<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 24, 1997
REGISTRATION STATEMENT NO. 333-
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
CFM TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
PENNSYLVANIA 3559 23-2298698
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER)
JURISDICTION INDUSTRIAL IDENTIFICATION NO.)
OF INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
1336 ENTERPRISE DRIVE
WEST CHESTER, PENNSYLVANIA 19380
(610) 696-8300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
LORIN J. RANDALL, VICE PRESIDENT
CFM TECHNOLOGIES, INC.
1336 ENTERPRISE DRIVE
WEST CHESTER, PENNSYLVANIA 19380
(610) 696-8300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
COPIES OF COMMUNICATIONS TO:
JUSTIN P. KLEIN, ESQUIRE BARRY M. ABELSON, ESQUIRE
BALLARD SPAHR ANDREWS & INGERSOLL JAMES D. EPSTEIN, ESQUIRE
1735 MARKET STREET, 51ST FLOOR PEPPER, HAMILTON & SCHEETZ
PHILADELPHIA, PENNSYLVANIA 19103 3000 TWO LOGAN SQUARE
(215) 665-8500 PHILADELPHIA, PENNSYLVANIA 19103
(215) 981-4000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock........... 1,920,500 shares $28 1/2 $54,734,250 $16,587
</TABLE>
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(1) Includes 250,500 shares subject to the Underwriters' over-allotment
option.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(a) under the Securities Act of 1933.
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 THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
CFM TECHNOLOGIES, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
ITEMS OF FORM S-1 REQUIRED IN THE PROSPECTUS
<TABLE>
<CAPTION>
ITEM
NUMBER LOCATION IN PROSPECTUS
------ ----------------------
<C> <S> <C>
1. Forepart of the Registration
Statement and Outside Front Cover of Registration Statement; Cross-
Cover Page of Prospectus.... Reference Sheet; Outside Front Cover
Page of Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus... Inside Front and Outside Back Cover
Pages of Prospectus; Additional
Information
3. Summary Information, Risk
Factors and Ratio of Prospectus Summary; Summary Financial
Earnings to Fixed Charges... Information; Risk Factors
4. Use of Proceeds.............. Prospectus Summary; Use of Proceeds
5. Determination of Offering Outside Front Cover Page of Prospectus;
Price....................... Underwriting
6. Dilution..................... Not Applicable
7. Selling Security Holders..... Principal and Selling Shareholders
8. Plan of Distribution......... Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to Prospectus Summary; Capitalization;
be Registered............... Description of Capital Stock
10. Interests of Named Experts
and Counsel................. Not Applicable
11. Information with Respect to Inside Front and Outside Back Cover
the Registrant.............. Pages of Prospectus; Prospectus
Summary; Risk Factors; The Company; Use
of Proceeds; Price Range of Common
Stock; Dividend Policy; Capitalization;
Selected Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Price Range of Common Stock;
Management; Certain Relationships and
Related Transactions; Principal and
Selling Shareholders; Description of
Capital Stock; Shares Eligible for
Future Sale; Experts; Consolidated
Financial Statements
12. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities................. Not Applicable
</TABLE>
<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 SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 24, 1997
1,670,000 SHARES
[LOGO OF CFM TECHNOLOGIES, INC. APPEARS HERE]
COMMON STOCK
Of the 1,670,000 shares of Common Stock offered hereby, 1,500,000 shares are
being sold by CFM Technologies, Inc. ("CFM" or the "Company") and 170,000
shares are being sold by the Selling Shareholders. The Company will not receive
any of the proceeds from the sale of shares by the Selling Shareholders. See
"Principal and Selling Shareholders." The Company's Common Stock is traded on
The Nasdaq Stock Market under the symbol CFMT. On January 23, 1997, the last
reported sale price of the Common Stock on The Nasdaq Stock Market was $28.50
per share. See "Price Range of Common Stock."
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON
PAGE 6 OF THIS PROSPECTUS FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
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<CAPTION>
Underwriting
Price to Discount and Proceeds to Proceeds to
Public Commissions(1) Company(2) Selling Shareholders
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<S> <C> <C> <C> <C>
Per Share............. $ $ $ $
Total(3).............. $ $ $ $
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</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company, estimated at $300,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
250,500 additional shares of Common Stock solely to cover over-allotments,
if any. If the Underwriters exercise this option in full, the Price to
Public will total $ , the Underwriting Discount and Commissions will
total $ , the Proceeds to Company will total $ and the Proceeds to
Selling Shareholders will total $ . See "Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of the
certificates representing such shares of Common Stock will be made against
payment therefor at the office of Montgomery Securities on or about ,
1997.
-----------
MONTGOMERY SECURITIES
PAINEWEBBER INCORPORATED
UBS SECURITIES
, 1997
<PAGE>
"This fully-enclosed, flow-optimized processing chamber (shown here in a
cutaway view) provides, improved performance in critical semiconductor and flat
panel display manufacturing processes, avoiding many of the deficiencies
associated with traditional wet processing equipment such as contamination
producing air-liquid interfaces, uncontrolled growth of silicon oxides,
watermarks and excessive water usage."
[DIAGRAM APPEARS HERE DEPICTING A CUTAWAY VIEW OF THE COMPANY'S FULL FLOW
PROCESSING VESSEL, PARTIALLY LOADED WITH WAFERS OF SUBSTRATES FOR PROCESSING.]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ STOCK MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS, IF ANY, MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON THE NASDAQ NATIONAL MARKET, IN ACCORDANCE WITH RULE 10b-6A UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED ("THE EXCHANGE ACT"). SEE
"UNDERWRITING."
"The Full-Flow product platform features the Company's proprietary Direct-
Displacement (TM) drying technology and principally consists of the vessel
module, including a fully-enclosed water processing chamber, and associated
robotic, handling equipment as seen here in a dual-vessel installation. Because
the Company's Full-Flow systems may be flush mounted into the cleanroom wall,
use of expensive cleanroom space can be limited to a small operator access
area."
[PHOTOGRAPH APPEARS HERE DEPICTING A DUAL VESSEL FULL FLOW SYSTEM FLUSH
MOUNTED IN THE WALL, WITH OPERATOR ACCESS AREA MOUNTED ON THE WALL.]
[PHOTOGRAPH APPEARS HERE DEPICTING TWO OF THE COMPANY'S FULL-FLOW SYSTEMS
INSTALLED IN A SEMICONDUCTOR FABRICATION FACILITY. ALSO APPEARING IN THE
PHOTOGRAPH ARE TWO SYSTEM OPERATORS.]
"Multiple Full-Flow installation in a large semiconductor fab in Europe."
[PHOTOGRAPH APPEARS HERE DEPICTING AN INDIVIDUAL OPERATING A FULL-FLOW SYSTEM
IN THE COMPANY'S APPLICATIONS LABORATORY.]
"Company personnel test new processes and equipment in the Company's recently
completed applications laboratory which features a Full-Flow system capable of
processing 100 8" wafers."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the financial statements and notes
thereto, appearing elsewhere in this Prospectus. Unless otherwise indicated,
(a) all references to fiscal years of the Company in this Prospectus refer to
fiscal years ended on October 31 and (b) the information in this Prospectus
assumes no exercise of the Underwriters' over-allotment option. This Prospectus
contains forward-looking statements that involve risks and uncertainties. See
"Special Note Regarding Forward Looking Statements."
THE COMPANY
CFM Technologies, Inc. ("CFM" or the "Company") designs, manufactures and
markets advanced wet processing equipment for sale to the worldwide
semiconductor and flat panel display ("FPD") industries. The Company's products
are based on its patented Full-Flow enclosed processing and Direct-Displacement
drying technologies and are designed to perform various critical cleaning and
etching and photoresist stripping process steps in the manufacture of
semiconductors and FPDs.
According to VLSI Research Inc. ("VLSI"), total sales of semiconductor
process equipment grew from $2.2 billion in 1980 to $30.9 billion in 1995, with
sales of wet processing equipment totaling approximately $1.4 billion in 1995.
As integrated circuits ("ICs") become increasingly complex and linewidths
continue to decrease, the cost of advanced fabrication equipment escalates.
Therefore, semiconductor manufacturers are increasingly focused on the cost of
owning a particular piece of process equipment compared to competing systems.
Determining such cost of ownership ("COO") involves measuring a variety of
factors, including acquisition and installation costs, yield, throughput and
the use of consumables and facility floor space. Similar trends characterize
the market for the FPD industry. Manufacturers of FPDs are focused on equipment
that can help to achieve higher resolution, lower power consumption, improved
brightness and clearer images.
The Company believes that its patented Full-Flow enclosed processing and
Direct-Displacement drying technologies enable it to provide wet processing
systems that address a variety of limitations inherent in conventional systems,
including wet benches and spray tools, resulting in a significantly lower COO
for the Company's Full-Flow systems. The Company's Full-Flow systems
automatically load wafers or FPD substrates into a fully-enclosed, flow-
optimized processing vessel, which isolates them during processing from the
damaging effects of exposure to cleanroom air and associated contaminants. As a
result, particle contamination is substantially reduced, watermark defects and
native oxide growth are substantially eliminated and process control is
improved. In addition, the fully-enclosed processing vessel substantially
reduces the use of water and process chemicals. Also, the modular design of the
Full-Flow system enables flush mounting in the cleanroom wall, with the
majority of the floor space occupied by the system components located outside
the cleanroom environment, minimizing the use of expensive cleanroom floor
space.
In 1990, the Company sold its first Full-Flow system for use in a
semiconductor production line. To date, the Company has sold over 80 Full-Flow
systems to more than 25 semiconductor and FPD manufacturers. The Company's
customers include: GEC Plessey, LG International (America) and related entities
("LG"), Motorola, National Semiconductor, Samsung, SGS-Thomson
Microelectronics, Siemens, Texas Instruments and Tower Semiconductor. Full-Flow
systems can currently be configured with either one or two vessels that are
capable of processing 50 8-inch wafers each. The Company recently completed
development of an enhanced Full-Flow system that provides a two-fold increase
in capital productivity by offering vessels capable of processing 100 8-inch
wafers. These enhanced systems, which the Company began to ship in April 1996,
address the cost-sensitive photoresist strip market as well as other wet
processing applications. In addition, the Company believes its Full-Flow
technology is well-suited for cleaning and precise etching applications in the
manufacture of FPDs, and provides significant COO advantages over competing FPD
wet processing technologies. The Company has
3
<PAGE>
developed and shipped five FPD processing systems based on its Full-Flow
platform. In addition, the Company recently received a $16.1 million order for
six FPD systems from LG.
The Company's objective is to capitalize on the inherent COO advantages of
its Full-Flow systems to become a leading supplier of advanced wet processing
equipment to the worldwide semiconductor and FPD industries. The Company's
Full-Flow systems are based on a modular design and can be configured using a
variety of process and support modules. By basing new process applications on
its proprietary Full-Flow platform, the Company can focus primarily on the
development and optimization of the applications' process recipes, which the
Company believes significantly reduces the time and cost associated with
entering new wet processing market segments.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company........... 1,500,000 shares
Common Stock offered by the Selling
Shareholders................................. 170,000 shares
Total Offering.............................. 1,670,000 shares
Common Stock to be outstanding after the
Offering..................................... 7,553,340 shares(1)
Use of Proceeds............................... For general corporate purposes,
including working capital.
See "Use of Proceeds."
Nasdaq Stock Market Symbol.................... CFMT
</TABLE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TEN MONTHS
ENDED FISCAL YEAR ENDED OCTOBER 31,
OCTOBER 31, -------------------------------
1992(2) 1993 1994 1995 1996
----------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales........................ $5,939 $11,840 $15,937 $23,430 $44,013
Operating income................. 793 2,095 1,573 2,278 4,642
Net income....................... 145 883 538 1,402 2,960
Net income per share(3).......... $ 0.35 $ 0.61
Weighted average common and
common equivalent shares(3)..... 3,994 4,831
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 31, 1996
----------------------
ACTUAL AS ADJUSTED(4)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments...... $12,254 $52,246
Working capital........................................ 27,525 67,517
Total assets........................................... 44,521 84,513
Long-term debt, less current portion................... 2,525 2,525
Shareholders' equity................................... 32,711 72,703
</TABLE>
- --------
(1) Excludes 1,060,107 shares of Common Stock issuable upon the exercise of
outstanding stock options as of January 23, 1997 of which options to
purchase 487,939 shares were then exercisable. See Note 10 of the Notes to
Consolidated Financial Statements.
(2) In 1992, the Company changed its fiscal year end from December 31 to
October 31.
(3) See Note 2 of the Notes to Consolidated Financial Statements for an
explanation of the computation of net income per share.
(4) Adjusted to reflect the sale by the Company of 1,500,000 shares of Common
Stock offered hereby and the application of the estimated net proceeds
therefrom. See "Use of Proceeds."
----------------
"CFM," "Full-Flow," "Direct-Displacement," "Vapor-Flow" and the logo on the
cover of this Prospectus are trademarks of CFM Technologies, Inc. This
Prospectus also contains trademarks of other companies.
5
<PAGE>
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Statements in this Prospectus including those concerning the Company's
expectations of future sales, gross profits, research, development and
engineering expenses, selling, general and administrative expenses, product
introductions and cash requirements include certain forward-looking
statements. As such, actual results may vary materially from such
expectations. Factors which could cause actual results to differ from
expectations include variations in the level of orders which can be affected
by general economic conditions and growth rates in the semiconductor and FPD
manufacturing industries and in the markets served by the Company's customers,
the international economic and political climates, difficulties or delays in
product functionality or performance, the delivery performance of sole source
vendors, the timing of future product releases, failure to respond adequately
to either changes in technology or customer preferences, changes in pricing by
the Company or its competitors, ability to manage growth, risk of nonpayment
of accounts receivable, changes in budgeted costs or failure to realize a
successful outcome to pending patent litigation, all of which constitute
significant risks. For a description of additional risks, see "Risk Factors"
beginning on this page. There can be no assurance that the Company's results
of operations will not be adversely affected by one or more of these factors.
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating the Company and its
business before purchasing the shares of Common Stock offered hereby.
FLUCTUATIONS IN OPERATING RESULTS
The Company has derived substantially all of its net sales from the sale of
a limited number of wet processing systems which typically have list prices
ranging from approximately $0.9 million to $3.2 million per system. At the
Company's current revenue level, each sale or failure to make a sale can have
a material effect on the Company. A cancellation, rescheduling or delay in a
shipment of even one system in a particular quarter may cause net sales in
that quarter to fall significantly below the Company's expectations and thus
may materially and adversely affect the Company's operating results for such
quarter. Other factors which may lead to fluctuations in the Company's
quarterly and annual operating results include: market acceptance of the
Company's systems and its customers' products; the number of systems being
manufactured during any particular period; the geographic mix of sales; the
mix of sales by distribution channel; the timing of announcement and
introduction of new systems by the Company and its competitors; a downturn in
the market for personal computers or other products incorporating
semiconductors and FPDs; variations in the type of systems sold; product
discounts and changes in pricing; delays in deliveries from suppliers; delays
in orders due to customers' financial difficulties; and volatility in the
semiconductor and FPD industries and the markets served by the Company's
customers. Also, customers may face competing capital budget considerations,
thus making the timing of customer orders uneven and difficult to predict.
Many of the factors listed above are beyond the control of the Company. In
addition, continued investments in research, development and engineering and
the development of a worldwide sales, marketing and customer satisfaction
organization will result in significantly higher fixed costs. There can be no
assurance that the Company will be able to achieve a rate of growth or level
of sales in any future period commensurate with its level of expenses. The
impact of these and other factors on the Company's operating results in any
future period cannot be forecast with any degree of certainty. Due to the
foregoing factors, it is likely that in some future quarter or quarters the
Company's operating results may be below the expectations of analysts and
investors. In such event, the price of the Company's Common Stock would likely
be materially and adversely affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business --
Industry Background."
ACCEPTANCE BY CUSTOMERS OF NEW TECHNOLOGY
The Company's products all rely upon proprietary technology to accomplish
wet chemical processing during semiconductor or FPD manufacturing, which
technology is significantly different from the technological
6
<PAGE>
approaches in current usage for these processes. Most of the Company's
competitors make use of established technology with competitive product
variations. The semiconductor industry is especially resistant to the
introduction of changes in process or approach in a manufacturing cycle which
is quite long (up to twelve weeks), consists of many separate process events
(up to 300 or more) and suffers from limited control measurement points during
the overall fabrication process. Accordingly, managers of semiconductor and
FPD fabrication facilities ("fabs") have exhibited a strong resistance to
changing equipment and have been reluctant to embrace new technology,
including the Company's Full-Flow systems. Because a substantial investment is
required by semiconductor and FPD manufacturers to install and integrate
capital equipment into production lines, these manufacturers will tend to
choose suppliers based on past relationships, product compatibility and proven
operating performance. Once a manufacturer has selected a particular vendor's
capital equipment, the Company believes that the manufacturer generally relies
upon that equipment for a specific production line application and frequently
will attempt to consolidate related capital equipment purchases with the same
vendor, to the degree that such consolidation is possible. Many semiconductor
and FPD manufacturers continue to extract marginal improvements from existing
wet processing technology in order to address issues such as increases in
feature density, reductions in linewidth and planned increases in wafer and
substrate size. Thus, there can be no assurance that the Company's products
will achieve broad market acceptance. See "Business -- Industry Background"
and "Business -- Products."
CUSTOMER CONCENTRATION
Historically, relatively few customers have accounted for a substantial
portion of the Company's net sales. Sales to LG, IBM, SGS-Thomson
Microelectronics and Motorola accounted for approximately 29.1%, 25.3%, 19.0%
and 10.8%, respectively, totalling 84.2% of net sales in fiscal 1996. The
Company expects a significant portion of its future sales to remain
concentrated within a limited number of customers. The Company's arrangements
with its customers are generally on a purchase order basis and not pursuant to
long-term contracts. There can be no assurance that the Company will be able
to retain its major customers or that such customers will not cancel or
reschedule orders or that canceled orders will be replaced by other sales. A
reduction or delay in orders from any of the Company's significant customers,
including reductions or delays due to market, economic or competitive
conditions in the semiconductor or FPD industries, or the loss of any such
customers, could have a material adverse effect upon the Company's results of
operations. See "Business -- Customers."
SOLE OR LIMITED SOURCES OF SUPPLY
The Company relies to a substantial extent on outside vendors to manufacture
and supply many of the components and subassemblies used in the Company's
systems. Certain of these components and subassemblies are obtained from a
sole supplier or a limited group of suppliers, many of which are small,
independent companies. Moreover, the Company believes that certain of these
components and subassemblies can only be obtained from its current suppliers.
The Company's reliance on outside vendors generally and a sole or a limited
group of suppliers in particular, involves several risks, including a
potential inability to obtain an adequate supply of required components and
reduced control over pricing and timely delivery and quality of components.
The Company has experienced and continues to experience some reliability and
quality problems with certain key components and subassemblies provided by
single source suppliers. Because the manufacture of certain of these
components and subassemblies is a complex process and requires long lead
times, there can be no assurance that delays or shortages caused by suppliers
will not occur. The process of obtaining and qualifying replacement suppliers
could be lengthy, and no assurance can be given that any additional sources
would be available to the Company on a timely basis or at all. Any inability
to obtain adequate deliveries of components and subassemblies which conform to
the Company's reliability and quality requirements or any other circumstance
that would require the Company to seek alternate sources of supply or, if
possible, to manufacture such components internally could delay the Company's
ability to ship its systems and could have a material adverse effect on the
Company. See "Business -- Manufacturing."
7
<PAGE>
DEPENDENCE ON LIMITED PRODUCT OFFERINGS
To date, the Company's net sales have consisted primarily of sales to the
semiconductor industry. The Company has recently developed a version of its
Full-Flow system for use in FPD manufacturing. The ability of the Company to
diversify its operations through the introduction and sale of system
enhancements with new applications is dependent upon the success of the
Company's continuing research, development and engineering activities, as well
as its marketing efforts. The Company's continued sales growth will depend
upon achieving market acceptance of its Full-Flow systems and future products.
There can be no assurance that the Company will be able to develop, introduce
or market new systems or system enhancements in a timely or cost-effective
manner or that any such systems or enhancements will achieve market
acceptance. See "Business -- Products."
DEPENDENCE UPON PRODUCT DEVELOPMENT
The markets in which the Company and its customers compete are characterized
by rapidly changing technology, evolving industry standards and continuous
improvements in products and services. In order to remain competitive in the
future, the Company will need to develop and commercialize additional cleaning
and etching processes based on its Full-Flow platform. Further, the Company
will need to develop new products which are capable of supporting customers'
increasingly complex process requirements and which compete effectively on the
basis of overall COO, including process performance and capital productivity.
The market for FPD manufacturing equipment presents an additional challenge as
the technology is at an earlier stage and subject to more rapid evolution. The
success of new system introduction is dependent on a number of factors,
including timely completion of new system designs, system performance and
market acceptance, and may be adversely affected by manufacturing
inefficiencies associated with the start up of such new introductions and the
challenge of producing systems in volume which meet customer requirements.
Because it is generally not possible to predict the time required and costs
involved in reaching certain research, development and engineering objectives,
actual development costs could exceed budgeted amounts and estimated product
development schedules may require extension. Any delays or additional
development costs could have a material adverse effect on the Company's
business and results of operations. There can be no assurance that the Company
will successfully develop and introduce new products or enhancements to its
existing products on a timely basis or in a manner which satisfies or achieves
widespread market acceptance.
Because of the large number of components in, and the complexity of, the
Company's systems, significant delays can occur between the introduction of
systems or system enhancements and the commencement of commercial shipments.
The Company has from time to time experienced delays in the introduction of,
and certain technical and manufacturing difficulties with, certain of its
systems and enhancements, and may experience such delays and technical and
manufacturing difficulties in future introductions or volume production of new
systems or enhancements. The Company's inability to overcome such
difficulties, to meet the technical specifications of any new systems or
enhancements, or to manufacture and ship these systems or enhancements in
volume and in a timely manner, would materially and adversely affect the
Company's business and results of operations, as well as its customer
relationships. In addition, the Company from time to time incurs unanticipated
costs to ensure the functionality and reliability of its products early in
their life cycles, which costs can be substantial. If new products or
enhancements experience reliability or quality problems, the Company could
encounter a number of difficulties, including reduced orders, higher
manufacturing costs, delays in collection of accounts receivable and
additional service and warranty expenses, all of which could materially and
adversely affect the Company's business and results of operations. See
"Business -- Products" and "Business -- Research, Development and
Engineering."
MANAGEMENT OF GROWTH
The Company is currently undergoing a period of rapid growth. To accommodate
this growth, the Company is in the process of implementing a variety of new
and upgraded operating and financial systems, procedures and controls. There
can be no assurance that such efforts can be accomplished successfully, or
that the Company's systems, procedures and controls will be adequate to
support the Company's operations. The Company also faces
8
<PAGE>
the task of identifying, recruiting, training and integrating new employees
quickly enough to keep pace with its rapid growth. Many of the positions which
are critical to supporting the Company's growth require experience with
semiconductor and FPD capital equipment. The recent overall growth of the
semiconductor and FPD capital equipment industries has made the recruitment of
such experienced personnel difficult. The Company's growth may also strain the
Company's management, manufacturing, financial and other resources. Any
failure to expand these areas in an efficient manner could have a material
adverse effect on the Company. The Company has significantly increased its
operations to support increased revenues, including the hiring of additional
personnel, and has made and expects to continue to make substantial
investments in research, development and engineering and in sales and
marketing to support product development. There can be no assurance that the
Company will be able to achieve a rate of growth or level of sales in any
future period commensurate with its level of expenses. The Company has
recently leased an additional facility and anticipates that additional
manufacturing capacity will be required. The need to acquire additional remote
facilities could be disruptive and could have a material adverse effect on the
Company. See "Business -- Employees" and "Business -- Facilities."
DEPENDENCE UPON PERSONNEL
The success of the Company depends to a large extent upon the efforts of key
managerial and technical employees. The loss of services of any of these
persons could have a material adverse effect on the Company. The Company has
not entered into written employment agreements with any of its executive
officers other than its chief financial officer, nor does the Company maintain
key man life insurance on any of its personnel.
In addition, the success of the Company will also depend upon its ability to
attract and retain qualified employees, particularly highly skilled design and
process engineers involved in the manufacture of existing systems, the
development of new applications and systems and the installation, training and
maintenance related to those systems already installed at customer sites.
There can be no assurance that the Company will be successful in recruiting,
training, integrating and retaining the necessary personnel to support its
anticipated growth. The failure to do so could have a material adverse effect
on the Company's results of operations. See "Business -- Employees" and
"Management -- Directors and Executive Officers."
LENGTHY SALES CYCLE
Sales of the Company's systems depend upon the decision of a prospective
customer either to increase manufacturing capacity or change its established
manufacturing process. These decisions typically involve significant capital
commitments or a change in process approach, which may require the approval of
senior management. The amount of time from the initial contact with the
customer to the first order is typically one to two years. The Company's
ability to obtain orders from potential customers has depended in the past and
may continue to depend in the future upon customers purchasing a new system in
order to evaluate Full-Flow and Direct-Displacement drying technologies as an
alternative to existing wet processing technologies. For many potential
customers, decisions to undertake such evaluations occur infrequently. The
Company often experiences delays in finalizing further system sales while the
customer evaluates and receives approvals for the purchase of additional
systems. Such delays may include the time necessary to plan, design or
complete a new or expanded fab. Due to these factors, the Company's systems
typically have a lengthy sales cycle during which the Company may expend
substantial funds and management effort. There can be no assurance that any of
these expenditures or efforts on the part of the Company will result in sales.
See "Business -- Products" and "Business --Competition."
VOLATILITY OF THE SEMICONDUCTOR INDUSTRY
The Company's business depends, in significant part, upon capital
expenditures by manufacturers of semiconductor devices, which in turn depend
upon the current and anticipated market demand for such devices and the
products utilizing such devices. The semiconductor industry has been highly
volatile and historically has experienced periods of oversupply, resulting in
significantly reduced demand for capital equipment, including wet processing
systems. In late 1995 and in 1996, a number of semiconductor manufacturers
experienced a
9
<PAGE>
reduction in order growth and, in a few instances, a reduction in overall
orders. These events caused certain semiconductor manufacturers to postpone or
cancel equipment deliveries to previously planned expansions or new fab
construction projects. In addition, certain market analysts project an overall
reduction in expenditures for semiconductor capital equipment in 1997. There
can be no assurance that further order cancellations or reductions in order
growth or overall orders for semiconductors will not have a material adverse
effect upon the Company's business or results of operations. The Company
believes that the FPD market may be similarly volatile. The need for continued
investment in research, development and engineering, marketing and customer
satisfaction activities may limit the Company's ability to reduce expenses in
response to future downturns in the semiconductor or FPD industries. The
Company's net sales and results of operations could be materially and
adversely affected if downturns or slowdowns in the semiconductor or FPD
markets occur in the future.
INTERNATIONAL SALES
Sales to customers located outside the United States accounted for
approximately 63.1% of the Company's net sales in fiscal 1996. The Company
anticipates that such international sales are subject to numerous risks,
including United States and international regulatory requirements and policy
changes, political and economic instability, increased installation costs,
difficulties in accounts receivable collection, exchange rate fluctuations,
tariffs and other barriers, extended payment terms, difficulty in staffing and
managing international operations, dependence on and difficulties in managing
international distributors or representatives and potentially adverse tax
consequences. Furthermore, although the Company endeavors to meet technical
standards established by foreign regulatory bodies, there can be no assurance
that the Company will be able to comply with such standards in the future. In
addition, the laws of certain other countries may not protect the Company's
intellectual property to the same extent as the laws of the United States. As
part of its efforts to penetrate the East Asia market, the Company entered
into a sales agency agreement with ANAM S&T Co., Ltd. ("ANAM") in Korea in
1991, a distribution agreement with Innotech Corporation ("Innotech") in Japan
in 1992 and an agent agreement with Ampoc Far East Company Limited ("AMPOC")
in Taiwan in 1996. Although management believes that it maintains good
relationships with ANAM, Innotech and AMPOC, there can be no assurance that
these relationships will continue. In the event of a termination of any of the
Company's existing representation, agency or distribution arrangements, the
Company's international sales could be adversely affected. Although the
Company's sales are predominantly denominated in United States dollars, to the
extent that the Company expands its international operations or changes its
pricing practices to denominate prices in international currencies, the
Company will be exposed to increased risks of currency fluctuation.
Additionally, a strengthening in the value of the United States dollar in
relation to international currencies may adversely affect the Company's future
sales to international customers. There can be no assurance that any of these
factors will not have a material adverse effect on the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation--Overview" and "Business--Sales and Marketing."
HIGHLY COMPETITIVE INDUSTRY
The Company faces substantial competition in its market segments from both
established competitors and potential new entrants. The Company believes that
the primary competitive factors in the markets in which the Company competes
are yield, throughput, capital and direct costs, system performance, size of
installed base, breadth of product line and customer satisfaction, as well as
customer commitment to competing technologies. Most of the Company's
competitors have been in business longer than the Company, offer traditional
wet processing technology, and have broader product lines, more experience
with high volume manufacturing, broader name recognition, substantially larger
installed bases and significantly greater financial, technical, marketing,
service and support resources than the Company. In the semiconductor wet
processing market, the Company competes primarily with Dainippon Screen, FSI
International, Santa Clara Plastics, Steag MicroTech, SubMicron Systems, Tokyo
Electron Limited, and Verteq. In the FPD wet processing market, the Company
competes primarily with Dainippon Screen and Semitool. There can be no
assurance that the Company will overcome the established positions of these
competitors or that the Company's competitors will not develop enhancements to
or future generations of competitive products that will offer price and
performance features that
10
<PAGE>
are superior to the Company's systems. The Company believes that in order to
remain competitive, it must invest significant financial resources in
developing new product features and enhancements and in maintaining customer
satisfaction worldwide. In marketing its products, the Company will face
competition from suppliers employing new technologies in order to extend the
capabilities of competitive products beyond their current limits or increase
their productivity. In addition, increased competitive pressure could lead to
intensified price-based competition, resulting in lower prices and margins,
which would materially and adversely affect the Company's business and results
of operations. See "Business -- Competition."
INTELLECTUAL PROPERTY RIGHTS
The Company relies on a combination of patents, copyrights, trademarks and
trade secrets, non-disclosure agreements and other forms of intellectual
property protection to protect its proprietary technology. Although the
Company believes that its patents and trademarks may have value, the Company
believes that its future success will depend primarily on the innovation,
technical expertise and marketing abilities of its personnel. The Company
currently holds 12 patents in the United States and 24 international patents
and has patent applications pending or under evaluation in the United States
and various foreign jurisdictions. The Company is currently asserting its
patent rights in litigation against three defendants, alleging inducement of
infringement and contributory infringement of one of the Company's patents.
The defendants have denied infringement and asserted, among other things, that
the patent at issue is invalid, and one of the defendants has asserted that
the patent is unenforceable. There can be no assurance that any claim in the
subject patent will be adjudged to encompass use of the defendants' products
or that the subject patent will not be found to be unenforceable or invalid
during prosecution of the actions. A finding of invalidity or unenforceability
could result in the Company's competitors developing products using the
Company's proprietary technology, which in turn could have a material adverse
effect on the Company. The Company believes that these actions, even if
completely successful, will be costly to the Company in terms of both
financial and management resources.
There can be no assurance that additional patents will be issued on the
Company's pending or future applications or that competitors will not be able
legitimately to ascertain proprietary information embedded in the Company's
products which is not covered by patent or copyright. In such cases, the
Company may be precluded from preventing its competitors from making use of
such information. There are no pending lawsuits or claims against the Company
regarding infringement of any existing patents or other intellectual property
rights of others. There can be no assurance, however, that such infringement
clams will not be asserted in the future, nor can there be any assurance, if
such claims are made, that the Company will be able to defend such claims
successfully or, if necessary, obtain licenses on reasonable terms or at all.
Adverse determinations in any litigation naming the Company could subject the
Company to significant liabilities to third parties, require the Company to
seek licenses from third parties and prevent the Company from manufacturing
and selling its systems. Any of these events could have a material adverse
effect on the Company. See "Business -- Intellectual Property."
ENVIRONMENTAL REGULATION
The Company is subject to a variety of federal, state and local laws, rules
and regulations relating to the use, storage, discharge and disposal of
hazardous chemicals used during its research, development and engineering
activities. Failure to comply with applicable environmental requirements could
result in substantial liability to the Company, suspension or cessation of the
Company's operations, restrictions on the Company's ability to expand its
operations or requirements for the acquisition of additional equipment or
other significant expense, any of which could have a material adverse effect
on the Company. See "Business -- Manufacturing."
EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS
The Company's Articles of Incorporation, as amended, and the Pennsylvania
Business Corporation Law contain certain provisions which could delay or
impede the removal of incumbent directors and could make more difficult a
merger, tender offer or proxy contest involving the Company, even if such a
transaction would be
11
<PAGE>
beneficial to the interests of the shareholders, or could discourage a third
party from attempting to acquire control of the Company. The Company has
authorized 1,000,000 shares of Preferred Stock, which the Company could issue
without further shareholder approval and upon such terms and conditions, and
having such rights, privileges and preferences, as the Board of Directors may
determine. The Company has no current plans to issue any Preferred Stock. In
addition, provisions of the Pennsylvania Business Corporation Law prohibit the
Company from engaging in certain business combinations and allow holders of
the Company's voting stock to "put" their stock to an acquiror for fair value
in the event of a control transaction (the acquisition of 20% of the voting
stock of the Company). These provisions could have the effect of delaying,
deferring or preventing a change in control of the Company and may adversely
affect the voting and other rights of holders of Common Stock. Further, the
Company's Articles of Incorporation, as amended, and Amended and Restated By-
Laws include provisions to reduce the personal liability of the Company's
directors for monetary damages resulting from breaches of their fiduciary duty
and to permit the Company to indemnify its directors and officers to the
fullest extent permitted by Pennsylvania law. See "Description of Capital
Stock -- Anti-Takeover Provisions."
CONTINUED EXISTENCE OF A CONTROL GROUP
Upon completion of this offering, Christopher F. McConnell, the Company's
Chairman of the Board, and all of the executive officers and directors of the
Company, collectively, will beneficially own approximately 16.0% and 29.75%,
respectively, of the Common Stock (or 14.84% and 28.89%, respectively, if the
Underwriters' over-allotment option is exercised in full). Existing management
will hold sufficient voting power to enable it to continue to exert
significant influence over the business and affairs of the Company for the
foreseeable future. Such concentration of ownership may also have the effect
of delaying, deferring or preventing a change in control of the Company. See
"Principal and Selling Shareholders."
VOLATILITY OF STOCK PRICE
The Company believes that a variety of factors could cause the price of the
Company's Common Stock to fluctuate, perhaps substantially, including:
announcements of developments related to the Company's business; quarterly
fluctuations in the Company's actual or anticipated operating results and
order levels; general conditions in the semiconductor and FPD industries or
the worldwide economy; announcements of technological innovations; new
products or product enhancements by the Company or its competitors;
developments in patents or other intellectual property rights and litigation;
and developments in the Company's relationships with its customers,
distributors and suppliers. In addition, in recent years the stock market in
general and the market for shares of small capitalization and semiconductor
industry-related companies in particular, have experienced extreme price
fluctuations which have often been unrelated to the operating performance of
affected companies. Any such fluctuations in the future could adversely affect
the market price of the Company's Common Stock. There can be no assurance that
the market price of the Common Stock of the Company will not decline.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of shares of Common Stock in the public market following this offering
by existing shareholders or option holders could adversely affect the market
price of the Common Stock. Following completion of this offering, 7,553,340
shares of Common Stock will be outstanding. Of these shares, 3,981,616 have
been sold pursuant to registration statements filed under the Securities Act.
Substantially all of the balance of such outstanding shares may be sold in the
open market pursuant to the provisions of Rule 144 under the Securities Act.
Under Rule 144 as currently in effect, these shares may be sold subject to
volume limitations and certain other conditions imposed under such rule.
Certain beneficial owners of 2,010,959 shares of Common Stock and options to
purchase shares of Common Stock, owned by the Company's executive officers and
directors and shareholders selling shares in this offering, have agreed not to
sell any of their shares until 90 days after the date of this Prospectus
without the prior written consent of Montgomery Securities. No prediction can
be made as to the effect, if any, that future sales of Common Stock, or the
availability of Common Stock for future sale, will have on the market price of
the Common Stock prevailing from time to time. See "Shares Eligible for Future
Sale."
12
<PAGE>
THE COMPANY
The Company was incorporated in Pennsylvania in November 1994 under the name
"The CFM Technology Corporation" in connection with the reorganization of the
Company's operations into a holding company structure. Pursuant to the
reorganization, the Company issued shares of Common Stock to the shareholders
of CFM Technologies, Inc., a Pennsylvania corporation incorporated in May 1984
("CFM Sub"), in exchange for all of the issued and outstanding capital stock
of CFM Sub, and CFM Sub became the wholly-owned operating subsidiary of the
Company. In December 1995, the Company changed its name to "CFM Technologies,
Inc." and CFM Sub changed its name to "CFM Technologies, Incorporated." The
Company has four other wholly owned subsidiaries: CFMT, Inc., a Delaware
investment holding company incorporated in 1992; CFM International Corp., a
foreign sales corporation incorporated in Guam in 1995; CFM Technologies
Limited, incorporated in Scotland in 1995; and CFM Technologies, S.A.,
incorporated in France in 1996. As used in this Prospectus, references to the
"Company" and "CFM" refer to CFM Technologies, Inc. and its consolidated
subsidiaries. The Company's principal executive offices are located at 1336
Enterprise Drive, West Chester, Pennsylvania 19380. The Company's telephone
number is (610) 696-8300.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
by the Company in this offering are estimated to be approximately $40 million
($46.7 million if the Underwriters' over-allotment option is exercised in
full) after deducting underwriting discounts and commissions and estimated
offering expenses. The net proceeds will be used for working capital and
general corporate purposes, including possible acquisitions of or investments
in complementary businesses or products, the right to use complementary
technologies or in joint ventures. The Company is not currently engaged in any
negotiations with respect to any of the foregoing. Pending such uses, the
proceeds from this offering will be invested in deposits with banks and in
short-term, investment grade, interest bearing securities.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded in The Nasdaq Stock Market under the
symbol CFMT. The range of high and low closing prices for the Common Stock as
reported by the National Association of Securities Dealers, Inc. for the
periods indicated below is as follows:
<TABLE>
<CAPTION>
HIGH LOW
------ -----
<S> <C> <C>
FISCAL 1996
3rd Quarter (commencing June 18)............................... $11.00 $8.75
4th Quarter.................................................... 13.25 7.75
FISCAL 1997
1st Quarter (through January 23)............................... 32.50 8.00
</TABLE>
These prices reflect inter-dealer quotations, without retail mark-ups, mark-
downs or other fees or commissions, and may not necessarily represent actual
transactions.
On January 23, 1997, the reported closing price for the Common Stock was
$28.50. As of January 23, 1997, there were approximately 150 holders of record
and the Company believes that it had approximately 2400 beneficial owners of
the Company's Common Stock.
13
<PAGE>
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock
and does not anticipate paying any cash dividends in the foreseeable future.
The Company currently intends to retain its earnings, if any, for the
development of its business. The declaration of any future dividends by the
Company is within the discretion of the Board of Directors and will be
dependent upon the earnings, financial condition and capital requirements of
the Company, as well as any other factors deemed relevant by the Board of
Directors.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
October 31, 1996 and as adjusted to give effect to the sale of the 1,500,000
shares of Common Stock by the Company in this offering and the application of
the estimated net proceeds therefrom (after deduction of underwriting
discounts and commissions and estimated offering expenses).
<TABLE>
<CAPTION>
OCTOBER 31, 1996
-------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, less current portion....................... $ 2,525 $ 2,525
------- -------
Shareholders' equity:
Preferred stock, no par value; 1,000,000 shares autho-
rized; no shares issued and outstanding; no shares is-
sued and outstanding, as adjusted....................... -- --
Common stock, no par value: 10,000,000 shares authorized;
6,052,924 issued and outstanding; 7,552,924 shares is-
sued and outstanding, as adjusted(1).................... 29,592 69,584
Retained earnings........................................ 3,119 3,119
------- -------
Total shareholders' equity............................... 32,711 72,703
------- -------
Total capitalization................................... $35,236 $75,228
======= =======
</TABLE>
- --------
(1) Excludes 745,323 shares of Common Stock issuable upon the exercise of
stock options outstanding on October 31, 1996, of which options to
purchase 463,020 shares were then exercisable. See Note 10 of the Notes to
Consolidated Financial Statements.
14
<PAGE>
SELECTED FINANCIAL DATA
The following table contains certain selected consolidated financial data of
the Company and is qualified by the more detailed Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus. The
consolidated statement of income data for the fiscal years ended October 31,
1994, 1995 and 1996 and the consolidated balance sheet data as of October 31,
1995 and 1996 have been derived from the Consolidated Financial Statements of
the Company which have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report included elsewhere herein. The
consolidated statement of income data for the year ended October 31, 1993 and
the consolidated balance sheet data as of October 31, 1994 have been derived
from the Consolidated Financial Statements of the Company which have been
audited by Arthur Andersen LLP, independent public accountants, as indicated
in their report not included herein. The consolidated statement of income data
for the ten months ended October 31, 1992 and the consolidated balance sheet
data as of October 31, 1992 and 1993 are derived from unaudited financial
statements. The unaudited financial statements include all adjustments,
consisting only of normal adjustments, that the Company considers necessary
for a fair presentation of the results of operations for such periods. This
data should be read in conjunction with the Consolidated Financial Statements
and Notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere herein.
<TABLE>
<CAPTION>
TEN MONTHS
ENDED FISCAL YEAR ENDED OCTOBER 31,
OCTOBER 31, -------------------------------
1992(1) 1993 1994 1995 1996
----------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales......................... $5,939 $11,840 $15,937 $23,430 $44,013
Cost of sales..................... 3,626 6,752 9,114 13,463 23,317
------ ------- ------- ------- -------
Gross profit.................... 2,313 5,088 6,823 9,967 20,696
Operating expenses:
Research, development and
engineering.................... 327 720 2,100 1,717 4,375
Selling, general and administra-
tive........................... 1,193 2,273 3,150 5,972 11,679
------ ------- ------- ------- -------
Total operating expenses...... 1,520 2,993 5,250 7,689 16,054
------ ------- ------- ------- -------
Operating income.................. 793 2,095 1,573 2,278 4,642
Interest expense, net............. 615 755 797 173 157
------ ------- ------- ------- -------
Income before income taxes........ 178 1,340 776 2,105 4,485
Income taxes...................... 33 457 238 703 1,525
------ ------- ------- ------- -------
Net income........................ $ 145 $ 883 $ 538 $ 1,402 $ 2,960
====== ======= ======= ======= =======
Net income per share(2)........... $ 0.35 $ 0.61
======= =======
Weighted average common and common
equivalent shares(2)............. 3,994 4,831
<CAPTION>
OCTOBER 31,
-------------------------------------------
1992 1993 1994 1995 1996
----------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-
term investments................. $ 51 $ 112 $ 1,106 $ 408 $12,254
Working capital................... 2,211 3,118 7,177 8,136 27,525
Total assets...................... 6,062 9,332 16,689 18,454 44,521
Long-term debt, less current por-
tion............................. 5,493 5,610 7,820 3,005 2,525
Shareholders' equity (deficit).... (846) 237 5,109 9,775 32,711
</TABLE>
- --------
(1) In 1992, the Company changed its fiscal year end from December 31 to
October 31.
(2) See Note 2 of the Notes to Consolidated Financial Statements for an
explanation of the computation of net income per share.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
CFM designs, manufactures and markets advanced wet processing equipment for
sale to the worldwide semiconductor and flat panel display manufacturing
industries. The Company was founded in 1984 and began commercial operations in
1990 following a period of technology and product development, during which
time the Company's patented Full-Flow enclosed processing and Direct-
Displacement drying technologies were developed.
The Company has derived substantially all of its revenues from the sale of a
relatively small number of its systems, which typically range in price from
approximately $0.9 million to $3.2 million. As of October 31, 1996, the
Company had shipped over 80 systems to more than 25 semiconductor and FPD
manufacturers worldwide. The Company has been undergoing a period of rapid
growth with net sales during fiscal 1996 increasing by 87.8% over net sales
for fiscal 1995. Net sales for fiscal 1996 included sales of Full-Flow systems
to companies in the FPD manufacturing industry representing approximately 20%
of net sales. The Company expects that FPD sales as a percentage of total
sales will fluctuate as the Company attempts to penetrate new accounts. In
December 1996, the Company received an order for six Full-Flow FPD systems at
a total purchase price of $16.1 million from an existing customer. In late
1995 and in 1996, a number of semiconductor manufacturers experienced a
reduction in order growth and, in a few instances, a reduction in overall
orders. These events caused certain semiconductor manufacturers to postpone or
cancel equipment deliveries to previously planned expansion or new fab
construction projects. In addition, certain market analysts project an overall
reduction in expenditures for semiconductor capital equipment in 1997.
The Company has significantly increased its operations to support increased
revenues, including the hiring of additional personnel, and has made and
expects to continue to make substantial investments in research, development
and engineering and sales and marketing to support product development. There
can be no assurance that the Company will be able to achieve a rate of growth
or level of sales in any future period commensurate with its level of
expenses. Future results will depend upon a variety of factors, including the
timing of significant orders, the ability of the Company to bring new systems
to market, the timing of new product releases by the Company's competitors,
patterns of capital spending by the Company's customers, market acceptance of
new or enhanced versions of the Company's systems, changes in pricing by the
Company or its competitors and the volatility of the semiconductor and FPD
industries and of the markets served by the Company's customers.
The Company's gross margin has been and will continue to be affected by a
variety of factors including the mix and average selling prices of systems,
the mix of sales to domestic and international markets, particularly Korea,
and the customization of systems. The Company sells its systems worldwide and
records a significant portion of its sales to customers outside the United
States. In fiscal 1996, international sales constituted 63.1% of net sales.
The Company anticipates that international sales will continue to account for
a significant portion of net sales, although the percentage of international
sales is expected to fluctuate from period to period. The Company pays
significant selling commissions to agents on sales to East Asia. As a result,
gross margin and selling, general and administrative expenses as a percentage
of net sales has in the past and will continue in the future to fluctuate
based to a large extent on changes in the mix of sales to East Asia.
16
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the components of the Company's statements of
income for the fiscal years ended October 31, 1994, 1995 and 1996, expressed
as a percentage of sales.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED OCTOBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Net sales...................................... 100.0% 100.0% 100.0%
Cost of sales.................................. 57.2 57.5 53.0
--------- --------- ---------
Gross profit................................. 42.8 42.5 47.0
--------- --------- ---------
Operating expenses:
Research, development and engineering........ 13.2 7.3 10.0
Selling, general and administrative.......... 19.7 25.5 26.5
--------- --------- ---------
Total operating expenses................... 32.9 32.8 36.5
--------- --------- ---------
Operating income............................... 9.9 9.7 10.5
Interest expense, net.......................... 5.0 0.7 0.3
--------- --------- ---------
Income before income taxes..................... 4.9 9.0 10.2
Income taxes................................... 1.5 3.0 3.5
--------- --------- ---------
Net income..................................... 3.4% 6.0% 6.7%
========= ========= =========
</TABLE>
Net Sales. Net sales increased 47.0% from $15.9 million in fiscal 1994 to
$23.4 million in fiscal 1995 and 87.8% to $44.0 million in fiscal 1996. In
fiscal 1995 and fiscal 1996, these increases resulted primarily from increased
demand for the Company's Full-Flow systems by companies in the semiconductor
industry as the Company's customers equipped new facilities or expanded
facilities, resulting in multiple systems purchases by some of the Company's
major customers, and initial sales to new customers. Net sales for fiscal 1996
included sales of Full-Flow systems to companies in the FPD manufacturing
industry representing approximately 20% of net sales. The Company expects that
FPD sales as a percentage of total sales will fluctuate as the Company
attempts to penetrate new accounts. In December 1996, the Company received an
order for six Full-Flow FPD systems at a total purchase price of $16.1 million
from an existing customer. International sales represented 51.7%, 51.7% and
63.1% of total net sales in fiscal 1994, 1995 and 1996, respectively. The
number of international customers receiving shipments of the Company's systems
increased in both fiscal 1995 and 1996. The Company expects international
sales to continue to represent a significant portion of its net sales as a
result of the Company's continuing expansion of its international marketing
efforts.
Gross Profit. Gross profit as a percentage of net sales remained
substantially constant in fiscal 1994 and 1995, at 42.8% and 42.5%,
respectively, but increased to 47.0% in fiscal 1996. Efficiencies gained
through increased production volume during fiscal 1994 and 1995 were more than
offset by increased recruiting and training costs as the Company significantly
increased the number of production, installation and service personnel in
support of the increased level of shipments. The increase in gross profit in
fiscal 1996 was attributable to increases in sales prices, changes in product
mix, reductions in the cost of component parts due to volume, and
manufacturing efficiencies resulting from the expansion of the Company's
manufacturing facilities.
Research, Development and Engineering. Research, development and engineering
expenses decreased from $2.1 million or 13.2% of net sales in fiscal 1994 to
$1.7 million or 7.3% of net sales in fiscal 1995, and increased to $4.4
million or 10.0% of net sales in fiscal 1996. The decline in research,
development and engineering expenses in fiscal 1995 was primarily attributable
to the completion of two major development projects, a contract awarded by
SEMATECH, a consortium of semiconductor manufacturers, to develop and produce
an advanced semiconductor wet processing system, and a project to develop an
improved wet processing system for flat panel display manufacturing, early in
fiscal 1995. The substantial increase in research,
17
<PAGE>
development and engineering spending in fiscal 1996 is attributable to the
Company's completion in March 1996 of development of a Full-Flow system
configured to process 100 wafers per vessel and the release of this system's
design to the Company's manufacturing division. The first production unit of
this 100-wafer system was shipped in April 1996. In addition, the Company
incurred substantial research, development and engineering expenses in support
of the development of its first Full-Flow system for use in manufacturing flat
panel displays. The first Full-Flow FPD system was shipped in April 1996. The
Company is developing a version of the Full-Flow platform to process 300 mm
semiconductor wafers. The Company believes that a substantial investment in
research, development and engineering is critical to maintaining a strong
technological position and that such expenses in fiscal 1997 will increase
over the 1996 level.
Selling, General and Administrative. Selling, general and administrative
expenses increased from $3.2 million or 19.7% of net sales in fiscal 1994 to
$6.0 million or 25.5% of net sales in fiscal 1995, and to $11.7 million or
26.5% of net sales in fiscal 1996. The increases in fiscal 1995 and 1996
resulted primarily from (i) increases in sales and marketing costs related to
increased customer support and increased international sales, (ii)
administrative costs related to increases in staff in the accounting and
finance functions in preparation for and following the Company's initial
public offering and (iii) legal expenses related to litigation undertaken by
the Company to protect one of the Company's patents. The Company believes that
selling, general and administrative expenses, including legal expenses related
to the patent litigation, will increase in fiscal 1997 and beyond, as
increased personnel and sales and support expenses are expected in connection
with the Company's efforts to increase its net sales.
Interest Expense. Interest expense, net of interest income, of $0.8 million,
or 5.0% of net sales, in fiscal 1994 decreased to $0.2 million in fiscal 1995
and 1996, or 0.7% and 0.3% of net sales, respectively. In fiscal 1994,
interest expense was primarily attributable to interest of $0.7 million on the
Company's obligation to two related-party limited partnerships which provided
the Company with research and development funding in 1984 and 1985. The
decrease in net interest expense in fiscal 1995 was primarily attributable to
the elimination on November 1, 1994 of the Company's obligation to these
limited partnerships. See Note 8 of the Notes to Consolidated Financial
Statements. The Company incurred interest expenses due to intra-period
borrowings on its revolving line of credit during fiscal 1995 and 1996 as
borrowings on the Company's line of credit increased to support increased
working capital requirements. In fiscal 1996, the Company earned interest
income of $0.3 million on funds not immediately required for its operations
following its initial public offering in June 1996.
Income Taxes. The Company's effective tax rate increased from 30.6% in
fiscal 1994 to 33.4% in fiscal 1995, and increased to 34.0% in fiscal 1996.
The rate for fiscal 1994 was affected by recognition of a research and
development tax credit. The rate for fiscal 1995 reflects a reduction in the
research and development tax credit because of lower research, development and
engineering expenses. The rate for fiscal 1996 reflects the unavailability of
the research and development tax credit during the majority of the year.
18
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables present certain unaudited consolidated quarterly
financial information for each quarter in the fiscal years ended October 31,
1995 and 1996. In the opinion of the Company's management, this information
has been prepared on the same basis as the Consolidated Financial Statements
appearing elsewhere in the Prospectus and includes all adjustments (consisting
only of normal recurring adjustments) necessary to present fairly the
financial results set forth herein. Results of operations for any previous
quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1996
--------------------------------------- ----------------------------------------
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
JANUARY 31 APRIL 30 JULY 31 OCTOBER 31 JANUARY 31 APRIL 30 JULY 31 OCTOBER 31
---------- -------- ------- ---------- ---------- -------- ------- ----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Net sales............... $4,171 $5,160 $6,601 $7,498 $9,611 $10,086 $11,096 $13,220
Cost of sales........... 2,506 3,088 3,848 4,021 5,555 5,082 5,841 6,839
------ ------ ------ ------ ------ ------- ------- -------
Gross profit........... 1,665 2,072 2,753 3,477 4,056 5,004 5,255 6,381
------ ------ ------ ------ ------ ------- ------- -------
Operating expenses:
Research, development
and engineering....... 255 556 426 480 1,046 1,046 881 1,402
Selling, general and
administrative........ 1,304 1,168 1,531 1,969 1,821 2,854 3,366 3,638
------ ------ ------ ------ ------ ------- ------- -------
Total operating
expenses............ 1,559 1,724 1,957 2,449 2,867 3,900 4,247 5,040
------ ------ ------ ------ ------ ------- ------- -------
Operating income........ 106 348 796 1,028 1,189 1,104 1,008 1,341
Interest expense, net... 31 43 46 53 72 143 34 (92)
------ ------ ------ ------ ------ ------- ------- -------
Income before income
taxes................. 75 305 750 975 1,117 961 974 1,433
Income taxes............ 25 102 251 325 391 336 341 457
------ ------ ------ ------ ------ ------- ------- -------
Net income.............. $ 50 $ 203 $ 499 $ 650 $ 726 $ 625 $ 633 $ 976
====== ====== ====== ====== ====== ======= ======= =======
AS A PERCENTAGE OF NET
SALES:
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........... 60.1 59.8 58.3 53.6 57.8 50.4 52.6 51.7
------ ------ ------ ------ ------ ------- ------- -------
Gross profit........... 39.9 40.2 41.7 46.4 42.2 49.6 47.4 48.3
------ ------ ------ ------ ------ ------- ------- -------
Operating expenses:
Research, development
and engineering....... 6.1 10.8 6.4 6.4 10.9 10.4 7.9 10.6
Selling, general and
administrative........ 31.3 22.7 23.2 26.3 18.9 28.3 30.4 27.5
------ ------ ------ ------ ------ ------- ------- -------
Total operating
expenses............ 37.4 33.5 29.6 32.7 29.8 38.7 38.3 38.1
------ ------ ------ ------ ------ ------- ------- -------
Operating income........ 2.5 6.7 12.1 13.7 12.4 10.9 9.1 10.2
Interest expense, net... 0.7 0.8 0.7 0.7 0.8 1.4 0.3 (0.7)
------ ------ ------ ------ ------ ------- ------- -------
Income before income
taxes................. 1.8 5.9 11.4 13.0 11.6 9.5 8.8 10.9
Income taxes............ 0.6 2.0 3.8 4.3 4.1 3.3 3.1 3.5
------ ------ ------ ------ ------ ------- ------- -------
Net income.............. 1.2% 3.9% 7.6% 8.7% 7.5% 6.2% 5.7% 7.4%
====== ====== ====== ====== ====== ======= ======= =======
</TABLE>
Net Sales. The Company's net sales have increased sequentially from the
first quarter of fiscal 1995 to the fourth quarter of fiscal 1996 from $4.2
million to $13.2 million. Sales have increased primarily due to penetration of
the Company's Full-Flow products at semiconductor manufacturers worldwide and,
to a lesser extent, due to initial shipments of Full-Flow systems to
manufacturers of FPDs beginning in April 1996. The Company's net sales may
vary significantly from quarter to quarter as a result of the relatively high
average selling price of the Company's systems in relation to the amount of
the Company's overall sales in any quarter, lengthy sales cycles, customer
concentration and the pattern and timing of orders received from the Company's
customers.
19
<PAGE>
Gross Profit. The Company's gross profit has also increased sequentially
from the first quarter of fiscal 1995 to the fourth quarter of fiscal 1996
from $1.7 million to $6.4 million. Gross profit as a percentage of sales has
fluctuated during these quarters due to a variety of factors including
economies of scale, pricing fluctuations, the mix of products sold and the
geographic mix of sales.
Research, Development and Engineering. Research, development and engineering
expenses have fluctuated during the quarters of fiscal 1995 and fiscal 1996
primarily as a result of the timing of expenses related to product
development. Research, development and engineering expenses during fiscal 1995
were predominantly in support of the development of a single vessel system
capable of processing up to 100 8-inch waters simultaneously. During fiscal
1996, work on the 100 wafer system accelerated along with the expenses of
developing a Full-Flow system capable of processing FPD substrates, which
project resulted in the shipment of five FPD systems during fiscal 1996.
Selling, General and Administrative. Selling, general and administrative
expenses have increased due to major increases in sales and marketing and
finance and administration staffs and their respective activities. Certain of
these activities are not necessarily recurring and therefore contribute to
variability from quarter-to-quarter.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has funded its capital requirements through
funding from two research and development limited partnerships, the sale of
private equity securities, the Company's initial public offering of Common
Stock completed in June 1996, and, to a lesser extent, bank borrowings and
equipment leases. As of October 31, 1996, the Company had $12.3 million in
cash, cash equivalents and short-term instruments and $27.5 million in working
capital.
Net cash used in operating activities was $2.8 million, $0.4 million and
$3.6 million for fiscal 1994, 1995 and 1996, respectively. Increases in
accounts receivable and inventories were $2.9 million and $0.4 million,
respectively, in fiscal 1995 and $6.2 million and $4.3 million, respectively,
in fiscal 1996. Purchases of property, plant and equipment were $1.3 million
and $2.9 million for fiscal 1995 and 1996, respectively. These expenditures
were primarily related to facility improvements and the establishment of the
Company's applications laboratory in fiscal 1995 and fit-up of the Company's
new leased office facility and acquisition of an advanced three dimensional
computer aided design system for use in the Company's research, development
and engineering activities in fiscal 1996.
During fiscal 1996, the Company leased a 38,400 square foot office facility
in the same industrial park as its owned manufacturing facility and incurred
approximately $0.9 million in expenses to outfit and furnish this facility,
which houses the Company's engineering, customer satisfaction, sales and
marketing and administration functions. The Company has also incurred
approximately $0.4 million in capital expenditures related to the expansion of
its manufacturing facilities, $0.9 million on its applications laboratory and
approximately $1.2 million in capital expenditures related to the improvement
of the Company's information processing infrastructure, including the adoption
of a three dimensional computer-aided design database for use in product
development.
The Company has a relationship with a commercial bank which includes a
mortgage on the Company's manufacturing facility in the amount of $0.9 million
and a $7.5 million revolving demand line of credit. The mortgage bears
interest at an annual rate of 8.9%. The line of credit is secured by a first
lien on substantially all of the Company's assets with advances of up to 80%
of qualified accounts receivable and 25% of qualified purchase orders up to a
sub-limit of $2.5 million at an interest rate equal to such bank's prime rate.
No borrowings are outstanding under the Company's line of credit.
The Company also has mortgage notes payable to the Pennsylvania Industrial
Development Authority in the amount of $0.6 million bearing interest at 2.0%
and to the Chester County Development Council in the
20
<PAGE>
amount of $0.1 million bearing interest at 5.0%. In addition, the Company has
outstanding capital lease obligations in the amount of $1.2 million bearing
interest at rates ranging from 7% to 12% per annum.
The Company had outstanding accounts receivable of approximately $8.9
million and $15.1 million as of October 31, 1995 and 1996, respectively. No
allowance for doubtful accounts receivable has been recorded because the
Company believes that all such accounts receivable are fully realizable.
The Company believes that existing cash balances, its available line of
credit and the net proceeds from this offering will be sufficient to meet the
Company's cash requirements through the next 12 months. However, depending
upon its rate of growth and profitability, the Company may require additional
equity or debt financing to meet its working capital requirements or capital
expenditure needs. There can be no assurance that additional financing, if
needed, will be available when required, or, if available, will be on terms
satisfactory to the Company.
21
<PAGE>
BUSINESS
The Company designs, manufacturers and markets advanced wet processing
equipment for sale to the worldwide semiconductor and FPD industries. The
Company believes that its patented Full-Flow enclosed processing and Direct-
Displacement drying technologies enable it to provide wet processing systems
that address a variety of limitations inherent in conventional systems,
including wet benches and spray tools, resulting in a signficantly lower COO
for the Company's Full-Flow systems. The Company's customers include GEC
Plessey, LG, Motorola, National Semiconductor, Samsung, SGS-Thomson, Siemens,
Texas Instruments and Tower Semiconductor.
INDUSTRY BACKGROUND
Market Overview
Over the past two decades, increasing demand for ICs has resulted primarily
from the growth of the personal computer and data communication markets, as
well as the emergence of new markets such as wireless communications, mobile
computing and multimedia and the addition of microprocessor control to many
common consumer products such as automobiles, kitchen appliances and
audio/video equipment. In large part, this demand has been driven by the
semiconductor industry's ability to provide increasingly more complex, higher
performance ICs while steadily reducing the cost per function with lower power
consumption. These improvements in the ratio of price to performance have been
driven by advancements in semiconductor process technology, which have enabled
the cost-effective production of high density ICs with linewidths below 0.5
micron.
As demand for ICs has grown, semiconductor manufacturers have increased
capacity by expanding and updating existing fabs and constructing new fabs.
This expansion has historically exhibited strong cyclical characteristics, and
continues to do so. For example, in late 1995 and in 1996, many semiconductor
manufacturers experienced a reduction in order growth and, in a few instances,
a reduction in overall orders. These events caused certain semiconductor
manufacturers to postpone or cancel equipment deliveries to previously planned
expansion or new fab construction projects, providing evidence of the
continuing cyclical nature of the industry. However, according to VLSI, the
semiconductor capital equipment market has grown through these periodic cycles
from an estimated $2.2 billion in 1980 to $30.9 billion in 1995.
The increasing complexity of ICs has resulted in an increase in both the
number and cost of process tools (such as steppers, etchers, furnaces and wet
processors) required to manufacture semiconductors. In a typical fab in the
1980s, the cost of equipment represented approximately 50-55% of the total
facility costs. Today, the total cost of an advanced fab can substantially
exceed $1 billion, of which equipment costs can account for 65-75%.
Semiconductor manufacturers place great pressure on process equipment
manufacturers to decrease the COO of their products. The principal elements of
COO are yield, throughput, capital costs and direct costs. Yield is primarily
determined by contamination levels and process uniformity. Throughput is
primarily a function of the time required to complete a process cycle and the
handling time between process steps. Capital costs include the cost of
acquisition and installation of the process equipment. Direct costs primarily
include consumables used in the manufacturing process and costs of cleanroom
space occupied by the equipment. Semiconductor device manufacturers must also
address environmental costs such as water usage and costs related to the
control and disposal of chemical waste and emissions associated with operating
a fab. Maintaining an acceptable level of COO becomes increasingly challenging
as manufacturing processes become more complex and process tolerances narrow.
The market for FPDs has grown significantly in recent years as the result of
the increasing popularity of portable computers and other electronic devices
which utilize screens and other types of displays to provide information in
digital format and graphical displays to the end user. As consumers demand
increasingly smaller and lighter electronic devices with improved
functionality, the demand for FPDs continues to increase due to inherent
advantages over cathode ray tubes ("CRTs") with respect to size, weight and
power consumption. As
22
<PAGE>
the cost of FPDs declines, the uses of FPDs will increase beyond computer
applications, which accounted for over half of the total market in 1995.
According to Dataquest, the overall market for FPDs is projected to increase
from $4.7 billion in 1995 to $15.6 billion in 1998. Users of displays require
high resolution which translates to increased device density on the back of
the thin glass screen. In order to support the required device density and
still allow substantial light transmission through the screen (brightness),
significant reductions in feature size will be required. The Company believes
that the superior etch uniformity and cleaning performance possible using a
Full-Flow system may enable manufacturers to meet this combined goal of device
density and brightness.
Wet Processing in Semiconductor and FPD Manufacturing
The manufacture of semiconductors requires a large number of complex process
steps during which layers of electrically insulating or conducting materials
are created or deposited on the surface of a silicon wafer. Before and after
many of these steps, it is necessary to clean, etch, strip or otherwise
condition the surface of the wafer in order to remove unwanted material or
surface contamination in preparation for a subsequent process step. SEMATECH
has estimated that up to 300 fabrication steps are required to manufacture
advanced logic ICs, and that approximately 50 of these steps are accomplished
by wet processing.
The following table identifies the typical wet processing steps in
semiconductor manufacturing.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Critical Cleaning Applications Critical Etching Applications Photoresist Strip Applications
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
INITIAL WAFER CLEAN SILICON OXIDE ETCH
PRE-DIFFUSION CLEAN POLYSILICON ETCH AQUEOUS CHEMISTRY RESIST
PRE-OXIDATION CLEAN Silicon nitride etch STRIP/POST-ASH CLEAN
PRE-THIN FILMS DEPOSITION CLEAN Solvent chemistry resist strip/
Post-CMP clean post-ash clean
Solvent chemistry clean
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The above wet processing steps have traditionally been accomplished using
wet benches and spray tools. Advanced wet benches utilize a succession of open
chemical baths and extensive robotic automation to move wafers from one
chemical or rinse bath to the next. Spray tools subject wafers to sequential
spray applications of chemicals as the wafers are spun inside an enclosed
chamber.
Like semiconductors, FPDs are manufactured using numerous process steps,
including photolithography, deposition, etching and cleaning. However, unlike
semiconductor wafers, each of which may contain several hundred individual
ICs, a single FPD substrate may contain as few as two laptop computer
displays. Therefore, defects in the manufacturing process tend to have a much
greater impact on FPD yields than on semiconductor yields.
The Company believes that conventional wet processing methods are subject to
a number of inherent limitations, including:
Particle Contamination. Submicron ICs and FPD substrates are extremely
sensitive to small amounts of particle contamination which can result in poor
device performance or even failure. As device geometries become smaller, the
reduction of particle contamination has become an increasingly critical factor
in maximizing yield. Open-bath wet benches are exposed to the cleanroom
environment and therefore are susceptible to external contamination. Since
particles tend to reside on the surfaces of liquids due to surface tension,
the movement of wafers and substrates in and out of liquids can result in the
transfer of particles to the surfaces through a "skimming" effect. The
tendency to add particles from air-liquid transitions is inherent in wet
benches due to multiple immersions and withdrawals and in spray processing
where each spray droplet striking the wafer or substrate surface can act as a
separate miniature immersion and withdrawal.
23
<PAGE>
Watermark Defects and Native Oxide Growth. Both wet benches and spray tools
subject the surface of wafers and substrates to repeated wetting and
evaporative drying, creating watermark defects on the surface that can
significantly impact device or FPD performance and interfere with subsequent
process steps.
Process Control Limitations. Process liquids in wet benches and spray tools
are subject to evaporation and absorption of atmospheric gases. As a result,
it is difficult to achieve precise repeatability of process results.
Additionally, wafers and substrates in a wet bench must be robotically
transferred from bath to bath through the cleanroom atmosphere. This gap in
processing during transport adds variability due to the effects of water
exposure to the cleanroom atmosphere.
Large Physical Size. The cost of cleanroom space is a significant component
in the overall COO calculation for a specific piece of equipment. Wet benches
configured for the multiple-step wet processes, required by many
manufacturers, can be up to 30 feet in length. Increases in process complexity
or in a wafer or substrate size will likely require even larger wet benches.
Environmental Impact. Due to the large volume of the open baths which
comprise a wet bench and the need for multiple wet processing steps to
manufacture increasingly complex ICs and FPDs, wet benches typically consume
large quantities of water during processing. A recent study has estimated that
water costs can comprise up to one-third of the total cost of cleaning.
Additionally, in many wet bench processes, large amounts of chemicals are
utilized. The open nature of the baths in a typical wet bench necessitates
expensive ventilation and filtration systems in order to remediate chemical
fume emissions. As a result, municipalities and environmental authorities are
increasingly concerned by water consumption and chemical fume emissions by
fabs.
Due to the continuing reduction of device geometries and the escalating cost
of leading edge fabs, the Company believes that semiconductor and FPD
manufacturers are becoming increasingly sensitive to the foregoing limitations
inherent in conventional wet processing methods.
THE CFM SOLUTION
The Company's systems are based on its proprietary Full-Flow wet processing
technology and are used to perform various cleaning and etching process steps
in the manufacture of semiconductors and FPDs. In the Company's Full-Flow wet
processing system, up to 100 wafers or 50 substrates automatically load into a
fully-enclosed, flow-optimized vessel that has a lower fluid inlet and an
upper fluid outlet. The Full-Flow platform requires different vessels
depending upon whether wafers or substrates are processed. Once a selected
process is begun, the vessel is completely filled with fluid at all times,
with fluids flowing through the vessel one directly after another without
exposing the wafers to air.
24
<PAGE>
CFM FULL-FLOW VESSEL MODULE AND AUTOMATION
[DIPICTION OF VESSEL SYSTEM APPEARS HERE]
The Company believes that its patented Full-Flow enclosed processing and
Direct-Displacement drying technologies result in superior process performance
and lower COO by offering the following advantages over conventional wet
processing systems:
Reduced Particle Contamination. Full-Flow processing takes place in a fully-
enclosed processing vessel which isolates the wafers or substrates from the
external cleanroom environment and associated contaminants. Additionally,
particle contamination through particle skimming is substantially reduced.
Since the Full-Flow system is capable of directly displacing one chemical or
rinse step with the next without draining the vessel, it can eliminate the
air-liquid interfaces (where particles tend to reside) that normally occur in
wet benches and spray tools. The wafers or substrates are kept completely
immersed in fluid until they are ready to be dried during the Company's
patented in situ Direct-Displacement drying technology.
Substantial Elimination of Watermark Defects and Native Oxide Growth. The
formation of watermarks is substantially eliminated through the prevention of
water evaporation from the wafer or substrate surface. Once the chemical
treatment of the wafers or substrates is completed, drying is accomplished
using CFM's patented Direct-Displacement drying technology. With this
technique, the final rinse water is directly displaced with highly purified
isopropyl alcohol ("IPA") vapor and substantially all water is forced off the
surface before it is exposed to an air environment. Additionally, native oxide
growth is suppressed by degassifying the water immediately before it enters
the vessel. Since the vessel itself is totally enclosed, the ultra pure water
in the vessel is not able to absorb oxygen and carbon dioxide from the
cleanroom environment. As a result, the gas content of the water at the
surface is much lower than that typically found in a wet bench or spray tool.
25
<PAGE>
Tight Process Control. Process precision and repeatability result in large
part from the ability to control accurately the physical and chemical
properties of the processing liquids as well as the transition between process
steps. Full-Flow processing is performed in a completely enclosed vessel,
thereby substantially reducing variability of the processing liquids such as
water and chemical evaporation and absorption of atmospheric gases.
Additionally, because one process liquid directly displaces the previous one,
there is no gap in time and no exposure to the cleanroom atmosphere between
process steps.
Cleanroom Space Savings. The Full-Flow system has been designed to consume a
minimum amount of cleanroom space. System support modules can be located
outside the cleanroom and away from the main system. In many fabs, this means
that these support modules can be located in the basement, further reducing the
amount of square footage that is required on the main floor of the fab where
space is at a premium. A dual vessel Full-Flow system capable of processing 100
8-inch wafers in each of two vessels requires only 13 linear feet of cleanroom
wall space and no direct usage of cleanroom floor space when flush-mounted.
This is significantly less than the space requirements of a wet bench with
similar processing capabilities, which the Company believes can require up to
350 square feet of total floor space and approximately 35 linear feet of
cleanroom wall space.
COMPARISON OF FULL-FLOW DUAL VESSEL SYSTEM WITH TRADITIONAL WET BENCH SYSTEM
[PICTURE OF VESSEL SYSTEM APPEARS HERE]
Environmental Advantages. The Company believes that the Full-Flow system
utilizes less than one-half of the water required by traditional wet bench
systems performing similar processing steps because most of the water in wet
bench systems flows around the wafer or substrate carrier rather than across
the surface. In the Company's flow-optimized Full-Flow systems, substantially
less water is lost as bypass flow. The fully-enclosed Full-Flow system also
reduces the amount of process chemicals consumed and the equipment and related
costs of remediation of chemical fume emissions associated with traditional wet
processing.
STRATEGY
The Company's objective is to become a leading supplier of advanced wet
processing equipment to the worldwide semiconductor and FPD industries. The
Company intends to achieve this objective by focusing on the following key
elements of its strategy.
26
<PAGE>
Increase Current Market Share. The Company seeks to continue to expand its
share of the semiconductor critical cleaning and etching wet processing market
through significant expansion of its sales and marketing and customer
satisfaction efforts. The Company also intends to continually improve its
existing Full-Flow platform in order to offer enhanced technical capabilities
and lower COO benefits for currently served critical wet processing
applications. For example, in April 1996, the Company shipped a new version of
its Full-Flow system that doubles the throughput and capital productivity of
its predecessor system by enabling the processing of up to 100 8-inch wafers
in a single vessel. Subsequently, in July 1996, the Company shipped the first
fully-automated Full Flow system capable of processing 370mm x 470mm FPD
substrates to a customer in East Asia. In December 1996, the Company received
a $16.1 million follow on order for six Full-Flow FPD systems.
Broaden Semiconductor Market Penetration. The Company intends to leverage
its Full-Flow platform to address additional wet processing applications in
the semiconductor manufacturing process where it believes its proprietary
Full-Flow technology can provide important benefits over competing wet
processing technologies. By basing new process applications on this platform,
the Company is able to focus primarily on the development and optimization of
the applications' process recipes, which the Company believes significantly
reduces the time and cost associated with entering new wet processing market
segments. Additional semiconductor wet processing applications identified by
the Company include solvent-based cleaning and photoresist stripping, in which
CFM's fully-enclosed Full-Flow processing vessel would provide the important
benefit of controlling chemical fume emissions.
Further Penetrate FPD Market. The Company intends to continue to develop wet
processing equipment for use in the fabrication of FPDs. The Company believes
that its Full-Flow platform is particularly well-suited for cleaning and
precise etching applications in the manufacture of FPDs due to its advanced
process capabilities, its significantly lower use of water and chemicals
relative to comparable wet bench processes, its ability to successfully
process very large substrates and its substantially smaller footprint which
saves increasingly valuable cleanroom floor space. The Company believes that
the FPD market represents a significant opportunity for increasing sales of
its systems, as evidenced by its recent shipments of Full-Flow systems to
Xerox, Motorola and LG. The Company believes that further validation of the
applicability of the Company's Full-Flow technology to the FPD manufacturing
process was provided in February 1996, when the Company was selected by the
United States Display Consortium (the "USDC") to develop an advanced wet
processing system for use in the manufacture of future generation FPDs.
Focus on Customer Satisfaction. The Company believes that its commitment to
customer satisfaction has been a critical factor in its success to date. To
ensure a high level of customer satisfaction, the Company provides
comprehensive customer service and support, through customer training and
ongoing process consultation. The Company has already developed a
comprehensive customer service and support organization, and has invested in
this area by locating direct sales and service staff in Europe in 1996 with
plans to extend this expansion into East Asia in 1997. The Company also
intends to increase the utilization of its applications laboratory to design
and test new processes and equipment features and to provide a Full-Flow
system completely dedicated to training the Company's customers and employees
early in 1997.
Continue Commitment to Worldwide Markets. The Company believes that its
long-term success is substantially dependent on its ability to compete on a
worldwide basis. As such, the Company intends to continue to focus on
expanding its sales activities in each of the primary worldwide markets for
semiconductor and FPD capital equipment. To date, the Company has achieved
considerable success in selling to customers outside the United States. While
such customers accounted for approximately one-half of its net sales in each
of the prior two fiscal years, approximately 63.1% of its net sales in year
ended October 31, 1996 were international. The Company has achieved this
result by hiring direct sales personnel covering Europe and East Asia in 1996
and the Company intends to build upon this success in 1997 by continuing to
add staff in these markets.
27
<PAGE>
PRODUCTS
The Company's systems are based on its proprietary Full-Flow wet processing
technology and are used to perform various cleaning and etching process steps
in the manufacture of semiconductors and FPDs.
The Full-Flow Product Platform
The Company's proprietary Direct-Displacement drying technology is embodied
in its Full-Flow platform, which principally consists of a fully-enclosed
processing vessel incorporating megasonic technology and associated systems
software, hardware and control electronics. Megasonic technology utilizes high
frequency sonic energy to enhance particle removal from the surface of
semiconductor wafers and FPD substrates during wet processing, enabling a
quicker process cycle and a significant reduction in the quantity of process
chemicals used. The Company believes that its Full-Flow platform offers
significant improvements in process performance and a lower COO relative to
competing technologies. Conventional wet bench processes used for many wet
processing applications rely on a succession of open chemical baths and
extensive robotic automation to move semiconductor wafers or FPD substrates
from one chemical bath to the next, which exposes them to contamination.
In the Company's Full-Flow system, wafers or FPD substrates are loaded
automatically into a fully-enclosed flow-optimized processing vessel that has
a lower fluid inlet and an upper fluid outlet. They are completely isolated
from cleanroom air and accompanying contaminants as a succession of process
fluids are introduced into the processing vessel one directly after another,
flowing over the wafers or substrates to complete the desired process
application. Once processing is completed, wafers or substrates are dried in
situ using the Company's patented Direct-Displacement drying process. With
this technique, the final rinse water is directly displaced with highly
purified IPA vapor and substantially all water is forced off the surface of
the wafers or substrates before they are exposed to an air environment. This
process substantially eliminates evaporative drying defects such as
watermarks, inhibits native oxide growth and significantly reduces particle
contamination compared to competing technologies, where the wafers or
substrates are exposed to intermediate evaporative drying within the cleanroom
atmosphere prior to the completion of the final drying process. The optimized
flow characteristics of the Full-Flow processing vessel and the advanced
process control and monitoring capabilities of the Full-Flow platform provide
process uniformity and repeatability. Also, the Company's Full-Flow systems
can be flush-mounted in the cleanroom wall, with the majority of the floor
space needed by the system components located outside the cleanroom
environment. Due to this flush-mounting and the Full-Flow system's
comparatively smaller size, it requires significantly less expensive cleanroom
floor space than competing wet bench systems. The Company's Full-Flow systems
are based on a modular design and can be configured to accomplish a broad
range of wet processing applications using a variety of process and support
modules offered by the Company. By basing new process applications on its
proprietary Full-Flow platform, the Company can focus primarily on the
development and optimization of the applications' process recipes, which the
Company believes significantly reduces the time and cost associated with
developing new products to address additional market opportunities.
The following tables list the Company's product offerings.
CFM FULL-FLOW PLATFORM CONFIGURATIONS
<TABLE>
<CAPTION>
FULL-FLOW AVERAGE SELLING
MARKETS CONFIGURATION CAPACITY PRICE RANGE
<S> <C> <C> <C>
Semiconductor Single vessel 50 wafers $0.9 - 1.3 million
Single vessel 100 wafers $1.1 - 1.5 million
Dual vessel 100 wafers $1.2 - 1.6 million
Dual vessel 200 wafers $1.5 - 2.8 million
- --------------------------------------------------------------------------------
Flat panel display Single vessel 50 substrates $1.5 - 2.1 million
Dual vessel 100 substrates $1.7 - 3.2 million
</TABLE>
- -------------------------------------------------------------------------------
28
<PAGE>
CFM FULL-FLOW SYSTEM MODULES AND FEATURES
<TABLE>
<CAPTION>
STANDARD MODULES AND FEATURES
<C> <S>
Vessel Module Includes a single, fully-enclosed
process vessel for all chemical,
rinse and drying processes
Control Module Generates, receives and interlocks all
control signals required to operate
the system hardware
Injection Module Measures and dispenses the appropriate
amount of each chemical concentrate
into the deionized water
IPA Recovery Module Generates and subsequently reclaims
and repurifies processed IPA vapor
for Direct-Displacement IPA drying
Deionized Water Mixing Module Blends combinations of hot and cold
deionized water together to meet
process recipe requirements
Transfer Automation Loads and unloads wafers and FPD
substrates to and from the
Full-Flow process vessel
Touch Screen Graphical Interface Provides operator control of the
system through a user-friendly
graphics touch screen
<CAPTION>
OPTIONAL MODULES AND FEATURES
<C> <S>
Pumping Module Circulates, heats, filters, dispenses
and recovers a mixture of sulfuric
acid and ozone used to remove organic
contamination and to perform
photoresist stripping and post-ash
cleans
Ozone Module Generates ozone for use in the Pumping
Module
Selective Etch Module Circulates, heats, filters, dispenses
and recovers chemicals for selective
etching processes
Tri-Dispense Module Supplies a user-selectable mixture of
concentrated chemicals to the
Selective Etch Module
Degassifier Module Removes entrained bubbles and
dissolved oxygen from the deionized
water supply for improved process
control
Mini-environment Encloses the wafers and automation in
a Class 1 environment
Megasonic Carrier Provides high-power, high-frequency
sonic energy for enhanced cleaning
capability
Sonic Flow Meters Measures deionized water flow using a
non-contact sonic energy method
Deionized Water Heater Generates a continuous supply of hot
deionized water for use by the Full-
Flow system
Deionized Water Reclaim System Incorporates drain valving and
software to divert deionized water to
a reclaim system
Uninterruptable Power Supply Supplies up to 30 minutes of back-up
power to the Full-Flow system in the
event of a facility power failure
Dilute Chemistries Allows the user to switch solution
concentration operating ranges
without affecting standard
chemistries
Core Maintenance Provides touch screens and keyboards
used primarily for maintenance
functions in remote locations
SMIF Automation Interface Integrates Standard Mechanical
Interface robotics and wafer handling
equipment with the Full-Flow system
GEM 3.0 Compliance Software Allows the fab's host computer control
system to interface with the Full-
Flow system for transfer of critical
process information
Emulation Package Software Simulates the actual operation and
command signals of the
Full-Flow system
Data Logging Software Records significant system events
including alarms, interlocks, process
states and operator actions
</TABLE>
- --------------------------------------------------------------------------------
29
<PAGE>
Semiconductor Manufacturing Applications
The Company first introduced its Full-Flow systems for use in semiconductor
manufacturing research and development facilities in 1988, and shipped its
first system for use in semiconductor production lines in 1990. To date, the
Company has sold over 80 Full-Flow systems to more than 25 semiconductor and
FPD manufacturers. Full-Flow systems can currently be configured with either
one or two vessels, each of which can be designed to accommodate 4-inch, 5-
inch, 6-inch or 8-inch wafers. During 1996, the Company completed development
of an enhanced Full-Flow system that doubles capital productivity by enabling
customers to process up to 100 8-inch wafers per vessel, or up to 200 8-inch
wafers simultaneously, assuming a dual vessel configuration. This enhanced
system began shipping in April 1996.
A flush-mounted Full-Flow system configured with dual processing vessels
requires approximately 170 square feet of total floor space and approximately
13 linear feet of cleanroom wall space. Assuming similar throughput
capabilities and the same wet process, the Company believes that a competing
wet bench system can require up to 350 square feet of total floor space and
approximately 35 linear feet of cleanroom wall space. Additionally, the
Company believes that its Full-Flow systems can typically achieve a greater
than 50% reduction in the usage of water and chemicals compared to wet benches
performing similar applications. List prices for the Company's Full-Flow
systems range from approximately $0.9 million to $3.2 million depending on
automation options and system configuration.
SEMATECH has estimated that up to 300 fabrication steps are required to
manufacture advanced logic ICs and that approximately 50 of these steps are
accomplished by wet processing. The following table identifies the typical wet
processing steps in semiconductor manufacturing and indicates those performed
by the Company's Full-Flow systems (in bold).
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Critical Cleaning Applications Critical Etching Applications Photoresist Strip Applications
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INITIAL WAFER CLEAN SILICON OXIDE ETCH AQUEOUS CHEMISTRY
PRE-DIFFUSION CLEAN POLYSILICON ETCH RESIST STRIP/POST-ASH CLEAN (FRONT END)
PRE-OXIDATION CLEAN Silicon nitride etch Solvent chemistry resist strip/
PRE-THIN FILMS DEPOSITION CLEAN post-ash clean (back end)
Post-CMP clean
Solvent chemistry clean (back end)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
For classification purposes, the process to fabricate a semiconductor die
(without testing or packaging) is divided into two major phases referred to as
"front end" and "back end." Front-end steps are those that are performed to
fabricate individual components within an IC such as transistors. Back-end
steps are those that involve the creation of metal patterns on the wafers in
order to connect these individual components to create the IC. For a high-
performance logic IC, approximately 60% of the wet processing steps are front-
end and the balance are back-end.
Critical Cleaning Applications. Critical cleans are those wet processing
steps that are performed in the front end to remove surface contamination
prior to performing highly sensitive fabrication steps such as gate oxidation
or diffusion. The Company believes that approximately 40% of the wet
processing operations in the front end fall into this category. To date, most
of the Company's Full-Flow systems have been purchased by semiconductor
manufacturers for use in these applications.
Critical Etching Applications. Wet processing is also commonly used in the
front end to etch the surface of the wafer to remove silicon dioxide or other
surface material. It is generally important to tightly control the exact
amount of material removed and the uniformity of the etch. The Company
believes that approximately 20% of the wet processing steps in the front end
involve etching. These etching steps are often performed as part of a wet
clean rather than as stand-alone operations, and as such, most of the Full-
Flow systems sold by the Company to date are also performing critical etching
applications.
30
<PAGE>
Photoresist Strip Applications. Photoresist stripping operations involve the
removal of either virgin or ashed photoresist from the surface of wafers after
a patterning step has been completed. Resist stripping is performed in both
the front end and the back end, and the Company believes that this process
represents approximately 40% of the wet processing operations in each area.
Front-end cleans and resist strips are generally performed with aqueous
chemistries. However, back-end cleans and resist strips must be accomplished
with different chemistries that utilize solvents, since front-end water-based
chemistries are incompatible with the metal present on wafers in the back end.
In both cases, resist stripping operations are driven as much by cost as by
process performance. Production shipments of the Company's enhanced throughput
Full-Flow system, the Full-Flow 8100, capable of processing up to 100 8-inch
wafers per vessel, began in April 1996. For a nominally higher system sales
price, this new system provides all the advantages of Full-Flow technology
with double the throughput of its predecessor. Since the Full-Flow system
already utilizes the chemistries required for front-end stripping, the Company
believes that the throughput and other COO advantages provided by this
enhanced system make it attractive for use in front-end resist strip
applications. In 1996, the Company delivered several such systems for use in
front-end applications including resist stripping. Other development projects
are currently underway to further increase the throughput and capital
productivity of future versions of the Full-Flow system.
Future Applications. Approximately 40% of semiconductor wet processing
operations are performed in the back end and are comprised primarily of
solvent-based cleans and solvent-based resist strips. The Company believes
that its Full-Flow systems offer a range of attractive benefits for these
applications as process requirements become more demanding and regulatory
restrictions on the release of chemical fumes become more stringent.
Furthermore, the Company believes that its proprietary Direct-Displacement
drying method is well suited for drying wafers with complex topographies that
often exist in the back end.
FPD Manufacturing Applications
The Company believes that its Full-Flow platform is particularly well-suited
for cleaning and etching applications in the manufacture of FPDs due to its
advanced process capabilities, its significantly lower use of water and
chemicals relative to competing wet bench systems and its substantially
smaller footprint. The Company initially addressed the FPD market with its
Vapor-Flow system, a modified version of its Full-Flow system in which the
process fluids enter the process vessel via an inlet located on the bottom,
like the Full-Flow system, but exit the vessel on the side, unlike the Full-
Flow system in which process fluids exit at the top. The Company introduced
its first Vapor-Flow system in 1990, and has sold 13 systems to seven
customers, including systems to two manufacturers of FPDs. To address the
rapidly increasing demand for FPDs, the Company has developed a high-
throughput FPD processing system based on its Full-Flow platform. This Full-
Flow FPD system, which was first shipped in April 1996, has been designed to
process up to 50 FPD substrates per vessel. The system is available in a dual
vessel configuration capable of processing up to 100 substrates
simultaneously.
In February 1996, the USDC awarded the Company a development contract to
produce a wet processing system to support both cleaning and etching
requirements during the manufacture of advanced technology FPDs. The Company
will own all of the technology which is developed as a result of this
contract.
CUSTOMERS
The Company sells its systems to leading semiconductor manufacturers located
in the United States, Europe and East Asia. Sales to LG, IBM, SGS-Thomson
Microelectronics and Motorola accounted for 29.1%, 25.3%, 19.0% and 10.8%,
respectively, totalling 84.2% of net sales in fiscal 1996. See Note 14 of the
Notes to Consolidated Financial Statements for information with respect to
export sales.
The Company expects a significant portion of its future sales to remain
concentrated within a limited number of customers. The Company's results of
operations could be materially and adversely affected by any loss of business
from, the cancellation of orders by, or decreases in prices of systems sold
to, any of its major customers.
31
<PAGE>
The Company's arrangements with its customers are generally on a purchase
order basis and not pursuant to long term contracts. A reduction or delay in
orders from any of the Company's significant customers, including reductions
or delays due to market, economic or competitive conditions in the
semiconductor or FPD industries, or the loss of any such customers, could have
a material adverse effect upon the Company's results of operations. While the
Company actively pursues new customers, there can be no assurance that the
Company will be successful in its efforts, and any significant weakening in
customer demand would have a material adverse effect on the Company.
SALES AND MARKETING
The Company sells its systems through a combination of a direct sales force,
manufacturers' sales representatives, a Korean sales agent, a Japanese
distributor and a Taiwanese sales agent. The Company's field service personnel
support its sales force. In North America, the Company utilizes a combination
of a direct sales force and manufacturers' representatives. In addition to the
direct sales force at the Company's headquarters in West Chester,
Pennsylvania, the Company has direct sales personnel located in Marietta,
Georgia, Austin, Texas and Phoenix, Arizona. The Company has recently hired a
direct salesperson in Paris, France and continues to support the European
market through its North American direct sales force. The Company hired a
director of sales and marketing for East Asia during fiscal 1996, and intends
to substantially increase its expenditures during fiscal 1997 for sales and
sales support in order to continue to expand the adoption of its products in
East Asia. The Company signed agreements with ANAM, which markets in Korea,
Innotech, the Company's distributor in Japan and AMPOC, a sales agent in
Taiwan, in 1991, 1992 and 1996, respectively. See "Certain Relationships and
Related Transactions."
Although the Company believes that it has good relationships with its
manufacturers' sales representatives, sales agents and its distributor, there
can be no assurance that these relationships will continue to be satisfactory
or continue at all. In the event of a termination of any of the Company's
existing representation, agency or distribution arrangements, the Company's
strategy of worldwide expansion could be adversely affected.
CUSTOMER SATISFACTION
The Company believes that high quality customer support, customer training
and process consultation are key elements in the creation of customer
satisfaction. The Company also believes that product reliability, as it is
perceived by the individual customer technician, manager and executive, is
strongly correlated with customer satisfaction and the resulting decisions to
select the Company's technology and its products for broad application within
that individual customer's area of personal authority. The Company has made
substantial investments in its customer support, customer training, customer
communication and reliability engineering and testing programs and intends to
continue to make such investments in the future.
The Company's customer satisfaction organization is headquartered in West
Chester, Pennsylvania, with additional employees and consultants located in
Arizona, California, Colorado, Idaho, New York, New Mexico, Oregon, Texas,
Vermont, France, Germany and the United Kingdom. The Company uses local
support personnel where there are multiple installed systems. Innotech, ANAM
and AMPOC provide service to customers located in Japan, Korea and Taiwan,
respectively. The Company's support personnel generally have prior technical
backgrounds in the mechanical, electronic or chemical processing industries
and prior experience or training in semiconductor manufacturing processes.
These field personnel are supported by the Company's manufacturing and
engineering personnel during system installation and initial process
validation. Field support personnel also perform warranty and after-warranty
service and sales support.
The Company's products are typically sold with a 12 month warranty covering
all parts and labor, which commences upon completion of installation and final
acceptance. Longer and more comprehensive warranties, as well as service
contracts, are also available to be purchased by customers.
32
<PAGE>
BACKLOG
The Company manages its production forecast using both backlog and projected
system orders. The Company includes in backlog only those customer purchase
orders which have been accepted by the Company and for which shipments dates
have been assigned within the following 12 months. Orders are generally
subject to delay without penalty, but may contain cancellation penalties. As
of October 31, 1996, the Company's backlog was approximately $18.5 million.
The entire backlog is for semiconductor equipment, approximately 50% of which
is for international orders. It has been the experience of the Company that
neither the backlog nor the pattern of receipt of orders are necessarily
indicative of future orders or revenues.
RESEARCH, DEVELOPMENT AND ENGINEERING
CFM maintains an applications laboratory in West Chester, Pennsylvania to
test new equipment and processes, design new features and train customer and
Company personnel. By basing new applications on its proprietary Full-Flow
platform, the Company can reduce substantially the time and cost required to
develop new process applications by focusing primarily on the optimization of
the applications' process recipes. The Company is currently focusing its
research, development and engineering efforts on equipment to support
additional wet process applications such as photoresist strip processes. The
Company recently completed the development of a high-throughput version of its
8100 system, the Full-Flow 8100HT, which the Company began shipping early in
fiscal 1997. In addition to the doubling in system throughput and capital
productivity offered by the base Full-Flow 8100, the 8100HT offers
asynchronous wafer handling, maximizing processing productivity. The Company
is currently designing new vessels capable of processing 300mm semiconductor
wafers and a new vessel capable of processing 590mm x 670mm FPDs which are
larger than those processed presently. The Company has accepted orders for
these new products to ship during 1997. See "Risk Factors -- Dependence Upon
Product Development."
The markets in which the Company and its customers compete are characterized
by rapidly changing technology, evolving industry standards and continuous
improvements in products and services. Because of continual changes in these
markets, the Company believes that its future success will depend, in part,
upon its ability to continue to improve its systems and its process
technologies and to develop new system applications which compete effectively
on the basis of COO, including yield, throughput, capital and direct costs and
system performance. In addition, the Company must adapt its systems and
processes to technological changes to support the standards required by
emerging target markets. The success of new system introductions is dependent
on a number of factors, including timely completion of new system designs,
ultimate system performance achieved by those designs and market acceptance.
There can be no assurance that the Company will be able to improve its
existing systems and process technologies or develop new system applications.
The Company's research, development and engineering expenses for the 1994,
1995 and 1996 fiscal years were $2.1 million, $1.7 million and $4.4 million,
respectively, representing 13.2%, 7.3% and 10.0% of net sales, respectively.
Research, development and engineering expenses were net of reimbursements of
$1,592,000, $232,000 and $1,835,000, respectively, for the 1994, 1995 and 1996
fiscal years.
COMPETITION
The Company faces substantial competition in its market segments from both
established competitors and potential new entrants. The Company believes that
the primary competitive factors in the markets in which the Company competes
are yield, throughput, capital and direct costs, system performance, size of
installed base, breadth of product line and customer satisfaction. The Company
believes that it competes favorably with respect to each of these factors. The
Company also faces the challenge posed by semiconductor and FPD manufacturers'
commitment to competing technologies. Most of the Company's competitors have
been in business longer than the Company, offer traditional wet processing
technology, have broader product lines, more experience with high volume
manufacturing, broader name recognition, substantially larger installed bases
and significantly greater financial, technical, marketing, service and
suppport resources than the Company. In the semiconductor wet processing
market, the Company competes primarily with Dainippon Screen, FSI
International, Santa Clara
33
<PAGE>
Plastics, Steag MicroTech, SubMicron Systems, Tokyo Electron Limited and
Verteq. In the FPD wet processing market, the Company competes primarily with
Dainippon Screen and Semitool. There can be no assurance that these
competitors will not also develop enhancements to or future generations of
competitive products that will offer price or performance features that are
superior to the Company's systems or that the Company's products will gain
market acceptance. See "Risk Factors -- Acceptance by Customers of New
Technology."
The Company believes that in order to remain competitive, it must invest
significant financial resources in developing new product features and
enhancements and in maintaining customer satisfaction worldwide. In marketing
its products, the Company will face competition from suppliers employing new
technologies in order to extend the capabilities of competitive products
beyond their current limits or increase their productivity. Once a
manufacturer has selected a particular vendor's capital equipment, the Company
believes that the manufacturer generally relies upon that equipment for a
specific production line application and frequently will attempt to
consolidate related capital equipment requirements with the same vendor, to
the degree that such consolidation is possible. In addition, increased
competitive pressure could lead to intensified price-based competition,
resulting in lower prices and margins, which would materially and adversely
affect the Company's business and results of operations.
MANUFACTURING
The Company's manufacturing operations are based in West Chester,
Pennsylvania and consist of procurement, assembly and test engineering. Early
in fiscal 1996, the Company completed an expansion of its manufacturing
operations, which resulted in a 150% increase in production capacity. Early in
fiscal 1997, the Company completed an additional expansion of its
manufacturing operator which resulted in an additional 50% increase in
production capacity. The Company's Full-Flow systems are based upon a common
set of modules, enabling the Company to reduce manufacturing costs by using a
large number of common subassemblies and components. Many of the major
subassemblies are purchased complete from outside sources. The Company focuses
its manufacturing efforts on carefully documented assembly and integration
activities which the Company has determined to be critical to the successful
operation of its products. In 1994, as a result of adoption of SEMATECH
measurement and improvement methodologies, the Company began a concerted
effort to meet the requirements of ISO 9001, the international standard for
quality systems. In December 1996, the Company was recommended for ISO 9001
certification.
Certain of the Company's components and subassemblies are obtained from sole
suppliers or limited groups of suppliers, which are often small, independent
companies. Moreover, the Company believes that certain of these components and
subassemblies can only be obtained from its current suppliers. The Company
generally acquires such components on a purchase order basis and not under
long-term supply contracts. The Company's reliance on outside vendors
generally, and on sole suppliers in particular, involves several risks,
including a potential inability to obtain an adequate supply of required
components and reduced control over pricing, timely delivery and quality of
components. The Company has experienced and continues to experience some
reliability and quality problems with certain key components and subassemblies
provided by single source suppliers. Because the manufacture of certain of
these components and subassemblies is a complex process and can require long
lead times, there can be no assurance that delays or shortages caused by
suppliers will not occur. Historically the Company has not experienced any
significant delays in manufacturing due to an inability to obtain components
and is not currently aware of any specific problems regarding the availability
of components which might significantly delay the manufacturing of its systems
in the future. However, any inability to obtain adequate deliveries or any
other circumstance that would require the Company to seek alternative sources
of supply or to manufacture such components internally could delay the
Company's ability to ship its systems and could have a material adverse effect
on the Company. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Risk Factors -- Sole or Limited
Sources of Supply."
The Company is subject to a variety of federal, state and local laws, rules
and regulations relating to the use, storage, discharge and disposal of
hazardous chemicals used in its research, development and engineering
activities. The Company believes that it is currently in compliance in all
material respects with such laws, rules
34
<PAGE>
and regulations. However, failure to so comply could result in substantial
liability to the Company, suspension or cessation of the Company's operations,
restrictions on the Company's ability to expand at its present location or
requirements for the acquisition of additional equipment or other significant
expense. To date, compliance with environmental rules and regulations has not
had a material effect on the Company's operations.
INTELLECTUAL PROPERTY
The Company relies on a combination of patent, copyright, trademark and
trade secret laws, non-disclosure agreements and other forms of intellectual
property protection to protect its proprietary technology. The Company
currently holds 12 patents in the United States, four patents in Japan, three
patents in Korea and 17 patents in various European countries. The Company
also has multiple patent applications pending or under evaluation in the
United States and various foreign jurisdictions. Certain of these patents
cover the Company's Full-Flow process and Direct-Displacement drying
technologies on which the Company's current product offerings are based. While
the Company believes that these patents have significant value, the Company
also believes that the innovative skills, technical expertise and know-how of
its personnel in applying the art reflected in these patents would be
difficult, costly and time consuming to reproduce. The Company has asserted
its patent rights against three defendants, Steag MicroTech, Inc., Steag
MicroTech GmbH Donaueschingen and YieldUP International Corp., in actions
commenced in July and September 1995, respectively, in the United States
District Court for the District of Delaware. The Company's complaints in these
actions allege inducement of infringement and contributory infringement of one
of the Company's patents and seek damage awards and to permanently enjoin
further infringement. The defendants have denied infringement and have
asserted, among other things, that the subject patent is invalid. In addition,
one of the defendants has asserted that the patent is unenforceable. There can
be no assurance that any of the claims of the patent cited in these actions
will be found to encompass use of the competitors' products or that the
subject patent will not be found to be unenforceable or invalid during
prosecution of the actions. A finding of invalidity or unenforceability could
result in the Company's competitors being able to develop products using the
Company's proprietary technology, which in turn could have a material adverse
effect on the Company. Further, there can be no assurance that any rights
granted under any of the Company's patents will provide adequate protection to
the Company, or that the Company will have sufficient resources to continue to
prosecute its rights in the current actions or others.
Although there are no pending lawsuits against the Company regarding
infringement of any existing patents or other intellectual property rights or
any claims that the Company is infringing intellectual property rights of
others, there can be no assurance that such infringement claims will not be
asserted by third parties in the future. There also can be no assurance in the
event of such claims of infringement that the Company will be able to obtain
licenses on reasonable terms. The Company's involvement in any patent dispute
or other intellectual property dispute or action to protect trade secrets and
know-how, including the actions brought by the Company presently pending,
could result in a material adverse effect on the Company's business. Adverse
determinations in the current litigation or any other litigation in which the
Company may become involved could subject the Company to significant
liabilities to third parties, require the Company to grant licenses to or seek
licenses from third parties and prevent the Company from manufacturing and
selling its products. Any of these situations could have a material adverse
effect on the Company.
EMPLOYEES
As of December 31, 1996, the Company had 276 employees, of which 211 were
full-time and the balance temporary or contract employees. There were 117
employees in manufacturing operations, 73 in research, development and
engineering, 15 in sales and marketing, 42 in customer satisfaction and field
support and 29 in general administrative and finance positions. The Company
plans to hire additional personnel in each of the above areas during the next
12 months.
While the Company has generally been able to find qualified candidates to
fill new positions, substantial growth throughout the semiconductor capital
equipment industry has made it more difficult to recruit qualified candidates
for certain positions in design, field support, testing and process
engineering. Once recruited, the
35
<PAGE>
Company then faces the task of training and integrating new employees quickly
enough to keep pace with its rapid growth. There can be no assurance that the
Company will be successful in recruiting, retaining, training and integrating
the necessary key personnel to support its anticipated growth, and any failure
to expand these areas in an efficient manner could have a material effect on
the Company's results of operations. See "Risk Factors -- Management of
Growth" and "-- Dependence upon Personnel."
None of the Company's employees is represented by a labor union and the
Company has never experienced a work stoppage, slowdown or strike. The Company
considers its relationships with its employees to be good.
FACILITIES
The Company conducts its manufacturing in a 26,000 square foot facility
which it owns in West Chester, Pennsylvania. In January 1996 the Company
commenced occupancy of a 38,400 square foot leased office building located in
the same industrial park to serve as the new location for its engineering,
sales and marketing, customer satisfaction and administration activities.
These functions were previously located in the facility owned by the Company,
which is now devoted entirely to manufacturing. The lease expires in December
2000 and includes an option for early cancellation in December 1998 with the
payment of a cancellation penalty. In January 1997, the Company commenced
occupancy of an additional 14,000 square foot leased manufacturing facility in
the same industrial park. The lease expires in January 2002 and includes a
mutual option to cancel in January 1998 upon six months notice with no
penalty. The Company plans to occupy additional facilities and believes that
suitable additional space, if ultimately needed, will be available on terms
acceptable to the Company.
LEGAL PROCEEDINGS
The Company has asserted certain of its patent rights against three
defendants. See "-- Intellectual Property." The Company is not a party to any
other litigation.
36
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the Company's
directors, executive officers and key employees:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Christopher F. McConnell.. 43 Chairman of the Board of Directors
Roger A. Carolin.......... 41 President, Chief Executive Officer and Director
Alan E. Walter............ 43 Senior Vice President, Business Development
Joseph E. Berger.......... 38 Vice President -- Worldwide Sales and Marketing
David L. deLesdenier...... 47 Vice President -- Engineering
Garry M. Mayers........... 43 Vice President -- Customer Service
John L. Posta............. 55 Vice President -- Manufacturing
Lorin J. Randall.......... 53 Vice President -- Finance, Chief Financial
Officer, Secretary and Treasurer
Steven T. Bay............. 40 Chief Technical Officer
Heinrich S. Erhardt....... 52 Vice President -- Product Development
Steven Verhaverbeke....... 31 Director of Process Technology
James J. Kim.............. 61 Director
Brad S. Mattson........... 42 Director(1)
Burton E. McGillivray..... 40 Director(1)(2)
Milton S. Stearns, Jr..... 73 Director(2)
</TABLE>
- --------
(1) Member of Executive Compensation and Stock Option Committee. Mr. Kim
served as a member of this committee until October 18, 1996, at which time
he was succeeded by Mr. Mattson.
(2) Member of Audit Committee.
CHRISTOPHER F. MCCONNELL founded the Company in May 1984 and served as
President and Chief Executive Officer until October 1990 when he was named
Chairman of the Board of Directors. Prior to forming the Company, Mr.
McConnell held various technical and marketing positions with Dow Chemical.
Mr. McConnell received his BS and MS degrees in Chemical Engineering from
Dartmouth College and Purdue University, respectively, and his MBA from
Harvard Business School. Mr. McConnell is a named inventor on all of the
Company's patents. See "Certain Relationships and Related Transactions."
ROGER A. CAROLIN has served the Company as a director since its inception in
1984 and as President and Chief Executive Officer since April 1991. From
October 1990 to April 1991, he served as a marketing and sales consultant to
the Company. From June 1984 to October 1990, Mr. Carolin was Senior Vice
President of The Mills Group, Inc., a real estate development firm.
Previously, Mr. Carolin was with The General Electric Company and Honeywell,
Inc. in a variety of technical positions. Mr. Carolin received his BS in
Electrical Engineering from Duke University and his MBA from Harvard Business
School.
ALAN E. WALTER co-founded the Company in 1984 and currently serves as Senior
Vice President, Business Development, with primary responsibility for the
Company's marketing efforts in the FPD industry. Prior to joining the Company,
he was with the Cochrane Division of Crane Company, a producer of ultra-high
purity water systems, Mr. Walter received his BS in Chemical Engineering from
the University of Delaware. He is a named inventor on ten of the Company's
patents.
JOSEPH E. BERGER joined the Company in June 1993 and has served as Vice
President -- Worldwide Sales and Marketing since December 1995. Mr. Berger
served as the Company's Director of Sales and Marketing from June 1995 to
December 1995, and as Program Director from June 1993 to June 1995. Mr. Berger
served as Director of Sales for A.E. Staley Manufacturing Co., a manufacturer
of corn sweetener and starches, from 1990 until May 1993. Mr. Berger received
his BS in Chemical Engineering from the University of Virginia and his MBA
from Harvard Business School.
37
<PAGE>
DAVID L. DELESDENIER joined the Company in September 1996 and currently
serves as Vice President -- Engineering. From August 1995 to August 1996, Mr.
deLesdenier was Corporate Vice President -- Commercial and International for
Science Applications International Corporation, a defense contractor. From
1977 until June 1995, Mr. deLesdenier was Vice President -- Technology for
IPEC/Clean, a manufacturer of sulfuric acid reprocessing systems for the
semiconductor industry. Mr. deLesdenier received his BS and MS from the
Georgia Institute of Technology and his MBA from San Diego State University.
GARRY M. MAYERS joined the Company in October 1996 and currently serves as
Vice President -- Customer Service. From April 1991 until October 1996, Mr.
Mayers served as Director of World Wide Customer Service at ADE Corporation, a
manufacturer of chemical vapor deposition and ion implant equipment for
semiconductor devices. Mr. Mayers attended Northeastern University, majoring
in electrical engineering.
JOHN L. POSTA joined the Company in October 1993 as Vice President --
Manufacturing. Mr. Posta served as a consulting engineer to the Company from
August 1993 to October 1993 and as a manufacturing consultant from August 1989
to October 1993. Mr. Posta served as Vice President of Operations for Hercules
Aerospace Display Systems from May 1988 to August 1989, and as Director of
Manufacturing and Director of Materials for Commodore Business Machines, Inc.
from September 1984 to May 1988. Mr. Posta received his BS in Industrial
Management from Fairleigh Dickinson University.
LORIN J. RANDALL joined the Company in January 1995 as Vice President --
Finance, Chief Financial Officer, Secretary and Treasurer. From May 1994 to
June 1995, Mr. Randall served as the President and Chief Executive Officer of
Greenwich Pharmaceuticals Incorporated, a drug development company where from
September 1991 to May 1994, he served as Vice President -- Finance and Chief
Financial Officer. From April 1990 to March 1991, Mr. Randall served as
President and Chief Executive Officer of Surgilase, Inc., a supplier of
surgical laser equipment. Mr. Randall received his BS in Accounting from The
Pennsylvania State University and his MBA from Northeastern University. Mr.
Randall is a director of Quad Systems Corporation.
STEVEN T. BAY joined the Company in April 1992 as Director of Technology and
Marketing/Far East, and has served as Chief Technical Officer since September
1994. From 1990 until April 1992, Mr. Bay was employed by Bridgetek, Inc. of
San Jose, California, which was the manufacturer's representative for the
Company in California and the Pacific Northwest. Mr. Bay received his BA in
Chemistry from St. Louis University.
HEINRICH S. ERHARDT joined the Company in January 1992 and currently serves
as Vice President -- Product Development. From January 1992 until September
1996, Mr. Erhardt served as Vice President --Engineering. Prior to joining the
Company, Mr. Erhardt served as Vice President of Operations for Image
Storage/Retrieval Systems, a supplier of high-density data storage systems,
from January to December 1991, and as President of HEA, Inc., a computer
maintenance service and consulting company, from October 1989 to December
1990. Mr. Erhardt received his BS in Mechanical Engineering from City
University of New York and his MS in Engineering Science from The Pennsylvania
State University.
STEVEN VERHAVERBEKE joined the Company in February 1995 and has served as
Director of Process Technology since that time. Dr. Verhaverbeke was employed
by IMEC of Leuven, Belgium, a microelectronics research institute, as a senior
researcher from August 1994 to January 1995 and as a doctoral researcher from
September 1988 to July 1993. Dr. Verhaverbeke also served as a researcher at
Tohoku University in Sendai, Japan from August 1993 to August 1994. Dr.
Verhaverbeke received his PhD in Chemical Engineering from K.U. Leuven,
Belgium.
JAMES J. KIM has been a director of the Company since 1991. Mr. Kim is the
founder, Chairman and Chief Executive Officer of AMKOR Electronics, a leading
semiconductor assembly company. He also founded and serves as Chairman and
Chief Executive Officer of The Electronics Boutique, an electronics products
retailer, and as Chairman of ANAM Group, the parent of ANAM, the Company's
Korean agent. See "Certain Relationships and Related Transactions."
38
<PAGE>
BRAD S. MATTSON has been a director of the Company since December 1995. Mr.
Mattson founded Mattson Technology, Inc., a manufacturer of semiconductor
fabrication equipment, and has served as its Chief Executive Officer,
President and a Director since its inception in November 1988. Mr. Mattson was
the founder of Novellus, a semiconductor equipment company, and formerly
served as its President, Chief Executive Officer and Chairman. He has also
held executive positions at Applied Materials and LFE Corporation, both
semiconductor equipment companies.
BURTON E. MCGILLIVRAY has been a director of the Company since 1990. Since
January 1994, Mr. McGillivray has served as Managing Director of First Chicago
Equity Capital, a venture capital firm. From January to December 1993, Mr.
McGillivray was a Chicago-based private investor, and from September 1984 to
December 1992, Mr. McGillivray was employed by Continental Illinois Venture
Corporation and Continental Equity Capital Corporation, serving as Managing
Director of both from 1989 to 1992. Mr. McGillivray received his AB from
Harvard University and his MBA from Harvard Business School. Mr. McGillivray
is a member of the board of directors of Three-Five Systems, Inc.
MILTON S. STEARNS, JR. has been a director of the Company since December
1994. Since 1972, Mr. Stearns has been President of Charter Financial Company,
a corporate financial consulting company. Mr. Stearns has been a director of
five public and a number of private companies. In addition, from 1976 to 1987,
he was Chairman and Chief Executive Officer of Judson Infrared Inc., a
manufacturer of infrared detectors for military and telecommunications
companies. Mr. Stearns received his BS from Harvard University and his MBA
from Harvard Business School.
All directors hold office until the next annual meeting of shareholders or
until their successors have been elected and qualified. Officers are appointed
by the Board of Directors and serve at the discretion of the Board.
COMPENSATION OF DIRECTORS
The Company reimburses directors for expenses incurred in connection with
attendance at meetings of the Board of Directors and committees. In March
1991, the Company and Mr. McGillivray entered into a Stock Option Agreement
(the "McGillivray Agreement") pursuant to which the Company granted to Mr.
McGillivray four-year options to purchase up to 832 shares of Common Stock, at
an exercise price of $2.41 per share, for each meeting of the Board of
Directors attended by Mr. McGillivray during a two year period beginning in
December 1990. This agreement was amended in June 1993 to provide for
additional grants of options to purchase 832 shares of Common Stock for each
meeting of the Board of Directors attended by Mr. McGillivray during the
period from March 1993 to December 1997. The amendment also extended the term
of the options previously granted to ten years. The McGillivray Agreement was
also amended in September 1994 to provide an exercise price of $7.52 per share
with respect to all stock options granted under the McGillivray Agreement
after January 6, 1994. In December 1994, the Company and Mr. Stearns entered
into a Stock Option Agreement (the "Stearns Agreement") pursuant to which the
Company granted to Mr. Stearns ten-year options to purchase up to 832 shares
of Common Stock, at an exercise price of $7.52 per share for each meeting of
the Board of Directors attended by Mr. Stearns during a one year period
beginning in December 1994. This agreement was amended in November 1995 to
provide for additional grants of options to purchase 832 shares of Common
Stock at an exercise price of $7.52 per share for each meeting of the Board of
Directors attended by Mr. Stearns during the period from November 1995 to
October 1997. Messrs. McGillivray and Stearns will continue to be compensated
for their service on and attendance at meetings of the Board of Directors
through stock option grants to be made pursuant to the terms of the
McGillivray Agreement and the Stearns Agreement, respectively. Upon the
respective terminations of the McGillivray Agreement and the Stearns
Agreement, Messrs. McGillivray and Stearns will be compensated for their
service on the Board of Directors pursuant to the Non-Employee Directors'
Stock Option Plan described below.
In March 1996, the Board of Directors granted options to purchase up to
3,000 shares of Common Stock to each of John N. McConnell, Sr. (father of
Christopher F. McConnell) and Vincent L. Verdiani in connection with the
appointment of these individuals as Honorary Lifetime Directors of the
Company. The exercise price of
39
<PAGE>
these ten-year options is $7.52 per share and such options were fully
exercisable on the date of grant. Honorary Lifetime Directors are not elected
by the Company's shareholders, do not receive any compensation for their
service as such and are not voting members of the Board of Directors.
Also in March 1996, the Board of Directors granted to Mr. Mattson ten-year
options to purchase up to 2,000 shares of Common Stock at an exercise price of
$7.52 per share, which will be exercisable in full commencing on March 3,
1997. These options were granted as compensation for Mr. Mattson's service as
a consultant to the Company during the term of the options. In March 1996, Mr.
Mattson also received a grant of options to purchase up to 10,000 shares of
Common Stock at an exercise price of $7.52 per share pursuant to the Company's
Non-Employee Directors' Stock Option Plan. One-third of these options will
vest on each of the first three anniversaries of the date of grant, and the
options will expire upon the earlier of the tenth anniversary of their grant
or twelve months after Mr. Mattson ceases to be a director of the Company.
In the future, the Company may compensate directors for their service as
directors through cash compensation, stock options or stock grants. See "--
Non-Employee Directors' Stock Option Plan."
EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and long-
term compensation for services in all capacities to the Company for the fiscal
years ended October 31, 1995 and 1996 of those persons who during such fiscal
years (i) served as the Company's chief executive officer or (ii) were the
four most highly-compensated executive officers (other than the chief
executive officer) (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
-----------------------------------------------------------
ANNUAL COMPENSATION SECURITIES
FISCAL --------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)(1)
- --------------------------- ------ ---------- --------- ---------- ------------------
<S> <C> <C> <C> <C> <C>
Roger A. Carolin......... 1996 $ 150,000 $ 60,000 -- $5,904
President and Chief Ex-
ecutive Officer 1995 103,550 30,000 -- 6,531
1994 94,800 25,000 -- 1,813
Christopher F.
McConnell............... 1996 140,000 50,000 -- 5,566
Chairman of the Board of
Directors 1995 103,550 33,088 -- 6,298
1994 94,800 25,000 -- 1,903
Lorin J. Randall(2)...... 1996 125,000 30,000 -- 4,801
Vice President -- 1995 101,563 15,000 39,916 72
Finance, Secretary and 1994 -- -- -- --
Treasurer
Alan E. Walter........... 1996 90,000 45,000 -- 4,276
Senior Vice President,
Business Development 1995 79,800 25,588 -- 3,656
1994 74,800 2,500 -- 150
Joseph E. Berger......... 1996 90,000 25,000 -- 3,241
Vice President -- 1995 82,000 16,500 -- 2,236
Worldwide Sales and 1994 82,000 16,400 -- 600
Marketing
</TABLE>
- --------
(1) Compensation reported represents (a) the dollar value of premiums paid by
the Company on two life insurance policies, one regularly furnished to all
employees, and the other an executive policy for Messrs. Carolin,
McConnell and Randall; (b) the Company's matching contribution to the
401(k) Plan paid in fiscal 1995 for the 1994 fiscal year, paid in fiscal
1996 for the 1995 fiscal year and paid in fiscal 1997 for the 1996 fiscal
year.
(2) Mr. Randall joined the Company in January 1995. His annual salary is
$125,000.
40
<PAGE>
No stock options were granted to any of the Named Executive Officers during
the fiscal year ended October 31, 1996.
The following table sets forth the number of shares covered by exercisable
and unexercisable options held by the Named Executive Officers on October 31,
1996 and the aggregate gains that would have been realized had these options
been exercised on October 31, 1996, even though these options were not
exercised, and the unexercisable options could not have been exercised on
October 31, 1996. No stock options were exercised by the Named Executive
Officers during the fiscal year ended October 31, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR END(#) AT FISCAL YEAR END($)(1)
--------------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Roger A. Carolin........ 192,928 -- $1,151,780 --
Christopher F.
McConnell.............. -- -- -- --
Lorin J. Randall........ 17,465 22,451 15,002 $19,285
Alan E. Walter.......... -- -- -- --
Joseph E. Berger........ 32,432 7,484 193,619 44,679
</TABLE>
- --------
(1) Options are in-the-money if the market value of the shares covered thereby
is greater than the option exercise price. Calculated based on the fair
market value at fiscal year end of $8.375 per share, less the exercise
price.
1992 STOCK OPTION PLAN
The Company's 1992 Stock Option Plan (the "Option Plan") was adopted by the
Company in 1992 and was amended and restated and was approved by the Company's
shareholders in May 1995. The purposes of the Option Plan are to attract and
retain qualified personnel, to provide additional incentives to employees and
officers of and consultants to the Company and to promote the success of the
Company's business. As of December 31, 1996, options to purchase an aggregate
of 408,331 shares of the Company's Common Stock have been granted under the
Option Plan, and no additional options will be granted thereunder. The Option
Plan is administered by the Executive Compensation and Stock Option Committee
of the Board of Directors (the "Committee"), which Committee has complete
discretion to determine which eligible individuals are to receive option
grants, the number of shares subject to each such grant, the vesting schedule
to be in effect for the option grant and the maximum term for which any
granted option is to remain outstanding.
Each option granted under the Option Plan has a maximum term of ten years
(or five years with respect to holders of more than 10% of the voting power of
the Company's outstanding stock), subject to earlier termination following the
optionee's cessation of service with the Company. Options granted under the
Option Plan may be exercised only for fully vested shares. The exercise price
of options granted under the Option Plan must be at least 100% of the fair
market value of the stock subject to the Option on the date of grant (or 110%
with respect to holders of more than 10% of the voting power of the Company's
outstanding stock). The Executive Compensation and Stock Option Committee
determines the fair market value of the Common Stock from time to time. The
option exercise price is payable in cash upon the exercise of the option.
The Committee may amend or modify the Option Plan at any time, provided that
no such amendment or modification may adversely affect the rights and
obligations of the participants with respect to their outstanding options
invested shares without their consent. In addition, no amendment of the Option
Plan may, without the approval of the Company's shareholders, (i) modify the
class of individuals eligible for participation, (ii) increase the number of
shares available for issuance, except in the event of certain changes to the
Company's capital structure or (iii) extend the term of the Option Plan.
41
<PAGE>
OTHER OPTIONS
Options to purchase 202,255 shares of Common Stock were granted from 1990 to
1996 not pursuant to a stock option plan.
ANNUAL PROFIT SHARING PLAN
The Company has an Annual Profit Sharing Plan (the "Profit Sharing Plan")
pursuant to which certain eligible employees of the Company may receive annual
distributions in cash based upon the Company's operating profit for the most
recent fiscal year. For the 1995 and 1996 fiscal years, $65,000 and $150,000,
respectively, was paid to eligible employees under the Profit Sharing Plan.
1995 INCENTIVE PLAN
In December 1995, the Company's Board of Directors adopted, and in January
1996, the Company's shareholders approved, the 1995 Incentive Plan (the
"Incentive Plan"). Under the Incentive Plan, the Company is authorized to
award up to 400,000 shares of Common Stock to employees of the Company and its
subsidiaries. As of December 31, 1996, options for an aggregate of 400,000
shares were outstanding under the Incentive Plan, and options for an
additional 39,937 shares were granted, subject to shareholder approval of an
increase in the number of shares authorized for issuance under the Incentive
Plan. An increase in the number of shares issuable pursuant to the Incentive
Plan was approved by the Board of Directors on December 18, 1996, subject to
shareholder approval. If approved by the shareholders, an additional 600,000
shares would be reserved and available for future option grants, which would
include the 39,937 shares underlying options already granted subject to
shareholder approval. The Committee administers the Incentive Plan. Under the
terms of the Incentive Plan, the Committee is required to be composed of two
or more directors, each of whom shall be a "disinterested person" within the
meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended.
The Committee has the authority to interpret the Incentive Plan and to
determine and designate the persons to whom awards shall be made and the
terms, conditions and restrictions applicable to each award (including, but
not limited to, the price, any restriction or limitation, any vesting schedule
or acceleration thereof and any forfeiture restrictions).
The Incentive Plan contains provisions for granting various stock-based
awards, including incentive stock options as defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), nonqualified stock
options and Restricted Stock (as further described below). The term of the
Incentive Plan is ten years, subject to earlier termination or amendment.
Stock Options. The Incentive Plan provides for the grant of "incentive stock
options," as defined in Section 422 of the Code, to employees of the Company.
The Incentive Plan also provides for the grants of stock options that do not
qualify as incentive stock options under the Code ("non-qualified stock
options") to employees of the Company, including directors who are employees
of the Company. The exercise price of any incentive stock option granted under
the Incentive Plan may not be less than 100% of the fair market value of the
Company's Common Stock on the date of grant. Options granted under the
Incentive Plan may be exercised for cash, by reduction of the number of shares
of Common Stock issuable upon such exercise or, to the extent determined by
the Committee, in exchange for shares of Common Stock owned by the option
holder having a fair market value on the date of exercise equal to the option
exercise price. The aggregate fair market value, determined on the date of
grant, of the shares with respect to which incentive stock options are
exercisable for the first time by an employee during any calendar year may not
exceed $100,000.
Under the Incentive Plan, each option is exercisable for the full amount or
for any part thereof at such intervals or in such installments as the
Incentive Committee shall determine at the time it grants an option. However,
no award shall be exercisable with respect to any shares of Common Stock later
than ten years after the date of the grant of such option. All options are
non-transferable by the optionee except upon death. The shares subject to
expired options or terminated options which remain unexercised become
available for future grants.
42
<PAGE>
If an optionee ceases to be employed by the Company for any reason other
than death, disability or retirement, any option exercisable on the date of
such termination generally may be exercised for a period of 90 days from the
date of such termination or until the expiration of the stated term of the
option, whichever period is shorter. In the event of termination of employment
by reason of death or retirement, any option exercisable at the date of such
termination generally may be exercised for a period of one year from the date
of termination or until the expiration of the stated term of the option,
whichever period is shorter. In the event of a change of control of the
Company, the Incentive Plan provides that all outstanding options will become
immediately exercisable.
Restricted Stock. "Restricted Stock" consists of shares of the Company's
Common Stock granted to an employee for no consideration, which will be
forfeited to the Company if the grantee ceases to be an employee of the
Company during a restriction period specified by the Committee at the time it
grants the Restricted Stock. In the event of death or disability, the
restrictions will lapse with respect to that percentage of Restricted Stock
held by the grantee that is equal to the percentage of the restriction period
that had elapsed as of the date of death or commencement of disability. In the
event of a change of control of the Company, all restrictions on shares of
Restricted Stock will lapse. Shares of Restricted Stock that are forfeited
become available for future grants.
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
In December 1995, the Company's Board of Directors adopted, and in January
1996, the Company's shareholders approved, the Non-Employee Directors' Stock
Option Plan (the "Directors' Plan"), under which options to purchase up to
150,000 shares of Common Stock may be granted to non-employee directors. The
purposes of the Directors' Plan are to attract and retain independent
directors and to strengthen the mutuality of interests between such directors
and the Company's shareholders. As of December 31, 1996, options to purchase
an aggregate of 10,000 shares of Common Stock have been granted under the
Directors' Plan.
The Directors' Plan is administered by the Company's Board of Directors.
Under the terms of the Directors' Plan, the option exercise price shall be
100% of the fair market value of the shares on the date of grant and each
option generally expires upon the earlier of twelve months after the optionee
ceases to be a director of the Company or ten years.
Each independent director elected at an annual meeting of shareholders will
automatically be granted an option on the date of such meeting of shareholders
to purchase 3,000 shares of Common Stock, which option will vest on the date
of the next succeeding annual meeting of shareholders. Each independent
director elected to fill a vacancy on the Board of Directors will
automatically be granted an option on the date of election to purchase 10,000
shares of Common Stock, one-third of which shall vest on each of the first
three anniversaries of the date of grant. An amendment to the Directors' Plan
to provide for the annual grant of options to purchase 200 shares of Common
Stock with respect to each committee of the Board of Directors on which a
director serves was approved by the Board of Directors and the Committee on
December 18, 1996, subject to shareholder approval.
Under the Directors' Plan, no award shall be exercisable with respect to any
shares of Common Stock later than ten years after the date of the grant of
such option. All options are non-transferable by the optionee except upon
death. The shares subject to expired options or terminated options which
remain unexercised become available for future grants.
If an optionee ceases to be a member of the Board of Directors for any
reason other than death, disability or retirement, any option exercisable on
the date of such termination generally may be exercised for a period of 90
days from the date of such termination or until the expiration of the stated
term of the option, whichever period is shorter. In the event of termination
of Board membership by reason of death or retirement, any option exercisable
at the date of such termination generally may be exercised for a period of one
year from the date of termination or until the expiration of the stated term
of the option, whichever period is shorter. In the event of
43
<PAGE>
termination of Board membership by reason of disability, all options
outstanding at the date of such termination will become immediately
exercisable and generally may be exercised for a period of one year from the
date of termination or until the expiration of the stated term of the option,
whichever period is shorter.
The Board of Directors of the Company may make any amendments to the
Directors' Plan which it deems necessary or advisable.
EMPLOYEE STOCK PURCHASE PLAN
In December 1995, the Company's Board of Directors adopted, and in January
1996, the Company's shareholders approved, an Employee Stock Purchase Plan
(the "Purchase Plan"), which allows all full-time employees of the Company,
subject to certain limitations, to purchase shares of the Company's Common
Stock at a discount from the prevailing market price at the time of purchase.
Such shares may be purchased on the open market or may be newly issued shares
of Common Stock. Any employee owning five percent or more of the voting power
or value of the Company is not eligible to participate in the Purchase Plan. A
maximum of 300,000 shares of the Company's Common Stock may be purchased under
the Purchase Plan. As of December 31, 1996, no shares have been granted under
the Purchase Plan.
An eligible employee will be able to specify an amount to be withheld from
his or her paycheck and credited to an account established for him or her (the
"Participation Account"). Amounts in the Participation Account will be applied
to the purchase of shares of the Company's Common Stock on the termination
date of each offering made under the Purchase Plan. The price for such shares
will be equal to 85% of the market price of the Common Stock, as determined
pursuant to the Purchase Plan. Only whole shares of Common Stock may be
purchased. Amounts withheld from an employee's paycheck and not applied to the
purchase of whole shares of Common Stock will, at the election of the
employee, either remain credited to the employee's Participation Account or be
returned to the employee.
Upon termination of an employee's employment for any reason other than death
or an approved leave of absence, all amounts credited to such employee's
Participation Account shall be resumed to him or her. Upon termination of an
employee's employment because of death, his or her successor-in-interest shall
have the right to elect before the earlier of the offering termination date or
the 60th day following the employee's date of death either to withdraw the
amount credited to his or her Participation Account or to apply such amounts
to the purchase of Common Stock.
The Purchase Plan is administered by the Board of Directors which may
delegate responsibility for such administration to a committee of the Board of
Directors. The Board of Directors may amend or terminate the Purchase Plan at
any time. The Purchase Plan is intended to comply with the requirements of
Section 423 of the Code.
401(K) PLAN
In November 1993, the Company adopted a deferred 401(k) salary savings plan
(the "401(k) Plan") for the benefit of its employees and their beneficiaries,
which was amended in April 1995. Generally, any employee who has completed six
months of service and is over 21 years of age is eligible to participate in
the 401(k) Plan. Each eligible employee may elect to contribute to the 401(k)
Plan through payroll deductions up to 15% of his or her eligible compensation.
Participants are 100% vested in their contributions immediately. The Company
matches contributions up to certain levels.
EMPLOYMENT CONTRACTS
The Company has entered into a written employment agreement with Lorin J.
Randall, its Vice President--Finance and Chief Financial Officer. The
agreement continues until terminated pursuant to its terms. The agreement
provides for a base salary of $125,000 and for such employee benefits as are
made available to other employees of the Company. In addition, pursuant to the
agreement, Mr. Randall received a non-qualified option
44
<PAGE>
to purchase 39,916 shares of Common Stock of the Company for $7.52 per share
under the Company's 1992 Stock Option Plan. In the event the Company
terminates the agreement without "cause" (as defined in the agreement), Mr.
Randall will be entitled to continue to receive his then-current base salary
for six months following such termination, or until the date he commences
permanent, full-time employment elsewhere, whichever first occurs.
Except as set forth above, the Company does not have employment agreements
with any of its executive officers.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Executive Compensation and Stock Option Committee of the Company's Board
of Directors was formed in November 1991 and the members of this committee are
Messrs. Mattson and McGillivray. Neither of these individuals was at any time
during the fiscal year ended October 31, 1996 or at any other time an officer
or employee of the Company. No executive officer of the Company serves as a
member of the board of directors or compensation committee of any entity which
has one or more executive officers serving as a member of the Company's Board
of Directors or Executive Compensation and Stock Option Committee.
Until October 18, 1996, James J. Kim, a director and shareholder of the
Company, served on the Executive Compensation and Stock Option Committee of
the Board of Directors. Mr. Kim is, directly and indirectly, the largest
shareholder of ANAM. ANAM, which is also a shareholder of the Company, acts as
the Company's sales agent in Korea. See "Certain Relationships and Related
Transactions."
LIMITATION OF OFFICERS' AND DIRECTORS' LIABILITY
The Company's Articles of Incorporation, as amended, and Amended and
Restated By-Laws include provisions (i) to reduce the personal liability of
the Company's directors for monetary damages resulting from breaches of the
fiduciary duty and (ii) to permit the Company to indemnify its directors and
officers to the fullest extent permitted by Pennsylvania law.
At present there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened
litigation or proceeding that might result in a claim for such
indemnification.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1984 and 1985, CFM Technologies, Incorporated, which is now the Company's
wholly-owned operating subsidiary ("CFM Sub"), entered into research and
development agreements with two related party limited partnerships (together,
the "Partnerships"), in which CFM Sub was the general partner. A significant
number of the limited partners were also significant shareholders of CFM Sub.
In April 1987 and September 1988, CFM Sub exercised its options under the
research and development agreements between CFM Sub and the Partnerships to
purchase the Partnerships' technologies. This exercise resulted in a liability
of CFM Sub to the Partnerships in the aggregate amount of $2,184.000. This
amount was calculated based on the total cost to the Partnerships of
developing the technology, including parts and materials, rent, salaries and
other administrative costs incurred in developing and testing prototype units,
with such cost being multiplied by a factor which depended upon the time at
which the option was exercised. At the time of the exercise of the first
option in April 1987, the development cost was approximately $383,000 and the
factor in effect at that time was 3.00, resulting in a liability of
$1,149,000. Similarly, at the time of the exercise of the second option in
September 1988, the development cost was approximately $345,000 and the factor
in effect at that time was also 3.00, resulting in a liability of $1,035,000.
Through the end of the 1994 fiscal year, CFM Sub had made aggregate payments
of $1,612,000 to the Partnerships. During 1994, in response to inquiries and
requests by a number of the limited partners of the Partnerships, CFM Sub
began to investigate the possibility of exchanging the limited partners'
45
<PAGE>
interests in the Partnerships for common stock or other securities of CFM Sub.
In October 1994, CFM Sub sent a letter to each limited partner of each of the
Partnerships outlining a proposal to exchange the limited partnership
interests of the limited partners for common stock of a new entity, The CFM
Technology Corporation, on a tax free basis. As of October 31, 1994, the
obligation due from CFM Sub to the Partnerships, net of tax, was approximately
$3,200,000. Also in October 1994, the shareholders of CFM Sub and the general
partner of the Partnerships approved a reorganization for the purpose of
dissolving the Partnerships and incorporating the limited partners thereof as
equity holders of CFM Sub. Pursuant to the reorganization, effective November
1, 1994, the Company was incorporated as "The CFM Technology Corporation" and
acquired all of the outstanding shares of common stock of CFM Sub in exchange
for an equal number of shares of Common Stock. The Company also acquired all
of the assets of the Partnerships, which consisted primarily of CFM Sub's
obligations to the Partnerships, in exchange for an aggregate of 408,339
shares of Common Stock, the value of which approximated the obligation then
due from CFM Sub to the Partnerships, net of tax. The price per share of
Common Stock utilized in connection with the exchange of such Common Stock for
the assets of the Partnerships was determined by reference to the offering
price of the Common Stock in connection with a limited offering of Common
Stock which commenced on January 1994 and concluded in October 1994. The
Common Stock issued to the Partnerships was then distributed to the limited
partners of the Partnerships in accordance with their respective percentage
interests in the Partnerships. Of that Common Stock, 22,188 shares were issued
to John N. McConnell and 7,128 shares were issued to Vincent Verdiani, both of
whom were directors of the Company at the time. See Note 8 of the Notes to
Consolidated Financial Statements. John N. McConnell is the father of
Christopher F. McConnell, the Chairman of the Company's Board of Directors. In
December 1995, the Company changed its name to "CFM Technologies, Inc." The
Partnerships' Certificates of Limited Partnership were cancelled in May 1995.
In November 1995, counsel to two shareholders who acquired 31,614 shares of
Common Stock in connection with the November 1, 1994 exchange sent letters to
the Securities and Exchange Commission and the Pennsylvania Securities
Commission referencing such shareholders' objection to that transaction and
its valuation and allegations that the Company breached certain duties and
violated unspecified state and federal laws in connection therewith.
Specifically, counsel to these shareholders alleged that the Company had no
right to cause the exchange and that the exchange rate utilized in the
transaction was too low. The Company believes that such shareholders'
objections and allegations are without merit and that any resolution of such
matter will not have a material adverse effect on the Company.
In October 1994, the Company sold 332,633 shares of Common Stock of the
Company to ANAM, a company controlled by Mr. James Kim, a director and
shareholder of the Company, for $6.02 per share. ANAM acts as the Company's
sales agent in Korea. The Company believes that the terms of the sale of these
shares of Common Stock to ANAM were no less favorable than could have been
obtained from other large investors. During fiscal 1994, 1995 and 1996, sales
commissions accrued by the Company pursuant to the ANAM sales agency agreement
aggregated $430,000, $282,000 and $2,444,000, respectively. The terms of the
commissions to ANAM were no less favorable than would have been obtained from
unrelated third parties.
46
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth, as of January 23, 1997 and as adjusted to
reflect the sale of 1,670,000 shares offered by this Prospectus, information
with respect to the beneficial ownership of the Common Stock of the Company by
(i) each person known to the Company to own 5% or more of the outstanding
shares of Common Stock, (ii) each of the Company's directors, (iii) each of
the Named Executive Officers, (iv) all of the directors and executive officers
as a group and (v) the Selling Shareholders.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER THE
OFFERING(1)(2) OFFERING(1)(2)
----------------------SHARES TO ----------------------
NAME AND ADDRESS* NUMBER PERCENT BE SOLD NUMBER PERCENT
- ----------------- ----------- ------------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Christopher F.
McConnell(3)............ 1,208,297 19.96% -- 1,208,297 16.00%
Alan E. Walter........... 352,896 5.83 10,500 342,396 4.53
ANAM S&T Co., Ltd. ...... 222,758 3.68 112,000 110,758 1.47
493-3 Sung Sung-Dong
Cheon-An. Choong-Nam
Korea, 330-300(4)
James J. Kim(5).......... 256,038 4.23 112,000 144,038 1.91
Roger A. Carolin(6)...... 192,928 3.09 28,000 164,928 2.14
Helena Carolin........... 83,159 ** 12,000 71,159 **
Burton E.
McGillivray(7).......... 39,917 ** -- 39,917 **
Milton S. Stearns,
Jr.(8).................. 44,843 ** -- 44,843 **
Lorin J. Randall(9)...... 19,960 ** -- 19,960 **
Joseph E. Berger(9)...... 34,927 ** -- 34,927 **
Brad S. Mattson.......... -- -- -- -- --
Pamela A. McCardell...... 24,945 ** 3,750 -- --
Barbara J. Wagner........ 24,945 ** 3,750 -- --
All directors and
executive officers as a
group
(12 persons)(5)(10)..... 2,161,459 39.36 150,500 2,010,959 29.75
</TABLE>
- --------
* Unless otherwise indicated, the business address of each shareholder named
in this table is CFM Technologies, Inc., 1336 Enterprise Drive, West
Chester, PA 19380.
** Less than 1%.
(1) Unless otherwise indicated in the footnotes to this table, the persons
named in the table have sole voting and investment power with respect to
all shares beneficially owned.
(2) Based on 6,053,340 shares outstanding prior to this offering and 7,553,340
shares to be outstanding after this offering, except that shares
underlying options exercisable within 60 days are deemed to be outstanding
for purposes of calculating the percentage owned by the holder of such
options.
(3) Includes 38,919 shares owned by Mr. McConnell's wife and 26,624 shares
held in trust for Mr. McConnell's children.
(4) The shares owned by ANAM are included in Mr. Kim's beneficial ownership.
(5) Includes 222,758 shares owned by ANAM, of which Mr. James Kim is, directly
and indirectly, the largest shareholder. The 112,000 shares being sold are
owned of record by ANAM.
(6) Consists of exercisable options to purchase 192,928 shares. Mr. Carolin
disclaims beneficial ownership of 83,159 shares owned by his wife.
(7) Includes 16,632 shares owned jointly with Mr. McGillivray's wife and
exercisable options to purchase 23,285 shares.
(8) Includes 3,527 shares held in a trust of which Mr. Stearns is trustee and
exercisable options to purchase 9,979 shares and 31,337 owned shares.
(9) Consists of exercisable options.
(10) Includes exercisable options to purchase 364,248 shares. Includes 112,000
shares of Common Stock being sold by ANAM.
47
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 10,000,000 shares of
Common Stock, no par value per share, and 1,000,000 shares of Preferred Stock,
no par value per share. As of January 23, 1997, 6,053,340 shares of Common
Stock and no shares of Preferred Stock were outstanding. The rights of the
Company's capital stock are defined by the Company's Articles of
Incorporation, as amended (the "Articles"), as described below, as well as by
the Company's Amended and Restated By-Laws (the "By-Laws") and the
Pennsylvania Business Corporation Law, as amended. The following summary of
certain provisions of the capital stock of the Company does not purport to be
complete and is subject to, and qualified in its entirety by, the provisions
of the Articles and By-Laws, which are included as exhibits to the
Registration Statement of which this Prospectus forms a part, and by
provisions of applicable law. The Company intends to seek shareholder approval
in March 1997 of an amendment to the Articles increasing its authorized Common
Stock to 30,000,000 shares.
COMMON STOCK
The holders of the Common Stock are entitled to one vote per share for each
share held of record on all matters submitted to a vote of shareholders.
Subject to preferential rights with respect to any series of Preferred Stock
that may be issued, holders of the Common Stock are entitled to receive
ratably such dividends as may be declared by the Board of Directors on the
Common Stock out of funds legally available therefor and, in the event of a
liquidation, dissolution or winding-up of the affairs of the Company, are
entitled to share equally and ratably in all remaining assets and funds of the
Company. The holders of the Common Stock have no preemptive rights or rights
to convert shares of the Common Stock into any other securities and are not
subject to future calls or assessments by the Company. All outstanding shares
of the Common Stock are fully paid and nonassessable by the Company.
PREFERRED STOCK
The Company, by resolution of the Board of Directors and without any further
vote or action by the shareholders, has the authority to issue up to 1,000,000
shares of Preferred Stock in one or more series and to fix from time to time
the number of shares to be included in each such series and the designations,
preferences, qualifications, limitations, restrictions and special or relative
rights of the shares of each such series. The ability of the Company to issue
Preferred Stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could adversely affect the voting
power of the holders of the Common Stock and could have the effect of making
it more difficult for a person to acquire, or of discouraging a person from
acquiring, control of the Company. The Company has no present plans to issue
any of the Preferred Stock.
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Articles and By-Laws may discourage certain
transactions involving a change in control of the Company. For example, the
Articles contain a provision which permits the Board to issue "blank check"
Preferred Stock without shareholder approval. Further, provisions of the
Pennsylvania Business Corporation Law prohibit the Company from engaging in
certain business combinations with a holder of 20% or more of the Company's
voting securities without super-majority board or shareholder approval and
allow holders of voting stock of the Company to "put" their stock to an
acquiror for fair value in the event of a control transaction (the acquisition
of 20% of the voting stock of the Company). Fair value is defined as not less
than the highest price paid by the acquiror during a certain 90-day period.
These provisions could have the effect of delaying, deferring or preventing a
change in control of the Company and may adversely affect the voting and other
rights of holders of Common Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
48
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Following completion of this offering, 7,553,340 shares of Common Stock will
be outstanding. Of these shares, 3,981,616 have been sold pursuant to
registration statements filed under the Securities Act. Substantially all of
the balance of such outstanding shares may be sold in the open market pursuant
to the provisions of Rule 144 under the Securities Act. Under Rule 144 as
currently in effect, these restricted securities are eligible for public sale
subject to the volume limitations and other conditions imposed by Rule 144.
In general, under Rule 144 as currently in effect, a person who has
beneficially owned his or her shares for at least two years, including persons
who may be deemed "affiliates" of the Company as that term is defined in the
Securities Act, would be entitled to sell within any three month period a
number of shares which does not exceed the greater of 1% of the then
outstanding shares of the Company's Common Stock or the average weekly trading
volume in such shares in The Nasdaq Stock Market during the four calendar
weeks preceding the date on which notice of sale is filed with the Commission.
Sales under Rule 144 are also subject to certain manner of sale limitations,
notice requirements and the availability of current public information about
the Company. Rule 144 also permits, under ordinary circumstances, the sale of
Common Stock without regard to the foregoing limitations by a person (or
persons whose shares are aggregated) who is not an affiliate of the Company
and who has satisfied a three year holding period requirement.
The Company's directors, executive officers and certain shareholders, who
collectively beneficially own an aggregate of 2,010,959 shares of Common Stock
have agreed pursuant to certain agreements that they will not sell any Common
Stock owned by them without the prior written consent of Montgomery Securities
for a period of 90 days from the date of this Prospectus.
An aggregate of 1,020,170 shares of Common Stock (excluding options to
purchase 39,937 shares of Common Stock which are subject to shareholder
approval) is reserved for issuance under outstanding stock options and 300,000
shares of Common Stock are reserved for issuance under the Purchase Plan. No
shares have been issued under the Purchase Plan. Additionally, 140,000 shares
of Common Stock are reserved for issuance with respect to options which may be
granted in the future under the Directors' Plan. The Company intends to seek
the approval of its shareholders to increase the shares of Common Stock
reserved for issuance under the Incentive Plan by an additional 600,000
shares. See "Management--1995 Incentive Plan," "Management -- 1992 Stock
Option Plan", "Management -- 1995 Incentive Plan" and "Management -- Non-
Employee Directors' Stock Option Plan." The Company has filed registration
statements on Form S-8 under the Securities Act covering the shares of Common
Stock subject to outstanding options and reserved for issuance under the
option plans. Accordingly, such registered shares, unless subject to the
agreements not to sell described above, will generally be freely transferable
by persons other than affiliates of the Company. Sales of substantial amounts
of Common Stock in the public market, or the possibility of sales thereof,
could adversely affect prevailing market prices.
49
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), represented by Montgomery
Securities, PaineWebber Incorporated and UBS Securities LLC (the
"Representatives"), have severally agreed, subject to the terms and conditions
in the Underwriting Agreement (the "Underwriting Agreement"), by and among the
Company, the Selling Shareholders and the Underwriters, to purchase from the
Company and the Selling Shareholders the number of shares of Common Stock
indicated below opposite their respective names, at the public offering price
less the underwriting discount set forth on the cover page of this Prospectus.
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters are
committed to purchase all of the shares of Common Stock, if they purchase any.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Montgomery Securities....................................................
PaineWebber Incorporated.................................................
UBS Securities LLC.......................................................
---------
Total.................................................................. 1,670,000
=========
</TABLE>
The Representatives have advised the Company and the Selling Shareholders
that the Underwriters propose initially to offer the Common Stock to the
public on the terms set forth on the cover page of this Prospectus. The
Underwriters may allow selected dealers a concession of not more than $ per
share; and the Underwriters may allow, and such dealers may reallow, a
concession of not more than $ per share to certain other dealers. After the
offering, the public offering price and other selling terms may be changed by
the Underwriters. The Common Stock is offered subject to receipt and
acceptance by the Underwriters, and to certain other conditions, including the
right to reject orders in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a
maximum of 250,500 additional shares of Common Stock, respectively, to cover
over-allotments, if any, at the same price per share as the initial shares to
be purchased by the Underwriters. To the extent that the Underwriters exercise
such over-allotment option, the Underwriters will be committed, subject to
certain conditions, to purchase such additional shares in approximately the
same proportion as set forth in the above table. The Underwriters may purchase
such shares only to cover over-allotments made in connection with the
Offering.
The Underwriting Agreement provides that the Company and the Selling
Shareholders will indemnify the Underwriters against certain liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments the Underwriters may be required to make in respect thereof.
50
<PAGE>
The Company, the Selling Shareholders and the Company's executive officers
and directors who are also shareholders of the Company and who, immediately
following the Offering (assuming no exercise of the Underwriters' over-
allotment option), collectively will beneficially own an aggregate of
2,010,959 shares of Common Stock, have agreed that for a period of 90 days
after the effective date of the Offering they will not, without the prior
written consent of Montgomery Securities, directly or indirectly offer for
sale, sell, solicit an offer to sell, contact or grant an option to sell,
pledge, transfer, establish an open put equivalent position or otherwise
dispose of any shares of Common Stock, options or warrants to acquire shares
of Common Stock. The Company has also agreed not to issue, offer, sell, grant
options to purchase or otherwise dispose of any of the Company's equity
securities or any other securities convertible into or exchangeable with its
Common Stock for a period of 90 days after the effective date of the offering
without the prior written consent of Montgomery Securities, subject to limited
exceptions including any shares of Common Stock issued to selling parties in
connection with acquisitions and grants and exercises of stock options. In
evaluating any request for a waiver of the 90 day lock-up period, the
Underwriters would consider, in accordance with their customary practice, all
relevant facts and circumstances at the time of the request, including,
without limitation, the recent trading market for the Common Stock, the size
of the request and, with respect to a request by the Company to issue
additional equity securities, the purpose of such an issuance. See "Shares
Eligible for Future Sale."
The Representatives have informed the Company and the Selling Shareholders
that the Underwriters do not intend to confirm sales of Common Stock offered
by this Prospectus to accounts over which they exercise discretionary
authority in excess of 5% of the number of shares of Common Stock offered
hereby.
In connection with the offering, certain Underwriters and selling group
members may engage in passive market making transactions in the Common Stock
immediately prior to the commencement of sales in the offering, in accordance
with Rule 10b-6A under the Securities Exchange Act of 1934, as amended.
Passive market making consists of, among other things, displaying bids on The
Nasdaq Stock Market limited by the bid prices of independent market makers and
purchases limited by such prices and effected in response to order flow. Net
purchases by a passive market maker on each day are limited to a specified
percentage of the passive market maker's average daily trading volume in the
Common Stock during a specified prior period and all possible market-making
activity must be discontinued when such limit is reached. Passive market
making may stabilize the market price of the Common Stock at a level above
that which might otherwise prevail and, if commenced, may be discontinued at
any time.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Ballard Spahr Andrews & Ingersoll, Philadelphia,
Pennsylvania. Certain legal matters relating to this offering will be passed
upon for the Underwriters by Pepper, Hamilton & Scheetz, Philadelphia,
Pennsylvania.
EXPERTS
The consolidated balance sheets as of October 31, 1995 and 1996 and the
consolidated statements of income, shareholders' equity and cash flows for
each of the three fiscal years in the period ended October 31, 1996, included
in this Prospectus have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said reports.
51
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). This Prospectus, which
constitutes a part of a registration statement on Form S-1 (the "Registration
Statement") filed by the Company with the Commission under the Securities Act
of 1933, as amended (the "Securities Act"), omits certain of the information
set forth in the Registration Statement. Reference is hereby made to the
Registration Statement and to the exhibits thereto for further information
with respect to the Company. Statements contained herein concerning the
provisions of such documents are necessarily summaries of such documents, and
each statement is qualified in its entirety by reference to the copy of the
applicable document filed with the Commission. The Registration Statement,
including exhibits and schedules filed therewith, and the reports, proxy
statements and other information filed by the Company with the Commission may
be inspected without charge at the public reference facilities maintained by
the Commission at its principal office at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at regional offices of the
Commission located at Northwestern Atrium Center, Suite 1400, 500 West Madison
Street, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New
York, New York 10048. Copies of such materials may be obtained from the Public
Reference Section of the Commission, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and its public reference facilities in
Chicago, Illinois and New York, New York, at prescribed rates. In addition,
registration statements and certain other filings made with the Commission
through its Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system
are publicly available through the Commission's site on the Internet's World
Wide Web, located at http://www.sec.gov. The Registration Statement, including
all exhibits thereto and amendments thereof, has been filed with the
Commission through EDGAR. The Company's Common Stock is traded on The Nasdaq
Stock Market, as reported by the National Association of Securities Dealers,
Inc., 1735 K Street, Washington, D.C. 20006, and copies of the reports, proxy
statements and other information filed by the Company can be inspected at such
location.
52
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................................. F-2
Consolidated Balance Sheets as of October 31, 1996 and 1995............... F-3
Consolidated Statements of Income for the years ended October 31, 1996,
1995 and 1994............................................................ F-4
Consolidated Statements of Shareholders' Equity for the years ended Octo-
ber 31, 1996, 1995 and 1994.............................................. F-5
Consolidated Statements of Cash Flows for the years ended October 31,
1996, 1995 and 1994...................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CFM Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of CFM
Technologies, Inc. (a Pennsylvania corporation) and subsidiaries as of October
31, 1996 and 1995, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended October 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CFM Technologies, Inc. and
subsidiaries as of October 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended October 31, 1996, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Philadelphia, Pa.,
December 13, 1996
F-2
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 31,
1996 1995
---------------- ----------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............ $ 9,308 $ 408
Short-term investments............... 2,946 --
Accounts receivable.................. 15,090 8,886
Inventories.......................... 8,047 3,700
Prepaid expenses and other........... 362 184
Deferred income taxes................ 641 529
---------------- ----------------
Total current assets............... 36,394 13,707
---------------- ----------------
PROPERTY, PLANT AND EQUIPMENT:
Land................................. 540 540
Building and improvements............ 3,180 2,205
Machinery and equipment.............. 4,075 1,640
Furniture and fixtures............... 934 412
---------------- ----------------
8,729 4,797
Less -- Accumulated depreciation and
amortization........................ (1,268) (406)
---------------- ----------------
Net property, plant and equipment.. 7,461 4,391
---------------- ----------------
OTHER ASSETS:
Patents, net of accumulated
amortization of $76 and $57......... 266 251
Other................................ 130 105
---------------- ----------------
Total other assets................. 396 356
---------------- ----------------
$ 44,251 $ 18,454
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt.... $ 489 $ 574
Accounts payable..................... 4,211 2,537
Accrued expenses..................... 4,147 2,373
Customer deposits.................... 22 87
---------------- ----------------
Total current liabilities.......... 8,869 5,571
---------------- ----------------
LONG-TERM DEBT......................... 2,525 3,005
---------------- ----------------
DEFERRED INCOME TAXES.................. 146 103
---------------- ----------------
COMMITMENTS AND CONTINGENCIES (Note 16)
SHAREHOLDERS' EQUITY:
Preferred stock, no par value;
1,000,000 authorized shares; no
shares issued or outstanding........ -- --
Common stock, no par value;
10,000,000 authorized shares;
6,052,924 and 3,803,263 shares
issued and outstanding.............. 29,592 9,616
Retained earnings.................... 3,119 159
---------------- ----------------
Total shareholders'equity.......... 32,711 9,775
---------------- ----------------
$ 44,251 $ 18,454
================ ================
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------
1996 1995 1994
------- ------- -------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
NET SALES............................................. $44,013 $23,430 $15,937
COST OF SALES......................................... 23,317 13,463 9,114
------- ------- -------
Gross profit...................................... 20,696 9,967 6,823
------- ------- -------
OPERATING EXPENSES:
Research, development and engineering............... 4,375 1,717 2,100
Selling, general and administrative................. 11,679 5,972 3,150
------- ------- -------
Total operating expenses.......................... 16,054 7,689 5,250
------- ------- -------
Operating income.................................. 4,642 2,278 1,573
INTEREST EXPENSE, Net of interest income of $271, $72
and $31 ............................................. 157 173 797
------- ------- -------
Income before income taxes........................ 4,485 2,105 776
INCOME TAXES.......................................... 1,525 703 238
------- ------- -------
NET INCOME............................................ $ 2,960 $ 1,402 $ 538
======= ======= =======
NET INCOME PER SHARE.................................. $ 0.61 $ 0.35
======= =======
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES.. 4,831 3,994
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
------------------ EARNINGS
SHARES AMOUNT (DEFICIT) TOTAL
--------- ------- --------- -------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
BALANCE, OCTOBER 31, 1993............... 2,757,600 $ 2,018 $(1,781) $ 237
Proceeds from sale of common stock.... 670,254 4,533 -- 4,533
Exercise of stock options............. 6,653 2 -- 2
Purchase of common stock.............. (41,579) (201) -- (201)
Net income............................ -- -- 538 538
--------- ------- ------- -------
BALANCE, OCTOBER 31, 1994............... 3,392,928 6,352 (1,243) 5,109
Common stock issued for services...... 1,996 15 -- 15
Exchange of common stock for
Partnership interests................ 408,339 3,249 -- 3,249
Net income............................ -- -- 1,402 1,402
--------- ------- ------- -------
BALANCE, OCTOBER 31, 1995............... 3,803,263 9,616 159 9,775
Proceeds from sale of common stock,
net.................................. 2,249,661 19,976 -- 19,976
Net income............................ -- -- 2,960 2,960
--------- ------- ------- -------
BALANCE, OCTOBER 31, 1996............... 6,052,924 $29,592 $ 3,119 $32,711
========= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income........................................ $ 2,960 $ 1,402 $ 538
Adjustments to reconcile net income to net cash
used in operating activities--
Depreciation and amortization................... 881 224 134
Deferred income tax benefit..................... (41) (251) (261)
(Increase) decrease in--
Accounts receivable........................... (6,204) (2,887) (2,326)
Inventories................................... (4,347) (358) (809)
Prepaid expenses and other current assets..... (178) (12) (46)
Other assets.................................. (59) (94) 10
Increase (decrease) in--
Accounts payable.............................. 1,674 1,044 80
Accrued expenses.............................. 1,746 1,311 (276)
Customer deposits............................. (65) (744) 201
------- ------- -------
Net cash used in operating activities....... (3,633) (365) (2,755)
------- ------- -------
INVESTING ACTIVITIES:
Purchases of short-term investments............... (4,366) -- --
Proceeds from short-term investments.............. 1,420 -- --
Purchases of property, plant and equipment........ (2,891) (1,311) (2,623)
------- ------- -------
Net cash used in investing activities....... (5,837) (1,311) (2,623)
------- ------- -------
FINANCING ACTIVITIES:
Payments on long-term debt........................ (1,606) (388) (250)
Proceeds from long-term debt...................... -- 1,241 2,212
Proceeds from sale of common stock, net........... 19,976 125 4,410
------- ------- -------
Net cash provided by financing activities... 18,370 978 6,372
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................................ 8,900 (698) 994
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR........ 408 1,106 112
------- ------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR.............. $ 9,308 $ 408 $ 1,106
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest expense.................... $ 444 $ 197 $ 745
Cash received for interest income................. 251 72 31
Cash paid for income taxes........................ 1,949 730 528
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTITIVIES:
Machinery acquired under capital leases........... $ 1,041 $ 398 $ 316
Common stock issued for stock subscriptions
receivable....................................... -- -- 125
Common stock issued for Partnership interests..... -- 3,249 --
Common stock issued for services.................. -- 15 --
Note payable issued for common stock purchases.... -- -- 201
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS:
CFM Technologies, Inc. (the Company) designs, manufactures and markets
advanced wet processing equipment for sale to the worldwide semiconductor and
flat panel display industries.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual amounts could differ from those estimates.
Cash, Cash Equivalents and Investments
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents. Investments
at October 31, 1996 are carried at amortized cost which equals market value,
and are classified as short-term. The investments have various maturity dates
which do not exceed one year. At October 31, 1996, all of the Company's short-
term investments are classified as available for sale pursuant to Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," (SFAS 115). Therefore, any unrealized holding
gains or losses would be presented as a separate component of stockholders'
equity. At October 31, 1996, there were no unrealized holding gains or losses.
The gross proceeds from sales and maturities of investments were $1,420,000
for the year ended October 31, 1996. Gross realized gains and losses for the
year ended October 31, 1996 were not material. For the purpose of determining
gross realized gains and losses, the cost of securities sold is based upon
specific identification.
Cash and cash equivalents and short-term investments consisted of the
following:
<TABLE>
<CAPTION>
OCTOBER 31,
-------------------
1996 1995
---------- --------
<S> <C> <C>
Cash and cash equivalents:
Money market funds and demand accounts................ $ 423,000 $408,000
Repurchase agreements................................. 4,556,000 --
Commercial paper...................................... 495,000 --
---------- --------
$5,474,000 $408,000
========== ========
Short-term investments:
Commercial paper...................................... $1,472,000 $ --
Mortgage-backed Government securities................. 987,000 --
U.S. government securities............................ 487,000 --
---------- --------
$2,946,000 $ --
========== ========
</TABLE>
Inventories
Inventories are valued at the lower of first-in, first-out cost or market.
F-7
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Significant improvements
are capitalized and expenditures for maintenance and repairs are charged to
expense as incurred. Upon the sale or retirement of these assets, the cost and
related accumulated depreciation are removed from the accounts and any gain or
loss is included in income.
Depreciation and amortization are provided using straight-line and
accelerated methods based on the estimated useful lives of the assets as
follows:
<TABLE>
<S> <C>
Building and improvements......................................... 40 years
Machinery and equipment........................................... 3-10 years
Furniture and fixtures............................................ 5-10 years
</TABLE>
Depreciation expense was $862,000, $207,000 and $121,000 in fiscal 1996,
1995 and 1994, respectively.
Patents
The cost of patents acquired are being amortized on a straight-line method
over 17 years. Amortization expense was $19,000, $17,000 and $13,000 in fiscal
1996, 1995 and 1994, respectively.
Revenue Recognition
Net sales are generally recognized upon shipment of the system and, if
recognized prior to shipment, upon completion of customer inspection or
acceptance where risk of loss is transferred to the customer. The estimated
costs of system installation and warranty are accrued when the related sale is
recognized.
Research, Development and Engineering Expenses
Research, development and engineering expenses are charged to expense as
incurred. Research, development and engineering expenses were net of
reimbursement of $1,592,000, $232,000 and $1,835,000 in fiscal 1996, 1995 and
1994, respectively.
Engineering expenses consist of personnel and material costs related to the
development of new products and the integration of existing products into
application-specific systems.
Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." SFAS No.
109 requires the liability method of accounting for deferred income taxes.
Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities.
Deferred tax assets or liabilities at the end of each period are determined
using the tax rate expected to be in effect when taxes are actually paid or
recovered.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration
of credit risk are accounts receivable. The Company's customer base
principally comprises companies within the semiconductor industry, which
historically has been volatile. The Company does not require collateral from
its customers.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, short-term investments, accounts receivable, accounts payable,
accrued expenses and debt instruments. The book values of cash and cash
equivalents, short-term investments, accounts receivable, accounts payable and
accrued expenses
F-8
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
are considered to be representative of their respective fair values. None of
the Company's debt instruments that are outstanding as of October 31, 1996
have readily ascertainable market values; however, the carrying values are
considered to approximate their respective fair values. See Note 7 for the
terms and carrying values of the Company's various debt instruments.
Net Income Per Share
Net income per common share was calculated by dividing net income by the
weighted average number of common shares outstanding for the respective period
adjusted for the dilutive effect of common stock equivalents, which consist of
stock options using the treasury stock method. Pursuant to the requirements of
the Securities and Exchange Commission, common stock issued by the Company
during the twelve months immediately preceding the initial public offering,
plus the number of common equivalent shares which became issuable during the
same period pursuant to the grant of common stock options, have been included
in the calculation of the shares used in computing net income per share as if
they were outstanding for all periods prior to the initial public offering
(using the treasury stock method and the initial public offering price of
$10.00 per share). Pursuant to the requirements of the Securities and Exchange
Commission, the calculation of shares used in computing net income per share
also includes the redeemable common stock for which the redemption provisions
were terminated immediately prior to the effective date of the initial public
offering. Historical net income per share for fiscal 1994 is not presented as
such data is not meaningful due to the accretion recorded for the redeemable
common stock (see Note 9).
New Accounting Pronouncement
The Financial Accounting Standard Board has issued SFAS No. 123, "Accounting
for Stock-Based Compensation." The Company is required to adopt this standard
for the fiscal year ending October 31, 1997. The Company has elected to adopt
the disclosure requirement of this pronouncement. The adoption of this
pronouncement will have no impact on the Company's financial position or
results of operations.
The Financial Accounting Standard Board has issued SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and
undiscounted cash flows estimated to be generated by those assets are less
than the assets carrying amount. SFAS No. 121 also addresses the accounting
for long-lived assets where disposal is expected. The Company will adopt SFAS
No. 121 in the first quarter of the year ending October 31, 1997 and does not
expect the adoption to have any impact on the Company's financial position or
results of operations.
3. ACCOUNTS RECEIVABLE:
<TABLE>
<CAPTION>
OCTOBER 31,
----------------------
1996 1995
----------- ----------
<S> <C> <C>
Billed................................................ $10,558,000 $7,162,000
Unbilled.............................................. 4,532,000 1,724,000
----------- ----------
$15,090,000 $8,886,000
=========== ==========
</TABLE>
Unbilled receivables represent final retainage amounts to be billed upon
completion of the installation process.
No allowance for doubtful accounts receivable has been recorded because the
Company believes that all such accounts receivable are fully realizable.
F-9
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. INVENTORIES:
<TABLE>
<CAPTION>
OCTOBER 31,
---------------------
1996 1995
---------- ----------
<S> <C> <C>
Raw material........................................... $4,267,000 $1,979,000
Work in progress....................................... 3,780,000 1,721,000
---------- ----------
$8,047,000 $3,700,000
========== ==========
</TABLE>
5. LINE OF CREDIT:
The Company has a $7,500,000 demand line of credit with a bank. The line of
credit agreement does not have a stated maturity or expiration date, however,
outstanding borrowings are due upon demand by the bank. The borrowing base
related to the line of credit is based upon a certain percentage of eligible
accounts receivable and customer signed purchase orders, as defined. Interest
is charged at the bank's prime rate and was 8.75% at October 31, 1996 and
1995. The line also provides for the issuance of letters of credit. As of
October 31, 1996 and 1995, the Company had no borrowings on the line.
Borrowings under the line are collateralized by substantially all of the
Company's assets. The line of credit requires the Company to maintain certain
financial and other covenants, including a minimum tangible net worth and
minimum cash flow to debt service coverage ratio.
6. ACCRUED EXPENSES:
<TABLE>
<CAPTION>
OCTOBER 31,
---------------------
1996 1995
---------- ----------
<S> <C> <C>
Warranty and installation costs....................... $1,069,000 $ 991,000
Payroll and payroll related........................... 1,010,000 732,000
Accrued commissions................................... 1,004,000 250,000
Other................................................. 1,064,000 400,000
---------- ----------
$4,147,000 $2,373,000
========== ==========
</TABLE>
7. LONG-TERM DEBT:
<TABLE>
<CAPTION>
OCTOBER 31,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Mortgage note payable to bank, payable in monthly
installments of $6,250 plus interest at 8.9%
through February 2009, collateralized by land and
building.......................................... $ 925,000 $1,000,000
Mortgage note payable to Pennsylvania Industrial
Development Authority (PIDA), payable in monthly
installments of $4,363 including interest at 2%
through August 2009, collateralized by land and
building.......................................... 592,000 632,000
Term note payable to bank, repaid in June 1996..... -- 1,200,000
Mortgage note payable to Chester County Development
Council, payable in monthly installments of $1,067
including interest at 5% through August 2004,
collateralized by land and building............... 82,000 91,000
Term notes payable to bank, payable in monthly
installments of $5,834 plus interest at the bank's
prime rate plus 1% through August 1999,
collateralized by certain assets.................. 194,000 275,000
Capitalized lease obligations, lease periods
expiring at various dates through 2001, interest
rates range from 7% to 12%, collateralized by the
leased assets..................................... 1,221,000 381,000
---------- ----------
3,014,000 3,579,000
Less -- Current portion............................ (489,000) (574,000)
---------- ----------
$2,525,000 $3,005,000
========== ==========
</TABLE>
F-10
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Maturities of long-term debt as of October 31, 1996 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
1997.............................................................. $ 489,000
1998.............................................................. 482,000
1999.............................................................. 453,000
2000.............................................................. 356,000
2001.............................................................. 246,000
2002 and thereafter............................................... 988,000
----------
$3,014,000
==========
</TABLE>
In February 1994, the Company purchased land and a building to be used as
its manufacturing and office facilities. The cost of the land and building was
$2,558,000, including transaction costs and additional costs to renovate the
building to meet the Company's occupancy requirements. The property and
improvements are subject to the three mortgage notes. The mortgage note due to
PIDA contains certain financial covenants, the most restrictive of which
requires minimum levels of shareholders' equity. In addition, this note bears
interest at 2%, assuming the Company can create a specified number of jobs
over a three-year period. If the Company fails to meet the employment
commitment, the interest rate will increase to a market rate of up to 12.5%,
as defined.
In fiscal 1995, the Company issued a new term note to a bank in order to
finance an expansion and improvements to the Company's facilities. This term
note was repaid using a portion of the proceeds from the initial public
offering in June 1996. In addition, in fiscal 1994, the Company issued several
new term notes to a bank in order to finance additional improvements and
machinery and equipment necessary for the Company's new facility.
The Company leases machinery and equipment and furniture and fixtures under
capital leases expiring in various years through 2001. The assets and
liabilities under these leases are recorded at the lower of the present value
of the minimum lease payments or the fair value of the asset. The assets are
depreciated over their estimated useful lives since ownership will transfer
upon lease expiration. The net book value of equipment under capitalized lease
obligations as of October 31, 1996 is $1,147,000. The minimum lease payments,
including interest, under the capital lease obligations as of October 31, 1996
are $392,000, $357,000, $316,000, $249,000 and $144,000 for fiscal 1997, 1998,
1999, 2000 and 2001, respectively.
8. RESEARCH AND DEVELOPMENT LIMITED PARTNERSHIPS:
In 1984 and 1985, the Company entered into research and development
agreements with two related party limited partnerships (the Partnerships), in
which the Company was the general partner. A significant number of the
individuals who were limited partners were also significant shareholders of
the Company. Due to this related party relationship, the cash that was paid by
the Partnerships to the Company was recorded as an obligation due to the
Partnerships and interest was accrued thereon. In April 1987 and September
1988, the Company exercised its purchase options to acquire the Partnerships'
technologies, which resulted in an aggregate liability of $2,184,000. The
obligation due to the Partnerships increased by scheduled amounts which
aggregated $5,030,000 through October 31, 1994 and were recorded as interest
expense. In fiscal 1994, $728,000 of interest expense was recorded. The
Company made payments to the Partnerships of $1,612,000 on a cumulative basis
through October 31, 1994. As of October 31, 1994, deferred taxes of $2,353,000
were recorded for differences in financial statement and income tax reporting
with respect to this obligation. On November 1, 1994, the Company exchanged
408,339 shares of its common stock for the assets of the Partnerships, which
consisted primarily of the Company's obligation to the Partnerships. The fair
value of these common shares, approximated the obligation due to the
Partnerships, net of tax. Accordingly, no gain or loss was recognized as a
result of this transaction.
F-11
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. SHAREHOLDERS' EQUITY:
On June 21, 1996, the Company consummated an initial public offering of its
Common Stock. The Company sold 2,249,661 (including the underwriters over-
allotment) shares of its Common Stock, no par value, at an initial public
offering price of $10.00 per share. After deducting the underwriters' discount
and other offering expenses, the net proceeds to the Company were $19,976,000.
On December 19, 1995, the Company's Board of Directors adopted, and on
January 3, 1996, the Company's shareholders approved, an increase in the
number of authorized common shares from 2,000,000 to 10,000,000 and
authorization of 1,000,000 shares of no par value preferred stock. In
addition, on June 16, 1996, the Company effected a 3.326-for-1 split of its
common stock. All share and stock option data have been restated to reflect
the stock split.
Certain common shareholders had the right to require the Company to redeem
their stock during certain periods and at specified prices. Immediately prior
to the consummation of the initial public offering, these redemption rights
terminated and therefore, the related redemption amounts are included in
common stock and shareholders' equity for all periods presented. The Company
recorded the accretion to the redemption value of $200,000 and zero in fiscal
1994 and 1995, respectively. The accretion was charged to common stock as the
Company had an accumulated deficit at that time. These amounts are not
presented separately in the statements of shareholders' equity due to the
termination of the redemption rights and are included in common stock for all
periods presented.
On December 19,1995, the Company's Board of Directors adopted, and on
January 3, 1996, the Company's shareholders approved the Employee Stock
Purchase Plan (Purchase Plan). The Purchase Plan allows eligible employees to
purchase up to 300,000 shares of common stock at the lower of 85% of the fair
market value of the stock on the first or last day of the applicable six month
purchase period. Eligible employees were able to participate in the Purchase
Plan beginning on October 1, 1996 through payroll withholding of up to $500
per pay period. As of October 31, 1996, employee withholdings included in
accrued expenses were $10,000. No shares have been issued under the Purchase
Plan as of October 31, 1996.
10. STOCK OPTIONS:
The Company has a stock option plan (the 1992 Plan) whereby 409,163 options
to purchase common stock were issued to key management personnel, directors
and consultants at exercise prices not less than fair market value. The
options have vesting terms set by the executive compensation and stock option
committee of the Board of Directors and expire 10 years after the date of
grant.
On December 19, 1995, the Company's Board of Directors adopted, and on
January 3, 1996, the Company's shareholders approved, the 1995 Incentive Plan
(Incentive Plan) and the Non-Employee Directors' Stock Option Plan (Directors'
Plan). The Incentive Plan and the Directors' Plan authorized the granting of
up to 400,000 shares of common stock or options to Company employees and up to
150,000 options to purchase common stock to non-employee directors,
respectively. The Company will not grant any additional options under the 1992
Plan.
F-12
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes stock option activity:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
--------- --------------
<S> <C> <C>
Options outstanding at October 31, 1993............. 389,184 $0.24-$7.52
Granted........................................... 16,632 7.52
Exercised......................................... (6,653) 0.24
-------
Options outstanding at October 31, 1994............. 399,163 0.24-7.52
Granted........................................... 207,087 7.52
-------
Options outstanding at October 31, 1995............. 606,250 0.24-7.52
Granted........................................... 139,905 7.52-10.75
Canceled.......................................... (832) 7.52
-------
Options outstanding at October 31, 1996............. 745,323 $0.24-$10.75
=======
</TABLE>
As of October 31, 1996, there were 463,020 options vested and exercisable
and 415,263 stock options were available for grant under the Company's stock
option plans.
11. EMPLOYEE BENEFIT PLANS:
The Company has a defined contribution retirement plan for the benefit of
eligible employees. Management believes that the plan qualifies under Section
401(k) of the Internal Revenue Code. The plan provides for matching
contributions by the Company at a discretionary percentage of eligible pretax
contributions by the employee. Matching contributions by the Company were
$107,000, $68,000 and $27,000 for the years ended October 31, 1996, 1995 and
1994, respectively.
In fiscal 1995, the Company established a profit-sharing plan for the
benefit of eligible employees. The plan provides for a target contribution of
approximately 2% of total planned salaries and wages, with actual payments
based upon certain annual performance results. The Company recorded profit
sharing expense of $150,000 and $65,000 for the years ended October 31, 1996
and 1995, respectively.
12. OTHER RELATED PARTY TRANSACTIONS:
The Company recorded commission expense in fiscal 1996, 1995 and 1994 of
$2,444,000, $282,000 and $430,000, respectively, which related to commissions
payable to a distributor who is also a stockholder of the Company. Commissions
payable to this distributor included in accrued expenses as of October 31,
1996 and 1995 were $959,000 and $28,000, respectively. The distributor is
controlled by an individual who is a director of the Company. See Note 8 for
other related party transactions.
F-13
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. INCOME TAXES:
The components of the income tax provision are as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
--------------------------------
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
Current:
Federal.................................. $1,493,000 $ 937,000 $ 471,000
State.................................... 73,000 17,000 28,000
---------- --------- ---------
1,566,000 954,000 499,000
---------- --------- ---------
Deferred:
Federal.................................. (12,000) (244,000) (235,000)
State.................................... (29,000) (7,000) (26,000)
---------- --------- ---------
(41,000) (251,000) (261,000)
---------- --------- ---------
$1,525,000 $ 703,000 $ 238,000
========== ========= =========
</TABLE>
Income tax expense differs from the amount currently payable because certain
expenses, primarily depreciation and accruals, are reported in different
periods for financial reporting and income tax purposes.
The federal statutory income tax rate is reconciled to the effective income
tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
-------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Federal statuary rate............................. 34.0% 34.0% 34.0%
State income taxes, net of federal benefit........ 0.6 0.5 0.2
Research and development credit................... (0.2) (2.4) (3.6)
Other............................................. (0.4) 1.3 --
------- ------- -------
34.0% 33.4% 30.6%
======= ======= =======
</TABLE>
The components of the net current and long-term deferred tax assets and
liabilities, measured under SFAS No. 109, are as follows:
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Deferred tax assets--
Inventories.......................................... $ 103,000 $ 85,000
Warranty and installation accrual.................... 342,000 347,000
Other................................................ 196,000 97,000
--------- ---------
641,000 529,000
Deferred tax liability--
Depreciation......................................... (146,000) (103,000)
--------- ---------
Net deferred tax asset............................. $ 495,000 $ 426,000
========= =========
</TABLE>
14. CUSTOMER AND GEOGRAPHIC INFORMATION:
The Company's operations are conducted in one business segment. Export net
sales were $27,789,000, $12,102,000 and $8,242,000 in fiscal 1996, 1995 and
1994, respectively. Export net sales to Europe and East
F-14
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Asia were $13,140,000 and $14,649,000 in fiscal 1996, $10,099,000 and
$2,003,000 in fiscal 1995 and $4,625,000 and $3,617,000 in fiscal 1994,
respectively.
The following table summarizes significant customers with net sales in
excess of 10% of net sales:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------
CUSTOMER 1996 1995 1994
-------- ----------- ---------- ----------
<S> <C> <C> <C>
A........................................ $12,828,000 $ * $ *
B........................................ 11,149,000 5,287,000 6,876,000
C........................................ 8,361,000 * 2,583,000
D........................................ 4,762,000 * *
E........................................ * 3,075,000 *
F........................................ * 4,041,000 *
G........................................ * 2,490,000 *
</TABLE>
- --------
* Net sales less than 10% of net sales
15. SUPPLIER CONCENTRATION:
The Company relies to a substantial extent on outside vendors to manufacture
and supply many of the components and subassemblies used in the Company's
systems. Certain of these are obtained from a sole supplier or a limited group
of suppliers, many of which are small, independent companies. Moreover, the
Company believes that certain of these components and subassemblies can only
be obtained from its current suppliers. The Company's reliance on outside
vendors generally, and on sole suppliers in particular, involves several
risks, including a potential inability to obtain an adequate supply of
required components and reduced control over pricing, timely delivery and
quality of components.
16. COMMITMENTS AND CONTINGENCIES:
In fiscal 1995, the Company entered into a non-cancelable lease effective as
of December 1, 1995 for office facilities. Future minimum rental payments,
including operating expense allocations, as of October 31, 1996 on this lease
are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
1997................................................................ $548,000
1998................................................................ 548,000
1999................................................................ 548,000
2000................................................................ 548,000
2001................................................................ 46,000
</TABLE>
The Company has asserted certain of its patent rights against three
defendants. One of the defendants has counterclaimed against the Company,
seeking a declaratory judgment that the subject patent is invalid. Although
management believes that the ultimate resolution of these matters will not
have a material impact on the Company's financial position or results of
operations, there can be no assurance in that regard.
In November 1995, counsel to two shareholders who acquired 31,614 shares of
Common Stock in connection with the November 1, 1994 transaction with the
Partnerships (see Note 8) sent letters to the Securities and Exchange
Commission and the Pennsylvania Securities Commission referencing such
shareholders' objection to that transaction and its valuation and allegations
that the Company breached certain duties and violated unspecified state and
federal laws in connection therewith. Specifically, counsel to these
shareholders alleged that the Company had no right to cause the exchange with
the Partnerships and that the exchange rate utilized in the transaction was
too low. The Company believes that such shareholders' objections and
allegations are without merit and that any resolution of such matter will not
have a material adverse effect on the Company.
F-15
<PAGE>
First, customer-provided wafer carriers holding 25 wafers each are mated with
the wafer loading module. All the wafers are then removed from each carrier, in
turn, and placed into the Full-Flow vessel. When loaded, the Full-Flow vessel is
moved laterally back into the vessel module where the upper and lower inlets
clamp the vessel into place, completely sealing it. At the conclusion of
processing, the process is reversed and all wafers are returned to their
original wafer carrier, maintaining lot traceability.
[PHOTO APPEARS HERE]
Graphical displays provide real-time control information and process options
to operators and engineers while completely isolated from dangerous processing
fluids and vapors.
[PHOTO APPEARS HERE]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with this of-
fering other than those contained in this Prospectus and, if given or made,
such information or representations must not be relied upon as having been au-
thorized by the Company, the Selling Shareholders or any of the Underwriters.
This Prospectus does not constitute an offer to sell or a solicitation of any
offer to buy any securities other than the shares of Common Stock to which it
relates or an offer to, or a solicitation of, any person in any jurisdiction
where such an offer or solicitation would be unlawful. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create an implication that there has been no change in the affairs of the Com-
pany or that information contained herein is correct as of any time subsequent
to the date hereof.
-------------------
TABLE OF CONTENTS
-------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Special Note Regarding Forward Looking Statements........................ 6
Risk Factors............................................................. 6
The Company.............................................................. 13
Use of Proceeds.......................................................... 13
Price Range of Common Stock.............................................. 13
Dividend Policy.......................................................... 14
Capitalization........................................................... 14
Selected Financial Data.................................................. 15
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 16
Business................................................................. 22
Management............................................................... 37
Certain Relationships and Related Transactions........................... 45
Principal and Selling Shareholders....................................... 47
Description of Capital Stock............................................. 48
Shares Eligible for Future Sale.......................................... 49
Underwriting............................................................. 50
Legal Matters............................................................ 51
Experts.................................................................. 51
Available Information.................................................... 52
Index to Consolidated Financial Statements............................... F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,670,000 SHARES
[LOGO OF CFM TECHNOLOGIES, INC. APPEARS HERE]
COMMON STOCK
----------------
PROSPECTUS
----------------
MONTGOMERY SECURITIES
PAINEWEBBER INCORPORATED
UBS SECURITIES
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with this offering, other than
underwriting discounts and commissions, are set forth below:
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee...................... $ 16,587
NASD filing fee.................................................... 5,974
Blue Sky fees and expenses......................................... 10,000
Accounting fees and expenses....................................... 30,000
Legal fees and expenses............................................ 100,000
Transfer agent and registrar fees and expenses..................... 2,000
Printing expenses.................................................. 110,000
Nasdaq additional listing fee...................................... 17,500
Miscellaneous...................................................... 7,939
--------
Total.......................................................... $300,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The registrant's Articles of Incorporation. as amended, and By-Laws include
provisions (i) to reduce the personal liability of the registrant's directors
for monetary damages resulting from breaches of their fiduciary duty and (ii)
to permit the registrant to indemnify its directors and officers to the
fullest extent permitted by Pennsylvania law. In addition, the Company
maintains directors and officers liability insurance.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since its incorporation on November 1, 1994, the registrant has sold the
following securities without registration under the Securities Act:
1. In November 1994, in connection with the registrant's organization as
a holding company, the registrant issued an aggregate of 3,392,915 shares
of Common Stock to the shareholders of CFM Technologies, Incorporated in
exchange for an equal number of shares of CFM Technologies, Incorporated,
representing 100% of the issued and outstanding capital stock of CFM
Technologies, Incorporated.
2. Also in November 1994, the registrant issued an aggregate of 408,339
shares of Common Stock to two related-party limited partnerships in which
the registrant was the general partner. In exchange for the assets of the
partnerships. See "Certain Relationships and Related Transactions" in Part
I of this registration statement.
3. In December 1994, the registrant issued options to purchase an
aggregate of 108,107 shares of Common Stock at an exercise price of $7.52
per share to five employees.
4. In January 1995, the registrant issued 1,996 shares of Common Stock as
compensation for executive search services rendered.
5. In October and November 1995, the registrant issued options to
purchase an aggregate of 117,274 shares of Common Stock at an exercise
price of $7.52 per share to 43 employees.
6. In March 1996, the registrant issued options to purchase an aggregate
of 12,645 shares of Common Stock at an exercise price of $7.52 per share to
two employees.
7. In June 1996, the registrant issued options to purchase an aggregate
of 1,250 shares of Common Stock at an exercise price of $10.75 per share to
one employee.
II-1
<PAGE>
8. In October 1996, the registrant issued options to purchase an
aggregate of 23,884 shares of Common Stock at an exercise price of $9.88
per share to two employees, and options to purchase an aggregate or 67,000
shares of Common Stock at an exercise price of $9.00 per share to four
employees.
9. In December 1996, the registrant issued options to purchase an
aggregate of 315,200 shares of Common Stock at an exercise price of $18.25
per share to 65 employees and consultants.
The registrant believes that the transactions described in paragraphs 1
through 9 were exempt from registration under Section 3(b) or 4(2) of the
Securities Act because the subject securities were, respectively, either (i)
issued pursuant to a compensatory benefit plan pursuant to Rule 701 under the
Securities Act or (ii) sold to a limited group of persons, each of whom was
believed to have been a sophisticated investor or to have had a preexisting
business or personal relationship with the registrant or its management and
was purchasing for investment without a view to further distribution.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
1 Form of Underwriting Agreement.
3.1 Articles of Incorporation of CFM Technologies, Inc., as amended.*
3.2 By-Laws of CFM Technologies, Inc.*
4 Form of Common Stock Certificate.*
5 Opinion of Ballard Spahr Andrews & Ingersoll.***
10.1 Employment Agreement dated as of January 9, 1995 by and between CFM
Technologies, Inc. and Lorin Jeffrey Randall.*
10.2 Stock Option Agreement dated March 18, 1991 between CFM Technologies,
Inc. and Burton McGillivray, as extended and amended on June 11, 1993
and as amended on September 25, 1994.*
10.3 Stock Option Agreement dated as of December 9, 1994 by and between CFM
Technologies, Inc. and Milton Stearns, as amended on November 3,
1995.*
10.4 CFM Technologies, Inc. Annual Profit Sharing Plan.*
10.4.1 Amendment to CFM Technologies, Inc. Annual Profit Sharing Plan
10.5 CFM Technologies, Inc. 1992 Employee Stock Option Plan.*
10.6 CFM Technologies, Inc. 1995 Incentive Plan.*
10.7 CFM Technologies, Inc. Non-Employee Directors' Stock Option Plan.*
10.8 CFM Technologies, Inc. Employee Stock Purchase Plan.*
10.9 Distributor Agreement dated November 28, 1991 by and between ANAM
Semiconductor Design Co., Ltd and CFM Technologies, Inc., and
supplement to the Distributor Agreement dated August 26, 1994.*
10.10 Distributor Agreement dated March 3, 1992 by and between Innotech
Corporation and CFM Technologies, Inc., as modified on June 15,
1994.*
10.11 Lease Agreement dated October 10, 1995 by and between Hough/Loew
Construction, Inc. and CFM Technologies, Inc. and Addendum to Lease
Agreement dated October 10, 1995.*
10.11.1 Amendment Number Two to Lease Agreement dated April 30, 1996 by and
between CFM Technologies, Inc. and Hough/Loew Construction, Inc.
10.11.2 Commercial Lease Agreement dated December 16, 1996 between CFM
Technologies, Inc. and Devereux Properties, Inc.
10.12 Loan Agreement dated July 27, 1994 by and between Chester County
Development Council ("CCDC") and CFM Technologies, Inc.*
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
10.13 $100,000 Mortgage dated as of July 27, 1994, from CFM Technologies,
Inc. to CCDC.*
10.14 Removed**
10.15 Guaranties dated October 13, 1995 executed by CFMT, Inc. and CFM
International Corp. in favor of CoreStates.*
10.16 Removed**
10.17 Mortgage dated February 16, 1994 between CFM Technologies, Inc. and
CoreStates.*
10.18 $150,000 Commercial Promissory Note dated September 28, 1994 from CFM
Technologies, Inc. to CoreStates.***
10.19 $100,000 Commercial Promissory Note dated August 11, 1994 from CFM
Technologies, Inc. to CoreStates.***
10.19.1 $100,000 Commercial Promissory Note dated February 16, 1994 from CFM
Technologies Inc. to CoreStates.***
10.20 Assignment of Leases, Rents, Agreements of Sale, Licenses and Permits
dated February 16, 1994 by CFM Technologies, Inc. to CoreStates.*
10.21 Agent Agreement dated December 16, 1996 between the CFM Technologies,
Inc. and Ampoc Far East Company Limited.
10.22 Letter agreement dated March 25, 1996 between CoreStates and CFM
Technologies, Inc. and $7,500,000 Master Demand Note dated April 1,
1996 from CFM Technologies, Inc. to CoreStates Bank.*
11 Statement re computation of per share earnings.
21 Subsidiaries of the registrant.*
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Ballard Spahr Andrews & Ingersoll (included in its opinion
filed as Exhibit 5 hereto).
24 Power of attorney (included on the signature pages hereto).
27 Financial Data Schedule.
</TABLE>
- --------
* Incorporated by reference to the registrant's Registration Statement on
Form S-1 (Registration No. 33-80359), declared effective on June 18, 1996.
** Removed as a result of being paid in full from the proceeds of the
Company's June 18, 1996 offering.
*** To be filed by amendment.
(b) Financial Statement Schedules.
Schedules have been omitted because the information required to be set forth
therein is not applicable or is shown in the financial statements or notes
thereto.
ITEM 17. UNDERTAKINGS.
A. The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreement
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
B. 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 its Articles of Incorporation, as amended, its By-
laws or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the
II-3
<PAGE>
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.
C. The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933. each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE TOWN OF WEST CHESTER,
COMMONWEALTH OF PENNSYLVANIA, ON JANUARY 24, 1997.
CFM Technologies, Inc.
/s/ Roger A. Carolin
By: _________________________________
ROGER A. CAROLIN
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Christopher F. McConnell, Roger A. Carolin and
Lorin J. Randall and each or any one of them, his true and lawful attorneys-
in-fact and agents, with full power of substitution and resubstitution, for
him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this registration
statement, or any registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of
1933, as amended, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or his
or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Christopher F. McConnell Chairman of the January 24, 1997
- ------------------------------------- Board of Directors
CHRISTOPHER F. MCCONNELL
/s/ Roger A. Carolin President, Chief January 24, 1997
- ------------------------------------- Executive Officer
ROGER A. CAROLIN and Director
(Principal
Executive Officer)
/s/ Lorin J. Randall Vice President, January 24, 1997
- ------------------------------------- Chief Financial
LORIN J. RANDALL Officer, Treasurer
and Secretary
(Principal
Financial Officer
and Principal
Accounting Officer)
II-5
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ James Kim Director January 24, 1997
- -------------------------------------
JAMES KIM
/s/ Brad Mattson Director January 24, 1997
- -------------------------------------
BRAD MATTSON
Director January 24, 1997
- -------------------------------------
BURTON E. MCGILLIVRAY
/s/ Milton S. Stearns, Jr. Director January 24, 1997
- -------------------------------------
MILTON S. STEARNS, JR.
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1 Form of Underwriting Agreement.
3.1 Articles of Incorporation of CFM Technologies, Inc., as amended.*
3.2 By-Laws of CFM Technologies, Inc.*
4 Form of Common Stock Certificate.*
5 Opinion of Ballard Spahr Andrews & Ingersoll.***
10.1 Employment Agreement dated as of January 9, 1995 by and between CFM
Technologies, Inc. and Lorin Jeffrey Randall.*
10.2 Stock Option Agreement dated March 18, 1991 between CFM Technologies,
Inc. and Burton McGillivray, as extended and amended on June 11, 1993
and as amended on September 25, 1994.*
10.3 Stock Option Agreement dated as of December 9, 1994 by and between CFM
Technologies, Inc. and Milton Stearns, as amended on November 3,
1995.*
10.4 CFM Technologies, Inc. Annual Profit Sharing Plan.*
10.4.1 Amendment to CFM Technologies, Inc. Annual Profit Sharing Plan.
10.5 CFM Technologies, Inc. 1992 Employee Stock Option Plan.*
10.6 CFM Technologies, Inc. 1995 Incentive Plan.*
10.7 CFM Technologies, Inc. Non-Employee Directors' Stock Option Plan.*
10.8 CFM Technologies, Inc. Employee Stock Purchase Plan.*
10.9 Distributor Agreement dated November 28, 1991 by and between ANAM
Semiconductor Design Co., Ltd and CFM Technologies, Inc. and
supplement to the Distributor Agreement dated August 26, 1994.*
10.10 Distributor Agreement dated March 3, 1992 by and between Innotech
Corporation and CFM Technologies, Inc., as modified on June 15,
1994.*
10.11 Lease Agreement dated October 10, 1995 by and between Hough/Loew
Construction, Inc. and CFM Technologies, Inc. and Addendum to Lease
Agreement dated October 10, 1995.*
10.11.1 Amendment Number Two to Lease Agreement dated April 30, 1996 by and
between CFM Technologies, Inc. and Hough/Loew Construction, Inc.
10.11.2 Commercial Lease Agreement dated December 16, 1996 between CFM
Technologies, Inc. and Devereux Properties, Inc.
10.12 Loan Agreement dated July 27, 1994 by and between Chester County
Development Council ("CCDC") and CFM Technologies, Inc.*
10.13 $100,000 Mortgage dated as of July 27, 1994, from CFM Technologies,
Inc. to CCDC.*
10.14 Removed**
10.15 Guaranties dated October 13, 1995 executed by CFMT, Inc. and CFM
International Corp. in favor of CoreStates.*
10.16 Removed**
10.17 Mortgage dated February 16, 1994 between CFM Technologies, Inc. and
CoreStates.*
10.18 $150,000 Commercial Promissory Note dated September 28, 1994 from CFM
Technologies, Inc. to CoreStates.***
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.19 $100,000 Commercial Promissory Note dated August 11, 1994 from CFM
Technologies, Inc. to CoreStates.***
10.19.1 $100,000 Commercial Promissory Note dated February 16, 1994 from CFM
Technologies, Inc. to CoreStates.***
10.20 Assignment of Leases, Rents, Agreements of Sale, Licenses and Permits
dated February 16, 1994 by CFM Technologies, Inc. to CoreStates.*
10.21 Agent Agreement dated December 16, 1996 between CFM Technologies, Inc.
and AMPOC Far East Company Limited
10.22 Letter agreement dated March 25, 1996 between CoreStates and CFM
Technologies, Inc. and $7,500,000 Master Demand Note dated April 1,
1996 from CFM Technologies, Inc. to CoreStates Bank.*
11 Statement re computation of per share earnings.
21 Subsidiaries of the registrant.*
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Ballard Spahr Andrews & Ingersoll (included in its opinion
filed as Exhibit 5 hereto).
24 Power of attorney (included on the signature pages hereto).
27 Financial Data Schedule.
</TABLE>
- --------
* Incorporated by reference to the registrant's Registration Statement on Form
S-1 (Registration No. 33-80359), declared effective on June 18, 1996.
**Removed as a result of being paid in full from the proceeds of the Company's
June 18, 1996 offering.
***To be filed by amendment.
<PAGE>
EXHIBIT - 1
Shares
---------------
CFM Technologies, Inc.
Common Stock
Underwriting Agreement
dated , 1997
------------ --
<PAGE>
Underwriting Agreement
, 1997
--------------- ---
MONTGOMERY SECURITIES
PaineWebber Incorporated
UBS Securities LLC
As Representatives of the several Underwriters
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
Introductory. CFM Technologies, Inc., a Pennsylvania corporation (the
"Company), proposes to issue and sell to the several underwriters named in
Schedule A (the "Underwriters") an aggregate of [___] shares of its Common
- ----------
Stock, par value no per share (the "Common Stock"); and the shareholders of the
Company named in Schedule B (collectively, the "Selling Shareholders") severally
----------
propose to sell to the Underwriters an aggregate of [___] shares of Common
Stock. The [___] shares of Common Stock to be sold by the Company and the [___]
shares of Common Stock to be sold by the Selling Shareholders are collectively
called the "Firm Common Shares". In addition, the Company has granted to the
Underwriters an option to purchase up to an additional [___] shares (the
"Optional Common Shares") of Common Stock, as provided in Section 2. The Firm
Common Shares and, if and to the extent such option is exercised, the Optional
Common Shares are collectively called the "Common Shares". Montgomery
Securities, PaineWebber Incorporated and UBS Securities LLC have agreed to act
as representatives of the several Underwriters (in such capacity, the
"Representatives") in connection with the offering and sale of the Common
Shares.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (File No.
333-[___]), which contains a form of prospectus to be used in connection with
the public offering and sale of the Common Shares. Such registration statement,
as amended, including the financial statements, exhibits and schedules thereto,
in the form in which it was declared effective by the Commission under the
Securities Act of 1933 and the rules and regulations promulgated thereunder
(collectively, the "Securities Act"), including any information deemed to be a
part thereof at the time of effectiveness pursuant to Rule 430A or Rule 434
under the Securities Act, is called the "Registration Statement". Any
registration statement filed by the Company pursuant to Rule 462(b) under the
Securities Act is called the "Rule 462(b) Registration Statement", and from and
after the date and time of filing of the Rule 462(b) Registration Statement the
term "Registration Statement" shall include the Rule 462(b) Registration
Statement. Such prospectus, in the form first used by the Underwriters to
confirm sales of the Common Shares, is called the "Prospectus"; provided,
however, if the Company has, with the consent of Montgomery Securities, elected
to rely upon Rule 434 under the Securities Act, the term "Prospectus" shall mean
the Company's prospectus subject to completion (each, a
<PAGE>
"preliminary prospectus") dated [___] (such preliminary prospectus is called the
"Rule 434 preliminary prospectus"),/1/ together with the applicable term sheet
(the "Term Sheet") prepared and filed by the Company with the Commission under
Rules 434 and 424(b) under the Securities Act and all references in this
Agreement to the date of the Prospectus shall mean the date of the Term Sheet.
All references in this Agreement to the Registration Statement, the Rule 462(b)
Registration Statement, a preliminary prospectus, the Prospectus or the Term
Sheet, or any amendments or supplements to any of the foregoing, shall include
any copy thereof filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval System ("EDGAR").
Each Selling Shareholder has executed and delivered a Custody
Agreement and a Power of Attorney in the form attached hereto as Exhibit A
(collectively, the "Agreement and Power of Attorney") pursuant to which each
Selling Shareholder has placed his or its Firm Common Shares in custody and
appointed the persons designated therein as a committee (the "Committee") with
authority to execute and deliver this Agreement on behalf of such Selling
Shareholder and to take certain other actions with respect thereto and hereto.
The Company and each of the Selling Shareholders hereby confirm their
respective agreements with the Underwriters as follows:
Section 1. Representations and Warranties.
A. Representations and Warranties of the Company. The Company hereby
represents, warrants and covenants to each Underwriter as follows:
1. The Registration Statement and any Rule 462(b) Registration
Statement have been declared effective by the Commission under the Securities
Act. The Company has complied to the Commission's satisfaction with all
requests of the Commission for additional or supplemental information. No stop
order suspending the effectiveness of the Registration Statement or any Rule
462(b) Registration Statement is in effect and no proceedings for such purpose
have been instituted or are pending or, to the best knowledge of the Company,
are contemplated or threatened by the Commission. Each preliminary prospectus
and the Prospectus when filed complied in all material respects with the
Securities Act and, if filed by electronic transmission pursuant to EDGAR
(except as may be permitted by Regulation S-T under the Securities Act), was
identical to the copy thereof delivered to the Underwriters for use in
- ------------------
/1/ Complete with the date of the Company's most recent preliminary prospectus
that was circulated to prospective offerees.
2
<PAGE>
connection with the offer and sale of the Common Shares. Each of the
Registration Statement, any Rule 462(b) Registration Statement and any post-
effective amendment thereto, at the time it became effective and at all
subsequent times, complied and will comply in all material respects with the
Securities Act and did not and 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 statements therein not misleading. The Prospectus, as
amended or supplemented, as of its date and at all subsequent times, did not and
will not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The
representations and warranties set forth in the two immediately preceding
sentences do not apply to statements in or omissions from the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment thereto, or the Prospectus, or any amendments or supplements thereto,
made in reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by the Representative expressly
for use therein. There are no contracts or other documents required to be
described in the Prospectus or to be filed as exhibits to the Registration
Statement which have not been described or filed as required. The Company has
delivered to the Representative three complete manually signed copies of the
Registration Statement and of each consent and certificate of experts filed as a
part thereof, and conformed copies of the Registration Statement (without
exhibits) and preliminary prospectuses and the Prospectus, as amended or
supplemented, in such quantities and at such places as the Representative has
reasonably requested for each of the Underwriters. The Company has not
distributed and will not distribute, prior to the later of the Second Closing
Date (as defined below) and the completion of the Underwriters' distribution of
the Common Shares, any offering material in connection with the offering and
sale of the Common Shares other than a preliminary prospectus, the Prospectus or
the Registration Statement.
2. The only subsidiaries (as defined in the Act) of the Company are
the subsidiaries listed on Exhibit 21 to the Registration Statement (the
"subsidiaries"). The Company and each of its subsidiaries is, and at the
applicable Closing Date will be, a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation. The
Company and each of its subsidiaries has, and at the applicable Closing Date
will have, full power and authority to conduct all the activities conducted by
it, to own or lease all the assets owned or leased by it and to conduct its
business currently conducted. The Company and each of its subsidiaries is, and
at the Closing Date will be, duly licensed or qualified to do business and in
good standing as a foreign corporation in all jurisdictions in which the nature
of the activities conducted by it or the character of the assets owned or leased
by it makes such licensing or qualification necessary, except where the failure
to be so qualified would not have a material adverse effect on the business,
properties, condition (financial or otherwise), results of operations or
prospects of the Company and its subsidiaries taken as a whole. Except for the
stock of the subsidiaries and as disclosed in the Registration Statement or on
Schedule III attached hereto, the Company does not own, and at the Closing Date
will not own, directly or indirectly, any Common Shares of stock or any other
equity or long-term debt securities of any corporation or have any equity
interest in any firm, partnership, joint venture, association or other entity.
Complete and correct copies of the articles or certificate of incorporation and
of the by-laws of the Company and each of its subsidiaries and all amendments
thereto have been delivered to the Representatives, and no changes therein will
be made subsequent to the date hereof and prior to the applicable Closing Date.
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3. The outstanding shares of Common Stock have been, and the Common
Shares to be issued and sold by the Company upon such issuance will be, duly
authorized, validly issued, fully paid and nonassessable and are not and will
not be subject to, nor were they nor will they be issued in violation of any
preemptive or similar right. The outstanding shares of capital stock of the
subsidiaries have been duly authorized and validly issued, are fully paid and
nonassessable, are not subject to, nor were they issued in violation of, any
preemptive rights, and are owned, of record and beneficially, by the Company,
free and clear of all liens, encumbrances, options or claims whatsoever. The
description of the Common Stock in the Registration Statement and the Prospectus
is, and at the Closing Date will be, complete and accurate in all material
respects. Except as set forth in the Prospectus, the Company does not have
outstanding, and at the applicable Closing Date will not have outstanding, any
options to purchase, or any rights or warrants to subscribe for, or any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, any shares of Common Stock, any shares of capital stock of any
subsidiary or any such warrants, convertible securities or obligations. Except
as provided in the corporation law of the respective jurisdictions of
incorporation of the subsidiaries or as set forth in the Prospectus, there are
no restrictions of any kind which prevent the payment of dividends by any
subsidiary.
4. The financial statements included in the Registration Statement or
the Prospectus present fairly the consolidated financial position of the Company
as of the respective dates thereof and the consolidated results of operations
and cash flows of the Company for the respective periods covered thereby, all in
conformity with generally accepted accounting principles applied on a consistent
basis throughout the entire period involved, except as otherwise disclosed in
the Prospectus. No other financial statements or schedules of the Company are
required by the Securities Act to be included in the Registration Statement or
the Prospectus. To the knowledge of the Company, Arthur Andersen LLP (the
"Accountants"), who have reported on such financial state ments and schedules,
are independent accountants with respect to the Company as required by the
Securities Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The statements included in the Registration Statement with
respect to the Accountants pursuant to Item 509 of Regulation S-K promulgated by
the Commission are true and correct in all material respects.
5. The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
6. Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus and prior to the
applicable Closing Date, except as set forth in or contemplated by the
Registration Statement and the Prospectus, (i) there has not been and will not
have been any change in the capitalization of the Company (except for exercises
of outstanding stock options described in the Prospectus), or any material
adverse change, or any development that could reasonably be expected to result
in a material adverse change, in the business, properties, condition (financial
or otherwise), results of operations or
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<PAGE>
prospects of the Company and its subsidiaries taken as a whole (any such change
is called a "Material Adverse Change"), (ii) neither the Company nor any of its
subsidiaries has incurred nor will it incur any material liabilities or
obligations, direct or contingent, has entered into nor will it enter into any
material transactions other than pursuant to this Agreement and the transactions
referred to herein and therein and (iii) the Company has not and will not have
paid or declared any dividends or other distributions of any kind on any class
of its capital stock.
7. The Company is not an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company," as such terms are defined in the Investment Company Act of 1940, as
amended.
8. Except as set forth in the Registration Statement and the
Prospectus, there are no actions, suits or proceedings pending or threatened
against or affecting the Company or any of its subsidiaries or any of their
respective officers in their capacity as such, before or by any Federal or state
court, commission, regulatory body, administrative agency or other governmental
body, domestic or foreign, wherein an unfavorable ruling, decision or finding
might materially adversely affect the Company and its subsidiaries or the
business, properties, condition (financial or otherwise), results of operations
or prospects of the Company and its subsidiaries taken as a whole.
9. The Company and each of its subsidiaries has, and at the
applicable Closing Date will have, (i) all governmental licenses, permits,
consents, orders, approvals and other authorizations necessary to carry on its
business as currently conducted except in a case where the failure to obtain any
thereof would not materially adversely affect the business, properties,
condition (financial or otherwise), results of operations or prospects of the
Company and its subsidiaries taken as a whole, (ii) complied in all material
respects with all laws, regulations and orders applicable to them or their
respective businesses and (iii) performed all material obligations required to
be performed by them, and are not, and at the Closing Date will not be, in
default, under any material indenture, mortgage, deed of trust, voting trust
agreement, loan agreement, bond, debenture, note agreement, lease, contract or
other material agreement or instrument (collectively, a "contract or other
agreement") to which any of them is a party or by which any of their property is
bound or affected. To the knowledge of the Company, no other party under any
contract or other agreement to which the Company or any of it subsidiaries is a
party is in default in any respect thereunder. Neither the Company nor any of
its subsidiaries is, nor at the Closing Date will any of them be, in violation
of any provision of its articles or certificate of incorporation or by-laws, as
amended to such date.
10. No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required for the
consummation by the Company of the transactions on its part contemplated herein,
except such as have been obtained under the Securities Act and such as may be
required under state securities or Blue Sky laws or the by-laws and rules of the
National Association of Securities Dealers, Inc. (the "NASD") in connection with
the purchase and distribution by the Underwriters of the Common Shares to be
sold by the Company.
11. The Company has full corporate power and authority to enter into
this Agreement. Each of this Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and binding agreement of the
Company and is enforceable
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<PAGE>
against the Company in accordance with the terms hereof and thereof. The
performance of this Agreement and the International Underwriting Agreement and
the consummation of the transactions contem plated hereby and thereby will not
result in the creation or imposition of any lien, charge or encum brance upon
any of the assets of the Company or any of its subsidiaries pursuant to the
terms or provisions of, or result in a breach or violation of any of the terms
or provisions of, or constitute a default under, or give any other party a right
to terminate any of its obligations under, or result in the acceleration of any
obligation under, the Articles of Incorporation, as amended, or Amended and
Restated By-Laws of the Company, any contract or other agreement to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or any of its properties is bound or affected, or violate or
conflict with any judgment, ruling, decree, order, statute, rule or regulation
of any court or other governmental agency or body applicable to the business or
properties of the Company or any of its subsidiaries, except for violations or
conflicts which would not have a material adverse effect on the business,
properties, condition (financial or otherwise), results of operations or
prospects of the Company and its subsidiaries taken as a whole.
12. The Company has good and marketable title to all properties and
assets described in the Prospectus as owned by it, free and clear of all liens,
charges, encumbrances or restrictions, except such as are described in the
Prospectus or are not material to the business of the Company. The Company has
valid, subsisting and enforceable leases for the properties described in the
Prospectus as leased by it, with such exceptions as are not material and do not
materially interfere with the use made and proposed to be made of such
properties by the Company.
13. There is no document or contract of a character required to be
described in the Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement which is not described or filed as
required. All such contracts to which the Company or any of its subsidiaries is
a party have been duly authorized, executed and delivered by the Company or such
subsidiary, constitute valid and binding agreements of the Company or such
subsidiary and are enforceable against the Company or such subsidiary in
accordance with the terms thereof. No statement, representation, warranty or
covenant made by the Company in this Agreement or made in any certificate or
document required by this Agreement to be delivered to the Representatives was
or will be, when made, inaccurate, untrue or incorrect in any material respect.
14. Neither the Company nor any of its directors, officers or
controlling persons has taken, directly or indirectly, any action intended, or
which might reasonably be expected, to cause or result, under the Securities Act
or otherwise, in, or which has constituted, stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Common Shares.
15. No holder of securities of the Company has rights to the
registration of any securities of the Company because of the filing of the
Registration Statement.
16. The Common Shares are eligible for, and have been approved for,
quotation and trading on The Nasdaq Stock Market.
17. Neither the Company nor any of its subsidiaries is involved in
any material labor dispute nor, to the knowledge of the Company, is any such
dispute threatened.
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18. The Company and its subsidiaries own, or are licensed or
otherwise possess adequate rights to use all patents, trademarks, trademark
registrations, service marks, service mark registrations, trade names,
copyrights, licenses, inventions, trade secrets and rights (collectively,
"Intellectual Property") which are used in or necessary for the conduct of their
respective businesses as described in the Prospectus. Except as otherwise
described in the Prospectus, no claims have been asserted by any person to the
use of any Intellectual Property or challenging or questioning the validity or
effectiveness of any Intellectual Property. The use, in connection with the
business and operations of the Company and its subsidiaries, of any Intellectual
Property does not, to the Company's knowledge, infringe on the rights of any
person, to the extent that an unfavorable decision, ruling or finding as to such
infringement could materially adversely affect the business, properties,
financial condition or results of operations of the Company and its subsidiaries
taken as a whole.
19. Neither the Company nor any of its subsidiaries nor, to the
Company's knowledge, any employee or agent of the Company or any subsidiary has
made any payment of funds of the Company or any subsidiary or received or
retained any funds in violation of any law, rule or regulation or of a character
required to be disclosed in the Prospectus.
20. Except for the estate of Robert W. Donahue, which is the record
holder of 33,686 shares of Common Stock, no holder of Common Stock has any right
to cause the Company to redeem any such Common Stock or to exchange any such
Common Stock for other securities, either presently or upon the passage of time
or the occurrence of any future event, which right will survive the Closing.
21. The November 1994 sale of certain assets by each of CFM
Technologies Limited Partnership and CFM Technologies Research Associates
(together, the "Partnerships") to the Company in exchange for the issuance of
shares of Common Stock (the "Exchange Common Shares") by the Company to the
Partnerships and the distribution of such shares of Common Stock to the limited
partners of the Partnerships (collectively, the "Partnership Transactions")
complied in all material respects with the limited partnership agreements of the
Partnerships (the "Limited Partnership Agreements"); no consent of the limited
partners of either of the Partnerships was required to be obtained in connection
with the Partnership Transactions; and no limited partner of either of the
Partnerships is entitled to any additional consideration in respect of the
Partnership Transactions, pursuant to the provisions in the Research and
Development Agreements between the Company and the Partnerships (the "Research
and Development Agreements") relating to the prepayment of the purchase price
payable upon exercise of the option to purchase contained therein, except such
consideration which, if paid by the Company, would not have a material adverse
effect on the business, properties, condition (financial or otherwise), results
of operations or prospects of the Company and its subsidiaries taken as a whole.
22. The sale of the Exchange Common Shares by the Company to the
Partnerships and the distribution of the Exchange Common Shares by the
Partnerships to their limited partners, and the November 1994 issuance of shares
of Common Stock by the Company to the shareholders of CFM Technologies,
Incorporated in connection with the organization of the Company as a holding
company, complied in all material respects with the Securities Act.
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<PAGE>
23. The statements in the Prospectus under the headings "Risk Factors
- --Intellectual Property Rights" and "Business -- Intellectual Property" insofar
as such statements constitute summary descriptions of the legal matters,
documents or proceedings referred to therein, fairly present the information
called for with respect to such legal matters, documents or proceedings. Except
as described in the Prospectus, neither the Company nor any of its subsidiaries
has received any notice of infringement of or conflict with (and the Company
knows of no infringement of or conflict with) asserted rights of others in any
patents, trade secrets, copyrights, trademarks, service marks or trade names,
except to the extent that, either singly or in the aggregate, such infringement
would not materially adversely affect the business, properties, financial
condition or results of operations of the Company. To the knowledge of the
Company, except as set forth in the Prospectus, there is no infringement or
violation by others of any of the Company's patents, trade secrets, copyrights,
trademarks, service marks or trade names. Except as set forth in the
Prospectus, there are no legal or governmental proceedings pending or threatened
related to patents, trade secrets, copyrights, trademarks, service marks or
trade names of others to which the Company or any of its subsidiaries is a party
or, except for ordinary proceedings initiated by the Company or any of its
subsidiaries seeking statutory rights, registrations or certifications from
governmental authorities, to which any intellectual property of the Company or
any of its subsidiaries is subject.
24. There is no contract or other document relating to patents,
patent rights, licenses, inventions, copyrights, know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks or trade names of
a character required to be filed as an exhibit to the Registration Statement or
required to be described in the Prospectus that is not filed or described as
required.
25. Attached hereto as Schedule III is an accurate and complete list
describing all patents issued to, and all patent applications filed on behalf
of, the Company or any of its subsidiaries with the U.S. Patent and Trademark
Office or with patent authorities in other countries. The named inventor(s) in
the applications listed in Schedule III are the original and first inventor(s)
of the subject matter which is claimed. Except as listed on Schedule III, no
other patents have been issued to, or patent applications filed by or on behalf
of, the Company or any of its subsidiaries. All the inventors have assigned all
their right, title and interest in the applications and the patents listed on
Schedule III to the Company or its subsidiaries. The Company is not aware of any
facts that would rebut the statutory presumption of validity of an issued U.S.
patent as it applies to the U.S. patents listed on Schedule III. Further, except
as set forth in the Prospectus, the Company is not aware of any actions brought
or threatened by any party alleging the invalidity or unenforceability of the
U.S. patents listed on Schedule III. There are no business relationships or
related-party transactions involving the Company or any subsidiary or any other
person required to be described in the Prospectus which have not been described
as required.
26. Except as would not, individually or in the aggregate, result in
a Material Adverse Change (i) neither the Company nor any of its subsidiaries
is in violation of any federal, state, local or foreign law or regulation
relating to pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata) or wildlife, including without limitation, laws
and regulations relating to emissions, discharges, releases or
8
<PAGE>
threatened releases of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum and petroleum products
(collectively, "Materials of Environmental Concern"), or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environment Concern (collectively,
"Environmental Laws"), which violation includes, but is not limited to,
noncompliance with any permits or other governmental authorizations required for
the operation of the business of the Company or its subsidiaries under
applicable Environmental Laws, or noncompliance with the terms and conditions
thereof, nor has the Company or any of its subsidiaries received any written
communication, whether from a governmental authority, citizens group, employee
or otherwise, that alleges that the Company or any of its subsidiaries is in
violation of any Environmental Law; (ii) there is no claim, action or cause of
action filed with a court or governmental authority, no investigation with
respect to which the Company has received written notice, and no written notice
by any person or entity alleging potential liability for investigatory costs,
cleanup costs, governmental responses costs, natural resources damages, property
damages, personal injuries, attorneys' fees or penalties arising out of, based
on or resulting from the presence, or release into the environment, of any
Material of Environmental Concern at any location owned, leased or operated by
the Company or any of its subsidiaries, now or in the past (collectively,
"Environmental Claims"), pending or, to the Company's knowledge, threatened
against the Company or any of its subsidiaries or any person or entity whose
liability for any Environmental Claim the Company or any of its subsidiaries has
retained or assumed either contractually or by operation of law; and (iii) to
the Company's knowledge, there are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without limitation,
the release, emission, discharge, presence or disposal of any Material of
Environmental Concern, that reasonably could result in a violation of any
Environmental Law or form the basis of a potential Environmental Claim against
the Company or any of its subsidiaries or against any person or entity whose
liability for any Environmental Claim the Company or any of its subsidiaries has
retained or assumed either contractually or by operation of law.
27. The Company and its subsidiaries and any "employee benefit plan"
(as defined under the Employee Retirement Income Security Act of 1974, as
amended, and the regulations and published interpretations thereunder
(collectively, "ERISA")) established or maintained by the Company, its
subsidiaries or their "ERISA Affiliates" (as defined below) are in compliance in
all material respects with ERISA. "ERISA Affiliate" means, with respect to the
Company or a subsidiary, any member of any group of organizations described in
Sections 414(b),(c),(m) or (o) of the Internal Revenue Code of 1986, as amended,
and the regulations and published interpretations thereunder (the "Code") of
which the Company or such subsidiary is a member. No "reportable event" (as
defined under ERISA) has occurred or is reasonably expected to occur with
respect to any "employee benefit plan" established or maintained by the Company,
its subsidiaries or any of their ERISA Affiliates. No "employee benefit plan"
established or maintained by the Company, its subsidiaries or any of their ERISA
Affiliates, if such "employee
9
<PAGE>
benefit plan" established or maintained by the Company, its subsidiaries or any
of their ERISA Affiliates, if such "employee benefit plan" were terminated,
would have any "amount of unfunded benefit liabilities" (as defined under
ERISA). Neither the Company, its subsidiaries nor any of their ERISA Affiliates
has incurred or reasonably expects to incur any liability under (i) Title IV of
ERISA with respect to termination of, or withdrawal from, any "employee benefit
plan" or (ii) Sections 412, 4971, 4975 or 4980B of the Code. Each "employee
benefit plan" established or maintained by the Company, its subsidiaries or any
of their ERISA Affiliates that is intended to be qualified under Section 401(a)
of the Code is so qualified and nothing has occurred, whether by action or
failure to act, which would cause the loss of such qualification.
Any certificate signed by an officer of the Company and delivered to
the Representatives or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
set forth therein.
B. Representations and Warranties of the Selling Shareholders. Each
Selling Shareholder represents, warrants and covenants to each Underwriter as
follows:
1. Such Selling Shareholder has full power and authority to enter
into this Agreement and the Custody Agreement and Power of Attorney
(collectively, an "Agreement and Power of Attorney") to which it is a party. All
authorizations and consents necessary for the execution and delivery by such
Selling Shareholder of the Agreement and Power of Attorney, and for the
execution of this Agreement on behalf of such Selling Shareholder, have been
given. Each of the Agreement and Power of Attorney and this Agreement has been
duly authorized, executed and delivered by or on behalf of such Selling
Shareholder and constitutes a valid and binding agreement of such Selling
Shareholder and is enforceable against such Selling Shareholder in accordance
with the terms thereof and hereof.
2. Such Selling Shareholder now has, and at the time of delivery
thereof hereunder will have, (i) good and marketable title to the Common Shares
to be sold by such Selling Shareholder hereunder, free and clear of all liens,
encumbrances and claims whatsoever (other than pursuant to the Agreement and
Power of Attorney), and (ii) full legal right and power, and all authorizations
and approvals required by law, to sell, transfer and deliver such Common Shares
to the Underwriters hereunder and to make the representations, warranties and
agreements made by such Selling Shareholder herein. Upon the delivery of and
payment for such Common Shares hereunder, such Selling Shareholder will deliver
good and marketable title thereto, free and clear of all liens, encumbrances and
claims whatsoever.
3. On the First Closing Date, all stock transfer or other taxes
(other than income taxes) which are required to be paid in connection with the
sale and transfer of the Common Shares to be sold by such Selling Shareholder to
the several Underwriters hereunder will have been fully paid or provided for by
such Selling Shareholder and all
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laws imposing such taxes will have been fully complied with.
4. The performance of this Agreement and the consummation of the
transactions contemplated hereby will not result in the creation or imposition
of any lien, charge or encumbrance upon any of the assets of such Selling
Shareholder pursuant to the terms or provisions of, or result in a breach or
violation of any of the terms or provisions of, or constitute a default under,
or result in the acceleration of any obligation under, if such Selling
Shareholder is a corporation or partnership, the organizational documents of
such Selling Shareholder, or, as to all such Selling Shareholders, any contract
or other agreement to which such Selling Shareholder is a party or by which such
Selling Shareholder or any of its property is bound or affected, or under any
ruling, decree, judgment, order, statute, rule or regulation of any court or
other governmental agency or body having jurisdiction over such Selling
Shareholder or the property of such Selling Shareholder.
5. No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required for the
consummation by such Selling Shareholder of the transactions on its part
contemplated herein or in the Agreement and Power of Attorney, except such as
have been obtained under the Securities Act and such as may be required under
state securities or Blue Sky laws or the by-laws and rules of the NASD in
connection with the purchase and distribution by the Underwriters of the Firm
Common Shares to be sold by such Selling Shareholder.
6. Such Selling Shareholder has no reason to believe that the
representations and warranties of the Company contained in this Agreement are
not true and correct, is familiar with the Registration Statement and the
Prospectus and has no knowledge of any material fact, condition or information
not disclosed in the Registration Statement or the Prospectus which has had or
may have a material adverse effect on the business, properties, condition
(financial or otherwise), results of operations or prospects of the Company and
its subsidiaries taken as a whole, and is not prompted to sell shares of Common
Stock by any information concerning the Company which is not set forth in the
Registration Statement and the Prospectus.
7. All material information with respect to such Selling Shareholder
contained in the Registration Statement and the Prospectus (as amended or
supplemented, if the Company shall have filed with the Commission any amendment
or supplement thereto) complied and will comply in all material respects with
all applicable provisions of the Securities Act, contains and will contain all
statements of material fact required to be stated therein in accordance with the
Securities Act, and does not and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading.
8. Other than as permitted by the Securities Act, such Selling
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<PAGE>
Shareholder has not distributed and will not distribute any preliminary
prospectus, the Prospectus or any other offering material in connection with the
offering and sale of the Common Shares. Such Selling Shareholder has not taken,
directly or indirectly, any action intended, or which might reasonably be
expected, to cause or result in, under the Securities Act or otherwise, or which
has constituted, stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Common Shares.
9. Certificates in negotiable form for the Firm Common Shares to be
sold hereunder by such Selling Shareholder have been placed in custody, for the
purpose of making delivery of such Firm Common Shares under this Agreement and
under the Agreement and Power of Attorney which appoints Ballard Spahr Andrews &
Ingersoll as custodian (the "Custodian") for each Selling Shareholder. Such
Selling Shareholder agrees that the Firm Common Shares represented by the
certificates held in custody for him or it under the Agreement and Power of
Attorney are for the benefit of and coupled with and subject to the interest
hereunder of the Custodian, the Committee, the Underwriters, each other Selling
Shareholder and the Company, that the arrangements made by such Selling
Shareholder for such custody and the appointment of the Custodian and the
Committee by such Selling Shareholder are irrevocable, and that the obligations
of such Selling Shareholder hereunder shall not be terminated by operation of
law, whether by the death, disability, incapacity or liquidation of any Selling
Shareholder or the occurrence of any other event. If any Selling Shareholder
should die, become disabled or incapacitated or be liquidated or if any other
such event should occur before the delivery of the Firm Common Shares hereunder,
certificates for the Firm Common Shares shall be delivered by the Custodian in
accordance with the terms and conditions of this Agreement and actions taken by
the Committee and the Custodian pursuant to the Agreement and Power of Attorney
shall be as valid as if such death, liquidation, incapacity or other event had
not occurred, regardless of whether or not the Custodian or the Committee, or
either of them, shall have received notice thereof.
Any certificate signed by or on behalf of any Selling Shareholder and
delivered to the Representatives or to counsel for the Underwriters shall be
deemed to be a representation and warranty by such Selling Shareholder to each
Underwriter as to the matters covered thereby.
Section 2. Purchase, Sale and Delivery of the Common Shares.
The Firm Common Shares. Upon the terms herein set forth, (i) the
Company agrees to issue and sell to the several Underwriters an aggregate of
[___] Firm Common Shares and (ii) the Selling Shareholders agree to sell to the
several Underwriters an aggregate of [___] Firm Common Shares, each Selling
Shareholder selling the number of Firm Common Shares set forth opposite such
Selling Shareholder's name on Schedule B. On the basis of the representations,
----------
warranties and agreements herein contained, and upon the terms but subject to
the conditions herein set forth, the
12
<PAGE>
Underwriters agree, severally and not jointly, to purchase from the Company and
the Selling Shareholders the respective number of Firm Common Shares set forth
opposite their names on Schedule A. The purchase price per Firm Common Share to
----------
be paid by the several Underwriters to the Company and the Selling Shareholders
shall be $[___] per share.
The First Closing Date. Delivery of certificates for the Firm Common
Shares to be purchased by the Underwriters and payment therefor shall be made at
the offices of Montgomery Securities, 600 Montgomery Street, San Francisco,
California (or such other place as may be agreed to by the Company and the
Representatives) at 6:00 a.m. San Francisco time, on [___], or such other time
and date not later than 10:30 a.m. San Francisco time , on [___] as the
Representatives shall designate by notice to the Company (the time and date of
such closing are called the "First Closing Date").
The Optional Common Shares; the Second Closing Date. In addition, on
the basis of the representations, warranties and agreements herein contained,
and upon the terms but subject to the conditions herein set forth, the Company
hereby grants an option to the several Underwriters to purchase, severally and
not jointly, up to an aggregate of [___] Optional Common Shares from the Company
at the purchase price per share to be paid by the Underwriters for the Firm
Common Shares. The option granted hereunder is for use by the Underwriters
solely in covering any over-allotments in connection with the sale and
distribution of the Firm Common Shares. The option granted hereunder may be
exercised at any time (but not more than once) upon notice by the
Representatives to the Company, which notice may be given at any time within 30
days from the date of this Agreement. Such notice shall set forth (i) the
aggregate number of Optional Common Shares as to which the Underwriters are
exercising the option, (ii) the names and denominations in which the
certificates for the Optional Common Shares are to be registered and (iii) the
time, date and place at which such certificates will be delivered (which time
and date may be simultaneous with, but not earlier than, the First Closing Date;
and in such case the term "First Closing Date" shall refer to the time and date
of delivery of certificates for the Firm Common Shares and the Optional Common
Shares). Such time and date of delivery, if subsequent to the First Closing
Date, is called the "Second Closing Date" and shall be determined by the
Representatives and shall not be earlier than three nor later than five full
business days after delivery of such notice of exercise. The First Closing Date
and the Second Closing Date are each a "Closing Date". If any Optional Common
Shares are to be purchased, each Underwriter agrees, severally and not jointly,
to purchase the number of Optional Common Shares (subject to such adjustments to
eliminate fractional shares as the Representatives may determine) that bears the
same proportion to the total number of Optional Common Shares to be purchased as
the number of Firm Common Shares set forth on Schedule A opposite the name of
----------
such Underwriter bears to the total number of Firm Common Shares. The
Representatives may cancel the option at any time prior to its expiration by
giving written notice of such cancellation to the Company.
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Public Offering of the Common Shares. The Representatives hereby advise
the Company and the Selling Shareholders that the Underwriters intend to offer
for sale to the public, as described in the Prospectus, their respective
portions of the Common Shares as soon after this Agreement has been executed and
the Registration Statement has been declared effective as the Representatives,
in their sole judgment, have determined is advisable and practicable.
Payment for the Common Shares. Payment for the Common Shares to be sold
by the Company shall be made at the First Closing Date (and, if applicable, at
the Second Closing Date) by wire transfer of immediately available funds to the
order of the Company. Payment for the Common Shares to be sold by the Selling
Shareholders shall be made at the First Closing Date (and, if applicable, at the
Second Closing Date) by wire transfer of immediately available funds to the
order of the Custodian.
It is understood that the Representatives have been authorized, for
their own account and the accounts of the several Underwriters, to accept
delivery of and receipt for, and make payment of the purchase price for, the
Firm Common Shares and any Optional Common Shares the Underwriters have agreed
to purchase. Montgomery Securities, individually and not as the Representative
of the Underwriters, may (but shall not be obligated to) make payment for any
Common Shares to be purchased by any Underwriter whose funds shall not have been
received by the Representatives by the First Closing Date or the Second Closing
Date, as the case may be, for the account of such Underwriter, but any such
payment shall not relieve such Underwriter from any of its obligations under
this Agreement.
Each Selling Shareholder hereby agrees that (i) it will pay all stock
transfer taxes, stamp duties and other similar taxes, if any, payable upon the
sale or delivery of the Common Shares to be sold by such Selling Shareholder to
the several Underwriters, or otherwise in connection with the performance of
such Selling Shareholder's obligations hereunder and (ii) the Custodian is
authorized to deduct for such payment any such amounts from the proceeds to such
Selling Shareholder hereunder and to hold such amounts for the account of such
Selling Shareholder with the Custodian under the Custody Agreement.
Delivery of the Common Shares. The Company and the Selling Shareholders
shall deliver, or cause to be delivered, to the Representatives for the accounts
of the several Underwriters certificates for the Firm Common Shares to be sold
by them at the First Closing Date, against the irrevocable release of a wire
transfer of immediately available funds for the amount of the purchase price
therefor. The Company shall also deliver, or cause to be delivered, to the
Representatives for the accounts of the several Underwriters, certificates for
the Optional Common Shares the Underwriters have agreed to purchase at the First
Closing Date or the Second Closing Date, as the case may be, against the
irrevocable release of a wire transfer of immediately available funds for the
amount of the purchase price therefor. The certificates for the Common Shares
shall
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be in definitive form and registered in such names and denominations as the
Representatives shall have requested at least two full business days prior to
the First Closing Date (or the Second Closing Date, as the case may be) and
shall be made available for inspection on the business day preceding the First
Closing Date (or the Second Closing Date, as the case may be) at a location in
New York City as the Representatives may designate. Time shall be of the
essence, and delivery at the time and place specified in this Agreement is a
further condition to the obligations of the Underwriters.
Delivery of Prospectus to the Underwriters. Not later than 12:00 p.m.
on the second business day following the date the Common Shares of released by
the Underwriters for sale to the public, the Company shall delivery or cause to
be delivered copies of the Prospectus in such quantities and at such places as
the Representatives shall request.
Section 3. Additional Covenants.
A. Covenants of the Company. The Company further covenants and agrees
with each Underwriter as follows:
(a) Representatives's Review of Proposed Amendments and Supplements.
During such period beginning on the date hereof and ending on the later of the
First Closing Date or such date, as in the opinion of counsel for the
Underwriters, the Prospectus is no longer required by law to be delivered in
connection with sales by an Underwriter or dealer (the "Prospectus Delivery
Period"), prior to amending or supplementing the Registration Statement
(including any registration statement filed under Rule 462(b) under the
Securities Act) or the Prospectus, the Company shall furnish to the
Representatives for review a copy of each such proposed amendment or
supplement, and the Company shall not file any such proposed amendment or
supplement to which the Representatives reasonably objects.
(b) Securities Act Compliance. After the date of this Agreement, the
Company shall promptly advise the Representatives in writing (i) of the
receipt of any comments of, or requests for additional or supplemental
information from, the Commission, (ii) of the time and date of any filing of
any post-effective amendment to the Registration Statement or any amendment or
supplement to any preliminary prospectus or the Prospectus, (iii) of the time
and date that any post-effective amendment to the Registration Statement
becomes effective and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or any post-
effective amendment thereto or of any order preventing or suspending the use
of any preliminary prospectus or the Prospectus, or of any proceedings to
remove, suspend or terminate from listing or quotation the Common Stock from
any securities exchange upon which the it is listed for trading or included
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<PAGE>
or designated for quotation, or of the threatening or initiation of any
proceedings for any of such purposes. If the Commission shall enter any such
stop order at any time, the Company will use its best efforts to obtain the
lifting of such order at the earliest possible moment. Additionally, the
Company agrees that it shall comply with the provisions of Rules 424(b), 430A
and 434, as applicable, under the Securities Act and will use its reasonable
efforts to confirm that any filings made by the Company under such Rule 424(b)
were received in a timely manner by the Commission.
(c) Amendments and Supplements to the Prospectus and Other Securities
Act Matters. If, during the Prospectus Delivery Period, any event shall occur
or condition exist as a result of which it is necessary to amend or supplement
the Prospectus in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not misleading,
or if in the opinion of the Representatives or counsel for the Underwriters it
is otherwise necessary to amend or supplement the Prospectus to comply with
law, the Company agrees to promptly prepare (subject to Section 3(A)(a)
hereof), file with the Commission and furnish at its own expense to the
Underwriters and to dealers, amendments or supplements to the Prospectus so
that the statements in the Prospectus as so amended or supplemented will not,
in the light of the circumstances when the Prospectus is delivered to a
purchaser, be misleading or so that the Prospectus, as amended or
supplemented, will comply with law.
(d) Copies of any Amendments and Supplements to the Prospectus. The
Company agrees to furnish the Representatives, without charge, during the
Prospectus Delivery Period, as many copies of the Prospectus and any
amendments and supplements thereto as the Representatives may request.
(e) Blue Sky Compliance. The Company shall cooperate with the
Representatives and counsel for the Underwriters to qualify or register the
Common Shares for sale under (or obtain exemptions from the application of)
the Blue Sky or state securities laws of those jurisdictions designated by the
Representatives, shall comply with such laws and shall continue such
qualifications, registrations and exemptions in effect so long as required for
the distribution of the Common Shares. The Company shall not be required to
qualify as a foreign corporation or to take any action that would subject it
to general service of process in any such jurisdiction where it is not
presently qualified or where it would be subject to taxation as a foreign
corporation. The Company will advise the Representatives promptly of the
suspension of the qualification or registration of (or any such exemption
relating to) the Common Shares for offering, sale or trading in any
jurisdiction or any initiation or threat of any proceeding for any such
purpose, and in the event of the issuance of any order suspending such
qualification, registration or exemption, the Company shall use its best
efforts to obtain the withdrawal thereof at the earliest possible moment.
Use of Proceeds. The Company shall apply the net proceeds from the sale of
the
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Common Shares sold by it in the manner described under the caption "Use of
Proceeds" in the Prospectus.
(g) Transfer Agent. The Company shall engage and maintain, at its expense,
a registrar and transfer agent for the Common Stock.
(h) Earnings Statement. As soon as practicable, the Company will make
generally available to its security holders and to the Representatives an
earnings statement (which need not be audited) covering the twelve-month period
ending [___] that satisfies the provisions of Section 11(a) of the Securities
Act.
(j) Periodic Reporting Obligations. During the Prospectus Delivery Period
the Company shall file, on a timely basis, with the Commission and the Nasdaq
National Market all reports and documents required to be filed under the
Exchange Act.
(k) Agreement Not To Offer or Sell Additional Securities During the period
of ___ days following the date of the Prospectus, the Company will not, without
the prior written consent of Montgomery Securities (which consent may be
withheld at the sole discretion of Montgomery Securities), directly or
indirectly, sell, offer, contract or grant any option to sell, pledge, transfer
or establish an open "put equivalent position" within the meaning of Rule 16a-
1(h) under the Exchange Act, or otherwise dispose of or transfer, or announce
the offering of, or file any registration statement under the Securities Act in
respect of, any shares of Common Stock, options or warrants to acquire shares of
the Common Stock or securities exchangeable or exercisable for or convertible
into shares of Common Stock (other than as contemplated by this Agreement with
respect to the Common Shares); provided, however, that the Company may issue
shares of its Common Stock or options to purchase its Common Stock, or Common
Stock upon exercise of options, pursuant to any stock option, stock bonus or
other stock plan or arrangement described in the Prospectus, but only if the
holders of such shares, options, or shares issued upon exercise of such options,
agree in writing not to sell, offer, dispose of or otherwise transfer any such
shares or options during such ___-day period without the prior written consent
of Montgomery Securities (which consent may be withheld at the sole discretion
of the Montgomery Securities).
(m) Future Reports to the Representatives. During the period of five years
hereafter the Company will furnish to the Representatives at 600 Montgomery
Street, San Francisco, CA 94111, Attention:[________]: (i) as soon as
practicable after the end of each fiscal year, copies of the Annual Report of
the Company containing the balance sheet of the Company as of the close of such
fiscal year and statements of income, shareholders' equity and cash flows for
the year then ended and the opinion thereon of the Company's independent public
or certified public accountants; (ii) as soon as practicable after the filing
thereof, copies of each proxy statement, Annual
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Report on Form 10-K, Quarterly Report on Form 10-Q, Current Report on Form
8-K or other report filed by the Company with the Commission, the NASD or
any securities exchange; and (iii) as soon as available, copies of any
report or communication of the Company mailed generally to holders of its
capital stock.
B. Covenants of the Selling Shareholders. Each Selling Shareholder
further covenants and agrees with each Underwriter:
(a) Agreement Not to Offer or Sell Additional Securities. Such Selling
Shareholder will not, without the prior written consent of Montgomery (which
consent may be withheld in its sole discretion), directly or indirectly, sell,
offer, contract or grant any option to sell (including without limitation any
short sale), pledge, transfer, establish an open "put equivalent position"
within the meaning of Rule 16a-1(h) under the Exchange Act, or otherwise dispose
of any shares of Common Stock, options or warrants to acquire shares of Common
Stock, or securities exchangeable or exercisable for or convertible into shares
of Common Stock currently or hereafter owned either of record or beneficially
(as defined in Rule 13d-3 under Securities Exchange Act of 1934, as amended) by
the undersigned, or publicly announce the undersigned's intention to do any of
the foregoing, for a period commencing on the date hereof and continuing through
the close of trading on the date ____ days after the date of the Prospectus.
(b) Delivery of Forms W-8 and W-9 . To deliver to the Representatives
prior to the First Closing Date a properly completed and executed United States
Treasury Department Form W-8 (if the Selling Shareholder is a non-United States
person) or Form W-9 (if the Selling Shareholder is a United States Person).
Montgomery Securities, on behalf of the several Underwriters, may, in its
sole discretion, waive in writing the performance by the Company or any Selling
Shareholder of any one or more of the foregoing covenants or extend the time for
their performance.
Section 4. Payment of Expenses. The Company agrees to pay [the Company
and the Selling Shareholders, jointly and severally, agree to pay in such
proportions as they may agree upon among themselves] all costs, fees and
expenses incurred in connection with the performance of its [their] obligations
hereunder and in connection with the transactions contemplated hereby, including
without limitation (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Common Shares to the Underwriters, (iv) all fees and expenses of
the Company's counsel, independent public or certified pubic accountants and
other advisors, (v) all costs and expenses incurred in connection with the
preparation, printing, filing, shipping and distribution of the Registration
Statement (including financial statements, exhibits, schedules, consents and
certificates of experts), each preliminary prospectus and the Prospectus, and
all amendments and supplements
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<PAGE>
thereto, and this Agreement, (vi) all filing fees, attorneys' fees and expenses
incurred by the Company or the Underwriters in connection with qualifying or
registering (or obtaining exemptions from the qualification or registration of)
all or any part of the Common Shares for offer and sale under the Blue Sky laws,
and, if requested by the Representatives, preparing and printing a "Blue Sky
Survey" or memorandum, and any supplements thereto, advising the Underwriters of
such qualifications, registrations and exemptions, (vii) the filing fees
incident to, and the reasonable fees and expenses of counsel for the
Underwriters in connection with, the NASD's review and approval of the
Underwriters' participation in the offering and distribution of the Common
Shares, (viii) the fees and expenses associated with listing the Common Shares
on the Nasdaq National Market, and (ix) all other fees, costs and expenses
referred to in Item 14 of Part II of the Registration Statement. Except as
provided in this Section 4, Section 6, Section 8 and Section 9 hereof, the
Underwriters shall pay their own expenses, including the fees and disbursements
of their counsel.
The Selling Shareholders further agree with each Underwriter to pay
(directly or by reimbursement) all fees and expenses incident to the performance
of their obligations under this Agreement which are not otherwise specifically
provided for herein, including but not limited to (i) fees and expenses of
counsel and other advisors for such Selling Shareholders (ii) fees and expenses
of the Custodian and (iii) expenses and taxes incident to the sale and delivery
of the Common Shares to be sold by such Selling Shareholders to the Underwriters
hereunder (which taxes, if any, may be deducted by the Custodian under the
provisions of Section 2 of this Agreement).
This Section 4 shall not affect or modify any separate, valid agreement
relating to the allocation of payment of expenses between the Company, on the
one hand, and the Selling Shareholders, on the other hand.
Section 5. Conditions of the Obligations of the Underwriters. The
obligations of the several Underwriters to purchase and pay for the Common
Shares as provided herein on the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date, shall be subject to the
accuracy of the representations and warranties on the part of the Company and
the Selling Shareholders set forth in Sections 1(A) and 1(B) hereof as of the
date hereof and as of the First Closing Date as though then made and, with
respect to the Optional Common Shares, as of the Second Closing Date as though
then made, to the timely performance by the Company and the Selling Shareholders
of its their respective covenants and other obligations hereunder, and to each
of the following additional conditions:
(a) Accountants' Comfort Letter. On the date hereof, the Representatives
shall have received from Arthur Andersen LLP, independent certified public
accountants for the Company, a letter dated the date hereof addressed to the
Underwriters, in form and substance satisfactory to the Representatives,
containing statements and information of the type ordinarily included in
accountant's "comfort letters" to
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<PAGE>
underwriters, delivered according to Statement of Auditing Standards No. 72 (or
any successor bulletin), with respect to the audited and unaudited financial
statements and certain financial information contained in the Registration
Statement and the Prospectus (and the Representatives shall have received an
additional [___] conformed copies of such accountants' letter for each of the
several Underwriters).
(b) Compliance with Registration Requirements; No Stop Order; No
Objection from NASD. For the period from and after effectiveness of this
Agreement and prior to the First Closing Date and, with respect to the Optional
Common Shares, the Second Closing Date:
(i) the Company shall have filed the Prospectus with the Commission
(including the information required by Rule 430A under the Securities Act)
in the manner and within the time period required by Rule 424(b) under the
Securities Act; or the Company shall have filed a post-effective amendment
to the Registration Statement containing the information required by such
Rule 430A, and such post-effective amendment shall have become effective;
or, if the Company elected to rely upon Rule 434 under the Securities Act
and obtained the Representatives's consent thereto, the Company shall have
filed a Term Sheet with the Commission in the manner and within the time
period required by such Rule 424(b);
(ii) no stop order suspending the effectiveness of the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment to the Registration Statement, shall be in effect and no
proceedings for such purpose shall have been instituted or threatened by the
Commission; and
(iii) the NASD shall have raised no objection to the fairness and
reasonableness of the underwriting terms and arrangements.
(c) No Material Adverse Change. For the period from and after the date of
this Agreement and prior to the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date, in the judgment of the
Representatives there shall not have occurred any Material Adverse Change.
(d) Opinion of Counsel for the Company. On each of the First Closing
Date and the Second Closing Date the Representatives shall have received the
favorable opinion of Ballard Spahr Andrews & Ingersoll, counsel for the Company,
and the favorable opinions of Morgan, Lewis & Bockius LLP, Testa, Hurwitz &
Thibeault, LLP and Panitch Schwarze Jacobs & Nadel, P.C., special patent counsel
for the Company, and each such opinion dated as of such Closing Date, the forms
of which are attached as Exhibits B-1, B-2, B-3 and B-4, respectively (and the
-------------------------------
Representatives shall have received an additional [___] conformed copies of each
such counsel's legal opinions for each of the several Underwriters).
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<PAGE>
(e) Opinion of Counsel for the Underwriters. On each of the First
Closing Date and the Second Closing Date the Representatives shall have received
the favorable opinion of Pepper, Hamilton & Scheetz, counsel for the
Underwriters, dated as of such Closing Date, with respect to the matters set
forth in paragraphs[(i), (vii), (viii), (ix), (xi) (xi), (xii),] and [the next-
to-last paragraph] of Exhibit A-1 (and the Representatives shall have received
-----------
an additional [___] conformed copies of such counsel's legal opinion for each of
the several Underwriters).
(f) Officers' Certificate. On each of the First Closing Date and the
Second Closing Date the Representatives shall have received a written
certificate executed by the Chairman of the Board, Chief Executive Officer or
President of the Company and the Chief Financial Officer or Chief Accounting
Officer of the Company, dated as of such Closing Date, to the effect set forth
in subsections (b)(ii) and (c)(ii) of this Section 5, and further to the effect
that:
(i) for the period from and after the date of this Agreement and prior to
such Closing Date, there has not occurred any Material Adverse Change;
(ii) the representations, warranties and covenants of the Company set
forth in Section 1(A) of this Agreement are true and correct with the same
force and effect as though expressly made on and as of such Closing Date ;
and
(iii) the Company has complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied at or prior to
such Closing Date.
(g) Bring-down Comfort Letter. On each of the First Closing Date and the
Second Closing Date the Representatives shall have received from Arthur Andersen
LLP, independent public or certified public accountants for the Company, a
letter dated such date, in form and substance satisfactory to the
Representatives, to the effect that they reaffirm the statements made in the
letter furnished by them pursuant to subsection (a) of this Section 5, except
that the specified date referred to therein for the carrying out of procedures
shall be no more than three business days prior to the First Closing Date or
Second Closing Date, as the case may be (and the Representatives shall have
received an additional [___] conformed copies of such accountants' letter for
each of the several Underwriters).
(h) Opinion of Counsel for the Selling Shareholders. On each of the
First Closing Date and the Second Closing Date the Representatives shall have
received the favorable opinion of [___], counsel for the Selling Shareholders,
dated as of such Closing Date, the form of which is attached as Exhibit C (and
---------
the Representatives shall have received an additional [___] conformed copies of
such counsel's legal opinion for each of the several Underwriters).
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(i) Selling Shareholders' Certificate. On each of the First Closing Date
and the Second Closing Date the Representatives shall received a written
certificate executed by the Attorney-in-Fact of each Selling Shareholder, dated
as of such Closing Date, to the effect that:
(i) the representations, warranties and covenants of such Selling
Shareholder set forth in Section 1(B) of this Agreement are true and correct
with the same force and effect as though expressly made by such Selling
Shareholder on and as of such Closing Date; and
(ii) such Selling Shareholder has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at or
prior to such Closing Date.
(j) Selling Shareholders' Documents. On the date hereof, the Company
and the Selling Shareholders shall have furnished for review by the
Representatives copies of the Agreement and Power of Attorney executed by each
of the Selling Shareholders and such further information, certificates and
documents as the Representatives may reasonably request.
(k) Lock-Up Agreement from Certain Shareholders of the Company Other
Than Selling Shareholders. On the date hereof, the Company shall have furnished
to the Representatives an agreement in the form of Exhibit D hereto from each
---------
director, officer and such other beneficial owners of Common Stock (as defined
and determined according to Rule 13d-3 under the Exchange Act) as Montgomery
Securities shall request, and such agreement shall be in full force and effect
on each of the First Closing Date and the Second Closing Date.
(l) Additional Documents. On or before each of the First Closing Date
and the Second Closing Date, the Representatives and counsel for the
Underwriters shall have received such information, documents and opinions as
they may reasonably require for the purposes of enabling them to pass upon the
issuance and sale of the Common Shares as contemplated herein, or in order to
evidence the accuracy of any of the representations and warranties, or the
satisfaction of any of the conditions or agreements, herein contained.
If any condition specified in this Section 5 is not satisfied when and as
required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company and the Selling Shareholders at any
time on or prior to the First Closing Date and, with respect to the Optional
Common Shares, at any time prior to the Second Closing Date, which termination
shall be without liability on the part of any party to any other party, except
that Section 4, Section 6, Section 8 and Section 9 shall at all times be
effective and shall survive such termination.
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Section 6. Reimbursement of Underwriters' Expenses. If this Agreement
is terminated by the Representatives pursuant to Section 5, Section 7, Section
10, Section 11 or Section 17, or if the sale to the Underwriters of the Common
Shares on the First Closing Date is not consummated because of any refusal,
inability or failure on the part of the Company or the Selling Shareholders to
perform any agreement herein or to comply with any provision hereof, the Company
agrees to reimburse the Representatives and the other Underwriters (or such
Underwriters as have terminated this Agreement with respect to themselves),
severally, upon demand for all out-of-pocket expenses that shall have been
reasonably incurred by the Representatives and the Underwriters in connection
with the proposed purchase and the offering and sale of the Common Shares,
including but not limited to fees and disbursements of counsel, printing
expenses, travel expenses, postage, facsimile and telephone charges.
Section 7. Effectiveness of this Agreement.
This Agreement shall not become effective until the later of (i) the
execution of this Agreement by the parties hereto and (ii) notification by the
Commission to the Company and the Representatives of the effectiveness of the
Registration Statement under the Securities Act. Prior to such effectiveness,
this Agreement may be terminated by any party by notice to each of the other
parties hereto, and any such termination shall be without liability on the part
of (a) the Company or the Selling Shareholders to any Underwriter, except that
the Company and the Selling Shareholders shall be obligated to reimburse the
expenses of the Representatives and the Underwriters pursuant to Sections 4 and
6 hereof, (b) of any Underwriter to the Company or the Selling Shareholders, or
(c) of any party hereto to any other party except that the provisions of Section
8 and Section 9 shall at all times be effective and shall survive such
termination.
Section 8. Indemnification.
(a) Indemnification of the Underwriters. Each of the Company and each
of the Selling Shareholders, jointly and severally, agrees to indemnify and hold
harmless each Underwriter, its officers and employees, and each person, if any,
who controls any Underwriter within the meaning of the Securities Act and the
Exchange Act against any loss, claim, damage, liability or expense, as incurred,
to which such Underwriter or such controlling person may become subject, under
the Securities Act, the Exchange Act or other federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of the
Company), insofar as such loss, claim, damage, liability or expense (or actions
in respect thereof as contemplated below) arises out of or is based (i) upon any
untrue statement or alleged untrue statement of a
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<PAGE>
material fact contained in the Registration Statement, or any amendment thereto,
including any information deemed to be a part thereof pursuant to Rule 430A or
Rule 434 under the Securities Act, or the omission or alleged omission therefrom
of a material fact required to be stated therein or necessary to make the
statements therein not misleading; or (ii) upon any untrue statement or alleged
untrue statement of a material fact contained in any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto), or the omission or
alleged omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; or (iii) any act or failure to act or any alleged act or
failure to act by any Underwriter in connection with, or relating in any manner
to, the Common Stock or the offering contemplated hereby, and which is included
as part of or referred to in any loss, claim, damage, liability or action
arising out of or based upon any matter covered by clause (i) or (ii) above,
provided that the Company shall not be liable under this clause (v) to the
extent that a court of competent jurisdiction shall have determined by a final
judgment that such loss, claim, damage, liability or action resulted directly
from any such acts or failures to act undertaken or omitted to be taken by such
Underwriter through its gross negligence or willful misconduct; and to reimburse
each Underwriter and each such controlling person for any and all expenses
(including the fees and disbursements of counsel chosen by Montgomery
Securities) as such expenses are reasonably incurred by such Underwriter or such
controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action; provided, however, that the foregoing indemnity agreement shall not
apply to any loss, claim, damage, liability or expense to the extent, but only
to the extent, arising out of or based upon any untrue statement or alleged
untrue statement or omission or alleged omission made in reliance upon and in
conformity with written information furnished to the Company by the
Representatives expressly for use in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto).
Additionally, the Company agrees to indemnify and hold harmless each
Underwriter, its officers and employees, and each person, if any, who controls
any Underwriter within the meaning of the Securities Act and the Exchange Act
against any loss, claim, damage, liability or expense, as incurred, to which
such Underwriter or such controlling person may become subject, under the
Securities Act, the Exchange Act or other federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of the
Company), insofar as such loss, claim, damage, liability or expense (or actions
in respect thereof as contemplated below) arises out of or is based (i) in whole
or in part upon any inaccuracy in the representations and warranties of the
Company contained herein; or (ii) in whole or in part upon any failure of the
Company to perform its obligations hereunder or under law. Additionally, each of
the Selling Shareholders, severally and not jointly, agrees to indemnify and
hold harmless each Underwriter, its officers and employees, and each person, if
any, who controls any Underwriter within the meaning of the Securities Act and
the Exchange Act against any loss, claim, damage, liability or
25
<PAGE>
expense, as incurred, to which such Underwriter or such controlling person may
become subject, under the Securities Act, the Exchange Act or other federal or
state statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of such Selling Shareholder), insofar as such loss, claim, damage,
liability or expense (or actions in respect thereof as contemplated below)
arises out of or is based (i) in whole or in part upon any inaccuracy in the
representations and warranties of such Selling Shareholder contained herein; or
(ii) in whole or in part upon any failure of such Selling Shareholder to perform
its obligations hereunder or under law. The indemnity agreements set forth in
this Section 8(a) shall be in addition to any liabilities that the Company [and
the Selling Shareholders] may otherwise have.
(b) Indemnification of the Company, its Directors and Officers. Each
Underwriter agrees, severally and not jointly, to indemnify and hold harmless
the Company, each of its directors, each of its officers who signed the
Registration Statement , the Selling Shareholders and each person, if any, who
controls the Company or any Selling Shareholder within the meaning of the
Securities Act or the Exchange Act, against any loss, claim, damage, liability
or expense, as incurred, to which the Company, or any such director, officer ,
Selling Shareholder or controlling person may become subject, under the
Securities Act, the Exchange Act, or other federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of such
Underwriter), insofar as such loss, claim, damage, liability or expense (or
actions in respect thereof as contemplated below) arises out of or is based upon
any untrue or alleged untrue statement of a material fact contained in the
Registration Statement, any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto), or arises out of or is based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in the Registration
Statement, any preliminary prospectus, the Prospectus (or any amendment or
supplement thereto), in reliance upon and in conformity with written information
furnished to the Company by the Representatives expressly for use therein; and
to reimburse the Company, or any such director, officer, Selling Shareholder or
controlling person for any legal and other expense reasonably incurred by the
Company, or any such director, officer, Selling Shareholder or controlling
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action. Each of the
Company and each of the Selling Shareholders, hereby acknowledges that the only
information that the Underwriters have furnished to the Company expressly for
use in the Registration Statement, any preliminary prospectus or the Prospectus
(or any amendment or supplement thereto) are the statements set forth (A) as the
first two paragraphs on the inside front cover page of the Prospectus concerning
stabilization and passive market making by the Underwriters and (B) in the table
in
26
<PAGE>
the first paragraph, [and] as the second paragraph under the caption
"Underwriting" in the Prospectus[; and as the penultimate paragraph under the
caption "Underwriting" in the Prospectus]; and the Underwriters confirm that
such statements are correct. The indemnity agreement set forth in this Section
8(b) shall be in addition to any liabilities that each Underwriter may otherwise
have.
(c) Notifications and Other Indemnification Procedures. Promptly
after receipt by an indemnified party under this Section 8 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 8, notify
the indemnifying party in writing of the commencement thereof, but the omission
so to notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 8 or to the extent it is not
prejudiced as a proximate result of such failure. In case any such action is
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it shall elect,
jointly with all other indemnifying parties similarly notified, by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that a conflict may arise between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of such indemnifying
party's election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the expenses of
more than one separate counsel (together with local counsel), approved by the
indemnifying party (Montgomery Securities in the case of Section 8(b) and
Section 9), representing the indemnified parties who are parties to such action)
or (ii) the indemnifying party shall not have employed counsel satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of the action, in each of which cases the fees
and expenses of counsel shall be at the expense of the indemnifying party.
27
<PAGE>
(d) Settlements. The indemnifying party under this Section 8 shall
not be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
against any loss, claim, damage, liability or expense by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by Section
8(c) hereof, the indemnifying party agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i) such
settlement is entered into more than 30 days after receipt by such indemnifying
party of the aforesaid request and (ii) such indemnifying party shall not have
reimbursed the indemnified party in accordance with such request prior to the
date of such settlement. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement, compromise or consent
to the entry of judgment in any pending or threatened action, suit or proceeding
in respect of which any indemnified party is or could have been a party and
indemnity was or could have been sought hereunder by such indemnified party,
unless such settlement, compromise or consent includes an unconditional release
of such indemnified party from all liability on claims that are the subject
matter of such action, suit or proceeding.
Section 9. Contribution.
If the indemnification provided for in Section 8 is for any reason
held to be unavailable to or otherwise insufficient to hold harmless an
indemnified party in respect of any losses, claims, damages, liabilities or
expences referred to therein, then each imdemnifying party shall contribute to
the aggregate amount paid or payable by such indemnifying party, as incurred, as
a result of any losses, claims, damages, liabilities or expenses referred to
therein (i) in such proportion as in appropriate to reflect the relative
benefits received by the Company and the Selling Shareholders, on the one hand,
and the Underwriters, on the other hand, from the offering of the Common Shares
pursuant to this Agreement or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company and the Selling Shareholders, on the one
hand, and the Underwriters, on the other hand, in connection with the statements
or omissions or inaccuracies in the representations and warranties herein which
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative benefits received by
the Company and the Selling Shareholders, on the one hand, and the Underwriters,
on the other hand, in connection with the offering of the Common Shares pursuant
to this Agreement shall be deemed to be in the same respective proportions as
the total net proceeds from the offering of the Common Shares pursuant to this
Agreement (before deducting expenses) received by the Company and the Selling
Shareholders, and the total underwriting discount received by the Underwriters,
in each case as set forth on the front
28
<PAGE>
cover page of the Prospectus (or, if Rule 434 under the Securities Act is used,
the corresponding location on the Term Sheet) bear to the aggregate initial
public offering price of the Common Shares as set forth on such cover. The
relative fault of the Company and the Selling Shareholders, on the one hand, and
the Underwriters, on the other hand, shall be determined by reference to, among
other things, whether any such untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact or any such
inaccurate or alleged inaccurate representation or warranty relates to
information supplied by the Company or the Selling Shareholders, on the one
hand, or the Underwriters, on the other hand, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 8(c), any legal or
other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim. The provisions set forth in
Section 8(c) with respect to notice of commencement of any action shall apply if
a claim for contribution is to be made under this Section 9; provided, however,
that no additional notice shall be required with respect to any action for which
notice has been given under Section 8(c) for purposes of indemnification.
The Company, the Selling Shareholders and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section 9
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in this Section 9.
Notwithstanding the provisions of this Section 9, no Underwriter shall
be required to contribute any amount in excess of the underwriting commissions
received by such Underwriter in connection with the Common Shares underwritten
by it and distributed to the public. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 9 are several, and not joint, in proportion to their
respective underwriting commitments as set forth opposite their names in
Schedule A. For purposes of this Section 9, each officer and employee of an
- ----------
Underwriter and each person, if any, who controls an Underwriter within the
meaning of the Securities Act and the Exchange Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each officer
of the Company who signed the Registration Statement, and each person, if any,
who controls the Company with the meaning of the Securities Act and the Exchange
Act shall have the same rights to contribution as the Company.
Section 10. Default of One or More of the Several Underwriter. If, on
29
<PAGE>
the First Closing Date or the Second Closing Date, as the case may be, any one
or more of the several Underwriters shall fail or refuse to purchase Common
Shares that it or they have agreed to purchase hereunder on such date, and the
aggregate number of Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase does not exceed 10% of the
aggregate number of the Common Shares to be purchased on such date, the other
Underwriters shall be obligated, severally, in the proportions that the number
of Firm Common Shares set forth opposite their respective names on Schedule A
----------
bears to the aggregate number of Firm Common Shares set forth opposite the names
of all such non-defaulting Underwriters, or in such other proportions as may be
specified by the Representatives with the consent of the non-defaulting
Underwriters, to purchase the Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date. If, on the
First Closing Date or the Second Closing Date, as the case may be, any one or
more of the Underwriters shall fail or refuse to purchase Common Shares and the
aggregate number of Common Shares with respect to which such default occurs
exceeds 10% of the aggregate number of Common Shares to be purchased on such
date, and arrangements satisfactory to the Representatives and the Company for
the purchase of such Common Shares are not made within 48 hours after such
default, this Agreement shall terminate without liability of any party to any
other party except that the provisions of Section 4, Section 6, Section 8 and
Section 9 shall at all times be effective and shall survive such termination.
In any such case either the Representatives or the Company shall have the right
to postpone the First Closing Date or the Second Closing Date, as the case may
be, but in no event for longer than seven days in order that the required
changes, if any, to the Registration Statement and the Prospectus or any other
documents or arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this Section
10. Any action taken under this Section 10 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
Section 11. Termination of this Agreement. Prior to the First Closing
Date this Agreement maybe terminated by the Representatives by notice given to
the Company and the Selling Shareholders if at any time (i) trading or quotation
in any of the Company's securities shall have been suspended or limited by the
Commission or by the Nasdaq Stock Market, or trading in securities generally on
either the Nasdaq Stock Market or the New York Stock Exchange shall have been
suspended or limited, or minimum or maximum prices shall have been generally
established on any of such stock exchanges by the Commission or the NASD; (ii) a
general banking moratorium shall have been declared by any of federal, New York
or California authorities; (iii) there shall have occurred any outbreak or
escalation of national or international hostilities or any crisis or calamity,
or any change in the United States or international financial markets, or any
substantial change or development involving a prospective substantial change in
United States' or international political, financial or economic conditions, as
in the
30
<PAGE>
judgment of the Representatives is material and adverse and makes it
impracticable to market the Common Shares in the manner and on the terms
described in the Prospectus or to enforce contracts for the sale of securities;
(iv) in the judgment of the Representatives there shall have occurred any
Material Adverse Change; or (v) the Company shall have sustained a loss by
strike, fire, flood, earthquake, accident or other calamity of such character as
in the judgment of the Representatives may interfere materially with the conduct
of the business and operations of the Company regardless of whether or not such
loss shall have been insured. Any termination pursuant to this Section 11 shall
be without liability on the part of (a) the Company or the Selling Shareholders
to any Underwriter, except that the Company and the Selling Shareholders shall
be obligated to reimburse the expenses of the Representatives and the
Underwriters pursuant to Sections 4 and 6 hereof, (b) any Underwriter to the
Company or the Selling Shareholders, or (c) of any party hereto to any other
party except that the provisions of Section 8 and Section 9 shall at all times
be effective and shall survive such termination.
Section 12. Representations and Indemnities to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers, of the Selling Shareholders and of
the several Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter or the Company or any of its or their partners,
officers or directors or any controlling person, or the Selling Shareholders, as
the case may be, and will survive delivery of and payment for the Common Shares
sold hereunder and any termination of this Agreement.
Section 13 Notices. All communications hereunder shall be in writing and
shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Representatives:
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
Facsimile: 415-249-5558
Attention: Richard A. Smith
with a copy to:
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5553
Attention: David A. Baylor, Esq.
30
<PAGE>
If to the Company:
CFM Technologies, Inc.
1336 Enterprise Drive
West Chester, Pennsylvania 19380
Facsimile: (610) 696-8309
Attention: Lorin J. Randall & Chief Financial Officer
If to the Selling Shareholders/2/:
Ballard Spahr Andrews & Ingersoll
1735 Market Street - 51st Floor
Philadelphia, Pennsylvania 19103
Facsimile: (215) 864-8999
Attention: Justin P. Klein, Esq.
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
Section 14. Successors. This Agreement will inure to the benefit of and
be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 10 hereof, and to the benefit of the employees, officers and
directors and controlling persons referred to in Section 8 and Section 9, and in
each case their respective successors, and personal representatives, and no
other person will have any right or obligation hereunder. The term "successors"
shall not include any purchaser of the Common Shares as such from any of the
Underwriters merely by reason of such purchase.
Section 15. Partial Unenforceability. The invalidity or unenforceability
of any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
Section 16. (a) Governing Law Provisions. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
(b) Consent to Jurisdiction. Any legal suit, action or proceeding arising
- ---------------------
/2/ Insert others if different custodians for different selling shareholders.
31
<PAGE>
out of or based upon this Agreement or the transactions contemplated hereby
("Related Proceedings") may be instituted in the federal courts of the United
States of America located in the City and County of San Francisco or the courts
of the State of California in each case located in the City and County of San
Francisco (collectively, the "Specified Courts"), and each party irrevocably
submits to the exclusive jurisdiction (except for proceedings instituted in
regard to the enforcement of a judgment of any such court (a "Related
Judgment"), as to which such jurisdiction is non-exclusive) of such courts in
any such suit, action or proceeding. Service of any process, summons, notice or
document by mail to such party's address set forth above shall be effective
service of process for any suit, action or other proceeding brought in any such
court. The parties irrevocably and unconditionally waive any objection to the
laying of venue of any suit, action or other proceeding in the Specified Courts
and irrevocably and unconditionally waive and agree not to plead or claim in any
such court that any such suit, action or other proceeding brought in any such
court has been brought in an inconvenient forum.
[Section 17. Failure of One or More of the Selling Shareholders to Sell and
Deliver Common Shares. If one or more of the Selling Shareholders shall fail to
sell and deliver to the Underwriters the Common Shares to be sold and delivered
by such Selling Shareholders at the First Closing Date pursuant to this
Agreement, then the Underwriters may at their option, by written notice from the
Representatives to the Company and the Selling Shareholders, either (i)
terminate this Agreement without any liability on the part of any Underwriter
or, except as provided in Sections 4, 6, 8 and 9 hereof, the Company or the
Selling Shareholders, or (ii) purchase the shares which the Company and other
Selling Shareholders have agreed to sell and deliver in accordance with the
terms hereof. If one or more of the Selling Shareholders shall fail to sell and
deliver to the Underwriters the Common Shares to be sold and delivered by such
Selling Shareholders pursuant to this Agreement at the First Closing Date or the
Second Closing Date, then the Underwriters shall have the right, by written
notice from the Representatives to the Company and the Selling Shareholders, to
postpone the First Closing Date or the Second Closing Date, as the case may be,
but in no event for longer than seven days in order that the required changes,
if any, to the Registration Statement and the Prospectus or any other documents
or arrangements may be effected.]
Section 18. General Provisions. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in
two or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.
The Table of Contents and the Section headings herein are for the convenience of
the parties only and shall not affect the construction or interpretation of this
Agreement.
32
<PAGE>
Each of the parties hereto acknowledges that it is a sophisticated business
person who was adequately represented by counsel during negotiations regarding
the provisions hereof, including, without limitation, the indemnification
provisions of Section 8 and the contribution provisions of Section 9, and is
fully informed regarding said provisions. Each of the parties hereto further
acknowledges that the provisions of Sections 8 and 9 hereto fairly allocate the
risks in light of the ability of the parties to investigate the Company, its
affairs and its business in order to assure that adequate disclosure has been
made in the Registration Statement, any preliminary prospectus and the
Prospectus (and any amendments and supplements thereto), as required by the
Securities Act and the Exchange Act.
33
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to the Company [and the Custodian] the enclosed copies
hereof, whereupon this instrument, along with all counterparts hereof, shall
become a binding agreement in accordance with its terms.
Very truly yours,
CFM TECHNOLOGIES, INC.
By:
---------------------------
Title:
------------------------
SELLING SHAREHOLDERS LISTED
ON THE ATTACHED SCHEDULE B
By:
--------------------------
(Attorney-in-fact)
The foregoing Underwriting Agreement is hereby confirmed and accepted by the
Representatives in San Francisco, California as of the date first above written.
MONTGOMERY SECURITIES
PAINE WEBBER INCORPORATED
UBS SECURITIES LLC
Acting as Representatives of the
several Underwriters named in
the attached Schedule A.
By: MONTGOMERY SECURITIES
By:
-------------------------------
Authorized Signatory
34
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE A
Number of
Firm Shares
to be
Underwriters Purchased
- ------------ ---------
<S> <C>
Montgomery Securities [_______]
PaineWebber Incorporated [_______]
UBS Securities LLC [_______]
_________________ [_______]
_________________ [_______]
Total [_______]
</TABLE>
35
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Number of Maximum
Selling Shareholder Firm Number of
Common Optional Common
Shares Shares
to be Sold to be Sold
<S> <C> <C>
Selling Shareholder #1*
[address]
Attention: [___]................ [___] [___]
Selling Shareholder #2
[address]
Attention: [___]................ [___] [___]
Total:....................... [___] [___]
</TABLE>
* Significant Selling Shareholder
1
<PAGE>
EXHIBIT D
[Date]
Montgomery Securities
PaineWebber Incorporated
As Representatives of the Several Underwriters
c/o Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
Re: CFM Technologies, Inc. (the "Company")
--------------------------------------
Ladies & Gentlemen:
The undersigned is an owner of record or beneficially of certain shares of
Common Stock of the Company ("Common Stock") or securities convertible into or
exchangeable or exercisable for Common Stock. The Company proposes to carry out
a public offering of Common Stock (the "Offering") for which you will act as the
Representatives of the underwriters. The undersigned recognizes that the
Offering will be of benefit to the undersigned and will benefit the Company by,
among other things, raising additional capital for its operations. The
undersigned acknowledges that you and the other underwriters are relying on the
representations and agreements of the undersigned contained in this letter in
carrying out the Offering and in entering into underwriting arrangements with
the Company with respect to the Offering.
In consideration of the foregoing, the undersigned hereby agrees that the
undersigned will not, without the prior written consent of Montgomery Securities
(which consent may be withheld in its sole discretion), directly or indirectly,
sell, offer, contract or grant any option to sell (including without limitation
any short sale), pledge, transfer, establish an open "put equivalent position"
within the meaning of Rule 16a-1(h) under the Securities Exchange Act of 1934,
or otherwise dispose of any shares of Common Stock, options or warrants to
acquire shares of Common Stock, or securities exchangeable or exercisable for or
convertible into shares of Common Stock currently or hereafter owned either of
record or beneficially (as defined in Rule 13d-3 under Securities Exchange Act
of 1934, as amended) by the undersigned, or publicly announce the undersigned's
intention to do any of the foregoing, for a period commencing on the date hereof
and continuing through the close of trading on the date ___ days after the date
of the Prospectus. The undersigned also agrees and consents to the entry of stop
transfer instructions with the Company's transfer agent and registrar against
the transfer of shares of Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock held by the undersigned except in
compliance with the foregoing restrictions.
With respect to the Offering only, the undersigned waives any registration
rights relating to registration under the Securities Act of any Common Stock
owned either of record or
2
<PAGE>
beneficially by the undersigned, including any rights to receive notice of the
Offering.
This agreement is irrevocable and will be binding on the undersigned and the
respective successors, heirs, personal Representatives, and assigns of the
undersigned.
- ----------------------------------
Printed Name of Holder
By:
-------------------------------
Signature
- ---------------------------------
Printed Name of Person Signing
(and indicate capacity of person signing if
signing as custodian, trustee, or on behalf
of an entity)
3
<PAGE>
Exhibit 10.4.1
CFM TECHNOLOGIES, INC.
ANNUAL PROFIT SHARING PLAN
[Revised October 1996]
1. Coincident with approval by the Board of Directors of the Annual Budget, a
determination shall be made of the amount to be accrued for the Annual Profit
Sharing Plan (The "Target Amount"). An amount equal to 2% of the total planned
salaries and wages (including overtime pay) of Company employees included in the
approved Annual Budget shall be used as a guideline. This Target Amount shall
be communicated to all eligible employees. Quarterly reports of the Company's
progress in meeting its annual goals will be provided to all eligible employees.
2. In order to be eligible for a disbursement under this Plan, an employee must
have
(a) been paid for a minimum of 250 hours during the 90 consecutive days
preceding the last day of the fiscal year, and
(b) be an active employee on the date of the release of annual earnings
information by the Company.
Each eligible employee shall be credited with the number of calendar days (the
"Eligible Days") during which he or she shall have been an employee during the
fiscal year.
3. At the conclusion of each fiscal year, the amount to be paid under the Plan
shall be determined by dividing Operating Margin, as reported in the Company's
annual audited financial statements, by Operating Margin reflected in the Annual
Budget approved by the Board of Directors, calculating a Payout Factor.
4. Distributions to be made under this plan (the "Total Distribution Amount"),
if any, shall be determined as follows:
(a) If the Payout Factor is less than .500, no distribution shall be made
under this plan.
(b) If the Payout Factor is greater than .500 and less than or equal to
1.000, the Payout Factor shall be multiplied by the Target Amount in
calculating the Total Distribution Amount.
(c) If the Payout Factor is greater than 1.000, the Total Distribution
Amount shall be the Target Amount unless the Board of Directors shall
authorized a Total Distribution Amount greater than the Target Amount.
5. After the determination of a Total Distribution Amount, the amount to be
distributed to each eligible employee shall be determined by dividing the Total
Distribution Amount by the total number of Eligible Days for all eligible
employees determined in Section 2, above (the "Eligible Day Payout"). The
payout for each employee shall be calculated by multiplying the Eligible Day
Payout by the number of eligible days worked during the fiscal year (the
"Individual Payout Amount").
6. Payment of the calculated Individual Payout Amounts shall be accomplished
through payroll on the regularly scheduled payday occurring five (5) or more
days following the release of annual earnings information by the Company.
<PAGE>
AMENDMENT NUMBER TWO TO LEASE AGREEMENT
AMENDMENT made this 30th day of April, 1996 to Lease Agreement dated October 10,
1995 and Amendment #1 dated November 2, 1995 by and between Hough/Loew
Construction, Inc. ("Landlord") and CFM Technologies, Inc. ("Tenant").
Anything in the printed form of the Lease or elsewhere to the contrary
notwithstanding, the parties hereto further expressly agree as follows:
1. LEASE EXHIBIT "C"
Whereas the Tenant wished to pay various Operating Expenses directly,
Exhibit "C" of the Lease shall be amended to reflect the agreement that the
Tenant is responsible for paying the following expenses directly:
Building Maintenance
Landscaping Maintenance
Parking Lot Maintenance
Snow Removal
Sprinkler Maintenance
The 1996 monthly estimated rate shall be adjusted accordingly at a revised
monthly rate of $5,809.
IN WITNESS WHEREOF the parties hereto have executed these presents the day and
year first above written and intent to be legally bound thereby.
TENANT CFM Technologies, Inc.
ATTEST: BY: /s/ Roger A. Carolin, President
------------------------ -------------------------------
Roger A. Carolin, President
DATE: 4/30/96
-------------------------------
LANDLORD Hough/Loew Construction, Inc.
ATTEST: BY: /s/ Jack R. Loew, President
------------------------ -------------------------------
Jack R. Loew, President
DATE: 4/30/96
-------------------------------
<PAGE>
COMMERCIAL LEASE AGREEMENT - 12/16/96
Intending to be legally bound, this Agreement made the sixteenth (16th) day
of December, 1996, by and between DEVEREUX PROPERTIES, INC. (hereinafter called
"Landlord") and CFM TECHNOLOGIES, INC. (hereinafter called "Tenant").
1. TERM, MINIMUM RENTAL. Landlord hereby demises and lets unto Tenant all
that certain office space comprised of approximately 13,941 square feet, on the
first (1st) floor of the building known as 1380 Enterprise Drive, Goshen
Corporate Park, East Goshen Township, West Chester, PA 19380 to be used and
occupied only as a lawful and proper office for Tenant's business for the term
of five (5) years commencing on the eighteenth (18th) day of December, 1996 and
terminating on the seventeenth (17th) day of December, 2001 unless terminated
earlier as provided hereunder. The initial annual minimum rental shall be in the
amount of one hundred twenty one thousand nine hundred eighty three and 72/100
Dollars ($121,983.72) which the Tenant covenants to pay, without any previous
demand therefore, in equal monthly payments of ten thousand one hundred sixty
five and 31/100 Dollars ($10,165.31) on the first day of each month commencing
the first (1st) day of January, 1997, payable at the offices of Landlord as
specified in this Lease, or as may be designated by the Landlord. The first
month's rental obligation shall be tendered upon the signing of the lease.
Tenant is also responsible for any other obligation that may be due under this
lease or as specified in the Addendum attached hereto as Exhibit "A".
Rent for the month of December, 1996 shall be due and payable upon lease
execution and shall be computed on a per diem rate of three hundred thirty eight
and 84/100 Dollars ($338.84).
Subject to Landlord's and Tenant's right to terminate this lease as provided
under paragraph 25 herein, the minimum rent during the term of the lease shall
be as follows:
<TABLE>
<CAPTION>
Year Minimum Annual Rent Minimum Monthly Rent
---- ------------------- --------------------
<S> <C> <C>
12/18/96-12/17/97 $121,983.72 $10,165.31
12/18/97-12/17/98 $121,983.72 $10,165.31
12/18/98-12/17/99 $126,863.10 $10,571.93
12/18/99-12/17/00 $131,742.45 $10,978.54
12/18/00-12/17/01 $136,621.80 $11,385.15
</TABLE>
2. LICENSES, PERMITS, ETC. Tenant shall be solely responsible for obtaining
all licenses or permits, which may be required by any governmental agency or
authority in order for Tenant to lawfully conduct its business, which Tenant
shall obtain at its sole cost and expense.
3. INABILITY TO GIVE POSSESSION. If Landlord is unable to give Tenant
possession of the demised premises as herein provided, by reason of the holding
over of a previous occupant or by any other reasonable cause, Landlord shall not
be liable in damages to Tenant therefor, and during the period that Landlord is
unable to give possession, all rights and remedies of both parties hereunder
shall be suspended.
<PAGE>
4. AFFIRMATIVE COVENANTS OF TENANT. Tenant covenants and agrees that it
will without demand:
(A) Pay the rent and all other charges herein reserved as rent on the
days and times that the same are made payable without fail, and without setoff,
deduction or counter-claim. Tenant shall pay a late charge at the rate of five
percent (5%) on each dollar of rent, or any other sum collectible as rent under
this lease, not paid within ten (10) days after the same is due. If Landlord
shall at any time or times accept said rent or rent charges after the same shall
have become due and payable, such acceptance shall not excuse delay, upon
subsequent occasions, or constitute, or be construed as a waiver of any of the
Landlord's rights. Tenant agrees that any charge or payment herein reserved,
included or agreed to be treated or collected as rent may be proceeded for and
recovered by Landlord in the same manner as rent due and in arrears.
(B) Comply with all requirements of any of the constituted public
authorities, and with the terms of any State or Federal statute or local
ordinance or regulation applicable to Tenant on its use of the demised premises,
and save Landlord harmless from all penalties, fines, costs or damages resulting
from Tenant's failure to do so.
(C) Comply with the rules and regulations from time to time made by
Landlord for the safety, care, upkeep and cleanliness of the demised premises
and the building and appurtenances of which it is a part. Tenant agrees that
such rules and regulations shall, when written notice thereof is given to
Tenant, form a part of this lease.
(D) Keep the demised premises in good order and condition, ordinary wear
and tear and damage by accidental fire or other casualty not occurring through
the action or negligence of Tenant or its agents, employees and invitees alone
excepted and upon termination of this lease to deliver up to Landlord the
demised premises in the same condition as Tenant has herein agreed to keep them.
(E) Give to Landlord prompt written notice of any accident, fire or
damage occurring on or to the demised premises within twenty-four (24) hours of
occurrence thereof.
(F) Peaceably deliver up and surrender possession of the demised
premises to Landlord at the expiration or sooner termination of this lease and
promptly deliver to Landlord at its office all keys for the demised premises.
(G) Conduct its business in the premises during normal business hours.
(H) Park its cars and cause its employees to park their cars only in
those portions of the parking area as may be designated for that purpose by
Landlord.
5. OCCUPANCY AND ASSIGNMENT. Tenant shall not occupy or permit to be
occupied the demised premises or any part thereof, other than as hereinbefore
specified. Tenant may assign or sublet the demised premises, or any part
thereof, with the written consent of Landlord, which shall not be unreasonably
withheld. If Tenant assigns or sublets all or a portion of the demised premises
after consent of the Landlord, Tenant shall remain liable for the faithful
performance of all terms and
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covenants of this lease. No such assignment to sublet shall relieve the Tenant
of any obligations hereunder.
6. NEGATIVE COVENANTS OF TENANT. Tenant covenants and agrees that it will
do none of the following without the consent of Landlord:
(A) Place or allow to be placed upon the demised premises or on the
inside or outside of the building of which the demised premises are a part any
sign, projection or device. In case of the breach of this covenant (in addition
to all other remedies given to Landlord hereunder), Landlord shall have the
right of removing such sign, projection or device and restoring the premises to
their former condition and Tenant shall be liable to Landlord for any and all
expenses including costs and attorney's fees so incurred by Landlord which at
the option of Landlord may be recovered in the same manner as rent. Landlord
agrees that Tenant may place a corporate identification sign on the face of the
building so long as Tenant secures a sign permit from East Goshen Township.
Landlord will place Tenant's identification on the building signboard at the
front of the property.
(B) Make any alterations, improvements, or additions to the demised
premises. All alterations, improvements, additions or fixtures whether
installed before or after the execution of this lease, shall remain upon the
premises at the expiration or sooner termination of this lease and become the
property of Landlord, unless Landlord shall, prior to the termination of this
lease, have given written notice to Tenant to remove the same, in which event
Tenant shall remove such alterations, improvements and additions or fixtures,
and restore the premises to the same good order and condition in which they were
upon initial occupancy. Should Tenant fail to do so, Landlord may do so
collecting, at Landlord's option, the complete cost, expense and attorney's fees
thereof from Tenant as additional rent.
(C) Use, operate or maintain any machinery, equipment or fixture that,
in Landlord's reasonable opinion, is harmful to the building and appurtenances
of which the demised premises is a part or is disturbing to the other tenants
occupying any other part thereof.
(D) Place any weights in any portion of the demised premises beyond the
safe carrying capacity of the building of which the demised premises is a part.
(E) Do, cause or suffer to be done, any act, maker or thing
objectionable to the fire insurance companies whereby the fire insurance or any
other insurance now in force or hereafter to be placed on the demised premises,
or any part thereof, or on the building of which the demised premises may be a
part, shall become void or suspended, or whereby the same shall be rated as a
more hazardous risk than at the date of execution of this lease. In case of a
breach of this covenant (in addition to all other remedies herein given to
Landlord) Tenant agrees to pay Landlord as additional rent any and all increase
or increases of premiums on insurance reasonably carried by Landlord on the
demised premises, or on the building and appurtenant land of which the demised
premises may be a part, caused in any way by the occupancy of Tenant.
(F) Remove, attempt to remove or manifest an intention to remove
Tenant's goods or property from or out of the demised premises otherwise than in
the ordinary and usual course of business, without having first paid and
satisfied Landlord for all rent, costs and attorney's fees which
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<PAGE>
may become due during the entire term of this lease, in addition to all sums
denominated as additional rent under this lease. Tenant hereby grants to
Landlord a security interest in Tenant's inventory, equipment and fixtures as
same is defined in the Pennsylvania Uniform Commercial Code as codified in 13 PA
C.S.A. et. seq.
(G) Shall not permit the demised premises to be used or occupied in a
congested manner. The number of people that shall use or occupy the demised
premises shall be reasonable for the size of the demised premises taking into
consideration the safety of the occupants, the burden that an unreasonable
number of occupants will place upon the electricity, heating and air
conditioning equipment, the congestion that would result in the common
facilities of said building and its appurtenances such as hallways, washrooms,
parking lot, etc. If in Landlord's opinion the demised premises are being used
or occupied by more people than is reasonable, Tenant agrees to reduce the
number thereof upon written demand of Landlord to the number that Landlord
determines to be reasonable for the demised premises.
7. LANDLORD'S RIGHT TO ENTER. Tenant shall permit Landlord, Landlord's
agents, cleaners, or employees or any other person or persons authorized by
Landlord, to inspect the demised premises at any time, and to enter the demised
premises for the purposes of cleaning and if Landlord shall so elect, for making
reasonable alterations, improvements or repairs to the building of which the
demised premises are a part, or for any reasonable purpose in connection with
the operation and maintenance of the building.
8. RELEASE OF LANDLORD. Tenant shall be responsible for and hereby relieves
Landlord from any and all liability by reason of any injury, loss, damage to any
person or property in the demised premises, whether the same be due to fire,
breakage, leakage, water flow, gas, use, misuse, or defects therein, or
condition anywhere in the demised premises, failure to water supply or light or
power or electricity, wind, lightning, storm, or any other cause whatsoever,
whether the loss, injury or damage be to the person or property of Tenant or any
other persons.
9. FIRE OR OTHER CASUALTY.
(A) If during the term of this lease or any renewal or extension
thereof, the demised premises or the building of which the demised premises is a
part is totally destroyed or is so damaged by fire or other casualty not
occurring through the fault or negligence of Tenant or those employed by or
acting for Tenant (whether or not the demised premises are damaged) that the
same cannot be repaired or restored within one hundred twenty (120) regular
working days from the date of the happening of such damage, or if such damage or
casualty is not included in the risks covered by Landlord's fire insurance with
the usual extended coverage, then this lease shall absolutely cease and
terminate and the rent shall abate for the balance of the term. In such case,
Tenant shall pay the rent apportioned to the date of damage and Landlord may
enter upon and repossess the demised premises without further notice and with
the right to break in and take possession.
(B) If the damage caused as above can be repaired or restored within one
hundred twenty (120) regular working days and said damage and the cost of
repairs and restoration are fully covered by the Landlord's insurance, Landlord
may exercise either of the following options:
4
<PAGE>
(i) Landlord shall have the option to restore the premises for that
purpose and the rent shall be apportioned during the time Landlord is in
possession, taking into account the proportion of the demised premises rendered
untenantable and the duration of Landlord's possession; if a dispute arises as
to the amount of rent due under this clause, Tenant agrees to pay the full
amount claimed by Landlord and Tenant shall have the right to proceed by law to
recover the excess payment, if any.
(ii) Landlord shall have the option to terminate this lease by
giving written notice of such termination to Tenant within sixty (60) days after
said partial destruction; and upon the giving of such notice, the lease shall
expire by lapse of time after thirty (30) days and the Tenant shall vacate the
demised premises.
(C) If the damage caused as above is only slight, Landlord shall repair
whatever portion, if any, of the demised premises that may have been damaged by
fire or other casualty insured as aforesaid, and the rent accrued or accruing
shall not be apportioned or suspended.
(D) If said damage by fire or other casualty was caused by the action or
negligence of Tenant or his agent, employees or invitees, Tenant shall not be
entitled to any abatement or apportionment of the rent.
10. SERVICES. The following services and facilities shall be supplied by
Landlord to Tenant in connection with Tenant's use of the demised premises, in
common with other tenants of the building of which the demised premises are a
part:
(A) Heat and air conditioning equipment and facilities.
(B) Landlord shall supply the demised premises with electric and gas
service for heat, air conditioning, lighting and power to operate business
machines and equipment. Landlord shall furnish and install a meter for measuring
Tenant's electric and gas usage and Tenant shall pay utility company direct for
such usage. Landlord shall, at its expense, repair and maintain all building
equipment used to furnish lighting and power to the demised premises. Tenant
shall, at its expense, contract for regular maintenance of heating and air
conditioning equipment servicing the demised premises.
(C) Landlord shall have no responsibility or liability to Tenant, nor
shall there be any abatement in the said rent for any failure to supply and of
said services and facilities that Landlord has agreed to supply hereunder during
such period as the services and facilities are out of order, undergoing repair
or if prevented by labor disorders, strikes, accidents or other causes beyond
Landlord's control. If, in its sole discretion, Landlord deems it advisable or
convenient to interrupt any of said services in order to make repairs,
alterations or improvements or because of labor disturbances, strikes, accidents
or causes beyond Landlord's control, Landlord may do so for the period that
Landlord deems expedient and advisable without any abatement in rent or other
liability to Tenant.
11. REPAIRS. At the expiration or other determination of this lease or upon
abandoning the demised premises, Tenant shall lease the same, and during the
term shall keep the same in good order and condition, ordinary wear and tear and
damage by accidental fire or other casualty which fire or
5
<PAGE>
other casualty has not occurred through the negligence of Tenant or those
claiming under Tenant or their employees or invitees respectively, alone
excepted; and for that purpose Tenant shall make all necessary repairs and
replacements. Tenant shall also remove all dirt, rubbish, waste and refuse from
the demised premises and all its property therefrom, to the end that Landlord
may again have and repossess the same not later than noon on the day upon which
this lease or any renewal thereof or extension ends. Tenant shall not knowingly
do or commit or suffer or cause to be done or committed upon the demised
premises any act or thing contrary to the laws, rules, regulations or ordinances
prescribed from time to time by Landlord for the safety, care, upkeep,
maintenance and cleanliness of the demised premises.
12. ADDITIONAL RENT. Tenant shall pay as rent in addition to the minimum
rental herein reserved any and all sums which may become due by reason of the
failure of Tenant to comply with any and covenants of this lease and to pay any
and all damages, costs and expenses, including, but not limited to reasonable
attorney's fees which Landlord may suffer or incur by reason of any default or
failure on Tenant's part to comply with any and all the covenants of this lease.
13. LANDLORD'S REMEDIES. If Tenant:
(A) Does not pay in full when due any and all installments of rent and
or any other charges or payment herein reserved, included, or agreed to be
treated or collected as rent and/or any other charges, expenses, or costs herein
agreed to be paid by the Tenant; or
(B) Violates or fails to perform or otherwise breaks any covenant or
agreement herein contained; or
(C) Vacates the demised premises or removes or attempts to remove or
manifests an intention to remove any goods or property therefrom otherwise than
in the ordinary and usual course of business without having first paid and
satisfied Landlord in full for all rent and other charges, expenses and costs
and attorney's fees then due or that may thereafter become due until the
expiration of the term, above mentioned; or
(D) Makes an assignment for the benefit of creditors; or whenever
Tenant seeks or consents to or acquiesces in the appointment of any trustee,
receiver or liquidator of Tenant or of all or any substantial part of its
properties; or whenever a permanent or temporary receiver of Tenant for
substantially all of the assets of Tenant shall be appointed; or an order,
judgment or an order, judgment or decree shall be entered by any court of
competent jurisdiction on the application of a creditor.
In any of the events hereinabove set forth there shall be deemed to be
a breach of this lease and thereupon ipso facto and without written notice or
other action by Landlord, at the sole option of Landlord;
(1) In addition to any rent and other charges already due and
payable, the rent for the entire unexpired balance of the term of this lease, as
well as all other charges, costs, expenses and attorney's fees herein to be paid
by Tenant or at the option of Landlord or anyone acting on Landlord's behalf at
Landlord's option, or any part thereof, shall be taken to be due and payable and
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<PAGE>
in arrears, as if by the terms of this lease said rent, charges, costs and
expenses were on that day due and payable; and/or
(2) Landlord, or anyone acting on Landlord's behalf may, without
written notice or demand, enter the demised premises and:
(a) take possession of and immediately sell all goods and
chattels therein; or
(b) may remove from the demised premises all goods and chattels
found therein to any other place or location as Landlord may desire and any
costs incurred for said removal and any charges made for storage of said goods
and chattels at the location to which they are removed Tenant agrees to pay; or
(c) take immediate possession and may lease the demised premises
or any part to such person, company, firm or corporation as may in Landlord's
sole discretion seem best and Tenant shall be liable for any loss of rent for
the then current term.
The Tenant hereby releases and discharges Landlord, and its agent, from
all claims, actions, suits, damages and penalties, for or by reason or on
account of any entry, distraint, levy, appraisement, removal of said goods and
chattels or sale.
(3) This lease and the term hereby created shall determine and
become absolutely void without any right on the part of Tenant to save the
forfeiture by payment of any sum due or by other performance of any condition,
term or covenant broken; whereupon, Landlord shall be entitled to recover
damages and attorney's fees for such breach, in addition to all sums actually
due and in arrears hereunder as of the date of such breach as above provided in
an amount equal to the amount of rent reserved for the balance of the term of
this lease.
14. RIGHT OF ASSIGNEE OF LANDLORD. The right to enforce all of the
provisions of this lease may be exercised by any assignee of the Landlord's
right, title and interest in this lease in its, his, her or their own name, and
Tenant hereby expressly waives the requirements of any and all laws regulating
the manner and/or form in which such assignments shall be executed and
witnessed.
15. REMEDIES CUMULATIVE. All of the remedies hereinbefore given to Landlord
and all rights and remedies given to Landlord by law and equity shall be
cumulative and concurrent. No determination of this lease or the taking or
recovering of the premises shall deprive Landlord of any of its remedies or
actions against Tenant for any and all sums due at the time or which, under the
terms hereof would in the future become due, nor shall the bringing of any
action for rent or breach of covenant, or the resort to any other remedy herein
provided for the recovery of rent be construed as a waiver of the right to
obtain possession of the premises.
16. ATTORNMENT. In the event of the sale or assignment of Landlord's
interest in the building of which the demised premises is a part or in the event
of exercise of the power of sale under any mortgage made by Landlord covering
the building of which the demised premises is a part, Tenant shall attorn to the
purchaser and recognize such purchaser as Landlord under this lease.
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17. SUBORDINATION, ETC. At the option of Landlord or Landlord's permanent
lender, or both of them, this lease and the Tenant's interest hereunder shall be
subject and subordinate at all times to any mortgage or mortgages, deed or deeds
of trust, or such other security instrument or instruments, including all
renewals, extension, consolidations, assignments and refinances of the same, as
well as all advances made upon the security thereof, which now or hereafter
become liens upon the Landlord's fee and/or leasehold interest in the demised
premises, and/or any and all of the buildings now or hereafter erected or to be
erected and/or any and all of the land comprising the office building, provided,
however, that in each such case, the holder of such other security, the trustee
of such deed of trust or holder of such other security instrument shall agree
that this lease shall not be divested or in any way affected by foreclosure or
other default proceedings under said mortgage, deed of trust, or other
instrument or other obligations secured thereby, so long as the Tenant shall not
be in default under the terms of this lease; and Tenant agrees that this lease
shall remain in full force and effect notwithstanding any such default
proceedings.
18. EXECUTION OF DOCUMENTS. The above subordination shall be self executing,
but Tenant agrees upon demand to execute such other document or documents as may
be required by a mortgagee, trustee under any deed of trust, or holder of a
similar security interest, or any part to the types of documents enumerated
herein for the purpose of subordinating this lease in accordance with the
foregoing. Upon the expiration of ten (10) days after a formal written notice,
Tenant shall be deemed to have appointed Landlord and Landlord may execute and
deliver the required documents for and on behalf of Tenant.
19. ESTOPPEL AGREEMENTS. Tenant shall execute an estoppel agreement in favor
of any mortgagee or purchaser of Landlord's interest herein, if requested to do
so by any mortgagee. Such estoppel agreement shall be in the form requested by
such mortgagee or purchaser.
20. NO IMPLIED EVICTION. Notwithstanding any inference to the contrary herein
contained, it is understood that the exercise by Landlord of any of its rights
hereunder shall never be deemed an eviction (constructive or otherwise) of
Tenant, or a disturbance of its use of the demised premises, and shall in no
event render Landlord liable to Tenant or any other person, so long as such
exercise of rights is in accordance with the foregoing terms and conditions.
21. TIME TO REMEDY DEFAULT. Tenant shall have ten (10) days to cure any
default after written notification from Landlord.
22. LITIGATION INVOLVING LANDLORD AND AGENT. In the event that Landlord or
its Agent shall without fault on its part be made a party to any litigation
commenced by or against Tenant, then, and to such extent Tenant shall protect
and hold Landlord and Agent harmless from and against any liability arising
therefrom, and shall pay all of Landlord's costs, expenses and attorney's fees.
23. CONDEMNATION. If the whole of the premises shall be acquired or condemned
by eminent domain, then the term of this Lease shall cease and terminate as of
the date on which possession of the premises is required to be surrendered to
the condemning authority. All rent shall be paid up to the date of termination.
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24. NOTICES. All notices required to be given by either party to the other
shall be in writing. All such notices shall be deemed to have been properly
given if served personally or if sent by United States certified mail, postage
prepaid, addressed to Landlord at President, Devereux Properties, Inc., 19 S.
Waterloo Road, P.O. Box 400, Devon, PA 19333 and addressed to Tenant at Chief
Financial Officer, CFM Technologies, Inc., 1336 Enterprise Drive, West Chester,
PA 19380 or to such other address which either party may hereafter designate in
writing by notice given in a like manner.
25. TERMINATION OF LEASE. Either party hereto may determine the lease at the
expiration of the original term or any renewal or extension thereof by
delivering to the other party written notice of same no later than one hundred
twenty (120) days prior to the expiration of the then current term. In the
absence of such notice the lease shall then automatically continue for an
additional period of one (1) year under the same terms and conditions in force
immediately prior to the expiration of the then current term, and so on from
year to year until terminated by either party as herein provided. Any rental
allowance or other benefit granted Tenant by Landlord intended to apply only to
the original lease term shall not automatically carry over into any renewal or
extension thereof.
If Landlord shall have given Tenant written notice prior to the expiration
of any term hereby created of Landlord's intention to change the terms and
conditions of the lease and the Tenant shall not within thirty (30) days from
such notice notify Landlord of Tenant's intention to vacate the demised premises
at the expiration of the then current term, then Tenant shall be bound under the
terms and conditions set forth in such notice for a further term as above
provided, or for such further term as may be stated in said notice. In the event
that Tenant shall give notice, as stipulated in the Lease, of intention to
vacate the demised premises at the end of the then current term, and shall fail
or refuse to do so on the date stipulated in said notice then it is expressly
agreed that Landlord shall have the option either:
(A) to disregard the notice so given as having no effect, in which case
all the terms and conditions of the Lease as set forth in Landlord's most recent
notice shall continue thereafter with full force precisely as if Tenant had not
given notice; or
(B) Landlord may, at any time within thirty (30) days after the then
current term, as aforesaid, give the Tenant ten (10) days written notice of
intention to terminate the Lease; whereupon the Tenant shall vacate the demised
premises at the expiration of said ten (10) day period. All powers granted to
Landlord by the Lease may be exercised and all obligations imposed upon Tenant
must be fulfilled as well during any extension of the original term of the lease
as during the original term itself.
Notwithstanding the foregoing to the contrary and in addition to other rights
described above, the parties hereto agree that either Landlord or Tenant may
terminate this lease at any time after June 18, 1998, such termination to be
effective June 18, 1998 or any time thereafter, upon six (6) months prior
written notice to the other party of its election to terminate this lease. Upon
either party's election to terminate this lease, neither Landlord nor Tenant
shall have any further obligations under this lease after the effective date of
the termination.
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26. HAZARDOUS MATERIALS. Tenant agrees not to cause or permit any hazardous
material to be discharged or brought upon, kept or used in or about the demised
premises or building or the land on which the demised premises are located, by
Tenant or Tenant's employees, agents, contractors or invitees. As used herein,
the term "hazardous material" shall mean any hazardous or toxic substance,
material or waste, including but not limited to, those substances, materials or
wastes now or hereinafter listed in the United States Department of
Transportation Hazardous Materials Table or by the Environmental Protection
Agency as hazardous substances, or such substances, materials or wastes that are
now or may become under any applicable federal, state or local law. If Tenant
permits any hazardous material to be brought upon, kept or used in or about the
demised premises, the building or the land on which the building is located that
the demised premises are a part, that results in contamination of the demised
premises or the building or the land on which the building is located that the
demised premises are a part, then the Tenant shall indemnify, defend and hold
Landlord harmless from any and all claims, judgements, penalties, or losses,
including but not limited to, damages or diminution in value of the demised
premises, the building or the land on which the building is located that the
demised premises are a part. This indemnification of Landlord by Tenant includes
but is not limited to costs incurred in connection with any investigation of
site conditions or clean-up, remedial removal or restoration work required by
any federal, state or local governmental agency or political subdivision because
of hazardous materials present in the demised premises, the building or the land
on which the building is located that the demised premises are a part, or the
soil thereon or ground water thereunder. Any failure by Tenant to promptly take
all actions at the request of Landlord or any governmental authority to cease
the storage, use or discharge of hazardous materials shall constitute a default
under the terms of this Lease. Notwithstanding the foregoing to the contrary,
Landlord agrees that Tenant may at any time store and use up to ten (10) gallons
of isopropyl alcohol in connection with Tenant's operations. Tenant shall remain
obligated for any liability associated therewith and shall use the same in a
careful and cautious manner.
27. RIGHT OF FIRST REFUSAL. Landlord hereby grants to Tenant a right of first
refusal for any unleased, contiguous space adjacent to the demised premises. In
the event that Landlord receives a bona fide offer to lease any portion of the
then unleased, contiguous space, then Landlord shall first offer this space to
lease to Tenant in writing together with a copy of the bona fide offer. Tenant
shall have five (5) working days from receipt of written notice from Landlord of
the bona fide offer in which to exercise its right of first refusal for the
additional space. If Tenant exercises its right of first refusal, the additional
space shall be leased to Tenant at the annual minimum rental rate per square
foot equal to the rate per square foot that Tenant is paying for the demised
premises. Tenant shall then also pay additional operating expenses in accordance
with the Operating Expense Addendum (Exhibit "A") adjusted for the new square
footage leased to Tenant.
28. PARKING RULES AND REGULATIONS. Landlord agrees to promulgate Rules and
Regulations concerning the use of on-site parking spaces such that each tenant
occupying space in the building of which the demised premises are a part shall
have equitable access to such parking in proportion to the rentable area each
tenant leases in the building. It is understood and agreed that there will be
no specific dedicated or marked spaces for each tenant. All such parking spaces
shall be enjoyed by all tenants on a non-exclusive basis even though usage of
the parking spaces shall be controlled as indicated above.
10
<PAGE>
29. FINANCIAL INFORMATION OF TENANT. Tenant shall at any time and from time
to time during the term of this Lease, within fifteen (15) days of written
request by Landlord, deliver to Landlord the most recent audited and unaudited
financial statements concerning Tenant and Tenant's business operations (and the
Guarantor of this Lease, if the Lease be guaranteed) as may be reasonably
requested by any mortgagee or prospective mortgagee or purchaser. If Tenant
fails to provide such statements promptly then, without limiting any other
remedy which Landlord may have for such failure, Landlord may thereupon
terminate this Lease on not less than ten (10) days' written notice.
30. INSURANCE-INDEMNITY. During the term of this Lease, Tenant, its assignees
and sublessees shall protect, defend, indemnify and save Landlord harmless from
any and all claims, penalties, or demands, including Court costs and attorneys'
fees, whatsoever arising, directly or indirectly, out of or from Tenant's use or
occupancy of the Premises.
Tenant shall keep in force, during the full term of this Lease or any renewal or
extension thereof, workmen's compensation insurance and public liability
insurance issued by a nationally recognized insurance company rated Best A+,
with such limits as may be reasonably requested by landlord from time to time,
but with minimum public liability limits not less than $1,000,000.00 for each
occurrence. Said policy shall name Landlord as an additional insured and
provide that it shall not be cancelled for any reason unless and until Landlord
is given fifteen (15) days' notice in writing by the insurance company. The
insurance policy or other evidence of coverage satisfactory to Landlord shall be
deposited with Landlord upon occupancy of Premises by Tenant.
Landlord and Tenant hereby release the other from any and all liability or
responsibility to the other or anyone claiming through or under them by way of
subrogation or otherwise for any loss or damage to property caused by fire or
any other perils insured in policies of insurance covering such property, even
if such loss or damage shall have been caused by the fault or negligence of the
other party, or anyone for whom such party may be responsible.
All of Tenant's policies of insurance shall contain waiver of subrogation
endorsements in favor of Landlord and copies of same shall be delivered to
Landlord upon request.
31. BINDING EFFECT. All rights and liabilities herein given to, or imposed
upon the respective parties hereto, shall extend to and bind the several and
respective heirs, executors, administrators, successors and assigns of said
parties.
32. SEVERABLE TERMS. Each term, remedy, provision, condition, obligation
and/or waiver contained in this lease, or any amendment or supplement hereto, is
a separate and distinct covenant and, if any such term, remedy, provision,
condition, obligation and/or waiver is declared unenforceable or
unconstitutional, or invalid by any court of competent jurisdiction or by an
action of congress or by any other governmental authority, such decision,
statute, ordinance or regulation will not affect in any manner the
enforceability or validity of any other term, remedy, provision condition,
obligation and/or waiver contained herein, and they will remain in full force,
virtue and effect.
33. ENTIRE AGREEMENT. This lease and any riders that may be attached hereto
set forth all the promises, agreements, conditions and understandings between
Landlord or its agents and
11
<PAGE>
Tenant relative to the demised premises, and there are no promises, agreements,
conditions or understandings, either oral or written, between them other than
are herein set forth. Except as herein otherwise provided, no subsequent
alteration, amendment, change or addition to this lease shall be binding upon
Landlord or Tenant unless reduced to writing and signed by them.
IN WITNESS THEREOF, the parties hereto, intending to be legally bound to the
terms of this Lease, have caused this lease to be executed the day and year
first above written.
CFM TECHNOLOGIES, INC. DEVEREUX PROPERTIES, INC.
(Tenant) (Landlord)
BY:/s/ Lorin J. Randall BY:/s/ Alan Thomas
-------------------------- -------------------------
ATTEST:/s/ Joyce C. Neal ATTEST:/s/ Robert Kreide
---------------------- ---------------------
12
<PAGE>
EXHIBIT "A"
OPERATING EXPENSE ADDENDUM
ATTACHED TO and made a part of the Commercial Lease Agreement made the
sixteenth (16th) day of December, 1996, by and between DEVEREUX PROPERTIES, INC.
(Landlord) and CFM TECHNOLOGIES, INC. (Tenant).
1. PAYMENT. Tenant shall pay to Landlord an Operating Expense Allowance of
thirty three thousand three hundred eighteen and 99/100 Dollars ($33,318.99) per
year in equal monthly installments of two thousand seven hundred seventy six and
58/100 Dollars ($2,776.58), the first of which shall be payable upon execution
of this Lease. If the term of this Lease commences other than on the first day
of a calendar month, then the Operating Expense Allowance for the first calendar
month of the term of this Lease shall be adjusted proportionately, and the
aforesaid first installment paid by Tenant upon the execution of this Lease
shall be initially applied to the first partial month and the balance to the
succeeding month.
If Landlord's Operating Expense for any Operating Year shall be greater than
the total Operating Expense Allowance for such year, Tenant shall pay to
Landlord as additional rent an amount equal to Tenant's Proportionate Share of
the difference (the amount of Tenant's Proportionate Share of such difference is
hereinafter referred to as the "Operating Expense Adjustment"). If Tenant
occupies the demised premises or a portion thereof for less than a full
Operating Year, the Operating Expense Adjustment will be calculated in
proportion to the amount of time in such Operating Year that Tenant occupied the
demised premises.
Such Operating Expense Adjustment shall be paid in the following manner within
one hundred twenty (120) days following the end of the first and each succeeding
Operating Year, Landlord shall furnish to Tenant an Operating Expense Statement
setting forth (a) the Operating Expense for the preceding Operating Year; (b)
the Operating Expense Allowance; and (c) Tenant's Operating Expense Adjustment
for such Operating Year. Within fifteen (15) days following receipt of such
Operating Expense Statement (the "Expense Adjustment Date"), Tenant shall pay to
Landlord as additional rent the Operating Expense Adjustment for such Operating
Year.
Commencing with the first month of the second Operating Year, Tenant shall pay
to Landlord, in addition to the Operating Expense Allowance, on account of the
Operating Expense Adjustment for such Operating Year, monthly installments in
advance equal to one-twelfth (1/12) of the estimated Operating Expense
Adjustment for such Operating Year. On the next succeeding Expense Adjustment
Date, Tenant shall pay to Landlord (or Landlord shall credit to Tenant) any
deficiency (or excess) between the installments paid on account of the preceding
year's Operating Expense Adjustment and the actual Operating Expense Adjustment
for such Operating Year.
As used in this Addendum, the following words and terms shall be defined as
hereinafter set forth:
<PAGE>
A. "Operating Year" shall mean each calendar year, or other period of twelve
(12) months as hereinafter may be adopted by Landlord as its fiscal year,
occurring during the term of the Lease.
B. "Operating Expense Allowance" shall mean and equal the monthly amount
hereinabove set forth.
C. "Operating Expense Statement" shall mean a statement in writing signed by
Landlord, setting forth in reasonable detail (i) the Operating Expense for the
preceding Operating Year; (ii) the Operating Expense Allowance; and (iii) the
Tenant's Operating Expense Adjustment for such Operating Year or portion
thereof. The Operating Expense Statement for each Operating Year shall be
available for inspection by Tenant at Landlord's office during normal business
hours.
D. "Operating Expense" shall mean the following expenses incurred by the
Landlord in connection with the operation, repair and maintenance of the demised
premises, the building of which it is a part and the land on which it is
located: (i) Real Estate taxes and other taxes or charges levied in lieu of such
taxes, general and special public assessments, charges imposed by any
governmental authority pursuant to anti-pollution or environmental legislation,
taxes on the rentals of the building in which the demised premises are located
or the use, occupancy or renting of space therein; (ii) premiums and fees for
fire and extended coverage insurance, insurance against loss of rentals for
space in the building of which the demised premises are a part and public
liability insurance, all in amounts and coverages (with additional policies
against additional risks) as may be required by landlord or the holder of any
mortgage; (iii) water and sewer service charges, electricity, heat and other
utility charges not separately metered to tenants in the building of which the
demised premises are a part; (iv) all maintenance and repair costs to all areas
of the building in which the demised premises are located, including repairs and
replacements of supplies and equipment, snow and trash removal and paving, lawn
and general grounds upkeep, maintenance and repair of all mechanical equipment
such as HVAC, elevators, electrical and plumbing equipment, and the costs of all
labor, materials and supplies incidental thereto; (v) the cost of providing
janitorial service and supplies for the entire building of which the demised
premises are a part, including all leasable areas and common areas such as
hallways, rest rooms, elevators, supply closets, etc.; (vi) wages, salaries,
fees and other compensation and payments and payroll taxes and contributions to
any social security, unemployment insurance, welfare, pension or similar fund
and payments for other fringe benefits required by law, union agreement or
otherwise made to or on behalf of all employees of landlord performing services
rendered in connection with the operation and maintenance of the building and/or
land within which the demised premises are locate, including, without
limitation, payments made directly to or through independent contractors for
performance of such services or for servicing or maintenance contracts; (vii)
management fees payable to the managing agent for the demised premises, if any,
and if there shall be no managing agent or if the managing agent is a company
affiliated with the landlord, the management fees that would customarily be
charged for the management of the building in which the demised premises are
located by an independent first class managing agent in the Philadelphia
suburban area; (viii) any and all other expenditures of Landlord incurred in
connection with the operation, repair or maintenance of the demised premises and
the building or land within which they are located which are property expensed
in accordance with generally accepted accounting principles consistently applied
in the operation, maintenance and repair of a first class office/industrial
building facility.
<PAGE>
The term "Operating Expense" shall not include depreciation on the building or
equipment therein, interest, net income, franchise or capital stock taxes
payable by landlord, executive salaries, real estate broker's commissions or the
cost of services provided especially for any particular tenant at such tenant's
expense and not uniformly available to all tenants within the building of which
the demised premises are a part.
E. "Tenant's Proportionate Share" shall be thirty-six and 18/100 percent
(36.18%) which is equivalent to a fraction, the numerator of which shall be the
square feet of floor area of the demised premises and the denominator of which
shall be 38,528 square feet of all leasable floor area in the building of which
the demised premises are a part.
2. FINAL YEAR OF LEASE TERM. During the calendar year in which the term of
this Lease ends, Landlord shall have the right to submit to Tenant a statement
of Landlord's reasonable estimate of the Operating Expense Adjustment during the
period (the "Final Period") beginning on the first day of the final Operating
Year of the term or, if later, the date of the immediately preceding Operating
Expense Adjustment, and ending on the final day of the term of this Lease. Upon
the earlier to occur of the thirtieth (30th) day following Tenant's receipt of
such statement or the final day of the term of this Lease, Tenant shall pay to
Landlord said estimated Operating Expense Adjustment minus the total amount of
payments previously made by Tenant pursuant to Section 1 above during the final
period. If requested by Tenant, landlord shall submit to Tenant a statement
setting forth the actual amount of said Operating Expense Adjustment after
Landlord's final calculation of same, and within fifteen (15) days after
Tenant's receipt of such statement, Tenant shall pay to landlord any deficiency,
or, as the case may be, landlord shall refund to Tenant any overpayment
occasioned by Tenant's payment of the aforesaid estimate.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed the day and year first above written.
CFM TECHNOLOGIES, INC. DEVEREUX PROPERTIES, INC.
(Tenant) (Landlord)
BY:/s/ Lorin J. Randall BY:/s/ Alan Thomas
-------------------------- --------------------------
ATTEST:/s/ Joyce C. Neal ATTEST:/s/ Robert Kreide
---------------------- ----------------------
<PAGE>
EXHIBIT 10.21
AGENT AGREEMENT
This AGENT AGREEMENT is made and entered into this 16th day of December,
1996, by and between Ampoc Far East Company Limited, a corporation organized
and existing under the laws of the Republic of China on Taiwan with its
principal place of business located at 99-1 Ning PO W. Street, Taipei, Taiwan
(hereinafter referred to as "Agent") and CFM TECHNOLOGIES, INC., a
Pennsylvania corporation, with its principal place of business located at 1336
Enterprise Drive, West Chester, Pennsylvania, 19380 (hereinafter referred to
as the "Company").
NOW THEREFORE, in consideration of the mutual covenants contained herein,
the parties hereto agree as follows:
1. Appointment of Agent. Company hereby appoints Agent as its exclusive
agent for the sale of certain items described in Attachment "A" (hereinafter
referred to as "Products") in the countries and locations listed in Exhibit
"B" (hereinafter referred to as "Territory").
Agent is authorized by the above appointment to sell Products only to
customers located in Agent's territory for use in manufacturing facilities
located in Agent's territory, and Agent shall refer to Company all inquiries
made from prospective customers which do not fall under the scope of this
Agreement. All inquiries or orders received by Company for Products from any
party in the Territory shall be referred to Agent.
The list of Products as set forth in Appendix A may be changed, abandoned,
or supplemented in writing by mutual agreement between the parties.
It is understood by the parties that the Agent shall be acting as an
independent sales agent for Company's Products, and Agent shall be solely
responsible for all expenses connected with the operation of its business.
Agent shall have no authority to contract in the name or bind the Company in
any manner whatsoever. Agent shall defend and hold Company harmless from all
claims arising out of Agent's conduct. All transactions or activities in
connection with this Agreement will comply with the letter and the spirit of
all applicable laws as well as ethical business standards. Care must be taken
to avoid disseminating inaccurate or misleading technical or business
information.
2. Term of Agreement. This Agreement shall continue in effect for a period
of one (1) year from the date of its execution and shall automatically renew
year after year, unless terminated pursuant to Paragraph 10 hereof.
3. Responsibilities.
a. Company's Responsibilities. Company shall make every reasonable effort
to manufacture quantities of the Products sufficient to meet the
requirements of end user customers sold to by Agent. Company shall have
responsibility for Product installation, service, and support.
b. Agent's Responsibilities. Agent agrees to:
(i) use its best efforts to promote the sale and use of the Products
and to solicit and secure orders for the Products within its Territory,
and further to serve the best interests of Company in any and all
matters in accordance with this Agreement;
(ii) Refrain from manufacturing or selling of products which directly
compete with the Products of the Company for the duration of this
Agreement and or a period of two years following the termination of
this Agreement for any reason.
(iii) Agent shall prepare a sales forecast for each quarter providing
projections of end-user sales of Products by item, by end-user name, by
quarter for six fiscal quarters of the Company, including the quarter
in which the forecast is prepared. These forecasts shall be received by
CFM by the 15th day of the second month of each fiscal quarter.
(Example a forecast covering the first quarter of FY 97 shall be
received by CFM by 15 November 1996 covering all four quarters of FY 97
and the first two quarters of FY98, ending, 30 April 1998.)
1
<PAGE>
4. Confidentiality. Agent acknowledges that this Agreement creates a
relationship of trust and confidence between Agent and Company. Agent
acknowledges that proprietary data and proprietary information are embodied in
the Company's Products, and in data, information, and material supplied by
Company to Agent or acquired by Agent in the course of performance of this
Agreement. Agent acknowledges that all such proprietary data and proprietary
information, including such data and information as is contained in the
Products and their constituent parts, constitute the sole and exclusive
property to the Company, and Agent will carefully protect such information and
use it only in furtherance of the Company's business.
Agent hereby agrees to hold in confidence during the term of this Agreement,
and thereafter for a period of three (3) years, any and all information of a
confidential nature regarding Company's business or affairs, including without
limitation, data provided by Company regarding the design and/or methods of
Company of the Products, and not to disclose the same to any person, firm, or
corporation.
On all the above information of a confidential or proprietary nature,
Company shall stamp "CONFIDENTIAL" or so indicate in other appropriate ways
for software or other intangible materials.
The following information shall not be considered confidential:
a. information which is already generally available to the public,
b. information which hereafter becomes generally available to the public,
except as a result of a fault of the party to whom the information was
disclosed,
c. information which Company agrees to disclose in writing;
d. information which can be shown to have been properly known to Agent
prior to the transmittal thereof from Company; or
e. information which is obtained by Agent from a third party which had
the right to possess and to disclose the information.
5. Price and Price Changes.
a. Price. The Company will from time to time provide the Agent with price
schedules for the Company's products in the Territory. Agent agrees that it
will not sell the Company's Products in its Territory at prices other than
those on the Territory price list without Company's express knowledge and
written consent. The company agrees to pay the Agent a commission for the
Products purchased by the customer/end-user according to the price paid by
the customer/end-user. Commission will be a pre-determined rate of seven
percent (7%) of collected funds. The commission rate may be changed upon
the written agreement of both parties.
6. Terms of Payment. The terms of payment shall be as follows:
a. Customer/end-user to pay Company:
90%, net 30 days after shipment of equipment
10%, net 30 days after final acceptance
b. Company to pay Agent commission within 10 days of receipt of payment
by Company from customer/end-user.
7. Delivery. The Company shall use its best efforts to fill all orders
promptly upon acceptance thereof. However, if conditions beyond the control of
Company arise which prevent compliance with normal delivery schedules, Company
shall not be liable for damages, general, special or otherwise. Deliveries
shall be made F.O.B. West Chester, Pennsylvania. Customer shall have the right
to select the packer and carrier of its choice.
The Company shall retain title and bear the risk of loss until such time as
a shipment leaves the companies dock, at which time title shall pass to the
Customer, and the risk of loss shall be borne by Customer. Customer shall
arrange and pay for insurance against loss or damage to the equipment during
transit.
2
<PAGE>
8. Sales and Support. Agent agrees to provide competent personnel for the
sales, specification review, negotiation, and technical sales support to
customers within its Territory. Company agrees to provide reasonable training
for Agent's personnel at its offices in West Chester, Pennsylvania.
9. Advertising. Company shall supply Agent with reasonable quantities of
sales materials such as catalogs, brochures, and reprints of its advertising
materials at no charge to Agent. Agent shall have the right to conduct
advertising campaigns with respect to the Products at its expense. Agent shall
refrain from making any claims or representations concerning the Products in
excess of those made by Company. Agent will translate the above materials into
Chinese as may be needed from time to time. Upon termination of this
Agreement, Agent shall return all unused sales materials to Company and shall
refrain from further use of all such materials in its activities.
10. Termination. This Agreement may be terminated:
a. by an agreement in writing duly signed by the parties hereto; or
b. by either party at will, with or without cause, upon not less than one
hundred and twenty (120) days notice in writing, given by registered or
certified mail to the other party.
The acceptance of any order from a customer in the Agent's territory after
the termination of this Agreement shall not be construed as a renewal or
extension hereof nor as a waiver of termination. Neither Company nor Agent
shall, by reason of the termination or non-renewal of this Agreement, be
liable to the other for compensation, reimbursement or damages on account of
the loss of prospective profits on anticipated sales, or on account of
expenditures, investments, leases or commitments in connection with the
business or goodwill of Company or Agent, or otherwise.
11. Miscellaneous,
a. Assignment. This agreement is not assignable or transferable by either
party in whole or in part, except with written consent of the other party.
b. Governing Law and Language. This Agreement shall be governed in all
respects by the laws of the Commonwealth of Pennsylvania. This Agreement
has been negotiated and executed in the English language, and the rules of
construction and definition of the English language shall be applied in
interpreting this Agreement.
c. Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties.
d. Severability. If any provision of this Agreement shall be judicially
determined to be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
e. Binding Effect. This Agreement shall be binding upon and inure to the
benefits of the parties hereto and their respective successors and assigns.
f. Titles and Subtitles. The titles of the paragraphs and subparagraphs
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
g. Counterparts. This Agreement may be executed in any number of
counterparts each of which shall be an original, but all of which together
shall construe one instrument.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above set forth.
THE COMPANY:
/s/ Roger A. Carolin
_____________________________________
Roger A. Carolin
President and Chief Executive
Officer
CFM Technologies, Inc.
THE AGENT:
/s/ Ronald Su
_____________________________________
Ronald Su
President
Ampoc Far East Co. LTD.
4
<PAGE>
EXHIBIT A
PRODUCTS
Full Flow(TM) systems for both flat panel and semiconductor applications.
5
<PAGE>
EXHIBIT B
TERRITORY
The Republic of China on Taiwan
6
<PAGE>
EXHIBIT 11
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
OCTOBER 31,
--------------------------
1996 1995
------------ ------------
(Amounts in thousands,
except per share data)
<S> <C> <C>
Net Income $ 2,960 $ 1,402
============ ============
Weighted average common and common
equivalent shares:
Common Stock 4,624 3,802
Stock options (treasury stock method) 184 168
Cheap stock (treasury stock method) 23 46
Weighted average common and common ------------ ------------
equivalent shares 4,831 4,016
============ ============
Net income per common share $ 0.61 $ 0.35
============ ============
</TABLE>
Computed on a basis as described in Note 2 of the Notes to Consolidated
Financial Statements.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CFM Technologies, Inc.:
As independent public accountants, we hereby consent to the use of our report
and to all references to our Firm included in or made a part of this
registration statement.
Arthur Andersen LLP
Philadelphia, Pa.,
January 24, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED OCTOBER 31,1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-1-1995
<PERIOD-END> OCT-31-1996
<EXCHANGE-RATE> 1
<CASH> 9,308
<SECURITIES> 2,946
<RECEIVABLES> 15,090
<ALLOWANCES> 0
<INVENTORY> 8,047
<CURRENT-ASSETS> 36,394
<PP&E> 8,729
<DEPRECIATION> (1,268)
<TOTAL-ASSETS> 44,251
<CURRENT-LIABILITIES> 8,869
<BONDS> 2,525
0
0
<COMMON> 29,592
<OTHER-SE> 3,119
<TOTAL-LIABILITY-AND-EQUITY> 44,251
<SALES> 44,013
<TOTAL-REVENUES> 44,013
<CGS> 23,317
<TOTAL-COSTS> 16,054
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 157
<INCOME-PRETAX> 4,485
<INCOME-TAX> 1,525
<INCOME-CONTINUING> 2,960
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,960
<EPS-PRIMARY> 0.61
<EPS-DILUTED> 0.61
</TABLE>
