<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
PLASMA & MATERIALS TECHNOLOGIES, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PLASMA & MATERIALS TECHNOLOGIES, INC.
(NAME OF PERSON(S) FILING PROXY STATEMENT)
Payment of Filing Fee (Check the appropriate box):
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2)
or Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
[X] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
$29,280
----------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
Preliminary Proxy Statement on Schedule 14A
----------------------------------------------------------------------
3) Filing Party:
Plasma & Materials Technologies, Inc.
----------------------------------------------------------------------
4) Date Filed:
August 9, 1996
----------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[LOGO OF PLASMA & MATERIALS TECHNOLOGIES, INC.]
PLASMA & MATERIALS TECHNOLOGIES, INC.
9255 DEERING AVENUE
CHATSWORTH, CALIFORNIA 91311
September 11, 1996
Dear Shareholder:
You are cordially invited to attend the 1996 Annual Meeting of Shareholders
(the "Annual Meeting") of Plasma & Materials Technologies, Inc. ("PMT") to be
held at 10:00 a.m., local time, on Thursday, October 10, 1996 at the Warner
Center Marriott located at 21850 Oxnard Street, Woodland Hills, California.
At the Annual Meeting, you will be asked (i) to consider and vote to approve
the Share Purchase Agreement dated as of July 17, 1996, as amended (the "Share
Purchase Agreement"), entered into among PMT, Electrotech Limited ("ET"),
Electrotech Equipments Limited ("ETE," and collectively with ET,
"Electrotech"), Christopher D. Dobson and the other shareholders of
Electrotech, and all transactions contemplated thereby (collectively, the
"Acquisition"), pursuant to which PMT will acquire 100% of the outstanding
capital stock of Electrotech and, directly or indirectly, each subsidiary
thereof for an aggregate of $75,000,000 (reduced by certain amounts to be
otherwise paid by PMT pursuant to the Share Purchase Agreement) and 5,600,000
shares of PMT's common stock ("Common Stock"); (ii) to elect six directors of
PMT to serve during the ensuing year and until their successors are duly
elected and qualified; (iii) to consider and vote to approve the amendment of
PMT's 1991 Stock Option Plan to increase the number of shares of Common Stock
which may be issued thereunder from 900,000 to 1,300,000 (and to 2,400,000 if
the Acquisition occurs); (iv) to consider and vote to ratify the appointment
of Ernst & Young LLP as PMT's independent auditors for the fiscal year ending
December 31, 1996; and (v) to consider and act upon such other business as may
properly come before the Annual Meeting, or any adjournment or postponement
thereof.
The enclosed Proxy Statement contains detailed information concerning the
Annual Meeting, including the Acquisition, and all other matters that are
scheduled to be addressed at the Annual Meeting. Please give this information
careful consideration.
Whether or not you plan to attend, it is important that your shares are
represented at the Annual Meeting. Accordingly, you are requested to promptly
complete, sign and date the enclosed proxy card and return it in the envelope
provided, which requires no postage if mailed in the United States.
Thank you for your consideration and your continued support.
Very truly yours,
/s/ Dr. Gregor A. Campbell
Dr. Gregor A. Campbell,
President and Chief Executive Officer
<PAGE>
PLASMA & MATERIALS TECHNOLOGIES, INC.
9255 DEERING AVENUE
CHATSWORTH, CALIFORNIA 91311
---------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 10, 1996
TO THE SHAREHOLDERS OF PLASMA & MATERIALS TECHNOLOGIES, INC.
Notice is hereby given that the 1996 Annual Meeting of Shareholders (the
"Annual Meeting") of Plasma & Materials Technologies, Inc., a California
corporation ("PMT"), will be held at 10:00 a.m., local time, on Thursday,
October 10, 1996 at the Warner Center Marriott located at 21850 Oxnard Street,
Woodland Hills, California 91367, to:
1. Consider and vote to approve the Share Purchase Agreement dated as of
July 17, 1996, as amended (the "Share Purchase Agreement"), entered into
among PMT, Electrotech Limited ("ET"), Electrotech Equipments Limited
("ETE," and collectively with ET, "Electrotech"), Christopher D. Dobson and
the other shareholders of Electrotech, and all transactions contemplated
thereby. Pursuant to the terms of the Share Purchase Agreement, PMT will
acquire 100% of the outstanding capital stock of Electrotech and, directly
or indirectly, each subsidiary thereof for an aggregate of $75,000,000
(reduced by certain amounts to be otherwise paid by PMT pursuant to the
Share Purchase Agreement) and 5,600,000 shares of PMT common stock ("Common
Stock").
2. Elect six directors of PMT to serve during the ensuing year and until
their successors are duly elected and qualified.
3. Consider and vote to approve the amendment of PMT's 1991 Stock Option
Plan to increase the number of shares of Common Stock which may be issued
thereunder from 900,000 to 1,300,000 (and to 2,400,000 if the Acquisition
occurs).
4. Consider and vote to ratify the appointment of Ernst & Young LLP as
PMT's independent auditors for the fiscal year ending December 31, 1996.
5. Consider and act upon such other business as may properly come before
the Annual Meeting, or any adjournment or postponement thereof.
The Board intends to present Dr. Gregor A. Campbell, John A. Rollwagen,
Brian D. Jacobs, G. Bradford Jones, Charles Thompson and Dr. Hiroyuki Mizuno
as nominees for election as directors at the Annual Meeting.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. Only the shareholders of record of the
Common Stock at the close of business on September 9, 1996 will be entitled to
notice of and to vote at the Annual Meeting, or any adjournment or
postponement thereof.
PLEASE EXECUTE, DATE AND RETURN PROMPTLY THE ENCLOSED PROXY CARD IN THE
ENVELOPE PROVIDED, WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING.
By order of the Board of Directors,
/s/ John W. LaValle
John W. LaValle,
Vice President, Chief Financial
Officer and Secretary
September 11, 1996
YOU ARE URGED TO VOTE UPON THE MATTERS PRESENTED IN THE ENCLOSED PROXY
STATEMENT AND TO SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY CARD IN THE
ENVELOPE PROVIDED. IT IS IMPORTANT FOR YOU TO BE REPRESENTED AT THE MEETING.
PROXIES ARE REVOCABLE AT ANY TIME AND THE EXECUTION OF YOUR PROXY WILL NOT
AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ARE PRESENT AT THE MEETING.
---------------
REQUESTS FOR ADDITIONAL COPIES OF PROXY MATERIALS SHOULD BE ADDRESSED TO
JOHN W. LAVALLE, VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND SECRETARY, AT THE
OFFICES OF PMT, 9255 DEERING AVENUE, CHATSWORTH, CALIFORNIA 91311.
<PAGE>
PLASMA & MATERIALS TECHNOLOGIES, INC.
9255 DEERING AVENUE
CHATSWORTH, CALIFORNIA 91311
----------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 10, 1996
----------------
GENERAL INFORMATION
This Proxy Statement is being furnished to the shareholders of Plasma &
Materials Technologies, Inc., a California corporation ("PMT"), in connection
with the solicitation by its Board of Directors of proxies to be used at the
1996 Annual Meeting of its shareholders (the "Annual Meeting") to be held on
Thursday, October 10, 1996 at 10:00 a.m., local time, at the Warner Center
Marriott located at 21850 Oxnard Street, Woodland Hills, California 91367, and
any adjournment or postponement thereof. This Proxy Statement and the form of
proxy utilized at the Annual Meeting were mailed or delivered to the
shareholders of the Company on or about September 11, 1996.
MATTERS TO BE CONSIDERED
At the Annual Meeting, you will be asked (i) to consider and vote to approve
the Share Purchase Agreement dated as of July 17, 1996, as amended (the "Share
Purchase Agreement"), entered into among PMT, Electrotech Limited ("ET"),
Electrotech Equipments Limited ("ETE," and collectively with ET,
"Electrotech"), Christopher D. Dobson and the other shareholders of
Electrotech and all transactions contemplated thereby (collectively, the
"Acquisition"), pursuant to which PMT will acquire 100% of the outstanding
capital stock of Electrotech and, directly or indirectly, each subsidiary
thereof for an aggregate of $75,000,000 (reduced by certain amounts to be
otherwise paid by PMT pursuant to the Share Purchase Agreement) and 5,600,000
shares of PMT common stock ("Common Stock"); (ii) to elect six directors of
PMT to serve during the ensuing year and until their successors are duly
elected and qualified; (iii) to consider and vote to approve the amendment of
PMT's 1991 Stock Option Plan to increase the number of shares of Common Stock
which may be issued thereunder from 900,000 to 1,300,000 (and to 2,400,000 if
the Acquisition occurs); (iv) to consider and vote to ratify the appointment
of Ernst & Young LLP ("Ernst & Young") as PMT's independent auditors for the
fiscal year ending December 31, 1996; and (v) to act upon such other business
as may properly come before the Annual Meeting, or any adjournment or
postponement thereof.
RECORD DATE AND VOTING
The directors have fixed the close of business on September 9, 1996 as the
record date (the "Record Date") for the determination of shareholders entitled
to vote at the Annual Meeting and any adjournment or postponement thereof.
Only holders of record of Common Stock on the Record Date are entitled to
notice of and to vote at the Annual Meeting and any adjournment or
postponement thereof. As of the Record Date, there were outstanding 8,692,132
shares of Common Stock.
QUORUM AND VOTING MATTERS
The holders of record of a majority of the combined voting power of the
outstanding shares of Common Stock present in person or represented by proxy
will constitute a quorum for the transaction of business at the Annual
Meeting. As to all matters except the election of directors, each shareholder
is entitled to one vote for each share of Common Stock held. Each holder of
Common Stock voting in the election of directors may, upon request, cumulate
such holder's votes and give one candidate a number of votes equal to the
number of directors to be elected multiplied by the number of shares of Common
Stock held by such holder, or distribute such holder's votes on the same
principle among as many candidates as the holder may select, provided that
votes
<PAGE>
cannot be cast for more than six candidates. However, no shareholder shall be
entitled to cumulate votes for any candidate unless, pursuant to the Bylaws of
the Company, the candidate's name has been placed in nomination prior to the
voting and the shareholder has given notice at the meeting prior to the vote
for directors of the shareholder's intention to cumulate such shareholder's
votes.
All properly executed proxies that are not revoked will be voted at the
Annual Meeting in accordance with the instructions contained therein. Subject
to the "Broker Non-Vote" restrictions discussed below, proxies containing no
instructions regarding the proposals specified in the form of proxy will be
voted for approval of each of the matters scheduled to be considered at the
Annual Meeting as well as in accordance with the recommendation of PMT's Board
of Directors on all other matters. Any shareholder signing a proxy has the
power to revoke it prior to the Annual Meeting or at the Annual Meeting prior
to the vote pursuant to the proxy. A proxy may be revoked by delivering a
written notice of revocation or a duly executed proxy bearing a later date or
by attending the Annual Meeting and voting in person.
VOTE REQUIRED
Approval of each of "Proposal No. 1--The Acquisition" and "Proposal No. 3--
Amendment of PMT's 1991 Stock Option Plan" requires the affirmative vote of
the holders of a majority of the outstanding shares of Common Stock entitled
to vote thereon. As a consequence, abstentions will have the effect of a
negative vote. See "Proposal No. 1--The Acquisition" and "Proposal No. 3--
Amendment of PMT's 1991 Stock Option Plan." With respect to the election of
directors, the six nominees who receive the greatest number of votes cast for
the election of those directorships shall become directors at the conclusion
of the tabulation of the votes. See "Proposal No. 2--Election of Directors."
SOLICITATION OF PROXIES AND EXPENSES
PMT will bear the cost of the solicitation of proxies from its shareholders.
In addition to solicitation by mail, the directors, officers and employees of
PMT may solicit proxies from shareholders by telephone, telegram, letter or in
person. Arrangements will also be made with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of solicitation
material to the beneficial owners of stock held of record by such
shareholders, and PMT will reimburse such custodians, nominees and fiduciaries
for reasonable out-of-pocket expenses incurred by them in connection
therewith. PMT has not presently engaged any third party to assist in the
solicitation of proxies and to distribute materials to brokerage houses,
banks, custodians and other nominee holders. If PMT engages the services of a
third party proxy solicitor with respect to the matters set forth in this
Proxy Statement, all costs and expenses thereof will be paid for by PMT.
EFFECT OF BROKER NON-VOTES
"Broker Non-Votes" occur when a broker holding shares of Common Stock in
street name withholds its vote on certain "non-routine" matters because the
broker has not received instructions from the beneficial owner of those shares
and does not have discretionary authority to vote on such non-routine matters
without specific instructions. Brokers holding shares in street name must
receive specific instructions from the beneficial owners in order to have the
authority to vote, in person or by proxy, on certain "non-routine" matters.
When a beneficial owner does not give specific instructions to the broker, the
broker, as the holder of record, is entitled to vote only on "routine" matters
and must withhold its votes as to any non-routine matters. Where a proxy
solicitation includes a non-routine proposal and the broker does not receive
specific instructions from the beneficial owner, the resulting proxy is
considered a "limited proxy." Shares represented by limited proxies are
considered present for quorum purposes, but are not considered present for
purposes of determining the total number of shares with voting power present
with regard to a non-routine proposal. The resulting Broker Non-Vote of such a
limited proxy will not be counted for or against such non-routine proposal.
"Proposal No. 1--The Acquisition" and "Proposal No. 3--Amendment of PMT's
1991 Stock Option Plan" are non-routine proposals. Approval of each of
Proposal No. 1 and Proposal No. 3 requires the affirmative vote of a majority
of the outstanding shares of Common Stock entitled to vote thereon. The effect
of a limited
2
<PAGE>
proxy will be that Broker Non-Votes will be treated as votes against Proposal
No. 1 and Proposal No. 3. "Proposal No. 2--Election of Directors" is a
"routine" matter upon which brokers can cast votes with or without specific
instructions from the beneficial holders and are thus counted for purposes of
determining whether Proposal No. 2 has been approved.
The Common Stock is listed for trading on the Nasdaq National Market
("Nasdaq"). On September 9, 1996, the closing price for a share of Common
Stock on Nasdaq was $11.625.
The principal executive offices of PMT are located at 9255 Deering Avenue,
Chatsworth, California 91311, and its telephone number is (818) 886-8000.
The information set forth in this Proxy Statement concerning Electrotech has
been furnished by Electrotech.
----------------
THIS PROXY STATEMENT IS DATED SEPTEMBER 11, 1996.
3
<PAGE>
PLASMA & MATERIALS TECHNOLOGIES, INC.
PROXY STATEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................ 5
Summary.............................. 6
The Companies...................... 6
Meeting of Shareholders of PMT..... 6
The Acquisition.................... 8
Summary Financial and Pro Forma
Data.............................. 12
Risk Factors......................... 14
Proposal No. 1--The Acquisition...... 20
General Information................. 20
Background of the Acquisition..... 20
Rationale for the Acquisition..... 21
Opinion of Financial Advisor...... 21
Management After the Acquisition.. 23
Prior Relationships Between the
Companies........................ 24
Security Ownership of Certain
Beneficial Owners and Management
After the Acquisition............ 24
Terms of the Acquisition and Related
Transactions....................... 25
Structure of the Acquisition...... 25
Purchase Price.................... 25
Effectiveness of the Acquisition.. 26
Conditions to the Acquisition..... 26
Representations and Warranties.... 27
Limited Survival of
Representations and Warranties... 29
Indemnification................... 30
Conduct of Business Prior to the
Acquisition...................... 30
Additional Covenants of the
Parties.......................... 31
Certain Payments at Closing....... 32
Pre-Closing Electrotech Dividends. 33
Termination, Amendment and Waiver. 33
Termination Fee and Certain
Acquisition Expenses............. 33
Effect of Termination............. 34
Related Agreements................ 34
Certain Other Items Related to the
Acquisition........................ 35
Accounting Treatment.............. 35
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Federal Income Tax Consequences.. 35
Governmental and Regulatory
Approvals....................... 36
Terms of the Private Financing;
Working Capital................. 36
Restrictions on Transfer of
Shares.......................... 36
Dissenting Shareholders' Rights
of Appraisal....................... 37
Selected Consolidated Financial Data
of PMT............................. 39
Management's Discussion and Analysis
of Financial Condition and Results
of Operations of PMT............... 40
Selected Combined Financial Data of
Electrotech........................ 46
Management's Discussion and Analysis
of Financial Condition and Results
of Operations of Electrotech....... 47
Pro Forma Financial Information..... 52
Business............................ 57
Semiconductor Industry Overview... 57
Semiconductor Manufacturing ...... 57
Deposition Technologies........... 57
Etch Technologies................. 58
Combined Product Offerings........ 59
Business of PMT................... 59
Business of Electrotech........... 68
Price Range of Common Stock......... 75
Management.......................... 76
Management of PMT................. 76
Management of Electrotech......... 83
Principal Shareholders of PMT....... 84
Proposal No. 2 -- Election of
Directors.......................... 85
Proposal No. 3 -- Amendment of PMT's
1991 Stock Option Plan............. 88
Proposal No. 4 -- Ratification of
the Appointment of Ernst & Young as
Independent Auditors............... 93
Other Business...................... 94
Submission of Shareholder Proposals. 94
Annual Reports...................... 95
Index to Financial Statements....... F-1
</TABLE>
Annex A--Share Purchase Agreement dated as of July 17, 1996, as amended, among
PMT, ET, ETE, Christopher D. Dobson and the Other Shareholders of ET
and ETE.
Annex B--Opinion of Salomon Brothers Inc.
Annex C--PMT's 1991 Stock Option Plan.
Annex D--Amendment of PMT's 1991 Stock Option Plan.
Annex E--General Corporation Law of California, Chapter 13, Dissenters'
Rights.
4
<PAGE>
AVAILABLE INFORMATION
PMT is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith
files reports, proxy statements and other information with the Commission.
Copies of such reports, proxy statements and other information filed by PMT
can be inspected and copied at the Securities and Exchange Commission's Public
Reference Room, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549 and at the public reference facilities maintained by the Commission at
its regional offices located at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048. Copies of such materials can be obtained from the Commission at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. Such reports, proxy statements and
other information concerning PMT are also available for inspection at the
library of Nasdaq at 1735 K Street, N.W., Washington, D.C. 20006. The
Commission maintains a web site at http://www.sec.gov that contains reports,
proxy statements and other information concerning PMT, which files
electronically with the Commission.
----------------
The following companies are mentioned in this Proxy Statement: Alcan-Tech
Co., Inc. ("Alcan-Tech"), Anelva Corporation, a subsidiary of NEC Corporation
("NEC Anelva"), Applied Materials, Inc. ("Applied Materials"), AT&T Corp.
("AT&T"), Brooks Automation, Inc. ("Brooks Automation"), Canon Sales Co., Inc.
("Canon Sales"), Dallas Semiconductor Corporation ("Dallas Semiconductor"),
Daewoo Corp. ("Daewoo"), Fujitsu Ltd. ("Fujitsu"), GEC Plessey Semiconductor
Ltd. ("GEC Plessey"), Hitachi, Ltd. ("Hitachi"), Hyundai Corp. ("Hyundai"),
International Business Machines Corporation ("IBM"), Lam Research Corporation
("Lam Research"), Leybold AG ("Leybold"), LG International America ("LG
Semicon"), LSI Logic Corporation ("LSI Logic"), Matsushita Electronics
Industrial Co. Ltd. ("Matsushita"), Metron Semiconductors Europe, B.V.
("Metron"), Micron Technology, Inc. ("Micron Technology"), Mitsubishi Electric
("Mitsubishi"), Motorola, Inc. ("Motorola"), Material Resources Corp. ("MRC"),
NEC Corporation ("NEC"), Novellus Systems, Inc. ("Novellus"), OKI Electric
Industry Co., Ltd. ("OKI"), Olivetti SpA ("Olivetti"), Philips Electronics NG
("Philips"), Plasma-Therm, Inc. ("Plasma-Therm"), RF Power Products, Inc. ("RF
Power Products"), Ricoh Co. Ltd. ("Ricoh"), Samsung Co. Ltd. ("Samsung"),
Siemens AG ("Siemens"), SEMATECH, INC. ("SEMATECH"), Sharp Corp. ("Sharp"),
Sony Corporation ("Sony"), Techlink Semiconductor Co., Ltd. ("Techlink"),
TEMIC Group ("TEMIC"), Texas Instruments Incorporated ("Texas Instruments"),
Tokyo Electron Ltd. ("Tokyo Electron"), Toshiba Corporation ("Toshiba"), Tower
Semiconductor ("Tower Semiconductor"), TriQuint Semiconductor, Inc.
("TriQuint"), Varian Associates, Inc. ("Varian"), Ulvac Japan, Ltd. ("Ulvac")
and Watkins-Johnson ("Watkins-Johnson").
5
<PAGE>
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Proxy Statement. This summary does not contain a complete statement of
all material features of the proposals to be voted on and is qualified in its
entirety by the more detailed information appearing elsewhere in this Proxy
Statement and in the accompanying Annexes.
THE COMPANIES
PMT....................... Plasma & Materials Technologies, Inc., a California
corporation ("PMT"), designs, manufactures and mar-
kets advanced high density, low pressure plasma
sources, process modules and plasma processing sys-
tems. These products are used for etch and chemical
vapor deposition (CVD) applications and are sold to
semiconductor manufacturers worldwide. PMT's prin-
cipal executive offices are located at 9255 Deering
Avenue, Chatsworth, California 91311 and its tele-
phone number is (818) 886-8000. See "Business--
Business of PMT."
Electrotech............... Electrotech Limited ("ET") and Electrotech
Equipments Limited ("ETE") are each United Kingdom
corporations. ET, ETE and the direct and indirect
subsidiaries thereof are sometimes collectively
referred to in this Proxy Statement as
"Electrotech." Electrotech designs, manufactures
and markets semiconductor fabrication equipment for
the worldwide semiconductor manufacturing industry.
Electrotech's proprietary products are targeted for
the physical vapor deposition (or sputtering), CVD
and etch semiconductor manufacturing markets.
Electrotech's principal executive offices are
located at Ringland Way, Newport, Gwent, NP6 2TA,
UK and its telephone number is 011-44-1633-414000.
See "Business--Business of Electrotech."
Christopher D. Dobson is one of the founders, the
principal shareholder and Chairman of the Board of
ET and ETE.
MEETING OF SHAREHOLDERS OF PMT
Time, Date, Place and The 1996 Annual Meeting of Shareholders of PMT (the
Purpose................... "Annual Meeting") will be held on Thursday, October
10, 1996 at 10:00 a.m., local time, at the Warner
Center Marriott located at 21850 Oxnard Street,
Woodland Hills, California 91367.
At the Annual Meeting, PMT shareholders will be
asked to: (i) consider and vote to approve the
Share Purchase Agreement dated as of July 17, 1996,
as amended (the "Share Purchase Agreement"), en-
tered into among PMT, Electrotech, Christopher D.
Dobson and the other shareholders of Electrotech
(collectively, with Mr. Dobson, the "Electrotech
Shareholders"), and all transactions contemplated
thereby (collectively, the "Acquisition"), pursuant
to which PMT will acquire 100% of the outstanding
capital stock of Electrotech and, directly or indi-
rectly, each subsidiary thereof (the "Electrotech
Shares") for an aggregate of $75,000,000 (reduced
by certain amounts to be otherwise paid by PMT pur-
suant to the Share Purchase Agreement) and
5,600,000 shares of PMT common stock, no par value
per share ("Common Stock"); (ii) elect six direc-
tors of PMT to serve during the ensuing year and
until
6
<PAGE>
their successors are duly elected and qualified;
(iii) consider and vote to approve the amendment of
PMT's 1991 Stock Option Plan to increase the number
of shares of Common Stock which may be issued
thereunder from 900,000 to 1,300,000 (and to
2,400,000 if the Acquisition occurs); (iv) consider
and vote to ratify the appointment of Ernst & Young
LLP as PMT's independent auditors for the fiscal
year ending December 31, 1996; and (v) consider and
act upon such other business as may properly come
before the Annual Meeting, or any adjournment or
postponement thereof.
Record Date; Quorum; Vote
Required; Dissenters'
Rights................... The record date for determining the shareholders of
PMT entitled to vote upon the matters set forth in
this Proxy Statement is September 9, 1996 (the
"Record Date").
The presence, either in person or by properly des-
ignated proxy, at the Annual Meeting of the holders
of a majority of the outstanding shares of Common
Stock entitled to vote at such Meeting is necessary
to constitute a quorum.
Under Section 1201 of the California Corporations
Code, the Acquisition requires the affirmative vote
of the holders of a majority of the outstanding
shares of Common Stock entitled to vote thereon.
Additionally, due to the number of shares of Common
Stock to be issued to the Electrotech Shareholders
by PMT in the Acquisition, shareholder approval is
required pursuant to Rule 4460(i)(1)(C)(ii), prom-
ulgated pursuant to Article VII of the By-laws of
the National Association of Securities Dealers,
Inc. (the "NASD").
Pursuant to Chapter 13 of the California
Corporations Code, holders of Common Stock
generally will be entitled to obtain an appraisal
of the fair value of their respective shares only
if demands for payment are filed with respect to 5%
or more of the outstanding shares of Common Stock.
Holders of shares subject to certain transfer
restrictions may obtain such appraisal without
regard to such 5% requirement. It is a condition to
the consummation of the Acquisition that holders of
less than 5% of the outstanding shares of Common
Stock have perfected dissenters' rights. See
"Dissenting Shareholders' Right of Appraisal."
As of September 9, 1996 the directors and officers
of PMT beneficially owned 2,246,012 outstanding
shares of Common Stock (representing approximately
25.1% of the outstanding shares of Common Stock).
All such directors and officers intend to vote in
favor of the Acquisition.
ET and ETE are private, closely held corporations.
The execution of the Share Purchase Agreement
served as the approval of the Acquisition by the
Electrotech Shareholders and no other formal meet-
ing of the Electrotech Shareholders will be held.
7
<PAGE>
THE ACQUISITION
Risks of the Acquisition.. The Acquisition involves certain risks, including
without limitation, those risks associated with the
cyclicality of the semiconductor industry
(including the current industry downturn), the
development and acceptance of new products and
systems, the rapid pace of technological change,
the effect of many business factors on quarterly
operating results, the highly competitive nature of
the semiconductor equipment industry, the
combination of PMT and Electrotech, lengthy sales
cycles for PMT's and Electrotech's products, the
importance of key personnel to PMT and Electrotech,
the increase in international exposure, the
importance of intellectual property rights to PMT
and Electrotech, future capital needs,
environmental regulations, customer concentration,
dilution in the ownership of PMT, shares available
for resale and volatile stock prices. For a
complete discussion of the risk factors relating to
the matters described in this Proxy Statement, see
"Risk Factors."
Effect of Acquisition..... Upon consummation of the Acquisition, each of ET
and ETE, together with a United States subsidiary
of ETE, will become a direct, wholly-owned subsidi-
ary of PMT. All other subsidiaries of ET and ETE
will become indirect wholly-owned subsidiaries of
PMT.
Effective Date of the The Acquisition will be effective on the date upon
Acquisition............... which the closing contemplated by the Share Pur-
chase Agreement occurs (the "Closing Date"). The
Closing Date is currently expected to be on or
about Friday, October 11, 1996, and is subject to
the satisfaction or waiver of the conditions prece-
dent to the Acquisition set forth in the Share Pur-
chase Agreement. See "Proposal No. 1--The Acquisi-
tion--Terms of the Acquisition and Related Transac-
tions--Effectiveness of the Acquisition" and "--
Conditions to the Acquisition."
Terms of the Acquisition.. PMT will acquire all of the Electrotech Shares
outstanding for an aggregate of $75,000,000 in cash
(reduced by certain amounts to be otherwise paid by
PMT pursuant to the Share Purchase Agreement) and
5,600,000 shares of Common Stock, which shares will
be newly issued at such time. For further
discussion of the various reductions from the cash
portion of the purchase price for the Electrotech
Shares, see "Proposal No. 1--The Acquisition--Terms
of the Acquisition and Related Transactions--
Purchase Price," and "--Certain Payments at
Closing."
Based upon the Common Stock outstanding as of the
Record Date, and assuming that no outstanding PMT
warrants or stock options are exercised prior to
the Acquisition, 14,292,132 shares of Common Stock
will be outstanding upon consummation of the Acqui-
sition, of which 5,600,000 shares (approximately
39.2% of the total number of shares of Common Stock
outstanding) will be held in the aggregate by the
Electrotech Shareholders and of which 4,853,334
shares (approxi-
8
<PAGE>
mately 34.0%) will be held by Mr. Dobson. See "Pro-
posal No. 1--The Acquisition--Terms of the Acquisi-
tion and Related Transactions--Purchase Price."
Terms of the Private
Financing; Working
Capital.................. As a condition to the consummation of the Acquisi-
tion, the Share Purchase Agreement contemplates
that, among other things, PMT will have issued and
sold at least $50,000,000 in convertible subordi-
nated notes (the "Convertible Notes") to qualified
institutional buyers (the "Private Financing") pur-
suant to Rule 144A under the Securities Act of
1933, as amended (the "Securities Act"), or to
other available applicable exemptions under the Se-
curities Act. See "Proposal No. 1--The Acquisi-
tion--Terms of the Acquisition and Related Transac-
tions--Conditions to the Acquisition." PMT antici-
pates that it will issue and sell approximately
$65,000,000 in principal amount of Convertible
Notes in the Private Financing, and that the Con-
vertible Notes will be on terms and subject to con-
ditions to be negotiated between PMT and the pur-
chasers thereof. The initial purchasers of the Con-
vertible Notes will be granted an over-allotment
option with respect to an additional $9,750,000 in
principal amount of Convertible Notes, which option
will be exercisable by such initial purchasers
within 30 days of the date of issuance of the Con-
vertible Notes. PMT believes that the amounts
raised in the Private Financing plus other sources
of capital available to PMT will be sufficient to
pay the cash portion of the purchase price for the
Electrotech Shares and to satisfy the condition in
the Share Purchase Agreement requiring that the
cash and cash equivalents and assets, plus amounts
then immediately available for additional
borrowings under credit agreements of PMT and
Electrotech at the Closing, on a consolidated pro
forma basis after giving effect to the Acquisition,
will not be less than $35,000,000 (the "Working
Capital Condition"). See "Proposal No. 1--The Ac-
quisition--Certain Other Items Related to the Ac-
quisition--Terms of the Private Financing; Working
Capital."
Restrictions on Transfer
of Shares................. The shares of Common Stock issued in the Acquisi-
tion will be subject to restrictions on transfera-
bility. In that regard, 746,666 of such shares of
Common Stock may be sold in the public securities
markets on and after the date that is 40 days from
the Closing Date, pursuant to Regulation S of the
Securities Act of 1933, as amended (the "Securities
Act"). Subject to certain volume restrictions im-
posed by Rule 144 under the Securities Act, after
such date, Mr. Dobson will also be permitted to
sell a certain number of the 4,853,334 shares of
Common Stock to be issued to him in the Acquisi-
tion. In connection with the Private Financing, the
Electrotech Shareholders have agreed not to sell
any of the shares of Common Stock received by them
in the Acquisition for 90 days from the Closing
Date. Additionally, on and after the first anniver-
sary of the Closing Date, Mr. Dobson has the right
to request the registration of such shares of Com-
mon Stock and also has the right to participate in
any other registration statement filed by PMT after
such date. See "Proposal No. 1--The Acquisition--
Terms of the Acquisition and Related Transactions--
Related Agreements."
9
<PAGE>
Recommendation of the
Board of PMT............. PMT'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED
THE SHARE PURCHASE AGREEMENT, HAS DETERMINED THAT
THE ACQUISITION AND ALL OTHER TRANSACTIONS
CONTEMPLATED THEREBY ARE IN THE BEST INTEREST OF
PMT AND ITS SHAREHOLDERS AND RECOMMENDS THAT
SHAREHOLDERS VOTE IN FAVOR OF PROPOSAL NO. 1. For a
discussion of the reasons considered by PMT's Board
of Directors in approving the Share Purchase
Agreement, the Acquisition and all related
transactions, see "Proposal No. 1--The
Acquisition--General Information--Rationale for the
Acquisition."
Opinion of Financial
Advisor.................. Salomon Brothers Inc ("Salomon Brothers") has been
retained by the PMT Board of Directors to act as
its financial advisor in connection with the Acqui-
sition. Salomon Brothers has delivered to the PMT
Board of Directors its written opinion, dated July
5, 1996, to the effect that, as of such date and
based upon and subject to the matters described
therein, the proposed Acquisition is fair to PMT
and its shareholders from a financial point of
view. Reference is made to the full text of such
opinion, a copy of which is set forth in Annex B in
its entirety. PMT shareholders are urged to read
this opinion carefully for a description of the
procedures followed, the factors considered and the
assumptions made by Salomon Brothers. See "Proposal
No. 1--The Acquisition--General Information--Opin-
ion of Financial Advisor."
The Board of Directors
and Management of PMT
Following the
Acquisition.............. It is a condition to the consummation of the Acqui-
sition that Christopher D. Dobson and Nigel Wheeler
(the Chairman and Chief Executive Officer, respec-
tively, of Electrotech) be elected to the Board of
Directors of PMT. See "Proposal No. 1--The Acquisi-
tion--Terms of the Acquisition and Related Transac-
tions--Conditions to the Acquisition." Following
the Acquisition, the current officers and directors
of PMT are expected to remain officers and direc-
tors of PMT, except that Dr. Gregor Campbell, pres-
ently the President and Chief Executive Officer of
PMT, will relinquish his position as President, and
James Marshall, presently Executive Vice President
and Chief Operating Officer of PMT, will relinquish
his position as Chief Operating Officer and will
assume the role of Executive Vice President, Opera-
tions and General Manager, Etch. Mr. Dobson will be
elected Vice Chairman of the Board of Directors of
PMT and Mr. Wheeler will be elected President and
Chief Operating Officer of PMT.
Conditions to the
Acquisition;
Termination.............. The consummation of the Acquisition is subject to a
number of conditions, including without limitation
(a) a condition requiring the approval, by a major-
ity of the outstanding shares of Common Stock, of
the Share Purchase Agreement and the transactions
contemplated thereby (including the Acquisition),
(b) a condition that holders of less than 5%
10
<PAGE>
of such outstanding shares file demands for ap-
praisal as dissenting shareholders, (c) a condition
relating to the Private Financing and (d) the Work-
ing Capital Condition, which conditions, if not
fulfilled or waived, permit termination of the
Share Purchase Agreement. See "Proposal No. 1--The
Acquisition--Terms of the Acquisition and Related
Transactions--Conditions to the Acquisition." The
Share Purchase Agreement may also be terminated by
consent of the parties. Except under certain cir-
cumstances, upon a termination of the Share Pur-
chase Agreement, PMT is required to pay a fee of
$1,000,000 to Electrotech and to reimburse certain
costs and expenses incurred by Electrotech. See
"Proposal No. 1--The Acquisition--Terms of the
Acquisition and Related Transactions--Termination
Fee and Certain Acquisition Expenses."
Government and Regulatory
Approvals................ PMT and Electrotech are not aware of any
governmental or regulatory approvals required for
consummation of the Acquisition, although it is a
condition to the obligations of the Electrotech
Shareholders to consummate the Acquisition that the
Electrotech Shareholders have obtained tax
clearance from certain U.K. taxing authorities. See
"Proposal No. 1--The Acquisition--Terms of the
Acquisition and Related Transactions--Conditions to
the Acquisition."
Electrotech Financial
Data..................... The financial data presented with respect to
Electrotech is set forth in British pounds ster-
ling, unless the context indicates otherwise and in
accordance with UK GAAP. When such financial data
is set forth in U.S. dollars, a currency transla-
tion rate of (Pounds)1 to $1.53, with respect to
the financial data presented for the six month pe-
riod ended June 30, 1996, and (Pounds)1 to $1.55,
with respect to the financial data presented for
the twelve month period ended December 31, 1995,
has been employed.
Accounting Treatment...... The Acquisition will be treated as a purchase for
accounting purposes.
Federal Income Tax
Consequences............. The Acquisition will not have any U.S. federal,
state or local income tax effect on any PMT share-
holder, unless such shareholder exercises dissent-
ers' rights. See "Dissenting Shareholders' Rights
of Appraisal."
OTHER PROPOSALS........... For a description of all other proposals to be
considered by PMT shareholders at the Annual
Meeting, see "Proposal No. 2--Election of
Directors," "Proposal No. 3--Amendment of PMT's
1991 Stock Option Plan" and "Proposal No. 4--
Ratification of the Appointment of Ernst & Young as
Independent Auditors."
11
<PAGE>
SUMMARY FINANCIAL AND PRO FORMA DATA
PMT
<TABLE>
<CAPTION>
TEN MONTHS TWELVE
ENDED MONTHS YEAR SIX MONTHS ENDED
YEAR ENDED FEBRUARY 28, DECEMBER 31,(1) ENDED ENDED JUNE 30,
-------------------------- ---------------- DEC. 31, DEC. 31, ------------------
1992 1993 1994 1993 1994 1994(1) 1995(2) 1995 1996
------- -------- -------- ------- ------- -------- -------- -------- --------
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND RATIO INFORMATION)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF
OPERATIONS:
Revenues:
Product sales.......... $ 1,376 $ 4,215 $ 6,244 $ 4,435 $ 8,005 $ 9,813 $20,890 $ 7,092 $ 17,946
License revenue........ 2,000 -- 1,900 1,900 700 700 400 400 --
Contract revenue....... -- -- -- -- -- -- -- -- 849
------- -------- -------- ------- ------- ------- ------- -------- --------
Total revenue.......... 3,376 4,215 8,144 6,335 8,705 10,513 21,290 7,492 18,795
Income (loss) from
operations............. 325 (2,251) (1,151) (757) (3,665) (4,058) (364) (1,034) 1,841
Net income (loss)....... 128 (2,319) (1,397) (1,006) (3,740) (4,128) 118 (1,182) 2,621
Net income (loss) per
share(3)............... $ (0.75) $ (0.82) $ 0.02 $ (0.24) $ 0.29
Number of shares used in
per share computation,
in thousands(3)........ 5,013 5,013 6,593 5,023 9,131
Ratio of earnings to
fixed charges(4)....... 1.28 17.78
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------------
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C>
BALANCE SHEET DATA:
Working capital................................. $46,316
Total assets.................................... 66,981
Long-term debt (capital lease obligations), less
current portion................................ 434
Shareholders' equity............................ 56,149
</TABLE>
- --------
(1) During 1994, PMT changed its fiscal year end from the last day of February
to December 31. Information for the twelve months ended December 31, 1994
(unaudited) is provided for comparison to the information for the year
ended December 31, 1995. Information for the ten months ended December 31,
1993 (unaudited) is provided for comparison to the information for the ten
months ended December 31, 1994.
(2) On August 29, 1995, PMT completed its initial public offering, resulting in
approximately $40,093,235 of net proceeds to PMT. The funds have been used
to cover PMT's working capital needs, its investment in evaluation systems
and capital expenditures, and to continue to expand its research and
development and operational activities.
(3) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the method used to determine the number of shares used to compute per
share amounts.
(4) For purposes of computing the ratio of earnings to fixed charges,
"earnings" consist of income from operations before income taxes plus fixed
charges, and "fixed charges" consist of interest expense plus an allocation
of a portion of rent expense representing interest.
ELECTROTECH(1)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------------
1992 1993 1994 1995 1996
-------------- -------------- -------------- -------------- --------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C> <C> <C>
PROFIT AND LOSS ACCOUNT
DATA:
Revenues................ (Pounds)13,919 (Pounds)16,547 (Pounds)23,807 (Pounds)34,496 (Pounds)49,012
Income (loss) from
operations............. (1,842) 1,556 1,818 4,446 10,637
Net income(2)........... 1,324 834 989 5,518 6,307
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C>
BALANCE SHEET DATA:
Working capital................................ (Pounds)16,422
Total assets................................... 51,030
Long-term debt, less current portion........... 948
Shareholders' equity........................... 26,621
</TABLE>
- --------
(1) The summary financial data of Electrotech is derived from historical
financial statements prepared under accounting principles generally
accepted in the U.K.
(2) Included in net income for the year ended June 30, 1995 is
(Pounds)3,076,000 of profit ((Pounds)5,040,000 before taxes) related to the
sale of Surface Technology Systems Limited in March 1995, and included in
net income for the year ended June 30, 1992 is (Pounds)3,104,000 of profit
((Pounds)4,652,000 before taxes) related to the sale of Plasma Products
Limited.
12
<PAGE>
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The summary unaudited pro forma combined financial data has been derived from
the unaudited pro forma financial statements and the notes thereto included
elsewhere in this document and should be read in conjunction with those
financial statements and notes. The summary unaudited pro forma combined
financial data does not purport to be indicative of future operations and
should not be construed as representative of future operations of the combined
companies.
<TABLE>
<CAPTION>
TWELVE MONTH PERIOD ENDED SIX MONTH PERIOD ENDED
DECEMBER 31, 1995(1) JUNE 30, 1996(1)
------------------------- ----------------------
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND RATIO INFORMATION)
<S> <C> <C>
PRO FORMA COMBINED
STATEMENTS OF OPERATIONS
DATA FOR PMT AND
ELECTROTECH:
Revenues................ $75,673 $66,143
Cost of sales........... 37,207 31,583
Research and
development............ 12,969 9,220
Sales, general and
administrative......... 18,138 11,506
Amortization of
intangibles............ 5,817 2,909
Income from operations.. 1,542 10,925
Net income (loss)....... (578) 4,910
Net income (loss) per
share.................. (0.05) 0.33
Number of shares used in
per share computation,
in thousands........... 12,193 14,731
Ratio of earnings to
fixed charges(2)....... 1.54 3.24
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996(1)
------------------------------
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C>
PRO FORMA COMBINED BALANCE SHEET DATA FOR PMT
AND ELECTROTECH:
Working capital................................ $ 50,830
Total assets................................... 181,184
Long-term debt and capital lease obligations,
less current portion.......................... 66,891
Total shareholders' equity(3).................. 45,849
</TABLE>
- --------
(1) The unaudited pro forma combined balance sheet data assumes the Acquisition
and related financing of the Acquisition, through the issuance of
$65,000,000 of Convertible Notes, took place on June 30, 1996, and combines
PMT's June 30, 1996 balance sheet data with Electrotech's June 30, 1996
balance sheet data using the purchase method of accounting. The unaudited
pro forma statements of operations data assumes that the Acquisition and
related financing took place as of the beginning of each of the periods
presented using the allocation of the purchase information calculated as of
June 30, 1996, and combines the statement of operations data for PMT and
the profit and loss accounts data for Electrotech for the twelve month
period ended December 31, 1995 and for the six month period ended June 30,
1996. See "Pro Forma Financial Information." The underlying financial data
of Electrotech used to develop the pro forma combined financial data has
been converted to U.S. dollars using a conversion rate of $1.53 U.S. to
(Pounds)1 sterling at June 30, 1996 and $1.55 U.S. to (Pounds)1 sterling at
December 31, 1995, and to US GAAP for purposes of comparison.
(2) For purposes of computing the ratio of earnings to fixed charges,
"earnings" consist of income from operations before income taxes plus fixed
charges, and "fixed charges" consist of total interest expense plus an
allocation of a portion of rent expense representing interest. Such ratio
assumes the issuance of a principal amount of $65 million of Convertible
Notes with an interest rate of 7.5%. Assuming that the initial purchasers'
over-allotment is exercised and an aggregate of $74,750,000 in principal
amount of Convertible Notes is issued, the ratio of earnings to fixed
charges would be 1.44 and 3.00 for the twelve month period ended December
31, 1995 and the six month period ended June 30, 1996, respectively.
(3) Reflects a one-time, nonrecurring charge of $81 million (which is subject
to further refinement) relating to purchased in-process technology of
Electrotech. See "Pro Forma Financial Information" and the notes thereto.
13
<PAGE>
This Proxy Statement contains forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange Act.
These statements are in paragraphs 2, 3, 4, 5 and 6 under "The Acquisition--
General Information--Background of the Acquisition--Rationale for the
Acquisition," paragraphs 1, 2, 3, 5, 8 and 9, under "Management's Discussion
and Analysis of Financial Condition and Results of Operations of PMT--Results
of Operations," paragraphs 2, 3, 5 and 6 of "Management's Discussion and
Analysis of Financial Condition and Results of Operations of PMT--Liquidity
and Capital Resources," paragraphs 9, 18 and 22 of "Management's Discussion
and Analysis of Financial Condition and Results of Operations of Electrotech--
Results of Operations," paragraphs 4, 5 and 6 of "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Electrotech--
Liquidity and Capital Resources," in the section "Pro Forma Financial
Information" and the notes thereto, in paragraphs 4 and 5 of "Business--
Deposition Technologies," in paragraphs 1, 2 and 3 of "Business--Combined
Product Offerings" and paragraphs 16, 25, 32, 37 and 55 of "Business--Business
of PMT." Forward-looking statements may also be found in various sections of
this Proxy Statement that are not specifically set forth above. Actual results
could differ materially from those projected in the forward-looking statements
as a result of certain factors, including those set forth below.
RISK FACTORS
The following factors should be considered carefully in evaluating the
proposal to approve the Acquisition. In general, these factors are discussed
separately with respect to PMT and Electrotech to the extent deemed
appropriate to reflect certain differences in their respective businesses. At
the same time, all discussions of the semiconductor and semiconductor
equipment industries, and factors affecting semiconductor equipment
manufacturers generally, should be considered applicable to both PMT and
Electrotech, unless the context otherwise requires. Furthermore, for periods
following the Acquisition, references to the products, business, results of
operations, financial condition or other factors affecting the combined
operations of PMT and Electrotech should be considered to refer to PMT and
Electrotech jointly (assuming the consummation of the Acquisition), unless the
context otherwise requires.
CYCLICALITY OF SEMICONDUCTOR INDUSTRY
The semiconductor industry is highly cyclical and has historically
experienced periodic downturns, which have been characterized by diminished
product demand and production overcapacity. The semiconductor industry is
currently experiencing a downturn, which could have a severe adverse effect on
the semiconductor industry's demand for semiconductor processing equipment. In
certain instances, industry downturns have lasted for extended periods of
time. Each of PMT's and Electrotech's operations have been and will continue
to be dependent on the current and anticipated market demand for integrated
circuits (ICs) and products utilizing ICs that are produced by semiconductor
manufacturers. The current weakness in demand in the semiconductor industry,
and any continuation of this weakness in the future, is likely to materially
and adversely affect each of PMT's and Electrotech's business and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations of PMT--Recent Developments."
DEVELOPMENT AND ACCEPTANCE OF NEW PRODUCTS AND SYSTEMS
PMT's MORI(TM) source offers an alternative etch environment for the
manufacture of ICs to the reactive ion etch (RIE), inductively coupled plasma
(ICP) and electron cyclotron resonance (ECR) etch technology currently used by
PMT's competitors.
While Electrotech sells several proven products, Electrotech's Sigma
Forcefill(TM) system incorporates an alternative technology to conventional
physical vapor deposition (PVD) techniques by using low resistance aluminum
forced by high pressure argon to fill small diameter deep holes and vias on
ICs. Electrotech's competitors produce systems that use a conventional
chemical vapor deposition (CVD) tungsten system to fill deep holes and vias.
Electrotech's Planar 200 Flowfill(TM) system uses a CVD technique applied to
silicon dioxide
14
<PAGE>
that allows for gap filling and planarization. Competing products include spin
on glass (SOG) and high density plasma (HDP) coupled with a chemical
mechanical polishing (CMP) process.
PMT has sold a limited number of its PINNACLE 8000(R) and PINNACLE 8000R(TM)
etch systems to a small number of customers. Electrotech's Sigma Forcefill(TM)
and Planar 200 Flowfill(TM) are currently at the stage of customer review and
evaluation; however, considerable efforts are being applied by Electrotech to
attain product functionality and reliability levels acceptable to
Electrotech's target markets. To date, the substantial majority of PMT's sales
of its etch systems and all of Electrotech's sales of Sigma Forcefill(TM) and
Planar 200 Flowfill(TM) systems have been initial purchases by customers of
individual systems. Typically, semiconductor manufacturers initially purchase
individual systems and deploy them in a development or pre-production
environment prior to purchasing multiple systems for production. There can be
no assurance that any of such customers will purchase additional systems from
either PMT or Electrotech for deployment in production.
Given that certain of PMT's and Electrotech's systems represent an
alternative to conventional etch, PVD and CVD systems currently marketed by
competitors, management believes that continued growth depends in large part
upon the ability of PMT and Electrotech to gain acceptance of their systems
and technology. Due to the substantial investment required by semiconductor
manufacturers to install and integrate capital equipment into a semiconductor
production line, these manufacturers will tend to choose equipment
manufacturers based on past relationships, product compatibility and proven
financial performance. Once a semiconductor manufacturer has selected a
particular vendor, management believes that the manufacturer generally relies
upon the equipment supplied by that vendor for the specific production line
application, and frequently will attempt to consolidate its other capital
equipment requirements with the same vendor. As a result, semiconductor
manufacturers will normally engage in a long period of analysis and planning
before determining to convert to a new vendor of capital equipment. Given
these factors, there can be no assurance that either PMT or Electrotech will
be successful in obtaining broader acceptance of its new systems or of PMT's
MORI(TM) source or Electrotech's Forcefill(TM) or Flowfill(TM) technologies.
RAPID TECHNOLOGICAL CHANGE
The markets in which PMT and Electrotech and their customers compete are
characterized by rapidly changing technology, the introduction of alternative
technologies, evolving industry standards and continuous improvements in
products and services. Management believes that its future success will
depend, in part, upon its ability to continue to improve PMT's and
Electrotech's systems and process technologies and to develop new technologies
and systems which compete effectively on the basis of total cost of ownership
and performance and which adequately address customer requirements.
QUARTERLY OPERATING RESULTS AFFECTED BY MANY BUSINESS FACTORS
PMT has routinely experienced fluctuations in quarterly results and
currently derives most of its quarterly revenue from the sale of a small
number of etch systems which typically have list prices ranging from
approximately $975,000 to $3,100,000. During PMT's last five fiscal quarters,
PMT shipped virtually all of its systems in the last week of such quarters.
Accordingly, the timing of the shipment of a single PMT system could have a
significant impact on PMT's recognition of revenue and its quarterly operating
results. Historically, PMT's backlog at the beginning of a quarter has not
included all sales required to achieve its sales objectives for that quarter.
As of August 31, 1996, backlog was approximately $4.0 million for PMT, as
compared to $8.7 million at December 31, 1995. Substantially all of the orders
constituting backlog of PMT as of August 31, 1996 will be shipped during PMT's
fiscal quarter ending September 30, 1996. PMT's quarterly product sales and
operating results have historically depended on the receipt of orders and the
shipment of products in that same quarter.
Electrotech also derives a significant percentage of its quarterly revenues
from the shipment of a relatively small number of systems varying in price
from approximately $600,000 to $4,000,000. Product sales and operating results
for a particular quarter could be adversely affected if an anticipated order
for even one PMT or Electrotech system is not received in time to permit
shipment during that quarter. A delay in a shipment near the end of a
particular quarter may cause product sales in that quarter to fall below
expectations, and may thus
15
<PAGE>
materially and adversely affect operating results for such quarter, which will
have an adverse impact on the market price of the Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of PMT--Recent Developments."
As a result of their continued investments in research, development and
engineering, and the development of a worldwide sales and marketing
organization, PMT and Electrotech have significant fixed costs that they will
not be able to reduce rapidly if their sales goals for a particular period are
not met. The impact of this factor on operating results in any future period
cannot be forecasted accurately.
HIGHLY COMPETITIVE INDUSTRY
The markets served by PMT's and Electrotech's products are extremely
competitive. Following the Acquisition, PMT and Electrotech will each face
significant competition from various suppliers of systems that utilize
alternative technologies. In the etch market, PMT's MORI(TM)-based etch
systems and Electrotech's etch products face competition from suppliers of RIE
systems, including Applied Materials, Lam Research and Tokyo Electron, from
ICP-based etch systems marketed by Applied Materials and Lam Research, as well
as the ECR-based etch system marketed by Hitachi. Additionally, in the etch
market, PMT and Electrotech compete with each other. In the PVD market,
Electrotech's Forcefill(TM) technology faces competition from suppliers of
aluminum PVD systems, such as Applied Materials, Tokyo Electron, MRC, Varian
and Ulvac. In the CVD market, Electrotech's Flowfill(TM) technology faces
competition from a number of CVD competitors, including Applied Materials, Lam
Research, Novellus and Watkins-Johnson.
Many of these competitors are substantially larger companies with broader
product lines, and have well established reputations in the markets in which
PMT and Electrotech compete, longer operating histories, greater experience
with high volume manufacturing, broader name recognition, substantially larger
customer bases and substantially greater financial, technical and marketing
resources than either PMT or Electrotech. Both PMT and Electrotech also face
potential competition from new entrants in their respective markets, including
established manufacturers in other segments of the semiconductor capital
equipment market, who may decide to diversify into the market segments of PMT
or Electrotech. There can be no assurance that their competitors will not
develop enhancements to or future generations of competitive products that
will offer price and performance features superior to those offered by PMT's
or Electrotech's systems.
COMBINATION OF PMT AND ELECTROTECH
The combination of PMT and Electrotech following the Acquisition will result
in a significant increase in the number of employees to be employed by PMT and
will bring new operating facilities to PMT, most of which are located in the
United Kingdom and Europe. While management currently intends to maintain the
corporate identities and operations of PMT and Electrotech, seeking only to
consolidate their worldwide sales organizations, the combination of PMT and
Electrotech may strain available managerial, financial and other resources.
There can be no assurance that the combination of PMT and Electrotech will be
successfully managed or will not result in significant unforeseen operating
expenses.
LENGTHY SALES CYCLE
Sales of each of PMT's and Electrotech's systems typically involve a lengthy
period during which each may expend substantial funds and management effort.
Such sales will depend, in significant part, upon the decision of a
prospective customer to increase manufacturing capacity or to expand current
manufacturing capacity, both of which involve a significant capital commitment
by the customer. The amount of time from initial contact with a customer to
the first order is typically nine to twelve months, and may be longer, and may
involve competing capital budget considerations for the customer, thus making
the timing of customers' orders uneven and difficult to predict. PMT's and
Electrotech's ability to receive orders for production systems from potential
semiconductor manufacturing customers depends, among other things, upon such
customers undertaking an evaluation for new equipment. Presently, all of the
Sigma Forcefill(TM) and the Planar 200 Flowfill(TM) systems sold are being
used by such customers to evaluate the future manufacturing capabilities of
16
<PAGE>
such systems. There can be no assurance that Electrotech will receive any
further orders for Sigma Forcefill(TM)or Planar 200 Flowfill(TM) systems from
any of the customers who have purchased such systems for evaluation purposes.
Similarly, the majority of PMT's Pinnacle 8000(R) and Pinnacle 8000R(TM)
systems sold to date have been sold as single systems. Prior to placing orders
for production systems, semiconductor manufacturing customers expect to
evaluate systems on an extended trial basis. Following initial system
qualification, both PMT and Electrotech often experience further delays in
finalizing system sales while the customer evaluates and receives approvals
for the purchase of its systems and completes a new or expanded facility. The
failure or inability of each of PMT and Electrotech to convert an evaluation
system with a customer to a sale of production systems could materially and
adversely affect operations.
FAILURE TO RETAIN KEY PERSONNEL
Each of PMT and Electrotech is dependent upon the efforts and abilities of a
number of its current key personnel. Following the Acquisition, Dr. Gregor
Campbell, James Marshall and Harvey Frye, currently the President and Chief
Executive Officer, Executive Vice President and Chief Operating Officer and
Vice President, Sales and Marketing, respectively, of PMT, will serve as PMT's
Chief Executive Officer, Executive Vice President, Operations and General
Manager, Etch and Vice President, Worldwide Sales and Marketing, respectively.
Christopher Dobson and Nigel Wheeler, currently Chairman of the Board and
Chief Executive Officer, respectively, of Electrotech will, following the
Acquisition, serve as PMT's Vice Chairman of the Board and President and Chief
Operating Officer, respectively. Following the Acquisition, management
believes that PMT's success will, to a significant degree, depend upon its
ability to retain these and other key employees of PMT and Electrotech. The
loss of certain of these people or PMT's inability to retain other key
employees could materially and adversely affect operations after the
Acquisition.
INCREASED INTERNATIONAL EXPOSURE
International sales accounted for approximately 76%, 47%, 66%, and 50% of
PMT's total revenue for the six months ended June 30, 1996, the year ended
December 31, 1995, the ten months ended December 31, 1994, and the year ended
February 1994, respectively. Similarly, Electrotech sales outside of the
United States accounted for approximately 84%, 82%, 72% and 74% of
Electrotech's total revenue for the fiscal years ended June 30, 1996, 1995,
1994 and 1993, respectively. Management anticipates that, following the
Acquisition, sales outside of the United States will account for a majority of
total revenue. International sales are subject to certain risks, including
unexpected changes in regulatory requirements, exchange rates, tariffs and
other barriers, political and economic instability, difficulties in accounts
receivable collections, extended payment terms, the challenges of maintaining
a readily available supply of spare parts, difficulties in managing
distributors or representatives, difficulties in staffing and managing foreign
subsidiary operations, and potentially adverse tax consequences. In addition,
international sales may be materially adversely affected by currency risks
associated with devaluation of certain currencies. There can be no assurance
that these and other factors will not have a material adverse effect on
revenue.
INTELLECTUAL PROPERTY RIGHTS
Both PMT and Electrotech rely on a variety of types of intellectual property
protection to protect proprietary technology, including patent, copyright,
trademark and trade secret laws, non-disclosure agreements and other
intellectual property protection methods. Although management believes that
PMT's and Electrotech's patents and trademarks may have value, management
believes that its future success will also depend on the innovation, technical
expertise and marketing abilities of its personnel. PMT currently holds a
number of patents in the United States and has patent applications pending in
South Korea, Japan and Europe.
Electrotech currently holds a number of patents in the United Kingdom, the
United States, Taiwan, Germany, France, Italy and the Netherlands and is
currently in the process of defending a challenge to the validity of its
European ICP patent. There can be no assurance as to the resolution of this
patent dispute and an
17
<PAGE>
unfavorable result could materially and adversely affect Electrotech.
Electrotech also has a number of patent applications pending worldwide,
including applications for its Forcefill(TM) technology.
There can be no assurance that patents will be issued on PMT's or
Electrotech's pending patent applications or that competitors will not be able
to legitimately ascertain proprietary information embedded in their products
which is not covered by patent or copyright. In such case, PMT or Electrotech
may be precluded from preventing the competitor from making use of such
information. In addition, should either PMT or Electrotech wish to assert its
patent rights against a particular competitor's product, there can be no
assurance that any claim in a PMT or Electrotech patent, as the case may be,
will be sufficiently broad nor, if sufficiently broad, any assurance that the
PMT or Electrotech patent will not be challenged, invalidated or circumvented,
or that PMT or Electrotech will have sufficient resources to prosecute their
respective rights. Each of PMT and Electrotech has a policy to protect and
defend vigorously its patents, trademarks and trade secrets.
There are no pending lawsuits against either PMT or Electrotech regarding
infringement of any existing patents or other intellectual property rights or,
except as described above, any unresolved claim where either PMT or
Electrotech has received notice that it is infringing the intellectual
property rights of others. There can be no assurance, however, that such
infringement claims will not be asserted in the future nor can there be any
assurance, if such claims were made, that PMT or Electrotech would be able to
defend against such claims successfully or, if necessary, obtain licenses on
reasonable terms. In addition, management believes that litigation in the
semiconductor equipment industry over patent and other intellectual property
rights has been increasing in recent years.
Any involvement in a patent or other intellectual property dispute or in any
action to protect trade secrets and know-how, even if successful, could
materially and adversely affect operations. Adverse determinations in any such
action could subject each of PMT or Electrotech to significant liabilities,
require it to seek licenses from third parties, which might not be available,
and possibly prevent it from manufacturing and selling its products, any of
which could materially and adversely affect operations.
FUTURE CAPITAL NEEDS
Both PMT and Electrotech are capital intensive companies that require
significant funds to conduct operations and require regular and significant
investments in inventory and working capital. In order to remain competitive
following the Acquisition, PMT and Electrotech must continue to make
significant investments in technology and systems, in the expansion of their
operations, in evaluation systems and in research and development. As a
condition to the consummation of the Acquisition, the cash and cash equivalent
assets plus amounts immediately available for additional borrowings under
credit agreements of PMT and Electrotech at the Closing, on a consolidated pro
forma basis immediately after giving effect to the Acquisition, will not be
less than $35,000,000. Additionally, as a condition to its consummation of the
Acquisition, PMT must offer and sell at least $50,000,000 in convertible
subordinated notes (the "Convertible Notes"). The incurrence of such debt will
increase PMT's leverage position and may make it more difficult to raise
additional funds in the future. While management believes that such financial
resources should be sufficient for PMT's and Electrotech's capital needs in
the next 12 months, there can be no assurance in that regard.
ENVIRONMENTAL REGULATIONS
PMT is subject to a variety of federal, state and local laws, rules and
regulations in the United States relating to the use, storage, discharge and
disposal of hazardous chemicals used during its customer demonstrations and in
research and development activities. Public attention has increasingly been
focused on the environmental impact of operations which use hazardous
materials. In 1995, the United Kingdom adopted a new and comprehensive
environmental law known as the Environmental Act of 1995 (the "Environmental
Act"), which, among other things, deals with the allocation of responsibility
for the cleanup of contaminated property and expands potential liability with
respect to the remediation of such contamination. Electrotech owns or leases a
number of facilities in the United Kingdom, and compliance with the
Environmental Act is anticipated to result
18
<PAGE>
in certain expenses which are not expected to be material. However, there can
be no assurance that such expenses will not exceed present estimates. Failure
to comply with present or future regulations could result in substantial
liability to PMT or Electrotech, suspension or cessation of their operations,
restrictions on their ability to expand at their present locations, or
requirements for the acquisition of significant equipment or the incurrence
other significant expense.
CUSTOMER CONCENTRATION
To date Electrotech's sales have been highly concentrated, with
approximately 28% of its revenue for the year ended June 30, 1996 derived from
sales to Siemens. There can be no assurance that Siemens will continue to
purchase machinery and technology from Electrotech at current levels, or at
all. To date PMT has experienced some concentration of customers and, in
future periods, the concentration of PMT's customers could increase.
DILUTION OF OWNERSHIP OF PMT; SIGNIFICANT INFLUENCE OF MR. DOBSON
Following the Acquisition, the former shareholders of Electrotech will
beneficially own approximately 39% of the Common Stock outstanding. Mr. Dobson
will own approximately 34% of the Common Stock outstanding and will be the
Vice Chairman of the Board of Directors of the Company. Mr. Dobson will be in
a position to have a significant influence on the election of directors and
other corporate matters that require the vote of PMT shareholders.
Additionally, the Convertible Notes will be convertible into shares of Common
Stock; the exact number of shares will be based on market conditions at the
time of issuance. Assuming that $65,000,000 in Convertible Notes are issued,
under current market conditions such Convertible Notes would be convertible
into approximately 4,500,000 shares of Common Stock. The issuance of such
shares of Common Stock and the conversion of the Convertible Notes will
represent substantial dilution of the ownership interest in PMT by its current
shareholders.
SHARES AVAILABLE FOR RESALE
As a result of the Acquisition, PMT will issue 5,600,000 additional shares
of Common Stock, of which 746,666 shares may be sold in the public securities
markets on and after the date that is 40 days from the closing of the
Acquisition, pursuant to Regulation S of the Securities Act of 1933, as
amended (the "Securities Act"). Subject to certain volume restrictions imposed
by Rule 144 under the Securities Act, after such date Mr. Dobson will also be
permitted to sell a certain number of the 4,853,334 shares of Common Stock
issued to him in the Acquisition. Future sales of a substantial amount of
Common Stock in the public market could adversely affect the market price of
the Common Stock. In connection with the Private Financing, the Electrotech
Shareholders have agreed not to sell any of the shares of Common Stock
received by them in the Acquisition for 90 days from the Closing Date.
Approximately 3,108,421 shares of Common Stock held by certain significant
shareholders of PMT, including 1,638,354 shares held by PMT affiliates, are
presently available for resale in the public market, subject to certain
restrictions on volume imposed by Rule 144 under the Securities Act.
VOLATILE STOCK PRICE
Since PMT's initial public offering in late August 1995, the market price
for the Common Stock has been highly volatile. Following the Acquisition,
management believes that a variety of factors could cause the price of the
Common Stock to continue to fluctuate, perhaps substantially, including:
announcements of developments related to PMT's or Electrotech's business;
fluctuations in operating results and order levels; general conditions in the
semiconductor industry or the worldwide economy; announcements of
technological innovations; new products or product enhancements by PMT or
Electrotech or by their competitors; developments in patents or other
intellectual property rights; and developments in PMT's and Electrotech's
relationships with its employees, customers, distributors and suppliers. In
addition, in recent years the stock market in general, and the market for
shares of the stock of technology-based issuers in particular, has experienced
extreme price fluctuations which have often been unrelated to the operating
performance of affected companies. Such fluctuations could adversely affect
the market price of the Common Stock.
19
<PAGE>
PROPOSAL NO. 1--THE ACQUISITION
GENERAL INFORMATION
BACKGROUND OF THE ACQUISITION
In December 1995 and January 1996, representatives of PMT, including Dr.
Gregor Campbell, PMT's President and Chief Executive Officer, and John
Rollwagen, PMT's Chairman of the Board, met at various times in Japan, the
United Kingdom and Los Angeles with representatives of Electrotech, including
Christopher Dobson, Chairman of the Board, and Nigel Wheeler, President and
Chief Executive Officer, of Electrotech to explore the possibility of a
business combination between PMT and Electrotech. To allow for the free flow
of information relating to the parties, PMT and Electrotech entered into a
confidentiality agreement on December 19, 1995.
To assist in PMT's evaluation of a possible acquisition of Electrotech, in
January 1996 PMT engaged Salomon Brothers Inc ("Salomon Brothers") to act as
its financial advisor. Similarly, to assist Electrotech in evaluating the
terms of any acquisition offer, in January 1996 Electrotech engaged Hambrecht
& Quist as its financial advisor.
In February and March 1996, representatives of PMT initiated PMT's due
diligence investigation of Electrotech, and various meetings between the
principal executive officers of each of PMT and Electrotech were convened.
On March 14, 1996, a meeting of the shareholders of Electrotech was held in
Bristol, England to discuss the possible acquisition of Electrotech by PMT. At
this meeting, the Electrotech shareholders agreed on an allocation among
themselves of the cash and stock portions of the proposed consideration for
Electrotech and authorized certain cash payments to Electrotech employees,
including the payments to be made to Mr. Dobson at the closing of any such
transaction, bonuses to Electrotech employees and a bonus to Mr. Wheeler.
At the regularly scheduled meetings of PMT Board of Directors held on
January 17, 1996 and April 24, 1996, the potential acquisition of Electrotech
was presented to Board members by senior management of PMT and by
representatives of Salomon Brothers. At these meetings, the Board reviewed
certain financial and valuation information relating to Electrotech that it
deemed relevant, and authorized management to continue to investigate the
possible acquisition of Electrotech and to analyze various financial
alternatives to provide financing for any such acquisition, including a
commercial credit facility and PMT's private placement of debt and equity.
During May and June 1996, PMT executives, along with PMT's legal, accounting
and financial advisors, traveled to Wales in the United Kingdom to conduct and
conclude PMT's due diligence investigation of Electrotech. In May 1996,
Electrotech's accountants traveled to Los Angeles to conduct various due
diligence inquiries with respect to PMT operations.
In late June 1996, PMT management and its financial and legal advisors met
with the management of Electrotech and its financial and legal advisors to
negotiate the terms and conditions of a definitive acquisition agreement.
On July 5, 1996, a special telephonic meeting of the PMT Board of Directors
was held to update the Board with respect to remaining open issues relating to
the Acquisition. During this meeting Salomon Brothers presented a financial
analysis of Electrotech and orally presented its opinion that the acquisition
consideration to be paid to Electrotech shareholders was fair to the
shareholders of PMT, from a financial point of view. The Board approved the
terms and conditions of the Share Purchase Agreement and authorized the
transactions contemplated thereby, including without limitation, the
Acquisition, pending resolution by PMT management of all remaining open
business issues.
20
<PAGE>
During the week of July 8, 1996 and the week of July 15, 1996, executives of
PMT and Electrotech spoke and met to resolve all open business issues and to
conclude the negotiation of the Share Purchase Agreement. On July 17, 1996,
the Directors of each of ET and ETE unanimously approved the Share Purchase
Agreement and the transactions contemplated thereby. On July 17, 1996,
executives of PMT and Electrotech met in San Francisco to execute the
definitive Share Purchase Agreement to enable PMT to acquire Electrotech for
5,600,000 shares of Common Stock and $75 million in cash (reduced by certain
amounts to be otherwise paid by PMT pursuant to the Share Purchase Agreement).
RATIONALE FOR THE ACQUISITION
PMT's Board of Directors has unanimously approved the Share Purchase
Agreement, has determined that the Acquisition and all other transactions
contemplated thereby are in the best interest of PMT and its shareholders and
recommends that shareholders vote in favor of Proposal No. 1. In reaching
these conclusions, the PMT Board of Directors considered a number of factors
that PMT shareholders should be cognizant of in deciding whether to vote in
favor of Proposal No. 1, including the following:
Access to Complementary Leading Edge Technologies. By acquiring Electrotech,
PMT believes that it will gain access to two new leading edge deposition
technologies for use by semiconductor manufacturers, Electrotech's
Forcefill(TM) and Flowfill(TM) technologies. The combination of PMT's
MORI(TM)-based products with Electrotech's Sigma Forcefill(TM) sputtering PVD
system and Planar 200 Flowfill(TM) system will give PMT proprietary
technologies in its three targeted segments of the semiconductor fabrication
industry--etch, CVD and PVD.
Leverage Marketing, Sales, Support and Service Resources. Semiconductor
manufacturers are increasingly demanding local service and support from their
equipment suppliers, and the ability to offer such worldwide service and
support requires significant investment in infrastructure, including the
establishment and maintenance of support facilities throughout the world. By
acquiring Electrotech, PMT will both increase its worldwide presence and make
its resources available to its customers at, what management believes, will be
a favorable cost to PMT. Following the Acquisition, PMT will have access to a
substantially larger marketing, sales, support and service force throughout
the world, to jointly support each of PMT's and Electrotech's products and
customers.
Complementary Strengths in Geographic Distribution. While PMT already has a
sales and distribution network in the United States and a growing sales and
distribution network in Asia, Electrotech has a limited sales and distribution
presence in the United States and Asia, with its primary strength in Europe, a
region in which PMT has little presence. Sales and distribution channels for
PMT and Electrotech should be significantly improved, with each gaining access
to major markets currently served by the other.
Ability to Cross Sell to Expanded Customer Base. Many of the products
offered by PMT and Electrotech are complementary or targeted at different
applications within the semiconductor manufacturing market. The Acquisition
will afford to each of PMT and Electrotech the opportunity to sell their
products into an expanded customer base.
Critical Mass. Following the Acquisition, management expects that the size
and breadth of PMT's and Electrotech's product offerings will produce a
stronger and more competitive company in the semiconductor equipment
marketplace, a marketplace dominated by significant companies such as Applied
Materials and Lam Research.
OPINION OF FINANCIAL ADVISOR
At the meeting of the PMT Board on July 5, 1996, at which the PMT Board
approved the Share Purchase Agreement and the transactions contemplated
thereby, Salomon Brothers delivered its opinion to the effect that, as of such
date, the consideration to be paid by PMT in connection with the proposed
Acquisition is fair to the
21
<PAGE>
shareholders of PMT from a financial point of view. No limitations were
imposed by PMT with respect to the investigations made or the procedures
followed by Salomon Brothers in rendering its opinion.
THE FULL TEXT OF THE OPINION OF SALOMON BROTHERS DATED JULY 5, 1996, WHICH
SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE REVIEW
UNDERTAKEN, IS ATTACHED AS ANNEX B TO THIS PROXY STATEMENT. PMT SHAREHOLDERS
ARE URGED TO READ SUCH OPINION IN ITS ENTIRETY. SALOMON BROTHERS' OPINION IS
DIRECTED ONLY TO THE FAIRNESS OF THE CONSIDERATION TO BE PAID BY PMT AND DOES
NOT CONSTITUTE A RECOMMENDATION TO ANY PMT SHAREHOLDER AS TO HOW SUCH
SHAREHOLDER SHOULD VOTE WITH RESPECT TO THE ACQUISITION. THE SUMMARY OF THE
OPINION OF SALOMON BROTHERS SET FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In arriving at its opinion, Salomon Brothers reviewed the Share Purchase
Agreement and its related exhibits. Salomon Brothers also reviewed certain
publicly available business and financial information relating to PMT, as well
as certain other information, including financial projections, provided to
Salomon Brothers by PMT and Electrotech. Salomon Brothers discussed the past
and current operations and financial condition and prospects of PMT and
Electrotech with members of senior management of PMT and Electrotech,
respectively. Salomon Brothers also considered such other information,
analyses, investigations and financial, economic, market and trading criteria
that it deemed relevant.
In arriving at its opinion, Salomon Brothers assumed and relied on the
accuracy and completeness of the information reviewed by it for the purpose of
its opinion, and did not assume any responsibility for independent
verification of such information or for any independent evaluation or
appraisal of the assets of PMT or Electrotech. With respect to PMT's and
Electrotech's financial projections, Salomon Brothers assumed that such
projections had been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of PMT or
Electrotech, as the case may be, as to the future financial performance of PMT
or Electrotech, as the case may be, and expressed no opinion with respect to
such forecasts or the assumptions on which they were based. Salomon Brothers
also assumed that the Acquisition would be accounted for as a purchase in
accordance with generally accepted accounting principles. Salomon Brothers'
opinion was necessarily based upon business, market, economic and other
conditions as they existed on, and could be evaluated as of, the date of its
opinion and did not address PMT's underlying business decision to effect the
Acquisition, nor did it constitute a recommendation to any holder of Common
Stock as to how such holder should vote with respect to the Acquisition.
Salomon Brothers' opinion did not imply any conclusion as to the likely
trading range for Common Stock following the consummation of the Acquisition,
which may vary depending on, among other factors, changes in interest rates,
dividend rates, market conditions, general economic conditions and other
factors that generally influence the price of securities.
In arriving at its opinion and making its presentation to the PMT Board at
the July 5, 1996 meeting, Salomon Brothers considered and discussed certain
financial analyses and other factors. As part of its evaluation of
Electrotech, Salomon Brothers performed the following: (a) a public market
valuation, which analyzes a company's operating performance and outlook
relative to a group of publicly-traded peers to determine an implied
unaffected market trading value (in performing this analysis, Salomon Brothers
selected companies that it deemed comparable to Electrotech's most significant
business segments, comparing certain financial information of Electrotech to
that of other such companies); and (b) a discounted cash flow analysis, which
provides insight into the intrinsic value of a company based on projected
earnings and capital requirements. As part of its evaluation of the
consideration to be paid by PMT in connection with the Acquisition, Salomon
Brothers also performed the following: (i) a pro forma merger analysis, in
which Salomon Brothers analyzed certain pro forma effects on PMT resulting
from the Acquisition; and (ii) a contribution analysis, in which Salomon
Brothers compared the relative ownership of the stockholders of PMT and the
stockholders of Electrotech in the surviving corporation to the projected
contributions attributable to equity of each of PMT and Electrotech.
22
<PAGE>
This summary is not a complete description of the analyses performed by
Salomon Brothers. In addition, Salomon Brothers believes that its analyses
must be considered as a whole and that selecting portions of such analyses and
of the factors considered by it, without considering all of such analyses and
factors, could create an incomplete view of the process underlying the
analyses set forth in the opinion and the presentation. The preparation of a
fairness opinion is a complex process and is not necessarily susceptible to
partial analysis or summary description. With regard to the public market
valuation analysis referred to above, Salomon Brothers selected comparable
public companies on the basis of various factors, including the size of the
public company and similarity of the line of business; however, no public
company utilized as a comparison is identical to Electrotech or the business
segments for which a comparison was made. Accordingly, an analysis of the
foregoing is not mathematical; rather, it involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the comparable companies and other factors that could affect the acquisition
or public trading value of the comparable companies to which Electrotech or
its business segments are being compared. In performing its analyses, Salomon
Brothers made numerous assumptions with respect to industry performance,
general business and economic conditions and other matters, many of which are
beyond PMT's or Electrotech's control. Any estimates contained in such
analyses are not necessarily indicative of actual past or future results or
values, which may be significantly more or less than such estimates. Estimates
of values of companies or parts of companies do not purport to be appraisals
or necessarily to reflect the price at which such companies or parts may
actually be sold, and such estimates are inherently subject to uncertainty.
Salomon Brothers is an internationally recognized investment banking firm
that regularly engages in the valuation of businesses and their securities in
connection with mergers and acquisitions. The PMT Board selected Salomon
Brothers to act as its financial advisor on the basis of Salomon Brothers'
international reputation, PMT's prior relationship with Salomon Brothers and
Salomon Brothers' familiarity with PMT. Salomon Brothers is familiar with PMT,
having provided certain investment banking and financial advisory services to
it from time to time, including acting as managing underwriter with respect to
PMT's initial public offering in August 1995 and participating in certain of
the negotiations leading to the Share Purchase Agreement.
Salomon Brothers has acted as financial advisor to PMT in connection with
the Acquisition and will receive a fee for its services, a portion of which
was paid upon engagement, a portion of which became payable upon the initial
filing of this Proxy Statement and the remaining portion of which is payable
upon the consummation of the Acquisition. Salomon Brothers will also act as
placement agent with respect to PMT's proposed offering of Convertible Notes.
In the ordinary course of Salomon Brothers' business, Salomon Brothers and its
affiliates may actively trade the equity securities of PMT for its own account
and for the accounts of customers and, accordingly, may at any time hold a
long or short position in such securities.
MANAGEMENT AFTER THE ACQUISITION
Directors
PMT's current directors will continue to serve as directors following the
Acquisition. Additionally, pursuant to the Share Purchase Agreement and
assuming that the Acquisition is approved by PMT's shareholders and is
consummated in accordance with the terms of the Share Purchase Agreement, the
Board of Directors will be expanded from six to eight and Mr. Dobson and Mr.
Wheeler will be appointed to fill such newly-created vacancies. All such
directors will serve until their successors have been duly elected and
qualified or otherwise as provided by law. See "Proposal No. 2--Election of
Directors."
Officers
Following the consummation of the Acquisition, Dr. Campbell will relinquish
his position as President of PMT but will continue to serve as Chief Executive
Officer of PMT and Mr. Marshall will relinquish his role as Chief Operating
Officer of PMT and will assume the role of Executive Vice President,
Operations and General Manager, Etch. Mr. Dobson will become Vice Chairman of
PMT's Board of Directors and Mr. Wheeler will assume the role of President and
Chief Operating Officer of PMT. All other executive officers of PMT are
expected to remain in their present positions following the Acquisition.
See "Management--Management of PMT," and "--Management of Electrotech."
23
<PAGE>
PRIOR RELATIONSHIPS BETWEEN THE COMPANIES
Prior to the commencement of negotiations regarding the Acquisition, no
business relationship existed between PMT and Electrotech.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AFTER THE
ACQUISITION
The following table sets forth certain information regarding an estimate of
the beneficial ownership of Common Stock immediately following the
consummation of the Acquisition with respect to (i) persons known to PMT to
own a sufficient number of shares such that PMT estimates they will be the
owner of more than five percent of Common Stock after the Acquisition, (ii)
directors of PMT, (iii) certain current executive officers and persons who PMT
expects to appoint as executive officers after the consummation of the
Acquisition and (iv) all directors, executive officers and persons expected to
be appointed executive officers, as a group, and assumes no exercise of
outstanding stock options or warrants prior to the date thereof:
<TABLE>
<CAPTION>
SHARES PERCENT
BENEFICIALLY OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED CLASS(1)
------------------------------------ ------------ --------
<S> <C> <C>
Christopher D. Dobson.................................... 4,853,334 34.0%
Ringland Way, Newport,
Gwent, NP6 2TA, UK
St. Paul Venture Capital, Inc.(2)........................ 1,073,558 7.5
8500 Normandale Lake Boulevard, Suite 1940
Bloomington, MN 55437
Gregor A. Campbell(4).................................... 374,277 2.6
John A. Rollwagen(5)..................................... 104,951 *
James F. Marshall(6)..................................... 43,332 *
Harvey J. Frye(7)........................................ 29,334 *
John W. LaValle.......................................... 16,667 *
Nigel Wheeler............................................ 0 --
Brian D. Jacobs(2)....................................... 1,073,558 7.4
G. Bradford Jones(3)..................................... 564,796 3.9
Charles Thompson......................................... 0 --
Hiroyuki Mizuno, Ph.D.................................... 0 --
All current directors, executive officers and persons
expected to be appointed executive officers, as a group
(15 persons)(8)......................................... 7,100,680 48.8%
</TABLE>
- --------
* Less than 1%.
(1) Percent ownership is based on the approximate number of shares of Common
Stock outstanding upon consummation of the Acquisition, which number is
14,292,132 shares, plus any shares issuable pursuant to options or
warrants held by the person or class in question which may be exercised
within 60 days after October 10, 1996.
(2) Represents 1,027,448 shares held by St. Paul Fire and Marine Insurance
Company ("St. Paul"), and also includes 44,444 shares issuable under
warrants held by St. Paul that are exercisable within 60 days of October
10, 1996. Also includes 1,666 shares issuable under stock options, held by
Mr. Jacobs, exercisable within 60 days of October 10, 1996. Pursuant to an
agreement between Mr. Jacobs and St. Paul, ownership of the shares
underlying such stock options will be transferred to St. Paul upon
exercise by Mr. Jacobs. Mr. Jacobs, a director of PMT, is an executive
vice president of St. Paul Venture Capital, which is a wholly-owned
subsidiary of St. Paul. Mr. Jacobs disclaims beneficial ownership of the
shares held by St. Paul, except to the extent of his pecuniary interest
therein.
(3) Represents 8,028 shares held by Mr. Jones and 519,546 shares held by
Brentwood V, L.P. ("Brentwood V"). Also includes 1,666 shares issuable
under stock options held by Mr. Jones and 35,555 shares issuable under
warrants held by Brentwood V, all of which are exercisable within 60 days
of October 10, 1996. Mr. Jones, a director of PMT, David W. Chonette,
Roger S. Davisson and John L. Walecka are each general
24
<PAGE>
partners of Brentwood V Ventures, L.P., the general partner of Brentwood V.
Each of Messrs. Jones, Chonette, Davisson and Walecka disclaims beneficial
ownership of the shares held by Brentwood V, except to the extent of his
pecuniary interest therein.
(4) Includes 45,111 shares issuable under stock options exercisable within 60
days of October 10, 1996.
(5) Includes 33,999 shares issuable under stock options exercisable within 60
days of October 10, 1996.
(6) Represents shares issuable under stock options exercisable within 60 days
of October 10, 1996.
(7) Represents shares issuable under stock options exercisable within 60 days
of October 10, 1996.
(8) Includes an aggregate of 265,939 shares held by all current directors,
executive officers and persons expected to be appointed executive officers
or directors that are subject to options and warrants that are exercisable
within 60 days of October 10, 1996.
TERMS OF THE ACQUISITION AND RELATED TRANSACTIONS
The detailed terms of, and conditions to, the Acquisition and certain related
transactions are contained in the Share Purchase Agreement and its exhibits, as
amended, a copy of which (including such exhibits) is attached to this Proxy
Statement as Annex A and incorporated herein by reference. The statements made
in this Proxy Statement with respect to the terms of the Acquisition and such
related transactions are qualified in their entirety by reference to the more
complete information set forth in Annex A.
STRUCTURE OF THE ACQUISITION
The Share Purchase Agreement provides that PMT will acquire from the
Electrotech Shareholders all of the outstanding capital stock of Electrotech
and, to accommodate certain tax planning objectives, will first directly
acquire from ETE all of the outstanding stock of a United States subsidiary.
The transactions will be consummated at a closing (the "Closing") to be held
following the satisfaction or waiver of certain conditions precedent specified
in the Share Purchase Agreement. See "--Conditions to the Acquisition" below.
The Acquisition will be consummated in two steps on the date of the Closing
(the "Closing Date"), as follows: (a) immediately prior to the Closing, PMT
will acquire from ETE all of the outstanding shares of ETE's United States
subsidiary, Energy Transfer Systems, Inc., a Delaware corporation ("ETS"); and
(b) upon the Closing, PMT will acquire from each of the Electrotech
Shareholders all of the outstanding shares of Electrotech held thereby. By
acquiring such shares of Electrotech, PMT will thus indirectly acquire
ownership of all other Electrotech subsidiaries.
PURCHASE PRICE
The consideration to be paid by PMT for the shares of ETS and Electrotech
will be as follows: (a) PMT will pay to ETE the sum of $250,000 as full
consideration for the shares of ETS being acquired directly from ETE; and (b)
PMT will pay to the Electrotech Shareholders, as the cash portion of the
purchase price for all of the outstanding shares of Electrotech, the aggregate
sum of $75,000,000 (reduced by the amounts described in the following
paragraph), payable in cash at the Closing to each of the Electrotech
Shareholders in the respective individual amounts set forth opposite each such
Electrotech Shareholder's name on Exhibit A to the Share Purchase Agreement,
and PMT will additionally issue an aggregate of 5,600,000 shares of Common
Stock to the Electrotech Shareholders in the respective amounts set forth
opposite each Electrotech Shareholder's name on Exhibit A to the Share Purchase
Agreement.
The $75,000,000 cash portion of the purchase price for Electrotech shares
will be reduced, pro rata with respect to the amounts to be received by each of
the Electrotech Shareholders, by the following amounts: (a) the cash sum of
$500,000 to be paid to Mr. Dobson by PMT at the Closing pursuant to the
Noncompetition Agreement in the form attached as Exhibit E to the Share
Purchase Agreement (the "Noncompetition Agreement"); (b) the cash sum of
approximately $1,500,000, the precise amount of which shall be specified by Mr.
Dobson prior to the Closing as the amount which, when added to the $250,000
cash amount to be paid by PMT to ETE for the shares of ETS as described above,
represents the U.S. dollar equivalent of one British pound
25
<PAGE>
sterling for each day that all employees of Electrotech and their subsidiaries
as of the Closing shall have been continuously employed by them as of the
Closing (such amount will be paid to Electrotech by PMT at the Closing as a
contribution to capital, for the subsequent payment of such amount by
Electrotech to the described employees as a bonus for past services); (c) a
cash sum, the precise amount of which shall be specified by Mr. Dobson prior
to the Closing, calculated to result in an after-tax payment (assuming the
highest marginal income tax rates) to Mr. Wheeler of approximately $600,000,
as a bonus for past services rendered (such amount will be paid to Electrotech
by PMT at the Closing as a contribution to capital, for subsequent payment to
Mr. Wheeler); and (d) the cash sum of $7,000,000, to be paid to Mr. Dobson by
Electrotech at the Closing (the "Dobson Negotiation Fee"), which amount will
first be paid to Electrotech by PMT at the Closing as a contribution to
capital. See "--Certain Payments at Closing" below.
It is anticipated that, after deducting the amounts described in the
preceding paragraph, the cash portion of the purchase price payable to the
Electrotech Shareholders will be reduced to approximately $65,000,000. Of this
approximate amount, $35,000,000 will be paid to Mr. Dobson and his wife, and
$15,000,000 each will be paid to the remaining two shareholder groups. Of the
5,600,000 shares of Common Stock to be issued, 4,853,334 shares (or 87% of the
total) will be issued to Mr. Dobson and his wife, and the balance will be
issued equally (373,333 shares each) to the other two shareholder groups. See
Exhibit A to the Share Purchase Agreement.
EFFECTIVENESS OF THE ACQUISITION
The Acquisition will become effective as soon as practicable, but no later
than five days following the satisfaction or waiver of all of the conditions
to the Acquisition specified in the Share Purchase Agreement, or at such other
time as PMT and the Electrotech Shareholders shall agree after the
satisfaction or waiver of such conditions. See "--Conditions to the
Acquisition" below. It is anticipated that, if the Acquisition is approved by
PMT's shareholders at the Annual Meeting and all other conditions to the
Acquisition (including but not limited to the consummation of the Private
Financing, described below under "--Conditions to the Acquisition") have been
fulfilled or waived, the Closing of the Acquisition will occur as soon as
practicable following the approval of the Acquisition by the shareholders of
PMT.
CONDITIONS TO THE ACQUISITION
The obligation of PMT and the Electrotech Shareholders to effect the
Acquisition is subject to, among other things, the satisfaction prior to the
Closing of the following conditions: (a) the absence of any statute, rule,
regulation, injunction or other order of any governmental authority or other
agency or commission or court which would have the effect of prohibiting the
consummation of the Acquisition, (b) the cash and cash equivalent assets of
PMT and Electrotech at the Closing (plus amounts then immediately available to
them through additional borrowings under credit arrangements) on a
consolidated, pro forma basis immediately after and giving effect to the
Acquisition being not less than $35,000,000 and (c) holders of less than 5.0%
of the outstanding shares of Common Stock shall have filed demands for payment
or otherwise become entitled to exercise any dissenters' or appraisal rights
under Chapter 13 of the California Corporations Code (the "Dissenters' Rights
Condition").
The obligation of PMT to effect the Acquisition is further subject to, among
other things, the satisfaction prior to the Closing of the following
conditions, unless waived by PMT: (a) each Electrotech Shareholder and each
member of Electrotech shall have performed in all material respects its
obligations under the Share Purchase Agreement required to be so performed by
it on or prior to the Closing; (b) the representations and warranties of each
Electrotech Shareholder contained in the Share Purchase Agreement shall be
true and correct in all material respects at and as of the Closing as though
such representations and warranties were made on and as of such time, except
to the extent that any such representation or warranty was made as of a
specified date, in which case such representation or warranty shall have been
true and correct as of such date (See "--Representations and Warranties"
below); (c) PMT shall have received a certificate executed by each member of
Electrotech and Mr. Dobson confirming the matters set forth in clauses (a)
(performance of obligations by Electrotech and the Electrotech Shareholders)
and (b) (the accuracy of the representations and warranties of the Electrotech
Shareholders) above; (d) PMT and Mr. Dobson shall have entered into the
Noncompetition Agreement; (e) PMT
26
<PAGE>
shall have received a legal opinion as to certain matters from Veale
Wasbrough, counsel to Electrotech and the Electrotech Shareholders; (f) PMT
shall have issued and sold to qualified institutional buyers subordinate
convertible debentures, pursuant to Rule 144A of the Commission (or other
available applicable exemption under the Securities Act), in an amount at
least equal to $50,000,000 (the "Private Financing"), upon terms and
conditions acceptable to PMT in its sole discretion, after consultation with
Mr. Dobson (including Mr. Dobson's participation in the meeting of PMT's
pricing committee of its Board of Directors to be held to consider such terms
and conditions); (g) all necessary waivers, consents and approvals to or of
the transactions contemplated by the Share Purchase Agreement of any third
parties or governmental entities with respect to any of Electrotech, its
subsidiaries or any Electrotech Shareholder shall have been obtained, except
where the failure to obtain such cannot reasonably be expected to have a
material adverse effect upon Electrotech or PMT; (h) a majority of the
outstanding shares of Common Stock shall have voted in favor of the Share
Purchase Agreement and the transactions contemplated thereby; and (i) PMT
shall have completed an environmental investigation and review of the real
properties (both owned and leased) of Electrotech and its subsidiaries, and
shall not have reasonably concluded that any environmental conditions exist at
any of such real properties that could reasonably be expected, individually or
in the aggregate, to have a material adverse effect upon Electrotech.
The obligation of each Electrotech Shareholder to effect the Acquisition is
subject to, among other things, the satisfaction prior to the Closing of the
following conditions, unless waived by the Electrotech Shareholders: (a) PMT
shall have performed in all material respects the obligations under the Share
Purchase Agreement required to be performed by it on or prior to the Closing;
(b) the representations and warranties of PMT contained in the Share Purchase
Agreement shall be true and correct in all material respects at and as of the
Closing as if made at and as of such date, except to the extent that any such
representation or warranty is made as of a specified date, in which case such
representation or warranty shall have been true and correct as of such date
(See "--Representations and Warranties" below); (c) PMT shall have delivered
to the Electrotech Shareholders a certificate confirming the satisfaction of
the conditions set forth in clauses (a) (performance of obligations by PMT)
and (b) (the accuracy of the representations and warranties of PMT) above; (d)
Mr. Dobson and Mr. Wheeler shall each have been elected as members of the
Board of Directors of PMT, and additionally shall have been elected as the
Vice Chairman of the Board and President and Chief Operating Officer,
respectively, of PMT; (e) PMT and Mr. Wheeler shall have entered into an
Employment Agreement substantially in the form of Exhibit B to the Share
Purchase Agreement (the "Employment Agreement"); (f) PMT shall have granted
options under its 1991 Stock Option Plan covering an aggregate of
approximately 800,000 shares of Common Stock to such employees of Electrotech,
and in such respective individual amounts, as shall be jointly determined by
PMT and Mr. Dobson prior to the Closing; (g) all necessary waivers, consents
and approvals to or of the transactions contemplated by the Share Purchase
Agreement of any third parties or governmental entities with respect to PMT
shall have been obtained except where the failure to obtain such cannot
reasonably be expected to have a material adverse effect upon PMT or
Electrotech; (h) the Electrotech Shareholders shall have received a legal
opinion as to certain matters from Riordan & McKinzie, counsel to PMT; (i) PMT
shall have paid all reasonable fees and expenses actually incurred by
Electrotech in connection with the transactions contemplated by the Share
Purchase Agreement, including all reasonable legal, investment banking,
accounting and other fees and expenses; (j) PMT and Mr. Dobson shall have
entered into a Registration Agreement substantially in the form of Exhibit D
to the Share Purchase Agreement (the "Registration Agreement"); and (k) the
Electrotech Shareholders shall have obtained a tax clearance (the "ET Tax
Clearance") to confirm that the exchange of securities pursuant to the Share
Purchase Agreement is covered by Sections 135-137 of the Taxation of
Chargeable Gains Act of 1992 (England), by way of clearance under Section 138
of such Act.
REPRESENTATIONS AND WARRANTIES
The Share Purchase Agreement contains representations and warranties of each
of the Electrotech Shareholders to the effect that (a) each has good and
marketable title, and full beneficial ownership, in and to the Electrotech
shares shown as being held of record by them on Exhibit A to the Share
Purchase Agreement, free and clear of all liens and encumbrances, and that PMT
will acquire good and marketable title thereto, free of all liens and
encumbrances, pursuant to the Acquisition; (b) the execution, delivery and
performance of the Share
27
<PAGE>
Purchase Agreement by such Electrotech Shareholder will not violate any
material agreement or law to which such shareholder is bound; (c) such
Electrotech Shareholder has not paid or become obligated to pay any fee or
commission in connection with the Acquisition; (d) such Electrotech
Shareholder has no legal obligation to any other person to sell any of the
stock or assets of any member of Electrotech or any of their subsidiaries; and
(e) such Electrotech Shareholder is not a United States resident (and as to
related matters confirming the applicability of the exemption from
registration provided by Regulation S under the Securities Act).
The Share Purchase Agreement contains various representations and warranties
by Mr. Dobson (with respect to the Electrotech parties and their subsidiaries)
and PMT to the effect that, except as disclosed and subject to certain
exceptions (including "best knowledge" limitations in many significant
instances), among other things: (a) each such party is duly organized and in
good standing, and has the requisite corporate power to own its properties and
carry on its business; (b) each subsidiary of each such party has been duly
organized and is in good standing, and all issued and outstanding capital
stock of each such subsidiary is owned by its respective parent company; (c)
each such party has a certain number of authorized, issued and outstanding
shares, and shares reserved for issuance; (d) each such party has all
requisite corporate power and authority to enter into the Share Purchase
Agreement and to consummate the Acquisition, and the Share Purchase Agreement
has been duly authorized by and constitutes the valid and binding obligation
of each such party; (e) the execution, delivery and performance of the Share
Purchase Agreement by each such party will not conflict with such party's
articles or certificate of incorporation, bylaws or equivalent charter
documents ("charter documents") or violate any material agreement or law to
which such party or its assets are bound; (f) the financial statements of such
party have been prepared in accordance with specified accounting principles,
being in the case of PMT generally accepted accounting principles in the
United States ("GAAP") and, in the case of Electrotech, statements of standard
accounting practices ("SSAP") in force as issued by the Institute of Chartered
Accountants in England and Wales (except that such representations and
warranties with respect to the unaudited financial statements of Electrotech
at March 31, 1996 are limited to their preparation in accordance with the
books and records of Electrotech, without material inaccuracies, following the
same principles as consistently applied in their audited financial statements,
including those at June 30, 1995); (g) since the date of the most recently
provided March 31, 1996 financial statements, that there have been no actions
or events that have materially adversely affected any such party; (h) each
such party has no material obligations or liabilities other than those
adequately provided for in the most recent March 31, 1996 financial statements
provided by such party, or those otherwise incurred in the ordinary course of
business since that date; (i) each such party has in full force and effect
adequate policies of insurance insuring it against customary losses and risks,
and in acceptable amounts; (j) each such party has complied with the relevant
provisions of law affecting all employee benefit plans and pension
arrangements maintained by it; (k) each such party has disclosed to the other
certain material contracts; (l) each such party has disclosed to the other
certain information regarding its ten largest suppliers and customers; (m)
each such party has good and marketable title to all of its properties and
assets reflected in its financial statements, subject only to such liens as do
not materially impair such party's business or are reflected in such party's
March 31, 1996 financial statements; (n) there is no litigation pending or, to
the best of such party's knowledge, threatened against any such party that, if
determined or resolved adversely, would be reasonably expected to have a
material adverse effect on such party; (o) each such party has obtained each
governmental license or permit required for the operation of such party's
business; (p) each such party is in compliance with all material laws
applicable to its business and assets, to the extent that noncompliance could
reasonably be expected to have a material adverse effect; (q) each such
party's inventory has been properly reflected in its financial statements
delivered to the other, and such party has continued to replenish its
inventory in the ordinary course of business, consistent with past practice,
since March 31, 1996; (r) each such party has delivered to the other certain
information with respect to its backlog of orders believed firm at March 31,
1996; (s) each such party has paid or made adequate provision in its March 31,
1996 financial statements for the payment of all taxes accrued through such
date; (t) no hazardous materials are present on any such party's property and
each such party has materially complied with certain laws and regulations
related to such hazardous materials; (u) each such party has no obligations in
respect of any fees or commissions to any broker, finder, investment banker or
other intermediary, except with respect to Hambrecht & Quest, financial
advisor to Electrotech, and Salomon Brothers, financial advisor to PMT;
(v) each such party has not engaged in any related-party transactions with
officers, directors or shareholders of
28
<PAGE>
such party; (w) each such party owns certain intellectual property, and has no
knowledge of material unauthorized use, disclosure, infringement or
misappropriation of such intellectual property; and (x) no representation or
warranty made by any such party in the Share Purchase Agreement contains any
untrue statement of a material fact or omits to state a material fact
necessary, in light of the circumstances under which it was made, in order to
make the statements therein not misleading.
In addition to the foregoing mutual representations and warranties, PMT has
made certain representations and warranties to the Electrotech Shareholders to
the effect that: (a) the 5,600,000 shares of Common Stock to be issued in
partial consideration for Electrotech shares have been duly authorized and,
when issued as contemplated at the Closing, will be validly issued, fully paid
and nonassessable; and (b) PMT has furnished to the Electrotech Shareholders
copies of each report, registration statement and other document filed with
the Commission by PMT on and after its initial public offering on August 23,
1995 and that such reports and other documents as of the dates they were filed
did not contain an untrue statement or omit to state a material fact.
Additionally, PMT, on the one hand, and each member of Electrotech and Mr.
Dobson, collectively on the other hand, have represented, warranted and agreed
with the other that this Proxy Statement does not, at the time it was mailed,
and will not at the date of the Annual Meeting of the shareholders of PMT held
to approve the Acquisition, contain any untrue statement of a material fact,
or omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, except that no representation or warranty is being
made by either party with respect to information supplied by the other for
inclusion in this Proxy Statement.
The foregoing summary of the various representations and warranties of the
parties is qualified in its entirety by the full text of the representations
and warranties of the Electrotech Shareholders, Mr. Dobson and PMT set forth
in Articles III, IV and V, respectively, of the Share Purchase Agreement
attached to this Proxy Statement as Annex A.
LIMITED SURVIVAL OF REPRESENTATIONS AND WARRANTIES
Although the accuracy of the representations and warranties of each party
(considering Electrotech and the Electrotech Shareholders collectively as a
single party for this purpose) is a condition to the obligation of the other
to consummate the Acquisition (See "--Conditions to the Acquisition" above),
the Share Purchase Agreement provides that except solely with respect to the
Surviving Shareholder Warranties and the Surviving PMT Warranties (as
described below), all representations and warranties contained in the Share
Purchase Agreement shall terminate and be extinguished upon, and shall not
survive, the Closing. Accordingly, following the Closing no party shall have
any recourse against the other for breach of any representation or warranty,
except only with respect to the Shareholder Surviving Warranties and the
Surviving PMT Warranties.
The Shareholder Surviving Warranties, which shall survive the Closing for
the applicable statute of limitations period, are those of each Electrotech
Shareholder contained in Article III of the Share Purchase Agreement (with
respect to ownership of and title to Electrotech shares, and the power and
authority to transfer the same to PMT), and with respect solely to Mr. Dobson,
those set forth in Sections 4.3 (authorized, issued and outstanding capital
stock of Electrotech, and ownership of and title thereto), 4.4 (power and
authority of the Electrotech Shareholders to consummate the Acquisition) and
6.4(b) (accuracy of all information provided by Electrotech and the
Electrotech Shareholders for inclusion in this Proxy Statement).
The Surviving PMT Warranties, which also shall survive the Closing for the
applicable statute of limitations, consist of those set forth in Section 5.3
(authorized, issued and outstanding capital stock of PMT), 5.4 (Common Stock
to be issued in the Acquisition), 5.5 (power and authority of PMT to
consummate the Acquisition) and 6.4(b) (accuracy of all information provided
by PMT for inclusion in this Proxy Statement).
29
<PAGE>
INDEMNIFICATION
PMT has agreed, upon and subject to the consummation of the Acquisition, to
indemnify Electrotech and the Electrotech Shareholders in respect of any
claims, obligations, costs and expenses which they may incur arising out of
the material breach of any of the Surviving PMT Warranties (as described above
under "--Limited Survival of Representations and Warranties"). Similarly, each
Electrotech Shareholder has agreed to indemnify and hold harmless PMT from and
against any and all claims, obligations, costs and expenses arising out of the
material breach of any of the Surviving Shareholder Warranties (as also
described above under "--Limited Survival of Representations and Warranties"),
though the indemnification of each Electrotech Shareholder other than Mr.
Dobson is limited to such shareholder's ownership of, title to and ability to
transfer its Electrotech shares being purchased by PMT at the Closing.
CONDUCT OF BUSINESS PRIOR TO THE ACQUISITION
Under the terms of the Share Purchase Agreement, and for the period from the
July 17, 1996 date of the Share Purchase Agreement and continuing until its
termination or the Closing of the Acquisition, each member of Electrotech and
its subsidiaries, on the one hand, and PMT and PMT's subsidiary, on the other
hand, has agreed (except as otherwise consented to or approved in writing by
the other, or as otherwise permitted by the Share Purchase Agreement) that:
(a) its business will be conducted only in the ordinary course consistent with
past practice, and it will not take any action inconsistent with the
transactions contemplated by the Share Purchase Agreement; (b) it will not (i)
amend its charter documents, (ii) change the number of issued or outstanding
shares of its capital stock, (iii) issue any debt or equity securities or any
options, warrants or other rights to acquire or subscribe for such securities,
except, in the case of PMT, for the issuance of securities in the Private
Financing and for the grant of stock options (not exceeding certain specified
amounts) under PMT's 1991 Stock Option Plan, (iv) declare, set aside or pay
any dividend or other distribution in respect of its capital stock, (v)
redeem, retire, purchase or otherwise acquire any of its capital stock or (vi)
split, combine or reclassify any of its capital stock; (c) it will not (i)
except in the ordinary course of business, incur any indebtedness for borrowed
money, except in the case of PMT for the Private Financing and except for
indebtedness for borrowed money incurred under credit facilities existing at
the date of the Share Purchase Agreement (or replacements thereof), inter-
group borrowings or borrowings which otherwise do not exceed, at the date of
each incurrence, $250,000 in principal amount, (ii) waive, release, grant or
transfer any rights of material value, except in the ordinary course of
business, (iii) sell, transfer, lease, license or otherwise dispose of or
encumber any of its assets with a value exceeding $250,000, other than
inventory sold in the ordinary course of business consistent with past
practice and pledges or other encumbrances pursuant to credit facilities in
existence on the date of the Share Purchase Agreement (or replacements
thereof), (iv) purchase or acquire any business or assets of a business,
(v) enter into any joint venture or partnership, (vi) settle any material
litigation or waive or relinquish any material right or benefit or (vii)
accelerate payments on any indebtedness; (d) it will use its reasonable best
efforts to preserve its business organization intact and to keep available the
services of its operating personnel and preserve its business goodwill; (e) it
will not (i) increase the compensation payable or to become payable to any of
its officers, other employees or directors, except in the ordinary course of
business consistent with past practice, (ii) make any payment or provision to,
or otherwise amend, any employee benefit plan, other than as required by
Electrotech's employee benefit plans, in each case in the ordinary course of
business consistent with past practice, (iii) grant any stock options or stock
appreciation rights, except as described in clause (b) above, (iv) enter into
any new, or amend any existing, employment, severance, consulting or other
compensation agreement, except in the ordinary course of business consistent
with prior practice, (v) make any loan or advance to, or enter into any
written contract, lease or commitment with, any officer, director or other
employee except in the case of travel, entertainment or other similar advances
in the ordinary course of business consistent with prior practice or (vi)
enter into any other material transactions with any shareholders, directors,
executive officers or related parties; (f) it will not assume, guarantee,
endorse or otherwise become responsible for the obligations of any other
person, or make any loans or advances to any person, except in the ordinary
course of business consistent with past practice; (g) it will not incur
capital expenditures (or make commitments to incur such expenditures) which in
the aggregate would exceed 110% of the amount forecasted therefor as of the
date of the Share Purchase Agreement with respect to any calendar month
including or following such date, nor make any
30
<PAGE>
investment of a capital nature, either by purchase of stock or securities,
contributions to capital, transfers or otherwise, or by the purchase of any
property or assets of any other person; (h) it will not alter any practice
with respect to accounting policies or procedures, or make any
reclassification of assets or liabilities (except, with respect to
Electrotech, for changes required by changes in UK GAAP or in the Companies
Act 1985 (Great Britain); (i) it will not close any office, plant, facility or
warehouse, except as required by law or in the event of a material casualty;
(j) it will not enter into, with respect to any office, plant, facility or
warehouse, any new lease, lease termination agreement or amendment of any
agreement to lease real property, except, in the case of Electrotech and its
subsidiaries, for lease modifications reflecting the resolution of currently
pending rent reviews which would not in the aggregate reasonably be expected
to result in rent increases exceeding 150,000 annually; (k) it will not sell,
assign or sublease any office, plant, facility or warehouse; (l) it will not
enter into any agreement to do any of the things described in clauses (a)
through (k) above; and (m) it will promptly advise the other in writing of any
event or occurrence that could reasonably be expected to have a material
adverse effect upon it, or of any breach of any of its representations or
warranties contained in the Share Purchase Agreement, or any breach by it of a
covenant contained in the Share Purchase Agreement.
ADDITIONAL COVENANTS OF THE PARTIES
Each member of Electrotech, on the one hand, and PMT, on the other hand, has
further agreed to afford the other with reasonable access prior to the Closing
to all of such party's properties, books, accounts, agreements, personnel,
facilities, proprietary information, contracts, commitments and records,
including without limitation, in the case of Electrotech, permitting PMT's
environmental experts to conduct an investigation of environmental conditions
at the owned and leased real properties of Electrotech and its subsidiaries.
Each party has further undertaken to use its reasonable efforts to take or
cause to be taken all action, and to do or cause to be done all things
necessary, proper or advisable to consummate the transactions contemplated by
the Share Purchase Agreement, including the obtaining of all necessary
waivers, consents and approvals of all third parties and governmental
authorities necessary for the consummation of the Acquisition. Each such party
has also agreed to deliver to the other, until the Closing: (a) as soon as
practicable, but no later than 30 days after the end of each month (extended
to 45 days after the end of each quarter (except with respect to the last
quarter of its fiscal year) and 60 days after the end of the last quarter of
its fiscal year), an unaudited consolidated profit and loss account or
statement of operations, as the case may be, consolidated balance sheet and
consolidated cash flow statement for such month or quarter, as the case may
be, and for the fiscal year to date (in the case of PMT, with quarterly
financial statements having been reviewed by its independent public
accountants); (b) as soon as practicable, but in any event within five days of
its receipt thereof, copies of any management letters and other correspondence
of its independent auditors; (c) prompt notice of any material defaults under
any material contracts and of any litigation; (d) monthly updates to the
backlog information described in the representations and warranties in the
Share Purchase Agreement; and (e) as soon as practicable, all such other
information requested by the other, where such information is readily
available.
Each Electrotech Shareholder has further agreed that it will not, directly
or indirectly, transfer, sell, assign, pledge, hypothecate, encumber or
otherwise dispose of any of Electrotech shares which such shareholder owned at
the date of the Share Purchase Agreement (except certain permitted transfers
to one or more trusts for the benefit of family members or charitable
purposes, provided that such trusts become a party to and otherwise bound by
the Share Purchase Agreement). Additionally, each member of Electrotech and
each Electrotech Shareholder has agreed that it will not, nor shall any of
Electrotech's directors, officers, other employees or other representatives or
agents, directly or indirectly communicate, solicit, initiate, encourage or
participate (including furnishing non-public information concerning any
business, properties or assets of Electrotech) in any discussions or
negotiations with regard to any proposal to acquire, directly or indirectly,
any of the share capital of any member of Electrotech or any of its
subsidiaries, or to invest any funds in any such company, whether such
proposal, acquisition, investment or other transaction involves a stock sale,
a tender offer, exchange offer, merger, consolidation or other business
combination, or for the acquisition of a substantial portion of the assets of
any member of Electrotech or any subsidiary thereof (an "Acquisition
Proposal"). Each member of Electrotech and each Electrotech Shareholder has
furthermore agreed to immediately communicate to PMT the
31
<PAGE>
identity of any other party and the initial terms of any proposal it may
receive from any such party in respect of an Acquisition Proposal. Each
Electrotech Shareholder has also severally agreed that such Shareholder will
not offer, sell or contract to sell, or otherwise dispose of, directly or
indirectly, or commence an offering of, any shares of Buyer's Common Stock
beneficially owned by such Shareholder or any securities convertible into, or
exchangeable for, shares of Buyer's Common Stock for a period of 90 days
following the Closing Date, without the prior written consent of Salomon
Brothers.
PMT agreed to prepare and file with the Commission, and mail to its
shareholders, this Proxy Statement with respect to the Annual Meeting of PMT
shareholders to consider and vote, among other things, upon the Acquisition
and the transactions contemplated thereby. Each member of Electrotech and each
Electrotech Shareholder agreed to assist and cooperate with PMT in the
preparation of this Proxy Statement with respect to information herein
concerning them.
CERTAIN PAYMENTS AT CLOSING
PMT has agreed in the Share Purchase Agreement that, upon the Closing of the
Acquisition, PMT will pay to Mr. Dobson the cash amount of $500,000 pursuant
to the Noncompetition Agreement (see "--Related Agreements" below) and deliver
to Electrotech the following aggregate amounts and property as contributions
to capital: (a) at the discretion of the Board of Directors of ET and ETE, the
cash sum of approximately $1,500,000, the precise amount of which shall be
specified by Mr. Dobson prior to the Closing as the amount which, when added
to the $250,000 to be paid by PMT for the ETS shares, represents the U.S.
dollar equivalent of one pound sterling for each day that all employees of
Electrotech and its subsidiaries as of the Closing have been continuously
employed by them as of the Closing (the "Employee Bonus"); (b) a cash sum, the
precise amount of which shall be specified by Mr. Dobson prior to the Closing,
calculated to result in an after-tax bonus payment (assuming the highest
marginal income tax rates) to Mr. Wheeler of approximately $600,000 (the
"Wheeler Bonus"); and (c) the cash sum of $7,000,000, to be paid to Mr. Dobson
as a negotiation fee (the "Dobson Negotiation Fee"). The Electrotech companies
have accordingly agreed to pay or deliver (or cause their subsidiaries to pay
or deliver) on or after the Closing (i) the Employee Bonus, to their employees
entitled thereto, (ii) the Wheeler Bonus to Mr. Wheeler for past services
rendered, and (iii) the Dobson Negotiation Fee to Mr. Dobson.
PMT has furthermore agreed that, at and following the Closing, it will cause
Electrotech and its subsidiaries to honor in accordance with their terms all
existing employment arrangements with their respective directors, officers and
other employees, provided that such arrangements have been disclosed in
accordance with the terms of the Share Purchase Agreement. Furthermore, PMT
has represented and warranted that it presently intends to cause Electrotech
and its subsidiaries to continue indefinitely to provide pension and welfare
benefits to their employees (considered as a group) which benefits are
intended to be in the aggregate no less favorable than those currently
provided by Electrotech and its subsidiaries in the aggregate to such
employees. PMT has further agreed that, sufficiently prior to the Closing to
facilitate the grant of such stock options, PMT will recommend to its Board of
Directors and Compensation Committee thereof the grant, under its 1991 Stock
Option Plan, of options covering an aggregate of approximately 800,000 shares
of Common Stock to such employees of Electrotech and its subsidiaries, and in
such respective individual amounts, as shall be jointly determined by PMT and
Mr. Dobson prior to the Closing. Such option grants are otherwise to be at
prices and upon terms as are customarily contained in options generally
granted under PMT's 1991 Stock Option Plan.
PMT has also agreed that it will not file with the Commission any disclosure
document, any document related to the Private Financing or any report or other
document filed by PMT under the Exchange Act or otherwise made public, that
includes the names of any of Electrotech, the Electrotech Shareholders or any
affiliate of such persons, without the prior written consent of Mr. Dobson,
except solely as and to the extent that PMT is advised by its legal counsel
that the same is required to be so filed (in which case Mr. Dobson shall be
given reasonable opportunity to review and reasonably modify any such proposed
filing).
32
<PAGE>
PRE-CLOSING ELECTROTECH DIVIDENDS
Although Electrotech is prohibited from paying or distributing any amounts
as dividends or otherwise to any of the Electrotech Shareholders, the Share
Purchase Agreement specifically provides that Electrotech may, prior to the
Closing, declare and pay cash dividends to the Electrotech Shareholders up to
an amount permitted by law but not exceeding the net cash payment specified in
Section 1.4(a) of the Share Purchase Agreement (being the $75,000,000 amount
described above under "--Purchase Price," after the deductions described
therein), in which case the parties have agreed that (a) PMT shall,
immediately prior to the Closing, loan to Electrotech an amount equal to the
sum of such dividends, plus all taxes required to be paid by Electrotech in
connection with the payment of such dividends (the "Dividend Taxes"), in order
to fund the payment of such dividends immediately prior to the Closing and the
payment of the Dividend Taxes; (b) the cash portion of the purchase price for
Electrotech shares otherwise payable to the Electrotech Shareholders at the
Closing shall be reduced, pro rata as to each Electrotech Shareholder, by an
aggregate amount equal to such loan by PMT; (c) immediately after the Closing,
the indebtedness of Electrotech to PMT in respect of such loan shall be
forgiven by PMT as a contribution to the capital of Electrotech (but subject
to the contingent obligation of Electrotech to make the payments described in
the following clause); and (d) from time to time if and when Electrotech is
entitled to a credit for the Dividend Taxes against other amounts due and
payable for income taxes of Electrotech, then Electrotech shall pay to the
Electrotech Shareholders (promptly after such time as Electrotech would have
otherwise been required to pay such income taxes), pro rata to each
Electrotech Shareholder in the same proportion that the cash portion of the
purchase price was reduced, the aggregate amount of such credit.
TERMINATION, AMENDMENT AND WAIVER
The Share Purchase Agreement may be terminated at any time by the mutual
written consent of PMT and Mr. Dobson. The Share Purchase Agreement may also
be terminated by any party if the Closing of the Acquisition has not occurred
on or before December 31, 1996.
The Share Purchase Agreement may be terminated by PMT alone if there is a
material breach of any of the representations and warranties of any member of
Electrotech or any Electrotech Shareholder, or if any member of Electrotech or
any Electrotech Shareholder fails to comply in any material respect with any
of its respective covenants or agreements contained in the Share Purchase
Agreement. Similarly, the Share Purchase Agreement may be terminated by the
Electrotech Shareholders alone if there is a material breach of any of such
representations and warranties of PMT, or if PMT fails to comply in any
material respect with any such covenants or agreements.
The Share Purchase Agreement may be amended only by an instrument in writing
signed by each of the parties thereto. At any time prior to the Closing, any
party to the Share Purchase Agreement (considering Electrotech and Electrotech
Shareholders collectively as a single party for this purpose) may (a) extend
the time for performance of any obligation of the other party, (b) waive any
inaccuracies in the representations and warranties made to such party in the
Share Purchase Agreement or any document delivered in connection therewith and
(c) waive compliance with any of the agreements or conditions for the benefit
of such party contained in the Share Purchase Agreement.
TERMINATION FEE AND CERTAIN ACQUISITION EXPENSES
Upon any termination of the Share Purchase Agreement (except solely a No-Fee
Termination, as described in the following paragraph), PMT must pay to
Electrotech an aggregate fee of $1,000,000 (the "Termination Fee"), and PMT
must additionally pay to Electrotech all reasonable fees and expenses actually
incurred by them in connection with the transactions contemplated by the Share
Purchase Agreement, including all reasonable legal, investment banking,
accounting and other fees and expenses (the "Reimbursable Expenses"). Upon the
execution of the Share Purchase Agreement and pursuant thereto, PMT advanced
to Electrotech an aggregate of approximately $624,000 in respect of all
Reimbursable Expenses then payable to third parties other than
33
<PAGE>
Hambrecht & Quist, excluding any internal charges or expenses of Electrotech
or any of its subsidiaries. Such amount is considered an advance in respect of
any amounts which may ultimately be owed by PMT to Electrotech upon the
termination of the Share Purchase Agreement and, if no amounts are ever so
owed by reason of the occurrence of a No-Fee Termination of the Share Purchase
Agreement, Electrotech must, within seven days following the occurrence of
such No-Fee Termination, refund to PMT all amounts so advanced.
A "No-Fee Termination" of the Share Purchase Agreement relieves PMT of its
obligation to pay the Termination Fee and Reimbursable Expenses to
Electrotech, and consists of the following: (a) any termination by PMT or the
Electrotech Shareholders if a governmental authority or other agency or
commission or court shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, injunction or other order which has the
effect of prohibiting the consummation of the transactions contemplated by the
Share Purchase Agreement (limited to United Kingdom matters in the case of a
termination by PMT, and limited to United States matters in the case of a
termination by the Electrotech Shareholders); (b) any termination by the
Electrotech Shareholders by reason of their failure to obtain the ET Tax
Clearance; (c) any termination by PMT by reason of the non-occurrence of any
of the conditions to PMT's obligation to consummate the Acquisition; provided,
however, that any termination by PMT as the result of any failure by PMT to
consummate the Private Financing, to obtain approval of the Share Purchase
Agreement by PMT's shareholders, or to complete additional environmental
investigations of Electrotech to PMT's satisfaction, and any termination by
PMT as the result of a material adverse change in the financial condition,
assets, liabilities, business, operations, results of operations or prospects
of Electrotech or as a result of the failure to meet the Dissenters' Rights
Condition, shall not constitute a No-Fee Termination and shall not relieve PMT
of its obligation to pay the Termination Fee and Reimbursable Expenses; and
(d) any termination by the Electrotech Shareholders as the result of a
material adverse change in the financial condition, assets, liabilities,
business, operations, results of operations or prospects of PMT.
PMT will in any event be responsible for all of its own costs and expenses
incurred in connection with the Acquisition and the transactions contemplated
thereby, whether or not the Closing occurs.
EFFECT OF TERMINATION
Except to the extent that PMT may be obligated to pay the Termination Fee
and Reimbursable Expenses (and except to the extent that Electrotech may
become obligated to repay the $624,000 advance made by PMT in respect of
Reimbursable Expenses), in the event of a termination of the Share Purchase
Agreement it shall become void and there will be no liability on the part of
any party thereto, provided that no party shall be relieved of any liability
for any intentional breach of the purchase and sale covenants contained in the
Share Purchase Agreement, or the covenant to use reasonable efforts to satisfy
all conditions to the Closing, which breach results in a termination of the
Share Purchase Agreement. Additionally, a covenant of each party to refrain
from publicly stating any disparaging or similar remark regarding the other
shall continue for a one-year period following any termination of the Share
Purchase Agreement.
RELATED AGREEMENTS
Certain additional agreements to be executed at the Closing are attached as
Exhibits to the Share Purchase Agreement, consisting of: (a) the Employment
Agreement between PMT and Mr. Wheeler, the execution of which is a condition
to the obligations of the Electrotech Shareholders under the Share Purchase
Agreement; (b) the Registration Agreement between PMT and Mr. Dobson, the
execution of which is also a condition to the obligations of the Electrotech
Shareholders under the Share Purchase Agreement, and (c) the Noncompetition
Agreement between PMT and Mr. Dobson, the execution of which is a condition to
the obligation of PMT under the Share Purchase Agreement.
Employment Agreement. The Employment Agreement provides that Mr. Wheeler
will be employed by PMT as its President and Chief Operating Officer for a
term of three years, which term will be automatically renewed for additional
one-year periods unless terminated by either party at least 30 days prior to
the commencement of the additional one-year period. The Employment Agreement
provides that Mr. Wheeler's base
34
<PAGE>
salary will be $250,000 per year (which will be reviewed annually and may be
adjusted upward by PMT), and that Mr. Wheeler will be additionally eligible to
participate in such bonus programs and other benefit plans and arrangements as
are generally made available to executive officers of PMT. It also provides
for the grant to Mr. Wheeler of options to purchase 200,000 shares of Common
Stock under PMT's 1991 Stock Option Plan, at an exercise price equal to the
fair market value of the underlying shares of Common Stock on the date of
grant (which will be the Closing Date), which options will vest in four equal
annual installments on each anniversary of the date of grant. These options
are included in the options covering approximately 800,000 shares to be
granted by PMT at the Closing to certain employees of the members of
Electrotech and their subsidiaries as shall be jointly determined by PMT and
Mr. Dobson prior to the Closing. See "--Conditions to the Acquisition" above.
If Mr. Wheeler is terminated by PMT "for cause" or if he terminates his
employment "without good reason" (as those terms are defined in the Employment
Agreement), or if he dies during the term of the Employment Agreement, he will
be entitled only to receive his salary and other amounts actually accrued
through the date of termination. Upon any other termination, he will generally
be entitled to receive his base salary (at the rate in effect upon the date of
termination) through the remainder of the term of the Employment Agreement
(but not less than one year), without set-off or reduction, and will be
entitled to the vesting of his stock options and to receive generally all
other benefits to which he is entitled under the Employment Agreement through
the remainder of such term. The Employment Agreement also provides that while
Mr. Wheeler is employed and for such period after employment during which he
continues to receive payments at least equal to his base salary pursuant to
the Employment Agreement, he will not compete with PMT in any area in the
world where PMT's products or services are offered or sold.
Registration Rights Agreement. The Registration Rights Agreement to be
entered into by PMT and Mr. Dobson provides that, with respect to 4,853,334
shares of Common Stock to be received by Mr. Dobson pursuant to the
Acquisition, Mr. Dobson may, on not more than three occasions at any time
commencing on the first anniversary of the Closing Date, require PMT at its
sole expense to prepare, file with the Commission and use its best efforts to
cause to be declared effective and maintained effective for up to 120 days, a
registration statement under the Securities Act covering the public offer and
sale of such shares. The Registration Rights Agreement also provides that,
commencing on and after the first anniversary of the Closing Date, Mr. Dobson
shall have customary "piggyback" registration rights in the event PMT proposes
to register any of its stock or other securities under the Securities Act in
connection with the public offering of such securities solely for cash. The
Registration Rights Agreement contains additional customary terms and
provisions, including reciprocal indemnification and contribution provisions
with respect to information furnished or provided by PMT or Mr. Dobson for
inclusion in any such registration statement.
Noncompetition Agreement. The Noncompetition Agreement between PMT and Mr.
Dobson provides that, in consideration of the payment to Mr. Dobson by PMT of
$500,000 at the Closing and further in order to confirm in PMT the goodwill of
the business of Electrotech being acquired by PMT pursuant to the Acquisition,
Mr. Dobson shall not, for a period of three years commencing upon the Closing,
directly or indirectly carry on or participate in any business anywhere in the
world in competition with the business of Electrotech as the same exists
immediately prior to the Acquisition and as the same is to be carried on
following the Acquisition.
CERTAIN OTHER ITEMS RELATED TO THE ACQUISITION
ACCOUNTING TREATMENT
The Acquisition is to be treated as a purchase for accounting purposes.
FEDERAL INCOME TAX CONSEQUENCES
The Acquisition will not have any U.S. federal, state or local income tax
effect on any PMT shareholder, unless such shareholder exercises dissenters'
rights. See "Dissenting Shareholders' Rights of Appraisal."
35
<PAGE>
GOVERNMENTAL AND REGULATORY APPROVALS
PMT and Electrotech are not aware of any governmental or regulatory
approvals required for consummation of the Acquisition, although it is a
condition to the obligations of the Electrotech Shareholders to consummate the
Acquisition that the Electrotech Shareholders have obtained tax clearance from
certain U.K. taxing authorities.
TERMS OF THE PRIVATE FINANCING; WORKING CAPITAL
As one of PMT's conditions to the consummation of the Acquisition, the
Private Financing requires PMT to issue and sell at least $50,000,000 in
convertible subordinated notes (the "Convertible Notes") to qualified
institutional buyers (the "Buyers") pursuant to Rule 144A of the Commission
(or other available applicable exemptions under the Securities Act). PMT
presently anticipates that it will issue approximately $65,000,000 in
principal amount of Convertible Notes in the Private Financing, and that the
Convertible Notes will be on terms and subject to conditions, including
without limitation, the right, first exercisable at some future date, to
convert such Convertible Notes into shares of Common Stock, as may be
negotiated between PMT and the Buyers. The initial purchasers of the
Convertible Notes will be granted an over-allotment option with respect to an
additional $9,750,000 in principal amount of Convertible Notes, which option
will be exercisable by such initial purchasers within 30 days of the date of
issuance of the Convertible Notes. Additionally, the obligation of PMT and the
Electrotech Shareholders to effect the Acquisition is subject, among other
things, to the condition that the cash and cash equivalent assets of PMT and
Electrotech at the Closing, plus amounts then immediately available to them
through additional borrowings under credit arrangements, on a consolidated pro
forma basis immediately after giving effect to the Acquisition, shall equal at
least $35,000,000 (the "Working Capital Condition"). PMT anticipates the
establishment of a new working capital line which will be consistent with the
requirements of the Working Capital Condition (the "Working Capital
Facility"), which facility will be effective as of the closing of the
Acquisition.
Management of PMT believes that the cash provided or available from the
Convertible Notes and other sources of capital available to PMT, including
cash, cash equivalents and short-term investments presently on hand, will be
sufficient to pay the cash portion of the purchase price due under the Share
Purchase Agreement at the Closing and to pay for the costs and expenses of
PMT, including without limitation, the Reimbursable Expenses, resulting from
the Acquisition.
RESTRICTIONS ON TRANSFER OF SHARES
The shares of Common Stock to be received by the Electrotech Shareholders on
the consummation of the Acquisition will be offered and sold in a manner
intended to comply with the conditions contained in Regulation S under the
Securities Act. In that regard, each Electrotech Shareholder has represented
and warranted to PMT, among other things, that (a) such shareholder is not a
"U.S. person" (as defined in Regulation S) and is not acquiring shares of
Common Stock for the benefit of any "U.S. person;" (b) during the period of 40
days following the Closing (the "Restricted Period"), such shareholders will
not engage in any activity for the purpose of, or what may be reasonably be
expected to have the effect of, conditioning the market in the United States
for the sale of any shares of Common Stock to be held by such shareholder, and
will not offer, sell, transfer, pledge or otherwise dispose of such shares in
the United States or to or for the account or benefit of a "U.S. person;" (c)
such shareholder will not, directly or indirectly, offer, sell, pledge,
transfer or otherwise dispose of (or solicit any offers to buy, purchase or
otherwise acquire or take a pledge of) shares of Common Stock otherwise than
in compliance with the Securities Act, any applicable state securities or blue
sky laws and any applicable securities laws of jurisdictions outside the
United States, and the rules and regulations promulgated thereunder; and (d)
during the period commencing five business days before the Closing and
continuing through the Restricted Period, such shareholder will not directly
or indirectly, execute or effect or cause to be executed or effected any short
sale, option or equity swap transaction in or with respect to the Common Stock
or any other derivative security transaction, the purpose or effect of which
is to hedge or transfer to a third party all or any part of the risk of loss
associated with such shareholder's ownership of shares of Common Stock.
Additionally, the share certificates representing the shares of Common Stock
delivered to the Electrotech Shareholders will contain a restrictive legend
that will restrict the sale of such shares in accordance with the restrictions
of Regulation S during the Restricted Period.
36
<PAGE>
Following the Restricted Period, Electrotech Shareholders holding 746,666
shares of Common Stock will be permitted to sell such shares into the public
market without restriction. Subject to certain volume restrictions imposed
under Rule 144 under the Securities Act, after the Restricted Period Mr.
Dobson will also be permitted to sell a portion of the 4,853,334 shares of
Common Stock held by him into the public market. In connection with the
Private Financing, the Electrotech Shareholders have agreed not to sell any of
the shares of Common Stock received by them in the Acquisition for 90 days
from the Closing Date.
DISSENTING SHAREHOLDERS' RIGHTS OF APPRAISAL
Pursuant to Chapter 13 of the California General Corporation Law ("Chapter
13"), a holder of shares of Common Stock may, in some instances, be entitled
to require PMT to purchase his or her shares for cash at their fair market
value as of the day before the first announcement of the terms of the
Acquisition ("Dissenting Shares"), excluding any appreciation or depreciation
in consequence of the Acquisition. Except as noted below, shares of Common
Stock will qualify as Dissenting Shares only if demands for payment are timely
filed and perfected with respect to 5% or more of the outstanding shares of
Common Stock. This 5% requirement is applicable because the Common Stock is on
the list of OTC margin stocks issued by the Board of Governors of the Federal
Reserve System. However, this 5% requirement does not apply to any shares
which the holder is legally unable freely to sell publicly because of transfer
restrictions imposed under securities laws and related agreements with PMT
("Restricted Shares").
IT IS A CONDITION TO THE ACQUISITION THAT THE HOLDERS OF LESS THAN 5% OF THE
OUTSTANDING COMMON STOCK EXERCISE DISSENTING SHAREHOLDERS' RIGHTS OF
APPRAISAL.
The general terms of the Acquisition were first announced on July 18, 1996.
The following is a brief summary of the procedures to be followed by a PMT
shareholder in order to perfect his or her right, if any, to payments under
Chapter 13 and is qualified in its entirety by reference to the text of
Chapter 13 attached to this Proxy Statement as Annex E, to which reference is
hereby made for a definitive statement of the rights of dissenting
shareholders (the "Dissenting Shareholders") and the procedures to be
followed.
A Dissenting Shareholder who wishes to require PMT to purchase his or her
respective shares of Common Stock must:
(1) vote against the Acquisition any or all of the shares of Common Stock
entitled to be voted (shares of Common Stock not voted have the effect of
being voted against the Acquisition but will not be counted toward the 5%
minimum for dissenters' rights generally to exist); provided that if a PMT
shareholder votes part of the shares entitled to be voted in favor of the
Acquisition, and fails to specify the number of shares voted, it is
conclusively presumed under California law that such shareholder's
approving vote is with respect to all shares entitled to be voted;
(2) make written demand upon PMT or its transfer agent at the addresses
listed below, which is received not later than the date of the meeting of
shareholders, setting forth the number of shares of Common Stock demanded
to be purchased by PMT and a statement as to claimed fair market value of
such shares at July 17, 1996; and
(3) submit for endorsement, within 30 days after the date on which the
notice of approval of the Acquisition by the shareholders described below
is mailed to such shareholders, to PMT or its transfer agent at the
addresses listed below, the certificates representing any shares in regard
to which demand for purchase is being made, or to be exchanged for
certificates of appropriate denominations so endorsed, with a statement
that the shares are Dissenting Shares.
The statement of fair market value in clause (2) above will constitute an
offer by the Dissenting Shareholder to sell his or her shares at a price equal
to such fair market value. Neither a vote against approval of the Acquisition
nor the giving of a proxy directing a negative vote will be sufficient to
constitute the demand
37
<PAGE>
described in clause (2) above. A proxy which fails to include instructions
with respect to approval of the Acquisition will be voted in favor of the
Acquisition. Accordingly, the shares covered by such proxy will not be
Dissenting Shares. In addition, a vote in favor of the Acquisition, or a
failure to vote at all, will nullify any previously filed written demand for
payment.
Within 10 days after the date of the approval of the Acquisition, PMT will
mail to each Dissenting Shareholder who holds Common Stock a notice of such
approval together with a statement of the price determined by PMT to represent
the fair market value of Dissenting Shares, a copy of certain sections of
Chapter 13, and a brief description of the procedure to be followed if the
shareholder desires to exercise his or her dissenters' rights. The statement
of price will constitute an offer by PMT to purchase at the price stated
therein any Dissenting Shares.
If PMT and the Dissenting Shareholder agree that any shares of Common Stock
are Dissenting Shares and agree upon the price of the shares, the Dissenting
Shareholder will be entitled to the agreed price plus interest thereon at the
legal rate on judgments from the date of such agreement. Subject to the
provisions of the California General Corporation Law, payment of the fair
market value of the Dissenting Shares will be made within 30 days after such
agreement or within 30 days after any statutory or contractual conditions to
the Acquisition are satisfied, whichever is later. If PMT denies that the
shares are Dissenting Shares or if PMT and the Dissenting Shareholder fail to
agree upon the fair market value of the shares, then the Dissenting
Shareholder, within six months after the date on which notice of approval of
the Acquisition by the shareholders of PMT is mailed to such shareholder, and
not thereafter, may file a complaint in the Superior Court of Los Angeles
County, California, requiring the court to determine whether the shares are
Dissenting Shares, or the fair market value of the Dissenting Shares, or both,
or may intervene in any pending action for the appraisal of any shares of
Common Stock. The court will direct payment of the appraised value of the
shares, together with interest thereon at the legal rate on judgments from the
date on which the judgment was entered, by PMT to the shareholder upon the
surrender of the certificates representing such shares to PMT. The costs of
the proceeding shall be apportioned as the court considers equitable, but if
the appraisal exceeds the price offered by PMT, it shall pay the costs, and if
the appraisal is more than 125% of the price offered by it, it may be required
to pay attorneys' and other fees and interest at the legal rate on judgments
from the date the shareholder complied with Sections 1300-1302 of Chapter 13.
A Dissenting Shareholder may not withdraw a demand for purchase of
Dissenting Shares without PMT's consent. Written demands for payment and
submissions for endorsement with respect to Common Stock must be addressed to
Plasma & Materials Technologies, Inc., 9255 Deering Avenue, Chatsworth,
California 91311, attention: John W. LaValle or to PMT's transfer agent,
American Stock Transfer & Trust Company, 40 Wall Street, New York, New York
10005.
Any reference to "Dissenting Shareholder" in this section "Dissenting
Shareholders' Rights of Appraisal" means the recordholder of Dissenting Shares
of PMT and includes a transferee of record.
Shareholders are entitled, upon written demand, to inspect and copy the
record of PMT shareholders at any time during usual business hours to
communicate with other PMT shareholders with respect to the Acquisition.
A shareholder receiving cash upon the exercise of dissenters' rights may
recognize gain or loss for income tax purposes. Each such shareholder must
consult with his or her tax advisor in order to determine the income tax
effect of the exercise of such dissenters' rights by such shareholder.
38
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF PMT
The following selected consolidated financial data of PMT are qualified by
reference to and should be read in conjunction with the consolidated financial
statements and notes thereto included elsewhere in this Proxy Statement. The
selected consolidated financial data set forth below for the year ended
February 28, 1994, as of and for the ten months ended December 31, 1994, and
as of and for the year ended December 31, 1995, have been derived from the
audited financial statements of PMT included elsewhere in this Proxy
Statement. See "Index to Financial Statements." The selected consolidated
financial data set forth below as of and for the year ended February 28, 1992,
as of and for the year ended February 28, 1993, and as of February 28, 1994,
have been derived from audited financial statements of PMT not included in
this Proxy Statement. The selected consolidated financial data for the ten
months ended December 31, 1993, the twelve months ended December 31, 1994, the
six months ended June 30, 1995 and as of and for the six months ended June 30,
1996 have been derived from unaudited consolidated financial statements of
PMT, but include all adjustments (consisting only of normal recurring
adjustments) which PMT considers necessary for a fair presentation of the
results of operations for the periods presented. The results of operations for
the six months ended June 30, 1996 are not necessarily indicative of the
results that may be expected for PMT's fiscal year ending December 31, 1996.
<TABLE>
<CAPTION>
TEN MONTHS TWELVE SIX MONTHS
YEAR ENDED ENDED MONTHS YEAR ENDED
FEBRUARY 28, DECEMBER 31,(1) ENDED ENDED JUNE 30,
------------------------ ---------------- DECEMBER 31, DECEMBER 31, ----------------
1992 1993 1994 1993 1994 1994(1) 1995(2) 1995 1996
------ ------- ------- ------- ------- ------------ ------------ ------- -------
(IN THOUSANDS IN U.S. DOLLARS, EXCEPT SHARE INFORMATION)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERA-
TIONS:
Revenues:
Product sales.......... $1,376 $ 4,215 $ 6,244 $ 4,435 $ 8,005 $ 9,813 $20,890 $ 7,092 $17,946
License revenue........ 2,000 -- 1,900 1,900 700 700 400 400 --
Contract revenue....... -- -- -- -- -- -- -- -- 849
------ ------- ------- ------- ------- ------- ------- ------- -------
Total revenue.......... 3,376 4,215 8,144 6,335 8,705 10,513 21,290 7,492 18,795
Costs and expenses:
Costs of goods sold.... 763 2,442 4,259 3,218 5,404 6,444 11,144 3,747 9,127
Research and
development........... 1,205 2,218 2,812 2,186 3,584 4,210 4,567 2,043 3,560
Selling, general and
administrative........ 1,083 1,806 2,224 1,688 3,382 3,917 5,943 2,736 4,267
------ ------- ------- ------- ------- ------- ------- ------- -------
Total costs and
expenses.............. 3,051 6,466 9,295 7,092 12,370 14,571 21,654 8,526 16,954
------ ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
interest and income tax
provision.............. 325 (2,251) (1,151) (757) (3,665) (4,058) (364) (1,034) 1,841
Other:
Interest expense....... (22) (94) (227) (213) (146) (159) (294) (177) (91)
Interest income........ 21 26 32 15 125 143 777 29 884
------ ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
income tax provision... 324 (2,319) (1,346) (955) (3,686) (4,074) 119 (1,182) 2,634
Income tax provision.... 196 -- 51 51 54 54 1 -- 13
------ ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)....... $ 128 $(2,319) $(1,397) $(1,006) $(3,740) $(4,128) $ 118 $(1,182) $ 2,621
====== ======= ======= ======= ======= ======= ======= ======= =======
Net income (loss) per
share (3).............. $ (0.75) $ (0.82) $ 0.02 $ (0.24) $ 0.29
------- ------- ------- ------- -------
Number of shares used in
per share computation
(3).................... 5,013 5,013 6,593 5,023 9,131
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 28,
--------------------- DECEMBER 31, DECEMBER 31, JUNE 30,
1992 1993 1994 1994 1995(2) 1996
------ ------ ------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $1,205 $ 609 $ 5,926 $ 6,171 $49,037 $46,316
Total assets............ 3,145 5,032 12,080 16,631 59,293 66,981
Long-term debt (capital
lease obligations),
less current portion... 119 387 145 733 686 434
Redeemable convertible
preferred stock........ -- 1,250 8,705 14,205 -- --
Shareholders' equity
(deficit), excluding
redeemable convertible
preferred stock........ 1,901 820 (646) (4,419) 53,413 56,148
</TABLE>
- --------
(1) During 1994, PMT changed its fiscal year end from the last day of February
to December 31. Information for the twelve months ended December 31, 1994
(unaudited) is provided for comparison to the information for the year
ended December 31, 1995. Information for the ten months ended December 31,
1993 (unaudited) is provided for comparison to the information for the ten
months ended December 31, 1994.
(2) On August 29, 1995, PMT completed its initial public offering, resulting
in approximately $40,093,235 of net proceeds to PMT. The funds have been
used to cover PMT's working capital needs, its investment in evaluation
systems and capital expenditures, and to continue to expand its research
and development and operational activities.
(3) See Note 1 of Notes to Consolidated Financial Statements for an
explanation of the method used to determine the number of shares used to
compute per share amounts.
39
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF PMT
The following discussion should be read in conjunction with PMT's
consolidated financial statements and notes thereto and "Selected Consolidated
Financial Data of PMT" included elsewhere in this Proxy Statement.
OVERVIEW
PMT began operations in July 1986 to develop, manufacture and sell advanced
plasma technology products. From 1986 until 1990, PMT worked with Leybold and
commercialized PMT's Advanced Plasma Source (APS) technology that was
developed by Dr. Campbell while studying at UCLA. PMT receives royalties from
Leybold, which currently manufactures advanced optical coating equipment
utilizing PMT's APS technology. In 1990, PMT began development of a second
plasma technology, its MORI(TM) plasma source, and signed licensing and OEM
agreements with Alcan-Tech, an affiliate of Canon Sales, in November 1991,
with NEC Anelva in February 1992, with Leybold in December 1992, and with
Watkins-Johnson in December 1993. In December 1995, PMT agreed in principle
with NEC Anelva to extend its original OEM and licensing agreement so that the
two parties could jointly develop, manufacture and market an intermetal
dielectric CVD system based upon PMT's MORI(TM) source. PMT introduced its
plasma processing systems, the APEX 7000(R) and the PINNACLE 8000(R), in 1993,
and made its first shipments to end use customers beginning in June 1994. PMT
introduced and made its first shipments to end use customers of its PINNACLE
8000R(R) system in December 1995. When sold directly to end use customers, an
APEX 7000(R) system has a list price of approximately $1,000,000. PMT's
PINNACLE 8000(R) and PINNACLE 8000R(TM) systems have list prices ranging from
$1,800,000 to $2,800,000, and from $1,900,000 to $3,400,000, respectively,
depending upon the number of modules that are sold with the system.
PMT generally recognizes sales upon shipment of its products. Accordingly,
PMT's product sales are significantly affected by the timing of product
shipments. See "Risk Factors--Quarterly Operating Results Affected by Many
Business Factors." In addition, PMT often allows customers to evaluate
systems, and since customers can return such systems to PMT at any time with
limited or no penalty, PMT does not recognize a sale of an evaluation system
until it has been accepted by the customer. See Notes 1 and 3 of Notes to
Consolidated Financial Statements. PMT's collection practices and credit terms
are consistent with industry practice and, with respect to sales of systems,
generally provide for a customer to be invoiced upon shipment, with a
substantial portion of the payment (typically 80% to 90%) due within a certain
amount of time thereafter, and with the balance of the system's purchase price
due upon final installation and acceptance.
On August 29, 1995, PMT completed its initial public offering (the "Initial
Public Offering"), resulting in approximately $40.1 million of net proceeds to
PMT. In connection with the Initial Public Offering, the Board of Directors
approved a one-for-three reverse stock split of PMT's Common Stock. The
reverse stock split has been accounted for as if it had taken place as of the
earliest date presented. Effective August 29, 1995, all of the outstanding
shares of the preferred stock of PMT (13,337,219 shares) automatically
converted into 4,445,740 shares of Common Stock.
RECENT DEVELOPMENTS
The semiconductor industry is currently experiencing a significant downturn,
which PMT anticipates will result in reduced demand for semiconductor
processing equipment and increased pricing pressure upon equipment
manufacturers, including PMT. Such reduced demand could adversely affect PMT's
product sales during the quarter ending September 30, 1996 and for subsequent
periods. The loss or delay of one or more system sales during any quarter,
including the current quarter ending September 30, 1996, would significantly
and adversely affect PMT's operating results for that quarter. See "Risk
Factors--Cyclicality of Semiconductor Industry" and "Risk Factors--Quarterly
Operating Results Affected by Many Business Factors." Additionally, during the
current quarter ending September 30, 1996, pricing pressure attendant to PMT's
first shipments of multiple production systems to a major semiconductor
manufacturer are expected to result in lower gross and operating margins for
the current quarter and, perhaps, for subsequent periods than those attained
by PMT during recent quarters.
40
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of
total revenue for the periods indicated:
<TABLE>
<CAPTION>
TEN MONTHS TWELVE SIX MONTHS
ENDED MONTHS YEAR ENDED
DECEMBER 31, ENDED ENDED JUNE 30,
---------------- DECEMBER 31, DECEMBER 31, -------------
1993(1) 1994(1) 1994(1) 1995(2) 1995 1996
------- ------- ------------ ------------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Product sales........... 70.0 % 92.0 % 93.3 % 98.1 % 94.7 % 95.5%
License revenue......... 30.0 8.0 6.7 1.9 5.3 --
Contract revenue........ -- -- -- -- -- 4.5
----- ----- ------ ----- ----- -----
Total revenue......... 100.0 100.0 100. 0 100.0 100.0 100.0
----- ----- ------ ----- ----- -----
COSTS AND EXPENSES:
Cost of goods sold...... 50.8 62.1 61.3 52.3 50.0 48.6
Research and
development............ 34.5 41.2 40.0 21.5 27.3 18.9
Selling, general and
administrative......... 26.6 38.8 37.3 27.9 36.5 22.7
----- ----- ------ ----- ----- -----
Total costs and
expenses............. 111.9 142.1 138. 6 101.7 113.8 90.2
----- ----- ------ ----- ----- -----
Income (loss) before
interest and income
taxes.................. (11.9) (42.1) (38.6) (1.7) (13.8) 9.8
OTHER:
Interest income
(expenses), net........ (3.1) (0.2) (0.2) 2.3 (2.0) 4.2
----- ----- ------ ----- ----- -----
Income (loss) before
income tax provision... (15.0) (42.3) (38.8) 0.6 (15.8) 14.0
Income tax provision.... 0.8 0.6 0.5 -- -- 0.1
----- ----- ------ ----- ----- -----
Net income (loss)....... (15.8)% (42.9)% (39.3)% 0.6 % (15.8)% 13.9%
----- ----- ------ ----- ----- -----
Gross margin on product
sales.................. 27.4 % 32.5 % 34.3 % 46.7 % 47.2 % 49.1%
</TABLE>
- --------
(1) During 1994, PMT changed its fiscal year end from the last day of February
to December 31. Information for the twelve months ended December 31, 1994
(unaudited) is provided for comparison to the information for the year
ended December 31, 1995. Information for the ten months ended December 31,
1993 (unaudited) is provided for comparison to the information for the ten
months ended December 31, 1994.
(2) On August 29, 1995, PMT completed its Initial Public Offering, resulting
in approximately $40.1 million of net proceeds to PMT. The funds have been
used to cover PMT's working capital needs, its investment in evaluation
systems and capital expenditures, and to continue to expand its research
and development and operational activities.
Product Sales. Products sales for the six months ended June 30, 1996
increased 153% to $17.9 million compared to $7.1 million for the six months
ended June 30, 1995. Such increase in product sales resulted from the shipment
of one PINNACLE 8000(R) and eight PINNACLE 8000R(TM) systems, four MORI(TM)
sources and one process module for the six months ended June 30, 1996 compared
to two PINNACLE 8000(R) systems, twelve MORI(TM) sources and three process
modules shipped in the six months ended June 30, 1995. Product sales increased
to approximately $20.9 million for the year ended December 31, 1995 from
approximately $9.8 million for the twelve months ended December 31, 1994, an
increase of 113%. These increases were attributable to the market acceptance
of PMT's advanced plasma processing systems (primarily the PINNACLE 8000(R)
system). Shipments of these high density, low pressure plasma systems
increased to eight PINNACLE 8000(R) systems and one PINNACLE 8000R(TM) system
in fiscal 1995, compared to three PINNACLE 8000(R) systems and three APEX
7000(R) systems in the twelve months ended December 31, 1994. Product sales
increased to approximately $8.0 million for the ten months ended December 31,
1994 from approximately $4.4 million for the ten months ended December 31,
1993, an increase of 80%. The increase in the ten months ended December 31,
1994 was due primarily to increased sales of systems and MORI(TM) sources, as
well increased sales of spare parts. PMT had no sales of Apex systems during
the six-month period ended June 30, 1996 or during the year ended
41
<PAGE>
December 31, 1995, and expects that most of its product sales in the near term
will be derived from sales of its newer PINNACLE 8000R(TM) system.
International sales accounted for approximately 76%, 47%, 66% and 66% of
total revenue for the six months ended June 30, 1996, the year ended December
31, 1995, the ten months ended December 31, 1994 and the ten months ended
December 31, 1993, respectively. PMT anticipates that international sales will
continue to account for a significant portion of its total revenue. In
particular, PMT expects that product sales to Japanese and Korean
semiconductor manufacturers will continue to represent a significant
percentage of PMT's revenue through the remaining portion of fiscal 1996;
however, PMT's international sales as a percentage of its total revenue should
decrease in the future from historical levels, as PMT anticipates an increase
in the percentage of its product sales made to domestic customers. In
addition, because of the large unit price associated with PMT's systems, PMT
anticipates that its product sales will continue to be made to a small number
of customers in any given quarter. See Note 1 of Notes to Consolidated
Financial Statements.
License Revenue. PMT has entered into licensing agreements with Leybold,
Canon Sales and NEC Anelva which grant certain rights for the use of PMT's
MORI(TM) technology. These agreements provide for an initial lump-sum license
payment and generally provide the licensee with the right, upon making further
payments, to expand the scope of the license. See "Business--Business of PMT--
Research, Development and Engineering."
PMT received no license revenues in the six months ended June 30, 1996,
compared to $400,000 for the six months ended June 30, 1995, because all
revenues due to PMT under its existing license agreements have been paid. For
the year ended December 31, 1995, license revenue was $400,000 compared to
$700,000 for the twelve months ended December 31, 1994. For the ten months
ended December 31, 1994, license revenue was $700,000 compared to $1.9 million
for the ten months ended December 31, 1993. PMT does not anticipate the
receipt of any additional license revenue for at least the next twelve months.
However, PMT may enter into additional license agreements as it deems
appropriate in order to broaden the applications of its MORI(TM) technology,
or to improve PMT's market penetration.
Contract Revenues. In March 1996, PMT entered into an agreement with a PMT-
sponsored limited partnership, owned by third party investors, except for
PMT's minority interest in the partnership, for the development and
distribution of an intermetal dielectric CVD system based on PMT's MORI(TM)
technology. Under the agreement, PMT is paid by the partnership for research
and development services rendered to the partnership. Approximately $849,000
was recognized as revenues for research and development charged to the
partnership during the first six months of fiscal 1996.
Gross Margin on Product Sales. PMT's gross margin on product sales has
historically fluctuated and has been dependent primarily on the channels
through which sales are made in a particular period. In general, sales through
PMT's direct sales staff are normally made at higher selling prices than those
made through PMT's distributor and OEM channels. PMT's gross margin on product
sales increased to 49% for the six months ended June 30, 1996, as compared to
47% for the six months ended June 30, 1995. The improved margin is
attributable principally to the higher sales volume which resulted in
increased production efficiencies and to higher average selling prices. PMT's
gross margin on product sales was approximately 47% in fiscal 1995 as compared
to 34% for the twelve months ended December 31, 1994, approximately 33% for
the ten months ended December 31, 1994, and 27% for the ten months ended
December 31, 1993. The increase in the margin for 1995 and 1994 is
attributable to an increase in units shipped through PMT's direct sales staff,
which resulted in improved production efficiencies, and to a higher average
selling price.
Research and Development Expenses. PMT believes that to remain in a strong
technological position in the industry, it is critical to continue to make
substantial investments in research and development. As PMT's revenue have
increased, its research and development expenses have become a smaller
percentage of total revenue. Research and development expenses including
expenses related to contract revenues, for the six months ended June 30, 1996
were $3.6 million, or 19% of net revenues, compared to $2.0 million, or 27% of
net revenues, for the six months ended June 30, 1995. PMT spent $4.6 million
or 22% of total revenue on research
42
<PAGE>
and development related activities in fiscal 1995. The dollar increases in
expenses are attributable principally to PMT's continued investment in further
expanding MORI(TM) technology to develop new processes to meet customer
requests and requirements. This compared to $4.2 million or 40% of total
revenue in the twelve months ended December 31, 1994, $3.6 million or 41% of
total revenue for the ten months ended December 31, 1994, and $2.2 million or
35% of total revenue for the ten months ended December 31, 1993. The major
focus of PMT's research and development efforts during fiscal 1995 was using
PMT's proprietary plasma source technology to develop new processes for
advanced etch requirements. This led to the development and introduction into
production in December 1995 of an integrated stack etch process for an EEPROM
device and the foundation for development programs in Korea and Japan.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the six months ended June 30, 1996 were $4.3
million, or 23% of net revenues, compared to $2.7 million, or 37% of net
revenues, for the six months ended June 30, 1995. The increased expense was
due primarily to the continued growth in the organization's selling and
customer support centers and to PMT's Korean subsidiary's need to hire
additional employees in order to comply with the Korean semiconductor
manufacturers' requirement of having direct local representation for sales and
support. Selling, general and administrative expenses were $5.9 million or 28%
of total revenue in fiscal 1995. This compared to $3.9 million or 37% of total
revenue in the twelve months ended December 31, 1994, $3.4 million or 39% of
total revenue for the ten months ended December 31, 1994, and $1.7 million or
27% of total revenue for the ten months ended December 31, 1993. These dollar
increases are primarily due to the expansion of PMT's customer service
department to support the increased number of systems (including evaluation
systems) that were installed at customer sites worldwide. In addition, PMT
incurred increased selling expenses associated with the expansion of its sales
organization. As a percentage of sales, these expenses have become a smaller
percentage of revenue due to increased revenue. PMT anticipates that selling,
general and administrative expenses will grow in relation to the growth in
revenues.
Income (Loss) from Operations. For the six months ended June 30, 1996, PMT
realized $1.8 million in income from operations, or 9% of total revenue for
such period, as compared to a loss of $1.0 million, or 14% of such total
revenue for the six months ended June 30, 1995. PMT realized a $364,000 loss
from operations, or 2% of total revenue in fiscal 1995, as compared with a
$4.1 million loss from operations, or 39% of total revenue in the twelve
months ended December 31, 1994. As a percentage of total revenue, the
operating loss has decreased due to the growth in revenue in addition to the
decrease in operating expenses as a percentage of total revenue. For the ten
months ended December 31, 1994, PMT sustained a $3.7 million loss from
operations, or 42% of revenue, as compared with a $757,000 loss from
operations, or 12% of total revenue, for the ten months ended December 31,
1993. As a percentage of total revenue, the operating loss increased due to
the expansion of PMT's research, sales and service departments.
Interest Income (Expense). For the six months ended June 30, 1996, interest
income increased to approximately $884,000, as compared to $29,000 for the six
months ended June 30, 1995. Interest income increased to $777,000 in fiscal
1995 from $143,000 in the twelve months ended December 31, 1994, an increase
of 443%. The increase in interest income was due to income derived from the
proceeds of PMT's Initial Public Offering and resulted in PMT's profitability
in fiscal 1995, notwithstanding a $364,000 loss from operations. Interest
income increased to $125,000 for the ten months ended December 31, 1994 from
$15,000 in the ten months ended December 31, 1993, an increase of 733%, as
larger cash balances generated increased interest income.
Interest expense increased to $294,000 in 1995 from $159,000 in the twelve
months ended December 31, 1994, an increase of 85%. This was due to higher
capital lease expenses combined with the utilization of a revolving bank line
of credit in the first two quarters of fiscal year 1995. For the ten months
ended December 31, 1994, interest expense of $146,000 decreased 31% compared
to $213,000 the ten months ended December 31, 1993 due to the limited use of
the line of credit.
Income Taxes. For the six-month periods ended June 30, 1996 and 1995, the
year ended December 31, 1995 and the ten months ended December 31, 1994, PMT
has paid and provided for no or nominal amounts of income taxes due to
operating losses incurred or the utilization of net operating loss
carryforwards and the related
43
<PAGE>
reduction in valuation reserves. The provision for income taxes in each period
differs from the statutory federal rate of 35% due to either the reduction of
the valuation allowance attributed to the utilization of the net operating
loss carryforwards or net operating losses incurred and not benefited. As of
December 31, 1995, PMT had research and development credit carryforwards of
approximately $800,000 and $300,000 for federal and state tax purposes,
respectively, that expire at various dates through 2010. PMT also had net
operating loss carryforwards at December 31, 1995, for federal and state
income tax purposes, of approximately $5.4 million and $2.7 million,
respectively, which expire at various dates through 2008. PMT's utilization of
its net operating loss and credit carryforwards depends upon future income and
is subject to an annual limitation, required by the Internal Revenue Code of
1986 and similar state provisions. See Note 6 of Notes to Consolidated
Financial Statements.
Net Income (Loss). Net income for the six months ended June 30, 1996 was
$2.6 million, compared to a loss of $1.2 million for the six month period
ended June 30, 1995. Net income in fiscal year 1995 was approximately
$100,000, compared to a net loss of $4.1 million in the twelve months ended
December 31, 1994. The net income realized in 1995 was due primarily to the
$777,000 in interest income earned from the investment of Initial Public
Offering proceeds and the management of costs in relation to revenue in 1995.
Net loss in the ten months ended December 31, 1994 was $3.7 million as
compared to a $1.0 million loss in the ten months ended December 31, 1993 due
to the increase in PMT's operating expenses during the 1994 period.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, PMT had $23.6 million in cash, cash equivalents and short-
term investments, compared to $38.8 million at December 31, 1995. This $15.2
million decrease was primarily due to increases in inventory and accounts
receivable. In addition, $4.8 million was invested in capital equipment as PMT
used funds to expand its applications laboratory to support process
development and customer demonstrations.
At June 30, 1996, there were no borrowings outstanding under the revolving
credit line, and $3,000,000 was available for borrowings under that agreement.
The agreement has been recently extended and presently runs through June 5,
1997. The agreement places certain restrictions on PMT which, among other
things, prohibit PMT from paying cash dividends or repurchasing its stock, and
requires PMT to comply with certain financial ratios and covenants. PMT is
currently in compliance with all covenants and restrictions contained in the
revolving line of credit. PMT also has a $3,000,000 equipment leasing facility
that runs through December 30, 1996. At June 30, 1996 there were no borrowings
under the equipment leasing facility.
PMT anticipates that it will spend approximately $6.8 million for capital
expenditures during fiscal 1996, of which $4.8 million has been invested in
capital equipment during the first six months of 1996. This is expected to
include investments in demonstration and test equipment, information systems,
and other capital items that should enable PMT to expand its ability to
support and develop new products and services. In addition, PMT expects to
increase its investment in inventory of evaluation systems at customer sites.
In March 1996, PMT sponsored a partnership with certain third-party
investors to fund research and development costs and expenses relating to CVD
technology and applications. Third-party investors invested an aggregate of
approximately $5,350,000 in the partnership, which aggregate amount is
available to fund such costs and expenses. See "Business--Business of PMT--
Research, Development and Engineering" and Note 13 to "Notes to Consolidated
Financial Statements."
While PMT's cash requirements will fluctuate based on the timing and extent
of the normal operation of the business, PMT believes that cash generated from
operations, together with the existing cash, cash equivalents, short-term
investments and borrowings under existing bank lines should be sufficient to
support its stand alone operations over the next 12 months, although there can
be no assurance in that regard.
In connection with the consummation of the Acquisition, and to satisfy the
Working Capital Condition, PMT anticipates the establishment of the Working
Capital Facility which will be consistent with the requirements
44
<PAGE>
of the Working Capital Condition. PMT believes that cash provided or available
from the Working Capital Facility and other sources of capital available to
PMT, including cash on hand, will be sufficient to support PMT's liquidity
needs over the next 12 months, including the working capital needs of PMT and
Electrotech on a going forward basis, although there can be no assurance in
that regard. See "Proposal No. 1--The Acquisition--Terms of the Acquisition
and Related Transactions--Terms of the Financing Arrangement; Working
Capital."
IMPACT OF INFLATION
Although PMT cannot accurately anticipate the effect of inflation on its
operations, to date inflation has not had a material effect on PMT's product
sales or results of operations.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
("SFAS No. 121"), which will be effective for PMT's fiscal year ending
December 31, 1996. SFAS No. 121 requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are
presented and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. SFAS No. 121 also addresses
the accounting for long-lived assets that are expected to be disposed of. PMT
adopted SFAS No. 121 for the annual reporting period of fiscal 1996 during the
first quarter ended March 31, 1996. No adjustments are required with respect
to such action.
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, Accounting for Awards of Stock-Based Compensation to Employees ("SFAS
No. 123"), which will be effective for PMT's fiscal year ending December 31,
1996. SFAS No. 123 provides alternative accounting treatment to APB No. 25
with respect to stock-based compensation and requires certain additional
disclosures, including disclosures if PMT elects not to adopt the accounting
requirements of SFAS No. 123. PMT intends to make the additional disclosure
requirements of SFAS No. 123 for the annual reporting period of fiscal 1996,
but will elect to continue to measure compensation costs following present
accounting rules under APB No. 25. Consequently, PMT will provide pro forma
disclosures of what net income and earnings per share would have been had the
fair market value method of SFAS No. 123 been used for the relevant periods.
45
<PAGE>
SELECTED COMBINED FINANCIAL DATA OF ELECTROTECH
The selected combined financial data presented below for the fiscal years
ended June 30, 1993, and as of and for each of the three years ended June 30,
1994, 1995, and 1996 are derived from audited combined financial statements of
Electrotech, which have been audited by Ernst & Young Chartered Accountants,
independent auditors, and, except with respect to the June 30, 1993 financial
statements, are contained elsewhere in this Proxy Statement. The selected
combined financial data presented below as of June 30, 1993 and as of and for
the year ended June 30, 1992 are derived from unaudited combined financial
statements of Electrotech, which are not contained in this Proxy Statement.
The combined financial statements below are presented in British pounds
sterling. For reference purpose, the Noon Buying Rate was U.S.$1.57 =
(Pounds)1 on September 5, 1996. All of the selected combined financial data
below is prepared under accounting principles generally accepted in the United
Kingdom ("UK GAAP"), which differ in certain respects from United States
generally accepted accounting principles ("US GAAP"). The selected combined
financial data set forth below is qualified in its entirety by, and should be
read in conjunction with, Electrotech's combined financial statements and
related notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Electrotech," which are included
elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------------------------
1992 1993 1994 1995 1996
-------------- -------------- -------------- -------------- --------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C> <C> <C>
COMBINED PROFIT AND LOSS
ACCOUNT DATA:
Sales................... (Pounds)13,919 (Pounds)16,547 (Pounds)23,807 (Pounds)34,496 (Pounds)49,012
Cost of sales........... 6,790 7,967 11,496 17,014 23,406
-------------- -------------- -------------- -------------- --------------
Gross profit............ 7,129 8,580 12,311 17,482 25,606
Operating expenses:
Research and
development........... 2,207 2,365 3,332 4,421 6,674
Administrative
expenses.............. 6,764 4,659 7,161 8,615 8,295
-------------- -------------- -------------- -------------- --------------
Total operating
expenses............... 8,971 7,024 10,493 13,036 14,969
Operating profit (loss). (1,842) 1,556 1,818 4,446 10,637
Profit on disposal of
businesses(1).......... 4,652 -- -- 5,040 --
-------------- -------------- -------------- -------------- --------------
Profit on ordinary
activities before
interest............... 2,810 1,556 1,818 9,486 10,637
Interest payable, net... (376) (95) (255) (438) (609)
-------------- -------------- -------------- -------------- --------------
Profit on ordinary
activities before
taxation............... 2,434 1,461 1,563 9,048 10,028
Tax charge on profit on
ordinary activities.... 1,110 627 574 3,530 3,721
-------------- -------------- -------------- -------------- --------------
Profit for the period... (Pounds) 1,324 (Pounds) 834 (Pounds) 989 (Pounds) 5,518 (Pounds) 6,307
============== ============== ============== ============== ==============
</TABLE>
- --------
(1) Represents the profits, before taxes, recognized on the sales of Surface
Technology Systems Limited during the fiscal year ended June 30, 1995 and
the sale of Plasma Products Limited during the fiscal year ended June 30,
1992.
<TABLE>
<CAPTION>
AS OF JUNE 30,
-------------------------------------------------------------------------
1992 1993 1994 1995 1996
------------- -------------- -------------- -------------- --------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C> <C> <C>
COMBINED BALANCE SHEET
DATA:
Working capital......... (Pounds)8,173 (Pounds)10,075 (Pounds)10,547 (Pounds)14,035 (Pounds)16,422
Total assets............ 18,615 22,093 28,005 38,339 51,030
Long-term obligations... 1,097 2,559 1,932 1,339 948
Total shareholders'
equity................. 12,884 13,836 14,844 20,401 26,621
</TABLE>
46
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF ELECTROTECH
The following discussion should be read in conjunction with the combined
financial statements of Electrotech and notes thereto and "Selected Combined
Financial Data of Electrotech" included elsewhere in this Proxy Statement. The
combined financial statements of Electrotech combine the consolidated
financial statements of each of ET and ETE, which are subject to common
control. The financial information for Electrotech has been prepared in
accordance with UK GAAP and in British pounds. See Note 29 of the notes to the
Electrotech combined financial statements for a reconciliation to US GAAP for
selected financial information.
BACKGROUND
A privately-owned company, Electrotech was founded in 1968 by three
scientists from the European research division of ITT as a small manufacturer
of vacuum accessories. By 1980, the core technologies of Electrotech had been
developed to address plasma etch (1975), plasma enhanced CVD (1978) and PVD
(1980). Electrotech opened sales offices in the U.S. and continental Europe
markets in the 1970's, appointed its first sales agents in Japan in 1983 and,
thereafter, expanded into other areas of the Asia/Pacific region.
In 1995, Electrotech sold its Surface Technology Systems Limited ("STS")
subsidiary to Sumitomo Precision Products Co. Limited, resulting in a gain of
(Pounds)5.0 million, before taxes, in the fiscal year ended June 30, 1995. The
proceeds from the sale of STS were used to fund a portion of a major expansion
program which included a move in 1996 into new corporate and manufacturing
headquarters in Newport, South Wales.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
total revenues represented by certain line items in the combined profit and
loss accounts related to the operations of Electrotech:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
-------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Sales...................................................... 100.0% 100.0% 100.0%
Cost of sales.............................................. 48.3 49.3 47.8
----- ----- -----
Gross margin............................................... 51.7 50.7 52.2
Research and development expenses.......................... 14.0 12.8 13.6
Administrative expenses.................................... 30.1 25.0 16.9
----- ----- -----
Total operating expenses................................... 44.1 37.8 30.5
Profit on disposal of business............................. -- 14.6 --
----- ----- -----
Profit on ordinary activities before interest.............. 7.6 27.5 21.7
Interest payable, net...................................... (1.1) (1.3) (1.2)
----- ----- -----
Profit on ordinary activities before taxation.............. 6.5 26.2 20.5
Tax charge on profit on ordinary activities................ 2.4 10.2 7.6
----- ----- -----
Profit for the period...................................... 4.1 16.0 12.9
===== ===== =====
</TABLE>
COMPARISON OF THE YEAR ENDED JUNE 30, 1996 TO THE YEAR ENDED JUNE 30, 1995
REVENUES
Total revenues were (Pounds)49.0 million for the year ended June 30, 1996
compared to (Pounds)34.5 million for the year ended June 30, 1995, an increase
of 42.0%. Total revenues included sales of (Pounds)3.8 million for the year
ended June 30, 1995 and no sales in the comparable period in fiscal 1996
related to STS.
47
<PAGE>
The increase in revenues is primarily due to sales of Sigma products. Units
shipped increased to 17 Sigma systems and five Forcefill(TM) modules in the
year ended June 30, 1996, compared to 15 Sigma systems and four Forcefill(TM)
modules in the year ended June 30, 1995. Revenues from these products were
(Pounds)26.5 million, representing 54.2% of total revenues in the year ended
June 30, 1996 compared to revenues of (Pounds)18.0 million, representing 57.9%
of total revenues (less STS revenues) in the year ended June 30, 1995.
Revenues from the sales of Sigma products increased by 47.2% between the two
years. The increase in revenues of approximately 47% from the sale of Sigma
products from year to year was primarily due to higher unit selling prices and
a reduction in the number of sales made through distributors.
Revenues from sales of Planar 200 Flowfill(TM) products were (Pounds)4.6
million for the year ended June 30, 1996 and (Pounds)1.5 million for the year
ended June 30, 1995, an increase of 206%. Six Planar 200 Flowfill(TM) systems
were shipped during the year ended June 30, 1996, compared to the shipment of
two such systems during the year ended June 30, 1995.
Revenues from sales of Omega(TM) and Delta products were (Pounds)7.3 million
and (Pounds)2.1 million for the year ended June 30, 1996 and were (Pounds)2.0
million and (Pounds)1.1, respectively, for the year ended June 30, 1995, an
increase of 265% and 91%, respectively, between the two periods. During the
year ended June 30, 1996, 14 Omega(TM) etch systems and five Delta systems
were shipped, compared to four Omega(TM) systems and four Delta systems,
respectively, during the year ended June 30, 1995. Unit prices on Delta
systems have significantly improved from year to year.
GROSS MARGIN
Electrotech's gross margin was 52.2% in the year ended June 30, 1996 and
50.7% in the year ended June 30, 1995. Excluding sales and related costs of
sales of STS, the gross margin for the year ended June 30, 1995 was 51.9%. The
gross margins achieved by Electrotech were influenced primarily by changes in
product mix. Overall gross margins are also influenced by the portion of total
sales which are sold through distributors at reduced sales prices and the
impact of currency exchange rates on sales denominated in currencies other
than pounds sterling.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses include costs associated with the
definition, design and development of new products. Research and development
expenses were (Pounds)6.7 million for the year ended June 30, 1996, compared
to (Pounds)4.4 million for the year ended June 30, 1995 (including (Pounds)0.3
million of STS expenses), an increase of 63.4% (excluding STS expenses). This
increase is primarily due to increased development costs on Forcefill(TM) and
Flowfill(TM) technologies, including an expenditure of (Pounds)1.0 million on
machines dedicated to research and development having an estimated useful life
of less than one year.
Electrotech considers its research and development activities to be crucial
to its future success and, therefore, expects its research and development
expenditures to continue to rise in monetary terms, although not necessarily
as a percentage of sales.
ADMINISTRATIVE EXPENSES
Administrative expenses consist of personnel costs and overhead for
administration, finance, sales and marketing, information systems, human
resources and general management. Administrative expenses were
(Pounds)8.3 million during the year ended June 30, 1996 compared to
(Pounds)8.6 million during the year ended June 30, 1995, a decrease of 3.7%
over such periods. Excluding administrative expenses and non-recurring
expenditures associated with the sale of STS, administrative expenses were
(Pounds)7.1 million during the year ended June 30, 1995. Significant
variations in expenditure between the two periods were in payroll costs, which
increased to (Pounds)3.4 million from (Pounds)2.8 million, an increase of
21.4%, and travel costs which increased to (Pounds)2.1 million from
(Pounds)1.5 million, an increase of 40%. Included in administrative expenses
for the year ended June 30, 1996 were currency exchange gains of
(Pounds)604,000 compared to currency exchange losses of (Pounds)73,000 for the
year ended June 30, 1995.
48
<PAGE>
In January 1996, Electrotech commenced partial occupation of new leased
premises in Newport, South Wales. Electrotech anticipates that the property
will be fully occupied by early 1997. Following full occupation of the
property the rental charge and depreciation of improvements will increase
administrative expenses by approximately (Pounds)1.2 million per annum.
Management anticipates that general and administrative expenses will continue
to increase in support of planned business expansion in markets outside the
United Kingdom.
INTEREST EXPENSE, NET
Net interest expense was (Pounds)609,000 in the year ended June 30, 1996
compared to (Pounds)438,000 in the year ended June 30, 1995, an increase of
39.0% over such periods. The increase was primarily due to increased working
capital requirements necessary to fund the expansion of the business.
INCOME TAX EXPENSE
Income tax expense was (Pounds)3.7 million in the year ended June 30, 1996
compared to (Pounds)3.5 million in the year ended June 30, 1995, an increase
of 5.7% over such periods. The effective tax rates were 37.1% and 39.0%,
respectively. The high effective tax rate for the year ended June 30, 1995 was
primarily due to a larger portion of earnings arising in countries with a
higher effective tax rate than the U.K.
COMPARISON OF THE YEAR ENDED JUNE 30, 1995 TO THE YEAR ENDED JUNE 30, 1994
REVENUES
Total revenues, exclusive of STS revenues, were (Pounds)30.7 million in the
fiscal year ended June 30, 1995 compared to (Pounds)18.4 million in the year
ended June 30, 1994, an increase of 66.9%. The increase in revenues was
primarily attributable to increased sales of Sigma products. Shipments
increased to 15 Sigma systems and four Forcefill(TM) modules in fiscal 1995,
compared to four Sigma systems and one Forcefill(TM) module in fiscal 1994.
Revenues from these products were (Pounds)18.0 million in fiscal 1995 compared
to (Pounds)5.2 million in fiscal 1994, an increase of 246.2%.
Revenues from sales of Planar 200 Flowfill(TM) products were (Pounds)1.5
million for the year ended June 30, 1995 and (Pounds)1.3 million for the year
ended June 30, 1994. Two Planar 200 Flowfill(TM) systems were shipped in each
of fiscal year 1995 and 1994.
Revenues from sales of Omega(TM) and Delta products in fiscal 1995 were
(Pounds)2.0 million and (Pounds)1.1 million, respectively, compared to
(Pounds)2.7 million and (Pounds)631,000, respectively, in fiscal 1994, a
decrease of 25.9% and an increase of 74.3%, respectively. During fiscal 1995
four Omega(TM) systems and four Delta systems were shipped, compared to five
Omega(TM) systems and two Delta systems in fiscal 1994.
Revenues from STS were (Pounds)3.8 million in fiscal 1995, compared to
(Pounds)5.4 million in fiscal 1994.
GROSS MARGIN
Gross margin was 50.7% and 51.7% for the years ended June 30, 1995 and 1994,
respectively. The gross margins achieved by Electrotech was influenced by
changes in product mix, the portion of total sales which are sold through
distributors at reduced sales prices and the impact of currency exchange rates
on sales denominated in currencies other than pounds sterling.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses, exclusive of expenses of STS, were
(Pounds)4.1 million in the year ended June 30, 1995, compared to (Pounds)2.8
million in the year ended June 30, 1994, an increase of 46.4%. The increased
expenditure was primarily attributable to research and development of the
Forcefill(TM) and Flowfill(TM) technologies. Research and development expenses
as a percentage of revenues were 12.8% in fiscal 1995 compared with 14.0% in
fiscal 1994.
49
<PAGE>
ADMINISTRATIVE EXPENSES
Administrative expenses, exclusive of expenses of STS, were (Pounds)7.5
million in the year ended June 30, 1995 compared to (Pounds)5.4 million in the
year ended June 30, 1994. Excluding a non-recurring expenditure associated
with the sale of STS, administrative expenses in fiscal 1995 amounted to
(Pounds)7.1 million, an increase of 31.5% from fiscal 1994.
INTEREST EXPENSE, NET
Net interest expense was (Pounds)438,000 and (Pounds)255,000 in the fiscal
years ended June 30, 1995 and 1994, respectively. The increases were primarily
due to increased working capital requirements due to the expansion of the
business.
INCOME TAX EXPENSE
Worldwide income tax expense was (Pounds)3.5 million in the fiscal year
ended June 30, 1995. This amount included (Pounds)2.0 million in respect of
the gain on the sale of STS. The effective tax rate was 39.0% in the year
ended June 30, 1995. Income tax expense was (Pounds)574,000 in fiscal 1994, an
effective tax rate of 36.7%.
WORLDWIDE TAX EXPENSE
ET and ETE each operate as a holding company. ET and its subsidiaries
operate in the United Kingdom. ETE has operating subsidiaries in several
countries, and each subsidiary is taxed based on the laws of the jurisdiction
in which it operates. Because taxes are incurred at the subsidiary level, and
one subsidiary's tax losses cannot be used to offset the taxable income of
subsidiaries in other jurisdictions, ETE's consolidated effective tax rate may
increase to the extent it reports tax losses in some subsidiaries and taxable
income in others. The subsidiaries are subject to taxation in countries where
they operate, and such operations generally are taxed at rates similar to or
higher than tax rates in the United Kingdom. The payment of dividends or
distributions by the subsidiaries to ETE would be subject to withholding taxes
in the country of domicile and may be mitigated under the terms of relevant
double tax treaties with the United Kingdom.
LIQUIDITY AND CAPITAL RESOURCES
To date, Electrotech has funded its operations principally through cash flow
from operations and short- and medium-term bank borrowings. At June 30, 1996,
Electrotech had (Pounds)2.1 million of cash, a bank revolving credit line of
(Pounds)8 million (of which (Pounds)7.9 million was outstanding), including
bank guaranties made on behalf of Electrotech, and a medium-term bank loan of
(Pounds)800,000. Electrotech's revolving credit line expired on March 31,
1996, though such line has been orally extended by the lender pending the
outcome of the Acquisition.
Net cash provided by operating activities was (Pounds)4.9 million for the
year ended June 30, 1996 against a net outflow from operating activities of
(Pounds)3.3 million in the year ended June 30, 1995. Net cash outflows from
operating activities were (Pounds)2.7 million in fiscal 1994. The net cash
inflows and outflows from operating activities reflect movements in the
working capital of Electrotech.
Net cash used in investing activities was (Pounds)4.8 million in the year
ended June 30, 1996. This was primarily due to capital expenditure at the new
premises at Newport, South Wales. There was a net cash inflow from investing
activities of (Pounds)4.1 million in the year ended June 30, 1995, comprised
of an inflow of (Pounds)6.6 million from the sale of STS less capital
expenditures of (Pounds)2.5 million. The net cash used in investing activities
was (Pounds)745,000 in fiscal 1994. Net cash used in financing activities was
(Pounds)188,000 in the year ended June 30, 1996. Net cash used in financing
activities was (Pounds)400,000 in both fiscal 1995 and fiscal 1994. All cash
used in financing relates to repayments made against the medium-term bank
loan.
Due to recent growth in Electrotech's sales and its development of new
products, Electrotech's existing facilities have reached their capacity limit.
Electrotech has leased a 102,000 square foot facility into which it
50
<PAGE>
moved certain of its sales, customer support and financing operations in
January 1996. Approximately 20,000 square feet of the facility are currently
in use, and the remaining space is being built out with a view to full
occupancy in early 1997. The rental of the new premises is (Pounds)500,000 per
annum.
Electrotech expects to incur capital expenditure of approximately
(Pounds)5.5 million during the next 12 months of which approximately
(Pounds)4.0 million will relate to build out of the new facility.
Assuming that the Acquisition is not consummated, as a stand alone entity,
Electrotech will likely need to obtain additional debt or equity financing to
fund its future working capital obligations and cash flow needs.
51
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma financial information presented below should be read
in conjunction with the notes hereto and the separate financial statements of
PMT and Electrotech presented elsewhere in this Proxy Statement.
UNAUDITED PRO FORMA BALANCE SHEET OF PMT AND ELECTROTECH
COMBINED AS OF JUNE 30, 1996
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
PMT ELECTROTECH ADJUSTMENTS COMBINED
------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......... $ 8,475 $ 3,219 $ 65,000 $ 8,293
(65,000)
(3,401)
Short-term investments............ 15,099 -- (15,099) --
Accounts receivable............... 16,592 26,975 -- 43,567
Inventories....................... 12,885 27,029 -- 39,914
Demonstration inventory........... 3,078 -- -- 3,078
Other current assets.............. 586 5,099 -- 5,685
------- ------- -------- --------
Total current assets............ 56,715 62,322 (18,500) 100,537
Property, equipment and leasehold
improvements--net.................. 8,640 14,265 1,000 23,905
Developed technology................ -- -- 45,900 45,900
In-process technology............... -- -- 81,000 --
(81,000)
Assembled workforce................. -- -- 7,000 7,000
Covenant not to compete............. -- -- 500 500
Goodwill............................ -- -- 1,688 1,688
Other assets........................ 1,626 28 -- 1,654
------- ------- -------- --------
Total assets.................... $66,981 $76,615 $ 37,588 $181,184
======= ======= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving line of credit and bank
overdrafts....................... $ -- $12,564 $ -- $ 12,564
Accounts payable and accrued
expenses......................... 8,888 7,237 -- 16,125
Warranty expense.................. 694 1,716 -- 2,410
Customer deposits................. -- 4,307 -- 4,307
Accrued salaries and related
liabilities...................... 306 992 -- 1,298
Current portion of capital lease
obligations...................... 510 995 -- 1,505
Other accrued liabilities......... -- 6,301 -- 6,301
Income taxes payable.............. -- 5,197 -- 5,197
------- ------- -------- --------
Total current liabilities....... 10,398 39,309 -- 49,707
Long-term debt and capital lease ob-
ligations.......................... 434 1,457 -- 1,891
Convertible subordinated notes...... -- -- 65,000 65,000
Deferred income taxes............... -- 950 17,787 18,737
------- ------- -------- --------
Total liabilities............... 10,832 41,716 82,787 135,335
Shareholders' equity:
Common stock:
PMT............................... 61,090 -- 70,700 131,790
Electrotech....................... -- 17 (17) --
Retained earnings (accumulated defi- (4,941) 34,882 (34,882) (85,941)
cit)............................... (81,000)
------- ------- -------- --------
Total shareholders' equity...... 56,149 34,899 (45,199) 45,849
------- ------- -------- --------
Total liabilities and share-
holders' equity.............. $66,981 $76,615 $ 37,588 $181,184
======= ======= ======== ========
</TABLE>
52
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS OF
PMT AND ELECTROTECH
FOR THE TWELVE MONTH PERIOD ENDED DECEMBER 31, 1995
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
PMT ELECTROTECH ADJUSTMENTS COMBINED
------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Sales.............................. $20,890 $54,383 $ -- $75,273
License revenue.................... 400 -- -- 400
------- ------- -------- -------
Total revenues.................... 21,290 54,383 -- 75,673
Operating costs and expenses:
Costs of goods sold................ 11,144 26,063 -- 37,207
Research and development........... 4,567 8,402 -- 12,969
Sales, general and administrative.. 5,944 12,194 -- 18,138
Amortization of intangibles........ -- -- 5,817 5,817
------- ------- -------- -------
Total............................. 21,655 46,659 5,817 74,131
------- ------- -------- -------
Operating income (loss)............. (365) 7,724 (5,817) 1,542
Other income and expense:
Interest income.................... 777 294 (740) 331
Interest expense................... (293) (959) (4,875) (6,127)
Profit on disposal of business..... -- 7,812 -- 7,812
------- ------- -------- -------
484 7,147 (5,615) 2,016
------- ------- -------- -------
Income (loss) before income tax
provision.......................... 119 14,871 (11,432) 3,558
Income tax provision................ 1 5,966 (1,831) 4,136
------- ------- -------- -------
Net income (loss)................... $ 118 $ 8,905 $ (9,601) $ (578)
======= ======= ======== =======
Net income (loss) per PMT share..... $ 0.02 $ (0.05)
======= =======
Number of shares outstanding, in
thousands.......................... 6,593 5,600 12,193
</TABLE>
53
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS OF
PMT AND ELECTROTECH
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1996
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
PMT ELECTROTECH ADJUSTMENTS COMBINED
------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Product sales..................... $17,946 $47,348 $ -- $65,294
Contract revenue.................. 849 -- -- 849
------- ------- ------- -------
18,795 47,348 -- 66,143
Operating costs and expenses:
Cost of sales..................... 9,127 22,456 -- 31,583
Research and development.......... 3,560 5,660 -- 9,220
Sales, general and administrative. 4,267 7,239 -- 11,506
Amortization of intangibles....... -- -- 2,909 2,909
------- ------- ------- -------
Total........................... 16,954 35,355 2,909 55,218
------- ------- ------- -------
Operating income.................... 1,841 11,993 (2,909) 10,925
Other income and expense:
Interest income................... 884 299 (370) 813
Interest expense.................. (91) (927) (2,438) (3,456)
------- ------- ------- -------
793 (628) (2,808) (2,643)
Income before income taxes.......... 2,634 11,365 (5,717) 8,282
Provision for income taxes.......... 13 4,274 (915) 3,372
------- ------- ------- -------
Net income.......................... $ 2,621 $ 7,091 $(4,802) $ 4,910
======= ======= ======= =======
Net income per PMT share............ $ 0.29 $ 0.33
======= =======
Number of shares outstanding, in
thousands.......................... 9,131 5,600 14,731
</TABLE>
The accompanying unaudited pro forma financial statements include
adjustments for the allocation of the purchase price to the underlying assets
and liabilities as discussed below, the issuance of Common Stock, the
elimination of Electrotech's equity in combination of the two companies,
depreciation and amortization of the amounts allocated to various assets and
liabilities acquired and a reduction of interest income and increase in
interest expense associated with the reduction of cash and the issuance of the
Convertible Notes in connection with the Acquisition.
The unaudited pro forma financial information presented above combines the
June 30, 1996 balance sheets of PMT and Electrotech and the statements of
operations for the twelve month period ended December 31, 1995 and the six
month period ended June 30, 1996 on a pro forma basis. This pro forma
combination gives effect to the following assumptions:
. That the Acquisition occurred on June 30, 1996 for the unaudited pro
forma balance sheet.
. That the Acquisition occurred as of the beginning of each statement of
operations presentation with the allocation of the purchase price
estimated based on the June 30, 1996 unaudited combined balance sheet of
Electrotech.
. That the Acquisition would be accounted for as a purchase.
. That the purchase price paid by PMT to acquire Electrotech would be
approximately $154.2 million, consisting of $75 million in cash, 5.6
million shares of Common Stock valued at $12.625 per share, and that the
estimated transaction and financing costs would be $8.5 million. The
valuation of Common Stock is based on the $12.625 per share closing price
of Common Stock on July 17, 1996, the last day prior to the public
announcement of the parties' agreement to acquisition terms.
54
<PAGE>
. That $65 million of cash required to consummate the Acquisition would be
financed through the issuance of Convertible Notes, which will bear
interest at 7.5% per annum. The actual amount financed and the terms of
the financing may differ from the amount used in the pro forma financial
statements.
. That the excess of the purchase price including the estimated transaction
and financing costs, over the net shareholders' equity of Electrotech
would be allocated to the following assets and liabilities and that the
amounts allocated would be amortized over the following time periods:
<TABLE>
<CAPTION>
AMOUNT
ITEM ($000) AMORTIZATION PERIOD
---- ------- -------------------
<S> <C> <C>
Fixed assets
. Land and buildings........... $ 1,000 Twelve years for buildings
Intangible assets
. Developed technology......... 45,900 Ten years
. Assembled workforce.......... 7,000 Eight years
. In-process technology........ 81,000 100% immediately following
the Acquisition
. Covenant not to compete...... 500 Three years
. Goodwill..................... 1,688 Ten years
Deferred tax liability.......... 17,787 As utilized based on the above lives
</TABLE>
. The preliminary allocation of the purchase price among identifiable
tangible and intangible assets and liabilities, as reflected in the
accompanying pro forma financial statements, is based on an analysis of
the estimated fair value of those assets and liabilities as of June 30,
1996. The estimated fair market value of the assets acquired may vary
significantly between June 30, 1996 and the Closing.
Purchased in-process technology was analyzed through interviews and
analysis of data concerning each of Electrotech's projects in development
(i.e. Forcefill(TM) and Flowfill(TM)). Expected future cash flows of the
developmental projects were discounted to present value taking into
account risks associated with the inherent difficulties and uncertainties
in completing the projects, and thereby achieving technological
feasibility, and the risks related to potential changes in future target
markets. PMT's expected post-acquisition business strategies were
considered as they relate to Electrotech's current products and projects
in development. Considerable efforts are being applied by Electrotech to
its Forcefill(TM) and Flowfill(TM) projects to attain product
functionality and reliability levels acceptable to their intended target
market.
The write-off of purchased in-process technology is not reflected in the
accompanying unaudited statements of operations as it is a non-recurring
charge. It will be included, however, in the actual consolidated statement
of operations of PMT for the first fiscal quarter in which the Acquisition
occurs.
Using the methodology that was used for in-process technology, expected
future cash flows of the developed technology were discounted taking into
account risks related to the characteristics and application of each
product, existing and future markets, and assessments of the life cycle
stage of each product. This analysis resulted in an estimated value of
$45.9 million for developed technology, which has reached technological
feasibility and therefore would be capitalized.
. For United States income tax purposes, the tax basis of the underlying
assets and liabilities is not adjusted. Accordingly, a deferred tax
liability has been included in the purchase price allocation which
represents the tax effect of the difference in the basis for financial
reporting and tax purposes of the assets, except goodwill, and
liabilities acquired, after considering the effects of the purchase price
allocation. The portion of the tax credit associated with the
amortization of the excess of the recorded basis of the assets is
reflected as a tax benefit in the accompanying pro forma statements of
operations.
55
<PAGE>
. The number of shares used in the computation of earnings per share has
been adjusted to reflect the issuance of 5,600,000 shares of Common Stock
in connection with the Acquisition as if it had occurred at the beginning
of the year presented. Fully dilutive earnings per share data has not
been presented because such data would be anti-dilutive. See note 1 to
the audited Financial Statements of PMT for the year ended December 31,
1995.
It should be noted that the unaudited pro forma financial information:
. Uses a pro forma allocation of the purchase price paid for Electrotech as
shown above; both the allocation of the actual purchase price and the
amortization periods for these amounts are preliminary and subject to
refinement pursuant to completion and updating of valuation studies at
the time of closing.
. Does not give effect to any costs of combining the companies or to any
efficiencies in operations that could be achieved by combining the
companies.
. Does not purport to be indicative either of the results of operations
that would have occurred had the Acquisition been consummated at the
dates indicated, or of the future combined results of operations of the
companies.
. The financial data of PMT for the year ended December 31, 1995 used to
develop the unaudited pro forma combining statement of operations is
derived from the historical audited financial statements of PMT.
. All interim financial data of PMT and Electrotech, and the financial data
of Electrotech for the twelve month period ended December 31, 1995 used
to develop the unaudited pro forma combining balance sheet and statements
of operations is derived from historical unaudited financial statements
of PMT and Electrotech, but in the opinions of management of PMT and
Electrotech, respectively, reflect all adjustments necessary (consisting
only of normal recurring entries) for a fair presentation thereof. The
interim financial data and the financial data for the twelve month period
ended December 31, 1995 for Electrotech have been adjusted to conform
with U.S. generally accepted accounting principles and have been
converted to U.S. dollars using the following U.S. dollar conversion
rates per (Pounds)1 sterling: June 30, 1996--$1.53 and December 31,
1995--$1.55.
56
<PAGE>
BUSINESS
SEMICONDUCTOR INDUSTRY OVERVIEW
The semiconductor industry has experienced significant growth in recent
years due to an increasing demand for semiconductors. This demand has resulted
from the growth of existing markets such as personal computers,
telecommunications, consumer electronics, automotive electronics and office
equipment, as well as the development of applications such as multimedia,
wireless communications and portable computing. The growth in these markets
is, in part, limited by the semiconductor industry's ability to provide
increasing performance (as measured by functionality, processing speed and
memory) at a declining cost per function.
The market demand for higher performance and higher density semiconductor
devices is pushing the limits of semiconductor wafer processing technology. As
customers demand higher processing speeds and greater memory capacity at
reduced costs, semiconductor manufacturers are forced to reduce feature size
in order to provide greater performance on an integrated circuit (IC) of a
given size. ICs are already highly complex, built-up from ten to thirty thin
layers, incorporating submicron (less than 1 micron) feature sizes, and
requiring up to 300 separate processing steps. In the next few years, the
requirements of advanced ICs will increase the number of thin film layers,
reduce film thickness, reduce feature sizes to 0.25 micron and smaller and
increase the number of processing steps. Semiconductor manufacturers must be
able to deliver these more advanced devices while maintaining acceptable
manufacturing performance characteristics, such as high yield and throughput.
SEMICONDUCTOR MANUFACTURING
As ICs have become more complex, both the number and price of process tools
required to manufacture semiconductors have increased. In addition, the higher
complexity of ICs has increased significantly the value added by the
semiconductor manufacturer to the wafer during processing. As a result, the
cost of processed wafers has increased dramatically since the 1980s. The
increased investment required by semiconductor manufacturers, in terms of both
processing equipment cost as well as investment per wafer, has caused these
manufacturers to focus more closely on the performance and cost of ownership
associated with each piece of processing equipment.
Semiconductor manufacturers use a broad range of processing equipment in the
fabrication of ICs to perform a number of complex and repetitive processing
steps, including deposition, photolithography and etch. Deposition is a
process in which a film of either electrically insulating (dielectric) or
electrically conductive material (e.g., metal) is deposited on the surface of
a wafer. The two principal methods of deposition are chemical vapor deposition
(CVD), which uses gaseous sources to deposit insulating or conductive thin
films on the wafer, and physical vapor deposition (PVD or commonly referred to
as "sputtering"), which is used primarily for depositing conductive metals
onto the wafer. Photolithography is then used to imprint complex circuit
patterns onto the wafer using a layer of light sensitive polymer material
known as photoresist. Once photolithography is completed, the wafer then
enters the etch process in which materials are selectively etched away from
areas which are not covered by the photoresist pattern. PMT's processing
equipment has historically targeted the etch process, while Electrotech has
extensive experience in developing and manufacturing equipment for deposition
(both CVD and PVD) and etch.
DEPOSITION TECHNOLOGIES
The driving force behind the development of current and next-generation
deposition technologies is the need for faster semiconductor processing speed
and increased functional complexity of the ICs. This need, together with cost
considerations that require efficient manufacturing technologies, will
continue to determine the equipment selected by semiconductor manufacturers.
As processing speed requirements have increased and the feature sizes of ICs
have decreased, the determining factor in ultra large scale integration IC
speed is no longer transistor switching speed but rather the electrical
properties of the interconnect deposited on the semiconductor. As critical
dimensions shrink below
57
<PAGE>
0.5 micron, speed is limited by the resistance and capacitance of the
interconnection between the transistors. Accordingly, the Semiconductor
Industry Association's "national technology road map" calls for metallization
schemes with lower resistance and dielectric layers with lower dielectric
constants and, accordingly, lower capacitance. Additionally, shrinking feature
size increases the need for flat, or "planarized," layers to permit the
subsequent photoresist patterning of smaller features. Furthermore, at these
reduced geometries it becomes increasingly difficult to successfully establish
vertical conducting connections through the smaller patterned holes, or
"vias," in the insulating layers of the IC, and as conducting lines get closer
together it is more difficult to fill the smaller gaps between them with
insulating material.
Aluminum has traditionally been used as the interconnect in contact holes,
vias and metal layers on an IC. As feature sizes decreased below one micron,
however, traditional aluminum PVD techniques became ineffectual due to their
inability to fill small holes. Device manufacturers were therefore forced to
utilize a process of filling contact holes and vias with tungsten and then
depositing a final interconnect layer of aluminum. This process is much more
complex than traditional aluminum PVD, involves a highly corrosive and
poisonous gas and produces a relatively large number of particles which
decrease yield. Furthermore, the high resistivity of tungsten compromises
device speed. Finally, the drive to increase packing density has led to the
use of vertically "stacked" vias which requires a high level of planarization
of the metal layers, which is difficult to achieve with a tungsten plug
process. These fundamental limitations of tungsten have caused a shift back to
aluminum-based plug and wiring schemes. Toward this end, new process
techniques involving the chemical vapor deposition of aluminum are the subject
of continued research efforts, but, to date, have failed to achieve the high
level of quality and reliability demanded by semiconductor manufacturers.
Electrotech's new Forcefill(TM) technology is designed to replace the
multistep tungsten-fill approach with a single process of aluminum PVD that
both fills and interconnects the gaps with aluminum, resulting not only in
superior performance to the tungsten-plug method but also lower manufacturing
cost, due to reduced equipment requirements. Also, as many semiconductor
manufacturers design ICs with stacked vias, the high planarization of the
Forcefill(TM) process permits such stacking without requiring chemical
mechanical polishing (CMP) of the metal, which would be needed using tungsten-
plug technology.
Prevailing intermetal dielectric deposition technologies include spin on
glass (SOG) and high density plasma (HDP) deposition followed by CMP.
Electrotech offers its Flowfill(TM) single-step CVD process that eliminates
the need for CMP on some device types. SOG requires single or multiple spins,
a technique which is complex and slow, and thus relatively expensive. HDP
dielectric deposition, including applications currently being addressed by PMT
through a joint development agreement with NEC Anelva (See "Business of PMT--
Joint Development Arrangements"), produces a superior quality of dielectric
needed for certain applications, although deposition rates are slower and the
process requires a second step (CMP) to achieve planarization. Alternatively,
with Flowfill(TM) the plasma CVD films are deposited in one process module and
a CVD planarizing layer is deposited in the Flowfill(TM) module with no vacuum
breaks between the process steps, reducing process complexity.
ETCH TECHNOLOGIES
Virtually all etching processes use plasma technologies, in which a
semiconductor wafer is exposed to a plasma composed of a reactive gas which
etches away portions of the layer underlying the patterned photoresist layer.
Three properties of a plasma--density, pressure and energy--determine the
suitability of a given plasma process for semiconductor manufacturing. PMT's
patented MORI(TM) technology has the ability to provide a highly efficient
plasma, exhibiting high density (thereby achieving increased etch rates and
higher wafer throughput), while operating at low pressure (resulting in
superior etch features) and low energy (resulting in limited damage to the
wafer). This is achieved through the MORI(TM) source, which uses a helicon
antenna which is remote from the wafer to generate a radio frequency wave into
the plasma, a process which produces a high density of electrons and ions and
allows a reduction in the pressure of neutral gas molecules. Reactive ion
etching (RIE), an alternative technology, generates the plasma by a power
source that drives a current through a gas between two electrodes, with a
wafer placed on the powered electrode, a process which requires high gas
58
<PAGE>
pressure and produces a low density plasma. Because of these limitations of
RIE when used on sub-0.5 micron features, a number of PMT's competitors have
developed their own high density, low pressure plasma sources, including
inductively coupled plasma (ICP) sources (such as the Omega(TM) etch product
of Electrotech) and the ECR plasma wave approach used by Hitachi.
COMBINED PRODUCT OFFERINGS
The acquisition of Electrotech will provide PMT with new and promising
proprietary technologies in three critical segments of the semiconductor
industry: etch, PVD and CVD. As shown in the following table, Electrotech's
Forcefill(TM) PVD and Flowfill(TM) CVD products are complementary to PMT's
MORI-based plasma etch products:
<TABLE>
<CAPTION>
DEPOSITION
-------------------------------------------
ETCH PVD/SPUTTERING CVD
------------------- ------------------- -----------------------
<S> <C> <C> <C>
PMT............ PINNACLE 8000(R)* -- In Development*
PINNACLE 8000R(TM)*
Electrotech.... Omega(TM) 201 Sigma Delta 201
Sigma Forcefill(TM) Planar 200 Flowfill(TM)
</TABLE>
- --------
* Incorporates PMT's MORI(TM) plasma source
PMT's MORI(TM)-based etch products compete to a limited extent with
Electrotech's Omega(TM) etch product. PMT and Electrotech intend to continue
to support their respective product lines in the etch market. PMT is currently
in the process of developing an HDP dielectric deposition product that will
compete with Electrotech's Planar 200 Flowfill(TM) product in certain
applications. The success and market acceptance of these distinct CVD products
is presently unpredictable. Management believes that, with products based on
distinct CVD technologies, the combined company will be well positioned to
take advantage of the ultimate technological demands of the CVD market.
By combining PMT's sales and distribution network in the U.S. and Asia with
Electrotech's historical strength in Europe, PMT will have access to a
substantially larger marketing, sales, support and service force throughout
the world. Management expects that the ability of this global sales force to
cross sell both PMT and Electrotech products to common customers will allow
PMT to compete more effectively with its larger competitors.
BUSINESS OF PMT
Introduction
PMT designs, manufactures and markets advanced high density, low pressure
plasma sources, process modules and plasma processing systems. These products
are used for etch and CVD applications and are sold to semiconductor and flat
panel display manufacturers worldwide. PMT currently offers a modular line of
etch equipment which utilizes the MORI(TM) source for polysilicon and metal
etch applications in the fabrication of semiconductor devices. In addition,
semiconductor manufacturers use the MORI(TM) source for plasma CVD of silicon
dioxide films and photoresist stripping. Certain other manufacturers also use
the MORI(TM) source for the plasma etching of films in the fabrication of
large area active matrix liquid crystal displays.
Plasma Technologies
Plasma is generated when a power source transfers energy to a gas, or more
specifically, by the ionization of gas through energetic electron bombardment.
Plasma consists of negatively charged (electrons), positively charged (ions)
and neutral atoms or molecules, and can be most simply defined in terms of
three physical properties: density, pressure and energy. Density describes the
average number of electrons in a given volume; pressure describes the number
of neutral atoms or molecules in a given volume; and the energy of the charged
particles is very dependent on how the external power is coupled into the
plasma and on the neutral gas pressure.
59
<PAGE>
Each of these physical properties is interrelated, and a change in one will
typically produce a corresponding change in the other two.
During a plasma etch process (also known as "dry" etch), a semiconductor
wafer is exposed to a plasma composed of a reactive gas, such as chlorine,
which etches away selected portions of the layer underlying the patterned
photoresist layer. The energy of the gas particles that are reacting with the
layer is increased when that gas is in a plasma state, and this increases the
ability of the reactive gas to etch away the selected portions of the layer to
which the process is being applied. In addition, when in a plasma state, the
reactive gas ions in the plasma strike the surface of the wafer at a
perpendicular angle, which greatly increases the vertical etch rate. The three
properties of a plasma (density, pressure and energy) also define how suitable
a given plasma process may be for semiconductor manufacturing.
Density: For semiconductor manufacturing, a higher density plasma is
generally preferable to a lower density plasma. A higher density plasma
increases the number of plasma particles reacting with the layer being
etched, which increases the rate at which the wafer is etched, resulting in
higher throughput (the rate at which wafers are processed).
Pressure: In general, as the critical dimensions of the features on a
semiconductor device continue to decrease in size to 0.35 micron and
smaller, lower pressure plasma processing is required in order to produce
acceptable yield (the fractions of wafers, and devices on each wafer, that
are of acceptable quality) and throughput. First, as critical dimensions
shrink, the ability to etch wafers with more precision, so that the
sidewalls of features are nearly vertical and have minimal undercutting, is
critical for producing acceptable yield. In addition, as ICs become more
complex and are designed with features of varying dimensions, an effect
known as microloading can occur in high pressure systems. Microloading, the
effect of etching larger features more rapidly than smaller features,
generally results from high pressure etching and can significantly decrease
manufacturing yield.
Ion Energy: For a number of reasons, low energy ions reacting with the
wafer are preferable to high energy ions during the semiconductor
manufacturing process. Fabrication processes which bombard the wafer with
high energy ions can damage the wafer, cause particulates to form on the
wafer, or cause electric charges to build up on device structures, all of
which lead to lower manufacturing yields. In addition, fabrication
processes must precisely control the thickness of the various material
layers on the wafer, and it is necessary to be able to etch one layer
without etching the underlying layers. A process that is able to meet this
requirement is said to have a high selectivity, and processes utilizing low
energy ions tend to have a higher level of selectivity, and therefore
produce higher yields, than processes using high energy ions.
PMT's patented MORI(TM) source enables PMT to provide equipment which
delivers high yield, high throughput etching with minimal wafer damage. Key
features of MORI(TM) technology include the ability to (i) provide a highly
efficient plasma that exhibits high density, high selectivity and high
uniformity, (ii) operate at low pressures, which results in less undercutting,
fewer particles, more vertical sidewalls, and the absence of microloading, and
(iii) operate at low energy, which results in limited damage to the wafer.
Each of these features contributes significantly to higher yield and
throughput.
PMT believes that the advantages offered by its high density MORI(TM)
technology can best be understood by comparing it with existing reactive ion
etching (RIE) technology. An RIE plasma is generated by a power source that
drives current through a gas between two conducting electrodes, with a wafer
placed on the powered electrode. This results in a high voltage on the wafer
and the formation of a weakly ionized plasma. The electrons are accelerated by
this high voltage, and collide with the neutral gas molecules, creating ions,
more electrons and energetic gas atoms. The rate of plasma generation depends
on the number of these collisions. The high energy of the electrons requires a
high gas pressure to ensure that these collisions occur. At too low a
pressure, the electrons would miss the gas molecules, be lost to the chamber
wall, and the plasma would extinguish. This method of coupling energy to the
electrons by driving high voltage on the wafer requires high pressure.
Furthermore, the coupling of energy to the plasma in an RIE system is
relatively inefficient, resulting in a low plasma density.
60
<PAGE>
By contrast, PMT's MORI(TM) plasma source does not rely on a high voltage
source to give energy to the electrons. Instead, the MORI(TM) source utilizes
an antenna which is remote from the wafer to launch a radio frequency wave
into the plasma. The speed at which this wave propagates in the plasma can be
controlled through the frequency selected and the design of the antenna. By
matching the speed of the wave to the speed of the electrons in the plasma,
the electrons can "surf" on the wave and gain energy very efficiently. This
method of plasma generation produces a high density of electrons and ions and
allows a reduction in the pressure of neutral gas molecules. In fact, the
plasma density is only limited by the loss rate of plasma to the chamber
walls, which can be minimized by providing a magnetic field near the chamber
wall using permanent magnets that reflect the electrons back into the plasma.
In light of the limitations of RIE technology when used on sub-0.5 micron
features, other semiconductor equipment manufacturers such as Applied
Materials, Lam Research and Hitachi have developed and sold their own high
density, low pressure plasma sources. For example, both Applied Materials and
Lam Research are using ICP sources in various configurations (as does
Electrotech in its Omega(TM) ICP product), and Hitachi uses a plasma wave
approach known as electron cyclotron resonance (ECR).
Products
PMT offers a line of modular solutions which are designed to meet the
varying requirements of its customers for etching of polysilicon, metal and
oxide films, stripping of photoresist, and CVD of oxide films. PMT's line of
equipment includes the MORI(TM) plasma source, the MORI(TM) stand-alone
process module for etch, strip or CVD applications, the APEX 7000(R) system,
the PINNACLE 8000(R) system, and the PINNACLE 8000R(TM) system. All of PMT's
systems products are Manufacturing Equipment Standard Configuration (MESC)
compatible.
PMT's MORI(TM) plasma source is currently sold as a subsystem on a limited
geographic and application basis to OEM licensees of PMT's MORI(TM)
technology. PMT currently sells the MORI(TM) source to Leybold of Germany for
incorporation into Leybold's systems that are sold worldwide for etching large
area, active matrix liquid crystal displays. PMT sells its MORI(TM) source to
Canon Sales for incorporation into Canon Sales' systems for photoresist
stripping that are sold in the Japanese and Korean markets, and to NEC Anelva
for incorporation into NEC Anelva's systems for metal and oxide etching that
are sold in the Japanese market.
PMT's stand-alone process module, common to PMT's APEX 7000(R), PINNACLE
8000(R) and PINNACLE 8000R(TM) systems, incorporates the MORI(TM) plasma
source and can be configured for etch, strip or CVD applications. The process
module can be sold to customers either to increase the capacity of existing
system platforms, or to provide additional process capability. The process
module requires less than eight square feet of floorspace. List price for a
standard process module configured for etch applications is currently
$500,000.
The APEX 7000(R) is a single module, single wafer cassette, vacuum
loadlocked system for development, evaluation or single chamber production
applications. System throughput varies depending on the film application, and
is typically 20-30 wafers per hour for this single chamber configuration as
compared to a throughput of 15-20 wafers per hour for competitive single
module systems. Floorspace required for the APEX 7000(R) is approximately 26
square feet. List price for a standard APEX 7000(R) system is currently
$1,000,000.
In December 1995, PMT introduced its PINNACLE 8000R(TM) cluster tool
platform, a more compact version of its existing PINNACLE 8000(R) system that
includes certain additional features that enable increased ease in operation.
Each of PMT's PINNACLE 8000(R) and PINNACLE 8000R(TM) systems is a dual wafer
cassette, vacuum loadlocked cluster tool which can incorporate up to four
MESC-compatible process modules. The dual wafer cassette loadlock
configuration enables the system to continuously process wafers. System
throughput varies, and is primarily dependent on the film application, the
operating configuration and the number of process modules attached to the
system. For a typical polysilicon etch process, with each process module
performing the same process, throughput varies from 40-60 wafers per hour for
a two module configuration, to 70-90 wafers per hour for a four module
configuration. This compares to a throughput of 30-40 wafers per hour for
competitive two
61
<PAGE>
module systems. Floorspace required for a PINNACLE 8000R(TM) is approximately
44 square feet with two process modules and 65 square feet with four process
modules. By comparison, floorspace required for a PINNACLE 8000(R) is
approximately 88 square feet with four process modules. List price for the
PINNACLE 8000(R) and PINNACLE 8000R(TM) currently ranges from $1,800,000 for a
standard two module system to $2,800,000 for a four module system, and
$1,900,000 for a standard two module system to $3,400,000 for a four module
system, respectively.
Customers
PMT markets its systems to semiconductor manufacturers located throughout
the United States, Europe, Japan, Korea and Asia/Pacific. The following is a
list of customers who have purchased or leased PMT products either directly
with PMT or through its distribution and OEM relationships:
<TABLE>
<S> <C> <C>
AT&T Hyundai Samsung
Daewoo IBM Sharp
Dallas Semiconductor LG Semicon Texas Instruments
Fujitsu LSI Logic TriQuint
Hitachi NEC Toshiba
OKI
</TABLE>
PMT has received multiple purchase orders for MORI(TM) plasma sources for
etch applications from NEC, OKI, and Sharp, and has received repeat orders for
a PINNACLE 8000R(TM) system from Hyundai and Dallas Semiconductor. PMT shipped
its first beta (pre-production evaluation) PINNACLE 8000(R) and APEX 7000(R)
plasma etch systems in 1993. PMT's first shipments of plasma etch systems to
end use customers began in June 1994, and PMT's first shipments of its
PINNACLE 8000R(TM) system began in December 1995.
PMT's total revenue includes amounts from certain individual customers that
exceed 10% of total revenue. Revenue from five customers represented 19%, 15%,
12%, 11% and 11% each of total revenue for the year ended December 31, 1995,
revenue from six customers represented 19%, 17%, 17%, 15%, 15% and 12% each of
total revenue for the ten months ended December 31, 1994, and revenue from two
customers represented 46% and 39% each of total revenue for the year ended
February 28, 1994.
International sales accounted for approximately 47%, 66% and 50% of total
revenue in the year ended December 31, 1995, the ten months ended December 31,
1994, and the year ended February 28, 1994, respectively. PMT anticipates that
international sales will continue to account for a significant portion of its
total revenue. In particular, PMT expects that sales to Japanese and Korean
semiconductor manufacturers will continue to represent a significant
percentage of PMT's product sales through at least 1996. During the year ended
December 31, 1995, sales to Alcan-Tech, Canon Sales and NEC Anelva in Japan,
and to LG Semicon and Hyundai in Korea, accounted for 25% and 18% of PMT's
total revenue, respectively, for that period. During the ten months ended
December 31, 1994, sales to Canon Sales and NEC Anelva in Japan, and to
Samsung and Hyundai in Korea, accounted for 31% and 32% of PMT's total
revenue, respectively, for that period. During the year ended February 28,
1994, sales to Alcan-Tech and NEC Anelva in Japan accounted for 44% of PMT's
total revenue for that period. There were no sales in Korea during the year
ended February 28, 1994. PMT's operating results could be materially adversely
affected by any loss of business from the cancellation of orders by or
decreases in the prices of products sold to these or other customers located
in Japan and Korea. See "Risk Factors--Increased International Exposure" and
Note 1 of Notes to Consolidated Financial Statements.
Marketing, Sales and Customer Support
PMT's long range goal is to market its products and services directly to all
end use customers to the extent it is efficient and cost effective. In the
current stage of PMT's growth, it is not efficient or cost effective to market
products and services through a direct sales force in all regions.
Consequently, PMT has established multiple sales channels to market products
and services to match PMT's efforts in each region. PMT currently markets
62
<PAGE>
and sells its products primarily through three separate sales channels: direct
sales, distributor arrangements and OEM agreements. In selected regions and
countries, PMT uses a combination of direct sales, distributor arrangements,
OEM agreements and sales representatives.
In the United States, PMT markets and sells its products principally through
its direct sales organization. In Korea, PMT markets and sells its products
direct through the sales staff of its wholly owned subsidiary, Plasma &
Materials Technologies (Korea) Co., Ltd. The Korean market is served by a
direct sales group in order to meet Korean semiconductor manufacturers'
requirements of having direct local representation for sales, customer support
and spare parts.
PMT currently believes that the most efficient strategy for penetrating the
Japanese market is to have a distribution agreement with a well established
and experienced sales organization. PMT has appointed Canon Sales as its
exclusive etch system distributor in Japan, and in July 1995 entered into a
definitive agreement for such appointment. Although management believes that
it maintains a good relationship with Canon Sales, there can be no assurance
that the relationship will continue.
In addition, PMT has established relationships in Taiwan and Europe with
sales representatives and distributors that have significant experience in the
semiconductor industry and that provide a high level of visibility for PMT's
products and services. In Taiwan, PMT markets etch systems through a
distribution agreement with Techlink, and in Europe, PMT has entered into a
distribution agreement with Metron to market its etch systems.
PMT maintains active OEM agreements in Japan and Europe. PMT currently sells
the MORI(TM) source to Leybold of Germany for incorporation into Leybold's
systems that are sold worldwide for etching large area, active matrix liquid
crystal displays. PMT sells its MORI(TM) source to NEC Anelva for
incorporation into NEC Anelva's systems for metal and oxide etching and that
are sold in the Japanese market, and to Canon Sales for incorporation into
Canon Sales' systems for photoresist stripping that are sold in the Japanese
and Korean markets.
PMT believes that providing its customers with evaluation systems of its
equipment products is critical to its sales efforts. The ability to evaluate
PMT's plasma processing systems on a trial basis is expected by the
semiconductor manufacturing customers to whom PMT markets. Consequently, as
PMT expands its sales efforts, it believes that it will need to significantly
increase its inventory investment in evaluation systems. The failure or
inability of PMT to convert an evaluation system placed with a customer to a
final sale could have a material adverse effect on PMT.
PMT believes that customer support is a key component in a customer's
decision in selecting a semiconductor equipment supplier. The ability to
provide a processing system with a high degree of reliability, low cost, high
yield, high uptime and high mean time between failure greatly influences a
customer's purchase decision. This requires experienced, responsive local
support with quality personnel and ready availability of spare parts. PMT
believes that a focused field support organization that works closely with its
customers provides invaluable feedback from customers with respect to system
cost effectiveness, and typically results in technical advances through
continuous design improvement. To further ensure customer satisfaction, PMT
also provides service and maintenance training as well as process application
training for its customers' personnel on a fee basis. PMT maintains an
extensive inventory of spare parts which allows PMT to provide overnight
delivery for many parts. PMT currently provides a one-year warranty on its
systems.
All international sales of PMT's products are denominated in U.S. dollars in
order to reduce the risks associated with the fluctuation of foreign currency
exchange rates. All export sales must be licensed by the Office of Export
Administration of the U.S. Department of Commerce. Although PMT has
experienced no difficulty in obtaining these licenses, failure to obtain these
licenses in the future could have a material adverse effect on PMT's results
of operations.
63
<PAGE>
Research, Development and Engineering
PMT 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 technologies and systems which compete effectively on the basis of total
cost of ownership and performance. These technologies and systems will also
need to meet customer requirements and emerging industry standards.
Accordingly, PMT devotes a significant portion of its personnel and financial
resources to research and development programs and seeks to maintain close
relationships with its customers in order to remain responsive to their
product needs.
As of June 30, 1996, PMT employed 45 professional and technical personnel in
research, development and engineering. These employees are organized in the
following departments: research and development, hardware engineering,
software engineering, customer specials engineering, systems engineering,
documentation and manufacturing engineering, and customer applications.
The research and development group is responsible for identifying new
technology applications and developing processes to meet customer
requirements. Major research and development programs currently address
polysilicon and integrated stack etch applications, metal etch applications,
including aluminum, and oxide etch applications. Additionally, the group is
overseeing the application of MORI(TM) technology to CVD applications.
The engineering group is responsible for the conceptual design of PMT's
products, selection or design of components and subassemblies, and integration
of the system into a product that effectively meets customer needs. PMT has
developed both its PINNACLE 8000(R) and PINNACLE 8000R(TM) cluster tool
platforms utilizing the SEMI MESC cluster tool architecture standard. In
addition, PMT has developed MACSE(TM), its own proprietary software, to
control its products and to provide the automation, operator and facility
interfaces required by the customer.
The customer applications group is responsible for demonstrating the
capability of PMT's products to meet specific customer process requirements.
PMT currently maintains two clean rooms and two development labs to support
process development and customer demonstrations.
PMT's research, development and engineering expenses were $4.6 million and
$3.6 million for the year ended December 31, 1995 and the ten months ended
December 31, 1994, respectively, and represented 22% and 41% of total revenue
for these two periods, respectively.
In addition to PMT's direct research, development and engineering expenses,
significant expenditures in research, development and engineering have been
made by Leybold, Canon Sales and NEC Anelva, with whom PMT has entered into
OEM agreements. These arrangements provide PMT with expanded resources and
knowledge to broaden the use of PMT's MORI(TM) plasma technology in the etch,
strip, CVD and flat panel markets. No information on the amount of these
expenditures has been disclosed to PMT; however, PMT believes that the total
exceeds PMT's direct expenditures for the same applications research over the
same periods identified above.
Although PMT believes that it has allocated sufficient resources to its
research, development and engineering efforts, the success of new system
introductions is dependent on a number of factors, including timely completion
of new system designs and market acceptance. There can be no assurance that
PMT will be able to improve its existing systems and process technologies or
develop new technologies or systems. In addition, PMT may incur substantial
unanticipated costs to establish the functionality and reliability of its
future product introductions early in the product's life cycle.
Joint Development Arrangements
PMT has recently entered into an agreement with NEC Anelva to jointly
develop a high density plasma dielectric CVD system. Pursuant to the
agreement, the two companies intend to jointly develop, market, and
64
<PAGE>
manufacture such CVD system based upon PMT's MORI(TM) source. The parties
contemplate that, upon completion of this development, PMT will manufacture
the system utilizing its primary cluster tool platform, the PINNACLE
8000R(TM). NEC Anelva will have exclusive marketing rights in Japan, Taiwan
and the Asia Pacific region, and PMT will have exclusive marketing rights in
the U.S., Korea and Europe. In the event of a termination of PMT's
relationship with NEC Anelva, or the failure by the parties to successfully
develop the CVD system, PMT's ability to penetrate the HDP dielectric CVD
market could be adversely affected.
On March 29, 1996, PMT entered into a number of agreements with PMT CVD
Partners, L.P. (the "CVD Partnership") and the limited partners thereof (the
"Limited Partners"). The CVD Partnership was sponsored by PMT to fund research
and development costs and expenses relating to CVD technology and applications
using MORI(TM) source technology. An aggregate of approximately $5,350,000 was
invested by third parties in the CVD Partnership to fund such research and
development efforts, which are being performed by PMT under an agreement with
the CVD Partnership.
PMT is paid for such services in an amount equal to its actual direct costs,
as defined, plus a stated percentage of such costs. During the six months
ended June 30, 1996, the amount of such research and development payments to
PMT by the CVD Partnership applications was approximately $849,000. PMT will
be obligated to pay stated royalties to the CVD Partnership on sales of
developed CVD products, and the royalty percentage will vary based on the
geographic location of the sale. There is no provision for royalty payments to
the CVD Partnership in fiscal 1996. PMT has been granted an exclusive option
to purchase all of the Limited Partners' interest in the CVD Partnership,
based on an established purchase price formula. PMT may exercise such option
at its sole discretion.
PMT, NEC Anelva and the CVD Partnership have agreed that the CVD Partnership
(as assignee of PMT) will perform, through PMT as its contractor, all of PMT's
obligations under the NEC Anelva joint development agreement.
PMT and LG Semicon have agreed to jointly develop an oxide etch process
utilizing PMT's PINNACLE 8000R(TM) cluster tool. PMT's wholly-owned Korean
subsidiary, Plasma & Materials Technologies (Korea) Co., Ltd., will manage the
process development work, which will be conducted at LG Semicon's Cheong-Ju
research and development facility in South Korea and at PMT's headquarters in
California. PMT believes that this joint development project will help PMT's
PINNACLE 8000R(TM) system achieve acceptance in the oxide etch market.
Although management believes that it maintains a good relationship with LG
Semicon, there can be no assurance that the relationship will remain positive,
or that the joint development project will be successfully completed. In the
event of a termination of PMT's agreement with LG Semicon, or the failure by
the parties to successfully develop an oxide etch process based on PMT's
PINNACLE 8000R(TM) cluster tool, PMT's ability to penetrate the oxide etch
market would be adversely affected.
Manufacturing
PMT's manufacturing operations are located in Chatsworth, California, and
consist of materials planning and procurement, assembly, system integration
and final test. PMT employs a just-in-time manufacturing strategy coupled with
the outsourcing of components and subassemblies from outside suppliers.
PMT's modular product line, which is designed around the SEMI MESC industry
standard, enables PMT to use a large number of components and subassemblies
which are common not only to PMT's product line but also to systems
manufactured by other companies in the industry, both competitive and non-
competitive. Examples of subassemblies which are common to products
manufactured by other companies include the robotics, wafer aligner and vacuum
cassette elevators obtained from Brooks Automation in Massachusetts, and RF
power supplies obtained from RF Power Products in New Jersey. Examples of
subassemblies obtained from outside suppliers and that are unique to PMT's
systems products include gas box assemblies and fabricated vacuum chambers.
65
<PAGE>
PMT relies on outside suppliers to manufacture substantially all of the
components and subassemblies used in its plasma processing systems. Certain of
these are obtained from a sole supplier or a limited group of suppliers. For
example, the wafer cassette elevator load locks used in PMT's APEX 7000(R),
PINNACLE 8000(R) and PINNACLE 8000R(TM) plasma processing systems are sole
sourced from Brooks Automation. PMT's reliance on outside suppliers generally,
and a sole or limited group of suppliers in particular, involves several
risks, including a potential inability to obtain an adequate supply of
required components, as well as reduced control over pricing and timely
delivery of components. Because the manufacture of certain of these components
and subassemblies is a complex process and can require long lead times, there
can be no assurance that delays or shortages caused by suppliers will not
occur. Any inability to obtain adequate deliveries or any other circumstance
that would require PMT to seek alternate sources of supply or to manufacture
such components internally could delay PMT's ability to ship its systems and
could have a material adverse effect on PMT.
PMT 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 and gases used during its customer demonstrations and in research
and development activities. Public attention has increasingly been focused on
the environmental impact of operations which use hazardous materials. Failure
to comply with present or future regulations could result in substantial
liability to PMT, suspension or cessation of PMT's operations, restrictions on
PMT's ability to expand at its present locations, or requirements for the
acquisition of significant equipment or other significant expense. To date,
compliance with environmental rules and regulations has not had a material
effect on PMT's operations. At the present time, PMT believes that it is in
material compliance with all applicable environmental rules and regulations.
Competition
The markets served by PMT's products are highly competitive and subject to
rapid technological change. Significant competitive factors include system
performance, cost of ownership (which is dependent upon yield, throughput and
reliability), size of installed base, depth and breadth of product line and
customer support.
PMT faces significant competition from various suppliers of systems that
utilize alternative technologies, including other manufacturers of high
density plasma (HDP) systems. In the etch market, PMT faces competition from
suppliers of reactive ion etch (RIE) systems, including Applied Materials, Lam
Research and Tokyo Electron. PMT's MORI(TM) based etch systems also face
competition from inductively coupled plasma (ICP) based etch systems marketed
by Applied Materials and Lam Research (and the Omega(TM) product of
Electrotech), as well as the electron cyclotron resonance (ECR) based etch
system marketed by Hitachi. In the HDP CVD market, PMT's primary competitors
are Applied Materials, Novellus and Lam Research. PMT's MORI(TM) source faces
competition from competitors that manufacture and market sources that utilize
various alternative technologies, including RIE, ICP and ECR based plasma
sources.
All of PMT's primary competitors are substantially larger companies with
broader product lines, and have well established reputations in the etch and
CVD markets, longer operating histories, greater experience with high volume
manufacturing, broader name recognition, substantially larger customer bases,
and substantially greater financial, technical, manufacturing and marketing
resources than PMT. PMT also faces potential competition from new entrants in
the market, including established manufacturers in other segments of the
semiconductor capital equipment market, who may decide to diversify into PMT's
market segment. There can be no assurance that PMT's competitors will not
develop enhancements to or future generations of competitive products that
will offer price and performance features that are superior to those offered
by PMT's systems.
Intellectual Property
PMT relies on a variety of types of intellectual property protection to
protect its proprietary technology, including patent, copyright, trademark and
trade secret laws, non-disclosure agreements, and other intellectual property
protection methods. Although PMT believes that its patents and trademarks may
have value, PMT believes that its future success will also depend on the
innovation, technical expertise and marketing abilities of
66
<PAGE>
its personnel. PMT currently holds five patents in the United States, has one
patent application pending in South Korea, has two patent applications pending
in each of Japan and Europe, and intends to file additional patent
applications as appropriate. PMT's patents and patent applications relate to
PMT's MORI(TM) plasma source. PMT also holds a copyright on its MACSE(TM)
proprietary software. In addition, PMT has six trademarks that are registered
with the United States patent and trademark office, including PMT(R), APEX
7000(R), PINNACLE 8000(R) and PINNACLE 8000R(TM).
There can be no assurance that patents will be issued on the pending
applications or that competitors will not be able to legitimately ascertain
proprietary information embedded in PMT's products which is not covered by
patent or copyright. In such case, PMT may be precluded from preventing the
competitor from making use of such information. In addition, should PMT wish
to assert its patent rights against a particular competitor's product, there
can be no assurance that any claim in a PMT patent will be sufficiently broad
nor, if sufficiently broad, any assurance that a PMT patent will not be
challenged, invalidated or circumvented, or that PMT will have sufficient
resources to prosecute its rights. PMT intends to vigorously protect and
defend its patents, trademarks and trade secrets.
There are no pending lawsuits against PMT regarding infringement of any
existing patents or other intellectual property rights or any unresolved claim
where PMT has received notice that it is infringing intellectual property
rights of others. There can be no assurance, however, that such infringement
claims will not be asserted in the future nor can there be any assurance, if
such claims are made, that PMT will be able to defend against such claims
successfully or, if necessary, obtain licenses on reasonable terms. In
addition, PMT believes that litigation in its industry over patent rights has
been increasing in recent years.
PMT's involvement in any patent dispute or other intellectual property
dispute or in any action to protect trade secrets and know-how, even if
successful, could have a material adverse effect on PMT and its business.
Adverse determinations in any such action could subject PMT to significant
liabilities, require PMT to seek licenses from third parties, which might not
be available, and possibly prevent PMT from manufacturing and selling its
products, any of which could have a material adverse effect on PMT and its
business.
Backlog
As of August 31, 1996, PMT's backlog was approximately $4.0 million,
compared to $8.7 million at December 31, 1995. PMT's backlog at June 30, 1996
consisted primarily of orders for its PINNACLE 8000R(TM) systems.
Substantially all of the orders constituting backlog of PMT as of August 31,
1996 have been or will be shipped during PMT's fiscal quarter ending September
30, 1996. PMT's product sales for current periods will depend on the shipment
of products with respect to existing orders as well as the shipment of
products relating to the receipt of additional orders in that period.
PMT includes in its backlog all purchase orders that provide for delivery
within twelve months. PMT's business is characterized by large purchase
contracts for standard products with related customized options. All orders
are subject to cancellation or delay by the customer with limited or no
penalty. Because of possible changes in delivery schedules and cancellations
of orders, PMT's backlog at any particular date is not necessarily
representative of actual sales for any succeeding periods.
Employees
At June 30, 1996, PMT had 144 regular employees, including 45 engaged in
research, development and engineering, 7 in sales and marketing, 40 in
customer support, 34 in manufacturing, and 18 in general administration and
finance. Following the Acquisition, PMT will oversee a significant number of
employees employed by Electrotech. Additionally, PMT intends to hire
additional personnel for its operations in California during the next 12
months in all of these areas.
PMT believes its future success will depend in large part on its ability to
attract and retain highly skilled employees, particularly those highly skilled
design, process and test engineers involved in the manufacture of existing
systems and the development of new systems and processes. The competition for
such personnel is
67
<PAGE>
intense. PMT faces the task of quickly identifying, recruiting, training and
integrating new employees. There can be no assurances that PMT will be
successful in doing so or, if successful, in retaining such employees.
None of the employees of PMT are covered by a collective bargaining
agreement, and PMT has not entered into employment agreements with any of its
employees, although PMT intends to enter into a three year employment
agreement with Mr. Wheeler on consummation of the Acquisition. See "Proposal
No. 1--Terms of the Acquisition and Related Transactions--Conditions to the
Acquisition" and "--Related Agreements." PMT considers its relationships with
its employees to be good.
Properties
PMT currently leases two buildings that comprise a total of 54,000 square
feet in Chatsworth, California. PMT's 34,000 square foot corporate
headquarters building houses senior management, sales, marketing, research and
development, customer applications, engineering, and customer support
functions. The 20,000 square foot operations building houses all of PMT's
manufacturing operations, including materials planning, purchasing, shipping
and receiving, stockroom, assembly and test, as well as sales order entry,
finance and human resources. Current leases on both buildings expire on
December 31, 1996. PMT also leases on a month to month basis an office in
Seoul, Korea for sales and customer support. PMT may seek to expand beyond the
capacity of its current facilities and may seek additional space for all or
various portions of operations. In such case, management expects that PMT will
find acceptable space at competitive costs.
Legal Proceedings
In the ordinary course of its business, PMT may be involved in legal
proceedings from time to time. As of the date hereof, there are no material
legal proceedings pending against PMT.
BUSINESS OF ELECTROTECH
Introduction
Electrotech develops, manufactures, markets and services semiconductor
fabrication equipment for the worldwide semiconductor manufacturing industry.
Electrotech's proprietary products are targeted at three primary areas of
semiconductor manufacturing: PVD, CVD and etch. Electrotech's new leading-edge
products include the Sigma sputtering system for PVD, with the optional
Forcefill(TM) module, and the Planar 200 Flowfill(TM) system for inter-metal
dielectric CVD. Forcefill(TM) technology allows manufacturers to eliminate the
use of multi-step CVD tungsten-plug based metallization processes and to
utilize an entirely aluminum-based PVD multi-level metal scheme in sub-0.5
micron IC manufacturing. Electrotech's new CVD process technology,
Flowfill(TM), forms high quality silicon dioxide layers which possess the
properties of both gap fill and planarization. Electrotech also offers
products for the etch market, including its Omega(TM) ICP system.
Electrotech utilizes a fully integrated manufacturing operation and sells
its products directly through local area sales support offices in the United
States and Europe, through a distributor in Japan and distributors or agents
in the rest of the world.
Electrotech is a privately held company based in the United Kingdom, and was
founded in 1968 by a group of scientists formerly employed in the European
research division of ITT.
Technologies and Products
Electrotech research teams have developed two proprietary processes which
address major issues in the fabrication of the next generation of
semiconductor devices: Forcefill(TM) addresses the problem of introducing
interconnect wires into very small holes as the critical dimensions of ICs
become smaller, and Flowfill(TM) addresses the subsequent problem of
insulating the resulting closely-packed interconnect wiring. The Forcefill(TM)
and Flowfill(TM) projects are currently at the stage of customer review and
evaluation; however, considerable efforts are being applied by Electrotech to
attain product functionality and reliability levels acceptable to
Electrotech's target markets.
68
<PAGE>
Electrotech offers its customers products that address three major steps in
the semiconductor manufacturing process: the deposition of metallic aluminum
layers (Sigma), the deposition of insulating dielectric layers (Planar and
Delta) and the dry plasma etching of these deposited layers (Omega(TM)). In
order to leverage Electrotech's current products into the manufacturing of
next generation semiconductors, Electrotech's customers may purchase
Electrotech's Sigma and Planar deposition systems and subsequently buy
Forcefill(TM) and Flowfill(TM) add-on modules, which utilize Electrotech's
advanced proprietary technologies.
Physical Vapor Deposition
SIGMA
Layers of metal alloys can be deposited by Electrotech's Sigma product line,
a sputtering machine with multiple process chambers. This product deposits a
very thin uniform layer of interconnect metal on the whole surface of the
semiconductor wafer. Subsequent lithography and etching turns this layer into
an intricate pattern of interconnect wiring on the many individual
semiconductor devices, each a complex and integrated functioning circuit.
The Sigma is designed to be one of the cleanest PVD systems on the market,
with particular application in multi-layer metallization. Electrotech's
strategy is to offer semiconductor manufacturers who are currently using 0.8
micron to 1.0 micron design rules a way to avoid the adoption of CVD tungsten,
a relatively difficult, dirty and expensive process. Electrotech offers system
configurations which bridge the gap from non-hole-fill technology, at
approximately 1.0 micron, to the adoption of Electrotech's Forcefill(TM)
technology onto the Sigma platform, which is capable of filling holes smaller
than 0.25 micron. The selling price for the Sigma system ranges from
approximately $1.5 million to approximately $2.5 million, depending on the
configuration of the system.
SIGMA FORCEFILL(TM)
The Sigma Forcefill(TM) system is being developed to extend Electrotech's
standard Sigma metallization product capability into the sub-0.5 micron
market. The Forcefill(TM) technology is used with traditional aluminum
techniques and eliminates the relatively complicated and difficult use of
tungsten. The process can be carried out on a standard Sigma series system
with an attached Forcefill(TM) module, which involves depositing a layer of
aluminum such that it forms a bridge over the holes. When adequate bridging is
achieved the wafer is transferred under vacuum to the Forcefill(TM) module
where the aluminum is heated and forced under very high pressure into the
hole, thus achieving void-free fill. Forcefill(TM) allows manufacturers to
eliminate the use of CVD tungsten and to utilize an entirely aluminum-based
multi-level metal scheme. DRAM and logic applications are both target markets
for Forcefill(TM), since the cost saving per layer is substantial, and the
interconnect speed is improved.
Electrotech management believes that the Forcefill(TM) process has a number
of advantages when compared to the commonly used alternative technologies of
tungsten-plug with CMP and aluminum reflow. This is believed to be due to a
number of factors:
. Fewer defects. Using tungsten-plug with CMP is a relatively dirty process
that often results in the accumulation of particles in the wafer
processing module leading to defective wafers and preventative
maintenance downtime for cleaning. The Forcefill(TM) module provides for
a cleaner production process, which leads to higher yields.
. Improved process latitude. Tungsten-plug and aluminum reflow both require
a greater degree of control than Forcefill(TM), which is more tolerant of
variations in device features that result from prior manufacturing steps,
leading to higher yields.
. Longer device lifetime. Under test conditions, Forcefill(TM) has shown
electromigration resistance approximately 30 times greater than tungsten-
plug/aluminum when measured on a state of the art multilevel device.
69
<PAGE>
. Reduced metal thickness. Aluminum reflow requires a thick metal layer,
typically at least 1 micron. The Forcefill(TM) process only requires the
applied metal thickness to be greater than the contact or via hole
diameter. Thin metal layers result in reduced capacitance loss and
greater ease of planarization.
. Compatibility with stacked vias. The Forcefill(TM) process has made
stacked vias possible without requiring metal CMP, as would be needed in
a tungsten-plug scheme.
The average selling price of the Sigma Forcefill(TM) system ranges from
approximately $3.5 million to approximately $4.0 million, depending on the
configuration of the system.
Chemical Vapor Deposition
DELTA 201
Electrotech's Delta 201 is a versatile, single-chamber production system for
producing films, including silicon dioxide or silicon nitride. The films
deposited by this system are used to insulate the interconnect wiring of a
semiconductor wafer. It is a relatively low-cost system and its small
dimensions make it attractive to customers, who are often short of cleanroom
space. The Delta 201 also addresses the gallium arsenide semiconductor market
and incorporates a wafer handling mechanism that is suited to handle fragile
and high-cost gallium arsenide wafers. The average selling price for the Delta
201 system is approximately $600,000.
PLANAR 200 FLOWFILL(TM)
Flowfill(TM) technology has been developed by Electrotech in order to meet
the needs of the planarized intermetal dielectric market. The problem of
finding a suitable insulating material to protect the microscopic wiring in a
chip has produced a number of materials with various undesirable
characteristics. The most common insulating material is silicon dioxide,
which, when deposited by conventional techniques, is unable to fill the
increasingly small gap spacing required by next generation ICs. Electrotech
has developed a new CVD process technology, Flowfill(TM), to form high quality
silicon dioxide layers which possess the properties of both gap fill and
planarization. In the Planar 200 Flowfill(TM) multi-chambered cluster system,
the advanced planarization layer consists of three films which are deposited
sequentially. The plasma CVD films are deposited in one module and the CVD
planarizing flow layer is deposited in the Flowfill(TM) module with no vacuum
breaks between the process steps. The flow layer has the ability to fill sub-
micron features less than 0.2 micron wide, with a 5 to 1 height to width
ratio, and achieve typical planarization of 80% for gaps up to 20 microns.
Alternative technologies to Electrotech's Flowfill(TM) system include SOG
and HDP combined with CMP. SOG is deposited in single or multiple spins. This
technique is complex and slow due to the number of steps involved. In
addition, although each individual step may be clean, the combination can lead
to a high number of added particles, which can decrease yield. HDP gap fills a
wafer with silicon dioxide in one system, but the rough spots on the wafer
must be planarized using a CMP process in a second system.
Electrotech management believes that the major advantages of Flowfill(TM),
when compared to competing technologies, can be summarized as follows:
. Small gaps. Flowfill(TM) is capable of filling very small gaps (less than
0.08 micron has been recorded).
. Combined process. Flowfill(TM) both gap fills and planarizes
simultaneously, eliminating the need for CMP on some devices. The
combined process also results in a decrease in equipment costs,
manufacturing time and defect levels, while increasing yields.
. Lower moisture. Flowfill(TM) leaves very little moisture content in the
film after final treatment and allows for low moisture reabsorbance. This
should result in better device reliability.
. Better quality. The quality of the Flowfill(TM) planarized layer has been
demonstrated to be better than that of SOG.
70
<PAGE>
For a number of reasons, Electrotech's initial shipments of the Planar 200
Flowfill(TM) have targeted the DRAM market. First, due to the competitive
nature of the DRAM market, cost is a primary concern to DRAM manufacturers.
Certain DRAM manufacturers have indicated that Flowfill(TM) will offer
significant cost advantages for next generation DRAMs relative to both the SOG
and HDP processes. Second, due to the circuit designs of a DRAM, the maximum
distance between metal lines is 80 to 100 microns, Flowfill(TM) provides a
high level of planarity for gaps of this size.
The selling price for the Planar 200 Flowfill(TM) system ranges from
approximately $1.4 million to approximately $2.5 million, depending on the
configuration of the system.
Etch
OMEGA(TM) 201-2
Electrotech's etch product, the Omega(TM) 201-2 metal etch system,
integrates the field-proven 200-series hardware as used on other current
Electrotech products with Electrotech's patented Inductively Coupled Plasma
(ICP) technology. Although mainly targeted at metal interconnect, the
technology is also able to address oxide and polysilicon etch and is
compatible with all etch applications. Most competitors, which include PMT,
also use a high ion density, low pressure plasma source.
The Omega(TM) 201-2 metal etch system has been designed to address the
special requirements of metal etch while minimizing the space utilized in the
clean room. The system has a passivation unit which minimizes post-etch
corrosion by combining the use of a downstream plasma with radiant heating of
the wafer backside to maximize photoresist strip rates and drive off
involatile chlorine-containing materials. The Omega(TM) 201-2 also has a wafer
temperature control system which ensures that etch residues are minimized and
often eliminates the need to harden the photoresist using a deep UV process.
Electrotech management believes that its Omega(TM) etch systems have
advantages over competitive products, including: (i) process performance--
simple chemistries giving rise to better process control; (ii) simple hardware
platform; (iii) long electrostatic chuck lifetime; (iv) lower capital cost;
and (v) low operating costs. The price for Electrotech's Omega(TM) etch system
ranges from approximately $700,000 to approximately $1,400,000, depending on
the configuration of the system.
Customers
Electrotech sells its systems to semiconductor manufacturers located
throughout Europe, the United States and Japan. The following is a list of
selected customers who have purchased Electrotech products, some of which have
evaluation systems using Electrotech's Forcefill(TM) or Flowfill(TM)
technologies:
<TABLE>
<S> <C> <C>
Fujitsu Motorola Siemens
GEC Plessey OKI Sony
Matsushita Olivetti TEMIC
Micron Technology Philips Texas Instruments
Mitsubishi Ricoh Toshiba
Tower Semiconductor
</TABLE>
Marketing, Sales and Customer Service
Electrotech revenues derive primarily from the sale of capital equipment and
related consumable components. Sales outside of the United Kingdom accounted
for over 80% of Electrotech's revenues in fiscal 1995. Electrotech has sales
and marketing offices located in the United Kingdom, the United States, Europe
and Asia to enable sales and service personnel to provide dedicated worldwide
support to new and existing
71
<PAGE>
customers. Electrotech also established its first sales distributor in Japan
in 1983. Since that time, Electrotech's presence in the Asia/Pacific region
has been further expanded by the appointment of agents for Hong Kong, South
Korea, Taiwan, Singapore and China. This geographical expansion has resulted
in increased flexibility and responsiveness to customer needs.
Electrotech believes that high quality customer support, customer training
and field consultation are key components in a customer's decision in
selecting a semiconductor equipment supplier. In that regard, Electrotech has
made a substantial investment in customer support and customer training and
presently has approximately 150 employees in the marketing, sales and customer
service areas.
Research, Development and Engineering
Since its formation, intensive, ongoing research has enabled Electrotech to
achieve leading-edge technological advancements in the field of semiconductor
manufacturing equipment. Electrotech has dedicated permanent research teams to
each of PVD, CVD and etch semiconductor manufacturing processes. As of
June 30, 1996, Electrotech employed 104 professional and technical personnel
in research and development. For the year ended June 30, 1996, Electrotech's
research, development and engineering expenses were $10.3 million, compared to
$6.9 million for the year ended June 30, 1995.
Manufacturing
In order to maintain close control of its manufacturing processes,
Electrotech has adopted a policy of vertical integration. This approach has
enabled the organization to ensure quality control and reduce dependence on
third party suppliers. Electrotech operates facilities at which it
manufactures sheet metal components, machine parts and electronic assemblies
and assembles finished products. This strategy has provided benefits to
Electrotech, including supplier independence, tighter cost control of
components and sub-assemblies, and controllable delivery performance.
Due to recent growth in Electrotech's sales and its development of new
products, Electrotech's existing facilities have reached capacity. Electrotech
has leased a 102,000 square foot facility into which it moved certain of its
corporate headquarters sales, customer support and financing operation in
January 1996. Approximately 20,000 square feet of the facility are currently
in use, with the remainder being built out with a view to full occupancy in
early 1997. See "--Properties."
Competition
The markets served by Electrotech's products are highly competitive and
subject to rapid technological change. Significant competitive factors include
system performance, cost of ownership (which is dependent upon yield,
throughput and reliability), size of installed base, depth and breadth of
product line and customer support.
Electrotech faces significant competition from various suppliers of systems
that utilize alternative technologies. In the PVD market, Electrotech's
Forcefill(TM) technology faces competition from suppliers of aluminum and
tungsten-plug PVD systems, such as Applied Materials, and a number of other
competitors, including NEC Anelva, MRC, Novellus, Varian and Ulvac.
Electrotech's Flowfill(TM) technology faces competition from other CVD
manufacturers including Applied Materials, Lam Research, Novellus and Watkins-
Johnson. In the etch market, Electrotech faces competition from suppliers of
plasma etch systems, including Applied Materials, Hitachi, Lam Research, PMT
and Tokyo Electron.
Most of Electrotech's competitors are substantially larger companies with
broad product lines, and have well established reputations in the PVD, CVD,
SOG and etch markets, greater experience with high volume manufacturing,
broader name recognition, substantially larger customer bases and
substantially greater financial, technical, manufacturing and marketing
resources than Electrotech. Electrotech also faces potential competition from
new entrants in the market, including established manufacturers in other
segments of the semiconductor capital equipment market, who may decide to
diversify into Electrotech's market segments. There can be no
72
<PAGE>
assurance that Electrotech's competitors will not develop enhancements to or
future generations of competitive products that will offer price and
performance features that are superior to those offered by Electrotech's
systems.
Intellectual Property
Electrotech relies on a variety of types of intellectual property protection
to protect its proprietary technology, including patent, copyright, trademark
and trade secret laws, non-disclosure agreements, and other intellectual
property protection methods. Although Electrotech believes that its patents
and trademarks may have value, Electrotech believes that its future success
will also depend on the innovation, technical expertise and marketing
abilities of its personnel. Electrotech currently holds two patents in the
United Kingdom, five patents in the United States, two patents in Taiwan, and
one patent in each of Germany, France, Italy and the Netherlands. Electrotech
has approximately 49 patent applications pending worldwide. Electrotech's
patents and patent applications pending are all in the field of semiconductor
manufacture and are predominantly concerned with inductively coupled plasma
etching (ICP), deposition of dielectric layers by plasma and thermal means and
in particular the global planarization by a dielectric film (Flowfill(TM)) and
the process of filling semiconductor contact holes by deformation of
interconnect metal by high pressure (Forcefill(TM)) and the equipment related
to these processes. Electrotech uses a number of trademarks that are
registered or applied for registration in certain countries, including the
following: Electrotech(TM), Forcefill(TM) and Flowfill(TM).
Electrotech is currently defending a challenge to its ICP patent in Europe.
Due to the new material presented as part of that challenge, Electrotech's
related patent in the United States will be reexamined. In addition,
Electrotech is opposing an issued German patent held by a competitor which
relates to a process similar to Forcefill(TM). Electrotech's advisers believe
this patent is too broadly worded and as presently worded there is some
possibility that an infringement by Electrotech might be alleged. There can be
no assurance as to the outcome of any of these proceedings.
There can be no assurance that additional patents will be issued on
Electrotech's pending applications or that competitors will not be able to
legitimately ascertain proprietary information embedded in Electrotech's
products which is not covered by patent or copyright. In such case,
Electrotech may be precluded from preventing the competitor from making use of
such information. In addition, should Electrotech wish to assert its patent
rights against a particular competitor's product, there can be no assurance
that any claim in an Electrotech patent will be sufficiently broad nor, if
sufficiently broad, any assurance that such patent will not be challenged,
invalidated or circumvented, or that Electrotech will have sufficient
resources to prosecute its rights. Electrotech's policy is to vigorously
protect and defend its patents, trademarks and trade secrets.
Electrotech's involvement in any patent dispute or other intellectual
property dispute or in any action to protect trade secrets and know-how, even
if successful, could have a material adverse effect on Electrotech and its
business. Adverse determinations in any such action could subject Electrotech
to significant liabilities, require Electrotech to seek licenses from third
parties, which might not be available, and possibly prevent Electrotech from
manufacturing and selling its products, any of which could materially and
adversely affect Electrotech and its business.
Backlog
At August 31, 1996, Electrotech's backlog was $19.5 million. Electrotech's
backlog at August 31, 1996 consisted primarily of orders for 11 systems.
Electrotech includes in its backlog all purchase orders that provide for
delivery within twelve months. Electrotech's business is characterized by
large purchase contracts for standard products with related customized
options. All orders are subject to cancellation or delay by the customer with
limited or no penalty. Because of possible changes in delivery schedules and
cancellations of orders, Electrotech's backlog at any particular date is not
necessarily representative of actual sales for any succeeding periods.
73
<PAGE>
Employees
At June 30, 1996, Electrotech had 558 employees worldwide, including 105
engaged in research and development, 120 in customer service, 269 in
manufacturing, 29 in finance and administration and 35 in sales and marketing.
None of the employees of Electrotech are covered by a collective bargaining
agreement. Electrotech believes its relationships with its employees to be
good.
Properties
Significant properties of Electrotech in the southwest of England and south
Wales are as follows:
<TABLE>
<CAPTION>
LEASE
APPROXIMATE EXPIRATION
LOCATION SQUARE FEET PURPOSE DATE
-------- ----------- ------- ----------
<S> <C> <C> <C>
Coed Rhedyn Ringland Way
Newport, Gwent 102,000 Corporate Office and March 25, 2010
Manufacturing
Whale Wharf Littleton-
Upon-Severn, Bristol 55,700 Engineering and Owned
Manufacturing
2 and 3 Nine Mile Point 17,100 Manufacturing November 20, 2004
Industrial Estate
Cwmfelinfach, Gwent
Units 1, 2 and 5 12,500 Sheet Metal Fabrication September 29, 1999
Old Mixon Crescent
Winterstoke Road
Weston--Super Mare--
Somerset
19/20 Nailsea Trading
Estate 14,800 Electrical Manufacturing December 25, 2004
Southfield Road, Nailsea and Storage
</TABLE>
An environmental survey carried out by Chemex International plc in respect
of all currently owned properties and previously and currently leased
properties of Electrotech proposes a program of environmental cleanup. The
estimated cleanup costs for the Whale Wharf property is $315,000 and the
estimated costs for all other properties is $193,000. See Note 29 of the Notes
to the Combined Financial Statements of Electrotech.
Legal Proceedings
In the ordinary course of its business, Electrotech may be involved in legal
proceedings from time to time. As of the date hereof, there are no material
legal proceedings pending against Electrotech.
74
<PAGE>
PRICE RANGE OF COMMON STOCK
PMT's Common Stock began trading in the over-the-counter market on August
23, 1995 upon effectiveness of the registration statement relating to PMT's
initial public offering (the "Initial Public Offering") and is quoted on
Nasdaq under the symbol "PMAT". The quarterly high and low sale prices for
Common Stock as reported on Nasdaq for each full quarterly period since August
23, 1995 are as follows:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1995
Fourth Quarter................................................ $17.50 $ 9.00
1996
First Quarter................................................. $16.25 $ 8.63
Second Quarter................................................ $20.25 $11.00
Third Quarter (through September 9, 1996)..................... $15.75 $10.50
</TABLE>
As of September 9, 1996, there were 107 shareholders of record of Common
Stock.
PMT has not declared or paid cash dividends to its shareholders. PMT
anticipates that all of its earnings in the near future will be retained for
the development and expansion of its business and, therefore, does not
anticipate paying dividends on its Common Stock in the foreseeable future.
Declaration of dividends on the Common Stock will depend, among other things,
upon levels of indebtedness, future earnings, the operating and financial
condition of PMT, its capital requirements and general business conditions.
The agreements governing PMT's indebtedness contain provisions which prohibit
PMT from paying dividends on its Common Stock. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations of PMT--
Liquidity and Capital Resources."
On July 17, 1996, the last trading day prior to the first public
announcement by PMT of the proposed Acquisition, the closing price of Common
Stock reported on Nasdaq was $12.625 per share. On September 9, 1996, the
closing price of Common Stock as reported on Nasdaq was $11.625 per share.
There is no public market for the Electrotech shares. As of September 9,
1996, there were five stockholders of record of Electrotech.
75
<PAGE>
MANAGEMENT
MANAGEMENT OF PMT
The following table sets forth certain information concerning PMT's
executive officers. Certain information concerning the nominees for election
as directors is set forth in "Proposal No. 2--Election of Directors."
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Dr. Gregor A. Campbell.. 36 Director, President and Chief Executive Officer
John A. Rollwagen....... 55 Director and Chairman of the Board
James F. Marshall....... 47 Executive Vice President and Chief Operating Officer
John W. LaValle......... 39 Vice President, Chief Financial Officer and Secretary
Harvey J. Frye.......... 44 Vice President, Sales & Marketing
Steve Rhoades........... 35 Vice President and General Manager of CVD Partnership
Dr. David J. Hemker..... 34 Vice President, Technology
Robert J. Snyder........ 54 Vice President, Operations
Craig S. Montesanti..... 37 Director of Finance and Administration
</TABLE>
Dr. Campbell is a founder of PMT, and has been a director since PMT was
formed in 1985. Dr. Campbell has been the President and Chief Executive
Officer of PMT since 1988. Dr. Campbell also served as PMT's Secretary from
August to December 1994.
Mr. Rollwagen joined PMT's board of directors as Chairman in December 1993.
From August 1975 to January 1993, Mr. Rollwagen served in various executive
positions at Cray Research, Inc. Mr. Rollwagen became President of Cray
Research in 1977 and Chairman and Chief Executive Officer in 1981. Mr.
Rollwagen also currently serves as a senior advisor to St. Paul Venture
Capital, Inc. ("St. Paul Venture Capital") and as a director of Computer
Network Technology, Inc.
Mr. Marshall joined PMT in February 1992 as Senior Vice President,
Operations, and became Executive Vice President and Chief Operating Officer in
June 1993. From January 1991 to February 1992, Mr. Marshall served as the
Chief Operating Officer of the Thermco Systems Division of Silicon Valley
Group Inc.
Mr. LaValle joined PMT in November 1994 as Vice President and Chief
Financial Officer, and became Secretary in December 1994. Before joining PMT,
Mr. LaValle served from September 1989 to November 1994 as Vice President,
Chief Financial Officer and Secretary of Superconductor Technologies, Inc.
Mr. Frye joined PMT in June 1994 as Vice President, Sales, and became Vice
President, Sales & Marketing in May 1995. Prior to joining PMT, Mr. Frye
served as Vice President of Fab Product Sales for KLA Instruments Corp. from
March 1993 to June 1994, and was Vice President, Sales for KLA Instruments
Corp.'s Wafer Inspection Division from June 1986 to March 1993.
Mr. Rhoades joined PMT in October 1993, became Vice President, Engineering
in April 1995 and became the Vice President and General Manager of the CVD
Partnership in July 1996. From March 1990 to October 1993, Mr. Rhoades was
employed by Applied Materials, where he managed metal etch process
development.
Dr. Hemker joined PMT in August 1993, and became Vice President, Technology
in May 1995. From April 1989 to August 1993, Dr. Hemker was a member of the
technical staff at Applied Materials.
Mr. Snyder joined PMT in March 1996 as Vice President of Operations. Before
joining PMT, Mr. Snyder served from September 1992 to December 1995 as Vice
President and General Manager of two divisions of Joslyn Corporation, Air Dry
Corporation and ADK Pressure Equipment Corporation, and was President of
Ultranautics from December 1990 to September 1992.
76
<PAGE>
Mr. Montesanti joined PMT in February 1991 as Director of Finance and
Administration. Before joining PMT, Mr. Montesanti served from February 1983
to February 1991 as Assistant Controller of Ioptex Research Inc.
Officers are appointed by the Board of Directors and serve at the discretion
of the Board. There are no family relationships among the directors and
executive officers of PMT.
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table sets forth all compensation received for services
rendered to PMT in all capacities, for the year ended December 31, 1995 and
the ten months ended December 31, 1994, by (i) PMT's Chief Executive Officer
and (ii) each of the other four most highly compensated executive officers of
PMT who were serving as executive officers at December 31, 1995 and whose
total compensation exceeded $100,000 (collectively, the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
SECURITIES
COMPENSATION UNDERLYING
FISCAL ------------------ STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR(1) SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)
- --------------------------- ------- --------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Dr. Gregor A. Campbell.. 1995 $160,000 $36,708 96,666(6) $ 779(2)
President and Chief 1994 135,383 25,000 -- 185(2)
Executive Officer
John A. Rollwagen(3).... 1995 100,000 -- 73,333 --
Director and Chairman 1994 44,000 -- -- --
of the Board
James F. Marshall....... 1995 140,001 339 30,000(6) 174(2)
Executive Vice 1994 118,462 25,000 -- 119(2)
President and
Chief Operating Officer
John W. LaValle......... 1995 120,000 173 20,000(6) 66(2)
Vice President, Chief 1994 11,538 -- 36,667 --
Financial Officer
and Secretary
Harvey J. Frye.......... 1995 140,000 256 30,000(6) 35,802(4)
Vice President, Sales & 1994 82,385 10,000 45,000 10,760(5)
Marketing
</TABLE>
- --------
(1) During 1994, PMT changed its fiscal year end from the last day of February
to December 31. Consequently, compensation information presented in this
table for 1994 is for a ten-month period only.
(2) This amount represents premiums paid by PMT for life insurance of which
the officer is the beneficiary.
(3) In June 1995, Mr. Rollwagen agreed to increase his duties as Chairman of
the Board to a half-time basis, and in exchange therefor, PMT agreed to
pay him an annual salary of $144,000 as well as to pay for certain
expenses. See "Proposal No. 2--Election of Directors--Meetings of the
Board of Directors and Director Compensation."
(4) Of this amount, (i) $30,000 represents reimbursement for relocation
expenses, (ii) $102 represents premiums paid by PMT for life insurance of
which the officer is the beneficiary and (iii) $5,700 represents a car
allowance.
(5) Of this amount, (i) $7,170 represents reimbursement of relocation
expenses, (ii) $82 represents premiums paid by PMT for life insurance of
which the officer is the beneficiary and (iii) $3,508 represents a car
allowance.
(6) Does not include stock options of 18,000, 12,000, 7,000 and 7,000 to
purchase shares of Common Stock at $8.875 per share that were granted to
Dr. Campbell and Messrs. Marshall, LaValle and Frye, respectively, in
January 1996.
77
<PAGE>
PMT currently has no employment contracts with any of the Named Executive
Officers. However, upon the dissolution or liquidation of PMT or upon any
reorganization, merger or consolidation in which PMT does not survive, PMT's
1991 Stock Option Plan, and each outstanding option granted thereunder shall
terminate, provided that each optionee to whom no substitute option has been
tendered by the surviving corporation in any such transaction shall have the
right to exercise in whole or in part any unexpired option or options issued
to him or her, without regard to the vesting provisions thereof.
Upon the effectiveness of the Acquisition (and as a condition to the
obligations of the Electrotech shareholders to consummate the Acquisition),
PMT will enter into an Employment Agreement with Nigel Wheeler pursuant to
which Mr. Wheeler will be employed by PMT as its President and Chief Operating
Officer for a three-year term. See "Proposal No. 1--Terms of the Acquisition
and Related Transactions--Related Agreements."
1991 STOCK OPTION PLAN
PMT's 1991 Stock Option Plan (the "Option Plan") provides for the granting
of either incentive stock options or nonqualified stock options to specified
employees, directors, consultants and advisors of PMT. The Option Plan is
administered by the Compensation Committee of the Board of Directors.
The exercise price of stock options granted under the Option Plan must be
equal to at least the fair market value of the stock subject to the option on
the date of the grant (or 110% with respect to holders of more than 10% of the
voting power of PMT's outstanding Common Stock). Options granted under the
Option Plan are non-transferable and generally expire thirty days after the
termination of an optionee's service to PMT. See "Proposal No. 3--Amendment of
PMT's 1991 Stock Option Plan" for further information regarding the Option
Plan.
STOCK OPTION GRANTS
The following table sets forth each grant of stock options made during the
year ended December 31, 1995 to each of the Named Executive Officers. No stock
appreciation rights ("SARs") have ever been granted by PMT.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED(#) PERIOD(%) ($/SH)(1) DATE 5% 10%
---- ---------- ------------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Dr. Gregor A. Campbell.. 96,666(3) 24.6% $6.30 06/02/2005 $ 383,667 $ 968,303
John A. Rollwagen....... 73,333(3) 18.7 6.30 06/02/2005 291,059 734,577
James F. Marshall....... 20,000(3) 5.1 6.30 06/02/2005 79,380 200,340
10,000(4) 2.5 1.65 05/11/2005 10,395 26,235
John W. LaValle......... 20,000(3) 5.1 6.30 06/02/2005 79,380 200,340
Harvey J. Frye.......... 20,000(3) 5.1 6.30 06/02/2005 79,380 200,340
10,000(4) 2.5 1.65 05/11/2005 10,395 26,235
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
- --------
(1) Represents the fair market value of the underlying shares of Common Stock
at the time of grant.
(2) Represents the value of the shares of Common Stock issuable upon the
exercise of the option, assuming the stated rates of price appreciation
for ten years, compounded annually, with the aggregate exercise price
deducted from the final appreciated value. Such annual rates of
appreciation are for illustrative purposes only, are based on requirements
of the Commission and do not reflect PMT's estimate of future stock
appreciation. No assurance can be given that such rates of appreciation,
or any appreciation, will be achieved.
78
<PAGE>
(3) Represents stock options which were to vest in equal annual increments of
20% over a five-year period following their date of grant, June 2, 1995,
except that the Board of Directors could, at its discretion, accelerate
the vesting of 33 1/3% of such options based upon the future performance
of PMT. In January 1996, the Board of Directors accelerated the vesting of
such 33 1/3% of the options in accordance with the terms of the grant.
(4) Represents stock options which vest in equal annual increments of 20%
following their date of grant, May 11, 1995.
AGGREGATED STOCK OPTION EXERCISES IN FISCAL YEAR 1995 AND FISCAL YEAR-END
OPTION VALUES
The following table sets forth the number and value of shares acquired by
the Named Executive Officers upon exercise of stock options during PMT's
fiscal year ended December 31, 1995 and of the exercisable and unexercisable
options held by each of the Named Executive Officers at December 31, 1995.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR- FISCAL YEAR-
SHARES END(#) END($)(1)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- ----------- ----------- ------------- -----------------
<S> <C> <C> <C> <C>
Dr. Gregor A. Campbell.. -- -- 0/96,666 $ 0/$477,497
John A. Rollwagen....... -- -- 9,333/87,333 95,197/ 505,798
James F. Marshall....... -- -- 28,666/68,000 292,393/ 582,600
John W. LaValle......... 7,333 $74,797 0/49,334 0/ 398,207
Harvey J. Frye.......... -- -- 9,000/66,000 91,800/ 562,200
</TABLE>
- --------
(1) These values are calculated using the December 29, 1995 closing price of
Common Stock on Nasdaq of $11.25 per share, less the exercise price of the
options, multiplied by the number of shares to which the options relate.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors of PMT (the
"Compensation Committee") consisted of Messrs. Rollwagen, Jones and Robelen
during the fiscal year ended December 31, 1995. Mr. Robelen resigned as a
director of PMT and a member of the Compensation Committee, effective
April 24, 1996. Mr. Rollwagen resigned from the Compensation Committee,
effective April 24, 1996. Simultaneously with such resignations from the
Compensation Committee, the Board of Directors voted to reduce the number of
members of the Compensation Committee from three to two. On April 24, 1996,
Charles Thompson was appointed by the Board to fill the remaining vacancy on
the Compensation Committee.
Other than Mr. Rollwagen, PMT's Chairman of the Board, none of these
individuals was at any time during the fiscal year ended December 31, 1995 or
at any other time an officer or employee of PMT. No executive officer of PMT
serves as a member of the Board or the Compensation Committee of any other
entity which has one or more executive officers serving as a member of PMT's
Board of Directors or Compensation Committee. See "Proposal No. 2--Election of
Directors--Meetings of the Board of Directors and Director Compensation"
regarding the payment of salary and grant of a stock option to Mr. Rollwagen
during the 1995 fiscal year.
79
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 24, 1995, PMT sold shares of Series F Preferred Stock convertible
into an aggregate of 541,444 shares of Common Stock at an as-converted
purchase price of $6.30 per share in private financings. Certain of these
shares were sold to the following director of PMT, entities associated with
directors or former directors of PMT and other holder of record of more than
five percent of the outstanding Common Stock.
<TABLE>
<CAPTION>
SHARES OF
NAME COMMON STOCK(1)
---- ---------------
<S> <C>
John A. Rollwagen.............................................. 7,936
Entities Associated with Directors or Former Directors
Brentwood Associates V, L.P. ................................ 69,913
St. Paul Fire and Marine Insurance Company................... 85,417
Innocal L.P. ................................................ 45,595
Norwest Equity Partners V.................................... 51,517
Other 5% Shareholders
SBIC Partners, L.P. ......................................... 54,477
</TABLE>
- --------
(1) Represents shares of Common Stock issued upon conversion of Preferred
Stock in connection with the Initial Public Offering.
PMT believes the foregoing transactions were in its best interests and were
on terms no less favorable to PMT than could be obtained from unaffiliated
third parties.
In May 1995, the Board of Directors of PMT granted to each of Messrs.
Marshall and Frye an option to purchase 10,000 shares of Common Stock at an
exercise price of $1.65 per share. These options vest in equal annual
increments over a five-year period following the date of grant.
In June 1995, the Compensation Committee granted to Dr. Campbell and Messrs.
Marshall, LaValle and Frye options to purchase 96,666 shares, 20,000 shares,
20,000 shares and 20,000 shares of Common Stock, respectively, each at an
exercise price of $6.30 per share. The Committee provided that two-thirds of
the shares covered by these options would vest in equal annual increments over
a five-year period following their date of grant, and one-third of the shares
covered by each option would vest in their entirety only on the date which is
five years from the date of grant. However, the Board of Directors retained
the discretion to accelerate the vesting of these one-third portions based
upon the future performance of PMT. In January 1996, the Board voted to
accelerate the vesting of such portions of the options.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS OF PMT
The Compensation Committee recommends to the Board of Directors general
compensation policies for the Company, oversees the Company's compensation
plans and specific compensation levels for executive officers, and administers
the Bonus Plan and the Option plan.
The following is the Compensation Committee's report submitted to the Board
of Directors addressing the compensation of the Company's executive officers
for 1995.
COMPENSATION POLICY
The Company's executive compensation policy is designed to establish an
appropriate relationship between executive pay and the Company's annual
performance, long term growth objectives and ability to attract and retain
qualified executive officers. The Compensation Committee addresses this
objective by integrating competitive annual base salaries with (a) bonuses
based on annual corporate performance and the achievement of individual
performance objectives, through the Bonus Plan, and (b) stock option grants
under the Option Plan. The Compensation Committee believes that cash
compensation in the form of salary and bonus provides
80
<PAGE>
Company executives with appropriate immediate rewards for success in current
operations, while stock option grants promote management stock ownership and
thereby expand management's stake in the long-term performance and success of
the Company.
For 1995, the Compensation Committee approved the base salaries of each of
the Company's executive officers. In determining such base salaries, the
Company relied primarily on a survey prepared by Radford Associates, a
division of the Alexander and Alexander Consulting Group, of salaries paid to
executive officers of semiconductor equipment companies and other high
technology companies with sales comparable to those of the Company. For 1995,
the Compensation Committee set the base salaries of the Company's executive
officers generally at the median level of the salaries reflected in the
Radford survey.
In 1995, the executive officers of the Company, including the President and
Chief Executive Officer, as well as six other key employees of the Company,
were each granted options under the Option Plan. The number of options that
each executive officer or employee was granted was based primarily on the
executive's or employee's ability to influence the Company's long-term growth
and profitability. The vesting provisions of the options granted under the
1991 Option Plan are designed to encourage longevity of employment with the
Company.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The Compensation Committee believes that Dr. Campbell, the Company's
President and Chief Executive Officer, provides valuable services to the
Company, and that his compensation should therefore be competitive with that
paid to executives at comparable semiconductor equipment companies. In
addition, the Compensation Committee believes that the compensation of the
President and Chief Executive Officer should be heavily influenced by Company
performance. Therefore, although there has necessarily been some subjectivity
in setting Dr. Campbell's salary, major elements of his compensation package
are directly tied to Company performance.
For 1995, Dr. Campbell's salary remained at $160,000, an amount the
Compensation Committee deemed appropriate in light of the Company's stage of
growth and salaries paid to chief executive officers of other growth
technology companies.
INTERNAL REVENUE CODE SECTION 162(m)
Under Section 162 of the Code, the amount of compensation paid to certain
executives that is deductible with respect to PMT's corporate taxes is limited
to $1,000,000 annually. It is the current policy of the Compensation Committee
to maximize, to the extent reasonably possible, PMT's ability to obtain a
corporate tax deduction for compensation paid to executive officers of PMT to
the extent consistent with the best interests of PMT and its shareholders.
The foregoing report has been furnished by Messrs. Jones and Thompson.
81
<PAGE>
COMPANY PERFORMANCE
The following graph shows a comparison of cumulative total stockholder
returns for the Company, the Nasdaq Composite Index and the Philadelphia
Semiconductor Index for the period during which the Company's Common Stock has
been registered under Section 12 of the Exchange Act.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG PLASMA & MATERIALS TECHNOLOGIES, NASDAQ COMPOSITE
INDEX AND PHILADELPHIA SEMICONDUCTOR INDEX
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
PLASMA & NASDAQ PHILADELPHIA
Measurement Period MATERIALS COMPOSITE SEMICONDUCTOR
(45 Weeks) TECHNOLOGIES INDEX INDEX
- --------------------- --------------- --------- -------------
<S> <C> <C> <C>
Measurement Pt-08/25/1995 $100.00 $100.00 $100.00
FWE 09/01/1995 $ 96.80 $100.00 $ 98.70
FWE 09/08/1995 $101.90 $103.90 $107.10
FWE 09/15/1995 $105.10 $103.10 $100.10
FWE 09/22/1995 $101.30 $103.30 $101.10
FWE 09/29/1995 $ 89.20 $102.30 $ 99.10
FWE 10/06/1995 $ 75.90 $ 99.20 $ 90.70
FWE 10/13/1995 $ 73.40 $ 99.80 $ 88.50
FWE 10/20/1995 $ 72.20 $101.90 $ 90.80
FWE 10/27/1995 $ 68.40 $100.50 $ 90.50
FWE 11/03/1995 $ 58.20 $104.50 $ 93.60
FWE 11/10/1995 $ 58.20 $104.30 $ 89.70
FWE 11/17/1995 $ 48.10 $102.50 $ 82.60
FWE 11/24/1995 $ 46.80 $101.00 $ 78.20
FWE 12/01/1995 $ 66.50 $103.50 $ 80.20
FWE 12/08/1995 $ 63.30 $104.20 $ 80.00
FWE 12/15/1995 $ 50.60 $101.00 $ 72.30
FWE 12/22/1995 $ 55.70 $102.60 $ 74.10
FWE 12/29/1995 $ 57.00 $103.20 $ 72.30
FWE 01/05/1996 $ 53.20 $101.30 $ 70.70
FWE 01/12/1996 $ 52.50 $ 98.80 $ 64.80
FWE 01/19/1996 $ 46.80 $ 99.90 $ 62.60
FWE 01/26/1996 $ 59.50 $102.10 $ 67.70
FWE 02/02/1996 $ 69.60 $105.10 $ 70.60
FWE 02/09/1996 $ 81.00 $107.30 $ 71.90
FWE 02/16/1996 $ 69.00 $106.90 $ 69.70
FWE 02/23/1996 $ 77.20 $109.60 $ 73.90
FWE 03/01/1996 $ 69.60 $106.50 $ 64.40
FWE 03/08/1996 $ 63.40 $104.30 $ 62.20
FWE 03/15/1996 $ 65.80 $107.80 $ 65.90
FWE 03/22/1996 $ 63.90 $108.10 $ 64.50
FWE 03/29/1996 $ 64.60 $108.00 $ 63.40
FWE 04/04/1996 $ 63.30 $109.60 $ 64.20
FWE 04/12/1996 $ 69.60 $107.90 $ 64.90
FWE 04/19/1996 $ 79.70 $111.60 $ 69.60
FWE 04/26/1996 $ 72.20 $116.40 $ 76.50
FWE 05/03/1996 $ 73.40 $116.10 $ 76.40
FWE 05/10/1996 $ 91.10 $117.90 $ 73.70
FWE 05/17/1996 $ 92.40 $121.80 $ 76.60
FWE 05/24/1996 $ 98.70 $122.30 $ 71.20
FWE 05/31/1996 $ 94.30 $121.90 $ 74.20
FWE 06/07/1996 $ 97.50 $120.60 $ 71.40
FWE 06/14/1996 $ 86.10 $119.60 $ 68.90
FWE 06/21/1996 $ 80.40 $115.20 $ 63.60
FWE 06/28/1996 $ 75.90 $116.20 $ 62.90
</TABLE>
The chart above assumes $100 was invested on August 25, 1995 in PMT's Common
Stock, the Nasdaq Composite Index and the Philadelphia Semiconductor Index.
Total returns for the Nasdaq Composite Index and the Philadelphia Semiconductor
Index are weighted based on market capitalization.
- --------
* Total return assumes reinvestment of dividends.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act ("Section 16(a)"), requires PMT's directors
and certain of its officers, and persons who own more than 10% of a registered
class of PMT's equity securities (collectively, "Insiders"), to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "Commission"). Insiders are required by Commission regulations to furnish
PMT with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5s were
required for those persons, PMT believes that its Insiders complied with all
applicable Section 16 filing requirements for 1995, with the exception of (i)
G. Bradford Jones and Brian D. Jacobs, directors of PMT who each filed a Form 5
in February 1996 to reflect each person's receipt of a stock option grant in
June 1995 prior to the Initial Public Offering and (ii) St. Paul, which filed a
Form 5 in February 1996 to reflect its indirect acquisition of the same stock
option grant attributed to Mr. Jacobs described above as a result of an
agreement between Mr. Jacobs and St. Paul whereby ownership of the Common Stock
underlying such stock option grant will be transferred to St. Paul upon
exercise of such option by Mr. Jacobs.
82
<PAGE>
MANAGEMENT OF ELECTROTECH
The following table sets forth certain information concerning Electrotech's
directors and executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Christopher D. Dobson.......... 60 Group Chairman
Nigel Wheeler.................. 46 Chief Executive Officer & Director
Jeremy Linnert................. 52 Financial Controller & Company Secretary
Dr. Derek John Beauchamp....... 47 Customer Support Director
Nicolas Richard Carrington..... 33 Product Director
Carl D. M. Brancher............ 41 Strategic Operations Director
Peter Whitfield................ 46 Manufacturing Systems Director
David William Hawkins.......... 44 Manufacturing Director
</TABLE>
Mr. Dobson is a co-founder of Electrotech (and has been a director since
Electrotech was formed in 1968). Mr. Dobson has been Chairman of Electrotech
since 1971.
Mr. Wheeler joined Electrotech in September 1980 as General Manager of ET
Equipments Limited in South Wales, a division of Electrotech responsible for
manufacture of its components and assemblies, and became Chief Executive
Officer in July 1993. From July 1989 to July 1993 Mr. Wheeler served as
General Operations Director of Electrotech.
Mr. Linnert joined Electrotech in November 1988 as Management Accountant and
became Financial Controller and Company Secretary in December 1992. From
November 1988 to December 1992 Mr. Linnert served as assistant to the
Financial Director of Electrotech.
Dr. Beauchamp joined Electrotech in 1983 as a Project Manager in the Etch
division and later moved to the Sputtering division as Factory Manager. In
1990 Dr. Beauchamp was appointed Customer Support Director responsible for all
aspects of customer service.
Mr. Carrington joined Electrotech in 1991 as Technical Marketing Manager and
was appointed Product Director in September 1993, with responsibility for
coordinating the development and marketing of Electrotech products. From May
1990 to February 1991 Mr. Carrington was Area Sales Manager for Northern
Europe of Tegal Corporation.
Mr. Brancher joined Electrotech in March 1981 as Management Accountant and
became Strategic Operations Director in January 1995. Mr. Brancher became
General Manager of Electrotech's US West Coast Sales Operations, called ETS,
in 1982. In 1983 he returned to the UK to become Managing Director, first of
the Metallisation division, and then of the Etch division. In 1987 Mr.
Brancher became Managing Director of Electrotech Asia Ltd.'s operations in
Japan and returned to the UK in August 1989 when he became Managing Director
of Surface Technology Systems Limited, then an autonomous division of
Electrotech.
Mr. Whitfield joined Electrotech in 1986 as General Manager of ET Equipments
Limited. In 1989 Mr. Whitfield was promoted to Manufacturing Systems Director.
Mr. Hawkins joined Electrotech in 1981 as an Assistant Factory Manager. Mr.
Hawkins became General Manager of Electrotech's Plasma CVD division in 1982
and was appointed Managing Director of the same division in 1984. Mr. Hawkins
became Group Manufacturing Director in 1989.
83
<PAGE>
PRINCIPAL SHAREHOLDERS OF PMT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of Common Stock as of September 9, 1996 by (i) each person (or group
or affiliated persons) who is known by PMT to own beneficially more than 5% of
PMT's outstanding Common Stock, (ii) each of PMT's directors, (iii) PMT's
Chief Executive Officer and each of the other Named Executive Officers and
(iv) PMT's directors and executive officers as a group. Except as indicated in
the footnotes to this table, the persons named in the table, based on
information provided by such persons to the Company, have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws, where
applicable.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES BENEFICIALLY OWNED PERCENT OF CLASS(1)
- ------------------------------------ ------------------------- -------------------
<S> <C> <C>
St. Paul Venture Capital, 1,073,558 12.3%
Inc.(2).........................
8500 Normandale Lake Boulevard,
Suite 1940
Bloomington, MN 55437
SBIC Partners, L.P.(3)........... 638,604 7.3
201 Main Street, Suite 2302
Fort Worth, Texas 76102
Norwest Venture Capital 603,898 6.9
Management, Inc.(4).............
3000 Sand Hill Road, Building 3,
Suite 5
Menlo Park, CA 94025
Brentwood Associates(5).......... 564,796 6.5
11150 Santa Monica Boulevard,
Suite 1200
Los Angeles, CA 90025
Innocal L.P.(6).................. 534,484 6.1
600 Anton Boulevard, Suite 1270
Costa Mesa, CA 92626
Gregor A. Campbell(7)............ 374,277 4.3
John A. Rollwagen(8)............. 104,951 1.2
James F. Marshall(9)............. 43,332 *
John W. LaValle.................. 16,667 *
Harvey J. Frye(10)............... 29,334 *
Brian D. Jacobs(2)............... 1,073,558 12.3
G. Bradford Jones(5)............. 564,796 6.5
All current directors and
executive officers as a group
(13 persons)(11)................ 2,246,012 25.1%
</TABLE>
- --------
*Less than 1%.
(1) Percent ownership is based on the number of shares of Common Stock
outstanding as of September 9, 1996, which number was 8,692,132 shares,
plus any shares issuable pursuant to options or warrants held by the
person or class in question which may be exercised within 60 days after
September 9, 1996.
(2) Represents 1,027,448 shares held by St. Paul, and also includes 44,444
shares issuable under warrants held by St. Paul that are exercisable
within 60 days of September 9, 1996. Also includes 1,666 shares issuable
under stock options, held by Mr. Jacobs, exercisable within 60 days of
September 9, 1996. Pursuant to an agreement between Mr. Jacobs and St.
Paul, ownership of the shares underlying such stock option will be
transferred to St. Paul upon exercise of such stock options by Mr. Jacobs.
Mr. Jacobs, a director of PMT, is an executive vice president of St. Paul
Venture Capital, which is itself a wholly-owned subsidiary of St. Paul.
Mr. Jacobs disclaims beneficial ownership of the shares held by St. Paul,
except to the extent of his pecuniary interest therein.
84
<PAGE>
(3) Gregory J. Forrest, Nicholas B. Binkley and Jeffrey J. Brown are each
executive officers and directors of Forrest Binkley & Brown Venture Co.,
which is the sole general partner of Forrest Binkley & Brown L.P., the
managing general partner of SBIC Partners, L.P. Each of Messrs. Forrest,
Binkley and Brown disclaims beneficial ownership of the shares held by
SBIC Partners, L.P., except to the extent of his pecuniary interest
therein.
(4) Represents 552,381 shares held by Norwest Equity Partners IV ("Norwest
IV") and 51,517 shares held by Norwest Equity Partners V ("Norwest V").
Kevin G. Hall (a former director of PMT), Daniel J. Haggerty, John E.
Lindahl, George J. Still, Jr., Promod Haque, Ernest C. Parizeau, Stephen
R. Sefton, John L. Thomson and John P. Whaley are each general partners of
both Itasca Partners, the general partner of Norwest IV ("Itasca"), and of
Itasca Partners II, the general partner of Norwest V ("Itasca II"). Each
of Robert F. Zicarelli and Leonard J. Brandt is also a general partner of
Itasca. Each of the general partners of Itasca and of Itasca II disclaims
beneficial ownership of the shares held by Norwest IV and Norwest V,
except to the extent of his pecuniary interest therein.
(5) Represents 519,546 shares held by Brentwood V, L.P. ("Brentwood V") and
8,028 shares held by Mr. Jones. Also includes 35,555 shares issuable under
warrants held by Brentwood V and 1,666 shares issuable under stock
options, held by Mr. Jones, all of which are exercisable within 60 days of
September 9, 1996. Mr. Jones, a director of PMT, David W. Chonette, Roger
S. Davisson and John L. Walecka are each general partners of Brentwood V
Ventures, L.P., the general partner of Brentwood V. Each of Messrs. Jones,
Chonette, Davisson and Walecka disclaims beneficial ownership of the
shares held by Brentwood V, except to the extent of his pecuniary interest
therein.
(6) Represents 534,484 shares held by Innocal L.P. ("Innocal"). Russell J.
Robelen (a former director of PMT), Gerald A. Lodge, Raun J. Rasmussen,
H.D. Lambert and James E. Houlihan are each general partners of Innocal
Associates, L.P., the general partner of Innocal. Each of Messrs. Robelen,
Lodge, Rasmussen, Lambert and Houlihan disclaims beneficial ownership of
the shares held by Innocal, except to the extent of his pecuniary interest
therein.
(7) Includes 45,111 shares issuable under stock options exercisable within 60
days of September 9, 1996.
(8) Includes 33,999 shares issuable under stock options exercisable within 60
days of September 9, 1996.
(9) Represents shares issuable under stock options exercisable within 60 days
of September 9, 1996.
(10) Represents shares issuable under stock options exercisable within 60 days
of September 9, 1996.
(11) Includes an aggregate of 264,605 shares held by all current directors and
executive officers that are subject to options and warrants that are
exercisable within 60 days of September 9, 1996.
PROPOSAL NO. 2--ELECTION OF DIRECTORS
PMT's Bylaws provide that the Board of Directors shall have six directors. A
Board of six is therefore to be elected at the Annual Meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for PMT's six nominees. In the event that any nominee of PMT is unable or
declines to accept nomination of election, the proxies will be voted for any
nominee who shall be recommended by the present Board of Directors. Management
has no present knowledge that any of the persons named will be unavailable or
unwilling to serve. The terms of office for each person elected as a director
will continue until the next Annual Meeting of Shareholders or until such
director's successor has been elected and qualified.
The six nominees who receive the greatest number of votes cast for the
election of those directorships shall become directors at the conclusion of
the tabulation of votes. Upon the request of any person entitled to vote, each
holder of Common Stock voting in the election of directors may cumulate such
holder's votes and give one candidate a number of votes equal to the number of
directors to be elected multiplied by the number of shares of Common Stock
held by such holder, or distribute such holder's votes on the same principle
among as many candidates as the holder may select, provided that votes cannot
be cast for more than six candidates. However, no shareholder shall be
entitled to cumulate votes for any candidate unless, pursuant to the Bylaws of
the Company, the candidate's name has been placed in nomination prior to the
voting.
85
<PAGE>
No arrangement or understanding exists between any of such six nominees and
any other person or persons pursuant to which any nominee was or is to be
selected as a director or nominee. None of the nominees has any family
relationship to any other nominee or to any executive officer of PMT.
INFORMATION CONCERNING INCUMBENT DIRECTORS AND NOMINEES TO BOARD OF DIRECTORS.
Information is set forth below concerning the incumbent directors, all of
whom are also nominees for election as directors, and the year in which each
incumbent director was first elected as a director of PMT. Each nominee has
furnished the information as to his beneficial ownership of Common Stock as of
September 9, 1996 and, if not employed by PMT, the nominee's principal
occupation. Each nominee has consented to being named in this Proxy Statement
as a nominee for director and has agreed to serve as a director if elected.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Dr. Gregor A. Campbell...... 36 Director, President and Chief Executive Officer
John A. Rollwagen(1)........ 55 Director and Chairman of the Board
Brian D. Jacobs(1).......... 35 Director
G. Bradford Jones(2)........ 41 Director
Charles Thompson(2)......... 67 Director
Dr. Hiroyuki Mizuno......... 67 Director
</TABLE>
- --------
(1) Member of Audit Committee
(2) Member of Compensation Committee
Biographical information relating to Dr. Campbell and Mr. Rollwagen can be
found under "Management--Management of PMT."
Mr. Jacobs has served as a director of PMT since March 1993. Mr. Jacobs is
currently an executive vice president of St. Paul Venture Capital, which he
joined in June 1992. From June 1989 to June 1992, Mr. Jacobs was a senior
associate with the Security Pacific Venture Capital Group. Mr. Jacobs also
serves as a director of Cardiometrics, Inc. and several private corporations.
Mr. Jones has served as a director of PMT since August 1990. Mr. Jones is
currently a general partner in the firm of Brentwood Associates, which he
joined in 1981. Mr. Jones also serves as a director of Interpore
International, ISOCOR, Onyx Acceptance Corporation and several privately-held
companies.
Mr. Thompson was elected as a director of PMT in April 1996. Mr. Thompson
retired February 1, 1996 as Senior Vice President and Director of Worldwide
Marketing at Motorola Semiconductor, a position that he held for 20 years. Mr.
Thompson joined Motorola in 1969. Prior to 1969, Mr. Thompson worked for 18
years at General Electric Company in a variety of computer-related executive
positions.
Dr. Mizuno was elected as a director of PMT in April 1996. Dr. Mizuno is
retired, having served as Distinguished Technology Advisor at Matsushita
Electric Industrial Co., Ltd. ("Matsushita") in Osaka, Japan from June 1994 to
June 1996. Dr. Mizuno joined the Matsushita group of companies in 1952 and has
served Matsushita and its related companies in a number of senior management
positions. Until June of 1994, Dr. Mizuno served as Executive Vice President
and as a Senior Member of the Board of Directors of Matsushita. Dr. Mizuno
also served as Director of the New Media Development Association in Japan from
April 1991 to March 1993 and as Chairman of the Institute of Television
Engineers of Japan from June 1982 to May 1993.
Mr. Jacobs was elected as a director of PMT in accordance with an agreement,
among certain holders of PMT's Common Stock, to vote their shares for the
election of one person nominated by each of Norwest Equity Partners V, St.
Paul Fire and Marine Insurance Company and Innocal L.P. This voting agreement
terminated in June 1995.
86
<PAGE>
EXPANSION OF THE BOARD UPON CLOSING OF THE ACQUISITION
It is a condition to the closing of the Acquisition that Christopher D.
Dobson and Nigel Wheeler shall each have been elected as members of the Board
of Directors of PMT (and additionally shall have been elected as the Vice
Chairman of the Board and the President and Chief Operating Officer,
respectively, of PMT). See "Proposal No. 1--The Acquisition--Terms of the
Acquisition and Related Transactions--Conditions to the Acquisition."
Accordingly, if the Acquisition is approved by the shareholders of PMT and is
consummated, immediately prior to the closing of the Acquisition the Board of
Directors of PMT intends to (1) adopt an amendment to the Bylaws of PMT
increasing the size of PMT's Board of Directors from six to eight directors
and (2) elect Messrs. Dobson and Wheeler as directors of PMT, to serve in such
capacity until the next Annual Meeting of Shareholders or until their
successors are duly elected and qualified.
During the past five years, Mr. Dobson, age 60, has been the Group Chairman
of Electrotech, and Mr. Wheeler, age 46, has served as Director and Chief
Executive Officer of Electrotech.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has an Audit Committee and a Compensation Committee.
The Audit Committee, which was established in 1990, reviews the results and
scope of the audit and other services provided by PMT's independent auditors,
reviews and evaluates PMT's internal control functions, and monitors
transactions between PMT and its employees, officers and directors. The
Compensation Committee administers PMT's stock option and 401(k) plans and
designates compensation levels for officers and directors of PMT.
MEETINGS OF THE BOARD OF DIRECTORS AND DIRECTOR COMPENSATION
During 1995 the Board of Directors held seven meetings and took various
actions by unanimous written consent. Each incumbent director attended at
least 75% of the aggregate of (i) the total number of meetings held by the
Board of Directors during 1995 and (ii) the total number of meetings held by
all committees of the Board of Directors on which he served during that
period.
Each director is elected to hold office until the next annual meeting of
shareholders and until his respective successor is elected and qualified.
Except for Mr. Rollwagen, the Chairman of the Board, directors do not receive
salaries for services on the Board of Directors or on any Committees of the
Board of Directors. All outside directors may be reimbursed for certain out-
of-pocket expenses incurred in connection with attendance at Board and
committee meetings.
In June 1995 Mr. Rollwagen agreed to increase his duties as the Chairman of
the Board of PMT to a half-time basis. In consideration therefor, PMT agreed
to pay Mr. Rollwagen an annual salary of $144,000, with an additional bonus
payable in the future at the Board's discretion, to pay Mr. Rollwagen's one-
time expenses of $15,000, and to pay Mr. Rollwagen's yearly expenses in an
amount up to $111,600 per year. In addition, in June 1995, the Compensation
Committee approved the grant to Mr. Rollwagen of options to purchase 73,333
shares of Common Stock at an exercise price of $6.30 per share. Mr.
Rollwagen's options vest in equal annual increments over a five-year period
following the grant date, except that the Board of Directors had the
discretion to accelerate the vesting of 6,667 of such options based upon the
future performance of PMT. In January 1996, the Board of Directors voted to
accelerate the vesting of such 6,667 options in accordance with the terms of
the grant.
In addition, in June 1995 the Compensation Committee approved the grant to
each of Messrs. Jacobs and Jones of an option to purchase 8,333 shares of
PMT's Common Stock at an exercise price of $6.30 per share, which options
vests in equal annual increments over a five-year period following their date
of grant, June 2, 1995, subject to such individuals' continued service as
directors of PMT.
In April 1996 the Board of Directors adopted a policy authorizing the grant
of options to purchase 12,500 shares of Common Stock to each director upon his
or her initial election to the Board of Directors. Such policy
87
<PAGE>
further authorizes the grant of options to purchase 2,500 shares of Common
Stock to each director upon his or her reelection to such position at each
subsequent Annual Meeting of Shareholders. In April 1996 the Compensation
Committee, pursuant to such policy, granted options to purchase 12,500 shares
of Common Stock at an exercise price of $14.75 per share to each of Messrs.
Thompson and Mizuno upon their initial election to the Board of Directors. PMT
intends to grant to each incumbent director an option to purchase 2,500 shares
of Common Stock, at an exercise price equal to the fair market value of the
Common Stock at the date of grant, if and when such director is reelected at
any Annual Meeting.
PROPOSAL NO. 3--AMENDMENT OF PMT'S 1991 STOCK OPTION PLAN
At the Annual Meeting, the shareholders will be asked to approve an
amendment (the "Amendment") to the Company's 1991 Stock Option Plan (the
"Option Plan"). On April 24, 1996, the Board adopted an amendment, subject to
shareholder approval as described herein, increasing the number of shares of
Common Stock available for issuance upon the exercise of options granted under
the Option Plan from 900,000 to 1,300,000. Following the execution of the
Share Purchase Agreement, the Board adopted a further amendment to the Option
Plan to increase the number of shares of Common Stock available for issuance
upon the exercise of options thereunder to 2,400,000, subject to the closing
of the Acquisition. The Board adopted this further increase in light of (1)
the condition to the Acquisition, as set forth in the Share Purchase
Agreement, that on or prior to the closing of the Acquisition PMT shall have
granted under the Option Plan, to certain employees of Electrotech, options to
purchase an aggregate of approximately 800,000 shares of Common Stock and (2)
the substantially increased number of employees of the Company following the
Acquisition and the continuing need for additional available options to grant
to employees from time to time.
These amendments to the Option Plan are referred to herein collectively as
the "Amendment," and therefore constitute a proposal to increase the number of
shares issuable upon the exercise of options under the Option Plan to a
minimum of 1,300,000 shares and, conditioned and effective only upon the
closing of the Acquisition, to 2,400,000 shares. The Option Plan and
information regarding options granted thereunder is summarized below, but
these descriptions are subject to and are qualified in their entirety by the
full text of the Option Plan as currently in effect which is attached as Annex
C to this Proxy Statement. The full text of the proposed Amendment is attached
as Annex D to this Proxy Statement.
The purpose of the Amendment is to increase the number of shares of Common
Stock available for option grants which can serve as an incentive and to
encourage stock ownership by officers, directors, employees, consultants and
advisors of the Company or any of its subsidiaries. As of April 24, 1996, no
further shares of Common Stock were available for grants under the Option
Plan. On April 24 and July 11, 1996, options to purchase an aggregate of
77,718 shares of Common Stock were granted, subject to shareholder approval of
the Amendment. These option grants will not become effective unless the
Amendment is approved by the shareholders. The Board believes that increasing
the number of stock options available for grant under the Option Plan to
1,300,000 is advisable because such awards promote interest in the welfare of
the Company by allowing such persons to share in the success of the Company
and encouraging them to remain in the service of the Company. It also gives
the Company a means to attract qualified new employees. The further increase
in the number of stock options available for grant under the Option Plan to
2,400,000 upon the Acquisition is necessary in order to permit the grant of
options covering an aggregate of approximately 800,000 shares to employees of
Electrotech on or immediately prior to the Closing (which grant is a condition
to the obligations of the Electrotech Shareholders under the Share Purchase
Agreement) and to provide additional options for further incentives to
employees of the combined company following the Acquisition.
SUMMARY OF THE OPTION PLAN
The Option Plan provides for the granting of options ("Options") to purchase
shares of Common Stock to key employees, directors, consultants and advisors
of the Company or any of its Subsidiaries, to be selected as set forth below.
A person who holds an Option is referred to therein as a "Participant." For
purposes of the
88
<PAGE>
Option Plan, the term "Subsidiary" means any corporation, of which 50% or more
of the voting stock is owned by the Company or by a Subsidiary (as so defined)
of the Company. It is intended that the Options under the Option Plan will
either qualify for treatment as incentive stock options under Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), and be designated
"Incentive Stock Options," or not qualify for such treatment and be designated
"Nonqualified Stock Options."
The purpose of the Option Plan is to further the growth, development and
financial success of the Company and its Subsidiaries by providing additional
incentives to eligible Participants by assisting them in acquiring shares of
Common Stock and benefitting directly from the Company's growth, development
and financial success.
Eligibility. Employees, directors, consultants and advisers of the Company
or a Subsidiary are eligible to receive grants of Options under the Option
Plan. More than one Option may be granted to any one Participant. Only
employees of the Company or a Subsidiary may be granted Incentive Stock
Options, and no Incentive Stock Option may be granted to any person who then
owns stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company or of a Subsidiary unless (a) the Option Price
(as defined below) is at least 110% of the fair market value of the Common
Stock on the date of grant, and (b) the termination date of such Option is not
later than five years after the date such Option is granted.
The aggregate fair market value (determined as of the time an Option is
granted) of the Common Stock for which any Participant may be granted
Incentive Stock Options, first exercisable in any calendar year under the
Option Plan, may not exceed $100,000.
Administration. The Option Plan is administered by the full Board of
Directors of the Company or a committee thereof, and is presently administered
by the Compensation Committee of the Board (the "Committee").
The Committee is authorized to administer the Option Plan and (a) to select
the Participants, to specify the number of shares of Common Stock with respect
to which Options are granted to each such Participant, to specify the Option
Price and the terms of Options, and in general to grant Options; (b) to
determine, subject to eligibility requirements, whether Options will be
Incentive Stock Options or Nonqualified Stock Options; (c) to determine the
dates upon which Options are granted and to provide for the terms and
conditions of the Options in a manner consistent with the Option Plan, which
terms and conditions need not be identical as to the various Options granted;
(d) to interpret the Option Plan; (e) to prescribe, amend and rescind rules
relating to the Option Plan; and (f) to determine the rights and obligations
of Participants under the Option Plan.
Shares Subject to the Option Plan. The number of shares of Common Stock
which may be purchased pursuant to the exercise of Options granted under the
Option Plan is presently 900,000 shares. Pursuant to the Amendment, this
number would be increased to either 1,300,000 (if the Acquisition is never
consummated) or 2,400,000 (effective and conditioned upon the closing of the
Acquisition). The authorized number will be adjusted to reflect all stock
splits, stock dividends or similar capital changes. Upon the expiration or
termination of an outstanding Option which has not been exercised in full, any
unissued shares of Common Stock, will become available for the granting of
additional Options under the Option Plan. The maximum number of shares that
may be issued to any Participant is 500,000.
Option Price. The purchase price per share (the "Option Price") of the
shares of Common Stock underlying each Option is determined by the Committee
with respect to each specific Option, but may not be less than the fair market
value of such shares on the date of grant. Should the Company acquire another
entity, the Committee may authorize the issuance of Options to the individuals
performing services for the acquired entity in substitution of stock options
previously granted them in connection with their performance of services for
such entity upon the conditions the Committee shall determine. This will not
be necessary in connection with the Acquisition, as no employees of
Electrotech hold any Electrotech stock options.
89
<PAGE>
Exercise of Options. Subject to all other provisions of the Option Plan,
each Option is exercisable for the full number of shares of Common Stock
subject thereto, in five equal cumulative annual installments, commencing one
year after the date of grant (provided the Participant is employed by the
Company at the time of vesting), or in such other installments and intervals
as the Committee may specifically determine in granting such Option. However,
each Option must provide that it shall become fully exercisable in not more
than five years after the date of grant. Each Option must terminate and
expire, and no longer be subject to exercise, ten years after the date of
grant, or at such earlier date as the Committee may otherwise determine. The
Option may be exercised by the Participant by giving written notice to the
Company specifying the number of full shares to be purchased and accompanied
by payment of the full purchase price.
Option. Each Option granted under the Option Plan is evidenced by a written
stock option executed by the Company and delivered to the Participant.
Non-transferability. No Option is assignable or transferable except by will
or by the laws of descent and distribution. During the Participant's lifetime,
any Option granted to him or her shall be exercisable only by him or her.
After the Participant's death, his Option may be exercised, prior to its
termination as provided by Section 13(b), only by his or her legal
representative, his or her legatee or another person who acquired the right to
exercise the Option by reason of the death of the Participant.
Recapitalization, Reorganization, Merger or Consolidation. If the number of
outstanding shares of Common Stock of the Company changes or such shares are
exchanged for different securities through reorganization, merger,
consolidation, recapitalization, reclassification, stock split, stock dividend
or like capital adjustment, a proportionate adjustment will be made (a) in the
aggregate number of shares of Common Stock which may be issued pursuant to the
exercise of Options under the Option Plan, and (b) in the number, price and
kind of shares subject to any outstanding Option granted under the Option
Plan.
Upon the dissolution or liquidation of the Company or upon any
reorganization, merger or consolidation in which the Company does not survive,
the Option Plan and each outstanding Option will terminate; provided, that
each Optionee to whom no substitute option has been tendered by the surviving
corporation will have the right to exercise in whole or in part any unexpired
Option issued to him or her, without regard to the installment provisions
thereof.
Rights as a Shareholder. A Participant holding an Option has no rights as a
shareholder with respect to any shares covered by his or her Option, until the
date the stock certificate is issued for such shares. No adjustment will be
made for dividends or distributions or other rights for which the record date
is prior to the date such stock certificate is issued, except in connection
with certain recapitalizations, reorganizations, mergers or consolidations.
Termination of Options. Each Option granted under the Option Plan sets forth
a termination date, which must not be later than ten years from the date such
Option is granted. Except where earlier termination is required by the terms
of the Option, all Options terminate and expire upon the first to occur of the
following events:
(a) the expiration of 30 days from the date of such Participant's
termination of employment, but if the Participant is disabled at the time
of his or her termination of employment, the expiration is one year from
the date of the Participant's termination of employment;
(b) the expiration of 180 days from the date of the death of the
Participant if his or her death occurs while he or she is employed by the
Company or any of its Subsidiaries; or
(c) the termination of the Option in connection with certain
recapitalizations, reorganizations, mergers or consolidations.
The termination of employment of a Participant will not accelerate or
otherwise affect the number of shares with respect to which an Option may be
exercised, and the Option may only be exercised with respect to that number of
shares which could have been purchased under the Option had the Option been
exercised by the Participant on the date of such termination.
90
<PAGE>
Withholding of Taxes. The Company will deduct and withhold from the wages,
salary, bonus and other income paid by the Company to the Participant the
requisite tax upon the amount of taxable income, recognized by the Participant
in connection with the exercise in whole or in part of any Option or the sale
of Common Stock issued to the Participant upon exercise of the Option, as may
be required from time to time under any federal or state tax laws and
regulations. This withholding of tax will be made from the Company's
concurrent or next payment of wages, salary, bonus or other income to the
Participant or by payment to the Company by the Participant of the required
withholding tax, as determined by the Committee.
Termination of Option Plan. The Option Plan will terminate when all Options
granted have been fully exercised and all shares of Common Stock which may be
purchased pursuant to the exercise of such Options have been purchased or
expired but in any event not later than January 2001. However, the Board may,
at its discretion, terminate the Option Plan at any time. No such termination,
other than as provided for with respect to certain recapitalizations,
reorganizations, mergers or consolidations, will in any way affect any Option
then outstanding.
Amendment of Option Plan and Options. The Board of Directors may amend or
modify the Option Plan and outstanding Options at any time, provided that no
such amendment or modification may adversely affect the rights and obligations
of the Participants with respect to their outstanding Options without their
consent. Generally, no amendment of the Option Plan may, without the approval
of the Company's shareholders, (a) modify the class of individuals eligible to
receive Incentive Stock Options, or (b) increase the number of shares
available for issuance, except in the event of certain changes to the
Company's capital structure.
FEDERAL INCOME TAX CONSEQUENCES
Based on current provisions of the Code and the existing regulations
thereunder, the anticipated federal income tax consequences with respect to
options granted under the Option Plan are as described below. This discussion
does not address the tax consequences arising under the laws of any foreign,
state or local jurisdiction.
Incentive Stock Options. No taxable income will be recognized by a
Participant upon the grant of any Incentive Stock Option. Subject to the
following sentence, no taxable income will be recognized by a Participant upon
the exercise of any Incentive Stock Option so long as the Participant is an
employee of the Company from date of grant until 3 months before the date of
exercise. However, the amount by which the fair market value of Common Stock
purchased upon exercise of an Incentive Stock Option exceeds the Aggregate
Option Price of such stock constitutes an item of adjustment that could then
be subject to the alternative minimum tax in the year the option is exercised.
Additionally, the Company will not be entitled to any income tax deduction as
the result of the grant or exercise of an Incentive Stock Option.
Any gain or loss resulting from the subsequent sale of Common Stock acquired
upon exercise of an Incentive Stock Option will be long term capital gain or
loss if such sale is made after two years from the grant of the option and
after one year from the exercise, so long as the Participant is an employee of
the Company from the date of grant until three months before the date of
exercise. In the event of the Participant's death or disability prior to
exercise of an Incentive Stock Option, special rules apply in determining
whether gain or loss upon sale of the stock acquired upon exercise of such
option will be taxable as long term capital gain or loss.
If the subsequent sale of stock is made prior to the expiration of such two-
year and one-year periods, the Participant will recognize ordinary income in
the year of sale in an amount equal to the difference between the aggregate
Option Price (the "Aggregate Option Price") of the Common Stock and the fair
market value of the Common Stock on the date of exercise, although special
rules apply if such sale is a transaction in which a loss (if sustained) would
have been recognized by the Participant.
If the sale of Common Stock received upon exercise of an option qualifies
for long term capital gain treatment, any gain from such a sale would be taxed
at the current maximum federal income tax rate of 28%; ordinary income is
currently taxed at a maximum federal income tax rate of 39.6%.
91
<PAGE>
Nonqualified Stock Options. At the time of the grant of a Nonqualified Stock
Option, no taxable income will be recognized by the Participant and the
Company will not be entitled to a deduction. Upon the exercise of a
Nonqualified Stock Option, the Participant generally will recognize taxable
income, and the Company will then be entitled to a deduction, in the amount by
which the then fair market value of the shares of Common Stock issued to such
Participant exceeds the Aggregate Option Price. Income recognized by the
Participant upon exercise of a Nonqualified Stock Option will be taxed as
ordinary income. Such income constitutes "wages" with respect to which the
Company is required to deduct and withhold federal and state income tax.
Upon the subsequent disposition of shares of Common Stock acquired upon the
exercise of a Nonqualified Stock Option, the Participant will recognize
capital gain or loss in an amount equal to the difference between the proceeds
received upon disposition and the fair market value of such shares at the time
of exercise. If such shares have been held for more than one year at the time
of such disposition the capital gain or loss will be long term.
Acceleration of Stock Options Upon Transfer of Control. Pursuant to the
Option Plan, the exercisability of Nonqualified Stock Options and Incentive
Stock Options may be accelerated. Such acceleration will likely be determined
to be, in whole or in part, a "parachute payment" for federal income tax
purposes if it arises from any events connected with a change of control of
the Company. If the present value of all of the Participant's parachute
payments exceeds three times the Participant's average annual compensation for
the past five years, the Participant will be subject to a special excise tax
of 20% on the "excess parachute payment." Such tax will be applied to the
amount of such parachute payment which is in excess of the greater of such
average annual compensation of the Participant or an amount which the
Participant establishes as reasonable compensation. In addition, the Company
will not be allowed a deduction for such "excess parachute payment."
The foregoing summary of the effects of federal income taxation upon
Participants and the Company with respect to shares of Common Stock issued
under the Option Plan does not purport to be complete and reference is made to
the applicable provisions of the Code.
Information as to Option Plan Grants. The following table shows, as to each
of the Named Executive Officers and the various indicated individuals and
groups, the number of shares of Common Stock subject to options granted under
the Option Plan through September 9, 1996, together with the weighted average
exercise price payable per share.
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
NAME OPTION SHARES EXERCISE PRICE
---- ------------- --------------
<S> <C> <C>
Dr. Gregor A. Campbell......................... 114,667 $6.70
President, Chief Executive Officer and
Director
John A. Rollwagen.............................. 96,666 5.03
Chairman of the Board and Director
James F. Marshall.............................. 108,666 2.94
Executive Vice President and Chief Operating
Officer
John W. LaValle................................ 63,667 3.56
Vice President, Chief Financial Officer and
Secretary
Harvey J. Frye................................. 82,000 3.07
Vice President, Sales and Marketing
All current executive officers as a group
(8 persons)................................... 558,000(1) 4.79
Brian D. Jacobs................................ 8,333 6.30
Director
G. Bradford Jones.............................. 8,333 6.30
Director
</TABLE>
92
<PAGE>
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
NAME OPTION SHARES EXERCISE PRICE
---- ------------- --------------
<S> <C> <C>
Charles Thompson............................... 12,500(2) 14.75
Director
Dr. Hiroyuki Mizuno............................ 12,500(2) 14.75
Director
All non-employee directors as a group 41,666(3) 11.37
(4 persons)...................................
All employees, excluding executive officers but 378,052(4) 7.63
including all other officers, as a group......
</TABLE>
--------
(1) Includes a grant, covering 20,000 shares, which is subject to
shareholder approval of the Amendment.
(2)These grants are subject to shareholder approval of the Amendment.
(3) Includes grants covering an aggregate of 25,000 shares, which are
subject to shareholder approval of the Amendment.
(4) Includes grants, covering an aggregate of 32,718 shares, which are
subject to shareholder approval of the Amendment.
VOTE REQUIRED AND RECOMMENDATION OF BOARD OF DIRECTORS
Each holder of shares of Common Stock outstanding on the Record Date is
entitled to one vote per share on the proposal to approve the amendment to the
Option Plan to increase the number of shares that may be issued pursuant to
the Option Plan. Approval of such action requires the affirmative vote of a
majority of the outstanding shares of Common Stock entitled to vote thereon.
FOR ALL OF THE FOREGOING REASONS, THE BOARD BELIEVES THAT THE AMENDMENT IS
IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS AND UNANIMOUSLY
RECOMMENDS A VOTE FOR APPROVAL THEREOF.
PROPOSAL NO. 4--RATIFICATION OF THE APPOINTMENT OF
ERNST & YOUNG AS INDEPENDENT AUDITORS
The Audit Committee of the Board has selected Ernst & Young as independent
public accountants to audit the consolidated financial statements of PMT and
any subsidiaries thereof for the year ending December 31, 1996. A member of
that firm is expected to be present at the Annual Meeting, will have an
opportunity to make a statement if so desired, and will be available to
respond to appropriate questions. If the shareholders do not ratify the
selection of Ernst & Young, if it should decline to act or otherwise become
incapable of acting, or if its employment is discontinued, the Audit Committee
will appoint independent public accountants for fiscal 1996. Proxies solicited
by the Board will be voted in favor of ratification unless shareholders
specify otherwise.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG AS PMT'S INDEPENDENT AUDITORS
FOR THE FISCAL YEAR 1996.
93
<PAGE>
OTHER BUSINESS
PMT is not aware of any other business to be presented at the Annual
Meeting. All shares represented by PMT proxies will be voted in favor of the
proposals of PMT described herein unless otherwise indicated on the form of
proxy. If any other matters properly come before the meeting, PMT proxy
holders will vote thereon according to their best judgment.
SUBMISSION OF SHAREHOLDER PROPOSALS
Any shareholder who wishes to present a proposal for action at the annual
meeting of shareholders to be held in 1997 and who wishes to have it set forth
in the corresponding proxy statement and identified in the corresponding form
of proxy prepared by management must notify PMT no later than May 20, 1997 in
such form as required under the rules and regulations promulgated by the
Commission.
94
<PAGE>
ANNUAL REPORTS
A copy of PMT's Annual Report to Shareholders (which includes PMT's Annual
Report on Form 10-K) is being mailed to each shareholder of record together
with this Proxy Statement. PMT has also filed with the Commission its Annual
Report on Form 10-K for the fiscal year ended December 31, 1995. This Report
contains information concerning PMT and its operations. A COPY OF THIS REPORT
WILL BE FURNISHED TO SHAREHOLDERS WITHOUT CHARGE UPON REQUEST IN WRITING TO
John W. LaValle, Chief Financial Officer, Vice President and Secretary at 9255
Deering Avenue, Chatsworth, California 91311. Such reports are not a part of
PMT's soliciting material.
By Order of the Board of Directors
/s/ John W. LaValle
John W. LaValle,
Chief Financial Officer,
Vice President and Secretary
Chatsworth, California
September 11, 1996
95
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PMT
Report of Independent Auditors............................................ F-2
Consolidated Balance Sheets--December 31, 1994 and 1995 and June 30, 1996
(unaudited).............................................................. F-3
Consolidated Statements of Operations--Year ended February 28, 1994, Ten
months ended December 31, 1994, Year ended December 31, 1995, and Six
months ended June 30, 1995 and 1996 (unaudited).......................... F-5
Consolidated Statements of Shareholders' Equity (Deficit)--Year ended
February 28, 1994, Ten months ended December 31, 1994, Year ended
December 31, 1995, and Six months ended June 30, 1996 (unaudited) ....... F-6
Consolidated Statements of Cash Flows--Year ended February 28, 1994, Ten
months ended December 31, 1994, Year ended December 31, 1995, and Six
months ended June 30, 1995 and 1996 (unaudited) ......................... F-7
Notes to Consolidated Financial Statements................................ F-8
ELECTROTECH
Report of Independent Auditors............................................ F-18
Combined Profit and Loss Accounts--Years ended June 30, 1996, 1995 and
1994..................................................................... F-19
Combined Statements of Total Recognized Gains and Losses--Years ended June
30, 1996, 1995 and 1994.................................................. F-20
Combined Balance Sheets--June 30, 1996 and 1995........................... F-21
Combined Cash Flow Statements--Years ended June 30, 1996, 1995 and 1994... F-22
Notes to the Combined Financial Statements................................ F-23
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Plasma & Materials Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Plasma &
Materials Technologies, Inc. and subsidiary as of December 31, 1995 and 1994,
and the related consolidated statements of operations, shareholders' equity
(deficit), and cash flows for the year ended December 31, 1995, the ten month
period ended December 31, 1994 and the year ended February 28, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Plasma &
Materials Technologies, Inc. at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for the year
ended December 31, 1995, the ten month period ended December 31, 1994 and the
year ended February 28, 1994, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Woodland Hills, California
January 30, 1996
F-2
<PAGE>
PLASMA & MATERIALS TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents................... $ 3,563,753 $24,770,363 $ 8,474,627
Short-term investments...................... -- 13,992,109 15,098,658
Accounts receivable, less allowance of $0 at
December 31, 1995 and $33,522 at December
31, 1994................................... 1,088,612 8,423,272 16,591,556
Inventories.................................. 5,629,477 5,453,835 12,884,976
Demonstration inventory...................... 1,756,125 1,367,233 3,077,658
Prepaid expenses............................. 189,614 223,970 586,453
Advances to employees/officer/shareholder.... 55,145 -- --
----------- ----------- -----------
Total current assets...................... 12,282,726 54,230,782 56,713,928
Property, equipment and leasehold improve-
ments:
Machinery and equipment..................... 3,945,026 5,178,478 9,542,742
Furniture and fixtures...................... 834,771 1,171,833 1,384,252
Leasehold improvements...................... 1,326,624 1,383,191 1,624,741
----------- ----------- -----------
6,106,421 7,733,502 12,551,735
Less accumulated depreciation and amortiza-
tion....................................... 1,914,778 3,157,459 3,911,617
----------- ----------- -----------
4,191,643 4,576,043 8,640,118
Other assets................................. 156,555 486,182 1,626,498
----------- ----------- -----------
Total assets................................. $16,630,924 $59,293,007 $66,980,544
=========== =========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-3
<PAGE>
PLASMA & MATERIALS TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS--(CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Liabilities and shareholders' equity
(deficit)..............................
Current liabilities:
Revolving line of credit.............. $ 2,000,000 $ -- $ --
Accounts payable...................... 3,096,955 3,724,984 7,751,801
Warranty expense...................... 129,934 449,295 694,033
Accrued expenses...................... 239,126 298,721 1,136,405
Accrued salaries and related
liabilities.......................... 148,064 228,998 305,667
Current portion of capital lease
obligations.......................... 497,737 491,561 509,877
----------- ----------- -----------
Total current liabilities............ 6,111,816 5,193,559 10,397,783
Capital lease obligations, less current
portion................................ 733,086 686,230 434,090
Redeemable convertible preferred stock
(Series C, D, E and F) Issued and
outstanding--8,889,048 shares at
December 31, 1994...................... 14,205,000 -- --
Commitments and Contingencies
Shareholders' equity (deficit):
Preferred Stock undesignated
Authorized shares--20,000,000
Issued and outstanding--None
Convertible preferred stock (Series A
and B), no par value, aggregate
liquidation preference of $3,062,988
at December 31, 1994
Authorized shares--none at December
31, 1995 and 2,900,000 at December
31, 1994
Issued and outstanding--2,823,837 at
December 31, 1994.................... 3,035,903 -- --
Common Stock, no par value:
Authorized shares--16,666,666
Issued and outstanding--8,659,843 at
December 31, 1995 and 938,590 at
December 31, 1994.................... 179,259 60,975,483 61,089,597
Accumulated deficit................... (7,634,140) (7,562,265) (4,940,926)
----------- ----------- -----------
Total shareholders' equity.............. (4,418,978) 53,413,218 56,148,671
----------- ----------- -----------
Total liabilities and shareholders'
equity................................. $16,630,924 $59,293,007 $66,980,544
=========== =========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE>
PLASMA & MATERIALS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED ENDED YEAR ENDED SIX MONTHS ENDED JUNE 30,
FEBRUARY 28, DECEMBER 31, DECEMBER 31, --------------------------
1994 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales......... $ 6,243,900 $ 8,004,646 $20,889,713 $ 7,091,896 $ 17,946,259
License revenue....... 1,900,000 700,000 400,000 400,000 --
Contract revenue...... -- -- -- -- 848,678
----------- ----------- ----------- ------------ ------------
8,143,900 8,704,646 21,289,713 7,491,896 18,794,937
Costs and expenses:
Costs of goods sold... 4,258,783 5,403,614 11,143,716 3,746,756 9,127,436
Research and
development.......... 2,812,163 3,583,371 4,566,853 2,043,235 3,559,796
Selling, general and
administrative....... 2,224,116 3,382,246 5,943,702 2,736,093 4,266,702
----------- ----------- ----------- ------------ ------------
9,295,062 12,369,231 21,654,271 8,526,084 16,953,934
----------- ----------- ----------- ------------ ------------
(1,151,162) (3,664,585) (364,558) (1,034,188) 1,841,003
Interest:
Interest expense...... (226,671) (146,343) (293,603) (176,711) (91,176)
Interest income....... 32,053 125,630 776,846 28,793 883,994
----------- ----------- ----------- ------------ ------------
Income (loss) before
income tax provision... (1,345,780) (3,685,298) 118,685 (1,182,106) 2,633,821
Income tax provision.... 50,800 54,400 800 -- 12,482
----------- ----------- ----------- ------------ ------------
Net income (loss)....... $(1,396,580) $(3,739,698) $ 117,885 $ (1,182,106) $ 2,621,339
=========== =========== =========== ============ ============
Net income (loss) per
share.................. $ (0.75) $ 0.02 $ (0.24) $ 0.29
=========== =========== ============ ============
Number of shares used in
per share computation.. 5,013,127 6,593,311 5,023,435 9,131,432
=========== =========== ============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE>
PLASMA & MATERIALS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED
STOCK (SERIES A AND B) COMMON STOCK
------------------------ ---------------------- ACCUMULATED
SHARES AMOUNT SHARES AMOUNT DEFICIT TOTAL
----------- ----------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 1,
1993................... 2,813,837 $ 3,032,403 947,223 $ 186,823 $(2,399,207) $ 820,019
Exercise of options... -- -- 100 106 -- 106
Sale of (Series A)
Convertible Preferred
Stock................ 10,000 3,500 -- -- -- 3,500
Issue costs of (Series
C and D)
Redeemable Convertible
Preferred Stock...... -- -- -- -- (48,261) (48,261)
Repurchase of Common
Stock................ -- -- (23,333) (24,500) -- (24,500)
Net loss.............. -- -- -- -- (1,396,580) (1,396,580)
----------- ----------- --------- ----------- ----------- -----------
Balance at February 28,
1994................... 2,823,837 3,035,903 923,990 162,429 (3,844,048) (645,716)
Exercise of options... -- -- 14,600 15,330 -- 15,330
Sale of Common Stock
warrants............. -- -- -- 1,500 -- 1,500
Issue costs of (Series
E) Redeemable
Convertible Preferred
Stock................ -- -- -- -- (50,394) (50,394)
Net loss.............. -- -- -- -- (3,739,698) (3,739,698)
----------- ----------- --------- ----------- ----------- -----------
Balance at December 31,
1994................... 2,823,837 3,035,903 938,590 179,259 (7,634,140) (4,418,978)
Exercise of options... -- -- 48,460 50,883 -- 50,883
Issue costs of (Series
F) Redeemable
Convertible Preferred
Stock................ -- -- -- -- (46,010) (46,010)
Conversion of warrants
to Common Stock...... -- -- 64,553 -- -- --
Common Stock issued
during the Initial
Public Offering...... -- -- 3,162,500 40,093,235 -- 40,093,235
Conversion of
convertible preferred
stock (Series A and
B) to Common Stock... (2,823,837) (3,035,903) 941,279 3,035,903 -- --
Conversion of
redeemable
convertible preferred
stock (Series C, D, E
and F) to Common
Stock................ -- -- 3,504,461 17,616,203 -- 17,616,203
Net income............ -- -- -- -- 117,885 117,885
----------- ----------- --------- ----------- ----------- -----------
Balance at December 31,
1995................... -- -- 8,659,843 60,975,483 (7,562,265) 53,413,218
Exercise of options
(unaudited).......... -- -- 29,423 89,272 -- 89,272
Other (unaudited)..... -- -- -- 24,842 -- 24,842
Net income
(unaudited).......... -- -- -- -- 2,621,339 2,621,339
----------- ----------- --------- ----------- ----------- -----------
Balance at June 30, 1996
(unaudited)............ -- $ -- 8,689,266 $61,089,597 $ 4,940,926 $56,148,671
=========== =========== ========= =========== =========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-6
<PAGE>
PLASMA & MATERIALS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED ENDED YEAR ENDED SIX MONTHS ENDED JUNE 30,
FEBRUARY 28, DECEMBER 31, DECEMBER 31, ---------------------------
1994 1994 1995 1995 1996
------------ ------------ ------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)............... $(1,396,580) $(3,739,698) $ 117,885 $ (1,182,106) $ 2,621,339
Adjustments to reconcile net
income (loss) to net cash used
in operating activities:
Depreciation and amortization.. 530,612 773,617 1,242,681 599,553 754,158
Provision for loss on accounts
receivable.................... 10,000 -- -- 3,522 --
Advances to
employees/officer/shareholder. (66,652) 23,624 55,145 54,750 --
Changes in operating assets and
liabilities:
Accounts receivable........... (197,388) 231,089 (7,334,660) (2,779,783) (8,168,284)
Inventories................... (2,010,440) (3,978,006) 564,534 811,897 (9,141,566)
Prepaid expenses and other
assets....................... (9,535) (154,898) (34,356) (24,428) (362,483)
Accounts payable and other
accrued expenses............. 933,836 1,003,799 1,087,919 (579,888) 5,204,226
Deferred revenue.............. 1,025,000 (1,025,000) -- -- --
----------- ----------- ------------ ------------ -------------
Net cash used in operating
activities..................... (1,181,147) (6,865,473) (4,300,852) (3,096,483) (9,092,610)
INVESTING ACTIVITIES
Purchases of property, equipment
and leasehold improvements..... (873,076) (1,644,143) (1,099,100) (435,668) (4,818,233)
Proceeds from sales of short-
term investments............... -- -- 3,000,000 -- 12,450,129
Purchase of short-term
investments.................... -- -- (16,992,109) -- (13,556,678)
Other assets.................... (87,924) 17,749 (329,627) (5,517) (1,115,477)
----------- ----------- ------------ ------------ -------------
Net cash used in investing
activities..................... (961,000) (1,626,394) (15,420,836) (441,185) (7,040,259)
FINANCING ACTIVITIES
Borrowings under revolving line
of credit...................... 1,000,000 2,000,000 1,810,708 1,310,707 --
Repayment of revolving line of
credit......................... (1,000,000) -- (3,810,708) (2,000,000) --
Proceeds from notes payable to
bank and bridge financing...... 2,976,000 -- -- -- --
Repayment of notes payable and
bridge financing............... (2,114,000) -- -- -- --
Proceeds from sale of warrants.. -- 1,500 -- -- --
Proceeds from sale of Preferred
Stock (net of issuance costs).. 5,860,239 5,449,606 3,365,193 3,366,204 --
Proceeds from Initial Public
Offering (Common Stock)........ -- -- 40,093,235 -- --
Proceeds from sale of Common
Stock.......................... 106 15,330 50,883 17,290 89,273
Repurchase of Common Stock...... (24,500) -- -- --
Payments on capital lease
obligations.................... (212,620) (371,221) (581,013) (293,268) (252,140)
----------- ----------- ------------ ------------ -------------
Net cash provided by financing
activities..................... 6,485,225 7,095,215 40,928,298 2,400,933 (162,867)
----------- ----------- ------------ ------------ -------------
Net increase (decrease) in cash
and cash equivalents........... 4,343,078 (1,396,652) 21,206,610 (1,136,735) (16,295,736)
Cash and cash equivalents at
beginning of period............ 617,327 4,960,405 3,563,753 3,563,753 24,770,363
----------- ----------- ------------ ------------ -------------
Cash and cash equivalents at end
of period...................... $ 4,960,405 $ 3,563,753 $ 24,770,363 $ 2,427,018 $ 8,474,627
=========== =========== ============ ============ =============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-7
<PAGE>
PLASMA & MATERIALS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND SUBSEQUENT TO DECEMBER
31, 1995 IS UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Background
Plasma & Materials Technologies, Inc. (the "Company") was incorporated in
California on December 24, 1985. The Company operates in one segment,
designing, manufacturing and marketing advanced high density, low pressure
plasma sources, process modules and plasma processing systems. These products
are used for etch and chemical vapor deposition applications and are sold to
semiconductor and flat panel display manufacturers worldwide.
The consolidated financial statements of the Company include the accounts of
its wholly owned subsidiary. All significant intercompany accounts and
transactions have been eliminated.
Interim Financial Data
The unaudited financial statements of the Company for the six months ended
June 30, 1995 and 1996 have been prepared on the same basis as the audited
financial statements and, in the opinion of management, include all
adjustments (consisting only of normal recurring adjustments) necessary to
state fairly the financial information set forth therein, in accordance with
generally accepted accounting principles.
The results of operations for the six months ended June 30, 1996 are not
necessarily indicative of results to be expected for the full fiscal year.
Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Cash Equivalents
Cash equivalents represent short-term investments that are highly liquid,
are of limited credit risk and have original maturities of three months or
less when purchased.
Short-Term Investments
Effective December 1995, the Company adopted Statement of Financial
Accounting Standards No. 115 ("SFAS 115"), "Accounting for Certain Investments
in Debt and Equity Securities." SFAS 115 requires investment securities to be
classified as trading, available for sale, or held to maturity. Management
determines the appropriate classification of its investments at the time of
purchase and reevaluates the classification at each balance sheet date. As of
December 31, 1995, all investments in the short-term investment portfolio are
classified as available for sale. Under SFAS 115, investments classified as
available for sale are required to be recorded at fair value and any temporary
difference between an investment's cost and its fair value is required to be
recorded as a separate component of shareholders' equity.
Major Customers and Concentration of Credit Risk
Accounts receivable consist primarily of amounts due from original equipment
manufacturers, end use customers, and distributors within the Company's
industry. At December 31, 1994, two customers represented
F-8
<PAGE>
PLASMA & MATERIALS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND SUBSEQUENT TO DECEMBER
31, 1995 IS UNAUDITED)
50% and 23%, respectively, of the Company's total accounts receivable. At
December 31, 1995, five customers represented 26%, 25%, 15%, 14% and 12%,
respectively, of the Company's total accounts receivable.
The Company performs credit evaluations and analysis of amounts due from its
customers; however, the Company does not require collateral. Credit losses
have been within management's expectations and an estimate of uncollectible
accounts has been provided for in the financial statements.
Total revenue includes amounts from certain individual customers that exceed
10% of total revenue. Revenue from two customers represented 46% and 39% each
of total revenue for the year ended February 28, 1994, revenue from six
customers represented 19%, 17%, 17%, 15%, 15% and 12% each of total revenue
for the ten months ended December 31, 1994, and revenue from five customers
represented 19%, 15%, 12%, 11% and 11% each of total revenue for the year
ended December 31, 1995.
The Company's revenue by geographic area approximated the following:
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED ENDED YEAR ENDED
FEBRUARY 28, DECEMBER 31, DECEMBER 31,
1994 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
United States........................ $4,043,479 $2,929,896 $11,276,066
Europe............................... 335,000 120,075 241,041
Asia Pacific (primarily Japan and Ko-
rea)................................ 3,765,421 5,654,675 9,772,606
---------- ---------- -----------
Total.............................. $8,143,900 $8,704,646 $21,289,713
========== ========== ===========
</TABLE>
Inventory
Inventories are stated at the lower of cost (first-in, first-out method) or
market and consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1994 1995 1996
---------- ---------- -----------
<S> <C> <C> <C>
Components................................ $2,730,131 $3,774,458 $ 7,833,966
Work-in-process........................... 2,209,128 1,611,382 4,877,881
Finished goods............................ 690,218 67,995 173,129
---------- ---------- -----------
$5,629,477 $5,453,835 $12,884,976
========== ========== ===========
Demonstration inventory................... $1,756,125 $1,367,233 $ 3,077,658
========== ========== ===========
</TABLE>
Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements are stated at cost.
Depreciation and amortization is computed using the straight-line method over
the estimated useful lives of the assets (5 years) or the lease term,
whichever is shorter.
Revenue Recognition
Product sales consist primarily of system, component and spare parts sales.
Revenues related to system, component and spare parts sales are recognized
upon shipment and transfer of title or upon customer acceptance and transfer
of title in the case of demonstration inventory unit sales (see Note 3).
Estimated costs to be incurred by the Company related to product installation
(which are not significant) and warranty fulfillment are accrued at the date
of shipment.
F-9
<PAGE>
PLASMA & MATERIALS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND SUBSEQUENT TO DECEMBER
31, 1995 IS UNAUDITED)
License fee revenue is derived from the grant of the non-exclusive rights to
use, sell and manufacture certain technologies developed by the Company.
Advertising Expense
The cost of advertising is expensed as incurred. The Company incurred
$55,772, $99,509 and $44,306 of advertising costs in the year ended February
28, 1994, the ten months ended December 31, 1994 and the year ended December
31, 1995, respectively.
Research and Development Costs
Research and development costs are expensed as incurred.
Stock Based Compensation
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with APB
Opinion No. 25, Accounting for Stock Issued to Employees ("APB No. 25") and,
accordingly, recognizes no compensation for the stock option grants.
Accounting for Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS No.
109"). Under SFAS No. 109, the liability method is used in accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax basis of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
Net Income (Loss) Per Share
Net income (loss) per share is computed using the weighted average number of
shares of Common Stock outstanding. Common equivalent shares from stock
options and warrants (using the treasury stock method) have been included in
the computation when dilutive, and common equivalent shares from the
redeemable convertible Preferred Stock and convertible Preferred Stock which
converted into Common Stock in connection with the Company's Initial Public
Offering are included as if converted at the original date of issuance, even
though inclusion is anti-dilutive. Pursuant to the Securities and Exchange
Commission ("SEC") Staff Accounting Bulletins, all common and common
equivalent shares issued by the Company at an exercise price below the Initial
Public Offering price of $14.00 per share during the twelve-month period prior
to the offering (cheap stock) have been included in the calculation as if they
were outstanding for all periods presented (using the treasury stock method at
the Initial Public Offering price of $14.00 per share and the if-converted
method for redeemable convertible Preferred Stock and convertible Preferred
Stock) through the ten month period ended December 31, 1994. For the year
ended December 31, 1995, such cheap stock shares were treated as being
outstanding through the date of the Initial Public Offering.
F-10
<PAGE>
PLASMA & MATERIALS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND SUBSEQUENT TO DECEMBER
31, 1995 IS UNAUDITED)
Historical net loss per share is computed as described above, except that it
excludes the convertible preferred stock because it is anti-dilutive for
periods which incurred a net loss. Historical net loss per share is as
follows:
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED ENDED
FEBRUARY 28, 1994 DECEMBER 31, 1994
----------------- -----------------
<S> <C> <C>
Net loss per share...................... $(0.70) $(1.89)
Shares used in computing net loss per
share.................................. 1,997,707 1,981,848
</TABLE>
Impact on Financial Statements of Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
("SFAS No. 121"), which will be effective for the Company's fiscal year ending
December 31, 1996. SFAS No. 121 requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are
presented and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. SFAS No. 121 also addresses
the accounting for long-lived assets that are expected to be disposed of. The
Company will adopt SFAS No. 121 in the first quarter of 1996 and, based on
current circumstances, does not believe the effect of adoption will be
material.
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, Accounting for Awards of Stock-Based Compensation to Employees ("SFAS
No. 123"), which will be effective for the Company's fiscal year ending
December 31, 1996. SFAS No. 123 provides alternative accounting treatment to
APB No. 25 with respect to stock-based compensation and requires certain
additional disclosures, including disclosures if the Company elects not to
adopt the accounting requirements of SFAS No. 123. The Company will adopt the
disclosure requirements of SFAS No. 123 in the first quarter of 1996, but will
elect to continue to measure compensation costs following present accounting
rules under APB No. 25. Consequently, the Company will provide pro forma
disclosures of what net income and earnings per share would have been had the
fair market value method of SFAS No. 123 been used for the relevant periods.
Reclassifications
Certain amounts in 1994 and 1993 have been reclassified in the Consolidated
Financial Statements to be consistent with the 1995 presentation.
2. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, cash equivalents,
short-term investments, accounts receivable, accounts payable, capital lease
obligations and borrowings under the revolving line of credit. The carrying
amounts of these financial instruments approximates their fair value.
Information about contractual maturities of short-term investments at
December 31, 1995 is as follows:
<TABLE>
<CAPTION>
DUE AFTE
DUE IN ONE ONE YEAR
YEAR OR THROUGH DUE AFTER
LESS THREE YEARS THREE YEARS
----------- ----------- -----------
<S> <C> <C> <C>
U.S. Treasury Securities and
obligations of U.S. Government
Agencies.............................. $ 5,044,959 $1,000,000 $ --
U.S. Corporate Securities.............. 5,025,190 1,021,960 --
Obligations of States and Political
Subdivisions.......................... -- -- 1,900,000
----------- ---------- ----------
$10,070,149 $2,021,960 $1,900,000
=========== ========== ==========
</TABLE>
F-11
<PAGE>
PLASMA & MATERIALS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND SUBSEQUENT TO DECEMBER
31, 1995 IS UNAUDITED)
At December 31, 1995, $12,006,158 of investments in debt securities are
included in cash and cash equivalents on the accompanying balance sheet
because their original maturity date is three months or less when purchased.
Gross unrealized holding gains and losses on sales of short-term investments
were not significant as of or for the year ended December 31, 1995. There were
no realized gains and losses on sales of short-term investments during the
year ended December 31, 1995. The Company manages its cash equivalents and
short-term investments as a single portfolio of highly marketable securities,
all of which are intended to be available to meet the Company's current cash
requirements.
The Company invests in a variety of financial instruments such as commercial
paper, commercial bonds, and municipal bonds. The Company, by policy, limits
the amount of credit exposure with any one financial institution or commercial
issuer.
3. DEMONSTRATION INVENTORY
Demonstration or evaluation units represent completed systems located at
certain strategic customer sites or at the Company's facilities. The Company
provides these demonstration systems at no charge for a specified evaluation
period. All operating costs incurred during the evaluation period are paid by
the customer. At the conclusion of the agreed upon evaluation period, provided
that the equipment performs to required specifications, management expects
that the customer, while not obligated to do so, will purchase the system.
Demonstration inventory is stated at lower of cost or estimated net realizable
value. Demonstration inventory is not amortized.
4. REVOLVING LINE OF CREDIT
At December 31, 1995, the Company has a revolving line of credit agreement
with a commercial bank which provides borrowings up to the lesser of
$3,000,000 or 75% of eligible accounts receivable. Interest is payable monthly
for borrowings on accounts receivable at the bank prime rate plus 1.5% (9.5%
at December 31, 1995.) The revolving line of credit agreement expires on June
5, 1996. At December 31 ,1995, there were no borrowings outstanding under the
revolving credit line and $3,000,000 was available for borrowings under the
agreement. The agreement places certain restrictions on the Company which
among other things, prohibit the Company from paying cash dividends or
repurchasing its stock, and requires the Company to comply with certain
financial ratios and covenants.
5. DEVELOPMENT CONTRACTS
In August 1994, the Company entered into an original equipment manufacturing
and joint development agreement with a customer. This arrangement ended in
March 1995. Under this agreement, the Company incurred costs on behalf of the
customer and received reimbursement of approximately $1,000,000 in 1994 and
$350,000 in 1995. Such costs were primarily for the customer's share of
supplies and prototype materials used under the agreement. The reimbursement
of costs incurred were netted against the related research and development
expense. Any technology developed under this agreement is jointly owned by the
Company and the customer.
6. INCOME TAXES
The Company's provision for income taxes consists primarily of the minimum
state taxes required in each of the periods presented of $800 and foreign
income taxes of $50,000 in the year ended February 28, 1994 and $53,600 in the
ten month period ended December 31, 1994. Federal income taxes have not been
provided for in any of the periods presented as the Company incurred a loss
for these periods.
F-12
<PAGE>
PLASMA & MATERIALS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND SUBSEQUENT TO DECEMBER
31, 1995 IS UNAUDITED)
Significant components of the Company's deferred tax liabilities and assets
are as follows at December 31:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
DEFERRED TAX LIABILITIES:
State taxes not benefited............................. $ 227,000 $ 132,081
DEFERRED TAX ASSETS:
Allowances not currently deductible for tax purposes.. 99,590 102,435
Accrued expenses not currently deductible for tax pur-
poses................................................ 158,642 321,542
Book depreciation in excess of tax depreciation....... 92,245 73,890
Net operating loss carryforwards...................... 2,282,828 2,075,098
Foreign tax credit carryforward....................... 273,277 273,277
Research tax credit carryforward...................... 1,071,820 1,123,346
---------- ----------
3,978,402 3,969,588
Less valuation reserve................................ 3,751,402 3,837,507
---------- ----------
Net deferred tax assets............................... 227,000 132,081
---------- ----------
$ -- $ --
========== ==========
</TABLE>
A reconciliation of the statutory federal income tax rate to the effective
tax rate, as a percentage of income (loss) before tax provision, is as
follows:
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED ENDED YEAR ENDED
FEBRUARY 28, DECEMBER 31, DECEMBER 31,
1994 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Statutory federal income tax rate--
provision (benefit)................ (34)% (34)% 34%
Change in valuation reserve
attributable to utilization of
operating loss carryforward........ -- -- (34)
Change in valuation reserve due to
net operating loss carryforwards
not utilized....................... 34 34 --
Foreign income taxes................ 4 2 --
--- --- ---
4% 2% -- %
=== === ===
</TABLE>
At December 31, 1995, the Company had research and development credit
carryforwards of approximately $804,702 and $318,644 for federal and state tax
purposes, respectively, that expire at various dates through 2010. At December
31, 1994 the Company also had net operating loss carryforwards for federal and
state income tax purposes of approximately $5,365,170 and $2,698,284,
respectively, which expire at various dates through 2009. The Company's
utilization of its net operating loss and credit carryforwards depends upon
future income and is subject to an annual limitation due to the ownership
change limitations provided by the Internal Revenue Code of 1986 and similar
state provisions.
7. LEASES
The Company leases certain equipment under capital leases. The Company also
leases its offices, manufacturing facilities and certain equipment under
noncancelable lease agreements.
Cost of equipment under capital leases included in property and equipment at
December 31, 1994 and 1995 was $2,304,550 and $2,832,531, and accumulated
amortization was $548,344 and $946,298, respectively. Amortization expense
under these leases is included in depreciation expense.
F-13
<PAGE>
PLASMA & MATERIALS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND SUBSEQUENT TO DECEMBER
31, 1995 IS UNAUDITED)
Future minimum lease payments under capital leases and noncancelable
operating leases with initial terms of one year or more consisted of the
following at December 31, 1995:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------- ---------
<S> <C> <C>
1996.................................................. $ 614,169 $403,874
1997.................................................. 559,220 393,970
1998.................................................. 213,990 12,746
1999.................................................. 4,052 --
---------- --------
1,391,431 $810,590
========
Less amounts representing imputed interest............ (213,640)
----------
Present value of net minimum lease payments, including
$491,561 classified as current....................... $1,177,791
==========
</TABLE>
Rental expense for operating leases was $215,046, $288,524 and $338,834 for
the year ended February 28, 1994, the ten months ended December 31, 1994, and
the year ended December 31, 1995, respectively.
8. PREFERRED STOCK, CONVERTIBLE PREFERRED STOCK, CONVERTIBLE REDEEMABLE
PREFERRED STOCK AND WARRANTS
The Board of Directors has the authority to issue up to 20,000,000 shares of
Preferred Stock in one or more series with rights, preferences, privileges and
restrictions to be determined at the Board's discretion.
On August 24, 1995, the Company converted 2,823,837 shares of Preferred
Stock (Series A and B) into 941,279 shares of Common Stock and 10,513,382
shares of Preferred Stock (Series C, D, E and F) into 3,504,461 shares of
Common Stock in connection with its Initial Public Offering.
In November 1991 and July 1992, the Company issued warrants to purchase an
aggregate of 21,940 shares of Common Stock (the "1992 Common Stock Warrants")
at an exercise price of $3.90 per share exercisable at any time through the
date which is five years following the closing of an initial public offering
of the Company's Common Stock. In September 1995, the warrants were exercised
and the Company issued 17,470 shares of Common Stock, and the remaining
warrants were canceled in consideration of the exercise. In connection with
the Company's guaranty for their eligible inventory line of credit (Note 4) in
June 1994, the Company issued warrants to purchase an aggregate of 50,000
shares of Common Stock at an exercise price of $1.05 per share exercisable at
any time through June 5, 2000 (the "1994 Common Stock Warrants"). In August
1995, the warrants were exercised and the Company issued 47,083 shares of
Common Stock, and the remaining warrants were canceled in consideration of the
exercise. In connection with the issuance of the Series D Preferred Stock in
November 1993, the Company issued warrants to purchase an aggregate of 80,000
shares of Common Stock at an exercise price of $4.50 per share exercisable at
any time through December 31, 1998 (the "1993 Common Stock Warrants"). The
fair market value of these warrants was deemed to be immaterial on the date of
issuance.
9. STOCK OPTION PLAN
In December 1994, the Company changed its "Non-Qualified" Employee Option
Plan to an Incentive Stock Option Plan (the "Option Plan") on a go forward
basis. The Option Plan provides options to purchase up to 900,000 shares, at
December 31, 1995, of the Company's Common Stock for officers, directors, and
key employees, at an exercise price equal to the fair market value on the date
of grant as determined by the Board of
F-14
<PAGE>
PLASMA & MATERIALS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND SUBSEQUENT TO DECEMBER
31, 1995 IS UNAUDITED)
Directors. The shares issued under the Option Plan shall become vested over
periods up to five years. A summary of the changes in the status of options is
as follows:
<TABLE>
<CAPTION>
SHARES PRICE RANGE
OUTSTANDING PER SHARE
----------- ------------
<S> <C> <C>
Outstanding at February 28, 1993................... 163,799
Granted.......................................... 162,333 $1.05
Canceled......................................... (23,666) 1.05
Exercised........................................ (100) 1.05
------- ------------
Outstanding at February 28, 1994................... 302,366 1.05
Granted.......................................... 128,834 1.05
Canceled......................................... (37,800) 1.05
Exercised........................................ (14,600) 1.05
------- ------------
Outstanding at December 31, 1994................... 378,800 1.05
Granted.......................................... 392,807 1.65-13.625
Canceled......................................... (60,868) 1.05
Exercised........................................ (48,460) 1.05-8.00
------- ------------
Outstanding at December 31, 1995................... 662,279 1.05-13.625
Granted.......................................... 170,150 8.875-14.75
Canceled......................................... (18,138) 1.05-14.75
Exercised........................................ (29,423) 1.05-6.30
------- ------------
784,868 $1.05-14.75
======= ============
</TABLE>
At February 28, 1994, December 31, 1994, and December 31, 1995, 41,080,
83,213, and 95,518 shares were exercisable, respectively.
Option shares available for grant at December 31, 1995 were 166,042.
10. SUPPLEMENTAL STATEMENTS OF CASH FLOWS INFORMATION
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED ENDED YEAR ENDED
FEBRUARY 28, DECEMBER 31, DECEMBER 31,
1994 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Supplemental statements of cash
flows information:
Cash paid during the period for:
Interest......................... $ 89,000 $ 134,230 $ 289,796
Taxes (primarily foreign)........ 100,000 50,000 800
Non-cash investing and financing
activities:
Equipment acquired under capital
lease........................... 629,539 1,216,653 527,981
Conversion of Series (A, B, C, D,
E and F)
Preferred Stock to Common Stock.. -- -- 17,616,203
</TABLE>
11. EMPLOYEE BENEFIT PLAN
In November 1993, the Company established a 401(k) plan (the "Plan")
covering substantially all of its employees. The Plan allows eligible
employees to contribute up to 15% of their compensation. Company
F-15
<PAGE>
PLASMA & MATERIALS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND SUBSEQUENT TO DECEMBER
31, 1995 IS UNAUDITED)
contributions are voluntary and at the discretion of the Board of Directors.
There were no contributions made by the Company for the year ended December
31, 1995, the ten month period ended December 31, 1994, or the year ended
February 28, 1994.
12. INITIAL PUBLIC OFFERING
On August 29, 1995, the Company completed its Initial Public Offering,
resulting in approximately $40,093,235 of net proceeds to the Company.
In connection with the Initial Public Offering, the Board of Directors
approved a one-for-three reverse stock split of the Company's Common Stock.
The reverse stock split has been accounted for as if it had taken place as of
the earliest date presented. Effective August 29, 1995, all of the Company's
outstanding Preferred Stock (13,337,219 shares) automatically converted into
4,445,740 shares of Common Stock.
13. SUBSEQUENT EVENTS
PMT CVD Partners, L.P.
On March 29, 1996, the Company entered into a number of agreements with PMT
CVD Partners, L.P. (the "Limited Partnership") and the limited partners
thereof (the "Limited Partners"). The Limited Partnership was formed to fund
research and development costs and expenses relating to chemical vapor
deposition ("CVD") technology and applications. An aggregate of approximately
$5,350,000 is available to the Limited Partnership to fund such research and
development efforts. The Limited Partnership owns the rights to the technology
developed. PMT has entered into a license agreement with the Limited
Partnership whereby PMT is obligated to pay stated royalties to the Limited
Partnership on sales of related products, and the royalty percentage will vary
based on the geographic location of the sale. There is no provision for
royalty payments to the Limited Partners in fiscal 1996. PMT has been granted
an exclusive option to purchase all of the Limited Partners' interest in the
Limited Partnership, based on an established purchase price formula which
terminates PMT's obligation under the license agreement. PMT may exercise such
option at its sole discretion.
PMT has agreed to provide certain personnel to the Limited Partnership to
perform such research and development activities. PMT will be paid for such
services at an amount equal to its actual direct costs, as defined, plus a
stated percentage of such costs. During the quarter and six months ended June
30, 1996, the amount of research and development costs incurred, including the
stated percentage of 250% of direct costs, with respect to CVD technology and
applications was $459,600 and $848,678, respectively and is reflected in
contract revenue in the accompanying statement of operations.
Acquisition
On July 17, 1996 the Company executed a definitive agreement to purchase
Electrotech Ltd. and Electrotech Equipment Ltd., United Kingdom corporations
for $75,000,000 in cash and the issuance of 5,600,000 shares of the Company's
common stock. The agreement is subject to certain conditions including
obtaining shareholder approval, and obtaining appropriate financing. Included
in other assets are approximately $917,904 of direct costs of the acquisition.
If the agreement is terminated, except in certain circumstances, the Company
will be required to pay a $1,000,000 termination fee which along with all
direct acquisition costs incurred will be charged to operations in the period
the contract is terminated.
F-16
<PAGE>
PLASMA & MATERIALS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND SUBSEQUENT TO DECEMBER
31, 1995 IS UNAUDITED)
Revolving and Equipment Lines of Credit
At June 5, 1996, the Company renewed its line of credit agreement (the
"Agreement") with a commercial bank which provides for borrowing up to the
lesser of 80% of eligible accounts receivable or $3,000,000. Interest on the
line of credit is payable monthly at prime (8.25% at June 30, 1996) plus 0.5%.
The Agreement also provides for equipment loans which allows the Company to
borrow up to the lesser of 80% of eligible equipment purchases or $3,000,000,
subject to certain limits. Interest on borrowings under the equipment line is
payable monthly at prime plus 1.5%. At June 30, 1996, there were no balances
outstanding on either of these two loans.
F-17
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the directors of Electrotech Equipments Limited and Electrotech Limited
We have audited the accompanying combined balance sheets of Electrotech
Equipments Limited and Electrotech Limited as of June 30, 1995 and 1996 and
the related profit and loss accounts and statements of cash flows for each of
the three years in the period ended June 30, 1996. These combined financial
statements are the responsibility of the companies' directors. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with United Kingdom auditing standards
which do not differ in any significant respect from United States generally
accepted auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurances about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting and amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by the 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of
Electrotech Equipments Limited and Electrotech Limited as of June 30, 1995 and
1996 and the results of their operations and their cash flows for each of the
three years in the period ended June 30, 1996 in conformity with accounting
principles generally accepted in the United Kingdom which differ in certain
respects from those followed in the United States (see Note 29 of the notes to
the combined Financial Statements).
Ernst & Young
Chartered Accountants
Registered Auditor
Cardiff, Wales
August 28, 1996
F-18
<PAGE>
ELECTROTECH EQUIPMENTS LIMITED AND ELECTROTECH LIMITED
COMBINED PROFIT AND LOSS ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------
1996 1995 1994
-------------- -------------- --------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
SALES(3)
Continuing operations............ (Pounds)49,012 (Pounds)30,703 (Pounds)18,402
Discontinued operations.......... -- 3,793 5,405
-------------- -------------- --------------
49,012 34,496 23,807
COST OF SALES.................... 23,406 17,014 11,496
-------------- -------------- --------------
GROSS PROFIT..................... 25,606 17,482 12,311
Research and development costs... 6,674 4,421 3,332
Administrative expenses.......... 8,295 8,615 7,161
-------------- -------------- --------------
OPERATING PROFIT(4)
Continuing operations............ 10,637 4,322 1,798
Discontinued operations.......... -- 124 20
-------------- -------------- --------------
10,637 4,446 1,818
PROFIT ON DISPOSAL OF DISCONTIN-
UED OPERATIONS(5)............... -- 5,040 --
-------------- -------------- --------------
PROFIT ON ORDINARY ACTIVITIES BE-
FORE INTEREST................... 10,637 9,486 1,818
Interest receivable(8)........... 216 125 65
Interest payable(9).............. 825 563 320
-------------- -------------- --------------
PROFIT ON ORDINARY ACTIVITIES BE-
FORE TAXATION................... 10,028 9,048 1,563
Tax on profit on ordinary activi-
ties(10)........................ 3,721 3,530 574
-------------- -------------- --------------
PROFIT FOR THE FINANCIAL YEAR.... 6,307 5,518 989
Retained profit brought forward.. 18,011 12,412 11,356
Exchange difference on opening
balance......................... (67) 30 16
Amortization of revaluation sur-
plus............................ 51 51 51
-------------- -------------- --------------
RETAINED PROFIT AT THE END OF THE
FINANCIAL YEAR.................. (Pounds)24,302 (Pounds)18,011 (Pounds)12,412
============== ============== ==============
</TABLE>
A summary of the significant adjustments to profit for the financial year
(net income) which would be required if US Generally Accepted Accounting
Principles had been applied instead of UK Generally Accepted Accounting
Principles is set forth in Note 29 of the Notes to the Combined Financial
Statements.
The Notes to the Combined Financial Statements form part of these Combined
Financial Statements.
F-19
<PAGE>
ELECTROTECH EQUIPMENTS LIMITED AND ELECTROTECH LIMITED
COMBINED STATEMENTS OF TOTAL RECOGNIZED GAINS AND LOSSES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------
1996 1995 1994
-------------- ------------- -------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
PROFIT FOR THE FINANCIAL YEAR...... (Pounds) 6,307 (Pounds)5,518 (Pounds) 989
Exchange differences on foreign
currency translation.............. (87) 39 19
-------------- ------------- -------------
Total recognized gains and losses
for the year...................... (Pounds) 6,220 (Pounds)5,557 (Pounds)1,008
============== ============= =============
NOTE OF HISTORICAL COST PROFITS AND
LOSSES
Reported profit on ordinary activi-
ties before taxation.............. (Pounds)10,028 (Pounds)9,048 (Pounds)1,563
Difference between historical cost
depreciation charge and the actual
depreciation charge for the year
calculated on the revalued amount. 51 51 51
-------------- ------------- -------------
Historical cost profit on ordinary
activities before taxation........ (Pounds)10,079 (Pounds)9,099 (Pounds)1,614
============== ============= =============
Historical cost profit for the
year.............................. (Pounds) 6,358 (Pounds)5,569 (Pounds)1,040
============== ============= =============
</TABLE>
The Notes to the Combined Financial Statements form part of these Combined
Financial Statements.
F-20
<PAGE>
ELECTROTECH EQUIPMENTS LIMITED AND ELECTROTECH LIMITED
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF JUNE 30,
---------------------------------------------------------
1996 1995
---------------------------- ----------------------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C> <C>
ASSETS
FIXED ASSETS
Intangible assets(11)... (Pounds) 18 (Pounds) 27
Tangible assets(12)..... 11,496 7,969
-------------- --------------
11,514 7,996
CURRENT ASSETS
Inventories(13)......... 17,438 12,741
Accounts receivable(14). 20,002 16,034
Cash.................... 2,076 1,568
------------- -------------
39,516 30,343
-------------- --------------
TOTAL ASSETS............ (Pounds)51,030 (Pounds)38,339
============== ==============
LIABILITIES AND SHARE-
HOLDERS' EQUITY
CURRENT LIABILITIES
Bank loans and over-
drafts................. (Pounds)8,106 (Pounds)2,591
Trade accounts payable.. 4,669 4,078
Corporate tax........... 3,353 3,810
Accruals and deferred
income................. 1,672 1,196
Other current liabili-
ties(15)............... 5,294 4,633
------------- -------------
23,094 16,308
NONCURRENT LIABILITIES
Long-term
borrowings(16)......... 400 800
Corporate tax(16)....... 203 406
Other noncurrent liabil-
ities(16).............. 345 133
------------- -------------
948 1,339
PROVISION FOR LIABILI-
TIES AND CHARGES
Deferred taxation(18)... 367 291
-------------- --------------
TOTAL LIABILITIES....... 24,409 17,938
SHAREHOLDERS' EQUITY
Share capital(19)....... 11 11
Revaluation reserve(20). 2,308 2,379
Profit and loss account. 24,302 18,011
------------- -------------
26,621 20,401
-------------- --------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY... (Pounds)51,030 (Pounds)38,339
============== ==============
</TABLE>
A summary of the significant adjustments to shareholder's equity which would
be required if US generally accepted accounting principles had been applied
instead of UK generally accepted accounting principles is set forth in Note 29
of the Notes to the Combined Financial Statements.
The Notes to the Combined Financial Statements form part of these Combined
Financial Statements.
F-21
<PAGE>
ELECTROTECH EQUIPMENTS LIMITED AND ELECTROTECH LIMITED
COMBINED CASH FLOW STATEMENTS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------
1996 1995 1994
-------------- -------------- --------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
NET CASH INFLOW/(OUTFLOW) FROM
OPERATING ACTIVITIES(21)...... (Pounds) 4,918 (Pounds)(3,336) (Pounds)(2,712)
-------------- -------------- --------------
RETURNS ON INVESTMENTS AND
SERVICING OF FINANCE..........
Interest received.............. 216 125 65
Interest paid.................. (825) (563) (320)
-------------- -------------- --------------
NET CASH OUTFLOW FROM RETURNS
ON INVESTMENTS AND SERVICING
OF FINANCE.................... (609) (438) (255)
-------------- -------------- --------------
TAXATION
UK corporate tax
paid/(recovered).............. (3,866) 244 (6)
Overseas tax paid.............. (439) (74) (277)
-------------- -------------- --------------
TAX (PAID)/RECOVERED........... (4,305) 170 (283)
-------------- -------------- --------------
INVESTING ACTIVITIES
Payments to acquire tangible
fixed assets.................. (4,849) (2,532) (771)
Receipts from sale of
subsidiary company(22)........ -- 6,631 --
Receipts from sale of tangible
fixed assets.................. 26 33 26
-------------- -------------- --------------
NET CASH (OUTFLOW)/INFLOW FROM
INVESTING ACTIVITIES.......... (Pounds)(4,823) (Pounds) 4,132 (Pounds) (745)
-------------- -------------- --------------
NET CASH (OUTFLOW)/INFLOW
BEFORE FINANCING.............. (Pounds)(4,819) (Pounds) 528 (Pounds)(3,995)
-------------- -------------- --------------
FINANCING
Medium-term bank loan
repayments(25)................ (400) (Pounds) (400) (Pounds) (400)
Increase in other noncurrent
liabilities................... 212 -- --
-------------- -------------- --------------
NET CASH OUTFLOW FROM
FINANCING..................... (188) (Pounds) (400) (Pounds) (400)
-------------- -------------- --------------
(DECREASE)/INCREASE IN CASH AND
CASH EQUIVALENTS(23).......... (Pounds)(5,007) (Pounds) 128 (Pounds)(4,395)
============== ============== ==============
</TABLE>
A summary of the cash flow statement under US generally accepted accounting
principles is set forth in Note 29 of the Notes to the Combined Financial
Statements.
The Notes to the Combined Financial Statements form part of these Combined
Financial Statements.
F-22
<PAGE>
ELECTROTECH EQUIPMENT LIMITED AND ELECTROTECH LIMITED
NOTES TO THE COMBINED FINANCIAL STATEMENTS
AS OF JUNE 30, 1996
1. BASIS OF PREPARATION
The combined financial statements combine the consolidated financial
statements of Electrotech Equipments Limited with those of Electrotech
Limited, which are not part of a UK group but are subject to common control.
During the year ended June 30, 1995 the investment in Surface Technology
Systems Limited was sold. The combined financial statements include the
unaudited results of this discontinued operation up to the date of sale.
The combined financial statements have been prepared in accordance with
applicable accounting standards in the United Kingdom. The principal
accounting policies adopted in the preparation of the combined financial
statements are set out below and have been consistently applied.
2. ACCOUNTING POLICIES
Basis of preparation of combined financial statements
The combined financial statements have been prepared under the historical
cost convention, modified to include the revaluation of freehold buildings.
Depreciation
Depreciation has been calculated to write off the cost of tangible fixed
assets over their expected useful lives using the following rates:
<TABLE>
<S> <C>
a) Intangible assets
Licenses 10.0% of original cost
b) Tangible assets
Freehold land and buildings 2.0% of cost or valuation
Plant and machinery 20.0% of net book value
Training and demonstration machines 20.0% of cost
Fixtures and fittings 12.5% of net book value
Office equipment 20.0% of net book value
Motor vehicles 25.0% of net book value
Portable buildings 20.0% of net book value
</TABLE>
Leasehold additions and improvements are depreciated over the remaining life
of the lease.
Inventories
Inventories have been valued at the lower of cost and net realizable value.
The cost of finished goods includes a relevant proportion of production
overheads.
Deferred taxation
Deferred taxation is provided on the liability method to take account of
timing differences between the treatment of certain items for accounts
purposes and their treatment for tax purposes. Tax deferred or accelerated is
accounted for in respect of all material timing differences to the extent that
it is considered that a net liability may crystallize.
Development expenditure
Expenditure on research and development is written off against profits in
the year in which it is incurred.
F-23
<PAGE>
ELECTROTECH EQUIPMENTS LIMITED AND ELECTROTECH LIMITED
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1996
2. ACCOUNTING POLICIES--(CONTINUED)
Foreign exchange
The profit and loss accounts and balance sheets of the overseas subsidiaries
have been translated into sterling at the average rates of exchange for the
year and the rates of exchange ruling at the balance sheet date respectively.
Exchange differences arising between the translation into sterling of the net
assets of these subsidiaries at rates ruling at the beginning and end of the
year are dealt with through retained earnings and reserves.
Leasing
Tangible fixed assets acquired under finance leases or hire purchase
contracts are capitalized and depreciated in the same manner as other tangible
assets. The related obligations, net of future finance charges, are included
in creditors.
Rentals payable under operating leases are charged to the profit and loss
account on a straight line basis over the period of the lease.
Government grants
Government grants are credited to the profit and loss account by
installments over the expected useful economic lives of the assets to which
they relate.
Pension costs
Electrotech Equipments Limited, Electrotech Limited and their subsidiary
companies operate a pension scheme known as "The Electrotech Retirement
Benefits Scheme" which undertakes to provide retirement benefits to
participating employees based upon their final pensionable salary. The assets
of the scheme are administered by the Trustees and are separate from those of
Electrotech Equipments Limited, Electrotech Limited and their subsidiaries.
Employer contributions to the scheme are made in accordance with the
recommendations of an independent qualified actuary based upon his triennial
valuations of scheme assets and calculations of funding requirements to meet
future benefits. These contributions are charged to profit and loss account
when incurred.
3. SALES
Sales represent the value, excluding UK value added tax, of goods and
services supplied to customers during the year.
4. OPERATING PROFIT
Operating profit is stated after charging:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------
1996 1995 1994
------------ ----------- -----------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
Auditor's remuneration................. (Pounds) 88 (Pounds)102 (Pounds) 98
Depreciation of owned assets........... 1,280 810 597
Hire of assets--operating leases....... 490 543 542
Loss on disposal of tangible fixed
assets................................ 44 -- 4
Net loss on currency translation....... -- 73 --
And after crediting:
Net gain on currency translation....... 604 -- 29
Profit on disposal of tangible fixed
assets................................ 20 12 15
Rental income.......................... 46 93 109
============ =========== ===========
</TABLE>
F-24
<PAGE>
ELECTROTECH EQUIPMENTS LIMITED AND ELECTROTECH LIMITED
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1996
5. PROFIT ON DISPOSAL OF DISCONTINUED OPERATIONS
The profit on disposal of discontinued operations is the net profit before
taxation on the sale of a subsidiary, Surface Technology Systems Limited,
during March 1995.
6. DIRECTORS' REMUNERATION
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------
1996 1995 1994
----------- ----------- -----------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
Directors' emoluments.................. (Pounds)264 (Pounds)369 (Pounds)200
Directors' pension contributions....... 8 33 26
----------- ----------- -----------
Total directors' remuneration.......... 272 402 226
=========== =========== ===========
The remuneration of the Chairman and
highest paid director was:
Electrotech Equipments Limited......... 176 270 134
Electrotech Limited.................... -- -- --
=========== =========== ===========
</TABLE>
The remuneration of the directors, including the above, fell within the
following ranges:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------
1996 1995 1994
------ ------ ------
NO. NO. NO.
------ ------ ------
<S> <C> <C> <C>
Nil-5,000.............................................. 2 1 2
10,001-15,000.......................................... -- 1 --
65,001-70,000.......................................... -- -- 1
70,001-75,000.......................................... -- 1 --
85,001-90,000.......................................... 1 -- --
130,001-135,000........................................ -- -- 1
175,001-180,000........................................ 1 -- --
265,001-270,000........................................ -- 1 --
</TABLE>
7. STAFF COSTS
The average number of persons employed during the year was as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------
1996 1995 1994
------ ------ ------
NO. NO. NO.
------ ------ ------
<S> <C> <C> <C>
Management and administration........................ 102 102 86
Production........................................... 432 337 275
Sales and marketing.................................. 24 30 28
------ ------ ------
558 469 389
====== ====== ======
</TABLE>
F-25
<PAGE>
ELECTROTECH EQUIPMENTS LIMITED AND ELECTROTECH LIMITED
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1996
The aggregate payroll costs of these persons were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------
1996 1995 1994
-------------- -------------- -------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
Wages and salaries............... (Pounds)11,775 (Pounds)10,263 (Pounds)7,729
Social security costs............ 902 758 571
Pension costs.................... 298 242 124
-------------- -------------- -------------
(Pounds)12,975 (Pounds)11,263 (Pounds)8,424
============== ============== =============
</TABLE>
8. INTEREST RECEIVABLE AND SIMILAR INCOME
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------
1996 1995 1994
----------- ----------- ----------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
Bank interest............................. (Pounds)216 (Pounds)125 (Pounds)65
----------- ----------- ----------
(Pounds)216 (Pounds)125 (Pounds)65
=========== =========== ==========
</TABLE>
9. INTEREST PAYABLE AND SIMILAR CHARGES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------
1996 1995 1994
----------- ----------- -----------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
Bank interest........................... (Pounds)739 (Pounds)402 (Pounds)101
Overseas tax interest................... 22 -- 18
Interest on amounts payable within five
years.................................. 64 161 201
----------- ----------- -----------
(Pounds)825 (Pounds)563 (Pounds)320
=========== =========== ===========
</TABLE>
10. TAX ON PROFIT ON ORDINARY ACTIVITIES
The taxation charge is made up as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------
1996 1995 1994
------------- ------------- -----------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
UK corporate tax charge at 33%...... (Pounds)2,467 (Pounds)1,097 (Pounds)348
UK corporate tax on profit on
disposal of discontinued operation. -- 1,964 --
Overseas tax........................ 1,178 389 74
Deferred tax........................ 76 80 152
------------- ------------- -----------
(Pounds)3,721 (Pounds)3,530 (Pounds)574
============= ============= ===========
</TABLE>
F-26
<PAGE>
ELECTROTECH EQUIPMENTS LIMITED AND ELECTROTECH LIMITED
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1996
11. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
AS OF JUNE 30,
--------------------------------
1996 1995 1994
---------- ---------- ----------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
License transferred from associated
company:
Cost as at July 1 and June 30.............. (Pounds)90 (Pounds)90 (Pounds)90
---------- ---------- ----------
Accumulated depreciation as at July 1...... 63 54 45
Provided in year........................... 9 9 9
---------- ---------- ----------
Accumulated depreciation as at June 30..... 72 63 54
---------- ---------- ----------
Net book value at June 30, 1996, 1995 and
1994...................................... (Pounds)18 (Pounds)27 (Pounds)36
========== ========== ==========
</TABLE>
12. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
PLANT,
FREEHOLD LEASEHOLD MACHINERY FIXTURES,
LAND AND LAND AND AND MOTOR EQUIPMENT &
BUILDINGS BUILDINGS VEHICLES FITTINGS TOTAL
------------- ---------- ------------- ------------- --------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C> <C> <C>
COST
At July 1, 1993......... (Pounds)4,522 (Pounds)34 (Pounds)5,175 (Pounds)3,142 (Pounds)12,873
Additions............... -- -- 298 476 774
Disposals............... -- -- (5) (116) (121)
Exchange differences.... (2) -- (2) 1 (3)
------------- ---------- ------------- ------------- --------------
At June 30, 1994........ 4,520 34 5,466 3,503 13,523
============= ========== ============= ============= ==============
DEPRECIATION
At July 1, 1993......... 427 12 3,815 2,374 6,628
Charge for the year..... 106 2 320 163 591
Disposals............... (1) -- (5) (94) (100)
Exchange differences.... -- -- (1) 1 --
------------- ---------- ------------- ------------- --------------
At June 30, 1994........ 532 14 4,129 2,444 7,119
============= ========== ============= ============= ==============
NET BOOK VALUE
At June 30, 1994........ (Pounds)3,988 (Pounds)20 (Pounds)1,337 (Pounds)1,059 (Pounds) 6,404
============= ========== ============= ============= ==============
</TABLE>
F-27
<PAGE>
ELECTROTECH EQUIPMENTS LIMITED AND ELECTROTECH LIMITED
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1996
12. TANGIBLE FIXED ASSETS--(CONTINUED)
<TABLE>
<CAPTION>
PLANT,
FREEHOLD LEASEHOLD MACHINERY FIXTURES,
LAND AND LAND AND AND MOTOR EQUIPMENT &
BUILDINGS BUILDINGS VEHICLES FITTINGS TOTAL
------------- ----------- ------------- ------------- --------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C> <C> <C>
COST
At July 1, 1994......... (Pounds)4,520 (Pounds) 34 (Pounds)5,466 (Pounds)3,503 (Pounds)13,523
Additions............... -- 139 2,006 398 2,543
Disposals............... -- -- (460) (415) (875)
Exchange differences.... (14) -- (2) 18 2
------------- ----------- ------------- ------------- --------------
At June 30, 1995........ 4,506 173 7,010 3,504 15,193
============= =========== ============= ============= ==============
DEPRECIATION
At July 1, 1994......... 532 14 4,129 2,444 7,119
Charge for the year..... 102 2 489 217 810
Disposals............... -- -- (430) (273) (703)
Exchange differences.... (4) -- (3) 5 (2)
------------- ----------- ------------- ------------- --------------
At June 30, 1995........ 630 16 4,185 2,393 7,224
============= =========== ============= ============= ==============
NET BOOK VALUE
At June 30, 1995........ (Pounds)3,876 (Pounds)157 (Pounds)2,825 (Pounds)1,111 (Pounds) 7,969
============= =========== ============= ============= ==============
COST
At July 1, 1995......... (Pounds)4,506 (Pounds)173 (Pounds)7,010 (Pounds)3,504 (Pounds)15,193
Additions............... 2,534 -- 1,763 552 4,849
Disposals............... (107) -- (15) (109) (231)
Exchange differences.... (3) -- (4) (5) (12)
------------- ----------- ------------- ------------- --------------
At June 30, 1996........ 6,930 173 8,754 3,942 19,799
============= =========== ============= ============= ==============
DEPRECIATION
At July 1, 1995......... 630 16 4,185 2,393 7,224
Charge for the year..... 96 54 862 259 1,271
Disposals............... (66) -- (6) (109) (181)
Exchange differences.... (2) -- (4) (5) (11)
------------- ----------- ------------- ------------- --------------
At June 30, 1996........ 658 70 5,037 2,538 8,303
============= =========== ============= ============= ==============
NET BOOK VALUE
At June 30, 1996........ (Pounds)6,272 (Pounds)103 (Pounds)3,717 (Pounds)1,404 (Pounds)11,496
============= =========== ============= ============= ==============
</TABLE>
The net book value of the freehold land and buildings on the historical cost
basis as at June 30, 1996 was (Pounds)3,970,000 (1995: (Pounds)1,543,000).
Included in the total net book value of tangible fixed assets at June 30, 1996
was (Pounds)688,000 (1995: (Pounds)372,000) in respect of assets held under
hire purchase agreements.
F-28
<PAGE>
ELECTROTECH EQUIPMENTS LIMITED AND ELECTROTECH LIMITED
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1996
13. INVENTORIES
<TABLE>
<CAPTION>
AS OF JUNE 30,
-----------------------------
1996 1995
-------------- --------------
(IN THOUSANDS OF
BRITISH POUNDS)
<S> <C> <C>
Raw materials and parts....................... (Pounds)10,627 (Pounds) 6,077
Work in progress.............................. 5,552 5,377
Finished goods................................ 1,259 1,287
-------------- --------------
(Pounds)17,438 (Pounds)12,741
============== ==============
</TABLE>
The difference between the purchase price or production cost of inventories
and their replacement price is not material.
14. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
AS OF JUNE 30,
-----------------------------
1996 1995
-------------- --------------
(IN THOUSANDS OF
BRITISH POUNDS)
<S> <C> <C>
Trade debtors................................. (Pounds)17,406 (Pounds)13,416
Other debtors................................. 1,492 2,172
Prepayments and accrued income................ 1,024 328
Amounts owed by companies under common
control...................................... 80 118
-------------- --------------
(Pounds)20,002 (Pounds)16,034
============== ==============
</TABLE>
15. OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
AS OF JUNE 30,
---------------------------
1996 1995
------------- -------------
(IN THOUSANDS OF
BRITISH POUNDS)
<S> <C> <C>
Obligations under hire purchase contracts(see
note 17)...................................... (Pounds) 242 (Pounds) 180
Warranty provisions............................ 1,107 702
Payments received on account................... 2,779 1,886
Other creditors................................ 46 36
Other tax and social security.................. 640 1,324
Amount owed to companies under common control.. 80 105
Current installment due on medium-term loan.... 400 400
------------- -------------
(Pounds)5,294 (Pounds)4,633
============= =============
</TABLE>
F-29
<PAGE>
ELECTROTECH EQUIPMENTS LIMITED AND ELECTROTECH LIMITED
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1996
16. NONCURRENT LIABILITIES
<TABLE>
<CAPTION>
AS OF JUNE 30,
-------------------------
1996 1995
----------- -------------
(IN THOUSANDS OF
BRITISH POUNDS)
<S> <C> <C>
US mortgage loan................................... (Pounds) 38 (Pounds) 37
Hire purchase installments due within five years... 287 66
Long term element of DTI grant receivable.......... 20 30
----------- -------------
345 133
UK medium-term bank loan........................... 400 800
UK corporation tax................................. 203 406
----------- -------------
(Pounds)948 (Pounds)1,339
=========== =============
</TABLE>
The UK bank loan is for a period of five years from May 20, 1993 and is
repayable by equal semi-annual installments of (Pounds)200,000 from that date.
The loan carries a fixed interest rate of 10.0025% per annum and is secured by
a debenture over the assets of Electrotech Equipments Limited, Electrotech
Limited and their subsidiaries.
The mortgage loan in the United States is to be repaid in installments
ending in 1998. Interest on the loan is charged at 9.75% per annum.
17. OBLIGATIONS UNDER HIRE PURCHASE CONTRACTS
The maturity of these amounts is as follows:
<TABLE>
<CAPTION>
AS OF JUNE 30,
-----------------------
1996 1995
----------- -----------
(IN THOUSANDS OF
BRITISH POUNDS)
<S> <C> <C>
Amounts payable:
Within one year.................................... (Pounds)244 (Pounds)195
In two to five years............................... 287 71
----------- -----------
531 266
Less: finance charges allocated to future periods.... 2 20
----------- -----------
(Pounds)529 (Pounds)246
=========== ===========
</TABLE>
Obligations under hire purchase contracts are analyzed as follows:
<TABLE>
<CAPTION>
AS OF JUNE 30,
-----------------------
1996 1995
----------- -----------
(IN THOUSANDS OF
BRITISH POUNDS)
<S> <C> <C>
Current obligations.................................. (Pounds)242 (Pounds)180
Noncurrent obligations............................... 287 66
----------- -----------
(Pounds)529 (Pounds)246
=========== ===========
</TABLE>
F-30
<PAGE>
ELECTROTECH EQUIPMENTS LIMITED AND ELECTROTECH LIMITED
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1996
18. DEFERRED TAXATION
<TABLE>
<CAPTION>
AS OF JUNE 30,
-----------------------------------
1996 1995 1994
----------- ----------- -----------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
At July 1................................ (Pounds)291 (Pounds)211 (Pounds) 59
Charge for the year...................... 76 80 152
----------- ----------- -----------
At June 30............................... (Pounds)367 (Pounds)291 (Pounds)211
=========== =========== ===========
</TABLE>
No provision has been made for the potential tax liability that would arise
on the disposal of the freehold land and buildings at the revalued amount
shown in the balance sheet. The potential tax liability at June 30, 1996
amounts to (Pounds)500,000 (1995: (Pounds)500,000), but no provision for this
is required since the directors have no plans to dispose of the property in
the foreseeable future and, in the event of a disposal, it is considered that
no tax liability would arise after taking account of "rollover" relief.
In addition, no provision has been made for the potential tax liability that
would arise on the disposal of land and buildings on which Scientific Research
Allowances have been claimed. The potential liability at June 30, 1996 amounts
to (Pounds)246,000 (1995: (Pounds)246,000).
Deferred taxation provided in the accounts and the amounts not provided are
as follows:
<TABLE>
<CAPTION>
PROVIDED NOT PROVIDED
----------------------- -----------------------
AS OF JUNE 30, AS OF JUNE 30,
----------------------- -----------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C> <C>
Capital allowances in
advance of depreciation... (Pounds)367 (Pounds)291 (Pounds)-- (Pounds)--
Other timing differences... -- -- 246 246
----------- ----------- ----------- -----------
(Pounds)367 (Pounds)291 (Pounds)246 (Pounds)246
=========== =========== =========== ===========
</TABLE>
19. SHARE CAPITAL
<TABLE>
<CAPTION>
ELECTROTECH
ELECTROTECH EQUIPMENTS LIMITED LIMITED
------------------------------ --------------
"A" "B"
VOTING NON-VOTING
ORDINARY ORDINARY ORDINARY
SHARES OF SHARES OF SHARES OF
(Pounds)1 EACH (Pounds)1 EACH TOTAL (Pounds)1 EACH COMBINED
-------------- -------------- ------ -------------- --------
(IN BRITISH POUNDS)
<S> <C> <C> <C> <C> <C>
Authorized at July 1,
1994, June 30, 1995 and
1996................... 82 9,918 10,000 575 10,575
=== ===== ====== === ======
Issued and fully paid at
July 1, 1994, June 30,
1995 and 1996.......... 82 9,918 10,000 570 10,575
=== ===== ====== === ======
</TABLE>
F-31
<PAGE>
ELECTROTECH EQUIPMENTS LIMITED AND ELECTROTECH LIMITED
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1996
20. REVALUATION RESERVE
<TABLE>
<CAPTION>
AS OF JUNE 30,
-----------------------------------------
1996 1995 1994
------------- ------------- -------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
At July 1......................... (Pounds)2,333 (Pounds)2,384 (Pounds)2,435
Less: amortization of revaluation
surplus.......................... 51 51 51
------------- ------------- -------------
2,282 2,333 2,384
Exchange difference arising on
consolidation.................... 26 46 37
------------- ------------- -------------
At June 30........................ (Pounds)2,308 (Pounds)2,379 (Pounds)2,421
============= ============= =============
</TABLE>
The revaluation reserve arises on the valuation of freehold properties owned
by a subsidiary company as valued by Chestertons on 6 June 1991. The valuation
was carried out in accordance with the Statement of Asset Valuation Practice
("SAVP") notes issued by the Royal Institute of Chartered Surveyors and in
particular, SAVP note 2:1.
21. RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW/(OUTFLOW) FROM
OPERATING ACTIVITIES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------
1996 1995 1994
-------------- -------------- --------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
Operating profit............ (Pounds)10,637 (Pounds) 4,446 (Pounds) 1,818
Depreciation................ 1,280 806 597
Loss/(Profit) on sale of
tangible fixed assets...... 25 (12) (11)
Currency exchange
differences................ (87) 37 21
Increase in inventories..... (4,697) (2,638) (5,387)
Increase in accounts
receivable................. (3,968) (8,622) (1,967)
Increase in current
liabilities................ 1,728 2,647 2,217
-------------- -------------- --------------
Net cash inflow/(outflow)
from operating activities.. (Pounds) 4,918 (Pounds)(3,336) (Pounds)(2,712)
============== ============== ==============
</TABLE>
22. SALE OF SUBSIDIARY UNDERTAKING
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------
1996 1995 1994
----------- ------------- -----------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
Net book value of assets sold
Tangible fixed assets................ (Pounds)-- (Pounds) 151 (Pounds)--
Non-cash equivalent working capital.. -- 1,440 --
Cash and cash equivalents............ -- (679) --
----------- ------------- -----------
-- 912 --
Profit on disposal................... -- 5,040 --
----------- ------------- -----------
Cash consideration (net of expenses). (Pounds)-- (Pounds)5,952 (Pounds)--
=========== ============= ===========
</TABLE>
F-32
<PAGE>
ELECTROTECH EQUIPMENTS LIMITED AND ELECTROTECH LIMITED
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1996
22. SALE OF SUBSIDIARY UNDERTAKING--(CONTINUED)
The net inflow of cash and cash equivalents in respect of the sale of the
subsidiary undertaking is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------
1996 1995 1994
----------- ------------- -----------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
Cash consideration (net of expenses).. (Pounds)-- (Pounds)5,952 (Pounds)--
Cash balance of subsidiary
undertaking.......................... -- 679 --
----------- ------------- -----------
(Pounds)-- (Pounds)6,631 (Pounds)--
=========== ============= ===========
</TABLE>
23. ANALYSIS OF CHANGES IN CASH AND CASH EQUIVALENTS DURING THE YEAR
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------
1996 1995 1994
-------------- -------------- --------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
Balance at July 1............ (Pounds)(1,023) (Pounds)(1,151) (Pounds) 3,244
Net cash flow in the year.... (5,007) 128 (4,395)
-------------- -------------- --------------
Balance at June 30........... (Pounds)(6,030) (Pounds)(1,023) (Pounds)(1,151)
============== ============== ==============
</TABLE>
24. ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS AS SHOWN IN THE
BALANCE SHEET
<TABLE>
<CAPTION>
AS OF JUNE 30,
------------------------------ CHANGE IN
1996 1995 YEAR
-------------- -------------- --------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
Cash at bank and in hand.... (Pounds) 2,076 (Pounds) 1,568 (Pounds) 508
Bank overdrafts............. (8,106) (2,591) (5,515)
-------------- -------------- --------------
(Pounds)(6,030) (Pounds)(1,023) (Pounds)(5,007)
============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30,
------------------------------ CHANGE IN
1995 1994 YEAR
-------------- -------------- -------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
Cash at bank and in hand...... (Pounds) 1,568 (Pounds) 465 (Pounds)1,103
Bank overdrafts............... (2,591) (1,616) (975)
-------------- -------------- -------------
(Pounds)(1,023) (Pounds)(1,151) (Pounds) 128
============== ============== =============
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30,
----------------------------- CHANGE IN
1994 1993 YEAR
-------------- ------------- --------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
Cash at bank and in hand..... (Pounds) 465 (Pounds)3,436 (Pounds)(2,971)
Bank overdrafts.............. (1,616) (192) (1,424)
-------------- ------------- --------------
(Pounds)(1,151) (Pounds)3,244 (Pounds)(4,395)
============== ============= ==============
</TABLE>
F-33
<PAGE>
ELECTROTECH EQUIPMENTS LIMITED AND ELECTROTECH LIMITED
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1996
25. ANALYSIS OF CHANGES IN LOAN FINANCING DURING THE YEAR
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------
1996 1995 1994
------------- ------------- -------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
Total financing at July 1....... (Pounds)1,200 (Pounds)1,600 (Pounds)2,000
Loan repayments................. (400) (400) (400)
------------- ------------- -------------
Total financing at June 30...... (Pounds) 800 (Pounds)1,200 (Pounds)1,600
============= ============= =============
</TABLE>
26. PENSIONS
Electrotech Equipments Limited, Electrotech Limited and their subsidiaries
operate a pension scheme known as "The Electrotech Retirements Benefits
Scheme" which undertakes to provide retirement benefits to participating
employees based upon their final pensionable salary. The assets of the scheme
are administered by the Trustees and are separate from those of the companies.
Employer contributions to the scheme are made at rates recommended by a
qualified actuary following his triennial valuation of the fund. At the date
of the latest actuarial valuation, April 6, 1993, the market value of the
assets of the scheme was (Pounds)4,562,000 which represented 145% of the
benefits that had accrued to members, after allowing for expected future
increases in earnings.
The assumptions which have the most significant effect on the results of the
valuation are those relating to the rate of return on investments and the
rates of increase in salaries and pensions. It has been assumed that the
investment return is 2% higher per annum than future salary and pension
increases.
Employer contributions to the scheme from July 1, 1994 to April 30, 1995
were made at the rate of 6% of pensionable salaries, and from May 1, 1995 at
the rate of 8.8% of pensionable salaries.
The group also makes contributions to a Group Personal Pension plan for
employees who are not members of the final salary scheme. Total contributions
to the group scheme and personal pension plan in the year ended June 30, 1996
amounted to (Pounds)298,000 (1995: (Pounds)242,000).
27. LEASING COMMITMENTS
Electrotech had annual commitments under noncancelable operating leases as
detailed below:
<TABLE>
<CAPTION>
AS OF JUNE 30,
----------------------------------------------------------------------
1996 1995 1994
----------------------- ----------------------- ----------------------
LAND & LAND & LAND &
BUILDINGS OTHER BUILDINGS OTHER BUILDINGS OTHER
----------- ----------- ----------- ----------- ----------- ----------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C> <C> <C> <C>
Leases which expire:
In 1 year............... (Pounds) 42 (Pounds) 57 (Pounds)-- (Pounds) 40 (Pounds)-- (Pounds) 8
In 2 to 5 years......... 35 180 -- 88 -- 67
In more than five years. 617 -- 637 -- 167 --
----------- ----------- ----------- ----------- ----------- ----------
(Pounds)694 (Pounds)237 (Pounds)637 (Pounds)128 (Pounds)167 (Pounds)75
=========== =========== =========== =========== =========== ==========
</TABLE>
F-34
<PAGE>
ELECTROTECH EQUIPMENTS LIMITED AND ELECTROTECH LIMITED
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1996
28. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------
1996 1995 1994
-------------- -------------- --------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
Profit for the financial year. (Pounds) 6,307 (Pounds) 5,518 (Pounds) 989
Shareholders' funds at
beginning of year............ 20,401 14,844 13,836
Exchange difference on opening
balance...................... (87) 39 19
-------------- -------------- --------------
Shareholders' funds at end of
year......................... (Pounds)26,621 (Pounds)20,401 (Pounds)14,844
============== ============== ==============
</TABLE>
29. DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED
KINGDOM AND THE UNITED STATES
The combined financial statements are prepared under accounting principles
generally accepted in the United Kingdom ("UK GAAP") which differ in certain
respects from United States generally accepted principles ("US GAAP").
Differences estimated to have a significant effect on combined net income and
shareholders' equity are set out below.
Revaluation of Land and Buildings
Certain land and buildings were revalued in 1991 on the basis of their value
to the business and they are included in these combined financial statements
at that valuation less subsequent depreciation. Under US GAAP, such
revaluations would not be reflected in the financial statements. Land and
buildings would be included at historical cost under US GAAP with depreciation
computed on such cost.
Deferred Taxation
Provision is made for deferred taxation using the liability method on all
material timing differences to the extent that it is probable that the
liabilities will crystallize in the foreseeable future. Under US GAAP, as set
out in Statement of Financial Accounting Standards No. 109 "Accounting for
Income Taxes", deferred taxation is generally provided on a full liability
basis on all temporary differences.
Pensions
Under UK GAAP the cost of providing pensions is accounted for over the
working lives of the employees in the scheme. Under US GAAP, FAS 87 requires
that a specific actuarial approach is applied for measuring the pension cost,
the objective of which is to recognize in each accounting period the cost of
providing the pension benefits earned by employees in that period.
The following is a summary of the effect of the above differences on profit
for the financial year (net income) and equity shareholders' funds:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------
1996 1995 1994
------------- ------------- -----------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
NET INCOME
Profit for the financial year.... (Pounds)6,307 (Pounds)5,518 (Pounds)989
Adjustments
Depreciation adjustment as a
result of revaluation......... 51 51 51
Pensions (net of tax effect)... (189) (155) (67)
------------- ------------- -----------
Net income as adjusted to accord
with US GAAP.................... (Pounds)6,169 (Pounds)5,414 (Pounds)973
============= ============= ===========
</TABLE>
F-35
<PAGE>
ELECTROTECH EQUIPMENTS LIMITED AND ELECTROTECH LIMITED
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1996
29. DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED
KINGDOM AND THE UNITED STATES--(CONTINUED)
Environmental Cleanup
An environmental survey is in the process of being completed in respect of
all currently owned properties and previously and currently leased properties.
For US GAAP purposes, an accrual of (Pounds)281,000 has been recorded as an
adjustment in shareholders' equity, as reported.
<TABLE>
<CAPTION>
AS OF JUNE 30,
------------------------------
1996 1995
-------------- --------------
(IN THOUSANDS OF
BRITISH POUNDS)
<S> <C> <C>
SHAREHOLDERS' EQUITY
Shareholders' equity as reported............ (Pounds)26,621 (Pounds)20,401
Adjustments
Revaluation............................... (2,542) (2,542)
Depreciation adjustment as a result of
revaluation.............................. 250 199
Deferred taxation......................... (246) (246)
Pensions (net of tax effect).............. (1,287) (1,287)
Environmental reserve..................... (281) (281)
-------------- --------------
Shareholders' equity as adjusted to accord
with US GAAP............................... (Pounds)22,515 (Pounds)16,244
============== ==============
</TABLE>
Consolidated Cash Flow Statement
The consolidated statements of cash flows prepared in accordance with UK
GAAP present substantially the same information as that required under US
GAAP. UK GAAP and US GAAP differ, however, with regard to classification of
items within the statements and as regards the definition of cash and cash
equivalents.
Under US GAAP, cash and cash equivalents would not include bank overdrafts
and borrowings with initial maturities of less than three months. Under UK
GAAP, cash flows are presented separately for operating activities, servicing
of finance and returns on investments, taxation, investing activities and
financing activities. US GAAP, however, requires only three categories of cash
flow activity to be reported: operating, investing and financing. Cash flows
from taxation and servicing of finance and returns on investments shown under
UK GAAP would be included as operating activities under US GAAP.
The categories of cash flow activity under US GAAP can be summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------
1996 1995 1994
-------------- -------------- --------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
Cash inflows/(outflows)
from operating activities. (Pounds) 4 (Pounds)(3,604) (Pounds)(3,250)
Cash (outflows)/inflows on
investing activities...... (4,823) 4,132 (745)
Cash outflows from
financing activities...... (188) (400) (400)
-------------- -------------- --------------
(Decrease)/increase in cash
and cash equivalents...... (5,007) 128 (4,395)
Cash and cash equivalents
at July 1................. (1,023) (1,151) 3,244
-------------- -------------- --------------
Cash and cash equivalents
at June 30................ (Pounds)(6,030) (Pounds)(1,023) (Pounds)(1,151)
============== ============== ==============
</TABLE>
F-36
<PAGE>
ANNEX A
----------------
SHARE PURCHASE AGREEMENT
AMONG
PLASMA & MATERIALS TECHNOLOGIES, INC.,
ELECTROTECH LIMITED,
ELECTROTECH EQUIPMENTS LIMITED,
CHRISTOPHER D. DOBSON
AND
THE OTHER SHAREHOLDERS OF ELECTROTECH LIMITED AND
ELECTROTECH EQUIPMENTS LIMITED
----------------
DATED AS OF JULY 17, 1996
----------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
<S> <C>
PURCHASE AND SALE OF THE US SHARES AND ET SHARES........................... 1
1.1 Purchase and Sale of Stock.......................................... 1
1.2 Shareholder's Warranty and Waiver................................... 1
1.3 Consideration for US Shares......................................... 2
1.4 Consideration for ET Shares......................................... 2
1.5 Agreement of Shareholders........................................... 2
ARTICLE II
CLOSING.................................................................... 2
2.1 Closing Date........................................................ 2
2.2 Deliveries of the Shareholders and ETE.............................. 2
2.3 Deliveries of Buyer................................................. 2
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH OF THE SHAREHOLDERS................. 3
3.1 Title to Shares..................................................... 3
3.2 Authority........................................................... 3
3.3 No Violation........................................................ 3
3.4 Brokers............................................................. 3
3.5 No Agreements to Sell Shares........................................ 3
3.6 Regulation S Representations and Covenants.......................... 4
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE MAJORITY SHAREHOLDER................. 5
4.1 Corporate Organization.............................................. 5
4.2 Subsidiaries........................................................ 5
4.3 Share Capital; Title to ET Shares................................... 6
4.4 Authority........................................................... 6
4.5 No Violations or Consents........................................... 6
4.6 Litigation.......................................................... 7
4.7 Financial Statements................................................ 7
4.8 No Liabilities...................................................... 7
4.9 Absence of Certain Changes or Events................................ 8
4.10 Insurance........................................................... 8
4.11 Employee Benefits and Pension Scheme................................ 10
4.12 Material Contracts and Other Agreements............................. 10
4.13 Suppliers and Customers............................................. 10
4.14 Real Property....................................................... 10
4.15 Condition of the Real Property; Rights of Use; Liabilities.......... 10
4.16 Compliance with Laws................................................ 11
4.17 Licenses and Permits................................................ 11
4.18 Title to Assets..................................................... 11
4.19 Inventory........................................................... 11
4.20 Backlog............................................................. 12
4.21 Taxes............................................................... 12
4.22 Environmental Matters............................................... 13
4.23 Board of Directors and Shareholder Approval......................... 14
4.24 Brokers; Certain Expenses........................................... 14
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
4.25 No Agreements to Sell Companies..................................... 14
4.26 Related-Party Transactions.......................................... 15
4.27 Employees; Labor Matters............................................ 15
4.28 Proprietary Rights.................................................. 16
4.29 Disclosure.......................................................... 16
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER.................................... 16
5.1 Corporate Organization.............................................. 16
5.2 Subsidiaries........................................................ 16
5.3 Capital Stock....................................................... 17
5.4 Buyer Shares........................................................ 17
5.5 Authority........................................................... 17
5.6 No Violations or Consents........................................... 17
5.7 Financial Statements and Reports.................................... 18
5.8 Litigation.......................................................... 18
5.9 Absence of Certain Changes or Events................................ 18
5.10 Insurance........................................................... 19
5.11 Employee Benefits................................................... 19
5.12 Employees; Labor Matters............................................ 19
5.13 Material Contracts and Other Agreements............................. 20
5.14 Suppliers and Customers............................................. 20
5.15 Compliance with Laws................................................ 20
5.16 Licenses and Permits................................................ 21
5.17 Title to Assets..................................................... 21
5.18 Inventory........................................................... 21
5.19 Backlog............................................................. 21
5.20 Tax Returns and Audits.............................................. 21
5.21 Environmental and Safety Laws....................................... 22
5.22 Board of Directors Approval......................................... 22
5.23 Related-Party Transactions.......................................... 22
5.24 Proprietary Rights.................................................. 23
5.25 Real Property....................................................... 23
5.26 Disclosure.......................................................... 23
5.27 Brokers............................................................. 23
ARTICLE VI
COVENANTS AND AGREEMENTS................................................... 23
6.1 Conduct of Business Prior to the Closing Date....................... 23
6.2 Access to Properties and Records.................................... 25
6.3 Acquisition Proposals............................................... 25
6.4 Proxy Statement and Meeting of Buyer's Shareholders................. 25
6.5 Indemnification by Buyer............................................ 26
6.6 Indemnification by the Shareholders................................. 27
6.7 General Indemnification Provisions.................................. 27
6.8 Best Efforts........................................................ 28
6.9 Consents............................................................ 28
6.10 No Transfer......................................................... 28
6.11 Environmental Investigations........................................ 28
6.12 Delivery of Financial Statements and Other Documents................ 28
6.13 Additional Payments at Closing...................................... 29
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
6.14 Company Employee Benefits and Stock Options......................... 29
6.15 Use of Company Information.......................................... 30
ARTICLE VII
CONDITIONS PRECEDENT....................................................... 30
7.1 Conditions to Each Party's Obligations.............................. 30
7.2 Conditions to the Obligations of the Shareholders................... 30
7.3 Conditions to the Obligations of Buyer.............................. 31
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER.......................................... 32
8.1 Termination......................................................... 32
8.2 Termination Fee; Expenses........................................... 32
8.3 Effect of Termination............................................... 33
8.4 Amendment........................................................... 33
8.5 Waiver.............................................................. 33
8.6 Conduct Following Termination....................................... 33
ARTICLE IX
MISCELLANEOUS.............................................................. 33
9.1 Survival............................................................ 33
9.2 Meaning of "Best Knowledge"......................................... 33
9.3 Notices............................................................. 33
9.4 Headings; Agreement................................................. 34
9.5 Publicity........................................................... 34
9.6 Entire Agreement.................................................... 35
9.7 Conveyance Taxes.................................................... 35
9.8 Company Pre-Closing Dividends....................................... 35
9.9 Advance of Reimbursable Expenses.................................... 35
9.10 Assignment.......................................................... 35
9.11 Counterparts........................................................ 35
9.12 Governing Law....................................................... 36
9.13 Third Party Beneficiaries........................................... 36
</TABLE>
EXHIBITS
<TABLE>
<C> <S>
Exhibit A Schedule of Consideration
Exhibit B Nigel Wheeler Employment Agreement
Exhibit C Form of Opinion of Riordan & McKinzie
Exhibit D Form of Registration Agreement
Exhibit E Form of Noncompetition Agreement
Exhibit F Form of Opinion of Veale Wasbrough
</TABLE>
iii
<PAGE>
SHARE PURCHASE AGREEMENT
SHARE PURCHASE AGREEMENT ("Agreement") dated as of July 17, 1996 among
Plasma & Materials Technologies, Inc., a California corporation ("Buyer"),
Electrotech Limited (registered no. 1373344), whose registered office is at
Thornbury Laboratories, Littleton-Upon-Severn, Thornbury, Bristol, BS12-INP,
United Kingdom ("ET"), Electrotech Equipments Limited (registered no. 939289),
whose registered office is at Thornbury Laboratories, Littleton-Upon-Severn,
Thornbury, Bristol, BS12-INP, United Kingdom ("ETE" and, together with ET,
individually, a "Company," and collectively, the "Companies"), Christopher D.
Dobson (the "Majority Shareholder") and the other shareholders of the
Companies listed on Exhibit A hereto (individually, an "Other Shareholder" and
collectively, the "Other Shareholders;" the Majority Shareholder and the Other
Shareholders are sometimes herein collectively referred to as the
"Shareholders").
R E C I T A L S :
A. The Shareholders collectively own all of the issued and outstanding share
capital of each of the Companies (collectively, the "ET Shares").
B. ETE owns all of the issued and outstanding share capital of Energy
Transfer Systems, Inc., a Delaware corporation ("ET-US").
C. Buyer wishes to directly purchase, and ETE wishes to sell, all of the
issued and outstanding share capital of ET-US (the "US Shares").
D. Buyer wishes to purchase and the Shareholders wish to sell the ET Shares.
A G R E E M E N T :
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, agreements and conditions contained
herein, the sufficiency of which is hereby acknowledged, the parties hereby
agree as follows:
ARTICLE I
PURCHASE AND SALE OF THE US SHARES AND ET SHARES
1.1 Purchase and Sale of Stock.
(a) Purchase and Sale of US Shares. Subject to the terms and conditions
of this Agreement, immediately prior to the Closing (as defined below), ETE
agrees to sell, assign, transfer and deliver to Buyer ownership of, with
full title guarantee, the US Shares, together with all rights now or
hereafter attaching thereto, and Buyer hereby agrees to purchase the same
from ETE, for the consideration set forth in Section 1.3 below.
(b) Purchase and Sale of ET Shares. Subject to the terms and conditions
of this Agreement, at the Closing, each of the Shareholders agrees to sell,
assign, transfer and deliver to Buyer ownership of, with full title
guarantee, all ET Shares held of record or beneficially by each such
Shareholder, as set forth opposite each Shareholder's name on Exhibit A
hereto, together with all rights now or hereafter attaching thereto, and
Buyer agrees to purchase the same from each Shareholder for the
consideration set forth in Section 1.4 below.
1.2 Shareholder's Warranty and Waiver. Each of the Shareholders warrants to
Buyer that such Shareholder is entitled to sell and transfer to Buyer the full
legal and beneficial ownership of the ET Shares held by him subject to the
terms of this Agreement and that such shares are free and clear of any and all
Encumbrances, as defined below. Each of the Shareholders hereby waives and
agrees to procure the waiver of any restrictions on transfer, including
without limitation, pre-emption rights, which may exist in relation to the ET
Shares under the existing Articles of Association (the "Articles") of either
of the Companies.
1
<PAGE>
1.3 Consideration for US Shares. The consideration for the sale, assignment,
transfer and delivery of the US Shares to Buyer by ETE shall be Two Hundred
Fifty Thousand Dollars (US$250,000), payable in cash.
1.4 Consideration for ET Shares. The consideration for the sale, assignment,
transfer and delivery of the ET Shares to Buyer (the "Purchase Price") shall
be payable in cash and in shares of the Common Stock of Buyer, no par value
per share ("Buyer's Common Stock"), as follows:
(a) An aggregate of Seventy-Five Million Dollars (US$75,000,000), less
the sum of the Employee Bonus Amount, the Dobson Noncompetition Fee, the
Wheeler Bonus and the Dobson Negotiation Fee (all as defined in Section
6.13 below), shall be payable by Buyer in cash at the Closing to each of
the Shareholders in the respective individual amounts set forth opposite
each Shareholder's name on Exhibit A hereto; and
(b) Buyer shall deliver Five Million Six Hundred Thousand (5,600,000)
shares (the "Buyer Shares") of Buyer's Common Stock. Such shares shall be
delivered to each of the Shareholders in the respective individual amounts
set forth opposite each Shareholder's name on Exhibit A hereto.
1.5 Agreement of Shareholders. Each of the Shareholders hereby consents and
agrees with the Companies, the other Shareholders and the Buyer to the
allocation of the Purchase Price among the Shareholders in the manner set
forth in Exhibit A hereto and each Shareholder additionally consents and
agrees with the Companies, the other Shareholders and the Buyer to the
payments to be made by or at the direction of the Buyer and the Companies
pursuant to Section 6.13 hereof.
ARTICLE II
CLOSING
2.1 Closing Date. Subject to the fulfillment of the conditions precedent
specified in Article VII (any or all of which may be waived in writing by the
respective parties whose performance is conditioned upon satisfaction of such
conditions precedent), the purchase and sale of the ET Shares and the US
Shares shall be consummated at a closing (the "Closing") to be held at the
offices of Veale Wasbrough, Solicitors, Orchard Court, Orchard Lane, Bristol
BS1 5DS, United Kingdom as soon as practicable, but no later than five (5)
days, following the satisfaction or waiver of all conditions precedent
specified in Article VII, or at such other time as Buyer and the Shareholders
shall mutually agree after the satisfaction or waiver of all conditions
precedent specified in Article VII, provided that in no circumstance shall the
Closing occur on or after December 31, 1996 (such date and time being herein
referred to as the "Closing Date").
2.2 Deliveries of the Shareholders and ETE. At the Closing, each Shareholder
shall deliver to Buyer, in form reasonably satisfactory to counsel for Buyer,
(a) duly completed and signed transfers in respect of the ET Shares in favor
of Buyer or as Buyer shall direct, together with the relevant certificates for
the ET Shares, and (b) all of the agreements, documents and instruments
required to be delivered by such Shareholder. Additionally, at the Closing,
ETE shall deliver to Buyer duly completed and signed transfers in respect of
the US Shares in favor of Buyer or as Buyer shall direct, together with the
relevant certificates for the US Shares.
2.3 Deliveries of Buyer. At the Closing, Buyer shall deliver to Veale
Wasbrough, counsel for the Shareholders, on behalf of each Shareholder (whose
receipt shall be a good discharge for the same) (a) payment of the cash
portion of the Purchase Price with respect to each Shareholder in accordance
with Section 1.4(a) hereof by wire transfer of immediately available funds in
the amount thereof, (b) certificates evidencing the Buyer Shares, registered
in the name of each Shareholder in accordance with Section 1.4(b) hereof, and
(c) all of the agreements, documents and instruments required to be delivered
to them at the Closing pursuant to this Agreement. Additionally, at the
Closing, Buyer shall deliver to ETE payment of the cash amount set forth in
Section 1.3 hereof.
2
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF EACH OF THE SHAREHOLDERS
Except as disclosed in the letter of disclosure (the "Shareholders
Disclosure Letter") delivered to Buyer in connection herewith and initialled
by the Buyer and each of the Shareholders for identification, each of the
Shareholders severally and not jointly represents and warrants to, and agrees
with, Buyer as follows:
3.1 Title to Shares. Such Shareholder has good and marketable title, and
full beneficial ownership, in and to the ET Shares shown as being held of
record by such Shareholder on Exhibit A hereto, and such ET Shares are, and on
the Closing Date will be, free and clear of any and all liens, security
interests, mortgages, deeds of trust, pledges, claims, rights of first
refusal, options, equities, encumbrances, restrictions, preemptive or
subscription rights or other rights of third parties ("Encumbrances"). There
are no voting trusts or other agreements, arrangements or understandings with
respect to the voting of any of the ET Shares to which such Shareholder is a
party. Upon the consummation of the transactions contemplated by this
Agreement, including delivery by Buyer of the consideration set forth in
Section 1.4 hereof, Buyer will acquire good and marketable title to such ET
Shares, free and clear of any and all Encumbrances.
3.2 Authority. This Agreement has been duly executed and delivered by such
Shareholder and constitutes the legal, valid and binding obligations of such
Shareholder, enforceable against such Shareholder in accordance with its
terms, subject to applicable bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting creditors' rights generally and
subject to general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
3.3 No Violation. The execution, delivery and performance of this Agreement
by such Shareholder and the consummation by such Shareholder of the
transactions contemplated hereby will not (a) violate any provision of law,
rule, regulation, order, writ, judgment, injunction, decree, determination or
award applicable to such Shareholder, (b) require the consent, waiver,
approval or authorization of or any filing by such Shareholder with any person
or governmental authority, or (c) violate, result (with or without notice or
the passage of time, or both) in a breach of, or give rise to the right to
terminate, accelerate or cancel any obligation under, or require the payment
of any fee, or constitute (with or without notice or the passage of time, or
both) a default under, any indenture, mortgage, lien, order, judgment,
ordinance, regulation, decree or other agreement or instrument to which such
Shareholder is subject or bound which, in any such case described in clauses
(a) through (c), could reasonably be expected to materially and adversely
affect or interfere in any way with such Shareholder's ability to consummate
the transactions contemplated by this Agreement, or (d) result in the creation
of any Encumbrance upon any of the ET Shares shown as being held of record by
such Shareholder on Exhibit A hereto. There are no actions, proceedings,
claims, complaints, grievances or investigations pending or, to the knowledge
of such Shareholder, threatened against such Shareholder that could be
reasonably expected to materially and adversely affect such Shareholder's
ability to consummate the transactions contemplated by this Agreement.
3.4 Brokers. Such Shareholder has not paid or become obligated to pay any
fee or commission to any broker, finder, investment banker or other
intermediary in connection with this Agreement.
3.5 No Agreements to Sell Shares. Except as contemplated by this Agreement,
such Shareholder has no legal obligation, absolute or contingent, to any other
person, firm or entity to sell, directly or indirectly, capital stock,
material assets or business of either Company or any Subsidiary or to effect
any merger, consolidation, liquidation, dissolution, recapitalization or other
reorganization of either Company or any Subsidiary or to enter into any
agreement with respect thereto.
3
<PAGE>
3.6 Regulation S Representations and Covenants.
(a) Such Shareholder understands and acknowledges that: (i) the Buyer
Shares have not been and will not be registered under the Securities Act of
1933, as amended (the "Securities Act"), or under any state securities or
blue sky laws, and may not be offered, sold, transferred, pledged or
otherwise disposed of in the United States or to, or for the account or
benefit of, any "U.S. person" (as defined in Regulation S), unless they are
registered under the Securities Act and any applicable state securities or
blue sky laws in exemptions from such laws are available; and (ii) the
Buyer Shares are being offered and sold in a manner intended to comply with
the conditions contained in Regulation S, which permits securities to be
sold in "offshore transactions" (as defined in Regulation S), subject to
certain terms and conditions. Such Shareholder represents and warrants that
he or she is not purchasing the Buyer Shares in any transaction or series
of transactions that, although in technical compliance with Regulation S,
is part of a plan or scheme to evade the registration provisions of the
Securities Act.
(b) Such Shareholder is not a "U.S. person" and is not acquiring the
Buyer Shares for the benefit of any "U.S. person." Such Shareholder is
knowledgeable, sophisticated and experienced in making, and qualified to
make, decisions with respect to investments in securities such as the Buyer
Shares and has requested, received, reviewed and considered all information
he or she deems relevant in making a decision to acquire the Buyer Shares.
(c) During the period of 40 days following the Closing (the "Restricted
Period"), such Shareholder will not engage in any activity for the purpose
of, or which may reasonably be expected to have the effect of, conditioning
the market in the United States for the Buyer Shares, or offer, sell,
transfer, pledge or otherwise dispose of the Buyer Shares in the United
States or to, or for the account or benefit of a "U.S. person." Any
proposed offer, sale, transfer, pledge or other disposition of any of the
Buyer Shares prior to the end of the Restricted Period will be subject to
the prior delivery by the Shareholder to the Buyer of: (i) a written
certification that the Buyer Shares have not been offered or sold in the
United States or to, or for the account or benefit of, any "U.S. person";
and (ii) a written certification of the proposed transferee, reasonably
acceptable to the Buyer, confirming that such transferee is outside the
United States, is not a "U.S. person," and that the transfer is otherwise
permissible under Regulation S. Such Shareholder will not, directly or
indirectly, offer, sell, pledge, transfer or otherwise dispose of (or
solicit any offers to buy, purchase or otherwise acquire or take a pledge
of) the Buyer Shares otherwise than in compliance with the Securities Act,
any applicable state securities or blue sky laws and any applicable
securities laws of jurisdictions outside the United States, and the rules
and regulations promulgated thereunder.
(d) Such Shareholder acknowledges that if he or she sells all or any part
of the Buyer Shares in the United States, he or she (and/or certain persons
who participate in any such sale) may be deemed, under certain
circumstances, to be an "underwriter," as defined in Section 2(11) of the
Securities Act. Such Shareholder understands that he or she should consult
with United States legal counsel prior to offering or selling all or any
part of the Buyer Shares in the United States.
(e) During the period that is five business days immediately prior to the
Closing, such Shareholder will not, and from the Closing and through the
expiration of the Restricted Period, such Shareholder will not, directly or
indirectly, execute or effect or cause to be executed or effected any short
sale, option or equity swap transaction in or with respect to the Common
Stock of Buyer or any other derivative security transaction, the purpose or
effect of which is to hedge or transfer to a third party all or any part of
the risk of loss associated with such Shareholder's ownership of the Buyer
Shares.
(f) Such Shareholder acknowledges and agrees that the certificates
evidencing the Buyer Shares shall have a legend substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CONTRACTUAL RESTRICTIONS PURSUANT TO WHICH, PRIOR TO [40 DAYS AFTER THE
CLOSING] (THE "TERMINATION DATE"), NO OFFER, SALE, TRANSFER, PLEDGE OR
OTHER DISPOSITION (COLLECTIVELY, A "DISPOSITION") OF THE SECURITIES
4
<PAGE>
REPRESENTED BY THIS CERTIFICATE MAY BE MADE UNLESS (A) THE DISPOSITION
IS MADE OUTSIDE THE UNITED STATES AND TO, OR FOR THE ACCOUNT OR BENEFIT
OF, ANY PERSON WHO IS NOT A "U.S. PERSON," AND (B) PRIOR TO SUCH
DISPOSITION, THE BENEFICIAL OWNER OF SUCH SHARES AND THE PROPOSED
TRANSFEREE SUBMIT A CERTIFICATION AS DESCRIBED IN THAT CERTAIN SHARE
PURCHASE AGREEMENT PURSUANT TO WHICH THESE SECURITIES WERE ISSUED. SUCH
CONTRACTUAL RESTRICTIONS TERMINATE ON, AND THIS LEGEND MAY BE REMOVED
UPON PRESENTATION OF THIS STOCK CERTIFICATE TO THE TRANSFER AGENT OR
THE ISSUER AT ANY TIME AFTER THE TERMINATION DATE."
(g) Such Shareholder will be entitled to obtain from the Buyer's transfer
agent (the "Transfer Agent") at any time from the first business day
following the Restricted Period one or more substitute stock certificates
without the restrictive legend described above upon surrender to the
Transfer Agent of the stock certificate or certificates delivered pursuant
to the preceding paragraph which, in the case of any holder subsequent to a
Shareholder must be duly endorsed for transfer or surrender and, in any
event, must be accompanied by payment of any amount necessary to be paid
pursuant to any transfer tax or similar governmental charge relating to
such transaction.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE MAJORITY SHAREHOLDER
Except as disclosed in the letter of disclosure (the "Company Disclosure
Letter") delivered to Buyer in connection herewith and initialled by the Buyer
and the Majority Shareholder for identification, the Majority Shareholder
represents and warrants to Buyer as follows:
4.1 Corporate Organization. Each of the Companies is a corporation duly
organized, validly existing and in good standing under the laws of England,
with all requisite corporate power and authority to own, operate and lease its
properties and to carry on its business as it is now being conducted, and is
qualified or licensed to do business and is in good standing in each
jurisdiction in which the failure to be so qualified or licensed could
reasonably be expected, individually or in the aggregate, to have a material
adverse effect upon the financial condition, prospects or results of
operations of the Companies and the Subsidiaries considered as a whole (a
"Company Material Adverse Effect"). True and complete copies of the Memorandum
and Articles of each Company have been delivered to Buyer.
4.2 Subsidiaries. A true and complete list of all direct and indirect
subsidiaries other than the Dormant Subsidiaries (each, a "Subsidiary" and
collectively, the "Subsidiaries") of each of the Companies is set forth in the
Company Disclosure Letter. The Company Disclosure Letter also identifies the
inactive subsidiaries of the Companies (the "Dormant Subsidiaries"). None of
the Dormant Subsidiaries has any material assets or liabilities (contingent or
absolute) and none presently engages in any business activity. Since March 31,
1996 no Company or Subsidiary has paid any amounts to any of the Dormant
Subsidiaries, no amounts will be so paid at any time hereafter, and any net
intercompany payables of the Company and its Subsidiaries to the Dormant
Subsidiaries shall be forgiven or cancelled at the closing. As used in this
Article IV, references to a "Company" or the "Companies" shall, if appropriate
given the context of the representations being made, include each relevant
Subsidiary, even though no specific reference to any Subsidiary is so made.
Each Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, except that with
respect to the U.K. Subsidiaries, such Subsidiaries have been duly registered
in England and Wales under the Companies Act 1985. In each case such
Subsidiaries have all requisite corporate power and authority to own, operate
and lease its properties and to carry on its business as it is now being
conducted, and is qualified or licensed to do business and is in good standing
in each jurisdiction in which the failure to be so qualified or licensed could
reasonably be expected, individually or in the aggregate, to have a Company
Material Adverse
5
<PAGE>
Effect. All of the issued shares of capital stock of each such Subsidiary have
been duly and validly authorized and issued, are fully paid and non-
assessable, and are owned directly or indirectly by one of the Companies, free
and clear of any and all Encumbrances. Except with respect to the ownership of
the Subsidiaries by the Companies, neither Company nor any Subsidiary owns,
directly or indirectly, any stock, partnership interest, joint venture
interest or other security, investment or interest in any other corporation,
organization, partnership, limited liability company or entity.
4.3 Share Capital; Title to ET Shares.
(a) Capital Stock. As of the date hereof, the authorized share capital of
(i) ET consists in its entirety of five hundred seventy five (575) shares
of (Pounds)1 each, of which five hundred seventy (570) are issued and
outstanding, and (ii) ETE consists in its entirety of ten thousand (10,000)
shares of (Pounds)1 each, eighty-two (82) of which are Class A Shares and
nine thousand nine hundred and eighteen (9,918) of which are Class B
shares, all of which are issued and outstanding. All of the issued shares
of each of the Companies have been duly authorized and validly issued and
are fully paid and non-assessable and except as set forth in the Company
Disclosure Letter, free of preemptive rights with respect thereto and were
issued in compliance with all applicable securities laws and regulations.
There are no voting trusts or other agreements, arrangements or
understandings with respect to the voting of the shares of the Companies to
which either Company or, to the best knowledge (as defined in Section 9.2
hereof) of the Companies, any other person is a party. There are no
registration rights, subscriptions, options, warrants, rights, convertible
securities or other agreements or commitments of any character relating to
the issued or unissued share capital or other securities of either of the
Companies and there are no outstanding contractual obligations of either of
the Companies to repurchase, redeem or otherwise acquire or sell, issue or
otherwise transfer any of the share capital thereof.
(b) Title to Shares. Exhibit A hereto sets forth the record ownership of
the ET Shares. To the best knowledge of the Companies, (i) each Shareholder
has good and marketable title in and to the respective ET Shares set forth
opposite such Shareholder's name on Exhibit A hereto, (ii) the ET Shares
are, and on the Closing Date will be, free and clear of any and all
Encumbrances, and (iii) on the Closing, upon consummation of the
transactions contemplated by this Agreement, including delivery by Buyer of
the consideration set forth in Sections 1.3 and 1.4 hereof, Buyer will
acquire good and marketable title to all of the ET Shares and the US
Shares, free and clear of any and all Encumbrances.
4.4 Authority. Each Company has the full corporate power and authority to
execute and deliver this Agreement and each other agreement contemplated
hereby, to carry out its obligations hereunder and thereunder and to
consummate the transactions contemplated on its part hereby and thereby. The
execution, delivery and performance by each Company of this Agreement and the
consummation of the transactions contemplated on its part hereby have been
duly authorized by its Board of Directors and by the shareholders thereof, and
no other corporate proceedings on the part of either Company are necessary to
authorize the execution and delivery of this Agreement by such Company to
consummate the transactions contemplated hereby. This Agreement has been duly
executed and delivered by each Company and constitutes the legal, valid and
binding obligations of each Company, enforceable against each Company in
accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium, reorganization or similar laws affecting creditors' rights
generally and subject to general equitable principles (regardless of whether
such enforceability is considered in a proceeding in equity or at law). Each
other agreement to be executed in connection with this Agreement on or prior
to the Closing Date will be duly executed and delivered by each Company, and
will constitute a legal, valid and binding obligation of each Company,
enforceable against each Company in accordance with its respective terms,
subject to applicable bankruptcy, insolvency, moratorium, reorganization, or
similar laws affecting creditors' rights generally and subject to general
equitable principles (regardless of whether such enforceability is considered
in a proceeding in equity or at law).
4.5 No Violations or Consents. The execution, delivery and performance of
this Agreement by the Companies and the consummation by them of the
transactions contemplated hereby will not (a) violate or conflict
6
<PAGE>
with any provision of any law specifically applicable to their business or by
which any property or asset of theirs is bound, (b) require the consent,
waiver, approval, license or authorization of or any filing by them with any
public authority (other than (i) if necessary, the filing of a pre-merger
notification report under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act") and applicable U.K./EEC antitrust statutes,
and (ii) any other filings and approvals expressly contemplated by this
Agreement), (c) violate, conflict with, result in a breach of or the
acceleration of any obligation under, or constitute a default (or an event
which with notice or the lapse of time or both would become a default) under,
or give to others any right of termination, amendment, acceleration or
cancellation of, or result in the creation of any Encumbrance on any property
or asset of theirs pursuant to any provision of any charter or by-law,
indenture, mortgage, lien, lease, agreement, contract, instrument, order,
judgment, ordinance, regulation or decree to which either of the Companies are
subject or by which either Company or its respective properties or assets are
bound, or (d) result in a loss or adverse modification of any license, permit,
certificate, franchise or contract granted to or otherwise held by either of
the Companies which, in any such case described in clauses (a) through (d),
could reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect.
4.6 Litigation. There are no actions, proceedings, claims, complaints,
grievances, investigations or unfair labor practice complaints or grievances
or investigations (collectively, "Actions") pending or, to the best knowledge
of the Companies, threatened against either Company, any Subsidiary or any of
their assets or properties before any court or governmental or regulatory
authority or body or arbitrator (an "Authority") which could reasonably be
expected to have a Company Material Adverse Effect. There are no Actions
pending or, to the knowledge of the Companies, threatened against either
Company or any Subsidiary that could be reasonably expected to materially and
adversely affect on their part the consummation of the transactions
contemplated by this Agreement. None of the assets or property of either
Company or any Subsidiary is subject to any order, judgment, injunction, writ
or decree, which could reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect.
4.7 Financial Statements. Each Company has previously delivered to Buyer its
financial statements for the years ended June 30, 1991, 1992, 1993, 1994 and
1995, as audited by Watts Gregory & Daniel, which financial statements
included (a) a consolidated profit and loss account for the year then ended,
(b) a consolidated balance sheet as at such date, (c) a company balance sheet
as at such date, (d) a consolidated cash flow statement for the year then
ended, (e) a consolidated schedule of tangible fixed assets as at such date,
(f) a company schedule of tangible fixed assets as at such date and (g) notes
to the accounts for the year then ended (collectively, the "Audited Financial
Statements"). Each Company has also previously delivered to Buyer its
unaudited management accounts at March 31, 1996 (the "Unaudited Financial
Statements," and collectively with the Audited Financial Statements, the
"Financial Statements"). The Audited Financial Statements give a true and fair
view of the Companies as at the date (the "Accounting Date") on which such
accounts were made up and of the profits of each of the Companies for the
accounting reference period ending on that date, comply with all current
SSAP's applicable to a United Kingdom company and with the requirements of the
Companies Act 1985 and with all other applicable legislation, and each of the
said Audited Financial Statements properly reflect the financial position of
each of the Companies as at the relevant Accounting Date and were prepared in
accordance with the historical cost convention. "SSAP" for this purpose means
a Statement of Standard Accounting Practice in force at the relevant
Accounting Date as issued by the Institute of Chartered Accountants in England
and Wales. The Unaudited Financial Statements have been prepared in accordance
with the books and records of the Companies, contain no material inaccuracies,
and follow the same principles as consistently applied to the Audited
Financial Statements.
4.8 No Liabilities. Neither Company nor any Subsidiary has any material
liabilities, obligations or commitments of any nature (whether absolute,
accrued, contingent or otherwise and whether matured or unmatured), including
without limitation, any liabilities due or to become due to any taxing
authority having jurisdiction over such entities, except (a) liabilities
reflected in, reserved against, or disclosed in the footnotes of, the balance
sheet of such Company or Subsidiary at March 31, 1996 included in the
Unaudited Financial
7
<PAGE>
Statements, and (b) liabilities, obligations or commitments incurred since
March 31, 1996 in the ordinary course of such Company's or Subsidiary's
business or that are not material to the business of the Companies and the
Subsidiaries, taken as a whole.
4.9 Absence of Certain Changes or Events. Since March 31, 1996, each of the
Companies and the Subsidiaries have conducted their respective businesses in
the ordinary course and, except pursuant to this Agreement and the
transactions contemplated hereby, there has not been any:
(a) material adverse change in the financial condition, assets,
liabilities, business, operations, results of operations or prospects of
either Company or any Subsidiary or any other event or condition which in
any one case or in the aggregate has materially and adversely affected
either Company or any Subsidiary or any event or condition which it is
reasonable to expect will individually or in the aggregate materially
adversely affect the Companies and the Subsidiaries taken as a whole (any
such event being herein referred to as a "Company Material Adverse
Change");
(b) declaration, waiver or payment of any dividend or other distribution
or payment (whether in cash, shares or property) with respect to the share
capital of either Company or any Subsidiary, or any redemption, purchase or
other acquisition of any of the securities of any Company or Subsidiary, or
any other payment to any shareholder of any Company or Subsidiary in its
capacity as a shareholder;
(c) issuance by either Company or any Subsidiary of, or commitment by any
of them to issue, any share capital or obligations or any securities
convertible into or exchangeable or exercisable for shares or other
securities; or
(d) indebtedness for borrowed money incurred by either Company or any
Subsidiary or any commitment to incur indebtedness for borrowed money
entered into by such Company or Subsidiary, or any loans made or agreed to
be made to such Company or Subsidiary other than pursuant to commitments or
credit facilities existing on March 31, 1996 and described in the Unaudited
Financial Statements (or replacements thereof described in the Company
Disclosure Letter).
4.10 Insurance. Each Company and Subsidiary has in full force policies of
insurance issued by insurers of good repute insuring it and its properties and
business against such losses and risks, and in such amounts, as in its best
judgment, after advice from its insurance broker, are acceptable for the
nature and extent of such business and its resources. No Company or Subsidiary
is in default with respect to any material provision contained in any
insurance policy, and none has failed to give any notice or present any
existing claims it has under its insurance policies in a timely fashion.
4.11 Employee Benefits and Pension Scheme.
(a) Except as set forth in the Company Disclosure Letter, there are no
agreements, arrangements, customs or practice (whether legally enforceable
or not) in operation for the provision of, or payment or contributions
towards, and no Company or Subsidiary has any liability or obligation to
pay, any "relevant benefits" (as defined in Section 612 of the United
Kingdom Income and Corporation Taxes Act 1988 (the "Taxes Act of 1988")),
pensions, gratuities, allowances, lump sums or other like benefits on or
after retirement or death or during periods of sickness, accident,
incapacity or disablement for the benefit of any employee or former
employee of either Company or of any Subsidiary (each, an "Employee") or
such Employee's dependents, nor has any proposal been announced or promise
made to establish any such agreement, arrangement or practice.
(b) There have been disclosed to Buyer true and correct copies of (i) the
current trust deed and rules governing the Companies' Retirement Benefit
Scheme (the "Company's Scheme"), including deeds of alteration, (ii) the
current explanatory booklet issued to members of the Company's Scheme,
(iii) all announcements to members of the Company's Scheme (or to Employees
concerning the Company's Scheme) other than announcements to members of the
Company's Scheme generally which have been fully
8
<PAGE>
incorporated into the documents referred to in paragraph (d)(i) and (ii),
(iv) the latest trustee's report and the latest financial statements of the
Company's Scheme (the "Accounts"), (v) the most recent schedule of member
benefits, indicating the number of Employees who are members of the
Company's Scheme, category of membership, pensionable salary, prospective
pension and death in service benefits and pension paid, (vi) schedules of
Employees, indicating name, sex, date of birth, date of joining the
Companies or a Subsidiary, and current salary and (vii) schedules of
benefit structures indicating the relevant benefits provided or to be
provided for Employees under the Company's Scheme in respect of all
different categories of membership.
(c) To the best knowledge of the Companies, the pension arrangements of
each Company and Subsidiary, including without limitation, the Company's
Scheme (collectively, the "Pension Arrangements"), have, at all times, been
administered in all material respects in accordance with all applicable
laws, rules and regulations.
(d) To the best knowledge of the Companies, no discretion or power has
been exercised under the Company's Scheme in respect of the Employees to at
any time provide benefits in excess of those specifically provided for in
the Company's Scheme.
(e) No undertaking or assurance (whether or not constituting a legal
binding commitment) has been given to any Employee about the continuation
of the Company's Scheme or any alteration to or exception from its terms or
the increase or improvement of benefits.
(f) There are not, at the date of this Agreement, any outstanding
contributions due to or under any Pension Arrangement, or that may become
due to or under any Pension Arrangement with respect to any period prior to
the Closing, from any Company or Subsidiary or any Employee or former
Employee, except with respect to any such outstanding contributions that
have been reserved against in the Financial Statements or that have
occurred in the ordinary course of business since April 1, 1996.
(g) The Company's Scheme is exempt approved (within the meaning of
Section 592(1) of the Taxes Act of 1988) and is contracted out (for the
purposes of the Pension Schemes Act 1993) and, to the best knowledge of the
Companies, there are not facts or circumstances which may cause the
withdrawal of approval by the Inland Revenue or cancellation of the
contracted out status by the Occupational Pensions Board.
(h) In respect of any of the Employees: there are no Actions in progress,
pending or, to the best knowledge of the Companies, threatened against the
Company's Scheme, any of the Companies or Subsidiaries or any of their
trustees; and, to the best knowledge of the Companies, there are no
investigations, inquiries, complaints or disciplinary proceedings by or
before any government body or the Pensions Ombudsman concerning the
Company's Scheme and none are pending or threatened.
(i) To the best knowledge of the Companies, the Company's Scheme has and
the Companies and Subsidiaries and the trustee to the Company's Scheme and
the Employees have in relation to the each Pension Arrangement in all
material respects performed, observed and complied with, and each such
Pension Arrangement has been administered in all material respects in
accordance with, all requirements of all applicable laws, including without
limitation, all relevant statutes and subordinate legislation of the United
Kingdom and all relevant provisions of the law of the European Union, all
applicable laws in relation to the trusts, powers and provisions of each
such Pension Arrangement and all regulations, orders, contracts,
agreements, licenses or obligations of whatsoever nature, including without
limitation, requirements of the United Kingdom Inland Revenue or the
Occupational Pensions Board and of trust law, which affect each such
Pension Arrangement or its operation; and all exercises or purported
exercises of powers or discretions in relation to each such Pension
Arrangement, including without limitation, the power of amendment, have
been in all material respects proper and valid exercises of those powers or
discretions.
9
<PAGE>
4.12 Material Contracts and Other Agreements. The Company Disclosure Letter
discloses (a) all agreements or contracts whether or not fully performed
pursuant to which either Company or any Subsidiary has since July 1, 1995
acquired or disposed of any business or assets exceeding (Pounds)75,000 in
value, other than sales of inventory or contracts with suppliers, each in the
ordinary course of business; (b) all agreements containing covenants not to
compete on the part of either Company or any Subsidiary or otherwise
restricting the ability of such Company or Subsidiary in any material way to
engage in its business; (c) all material notes, mortgages, indentures, letters
of credit, guarantees, performance bonds and other obligations and agreements
and other instruments for or relating to any lending or borrowing (including
assumed debt) entered into by either Company or any Subsidiary or pursuant to
which any properties or assets of any Company or Subsidiary are pledged or
mortgaged as collateral; and (d) all agreements to which any of the Companies
or Subsidiaries is a party containing provisions restricting or providing
exclusive rights with respect to the development, manufacture or marketing of
products which, after the Closing, would be applicable to the business or
products of the Buyer or Buyer's Subsidiary (as defined in Section 5.2) by
reason of the transactions contemplated by this Agreement.
4.13 Suppliers and Customers. The Companies have delivered to Buyer a list
which accurately sets forth (a) the ten (10) largest suppliers of the
Companies and the Subsidiaries (considered as a whole) for the nine months
ended March 31, 1996 (the "Large Suppliers"), (b) the amount of all payments
made to each Large Supplier for such fiscal period, (c) the ten (10) largest
customers or groups of related customers of the Companies and the Subsidiaries
(considered as a whole) for the nine months ended March 31, 1996 (the "Large
Customers") and (d) the amount of all payments made by such Large Customers
for such fiscal period. No supplier is a sole source of supply of any good or
service used by the Companies or by any Subsidiary. None of the Large
Suppliers or Large Customers has canceled or otherwise terminated, or
threatened in writing, by notice to any Company or Subsidiary, to cancel or
otherwise terminate, its relationship with either Company or with any
Subsidiary or, since March 31, 1996, decreased materially, or threatened to
decrease or limit materially, its services, supplies or materials to either
Company or any Subsidiary or its usage or purchase of the products or services
of such Company or Subsidiary, which, in any case, would result in a Company
Material Adverse Change.
4.14 Real Property. The Company Disclosure Letter sets forth all freehold
and leasehold real property of the Companies. All such freehold and leasehold
real property is collectively referred to herein as the "Real Property." The
Real Property comprises all land and premises owned, occupied or used by, or
in the possession of, the Companies and Subsidiaries. The Companies have good
and marketable title to the freehold Real Property, and true and correct
copies of all leases concerning the leasehold Real Property have been
delivered to the Buyer. There is appurtenant to the Real Property each right
and easement necessary in all material respects for its existing and continued
use.
4.15 Condition of the Real Property; Rights of Use; Liabilities.
(a) Neither the Real Property nor any of its title deeds is subject to an
encumbrance, agreement, obligation, condition, right, easement, exception,
reservation, overriding interest (as defined in sub-section 70(1) of the
Land Registration Act 1925) or other interest. There is no person in
possession or occupation of, or who has or claims a right or interest of
any kind in, the Real Property adversely to any Company's or Subsidiary's
interest.
(b) No Action concerning any Real Property is pending or, to the best
knowledge of any Company or Subsidiary, threatened. To the best knowledge
of each Company and Subsidiary, no matter exists which may give rise to a
proceeding of that type. To the best knowledge of the Companies, there is
no outstanding notice affecting the Real Property.
(c) To the best knowledge of each Company and Subsidiary, there is no
resolution or proposal for compulsory acquisition of the Real Property by a
local or other authority.
(d) Subject to the terms and conditions of the applicable leasehold
agreements, where any Company or Subsidiary holds Real Property under a
lease, tenancy or license, no person, including without limitation, the
landlord or licensor, may bring the term to an end before the expiry of the
lease, tenancy or license by
10
<PAGE>
effluxion of time (except by forfeiture). Subject to the terms and
conditions of the applicable leasehold agreements, to the best knowledge of
the Companies there is no matter which could (i) entitle or require a
person, including without limitation, a landlord or licensor, to forfeit or
enter on, or take possession of, or occupy, the Real Property, (ii)
restrict or terminate the Company's or Subsidiary's continued and
uninterrupted possession or occupation of the Real Property or (iii)
prevent or restrict the Real Property's development for which planning
permission has been or is expected to be obtained. No rent or fee payable
in respect of any of the Real Property is, as of the date hereof, being
reviewed except where such reviews could not reasonably be expected to
result in rent increases exceeding (Pounds)150,000 annually, in the
aggregate. No person, including without limitation, a landlord or licensor,
has elected to waive an exemption from payment by any Company or Subsidiary
of value added tax in respect of a payment made under the lease, tenancy or
license.
4.16 Compliance with Laws. The Companies and the Subsidiaries are in
compliance with applicable laws, statutes, ordinances, rules and regulations,
orders or other requirements, including without limitation, applicable
franchise, building, planning, health, environmental, sanitation, safety,
employment relations and other laws, ordinances or regulations, other than
violations, if any, which, individually or in the aggregate, could not
reasonably be expected to have a Company Material Adverse Effect. Neither
Company nor any Subsidiary has received any notice from any person asserting a
present or past failure by either Company or any Subsidiary to comply in any
material respect with such laws, statutes, ordinances, rules, regulations,
orders or other requirements.
4.17 Licenses and Permits. Each Company and Subsidiary has all material
governmental or regulatory licenses, permits and authorizations (all of which
are in full force and effect) reasonably necessary to conduct its business as
it is now being conducted, except for such governmental or regulatory
licenses, permits and authorizations the absence of which could not reasonably
be expected to have, individually or in the aggregate, a Company Material
Adverse Effect, and none of such governmental or regulatory licenses, permits
and authorizations will be impaired as a result of the transactions
contemplated by this Agreement, except in any case that could not reasonably
be expected to have, individually or in the aggregate, a Company Material
Adverse Effect. No Company or Subsidiary has received any notice to the effect
that, or otherwise been advised that, it is not in compliance with, or that it
is in violation of, any such governmental or regulatory licenses, permits and
authorizations in a manner that could reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect, and, to
the best knowledge of each Company and Subsidiary, there are no currently
existing circumstances that are likely to result in a failure of any Company
or Subsidiary to comply with, or in a violation by any Company or Subsidiary
of, any such governmental or regulatory licenses, permits or authorizations
that could reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect.
4.18 Title to Assets. The Companies and the Subsidiaries have good and
marketable title to all of the owned tangible personal property used in the
conduct of their businesses, free and clear of all Encumbrances, except for
assets disposed of in the ordinary course of business. Each Company and each
Subsidiary has good and valid leasehold title to all leased tangible personal
property leased by it from third parties, free and clear of all Encumbrances,
except for imperfections which individually or in the aggregate could not
reasonably be expected to cause a Company Material Adverse Effect, and subject
to the rights of the lessor in and to such tangible personal property as is
subject to hire, leasing or rental agreements.
4.19 Inventory. The value at which the inventory of each Company and
Subsidiary is carried on each Company's consolidated balance sheet for the
fiscal year ended June 30, 1995 (the "Consolidated Balance Sheet") and each
Company's consolidated balance sheet for the quarter ended March 31, 1996 (the
"March Balance Sheet"), as included in the Financial Statements, reflects the
customary inventory valuation policy of each Company and its Subsidiaries and
is in accordance with SSAP and the Companies Act 1985. Since March 31, 1996,
the Companies and the Subsidiaries have in all material respects continued to
replenish their inventory in the ordinary course of business consistent with
past practice, and have not made any material change in their inventory
policies or procedures.
11
<PAGE>
4.20 Backlog. The Companies have delivered to Buyer a description of each
Company's and, to the extent applicable, each Subsidiary's backlog of orders
believed firm at March 31, 1996, indicating each applicable customer, purchase
order, type of product(s), scheduled shipment date(s), dollar amount(s) of
scheduled shipment(s) and customer deposits or payments, if any, made with
respect thereto.
4.21 Taxes.
(a) The Audited Financial Statements and, based upon information then
available and reasonably believed to be adequate, the Unaudited Financial
Statements, make full provision for all taxation for which each Company and
Subsidiary was at each applicable Accounting Date or thereafter became or
may hereafter become liable or accountable in respect of or by reference to
any income, profit, receipt, gain, transaction, agreement, distribution or
event which was earned, accrued, received, realized, entered into, paid,
made or accrued on or occurred before such Accounting Date and proper
provision was made therein for deferred taxation in accordance with SSAP,
and each Company and Subsidiary has promptly paid or fully provided in its
books of account for all taxation for which it has or may hereafter become
liable or accountable in the period from the Accounting Date to closing.
(b) All returns, computations and payments which should be or should have
been made by each Company and Subsidiary for any taxation purpose have been
made within the requisite periods and are up-to-date, correct and on a
proper basis.
(c) Since the relevant Accounting Date no further liability or contingent
liability for taxation on any Company or Subsidiary has arisen or is likely
to or will arise otherwise than as a result of transactions (not including
distributions) entered into by such Company or Subsidiary in the ordinary
course of trading after the relevant Accounting Date.
(d) No Company or Subsidiary is aware of any circumstance which will or
may, whether by lapse of time or the issue of any notice of assessment or
otherwise, give rise to any dispute with any relevant taxation authority in
relation to its liability or accountability for taxation, any claim made by
it, any relief, deduction or allowance afforded to it, or in relation to
the status or character of each Company and Subsidiary (whether as to its
status as an unquoted trading private close company or as a member of any
group) under or for the purpose of any provision of any legislation
relating to taxation.
(e) Each Company and Subsidiary has in all material respects duly
deducted and accounted for all amounts which it has been obliged to deduct
or withhold in respect of taxation and, in particular, has properly
operated the PAYE system, by deducting tax, as required by applicable law,
from all payments made, or treated as made, to its employees or former
employees, and in all material respects accounted to the Inland Revenue for
all tax so deducted and for all tax chargeable on benefits provided for its
Employees or former Employees.
(f) Each Company and Subsidiary is not nor will it become liable in any
material respect to pay or make reimbursement or indemnity in respect of
any taxation (or amounts corresponding thereto) in consequence of the
failure by any person (other than either Company or any Subsidiary (the
"Group")) to discharge that taxation within any specified period or
otherwise, where such taxation relates to a profit, income or gain,
transaction, event, omission or circumstance arising, occurring or deemed
to arise or occur (whether wholly or party) prior to closing.
(g) Each Company and Subsidiary has not since the relevant Accounting
Date incurred nor has it become liable to incur after that date any
material expenditure which will not be wholly deductible in computing its
taxable profits, except for expenditure on the acquisition of an asset to
be held otherwise than as stock-in-trade.
(h) If any Company or Subsidiary is or any time during the six (6) years
ended on March 31, 1996 has been a close company within the meaning of
Sections 414 and 415 of the Taxes Act of 1988, no apportionment within
Sections 423-430 of the Taxes Act of 1988 and Schedule 19 to the Taxes Act
of 1988 has ever been made or threatened against any Company or Subsidiary
nor are there circumstances under
12
<PAGE>
which any apportionment could be made; no loan or advance within Sections
419, 420 or 422 of the Taxes Act of 1988 has ever been made by any Company
or Subsidiary; and each Company and Subsidiary has at all times been a
"trading company" or a "member of a trading group" within paragraph 7 of
Schedule 19 to the Taxes Act of 1988.
(i) Each Company and Subsidiary has not since March 31, 1996 made or
received or agreed to make or receive any material surrender relating to
group relief or the benefit of advance corporation tax otherwise than to or
from another company in the Group.
(j) Except solely with respect to profit or gain accruing to ETE by
reason of the sale of the US Shares hereunder, the execution or completion
of this Agreement will not result in any profit or gain being deemed to
accrue to any Company or Subsidiary for taxation purposes.
(k) Each Company and Subsidiary has not in the six (6) years ended on the
date of this Agreement carried out or been engaged in any material
transaction or arrangement in respect of which there may be substituted for
the actual consideration given or received by any Company or Subsidiary a
different consideration for any taxation purposes.
(l) No Company or Subsidiary nor any other person has made any claim for
roll-over relief or any other claim which affects or could affect the
amount of the chargeable gains or allowable losses which would, but for
such claim, arise on a disposal by the relevant Company of any of its
assets.
(m) Each Company and Subsidiary has duly registered and is a taxable
person for the purposes of value added tax. Each Company and Subsidiary is
not and has not been, for such purposes, a member of any group of companies
(other than the Group), and no act or transaction has been effected in
consequence whereof the Company is or may be held liable for any material
value added tax chargeable against some other company except where that
other company is a company in the Group.
(n) No Company or Subsidiary has obtained any exemption or relief from
United Kingdom stamp duty or capital duty which has become liable to
forfeiture or obtained such exemption or relief in respect of a transaction
carried out within the period in which it may become liable to forfeiture.
(o) No Company or Subsidiary has given or been required to give any
security for taxation.
(p) No Company or Subsidiary has been or is now a party to any material
transaction or arrangement containing steps inserted without any commercial
or business purpose nor has it or any of its associates applied to the
United Kingdom Inland Revenue or any other taxation authority for any
clearance for taxation purposes in relation to any transaction or
arrangement involving the relevant Company or Subsidiary.
(q) In this subsection 4.21, "taxation" shall mean all forms of taxation,
dues, duties, imposts, levies and rates of the United Kingdom or any other
jurisdiction whenever and wheresoever charged, imposed or deducted together
with all costs, charges, interests, penalties, fines relating to or arising
in connection with any and all such taxes, dues, duties, imposts, levies
and rates or any actual claim in respect thereof, including without
limitation, income tax, PAYE, national insurance contributions, corporation
tax, advance corporation tax, capital gains tax, value added tax, customs
and other import duties, stamp duty, stamp duty reserve tax, withholding
tax, capital duty, capital transfer tax and inheritance tax and any
liability arising under Section 601 of the Taxes Act of 1988.
(r) Notwithstanding anything contained herein to the contrary, each of
the representations and warranties contained in this Section 4.21 shall
only relate to those events, facts, conditions or circumstances that have
or could reasonably be expected to have, either individually or in the
aggregate, a Company Material Adverse Effect.
4.22 Environmental Matters.
(a) To the best knowledge of each Company and Subsidiary, no land or
other asset owned occupied, possessed or used by any Company or Subsidiary
on or at any time before the date of this Agreement (i) contains or has
contained (in the case of land, above or below ground) a hazardous
substance or article,
13
<PAGE>
waste or other pollutant or contaminant, (ii) is or has been used for the
deposit, storage, treatment or disposal or waste or sewage or (iii) is
referred to or listed in a register of polluted or contaminated land, and
no matter exists which might give rise to an entry in such a register.
(b) To the best knowledge of each Company and Subsidiary, each Company
and Subsidiary has obtained and received no notice of breach of the terms
and conditions of each governmental or regulatory license, permit or
authorization (collectively, the "Environmental Permits"), and all
applicable legal and administrative requirements, concerned with the
pollution or protection of the environment (including the disposal of
waste) or harm to or the protection of the health of humans, animals or
plants. No Company or Subsidiary is aware of any expenditure or work which
is or will be necessary to comply with, maintain or obtain any such
Environmental Permit. To the best knowledge of each Company and Subsidiary,
no release or discharge or a hazardous substance or article, waste, sewage
or other pollutant or contaminant has exceeded an allowed quota or limit
prescribed or specified under any applicable legal or administrative
requirement or in a condition to an Environmental Permit.
(c) No Company or Subsidiary and, to the best knowledge of each Company
and Subsidiary, no person for whose acts or defaults the relevant Company
or Subsidiary may be vicariously liable is involved, or has during the five
(5) years ending on the date of this Agreement been involved, in a civil,
criminal, arbitration, administrative or other proceeding concerned with
the pollution or protection of the environment, or harm to or the
protection of the health of humans, animals or plants in any relevant
jurisdiction. No civil, criminal, arbitration, administrative or other
proceeding of that type is pending or, to the best knowledge of any Company
or Subsidiary, threatened by or against any Company or Subsidiary or a
person for whose acts or defaults any Company or Subsidiary may be
vicariously liable. To the best knowledge of each Company and Subsidiary,
no matter exists which might reasonably be expected to give rise to a
proceeding of that type.
(d) There is and has been no governmental or other investigation, enquiry
or disciplinary proceeding relating to the pollution or protection of the
environment, or harm to or the production of the health of humans, animals
or plants, concerning any Company or Subsidiary and none is pending or, to
the best knowledge of any Company or Subsidiary, threatened. To the best
knowledge of each Company and Subsidiary, no matter exists which might give
rise to an investigation, enquiry or proceeding of that type.
(e) To the best knowledge of each Company and Subsidiary, no Company or
Subsidiary has a liability (actual or contingent, or which might hereafter
arise) to make good, repair, re-instate or clean up land or any other asset
on or before the date of this Agreement owned, occupied, possessed or used
by the relevant Company or Subsidiary.
(f) Notwithstanding the foregoing, each of the representations or
warranties contained in clauses (a) through (e) above shall only relate to
those events, facts, conditions or circumstances that have or could be
reasonably expected to have, either individually or in the aggregate, a
Company Material Adverse Effect.
4.23 Board of Directors and Shareholder Approval. The Board of Directors of
each Company has unanimously approved the transactions contemplated by this
Agreement. Such actions of the Board of Directors remain in full force and
effect and no other action on the part of the Board of Directors or
shareholders of any Company or Subsidiary shall be necessary to consummate the
transactions contemplated by this Agreement.
4.24 Brokers; Certain Expenses. Except with respect to investment banking
fees payable to Hambrecht & Quist (in the amount previously disclosed to the
Buyer by the Companies which will be paid by Buyer at the Closing) and the
payment to be made by the Company referred to in Section 6.13(iii), no Company
or Subsidiary has paid or become obligated to pay any fee or commission to any
broker, finder, investment banker or other intermediary in connection with
this Agreement.
4.25 No Agreements to Sell Companies. Except as contemplated by this
Agreement, no Company or Subsidiary has any legal obligation, absolute or
contingent, to any other person, firm or entity to sell, directly or
indirectly, capital stock, material assets (other than inventory in the
ordinary course of business) or business of either Company or any Subsidiary
or to effect any merger, consolidation, liquidation, dissolution,
recapitalization or other reorganization of either Company or any Subsidiary
or to enter into any agreement with respect thereto.
14
<PAGE>
4.26 Related-Party Transactions. Except as described in the Company
Disclosure Letter, since July 1, 1993 no director or executive officer of any
Company or Subsidiary, nor any security holder owning more than 5% of the
outstanding shares of either Company, nor any Associate or member of the
immediate family of the foregoing persons (a) has engaged in any transaction,
or series of similar transactions, to which either Company or any Subsidiary
was or is to be a party, in which the amount involved exceeded or exceeds
US$60,000, except in respect of compensation for services rendered as an
employee in the ordinary course of business, (b) has owned, of record or
beneficially, in excess of a 10% equity interest in, any business or
professional entity that has made payments to, or received payments from,
either Company or any Subsidiary in the aggregate exceeding US$60,000 in any
full fiscal year, or (c) is or has been indebted to either Company or any
Subsidiary at any time in an amount in excess of US$60,000. "Associate" shall
mean, in relation to any person, a person who is connected with that person.
Whether a person is so connected shall be determined in accordance with
Section 839 of the Taxes Act of 1988 save that in construing Section 839 the
term "control" shall have the meaning given by Section 840 or Section 416 of
the said Taxes Act of 1988 so that there shall be control wherever either of
the said sections would so require.
4.27 Employees; Labor Matters.
(a) There is no employment or other contract of engagement (written or
otherwise) between any Company or Subsidiary and any of its directors or
officers, other than at-will employment agreements equivalent in all
material respects (except only as to position and compensation) to the
forms previously delivered by the Companies to the Buyer. No Company or
Subsidiary is a party to a consultancy contract with any such persons.
(b) There is no employment contract between any Company or Subsidiary and
any of its Employees which cannot be terminated by three months' notice or
less without giving rise to a claim for damage or compensation (other than
a statutory redundancy payment or statutory compensation for unfair
dismissal).
(c) The Company Disclosure Letter includes true and complete copies of
the employment contract of each director, other officer and Employee of
each Company and Subsidiary entitled to remuneration at an annual rate, or
an average annual rate over the last three financial years, of more than
Forty Thousand Pounds Sterling ((Pounds)40,000).
(d) The basis of the remuneration payable to each Company's directors,
other officers and Employees is the same as that in force at March 31,
1996. No Company or Subsidiary is obligated to increase, nor has it made
provision to increase, the total annual remuneration payable to its
directors, other officers and Employees by more than five percent (5%) or
to increase the rate of remuneration of a director, other officer or
Employee entitled to annual remuneration of more than Forty Thousand Pounds
Sterling ((Pounds)40,000).
(e) No Company or Subsidiary owes any amount to a present or former
director, other officer or Employee (or his or her dependent) other than
for accrued remuneration or reimbursement of business expenses.
(f) Each Company and Subsidiary has in all material respects complied
with (i) each legally binding obligation imposed on it by, and each order
and award made under, statute, regulation, code or conduct and practice,
collective agreement, custom and practice relevant to the relations between
it and its Employees or a trade union or the terms of employment or its
employees and (ii) each recommendation made by the Advisory Conciliation
and Arbitration Service and each award and declaration made by the Central
Arbitration Committee.
(g) Within the year ending on the date of this Agreement no Company or
Subsidiary has (i) given notice or redundancies to the relevant Secretary
of State or started consultations with a trade union under Part IV of the
Employment Protection Act 1975 or failed to comply with its obligations
under Part IV of that Act or (ii) been a transferor or transferee in
respect of a relevant transfer (as defined in the Transfer of Undertakings
(Protection of Employment) Regulations 1981) or failed to comply with a
duty to inform and consult a trade union under those Regulations.
15
<PAGE>
(h) No Company or Subsidiary has any agreement or arrangement with, and
does not recognize, a trade union, works council, staff association or
other body representing any of its Employees. No Company or Subsidiary is
involved in a dispute with a trade union, works council, staff association
or other body representing any of its Employees.
(i) No Company or Subsidiary has nor is proposing to introduce a share
incentive, share option, profit sharing, bonus or other incentive scheme
for any of its directors, officers or other Employees.
(j) There is and has been no training scheme, arrangement or proposal in
relation to any Company or Subsidiary in respect of which a levy may become
payable by it under the Industrial Training Act 1982.
4.28 Proprietary Rights. Each Company and Subsidiary (a) owns or has the
right to use, free and clear of all Encumbrances, all patents, patent
applications, trademarks, service marks, trade names, copyrights, trade
secrets, licenses and similar rights with respect to the foregoing, necessary
for and used in the conduct of its business as now conducted, to its best
knowledge, without infringing upon or otherwise acting adversely to the right
or claimed right of any person under or with respect to any of the foregoing,
(b) is not contractually or, to its best knowledge, otherwise obligated to
make any material payments by way of royalties, fees or otherwise to any owner
of, licensor of, or other claimant to, any patent, trade secret, trademark,
trade name, copyright or other intangible asset, with respect to the use
thereof or in connection with the conduct of its business or otherwise, (c)
has not received any notice of conflict with the asserted rights of others
with respect to such matters, (d) owns or has the unrestricted right to use
all trade secrets, including know-how, customer lists, inventions, designs,
processes, computer programs and technical data used by it in the development,
operation and sale of all products and services sold by it, to its best
knowledge free and clear of any rights, liens or claims of others, and (e) to
its best knowledge is not using any confidential information or trade secrets
of others. A list of all patent, patent applications, trademarks, trademark
applications, licenses and trade names which any Company or Subsidiary has
taken action to obtain, perfect or protect by filings with any governmental
agency are contained in the Company Disclosure Letter.
4.29 Disclosure. No representation or warranty by the Majority Shareholder
in this Agreement contains any untrue statement of a material fact or omits to
state any material fact necessary, in light of the circumstances under which
it was made, in order to make the statements herein not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Except as disclosed in the Letter of Disclosure delivered to the Companies
and the Shareholders in connection herewith and initialled by the Buyer and
the Majority Shareholder for identification (the "Buyer's Disclosure Letter"),
Buyer represents and warrants to the Shareholders as follows:
5.1 Corporate Organization. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of California, with
all requisite corporate power and authority to own, operate and lease its
properties and to carry on its business as it is now being conducted, and is
qualified or licensed to do business and is in good standing in each
jurisdiction in which the failure to be so qualified or licensed could
reasonably be expected, individually or in the aggregate, to have a material
and adverse effect upon the financial condition, prospects or results of
operations of Buyer or Buyer's Subsidiary (as defined below), considered as a
whole (a "Buyer Material Adverse Effect"). True and complete copies of the
Certificate of Incorporation and the By-Laws of Buyer have been delivered to
the Shareholders.
5.2 Subsidiaries. Buyer has one (1) wholly-owned subsidiary, PMT Korea, a
corporation organized under the laws of the Republic of South Korea ("Buyer's
Subsidiary"). Buyer's Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, with all
16
<PAGE>
requisite corporate power and authority to own, operate and lease its
properties and to carry on its business as it is now being conducted, and is
qualified or licensed to do business and is in good standing in each
jurisdiction in which the failure to be so qualified or licensed could
reasonably be expected to have, individually or in the aggregate, a Buyer
Material Adverse Effect. All of the issued shares of capital stock of such
Subsidiary have been duly and validly authorized and issued, are fully paid
and non-assessable, and are owned directly by Buyer, free and clear of any and
all Encumbrances. Except with respect to its ownership of Buyer's Subsidiary,
its ownership of the capital stock of PMT CVD Partners, Inc. and its limited
partnership interest in PMT CVD Partners, L.P., Buyer does not own, directly
or indirectly, any stock, partnership interest, joint venture interest or
other security, investment or interest in any other corporation, organization,
partnership, limited liability company or entity. As used in this Article V,
references to "Buyer" shall include Buyer's Subsidiary, except to the extent
the context requires otherwise.
5.3 Capital Stock. The authorized capital stock of Buyer consists in its
entirety of Fifty Million (50,000,000) shares of Buyer's Common Stock, of
which, as of the date hereof, 8,692,065 are issued and outstanding, and Twenty
Million (20,000,000) shares of Preferred Stock, no par value, of which, as of
the date hereof, no shares were outstanding. All of the outstanding shares of
Common Stock have been duly and validly authorized and issued, are fully paid
and nonassessable and were issued in compliance with all applicable federal
and state securities laws. To the best of Buyer's knowledge, there are no
voting trusts or other agreements, arrangements or understandings with respect
to the voting of the capital stock of Buyer. Except as set forth in the Buyer
Disclosure Letter, there are no preemptive rights, registration rights,
subscriptions, options, warrants, rights, convertible securities or other
agreements or commitments of any character relating to the issued or unissued
capital stock or other securities of Buyer and there are no outstanding
contractual obligations of Buyer to repurchase, redeem or otherwise acquire or
sell, issue or otherwise transfer any shares of capital stock thereof.
5.4 Buyer Shares. The Buyer Shares have been duly authorized and, when
issued as contemplated hereby at the Closing, will be validly issued, fully
paid and non-assessable, will not be subject to any preemptive or other
similar rights and will be delivered to each Shareholder free and clear of all
Encumbrances, and each Shareholder will acquire good and marketable title to
the Buyer Shares acquired by such Shareholder, subject to any transfer
restrictions pursuant to applicable securities laws. The Buyer Shares are
being issued pursuant to an available exemption from registration under the
Securities Act of 1933, as amended, provided by Regulation S promulgated
thereunder.
5.5 Authority. Buyer has the full corporate power and authority to execute
and deliver this Agreement and each other agreement contemplated hereby, to
carry out its obligations hereunder and thereunder and to consummate the
transactions contemplated on its part hereby and thereby. The execution,
delivery and performance by Buyer of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by its Board of
Directors. Upon approval by Buyer's shareholders of the issuance of the Buyer
Shares to the Shareholders pursuant hereto, no other action on the part of
Buyer will be necessary to authorize the execution and delivery of this
Agreement by Buyer or the performance by Buyer of its obligations hereunder.
This Agreement has been duly executed and delivered by Buyer, and is a legal,
valid and binding obligation of Buyer, enforceable against Buyer in accordance
with its terms, except to the extent that its enforceability may be limited by
applicable bankruptcy, insolvency, reorganization or other laws affecting
creditors' rights generally or by general equitable principles (regardless of
whether such enforceability is considered in a proceeding in equity or at
law). Each other agreement to be executed in connection with this Agreement on
or prior to the Closing Date will be duly executed and delivered by Buyer, and
will constitute a legal, valid and binding obligation of Buyer, enforceable
against it in accordance with its respective terms, subject to applicable
bankruptcy, insolvency, moratorium, reorganization, or similar laws affecting
creditors' rights generally and subject to general equitable principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
5.6 No Violations or Consents. The execution, delivery and performance of
this Agreement by Buyer and the consummation by it of the transactions
contemplated hereby will not (a) violate or conflict with any provision of any
law specifically applicable to Buyer or by which any property or asset of it
is bound, (b) require the
17
<PAGE>
consent, waiver, approval, license or authorization of or any filing by Buyer
with any public authority (other than (i) if necessary, the filing of a pre-
merger notification report under the HSR Act and under applicable U.K./EEC
antitrust statutes, (ii) in connection with or in compliance with the
provisions of each of the Securities Act, and the Securities Exchange Act of
1934, as amended (the "Exchange Act"), including without limitation, the
filing of the Proxy Statement (as defined in Section 6.4(b), and (iii) any
other filings and approvals expressly contemplated by this Agreement), (c)
violate, conflict with, result in a breach of or the acceleration of any
obligation under, or constitute a default (or an event which with notice or
the lapse of time or both would become a default) under, or give to others any
right of termination, amendment, acceleration or cancellation of, or result in
the creation of any Encumbrance on any property or asset of Buyer pursuant to
any provision of any charter or by-law, indenture, mortgage, lien, lease,
agreement, contract, instrument, order, judgment, ordinance, regulation or
decree to which Buyer is subject or by which Buyer or any of its property or
assets is bound, or (d) result in a loss or adverse modification of any
license, permit, certificate, franchise or contract granted to or otherwise
held by Buyer which, in any such case described in clauses (a) through (d),
could reasonably be expected to have, individually or in the aggregate, a
Buyer Material Adverse Effect.
5.7 Financial Statements and Reports. Buyer heretofore has delivered to each
Company true and complete copies of (a) the Company's Registration Statement
on Form S-1 (the "Registration Statement") as declared effective by the
Commission on August 23, 1995, (b) its Annual Report on Form 10-K for the
fiscal year ended December 31, 1995, as filed with the Commission, (c) its
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, as filed
with the Commission, and (d) all other reports, statements and registration
statements (including Current Reports on Form 8-K) filed by it with the
Commission subsequent to the filing of the Registration Statement, if any. The
reports, statements and registration statements referred to in the immediately
preceding sentence, including without limitation, any financial statements or
schedules or other information incorporated by reference therein, are referred
to in this Agreement as the "SEC Filings." As of the respective times such
documents were filed with the Commission, the SEC Filings complied as to form
and content, in all material respects, with the requirements of the Securities
Act and the Exchange Act, as the case may be, and the rules and regulations
promulgated thereunder, and did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of Buyer
included in the SEC Filings ("Buyer's Financial Statements") were prepared in
accordance with generally accepted accounting principles ("GAAP"),
consistently applied, and (except as may be indicated therein or in the notes
thereto) present fairly the consolidated financial position, results of
operations and cash flows of Buyer as of the dates and for the periods
indicated (subject, in the case of unaudited interim consolidated financial
statements, to normal recurring year-end adjustments and any other adjustments
described therein). Except as set forth in Buyer's Financial Statements, Buyer
has no liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to March 31, 1996, (ii)
obligations under real and personal property leases disclosed in Buyer's
Financial Statements, and (iii) obligations incurred in the ordinary course of
business and not required under GAAP to be reflected in Buyer's Financial
Statements, which, individually or in the aggregate, are not material to the
financial condition or operating results of Buyer. Buyer is in full compliance
with the revenue recognition policies adopted and approved by its Board of
Directors on January 17, 1996.
5.8 Litigation. There are no Actions pending or, to the best knowledge of
Buyer, threatened against Buyer or any of the assets or properties thereof
before any Authority which could reasonably be expected to have a Buyer
Material Adverse Effect. There are no Actions pending or, to the knowledge of
Buyer, threatened against Buyer that could be reasonably expected to
materially and adversely affect Buyer's consummation of the transactions
contemplated by this Agreement. None of the assets or property of Buyer is
subject to any order, judgment, injunction, writ or decree, which could
reasonably be expected to have, individually or in the aggregate, a Buyer
Material Adverse Effect.
5.9 Absence of Certain Changes or Events. Since March 31, 1996, the Buyer
has conducted its business in the ordinary course and, except pursuant to this
Agreement and the transactions contemplated hereby, there has not been any:
18
<PAGE>
(a) material adverse change in the financial condition, assets,
liabilities, business, operations, results of operations or prospects of
the Buyer or any other event or condition which in any one case or in the
aggregate has materially and adversely affected the Buyer or any event or
condition which it is reasonable to expect will individually or in the
aggregate materially adversely affect the Buyer (any such event being
herein referred to as a "Buyer Material Adverse Change");
(b) declaration, waiver or payment of any dividend or other distribution
or payment (whether in cash, shares or property) with respect to the share
capital of the Buyer, or any redemption, purchase or other acquisition of
any of the securities of the Buyer, or any other payment to any shareholder
of the Buyer in its capacity as a shareholder;
(c) issuance by the Buyer of, or commitment by it to issue, any share
capital or obligations or any securities convertible into or exchangeable
or exercisable for shares or other securities other than pursuant to its
1991 Stock Option Plan and as contemplated by Section 7.3(g) hereof; or
(d) indebtedness for borrowed money incurred by the Buyer or any
commitment to incur indebtedness for borrowed money entered into by the
Buyer, or any loans made or agreed to be made by the Buyer other than
pursuant to commitments or credit facilities existing on March 31, 1996 and
described in the Buyer Disclosure Letter.
5.10 Insurance. Buyer has in full force policies of insurance issued by
insurers of recognized responsibility insuring Buyer and its properties and
business against such losses and risks, and in such amounts, as in Buyer's
best judgment, after advice from its insurance broker, are acceptable for the
nature and extent of such business and its resources. Buyer is not in default
with respect to any material provision contained in any insurance policy, and
has not failed to give any notice or present any existing claims it has under
its insurance policies in a timely fashion.
5.11 Employee Benefits. Buyer does not have any agreements, arrangements,
customs or practice (whether legally enforceable or not) relating to or
providing for employee benefits, including pensions, gratuities, allowances,
lump sums or other like benefits on or after severance, retirement or death,
during periods of sickness, incapacity or disablement or otherwise for the
benefit of any present or former employee of Buyer (a "Buyer Employee") or
dependent or beneficiary of a Buyer Employee, including any retirement plan in
which any Buyer Employee participates that is subject to any provision of the
Employee Retirement Income Security Act of 1974, as amended, and the
regulations thereof, nor has any proposal been announced or promise made to
establish any such agreement, arrangement or practice.
5.12 Employees; Labor Matters.
(a) There is no employment or other contract of engagement (written or
otherwise) between the Buyer and any of its directors or officers, other
than at-will employment agreements equivalent in all material respects
(except only as to position and compensation) to the form previously
delivered by the Buyer to the Companies. The Buyer is not a party to a
consultancy contract with any such persons.
(b) There is no employment contract between the Buyer and any Buyer
Employee which cannot be terminated by three months' notice or less without
giving rise to a claim for damage or compensation (other than a statutory
redundancy payment or statutory compensation for unfair dismissal).
(c) The Buyer Disclosure Letter contains details of the terms of the
employment contract of each director, officer and Buyer Employee entitled
to remuneration at an annual rate, or an average annual rate over the last
three financial years, of more than US$60,000.
(d) The basis of the remuneration payable to the Buyer's directors,
officers and Buyer Employees is the same as that in force at March 31,
1996. The Buyer is not obligated to increase, nor has it made provision to
increase, the total annual remuneration payable to its directors, officers
and Buyer Employees by more than five percent (5%) or to increase the rate
of remuneration of a director other officer or employee entitled to annual
remuneration of more than US$60,000.
19
<PAGE>
(e) The Buyer does not owe any amount to any present or former director
or officer of Buyer or Buyer Employee (or his or her dependent) other than
for accrued remuneration or reimbursement of business expenses.
(f) There is no agreement or arrangement between the Buyer and any Buyer
Employee with respect to his or her ceasing to be employed or his or her
retirement which is not included in the written terms of his or her
employment or previous employment. The Buyer has not provided, or agreed to
provide, a gratuitous payment or benefit to a director, officer or Buyer
Employee or to any of their dependents.
(g) The Buyer has not (i) incurred a liability for breach of termination
of an employment contract, including without limitation, a redundancy
payment, protective award and compensation or wrongful dismissal, unfair
dismissal and failure to comply with an order for the reinstatement or re-
engagement of an Employee, (ii) incurred a liability for breach or
termination of a consultancy agreement or (iii) made or agreed to make a
payment or provided or agreed to provide a benefit to a present or former
director, officer or Employee or to any of their dependents in connection
with the actual or proposed termination or suspension of employment or
variation of an employment contract.
(h) The Buyer has in all material respects complied with (i) each
obligation imposed on it by, and each order and award made under, any
statute, regulation, code or conduct and practice, custom and practice
relevant to the relations between it and its Employees.
(i) The Buyer has no agreement or arrangement with, and does not
recognize, a trade union, works council, staff association or other body
representing any of its Employees. The Buyer is not involved in, and to the
best knowledge of the Buyer, no matter exists which might give rise to, a
dispute with a trade union, works council, staff association or other body
representing any of its Employees.
5.13 Material Contracts and Other Agreements. The Buyer Disclosure Letter
discloses (a) all agreements or contracts whether or not fully performed
pursuant to which the Buyer has since December 31, 1990 acquired or disposed
of a material portion of its business or assets, other than sales of inventory
or contracts with suppliers, each in the ordinary course of business; (b) all
agreements containing covenants not to compete on the part of the Buyer or
otherwise restricting the ability of the Buyer in any material way to engage
in its business; (c) all material notes, mortgages, indentures, letters of
credit, guarantees, performance bonds and other obligations and agreements and
other instruments for or relating to any lending or borrowing (including
assumed debt) entered into by the Buyer or pursuant to which any properties or
assets of the Buyer are pledged or mortgaged as collateral; and (d) all
agreements to which either Buyer or Buyer's Subsidiary is a party containing
provisions restricting or providing exclusive rights with respect to the
development, manufacture or marketing of products which, after the Closing,
would be applicable to the business or products of any of the Companies or the
Subsidiaries by reason of the transactions contemplated by this Agreement.
5.14 Suppliers and Customers. The Buyer has delivered to the Company a list
which accurately sets forth (a) the ten largest suppliers of Buyer for the
fiscal year ended December 31, 1995 ("Buyer's Large Suppliers"), (b) the
amount of all payments made to each Buyer's Large Supplier for such fiscal
period, (c) the ten largest customers or groups of related customers for the
fiscal year ended December 31, 1995 (the "Buyer's Large Customers") and (d)
the amount of all payments made by Buyer's Large Customers for such fiscal
period. No supplier is a sole source of supply of any good or service used by
Buyer. None of Buyer's Large Suppliers or Buyer's Large Customers has canceled
or otherwise terminated, or threatened in writing, by notice to the Buyer, to
cancel or otherwise terminate, its relationship with Buyer or, since March 31,
1996, decreased materially, or threatened to decrease or limit materially, its
services, supplies or materials to Buyer or its usage or purchase of the
products or services of Buyer which, in any case, would result in a Buyer
Material Adverse Change.
5.15 Compliance with Laws. Buyer is in compliance with applicable laws,
statutes, ordinances, rules and regulations, orders or other requirements,
including without limitation, applicable franchise, building, zoning, health,
environmental, sanitation, safety, labor relations and other laws, ordinances
or regulations, other than
20
<PAGE>
violations, if any, which, individually or in the aggregate, could not
reasonably be expected to have, a Buyer Material Adverse Effect. Buyer has not
received any notice from any person asserting a present or past failure by
Buyer to comply in any material respect with such laws, statutes, ordinances,
rules, regulations, orders or other requirements.
5.16 Licenses and Permits. Buyer has all material governmental or regulatory
licenses, permits and authorizations (all of which are in full force and
effect) reasonably necessary to conduct their business as it is now being
conducted, except for such governmental or regulatory licenses, permits and
authorizations the absence of which could not reasonably be expected to have,
individually or in the aggregate, a Buyer Material Adverse Effect, and none of
such governmental or regulatory licenses, permits and authorizations will be
impaired as a result of the transactions contemplated by this Agreement,
except in any case that could not reasonably be expected to have, individually
or in the aggregate, a Buyer Material Adverse Effect. Buyer has not received
any notice to the effect that, or otherwise been advised that, it is not in
compliance with, or that it is in violation of, any such governmental or
regulatory licenses, permits and authorizations in a manner that could
reasonably be expected to have, individually or in the aggregate, a Buyer
Material Adverse Effect, and there are not currently existing circumstances
that are likely to result in a failure of Buyer to comply with, or in a
violation by Buyer of, any such governmental or regulatory licenses, permits
or authorizations that could reasonably be expected to have, individually or
in the aggregate, a Buyer Material Adverse Effect.
5.17 Title to Assets. Buyer has good and marketable title to all of the
owned tangible personal property used in the conduct of its business free and
clear of all Encumbrances, except for assets disposed of in the ordinary
course of business. Buyer has good and valid leasehold title to all leased
tangible personal property leased by it from third parties, free and clear of
all Encumbrances, except for imperfections individually or in the aggregate as
could not reasonably be expected to cause a Buyer Material Adverse Effect, and
subject to the rights of the lessor in and to such leased tangible personal
property as is subject to hire, leasing or rental agreements.
5.18 Inventory. The value at which the inventory of Buyer is carried on the
Buyer's consolidated balance sheet for the fiscal year ended December 31, 1995
and Buyer's consolidated balance sheet for the quarter ended March 31, 1996
reflects the customary inventory valuation policy of Buyer and is in
accordance with GAAP. Since March 31, 1996, the Buyer has in all material
respects continued to replenish its inventory in the ordinary course of
business consistent with past practice, and has not made any material change
in its inventory policies or procedures.
5.19 Backlog. The Buyer has delivered to the Companies a description of the
Buyer's backlog of orders believed firm at March 31, 1996, indicating each
applicable customer, purchase order, type of product(s), scheduled shipment
date(s), dollar amount(s) of scheduled shipment(s) and customer deposits or
payments, if any, made with respect thereto.
5.20 Tax Returns and Audits.
(a) Buyer has prepared and timely filed all federal, state and other tax
returns required by law to be filed by it, has paid or made provision for
the payment of all taxes shown to be due and all additional assessments,
and adequate provisions have been made and are reflected in Buyer's
Financial Statements to the extent required by GAAP for all current taxes
and other charges to which Buyer is subject and which are not currently due
and payable. None of the federal income tax returns of Buyer have been
audited by the Internal Revenue Service in such a manner to bring such
audit to the attention of Buyer. There are no additional assessments or
adjustments pending or, to the best knowledge of Buyer, threatened against
Buyer for any period, nor is Buyer aware of any basis for any such
assessment or adjustment.
(b) Since March 31, 1996, no further material liability or contingent
material liability for taxation of Buyer has arisen or is likely to arise
otherwise than as a result of transactions entered into by Buyer in the
ordinary course of business.
21
<PAGE>
(c) Buyer is not aware of any circumstance which will or may, whether by
lapse of time or by notice of assessment or otherwise, give rise to any
material dispute with any relevant taxation authority in relation to its
liability or accountability for taxation, any material claim made by it,
material relief, deduction or allowance afforded to it, or in any material
respect in relation to the status or character of Buyer under or for the
purpose of any provision of any legislation relating to taxation.
5.21 Environmental and Safety Laws.
(a) To the best knowledge of Buyer, no land or other asset owned
occupied, possessed or used by Buyer on or at any time before the date of
this Agreement (i) contains or has contained (in the case of land, above or
below ground) a hazardous substance or article, waste or other pollutant or
contaminant, (ii) is or has been used for the deposit, storage, treatment
or disposal or waste or sewage or (iii) is referred to or listed in a
register of polluted or contaminated land, and no matter exists which might
give rise to an entry in such a register.
(b) To the best knowledge of Buyer, Buyer has obtained and complied with
the terms and conditions of each governmental or regulatory license, permit
or authorization (collectively, the "Environmental Permits"), and all
applicable legal and administrative requirements, concerned with the
pollution or protection of the environment (including the disposal of
waste) or harm to or the protection of the health of humans, animals or
plants. Buyer is not aware of any expenditure or work which is or will be
necessary to comply with, maintain or obtain any such Environmental Permit.
No release or discharge of a hazardous substance or article, waste, sewage
or other pollutant or contaminant has exceeded an allowed quota or limit
prescribed or specified under any applicable legal or administrative
requirement or in a condition to an Environmental Permit.
(c) Neither Buyer nor any person for whose acts or defaults Buyer may be
vicariously liable is involved, or has during the five (5) years ending on
the date of this Agreement been involved, in a civil, criminal,
arbitration, administrative or other proceeding concerned with the
pollution or protection of the environment, or harm to or the protection of
the health of humans, animals or plants in any jurisdiction. No civil,
criminal, arbitration, administrative or other proceeding of that type is
pending or, to the best knowledge of Buyer, threatened by or against Buyer
or a person for whose acts or defaults Buyer may be vicariously liable. To
the best knowledge of Buyer, no matter exists which might give rise to a
proceeding of that type.
(d) There is and has been no governmental or other investigation, enquiry
or disciplinary proceeding relating to the pollution or protection of the
environment, or harm to or the production of the health of humans, animals
or plants, concerning Buyer and none is pending or, to the best knowledge
of Buyer, threatened. To the best knowledge of Buyer, no matter exists
which might give rise to an investigation, enquiry or proceeding of that
type.
(e) To the best knowledge of Buyer, Buyer has no liability (actual or
contingent, or which might hereafter arise) to make good, repair, re-
instate or clean up land or any other asset on or before the date of this
Agreement owned, occupied, possessed or used by Buyer.
(f) Notwithstanding the foregoing, each of the representations or
warranties contained in clauses (a) through (e) above shall only relate to
those events, facts, conditions or circumstances that have or could be
reasonably expected to have, either individually or in the aggregate, a
Buyer Material Adverse Effect.
5.22 Board of Directors Approval. The Board of Directors of Buyer has
unanimously approved the transactions contemplated by this Agreement and has
unanimously determined that such transactions are fair to and in the best
interests of Buyer and its shareholders. Such action of the Board of Directors
remains in full force and effect.
5.23 Related-Party Transactions. Except as described in the Buyer's
Disclosure Letter, since December 31, 1992 no director or executive officer of
Buyer, nor any security holder owning more than 5% of
22
<PAGE>
the outstanding shares of Buyer, nor any Associate or member of the immediate
family of the foregoing persons (a) has engaged in any transaction, or series
of similar transactions, to which the Buyer was or is to be a party, in which
the amount involved exceeded or exceeds US$60,000, except in respect of
compensation for services rendered as an employee in the ordinary course of
business, (b) has owned, of record or beneficially, in excess of a 10% equity
interest in, any business or professional entity that has made payments to, or
received payments from, the Buyer in the aggregate exceeding US$60,000 in any
full fiscal year, or (c) been indebted to the Buyer at any time in an amount
in excess of US$60,000.
5.24 Proprietary Rights. Buyer (a) owns or has the right to use, free and
clear of all Encumbrances, all patents, patent applications, trademarks,
service marks, trade names, copyrights, trade secrets, licenses and similar
rights with respect to the foregoing, necessary for and used in the conduct of
its business as now conducted, to Buyer's best knowledge, without infringing
upon or otherwise acting adversely to the right or claimed right of any person
under or with respect to any of the foregoing, (b) is not contractually or, to
Buyer's best knowledge, otherwise obligated to make any material payments by
way of royalties, fees or otherwise to any owner of, licensor of, or other
claimant to, any patent, trade secret, trademark, trade name, copyright or
other intangible asset, with respect to the use thereof or in connection with
the conduct of its business or otherwise, (c) has not received any notice of
conflict with the asserted rights of others with respect to such matters,
(d) owns or has the unrestricted right to use all trade secrets, including
know-how, customer lists, inventions, designs, processes, computer programs
and technical data used by Buyer in the development, operation and sale of all
products and services sold by it, to its best knowledge free and clear of any
rights, liens or claims of others, and (e) to its best knowledge, is not using
any confidential information or trade secrets of others. A list of all patent,
patent applications, trademarks and service marks, trademark and service mark
applications, licenses and trade names which the Buyer has taken action to
obtain perfect or protect by filings with any governmental agency are
contained in the Buyer Disclosure Letter.
5.25 Real Property. All real property owned, occupied, used by or in the
possession of the Buyer is listed in the Buyer Disclosure Letter (the "Buyer
Real Property"). Except as set forth in the Buyer Disclosure Letter, Buyer has
good and marketable title to all Buyer Real Property owned by it in fee, and
Buyer leases free and clear of all Encumbrances all Buyer Real Property not
owned by it in fee.
5.26 Disclosure. No representation or warranty by Buyer in this Agreement
contains any untrue statement of a material fact or omits to state any
material fact necessary, in light of the circumstances under which it was
made, in order to make the statements herein not misleading.
5.27 Brokers. Except with respect to any investment banking fee due to
Salomon Brothers and Unterberg Harris, Buyer has not paid or become obligated
to pay any fee or commission to any broker, finder, investment banker or other
intermediary in connection with this Agreement.
ARTICLE VI
COVENANTS AND AGREEMENTS
6.1 Conduct of Business Prior to the Closing Date. Each Company and
Subsidiary, on the one hand, and Buyer and Buyer's Subsidiary, on the other
hand, agrees with the other that, from the date hereof, and prior to the
Closing Date, except as otherwise consented to or approved in writing by the
other or expressly permitted by this Agreement:
(a) its business shall be conducted only in the ordinary course and
consistent with past practice and it shall not take any action inconsistent
therewith or with the transactions contemplated hereby;
(b) it shall not (i) amend its Articles of Association or Articles or
Certificates of Incorporation, as the case may be, Memorandum or Bylaws, as
the case may be, or other charter documents, (ii) change the number of
issued or outstanding shares of its capital stock, or issue any debt or
equity securities, or any
23
<PAGE>
options, warrants or other rights to acquire or subscribe for such
securities (except, in the case of the Buyer, for the grant of stock
options, not exceeding options covering 400,000 shares of Buyer's Common
Stock, plus the amount of options contemplated by Section 6.14(b), under
its Stock Option Plan, and the issuance of shares of Buyer's Common Stock
pursuant to the exercise of outstanding stock options and warrants and the
issuance of subordinate convertible debentures as contemplated by Section
7.3(g) hereof), (iii) declare, set aside or pay any dividend or other
distribution or payment in cash, stock or property in respect of shares of
its capital stock (except, in the case of the Companies, as contemplated by
and in accordance with Section 9.8 hereof), (iv) make any direct or
indirect redemption, retirement, purchase or other acquisition of any of
its capital stock, or (v) split, combine or reclassify its outstanding
shares of capital stock;
(c) it shall not, directly or indirectly, (i) other than in the ordinary
course of business and consistent with past practice, and except in the
case of Buyer for the subordinated debt financing referred to in Section
7.3(g), incur any indebtedness for borrowed money, except indebtedness for
borrowed money incurred under credit facilities existing as of the date
hereof (or replacements thereof), inter-group borrowings or which otherwise
does not exceed, at the date of each incurrence, the equivalent of
US$250,000 in principal amount, (ii) waive, release, grant or transfer any
rights of material value, except in the ordinary course of business, (iii)
sell, transfer, lease, license, sell, mortgage, pledge, dispose of or
encumber any of its assets with a value exceeding, as of the date of such
event, the equivalent of US$250,000 in the aggregate, other than inventory
sold in the ordinary course of business and consistent with past practice
or any pledge or other encumbrance pursuant to credit facilities in
existence on the date hereof (or replacements of facilities in existence on
the date hereof), (iv) purchase or acquire any business or any securities
or assets of a business, (v) enter into any joint venture or partnership,
(vi) settle any material litigation or waive or relinquish any material
right or benefit or (vii) accelerate payments on any indebtedness;
(d) it will use its reasonable best efforts to preserve intact its
business organization, to keep available the services of its operating
personnel and to preserve the goodwill of those having business
relationships with it, provided that the loss of any personnel as a result
of the announcement of the transactions contemplated by this Agreement
shall not be deemed to be a breach of this Section 6.1(d);
(e) it will not, directly or indirectly, (i) increase the compensation
payable or to become payable by it to any of its employees, officers or
directors, except in the ordinary course of business consistent with prior
practice, (ii) make any payment or provision to, or otherwise amend, other
than as required by the Company's Scheme or as permitted by the Buyer's
Stock Option Plan, in each case in the ordinary course of business and
consistent with prior practice, any stock option, bonus, profit sharing,
pension, group insurance, severance pay, deferred compensation or other
payment or employee compensation plan for the benefit of its employees,
(iii) grant any stock options or stock appreciation rights, except as
permitted by paragraph (b) above, (iv) enter into any new, or alter or
amend any, employment, severance, consulting or other compensation
agreement with any director, officer, Employee or Associate of it, except
in the ordinary course of business consistent with prior practice, (v) make
any loan or advance to, or enter into any written contract, lease or
commitment with, any officer, Employee or director of it except in the case
of travel, entertainment or other similar advances in the ordinary course
of business consistent with prior practice, or (vi) enter into any other
material transactions with any Associate of it or any of its shareholders,
directors or executive officers;
(f) it will not, directly or indirectly, assume, guarantee, endorse or
otherwise become responsible for the obligations of any other individual,
firm or corporation, or make any loans or advances to any other individual,
firm or corporation except in the ordinary course of business and
consistent with past practices;
(g) it will not incur capital expenditures (or commitments to make such
expenditures which are not terminable at its option) which in the aggregate
would exceed 110% of the amount forecasted therefor as of the date hereof
with respect to any calendar month including or following the date hereof,
nor shall it make any investment of a capital nature either by purchase of
stock or securities, contributions to capital, property transfers or
otherwise or by the purchase of any property or assets of any other
individual, firm or corporation;
24
<PAGE>
(h) it will not alter any practice with respect to accounting policies or
procedures or make any reclassification of assets or liabilities, except,
with respect to the Companies, for changes required by changes in SSAP or
in the Companies Act 1985 or changes required to conform their financial
statements to U.S. GAAP;
(i) it will not close any office, plant, facility or warehouse, except as
required by applicable law or in the event of a material casualty;
(j) it will not enter into, with respect to any office, plant, facility
and warehouse, any new lease, lease termination agreement or amendment of
any agreement to lease real property, including without limitation, any
amendments to any such agreement with respect to rent or additional rent,
term assignment, subletting, "keep-open" clauses, non-competition clauses
and required trade name clause, except, in the case of the Companies and
the Subsidiaries, for lease modifications reflecting the resolution of
currently pending rent reviews which would not in the aggregate reasonably
be expected to result in rent increases exceeding (Pounds)150,000 annually;
(k) it will not sell, assign or sublease any office, plant, facility or
warehouse;
(l) it will not enter into an agreement to do any of the things described
in clauses (a) through (k) immediately above; and
(m) it will promptly advise the other in writing of any event or
occurrence that could be reasonably expected to have a Company Material
Adverse Effect (in the case of notices by the Company) or a Buyer Material
Adverse Effect (in the case of notices by the Buyer) or of any breach of
any of its representations or warranties contained in Article IV or Article
V, as applicable, or any breach by it of a covenant contained herein.
6.2 Access to Properties and Records. Each Company and Subsidiary, on the
one hand, and the Buyer, on the other hand, shall afford to the other and its
investment bankers, accountants, legal counsel and other representatives
(including without limitation the Buyer's environmental experts, for the
purpose of conducting the investigation referred to in Section 7.3(j) hereof),
on reasonable notice, full access during normal business hours from the date
hereof to the Closing Date to all of its properties, books, accounts,
agreements, personnel, facilities, proprietary information, contracts,
commitments and records and shall make reasonably available its officers,
employees and accounting professionals to answer fully and promptly questions
put to them thereby. No investigation pursuant to this Section 6.2 will affect
or be deemed to modify any representation or warranty made herein. All such
corporate books, accounts and records shall remain the property of the
Companies and the Subsidiaries on and after the Closing and shall not be
removed from the facilities where they are presently maintained prior to the
Closing.
6.3 Acquisition Proposals. Following the execution of this Agreement and
prior to the termination of this Agreement under Section 8.1, each Company and
each Shareholder agrees that it shall not, nor shall any of the Companies'
directors, officers, Employees or other representatives or agents, directly or
indirectly, communicate, solicit, initiate, encourage or participate
(including furnishing non-public information concerning the business,
properties or assets of any Company or Subsidiary) in any discussions or
negotiations with regard to any proposal to acquire, directly or indirectly,
any of the share capital of any Company or Subsidiary, to invest any funds in
any Company or Subsidiary, whether such proposal, acquisition, investment or
other transaction involves a stock sale, a tender offer, exchange offer,
merger, consolidation or other business combination, or for the acquisition of
a substantial portion of the assets of any Company or Subsidiary (an
"Acquisition Proposal"). The Company and each Shareholder agree to immediately
communicate to the Buyer the identity of such other party and the initial
terms of any proposal it may receive from any other person or entity in
respect of an Acquisition Proposal.
6.4 Proxy Statement and Meeting of Buyer's Shareholders.
(a) As soon as reasonably practicable following the date hereof, Buyer
shall prepare and file with the Commission, and, within ten (10) business
days following clearance with the Commission, mail to its shareholders the
Proxy Statement with respect to a meeting of Buyer's shareholders to
consider and vote,
25
<PAGE>
among other things, upon this Agreement and the transactions contemplated
hereby, including without limitation, Buyer's purchase of the US Shares and
ET Shares and the issuance of the Buyer Shares in connection therewith.
Each Company, Subsidiary and Shareholder agrees to assist and cooperate
with the Buyer in the preparation of the Proxy Statement with respect to
information therein concerning any such Company, Subsidiary or Shareholder.
(b) The Buyer, on the one hand, and each Company and Subsidiary and the
Majority Shareholder, on the other hand, hereby represents, warrants and
agrees with the other that the Proxy Statement will not, at the time the
Proxy Statement is mailed, and at the date of the meeting of the
shareholders of the Buyer held to approve the matters described therein,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they are
made, not misleading, or to correct any statement made in any earlier
communication with respect to the solicitation of any proxy or approval of
the transactions contemplated by this Agreement in connection with which
the Proxy Statement shall be mailed, except that no representation or
warranty is being made by either with respect to information supplied by
the other for inclusion in the Proxy Statement. The Buyer further
represents, warrants and agrees that the Proxy Statement will comply as to
form in all material respects with the provisions of the Exchange Act. The
letter to shareholders, notice of meeting, proxy statement and form of
proxy, or any information statement filed under the Exchange Act, as the
case may be, that may be provided to shareholders of the Buyer in
connection with the transactions contemplated by this Agreement (including
any supplements), and any schedules required to be filed with the
Commission in connection therewith, as from time to time amended or
supplemented, are collectively referred to as the "Proxy Statement."
(c) Buyer shall take all actions necessary in accordance with the
California Corporations Code and the bylaws of Buyer to duly call, give
notice of, convene and hold a meeting of its shareholders within forty-five
(45) calendar days after the mailing of the Proxy Statement to approve the
transactions contemplated by this Agreement.
6.5 Indemnification by Buyer.
(a) Buyer agrees, upon and subject to the occurrence of the Closing, to
indemnify the Companies and the Shareholders against and hold the Companies
and each Shareholder harmless from any and all claims, obligations, costs
and expenses, including without limitation, reasonable attorneys' fees and
expenses, and liabilities of and damages thereto arising out of the
material breach of any representation, warranty, covenant or agreement of
Buyer contained in Sections 5.3 (Capital Stock), 5.4 (Buyer Shares),
5.5 (Authority) and 6.4(b) (Proxy Statement matters) hereof (the "Surviving
Buyer Warranties"). Buyer agrees to similarly indemnify the Majority
Shareholder and Nigel Wheeler against and hold them harmless from any such
claims, obligations, costs and expenses arising by reason that either such
person becomes an officer and/or director of Buyer upon or after the
Closing and based upon any alleged act, omission or misconduct of Buyer, or
its officers, directors or other agents, prior to the Closing to the same
extent as all other officers and directors of Buyer.
(b) The indemnified parties agree to give Buyer prompt written notice of
any claim, assertion, event or proceeding by or in respect of a third party
of which they have knowledge concerning any liability or damage as to which
they may request indemnification hereunder, provided that the failure to
give such notice shall not impair the rights of the indemnified parties
hereunder or otherwise if and to the extent that the Buyer is not
prejudiced thereby. Buyer shall have the right to direct, through counsel
of its own choosing, the defense or settlement of any such claim or
proceeding (provided that Buyer shall have first acknowledged its
indemnification obligations hereunder specifically in respect of such claim
or proceeding) at its own expense, which counsel shall be reasonably
satisfactory to the indemnified party or parties. If Buyer elects to assume
the defense of any such claim or proceeding, the indemnified party or
parties may participate in such defense, but in such case the expenses of
the indemnified party or parties incurred in connection with such
participation shall be paid by the indemnified party or parties, unless (i)
the indemnified party or parties have legal defenses available to them
which are different than those available
26
<PAGE>
to the indemnifying party such that representation by counsel of Buyer's
choosing would be inappropriate, or (ii) the indemnifying party agrees to
pay such expenses, then in either such case such expenses shall be paid by
the indemnifying party. Such expenses shall be paid as and when incurred.
The indemnified party or parties shall cooperate with Buyer in the defense
or settlement of any such claim, assertion, event or proceeding. If Buyer
elects to direct the defense of any such claim or proceeding, the
indemnified party or parties shall not pay, or permit to be paid, any part
of any claim or demand arising from such asserted liability, unless Buyer
consents in writing to such payment or unless Buyer withdraws from the
defense of such asserted liability, or unless a final judgment from which
no appeal may be taken by or on behalf of Buyer is entered against such
indemnified party for such liability. If Buyer shall fail to defend, or if,
after commencing or undertaking any such defense, Buyer fails to prosecute
or withdraws from such defense, the indemnified party or parties shall have
the right to undertake the defense or settlement thereof at Buyer's
expense.
6.6 Indemnification by the Shareholders.
(a) Each Shareholder agrees, severally and not jointly, upon and subject to
the occurrence of the Closing, to indemnify Buyer against and hold Buyer
harmless from any and all claims, obligations, costs and expenses, including
without limitation, reasonable attorneys' fees and expenses and liabilities of
and damages thereto arising out of any material breach of any representation,
warranty, covenant or agreement of such Shareholder contained in Article III
hereof and, with respect solely to the Majority Shareholder, Sections 4.3
(Share Capital; Title to ET Shares), 4.4 (Authority), and 6.4(b) (Proxy
Statement matters) hereof (the "Shareholder Surviving Warranties").
(b) Buyer agrees to give the Shareholders prompt written notice of any
claim, assertion, event or proceeding by or in respect of a third party of
which it has knowledge concerning any Loss as to which it may request
indemnification hereunder, provided that the failure to give such notice shall
not impair the rights of the Buyer hereunder or otherwise to the extent that
the Shareholders are not prejudiced thereby. The Shareholders shall have the
right to direct, through counsel of their own choosing, the defense or
settlement of any such claim or proceeding (provided that the Shareholders
shall have first acknowledged their indemnification obligations hereunder
specifically in respect of such claim or proceeding) at their own expense,
which counsel shall be reasonably satisfactory to Buyer. If the Shareholders
elect to assume the defense of any such claim or proceeding, Buyer may
participate in such defense, but in such case the expenses of Buyer incurred
in connection with such participation shall be paid by Buyer, unless (i) the
indemnified party or parties have legal defenses available to them which are
different than those available to the indemnifying party such that
representation by counsel of Buyer's choosing would be inappropriate, or (ii)
the indemnifying party agrees to pay such expenses, then in either such case
such expenses shall be paid by the indemnifying party. Such expenses shall be
paid as and when incurred. Buyer shall cooperate with the Shareholders in the
defense or settlement of any such claim, assertion, event or proceeding. If
the Shareholders elect to direct the defense of any such claim or proceeding,
Buyer shall not pay, or permit to be paid, any part of any claim or demand
arising from such asserted Loss, unless the Shareholders consent in writing to
such payment or unless the Shareholders withdraw from the defense of such
asserted Loss, or unless a final judgment from which no appeal may be taken by
or on behalf of the Shareholders is entered against Buyer for such Loss. If
the Shareholders shall fail to defend, or if, after commencing or undertaking
any such defense, the Shareholders fail to prosecute or withdraws from such
defense, Buyer shall have the right to undertake the defense or settlement
thereof at the Shareholders' expense.
6.7 General Indemnification Provisions. If the indemnifying party is
controlling the defense of a claim, the indemnifying party will not, without
the prior written consent of the indemnified party or parties, enter into any
settlement of such claim which could reasonably be expected to lead to
liability or create any financial or other obligation on the part of the
indemnified party or parties. If the indemnified party or parties are
controlling the defense of a claim, the indemnified party or parties will not
enter into any settlement of such claim without the consent of the
indemnifying party, which consent shall not be unreasonably withheld. The
indemnifying party shall advance amounts to the indemnified party or parties
then payable by the indemnifying party upon notice to the indemnifying party
and upon the indemnified party or parties entering into an agreement to repay
amounts
27
<PAGE>
advanced that it is ultimately determined not to be entitled to. The
controlling party shall deliver, or cause to be delivered, to the other party
or parties copies of all correspondence, pleadings, motions, briefs, appeals
or other written statements relating to or submitted in connection with the
defense of any such claim and timely notices of, and the right to participate
in (as observer), any hearing or other court proceeding relating to such
claim.
6.8 Best Efforts. Upon the terms and subject to the conditions herein
provided, Buyer, each Company and each Shareholder agrees to use its
reasonable efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things necessary, proper or advisable to consummate the
transactions contemplated by this Agreement including (a) to lift or rescind
any injunction or restraining order or other order adversely affecting the
ability of the parties to consummate the transactions contemplated hereby and
(b) to fulfill all conditions on its part to be fulfilled under this
Agreement. In case at any time after the Closing Date any further action is
reasonably necessary or desirable to carry out the purposes of this Agreement,
the proper officers or directors of each party or the proper persons to this
Agreement shall take all such reasonably necessary action, including without
limitation, the delivery by each Shareholder to Buyer of a proxy to vote the
ET Shares in favor of this Agreement and the transactions contemplated hereby,
if so requested by Buyer. No party hereto will take any action for the purpose
of delaying, impairing or impeding the receipt of any required consent,
authorization, order or approval or the making of any required filing. Each
Company and Shareholder, on the one hand, and the Buyer, on the other hand,
shall give prompt notice to the other of (i) the occurrence, or failure to
occur, of any event which occurrence or failure would be likely to cause any
of its representations or warranties contained in this Agreement to be untrue
or inaccurate in any material respect any time from the date hereof to the
Closing Date and (ii) any material failure by it to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder, and each shall use all reasonable efforts to remedy such failure.
In addition, each shall give prompt notice to the other of any material
developments involving its operations or activities.
6.9 Consents. The Buyer, each Company and each Shareholder will use its
reasonable best efforts to obtain all necessary waivers, consents and
approvals of all third parties and governmental authorities necessary to the
consummation of the transactions contemplated by this Agreement.
6.10 No Transfer. Each Shareholder agrees that such Shareholder will not,
directly or indirectly, transfer, sell, assign, pledge, hypothecate, encumber
or otherwise dispose of any shares of either Company's share capital which
such Shareholder owns on and after the date hereof; provided, however, that
any Shareholder may transfer a portion of such shares (subject to his rights
and obligations hereunder with respect to such shares) to one or more trusts
established for the benefit of members of his family or established for
charitable purposes, provided that such trusts become a party hereto and
become otherwise bound hereby with respect to such transferred shares. ETE
agrees that it will not, directly or indirectly, transfer, sell, assign,
pledge, hypothecate, encumber or otherwise dispose of any of the US Shares.
6.11 Environmental Investigations. Buyer shall conduct such environmental
investigations and reviews with respect to the Real Properties of the
Companies, including without limitation, Phase I investigations, as it shall
deem appropriate, in its sole discretion.
6.12 Delivery of Financial Statements and Other Documents. Until the Closing
Date, each Company, on the one hand, and the Buyer, on the other hand, shall
deliver to the other:
(a) as soon as practicable, but in any event within thirty (30) days
after the end of each month, and within forty-five (45) days after the end
of each quarter (with respect to the first three quarters of the applicable
fiscal year) and within 60 days after the end of the last fiscal quarter,
its unaudited consolidated profit and loss account, consolidated balance
sheet and consolidated cash flow statement for such month or quarter, as
the case may be, and for the fiscal year-to-date. Buyer's independent
accountants, Ernst & Young, shall have reviewed all quarterly financial
statements submitted by Buyer in compliance with the foregoing covenant;
(b) as soon as practicable, but in any event within five (5) days of its
receipt thereof, copies of any management letters and other correspondence
of its independent auditors;
28
<PAGE>
(c) prompt notice of any material defaults under any material contracts
and of any litigation;
(d) monthly updates to the backlog descriptions described in Section 4.20
and 5.19, as applicable. Each such update shall serve to supersede and
replace in its entirety all previous backlog descriptions, provided that
such updated descriptions shall, thereafter, be subject to the
representations and warranties set forth in Sections 4.20 and 5.19, as
applicable;
(e) as soon as practicable, all other information requested by the other,
where such information is readily available and may be reduced to written
form.
6.13 Additional Payments at Closing. The Buyer agrees that, upon the Closing
and the purchase of the ET Shares and US Shares by Buyer hereunder, the Buyer
shall pay to Christopher D. Dobson the cash amount of US$500,000 pursuant to
the Noncompetition Agreement (the "Dobson Noncompetition Fee") and shall
deliver to the Companies (in such respective amounts as the Majority
Shareholder shall direct) the following aggregate amounts and property as
contributions to capital:
(a) at the discretion of the Board of Directors of ET and ETE, the cash
sum of approximately US$1,500,000, the precise amount of which shall be
specified by the Majority Shareholder prior to the Closing as the amount
which, when added to the cash amount paid by Buyer for the US Shares, as
specified in Section 1.3, represents the U.S. Dollar equivalent (the
"Employee Bonus Amount") of One Pound Sterling for each day that all
employees of the Companies and the Subsidiaries as of the Closing shall
have been continuously employed by such Company or Subsidiary, as
applicable, as of the Closing (such that the price paid for the US Shares,
together with the capital contribution pursuant to this clause (a), shall
be equal to the Employee Bonus Amount);
(b) a cash amount, the precise amount of which shall be specified by the
Majority Shareholder prior to the Closing, calculated to result in an
after-tax bonus payment (assuming the highest marginal income tax rates) to
Nigel Wheeler of approximately Six Hundred Thousand Dollars (US$600,000)
(such full pre-tax amount being referred to as the "Wheeler Bonus"), it
being understood and agreed that Mr. Wheeler will take all appropriate
action to minimize his actual income tax obligations in respect of the
Wheeler Bonus and that the actual after-tax portion of such bonus may
accordingly exceed US$600,000; and
(c) the cash sum of US$7,000,000 (the "Dobson Negotiation Fee").
The Companies agree to pay or deliver, or cause the Subsidiaries to pay
or deliver, the following aggregate sums or consideration (subject to any
applicable withholdings required by law) to the indicated persons at the
indicated times.
(i) to each employee of any Company or Subsidiary as of the Closing,
a bonus for past services rendered in an amount equal to One Pound
Sterling for each day that such employee shall have been continuously
employed by such Company or Subsidiary, as applicable, as of the
Closing, to be paid as soon as practicable after the Closing;
(ii) to Nigel Wheeler for past services rendered, the Wheeler Bonus,
to be paid at the Closing; and
(iii) to Christopher D. Dobson, the Dobson Negotiation Fee, to be
paid at the Closing.
6.14 Company Employee Benefits and Stock Options.
(a) At and following the Closing, the Buyer shall cause the Companies and
Subsidiaries to, from and after the Closing, honor in accordance with their
terms all existing employment arrangements with their respective directors,
other officers and Employees, provided that such arrangements have been
disclosed in accordance with the terms of this Agreement. Furthermore, the
Buyer represents and warrants that it presently intends to cause the
Companies and Subsidiaries to continue indefinitely to provide pension and
welfare benefits to their Employees (considered as a group) which benefits
are intended to be in the aggregate no less favorable than those currently
provided by the Companies and Subsidiaries in the aggregate to such
Employees. Nothing set forth above in this Section shall be deemed to
constitute an amendment of any existing employee benefit plan, program or
arrangement or to prevent the Buyer or any Company or any Subsidiary from
making any change in any plan, program or arrangement, including any change
required by law or deemed necessary or appropriate to comply with
applicable law or regulation.
29
<PAGE>
(b) Sufficiently prior to the Closing to facilitate the satisfaction of
the condition to Closing set forth in Section 7.2(f), the Buyer shall
recommend to its Board of Directors and Compensation Committee thereof the
grant, under the Buyer's Stock Option Plan, of options covering an
aggregate of approximately 800,000 shares of Buyer's Common Stock to such
employees of the Companies and Subsidiaries, and in such respective
individual amounts, as shall be jointly determined by the Buyer and the
Majority Shareholder prior to the Closing. Such recommended option grants
shall otherwise be at prices and upon such terms as are customarily
contained in options generally granted under the Stock Option Plan.
6.15 Use of Company Information. Buyer agrees that it shall not file with
the Securities and Exchange Commission of the United States any disclosure
document, including but not limited to the Proxy Statement, any document
relating to the financing referred to in Section 7.3(g), any report or other
document filed by the Buyer under the Exchange Act or otherwise made public,
that includes the names of either of the Companies, the Shareholders or any
Affiliate or Associate thereof, without the prior written consent of the
Majority Shareholder, except solely as and to the extent that the Buyer is
advised by its legal counsel that the same is required by law to be so filed
(in which case the Buyer shall use its best efforts to provide to the Majority
Shareholder, as early as possible prior to such filing, a copy of the document
proposed to be so filed, and shall give the Majority Shareholder, as and to
the extent practicable, reasonable opportunity to review and reasonably modify
such proposed filing).
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligations. The respective obligations of
each party to effect the transactions contemplated by the Agreement shall be
subject to the conditions that (a) no governmental authority or other agency
or commission or court of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, injunction or
other order (whether temporary, preliminary, or permanent) which is in effect
and has the effect of prohibiting consummation of the transactions
contemplated by this Agreement, (b) the sum of all cash and cash equivalent
assets plus amounts immediately available for additional borrowing under
credit arrangements, of Buyer and the Companies on a consolidated, proforma
basis immediately after and giving effect to the Closing, shall be not less
than US$35,000,000 and (c) holders of less than 5.0% of the outstanding shares
of Buyer's Common Stock shall have filed demands for payment or otherwise
become entitled to exercise any dissenters' or appraisal rights under Chapter
13 of the California Corporations Code.
7.2 Conditions to the Obligations of the Shareholders. The obligations of
each Shareholder to effect the transactions contemplated by this Agreement
shall be subject to the fulfillment at or prior to the Closing Date of the
following additional conditions:
(a) Buyer shall have performed in all material respects the obligations
under this Agreement required to be performed by it on or prior to the
Closing Date pursuant to the terms hereof.
(b) The representations and warranties of Buyer contained in this
Agreement shall be true and correct in all material respects at and as of
the Closing Date as if made at and as of such date, except to the extent
that any such representation or warranty is made as of a specified date in
which case such representation or warranty shall have been true and correct
as of such date.
(c) Buyer shall have delivered to the Shareholders a certificate to the
effect set forth in paragraphs (a) and (b) above in this Section.
(d) Christopher D. Dobson and Nigel Wheeler shall each have been elected
as members of the Board of Directors of the Buyer and additionally shall
have been elected as the Vice Chairman of the Board and the Chief Operating
Officer, respectively, of the Buyer.
(e) The Buyer and Nigel Wheeler shall have entered into an Employment
Agreement substantially in the form of Exhibit B hereto.
(f) The Buyer shall have granted the stock options referred to in Section
6.14(b).
30
<PAGE>
(g) The Companies and the Majority Shareholder shall have received such
other duly and validly executed documents and instruments from the Buyer in
connection with the Closing as have been reasonably requested by them and
are customary for transactions of this type.
(h) All necessary waivers, consents and approvals to or of the
transactions contemplated by this Agreement of any third parties or
governmental entities with respect to the Buyer, shall have been obtained
and delivered to the Companies and the Majority Shareholder except where
the failure to obtain any such waiver, consent or approval could not be
reasonably expected to have, individually or in the aggregate, a Company
Material Adverse Effect or Buyer Material Adverse Effect.
(i) The Shareholders shall have received the favorable opinion of Riordan
& McKinzie, counsel to Buyer, substantially in the form of Exhibit C
hereto, and otherwise in form and substance reasonably satisfactory to the
Shareholders.
(j) The Reimbursable Expenses (as defined in Section 8.2) shall have been
paid at the Closing by the Buyer.
(k) The Buyer and Christopher D. Dobson shall have entered into a
Registration Agreement substantially in the form of Exhibit D hereto.
(l) The Shareholders shall have obtained tax clearance to confirm that
the exchange of securities pursuant to this Agreement is covered by
Sections 135-137 of the Taxation of Chargeable Gains Act of 1992, by way of
clearance under Section 38 of such Act.
7.3 Conditions to the Obligations of Buyer. The obligations of Buyer to
effect the transactions contemplated by this Agreement shall be subject to the
fulfillment at or prior to the Closing Date of the following additional
conditions:
(a) Each Company and each Shareholder shall have performed in all
material respects its obligations under this Agreement required to be
performed by it on or prior to the Closing Date pursuant to the terms
hereof.
(b) The representations and warranties of each Shareholder contained in
this Agreement shall be true and correct in all material respects at and as
of the Closing Date as if made at and as of such date, except to the extent
that any such representation or warranty is made as of a specified date in
which case such representation or warranty shall have been true and correct
as of such date.
(c) The Companies and the Majority Shareholder shall have delivered to
Buyer a certificate to the effect set forth in paragraphs (a) and (b) above
in this Section.
(d) Buyer shall have received a fully executed original of the
Noncompetition Agreement from the Majority Shareholder substantially in the
form of Exhibit E hereto.
(e) Buyer shall have received the favorable opinion of Veale Wasbrough,
counsel to the Companies and each Shareholder, substantially in the form of
Exhibit F hereto and otherwise in form and substance reasonably
satisfactory to Buyer.
(f) Buyer shall have received such other duly and validly executed
documents and instruments from the Companies, the Subsidiaries and the
Shareholders in connection with the Closing as have been reasonably
requested by it and are customary for transactions of this type.
(g) Buyer shall have issued and sold to qualified institutional buyers
subordinate convertible debentures pursuant to Rule 144A (or other
available exemption) under the Securities Act in an amount at least equal
to Fifty Million Dollars (US$50,000,000), on terms and conditions
acceptable to Buyer, in its sole discretion, after consultation with the
Majority Shareholder, including the Majority Shareholder's participation in
the meeting of Buyer's pricing committee held to consider such terms and
conditions.
(h) All necessary waivers, consents and approvals to or of the
transactions contemplated by this Agreement of any third parties or
governmental entities with respect to any Company, Subsidiary or
31
<PAGE>
Shareholder shall have been obtained and delivered to Buyer except where
the failure to obtain any such waiver, consent or approval could not be
reasonably expected to have, individually or in the aggregate, a Company
Material Adverse Effect or a Buyer Material Adverse Effect.
(i) A majority of the outstanding shares of Buyer's Common Stock shall
have been voted in favor of this Agreement and the transactions
contemplated hereby.
(j) Buyer shall have completed the environmental investigations and
reviews of the Real Properties referred to in Section 6.11, and shall not
have reasonably concluded that any environmental conditions at any of the
Real Properties could reasonably be expected, individually or in the
aggregate, to have a Company Material Adverse Effect.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated and the transactions
contemplated herein may be abandoned at any time prior to the Closing Date:
(a) by the mutual written consent of Buyer and the Majority Shareholder;
(b) by any party, if by December 31, 1996 the Closing shall not have been
consummated, provided that no party may terminate this Agreement under this
Section 8.1(b) if such failure has been caused by that party's breach of
this Agreement;
(c) by Buyer, if there is a material breach of any of the representations
and warranties of any Company or Shareholder, or if any Company or
Shareholder fails to comply in any material respect with any of its
respective covenants or agreements contained herein; or
(d) by the Shareholders, if there is a material breach of any of the
representations and warranties of Buyer, or if Buyer fails to comply in any
material respect with any of its covenants or agreements contained herein.
8.2 Termination Fee; Expenses. Upon a termination of this Agreement (except
solely a No-Fee Termination, as defined below) the Buyer shall pay to the
Companies (in such respective amounts as they jointly instruct the Buyer) an
aggregate fee of US$1,000,000 (the "Termination Fee"), and the Buyer shall
additionally pay to them all reasonable fees and expenses actually incurred by
them in connection with the transactions contemplated hereby, including all
reasonable legal, investment banking, accounting and other fees and expenses
(the "Reimbursable Expenses"). The Termination Fee shall be payable in
immediately available funds on the second business day following any
termination giving rise to the obligation to pay such Termination Fee, and the
Reimbursable Expenses shall be payable within ten business days following the
submission to Buyer of a statement and accounting therefor.
"No-Fee Termination" shall mean the following:
(a) Any termination by Buyer or the Shareholders by reason of the non-
occurrence of the condition to Closing set forth in clause (a) of Section
7.1 (limited to United Kingdom matters in the case of a termination by
Buyer, and limited to United States matters in the case of a termination by
the Shareholders) or by the Shareholders by reason of the non-occurrence of
the condition to Closing set forth in Section 7.2(l);
(b) Any termination by Buyer by reason of the non-occurrence of any
condition to Closing set forth in clause (a), (b), (c), (d), (e), (f) or
(h) of Section 7.3; provided that any such termination by Buyer shall not
constitute a No-Fee Termination if such non-occurrence is the result of a
Company Material Adverse Change after the date of this Agreement; or
(c) Any termination by the Shareholders by reason of the non-occurrence
of any condition to Closing set forth in Section 7.2 if such non-occurrence
is the result of a Buyer Material Adverse Change after the date of this
Agreement.
32
<PAGE>
8.3 Effect of Termination. Except as otherwise provided in Section 8.2, in
the event of the termination of this Agreement as provided in Section 8.1
above, this Agreement shall forthwith become void and there shall be no
liability on the part of any party hereto, provided that nothing in this
Section 8.3 shall relieve any party of liability for any intentional breach of
the purchase and sale covenants herein, or the covenant to use reasonable
efforts to satisfy all conditions to Closing, which breach results in a
termination of this Agreement. Notwithstanding the foregoing, the covenant set
forth in Section 8.6 shall survive any termination of this Agreement for a
period of one year.
8.4 Amendment. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
8.5 Waiver. At any time prior to the Closing Date, the parties hereto may
(a) extend the time for the performance of any of the obligations or other
acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions herein, provided that any such waiver of or failure to insist on
strict compliance with any such representation, warranty, agreement or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party.
8.6 Conduct Following Termination. Following any termination of this
Agreement, neither Buyer nor its representatives, on the one hand, nor any
Company or Subsidiary nor any of their respective representatives nor the
Shareholders, on the other hand, shall publicly state any disparaging or
similar remark regarding the other.
ARTICLE IX
MISCELLANEOUS
9.1 Survival. The Surviving Shareholder Warranties and the Surviving Buyer
Warranties shall survive after the Closing until the applicable statute of
limitations provided by applicable law. All other representations and
warranties herein shall terminate and be extinguished upon the Closing.
9.2 Meaning of "Best Knowledge". Whenever the term "best knowledge" or "to
the best of its knowledge" or any substantially equivalent phrase is used in
this Agreement with respect to the representations and warranties of any
Company, Subsidiary or Shareholder, on the one hand, or the Buyer, on the
other hand, it shall mean both the actual knowledge of any such individual
person and, in the case of a corporation, the actual knowledge of each
executive officer thereof (including specifically the Majority Shareholder
with respect to each Company), and such knowledge as any such person, director
or officer could reasonably be expected to acquire in the course of reasonable
inquiry and investigation of the matters with respect to which such
representation and warranty is made.
9.3 Notices. All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been given or made if
in writing and (a) delivered personally, as of the date of such delivery, (b)
sent by registered or certified mail (postage prepaid, return receipt
requested), three (3) days after the mailing thereof, (c) by prepaid overnight
carrier, one (1) day after delivery thereof, or (d) transmitted by facsimile,
as of the date of receipt of a confirmation of transmission, to the parties at
the following addresses and numbers:
(i) If to Buyer, to:
Plasma & Materials Technologies, Inc.
9255 Deering Avenue
Chatsworth, California 91311
Attention: John LaValle, Chief Financial Officer
Facsimile No.: (818) 886-8098
33
<PAGE>
(ii) If to ET, to:
Electrotech Limited
Thornbury Laboratories
Littleton-Upon-Severn
Thornbury
Bristol, BS12-INP, U.K.
Attention: Nigel Wheeler, CEO
Facsimile No.: 011-44-1-454-411824
(iii) If to ETE, to:
Electrotech Equipments Limited
Thornbury Laboratories
Littleton-Upon-Severn
Thornbury
Bristol, BS12-INP, U.K.
Attention: Nigel Wheeler, CEO
Facsimile No.: 011-44-1-454-411824
(iv) If to the Shareholders, to:
Christopher David Dobson
Ann Dilys Dobson
Elberton Manor
Elberton, Bristol
Avon B512-3AA, U.K.
Facsimile No.: 011-44-1-454-418655
Frank Stanley Keeble
Patricia Ann Keeble
Whistlers
Kingston Seymour, Clevedon
Avon B321-EXS, U.K.
Facsimile No.: 0033 4182 6322
Kenneth Nash Knight Willmott
Peter Geoffrey Willmott
Kevin Nash Knight Willmott
6 Parc-y-Fro
Creigian, Cardiff, U.K.
Facsimile No.: 01222 345626
or at such other addresses as shall be furnished by the parties by like notice,
and such notice or communication shall be deemed to have been given or made as
of the date actually received.
9.4 Headings; Agreement. The headings contained in this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
The term "Agreement" for purposes of representations and warranties hereunder
shall be deemed to include the Schedules and Exhibits hereto to be executed and
delivered by a party.
9.5 Publicity. So long as this Agreement is in effect, the parties hereto
shall not, and shall cause their affiliates not to, issue or cause the
publication of any press release or other announcement with respect to the
transactions contemplated by this Agreement or this Agreement without the
consent of the other parties, which consent shall not be unreasonably withheld
or delayed.
34
<PAGE>
9.6 Entire Agreement. This Agreement, the Letter Agreement dated May 2, 1996
and the Mutual Non-Disclosure Agreement dated December 19, 1995, as amended by
that certain letter dated May 22, 1996 to ET's counsel from counsel to the
Buyer, constitute the entire agreement among the parties and supersede all
other prior agreements and understandings, both written and oral, among the
parties, or any of them, with respect to the subject matter hereof or thereof.
9.7 Conveyance Taxes. The Buyer agrees to assume liability for and to hold
the Shareholders harmless against any sales, use, transfer, stamp, stock
transfer, real property transfer or gains, and value added taxes, any
transfer, registration, recording or other fees (including without limitation,
any stamp duties), and any similar taxes incurred as a result of the
transactions contemplated hereby, other than capital gains taxes imposed upon
the Shareholders by virtue of the disposal of the ET Shares or with respect to
a higher rate of taxes due on any pre-Closing dividends due by reason of the
transactions permitted by Section 9.8 hereof, as to which the Shareholders
agree severally and not jointly to assume liability for and to hold Buyer and
the Companies harmless against.
9.8 Company Pre-Closing Dividends. The Companies may, prior to the Closing,
declare and pay cash dividends to the Shareholders up to an amount permitted
by law but not exceeding the net cash payment specified in Section 1.4(a)
hereof, in which case the parties agree that:
(a) Buyer shall, immediately prior to the Closing, loan to the Companies an
amount equal to the sum of such dividends, plus all taxes required to be paid
by the Companies in connection with the payment of such dividends (the
"Dividend Taxes"), in order to fund the payment of such dividends immediately
prior to the Closing and the payment of the Dividend Taxes;
(b) The cash portion of the Purchase Price payable to the Shareholders at
the Closing pursuant to Section 1.4 shall be reduced, prorata as to each
Shareholder, by an aggregate amount equal to such loan by the Buyer;
(c) Immediately after the Closing, the indebtedness of the Companies to the
Buyer in respect of the loan referred to in clause (a) shall be forgiven by
the Buyer as a contribution to the capital of the Companies but subject to the
contingent obligation of the Companies to make the payments described in
clause (d) below; and
(d) From time to time if and when the Companies are entitled to a credit for
the Dividend Taxes against other amounts due and payable for income taxes of
the Companies, then the Companies shall pay to the Shareholders (promptly
after such time as the Companies would have otherwise been required to pay to
the taxing authorities the amounts so reduced by such credit), prorata to each
Shareholder in the same proportion that the cash portion of the Purchase Price
was reduced under clause (b) above, the aggregate amount of such credit.
9.9 Advance of Reimbursable Expenses. Within seven (7) days after
presentation to the Buyer by the Companies of invoices or other reasonable
evidence thereof, the Buyer shall advance to the Companies a sum equal to all
Reimbursable Expenses incurred by the Companies prior to the execution of this
Agreement in respect of amounts payable to third parties other than Hambrecht
& Quist, and excluding any internal charges or expenses of the Companies or
any Subsidiary. Such payments shall be considered an advance in respect of any
amounts ultimately owed by the Buyer to the Companies pursuant to Section 8.2
hereof and, if no amounts are ever owed by the Buyer to the Companies pursuant
to Section 8.2 hereof by reason of the occurrence of a No-Fee Termination of
this Agreement, the Companies shall, within seven (7) days following the
occurrence of such No-Fee Termination, refund to the Buyer all amounts
advanced to the Companies pursuant to this Section 9.9.
9.10 Hold-back Agreement. Each of the Shareholders severally agrees that
such Shareholder will not offer, sell or contract to sell, or otherwise
dispose of, directly or indirectly, or announce an offering of any shares of
Buyer Common Stock beneficially owned by such Shareholder or any securities
convertible into, or exchangeable for, shares of Buyer Common Stock for a
period of 90 days following the Closing Date, without the prior written
consent of Salomon Brothers Inc, the lead investment banker engaged by the
Buyer in connection with the transaction described in Section 7.3(g).
35
<PAGE>
9.11 Assignment. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefits of the parties hereto and their
respective successors and permitted assigns. Neither this Agreement nor any of
the rights, interests or obligations shall be assigned by any of the parties
hereto without the prior written consent of the other parties, except as
permitted by Section 6.10 hereof.
9.12 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
9.13 Governing Law. The validity and interpretation of this Agreement shall
be governed by English law, without reference to the conflict of laws
principles thereof.
9.14 Third Party Beneficiaries. This Agreement is not intended to confer
upon any other person any rights or remedies hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by an individual thereunto duly authorized, all as of the date first
written above.
BUYER: PLASMA & MATERIALS TECHNOLOGIES,
INC.
a California corporation
By: /s/ Gregor A. Campbell
_________________________________
Name: Gregor A. Campbell
Chief Executive Officer
ET: ELECTROTECH LIMITED
an English corporation
By: /s/ Nigel Wheeler
_________________________________
Name: Nigel Wheeler
Chief Executive Officer
ETE: ELECTROTECH EQUIPMENTS LIMITED
an English corporation
By: /s/ Nigel Wheeler
_________________________________
Name: Nigel Wheeler
Chief Executive Officer
SHAREHOLDERS:
/s/ Christopher David Dobson
____________________________________
Name: Christopher David Dobson
/s/ Frank Stanley Keeble
____________________________________
Name: Frank Stanley Keeble
/s/ Kenneth Nash Knight Willmott
____________________________________
Name: Kenneth Nash Knight Willmott
/s/ Kevin Nash Knight Willmott
____________________________________
Name: Kevin Nash Knight Willmott
/s/ Ann Dilys Dobson
____________________________________
Name: Ann Dilys Dobson
/s/ Patricia Ann Keeble
____________________________________
Name: Patricia Ann Keeble
36
<PAGE>
EXHIBIT A
SCHEDULE OF THE CONSIDERATION
<TABLE>
<CAPTION>
CASH (US$)
DISTRIBUTION
SHAREHOLDERS SHARES RATIO COMMON STOCK
------------ ------ ------------ ------------
<C> <S> <C> <C>
Christopher David Dodson 58 ordinary 'a' shares of +++ 4,853,334
Elberton Manor (Pounds)1 each of ETE +
Elberton 4,942 ordinary 'b' shares of +
Bristol (Pounds)1 each of ETE +
Avon 324 ordinary shares of +
BS12 3AA (Pounds)1 each of ET +
+ 35*
Ann Dilys Dobson 6 ordinary shares of +
Elberton Manor (Pounds)1 each of ET +
Elberton +
Bristol +
Avon +
BS12 3AA +++
Frank Stanley Keeble 12 ordinary 'a' shares of +++ 373,333
Whistlers (Pounds)1 each of ETE +
Kingston Seymour 2,488 ordinary 'b' shares of +
Clevedon (Pounds)1 each of ETE +
Avon 114 ordinary shares of +
BS21 (Pounds)1 each of ET +
+ 15*
Patricia Ann Keeble 6 ordinary shares of +
Whistlers (Pounds)1 each of ET +
Kingston Seymour +
Clevedon +
Avon +
BS21 +++
Kenneth Nash Knight 12 ordinary 'a' shares of 15* 373,333
Willmott, Peter Geoffrey (Pounds)1 each of ETE
Willmott and Kevin Nash 2,488 ordinary 'b' shares of
Knight Willmott (Pounds)1 each of ETE
c/o 6 Parc-y-Pro 120 ordinary shares of
Creigian (Pounds)1 each of ET
Cardiff
</TABLE>
- --------
* cash payable will be the sum of seventy five million dollars (US$75,000,000)
adjusted in accordance with the following clauses of the Share Sale and
Purchase Agreement:
6.13 the aggregate cash amounts to be contributed by the Buyer to the
Companies at closing in relation to the Employee Bonus Amount, the Wheeler
Bonus and the Dobson Fee.
9.8 amount of loan made to the Companies to enable them to pay pre-closing
dividends to the Shareholders.
and the balance will be distributed between Mr. and Mrs. Dobson, Mr. and Mrs.
Keeble and Messrs. Willmott in the ratio 35:15:15 respectively.
A-1
<PAGE>
EXHIBIT B
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement"), dated ___________ , 1996, is
entered into by and between Nigel Wheeler ("Executive") and Plasma & Materials
Technologies, Inc., a California corporation ("Employer").
WITNESSETH:
WHEREAS, concurrently herewith, Employer will acquire all of the outstanding
shares of Electrotech Limited and Electrotech Equipments Limited, companies
organized under the laws of England and in the business of manufacturing and
selling semiconductor capital equipment (the "Business");
WHEREAS, Executive has been employed as the Chief Executive Officer of
Electrotech Limited and Electrotech Equipments Limited and has skills and
experience in the Business and the technology associated therewith; and
WHEREAS, Employer desires to obtain Executive's services for the conduct of
its Business, and Executive desires to be employed in such Business by and for
Employer.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein set forth, the parties hereto agree as follows:
1. Definitions. As used in this Agreement, the following terms shall have
the meanings set forth below.
(a) "Affiliate" means any corporation, partnership, limited liability
company or other person or entity that directly, or indirectly through one
or more intermediaries, controls or is controlled by, or is under common
control with, the person or entity specified. For the purposes hereof,
"control" means both the right to direct or cause the direction of the
management and policies of an entity, whether through ownership of voting
rights, by contract or otherwise, including with limitation the right to
sell or cause the sale of all or substantially all of the assets of such
entity.
(b) "Board" means the Board of Directors of Employer.
(c) "Disability" or "Disabled" has the meaning set forth in Section 10(b)
hereof.
(d) "Effective Date of Termination" has the meaning set forth in Section
10(f) hereof.
(e) "Termination For Cause" means the termination by Employer of
Executive's employment because he has been convicted of a felony or been
adjudged by a court of competent jurisdiction to have defrauded Employer,
any Affiliate of Employer or any customer of Employer.
(f) "Termination For Good Reason" means a termination by Executive of his
employment with Employer based on (i) a material diminution of Executive's
duties as President and Chief Operating Officer, (ii) the imposition by the
Board of a requirement that Executive report to persons other than the
Board, the Chairman or the Chief Executive Officer, (iii) the breach by
Employer of any of its material obligations under this Agreement or (iv)
Employer ceasing to be engaged in the Business or in any business that is
substantially similar to the Business.
(g) "Termination Without Cause" means a termination by Employer of
Executive's employment that is not a Termination For Cause or a termination
resulting from Executive's death or Disability.
(h) "Termination Without Good Reason" means a termination by Executive of
his employment with Employer that is not a Termination For Good Reason or a
termination resulting from Executive's death or Disability.
B-1
<PAGE>
2. Employment. Employer hereby employs Executive as an executive officer and
Executive hereby accepts such employment upon the terms and conditions
hereinafter set forth.
3. Duties.
(a) Executive shall perform his services as President and Chief Operating
Officer, under the supervision of the Chairman and the Chief Executive
Officer of Employer and within the framework of the policies and objectives
of Employer. In such capacity, Executive (i) shall exercise general day-to-
day supervisory responsibility and operational and management authority
over Employer and its officers and executives and all of its Affiliates and
their respective officers and executives, (ii) shall provide advice and
input to members of Employer's Board and shall, at their request, attend
all meetings of the Board for that purpose, and (iii) shall perform such
other duties as may be assigned to him from time to time by the Board.
(b) Executive shall devote his entire business time, attention and
energies to the performance of his duties and functions under this
Agreement and shall not during the term of his employment hereunder be
engaged in any other substantial business activity for gain, profit or
other pecuniary advantage. Executive shall faithfully, loyally and
diligently perform his assigned duties and functions and shall not engage
in any activities whatsoever which conflict with the objectives of
Employer's Business during the term of his employment hereunder.
(c) Employer shall furnish Executive with such facilities at the
corporate offices of Electrotech Limited and services as are suitable to
his position and adequate for the performance of his duties and functions
hereunder. It is understood that Executive's "home base" location shall be
at Ringland Way, Newport, Gwent NP62TA.
4. Director. During the term of this Agreement, Executive shall be nominated
to serve as a director of the Board of Employer.
5. Term. The term of this Agreement shall commence on the date hereof and
shall continue until _________ , 1999 (the "Initial Term"), and thereafter shall
continue for additional one-year periods unless and until such time as either
party hereto provides written notice to the other thirty (30) days prior to
the end of the third year of the Initial Term or prior to the end of any such
additional one-year period (such additional one-year periods, together with
the Initial Term, the "Employment Term"). Upon any termination of Executive's
employment hereunder (other than a Termination Without Good Reason or a
Termination for Cause), Executive shall be retained as a consultant to
Employer until all of the stock options described in Section 6(c), and any
other stock options which may have been granted to Executive, have fully
vested, upon acceleration or otherwise.
6. Compensation. Employer shall pay to Executive, as compensation for the
services agreed to be rendered by Executive hereunder, the following:
(a) Base Salary. During the Employment Term, Employer shall pay to
Executive a salary of $250,000 per annum payable in British pounds
sterling; provided, that the amount of such base salary shall be reviewed
and may be adjusted by Employer annually during the Employment Term in
light of the conditions then existing and the services then being rendered
by Executive, in which case Executive's base salary shall be such higher
amount as may be determined by Employer (such annual base salary, as in
effect from time to time, being referred to herein as the "Base Salary").
The Base Salary shall be payable monthly at the exchange rate prevailing at
the date of each monthly payment, less appropriate deductions for federal,
state and local income taxes, FICA contributions and any other deductions
required by law or authorized by Executive.
(b) Annual Performance Bonus. In addition to the Base Salary, Executive
shall be eligible to receive an annual performance bonus (the "Annual
Bonus") for each year of service (or any part thereof in the event of
termination of Executive's employment hereunder (other than a Termination
Without Good Reason or a Termination for Cause), in which case any Annual
Bonus shall be prorated for such partial year) during the Employment Term
(each such year or any partial such year referred to as an "Annual Bonus
Period"),
B-2
<PAGE>
to the maximum extent of eligibility permitted to executive officers, or if
no such bonus is permitted, in such amount, if any, as may be determined by
the Board in its discretion. Each Annual Bonus shall be payable in British
pounds sterling at the exchange rate prevailing at the date of payment
which shall be in accordance with Employer's normal annual bonus payment
schedule, less appropriate deductions for federal, state, and local income
taxes, FICA contributions and any other deductions required by law or
authorized by Executive.
(c) Options. Concurrently herewith, the Compensation Committee of the
Board of Employer shall grant to Executive, pursuant to Employer's 1991
Stock Option Plan, options to acquire 200,000 shares of Employer's common
stock at an exercise price equal to the fair market value of the underlying
shares of common stock on the date of such grant, 25% of which shall vest
on each anniversary of the date of grant over a period of four years (the
"Options), subject to Executive's continuous employment or consultancy with
Employer pursuant hereto.
(d) Payment of Additional Amount. Employer shall pay to Executive, for so
long as Executive is not a resident of the United States, as additional
payments, such amounts as may be necessary in order that every net payment
of Executive's salary, bonus or other payment, after deducting or
withholding for or on account of any present or future tax, assessment or
other governmental charge imposed upon, or as a result of, such payment by
the government of the United States or any state thereof or any political
subdivision or taxing authority of or in the United States, will not be
less than (x) the gross amount provided for herein, as may be adjusted by
the Board of Directors pursuant hereto, then due and payable minus (y) the
amount of income taxes payable by Executive or required to be deducted or
withheld for or on account of any present or future tax, assessment or
other governmental charge.
7. Benefits. During the Employment Term, Executive shall receive benefits,
in England, including, but not limited to (a) life insurance equal to four
times Executive's Base Salary, (b) medical insurance for Executive and his
family, (c) home telephone for business and private use, (d) company car for
business and private use, including fuel, (e) continuation of pension plan
benefits, including employer contributions based on actuarials, (f) business
class travel, and (g) all benefits offered to other executive officers of the
Employer to the maximum extent so offered.
8. Expenses. During the Employment Term, Employer shall reimburse Executive
for all reasonable travel, entertainment and other expenses incurred or paid
by Executive in performing his duties and functions hereunder, upon
Executive's submission of reasonable documentation thereof.
9. Vacations. In addition to such holidays, sick leave and personal time off
as is allowed under the policies of Employer to management generally,
Executive shall be entitled during each twelve-month period during the
Employment Term to twenty-four (24) days of vacation and all statutory bank
holidays of England, with full pay. The duration of such vacations and the
time or times when they shall be taken will be determined by Executive in
consultation with Employer.
10. Termination.
(a) Death. The Employment Term will terminate automatically in the event
of Executive's death. Upon such termination, Executive will be entitled to
receive the payments prescribed by subsection 10(c)(iii).
(b) Disability. If Executive becomes Disabled, Employer may elect to give
written notice of termination to Executive, which notice will specify the
date of termination. Upon such termination, Executive will be released from
any duties and obligations hereunder (except as set forth in Section 11)
and Executive will be entitled to receive the payments prescribed by
subsection 10(c)(i). "Disabled" as used in this Agreement means the
inability of Executive substantially to perform his duties for a period of
180 consecutive days or for a total of 180 days or more in any 360-day
period as a result of a physical or mental illness, all as determined in
good faith and on a reasonable basis by the Board. The Board will be deemed
to have acted in good faith only if it acts in reliance on the advice of at
least two physicians reasonably believed by the Board to be competent in
such matters.
B-3
<PAGE>
(c) Termination For Cause or Without Good Reason. The Employment Term may
be terminated by a Termination For Cause or a Termination Without Good
Reason. Upon either such termination, Executive will be released from any
duties and obligations under this Agreement (except as set forth in Section
11) and Executive will be entitled to receive the payments prescribed by
subsection 10(e)(ii). Executive will not be entitled to any other payment
in the event of a Termination For Cause or a Termination Without Good
Reason other than any payment prescribed by Section 10(c)(ii) relating to
the period before the Effective Date of Termination.
(d) Termination Without Cause or For Good Reason. The Employment Term
will be terminated by a Termination Without Cause or a Termination For Good
Reason. Upon either such termination, Executive will be released from any
duties under this Agreement (except as set forth in Section 11) and
Executive will be entitled to receive the payments prescribed by subsection
(10(e)(i).
(e) Payment Upon Termination. If the Employment Term is terminated before
the third anniversary of the date of this Agreement, in addition to any
rights Executive may have with respect to payments, if any, pursuant to
Section 6, Employer will pay to Executive the following compensation which
when paid will be deemed to be paid in final settlement of any claims in
connection with such termination Executive may have against Employer or any
Affiliate of Employer, and after such payments are made, Employer and its
Affiliates will have no liability or obligation of any kind to Executive in
connection with such termination:
(i) Payment Upon Termination Without Cause or For Good Reason. If a
Termination Without Cause or a Termination For Good Reason has
occurred, or if Executive becomes Disabled, Executive will be entitled
to receive his Base Salary (at the rate of effect at the Effective Date
of Termination) through the remainder of the Employment Term (which,
for purposes of this Section 10(e)(i), shall not be less than one
year), without setoff or reduction in respect of such amounts, if any,
earned by Executive from other employment after the Effective Date of
Termination either, at Executive's election, in a lump sum payment or
in the same manner as paid prior to the Effective Date of Termination
and Executive shall receive all the benefits to which he is entitled
pursuant to clauses (a), (b) and (e) of Section 7 through the remainder
of the Employment Term.
(ii) Payment Upon Termination For Cause or Without Good Reason. If a
Termination For Cause or a Termination Without Good Reason has
occurred, Employer will pay to Executive his Base Salary (as in effect
on the Effective Date of Termination) and other benefits, including
accrued vacation pay, (without setoff or reduction in respect of such
amounts) to which Executive is entitled pursuant to this Agreement
through the Effective Date of Termination.
(iii) Payment Upon Termination in the Event of Death. In the case of
a termination of this Agreement upon Executive's death, Executive's
estate shall be entitled to receive his Base Salary (at the rate in
effect on the date of death) through the end of the month in which the
Effective Date of Termination occurs and other benefits including those
specified in Section 7 hereof through the end of the month in which the
Effective Date of Termination occurs and accrued vacation pay (all
without setoff or reduction in respect of such amounts).
(f) Effective Date of Termination. The "Effective Date of Termination" of
Executive's employment will be: (i) in the case of a Termination Without
Cause, on the date specified in a notice given by Employer to Executive or,
if no date is specified, on the date such notice is given; (ii) in the case
of a Termination Without Good Reason, on the date specified in a notice
given by Executive to Employer or, if no date is specified, on the date
such notice is given; (iii) in the case of a Termination For Good Reason,
the date notice of termination is given by Executive; or (iv) in the case
of a Termination For Cause, the date notice of termination is given by
Employer; (v) in the case of Executive's death, the date of death; and (vi)
in case Executive is determined to be Disabled, the date the Board
determines that Executive is Disabled.
11. Confidentiality. During the Employment Term, Executive will not use for
his own advantage or disclose any proprietary or confidential information
relating to the business operations or properties of Employer,
B-4
<PAGE>
any Affiliate of Employer or any of their respective customers, suppliers,
landlords, licensors or licensees. Upon the expiration or termination of the
Employment Term, Executive will surrender and deliver to Employer all
documents and information of every kind relating to or connected with Employer
and its Affiliates and their respective businesses, customers, suppliers,
landlord, licensors and licensees. The foregoing confidential information
provisions shall not apply to information which: (i) is or becomes publicly
known through no wrongful act of the Executive; (ii) is rightfully received
from any third party without restriction and without breach by Executive of
this Employment Agreement; or (iii) is independently developed by Executive
after the term of his employment hereunder or is independently developed by a
competitor of Employer at any time. The provisions of this Section 11 shall
survive the expiration and/or termination of this Employment Agreement for a
period of two years from the Effective Date of Termination.
12. Non-Compete. During the Noncompetition Term (as defined below) Executive
will not directly or indirectly engage in competition with Employer by being
associated in any capacity (whether as employee, owner, consultant, agent or
otherwise) with any person or entity that sells or offers to sell any products
or services which are in the same line of business as the Business and which
directly compete in any area in the world where the Employer's products or
services are offered or sold by Employer. The foregoing sentence shall not
preclude the ownership by Executive of 10% or less of any class of security of
any issuer which is registered pursuant to the Securities Exchange Act of
1934, as amended, or which is listed on the London Stock Exchange. As used
herein, "Noncompetition Term" means the period of Executive's employment with
Employer and for such period after an Effective Date of Termination during
which Executive continues to receive any payments equal to his Base Salary
pursuant to subsection 10(e)(i) above.
13. Arbitration. Any dispute or controversy arising out of or relating to
this Agreement or any claimed breach hereof shall be settled, at the request
of either party, by an arbitration proceeding conducted in accordance with the
rules of the American Arbitration Association ("AAA"), with the award
determined to be appropriate by the arbitrator therein to be final, non-
appealable and binding on the parties hereto, and with judgment upon such
award as is rendered in any such arbitration proceeding available for entry
and enforcement in any court having jurisdiction of the parties hereto. The
arbitrator shall be an impartial arbitrator qualified to serve in accordance
with the rules of the AAA and shall be reasonably acceptable to each of the
Employer and the Executive. If no such acceptable arbitrator is so appointed
within fifteen (15) days after the initial request for arbitration of such
disputed matter, each of the parties promptly shall designate a person
qualified to serve as an arbitrator in accordance with the rules of the AAA,
and the two persons so designated promptly shall select the arbitrator from
among those persons qualified to serve in accordance with the rules of the
AAA. The arbitration shall be held in the State of California in the United
States at the time of the initiation of any such proceedings, or in such other
place as may be agreed upon at the time by the parties. The expenses of the
arbitration proceeding shall be borne by Employer.
14. Indemnification.
(a) Employer shall indemnify Executive to the fullest extent permitted by
the Articles of Incorporation and Bylaws of Employer as in effect on the
date hereof (or if such Articles of Incorporation or Bylaws are amended to
broaden such indemnification, then such broadened indemnification terms
shall apply) against all costs, expenses, liabilities and losses
(including, without limitation, attorneys' fees, judgments, penalties and
amounts paid in settlement) reasonably incurred by Executive in connection
with any action, suit or proceeding, whether civil, criminal,
administrative or investigative in which Executive is made, or is
threatened to be made, a party to or a witness in such action, suit or
proceeding by reason of the fact that he is or was an officer, director,
consultant, agent or Executive of the Employer or of any of Employer's
Affiliates or is or was serving as an officer, consultant, director,
member, Executive, trustee, agent or fiduciary of any other entity at the
request of the Employer (a "Proceeding"). Employer shall maintain policies
for insurance coverage of Executive to the fullest extent available to any
other director or officer of Employer, which shall include director and
officer insurance and insurance coverage relating to acts of Employer prior
to the commencement of Executive's employment hereunder. Employer shall
enter into an
B-5
<PAGE>
indemnification agreement with Executive to the same extent Employer has
entered into such agreements with other executive officers of Employer.
(b) The indemnification provided to Executive hereunder is in addition
to, and not in lieu of, any additional indemnification to which he may be
entitled pursuant to Employer's Articles of Incorporation or Bylaws, any
insurance maintained by Employer from time to time providing coverage to
Executive and other officers and directors of Employer, or any separate
written agreement with Executive. The provisions of this Section 14 shall
survive any termination of this Agreement.
15. Amendment and Modification. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof. Such to
applicable law and upon the consent of the Board of Employer, this Agreement
may be amended, modified and supplemented by written agreement of Employer and
Executive with respect to any of the terms contained herein.
16. Waiver of Compliance. Any failure of either party to comply with any
obligation, covenant, agreement or condition on its part contained herein may
be expressly waived in writing by the other party, but such waiver or failure
to insist upon strict compliance shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure. Whenever this Agreement
requires or permits consent by or on behalf of any party, such consent shall
be given in writing.
17. Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to
have been duly given if delivered by hand, sent by registered or certified
U.S. Mail, postage prepaid, commercial overnight courier service or
transmitted by facsimile and shall be deemed served or delivered to the
addressee at the address for such notice specified below when hand delivered,
upon confirmation of sending when sent by facsimile, on the second day after
being sent when sent by overnight delivery or ten (10) days after having been
mailed, certified or registered mail with postage prepaid:
If to Employer: If to Executive:
Plasma & Materials Technologies, Inc. Nigel Wheeler
9255 Deering Avenue Ringland Way
Chatsworth, CA 91311 Newport, Gwent NP62TA
Attention: Chief Executive Officer Facsimile: 011-44-1-633-414-040
Facsimile: (818) 886-8756
or, in the case of either such party, to such substitute address as such party
may designate from time to time for purposes of notices to be given to such
party hereunder, which substitute address shall be designated as such in a
written notice given to the other party addressed as aforesaid.
18. Assignment. This Agreement shall inure to the benefit of Executive and
Employer and be binding upon the successors and general assigns of Employer.
This Agreement shall not be assignable without consent of the parties hereto
which consent may be given or withheld in the sole discretion of the parties
hereto.
19. Enforceability. In the event it is determined that this Agreement is
unenforceable in any respect, it is the mutual intent of the parties that it
be construed to apply and be enforceable to the maximum extent permitted by
applicable law.
20. Applicable Law. This Agreement shall be construed and enforced in
accordance with the laws applicable to contracts executed, delivered and fully
to be performed in the State of California.
B-6
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement to be effective
on and as of the day and year first above written.
EMPLOYER:
PLASMA & MATERIALS TECHNOLOGIES,
INC.
By: _________________________________
Name:
Title:
EXECUTIVE:
_____________________________________
Nigel Wheeler
B-7
<PAGE>
EXHIBIT C
[FORM OF OPINION OF RIORDAN & MCKINZIE]
, 1996
The Shareholders parties to that
certain Share Purchase Agreement
dated July , 1996
Re: Share Purchase Agreement
Ladies and Gentlemen:
This firm has acted as counsel to Plasma & Materials Technologies, Inc., a
California corporation ("Buyer"), in connection with that certain Share
Purchase Agreement dated as of July , 1996 (the "Share Purchase Agreement")
among Buyer, Electrotech Ltd., a corporation organized under the laws of
England ("ET"), Electrotech Equipments Ltd., a corporation organized under the
laws of England ("ETE," and sometimes collectively with ET, the "Companies"),
Christopher D. Dobson, an individual, F.S. Keeble, an individual, and K.N.K.
Willmott, as Managing Trustee of the Willmott Settlements (collectively, the
"Shareholders"). This opinion is delivered to you in compliance with Section
7.2(i) of the Share Purchase Agreement. Unless otherwise defined herein,
capitalized terms used herein shall have the meanings given to them in the
Share Purchase Agreement.
In rendering this opinion, we have examined originals or copies, certified
or otherwise identified to our satisfaction, of such corporate records,
certificates of public officials, documents and other instruments as we have
deemed necessary or appropriate to enable us to express the opinions set forth
below. In our examination, we have assumed the authenticity of all documents
submitted to us as originals and the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies. In
rendering this opinion, when the facts were not independently established or
verified by us, we have relied upon certificates, statements, representations
and opinions of officers, other representatives of the Buyer, public officials
and others.
This Opinion is subject to all matters contained or referred to in the Buyer
Disclosure Letter.
We have investigated such questions of law as we have deemed relevant and
necessary in connection with rendering this opinion. We are attorneys duly
admitted and qualified to practice only in the State of California, and,
except as noted below in this paragraph, we are opining herein only as to the
effect on the subject transactions of United States federal law and the laws
of the State of California. With respect to all matters of the laws of England
addressed by the last sentence of paragraph 2 and by paragraphs 3 and 4, we
are, with your consent, opining in reliance on the opinion of Reynolds Porter
Chamberlain, a copy of which is attached hereto. We are not opining on, and
assume no responsibility as to the applicability of, or the effect on any of
the matters covered herein of, the laws of any other jurisdiction.
Based on the foregoing and subject to the qualifications, exceptions and
limitations set forth herein, we are of the opinion that:
1. To our best knowledge, the Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of
California, has all corporate power and authority and all material
governmental licenses, authorizations, consents and approvals required to
carry on its business as now conducted and is duly qualified to do business
as a foreign entity and is in good standing within such states of the
United States of America where the character of the property owned or
leased by it, or the nature of its activities, makes such qualification
necessary, except where the failure to be so qualified could not reasonably
be expected to have a Buyer Material Adverse Effect.
C-1
<PAGE>
2. The execution and delivery of the Share Purchase Agreement by the
Buyer and the consummation of the transactions contemplated thereby have
been duly authorized by the Board of Directors and shareholders of the
Buyer. The Share Purchase Agreement has been duly executed and delivered by
the Buyer and constitutes the valid and binding obligations of the Buyer,
enforceable against it in accordance with its terms.
3. The Buyer Shares issued to the Shareholders pursuant to the Share
Purchase Agreement have been duly authorized, validly issued and are fully
paid and non-assessable and were not issued in violation of any preemptive
rights.
4. To our best knowledge, the execution, delivery and performance of the
Share Purchase Agreement and the consummation by the Buyer of the
transactions contemplated thereby will not (a) contravene or constitute a
default under or give rise to a right of termination, cancellation or
acceleration of any right or obligation of the Buyer or to a loss of any
benefit to which the Buyer is entitled under any provision of
(i) applicable law or regulation, (ii) the Articles of Incorporation or
Bylaws of the Buyer, or (iii) to the best of our knowledge, any agreement,
contract, instrument, plan, lease, judgment, injunction, order, decree,
award or other instrument binding upon the Buyer or (b) to our best
knowledge, result in the creation or imposition of any Encumbrances on any
asset of the Buyer, except for any such contravention, default,
termination, cancellation, acceleration, loss or Encumbrance that could not
reasonably be expected, individually or in the aggregate, to have a Buyer
Material Adverse Effect.
5. To our best knowledge, there are no claims, actions, proceedings or
investigations pending or threatened involving or affecting the Buyer or
any of its properties or assets before any court or governmental or
regulatory authority or body in which an adverse determination could
reasonably be expected to have a Buyer Material Adverse Effect or that in
any manner challenges or seeks to prevent, enjoin, alter or materially
delay any of the transactions contemplated by the Share Purchase Agreement.
To our best knowledge, neither the Buyer nor any of its property or assets
is subject to any order, judgment, injunction or decree that could
reasonably be expected to have a Buyer Material Adverse Effect.
The opinion expressed in paragraph 2 above is qualified to the extent that
the validity, binding nature or enforceability of any term of the Share
Purchase Agreement may be limited or otherwise affected by (a) applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
similar laws affecting creditors' rights generally, and (b) general principles
of equity, including (without limitation) concepts of materiality,
reasonableness, good faith and fair dealing, and the possible unavailability
of specific performance or injunctive relief (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
Furthermore, such opinion is limited with respect to any indemnity provisions
contained in the Share Purchase Agreement to the extent that the enforcement
thereof may be limited by public policy considerations.
This opinion letter is intended solely for your benefit in connection with
the transactions contemplated by the Share Purchase Agreement and may not be
relied upon by you for any other purpose, or relied upon by any other person
for any purpose without our prior written consent.
Our liability in respect of the above opinion shall not in any event exceed
the sum of Fifteen Million Pounds Sterling ((Pounds)15,000,000) inclusive of
all costs, demands, expenses, consequential damages and interest, and any such
liability shall cease on the expiration of one year from the date of Closing.
Very truly yours,
C-2
<PAGE>
EXHIBIT D
REGISTRATION AGREEMENT
THIS REGISTRATION AGREEMENT (this "Agreement") is made and entered into as
of , 1996 by and between Plasma & Materials Technologies, Inc., a
California corporation (the "Company"), and Christopher D. Dobson, an
individual (the "Investor"). This Agreement is entered into pursuant to that
certain Share Purchase Agreement dated as of July 17, 1996 (the "Share
Purchase Agreement") by and among the Company, Electrotech Limited,
Electrotech Equipments Limited, the Investor and certain other parties.
1. Definitions. For purposes of this Agreement:
(a) The term "register," "registered," and "registration" refer to a
registration effected by preparing and filing with the Securities and
Exchange Commission (the "SEC") a registration statement or similar
document in compliance with the Securities Act of 1933, as amended (the
"Securities Act"), and the declaration or ordering of effectiveness of such
registration statement or document; and
(b) The term "Registrable Securities" means the shares of the
Company's Common Stock issued to the Investor pursuant to the Share
Purchase Agreement, and any Common Stock of the Company issued as (or
issuable upon the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution with respect
to, or in exchange for or in replacement of, such Common Stock.
2. Request for Registration.
(a) If the Company shall receive at any time after the first anniversary
of this Agreement, a written request from the Investor that the Company
file a registration statement under the Securities Act covering the
registration of any Registrable Securities (provided that the aggregate
amount of such Registrable Securities would exceed the amount specified in
paragraph (e) of Rule 144 under the Securities Act), then the Company shall
file as soon as practicable, and in any event within 90 days of the receipt
of such request, a registration statement under the Securities Act covering
all Registrable Securities which the Investor so requests to be registered.
(b) The Company is obligated to effect only three such registrations
pursuant to this Section 2; provided, however, that the Company shall not
be obligated to effect any such registration if the Company has, within the
six months preceding the date of receipt of the request for such
registration, already effected one such registration.
(c) Notwithstanding the foregoing, if the Company shall furnish to the
Investor a certificate signed by the President or Chief Executive Officer
of the Company stating that, in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company
and its shareholders for such registration statement to be filed and it is
therefore essential to defer the filing of such registration statement, the
Company shall have the right to defer such filing for a period of not more
than an additional 120 days after receipt of the request of the Investor
referred to in Section 2(a) above; provided, however, that the Company may
not utilize this right more than once in any 12-month period.
3. Company Registration. If (but without any obligation to do so) the
Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Investor) any of its
stock or other securities under the Securities Act in connection with the
public offering, on or after the first anniversary of this Agreement, of such
securities solely for cash (other than a registration relating solely to the
sale of securities to participants in a Company stock option, purchase or
similar benefit plan or an SEC Rule 145 transaction), the Company shall, at
such time, promptly give the Investor written notice of such registration.
Upon the written request of the Investor given within 30 days after the
effectiveness of such notice by the Company, the Company shall, subject to the
provisions of Section 8, cause to be registered under the Securities Act all
of the Registrable Securities that the Investor has requested to be
registered. In the event the Investor determines not to include any or all of
the Registrable Securities held by the Investor in any such registration, the
Investor shall continue to have the right to include such Registrable
Securities in any subsequent registration, pursuant to the terms of this
Section 3.
D-1
<PAGE>
4. Obligations of the Company. Whenever required under this Agreement to
effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with respect
to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the
Investor, keep such registration statement effective for up to 120 days.
(b) Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of
the Securities Act with respect to the disposition of all securities
covered by such registration statement.
(c) Furnish to the Investor such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of
the Securities Act, and such other documents as he may reasonably request
in order to facilitate the disposition of his Registrable Securities.
(d) Use its best efforts to register and qualify the securities covered
by such registration statement under such other securities or Blue Sky laws
of such jurisdictions as shall be reasonably requested by the Investor,
provided that the Company shall not be required in connection therewith or
as a condition thereto to qualify to do business or to file a general
consent to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. The
Investor shall also enter into and perform its obligations under such an
agreement.
(f) Notify the Investor at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing.
(g) Furnish, at the request of the Investor, on the date that such
Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to this Agreement, if such
securities are being sold through underwriters, or, if such securities are
not being sold through underwriters, on the date that the registration
statement with respect to such securities becomes effective, (i) an
opinion, dated such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily
given to underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to the Investor, and (ii) a letter dated such
date, from the independent certified public accountants of the Company, in
form and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the Investor.
5. Furnish Information. It shall be a condition precedent to the obligations
of the Company to take any action pursuant to this Agreement that the Investor
shall furnish to the Company such information regarding himself, the
Registrable Securities held by him, and the intended method of disposition of
such securities as shall be required to effect the registration of the
Registrable Securities.
6. Expenses of Demand Registrations. All expenses other than underwriting
discounts and commissions incurred by the Company in connection with
registrations, filings or qualifications pursuant to Section 2, including
(without limitation) all registration, filing and qualification fees,
printers' and accounting fees, and fees and disbursements of counsel for the
Company, shall be borne by the Company.
7. Expenses of Company Registration. The Company shall bear and pay all
expenses incurred by the Company in connection with any registration, filing
or qualification of Registrable Securities with respect to the registrations
pursuant to Section 3, including (without limitation) all registration, filing
and qualification fees, printers' and accounting fees and fees and
disbursements of counsel for the Company, but excluding underwriting discounts
and commissions relating to Registrable Securities.
D-2
<PAGE>
8. Underwriting Requirements. In connection with any offering involving an
underwriting of shares being issued by the Company, the Company shall not be
required under Section 3 to include any of the Investor's securities in such
underwriting unless the Investor accepts the terms of the underwriting as
agreed upon between the Company and the underwriters selected by the Company,
and then only in such quantity as will not, in the opinion of the
underwriters, jeopardize the success of the offering by the Company. If the
total amount of securities, including Registrable Securities, requested by
stockholders to be included in such offering exceeds the amount of securities
sold other than by the Company that the underwriters reasonably believe
compatible with the success of the offering, then the Company shall be
required to include in the offering only that number of such securities,
including Registrable Securities, which the underwriters believe will not
jeopardize the success of the offering (the securities so included to be
apportioned pro rata among the selling shareholders according to the total
amount of securities entitled to be included therein owned by each selling
shareholder or in such other proportions as shall mutually be agreed to by
such selling shareholders), provided that any shares being sold by the
Investor in exercising a demand registration right granted in Section 2, or by
any other shareholder exercising a demand registration right similar to that
granted in Section 2, shall not be excluded from such offering.
9. Delay of Registration. The Investor shall not have any right to obtain or
seek an injunction restraining or otherwise delaying any registration as the
result of any controversy that might arise with respect to the interpretation
or implementation of this Agreement.
10. Indemnification. In the event any Registrable Securities are included in
a registration statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless the Investor, any underwriter (as defined in the Securities Act)
for the Investor and each person, if any, who controls such Investor or
underwriter within the meaning of the Securities Act or the Securities
Exchange Act of 1934, as amended (the "Exchange Act") against any losses,
claims, damages or liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively a "violation"):
(i) any untrue statement or alleged untrue statement of a material fact
contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein
a material fact required to be stated therein, or necessary to make the
statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any Rule or regulation promulgated under the Securities
Act, the Exchange Act or any state securities law; and, within 30 days
after the Company receives a written request containing a description in
reasonable detail of the expenses incurred, the Company will advance to the
Investor and each underwriter or controlling person any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, whether prior
to or after final disposition of any claim or action (unless there has been
a final determination that such Investor, underwriter or controlling person
is not entitled to be indemnified for such expenses); provided, that at the
time of such advance, such Investor, underwriter or controlling person
shall agree to repay the amounts advanced if it is ultimately determined
that he or she is not entitled to be indemnified pursuant to the terms of
this Agreement; provided, however, that the indemnity agreement contained
in this Section 10(a) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Company (which consent shall not be
unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a violation which occurs in reliance upon
and in conformity with written information furnished expressly for use in
connection with such registration by any such Investor, underwriter or
controlling person.
(b) To the extent permitted by law, the Investor will indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the registration statement, each person, if any, who controls the
Company within the meaning of the Securities Act, and any underwriter,
against any losses,
D-3
<PAGE>
claims, damages or liabilities (joint or several) to which the Company or
any such director, officer, controlling person, or underwriter may become
subject, under the Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon any violation,
in each case to the extent (and only to the extent) that such violation
occurs in reliance upon and in conformity with written information
furnished by the Investor expressly for use in connection with such
registration; and the Investor will reimburse as incurred any legal or
other expenses reasonably incurred by the Company or any such director,
officer, controlling person or underwriter in connection with investigating
or defending any such loss, claim, damage, liability, or action; provided,
however, that the indemnity agreement contained in this Section 10(b) shall
not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of
the Investor, which consent shall not be unreasonably withheld; provided,
that, in no event shall any indemnity under this Section 10(b) exceed the
net proceeds from the offering received by the Investor.
(c) Promptly after receipt by an indemnified party under this Section 10
of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to
be made against any indemnifying party under this Section 10, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with
counsel mutually satisfactory to the parties; provided, however, that an
indemnified party (together with all other indemnified parties that may be
represented without conflict by one counsel) shall have the right to retain
its own counsel, with the fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel retained
by the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend
such action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 10, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under
this Section 10.
(d) The obligations of the Company and the Investor under this Section 10
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Agreement, and otherwise.
(e) If the indemnification provided for in this Section 10 is held by a
court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable
by such indemnified party as a result of such loss, liability, claim,
damage or expense in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the statements or
omissions that resulted in such loss, liability, claim, damage or expense
as well as any other relevant equitable considerations. The relative fault
of the indemnifying party and of the indemnified party shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the
indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in
conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
11. Termination of Registration Rights. The Company's obligations pursuant
to this Agreement shall terminate when the Investor can sell all of the
Registrable Securities pursuant to Rule 144 under the Securities Act during
any 90-day period.
D-4
<PAGE>
13. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, without regard to
principles of conflicts of laws.
14. Entire Agreement. This Agreement is intended by the parties hereto as a
final expression of their agreement and intended to be a complete and
exclusive statement of the parties hereto in respect of the subject matter
contained herein.
15. Notices. Unless otherwise provided, any notice required or permitted
under this Agreement shall be given in writing and shall be deemed effective
when given upon personal delivery to the party to be notified or, if sent by
telex or telecopier, upon receipt of the correct answer back, or three
business days after deposit with the United States Post Office, by registered
or certified mail, or upon delivery by Federal Express, DHL or similar
courier, in each case postage and delivery charges prepaid and addressed to
the party to be notified at the address indicated for such party on the
signature page hereof, or at such other address as such party may designate by
ten days' advance written notice to the other parties.
IN WITNESS WHEREOF, the Company, each of the Investors and the Founder have
caused this Agreement to be signed by an officer or partner thereunto duly
authorized, all as of the date first written above.
PLASMA & MATERIALS TECHNOLOGIES,
INC.
By: _________________________________
Name: ___________________________
Title: __________________________
Address: ____________________________
_____________________________________
_____________________________________
_____________________________________
CHRISTOPHER D. DOBSON
Address: ____________________________
_____________________________________
_____________________________________
D-5
<PAGE>
EXHIBIT E
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT ("Agreement") is made as of this day of
, 1996 between Plasma & Materials Technologies, Inc., a California
corporation ("Buyer"), and Christopher D. Dobson ("Shareholder").
R E C I T A L S :
A. Pursuant to a Share Purchase Agreement dated as of July , 1996 (the
"Acquisition Agreement") among Buyer, Shareholder, Electrotech Limited, a
corporation organized and existing under the laws of England ("ET"),
Electrotech Equipments Limited, a corporation organized and existing under the
laws of England ("ETE"; and sometimes collectively with ET, the "Companies")
and the other shareholders of the Companies, Buyer will be acquiring all of
the outstanding capital stock of the Companies and one subsidiary of ETE (the
"Acquisition").
B. The Acquisition Agreement requires that Shareholder enter into a
noncompetition agreement upon the effectiveness of the Acquisition and that
the obligation of Buyer to consummate the Acquisition is conditioned upon the
Shareholder entering into such noncompetition agreement.
C. The parties therefore desire to enter into this Agreement in order to
implement the requirements of the Acquisition Agreement and to confirm in
Buyer the good will of the business of the Companies and all of the benefits
to be derived therefrom.
A G R E E M E N T :
THEREFORE, in consideration of the Acquisition, the consideration to be
received by Shareholder as a result of the Acquisition, the Noncompetition Fee
set forth in Section 1 hereof and the mutual covenants herein contained and
other consideration (the receipt and adequacy of which are hereby acknowledged
by Shareholder), the parties hereby agree as follows:
1. In consideration of the noncompetition covenant of Shareholder hereunder,
the Buyer has paid to Shareholder the cash amount of Five Hundred Thousand
Dollars (US$500,000) (the "Noncompetition Fee") concurrent with the execution
of this Agreement.
2. (a) During the term hereof, Shareholder shall not directly or indirectly
carry on or participate in any business in competition with the Business (as
hereinafter defined) as long as the Business is carried on by the Companies
(or Buyer, any subsidiary or controlled affiliate of Buyer or of the Companies
or any person, corporation, partnership, trust or other organization or entity
deriving title from Buyer or the Companies to the good will of the Business,
all of whom together with Buyer and the Companies are sometimes collectively
called the "Protected Entities"). "Business" means the semiconductor
manufacturing equipment development, production and marketing business of the
Companies as the same exists immediately prior to the Acquisition and as the
same is to be carried on by the Companies immediately after the Acquisition.
This covenant shall extend throughout the following geographic areas:
(i) The United Kingdom;
(ii) The countries of the United States of America, France, Germany and
Japan; and
(iii) Each and every country and territory throughout the world in which
either of the Companies or any of their subsidiaries does business
immediately prior to the Acquisition.
E-1
<PAGE>
(b) The term "directly or indirectly carry on or participate in a
business in competition with the Business" shall include Shareholder,
directly or indirectly, doing any of the following listed acts:
(i) carrying on or engaging in any such business as a principal, or
on his own account, or solely or jointly with others as a director,
officer, agent, employee, consultant or partner, or stockholder or
limited partner owning (of record or beneficially, through a nominee or
otherwise) more than ten percent (10%) of the stock of or equity
interest in, or securities convertible into more than ten percent (10%)
of the stock of or equity interest in, any corporation or limited
partnership; or
(ii) as agent or principal carrying on or engaging in any activities
or negotiations with respect to the acquisition or the disposition of
any such business; or
(iii) lending credit or money for the purpose of establishing or
operating any such business; or
(iv) giving advice to any other person, firm, association or
corporation engaging in any such business; or
(v) lending or allowing his name or reputation to be used in any such
business; or
(vi) allowing his skill, knowledge or experience to be used in any
such business.
(c) The term of this covenant shall extend for a period of three (3)
years commencing upon the effectiveness of the Acquisition.
(d) It is the desired intent of the parties that the provisions of this
Section 2 shall be enforced to the fullest extent permissible under the
laws and public policies applied in each jurisdiction in which enforcement
is sought. Accordingly, to the extent that the covenant hereunder shall be
adjudicated to be invalid or unenforceable in any one such jurisdiction,
this Section 2 shall be deemed amended to delete therefrom or reform the
portion thus adjudicated to be invalid or unenforceable, such deletion or
reformation to apply only with respect to the operation of this Section in
the particular jurisdiction in which such adjudication is made.
3. Upon breach of the covenant contained in Section 2, the Protected
Entities shall be entitled to injunctive relief, both pending litigation and
permanently, as a remedy at law would be inadequate and insufficient.
4. The covenants of Shareholder hereunder shall be construed as and shall be
independent of the covenants, representations, warranties and obligations of
the Shareholder under the Acquisition Agreement or under any agreement or
instrument delivered pursuant to the Acquisition.
5. (a) All notices required or desired to be given hereunder shall be in
writing and signed by the party so giving notice, and shall be effective when
personally delivered or deposited in the United States mail, as certified or
registered mail, return receipt requested, first class postage and fees
prepaid, addressed as set forth below. Any party may from time to time change
such party's address for giving notice by giving notice thereof in the manner
outlined above:
Plasma & Materials Technologies,
Inc.
9255 Deering Avenue
Chatsworth, California 91311
Attention:_________________________
Christopher D. Dobson
Elberton Manor
Elberton, Bristol
Avon B512-3AA, U.K.
(b) Should any party hereto retain counsel for the purpose of enforcing,
or preventing the breach of, any provision hereof, including, but not
limited to, by instituting any action or proceeding in court to enforce any
provision hereof or to enjoin a breach of any provision hereof, or for a
declaration of such party's rights or obligations hereunder, or for any
other judicial remedy, then the prevailing party shall be entitled to be
reimbursed by the losing party for all costs and expenses incurred thereby,
including, but not limited to, attorneys' fees (including costs of appeal).
E-2
<PAGE>
(c) This Agreement shall inure to the benefit of Buyer, the Companies and
their successors and assigns.
(d) The failure by a Protected Entity to enforce any of its rights
hereunder shall not be deemed to be a waiver of such rights, unless such
waiver is in writing and signed by the waiving party, and in the case of
any corporation, approved by its Board of Directors. Waiver of any one
breach shall not be deemed to be a waiver of any other breach of the same
or any other provision hereof. This Agreement can be amended only by a
written agreement executed by each party hereto.
(e) The validity of this Agreement, the construction of its terms and the
determination of the rights and duties of the parties hereto shall be
governed by the internal substantive laws of California.
(f) All pronouns and any variations thereof shall be deemed to refer to
the masculine, feminine, neuter, singular or plural as the identity of the
person, persons, entity or entities may require.
(g) This Agreement contains the sole and entire agreement and
understanding of the parties with respect to the entire subject matter
hereof and any and all prior discussions, negotiations, commitments,
letters of intent, memoranda, writings and understandings related hereto
are hereby superseded.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
PLASMA & MATERIALS TECHNOLOGIES,
INC.
By: _________________________________
Its: ________________________________
_____________________________________
CHRISTOPHER D. DOBSON
E-3
<PAGE>
EXHIBIT F
[FORM OF OPINION OF VEALE WASBROUGH]
, 1996
Plasma & Materials Technologies, Inc.
9255 Deering Avenue
Chatsworth, California 91311
Re: Share Purchase Agreement
Ladies and Gentlemen:
This firm has acted as solicitors to Electrotech Ltd., a corporation
organized under the laws of England ("ET"), Electrotech Equipments Ltd., a
corporation organized under the laws of England ("ETE," and sometimes
collectively with ET, the "Companies"), Christopher D. Dobson, an individual,
F.S. Keeble, an individual, and K.N.K. Willmott, as Managing Trustee of the
Willmott Settlements (collectively, the "Shareholders"), in connection with
that certain Share Purchase Agreement dated as of July , 1996 (the "Share
Purchase Agreement") among Plasma & Materials Technologies, Inc., a California
corporation ("Buyer"), the Companies and the Shareholders. This opinion is
delivered to you in compliance with Section 7.3(e) of the Share Purchase
Agreement. Unless otherwise defined herein, capitalized terms used herein
shall have the meanings given to them in the Share Purchase Agreement.
In rendering this opinion, we have examined originals or copies, certified
or otherwise identified to our satisfaction, of such corporate records,
certificates of public officials, documents and other instruments as we have
deemed necessary or appropriate to enable us to express the opinions set forth
below. In our examination, we have assumed the authenticity of all documents
submitted to us as originals and the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies. In
rendering this opinion, when the facts were not independently established or
verified by us, we have relied upon certificates, statements, representations
and opinions of officers, other representatives of the Company, public
officials and others.
This Opinion is subject to all matters contained or referred to in the
Shareholder Disclosure Letter and the Company Disclosure Letter.
Based on the foregoing and subject to the qualifications, exceptions and
limitations set forth herein, we are of the opinion that:
1. To our best knowledge, each Company and each Subsidiary thereof
incorporated in the United Kingdom (a "U.K. Subsidiary") is a corporation
duly organized, validly existing and in good standing under the laws of
England and Wales, has all corporate power and authority and all material
governmental licenses, authorizations, consents and approvals required to
carry on its business as now conducted and is duly qualified to do business
and is in good standing within the United Kingdom, except where the failure
to be so qualified could not reasonably be expected to have a Company
Material Adverse Effect.
F-1
<PAGE>
2. Save as specified in the Company Disclosure Letter and to our best
knowledge, the shares of each of the Companies' outstanding capital stock
have been duly authorized, validly issued and are fully paid and non-
assessable and were not issued in violation of any preemptive rights. Such
shares are owned of record and, to the best of our knowledge, beneficially
and free of all Encumbrances, by the Shareholders and in the respective
amounts set forth on Exhibit A to the Share Purchase Agreement. To the best
of our knowledge, there are no outstanding subscriptions, options,
warrants, rights, convertible or exchangeable securities or other
agreements, commitments or contingent liabilities on the part of either
Company to issue any additional shares of capital stock or any other equity
securities.
3. The execution and delivery of the Share Purchase Agreement by each
Company and the consummation of the transactions contemplated thereby have
been duly authorized by the Board of Directors of each Company. The Share
Purchase Agreement has been duly executed and delivered by each Company and
each Shareholder and so far as we are aware constitutes the valid and
binding obligations of each Company and each Shareholder, enforceable so
far as we are aware against each Company and each Shareholder in accordance
with its terms.
4. Pursuant to the Share Purchase Agreement and to our best knowledge,
the Shareholders have transferred to the Buyer good and marketable title to
all the issued share capital of the Companies, and ETE has transferred to
the Buyer good and marketable title to all the issued share capital of ET-
US, free and clear of all Encumbrances, assuming that Buyer purchased the
same in good faith and without notice of any adverse claims.
5. So far as we are aware, the execution, delivery and performance of the
Share Purchase Agreement and the consummation by each Company and by each
Shareholder of the transactions contemplated thereby will not (a)
contravene or constitute a default under or give rise to a right of
termination, cancellation or acceleration of any right or obligation of
either Company or any U.K. Subsidiary or to a loss of any benefit to which
such Company or such Subsidiary is entitled under any provision of (i)
applicable law or regulation, (ii) the Memorandum and Articles of either
Company or any U.K. Subsidiary or (iii) to the best of our knowledge, any
agreement, contract, instrument, plan, lease, judgment, injunction, order,
decree, award or other instrument binding upon either Company or any U.K.
Subsidiary or (b) to the best of our knowledge, result in the creation or
imposition of any Encumbrances on any asset of either Company or any U.K.
Subsidiary, except for any such contravention, default, termination,
cancellation, acceleration, loss or Encumbrance that could not reasonably
be expected, individually or in the aggregate, to have a Company Material
Adverse Effect.
6. To the best of our knowledge, there are no claims, actions,
proceedings or investigations pending or threatened involving or affecting
either Company or any U.K. Subsidiary or any of their properties or assets,
or any Shareholder, before any court or governmental or regulatory
authority or body in which an adverse determination could reasonably be
expected to have a Company Material Adverse Effect or that in any manner
challenges or seeks to prevent, enjoin, alter or materially delay any of
the transactions contemplated by the Share Purchase Agreement. To the best
of our knowledge, neither Company nor any U.K. Subsidiary nor any property
or assets or any of them nor any Shareholder is subject to any order,
judgment, injunction or decree that could reasonably be expected to have a
Company Material Adverse Effect.
The opinion expressed in paragraph 3 above is qualified to the extent that
the validity, binding nature or enforceability of any term of the Share
Purchase Agreement may be limited or otherwise affected by (a) applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
similar laws affecting creditors' rights generally, and (b) general principles
of equity, including (without limitation) concepts of materiality,
reasonableness, good faith and fair dealing, and the possible unavailability
of specific performance or injunctive relief (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
Furthermore, such opinion is limited with respect to any indemnity provisions
contained in the Share Purchase Agreement to the extent that the enforcement
thereof may be limited by public policy considerations.
F-2
<PAGE>
This opinion letter is intended solely for your benefit in connection with
the transactions contemplated by the Share Purchase Agreement and may not be
relied upon by you for any other purpose, or relied upon by any other person
for any purpose without our prior written consent.
Our liability in respect of the above opinion shall not in any event exceed
the sum of Fifteen Million Pounds Sterling ((Pounds)15,000,000) inclusive of
all costs, demands, expenses, consequential damages and interest, and any such
liability shall cease on the expiration of one year from the date of Closing.
Very truly yours,
F-3
<PAGE>
ANNEX B
[LETTERHEAD OF SALOMON BROTHERS INC]
July 5, 1996
Board of Directors
Plasma & Materials Technologies, Inc.
9255 Deering Avenue
Chatsworth, California 91311
Dear Sirs:
You have requested our opinion, as investment bankers, as to the fairness,
from a financial point of view, to Plasma & Materials Technologies, Inc. (the
"Company") of the consideration to be paid by the Company in connection with
the proposed acquisition (the "Acquisition") of Electrotech Ltd. ("ET") and
Electrotech Equipments Ltd. ("ETE" and collectively with ET, "Electrotech")
pursuant to the Share Purchase Agreement dated as of July 17, 1996 (the "Share
Purchase Agreement"), among the Company, ET, ETE, and the shareholders named
therein. Under the Share Purchase Agreement, the Company will acquire 100% of
the outstanding capital stock of Electrotech for an aggregate of $75,000,000
(reduced by certain amounts to be otherwise paid by the Company pursuant to the
Share Purchase Agreement) and 5,600,000 shares of the Company's Common Stock.
In arriving at our opinion, we have reviewed the Share Purchase Agreement and
its related exhibits. We have also reviewed certain publicly available business
and financial information relating to the Company, as well as certain other
information, including financial projections, provided to us by the Company and
Electrotech. We have discussed the past and current operations and financial
condition and prospects of the Company and Electrotech with members of senior
management of the Company and Electrotech, respectively. We have also
considered such other information, financial studies, analyses, investigations
and financial, economic, market and trading criteria which we deemed relevant.
In arriving at our opinion, we have assumed and relied on the accuracy and
completeness of the information reviewed by us for the purpose of this opinion,
and we have not assumed any responsibility for independent verification of such
information or for any independent evaluation or appraisal of the assets of the
Company or Electrotech. With respect to the Company's and Electrotech's
financial projections, we have assumed that they have been reasonably prepared
on bases reflecting the best currently available estimates and judgments of the
Company's or Electrotech's, as the case may be, management as to the future
financial performance of the Company or Electrotech, as the case may be, and we
express no opinion with respect to such forecasts or the assumptions on which
they are based. We have also assumed that the proposed Acquisition would be
accounted for as a purchase in accordance with generally accepted accounting
principles. Our opinion is necessarily based upon business, market, economic
and other conditions as they exist on, and can be evaluated as of, the date of
this letter and does not address the Company's underlying business decision to
effect the proposed Acquisition or constitute a recommendation to any holder of
the Company's Common Stock as to how such holder should
B-1
<PAGE>
[LETTERHEAD OF SALOMON BROTHERS INC]
vote with respect to the proposed Acquisition. Our opinion as expressed below
does not imply any conclusion as to the likely trading range for the Company's
Common Stock following the consummation of the proposed Acquisition, which may
vary depending on, among other factors, changes in interest rates, dividend
rates, market conditions, general economic conditions and other factors that
generally influence the price of securities.
We have acted as financial advisor to the Board of Directors of the Company
in connection with the proposed Acquisition and will receive a fee for our
services, a portion of which has been paid, a portion of which is payable upon
the initial filing of the Company's proxy statement and the remaining portion
of which is payable upon the consummation of the proposed Acquisition. We have
from time to time provided significant investment banking and financial
advisory services to the Company, including, but not limited to, participating
as managing underwriter in the initial public offering of the Company's Common
Stock in August 1995, for which we received substantial compensation. We will
also act as placement agent with respect to the Company's proposed offering of
convertible subordinated debt securities to be issued to partially finance the
proposed Acquisition. In the ordinary course of our business, we actively trade
the equity securities of the Company for our own account and for the accounts
of customers and, accordingly, may at any time hold a long or short position in
such securities.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the consideration to be paid by the Company in connection with the
proposed Acquisition is fair, from a financial point of view, to the Company.
Very truly yours,
SALOMON BROTHERS INC
B-2
<PAGE>
ANNEX C
PLASMA & MATERIALS TECHNOLOGIES, INC.
1991 STOCK OPTION PLAN
Section 1. Description of Plan. This is the 1991 Stock Option Plan (the
"Plan") of Plasma & Materials Technologies, Inc., a California corporation
(the "Company"). Under the Plan, employees, directors, consultants and
advisors of the Company or any of its Subsidiaries, to be selected as set
forth below, may be granted options ("Options") to purchase shares of the
Common Stock of the Company ("Common Stock"). For purposes of the Plan, the
term "Subsidiary" means any corporation 50% or more of the voting stock of
which is owned by the Company or by a Subsidiary of the Company. It is
intended that the Options under the Plan will either qualify for treatment as
incentive stock options under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code") and be designated Incentive Stock Options, or
not qualify for such treatment and be designated Nonqualified Stock Options.
Section 2. Purpose of this Plan. The purpose of the Plan and of granting
options to employees, directors, consultants and advisors is to further the
growth, development and financial success of the Company and its subsidiaries
by providing additional incentives to such persons by assisting them in
acquiring shares of Common Stock and to benefit directly from the Company's
growth, development and financial success.
Section 3. Eligibility. The persons who shall be eligible to receive grants
of Options under the Plan shall be the employees, directors, consultants and
advisors of the Company or any of its Subsidiaries. A person who holds an
Option is herein referred to as a "Participant." More than one Option may be
granted to any one Participant. Notwithstanding the foregoing, no Incentive
Stock Option may be granted to any person who then owns stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or of a Subsidiary unless (a) the Option Price (as hereinafter
defined) is at least 110% of the fair market value of the Common Stock on the
date of grant, and (b) the termination date of such Option is not later than
five years after the date such Option is granted. For this purpose, a person's
stock ownership is determined using the constructive ownership rules contained
in Code Section 424(d).
Only employees of the Company or a Subsidiary may be granted Incentive Stock
Options under the Plan. The exercise of an Incentive Stock Option will not
qualify for favorable income tax treatment unless the Participant remains an
employee of the Company or a Subsidiary at all times during the period
beginning on the date of the grant of the Incentive Stock Option and ending on
the date three months before the date of the exercise of the Incentive Stock
Option. For this purpose, a Participant who is on a leave of absence that
exceeds ninety days will be considered to have terminated his employment on
the ninety-first day of the leave of absence, unless the Participant's rights
to reemployment are guaranteed by statute or contract. However, a Participant
will not be considered to have incurred a termination of employment because of
a transfer of employment between the Company and a Subsidiary (or vice versa).
The aggregate fair market value (determined as of the time an Option is
granted) of the Common Stock for which any Participant may be granted
Incentive Stock Options first exercisable in any calendar year under the Plan
and any other incentive stock option plans (which qualify under Section 422 of
the Code) of the Company or any Subsidiary shall not exceed $100,000.
Section 4. Administration. This Plan shall be administered by the Board of
Directors of the Company or a committee thereof (in either case, the "Board").
The Board shall be composed of individuals who qualify under Rule 16b-3
promulgated by the Securities and Exchange Commission and under Code Section
162(m).
The Board is authorized and empowered to administer the Plan and, subject to
the Plan, (a) to select the Participants, to specify the number of shares of
Common Stock with respect to which Options are granted to each such
Participant, to specify the Option Price (as hereinafter defined) and the
terms of Options, and in general
C-1
<PAGE>
to grant Options; (b) to determine, subject to the limits of Section 3 hereof,
whether Options will be Incentive Stock Options or Nonqualified Stock Options;
(c) to determine the dates upon which Options shall be granted and to provide
for the terms and conditions of the Options in a manner consistent with this
Plan, which terms and conditions need not be identical as to the various
Options granted; (d) to interpret the Plan; (e) to prescribe, amend and
rescind rules relating to the Plan; and (f) to determine the rights and
obligations of Participants under the Plan. The interpretation and
construction by the Board of any provision of the Plan or of any Option
granted thereunder shall be final. No member of the Board shall be liable for
any action or determination made in good faith with respect to the Plan or any
Option granted under it.
Section 5. Shares Subject to the Plan. The number of shares of Common Stock
which may be purchased pursuant to the exercise of Options granted under the
Plan shall be 900,000 shares. Such number shall in any event be adjusted to
reflect all stock splits, stock dividends or similar capital changes. Upon the
expiration or termination for any reason of an outstanding Option which shall
not have been exercised in full, any shares of Common Stock then remaining
unissued which shall have been reserved for issuance upon such exercise shall
again become available for the granting of additional Options under the Plan.
The maximum number of shares that may be issued to any Participant shall be
500,000. For this purpose, an Option granted to a Participant shall be
continued to be outstanding despite its cancellation, and the repricing of an
Option shall be treated as the grant of a new option.
Section 6. Option Price. The purchase price per share (the "Option Price")
of the shares of Common Stock underlying each Option shall be determined in
each case by the Board with respect to each specific Option but shall not be
less than the fair market value of such shares on the date of grant. In the
event that the Company acquires another entity, the Board may authorize the
issuance of Options ("Substitute Options") to the individuals performing
services for the acquired entity in substitution of stock options previously
granted to those individuals in connection with their performance of services
for such entity upon such terms and conditions as the Board shall determine,
taking into account the conditions of Code Section 424(a) in the case of a
Substitute Option that is intended to be an Incentive Stock Option.
Section 7. Exercise of Options. Subject to all other provisions of the Plan,
each Option shall be exercisable for the full number of shares of Common Stock
subject thereto, or any part thereof, in five equal cumulative annual
installments commencing one year after the date of grant (provided the
Participant is employed by the Company at the time of vesting), or in such
other installments and at such other intervals as the Board may in any
specific case or cases otherwise specifically determine in granting such
Option. Each Option shall terminate and expire, and shall no longer be subject
to exercise, ten years after the date of grant thereof, or at such earlier
date as the Board may otherwise specifically determine in granting such
Option. The Option shall be exercised by the Participant by giving written
notice to the Company specifying the number of full shares to be purchased and
accompanied by payment of the full purchase price therefor in cash, by check
or in such other form of lawful consideration (including promissory notes or
shares of Common Stock then held by the Participant) as the Board may approve
from time to time.
Section 8. Option. Each Option granted under the Plan shall be evidenced by
a written stock option executed by the Company and delivered to the
Participant, which shall be substantially in the form attached as Exhibit A
hereto, or shall be in such other form as specified by the Board. Such stock
option shall indicate whether such Option is to be an Incentive Stock Option
or a Nonqualified Stock Option and, if an Incentive Stock Option, shall
contain terms and conditions permitting such Option to qualify for treatment
as an incentive stock option under Section 422 of the Code.
Section 9. Issuance of Common Stock. The Company's obligation to issue
shares of Common Stock upon the exercise of an Option is expressly conditioned
upon the making of such investment representations and related undertakings by
the Participant (or his legal representative, heir or legatee, as the case may
be) in order to comply with the requirements of any exemption from any
securities law registration or other qualification of such shares which the
Company in its sole discretion shall deem necessary or advisable. Such
required representations and undertakings may include representations and
agreements that such Participant (or his legal
C-2
<PAGE>
representative, heir or legatee): (a) is purchasing such shares for investment
and not with any present intention of selling or otherwise disposing thereof;
and (b) agrees to have placed upon the face and reverse of any certificates
evidencing such shares a legend setting forth (i) any representations and
undertakings which such Participant has given to the Company or a reference
thereto, and (ii) that, prior to effecting any sale or other disposition of
any such shares, the Participant must furnish to the Company an opinion of
counsel, satisfactory to the Company and its counsel, to the effect that such
sale or disposition will not violate the applicable requirements of state and
federal laws and regulatory agencies.
Section 10. Nontransferability. No Option shall be assignable or
transferable except by will or by the laws of descent and distribution. During
the lifetime of a Participant, any Option granted to him shall be exercisable
only by him. After the death of a Participant, the Option granted to him may
be exercised, prior to its termination as provided by Section 13(b), only by
his legal representative, his legatee or by any other person who acquired the
right to exercise the Option by reason of the death of the Participant.
Section 11. Recapitalization, Reorganization, Merger or Consolidation. If
the outstanding shares of Common Stock of the Company are increased, decreased
or exchanged for different securities through reorganization, merger,
consolidation, recapitalization, reclassification, stock split, stock dividend
or like capital adjustment, a proportionate adjustment shall be made (a) in
the aggregate number of shares of Common Stock which may be issued pursuant to
the exercise of Options under the Plan, as provided in Section 5, and (b) in
the number, price and kind of shares subject to any outstanding Option granted
under the Plan.
Upon the dissolution or liquidation of the Company or upon any
reorganization, merger or consolidation in which the Company does not survive,
the Plan and each outstanding Option shall terminate; provided that in such
event: (a) each Participant to whom no Option has been tendered by the
surviving corporation in accordance with all of the terms of clause (b)
immediately below shall have the right until five days before the effective
date of such dissolution or liquidation, or such merger or consolidation in
which the Company is not the surviving corporation, to exercise in whole or in
part any unexpired Option or Options issued to him, without regard to the
installment provisions of Section 7 of the Plan or any option agreement; or
(b) in its sole and absolute discretion, the surviving corporation may, but
shall not be so obligated, tender to any Participant holding an Option, an
option or options to purchase shares of the surviving corporation, and such
new option or options shall contain such terms and provisions as shall be
required to preserve substantially all of the rights and benefits of any
Option then outstanding under the Plan. Each Participant shall be given
written notice by the Company of any such proposed or contemplated
dissolution, liquidation, reorganization, merger or consolidation at least
thirty-five (35) days prior to the effective date thereof, which notice shall
advise such Participant of the proposed dissolution, liquidation,
reorganization, merger or consolidation and the rights of the Participant
pursuant to this paragraph.
To the extent that the foregoing adjustments relate to stock or securities
of the Company, such adjustments shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive. Except
as hereinbefore expressly provided in this Section 11, the Participant shall
have no rights by reason of any subdivision or consolidation of shares of
stock of any class or the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class, and the number or
price of shares of Common Stock subject to any Option shall not be affected
by, and no adjustment shall be made by reason of, any dissolution,
liquidation, reorganization, merger or consolidation, or any issue by the
Company of shares of stock of any class, or rights to purchase or subscribe
for stock of any class, or securities convertible into shares of stock of any
class.
The grant of an Option pursuant to the Plan shall not affect in any way the
right or power of the Company to make adjustments, reclassifications or
changes in its capital or business structures or to merge, consolidate,
dissolve or liquidate or to sell or transfer all or any part of its business
or assets.
Section 12. Rights as a Shareholder. A Participant holding an Option, or a
transferee of an Option, shall have no rights as a shareholder with respect to
any shares covered by his Option until the date of the issuance of
C-3
<PAGE>
a stock certificate to him for such shares, and no adjustment shall be made
for dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is prior
to the date such stock certificate is issued, except as expressly provided in
Section 11.
Section 13. Termination of Options. Each Option granted under the Plan shall
set forth a termination date thereof, which date shall be not later than ten
years from the date such Option is granted. Except where earlier termination
is required by the terms of the Option, all Options shall terminate and expire
upon the first to occur of the following events:
(a) the expiration of 30 days from the date of such Participant's
termination of employment (other than by reason of death), except that if
the Participant is disabled (within the meaning of Section 22(e)(3) of the
Internal Revenue Code) at the time of his termination of employment, the
expiration of one year from the date of the Participant's termination of
employment;
(b) the expiration of 180 days from the date of the death of such
Participant if his death occurs while he is employed by the Company or any
of its subsidiaries; or
(c) the termination of the Option pursuant to Section 11 of the Plan.
The termination of employment of a Participant by death or otherwise shall
not accelerate or otherwise affect the number of shares with respect to which
an Option may be exercised, and the Option may only be exercised with respect
to that number of shares which could have been purchased under the Option had
the Option been exercised by the Participant on the date of such termination.
For purposes of the above, in the case of Options granted to Participants
who are directors of the Company or consultants or advisors to the Company,
"employment" shall mean service as such director, consultant or advisor to the
Company.
Section 14. Withholding of Taxes. The Company shall deduct and withhold from
the wages, salary, bonus and other income paid by the Company to the
Participant the requisite tax upon the amount of taxable income, if any,
recognized by the Participant in connection with the exercise in whole or in
part of any Option or the sale of Common Stock issued to the Participant upon
exercise of the Option, all as may be required from time to time under any
federal or state tax laws and regulations. This withholding of tax shall be
made from the Company's concurrent or next payment of wages, salary, bonus or
other income to the Participant or by payment to the Company by the
Participant of the required withholding tax, as the Board may determine.
Section 15. Termination of Plan. The Plan shall terminate when all Options
granted hereunder either have been fully exercised, and all shares of Common
Stock which may be purchased pursuant to the exercise of such Options have
been so purchased, or have expired, and in any event not later than ten (10)
years from the date of the adoption of the plan or the date of the approval of
the Plan by the shareholders of the Company, whichever is earlier. However,
the Board may in its absolute discretion terminate the Plan at any time. No
such termination, other than as provided for in Section 11 hereof, shall in
any way affect any Option then outstanding.
Section 16. Amendment of Plan. The Board may at any time amend or terminate
this Plan. However, no amendment or termination may impair the rights of the
Participant holding an Option without the Participant's consent. Also, except
as may otherwise be permitted under Rule 16b-3 promulgated by the Securities
and Exchange Commission, no amendment to the Plan may be adopted without the
approval of the shareholders that would materially (a) increase the number of
shares that may be issued to Participants subject to Section 16 of the
Securities Exchange Act of 1934 ("Insiders"), (b) increase the benefits
accruing to Insiders, or (c) modify the requirements for Insiders to
participate.
Further, the approval of shareholders must also be obtained if the Plan is
amended in a way that relates to the class of individuals entitled to receive
Incentive Stock Options, or the aggregate number of shares of Common Stock
that may be issued under the Plan.
C-4
<PAGE>
Section 17. Amendment of Options. The Board may modify an existing Option,
including the right to (a) change the exercise price, (b) accelerate the right
to exercise it, (c) extend or renew it, or (d) cancel it and issue a new
Option. However, no modification may be made to an Option that would impair
the rights of the Participant holding the Option without his consent. Whether
a modification of an existing Incentive Stock Option will be treated as the
issuance of a new Incentive Stock Option will be determined in accordance with
the rules of Code Section 424(h). Whether a modification of an existing Option
granted to an Insider will be treated as a new grant for purposes of Section
16 of the Securities Exchange Act of 1934 will be determined in accordance
with Rule 16b-3.
C-5
<PAGE>
ANNEX D
AMENDMENT TO THE 1991 STOCK OPTION PLAN
The first sentence of Section 5 ("Shares Subject to the Plan") of the 1991
Stock Option Plan of Plasma & Materials Technologies, Inc. ("PMT") is hereby
amended to read as follows: "The number of shares of Common Stock which may be
purchased pursuant to the exercise of Options granted under the Plan shall be
1,300,000 shares; provided, however, that such number shall be increased to
2,400,000 shares upon, and subject to the occurrence of, the closing
contemplated by that certain Share Purchase Agreement dated as of July 17,
1996 among PMT, Electrotech Limited and Electrotech Equipments Limited
(collectively, "Electrotech") and the shareholders of Electrotech pursuant to
which PMT acquires all of the outstanding capital stock of Electrotech."
D-1
<PAGE>
ANNEX E
GENERAL CORPORATION LAW OF CALIFORNIA
CHAPTER 13
DISSENTERS' RIGHTS
(S) 1300. RIGHT TO REQUIRE PURCHASE--"DISSENTING SHARES" AND "DISSENTING
SHAREHOLDER" DEFINED.
(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or subdivision
(e) or (f) of Section 1201, each shareholder of the corporation entitled to
vote on the transaction and each shareholder of a subsidiary corporation in a
short-form merger may, by complying with this chapter, require the corporation
in which the shareholder holds shares to purchase for cash at their fair
market value the shares owned by the shareholder which are dissenting shares
as defined in subdivision (b). The fair market value shall be determined as of
the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or
depreciation in consequence of the proposed action, but adjusted for any stock
split, reverse stock split, or share dividend which becomes effective
thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (o) of Section 25100 or
(B) listed on the list of OTC margin stocks issued by the Board of
Governors of the Federal Reserve System, and the notice of meeting of
shareholders to act upon the reorganization summarizes this section and
Sections 1301, 1302, 1303 and 1304; provided, however, that this provision
does not apply to any shares with respect to which there exists any
restriction on transfer imposed by the corporation or by any law or
regulation; and provided, further, that this provision does not apply to
any class of shares described in subparagraph (A) or (B) if demands for
payment are filed with respect to 5 percent or more of the outstanding
shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case
where the approval required by Section 1201 is sought by written consent
rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the recordholder
of dissenting shares and includes a transferee of record.
(S) 1301. DEMAND FOR PURCHASE.
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the
E-1
<PAGE>
procedure to be followed if the shareholder desires to exercise the
shareholder's right under such sections. The statement of price constitutes an
offer by the corporation to purchase at the price stated any dissenting shares
as defined in subdivision (b) of Section 1300, unless they lose their status
as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance
with paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market
value constitutes an offer by the shareholder to sell the shares at such
price.
(S) 1302. ENDORSEMENT OF SHARES.
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110
was mailed to the shareholder, the shareholder shall submit to the corporation
at its principal office or at the office of any transfer agent thereof, (a) if
the shares are certificated securities, the shareholder's certificates
representing any shares which the shareholder demands that the corporation
purchase, to be stamped or endorsed with a statement that the shares are
dissenting shares or to be exchanged for certificates of appropriate
denomination so stamped or endorsed or (b) if the shares are uncertificated
securities, written notice of the number of shares which the shareholder
demands that the corporation purchase. Upon subsequent transfers of the
dissenting shares on the books of the corporation, the new certificates,
initial transaction statement, and other written statements issued therefor
shall bear a like statement, together with the name of the original dissenting
holder of the shares.
(S) 1303. AGREED PRICE--TIME FOR PAYMENT.
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the
fair market value of any dissenting shares as between the corporation and the
holders thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in the
case of certificated securities, subject to surrender of the certificates
therefor, unless provided otherwise by agreement.
(S) 1304. DISSENTER'S ACTION TO ENFORCE PAYMENT.
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of
the shares, then the shareholder demanding purchase of such shares as
dissenting shares or any interested corporation, within six months after the
date on which notice of the approval by the outstanding shares (Section 152)
or notice pursuant to subdivision (i) of Section 1110 was mailed to the
shareholder, but not thereafter, may file a complaint in the superior court of
the proper county praying the court to determine whether the shares are
dissenting shares or the fair market value of the dissenting shares or both or
may intervene in any action pending on such a complaint.
E-2
<PAGE>
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
(S) 1305. APPRAISERS' REPORT--PAYMENT COSTS.
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed
by the court, the appraisers, or a majority of them, shall make and file a
report in the office of the clerk of the court. Thereupon, on the motion of
any party, the report shall be submitted to the court and considered on such
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time
as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market
value of each dissenting share multiplied by the number of dissenting shares
which any dissenting shareholder who is a party, or who has intervened, is
entitled to require the corporation to purchase, with interest thereon at the
legal rate from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for
the shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than
125 percent of the price offered by the corporation under subdivision (a) of
Section 1301).
(S) 1306. DISSENTING SHAREHOLDER'S STATUS AS CREDITOR.
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
(S) 1307. DIVIDENDS PAID AS CREDIT AGAINST PAYMENT.
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
(S) 1308. CONTINUING RIGHTS AND PRIVILEGES OF DISSENTING SHAREHOLDERS.
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined.
A dissenting shareholder may not withdraw a demand for payment unless the
corporation consents thereto.
E-3
<PAGE>
(S) 1309. TERMINATION OF DISSENTING SHAREHOLDER STATUS.
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to
require the corporation to purchase their shares upon the happening of any of
the following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter
all necessary expenses incurred in such proceedings and reasonable
attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement
in accordance with Section 1302 or are surrendered for conversion into
shares of another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice
of the approval by the outstanding shares or notice pursuant to subdivision
(i) of Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
(S) 1310. SUSPENSION OF PROCEEDINGS FOR PAYMENT PENDING LITIGATION.
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings
under Sections 1304 and 1305 shall be suspended until final determination of
such litigation.
(S) 1311. EXEMPT SHARES.
This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect
to such shares in the event of a reorganization or merger.
(S) 1312. ATTACKING VALIDITY OF REORGANIZATION OR MERGER.
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set
aside or rescinded, except in an action to test whether the number of shares
required to authorize or approve the reorganization have been legally voted in
favor thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event
of a reorganization or short-form merger is entitled to payment in accordance
with those terms and provisions or, if the principal terms of the
reorganization are approved pursuant to subdivision (b) of Section 1202, is
entitled to payment in accordance with the terms and provisions of the
approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash
for such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-
form merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand
payment of cash for the shareholder's shares pursuant to this chapter. The
court in any action attacking the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded shall not restrain or enjoin the consummation of the
E-4
<PAGE>
transaction except upon 10 days' prior notice to the corporation and upon a
determination by the court that clearly no other remedy will adequately
protect the complaining shareholder or the class of shareholders of which such
shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-from merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable
as to the shareholders of any party so controlled.
E-5
<PAGE>
PLASMA & MATERIALS TECHNOLOGIES, INC.
ANNUAL MEETING OF SHAREHOLDERS--OCTOBER 10, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned shareholder of Plasma & Materials Technologies, Inc., a
California corporation (the "Company"), hereby acknowledges receipt of the
Notice of Annual Meeting of Shareholders and Proxy Statement, each dated
September 11, 1996, and hereby appoints Dr. Gregor A. Campbell, John A.
Rollwagen and John W. LaValle, and each of them, proxies and attorneys-in-fact,
with full power to each of substitution, on behalf and in the name of the
undersigned, to represent the undersigned at the Annual Meeting of Shareholders
of the Company to be held on Thursday, October 10, 1996 at 10:00 a.m., local
time, at the Warner Center Marriott, 21850 Oxnard Street, Woodland Hills,
California 91367, and at any postponements or adjournments thereof, and to vote
all shares of common stock which the undersigned would be entitled to vote if
personally present, on the matters set forth below:
THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO CONTRARY OBJECTION IS INDICATED,
WILL BE VOTED FOR THE NOMINEES LISTED FOR ELECTION OF DIRECTORS IN PROPOSAL NO.
2 AND FOR PROPOSAL NO. 4, AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER
MATTERS AS MAY COME BEFORE THE MEETING.
MARK HERE FOR
ADDRESS CHANGE
AND NOTE ON REVERSE [_]
SEE REVERSE
SIDE
(Continued and to be signed on other side)
<PAGE>
--
[X] PLEASE MARK YOUR
VOTES AS IN THIS EXAMPLE.
1. Proposal 1: The Acquisition:
FOR AGAINST ABSTAIN
[_] [_] [_]
2. Election of Directors:
FOR ALL AUTHORITY WITHHELD
NOMINEES (TO VOTE ALL NOMINEES)
[_] [_]
NOMINEES: Dr. Gregor A. Campbell, Brian D. Jacobs, John A. Rollwagen, G.
Bradford Jones, Dr. Hiroyuki Mizuno and Charles Thompson
INSTRUCTIONS: To withhold authority to vote for any individual nominee,
write that nominee's name on the line provided below.
- --------------------------------------------------------------------------------
3. Proposal 3: Amendment of PMT's 1991 Stock Option Plan:
FOR AGAINST ABSTAIN
[_] [_] [_]
4. Proposal 4: Ratification of the appointment of Ernst & Young LLP as
independent auditors:
FOR AGAINST ABSTAIN
[_] [_] [_]
5. In their discretion, upon such other matter or matters which may properly
come before the meeting or any postponements or adjournments thereof.
IMPORTANT--PLEASE SIGN, DATE AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED EN-
VELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
Signature(s): _____________ Date: _____ Signature(s): _____________ Date: _____
THIS PROXY SHOULD BE MARKED AND SIGNED BY THE SHAREHOLDER(S) EXACTLY AS HIS,
HER, THEIR OR ITS NAME APPEARS ON THE STOCK CERTIFICATE AND RETURNED PROMPTLY
IN THE ENCLOSED ENVELOPE. PERSONS SIGNING IN A FIDUCIARY CAPACITY SHOULD SO
INDICATE. IF SHARES ARE HELD BY TWO PEOPLE (FOR EXAMPLE, AS JOINT TENANTS OR
COMMUNITY PROPERTY) BOTH PARTIES SHOULD SIGN.
