<PAGE>
As filed with the Securities and Exchange Commission on February 16, 2000.
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
APPLIED SCIENCE AND TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2962110
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
35 Cabot Road
Woburn, Massachusetts 01801-1053
(781) 933-5560
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Richard S. Post, Ph.D.
Chairman of the Board of Directors, Chief Executive Officer and President
Applied Science and Technology, Inc.
35 Cabot Road
Woburn, Massachusetts 01801-1053
(781) 933-5560
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------
With copies to:
Neil H. Aronson, Esquire John M. Westcott, Jr. Esquire
Beverly A. Armstrong, Esquire Hale and Dorr LLP
Mintz, Levin, Cohn, Ferris, Glovsky 60 State Street
and Popeo, P.C. Boston, Massachusetts 02109
One Financial Center (617) 526-6000
Boston, Massachusetts 02111
(617) 542-6000
--------------
Approximate date of commencement of proposed sale to the public: As soon as
practical after this registration statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 other than securities offered only in connection with dividend or interest
reinvestment, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
--------------
CALCULATION OF REGISTRATION FEE
<TABLE>
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
Proposed Maximum
Title of Each Class of Amount to be Proposed Maximum Aggregate Offering Amount of
Securities to be Registered Registered(1) Offering Price per Share(2) Price(2) Registration Fee
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value(3).............. 2,875,000 $33.81 $97,203,750.00 $25,661.79
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes up to 375,000 shares of common stock that the underwriters have an
option to purchase pursuant to a 30-day over-allotment option.
(2) Estimated solely for purposes of calculating the amount of the registration
fee paid pursuant to Rule 457(c) under the Securities Act of 1933, as
amended. Based on the average of the high and low prices of the common
stock of $33.81 as reported on the Nasdaq National Market on February 15,
2000.
(3) The shares of common stock being registered hereunder, if issued prior to
the termination of the Applied Science and Technology, Inc. Shareholder
Rights Plan, shall include Rights to purchase a Unit consisting of one one-
thousandth of a share of Series A Junior Participating Preferred Stock.
Prior to the occurrence of certain events, the Rights will not be
exercisable or evidenced separately from the common stock.
--------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS
SUBJECT TO COMPLETION, DATED FEBRUARY 16, 2000
2,500,000 Shares
Logo of Astex
Common Stock
-----------
We are offering 2,500,000 shares of our common stock with this prospectus.
Our common stock is traded on the Nasdaq National Market under the symbol
"ASTX." The last reported sale price of our common stock on the Nasdaq National
Market on February 15, 2000 was $34.75 per share.
-----------
Investing in our common stock involves risks.
See "Risk Factors" beginning on page 4.
-----------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Price.................................................... $ $
Underwriting Discounts and Commissions.......................... $ $
Proceeds, before expenses, to ASTeX............................. $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved of these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
We have granted the underwriters a 30-day option to purchase up to an
additional 275,000 shares from us and 50,000 shares from each of two selling
stockholders, to cover any over-allotments. FleetBoston Robertson Stephens Inc.
expects to deliver the shares of common stock to investors on , 2000.
-----------
Robertson Stephens
CIBC World Markets
Needham & Company, Inc.
Adams, Harkness & Hill, Inc.
The date of this Prospectus is February , 2000
<PAGE>
[Diagrams of semiconductor fabrication and advanced packaging processes showing
the process steps in which ASTeX current and developing products are used.]
ASTeX In Semiconductor Processing
Semiconductor Fabrication
Bare Wafer
EPI
Ion Implant
Deposition
CMP
Lithography
Clean
Strip
Etch
Advanced Packaging
Bump Fabrication
Sort & Test
Dice
Direct Attach
Final Test
Current Products
Developments
No ASTeX Products
<PAGE>
[4/c description for Edgar filing here]
<PAGE>
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with information different than that contained in this prospectus. We are
not, and the underwriters are not, making an offer to sell and seeking offers
to buy, these securities in any jurisdiction where the offer or sale is not
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or any sale of these securities.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Where You Can Find More Information...................................... iv
Incorporation of Certain Documents by Reference.......................... iv
Prospectus Summary....................................................... 1
Special Note Regarding Forward-Looking Statements........................ 4
Risk Factors............................................................. 4
Use of Proceeds.......................................................... 13
Capitalization........................................................... 14
Price Range of Common Stock.............................................. 15
Dividend Policy.......................................................... 15
Selected Consolidated Financial Data..................................... 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 17
Business................................................................. 25
Management............................................................... 38
Principal and Selling Stockholders....................................... 42
Underwriting............................................................. 44
Experts.................................................................. 45
Legal Matters............................................................ 45
Index to Consolidated Financial Statements and Financial Statement
Schedule................................................................ F-1
</TABLE>
----------------
Our trademarks, Applied Science and Technology(R), Inc., ASTeX(R), ASTRON(R)
and Plasma Dome(R) have been registered with the United States Patent and
Trademark Office. CPS(TM), Gladiator(TM), Liquozon(TM), PQ Series III(TM),
Semozon(TM), Series V(TM), Shamrock(TM), SmartMatch(TM), SmartPower(TM) and
SmartSet(TM) are our trademarks or service marks. All other trademarks or trade
names referred to in this prospectus are the property of their respective
owners.
iii
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We are a public company and file annual, quarterly and special reports,
proxy statements and other information with the Securities and Exchange
Commission. You may read and copy any document we file at the SEC's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
request copies of these documents by writing to the SEC and paying a fee for
the copying cost. Please call the SEC at 1-800-SEC-0330 for more information
about the operation of the public reference room. Our SEC filings are also
available to the public at the SEC's web site at "http://www.sec.gov." In
addition, you can read and copy our SEC filings at the office of the National
Association of Securities Dealers, Inc. at 1735 K Street, Washington, DC,
20006.
This prospectus is only part of a Registration Statement on Form S-3 that we
have filed with the SEC under the Securities Act of 1933 and therefore omits
certain information contained in the Registration Statement. We have also filed
exhibits and schedules with the Registration Statement that are excluded from
this prospectus, and you should refer to the applicable exhibit or schedule for
a complete description of any statement referring to any contract or other
document. You may:
. inspect a copy of the Registration Statement, including the exhibits and
schedules, without charge at the public reference room or
. obtain a copy from the SEC upon payment of the fees prescribed by the
SEC
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference the information we file with
it, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is considered
to be part of this prospectus and information we file later with the SEC will
automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings made with the SEC
under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934
until all of the shares of common stock that are part of this offering are
sold. The documents we are incorporating by reference are:
. our Annual Report on Form 10-K for the year ended June 26, 1999, filed
on September 25, 1999;
. our Proxy Statement, filed on October 20, 1999;
. our Quarterly Report on Form 10-Q for the quarter ended September 25,
1999, filed on November 10, 1999;
. our Quarterly Report on Form 10-Q for the quarter ended December 25,
1999, filed on February 8, 2000; and
. the description of our common stock contained in our Registration
Statement on Form SB-2 (Registration No. 33-96098-B) declared effective
by the SEC on November 9, 1993, including any amendments or reports
filed for the purpose of updating such description.
You may request a copy of these filings at no cost by writing or telephoning
our Chief Financial Officer at the following address and number:
Applied Science and Technology, Inc.
35 Cabot Road
Woburn, Massachusetts 01801-1053
(781) 933-5560
This prospectus is part of a Registration Statement that we filed with the
SEC. You should rely only on the information incorporated by reference in or
provided in this prospectus and the Registration Statement. We have authorized
no one to provide you with different information. We are not making an offer of
these securities in any state where the offer is not permitted. You should not
assume that the information in this prospectus is accurate as of any date other
than the date on the front of this document.
iv
<PAGE>
PROSPECTUS SUMMARY
This summary is not complete and does not contain all of the information
that you should consider before buying shares in this offering. You should read
the following summary together with the more detailed information and
consolidated financial statements, and the notes to the financial statements
appearing elsewhere in this prospectus. This prospectus contains forward-
looking statements that involve risks and uncertainties. Our actual results
could differ materially from those anticipated in those forward-looking
statements as a result of the factors described under the heading "Risk
Factors" and elsewhere in this prospectus.
Our Business
We are a worldwide leader in the design, development, manufacture and
support of high performance reactive gas modules and power supplies used in
semiconductor device manufacturing and medical markets, as well as etch and
deposition systems for semiconductor advanced packaging, telecommunications and
magnetic sensors. Our modules create reactive gases used to deposit and etch
thin films during various steps in the manufacture of semiconductor devices.
Our modules help manufacturers improve yields, reduce overall production costs
and improve time to market. Our systems provide etch and deposition solutions
to high-growth end markets, including semiconductor packaging,
telecommunications and magnetic sensors.
Reactive gas processes provide important advantages relative to other types
of chemical processes, including higher precision and efficiency, lower cost,
and minimal damage to key materials. Reactive gases are used in many process
steps in semiconductor device fabrication including etch, strip, deposition,
chamber clean and wafer clean. Advances in semiconductor fabrication technology
will continue to be characterized by shrinking feature size and an increasing
number of process steps, which create more opportunities for the use of
reactive gases. Our expertise in designing and manufacturing these products
allows us to address the advancing technology needs of our customers and to
capitalize on the desire of our OEM customers to outsource technology solutions
to their supply partners.
The semiconductor industry has grown significantly over the past decade.
According to Dataquest, a leading market research firm, the semiconductor
capital equipment industry will grow from $17.5 billion in 1999 to $34.0
billion in 2001. Many factors drive this growth in equipment purchases,
including capacity expansion, advanced packaging techniques and shrinking line
widths.
Since 1987, we have supplied products to the semiconductor industry, earning
a reputation for advanced process technology and manufacturing excellence. We
maintain sales, service and/or manufacturing offices throughout the world. Our
customers include semiconductor OEMs and end users including Applied Materials,
Chipbond Technology, GaSonics, Lam Research, Plasma Systems Korea, Silicon
Valley Group and Varian Semiconductor Equipment.
Our objective is to be the premier worldwide supplier of reactive gas
solutions for the semiconductor capital equipment market and establish a
leadership position providing differentiated etch, strip and deposition
solutions to selected high growth markets. We intend to pursue the following
strategies:
. Extend the use of our core technologies in the semiconductor processing
market;
. Leverage our technology leadership into systems sales in new markets;
. Capitalize on our global sales and service to accelerate worldwide
growth;
. Continue to build collaborative development relationships with key
customers; and
. Grow through strategic acquisitions.
Our Address
Our principal executive offices are located at 35 Cabot Road, Woburn,
Massachusetts 01801-1053 and our telephone number is (781) 933-5560. Our
corporate web site is www.astex.com.
1
<PAGE>
The Offering
Except as otherwise indicated, all information in this prospectus assumes no
exercise of the underwriters' over-allotment option.
<TABLE>
<C> <S>
Common stock offered by ASTeX.............. 2,500,000 shares(1)
Common stock outstanding after the offering 14,205,345 shares(2)
..........................................
Use of proceeds............................ We expect to use the proceeds of
this offering for general working
capital purposes, including
expansion of sales and marketing
activities, new product
development, purchases of
laboratory and manufacturing
equipment, expansion of
manufacturing capacity at several
of our manufacturing facilities,
and potential acquisitions and
joint ventures.
Risk factors............................... An investment in the common stock
involves risks. See "Risk
Factors" on page 4 to read about
the risks you should consider
before buying shares of the
common stock.
Nasdaq National Market symbol.............. ASTX
</TABLE>
- --------
(1) Unless we specifically state otherwise, the information in this prospectus
does not take into account the sale, pursuant to the underwriters' over-
allotment option, of up to 275,000 shares of common stock which the
underwriters have the option to purchase from us and 100,000 shares of
common stock which the underwriters have the option to purchase from the
selling stockholders.
(2) The common stock outstanding after the offering does not include up to
3,900,000 shares of common stock issuable upon exercise of options
previously awarded or which may be awarded in the future. Currently,
options to purchase 1,506,268 shares (exercisable at a weighted-average
exercise price of $12.38) are outstanding. For more information about these
potential future issuances of shares of common stock, see "Risk Factors--
Future Sales of Our Stock Could Depress Its Market Price."
2
<PAGE>
Summary Consolidated Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal Years Ended Six Months Ended
-------------------------------------------- ------------------
July 1, June 29, June 28, June 27, June 26, Dec. 26, Dec. 25,
1995 1996 1997 1998 1999 1998 1999
------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:(1)
Total revenue........... $20,005 $39,135 $47,967 $83,436 $78,209 $28,954 $61,668
Total cost of sales and
revenue................ 11,813 23,364 30,557 54,987 55,555 23,280 37,507
------- ------- ------- ------- ------- ------- -------
Gross profit............ 8,192 15,772 17,410 28,449 22,654 5,674 24,161
Operating expenses:
Selling, general and
administrative
expenses............. 4,553 7,105 6,908 11,075 13,223 6,048 9,776
Research and
development expenses,
net.................. 2,840 5,043 7,343 11,253 9,745 4,568 6,092
Other operating
expenses(2).......... -- 9,701 1,500 212 2,260 1,497 --
------- ------- ------- ------- ------- ------- -------
Total operating
expenses............... 7,393 21,849 15,751 22,540 25,228 12,113 15,868
------- ------- ------- ------- ------- ------- -------
Earnings (loss) from
operations............. 799 (6,078) 1,659 5,909 (2,574) (6,439) 8,293
Net earnings (loss)..... $ 1,128 $(7,297) $ 938 $ 4,021 $(1,251) $(3,918) $ 5,792
======= ======= ======= ======= ======= ======= =======
Earnings (loss) per
share:
Basic................. $ 0.19 $ (1.16) $ 0.14 $ 0.50 $ (0.13) $ (0.46) $ 0.50
======= ======= ======= ======= ======= ======= =======
Diluted............... $ 0.19 $ (1.16) $ 0.14 $ 0.47 $ (0.13) $ (0.46) $ 0.48
======= ======= ======= ======= ======= ======= =======
Weighted average common
shares:
Basic................. 5,834 6,307 6,686 8,053 9,398 8,594 11,501
======= ======= ======= ======= ======= ======= =======
Diluted............... 5,988 6,307 6,777 8,529 9,398 8,594 12,182
======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
December 25, 1999
----------------------
Actual As Adjusted(3)
------- --------------
<S> <C> <C>
Consolidated Balance Sheet Data:
Working capital.......................................... $47,876 $
Total assets............................................. 91,183
Long-term debt, excluding current maturities............. --
Total liabilities........................................ 15,997
Stockholders' equity..................................... 75,186
</TABLE>
- --------
(1) The consolidated statement of operations data includes the results of
operations of each of the acquired companies since the date of its
acquisition. See note 11 of notes to consolidated financial statements.
(2) In fiscal 1996 other operating expenses consisted of a charge of $6,887
for goodwill impairment and $2,814 for acquisition related charges,
primarily for in-process research and development. In fiscal 1997, such
charges consisted of in-process research and development associated with
the acquisition of CPI. In fiscal 1998, such charges consisted of in-
process research and development associated with the acquisition of
Sorbios. In fiscal 1999, such charges relate to various restructuring
actions. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
(3) Adjusted to reflect the sale of 2,500,000 shares of Common Stock offered
by us in this prospectus at an offering price of $ per share and after
deducting the underwriting discounts and offering expenses. See
"Capitalization."
3
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference contain forward-
looking statements including, without limitation, statements concerning the
future of the industry, product development, business strategy (including the
possibility of future acquisitions), continued acceptance and growth of our
products and dependence on significant customers. These statements can be
identified by the use of forward-looking terminology such as "may," "will,"
"expect," "anticipate," "estimate," "continue" or other similar words. These
statements discuss future expectations, contain projections of results of
operations or of financial condition or state other forward-looking
information. When considering forward-looking statements, you should keep in
mind the risk factors and other cautionary statements in this prospectus. The
risk factors noted below and other factors noted throughout this prospectus
could cause our actual results to differ significantly from those contained in
any forward-looking statement.
RISK FACTORS
Any investment in our shares of our common stock involves a high degree of
risk. You should consider carefully the following information about these
risks, together with the other information contained in this prospectus, before
you decide to buy our common stock. If any of the following risks actually
occur, our business, results of operations and financial condition would likely
suffer. In these circumstances, the market price of our common stock could
decline, and you may lose all or part of the money you paid to buy our common
stock.
Semiconductor Industry Business Cycles Have a Large Effect on Our Operating
Results
Our business depends heavily upon capital expenditures by manufacturers of
semiconductors. The semiconductor industry is highly cyclical, with periods of
capacity shortage and periods of excess capacity. In periods of excess
capacity, the industry sharply cuts purchases of capital equipment, including
our products. Thus, a semiconductor industry downturn or slowdown substantially
reduces our revenues and operating results and could hurt our financial
condition.
During portions of 1998 and 1999, excess capacity in the semiconductor
industry caused semiconductor manufacturers to sharply cut their capital
spending. The excess supply was caused primarily by a period of over-investment
in the industry, as well as by cyclical demand factors. The shift in demand to
low-priced personal computers and currency devaluations in Asia further reduced
profits of semiconductor manufacturers. The downturn in capital spending
reduced our sales during these periods, resulting in significant losses. We
expect that we will continue to depend significantly on the semiconductor
capital equipment industry for the foreseeable future.
Our Operating Results Often Have Large Changes from Quarter to Quarter
Sharp swings in demand cause large changes in our quarter-to-quarter
results. A number of factors contribute to these sharp changes in demand. For
instance, our OEM customers keep inventories of our products and may stop
buying from us during periods of weak demand for their products until they have
reduced their inventories.
Other factors which cause changes in our quarter-to-quarter results include:
. changes in or cancellation of our customers' product plans and programs;
. delays in, or cancellation of, significant system purchases by customers;
. changes in the mix of our products and their gross margins;
. delays in the development, introduction and production of our products;
. new product introductions by competitors and competitive pricing
pressures;
4
<PAGE>
. the time required for us to adjust our operating expenses to respond to
changes in sales;
. the timing of our acquisitions and their effect on our financial results;
. component shortages resulting in manufacturing delays; and
. pressure by customers to reduce prices, shorten delivery times and extend
payment terms.
Our Stock Price Is Volatile and It May Drop Unexpectedly
Our market segment seems particularly vulnerable to abrupt changes in
investor sentiment. Stock prices of companies in the semiconductor equipment
industry, including ours, can swing dramatically with little relationship to
operating performance. During the past 24 months, our stock has traded at per
share prices as high as $39.75 and as low as $3.125. Objective factors which
could cause our stock price to change sharply include:
. changes in our quarterly operating results for the reasons set out in
the previous risk factor;
. changes in the research analysts' expectations for us or our industry or
our failure to meet research analysts' estimates;
. changes in the general economic conditions or developments in the
personal computer, data storage or semiconductor industry which affect
investor confidence; and
. announcements by us or our competitors of technological innovations or
new or enhanced products.
We could be subject to class action litigation due to stock price
volatility, which, if it occurs, will distract our management and could result
in substantial costs or large judgments against us. In the past, securities
class action litigation has often been brought against companies following
periods of volatility in the market prices of their securities. We may be the
target of similar litigation in the future. Securities litigation could result
in substantial costs and divert our management's attention and resources, which
could cause serious harm to our business, financial condition and results of
operations.
We Depend on a Few Customers for the Majority of Our Revenues
A few customers account for a large part of our revenues. Sales to our ten
largest customers accounted for 75% of revenues in the first six months of
fiscal year 2000, 76% of revenues in fiscal year 1999, 72% of revenues in
fiscal year 1998, and 76% of revenues in fiscal year 1997. Sales to our largest
customer, Applied Materials, accounted for approximately 50% of revenues in the
first six months of fiscal year 2000, 45% of revenues in fiscal year 1999, 40%
of revenues in fiscal year 1998, and 38% of revenues in fiscal year 1997. We
expect that sales to Applied Materials will continue to be a large part of our
revenues in the future.
Our customers may cancel orders with few penalties, including orders entered
into under long-term supply agreements with us. If Applied Materials or another
major customer reduces orders for any reason, our revenues, operating results,
and financial condition will be hurt.
We Are Subject to Lengthy Sales and Product Acceptance Cycles
We sell the majority of our products to OEMs that incorporate our products
into the equipment they sell. OEMs consider using our products when their
products are being developed. We must make a significant capital investment to
develop products for our OEM customers well before their products are
introduced and before we can be sure that we will recover our capital
investment through sales to the OEMs in significant volume. We are also at risk
during the development phase that our product may fail to meet our customers'
technical or cost requirements and may be replaced by a competitive product or
alternate technology solution. If that happens, we may be unable to recover our
development costs. If our customers fail to introduce their products in a
timely manner or the market does not accept their products, our business and
our financial results would be hurt.
During any quarter, we are subject to a significant change in our operating
results due to the timing of systems sales. During any quarter, a significant
portion of our revenue may be derived from the sale of a relatively small
number of systems. Our systems range in price from $250,000 to $3.0 million.
Also
5
<PAGE>
sales cycles for larger systems orders can be much longer than sales cycles
for components. Any new systems introduced by us may not achieve a significant
degree of market acceptance or, once accepted, may fail to sell well for any
significant period.
Future Acquisitions or Investments Could Disrupt Our Ongoing Business,
Distract Our Management and Employees, Increase Our Expenses and Adversely
Affect Our Business
We anticipate that a portion of any future growth may be accomplished by
acquiring existing businesses. The success of any acquisitions will depend
upon, among other things, our ability to integrate acquired personnel,
operations, products and technologies into our organization, to retain and
motivate key personnel of acquired businesses and to retain customers of
acquired firms. We cannot assure you that we will be able to identify suitable
acquisition opportunities, obtain any necessary financing on acceptable terms
or integrate acquired personnel and operations. These difficulties could
disrupt our ongoing business, distract our management and employees, increase
our expenses and materially and adversely affect our results of operations.
Any future acquisitions would involve certain other risks, including the
assumption of additional liabilities, potentially dilutive issuances of equity
securities and diversion of management's attention from other business
concerns. Furthermore, we may issue equity securities or incur debt to pay for
any future acquisitions. If we issue equity securities, your percentage
ownership of our company would be reduced.
We Are Growing and May Be Unable to Manage Our Growth Effectively
We have been experiencing a period of growth and expansion. This growth and
expansion is placing significant demands on our management and our operating
systems. We need to continue to improve and expand our management, operational
and financial systems, procedures and controls, including accounting and other
internal management systems, quality control, delivery and service
capabilities. In addition, we will need to continue to attract and retain
additional management, research and development and manufacturing personnel to
handle possible future growth.
In order to manage our growth, we may also need to spend significant
amounts of cash to:
. fund increases in expenses;
. take advantage of unanticipated opportunities, such as major strategic
alliances or other special marketing opportunities, acquisitions of
complementary businesses or assets, or the development of new products;
or
. otherwise respond to unanticipated developments or competitive pressures.
If we do not have enough cash on hand, cash generated from our operations
or cash available under our credit facility to meet these cash requirements,
we will need to seek alternative sources of financing to carry out our growth
and operating strategies. We may not be able to raise needed cash on terms
acceptable to us, or at all. Financing may be on terms that are dilutive or
potentially dilutive. If alternative sources of financing are required but are
insufficient or unavailable, we will be required to modify our growth and
operating plans to the extent of available funding.
We May Have Difficulty Managing Cycles of Growth and Downturns
We have recently had a cycle of rapid growth followed by a downturn. These
expansions and contractions strain our management, manufacturing, financial
and other resources. In an expansion, our systems, procedures, controls and
existing space may not be adequate and we may face difficulties in hiring and
training needed personnel. In a contraction, it may be costly to maintain
current levels of personnel and overhead. If we fail to manage growth or
downturns effectively, our future financial condition, revenues and operating
results could be hurt. Our severe business cycles exacerbate the difficulties
of attracting and retaining highly qualified personnel who are vital to our
success.
6
<PAGE>
We Are Highly Reliant on Key Management
Our success depends to a significant degree upon the continued contributions
of our key management, engineering, sales and marketing, customer support,
finance and manufacturing personnel. The loss of any of these key personnel,
who would be extremely difficult to replace, could harm our business and
operating results. During downturns in our industry, we have often experienced
significant employee attrition, and we may experience further attrition in the
event of a future downturn. Although we have employment and noncompetition
agreements with key members of our senior management team, including Messrs.
Post, Chisholm, Hurley, Burg and Katz, these individuals or other key employees
may nevertheless leave our company. We do not have key person life insurance on
any of our executives. Competition for management in our industry is intense,
and we may not be successful in attracting and retaining key management
personnel.
Our Markets Are Very Competitive and Competing Technologies May Render Some or
All of Our Products or Future Products Noncompetitive
The markets for our products are very competitive. Many of our current and
potential competitors have much greater resources than we have. A number of
established semiconductor equipment manufacturers, including some of our
significant customers, have expended significant resources in developing
improved reactive gas systems and components. We may not be successful in
selling our products to our customers, regardless of the performance or the
price of our products. Our competitors may develop superior or lower priced
products. Moreover, our customers' own markets are highly competitive. Our
customers buy our products only when they are successful in selling their own
products. Consequently, if our customers fail to compete effectively, our sales
could be hurt.
Rapid Technology Change May Make Our Products Obsolete
Technology changes rapidly in the markets we serve. Our success will depend
upon our ability to anticipate these changes, enhance our existing products and
develop new products to meet customer requirements and achieve market
acceptance. We may not be able to do those things correctly or soon enough. If
we fail in these efforts, our products will become obsolete, which will hurt
our operating results and financial position.
We Must Achieve Design Wins to Retain Our Existing OEM Customers and to Obtain
New OEM Customers
The constantly changing nature of semiconductor fabrication technology
requires OEMs to continually design new systems. We often must work with these
manufacturers early in their design cycles to modify our equipment to meet the
requirements of the new systems. Manufacturers typically choose one or two
vendors to provide the products for use with the early system shipments.
Selection as one of these vendors is called a design win. We must achieve these
design wins in order to retain existing customers and to obtain new customers.
Once a manufacturer chooses a supplier of modules or systems, it is likely
to retain that supplier for an extended period of time. Our sales and growth
could experience material and prolonged adverse effects if we fail to achieve
design wins. In addition, design wins do not always result in substantial sales
or profits.
We believe that OEMs often select their suppliers based on factors such as
long-term relationships. Accordingly, we may have difficulty achieving design
wins from OEMs who are not currently customers. In addition, we must compete
for design wins for new systems and products of our existing customers,
including those with whom we have had long-term relationships.
Development of New Products is Risky and We May Not Be Successful in
Anticipating Market Trends
We expect to spend a significant amount of time and resources developing new
products and refining existing products and systems. In light of the long
product development cycles inherent in our industry, these expenditures will be
made well in advance of the prospect of deriving revenue from the sale of new
systems.
7
<PAGE>
Our ability to commercially introduce and successfully market new products is
subject to a wide variety of challenges during this development cycle,
including start-up bugs, design defects and other matters that could delay
introduction of these systems. In addition, since our customers are not
obligated by long-term contracts to purchase our products, our anticipated
product orders may not materialize, or orders that do materialize may be
cancelled. As a result, if we do not achieve market acceptance of new
products, we may not be able to realize sufficient sales in order to recoup
research and development expenditures. We may also divert sales and marketing
resources from our current products in order to successfully launch and
promote our new products. This diversion of resources could have a further
negative effect on sales of our current products.
The success of our product development efforts depends on our ability to
anticipate market trends and the price, performance and functionality
requirements of semiconductor device and equipment manufacturers. In order to
anticipate these trends and ensure that critical development projects proceed
in a coordinated manner, we must continue to collaborate closely with our
largest customers. Our relationships with these and other customers provide us
with access to valuable information regarding trends in the semiconductor
device industry, which enables us to better plan our product development
activities. If our current relationships with our large customers are
impaired, or if we are unable to develop similar collaborative relationships
with important customers in the future, our long-term ability to produce
commercially successful products will be impaired.
Our industry is characterized by the need for continual investment in
research and development as well as customer service and support. As a result
of our need to maintain our spending levels in these areas, our operating
results could be materially harmed if our revenues fall below expectations. In
addition, because of our emphasis on research and development and
technological innovation, our operating costs may increase further in the
future. We expect our level of research and development expenses to increase
in absolute dollar terms for at least the next several years.
We Conduct Manufacturing At Only A Few Sites
We conduct the majority of our manufacturing at our facilities in Woburn
and Wilmington, Massachusetts and Colorado Springs, Colorado. Future natural
or other uncontrollable occurrences at any of our manufacturing facilities
that negatively impact our manufacturing processes may not be fully covered by
insurance and could have a material adverse effect on our operations and
results of operations.
Economic Problems in Asia May Hurt Our Sales
Asia is an important region for the markets we serve and has accounted for
a large part of our revenues. In recent years, Asia has experienced serious
economic problems including currency devaluations, debt defaults, lack of
liquidity and recessions. Our revenues depend upon the capital expenditures of
semiconductor manufacturers, many of whom have operations and customers in
Asia. Serious economic problems in Asia would likely result in a significant
decrease in the sale of equipment to the semiconductor industry. Economic
difficulties in this region could also damage the economies of the U.S. and
Europe and ultimately the domestic demand for our products. Therefore, weak
economic conditions in Asia would likely negatively impact our future
financial condition, revenues and operating results.
Our Dependence on Sole and Limited Source Suppliers Could Affect Our Ability
to Manufacture Products and Systems
We rely on sole and limited source suppliers for a few of our components
and subassemblies that are critical to the manufacturing of our products. This
reliance involves several risks, including the following:
. the potential inability to obtain an adequate supply of required
components;
.reduced control over pricing and timing of delivery of components; and
. the potential inability of our suppliers to develop technologically
advanced products to support our growth and development of new systems.
8
<PAGE>
We believe that in time we could obtain and qualify alternative sources for
most sole and limited source parts. Seeking alternative sources of the parts
could require us to redesign our systems, resulting in increased costs and
likely shipping delays. We may be unable to redesign our systems, which could
result in further costs and shipping delays. These increased costs would
decrease our profit margins if we could not pass the costs to our customers.
Further, shipping delays could damage our relationships with current and
potential customers and have a material adverse effect on our business and
results of operations.
Our Dependence upon International Sales and Non-U.S. Suppliers Involves
Significant Risk
We do business worldwide, both directly and through sales to United States-
based OEMs, who sell their products internationally. International sales
accounted for 19% of revenues in the first six months of fiscal year 2000, 20%
of revenues in fiscal year 1999, 23% of our revenues in fiscal year 1998, and
21% of revenues in fiscal year 1997. International sales will continue to
account for a significant percentage of our revenues. In addition, we rely upon
non-U.S. suppliers for certain components. As a result, a major part of our
revenues and operating results is subject to the risks associated with
international sales. International sales and our relationships with suppliers
may be hurt by many factors, including:
. changes in policy or applicable U.S. or foreign laws which result in
burdensome government controls, tariffs, restrictions, embargoes or
export license requirements;
. political and economic instability in our target international markets;
. difficulties of staffing and managing our international operations or
representatives;
. shipping delays;
. less favorable foreign intellectual property laws, which make it harder
to protect our technology from appropriation by competitors;
. longer payment cycles common in foreign markets;
. difficulties collecting our accounts receivable because of the distance
and different legal rules; and
. potential additional U.S. and foreign taxes which increase the amount of
taxes we have to pay.
We May Incur Foreign Currency Exchange Rate Losses
Our foreign sales are typically made in U.S. dollars. A strengthening in the
dollar relative to the currencies of those countries where we do business would
increase the prices of our products as stated in those currencies and hurt our
sales in those countries. If we lower our prices to reflect a change in
exchange rates, our profitability in those markets will go down. In the past,
there have been significant fluctuations in the exchange rates between the
dollar and the currencies in those countries in which we do business. We have
not historically tried to reduce our exposure to exchange rate fluctuations by
using hedging transactions. However, we may choose to do so in the future. We
may not be able to do so successfully. Accordingly, we may experience economic
loss and a negative impact on earnings and equity as a result of foreign
currency exchange rate fluctuations.
Patents and Proprietary Information May Not Be Adequate to Protect Our Business
We rely on our patent and trade secret rights to protect our proprietary
technology. As of February 15, 2000, we own 26 U.S. patents and two foreign
patents, and have 24 pending U.S. patent applications and 12 pending foreign
applications in various stages of prosecution. The earliest of our key patents
expires in 2007. We own the commercial rights to proprietary technology
developed under various U.S. government contracts and grants, including
federally funded research contracts. The U.S. government also has certain
rights to such proprietary technology developed under these contracts and
grants. We also have joint development agreements with industrial and
commercial partners which may result in sole or joint ownership rights to
proprietary technology developed under those agreements. However, we cannot be
sure that additional patent applications
9
<PAGE>
will be filed, that patents will issue from these applications or that any of
our patents will withstand challenges by others. Our patents may not provide us
with meaningful protection from competitors, including those who may pursue
patents which may block our use of our proprietary technology. In addition, we
rely upon unpatented trade secrets and seek to protect them, in part, through
confidentiality agreements with employees, consultants and our customers and
potential customers. If these agreements are breached, or if our trade secrets
become known to or are independently developed by competitors we may not have
adequate remedies for such breach.
If a competitor's products infringed our patents, we may sue to enforce our
rights in an infringement action. These suits are costly and would divert funds
and management and technical resources from our operations. Furthermore, we
cannot be certain that our products or processes will not infringe any patents
or other intellectual property rights of others. If they do infringe the rights
of others, we may not be able to obtain a license from the intellectual
property owner on commercially reasonable terms or at all.
Our efforts to protect our intellectual property may be less effective in
some foreign countries where intellectual property rights are not as well
protected as in the United States. Currently, a significant portion of our
revenue is derived from sales in foreign countries, including certain countries
in Asia, such as Taiwan, Korea and Japan. The laws of some foreign countries do
not protect our proprietary rights to as great an extent as do the laws of the
United States, and many U.S. companies have encountered substantial problems in
protecting their proprietary rights against infringement in such countries,
some of which are countries in which we have sold and continue to sell
products. There is a risk that our means of protecting our proprietary rights
may not be adequate in these countries. For example, our competitors in these
countries may independently develop similar technology or duplicate our
systems. If we fail to adequately protect our intellectual property in these
countries, it would be easier for our competitors to sell competing products in
those countries.
We Are Subject To Governmental Regulations
We are subject to federal, state, local, and foreign regulations, including
environmental regulations and regulations relating to the design and operation
of our power supply products. We must ensure that these systems meet certain
safety standards, many of which vary across the countries in which our systems
are used. For example, the European Union has published directives specifically
relating to power supplies. We must comply with these directives in order to
ship our systems into countries that are members of the European Union. We
believe we are in compliance with current applicable regulations, directives
and standards and have obtained all necessary permits, approvals, and
authorizations to conduct our business. However, compliance with future
regulations, directives and standards could require us to modify or redesign
certain systems, make capital expenditures or incur substantial costs. If we do
not comply with current or future regulations, directives and standards:
. we could be subject to fines;
. our production could be suspended; or
. we could be prohibited from offering particular systems in specified
markets.
Our Management Has Significant Influence Over Stockholder Decisions
Our officers and directors will control the vote of approximately 7.8% of
the outstanding shares of common stock prior to the exercise of any outstanding
options. As a result, they may be able to significantly influence all matters
requiring approval by our stockholders, including the election of directors.
Our Management Has Broad Discretion to Determine How to Use The Funds Raised
from The Sale of The Common Stock and May Use Those Funds in Ways That May Not
Increase Our Operating Results Or Market Value
The net proceeds we receive from our sale of common stock in this offering
have not been allocated for a particular purpose. We intend to use the net
proceeds for general corporate purposes, including acquisitions and working
capital requirements. We may use some or all of the net proceeds for
acquisition, although no
10
<PAGE>
agreement or understanding with respect to any future acquisition has been
reached. Our management will have significant discretion as to the use of the
net proceeds of the offerings and you will not have the opportunity, as part of
your investment decision, to assess whether the proceeds are being used
appropriately. The net proceeds from this offering may be applied to uses that
ultimately may not increase our operating results or our market value.
Our Anti-Takeover Measures May Affect the Value of our Stock
As a Delaware corporation, we are subject to the General Corporation Law of
the State of Delaware, including Section 203, an anti-takeover law enacted in
1988. In general, Section 203 restricts the ability of a public Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder. As a result of the
application of Section 203 and certain provisions in our certificate of
incorporation and bylaws, potential acquirors may be discouraged from
attempting to acquire us, thereby possibly depriving our stockholders of
acquisition opportunities to sell or otherwise dispose our stock at above-
market prices typical of such acquisitions.
We have also adopted a shareholder rights plan which gives holders of common
stock the right to purchase shares of our Series A Junior Participating
Preferred Stock if a potential acquiror purchases or plans to make a tender
offer to purchase 15% or more of our outstanding common stock. The existence of
this plan may make it more difficult for a third party to acquire control of
the Company.
Our Board of Directors is divided into three classes of directors with
staggered terms. Directors are elected to three-year terms and the term of one
class of directors expires each year. The existence of a classified board is
designed to provide continuity and stability to our management and to render
certain hostile takeovers more difficult. The existence of a classified board
may therefore have the effect of making it more difficult for a third party to
acquire control of the Company in certain instances, thereby delaying,
deferring or preventing a change of control that could result in a premium for
our stock. Further, if stockholders are dissatisfied with the policies and/or
decisions of the Board of Directors, the existence of a classified board will
make it more difficult for the stockholders to change the composition and,
therefore, the policies of the Board of Directors in a relatively short period
of time.
We are authorized to issue up to 1,000,000 shares of preferred stock, $.01
par value per share and to determine the price, privileges and other terms of
such shares. The issuance of any preferred stock with superior rights to the
common stock could reduce the value of the common stock. In particular,
specific rights granted to future holders of preferred stock could be used to
restrict our ability to merge with or sell our assets to a third party, thereby
preserving control of the Company by present owners and management and
preventing our holders of common stock from realizing a premium on their
shares.
Future Sales of Our Stock Could Depress its Market Price
The market price of our common stock could drop as a result of sales of a
large number of shares of common stock in the market after the offering, or the
price could remain lower because of the belief that such sales could occur.
These factors also could make it more difficult for us to raise funds through
future offerings of common stock.
As of January 31, 2000 we had 11,705,345 shares of common stock outstanding,
of which 10,364,387 shares are freely tradeable and 1,109,833 shares of which
are owned by certain of our officers and directors and are currently eligible
for sale under Rule 144 of the Securities Act of 1933. The 1,109,833 shares of
common stock owned by certain of our officers and directors are subject to the
volume trading limitations under Rule 144. In connection with the offering, our
officers and directors have agreed that they will not sell any shares of common
stock without the consent of Robertson Stephens for a period of 90 days after
the date of this prospectus.
11
<PAGE>
In addition, we have reserved an aggregate of 4,632,558 shares of common
stock for issuance to employees, officers, directors and consultants pursuant
to our 1987 Stock Option Plan, 1993 Stock Option Plan and 1994 Formula Stock
Option Plan. To date, options to purchase 3,376,780 shares have been granted
under these option plans, of which 958,528 have been exercised, 911,984 have
been canceled and 1,506,268 are currently outstanding. All shares of common
stock underlying our option plans are registered and, upon exercise, are freely
tradable subject to volume trading limitations under Rule 144. These options
entitle the holders to purchase shares of common stock at prices per share that
are less than the current market price per share of our common stock. The
holders of these options will usually exercise them at a time when the market
price of our common stock is greater than the exercise price of the options.
The exercise of options and subsequent sale of common stock could reduce the
market price for our common stock and result in dilution to our then
stockholders.
12
<PAGE>
USE OF PROCEEDS
The net proceeds to us from the sale of the 2,500,000 shares of common stock
offered with this prospectus will be approximately $ , given a public
offering price of $ per share and after deduction of the underwriting
discounts and commissions and offering expenses to be paid by us. See
"Underwriting."
We expect to use the net proceeds for working capital and general corporate
purposes, including new product development, and sales and marketing expansion.
We intend to use a portion of the proceeds to expand our global sales and
service activities, to expand our facilities and purchase additional equipment,
to fund sales and product development joint ventures and to expand our product
development activities for new markets. We are undertaking the offering in part
because we believe that the availability of adequate financial resources is a
substantial competitive factor. We may use a portion of the net proceeds for
strategic acquisitions of businesses, products or technologies complementary to
our business. We do not have any material commitments to make any strategic
acquisition at this time. Prior to using the proceeds in the manner described
above, we plan to invest the net proceeds of this offering in interest-bearing
investment-grade securities.
13
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization at December 25, 1999 on an
actual basis, and on an as adjusted basis to give effect to the sale of the
2,500,000 shares of common stock offered in this offering at a public offering
price of $ per share and after deducting underwriting discounts and
commissions and offering expenses to be paid by us:
<TABLE>
<CAPTION>
December 25, 1999
--------------------
Actual As Adjusted
------- -----------
(in thousands)
<S> <C> <C>
Short-term debt:
Current maturities of long-term debt................. $ -- $--
Long-term debt:
Long-term debt, excluding current maturities......... -- --
Stockholders equity:
Preferred stock, $.01 par value; 1,000,000 shares
authorized; issued and outstanding: none actual;
none pro forma...................................... -- --
Common stock, $.01 par value; 30,000,000 shares
authorized; issued and outstanding: 11,667,207
actual; 14,167,207 as adjusted (1).................. 116
Additional paid-in capital........................... 71,648
Retained earnings.................................... 3,668
Accumulated comprehensive income (loss).............. (246)
------- ----
Total stockholders' equity.......................... 75,186
------- ----
Total capitalization................................ $75,186 $
======= ====
</TABLE>
- --------
(1) Excludes outstanding options to purchase 1,506,268 shares of common stock
at a weighted-average exercise price per share of $12.38.
The table should be read in conjunction with our consolidated financial
statements and the related notes appearing elsewhere in this prospectus.
14
<PAGE>
PRICE RANGE OF COMMON STOCK
Our common stock is traded on the Nasdaq National Market under the symbol
"ASTX." The following table sets forth, for the periods indicated, the high and
low closing sale prices per share of our common stock, as reported by the
Nasdaq National Market.
<TABLE>
<CAPTION>
High Low
------- -------
<S> <C> <C>
Fiscal Year (ended June 27, 1998)
First Quarter................................................ $15.583 $10.417
Second Quarter............................................... 18.333 9.750
Third Quarter................................................ 16.000 10.125
Fourth Quarter............................................... 17.250 7.625
Fiscal Year (ending June 26, 1999)
First Quarter................................................ $ 8.125 $ 3.875
Second Quarter............................................... 11.000 3.125
Third Quarter................................................ 14.500 9.875
Fourth Quarter............................................... 21.375 12.500
Fiscal Year (ending July 1, 2000)
First Quarter................................................ $23.125 $16.688
Second Quarter............................................... 34.563 21.375
Third Quarter (through February, 2000)....................... 39.313 29.750
</TABLE>
On February 15, 2000, the closing price for our common stock as reported on
the Nasdaq National Market was $34.75. As of January 31, 2000, we had 172
holders of record of our common stock. There are approximately 2,100 beneficial
owners of our common stock.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock and do not
plan to pay any cash dividends in the foreseeable future. Our current credit
facility arrangements restrict our ability to declare cash dividends without
the lender's prior written consent. Our current policy is to retain all
earnings to finance future growth.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table contains our selected consolidated financial data and is
qualified by the more detailed Consolidated Financial Statements and Notes
thereto included elsewhere in this prospectus. The consolidated statement of
operations data for the fiscal years ended June 26, 1999, June 27, 1998 and
June 28, 1997 have been derived from Consolidated Financial Statements, which
statements have been audited by KPMG LLP, independent public accountants, and
are included elsewhere in this prospectus. The consolidated statement of
operations data for the fiscal years ended June 29, 1996 and July 1, 1995 have
been derived from our consolidated financial statements, which have been
audited by KPMG LLP and are not included in this prospectus. Data as of
December 25, 1999 and December 26, 1998 and for the six months ended December
25, 1999 have been derived from unaudited Consolidated Financial Statements
included elsewhere in this prospectus and, in our opinion, include all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the results of operations for the periods presented.
Results for the six months ended December 25, 1999 are not necessarily
indicative of the results to be expected for the full year. This data should be
read in conjunction with the Consolidated Financial Statements and Notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing elsewhere herein.
<TABLE>
<CAPTION>
Fiscal Years Ended Six Months Ended
--------------------------------------------- ------------------
July 1, June 29, June 28, June 27, June 26, Dec. 26, Dec. 25,
1995 1996 1997 1998 1999 1998 1999
------- -------- -------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data(1):
Total revenue........... $20,005 $39,135 $47,967 $83,436 $78,209 $28,954 $61,668
Total cost of sales and
revenue................ 11,813 23,364 30,557 54,987 55,555 23,280 37,507
------- ------- ------- ------- ------- ------- -------
Gross profit............ 8,192 15,771 17,410 28,449 22,654 5,674 24,161
Operating Expenses:
Research and
development expenses.. 2,840 5,043 7,343 11,253 9,745 4,568 6,092
Selling expenses....... 1,992 3,298 2,950 4,427 5,168 2,375 4,165
General and
administrative
expenses.............. 2,561 3,807 3,958 6,648 8,055 3,673 5,611
Other operating
expenses(2)........... -- 9,702 1,500 212 2,260 1,497 --
------- ------- ------- ------- ------- ------- -------
Total operating
expenses............... 7,393 21,850 15,751 22,540 25,228 12,113 15,868
------- ------- ------- ------- ------- ------- -------
Earnings (loss) from
operations............. 799 (6,078) 1,659 5,909 (2,574) (6,439) 8,293
Total other income
(expense).............. 730 322 (171) 578 673 236 741
------- ------- ------- ------- ------- ------- -------
Earnings (loss) before
income taxes........... 1,529 (5,756) 1,488 6,487 (1,901) (6,203) 9,034
Income tax expense
(benefit).............. 401 1,541 550 2,466 (650) (2,285) 3,242
------- ------- ------- ------- ------- ------- -------
Net earnings (loss)..... $ 1,128 $(7,297) $ 938 $ 4,021 $(1,251) $(3,918) $ 5,792
======= ======= ======= ======= ======= ======= =======
Earnings (loss) per
share:
Basic.................. $ 0.19 $ (1.16) $ 0.14 $ 0.50 $ (0.13) $ (0.46) $ 0.50
======= ======= ======= ======= ======= ======= =======
Diluted................ $ 0.19 $ (1.16) $ 0.14 $ 0.47 $ (0.13) $ (0.46) $ 0.48
======= ======= ======= ======= ======= ======= =======
Weighted average common
shares:
Basic.................. 5,834 6,307 6,686 8,053 9,398 8,594 11,501
======= ======= ======= ======= ======= ======= =======
Diluted................ 5,988 6,307 6,777 8,529 9,398 8,594 12,182
======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
December 25, 1999
----------------------
Actual As Adjusted(3)
------- --------------
<S> <C> <C>
Consolidated Balance Sheet Data:
Working capital.......................................... $47,876 $
Total assets............................................. 91,183
Long-term debt, excluding current maturities............. --
Total liabilities........................................ 15,997
Stockholders' equity..................................... 75,186
</TABLE>
- --------
(1) The consolidated statement of operations data includes the results of
operations of each of the acquired companies since the date of its
acquisition. See note 11A, notes to consolidated financial statements.
(2) In fiscal 1996 other operating expenses consisted of a charge of $6,887
for goodwill impairment and $2,814 for acquisition related charges,
primarily for in-process research and development. In fiscal 1997, such
charges consisted of in-process research and development associated with
the acquisition of CPI. In fiscal 1998, such charges consisted of in-
process research and development associated with the acquisition of
Sorbios. In fiscal 1999, such charges relate to various restructuring
actions. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
(3) Adjusted to reflect the sale of 2,500,000 shares of common stock offered
by us in this prospectus at an offering price of $ per share and after
deducting the underwriting discounts and offering expenses. See
"Capitalization."
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
We provide precision reactive gas solutions to the OEM semiconductor,
medical, and industrial markets, and complete process systems for advanced
packaging, telecommunications and magnetic sensor applications. Our broad
product line is based on a decade of leadership in core technologies, including
precision reactive gas processing, specialized power sources, and system
integration. Depending on our customers' needs, we provide varying levels of
integration, from components to modules to complete process solutions. We help
our customers maximize their competitive advantage by improving time to market
while reducing costs and complexity. During the past five years, we have grown
rapidly, both through internal growth as well as by acquisitions. In January
1996, we acquired Erhorn Technological Operations, Inc. (ETO), a manufacturer
of RF power sources. In May 1997, we acquired Converter Power, Inc. (ASTeX
CPI), a manufacturer of direct current power sources. In October 1997, we
acquired Sorbios GmbH (ASTeX Sorbios), a manufacturer of ozone sources. In
November 1998 we acquired PlasmaQuest, Inc. (ASTeX PlasmaQuest), a manufacturer
of reactive gas sources and systems used for magnetic disk head processing and
advanced electronic packaging applications. In May 1999, we acquired Klee
Corporation (ASTeX Klee), a developer of systems used for advanced electronic
packaging applications. In August 1999, we acquired substantially all of the
assets of the Shamrock product line from Sputtered Films, Inc. The results of
operations for each period presented include the results of operations of each
of the acquired companies since the date of its acquisition.
Results of Operations
The following table sets forth selected financial data for the periods
indicated expressed as a percentage of total revenue.
<TABLE>
<CAPTION>
Years Ended Six Months Ended
-------------------------- ------------------
June 28, June 27, June 26, Dec. 26, Dec. 25,
1997 1998 1999 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Total revenue.................. 100.0% 100.0% 100.0% 100.0% 100.0%
Total cost of sales and
revenue....................... 63.7 65.9 71.0 80.4 60.8
----- ----- ----- ----- -----
Gross profit................... 36.3 34.1 29.0 19.6 39.2
Operating expenses:
Selling expenses............. 6.2 5.3 6.6 8.2 6.8
General and administrative
expenses.................... 8.2 8.0 10.3 12.7 9.1
Research and development
expenses, net............... 15.3 13.5 12.5 15.8 9.9
Other operating expenses..... 3.1 0.2 2.9 5.1 --
----- ----- ----- ----- -----
Total operating expenses....... 32.8 27.0 32.3 41.8 25.8
----- ----- ----- ----- -----
Earnings (loss) from
operations.................... 3.5 7.1 (3.3) (22.2) 13.4
Total other income (expense)... (0.4) 0.7 0.9 0.8 1.3
----- ----- ----- ----- -----
Earnings (loss) before income
taxes......................... 3.1 7.8 (2.4) (21.4) 14.7
Income tax expense (benefit)... 1.1 3.0 0.8 (7.9) 5.3
----- ----- ----- ----- -----
Net earnings (loss)............ 2.0% 4.8% (1.6)% (13.5)% 9.4%
===== ===== ===== ===== =====
</TABLE>
Six Months Ended December 25, 1999 Compared to Six Months Ended December 26,
1998
Revenue. Total revenue increased by 113% to $61.7 million for the six months
ended December 25, 1999 compared to revenue of $29.0 million for the six months
ended December 26, 1998. The increase is primarily due to an increase in our
semiconductor capital equipment business, which grew by 203% to $45.8
17
<PAGE>
million for the six months ended December 25, 1999 compared to the six months
ended December 26, 1998. This growth was driven primarily by the recovery of
the semiconductor capital equipment business, and was reflected across the
entire line of our new and existing semiconductor products. System group
revenue increased to $6.3 million for the six months ended December 25, 1999
compared to $1.3 million for the six months ended December 26, 1998. The
medical and industrial segment of the business decreased by 24% to $9.7 million
for the six months ended December 25, 1999 compared to the six months ended
December 26, 1998 primarily due to declines in volume to several customers and
a price decrease to one customer.
Gross Profit. Gross profit increased to 39% of total revenue for the six
months ended December 25, 1999 compared to 20% of total revenue for the six
months ended December 26, 1998. Gross margin improved due to increased volume,
favorable product mix with higher gross margin, improved manufacturing
efficiencies and a lower fixed cost structure due to plant consolidations
undertaken in fiscal year 1999. Gross margins for fiscal year 1999 were
adversely impacted by a $1.1 million inventory write-down in the first six
months.
Selling, General and Administrative Expenses. Selling expenses increased by
75% to $4.2 million (or 7% of total revenue) for the six months ended December
25, 1999 compared to $2.4 million (or 8% of total revenue) for the six months
ended December 26, 1998. The increase was due to the costs associated with the
creation of the Global Customer Operations organization and increased staffing
of marketing, sales, service and product management functions during the six
months ended December 25, 1999 in order to better meet customer sales and
service needs on a global basis. General and administrative expenses increased
by 53% to $5.6 million (or 9% of total revenue) for the six months ended
December 25, 1999 compared to $3.7 million (or 13% of total revenue) for the
six months ended December 26, 1998. The increase was primarily due to goodwill
amortization, administrative expenses associated with acquisition activity and
the expansion of our management team.
As a result of the consolidation of two facilities, we incurred a
restructuring charge of $1.5 million during the six months ended December 26,
1998 for the costs of severance, abandonment of leasehold improvements and
fixed assets, and for facility costs, primarily consisting of future lease
payments. There was no comparable cost during the six months ended December 25,
1999. However, we have incurred approximately $0.1 million for the relocation
of inventory, equipment and key employees from the former Dallas facility to
Massachusetts.
Research and Development Expenses. Net research and development expense
increased by 33% to $6.1 million (or 10% of total revenue) in the six months
ended December 25, 1999 compared to $4.6 million (or 16% of total revenue) for
the six months ended December 25, 1998. As a percent of revenue, R&D expenses
were lower during the six months ended December 25, 1999 because of higher
sales revenue compared to the six months ended December 26, 1998. On an
absolute dollar basis, research and development expenses rose primarily as a
result of expenditures in connection with support for new modular products and
the development of products for the systems group.
Operating Income (Loss). We had operating income of $8.3 million (or 13% of
total revenues) for the six months ended December 25, 1999 compared to a loss
of $6.4 million (or 22% of total revenue) for the six months ended December 26,
1998. The increase in operating income is due to increased revenues, improved
gross margin and lower operating expenses as a percentage of sales compared to
the six months ended December 26, 1998.
Other Income and Income Taxes. Total other income increased to $741,000 for
the six months ended December 25, 1999 primarily due to interest income earned
on short and long term cash investments from proceeds of our March 1999 public
offering of common stock. We had income tax expense of $3.2 million for the six
months ended December 25, 1999 compared to tax benefits of $2.3 million in the
six months ended December 26, 1998. Earnings during the six months ended
December 25, 1999 were enhanced by a reduced effective tax rate for the second
quarter of fiscal 2000 due to the retroactive reinstatement of the research and
experimentation tax credit.
18
<PAGE>
Fiscal Year Ended June 26, 1999 as Compared to Fiscal Year Ended June 27, 1998
Revenue. Total revenue declined 6% to $78.2 million in fiscal 1999 compared
to $83.4 million in fiscal 1998. This decline is due to the severe downturn in
the semiconductor capital equipment industry as a result of over-capacity,
coupled with a financial crisis in Asia that occurred in the first half of
fiscal 1999. These factors led to a 40% sequential decline in revenues in the
first quarter of fiscal 1999, in comparison to the fourth quarter of fiscal
1998. With a strong recovery in our semiconductor equipment business in the
second half of fiscal 1999, this segment of our business declined by only 3% to
$51.3 million in fiscal 1999 compared to $52.8 million in fiscal 1998. This
strong recovery was due to the strength of our customers' business and the
success of our new products for this segment. The medical and industrial
segment declined by 18% to $22.6 million in fiscal 1999 compared to $27.7
million in fiscal 1998 due to the impact of the financial crisis in Asia. The
systems segment of the business increased 46% primarily due to the acquisition
of ASTeX PlasmaQuest. Research contract revenue was flat at approximately 1% of
total sales in fiscal 1999 and fiscal 1998.
Gross Profit. Gross profit declined by 20% to $22.7 million or 29% of sales
in fiscal 1999 compared to $28.5 million or 34% of sales in fiscal 1998. The
decline is a result of reduced manufacturing volumes and underutilization of
manufacturing capacity in the first half of fiscal 1999, and an inventory
write-down of $1.2 million, primarily due to the unexpected severity of the
downturn in the semiconductor equipment business.
We continue to seek to develop and introduce products having higher gross
profit margins. In addition, in the first six months of fiscal 1999, we
consolidated our Modesto, California facility into our Woburn, Massachusetts
and Colorado Springs, Colorado sites and our Beverly, Massachusetts facility
into Woburn in order to reduce our fixed costs and improve gross margins.
Gross profit as a percent of sales improved in our fourth quarter of fiscal
1999 to 35% compared to 28% in the fourth quarter of fiscal 1998, primarily as
a result of the cost reduction activities, improved utilization of
manufacturing capacity, and the success of new product introductions.
Selling, General and Administrative Expenses. Selling expenses increased 17%
to $5.2 million in fiscal 1999 compared to $4.4 million in fiscal 1998. The
increase is a result of the establishment of the Global Customer Operations
organization and increased staffing to strengthen our global marketing, sales,
service and product management infrastructure. General and administrative
expenses increased by 21% to $8.1 million compared to $6.6 million in fiscal
1998 due to higher information systems costs from implementation of a new
company-wide Enterprise Resource Planning (ERP) system, increased goodwill
amortization, administrative expenses associated with new acquisitions, and
management changes including expanding the senior management team.
Other Operating Expenses. As a result of consolidation of two facilities in
the first six months of fiscal 1999 and the consolidation of the PlasmaQuest
facility in Dallas, Texas to our Woburn, Massachusetts facility, announced in
the fourth quarter, we recorded a $2.3 million restructuring charge in fiscal
1999. The restructuring charge for the consolidation of Modesto, California and
Beverly, Massachusetts consisted of severance related to the termination of 70
full-time employees, abandonment of leasehold improvements and fixed assets,
and facility costs, primarily future lease payments relating to abandoned
facilities. At June 26, 1999 all restructuring costs for these two facilities
have been paid out with the exception of approximately $174,000 for abandoned
facility costs expected to be paid out over the next 9 months. In the fourth
quarter of fiscal 1999, we adjusted the restructuring accrual for the Modesto,
California and the Beverly, Massachusetts facilities and took back into income
approximately $30,000 accrued as an estimate in our first quarter. The
restructuring costs of $763,000 for the Dallas facility are for the severance
of 16 full-time employees, abandonment of leasehold and fixed assets, and
future lease payments relating to abandoned facilities. These costs are
expected to be paid out over the next 18 months. In addition to the $2.3
million restructuring costs, we incurred $393,000 of other transition costs in
fiscal 1999 for moving inventory and equipment and training
19
<PAGE>
personnel. We expect additional transition costs in the first and second
quarter of fiscal 2000 for the Dallas facility of approximately $250,000
primarily for the relocation of inventory and equipment and three key
employees. The total fiscal 1999 expense relating to restructuring, inventory
write-down, and transition costs was $3.7 million. These consolidations are
expected to reduce our fixed and administrative costs by $2.5 million per
year.
There were no acquisition-related charges in fiscal 1999. As part of the
acquisition of ASTeX Sorbios in October 1997, we incurred an acquisition-
related expense of $212,000 for the fair value of acquired in-process research
and development projects.
Research and Development Expenses. Net research and development expenses
decreased by 13% to $9.7 million in fiscal 1999 compared to $11.3 million in
fiscal 1998 as we decreased our overall level of investment in response to the
decline in revenues in the first half of fiscal 1999. Gross spending
(including funded joint development and the direct costs of research
contracts) decreased 15% to $10.2 million in fiscal 1999 compared to $12.0
million in fiscal 1998.
Operating Income. We had an operating loss of $2.6 million in fiscal 1999
compared to an operating profit of $5.9 million in fiscal 1998. The operating
loss is a result of the revenue declines, restructuring, inventory write-
downs, and transition costs and increased operating expenses as a percent of
income.
Other Income and Income Taxes. Total other income increased by 17% to
$673,000 in fiscal 1999 compared to $578,000 in fiscal 1998. A decline in
interest expense and other income in fiscal 1999 compared to fiscal 1998 is a
result of repayment of bank debt and the sale of an investment in another
company which resulted in a one-time gain of $250,000 in fiscal 1998. Interest
income increased in fiscal 1999 due to the interest earned on the cash from
our secondary stock offering in March 1999.
We had a tax benefit of $650,000 in fiscal 1999 compared to a tax expense
of $2,466,000 in fiscal 1998.
Fiscal Year Ended June 27, 1998 as Compared to Fiscal Year Ended June 26, 1997
Revenues. Total revenue increased 74% to $83.4 million for the fiscal year
ended June 27, 1998 from $48.0 million for the fiscal year ended June 26,
1997. This growth was primarily the result of increased revenues from the
acquisitions of ASTeX CPI in May 1997 and ASTeX Sorbios in October 1997,
increased sales to semiconductor capital equipment customers, and increased
sales of specialty power sources. Semiconductor related revenues, including
revenues from ASTeX CPI and ASTeX Sorbios, increased 72% or $22.1 million in
the fiscal year ended June 27, 1998 compared to the fiscal year ended June 26,
1997 with the biggest increase coming from sales of RF power sources.
Specialty power source revenues, including revenues from ASTeX CPI, increased
104% or $13.6 million in the fiscal year ended June 27, 1998 compared to the
fiscal year ended June 26, 1997 with most of the growth due to the revenues
from ASTeX CPI. The ASTeX CPI and ASTeX Sorbios acquisitions added incremental
sales of $12.7 million and $3.5 million respectively compared to the fiscal
year ended June 26, 1997, or 19% of total revenue. Without these acquisitions,
revenues increased 42% to $65.0 million from $45.7 million. Other revenue
consisting of service, spare parts and repairs was approximately 6% of total
revenue in each of the fiscal years ended June 27, 1998 and June 26, 1997.
Gross Profit. Gross profit increased 63% to $28.4 million in the fiscal
year ended June 27, 1998 from $17.4 million in the fiscal year ended June 26,
1997. Gross profit as a percent of total revenue decreased to 34% in the
fiscal year ended June 27, 1998 from 36% in the fiscal year ended June 26,
1997, primarily due to the acquisition of ASTeX CPI whose products have a
lower gross margin than other products sold by us. In addition, gross profit
margins were impacted by volume declines in the fourth quarter of the fiscal
year ended June 27, 1998, resulting in unabsorbed manufacturing costs.
Selling, General and Administrative Expenses. Selling expenses increased
50% to $4.4 million in the fiscal year ended June 27, 1998, but decreased as a
percent of revenue to 5% from 6% in the fiscal year ended
20
<PAGE>
June 26, 1997. Increased selling expenses were primarily a result of the
acquisitions of ASTeX CPI and ASTeX Sorbios. General and administrative
expenses were flat as a percent of revenue at 8%, although our total general
and administrative expenses increased 68% to $6.6 million compared to the
fiscal year ended June 26, 1997, primarily due to acquisitions.
Research and Development Expenses. Net research and development expenses
decreased as a percent of sales to 14% in the fiscal year ended June 27, 1998
from 15% in the fiscal year ended June 26, 1997. Net research and development
expenses increased 53% to $11.3 million. Gross spending (total research and
development spending including funded joint development and the direct costs of
research contracts) increased 38% to $12.0 million. These funds were used to
develop and introduce a number of new products including ASTRON for chemical
vapor deposition (CVD) chamber cleaning, Liquozon for wafer cleaning, RF power
sources for etch and strip and deposition and new laser power sources for
medical applications.
Other Operating Expenses. As a part of the acquisition of ASTeX Sorbios in
the fiscal year ended June 27, 1998, we incurred an acquisition-related expense
of $212,000 for the fair value of acquired in-process research and development
projects. This compares with acquisition-related expenses of $1.5 million
incurred with the acquisition of ASTeX CPI in the fiscal year ended June 26,
1997.
Operating Income. Operating income increased 256% to $5.9 million or 7% of
revenues in the fiscal year ended June 27, 1998 compared to the fiscal year
ended June 26, 1997. Excluding one-time charges for acquisition-related
expenses in both years, operating income increased 94% or $3.0 million. The
increase in operating income is a result of increased sales and lower expenses
as a percent of revenue.
Other Income/Expense and Income Taxes. Interest expense decreased 66% to
$196,000 in the fiscal year ended June 27, 1998 compared to the fiscal year
ended June 26, 1997, while interest income increased 30% to $514,000 in the
fiscal year ended June 27, 1998 compared to the fiscal year ended June 26,
1997. The decrease in interest expense and the increase in interest income are
the result of exercise of warrants issued in connection with our IPO in
November 1993. Other income increased $241,000 in the fiscal year ended June
27, 1998 compared to the fiscal year ended June 26, 1997 due to the sale of an
investment in a company which resulted in a one-time gain of $250,000.
Income tax expense increased to $2.5 million in the fiscal year ended June
27, 1998 from $550,000 in the fiscal year ended June 26, 1997.
Quarterly Results of Operations
The following tables set forth selected unaudited quarterly statement of
operations data for the ten quarters ended December 25, 1999, as well as such
data expressed as a percentage of our total revenue for the periods indicated.
We believe this unaudited information has been prepared substantially on the
same basis as the annual audited financial statements and all necessary
adjustments, consisting of only normal recurring adjustments, have been
included in the amounts stated below to present fairly our unaudited financial
statements. The operating results for any quarter are not necessarily
indicative of the operating results for any future period.
21
<PAGE>
Consolidated Statements of Operations Data
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------------------------------------------------------
Sept. 27, Dec. 27, Mar. 28, June 27, Sept. 26, Dec. 26, Mar. 27, June 26, Sept. 25, Dec. 25,
1997 1997 1998 1998 1998 1998 1999 1999 1999 1999
--------- -------- -------- -------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue........... $17,421 $22,440 $23,462 $20,113 $12,100 $16,854 $20,942 $28,313 $30,602 $31,066
Total cost of sales and
revenue................ 10,947 14,210 15,254 14,576 10,925 12,355 13,867 18,408 19,420 18,087
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit............ 6,474 8,230 8,208 5,537 1,175 4,499 7,075 9,905 11,182 12,979
Operating expenses:
Selling expenses....... 835 1,183 1,145 1,264 1,202 1,173 1,329 1,465 2,026 2,138
General and
administrative
expenses.............. 1,401 1,886 1,792 1,569 1,865 1,808 1,831 2,550 2,571 3,039
Research and
development expenses,
net................... 2,561 2,850 3,019 2,823 2,324 2,244 2,477 2,700 2,696 3,397
Acquisition-related
expenses.............. -- 212 -- -- -- -- -- -- -- --
Restructuring
expenses.............. -- -- -- -- 1,497 -- -- 763 -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............... 4,797 6,131 5,956 5,656 6,888 5,225 5,637 7,478 7,293 8,574
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from
operations............. 1,677 2,099 2,252 (119) (5,713) (726) 1,438 2,427 3,889 4,405
Total other expense
(income)............... (156) (87) (195) (140) (104) (132) (83) (354) (399) (342)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) before
income taxes........... 1,833 2,186 2,447 21 (5,609) (594) 1,521 2,781 4,288 4,747
Income tax expense
(benefit).............. 678 911 869 8 (2,128) (158) 737 899 1,658 1,584
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net earnings (loss)..... $ 1,155 $ 1,275 $ 1,578 $ 13 $(3,481) $ (436) $ 784 $ 1,882 $ 2,630 $ 3,163
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Earnings (loss) per
share:
Basic.................. $ 0.17 $ 0.15 $ 0.19 $ 0.00 $ (0.41) $ (0.05) $ 0.09 $ 0.17 $ 0.23 $ 0.27
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Diluted................ $ 0.14 $ 0.15 $ 0.18 $ 0.00 $ (0.41) $ (0.05) $ 0.08 $ 0.16 $ 0.22 $ 0.26
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Weighted average common
shares
Basic.................. 6,828 8,310 8,488 8,588 8,585 8,603 9,065 11,314 11,427 11,602
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Diluted................ 7,971 8,779 8,922 8,912 8,585 8,603 9,690 11,995 12,207 12,349
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
<CAPTION>
Quarter Ended
----------------------------------------------------------------------------------------------------
Sept. 27, Dec. 27, Mar. 28, June 27, Sept. 26, Dec. 26, Mar. 27, June 26, Sept. 25, Dec. 25,
1997 1997 1998 1998 1998 1998 1999 1999 1999 1999
--------- -------- -------- -------- --------- -------- -------- -------- --------- --------
(Percentage of Total Revenue)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue........... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Total cost of sales and
revenue................ 62.8 63.3 65.0 72.5 90.3 73.3 66.2 65.0 63.5 58.2
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit............ 37.2 36.7 35.0 27.5 9.7 26.7 33.8 35.0 36.5 41.8
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Selling expenses....... 4.8 5.3 4.9 6.3 9.9 7.0 6.4 5.2 6.6 6.9
General and
administrative
expenses.............. 8.1 8.4 7.6 7.8 15.4 10.7 8.7 9.0 8.4 9.8
Research and
development expenses,
net................... 14.7 12.7 12.9 14.0 19.2 13.3 11.8 9.5 8.8 10.9
Acquisition-related
expenses.............. -- 0.9 -- -- -- -- -- -- -- --
Restructuring charge... -- -- -- -- 12.4 -- -- 2.7 -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............... 27.6 27.3 25.4 28.1 56.9 31.0 26.9 26.4 23.8 27.6
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from
operations............. 9.6 9.4 9.6 (0.6) (47.2) (4.3) 6.9 8.6 12.7 14.2
Total other expense
(income)............... (0.9) (0.3) (0.8) (0.7) (0.8) (0.8) (0.4) (1.3) (1.3) (1.1)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) before
income taxes........... 10.5 9.7 10.4 0.1 (46.4) (3.5) 7.3 9.9 14.0 15.3
Income tax expense
(benefit).............. 3.9 4.1 3.7 -- (17.6) (0.9) 3.6 3.2 5.4 5.1
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net earnings (loss)..... 6.6% 5.6% 6.7% 0.1% (28.8)% (2.6)% 3.7% 6.7% 8.6% 10.2%
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
22
<PAGE>
Liquidity and Capital Resources
At December 25, 1999, we had cash and investments of $27.7 million
consisting of $17.6 million of cash and equivalents, short-term investments of
$5.0 million and long-term investments of $5.1 million. Working capital was
$47.9 million at December 25, 1999. At June 26, 1999, we had cash and cash
equivalents of $31.8 million and working capital of $52.3 million.
During the six months ended December 25, 1999, our cash and cash equivalent
position decreased by $14.1 million as we invested in short-term investments of
$5.0 million and long-term investments of $5.1 million. Cash provided by
operating activities was $3.2 million, and was comprised of $5.8 million of net
income and non-cash depreciation and amortization of $2.1 million offset by
$4.7 million used for changes in working capital (including changes in deferred
income taxes). Cash provided by financing activities was $1.8 million, due to
the exercise of stock options. Cash used for investing activities consisted
primarily of $6.2 million for the August 1999 acquisition of the Shamrock
product line from Sputtered Films, Inc., $2.7 million for additions to
property, plant and equipment, and the purchase of short and long-term
investments previously discussed.
During the fiscal year ended June 26, 1999, our cash position increased by
$24.1 million. Cash provided from operating activities amounted to $2.9
million, cash used for investing activities was $2.9 million, and cash provided
from financing activities was $24.2 million. Cash of $2.9 million from
operations consisted of a net loss of $1.25 million offset by $3.3 million of
noncash depreciation, amortization and loss on disposal of assets of $832,000.
Cash used for investing activities was primarily for additions to property,
plant and equipment, and patents. Cash provided by financing activities was
primarily from the issuance of common stock offset by repayment of notes
payable for $686,000 and advances to subsidiaries prior to acquisition of $1.1
million. We raised $24.9 million from issuance of common stock, primarily from
a public offering completed in March 1999 that raised approximately $23.8
million.
During the fiscal year ended June 27, 1998, we generated $2.5 million in
cash from operating activities and used $4.9 million for investing activities.
Cash used for investing activities consisted of $3.7 million for the
acquisition of ASTeX Sorbios, $3.0 million for additions to property,
equipment, and patents, offset by sales of $1.3 million in investments
(primarily commercial paper and government treasury bills) and $500,000 from
the sale of our investment in a company. Cash flows from financing activities
consisted primarily of repayment of $9.2 million bank debt offset by $16.1
million in proceeds from the issuance of common stock, which was primarily from
the exercise of warrants and stock options by employees.
We have a credit facility with a bank that consists of an $8 million
unsecured demand line of credit with interest at the bank's prime rate, which
was 8.5% at December 25, 1999. At December 25, 1999 we had no borrowings in
connection with this line of credit. Our ability to borrow under the line of
credit is currently limited to $7 million due to a $1 million letter of credit
issued against the credit facility associated with our new lease in Wilmington,
Massachusetts. We are in the process of negotiating a potential purchase of
this facility for approximately $11 million. We expect that the transaction
would close early in the fourth quarter of our fiscal year and would be
financed primarily by a term loan from a bank secured by the property.
We will continue to use our cash resources for developing new products,
expanding sales and marketing, performing collaborative product development
projects, capital expenditures in connection with the planned facility and for
general working capital. We seek new ventures and/or acquisitions that will
enhance our position in our markets and that have the potential to increase our
revenues and profitability.
We believe that existing cash resources and funds from this offering,
anticipated cash flows from operations and our credit facility will be
sufficient to meet planned operating expenses and working capital requirements
for a period of at least the next 12 months.
23
<PAGE>
Effects of Inflation
We believe that, over the past three years, inflation has not had a
significant impact on our revenues or operating results.
Year 2000 Disclosure
Many currently installed computer systems and software products are
dependent upon internal calendars coded to accept only two digit entries in the
date code field. These date code fields will need to accept four digit entries
to distinguish 21st century dates from 20th century dates. As a result,
computer systems and software used by many companies may need to be upgraded to
comply with Year 2000 requirements.
We updated our major financial reporting and ERP systems prior to the Year
2000 with SAP R/3. We are currently using SAP R/3 in our facility in Woburn,
MA, and our facility in Colorado Springs, Colorado. The software package used
by ASTeX Sorbios was upgraded in April 1999. We conducted a review of our
manufacturing equipment and facilities to ensure Year 2000 compliance. We
addressed the Year 2000 preparedness of our critical suppliers and our major
customers and related electronic data interfaces with these third parties. We
completed a systematic review of our products in operation at customer
locations and had identified non-compliant products and offered all necessary
modifications to make them compliant.
As of the date of this prospectus, we have not experienced any Year 2000
problems with our software, facilities, critical suppliers or our products.
24
<PAGE>
BUSINESS
We are a worldwide leader in the design, development, manufacture and
support of high performance reactive gas modules and power supplies used in
semiconductor device manufacturing and medical markets, as well as etch and
deposition systems for advanced semiconductor packaging, telecommunications and
magnetic sensors. Our proprietary modules, delivered to semiconductor equipment
OEMs, create reactive gases used to deposit and etch thin films applied during
various steps in the manufacture of semiconductor devices. Our modules help
manufacturers improve yields, reduce overall production costs and improve time
to market. Our complete systems, delivered to end users who manufacture
semiconductor devices, provide proprietary etch and deposition solutions to
high-growth end markets, including semiconductor packaging, telecommunications
and magnetic sensors.
Our objective is to be the worldwide leader in the supply of reactive gas
modules to semiconductor OEMs and related markets. We also seek to leverage our
technology and worldwide infrastructure to expand our systems business into
additional high-growth markets. To extend our technology leadership position,
we intend to continue to invest in research and development and to acquire
complementary technology for existing and new markets. In addition, we intend
to position our modules as the technology of choice for leading semiconductor
equipment manufacturers as they introduce new product lines or continue to
outsource their systems modules.
Since 1987, we have supplied process modules and systems to the
semiconductor industry and have earned a reputation for advanced process
technology and manufacturing excellence. Our customers include semiconductor
OEMs and end users including Applied Materials, Chipbond Technology, GaSonics,
Lam Research, Plasma Systems Korea, Silicon Valley Group and Varian
Semiconductor Equipment.
Industry Background
Growth of the Semiconductor Market
The semiconductor industry grew significantly over the past decade. That
growth continues today. Dataquest estimates that despite year to year
fluctuation, worldwide semiconductor sales will increase from $160.1 billion in
1999 to approximately $253.3 billion in 2001. The increase in demand is driven
by growth in traditional markets for semiconductors such as data processing and
personal computers, and growth in telecommunications, wireless communications,
consumer electronics, and internet infrastucture and equipment.
According to Dataquest, the semiconductor capital equipment industry will
grow from $17.5 billion in 1999 to $34.0 billion in 2001. This growth will be
driven by equipment purchases to expand manufacturing capacity and purchases of
advanced process technology to facilitate the continued shrinking of
semiconductor devices and device packages. Semiconductor technology advances,
particularly shrinking line widths, are driving the need for more sophisticated
manufacturing processes and advanced packaging techniques which increasingly
involve the use of reactive gases.
Capital equipment companies are constantly improving the efficiency of their
process technology and manufacturing processes. These companies increasingly
outsource the development and manufacture of process technology, while adopting
lean manufacturing techniques and consolidating the supply chain. As a result,
capital equipment companies now work more closely with critical suppliers who
can provide integrated process modules, accelerate technology development and
improve time to market.
The Semiconductor Device Manufacturing Process
Semiconductor devices, which include integrated circuits (ICs), sensors and
laser diodes, consist of components, typically transistors, along with
interconnect circuitry that connects the components. Semiconductor fabrication
involves several complex and repetitive processing steps, including diffusion,
25
<PAGE>
photolithography, deposition, etching, chemical mechanical planarization (CMP)
and ion implantation, during which numerous copies of an integrated circuit are
formed on a single wafer. The fabrication process typically creates eight to 30
very thin patterned layers on each wafer. The wafers are then processed into
packaged chips which are subsequently integrated into electronic products.
Reactive gases are used in a majority of process steps in chip fabrication.
Reactive gases are used to etch, strip and deposit films on wafers, to clean
wafers during processing and to clean process chambers to reduce particle
contamination.
[Diagrams of semiconductor fabrication and advanced packaging processes showing
the process steps in which ASTeX current and developing products are used.]
ASTeX In Semiconductor Processing
Semiconductor Fabrication
Bare Wafer
EPI
Ion Implant
Deposition
CMP
Lithography
Clean
Strip
Etch
Advanced Packaging
Bump Fabrication
Sort & Test
Dice
Direct Attach
Final Test
Current Products
Developments
No ASTeX Products
Deposition. Deposition is the process step in semiconductor manufacturing in
which the conductive and non-conductive layers are deposited on the wafer
surface. During this process step, gases are energized and react with other
materials in the process chamber to create a thin, uniform layer on the wafer.
Etch and Strip. Following deposition, the etch and strip processes
selectively remove unwanted areas of the deposited layer, leaving only the
required circuit pattern. Etching and stripping are performed by reacting gas
with the deposited material to vaporize and remove it.
Cleaning. There are two general segments in cleaning: cleaning of the
deposition chamber and cleaning of the wafer. During the deposition step, the
materials deposited on the wafer also coat the walls of the process chamber,
resulting in wafer contamination and loss of production yield. Reactive gases
are used to provide in-situ cleaning of the process chamber, significantly
reducing downtime and maintaining process repeatability and cleanliness.
The cleaning of the wafer occurs after most process sequences and prepares
the wafer for the next processing step. Wafer cleaning is accomplished either
with a dry process using reactive gases or a wet process using ozone (a
reactive gas) in de-ionized water. Wafer cleaning steps have increased
dramatically due to the shrinkage of semiconductor line widths, the associated
increased sensitivity to contamination and the increasing number of layers in
the circuit.
Advances in fabrication technology will continue to be characterized by ever
shrinking feature size in semiconductor chips, thus enabling more functions per
chip. Shrinking feature sizes and the increasing number of manufacturing
process steps create a greater need for the use of reactive gases in etch,
strip, deposition and clean.
26
<PAGE>
Advantages of Reactive Gas Processing
A reactive gas is created by adding energy to a stable gas to break apart
its molecules. The resulting dissociated gas produces rapid chemical reactions
when it comes into contact with other matter. Reactive gas processes have
important advantages relative to other types of chemical processes. These
advantages include the following:
Precision. The trend toward smaller feature size and denser packaging
requires the precision in etch, strip and deposition process steps, which can
only be obtained through the use of reactive gases.
Low Temperature. Reactive gas processes take place at relatively low
temperatures, thus avoiding heat damage to materials involved in the process.
Efficiency. Reactive gas works rapidly, shortening reaction times and
improving yields in the manufacturing process.
Lower Cost. The use of remotely generated reactive gases causes less wear
and tear on the process chamber and reduces the costs of using and disposing of
hazardous acids. Reactive gases can be used to neutralize "greenhouse" gases,
enabling compliance with environmental regulations.
Technological Challenges
Designing equipment to produce high-purity reactive gases presents
formidable engineering challenges requiring comprehensive mastery of a range of
complex technologies. In making a reactive gas, a large amount of power,
typically thousands of watts, must be delivered to the gas without damaging the
chamber walls. Reactive gases are so highly corrosive that it is extremely
difficult to contain these gases at high purity without contamination from
corrosion of chamber walls. Thermal management of the chamber materials and
temperature variations within the gas chamber is vital. Pressure management is
also critical and must be integrated with power source characteristics and gas
composition. Successful design of reliable reactive gas source equipment
involves a complex set of variables with many critical interactions.
Our Solutions
We deliver reactive gas process modules and systems that address the need
for continued technology advancement in semiconductor manufacturing and
packaging. Our expertise in the design and manufacture of these products allows
us to address the increasing trend of OEMs to outsource technology modules to
supply partners. We have continually provided innovative and cost-effective
solutions that address the need for purity, precision, uniformity, reliability
and efficiency in reactive gas processes. Our engineers are experienced in
addressing the difficult challenges associated with designing reactive gas
equipment and have developed a breadth of solutions that meet our customers'
exacting requirements.
ASTeX Modules Solutions. We provide our customers with enabling technology
to expand their product capabilities and address new markets. We provide
complete technology solutions, including development, design, integration,
manufacturing and field support, that deliver the following benefits to our
customers:
. Access to Expert Development Resources. We provide our customers with
access to specialized reactive gas technologists and design experts who
work collaboratively with our customers to advance their product
development efforts. Our customers can draw upon our core capabilities
in reactive gases to complement their system and wafer processing
expertise, thus reducing their product development costs.
. Experience as a Supplier to the Semiconductor Market. Our experience
allows us to understand and meet the unique needs of our customers in
the semiconductor industry, including continuous improvement, reduced
costs, technology shifts and business cycles.
27
<PAGE>
. Shorter Time to Market. We use our core technologies, design skills and
manufacturing expertise to shorten our customers' development and
manufacturing cycles. Our ability to design and manufacture key reactive
gas modules allows our customers to focus their efforts on providing
systems solutions.
. Product Solutions with Broad Application. We leverage our understanding
of semiconductor process steps to apply common reactive gas technology
across multiple process steps, thereby simplifying design, streamlining
support and accelerating customer acceptance.
. Integrated Products Which Support Lean Manufacturing. We provide
integrated modules which require less assembly, test and manufacturing
integration, increasing our customers' manufacturing efficiency.
ASTeX Systems Solutions. In our systems business, we integrate a broad
spectrum of technologies to provide system level solutions to industry process
needs. By using our core process technologies in reactive gas systems, together
with a range of platform capabilities, our engineers are able to design high-
level system solutions for a number of high-growth markets.
. Semiconductor Advanced Packaging. We have designed a specific deposition
tool, the Nimbus 300, to meet the unique needs of the advanced packaging
industry. Our tool provides higher wafer throughput and is easily
configurable on the foundry floor to handle 2 inch to 12 inch wafers.
Our system thus provides manufacturing flexibility and low overall cost
of ownership, making it ideally suited for the independent packaging
industry.
. Telecommunications. We offer low temperature precision etch and
deposition process tools used in the fabrication of both passive and
active components. We draw particularly on our reactive gas capabilities
to deposit and etch films at low temperature on high-frequency
telecommunications chips and laser diodes. The sensitive materials used
in the manufacture of fiber optic components require low temperature
processing.
. Magnetic Sensors. Our recently acquired Shamrock tool deposits complex
multi-layer sensors composed of both magnetic and non-magnetic films. We
use our high vacuum technology to provide the purity and cleanliness
needed in very thin film deposition. In addition, we use our reactive
source technology and control systems methodology to both monitor and
control film thickness and uniformity at the atomic level. Our tool
deposits a highly uniform thin film which is critical to the manufacture
of magnetic sensors, has an extremely small footprint and low cost of
ownership.
Markets
Existing Markets
Semiconductor. We provide modules and systems that incorporate our reactive
gas processing technology to the semiconductor manufacturing and packaging
markets. The equipment used to manufacture semiconductors has traditionally
been divided into "front end" processing and "back end" processing. The "front
end" processes build up the semiconductor circuit onto a wafer and "back end"
processes cut the wafer into individual die and package the die for use in
electronic products. We provide reactive gas modules used throughout the front
end manufacturing process and systems that address back end advanced packaging
needs.
Medical and Industrial. Precision reactive gases are used in a wide variety
of industrial processes that require high purity or very precise specifications
for the end-product. Reactive gas sources are used in deposition for many
applications such as ultra-thin, precise optical films and diamond-like
coatings for precision wear surfaces. Ozone, or reactive oxygen, is used to
modify surfaces of polymers and to destroy carcinogens found in groundwater.
We market our reactive gas processing technology and power control products
to related markets, including the markets for medical equipment, such as MRI,
and industrial applications, such as surface modification of plastics.
28
<PAGE>
Market Opportunities
Telecommunications. We have recently introduced complete etch and deposition
systems to meet the manufacturing requirements of expanding markets for fiber
optic network components and gallium arsenide semiconductors for mobile
telecommunications. Historically, we have provided reactive gas modules to the
telecommunications industry for the manufacture of laser diodes and gallium
arsenide semiconductors.
Magnetic Sensors and Magnetic Memory. Over the past 18 months, we have
acquired etch and deposition systems for the manufacture of magnetic sensors,
which have applications in three key markets: automotive sensors, Magnetic RAM
(MRAM) and disk drive heads. Our Shamrock product has been sold for the
production of automotive sensors used in applications such as anti-lock brakes
and air bag deployment triggers. MRAM, a non-volatile memory technology, is
currently being used in high-end military and satellite applications. As the
technology is refined and produced on a lower cost basis, it has the potential
for widespread application in semiconductor memory. Our Shamrock tool has also
been used for the manufacture of GMR heads for the disk drive industry.
Strategy
Our objective is to expand our leadership position in the provision of
advanced reactive gas processing solutions to the semiconductor market. We also
intend to establish a leadership position in providing such solutions to the
advanced packaging, telecommunications and other high-growth markets. We plan
to pursue the following strategies:
. Extend the Use of Our Core Technologies in the Semiconductor Processing
Market. We seek to increase our penetration of the semiconductor market
by expanding our customer base and by using our core technologies to
introduce new integrated reactive gas modules and innovative power
sources. Over the past two years, we have introduced five new product
families and multiple enhancements to existing products that provide
significant benefits to our customers.
. Leverage Our Technology Leadership into Systems Sales in New Markets. A
key element of our growth strategy is to use our core technology to
address reactive gas applications in new high-growth market segments. We
have recently introduced and sold systems that address the sophisticated
process needs of customers in semiconductor advanced packaging,
telecommunications and magnetic sensors for automotive, data storage and
memory applications.
. Capitalize on Our Global Sales and Service to Accelerate Worldwide
Growth. We are continuing to strengthen our global sales and service
through increased staffing and expanded infrastructure. The strength of
our global infrastructure provides local support to our international
customers and a platform for expanding international sales.
. Continue to Build Collaborative Development Relationships with Key
Customers. We believe that pursuing joint development arrangements with
leading manufacturers will provide us with critical insight into
industry trends, and lead to the development of additional new modules
or systems with broad market appeal. We work closely with our customers
to anticipate and provide solutions that meet specific performance,
reliability, cost and integration requirements.
. Grow Through Strategic Acquisitions. We intend to continue to pursue
strategic acquisitions of companies and/or product lines, particularly
those with closely-related technologies in high-growth markets. Over the
past four years, we have acquired four companies and one product line,
extending our technology and broadening our markets.
Products
We supply a broad range of modules and complete process systems for
precision reactive gas processing applications. The broadest applications for
our products are currently in the semiconductor industry. In addition, our
products are used in certain medical equipment, such as MRI and laser hair
removal devices, and a variety of industrial applications. Our systems are used
in advanced semiconductor packaging, fiber optics manufacturing for
telecommunications and magnetic sensors manufacturing.
29
<PAGE>
In semiconductor applications, the selling prices of our products have wide
ranges depending on the level of integration, the quantity ordered, the extent
of customized features and the application served. Typical selling prices for
reactive gas processing products range from $10,000 to $175,000. Our complete
etch, strip and deposition systems typically range in price from $250,000 to up
to $3.0 million.
Reactive Gas Modules and Power Modules for Semiconductor Processing
Reactive Gas Modules. We supply a series of reactive gas modules that are
designed to be incorporated as components in the semiconductor manufacturing
equipment of our OEM customers. These individual modules provide flexibility of
configuration and integration for semiconductor equipment customers.
Power Modules. We are a leading supplier of RF and microwave power sources
used for semiconductor deposition, etch and strip applications. We first
introduced our product family into the semiconductor equipment market in 1993.
In 1998, we launched our new line of microwave power sources with higher power
levels and improved regulation, ripple, and accuracy. These new microwave power
sources provide lower cost of ownership and improved process repeatability and
control. Full production shipments of our new power sources were achieved in
1999.
In 1997, we introduced our family of three-channel and four-channel
subsystems that combine RF and microwave power sources, integrated with control
systems, for etch, strip and deposition applications. This product family
reduces costs by integrating all power requirements for advanced process
chambers in a single, rack-mounted subsystem. We began selling these products
in volume in 1997, and they have been accepted under a volume supply agreement.
We also introduced into the medical market high-volume, low-cost, solid-state
RF power supplies for reactive gas generation in the sterilization of surgical
instruments.
Integrated Reactive Gas and Power Modules. We supply a range of reactive gas
subsystems for 200mm and 300mm semiconductor processing applications requiring
atomic oxygen, atomic fluorine, ozone and other types of reactive gas. In these
subsystems, the reactive gas source module is integrated with a power supply,
gas handling equipment and controls. Depending on the product, energy supplied
to produce the reactive gas may be microwave, RF or DC. These subsystems enable
our customers to outsource their reactive gas technological development,
speeding time to market and reducing their costs for total system production.
Microwave. In 1997, we introduced an integrated general reactive gas source
for photoresist strip and other applications that reduces time to market for
our OEM customers by providing a fully integrated solution. This product is
sold under a volume supply agreement for integration into a new generation of
etch and strip equipment.
Ozone. Our ozone product series consists of both modules and integrated
ozone subsystems used in semiconductor deposition and wet wafer cleaning
applications. Our subsystems incorporate our reactive gas sources and power
sources integrated with controls and gas handling. Relative to traditional
cleaning methods, ozone cleaning substantially reduces chemical consumption and
disposal costs. In addition, the by-products of ozone cleaning are more
environmentally friendly. Our patented ozone reactive gas generation technology
is recognized in the industry for high-efficiency ozone production as well as
high purity, cleanliness and reliability.
We introduced our ozone gas generators in 1995 for use in TEOS ozone
deposition of the insulating layers in semiconductors. In 1997, we introduced a
higher concentration, higher purity ozone generator series targeted for 300mm
wafer processing. In 2000, we introduced an even higher concentration ozone
generator with no increase in module size.
In 1997, we acquired Sorbios, a German manufacturer of ozone generation
products specializing in dissolved ozone applications for semiconductor and
other markets. In 1998, we introduced Liquozon, an integrated subsystem that
dissolves ozone into water, creating an efficient water cleaning method and
significantly reducing
30
<PAGE>
the use of acids and associated handling costs. We expect Liquozon to become
widely adopted in the wet wafer cleaning market because it provides an
integrated ozone solution which can be rapidly and easily implemented by our
customers. Many leading wet wafer processing equipment companies are either
already shipping our ozone solutions to customers or are in various stages of
introducing wet ozone into their manufacturing process.
ASTRON. In 1998, we introduced an integrated module for the production of
atomic fluorine and atomic oxygen for use in cleaning and abatement in several
semiconductor processing application chambers. Marketed under the trade name
ASTRON, this subsystem integrates a reactive gas generating module, a power
source and controls into an extremely compact unit. It produces a high flow of
atomic gas, which supports rapid processing, while its compact design permits
easy integration with semiconductor production tools.
During the process of depositing the layers which make up a semiconductor
circuit, the deposited material builds up on the inside of the chamber walls.
Because these deposits can influence the uniformity and purity of the process,
they must be periodically removed. Depending on the speed at which they are
deposited, this removal step can cause significant equipment downtime for
cleaning. One of the primary applications for ASTRON module is to clean these
unwanted deposits from the inside walls of the semiconductor processing
chambers. By generating atomic fluorine that reacts with the waste deposits in
the chamber, new gases are formed that are easily scrubbed to form benign salts
for disposal. By incorporating a short cleaning step into the process sequence,
tool availability is greatly enhanced.
In oxide etch and strip tools, our ASTRON module is used to abate hazardous
exhaust, transforming the gases into substances which are easily scrubbed. In
doing this, our reactive gas generator addresses the need to reduce greenhouse
gases while, simultaneously, significantly lowering the cost of cleaning
semiconductor process modules. Volume production shipments began in 1999.
Complete Process Systems
Our reactive gas solutions are incorporated into complete process systems on
fully integrated platforms that include substrate handling, control systems and
a production process. We have targeted a number of high- growth market segments
for supplying complete systems where we can take advantage of our core
technologies to provide unique process solutions. Primary market targets are
semiconductor advanced packaging, telecommunications and magnetic sensors. Our
three product lines detailed below are presently addressing these markets.
These products are offered at prices ranging from $250,000 to $3.0 million.
The Nimbus 300 product is a 300mm compatible complete physical vapor
deposition (PVD) production tool for advanced wafer scale packaging processes.
Primary application is for under-bump metallurgy for flip chip packaging, where
it offers an extremely cost effective solution. Our tool provides higher wafer
throughput and is easily configurable on the foundry floor to handle two inch
to 12 inch wafers. Our system thus provides manufacturing flexibility and low
overall cost of ownership, making it ideally suited for the independent
packaging industry.
Our PQ Series I systems offer batch processing for plasma cleaning of
electronic packages. The PQ Series II and Series III systems are single chamber
plasma process tools combining etch and strip and chemical vapor deposition. We
supply systems for high-rate etch processes using scaleable, microwave driven
reactive gas sources for telecommunications device manufacture and for magnetic
data storage head applications. They provide rapid etch and low temperature
deposition processes.
Our Shamrock product is a multi-source, application specific PVD system for
depositing the high-quality thin films used in MR and GMR recording heads,
tunneling spin valves, motion and shock sensors in automobile electronics and
advanced magnetic memory products. The Shamrock 150 is a 6 inch capable system
with up to six sources. The Shamrock 200, under development, is an 8 inch-
compatible tool featuring an ultra-high vacuum process chamber containing up to
10 sources, expandable to additional process chambers.
31
<PAGE>
Industrial, Medical and Other Applications
We have expanded the use of our power source and reactive gas source
technologies into new markets, including chemical vapor deposition in
industrial markets and power sources for the medical market. In these
applications, the selling prices of our products have wide ranges depending on
the amount of reactive gas or power delivered, the level of integration
(sources or integrated subsystems), the quantity ordered and the application
served. Our products for the medical and industrial markets typically range in
price from $1,500 to $175,000.
Industrial Power Sources and Reactive Gas Sources. We supply power sources
for industrial lasers and electro-optic applications. For the emerging water
remediation market, we supply ozone source components and subsystems integrated
with gas handling and controls. These subsystems can be configured to provide
sufficient high-pressured ozone to process up to 2,000 gallons of water per
minute.
Medical Equipment Power Sources. We supply RF power sources used in MRI
systems and in medical equipment sterilization systems. In addition, in 1997,
we introduced DC switching power sources that offer excellent price/performance
for medical applications. These products were widely offered internationally to
customers beginning in 1999.
32
<PAGE>
Products for Semiconductor Applications
<TABLE>
<CAPTION>
Trade Year
Product Category Products Name Introduced Applications
<S> <C> <C> <C> <C>
Power Modules Microwave 1988 Semiconductor etch and strip
Microwave OEM Product 1993 Semiconductor deposition, etch
and strip
Microwave with Self- SmartPower 1998 Semiconductor, deposition,
Diagnostics etch and strip
-----------------------------------------------------------------------------------
Radio Frequency 1996/1/ Primarily used internally in
ASTeX's subsystems
Multi-Channel DC, RF Gladiator 1997 Semiconductor deposition and
and Microwave Power etch and strip
Source
-----------------------------------------------------------------------------------
DC/Low Frequency 1997/2/ Semiconductor, medical and
laser products
- -------------------------------------------------------------------------------------------------
Reactive Gas Component General SmartSet 1988 Semiconductor etch, strip
Modules Reactive Gas Source deposition and chamber clean
Integrated General CPS 1997 Semiconductor strip
Reactive Gas Source
Fluorine Compatible SmartMatch 1998 Semiconductor etch, strip,
Reactive Gas Source deposition and chamber clean
with Matching
-----------------------------------------------------------------------------------
Component Ozone Semozon 1995 Semiconductor deposition and
Source wet wafer cleaning
Integrated Ozone Semozon 1996 Semiconductor deposition and
Sources wet wafer cleaning
Low Dopant Ozone 1998 Semiconductor deposition and
Source wet wafer cleaning
Ozonated Water Liquozon 1998/3/ Semiconductor wet wafer
Delivery Subsystem cleaning
300mm Ozone Source 2000 Semiconductor deposition and
wet wafer cleansing
-----------------------------------------------------------------------------------
Atomic Fluorine ASTRON 1998 Semiconductor chamber clean
Subsystem and exhaust gas abatement
- -------------------------------------------------------------------------------------------------
Complete Batch Reactor Etch PQ Series I 19984 Plasma cleaning of electronic
Process Systems packages
-----------------------------------------------------------------------------------
Single Chamber Etch & PQ Series II 19984 Data storage/thin film heads
CVD & III etch & CVD; telecommunications
-----------------------------------------------------------------------------------
Cassette to Cassette Nimbus 300 1999/5/ Under bump metallurgy;
Physical Vapor Backside metallization for
Deposition (PVD) advanced semiconductor
packaging
-----------------------------------------------------------------------------------
Orbital Planetary PVD Shamrock 150 1999/6/ GMR magnetic sensors
</TABLE>
- --------------------------------------------------------------------------------
/1/Derived from the acquisition of ETO in January 1996.
/2/Derived from the acquisition of Converter Power in May 1997.
/3/Derived from the acquisition of Sorbios in October 1997.
/4/Derived from the acquisition of PlasmaQuest in November 1998.
/5/Derived from the acquisition of Klee in April 1999.
/6/Derived from the acquisition of Shamrock in August 1999.
As shown in the table, we began selling reactive gas sources and microwave
power sources in volume to the semiconductor equipment market in 1993. Over the
past three years, all of our products introduced for the semiconductor
equipment market have been more fully-integrated modules. As semiconductor
equipment
33
<PAGE>
manufacturers implement lean manufacturing practices and move towards the
outsourcing of more fully-integrated modules, we have an opportunity to further
extend our modules product lines sold to these customers.
Medical and Industrial Applications
We use our power source and reactive gas source capabilities to provide a
broad range of specialized products, primarily for MRI, surgical instrument
sterilization equipment and medical and industrial lasers. The following table
describes these products.
Products for Medical and Industrial Applications
<TABLE>
<CAPTION>
Year
Product Category Products Introduced Applications
<S> <C> <C> <C>
Power Modules Microwave 1993 Polymer processing
---------------------------------------------------------------------
Radio Frequency 1996/1/ Magnetic resonance imaging
equipment and medical
sterilization
---------------------------------------------------------------------
DC/Low Frequency 1997/2/ Medical and industrial lasers
- -----------------------------------------------------------------------------------
Reactive Gas General Reactive Gas 1995 Industrial deposition and
Modules Sources optical thin-film coating
---------------------------------------------------------------------
Component Ozone 1996 Water remediation
Source
1998 Polymer and surface treatment
---------------------------------------------------------------------
Integrated Ozone 1998 Water remediation
Sources
</TABLE>
- --------------------------------------------------------------------------------
/1/Derived from the acquisition of ETO in January 1996.
/2/Derived from the acquisition of Converter Power in May 1997.
Research and Development
Our research and development activities emphasize process and application
development in collaboration with key customers, supported by engineering teams
with electrical, mechanical and software expertise. We have two applications
development groups in the United States and one in Germany. Our senior
engineering staff spend a substantial portion of their time visiting customers
and exploring new applications requiring solutions. Our research and
development staff totals approximately 82 people, 25 of whom have advanced
degrees, including 14 Ph.D.s.
Total research and development expenses were approximately $9.7 million in
fiscal 1999, $12.0 million in fiscal 1998 and $8.7 million in fiscal 1997 or
12.5% of revenues in fiscal 1999, 14% of revenues in fiscal 1998 and 18% of
revenues in fiscal 1997. Total research and development expenses for the six
months ended December 25, 1999 were approximately $6.1 million (or 10% of
revenues) and for the six months ended December 26, 1998 were approximately
$4.6 million (or 16% of revenues).
We expect to continue to spend heavily in future years on research and
development activities because of the highly technical nature of our business,
our rapidly expanding markets, and the new technologies that we are developing.
Significant Customers and Contracts
During fiscal 1999, 1998, and 1997, Applied Materials accounted for
approximately 45%, 40%, and 38% of our consolidated total revenue, and 50% for
the six months ended December 25, 1999. If we lose Applied Materials or if it
significantly reduces orders, our revenues, operating results and financial
condition will be hurt. No other customer accounted for more than 8% of total
revenue in fiscal 1999. While sales to Applied Materials represent a large
portion of our total revenue, Applied Materials is the world's largest
semiconductor equipment manufacturer and is reported to represent approximately
21% of the total wafer fabrication equipment market and as much as 60% of the
market segments it serves.
34
<PAGE>
In the semiconductor equipment market, our customers include Applied
Materials, FSI International, GaSonics, Plasma Systems Korea, Semitool, Silicon
Valley Group, Ulvac and Varian Semiconductor Equipment. We have signed multi-
year supply contracts with some of these customers, which typically provide for
cancellation or modification with little or no penalty. Generally, customers
may push out deliveries, put firm orders on hold, or cancel existing firm
orders with little or no penalty.
Marketing, Sales and Services
In order to sell and service our products more aggressively in the global
market, we formed a Global Customer Operations organization in the last quarter
of fiscal 1998. This organization presents one face to the customer worldwide
and comprises our entire marketing, sales, service, and product management
group. The organization is structured around regional offices worldwide,
supporting direct marketing, sales, and service activities, and provides more
control over independent sales and distribution representatives. In the past 18
months, the Global Customer Operations organization established regional
offices for the western U.S. (Santa Clara, CA), central U.S. (Austin, TX),
eastern U.S. (Woburn, MA), Germany, France, Taiwan and Japan, and we are
negotiating a strategic alliance in Korea. During that period, our sales,
marketing and service personnel have increased from 34 people to 46 people.
Manufacturing and Suppliers
Our products are manufactured at facilities in Woburn, Wilmington and
Newton, Massachusetts; Colorado Springs, Colorado; and Berlin, Germany. During
the past two years, we have consolidated other facilities in California, Texas
and Massachusetts into these facilities.
We perform final assembly, integration, testing, and quality assurance at
our facilities. We obtain and ship many of our products and components under
"just-in-time" arrangements.
Most of the components for our products are manufactured by a number of
suppliers. However, we have several significant sole source suppliers. We
believe that these components could be obtained elsewhere if needed or that our
products could be redesigned to use alternative suppliers' products. However,
other supply sources might not be available without significant delay or
increased cost.
We share common information systems and applications programs throughout our
operations. Our enterprise resource program is used for manufacturing in all of
our U.S. facilities and is being implemented in our Berlin facility. Our Woburn
and Colorado Springs facilities are both ISO 9001 certified.
Competition
We compete on the basis of our technical expertise, core competencies,
manufacturing capabilities, high quality and reliability, performance,
established reputation and customer relationships. Many of our technical
personnel have recognized experience in the fields of power and reactive gas
source technology, systems integration and advanced process technology. We
compete in a number of markets by providing a broad array of products,
engineering and service support. We believe that this range of products and
capabilities provides us with a significant competitive advantage.
We believe that we are the largest provider of microwave power sources and
microwave-powered reactive gas sources in the world, facing competition
primarily from Muegge Electronic GmbH in Germany and Daihen in Japan. In the
ozone source market, we compete primarily with Ebara and Sumitomo Precision
Products. We believe our major competitors for RF power sources and amplifiers
are Advanced Energy Industries, Analogic, ENI, a subsidiary of Astec (BSR) Plc,
and Comdel. We believe our major competitors for DC power sources are ALE
Systems and Kaiser Systems. In the systems business, our major competitors are
Balzers Process Systems, CVC, Shimatsu, STS, Trikon and Veeco Systems.
35
<PAGE>
We typically have been able to meet the purity, controllability and
reliability requirements of our customers in a cost effective and timely
manner. However, many of our customers have large, in-house equipment
development programs. These in-house programs often attempt to develop
equipment which may compete with or replace the products purchased from us. We
must continue to develop and enhance our technology and products to keep pace
with technological changes in production equipment and advanced materials
processes.
Patents and Proprietary Information
As of February 15, 2000, we own 26 U.S. patents and two foreign patents, and
have 24 pending U.S. patent applications and 12 pending foreign applications in
various stages of prosecution. The earliest of the issued patents expires in
2007. We have retained license rights to certain third party patents and patent
applications. We have retained commercial ownership rights to proprietary
technology developed under various U.S. and government contracts and grants,
including SBIR contracts. We also have joint development agreements with
industrial and commercial partners which may result in sole or joint ownership
rights to proprietary technology developed under those agreements.
There is no single patent or patent application which we believe is critical
to our business. Our success depends principally on the technical expertise and
product development capabilities of our engineering and manufacturing teams and
the sales and marketing skills of our Global Customer Operations group.
In addition to our patent rights, we rely upon trade secrets and
confidentiality agreements, which all employees are required to execute,
assigning all patent rights and technical or other information developed by
employees during their employment to us. Our employees, consultants, customers,
and potential customers have agreed not to disclose any trade secret or
confidential information without prior written consent. Notwithstanding these
confidentiality agreements, other companies could acquire information which we
consider proprietary. Moreover, while we have successfully enforced one of our
patents and intend to continue to vigorously enforce our patents against
infringement by third parties, we might not be able to enforce our patents or
obtain meaningful protection from competitors or third parties, or receive
patents from our pending patent applications. Even if a competitor's products
were to infringe our patents, enforcing our rights would be very expensive and
would divert funds and resources which otherwise could be used in our
operations. We might not be successful in enforcing our rights and a court
could find that our products infringe a third party's rights. If we are not
successful in a suit involving patents or other intellectual property rights of
a third party, a license might not be available on commercially reasonable
terms, or be available at all.
Backlog
The majority of our business is performed under multi-year supply agreements
with major customers. Due to short cycle times, the majority of our revenues in
any fiscal quarter will likely not appear as backlog at the commencement of any
fiscal quarter. In addition, the backlog figures do not include just-in-time
deliveries, which represented approximately 9% of revenues during the most
recent quarter. Our backlog consists of purchase orders for standard products
and contracts for research and development. At December 25, 1999 our backlog
was approximately $18.7 million, virtually all of which was for standard
products. The product backlog at December 26, 1998 was approximately $12.0
million. We expect to complete all standard product backlog during the next six
months. Our multi-year supply agreements, as well as certain government
contracts, typically provide for cancellation or modification with little or no
penalty. In addition, customers may push out deliveries, put firm orders on
hold, or cancel existing firm orders with little or no penalty.
Facilities
We occupy 60,000 square feet of leased space in Woburn, Massachusetts for
our principal executive offices, research and development center and
manufacturing activities. This lease terminates on June 30, 2000. The current
rent for this facility is $46,851 per month. We will lease approximately
118,000 square feet of
36
<PAGE>
space in Wilmington, Massachusetts for our principal executive offices,
research and development center and manufacturing activities. The initial rent
for this facility is $86,042 per month for the first two years, $95,875 for
years 3 to 6, and $105,708 for years 7 to 10. The lease commences on July 1,
2000, has a 10-year term, and has options to extend the term for two additional
five-year periods. We are currently negotiating to purchase these premises for
approximately $11.0 million. We own 25,000 square feet of office, lab and
manufacturing space occupied by our ETO subsidiary located in Colorado Springs,
Colorado. We sublease 16,600 square feet of office and lab space in Colorado
Springs, Colorado. The current rent for this facility is $16,600 per month.
This lease will terminate on September 1, 2000, unless we exercise an option
for an additional 18 months. We maintain office and manufacturing facilities in
Newton, Massachusetts in 3,500 square feet of leased space. This lease expires
on June 30, 2000. The rent for this facility is $4,442 per month.
We maintain a sales and service office in approximately 12,439 square feet
of leased space in Santa Clara, California under a three-year lease which
expires on August 8, 2002. The rent for this space is $22,390 per month in year
one, $23,012 per month in year two and $24,256 per month in year three. We
maintain a sales and service office in approximately 1,484 square feet of
leased space in Austin, Texas. The rent for this space is $1,700 per month and
the lease expires on November 30, 2000. We also lease approximately 9,700
square feet of manufacturing and office space in Berlin, Germany. The current
rent for this facility is $7,013 per month. The office space portion of the
lease terminates on March 31, 2001 and will automatically renew for twelve
months unless cancelled six months in advance. The manufacturing space portion
of the lease terminates on June 30, 2001 and will automatically renew for
twelve months unless cancelled six months in advance.
ASTeX CPI occupied 31,000 square feet of leased space in Beverly,
Massachusetts. We have a five-year lease on this facility which expires in
September 2001. The current rent for this facility is $18,324 per month. We are
currently attempting to sublease this space. During Fiscal 1999, our Beverly,
Massachusetts and Modesto, California facilities were consolidated, primarily
into the Woburn, Massachusetts facility and secondarily into the Colorado
facility.
ASTeX PlasmaQuest occupies 11,700 square feet of leased space in Dallas,
Texas. The lease on this facility expires in July 2004. The current rent for
this facility is $13,352 per month. During the first quarter of Fiscal 2000,
our Dallas, Texas facility was consolidated into the Woburn, Massachusetts
facility, and we have sublet this space.
Litigation
We are not involved in any litigation of a material nature.
Employees
As of January 31, 2000, we employed 471 persons on a full-time basis,
including 72 temporary employees. We employ 55 full time and 7 temporary
persons in administration, 45 full time and 2 temporary in sales, service and
marketing, 82 full time and 3 temporary in research and development, and 215
full time and 62 temporary in manufacturing. We believe that our relations with
our employees are satisfactory.
37
<PAGE>
MANAGEMENT
The directors, executive officers, officers and certain other key employees
of ASTeX, and their ages and positions as of January 31, 2000, are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Richard S. Post, Ph.D. 56 President, Chief Executive Officer and Chairman of the Board of Directors
.......................
William S. Hurley....... 55 Senior Vice President and Chief Financial Officer
John M. Tarrh........... 52 Vice President, Secretary, Treasurer and Director
Brian R. Chisholm....... 52 Senior Vice President and Chief Operating Officer
Avishay Katz, Ph.D...... 41 Senior Vice President, Global Customer Operations
Stanley Burg............ 59 Senior Vice President, Business Development
Jill E. Maunder......... 44 Vice President, Human Resources
John E. Ross............ 55 Vice President, Business Development
Richard P. English, 56 Vice President, Massachusetts Manufacturing
Ph.D. .................
Robert N. Caruso........ 48 Vice President and General Manager, Colorado Springs Facility
Piero Sferlazzo, 47 Vice President, Technical Marketing/Product Management
Ph.D. .................
Jack Schuss, Ph.D....... 47 Vice President, Engineering
Robert E. Bettilyon..... 51 Corporate Controller
Robert R. Anderson...... 62 Director
Michel de Beaumont...... 57 Director
John R. Bertucci........ 58 Director
Hans-Jochen Kahl........ 60 Director
</TABLE>
Richard S. Post, Ph.D. has served as our President, Chief Executive Officer
and Chairman of the Board since our inception in January 1987. Prior to
founding ASTeX, Dr. Post served at the Massachusetts Institute of Technology
(MIT) from January 1981 to December 1988. At MIT, Dr. Post served as a Senior
Research Scientist, in the position of Head of the Mirror Confinement Division
of the Plasma Fusion Center. Dr. Post holds a Ph.D. in Plasma Physics from
Columbia University and a B.S. from the University of California at Berkeley.
He also completed the Owner/President Management Program at Harvard Business
School.
William S. Hurley has served as our Senior Vice President and Chief
Financial Officer since November 1999. From August, 1996 to October, 1999, Mr.
Hurley served as Vice President and Chief Financial Officer at Cybex
International, Inc., a publicly held manufacturer of fitness equipment. From
March 1992 to September 1995, Mr. Hurley was Vice President-Controller and
Chief Accounting Officer at Bolt, Beranek & Newman, Inc. (the former BBN
Corporation). Since June 1993, Mr. Hurley has been a director of L.S. Starrett
Co., a publicly held company which produces precision measurement equipment.
Mr. Hurley holds an M.B.A. in Finance from Columbia University and a B.S. in
Accounting from Boston College.
Mr. John M. Tarrh has served as our Vice President, Secretary and Treasurer,
and as a member of our board of directors since our inception in January 1987.
Mr. Tarrh served as our Chief Financial Officer and Secretary from January 1987
through November 1999. Mr. Tarrh became the Manager of the Mirror Confinement
Division of MIT's Plasma Fusion Center in 1986 where he was responsible for
financial management, project management and administration. Prior to joining
the research staff of MIT in 1978, he was the Executive Vice President--
Operations of Magnetic Engineering Associates, a privately held, high
technology company in Cambridge, Massachusetts which was owned by Sala
Magnetics. Mr. Tarrh presently
38
<PAGE>
serves as a director for QC Optics, Inc., a publicly held designer of laser-
based defect detection systems. Mr. Tarrh is also a director of Bintel Systems,
Inc. a privately held developer of inventory management automation systems. Mr.
Tarrh holds a M.S. in Electrical Engineering from MIT, and a B.S. in Electrical
Engineering from Virginia Polytechnic Institute and State University.
Mr. Brian R. Chisholm has been our Chief Operating Officer and Senior Vice
President since May 1998. From November 1996 to May 1998, Mr. Chisholm was our
Senior Vice President of Operations. From 1994 to August 1996, Mr. Chisholm was
the Research and Development Manager--Thin Film Systems for Varian Associates,
a developer and producer of automated systems for depositing thin films, where
he was responsible for advanced development, engineering and support of all
thin film products. Previously, Mr. Chisholm was the Vice President,
Engineering and Product Management for IRT Corporation, a publicly held company
that provides machine vision based x-ray inspection systems and radiation
processing services. Mr. Chisholm holds an M.B.A. from Northeastern University,
a M.S. in Physics from Virginia Polytechnic Institute and State University and
a B.A. in Physics from Northeastern University.
Avishay Katz, Ph.D. has been our Senior Vice President, Global Customer
Operations since April 1998. From April 1997 to April 1998, Dr. Katz was Vice
President of Strategic Marketing and Chief Technical Officer of Watkins-Johnson
Company, a manufacturer of thin film deposition capital equipment for the
semiconductor industry. From April 1996 to April 1997, Dr. Katz was manager of
Power Electronics Technology at EPRI--The Electric Power Research Institute,
where he was in charge of designing the power electronic device and system
strategy for the electrical industry. Previously, since 1988, Dr. Katz has been
a member of the technical staff and team leader for the AT&T Bell Laboratories,
where he performed research and development of metal, dielectric and
semiconductor thin film technology for microelectronics and optoelectronics
applications. Dr. Katz is also a director of Phon-OR Technologies, a privately-
held Israeli company. Dr. Katz holds a Ph.D. in Materials Science and
Engineering and a B.S. in Engineering from the Technion--Israel Institute of
Technology.
Mr. Stanley Burg has been our Senior Vice President, Business Development
since December 1998. From July 1995 to November 1998, Mr. Burg was Chief
Executive Officer of Sputtered Films, Inc., a privately-owned company involved
in the design and manufacture of high performance sputtering equipment for the
semiconductor and magnetic storage industries. From 1991 to July 1995, Mr. Burg
was Group Vice President of Implex PLC, a U.K. holding company comprised of
wholly-owned subsidiaries in the semiconductor and memory products business.
Ms. Jill E. Maunder has been our Vice President of Human Resources since
February 1998. From February 1996 to February 1998, Ms. Maunder was the
President for Outsourcing Solutions, Inc., a human resources consulting firm.
From September 1993 to January 1996, Ms. Maunder was Vice President, Human
Resources Consulting for Strategic Outsourcing, Inc., a human resources
outsourcing practice. Prior to that Ms. Maunder was Director, Human Resources
for Bull HN Worldwide Information Services. Ms. Maunder holds a B.A. in Social
Service from the University of New Hampshire.
Mr. John E. Ross has been our Vice President of Business Development since
January 2000. From June 1998 to May 1999, Mr. Ross was the Senior Vice
President of Operations at Topaz Technologies, a company which designs and
manufactures professional, wide format ink jet printing systems. From June 1993
to June 1998, Mr. Ross was the General Manager and Vice President of Operations
at Applied Magnetics Corporation, a manufacturer of read/write recording heads
for computer disk drives. Mr. Ross is also a director of Life Quality Products,
Inc., a privately-held company. Mr. Ross holds a B.S. in Chemistry from Hull
University in Hull, England.
Richard P. English, Ph.D. has been our Vice President of Massachusetts
Manufacturing since September 1999. During 1998, Dr. English served as a
manufacturing process consultant to Quantum Vision, Inc. of Mountain View,
California. From October 1998 to September 1999, Dr. English served as a
consultant to Equilasers, Inc., a private medical and industrial laser
manufacturing firm, where he identified and led efforts to
39
<PAGE>
create process infrastructure. From November 1998 to April 1999, Dr. English
also served as a Vice President of Manufacturing Operations for Gregory
Associates, Inc., a systems-level contract manufacturing firm, where he was
responsible for all operations-related activities. From 1993 to 1998, Dr.
English was Vice President, Operations, for Alcaltel Comptech, Inc. of Fremont,
California. Dr. English holds a Ph.D. in Physical Chemistry from the
Massachusetts Institute of Technology and a B.S. in Chemistry from the
University of Rochester.
Mr. Robert N. Caruso has been our Vice President/General Manager of the
Colorado Springs facility since August 1999. From December 1998 to August 1999,
Mr. Caruso was a consultant to Harris Group Inc., an engineering services firm,
where he provided manufacturing, product/market and business planning expertise
to project teams and senior management. From 1995 to 1998, Mr. Caruso was Chief
Executive Officer of Pride Industries, Inc., a precision machining and
specialty equipment company that was sold in September 1998. From 1993 to 1995,
Mr. Caruso served as President of GAC Technologies Company. Mr. Caruso has also
served as an officer and member of the Board of Directors of Lauener
Engineering A.G., a European design, engineering and manufacturing subsidiary
of ACX Technologies Inc. Mr. Caruso holds an M.B.A. from Wayne State University
and a B.S. in engineering mechanics and a B.A. from Penn State University.
Piero Sferlazzo, Ph.D. has been our Vice President, Technical
Marketing/Product Management, since April 1999. From June 1997 to April 1999,
Dr. Sferlazzo was President and co-founder of Klee Corporation, a company
founded to develop and produce automated thin film deposition systems used in
the packaging of computer chips, which was acquired by ASTeX in April 1999.
From July 1993 to May 1997, Dr. Sferlazzo was at Krytek Corporation, initially
as Vice President for Engineering, and subsequently as Chief Executive Officer.
Krytek provides equipment to the semiconductor industry used during the
maintenance and refurbishing of Ion Implanters. From December 1988 to July 1993
Dr. Sferlazzo was a Principal Scientist for Eaton Corporation, a major producer
of Ion Implanters. Dr. Sferlazzo holds a Ph.D. from Brandeis University and a
B.S. in Physics from the University of Florence in Italy.
Jack Schuss, Ph.D. has been our Vice President, Engineering since February
2000. From 1997 to 2000, Dr. Schuss was the Director of Engineering at Raytheon
RF Components, a designer and manufacturer of monolithic microwave integrated
circuit components and modules for the wireless industry and in support of
Raytheon Company's other businesses. From 1992 to 1997, Dr. Schuss was the
Engineering Manager at Iridium MMA-Raytheon Co. Dr. Schuss holds a Ph.D. from
Princeton University and an S.B. from Massachusetts Institute of Technology.
Mr. Robert E. Bettilyon has been our Corporate Controller since August 1993.
From 1983 to 1993, Mr. Bettilyon was Controller at Coherent General, Inc., a
publicly-held manufacturer of industrial lasers and laser systems for materials
processing and medical applications, and has served at each of its
Massachusetts, Tokyo and Munich facilities. Mr. Bettilyon previously served as
a Senior Financial Planning Analyst at Standard Oil of Ohio from 1980 to 1983,
and as an Audit Senior at Touche Ross (now Deloitte and Touche) from 1977 to
1980. Mr. Bettilyon holds a B.S. in Accounting from the University of Utah and
is a Certified Public Accountant.
Mr. Robert R. Anderson has served as a member of our Board of Directors
since October 1995. Previously, in 1975, Mr. Anderson co-founded and served as
Chairman of the Board of Directors, Chief Financial Officer and Chief Operating
Officer of KLA Instruments Corporation (now KLA-Tencor), the leading
manufacturer of yield monitoring and process control systems for the
semiconductor manufacturing industry, from which he retired in 1994. Mr.
Anderson is Chairman of Silicon Valley Research, Inc. (Silicon Valley), a
manufacturer of EDA software for integrated circuit design and manufacture.
From 1996 to 1998, Mr. Anderson served as the Chief Executive Officer of
Silicon Valley. Mr. Anderson is presently the Chief Executive Officer and
Chairman of the Board of Directors of Yield Dynamics, Inc., a manufacturer of
yield management software. Mr. Anderson is also a director of Melhan
Technology, Boxer Crass, NPL Inc. and Annise.com, Inc. Mr. Anderson is also a
director of Melhan Technology a publicly held company. Mr. Anderson attended
Bentley College.
40
<PAGE>
Mr. Michel de Beaumont has served as a member of our Board of Directors
since January 1993. Since 1981, Mr. de Beaumont has served as a co-founder and
director of American Equities Overseas (U.K.) Ltd. of London, England, a wholly
owned subsidiary of American Equities Overseas Inc. (American Equities), a
private securities brokerage and corporate finance firm. From 1978 to 1981, Mr.
de Beaumont served as a Vice President in the London, England Office of
American Securities Corp., which subsequently was the clearing house for
American Equities until 1993. Mr. de Beaumont has also previously served as a
Vice President at Smith Barney Harris Upham and Oppenheimer & Co. Mr. de
Beaumont is also a Director of Agripope Inc., a public Argo-biotech company.
Mr. de Beaumont is also a director of Euro-Nocopi, S.A., a privately-held
company. Mr. de Beaumont holds degrees in Advanced Mathematics, Physics and
Chemistry from the Universities of Poitiers and Paris, and a degree in Business
Administration from the University of Paris.
Mr. John R. Bertucci has served as a member of our Board of Directors since
September 1994. Mr. Bertucci was the President, and a director of MKS
Instruments, Inc. (MKS), a publicly held manufacturer and seller of pressure
control instruments for vacuum processes, from 1974 to 1999, and Chairman and
Chief Executive Officer since 1995. Since October 1998, Mr. Bertucci has served
as a director of IntelliSense Corporation, a privately-owned designer and
manufacturer of micro-electronic machined structures. Mr. Bertucci holds a M.S.
in Industrial Administration and a B.S. in Metallurgical Engineering from
Carnegie-Mellon University.
Mr. Hans-Jochen Kahl has served as a member of our board of directors since
October 1995. From June 1994 through September 1996, Mr. Kahl served as a
consultant to Ebara, a Japanese manufacturer of industrial water pumps and
vacuum process equipment for the semiconductor industry. Mr. Kahl was employed
by Leybold AG, formerly Leybold-Heraeus GmbH (Leybold), a leading international
manufacturer of vacuum pumps and other vacuum process equipment for the
semiconductor industry, from July 1983 to March 1992, Mr. Kahl served as a
managing director of Leybold, where he was primarily responsible for sales,
marketing and strategic planning. Mr. Kahl was appointed to the Board of
Directors of Leybold in 1987, and since November 1996, he has served as a
director of Solid State Measurement, a privately held manufacturer of high
precision measurement tools.
41
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information known to ASTeX regarding
the beneficial ownership of common stock as of January 31, 2000, and as
adjusted to reflect the sale of shares offered hereby, by:
. each of our directors;
. the named executive officers;
. all directors and executive officers as a group; and
. each person known to us to be the beneficial owner of more than 5% of
our outstanding shares of common stock.
<TABLE>
<CAPTION>
Shares Beneficially Owned(1)
--------------------------------
Percentage Owned(2)
----------------------
Before After
Number Offering Offering
--------- --------- ---------
<S> <C> <C> <C>
Executive Officers and Directors
Richard S. Post, Ph.D.(3)................. 665,401 5.6% 4.6%
William S. Hurley......................... 1,000 * *
John M. Tarrh(4).......................... 368,486 3.1% 2.6%
Brian R. Chisholm(5)...................... 64,900 * *
Avishay Katz, Ph.D.(6).................... 21,163 * *
Stanley Burg(7)........................... 17,000 * *
Robert R. Anderson(8)..................... 90,113 * *
John Bertucci(9).......................... 113,250 1.0% *
Michel de Beaumont(10).................... 85,719 * *
Hans-Jochen Kahl(11)...................... 34,250 * *
All Officers and Directors as a Group (15
Persons)(12)............................. 1,504,882 12.4% 10.3%
---------
Five Percent Stockholder
Kopp Investment Advisors, Inc.(13)........ 1,265,800 10.8% 8.9%
7701 France Avenue South, Suite 500
Edina, Minnesota 55435
</TABLE>
- --------
* Less than one percent (1%)
(1) Shares of common stock that an individual or group has the right to
acquire within 60 days of January 31, 2000, pursuant to the exercise of
options or warrants are deemed to be outstanding for the purposes of
computing the percentage ownership of such individual or group, but are
not deemed to be outstanding for the purpose of computing the percentage
ownership of any other person shown in the table. Except as indicated in
footnotes to this table, we believe that the stockholders named in this
table have sole voting and investment power with respect to all shares of
common stock shown to be beneficially owned by them based on information
provided to us by such stockholders.
(2) Percentage of ownership is based on 11,705,345 shares of common stock
outstanding on January 31, 2000 and 14,205,345 shares of common stock
outstanding after the completion of this Offering.
(3) Includes 15,150 shares of common stock owned by Dr. Post's wife and
121,299 shares of common stock subject to currently exercisable options
held by Dr. Post.
(4) Includes an aggregate of 1,313 shares of common stock owned by Mr. Tarrh's
wife and minor son and 36,350 shares of common stock subject to currently
exercisable options held by Mr. Tarrh.
(5) Includes 64,900 shares of common stock subject to currently exercisable
options held by Mr. Chisholm.
(6) Includes 11,000 shares of common stock subject to currently exercisable
options held by Dr. Katz.
(7) Includes 8,000 shares of common stock subject to currently exercisable
options held by Mr. Burg.
(8) Includes 15,000 shares of common stock held in trust for the benefit of a
child of Mr. Anderson, of which Mr. Anderson is the trustee, and 32,250
shares of common stock subject to currently exercisable options held by
Mr. Anderson.
42
<PAGE>
(9) Includes 52,500 shares of common stock held by MKS Instruments, Inc., of
which Mr. Bertucci is the majority shareholder and 38,250 shares of
common stock subject to currently exercisable options held by Mr.
Bertucci.
(10) Includes 47,469 shares of common stock held by various trust
arrangements, of which Mr. de Beaumont is a beneficiary and 38,250 shares
of common stock subject to currently exercisable options held by Mr. de
Beaumont.
(11) Includes 23,750 shares of common stock subject to currently exercisable
options held by Mr. Kahl.
(12) Includes (i) 12,600 shares of common stock owned and 6,000 shares of
common stock subject to currently exercisable options held by Jill E.
Maunder, our Vice President of Human Resources, (ii) 10,000 shares of
common stock owned and 6,000 shares of common stock subject to currently
exercisable options held by Piero Sterlazzo, our Vice President of
Technical Marketing/Product Management, (iii) 6,000 shares of common
stock subject to currently exercisable options held by Robert N. Caruso,
our Vice President and General Manager of Colorado Springs and (iv) 3,000
shares of common stock subject to currently exercisable options held by
Richard P. English, Ph.D., our Vice President of Massachusetts
Manufacturing. See also footnotes 3 through 11 above.
(13) Based solely upon a Schedule 13G filed on February 4, 2000 by Kopp
Investment Advisors, Inc. (KIA) on behalf of KIA, Kopp Holding Company
and Leroy C. Kopp. KIA is an investment adviser that is wholly-owned by
Kopp Holding Company, which is wholly-owned by Leroy C. Kopp. KIA has
sole voting power as to 357,500 of such shares and sole dispositive power
as to 235,000 of such shares. Leroy C. Kopp has sole voting and
dispositive power as to 15,000 of such shares. The address for Kopp
Investment Advisors, Inc., Kopp Holding Company and Leroy C. Kopp is 7701
France Avenue South, Suite 500, Edina, MN 55435.
Richard S. Post, Chairman, Chief Executive Officer and President, and John
M. Tarrh, Vice President, have each granted the underwriters an option to
purchase 50,000 shares of common stock as part of the underwriters' over-
allotment option. If this option is exercised in full, after this offering, Mr.
Post will beneficially own 615,401 shares of common stock, or 4.3%, and Mr.
Tarrh will beneficially own 318,486 shares of common stock, or 2.2%.
43
<PAGE>
UNDERWRITING
The underwriters named below, represented by Robertson Stephens, CIBC World
Markets, Needham & Company, Inc. and Adams, Harkness & Hill, Inc. (the
Representatives), have severally agreed, subject to the terms and conditions
set forth in the Underwriting Agreement, to purchase from us the number of
shares of common stock indicated below opposite their respective names at the
public offering price less the underwriting discount set forth on the cover
page of this prospectus. The Underwriting Agreement provides that the
obligations of the underwriters to pay for and accept delivery of such shares
are subject to certain conditions precedent, and that the underwriters are
committed to purchase all of such shares, if any are purchased.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
FleetBoston Robertson Stephens Inc........................
CIBC World Markets........................................
Needham & Company, Inc....................................
Adams, Harkness & Hill, Inc. .............................
Total................................................... 2,500,000
</TABLE>
The Representatives have advised us that the underwriters initially propose
to offer the shares of common stock to the public on the terms set forth on the
cover page of this prospectus. The underwriters may allow to selected dealers a
concession of not more than $ per share, and the underwriters may allow, and
such dealers may reallow, a concession of not more than $ per share to
certain other dealers. After this offering, the offering price and other
selling terms may be changed by the Representatives. We estimate that the total
offering expenses, other than underwriting discounts and commissions, will be
$ .
The underwriters have an option to buy up to 275,000 additional shares of
common stock from us and an aggregate of 100,000 additional shares of common
stock from Richard S. Post and John M. Tarrh. These additional shares would
cover sales of shares by the underwriters which exceed the number of shares
specified in the table above, and will be sold by us and Messrs. Post and Tarrh
on a pro rata basis in the event that the option is not exercised in full. The
underwriters have 30 days to exercise this option. If the underwriters exercise
this option, they will each purchase additional shares approximately in
proportion to the amounts specified in the table above. We will pay the
expenses, other than the underwriting discount and commissions paid by Messrs.
Post and Tarrh, associated with the exercise of the over-allotment option.
Our directors and officers, holding in the aggregate 1,109,833 shares of
common stock after this offering, have agreed that, for a period of 90 days
after the date of this prospectus, they will not, without the prior written
consent of Robertson Stephens, directly or indirectly sell, offer to sell or
otherwise dispose of any such shares of common stock or any right to acquire
such shares. In addition, we have agreed that, for a period of 90 days after
the date of this prospectus, we will not, without the prior written consent of
Robertson Stephens, issue, offer, sell, grant options to purchase or otherwise
dispose of any of our equity securities or any other securities convertible
into or exchangeable for the common stock or other equity security, other than
the grant of options to purchase common stock or the issuance of shares of
common stock under our stock option and stock purchase plans and the issuance
of shares of common stock pursuant to the exercise of outstanding options and
warrants.
The Underwriting Agreement provides that we indemnify the several
underwriters against certain liabilities, including civil liabilities under the
Securities Act of 1933, or will contribute to payments the underwriters may be
required to make arising from these types of liabilities.
In connection with this offering, certain underwriters and selling group
members (if any) or their respective affiliates who are qualifying registered
market makers on the Nasdaq National Market may engage in passive market making
transactions in our common stock on the Nasdaq National Market in accordance
with Rule 10b-6A under the Securities Exchange Act of 1934 during the two
business day period before commencement of offers or sales of the common stock
offered hereby. The passive market making transactions
44
<PAGE>
must comply with applicable volume and price limits and be identified as such.
In general, a passive market maker may display its bid at a price not in excess
of the highest independent bid for the security; if all independent bids are
lowered below the passive market maker's bid, however, such bid must then be
lowered when certain purchase limits are exceeded.
EXPERTS
The consolidated financial statements of Applied Science and Technology,
Inc. and subsidiaries as of June 26, 1999 and June 27, 1998 and for each of the
years in the three-year period ended June 26, 1999, have been included herein
and in the registration statement in reliance upon the report of KPMG LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the common stock offered with this prospectus has been
passed upon for us by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.,
Boston, Massachusetts. Certain legal matters in connection with the common
stock offered with this prospectus will be passed upon for the underwriters by
Hale and Dorr LLP, Boston, Massachusetts.
45
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets at June 27, 1998, June 26, 1999, and December
25, 1999 (unaudited)..................................................... F-3
Consolidated Statements of Operations for the Years Ended June 28, 1997,
June 27, 1998 and June 26, 1999 and for the six months ended December 26,
1998 and December 25, 1999 (unaudited)................................... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended June
28, 1997, June 27, 1998 and June 26, 1999 and for the six months ended
December 25, 1999 (unaudited)............................................ F-5
Consolidated Statement of Cash Flows for the Years Ended June 28, 1997,
June 27, 1998 and June 26, 1999 and for the six months ended December 26,
1998 and December 25, 1999 (unaudited)................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Applied Science and Technology, Inc.:
We have audited the accompanying consolidated balance sheets of Applied
Science and Technology, Inc. and subsidiaries as of June 26, 1999 and June 27,
1998, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
June 26, 1999. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Applied
Science and Technology, Inc. and subsidiaries as of June 26, 1999 and June 27,
1998, and the results of their operations and their cash flows for each of the
years in the three-year period ended June 26, 1999, in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
Boston, Massachusetts
July 23, 1999, except for note 20, as to which the date is August 24, 1999
F-2
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June June
27, 26, December 25,
1998 1999 1999
------- ------- ------------
(Unaudited)
ASSETS
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents..................... $ 7,687 $31,775 $17,628
Trade receivables, net (notes 2, 3 and 9)..... 12,734 18,093 22,680
Other receivables............................. -- 906 647
Investments, short term ...................... -- -- 4,988
Inventories (note 4).......................... 13,737 12,419 16,290
Prepaid expenses and other assets............. 549 386 549
Deferred income taxes (note 7)................ 1,356 1,514 1,091
------- ------- -------
Total current assets........................ 36,063 65,093 63,873
------- ------- -------
Property and Equipment:
Land.......................................... 473 473 473
Building...................................... 1,643 1,652 1,652
Equipment..................................... 11,108 11,181 14,117
Furniture and fixtures........................ 1,032 1,043 1,054
Leasehold improvements........................ 2,228 2,193 2,209
------- ------- -------
16,484 16,542 19,505
Less accumulated depreciation and
amortization............................... (7,960) (8,394) (9,408)
------- ------- -------
Net property and equipment.................. 8,524 8,148 10,097
------- ------- -------
Other Assets:
Patents, net.................................. 1,095 992 988
Goodwill, net of accumulated amortization of
$471 and $942 in 1998 and 1999, respectively,
and $1,392 at December 25, 1999 ............. 4,042 3,967 8,135
Long-term investments......................... -- -- 5,116
Deferred income taxes (note 7)................ 1,100 1,936 2,600
Notes receivable, less current maturities
(notes 3 and 12)............................. 469 394 374
Other, net.................................... -- 5 --
------- ------- -------
Total other assets.......................... 6,706 7,294 17,213
------- ------- -------
$51,293 $80,535 $91,183
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.............................. $ 3,012 $ 5,496 $ 5,357
Accrued expenses.............................. 1,935 3,471 4,750
Accrued compensation expense and related
costs........................................ 1,993 2,624 3,111
Accrued income taxes.......................... 293 607 1,596
Commissions payable and customer advances..... 259 616 1,183
------- ------- -------
Total current liabilities................... $ 7,492 $12,814 $15,997
======= ======= =======
Commitments and contingencies (notes 5 and 10)
Stockholders' Equity (notes 6 and 13):
Common stock.................................. 86 114 116
Additional paid-in capital.................... 44,193 70,045 71,648
Retained earnings (Accumulated deficit)....... (247) (2,124) 3,668
Less: Notes receivable for common stock
purchases.................................... (148) (148) --
Accumulated other comprehensive income loss... (83) (166) (246)
------- ------- -------
Total stockholders' equity.................. 43,801 67,721 75,186
------- ------- -------
$51,293 $80,535 $91,183
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Years Ended Six Months Ended
------------------------------- -------------------------
June 28, June 27, June 26, December 26, December 25,
1997 1998 1999 1998 1999
--------- --------- --------- ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Product sales, net...... $ 43,935 $ 77,958 $ 72,097 $ 26,573 $ 57,300
Research contract
revenue................ 982 786 856 236 32
Other revenue........... 3,050 4,692 5,256 2,145 4,336
--------- --------- --------- --------- ----------
Total revenue (note
9)................. 47,967 83,436 78,209 28,954 61,668
--------- --------- --------- --------- ----------
Cost of sales and
revenue:
Product sales and
other revenues....... 30,053 54,564 55,246 23,145 37,504
Research contracts.... 504 423 309 135 3
--------- --------- --------- --------- ----------
Total cost of sales
and revenue........ 30,557 54,987 55,555 23,280 37,507
--------- --------- --------- --------- ----------
Gross profit........ 17,410 28,449 22,654 5,674 24,161
--------- --------- --------- --------- ----------
Operating expenses:
Research and
development expenses
..................... 7,343 11,253 9,745 4,568 6,092
Selling expenses...... 2,950 4,427 5,168 2,375 4,165
General and
administrative
expenses............. 3,958 6,648 8,055 3,673 5,611
Acquisition-related
expenses (note 11)... 1,500 212 -- -- --
Restructuring
charges.............. -- -- 2,260 1,497 --
--------- --------- --------- --------- ----------
Total operating
expenses........... 15,751 22,540 25,228 12,113 15,868
--------- --------- --------- --------- ----------
Earnings (loss) from
operations......... 1,659 5,909 (2,574) (6,439) 8,293
--------- --------- --------- --------- ----------
Other income (expense):
Interest expense...... (585) (196) (32) (20) --
Interest income....... 396 514 649 187 848
Other income
(expense)............ 18 260 56 69 (107)
--------- --------- --------- --------- ----------
Total other income
(expense).......... (171) 578 673 236 741
--------- --------- --------- --------- ----------
Earnings (loss)
before income
taxes.............. 1,488 6,487 (1,901) (6,203) 9,034
Income tax expense
(benefit) (note 7)..... 550 2,466 (650) (2,286) 3,242
--------- --------- --------- --------- ----------
Net earnings
(loss)............. $ 938 $ 4,021 $ (1,251) $ (3,917) $ 5,792
========= ========= ========= ========= ==========
Earnings (loss) per
share:
Basic................. $ 0.14 $ 0.50 $ (0.13) $ (0.46) $ 0.50
========= ========= ========= ========= ==========
Diluted............... $ 0.14 $ 0.47 $ (0.13) $ (0.46) $ 0.48
========= ========= ========= ========= ==========
Weighted average common
shares:
Basic................. 6,686,253 8,052,926 9,398,289 8,593,863 11,500,957
========= ========= ========= ========= ==========
Diluted............... 6,777,440 8,528,947 9,398,289 8,593,863 12,181,771
========= ========= ========= ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
<TABLE>
<CAPTION>
Notes
Receivable
Preferred Retained for Other Total
Stock Common Stock Additional Earnings Common Accumulated Stock-
------------- ------------------ Paid-in (Accumulated Stock Comprehensive holders'
Shares Amount Shares Amount Capital Deficit) Purchases Income (Loss) Equity
------ ------ ---------- ------ ---------- ------------ ---------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at July 29,
1996................... -- $-- 6,672,563 $ 66 $26,668 $(5,206) $(233) $ -- $21,295
Repayment of notes
receivable............. -- -- -- -- -- -- 7 -- 7
Canceled stock in
exchange for
cancellation of note
receivable............. -- -- (7,500) -- (78) -- 78 -- --
Exercise of stock
options................ -- -- 52,964 1 289 -- -- -- 290
Tax benefit of stock
options exercised...... -- -- -- -- 63 -- -- -- 63
Stock issued in
connection with
acquisition ........... -- -- 60,482 1 895 -- -- -- 896
Net earnings and total
comprehensive income... -- -- -- -- -- 938 -- -- 938
--- ---- ---------- ---- ------- ------- ----- ----- -------
Balance at June 28,
1997................... -- -- 6,778,509 68 27,837 (4,268) (148) -- 23,489
Exercise of stock
options and warrants... -- -- 1,827,954 18 16,080 -- -- -- 16,098
Tax benefit of stock
options exercised...... -- -- -- -- 276 -- -- -- 276
Comprehensive income
(loss):
Cumulative translation
adjustment............. -- -- -- -- -- -- -- (83) (83)
Net earnings........... -- -- -- -- -- 4,021 -- -- 4,021
-------
Total comprehensive
income (loss).......... -- -- -- -- -- -- -- -- 3,938
--- ---- ---------- ---- ------- ------- ----- ----- -------
Balance at June 27,
1998................... -- -- 8,606,463 86 44,193 (247) (148) (83) 43,801
Common stock issued, net
of issuance costs ..... -- -- 2,300,000 23 23,783 -- -- -- 23,806
Exercise of stock
options and warrants... -- -- 222,035 2 987 -- -- -- 989
Tax benefit of stock
options exercised ..... -- -- -- -- 443 -- -- -- 443
Cancellation of escrowed
shares................. -- -- (21,940) -- (195) -- -- -- (195)
Stock issued in pooling
of interest
acquisition............ -- -- 310,604 3 834 (626) -- -- 211
Comprehensive income
(loss):
Cumulative translation
adjustment............. -- -- -- -- -- -- -- (83) (83)
Net loss............... -- -- -- -- -- (1,251) -- -- (1,251)
-------
Total comprehensive
income (loss).......... -- -- -- -- -- -- -- -- (1,334)
--- ---- ---------- ---- ------- ------- ----- ----- -------
Balance at June 26, 1999
....................... -- -- 11,417,162 114 70,045 (2,124) (148) (166) 67,721
Exercise of stock
options and warrants... -- -- 250,045 2 1,603 -- -- -- 1,605
Notes receivable for
common stock .......... -- -- -- -- -- -- 148 -- 148
Comprehensive income:
Cumulative translation
adjustment ............ -- -- -- -- -- -- -- (80) (80)
Net earnings .......... -- -- -- -- -- 5,792 -- -- 5,792
-------
Total comprehensive
income (loss) ......... -- -- -- -- -- -- -- -- 5,712
--- ---- ---------- ---- ------- ------- ----- ----- -------
Balance at December 25,
1999 (Unaudited)....... -- $-- 11,667,207 $116 $71,648 $ 3,668 $ -- $(246) $75,186
=== ==== ========== ==== ======= ======= ===== ===== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended Six Months Ended
---------------------------- -------------------------
June 28, June 27, June 26, December 26, December 25,
1997 1998 1999 1998 1999
-------- -------- -------- ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net earnings (loss)..... $ 938 $ 4,021 $(1,251) $(3,917) $ 5,792
Adjustments to reconcile
net earnings (loss) to
net cash provided by
(used for) operating
activities:
Depreciation........... 1,825 2,194 2,658 1,412 1,583
Amortization .......... 117 548 623 306 538
Acquisition-related
expenses.............. 1,500 212 -- -- --
Deferred income taxes.. (439) 37 (994) (2,286) (241)
(Gain) loss on disposal
of assets............. -- (192) 832 625 13
Equipment transferred
to inventories........ 114 -- -- -- 280
Changes in assets and
liabilities:
Trade receivables...... (1,739) 44 (4,328) 684 (4,587)
Inventories............ 146 (2,754) 1,636 1,302 (3,224)
Prepaid expenses and
other assets.......... 42 (272) (569) 28 (230)
Notes receivable....... 373 232 (23) 233 19
Accounts payable....... 785 (1,897) 1,948 (1,600) (138)
Accrued expenses....... 188 410 1,570 (44) 2,398
Accrued income taxes... 536 (77) 758 236 988
------- ------- ------- ------- --------
Net cash provided by
(used for) operating
activities........... 4,386 2,506 2,860 (3,021) 3,191
------- ------- ------- ------- --------
Cash flows from
investing activities:
Acquisitions of
subsidiaries, less cash
acquired............... (6,483) (3,683) (23) (23) (6,208)
Acquisition related
receivable............. -- -- -- (806) --
Advances to subsidiary
prior to acquisition... -- -- (1,050) (800) --
Purchases of
investments............ (1,299) -- -- -- (10,104)
Proceeds from sales of
investments............ 1,991 1,800 -- -- --
Additions to property
and equipment.......... (1,030) (2,999) (1,839) (1,010) (2,616)
Patent costs............ (57) (25) (52) (10) (83)
Investment in other
assets................. (140) -- 48 40 --
------- ------- ------- ------- --------
Net cash used for
investing
activities........... (7,018) (4,907) (2,916) (2,609) (19,011)
------- ------- ------- ------- --------
Cash flows from
financing activities:
Net borrowings under
note payable to bank... -- -- -- 172 --
Proceeds from notes
payable................ 4,983 -- -- -- --
Repayments of notes
payable................ (4,584) (9,173) (686) (206) --
Repayment of notes
receivable for common
stock purchases........ 7 -- -- -- 148
Net proceeds from
issuance of common
stock.................. 290 16,098 24,912 7 1,605
------- ------- ------- ------- --------
Net cash provided by
(used for) financing
activities........... 696 6,925 24,226 (27) 1,753
------- ------- ------- ------- --------
Effect of exchange rates
on cash................ -- (83) (82) 141 (80)
------- ------- ------- ------- --------
Net increase (decrease)
in cash and cash
equivalents............ (1,936) 4,441 24,088 (5,516) (14,147)
Cash and cash
equivalents at
beginning of period.... 5,182 3,246 7,687 7,687 31,775
------- ------- ------- ------- --------
Cash and cash
equivalents at end of
period................. $ 3,246 $ 7,687 $31,775 $ 2,171 $ 17,628
======= ======= ======= ======= ========
Supplemental disclosures
of cash flow
information:
Cash paid during the
period for:
Interest............... $ 539 $ 249 $ 32 $ 20 $ --
======= ======= ======= ======= ========
Income taxes........... $ 454 $ 2,521 $ 277 $ 236 $ 1,526
======= ======= ======= ======= ========
Acquisitions:
Assets acquired......... $ 4,074 $ 4,701 $ 2,578 $ 2,579 $ 2,024
Acquisition related
expenses, net of tax
benefit................ 945 212 -- -- --
Goodwill and other
intangible assets...... 3,317 2,177 393 393 4,288
Liabilities assumed..... (957) (3,407) (2,824) (2,025) (104)
Common stock issued..... (896) -- -- -- --
------- ------- ------- ------- --------
Cash paid............ 6,483 3,683 147 947 6,208
Less cash acquired and
pre-acquisition
advances to
subsidiary............. -- -- (124) (924) --
------- ------- ------- ------- --------
Net cash paid for
acquisitions........ $ 6,483 $ 3,683 $ 23 $ 23 $ 6,208
======= ======= ======= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
(1) Nature of Business and Summary of Significant Accounting Policies
Nature of Business
Applied Science and Technology, Inc. (the "Company") develops and
manufactures modules and systems using reactive gas and power source
technologies for semiconductor, medical and industrial production applications.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries: Applied Science and Technology ("ASTeX")
GmbH, ASTeX/Gerling Laboratories, Inc., ETO, Inc. ("ETO"), ASTeX CPI, Inc.
("CPI"), Newton Engineering Service, Inc. ("NES") and ASTeX Sorbios GmbH. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Interim Financial Statements
The interim financial statements as of December 25, 1999, and for the six
months ended December 26, 1998 and December 25, 1999 are unaudited. In the
opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of the financial position and
results of operations have been included in such unaudited financial
statements. The results of operations for the six months ended December 25,
1999 are not necessarily indicative of the results to be expected for the
entire year.
Revenue Recognition
The Company recognizes revenue on product sales and other sales when the
related products are shipped or the related services are rendered. The Company
periodically enters into research contracts which generally provide for
nonrefundable payments. Research contract revenue is recognized based on the
proportion of costs incurred to total estimated costs using the percentage of
completion method. At the time a loss on a contract becomes known, the entire
amount of the estimated loss is recognized.
Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments with original maturities of three
months or less to be cash equivalents.
Investments
Short-term and long-term investments consist of U.S. treasury notes and
government backed debt at June 26, 1999 and June 27, 1998. The Company uses an
investment firm to manage its investment portfolio.
The Company classifies its securities as held-to-maturity. Held-to-maturity
securities are those investments in which the Company has the ability and
intent to hold the security until maturity. Held-to-maturity securities are
recorded at amortized cost, which approximates market value.
Dividend and interest income is recognized in the period earned. Realized
gains and losses for held-to-maturity securities are included in earnings and
are derived using the specific identification method for determining the cost
of securities sold.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method.
F-7
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
Property and Equipment
Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. The
estimated useful lives of fixed assets are as follows:
<TABLE>
<S> <C>
Building.............................................. 25 to 31 1/2 years
Equipment, furniture and fixtures..................... 3 1/2 to 7 years
Leasehold improvements................................ Remaining lease term
</TABLE>
Patents
Patent costs are amortized over their estimated useful life of five years.
Goodwill
Goodwill is amortized over 10 years. The Company continually evaluates
whether events or circumstances have occurred that indicate that the remaining
useful life of goodwill may warrant revision or that the remaining balance may
not be recoverable. When factors indicate that goodwill should be evaluated for
possible impairment, the Company estimates the undiscounted cash flow of the
business segment, net of tax, over the remaining life of the asset in
determining whether the asset is recoverable. Charges for impairment of
goodwill would be recorded to the extent unamortized book value exceeds the
related future discounted cash flow, net of tax. The discount factor to be used
would be the long-term debt rate currently obtainable by the Company.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
The Company uses the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of.
This statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to undiscounted future net cash
flows expected to be generated by the asset. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount of fair
value less costs to sell.
Research and Development Costs
All research and development costs are expensed as incurred. Research and
development expenses attributable to research contracts are included in costs
of sales and revenue.
Income Taxes
The Company's income taxes are accounted for under the asset and liability
method. Under this method, deferred tax assets and liabilities are recognized
for the estimated future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
F-8
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
Use of Estimates
Management of the Company has made a number of estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The significant estimates included in the consolidated financial statements
relate to the determination of reserves for excess inventories. Management
establishes its reserves for excess inventories based upon expected future
usage and sales of inventories in the normal course of business as adjusted for
anticipated changes in market demand. Certain of the Company's inventories are
product specific and may not be readily salable in the open market. The
possible loss of sales to certain customers could result in the need for
further adjustment to the carrying value of the Company's inventories.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments, defines the fair value of a financial
instrument as the amount at which the instrument could be exchanged in a
current transaction between willing parties.
The carrying amounts of cash and cash equivalents, trade receivables,
prepaid expenses and other assets, accounts payable, and accrued expenses
approximate fair value because of the short maturity of those instruments.
The carrying amounts of short-term investments and long-term investments
approximate fair value based on quoted market prices.
The carrying amounts of notes receivable approximate fair value as the rates
of interest on these instruments approximate current market rates of interest
for similar instruments with comparable maturities.
Accounting for Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, Accounting for Stock-Based Compensation ("Statement 123") which
established a fair-value based method of accounting for stock-based
compensation plans. Prior to its adoption of Statement 123, the Company
accounted for employee stock options under APB Opinion No. 25, Accounting for
Stock Issued to Employees, which required the use of an intrinsic-value method
of accounting for stock options. Statement 123 allows the continued use of the
intrinsic-value method of accounting prescribed by APB Opinion No. 25 as long
as pro forma disclosures of net earnings (loss) and net earnings (loss) per
share, as if the fair-value method of accounting for stock-based compensation
were applied, are presented.
The Company has adopted Statement 123 and has elected to continue to account
for stock-based compensation using the methodology prescribed by APB Opinion
No. 25. Accordingly, pro forma disclosures of net earnings (loss) and net
earnings (loss) per share as if the fair-value method of accounting for stock-
based compensation were applied are presented in note 6.
Foreign Currency Translation
All assets and liabilities of the Company's foreign operations are
translated into U.S. dollars using year-end exchange rates. All revenue and
expense items are translated using weighted-average exchange rates for the
year. Translation gains and losses are included in other comprehensive income
in the statement of stockholders' equity.
F-9
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
Comprehensive Income
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income, during Fiscal Year 1999.
Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from nonowner sources. It includes all changes in equity during a period,
except those resulting from investments by owners and distributions to owners.
This pronouncement requires that the accumulated total of other comprehensive
income be shown as a separate component of stockholders' equity, with
additional disclosure of accumulated balances for each classification within
other comprehensive income in addition to the reporting of total comprehensive
income. Accumulated other comprehensive income, a component of stockholders'
equity previously titled "cumulative translation adjustment", consists solely
of foreign currency translation.
(2) Trade and Notes Receivable
Trade and notes receivable consist of the following:
<TABLE>
<CAPTION>
June June
27, 26,
1998 1999
------- -------
<S> <C> <C>
Trade receivables.......................................... $13,044 $18,466
Notes receivable, current portion (see note 3)............. 67 362
Allowance for doubtful accounts............................ (377) (735)
------- -------
$12,734 $18,093
======= =======
</TABLE>
(3) Notes Receivable
Notes receivable consist of the following:
<TABLE>
<CAPTION>
June 27, June 26,
1998 1999
-------- --------
<S> <C> <C>
Note receivable from stockholder with interest at 8% per
annum, payable in principal installments through June,
1999 with the remaining balance due in August, 1999.
The note is secured by certificates of deposit......... $288 $224
Note receivable with interest at 8% per annum, payable
in monthly installments of $2, including interest, with
any remaining balance due on December 2, 2002. The note
is secured by real estate.............................. 148 190
Note receivable with interest at 8.5% per annum, payable
in quarterly principal installments of $10, plus
accrued interest, with final principal payment of $100
on June 30, 2003. This note is secured by equipment.... -- 250
Unsecured note receivable due on October 1, 1999........ -- 90
Unsecured note receivable with interest at 10%.......... 100 --
Other notes ............................................ -- 2
---- ----
536 756
Less current maturities............................... 67 362
---- ----
Long-term notes receivable............................ $469 $394
==== ====
</TABLE>
Current maturities of notes receivable have been included in trade
receivables.
F-10
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
(4) Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
December 25,
June 27, June 26, 1999
1998 1999 (Unaudited)
-------- -------- ------------
<S> <C> <C> <C>
Raw materials................................. $ 8,990 $ 7,906 $11,834
Work in process............................... 3,210 3,458 2,401
Finished goods................................ 1,537 1,055 2,055
------- ------- -------
$13,737 $12,419 $16,290
======= ======= =======
</TABLE>
(5) Leases
The Company leases equipment and office, research and manufacturing
facilities under operating leases which expire through April, 2010. Future
minimum lease payments under operating leases are as follows:
<TABLE>
<S> <C>
Year ending June 30:
2000............................................................... $ 1,714
2001............................................................... 1,433
2002............................................................... 1,253
2003............................................................... 1,340
2004............................................................... 1,324
Thereafter......................................................... 7,292
-------
$14,356
=======
</TABLE>
Rent expense totaled $762, $916 and $1,339 for the years ended June 28,
1997, June 27, 1998 and June 26, 1999, respectively.
(6) Stockholders' Equity
Capital stock consists of the following at June 27, 1998 and June 26, 1999:
<TABLE>
<CAPTION>
Number of shares
issued and outstanding
----------------------
June 27, June 26,
Authorized 1998 1999
---------- ----------------------
<S> <C> <C> <C>
Preferred stock:
Preferred stock, $.01 par value.......... 1,000,000 -- --
---------- ---------- -----------
Total preferred stock.................. 1,000,000 -- --
---------- ---------- -----------
Common stock:
Common stock, $.01 par value............. 30,000,000 8,606,463 11,417,162
---------- ---------- -----------
Total common stock..................... 30,000,000 8,606,463 11,417,162
---------- ---------- -----------
Total capital stock.................... 31,000,000 8,606,463 11,417,162
========== ========== ===========
</TABLE>
The holders of common stock are entitled to one vote for each share of
record held on each matter submitted to a vote of stockholders. There is no
cumulative voting for election of directors. Subject to the prior rights of any
series of preferred stock which may from time to time be outstanding, holders
of common stock
F-11
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
are entitled to receive ratably such dividends as may be declared by the board
of directors out of funds legally available therefrom, and, upon the
liquidation, dissolution or winding up of the Company, are entitled to share
ratably in all assets remaining after payment of liabilities and payment of
accrued dividends and liquidation preference on the preferred stock, if any.
Holders of common stock have no preemptive rights and have no rights to convert
their common stock into any other securities. The outstanding common stock is
validly issued and nonassessable.
On March 5, 1999, the Company completed the registration and sale of
2,000,000 shares of common stock at $11 per share. On April 6, 1999, the
underwriters exercised their over-allotment option to purchase an additional
300,000 shares of common stock, bringing total shares issued in this offering
to 2.3 million. The net proceeds from the offering were approximately $23.8
million.
On February 19, 1998, the Company declared a dividend of one preferred share
purchase right (a "right") for each outstanding share of common stock
outstanding on March 2, 1998 (the "record date") to stockholders of record on
that date. Each right entitles the registered holder to purchase one one-
thousandth of a share of Series A Junior Participating Preferred Stock, par
value $0.01 per share ("junior preferred shares"), of the Company at $70 per
one one-thousandth of a junior preferred share, subject to adjustment in the
event of a stock split of the common shares or a stock dividend on the common
shares payable in common shares or subdivisions, consolidations or combinations
of the common shares occurring prior to the distribution date, defined below.
Until the earlier of (i) 10 days following a public announcement that a
person or group of affiliated or associated persons has acquired a beneficial
ownership of 15% or more of the outstanding common shares or (ii) 10 business
days following the commencement of, or announcement of an intention to make, a
tender offer or exchange offer the consummation of which would result in the
beneficial ownership by a person or group of 15% or more of such outstanding
common shares (the earlier of such dates being the "distribution date"), the
rights will be evidenced, with respect to any of the common share certificates
outstanding as of the record date.
Until the distribution date, the rights will be transferred with and only
with the common shares. Until the distribution date (or earlier redemption or
expiration of the rights), new common share certificates issued after the
record date will contain a notation incorporating the rights agreement by
reference.
Preferred shares purchased upon exercise of the rights are not redeemable
and are entitled to quarterly dividend payments of 1000 times dividends
declared on common shares, 1000 votes, voting together with common shares, and
1000 times the aggregate payment made to common shareholders in the event of
liquidation.
The rights are not exercisable until the distribution date and expire on
December 31, 2007, unless extended or redeemed by the Company.
The preferred stock may be issued in one or more series, the terms of which
may be determined at the time of issuance by the board of directors, without
further action by stockholders, and may include voting rights (including the
right to vote as a series on particular matters), preferences as to dividends
and liquidation, conversion, redemption rights and sinking fund provisions.
The future issuance of preferred stock could reduce the rights, including
voting rights, of the holders of common stock, and, therefore, reduce the value
of the common stock. In particular, specific rights granted to future holders
of preferred stock could be used to restrict the Company's ability to merge
with or sell its assets to a third party, thereby preserving control of the
Company by existing management.
F-12
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
On September 3, 1997, the Company announced that it had met the requirements
for the redemption of redeemable warrants issued in connection with the
Company's Initial Public Offering ("IPO") and called the warrants for
redemption. 2,082,451 redeemable warrants and 133,088 underwriter warrants were
converted into 1,691,416 shares of common stock. The net proceeds were $15.2
million.
The Company adopted the 1993 Stock Option Plan in fiscal 1994 and in fiscal
1995, adopted the 1994 Formula Stock Option Plan to award non-employee
directors of the Company with stock options. The Plans are administered by the
Company's board of directors which has the authority to determine the
recipients, number of shares, and the related terms and provisions of the
options which may be granted.
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its stock-based compensation plans. In accordance with APB
Opinion No. 25, no compensation cost has been recognized in connection with
these plans. Had compensation cost for the Company's stock-based compensation
plans been determined consistent with Statement No. 123, the Company's net
earnings (loss) and net earnings (loss) per share would have been reduced to
the following pro forma amounts.
<TABLE>
<CAPTION>
Years ended
--------------------------
June 28, June 27, June 26,
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net earnings (loss) as reported............... $ 938 $4,021 $(1,251)
===== ====== =======
Pro forma net earnings (loss)................. $ 226 $2,118 $(3,178)
===== ====== =======
Basic net earnings (loss) per share as
reported..................................... $0.14 $ 0.50 $ (0.13)
===== ====== =======
Pro forma basic net earnings (loss) per
share........................................ $0.03 $ 0.26 $ (0.34)
===== ====== =======
Diluted net earnings (loss) per share as
reported..................................... $0.14 $ 0.47 $ (0.13)
===== ====== =======
Pro forma diluted net earnings (loss) per
share........................................ $0.03 $ 0.25 $ (0.34)
===== ====== =======
</TABLE>
The effect of applying Statement No. 123 as shown in the above pro forma
disclosures is not representative of the pro forma effect on net earnings in
future years because it does not take into consideration stock options granted
prior to fiscal 1996.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants issued in fiscal 1999, 1998 and 1997: no dividend
yield for all years; expected volatility of 82%, 76%, and 75% for 1999, 1998,
and 1997, respectively; risk-free interest rates of 4.72% for 1999 grants, 5.8%
for 1998 grants and 6% for 1997 grants; and expected lives of 4 years for 1999
and 1998 grants and 4 to 8 years for 1997 grants.
F-13
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
The following is a summary of stock option activity.
<TABLE>
<CAPTION>
Employee stock options
-------------------------------------
Option Weighted
shares Options average
available outstanding exercise price
--------- ----------- --------------
<S> <C> <C> <C>
Balance at June 29, 1996............. 688,223 716,070 $ 7.39
Options granted.................... (349,088) 349,088 6.46
Options exercised.................. -- (52,964) 5.47
Options expired.................... 48,769 (48,769) 7.10
--------- ---------
Balance at June 28, 1997............. 387,904 963,425 7.17
Options added...................... 1,132,500 -- --
Options granted.................... (465,579) 465,579 11.61
Options exercised.................. -- (136,538) 6.08
Options expired.................... 101,800 (101,800) 9.61
--------- ---------
Balance at June 27, 1998............. 1,156,625 1,190,666 8.84
Options granted.................... (886,695) 886,695 6.59
Options exercised.................. -- (222,035) 6.76
Options expired.................... 460,993 (484,993) 10.20
--------- --------- ------
Balance at June 26, 1999............. 730,923 1,370,333 $ 7.30
========= =========
</TABLE>
The weighted-average fair value of options granted during fiscal 1999, 1998
and 1997 was $3.13, $6.98 and $3.83, respectively. Effective August 26, 1998,
the Company repriced all of its stock options which had been granted since June
29, 1997 to the closing market price as of that date, which was $6.00 per
share. Options which had been granted to directors of the company during the
same period were not repriced.
The following is a summary of information relating to stock options
outstanding at June 26, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------- ---------------------
Number Weighted- Number Weighted-
outstanding Weighted- average exercisable average
Range of at June 26, average remaining exercise at June 26, exercise
exercise prices 1999 contractual life price 1999 price
--------------- ----------- ----------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 3.83- 5.25 323,282 4.2 years $ 4.03 81,922 $ 4.34
6.00- 9.00 760,600 2.9 6.85 364,234 6.99
9.75-14.50 254,751 6.6 11.28 149,824 10.60
15.00-20.00 31,700 5.2 19.20 6,000 19.25
--------- -------
1,370,333 4.0 $ 7.30 601,980 $ 7.65
========= =======
</TABLE>
Notes receivable for common stock purchases are due through October 2000 or
upon termination of employment with the Company, if earlier. Interest accrues
at 6.28% per annum.
F-14
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
(7) Income Taxes
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
Years ended
--------------------------
June 28, June 27, June 26,
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal......................................... $ 775 $2,141 $ 245
State........................................... 214 288 99
----- ------ -----
Total current................................. 989 2,429 344
----- ------ -----
Deferred:
Federal......................................... (294) (267) (779)
State........................................... (145) 304 (215)
----- ------ -----
Total deferred................................ (439) 37 (994)
----- ------ -----
$ 550 $2,466 $(650)
===== ====== =====
</TABLE>
The actual tax expense differs from the "expected" tax expense (benefit)
(computed by applying the U.S. federal corporate income tax rate of 34% to
earnings (loss) before income taxes) as follows:
<TABLE>
<CAPTION>
Years ended
--------------------------
June 28, June 27, June 26,
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit)....... $506 $2,205 $(646)
Increase (reduction) in income taxes resulting
from:
State taxes, net of federal benefit........... 45 391 (76)
Research and experimentation tax credit....... (44) (87) 90
Valuation reserve movement.................... -- (171) (99)
Other......................................... 43 128 81
---- ------ -----
$550 $2,466 $(650)
==== ====== =====
</TABLE>
Total income tax expense was allocated as follows:
<TABLE>
<CAPTION>
Years ended
--------------------------
June 28, June 27, June 26,
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Income (loss) from operations................... $550 $2,466 $ (650)
Stockholders' equity, for compensation expense
for tax purposes in excess of amounts
recognized for financial statement purposes.... (62) (276) (443)
---- ------ -------
$488 $2,190 $(1,093)
==== ====== =======
</TABLE>
F-15
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as
follows:
<TABLE>
<CAPTION>
June 27, June 26,
1998 1999
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards....................... $2,164 $1,415
Accrued liabilities.................................... 283 939
Inventory ............................................. 613 1,165
Accounts receivable, principally due to allowance for
doubtful accounts..................................... 118 251
------ ------
Total deferred tax assets............................ 3,178 3,770
Less: valuation allowance ............................. (99) --
------ ------
Deferred tax assets.................................. 3,079 3,770
Deferred tax liabilities:
Property and equipment, principally due to differences
in depreciation methods............................... 623 320
------ ------
Net deferred tax assets.............................. $2,456 $3,450
====== ======
</TABLE>
The net change in the total valuation allowance for the years ended June 26,
1999 and June 27, 1998 was $99 and $171, respectively. The valuation allowance
was principally attributable to state operating loss carryforwards.
The Company has foreign operating loss carryforwards of approximately $2.9
million related to its foreign subsidiary which are available indefinitely to
offset future taxable income of the subsidiary.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. Based upon the level of historical taxable income
and projections for future taxable income over the periods during which
deferred tax assets are deductible, management believes it is more likely than
not the Company will realize the benefits of these deductible differences.
F-16
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
(8) Earnings (Loss) Per Share
Basic earnings (loss) per share is based upon the weighted average common
shares outstanding during each year. Diluted earnings (loss) per share is based
upon the weighted average of common shares and dilutive common stock equivalent
shares outstanding during each year. The weighted average number of shares used
to compute diluted earnings (loss) per share consisted of the following:
<TABLE>
<CAPTION>
Years ended Six Months ended
----------------------------- -------------------------
June 28, June 27, June 26, December 26, December 25,
1997 1998 1999 1998 1999
--------- --------- --------- ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Weighted average common
shares outstanding
during the year....... 6,686,253 8,052,926 9,398,289 8,593,863 11,500,957
Weighted average common
equivalent shares due
to stock options and
warrants.............. 91,187 476,021 -- -- 680,814
--------- --------- --------- --------- ----------
6,777,440 8,528,947 9,398,289 8,593,863 12,181,771
========= ========= ========= ========= ==========
</TABLE>
For the year ended June 26, 1999 and for the six months ended December 26,
1998, common equivalent shares of 435,345 and 92,591, respectively, resulting
from stock options and warrants were not included in the computation of diluted
earnings per share because to do so would have been antidilutive.
(9) Sales and Revenue
Total revenue consists of product sales, research contract revenue and other
revenue. Other revenue includes revenues from service and repair activities and
consulting.
One commercial customer accounted for 45%, 40% and 38% of total revenue for
the years ended June 26, 1999, June 27, 1998 and June 28, 1997, respectively,
and 50.0% for the six months ended December 25, 1999. At June 26, 1999 and June
27, 1998, accounts receivable from this customer totaled $7.7 million and $3.3
million, respectively. A second customer accounted for approximately 8%, 6% and
10% of total revenue in 1999, 1998 and 1997, respectively.
Sales to customers in foreign countries for the years ended June 26, 1999,
June 27, 1998 and June 28, 1997 were $16.0 million, $18.9 million and $10.1
million, respectively, and $11.9 million for the six months ended December 25,
1999. At June 26, 1999 and June 27, 1998, accounts receivable from foreign
customers totaled $3.5 million and $8.3 million, respectively.
(10) Commitments
The Company may borrow up to $8 million from a bank under an unsecured
demand line of credit with interest at the bank's prime rate (7.75% at June 26,
1999). Borrowings under the line are limited to 100% of the Company's cash
balance plus 80% of domestic accounts receivable under 90 days outstanding. The
Company may fix a portion or all of the outstanding balances under the line for
periods up to the remaining term of the line. The line may be used for standby
letters of credit.
There are fees of 1.5% for any standby letters of credit and 0.25% on the
unused portion of the line. There were no outstanding borrowings at June 26,
1999 and June 27, 1998. The line of credit expires in May 2000. No security
pledges of assets can be granted nor dividends paid without the approval of the
bank that issued the unsecured line of credit.
F-17
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
(11) Acquisitions
On April 5, 1999, the Company completed the acquisition of Klee Corporation
("Klee"), a manufacturer of physical vapor deposition process systems targeted
to a segment of electronics packaging known as under-bump metallurgy or flip-
chip packaging. Klee had limited operations through the date of the
acquisition. The Company acquired all of the stock of Klee in exchange for
310,604 shares of the Company's common stock. The acquisition was accounted for
on a pooling of interests basis. The Company's consolidated financial
statements have not been restated for periods prior to acquisition as the
acquisition was considered to be an immaterial pooling.
On November 4, 1998, the Company completed the acquisition of PlasmaQuest,
Inc., a manufacturer of systems for research and development, magnetic disk
head processing, and electronic packaging applications. The acquired company
was renamed ASTeX PlasmaQuest, Inc. ("PlasmaQuest"). The Company acquired all
of the stock of PlasmaQuest for a preliminary purchase price of $23 net of cash
acquired of $124. The purchase price was paid in cash from the Company's cash
balances. The terms of certain of the Company's acquisition agreements provide
for amounts advanced to PlasmaQuest prior to the acquisition, to be repaid. At
June 26, 1999, the amount to be repaid to the Company was being negotiated. A
reasonable estimate of the amount to be paid could not be determined at June
26, 1999. If the amounts are not repaid in full, the purchase price may be
adjusted.
On October 1, 1997, the Company completed the acquisition of Sorbios GmbH,
renamed ASTeX GmbH, a manufacturer of ozone generators and air ionizers for
semiconductor production. The Company acquired all of the stock of Sorbios GmbH
for a total purchase price of $3.7 million. The purchase price was paid in
cash, from the Company's cash balances. Costs associated with the acquired in-
process research and development projects were charged to expense.
On May 9, 1997, the Company completed its acquisition of the net assets of
Converter Power, Inc. ("CPI"), a manufacturer of high efficiency, small form
factor power sources used in semiconductor, medical, scientific and industrial
applications. The Company acquired the net assets, exclusive of certain
liabilities of CPI for a total purchase price of $7.4 million which included
$6.5 million in cash, and 60,482 shares of the Company's common stock valued at
$900 were issued to the prior owners of CPI. Costs associated with the acquired
in-process research and development projects were charged to expense.
F-18
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
Except for Klee, all acquisitions have been accounted for by the purchase
method of accounting and, accordingly, the purchase prices have been allocated
to the assets acquired and the liabilities assumed based on their fair values
at the acquisition dates. The consideration paid and the fair value of the
assets acquired and the liabilities assumed at the acquisition dates are
summarized as follows:
<TABLE>
<CAPTION>
Years ended
---------------------------
June 28, June 27, June 26,
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Consideration paid:
Cash......................................... $6,483 $ 3,683 $ 147
Common stock (60,482 shares in 1997)......... 896 -- --
------ ------- -------
Total consideration paid................... $7,379 $ 3,683 $ 147
====== ======= =======
Allocation of purchase price:
Cash......................................... $ -- $ -- $ 124
Accounts receivable.......................... 1,255 1,180 1,016
Inventories.................................. 2,050 970 298
Property and equipment and other assets...... 769 2,551 1,141
Liabilities assumed.......................... (957) (3,407) (2,825)
Acquisition related expenses, net of tax
benefits where applicable................... 945 212 --
Goodwill and other intangible assets......... 3,317 2,177 393
------ ------- -------
Total purchase price....................... $7,379 $ 3,683 $ 147
====== ======= =======
</TABLE>
The following unaudited pro forma results of operations give effect to the
acquisitions as if the ASTeX GmbH and CPI acquisitions had occurred at the
beginning of fiscal 1997 (the effect of the PlasmaQuest and Klee acquisitions
is insignificant). Such pro forma information reflects certain adjustments
including amortization of goodwill, interest expense, interest income, income
tax effect and an increase in the number of weighted average shares
outstanding. This pro forma information does not necessarily reflect the
results of operations that would have occurred had the acquisitions taken place
as described and is not necessarily indicative of results that may be obtained
in the future.
<TABLE>
<CAPTION>
Years ended
-------------------
June 28, June 27,
1997 1998
--------- ---------
(Unaudited)
<S> <C> <C>
Pro forma total revenue................................. $ 59,458 $ 84,414
========= =========
Pro forma net earnings.................................. $ 1,143 $ 4,877
========= =========
Pro forma basic earnings per share:
Basic................................................. $ 0.17 $ 0.61
========= =========
Diluted............................................... $ 0.17 $ 0.57
========= =========
Pro forma weighted average common shares:
Basic................................................. 6,738,411 8,052,926
========= =========
Diluted............................................... 6,827,199 8,528,947
========= =========
</TABLE>
F-19
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
(12) Transaction with Stockholder
In 1997, the Company sold the net assets of a subsidiary, Ehrhorn
Technological Operations ("ETO"), Alpha product line with a cost of $565, to
Alpha/Power, Inc. ("API") in exchange for cash and a note receivable. A
majority of API is owned by a former owner of ETO who is currently an ASTeX
stockholder. In connection with this sale, API agreed to assume and indemnify
ETO against all obligations to provide warranty for Alpha products sold prior
to the sale. There was no gain or loss associated with the sale.
(13) Noncash Financing and Investing Activities
During the year ended June 26, 1999, 21,940 shares of common stock were
returned to the Company in lieu of cash reimbursement for warranty costs
incurred related to products shipped by CPI prior to their acquisition by the
Company.
In connection with the exercise of stock options, a tax benefit of $443,
$276 and $62 was recorded as additional paid-in capital for the years ended
June 26, 1999, June 27, 1998 and June 28, 1997 respectively.
(14) Retirement Plans
Prior to January 1, 1997, the Company sponsored two defined contribution
401(k) retirement plans covering substantially all employees of the Company.
The Company contributed 20% of employee voluntary contributions up to 5% of
eligible wages for the plan covering employees of ASTeX, ASTeX/Gerling
Laboratories, and Newton Engineering Service, Inc. The Company contributed 50%
of employee voluntary contributions up to 6% of eligible wages for the plan
covering employees of ETO. Beginning January 1, 1997, the Company merged the
plans and under the new plan contributes 50% of employee voluntary
contributions up to 6% of eligible wages on a discretionary basis. Total
expense under the plans amounted to $87, $324 and $110 for the years ended June
26, 1999, June 27, 1998 and June 28, 1997, respectively.
(15) New Accounting Pronouncements
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
will become effective during fiscal year 2001. Statement No. 133 establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, (collectively
referred to as derivatives) and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as (a)
hedge of the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment, (b) a hedge of the exposure to
variable cash flows of a forecasted transaction, or (c) a hedge of the foreign
currency exposure of a net investment in a foreign operation, an unrecognized
firm commitment, an available-for-sale security, or a foreign-currency-
denominated forecasted transaction.
The accounting for changes in the fair value of a derivative (that is, gains
and losses) depends on the intended use of the derivative and the resulting
designation.
Under this Statement, an entity that elects to apply hedge accounting is
required to establish at the inception of the hedge the method it will use for
assessing the effectiveness of the hedging derivative and the measurement
approach for determining the ineffective aspect of the hedge. These methods
must be consistent with the entity's approach to managing risk.
F-20
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
Statement of Position (SOP) 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use, will become effective in
fiscal year 2000. SOP 98-1 requires that certain internal and external costs be
expensed or capitalized when incurred to develop or obtain software for
internal use. Generally, costs incurred during the preliminary project and
post-implementation/operation stages, as well as conversion and general and
administrative costs are to be expensed as incurred. Certain costs incurred
during the application and development stage are to be capitalized.
The Company is evaluating the impact of Statement No. 133 and SOP 98-1.
(16) Restructuring Charges and Other Related Expenses
During 1999, the Company consolidated its Modesto, California operations
into its Woburn, Massachusetts and Colorado Springs, Colorado sites. The
Company also consolidated its Beverly, Massachusetts operation into Woburn.
These consolidations resulted in a restructuring charge of $1,497. The
restructuring charge consisted of severance relating to the termination of 70
employees, abandonment of leasehold improvements and fixed assets, and facility
costs (primarily future lease payments relating to abandoned facilities).
Accrued expenses at June 26, 1999 included approximately $174, primarily
relating to restructuring accruals for facility costs expected to be paid over
the next 9 months. As of December 25, 1999 all 70 employees have been
terminated.
In connection with the aforementioned consolidations, the Company wrote down
inventory having a cost of $1,090 during 1999. The write-down was due to excess
inventory resulting from the unexpected severity of the downturn in the
semiconductor equipment industry, excess and obsolete customer-specific
inventory, and the abandonment of certain marginal product lines. The Company
also incurred $393 of other transition costs related to the consolidations for
moving assets and training personnel. The write-down of inventory and other
transition costs are reflected in the consolidated statement of operations as a
component of cost of sales and revenues, and general and administrative
expenses, respectively.
Also during 1999, the Company announced the consolidation of PlasmaQuest
operations based in Dallas, Texas into its newly leased space in Wilmington,
Massachusetts. This consolidation has resulted in a restructuring charge of
approximately $763, primarily consisting of severance relating to the
termination of 16 employees, abandonment of leasehold improvements and fixed
assets, and facility costs (primarily future lease payments relating to the
abandoned facility). The consolidation of the facility is expected to begin in
the first quarter of Fiscal 2000 and take 6 months to complete. As of December
25, 1999 all 16 employees have been terminated.
Total 1999 costs related to restructurings, inventory writedowns and
transition costs were $3,743.
The following table summarizes the recorded accruals and uses of the above
restructuring and impairment actions:
<TABLE>
<CAPTION>
Asset Severance Exit
Impairments Benefits Costs Total
----------- --------- ----- ------
<S> <C> <C> <C> <C>
First Quarter Restructuring
Total charge....................... $606 $579 $312 $1,497
Cash payments...................... 8 546 140 694
Non-cash items..................... 598 -- -- 598
Adjustments of accrual............. -- (33) 2 (31)
---- ---- ---- ------
Accrual balance, as of June 26,
1999............................. -- -- 174 174
Fourth Quarter Restructuring
Total charges...................... 183 196 384 763
Non-cash items..................... 183 -- -- 183
---- ---- ---- ------
Accrual balance as of June 26,
1999............................. -- 196 384 580
---- ---- ---- ------
Total accrual balance as of June 26,
1999................................. $-- $198 $556 $ 754
==== ==== ==== ======
</TABLE>
F-21
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
(17) Segment and Related Information
The company adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, in 1999, which changes the way the Company
reports information about its operating segments. The information for 1998 and
1997 has been restated from prior years' presentation in order to conform to
the 1999 presentation.
The Company has four reportable segments, Semiconductor, Medical and
Industrial, Systems, and Corporate, that have separate financial results that
are reviewed by the Company's chief operating decision maker. Identifiable
assets and capital expenditures data are presented geographically as they are
managed on that basis.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies.
<TABLE>
<CAPTION>
Medical
and
Semiconductor Industrial Systems Corporate Total
------------- ---------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
Six months ended December
25, 1999 (Unaudited):
Net sales............. $45,764 $ 9,643 $ 6,261 $ -- $61,668
Inter-segment net
sales................. 1,366 12 -- -- 1,378
Profit (loss) from
operations............ 11,942 726 (242) (4,133) 8,293
Depreciation.......... 752 166 196 469 1,583
Six months ended December
26, 1998 (Unaudited):
Net sales............. 15,082 12,616 1,256 -- 28,954
Inter-segment net
sales................. 435 1,033 -- -- 1,468
Profit (loss) from
operations............ (3,132) (958) (337) (2,012) (6,439)
Depreciation.......... 890 311 99 112 1,412
Year ended June 26, 1999:
Net sales............. 51,341 22,611 4,257 -- 78,209
Inter-segment net
sales................. 3,225 8 -- -- 3,233
Profit (loss) from
operations............ 3,736 332 (1,306) (5,336) (2,574)
Depreciation.......... 1,195 304 336 823 2,658
Year ended June 27, 1998:
Net sales............. 52,804 27,715 2,917 -- 83,436
Inter-segment net
sales................. 3,749 -- -- -- 3,749
Profit (loss) from
operations............ 5,634 3,508 128 (3,361) 5,909
Depreciation.......... 1,374 478 175 167 2,194
Year ended June 26, 1997:
Net sales............. 29,333 15,669 2,965 -- 47,967
Inter-segment net
sales................. 1,435 -- -- -- 1,435
Profit (loss) from
operations............ 1,847 2,706 243 (3,137) 1,659
Depreciation.......... 1,218 302 181 124 1,825
</TABLE>
F-22
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
Financial information relating to the Company's geographic areas was as
follows:
<TABLE>
<CAPTION>
Total Revenue
-------------------------
1997 1998 1999
-------- -------- -------
<S> <C> <C> <C>
United States......................................... $37,884 $64,513 $62,244
Europe................................................ 6,261 12,291 11,175
Other................................................. 3,822 6,632 4,790
------- ------- -------
$47,967 $83,436 $78,209
======= ======= =======
<CAPTION>
Long-lived Assets
-------------------------
June
June 28, June 27, 26,
1997 1998 1999
-------- -------- -------
<S> <C> <C> <C>
United States......................................... $ 7,503 $ 8,245 $ 7,849
Europe................................................ -- 279 299
------- ------- -------
$ 7,503 $ 8,524 $ 8,148
======= ======= =======
<CAPTION>
Identifiable Assets
-------------------------
June
June 28, June 27, 26,
1997 1998 1999
-------- -------- -------
<S> <C> <C> <C>
United States......................................... $39,327 $48,533 $76,534
Europe................................................ -- 2,760 4,001
------- ------- -------
$39,327 $51,293 $80,535
======= ======= =======
<CAPTION>
Capital Expenditures
-------------------------
June
June 28, June 27, 26,
1997 1998 1999
-------- -------- -------
<S> <C> <C> <C>
United States......................................... $ 1,030 $ 2,878 $ 1,733
Europe................................................ -- 121 106
------- ------- -------
$ 1,030 $ 2,999 $ 1,839
======= ======= =======
</TABLE>
F-23
<PAGE>
APPLIED SCIENCE AND TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
(18) Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
Diluted
Net
Earnings Net Earnings
Total Gross (Loss) From Earnings (Loss)
Revenue Profit Operations (Loss) Per Share
------- ------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
1999
First Quarter................. $12,100 $ 1,175 $(5,713) $(3,481) $(0.41)
Second Quarter................ 16,854 4,499 (726) (436) (0.05)
Third Quarter................. 20,942 7,075 1,438 784 0.08
Fourth Quarter................ 28,313 9,905 2,427 1,882 0.16
------- ------- ------- ------- ------
Year ended June 26............ $78,209 $22,654 $(2,574) $(1,251) $(0.22)
======= ======= ======= ======= ======
1998
First Quarter................. $17,421 $ 6,474 $ 1,677 $ 1,155 $ 0.14
Second Quarter................ 22,440 8,230 2,099 1,275 0.15
Third Quarter................. 23,462 8,207 2,252 1,578 0.18
Fourth Quarter................ 20,113 5,538 (119) 13 --
------- ------- ------- ------- ------
Year ended June 27............ $83,436 $28,449 $ 5,909 $ 4,021 $ 0.47
======= ======= ======= ======= ======
</TABLE>
(19) Comprehensive Income (Unaudited)
The components of total comprehensive loss for the six months ended December
25, 1999 and December 26, 1998 are as follows:
<TABLE>
<CAPTION>
Six Months Ended
-------------------------
December 26, December 25,
1998 1999
<S> <C> <C>
Net earnings (loss)................................ $(3,917) $5,792
Other comprehensive income (loss).................. 141 (80)
------- ------
Comprehensive income (loss)........................ $(3,776) $5,712
======= ======
</TABLE>
(20) Subsequent Event
On August 24, 1999, the Company acquired substantially all of the assets of
Shamrock from Sputtered Films, Inc. for cash consideration of $6 million. The
acquisition of this product line will be accounted for by the purchase method
of accounting.
F-24
<PAGE>
Photographs of ASTeX equipment:
Nimbus 300 Process systems for advanced packaging
Shamrock 150(TM) Process systems for magnetic sensors, MRAM, and disk drive
heads
Liquozon(TM) Ozonated water delivery system
SmartPower(TM) Microwave power generation module
ASTRON(R) Reactive gas generator for atomic fluorine and other gases
<PAGE>
[ASTEX LOGO APPEARS HERE]
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the Company's estimates (other than the SEC
and Nasdaq registration fees) of the expenses in connection with the issuance
and distribution of the shares of common stock being registered.
<TABLE>
<CAPTION>
Item Amount
---- -----------
<S> <C>
SEC Registration Fee............................................ $ 25,661.79
Nasdaq Listing Fee.............................................. 17,500.00
Legal Fees and Expenses......................................... 225,000.00
Blue Sky Fees and Expenses...................................... 7,500.00
Accounting Fees and Expenses.................................... 70,000.00
Printing and Engraving.......................................... 100,000.00
Miscellaneous Fees and Expenses................................. 10,220.38
-----------
Total......................................................... $455,882.17
===========
</TABLE>
Item 15. Indemnification of Directors and Officers.
Section 145(a) of the General Corporation Law of the State of Delaware
provides that a Delaware corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation)
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
if he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no cause to believe his conduct was
unlawful.
Section 145(b) provides that a Delaware corporation may indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that such person acted in
any of the capacities set forth above, against expenses actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted under similar standards, except that no indemnification may be
made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the court in which such action or suit was brought shall determine
that despite the adjudication of liability, such person is fairly and
reasonably entitled to be indemnified for such expenses which the court shall
deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful in the defense of any action, suit or
proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue or matter therein, he shall be indemnified against expenses
actually and reasonably incurred by him in connection therewith; that
indemnification provided for by Section 145 shall not be deemed exclusive of
any other rights to which the indemnified party may be entitled; and that the
corporation may purchase and maintain insurance on behalf of a director or
officer of the corporation against any liability asserted against him or
incurred by him in any such capacity or arising out of his status as such
whether or not the corporation would have the power to indemnify him against
such liabilities under such Section 145.
The Certificate of Incorporation, as amended, and Bylaws of the Company
provide for indemnification of the Company's directors and officers to the
fullest extent permitted by law. The Bylaws also permit the Board of Directors
to authorize the Company to purchase and maintain insurance against any
liability asserted against
II-1
<PAGE>
any director, officer, employee or agent of the Company arising out of his
capacity as such. Insofar as indemnification for liabilities under the
Securities Act may be permitted to directors, officers, or controlling persons
of the Company pursuant to the Company's Certificate of Incorporation, as
amended, its Bylaws and the Delaware General Corporation Law, the Company has
been informed that in the opinion of the Commission such indemnification is
against public policy as expressed in such Act and is therefore unenforceable.
As permitted by Section 102(b)(7) of the Delaware General Corporation Law,
the Company's Certificate of Incorporation, as amended, provides that directors
of the Company shall not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the Company or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law, relating to
prohibited dividends or distributions or the repurchase or redemption of stock
or (iv) for any transaction from which the director derives an improper
personal benefit. As a result of this provision, the Company and its
stockholders may be unable to obtain monetary damages from a director for
breach of his or her duty of care.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
*1.1 --Form of Underwriting Agreement.
**4.1 --Certificate of Incorporation, as amended, dated July 1, 1992.
**4.2 --Certificate of Amendment of Certificate of Incorporation, dated
September 1, 1993.
**4.3 --Bylaws, as amended.
***4.4 --Form of Certificate of Designation for the Series A Junior
Participating Preferred Stock.
**4.5 --Specimen Common Stock Certificate.
*5.1 --Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. with
respect to the legality of securities being registered.
*10(n) --Lease between the registrant and Ninety Industrial Way Wilmington
LLC.
*21.1 --List of Subsidiaries.
*23.1 --Consent of KPMG LLP.
*23.2 --Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (see
Exhibit 5.1).
*24.1 --Power of Attorney (see page II-5).
*27.1 --Financial Data Schedule.
</TABLE>
- --------
* Filed herewith.
** Previously filed as an exhibit to the Company's Registration Statement on
Form SB-2 (Registration No. 33-69098-B) declared effective on November 9,
1993, and incorporated herein by reference.
*** Previously filed as an exhibit to the Company's Current Report on Form 8-K
filed with the Commission on March 5, 1998 in connection with the Company's
adoption of a Shareholder Rights Plan, and incorporated herein by reference
(Commission File No. 0-22646).
**** Previously filed as an exhibit to the Company's Registration Statement on
Form S-3/Amendment No. 1 (Registration No. 333-71467) filed with the
Commission on February 9, 1999, and incorporated herein by reference.
II-2
<PAGE>
Item 17. Undertakings
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or any decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low end or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
(d) The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement on Form S-3 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Woburn, Commonwealth of Massachusetts on the
16th day of February, 2000.
Applied Science and Technology, inc.
/s/ Richard S. Post
By: _________________________________
Richard S. Post
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Richard S. Post, Ph.D., William S. Hurley and
John M. Tarrh, or any of them, his attorney-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this registration statement, (or any
other registration statement for the same offering that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act) and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite or necessary to be done in and about the
premises, as full to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them or their or his substitutes may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-3 has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Richard S. Post Chairman of the Board, February 16, 2000
______________________________________ Chief Executive Officer
Richard S. Post and President (principal
executive officer)
/s/ William S. Hurley Chief Financial Officer February 16, 2000
______________________________________ and Senior Vice President
William S. Hurley (principal financial and
accounting officer)
/s/ Robert R. Anderson Director February 16, 2000
______________________________________
Robert R. Anderson
/s/ John R. Bertucci Director February 16, 2000
______________________________________
John R. Bertucci
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Michael de Beaumont Director February 16, 2000
______________________________________
Michael de Beaumont
/s/ Hans-Jochen Kahl Director February 16, 2000
______________________________________
Hans-Jochen Kahl
/s/ John M. Tarrh Director February 16, 2000
______________________________________
</TABLE> John M. Tarrh
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
*1.1 --Form of Underwriting Agreement.
**4.1 --Certificate of Incorporation, as amended, dated July 1, 1992.
**4.2 --Certificate of Amendment of Certificate of Incorporation, dated
September 1, 1993.
**4.3 --Bylaws, as amended.
***4.4 --Form of Certificate of Designation for the Series A Junior
Participating Preferred Stock.
**4.5 --Specimen Common Stock Certificate.
*5.1 --Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
with respect to the legality of securities being registered.
*10(n) --Lease between the registrant and Ninety Industrial Way Wilmington
LLC.
*21.1 --List of Subsidiaries.
*23.1 --Consent of KPMG LLP.
*23.2 --Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
(see Exhibit 5.1).
*24.1 --Power of Attorney (see page II-5).
*27.1 --Financial Data Schedule.
</TABLE>
- --------
* Filed herewith.
** Previously filed as an exhibit to the Company's Registration Statement on
Form SB-2 (Registration No. 33-69098-B) declared effective on November 9,
1993, and incorporated herein by reference.
*** Previously filed as an exhibit to the Company's Current Report on Form 8-K
filed with the Commission on March 5, 1998 in connection with the Company's
adoption of a Shareholder Rights Plan, and incorporated herein by reference
(Commission File No. 0-22646).
**** Previously filed as an exhibit to the Company's Registration Statement on
Form S-3/Amendment No. 1 (Registration No. 333-71467) filed with the
Commission on February 9, 1999, and incorporated herein by reference.
<PAGE>
EXHIBIT 1.1
February 8, 2000
UNDERWRITING AGREEMENT
Date
FleetBoston Robertson Stephens Inc.
CIBC World Markets
Needham & Company, Inc.
Adams, Harkness & Hill, Inc.
As Representatives of the several Underwriters
c/o BancBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, CA 94104
Ladies and Gentlemen:
INTRODUCTORY. Applied Science and Technology, Inc., a Delaware
corporation (the "Company"), proposes to issue and sell to the several
underwriters named in Schedule A (the "Underwriters") an aggregate of 2,500,000
shares (the "Firm Shares") of its Common Stock, par value $.01 per share (the
"Common Shares"). In addition, the Company has granted to the Underwriters an
option to purchase up to an additional 400,000 Common Shares and the
stockholders of the Company named in Schedule B (collectively, the "Selling
----------
Stockholders") have severally granted to the Underwriters an option to purchase
up to an additional 100,000 Common Shares, each Selling Stockholder selling up
to the amount set forth opposite such Selling Stockholder's name is Schedule B,
all as provided in Section 2. The additional 400,000 Common Shares to be sold
by the Company and the additional 100,000 Common shares to be sold by the
Selling Stockholders pursuant to such option are collectively called the "Option
Shares." The Firm Shares and, if and to the extent such option is exercised,
the Option Shares are collectively called the "Shares". FleetBoston Robertson
Stephens Inc. ("Robertson Stephens"), CIBC World Markets, Needham & Company,
Inc. and Adams, Harkness & Hill, Inc. have agreed to act as representatives of
the several Underwriters (in such capacity, the "Representatives") in connection
with the offering and sale of the Shares. [As a part of this offering
contemplated by this Agreement Robertson Stephens has agreed to reserve out of
the Shares set forth opposite its name on the Schedule II to this Agreement, up
to _________________ shares, for sale to the Company's employees, officers, and
directors [and other parties associated with the Company] (collectively,
"Participants"), as set fourth in the Prospectus under the heading
"Underwriting" (the "Directed Share Program"). The Shares to be sold by
Robertson Stephens pursuant to the Directed Share Program (the "Directed
Shares") will be sold by Robertson Stephens pursuant to this Agreement at the
public offering price. Any Directed Shares not orally confirmed for purchase by
any Participants as of 7:00 am New York time on the first day trading of the
shares commences will be offered to the public by Robertson Stephens as set
fourth in the Prospectus.]
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-3 (File No.
333-[___]), which contains a form of prospectus, subject to completion, to be
used in connection with the public offering and sale of the Shares. Each such
prospectus, subject to completion, used in
1
<PAGE>
connection with such public offering is called a "preliminary prospectus". Such
registration statement, as amended, including the financial statements, exhibits
and schedules thereto, in the form in which it was declared effective by the
Commission under the Securities Act of 1933 and the rules and regulations
promulgated thereunder (collectively, the "Securities Act"), including all
documents incorporated or deemed to be incorporated by reference therein,
pursuant to Rule 430A under the Securities Act or the Securities Exchange Act of
1934 and the rules and regulations promulgated thereunder (collectively, the
"Exchange Act"), is called the "Registration Statement". Any registration
statement filed by the Company pursuant to Rule 462(b) under the Securities Act
is called the "Rule 462(b) Registration Statement", and from and after the date
and time of filing of the Rule 462(b) Registration Statement the term
"Registration Statement" shall include the Rule 462(b) Registration Statement.
Such prospectus, in the form first used by the Underwriters to confirm sales of
the Shares, is called the "Prospectus". All references in this Agreement to the
Registration Statement, the Rule 462(b) Registration Statement, a preliminary
prospectus, the Prospectus or any amendments or supplements to any of the
foregoing, shall include any copy thereof filed with the Commission pursuant to
its Electronic Data Gathering, Analysis and Retrieval System ("EDGAR"). All
references in this Agreement to financial statements and schedules and other
information which is "contained," "included" or "stated" in the Registration
Statement or the Prospectus (and all other references or like import) shall be
deemed to mean and include all such financial statements and schedules and other
information which is or is deemed to be incorporated by reference in the
Registration Statement or the Prospectus, as the case may be; and all references
in this agreement to amendments or supplements to the Registration Statement or
the Prospectus shall be deemed to mean and include the filing of any document
under the Exchange Act which is or is deemed to be incorporated by reference in
the Registration Statement or the Prospectus, as the case may be.
The Company and each of the Selling Stockholders hereby confirm their
respective agreements with the Underwriters as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents, warrants and covenants to each Underwriter as follows:
(a) Compliance with Registration Requirements. The Registration Statement
and any Rule 462(b) Registration Statement have been declared effective by the
Commission under the Securities Act. The Company has complied to the
Commission's satisfaction with all requests of the Commission for additional or
supplemental information. No stop order suspending the effectiveness of the
Registration Statement or any Rule 462(b) Registration Statement is in effect
and no proceedings for such purpose have been instituted or are pending or, to
the best knowledge of the Company, are contemplated or threatened by the
Commission.
Each preliminary prospectus and the Prospectus when filed complied in
all material respects with the Securities Act and, if filed by electronic
transmission pursuant to EDGAR (except as may be permitted by Regulation S-T
under the Securities Act), was identical to the copy thereof delivered to the
Underwriters for use in connection with the offer and sale of the Shares. Each
of the Registration Statement, any Rule 462(b) Registration Statement and any
post-effective amendment thereto, at the time it became effective and at all
subsequent times, complied and will comply in all material respects with the
Securities Act and did not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. Each preliminary
2
<PAGE>
prospectus, as of its date, and the Prospectus, as amended or supplemented, as
of its date and at all subsequent times through the 30th day of the date hereof,
did not and will not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. The
representations and warranties set forth in the two immediately preceding
sentences do not apply to statements in or omissions from the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment thereto, or the Prospectus, or any amendments or supplements thereto,
made in reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by the Representatives expressly
for use therein. There are no contracts or other documents required to be
described in the Prospectus or to be filed as exhibits to the Registration
Statement which have not been described or filed as required.
(b) Offering Materials Furnished to Underwriters. The Company has delivered
to the Representatives one complete conformed copy of the Registration Statement
and of each consent and certificate of experts filed as a part thereof, and
conformed copies of the Registration Statement (without exhibits) and
preliminary prospectuses and the Prospectus, as amended or supplemented, in such
quantities and at such places as the Representatives have reasonably requested
for each of the Underwriters.
(c) Distribution of Offering Material By the Company. The Company has not
distributed and will not distribute, prior to the later of the Second Closing
Date (as defined below) and the completion of the Underwriters' distribution of
the Shares, any offering material in connection with the offering and sale of
the Shares other than a preliminary prospectus, the Prospectus or the
Registration Statement.
(d) The Underwriting Agreement. This Agreement has been duly authorized,
executed and delivered by, and is a valid and binding agreement of, the Company,
enforceable in accordance with its terms, except as rights to indemnification
hereunder may be limited by applicable law and except as the enforcement hereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights and remedies of creditors or by
general equitable principles.
(e) Authorization of the Shares To Be Sold by the Company. The Shares to be
purchased by the Underwriters from the Company have been duly authorized for
issuance and sale pursuant to this Agreement and, when issued and delivered by
the Company pursuant to this Agreement, will be validly issued, fully paid and
nonassessable.
(f) Authorization of the Shares To Be Sold by the Selling Stockholders. The
Common Shares to be purchased by the Underwriters from the Selling Stockholders,
when issued, were validly issued, fully paid and nonassessable.
(g) No Applicable Registration or Other Similar Rights. There are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by this Agreement, other than the Selling Stockholders
with respect to the Shares included in the Registration Statement, except for
such rights as have been duly waived.
(h) No Material Adverse Change. Subsequent to the respective dates as of
which information is given in the Prospectus: (i) there has been no material
adverse change, or any development that could reasonably be expected to result
in a material adverse change, in the
3
<PAGE>
condition, financial or otherwise, or in the earnings, business, operations or
prospects, whether or not arising from transactions in the ordinary course of
business, of the Company and its subsidiaries, considered as one entity (any
such change or effect, where the context so requires, is called a "Material
Adverse Change" or a "Material Adverse Effect"); (ii) the Company and its
subsidiaries, considered as one entity, have not incurred any material liability
or obligation, indirect, direct or contingent, not in the ordinary course of
business nor entered into any material transaction or agreement not in the
ordinary course of business; and (iii) there has been no dividend or
distribution of any kind declared, paid or made by the Company or, except for
dividends paid to the Company or other subsidiaries, any of its subsidiaries on
any class of capital stock or repurchase or redemption by the Company or any of
its subsidiaries of any class of capital stock.
(i) Independent Accountants. KPMG, LLP, who have expressed their opinion
with respect to the financial statements (which term as used in this Agreement
includes the related notes thereto) and supporting schedules filed with the
Commission as a part of the Registration Statement and included in the
Prospectus, are independent public or certified public accountants as required
by the Securities Act and the Exchange Act.
(j) Preparation of the Financial Statements. The financial statements filed
with the Commission as a part of the Registration Statement and included in the
Prospectus present fairly the consolidated financial position of the Company and
its subsidiaries as of and at the dates indicated and the results of their
operations and cash flows for the periods specified. The supporting schedules
included in the Registration Statement present fairly the information required
to be stated therein. Such financial statements and supporting schedules have
been prepared in conformity with generally accepted accounting principles as
applied in the United States applied on a consistent basis throughout the
periods involved, except as may be expressly stated in the related notes
thereto. No other financial statements or supporting schedules are required to
be included in the Registration Statement. The financial data set forth in the
Prospectus under the captions "Summary--Summary Selected Financial Data",
"Selected Financial Data" and "Capitalization" fairly present the information
set forth therein on a basis consistent with that of the audited financial
statements contained in the Registration Statement.
(k) Company's Accounting System. The Company and each of its subsidiaries
maintain a system of accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with management's
general or specific authorization; (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles as applied in the United States and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(l) Subsidiaries of the Company. The Company does not own or control,
directly or indirectly, any corporation, association or other entity other than
the subsidiaries listed in Exhibit 21 to the Company's Annual Report on Form
10-K for the fiscal year ended June 26, 1999.
(m) Incorporation and Good Standing of the Company and its Subsidiaries.
Each of the Company and its subsidiaries has been duly organized and is validly
existing as a corporation or limited liability company, as the case may be, in
good standing under the laws of the jurisdiction in which it is organized with
full corporate power and authority to own its
4
<PAGE>
properties and conduct its business as described in the prospectus, and is duly
qualified to do business as a foreign corporation and is in good standing under
the laws of each jurisdiction which requires such qualification.
(n) Capitalization of the Subsidiaries. All the outstanding shares of
capital stock of each subsidiary have been duly and validly authorized and
issued and are fully paid and nonassessable, and, except as otherwise set forth
in the Prospectus, all outstanding shares of capital stock of the subsidiaries
are owned by the Company either directly or through wholly owned subsidiaries
free and clear of any security interests, claims, liens or encumbrances.
(o) No Prohibition on Subsidiaries from Paying Dividends or Making Other
Distributions. No subsidiary of the Company is currently prohibited, directly or
indirectly, from paying any dividends to the Company, from making any other
distribution on such subsidiary's capital stock, from repaying to the Company
any loans or advances to such subsidiary from the Company or from transferring
any of such subsidiary's property or assets to the Company or any other
subsidiary of the Company, except as described in or contemplated by the
Prospectus.
(p) Capitalization and Other Capital Stock Matters. The authorized, issued
and outstanding capital stock of the Company is as set forth in the Prospectus
under the caption "Capitalization" (other than for subsequent issuances, if any,
pursuant to employee benefit plans described in the Prospectus or upon exercise
of outstanding options or warrants described in the Prospectus). The Common
Shares (including the Shares) conform in all material respects to the
description thereof contained in the Prospectus. All of the issued and
outstanding Common Shares have been duly authorized and validly issued, are
fully paid and nonassessable and have been issued in compliance with federal and
state securities laws. None of the outstanding Common Shares were issued in
violation of any preemptive rights, rights of first refusal or other similar
rights to subscribe for or purchase securities of the Company. There are no
authorized or outstanding options, warrants, preemptive rights, rights of first
refusal or other rights to purchase, or equity or debt securities convertible
into or exchangeable or exercisable for, any capital stock of the Company or any
of its subsidiaries other than those accurately described in the Prospectus. The
description of the Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted thereunder, set forth in
the Prospectus accurately and fairly presents the information required to be
shown with respect to such plans, arrangements, options and rights.
(q) Stock Exchange Listing. The Shares are registered pursuant to Section
12(b) of the Exchange Act and are listed on the Nasdaq National Market, and the
Company has taken no action designed to, or likely to have the effect of,
terminating the registration of the Common Shares under the Exchange Act or
delisting the Common Shares from the Nasdaq National Market, nor has the Company
received any notification that the Commission or the National Association of
Securities Dealers, LLC (the "NASD") is contemplating terminating such
registration or listing.
(r) No Consents, Approvals or Authorizations Required. No consent,
approval, authorization, filing with or order of any court or governmental
agency or regulatory body is required in connection with the transactions
contemplated herein, except such as have been obtained or made under the
Securities Act and such as may be required (i) under the blue sky laws of any
jurisdiction in connection with the purchase and distribution of the Shares by
the Underwriters in the manner contemplated here and in the Prospectus, (ii) by
the National Association of Securities Dealers, LLC and (iii) by the federal and
provincial laws of Canada.
5
<PAGE>
(s) Non-Contravention of Existing Instruments Agreements. Neither the issue
and sale of the Shares nor the consummation of any other of the transactions
herein contemplated nor the fulfillment of the terms hereof will conflict with,
result in a breach or violation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or any of its subsidiaries pursuant
to, (i) the charter or by-laws of the Company or any of its subsidiaries, (ii)
the terms of any indenture, contract, lease, mortgage, deed of trust, note
agreement, loan agreement or other agreement, obligation, condition, covenant or
instrument to which the Company or any of its subsidiaries is a party or bound
or to which its or their property is subject or (iii) any statute, law, rule,
regulation, judgment, order or decree applicable to the Company or any of its
subsidiaries of any court, regulatory body, administrative agency, governmental
body, arbitrator or other authority having jurisdiction over the Company or any
of its subsidiaries or any of its or their properties.
(t) No Defaults or Violations. Neither the Company nor any subsidiary is in
violation or default of (i) any provision of its charter or by-laws, (ii) the
terms of any indenture, contract, lease, mortgage, deed of trust, note
agreement, loan agreement or other agreement, obligation, condition, covenant or
instrument to which it is a party or bound or to which its property is subject
or (iii) any statute, law, rule, regulation, judgment, order or decree of any
court, regulatory body, administrative agency, governmental body, arbitrator or
other authority having jurisdiction over the Company or such subsidiary or any
of its properties, as applicable, except any such violation or default which
would not, singly or in the aggregate, result in a Material Adverse Change
except as otherwise disclosed in the Prospectus.
(u) No Actions, Suits or Proceedings. No action, suit or proceeding by or
before any court or governmental agency, authority or body or any arbitrator
involving the Company or any of its subsidiaries or its or their property is
pending or, to the best knowledge of the Company, threatened that (i) could
reasonably be expected to have a Material Adverse Effect on the performance of
this Agreement or the consummation of any of the transactions contemplated
hereby or (ii) could reasonably be expected to result in a Material Adverse
Effect.
(v) All Necessary Permits, Etc. The Company and each subsidiary possess
such valid and current certificates, authorizations or permits issued by the
appropriate state, federal or foreign regulatory agencies or bodies necessary to
conduct their respective businesses, and neither the Company nor any subsidiary
has received any notice of proceedings relating to the revocation or
modification of, or non-compliance with, any such certificate, authorization or
permit which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, could result in a Material Adverse Change.
(w) Title to Properties. The Company and each of its subsidiaries has good
and marketable title to all the properties and assets reflected as owned in the
financial statements referred to in Section 1(A)(i) above (or elsewhere in the
Prospectus), in each case free and clear of any security interests, mortgages,
liens, encumbrances, equities, claims and other defects, except such as do not
materially and adversely affect the value of such property and do not materially
interfere with the use made or proposed to be made of such property by the
Company or such subsidiary. The real property, improvements, equipment and
personal property held under lease by the Company or any subsidiary are held
under valid and enforceable leases, with such exceptions as are not material and
do not materially interfere with the use made or proposed to be made of such
real property, improvements, equipment or personal property by the Company or
such subsidiary.
(x) Tax Law Compliance. The Company and its subsidiaries have filed all
necessary
6
<PAGE>
federal, state and foreign income and franchise tax returns or have properly
requested extensions thereof and have paid all taxes required to be paid by any
of them and, if due and payable, any related or similar assessment, fine or
penalty levied against any of them. The Company has made adequate charges,
accruals and reserves in the applicable financial statements referred to in
Section 1(A)(i) above in respect of all federal, state and foreign income and
franchise taxes for all periods as to which the tax liability of the Company or
any of its subsidiaries has not been finally determined. The Company is not
aware of any tax deficiency that has been or might be asserted or threatened
against the Company that could result in a Material Adverse Change.
(y) Intellectual Property Rights. Each of the Company and its subsidiaries
owns or possesses adequate rights to use all patents, patent rights or licenses,
inventions, collaborative research agreements, trade secrets, know-how,
trademarks, service marks, trade names and copyrights which are necessary to
conduct its businesses as described in the Registration Statement and Prospectus
and any Incorporated Document; the expiration of any patents, patent rights,
trade secrets, trademarks, service marks, trade names or copyrights would not
result in a Material Adverse Change that is not otherwise disclosed in the
Prospectus; the Company has not received any notice of, and has no knowledge of,
any infringement of or conflict with asserted rights of the Company by others
with respect to any patent, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names or copyrights; and the Company has not
received any notice of, and has no knowledge of, any infringement of or conflict
with asserted rights of others with respect to any patent, patent rights,
inventions, trade secrets, know-how, trademarks, service marks, trade names or
copyrights which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, might have a Material Adverse Change. There is no
claim being made against the Company regarding patents, patent rights or
licenses, inventions, collaborative research, trade secrets, know-how,
trademarks, service marks, trade names or copyrights. The Company and its
subsidiaries do not in the conduct of their business as now or proposed to be
conducted as described in the Prospectus infringe or conflict with any right or
patent of any third party, or any discovery, invention, product or process which
is the subject of a patent application filed by any third party, known to the
Company or any of its subsidiaries, which such infringement or conflict is
reasonably likely to result in a Material Adverse Change.
(z) Y2K. There are no Y2K issues related to the Company, or any of its
subsidiaries, that (i) are of a character required to be described or referred
to in the Registration Statement or Prospectus or any Incorporated Document by
the Securities Act or by the Exchange Act or the rules and regulations of the
Commission thereunder which have not been accurately described in the
Registration Statement or Prospectus or any Incorporated Document or (ii) might
reasonably be expected to result in any Material Adverse Change or that might
materially affect their properties, assets or rights.
(aa) No Transfer Taxes or Other Fees. There are no transfer taxes or other
similar fees or charges under Federal law or the laws of any state, or any
political subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the issuance and sale by the Company
of the shares.
(bb) Company Not an "Investment Company". The Company has been advised of
the rules and requirements under the Investment Company Act of 1940, as amended
(the "Investment Company Act"). The Company is not, and after receipt of payment
for the Shares will not be, an "investment company" or an entity "controlled" by
an "investment company" within the meaning of the Investment Company Act and
will conduct its business in a manner so that it will not become subject to the
Investment Company Act.
7
<PAGE>
(cc) Insurance. Each of the Company and its subsidiaries are insured by
recognized, financially sound and reputable institutions with policies in such
amounts and with such deductibles and covering such risks as are generally
deemed adequate and customary for their businesses including, but not limited
to, policies covering real and personal property owned or leased by the Company
and its subsidiaries against theft, damage, destruction, acts of vandalism and
earthquakes, general liability and Directors and Officers liability. The Company
has no reason to believe that it or any subsidiary will not be able (i) to renew
its existing insurance coverage as and when such policies expire or (ii) to
obtain comparable coverage from similar institutions as may be necessary or
appropriate to conduct its business as now conducted and at a cost that would
not result in a Material Adverse Change. Neither of the Company nor any
subsidiary has been denied any insurance coverage which it has sought or for
which it has applied.
(dd) Labor Matters. To the best of Company's knowledge, no labor
disturbance by the employees of the Company or any of its subsidiaries exists or
is imminent; and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its principal suppliers, subassemblers,
subcontractors, original equipment manufacturers or international distributors
that might be expected to result in a Material Adverse Change.
(ee) No Price Stabilization or Manipulation. The Company has not taken and
will not take, directly or indirectly, any action designed to or that might be
reasonably expected to cause or result in stabilization or manipulation of the
price of the Common Stock to facilitate the sale or resale of the Shares.
(ff) Lock-Up Agreements. Each officer and director of the company, each
Selling Stockholder and each beneficial owner of one or more percent of the
outstanding issued share capital of the Company has agreed to sign an agreement
substantially in the form attached hereto as Exhibit A (the "Lock-up
---------
Agreements"). The Company has provided to counsel for the Underwriters a
complete and accurate list of all securityholders of the Company and the number
and type of securities held by each securityholder. The Company has provided to
counsel for the Underwriters true, accurate and complete copies of all of the
Lock-up Agreements presently in effect or effected hereby. The Company hereby
represents and warrants that it will not release any of its officers, directors
or other stockholders from any Lock-up Agreements currently existing or
hereafter effected without the prior written consent of Robertson Stephens.
(gg) Related Party Transactions. There are no business relationships or
related-party transactions involving the Company or any subsidiary or any other
person required to be described in the Prospectus which have not been described
as required.
(hh) No Unlawful Contributions or Other Payments. Neither the Company nor
any of its subsidiaries nor, to the best of the Company's knowledge, any
employee or agent of the Company or any subsidiary, has made any contribution or
other payment to any official of, or candidate for, any federal, state or
foreign office in violation of any law or of the character required to be
disclosed in the Prospectus.
(ii) Environmental Laws. (i) the Company is in compliance with all rules,
laws and regulations relating to the use, treatment, storage and disposal of
toxic substances and protection of health or the environment ("Environmental
Laws") which are applicable to its business, except where the failure to comply
would not result in a Material Adverse Change,
8
<PAGE>
(ii) the Company has received no notice from any governmental authority or
third party of an asserted claim under Environmental Laws, which claim is
required to be disclosed in the Registration Statement and the Prospectus and
any Incorporated Document, (iii) the Company is not currently aware that it will
be required to make future material capital expenditures to comply with
Environmental Laws and (iv) no property which is owned, leased or occupied by
the Company has been designated as a Superfund site pursuant to the
Comprehensive Response, Compensation, and Liability Act of 1980, as amended (42
U.S.C. (S) 9601, et seq.), or otherwise designated as a contaminated site under
applicable state or local law.
(jj) Periodic Review of Costs of Environmental Compliance. In the ordinary
course of its business, the Company conducts a periodic review of the effect of
Environmental Laws on the business, operations and properties of the Company and
its subsidiaries, in the course of which it identifies and evaluates associated
costs and liabilities (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related constraints
on operating activities and any potential liabilities to third parties). On the
basis of such review and the amount of its established reserves, the Company has
reasonably concluded that such associated costs and liabilities would not,
individually or in the aggregate, result in a Material Adverse Change.
(kk) ERISA Compliance. The Company and its subsidiaries and any "employee
benefit plan" (as defined under the Employee Retirement Income Security Act of
1974, as amended, and the regulations and published interpretations thereunder
(collectively, "ERISA")) established or maintained by the Company, its
subsidiaries or their "ERISA Affiliates" (as defined below) are in compliance in
all material respects with ERISA. "ERISA Affiliate" means, with respect to the
Company or a subsidiary, any member of any group of organizations described in
Sections 414(b),(c),(m) or (o) of the Internal Revenue Code of 1986, as amended,
and the regulations and published interpretations thereunder (the "Code") of
which the Company or such subsidiary is a member. No "reportable event" (as
defined under ERISA) has occurred or is reasonably expected to occur with
respect to any "employee benefit plan" established or maintained by the Company,
its subsidiaries or any of their ERISA Affiliates. No "employee benefit plan"
established or maintained by the Company, its subsidiaries or any of their ERISA
Affiliates, if such "employee benefit plan" were terminated, would have any
"amount of unfounded benefit liabilities" (as defined under ERISA). Neither the
Company, its subsidiaries nor any of their ERISA Affiliates has incurred or
reasonably expects to incur any liability under (i) Title IV of ERISA with
respect to termination of, or withdrawal from, any "employee benefit plan" or
(ii) Sections 412, 4971, 4975 or 4980B of the Code. Each "employee benefit plan"
established or maintained by the Company, its subsidiaries or any of their ERISA
Affiliates that is intended to be qualified under Section 401(a) of the Code is
so qualified and nothing has occurred, whether by action or failure to act,
which would cause the loss of such qualification.
(ll) Exchange Act Compliance. The documents incorporated or deemed to be
incorporated by reference in the Prospectus, at the time they were or hereafter
are filed with the Commission, complied and will comply in all material respects
with the requirements of the Exchange Act, and, when read together with the
other information in the Prospectus, at the time the Registration Statement and
any amendments thereto become effective and at the First Closing Date and the
Second Closing Date, as the case may be, will not contain an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading.
9
<PAGE>
(mm) Exchange Act Reports Filed. The Company has filed all report required
to be filed pursuant to the Securities Act and the Exchange Act.
(nn) Conditions for Use Form S-3. The Company has satisfied the conditions
for the use of Form S-3, as set forth in the general instructions thereto, with
respect to the Registration Statement.
Any certificate signed by an officer of the Company and delivered to the
Representatives or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
set forth therein.
B. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. Each Selling
Stockholder represents, warrants and covenants to each Underwriter as follows:
(a) The Underwriting Agreement. This Agreement has been duly authorized,
executed and delivered by or on behalf of such Selling Stockholder and is a
valid and binding agreement of such Selling Stockholder, enforceable in
accordance with its terms, except as rights to indemnification hereunder may be
limited by applicable law and except as the enforcement hereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights and remedies of creditors or by general
equitable principles.
(b) The Custody Agreement and Power of Attorney. Each of the (i) Custody
Agreement signed by such Selling Stockholder and [___], as custodian (the
"Custodian"), relating to the deposit of the Shares to be sold by such Selling
Stockholder (the "Custody Agreement") and (ii) Power of Attorney appointing
certain individuals named therein as such Selling Stockholder's
attorneys-in-fact (each, an "Attorney-in-Fact") to the extent set forth therein
relating to the transactions contemplated hereby and by the Prospectus (the
"Power of Attorney"), of such Selling Stockholder has been duly authorized,
executed and delivered by such Selling Stockholder and is a valid and binding
agreement of such Selling Stockholder, enforceable in accordance with its terms,
except as rights to indemnification thereunder may be limited by applicable law
and except as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights and remedies of creditors or by general equitable principles. Each
Selling Stockholder agrees that the Shares to be sold by such Selling
Stockholder on deposit with the Custodian is subject to the interests of the
Underwriters, that the arrangements made for such custody are to that extent
irrevocable, and that the obligations of such Selling Stockholder hereunder
shall not be terminated, except as provided in this Agreement or in the Custody
Agreement, by any act of the Selling Stockholder, by operation of law, by death
or incapacity of such Selling Stockholder or by the occurrence of any other
event. If such Selling Stockholder should die or become incapacitated, or in any
other event should occur, before the delivery of the Shares to be sold by such
Selling Stockholder hereunder, the documents evidencing the Shares to be sold by
such Selling Stockholder then on deposit with the Custodian shall be delivered
by the Custodian in accordance with the terms and conditions of this Agreement
as if such death, incapacity or other event had not occurred, regardless of
whether or not the Custodian shall have received notice thereof.
(c) Title to Shares to be Sold. Such Selling Stockholder is the lawful
owner of the Shares to be sold by such Selling Stockholder hereunder and upon
sale and delivery of, and payment for, such Shares, as provided herein, such
Selling Stockholder will convey good and marketable title to such Shares, free
and clear of all liens, encumbrances, equities and claims whatsoever.
10
<PAGE>
(d) All Authorizations Obtained. Such Selling Stockholder has, and on the
First Closing Date and the Second Closing Date (as defined below) will have,
good and valid title to all of the Company Shares which may be sold by such
Selling Stockholder pursuant to this Agreement on such date and the legal right
and power, and all authorizations and approvals required by law to enter into
this Agreement and its Custody Agreement and Power of Attorney, to sell,
transfer and deliver all of the Shares which may be sold by such Selling
Stockholder pursuant to this Agreement and to comply with its other obligations
hereunder and thereunder.
(e) No Further Consents, Authorization or Approvals. No consent, approval,
authorization or order of any court or governmental agency or body is required
for the consummation by such Selling Stockholder of the transactions
contemplated herein, except such as may have been obtained under the Securities
Act and such as may be required under the federal and provincial securities laws
of Canada or the blue sky laws or any jurisdiction in connection with the
purchase and distribution of the Shares by the Underwriters and such other
approvals as have been obtained.
(f) Non-Contravention. Neither the sale of the Securities being sold by
such Selling Stockholder nor the consummation of any other of the transactions
herein contemplated by such Selling Stockholder or the fulfillment of the terms
hereof by such Selling Stockholder will conflict with, result in a breach or
violation of, or constitute a default under any law or the terms of any
indenture or other agreement or instrument to which such Selling Stockholder is
party or bound, any judgment, order or decree applicable to such Selling
Stockholder or any court or regulatory body, administrative agency, governmental
body or arbitrator having jurisdiction over such Selling Stockholder.
(g) No Registration or Other Similar Rights. Such Selling Stockholder does
not have any registration or other similar rights to have any equity or debt
securities registered for sale by the Company under the Registration Statement
or included in the offering contemplated by this Agreement, except for such
rights as are described in the Prospectus under "Shares Eligible for Future
Sale".
(h) No Preemptive, Co-sale or other Rights. Such Selling Stockholder does
not have, or has waived prior to the date hereof, any preemptive right, co-sale
right or right of first refusal or other similar right to purchase any of the
Shares that are to be sold by the Company or any of the other Selling
Stockholders to the Underwriters pursuant to this Agreement; and such Selling
Stockholder does not own any warrants, options or similar rights to acquire, and
does not have any right or arrangement to acquire, any capital stock, right,
warrants, options or other securities from the Company, other than those
described in the Registration Statement and the Prospectus.
(i) Disclosure Made by Such Selling Stockholder in the Prospectus. All
information furnished by or on behalf of such Selling Stockholder in writing
expressly for use in the Registration Statement and Prospectus is, and on the
First Closing Date and the Second Closing Date (as defined below) will be, true,
correct, and complete in all material respects, and does not, and on the First
Closing Date and the Second Closing Date will not, contain any untrue statement
of a material fact or omit to state any material fact necessary to make such
information not misleading. Such Selling Stockholder confirms as accurate the
number of shares of Company Shares set forth opposite such Selling Stockholder's
name in the Prospectus under the caption "Principal and Selling Stockholders"
(both prior to and after giving effect to the sale of the Shares).
11
<PAGE>
(j) No Price Stabilization or Manipulation. Such Selling Stockholder has
not taken and will not take, directly or indirectly, any action designed to or
that might be reasonably expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or resale
of the Shares.
(k) No Transfer Taxes or Other Fees. There are no transfer taxes or other
similar fees or charges under Federal law or the laws of any state, or any
political subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the sale by the Selling Stockholders
of the Shares.
(l) Distribution of Offering Materials by the Selling Stockholders. The
Selling Stockholders have not distributed and will not distribute, prior to the
later of the Second Closing Date (as defined below) and the completion of the
Underwriters' distribution of the Shares, any offering material in connection
with the offering and sale of the Shares by such Selling Stockholder other than
a preliminary prospectus, the Prospectus or the Registration Statement.
(m) Confirmation of Company Representations and Warranties. Such Selling
Stockholder has no reason to believe that the representations and warranties of
the Company contained in Section 1(A) hereof are not true and correct, is
familiar with the Registration Statement and the Prospectus and has no knowledge
of any material fact, condition or information not disclosed in the Registration
Statement or the Prospectus which has had or may result in a Material Adverse
Change on the condition, financial or otherwise, or on the earnings, business,
operation or prospects, whether or not arising from transactions in the ordinary
course of business of the Company and its subsidiaries, considered as one
entity, and is not prompted to sell the Shares to be sold by such Selling
Stockholder by any information concerning the Company which is not set forth in
the Registration Statement and the Prospectus.
Any certificate signed by or on behalf of any Selling Stockholder and
delivered to the Representatives or to counsel for the Underwriters shall be
deemed to be a representation and warranty by such Selling Stockholder to each
Underwriter as to the matters covered thereby.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE SHARES.
(a) The Firm Shares. Upon the terms herein set forth the Company agrees to
issue and sell to the several Underwriters an aggregate of 2,500,000 Firm
Shares. On the basis of the representations, warranties and agreements herein
contained, and upon the terms but subject to the conditions herein set forth,
the Underwriters agree, severally and not jointly, to purchase from the Company
the respective number of Firm Shares set forth opposite their names on
Schedule A. The purchase price per Firm Share to be paid by the several
- ----------
Underwriters to the Company and the Selling Stockholders shall be $[___] per
share.
(b) The First Closing Date. Delivery of the Firm Shares to be purchased by
the Underwriters and payment therefor shall be made by the Company and the
Representatives at 9:00 a.m. Boston time, at the offices of Mintz, Levin, Cohn,
Ferris, Glovsky & Popeo, P.C., One Financial Center, Boston, MA 02111 (or at
such other place as may be agreed upon among the Representatives and the
Company), (i) on the third (3rd) full business day following the first day that
Shares are traded, (ii) if this Agreement is executed and delivered after 4:30
P.M., Boston time, the fourth (4th) full business day following the day that
this Agreement is executed and
12
<PAGE>
delivered or (iii) at such other time and date not later that seven (7) full
business days following the first day that Shares are traded as the
Representatives and the Company may determine (or at such time and date to which
payment and delivery shall have been postponed pursuant to Section 8 hereof),
such time and date of payment and delivery being herein called the "Closing
Date;" provided, however, that if the Company has not made available to the
Representatives copies of the Prospectus within the time provided in Section
2(g) and 3(e) hereof, the Representatives may, in their sole discretion,
postpone the Closing Date until no later that two (2) full business days
following delivery of copies of the Prospectus to the Representatives.
(c) The Option Shares; the Second Closing Date. In addition, on the basis
of the representations, warranties and agreements herein contained, and upon the
terms but subject to the conditions herein set forth, the Company and the
Selling Stockholders hereby grant an option to the several Underwriters to
purchase, severally and not jointly, up to an aggregate of 500,000 Option Shares
from the Company and the Selling Stockholders at the purchase price per share to
be paid by the Underwriters for the Firm Shares. The option granted hereunder is
for use by the Underwriters solely in covering any over-allotments in connection
with the sale and distribution of the Firm Shares. The option granted hereunder
may be exercised at any time upon notice by the Representatives to the Company
and the Selling Stockholders, which notice may be given at any time within 30
days from the date of this Agreement. The time and date of delivery of the
Option Shares, if subsequent to the First Closing Date, is called the "Second
Closing Date" and shall be determined by the Representatives and shall not be
earlier than three nor later than five full business days after delivery of such
notice of exercise. If any Option Shares are to be purchased, (i) each
Underwriter agrees, severally and not jointly, to purchase the number of Option
Shares (subject to such adjustments to eliminate fractional shares as the
Representatives may determine) that bears the same proportion to the total
number of Option Shares to be purchased as the number of Firm Shares set forth
on Schedule A opposite the name of such Underwriter bears to the total number of
----------
Firm Shares and (ii) the Company and each Selling Stockholder agree, severally
and not jointly, to sell the number of Option Shares (subject to such
adjustments to eliminate fractional shares as the Representatives may determine)
that bears the same proportion to the total number of Option Shares to be sold
as the number of Option Shares set forth in Schedule B opposite the name of such
----------
Selling Stockholder (or, in the case of the Company, as the number of Option
Shares to be sold by the Company as set forth in the paragraph "Introductory" of
this Agreement) bears to the total number of Option Shares. The Representatives
may cancel the option at any time prior to its expiration by giving written
notice of such cancellation to the Company.
(d) Public Offering of the Shares. The Representatives hereby advise the
Company and the Selling Stockholders that the Underwriters intend to offer for
sale to the public, as described in the Prospectus, their respective portions of
the Shares as soon after this Agreement has been executed and the Registration
Statement has been declared effective as the Representatives, in their sole
judgment, have determined is advisable and practicable.
(e) Payment for the Shares. Payment for the Shares to be sold by the
Company shall be made at the First Closing Date (and, if applicable, at the
Second Closing Date) by wire transfer of immediately available funds to the
order of the Company. Payment for the Shares to be sold by the Selling
Stockholders shall be made at the First Closing Date (and, if applicable, at the
Second Closing Date) by wire transfer of immediately available funds to the
order of the Custodian.
It is understood that the Representatives have been authorized, for
their own account and the accounts of the several Underwriters, to accept
delivery of and receipt for, and
13
<PAGE>
make payment of the purchase price for, the Firm Shares and any Option Shares
the Underwriters have agreed to purchase. FleetBoston Robertson Stephens Inc.,
CIBC World markets, Needham & Company, Inc. and Adams, Harkness & Hill, Inc.,
individually and not as the Representatives of the Underwriters, may (but shall
not be obligated to) make payment for any Shares to be purchased by any
Underwriter whose funds shall not have been received by the Representatives by
the First Closing Date or the Second Closing Date, as the case may be, for the
account of such Underwriter, but any such payment shall not relieve such
Underwriter from any of its obligations under this Agreement.
Each Selling Stockholder hereby agrees that (i) it will pay all stock
transfer taxes, stamp duties and other similar taxes, if any, payable upon the
sale or delivery of the Shares to be sold by such Selling Stockholder to the
several Underwriters, or otherwise in connection with the performance of such
Selling Stockholder's obligations hereunder and (ii) the Custodian is authorized
to deduct for such payment any such amounts from the proceeds to such Selling
Stockholder hereunder and to hold such amounts for the account of such Selling
Stockholder with the Custodian under the Custody Agreement.
(f) Delivery of the Shares. The Company and the Selling Stockholders shall
deliver, or cause to be delivered a credit representing the Firm Shares to an
account or accounts at The Depository Trust Company as designated by the
Representatives for the accounts of the Representatives and the several
Underwriters at the First Closing Date, against the irrevocable release of a
wire transfer of immediately available funds for the amount of the purchase
price therefor. The Company and the Selling Stockholders shall also deliver, or
cause to be delivered a credit representing the Option Shares to an account or
accounts at The Depository Trust Company as designated by the Representatives
for the accounts of the Representatives and the several Underwriters, at the
First Closing Date or the Second Closing Date, as the case may be, against the
irrevocable release of a wire transfer of immediately available funds for the
amount of the purchase price therefor. Time shall be of the essence, and
delivery at the time and place specified in this Agreement is a further
condition to the obligations of the Underwriters.
(g) Delivery of Prospectus to the Underwriters. Not later than 12:00 noon
on the second business day following the date the Shares are released by the
Underwriters for sale to the public, the Company shall deliver or cause to be
delivered copies of the Prospectus in such quantities and at such places as the
Representatives shall request.
SECTION 3. COVENANTS OF THE COMPANY AND THE SELLING STOCKHOLDERS.
A. COVENANTS OF THE COMPANY. The Company further covenants and agrees with each
Underwriter as follows:
(a) Registration Statement Matters. The Company will (i) use its best
efforts to cause a registration statement on Form 8-A (the "Form 8-A
Registration Statement") as required by the Securities Exchange Act of 1934 (the
"Exchange Act") to become effective simultaneously with the Registration
Statement, (ii) use its best efforts to cause the Registration Statement to
become effective or, if the procedure in Rule 430A of the Securities Act is
followed, to prepare and timely file with the Commission under Rule 424(b) under
the Securities Act a Prospectus in a form approved by the Representatives
containing information previously omitted at the time of effectiveness of the
Registration Statement in reliance on Rule 430A of the Securities Act and (iii)
not file any amendment to the Registration Statement or supplement to the
Prospectus of which the Representatives shall not previously have been advised
and
14
<PAGE>
furnished with a copy or to which the Representatives shall have reasonably
objected in writing or which is not in compliance with the Securities Act. If
the Company elects to rely on Rule 462(b) under the Securities Act, the Company
shall file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) under the Securities Act prior to the time
confirmations are sent or given, as specified by Rule 462(b)(2) under the
Securities Act, and shall pay the applicable fees in accordance with Rule 111
under the Securities Act.
(b) Securities Act Compliance. The Company will advise the Representatives
promptly (i) when the Registration Statement or any post-effective amendment
thereto shall have become effective, (ii) of receipt of any comments from the
Commission, (iii) of any request of the Commission for amendment of the
Registration Statement or for supplement to the Prospectus or for any additional
information and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the use of the
Prospectus or of the institution of any proceedings for that purpose. The
Company will use its best efforts to prevent the issuance of any such stop order
preventing or suspending the use of the Prospectus and to obtain as soon as
possible the lifting thereof, if issued.
(c) Blue Sky Compliance. The Company will cooperate with the
Representatives and counsel for the Underwriters in endeavoring to qualify the
Shares for sale under the securities laws of such jurisdictions (both national
and foreign) as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.
(d) Amendments and Supplements to the Prospectus and Other Securities Act
Matters. The Company will comply with the Securities Act and the Exchange Act,
and the rules and regulations of the Commission thereunder, so as to permit the
completion of the distribution of the Shares as contemplated in this Agreement
and the Prospectus. If during the period in which a prospectus is required by
law to be delivered by an Underwriter or dealer, any event shall occur as a
result of which, in the judgment of the Company or in the reasonable opinion of
the Representatives or counsel for the Underwriters, it becomes necessary to
amend or supplement the Prospectus in order to make the statements therein, in
the light of the circumstances existing at the time the Prospectus is delivered
to a purchaser, not misleading, or, if it is necessary at any time to amend or
supplement the Prospectus to comply with any law, the Company promptly will
prepare and file with the Commission, and furnish at its own expense to the
Underwriters and to dealers, an appropriate amendment to the Registration
Statement or supplement to the Prospectus so that the Prospectus as so amended
or supplemented will not, in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with the law.
(e) Copies of any Amendments and Supplements to the Prospectus. The Company
agrees to furnish the Representatives, without charge, during the period
beginning on the date hereof and ending on the later of the First Closing Date
or such date, as in the opinion of counsel for the Underwriters, the Prospectus
is no longer required by law to be delivered in connection with sales by an
Underwriter or dealer (the "Prospectus Delivery Period"), as many copies of the
Prospectus and any amendments and supplements thereto (including any documents
incorporated or deemed incorporated by reference therein) as the Representatives
may request.
15
<PAGE>
(f) Insurance. The Company shall (i) obtain Directors and Officers
liability insurance in the minimum amount of $10 million which shall apply to
the offering contemplated hereby and (ii) cause Robertson Stephens to be added
to such policy such that up to $500,000 of its expenses pursuant to section 7(a)
shall be paid directly by such insurer and (iii) shall cause FleetBoston
Robertson Stephens Inc. to be added as an additional insured to such policy in
respect of the offering contemplated hereby.
(g) Notice of Subsequent Events. If at any time during the ninety (90) day
period after the Registration Statement becomes effective, any rumor,
publication or event relating to or affecting the Company shall occur as a
result of which, in your opinion, the market price of the Company Shares has
been or is likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of the
Prospectus), the Company will, after written notice from you advising the
Company to the effect set forth above, forthwith prepare, consult with you
concerning the substance of and disseminate a press release or other public
statement, reasonably satisfactory to you, responding to or commenting on such
rumor, publication or event.
(h) Use of Proceeds. The Company shall apply the net proceeds from the sale
of the Shares sold by it in the manner described under the caption "Use of
Proceeds" in the Prospectus.
(i) Transfer Agent. The Company shall engage and maintain, at its expense,
a registrar and transfer agent for the Company Shares.
(j) Earnings Statement. As soon as practicable, the Company will make
generally available to its security holders and to the Representatives an
earnings statement (which need not be audited) covering the twelve-month period
ending April 30, 2001 that satisfies the provisions of Section 11(a) of the
Securities Act.
(k) Periodic Reporting Obligations. During the Prospectus Delivery Period
the Company shall file, on a timely basis, with the Commission and the Nasdaq
National Market all reports and documents required to be filed under the
Exchange Act.
(l) Agreement Not to Offer or Sell Additional Securities. The Company will
not offer, sell or contract to sell, or otherwise dispose of or enter into any
transaction which is designed to, or could be expected to, result in the
disposition (whether by actual disposition or effective economic disposition due
to cash settlement or otherwise by the Company or any affiliate of the Company
or any person in privity with the Company or any affiliate of the Company)
directly or indirectly, or announce the offering of, any other Common Shares or
any securities convertible into, or exchangeable for, Common Shares; provided,
however, that the Company may (i) issue and sell Common Shares pursuant to any
director or employee stock option plan, stock ownership plan or dividend
reinvestment plan of the Company in effect at the date of the Prospectus and
described in the Prospectus so long as none of those shares may be transferred
and the Company shall enter stop transfer instructions with its transfer agent
and registrar against the transfer of any such Common Shares and (ii) the
Company may issue Common Shares issuable upon the conversion of securities or
the exercise of warrants outstanding at the date of the Prospectus and described
in the Prospectus. These restrictions terminate after the close of trading of
the Shares on the 90th day of (and including) the day the Shares commenced
trading on the Nasdaq National Market (the "Lock-Up Period").
16
<PAGE>
(m) Future Reports to the Representatives. During the period of five years
hereafter the Company will furnish to the Representatives (i) as soon as
practicable after the end of each fiscal year, copies of the Annual Report of
the Company containing the balance sheet of the Company as of the close of such
fiscal year and statements of income, stockholders' equity and cash flows for
the year then ended and the opinion thereon of the Company's independent public
or certified public accountants; (ii) as soon as practicable after the filing
thereof, copies of each proxy statement, Annual Report on Form 10-K, Quarterly
Report on Form 10-Q, Current Report on Form 8-K or other report filed by the
Company with the Commission, the National Association of Securities Dealers, LLC
or any securities exchange; and (iii) as soon as available, copies of any report
or communication of the Company mailed generally to holders of its capital
stock.
(n) Exchange Act Compliance. During the Prospectus Delivery Period, the
Company will file all documents required to be filed with the Commission
pursuant to Section 13, 14 or 15 of the Exchange Act in the manner and within
the time periods required by the Exchange Act.
B. COVENANTS OF THE SELLING STOCKHOLDERS. EACH SELLING STOCKHOLDER FURTHER
COVENANTS AND AGREES WITH EACH UNDERWRITER:
(a) Agreement Not to Offer or Sell Additional Securities. Such Selling
Stockholder will not, during the Lock-Up Period, make a disposition of
Securities (as defined in Exhibit A hereto) now owned or hereafter acquired
directly by such person or with respect to which such person has or hereafter
acquires the power of disposition, otherwise than (i) as a bona fide gift or
gifts, provided the donee or donees thereof agree in writing to be bound by this
restriction, (ii) as a distribution to partners or shareholders of such person,
provided that the distributees thereof agree in writing to be bound by the terms
of this restriction, (iii) with respect to dispositions of Common Shares
acquired on the open market or (iv) with the prior written consent of
FleetBoston Robertson Stephens Inc. The foregoing restriction has been expressly
agreed to preclude the holder of the Securities from engaging in any hedging or
other transaction which is designed to or reasonably expected to lead to or
result in a disposition of Securities during the Lock-Up Period, even if such
Securities would be disposed of by someone other than such holder. Such
prohibited hedging or other transactions would include, without limitation, any
short sale (whether or not against the box) or any purchase, sale or grant of
any right (including, without limitation, any put or call option) with respect
to any Securities or with respect to any security (other than a broad-based
market basket or index) that includes, relates to or derives any significant
part of its value from Securities. Furthermore, such person has also agreed and
consented to the entry of stop transfer instructions with the Company's transfer
agent against the transfer of the Securities held by such person except in
compliance with this restriction.
(b) Delivery of Forms W-8 and W-9. To deliver to the Representatives prior
to the First Closing Date a properly completed and executed United States
Treasury Department Form W-8 (if the Selling Stockholder is a non-United States
person) or Form W-9 (if the Selling Stockholder is a United States Person).
(c) Notification of Untrue Statements, etc. If, at any time prior to the
date on which the distribution of the Common Shares as contemplated herein and
in the Prospectus has been completed, as determined by the Representatives, such
Selling Stockholder has knowledge of the occurrence of any event as a result of
which the Prospectus or the Registration Statement, in each case as then amended
or supplemented, would include an untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in light
17
<PAGE>
of the circumstances under which they were made, not misleading, such Selling
Stockholder will promptly notify the Company and the Representatives.
SECTION 4. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Shares as
provided herein on the First Closing Date and, with respect to the Option
Shares, the Second Closing Date, shall be subject to the accuracy of the
representations and warranties on the part of the Company and the Selling
Stockholders set forth in Sections 1(A) and 1(B) hereof as of the date hereof
and as of the First Closing Date as though then made and, with respect to the
Option Shares, as of the Second Closing Date as though then made, to the timely
performance by the Company and the Selling Stockholders of their respective
covenants and other obligations hereunder, and to each of the following
additional conditions:
(a) Compliance with Registration Requirements; No Stop Order; No Objection
from the National Association of Securities Dealers, LLC. The Registration
Statement shall have become effective prior to the execution of this Agreement,
or at such later date as shall be consented to in writing by you; and no stop
order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge of
the Company, any Selling Shareholder or any Underwriter, threatened by the
Commission, and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or any Incorporated
Document or otherwise) shall have been complied with to the satisfaction of
Underwriters' Counsel; and the National Association of Securities Dealers, LLC
shall have raised no objection to the fairness and reasonableness of the
underwriting terms and arrangements.
(b) Corporate Proceedings. All corporate proceedings and other legal
matters in connection with this Agreement, the form of Registration Statement
and the Prospectus, and the registration, authorization, issue, sale and
delivery of the Shares, shall have been reasonably satisfactory to Underwriters'
Counsel, and such counsel shall have been furnished with such papers and
information as they may reasonably have requested to enable them to pass upon
the matters referred to in this Section.
(c) No Material Adverse Change. Subsequent to the execution and delivery of
this Agreement and prior to the First Closing Date, or the Second Closing Date,
as the case may be, there shall not have been any Material Adverse Change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise from
that set forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectus.
(d) Opinion of Counsel for the Company. You shall have received on the
First Closing Date, or the Second Closing Date, as the case may be, an opinion
of Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C., counsel for the Company
substantially in the form of Exhibit B attached hereto, dated the First Closing
---------
Date, or the Second Closing Date, addressed to the Underwriters and with
reproduced copies or signed counterparts thereof for each of the Underwriters.
Counsel rendering the opinion contained in Exhibit B may rely as to
---------
questions of law not involving the laws of the United States or the Commonwealth
of Massachusetts and Delaware upon opinions of local counsel, and as to
questions of fact upon representations or
18
<PAGE>
certificates of officers of the Company, the Selling Stockholders or officers of
the Selling Stockholders (when the Selling Stockholder is not a natural person),
and of government officials, in which case their opinion is to state that they
are so relying and that they have no knowledge of any material misstatement or
inaccuracy in any such opinion, representation or certificate. Copies of any
opinion, representation or certificate so relied upon shall be delivered to you,
as Representatives of the Underwriters, and to Underwriters' Counsel.
(e) Opinion of Intellectual property Counsel for the Company. You shall
have received on the First Closing Date, or the Second Closing Date, as the case
may be, an opinion of [NAME OF PATENT COUNSEL], intellectual property counsel
for the Company substantially in the form of Exhibit C attached hereto.
---------
(f) Opinion of Counsel for the Underwriters. You shall have received on the
First Closing Date or the Second Closing Date, as the case may be, an opinion of
Hale and Dorr LLC, substantially in the form of Exhibit D hereto. The Company
---------
shall have furnished to such counsel such documents as they may have requested
for the purpose of enabling them to pass upon such matters.
(g) Accountants' Comfort Letter. You shall have received on the First
Closing Date and on the Second Closing Date, as the case may be, a letter from
KPMG, LLP addressed to the Underwriters, dated the First Closing Date or the
Second Closing Date, as the case may be, confirming that they are independent
certified public accountants with respect to the Company within the meaning of
the Act and the applicable published Rules and Regulations and based upon the
procedures described in such letter delivered to you concurrently with the
execution of this Agreement (herein called the "Original Letter"), but carried
out to a date not more than four (4) business days prior to the First Closing
Date or the Second Closing Date, as the case may be, (i) confirming, to the
extent true, that the statements and conclusions set forth in the Original
Letter are accurate as of the First Closing Date or the Second Closing Date, as
the case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter which are necessary
to reflect any changes in the facts described in the Original Letter since the
date of such letter, or to reflect the availability of more recent financial
statements, data or information. The letter shall not disclose any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise from
that set forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectus. The Original Letter from KPMG, LLP shall be
addressed to or for the use of the Underwriters in form and substance
satisfactory to the Underwriters and shall (i) represent, to the extent true,
that they are independent certified public accountants with respect to the
Company within the meaning of the Act and the applicable published Rules and
Regulations, (ii) set forth their opinion with respect to their examination of
the consolidated balance sheet of the Company as of June 26, 1999 and related
consolidated statements of operations, shareholders' equity, and cash flows for
the twelve (12) months ended June 26, 1999, and address other matters agreed
upon by KPMG, LLP and you. In addition, you shall have received from KPMG, LLP a
letter addressed to the Company and made available to you for the use of the
Underwriters stating that their review of the Company's system of internal
accounting controls, to the extent they deemed necessary in establishing the
scope of their examination of the Company's consolidated financial statements as
of June 26, 1999, did not disclose any weaknesses in internal controls that they
considered to be material weaknesses.
19
<PAGE>
(h) Officers' Certificate. You shall have received on the First Closing
Date and the Second Closing Date, as the case may be, a certificate of the
Company, dated the First Closing Date or the Second Closing Date, as the case
may be, signed by the Chief Executive Officer and Chief Financial Officer of the
Company, to the effect that, and you shall be satisfied that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the First Closing
Date or the Second Closing Date, as the case may be, and the Company has
complied with all the agreements and satisfied all the conditions on its
part to be performed or satisfied at or prior to the First Closing Date or
the Second Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or threatened under the Act;
(iii) When the Registration Statement became effective and at all
times subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus, and any amendments or
supplements thereto and the Incorporated Documents, when such Incorporated
Documents became effective or were filed with the Commission, contained all
material information required to be included therein by the Securities Act
or the Exchange Act and the applicable rules and regulations of the
Commission thereunder, as the case may be, and in all material respects
conformed to the requirements of the Securities Act or the Exchange Act and
the applicable rules and regulations of the Commission thereunder, as the
case may be, the Registration Statement and the Prospectus, and any
amendments or supplements thereto, did not and does not include any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading; and, since the effective date of the Registration Statement,
there has occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been so set forth; and
(iv) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been (a)
any material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise, (b) any transaction that is
material to the Company and its subsidiaries considered as one enterprise,
except transactions entered into in the ordinary course of business, (c)
any obligation, direct or contingent, that is material to the Company and
its subsidiaries considered as one enterprise, incurred by the Company or
its subsidiaries, except obligations incurred in the ordinary course of
business, (d) any change in the capital stock or outstanding indebtedness
of the Company or any of its subsidiaries that is material to the Company
and its subsidiaries considered as one enterprise, (e) any dividend or
distribution of any kind declared, paid or made on the capital stock of the
Company or any of its subsidiaries, or (f) any loss or damage (whether or
not insured) to the property of the Company or any of its subsidiaries
which has been sustained or will have been sustained which has a material
adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise.
(i) Lock-up Agreement from Certain Stockholders of the Company. The Company
shall have obtained and delivered to you an agreement substantially in the form
of Exhibit A
---------
20
<PAGE>
attached hereto from each officer and director of the Company, each Selling
Shareholder and each beneficial owner of one or more percent of the outstanding
issued share capital of the Company.
(j) Selling Stockholders' Certificate. On each of the First Closing Date
and the Second Closing Date, as the case may be, the Representatives shall have
received a written certificate executed by the Attorney-in-Fact of each Selling
Stockholder, dated as of such Closing Date, to the effect that:
(i) the representations, warranties and covenants of such Selling
Stockholder set forth in Section 1(B) of this Agreement are true and
correct with the same force and effect as though expressly made by such
Selling Stockholder on and as of such Closing Date; and
(ii) such Selling Stockholder has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at or
prior to such Closing Date.
(k) Selling Stockholders' Documents. At least three business days prior to
the date hereof, the Company and the Selling Stockholders shall have furnished
for review by the Representatives copies of the Powers of Attorney and Custody
Agreements executed by each of the Selling Stockholders and such further
information, certificates and documents as the Representatives may reasonably
request.
(l) Stock Exchange Listing. The Shares shall have been approved for
inclusion on the Nasdaq National Market, subject only to official notice of
issuance.
(m) Compliance with Prospectus Delivery Requirements. The Company shall
have complied with the provisions of Sections 2(g) and 3(e) hereof with respect
to the furnishing of Prospectuses.
(n) Additional Documents. On or before each of the First Closing Date and
the Second Closing Date, as the case may be, the Representatives and counsel for
the Underwriters shall have received such information, documents and opinions as
they may reasonably require for the purposes of enabling them to pass upon the
issuance and sale of the Shares as contemplated herein, or in order to evidence
the accuracy of any of the representations and warranties, or the satisfaction
of any of the conditions or agreements, herein contained.
If any condition specified in this Section 4 is not satisfied when and
as required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company and the Selling Stockholders at any
time on or prior to the First Closing Date and, with respect to the Option
Shares, at any time prior to the Second Closing Date, which termination shall be
without liability on the part of any party to any other party, except that
Section 5 (Payment of Expenses), Section 6 (Reimbursement of Underwriters'
Expenses), Section 7 (Indemnification and Contribution) and Section 10
(Representations and Indemnities to Survive Delivery) shall at all times be
effective and shall survive such termination.
SECTION 5. PAYMENT OF EXPENSES. The Company and the Selling Stockholders,
jointly and severally, agree to pay in such proportions as they may agree upon
among themselves all costs, fees and expenses incurred in connection with the
performance of their obligations hereunder and in connection with the
transactions contemplated hereby, including
21
<PAGE>
without limitation (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Shares to the Underwriters, (iv) all fees and expenses of the
Company's counsel, independent public or certified public accountants and other
advisors, (v) all costs and expenses incurred in connection with the
preparation, printing, filing, shipping and distribution of the Registration
Statement (including financial statements, exhibits, schedules, consents and
certificates of experts), each preliminary prospectus and the Prospectus, and
all amendments and supplements thereto, and this Agreement, (vi) all costs and
expenses incurred by Underwriters counsel in connection with the Directed Share
Program, (vii) all filing fees, attorneys' fees and expenses incurred by the
Company or the Underwriters in connection with qualifying or registering (or
obtaining exemptions from the qualification or registration of) all or any part
of the Shares for offer and sale under the state securities or blue sky laws or
the provincial securities laws of Canada or any other country, and, if requested
by the Representatives, preparing and printing a "Blue Sky Survey", an
"International Blue Sky Survey" or other memorandum, and any supplements
thereto, advising the Underwriters of such qualifications, registrations and
exemptions, (viii) the filing fees incident to, and the reasonable fees and
expenses of counsel for the Underwriters in connection with, the National
Association of Securities Dealers, LLC review and approval of the Underwriters'
participation in the offering and distribution of the Common Shares, (ix) the
fees and expenses associated with including the Common Shares on the Nasdaq
National Market, (x) all costs and expenses incident to the travel and
accommodation of the Company's employees on the "roadshow", and (xi) all other
fees, costs and expenses referred to in Item 14 of Part II of the Registration
Statement. Except as provided in this Section 5, Section 6, and Section 7
hereof, the Underwriters shall pay their own expenses, including the fees and
disbursements of their counsel.
The Selling Stockholders further agree with each Underwriter to pay
(directly or by reimbursement) all fees and expenses incident to the performance
of their obligations under this Agreement which are not otherwise specifically
provided for herein, including but not limited to (i) fees and expenses of
counsel and other advisors for such Selling Stockholders, (ii) fees and expenses
of the Custodian and (iii) expenses and taxes incident to the sale and delivery
of the Common Shares to be sold by such Selling Stockholders to the Underwriters
hereunder (which taxes, if any, may be deducted by the Custodian under the
provisions of Section 2 of this Agreement).
This Section 5 shall not affect or modify any separate, valid
agreement relating to the allocation of payment of expenses between the Company,
on the one hand, and the Selling Stockholders, on the other hand.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this Agreement is
terminated by the Representatives pursuant to Section 4, Section 8, Section 9 or
Section 15, or if the sale to the Underwriters of the Shares on the First
Closing Date is not consummated because of any refusal, inability or failure on
the part of the Company or the Selling Stockholders to perform any agreement
herein or to comply with any provision hereof, the Company agrees to reimburse
the Representatives and the other Underwriters (or such Underwriters as have
terminated this Agreement with respect to themselves), severally, upon demand
for all out-of-pocket expenses that shall have been reasonably incurred by the
Representatives and the Underwriters in connection with the proposed purchase
and the offering and sale of the Shares, including but not limited to fees and
disbursements of counsel, printing expenses, travel and accommodation expenses,
postage, facsimile and telephone charges.
22
<PAGE>
SECTION 7. INDEMNIFICATION AND CONTRIBUTION.
(a) Indemnification of the Underwriters.
(1) The Company agrees to indemnify and hold harmless each Underwriter, its
officers and employees, and each person, if any, who controls any Underwriter
within the meaning of the Securities Act and the Exchange Act against any loss,
claim, damage, liability or expense, as incurred, to which such Underwriter or
such controlling person may become subject, under the Securities Act, the
Exchange Act or other federal or state statutory law or regulation, or at common
law or otherwise (including in settlement of any litigation, if such settlement
is effected with the written consent of the Company, which consent shall not be
unreasonably withheld), insofar as such loss, claim, damage, liability or
expense (or actions in respect thereof as contemplated below) arises out of or
is based (i) upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement, or any amendment thereto,
including any information deemed to be a part thereof pursuant to Rule 430A
under the Securities Act, or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the statements
therein not misleading; or (ii) upon any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto), or the omission or alleged
omission therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; or (iii) in whole or in part upon any inaccuracy in the
representations and warranties of the Company contained herein; or (iv) in whole
or in part upon any failure of the Company to perform its obligations hereunder
or under law; or (v) any untrue statement or alleged untrue statement of any
material fact contained in any audio or visual materials provided by the Company
or based upon written information furnished by or on behalf of the Company
including, without limitation, slides, videos, films or tape recordings, used in
connection with the marketing of the Shares, including without limitation,
statements communicated to securities analysts employed by the Underwriters; or
(vi) any act or failure to act or any alleged act or failure to act by any
Underwriter in connection with, or relating in any manner to, the Shares or the
offering contemplated hereby, and which is included as part of or referred to in
any loss, claim, damage, liability or action arising out of or based upon any
matter covered by clause (i), (ii), (iii), (iv) or (v) above, provided that the
Company shall not be liable under this clause (vi) to the extent that a court of
competent jurisdiction shall have determined by a final judgment that such loss,
claim, damage, liability or action resulted directly from any such acts or
failures to act undertaken or omitted to be taken by such Underwriter through
its bad faith or willful misconduct; and to reimburse each Underwriter and each
such controlling person for any and all expenses (including the fees and
disbursements of counsel chosen by Robertson Stephens) as such expenses are
reasonably incurred by such Underwriter or such controlling person in connection
with investigating, defending, settling, compromising or paying any such loss,
claim, damage, liability, expense or action; provided, however, that the
foregoing indemnity agreement shall not apply to any loss, claim, damage,
liability or expense to the extent, but only to the extent, arising out of or
based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Company by the Representatives expressly for use in
the Registration Statement, any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto); and provided, further, that with respect to
any preliminary prospectus, the foregoing indemnity agreement shall not inure to
the benefit of any Underwriter from whom the person asserting any loss, claim,
damage, liability or expense purchased Shares, or any person controlling such
Underwriter, if copies of the Prospectus were timely delivered to the
Underwriter pursuant to Section 2 and a copy of the Prospectus (as then amended
or supplemented if the Company
23
<PAGE>
shall have furnished any amendments or supplements thereto) was not sent or
given by or on behalf of such Underwriter to such person, if required by law so
to have been delivered, and if the Prospectus (as so amended or supplemented)
would have cured the defect giving rise to such loss, claim, damage, liability
or expense. The indemnity agreement set forth in this Section 7(a) shall be in
addition to any liabilities that the Company may otherwise have.
(2) Each of the Selling Stockholders, jointly and severally, agrees to
indemnify and hold harmless each Underwriter, its officers and employees, and
each person, if any, who controls any Underwriter within the meaning of the
Securities Act and the Exchange Act against any loss, claim, damage, liability
or expense, as incurred, to which such Underwriter or such controlling person
may become subject, under the Securities Act, the Exchange Act or other federal
or state statutory law or regulation, or at common law or otherwise (including
in settlement of any litigation, if such settlement is effected with the written
consent of the Company, which consent shall not be unreasonably withheld),
insofar as such loss, claim, damage, liability or expense (or actions in respect
thereof as contemplated below) arises out of or is based (i) upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, or any amendment thereto, including any information
deemed to be a part thereof pursuant to Rule 430A under the Securities Act, or
the omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not misleading; or
(ii) upon any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto), or the omission or alleged omission therefrom of a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, in the case of
subparagraphs (i) and (ii) of this Section 7(a)(2) to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance upon and in conformity with written
information furnished to the Company or such Underwriter by such Selling
Stockholder directly or through such Selling Stockholder's representatives,
specifically for use in the preparation thereof; or (iii) in whole or in part
upon any inaccuracy in the representations and warranties of the Selling
Stockholders contained herein; or (iv) in whole or in part upon any failure of
the Selling Stockholders to perform their respective obligations hereunder or
under law; or (v) any act or failure to act or any alleged act or failure to act
by any Underwriter in connection with, or relating in any manner to, the Shares
or the offering contemplated hereby, and which is included as part of or
referred to in any loss, claim, damage, liability or action arising out of or
based upon any matter covered by clause (i), (ii), (iii) or (iv) above, provided
that the Selling Stockholders shall not be liable under this clause (v) to the
extent that a court of competent jurisdiction shall have determined by a final
judgment that such loss, claim, damage, liability or action resulted directly
from any such acts or failures to act undertaken or omitted to be taken by such
Underwriter through its bad faith or willful misconduct; and to reimburse each
Underwriter and each such controlling person for any and all expenses (including
the fees and disbursements of counsel chosen by Robertson Stephens) as such
expenses are reasonably incurred by such Underwriter or such controlling person
in connection with investigating, defending, settling, compromising or paying
any such loss, claim, damage, liability, expense or action; provided, however,
that the foregoing indemnity agreement shall not apply to any loss, claim,
damage, liability or expense to the extent, but only to the extent, arising out
of or based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Selling Stockholders by the Representatives
expressly for use in the Registration Statement, any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto); and provided, further,
that with respect to any preliminary prospectus, the foregoing indemnity
agreement shall not inure to the benefit of any Underwriter from whom the person
asserting any loss, claim, damage, liability or
24
<PAGE>
expense purchased Shares, or any person controlling such Underwriter, if copies
of the Prospectus were timely delivered to the Underwriter pursuant to Section 2
and a copy of the Prospectus (as then amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) was not sent or
given by or on behalf of such Underwriter to such person, if required by law so
to have been delivered and if the Prospectus (as so amended or supplemented)
would have cured the defect giving rise to such loss, claim, damage, liability
or expense. The indemnity agreement set forth in this Section 7(a) shall be in
addition to any liabilities that the Selling Stockholders may otherwise have;
and provided, further, that the Company and the Selling Stockholders may agree,
as among themselves and without limiting the rights of the Underwriters under
this Agreement, as to the respective amounts of such liability for which they
each shall be responsible.
(b) Indemnification of the Company, its Directors, Officers and Selling
Stockholders. Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, each of its directors, each of its officers who
signed the Registration Statement, the Selling Stockholders and each person, if
any, who controls the Company or any Selling Stockholder within the meaning of
the Securities Act or the Exchange Act, against any loss, claim, damage,
liability or expense, as incurred, to which the Company, or any such director,
officer, Selling Stockholder or controlling person may become subject, under the
Securities Act, the Exchange Act, or other federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of such
Underwriter), insofar as such loss, claim, damage, liability or expense (or
actions in respect thereof as contemplated below) arises out of or is based upon
any untrue or alleged untrue statement of a material fact contained in the
Registration Statement, any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto), or arises out of or is based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in the Registration
Statement, any preliminary prospectus, the Prospectus (or any amendment or
supplement thereto), in reliance upon and in conformity with written information
furnished to the Company and the Selling Stockholders by the Representatives
expressly for use therein; and to reimburse the Company, or any such director,
officer, Selling Stockholder or controlling person for any legal and other
expense reasonably incurred by the Company, or any such director, officer,
Selling Stockholder or controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action. The indemnity agreement set forth in this Section
7(b) shall be in addition to any liabilities that each Underwriter may otherwise
have.
(c) Information Provided by the Underwriters. The Company and each of the
Selling Stockholders, and each person, if any, who controls the Company within
the meaning of the Securities Act or the Exchange Act, hereby acknowledges that
the only information that the Underwriters have furnished to the Company
expressly for use in the Registration Statement, any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto) are the statements set
forth in the table in the first paragraph and the second paragraph under the
caption "Underwriting" in the Prospectus; and the Underwriters confirm that such
statements are correct.
(d) Notifications and Other Indemnification Procedures. Promptly after
receipt by an indemnified party under this Section 7 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 7, notify
the indemnifying party in writing of the commencement thereof, but
25
<PAGE>
the omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party for contribution or
otherwise than under the indemnity agreement contained in this Section 7 or to
the extent it is not prejudiced as a proximate result of such failure. In case
any such action is brought against any indemnified party and such indemnified
party seeks or intends to seek indemnity from an indemnifying party, the
indemnifying party will be entitled to participate in, and, to the extent that
it shall elect, jointly with all other indemnifying parties similarly notified,
by written notice delivered to the indemnified party promptly after receiving
the aforesaid notice from such indemnified party, to assume the defense thereof
with counsel reasonably satisfactory to such indemnified party; provided,
however, if the defendants in any such action include both the indemnified party
and the indemnifying party and the indemnified party shall have reasonably
concluded that a conflict may arise between the positions of the indemnifying
party and the indemnified party in conducting the defense of any such action or
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of such indemnifying party's election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying party
will not be liable to such indemnified party under this Section 7 for any legal
or other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence
(it being understood, however, that the indemnifying party shall not be liable
for the expenses of more than one separate counsel (together with local
counsel), approved by the indemnifying party (Robertson Stephens in the case of
Section 7(b) and Section 8), representing the indemnified parties who are
parties to such action), (ii) the indemnifying party shall not have employed
counsel satisfactory to the indemnified party to represent the indemnified party
within a reasonable time after notice of commencement of the action, or (iii)
the indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party, in each of which
cases the fees and expenses of counsel shall be at the expense of the
indemnifying party.
(e) Settlements. The indemnifying party under this Section 7 shall not be
liable for any settlement of any proceeding effected without its written
consent, which consent shall not be unreasonably withheld, but if settled with
such consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party against any loss, claim, damage,
liability or expense by reason of such settlement or judgment. Notwithstanding
the foregoing sentence, if at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by Section 7(d) hereof, the indemnifying party agrees
that it shall be liable for any settlement of any proceeding effected without
its written consent if (i) such settlement is entered into more than 60 days
after receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in accordance
with such request prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement, compromise or consent to the entry of judgment in any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity was or could have been sought
hereunder by such indemnified party, unless such settlement, compromise or
consent includes (i) an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such action, suit or
proceeding and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party.
26
<PAGE>
(f) Contribution. If the indemnification provided for in this Section 7 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 7(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) then each
indemnifying party shall contribute to the aggregate amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect the
relative benefits received by such party on the one hand and the Underwriters on
the other from the offering of the Shares. If, however, the allocation provided
by the immediately preceding sentence is not permitted by applicable law then
each indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the such party on the one hand
and the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities, (or actions or
proceedings in respect thereof), as well as any other relevant equitable
considerations. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company the "control" Stockholders and the Selling
Stockholders on the one hand or the Underwriters on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company, each Selling Stockholder and Underwriters agree that it
would not be just and equitable if contributions pursuant to this Section 7(f)
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this Section
7(f). The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) referred to above in this Section 7(f) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (f), (i) no Underwriter shall
be required to contribute any amount in excess of the underwriting discounts and
commissions applicable to the Shares purchased by such Underwriter and (ii) no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this Section 7(f) to contribute are several in proportion to
their respective underwriting obligations and not joint.
(g) Timing of Any Payments of Indemnification. Any losses, claims, damages,
liabilities or expenses for which an indemnified party is entitled to
indemnification or contribution under this Section 7 shall be paid by the
indemnifying party to the indemnified party as such losses, claims, damages,
liabilities or expenses are incurred, but in all cases, no later than forty-five
(45) days of invoice to the indemnifying party.
(h) Survival. The indemnity and contribution agreements contained in this
Section 7 and the representation and warranties set forth in this Agreement
shall remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any persons
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter, or to the Company, its directors or officers, any Selling
Stockholder or any person controlling the Company, shall be entitled to the
benefits of the indemnity, contribution and reimbursement agreements contained
in this Section 7.
27
<PAGE>
(i) Acknowledgements of Parties. The parties to this Agreement hereby
acknowledge that they are sophisticated business persons who were represented by
counsel during the negotiations regarding the provisions hereof including,
without limitation, the provisions of this Section 7, and are fully informed
regarding said provisions. They further acknowledge that the provisions of this
Section 7 fairly allocate the risks in light of the ability of the parties to
investigate the Company and its business in order to assure that adequate
disclosure is made in the Registration Statement and Prospectus as required by
the Securities Act and the Exchange Act.
(j) [Indemnification for Directed Share Program. The Company agrees to
indemnify and hold harmless Robertson Stephens and its affiliates and each
person, if any, who controls Robertson Stephens or its affiliates within the
meaning of either Section 15 of the Securities Act or Section 20 of the Exchange
Act ("Robertson Stephens Entities"), from and against any and all losses,
claims, damages and liabilities (including, without limitation, any legal or
other expenses reasonably incurred in connection with defending or investigating
any such action or claim) (i) caused by any untrue statement or alleged untrue
statement of a material fact contained in any material prepared by or with the
consent of the Company for distribution to participants in connection with the
Directed Share Program, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading; (ii) the failure of any participant to pay
for and accept delivery of Directed Shares that the participant has agreed to
purchase; or (iii) related to, arising out of, or in connection with the
Directed Share Program other than losses, claims, damages or liabilities (or
expenses relating thereto) that are finally judicially determined to have
resulted from the bad faith or gross negligence of Robertson Stephens Entities.]
SECTION 8. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS. If, on the
First Closing Date or the Second Closing Date, as the case may be, any one or
more of the several Underwriters shall fail or refuse to purchase Shares that it
or they have agreed to purchase hereunder on such date, and the aggregate number
of Common Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase does not exceed 10% of the aggregate number of the
Shares to be purchased on such date, the other Underwriters shall be obligated,
severally, in the proportions that the number of Firm Common Shares set forth
opposite their respective names on Schedule A bears to the aggregate number of
----------
Firm Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as may be specified by the
Representatives with the consent of the non-defaulting Underwriters, to purchase
the Shares which such defaulting Underwriter or Underwriters agreed but failed
or refused to purchase on such date. If, on the First Closing Date or the Second
Closing Date, as the case may be, any one or more of the Underwriters shall fail
or refuse to purchase Shares and the aggregate number of Shares with respect to
which such default occurs exceeds 10% of the aggregate number of Shares to be
purchased on such date, and arrangements satisfactory to the Representatives and
the Company for the purchase of such Shares are not made within 48 hours after
such default, this Agreement shall terminate without liability of any party to
any other party except that the provisions of Section 5, and Section 7 shall at
all times be effective and shall survive such termination. In any such case
either the Representatives or the Company shall have the right to postpone the
First Closing Date or the Second Closing Date, as the case may be, but in no
event for longer than seven days in order that the required changes, if any, to
the Registration Statement and the Prospectus or any other documents or
arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this
Section 8. Any action taken
28
<PAGE>
under this Section 8 shall not relieve any defaulting Underwriter from liability
in respect of any default of such Underwriter under this Agreement.
SECTION 9. TERMINATION OF THIS AGREEMENT. This Agreement may be terminated
by the Representatives by notice given to the Company and the Selling
Stockholders if (a) at any time after the execution and delivery of this
Agreement and prior to the First Closing Date (i) trading or quotation in any of
the Company's securities shall have been suspended or limited by the Commission
or by the Nasdaq Stock Market, or trading in securities generally on either the
Nasdaq Stock Market or the New York Stock Exchange shall have been suspended or
limited, or minimum or maximum prices shall have been generally established on
any of such stock exchanges by the Commission or the National Association of
Securities Dealers, LLC; (ii) a general banking moratorium shall have been
declared by any of federal, New York, Delaware or California authorities; (iii)
there shall have occurred any outbreak or escalation of national or
international hostilities or any crisis or calamity, or any change in the United
States or international financial markets, or any substantial change or
development involving a prospective change in United States' or international
political, financial or economic conditions, as in the judgment of the
Representatives is material and adverse and makes it impracticable or
inadvisable to market the Common Shares in the manner and on the terms
contemplated in the Prospectus or to enforce contracts for the sale of
securities; (iv) in the judgment of the Representatives there shall have
occurred any Material Adverse Change; or (v) the Company shall have sustained a
loss by strike, fire, flood, earthquake, accident or other calamity of such
character as in the judgment of the Representatives may interfere materially
with the conduct of the business and operations of the Company regardless of
whether or not such loss shall have been insured or (b) in the case of any of
the events specified 9(a)(i)-(v), such event singly or together with any other
event, makes it, in your judgement, impracticable or inadvisable to market the
Common Shares in the manner and on the terms contemplated in the Prospectus. Any
termination pursuant to this Section 9 shall be without liability on the part of
(x) the Company to any Underwriter, except that the Company and the Selling
Stockholders shall be obligated to reimburse the expenses of the Representatives
and the Underwriters pursuant to Sections 5 and 6 hereof, (y) any Underwriter to
the Company or any person controlling the Company or the Selling Stockholders,
or (z) of any party hereto to any other party except that the provisions of
Section 7 shall at all times be effective and shall survive such termination.
SECTION 10. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company or any person controlling the company, of its
officers, of the Selling Stockholders and of the several Underwriters set forth
in or made pursuant to this Agreement will remain in full force and effect,
regardless of any investigation made by or on behalf of any Underwriter or the
Company or any of its or their partners, officers or directors or any
controlling person, or the Selling Stockholders, as the case may be, and will
survive delivery of and payment for the Shares sold hereunder and any
termination of this Agreement.
SECTION 11. NOTICES. All communications hereunder shall be in writing and
shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the REPRESENTATIVES:
FLEETBOSTON ROBERTSON STEPHENS INC.
555 California Street
San Francisco, California 94104
29
<PAGE>
Facsimile: (415) 676-2675
Attention: General Counsel
If to the Company:
Applied Science and Technology, Inc.
35 Cabot Road
Woburn, MA 01801-1053
Facsimile: (781) 933-0750
Attention: Richard S. Post, President, CEO & Chairman
If to the Selling Stockholders:
Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C.
One Financial Center
Boston, MA 02111
Facsimile: (617) 542-2241
Attention: Neil H. Aronson, Esq.
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 12. SUCCESSORS. This Agreement will inure to the benefit of and be
binding upon the parties hereto, including any substitute Underwriters pursuant
to Section 8 hereof, and to the benefit of the employees, officers and directors
and controlling persons referred to in Section 7, and to their respective
successors, and personal representatives, and no other person will have any
right or obligation hereunder. The term "successors" shall not include any
purchaser of the Shares as such from any of the Underwriters merely by reason of
such purchase.
SECTION 13. PARTIAL UNENFORCEABILITY. The invalidity or unenforceability of
any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
SECTION 14. GOVERNING LAW PROVISIONS.
(a) Governing Law. This agreement shall be governed by and construed in
accordance with the internal laws of the state of New York applicable to
agreements made and to be performed in such state.
(b) Consent to Jurisdiction. Any legal suit, action or proceeding arising
out of or based upon this Agreement or the transactions contemplated hereby
("Related Proceedings") may be instituted in the federal courts of the United
States of America located in the City and County of San Francisco or the courts
of the State of California in each case located in the City and County of San
Francisco (collectively, the "Specified Courts"), and each party irrevocably
submits to the exclusive jurisdiction (except for proceedings instituted in
regard to the enforcement of a judgment of any such court (a "Related
Judgment"), as to which such jurisdiction is non- exclusive) of such courts in
any such suit, action or proceeding. Service of
30
<PAGE>
any process, summons, notice or document by mail to such party's address set
forth above shall be effective service of process for any suit, action or other
proceeding brought in any such court. The parties irrevocably and
unconditionally waive any objection to the laying of venue of any suit, action
or other proceeding in the Specified Courts and irrevocably and unconditionally
waive and agree not to plead or claim in any such court that any such suit,
action or other proceeding brought in any such court has been brought in an
inconvenient forum. Each party not located in the United States irrevocably
appoints CT Corporation System, which currently maintains a San Francisco office
at 49 Stevenson Street, San Francisco, California 94105, United States of
America, as its agent to receive service of process or other legal summons for
purposes of any such suit, action or proceeding that may be instituted in any
state or federal court in the City and County of San Francisco.
SECTION 15. FAILURE OF ONE OR MORE OF THE SELLING STOCKHOLDERS TO SELL AND
DELIVER COMMON SHARES. If one or more of the Selling Stockholders shall fail to
sell and deliver to the Underwriters the Shares to be sold and delivered by such
Selling Stockholders at the First Closing Date pursuant to this Agreement, then
the Underwriters may at their option, by written notice from the Representatives
to the Company and the Selling Stockholders, either (i) terminate this Agreement
without any liability on the part of any Underwriter or, except as provided in
Sections 5, 6, and 7 hereof, the Company or the Selling Stockholders, or (ii)
purchase the shares which the Company and other Selling Stockholders have agreed
to sell and deliver in accordance with the terms hereof. If one or more of the
Selling Stockholders shall fail to sell and deliver to the Underwriters the
Shares to be sold and delivered by such Selling Stockholders pursuant to this
Agreement at the First Closing Date or the Second Closing Date, then the
Underwriters shall have the right, by written notice from the Representatives to
the Company and the Selling Stockholders, to postpone the First Closing Date or
the Second Closing Date, as the case may be, but in no event for longer than
seven days in order that the required changes, if any, to the Registration
Statement and the Prospectus or any other documents or arrangements may be
effected.
SECTION 16. GENERAL PROVISIONS. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in two
or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.
Section headings herein are for the convenience of the parties only and shall
not affect the construction or interpretation of this Agreement.
[The remainder of this page has been intentionally left blank.]
31
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company and the Custodian the enclosed
copies hereof, whereupon this instrument, along with all counterparts hereof,
shall become a binding agreement in accordance with its terms.
Very truly yours,
APPLIED SCIENCE AND TECHNOLOGY, INC.
By:
-------------------------------
President, CEO and Chairman
SELLING STOCKHOLDERS:
RICHARD S. POST AND
JOHN M. TARRH
By:
-------------------------------
Attorney-in-fact for the Selling Stockholders
named in Schedule B hereto
The foregoing Underwriting Agreement is hereby confirmed and accepted
by the Representatives as of the date first above written.
FLEETBOSTON ROBERTSON STEPHENS INC.,
CIBC WORLD MARKEYS,
NEEDHAM & COMPANY, INC. AND
ADAMS, HARKNESS & HILL, INC.
On their behalf and on behalf of each of the several underwriters named in
Schedule A hereto.
- ----------
By: FLEETBOSTON ROBERTSON STEPHENS INC.
By:
-----------------------------------
Mitch Whiteford
32
<PAGE>
SCHEDULE A
UNDERWRITERS NUMBER OF FIRM COMMON
SHARES TO BE PURCHASED
- ----------------------------------------------- -------------------------------
FleetBoston Robertson Stephens Inc....................
CIBC World Markets....................................
Needham & Company, Inc................................
Adams, Harkness & Hill, Inc...........................
Total............................................ 2,500,000
S-A
<PAGE>
SCHEDULE B
MAXIMUM NUMBER OF
NUMBER OF FIRM OPTION SHARES
SELLING STOCKHOLDER SHARES TO BE SOLD TO BE SOLD
- ----------------------------------- ----------------- -------------------
Richard S. Post
[address]
Attention: [___]................... 0 50,000
John M. Tarrh
[address]
Attention: [___]................... 0 50,000
Total:........................ 0 100,000
================= ===================
S-B
<PAGE>
EXHIBIT A
LOCK-UP AGREEMENT
FleetBoston Robertson Stephens Inc.
CIBC World Markets
Needham & Company, Inc.
Adams, Harkness & Hill, Inc.
As Representatives of the Several Underwriters
c/o FleetBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, California 94104
RE: Applied Science and Technology, Inc. (the "Company")
Ladies & Gentlemen:
The undersigned is an owner of record or beneficially of certain
shares of Common Stock of the Company ("Common Stock") or securities convertible
into or exchangeable or exercisable for Common Stock. The Company proposes to
carry out a public offering of Common Stock (the "Offering") for which you will
act as the representatives (the "Representatives") of the underwriters. The
undersigned recognizes that the Offering will be of benefit to the undersigned
and will benefit the Company by, among other things, raising additional capital
for its operations. The undersigned acknowledges that you and the other
underwriters are relying on the representations and agreements of the
undersigned contained in this letter in carrying out the Offering and in
entering into underwriting arrangements with the Company with respect to the
Offering.
In consideration of the foregoing, the undersigned hereby agrees that
the undersigned will not offer to sell, contract to sell, or otherwise sell,
dispose of, loan, pledge or grant any rights with respect to (collectively, a
"Disposition") any shares of Common Stock, any options or warrants to purchase
any shares of Common Stock or any securities convertible into or exchangeable
for shares of Common Stock (collectively, "Securities") now owned or hereafter
acquired prior to or in the Offering directly by such person or with respect to
which such person has or hereafter acquires prior to the Offering the power of
disposition, otherwise than (i) as a bona fide gift or gifts, provided the donee
or donees thereof agree in writing to be bound by this restriction, (ii) as a
distribution to partners or shareholders of such person, provided that the
distributees thereof agree in writing to be bound by the terms of this
restriction, (iii) with respect to sales or purchases of Common Stock acquired
on the open market, (iv) with respect to the exercise of stock options granted
pursuant to the Company's stock option plans, provided that any shares of Common
Stock acquired pursuant to the exercise of any such stock option shall be
subject to the restrictions of this Agreement or (v) with the prior written
consent of FleetBoston Robertson Stephens Inc. The foregoing restrictions will
terminate after the close of trading of the Common Stock on the 90th day after
the commencement of trading on the Nasdaq National Market in connection with the
offering (the "Lock-Up" Period). The foregoing restriction has been expressly
agreed to preclude the holder of the Securities from engaging in any hedging or
other transaction which is designed to or reasonably expected to lead to or
result in
A-1
<PAGE>
a Disposition of Securities during the Lock-up Period, even if such Securities
would be disposed of by someone other than such holder. Such prohibited hedging
or other transactions would include, without limitation, any short sale (whether
or not against the box) or any purchase, sale or grant of any right (including,
without limitation, any put or call option) with respect to any Securities or
with respect to any security (other than a broad-based market basket or index)
that included, relates to or derives any significant part of its value from
Securities. The undersigned also agrees and consents to the entry of stop
transfer instructions with the Company's transfer agent and registrar against
the transfer of shares of Common Stock or Securities held by the undersigned
except in compliance with the foregoing restrictions.
This agreement is irrevocable and will be binding on the undersigned
and the respective successors, heirs, personal representatives, and assigns of
the undersigned. This Lock-Up Agreement shall terminate and be of no further
force or effect upon a decision by FleetBoston Robertson Stephens Inc. or the
Company not to proceed with the Offering.
Dated
-------------------------------------
------------------------------------------
Printed Name of Holder
By:
--------------------------------------
Signature
------------------------------------------
Printed Name of Person Signing
(and indicate capacity of person signing
if signing as custodian, trustee, or on
behalf of an entity)
A-2
<PAGE>
EXHIBIT B
MATTERS TO BE COVERED IN THE OPINION OF COMPANY COUNSEL
(i) The Company and each Significant Subsidiary (as that term is defined in
Regulation S-X of the Act) has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the jurisdiction of its
incorporation;
(ii) The Company and each Significant Subsidiary has the corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Prospectus;
(iii) The Company and each Significant Subsidiary is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction,
if any, in which the ownership or leasing of its properties or the conduct of
its business requires such qualification, except where the failure to be so
qualified or be in good standing would not have a Material Adverse Effect. To
such counsel's knowledge, the Company does not own or control, directly or
indirectly, any corporation, association or other entity other than [list
subsidiaries];
(iv) The authorized, issued and outstanding capital stock of the Company is as
set forth in the Prospectus under the caption "Capitalization" as of the dates
stated therein, the issued and outstanding shares of capital stock of the
Company (including the Selling Stockholder Shares) outstanding prior to the
issuance of the Shares have been duly and validly issued and are fully paid and
nonassessable, and, to such counsel's knowledge, will not have been issued in
violation of or subject to any preemptive right arising under the certificate of
incorporation or Delaware General Corporation Law, co-sale right, right of first
refusal or other similar right, other than any registration rights described in
Opinion (xix) hereof;
(v) All issued and outstanding shares of capital stock of each Significant
Subsidiary of the Company have been duly authorized and validly issued and are
fully paid and nonassessable, and, to such counsel's knowledge, have not been
issued in violation of or subject to any preemptive right arising under the
certificate of incorporation or Delaware General Corporation Law, co-sale right,
right of first refusal or other similar right, other than any registration
rights described in Opinion (xix) hereof and are owned by the Company free and
clear of any pledge, lien, security interest, encumbrance, claim or equitable
interest;
(vi) The Firm Shares or the Option Shares, as the case may be, to be issued by
the Company pursuant to the terms of this Agreement have been duly authorized
and, upon issuance and delivery against payment therefor in accordance with the
terms hereof, will be duly and validly issued and fully paid and nonassessable,
and will not have been issued in violation of or subject to any preemptive
right, co-sale right, right of first refusal or other similar right, other than
any registration rights described in Opinion (xix) hereof.
(vii) The Company has the corporate power and authority to enter into this
Agreement and to issue, sell and deliver to the Underwriters the Shares to be
issued and sold by it hereunder;
B-1
<PAGE>
(viii) This Agreement has been duly authorized by all necessary corporate
action on the part of the Company and has been duly executed and delivered by
the Company and, assuming due authorization, execution and delivery by you, is a
valid and binding agreement of the Company, enforceable in accordance with its
terms, except as rights to indemnification hereunder may be limited by
applicable law and except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or affecting
creditors' rights generally or by general equitable principles (whether relief
is sought in a proceeding at law or in equity;
(ix) The Registration Statement has become effective under the Act and, to such
counsel's knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are pending or threatened under the Securities Act;
(x) The 8-A Registration Statement complied as to form in all material respects
with the requirements of the Exchange Act; the 8-A Registration Statement has
become effective under the Exchange Act; and the Firm Shares or the Option
Shares have been validly registered under the Securities Act and the Rules and
Regulations of the Exchange Act and the applicable rules and regulations of the
Commission thereunder;
(xi) The Registration Statement and the Prospectus, and each amendment or
supplement thereto (other than the financial statements (including supporting
schedules) and financial data derived therefrom as to which such counsel need
express no opinion), as of the effective date of the Registration Statement,
complied as to form in all material respects with the requirements of the Act
and the applicable Rules and Regulations; and each of the Incorporated Documents
(other than the financial statements (including supporting schedules) and the
financial data derived therefrom as to which such counsel need express no
opinion) complied when filed pursuant to the Exchange Act as to form in all
material respects with the requirements of the Act and the Rules and Regulations
of the Exchange Act and the applicable rules and regulations of the Commission
thereunder;
(xii) The information in the Prospectus under the caption "Description of
Capital Stock," to the extent that it constitutes matters of law or legal
conclusions, has been reviewed by such counsel and is a fair summary of such
matters and conclusions; and the forms of certificates evidencing the Common
Stock and filed as exhibits to the Registration Statement comply with Delaware
law;
(xiii) The description in the Registration Statement and the Prospectus of the
charter and bylaws of the Company and of statutes are accurate and fairly
present the information required to be presented by the Securities Act;
(xiv) To such counsel's knowledge, there are no agreements, contracts, leases or
documents to which the Company is a party of a character required to be
described or referred to in the Registration Statement or Prospectus or any
Incorporated Document or to be filed as an exhibit to the Registration Statement
or any Incorporated Document which are not described or referred to therein or
filed required;
(xv) The performance of this Agreement and the consummation of the transactions
herein contemplated (other than performance of the Company's indemnification
obligations hereunder, concerning which no opinion need be expressed)
B-2
<PAGE>
will not (a) result in any violation of the Company's charter or bylaws or (b)
to such counsel's knowledge, result in a material breach or violation of any of
the terms and provisions of, or constitute a default under, any bond, debenture,
note or other evidence of indebtedness, or any lease, contract, indenture,
mortgage, deed of trust, loan agreement, joint venture or other agreement or
instrument known to such counsel to which the Company is a party or by which its
properties are bound, or any applicable statute, rule or regulation known to
such counsel or, to such counsel's knowledge, any order, writ or decree of any
court, government or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries, or over any of their properties or
operations;
(xvi) No consent, approval, authorization or order of or qualification with any
court, government or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries, or over any of their properties or
operations is necessary in connection with the consummation by the Company of
the transactions herein contemplated, except (i) such as have been obtained
under the Securities Act, (ii) such as may be required under state or other
securities or Blue Sky laws in connection with the purchase and the distribution
of the Shares by the Underwriters, (iii) such as may be required by the National
Association of Securities Dealers, LLC and (iv) such as may be required under
the federal or provincial laws of Canada;
(xvii) To such counsel's knowledge, there are no legal or governmental
proceedings pending or threatened against the Company or any of its subsidiaries
of a character required to be disclosed in the Registration Statement or the
Prospectus or any Incorporated Document by the Securities Act or by the Exchange
Act or the applicable rules and regulations of the Commission thereunder, other
than those described therein;
(xviii) To such counsel's knowledge, neither the Company nor any of its
subsidiaries is presently (a) in material violation of its respective charter or
bylaws, or (b) in material breach of any applicable statute, rule or regulation
known to such counsel or, to such counsel's knowledge, any order, writ or decree
of any court or governmental agency or body having jurisdiction over the Company
or any of its subsidiaries, or over any of their properties or operations; and
(xix) To such counsel's knowledge, except as set forth in the Registration
Statement and Prospectus and any Incorporated Document, no holders of Company
Shares or other securities of the Company have registration rights with respect
to securities of the Company and, except as set forth in the Registration
Statement and Prospectus, all holders of securities of the Company having rights
known to such counsel to registration of such shares of Company Shares or other
securities, because of the filing of the Registration Statement by the Company
have, with respect to the offering contemplated thereby, waived such rights or
such rights have expired by reason of lapse of time following notification of
the Company's intent to file the Registration Statement or have included
securities in the Registration Statement pursuant to the exercise of and in full
satisfaction of such rights.
(xx) The Company is not and, after giving effect to the offering and the sale of
the Shares and the application of the proceeds thereof as described in the
Prospectus, will not be, an "investment company" as such term is defined in the
Investment Company Act of 1940, as amended.
B-3
<PAGE>
(xxi) Each document filed pursuant to the Exchange Act (other than the
financial statements and supporting schedules included therein, as to which no
opinion need be rendered) and incorporated or deemed to be incorporated by
reference in the Prospectus complied when so filed as to form in all material
respects with the Exchange Act.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters were
discussed, and although they have not verified the accuracy or completeness of
the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which leads them to believe
that, at the time the Registration Statement became effective and at all times
subsequent thereto up to and on the First Closing Date or Second Closing Date,
as the case may be, the Registration Statement and any amendment or supplement
thereto and any Incorporated Document, when such documents became effective or
were filed with the Commission (other than the financial statements including
supporting schedules and other financial and statistical information derived
therefrom, as to which such counsel need express no comment) contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
or at the First Closing Date or the Second Closing Date, as the case may be, the
Registration Statement, the Prospectus and any amendment or supplement thereto
and any Incorporated Document (except as aforesaid) contained any untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. Such counsel shall also state that the conditions
for the use of Form S-3 set forth in the General Instructions thereto have been
satisfied.
B-4
<PAGE>
EXHIBIT C
MATTERS TO BE COVERED IN THE OPINION OF
INTELLECTUAL PROPERTY COUNSEL FOR THE COMPANY
Such counsel are familiar with the technology used by the Company in
its business and the manner of its use thereof and have read the Registration
Statement and the Prospectus, including particularly the portions of the
Registration Statement and the Prospectus referring to patents, trade secrets,
trademarks, service marks or other proprietary information or materials and:
(i) As to the statements under the captions "Risk Factors -- Dependence on
Patents and Proprietary Rights" and "Business -- [Patents] and Proprietary
Rights," nothing has come to the attention of such counsel which caused
them to believe that the above-mentioned sections of the Registration
Statement and any amendment or supplement thereto made available and
reviewed by such counsel, at the time the Registration Statement became
effective and at all times subsequent thereto up to and on the Closing Date
and on any later date on which Option Stock are to be purchased, contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
(ii) Such counsel knows of no material action, suit, claim or proceeding
relating to patents, patent rights or licenses, trademarks or trademark
rights, copyrights, collaborative research, licenses or royalty
arrangements or agreements or trade secrets, know-how or proprietary
techniques, including processes and substances, owned by or affecting the
business or operations of the Company which are pending or threatened
against the Company or any of its officers or directors.
(iii) The Company is listed in the records of the United States Patent and
Trademark Office as the holder of record of the patents listed on a
schedule to such opinion (the "Patents") and each of the applications
listed on a schedule to such opinion (the "Applications"). To the
knowledge of such counsel, there are no claims of third parties to any
ownership interest or lien with respect to any of the Patents or
Applications. Such counsel is not aware of any material defect in form in
the preparation or filing of the Applications on behalf of the Company. To
the knowledge of such counsel, the Applications are being pursued by the
Company. To the knowledge of such counsel, the Company owns as its sole
property the Patents and pending Applications;
(iv) The Company is listed in the records of the appropriate foreign
offices as the sole holder of record of the foreign patents listed on a
schedule to such opinion (the "Foreign Patents") and each of the
applications listed on a schedule to such opinion (the "Foreign
Applications"). Such counsel knows of no claims of third parties to any
ownership interest or lien with respect to the Foreign Patents or Foreign
Applications. Such counsel is not aware of any material defect of form in
the preparation or filing of the Foreign Applications on behalf of the
Company. To the knowledge of such counsel, the Foreign Applications are
being pursued by the Company. To the knowledge of such counsel, the
Company owns as its sole property the Foreign Patents and pending Foreign
Applications; and
(v) Such counsel knows of no reason why the Patents or Foreign Patents are
not
C-1
<PAGE>
valid as issued. Such counsel has no knowledge of any reason why any patent
to be issued as a result of any Application or Foreign Application would
not be valid or would not afford the Company useful patent protection with
respect thereto.
C-2
<PAGE>
EXHIBIT D
MATTERS TO BE COVERED IN THE OPINION OF UNDERWRITERS' COUNSEL
(i) The Shares to be issued by the Company have been duly authorized and,
upon issuance and delivery and payment therefor in accordance with the
terms of the Underwriting Agreement, will be validly issued, fully paid and
non- assessable.
(ii) The Registration Statement complied as to form in all material
respects with the requirements of the Act; the Registration Statement has
become effective under the Act and, to such counsel's knowledge, no stop
order proceedings with respect thereto have been instituted or threatened
or are pending under the Securities Act.
(iii) The 8-A Registration Statement complied as to form in all material
respects with the requirements of the Exchange Act; the 8-A Registration
Statement has become effective under the Exchange Act; and the Shares have
been validly registered under the Securities Act and the Rules and
Regulations of the Exchange Act and the applicable rules and regulations of
the Commission thereunder;
(iv) The Underwriting Agreement has been duly authorized, executed and
delivered by the Company.
(v) The Underwriting Agreement has been duly authorized, executed and
delivered by the Selling Stockholders.
Such counsel shall state that such counsel has reviewed the opinions
addressed to the Representatives from Mintz, Levin, Cohn, Ferris, Glovsky &
Popeo, P.C., dated the date hereof, and furnished to you in accordance with the
provisions of the Underwriting Agreement. Such opinions appear on their face to
be appropriately responsive to the requirements of the Underwriting Agreement.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters were
discussed, and although they have not verified the accuracy or completeness of
the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which leads them to believe
that, at the time the Registration Statement became effective and at all times
subsequent thereto up to and on the First Closing Date or Second Closing Date,
as the case may be, the Registration Statement and any amendment or supplement
thereto and any Incorporated Document, when such documents became effective or
were filed with the Commission (other than the financial statements including
supporting schedules and other financial and statistical information derived
therefrom, as to which such counsel need express no comment) contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
or at the First Closing Date or the Second Closing Date, as the case may be, the
Registration Statement, the Prospectus and any amendment or supplement thereto
and any Incorporated Document (except as aforesaid) contained any untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
D-1
<PAGE>
Such counsel shall also state that the conditions for the use of Form S-3 set
forth in the General Instructions thereto have been satisfied.
D-2
<PAGE>
EXHIBIT E
MATTERS TO BE COVERED IN THE OPINION OF SELLING STOCKHOLDER COUNSEL
(i) The Underwriting Agreement has been duly authorized, executed and delivered
by or on behalf of, and is a valid and binding agreement of, such Selling
Stockholder, enforceable in accordance with its terms, except as rights to
indemnification thereunder may be limited by applicable law and except as the
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles.
(ii) The execution and delivery by such Selling Stockholder of, and the
performance by such Selling Stockholder of its obligations under, the
Underwriting Agreement and its Custody Agreement and its Power of Attorney will
not contravene or conflict with, result in a breach of, or constitute a default
under, the charter or by-laws, partnership agreement, trust agreement or other
organization documents, as the case may be, of such Selling Stockholder, or, to
the best of such counsel's knowledge, violate, result in a breach of or
constitute a default under the terms of any other agreement or instrument to
which such Selling Stockholder is a party or by which it is bound, or any
judgement, order or decree applicable to such Selling Stockholder of any court,
regulatory body, administrative agency, governmental body or arbitrator having
jurisdiction over such Selling Stockholder.
(iii) Such Selling Stockholder has good and valid title to all of the Common
Shares which may be sold by such Selling Stockholder under the Underwriting
Agreement and has the legal right and power, and all authorization and approvals
required to enter into the Underwriting Agreement and its Custody Agreement and
its Power of Attorney, to sell, transfer and deliver all of the Common Shares
which may be sold by such Selling Stockholder under the Underwriting Agreement
and to comply with its other obligations under the Underwriting Agreement, its
Custody Agreement and its Power of Attorney.
(iv) Each of the Custody Agreement and Power of Attorney of such Selling
Stockholder has been duly authorized, executed and delivered by such Selling
Stockholder and is a valid and binding agreement of such Selling Stockholder,
enforceable in accordance with its terms, except as rights to indemnification
thereunder may be limited by applicable law and except as the enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles.
(v) Assuming that the Underwriters purchase the Shares which are sold by such
Selling Stockholder pursuant to the Underwriting Agreement for value, in good
faith and without notice of any adverse claims, the delivery of such Shares
pursuant to the Underwriting Agreement will pass good and valid title to such
Shares, free and clear of any security interest, mortgage, pledge, lieu
encumbrance or other claim.
(vi) To the best of such counsel's knowledge, no consent, approval,
authorization or other order of, or registration or filing with, any court or
governmental authority or agency, is required for the consummation by such
Selling Stockholder of the transactions contemplated in the Underwriting
Agreement, except as required under the
E-1
<PAGE>
Securities Act, applicable state securities or blue sky laws, and from the
National Association of Securities Dealers, LLC.
E-2
<PAGE>
Exhibit 5.1
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111
Telephone: 617/542-6000
Fax: 617/542-2241
www.mintz.com
February 16, 2000
Applied Science and Technology, Inc.
35 Cabot Road
Woburn, Massachusetts 01801
Ladies and Gentlemen:
We have acted as counsel to Applied Science and Technology, Inc., a
Delaware corporation (the "Company"), in connection with the preparation and
filing with the Securities and Exchange Commission of a Registration
Statement on Form S-3 (the "Registration Statement"), pursuant to which the
Company is registering under the Securities Act of 1933, as amended, a total
of 2,875,000 shares (the "Shares") of its common stock, $.01 par value per
share (the "Common Stock"), for sale to the public (including up to 100,000
shares of its common stock which may be sold in the over-allotment by two
selling stockholders). This opinion is being rendered in connection with the
filing of the Registration Statement.
In connection with this opinion, we have examined the Company's
Certificate of Incorporation and By-Laws, both as currently in effect; such
other records of the corporate proceedings of the Company and certificates
of the Company's officers as we have deemed relevant; and the Registration
Statement and the exhibits thereto.
In our examination, we have assumed the genuineness of all signatures,
the legal capacity of natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such copies.
Based upon the foregoing, we are of the opinion that (i) the Shares
have been duly and validly authorized by the Company and (ii) the Shares,
when sold, will have been duly and validly issued, fully paid and non-
assessable shares of the Common Stock, free of preemptive rights.
Our opinion is limited to the federal securities laws of the United
States, the laws of the Commonwealth of Massachusetts and the corporate laws
of the State of Delaware, and we express no opinion with respect to the laws
of any other jurisdiction. No opinion is expressed herein with respect to
the qualification of the Shares under the securities or blue sky laws of any
state or any foreign jurisdiction.
We understand that you wish to file this opinion as an exhibit to the
Registration Statement, and we hereby consent thereto. We hereby further
consent to the reference to us under the caption "Legal Matters" in the
prospectus included in the Registration Statement.
Very truly yours,
/s/ Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
MINTZ, LEVIN, COHN, FERRIS,
GLOVSKY and POPEO, P.C.
Boston, Massachusetts . Washington, D.C. . Reston, Virginia . New York, New York
<PAGE>
Applied Science and Technology, Inc.
February , 2000
Page 2
Our opinion is limited to the federal securities laws of the United
States, the laws of the Commonwealth of Massachusetts and the corporate laws
of the State of Delaware, and we express no opinion with respect to the laws
of any other jurisdiction. No opinion is expressed herein with respect to
the qualification of the Shares under the securities or blue sky laws of any
state or any foreign jurisdiction.
We understand that you wish to file this opinion as an exhibit to the
Registration Statement, and we hereby consent thereto. We hereby further
consent to the reference to us under the caption "Legal Matters" in the
prospectus included in the Registration Statement.
Very truly yours,
/s/ Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
MINTZ, LEVIN, COHN, FERRIS,
GLOVSKY and POPEO, P.C.
2
<PAGE>
Exhibit 10n
EXECUTION VERSION
LEASE
BETWEEN
APPLIED SCIENCE AND TECHNOLOGY, INC.,
Tenant
AND
NINETY INDUSTRIAL WAY WILMINGTON LLC,
Landlord
1
<PAGE>
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. Fundamental Lease Provisions................................... 1
- --------- ----------------------------
1.1. Reference Subjects............................................. 1
ARTICLE II. Premises and Term.............................................. 3
- ---------- -----------------
2.1. Premises....................................................... 3
2.2. Acceptance of Premises......................................... 3
2.3. Existing Tenant................................................ 4
2.4. Term........................................................... 4
2.5. Options to Extend.............................................. 4
ARTICLE III.Tenant Work.................................................... 5
- ----------- -----------
3.1. No Landlord's Work............................................. 5
3.2. Tenant Work.................................................... 5
3.2.1. General........................................................ 5
3.2.2. Construction Documents......................................... 5
3.2.3. Performance of Tenant Work..................................... 7
3.2.4. Payment for Tenant Work........................................ 7
ARTICLE IV. Rent........................................................... 7
- ---------- ----
4.1.1. Annual Base Rent-Initial Term.................................. 7
4.1.2. Annual Base Rent-Extension Terms............................... 8
4.1.3. Method of Payment.............................................. 8
4.1.4. Net Return to Landlord......................................... 8
4.1.5. Additional Rent -- Landlord's Taxes............................ 8
4.1.6. Landlord's Taxes -- Definition................................. 9
4.1.7. Additional Rent - Insurance Expenses........................... 10
4.1.8. Additional Rent -- Utilities................................... 10
ARTICLE V. Maintenance.................................................... 10
- --------- -----------
5.1. Tenant's Maintenance Obligation................................ 10
5.2. Landlord's Maintenance Obligations............................. 11
ARTICLE VI. Additional Covenants........................................... 12
- ---------- --------------------
6.1. Tenant's Covenants............................................. 12
6.1.1. Utilities...................................................... 12
6.1.2. Maintenance.................................................... 12
6.1.3. Use and Compliance with Law.................................... 12
6.1.4. Liens and Encumbrances......................................... 13
6.1.5. Indemnity...................................................... 13
6.1.6. Landlord's Right to Enter; Interruptions. Signage.............. 14
6.1.7. Personal Property at Tenant's Risk............................. 14
6.1.8. Damage. Nuisance. Etc.......................................... 14
6.1.9. Yield Up....................................................... 15
6.1.10. Holding Over................................................... 15
6.1.11. Transfer - Assignment and Subletting........................... 16
6.2. Landlord's Covenants; Quiet Enjoyment.......................... 19
6.3. Interruptions.................................................. 19
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
6.4. Real Estate Taxes and Insurance...................................... 19
6.5. Landlord's Hazardous Materials Responsibilities...................... 19
6.6. Landlord's Casualty Insurance........................................ 20
ARTICLE VII. Insurance; Casualty, Taking.......................................... 20
- ----------- ---------------------------
7.1. Insurance by Landlord................................................ 20
7.1.1. Public Liability Insurance........................................... 20
7.2. Waivers of Subrogation............................................... 21
7.3. Damage or Destruction of Premises.................................... 21
7.4. Eminent Domain....................................................... 22
ARTICLE VIII. Default............................................................. 22
- ------------ -------
8.1. Events of Default.................................................... 22
8.2. Remedies Cumulative; Jury Waiver..................................... 24
8.3. Waivers of Default; Accord and Satisfaction.......................... 24
8.4. Curing and Enforcement............................................... 25
ARTICLE IX. Miscellaneous Provisions............................................. 25
- ---------- ------------------------
9.1. Notice............................................................... 25
9.2. Limitation of Landlord's Liability................................... 25
9.3. Excusable Delay...................................................... 26
9.4. Applicable Law and Construction...................................... 26
9.5. Estoppel Certificate................................................. 27
9.6. Notice of Lease...................................................... 27
9.7. Landlord's Default................................................... 27
9.8. Brokers.............................................................. 27
9.9. Intentionally Deleted................................................ 28
9.10. Tenant as Business Entity............................................ 28
9.11. Security Deposit..................................................... 28
9.12. Financial Reports.................................................... 28
9.13. Inducement Payment................................................... 29
9.14. Special Provision Regarding Letter of Credit......................... 29
ARTICLE X. Landlord's Financing................................................. 30
- --------- --------------------
10.1. Subordination and Superiority of Lease............................... 30
10.2. Rent Assignment...................................................... 30
10.3. Other Instruments.................................................... 30
10.4. Mutual Cost of Enforcement; Interest................................. 31
ARTICLE XI........................................................................ 31
- ----------
11.1. Special Provisions Regarding Potential Expansion Space............... 31
ARTICLE XII. Index of Certain Defined Terms....................................... 33
- ----------- ------------------------------
</TABLE>
ii
<PAGE>
LEASE
-----
ARTICLE I.
----------
Fundamental Lease Provisions
----------------------------
1.1. Reference Subjects. Each reference in this Lease to any of the
------------------
following subjects shall incorporate the following information. Other terms are
defined throughout this Lease and are indexed in the last Article.
DATE OF LEASE
EXECUTION: May 21, 1999
PREMISES: (i) The entire existing building shown diagrammatically on
Exhibit A attached hereto consisting of approximately
---------
118,000 rentable square feet (the "Building") and other
improvements presently known and numbered as 90 Industrial
Way, Wilmington, Massachusetts, and (ii) the Lot.
LOT: That certain real property located at 90 Industrial Way in
Wilmington, Middlesex County, Massachusetts, more
particularly described on Exhibit B attached hereto and made
---------
a part hereof, subject to and with the benefit of all
present and future easements, rights of way, privileges and
appurtenances in connection therewith or thereunto
belonging.
LANDLORD: Ninety Industrial Way Wilmington LLC, a Massachusetts
limited liability company
ORIGINAL ADDRESS
OF LANDLORD: c/o Brownfields Recovery Corp.
222 Berkeley Street, 14/th/ Floor
Boston, MA 02116
LANDLORD'S AGENT: Brownfields Recovery Corp.
222 Berkeley Street, 14/th/ Floor
Boston, MA 02116
TENANT: Applied Science and Technology, Inc.,
a Delaware corporation.
ORIGINAL ADDRESS
OF TENANT: 35 Cabot Road
Woburn, MA 01801
1
<PAGE>
INITIAL TERM: Ten (10) Lease years, plus the Tenant Build Out Period.
COMMENCEMENT
DATE: April 1, 2000, subject to the provisions of Section 2.3
hereof.
EXPIRATION DATE: The tenth (10"') anniversary of the Rent Commencement Date.
EXTENSION TERMS: Two Extension Terms of Five Lease years each
ANNUAL BASE RENT -
INITIAL TERM: Lease Year Rent Per Annum
---------- --------------
1-2 $1,032,500.00
3-6 $1,150,500.00
7-10 $1,268,500.00
ANNUAL BASE RENT -
EXTENSION TERMS: Ninety-five percent (95%) of Fair Market Rent as determined
pursuant to Section 4.1.2, but not less than the Annual Base
Rent payable (i) during the tenth Lease year of the Initial
Term (for the first Extension Term), or (ii) during the
fifth Lease year of the first Extension Term (for the second
Extension Term).
LEASE YEAR: As defined in Section 4.2.1 hereof.
PARKING SPACES: All of the existing surface parking currently available on
the Premises, to which Tenant shall have exclusive access.
Landlord agrees not to restripe the parking lot between the
date hereof and the Commencement Date without the prior
written consent of Tenant.
PERMITTED USES: Research, development, manufacturing and distribution of
equipment for manufacturing semiconductor devices and other
advanced applications or other non-residential uses from
time to time permitted by applicable law or ordinance.
PUBLIC LIABILITY
INSURANCE: $2,000,000 per occurrence/$5,000,000 aggregate (combined
single limit) for property damage, bodily injury or death.
RENT
COMMENCEMENT
DATE: The date which is the later to occur of (i) ninety (90) days
following the Commencement Date hereunder, or (ii) July 1,
2000.
2
<PAGE>
SECURITY DEPOSIT: $86,041.67.
TENANT BUILD OUT
PERIOD: The period of time commencing on the Commencement Date and
ending on the date immediately preceding the Rent
Commencement Date.
BROKER: Cushman & Wakefield of Massachusetts, Inc.
("Landlord's Broker")
CRF Partners ("Tenant's Broker")
Exhibit A - Premises Description
Exhibit B - Description of Lot
Exhibit C - Tenant Work Insurance Schedule
Exhibit D - Method for Determining Fair Market Rent
ARTICLE II.
-----------
Premises and Term
-----------------
2.1. Premises. Landlord leases the Premises to Tenant and Tenant leases
--------
the Premises from Landlord, subject to matters of record and matters referred to
below, to which Tenant shall conform and be subject. Subject to reasonable rules
established from time to time by Landlord (of which Tenant shall have been given
not less than thirty days' advance written notice, and which shall be uniformly
enforced by Landlord), Tenant shall also have appurtenant rights to use the
roads, utilities and easements now or hereafter serving the Premises in common
with others to whom Landlord has granted or hereafter may grant rights (Landlord
reserving the right from time to time, with Tenant's consent, which shall not be
unreasonably withheld, to grant and relocate easements necessary or proper for
the efficient operation of the Building). Landlord will not construct any
addition to the Building except at the request of Tenant, and then only upon
terms mutually agreed to by the parties in their sole discretion. Subject to the
provisions of Article III and Article V hereof, Tenant shall have the right to
install antennas and satellite dishes on the roof of the building provided such
installations are made in accordance with all applicable laws, rules and
regulations and in such a manner as will not void any roof warranty or otherwise
adversely affect the structural integrity of the Building.
2.2. Acceptance of Premises. Landlord shall have no obligation or risk
----------------------
with respect to the condition of the Premises other than as expressly set forth
in this Lease, including Article III (and, in the case of casualty or taking, in
Sections 7.3 and 7.4). Tenant acknowledges that it has inspected the Premises
and agrees to accept the Premises in their current "AS IS" condition, subject to
reasonable wear and tear by AGFA Corporation or its successors or assigns (the
"Existing Tenant"). Tenant's occupancy shall be deemed an acknowledgment that
the condition of the Premises is satisfactory and that Landlord has fulfilled
all obligations with respect to such condition, subject to any "punchlist items"
of which Tenant notifies Landlord in writing within thirty (30) days following
Landlord's delivery of the Premises to Tenant. Tenant further acknowledges that,
except as expressly set forth herein, neither Landlord nor any person acting
3
<PAGE>
under Landlord has made or implied any representations or warranties concerning
the Premises, their condition or this Lease.
2.3. Existing Tenant. Landlord and Tenant acknowledge that the Premises
---------------
are currently occupied by the Existing Tenant. Landlord warrants to Tenant that
the Existing Tenant has and shall have no right to occupy any or all of the
Premises after February 5, 2000, and Landlord shall not make, amend or modify
any lease or agreement with the Existing Tenant pursuant to which the Existing
Tenant's rights to so occupy the Premises are extended beyond such date.
Landlord agrees to deliver possession of the Premises to Tenant not later than
April 1, 2000, and Landlord shall coordinate with the Existing Tenant regarding
the removal of Existing Tenant's fixtures, equipment and improvements
(including, without limitation, telephones, cubicle furniture, computer
equipment and the Halon fire suppression system) following the expiration or
sooner termination of the Existing Tenant's occupancy. The failure of Landlord
to deliver the entire Premises to the Tenant by April 1, 2000 shall not be a
default of the Landlord under this Lease nor give rise to any rights and
remedies on the Tenant's part, so long as Landlord shall promptly initiate and
thereafter diligently pursue to completion a summary process action to recover
possession of the Premises. If by May 1, 2000, the Landlord has failed to so
deliver the entire Premises to the Tenant, then for each day after May 1 that
such failure continues, and as its sole remedy therefor, Tenant shall be
entitled to one (1) day's free occupancy after the Rent Commencement Date. If by
August 1, 2000 the Landlord has still failed to so deliver the entire Premises
to the Tenant, then as its sole remedy therefor the Tenant may terminate this
Lease by notice thereof to the Landlord, whereupon this Lease shall terminate
and be without further force or effect, except that Landlord shall reimburse
Tenant for Tenant's actual and reasonable costs and expenses (including without
limitation reasonable attorneys' fees) of entering into this Lease not to exceed
$7,500 in the aggregate.
2.4. Term. This Lease will be for an Initial Term beginning on the
----
Commencement Date and ending on the Expiration Date set forth in Section 1.1
provided that if Landlord delivers possession of the Premises to Tenant prior to
April 1, 2000, then the Commencement Date shall occur upon such delivery and all
Additional Rent payable by Tenant under Article IV hereof shall be paid pro-rata
from and after the date of such delivery. The parties hereto agree, upon demand
of the other, to execute one or more supplemental instruments expressing the
Commencement Date and the Rent Commencement Date hereunder once the same have
been determined, but the failure to do so shall have no effect on either such
Date.
2.5. Options to Extend. At the Tenant's election, this Lease may be
-----------------
extended for two (2) successive Extension Terms set forth in Section 1.1 by
written notice given at least 12 months prior to the end of the then expiring
term, time being of the essence to such exercise, so long as at the time of such
notice and at the beginning of the applicable Extension Term there exists no
Event of Default hereunder. All references to the Term shall mean the Initial
Term as it may be extended by any Extension Term.
4
<PAGE>
ARTICLE III.
------------
Tenant Work
-----------
3.1. No Landlord's Work. Landlord will not be required to provide any
------------------
work or improvements to the Premises to prepare the same for Tenant's occupancy.
Tenant acknowledges that, as of the date hereof, it has had the full opportunity
to inspect the Premises with engineering consultants.
3.2. Tenant Work.
-----------
3.2.1. General. Tenant shall be responsible for performing and
-------
paying for all Tenant Work. "Tenant Work" shall mean such work, including
demolition, improvements, additions and alterations, in or to the Premises as
Tenant may in its sole discretion deem necessary for its business. Without
limiting the generality of the foregoing, Tenant Work shall specifically include
all attached carpeting, all signs visible from the exterior of the Premises
(which signage shall conform to all applicable bylaws and codes and shall be
mutually agreed upon with Landlord, which agreement Landlord will not
unreasonably withhold), and any change in the exterior appearance of the windows
in the Premises (including shades, curtains and the like). All Tenant Work
costing in excess of $250,000 shall be subject to Landlord's prior written
approval not to be unreasonably withheld or delayed, and (subject to section
9.13) shall be arranged and paid for by Tenant as provided herein. Tenant shall
neither propose nor effect any Tenant Work (i) which adversely affects any
structural component of the Building (including, without limitation, exterior
walls, exterior windows, core walls, roofs, or floor slabs) or changes to any
exterior architectural features, (ii) which adversely affects the electrical or
mechanical components or systems of the Building, or (iii) which adversely
affects in any respect other property than the Premises.
3.2.2. Construction Documents. No Tenant Work requiring
----------------------
Landlord's approval shall be effected except in accordance with complete
construction drawings and specifications ("Construction Documents") approved in
advance by Landlord, which approval shall not be unreasonably withheld. If
Landlord does not disapprove any Construction Documents for Tenant Work
submitted within twenty (20) days after submission, then the same shall be
deemed approved at the end of such period. At the time of granting its approval
of any Tenant Work, Landlord shall specify which, if any, of such Work Tenant
will be required to remove upon the expiration or earlier termination of the
Term. The Construction Documents shall be prepared by an architect ("Tenant's
Architect") experienced in the construction of tenant space improvements in
buildings in the greater Boston area. Tenant shall be solely responsible for the
liabilities of and expenses of all architectural and engineering services
relating to Tenant Work and for the adequacy, accuracy, and completeness of the
Construction Documents approved by Landlord, even if Tenant's Architect has been
otherwise engaged by Landlord in connection with the Building. The Construction
Documents shall set forth in detail the requirements for construction of the
Tenant Work (including all architectural, mechanical, electrical and structural
drawings and detailed specifications), shall be fully coordinated with one
another and with field conditions as they exist in the Premises, and shall show
all work necessary to complete the Tenant Work including all cutting, fitting,
and patching and all connections to the mechanical and electrical systems and
components of the Building. Submission of the Construction Documents to
5
<PAGE>
Landlord for approval shall be deemed a covenant by Tenant (unless Tenant
furnishes a certificate of Tenant's Architect substantially to the same effect)
that all Tenant Work described in the Construction Documents (i) complies with
all applicable laws, regulations and building codes, (ii) does not in any manner
adversely affect any structural component of the Building (including, without
limitation, exterior walls, exterior windows, core walls, roofs or floor slabs),
(iii) does not in any manner adversely affect the electrical and mechanical
components and systems of the Building, (iv) does not affect any property other
than the Premises, and (v) conforms to floor loading limits. Landlord's approval
of Construction Documents shall only signify Landlord's consent to the Tenant
Work shown thereon and shall not result in any responsibility of Landlord
concerning compliance of the Tenant Work with laws, regulations, or codes,
coordination of any aspect of the Tenant Work with any other aspect of the
Tenant Work or any component or system of the Building, or the feasibility of
constructing the Tenant Work without damage or harm to the Building, all of
which shall be the sole responsibility of Tenant.
6
<PAGE>
3.2.3. Performance of Tenant Work. In the case of (a) any
--------------------------
Tenant Work requiring Landlord's approval of such Work, or (b) any Tenant Work
affecting any structural, mechanical or electrical systems of the Building, the
identity of any general contractor (including any employee or agent of Tenant
acting as a general contractor) performing any Tenant Work ("Tenant Contractor")
shall be subject to Landlord's prior approval which approval shall not be
unreasonably withheld. Once any Tenant Contractor has been approved, then the
same may thereafter be used by Tenant until Landlord reasonably notification
notifies Tenant that such Tenant Contractor is no longer approved. Tenant shall
procure all necessary governmental permits, licenses and approvals before
undertaking any Tenant Work. Tenant shall perform all Tenant Work at Tenant's
risk in compliance with all applicable laws, codes and regulations and in a good
and workmanlike manner employing new materials of good quality and producing a
result reasonably comparable in quality to the other parts of the Premises. When
any Tenant Work is in progress Tenant shall cause to be maintained insurance as
described in the Tenant Work Insurance Schedule attached hereto as Exhibit C and
such other insurance as may be required by Landlord covering any additional
hazards due to such Work for the benefit of Landlord and in any event naming
Landlord as an additional insured thereunder. It shall be a condition of
Landlord's approval of any Tenant Work that certificates of such insurance
issued by responsible insurance companies qualified to do business in
Massachusetts and carrying an A.M. Best (or successor rating agency) rating of
A-VII or better shall have been delivered to Landlord, that Tenant has provided
Tenant's certification of the insurable value of the work in question for
casualty insurance purposes, and that all of the other conditions of the Lease
have been satisfied. To the extent outside expertise is reasonably required by
Landlord, Tenant shall reimburse Landlord's actual and reasonable third party
expenses incurred in connection with Landlord's review of any proposed Tenant
Work and inspecting installation of the same. At all times while performing
Tenant Work, Tenant shall require any Tenant Contractor to comply with all
applicable laws, regulations and permits relating to such work. Each Tenant
Contractor shall be required by Tenant to agree to indemnify and hold the
Indemnitees harmless from any claim, loss or expense arising in whole or in part
out of any negligent or wrongful act or neglect committed by such person while
in the Building, to the same extent as Tenant has so agreed in this Lease, the
indemnities of Tenant and Tenant's Contractor to be joint and several.
3.2.4. Payment for Tenant Work. Tenant shall pay as the same becomes
-----------------------
due, the entire cost of all Tenant Work so that the Premises shall always be
free of liens for labor or materials. If any lien relating to the furnishing of
labor or materials is filed against the Premises or any part thereof which is
claimed to be attributable to Tenant, its agents, employees or contractors or
others acting under Tenant, then Tenant shall promptly discharge the same by
payment or filing any necessary bond within 30 days after Tenant has notice from
any source of such lien.
ARTICLE IV.
-----------
Rent
----
4.1.1. Annual Base Rent-Initial Term. Annual Base Rent during
-----------------------------
the Initial Term will be as set forth in Section 1.1. Notwithstanding the
foregoing, Annual Base Rent shall not
7
<PAGE>
begin to accrue or be payable until the Rent Commencement Date but all
additional rent and other charges payable by Tenant under the terms of this
Lease shall begin to accrue and be payable on the Commencement Date.
4.1.2. Annual Base Rent-Extension Terms. If the Term is
--------------------------------
extended for the first Extension Term (or the second Extension Term, as
applicable), then Annual Base Rent will be as set forth in Section 1.1. Fair
Market Rent for the Premises during such Extension Term for the purpose of
calculating Annual Base Rent -- Extension Term under Section 1.1 shall be
ascertained as set forth on Exhibit D attached hereto and made a part hereof.
4.2.1. Method of Payment. Tenant agrees to pay the Annual Base
-----------------
Rent to Landlord in advance in equal monthly installments by the first of each
calendar month during the Term. Except as hereafter provided with respect to the
first Lease year, the term "Lease year" shall mean the twelve-month period
following the Rent Commencement Date (unless the Rent Commencement Date is other
than the first day of a month, in which case "Lease year" shall mean the twelve-
month period following the initial partial month). The first Lease year shall
commence on the Commencement Date and expire on the day immediately preceding
the first anniversary of the Rent Commencement Date. Tenant shall make ratable
payment of Annual Base Rent for any period of less than a month at the beginning
or end of the Term. All payments of Annual Base Rent, additional rent and other
sums due shall be paid in current U.S. exchange by check, at the Original
Address of Landlord or such other place as Landlord may from time to time direct
by at least thirty (30) days' written notice, without notice, demand, set-off or
other deduction.
4.2.2. Net Return to Landlord. It is intended that Annual Base
----------------------
Rent payable hereunder shall be a net return to Landlord throughout the Term,
and all provisions hereof shall be construed in terms of such intent. Without
limiting the foregoing, Tenant's obligations hereunder, including the obligation
to pay all rent, shall not be discharged, abated, reduced or otherwise affected
by any law now or hereafter applicable to the Premises, or any other restriction
on Tenant's use, or, except as expressly provided in Article VII, by any damage
or destruction of the Premises or by any taking of the Premises or any part
thereof by condemnation or otherwise, or by any prohibition, limitation,
restriction, prevention or interference of tenant's use, occupancy or enjoyment
of the Premises by any person, and Tenant waives all rights now or hereafter
existing (other than those rights expressly set forth in this Lease) to
terminate, rescind, quit or surrender this Lease or the Premises or any part
thereof, or to assert any defense in the nature of constructive eviction to any
action seeking to recover rent except for any compulsory counterclaims. Subject
to Section 9.2, however, Tenant shall have the right to obtain judgments from
Landlord for direct monetary damages occasioned by Landlord's breach of its
Lease obligations or otherwise enforce its rights hereunder.
4.3.1. Additional Rent -- Landlord's Taxes. Tenant covenants
-----------------------------------
and agrees to pay to Landlord, as additional rent, all of Landlord's Taxes
(hereafter defined) for each fiscal tax
8
<PAGE>
period, or ratable portion thereof, included in the Lease Term, each such
payment to be made not later than ten (10) days prior to the date such taxes are
due (or, if later, five (5) business days after receipt of Landlord's tax bill).
Landlord shall furnish to Tenant copies of all bills relating to any Landlord's
Taxes within fifteen (15) days after Landlord's receipt thereof. Landlord and
Tenant agree to use good faith efforts to cause the municipal taxing authority
to issue the tax bill for the Premises directly to Tenant during the term of
this Lease, and if the same is accomplished Tenant agrees to furnish Landlord
with a copy thereof within fifteen (15) days after receipt, and Tenant shall
make each payment thereunder not later than ten (10) days prior to the date such
taxes are due. In the event that Landlord's institutional first mortgagee
requires that Landlord pay Landlord's Taxes to the mortgagee on a monthly basis,
Tenant shall make such payments to the mortgagee as required, on the conditions
that (i) such mortgagee shall not use such funds for any purpose other than
payment of Landlord's Taxes, and (ii) evidence of payment will be sent to
Tenant. Without implying that other covenants do not survive, the covenants of
this Section shall survive the Term.
4.3.2. Landlord's Taxes -- Definition. "Landlord's Taxes" shall
------------------------------
mean all taxes, assessments, betterments, excises, user fees and all other
governmental charges and fees of any kind or nature, or impositions made in
connection with the provision of governmental services or improvements of
benefit to the Premises (including any so-called linkage payments payable under
a legally binding written agreement executed and delivered prior to the date
hereof), and all penalties and interest thereon (to the extent due to Tenant's
failure to make timely payments on account of Landlord's taxes), actually
assessed or imposed against the Premises (including without limitation any
personal property taxes levied on such property or on fixtures or equipment
owned by Tenant and used in connection therewith), or upon Landlord by virtue of
its ownership thereof, other than a federal or state income tax of general
application and other than any transfer, inheritance, succession, estate or gift
tax. If during the Term the present system of ad valorem taxation of property
shall be changed so that, in lieu of or in addition to the whole or any part of
such ad valorem tax there shall be assessed, levied or imposed on such property
or Premises or on Landlord any kind or nature of federal, state, county,
municipal or other governmental capital levy, sales, franchise, excise or
similar tax, assessment, levy charge or fee (as distinct from the federal and
state income tax of the kind in effect on the Commencement Date and excluding
any transfer, inheritance, succession, estate or gift tax) measured by or based
in whole or in part upon Building valuation, mortgage valuation, rents or any
other incidents, benefits or measures of real property or real property
operations which is used directly or indirectly to fund the same kinds of goods
and services as are funded by the present property tax, then any and all of such
taxes, assessments, levies, charges and fees shall be included within the term
Landlord's Taxes.
During the Term of this Lease, Tenant shall have the exclusive right
to apply for and prosecute any tax abatement or appeal applications or
proceedings (other than those pending as of the date hereof, of which Landlord
has advised Tenant). Tenant shall advise Landlord of any such proceeding
initiated by Tenant, and shall forward to Landlord copies of pleadings and
filings. Such proceedings shall not affect Tenant's obligations to pay
Landlord's Taxes hereunder, except that to the extent permitted by law, Tenant
may withhold payment (or make payments under protest) pending resolution, so
long as (i) Landlord is not exposed to civil or
9
<PAGE>
criminal liability, and (ii) Landlord's interest in the Building is not
subjected to further lien or encumbrance. Tenant shall pay all costs and
expenses of such appeal proceedings. Landlord shall cooperate in such endeavor,
provided that Tenant pays Landlord's actual and reasonable out-of-pocket
expenses in connection with such cooperation.
4.4.1 Additional Rent - Insurance Expenses. Tenant covenants
-----------------------------------
and agrees to pay to Landlord, as additional rent, the premiums on fire,
casualty, rent loss, liability and other insurance maintained by Landlord for
and with respect to the Premises and/or the Lot, and such payment shall be
prorated for any partial premium year. Such additional rent shall be payable in
monthly installments on the first day of each month in advance, based on amounts
reasonably estimated by Landlord and with a final payment adjustment between the
parties within 14 days after Landlord provides Tenant a statement of such costs
and expenses for Landlord's most recent fiscal year.
4.5 Additional Rent -- Utilities. Tenant shall pay directly to
----------------------------
the applicable utility companies all charges for water, sewer, gas, electricity,
telephone and other utilities or services used or consumed on the Premises
during the Term of this Lease, whether called charge, tax, assessment, fee or
otherwise, including, without limitation, water and sewer use charges and taxes,
if any, all such actual charges to be paid as the same from time to time become
due. If Tenant is not billed directly by the applicable utility company for any
such utilities or services, Tenant shall from time to time, within thirty (30)
days after receipt of Landlord's invoice therefore, pay to Landlord the total of
such charges assessed against the Premises by such utility company. It is
understood and agreed that Tenant shall make its own arrangements for such
utilities and that Landlord shall be under no obligation to furnish any
utilities to the Premises and shall not be liable for any interruption or
failure in the supply of any such utilities to the Premises. Notwithstanding any
of the foregoing to the contrary, Tenant shall pay for any utilities used by
Tenant prior to the Rent Commencement Date.
ARTICLE V.
----------
Maintenance
-----------
5.1. Tenant's Maintenance Obligation. Tenant shall, from and after
-------------------------------
the Commencement Date until the end of the Term and any extension thereof,
maintain the Premises in as good condition and repair as the Premises are at the
Commencement Date, reasonable wear and tear and damage to the Premises caused by
Landlord's default hereunder, fire and casualty or by eminent domain, excepted.
With the exception of Landlord's continuing obligation to maintain the
Building's roof and Building Structural Elements as set forth in Section 5.2,
Tenant shall be responsible to perform all maintenance and repairs necessary to
maintain in good order, condition and repair the Premises and all "Building
Systems" (as hereinafter defined), at Tenant's sole cost and expense with no
contribution from Landlord. Without limiting the foregoing (and except to the
extent that the need therefor arises from the negligent or wrongful act or
omission of Landlord or its agents or contractors), Tenant shall maintain,
repair and replace, as necessary, all Building Systems. In addition, Tenant
shall make all routine and non-
10
<PAGE>
structural replacements, alterations and improvements to the Premises which are
required by any law, statute, code, ordinance, bylaw, rule or regulation of any
governmental authority first becoming effective after the date hereof. As used
herein, the term "Building Systems" shall mean, collectively, the plumbing,
sprinkler, fire suppression, heating, ventilating and air conditioning,
electrical and mechanical lines and equipment associated therewith, located
within and serving the Premises.
During the Term, Tenant shall replace, as necessary, all Building
Systems ("System Replacement Work") and the cost of all System Replacement Work
performed by Tenant shall initially be paid by Tenant, subject to reimbursement
by Landlord for a portion of such cost as provided in the following provisions
of this paragraph. With respect to any System Replacement Work performed by
Tenant pursuant to the preceding provisions of this paragraph, upon the earlier
to occur of (x) the date which is eleven (11) months prior to the expiration of
the term of this Lease (as the same may be extended in accordance with the terms
hereof), or (y) the earlier termination of this Lease, Landlord shall reimburse
to Tenant a percentage of the cost thereof, which percentage shall be the
decimal equivalent of the fraction the numerator of which is the number of years
(or fraction thereof) remaining in the useful life of the System Replacement
Work in question at the time of such expiration or termination and the
denominator of which is the full useful life of the System Replacement Work in
question, (expressed in a number of years or fraction thereof), which useful
life shall be determined by reference to the shortest useful life permissible
under federal income tax regulations. Any amount to be reimbursed by Landlord to
Tenant pursuant to the provisions of this paragraph shall be paid to Tenant
within forty-five (45) days after receipt by Landlord of a statement of the
amount to be paid which statement shall provide a detailed explanation of the
calculation of the amount to be paid by Landlord (including, without limitation,
the total cost of the work performed and Tenant's determination of the useful
life of the System Replacement Work in question).
Tenant shall maintain in reasonably good condition all lawns and
planted areas on the Lot. Tenant shall also provide snow plowing of parking
areas, walks and driveways within the Lot as reasonably necessary or
appropriate.
5.2. Landlord's Maintenance Obligations. During the Term, Landlord shall
----------------------------------
have a continuing obligation to maintain in good order, condition and repair the
roof of the Building and the Building Structural Elements (as hereinafter
defined) in good order, condition and repair and in accordance with all
applicable laws, codes and regulations.
In the event that Tenant damages any portion of the Building's roof or
Building Structural Elements or Building Systems, then Tenant shall be
responsible for any maintenance required as a result of such disturbance by
Tenant. As used herein, the phrase "Building Structural Elements" shall mean the
exterior and interior structures of the Building, including the exterior walls,
bearing walls, support beams, foundation, columns, exterior doors and windows
and lateral support to the Building. Notwithstanding any of the foregoing to the
contrary, Landlord shall have no obligation to maintain any Building Structural
Elements or to contribute toward the cost of replacing any Building Systems
which were installed by Tenant, or up-graded by Tenant or otherwise modified by
Tenant. In addition, notwithstanding anything contained
11
<PAGE>
herein to the contrary, Landlord shall have no obligation with respect to any
repairs, replacements, additions, alterations and improvements to the roof or
Building Structural Elements or Building Systems required by any law, statute
code, ordinance, by-law, rule or regulation of any governmental authority due to
Tenant's particular use or manner of use of the Premises, which would not
otherwise be required and necessary for the average office, manufacturing or
research and development business.
ARTICLE VI.
-----------
Additional Covenants
--------------------
6.1. Tenant's Covenants. Tenant agrees during the Term and such further
------------------
time as Tenant (or any person acting under it) occupies any part of the Premises
to perform the following, all at Tenant's cost.
6.1.1. Utilities. Tenant shall arrange, provide and pay
---------
directly for all water, sewer, oil, gas, electricity and other energy or utility
services which serve the Premises and deposits or bonds in connection therewith.
Landlord shall not be liable for (nor suffer any reduction in any rent on
account of) any interruption or failure in the supply of any utility services.
6.1.2. Maintenance. Subject only to Landlord's obligation in
-----------
Section 5.2 hereof, Tenant shall maintain, repair and keep in compliance with
all governmental requirements the Premises and all improvements and
appurtenances and all utilities, facilities, installations and equipment used in
connection therewith.
6.1.3. Use and Compliance with Law. Tenant shall occupy the
---------------------------
Premises for no purpose other than the Permitted Uses, and only as and to the
extent permitted under present and future laws, ordinances and bylaws and all
regulations thereunder (including the Americans With Disabilities Act of 1990),
permits, orders and conditions of any special permits or other governmental
approvals ("Laws"). Tenant shall also keep the Premises equipped with
appropriate safety appliances and comply with all requirements of insurance
inspection or rating bureaus applicable from time to time to the particular
manner of use (as opposed to the average manufacturing, research and development
and offices uses) being made of the Premises or to Tenant particularly (as
opposed to other tenants generally), or both, foreseen or unforeseen, and
whether or not the same necessitate structural or other extraordinary changes or
improvements to the Premises or interfere with Tenant's use. Tenant may
diligently contest any such laws so long as (a) such contest is made in good
faith and (b) any such contest does not expose Landlord to any criminal
liability or civil penalty, result in the possibility of any lien being imposed
upon the Premises, or subject Landlord to any civil liability beyond the amount
of any bond or cash collateral furnished by Tenant in the amount of any such
liability. Tenant shall procure all appropriate approvals, licenses and permits,
in each case promptly giving Landlord true and
12
<PAGE>
complete copies of the same and all applications therefor. It is intended that
Tenant bear the sole risk of all present or future laws affecting the Premises
applicable to the particular manner of use (as opposed to laws generally
applicable to manufacturing, research and development and offices uses) being
made of the Premises and Landlord shall not be liable for, nor suffer any
reduction in any rent on account of, the enforcement of such laws, it being
understood and agreed that the provisions of the parenthetical in this sentence
shall not in any way limit Tenant's responsibilities or obligations set forth in
Section 6.1.8 of this Lease.
6.1.4. Liens and Encumbrances. Tenant shall keep the Premises
----------------------
(and Landlord's interest therein) and Tenant's leasehold (and Tenant's interest
therein) free of, and shall within one month discharge or bond any perfected
lien, security interest or other encumbrance which arises as a result of any act
or omission of Tenant or persons acting under Tenant.
6.1.5. Indemnity. (a) Subject to the rights expressly reserved
----------
to Landlord, Tenant shall assume exclusive control of the Premises, the parking
areas available for Tenant's exclusive use and all sidewalks, walkways and
driveways on the Lot and used in connection with the foregoing, and, except as
provided below, Tenant shall bear the sole risk of all related tort liabilities.
Except to the extent arising from the negligent or wrongful act or omission of
any Landlord Indemnitee, or any person acting under any Landlord Indemnitee
(other than Tenant and Tenant Indemnitees) Tenant shall indemnify, save harmless
and defend Landlord and its partners, members, managers, mortgagees, agents and
employees ("Landlord Indemnitees") from all liability, claim, damage, cost or
loss (including reasonable fees of legal counsel of the Tenant's (or any insurer
assuming liability) choice against whom Landlord makes no reasonable objection)
arising in whole or in part out of, or in any manner connected with (i) any
injury, loss, theft or damage to any person or property while on or about the
Premises, or (ii) bodily injury or property damage resulting from any condition
of the Premises and/or the possession and use thereof or any activity permitted
or suffered thereon during the Term (including hazardous materials or hazardous
materials activities), or (iii) bodily injury or property damage resulting from
any breach of any covenant, representation or certification contained in this
Lease by Tenant or persons acting under Tenant, or (iv) bodily injury or
property damage resulting from any negligent or wrongful act or omission
anywhere by Tenant or persons acting under Tenant.
(b) Except to the extent arising from the negligent or wrongful act or
omission of any Tenant Indemnitee, or any person acting under any Tenant
Indemnitee, Landlord shall indemnify, save harmless and defend Tenant and those
claiming by, through or under Tenant ("Tenant Indemnitees") from all liability,
claim, damage, cost or loss (including reasonable fees of legal counsel of the
Landlord's (or any insurer assuming liability) choice against whom Tenant makes
no reasonable objection) actually and reasonably suffered or incurred and
arising in whole or in part out of, or in any manner connected with (i) any
bodily injury or property damage resulting from any breach of any covenant,
representation or certification contained in this Lease by Landlord or its
agents, contractors and employees, or (ii) any bodily injury or property damage
resulting from any negligent or wrongful act or omission anywhere by Landlord or
Landlord's agents, contractors or employees.
13
<PAGE>
6.1.6. Landlord's Right to Enter; Interruptions. Signage. Landlord
-------------------------------------------------
and persons acting under Landlord may upon such notice and in such as is
reasonable under the circumstance (being at least 24 hours except in the case of
an emergency) enter the Premises during business hours (and in case of emergency
at any time) in exercise of any rights reserved to Landlord, or to inspect the
Premises, or to take measurements of the Premises, or to secure or protect the
Premises; and similarly at any time may show the Premises to prospective
purchasers and lenders, and during the last 12 months of the Term prospective
tenants, and during the last 6 months of the Term may keep affixed in suitable
places reasonably approved by Tenant notices for letting. In addition, Landlord
may affix at its expense a suitable sign reasonably acceptable to Tenant at each
main entrance to the Premises identifying the Premises as property owned by
Landlord. Except in case of emergency, Landlord's entering the Premises shall be
subject to reasonable security conditions, if any, set forth in a notice by
Tenant to Landlord. Landlord's rights will be exercised in a manner which will
not unreasonably interfere with Tenant's operations and will be consistent with
Tenant's reasonable security measures.
6.1.7. Personal Property at Tenant's Risk. All personal property of
----------------------------------
any person which is located on or near the Premises shall be at the sole risk of
Tenant. Landlord shall not be liable for any loss or damage to persons or
property resulting from any accident, theft, vandalism or other occurrence on
the Premises, including damage resulting from water, wind, ice, steam,
explosion, fire, smoke, chemicals, the rising of water or leaking or bursting of
pipes or sprinklers, defects, structural or non-structural failure, or any other
cause except to the extent such loss or damage is caused solely and directly by
Landlord's negligence.
6.1.8. Damage. Nuisance. Etc. Tenant shall not itself, or permit or
---------------------
suffer persons acting under Tenant to, either with or without negligence,
injure, overload, deface or damage Landlord's property, the Premises or any part
or component thereof commit any nuisance; permit the emission, discharge,
release or other escape of any oil or petroleum products, asbestos,
polychlorinated biphenyls or any biologically or chemically active or other
hazardous or toxic materials, substances or wastes whether in solid, liquid or
gaseous state (collectively, "hazardous materials") so as to impregnate, impair
or in any manner affect, even temporarily, any element or part of the Premises
or the property or person of others, or allow the storage, generation, disposal
or use of such materials (collectively "hazardous materials activities") in any
manner prohibited by law; nor shall Tenant permit to be brought onto the
Premises any such materials except to use in the ordinary course of Tenant's
business or permit any waste of the Premises. If Landlord reasonably believes
(after appropriate inquiry) that a release may have occurred or a threat of
release exists on or about the Premises by reason of any act or omission of
Tenant or persons acting under Tenant or Tenant's hazardous materials activities
do not conform to all laws, then Landlord may, but need not, perform appropriate
testing in a commercially reasonable manner and if such testing reveals that
Tenant has violated the foregoing provisions, the reasonable costs thereof shall
be reimbursed to Landlord by Tenant upon demand as additional rent. Without
limitation, hazardous materials shall include all substances or materials, in
whatever form, described in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. 9601 et seq.; in
the Resource Conservation and Recovery Act, as amended, 42 U.S.C. 6901 et seq.;
in the Hazardous Materials Transportation Act; in the
14
<PAGE>
Massachusetts Hazardous Waste Management Act, as amended, M.G.L. Chapter 21C,
and the Massachusetts Oil and Hazardous Material Release Prevention Act, as
amended, M.G.L. Chapter 21E and all other laws governing similar matters as they
may be amended from time to time. In addition, in connection with any sale or
financing by Landlord, Tenant shall execute reasonable and customary affidavits,
representations and the like from time to time at Landlord's request concerning
Tenant's best knowledge and belief (but without duty of inquiry) regarding the
presence or absence of hazardous materials on the Premises provided that
Landlord shall reimburse Tenant for any reasonable third party costs actually
incurred in connection therewith (to the extent Tenant would not be obligated to
execute and deliver such instrument in the absence of such sale or financing),
and also provided that Tenant shall in no event be required to incur or assume
additional liability or obligation in so doing which Tenant does not already
have under the terms of this Lease or under law. In all events and without
limitation, Tenant assumes liability pursuant to Section 6.1.5 for any personal
injury or property damage (including loss of use) or any other cost or expense
resulting in claims arising out of the discharge, dispersal, release or escape
of hazardous materials or any pollutants or contaminants whatsoever occurring on
the Premises by reason of any act of omission of Tenant or persons acting under
Tenant whether before or during the Term of this Lease, and for so long
thereafter as Tenant or persons acting under Tenant remain in occupancy of any
portion of the Premises, and Tenant shall indemnify Indemnitees in the manner
elsewhere provided in Section 6.1.5 of this Lease with respect to hazardous
materials and hazardous materials activities (and for these purposes the costs
and loss indemnified shall include any costs of investigation of site
conditions, any cleanup, remediation, removal or restoration work and any lost
rents). Without limiting the foregoing, Tenant shall promptly take all actions
at its sole expense as are necessary to remediate the conditions caused by such
materials in accordance with and to the extent required by law; provided that
such actions are undertaken in accordance with all applicable laws, rules and
regulations and accepted industry practices. The provisions of this Section
shall survive the Term.
6.1.9. Yield Up. At the termination of the Term, Tenant (and all
--------
persons claiming through Tenant) shall without the necessity of notice surrender
the Premises and all keys (or lock combinations) to the Premises; and shall
remove all Tenant Work which Landlord notified Tenant it would be required to
remove at the time it approved such Work (excluding partitions, floor coverings
and wall coverings), and all trade fixtures and personal property whether or not
bolted or otherwise attached, and all of Tenant's signs wherever located, in
each case repairing damage which results from such removal and restoring the
Premises to substantially the same tenantable condition of the Premises on the
Commencement Date. Tenant shall yield up the Premises broom-clean, reasonable
wear, damage by casualty or taking or damage by Landlord's negligence or failure
to perform hereunder excepted. Any property not so removed shall be deemed
abandoned, shall at once become the property of Landlord, and may be disposed of
in such manner as Landlord shall see fit; and Tenant shall pay the cost of
removal and disposal to Landlord upon demand.
6.1.10. Holding Over. If Tenant (or anyone claiming through Tenant)
------------
shall remain in possession of the Premises or any part thereof after the
expiration or termination of the
15
<PAGE>
Term without a written agreement executed by Landlord, then without limit to
Landlord's other rights and remedies the person remaining in possession shall be
deemed a tenant at sufferance, and Tenant shall thereafter pay monthly rent (pro
rated for such portion, of any partial month as Tenant or such party shall
remain in possession) at a rate equal to two times the amount payable as Annual
Base Rent for the then expiring Lease year, and with all additional rent also
payable as provided in this Lease; and after Landlord's acceptance of the full
amount of such rent for the first month following the Term the person remaining
in possession shall be deemed a tenant at sufferance at such rent but shall be
otherwise subject to all of the provisions of this Lease. In any case, Tenant
shall remain liable to Landlord for all actual damages resulting from such
breach with the amount of any rent accepted by Landlord on account of the
holding over considered in mitigation of such damages.
6.1.11. Transfer - Assignment and Subletting. Except for Permitted
------------------------------------
Transfers (hereinafter defined), Tenant shall not assign this Lease, or sublet
or license the Premises or any portion thereof or permit the occupancy of all or
any portion of the Premises by anybody other than Tenant (all of the foregoing
actions are collectively referred to as a "Transfer") without obtaining, on each
occasion, the prior written consent of Landlord, which shall not be unreasonably
withheld or delayed.
For purposes of this Lease, a Permitted Transfer shall mean an assignment
of this Lease by Tenant to its wholly owned subsidiary or immediate controlling
corporation or affiliated corporation (for such period of time as such
corporation remains such a subsidiary or such a controlling corporation or such
an affiliated corporation, respectively, it being agreed that the subsequent
sale or transfer of stock resulting in a change in voting control, or any other
transaction(s) having the overall effect that such corporation ceases to be such
a subsidiary or such a controlling corporation or such an affiliated
corporation, respectively, of Tenant, shall be treated as if such sale or
transfer or transaction(s) were, for all purposes, an assignment of this Lease
governed by the provisions of this Section 6.1.11 and not a Permitted Transfer),
provided (and it shall be a condition of the validity of any such assignment)
that such wholly owned subsidiary or such immediate controlling corporation or
such an affiliated corporation first agree directly with the Landlord to be
bound by all of the obligations of Tenant hereunder, including, without
limitation, the obligation to pay the rent and other amounts provided for under
this Lease, the covenant to use the Premises only for the purposes specifically
permitted under this Lease and the covenant against further assignment; but such
assignment shall not relieve Tenant herein named of any of its obligations
hereunder, and Tenant shall remain fully liable therefor.
As used herein, "affiliate" shall mean any entity that is under common
direct or indirect control with Tenant. "Control" shall mean ownership of fifty-
one percent (51%) or more of the voting securities or rights of the controlled
entity (which includes the right to elect the directors of the corporation or
the equivalent if such entity is not a corporation).
In addition, for the purposes of this Lease, the sale or transfer (which
term shall include, without limitation, the exchange, issuance and redemption)
of forty-nine percent (49%) or more, or such smaller percentage as would result
in a change in the voting control, of the voting stock of Tenant (if the Tenant
is a corporation), the voting stock of any corporate guarantor of Tenant
16
<PAGE>
(whether or not specified in Section 1.1 hereof), or the voting stock of any
immediate or remote controlling corporation of Tenant (whether such sale or
transfer occurs at one time or at intervals so that, in the aggregate, over the
term of this Lease, such transfer shall have occurred), or any other
transaction(s) overall having the effect of a change in voting control or
substantially the same effect if the entity in question is not a corporation
(such as, without limitation, a change in the number or the identity of partners
of a partnership or of beneficiaries of a trust), shall be treated as if such
sale or transfer or transaction(s) were, for all purposes, an assignment of this
Lease and shall be governed by the provisions of this Section 6.1 .11 and shall
not be a Permitted Transfer; provided, however, that the provisions of this
sentence shall not apply to the transaction by which Tenant becomes, or to the
trading of Tenant's voting stock while the Tenant remains, a so-called reporting
public corporation under the provisions of the Securities Exchange Act of 1934,
as amended, the outstanding voting stock of which is registered in accordance
with the provisions of the Securities Act of 1933, as amended, and actively
traded on the New York Stock Exchange or another recognized, national securities
exchange (and for the purposes hereof, the term 'voting stock" shall refer to
shares of stock regularly entitled to vote for the election of directors of the
corporation).
Notwithstanding the foregoing provisions of this Section 6.1.11, in the
event that all or substantially all of Tenant's operations are being transferred
to another entity by way of merger, consolidation or sale of substantially all
of the stock therein or assets thereof, the Landlord will not unreasonably
withhold consent to an assignment of this Lease to said resulting or acquiring
entity, provided (and it shall be a condition of the validity of any such
assignment), without limitation, that: (i) such entity shall first agree
directly with the Landlord to be bound by all of the obligations of Tenant
hereunder, including, without limitation, the obligation to pay the rent and
other charges provided for under this Lease, and the covenant against further
assignment; (ii) such assignment shall not relieve the Tenant herein named of
any of its obligations hereunder, and the Tenant shall remain fully liable
therefor; and (iii) the Tenant shall furnish Landlord with such information
regarding such entity as Landlord may reasonably require, including, without
limitation, information regarding good financial ability and business experience
, and Landlord determines in the Landlord's reasonable judgment that such entity
(a) at the time of such assignment, is of good creditworthiness and net worth at
lest equal to those of Tenant herein named on the date of the execution hereof
(or, if then greater, on the date such consent is requested), and (b) is
acquiring such operations as a going business. In addition, if the performance
of the obligations of the Tenant herein named are guaranteed, then such entity
or a substantially comparable guarantor shall be of net worth and
creditworthiness at least equal to those of the then existing guarantor of the
Tenant.
In the event Tenant assigns this Lease or sublets the whole or any part of
the Premises (other than as expressly hereinabove permitted to its wholly owned
subsidiary or its immediate controlling corporation or with the Landlord's prior
written consent), in addition to and without limiting any of Landlord's rights
and remedies on account of the resulting default hereunder by Tenant, Landlord
shall have the right to terminate this Lease by giving Tenant notice of
Landlord's desire so to do, in which event this Lease shall terminate on the
date specified by Landlord in such notice all as if such date were the date
specified in Section 1.1 hereof as the Expiration Date.
17
<PAGE>
If Tenant does enter into a Transfer permitted hereunder (other than a
Permitted Transfer), and if the consideration, rent, or other charges payable to
Tenant under such transfer exceed the sum of (i) the Annual Base Rent and
Additional Rent to be paid hereunder (pro rated based on floor area in the case
of a subletting, license or other occupancy of less than the entire area of the
Premises) and (ii) Tenant's Transfer Expenses, then Tenant shall pay to
Landlord, as additional rent, the entire amount of such excess in the case of an
assignment and fifty per cent (50%) of such excess in the case of a subletting,
when and as received. Tenant shall not, however, be required to include in any
such calculation any proceeds from a sale or rental to the Transferee of any of
Tenant furniture, fixtures or equipment located in or on the Premises provided
that any value allocated to such furniture, fixtures and equipment is a good
faith approximation of the actual value thereof. Tenant's Transfer Expenses
shall mean Tenant's reasonable and necessary payments to third parties in
connection with such a Transfer including, without limitation, those incurred on
account of brokerage, legal and fit-up costs together with such share, if any,
of the unamortized cost of any Tenant Work as is reflected in the consideration,
rent and other charges payable to Tenant (it being understood that Tenant shall
be entitled to first recover all of Tenant's Transfer Expenses before Landlord
shall be entitled to receive any portion).
It shall not be unreasonable for Landlord to withhold its consent to any
proposed assignment of this Lease or to any proposed subletting of all or any
part of the Premises if Landlord determines in the exercise of its prudent
business judgment that the following conditions have not been satisfied: (i) the
proposed assignee or sublessee has a good business reputation; (ii) the use to
be made of the Premises by the proposed assignee or sublessee shall not be of a
type of use which is reasonably likely to cause more extensive wear and tear to
the Premises than that to be carried on by the Tenant herein named (to the
extent that the same is not reparable as required herein) or to pose a threat of
environmental contamination or harm to any third party or injury to the Building
and will not create any additional expenses or costs to the Landlord, and is
otherwise reasonably consistent with all of the terms, covenants and conditions
of this Lease; and (iii) neither the proposed use nor the proposed assignee or
sublessee will adversely affect the residual value of the Building after the
expiration of the Term. It shall be a condition of the validity of any such
assignment or subletting that the assignee or sublessee agrees directly with
Landlord, in form reasonably satisfactory to Landlord, to be bound by all the
obligations of Tenant hereunder (to the extent appropriate in the case of a
sublease), including, without limitation, the covenant against further
assignment or subletting, but such assignment or subletting shall not relieve
the Tenant named herein of any of the obligations of Tenant hereunder, and
Tenant shall remain fully liable therefor. Tenant shall, upon demand, reimburse
Landlord for the actual and reasonable third party legal fees and expenses
incurred by Landlord in processing any request to assign this Lease or to sublet
all or any portion of the Premises.
In all events notwithstanding any Transfer, and whether or not the same is
a Permitted Transfer or consented to, Tenant's and any guarantor's liability to
Landlord shall remain direct and primary. In the case of any requested consent
to a Transfer, Tenant shall deliver to Landlord at the time of such Transfer (i)
a true and complete copy of the proposed instrument containing all of the terms
and conditions of such Transfer, and (ii) a written agreement of the Transferee,
in form reasonably approved by Landlord, agreeing with Landlord to perform and
observe all of the terms, covenants and conditions of this Lease (to the extent
appropriate to a sublease). Any
18
<PAGE>
assignee shall upon request execute and deliver such instruments as Landlord
reasonably requests in confirmation thereof (and Tenant agrees that such
assignee's failure to do so shall be grounds for withholding of Landlord's
consent). So long as an Event of Default exists hereunder, Landlord may collect
rent and other charges from such Transferee (and upon notice such Transferee
shall pay directly to Landlord) and apply the net amount collected to the rent
and other charges herein reserved, but no such collection shall be deemed a
waiver of the provisions of this Section, or the acceptance of the Transferee as
a tenant, or a release of Tenant or any guarantor from direct and primary
liability for the performance of all of the covenants of this Lease. The consent
by Landlord to any Transfer shall not relieve Tenant from the obligation of
obtaining the express consent of Landlord to any modification of such Transfer
or a further assignment, subletting, license or occupancy; nor shall Landlord's
consent alter in any manner whatsoever the terms of this Lease, to which any
Transfer at all times shall be subject and subordinate. Failure by Landlord to
consent to a proposed transfer shall never cause a termination of this Lease.
6.2. Landlord's Covenants; Quiet Enjoyment. Tenant, subject to the terms
-------------------------------------
and provisions of this Lease, upon payment of the rent and observing, keeping
and performing all of the terms and provisions of this Lease on Tenant's part to
be observed, kept and performed, shall lawfully, peaceably and quietly have,
hold, occupy and enjoy the Premises during the Term hereof, without hindrance or
ejection by any persons claiming under Landlord to have title to the premises
superior to Tenant, and it is understood and agreed that this covenant and any
and all other covenants of Landlord contained in this Lease shall be binding
upon Landlord and Landlord's successors only with respect to breaches occurring
during Landlord's and Landlord's successors' respective ownership of Landlord's
interest hereunder.
6.3. Interruptions. Landlord or its agents or contractors, Landlord shall
-------------
not be liable to Tenant in damages or by reduction of rent or otherwise by
reason of inconvenience or annoyance or for loss of business arising from
Landlord or its agents, employees or independent contractors entering the
Premises and/or the Lot for any of the purposes authorized in this Lease. In
case Landlord is prevented or delayed from performing any covenant or duty to be
performed on Landlord's part by reason of any cause reasonably beyond Landlord's
control, Landlord shall not be liable to Tenant therefor, nor shall the same
give rise to a claim in Tenant's favor that such failure constitutes
constructive eviction from the Premises. Except in emergencies, Landlord will,
at Tenant's request, stop such services or utilities only after business hours.
6.4. Real Estate Taxes and Insurance. To the extent not required to be
-------------------------------
paid by Tenant hereunder, Landlord shall pay, on or before the date due, all
real estate taxes on the Premises and Lot, and Landlord shall pay, on or before
the date due, all insurance premiums on insurance required to be carried by
Landlord as provided below so long as Tenant has made timely payment of all
-----
additional rent under Sections 4.3.1 and 4.4.1.
6.5. Landlord's Hazardous Materials Responsibilities. Landlord shall not
-----------------------------------------------
itself, nor shall it permit or suffer persons acting under Landlord, either with
or without negligence, to release during the Term hereof any hazardous materials
prohibited by law on the Lot. Except as
19
<PAGE>
the same are made Tenant's responsibility by the provisions of Section 6.1.8,
Landlord shall promptly take all actions at its sole expense as are necessary to
remediate any release of hazardous materials in accordance with and to the
extent required by law. Landlord shall indemnify, save harmless and defend
Tenant from all liability, claim, damage, cost or loss (including reasonable
fees of legal counsel of the Landlord's (or an insurer assuming liability)
choice against whom Tenant makes no reasonable objection) which may at any time
(whether or not prior to or after expiration of the Term of this Lease) be
imposed upon, incurred by or asserted or awarded against Tenant arising from or
out of the violation of the foregoing provision.
6.6. Landlord's Casualty Insurance. Landlord shall maintain the following
-----------------------------
insurance on the Premises: (a) property damage insurance with such deductibles
and in such amounts as may from time to time be carried by reasonably prudent
owners of similar buildings in the area in which the Property is located,
provided that in no event shall Landlord carry less than "special form" property
damage insurance, with so-called "broad-form" coverage (including change in law
endorsements), in an amount equal to one hundred percent (100%) of the full
replacement cost of the Building (excepting footings and foundations) and other
improvements comprising the Premises, with an agreed amount clause, and
including a waiver of subrogation; and (b) rent continuation insurance for a
period of at least two years in an amount not less than the gross annual rental
income hereunder (meaning Annual Base Rent and all additional rent payable).
Tenant shall be named as an additional insured under such policy, as its
interest may appear. Landlord may satisfy such insurance requirements by
including the Property in a so-called "blanket" insurance policy, provided that
the amount of coverage allocated to the Property shall fulfill the foregoing
requirements.
ARTICLE VII.
------------
Insurance; Casualty, Taking
---------------------------
7.1. Insurance by Landlord. If Tenant fails to perform any covenant in
---------------------
Section 7.1.1, then without limiting any of Landlord's other rights and
notwithstanding any other provision of this Lease concerning notice and cure of
defaults, Landlord may obtain such insurance, and Tenant shall pay the actual
cost thereof upon demand as additional rent.
7.1.1. Public Liability Insurance. Tenant shall maintain throughout
--------------------------
the Term (and such further time as Tenant or any person claiming
through it occupies any part of the Premises) commercial general liability
insurance against all claims for injury to persons or property in connection
with the Premises naming Landlord (and if requested, Landlord's mortgagees and
Landlord's members, managers, partners, property manager and any other party in
privity of estate with Landlord) as additional insureds, in an amount which
shall be equal to the amount set forth in Section 1.1. Such insurance shall
provide that it will not be subject to cancellation, termination or change
except after at least 30 days' prior written notice to Landlord (and Landlord's
mortgages and other additional insureds). Each such policy shall be written by a
20
<PAGE>
reputable and financially sound, duly licensed and admitted insurance company
with an AM Best rating of A-VII or better. A duly executed certificate and copy
of such policy shall be deposited with Landlord at the beginning of the Term,
and a renewal certificate shall be so deposited not less than 30 days prior to
their normal expiration. Such insurance may be maintained in part through so-
called "umbrella" coverage reasonably satisfactory to Landlord.
7.2. Waivers of Subrogation. Any insurance carried by either Landlord or
----------------------
Tenant with respect to the Premises or personal property on the Premises shall
include an endorsement containing a waiver by the insurer of its rights of
subrogation against the other party, to the extent available (and if available
only at an additional cost, then if the other party agrees to pay such
additional cost). Without limiting any other provisions of this Lease, each
party hereby waives any rights of recovery against the other for injury or loss
due to hazards covered by such insurance, to the extent of the recovery under
such insurance (or to the extent of the recovery that could have occurred if
coverage had been maintained as expressly required by this Lease).
7.3. Damage or Destruction of Premises. If the Premises or any part
---------------------------------
thereof shall be damaged by fire or other insured casualty, then, subject to the
following provisions of this Section, Landlord shall proceed with diligence,
subject to then applicable laws and at the expense of Landlord (but only to the
extent of insurance proceeds received and made available to Landlord by any
mortgagee, Landlord agreeing to make available funds in the amount of Landlord's
deductible and to use diligent efforts to obtain the mortgagee's consent to
release of such proceeds) to cause to be repaired such damage, excluding any
items installed or paid for by Tenant which Tenant is required or permitted to
remove upon expiration (which items shall be Tenant's responsibility to repair).
However, if any damage occurs through the act or neglect of Tenant or persons
acting under Tenant or if any act or neglect of Tenant or such person prevents
Landlord or its mortgagees from collecting all insurance proceeds, then the cost
of repairing the casualty damage shall be paid by Tenant and there shall be no
abatement of rent except to the extent any insurance proceeds are actually
received by Landlord or mortgagees or proceeds would have been recovered if
Landlord had maintained the insurance required to be maintained under Section
6.4 (Landlord agreeing to, if necessary). If any casualty occurs to more than
fifty percent of the Premises during the last eighteen (18) months of the Term
(as the same may have been extended), then in any such case, this Lease and the
Term hereof may be terminated at the election of Landlord or Tenant by a notice
in writing of its election so to terminate given to the other party within two
(2) months following such casualty, the effective termination date being not
less than thirty (30) nor more than sixty (60) days after the date of such
notice.
Tenant shall be entitled to a just abatement of Annual Base Rent and all
Additional Rent during the period of impaired use of the Premises. If neither
Landlord nor such mortgagee (i) has commenced such replacement within the
earlier of six (6) months following such casualty, or (ii) having so commenced
such replacement, has substantially completed such restoration within twelve
(12) months following such casualty, then Tenant may, until any such aforesaid
replacement commences in the case of (i) or is so completed in the case of (ii),
terminate this Lease by giving at least thirty (30) days prior written notice
thereof to Landlord (which termination shall be vitiated and rendered null and
void if Landlord or such mortgagee so commences in the case of (i) or completes
in the case of (ii) within said thirty (30) day period).
21
<PAGE>
Except as provided in this paragraph, Tenant's obligation to pay all rent and to
perform and observe all other covenants and conditions of this Lease shall not
be affected by any damage or casualty, and the Term of this Lease and rent
hereunder shall continue nonetheless.
7.4. Eminent Domain. In the event that all or any substantial part of the
--------------
Premises (meaning more than 25% of floor area) is taken, or if substantially all
of Tenant's access to the Premises is taken and not replaced by Landlord with
reasonable promptness, or if Tenant's parking is taken and not replaced by
Landlord with reasonable promptness (not to exceed 15 days) such that Tenant has
less than two parking spaces for each 1,000 square feet of rentable square feet
of the Premises remaining following such taking (other than for temporary use,
hereafter described) by public authority under power of eminent domain (or by
conveyance in lieu thereof), then by notice given within three months following
the recording of such taking (or conveyance) in the appropriate registry of
deeds, this Lease may be terminated at Landlord's or Tenant's election 30 days
after such notice, and Annual Base Rent, Additional Rent and other charges shall
be apportioned as of the date of termination. If this Lease is not terminated as
aforesaid, Landlord shall within the time periods described in Section 7.3
above, diligently restore what may remain of the Premises (excluding any items
installed or paid for by Tenant which Tenant is permitted or may be required to
remove upon expiration) to a tenantable condition. In the event some portion of
rentable floor area is taken (other than for temporary use) and this Lease is
not terminated, Annual Base Rent, Additional Rent and other charges shall be
proportionally abated for the remainder of the Term. In the event of any taking
of the Premises or any part thereof for temporary use (meaning a period of one
year or less), (i) this Lease shall be and remain unaffected thereby and rent
shall not abate, and (ii) Tenant shall be entitled to receive for itself such
portion or portions of any award made for such use with respect to the period of
the taking which is within the Term, provided that if such taking shall remain
in force at the expiration or earlier termination of this Lease, then Tenant
shall pay to Landlord a sum equal to the reasonable cost of performing Tenant's
obligations hereunder with respect to surrender of the Premises and upon such
payment shall be excused from such obligations.
So long as Tenant is not then in breach of any covenant or condition of
this Lease following notice thereof and expiration of any applicable cure
period, any specific damages which are expressly awarded to Tenant on account of
its furniture, fixtures or relocation expenses, and specifically so designated,
shall belong to Tenant. Except as provided in the preceding sentences of this
paragraph, Landlord reserves to itself, and Tenant releases and assigns to
Landlord, all rights to damages accruing on account of any taking or by reason
of any act of any public authority for which damages are payable. Tenant agrees
to execute such further instruments of assignment as may be reasonably requested
by Landlord, and to turn over to Landlord any damages that may be recovered in
any proceeding or otherwise (except those expressly awarded to Tenant as
provided above).
ARTICLE VIII.
-------------
Default
-------
8.1. Events of Default. An Event of Default shall exist hereunder if (i)
-----------------
Tenant fails to pay Annual Base Rent, additional rent or any other sum when due
and such default continues for
22
<PAGE>
ten (10) days after notice is given; or (ii) if more than two payment default
notices are properly given under clause (i) in any twelve month period, or (iii)
if Tenant makes any Transfer of the Premises in violation of this Lease, or (iv)
if a petition is filed by Tenant for insolvency or for appointment of a
receiver, trustee or assignee or for adjudication, reorganization or arrangement
under any bankruptcy act or if any similar petition is filed against Tenant and
such petition is not dismissed within ninety days thereafter, or (v) if any
representation or warranty expressly made in writing by Tenant is untrue in any
material respect and the same is not cured within thirty (30) days after notice
to Tenant specifying in reasonable detail the representation or warranty
breached and the facts giving rise to the breach thereof, or (vi) if Tenant
falls to perform any other covenant or condition hereunder and such default
continues longer than any period expressly provided for the correction thereof
(and if no period is expressly provided then for thirty (30) days after notice
is given, provided, however, that such thirty (30) day period shall be
reasonably extended in the case of non-monetary default if the matter complained
of can be cured but the cure cannot be completed within such period and Tenant
begins promptly and thereafter diligently completes the cure; but if such
matters cannot be cured then there will be no cure period). Upon the occurrence
of any Event of Default, Landlord and its agents lawfully may, in addition to
any remedies for any preceding breach, immediately or at any time thereafter
without demand or notice and with or without process of law, enter upon any part
of the Premises in the name of the whole or mail or deliver a notice of
termination of the Term of this Lease addressed to Tenant at the Premises or any
other address herein, and thereby terminate the Term and repossess the Premises
as of Landlord's former estate. At Landlord's election such notice of
termination may be included in any notice of default. Upon such entry or mailing
the Term shall terminate, all executory rights of Tenant and all obligations of
Landlord will immediately cease, and Landlord may, by proper judicial
proceedings, expel Tenant and all persons claiming under Tenant and remove their
effects without any trespass and without prejudice to any remedies for arrears
of rent or prior breach. If any payment of Annual Base Rent, additional rent, or
other sum is not paid within five (5) days following the due date thereof, then
(in addition to Landlord's foregoing remedies) Landlord may at its option in
addition to all other remedies hereunder impose an administrative late charge on
Tenant equal to 3% of the amount in question for every failure so to pay when
due, which late charge will be due upon demand as additional rent.
If the Term is terminated for default, the Tenant covenants, as an
additional cumulative obligation after such termination, to pay on demand all of
Landlord's actual and reasonable third party costs, including attorneys fees,
related thereto and in collecting amounts due and all reasonable expenses in
connection with reletting, including tenant inducements, brokerage commissions,
fees for legal services, expenses of preparing the Premises for relettings and
the like ("Reletting Expenses"). It is agreed that Landlord may (i) relet the
Premises or part or parts thereof for a term or terms which may be equal to,
less than or exceed the period which would otherwise have constituted the
balance of the Term, and may grant such tenant inducements, including free rent,
as Landlord in its sole discretion considers advisable in connection with any
such relettings, and (ii) make such alterations to the Premises as Landlord in
its sole discretion considers advisable, and no failure to relet or to collect
rent under any reletting shall operate to reduce Tenant's liability.
23
<PAGE>
If the Term of this Lease is terminated for default, then unless and until
Landlord elects lump sum liquidated damages described in the next paragraph
below, Tenant covenants, as an additional cumulative obligation after any such
termination, to pay punctually to Landlord all the sums and perform all of its
obligations in the same manner as if the Term had not been terminated. In
calculating such amounts Tenant will be credited with the net proceeds of any
rent then actually received by Landlord from a reletting of the Premises after
deducting all sums to be paid by Tenant and not then paid.
If this Lease is terminated for default, then Tenant covenants, as an
additional cumulative obligation after termination, to pay forthwith to
Landlord, at Landlord's election made by written notice at any time after
termination, as liquidated damages a single lump sum payment equal to the sum of
(i) all sums to be paid by Tenant hereunder which are due and unpaid at the time
of such election, plus (ii) the excess of all of the Annual Fixed Rent and
Additional Rent reserved for the residue of the Term (with additional rent on
account of taxes and insurance deemed to increase 3% in each year on a
compounding basis), over the then net fair rental value of the Premises for the
same period, discounted to the then net present value at an interest rate equal
to (x) the Base Rate as announced by BankBoston, N.A. (or its successor by
merger), as then in effect, minus (y) one percent (1%).
Without implying that other covenants do not survive, the covenants of this
Section shall survive the Term.
8.2. Remedies Cumulative; Jury Waiver. The specific remedies to which
--------------------------------
either party may resort under this Lease, and all other rights and remedies are
cumulative, and any two or more may be exercised at the same time. Nothing in
this Lease shall limit the right of either party to prove and obtain in
proceedings for bankruptcy or insolvency an amount equal to the maximum allowed
by any statute or rule of law in effect at the time. Landlord and Tenant waive
trial by jury in any action to which they are parties.
8.3. Waivers of Default; Accord and Satisfaction. No consent by Landlord
-------------------------------------------
or Tenant to any act or omission which otherwise would be a breach of covenant
shall be construed to permit other similar acts or omissions. Neither party's
failure to seek redress for violation or to insist upon the strict performance
of any covenant, neither the payment by Tenant nor the receipt by Landlord of
rent with knowledge of any breach of covenant, shall be deemed a consent to or
waiver of such breach. No breach of covenant shall be implied to have been
waived unless such waiver is in writing, signed by the party benefiting from
such covenant and delivered to the other party. No acceptance by Landlord of a
lesser sum than the Annual Base Rent, additional rent or any other sum due shall
be deemed to be other than on account of the earliest installment of such rent
or other sum due, nor shall any endorsement or statement on any check or in any
letter accompanying any check or payment be deemed an accord and satisfaction;
and Landlord may accept such check or payment without prejudice to Landlord's
right to recover the balance of such installment or pursue any other right or
remedy. The delivery of keys (or similar act) to Landlord shall not operate as a
termination of the Term or an acceptance or surrender of the Premises. The
acceptance by Landlord of any rent following the giving of any default and/or
termination notice shall not be deemed a waiver of such notice (except as to any
payment
24
<PAGE>
expressly accepted by Landlord in waiver thereof which waiver is confirmed by
Landlord in writing).
8.4. Curing and Enforcement. If either party fails to perform any
----------------------
covenant within any applicable cure period following written notice thereof,
then the other at its option may (without waiving any right or remedy for the
other's non-performance) at any time thereafter perform the covenant for the
account of the other party (without regard, in the case of any failure to
perform by Landlord, to the extended cure right afforded to Landlord's mortgagee
under Section 10.1 hereof). Each party shall reimburse the other's actual and
reasonable third party costs (including reasonable attorneys' fees) of so
performing on demand. Notwithstanding any other provision concerning cure
periods, each party may cure any nonperformance for the account of the other
after such notice to the other, if any, as is reasonable under the circumstances
if curing prior to the expiration of the applicable cure period is reasonably
necessary to prevent likely damage to the Premises or possible injury to
persons, or to protect the curing party's interest in the Premises.
ARTICLE IX.
-----------
Miscellaneous Provisions
------------------------
9.1. Notice. All notices, consents, approvals and the like shall be in
------
writing and shall be delivered in hand, by any courier service providing
receipts, or mailed by certified mail addressed, if to Tenant, at the Original
Address of Tenant or such other addresses (up to three in total) within the
United States as Tenant shall have last designated by notice to Landlord, with a
copy sent in like manner to Stephen T. Langer, Esq., Mintz Levin, One Financial
Center, Boston, MA 02111 and, if to Landlord, at the Original Address of
Landlord or such other address within the United States as Landlord shall have
last designated by notice to Tenant, with a copy sent in like manner to Goulston
& Storrs, P.C., 400 Atlantic Avenue, Boston, Massachusetts 02110, Attention:
Phillip G. Levy, Esq. If requested, Tenant shall deliver copies of all notices
in like manner to Landlord's mortgagees and other persons having a relationship
to the Premises at such address within the United States as designated from time
to time by Landlord or such mortgagee. Any notice so addressed shall be deemed
duly given upon delivery, attempted delivery or refusal of delivery, whichever
occurs first, to any person reasonably appearing to be an agent or employee
working in the offices of the addressee.
9.2. Limitation of Landlord's Liability. Tenant agrees that Landlord
----------------------------------
shall be liable only for breaches of its covenants occurring while it is owner
of the Premises (provided, however, that if Landlord from time to time is lessee
of the ground or improvements constituting the Premises, then Landlord's period
of ownership of the Premises shall be deemed to mean only that period while
Landlord holds such leasehold interest). Tenant (and each person acting under
Tenant) agrees to look solely to Landlord's interest from time to time in the
Premises and Lot, together with the rents, issues, profits and proceeds of the
same, for satisfaction of any claim against Landlord. No trustee, beneficiary,
partner, manager, member, agent or employee of Landlord (or of any mortgagee or
any ground or improvements lessor) shall ever be personally or
25
<PAGE>
individually liable; nor shall it or they ever be answerable or liable in any
equitable judicial proceeding or order beyond the extent of their interest in
the Premises, and such rents, issues, profits and proceeds. Any lien obtained to
enforce any judgment against Landlord shall be subject and subordinate to any
mortgage encumbering the Premises except as otherwise set forth herein. In no
event shall Landlord or Tenant ever be liable to the other for indirect or
consequential damages. As used in this Lease, the term Landlord shall mean the
party from time to time holding Landlord's interest hereunder.
9.3. Excusable Delay. If either party is delayed in performing it
---------------
obligations (other than an obligation to pay money) hereunder by causes beyond
such party's reasonable control, including war, civil commotion, acts or
regulations of government, moratoria and casualty, theft, labor difficulties, or
the unavailability of labor, materials, equipment or utilities from customary
sources upon customary terms, or by acts, neglects or delays of the other party
(or persons acting under such other party), then such delay shall not be counted
in determining the time during which such performance is to be completed.
Financial inability will never be a cause beyond either party's control.
9.4. Applicable Law and Construction. This Lease may be executed in
-------------------------------
counterparts. The covenants of Landlord and Tenant are independent, and such
covenants shall be construed as such in accordance with the laws of the state
where the Premises are located. If any provisions shall to any extent be
invalid, the remainder shall not be affected. Other than contemporaneous
instruments executed and delivered of even date, if any, this Lease may be
amended only by instrument in writing executed and delivered by both Landlord
and Tenant. The provisions of this Lease shall bind Landlord and Tenant and
their respective successors and assigns, and shall inure to the benefit of
Landlord and its successors and assigns and of Tenant and its permitted and
assigns. Where the phrases persons acting under Landlord or Tenant" or "persons
claiming through Landlord or Tenant" or similar phrases are used, the persons
included shall be invitees of Landlord or Tenant or any transferee or
independent contractor of Landlord or Tenant and all of their respective
employees, servants, contractors, agents and invitees. The titles are for
convenience only and shall not be considered a part of the Lease. If Tenant is
granted any extension or other option, to be effective the exercise (and notice
thereof) shall be unconditional; and if Tenant purports to condition the
exercise of any option or to vary its terms in any manner, then the purported
exercise shall be ineffective. The enumeration of specific examples of a general
provision shall not be construed as a limitation of the general provision.
Unless a party's approval or consent is to be required by the express terms of
this Lease not to be unreasonably withheld, such approval or consent may be
withheld at the party's sole discretion. Where Landlord is required reasonably
to consent to or approve any matters, the same shall always be subject to
obtaining the prior approval of any mortgagee having approval rights as to such
matters under any mortgage (which Landlord agrees to use reasonable efforts to
obtain in those instances where Landlord intends so to grant its consent or
approval). The submission of a form of this Lease or any of its terms shall not
constitute an offer by Landlord to Tenant; but a leasehold shall only be created
and the parties bound when this Lease is executed and delivered by both Landlord
and Tenant. Nothing herein shall be construed as creating the relationship
between Landlord and Tenant of principal and agent, or of partners or joint
ventures or any relationship other than landlord and tenant. All covenants of
this Lease, except covenants to pay
26
<PAGE>
Annual Base Rent and respecting the care of the Premises, shall survive the
Term. This Lease and all consents, notices, approvals and all other related
documents may be reproduced by any party by facsimile, photographic, microfilm,
microfiche or other reproduction process and the originals may be destroyed; and
each party agrees that any reproductions shall be as admissible in evidence in
any judicial or administrative proceeding as the original itself (whether or not
the original is in existence and whether or not reproduction was made in the
regular course of business), and that any further reproduction of such
reproduction shall likewise be admissible. If any payment in the nature of
interest provided for in this Lease shall exceed the maximum interest permitted
under controlling law, as established by final judgment of a court, then such
interest shall instead be at the maximum permitted interest rate as established
by such judgment. Landlord's title is and always shall be paramount to the title
of Tenant, and nothing in this Lease shall empower Tenant to do any act which
can, shall or may encumber the title of Landlord.
9.5. Estoppel Certificate. Within fifteen (15) days of either party's
--------------------
request, the other agrees to execute, acknowledge and deliver a statement in
writing certifying whether this Lease is in full effect (or if there has been
any amendment whether the same is in full effect as amended and stating the
amendment or amendments), the Commencement Date, the amount of and the dates to
which the Annual Base Rent (and additional rent and all other charges) have been
paid and, as of its best knowledge and belief, any other information concerning
performance, construction, tenancy, possession or other matters of reasonable
interest to prospective lenders or purchasers. Both parties agree that any such
statement may be relied upon by any person to whom the same is delivered.
9.6. Notice of Lease. Neither party shall record this Lease, but each
---------------
party will, upon request of the other, execute a recordable notice of lease in
form reasonably approved by the parties and which notice shall contain the
provisions of this Section, and upon expiration or termination of the Term for
whatever reason a like notice of termination of lease.
9.7. Landlord's Default. Landlord shall use due diligence in performing
------------------
its covenants under this Lease. In no event shall Landlord be in default unless
notice thereof has been given to Landlord (and all mortgagee of which Tenant has
notice) and Landlord (or any such mortgagees at its sole discretion) fails to
perform within 30 days (provided, however, that such period shall be reasonably
extended if such performance begins promptly within such period and thereafter
is diligently pursued or if such mortgagee notifies Tenant within such period
that it intends to cure on behalf of Landlord and thereafter begins and
diligently pursues curing with reasonable promptness).
9.8. Brokers. Each party warrants and represents to the other that it
-------
has not dealt with any broker in connection with this Lease or the Premises
except for the Brokers, if any, listed in Section 1.1; and each agrees to
indemnify and save the other harmless in the manner elsewhere provided in this
Lease from any breach of this warranty and representation, which will survive
the termination of the Term. Landlord agrees to pay any commission due to
Landlord's Broker.
27
<PAGE>
9.9. Intentionally Deleted.
----------------------
9.10. Tenant as Business Entity. Tenant and Landlord each warrant and
-------------------------
represent to the other that (a) each is duly organized, validly existing and in
good standing under the laws of the jurisdiction in which such entity was
organized; (b)each has the authority to own its property and to carry on its
business as contemplated under this Lease; (c) each is in compliance with all
laws and orders of public, authorities applicable to it; (d) each has duly
executed and delivered this Lease; (e) the execution, delivery and performance
by each of this Lease (i) are within the powers of each, (ii) have been duly
authorized by all requisite action, (iii) will not violate any provision of law
or any order of any court or agency of government, or any agreement or other
instrument to which each is a party or by which it or any of its property is
bound, or (iv) will not result in the imposition of any lien or charge on any of
it's property, except by the provisions of this Lease; and (f) the Lease is a
valid and binding obligation of each in accordance with its terms. This warranty
and representation shall survive the expiration or earlier termination of the
Term.
9.11. Security Deposit. On the execution of this Lease, Tenant shall pay
----------------
to Landlord as a security deposit for the performance of the obligations of
Tenant hereunder any amount specified therefor in Section 1.1. Said security
deposit may be mingled with other funds of Landlord and no fiduciary
relationship shall be created with respect to such deposit, nor shall Landlord
be liable to pay Tenant interest thereon. If Tenant shall fail to perform any of
its obligations under this Lease after notice thereof and the expiration of any
applicable cure period, Landlord may, but shall not be obliged to, apply the
security deposit to the extent necessary to cure the default, and Tenant shall
be obliged to reinstate such security deposit to the original amount thereof
upon demand. Within 30 days after the expiration or sooner termination of the
Term the security deposit, to the extent not so applied, shall be returned to
the Tenant without interest.
9.12. Financial Reports. So long as Tenant and/or any guarantor
-----------------
respectively do not publicly report substantially the following financial
information to governmental authorities such as the Securities and Exchange
Commission, Tenant shall provide to Landlord with respect to both Tenant and
guarantor: (i) if either Tenant or guarantor compile the same for any other
purpose, quarterly reports (with respect to such quarter and the year to date)
delivered within forty-five (45) days after the end of each of the four
quarters) and (ii) in any case, an annual report (within ninety (90) days or
such additional reasonable time as may be necessary to diligently complete the
same after the end of each fiscal year) concerning their respective operations
prepared in accordance with either generally accepted accounting principles or
internationally accepted accounting standards as applicable to Tenant and
guarantor respectively, including balance select, income statement, statement of
changes in cash flow (annual report only). The quarterly, if any, and annual
reports shall be certified by the chief financial officer of Tenant and
guarantor respectively and the annual report shall be audited, at Tenant's
expense, by an independent certified public accountant. Tenant warrants and
represents that to the best of its knowledge the information contained in all
such reports will be materially true and complete.
28
<PAGE>
Tenant also shall promptly (and in any event within 15 days after Tenant's own
receipt of notice) notify Landlord of any pending or threatened (if such threat
is contained in a written notice to Tenant or guarantor) suits, or proceedings
at law or in equity, or before or by any governmental authority or arbitration
panel, which (i) if adversely determined would materially affect the financial
integrity or he viability of Tenant or guarantor or (ii) involve the validity or
enforceability of this Lease.
9.13. Inducement Payment. As soon as the following conditions have been
------------------
met: (i) there exists no default by Tenant of any of its obligations hereunder,
(ii) the Rent Commencement Date shall have occurred as provided herein and
Tenant shall have timely made its first payment of Base Rent hereunder and shall
have commenced occupying the Premises; and (iii) Tenant shall have delivered an
Estoppel Certificate to Landlord and any mortgagee as contemplated under Section
9.5, and (iv) Tenant shall have furnished an affidavit in form and substance
satisfactory to Landlord stating that all of the Tenant's Work theretofore
completed has been paid for in full (subject to retainage of up to ten percent
(10%) ("Retainage") and that any and all liens therefor that have been or may be
filed have been satisfied of record or waived, then the Landlord shall pay to
Tenant the sum of FIVE HUNDRED NINETY THOUSAND DOLLARS ($590,000.00) as an
inducement to Tenant to enter into this Lease ("Landlord's Payment").
9.14. Special Provision Regarding Letter of Credit. Landlord is entering
--------------------------------------------
into this Lease with Tenant based upon Tenant's commitment to fulfill all of
Tenant's obligations hereunder (collectively, the "Obligations"). To secure
Tenant's Obligations under this Lease, upon the execution of this Lease Tenant
shall furnish Landlord with an unconditional irrevocable Letter of Credit in the
face amount of $1,032,500 (the "Face Amount"), naming Landlord as the
beneficiary thereof, in form and substance and issued by a nationally-chartered
bank reasonably satisfactory to Lender (the "Letter of Credit"). The Letter of
Credit shall contain a so-called "evergreen " clause and shall remain
outstanding until the Rent Commencement Date shall have occurred, and (y) Tenant
shall have made its first payment of Base Rent hereunder, and (z) there shall be
no default by Tenant hereunder (the date upon which all such conditions have
been satisfied shall be referred to herein as the "Release Date"), and shall
specifically permit partial drawings. Upon the occurrence of an Event of Default
by Tenant hereunder, then, without prejudice to any other rights and remedies
available to Landlord at law or in equity or hereunder on account of such
default, Landlord shall have the right (but not the obligation) to draw upon the
Letter of Credit in any amount up to the full Face Amount thereof. No amounts
drawn by Landlord under the Letter of Credit shall be deemed to be a cure of
Tenant's default. Landlord shall reimburse Tenant for the amount of any letter
of credit fee charged by the issuing bank (up to a maximum of 2% of the Face
Amount).
Upon the Release Date, provided all of Tenant's Obligations have been
satisfied, the Letter of Credit shall be returned to Tenant under this Section
9.14.
29
<PAGE>
ARTICLE X.
----------
Landlord's Financing
--------------------
10.1. Subordination and Superiority of Lease. Tenant agrees that this
--------------------------------------
Lease and the rights of Tenant hereunder will be subject and subordinate to any
lien of the holder of any existing or future mortgage, and to the rights of any
lessor under any ground or improvements lease of the Premises (all mortgages and
ground or improvements leases of any priority are collectively referred to in
this Lease as "mortgage," and the holder or lessor thereof from time to time as
a "mortgagee"), and to all advances and interest thereunder and all
modifications, renewals, extensions and consolidations thereof; provided,
---------
however that the mortgagee executes and delivers to Tenant a written and
- -------
recordable agreement, in form reasonably satisfactory to Tenant, in which the
mortgagee agrees that such mortgagee shall not disturb Tenant in its possession
of the Premises or in the enjoyment of its other rights hereunder, upon Tenant's
attornment to such mortgagee as Landlord and performance of its Lease covenants
(both of which conditions Tenant agrees with all mortgagees to perform). Tenant
agrees that any present or future mortgagee may at its option unilaterally elect
to subordinate, in whole or in part and by instrument in form and substance
satisfactory to such mortgagee alone, the lien of its mortgagee (or the priority
of its ground lease) to some or all provisions of this Lease.
Tenant agrees that this Lease shall survive the merger of estates of ground
(or improvements) lessor and lessee. Except as may be provided in any
subordination agreement between mortgagee and Tenant, until a mortgagee (either
superior or subordinate to this Lease) either takes possession of the Premises
or forecloses Landlord's equity of redemption (or terminates in the case of a
ground or improvements lease) no mortgagee shall be liable for failure to
perform any of Landlord's obligations hereunder, and such mortgagee shall
thereafter be liable only after it succeeds to and holds Landlord's interest and
then only as limited herein. No mortgagee shall be bound by any payment of rent
more than one month in advance unless it shall have consented thereto. Tenant
shall, if requested by Landlord or any mortgagee, give notice of any alleged
non-performance on the part of Landlord to any such mortgagee provided that an
address for such mortgagee has been designated pursuant to Section 8.1; and
Tenant agrees that such mortgagee shall have a separate, consecutive reasonable
cure period of no more than thirty (30) days (to be reasonably extended in the
same manner Landlord's cure period is to be extended) following Landlord's cure
period during which such mortgagee may, but need not, cure any non-performance
by Landlord.
10.2. Rent Assignment. If from time to time Landlord assigns this Lease
---------------
or the rents payable hereunder to any person, whether such assignment is
conditional in nature or otherwise, such assignment shall not be deemed an
assumption by the assignee of any obligations of Landlord; but the assignee
shall be responsible only for nonperformance of Landlord's obligations which
occur after it succeeds to and only while it holds Landlord's interest in the
Premises.
10.3. Other Instruments. The provisions of this Article shall be self-
-----------------
operative; nevertheless, Tenant agrees to execute, acknowledge and deliver any
commercially reasonable subordination, attornment or priority agreements or
other instruments from time to time
30
<PAGE>
requested by Landlord or any mortgagee, provided that Tenant's obligations
hereunder shall not be increased and Tenant's rights shall not be diminished
thereby. Without limitation, where Tenant in this Lease indemnifies or otherwise
covenants for the benefit of mortgagees, such agreements are for the benefit of
mortgagees as third party beneficiaries; and at the request of Landlord, Tenant
from time to time will confirm such matters directly with such mortgagee.
10.4. Mutual Cost of Enforcement; Interest. If either party is required
------------------------------------
to litigate against the other, then the prevailing party in such litigation
shall be entitled to recover from the non-prevailing party all reasonable
attorneys' fees and other costs of such litigation. If any amount due hereunder
remains unpaid after its due date, such amount shall bear interest at a per
annum rate equal to 4 points above the Prime Rate, as announced from time to
time by BankBoston, N.A. at its Boston office.
ARTICLE XI.
-----------
11.1. Special Provisions Regarding Potential Expansion Space. Landlord
------------------------------------------------------
has advised Tenant that it may be possible under applicable laws and codes to
expand the size of the Building (the "Potential Expansion") by approximately
40,000 rentable square feet (the "Potential Expansion Space"). Tenant
acknowledges that Landlord has made no representations or warranties whatsoever
regarding the feasibility of constructing or the feasibility of obtaining any
federal, state and local permits and approvals and approvals of third parties
(including, without limitation, Landlord's mortgagee(s)) which may be necessary
to permit the construction and/or operation of the Potential Expansion ("Permits
and Approvals"). Landlord hereby grants Tenant the exclusive right to negotiate
with Landlord as to the rental of the Potential Expansion Space on the terms and
conditions set forth herein. During the term of this Lease, Landlord shall not
commence any expansion of the size of the Building (or construction of
additional buildings on the Lot) without first notifying Tenant of its intent to
do so ("Landlord's Expansion Notice"). Landlord's Expansion Notice shall be
prepared in good faith and include the material business terms and conditions
upon which Landlord would process necessary applications for obtaining Permits
and Approvals, and thereafter construct the Potential Expansion Space and lease
such space to Tenant. Tenant shall have ten (10) business days following its
receipt of Landlord's Expansion Notice to respond in writing to Landlord as to
whether or not Tenant is interested in leasing the Potential Expansion Space on
the terms and conditions set forth in Landlord's Notice. Tenant's failure to
respond within such ten (10) business day period shall be deemed to be Tenant's
election not to lease the Potential Expansion Space and shall constitute a
waiver of Tenant's rights under this Section 11.1. If Tenant notifies Landlord
within such ten (10) business day period that it is interested in leasing such
Potential Expansion Space, Landlord and Tenant shall execute an amendment to
this Lease providing for the construction and leasing of the Potential Expansion
Space on the terms and conditions contained in Landlord's Expansion Notice (or
on such other terms and conditions as may be mutually acceptable to both parties
at such time) and Landlord shall thereafter use good faith efforts to obtain the
Permits and Approvals. Landlord's inability to obtain the Permits and Approvals
shall not constitute a default under the Lease or give rise to any remedy on the
part of Tenant.
31
<PAGE>
Unless and until Tenant receives Landlord's Expansion Notice, Tenant shall
have the right to notify Landlord of Tenant's desire to have the Potential
Expansion Space constructed ("Tenant's Expansion Notice"). Landlord shall have
twenty (20) business days following its receipt of Tenant's Expansion Notice
either (i) to furnish Tenant with Landlord's Expansion Notice, pursuant to which
Landlord would propose to use good faith efforts to obtain the Permits and
Approvals for and to construct the Potential Expansion Space and lease it to
Tenant as described above, or (ii) to elect not to pursue the permitting and
construction of the Potential Expansion Space but to allow Tenant to do so in
accordance with the provisions hereinafter set forth. If Landlord sends
Landlord's Expansion Notice but Landlord and Tenant are unable to agree upon the
terms and conditions for leasing the Potential Expansion Space within thirty
(30) days immediately following Tenant's receipt of Landlord's Expansion Notice,
or if having received Tenant's Expansion Notice, Landlord sends Tenant
Landlord's notice of its election not to deliver Landlord's Expansion Notice,
then Tenant may elect by written notice given within either such thirty day
periods (i) to pursue the issuance of the Permits and Approvals (provided that
Landlord's approval of the applicable plans, which shall not be unreasonably
withheld or delayed, is obtained prior to the submission of any such
application) at Tenant's sole cost and expense, and (ii) assuming the Permits
and Approvals are obtained and that the same are reasonably acceptable to both
Landlord and Tenant, to construct the Potential Expansion Space at Tenant's sole
cost and expense as an addition to the Building and pay for all permits,
licenses and fees associated therewith. In the event Tenant elects to perform
the construction of the Potential Expansion Space as described in the preceding
sentence, Landlord agrees that (i) it shall use all commercially reasonable
efforts to secure any necessary approvals from Landlord's mortgage lender(s) to
permit such construction, (ii) it shall cooperate (at no material cost to
Landlord, other than normal overhead and internal costs), as may be necessary as
the owner of the property, with the processing of any applications for Permits
and Approvals, and (iii) that from and after completion, the Potential Expansion
Space will be a part of the Premises and Tenant will be responsible for all
utility costs and other operating costs and taxes relating thereto, on the same
terms and conditions as are set forth in this Lease, but no additional Base Rent
will be due or payable on account of the construction of the Expansion Space by
Tenant. Tenant agrees and acknowledges that such Expansion Space improvements
shall become Landlord's property upon completion thereof and that any warranties
obtained in connection with such construction shall be assigned to Landlord upon
receipt thereof by Tenant. Tenant agrees and acknowledges that Landlord shall
have no liability to Tenant whatsoever if the Permits and Approvals for such
Potential Expansion Space are not obtained or if less than 40,000 rentable
square feet of expansion space is allowed, or if conditions are imposed in
connection with such Permits and Approvals which are unacceptable to Landlord,
Landlord's mortgagee(s) or Tenant. Tenant's first right of negotiation for the
Potential Expansion Space is personal to Tenant and may not be exercised,
voluntarily or involuntarily, by or to any person or entity other than Tenant.
Tenant may only exercise the right granted in this Section 11.1 if on the date
that Tenant delivers Tenant's Expansion Notice to Landlord; Tenant is not in
default under this Lease beyond the expiration of any applicable notice, grace
and cure periods which may be provided herein and (iii) Tenant shall not have
assigned this Lease or sublet the Premises (except for Permitted Transfers
pursuant to section 6.1.11).
32
<PAGE>
In connection with any election by Tenant to construct the Proposed
Expansion Space, Tenant's right to commence construction shall be subject to the
following conditions:
(a) Tenant shall have furnished Landlord and Landlord's mortgagee(s) with
satisfactory evidence that there is sufficient time for the Tenant to complete
construction of the Potential Expansion Space at lease one year prior to the
expiration of the then current term of the Lease;
(b) Tenant shall have furnished Landlord and Landlord's mortgagee(s) with
satisfactory evidence that during the term of such construction, the Lease will
remain in full force and effect and binding upon the Tenant without any right of
cancellation during the period of construction;
(c) Tenant shall have furnished Landlord and Landlord's mortgagee(s) with
satisfactory evidence that sufficient funds are available to cover all hard and
soft costs of completing the Potential Expansion Space;
(d) Landlord and Landlord's mortgagee(s) shall have reviewed and approved
the plans and specifications, the identity of the Architect and the form and
substance of the Architect's Contract, the identity of the General Contractor
and the form and substance of the Construction Contract (including, without
limitation, the posting of performance payment and lien bonds in form and
substance and issued by a surety acceptable to Landlord and Landlord's
mortgagee(s));
(e) Tenant shall have furnished Landlord and Landlord's mortgagee(s) with
satisfactory evidence that all Permits and Approvals necessary for the
construction and operation of the Potential Expansion Space have been obtained,
all in form and substance and subject to conditions satisfactory to Landlord and
Landlord's mortgagee(s).
(f) Tenant shall have furnished Landlord and Landlord's mortgagee(s) with
satisfactory evidence that Tenant will pay any third party cost reasonably
incurred by Landlord and Landlord's mortgagee in connection with documenting and
reviewing matters relating to the Potential Expansion. space.
Tenant's construction of the Potential Expansion space shall be performed
in a good and workmanlike manner, shall be to a level of quality at least equal
to the level of quality of the existing Premises, and in compliance with all
laws, rules and regulations. Following completion of the Potential Expansion
Space, Tenant shall be solely responsible for the cost of maintaining, repairing
and replacing the same for the balance of the term of this Lease.
ARTICLE XII.
------------
Index of Certain Defined Terms
------------------------------
Term Where Defined
- ---- -------------
33
<PAGE>
Annual Base Rent - Extension Terms 1.1; 4.1.2
Annual Base Rent - Initial Term 1.1; 4.1.1
Building 1.1
Commencement Date 1.1
Construction Documents 3.2.2
Date of Lease Execution 1.1
Existing Tenant 2.2
Extension Term 1.1; 2.5
Fair Market Rent 4.1.2
Hazardous materials 6.1.8
Hazardous materials activities 6.1.8
Indemnitees 6.1.5
Landlord 1.1
Landlord's Agent 1.1
Landlord's Taxes 4.3.2
laws 6.1.3
Lease year 4.2
mortgage 10.1
mortgagee 10.1
Original Address of Landlord 1.1
Original Address of Tenant 1.1
Permitted Uses 1.1
Premises 1.1; 1.2
Public Liability Insurance 1.1
Security Deposit 1.1; 9.11
34
<PAGE>
Tenant 1.1
Tenant's Architect 3.2.2
Tenant Contractor 3.2.3
Tenant Work 3.2
Term 1.1; 2.4
Transfer 6.1.11
----------------------------Here ends page 34--------------------------
signatures on next page
35
<PAGE>
SIGNATURE PAGE TO
LEASE BETWEEN APPLIED SCIENCE AND TECHNOLOGY, INC., Tenant
AND NINETY INDUSTRIAL WAY WILMINGTON LLC, Landlord
Executed under seal as of the date first written above.
TENANT: LANDLORD:
- ------ --------
APPLIED SCIENCE AND TECHNOLOGY, NINETY INDUSTRIAL WAY
INC, a Delaware corporation WILMINGTON LLC, a
Massachusetts limited liability
company
By: /s/ Richard S. Post By: /s/ John A. Thomas, Manager
-------------------- ---------------------------
President John A. Thomas, Its Manager
By: /s/ John M. Tarrh By: /s/ David T. Ting
------------------ -----------------
Treasurer David T. Ting, Its Manager
36
<PAGE>
EXHIBIT B
Lot Description
---------------
37
<PAGE>
EXHIBIT B
That certain parcel of land, situated in Wilmington, Middlesex County,
Massachusetts, shown as Lot 23 on a plan entitled, "Plan of Land in WILMINGTON,
MASS., Owned By- I. Fred & Carlo B. DiCenso, Scale 100 feet to an inch - May 5,
1977, Robert E. Anderson Inc., Reg. Professional Engineer; Reg. Land Surveyors,
178 Park Street, North Reading, Mass.," filed with Middlesex North District
Registry of Deeds in Plan Book 124, Page 69, said parcel being bounded and
described, according to said plan, as follows:
BEGINNTNG at the northeasterly corner of said parcel at land of Frederick
Sheehan at a point in the westerly sideline of West Street; THENCE running by
West Street
SOUTHEASTERLY, by two lines measuring, respectively, 228.04 feet and 18.26 feet
to land of I. Fred & Carlo B. DiCenso; THENCE running by the land last named.
WESTERLY, by seven lines measuring, respectively, 65.53 feet, 212.29 feet,
107.74 feet, 210.26 feet, 270.94 feet, 186.28 feet, and 387.45 feet; THENCE by
running by said land last named
NORTHERLY, by a single line measuring 344.03 feet, to the land of John James &
Thomas Lyons; and THENCE running by said land of John James & Thomas Lyons and
land of Frederick Sheehan
EASTERLY, by seven lines measuring, respectively, 270.00 feet, 231.72 feet,
198.21 feet, 155.36 feet, 162.50 feet, 99.59 feet, and 194.68 feet to the point
of BEGINNING.
Said Lot 23 containing 9.2895 acres, according to said plan, be said contents
measured more or less.
Included in the above described parcel is the registered land shown as Lot 22 on
a plan entitled "Land Court Subdivision Plan of Land in Wilmington, Mass.,"
scale 100 feet to an inch, dated March 15, 1977, by Robert E. Anderson Inc.,
Reg. Professional Engineer, Reg. Land Surveyor, 178 Park Street, North Reading,
Mass., filed with the Land Court as Plan No. 33467N.
AREA AA (REGISTERED LAND)
That strip of land situated in Wilmington, Middlesex County, Massachusetts,
shown as "Access and Utility Easement in Common with Abuttors Variable Width" on
the Registered Plan filed with the Land Court as Plan No. 3346714 and on the
Unregistered Plan described hereinabove.
Said snip of land being a portion of Lot 21 as shown on the Land Court
Plan No. 33467N.
AREA BB (UNREGISTERED)
38
<PAGE>
That strip of land situated in Wilmington, Middlesex County,
Massachusetts shown as "Access & Utility Easement in Common with
Others" on the Unregistered Plan, recorded in Plan Book 124, Plan #69,
bounded and described as follows:
BEGINNING at a point in the northwesterly sideline of Industrial Way
located S 2 (degrees) 17'16" W of and 534.10 feet distant from the
northwesterly corner of Lot 11 shown on Land Court Plan 33467-F;
Thence running along northwesterly sideline of Industrial Way.
Southwesterly by a curve to the left (with a radius of 677.22 feet) an
arc distance of 8.26 feet and S 54 (degrees) 34'40" W 91.74 feet to
land now or formerly of I. Fred DiCenso et al (in part shown as Lot 16
on Land Court Plan No. 33467J);
Thence running by the Land last named; N 02 (degrees) 07'16" E, 295.03
feet, to Lot 21 on Land Court Plan No. 33467 N;
Thence running by said Lot 21, N 89 (degrees) 14'34" E, 79.42 feet;
Thence running 5 02 (degrees) 07'16" W 238.12 feet, to the Point of
Beginning.
Together with the easement and right to use, in common with others entitled
thereto, as appurtenant to the aforementioned parcel and any part or parts
thereof, the premises described hereinafter as Areas AA and BB, for all purposes
for which streets and ways are now or may hereafter be used in the Town of
Wilmington, including the use, installation, maintenance, repair, servicing, and
replacement of any and all underground lines and utilities of any type, kind or
nature, including, without limitation, water, gas, electricity, sewers, drains
and pipelines, except for above ground utility lines, pipes, poles and wires,
and except that the owner or owners from time to time of the land to which such
right and easement are appurtenant may not connect to and make use of any
utility lines (including without limiting the generality of the foregoing, water
supply pipes, gas pipes, sanitary sewers, and storm drains) now existing or
hereafter installed in said Areas AA and BB, or either of them, by the owner of
the fee title to such Areas or others entitled to similar rights and easements
therein and will repair any damage to the same arising from its exercise of the
right and easement hereby granted. Said right and easement hereby granted shall
be subject, however, to the obligation of the party exercising the right and
easement hereby granted (1) to comply with applicable laws; (2) to restore the
portions of the Areas affected thereby as near as reasonably practicable to the
condition thereof existing prior to such installation, repair, maintenance,
servicing or replacement, consistent with the exercise of the right and easement
herein granted; and (3) to hold the Grantors, their heirs, administrators,
successors, or assigns, harmless against any liability incurred by the Grantors
their heirs, administrators, successors, or assigns, resulting from such use,
installation, maintenance, servicing, repair or replacement by such party.
39
<PAGE>
EXHIBIT C
Tenant Work Insurance Schedule
------------------------------
1. Tenant shall purchase or shall cause each Tenant Contractor to
purchase, in a company or companies against which the Landlord has no reasonable
objection, such insurance as will protect him from claims set forth below which
may arise out of or result from the contractor's operations on the Premises.
1.1 claims under workers' or workmen's compensation, disability
benefit and other similar employee benefit acts;
1.2 claims for damages because of bodily injury, occupational
sickness or disease, or death of his employees;
1.3 claims for damages because of bodily injury, sickness or
disease, or death of any person other than his employees;
1.4 claims for damages insured by personal injury liability
coverage which are sustained (1) by any person as a result of an offense
directly or indirectly related to the employment of such person by the
Contractor, or (2) by any other person;
1.5 claims for damages, other than the Tenant work itself,
because of injury to or destruction of tangible property, including loss of use
resulting therefrom;
1.6 claims for damages insured by personal injury or death of
any person or property damage arising out of the ownership, maintenance or use
of any motor vehicle; and
1.7 claims for contractual liability (both oral and written)
under this undertaking with Tenant.
2. The insurance required by Section 1 of this Schedule shall include all
major divisions of coverage, and shall be on a comprehensive general basis. Such
insurance shall be written for not less than any limited of liability required
by law or those set forth below, whichever is greater.
2.1 Workmen's Compensation - as required by law.
2.2 Public Liability - single Limit (Combined) per Occurrence.
Bodily & Personal Injury $1,000,000
Property Damage $1,000,000 Occurrence/Aggregate.
40
<PAGE>
FIRST AMENDMENT TO LEASE
------------------------
FIRST AMENDMENT TO LEASE (the "Amendment") is entered into as of the 1st
day of October, 1999, by and between NINETY INDUSTRIAL WAY WILMINGTON LLC, a
Massachusetts limited liability company with an address do Brownfields Recovery
Corp., 222 Berkeley Street, Boston, Massachusetts 02116 ("Landlord"), and
APPLIED SCIENCE AND TECHNOLOGY, INC., a Delaware corporation with an address of
35 Cabot Road, Woburn, Massachusetts 01801 ("Tenant").
W I T N E S S E T H:
WHEREAS, Landlord and Tenant entered into that certain Lease dated as of
May 21, 1999 (the "Astex Lease"); and
WHEREAS, Tenant has requested the ability to occupy a portion of the
Premises (as defined in the Astex Lease) prior to the Commencement Date (as
defined in the Astex Lease), and, subject to the terms and conditions set forth
herein, Landlord has agreed to permit such occupancy.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree
to amend the Astex Lease as follows:
1. Occupied Space. A portion of the Premises consisting of approximately
--------------
10,000 square feet located on the first floor of the Building (as defined in the
Astex Lease) and outlined on Exhibit A attached hereto is hereby designated the
"Occupied Space".
2. Permitted Uses. The Occupied Space may be used for any use permitted
--------------
under the Lease.
3. Commencement Date. Notwithstanding the provisions of the Lease to the
-----------------
contrary, the Commencement Date and Rent Commencement Date for the Occupied
Space shall be October 1, 1999 (the "Early Occupancy Date").
4. Rent. From and after the Early Occupancy Date through the Rent
----
Commencement Date for the Premises as set forth in the Lease (the "Early
Occupancy Period"), Tenant shall pay Rent to Landlord in the amount of $87,500
per year. Rent shall be payable in advance in equal monthly installments of
$7291.67 by the first day of each calendar month during the Early Occupancy
Period.
5. Additional Rent. In addition to the foregoing Rent, during the
---------------
remaining term of the lease dated February 5, 1999 by and between Ninety
Industrial Way Wilmington LLC and AGFA Corporation ("AGFA") (the AGFA Lease"),
Tenant shall pay to AGFA, on the first day of each calendar month. Tenant's pro
rata share of the Landlord's Taxes and pro rata share of Utilities, Maintenance,
Repairs and Improvements in the amount of $6,983.00 per month ("Additional
Rent"). Landlord acknowledges that, during the remaining term of the AGFA
<PAGE>
Lease, so long as Astex makes the payments specified above to AGFA, then
Landlord's recourse for such payments shall be against AGFA and not Astex.
After the termination or expiration of the AGFA Lease and until the
Commencement Date occurs pursuant to the Astex Lease, Tenant shall pay to
Landlord Tenant's pro rata share of the Landlord's Taxes and the Additional
Rent.
Upon the occurrence of the Commencement Date pursuant to the Astex Lease,
in addition to the Rent specified above for the Early Occupancy Period, Tenant
shall commence payments of Additional Rent pursuant to Section 4.3 of the Astex
Lease with respect to the entire Premises, including the Office Space. Upon the
occurrence of the Rent Commencement Date pursuant to the Astex Lease, Tenant
shall commence paying the Annual Base Rent - Initial Term specified in the Astex
Lease, together with the Additional Rent, for the entire Premises and shall
cease paying the Rent and Additional Rent specified above for the Early
Occupancy Period.
6. Applicability of Lease Provisions; Continued Effectiveness. Except as
----------------------------------------------------------
specifically set forth herein, the Lease remains unmodified and in full force
and effect and shall be applicable to Tenant's occupancy of the Occupied Space
during the Early Occupancy Period. Solely for purposes of the applicability of
the Lease during the Early Occupancy Period, all references to "Premises" in the
Lease shall be deemed to refer to the "Occupied Space".
[Signatures begin next page]
2
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
as an instrument under seal as the date first above written.
LANDLORD:
NINETY INDUSTRIAL WAY
WILMINGTON LLC,
a Massachusetts limited liability company
By: /s/ John A. Thomas, member
-------------------------------------
Name: John A. Thomas, member
By: /s/ David T. Ting
-------------------------------------
Name David T. Ting, member
TENANT:
APPLIED SCIENCE AND TECHNOLOGY, INC.
a Delaware corporation
By: /s/ John M. Tarrh
-------------------------------------
Name: John M. Tarrh
-----------------------------------
Title: Senior Vice President
---------------------------------
Hereunto duly authorized
3
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
Applied Science and Technology, GmbH
ETO, Inc.
ASTeX CPI, Inc.
Newton Engineering Service, Inc.
ASTeX Sorbios, GmbH
ASTeX PlasmaQuest, Inc.
ASTeX Securities Corp.
ASTeX Realty Corp.
Shamrock Technology Corp.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board Of Directors
Applied Science And Technology, Inc.:
We consent to the inclusion of our report dated July 23, 1999, except for
note 20, as to which the date is August 24, 1999, with respect to the
consolidated balance sheets of Applied Science and Technology, Inc. and
subsidiaries as of June 26, 1999 and June 27, 1998 and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended June 26, 1999, which report appears in
this Registration Statement, and to the reference to our firm under the heading
"Experts" in this Registration Statement.
/s/ KPMG LLP
Boston, Massachusetts
February 16, 2000
<PAGE>
Exhibit 23.2
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111
701 Pennsylvania Avenue, N.W. Telephone: 617/542-6000
Washington, D.C. 20004 Fax: 617/542-2241
Telephone: 202/434-7300 www.mintz.com
Fax: 202/434-7400
February , 2000
Applied Science and Technology, Inc.
35 Cabot Road
Woburn, Massachusetts 01801
Ladies and Gentlemen:
We have acted as counsel to Applied Science and Technology, Inc., a
Delaware corporation (the "Company"), in connection with the preparation and
filing with the Securities and Exchange Commission of a Registration
Statement on Form S-3 (the "Registration Statement"), pursuant to which the
Company is registering under the Securities Act of 1933, as amended, a total
of 2,875,000 shares (the "Shares") of its common stock, $.01 par value per
share (the "Common Stock"), for sale to the public. This opinion is being
rendered in connection with the filing of the Registration Statement.
In connection with this opinion, we have examined the Company's
Certificate of Incorporation and By-Laws, both as currently in effect; such
other records of the corporate proceedings of the Company and certificates
of the Company's officers as we have deemed relevant; and the Registration
Statement and the exhibits thereto.
In our examination, we have assumed the genuineness of all signatures,
the legal capacity of natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such copies.
Based upon the foregoing, we are of the opinion that (i) the Shares
have been duly and validly authorized by the Company and (ii) the Shares,
when sold, will have been duly and validly issued, fully paid and non-
assessable shares of the Common Stock, free of preemptive rights.
1
<PAGE>
Applied Science and Technology, Inc.
February , 2000
Page 2
Our opinion is limited to the federal securities laws of the United
States, the laws of the Commonwealth of Massachusetts and the corporate laws
of the State of Delaware, and we express no opinion with respect to the laws
of any other jurisdiction. No opinion is expressed herein with respect to
the qualification of the Shares under the securities or blue sky laws of any
state or any foreign jurisdiction.
We understand that you wish to file this opinion as an exhibit to the
Registration Statement, and we hereby consent thereto. We hereby further
consent to the reference to us under the caption "Legal Matters" in the
prospectus included in the Registration Statement.
Very truly yours,
/s/ Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
MINTZ, LEVIN, COHN, FERRIS,
GLOVSKY and POPEO, P.C.
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-01-2000
<PERIOD-START> JUN-27-1999
<PERIOD-END> DEC-25-1999
<CASH> 17,628
<SECURITIES> 4,988
<RECEIVABLES> 22,680
<ALLOWANCES> (714)
<INVENTORY> 16,290
<CURRENT-ASSETS> 63,873
<PP&E> 19,505
<DEPRECIATION> (9,408)
<TOTAL-ASSETS> 91,183
<CURRENT-LIABILITIES> 15,997
<BONDS> 0
0
0
<COMMON> 116
<OTHER-SE> 75,070
<TOTAL-LIABILITY-AND-EQUITY> 91,183
<SALES> 61,636
<TOTAL-REVENUES> 61,668
<CGS> 37,504
<TOTAL-COSTS> 37,507
<OTHER-EXPENSES> 15,868
<LOSS-PROVISION> 21
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 9,034
<INCOME-TAX> 3,242
<INCOME-CONTINUING> 5,792
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,792
<EPS-BASIC> 0.50
<EPS-DILUTED> 0.48
</TABLE>
