real property, except for such disposals which, in the
aggregate, would not have a Material Adverse Effect on Parent.
Section 4.8 No Undisclosed Employee Benefit Plan Liabilities or
Severance Arrangements. Except as described in any of the Parent SEC Reports,
all "employee benefit plans" as defined in Section 3(3) of ERISA, maintained or
contributed to by Parent or its Subsidiaries are in material compliance with all
applicable provisions of ERISA and the Code, and Parent and its Subsidiaries do
not have any liabilities or obligations with respect to any such employee
benefit plans, whether or not accrued, contingent or otherwise, except (a) as
described in any of the Parent SEC Reports and (b) for instances of
noncompliance or liabilities or obligations that would not in the aggregate have
a Material Adverse Effect on Parent. No employee of Parent will be entitled to
any additional benefits or any acceleration of the time of payment or vesting of
any benefits under any employee incentive or benefit plan, program or
arrangement as a result of the transactions contemplated by this Agreement.
Section 4.9 Absence of Certain Changes or Events. Other than as
disclosed in the Parent SEC Reports, since November 1, 1998, the businesses of
Parent and its Subsidiaries have been conducted in all material respects in the
ordinary course and there has not been any event, occurrence, development or
state of circumstances or facts that has had a Material Adverse Effect on
Parent.
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Section 4.10 Investigations; Litigation. Except as disclosed in any of
the Parent SEC Reports:
(a) no investigation or review by any governmental body or authority
with respect to Parent or any of its Subsidiaries which would in the
aggregate have a Material Adverse Effect on Parent is pending, nor to the
Knowledge of Parent, has any governmental body or authority notified Parent
of an intention to conduct the same; and
(b) there are no actions, suits or proceedings pending (or, to
Parent's Knowledge, threatened) against or affecting Parent or its
Subsidiaries, or any of their respective properties or before any federal,
state, local or foreign governmental body or authority which would in the
aggregate have a Material Adverse Effect on Parent.
Section 4.11 Joint Proxy Statement; Registration Statement; Other
Information. None of the information with respect to Parent or its Subsidiaries
included in the Joint Proxy Statement (as defined in Section 5.2) or the
Registration Statement (as defined in Section 5.2) will, in the case of the
Joint Proxy Statement or any amendments thereof or supplements thereto, at the
time of the mailing of the Joint Proxy Statement or any amendments or
supplements thereto, and at the time of the Parent Meeting, or, in the case of
the Registration Statement, at the time it becomes effective or at the time of
any post-effective amendment, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, with respect to the Joint Proxy Statement
in light of the circumstances under which they were made, not misleading, except
that no representation is made by Parent with respect to information supplied in
writing by the Company or any affiliate of the Company specifically for
inclusion in the Joint Proxy Statement or the Registration Statement. Each of
the Joint Proxy Statement and the Registration Statement will comply as to form
in all material respects with the provisions of the Exchange Act and the
Securities Act and the rules and regulations promulgated thereunder.
Section 4.12 Accounting and Tax Matters. Neither Parent nor any of its
Subsidiaries has taken or agreed to take any action, nor, except as set forth in
the Parent Disclosure Letter, does Parent have any Knowledge of any fact or
circumstance, that would prevent Parent from accounting for the business
combination to be effected by the Merger as a "pooling-of-interests" or prevent
the Merger and the other transactions contemplated by the Agreement from
qualifying as a "Reorganization" within the meaning of Section 368(a) of the
Code. Parent has received written confirmation from Deloitte & Touche LLP that
it has substantially completed its work, and that, based on the results of its
procedures, subject to the assumptions and qualifications set forth therein,
upon consummation of the Merger, Deloitte & Touche LLP would issue its report
that nothing would preclude the Company from accounting for the Merger as a
pooling-of-interests (the "Parent Pooling Opinion").
Section 4.13 Tax Matters.
(a) Except as disclosed in the Parent Disclosure Letter, all federal,
state, local and foreign Tax Returns required to be filed by or on behalf of
Parent, each of its Subsidiaries, and each affiliated, combined, consolidated or
unitary group of which Parent or any of its Subsidiaries is a member (a "Parent
Group") have been timely filed or requests for extensions to file such returns
or reports have been timely filed and granted and have not yet expired, and all
Tax Returns were complete and accurate except to the extent any failure to file
or any inaccuracies in filed returns would not, in the aggregate, have a
Material Adverse Effect on Parent; all Taxes due and payable by Parent, any
Subsidiary of Parent or any Parent Group have been paid, or adequately reserved
for, except to the extent
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any failure to pay or reserve would not, in the aggregate, have a Material
Adverse Effect on Parent; there is no audit examination, deficiency, refund
litigation, proposed adjustment or matter in controversy with respect to any
Taxes due and payable by Parent, any Subsidiary of Parent or any Parent Group
which would, individually or in the aggregate, have a Material Adverse Effect on
Parent; all assessments for Taxes due and payable by Parent, any Subsidiary of
Parent or any Parent Group with respect to completed and settled examinations or
concluded litigation have been paid; and neither the Parent nor any Subsidiary
of the Parent (i) has been a member of an affiliated group of corporations
within the meaning of Section 1504, other than the affiliated group of which the
Parent is the common parent or (ii) has any liability for the Taxes of any
person (other than the Parent and its Subsidiaries) under Treasury Regulation
Section 1.1502-6 (or any similar provision of state, local, or foreign law), as
a transferee or successor, by contract, or otherwise. Parent has provided the
Company with written schedules of (i) the taxable years of Parent for which the
statutes of limitations with respect to federal income Taxes have not expired,
and (ii) with respect to federal income Taxes, those years for which
examinations have been completed, those years for which examinations are
presently being conducted, and those years for which examinations have not yet
been initiated.
(b) Each of the Parent, its Subsidiaries and any Parent Group have
withheld and paid Taxes required to have been withheld and paid in connection
with amounts paid or owing to any employee, independent contractor, creditor,
stockholder or other third party, except to the extent any failure to so
withhold would not, in the aggregate, have a Material Adverse Effect.
(c) No claim has been made in writing by a Tax authority in a
jurisdiction where neither the Parent nor any Subsidiary of the Parent files Tax
Returns that the Parent or any Subsidiary of the Parent is or may be subject to
taxation in that jurisdiction.
(d) The Parent and each of its Subsidiaries are not currently, have
not been within the last five years, and do not anticipate becoming a "United
States real property holding corporation" within the meaning of Section 897(c)
of the Code. Neither the Parent nor any Subsidiary of the Parent has filed a
consent under Section 341(f) of the Code concerning collapsible corporations.
Section 4.14 Vote of Parent Shareholders. The affirmative vote of the
holders of a majority of the outstanding shares of Parent Common Stock actually
present and voting at the Parent Meeting (provided that at least 50% of the
outstanding shares of Parent Common Stock are actually voted) is required to
approve the issuance of Parent Common Stock in the Merger.
Section 4.15 Opinion of Financial Advisor. The Board of Directors of
Parent has received the opinion of Banc of America Securities LLC dated the date
of this Agreement to the effect that, as of such date, the Exchange Ratio (as
defined therein) is fair from a financial point of view to Parent. A copy of the
written opinion of Banc of America Securities LLC will be delivered to the
Company as soon as practicable after the date of this Agreement.
Section 4.16 Material Contracts. All of the material Contracts of Parent
and its Subsidiaries that are required to described in the Parent SEC Reports or
to be filed as exhibits thereto are in the Parent SEC Reports or filed as
exhibits thereto and are in full force and effect. Neither Parent nor any of its
Subsidiaries nor, to the Knowledge of Parent, any other party is in breach of or
in default under any such Contract except for breaches and defaults as in the
aggregate that have not had and will not have a Material Adverse Effect on
Parent.
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ARTICLE V
Covenants
Section 5.1 Conduct of Business by the Company or Parent. Except as
contemplated by this Agreement and in the Company Disclosure Letter or the
Parent Disclosure Letter, or as necessary or appropriate to satisfy the
obligations hereunder, prior to the Effective Time or the date, if any, on which
this Agreement is earlier terminated pursuant to Section 7.1, and except as may
be agreed to by the other parties hereto or as may be permitted pursuant to this
Agreement:
(a) The Company:
(i) shall, and shall cause each of its Subsidiaries to, conduct its
operations according to their ordinary and usual course of business;
(ii) shall, and shall cause each of its Subsidiaries to, consistent
with past practice, (A) preserve intact its business organizations and
goodwill, (B) keep available the services of its officers and employees as
a group, subject to changes in the ordinary course, and (C) maintain its
existing relationships with suppliers, distributors, customers and others
having business relationships with them;
(iii) shall notify Parent promptly of (A) any complaints,
investigations or hearings (or communications indicating that the same may
be contemplated) of any governmental body or authority; (B) any actions,
suits or proceeding initiated or threatened against or affecting the
Company or any of its Subsidiaries or any of their respective properties or
before any federal, state, local or foreign Governmental Entity which could
have in the aggregate a Material Adverse Effect on the Company; (C) any
complaint, charge or claim against the Company or any of its Subsidiaries
filed with any public or governmental authority, arbitrator or courts with
respect to Company Labor Matters or (D) any claims with respect to Company
Intellectual Property Rights, any trade secret material to the Company or
any of its Subsidiaries or Third Party Intellectual Property Rights which
could have in the aggregate a Material Adverse Effect on the Company;
(iv) shall not authorize or pay any dividends on or make any
distribution with respect to its outstanding shares of capital stock;
(v) shall not, and shall not permit any of its Subsidiaries to,
enter into any severance or similar agreements or arrangements (including
by amendment of any existing agreement or arrangement) which would be
triggered by the transactions contemplated hereby;
(vi) shall not, other than in the ordinary course of business
consistent with past practice, enter into any new written employment,
consulting or salary continuation agreements with any officers or directors
or any employees, or, other than increases in the ordinary course of
business, grant any increases in the compensation or benefits to officers,
directors, and employees;
(vii) subject to Section 5.10, shall not, and shall not permit any of
its Subsidiaries to, authorize, propose or announce an intention to
authorize or propose, or enter into an agreement with respect to, any
merger, consolidation or business combination, any
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acquisition of a material amount of assets or securities, any disposition
of assets or securities or any release or relinquishment of any material
contract rights not in the ordinary course of business;
(viii) shall not propose or adopt any amendments to its Amended and
Restated Articles of Incorporation or by laws;
(ix) shall not, and shall not permit any of its Subsidiaries to, (A)
issue any shares of their capital stock, except upon exercise of rights
outstanding at the date hereof under the Company Stock Plans or the Stock
Purchase Plan or (B) effect any stock split or (C) otherwise change the
capitalization of the Company as it existed on June 30, 1999 except as
specifically provided herein;
(x) shall not, and shall not permit any of its Subsidiaries to,
grant, confer or award any additional, or amend or modify any existing,
options, warrants, conversion rights or other rights, to acquire any shares
of its capital stock;
(xi) shall not, and shall not permit any of its Subsidiaries to,
purchase or redeem any shares of its capital stock;
(xii) shall not, and shall not permit any of its Subsidiaries to,
amend the terms of their respective employee benefit plans, programs or
arrangements in existence on the date hereof, or adopt any new employee
benefit plans, programs or arrangements except as required by law or to
maintain tax qualified status or as requested by the Internal Revenue
Service in order to receive a determination letter for such employee
benefit plan;
(xiii) shall not, and shall not permit any of its Subsidiaries to (A)
incur or assume any long-term debt, or, except in the ordinary course of
business, incur or assume any short-term indebtedness in amounts not
consistent with past practice; (B) amend any existing loan agreement or
enter into any new loan agreement; (C) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other Person or (D) make any loans,
advances or capital contributions in any other Person;
(xiv) shall not, and shall not permit any of its Subsidiaries to,
except with respect to agreements contemplated by or permitted pursuant to
this Agreement, enter into any agreement, commitment or transaction
(including, but not limited to, with respect to capital expenditures or
purchase, sale or lease of assets or real estate) with aggregate
consideration exceeding $250,000;
(xv) shall not, and shall not permit any of its Subsidiaries, to
enter into an agreement with any Affiliate of the Company, any family
member of any Affiliate of the Company or any shareholder who owns more
than 5% of the outstanding capital stock of the Company;
(xvi) shall not, and shall not permit any of its Subsidiaries to, (A)
make any material Tax election or settle or compromise any material Tax
liability or (B) make any significant change in any Tax as accounting
methods or system of internal accounting controls, except as may be
appropriate to conform to changes in Tax laws or GAAP;
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(xvii) shall not, and shall not permit any of its Subsidiaries to,
enter into, amend, or extend any collective bargaining or other labor
agreement, except as required by law;
(xviii) shall not, and shall not permit any of its Subsidiaries to,
buy, sell or trade any equity security of Parent including, without
limitation, entering into any put, call, option, swap, collar or any other
derivative transaction which has a similar economic effect; and
(xix) shall not agree, or permit any of its Subsidiaries to agree,
in writing or otherwise, to take any of the foregoing actions described in
clauses (iv) through (xviii) or take any action which would make any
representation or warranty in Article III hereof untrue or incorrect.
(b) The Parent:
(i) shall, and shall cause each of its Subsidiaries to, conduct
its operations according to their ordinary and usual course of business;
provided, however, that nothing contained in this proviso shall limit
Parent's ability to authorize or propose, or enter into, agreements with
respect to any acquisition, incur indebtedness or to issue any debt or
equity securities;
(ii) shall take all action necessary to cause Merger Sub to perform
its obligations under this Agreement and to consummate the Merger on the
terms and conditions set forth in this Agreement;
(iii) shall not agree, or permit any of its Subsidiaries to agree,
in writing or otherwise, to take any of the foregoing actions described in
clauses (i) and (ii) or take any action which would make any representation
or warranty in Article IV hereof untrue or incorrect.
Section 5.2 Proxy Material; Registration Statement.
(a) The Company and the Parent will as promptly as practicable
following the date of this Agreement, prepare and file with the SEC, will use
reasonable efforts to have cleared by the SEC and thereafter mail to their
respective shareholders as promptly as practicable, a joint proxy statement that
will be the same proxy statement/prospectus contained in the Registration
Statement (as hereinafter defined) and a form of proxy, in connection with the
vote of each of the Company's and the Parent's shareholders with respect to the
matters contemplated hereby (such proxy statement/prospectus, together with any
amendments thereof or supplements thereto, in each case in the form or forms
mailed to the Company's and the Parent's shareholders, is herein called the
"Joint Proxy Statement").
(b) Parent will as promptly as practicable following the date of this
Agreement, prepare and file with the SEC a registration statement of the Parent
on Form S-4 (such registration statement together with all and any amendments
and supplements thereto, being herein referred to as the "Registration
Statement"). Such Registration Statement shall be used for the purposes of
registering with the SEC the issuance of Parent Common Stock to holders of
Company Common Stock in connection with the Merger. In addition, each of Parent
and the Company will upon reasonable advance notice provide the other with all
information and other data as may be reasonably requested by Parent or the
Company, as the case may be, in connection with the preparation and filing of
the Registration Statement and the Joint Proxy Statement.
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(c) The Parent shall use its best efforts to cause the Registration
Statement to become effective under the Securities Act and to comply with
applicable state securities laws at the earliest practicable date and to remain
effective until the Effective Time.
Section 5.3 Shareholders' Meeting. Each of the Company and the Parent
shall, in accordance with applicable law and their respective articles of
incorporation and by laws, duly call, give notice of, convene and hold a meeting
(which, as may be duly adjourned, shall be referred to as the "Company Meeting"
or the "Parent Meeting," as the case may be, and together as the "Meetings") of
its respective shareholders as soon as practicable for the purpose of, approving
by the holders of a majority of the outstanding shares of Company Common Stock
this Agreement and the Merger (the "Company Shareholder Approval") and in the
case of Parent, a majority of the outstanding shares of Parent Common Stock
actually present and voting (the "Parent Shareholder Approval"). The Company and
Parent agree to use their reasonable best efforts to cause the Meetings to occur
within forty-five (45) days after the date on which the Registration Statement
becomes effective. Each of the Company and Parent shall include in the Joint
Proxy Statement the recommendation of its Board of Directors that shareholders
vote in favor of the Company Shareholder Approval or the Parent Shareholder
Approval, as the case may be; in each case subject to the duties of the
respective Boards of Directors to make any further disclosure to the
shareholders (which shall not, unless expressly stated, constitute a withdrawal
or adverse modification of such recommendation) and, in the case of the Company,
to the right to change such recommendation or terminate this Agreement following
receipt of a Superior Proposal (as defined in Section 5.10).
Section 5.4 Approvals and Consents; Cooperation.
(a) The Company and Parent shall together, or pursuant to an
allocation of responsibility to be agreed upon between them:
(i) as soon as is reasonably practicable take all such action as may
be required under state blue sky or securities laws in connection with the
transactions contemplated by this Agreement;
(ii) promptly prepare and file with the Nasdaq National Market such
listing applications or other notices covering the shares of Parent Common
Stock issuable in the Merger or upon exercise of the Company stock options,
warrants, conversion rights or other rights or vesting or payment of other
Company equity-based awards and use its reasonable best efforts to obtain,
prior to the Effective Time, approval for the listing of such Parent Common
Stock;
(iii) cooperate with one another in order to lift any injunctions or
remove any other impediment to the consummation of the transactions
contemplated herein; and
(iv) cooperate with one another in obtaining the opinions described
in Section 6.1(e) of this Agreement.
(b) Subject to the limitations contained herein, the Company and
Parent shall each furnish to one another and to one another's counsel all such
information as may be required in order to effect the foregoing actions.
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Section 5.5 Access to Information; Confidentiality.
(a) From the date hereof to the Effective Time, the Company and
Parent each shall (and shall cause its Subsidiaries to), upon reasonable notice
to an executive officer (as defined in the Confidentiality Agreements (which
such term is defined in this Section 5.5)) of the other, afford to the other,
and the other's officers, employees, accountants, counsel, financial advisors
and other representatives, reasonable access during normal business hours, in a
manner so as not to interfere with its normal operations or of its Subsidiaries,
to all its personnel, properties, books, contracts, commitments and records and
of its Subsidiaries; provided that Company shall not be required to provide
customer specific pricing information (other than any commitment for specific
pricing for more than 360 days) and performance data.
(b) During such period, the Company shall furnish promptly to the
Parent (i) a copy of each report, schedule, registration statement and other
document filed by it or its Subsidiaries pursuant to the requirements of
applicable federal or state securities laws, (ii) a copy of all internally
prepared interim financial statements, reports or memoranda and (iii) all other
information concerning Company's business, financial results and conditions,
properties and personnel as the Parent may reasonably request.
(c) No investigation or information furnished pursuant to this
Section 5.5 shall affect any representations or warranties made by the Company
or the Parent herein or the conditions to the obligations of the Parent or the
Company to consummate the Merger.
(d) Parent and Company will keep all such information provided to it
confidential in accordance with the terms of each of the Confidentiality
Agreements, dated July 16, 1999, between the Parent and the Company (the
"Confidentiality Agreements") the terms of which are incorporated herein by
reference, as if such information were Evaluation Material (as such term is
defined in each of the Confidentiality Agreements).
Section 5.6 Affiliates. At least 45 days prior to the Effective
Time, the Company shall deliver to Parent a list, setting forth the names and
addresses of all persons who are, at the time of the Company Meeting, in the
Company's reasonable judgment, "affiliates" of the Company for purposes of Rule
145 under the Securities Act and for purposes of applicable interpretations
regarding the pooling-of-interests method of accounting. The Company shall
exercise its best efforts to deliver or cause to be delivered to Parent, at
least 30 days prior to the Effective Time, from each affiliate of the Company
identified in the foregoing list, a letter in the form attached as Exhibit A-1.
The certificates representing Parent Common Stock received by such affiliates
shall bear a customary legend. The Company shall furnish such information and
documents as Parent may reasonably request for the purpose of reviewing such
list.
Section 5.7 Rights Under Stock Plans.
(a) Stock Options. Each outstanding option to purchase shares of
Company Common Stock ("Option") granted under the Company's Stock Plans shall be
assumed by Parent and deemed to constitute an option to acquire, on the same
terms and conditions (including, without limitation, adjustments for any stock
dividend, subdivision, reclassification, recapitalization, split, combination,
exchange of shares or similar transaction), as were applicable under such Option
prior to the Effective Time, the number of shares of Parent Common Stock as the
holder of such Option would have been entitled to receive pursuant to the Merger
had such holder exercised such Option in full immediately prior to the Effective
Time (not taking into account whether or not such Option was in fact
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exercisable) at a price per share equal to (x) the aggregate exercise price for
Company Common Stock purchasable pursuant to such Option divided by (y) the
number of shares of Parent Common Stock deemed purchasable pursuant to such
assumed Option, provided that the number of shares of Parent Common Stock that
may be purchased upon exercise of any such assumed Option shall not include any
fractional share and, upon exercise of such assumed Option, a cash payment shall
be made for any fractional share based upon the last sale price per share of
Parent Common Stock on the trading day immediately preceding the date of
exercise. From and after the Effective Time, Parent and the Surviving
Corporation shall comply with the terms of the Company Stock Plans and the Stock
Purchase Plan, as in effect immediately prior to the Effective Time, with
respect to Options outstanding at the Effective Time. The adjustments provided
herein with respect to any Options that are "incentive stock options" (as
defined in Section 422 of the Code) or granted pursuant to the Stock Purchase
Plan shall be in a manner consistent with Sections 422, 423 and 424 of the Code,
as applicable.
(b) Reservation and Registration of Shares. Parent shall cause to be
taken all corporate action necessary to reserve for issuance a sufficient number
of shares of Parent Common Stock for delivery upon exercise of Options in
accordance with this Section 5.7. As soon as practicable, but in any event
within ten Business Days after the Effective Time, Parent shall file a
registration statement on Form S-8 (or any successor or other appropriate forms)
or shall cause such Options to be deemed to be issued pursuant to a Parent stock
option plan for which shares of Parent Common Stock previously have been
registered, and shall use its best efforts to cause the effectiveness of such
registration statement (and the current status of the prospectus or prospectuses
contained therein) to be maintained for so long as such Options remain
outstanding.
Section 5.8 Filings; Other Action.
(a) Subject to the terms and conditions herein provided, the Company
and Parent shall (i) promptly make their respective filings and thereafter make
any other required submissions under the HSR Act, (ii) use reasonable efforts to
cooperate with one another in (A) determining whether any filings are required
to be made with, or consents, permits, authorizations or approvals are required
to be obtained from, any third party, the United States government or any
agencies, departments or instrumentalities thereof or other governmental or
regulatory bodies or authorities of federal, state, local and foreign
jurisdictions in connection with the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby and (B) timely
making all such filings and timely seeking all such consents, permits,
authorizations or approvals, and (iii) take, or cause to be taken, all other
actions and do, or cause to be done, all other things necessary, proper or
advisable to consummate and make effective the transactions contemplated hereby,
including, without limitation, taking or undertaking all such further action as
may be necessary to resolve such objections, if any, as the Federal Trade
Commission, the Antitrust Division of the Department of Justice, state antitrust
enforcement authorities or competition authorities of any other nation or other
jurisdiction or any other person may assert under relevant antitrust,
competition or communications laws with respect to the transactions contemplated
hereby.
(b) Without limiting the generality of the undertakings pursuant to
Section 5.8 (a): (i) each of Parent and the Company shall provide promptly to
the Governmental Entities with regulatory jurisdiction over enforcement of any
applicable antitrust laws ("Government Antitrust Entity") information and
documents requested by such Government Antitrust Entity or necessary, proper or
advisable to permit consummation of the transactions contemplated by this
Agreement; (ii) without in any way limiting the provisions of Section 5.8 (a)
(i) above, each of Parent and the Company shall file any Notification and Report
Form and related material required under the HSR Act as soon as
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practicable after the date hereof, and thereafter use its best efforts to
certify as soon as practicable its substantial compliance with any requests for
additional information or documentary material that may be made under the HSR
Act; (iii) each of the Company and Parent will keep the other informed of any
material communication, and provide to the other copies of all correspondence,
between it (or its advisors) and any Government Antitrust Entity relating to
this Agreement or any of the matters described in this Section 5.8 (b); and (iv)
each of the Company and Parent shall permit the other to review any material
communication to be given by it to, and shall consult with each other in advance
of any telephonic calls, meeting or conference with, any Government Antitrust
Entity and, to the extent permitted, give the other party the opportunity to
attend and participate in such telephonic calls, meetings and conferences.
Section 5.9 Further Assurances. In case at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement, the proper officers of the Company and Parent shall
take all such necessary action.
Section 5.10 Company Acquisition Proposals. In light of the
consideration given by the Board of Directors of the Company prior to the
execution of this Agreement and in light of the Company's representations
contained in Section 3.14, the Company agrees that it shall not, nor shall it
permit any of its Subsidiaries to, nor shall it authorize or permit any officer,
director or employee of, or any investment banker, attorney or other advisor or
representative of, the Company or any of its Subsidiaries to, directly or
indirectly, solicit or initiate, or encourage the submission of, any Acquisition
Proposal, or participate in any negotiations regarding, or furnish to any person
any information with respect to, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Acquisition Proposal; provided, however, that nothing
contained in this Agreement shall prevent the Board of Directors from, at any
time prior to the Company Shareholder Approval, (A) providing information in
response to a request therefor by a Person who has made an unsolicited bona fide
written Acquisition Proposal if the Board of Directors receives from the Person
so requesting such information an executed confidentiality agreement the terms
of which are (without regard to the terms of the Acquisition Proposal) (x) no
less favorable to the Company and (y) no less restrictive on the Person
requesting such information than those contained in the Confidentiality
Agreement from the Company to Parent; (B) engaging in any negotiations or
discussions with any Person who has made an unsolicited bona fide written
Acquisition Proposal; or (C) recommending such an Acquisition Proposal to the
shareholders of the Company, if and only to the extent that, (i) in each such
case referred to in clause (A), (B) or (C) above, the Board of Directors of the
Company determines in good faith after consultation with outside legal counsel
that failure to take such action would create a reasonable possibility of a
breach of their respective fiduciary duties under applicable law and (ii) in
each case referred to in clause (B) or (C) above, the Board of Directors of the
Company determines in good faith (after consultation with its financial advisor)
that such Acquisition Proposal, if accepted, is likely to be consummated, taking
into account all legal, financial and regulatory aspects of the proposal and the
Person making the proposal and would, if consummated, result in a transaction
more favorable to the Company's shareholders from a financial point of view than
the transaction contemplated by this Agreement (any such more favorable
Acquisition Proposal being referred to in this Agreement as a "Superior
Proposal"), provided further that prior to initially furnishing such information
to, or entering into discussions or negotiations with, such Person, the Company
shall provide two (2) business days' advance written notice to Parent to the
effect that it is furnishing information to, or entering into negotiations with,
a Person. The Company shall notify Parent orally and in writing of the fact that
it received inquiries, offers or proposals with respect to an Acquisition
Proposal, within 24 hours after the Company obtains Knowledge of the receipt
thereof, and shall give Parent five (5) business days' advance notice (which
notice shall include the terms and conditions of
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such proposal) of the Company's intent to enter into a definitive agreement with
respect to a Superior Proposal. Nothing contained herein shall prohibit the
Company from disclosing to its shareholders the statement required by Rule
14e-2(a) under the Exchange Act with respect to an Acquisition Proposal by means
of a tender offer. The Company will immediately cease and cause to be terminated
any existing activities, discussions or negotiations with any other person that
have been conducted heretofore with respect to a potential Acquisition Proposal.
Except in connection with a Superior Proposal, the Company agrees to enforce and
not to waive or release any confidentiality agreements which any persons have
entered into with the Company.
Section 5.11 Director and Officer Liability.
(a) Parent, Merger Sub and the Company agree that all rights to
indemnification and all limitations on liability existing in favor of any
Indemnitee (as defined below) as provided in the Company Amended and Restated
Articles of Incorporation or by laws shall survive the Merger and continue in
full force and effect.
(b) For a period of six (6) years after the Effective Time, Parent
shall, or shall cause the Surviving Corporation to, maintain officers' and
directors' liability insurance and fiduciary liability insurance covering the
Indemnitees who, at the Effective Date, are covered by the Company's officers'
and directors' or fiduciary liability insurance policies on terms no less
advantageous to such indemnified parties than such existing insurance; provided,
however, that neither Parent nor the Surviving Corporation will be required in
order to maintain such policies to pay an annual premium in excess of 200% of
the last annual premium paid by the Company prior to the date of this Agreement
(the "Cap") and provided, further, that, if equivalent coverage cannot be
obtained, or can be obtained only by paying an annual premium in excess of the
Cap, then Parent shall, or shall cause the Surviving Corporation to, maintain
policies that, in Parent's good faith judgment, provide the maximum coverage
available at an annual premium equal to the Cap.
(c) In addition to the other rights provided for in this Section 5.11
and not in limitation thereof, for six years from and after the Effective Time,
Parent shall, and shall cause the Surviving Corporation to, to the fullest
extent permitted by applicable law, (i) indemnify and hold harmless the
individuals who on or prior to the Effective Time were officers, directors or
employees of the Company or any of its Subsidiaries, and the heirs, executors,
trustees, fiduciaries and administrators of such officers, directors or
employees (collectively, the "Indemnitees") against all losses, expenses
(including reasonable attorneys' fees), claims, damages, liabilities, judgments,
or amounts paid in settlement (collectively, "Costs") in respect to any
threatened, pending or completed claim, action, suit or proceeding, whether
criminal, civil, administrative or investigative based on, or arising out of or
relating to the fact that such person is or was a director, officer or employee
of the Company or any of its Subsidiaries and arising out of acts or omissions
occurring on or prior to the Effective Time (including, without limitation, in
respect of acts or omissions in connection with this Agreement and the
transactions contemplated hereby) (an "Indemnifiable Claim") and (ii) advance to
such Indemnitees all expenses incurred in connection with any Indemnifiable
Claim promptly after receipt of reasonably detailed statements therefor;
provided, that the person to whom expenses are to be advanced provides an
undertaking to repay such advances if it is ultimately determined that such
person is not entitled to indemnification from Parent or the Surviving
Corporation; provided, however, that Parent shall not be liable for any
settlement effected without its written consent.
(d) Notwithstanding any other provisions hereof, the obligations of
the Company, the Surviving Corporation and Parent contained in this Section 5.11
shall be binding upon the successors
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and assigns of Parent and the Surviving Corporation. In the event the Company or
the Surviving Corporation or any of their respective successors or assigns (i)
consolidates with or merges into any other Person or (ii) transfers all or
substantially all of its properties or assets to any Person, then, and in each
case, proper provision shall be made so that successors and assigns of the
Company or the Surviving Corporation, as the case may be, honor the
indemnification obligations set forth in this Section 5.11.
Section 5.12 Accountants' "Comfort" Letters. The Company and Parent will
each use reasonable best efforts to cause to be delivered to each other letters
from their respective independent accountants, dated a date within two business
days before the effective date of the Registration Statement, in form reasonably
satisfactory to the recipient and customary in scope for comfort letters
delivered by independent accountants in connection with registration statements
on Form S-4 under the Securities Act.
Section 5.13 Additional Reports. The Company and Parent shall each
furnish to the other copies of any reports of the type referred to in Sections
3.4 and 4.4 which it files with the SEC on or after the date hereof, and the
Company and Parent, as the case may be, represents and warrants that as of the
respective dates thereof, such reports 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 the statement therein, in light of the circumstances under
which they were made, not misleading; provided, that the foregoing shall not
apply to the financial statements contained therein (which are covered by the
following sentence). Any consolidated financial statements included in such
reports (including any related notes and schedules) will fairly present, in all
material respects, the financial position of the Company and its consolidated
Subsidiaries or Parent and its consolidated Subsidiaries, as the case may be, as
of the dates thereof and their results of operations and changes in financial
position or other information included therein for the periods or as of the date
then ended (subject, where appropriate, to normal year-end adjustments), in each
case in accordance with GAAP consistently applied during the periods involved
(except as otherwise disclosed in the notes thereto and except that such
financial statements will not include all of the notes required by GAAP).
Section 5.14 Tax Treatment; Plan of Reorganization. Parent and the
Company agree to treat the Merger as a reorganization within the meaning of
Section 368(a) of the Code. This Agreement is intended to constitute a "plan of
reorganization" within the meaning of Section 1.368-2(g) of the income tax
regulations promulgated under the Code. During the period from the date of this
Agreement through the Effective Time, unless the parties shall otherwise agree
in writing, none of Parent, the Company or any of their respective Subsidiaries
shall knowingly take or fail to take any action which action or failure to act
would jeopardize qualification of the Merger as a reorganization within the
meaning of Section 368(a) of the Code. Parent and the Company shall use their
respective reasonable efforts to cause one or more of their responsible officers
to execute and deliver certificates to confirm the accuracy of certain relevant
facts as may be reasonably requested by counsel in connection with the
preparation and delivery of the tax opinions described in Sections 6.2(f) and
6.3(d) hereof.
Section 5.15 Public Announcements. The initial press release relating to
this Agreement shall be a joint press release mutually agreed upon by Parent and
the Company. Unless otherwise required by applicable law or the requirements of
any listing agreement with the Nasdaq Stock Market, Parent and the Company shall
each use their reasonable efforts to consult with each other before issuing any
press release or otherwise making any public statements with respect to this
Agreement or any transaction contemplated by this Agreement and shall not issue
any such press release or make any such public statement prior to such
consultation.
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Section 5.16 Employee Plans and Benefits.
(a) From and after the Effective Time, the Surviving Corporation and
its Subsidiaries will honor in accordance with their terms all existing
employment, severance, consulting and salary continuation agreements between the
Company or any of its Subsidiaries and any current or former officer, director,
employee or consultant of the Company or any of its Subsidiaries or group of
such officers, directors, employees or consultants.
(b) On or after the Effective Time, the Surviving Corporation and its
Subsidiaries shall provide benefits, plans and programs to its employees which
are no less favorable in the aggregate than those generally available to
similarly situated employees in the same jurisdiction of Parent and its
Subsidiaries. Nothing in this Agreement shall be construed as restricting the
ability of Parent, the Surviving Corporation and Parent's Subsidiaries to
establish such types and levels of compensation as they or any of them determine
to be appropriate from time to time.
(c) To the extent permitted under applicable law, each employee of
the Company or its Subsidiaries shall be given credit for all service with the
Company or its Subsidiaries (or service credited by the Company or its
Subsidiaries) under all employee benefit plans, programs, policies and
arrangements maintained by the Surviving Corporation in which they participate
or in which they become participants for purposes of eligibility and vesting
including, without limitation, for purposes of determining (i) short-term and
long-term disability benefits; (ii) severance benefits; (iii) vacation benefits;
and (iv) benefits under any retirement plan.
Section 5.17 Sale of Shares by Parent. Parent, prior to the Effective
Date, will sell shares of Parent Common Stock acquired by it within the two
years preceding the Effective Date so that the accounting by the Parent of the
business combination to be effected by the Merger as a "pooling of interests"
will not be adversely affected.
ARTICLE VI.
Conditions to the Merger
Section 6.1 Conditions to the Obligations of Each Party. The
obligations of the Company, Parent and Merger Sub to consummate the Merger are
subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions:
(a) The Registration Statement shall have become effective under the
Securities Act, no stop order suspending the effectiveness of the
Registration Statement shall have been issued by the SEC and no proceeding
for that purpose shall have been initiated by the SEC;
(b) The Company Shareholder Approval and the Parent Shareholder
Approval shall have been obtained;
(c) No statute, rule, regulation, executive order, decree,
preliminary or permanent injunction or restraining order shall have been
enacted, entered, promulgated or enforced by any Governmental Entity which
prohibits the consummation of the transactions contemplated hereby. No
action or proceeding by any Governmental Entity shall have been commenced
(and be pending), or, to the Knowledge of the parties hereto, threatened,
against the Company or Parent
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or any of their respective affiliates, associates, officers or directors
seeking to prevent or delay the transactions contemplated hereby or
challenging any of the terms of provisions of this Agreement or seeking
material damages in connection therewith;
(d) Any waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated. All other consents and approvals (including any other consent
or approval required pursuant to or in connection with the Antitrust Laws)
of Governmental Entities necessary for consummation of the transactions
contemplated hereby shall have been obtained, other than those which, if
not obtained, would not in the aggregate have a Material Adverse Effect;
and
(e) The shares of Parent Common Stock to be issued pursuant to this
Agreement and pursuant to the Company Stock Plans shall have been
authorized for trading in the NASDAQ National Market.
Section 6.2 Conditions to the Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to consummate the Merger are subject to the
satisfaction or waiver by Parent on or prior to the Closing Date of the
following further conditions:
(a) The representations and warranties of the Company contained
herein shall be true and correct in all respects as of the Effective Time
with the same effect as though made as of the Effective Time (except (i)
for changes specifically permitted by the terms of this Agreement and (ii)
that the accuracy of representations and warranties that by their terms
speak as of the date of this Agreement or some other date will be
determined as of such date) and there shall not be any Material Adverse
Change with respect to the Company which is not primarily the result of
facts, circumstances or events affecting the photomask industry generally;
(b) The Company shall have performed all obligations and complied
with all agreements and covenants required by this Agreement to be
performed or complied with by it prior to the Effective Time in all
material respects;
(c) The Company shall have delivered to Parent a certificate, dated
the Effective Time and signed by its Chief Executive Officer, Chief
Financial Officer or a Senior Vice President, certifying to the effects set
forth in subsections (a) and (b) above;
(d) Parent shall have received, dated as of the Closing Date, the
Company Pooling Opinion from PricewaterhouseCoopers LLP and the Company
Pooling Opinion from Deloitte & Touche LLP;
(e) Effective demands for payment of dissenters' rights by
shareholders of the Company shall not equal or exceed five percent of the
outstanding shares of the Company Common Stock; and
(f) Parent shall have received a written opinion of its tax counsel,
Paul, Hastings, Janofsky & Walker LLP, reasonably acceptable to Parent and
dated the Closing Date, to the effect that, on the basis of the facts,
representations and assumptions set forth in such opinion which are
consistent with the state of facts existing at the Closing Date, the Merger
will qualify for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code.
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Section 6.3 Conditions to the Obligations of the Company. The
obligations of the Company to consummate the Merger are subject to the
satisfaction or waiver by the Company on or prior to the Closing Date of the
following further conditions:
(a) The representations and warranties of Parent and Merger Sub
contained herein shall be true and correct in all respects as of the
Effective Time with the same effect as though made as of the Effective Time
except (i) for changes specifically permitted by the terms of this
Agreement and (ii) that the accuracy of representations and warranties that
by their terms speak as of the date of this Agreement or some other date
will be determined as of such date;
(b) Parent shall have performed all obligations and complied with all
agreements and covenants required by this Agreement to be performed or
complied with by it prior to the Effective Time in all material respects;
(c) Parent shall have delivered to the Company a certificate, dated
the Effective Time and signed by its President, any member of the office of
Chief Executive Officer, Chief Financial Officer or an Executive Vice
President, certifying to the effects set forth in subsections (a) and (b)
above; and
(d) The Company shall have received a written opinion of its tax
counsel, O'Melveny & Myers LLP, reasonably acceptable to the Company and
dated the Closing Date, to the effect that, on the basis of the facts,
representations and assumptions set forth in such opinions which are
consistent with the state of facts existing at the Closing Date, the Merger
will qualify for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code and that the exchange in the Merger
of the Parent Common Stock for Company Common Stock will not give rise to
gain or loss to the shareholders of the Company with respect to such
exchange (except to the extent of any cash paid in lieu of fractional
shares or Dissenting Shares).
ARTICLE VII.
Termination, Amendment and Waiver
Section 7.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval by the
shareholders of the Company or of Parent:
(a) by mutual written consent of Parent and the Company;
(b) by Parent (provided that Parent is not then in material breach of
any representation, warranty, covenant or other agreement contained
herein), upon a breach of any representation, warranty, covenant or
agreement on the part of the Company set forth in this Agreement, or if any
representation or warranty of the Company shall have become untrue, in
either case continuing ten (10) days following notice to the Company of
such breach or untruth and of a nature such that the conditions set forth
in Section 6.2(a) or Section 6.2(b), as the case may be, would be incapable
of being satisfied by February 25, 2000;
(c) by the Company (provided that the Company is not then in material
breach of any representation, warranty, covenant or other agreement
contained herein), upon a breach of
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any representation, warranty, covenant or agreement on the part of Parent
or Merger Sub set forth in this Agreement, or if any representation or
warranty of Parent or Merger Sub shall have become untrue, in either case
continuing ten (10) days following notice to Parent of such breach or
untruth and of a nature such that the conditions set forth in Section
6.3(a) or Section 6.3(b), as the case may be, would be incapable of being
satisfied by February 25, 2000;
(d) by either Parent or the Company (provided that the party seeking
to so terminate this Agreement is not then in material breach of Section
5.4 (a) (iii) or 5.8) if any Governmental Entity shall have issued an
order, decree or ruling or taken any other action permanently enjoining,
restraining or otherwise prohibiting the consummation of the Merger and
such order, decree or filing or other action shall have become final and
nonappealable;
(e) by either Parent or the Company, if the Merger shall not have
occurred by February 25, 2000, unless the failure to consummate the Merger
is the result of a breach of covenant set forth in this Agreement or breach
of any representation or warranty set forth in this Agreement by the party
seeking to terminate this Agreement;
(f) by either Parent or the Company (provided that if the terminating
party is the Company, the Company shall not be in material breach of any of
its obligations hereunder) if any approval of the shareholders of the
Company required for the consummation of the Merger shall not have been
obtained by reason of the failure to obtain the required vote at the
Company Meeting or at any adjournment or postponement thereof;
(g) by either Parent or the Company (provided that if the terminating
party is Parent, Parent shall not be in material breach of any of its
obligations hereunder) if any approval of the shareholders of Parent
required for the consummation of the merger shall not have been obtained by
reason of the failure to obtain the required vote at the Parent Meeting or
at any adjournment or postponement thereof;
(h) by the Company, if, prior to approval of the Merger by its
shareholders, a Superior Proposal has been made; provided, however, that
before the Company may terminate this Agreement pursuant to this subsection
7.1 (h), the Company shall give notice to Parent of the proposed
termination under subsection 7.1 (h) (which notice may be the notice
provided under Section 5.10) and Parent, within five (5) business days of
receipt of such notice, shall have the right, in its sole discretion, to
offer to amend this Agreement to provide for terms substantially similar to
those of the Superior Proposal and the Company shall negotiate in good
faith with Parent with respect to such proposed amendment; provided,
further, that if Parent and the Company are unable to reach an agreement
with respect to the Parent's proposed amendment within such five (5)
business day period, the Company may terminate this Agreement pursuant to
this subsection 7.1 (h);
(i) by Parent, if the Board of Directors of the Company (i) withdraws
or modifies adversely its recommendation of the Merger, (ii) recommends an
Acquisition Proposal to Company shareholders or (iii) fails to call or hold
the Company Meeting by reason of the receipt by the Company of an
Acquisition Proposal; provided, that the parties agree that disclosure made
by the Company regarding an Acquisition Proposal shall not, unless
expressly stated, be treated as or deemed to be a withdrawal or adverse
modification of any favorable recommendation of the Merger by the Board of
Directors of the Company; or
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(j) by the Company if the Average Parent Price is less than $16.00.
Section 7.2 Effect of Termination. In the event of termination of this
Agreement by either the Company or Parent as provided in Section 7.1, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Parent, Merger Sub or the Company or their
respective officers or directors, except as set forth in Section 5.5(d), Section
7.5 and Article VIII which shall survive termination and except to the extent
that such termination results from the breach by a party of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
Section 7.3 Amendment. This Agreement may be amended by the parties at
any time before or after approval hereof by the shareholders of the Company or
Parent; provided, however, that after such shareholder approval there shall not
be made any amendment that by law requires approval by the shareholders of the
Company or Parent without the approval of such shareholders. This Agreement may
not be amended except by an instrument in writing signed on behalf of each of
the parties.
Section 7.4 Extension; Waiver. At any time prior to the Effective Time,
the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties contained in this Agreement or in any
document delivered pursuant to this Agreement or (c) subject to the provision of
Section 7.3, waive compliance with any of the agreements or conditions contained
in this Agreement. Any agreement on the part of a party to any such extension or
waiver shall be valid only if set forth in an instrument in writing, signed on
behalf of such party. The failure of any party to this Agreement to assert any
of its rights under this Agreement or otherwise shall not constitute a waiver of
those rights.
Section 7.5 Termination Fee.
(a) In the event (i) the Company terminates this Agreement pursuant
to Section 7.1(h) or (ii) Parent terminates this Agreement pursuant to Section
7.1(b) or (i), then the Company shall pay Parent an amount equal to $3,640,000
(the "Termination Fee") by wire transfer of immediately available funds upon the
occurrence of such event, and as a condition to termination in the case of
termination pursuant to Section 7.1(h). The Termination Fee shall be the sole
remedy of Parent for any breach of any representation, warranty, covenant or
agreement on the part of the Company set forth in this Agreement or of any
representation or warranty of the Company that shall have become untrue.
(b) In the event (i) Company Shareholder Approval is not received,
(ii) prior to the Company Meeting there shall have been an Acquisition Proposal
made and (iii) within six (6) months from the termination of the Agreement, the
Company shall have entered into an agreement for, and within eighteen (18)
months from such termination shall have consummated, a transaction substantially
in the form proposed in such Acquisition Proposal with the party that made such
Acquisition Proposal, then the Company shall pay Parent an amount equal to the
Termination Fee by wire transfer of immediately available funds, payable upon
consummation of such transaction.
(c) The Company agrees that the agreements contained in this Section
7.5 are an integral part of the transactions contemplated by this Agreement.
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ARTICLE VIII.
General Provisions
Section 8.1 Nonsurvival of Representations. None of the representations
and warranties in this Agreement or in any instrument delivered pursuant to this
Agreement shall survive the Effective Time. This Section 8.1 shall not limit
any covenant or agreement of the parties which by its terms contemplates
performance after the Effective Time.
Section 8.2 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally or sent by facsimile transmission or overnight
courier (providing proof of delivery) to the parties at the following addresses
(or at such address for a party as shall be specified by like notice):
(a) if to the Company, to:
Align-Rite International Holdings, Inc.
2428 Ontario Street
Burbank, California 91504
Attention: Mr. James L. McDonald
with a copy to:
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, California 90071
Attention: Richard A. Boehmer, Esq.
(b) if to Parent or Merger Sub, to:
PHOTRONICS, INC.
1061 East Indiantown Road
Jupiter, Florida 33477
Attention: Mr. Jeffrey P. Moonan
with a copy to:
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue
New York, New York 10022
Attention: Steven L. Wasserman, Esq.
Section 8.3 Definitions. For purposes of this Agreement:
(a) "Acquisition Proposal" means any proposal (whether or not in
writing and whether or not delivered to the Company's shareholders generally)
for a merger, consolidation, liquidation, reorganization, tender offer or other
business combination involving the Company or any proposal or offer to acquire
in any manner, directly or indirectly, at least 50% of the voting securities of,
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or all or substantially all of the assets of, the Company or any of its
Subsidiaries, other than the transactions contemplated by this Agreement.
(b) "Affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries controls, is controlled by, or is
under common control with, such first person.
(c) "Antitrust Laws" mean and include the Sherman Act, as amended,
the Clayton Act, as amended, the HSR Act, the Federal Trade Commission Act, as
amended, and all other federal, state or foreign statutes, rules, regulations,
orders, decrees, administrative and judicial doctrines and other laws that are
designed or intended to prohibit, restrict or regulate actions having the
purpose or effect of monopolization or restraint of trade.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a person,
whether through the ownership of voting securities, by contract or otherwise.
(f) "Governmental Entity" means any government or any agency, bureau,
board, commission, court, department, official, political subdivision, tribunal
or other instrumentality of any government, whether federal, state or local,
domestic or foreign.
(g) "Knowledge", "Know" or "Known" means, with respect to the matter
in question, if any of the executive officers of the Company or its Subsidiaries
listed on the Company Disclosure Letter, with respect to the Company and its
Subsidiaries, or the executive officers of the Parent listed on the Parent
Disclosure Letter, with respect to Parent and its Subsidiaries, has actual
knowledge of such matter.
(h) "Material Adverse Change" or "Material Adverse Effect" means, (i)
any adverse change in or effect on the business, financial condition or results
of operations of the Company or Parent, as the case may be, or its respective
Subsidiaries that is material to the Company or Parent, as the case may be, and
its respective Subsidiaries taken as a whole or (ii) any change or effect that
has a material adverse effect on the ability of the Company, Merger Sub or
Parent, as the case may be, to perform its obligations under this Agreement or
to consummate the Merger or the other transactions contemplated by this
Agreement.
(i) "Person" means any natural person, firm, individual, business
trust, trust, association, corporation, partnership, joint venture, company,
unincorporated entity or Governmental Entity.
(j) "Tax" means any and all federal, state, local, foreign or other
tax of any kind (together with any and all interest, penalties, additions to tax
and additional amounts imposed with respect thereto) imposed by any taxing
authority, including, without limitation, tax or other charges on or with
respect to income, franchises, windfall or other profits, gross receipts, real
property, personal property, sales, use, transfer, capital stock, payroll,
employment, social security, workers' compensation, unemployment compensation,
or net worth, and taxes or other charges in the nature of excise, withholding,
alternative or add-on minimum, ad valorem or value added.
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(k) "Tax Return" means any return, report or similar statement
(including the attached schedules) required to be filed with respect to any Tax,
including, without limitation, any information return, claim for refund, amended
return or declaration of estimated Tax.
(l) The following additional terms are all defined in the following
sections of this Agreement.
SECTION
-------
Agreement........................................................ Recitals
Average Parent Price............................................. 2.3
Canceled Shares.................................................. 2.3
Cap.............................................................. 5.11(b)
Certificate of Merger............................................ 1.3
Certificates..................................................... 2.4(b)
CGCL............................................................. 1.1
Closing.......................................................... 1.2
Closing Date..................................................... 1.2
Company.......................................................... Recitals
Company Common Stock............................................. Recitals
Company Disclosure Letter........................................ Article III
Company Group.................................................... 3.13(a)
Company Intellectual Property Rights............................. 3.19(a)(ii)
Company Labor Matters............................................ 3.18(b)
Company Pooling Opinion.......................................... 3.12
Company Required Approvals....................................... 3.3(a)
Company SEC Reports.............................................. 3.4
Company Shareholder Approval..................................... 5.3
Company Stock Plans.............................................. 3.2
Company Meeting.................................................. 5.3
Confidentiality Agreements....................................... 5.5
Contracts........................................................ 3.3(b)
Conversion Number................................................ 2.3
Conveyance Taxes................................................. 5.15
Costs............................................................ 5.11(c)
Dissenting Shares................................................ 2.5
Effective Time................................................... 1.3
Encumbrances..................................................... 3.17(a)
Environmental Claims............................................. 3.7
Environmental Laws............................................... 3.7
ERISA............................................................ 3.8
Exchange Act..................................................... 3.3(a)
Exchange Agent................................................... 2.4(a)
Exchange Fund.................................................... 2.4(a)
GAAP............................................................. 3.4
Government Antitrust Entity...................................... 5.8(b)
HSR Act.......................................................... 3.3(a)
Indemnifiable Claim.............................................. 5.11(c)
Indemnitees...................................................... 5.11(c)
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Joint Proxy Statement............................................ 5.2(a)
Meetings......................................................... 5.3
Merger........................................................... Recitals
Merger Consideration............................................. 2.3
Merger Sub....................................................... Recitals
Option........................................................... 5.7(a)
Parent........................................................... Recitals
Parent Common Stock.............................................. Recitals
Parent Disclosure Letter......................................... Article IV
Parent Group..................................................... 4.13(a)
Parent Meeting................................................... 5.3
Parent Pooling Opinion........................................... 4.12
Parent Required Approvals........................................ 4.3(a)
Parent SEC Reports............................................... 4.4
Parent Shareholder Approval...................................... 4.12
PBGC............................................................. 3.8
Person........................................................... 8.3(j)
Real Property.................................................... 3.17(a)
Registration Statement........................................... 5.2(b)
SEC.............................................................. 3.4(a)
Securities Act................................................... 3.3(a)
Stock Purchase Plan.............................................. 3.2
Subsidiary....................................................... 3.1
Superior Proposal................................................ 5.10
Surviving Corporation............................................ 1.1
Termination Fee.................................................. 7.5(a)
Third-Party Intellectual Property Rights......................... 3.19(b)(i)
Voting Agreement................................................. Recitals
Voting Shareholders.............................................. Recitals
Section 8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
Section 8.5 Entire Agreement, No Third-Party Beneficiaries. This
Agreement constitutes the entire agreement, and supersedes all prior agreements
and understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement (provided, however, that the provisions of the
Confidentiality Agreements shall remain valid and in effect) and, except for the
provisions of Article II and Sections 5.7, 5.11 and 5.16, is not intended to
confer upon any person other than the parties any rights or remedies hereunder.
Section 8.6 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties hereto without the
prior written consent of the other parties, except that Merger Sub may assign,
in its sole discretion, any or all of its rights, interests and obligations
under this Agreement to Parent or to any direct or indirect wholly owned
subsidiary of Parent, but no such assignment shall relieve Merger Sub of any of
its obligations under this Agreement. Subject to the preceding sentence,
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this Agreement will be binding upon, inure to the benefit of, and be enforceable
by, the parties and their respective successors and assigns.
Section 8.7 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California, without
regard to any applicable conflicts of law.
Section 8.8 Enforcement. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in Los Angeles County in the State of California or in Los Angeles
County in California state court, this being in addition to any other remedy to
which they are entitled at law or in equity. In addition, each of the parties
hereto (a) consents to submit itself to the personal jurisdiction of any such
federal court or state court in the event any dispute arises out of this
Agreement or any of the transactions contemplated by this Agreement, (b) agrees
that it will not attempt to deny or defeat such personal jurisdiction by motion
or other request for leave from any such court and (c) agrees that it will not
bring any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any court other than such federal or state
courts.
Section 8.9 Severability. Any term or provision of this Agreement which
is invalid or unenforceable shall be ineffective to the extent of such
invalidity or unenforceability without rendering invalid or unenforceable the
remaining terms and provisions of this Agreement. If any provision of this
Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.
Section 8.10 Interpretation. Headings of the Articles and Sections of
this Agreement are for convenience of the parties only, and shall be given no
substantive or interpretive effect whatsoever. The disclosure of any matter in
any section of a Disclosure Letter hereto shall not be deemed to constitute an
admission by any party or to otherwise imply that any such matter is material or
may have a Material Adverse Effect for purposes of this Agreement.
Section 8.11 Finders or Brokers. Except for CIBC World Markets Corp.,
with respect to the Company, and Banc of America Securities LLC, with respect to
Parent, a copy of whose engagement agreements have been provided by the Company
and Parent to the other, neither the Company nor Parent nor any of their
respective Subsidiaries has employed any investment banker, broker, finder or
intermediary in connection with the transactions contemplated hereby who might
be entitled to any fee or any commission in connection with or upon consummation
of the Merger.
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IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused
this Agreement to be signed by their respective officers thereunto duly
authorized, all as of the date first written above.
PHOTRONICS, INC.
By: /s/ Michael J. Yomazzo
--------------------------------
Name: Michael J. Yomazzo
Title: Vice Chairman
By: /s/ Jeffrey P. Moonan
--------------------------------
Name: Jeffrey P. Moonan
Title: Executive Vice President
Finance and Administration
AL ACQUISITION CORP.
By: /s/ Michael J. Yomazzo
--------------------------------
Name: Michael J. Yomazzo
Title: Vice Chairman
By: /s/ Jeffrey P. Moonan
--------------------------------
Name: Jeffrey P. Moonan
Title: Vice President
ALIGN-RIGHT INTERNATIONAL, INC.
By: /s/ James L. McDonald
--------------------------------
Name: James L. McDonald
Title: Chairman of the Board,
Chief Executive Officer
and President
By: /s/ Peter N. Katurich
--------------------------------
Name: Peter N. Katurich
Title: Vice President of Finance,
Chief Financial Officer
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ANNEX B
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER
This Amendment No. 1 (the "Amendment"), dated as of January 10, 2000, is entered
into by and among Photronics, Inc., a Connecticut corporation ("Parent"), AL
Acquisition Corp., a California corporation and a wholly owned subsidiary of
Parent ("Merger Sub"), and Align-Rite International, Inc., a California
corporation (the "Company").
WHEREAS, Parent, Merger Sub and the Company have previously executed and
delivered that certain Agreement and Plan of Merger, dated as of September 15,
1999, by and among Parent, Merger Sub and the Company (the "Merger Agreement");
WHEREAS, Parent, Merger Sub and the Company desire to amend the Merger Agreement
as set forth herein and pursuant to Section 7.3 of the Merger Agreement; and
WHEREAS, the shareholders of Company who are party to the Voting Agreement have
reaffirmed the Voting Agreement in light of this Amendment.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and
agreements herein contained, and intending to be legally bound hereby, Parent,
Merger Sub and Company hereby agree as follows:
Definitions. Capitalized terms used herein but not expressly defined shall have
the meanings accorded such terms in the Merger Agreement.
Amendment of Section 2.3 of the Merger Agreement. The first sentence of Section
2.3 of the Merger Agreement is hereby amended and restated to read, in its
entirety, as follows:
"At the Effective Time, by virtue of the Merger and without any action on the
part of the holder of any shares of Company Common Stock or any shares of
capital stock of Merger Sub, subject to this Section 2.3 and Section 2.4(f),
each share of Company Common Stock issued and outstanding immediately prior to
the Effective Time (other than shares to be canceled in accordance with Section
2.2 (the "Canceled Shares") and Dissenting Shares) shall be converted into 0.85
(the "Conversion Number") of duly authorized, validly issued and nonassessable
shares of Parent Common Stock (the "Merger Consideration"), provided that, if
between the date of this Agreement and the Effective Time, the outstanding
shares of Parent Common Stock shall have been changed into a different number of
shares or a different class, by reason of any declared or completed stock
dividend, subdivision, reclassification, recapitalization, split, combination or
exchange of shares, the Conversion Number shall be adjusted correspondingly to
the extent appropriate
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to reflect such stock dividend, subdivision, reclassification, recapitalization,
split, combination or exchange of shares."
All references in the Merger Agreement to the Conversion Number or the Merger
Consideration shall be deemed to refer to the Conversion Number or the Merger
Consideration, as the case may be, as such terms are defined in this Amendment.
3. Amendment of Section 3.11 of the Merger Agreement. Section 3.11 of the Merger
Agreement is hereby amended and restated to read, in its entirety, as follows:
"SECTION 3.11 Proxy Statement; Registration Statement; Other Information. None
of the information with respect to the Company or its Subsidiaries to be
included in the Proxy Statement (as defined in Section 5.2) or the Registration
Statement (as defined in Section 5.2) will, in the case of the Proxy Statement
or any amendments thereof or supplements thereto, at the time of the mailing of
the Proxy Statement or any amendments or supplements thereto, and at the time of
the Company Meeting (as defined in Section 5.3) or, in the case of the
Registration Statement, at the time it becomes effective or at the time of any
post-effective amendment, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
misleading, except that no representation is made by the Company with respect to
information supplied in writing by Parent or any affiliate of Parent
specifically for inclusion in the Proxy Statement. The Proxy Statement will
comply as to form in all material respects with the provisions of the Exchange
Act and the rules and regulations promulgated thereunder."
Amendment of Section 3.14 of the Merger Agreement. Section 3.14 of the Merger
Agreement is hereby amended and restated to read, in its entirety, as follows:
"SECTION 3.14 Opinion of Financial Advisor. The Board of Directors of the
Company has received an opinion of CIBC World Markets Corp., dated January 10,
2000, to the effect that, as of such date, the Exchange Ratio (as defined
therein) is fair to the Company's shareholders from a financial point of view. A
copy of the written opinion of CIBC World Markets Corp. will be delivered to
Parent as soon as practicable after the date of this Agreement."
Amendment of Section 4.3 of the Merger Agreement. Section 4.3(a) of the Merger
Agreement is hereby amended and restated to read, in its entirety, as follows:
"(a) Each of Parent and Merger Sub has full corporate power and authority to
enter into this Agreement and to carry out its obligations hereunder. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Boards of Directors of Parent and Merger Sub and by Parent as sole stockholder
of Merger Sub, and no other corporate or stockholder proceedings on the part of
Parent or Merger Sub are necessary to authorize
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this Agreement, the issuance of the Parent Common Stock and the other
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Parent and Merger Sub and, assuming this Agreement has
been duly and validly executed and delivered by the other parties hereto, this
Agreement constitutes the valid and binding agreements of Parent and Merger Sub,
enforceable against each of them in accordance with its terms (except insofar as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally, or by principles governing the availability of equitable remedies).
Other than in connection with or in compliance with the provisions of the CGCL,
the Securities Act, the Exchange Act, the HSR Act, any non-United States
competition, antitrust and investments laws and the securities or blue sky laws
of the various states and other jurisdictions, and, other than the filing of
this Agreement and a duly executed officers' certificate by each of the Company
and the Merger Sub with the California Secretary of State and any necessary
state filings to maintain the good standing or qualification of the Surviving
Corporation (collectively, the "Parent Required Approvals"), no authorization,
consent or approval of, or filing with, any governmental body or authority is
necessary on the part of Parent or Merger Sub for the consummation by Parent or
Merger Sub of the transactions contemplated by this Agreement, except for such
authorizations, consents, approvals or filings, the failure to obtain or make
which would not in the aggregate have a Material Adverse Effect on Parent or
Merger Sub; provided that Parent makes no representation with respect to such of
the foregoing as are required by reason or facts specifically pertaining to
Company or any of its Subsidiaries."
Amendment of Section 4.14 of the Merger Agreement. Section 4.14 of the Merger
Agreement is hereby amended and restated to read, in its entirety, as follows:
"SECTION 4.14 Vote of Parent Shareholders. Neither the vote of the holders of
the outstanding shares of Parent Common Stock nor of any other class of the
capital stock of Parent is required to approve the issuance of Parent Common
Stock in the Merger."
Amendment of Section 4.15 of the Merger Agreement. Section 4.15 of the Merger
Agreement is hereby amended to read, in its entirety, as follows:
"SECTION 4.15 Opinion of Financial Advisor. The Board of Directors of Parent has
received the opinion of Banc of America Securities LLC, dated January 7, 2000,
to the effect that, as of such date, the Exchange Ratio (as defined therein) is
fair from a financial point of view to Parent. A copy of the written opinion of
Banc of America Securities LLC will be delivered to the Company as soon as
practicable after the date of this Agreement."
Amendment of Section 5.2 of the Merger Agreement. Subsections (a) and (b) of
Section 5.2 of the Merger Agreement are hereby amended and restated to read, in
their entirety, as follows:
(a) The Company will, as promptly as practicable following the
date of this
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Agreement, prepare and file with the SEC, will use reasonable efforts to have
cleared by the SEC and thereafter mail to its shareholders as promptly as
practicable, a proxy statement that will be the same proxy statement/prospectus
contained in the Registration Statement (as hereinafter defined) and a form of
proxy, in connection with the vote of the Company's shareholders with respect to
the matters contemplated hereby (such proxy statement/prospectus, together with
any amendments thereof or supplements thereto, in each case in the form or forms
mailed to the Company's shareholders, is herein called the "Proxy Statement").
(b) Parent will, as promptly as practicable following the date of this
Agreement, prepare and file with the SEC a registration statement of the Parent
on Form S-4 (such registration statement, together with all and any amendments
and supplements thereto, being herein referred to as the "Registration
Statement"). Such Registration Statement shall be used for the purposes of
registering with the SEC the issuance of Parent Common Stock to holders of
Company Common Stock in connection with the Merger. In addition, each of Parent
and the Company will upon reasonable advance notice provide the other with all
information and other data as may be reasonably requested by Parent or the
Company, as the case may be, in connection with the preparation and filing of
the Registration Statement and the Proxy Statement."
Amendment of Section 5.3 of the Merger Agreement. Section 5.3 of the Merger
Agreement is hereby amended and restated to read, in its entirety, as follows:
"SECTION 5.3 Shareholders' Meeting. The Company shall, in accordance with
applicable law and its articles of incorporation and by laws, duly call, give
notice of, convene and hold a meeting (which, as may be duly adjourned, shall be
referred to as the "Company Meeting") of its shareholders as soon as practicable
for the purpose of approving by the holders of a majority of the outstanding
shares of Company Common Stock this Agreement and the Merger (the "Company
Shareholder Approval"). The Company agrees to use its reasonable best efforts to
cause the Company Meeting to occur within forty-five (45) days after the date on
which the Registration Statement becomes effective. The Company shall include in
the Proxy Statement the recommendation of its Board of Directors that
shareholders vote in favor of the Company Shareholder Approval, subject to the
duties of the Board of Directors of the Company to make any further disclosure
to the shareholders (which shall not, unless expressly stated, constitute a
withdrawal or adverse modification of such recommendation) and to the right to
change such recommendation or terminate this Agreement following receipt of a
Superior Proposal (as defined in Section 5.10)."
Amendment of Section 6.1 of the Merger Agreement. Section 6.1(b) of the Merger
Agreement is hereby amended and restated to read, in its entirety, as follows:
"(b) The Company Shareholder Approval shall have been obtained;"
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Amendments of Section 7.1 of the Merger Agreement. All references in subsections
(c) and (e) of Section 7.1 of the Merger Agreement to "February 25, 2000" are
hereby amended to read "March 31, 2000." Subsection (b) of Section 7.1 of the
Merger Agreement is hereby amended and restated to read, in its entirety, as
follows:
"(b) by Parent (provided that Parent is not then in material breach of any
representation, warranty, covenant or other agreement contained herein), (i)
upon a breach of any representation, warranty, covenant or agreement on the part
of the Company set forth in this Agreement, or (ii) if any representation or
warranty of the Company shall have become untrue, in either case continuing ten
(10) days following notice to the Company of such breach or untruth and of a
nature such that the conditions set forth in Section 6.2(a) or Section 6.2(b),
as the case may be, would be incapable of being satisfied by March 31, 2000;"
Subsection (g) of Section 7.1 of the Merger Agreement is hereby amended and
restated, in its entirety, to read: "[Intentionally Omitted]", and subsection
(j) of Section 7.1 of the Merger Agreement is hereby amended and restated, in
its entirety, to read as follows:
"(j) by the Company if the Average Parent Price is less than $18.82." 12.
Amendment of Section 7.5(a) of the Merger Agreement. Section 7.5(a) of the
Merger Agreement is hereby amended and restated to read, in its entirety, as
follows:
"(a) In the event (i) the Company terminates this Agreement pursuant to
Section 7.1(h) or (ii) Parent terminates this Agreement pursuant to Section
7.1(b)(i) or 7.1(i), then the Company shall pay Parent an amount equal to
$3,640,000 (the "Termination Fee") by wire transfer of immediately available
funds upon the occurrence of such event, and as a condition to termination in
the case of termination pursuant to Section 7.1(h). The Termination Fee shall be
the sole remedy of Parent for any breach of any representation, warranty,
covenant or agreement on the part of the Company set forth in this Agreement."
Amendment of Section 8.3 of the Merger Agreement. Section 8.3 of the Merger
Agreement is hereby amended by adding the following as a new subsection (d),
renumbering the current subsections (d) through (l) as subsections (e) through
(m) and deleting the reference to "Average Parent Price" in renumbered
subsection (m):
"(d) Average Parent Price" means the average of the daily average per share
high and low sales prices of one share of Parent Common Stock as reported on the
Nasdaq National Market (as reported in the New York City edition of The Wall
Street Journal or, if not reported thereby, another authoritative source) for
each of the 20 trading days ending on the third trading day prior to the Company
Meeting (as defined in Section 5.3, so long as the Closing Date occurs within
five business days of the Company Meeting or, if the Closing Date is more than
five business days after the Company Meeting, the Closing Date) rounded to the
nearest cent."
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Renumbered subsection (i) of Section 8.3 of the Merger Agreement is
hereby amended by adding the following at the end of that subsection:
; provided, however, that events, circumstances and prospects
disclosed by the Company to Parent in the Company Disclosure Letter,
as amended as of January 7, 2000, and any consequences thereof, shall
not constitute or form the basis of a Material Adverse Change or
Material Adverse Effect."
In addition, renumbered subsection (m) of Section 8.3 of the Merger
Agreement is hereby amended to delete the following defined terms: "Parent
Meeting," "Parent Shareholder Approval" and "Meetings" and to add the defined
term "Proxy Statement" and the accompanying section reference "5.2(a)". All
references to "Joint
B-6
<PAGE>
Proxy Statement" in the Table of Contents of the Merger Agreement and in Section
4.11 of the Merger Agreement shall be to "Proxy Statement."
Authority.
Each of Parent and Merger Sub has full corporate power and authority to enter
into this Amendment. The execution and delivery of this Amendment and the
consummation by each of Parent and Merger Sub of the transactions contemplated
by the Merger Agreement, as amended hereby, have been duly and validly
authorized by the Boards of Directors of Parent and Merger Sub. This Amendment
has been duly and validly executed and delivered by each of Parent and Merger
Sub and constitutes the valid and binding obligation of each of Parent and
Merger Sub, enforceable against each of Parent and Merger Sub in accordance with
its terms (except insofar as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally, or by principles governing the availability of equitable
remedies).
The Company has full corporate power and authority to enter into this Amendment.
The execution and delivery of this Amendment and the consummation by the Company
of the transactions contemplated by the Merger Agreement, as amended hereby,
have been duly and validly authorized by the Board of Directors of the Company.
This Amendment has been duly and validly executed and delivered by the Company
and constitutes the valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms (except insofar as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, or similar laws affecting creditors' rights generally, or by
principles governing the availability of equitable remedies).
Governing Law. This Amendment shall be governed by and construed in accordance
with the laws of the State of California, without regard to any applicable
conflicts of law.
Counterparts; Effect. This Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
B-7
<PAGE>
Merger Agreement Confirmed. Except as amended hereby, the Merger Agreement is
ratified and confirmed in all respects. Each reference in the Merger Agreement
or any other related document to the Merger Agreement, the Agreement or this
Amendment shall be deemed to a reference to the Merger Agreement as amended
hereby.
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Amendment to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
PHOTRONICS, INC.
By: /s/ Michael J. Yomazzo
---------------------------------------
Name: Michael J. Yomazzo
Title: Vice Chairman
By: /s/ Jeffrey P. Moonan
---------------------------------------
Name: Jeffrey P. Moonan
Title: Executive Vice President
Finance and Administration
AL ACQUISITION CORP.
By: /s/ Michael J. Yomazzo
---------------------------------------
Name: Michael J. Yomazzo
Title: President
By: /s/ Jeffrey P. Moonan
---------------------------------------
Name: Jeffrey P. Moonan
Title: Vice President
ALIGN-RITE INTERNATIONAL, INC.
By: /s/ James L. MacDonald
---------------------------------------
Name: James L. MacDonald
Title: Chairman of the Board,
Chief Executive Officer
and President
B-8
<PAGE>
By: /s/ Petar N. Katurich
---------------------------------------
Name: Petar N. Katurich
Title: Vice President of Finance,
Chief Financial Officer
B-9
<PAGE>
ANNEX C
[LETTERHEAD OF CIBC WORLD MARKETS CORP.]
January 10, 2000
Personal and Confidential
- -------------------------
Align-Rite International
2438 Ontario Street
Burbank, California 91504
Gentlemen:
You have asked CIBC World Markets Corp. ("CIBC World Markets") to
render a written opinion (the "Fairness Opinion") to the Board of the Directors
of Align-Rite International ("Align-Rite"), from a financial point of view, of
the conversion ratio (the "Conversion Ratio") of 0.85 shares of Photronics, Inc.
("Photronics") Common Stock that the shareholders of Align-Rite will receive for
each share of Align-Rite Common Stock held by them, pursuant to the merger, as
provided in the Agreement and Plan of Merger dated September 15, 1999, as
amended by Amendment No. 1 to Agreement and Plan of Merger (as so amended, the
"Merger Agreement"), by and among Align-Rite, Photronics and a wholly-owned
subsidiary of Photronics.
In arriving at our Fairness Opinion, we:
(a) reviewed the Merger Agreement ;
(b) reviewed the audited financial statements of Align-Rite for the
fiscal years ended March 31, 1998 and 1999, and the unaudited
financial statements of Align-Rite for the six months ended
September 30, 1998 and 1999 and the nine months ended December
31, 1998;
(c) reviewed the audited financial statements of Photronics for the
fiscal years ended November 2, 1997 and November 1, 1998, and
certain unaudited financial information of Photronics for the
quarter ended October 31, 1999;
(d) reviewed financial projections for Align-Rite, prepared and
supplied by Align- Rite's management, for the fiscal quarter
ended December 31, 1999 and the fiscal years ending March 31,
2000 and 2001;
(e) reviewed financial projections for Photronics, prepared and
supplied by
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Photronics' management, for the fiscal years ending
October 31, 2000 and 2001;
(f) held discussions with senior management of Align-Rite and
Photronics with respect to the business and prospects for
future growth of Align-Rite and Photronics;
(g) reviewed and analyzed certain publicly available financial
data and historical trading price information for certain
companies we deemed comparable to Align-Rite and
Photronics;
(h) reviewed and analyzed certain publicly available
information for transactions that we deemed comparable to
the Merger;
(i) performed discounted cash flow analyses of Align-Rite using
certain assumptions of future performance provided to us by
the management of Align-Rite;
(j) performed discounted cash flow analyses of Photronics using
certain assumptions of future performance provided to us by
the management of Photronics;
(k) reviewed selected publicly available research analyst
reports on Align-Rite and Photronics;
(l) reviewed historical market prices, trading volume and
relative price performance for shares of Align-Rite common
stock and Photronics common stock;
(m) utilized estimates for the future financial performance of
Align-Rite and Photronics, provided by the managements of
Align-Rite and Photronics, to calculate the relative
contributions of Align-Rite and Photronics to the pro forma
combined company, and reviewed the pro forma stock
ownership and pro forma enterprise value of the combined
company;
(n) analyzed the pro forma impact of the merger on Photronics'
earnings per share for the fiscal years ending October 31,
2000 and October 31, 2001, based on financial projections
provided by the managements of Align-Rite and Photronics;
(o) reviewed publicly available information concerning
Align-Rite and Photronics that we deemed relevant; and
(p) performed such other analyses and reviewed such other
information as we
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<PAGE>
deemed appropriate.
In rendering our Fairness Opinion we, at the direction of Align-Rite,
relied upon and assumed, without independent verification or investigation, the
accuracy and completeness of all of the financial and other information reviewed
by us, as well as all of the financial and other information provided to or
discussed with us by Align-Rite and Photronics and their employees,
representatives and affiliates. With respect to forecasts of future financial
condition and operating results, and certain assumptions for the future
performance, of Align-Rite and Photronics provided to us or discussed with us,
we assumed, at the direction of Align- Rite's management, without independent
verification or investigation, that such forecasts were reasonably prepared on
bases reflecting the best available information, estimates and judgments of
Align- Rite's or Photronics' management, as the case may be, and provided a
reasonable basis upon which we could form an opinion. We further relied upon the
assurance of management of Align-Rite and Photronics that they are unaware of
any facts that would make the information provided to us incomplete in any
meaningful respect or misleading in any respect. We express no view as to the
reasonableness of any forecasts or the information or assumptions on which they
are based. We have neither made nor obtained any independent evaluations or
appraisals of the assets or the liabilities of Align-Rite or Photronics or their
affiliated entities. We are not expressing any opinion as to the underlying
valuation, future performance or long term viability of Photronics' or Align-
Rite's operations following the Merger, or the price at which Photronics Common
Stock will trade subsequent to the Merger. We have assumed that the Merger will
be completed in accordance with the terms of the Merger Agreement. Our opinion
is necessarily based on the information available to us and general economic,
financial and stock market conditions and circumstances as they exist and can be
evaluated by us on the date hereof. It should be understood that, although
subsequent developments may affect this opinion, we do not have any obligation
to update, revise or reaffirm the opinion.
As part of our investment banking business, we are regularly engaged in
valuations of businesses and securities in connection with acquisitions and
mergers, underwritings, secondary distributions of securities, private
placements and valuations for other purposes.
We have acted as financial advisor to Align-Rite in connection with the
Merger and to the Board of Directors of Align-Rite in rendering this opinion and
will receive a fee for our services. CIBC World Markets may in the future
provide investment banking or other financial advisory services to Align-Rite or
Photronics.
In the ordinary course of business, CIBC World Markets acts as a market
maker and broker in publicly traded securities of Align-Rite and Photronics, and
also provides research coverage for Align-Rite and Photronics. In the ordinary
course of business, CIBC World Markets and its affiliates may also actively
trade securities of Align-Rite and Photronics for their own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
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<PAGE>
Based upon and subject to the foregoing, it is our opinion that, as
of the date hereof, the Conversion Ratio is fair to the shareholders of
Align-Rite from a financial point of view. It is understood that this letter is
for the information of the Board of Directors of Align-Rite and does not
constitute a recommendation to any stockholder as to how such stockholder should
vote with respect to any matter relating to the Merger. Neither this Fairness
Opinion nor the services provided by CIBC World Markets in connection herewith
may be publicly disclosed or referred to in any manner by Align-Rite without the
prior written approval of CIBC World Markets. CIBC World Markets consents to the
inclusion of this opinion in its entirety and any reference to this opinion,
subject to the approval of CIBC World Markets of references to it or this
opinion therein, in any prospectus, proxy statement or
solicitation/recommendation statement, as the case may be, filed by Align-Rite
or Photronics in connection with the Merger.
Very truly yours,
/s/ CIBC World Markets Corp.
-----------------------------
CIBC World Markets Corp.
C-4
<PAGE>
ANNEX D
[LETTERHEAD OF BANC OF AMERICA SECURITIES LLC]
January 7, 2000
Board of Directors
Photronics, Inc.
15 Secor Rd.
Brookfield, CT 06804
Members of the Board:
You have requested our opinion as to the fairness from a financial point of view
to Photronics, Inc. (the "Purchaser") of the Conversion Number (as defined
below) proposed in connection with the proposed merger (the "Merger") of
Align-Rite International, Inc. (the "Company") with AL Acquisition Corp.
("Acquisition Sub"), a wholly owned subsidiary of the Purchaser. Pursuant to the
terms of the Agreement and Plan of Merger, dated as of September 15, 1999, among
the Company, the Purchaser and Acquisition Sub, as amended by the draft
Amendment No. 1 to Agreement and Plan of Merger dated January 7, 2000
(collectively, the "Agreement"), the Company will become a wholly owned
subsidiary of the Purchaser, and shareholders of the Company will receive for
each share of issued and outstanding common stock, par value $0.01 per share, of
the Company (the "Company Common Stock") held by them, other than shares held in
treasury or held by the Purchaser or any affiliate of the Purchaser or as to
which dissenters' rights have been perfected, a number (the "Conversion Number")
of shares of common stock of the Purchaser, par value $0.01 per share (the
"Purchaser Common Stock"), equal to 0.85 shares of Purchaser Common Stock. The
Conversion Number shall be further subject to adjustments for stock splits,
dividends and the like. The terms and conditions of the Merger are more fully
set out in the Agreement.
You have informed us, and we have assumed, that the Merger will be accounted for
as a pooling of interests in accordance with U.S. Generally Accepted Accounting
Principles and that the transaction will be treated as a tax-free
re-organization and/or exchange, each pursuant to the Internal Revenue Code of
1986, as amended.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and
other business and financial information of the Company and the
Purchaser, respectively;
D-1
<PAGE>
(ii) reviewed certain internal financial statements and other
financial and operating data concerning the Company and the
Purchaser, respectively;
(iii) analyzed certain initial and updated financial forecasts
prepared by the management of the Company with respect to the
Company and certain initial and updated financial forecasts for
the Purchaser prepared by the management of the Purchaser;
(iv) reviewed and discussed with senior executives of the Company
information relating to certain potential strategic, financial
and operational benefits anticipated from the transactions
contemplated by the Agreement (the "Transactions"), prepared by
the managements of the Company and the Purchaser, respectively;
(v) discussed the past and current operations, financial condition
and prospects of the Company with senior executives of the
Company and discussed the past and current operations, financial
condition and prospects of the Purchaser with senior executives
of the Purchaser;
(vi) reviewed the pro forma impact of the Transactions on the
Purchaser's earnings per share, cash flow, consolidated
capitalization and financial ratios;
(vii) reviewed and considered in the analysis, information prepared by
members of senior management of the Company and the Purchaser
relating to the relative contributions of the Company and the
Purchaser to the combined company;
(viii) reviewed the reported prices and trading activity for the
Company Common Stock and the Purchaser Common Stock;
(ix) compared the financial performance of the Company and the
Purchaser and the prices and trading activity of the Company
Common Stock and the Purchaser Common Stock with that of certain
other publicly traded companies we deemed relevant;
(x) participated in discussions with representatives of the Company
and the Purchaser and their financial and legal advisors;
(xi) reviewed the Agreement; and,
(xii) performed such other analyses and considered such other factors
as we have deemed appropriate.
D-2
<PAGE>
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the financial and other information reviewed by us
for the purposes of this opinion. In arriving at our opinion, we have relied
upon the estimates of the Purchaser and the Company relating to certain
potential strategic, financial, and operational benefits anticipated from the
Merger. With respect to the financial forecasts, including information relating
to certain potential strategic, financial and operational benefits anticipated
from the Transactions, we have assumed that they have been reasonably prepared
on bases reflecting the best currently available estimates and good faith
judgments of the future financial performance of the Company and the Purchaser.
We have not made any independent valuation or appraisal of the assets or
liabilities of the Company, nor have we been furnished with any such appraisals.
We have acted as sole financial advisor to the Board of Directors of the
Purchaser in connection with this transaction and will receive a fee for our
services, a portion of which is contingent upon the consummation of the
Transactions. In addition, the Purchaser has agreed to offer to retain us, for a
fee, as its exclusive private placement agent for certain shares.
It is understood that this letter is for the benefit and use of the Board
of Directors of the Purchaser, except that this opinion may be included in its
entirety in any filing made by the Purchaser in respect of the Transactions with
the Securities and Exchange Commission, so long as this opinion is reproduced in
such filing in full and any description of or reference to us or summary of this
opinion and the related analysis in such filing is in a form acceptable to us
and our counsel. In furnishing this opinion, we do not admit that we are experts
within the meaning of the term "experts" as used in the Securities Act of 1933,
as amended (the "Securities Act") and the rules and regulations promulgated
thereunder, nor do we admit that this opinion constitutes a report or valuation
within the meaning of Section 11 of the Securities Act. Our opinion is
necessarily based on economic, market and other conditions as in effect on, and
the information made available to us as of, the date hereof. It should be
understood that subsequent developments may affect this opinion and we do not
have any obligation to update, revise or reaffirm this opinion. This opinion
does not in any manner address the prices at which the Purchaser Common Stock
will trade following consummation of the Merger. In addition, Banc of America
Securities LLC expresses no opinion or recommendation as to how the shareholders
of the Company should vote at the shareholders' meeting held in connection with
the Merger.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Conversion Number under the terms of the Agreement is fair from
a financial point of view to the Purchaser.
Very truly yours,
BANC OF AMERICA SECURITIES LLC
D-3
<PAGE>
/s/ Rex Sherry
-------------------------------
Name: Rex Sherry
Title: Managing Director
D-4
<PAGE>
ANNEX E
CHAPTER 13 OF THE CALIFORNIA GENERAL CORPORATION LAW
SECTION 1300
REORGANIZATION OR SHORT-FORM MERGER; DISSENTING SHARES;
CORPORATE PURCHASE AT FAIR MARKET VALUE; DEFINITIONS.
(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are dissenting
shares as defined in subdivision (b). The fair market value shall be determined
as of the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or depreciation
in consequence of the proposed action, but adjusted for any stock split, reverse
stock split, or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which
come within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger either (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (o) of Section
25100 or (B) listed on the list of OTC margin stocks issued by the Board of
Governors of the Federal Reserve System, and the notice of meeting of
shareholders to act upon the reorganization summarizes this section and Sections
1301, 1302, 1303 and 1304; provided, however, that this provision does not apply
to any shares with respect to which there exists any restriction on transfer
imposed by the corporation or by any law or regulation; and provided, further,
that this provision does not apply to any class of shares described in
subparagraph (A) or (B) if demands for payment are filed with respect to 5% or
more of the outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted in
favor of the reorganization or, (B) if described in subparagraph (A) or (B) of
paragraph (1) (without regard to the provisos in that paragraph), were voted
against the reorganization, or which were held of record on the effective date
of a short-form merger; provided, however, that subparagraph (A) rather than
subparagraph (B) of this paragraph applies in any case where the approval
required by Section 1201 is sought by written consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the
corporation purchase at their fair market value, in accordance with Section
1301.
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<PAGE>
(4) Which the dissenting shareholder has submitted for
endorsement, in accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
SECTION 1301. NOTICE TO HOLDERS OF DISSENTING SHARES IN
REORGANIZATIONS; DEMAND FOR PURCHASE; TIME; CONTENTS.
(a) If, in the case of a reorganization, any shareholders of a
corporation have a right under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, to require the corporation to
purchase their shares for cash, such corporation shall mail to each such
shareholder a notice of the approval of the reorganization by its outstanding
shares (Section 152) within 10 days after the date of such approval, accompanied
by a copy of Sections 1300, 1302, 1303, 1304 and this section, a statement of
the price determined by the corporation to represent the fair market value of
the dissenting shares, and a brief description of the procedure to be followed
if the shareholder desires to exercise the shareholder's right under such
sections. The statement of price constitutes an offer by the corporation to
purchase at the price stated any dissenting shares as defined in subdivision (b)
of Section 1300, unless they lose their status as dissenting shares under
Section 1309.
(b) Any shareholder who has a right to require the corporation to
purchase the shareholder's shares for cash under Section 1300, subject to
compliance with paragraphs (3) and (4) of subdivision (b) thereof, and who
desires the corporation to purchase such shares shall make written demand upon
the corporation for the purchase of such shares and payment to the shareholder
in cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders meeting to vote upon the
reorganization, or (2) in any other case within 30 days after the date on which
the notice of the approval by the outstanding shares pursuant to subdivision (a)
or the notice pursuant to subdivision (i) of Section 1110 was mailed to the
shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
SECTION 1302. SUBMISSION OF SHARE CERTIFICATES FOR ENDORSEMENT; UNCERTIFICATED
SECURITIES. Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities,
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<PAGE>
the shareholder's certificates representing any shares which the shareholder
demands that the corporation purchase, to be stamped or endorsed with a
statement that the shares are dissenting shares or to be exchanged for
certificates of appropriate denomination so stamped or endorsed or (b) if the
shares are uncertificated securities, written notice of the number of shares
which the shareholder demands that the corporation purchase. Upon subsequent
transfers of the dissenting shares on the books of the corporation, the new
certificates, initial transaction statement, and other written statements issued
therefor shall bear a like statement, together with the name of the original
dissenting holder of the shares.
SECTION 1303. PAYMENT OF AGREED PRICE WITH INTEREST; AGREEMENT
FIXING FAIR MARKET VALUE; FILING; TIME OF PAYMENT.
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair
market value of dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in the
case of certificated securities, subject to surrender of the certificates
therefor, unless provided otherwise by agreement.
SECTION 1304. ACTION TO DETERMINE WHETHER SHARES ARE DISSENTING SHARES OR FAIR
MARKET VALUE; LIMITATION; JOINDER; CONSOLIDATION; DETERMINATION OF ISSUES;
APPOINTMENT OF APPRAISERS.
(a) If the corporation denies that the shares are dissenting shares,
or the corporation and the shareholder fail to agree upon the fair market value
of the shares, then the shareholder demanding purchase of such shares as
dissenting shares or any interested corporation, within six months after the
date on which notice of the approval by the outstanding shares (Section 152) or
notice pursuant to subdivision (i) of Section 1110 was mailed to the
shareholder, but not thereafter, may file a complaint in the superior court of
the proper county praying the court to determine whether the shares are
dissenting shares or the fair market value of the dissenting shares or both or
may intervene in any action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be
joined as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues.
If the status of the shares as dissenting shares is in issue, the court shall
first determine that issue. If the fair market value of the dissenting shares is
in issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
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<PAGE>
SECTION 1305. REPORT OF APPRAISERS; CONFIRMATION; DETERMINATION
BY COURT; JUDGMENT; PAYMENT; APPEAL; COSTS.
(a) If the court appoints an appraiser or appraisers, they shall
proceed forthwith to determine the fair market value per share. Within the time
fixed by the court, the appraisers, or a majority of them, shall make and file a
report in the office of the clerk of the court. Thereupon, on the motion of any
party, the report shall be submitted to the court and considered on such
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a
report within 10 days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be
rendered against the corporation for payment of an amount equal to the fair
market value of each dissenting share multiplied by the number of dissenting
shares which any dissenting shareholder who is a party, or who has intervened,
is entitled to require the corporation to purchase, with interest thereon at the
legal rate from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301, 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
SECTION 1306. PREVENTION OF IMMEDIATE PAYMENT; STATUS AS
CREDITORS; INTEREST. To the extent that the provisions of Chapter 5 prevent the
payment to any holders of dissenting shares of their fair market value, they
shall become creditors of the corporation for the amount thereof together with
interest at the legal rate on judgments until the date of payment, but
subordinate to all other creditors in any liquidation proceeding, such debt to
be payable when permissible under the provisions of Chapter 5.
SECTION 1307. DIVIDENDS ON DISSENTING SHARES. Cash dividends declared and paid
by the corporation upon the dissenting shares after the date of approval of the
reorganization by the outstanding shares (Section 152) and prior to payment for
the shares by the corporation shall be credited against the total amount to be
paid by the corporation
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therefor.
SECTION 1308. RIGHTS OF DISSENTING SHAREHOLDERS PENDING VALUATION; WITHDRAWAL
OF DEMAND FOR PAYMENT. Except as expressly limited in this chapter, holders of
dissenting shares continue to have all the rights and privileges incident to
their shares, until the fair market value of their shares is agreed upon or
determined. A dissenting shareholder may not withdraw a demand for payment
unless the corporation consents thereto.
SECTION 1309. TERMINATION OF DISSENTING SHARE AND SHAREHOLDER STATUS. Dissenting
shares lose their status as dissenting shares and the holders thereof cease to
be dissenting shareholders and cease to be entitled to require the corporation
to purchase their shares upon the happening of any of the following:
(a) The corporation abandons the reorganization. Upon abandonment of
the reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for
endorsement in accordance with Section 1302 or are surrendered for conversion
into shares of another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon
the status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
SECTION 1310. SUSPENSION OF RIGHT TO COMPENSATION OR VALUATION PROCEEDINGS;
LITIGATION OF SHAREHOLDERS' APPROVAL. If litigation is instituted to test the
sufficiency or regularity of the votes of the shareholders in authorizing a
reorganization, any proceedings under Sections 1304 and 1305 shall be suspended
until final determination of such litigation.
SECTION 1311. EXEMPT SHARES. This chapter, except Section 1312, does not apply
to classes of shares whose terms and provisions specifically set forth the
amount to be paid in respect to such shares in the event of a reorganization or
merger.
SECTION 1312. RIGHT OF DISSENTING SHAREHOLDER TO ATTACK, SET
ASIDE OR RESCIND MERGER OR REORGANIZATION; RESTRAINING ORDER
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<PAGE>
OR INJUNCTION; CONDITIONS.
(a) No shareholder of a corporation who has a right under this
chapter to demand payment of cash for the shares held by the shareholder shall
have any right at law or in equity to attack the validity of the reorganization
or short-form merger, or to have the reorganization or short-form merger set
aside or rescinded, except in an action to test whether the number of shares
required to authorize or approve the reorganization have been legally voted in
favor thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
E-6
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. 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 Nine 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 Nine 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 Nine 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 Nine 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.
Item 21. Exhibits.
2.1 - Agreement and Plan of Merger dated as of September 15, 1999 among
Photronics, Inc., AL Acquisition Corp. and Align-Rite International,
Inc. (Included as Annex A to the proxy statement/prospectus)
2.2 - Amendment No. 1 to Agreement and Plan of Merger dated as of
January 10, 2000 among Photronics, Inc. AL Acquisition Corp. and
II-1
<PAGE>
Align-Rite International, Inc. (Included as Annex B to the
proxy statement/prospectus)
3.1 - Certificate of Incorporation of Photronics, Inc.
(Incorporated by reference to an exhibit to Photronics,
Inc.'s Registration Statement on Form S-1, declared
effective on March 10, 1987)
3.2 - Amendment to Certificate of Incorporation, dated March
16, 1990 (Incorporated by reference to an exhibit to
Photronics, Inc.'s Registration Statement on Form S-2,
declared effective on June 22, 1990)
3.3 - Amendment to Certificate of Incorporation, dated March
16, 1995 (Incorporated by reference to an exhibit to
Photronics, Inc.'s Current Report on Form 8-K, filed
March 24, 1995)
3.4 - Amendment to Certificate of Incorporation, dated
November 13, 1997 (Incorporated by reference to an exhibit
to Photronics, Inc.'s Annual Report on Form 10-K for the
fiscal year ended November 2, 1997)
3.5 - By-Laws of Photronics, Inc., as amended (Incorporated by
reference to an exhibit to Photronics, Inc.'s Registration
Statement on Form S-1, declared effective on March 10,
1987)
5.1 - Opinion of Paul, Hastings, Janofsky and Walker LLP
8.1 - Opinion of O'Melveny & Myers LLP
8.2 - Opinion of Paul, Hastings, Janofsky & Walker LLP
10.1 - Voting Agreement dated as of September 15, 1999 among
Photronics, Inc. and certain shareholders of Align-Rite
International, Inc. (Incorporated by reference as Exhibit
10.1 to Photronics, Inc.'s Current Report on Form 8-K,
filed September 24, 1999)
10.2 - Amended and Restated Voting Agreement dated as of October
26, 1999 among Photronics, Inc. and certain shareholders of
Align-Rite International, Inc. (Incorporated by reference
as Exhibit 3 to Schedule 13D/A of James L. MacDonald filed
October 27, 1999)
10.3 - Reaffirmation of Voting Agreement dated as of January 10,
2000 among Photronics, Inc. and certain shareholders of
Align-Rite International, Inc.
23.1 - Consent of PricewaterhouseCoopers LLP
II-2
<PAGE>
23.2 - Consent of Deloitte & Touche LLP
24.1 - Power of Attorney *
99.1 - Consent of CIBC World Markets Corp.
99.2 - Consent of Banc of America Securities LLC
99.3 - Form of proxy card for Photronics, Inc.*
99.4 - Form of proxy card for Align-Rite International, Inc.*
Item 22. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20
percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) To include any material information with respect
to the plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of
- ----------------------------
* Previously filed.
II-3
<PAGE>
such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
(4) If the registrant is a foreign private issuer, to file
a post-effective amendment to the registration statement to include
any financial statements required by Rule 3-19 of this chapter at the
start of any delayed offering or throughout a continuous offering.
Financial statements and information otherwise required by Section
10(a)(3) of the Act need not be furnished, provided, that the
registrant includes in the prospectus, by means of a post-effective
amendment, financial statements required pursuant to this paragraph
(a)(4) and other information necessary to ensure that all other
information in the prospectus is at least as current as the date of
those financial statements. Notwithstanding the foregoing, with
respect to registration statements on Form F-3, a post-effective
amendment need not be filed to include financial statements and
information required by Section 10(a)(3) of the Act or Rule 3-19 of
this chapter if such financial statements and information are
contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by
reference in the Form F-3.
(b) 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
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.
(c) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c), the issuer undertakes that such
reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(d) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that
purports to meet the requirements of section 10(a)(3) of the Act and
is used in connection with an offering of securities subject to Rule
415 (ss.230.415 of this chapter), will be filed as a part of an
amendment to the
II-4
<PAGE>
registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under
the Securities Act of 1933, each such post-effective amendment 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.
(e) 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, thereof,
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.
(f) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10 (b), 11, or 13 of this Form, within one
business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of
responding to the request.
(g) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject
of and included in the registration statement when it became
effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has duly caused this Amendment to 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 20th day of
January, 2000.
PHOTRONICS, INC.
By: /s/ Jeffrey P. Moonan
---------------------
Jeffrey P. Moonan,
Executive Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
* Chairman of the Board of January 20, 2000
- ------------------------------------------
Constantine S. Macricostas Directors and Director
(Principal Executive Officer)
* Vice Chairman of the Board January 20, 2000
- ------------------------------------------
Michael J. Yomazzo and Director
* Vice President/Finance January 20, 2000
- ------------------------------------------
Robert J. Bollo Chief Financial Officer
(Principal Financial and
Accounting Officer)
* Director January 20, 2000
- ------------------------------------------
Walter M. Fiederowicz
</TABLE>
II-6
<PAGE>
* Director January 20, 2000
- ------------------------------------------
Joseph A. Fiorita, Jr.
* By: Jeffrey P. Moonan, Attorney-in-fact
II-7
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit
2.1 - Agreement and Plan of Merger dated as of September 15, 1999
among Photronics, Inc., AL Acquisition Corp. and Align-Rite
International, Inc. (Included as Annex A to the proxy
statement/prospectus)
2.2 - Amendment No. 1 to Agreement and Plan of Merger dated as of
January 10, 2000 among Photronics, Inc. AL Acquisition
Corp. and Align-Rite International, Inc. (Included as Annex
B to the proxy statement/prospectus)
3.1 - Certificate of Incorporation of Photronics, Inc.
(Incorporated by reference to an exhibit to Photronics,
Inc.'s Registration Statement on Form S-1, declared
effective on March 10, 1987)
3.2 - Amendment to Certificate of Incorporation, dated March
16, 1990 (Incorporated by reference to an exhibit to
Photronics, Inc.'s Registration Statement on Form S-2,
declared effective on June 22, 1990)
3.3 - Amendment to Certificate of Incorporation, dated March
16, 1995 (Incorporated by reference to an exhibit to
Photronics, Inc.'s Current Report on Form 8-K, filed
March 24, 1995)
3.4 - Amendment to Certificate of Incorporation, dated
November 13, 1997 (Incorporated by reference to an exhibit
to Photronics, Inc.'s Annual Report on Form 10-K for the
fiscal year ended November 2, 1997)
3.5 - By-Laws of Photronics, Inc., as amended (Incorporated by
reference to an exhibit to Photronics, Inc.'s Registration
Statement on Form S-1, declared effective on March 10,
1987)
5.1 - Opinion of Paul, Hastings, Janofsky and Walker LLP
8.1 - Opinion of O'Melveny & Myers LLP
8.2 - Opinion of Paul, Hastings, Janofsky & Walker LLP
10.1 - Voting Agreement dated as of September 15, 1999 among
Photronics, Inc. and certain shareholders of Align-Rite
International, Inc. (Incorporated by reference as Exhibit
10.1 to Photronics, Inc.'s Current Report on Form 8-K,
II-8
<PAGE>
filed September 24, 1999)
10.2 - Amended and Restated Voting Agreement dated as of October
26, 1999 among Photronics, Inc. and certain shareholders of
Align-Rite International, Inc. (Incorporated by reference
as Exhibit 3 to Schedule 13D/A of James L. MacDonald filed
October 27, 1999)
10.3 - Reaffirmation of Voting Agreement dated as of January 10,
2000 among Photronics, Inc. and certain shareholders of
Align-Rite International, Inc.
23.1 - Consent of PricewaterhouseCoopers LLP
23.2 - Consent of Deloitte & Touche LLP
24.1 - Power of Attorney *
99.1 - Consent of CIBC World Markets Corp.
99.2 - Consent of Banc of America Securities LLC
99.3 - Form of proxy card for Photronics, Inc.*
99.4 - Form of proxy card for Align-Rite International, Inc.*
- --------------------
* Previously filed.
II-9
<PAGE>
EXHIBIT 5.1
[Letterhead of Paul, Hastings, Janofsky & Walker LLP]
January 19, 2000
Photronics, Inc.
1061 East Indiantown Road
Jupiter, Florida 33477
Re: Registration Statement on Form S-4 Covering a Maximum of 4,426,392
Shares of Common Stock
Ladies and Gentlemen:
This opinion is being rendered in connection with the proposed merger
of Align-Rite International Inc. with a subsidiary of Photronics, Inc. (the
"Company"), in which the Company will issue up to 4,426,392 shares of its common
stock, par value $.01 per share (the "Shares"), upon the terms and conditions
set forth in its Registration Statement on Form S-4, Registration No. 333-88739
(the "Registration Statement"), as filed by the Company with the Securities and
Exchange Commission under the Securities Act of 1933 on October 8, 1999 and
subsequently amended.
As counsel for the Company, we have examined such corporate records and
documents as we have deemed relevant and necessary as the basis for this
opinion, and we are familiar with the actions taken by the Company in connection
with the authorization, registration, issuance, and sale of the Shares.
Based upon the foregoing, it is our opinion that the Shares, upon their
issuance in accordance with the terms and conditions set forth in the Agreement
and Plan of Merger by and among the Company, AL Acquisition Corp., and Align-
Rite International, Inc. dated as of September 15, 1999, as amended by Amendment
No. 1 to Agreement and Plan of Merger by
<PAGE>
January 19, 2000
Page 2
and among the Company, AL Acquisition Corp., and Align-Rite International, Inc.,
dated as of January 10, 2000, will be duly authorized, validly issued, fully
paid and non-assessable.
For purposes of this opinion, we have not examined the laws of any
jurisdiction and we express no opinion with respect to conflicts of law rules or
the laws of any jurisdiction other than the State of Connecticut.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us contained in the first
sentence under the heading "Legal Opinions" in the proxy statement/prospectus
contained therein. 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 Securities Act of 1933, or the rules and regulations promulgated
thereunder.
Very truly yours,
/s/ PAUL HASTINGS, JANOFSKY & WALKER, LLP
<PAGE>
EXHIBIT 8.1
[O'Melveny & Myers LLP Letterhead]
January 20, 2000
Align-Rite International, Inc.
2428 Ontario Street
Burbank, California 91504
Attention: Mr. James L. Mc Donald
Re: Federal Income Tax Consequences of Proposed Merger of AL Acquisition
Corp., a Wholly Owned Subsidiary of Photronics, Inc., with and into
Align-Rite International, Inc
Ladies and Gentlemen:
We have acted as counsel to Align-Rite International, Inc., a California
corporation ("Align-Rite"), in connection with the merger (the "Merger") of AL
Acquisition Corp., a California corporation ("Subsidiary") and a wholly owned
subsidiary of Photronics, Inc., a Connecticut corporation ("Photronics"), with
and into Align-Rite, pursuant to the Agreement and Plan of Merger dated as of
September 15, 1999 (the "Agreement") by and among Photronics, Subsidiary and
Align-Rite. As requested by Align-Rite, we are hereby providing our opinion
regarding certain of the federal income tax consequences of the Merger.
We understand that our opinion will be filed as an exhibit to the Proxy
Statement-Prospectus (the "Proxy Statement-Prospectus") that is part of the
Registration Statement on Form S-4 to be filed with the Securities and Exchange
Commission in connection with the Merger. We hereby consent to such use of our
opinion. We also consent to the references to O'Melveny & Myers LLP under each
of the headings "The Merger -- U.S. Federal Income Tax Consequences" and "Legal
Opinions."
Unless specified, capitalized terms used herein shall have the meanings
assigned to them in the Proxy Statement-Prospectus. All references herein to
the Code are to the United States Internal Revenue Code of 1986, as amended.
INFORMATION RELIED ON
---------------------
In rendering the opinion expressed herein, we have examined such documents
as we have deemed appropriate, including the Agreement and the Proxy Statement-
Prospectus. In our examination of documents, we have assumed, with your
consent, that all documents submitted to us as photocopies or telecopies
faithfully reproduce the originals thereof, that such originals are authentic,
that all such documents have been or will be duly executed to the extent
required, and that all statements set forth in such documents are accurate. We
also have assumed, with your consent, that the Merger will be consummated in
compliance with the material terms of the Agreement. Finally, we have assumed
that the Paul, Hastings, Janofsky & Walker LLP opinion
<PAGE>
Align-Rite International, Inc.
January 20, 2000
Page 2
rendered to Photronics pursuant to Section 6.2(f) of the Agreement has been
delivered and has not been withdrawn.
We also have obtained such additional information and representations as we
have deemed relevant and necessary through consultation with various
representatives of Photronics, Subsidiary and Align-Rite. We have received
certificates from officers of Photronics, Subsidiary and Align-Rite (the
"Certificates"), verifying certain relevant facts that have been represented to
us or that we have assumed in rendering this opinion. We have assumed, with
your consent, that the statements contained in the Certificates are true and
correct on the date hereof and will be true as of the Effective Time, and that
any representation made in any of the documents referred to herein "to the best
of the knowledge and belief" (or with similar qualification) of any person is
true and correct without such qualification. We have not attempted
independently to verify such representations.
OPINION
-------
Subject to the assumptions set forth above, the representations made to us
by Align-Rite, Photronics and Subsidiary in their respective Certificates, and
the assumptions and qualifications set forth herein and in the discussion in the
Proxy Statement-Prospectus under the heading "The Merger -- Certain U.S. Federal
Income Tax Consequences" (the "Discussion"), we hereby confirm the opinion of
O'Melveny & Myers LLP as described in the Discussion.
This opinion is limited to the tax matters specifically covered herein, and
we have not been asked to address, nor have we addressed, any other tax
consequences of the Merger. The opinion herein is based on current authorities
and upon facts and assumptions as of the date of this opinion. This opinion is
subject to change in the event of a change in the applicable law or change in
the interpretation of such law by the courts, the Treasury Department or by the
Internal Revenue Service, or a change in any of the facts and assumptions upon
which it is based, which changes could be retroactive with respect to
transactions prior to the date of such changes. Any such changes could
significantly modify the statements and opinions expressed herein. This opinion
represents counsel's best legal judgment, and has no binding effect or official
status, so that no assurance can be given that the positions set forth above
will be sustained by a court, if contested. In addition, if any of the facts or
assumptions upon which this opinion is based were to change, this opinion would
no longer have any force or effect.
This opinion is furnished to you solely for use in connection with the
Proxy Statement-Prospectus, and is intended solely for the benefit of Align-Rite
and its shareholders. This opinion may not be made available to, or relied
upon, by any other person or entity without our prior written consent.
Respectfully submitted,
/s/ O'MELVENY & MYERS LLP
<PAGE>
EXHIBIT 8.2
[Letterhead of Paul, Hastings, Janofsky & Walker LLP]
January 20, 2000
Photronics, Inc.
1061 East Indiantown Road
Jupiter, Florida 33477
Re: Agreement and Plan of Merger, dated as of September 15, 1999, among
Photronics, Inc., AL Acquisition Corp. and Align-Rite International,
Inc.
Ladies and Gentlemen:
We have acted as counsel to Photronics, Inc., a Connecticut
corporation (the "Company"), in connection with the proposed merger of AL
Acquisition Corp., a California corporation ("AL") and a wholly owned subsidiary
of the Company, with and into Align-Rite International, Inc. ("Align-Rite") (the
"Merger") pursuant to the Agreement and Plan of Merger dated as of September 15,
1999, among the Company, AL and Align-Rite (the "Merger Agreement"). At your
request, in connection with the filing of the registration statement on Form S-4
filed with the Securities and Exchange Commission in connection with the Merger
(the "Registration Statement"), we are rendering our opinion regarding certain
federal income tax consequences of the Merger.
Except as otherwise provided, capitalized terms not defined herein
have the meanings set forth in the Merger Agreement or in the certificates that
have been delivered to us by the Company (on behalf of the Company and AL) and
Align-Rite for purposes of this opinion and that contain the representations of
the Company and Align-Rite (the "Officer's Certificates").
This opinion is based upon and subject to:
(i) the Merger being effected in the manner described in the
Registration Statement and Proxy Statement (the "Proxy Statement") and in
accordance with the provisions of the Merger Agreement, which is the only
document containing the substantive terms of the Merger;
(ii) the accuracy and completeness, at all times through the
Effective Time of the Merger, of the representations made to us by the Company
and Align-Rite in their respective Officer's Certificates (including, in the
case of representations made to the best
<PAGE>
Photronics, Inc.
January 20, 2000
Page 2
knowledge of the Company or Align-Rite management, or similarly qualified, the
accuracy and completeness, at all times through the Effective Time of the
Merger, of such representations as though not so qualified);
(iii) the accuracy and completeness, at all times through the
Effective Time of the Merger, of the statements concerning the Merger set forth
in the Registration Statement, Proxy Statement and Merger Agreement, including
the purposes of the Company and Align-Rite for consummating the Merger; and
(iv) the accuracy and completeness, at all times through the
Effective Time of the Merger, of any statements concerning the Merger that have
come to our attention during our engagement.
Based on our examination of the foregoing items and subject to the
limitations set forth herein, we are of the opinion that, for United States
federal income tax purposes, the Merger will constitute a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code").
Our opinion is based on current provisions of the Code, Treasury
Regulations promulgated thereunder, published pronouncements of the Internal
Revenue Service and case law, any of which may be changed at any time with
retroactive effect. Any change in applicable laws or facts and circumstances
surrounding the Merger, or any inaccuracy in the statements, facts, assumptions
and representations on which we have relied, may affect the continuing validity
of the opinion set forth herein. We assume no responsibility to inform you of
any change or inaccuracy that may occur or come to our attention.
We express no opinion as to the United States federal income tax
consequences of the Merger to stockholders subject to special treatment under
United States federal income tax law (including, for example, financial
institutions, tax-exempt organizations, insurance companies, dealers in
securities or foreign currencies, traders in securities who elect to apply a
mark-to-market method of accounting, foreign holders, persons who hold shares as
a hedge against currency risk or as part of a straddle, constructive sale or
conversion transaction, holders who acquired their shares of the Company upon
the exercise of employee stock options or otherwise as compensation, and holders
who do not hold their shares of the Company as capital assets within the meaning
of Section 1221 of the Code). In addition, no opinion is expressed with respect
<PAGE>
Photronics, Inc.
January 20, 2000
Page 3
to the tax consequences of the Merger under applicable foreign, state or local
laws or under any federal tax laws other than those pertaining to the income
tax, and our opinion may not be relied upon, in each case except to the extent
specifically stated herein.
Very truly yours,
/s/ Paul, Hastings, Janofsky & Walker LLP
<PAGE>
EXHIBIT 10.3
REAFFIRMATION OF VOTING AGREEMENT
This REAFFIRMATION OF VOTING AGREEMENT, dated as of January 10, 2000
(this "Agreement"), reaffirms the Voting Agreement, dated as of September 15,
1999, by and among Photronics, Inc., a Connecticut corporation ("Parent") and
the other parties listed on the signature page thereof (collectively, the
"Shareholder"), as amended by that certain Amended and Restated Voting
Agreement, dated as of October 26, 1999 among Parent and the other parties
listed on the signature page hereof (the "Voting Agreement").
WHEREAS, simultaneously with the execution of the Voting Agreement,
Parent, Al Acquisition Corp. ("Merger Sub") and Align-Rite International, Inc.
(the "Company") entered into an Agreement and Plan of Merger (the "Merger
Agreement") providing for, among other things, the merger of Merger Sub with and
into the Company (the "Merger");
WHEREAS, the parties intend concurrently with the execution of this
Agreement to execute Amendment No.1 ("Amendment No. 1") to the Merger Agreement
in order to provide for certain changes to the terms and conditions thereof.
WHEREAS, the parties to the Voting Agreement now desire to reaffirm the
Voting Agreement;
WHEREAS, as of the date hereof, the Shareholder is the beneficial owner
of the number of shares (the "Shares") of common stock, par value $.01 per
share, of the Company set forth opposite such Shareholder's name on Schedule 1
attached hereto. Except as specified herein, terms defined in the Merger
Agreement are used herein as defined therein.
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, the parties hereto agree as follows:
1. Reaffirmation of Voting Agreement.
1.1 Supplement. Section 1 of the Voting Agreement is
hereby amended by adding the following as Section 1.3: "The Shareholder
acknowledges receipt and review of a copy of the Amendment No. 1."
<PAGE>
1.2 Reaffirmation. The Shareholder reaffirms the Voting
Agreement in its entirety.
2. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
3. Governing Law. This Agreement shall be governed in all respects,
including validity, interpretation and effect, by the laws of the State of
California (without giving effect to the provisions thereof relating to
conflicts of law).
4. Public Announcements. Shareholder shall not issue any press release or
other statement with respect to the transactions contemplated by this Agreement
and the Merger Agreement, as amended by Amendment No. 1 without the prior
written consent of Parent.
5. Severability. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms of
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
6. Shareholder Capacity. James L. MacDonald makes no agreement or
understanding herein in his capacity as a director or officer of the Company.
The Shareholder signs solely in its capacity as the record holder and beneficial
owner of the Shares and nothing herein shall restrict James L. MacDonald in the
exercise of his fiduciary duties as a director or officer of the Company.
7. Voting Agreement Confirmed. The Voting Agreement shall remain in full
force and effect.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the Shareholder and a duly authorized officer of Parent on the day
and year first written above.
Photronics, Inc.
By: /s/ Michael J. Yomazzo
----------------------------------
Michael J. Yomazzo,
Vice Chairman
/s/ James L. MacDonald
---------------------------------------
James L. Mac Donald
/s/ James L. MacDonald
----------------------------------------
James L. MacDonald, as Joint Tenant of
18,000 Shares
/s/ Robin A. MacDonald
----------------------------------------
Robin A. MacDonald, as Joint Tenant of
18,000 Shares
/s/ James L. MacDonald, Jr.
------------------------------------------
James L. Mac Donald, Jr., as Trustee
under the Trust Agreement, dated
November 17, 1983, for the Mac Donald
Family Trust
/s/ Robin A. MacDonald
------------------------------------------
Robin A. Mac Donald, as Trustee
under the Trust Agreement, dated
November 17, 1983, for the Mac Donald
Family Trust
<PAGE>
Acknowledgment and Agreement of Spouse
The undersigned, being the spouse of James L. Mac Donald,
acknowledges that she has read and understands the terms of this Agreement and
hereby agrees to be bound by the terms hereof to the extent she has a community
property or other interest in the Shares.
/s/ Robin A. MacDonald
-----------------------------
Robin A. Mac Donald
The undersigned, being the spouse of Robin A. Mac Donald,
acknowledges that he has read and understands the terms of this Agreement and
hereby agrees to be bound by the terms hereof to the extent that he has a
community property or other interest in the Shares.
/s/ James L. MacDonald
-----------------------------
James L. Mac Donald
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Name Shares of Common Options to Acquire Shares
---- ---------------- --------------------------
Stock Owned of Common Stock
----------- ---------------
<S> <C> <C>
James L. Mac Donald 100,000 241,396, of which
164,558 are vested
James L. Mac Donald and 18,000
Robin A. Mac Donald as
Joint Tenants
James L. Mac Donald and 440,000
Robin A. Mac Donald as
Trustees under the Trust
Agreement, dated November
17, 1983, of the Mac Donald
Family Trust
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITOR'S CONSENT
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of Photronics Inc. of our report dated May 28, 1999
relating to the financial statements and financial statement schedule appearing
in the Align-Rite International, Inc. Annual Report on Form 10-K for the year
ended March 31, 1999. We also consent to the reference to us under the heading
"Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Newport Beach, CA
January 19,2000
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in Amendment No. 2 to
Registration Statement No. 333-88739 of Photronics, Inc. on Form S-4 of our
report dated December 9, 1998, appearing in the Annual Report on Form 10-K of
Photronics, Inc. for the year ended November 1, 1998, and to the reference to us
under the heading "Experts" in the proxy statement/prospectus, which is part of
this Registration Statement.
/s/ Deloitte & Touche LLP
Hartford, Connecticut
January 19, 2000
<PAGE>
Exhibit 99.1
OPINION INCLUSION CONSENT
January 21, 2000
Members of the Board of Directors
Align-Rite International, Inc.
2428 Ontario Street
Burbank, CA 91504
Gentlemen:
We hereby consent to the inclusion of our opinion letter dated January 10, 2000
to the Board of Directors of Align-Rite International, Inc. (the "Company")
regarding the acquisition of Align-Rite International, Inc. by Photronics, Inc.,
in Amendment No. 2 to the Registration Statement on Form S-4 (the "Registration
Statement") and to the references therein to our firm and to our opinion under
the headings: "THE MERGER - Background of the Merger," "THE MERGER - Align-Rite
Board Reasons for the Merger; Recommendation of the Align-Rite Board" and "THE
MERGER - Opinion of Financial Advisor to the Align-Rite Board." In giving the
foregoing consent, we do not admit that (i) we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended (the "Securities Act"), or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder, or (ii) we are
experts with respect to any part of the Registration Statement within the
meaning of the term "experts" as used in the Securities Act and the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
Very truly yours,
/s/ CIBC World Markets Corp.
CIBC World Markets Corp.
<PAGE>
Exhibit 99.2
OPINION INCLUSION CONSENT
January 21, 2000
Members of the Board of Directors
Photronics, Inc.
15 Secor Rd.
Brookfield, CT 06804
Gentlemen:
We hereby consent to the inclusion of our opinion letter dated January 7, 2000
to the Board of Directors of Photronics, Inc. (the "Company") regarding the
acquisition of Align-Rite International, Inc. by the Company, in Amendment No. 2
to the Company's Registration Statement on Form S-4 (the "Registration
Statement") and to the references therein to our firm and to our opinion under
the headings: "THE MERGER -Background of the Merger," "THE MERGER - Photronics
Board Reasons for the Merger; Recommendation of the Photronics Board", "THE
MERGER - Opinion of Financial Advisor to the Photronics Board" and "THE MERGER -
Anticipated Accounting Treatment; Sale of 1,000,000 Shares of Photronics Common
Stock." In giving the foregoing consent, we do not admit (i) that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended (the "Securities Act"), or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder,
and (ii) that we are experts with respect to any part of the Registration
Statement within the meaning of the term "experts" as used in the Securities Act
and the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
Very truly yours,
/s/ Banc of America Securities LLC
BANC OF AMERICA SECURITIES LLC
