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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file Number: 0-22756
Advanced Technology Materials, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 06-1236302
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7 Commerce Drive, Danbury, CT 06810
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(Address of principal executive offices) (Zip Code)
203-794-1100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of each class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ x ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant at February 28, 1997, was approximately $158,750,510, based on
the closing price of $19.00 per share.
The number of shares outstanding of the registrant's common stock as of
February 28, 1997 was 8,793,345.
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ADVANCED TECHNOLOGY MATERIALS, INC.
Annual Report on Form 10-K
For the Fiscal Year Ended December 31, 1996
TABLE OF CONTENTS
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Part I Page
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Item 1. Business.................................................. 3
Item 2. Properties................................................ 15
Item 3. Legal Proceedings......................................... 15
Item 4. Submission of Matters to a Vote of Security Holders....... 15
Part II
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Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 16
Item 6. Selected Financial Data................................... 17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 18
Item 8. Financial Statements and Supplementary Data............... 22
Item 9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure....................... 22
Part III
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Item 10. Directors and Executive Officers of the Registrant........ 23
Item 11. Executive Compensation.................................... 25
Item 12. Security Ownership of Certain Beneficial Owners
and Management............................................ 28
Item 13. Certain Relationships and Related Transactions............ 29
Part IV
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Item 14. Exhibits, Financial Statement Schedule, and Reports
on Form 8-K............................................... 30
Index to Consolidated Financial Statements and Financial Statement Schedule F-1
Signatures..................................................................S-1
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PART I
Item 1. Business.
Advanced Technology Materials, Inc. ("ATMI" or the "Company") is a supplier
of enabling materials, products, and technologies for the semiconductor
industry. The Company's products are primarily based on proprietary and patented
chemical vapor deposition ("CVD") technologies used for semiconductor thin film
manufacture.
ATMI's strategy is to use these technologies to develop products for high
growth niche markets of the semiconductor industry and to sequentially introduce
these products into these high growth markets with industry collaborators. Using
its phased commercial introduction strategy, ATMI has been able to develop its
CVD core technologies and establish businesses to support further
commercialization of its new products.
ATMI's enabling products and technologies include point-of-use
environmental equipment, next-generation thin film materials and delivery
systems, and high performance semiconductor devices based on wide bandgap and
III-V materials.
Semiconductor Industry Background
The semiconductor industry achieved worldwide sales in 1995 of over $140
billion. While industry revenues decreased in 1996, the Company believes the
decrease was primarily a result of a decline in memory chip prices, not a
reduction in the number of semiconductor devices produced and shipped. Even
during this downturn, the industry is adding substantial capacity to meet
increasing demand for a multitude of end uses from personal computers to
wireless communications.
From a wafer substrate, usually made of silicon, a complex series of
process steps creates semiconductor devices. Important process steps include
deposition, patterning, and etching. During deposition, several layers of
conducting, semi-conducting, or insulating thin films are formed on a wafer.
Controlling the deposition of these films is vital to the ultimate performance
of an individual device.
There are two principal methods of film deposition. One, physical vapor
deposition ("PVD") is now primarily used for depositing conductive metal layers.
The other, CVD, is used for depositing semiconducting and insulating thin films
as well as some conductors. In the CVD process, wafers are usually placed in a
sophisticated reaction chamber, ready for the injection of a specially designed
gas or vaporized liquid. Simultaneously, energy is added to the reactor
resulting in thin film deposition on the surface of the wafer.
The CVD process offers the following production advantages:
* conformality--the ability to coat evenly, especially in holes and
trenches designed into the device
* purity
* ability to coat over large areas
* cost efficiency
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Thin film deposition technology is migrating to CVD for many films because
of these advantages. This migration increased CVD equipment sales from $500
million in 1989 to over $1.5 billion in 1996. It also created rapid growth for
suppliers of CVD equipment such as Applied Materials, Tokyo Electron, and
Novellus Systems.
ATMI's focus on developing high performance and ferroelectric thin film
fabrication revolves around its core CVD technology. From that core technology
development, ATMI introduces related commercial technologies serving existing
silicon device fabrication needs. First is gas abatement technologies using
ATMI's unique adsorbent materials. These adsorbents allow for nearly complete
adsorption of the reactive gases flowing from a CVD reactor exhaust. ATMI also
sells new commercial CVD raw materials that enable the manufacture of
semiconducting thin films for use in next-generation silicon devices.
ATMI Business Strategy
ATMI was founded in 1986 to develop and commercialize products based on its
core CVD technology. The Company has the following key strategies:
Core Technology Development
Proprietary and patented CVD thin film technology underlies ATMI's
development and commercialization of new products. Its CVD technology is based
on a multidisciplinary approach that draws upon the experience of ATMI's
personnel in the areas of chemistry, physics, materials science and electrical
engineering. ATMI dedicates significant resources to maintaining its expertise
in CVD technology and protecting its intellectual property.
Focus on High Growth Markets
ATMI targets semiconductor market segments with growth rates expected to
exceed the industry's overall growth rate. For example, ATMI believes that the
market for point-of-use abatement equipment is growing at a rate in excess of
the overall growth rate of the semiconductor equipment industry. In addition,
the Company focuses on segments where technology-driven paradigm shifts are
occurring or are enabled by the use of ATMI's core technologies. For example,
the Company believes semiconductor manufacturers are moving strongly towards the
use of new thin film materials, driven by device performance considerations.
Phased Product Commercialization
ATMI has a history of commercializing products using its core CVD
technology. The Company's strategy is to focus initially on products with less
technological complexity and capital risk and in later phases focus on products
with a higher degree of sophistication and financial risk. In its first phase of
commercialization, the Company introduced new products through its subsidiary,
ATMI EcoSys Corporation ("EcoSys") (and its predecessor, Novapure), to abate CVD
effluent streams. EcoSys is now a leader in the manufacture and sale of
point-of-use environmental equipment to the semiconductor industry. In its
second phase of commercialization, ATMI introduced several new materials and
delivery systems through its NovaMOS division for use in the silicon
semiconductor industry. In the third phase of commercialization, ATMI intends to
use its core technology to manufacture and sell devices based on ferroelectric
and other high performance semiconductor thin films. Certain of these
third-phase products are now in development and are expected by ATMI to account
for a significant portion of its long-term growth.
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Strategic Alliances
ATMI has formed many strategic alliances, including joint development
programs and collaborative marketing efforts, to accelerate the introduction of
its products into markets that have manufacturing and/or distribution barriers.
As it grows, ATMI expects to continue to accelerate product introductions
through acquisitions and collaborations with customers, vendors and companies
with significant capabilities outside of ATMI's current markets.
Externally Funded Research and Development
Developing new thin film processes and materials for complex electronic
devices is very expensive. By entering into research contracts with federal
government agencies, and with selected private industry collaborators, ATMI
offsets a significant portion of its research and development costs. ATMI
primarily solicits research contracts that provide opportunities to enhance its
core technology base, or promote the commercial introduction of targeted
products.
ATMI Businesses
ATMI operates three primary business units: EcoSys, NovaMOS, and
Epitronics.
EcoSys, a wholly-owned subsidiary, manufactures and services environmental
equipment for the semiconductor industry. ATMI believes EcoSys is a leader in
the rapidly growing market for point-of-use abatement equipment.
ATMI's NovaMOS division manufactures and sells CVD raw materials (source
reagents) used to manufacture semiconducting thin films. ATMI believes NovaMOS
is a leading provider of source reagents for next-generation silicon device
manufacture.
ATMI's Epitronics division, develops, manufactures, distributes, and sells
advanced high performance substrates and thin films for the optoelectronic and
wireless communications markets.
EcoSys: Point of Use Semiconductor Environmental Equipment
EcoSys Market Background
Manufacturing semiconductors involves many processes with thin film
deposition steps that use toxic or hazardous materials. These materials were
once abated through large systems servicing multiple process effluent streams.
Because of the many thin film processes used, the industry is migrating toward
dedicated point-of-use environmental equipment for individual reactors and
processes.
Demand for environmental equipment reflects the dramatic growth in CVD
processing. Only about a quarter of the original materials entering a CVD
reactor end up deposited as a thin film. The rest, combined with by-products,
becomes the effluent stream requiring abatement that must meet increasingly
strict environmental, safety, and health regulations.
Whole plant environmental systems become inefficient with multiple,
different effluent streams. As process variations grow in the industry, so does
the need for point-of-use environmental equipment. The Company believes the
market for this type of point-of-use equipment exceeds $150 million per year and
that the current growth rate exceeds that of the semiconductor equipment market.
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EcoSys Business Background
Currently ATMI's primary commercial business, generating about half of the
Company's consolidated revenues, is EcoSys, which manufactures, sells, and
services semiconductor environmental equipment.
ATMI first entered this market in 1989 with the introduction of its
Novapure(r) point-of-use dry chemical scrubber. This product was originally
designed under contract to the Environmental Protection Agency ("EPA"). In 1991,
this product and several others resulting from early stage research and
development efforts at ATMI were contributed to Novapure, a joint venture with
Millipore. In 1994, Novapure was dissolved, with ATMI retaining rights to the
effluent treatment product line. Also in 1994, ATMI acquired Vector Technical
Group, Inc. ("Vector"), a manufacturer of liquid and combustion point-of-use
semiconductor environmental equipment, and merged it with its Novapure line of
products to form EcoSys.
In 1995, ATMI acquired the Guardian Systems product line of combustion
point-of-use semiconductor environmental equipment to broaden its product
offerings. ATMI believes EcoSys is the only company in the world offering all of
the key technologies for effluent gas scrubbing to the semiconductor industry:
dry chemical, liquid, flame oxidation and catalytic oxidation. As a result of
this broad product line, ATMI believes EcoSys is a global market leader in the
manufacture and sale of point-of-use semiconductor effluent abatement equipment.
ATMI's strategy is to maximize EcoSys' market share through the continued
development and acquisition of new semiconductor environmental products and
services. The Company believes that this full line of semiconductor
environmental products, coupled with a comprehensive service strategy, will
allow for continued market penetration by its EcoSys business.
Products
EcoSys provides three major product lines. These products reduce
consumption, offer new recycling techniques, and allow new waste treatment
methods. Typical selling prices for these products range between $20,000 and
$100,000 per unit.
Dry Chemical Scrubbers
Novapure(r) dry chemical scrubbers adsorb and concentrate hazardous
effluent up to 20,000 times that of conventional effluent treatment methods.
ATMI believes that EcoSys, through its unique and patented adsorption materials,
is a market leader for point-of-use semiconductor effluent dry scrubbing
throughout the world.
Liquid Scrubbers
Vector Technology(r) liquid scrubbers are designed for cost effective
removal of acidic and high particulate bearing gases commonly used in the wafer
fabrication process. Vector scrubbers recirculate scrubbing water, minimizing
overall water use, and are highly effective in removing high particulate
effluent.
Oxidation Scrubbers
Guardian(r) active oxidation scrubbers treat combustible materials. The
Guardian product line, acquired at the end of 1995, is an industry standard
designed for low cost of ownership. Next-generation systems operate on
inexpensive methane fuel while achieving exceptional removal efficiencies. These
combustion systems also abate certain global warming gases such as
perfluorinated carbon compounds (PFCs), at high efficiency with near zero
nitrous oxide generation.
EcoSys offers other developmental environmental, safety, and health
products to the semiconductor industry, including:
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Catalytic Oxidizers
ReCAT(tm) catalytic oxidation scrubbers use proprietary catalysts to
destroy volatile organic compounds ("VOCs"). VOCs come from the solvents used in
applying photoresists and other organic materials during chip manufacture. The
ReCAT product line adopts the EcoSys point-of-use approach to organic
destruction, replacing the large plant-scale oxidizer systems most semiconductor
companies use. It uses a fraction of the energy required by conventional
systems, and has the potential to create a true point-of-use effluent treatment
device.
Emergency Release Scrubbers
ATMI is marketing and continuing to develop effluent treatment systems for
the capture of semiconductor process gases in emergency situations. Such
situations might arise at the point of delivery of a gas to a reactor through
gas cylinder rupture or similar catastrophic event.
Vent Gas Scrubbers
Cylinders of hazardous gases are typically used for the delivery of gases
to reactors. Changing these cylinders causes small amounts of hazardous
materials to be vented. EcoSys has developed a vent gas scrubber based on its
dry scrubber technology for use in such applications. EcoSys is collaborating
with Air Products Corporation in the development and current distribution of
this product.
Recycling
EcoSys is investigating the potential for recycling the materials used in
thin film deposition processes in the belief that recycling is ultimately
preferred over destructive abatement. PFCs, as an example, are used in some
wafer cleaning and etching processes. They are under strict environmental
controls and production cutbacks, because they are suspected to deplete the
ozone layer. With Praxair Corporation, EcoSys has developed a PFC recycling
system that captures the gas and repurifies it for subsequent reuse. In 1996,
the first unit was installed at a test site.
Total Effluent Abatement Management
EcoSys has expanded its product and service offerings in response to
semiconductor companies' trend towards wanting their abatement supplier to
provide a full range of abatement equipment and provide on-going management of
their total effluent abatement needs. EcoSys has invested in organizational
infrastructure to provide this capability and began to receive contracts for
this service in 1996.
NovaMOS-Next-Generation CVD Materials and Delivery Systems
NovaMOS Market Background
As semiconductor device capabilities in memory, logic and speed have
expanded exponentially, circuit dimensions have correspondingly decreased. The
Company believes that further reductions will require a change in the materials
used for the many functional thin films required to store, transmit and switch
electricity in the complex circuitry of semiconductor devices. For example,
while existing memory and other very large scale integrated ("VLSI") circuits
may be fabricated using standard silicon dioxide capacitor thin films,
deficiencies in the electrical properties of ultra-thin silicon dioxide will
limit its use in the extremely small dimensions of next-generation, ultra large
scale integrated ("ULSI") devices. Alternate ("next-generation") capacitor
materials, including tantalum oxide and barium titanate, are expected to be used
in the fabrication of ULSI circuits, e.g. 256 Mb and 1 Gb dynamic random access
memory chips ("DRAMs"). As these new materials are adopted, the Company believes
that a strategy of collaborative development with a total systems approach will
allow for significant penetration into the $350 million overall market for
semiconductor thin film precursors.
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These next-generation materials will be manufactured primarily using CVD
processes. Because many of the raw materials for these new thin films will not
be available in gaseous form, the Company believes that a market is developing
for liquid chemical precursors (specialty chemicals) that allow for the
manufacture of next-generation thin films, as well as for equipment (delivery
systems) that convert liquids to gases before entry into a CVD reactor. CVD raw
materials are consumables, and demand for such materials generally tracks the
number of silicon wafers that are used in semiconductor device manufacture
("wafer starts"), while demand for CVD equipment generally tracks investment in
new plants.
NovaMOS Business Background
ATMI formed NovaMOS in February 1992 to serve markets for CVD semiconductor
thin film manufacture. NovaMOS' two primary product lines are liquid chemical
precursors and delivery systems.
In August 1992, ATMI entered into an agreement with IBM, Texas Instruments
and Micron Technology (the "Collaborating Group") to develop advanced thin film
capacitor materials and CVD process technology delivery equipment for
next-generation memory devices. This agreement focused on developing CVD process
technology to fabricate ferroelectric thin films, such as barium strontium
titanate, for high performance memory devices. Barium strontium titanate can
store over 30 times more electrical charge than conventional thin films. Using
this material should significantly reduce the manufacturing complexity of
advanced memory devices. In April 1993, the Advanced Research Projects Agency
("ARPA") awarded a $5 million contract for the development of thin film
materials technology to the Collaborating Group, with ATMI as prime contractor.
The total cost of the program is approximately $15 million, approximately half
of which will be borne by the Collaborating Group. In February 1994, Varian
Associates joined the Collaborating Group, providing CVD manufacturing hardware.
ATMI's ferroelectric thin film technology has also expanded to non-barium
strontium titanate materials that have broad application in a variety of
applications ranging from non-volatile memory devices to wireless components.
This in turn has led ATMI to expand its device development effort to include
these materials in the belief that these particular market segments may prove to
be an attractive device market opportunity for the Company.
Products
NovaMOS generates approximately one-third of ATMI's consolidated revenues
with approximately half of NovaMOS revenues coming from product sales. This
division offers a bundled product line of materials, equipment, and process
experience which represents a total solution to the controlled delivery of
liquid precursors to CVD reactors.
Safe Delivery Systems
Historically, semiconductor process gases have only been available in high
pressure cylinders that can create an immediate danger over a large area if
inadvertently released. ATMI's Safe Delivery System ("SDS") reduces cylinder
pressures below atmospheric levels. This allows controllable, on-demand release
of certain semiconductor process gases. ATMI has a strategic alliance with
Matheson Gas Products ("Matheson"), a subsidiary of Nippon Sanso, begun in
January 1994, and renewed with amended provisions in 1996. Under a license from
ATMI, Matheson markets and distributes the SDS product to specific semiconductor
niche process applications.
CVD Materials
ATMI develops thin film precursors for semiconductor devices. NovaMOS
manufactures and sells source reagents allowing CVD fabrication of advanced
materials, including titanium nitride, platinum, copper, tantalum oxide, lead
zirconate titanate, bismuth strontium tantalate, and barium strontium titanate
thin films. The Company believes these films will have broad application in
advanced semiconductor devices. NovaMOS EpiGrade(r) source reagents sell at
prices ranging from $2 to $200 per gram.
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Liquid Delivery Systems
NovaMOS manufactures and sells its proprietary LDS and Sparta(tm) Liquid
Delivery Systems. These vaporize liquid precursors before injection into CVD
reactors. The liquid delivery systems' principal advantage is their ability to
deliver multiple materials as well as handling thermally-sensitive
next-generation materials with minimal decomposition. They are typically used
for both conventional material thin film fabrication and advanced material
deposition. NovaMOS is a supplier to the advanced dielectric, ferroelectric,
barrier layer, and conductor thin film markets of the semiconductor industry.
The liquid delivery systems sell at prices ranging from $35,000 to $200,000.
Epitronics - Advanced Wafers and Thin Film Deposition
Epitronics Market Background
Demand for increased performance from semiconductor devices and the
proliferation of optoelectronic devices are leading designers and process
engineers to consider building electronic circuits and discrete devices from
alternative semiconductors to silicon. Advances in semiconductor materials
fabrication technologies are promoting device development based on materials
such as the III-V semiconductors (including gallium arsenide, indium phosphide)
and the wide bandgap semiconductors such as silicon carbide and gallium nitride.
The III-V semiconductors are finding increasing use in three different
markets: in wireless communication devices where high frequency performance is
critical; in optoelectronic devices where the electronic structure of the III-V
semiconductors allows energy efficient light generation; and in solar cells for
satellite applications where efficient generation of electricity is critical.
The wide bandgap semiconductors offer potential advantages in two areas;
both silicon carbide and gallium nitride-based devices may have advantages in
high power or high temperature operation while gallium nitride-based devices
permit efficient generation of short wavelength light for use in blue LEDs and
in blue laser diodes.
Epitronics Business Background
Through its Epitronics division, ATMI is manufacturing and selling advanced
semiconductor substrates and epitaxial wafers. It is also establishing alliances
and selectively developing devices for emerging market opportunities.
Commercial introduction of wide bandgap semiconductor devices has been
limited to date by several technological barriers, including the availability of
single crystal substrates (wafers). The fabrication of fully operable high
performance semiconductor devices, requires an appropriate wafer as a base to
grow suitable thin film. The most appropriate substrate has the same crystal
structure as the desired thin film. For silicon carbide, ATMI has proprietary
technology to manufacture single crystal silicon carbide substrates and is
developing technology for single crystal gallium nitride substrates. Epitronics
has both silicon carbide and gallium nitride epitaxial thin film technology and
has developed and continues to develop thin film fabrication technology that can
be employed in other developmental high technology products, e. g., displays.
ATMI recognizes that it may be important to develop or acquire additional
technologies to meet the demand for high performance devices in its targeted
market areas.
In December, 1995, ATMI acquired Epitronics Corporation, a Phoenix,
Arizona-based manufacturer of III-V semiconductor thin films for the wireless
and optoelectronics markets. ATMI integrated the operations of Epitronics
Corporation with its Diamond Electronics Division in 1996, under the recognized
Epitronics name. Epitronics III-V semiconductor manufacturing is in Phoenix and
its wide bandgap semiconductor manufacturing and R&D facilities are in Danbury.
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Epitronics Business Strategy
Epitronics specializes in advanced compound semiconductors and focuses on
materials. Its core technology is chemical vapor deposition, the growth of
epitaxial thin films (epi) on semiconductor wafers with precisely controlled
structural and electronic properties. Epitronics focuses on materials for
rapidly growing markets in optoelectronics, wireless communications and power
electronics and provides materials and device fabrication processes for III-V
compound semiconductors (gallium arsenide, indium phosphide) and the wide
bandgap semiconductors (silicon carbide, gallium nitride). Epitronics' business
strategy is to build a business and technology base in the materials while
incubating and subsequently launching value-added device businesses on
proprietary technology.
The Phoenix facility is dedicated to the production of III-V epi products
that are finding increasing use in wireless communications, satellites and
optoelectronics for data and telecommunication market segments. There is an
increasing demand for III-V epi wafers in particular for heterojunction bipolar
transistors (HBTs) for use in power amplifiers.
The Danbury facility focuses on the development of wide bandgap
semiconductor materials (substrates and epi) including silicon carbide and
gallium nitride. Wide bandgap semiconductors are expected to find use in high
power applications such as motor control, high temperature applications such as
automotive electronics, and in high power high frequency applications such as
ground based radar and communication stations. The R&D group continues to
support cathode design and manufacturing by Candescent Technologies Corporation
who is developing a field emission display or Thin CRT.
Products
Current Products
Epitronics currently manufactures III-V epitaxial wafers in Phoenix, AZ.
III-V epi products are finding increasing use in wireless communications,
satellites, and optoelectronics for data and telecommunication market segments.
In particular, there is an increased demand for III-V epi wafers for
heterojunction bipolar transistors (HBTs) for use in power amplifiers.
Epitronics markets its epitaxial services and sells product of the service,
epitaxial wafers, directly to industry and government customers according to
their design specifications. In Danbury, Epitronics manufactures one- to
two-inch diameter silicon carbide wafers. It is expanding capacity to ensure
internal and external supplies. The Company believes that these substrate sales
will promote additional collaborations, addressing technology development and
commercial product introduction issues associated with future optoelectronic,
sensor, and power device products.
Epitronics is a distributor of SIMOX (Separation by IMplanted OXygen)
wafers for Nippon Steel Corporation, Japan and specialty wafers for Wafer
Technology (Milton Keynes, UK). These distributed materials complement the
Epitronics manufactured product line and leverage the development of the sales
and marketing organization required to execute the customer service driven
marketing plan. NSC SIMOX wafers are used for fabricating high speed and
radiation-hard circuits. Specialty III-V wafers from Wafer Technology include
Indium Phosphide based materials for optical fiber-based communications, gallium
arsenide for optoelectronic devices, and indium antimonide for infrared
detectors.
Technology Development
In addition to process improvement that the Company believes will allow for
greater market penetration for its III-V epitaxial wafers and silicon carbide
substrates, Epitronics is focusing its R&D efforts on thin film products for
optoelectronics including blue solid state devices and novel cathode materials
for a thin CRT.
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Epitronics is developing substrate and thin film technology for solid-state
blue light emitting diodes and lasers. Blue LEDs will be primarily used in full
color displays while blue lasers are valuable for increasing optical data
storage capabilities and in full color printers. Gallium nitride substrate
technology under development by Epitronics and others may be essential to high
yield LED manufacturing processes and to demonstrating long life time blue
lasers. Epitronics is collaborating with Hewlett-Packard, Xerox, SDL, Inc., and
others to develop substrate technology for commodity blue lasers, and is
developing proprietary device designs to enable penetration of specialty laser
markets. Epitronics is the preferred high performance materials supplier for the
Blue Band Consortium which is developing blue lasers for improved data storage.
Epitronics provides thin film technology for cold cathodes under a joint
development program to a strategic alliance with Candescent Technologies
Corporation ("CTC"), formerly called Silicon Video Corporation. Traditional CRTs
use a single, hot cathode (its source of electrons) placed far from the screen.
In a field emission display ("FED"), multiple cathodes replace the single
cathode, giving many electron sources for each pixel. Unique thin films
fabricated with Epitronics high performance materials enhance uniform low power
electron emission. Because image uniformity and power consumption are critically
dependent on cathode materials and design, Epitronics materials are well suited
for inclusion in cold cathodes for FEDs. These cold cathodes enable full-color,
flat panel displays with brightness and resolution equivalent to CRTs, hence
thin CRTs.
Under its agreement with ATMI, CTC has an exclusive license to ATMI
technology for FEDs, and ATMI has license to certain CTC technology outside of
displays. CTC will manufacture and distribute the thin CRTs. As part of the
alliance, ATMI purchased $1,000,000 of CTC's convertible preferred stock. ATMI
and CTC receive significant direct support from the federal government for cold
cathode technology development.
Customers, Sales, and Marketing
ATMI sells and distributes its products worldwide, both directly and
through manufacturers' representatives. The Company also seeks to create
strategic alliances that allow maximum global market penetration at minimal
cost.
Many of ATMI's customers have relationships with more than one division, or
are acting as collaborators on ATMI's development programs. A number of ATMI's
key customers are listed below:
Advanced Micro Devices Hyundai Electronics Samsung Electronics
Atmel IBM SGS Thomson
Digital Equipment Corp. Intel Siemens
GEC Plessey Semiconductor Lucent Technologies Sony
Goldstar Electronics Motorola Texas Instruments
Hewlett-Packard National Semiconductor Tokyo Electron
Manufacturing
ATMI's research and development laboratory and prototype production plant
are located at its Danbury, Connecticut facility. In Danbury, the Company
fabricates, tests, and assembles high performance semiconductor and
ferroelectric thin films and devices. Although ATMI's high performance and
ferroelectric processing technology is very similar to standard semiconductor
manufacturing technology, ATMI has developed certain proprietary equipment and
processes. ATMI believes its facility is adequate for current needs.
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EcoSys manufactures Novapure(r), Vector Technology(r), Phoenix(tm) and
ReCAT(tm) point-of-use scrubbers in San Jose, California. EcoSys manufactures
its proprietary adsorbents for its gas treatment products at ATMI's Danbury,
Connecticut facility. The Guardian(r) product line manufacturing is
subcontracted to a third party who had manufactured these products prior to the
product line acquisition by ATMI in 1995.
ATMI's NovaMOS division produces and integrates its liquid delivery systems
in Danbury, along with chemical manufacture and purification. ATMI manufacturing
facility for the SDS Safe Delivery Source in Danbury is complemented by
contracted manufacturing from Matheson's facility. The Company believes that
these two facilities are adequate for current and anticipated demand.
Epitronics manufactures its III-V semiconductor thin films and devices for
the wireless and optoelectronic industries at its Phoenix, Arizona facility. It
produces wide bandgap wafers and high performance thin films in Danbury.
Raw materials for ATMI's products and processes are available from multiple
domestic sources.
Competition
The semiconductor environmental equipment, materials, and device markets
have rapidly evolving technology and products. Both large and small companies
offer products in these markets, and many of these companies have significantly
greater financial and other resources than ATMI.
EcoSys
EcoSys's primary competition in effluent gas treatment is from companies
focused on water and combustion treatment methods. The primary water scrubber
competitor is Delatech, while combustion scrubber competitors are Delatech and
Alzeta. Dry scrubber competitors include CS-GmbH, Ebara, Japan Pionics, and the
Edwards Division of British Oxygen Corporation.
NovaMOS
NovaMOS's primary competitors in CVD materials and delivery systems in the
U.S. are the Schumacher Division of Air Products, Advanced Delivery & Chemical
Systems, Inc., the Diffusion Systems Division of Olin Hunt Specialty Products,
Inc., and MKS Instruments, Inc. There are several other smaller participants in
this market.
There are no immediate competitors to the patented SDS Safe Delivery Source
product. Several gas companies provide product in high pressure containers that
compete with the process capability of SDS.
Epitronics
High performance semiconductors are a new and rapidly emerging area of
technology. The technology has attracted the interest of a wide variety of both
large and small companies. Potential competitors include Kobe Steel, which has a
high performance electronics subsidiary, and Westinghouse, which has a
substantial silicon carbide electronics effort. Several smaller companies are
also developing high performance semiconductor products, including Cree Research
(silicon carbide) and IBIS Technology (SIMOX wafers). Nichia Chemical, a
Japanese company, sells very bright blue LEDs and is developing a solid-state
blue laser. Cree Research is selling blue LEDs based on silicon carbide, and is
trying to produce commercial quantities of bright blue LEDs based on gallium
nitride. Other groups, including Hewlett-Packard, APA Optics, Inc., and SDL,
Inc. are also working on blue optoelectronics, using similar technology.
12
<PAGE>
PixTech, Inc, SI Diamond Technology Inc., FED Corporation, and others are
attempting to develop alternative field emission flat panel display products in
competition with CTC.
Government Contracts
ATMI participates in U.S. government funded research and development
contracts. As of December 31, 1996, the Company had received aggregate awards
since its inception of approximately $55 million from U.S. government agencies,
including approximately $46 million recognized as revenue by ATMI through
December 31, 1996. These contracts fund continued CVD technology development,
development of high performance semiconductor, ferroelectric thin films, and
devices for specific applications, while offsetting the cost of research and
development. Government contract revenues were about $9,846,000 in 1996,
$8,712,000 in 1995, and $7,018,000 in 1994. This is about 21%, 29%, and 36% of
ATMI's total revenues in those years. The government may terminate contracts at
its convenience.
In April 1993, the Collaborating Group of IBM, Texas Instruments and Micron
Technology was awarded a $5 million contract (subsequently increased to $5.7
million) from ARPA to develop next-generation capacitor thin films for DRAMs.
The Collaborating Group contributed matching funds and agreed to make any
technology developed under the contract available to the other group members.
ATMI has numerous contracts from the U.S. Air Force, the Ballistic Missile
Defense Organization ("BMDO"), and the National Science Foundation ("NSF"),
supporting development of CVD core technology for the deposition of dielectric
materials and their uses in alternative applications, such as optical switching
and infrared sensing.
ATMI receives funding for research into high performance semiconductor
programs. Funds come from the U.S. Navy, BMDO, the U.S. Army, ARPA, NSF, the
Department of Energy, and NASA in each of the four primary technical areas
required for device development: substrate manufacture, thin film deposition and
characterization, device processing and device design.
The Office of Naval Research ("ONR"), supports efforts to grow and prepare
surfaces of high performance and silicon carbide thin films. The Army supports
the development of high performance contacting technology, a key step in any
manufacturing process for high performance devices. High performance cold
cathode technology has received significant support from both BMDO (ATMI, prime
contractor) and ARPA (CTC, prime contractor). ATMI will continue to submit
proposals to various government entities for additional research and development
funding.
Backlog
As of December 31, 1996, ATMI had firm backlog of approximately $16.5
million consisting of approximately $8.2 million of product orders and $8.3
million of executed and funded research contracts. This compares to a firm
backlog level of approximately $14.8 million as of December 31, 1995, which
consisted of approximately $4.5 million of product orders and approximately
$10.3 million of executed and funded research contracts.
ATMI considers orders for products shippable within six months of the
backlog date and fully executed and funded research contract awards as of the
backlog date as firm backlog. SDS product backlog is not included since the
product is sold and shipped to Matheson for distribution to the ultimate end
user.
13
<PAGE>
Patents and Proprietary Rights
ATMI protects its technology by, among other things, filing patent
applications for technology considered important to the development of its
business. It also relies upon trade secrets, unpatented know-how, continuing
technological innovation and the aggressive pursuit of licensing opportunities
to help develop and maintain its competitive position.
ATMI and its divisions have been awarded 68 U.S. patents and currently have
72 U.S. patent applications pending. Foreign counterparts of certain of these
applications have been filed or may be filed at an appropriate time. ATMI
decides on a case-by-case basis whether, and in what countries, it will file
foreign counterparts of a U.S. patent application. ATMI holds licenses to 12
U.S. patents. ATMI's U.S. patents expire between September 2006 and February
2015. The U.S. patents licensed to ATMI expire during the period from March 2006
through February 2013.
ATMI's ability to compete effectively with other companies will depend, in
part, on its ability to maintain the proprietary nature of its technology.
Although ATMI has been awarded, has filed applications for, or has been licensed
under numerous patents in the United States and foreign countries, there can be
no assurance as to the degree of protection afforded by these patents or as to
the likelihood that pending patents will be issued.
The Company requires all employees and most consultants, outside scientific
collaborators, sponsored researchers and other advisors to execute
confidentiality agreements upon the commencement of employment or consulting
relationships with ATMI. These agreements provide that all confidential
information developed or made known to the individual during the course of the
individual's relationship with the Company is to be kept confidential and not
disclosed to third parties except in specific circumstances. All of ATMI's
employees have entered into agreements providing for the assignment of rights to
inventions made by them while in the employ of the Company.
Epigrade, Scram, Novapure, EcoSys, EcoSys (logo), Vector Technology, Vector
(logo), Advanced Technology Materials (logo), Phoenix, ReCAT, NovaMOS, Sparta,
Guardian, Epitronics, NovaSource, VaporSource, and SDS are trademarks of the
Company.
Research and Development
ATMI's research and development expenditures are substantially funded by
external sources, including various agencies of the federal government. Total
sums expended for research and development in the years ended December 31, 1996,
1995 and 1994 were approximately $15,968,000, $11,697,000 and $9,566,000,
respectively. Of those amounts, approximately $8,341,000, $7,491,000 and
$6,151,000, respectively, were externally funded and are classified as cost of
contract revenues on ATMI's Consolidated Financial Statements, and approximately
$7,627,000, $4,206,000 and $3,415,000, respectively, were internally funded
expenditures by the Company and are classified as research and development
operating expenses on ATMI's Consolidated Financial Statements.
Environmental Regulation
The Company uses, generates and discharges toxic, volatile or otherwise
hazardous chemicals and wastes in its research and development and manufacturing
activities. Therefore, the Company is subject to a variety of federal, state and
local governmental regulations related to the storage, use and disposal of these
materials. The Company believes that it has all the permits necessary to conduct
its business. However, the failure to comply with present or future regulations
could result in fines being imposed on the Company, suspension of production or
a cessation of operations. While the Company believes that it has properly
handled its hazardous materials and wastes and has not contributed to any
on-site contamination or environmental condition at any of its premises, the
premises in Danbury, CT may have been contaminated prior to the Company's
occupancy.
14
<PAGE>
The Company is not aware of any environmental investigation,
proceeding or action by federal or state agencies involving these premises.
However, under certain federal and state statutes and regulations, a
governmental agency may seek recovery and response costs from both operators and
owners of property where releases of hazardous substances have occurred or are
ongoing. The prior occupant of the premises has agreed to indemnify the Company
for remediation costs in connection with any pre-existing, on-site contamination
or environmental condition. However, there can be no assurance that this
indemnification will prove adequate to cover any liability imposed on the
Company related to the environmental condition of the premises or the cost of
defending an environmental action, either of which could be substantial. The
Company's activities may also result in its being subject to additional
regulation. Such regulations could require the Company to acquire significant
additional equipment or to incur other substantial expenses to comply with
environmental regulations. Any failure by the Company to control the use of, or
to restrict adequately the discharge of, hazardous substances could subject it
to substantial financial liabilities and could have a material adverse effect on
the Company's business, operating results and financial condition.
Employees
As of December 31, 1996 ATMI employed a total of 188 individuals, including
80 in sales and administration, 51 in operations and 51 who are principally
employed in research and development. Thirty-eight employees hold Ph.D. degrees
and twenty-one hold other advanced degrees in electrical engineering, materials
science, chemistry, physics or related fields. None of the Company's employees
are covered by collective bargaining agreements. ATMI has not experienced any
work stoppages and considers its relations with its employees to be strong.
Item 2. Properties.
ATMI is located in Danbury, Connecticut where it leases a 72,000 square
foot facility in Commerce Park. The Company occupies this facility under a lease
which expires on August 30, 2005. ATMI believes its existing facility is
adequate and suitable for its current needs, although it plans to significantly
expand its production capability, and potential manufacturing space as needed.
EcoSys leases a 25,000 square foot facility in San Jose, California,
expiring March 2002. ATMI believes this facility is adequate and suitable for
current and anticipated EcoSys' needs.
Epitronics leases a 15,000 square foot facility in Phoenix, Arizona,
expiring August 1999. ATMI believes this facility is adequate and suitable for
current and anticipated Epitronics' needs.
Item 3. Legal Proceedings.
ATMI is not a party to any material litigation and is not aware of any
pending or threatened litigation that could have a material adverse effect upon
its business, operating results, or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended December 31, 1996.
15
<PAGE>
<PAGE>
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
ATMI's common stock is traded on The Nasdaq National Market under the
symbol ATMI. The following table sets forth the high and low sales prices for
the common stock as reported on the Nasdaq for the periods indicated.
<TABLE>
<S> <C> <C>
High Low
---- ---
1995
----
January 1 - March 31 $ 8.13 $ 5.13
April 1 - June 30 10.50 6.63
July 1 - September 30 16.00 10.00
October 1 - December 31 14.38 9.25
1996
----
January 1 - March 31 $12.75 $ 9.63
April 1 - June 30 15.88 10.38
July 1 - September 30 13.88 10.75
October 1 - December 31 18.50 12.25
</TABLE>
As of February 28, 1997, there were approximately 4,700 stockholders, of
which approximately 250 were holders of record.
ATMI has never paid cash dividends on its capital stock and currently
intends to retain future earnings, if any, for use in its business. Therefore,
ATMI does not anticipate paying any cash dividends in the foreseeable future.
Certain of the Company's financing arrangements contain prohibitions on the
payment of dividends without the lender's consent or in conjunction with the
Company's failure to comply with various financial covenants.
The Transfer Agent and Registrar for ATMI Common Stock is Boston EquiServe,
L.P. formerly known as The First National Bank of Boston.
16
<PAGE>
Item 6. Selected Financial Data.
The consolidated statement of operations data set forth below with respect
to the years ended December 31, 1996, 1995 and 1994 and the consolidated balance
sheet data at December 31, 1996 and 1995 are derived from, and are qualified by
reference to, the audited Consolidated Financial Statements included elsewhere
in this report and should be read in conjunction with those financial statements
and notes thereto. The consolidated statement of operations data for the years
ended December 31, 1993 and 1992 and the consolidated balance sheet data at
December 31, 1994, 1993 and 1992 are derived from consolidated financial
statements not included herein. Amounts for 1993 and all previous years have
been restated to give effect to the acquisition of Vector, which was accounted
for as a pooling of interests.
<TABLE>
<CAPTION>
Consolidated Statement of Operations Data:
(in thousands, except per share data)
Year Ended December 31,
-----------------------
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Product revenues $36,504 $21,336 $ 12,538 $ 7,174 $ 4,383
Contract revenues 9,846 8,712 7,223 6,070 4,888
----- ----- ----- ----- -----
Total revenues 46,350 30,048 19,761 13,244 9,271
Cost of revenues 24,281 17,099 11,990 8,243 6,459
------ ------ ------ ----- -----
Gross profit 22,069 12,949 7,771 5,001 2,812
Operating expenses:
Research and development 7,627 4,206 3,415 1,864 1,260
Selling, general,
and administrative 11,510 8,558 5,588 3,772 3,066
------ ----- ----- ----- -----
Total operating expenses 19,136 12,764 9,003 5,636 4,326
------ ------ ----- ----- -----
Operating income (loss) 2,933 185 (1,231) (635) (1,514)
Other income, net 628 503 3,991 35 86
--- --- ----- -- --
Income (loss) before taxes
and minority interest 3,561 688 2,760 (600) (1,428)
Income taxes 239 134 124 219 108
--- --- --- --- ---
Income (loss) before
minority interest 3,321 554 2,636 (819) (1,536)
Minority interest 0 0 0 269 380
- - - --- ---
Net income (loss) 3,321 554 2,636 (550) (1,156)
===== === ===== ==== ======
Net income (loss)
per share (1) $ 0.35 $ 0.07 $ 0.35 ($ 0.10) ($ 0.23)
======= ======= ======== ======== =======
Weighted average
shares outstanding (1) 9,359 8,074 7,595 5,473 5,009
===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Consolidated Balance Sheet Data:
(in thousands)
Cash, cash equivalents,
and marketable securities $21,406 $25,465 $12,692 $13,444 $ 4,538
Working capital 27,103 26,224 13,341 14,050 4,678
Total assets 50,118 49,798 21,251 20,170 10,029
Long-term obligations,
less current portion 5,004 5,434 1,236 896 1,465
Minority interest -- -- -- 3,179 3,447
Redeemable convertible
preferred stock -- -- -- -- 7,982
Stockholders' equity
(deficiency) 36,393 32,897 14,785 12,099 (6,440)
</TABLE>
(1) The calculation of net income (loss) per share and weighted average
shares outstanding gives effect to: (i) shares issued in conjunction with the
1994 acquisition of Vector as if the acquisition occurred prior to all periods
presented, (ii) the 1993 conversion of all outstanding shares of Convertible
Preferred Stock into 4,040,039 shares of Common Stock and (iii) the 1993 payment
of a dividend of 76,102 shares of Common Stock to certain holders of Convertible
Preferred Stock effective upon the closing of the Company's initial public
offering, in each case for all periods presented although such inclusion is
antidilutive.
17
<PAGE>
<PAGE>
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview
Founded in 1986, ATMI generates revenues from product sales and contract
research. Most product sales are point-of-use environmental equipment, specialty
materials, and delivery systems for the semiconductor industry. ATMI also
receives royalties for certain product sales from third parties.
Since 1986, a significant portion of ATMI's revenues has come from
contracts with United States government agencies. The programs in which ATMI
participates may extend for several years, but are usually funded annually.
There can be no assurance that the government will continue its commitment to
programs to which ATMI's development projects are applicable or that ATMI can
compete successfully to obtain program funding.
ATMI has used a targeted acquisition strategy to assist in building
critical mass and market position in the niches the Company serves. In 1994 ATMI
acquired Vector, and in conjunction with the sale of Novapure product lines to
Millipore in September 1994, formed EcoSys by merging the retained operations of
Novapure with those of Vector. In 1995, ATMI acquired the Guardian product line
from Messer Greisheim Industries and folded that product line into EcoSys. In
1995, ATMI acquired Epitronics Corporation, and in early 1996, combined that
business with the formerly known Diamond Electronics division under the
Epitronics name.
The following table sets forth, for the periods indicated, the percentage
relationship to total revenues of certain items in ATMI's consolidated statement
of operations:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Product revenue ................................. 78.8% 71.0% 63.5%
Contract revenue ................................ 21.2 29.0 36.5
---- ---- ----
Total revenues ............................ 100.0 100.0 100.0
Cost of revenues ................................ 52.4 56.9 60.7
---- ---- ----
Gross profit .................................... 47.6 43.1 39.3
Research and development .................. 16.5 14.0 17.3
Selling, general, and administrative ...... 24.8 28.5 28.3
---- ---- ----
Total operating expenses ............ 41.3 42.5 45.6
---- ---- ----
Operating income (loss) ......................... 6.3 0.6 (6.3)
Other income, net................................ 1.4 1.6 20.2
--- --- ----
Income before taxes.............................. 7.7 2.2 13.9
Income taxes..................................... 0.5 0.4 0.6
--- --- ---
Net income....................................... 7.2% 1.8% 13.3%
</TABLE>
18
<PAGE>
<PAGE>
The following table sets forth revenues, cost of revenues and gross profit
for products and contracts, as a percentage of each category:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Products:
Revenues ........................ 100.0% 100.0% 100.0%
Cost of revenues ................ 43.7 45.0 46.6
---- ---- ----
Gross profit ...................... 56.3% 55.0% 53.4%
Contracts:
Revenues ........................ 100.0% 100.0% 100.0%
Cost of revenues ................ 84.7 86.0 85.2
---- ---- ----
Gross profit ..................... 15.3% 14.0% 14.8%
</TABLE>
Results of Operations
Years Ended December 31, 1996, 1995, and 1994.
Revenues. In 1996, ATMI's total revenues improved 54.3% to approximately
$46,350,000 from $30,048,000 in 1995. Total revenues for 1995 were 52.1% greater
than 1994's $19,761,000. Product sales were $36,504,000, up 71.1% in 1996, from
1995's product sales of $21,336,000. Product sales for 1996 were 78.8% of ATMI's
total revenues, and in 1995, 71.0%. In turn, 1995 showed a 70.2% increase above
product sales of $12,538,000 in 1994. Product sales in 1994 were 63.4% of ATMI's
total revenues.
EcoSys effluent treatment product sales led ATMI's product revenue growth.
With its technology leadership and full service philosophy in the environmental
niche of the semiconductor market, EcoSys managed to increase market share in
the face of a softening capital equipment market. Sales to Pacific Rim-based
companies continued to be strong. The December 1995 acquisition of the Guardian
product line was also responsible for a portion of the revenue growth.
This year, sales of effluent gas treatment products were approximately 54%
of ATMI's revenues, about $25,076,000. Last year, EcoSys contributed
$16,889,000, about 56% of revenues. In 1994, 51% of ATMI's total sales,
$10,078,000, were EcoSys product sales. While not a significant factor to date,
a continued slowdown in capital equipment spending in the semiconductor industry
could have a negative effect on EcoSys revenue growth during 1997.
The SDS product line has begun to have a significant impact on the
Company's revenue growth. The revenue from this product line changed in late
1996 from a royalty stream to a product revenue steam. As a result, the sale of
this product represented approximately 9% of total revenues in 1996, up from 3%
for the entire 1995 year's revenues.
General increases in government funding of ATMI research resulted in the
growth of contract revenues. For 1996, government funding grew 13.0% to
$9,846,000, from $8,712,000 in 1995 and increased 20.6% in 1995 from $7,222,000
in 1994. The increased research funding in 1996 was primarily focused on
materials development, device processing and device design activities within
NovaMOS and Epitronics. The 1995 growth was primarily related to increased
funding of substrate fabrication and materials development projects.
19
<PAGE>
Gross Profit. ATMI's gross profit improved this year by 70.4% to
$22,069,000 compared to 1995, when gross profit of $12,949,000 had grown 66.6%
from $7,771,000 in 1994. As a percentage of revenues, gross profit improved to
47.6% in 1996 from 43.1% in 1995 and increased in 1995 from 39.3% in 1994.
In 1996, ATMI's sales mix continued to shift toward greater volumes of
high-margin products. Consequently, our product revenue gross margin improved
75.3% to $20,565,000 from $11,728,000 in 1995 and increased 75.0% in 1995 from
$6,700,000 in 1994. Product gross margin improved to 56.3% of revenues, up from
55.0% in 1995 and 53.4% in 1994. The improved product margins in 1996 were
attributed primarily to the significant increases in royalties in connection
with SDS product line growth. Additionally, sales of the SDS product commenced
late in the year when the Company began manufacturing the product and recognized
margins higher than the average ATMI product margin. The effect of the SDS more
than offset some slight declines in margin realized on sale of EcoSys products
due to geographic and product mix shifts to comparatively lower margin sales.
Gross profit on contract revenue increased in 1996 by 23.3% to $1,505,000
from $1,221,000 in 1995 which was an increase of 14.0% over 1994 at $1,071,000.
Gross margin on contracts over the last three years have remained relatively
stable. As a percent of contract revenues, gross margin increased to 15.3% in
1996 from 14.0% in 1995 which was a decrease from 14.8% in 1994. Contract
margins can vary slightly from year to year based on the mix of cost-type, firm
fixed price and cost share arrangements. Additionally, different fee
arrangements and indirect cost absorption can contribute to some margin
variability.
Research and Development Expenses. ATMI targets areas to maintain its
competitive advantage. For 1996, our R&D spending rose significantly to
$7,627,000, up 81.3% from last year. Primary drivers for the increase in 1996
was expansion of product development efforts within EcoSys and increased
spending to expand and protect the SDS technology portfolio. R&D expenses of
$4,206,000 in 1995 was an increase of 23.2% from 1994 R&D of $3,415,000. R&D as
a percentage of revenues has increased to 16.5% in 1996, compared with 14.0% in
1995, which was a decrease from 17.3% of revenues in 1994.
Selling, General, and Administrative Expenses. Increasing in line with
ATMI's growth, ATMI's variable selling costs grew in 1996. ATMI also added
administrative staff in 1996 to support revenue growth and incurred increased
costs related to the businesses acquired in 1995. As a result, the 1996 S,G&A
expenses of $11,510,000, were approximately 34.5% above last year's expenses of
$8,558,000 which in turn were up 53.2% from 1994 S,G&A expenses of $5,588,000.
The growth in 1995 was due again to variable selling cost increases and also to
the expansion of the Company's marketing staff. S,G&A as a percentage of
revenues has decreased to 24.8% in 1996, compared with 28.5% in 1995, which was
a slight increase from 28.3% of revenues in 1994.
Other Income, Net. Most of ATMI's other income stems from interest income,
offset by interest expense on the Company's outstanding debt. In 1996, net other
income grew by 24.8% to $628,000. The Company's invested cash balances
throughout 1996 were significantly higher than in 1995 due to the Company's
public offering in October 1995. Increased interest expense in 1996 partially
offset the effect of the increased interest earned on cash investments. In
1995, net other income of $503,000 grew by 29% from the 1994 amount of $390,000,
exclusive of 1994's non-recurring transactions. Again the 1995 interest income
growth was due to having the proceeds of the October 1995 offering for the last
quarter of the year. The 1994 non-recurring transaction involved the
restructuring of the Novapure joint venture and the sale of assets for a $4.6
million gain. Offsetting this gain were transaction and consolidation expenses
of $1 million for the restructuring, acquiring Vector, and combining Vector and
Novapure into EcoSys.
20
<PAGE>
Income Taxes. ATMI's income tax expense related primarily to state taxes on
income generated, partially offset by the utilization of loss carryforwards and
available state tax credits. Minimal federal taxes paid in 1996 and 1995 related
to alternative minimum taxes arising from the use of net operating loss
carryforwards. Income tax expense in 1996 was $239,000, up 78.4% from the
$134,000 in 1995 which, in turn, were up 8.5% from $124,000 in 1994.
Liquidity and Capital Resources
The 1996 year was ATMI's first in generating cash from operations. Net cash
generated of $4,280,000 was due principally to the increased profitability of
the Company for the year. In 1995, ATMI used net cash for operations of
$1,226,000, primarily to fund a significant increase in accounts receivable
because of end-of-the-year product shipments. In 1994, $1,342,000 in net cash
was used in operations, primarily funding ATMI operating losses.
The amount of the Company's working capital has not changed significantly
since the closing of the 1995 public offering. Working capital was $27,103,000
at December 31, 1996, compared to $26,224,000 at December 31, 1995.
The Company's investing activities include capital expenditures in 1996,
1995, and 1994 of $4,694,000, $3,604,000 and $1,785,000, respectively. The 1996
capital expenditures were primarily focused on manufacturing expansion for
EcoSys and NovaMOS and laboratory construction for customer application work for
EcoSys. The 1995 and 1994 capital was spent on renovations and leasehold
improvements for the Danbury and San Jose facilities, upgrades to the Company's
information systems and purchase of laboratory equipment.
Among other investing activities for 1996, ATMI sold $4,886,000 in
marketable securities and made a $4 million payment in connection with the 1995
acquisition of Guardian. During 1995, ATMI made a $1 million investment in
Candescent Technologies Corporation (formerly Silicon Video Corporation), and
purchased $11,213,000 of marketable securities with the proceeds received from
the 1995 public offering. When the Company restructured Novapure and sold a
portion of its assets in 1994, ATMI received net proceeds of approximately $2.5
million.
Through the end of 1996, ATMI had used $2.0 million from capital leases in
financing capital equipment purchases. Financial institutions have provided
collateral-based loans for $3.3 million. The State of Connecticut has
contributed loans of almost $2.0 million. About $6.6 million was been extended
to ATMI by parties to the Company's acquisition activities. At year end, nearly
$5.6 million of loans and financing remained outstanding. Notes payable extend
through June 2002 with interest rates from 5.4% to 9.5%. ATMI made payments of
$1,144,000 on notes payable this year. Last year, notes paid were $741,000,
while in 1994, payments totaled $1,050,000. In December 1996, ATMI was extended
a $10 million unsecured line of credit by its commercial bank to assist in
financing future activities.
ATMI believes the cash generated from operations and the proceeds from last
year's common stock offering together with existing sources of liquidity, will
satisfy projected working capital and cash requirements, at least through the
end of 1998. However, ATMI believes the level of financial resources available
to it is an important competitive factor in its industry and may seek additional
capital prior to the end of that period. The Company considers raising
additional capital on an on-going basis as market factors and its needs suggest.
Additionally, ATMI considers, on a continuing basis, potential acquisitions of
technologies and businesses complementary to its current business which may
require additional cash.
21
<PAGE>
Inflation
During the last three years, inflation has not had a significant impact on
ATMI's operating results.
Safe Harbor Statement
Statements which are not historical facts in this report are forward
looking statements, made on a good faith basis. Such forward looking statements,
including those concerning the Company's expectations for demand and sales of
new and existing products, semiconductor industry and market segment growth, and
market and technology opportunities, all involve risk and uncertainties. Actual
results may differ materially from forward looking statements, for reasons
including, but not limited to, changes in the pattern of semiconductor industry
growth or the markets the Company sells products for, customer interest in the
Company's products, product and market competition, delays or problems in the
development and commercialization of the Company's products, or technological
change affecting the Company's core thin film competencies.
Item 8. Financial Statements and Supplementary Data.
The Report of Independent Auditors, the consolidated financial statements
and financial statement schedule that are listed in the Index to Consolidated
Financial Statements and Financial Statement Schedule are included herein on
pages F-1 through F-16.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
There have been no changes in or disagreements with accountants required to
be reported herein.
22
<PAGE>
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The executive officers and directors of the Company are as follows:
<TABLE>
<S> <C> <C>
Name Age Position with the Company
- ---- --- -------------------------
Eugene G. Banucci, Ph.D. 53 President, Chief Executive Officer,
Chairman of the Board and Director
Peter S. Kirlin, Ph.D. 36 Executive Vice President
Duncan W. Brown, Ph.D. 44 Vice President and Director,
President of Epitronics
Daniel P. Sharkey 40 Vice President, Chief Financial Officer
and Treasurer
Ward C. Stevens, Ph.D. 42 Vice President and Secretary
Nicholas J. Wood 33 Vice President - Marketing
Mark A. Adley 37 Director
Gary A. Andersen 60 Director
John A. Armstrong, Ph.D. 62 Director
Robert S. Hillas 47 Director
Stephen H. Mahle 51 Director
</TABLE>
Eugene G. Banucci, Ph.D., a founder of the Company, has served as
President, Chief Executive Officer, Chairman of the Board and a director since
1986. Previously, Dr. Banucci served in a variety of executive and managerial
positions. From 1984 to 1986, he was a director of American Cyanamid Company's
Chemical Research Division, with responsibility for the research, development
and technical service activities of the Chemicals Group.
Peter S. Kirlin, Ph.D., has served as Executive Vice President of the
Company since December 1995. From 1991 to 1995, Dr. Kirlin served as Vice
President of Microelectronics and General Manager of the NovaMOS division, and
from 1988 to 1991, he was Director of Superconductor Materials and Electronics
for the Company. Prior to joining ATMI, Dr. Kirlin was a Project Leader and
Research Engineer for American Cyanamid Company. Dr. Kirlin has written more
than 30 published articles and holds 7 issued U.S. patents.
Duncan W. Brown, Ph.D., a founder of ATMI, has served as a Vice President
since 1986 and as a Director since 1990. Dr. Brown was also named President of
Epitronics Corporation in March 1996. From 1983 to 1986, Dr. Brown was a
Research Chemist at American Cyanamid Company. Previously, Dr. Brown was a
Postdoctoral Fellow in the Departments of Chemistry at MIT and Harvard
University, and an Academic Associate at IBM's Research Division. Dr. Brown
holds 15 issued U.S. patents and has published several technical articles.
Daniel P. Sharkey has served as Chief Financial Officer since joining ATMI
in 1990. He was also elected Vice President and Treasurer in September 1993.
From 1987 to 1990, Mr. Sharkey was Vice President of Finance and Administration
for Adage, Inc., a manufacturer of high-performance computer graphics terminals.
From 1983 to 1987, he was Corporate Controller for CGX Corporation. Previously,
Mr. Sharkey served as Audit Supervisor for KPMG Peat Marwick.
23
<PAGE>
Ward C. Stevens, Ph.D., a founder of ATMI, has served as a Vice President
since 1986 and served as a Director from 1986 to 1990. Prior to joining ATMI,
Dr. Stevens was a Materials Scientist and Project Leader at American Cyanamid
Company and a Materials Scientist at Celanese Research Company. Dr. Stevens
holds 12 issued U.S. patents and is the author of numerous scientific
publications.
Nicholas J. Wood has served as the Company's Vice President-Marketing since
August 1995. From 1985 to 1995, Mr. Wood served in a variety of sales and
marketing positions with Intel Corporation. Most recently, from 1992 to 1995, he
served as Northern European Marketing Manager.
Mark A. Adley has served as a director of the Company since 1991. Since
1996, Mr. Adley has been a Managing Director at Credit Suisse First Boston
Corporation where he was a Director from 1994 to 1996. From 1992 through 1993,
Mr. Adley served as an investment manager for Clipper Asset Management
Corporation, the General Partner of The Clipper Group, L.P. ("Clipper"). During
1991, Mr. Adley served as an investment manager for Clipper. Mr. Adley was a
Director at CS First Boston Merchant Bank during 1990 and, at The First Boston
Corporation, was a Vice President from 1989 to 1990 and an Associate from 1985
to 1988.
Gary A. Andersen has served as a director of the Company since 1994. Mr.
Andersen was President, Chief Executive Officer and a director of RF
Monolithics, Inc., a manufacturer of products based on surface acoustic wave
technology, from 1986 to 1996. Previously, Mr. Andersen served as Director of
National Accounts at Valid Logic Systems, National Sales Manager for Memory
Systems at Mostek Corporation and OEM Marketing Manager at Intel Memory Systems.
John A. Armstrong, Ph.D. has served as a director of the Company since
1993. Dr. Armstrong is presently a visiting professor of physics at the
Massachusetts Institute of Technology. Previously, he was Vice President of
Science and Technology for IBM from 1987 until his retirement in 1993.
Robert S. Hillas has served as a director of the Company since 1987. Mr.
Hillas has been a Managing Director of E.M. Warburg, Pincus & Co., Inc. since
1993. From 1985 to 1992, Mr. Hillas served as a General Partner of DSV
Management Ltd., the General Partner of DSV Partners IV, a venture capital
limited partnership, and from 1981 to 1992, as a General Partner of DSV Partners
III, a venture capital limited partnership.
Stephen H. Mahle has served as a director of the Company since March 1996.
Mr. Mahle has been President of the Brady Pacing Business, a division of
Medtronic, Inc., since 1995. From 1989 to 1995, Mr. Mahle served as Vice
President and General Manager of the Brady Pacing Business. Previously, Mr.
Mahle served in a variety of marketing and product development roles for
Medtronic, Inc.
All directors hold office until the next annual meeting of the stockholders
of the Company or until their successors have been duly elected and qualified.
Executive officers serve at the discretion of the Company's Board of Directors.
There are no family relationships among the executive officers and directors nor
are there any arrangements or understandings between any executive officer and
any other person pursuant to which the executive officer was selected.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers and directors and persons who beneficially own
more than ten percent of the Company's Common Stock to file reports of ownership
and changes in ownership with the Securities and Exchange Commission. Based
solely on reports and other information submitted by the executive officers,
directors and such beneficial owners, the Company believes that during the
fiscal year ended December 31, 1996, all such reports were timely filed.
24
<PAGE>
Item 11. Executive Compensation
Summary Compensation
The following table sets forth certain information regarding the
compensation paid by the Company to the Company's Chief Executive Officer and
each of the other four most highly compensated executive officers for services
in all capacities to the Company and its subsidiaries for the fiscal year ended
December 31, 1996.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term
Compensation
Awards
Annual Compensation ------
------------------- Securities All Other
Underlying Compen-
Name and Principal Position Year Salary($) Bonus($) Options(#) sation($)(1)
- --------------------------- ---- ------------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Eugene G. Banucci 1996 181,300 40,000 -- 2,121
President, Chief Executive 1995 155,250 40,000 35,000 2,875
Officer and Chairman 1994 145,300 40,000 -- 1,530
of the Board
Peter S. Kirlin 1996 111,100 30,000 -- --
Executive Vice President 1995 96,560 35,000 25,000 400
1994 91,300 20,000 -- --
Nicholas J. Wood (2) 1996 121,200 15,000 -- --
Vice President - Marketing 1995 41,667 16,526 36,000 --
1994 -- -- -- --
Daniel P. Sharkey 1996 110,000 20,000 -- 1,678
Vice President, Chief 1995 103,000 25,000 15,000 1,583
Financial Officer 1994 98,000 20,000 -- 529
and Treasurer
Ward C. Stevens 1996 101,000 25,000 -- 890
Vice President, Secretary 1995 96,000 10,000 5,000 1,823
1994 93,000 10,000 -- 579
</TABLE>
(1) Represents premiums paid for life insurance and long term disability
policies of which the Company is not the beneficiary and flexible spending
contributions toward health care costs not covered by Company plans.
(2) Mr. Wood joined the Company on August 28, 1995.
25
<PAGE>
<PAGE>
Option Exercises and Year-End Values
The following table sets forth information concerning option holdings as of
December 31, 1996 with respect to the individuals named in the Summary
Compensation Table.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Number of Securities Value of Unexercised
Shares Underlying Unexercised in-the Money Options
Acquired Options at FY-End (#) at FY-End ($)(1)
on Value --------------------- ----------------
Name Exercise Realized Exercisable Exercisable
(#) ($) Unexercisable Unexercisable
- ------------- --------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Eugene G. Banucci -- -- 103,975 30,400 1,651,194 238,100
Peter S. Kirlin .. 6,000 73,679 54,234 25,540 847,573 236,057
Nicholas J. Wood . -- -- 7,200 28,800 39,600 158,400
Daniel P. Sharkey 4,000 50,222 69,875 21,000 1,103,247 214,750
Ward C. Stevens .. 9,375 121,245 74,725 5,400 1,231,315 44,850
</TABLE>
(1) Based on the fair market value of the Company's Common Stock as of
December 31, 1996 ($17.25) minus the exercise price of the options.
Non-Competition Agreements
Eugene G. Banucci, Duncan W. Brown, Ward C. Stevens and Peter S. Kirlin are
parties to agreements with the Company containing covenants not to compete with
the Company during their employment and for two years thereafter.
Director Compensation
The Company's directors do not receive any cash compensation for service on
the Board of Directors or any committee thereof but are reimbursed for expenses
incurred in connection with attending meetings of the Board of Directors and any
committee thereof. In October 1993, the Company granted options for the purchase
of 22,500 shares of the Company's Common Stock to John A. Armstrong in
consideration of consulting services performed for the Company. The exercise
price of the options is $3.55 per share, which was the fair market value of the
Company's Common Stock on the date of grant, and the options vest ratably over
five years on each of the first five anniversary dates of the grant date. In May
1994, the Company granted options for the purchase of 22,500 shares of the
Company's Common Stock to Gary A. Andersen in consideration of his services on
the Board of Directors. The exercise price of the options is $5.00 per share,
which was the fair market value of the Company's Common Stock on the date of
grant, and the options vest ratably over five years on each of the first five
anniversary dates of the grant date.
26
<PAGE>
In December 1994, the Company granted options for the purchase of 22,500
shares of the Company's Common Stock to Robert S. Hillas in consideration of his
services on the Board of Directors. The exercise price of the options is $5.50
per share, which was the fair market value of the Company's Common Stock on the
date of grant, and the options were immediately vested as to 50% of the grant in
consideration of past service on the Board of Directors and vested as to the
remaining 50% of the grant on December 9, 1995. In May 1995, the Company granted
options for the purchase of 22,500 shares of the Company's Common Stock to Mark
A. Adley in consideration of his services on the Board of Directors. The
exercise price of the options is $8.50 per share, which was the fair market
value of the Company's Common Stock on the date of grant, and the options were
immediately vested as to 40% of the grant in consideration of past service on
the Board of Directors and the remaining 60% vest ratably over three years on
each of the first three anniversary dates of the grant date. In March 1996, the
Company granted options for the purchase of 22,500 shares of the Company's
Common Stock to Stephen H. Mahle in consideration of his services on the Board
of Directors. The exercise price of the options is $10.50 per share, which was
the fair market value of the Company's Common Stock on the date of grant, and
the options vest ratably over five years on each of the first five anniversary
dates of the grant date.
27
<PAGE>
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of February 28, 1997 by (i) each
person known by the Company to own beneficially more than five percent of the
outstanding Common Stock of the Company, (ii) each director of the Company,
(iii) each executive officer named in the Summary Compensation Table, and (iv)
all directors and executive officers of the Company as a group. Except as
otherwise indicated, all shares are owned directly. Except as indicated by
footnote, and subject to community property laws where applicable, the persons
named in the table have sole voting and investment power with respect to all
shares of Common Stock indicated.
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Owned Class
----- -----
Name and Address of Beneficial Owner
- ------------------------------------
<S> <C> <C>
J.P. Morgan & Co.,
Incorporated (1)
60 Wall Street
New York, NY 10260 .............. 1,120,950 12.7%
Eugene G. Banucci (2) ............ 314,691 3.5%
Ward C. Stevens (3) ............... 178,764 2.0%
Duncan W. Brown (4) ............... 172,771 1.9%
Daniel P. Sharkey (5) ............. 69,875 *
Peter S. Kirlin (5) ............... 54,234 *
Robert S. Hillas (6) .............. 30,977 *
Mark A. Adley (7) ................. 16,500 *
John A. Armstrong (5) ............. 13,500 *
Gary A. Andersen (5) .............. 9,000 *
Nicholas J. Wood (5) .............. 7,200 *
Stephen H. Mahle (8) .............. 4,600 *
All directors and executive officers
as a group (11 persons) (9) ..... 872,112 9.4%
</TABLE>
*less than 1%
(1) The shares shown as beneficially owned by J.P. Morgan & Co.,
Incorporated were those reported as beneficially owned by it as of January 31,
1997 in Amendment No. 3 to its Schedule 13G filed with the SEC. Such schedule
indicates that J.P. Morgan & Co., Incorporated has sole voting power with
respect to 701,100 shares and sole dispositive power with respect to all
1,120,950 shares.
(2) Includes 103,975 shares issuable upon exercise of options that are
exercisable within 60 days of February 28, 1997 and 5,659 shares either owned by
Dr. Banucci's spouse or issuable upon exercise of options within 60 days of
February 28, 1997 by Dr. Banucci's spouse. Dr. Banucci disclaims beneficial
ownership of the shares held by his spouse.
28
<PAGE>
(3) Includes 74,725 shares issuable upon exercise of options that are
exercisable within 60 days of February 28, 1997 and 5,537 shares either owned or
issuable upon exercise of options within 60 days of February 28, 1997 by Dr.
Steven's spouse. Dr. Stevens disclaims beneficial ownership of the shares held
by his spouse.
(4) Includes 69,637 shares issuable upon exercise of options that are
exercisable within 60 days of February 28, 1997 and 4,634 shares either owned or
issuable upon exercise of options within 60 days of February 28, 1997 by Dr.
Brown's spouse. Dr. Brown disclaims beneficial ownership of the shares held by
his spouse.
(5) Consists entirely of shares issuable upon exercise of options that are
exercisable within 60 days of February 28, 1997.
(6) Includes 11,250 shares issuable upon exercise of options that are
exercisable within 60 days of February 28, 1997.
(7) Includes 18,000 shares issuable upon exercise of options that are
exercisable within 60 days of February 28, 1997. Does not include 189,500 shares
beneficially owned by Merchant Investments, Inc. ("Merchant"). Mr. Mark A.
Adley, a director of the Company, is employed by Credit Suisse First Boston
Corporation, a wholly-owned subsidiary of Credit Suisse First Boston, Inc.
("CSFBI"), which indirectly wholly owns Merchant. Pursuant to an Asset
Management Agreement among CSFBI, certain affiliates of CSFBI (including
Merchant) and The Clipper Group, L.P. ("Clipper"), Clipper manages certain
investments for such persons, including these shares. Under the Asset Management
Agreement, Clipper has sole power to vote these shares but does not have the
power (sole or shared) to dispose of any such shares. Mr. Adley disclaims any
beneficial ownership of the shares owned by Merchant.
(8) Includes 4,500 shares issuable upon exercise of options that are
exercisable within 60 days of February 28, 1997.
(9) Includes 446,057 shares issuable to executive officers and directors
pursuant to options which are exercisable within 60 days of February 28, 1997.
Does not include an aggregate of 189,500 shares as to which a certain director
disclaims beneficial ownership (See Note (7)).
Item 13. Certain Relationships and Related Transactions
There are no relationships or transactions required to be reported herein.
29
<PAGE>
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K.
(a) (1) and (2) Financial Statements and Schedule
The report of independent auditors, consolidated financial statements and
financial statement schedules listed in the Index to Consolidated Financial
Statements and Financial Statement Schedule on page F-1 hereof are filed as part
of this report, commencing on page F-2 hereof.
All other financial statement schedules not listed in the Index are omitted
as the required information is not applicable or the information is given in the
financial statements or related notes.
(a) (3) Exhibits
3.01 (a) Restated Certificate of Incorporation, filed in Delaware on
December 1, 1993 (Filed as Exhibit 3.01 (a) to the Company's Form 10-K for the
year ended December 31, 1993, File No.0-22756 ("1993 Form 10-K") and
incorporated herein by reference)
(b) Certificate of Amendment to Restated Certificate of Incorporation
(Filed as Exhibit 3.01 to Form 10-Q for the quarter ended June 30, 1995, File
No.0-22756 ("June 30, 1995 Form 10-Q") and incorporated herein by reference)
3.02 Bylaws effective on December 1, 1993 (Filed as Exhibit 3.02 (a) to
1993 Form 10-K and incorporated herein by reference)
4.01 Specimen Certificate representing shares of Common Stock, $.01 par
value, of the registrant (Filed as Exhibit 4.01 to the Company's Registration
Statement or amendments thereto on Form S-1, Registration No. 33-69634 ("Form
S-1") and incorporated herein by reference) 10.01 (a) Teaming Agreement for
DARPA Contract Proposal and Resulting Program Relating to Barium Titanate-Based
DRAM Technology dated August 10,1992 between Advanced Technology Materials,
Inc., IBM, Texas Instruments, Micro Semiconductor, Inc. and Lam Research
Corporation (Filed as Exhibit 10.04 (a) to Form S-1 and incorporated herein by
reference)
(b) Amendment No. 1 to the Teaming Agreement dated November 5, 1992 (Filed
as Exhibit 10.04 (b) to Form S-1 and incorporated herein by reference)
(c) Amendment No. 2 to the Teaming Agreement dated February 4, 1993 (Filed
as Exhibit 10.04 (c) to Form S-1 and incorporated herein by reference)
(d) Agreement with the United States Defense Advanced Research Projects
Agency (DARPA) dated April 8, 1993 re: "Ultra-Dense Capacitor Materials
Processing Partnership" for $5,020,194 (Filed as Exhibit 10.04 (d) to Form S-1
and incorporated herein by reference)
10.02 Form of Key Employee Agreement between Advanced Technology Materials,
Inc. and each of Eugene G. Banucci, Duncan W. Brown, Ward C. Stevens and Peter
S. Kirlin (Filed as Exhibit 10.05 to Form S-1 and incorporated herein by
reference)
10.03 (a) License, Marketing and Development Agreement between Advanced
Technology Materials, Inc. and Millipore Corporation dated November 17, 1987
(Filed as Exhibit 10.07 (a) to Form S-1 and incorporated herein by reference)
30
<PAGE>
(b) Agreement of Amendment, Amendment #1 to License, Marketing and
Development Agreement dated June 27, 1991 (Filed as Exhibit 10.07 (b) to Form
S-1 and incorporated herein by reference)
(c) Agreement of Amendment, Amendment #2 to License, Marketing and
Development Agreement dated October 1, 1992 (Filed as Exhibit 10.07 (c) to Form
S-1 and incorporated herein by reference)
(d) Agreement of Amendment, Amendment #3 to License, Marketing and
Development Agreement dated September 26, 1994 (Filed as Exhibit 10.06 (d) to
Form 10-K for the year ended December 31, 1994, File No. 0-22756 ("1994 Form
10-K") and incorporated herein reference)
10.04 (a) Letter Agreement between Advanced Technology Materials, Inc. and
Silicon Valley Bank dated September 29, 1994 (Filed as Exhibit 10.08 (a) to 1994
Form 10-K and incorporated herein by reference)
(b) Promissory Note from Advanced Technology Materials, Inc. to Silicon
Valley Bank dated September 7, 1994 (Filed as Exhibit 10.08 (b) to 1994 Form
10-K and incorporated herein by reference)
(c) Negative Pledge Agreement by and between Advanced Technology Materials,
Inc. and Silicon Valley Bank dated August 31, 1994 (Filed as Exhibit 10.08 (c)
to 1994 Form 10-K and incorporated herein by reference)
10.05 Agreement of Lease between Melvyn J. Powers and Mary P. Powers d/b/a
M&M Realty and Advanced Technology Materials, Inc. dated December 23, 1994
(Filed as Exhibit 10.09 to 1994 Form 10-K and incorporated herein by reference)
10.06 Lease Agreement between Montague Oaks Associates, Phase III and ATMI
EcoSys Corporation dated February 7, 1995 (Filed as Exhibit 10.10 to 1994 Form
10-K and incorporated herein by reference)
10.07 (a) Loan and Financing Agreement by and between Advanced Technology
Materials, Inc. and the Connecticut Development Authority dated June 27, 1995
(Filed as Exhibit 10.01(a) to June 30, 1995 Form 10-Q)
(b) Promissory Note from Advanced Technology Materials, Inc. to the
Connecticut Development Authority dated June 27, 1995 (Filed as Exhibit 10.01
(b) to June 30, 1995 Form 10-Q)
(c) Security Agreement by and between Advanced Technology Materials, Inc.
and the Connecticut Development Authority dated June 27, 1995 (Filed as Exhibit
10.01(c) to June 30, 1995 Form 10-Q)
(d) Stock Subscription Warrant granted to the Connecticut Development
Authority dated June 27, 1995 (Filed as Exhibit 10.01(d) to June 30, 1995 Form
10-Q)
10.08 (a) Letter Agreement between Advanced Technology Materials, Inc. and
Silicon Valley Bank dated September 22, 1995 (Filed as Exhibit 10.08(d) to the
Company's Form 10-K for the December 31, 1995, File No. 0-22756 ("1995 Form
10-K") and incorporated herein by reference)
(b) Promissory Note from Advanced Technology Materials, Inc. to Silicon
Valley Bank dated September 22, 1995 (Filed as Exhibit 10.08(d) to the 1995 Form
10-K and incorporated herein by reference)
10.09 Loan Agreement between Advanced Technology Materials, Inc. and
Silicon Valley Bank dated December 27, 1996 (Filed herewith)
11.01 Statement re: computation of per share earnings (Filed herewith)
21.01 Subsidiaries of the registrant (Filed herewith)
23.01 Consent of Ernst & Young LLP (Filed herewith)
27.01 Financial Data Schedule (Filed herewith)
b) Reports on Form 8-K
None
31
<PAGE>
<PAGE>
F-1
Index to Consolidated Financial Statements and Financial Statement Schedule
Report of Independent Auditors F-2
Consolidated Balance Sheet at December 31, 1996 and 1995 F-3
Consolidated Statement of Income for the years ended December 31, 1996,
1995 and 1994 F-4
Consolidated Statement of Stockholders' Equity for the years
ended December 31, 1996, 1995 and 1994 F-5
Consolidated Statement of Cash Flows for the years
ended December 31, 1996, 1995 and 1994 F-6
Notes to Consolidated Financial Statements F-7
Financial Statement Schedule
Schedule II - Valuation and qualifying accounts F-16
F-1
<PAGE>
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders of
Advanced Technology Materials, Inc.
We have audited the accompanying consolidated balance sheet of Advanced
Technology Materials, Inc. as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1996. Our audits also
included the financial statement schedule listed in the Index at Item 14 (a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Advanced Technology Materials, Inc. at December 31, 1996 and 1995, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Stamford, Connecticut
February 14, 1997
F-2
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Advanced Technology Materials, Inc.
Consolidated Balance Sheet
--------------------------
December 31,
Assets 1996 1995
- ------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 1) $ 4,437,015 $ 3,609,265
Marketable (Notes 1 and 2) 16,969,073 21,855,473
securities
Accounts receivable, net of allowance
for doubtful accounts
of $141,504 in 1996, $93,491 in 1995 (Note 3) 9,377,777 9,233,015
Inventories (Notes 1 and 4) 4,541,282 2,647,142
Other 500,324 345,486
------- -------
Total current assets 35,825,471 37,690,381
Property and equipment, net (Notes 1 and 5) 8,102,218 5,575,343
Long-term investment (Note 6) 1,000,000 1,000,000
Goodwill and other long term assets,
net (Notes 1 and 11) 5,190,758 5,532,216
--------- ---------
$ 50,118,447 $ 49,797,940
============ ============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 3,469,530 $ 3,121,355
Accrued expenses 1,996,587 1,799,322
Accrued commissions 1,378,888 984,443
Accrued payroll and benefits 465,280 210,717
Notes payable, current portion (Note 7) 621,463 4,725,238
Other 790,261 625,495
------- -------
Total current liabilities 8,722,009 11,466,570
Notes payable, less current portion (Note 7) 4,944,517 5,257,155
Other long-term liabilities 59,382 177,086
Stockholders' equity: (Note 10)
Preferred stock, par value $.01:
1,000,000 shares authorized;
none issued and outstanding -- --
Common stock, par value $.01:
15,000,000 shares authorized;
issued and outstanding 8,775,810
in 1996 and 8,721,61 87,758 87,216
Additional paid-in capital 37,234,277 37,060,652
Accumulated deficit (929,496) (4,250,739)
-------- ----------
Total stockholders' equity 36,392,539 32,897,129
---------- ----------
$ 50,118,447 $ 49,797,940
============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Advanced Technology Materials, Inc.
Consolidated Statement of Income
--------------------------------
Year ended December 31
----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues (Note 1):
Product revenues $ 36,503,728 $ 21,336,408 $ 12,538,246
Contract revenues 9,845,973 8,711,924 7,222,403
--------- --------- ---------
Total revenues 46,349,701 30,048,332 19,760,649
Cost of revenues:
Cost of product revenues 15,939,051 9,608,831 5,838,310
Cost of contract revenues 8,341,455 7,490,568 6,151,215
--------- --------- ---------
Total cost of revenues 24,280,506 17,099,399 11,989,525
---------- ---------- ----------
Gross profit 22,069,195 12,948,933 7,771,124
Operating expenses:
Research and development (Note 1) 7,626,534 4,205,997 3,414,536
Selling, general,
and administrative 11,509,827 8,557,730 5,588,171
---------- --------- ---------
19,136,361 12,763,727 9,002,707
---------- ---------- ---------
Operating income (loss) 2,932,834 185,206 (1,231,583)
Interest income 1,113,548 737,948 501,884
Interest expense (Note 7) (485,660) (234,951) (111,612)
Other income, net (Notes 11 and 12) -- -- 3,601,042
--------- --------- ---------
627,888 502,997 3,991,314
Income before taxes 3,560,722 688,203 2,759,731
Income taxes (Note 9) 239,479 134,157 123,600
------- ------- -------
Net income $ 3,321,243 $ 554,046 $ 2,636,131
============ ============ ============
Net income per share (Note 1) $ 0.35 $ 0.07 $ 0.35
============ ============ ============
Weighted average shares outstanding
(Note 1) 9,359,021 8,074,032 7,595,193
========= ========= =========
</TABLE>
See accompanying notes.
F-4
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Advanced Technology Materials, Inc.
Consolidated Statement of Stockholders' Equity
----------------------------------------------
Additional
Common Paid-in Accumulated
Stock Capital Deficit Total
--------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 $69,406 $19,470,767 $(7,440,916) $12,099,257
Issuance of 24,440 common shares
pursuant to the exercise of
employee stock options 244 11,529 -- 11,773
Issuance of 74,017 common shares
pursuant to the exercise of
warrants 740 36,760 -- 37,500
Net income -- -- 2,636,131 2,636,131
--------- --------- --------- ---------
Balance at December 31, 1994 70,390 19,519,056 (4,804,785) 14,784,661
Issuance of 137,571 common shares
pursuant to the exercise of
employee stock options 1,376 111,979 -- 113,355
Sale of 1,525,000 common shares,
net of issuance costs 15,250 17,177,317 -- 17,192,567
Issuance of 20,000 common shares
pursuant to the acquisition of
Epitronics 200 202,300 -- 202,500
Compensation from the issuance of
common stock options -- 50,000 -- 50,000
Net income -- -- 554,046 554,046
--------- --------- --------- ---------
Balance at December 31, 1995 87,216 37,060,652 (4,250,739) 32,897,129
Issuance of 54,199 common shares
pursuant to the exercise of
employee stock options 542 173,625 -- 174,167
Net income -- -- 3,321,243 3,321,243
--------- --------- --------- ---------
Balance at December 31, 1996 $87,758 $37,234,277 $ (929,496) $36,392,539
======= =========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Advanced Technology Materials, Inc.
Consolidated Statement of Cash Flows
------------------------------------
Year ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating activities
Net income $3,321,243 $554,046 $2,636,131
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Depreciation and amortization 2,295,336 1,409,086 1,058,950
Gain on restructuring of joint venture -- -- (4,609,634)
Stock option compensation -- 50,000 --
Gain on disposal of property and equipment -- -- (20,626)
Changes in operating assets and liabilities
Increase in accounts receivable (144,762) (3,774,193) (904,666)
Increase in inventory (2,118,192) (478,952) (553,327)
Increase in other assets (215,263) (134,087) (16,196)
Increase in accounts payable 348,175 595,692 423,895
Increase in accrued expenses 846,273 324,345 730,414
(Decrease) increase in
other liabilities (52,938) 227,927 (86,669)
Total adjustments 958,629 (1,780,182) (3,977,859)
------- ---------- ----------
Net cash provided (used)
by operating activities 4,279,872 (1,226,136) (1,341,728)
--------- ---------- ----------
Investing activities
Capital expenditures (4,694,246) (3,604,139) (1,784,946)
Long-term investment -- (1,000,000) --
Sale (purchase) of
marketable securities, net 4,886,400 (11,212,815) 2,432,635
Payments to Vector shareholders -- -- (93,309)
Payments for acquisitions (4,000,000) (550,000) --
Proceeds from sale of assets 597,970 -- --
Net cash received from
joint venture restructuring -- -- 2,457,308
--------- ---------- ----------
Net cash (used) provided
by investing activities (3,209,876) (16,366,954) 3,011,688
---------- ----------- ---------
Financing activities
Proceeds from issuance of notes payable 727,216 2,588,169 1,011,438
Principal payments on notes payable (1,143,629) (741,133) (1,049,605)
Proceeds from sale of common stock -- 17,192,567 --
Proceeds from exercise of stock options
and warrants 174,167 113,355 49,273
------- ------- ------
Net cash (used) provided
by financing activities (242,246) 19,152,958 11,106
-------- ---------- ------
Net increase in cash and cash equivalents 827,750 1,559,868 1,681,066
Cash and cash equivalents, beginning
of year 3,609,265 2,049,397 368,331
--------- --------- -------
Cash and cash equivalents, end of year $4,437,015 $3,609,265 $2,049,397
========== ========== ==========
</TABLE>
See accompanying notes.
F-6
<PAGE>
<PAGE>
Advanced Technology Materials, Inc.
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Company's Activities
The activities of Advanced Technology Materials, Inc. and its subsidiaries
(the Company") are focused on providing products and services to the
semiconductor industry. The Company is engaged in the development, manufacture
and sale of equipment and materials based on the Company's proprietary chemical
vapor deposition ("CVD") technologies. Revenues are derived from the sale of
point-of-use environmental equipment and specialty materials and delivery
systems for the semiconductor industry. The Company also derives revenues from
contract research and development activities related to high performance
semiconductor materials and devices and royalties generated under various
license agreements.
Principles of Consolidation
The consolidated financial statements include the accounts of Advanced
Technology Materials, Inc. and all wholly and majority owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Revenue Recognition
Product revenues are recognized upon shipment of goods. Contract revenues
under fixed-price and cost-reimbursement-type contracts are recognized using the
percentage of completion method based upon costs incurred and estimated future
costs. Contract revenues from the U.S. Government were $9,845,973, $8,711,924
and $7,018,455 for the years ended December 31, 1996, 1995, and 1994
respectively.
Use of Estimates
The preparation of the 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 may differ from those estimates.
Research and Development
Research and development costs, including materials, labor, and overhead
related to self-funded projects and cost sharing arrangements with the U.S.
Government, are expensed as incurred.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Marketable Securities
Marketable securities are classified as available for sale and are reported
at fair value, which approximates cost. Management determines the appropriate
classification of debt securities at the time of purchase and and reevaluates
such designation as of each balance sheet date.
F-7
<PAGE>
<PAGE>
Advanced Technology Materials, Inc.
Notes to Consolidated Financial Statements
(continued)
The cost of securities sold is based on the specific reevaluates such
designation as of each balance sheet date. The cost of securities sold is based
on the specific identification method. Interest on these securities is included
in interest income.
Inventories
Inventories are stated at the lower of cost or market on the first-in,
first-out (FIFO) method.
Property and Equipment
Property and equipment is stated at cost. Depreciation and amortization of
property and equipment is computed using the straight-line method over the
estimated useful lives of the assets, which vary from three to ten years.
Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109).
Under FAS 109, the liability method is used in accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based upon
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.
Fair Values of Financial Instruments
Fair values of cash and cash equivalents, short-term investments and
short-term debt approximate cost due to the short period of time to maturity.
The fair value of long term debt approximates the carrying amount.
Long Lived Assets
The Company reviews on a periodic basis the value of its long-lived assets
to determine whether an impairment exists. At December 31, 1996, no such
impairment existed. Goodwill and other long term assets are stated net of
accumulated amortization of $292,500 and $75,386 at December 31, 1996 and 1995,
respectively.
Stock Based Compensation
Effective in fiscal year 1996, the company adopted Financial Accounting
Statement No. 123, "Accounting for Stock-Based Compensation." This statement
defines a fair value based method of accounting for employee stock compensation
plans. However, it also allows an entity to continue to measure compensation
cost for those plans in accordance with Accounting Principle Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees." Under APB No. 25,
compensation cost is the excess, if any, of the quoted market price of the stock
at the grant date over the amount the employee must pay to acquire the stock.
The company has elected to continue to account for its employee stock
compensation plans under APB No. 25. Pro forma disclosures of net earnings and
earnings per share, as if the fair value based method of accounting had been
applied, are presented in Note 10.
Per Share Data
Earnings per common share are computed using the treasury stock method
based on the weighted average number of common shares and common stock
equivalent shares outstanding during the period. Shares outstanding have been
restated to include those shares that would have been issued in connection with
the Vector acquisition (see Note 11) in each of the periods presented. Shares
from the assumed exercise of options and warrants granted by the Company have
been included in the computations of earnings per share for all periods, unless
their inclusion would be antidilutive.
F-8
<PAGE>
2. Marketable Securities
<TABLE>
<CAPTION>
Marketable securities are comprised of the following:
December 31,
------------
1996 1995
---- ----
<S> <C> <C>
U.S. Government Obligations .............. $9,537,690 $14,080,978
Corporate Obligations .................... 7,431,383 7,774,495
--------- ---------
$16,969,073 $21,855,473
=========== ===========
</TABLE>
All of the Company's marketable securities have maturities of less than two
years.
3. Accounts Receivable
Amounts due from various agencies of the United States Government were
approximately 22% of accounts receivable for both December 31, 1996 and 1995,
respectively. Unbilled accounts receivable amounted to $757,172 and $586,358 and
customer advances, included in other liabilities, amounted to $275,653 and
$446,995 at December 31, 1996 and 1995, respectively.
Credit is extended to commercial customers based on an evaluation of their
financial condition and collateral is not generally required. Certain
transactions with foreign customers are supported by letters of credit. The
Company maintains an allowance for doubtful accounts at a level that management
believes is sufficient to cover potential credit losses.
4. Inventories
<TABLE>
<CAPTION>
Inventories are comprised of the following:
December 31,
------------
1996 1995
---- ----
<S> <C> <C>
Raw materials $4,143,818 $2,252,841
Work in process 686,898 614,069
Finished goods 369,846 59,291
------- ------
5,200,562 2,926,201
Obsolescence reserve (659,280) (279,059)
-------- --------
$4,541,282 $2,647,142
========== ==========
</TABLE>
F-9
<PAGE>
<PAGE>
5. Property and Equipment
<TABLE>
<CAPTION>
Property and equipment is comprised of the following:
December 31,
------------
1996 1995
---- ----
<S> <C> <C>
Machinery and equipment .............. $11,610,508 $8,734,575
Furniture and fixtures ............... 708,072 565,020
Leasehold improvements ............... 3,516,401 2,218,837
--------- ---------
15,834,981 11,518,432
Accumulated depreciation
and amortization .................. (7,732,763) (5,943,089)
---------- ----------
$8,102,218 $5,575,343
========== ==========
</TABLE>
Depreciation expense for the years ended December 31,1996, 1995 and 1994
was $1,895,142, $1,333,700 and $1,058,950, respectively.
6. Long-Term Investment
On April 1, 1995, the Company purchased $1,000,000 of convertible preferred
stock of Candescent Technologies Corporation ("CTC"), formerly Silicon Video
Corporation, a San Jose-based developer of flat panel displays. This stock is
convertible into common shares on a one-to-one basis and has certain dividend,
liquidation, and voting rights equivalent with other preferred stockholders of
CTC. In conjunction with this investment, the Company has expanded its
collaboration with CTC to include further joint research and development
programs and manufacturing rights related to certain components of CTC's "Thin
CRT." The investment is recorded at cost.
7. Notes Payable
<TABLE>
<CAPTION>
Notes payable consist of the following:
December 31,
------------
1996 1995
---- ----
<S> <C> <C>
Note payable in conjunction
with acquisition of Guardian Systems,
bearing interest at 5.4%,
due on January 4, 1996 ..................... $ -- $4,000,000
Note payable in conjunction with
acquisition of Guardian Systems,
bearing interest at 8.5% and 8.25%
at December 31, 1996 and 1995, due
in three annual installments
beginning January 1, 1999 ................... 2,000,000 2,000,000
Term loan with Connecticut state
agency, bearing interest at 6% at
December 31, 1996 and 1995,
respectively, due through June 2002 ......... 1,300,000 1,300,000
Term loan with Connecticut state
agency, bearing interest at 5%,
due on April 1, 2001 ........................ 500,000 --
Equipment credit line with a
commercial bank, bearing interest
at 9% and 9.5% at December 31, 1996
and 1995, respectively, due through
June 2000 ................................... 1,701,453 2,018,808
Other notes payable .......................... 64,527 663,585
------ -------
5,565,980 9,982,393
Less current portion ......................... (621,463) (4,725,238)
-------- ----------
$4,944,517 $5,257,155
========== ==========
</TABLE>
F-10
<PAGE>
<TABLE>
<CAPTION>
The approximate aggregate debt maturities are as follows:
<S> <C>
Year ending December 31:
1997 $ 621,463
1998 687,056
1999 1,246,011
2000 933,562
2001 1,344,731
thereafter 733,157
-------
$5,565,980
==========
</TABLE>
The seven-year term loan of $1,300,000 is collateralized by various
equipment, leasehold improvements and renovations in the Company's Connecticut
facility.
The Company's equipment credit lines bear interest at prime plus 1/2% per
annum and are collateralized by certain assets. The Company is in compliance
with the credit line covenants, including maintaining certain liquidity,
leverage, and tangible net worth levels.
In December, 1996, the Company obtained a $10 million unsecured line of
credit with a commercial bank which permits borrowing levels tied to a
percentage of accounts receivable and inventories. This line bears interest at
prime (with LIBOR options) and expires on December 26, 1997. There were no
borrowings under this line at December 31, 1996.
Interest paid was $481,129, $239,482 and $111,612 for the years ended
December 31, 1996, 1995 and 1994, respectively.
8. Leases
The Company leases office and manufacturing facilities under several
operating leases. The lease for its Danbury, Connecticut facility expires in
August 2005 while the EcoSys San Jose, California facility lease expires in
March 2002. Rental expense was $889,594, $435,908 and $345,976 for the years
ended December 31, 1996, 1995 and 1994, respectively.
The following is a schedule of future minimum lease payments for operating
leases as of December 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Operating
Year ending December 31: Leases
- ------------------------ ------
1997 $ 875,356
1998 765,886
1999 763,734
2000 685,865
2001 694,096
thereafter 1,826,849
---------
Total minimum lease payments $5,611,786
==========
</TABLE>
F-11
<PAGE>
9. Income Taxes
At December 31, 1996, the Company had loss carryforwards for United States
federal income tax purposes of approximately $2,800,000 and research and
development tax credit carryforwards of approximately $326,000 expiring in 2001
through 2010. It also had alternative minimum tax credit carryforwards of
approximately $85,000, with no expiration. For state tax purposes, the Company
had loss carryforwards of approximately $1,800,000 expiring between 1997 and
2000.
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Accrued liabilities ...................... $139,000 $282,000
Net operating loss carryforwards
and tax credits ......................... 829,000 1,823,000
Inventory reserves ....................... 577,000 281,000
Other, net ............................... 161,000 482,000
------- -------
1,706,000 2,868,000
Deferred tax liabilities - none ............. - -
Net deferred tax assets ..................... 1,706,000 2,868,000
Valuation allowance ......................... (1,706,000) (2,868,000)
---------- ----------
Amount recognized in the financial statements $ - $ -
</TABLE>
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to the Company's tax expense is:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
U.S. statutory rate ............. $1,210,600 $233,900 $935,700
State income taxes .............. 317,500 149,700 81,900
Net operating loss
carryforward utilization ....... (1,263,100) (263,600) (894,000)
Other, net ...................... (25,271) 14,157 --
------- ------ ------
$239,479 $134,157 $123,600
======== ======== ========
</TABLE>
10. Stockholders' Equity
In October 1995, the Company completed a public offering of 1,600,000
shares of common stock at $12.25 per share. Net proceeds to the Company of
$17,192,567 were from 1,525,000 shares sold by the Company while 75,000 shares
were sold for various selling shareholders. Costs of the offering, including
underwriting commissions, amounted to $1,488,683.
An amendment of the Company's Restated Certificate of Incorporation
approved by its shareholders in May 1995, provided for an increase in the
Company's authorized common shares to 15,000,000.
F-12
<PAGE>
<PAGE>
Stock Plans
In May 1995, the Company's shareholders approved the adoption of the 1995
Stock Plan ("1995 Plan"), which provides for the granting of up to 500,000
nonqualified stock options, "incentive stock options" (ISOs") and stock
appreciation rights to employees, directors and consultants of the Company.
The Company's 1987 Stock Plan (the "1987 Plan"), as amended, provides for
the granting of up to 1,115,833 nonqualified stock options and "incentive stock
options" ("ISOs").
Under the terms of both stock plans, nonqualified options granted may not
be at a price of less than 50% of the fair market value of the common stock, and
ISOs granted may not be at a price of less than 100% of fair market value of the
common stock on the date of grant.
Options are generally exercisable commencing one year after the date of
grant at the rate of 20% per annum on a cumulative basis. Nonqualified options
expire up to ten years and one month from the date of grant, and ISOs expire
five to ten years from the date of grant.
<TABLE>
<CAPTION>
Number of Option price
Shares per share
------ ---------
<S> <C> <C>
Options outstanding at December 31, 1993 ........ 724,046 $.28-$7.00
Granted ....................................... 156,900 $5.00-$6.38
Canceled ...................................... (22,910) $.44-$7.00
Exercised ..................................... (24,440) $.28-$ .53
------- ---- -----
Options outstanding at December 31, 1994 ........ 833,596 $.28-$7.00
Granted ....................................... 305,950 $6.88-$13.88
Canceled ...................................... (27,670) $.53-$6.38
Exercised ..................................... (137,571) $.28-$5.50
-------- ---- -----
Options outstanding at December 31, 1995 ........ 974,305 $.28-$13.88
Granted ....................................... 92,500 $9.88-$17.63
Canceled ...................................... (53,590) $.53-$12.50
Exercised ..................................... (54,999) $.28-$12.50
------- ---- ------
Options outstanding at December 31, 1996 ........ 958,216 $.28-$17.63
======= ==== ======
</TABLE>
At December 31, 1996, options for 567,066 shares are exercisable, and
options for 239,043 shares are available for grant. The weighted average
exercise price of options are $4.99 and $3.43 for 1996 and 1995, respectively.
The weighted average remaining contractual life of these options is 6.5 years.
If compensation expense for the Company's plans had been determined for all
stock option grants based on the fair value at the grant dates for awards under
those plans, consistent with the method described in SFAS No. 123, the Company's
net income and earnings per share would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net earnings: $3,000,000 $488,000
Earnings per share: $.32 $.06
</TABLE>
F-13
<PAGE>
During the initial phase-in period, as required by SFAS No. 123, the pro
forma amounts were determined based on the stock option grants subsequent to
January 1, 1995. Therefore, the pro forma amounts presented may not be
indicative of the effects of compensation cost on net earnings and earnings per
share in future years due to the timing of stock option grants and considering
that options generally vest over a five year period.
The fair value of each option grant, for pro forma disclosure purposes was
estimated on the date of grant using the Black-Scholes option pricing model with
the following weighted average assumptions for 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Expected dividend yield none none
Risk free interest rate 6.25% 6.10%
Expected volatility 54.6% 58.2%
Expected life of options 7.5 years 7.5 years
</TABLE>
The weighted average fair value of stock options granted in 1996 and 1995
was $8.21 and $6.72, respectively.
Warrants
In connection with its initial public offering, the Company granted
warrants to its underwriters to purchase 131,250 common shares at $11.25 per
share, which became exercisable on November 23, 1994 and expire on November 23,
1998. Additional warrants have been granted to agencies of the State of
Connecticut in connection with certain loan agreements with those agencies.
These warrants are for an aggregate of 70,000 shares at exercise prices ranging
from $10.13 to $11.25, of which 30,000 are vested as of December 31, 1996.
11. Mergers and Acquisitions
On December 30, 1995, the Company acquired certain assets pertaining to the
Guardian Systems ("Guardian") product line of Messer Greisheim Industries, Inc.
for $6,000,000. In connection with this purchase, the Company recorded
approximately $4,900,000 in goodwill to be amortized over twenty years. The
Guardian product line consists of thermal destruction units used in the
treatment of effluent in the semiconductor industry. The product line has become
part of the Company's Ecosys operation.
During 1995, the Company also acquired the assets of two businesses in
exchange for 20,000 shares of its Common Stock, $550,000 in cash and a $700,000
promissory note bearing interest at prime plus 1%, payable in equal quarterly
installments beginning in September 1995. In 1996, one of those businesses was
subsequently sold, the $700,000 promissory note was paid in full and a note
receivable of approximately $498,000 was recorded. This note receivable bears
interest at 8% and is payable on October 31, 1999.
The pro forma unaudited results of operations for the years ended December
31, 1995 and 1994, assuming the purchase of all the above businesses had been
consummated as of the beginning of each period presented, are as follows:
F-14
<PAGE>
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Revenues ................................. $35,466,000 $25,660,000
Net income ............................... 813,000 2,371,000
Net income per common share .............. $.10 $.31
</TABLE>
On September 15, 1994, the Company issued 698,505 shares of its Common
Stock and $93,309 in cash in exchange for all of the issued and outstanding
shares of common stock of Vector. In connection with this acquisition
approximately $1.0 million of costs were charged to other income, net, which
were non-recurring in nature and consisted primarily of professional fees,
compensation costs, and provisions for miscellaneous costs associated with the
integration and consolidation of Vector with the Company.
The Vector acquisition was treated as a pooling of interests. For the nine
months ended September 30, 1994 prior to the acquisition, revenues and net
income of Vector included in the financial statements are $3,149,037 and
$207,604.
12. Asset Sale and Restructuring Agreement
On September 28, 1994, the Company executed an Asset Sale and Restructuring
Agreement whereby certain assets of a majority owned subsidiary, valued at $.02
million, were sold in exchange for approximately $2.7 million in cash and a
royalty on future sales of certain products. A gain of approximately $4.6
million was recognized as a result of the transaction which is included in other
income, net. Revenue generated by these assets was $4,568,955. The net loss
incurred was $25,528 for the period from January 1, 1994 to September 28, 1994.
13. Geographic Data
During 1996 and 1995, the Company had export sales of approximately 31% and
29%, respectively. Sales to Asia, primarily Korea, were approximately 27% and
24% of the Company's revenues.
<TABLE>
<CAPTION>
Quarterly Results of Operations (unaudited)
(Thousands of Dollars, except per share amounts)
1996 --------------Quarter----------------- Year
- ---- ----
First Second Third Fourth
----- ------ ----- ------
<S> <C> <C> <C> <C> <C>
Net sales ............... $10,062 $12,376 $12,145 $11,767 $46,350
Gross profit ............ 4,780 6,122 5,786 5,381 22,069
Net income .............. 469 640 975 1,237 3,321
Income per share ........ $.05 $.07 $.10 $.13 $.35
</TABLE>
<TABLE>
<CAPTION>
1995 -------------Quarter----------------- Year
- ---- ----
First Second Third Fourth
----- ------ ----- ------
<S> <C> <C> <C> <C> <C>
Net sales ................ $6,066 $7,185 $7,996 $8,801 $30,048
Gross profit ............. 2,520 3,102 3,343 3,984 12,949
Net income (loss) ........ (158) 166 302 345 554
Income (loss) per share .. $(.02) $.02 $.03 $.04 $.07
</TABLE>
F-15
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Schedule II
ADVANCED TECHNOLOGY MATERIALS, INC.
VALUATION & QUALIFYING ACCOUNTS
Balance at
Beginning Charged to Balance at
Year Ended of Cost/ End of
---------- Period Expense Deductions Period
------ ------- ---------- ------
<S> <C> <C> <C> <C>
December 31, 1994
Allowance for doubtful accounts $ 42,399 $ 48,045 $ 8,003 $ 82,441
Inventory obsolescence reserve 139,117 215,100 77,849 276,368
December 31, 1995
Allowance for doubtful accounts 82,441 62,000 50,950 93,491
Inventory obsolescence reserve 276,368 126,776 124,085 279,059
December 31, 1996
Allowance for doubtful accounts 93,491 60,000 11,987 141,504
Inventory obsolescence reserve 279,059 380,221 0 659,280
</TABLE>
F-16
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Advanced Technology Materials, Inc.
March 26, 1997
By /S/ Eugene G. Banucci
Eugene G. Banucci, Ph.D., President, Chief Executive
Officer, Chairman of the Board and Director
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
President, Chief Executive
Officer, Chairman of the Board
/S/ Eugene G. Banucci and Director 3/26/97
Eugene G. Banucci, Ph.D.
Vice President, Chief Financial
Officer and Treasurer (Chief
/S/ Daniel P. Sharkey Accounting Officer) 3/26/97
Daniel P. Sharkey
Vice President, President-
/S/ Duncan W. Brown Epitronics, and Director 3/26/97
Duncan W. Brown, Ph.D.
Director
/S/ Mark A. Adley 3/26/97
Mark A. Adley
Director
/S/ Gary Andersen 3/26/97
Gary Andersen
Director
/S/ John A. Armstrong 3/26/97
John A. Armstrong, Ph.D.
Director
/S/ Robert S. Hillas 3/26/97
Robert S. Hillas
Director
/S/ Stephen H. Mahle 3/26/97
Stephen H. Mahle
</TABLE>
S-1
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit
No. Description
--- -----------
<S> <C>
10.09 Loan Agreement between Advanced Technology Materials, Inc. and
Silicon Valley Bank dated December 27, 1996
11.01 Statement re: computation of earnings per common share
21.01 Subsidiaries of the registrant
23.01 Consent of Ernst & Young LLP
27.01 Financial Data Schedule
</TABLE>
<PAGE>
<PAGE>
LOAN AGREEMENT
$10,000,000 WORKING CAPITAL LINE
PROVIDED BY
SILICON VALLEY BANK
TO
ADVANCED TECHNOLOGY MATERIALS, INC.
DECEMBER 27, 1996
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This LOAN AGREEMENT is entered into as of DECEMBER 27, 1996, by and between
SILICON VALLEY BANK, a California-chartered bank with its principal place of
business at 3003 Tasman Drive, Santa Clara, CA 95054 and with a loan production
office located at Wellesley Office Park, 40 William Street, Suite 350,
Wellesley, MA 02181, doing business under the name Silicon Valley East ("Bank"),
and ADVANCED TECHNOLOGY MATERIALS, INC., a Delaware corporation with its
principal place of business at 7 COMMERCE DRIVE, DANBURY, CONNECTICUT 06810
("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions. As used in this Agreement, the following terms shall have
the following definitions: "Accounts" means all presently existing and hereafter
arising accounts, contract rights, and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods (including, without
limitation, the licensing of software and other technology) or the rendering of
services by Borrower, whether or not earned by performance, and any and all
credit insurance, guaranties, and other security therefor, as well as all
merchandise returned to or reclaimed by Borrower and Borrower's Books relating
to any of the foregoing.
"Advance" or "Advances" means a loan Advance or Advances under the
Committed Revolving Line.
"Affiliate" means, with respect to any Person, any Person that owns or
controls directly or indirectly such Person, any Person that controls or is
controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, and partners.
"Bank Expenses" means all reasonable costs or expenses (including
reasonable attorneys' fees and expenses) incurred in connection with the
preparation, negotiation, administration, and enforcement of the Loan Documents
and Bank's reasonable attorneys' fees and expenses incurred in amending,
enforcing or defending the Loan Documents, whether or not suit is brought.
"Borrower's Assets" means the property described on Exhibit A attached
hereto.
"Borrower's Books" means all of Borrower's books and records including:
ledgers; records concerning Borrower's Assets, liabilities, business operations
or financial condition; and all computer programs, or tape files, and the
equipment, containing such information.
"Borrowing Base" has the meaning set forth in Section 2.1 hereof.
"Business Day" means any day that is not a Saturday, Sunday, or other day
on which banks in the State of California are authorized or required to close.
"Closing Date" means the date of this Agreement.
"Code" means the Massachusetts Uniform Commercial Code.
"Committed Revolving Line" means TEN MILLION AND NO/100THS Dollars
($10,000,000).
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"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to (i)
any indebtedness, lease, dividend, letter of credit or other obligation of
another, including, without limitation, any such obligation directly or
indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by
that Person, or in respect of which that Person is otherwise directly or
indirectly liable; (ii) any obligations with respect to undrawn letters of
credit issued for the account of that Person; and (iii) all obligations arising
under any interest rate, currency or commodity swap agreement, interest rate cap
agreement, interest rate collar agreement, or other agreement or arrangement
designated to protect a Person against fluctuation in interest rates, currency
exchange rates or commodity prices; provided, however, that the term "Contingent
Obligation" shall not include endorsements for collection or deposit in the
ordinary course of business. The amount of any Contingent Obligation shall be
deemed to be an amount equal to the stated or determined amount of the primary
obligation in respect of which such Contingent Obligation is made or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof as determined by such Person in good faith; provided, however, that such
amount shall not in any event exceed the maximum amount of the obligations under
the guarantee or other support arrangement.
"Current Assets" means, as of any applicable date, all amounts that should,
in accordance with GAAP, be included as current assets on the consolidated
balance sheet of Borrower and its Subsidiaries as at such date.
"Current Liabilities" means, as of any applicable date, all amounts that
should, in accordance with GAAP, be included as current liabilities on the
consolidated balance sheet of Borrower and its Subsidiaries, as at such date,
plus, to the extent not already included therein, all outstanding Advances made
under this Agreement, including all Indebtedness that is payable upon demand or
within one year from the date of determination thereof unless such Indebtedness
is renewable or extendable at the option of Borrower or any Subsidiary to a date
more than one year from the date of determination, but excluding Subordinated
Debt.
"Daily Balance" means the amount of the Obligations owed at the end of a
given day.
"Eligible Accounts" means those Accounts that arise in the ordinary course
of Borrower's business that comply with all of Borrower's representations and
warranties to Bank set forth in Section 5.4; provided, that standards of
eligibility may be fixed and revised from time to time by Bank in Bank's
reasonable judgment and upon notification thereof to Borrower in accordance with
the provisions hereof. Unless otherwise agreed to by Bank, Eligible Accounts
shall not include the following:
(a) Accounts that the account debtor has failed to pay within ninety (90)
days of invoice date;
(b) Accounts with respect to an account debtor, fifty percent (50%) of
whose Accounts the account debtor has failed to pay within ninety (90) days of
invoice date;
(c) Accounts with respect to which the account debtor is an officer,
employee, or agent of Borrower;
(d) Accounts with respect to which goods are placed on consignment,
guaranteed sale, sale or return, sale on approval, bill and hold, or other terms
by reason of which the payment by the account debtor may be conditional;
(e) Accounts with respect to which the account debtor is an Affiliate
(other than by virtue of being directly or indirectly under common ownership or
control with Borrower) of Borrower;
(f) Accounts with respect to which the account debtor does not have its
principal place of business in the United States, except for Eligible Foreign
Accounts, and Accounts arising from products shipped to or services provided to
branches or offices located in the United States of any account debtor that does
not have its principal place of business in the United States;
(g) Accounts with respect to which Borrower is liable to the account debtor
for goods sold or services rendered by the account debtor to Borrower, but only
to the extent of any amounts owing to the account debtor against amounts owed to
Borrower;
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(h) Accounts with respect to an account debtor, including Subsidiaries and
Affiliates, whose total obligations to Borrower exceed twenty-five percent (25%)
of all Accounts, to the extent such obligations exceed the aforementioned
percentage, except as approved in writing by Bank;
(i) Accounts with respect to which the account debtor disputes liability or
makes any claim with respect thereto as to which Bank believes, in its sole
discretion, that there may be a basis for dispute (but only to the extent of the
amount subject to such dispute or claim), or is subject to any Insolvency
Proceeding, or becomes insolvent, or goes out of business; and
(j) Accounts the collection of which Bank reasonably determines to be
doubtful.
"Eligible Foreign Accounts" means Accounts with respect to which the
account debtor does not have its principal place of business in the United
States and that are: (1) covered by credit insurance in form and amount, and by
an insurer satisfactory to Bank less the amount of any deductible(s) which may
be or become owing thereon; or (2) supported by one or more letters of credit in
favor of Bank as beneficiary, in an amount and of a tenor, and issued by a
financial institution, acceptable to Bank; or (3) that Bank approves on a
case-by-case basis.
"Eligible Inventory" means Borrower's raw materials Inventory that is
reflected on Borrower's financial statements, and that complies with the
representations and warranties set forth in Section 5.5.
"Equipment" means all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"ERISA" means the Employment Retirement Income Security Act of 1974, as
amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in effect from
time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or the
deferred purchase price of property or services, including without limitation
reimbursement and other obligations with respect to surety bonds and letters of
credit, (b) all obligations evidenced by notes, bonds, debentures or similar
instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or against any
person or entity under any provision of the United States Bankruptcy Code, as
amended, or under any other bankruptcy or insolvency law, including assignments
for the benefit of creditors, formal or informal moratoria, compositions,
extension generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"Inventory" means all present and future inventory in which Borrower has
any interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or at any time hereafter owned by or in the custody or
possession, actual or constructive, of Borrower, including such inventory as is
temporarily out of its custody or possession or in transit and including any
returns upon any accounts or other proceeds, including insurance proceeds,
resulting from the sale or disposition of any of the foregoing and any documents
of title representing any of the above, and Borrower's Books relating to any of
the foregoing.
"Investment" means any beneficial ownership (including stock, partnership
interest or other securities) of any Person, or any loan, advance or capital
contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
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"Loan Documents" means, collectively, this Agreement, any note or notes
executed by Borrower, and any other agreement entered into between Borrower and
Bank in connection with this Agreement, all as amended or extended from time to
time.
"Material Adverse Effect" means a material adverse effect on (i) the
business operations or condition (financial or otherwise) of Borrower and its
Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Negotiable Collateral" means all of Borrower's present and future letters
of credit of which it is a beneficiary, notes, drafts, instruments, securities,
documents of title, and chattel paper, and Borrower's Books relating to any of
the foregoing.
"Obligations" means all debt, principal, interest, Bank Expenses and other
amounts owed to Bank by Borrower pursuant to this Agreement or any other
agreement, whether absolute or contingent, due or to become due, now existing or
hereafter arising, including any interest that accrues after the commencement of
an Insolvency Proceeding and including any debt, liability, or obligation owing
from Borrower to others that Bank may have obtained by assignment or otherwise.
"Payment Date" means the 26th calendar day of each month.
"Periodic Payments" means all installments or similar recurring payments
that Borrower may now or hereafter become obligated to pay to Bank pursuant to
the terms and provisions of any instrument, or agreement now or hereafter in
existence between Borrower and Bank.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under this Agreement
or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in the
Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course of
business;
(e) Indebtedness incurred solely for the purpose of financing an
acquisition permitted by Section 7.3; and
(f) Indebtedness secured by Permitted Liens.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the Schedule; and
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(b) (i) marketable direct obligations issued or unconditionally guaranteed
by the United States of America or any agency or any State thereof maturing
within one (1) year from the date of acquisition thereof, (ii) commercial paper
maturing no more than one (1) year from the date of creation thereof and
currently having the highest rating obtainable from either Standard & Poor's
Corporation or Moody's Investors Service, Inc., and (iii) certificates of
deposit maturing no more than one (1) year from the date of investment therein
issued by Bank.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the Schedule or
arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental charges or
levies, either not delinquent or being contested in good faith by appropriate
proceedings, provided the same have no priority over any of Bank's security
interests;
(c) Liens (i) upon or in any equipment acquired or held by Borrower or any
of its Subsidiaries to secure the purchase price of such equipment or
indebtedness incurred solely for the purpose of financing the acquisition of
such equipment, or (ii) existing on such equipment at the time of its
acquisition, provided that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such equipment;
(d) Liens on Equipment leased by Borrower or any Subsidiary pursuant to an
operating lease in the ordinary course of business (including proceeds thereof
and accessions thereto) incurred solely for the purpose of financing the lease
of such Equipment (including Liens pursuant to leases permitted pursuant to
Section 7.1 and Liens arising from UCC financing statements regarding leases
permitted by this Agreement); and
(e) Liens upon or in any stock or property acquired by Borrower or any of
its Subsidiaries to secure the purchase price of such stock or property in an
acquisition permitted by Section 7.3.
"Person" means any individual, sole proprietorship, partnership, limited
liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum, most recently
announced by Bank, as its "prime rate," whether or not such announced rate is
the lowest rate available from Bank.
"Quick Assets" means, at any date as of which the amount thereof shall be
determined, the consolidated cash, cash-equivalents, accounts receivable and
investments, with maturities not to exceed 90 days, of Borrower determined in
accordance with GAAP.
"Responsible Officer" means each of the Chief Executive Officer, the Chief
Financial Officer and the Controller of Borrower.
"Revolving Maturity Date" means December 26, 1997.
"Schedule" means the schedule of exceptions attached hereto.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank
(and identified as being such by Borrower and Bank).
"Subsidiary" means any corporation or partnership in which (i) any general
partnership interest or (ii) more than 50% of the stock of which by the terms
thereof ordinary voting power to elect the Board of Directors, managers or
trustees of the entity shall, at the time as of which any determination is being
made, be owned by Borrower, either directly or through an Affiliate.
"Tangible Net Worth" means at any date as of which the amount thereof shall
be determined, the consolidated total assets of Borrower and its Subsidiaries
minus, without duplication, (i) the sum of any amounts attributable to (a)
goodwill, (b) intangible items such as unamortized debt discount and expense,
patents, trade and service marks and names, copyrights and research and
development expenses except prepaid expenses, and (c) all reserves not already
deducted from assets, and (ii) Total Liabilities.
"Total Liabilities" means at any date as of which the amount thereof shall
be determined, all obligations that should, in accordance with GAAP be
classified as liabilities on the consolidated balance sheet of Borrower,
including in any event all Indebtedness, but specifically excluding Subordinated
Debt.
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1.2 Accounting Terms. All accounting terms not specifically defined herein
shall be construed in accordance with GAAP and all calculations made hereunder
shall be made in accordance with GAAP. When used herein, the terms "financial
statements" shall include the notes and schedules thereto.
2. LOAN AND TERMS OF PAYMENT
2.1 Advances. Borrower promises to pay to the order of Bank, in lawful
money of the United States of America, the aggregate unpaid principal amount of
all Advances made by Bank to Borrower hereunder and interest on the unpaid
principal amount of such Advances at such rates and at such times as provided
for in this Agreement, all as in accordance with the terms of this Agreement.
2.1.1 Revolving Advances. Subject to and upon the terms and conditions of
this Agreement, Bank agrees to make Revolving Advances to Borrower in an
aggregate amount not to exceed (i) the Committed Revolving Line or the Borrowing
Base, whichever is less minus (ii) the face amount of all outstanding Letters of
Credit (including drawn but unreimbursed Letters of Credit) and minus (iii) the
Foreign Exchange Reserve. For purposes of this Agreement, "Borrowing Base" shall
mean an amount equal to (i) EIGHTY percent (80%) of Eligible Accounts plus (ii)
the lesser of THIRTY percent (30%) of the value of Borrower's Eligible Inventory
(valued at the lower of cost or wholesale fair market value) or NINE HUNDRED
THOUSAND AND NO/100THS Dollars ($900,000). Subject to the terms and conditions
of this Agreement, amounts borrowed pursuant to this Section 2.1 may be repaid
and reborrowed at any time during the term of this Agreement.
Whenever Borrower desires a Revolving Advance, Borrower will notify Bank
(i) in the case of a Prime Rate loan, by facsimile transmission or telephone no
later than 3:00 p.m. Pacific time, on the Business Day that the Revolving
Advance is to be made, in which case each such notification shall be promptly
confirmed by a Payment/Advance Form in substantially the form of Exhibit B
hereto, or (ii) in the case of a LIBOR Rate loan in accordance with the
provisions of the LIBOR Supplement to Agreement, a copy of which is attached
hereto and incorporated herein. Bank is authorized to make Revolving Advances
under this Agreement, based upon instructions received from a Responsible
Officer, or without instructions if in Bank's discretion such Revolving Advances
are necessary to meet Obligations which have become due and remain unpaid. Bank
shall be entitled to rely on any telephonic notice given by a person who Bank
reasonably believes to be a Responsible Officer, and Borrower shall indemnify
and hold Bank harmless for any damages or loss suffered by Bank as a result of
such reliance. Bank will credit the amount of Revolving Advances made under this
Section 2.1 to Borrower's deposit account.
The Committed Revolving Line shall terminate on the Revolving Maturity
Date, at which time all Revolving Advances under this Section 2.1 and other
amounts due under this Agreement (except as otherwise expressly specified
herein) shall be immediately due and payable.
2.1.2 Letters of Credit.
(a) Subject to the terms and conditions of this Agreement, Bank agrees to
issue or cause to be issued Letters of Credit for the account of Borrower in an
aggregate outstanding face amount not to exceed (i) the lesser of the Committed
Revolving Line or the Borrowing Base, whichever is less, minus (ii) the then
outstanding principal balance of the Advances. Each Letter of Credit shall have
an expiry date no later than one hundred eighty (180) days after the Revolving
Maturity Date provided that Borrower's Letter of Credit reimbursement obligation
shall be secured by cash on terms acceptable to Bank at any time after the
Revolving Maturity Date if the term of this Agreement is not extended by Bank.
All Letters of Credit shall be, in form and substance, acceptable to Bank in its
sole discretion and shall be subject to the terms and conditions of Bank's form
of standard Application and Letter of Credit Agreement.
(b) The obligation of Borrower to immediately reimburse Bank for drawings
made under Letters of Credit shall be absolute, unconditional and irrevocable,
and shall be performed strictly in accordance with the terms of this Agreement
and such Letters of Credit, under all circumstances whatsoever. Borrower shall
indemnify, defend, protect, and hold Bank harmless from any loss, cost, expense
or liability, including, without limitation, reasonable attorneys' fees, arising
out of or in connection with any Letters of Credit, other than loss, cost,
expense or liability arising out of the gross negligence or willful misconduct
of Bank.
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(c) Borrower may request that Bank issue a Letter of Credit payable in a
currency other than United States Dollars. If a demand for payment is made under
any such Letter of Credit, Bank shall treat such demand as an Advance to
Borrower of the equivalent of the amount thereof (plus cable charges) in United
States currency at the then prevailing rate of exchange in San Francisco,
California, for sales of that other currency for cable transfer to the country
of which it is the currency.
(d) Upon the issuance of any letter of credit payable in a currency other
than United States Dollars, Bank shall create a reserve under the Committed
Revolving Line for letters of credit against fluctuations in currency exchange
rates, in an amount equal to ten percent (10%) of the face amount of such letter
of credit. The amount of such reserve may be amended by Bank from time to time
to account for fluctuations in the exchange rate. The availability of funds
under the Committed Revolving Line shall be reduced by the amount of such
reserve for so long as such letter of credit remains outstanding.
2.1.3 Foreign Exchange Contract; Foreign Exchange Settlements.
(a) Subject to the terms of this Agreement, Borrower may enter into foreign
exchange contracts (the "Exchange Contracts") not to exceed an aggregate amount
of (i) the lesser of the Committed Revolving Line or the Borrowing Base,
whichever is less, minus (ii) the then outstanding principal balance of the
Advances (the "Contract Limit"), pursuant to which Bank shall sell to or
purchase from Borrower foreign currency on a spot or future basis. Borrower
shall not request any Exchange Contracts at any time it is out of compliance
with any of the provisions of this Agreement. All Exchange Contracts must
provide for delivery of settlement on or before the Maturity Date. The amount
available under the Committed Revolving Line at any time shall be reduced by the
following amounts (the "Foreign Exchange Reserve") on any given day (the
"Determination Date"): (i) on all outstanding Exchange Contracts on which
delivery is to be effected or settlement allowed more than two business days
after the Determination Date, 10% of the gross amount of the Exchange Contracts;
plus (ii) on all outstanding Exchange Contracts on which delivery is to be
effected or settlement allowed within two business days after the Determination
Date, 100% of the gross amount of the Exchange Contracts.
(b) Bank may, in its discretion, terminate the Exchange Contracts at any
time (a) that an Event of Default occurs or (b) that there is not sufficient
availability under the Committed Revolving Line and Borrower does not have
available funds in its bank account to satisfy the Foreign Exchange Reserve. If
Bank terminates the Exchange Contracts, and without limitation of any applicable
indemnities, Borrower agrees to reimburse Bank for any and all fees, costs and
expenses relating thereto or arising in connection therewith.
(c) Borrower shall not permit the total gross amount of all Exchange
Contracts on which delivery is to be effected and settlement allowed in any two
business day period to be more than $750,000 (the "Settlement Limit") nor shall
Borrower permit the total gross amount of all Exchange Contracts to which
Borrower is a party, outstanding at any one time, to exceed the Contract Limit.
Notwithstanding the above, however, the amount which may be settled in any two
(2) business day period may be increased above the Settlement Limit up to, but
in no event to exceed, the amount of the Contract Limit under either of the
following circumstances:
(i) if there is sufficient availability under the Committed Revolving Line
in the amount of the Foreign Exchange Reserve as of each Determination Date,
provided that Bank in advance shall reserve the full amount of the Foreign
Exchange Reserve against the Committed Revolving Line; or
(ii) if there is insufficient availability under the Committed Revolving
Line, as to settlements within any two (2) business day period, provided that
Bank, in its sole discretion, may: (A) verify good funds overseas prior to
crediting Borrower's deposit account with Bank (in the case of Borrower's sale
of foreign currency); or (B) debit Borrower's deposit account with Bank prior to
delivering foreign currency overseas (in the case of Borrower's purchase of
foreign currency).
(d) In the case of Borrower's purchase of foreign currency, Borrower in
advance shall instruct Bank upon settlement either to treat the settlement
amount as an advance under the Committed Revolving Line, or to debit Borrower's
account for the amount settled.
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(e) Borrower shall execute all standard from applications and agreements of
Bank in connection with the Exchange Contracts and, without limiting any of the
terms of such applications and agreements, Borrower will pay all standard fees
and charges of Bank in connection with the Exchange Contracts.
(f) Without limiting any of the other terms of this Agreement or any such
standard form applications and agreement of Bank, Borrower agrees to indemnify
Bank and hold it harmless, from and against any and all claims, debts,
liabilities, demands, obligations, actions, costs and expenses (including,
without limitation, attorneys' fees of counsel of Bank's choice), of every
nature and description which it may sustain or incur, based upon, arising out
of, or in any way relating to any of the Exchange Contracts or any transactions
relating thereto or contemplated thereby, other than claims, debts, liabilities,
demands, obligations, actions, costs and expenses arising out of the gross
negligence or willful misconduct of Bank.
2.2 Overadvances. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Bank pursuant to Section 2.1 of this Agreement
is greater than the lesser of (i) the Committed Revolving Line or (ii) the
Borrowing Base, Borrower shall immediately pay to Bank, in cash, the amount of
such excess.
2.3 Interest Rates, Payments, and Calculations.
(a) Interest Rate. Except as set forth in Section 2.3(b), any Advances
shall bear interest on the average Daily Balance at the Prime Rates or the LIBOR
Rates as set forth on the attached LIBOR Supplement to Agreement, as applicable.
(b) Default Rate. All Obligations shall bear interest, from and after the
occurrence of an Event of Default, at a rate equal to three (3) percentage
points above the interest rate applicable under Section 2.3(a).
(c) Payments. Interest hereunder shall be due and payable on the Payment
Date of each month during the term hereof. Borrower hereby authorizes Bank to
debit any accounts with Bank, including, without limitation, Account Number
07-000537-70, for payments of principal and interest due on the Obligations, on
the Payment Date thereof, and any other amounts owing by Borrower to Bank. Bank
will notify Borrower of all debits which Bank makes against Borrower's accounts.
Any such debits against Borrower's accounts in no way shall be deemed a set-off.
Any interest not paid when due shall be compounded by becoming a part of the
Obligations, and such interest shall thereafter accrue interest at the rate then
applicable hereunder.
(d) Computation. In the event the Prime Rate is changed from time to time
hereafter, the applicable rate of interest hereunder shall be increased or
decreased effective as of 12:01 a.m. on the day the Prime Rate is changed, by an
amount equal to such change in the Prime Rate. All interest chargeable under the
Loan Documents shall be computed on the basis of a three hundred sixty (360) day
year for the actual number of days elapsed.
2.4 Crediting Payments.
Prior to the occurrence of an Event of Default, Bank shall credit a wire
transfer of funds, check or other item of payment to such deposit account or
Obligation as Borrower specifies. After the occurrence of an Event of Default,
the receipt by Bank of any wire transfer of funds, check, or other item of
payment shall be immediately applied to conditionally reduce Obligations, but
shall not be considered a payment on account unless such payment is of
immediately available federal funds or unless and until such check or other item
of payment is honored when presented for payment. Notwithstanding anything to
the contrary contained herein, any wire transfer or payment received by Bank
after 12:00 noon Pacific time shall be deemed to have been received by Bank as
of the opening of business on the immediately following Business Day. Whenever
any payment to Bank under the Loan Documents would otherwise be due (except by
reason of acceleration) on a date that is not a Business Day, such payment shall
instead be due on the next Business Day, and additional fees or interest, as the
case may be, shall accrue and be payable for the period of such extension.
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2.5 Fees. Borrower shall pay to Bank the following:
(a) Facility Fee. A Facility Fee equal to TWENTY FIVE THOUSAND Dollars
($25,000), which fee shall be due on or before the Closing Date and shall be
fully earned and non-refundable;
(b) Financial Examination and Appraisal Fees. Bank's customary fees and
out-of-pocket expenses for Bank's audits of Borrower's Accounts, and for each
appraisal of Borrower's Assets and financial analysis and examination of
Borrower performed from time to time by Bank or its agents; provided, however,
that prior to the occurrence of an Event of Default Bank shall not perform such
analyses and examinations more frequently than annually;
(c) Bank Expenses. Upon demand from Bank, including, without limitation,
upon the date hereof, all Bank Expenses incurred through the date hereof,
including reasonable attorneys' fees and expenses, and, after the date hereof,
all Bank Expenses, including reasonable attorneys' fees and expenses, as and
when they become due.
2.6 Additional Costs. In case any law, regulation, treaty or official
directive or the interpretation or application thereof by any court or any
governmental authority charged with the administration thereof or the compliance
with any guideline or request of any central bank or other governmental
authority (whether or not having the force of law):
(a) subjects Bank to any tax with respect to payments of principal or
interest or any other amounts payable hereunder by Borrower or otherwise with
respect to the transactions contemplated hereby (except for taxes on the overall
net income of Bank imposed by the United States of America or any political
subdivision thereof);
(b) imposes, modifies or deems applicable any deposit insurance, reserve,
special deposit or similar requirement against assets held by, or deposits in or
for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to its performance
under this Agreement, and the result of any of the foregoing is to increase the
cost to Bank, reduce the income receivable by Bank or impose any expense upon
Bank with respect to any loans, Bank shall notify Borrower thereof. Borrower
agrees to pay to Bank the amount of such increase in cost, reduction in income
or additional expense as and when such cost, reduction or expense is incurred or
determined, upon presentation by Bank of a statement of the amount and setting
forth Bank's calculation thereof, all in reasonable detail, which statement
shall be deemed true and correct absent manifest error.
2.7 Term. Except as otherwise set forth herein, this Agreement shall become
effective on the Closing Date and, subject to Section 12.7, shall continue in
full force and effect for a term ending on the Revolving Maturity Date.
Notwithstanding the foregoing, Bank shall have the right to terminate its
obligation to make Advances under this Agreement immediately and without notice
upon the occurrence, and during the continuance, of an Event of Default.
3. CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Advance. The obligation of Bank to make
the initial Advance is subject to the condition precedent that Bank shall have
received, in form and substance satisfactory to Bank, the following:
(a) this Agreement and the Working Capital Note each duly executed by
Borrower;
(b) a certificate of the Secretary of Borrower with respect to incumbency
and resolutions authorizing the execution and delivery of this Agreement;
(c) financing statements (Forms UCC-1) evidencing Borrower's negative
pledge set forth in Section 7.5 of this Agreement;
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(d) a Borrowing Base Certificate signed by a Responsible Officer in
substantially the form of Exhibit C hereto, together with aged listings of
accounts receivable and accounts payable;
(e) insurance certificate(s);
(f) payment of the fees and Bank Expenses then due specified in Section 2.5
hereof; and
(g) such other documents, and completion of such other matters, as Bank may
reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Advances. The obligation of Bank to make
each Advance, including the initial Advance, is further subject to the following
conditions:
(a) timely receipt by Bank of (i) the Payment/Advance Form as provided in
Section 2.1 in the case of a Prime Rate loan, or the LIBOR Rate Loan Borrowing
Certificate attached as Schedule A to the LIBOR Supplement to Agreement, in the
case of a LIBOR Rate loan; and
(b) the representations and warranties contained in Section 5 shall be true
and correct in all material respects on and as of the date of such
Payment/Advance Form and on the effective date of each Advance as though made at
and as of each such date, and no Event of Default shall have occurred and be
continuing, or would result from such Advance. The making of each Advance shall
be deemed to be a representation and warranty by Borrower on the date of such
Advance as to the accuracy of the facts referred to in this Section 3.2(b).
4. CREATION OF SECURITY INTEREST
INTENTIONALLY OMITTED
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each Subsidiary is a
corporation duly existing and in good standing under the laws of its state of
incorporation and qualified and licensed to do business in, and is in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be so qualified, except where the failure to be so
qualified would not have a Material Adverse Effect.
5.2 Due Authorization; No Conflict. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Charter or Bylaws, nor will they constitute an
event of default under any material agreement to which Borrower is a party or by
which Borrower is bound. Borrower is not in default under any agreement to which
it is a party or by which it is bound, which default could have a Material
Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and indefeasible title to
Borrower's Assets, free and clear of Liens, except for Permitted Liens.
5.4 Bona Fide Eligible Accounts. The Eligible Accounts are bona fide
existing obligations. The property giving rise to such Eligible Accounts has
been delivered to the account debtor or to the account debtor's agent for
immediate shipment to and unconditional acceptance by the account debtor.
Borrower has not received notice of actual or imminent Insolvency Proceeding of
any account debtor that is included in any Borrowing Base Certificate as an
Eligible Account.
5.5 Merchantable Inventory. All Inventory is in all material respects of
good and marketable quality, free from all material defects.
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5.6 Name; Location of Chief Executive Office. Except as disclosed in the
Schedule, Borrower has not done business under any name other than that
specified on the signature page hereof. The chief executive office of Borrower
is located at the address indicated in Section 10 hereof.
5.7 Litigation. Except as set forth in the Schedule, there are no actions
or proceedings pending by or against Borrower or any Subsidiary before any court
or administrative agency in which an adverse decision could have a Material
Adverse Effect or a material adverse effect on Borrower's interest in Borrower's
Assets. Borrower does not have knowledge of any such pending or threatened
actions or proceedings.
5.8 No Material Adverse Change in Financial Statements. All consolidated
financial statements related to Borrower and any Subsidiary that have been
delivered by Borrower to Bank fairly present in all material respects Borrower's
consolidated financial condition as of the date thereof and Borrower's
consolidated results of operations for the period then ended. There has not been
a material adverse change in the consolidated financial condition of Borrower
since the date of the most recent of such financial statements submitted to
Bank.
5.9 Solvency. Borrower is solvent and able to pay its debts (including
trade debts) as they mature.
5.10 Regulatory Compliance. Borrower and each Subsidiary has met the
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERISA. No event has occurred resulting from Borrower's failure to
comply with ERISA that is reasonably likely to result in Borrower's incurring
any liability that could have a Material Adverse Effect. Borrower is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940. Borrower is not engaged
principally, or as one of the important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations G, T and U of the Board of Governors of the Federal
Reserve System). Borrower has complied with all the provisions of the Federal
Fair Labor Standards Act. Borrower has not violated any statutes, laws,
ordinances or rules applicable to it, violation of which could have a Material
Adverse Effect.
5.11 Environmental Condition. None of Borrower's or any Subsidiary's
properties or assets has ever been used by Borrower or any Subsidiary or, to the
best of Borrower's knowledge, by previous owners or operators, in the disposal
of, or to produce, store, handle, treat, release, or transport, any hazardous
waste or hazardous substance other than in accordance with applicable law; to
the best of Borrower's knowledge, none of Borrower's properties or assets has
ever been designated or identified in any manner pursuant to any environmental
protection statute as a hazardous waste or hazardous substance disposal site, or
a candidate for closure pursuant to any environmental protection statute; no
lien arising under any environmental protection statute has attached to any
revenues or to any real or personal property owned by Borrower or any
Subsidiary; and neither Borrower nor any Subsidiary has received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal, state or other governmental agency concerning any action or
omission by Borrower or any Subsidiary resulting in the releasing, or otherwise
disposing of hazardous waste or hazardous substances into the environment.
5.12 Taxes. Borrower and each Subsidiary has filed or caused to be filed
all tax returns required to be filed, and has paid, or has made adequate
provision for the payment of, all taxes reflected therein.
5.13 Subsidiaries. Borrower does not own any stock, partnership interest or
other equity securities of any Person, except for Permitted Investments.
5.14 Government Consents. Borrower and each Subsidiary has obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted.
5.15 Full Disclosure. No representation, warranty or other statement made
by Borrower in any certificate or written statement furnished to Bank contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained in such certificates or
statements not misleading.
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6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
an Advance hereunder, Borrower shall do all of the following:
6.1 Good Standing. Borrower shall maintain its and each of its
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain in force, and shall cause each of its Subsidiaries to maintain in
force, to the extent consistent with prudent management of Borrower's business,
all licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2 Government Compliance. Borrower shall meet, and shall cause each
Subsidiary to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect or a material adverse effect on
Borrower's Assets.
6.3 Financial Statements, Reports, Certificates. Borrower shall deliver to
Bank:
(a) as soon as available, but in any event within FORTY-FIVE (45) days
after the end of each fiscal quarter, a company prepared consolidated balance
sheet and income statement covering Borrower's consolidated operations during
such period, certified by an officer of Borrower reasonably acceptable to Bank;
(b) as soon as available, but in any event within NINETY (90) days after
the end of Borrower's fiscal year, audited consolidated financial statements of
Borrower prepared in accordance with GAAP, consistently applied, together with
an unqualified opinion on such financial statements of an independent certified
public accounting firm reasonably acceptable to Bank;
(c) within five (5) days of filing, copies of all statements, reports and
notices sent or made available generally by Borrower to its security holders or
to any holders of Subordinated Debt and all reports on Form 10-K, 10-Q and 8-K
filed with the Securities and Exchange Commission;
(d) promptly upon receipt of notice thereof, a report of any legal actions
pending or threatened against Borrower or any Subsidiary that could result in
damages or costs to Borrower or any Subsidiary of One Hundred Thousand Dollars
($100,000) or more; and
(e) such budgets, sales projections, operating plans or other financial
information as Bank may reasonably request from time to time.
Within fifteen (15) days after the last day of each fiscal quarter during
which Advances are outstanding under this Agreement, Borrower shall deliver to
Bank a Borrowing Base Certificate signed by a Responsible Officer in
substantially the form of Exhibit C hereto, together with aged listings of
accounts receivable and accounts payable.
Within FORTY-FIVE (45) days after the last day of each fiscal quarter,
Borrower shall deliver to Bank with the quarterly financial statements a
Compliance Certificate signed by a Responsible Officer in substantially the form
of Exhibit D hereto.
6.4 Inventory; Returns. Borrower shall keep all Inventory in good and
marketable condition, free from all material defects. Returns and allowances, if
any, as between Borrower and its account debtors shall be on the same basis and
in accordance with the usual customary practices of Borrower, as they exist at
the time of the execution and delivery of this Agreement. Borrower shall
promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than Fifty
Thousand Dollars ($50,000).
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6.5 Taxes. Borrower shall make, and shall cause each Subsidiary to make,
due and timely payment or deposit of all material federal, state, and local
taxes, assessments, or contributions required of it by law, and will execute and
deliver to Bank, on demand, appropriate certificates attesting to the payment or
deposit thereof; and Borrower will make, and will cause each Subsidiary to make,
timely payment or deposit of all material tax payments and withholding taxes
required of it by applicable laws, including, but not limited to, those laws
concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal
income taxes, and will, upon request, furnish Bank with proof satisfactory to
Bank indicating that Borrower or a Subsidiary has made such payments or
deposits; provided that Borrower or a Subsidiary need not make any payment if
the amount or validity of such payment is contested in good faith by appropriate
proceedings and is reserved against (to the extent required by GAAP) by
Borrower.
6.6 Insurance.
(a) Borrower, at its expense, shall keep Borrower's Assets insured against
loss or damage by fire, theft, explosion, sprinklers, and all other hazards and
risks, and in such amounts, as ordinarily insured against by other owners in
similar businesses conducted in the locations where Borrower's business is
conducted on the date hereof. Borrower shall also maintain insurance relating to
Borrower's ownership and use of Borrower's Assets in amounts and of a type that
are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form, with such
companies, and in such amounts as reasonably satisfactory to Bank. All such
policies of property insurance shall shall specify that the insurer must give at
least twenty (20) days notice to Bank before canceling its policy for any
reason. Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All proceeds
payable under any such policy shall, at the option of Bank, be payable to Bank
to be applied on account of the Obligations.
6.7 Principal Depository. Borrower shall maintain at least one operating
account and some portion of its excess funds with Bank.
6.8 Quick Ratio. Borrower shall maintain, as of the last day of each
calendar quarter, a ratio of Quick Assets to Current Liabilities of at least 2.0
to 1.0.
6.9 Debt-Net Worth Ratio. Borrower shall maintain, as of the last day of
each calendar quarter, a ratio of Total Liabilities less Subordinated Debt to
Tangible Net Worth plus Subordinated Debt of not more than 1.0 to 1.0.
6.10 Tangible Net Worth. Borrower shall maintain, as of the last day of
each calendar quarter, a Tangible Net Worth of not less than TWENTY FIVE MILLION
Dollars ($25,000,000).
6.11 Further Assurances. At any time and from time to time Borrower shall
execute and deliver such further instruments and take such further action as may
reasonably be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any credit hereunder shall
be available and until payment in full of the outstanding Obligations or for so
long as Bank may have any commitment to make any Advances, Borrower will not do
any of the following:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose of
(collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer, all
or any part of its business or property, other than: (i) Transfers of Inventory
in the ordinary course of business; (ii) Transfers of non-exclusive licenses and
similar arrangements for the use of the property of Borrower or its
Subsidiaries; (iii) Transfers of worn-out or obsolete Equipment, or (iv)
Transfers of property no longer necessary or useful to the business of Borrower
or any of its Subsidiaries.
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7.2 Change in Business. Engage in any business, or permit any of its
Subsidiaries to engage in any business, other than the businesses currently
engaged in by Borrower and any business substantially similar or related thereto
(or incidental thereto), or undergo a material change in Borrower's ownership,
management or directors. Borrower will not, without thirty (30) days prior
written notification to Bank, relocate its chief executive office.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with or into any other business
organization, or, without Bank's prior written consent, acquire, or permit any
of its Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person or any operating division of a Person in one or more
acquisitions having a total aggregate purchase price of FIVE MILLION DOLLARS
($5,000,000) or more.
7.4 Indebtedness. Create, incur, assume or be or remain liable with respect
to any Indebtedness, or permit any Subsidiary so to do, other than Permitted
Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to exist any Lien with
respect to any of its Accounts or Inventory, or assign or otherwise convey any
right to receive income, including the sale of any Accounts, or permit any of
its Subsidiaries so to do, except for Permitted Liens.
7.6 Distributions. Pay any dividends or make any other distribution or
payment on account of or in redemption, retirement or purchase of any capital
stock other than cash dividends not in excess of SEVEN HUNDRED FIFTY THOUSAND
Dollars ($750,000) in any fiscal year of Borrower.
7.7 Investments. Directly or indirectly acquire or own, or make any
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8 Transactions with Affiliates. Directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of Borrower except
for transactions that are in the ordinary course of Borrower's business, upon
fair and reasonable terms that are no less favorable to Borrower than would be
obtained in an arm's length transaction with a non-affiliated Person.
7.9 Subordinated Debt. Make any payment in respect of any Subordinated
Debt, or permit any of its Subsidiaries to make any such payment, except in
compliance with the terms of such Subordinated Debt, or amend any provision
contained in any documentation relating to the Subordinated Debt without Bank's
prior written consent.
7.10 Compliance. Become an "investment company" controlled by an
"investment company," within the meaning of the Investment Company Act of 1940,
or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Advance for such purpose. Fail
to meet the minimum funding requirements of ERISA, permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur, fail to comply with the
Federal Fair Labor Standards Act or violate any law or regulation, which
violation could have a Material Adverse Effect or a material adverse effect on
Borrower's Assets, or permit any of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay, when due, any of the
Obligations.
8.2 Covenant Default.
(a) If Borrower fails to perform any obligation under Sections 6.3, 6.7,
6.8, 6.9, or 6.10 or violates any of the covenants contained in Article 7 of
this Agreement, or
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(b) If Borrower fails or neglects to perform, keep, or observe any other
material term, provision, condition, covenant, or agreement contained in this
Agreement, in any of the Loan Documents, or in any other present or future
agreement between Borrower and Bank and as to any default under such other term,
provision, condition, covenant or agreement that can be cured, has failed to
cure such default within ten (10) days after Borrower receives notice thereof or
any officer of Borrower becomes aware thereof; provided, however, that if the
default cannot by its nature be cured within the ten (10) day period or cannot
after diligent attempts by Borrower be cured within such ten (10) day period,
and such default is likely to be cured within a reasonable time, then Borrower
shall have an additional reasonable period (which shall not in any case exceed
thirty (30) days) to attempt to cure such default, and within such reasonable
time period the failure to have cured such default shall not be deemed an Event
of Default (provided that no Advances will be required to be made during such
cure period);
8.3 Material Adverse Change. If there (i) occurs a material adverse change
in the business, operations, or condition (financial or otherwise) of the
Borrower, or (ii) is a material impairment of the prospect of repayment of any
portion of the Obligations or (iii) is a material impairment of the value
Borrower's Assets;
8.4 Attachment. If any material portion of Borrower's assets is attached,
seized, subjected to a writ or distress warrant, or is levied upon, or comes
into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within ten (10) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Advances will be required to be made during such cure periods);
8.5 Insolvency. If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within thirty (30) days
(provided that no Advances will be made prior to the dismissal of such
Insolvency Proceeding);
8.6 Other Agreements. If there is a default in any agreement to which
Borrower is a party with a third party or parties resulting in the exercise of a
right by such third party or parties, to accelerate the maturity of any
Indebtedness in an amount in excess of One Hundred Thousand Dollars ($100,000)
or that could have a Material Adverse Effect;
8.7 Subordinated Debt. If Borrower makes any payment on account of
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8 Judgments. If a judgment or judgments for the payment of money in an
amount, individually or in the aggregate, of at least Fifty Thousand Dollars
($50,000) shall be rendered against Borrower and shall remain unsatisfied and
unstayed for a period of thirty (30) days (provided that no Advances will be
made prior to the satisfaction or stay of such judgment); or
8.9 Misrepresentations. If any material misrepresentation or material
misstatement exists now or hereafter in any warranty or representation set forth
herein or in any certificate delivered to Bank by any Responsible Officer
pursuant to this Agreement or to induce Bank to enter into this Agreement or any
other Loan Document.
9. BANK'S RIGHTS AND REMEDIES
9.1 Rights and Remedies. Upon the occurrence and during the continuance of
an Event of Default, Bank may, at its election, without notice of its election
and without demand, do any one or more of the following, all of which are
authorized by Borrower:
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(a) Declare all Obligations, whether evidenced by this Agreement, by any of
the other Loan Documents, or otherwise, immediately due and payable (provided
that upon the occurrence of an Event of Default described in Section 8.5 all
Obligations shall become immediately due and payable without any action by
Bank);
(b) Cease advancing money or extending credit to or for the benefit of
Borrower under this Agreement or under any other agreement between Borrower and
Bank; and
(c) Without notice to Borrower set off and apply to the Obligations any and
all (i) balances and deposits of Borrower held by Bank, or (ii) indebtedness at
any time owing to or for the credit or the account of Borrower held by Bank.
9.2 Power of Attorney. Effective only upon the occurrence and during the
continuance of an Event of Default, Borrower hereby irrevocably appoints Bank
(and any of Bank's designated officers, or employees) as Borrower's true and
lawful attorney to send requests for verification of Accounts or notify account
debtors of Bank's security interest in the Accounts. The appointment of Bank as
Borrower's attorney in fact, and each and every one of Bank's rights and powers,
being coupled with an interest, is irrevocable until all of the Obligations have
been fully repaid and performed and Bank's obligation to provide advances
hereunder is terminated.
9.3 Bank Expenses. If Borrower fails to pay any amounts or furnish any
required proof of payment due to third persons or entities, as required under
the terms of this Agreement, then Bank may do any or all of the following: (a)
make payment of the same or any part thereof; (b) set up such reserves under the
Committed Revolving Line as Bank deems necessary to protect Bank from the
exposure created by such failure; or (c) obtain and maintain insurance policies
of the type discussed in Section 6.6 of this Agreement, and take any action with
respect to such policies as Bank deems prudent. Any amounts so paid or deposited
by Bank shall constitute Bank Expenses, shall be immediately due and payable,
and shall bear interest at the then applicable rate hereinabove provided. Any
payments made by Bank shall not constitute an agreement by Bank to make similar
payments in the future or a waiver by Bank of any Event of Default under this
Agreement.
9.4 Remedies Cumulative. Bank's rights and remedies under this Agreement,
the Loan Documents, and all other agreements shall be cumulative. Bank shall
have all other rights and remedies not inconsistent herewith as provided by law,
or in equity. No exercise by Bank of one right or remedy shall be deemed an
election, and no waiver by Bank of any Event of Default on Borrower's part shall
be deemed a continuing waiver. No delay by Bank shall constitute a waiver,
election, or acquiescence by it. No waiver by Bank shall be effective unless
made in a written document signed on behalf of Bank and then shall be effective
only in the specific instance and for the specific purpose for which it was
given.
9.5 Demand; Protest. Borrower waives demand, protest, notice of protest,
notice of default or dishonor, notice of payment and nonpayment, notice of any
default, nonpayment at maturity, release, compromise, settlement, extension, or
renewal of accounts, documents, instruments, chattel paper, and guarantees at
any time held by Bank on which Borrower may in any way be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or demands by any
party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, certified mail, postage prepaid, return receipt requested, or
by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
If to Borrower Advanced Technology Materials, Inc.
7 Commerce Drive
Danbury, CT 06810
ATTN: Daniel P. Sharkey, CFO
FAX: 203-792-8040
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If to Bank Silicon Valley Bank
40 William Street
Wellesley, MA 02181
ATTN: Joan Parsons
FAX: 617-431-9906
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
The laws of the Commonwealth of Massachusetts shall apply to this
Agreement. BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN ANY ACTION, SUIT,
OR PROCEEDING OF ANY KIND AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS
AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK CANNOT AVAIL ITSELF OF
THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS, BORROWER ACCEPTS JURISDICTION
OF THE COURTS AND VENUE IN SANTA CLARA COUNTY, CALIFORNIA. BORROWER AND BANK
EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY
RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND
WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
12.1 Successors and Assigns. This Agreement shall bind and inure to the
benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
may be assigned by Borrower without Bank's prior written consent, which consent
may be granted or withheld in Bank's sole discretion. Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate, or
grant participation in all or any part of, or any interest in, Bank's
obligations, rights and benefits hereunder, provided that Bank remains the lead
bank after any such action.
12.2 Indemnification. Borrower shall defend, indemnify and hold harmless
Bank and its officers, employees, and agents against: (a) all obligations,
demands, claims, and liabilities claimed or asserted by any other party in
connection with the transactions contemplated by this Agreement; and (b) all
losses or Bank Expenses in any way suffered, incurred, or paid by Bank as a
result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under this Agreement, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 Time of Essence. Time is of the essence for the performance of all
obligations set forth in this Agreement.
12.4 Severability of Provisions. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
12.5 Amendments in Writing, Integration. This Agreement cannot be amended
or terminated orally. All prior agreements, understandings, representations,
warranties, and negotiations between the parties hereto with respect to the
subject matter of this Agreement, if any, are merged into this Agreement and the
Loan Documents.
19
<PAGE>
12.6 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 Survival. All covenants, representations and warranties made in this
Agreement shall continue in full force and effect so long as any Obligations
remain outstanding. The obligations of Borrower to indemnify Bank with respect
to the expenses, damages, losses, costs and liabilities described in Section
12.2 shall survive until all applicable statute of limitations periods with
respect to actions that may be brought against Bank have run.
12.8 Confidentiality. In handling any confidential information Bank shall
exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received or received pursuant to this Agreement
except that disclosure of such information may be made (i) to the subsidiaries
or affiliates of Bank in connection with their present or prospective business
relations with Borrower, (ii) to prospective transferees or purchasers of any
interest in the Loans, provided that they have entered into a comparable
confidentiality agreement in favor of Borrower and have delivered a copy to
Borrower, (iii) as required by law, regulations, rule or order, subpoena,
judicial order or similar order and (iv) as may be required in connection with
the examination, audit or similar investigation of Bank. Confidential
information hereunder shall not include information that either: (a) is in the
public domain or in the knowledge or possession of Bank when disclosed to Bank,
or becomes part of the public domain after disclosure to Bank through no fault
of Bank; or (b) is disclosed to Bank by a third party, provided Bank does not
have actual knowledge that such third party is prohibited from disclosing such
information.
12.9 Effectiveness. This Agreement shall become effective only when it
shall have been executed by Borrower and Bank (provided, however, in no event
shall this Agreement become effective until signed by an officer of Bank in
California).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as a sealed instrument as of the date first set forth above.
"Borrower" "Bank"
ADVANCED TECHNOLOGY MATERIALS, INC. SILICON VALLEY BANK, doing business
as SILICON VALLEY EAST
By: /s/ Daniel P. Sharkey By: /s/ James C. Maynard
-------------------------- --------------------------
Daniel P. Sharkey, CFO James C. Maynard, VP
SILICON VALLEY BANK
By: /s/ Christine Ware
-------------------------
Title: Vice President
-------------------------
(Signed in Santa Clara County, California)
20
<PAGE>
EXHIBIT A
BORROWER'S ASSETS
Borrower's Assets shall consist of all right, title and interest of
Borrower in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and
Borrower's Books relating to any of the foregoing;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, service marks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower and Borrower's Books
relating to any of the foregoing;
(e) All documents, cash, deposit accounts, securities, letters of credit,
certificates of deposit, instruments and chattel paper now owned or hereafter
acquired and Borrower's Books relating to the foregoing;
(f) All copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired; all
claims for damages by way of any past, present and future infringement of any of
the foregoing; and
(g) Any and all claims, rights and interests in any of the above and all
substitutions for, additions and accessions to and proceeds thereof.
21
<PAGE>
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
The undersigned hereby certifies as follows:
I, ___________________, am the duly elected and acting ____________________
of Advanced Technology Materials, Inc. ("Borrower").
This certificate is delivered pursuant to Section 2.1 of that certain Loan
Agreement dated December 27, 1996 by and between Borrower and Silicon Valley
Bank ("Bank") (the "Loan Agreement"). The terms used in this Borrowing Request
which are defined in the Loan Agreement have the same meaning herein as ascribed
to them therein.
Borrower is confirming its telephone request made on __________________,
199___ for a Prime Rate Advance as follows:
(a) The date on which the Advance is to be made is _________________,
199__.
(b) The amount of the Advance is to be $____________.
All representations and warranties of Borrower stated in the Loan Agreement
are true, accurate and complete in all material respects as of the date of the
telephone request for and Advance confirmed by this Borrowing Request; provided,
however, that those representations and warranties expressly referring to
another date shall be true, accurate and complete in all material respects as of
such date.
IN WITNESS WHEREOF, this Borrowing Request is executed by the undersigned
as of this ______ day of ______________, 199__.
ADVANCED TECHNOLOGY MATERIALS, INC.
By:
Title:
22
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT C
BORROWING BASE CERTIFICATE
Borrower: Lender:
Advanced Technology Materials, Inc. Silicon Valley Bank
7 Commerce Drive 3003 Tasman Drive
Danbury, CT 06810 Santa Clara, CA 95054
Commitment Amount: $10,000,000
ACCOUNTS RECEIVABLE
<S> <C> <C>
1. Accounts Receivable Book Value as of ________________ $__________
2. Additions (please explain on reverse) $__________
3. TOTAL ACCOUNTS RECEIVABLE $__________
ACCOUNTS RECEIVABLE DEDUCTIONS
4. Amounts over 90 days due $_________
5. Credit Balances Applied to Over 90-Day Accounts $_________
6. Balance of 50% over 90 day accounts $_________
7. Concentration Limits $_________
8. Ineligible Foreign Accounts $_________
9. Contra Accounts $_________
10.Promotion or Demo Accounts $_________
11.Intercompany/Employee Accounts $_________
12.Other (please explain on reverse) $_________
13.TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $_________
14.Eligible Accounts (#3 - #13) $_________
15.LOAN VALUE OF ACCOUNTS (80% of #14) $_________
</TABLE>
ELIGIBLE INVENTORY
16.Raw Materials Inventory Value as of ___________________ $_________ ELIGIBLE
INVENTORY DEDUCTIONS (without duplication) 17.Work in Process $_________
18.TOTAL ELIGIBLE INVENTORY DEDUCTIONS $_________ 19.Eligible Inventory
(#16-#18) $_________ 20.Maximum Eligible Inventory Sublimit $ 900,000 21.LOAN
VALUE OF INVENTORY (lesser of 20 or [30% of #18]) $_________
<TABLE>
<CAPTION>
BALANCES
<S> <C>
22.Maximum Loan Amount $10,000,000
23.Total Funds Available (Lesser of #22 or [#15 plus #21]) $_________
24.Present balance owing on Line of Credit $_________
25.Outstanding under Eligible Inventory Sublimit $_________
26.RESERVE POSITIVE (#22 minus #24 plus #25) $_________
</TABLE>
The undersigned represents and warrants that the foregoing is true,
complete and correct, and that the information reflected in this Borrowing Base
Certificate complies with the representations and warranties set forth in the
Loan Agreement dated DECEMBER 27, 1996, as may be amended from time to time,
between the undersigned and Silicon Valley Bank.
- ------------------------------------------------------------------------------
BANK USE ONLY
- ------------------------------------------------------------------------------
Rec'd By: ___________
- ------------------------------------------------------------------------------
Auth. Signer
Date: _______________
Verified: _______________
Auth. Signer
Date: ________________
ADVANCED TECHNOLOGY MATERIALS, INC.
By: ____________________________
Authorized Signer
COMMENTS:
23
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
Borrower: Lender:
Advanced Technology Materials, Inc. Silicon Valley Bank
7 Commerce Drive 3003 Tasman Drive
Danbury, CT 06810 Santa Clara, CA 95054
The undersigned authorized officer of Advanced Technology Materials, Inc.
hereby certifies that in accordance with the terms and conditions of the Loan
Agreement dated DECEMBER 27, 1996 between Borrower and Bank (the "Agreement"),
(i) Borrower is in complete compliance for the period ending ___________ of all
required conditions and terms except as noted below and (ii) all representations
and warranties of Borrower stated in the Agreement are true, accurate and
complete in all material respects as of the date hereof. Attached herewith are
the required documents supporting the above certification. The Officer further
certifies that these are prepared in accordance with Generally Accepted
Accounting Principals (GAAP) and are consistent from one period to the next
except as explained in an accompanying letter or footnotes.
Please indicate compliance status by circling Yes/No under '"Complies"
column
Reporting Covenant Required Complies
Quarterly financial statements Quarterly within 45 days Yes No
Annual (CPA Audited) FYE within 90 days Yes No
A/R & A/P Agings Quarterly within 15 days
(prior to first Advance
and only while Advances
are outstanding) Yes No
Financial Covenants Required Actual Complies
Maintain on a Quarterly Basis:
Minimum Quick Ratio 2.0:1.0 __________:1.0 Yes No
Minimum TNW $25,000,000 $_____________ Yes No
Maximum Debt/TNW 1.0:1.0 __________:1.0 Yes No
Comments Regarding Exceptions:
On behalf of Borrower, the Officer further acknowledges that at any such
time as Borrower is out of compliance with any of the terms set forth in the
Agreement, including, without limitation, any of the financial covenants,
Borrower cannot receive any advances.
Sincerely,
- ------------------------------------------------------------------------------
BANK USE ONLY
- ------------------------------------------------------------------------------
Received by: ___________________________
- ------------------------------------------------------------------------------
Date: _________________________________
Verified: ______________________________
Date: _________________________________
Compliance Status: Yes No
- -----------------------------------
Signature
- -----------------------------------
TITLE
- ----------------------------------
DATE
24
<PAGE>
LIBOR SUPPLEMENT TO AGREEMENT
This LIBOR Supplement to Agreement (the "Supplement") is a supplement to
the Loan Agreement dated as of December 27, 1996 (the "Loan Agreement") between
Silicon Valley Bank ("Bank") and Advanced Technology Materials, Inc.
("Borrower), and forms a part of and is incorporated into the Loan Agreement.
1. DEFINITIONS
"Business Day" means a day of the year (a) that is not a Saturday, Sunday
or other day on which banks in the State of California or the City of London are
authorized or required to close and (b) on which dealings are carried on in the
interbank market in which Bank customarily participates.
"Interest Period" means for each LIBOR Rate Loan, a period of approximately
one, two or three months as the Borrower may elect, provided that the last day
of an Interest Period for a LIBOR Rate Loan shall be determined in accordance
with the practices of the LIBOR interbank market as from time to time in effect,
provided, further, in all cases such period shall expire not later than the
applicable Maturity Date.
"Interest Rate" shall mean as to: (a) Prime Rate Loans, an annual rate
equal to the Prime Rate; and (b) LIBOR Rate Loans, an annual rate of 2.5% in
excess of the LIBOR Rate (based on the LIBOR Rate applicable for the Interest
Period selected by the Borrower).
"LIBOR Base Rate" means, for any Interest Period for a LIBOR Rate Loan, the
rate of interest per annum determined by Bank to be the per annum rate of
interest at which deposits in United States Dollars are offered to Bank in the
London interbank market in which Bank customarily participates at 11:00 A.M.
(local time in such interbank market) two (2) Business Days before the first day
of such Interest Period for a period approximately equal to such Interest Period
and in an amount approximately equal to the amount of such Loan.
"LIBOR Rate" shall mean, for any Interest Period for a LIBOR Rate Loan, a
rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) equal
to (i) the LIBOR Base Rate for such Interest Period divided by (ii) 1 minus the
Reserve Requirement for such Interest Period.
"LIBOR Rate Loans" means any Loans made or a portion thereof on which
interest is payable based on the LIBOR Rate in accordance with the terms hereof.
"Prime Rate" means the variable rate of interest per annum, most recently
announced by Bank as its "prime rate," whether or not such announced rate is the
lowest rate available from Bank. The Interest rate applicable to the Prime Rate
Loans shall change on each date there is a change in the Prime Rate.
"Prime Rate Loans" means any Loans made or a portion thereof on which
interest is payable based on the Prime Rate in accordance with the terms hereof.
"Regulation D" means Regulation D of the Board of Governors of the Federal
Reserve System as the same may be amended or supplemented from time to time.
"Regulatory Change" means, with respect to Bank, any change on or after the
date of this Loan Agreement in United States federal, state or foreign laws or
regulations, including Regulation D, or the adoption or making on or after such
date of any interpretations, directives or requests applying to a class of
lenders including Bank of or under any United States federal or state, or any
foreign, laws or regulations (whether or not having the force of law) by any
court or governmental or monetary authority charged with the interpretation or
administration thereof.
25
<PAGE>
"Reserve Requirement" means, for any Interest Period. the average maximum
rate at which reserves (including any marginal, supplemental or emergency
reserves) are required to be maintained during such Interest Period under
Regulation D against "Eurocurrency liabilities" (as such term is used in
Regulation D) by member banks of the Federal Reserve System. Without limiting
the effect of the foregoing, the Reserve Requirement shall reflect any other
reserves required to be maintained by Bank by reason of any Regulatory Change
against (i) any category of liabilities which includes deposits by reference to
which the LIBOR Rate is to be determined as provided in the definition of "LIBOR
Base Rate" or (ii) any category of extensions of credit or other assets which
include Loans.
2. REQUESTS FOR LOANS: CONFIRMATION OF INITIAL LOANS.
(a) Each LIBOR Rate Loan shall be made upon the irrevocable written request
of Borrower received by Bank not later than 11:00 a.m. (Santa Clara, California
time) on the Business Day three (3) Business Days prior to the date such Loan is
to be made. Each such notice shall specify the date such Loan is to be made,
which day shall be a Business Day, the amount of such Loan, the Interest Period
for such Loan, and comply with such other requirements as Bank determines are
reasonable or desirable in connection therewith.
(b) Each written request for a LIBOR Rate Loan shall be in the form of a
LIBOR Rate Loan Borrowing Certificate as set forth on Schedule A, which shall be
duly executed by the Borrower.
(c) Each Prime Rate Loan shall be made upon the irrevocable written request
of Borrower received by Bank not later than 11:00 a.m. (Santa Clara, California
time) on the Business Day one (1) Business day prior to the date such Loan is to
be made. Each such notice shall specify the date such Loan is to be made, which
day shall be a Business Day and the amount of such Loan, and comply with such
other requirements as Bank determines are reasonable or desirable in connection
therewith.
3. CONVERSION/CONTINUATION OF LOANS.
(a) Borrower may from time to time submit in writing a request that Prime
Rate Loans be converted to LIBOR Rate Loans or that any existing LIBOR Rate
Loans continue for an additional Interest Period. Such request shall specify the
amount of the Prime Rate Loans which will constitute LIBOR Rate Loans (subject
to the limits set forth below) and the Interest Period to be applicable to such
LIBOR Rate Loans. Each written request for a conversion to a LIBOR Rate Loan or
a continuation of a LIBOR Rate Loan shall be substantially in the form of a
LIBOR Rate Conversion/Continuation Certificate as set forth on Schedule B, which
shall be duly executed by the Borrower. Subject to the terms and conditions
contained herein, three (3) Business Days after Bank's receipt of such a request
from Borrower, such Prime Rate Loans shall be converted to LIBOR Rate Loans or
such LIBOR Rate Loans shall continue, as the case may be provided that:
(i) no Event of Default, or event which with notice or passage of time or
both would constitute an Event of Default, exists;
(ii) no party hereto shall have sent any notice of termination of this
Supplement or of the Loan Agreement.
(iii) Borrower shall have complied with such customary procedures as Bank
has established from time to time for Borrower's requests for LIBOR Rate Loans;
(iv) the amount of a LIBOR Rate Loan shall be $500,000 or such greater
amount which is an integral multiple of $50,000; and
(v) Bank shall have determined that the Interest Period or LIBOR Rate is
available to Bank which can be readily determined as of the date of the request
for such LIBOR Rate Loan.
Any request by Borrower to convert Prime Rate Loans to LIBOR Rate Loans or
continue any existing LIBOR Rate Loans shall be irrevocable. Notwithstanding
anything to the contrary contained herein, Bank shall not be required to
purchase United States Dollar deposits in the London interbank market or other
applicable LIBOR Rate market to fund any LIBOR Rate Loans, but the provisions
hereof shall be deemed to apply as if Bank had purchased such deposits to fund
the LIBOR Rate Loans.
26
<PAGE>
(b) Any LIBOR Rate Loans shall automatically convert to Prime Rate Loans
upon the last day of the applicable Interest Period, unless Bank has received
and approved a complete and proper request to continue such LIBOR Rate Loan at
least three (3) Business Days prior to such last day in accordance with the
terms hereof. Any LIBOR Rate Loans shall, at Bank's option, convert to Prime
Rate Loans in the event that (i) an Event of Default, or event which with the
notice or passage of time or both would constitute an Event of Default, shall
exist, (ii) this Supplement or the Loan Agreement shall terminate, or (iii) the
aggregate principal amount of the Prime Rate Loans which have previously been
converted to LIBOR Rate Loans, or the aggregate principal amount of existing
LIBOR Rate Loans continued, as the case may be, at the beginning of an interest
Period shall at any time during such Interest Period exceeds the lesser of (x)
the Committed Revolving Line or (y) the Borrowing Base. Borrower agrees to pay
to Bank, upon demand by Bank (or Bank may, at its option, charge Borrower's loan
account) any amounts required to compensate Bank for any loss (including loss of
anticipated profits), cost or expense Incurred by such person, as a result of
the conversion of LIBOR Rate Loans to Prime Rate Loans pursuant to any of the
foregoing.
(c) On all Loans, Interest shall be payable by Borrower to Bank monthly in
arrears not later than the twenty-second (22nd) day of each calendar month at
the applicable Interest Rate.
4. ADDITIONAL REQUIREMENTS/PROVISIONS REGARDING LIBOR RATE LOANS: ETC.
(a) If for any reason (including voluntary or mandatory prepayment or
acceleration), Bank receives all or part of the principal amount of a LIBOR Rate
Loan prior to the last day of the Interest Period for such Loan, Borrower shall
immediately notify Borrower's account officer at Bank and, on demand by Bank,
pay Bank the amount (if any) by which (i) the additional interest which would
have been payable on the amount so received had it not been received until the
last day of such Interest Period exceeds (ii) the interest which would have been
recoverable by Bank by placing the amount so received on deposit in the
certificate of deposit markets or the offshore currency interbank markets or
United States Treasury investment products, as the case may be, for a period
starting on the date on which it was so received and ending on the last day of
such Interest Period at the Interest rate determined by Bank in its reasonable
discretion. Bank's determination as to such amount shall be conclusive absent
manifest error.
(b) Borrower shall pay to Bank, upon demand by Bank, from time to time such
amounts as Bank may determine to be necessary to compensate it for any costs
incurred by Bank that Bank determines are attributable to its making or
maintaining of any amount receivable by Bank hereunder in respect of any Loans
relating thereto (such increases in costs and reductions in amounts receivable
being herein called "Additional Costs"), in each case resulting from any
Regulatory Change which:
(i) changes the basis of taxation of any amounts payable to Bank under this
Supplement in respect of any Loans (other than changes which affect taxes
measured by or imposed on the overall net income of Bank by the jurisdiction in
which such Bank has its principal office); or
(ii) imposes or modifies any reserve, special deposit or similar
requirements relating to any extensions of credit or other assets of, or any
deposits with or other liabilities of Bank (including any Loans or any deposits
referred to in the definition of "LIBOR Base Rate"); or
(iii) imposes any other condition affecting this Supplement (or any of such
extensions of credit or liabilities).
Bank will notify Borrower of any event occurring after the date of the Loan
Agreement which will entitle Bank to compensation pursuant to this section as
promptly as practicable after it obtains knowledge thereof and determines to
request such compensation. Bank will furnish Borrower with a statement setting
forth the basis and amount of each request by Bank for compensation under this
Section 4. Determinations and allocations by Bank for purposes of this Section 4
of the effect of any Regulatory Change on its costs of maintaining its
obligations to make Loans or of making or maintaining Loans or on amounts
receivable by it in respect of Loans, and of the additional amounts required to
compensate Bank in respect of any Additional Costs, shall be conclusive absent
manifest error,
27
<PAGE>
(c) Borrower shall pay to Bank, upon the request of Bank, such amount or
amounts as shall be sufficient (in the sole good faith opinion of such Bank) to
compensate it for any loss, costs or expense incurred by it as a result of any
failure by Borrower to borrow a Loan on the date for such borrowing specified in
the relevant notice of borrowing hereunder.
(d) If Bank shall determine that the adoption or implementation of any
applicable law, rule, regulation or treaty regarding capital adequacy, or any
change therein, or any change in the interpretation or administration thereof by
any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by Bank (or its
applicable lending office) with respect to any directive regarding capital
adequacy (whether or not having the force of law) of any such authority, central
bank or comparable agency, has or would have the effect of reducing the rate of
return on capital of Bank or any person or entity controlling Bank (a "Parent")
as a consequence of its obligations hereunder to a level below that which Bank
(or its Parent) could have achieved but for such adoption, change or compliance
(taking into consideration its policies with respect to capital adequacy) by an
amount deemed by Bank to be material, then from time to time, within 15 days
after demand by Bank, Borrower shall pay to Bank such additional amount or
amounts as will compensate Bank for such reduction. A statement of Bank claiming
compensation under this Section and setting forth the additional amount or
amounts to be paid to it hereunder shall be conclusive absent manifest error.
(e) If at any time Bank, in its sole and absolute discretion, determines
that (i) the amount of the LIBOR Rate Loans for periods equal to the
corresponding interest Periods are not available to Bank in the offshore
currency interbank markets, or (ii) the LIBOR Rate does not accurately reflect
the cost to Bank of lending the LIBOR Rate Loan, then Bank shall promptly give
notice thereof to Borrower, and upon the giving of such notice Bank's obligation
to make the LIBOR Rate Loans shall terminate, unless Bank and Borrower agree in
writing to a different interest rate applicable to LIBOR Rate Loans. If it shall
become unlawful for Bank to continue to fund or maintain any Loans, or to
perform its obligations hereunder, upon demand by Bank, Borrower shall prepay
the Loans in full with accrued interest thereon and all other amounts payable by
Borrower hereunder (including, without limitation, any amount payable in
connection with such prepayment pursuant to Section 4(a)).
5. CONFLICTS.
If there is any conflict between the terms and condition of this LIBOR
Supplement to Loan Agreement and the terms and condition of the Loan Agreement,
the terms and condition of this LIBOR Supplement to Loan Agreement shall
control.
28
<PAGE>
SCHEDULE A TO LIBOR SUPPLEMENT
LIBOR RATE LOAN BORROWING CERTIFICATE
The undersigned hereby certifies as fellows:
I, _________________________, am the duly elected and acting
________________ of Advanced Technology Materials, Inc. ("Borrower").
This certificate Is delivered pursuant to Section 2 of that certain LIBOR
Supplement to Agreement together with the Loan Agreement dated December 27, 1996
by and between Borrower and Silicon Valley Bank ("Bank") (the "Loan Agreement").
The terms used in this Borrowing Certificate which are defined in the Loan
Agreement have the same meaning herein as ascribed to them therein.
Borrower hereby requests on ___________,19___ a LIBOR Rate Loan (the
"Loan") as follows:
(a) The date on which the Loan is to be made is _____________ 19__.
(b) The amount of the Loan is to be ____________________ ($___________),
for an Interest Period of ____________ month(s).
All representations and warranties of Borrower stated in the Loan Agreement
are true, correct and complete in all material respects as of the date of this
request for a loan; provided, however, that those representations and warranties
expressly referring to another date shall be true, correct and complete in all
material respects as of such date.
IN WITNESS WHEREOF, this Borrowing Base Certificate is executed by the
undersigned as of this ________ day of ___________ 19__.
ADVANCED TECHNOLOGY MATERIALS, INC.
By:
Title:
Internal Bank Use Only
- ------------------ ---------- ------------------- -------------
LIBOR Pricing Date LIBOR Rate LIBOR Rate Variance Maturity Date
- ------------------ ---------- ------------------- -------------
29
<PAGE>
SCHEDULE B TO LIBOR SUPPLEMENT
LIBOR RATE CONVERSION/CONTINUATION CERTIFICATE
The undersigned hereby certifies as follows:
I, _________________________, am the duly elected and acting
________________ of Advanced Technology Materials, Inc. ("Borrower").
This certificate is delivered pursuant to Section 2 of that certain LIBOR
Supplement to Agreement together with the Loan Agreement dated December 27, 1996
by and between Borrower and Silicon Valley Bank ("Bank") (the "Loan Agreement").
The terms used in this LIBOR Rate Conversion/Continuation Certificate which are
defined in the Loan Agreement have the same meaning herein as ascribed to them
therein,
Borrower hereby requests on _____________ 19____ a LIBOR Rate Loan (the
"Loan") as follows:
(a) ____ (I) A rate conversion of an existing Prime Rate Loan from a Prime
Rate Loan to a LIBOR Rate Loan; or
____ (ii) A continuation of an existing LIBOR Rate Loan as a LIBOR Rate
Loan;
[Check (i) or (ii) above]
(b) The date on which the Loan is to be made is _____________ 19___.
(c) The amount of the Loan is to be __________________ ($____________ ),
for an Interest Period of _____________ month(s).
All representations and warranties of Borrower stated in the Loan Agreement
are true, correct and complete in all material respects as of the date of this
request for a loan; provided, however, that those representations and warranties
expressly referring to another dale shall be true, correct and complete in all
material respects as of such date.
IN WITNESS WHEREOF, this LIBOR Rate Conversion/Continuation Certificate is
executed by the undersigned as of this __________ day of _____________ 19__.
ADVANCED TECHNOLOGY MATERIALS, INC.
By:
Title:
For Internal Bank Use Only
- ------------------ ---------- ------------------- -------------
LIBOR Pricing Date LIBOR Rate LIBOR Rate Variance Maturity Date
- ------------------ ---------- ------------------- -------------
30
<PAGE>
Revolving Promissory Note
$10,000,000 Danbury, Connecticut
December 27, 1996
FOR VALUE RECEIVED, the undersigned, ADVANCED TECHNOLOGY MATERIALS, INC., a
Delaware corporation (the "Borrower"), promises to pay to the order of Silicon
Valley Bank, a California-chartered bank ("Bank"), at such place as the holder
hereof may designate, in lawful money of the United States of America, the
aggregate unpaid principal amount of all advances ("Advances") made by Bank to
Borrower in accordance with the terms of the Loan Agreement between Borrower and
Bank of even date herewith, as amended from time to time (the "Loan Agreement"),
up to a maximum principal amount of TEN MILLION AND NO/100THS Dollars
($10,000,000), until paid in full. Borrower shall also pay interest on the
aggregate unpaid principal amount of such Advances at the rates and in
accordance with the terms of the Loan Agreement. The entire principal amount and
all accrued interest shall be due and payable on DECEMBER 26, 1997.
Borrower irrevocably waives the right to direct the application of any and
all payments at any time hereafter received by Bank from or on behalf of
Borrower, and Borrower irrevocably agrees that Bank shall have the continuing
exclusive right to apply any and all such payments against the then due and
owing obligations of Borrower as Bank may deem advisable. In the absence of a
specific determination by Bank with respect thereto, all payments shall be
applied in the following order: (a) then due and payable fees and expenses; (b)
then due and payable interest payments and mandatory prepayments; and (c) then
due and payable principal payments and optional prepayments.
Bank is hereby authorized by Borrower to endorse on Bank's books and
records each Advance made by Bank under this Note and the amount of each payment
or prepayment of principal of each such Advance received by Bank; it being
understood, however, that failure to make any such endorsement (or any error in
notation) shall not affect the obligations of Borrower with respect to Advances
made hereunder, and payments of principal by Borrower shall be credited to
Borrower notwithstanding the failure to make a notation (or any errors in
notation) thereof on such books and records.
Borrower promises to pay Bank all costs and expenses of collection of this
Note and to pay all reasonable attorneys' fees incurred in such collection,
whether or not there is a suit or action, or in any suit or action to collect
this Note or in any appeal thereof. Borrower waives presentment, demand,
protest, notice of protest, notice of dishonor, notice of nonpayment, and any
and all other notices and demands in connection with the delivery, acceptance,
performance, default or enforcement of this Note, as well as any applicable
statutes of limitations. No delay by Bank in exercising any power or right
hereunder shall operate as a waiver of any power or right. Time is of the
essence as to all obligations hereunder.
This Note is issued pursuant to the Loan Agreement, which shall govern the
rights and obligations of Borrower with respect to all obligations hereunder.
This Note shall be deemed to be made under, and shall be construed in
accordance with and governed by, the laws of the Commonwealth of Massachusetts,
excluding conflicts of laws principles.
Executed as an instrument under seal.
ADVANCED TECHNOLOGY MATERIALS, INC.
By: Daniel P. Sharkey, CFO
<TABLE>
<CAPTION>
EXHIBIT 11.01
ADVANCED TECHNOLOGY MATERIALS, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
PRIMARY
- -------
Year Ended Year Ended Year Ended
12/31/96 12/31/95 12/31/94
-------- -------- --------
<S> <C> <C> <C>
Net income $ 3,321,243 $ 554,046 $2,636,131
============ ========== ==========
Average common shares 8,739,520 7,514,083 7,000,805
outstanding
Incremental shares issuable pursuant
to employee stock
options (if dilutive) 619,501 559,949 594,388
------- ------- -------
Total shares 9,359,021 8,074,032 7,595,193
============ ========== ==========
Net income per share $ 0.35 $ 0.07 $ 0.35
============ ========== ==========
</TABLE>
<TABLE>
<CAPTION>
FULLY DILUTED
- -------------
Year Ended Year Ended Year Ended
12/31/96 12/31/95 12/31/94
<S> <C> <C> <C>
Net income $3,321,243 $ 554,046 $2,636,131
========== ========== ==========
Average common shares outstanding 8,739,520 7,514,083 7,000,805
Incremental shares issuable
pursuant to employee stock options
(if dilutive) 737,425 563,977 594,388
------- ------- -------
Total shares 9,476,945 8,078,060 7,595,193
========= ========= =========
Net income per share $ 0.35 $ 0.07 $ 0.35
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 21.01
ADVANCED TECHNOLOGY MATERIALS, INC.
SUBSIDIARIES OF THE REGISTRANT
Subsidiary State of Incorporation
- ---------- ----------------------
<S> <C>
ATMI EcoSys Corporation California
Epitronics Corporation Delaware
</TABLE>
EXHIBIT 23.01
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement pertaining to the 1987 Stock Option Plan (Form S-8 No.
33-77060) and the Registration Statement pertaining to the 1995 Stock Option
Plan (Form S-8 No. 33-93048) of Advanced Technology Materials, Inc. and to the
incorporation by reference therein of our report dated February 14, 1997, with
respect to the consolidated financial statements and schedule of Advanced
Technology Materials, Inc. included in its Annual Report (Form 10-K) for the
year ended December 31, 1996, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Stamford, Connecticut
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Dec-31-1996
<CASH> 4437
<SECURITIES> 16969
<RECEIVABLES> 9378<F1>
<ALLOWANCES> 0
<INVENTORY> 4541
<CURRENT-ASSETS> 35825
<PP&E> 8102<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 50118
<CURRENT-LIABILITIES> 8722
<BONDS> 0
0
0
<COMMON> 88
<OTHER-SE> 36305
<TOTAL-LIABILITY-AND-EQUITY> 50118
<SALES> 36504
<TOTAL-REVENUES> 46350
<CGS> 15939
<TOTAL-COSTS> 24281
<OTHER-EXPENSES> 7627<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 486
<INCOME-PRETAX> 3561
<INCOME-TAX> 239
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3321
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
<FN>
<F1>Net of allowance for doubtful accounts, consistent with balance sheet
presentation.
<F2>Net of accumulated depreciation, consistent with balance sheet
presentation.
<F3>Research and development expenses
</FN>
</TABLE>
