UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
For Annual and Transition Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
(Mark One)
[ X ] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended October 31, 1999.
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________ to __________
Commission File No. 0-27498
CFM Technologies, Inc.
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2786977
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
150 Oaklands Blvd., Exton, PA 19341
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 280-8300
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
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Title of Class
Indicate by check mark whether the Registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The number of outstanding shares of the Registrant's Common Stock, no par
value per share, on January 13, 2000 was 7,812,228.
The aggregate market value of the voting stock held by non-affiliates of
the Registrant (computed by reference to the closing price of such stock on The
Nasdaq Stock Market on January 13, 2000 of $9.75) was approximately $56,079,000.
In making such calculation, Registrant is not making a determination of the
affiliate or non-affiliate status of any holders of shares of Common Stock.
Documents incorporated by reference:
Portions of the Proxy Statement for the Annual Meeting of Shareholders to
be held on March 9, 2000 are incorporated herein by reference in Part III, Items
10,11,12 and 13.
<PAGE>
Table of Contents
Item No. Page
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Part I
1. Business 3
2. Properties 19
3. Legal Proceedings 19
4. Submission of Matters to a Vote of Security Holders 21
Executive Officers of the Registrant 21
Part II
5. Markets for Registrant's Common Equity and Related Stockholder
Matters 23
6. Selected Financial Data 23
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 25
7a. Quantitative and Qualitative Disclosures about Market Risk 31
8. Financial Statements and Supplementary Data 31
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 31
Part III
10. Directors and Executive Officers of the Registrant 32
11. Executive Compensation 32
12. Security Ownership of Certain Beneficial Owners and
Management 32
13. Certain Relationships and Related Transactions 32
Part IV
14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 32
Signatures E-1
2
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PART I
ITEM 1. BUSINESS
CFM Technologies, Inc. and subsidiaries ("CFM" or the "Company") designs,
manufactures and markets advanced wet processing equipment for sale to the
worldwide semiconductor industry. The Company believes that its patented
Full-Flow(TM) Technology and Direct-Displacement(TM) drying enable it to provide
wet processing systems that address a variety of limitations inherent in
conventional semiconductor wet processing systems, including wet benches and
spray tools, resulting in significantly lower cost of ownership ("COO"). The
Company's customers include: Agilent Technology, Anam Semiconductor Company,
Infineon Technology, International Business Machines ("IBM"), Macronix,
Microchip Semiconductor, Motorola, National Semiconductor, STMicroelectronics,
Texas Instruments, Tower Semiconductor and United Microelectronics ("UMC").
INDUSTRY BACKGROUND
Market Overview
Over the past two decades, increasing demand for integrated circuits
("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
complex, higher performance ICs while steadily reducing the cost per function
along 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 well below 0.25 micron.
As demand for ICs has grown, semiconductor manufacturers have increased
capacity by expanding and updating existing fabrication facilities ("fabs") and
constructing new fabs. This expansion has historically exhibited strong cyclical
characteristics, and continues to do so. For example, in 1997 a significant
overcapacity situation developed in the semiconductor device market, especially
in dynamic random access memory ("DRAM") chips. This, together with the Asian
financial crisis, led to a reduction in the semiconductor capital equipment
demand as semiconductor manufacturers cancelled or postponed capacity
expansions. This situation continued into 1998. Recent industry analyst
forecasts estimate total spending for semiconductor equipment worldwide will be
up approximately 17% over 1998 to $34 billion during 1999.
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 exceeds $1 billion, of which
equipment costs can account for over 80%. 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, the number of wafers processed in a single cycle and the handling
time between process cycles. 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 atmospheric emissions associated with operating a
fab. Measuring and maintaining an acceptable level of COO becomes increasingly
challenging as manufacturing processes become more complex and process
tolerances narrow.
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Wet Processing in Semiconductor Manufacturing
The manufacture of semiconductors requires a large number of complex
process steps during which transistors are formed and 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, a consortium of semiconductor manufacturers, has
estimated that over 400 fabrication steps are required to manufacture advanced
logic ICs, and that approximately 55 of these steps are accomplished by wet
processing.
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. The
Company believes that these conventional wet processing methods are subject to a
number of inherent limitations, including:
Particle Contamination. Certain process steps in the manufacture of
submicron ICs are extremely sensitive to small amounts of particle contamination
which can result in device failure. As device geometries become smaller, the
reduction of particle contamination has become an increasingly critical factor
in maximizing yields for these process steps. 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 in and out of liquids can result in the
transfer of particles to the wafer 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 surface can act as a separate miniature
immersion and withdrawal.
Watermark Defects and Native Oxide Growth. Both wet benches and spray
tools subject the surface of wafers to repeated wetting and evaporative drying,
creating watermark defects on the surface that can significantly impact device
performance and interfere with certain 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 can be difficult to achieve precise repeatability of process results.
Additionally, wafers 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 wafer 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 over 30 feet in length. Recently, manufacturers of wet
benches have begun to develop products which use more than one processing fluid
in a single bath in an effort to reduce the size of their products. These
"reduced bath" or "single bath" wet bench products use more expensive cleanroom
space than a Full-Flow platform and retain the other disadvantages of this
conventional wet processing method.
Environmental Impact. Due to the large volume of the open baths which
comprise a wet bench and the need for multiple step wet processes to manufacture
increasingly complex ICs, wet benches typically consume large quantities of
water during processing. Water costs represent a significant portion 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 air filtration systems in order to
remediate chemical fume emissions. As a result, municipalities and environmental
authorities are increasingly concerned about water consumption and chemical fume
emissions by fabs. Due to the continuing reduction of semiconductor device
geometries and the escalating cost of leading edge fabs, the Company believes
that semiconductor manufacturers are becoming increasingly sensitive to the
foregoing limitations inherent in conventional wet processing methods.
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THE CFM SOLUTION
The Company's systems are based on its proprietary Full-Flow wet
processing technology and are used to perform various cleaning, stripping and
etching process steps in the manufacture of semiconductors. Full-Flow technology
is offered in two product lines: OMNI and PRISM. OMNI systems are highly
flexible and can be configured to accomplish all of the process steps supported
by the Company. PRISM systems are optimized to accomplish a single, frequently
repeated, process at the lowest possible capital and operating cost. In the
Company's OMNI and PRISM wet processing systems, up to 150 wafers automatically
load into an enclosed, flow-optimized vessel that has a lower fluid inlet and an
upper fluid outlet. The system process chamber is fabricated to conform to the
size of silicon wafers used by the customer. Once a selected process is begun,
the vessel is completely filled with process fluid at all times, with fluids
displacing one directly after another without exposing the wafers to air.
The Company believes that its patented Full-Flow 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 from the external
cleanroom environment and associated contaminants. Additionally, particle
contamination through particle skimming is substantially reduced. Since Full-
Flow processing 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 are kept completely immersed in fluid until they are
ready to be dried using 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 surface. Once the chemical treatment of the
wafers is completed, drying is accomplished using CFM's patented
Direct-Displacement drying technology. With this technique, the final rinse
water is directly displaced with isopropyl alcohol ("IPA") vapor and
substantially all water is forced off the surface of the wafer before it is
exposed to an air environment. Additionally, native oxide growth is suppressed
by deoxygenating 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, carbon dioxide and other gases from the cleanroom
environment. As a result, the gas content of the water at the surface of the
wafers is controlled to a degree not possible in a wet bench or spray tool.
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 transitions between process steps.
The Company's processes are performed in an enclosed vessel, thereby
substantially reducing variability of the processing fluid such as water and
chemical evaporation and absorption of atmospheric gases. Additionally, because
one process liquid directly displaces the previous one, there is no exposure to
the cleanroom atmosphere between process steps.
Cleanroom Space Savings. OMNI and PRISM systems have been designed to
consume a minimum amount of cleanroom space. System support modules can be
located outside the cleanroom and away from the vessel module. In many fabs,
this means that these support modules can be located on a separate level,
further reducing the amount of footprint that is required on the main floor of
the fab where floor space is most expensive. One of the Company's products, a
shared-module OMNI system capable of processing 100 8-inch wafers in each of two
vessels requires approximately 13 linear feet of cleanroom wall space and makes
no direct usage of cleanroom floor space when flush-mounted. This is
significantly less than the space requirements of a wet bench with a similar
processing capacity, which the Company believes can require up to 350 square
feet of total cleanroom floor space and approximately 35 linear feet of
cleanroom wall space.
5
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Environmental Advantages. The Company believes that its OMNI and PRISM
systems utilizes less than one-half of the water required by traditional wet
bench systems performing similar processing steps. Additionally, most of the
water in wet bench systems flows around the wafer carrier rather than across the
surface of the wafers. In the Company's flow-optimized OMNI and PRISM systems,
substantially no water is lost as bypass flow. These enclosed systems also
reduce 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 industry. The Company
intends to achieve this objective by focusing on the following key elements of
its strategy.
Increase Current Market Share. The Company seeks to continue to expand its
share of the semiconductor critical cleaning and etching wet processing market
through expansion of its sales and marketing and customer satisfaction efforts.
Significant effort has been expended to increase the Company's responsiveness to
customer needs. The Company believes that the customer community has responded
positively to these efforts. The Company also intends to continually improve its
existing OMNI and PRISM platforms in order to offer enhanced technical
capabilities and lower COO benefits for currently served critical wet processing
applications. The high-throughput version of the platform that was recently
introduced for resist stripping and post-ash cleaning, the PRISM RS, has met
with positive response from customers due to significant COO advantages.
Following an analysis of the size of the FPD wet processing equipment market,
the potential for successful market penetration and the volatility of that
market, the Company will offer for sale only those FPD system configurations
that have already been developed and tested and does not anticipate significant
continuing sales to manufacturers of FPD's.
Broaden Semiconductor Market Penetration. The Company intends to leverage
its OMNI and PRISM products to address additional wet processing applications in
the semiconductor manufacturing process where it believes its proprietary
technology can provide important benefits over competing wet processing
technologies. By basing new process applications on these platforms, the Company
will focus primarily on the development and optimization of each application's
process recipes. The Company believes this approach will reduce the time and
cost associated with supporting new wet processing applications. The Company has
undertaken a joint development project with a major customer to qualify an OMNI
system to perform aqueous cleaning during copper interconnect formation, which
is a new process application for the Company's systems.
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, thorough 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 and in East Asia in 1997. The Company also
intends to continue to increase the utilization of its applications laboratory
to design and test new processes and equipment features. Finally, the Company
has provided an OMNI system completely dedicated to training the Company's
customers and employees at its West Chester training facility. In 1999, the
Company was chosen as one of the 10 best customer rated companies in the VLSI
Research Incorporated Customer Satisfaction Companies report for wafer
processing equipment suppliers with sales of less than $300 million.
6
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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 the primary worldwide market for semiconductor capital
equipment. To date, the Company has achieved considerable success in selling to
customers outside the United States, with international sales accounting for
over 60% of total sales in 1996 and 1997, 46% of total sales in 1998, and 33% of
total sales in 1999.
PRODUCTS
The Company's systems are based on its proprietary wet processing
technology and are used to perform various cleaning and etching process steps in
the manufacture of semiconductors.
The Full-Flow Platform. The Company's proprietary Direct-Displacement
drying technology is embodied in its OMNI and PRISM products, which principally
consist 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 during wet processing, enabling a quicker
process cycle and a significant reduction in the quantity of process chemicals
used. The Company believes that its OMNI and PRISM products offer 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 from one chemical bath to the next,
which exposes them to contamination.
In the Company's OMNI and PRISM systems, wafers are loaded automatically
into a enclosed flow-optimized processing vessel. They are 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 to complete the desired process application. Once processing is
completed, wafers are dried in situ using the Company's patented
Direct-Displacement drying process. With this technique, the final rinse water
is directly displaced with IPA vapor and substantially all water is removed from
the surface of the wafers before they are exposed to the environment.
This process substantially eliminates evaporative drying defects such as
watermarks, inhibits native oxide growth and significantly reduces particle
contamination. In competing technologies, wafers 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 OMNI and
PRISM processing vessels and their advanced process control and monitoring
capabilities provide process uniformity and repeatability. Also, the Company's
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 OMNI system's comparatively
smaller size, it requires significantly less cleanroom floor space than
competing wet bench systems. The Company's OMNI system is 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. By basing new
process applications on its proprietary OMNI platform, the Company can focus
primarily on the development and optimization of each application's process
recipes.
The Company believes this approach significantly reduces the time and cost
associated with developing new products to address additional market
opportunities.
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The following tables list the Company's product offerings:
CFM OMNI PLATFORM CONFIGURATIONS
CONFIGURATION CAPACITY LIST PRICE RANGE
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Single Vessel 50-150 wafer $1.2 - $1.9 million
Shared Module 50-150 wafer $1.8 - $3.0 million
Semiconductor Manufacturing Applications
The Company first introduced its wet processing systems for use in
semiconductor manufacturing research and development facilities in 1988, and
shipped its first system for use in semiconductor production in 1990. To date,
the Company has sold over 220 vessels to more than 30 manufacturers. OMNI
systems can currently be configured with either one or two vessels, each of
which can be designed to accommodate 150mm, 200mm or 300mm wafers.
The following table identifies the typical wet processing steps in
semiconductor manufacturing and indicates those which the Company's OMNI systems
currently perform (in bold).
<TABLE>
<CAPTION>
CRITICAL CLEANING CRITICAL ETCHING PHOTORESIST STRIP
APPLICATIONS APPLICATIONS APPLICATIONS
- --------------------------------------------------------------------------------
<S> <C> <C>
INITIAL WAFER CLEAN SILICON OXIDE ETCH CONCENTRATED ACID CHEMISTRY
PRE-DIFFUSION CLEAN POLYSILICON ETCH RESIST
PRE-OXIDATION CLEAN Silicon nitride etch STRIP/POST-ASH
PRE-THIN FILMS DEPOSITION SILICIDE ETCH CLEAN(FRONT-END)
CLEAN Solvent chemistry resist
strip/post-ash clean(back end)
</TABLE>
For classification purposes, the process to fabricate a semiconductor
device (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 on an IC, such as transistors. Back-end steps
are those that involve the creation of metal patterns in order to connect these
individual components and create an 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 wet processing 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 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 wet critical cleaning sold by
the Company to date are also performing critical etching applications.
Photoresist Strip Applications. Photoresist stripping operations involve
the removal of either ashed photoresist residue or un-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 all wet processing operations.
Front-end cleans and resist strips are generally performed with aqueous
chemistries. However, back-end cleans and resist strips presently must be
accomplished with different chemistries that often utilize solvents, as
front-end water-based chemistries are incompatible with aluminum, which is often
present on wafers in the back-end.
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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 OMNI systems offer a range of attractive benefits for many of these
applications, especially 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.
CUSTOMERS
The Company sells its systems to leading semiconductor manufacturers
located in the United States, Europe and East Asia. Sales to IBM and Macronix
accounted for approximately 25.1% and 14.3%, respectively, of net sales in
fiscal 1999. Sales to Agilent Technology, Anam Semiconductor Company, IBM,
Infineon and National Semiconductor accounted for approximately 10.3%, 14.8%,
19.6%, 13.3% and 10.4%, respectively, of net sales in fiscal 1998.
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 and East Asian sales agents. The Company's field service personnel support
its sales force. In addition to the direct sales force at the Company's
headquarters in Exton, Pennsylvania, the Company has direct sales personnel
located in Georgia, Texas and California. The Company employs a direct
salesperson in France and also supports the European market through its North
American direct sales force. The Company covers the Asian market with a director
of sales and marketing and a direct salesperson based in Singapore. The Company
signed agreements with PKL Ltd. which markets in Korea, Innotech Corporation
("Innotech") the Company's agent in Japan in 1992, Ampoc Far East Company
Limited ("AMPOC") a sales agent in Taiwan in 1996, Silicon International Ltd
("Silicon International") the Company's sales distributor in the Peoples
Republic of China in 1997, and Aneric Enterprise Pte Ltd. ("Aneric") the
Company's sales agent in other areas of southeast Asia in 1997. See Part III,
Item 13 - "Certain Relationships and Related Transactions".
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 Exton,
Pennsylvania, with additional employees and consultants located in Arizona,
Colorado, Texas, Vermont, France, Germany, Taiwan and the United Kingdom. PKL
Ltd. and Innotech provide service to customers located in Korea and Japan,
respectively.
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Generally, the Company's support personnel have prior technical
backgrounds in the mechanical, electronic or chemical processing industries and
prior experience or training in semiconductor manufacturing processes. 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.
BACKLOG
The Company manages its production forecast using both backlog and
projected system orders. The Company includes in backlog only customer purchase
orders which have been accepted by the Company and for which shipment 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,
1999, the Company's backlog was approximately $10.6 million. As of October 31,
1998, the Company's backlog was approximately $8.8 million. It has been the
experience of the Company that neither the backlog nor the pattern of receipt of
orders is necessarily indicative of future orders or revenues.
RESEARCH, DEVELOPMENT AND ENGINEERING
CFM utilizes its applications and component testing laboratories 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 OMNI platform, the Company can reduce substantially the time and
cost required to develop new process applications by focusing primarily on the
optimization of each application's process recipe. The Company is currently
focusing its research, development and engineering efforts on equipment to
support additional wet process applications, to extend the productivity of the
current platform and to improve system reliability. In April 1998, the Company
shipped its first 300mm system. In November 1999 the Company received a
follow-on 300mm order based upon the success of the initial system. See "Forward
Looking Statements and 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 in order to support the standards required by
emerging target markets.
The Company's research, development and engineering expenses for the 1999,
1998 and 1997 fiscal years were $10.0 million, $11.5 million and $9.3 million,
respectively, representing 31.8%, 34.6% and 12.3% of net sales, respectively.
Research, development and engineering expenses were net of reimbursements of $0,
$0 and $890,000, respectively, for the 1999, 1998 and 1997 fiscal years.
COMPETITION
The Company faces substantial competition in its markets from both
established competitors and potential new entrants. The Company believes that
the primary competitive factors in the markets in which it competes are customer
satisfaction, yield, throughput, capital and direct costs, system performance,
size of installed base and breadth of product line. The Company believes that it
competes favorably with respect to each of these factors. The Company also faces
the challenge posed by the commitment of most semiconductor manufacturers to
entrenched, competing technologies.
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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 and marketing resources than the Company. In the semiconductor wet
processing market, the Company competes primarily with Dainippon Screen, FSI
International, SCP Global Technologies, STEAG Electronic Systems Inc., S.E.S.C.,
Ltd, Akrion, Semitool, Tokyo Electron Limited and Verteq. 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.
The Company believes that in order to remain competitive, it must invest
significant financial resources in developing new product features and
enhancements, defending its intellectual property 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 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 adversely affect the Company's business and
results of operations.
MANUFACTURING
The Company's primary manufacturing operations are based in Exton,
Pennsylvania, and consist of procurement, assembly and test engineering. The
Company also has operations in a Company owned facility in West Chester,
Pennsylvania, where it manufactures certain subassemblies. The Company leases a
60,000 square foot production facility in Exton, Pennsylvania. The facility more
than doubled the previous production capacity and was substantially completed as
of October 31, 1998. Occupancy of this new production facility took place in
February 1999.
The Company's OMNI and PRISM 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 February 1997, the
Company received ISO 9001 certification, which it continues to maintain.
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 has
supply contracts of up to one year in duration. The Company's reliance on
outside vendors generally, and on sole suppliers in particular, involves several
risks which are discussed in "Forward Looking Statements and Risk Factors - Sole
or Limited Sources of Supply." However, historically the Company has not
experienced any significant delays in manufacturing due to an inability to
obtain components, and the Company 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.
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REGULATORY MATTERS
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 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, the cost of 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, trade
secret laws, nondisclosure agreements, and other forms of intellectual property
protection to protect its proprietary technology. The Company currently holds
thirteen patents in the United States, eight patents in Japan, three patents in
Korea, one patent in Singapore, and thirteen patents in various European
countries. The Company also has multiple patent applications pending in the
United States and various foreign jurisdictions.
The technology covered in the existing patents includes the Company's
Full-Flow process and Direct-Displacement drying technologies upon which the
Company's current product offerings are based. While the Company recognizes 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 is involved in several lawsuits concerning intellectual
property. See Item 3 "Legal Proceedings".
EMPLOYEES
As of October 31, 1999, the Company had 258 employees, of which 221 were
full-time and the balance part-time employees. There were 76 employees in
manufacturing operations, 56 in research, development and engineering, 22 in
sales and marketing, 78 in customer satisfaction and field support and 26 in
general administrative and finance positions. Of the 258 total full-time
employees, 10 were located in Asia and 16 were located in Europe.
While the Company has generally been able to find qualified candidates to
fill new positions, personnel shortages occasioned by the strong economy and low
unemployment continue to make it more difficult to recruit qualified candidates
for certain positions in design, field support, testing and process engineering.
Once replacement personnel are recruited, the Company then faces the task of
training and integrating these new employees. There can be no assurance that the
Company will be successful in retaining, recruiting, training and integrating
the necessary key personnel following the end of the downturn in the
semiconductor equipment sector, and any failure to expand these areas in an
efficient manner could have a material effect on the Company's results of
operations. See "Forward Looking Statements and Risk Factors - Management of
Growth".
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.
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FORWARD LOOKING STATEMENTS AND RISK FACTORS
Statements in this Annual Report on Form 10-K, 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 manufacturing industry
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
in pending patent litigation, all of which constitute significant risks. For a
description of additional risks, see below. There can be no assurance that the
Company's results of operations will not be adversely affected by one or more of
these factors.
Fluctuations in Operating Results.
The Company incurred a net loss of approximately $10.5 million in fiscal
1999 and $11.8 million in fiscal 1998 due primarily to a decline in sales. 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,
before custom configurations, ranging from $1.2 million to $3.0 million per
system. Systems with custom configurations can be priced in excess of $4.1
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 near the end of a particular quarter may
cause net sales in that quarter to fall significantly below the Company's
expectations and thus may materially 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; variations in the types 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 industry 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 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, the Company has experienced and it is likely that in some
future quarter or quarters the Company will continue to experience operating
results which may be below the expectations of analysts and investors. In such
event, the price of the Company's Common Stock would likely be materially
adversely affected. See Item 7 and "Business-Industry Background".
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Acceptance by Customers of New Technology.
The Company's products all rely upon proprietary technology to accomplish
wet chemical processing during semiconductor manufacturing, which technology is
significantly different from the technological 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 400 or more) and suffers from limited control
measurement points during the overall fabrication process. Accordingly, managers
of semiconductor fabs have exhibited a strong resistance to changing equipment
and have been reluctant to embrace new technology, including the Company's wet
processing systems. Because a substantial investment is required by
semiconductor manufacturers to install and integrate capital equipment into a
semiconductor production line, these manufacturers will tend to choose
semiconductor equipment 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 manufacturers continue to extract marginal
improvements from existing wet processing technology in order to address issues
such as increases in feature density, reductions in line width and planned
increases in wafer size. 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. 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 cancellation, reduction or delay in orders from any of the
Company's significant customers, including cancellations, reductions or delays
due to market, economic or competitive conditions in the semiconductor industry,
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. As discussed under "Business-Manufacturing", certain
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, 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. Any inability to
obtain adequate or timely 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".
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Dependence on Limited Product Offerings.
To date, the Company's net sales have consisted primarily of sales to the
semiconductor industry, although the Company has developed and sold a version of
its wet processing system for use in Flat Panel Display ("FPD")manufacturing.
The Company will continue to offer for sale only those FPD system configurations
that have already been developed and tested.
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 OMNI
and PRISM 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 on 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 technology. 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 success of new system introductions 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 potential customers or
achieves widespread market acceptance.
Because of 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
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 adversely affect
the Company's business and results of operations. See "Business-Products" and
"Business-Research, Development and Engineering".
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Management of Growth.
The Company has previously undergone periods of rapid growth. It is
possible that a recovery in the semiconductor capital equipment sector could be
marked with another period of rapid growth. To accommodate this growth, the
Company would face the task of identifying, recruiting, training and integrating
new employees quickly enough to keep pace with such rapid growth, should it
occur. Many of the positions which are critical to supporting such growth
require experience with semiconductor capital equipment and recruitment of such
experienced personnel can be quite difficult. Another period of rapid growth may
also strain the Company's management, manufacturing, financial and other
resources. Any failure to expand these areas in an efficient manner in response
to such growth, should it occur, could have a material adverse effect on the
Company. See "Business-Employees".
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 and Vice President - Engineering, 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 retaining or
recruiting, training and integrating the necessary personnel to support such
growth, which could have a material adverse effect on the Company's results of
operations. See "Business-Employees" and "Executive Officers of the Registrant".
Lengthy Sales Cycle.
Sales of the Company's systems depend upon the decision of a prospective
customer to increase manufacturing capacity. These decisions typically involve
significant capital commitments or a change in process approach, which may
require the approval of a customer's 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. The
industry recently had an over-capacity situation which began during the period
between 1995 and 1997 when a significant number of new or expanded fabs were
brought into production, creating a significant over capacity and declining
prices for devices, especially DRAM.
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These events caused certain semiconductor manufacturers to postpone or
cancel equipment deliveries to previously planned expansions or new fab
construction projects which, in turn, resulted, according to an industry
analyst, in a 29% decline in the worldwide sales of semiconductor capital
equipment in 1998.
Current estimates project a 17% worldwide sales growth in the
semiconductor capital equipment market for 1999. Historically, a significant
portion of the Company's sales have been to Asian companies. The significant
over capacity in the semiconductor industry and the recent economic crisis in
Asia has had a material adverse effect on the Company's operating results in
fiscal 1998 and 1999. The Company has experienced cancellation of orders, and,
there can be no assurance that further order cancellations or reductions in
order growth or the level of overall orders for semiconductor capital equipment
will not have a further material adverse effect upon the Company's business or
results of operations. 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 continued or
future downturns in the semiconductor industry. The Company's net sales and
results of operations could be materially adversely affected if other downturns
or slowdowns in the semiconductor markets occur in the future.
International Sales.
Sales to customers located outside the United States accounted for
approximately 33% of the Company's net sales in fiscal 1999, 46% in fiscal 1998
and 65% in fiscal year 1997. 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 rates, 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.
Although management believes that it maintains good relationships with PKL,
Innotech, AMPOC, Silicon International and Aneric, there can be no assurance
that these relationships will continue. In the event of a termination of any of
the Company's representation, agency or distribution arrangements, the Company's
international sales could be adversely affected. Although the Company's sales
are curently 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 "Business-Sales and Marketing" and Part II, Item-7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations Overview".
Highly Competitive Industry.
As discussed more fully under "Business-Competition", the Company faces
substantial competition in its market segments from both established competitors
and potential new entrants. 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.
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In addition, increased competitive pressure could lead to intensified
price-based competition, resulting in lower prices and margins, which would
materially adversely affect the Company's business and results of operations.
Intellectual Property Rights
The Company relies on a combination of patent, copyright, trademark, and
trade secret laws, nondisclosure agreements, and other forms of intellectual
property protection to protect its proprietary technology. Currently the Company
is involved in several lawsuits concerning intellectual property. See "Business
- - Intellectual Property", and Item 3 "Legal Proceedings". In all of these cases,
there can be no assurance that any claim of the subject patents will be finally
adjudged to encompass use of the competitors' product 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 proceedings, 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 applications or that competitors will not legitimately be able
to ascertain proprietary information embedded in the Company's products, which
is not covered by patent or copyright. In such case, 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. 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.
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. See "Business-Manufacturing".
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 stocks 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.
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Year 2000 Issues
There can be no assurances that the Company will not experience serious
unanticipated negative consequences and/or material costs caused by undetected
errors or defects in technology used in its products or internal systems, which
are comprised predominantly of third-party software and hardware, or by the
inability of third-parties to adequately disclose and correct their Year 2000
issues. While the Company presently believes that the ultimate outcome of its
efforts to be Year 2000 ready will not have a material effect on the Company's
financial position, liquidity or operations, there can be no assurances that
unanticipated increased costs will not have a material effect on the results of
operations.
ITEM 2. PROPERTIES
In the first quarter of fiscal 1999, the Company conducted its
manufacturing in a 26,000 square foot facility which it owns in West Chester,
Pennsylvania. Occupancy of a new 60,000 square foot production facility located
in Exton, Pennsylvania occurred in February of 1999. Once the new facility
became fully operational, the Company converted its West Chester, Pennsylvania
facility to a multi-use facility that houses the Company's applications
laboratory, a training facility and manufacturing operations for production of
certain subassemblies. The applications laboratory is used for research and
development and as a marketing tool for prospective customers and to test new
processes using the Company's patented technology.
The Company also leased a 32,000 square foot prototype laboratory and
storage facility through June 1999.
In January 1996, the Company commenced occupancy of a 38,400 square foot
leased office building located in West Chester, to serve as the location for its
engineering, sales and marketing, customer satisfaction and administration
activities, prior to completion of its new facilities in Exton, Pennsylvannia.
The lease expires in November 2000. The Company has tenants that sublease
approximately 30% of this building until November 2000.
In April 1997, the Company leased an 8,023 square foot facility in the
same industrial park as its manufacturing facility for its customer satisfaction
staff. The lease on this facility expired in March 1999 at which time the
Company vacated the facility.
In April 1999, the Company occupied an 80,000 square foot office facility
in Exton, Pennsylvania, adjacent to its new 60,000 square foot production
facility. The Company moved its engineering, sales and marketing, customer
satisfaction and administrative functions to this new facility. The Company is
actively seeking a tenant for approximately 20,000 square feet of this facility.
See Note 16 of the Notes to Consolidated Financial Statements. The Company
believes that suitable additional space, if ultimately needed, will be available
on terms acceptable to the Company.
ITEM 3. LEGAL PROCEEDINGS
The Company has asserted claims of its U.S. Patent No. 4,911,761 (the "`761
patent") against defendants in two actions, CFMT, INC. AND CFM TECHNOLOGIES,
INC. V. STEAG MICROTECH, INC., Civil Action No. 95-CV442 and CFMT, INC. AND CFM
TECHNOLOGIES, INC. V. YIELDUP INTERNATIONAL CORP., Civil Action No. 95-549-RRM,
alleging infringement, inducement of infringement, and contributory infringement
of the patent. The Company asserted claims of U.S. Patent Nos. 4,778,532 (the
"`532 patent") and 4,917,123 (the "`123 patent") against the second defendant in
a subsequent action, CFMT, Inc and CFM Technologies. v. YieldUP International
Corp., Civil Action No. 98-790-RRM. In addition, the Company is also both a
defendant and a counterclaim plaintiff in a fourth litigation, DAINIPPON SCREEN
MANUFACTURING CO., LTD. AND DNS ELECTRONICS, LLC V. CFMT, INC. AND CFM
TECHNOLOGIES, INC., Civil Action No. 97-20270 JW, where the plaintiff seeks a
declaratory judgment of non-infringement and that the `761 patent is invalid and
the Company HAs counterclaimed alleging infringement, inducement of
infringement, and contributory infringement of both the `761 patent and U.S.
Patent Nos. 4,778,532 (the "`532 patent") and 4,917,123 (the "`123 patent").
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On July 10, 1995, the Company filed an action against STEAG Microtech,
Inc. ("STEAG") in the United States District Court for the District of Delaware.
The Company sought damages and a permanent injunction to prevent further
infringement. STEAG Microtech Inc. denied infringement and has asserted, among
other things, that the `761 patent is invalid ANd unenforceable. On December
12, 1997, following a two-week trial, the jury returned a verdict that STEAG
Microtech Inc. willfully infringed the `761 patent and that the patent was
not invalid. The jury awarded the Company damages of $3,105,000. The District
Court subsequently upheld the jury's verdict and entered final judgment and a
permanent injunction in the Company's favor. STEAG, appealed the verdict and
various rulings by the District Court to the Court of Appeals for the Federal
Circuit ("CAFC"). On May 13, 1999, the CAFC affirmed the judgment of the
District Court in all respects except one. With respect to infringement, the
CAFC vacated the judgment and remanded the case to the District Court for
reconsideration of its holding of literal infringement. On November 8, 1999 the
District Court issued an opinion that upheld the finding of literal infringement
and reinstated the judgement and injunction in favor of CFM. STEAG has appealed
this November 8, 1999 decision.
On September 11, 1995, the Company brought an action against YieldUP
International Corp. ("YieldUP") in the United States District Court for the
District of Delaware. The Company seeks damages and a permanent injunction to
prevent further infringement. YieldUP has denied infringement and has asserted,
among other things, that the subject patent is invalid and unenforceable. On
October 14, 1997, the District Court issued a decision granting summary judgment
in favor of YieldUP on the grounds that the process used in YieldUP processing
equipment does not infringe the `761 patent. THe District Court subsequently
granted the Company's request for reargument of the decision, and the Company
and YieldUP have submitted additional briefs on the issue. The District Court
has not issued a decision on the reargued summary judgment motion.
On December 30, 1998, the Company filed an additional lawsuit in Federal
Court in Wilmington, Delaware charging patent infringement of the `123 and `532
patents against YieldUP. The Company is seeking a permanent injunction
preventing YieldUP from using, making or selling equipment that violates these
patents and requests damages for past infringement. YieldUP amended its answer
to the Company's Complaint, asserting counter claims for alleged tortious
interference with prospective economic advantage and defamation, and seeking
compensatory and punitive damages. Fact discovery in this lawsuit closed on
December 10, 1999. Trial is currently scheduled for May 1, 2000.
In March, 1997, a third competitor, Dainippon Screen Mfg. Co. Ltd. and DNS
Electronics LLC (collectively "DNS"), filed a suit against the Company in the
United States District Court for the Northern District of California. In this
action, DNS requested the Court to declare that DNS does not infringe the
`761 patent and that the patent is invalid and unenforceable. DNS souGHt
monetary damages and injunctive relief for alleged violations of the Lanham Act,
unfair competition, tortious interference with prospective economic advantage,
and unfair advertising. The Court dismissed this action on the grounds of lack
of personal jurisdiction and absence of an indispensable party. DNS appealed
this ruling and the appellate court reversed the district court decision on
April 29, 1998. The causes of action relating to the Lanham Act, unfair
competition, tortious interference with prospective economic advantage, and
unfair advertising have been dismissed. The remainder of the case has been
returned to the district court. The Company has answered DNS's Complaint and has
counterclaimed, alleging infringement by DNS of the `532, `123, and `761
patents. Discovery is presently ongoing. A claims construction hearing was held
on November 12, 1999 and an initial claims construction Order issued on December
9, 1999. Trial currently set to begin in late September 2000.
20
<PAGE>
Furthermore, STEAG Microtech Inc. has filed nullification proceedings
against the Company's drying patents in Germany (DE68921757.8), UK (EP428,784),
France (EP428,784), Netherlands (23184), Ireland (66389) and Japan (2,135,270).
CFM chose to abandon the UK patent (UK EP428,784) because in its judgment, the
anticipated costs of defending the nullity action were not warranted in view of
the patent's limited added value to CFM's existing patent portfolio in the UK.
The Company is proceeding to defend the remaining patents, but may chose to
abandon one or more based on a cost benefit analysis. These proceedings could
result in the nullification of any or all of the subject patents in the
respective countries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the
Company's executive officers and key employees:
NAME AGE POSITION
---- --- --------
Steven T. Bay 43 Vice President-Marketing and Technical
Joseph E. Berger 41 Vice President-Worldwide Sales
Roger A. Carolin 44 President, Chief Executive Officer and Director
Jonathan A. Chlan 48 Director of Manufacturing
Heinrich S. Erhardt 55 Vice President-Product Development
Rudra N. Kar 43 Vice President-Engineering
Garry M. Mayers 46 Vice President-Customer Service
Christopher F. McConnell 46 Chairman of the Board of Directors
Lorin J. Randall 56 Vice President-Finance, Chief Financial
Officer, Secretary and Treasurer
Steven Verhaverbeke 34 Director of Process Technology
Alan E. Walter 45 Senior Vice President-Business Development
STEVEN T. BAY joined the Company in April 1992 and is currently Vice
President-Marketing and Technology. From July 1998 to February 1999 he served as
Vice President-Chief Technical Officer. From September 1994 to July 1998 he
served as Chief Technical Officer. From April 1992 to September 1994 he served
as Director of Technology. Mr. Bay was formerly 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.
JOSEPH E. BERGER joined the Company in June 1993 and is currently Vice
President-Worldwide Sales. He served as Vice President-Worldwide Sales and
Marketing from December 1995 to March 1999. 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 received his BS in Chemical
Engineering from the University of Virginia and his MBA from the Harvard
Business School.
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 the Harvard Business School.
21
<PAGE>
JONATHAN A. CHLAN joined the Company in January 1997 as Director of
Manufacturing. From 1993 to January 1997 he served as Director of Operations for
Echo Data Services, Inc., a disk duplication and fulfillment company. From 1984
to 1993 Mr. Chlan was the Director of Manufacturing of Commodore Business
Machines, Inc., a computer manufacturer.
HEINRICH S. ERHARDT joined the Company in January 1992 and is currently
Vice President-Product Development. From January 1992 to September 1996, he
served as Vice President-Engineering. 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. Mr. Erhardt resigned from the Company on
December 31, 1999 to become the sole-proprietor of one of the Company's
suppliers.
RUDRA N. KAR joined the Company in January 1999 as the Vice President
Engineering. From 1996 to 1998 he served as the Vice President, Engineering and
Process Technology for Integrated Process and Equipment Company ("IPEC"), a
manufacturer of CMP equipment and CMP-related products for use principally in
manufacturing of semiconductor devices. From 1995 to 1996 he served as the
Director, Product Engineering at IPEC. From 1992 to 1995 he was the General
Manager of FICO America, an assembly equipment manufacturer. Mr. Kar received
his BS degree from the Indian Institute of Technology and his MSME from Iowa
State and his MBA degree from The University of Phoenix.
GARRY M. MAYERS joined the Company in October 1996 as Vice
President-Customer Support. From April 1991 until October 1996, Mr. Mayers was
Director of World Wide Customer Support at ADE Corporation, a manufacturer of
metrology equipment for silicon wafers. Mr. Mayers attended Northeastern
University, majoring in electrical engineering.
CHRISTOPHER F. MCCONNELL founded the Company in May 1984 and served as
President and Chief Executive Officer until April 1991. In October 1990 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 several of the Company's patents.
Mr. McConnell is a director and Chairman of the Board of Directors of Batteries
Batteries, Inc., (NASDAQ: BATS) a company which is an assembler and distributor
of specialty batteries and cellular products.
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. Previously, Mr. Randall served as chief executive
officer or chief financial officer of three companies in the electronics or
software business. Mr. Randall received his BS in Accounting from The
Pennsylvania State University and his MBA from Northeastern University.
STEVEN VERHAVERBEKE joined the Company in February 1995 as Director of
Process Technology. 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 Ph.D. in Chemical
Engineering from K. U. Leuven, Belgium.
ALAN E. WALTER co-founded the Company in 1984 and currently serves as
Senior Vice President-Business Development. 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.
22
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
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:
FISCAL 1998 HIGH LOW
-------- -------
1st Quarter................................... $21.87 $13.50
2nd Quarter .................................. 19.37 10.75
3rd Quarter .................................. 15.00 8.00
4th Quarter .................................. 9.75 5.50
FISCAL 1999
1st Quarter................................... $12.25 $6.63
2nd Quarter .................................. 13.00 6.63
3rd Quarter................................... 11.13 7.00
4th Quarter .................................. 11.13 7.63
- ------------------------------------------------------------------------------
These prices reflect inter-dealer quotations, without retail mark-ups,
mark-downs or other fees or commissions, and may not necessarily represent
actual transactions.
As of January 13, 2000, the closing quotation for the Common Stock was
$9.75. As of January 13, 2000, there were approximately 175 holders of record
and the Company believes that there were approximately 4,000 beneficial owners
of the Company's Common Stock.
The Company has never declared or paid a cash dividend 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 its Board of Directors and will be dependent on the earnings,
financial condition and capital requirements of the company as well as any other
factors deemed relevant by its Board of Directors.
ITEM 6. 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 report. The consolidated
statement of operations data for the fiscal years ended October 31, 1997, 1998
and 1999 and the consolidated balance sheet data as of October 31, 1998 and 1999
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 operations data for the fiscal years ended
October 31, 1995 and 1996 the consolidated balance sheet data as of October 31,
1995, 1996 and 1997 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 reports not included herein. This data
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto and Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere herein.
23
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED OCTOBER 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Net sales ................... $31,563 $33,155 $75,772 $44,013 $23,430
Cost of sales ............... 20,997 24,426 40,072 23,317 13,463
------- ------- ------- ------- -------
Gross profit ............. 10,566 8,729 35,700 20,696 9,967
------- ------- ------- ------- -------
Operating Expenses:
Research, development and
engineering ........... 10,040 11,496 9,334 4,375 1,717
Selling, general and
administrative ........ 17,812 17,568 19,360 11,679 5,972
------- ------- ------- ------- -------
Total operating expenses 27,852 29,064 28,694 16,054 7,689
------- ------- ------- ------- -------
Operating income(loss) ...... (17,286) (20,335) 7,006 4,642 2,278
Interest (income) ........... (1,658) (2,048) (2,163) (271) (72)
Interest expense ............ 249 242 281 428 245
------- ------- ------- ------- -------
Income (loss) before income
taxes ..................... (15,877) (18,529) 8,888 4,485 2,105
Income tax provision
(benefit) ................. (5,398) (6,746) 2,666 1,525 703
------- ------- ------- ------- -------
Net income (loss) ........... $(10,479) $(11,783) $6,222 $2,960 $1,402
======= ======= ======= ======= =======
Net income (loss)
per common share:
Basic ................... $(1.34) $(1.49) $0.85 $0.64 $0.37
======= ======= ======= ======= =======
Diluted ................. $(1.34) $(1.49) $0.80 $0.61 $0.35
======= ======= ======= ======= =======
Shares used in computing net
income (loss) per common
share:
Basic ................... 7,849 7,908 7,318 4,624 3,802
======= ======= ======= ======= =======
Diluted ................. 7,849 7,908 7,764 4,831 3,994
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 31,
----------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents
and short-term
investments ....... $24,216 $41,394 $12,254 $ 46,181 $ 408
Working capital ...... 45,070 64,266 27,525 81,796 8,136
Total assets ......... 82,086 89,813 44,251 109,496 18,454
Long-term debt, less
current portion ... 1,628 2,186 2,525 2,571 3,005
Shareholders' equity . 66,693 77,782 32,711 89,868 9,775
</TABLE>
24
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
CFM Technologies, Inc. designs, manufactures and markets advanced wet
processing equipment for sale to the worldwide semiconductor manufacturing
industry. 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, recent sales of which have ranged in
price from approximately $1.2 million to $3.0 million. As of October 31, 1999,
the Company had shipped over 220 processing vessels (some shared-module systems
have two processing vessels) to more than 30 manufacturers worldwide. During
fiscal 1999, the Company's net sales declined slightly from fiscal 1998 and the
Company realized a net loss of $10.5 million. Fiscal 1998 net sales declined
significantly from fiscal 1997 and the Company realized a net loss of $11.8
million. Both fiscal 1999 and 1998 losses were the result of lower net sales
because of continued excess production capacity in the semiconductor
manufacturing industry. Prior to fiscal 1998, the Company had been undergoing a
period of rapid growth with net sales during fiscal 1997 increasing by 72% over
net sales for fiscal 1996. Net sales of Full-Flow systems to companies in the
Flat Panel Display ("FPD") manufacturing industry represented 0%, 6% and 24% of
total net sales, primarily international sales, in fiscal 1999, 1998 and 1997,
respectively. Following an analysis of the size of the FPD wet processing
equipment market, the potential for successful market penetration and the
volatility of that market, the Company will offer for sale only those FPD system
configurations that have already been developed and tested and does not
anticipate significant continuing sales to manufacturers of FPD's.
The Company sells its systems worldwide and records a significant portion
of its sales to customers outside the United States. In fiscal 1999,
international sales constituted approximately 33% of net sales, down from 46% in
fiscal 1998 and 65% in fiscal 1997.
Sales to customers in East Asia represented 29%, 28% and 47% of total
sales in fiscal 1999, 1998 and 1997, respectively. Beginning in the fall of 1997
and continuing through most of 1999, the currencies and economies of certain
Asian countries, including Korea, were distressed. Some of these Asian countries
subsequently experienced changes in currency valuation, received external
financial support and agreed to certain economic reorganization programs
anticipated to reduce growth and credit demand.
The Company reduced its staff in fiscal 1998 by approximately 30% in
response to reductions in demand for its products and services. The Company
adopted a strategy of continued investment in new product and process
development and the retention of field and customer support personnel necessary
to improve customer satisfaction. The significant decline in overall demand for
the Company's products in the global marketplace resulted in significant losses.
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, the timing of
the recovery from the downturn in capital spending by the Company's customers,
the impact of economic controls in countries where the Company does business,
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 industry 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 underabsorption of manufacturing overhead and fixed
costs, the mix and average selling prices of systems and the mix of sales to
domestic and international markets. The Company pays significant commissions and
service and support fees to agents on sales in East Asia. As a result, gross
margin and selling, general and administrative expenses as a percentage of net
sales have in the past and will continue in the future to fluctuate with
significant changes in the proportion of net sales in East Asia.
25
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the components of the Company's statements
of operations for the fiscal years ended October 31, 1999, 1998 and 1997,
expressed as a percentage of net sales:
FISCAL YEAR ENDED OCTOBER 31,
-----------------------------------
1999 1998 1997
---- ---- ----
Net sales ....................... 100.0% 100.0% 100.0%
Cost of sales ................... 66.5 73.7 52.9
----- ----- -----
Gross profit ............ 33.5 26.3 47.1
----- ----- -----
Operating expenses:
Research, development and
engineering .............. 31.8 34.6 12.3
Selling, general and .......
administrative ........... 56.4 53.0 25.6
----- ----- -----
Total operating expenses 88.2 87.6 37.9
----- ----- -----
Operating income (loss) ......... (54.8) (61.3) 9.2
Interest (income) expense, net .. (4.5) (5.4) (2.5)
----- ----- -----
Income (loss) before income taxes (50.3) (55.9) 11.7
Income tax provision (benefit) .. (17.1) (20.4) 3.5
----- ----- -----
Net income (loss) ............... (33.2)% (35.5)% 8.2%
===== ===== =====
Net Sales. Net sales decreased 5% to $31.6 million in fiscal 1999 from
$33.2 million in fiscal 1998. Net sales for fiscal 1998 decreased 56% from $75.8
million in fiscal 1997. The decrease in net sales in both fiscal 1999 and 1998
resulted primarily from a reduction in overall demand for semiconductor
manufacturing equipment as semiconductor device manufacturers curtailed
expansion plans because of industry-wide overcapacity. Net sales for fiscal 1998
and 1997 included sales of Full-Flow systems to companies in the FPD
manufacturing industry representing approximately 6% and 24%, respectively, of
net sales. The Company will continue to offer for sale only those FPD system
configurations that have already been developed and tested, which it believes
will be small portion of net sales in fiscal 2000 and thereafter.
International sales represented 33%, 46% and 65% of total net sales in
fiscal 1999, 1998 and 1997, respectively. The Company expects international
sales to continue to represent a significant portion of its net sales. For a
description of economic events in Asian countries and their effects on the
Company, see "Overview".
Gross Profit. Gross profit as a percentage of net sales was 33.5%, 26.3%
and 47.1% in fiscal 1999, 1998 and 1997, respectively. Gross profit in fiscal
1999, and more so in 1998, declined as a result of underabsorption of
manufacturing overhead and fixed costs because of low production levels relative
to fiscal 1997 and because of price competition from competitors which
underutilized production capacity. The Company occupied a new 60,000 square foot
production facility in February of 1999 which more than doubled its previous
production capacity. This new facility has generated operating efficiencies
through improved material flow. Such efficiencies are anticipated to increase
with increasing production volume. Gross profit will continue to be affected by
sales prices, product mix and production levels.
Research, Development and Engineering. Research, development and
engineering expenses decreased to $10.0 million or 31.8% of net sales in fiscal
1999 from $11.5 million or 34.6% of net sales in 1998. Fiscal 1998 expenses
increased over fiscal 1997, which were $9.3 million or 12.3% of net sales. In
fiscal 1998, the Company funded a portion of the costs of a joint development
agreement with Semiconductor 300 which culminated in production validation of
the Company's first Full-Flow platform to process 300mm semiconductor wafers and
its associated processes. The Company believes that having a production-ready
300mm system positions it favorably to compete for sales of wet processing
equipment to support the next generation of wafers for use in semiconductor
manufacturing. The Company believes that continued substantial investment in
research, development and engineering is critical to maintaining a strong
technological position and, therefore, competitive advantage and accordingly
expects such expenses in fiscal 2000 will continue at approximately the fiscal
1999 level.
26
<PAGE>
Selling, General and Administrative. Selling, general and administrative
expenses remained relatively constant in fiscal 1999 at $17.8 million or 56.4%
of net sales from $17.6 million or 53.0% of net sales in fiscal 1998. Fiscal
1998 expenses decreased from $19.4 million or 25.6% of net sales in fiscal 1997
as a result of reduced sales and sales commission expenses. Fiscal 1999 expenses
include approximately $2.9 million of litigation expenses undertaken to protect
the Company's patents compared to $2.2 million in fiscal 1998. Litigation
expenses are expected to be $1.0 to 1.5 million per quarter in fiscal 2000 as a
result of two scheduled jury trials. See Part I, Item 3, "Legal Proceedings".
The Company believes that, subject to improved demand in the markets which it
serves, selling, general and administrative expenses will increase in fiscal
2000, as increased personnel and sales and support expenses are anticipated in
connection with the Company's efforts to increase its net sales and as the
Company continues to invest in developing and protecting its patents and other
intellectual property rights.
Interest (Income) Expense, Net. Interest income, net of interest expense,
of $1.4 million in fiscal 1999 represented 4.5% of net sales, compared to $1.8
million or 5.4% of net sales in fiscal 1998 and $1.9 million or 2.5% of net
sales in fiscal 1997. Net interest income for fiscal 1999, 1998 and 1997 was
earned as a result of the investment of funds not immediately required for the
Company's operations which were available as a result of the Company's follow-on
offering completed in February 1997. Net interest income declined in fiscal 1999
and 1998 as a result of lower invested balances and lower interest rates.
Income Tax Provision (Benefit). The Company's effective tax benefit rate
was 34.0% in fiscal 1999 compared to a benefit rate of 36.4% for fiscal 1998.
The effective income tax benefit rate primarily reflects the absence of any tax
impact from the Company's foreign sales corporation based on the loss incurred
for both fiscal 1999 and 1998. The effective tax rate for 1997 was 30.0%. The
rate for fiscal 1997 reflected tax benefits from a reinstitution of the research
and development tax credit along with significant tax benefits from the
Company's foreign sales corporation.
Approximately $2.2 million of income tax benefits were realized as a
refund in 1999 from the carryback of 1998 losses to prior years' tax returns.
The remainder of the tax benefits from fiscal 1998 and all of 1999 have been
recorded as deferred tax assets. Based on an assessment of the Company's taxable
earnings history and expected future taxable income, management has determined
that it is more likely than not that the net deferred tax assets will be
realized in future periods. The Company may be required to provide a valuation
allowance for these assets in the future if it does not generate sufficient
taxable income as planned. Additionally, the ultimate realization of these
assets could be negatively impacted by market conditions and other variables not
known or anticipated at this time.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has funded its capital requirements
through funding from two research and development limited partnerships, the
private sale of equity securities, the Company's initial public offering of
Common Stock completed in June 1996, a follow-on offering of Common Stock
completed in February 1997 and, to a lesser extent, bank borrowings and
equipment leases. As of October 31, 1999, the Company had $24.2 million in cash,
cash equivalents and short-term investments and $45.1 million in working
capital.
Net cash used in operating activities was $10.2 and $12.1 million for
fiscal 1999 and 1997, respectively, while net cash of $0.3 million was provided
by operating activities in fiscal 1998, predominantly as a result of significant
net collections of accounts receivable. The Company had a net loss of $10.5
million in fiscal 1999 and a net loss of $11.8 in fiscal 1998. Accounts
receivable increased $0.8 million in fiscal 1999 and decreased $19.4 million in
fiscal 1998. Inventories increased $3.4 million in fiscal 1999 and decreased
$2.4 million in fiscal 1998. Inventories increased in fiscal 1999 to meet
forecasted fiscal 2000 sales. Fiscal 1999 inventory balances also include
equipment at a customer site for joint process development in anticipation of a
subsequent customer purchase.
27
<PAGE>
Purchases of property, plant and equipment were $5.7 million and $3.9
million in fiscal 1999 and 1998, respectively. During fiscal 1999, capital
expenditures were primarily related to equipment for and improvements to the
Company's new leased manufacturing and office facilities occupied during 1999.
In addition, the Company constructed and capitalized one of its systems for
development and testing of new hardware and software under production
conditions. In fiscal 1998, capital expenditures primarily were for continued
investment in the Company's applications laboratory and improvements to the
leased facilities occupied by the Company during fiscal 1999.
During fiscal 1998, production activities were consolidated and leased
premises in the same industrial park as the Company's owned manufacturing and
leased administrative facilities were reduced to 8,000 square feet, and were
subsequently vacated in March 1999. The Company's new 60,000 square foot
production facility was occupied in February 1999 and its new 80,000 square foot
office facility was occupied in April 1999; both facilities are located in
Exton, Pennsylvania adjacent to each other. During fiscal 1998, the Company
leased 32,000 square feet of temporary prototype laboratory and storage facility
which was vacated during fiscal 1999. The Company has retained its owned
facility in West Chester, Pennsylvania for use in manufacturing, customer and
employee training and research. All other functions are now located in Exton.
The Company also has a lease on its vacated former office facility in West
Chester, Pennsylvania, which will expire in November of 2000. Since August 1999,
the Company has had tenants that sublease approximately 30% of this building.
The Company has a relationship with a commercial bank which includes a
mortgage on the Company's manufacturing facility in the amount of $0.7 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 unsecured and borrowings are at
an interest rate equal to such bank's prime rate. There were no borrowings
outstanding at October 31, 1999.
The Company also has mortgage notes payable to the Pennsylvania Industrial
Development Authority in the amount of $0.5 million bearing interest at 2.0% and
to the Chester County Development Council in the amount of $0.1 million bearing
interest at 5.0%. In addition, the Company has outstanding capital lease
obligations in the amount of $1.0 million bearing interest at rates ranging from
7% to 12% per annum.
The Company had outstanding accounts receivable of $14.8 million and $14.0
million as of October 31, 1999 and 1998, respectively. No allowance for doubtful
accounts receivable has been recorded as the Company believes that all such
accounts receivable are fully realizable.
The Company believes that existing cash balances will be sufficient to
meet the Company's cash requirements through the next twelve 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. The discussions above regarding the Company's expectations of future
sales, gross profits, research, development and engineering expenses, selling,
general and administrative expenses, use of deferred tax assets, product
introductions and cash requirements include certain forward-looking statements
on these subjects. 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 specific geographic areas where the
Company may have a concentration of business, in the semiconductor manufacturing
industry 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, risks of non-payment of accounts
receivable, changes in budgeted costs or failure to realize a successful outcome
to pending patent litigation, all of which constitute significant risks. There
can be no assurance that the Company's results of operations will not be
adversely affected by one of more of these factors.
28
<PAGE>
YEAR 2000
Beginning January 1, 2000, all computer systems that use two digits to
represent the year were at risk of malfunction or failure. Many systems continue
to run, but may interpret any date in the year '00 to be prior to any date in
the year '99, posing potential data comparison problems, or may fail to
recognize that the year 2000, unlike 1900, is a leap year. Businesses and
systems that use a four-digit format to report and process dates later than
December 31, 1999 are often denoted as "Year 2000 compliant". While many systems
have no date comparison functions and operate in a date-independent mode, they
may have a date function. If full system operation and correct display of dates
subsequent to January 1, 2000 are possible, these systems may be denoted as
"Year 2000 operationally ready". Many systems and subsystems using two digit
dates will operate smoothly until the end of their technological or economic
life without regard to the actual date. These systems are unaffected by whether
it is 2000 or 1900, make no "real-time" date comparisons and have no date
display features. At the other extreme are systems which will cease functioning
or malfunction when an unacceptable date is perceived.
Background
The Company's Chief Financial Officer was selected by the Company's senior
management as the coordinator for the Company's Year 2000 compliance efforts. A
team was formed with active participation by the information systems,
purchasing, software engineering, marketing and customer services departments
and has been working since 1997 to enable the Company to meet its Year 2000
readiness goal.
The Company focused its Year 2000 efforts on four categories of potential
exposure:
Products - This encompasses the Company's products offered for sale and the
products that are currently in service at customer sites.
Business applications and infrastructure - This includes all client/server,
desktop and network hardware and software used in routine business
operations.
Business relationships and third parties - This includes the supply chain
for the Company's products, customers and service providers, including
banks, insurance companies, payroll and pension plan administrators,
legal, accounting and consulting firms, as well as public utilities,
long distance telecommunications providers, transportation and
overnight delivery companies and local government services.
Non-Information Technology ("Non-IT") - This includes embedded
microprocessors used in building facilities, manufacturing equipment
and systems and control systems and instrumentation.
State of Readiness
For the two week period following January 1, 2000, the Company can report
that there have been no incidents with its products, business applications and
infrastructure, business relationships with third parties or non-information
technology events that interfered with or interrupted its business operations or
those of its customers. While there are risks going forward of encountering Year
2000 issues, the Company believes these issues will not cause any material
interruptions to the Company or its customers.
29
<PAGE>
Costs to Address Year 2000 Issues
Costs to address Year 2000 issues have primarily been incurred internally.
As the Company does not have a project tracking system, past and future Year
2000 costs can only be estimated. Costs associated with the Company's Year 2000
efforts were estimated to be approximately $45,000. The new telecommunications
equipment, heating and air-conditioning systems, and elevators acquired in
Exton, PA are the result of moving to newly built facilities and not a result of
Year 2000 issues. There may be additional costs incurred for unforeseen Year
2000 issues. All costs will be funded out of general operating funds and are not
expected to be material.
Risks of the Company's Year 2000 Issues
Although not expected, the most likely worst case scenario includes the
inability of vendors to supply product on a timely basis and the inability of
customers to take delivery of currently ordered equipment, order more equipment
or to pay the Company for products already purchased. To date, there has been no
evidence of any vendors inability to supply product as a result of Year 2000
issues.
Management will, in conjunction with its customers, continue to evaluate
currently identified and as yet unforeseen potential Year 2000 issues in its
products that could adversely affect customers' production capabilities.
There can be no assurances that the Company will not experience serious
unanticipated negative consequences and/or material costs caused by undetected
errors or defects in technology used in its products or internal systems, which
are comprised predominantly of third-party software and hardware, or by the
inability of third-parties to adequately disclose and correct their Year 2000
issues. While the Company presently believes that the ultimate outcome of its
efforts to be Year 2000 ready will not have a material effect on the Company's
financial position, liquidity or operations, there can be no assurances that
unanticipated increased costs will not have a material effect on the results of
operations.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1 requires
that certain costs related to the development or purchase of internal-use
software be capitalized and amortized over the estimated useful life of the
software, and is effective for fiscal years beginning after December 15, 1998.
SOP 98-1 also requires that costs related to the preliminary project stage and
post implementation/operations stage in an internal-use computer software
development project be expensed as incurred. Management believes that the
adoption of SOP 98-1 will not have a material impact on the Company's financial
position or results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133). SFAS No. 133 is
effective for fiscal years beginning after June 15, 2000. SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
derivatives used for hedging activities. SFAS No. 133 requires that all
derivatives be recognized either as an asset or liability and measures them
at fair value. Management believes that the adoption of SFAS No. 133 will
not have a material impact on the Company's financial statements.
30
<PAGE>
EFFECTS OF INFLATION
Inflation has not been a material factor affecting the Company's business.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
The Company's exposure to market risk for changes in interest rates
relates primarily to the Company's investment portfolio and long-term debt
obligations. The Company does not use derivative financial instruments in its
investment portfolio. The Company places its investments with high credit
quality issuers and by policy, is averse to principal loss and ensures the
safety and preservation of its invested funds by limiting default risk, market
risk and reinvestment risk. As of October 31, 1999, the Company's investments
consisted primarily of municipal and government securities that mature in one
year or less. As of October 31, 1999, the Company's fixed rate long-term debt
consists of mortgage notes and capital lease obligations.
Foreign Currency Risk
The Company does not use foreign currency forward exchange contracts or
purchased currency options to hedge local currency cash flows or for trading
purposes. All sales arrangements with international customers are denominated in
U.S. dollars. The Company has subsidiary operations in Scotland, France, Taiwan
and Singapore which are subject to currency fluctuations. These foreign
subsidiaries are limited in their operations and level of investment by the
parent company so that the risk of currency fluctuations is not expected to be
material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The audited financial statements of the Company appear beginning on Page
F-1 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
31
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item with respect to directors will be
set forth in the Company's definitive Proxy Statement, to be filed within 120
days after the end of the fiscal year covered by this Annual Report on Form
10-K, and is incorporated by reference to the Proxy Statement. The information
required by this Item with respect to Executive Officers is set forth under
"Executive Officers of the Registrant".
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item will be set forth in the Company's
definitive Proxy Statement, to be filed within 120 days after the end of the
fiscal year covered by this Annual Report on Form 10-K, and is incorporated by
reference to the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item will be set forth in the Company's
definitive Proxy Statement, to be filed within 120 days after the end of the
fiscal year covered by this Annual Report on Form 10-K, and is incorporated by
reference to the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item will be set forth in the Company's
definitive Proxy Statement, to be filed within 120 days after the end of the
fiscal year covered by this Annual Report on Form 10-K, and is incorporated by
reference to the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
The financial statements and financial statement information required by
this Item are included on pages F-1 through F-21 of this report. The Report of
Independent Public Accountants appears on page F-2 of this report.
All other schedules have been omitted because they are inapplicable, not
required, or the information is included elsewhere in the financial statements
or notes thereto.
32
<PAGE>
EXHIBITS
The following is a list of exhibits. Where so indicated by footnote,
exhibits which were previously filed are incorporated by reference. For exhibits
incorporated by reference, the location of the exhibit in the previous filing is
indicated in parentheses.
EXHIBIT
NUMBER
3.1 Articles of Incorporation of CFM Technologies, Inc., as amended.*
3.1.1 Amendment to Articles of Incorporation.**
3.2 Amended and Restated By-Laws of CFM Technologies, Inc.*
4.1 Form of Common Stock Certificate.*
4.2 Statement with Respect to Shares filed with the Pennsylvania Department
of State on May 1, 1997.*****
10.1 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.*
10.2 Stock Option Agreement dated as of December 9, 1994 by and between CFM
Technologies, Inc. and Milton Stearns, as amended on November 3, 1995.*
10.3 CFM Technologies, Inc. Annual Profit Sharing Plan.*
10.3.1 Amendment to CFM Technologies, Inc. Annual Profit Sharing Plan.***
10.4 CFM Technologies, Inc. 1992 Employee Stock Option Plan.*
10.5 Amended and Restated CFM Technologies, Inc. 1995 Incentive Plan.****
10.6 Amended and Restated CFM Technologies, Inc. Non-Employee Directors'
Stock Option Plan.****
10.7 CFM Technologies, Inc. Employee Stock Purchase Plan.*
10.8 Rights Agreement dated as of April 24, 1997 between CFM Technologies,
Inc. and American Stock Transfer and Trust Co., as Rights Agent.*****
10.9 Distributor Agreement dated November 28, 1991 by and between ANAM
Semiconductor Design Co., Ltd. and CFM Technologies, Incorporated, 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.*
33
<PAGE>
10.11.1 Amendment Number Two to Lease Agreement dated April 30, 1996 by and
between CFM Technologies, Inc. and Hough/Loew Construction, Inc.***
10.12 Commercial Lease Agreement dated December 16, 1996 between CFM
Technologies, Inc. and Devereux Properties, Inc.***
10.12.1 First Amendment to Commercial Lease Agreement dated August 22, 1997
between CFM Technologies, Inc. and Devereux Properties, Inc.#.
10.13 Loan Agreement dated July 27, 1994 by and between Chester County
Development Council("CCDC") and CFM Technologies, Incorporated.*
10.14 $100,000 Mortgage dated as of July 27, 1994, CFM Technologies,
Incorporated to CCDC.*
10.15 Guaranties dated October 13, 1995 executed by CFMT, Inc. and CFM
International Corp. in favor of CoreStates Bank, N.A. ("CoreStates").*
10.16 Mortgage dated February 16, 1994 between CFM Technologies, Incorporated
and CoreStates.*
10.17 Assignment of Leases, Rents, Agreements of Sale, Licenses and Permits
dated February 16, 1994 by CFM Technologies, Inc. to CoreStates.*
10.18.1 Agent Agreement dated December 16, 1996 between CFM Technologies, Inc.
and Ampoc Far East Company Limited.***
10.18.2 Amendment Number 2 dated October 4, 1999 between CFM Technologies, Inc.
and Ampoc Far East Company Limited.
10.18 Amendment Number 3 dated December 27, 1999 between CFM Technologies,
Inc. and Ampoc Far East Company Limited.
10.19 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.*
10.20 Lease Agreement dated July 16, 1997 between CFM Technologies, Inc. and
CFM Partners (No relationship with CFM Technologies, Inc.). #
10.21 Agent Agreement dated April 15, 1997 by and between Aneric Enterprise
PTE Limited and CFM Technologies, Inc. #
10.22 Agent Agreement dated October 29, 1997 by and between Silicon
International Ltd. and CFM Technologies, Inc. #
10.23 Agent Agreement dated January 7, 1999 by and between PKL Ltd. And CFM
Technologies, Inc. ##
34
<PAGE>
10.24 Employment Agreement dated as of December 2, 1998 by and between CFM
Technologies, Inc. and Rudra N. Kar.
10.25 Employment Agreement dated as of October 25, 1999 by and between CFM
Technologies, Inc. and Lorin J. Randall.
10.26 License Agreement dated December 28, 1998 between STEAG MICROTECH, INC.
and CFM Technologies, Inc.
21 Subsidiaries of the registrant.
23.1 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
- -------------
* Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (Registration No. 33-80359) declared effective on June 18,
1996.
** Incorporated by reference to the Registrant's definitive Proxy Statement
dated and filed on February 13, 1997.
*** Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (Registration No. 333-20325), filed on January 24, 1996, and
the Amendment No. 1 to such Registration Statement filed on January 27,
1997.
**** Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended April 30, 1997.
***** Incorporated by reference to the Registrant's Registration Statement on
Form 8-A filed on April 24, 1997.
# Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended October 31, 1997.
## Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended October 31, 1998.
REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K during the fiscal quarter ended
October 31, 1999.
35
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants .............................F-2
Consolidated Balance Sheets as of October 31, 1999 and 1998...........F-3
Consolidated Statements of Operations for the years ended
October 31, 1999, 1998 and 1997 ................................F-4
Consolidated Statements of Shareholders' Equity for the years ended
October 31, 1999, 1998 and 1997.................................F-5
Consolidated Statements of Cash Flows for the years ended
October 31, 1999, 1998 and 1997 ................................F-6
Notes to Consolidated Financial Statements ...........................F-7
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, 1999 and 1998, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended October 31, 1999. 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
October 31, 1999, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Philadelphia, Pa.,
December 10, 1999
F-2
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31,
-----------------------------
1999 1998
---- ----
ASSETS
(IN THOUSANDS)
CURRENT ASSETS:
Cash and cash equivalents ................ $ 13,967 $ 31,649
Short-term investments ................... 10,249 9,745
Accounts receivable ...................... 14,826 14,040
Inventories .............................. 17,039 13,657
Prepaid expenses and other ............... 796 3,209
Deferred income taxes .................... 1,958 1,811
-------- --------
Total current assets .................. 58,835 74,111
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land ..................................... 540 540
Building and improvements ................ 5,932 5,981
Machinery and equipment .................. 14,239 9,599
Furniture and fixtures ................... 1,565 1,423
-------- --------
22,276 17,543
Less - Accumulated depreciation and
amortization .......................... (8,739) (6,377)
-------- --------
Net property, plant and equipment ... 13,537 11,166
-------- --------
OTHER ASSETS ................................... 9,714 4,536
-------- --------
$ 82,086 $ 89,813
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt .......... $ 589 $ 672
Accounts payable ........................... 3,930 1,800
Accrued expenses ........................... 9,246 7,373
-------- --------
Total current liabilities .............. 13,765 9,845
-------- --------
LONG-TERM DEBT ................................. 1,628 2,186
-------- --------
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; 30,000,000
authorized shares; 8,035,328 and 7,964,366
shares issued ............................ 81,495 81,033
Treasury stock, 223,100 and 96,200 shares
at cost .................................. (1,858) (762)
Deferred compensation ...................... (23) (47)
Retained earnings (deficit) ................ (12,921) (2,442)
-------- --------
Total shareholders' equity ............... 66,693 77,782
-------- --------
$ 82,086 $ 89,813
======== ========
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED OCTOBER 31,
--------------------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NET SALES ..................... $31,563 $33,155 $75,772
COST OF SALES ................. 20,997 24,426 40,072
-------- -------- --------
Gross profit ............. 10,566 8,729 35,700
-------- -------- --------
OPERATING EXPENSES:
Research, development and
engineering ............... 10,040 11,496 9,334
Selling, general and
administrative ............ 17,812 17,568 19,360
-------- -------- --------
Total operating expenses . 27,852 29,064 28,694
-------- -------- --------
Operating income (loss) .. (17,286) (20,335) 7,006
INTEREST (INCOME) ............. (1,658) (2,048) (2,163)
INTEREST EXPENSE .............. 249 242 281
-------- -------- --------
Income (loss) before income
taxes ..................... (15,877) (18,529) 8,888
INCOME TAX PROVISION (BENEFIT) (5,398) (6,746) 2,666
-------- -------- --------
NET INCOME (LOSS) ............. $(10,479) $(11,783) $ 6,222
======== ======== ========
NET INCOME (LOSS) PER
COMMON SHARE:
Basic ................... $(1.34) $(1.49) $0.85
======== ======== ========
Diluted ................. $(1.34) $(1.49) $0.80
======== ======== ========
SHARES USED IN COMPUTING
NET INCOME (LOSS)
PER COMMON SHARE:
Basic ................... 7,849 7,908 7,318
======== ======== ========
Diluted ................. 7,849 7,908 7,764
======== ======== ========
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK DEFERRED RETAINED
------------------ ------------------ COMPEN- EARNINGS
SHARES AMOUNT SHARES AMOUNT SATION (DEFICIT) TOTAL
------ ------ ------ ------ ------ --------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 31, 1996 .................. 6,053 $29,592 -- $ -- $ -- $ 3,119 $32,711
Proceeds from sale of common stock, net .. 1,751 49,288 -- -- -- -- 49,288
Proceeds from exercise of stock options .. 96 545 -- -- -- -- 545
Tax benefit from exercise of stock options -- 764 -- -- -- -- 764
Deferred compensation charge ............. -- 317 -- -- (317) -- --
Amortization of deferred compensation .... -- -- -- -- 82 -- 82
Common stock issued under Employee
Stock Purchase Plan .................... 14 256 -- -- -- -- 256
Net income ............................... -- -- -- -- -- 6,222 6,222
-------- ------- -------- -------- -------- -------- --------
BALANCE, OCTOBER 31, 1997 .................. 7,914 80,762 -- -- (235) 9,341 89,868
Proceeds from exercise of stock options .. 1 6 -- -- -- -- 6
Tax benefit from exercise of stock options -- (2) -- -- -- -- (2)
Deferred compensation adjustment ......... -- (164) -- -- 164 -- --
Amortization of deferred compensation .... -- -- -- -- 24 -- 24
Common stock issued under Employee
Stock Purchase Plan ................... 49 425 -- -- -- -- 425
Options issued for services .............. -- 6 -- -- -- -- 6
Purchase of treasury shares, at cost ..... -- -- 96 (762) -- -- (762)
Net loss ................................. -- -- -- -- -- (11,783) (11,783)
-------- ------- -------- -------- -------- -------- --------
BALANCE, OCTOBER 31, 1998 .................. 7,964 81,033 96 (762) (47) (2,442) 77,782
Proceeds from exercise of stock options .. -- 2 -- -- -- -- 2
Deferred compensation charge ............. -- 16 -- -- (16) -- --
Amortization of deferred compensation .... -- -- -- -- 40 -- 40
Common stock issued under Employee
Stock Purchase Plan .................... 71 444 -- -- -- -- 444
Purchase of treasury shares, at cost ..... -- -- 127 (1,096) -- -- (1,096)
Net loss ................................. -- -- -- -- -- (10,479) (10,479)
-------- ------- -------- -------- -------- -------- --------
BALANCE, OCTOBER 31, 1999 .................. 8,035 $81,495 223 $(1,858) $ (23) $(12,921) $66,693
======== ======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) .............................. $(10,479) $(11,783) $ 6,222
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization ................ 3,116 3,085 2,317
Loss on property, plant and equipment disposal 223 421 --
Deferred compensation ........................ 24 30 82
Deferred income tax benefit .................. (5,436) (4,578) (757)
(Increase) decrease in:
Accounts receivable ........................ (786) 19,352 (18,302)
Inventories ................................ (3,382) 2,424 (8,034)
Prepaid expenses and other ................. 2,413 (1,500) (1,347)
Other assets ............................... 73 120 (186)
Increase (decrease) in:
Accounts payable ........................... 2,130 (5,909) 2,780
Accrued expenses ........................... 1,881 (1,377) 5,161
------- ------- -------
Net cash provided by(used in) operating
activities ................................ (10,223) 285 (12,064)
------- ------- -------
INVESTING ACTIVITIES:
Purchases of short-term investments ............ (44,820) (28,993) (44,245)
Proceeds from short-term investments ........... 44,316 38,564 27,875
Purchases of property, plant and equipment ..... (5,680) (3,920) (4,286)
------- ------- -------
Net cash provided by (used in) investing
activities ...... ......................... (6,184) 5,651 (20,656)
------- ------- -------
FINANCING ACTIVITIES:
Payments on long-term debt ..................... (641) (819) (576)
Proceeds from sale of common stock, net ........ 460 425 49,544
Purchase of treasury shares .................... (1,096) (762) --
Proceeds from exercise of stock options ........ 2 6 545
Tax benefits from exercise of stock options .... -- (2) 764
------- ------- -------
Net cash provided by(used in) by financing
activities ............................... (1,275) (1,152) 50,277
------- ------- -------
NET DECREASE INCREASE IN CASH AND CASH EQUIVALENTS . (17,682) 4,784 17,557
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ..... 31,649 26,865 9,308
------- ------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD ........... $13,967 $31,649 $26,865
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest expense ................. $ 196 $ 296 $ 284
Cash received for interest income .............. 1,670 2,185 1,975
Cash paid for income taxes ..................... 10 1,795 2,031
Cash received from income tax refunds .......... 2,505 3,023 --
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Machinery acquired under capital leases ........ $ -- $ 489 $ 750
</TABLE>
The accompanying notes are an integral part of these financial 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
industry.
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 Short-Term Investments
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents. Short-term
investments are carried at amortized cost which equals market value. The
investments have various maturity dates which generally do not exceed one year.
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
shareholders' equity. At October 31, 1999 and 1998, there were no material
unrealized holding gains or losses. The gross proceeds from sales and maturities
of investments were $44,316,000, $38,564,000 and $27,875,000 for the years ended
October 31, 1999, 1998 and 1997, respectively. Gross realized gains and losses
for the years ended October 31, 1999 1998 and 1997 were not material. For the
purpose of determining gross realized gains and losses, the cost of securities
sold is based upon specific identification.
F-7
<PAGE>
Cash and cash equivalents and short-term investments consisted of the
following:
OCTOBER 31,
-------------------------------
1999 1998
---- ----
Cash and cash equivalents:
Municipal and government
securities ................. $ 5,055,000 $ 6,568,000
Money market funds and demand
accounts .................. 5,126,000 16,822,000
Commercial paper ............. 3,123,000 5,034,000
Repurchase agreements ........ 663,000 3,225,000
----------- -----------
$13,967,000 $31,649,000
=========== ===========
Short-term investments:
Municipal and government
securities ................ $ 4,555,000 $ 8,260,000
Commercial paper ............ 5,694,000 985,000
Mortgage-backed government
securities ................ -- 500,000
=========== ===========
$10,249,000 $ 9,745,000
=========== ===========
Inventories
Inventories are valued at the lower of first-in, first-out cost or market.
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 the straight-line method
based on the estimated useful lives of the assets as follows:
Building and improvements .................. 5-40 years
Machinery and equipment .................... 3-10 years
Furniture and fixtures ..................... 5-10 years
Depreciation and amortization expense was $3,086,000, $3,025,000 and
$2,294,000 in fiscal 1999, 1998 and 1997, respectively.
Revenue Recognition
Net sales are generally recognized upon shipment of the system. If
recognized prior to shipment to accommodate a customer's request to delay
shipment, revenue is recognized upon completion of the customer's 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.
F-8
<PAGE>
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 $0, $0 and $890,000 in fiscal 1999, 1998 and 1997,
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 No. 109, "Accounting for Income Taxes" (SFAS No. 109). 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 and
debt instruments. The book values of cash and cash equivalents, short-term
investments, accounts receivable and accounts payable are considered to be
representative of their respective fair values. None of the Company's debt
instruments that are outstanding as of October 31, 1999 have readily
ascertainable market values; however, the carrying values are considered to
approximate their respective fair values. See Note 8 for the terms and carrying
values of the Company's various debt instruments.
Net Income (Loss) Per Common Share
Basic net income (loss) per common share was computed by dividing net
income (loss) by the weighted average number of shares of common stock
outstanding during the period. Diluted net income per common share for the
fiscal year ended October 31, 1997 reflects the potential dilution from the
exercise of outstanding stock options into common stock. Inclusion of shares of
common stock potentially issuable upon the exercise of stock options in
calculating diluted net loss per common share for the years ended October 31,
1999 and 1998, would have been antidilutive, and therefore such shares were not
included in the calculation. The Company adopted SFAS No. 128, "Earnings per
Share," effective December 15, 1997. As a result, the Company's reported
earnings per share for the year ended October 31, 1997 were restated.
F-9
<PAGE>
The net income (loss) and weighted average common and common equivalent
shares outstanding for purposes of calculating net income (loss) per common
share are computed as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income (loss) used for basic
and diluted net income (loss)
per common share ....................... $(10,479,000) $(11,783,000) $6,222,000
============ ============ ==========
Weighted average common shares outstanding
used for basic net income (loss)
per common share......................... 7,849,000 7,908,000 7,318,000
Dilutive effect of common stock
options outstanding .................... -- -- 446,000
------------ ------------ ----------
Weighted average common and common equivalent
shares outstanding used for diluted net
income (loss) per common share........... 7,849,000 7,908,000 7,764,000
============ ============ ==========
Net income (loss) per common share:
Basic .................................. $(1.34) $(1.49) $0.85
============ ============ ==========
Diluted ................................ $(1.34) $(1.49) $0.80
============ ============ ==========
</TABLE>
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 "Disclosures about Segments of an
Enterprise and Related Information" (SFAS No. 131). SFAS No. 131 applies to all
public companies and is effective for fiscal years beginning after December 15,
1997. SFAS No. 131 requires that business segment financial information be
reported in the financial statements utilizing the management approach. The
management approach is defined as the manner in which management organizes the
segments within the enterprise for making operating decisions and assessing
performance. Management believes that the Company operates in one industry
segment and, accordingly, the adoption of SFAS No. 131 had no impact on the
Company's financial statements.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1 requires
that certain costs related to the development or purchase of internal-use
software be capitalized and amortized over the estimated useful life of the
software, and is effective for fiscal years beginning after December 15, 1998.
SOP 98-1 also requires that costs related to the preliminary project stage and
post implementation/operations stage in an internal-use computer software
development project be expensed as incurred. Management believes that the
adoption of SOP 98-1 will not have a material impact on the Company's financial
position or results of operations.
F-10
<PAGE>
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133). SFAS No. 133 is effective for fiscal
years beginning after June 15, 2000. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for derivatives used for hedging
activities. SFAS No. 133 requires that all derivatives be recognized either as
an asset or liability and measures them at fair value. Management believes that
the adoption of SFAS No. 133 will not have a material impact on the Company's
financial statements.
Reclassifications
Certain reclassifications of previously reported balances have been made
to conform with the current year classification of such balances.
3. ACCOUNTS RECEIVABLE:
OCTOBER 31,
----------------------------
1999 1998
---- ----
Billed $13,760,000 $10,058,000
Unbilled 1,066,000 3,982,000
=========== ===========
$14,826,000 $14,040,000
=========== ===========
Unbilled receivables represent final retainage amounts to be billed upon
completion of the installation process.
As of October 31, 1999, the Company had outstanding accounts receivable
totaling $2,446,000 from a customer who purchased several of the Company's
systems for Korean installations.
No allowance for doubtful accounts receivable has been recorded because
the Company believes that all such accounts receivable are fully realizable.
4. INVENTORIES:
OCTOBER 31,
---------------------------
1999 1998
---- ----
Raw material $ 9,282,000 $ 8,669,000
Work in progress 6,813,000 4,988,000
Finished goods 944,000 --
----------- -----------
$17,039,000 $13,657,000
=========== ===========
5. OTHER LONG-TERM ASSSETS:
OCTOBER 31,
---------------------------
1999 1998
---- ----
Deferred income taxes $9,440,000 $4,157,000
Other 274,000 379,000
========== ==========
$9,714,000 $4,536,000
========== ==========
F-11
<PAGE>
6. LINE OF CREDIT:
The Company has a $7,500,000 unsecured 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. Interest is
charged at the bank's prime rate and was 8.25% at October 31, 1999. As of
October 31, 1999 and 1998, the Company had no borrowings on the line. The line
also provides for the issuance of letters of credit. As of October 31, 1999, the
Company had outstanding letters of credit in the amount of $423,000 guaranteeing
payments associated with its new leased facility in Exton, Pennsylvania (see
Note 16) and guaranteeing payments related to inventory in a foreign location.
7. ACCRUED EXPENSES:
OCTOBER 31,
--------------------------
1999 1998
---- ----
Warranty and installation costs $2,815,000 $2,016,000
Payroll and payroll related 1,740,000 1,263,000
Accrued legal fees 521,000 1,195,000
Accrued commissions 573,000 1,608,000
Other 2,923,000 1,965,000
---------- ----------
$9,246,000 $7,373,000
========== ==========
8. LONG-TERM DEBT:
<TABLE>
<CAPTION>
OCTOBER 31,
---------------------------
1999 1998
---- ----
<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 $ 700,000 $ 775,000
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 467,000 510,000
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 55,000 64,000
Term notes payable to bank, payable in monthly installments of $5,834
plus interest at the bank's prime rate plus 1% through October 1999,
collateralized by certain assets - 104,000
Capitalized lease obligations, lease periods expiring at various dates
through 2003, interest rates range from 7% to 12%, collateralized by
the leased assets 995,000 1,405,000
---------- ----------
2,217,000 2,858,000
Less - Current portion (589,000) (672,000)
---------- ----------
$1,628,000 $2,186,000
========== ==========
</TABLE>
F-12
<PAGE>
Maturities of long-term debt as of October 31, 1999 are as follows:
FISCAL YEAR
-----------
2000 $ 589,000
2001 492,000
2002 297,000
2003 146,000
2004 132,000
2005 and thereafter 561,000
----------
$2,217,000
==========
The mortgage note due to PIDA contains certain financial covenants, the
most restrictive of which requires minimum levels of shareholders' equity.
The Company leases machinery and equipment and furniture and fixtures
under capital leases expiring in various years through 2003. 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, 1999 was $932,000. The minimum lease payments,
including interest, under the capital lease obligations as of October 31, 1999
were $546,000, $408,000, $176,000 and $13,000 for fiscal 2000, 2001, 2002 and
2003, respectively.
9. SHAREHOLDERS' EQUITY:
On April 17, 1997, the Company's Board of Directors adopted a Shareholder
Rights Plan designed to protect the Company's shareholders in the event of an
attempt to acquire control of the Company on terms which do not deal fairly with
all of the Company's shareholders. Terms of the Rights Plan provide for a
dividend distribution of one right for each share of Common Stock to holders of
record at the close of business on May 9, 1997. The rights will become
exercisable only in the event, with certain exceptions, an acquiring party
accumulates, or announces an offer to acquire, 20% or more of the Company's
Common Stock. The rights will expire on April 24, 2007. Each right will entitle
the holder to buy one one-hundredth of a share of a new series of preferred
stock at a price of $180. In addition, upon the occurrence of certain events,
holders of the rights will be entitled to purchase either Company stock or
shares in an "acquiring entity" at one-half of market value. The Company will
generally be entitled to redeem the rights at $.001 per right at any time until
the tenth day following the acquisition of 20% of its Common Stock.
On February 19, 1997, the Company consummated a follow-on public offering
of its Common Stock. The Company sold 1,750,500 shares (including the
underwriters' over-allotment) of its Common Stock, no par value, at an offering
price of $30.00 per share. After deducting the underwriters' discount and other
offering expenses, the net proceeds to the Company were approximately
$49,288,000.
On June 21, 1996, the Company consummated an initial public offering of
its Common Stock. The Company sold 2,249,661 shares (including the underwriters'
over-allotment) 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 approximately
$19,976,000.
F-13
<PAGE>
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, 1999 and 1998, employee withholdings included in
accrued expenses were $66,000 and $36,000, respectively.
During fiscal 1999, 1998 and 1997, 70,662 and 49,939 and 13,829 shares of
Common Stock, respectively, were issued under the Purchase Plan.
On June 9, 1998, the Board of Directors authorized the Company to
repurchase up to 750,000 shares of the Company's Common Stock in open market,
privately negotiated or other transactions in conformity with the rules of the
Securities and Exchange Commission. As of October 31, 1999, the Company had
repurchased 223,100 shares of the Company's common stock at a cost of
$1,858,046.
10. STOCK OPTIONS:
The Company has a stock option plan (the 1992 Plan) whereby options to
purchase common shares 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 authorize the granting of up
to 1,750,000 shares of Common Stock or options to purchase Common Stock 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-14
<PAGE>
The following table summarizes stock option activity:
<TABLE>
<CAPTION>
WEIGHTED
RANGE OF AVERAGE
EXERCISE EXERCISE
NUMBER OF PRICES PER PRICE PER
SHARES SHARE SHARE
------------ -------------- ---------
<S> <C> <C> <C>
Options outstanding at
October 31, 1996............... 745,323 $0.24-$10.75 $ 5.10
Granted...................... 401,600 18.25-38.625 21.01
Exercised.................... (96,335) 2.41-18.25 5.66
Canceled..................... (11,480) 7.52-18.25 9.18
---------- ------------- --------
Options outstanding at
October 31, 1997.............. 1,039,108 0.24-38.6257 11.14
Granted..................... 307,767 7.625-19.937 12.56
Exercised................... (839) 7.516 7.52
Canceled ................... (77,743) 7.516-38.625 21.49
---------- ------------- --------
Options outstanding at
October 31, 1998.............. 1,268,293 0.24-36.138 10.95
Granted .................... 227,766 7.125-11.688 7.35
Exercised................... (300) 7.516 7.52
Canceled ................... (57,239) 7.125-18.25 10.97
---------- ------------- --------
Options outstanding at
October 31, 1999.............. 1,438,520 $0.24-$36.13 $10.35
========== ============= ========
</TABLE>
The following table summarizes information regarding stock options outstanding
as of October 31, 1999:
OPTIONS
OPTIONS OUTSTANDING EXERCISABLE
------------------------------------- ---------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER REMAINING EXERCISE NUMBER WEIGHTED
RANGE OF OUTSTANDING CONTRACTUAL PRICE EXERCISABLE AVERAGE
EXERCISE AT OCTOBER LIFE IN PER AT OCTOBER EXERCISE
PRICES 31, 1999 YEARS SHARE 31, 1999 PRICE
- --------------------------------------------------------------------------------
$ 0.24 3,327 2.2 $ 0.24 3,327 $ 0.24
$ 2.41 330,053 3.5 $ 2.41 330,053 $ 2.41
$ 7.125 172,252 9.1 $ 7.13 4,645 $ 7.13
$ 7.516 223,707 5.9 $ 7.52 218,618 $ 7.52
$ 7.625 71,365 8.8 $ 7.63 20,622 $ 7.63
$ 7.75-$10.938 101,150 9.2 $ 8.72 55,371 $ 9.17
$ 11.563-$13.875 27,800 8.5 $11.57 27,200 $11.57
$ 14.313 112,553 8.1 $14.31 5,790 $14.31
$ 15.745-$17.75 47,907 8.3 $16.97 24,521 $16.74
$ 18.25 305,250 7.1 $18.25 211,900 $18.25
$ 19.938-$36.13 43,156 7.4 $33.59 20,621 $31.56
F-15
<PAGE>
As of October 31, 1999, there were 983,383 stock options available for
grant under the Company's stock option plans.
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and the related interpretations in
accounting for its stock option plans. The disclosure requirements of Statement
of Financial Accounting Standards No. 123 "Accounting for Stock Based
Compensation" (SFAS No. 123) were adopted by the Company in fiscal 1997. Had
compensation cost for options granted during fiscal 1999, 1998 and 1997 under
the stock option plans, as well as the Common Stock issued under the Purchase
Plan (see Note 9), been determined based upon the fair value of the options and
Common Stock at the date of grant, as prescribed by SFAS No. 123, the Company's
pro forma net income (loss) and pro forma net income (loss) per common share
would have been reduced to the following amounts:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income (loss)............................ $(10,479,000) $(11,783,000) $6,222,000
Pro forma net income (loss) (11,871,000) (12,994,000) 5,369,000
Net income (loss) per common share:
Basic ................................. (1.34) (1.49) 0.85
Diluted ............................... (1.34) (1.49) 0.80
Pro forma net income (loss) per common share:
Basic ................................. (1.56) (1.68) 0.74
Diluted ............................... (1.56) (1.68) 0.69
</TABLE>
The weighted average fair value of each stock option granted during the years
ended October 31, 1999, 1998 and 1997 was $4.13, $6.67 and $13.36,
respectively. As of October 31, 1999, the weighted average remaining
contractual life of each stock option outstanding was 6.4 years. The weighted
average remaining contractual life of each stock option granted during the
years ended October 31, 1999, 1998 and 1997 was 9.2, 8.4 and 7.2 years,
respectively. The fair value of each option grant is estimated on the date of
grant using the Black - Scholes option pricing model with the following
weighted average assumptions:
YEAR ENDED OCTOBER 31,
---------------------------------------
1999 1998 1997
---- ---- ----
Risk - free interest
rate .......................... 4.66% 5.37% 6.26%
Expected dividend yield ......... - - -
Expected life ................... 5.5 years 5.5 years 5.5 years
Expected volatility ............. 58% 58% 53%
Because additional option grants are expected to be made each year, the
above pro forma disclosures are not representative of pro forma effects of
reported net income for future years.
In fiscal 1997, the Company granted stock options to purchase an aggregate
of up to 56,000 shares of Common Stock to an employee and certain consultants
for which the Company has recorded deferred compensation based upon the
difference between the deemed value for accounting purposes of the Company's
Common Stock and the exercise price per share on the date of option grant. The
deferred compensation balance will be amortized as compensation expense over the
option vesting periods which range from one to four years. In fiscal 1998, the
Company granted stock options to purchase up to 1,205 shares of Common Stock to
a consultant in exchange for services provided to the Company. In fiscal 1999
the Company granted stock options to purchase up to 2,585 shares of Common Stock
to consultants in exchange for services provided to the Company. The difference
between the deemed value for accounting purposes of the Company's Common Stock
and the exercise price per share on the date of option grant was recorded as an
expense.
F-16
<PAGE>
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 of 1986, as amended. The plan provides for
matching contributions by the Company at a discretionary percentage of eligible
pre-tax contributions by the employee. Matching contributions by the Company
were $308,000, $310,000 and $206,000 for the years ended October 31, 1999, 1998
and 1997, 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 the achievement of certain annual performance results. The Company recorded
profit sharing expense of $0, $ 0 and $175,000 for the years ended October 31,
1999, 1998 and 1997, respectively.
12. RELATED PARTY TRANSACTIONS:
The Company recorded commission expense in fiscal 1999, 1998 and 1997 of
$597,000, $391,000 and $3,948,000, respectively, related to commissions payable
to a sales agent which is partially owned by a shareholder of the Company.
Commissions payable to this sales agent included in accrued expenses as of
October 31, 1999 and 1998 were $377,000 and $1,437,000, respectively. The
distributor is controlled by an individual who is a director and shareholder of
the Company. The Company also recorded net sales in fiscal 1998 and 1997 of
$4,891,000 and $6,760,000, respectively, to a semiconductor company controlled
by the same director of the Company.
13. INCOME TAXES:
The components of income (loss) before income taxes are as follows:
YEAR ENDED OCTOBER 31,
--------------------------------------------------
1999 1998 1997
---- ---- ----
Domestic $(15,972,000) $(18,707,000) $7,729,000
Foreign 95,000 178,000 1,159,000
------------ ------------ ----------
$(15,877,000) $(18,529,000) $8,888,000
============ ============ ==========
The components of the income tax provision (benefit) are as follows:
YEAR ENDED OCTOBER 31,
-----------------------------------------------
1999 1998 1997
---- ---- ----
Current:
Federal $ - $(2,280,000) $2,936,000
Foreign 38,000 116,000 412,000
State - (4,000) 75,000
----------- ----------- ----------
38,000 (2,168,000) 3,423,000
----------- ----------- ----------
Deferred:
Federal (5,362,000) (4,528,000) (732,000)
State (74,000) (50,000) (25,000)
----------- ----------- ----------
(5,436,000) (4,578,000) (757,000)
----------- ----------- ----------
$(5,398,000) $(6,746,000) $2,666,000
=========== =========== ==========
F-17
<PAGE>
Income tax expense (benefit) differs from the amount currently payable or
receivable 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:
YEAR ENDED OCTOBER 31,
-------------------------------
1999 1998 1997
---- ---- ----
Federal statutory rate .................... (34.0)% (34.0)% 34.0%
State income taxes, net of
federal benefit ......................... (0.3) (0.2) 0.4
Foreign and U.S. tax effects attributable
to foreign operations 0.1 0.3 (4.9)
Research and development credit ........... (0.1) (0.9) (0.3)
Other ..................................... 0.3 (1.6) 0.8
------ ------ ------
(34.0)% (36.4)% 30.0%
====== ====== ======
The components of the net current and long-term deferred tax assets and
liabilities, measured under SFAS No. 109, are as follows:
OCTOBER 31,
-------------------------------
1999 1998
---- ----
Deferred tax assets-
Net operating loss carry
forwards..................... $8,026,000 $2,715,000
Tax credit carry forwards 1,557,000 1,374,000
Inventories ................... 445,000 400,000
Warranty and installation
accrual ..................... 957,000 685,000
Commissions.................... 244,000 387,000
Other ......................... 285,000 435,000
----------- -----------
11,514,000 5,996,000
Deferred tax liability-
Depreciation ................. (116,000) (28,000)
----------- -----------
Net deferred tax asset ..... $11,398,000 $5,968,000
=========== ===========
Based on an assessment of the Company's taxable earnings history and
expected future taxable income, management has determined that it is more likely
than not that the net deferred tax assets will be realized in future periods.
The Company may be required to provide a valuation allowance for this asset in
the future if it does not generate sufficient taxable income as planned.
Additionally, the ultimate realization of this asset could be negatively
impacted by market conditions and other variables not known or anticipated at
this time.
F-18
<PAGE>
14. CUSTOMER AND GEOGRAPHIC INFORMATION:
The Company's operations are conducted in one business segment. Export net
sales were $10,430,000, $15,228,000, and $49,019,000 in fiscal 1999, 1998 and
1997, respectively. Export net sales to Europe and East Asia were $1,138,000 and
$9,293,000 in fiscal 1999, $5,982,000 and $9,245,000 in fiscal 1998 and
$13,427,000 and $35,592,000 in fiscal 1997, respectively,
The following table summarizes significant customers with net sales in
excess of 10% of net sales:
YEAR ENDED OCTOBER 31,
----------------------------------------
CUSTOMER 1999 1998 1997
-------- ---- ---- ----
A ....................... $7,914,000 $6,499,000 *
B ....................... 4,504,000 * *
C ....................... * 4,891,000 *
D ....................... * 4,404,000 $ 8,534,000
E ....................... * 3,452,000 *
F ....................... * 3,427,000 *
G ....................... * * 16,100,000
- ----------
* 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 for office
facilities with an expiration date in November 2000 and annual rental payments
of $548,000 per year. In fiscal 1997, the Company entered into a non-cancelable
agreement to lease a 60,000 square foot production facility and an 80,000 square
foot office facility to be built for the Company in Exton, Pennsylvania. The
operating lease has an initial term of 20 years and minimum annual rental
payments of $1,482,250 for each year of the initial term. Options to extend the
term of the lease for a total of 9.5 additional years at minimum annual rental
payments of not more than $1,518,037 and a subsequent additional 5.5 years at
fair market value are included in the lease. Rentals began on the production
facility in October 1998 and rentals on the office facility began in April 1999.
The Company occupied the production facility in February 1999 and the office
facility in April 1999.
Future minimum rental payments as of October 31, 1999 on these leases are as
follows:
FISCAL YEAR
-----------
2000 $1,582,000
2001 1,482,000
2002 1,482,000
2003 1,482,000
2004 1,482,000
Thereafter 21,087,000
F-19
<PAGE>
The Company has asserted claims of its U.S. Patent Nos. 4,911,761 (the
"761 patent"), 4,778,532 (the "`532 patent") and 4,917,123 (the "`123) patent
against three defendants in four actions, alleging infringement, inducement of
infringement, and contributory infringement of various claims of these patents.
In the first of these actions, on December 12, 1997, a jury in the United States
District Court for the District of Delaware returned a verdict that the
defendant willfully infringed the `761 patent, that the `761 patent was not
invalid and awarded the Company damages of $3,105,000. The defendant appealed
the verdict and various rulings by the District Court. On May 13, 1999, the
United States Court of Appeals for the Federal Circuit ("CAFC") affirmed the
judgment of the District Court in all respects except one. With respect to
infringement, the CAFC vacated the judgment and remanded the case to the
District Court for reconsideration of its holding of literal infringement. On
November 8, 1999, the District Court issued an opinion that upheld the finding
of literal infringement by the defendant and reinstated the judgement and
injunction in favor of the Company. The defendant has appealed this decision.
In the second action on the `761 patent, the Company seeks damages and a
permanent injunction to prevent further infringement. The District Court issued
a decision granting summary judgment in favor of the defendant stating that the
`761 patent was not infringed. The District Court has subsequently agreed to
reconsider this decision and has not yet acted on this reconsideration. The
Company has sued this same defendant in a separate, third action over the `532
and `123 patents. The defendant has asserted counter claims for alleged tortious
interference with prospective economic advantage and defamation, and seeks
compensatory and punitive damages. Discovery in this action closed on December
10, 1999 and the related trial is scheduled to begin for May 2000.
In addition, the Company is both a defendant and a counterclaim plaintiff
in a fourth litigation where the plaintiff seeks a declaratory judgment that the
`761 patent is not infringed and that the `761 patent is invalid. The Company
has counterclaimed alleging infringement and contributory infringement of all of
the `761, `532 and `123 patents. Discovery is presently ongoing. A claims
construction hearing was held on November 12, 1999, and an initial claims
construction order issued on December 9, 1999. Trial currently is scheduled for
late September, 2000.
Furthermore, in Europe, a competitor has filed nullification proceedings
against the Company's drying patents in Germany (DE68921757.8), UK (EP428,784),
France (EP428,784), Netherlands (23184), and Ireland (66389). The same
competitor filed a similar nullification proceeding in Japan (2,135,270). The
Company chose to abandon the UK patent (UK EP 428,784) because in its judgment,
the anticipated costs of defending the nullity action were not warranted in view
of the patent's limited added value to its existing patent portfolio in the UK.
The Company is proceeding to defend the remaining patents, but may choose to
abandon one or more based on a cost benefit analysis. These remaining
proceedings could result in the nullification of any or all of the subject
patents in the respective countries.
Although management believes that the ultimate resolution of these matters
will not have a material negative impact on the Company's financial position or
results of operations, there can be no assurance in that regard.
F-20
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
CFM Technologies, Inc.
By: /s/ ROGER A. CAROLIN
---------------------------------------
Roger A. Carolin
President and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, THIS REPORT HAS BEEN
SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE
CAPACITIES AND ON THE DATE INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ CHRISTOPHER F. MCCONNELL Chairman of the Board January 21, 2000
- ----------------------------- of Directors
/s/ ROGER A. CAROLIN President, Chief Executive January 21, 2000
- ----------------------------- Officer and Director
(Principal Executive
Officer)
/s/ LORIN J. RANDALL Vice President, Chief January 21, 2000
- ----------------------------- Financial Officer,
Treasurer and Secretary
(Principal Financial
Officer and Principal
Accounting Officer)
/s/ JAMES J. KIM Director January 21, 2000
- -----------------------------
/s/ BRAD S. MATTSON Director January 21, 2000
- -----------------------------
/s/ JOHN F. OSBORNE Director January 21, 2000
- ------------------------------
/s/ MILTON S. STEARNS, JR. Director January 21, 2000
- -----------------------------
E-1
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1 Articles of Incorporation of CFM Technologies, Inc., as
amended*
3.1.1 Amendment to Articles of Incorporation.**
3.2 By-Laws of CFM Technologies, Inc.* - amended
4.1 Form of Common Stock Certificate.*
4.2 Statement with Respect to Shares filed with the Pennsylvania
Department of State on May 1, 1997.*****
10.1 Employment Agreement dated as of January 9, 1995 by and between
CFM Technologies, Inc. and Lorin Jeffry 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 Amended and Restated CFM Technologies, Inc. 1995 Incentive
Plan.****
10.7 Amended and Restated CFM Technologies, Inc. Non-Employee
Directors' Stock Option Plan.****
10.8 CFM Technologies, Inc. Employee Stock Purchase Plan.*
10.9 Rights Agreement dated as of April 24, 1997 between CFM
Technologies, Inc. and American Stock Transfer and Trust Co., as
Rights Agent.*****
10.10 Distributor Agreement dated November 28, 1991 by and between ANAM
Semiconductor Design Co., Ltd. and CFM Technologies,
Incorporated, and supplement to the Distributor Agreement dated
August 26, 1994.*
10.11 Distributor Agreement dated March 3, 1992 by and between Innotech
Corporation and CFM Technologies, Inc., as modified on June 15,
1994.*
10.12 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.*
10.12.1 Amendment Number Two to Lease Agreement dated April 30, 1996 by
and between and CFM Technologies, Inc. and Hough/Loew
Construction, Inc.***
10.13 Commercial Lease Agreement dated December 16, 1996 between CFM
Technologies, Inc. and Devereau Properties, Inc.***
10.13.1 First Amendment to Commercial Lease Agreement dated August 22,
1997 between CFM Technologies, Inc. and Devereau Properties, Inc.
10.14 Loan Agreement dated July 27, 1994 by and between Chester County
Development Council("CCDC") and CFM Technologies, Incorporated.*
10.15 $100,000 Mortgage dated as of July 27, 1994, CFM Technologies,
Incorporated to CCDC.*
10.16 Guaranties dated October 13, 1995 executed by CFMT, Inc. and CFM
International Corp. in favor of Corestates Bank, N.A.
("CoreStates").*
10.17 Mortgage dated February 16, 1994 between CFM Technologies,
Incorporated and Corestates.*
10.18 $150,000 Commercial Promissory Note dated September 28, 1994 from
CFM Technologies, Incorporated to Corestates.*
10.19 $100,000 Commercial Promissory Note dated August 11, 1994 from
CFM Technologies, Incorporated 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.*
10.23 Lease Agreement dated July 16, 1997 between CFM Technologies,
Inc. and CFM Partners (No relationship with CFM Technologies,
Inc.).
10.24 Agent Agreement dated April 15, 1997 by and between Aneric
Enterprise PTE Limited and CFM Technologies, Inc.
10.25 Agent Agreement dated October 29, 1997 by and between Silicon
International Ltd. and CFM Technologies, Inc.
21 Subsidiaries of the registrant.
23.1 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
- -------------
* Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (Registration No. 33-80359) declared effective on June 18,
1996.
** Incorporated by reference to the Registrant's definitive Proxy Statement
dated and filed on February 13, 1997.
*** Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (Registration No. 333-20325), filed on January 24, 1997, and
the Amendment No. 1 to such Registration Statement filed on January 27,
1997.
**** Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended April 30, 1997.
***** Incorporated by reference to the Registrant's Registration Statement on
Form 8-A filed on April 24, 1997.
Exhibit 10.18.1
AMENDMENT NUMBER 2
This agreement shall amend a certain Distributor Agreement (the "Agreement")
made and entered into 16 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 a as "Agent") and CFM
TECHNOLOGIES, INC., a Pennsylvania corporation, with its principal place of
business located at 150 Oaklands Boulevard, Exton, Pennsylvania, 19341
(hereinafter referred to as the "Company").
TERM
The term of the Agreement is hereby extend until 16 December 2001.
COMMISSIONS
Commissions for systems sold for use in semiconductor manufacturing shall be
paid at the following rates:
1. The first system sold to Taiwan Semiconductor Manufacturing Corporation,
its subsidiaries or affiliates ("TSMC"), shall earn commission at the rate
of 9%. All subsequent sales to TSMC shall earn commission at the rate of
6%.
2. The systems sold to United Microelectronics Corporation, it subsidiaries or
affiliates ("UMC"), shall earn commission at the rate of 6%.
3. The 300mm systems sold during the term of the Agreement shall earn
commission at the rate of 8%.
4. The first system sold to any customer who is not a current customer or the
subsidiary or affiliate of a current customer shall earn commission at the
rate of 7%.
5. The sale of all other systems shall earn commission at the rate of 4.5%
6. Only one commission rate shall apply to each sale.
1
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment this 4th day
of October 1999.
CFM TECHNOLOGIES, INC.
/s/ Roger A. Carolin
---------------------------------------
Roger A. Carolin
President and Chief Executive Officer
AMPOC FAR EAST COMPANY LIMITED
/s/ Ronald Su
---------------------------------------
Ronald Su
President
2
Exhibit 10.18.2
AMENDMENT NUMBER 3
This agreement shall amend a certain Distributor Agreement (the "Agreement")
made and entered into 16 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 17F, No. 171
Sung-Teh Road, Taipei, Taiwan (hereinafter referred to a as "Agent") and CFM
Technologies, Inc., a Pennsylvania corporation, with its principal place of
business located at 150 Oaklands Boulevard, Exton, Pennsylvania, 19341
(hereinafter referred to as "CFM" or the "Company").
WHEREAS, Agent and CFM have secured the sale of certain FPD Equipment to
Electronics Research Service Organization (ERSO) in Hsinchu, Taiwan, and
CFM and ERSO have agreed to the delivery of a single vessel FPD processing
system that is to be used for general cleaning, stripping, etching, and organic
cleaning of poly-silicon FPD panels (the "Equipment") on or about April 30,
1999, and
ERSO has agreed to pay US$ 1,906,365 for this system, payable 80% on delivery
and 20% on final acceptance.
NOW, THEREFORE, in consideration for the commissions and payments further
described herein, the parties hereby agree to the following:
1. AGENT RESPONSIBILITIES
1.1 Send a minimum of four persons (engineers and manufacturing personnel)
to CFM, at Agent's expense, to assist in the final assembly,
integration and test of the Equipment for a duration of not less than
six weeks.
1.2 Provide personnel of a number and with skills as requested by CFM to
assist CFM in the install, setup and qualification of the Equipment at
ERSO.
1.3 Warrant the operation of the Equipment from the date of acceptance of
the system by ERSO until the last day required in the specifications
accepted as a part of the order and any extensions thereto (the
"Warranty Period") by providing both parts and labor, as needed, to
assure operation of the Equipment in accordance with its
specifications.
1.4 Pay for packaging, shipping, customs duties and taxes, if any, for
spare parts which may be required during the Warranty Period.
1
<PAGE>
1.5 Provide first line applications support to the Equipment during the
Warranty Period.
1.6 Pay for support provided by personnel assigned to CFM Taiwan in excess
of 100 hours during the Warranty Period at the rate of US$85 per hour.
1.1 Pay for US-based CFM service and support personnel, requested by
Agent, at the rate of US$85 per hour plus actual, out-of-pocket
expenses for hotel, meals and travel (hotel and meal expenses not to
exceed US$125 per day). Travel time will be billed as eight hours per
day, from departure from Exton (or other US home base) to arrival back
at home base location.
2. CFM RESPONSIBILITIES
2.1 Manufacture the Equipment.
2.2 Provide the primary installation personnel for the Equipment.
2.3 Secure process acceptance of the Equipment.
2.4 CFM will forward spare parts replacements received under warranty from
OEM parts suppliers in exchange for identical, but defective, parts
returned by Agent without charge (other than those costs in 1.4,
above).
2.5 Warrant all process carriers for a period of nine months from the date
of acceptance.
2.6 Make available up to 100 hours of service support from personnel
assigned to CFM Taiwan to Agent during the Warranty Period at no
charge.
2.7 Make US service and support personnel available upon reasonable
advance notice to Agent.
2.8 Provide quotations for software support for customer-requested changes
which do not interfere with the product meeting its written
specifications.
COMMISSIONS
An amount equal to 13% of any payments received from ERSO for the system ordered
on Purchase Order No. F-E3-89025, dated October 29, 1999, shall be paid to Agent
within tem (10) days following receipt of payment from ERSO by CFM in
consideration for completion by Agent of the responsibilities in Section 1,
herein.
SPARE PARTS
1. During the Warranty Period, CFM agrees to sell spare parts for the
Equipment on open account (terms: net 30 days from date of shipment). The
price for such spare parts shall be the CFM List Price then in effect, less
15%.
2. Agent is not obligated to purchase spare parts from CFM and may purchase
spare parts from any source.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment this 27th
day of December 1999.
CFM TECHNOLOGIES, INC.
/s/ Roger A. Carolin
---------------------------------------
Roger A. Carolin
President and Chief Executive Officer
AMPOC FAR EAST COMPANY LIMITED
/s/ Ronald Su
---------------------------------------
Ronald Su
President
3
Exhibit 10.23
EMPLOYMENT AGREEMENT
Agreement (hereinafter "Agreement") dated as of October 25, 1999 by and
between CFM Technologies, Inc., a Pennsylvania Business Corporation having a
place of business at 150 Oaklands Boulevard, Exton, PA 19341 ("CFM"), and Lorin
J. Randall, an individual residing at 120 S. Wawaset Road, West Chester, PA
19382 ("Randall").
WITNESSETH:
WHEREAS, based upon Randall's demonstrated commitment and unique
contributions to the Company, especially with respect to the timely raising of
equity capital, and a desire to motivate Randall's continued employment, CFM
desires to employ Randall as Vice President - Finance, Secretary, Treasurer and
Chief Financial Officer and, Randall desires to be employed by CFM as Vice
President - Finance, Secretary, Treasurer and Chief Financial Officer, all
pursuant to the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and covenants herein contained, and intending to be legally bound hereby, it is
agreed as follows:
1. EMPLOYMENT: DUTIES
CFM engages and employs Randall, and Randall hereby accepts engagement and
employment, as Vice President - Finance, Secretary, Treasurer and Chief
Financial Officer to direct, supervise and have responsibility for the finance
and administration functions of CFM and its subsidiaries and to perform such
other services and duties as the President of CFM, in his sole discretion, shall
reasonably determine.
Subject to Paragraph 4, Randall shall devote his full business time, energy
and skill to his duties hereunder and such level of effort shall be on a full
time basis. It is understood and agreed that Randall may not engage in other
business activities during the term of this contract, whether or not for profit
or other pecuniary advantage; provided, however, that Randall may make personal
financial investments which do not involve his active participation and may
engage in other activities, including service as a member of the board of
directors of any bank or other financial institution, or as a member of the
board of directors of Quad Systems Corporation, Two Technologies, Inc., Polymer
Chemistry Innovations, Inc. and any other corporation with written approval of
the Board, to the extent that none of such activities hinder or interfere with
the performance of his duties under this agreement or conflict with CFM's
policies concerning conflict of interest or the business of CFM in any material
way.
1
<PAGE>
2. COMPENSATION
As compensation for the performance of his duties on behalf of CFM, Randall
shall be compensated as follows:
(a) A base salary of $165,000 per annum.
(b) Employee fringe benefits including, but not limited to, such health
insurance, long-term disability insurance, life insurance, company
savings and investment plan participation, vacations and holidays as
are made available to other employees, as such benefits may be changed
from time to time for other employees.
(c) Participation in an annual cash incentive bonus award program with a
target annual payment of not less than 30% of Randall's base salary.
Determination of Randall's payments hereunder shall be made in a
manner substantially similar for Randall as shall be determined for
all other executive officers and key individual contributors of CFM.
3. TERM
This Agreement shall remain in full force and effect for a period of five
(5) years from the first date above (the "Initial Term") and shall renew for a
period of three (3) additional years unless CFM shall notify Randall in writing,
a minimum of twelve (12) months prior to completion of the Initial Term.
4. REPRESENTATIONS AND WARRANTIES BY RANDALL AND CFM
Randall hereby represents and warrants to CFM as follows:
(a) Neither the execution and delivery of this Agreement nor the
performance by Randall of his duties and other obligations hereunder
violate or will violate any statute, law, determination or award, or
conflict with or constitute a default under (whether immediately, upon
the giving of notice or lapse of time or both) any prior employment
agreement, contract, or other instrument to which Randall is a party
or by which he is bound.
(b) Randall has the right, power and legal capacity to enter and deliver
this Agreement and to perform his duties and other obligations
hereunder. This agreement constitutes the legal, valid and binding
obligation of Randall enforceable against him in accordance with its
terms. No approvals or consents of any persons or entities are
required for Randall to execute and deliver this Agreement or perform
his duties and other obligations hereunder.
2
<PAGE>
CFM hereby represents and warrants to Randall as follows:
(a) CFM is duly organized, validly existing and in good standing under the
laws of the Commonwealth of Pennsylvania, with all requisite corporate
power and authority to own its properties and conduct its business in
the manner presently contemplated.
(b) CFM has full power and authority to enter into this Agreement and to
incur and perform its obligations hereunder.
(c) The execution, delivery and performance by CFM of this Agreement does
not conflict with or result in a breach or violation of or constitute
a default under (whether immediately, upon the giving of notice or
lapse of time or both) the certificate of incorporation or by-laws of
CFM, or any agreement or instrument to which CFM is a party or by
which CFM or any of its properties may be bound or affected.
5. TERMINATION
Randall's employment hereunder began on or about January 9, 1995 and shall
continue until terminated upon the first to occur of the following events:
(a) THE DEATH OR DISABILITY OF RANDALL. CFM may, at its option, terminate
Randall's employment for "disability" (as hereinafter defined). In the
event of termination for death or disability, Randall or his
designated beneficiary, shall be entitled to termination benefits
pursuant to Paragraph 5(d), which monthly benefits shall be reduced in
each month such benefit may be received by any amounts received by
Randall from disability insurance during such month from a program
provided by CFM. For purposes of this Agreement, the term "disability"
means any physical or mental illness, disability or incapacity which
prevents Randall from performing, with or without accommodation,
substantially all of his duties hereunder for a period totaling not
less than one hundred eighty (180) days during any period of twelve
(12) consecutive months.
(b) TERMINATION BY THE PRESIDENT, CHAIRMAN OR BOARD OF DIRECTORS OF CFM
FOR CAUSE. Any of the following actions by Randall shall constitute
cause:
(i) Material breach by Randall of the provisions of the CFM
Non-Disclosure and Invention Agreement which he is a party to, a
copy of which is attached hereto provided that Randall has
received written notice of such breach from the President,
Chairman or Board of Directors of CFM, has had an opportunity to
respond to the notice in a meeting and has failed to
substantially cure such breach or neglect within thirty (30) days
of such notice; or
(ii) Theft; a material act of dishonesty or fraud; intentional
falsification of any employment or Company records; or the
commission of any criminal act which impairs Randall's ability to
perform appropriate employment duties under this Agreement; or
3
<PAGE>
(iii) Randall's conviction (including any plea of guilty or nolo
contendere) for a crime involving moral turpitude causing
material harm to the reputation and standing of the CFM; or
(iv) Gross negligence or willful misconduct in the performance of
Randall's assigned duties; provided however, that merely
unsatisfactory performance by Randall of such duties and
responsibilities shall not constitute "cause" for purposes of the
Agreement; and provided further that Randall has received written
notice of such breach or neglect from the President, Chairman or
Board of Directors of CFM, has had an opportunity to respond to
the notice in a meeting and has failed to substantially cure such
breach or neglect within thirty (30) days of such notice.
(c) TERMINATION BY RANDALL FOR GOOD REASON. Any of the following actions
or omissions by CFM shall constitute good reason:
(i) Material breach by CFM of any provision of this Agreement which
is not cured by CFM within fifteen (15) days of written notice
thereof from Randall; or
(ii) Any action by CFM to intentionally harm Randall; or
(iii) If following, at any time subsequent to the date of this
Agreement, a Change of Control Event and within eighteen (18)
months following the date of such Event, a change occurs in
Randall's status, title, position, compensation, or
responsibilities (including reporting responsibilities) which, in
Randall's reasonable judgment, represents a material adverse
change from his status, title, position, compensation, or
responsibility as provided for in this Agreement, Randall may, at
his sole option by providing written notice within sixty (60)
days following such change, deem such change to be just cause
under this Section 5(c).
(iv) The failure of CFM to obtain an agreement, satisfactory to
Randall, from any Successors and Assigns to assume and agree to
perform this Agreement.
(v) Randall's right to terminate his employment pursuant to this
Section 5(c) shall not be affected by his incapacity due to
disability.
(vi) In the event of termination by Randall for good reason, (1) CFM
will retain Randall as a consultant to the Company with duties as
Randall and the Company may mutually agree for a period of
eighteen (18) months, which term may be extended by mutual
agreement between the parties, with monthly compensation equal to
one twelfth of Randall's then current annual base salary plus
annual target bonus and (2) all options to purchase common stock
of CFM held by Randall shall vest immediately as of the date of
such termination.
4
<PAGE>
(d) TERMINATION BY THE PRESIDENT, CHAIRMAN OR BOARD OF DIRECTORS OF CFM
WITHOUT CAUSE.
(i) If such Termination shall occur, CFM will retain Randall as a
consultant to the company with duties as Randall and the company
may mutually agree and will pay Randall monthly an amount equal
to one twelfth of Randall's then current annual base salary plus
annual target bonus commencing with the date of such termination
and ending twelve (12) months thereafter; and
(ii) Following the occurrence of a Change of Control Event during the
one year period following any Termination of Randall under
5(d)(i), above, CFM shall immediately (1) extend the term of
Randall's consulting period as agreed to in 5(d)(i), above to a
total of eighteen (18) months from the initial date of
Termination and (2) grant to Randall fully-vested options to
purchase a number of shares of common stock of CFM equal to the
number of unvested options held by Randall and cancelled at the
time of such Termination (the "Cancelled Options"). The purchase
price of each such share shall equal the lowest share purchase
price of any of the Cancelled Options or the fair market value of
a share of common stock of CFM on the date of the Change of
Control Event, whichever shall be lower, and all other terms of
such newly granted options shall be substantially similar to the
terms of the Cancelled Options.
(e) TERMINATION BY RANDALL WITHOUT GOOD REASON. In the event Randall
wishes to resign, he shall give not less than thirty (30) days prior
notice of such resignation and CFM shall have the option of
terminating Randall's duties and responsibilities at any time prior to
Randall's proposed termination date, subject to payment by CFM of the
lesser of Randall's then current base pay for a thirty (30) day
period, or such other period as may remain under the notice given by
Randall.
6. CHANGE OF CONTROL
For purposes of this Agreement, a "Change of Control Event" shall mean any
of the following:
(a) An acquisition (other than directly from CFM) of any voting securities
of CFM (the "Voting Securities") by any "Person" (as the term person
is used for purposes of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended (the "1934 Act") immediately after
which such Person has "Beneficial Ownership" (within the meaning of
Rule 13d-3 promulgated under the 1934 Act) of thirty percent (30%) or
more of the combined voting power of CFM's then outstanding Voting
Securities; provided, however, that in determining whether a Change of
Control Event has occurred, Voting Securities which are acquired in a
"Non-Control Acquisition" (as defined below) shall not constitute an
acquisition which would cause a Change of Control Event. A
"Non-Control Acquisition" shall mean an acquisition by (1) an employee
benefit plan (or trust forming a part thereof) maintained by (x) CFM
or (y) any corporation or other Person of which a majority of its
voting power or its equity securities or equity interest is owned
directly or indirectly by CFM (a "Subsidiary"), (2) CFM or any
Subsidiary, or (3) any Person in connection with a "Non-Control
Transaction."
5
<PAGE>
(b) The individuals who, as of the date hereof, are members of the Board
(the "Incumbent Board"), cease for any reason to constitute at least
two-thirds of the Board; provided, however, that if the election, or
nomination for election by CFM's stockholders, of any new director was
approved by a vote of at least two-thirds of the then Incumbent Board,
such new director shall, for purposes of this Agreement, be considered
as a member of the Incumbent board; provided, further, that no
individual shall be considered a member of the Incumbent Board if such
individual initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11 promulgated
under the 1934 Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board
(a "Proxy Contest") including by reason of any agreement intended to
avoid or settle any Election Contest or Proxy Contest; or
(c) Approval by stockholders of CFM of:
(i) A merger, consolidation, or reorganization involving CFM, unless
(1) the stockholders of CFM, immediately before such merger,
consolidation or reorganization, own, directly or
indirectly, immediately following such merger, consolidation
or reorganization, at least seventy percent (70%) of the
combined voting power of the outstanding Voting Securities
of the corporation resulting from such merger or
consolidation or reorganization (the "Surviving
Corporation") in substantially the same proportion as their
ownership of the Voting Securities immediately before such
merger, consolidation, or reorganization, and
(2) the individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement
providing for such merger, consolidation, or reorganization
constitute at least two-thirds of the members of the board
of directors of the Surviving Corporation or corporation
beneficially owning, directly or indirectly, a majority of
the Voting Securities of the Surviving Corporation, and
6
<PAGE>
(3) no Person (other than CFM, any Subsidiary, any employee
benefit plan (or any trust forming a part thereof)
maintained by CFM, the Surviving Corporation or any
Subsidiary, or any Person who, immediately prior to such
merger, consolidation or reorganization had Beneficial
Ownership of fifteen percent (15%) or more of the then
outstanding Voting Securities) owns, directly or indirectly,
fifteen percent (15%) or more of the combined voting power
of the Surviving Corporation's then outstanding voting
securities, and
(4) a transaction described in clauses 1 through 3 shall herein
be referred to as a "Non-Control Transaction";
(ii) A complete liquidation or dissolution of CFM, or
(iii) A sale or other disposition of all or substantially all of the
assets of CFM to any Person (other than a transfer to a
Subsidiary).
(d) Notwithstanding the foregoing, a Change of Control Event shall not be
deemed to occur solely because any Person (the "Subject Person")
acquired Beneficial Ownership of more than the permitted amount of the
outstanding Voting Securities as a result of the acquisition of Voting
Securities by CFM which by reducing the number of Voting Securities
outstanding, increases the proportional number of shares Beneficially
Owned by the Subject Person, provided that if a Change in Control
would occur (but for the operation of this sentence) as a result of
the acquisition of Voting Securities by CFM, and after such share
acquisition by CFM, the Subject Person becomes the Beneficial Owner of
any additional Voting Securities which increases the percentage of the
then outstanding Voting Securities Beneficially Owned by the Subject
Person, then a Change in Control shall occur.
(e) Notwithstanding anything contained in this Agreement to the contrary,
if Randall's employment is terminated prior to a Change of Control
Event and Randall reasonably demonstrates that such termination (i)
was at the request of a third party who has indicated an intention or
taken steps reasonably calculated to effect a Change of Control Event
and who effectuates a Change of Control Event (a "Third Party") or
(ii) otherwise occurred in connection with, or in anticipation of, a
Change of Control Event which actually occurs, then for all purposes
of this Agreement, the date of a Change of Control Event with respect
to Randall shall mean the date immediately prior to the date of such
termination of Randall's employment and shall constitute grounds for
Termination for good reason by Randall under Section 5(c) of this
Agreement.
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7. FEDERAL EXCISE TAX UNDER IRC SECTION 280G
(a) If (1) any amounts payable under this Agreement are characterized as
excess parachute payments pursuant to Section 4999 of the Internal
Revenue Code, and (2) Randall thereby would be subject to any United
States federal excise tax due to that characterization, then (3)
Randall may elect, in Randall's sole discretion, to reduce the amounts
payable under this Agreement or to have any portion of applicable
options not be granted or vest in order to avoid any "excess parachute
payment" under Section 280(G)(b)(1) of the Internal Revenue Code of
1986, as amended.
(b) Unless CFM and Randall otherwise agree in writing, any determination
required under this Section 6 shall be made in writing by independent
public accountants agreed to by CFM and Randall (the "Accountants"),
whose determination shall be conclusive and binding upon CFM and
Randall for all purposes. For purposes of making the calculations
required by this Section 6, the Accountants may rely on reasonable,
good faith interpretations concerning the application of Sections 280G
and 4999 of the Code. CFM and Randall shall furnish to the Accountants
such information and documents as the Accountants may reasonably
request in order to make the required determinations. CFM shall bear
all fees and expenses the Accountants may reasonably charge in
connection with the services contemplated by this Section 7.
8. EXTENDED MEDICAL AND DENTAL BENEFITS
In the event of an event of Termination under Section 5(a), 5(c) or 5(d) of
this Agreement, Randall and Randall's dependents shall receive continued
provision of CFM's standard employee medical and dental benefits for twenty-four
(24) months for Termination under Section 5(a) or Section 5(d) and for thirty
(30) months for Termination under Section 5(c). Notwithstanding the foregoing,
in the event Randall becomes covered as a primary insured (that is, not as a
beneficiary under a spouse's plan) under another employer's group health plan
during the extended benefit period provided for herein, Randall shall promptly
inform CFM and CFM shall cease provision of continued group health benefits for
Randall and any dependents.
9. RELEASE OF CLAIMS
CFM may condition payment of the cash termination benefits described in
Sections 5(c) or 5(d) of this Agreement upon the delivery by Randall of a signed
release of claims in a form reasonably satisfactory to CFM; provided, however,
that Randall shall not be required to release any rights Randall may have to be
indemnified by CFM.
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10. NON-COMPETITION AND NON-SOLICITATION
During any period of post-Termination consulting, Randall agrees not to (1)
engage in (as an employee, consultant, director, principal, partner, officer,
agent, advisor or otherwise) or be financially interested in any business
operating anywhere in the world which, in the reasonable judgment of the
Company, directly competes with the Company through the design, manufacture or
distribution of semiconductor wet processing equipment or (2) directly or
indirectly solicit, induce, encourage, or attempt to influence any client,
customer, employee, consultant, independent contractor, salesman, or supplier of
the Company to cease to do business or terminate his employment with the
Company.
11. NOTICES
Any notice or other communication under this Agreement shall be in writing
and shall be deemed to have been given: (i) upon delivery when delivered
personally against receipt therefor; (ii) one (1) day after being sent by
Federal Express or similar overnight delivery; or (iii) three (3) days after
being mailed via registered or certified mail, postage prepaid, return receipt
requested, to either party at the address set forth above, or to such other
address as such party shall give by notice hereunder to the other party.
12. SEVERABILITY OF PROVISIONS
If any provision of this Agreement shall be declared by a court of
competent jurisdiction to be invalid, illegal or incapable of being enforced in
whole or in part, such provision shall be interpreted so as to remain
enforceable to the maximum extent permissible consistent with applicable law and
the remaining conditions and provisions or portions thereof shall nevertheless
remain in frill force and effect and enforceable to the extent they are valid,
legal and enforceable, and no provision shall be deemed dependent upon any other
covenant or provision unless so expressed herein.
13. ARBITRATION
Any dispute or disagreement arising out of this Agreement or a claimed
breach, shall be resolved by arbitration in Chester County, Pennsylvania under
the Voluntary Labor Arbitration Rules of the American Arbitration Association.
The arbitrator's decision shall be final and binding upon the parties and
judgment may be entered in any court.
14. SUCCESSORS
This Agreement shall be binding upon and shall inure to the benefit of CFM,
its Successors and Assigns and CFM shall require any Successors and Assigns to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that CFM would be required to perform it if no such succession
or assignment had taken place.
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15. ENTIRE AGREEMENT MODIFICATION
This Agreement contains the entire agreement of the parties relating to the
subject matter hereof and the parties hereto have made no agreements,
representations or warranties relating to the subject matter of this Agreement
which are not set forth herein. No modification of this Agreement shall be valid
unless made in writing and signed by the parties hereto
16. BINDING EFFECT
The rights, benefits, duties and obligations under this Agreement shall
inure to, and be binding upon, CFM, its successors and assigns, and upon Randall
and his legal representatives. This Agreement constitutes a personal service
agreement, and the performance of Randall's obligations hereunder may not be
transferred or assigned by Randall.
17. GOVERNING LAW
This Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the Commonwealth of Pennsylvania without regard to
principles of conflict of laws.
18. HEADINGS
The headings of paragraphs are inserted for convenience and shall not
affect any interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto. intending to be legally bound
hereby, have executed this Agreement as of the day and year first above written.
LORIN J. RANDALL
/s/ Lorin J. Randall 10/25/99
- ----------------------------- ----------------------
Lorin J. Randall Date
CFM TECHNOLOGIES, INC
/s/ Roger A. Carolin 10/25/99
- ----------------------------- ----------------------
Roger A. Carolin Date
10
Exhibit 10.24
EMPLOYMENT AGREEMENT
Agreement (hereinafter "Agreement") dated as of December 2, 1998 by and
between CFM Technologies, Inc., a Pennsylvania corporation having a place of
business at 1381 Enterprise Drive, West Chester, PA 19380 ("CFM"), and Rudra
Kar, an individual residing at 5840 West Park Avenue, Chandler, AZ 85226
("Kar").
WITNESSETH:
WHEREAS, CFM desires to employ Kar as Vice President - Engineering and Kar
desires to be employed by CFM as Vice President - Engineering, all pursuant to
the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and covenants herein contained, and intending to be legally bound hereby, it is
agreed as follows:
1. EMPLOYMENT: DUTIES
CFM engages and employs Kar, and Kar hereby accepts engagement and
employment, as Vice President - Engineering to direct, supervise and have
responsibility for the engineering operations of CFM and to perform such other
services and duties as the President of CFM, in his sole discretion, shall
reasonably determine.
Subject to Paragraph 4, Kar shall devote his full business time,
energy and skill to his duties hereunder and such level of effort shall be
on a full time basis. It is understood and agreed that Kar may not engage
in other business activities during the term of this contract, whether or
not for profit or other pecuniary advantage; provided, however, that Kar
may make personal financial investments which do not involve his active
participation and may engage in other activities, including service as a
member of the board of directors of any bank or other financial
institution, or as a member of the board of directors of any other
corporation with written approval of the Board, to the extent that none of
such activities hinder or interfere with the performance of his duties
under this agreement or conflict with CFM's policies concerning conflict of
interest or the business of CFM in any material way.
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2. COMPENSATION
As compensation for the performance of his duties on behalf of CFM, Kar
shall be compensated as follows:
(a) A base salary of $145,000 per annum.
(b) Employee fringe benefits including, but not limited to, such health
insurance, long-term disability insurance, life insurance, company
savings and investment plan participation, vacations and holidays as
made available to other employees.
(c) The grant of non-qualified options to purchase 50,000 shares of the
common stock of CFM are subject to the terms and conditions of CFM's
then applicable Employee Stock Option Plan.
(d) Other compensation as described in CFM's employment offer letter to
you dated December 2, 1998.
3. REPRESENTATIONS AND WARRANTIES BY KAR AND CFM
Kar hereby represents and warrants to CFM as follows:
(a) Neither the execution and delivery of this Agreement nor the
performance by Kar of his duties and other obligations hereunder
violate or will violate any statute, law, determination or award, or
conflict with or constitute a default under (whether immediately, upon
the giving of notice or lapse of time or both) any prior employment
agreement, contract, or other instrument to which Kar is a party or by
which he is bound.
(b) Kar has the right, power and legal capacity to enter and deliver this
Agreement and to perform his duties and other obligations hereunder.
This agreement constitutes the legal, valid and binding obligation of
Kar enforceable against him in accordance with its terms. No approvals
or consents of any persons or entities are required for Kar to execute
and deliver this Agreement or perform his duties and other obligations
hereunder.
CFM hereby represents and warrants to Kar as follows:
(a) CFM is duly organized, validly existing and in good standing under the
laws of the Commonwealth of Pennsylvania, with all requisite corporate
power and authority to own its properties and conduct its business in
the manner presently contemplated.
(b) CFM has full power and authority to enter into this Agreement and to
incur and perform its obligations hereunder.
(c) The execution, delivery and performance by CFM of this Agreement does
not conflict with or result in a breach or violation of or constitute
a default under (whether immediately, upon the giving of notice or
lapse of time or both) the certificate of incorporation or by-laws of
CFM, or any agreement or instrument to which CFM is a party or by
which CFM or any of its properties may be bound or affected.
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4. TERMINATION
(a) Kar's employment hereunder shall begin on or about January 15, 1999
and shall continue until terminated upon the first to occur of the
following events:
(i) The death or disability of Kar. CFM may, at its option, terminate
Kar's employment for "disability" (as hereinafter defined). In
the event of termination for death or disability, Kar or his
designated beneficiary, shall only be entitled to termination
benefits pursuant to Paragraph 4(a)(iv). For purposes of this
Agreement, the term "disability" means any physical or mental
illness, disability or incapacity which prevents Kar from
performing, with or without accommodation, substantially all of
his duties hereunder for a period totaling not less than one
hundred eighty (180) days during any period of twelve (12)
consecutive months.
(ii) Termination by the President, Chairman or Board of Directors of
CFM for cause. Any of the following actions by Kar shall
constitute cause:
(A) Material breach by Kar of the provisions of the CFM
Non-Disclosure and Invention Agreement which he is a party
to, a copy of which is attached hereto;
(B) Theft; a material act of dishonesty or fraud; intentional
falsification of any employment or Company records; or the
commission of any criminal act which impairs Kar's ability
to perform appropriate employment duties under this
Agreement;
(C) Kar's conviction (including any plea of guilty or nolo
contendere) for a crime involving moral turpitude causing
material harm to the reputation and standing of the CFM;
(D) Gross negligence or willful misconduct in the performance of
Kar's assigned duties (but not mere unsatisfactory
performance).
(iii) Termination by Kar for cause. Any of the following actions or
omissions by CFM shall constitute just cause:
(A) Material breach by CFM of any provision of this Agreement
which is not cured by CFM within fifteen (15) days of
written notice thereof from Kar; or
(B) Any action by CFM to intentionally harm Kar.
(iv) Termination by the President, Chairman or Board of Directors of
CFM without cause. In such case, the following provisions will
apply:
(A) If termination occurs within two (2) years from Kar's
starting date of employment, then CFM will continue to pay
Kar's then current base salary for the period commencing
with the date of such termination and ending twelve months
thereafter.
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(B) If termination occurs after two (2) years from the date of
Kar's starting date of employment, then CFM will continue to
pay Kar's then current base salary for the period commencing
with the date of such termination and ending twelve months
thereafter, or until the date Kar shall commence permanent,
full-time employment elsewhere, whichever shall first occur;
provided however, that such payments will continue for a
period of no less than six (6) months, irrespective of Kar's
subsequent employment elsewhere.
(v) Termination by Kar without cause, providing that notice of such
termination shall be not less than 90 days prior to the effective
date of such termination. In such case, CFM shall have the option
of terminating Kar's duties and responsibilities at any time
prior to Kar's proposed termination date, subject to payment by
CFM of the lesser of Kar's then current base pay for the ninety
(90) day period, or such other period as would be otherwise
remaining under the notice given by Kar.
5. RELEASE OF CLAIMS
CFM may condition payment of the cash termination benefits described in
Section 4(iv) of this Agreement upon the delivery by Kar of a signed release of
claims in a form reasonably satisfactory to CFM; provided, however, that Kar
shall not be required to release any rights Kar may have to be indemnified by
the Company.
6. NOTICES
Any notice or other communication under this Agreement shall be in writing
and shall be deemed to have been given: (i) upon delivery when delivered
personally against receipt therefor; (ii) one (1) day after being sent by
Federal Express or similar overnight delivery; or (iii) three (3) days after
being mailed via registered or certified mail, postage prepaid, return receipt
requested, to either party at the address set forth above, or to such other
address as such party shall give by notice hereunder to the other party.
7. SEVERABILITY OF PROVISIONS
If any provision of this Agreement shall be declared by a court of
competent jurisdiction to be invalid, illegal or incapable of being enforced in
whole or in part, such provision shall be interpreted so as to remain
enforceable to the maximum extent permissible consistent with applicable law and
the remaining conditions and provisions or portions thereof shall nevertheless
remain in frill force and effect and enforceable to the extent they are valid,
legal and enforceable, and no provision shall be deemed dependent upon any other
covenant or provision unless so expressed herein.
8. ARBITRATION
Any dispute or disagreement arising out of this Agreement or a claimed
breach, shall be resolved by arbitration in Chester County, Pennsylvania under
the Voluntary Labor Arbitration Rules of the American Arbitration Association.
The arbitrator's decision shall be final and binding upon the parties and
judgment may be entered in any court.
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9. ENTIRE AGREEMENT MODIFICATION
This Agreement contains the entire agreement of the parties relating to the
subject matter hereof and the parties hereto have made no agreements,
representations or warranties relating to the subject matter of this Agreement
which are not set forth herein. No modification of this Agreement shall be valid
unless made in writing and signed by the parties hereto
10. BINDING EFFECT
The rights, benefits, duties and obligations under this Agreement shall
inure to, and be binding upon, CFM, its successors and assigns, and upon Kar and
his legal representatives. This Agreement constitutes a personal service
agreement, and the performance of Kar's obligations hereunder may not be
transferred or assigned by Kar.
11. GOVERNING LAW
This Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the Commonwealth of Pennsylvania without regard to
principles of conflict of laws.
12. HEADINGS
The headings of paragraphs are inserted for convenience and shall not
affect any interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto. intending to be legally bound
hereby, have executed this Agreement as of the day and year first above written.
5
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RUDRA KAR
ACCEPTED: /s/ Rudra N. Kar 12/2/98
-------------------------- -------------------
Rudra N. Kar Date
CFM TECHNOLOGIES, INC
/s/ Roger A. Carolin 12/2/98
- -------------------------------------------- -------------------
Roger A. Carolin Date
6
Exhibit 10.26
PATENT LICENSE AGREEMENT
THIS AGREEMENT is entered into this 28th day of December, 1998 (the
"Effective Date") by and between CFM TECHNOLOGIES INC., having its principal
place of business at 1336 Enterprise Drive, West Chester, PA 19380, CFMT Inc.,
having its principal place of business at 1403 Foulk Rd, Suite 106-FWilmington,
DE 19803, hereinafter collectively referred to as "CFM," and STEAG MICROTECH,
INC., having its principal place of business at 8305 Cross Park Drive, Austin,
Texas 78754, hereinafter referred to as "STEAG".
WITNESSETH:
WHEREAS, CFM is the owner of U.S. Patent No. 4,911,761;
WHEREAS, the parties desire to submit a mutually beneficial proposal to IBM
to supply certain equipment for IBM's U.S. plant in Burlington, Vermont;
WHEREAS, STEAG is subject to an injunction issued by the District Court for
the District of Delaware, resulting from a finding of infringement liability
which is now on appeal;
WHEREAS, in order for STEAG to supply certain Marangoni drying equipment to
IBM, IBM has required STEAG to be licensed by CFM under U.S. Patent No.
4,911,761; and
WHEREAS, CFM is willing to grant such a limited-purpose license, and STEAG
is willing to accept the license, under the terms and conditions herein.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties agree as follows:
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ARTICLE 1 - DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
1.01 The term "Patent Rights" shall mean rights under U.S. Patent 4,911,761.
1.02 "Licensed Product(s)" shall mean certain drying equipment and
replacement parts therefor to be sold by STEAG to IBM, the use of such
equipment having been held to be covered by one or more issued claims of
the Patent Rights by the US District Court of the District of Delaware
in CFMT, Inc., et al. vs. STEAG, Civil Action 95-442. For purpose of
this Agreement only, the STEAG Marangoni dryers, as configured on the
Effective Date, shall be deemed to be Licensed Products.
1.03 "Net Sales Value" of Licensed Products sold by STEAG to IBM shall mean
the gross invoice price received therefor, less allowance for returns
and less (to the extent separately stated on such invoice) any normal
discounts and allowances actually granted and less any sales, use or
other excise taxes and shipping charges included in such invoice price.
In cases when the Licensed Products are included as part of a larger
system, the Net Sales Value will be fixed at U.S. $150,370 irrespective
of the price of the total system.
1.04 "Field of Use" shall mean sales of the Licensed Product to IBM pursuant
to a certain proposal of STEAG (attached as Exhibit A) and IBM's Request
For Quotation dated December 16, 1998.
1.05 "Territory" shall mean the United States.
1.06 "Term of this Agreement" shall mean the period described in Article
6.01.
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ARTICLE 2 - LICENSE
2.01 Subject to the terms and conditions of this Agreement, CFM hereby grants
to STEAG, and STEAG hereby accepts, a non-exclusive, non-transferable
license in the Field of Use under the Patent Rights, without the right
to grant sublicenses except as in Article 12: (a) to have manufactured
by STEAG's affiliate, STEAG Microtech GmbH, and to import into the
United States solely for sale to IBM in connection with the proposal
attached as Exhibit A during the Term of this Agreement, and (b) to
provide after-sales service and spare parts to IBM to maintain and
repair during their useful life no more than twenty-one (21) Licensed
Products.
2.02 CFM shall not assert against IBM any claim for infringement of the
Patent Rights by IBM's internal commercial use of the Licensed Products
obtained from STEAG under this Agreement.
2.03 Neither this License Agreement nor anything contained herein shall be
construed as an agreement that the `761 patent is either valid or
infringed by STEAG.
ARTICLE 3 - ROYALTIES
3.01 STEAG shall pay CFM fifteen percent (15%) of the STEAG Net Sales Value
of Licensed Products. Such 15% payment shall not be construed as a STEAG
recognition or admission of the correctness of the 15% royalty rate
found by the jury in CFMT, Inc. et al. vs. STEAG, U.S. District Court,
Delaware, Civil Action 95-442.
3.02 Within thirty (30) days after the delivery of each Licensed Product,
STEAG shall pay to CFM one hundred percent (100%) of the royalty due
pursuant to Article 3.01. Each payment will be accompanied by a written
report in such detail as CFM reasonably requires of all amounts paid.
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ARTICLE 4 - PAYMENT TERMS
4.01 All royalties and other amounts payable pursuant to Article 3 hereof
shall be paid in United States Dollars by wire transfer.
4.02 Payments provided for in this Agreement shall, when overdue, bear
interest at a rate per annum equal to one and one-half percent (1 1/2%)
per month from the date such payment shall be due until payment shall be
received by CFM.
ARTICLE 5 - AUDIT RIGHTS
STEAG shall keep accurate and complete books of account containing record
of all data necessary for the determination of the amount of the royalty
payments that shall become due under Article 3 hereof, and shall permit CFM or
its agent to examine such books of account at all reasonable times during normal
business hours to such extent as may be necessary to determine the accuracy or
inaccuracy of any of the statements to be rendered by STEAG pursuant to Article
4 hereof. Such inspection shall be completed at the expense of CFM, provided
that if any deficiency exceeding three percent (3%) of the money actually due
shall be found in connection with the computation, the cost of such inspection
shall be borne by STEAG.
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ARTICLE 6 - TERM AND TERMINATION
6.01 The term of this Agreement shall commence on January 1, 1999 and end on
the earlier of December 31, 2000, or delivery to IBM of the eleventh and
final permitted Licensed Products herein.
6.02 In the event that STEAG shall fail to comply with any material term of
this Agreement, CFM shall have the option to give STEAG a written notice
of default. If STEAG shall not have cured such default within thirty
(30) days of such notice, CFM shall have the right to terminate this
Agreement effective immediately upon written notice.
6.03 The provisions of Articles 1, 5, 6.03, 7, 9, 10, 12, 13, 14 and the
license granted in Article 2.01(b) shall survive expiration or
termination of this Agreement. In addition, expiration or termination of
this Agreement shall not relieve the parties of any obligations accruing
prior to such expiration or termination, including the obligations set
forth in Article 3. The remainder of the earned royalties due to CFM
pursuant to Article 3, if any, shall be paid by STEAG within twenty (20)
days from the Effective Date of termination of this Agreement
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ARTICLE 7 - NOTICE
All notices, requests or communications hereunder shall be in writing
and shall be deemed to have been fully given: (i) upon delivery, if delivered
personally against written receipt; (ii) three (3) days after posting by
certified mail, postage prepaid, return receipt requested; (iii) upon confirmed
receipt, if delivered by telecopier; or (iv) the next day if delivered by a
recognized overnight commercial courier, addressed in each instance to the
parties at the following address:
CFM Technologies Inc. STEAG MicroTech, Inc.
1336 Enterprise Drive 8305 Cross Park Drive
West Chester, PA 19380 Austin, TX 78754
Attn.: L. Jeff Randall Attn.: J. Brinkmann, President
Facsimile No: 610-696-8300 Facsimile No: 512-438-1397
ARTICLE 8 - WARRANTIES
8.01 CFM warrants and represents to STEAG that CFM has the right, title and
interest to the Patent Rights sufficient to grant the licenses and
rights granted herein. CFM warrants and represents that it will not
assert any other patents or claims which would interfere with the
enjoyment of the rights granted herein.
8.02 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, CFM MAKES NO
REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR
IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE, VALIDITY OF PATENT RIGHTS' CLAIMS,
ISSUED OR PENDING, AND THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER
OR NOT DISCOVERABLE. NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS A
REPRESENTATION MADE OR WARRANTY GIVEN BY CFM THAT THE PRACTICE BY STEAG
OF THE LICENSE GRANTED HEREUNDER SHALL NOT INFRINGE THE PATENT RIGHTS OF
ANY THIRD PARTY.
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ARTICLE 9 - LIMITATION OF LIABILITY
IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR INCIDENTAL, SPECIAL
CONSEQUENTIAL OR PUNITIVE DAMAGES OF ANY KIND, INCLUDING ECONOMIC DAMAGE OR
INJURY TO PROPERTY AND LOST PROFITS, REGARDLESS OF WHETHER SUCH PARTY SHALL BE
ADVISED, SHALL HAVE OTHER REASON TO KNOW, OR IN FACT SHALL KNOW OF THE
POSSIBILITY OF THE FOREGOING.
ARTICLE 10 - INDEMNITY
STEAG shall indemnify and hold harmless CFM, its officers, directors,
employees, and affiliates from any IBM or other third party product liability
loss, claim, demand, action, liability and expense (including legal and expert
fees and costs) arising out of, resulting from or related to the manufacture,
sale or use of Licensed Products. STEAG shall control the investigation and
defense of any such action alleging such liability, with counsel of its choice
reasonably satisfactory to CFM. CFM shall cooperate in any defense at STEAG's
expense. STEAG may settle any such action without CFM's consent provided that
there is no cost to CFM and otherwise with CFM's consent, which will not be
withheld unreasonably.
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ARTICLE 11 - CONFIDENTIALITY
11.01 Each of the parties undertakes to maintain the confidentiality of the
terms and conditions of this Agreement, provided that the parties may
disclose the existence and the terms and conditions of this Agreement as
required to enforce their rights hereunder, or as otherwise may be
required by law. Neither party may issue a press release disclosing or
otherwise disclose to third parties, except for IBM, the existence of
this Agreement between the parties.
11.02 Both parties agree that the terms and existence of this Agreement shall
not be used as evidence or otherwise in support of patent litigation
between them.
ARTICLE 12 - ASSIGNMENT
STEAG may not assign this Agreement, in whole or in part, without the
prior written consent of CFM. Notwithstanding the previous sentence, STEAG may,
without such consent, transfer or assign all of its rights and obligations under
this Agreement to an entity that is STEAG's successor in connection with a
merger or that purchases all or substantially all of STEAG's stock or assets to
which this Agreement pertains. Subject to the above limitations, this Agreement
will mutually benefit and be binding upon the parties, their successors and
assigns.
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ARTICLE 13 - DISPUTE RESOLUTION
Any and all claims, disputes or controversies arising under, resulting
from, or related to this Agreement ("Dispute"), shall be resolved by negotiation
and, if necessary, litigation, as follows. The party raising such Dispute shall
promptly advise the other party in writing describing in reasonable detail the
nature of such Dispute ("Notice of Dispute"). The senior management of the
parties shall by good faith negotiations attempt to resolve the Dispute within
thirty (30) days of the Notice of Dispute. In the event the senior management
negotiations shall not resolve the Dispute in the thirty-day period, then either
party may seek legal relief in any court of competent jurisdiction.
ARTICLE 14 - GENERAL PROVISIONS
14.01 This Agreement shall be governed by, interpreted and construed in
accordance with the laws of the Commonwealth of Pennsylvania. Venue for
any dispute arising under this Agreement will be in Philadelphia,
Pennsylvania. Each of the parties hereby irrevocably submits to the
exclusive venue and jurisdiction of the United States federal court
sitting in Philadelphia, Pennsylvania in any action, suit or proceeding
brought against it by the other party under this Agreement.
14.02 STEAG acknowledges that it is subject to United States laws and
regulations controlling the export of technical data, computer software
and other commodities and agrees not to export or allow the export or
re-export of such data, software or other commodities in violation of
such laws and regulations.
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14.03 This Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures
were upon the same instrument.
14.04 This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior
agreements, understandings and negotiations, both written and oral,
between the parties with respect to the subject matter of this
Agreement. No representation, inducement, promise, understanding,
condition or warranty not set forth herein has been made or relied upon
by either party hereto.
14.05 In the event any provision of this Agreement is held by a tribunal of
competent jurisdiction to be contrary to the law, the remaining
provisions of this Agreement will remain in full force and effect. The
parties hereto agree to replace such unenforceable provision with a new
provision which has the most nearly similar permissible economic or
other effect.
14.06 No failure or delay by either party in enforcing any right or remedy
under this Agreement shall be construed as a waiver of any future or
other exercise of such right or remedy by such party. No waiver shall be
effective unless made in writing and signed by an authorized
representative of the waiving party.
14.07 No modification of this Agreement shall be binding unless it is in
writing and is signed by an authorized representative of the party
against whom enforcement of the modification is sought.
14.08 Headings are used in this Agreement for convenience only and shall not
affect any construction or interpretation of this Agreement.
10
<PAGE>
14.09 The parties to this Agreement are and shall remain independent
contractors. Nothing herein shall be construed to create a partnership
or joint venture between them, and neither shall have the power of
authority to bind or obligate the other in any manner not expressly set
forth herein.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year above first written.
CFMT, INC. STEAG MICROTECH, INC.
- ------------------------------------- ------------------------------------
By: /s/ Lorin J. Randall By: /s/ Johannes Brinkmann
------------------------------ -----------------------------
Title: /s/ Treasurer Title: /s/ President & CEO
---------------------------- ---------------------------
CFM TECHNOLOGIES, INC.
- -------------------------------------
By: /s/ Roger A. Carolin
------------------------------
Title: /s/ President & CEO
-----------------------------
11
<PAGE>
EXHIBIT A
IBM ARCPS REPLACEMENT - DECK AND LAYOUT SPECIFICATIONS from IBM
200mm ARCPSWETS -1298 Specification, Appendix E Rev 2.0
- --------------------------------------------------------------------------------
DECK SPECIFICATION 1 - BHF/SC-1/SC-2 DRYERS
- --------------------------------------------------------------------------------
*R05v LEFT TO RIGHT: 2
BHF(500:1), JR1, BHF(8:5:1), SC1, JR2, SC2, JR3, FR/Dryer1,
FR/Dryer2, I/O Area.
R07v LEFT TO RIGHT: 2
BHF(500:1), JR1, BHF(8:5:1), SC1, JR2, SC2, JR3, FR/Dryer1,
FR/Dryer2, I/O Area.
*113v LEFT TO RIGHT: 2
BHF(500:1), JR1, BHF(8:5:1), SC1, JR2, SC2, JR3, FR/Dryer1,
FR/Dryer2, I/O Area.
R06v RIGHT TO LEFT: 2
--------------
I/O Area, Dryer2/FR, Dryer1/FR, JR3, BLANKC, JR2,
BHF(5:1), JR1, BHF(500:1).
*Note: Decks R05V &113V shall also be accompanied by power monitors
for the megasonics modules.
- --------------------------------------------------------------------------------
DECK SPECIFICATION 2 - CR/PHOS & HOT PEROXIDE (H2O2) DRYERS
- --------------------------------------------------------------------------------
R43v RIGHT TO LEFT: 2
I/O Area, Dryer2/FR, Dryer1/FR, BLANKR3, BLANKC, DI Rinse2,
Cr/Phos, DI Rinse1, Hot H2O2.
266v RIGHT TO LEFT: 2
I/O Area, Dryer2/FR, Dryer1/FR, BLANKR3, BLANKC, DI Rinse2,
Cr/Phos, DI Rinse1, Hot H2O2.
- --------------------------------------------------------------------------------
DECK SPECIFICATION 3 - MONITOR RECLAIM DRYERS
- --------------------------------------------------------------------------------
R08v LEFT TO RIGHT: 2
S-Etch, DI Jet Rinse1, 49% HF, DI Jet Rinse2, BLANKC, BLANKR3,
FR/Dryer1, FR/Dryer2, I/O Area.
120v RIGHT TO LEFT: 2
I/O Area, Dryer2/FR, Dryer1/FR, BLANKR3, BLANKC, DI Jet Rinse2,
49% HF, DI Jet Rinse1, S-Etch
- --------------------------------------------------------------------------------
DECK SPECIFICATION 4 - MONITOR REWORK DRYERS
- --------------------------------------------------------------------------------
R48v LEFT TO RIGHT: 2
SC1, DI JR1, HF/Nitric, DI JR2, HF/Nitric, DI JR3, FR/Dryer2,
FR/Dryer1, I/O Area
- --------------------------------------------------------------------------------
DECK SPECIFICATION 5 - HOT PHOSPHORIC ACID DRYERS
- --------------------------------------------------------------------------------
R20v RIGHT TO LEFT: 1
--------------
I/O Area, FR/Dryer, DI Rinse, H3PO4, DI Rinse,
H3PO4.
- --------------------------------------------------------------------------------
SPECIFICATION 6 - KOH/SC-1/DHF/DI-03 (SPIKED HCL)
- --------------------------------------------------------------------------------
R10v LEFT TO RIGHT: 2
--------------
KOH, JR, DHF, DI-O3(spiked HCL), SC1, DI-03(spiked HCL), Dryer1/FR,
Dryer2/FR, I/O Area.
- --------------------------------------------------------------------------------
DRYER TOTAL 21
- --------------------------------------------------------------------------------
Exhibit 21
SUBSIDIARIES OF CFM TECHNOLOGIES, INC.
JURISDICTION OF
NAME INCORPORATION
- ---- -------------
CFMT, Inc. .................................................... Delaware
CFM International Corp. ....................................... Guam
CFM Technologies Limited ...................................... Scotland
CFM Technologies, S.A. ........................................ France
CFM Technologies Limited Singapore Branch ..................... Singapore
CFM Technologies Limited Taiwan Branch ........................ Taiwan
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report included in this Form 10-K, into CFM Technologies, Inc.'s
previously filed Form S-8 Registration Statement File No. 333-19749.
Philadelphia, Pa.,
January 20, 2000
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