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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER
SEPTEMBER 30, 1996 0-22248
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GASONICS INTERNATIONAL CORPORATION
(Exact name of Registrant as specified in charter)
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DELAWARE 94-2159729
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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2540 Junction Avenue
San Jose, California 95134
(408) 325-1200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT COMPANY'S PRINCIPAL EXECUTIVE OFFICES)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by references in Part III of the Form 10-K or any amendment to this
Form 10-K. /X/
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based on the closing price of the Common Stock on December 17, 1996,
as reported on The Nasdaq National Market was approximately $114,315,000. Shares
of Common Stock held by each officer and director and by each person who owns 5%
or more of the outstanding Common Stock have been excluded from this computation
in that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
As of December 17, 1996, the Registrant had outstanding 13,479,945 shares of
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Registrant's Annual Report to Stockholders for the fiscal
year ended September 30, 1996 are incorporated into Parts II and IV of this
Report on Form 10-K.
2. Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on March 3, 1997 are incorporated by reference into
Part III of this Report on Form 10-K.
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PART I
ITEM 1. BUSINESS
THE COMPANY
GaSonics International Corporation ("GaSonics" or the "Company") is a
leading developer and supplier of a portfolio of products and services used in
the fabrication of advanced integrated circuits ("ICs") and flat panel displays
("FPDs"). The Company is one of the world's leading suppliers of photoresist
removal equipment. The Company's products consist of photoresist removal
systems, residual removal systems, isotropic etch systems and high pressure
furnaces for the semiconductor industry and low pressure chemical vapor
deposition ("LPCVD") for the flat panel display industry. The Company's
photoresist removal, residual removal and isotropic etch systems utilize
proprietary downstream plasma processing technology to increase yields in the
manufacture of advanced ICs. The Company markets and sells its products to many
leading IC manufacturers worldwide including Intel, Motorola, Samsung, Siemens
and Lucent Technologies.
The Company commenced operations in 1968 and was incorporated in California
in March 1971 as "Atomel Products Corporation." The Company changed its name to
"GaSonics International Corporation" in June 1993 and reincorporated in Delaware
in March 1994. In February 1991, the Company acquired Branson International
Plasma Corporation, a manufacturer of photoresist removal equipment. In August
1995, the Company acquired Tekisco, Ltd. from Kishimoto Sangyo Co. Ltd. of
Tokyo, Japan. Tekisco is a manufacturer of LPCVD equipment for the manufacture
of FPDs. The Company's principal executive offices are located at 2540 Junction
Avenue, San Jose, California 95134. The Company's telephone number is (408)
325-1200 and worldwide website address is http://www.gasonics.com.
INDUSTRY BACKGROUND
The worldwide market for advanced ICs and products utilizing such devices
has experienced rapid growth. This growth has caused a corresponding increase in
demand for equipment used to manufacture semiconductors. The fabrication of ICs
requires a large number of complex and repetitive processing steps, including
deposition, photolithography and etch. Deposition is a process in which a layer
of either electrically insulating or electrically conductive material is
deposited on the surface of a wafer. In the photolithography process, device
features are imprinted using a photomask on a light sensitive polymer called
photoresist. After development of the photoresist, etching selectively removes
the deposited material from the surface of the wafer that is not covered by the
imprinted pattern. In advanced IC fabrication, deposition, photolithography and
etch are repeated numerous times in order to layer different materials and
imprint various features on a single wafer and to produce a fully functional IC
device. Prior to processing additional layers on the wafer in the fabrication
process, the residual photoresist from the previous layer must be carefully
removed in order to create a clean and functional foundation for the next layer.
This process is referred to as "photoresist removal" or "ashing."
The fabrication of advanced ICs, which offer increased capabilities, more
power and greater performance, requires increasing numbers of photolithographic
masking layers and corresponding photoresist removal steps. For example, a
typical one megabit Dynamic Random Access Memory chip ("DRAM") requires 11
masking steps, each with a corresponding photoresist removal step. By
comparison, a 64 megabit DRAM is expected to require between 20 and 25 masking
steps, each with a corresponding photoresist removal step. As line geometries,
or feature sizes, of an IC continue to decrease to near 0.25 microns and wafer
cleanliness becomes increasingly important, it is expected that more advanced
and additional ashing steps will be required to prepare the wafer surface for
subsequent masking steps. As a result of these trends, the Company believes that
the number of photoresist removal systems per production line of advanced ICs
will increase.
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Historically, photoresist removal was considered a necessary process step
that did not require implementation of advanced technologies. In the 1970s,
photoresist was typically removed by immersing ICs into large liquid chemical
baths ("wet chemistry processing"). In the early 1980's, dry chemistry
processing, which utilizes gases to remove the photoresist, began to replace wet
chemistry processing for those advanced processing steps that wet chemistry
processing was unable to complete or added too many defects (particles). The dry
chemistry processing alternative for photoresist removal has continued to become
more widely used because this alternative is believed to offer significant cost
of ownership savings as compared with wet chemistry processing, especially for
complex ICs with feature sizes of 1.0 microns and below. Wet chemistry
processing also poses certain environmental concerns as a result of risks
associated with chemical storage, handling, disposal and operator safety. In the
fabrication of advanced ICs, wet chemistry processing for photoresist removal is
now typically used only for noncritical cleaning steps after application of a
dry chemistry photoresist removal process. Traditional dry chemistry photoresist
processing involves the creation of plasma and exposure of the wafer to the
plasma in a single chamber in order to remove the residual photoresist. However,
because certain elements of the plasma can cause damage to the wafer, direct
exposure of the wafer to the plasma can result in reduced yield. This damage
becomes increasingly problematic as feature sizes decrease and, at certain
feature sizes, can result in significantly reduced yield.
THE GASONICS SOLUTION
In order to address the photoresist removal needs of advanced IC
manufacturers, GaSonics pioneered an advanced dry chemistry processing
technology known as "downstream microwave processing." This technology separates
the creation region of the plasma from exposure to the wafer and shields the
wafer from the elements of the plasma that cause damage to the wafer while still
allowing for the chemical function to take place. As line geometries continue to
decrease and wafer sizes increase, the Company believes that advanced
photoresist removal techniques such as those offered by GaSonics will be
required to manufacture advanced ICs at acceptable yields. The Company believes
that yield, operating costs, throughput, reliability, uptime and system cost all
contribute to an IC manufacturer's total cost of ownership. The Company believes
that downstream microwave processing enables the Company's photoresist removal
systems to offer advanced IC manufacturers a process solution with cost of
ownership savings by increasing yields at current and future line geometries.
GaSonics' removal products are designed as single wafer systems capable of
processing eight-inch wafers, which the Company believes further increases
yields as compared with traditional multiple wafer processing systems.
THE GASONICS STRATEGY
In order to maintain its leadership position in advanced dry chemistry
processing equipment for photoresist removal, GaSonics has implemented a
business strategy with the following key elements:
ENHANCE STRATEGIC CUSTOMER RELATIONSHIPS. The Company believes that its
long-standing relationships with many leading worldwide IC manufacturers such as
Intel, Motorola, Samsung, and Siemens are critical to ensure its position as a
leading supplier of photoresist removal equipment used in the fabrication of
advanced ICs. The Company intends to continue to focus its resources on its key
customers in order to develop the process equipment solutions needed to
manufacture the next generation of ICs and to lower the semiconductor
manufacturer's total cost of ownership for photoresist removal equipment. As
part of this focus, the Company provides dedicated personnel at key customer
facilities. The Company believes that these relationships will enable it to
better understand the needs of its customers, to design new fabrication process
equipment and to position GaSonics as a principal supplier of volume equipment
orders.
FOCUS ON CAPITAL PRODUCTIVITY. GaSonics is committed to providing its
customers with photoresist removal equipment solutions offering a lower cost of
ownership than many competing products. By increasing yields in the manufacture
of advanced ICs, the Company believes its proprietary downstream
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microwave processing technology offers customers cost of ownership advantages
over wet chemistry processing and traditional dry chemistry processing. The
Company believes that its technology results in a lower cost of ownership than
wet chemistry technology in the manufacture of advanced ICs due to the higher
costs associated with the use of consumable chemicals in wet chemistry
processing of larger diameter wafers. In addition, the Company believes that its
technology results in better yields than traditional dry chemistry as a result
of the reduced damage and contamination caused to the wafer in the Company's
downstream dry chemistry processing. The Company believes that the increased
yields provided by its systems position GaSonics as a preferred provider of
lower cost of ownership solutions for photoresist removal and other cleaning
applications. In addition, the Company intends to continue to introduce
cost-effective products and product enhancements, such as the Strata, Vertical
High Pressure ("VHP") and Performance Enhancing Platform ("PEP") systems.
CAPITALIZE ON ADVANCED WAFER FABRICATION TRENDS. Numerous wafer fabrication
lines capable of manufacturing eight-inch wafers with near 0.25 micron line
geometries are currently under construction or have been completed worldwide.
The Company seeks to address the market opportunity for advanced photoresist
removal equipment created by these wafer fabs. At 0.25 micron line geometries,
the Company believes that the yield benefits from dry chemistry processes in
general and GaSonics' downstream processing technology in particular increase
significantly. GaSonics was one of the first companies to target the advanced
photoresist removal market by transitioning from traditional batch processing to
a single wafer design and currently has an installed base of approximately 600
systems in the eight-inch market.
PENETRATE ASIA/PACIFIC MARKET. The Asia/Pacific market for IC processing
equipment represents more than half of the worldwide market. The Company has
recently been successful in marketing and selling its products to certain
customers in Korea, Singapore, Taiwan and Japan. GaSonics intends to continue to
invest significant resources in order to further penetrate the Asia/Pacific
market, particularly Japan, which has historically been dominated by Japanese
process equipment manufacturers. Japanese suppliers have typically offered
traditional dry chemistry systems which process multiple wafers in a single
batch. Because manufacturers of advanced ICs on larger diameter wafers are
increasingly adopting single wafer processing, the Company believes its single
wafer systems, which incorporate advanced dry chemistry processing techniques,
are particularly well-positioned to compete in Japan. The Company established a
relationship in 1994 with a distributor of semiconductor capital equipment in
Japan for sales of its photoresist removal equipment and has established a
wholly-owned subsidiary in Japan. In addition, the Company has staffed its
Japanese subsidiary to market and sell its high pressure systems and to provide
technical support and applications personnel to enhance the Company's
distributors' ability to sell photoresist removal and cleaning equipment.
TARGET NEW SYSTEMS AND APPLICATIONS. The Company believes that its strong
customer relationships and technology leadership will enable it to develop new
systems and target new applications. The Company believes that advanced dry
processing equipment will be utilized for certain additional process steps in
the manufacture of advanced ICs as feature sizes continue to decrease. GaSonics
completed the development of three new products, the Strata, the VHP and the PEP
and initial shipments of these systems commenced in April, August, and November
1995, respectively. The Strata system is intended to replace a costly and toxic
wet chemistry process step for the selective etching of certain materials on a
wafer. The VHP system is intended to allow certain customers to extend key
elements of their current fabrication process for up to two additional
generations by using a proprietary high pressure process to reduce exposure to
high temperature. The PEP system is a dual chamber photoresist and residue
removal system designed to increase throughput as compared to single chamber
systems and saves space in the customer's clean room. PEP systems allow a mix
and match option whereby customers can incorporate either photoresist removal,
residue removal or a combination of photoresist removal and residue removal
process chambers, depending on the customers' needs.
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GASONICS TECHNOLOGY
GaSonics' proprietary microwave downstream processing technology for dry
chemistry processing has been a key element in establishing demand for its
products. The Company believes this technology offers significant advantages
over other dry chemistry processing technologies because it increases yields in
the production of advanced ICs by reducing the amount of damage and
contamination caused to the wafer from the creation of the active gases that
remove the photoresist. The Company believes that older technologies,
particularly wet chemistry processing, offer advantages in the fabrication of
less advanced ICs (1.0 microns or greater) manufactured on smaller wafers (6
inches or less) in facilities where manufacturers continue to rely on older
batch processing techniques.
MICROWAVE DOWNSTREAM PROCESSING
Microwave downstream processing technology is a dry chemistry process that
uses elements created by plasma in order to remove photoresist and other
materials on a wafer. In traditional dry chemistry processing, the plasma is
created in the same chamber in which the active gases are exposed to the
photoresist on the wafer. This method typically causes significant damage and
contamination to the wafer because certain elements ("species") that result from
the creation of the plasma react negatively with the materials. In the Company's
products, the plasma is generated in one chamber and, using the Company's
proprietary technology, the active species are separated from the discharge
region and introduced downstream into the wafer processing chamber. The Company
believes the resulting reduction in damage and contamination to the wafer
increases yield and lowers the total cost of ownership of the photoresist
removal process equipment in the fabrication of advanced ICs.
The Company's downstream processing technology incorporates the following
key elements:
- Microwave Frequency--The Company believes that microwave frequency, which
was introduced by GaSonics in 1986, has become the preferred source for
the creation of plasma because it produces density which is more efficient
than the alternative, radio frequency energy. By creating the plasma more
efficiently, the Company believes its products have higher throughput and
can operate at lower temperatures than competitive products that utilize
radio frequency energy.
- Single Wafer Processing--The Company believes that it is one of the
technology leaders in cost-effective single wafer processing equipment. In
the 1970s, IC manufacturers, including many Japanese manufacturers, began
using multi-wafer (batch) processing equipment in order to increase
throughput. This technique produced sufficient yields with six-inch wafers
as a result of the relative ease of handling six-inch wafers in process
equipment. As more semiconductor manufacturers begin to use eight-inch
wafers in order to maximize output per wafer pass, the Company believes
that single wafer processing equipment for critical applications will be
increasingly used. The Company believes that most new facilities built
since 1993 have been eight-inch fabs. Of the 125 fabs announced or under
construction through the year 2000, the Company believes that most are 200
millimeter (8-inch).
- Temperature Control--GaSonics' products utilize proprietary technology to
increase yield through accurate temperature control. With precise
measurement and control of relevant temperatures, chemical reactions are
optimized to increase throughput and reduce unnecessary damage to the
wafer. In addition, the Company's systems have the flexibility to
accommodate the customized thermal processing requirements of its
customers' advanced ICs. In order to achieve temperature control, the
Company's systems use either platen-based heating, which is conductive, or
lamp-based heating, which is radiative, or both.
The Company believes that its proprietary microwave downstream processing
technology can be applied to other cleaning applications, such as selective
isotropic etching. Isotropic etching is a process in which plasma is used to
selectively remove silicon dioxide, silicon nitride and polysilicon from the
wafer to
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create desired three dimensional contours on the wafer. In order to accommodate
the increased number of mask layers required for the production of advanced ICs,
certain silicon layers on the wafer must be carefully shaped prior to the
deposition of the next layer of material. These etching processes are typically
completed by costly wet chemistry process steps. The Company believes that as
feature sizes decrease, IC manufacturers will replace these wet chemistry
processes or high cost etching steps with more cost-effective downstream dry
chemistry processes. The Company believes that its proprietary downstream
technology will enable manufacturers to utilize dry chemistry processing to
complete these steps with increased yield and lower cost. The Company began
shipping its new high selectivity isotropic etching and cleaning system, the
Strata, in April 1995.
HIGH PRESSURE THERMAL PROCESSING
The Company introduced the concept of the application of high pressure to IC
thermal processing with the introduction of its high pressure furnace product.
In IC fabrication, there are a number of thermal process steps that involve the
exposure of the wafer to high temperature over an extended period of time. These
steps include oxidation, which is the growth of insulating materials on the
wafer, and reflow, which is a process that smoothes irregular topographies on a
wafer. By introducing high pressure as a parameter in thermal processing, the
amount of time a wafer must be exposed to high temperatures is reduced. The
length of time an IC may be exposed to high temperatures is sometimes referred
to as the "thermal budget" of the device.
Although high pressure is currently utilized primarily for specialized
applications, the Company believes that its use in the fabrication of advanced
ICs will increase as feature sizes continue to decrease because more advanced
ICs are adversely affected by long exposure to high temperatures. In addition,
the Company believes that high pressure thermal processing provides benefits to
the IC manufacturer including higher yields resulting from increased process
rates and reduced damage to the wafer that can result from long exposure to high
temperatures and increased die per wafer. The Company began shipping VHP systems
in August 1995.
PRODUCTS
The Company's major product line consists of advanced dry chemistry
processing equipment for photoresist removal. The Company also offers advanced
dry chemistry processing equipment for post-etch residue removal, isotropic
etching, high pressure furnaces, low-pressure chemical vapor deposition
equipment used for flat panel display manufacturing and products utilizing
plasma chemistry for a variety of non-semiconductor applications. In addition,
the Company provides upgrades, maintenance and spare parts for both current
products and previous generation products.
DRY CHEMISTRY PROCESSING SYSTEMS
PHOTORESIST REMOVAL. The Company's dry chemistry downstream processing
systems are designed to provide advanced IC manufacturers with lower cost of
ownership solutions for photoresist removal. GaSonics currently manufactures
advanced dry chemistry processing systems for photoresist removal, including the
Aura 1000, the Aura 2000-LL, the Aura 3010, the L3510, the PEP3510A and the
PEP3510C. All of these products incorporate the Company's proprietary microwave
downstream processing technology and are designed to be used in the fabrication
of ICs with feature sizes of 0.25 microns and below. The Company's systems have
throughput rates ranging from approximately 45 to 55 wafers per hour, depending
upon wafer size and customer application. A single system typically ranges in
purchase price from approximately $150,000 to $600,000.
The Company introduced its high productivity platform, the PEP, in 1995. The
PEP is a dual chamber platform which, through a proprietary wafer handler and
high yield ashing, provides users with a lower cost per wafer pass while
providing yield advantage with GaSonics' downstream microwave processing.
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Photoresist removal chambers for the PEP platform were introduced in 1995. The
residue removal chambers were introduced in 1996. In 1994, the Company
introduced its two most recent single chamber product enhancements, the L3510,
an enhancement to the L3500, and the Aura 3010, an enhancement to the Aura 3000,
each of which has extended performance capabilities, including higher
reliability, increased operational flexibility and higher throughput. Sales of
dry chemistry processing equipment for photoresist removal accounted for
approximately 67%, 69% and 62% of the Company's net sales in fiscal 1994, 1995
and 1996, respectively.
ISOTROPIC ETCHING. Isotropic etching is the removal of materials from a
wafer in both the horizontal and vertical directions at uniform rates. Isotropic
etching allows advanced IC manufacturers to consistently and uniformly remove
materials from a wafer in a more controlled environment, thereby generally
resulting in a lower cost than traditional wet chemistry processing. In fiscal
1995, the Company completed the development of its high selectivity isotropic
etch system, the Strata, for the removal of silicon dioxide, silicon nitride and
polysilicon from the wafer. The Strata features the Company's downstream
microwave technology, and is marketed to prospective customers seeking to
replace costly and toxic wet chemistry processing for certain critical
applications in advanced IC fabrication. The Strata has throughput rates ranging
from 20 to 55 wafers per hour, depending on the wafer size and customer
application. The Company shipped the first Strata in April 1995.
HIGH PRESSURE FURNACE SYSTEMS
Over the past 18 years, the Company has marketed a horizontal high pressure
furnace system, the HiPOx, and has sold over 150 of such systems to over 30
semiconductor manufacturers worldwide. In fiscal 1995, the Company completed
development of its vertical high pressure furnace system, the VHP. The VHP
system is intended to provide process simplification by eliminating a mask step
and reducing the time the wafer is exposed to elevated temperatures, thereby
permitting smaller geometries and increasing yields in the manufacture of
advanced ICs. The VHP allows certain customers to extend key elements of their
current fabrication process for up to two generations thereby saving cost and
reducing risk of conversion to different processes. This product is also
designed to meet the industry demand for vertical furnace design for reduced
footprint and small batch sizes of approximately 50 wafers.
LOW-PRESSURE CHEMICAL VAPOR DEPOSITION SYSTEMS
In August 1995, the Company acquired Tekisco, one of Japan's leading
manufacturers of low-pressure chemical vapor deposition systems used for flat
panel display manufacturing. Established in 1990, Tekisco began shipments of its
proprietary LPCVD systems for polysilicon-on-glass applications for flat panel
displays in 1991. LPCVD systems have been sold to a number of leading Japanese
flat panel display manufacturers. The Company believes that the acquisition of
Tekisco gives GaSonics an immediate expansion of its market presence in Japan.
The Company now calls this operation its liquid crystal display ("LCD")
division. The Company believes that the equipment needs of flat panel or liquid
crystal manufacturers and semiconductor manufacturers are similar and appear to
be converging as the wafers used in IC manufacturing continue to increase in
size.
SPARE PARTS, SERVICE AND SUPPORT
GaSonics also provides a series of products, including spare parts,
retrofits and upgrade kits as well as service, training and support for its
growing installed based. Revenue from such sources accounted for approximately
22%, 20% and 21% of the Company's net sales in fiscal 1994, 1995 and 1996,
respectively. As the Company's systems have become more complex, the Company
believes that its customers will increasingly rely on its expertise for service
and support. In addition, the installed base of the Company's equipment is
expected to increase. As a result, the Company believes that more customers will
purchase its service and support.
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CUSTOMERS
The Company sells its products to leading IC manufacturers and flat panel
display manufacturers located throughout the United States, Europe and the
Asia/Pacific. Sales to Intel and Motorola accounted for approximately 26% and
10%, respectively, of net sales in fiscal 1994. Sales to Intel accounted for
approximately 20% of net sales in fiscal 1995 and 11% of net sales in fiscal
1996. The Company expects that sales of its products to relatively few
customers, particularly Intel, Motorola, Samsung, Siemens and Lucent
Technologies will continue to account for a high percentage of its net sales in
the foreseeable future. None of the Company's customers has entered into a
long-term agreement requiring it to purchase the Company's products. Moreover,
sales to certain of the Company's customers have decreased as those customers
have completed or delayed purchasing requirements for new or expanded
fabrication facilities. Although the composition of the group comprising the
Company's largest customers has varied from year to year, the loss of a
significant customer or any reduction in orders by any significant customer,
including reductions due to customer departures from traditional buying
patterns, market, economic or competitive conditions in the semiconductor
industry or in the industries that manufacture products utilizing integrated
circuits, could materially adversely affect the Company's business, financial
condition and results of operations.
SALES, SERVICE AND CUSTOMER SUPPORT
The Company believes its sales, service and customer support organizations
are critical to its long term customer relationships and provide the Company
with a competitive advantage in the process equipment market. These
relationships are particularly important in the semiconductor capital equipment
market, as the Company believes that once a semiconductor manufacturer has
selected a particular supplier's capital equipment, that manufacturer generally
relies upon that equipment for the specific product line application and
frequently will attempt to consolidate its other capital equipment requirements
with the same supplier. The Company's sales and service representatives maintain
close working relationships with customers in order to identify their current
and future semiconductor equipment requirements and to assist customers with the
design of their new or upgraded fabrication facilities. In addition, these
working relationships assist the Company in designing its products to meet the
stringent qualification requirements of many of its key customers. As a result
of these close relationships, the Company believes it is positioned to develop
and market products which meet the current and future requirements of its key
customers and other advanced IC manufacturers.
The Company markets and sells its products in the United States and overseas
through its marketing and direct sales organization including application and
process development engineers and logistics personnel. The Company also sells
its products overseas through 6 representatives in Europe and Asia/ Pacific. In
1994, the Company established a relationship with one of the leading
distributors of semiconductor capital equipment in Japan for sales of its
photoresist removal equipment and has staffed its own subsidiary in Japan to
market and sell its high pressure systems. The Company currently has eight
United States sales offices located in Austin, Texas; Dallas, Texas; Fort
Washington, Pennsylvania; Rockaway, New Jersey; Aloha, Oregon; Mesa, Arizona;
Hopewell, New York; and its corporate headquarters in San Jose, California. At
each of its sales offices, the Company provides support personnel and
application engineers in order to ensure dedicated technical and field process
support throughout the United States.
The Company's field service and technical support personnel are based
throughout the United States, Europe and Asia/Pacific, and directly support
domestic and international warranty service, post-warranty contract service,
equipment installations and training. Field service support in some countries
overseas is provided through third party representatives. The Company's field
service engineers are located in 23 sites throughout the United States, Europe
and Asia/Pacific, including dedicated site-specific engineers contracted by
certain customers, such as Intel, Motorola, Lucent Technologies and Texas
Instruments.
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The Company's customer support and service organizations link the customers
with the Company's overall quality and support efforts. The Company is preparing
to be in compliance with ISO-9001, which requires a strict system of standards
used primarily in Europe to measure the Company's ability to achieve certain
quality milestones.
The Company generally offers standard warranty terms for two years on parts
and labor on equipment sales. The Company also offers service contracts to its
customers for continued maintenance of the systems that are not covered by
warranty.
The Company has and is continuing to increase its sales, field service and
customer support presence in the Asia/Pacific. Since the end of fiscal 1993, the
Company has established subsidiaries in the U.K., France, Korea and Japan, and
branches in Italy, Singapore and Taiwan. The Company has staffed these
subsidiaries and branches with sales, field service, technical support and
application engineers to support further penetration in the region. The Company
intends to continue investing significant resources in order to further
penetrate the Asia/Pacific market. The Company's goal is to develop
knowledgeable local sales, service and customer support resources throughout the
region in order to increase communication between the Company and Asia/Pacific
IC manufacturers and to reduce response times for sales and support inquiries.
In August 1995, the Company acquired Tekisco, Ltd. from Kishimoto Sangyo Co.
Ltd. of Tokyo, Japan. Tekisco is a manufacturer of LPCVD equipment used for the
manufacture of flat panel displays. FPDs are market driven by portable computing
and telecommunications devices. FPD or liquid crystal display manufacturing
utilizes very similar processes to IC processing. Approximately 90% of the
advanced FPDs produced worldwide are manufactured in Japan. The acquisition of
Tekisco is intended to enable GaSonics to continue to penetrate this market and
to further establish the credibility of GaSonics as a supplier in Japan.
BACKLOG
The Company schedules production of its systems based upon backlog, informal
customer commitments and general economic forecasts for its targeted markets.
The Company includes in its backlog only those customer orders for systems for
which it has accepted purchase order numbers and assigned shipment dates within
twelve months as well as orders for spare parts and service and support of
systems. The Company's backlog for its systems, spare parts and service and
support was approximately $54.8 and $32.4 million at the end of fiscal years
1995 and 1996, respectively. Historically, the Company's backlog has fluctuated
significantly primarily as a result of the cyclical nature of construction and
equipping of new IC fabrication facilities. The equipment requirements of new
fabrication facilities cannot be determined with accuracy, and therefore the
Company's backlog at any certain date is not indicative of future growth. In
addition, because of orders received in the same quarter in which a system is
shipped, possible changes in system delivery schedules, cancellations and the
rescheduling of system orders, orders being subject to cancellation, deferral or
rescheduling by the customer with limited or no penalties, and potential delays
in system shipments, the Company's backlog at any particular date is not
necessarily representative of actual sales for any succeeding period.
MANUFACTURING
The Company's manufacturing strategy is to produce high quality,
cost-effective systems and assemblies. In order to lower production costs, the
Company performs manufacturing activities that add value or that require unique
technology or specialized knowledge and utilizes subcontractors to perform other
manufacturing activities. The Company is relying increasingly on subcontractors
to fabricate and assemble components and perform other activities.
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The Company's principal manufacturing activities include assembly and test
work and are conducted at the Company's facility in San Jose, California and in
Atsugi City, Japan for the LPCVD business. Assembly includes inspection,
subassembly and final assembly and test includes module test and final systems
test. The Company's Class 10, Class 100 and Class 1000 clean rooms enable the
Company to test its products to its customers' acceptance criteria prior to
shipment. In 1994, the Company underwent a "Supplier Quality Assessment" from
SEMATECH, a consortium of U.S. semiconductor manufacturers, which is a key
milestone for ISO-9001 certification. As part of an overall expansion program,
the Company leased additional facilities dedicated to thermal products and the
newly established customer satisfaction center and reconfigured other facilities
to accommodate the increase in personnel and provide cleaner manufacturing
environments as well as additional research and development activity.
The Company is subject to a variety of governmental regulations relating to
the use, storage, discharge, handling, emission, generation, manufacture and
disposal of toxic or other hazardous substances used to manufacture the
Company's products. The Company believes that it is currently in compliance in
all material respects with such regulations and that it has obtained all
necessary environmental permits to conduct its business. Nevertheless, the
failure to comply with current or future regulations could result in substantial
fines being imposed on the Company, suspension of production, alteration of its
manufacturing process or cessation of operations. Such regulations could require
the Company to acquire expensive remediation equipment or to incur substantial
expenses to comply with environmental regulations. Any failure by the Company to
control the use, disposal or storage of, or adequately restrict the discharge
of, hazardous or toxic substances could subject the Company to significant
liabilities.
RESEARCH AND DEVELOPMENT
The markets for semiconductor manufacturing equipment, including the markets
that utilize the Company's equipment, are characterized by rapid technological
development and product innovation. The Company intends to continue to commit
substantial resources to research and development in both dry chemistry
processing, high pressure thermal processing and LPCVD for the flat panel
display market.
In order to maintain its long-term relationships with existing customers,
the Company commits substantial resources to the continuous improvement of
existing products and developing new products and technology. Customers with
large installed bases increasingly require their suppliers to improve existing
products in order to avoid the long qualifying evaluations required with new
equipment, which can be costly and risky. The Company's research and development
for product improvement includes in-house validation tests of major hardware
changes as well as detailed process characterization in the Company's clean
rooms.
Historically, the Company has devoted a significant portion of its financial
resources to research and development programs and expects to continue to
allocate significant resources to these efforts. For fiscal 1994, 1995 and 1996,
total research and development expenditures were approximately $6.0 million,
$12.3 million and $18.0 million, respectively, and represented 9.0%, 12.1% and
14.2% of the Company's net sales, respectively.
COMPETITION
The semiconductor capital equipment industry is intensely competitive. A
substantial investment is required by customers to install and integrate capital
equipment into a semiconductor production line. As a result, once a
semiconductor manufacturer has selected a particular supplier's capital
equipment, the Company believes that the manufacturer generally relies upon that
equipment for the specific production line application and frequently will
attempt to consolidate its other capital equipment requirements with the same
supplier. Accordingly, the Company expects to experience difficulty in selling
to a particular customer for a significant period of time if that customer
selects a competitor's capital equipment. The Company currently has only one
principal product line and experiences intense competition worldwide
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from a number of leading foreign and domestic manufacturers, including
Alcantech, Applied Materials, Inc., Fusion Systems Corporation, Lam Research
Corporation, Matrix Semiconductor Systems, Inc., Mattson Technology, Inc.,
Plasma Systems and Ramco, some of which have substantially greater installed
bases and greater financial, marketing, technical and other resources than the
Company. Certain of the Company's competitors have announced the introduction
of, or have introduced, competitive products that offer other technologies and
improvements. Applied Materials and Lam Research have introduced modules to
their products which remove photoresist using dry chemistry processing and
thereby compete with the Company's products. The Company expects its competitors
to continue to develop enhancements to and future generations of competitive
products that may offer improved price or performance features. New product
introductions and enhancements by the Company's competitors could cause a
significant decline in sales or loss of market acceptance of the Company's
systems in addition to intense price competition or otherwise make the Company's
systems or technology obsolete or noncompetitive. The Company believes that it
will continue to face competition from current and new suppliers employing other
technologies, such as wet chemistry, traditional dry chemistry and other
techniques, as such competitors attempt to extend the capabilities of their
existing products. Increased competitive pressure could lead to reduced demand
and lower prices for the Company's products, thereby materially adversely
affecting the Company's operating results.
The principal elements of competition in dry chemistry processing for
photoresist removal and etching are technological innovation, total cost of
ownership of the systems, including yield, price, product performance and
throughput capability, quality, and reliability, and customer service and
support. Although the Company believes that it competes favorably with respect
to each of these factors, new product introductions by the Company's competitors
could cause a decline in sales or loss of market acceptance of the Company's
existing products. In addition, by virtue of its reliance on sales of advanced
dry chemistry processing equipment, the Company could be at a disadvantage
compared to certain competitors that offer more diversified product lines.
The Company believes that to remain competitive it will have to commit
significant financial resources to develop new product features and
enhancements, to introduce next generation photoresist removal products on a
timely basis, and to maintain customer service and support centers worldwide. In
marketing its products, the Company will face competition from suppliers
employing new technologies in order to extend the capabilities of competitive
products beyond their current limits or increase their productivity. In
addition, increased competitive pressure could lead to intensified price-based
competition, resulting in lower prices and margins, which would materially
adversely affect the Company's business, financial condition and operating
results.
In addition, Japanese IC process equipment manufacturers have a dominant
share of the market for certain types of integrated circuits for which the
Company's systems are used. Japanese manufacturers are well established in the
Japanese process equipment market, and it is difficult for non-Japanese
manufacturers to penetrate the Japanese market. Furthermore, Japanese
semiconductor manufacturers have extended their influence outside of Japan by
licensing products and process technologies to non-Japanese semiconductor
manufacturers. Such licenses could result in a recommendation to use certain
semiconductor capital equipment manufactured by Japanese companies. The Company
has not established itself as a major competitor in the Japanese market and
there can be no assurance that the Company will be able to achieve significant
sales to Japanese IC manufacturers. There can be no assurance that the Company
will be able to compete successfully in the future.
Tekisco's competitors in the LPCVD market include Japan-based companies and
Japan-based joint ventures such as Applied Komatsu and Koyo Lindbergh. These
competitors manufacture alternative technology systems and they could, at any
time, enter the Company's markets with improved technology or with systems that
are directly competitive with those of Tekisco.
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INTELLECTUAL PROPERTY RIGHTS
The Company owns 15 United States patents which expire between 1998 and 2012
and has 5 U.S. patents pending. In addition, the Company has 15 foreign patents
which expire between 1998 and 2011 and has applied for 2 additional foreign
patents. Certain of these patents were acquired by the Company from Branson
International Plasma Corporation (IPC). One additional U.S. patent application
has been assigned to the Company in connection with the acquisition of Tekisco.
The Company has a policy of seeking patents when appropriate on inventions
resulting from its ongoing research and development and manufacturing
activities. The Company also has seven trademarks. Nevertheless, the Company
believes that its success will depend more upon the innovation, technological
expertise and marketing abilities of its employees than upon the protection
provided by patents, trademarks, copyrights and other intellectual property
rights.
Although the Company attempts to protect its intellectual property rights
through patents, copyrights, trade secrets and other measures, there can be no
assurance that the Company will be able to protect its technology adequately or
that competitors will not be able to develop similar technology independently.
There can be no assurance that any of the Company's pending patent applications
will be issued or that foreign intellectual property laws will protect the
Company's intellectual property rights. There can be no assurance that any
patent issued to the Company will not be challenged, invalidated or circumvented
or that the rights granted thereunder will provide competitive advantages to the
Company. Furthermore, there can be no assurance that others will not
independently develop similar products, duplicate the Company's products or, if
patents are issued to the Company, design around the patents issued to the
Company.
As is typical in the semiconductor industry, the Company has received
notices from time to time from third parties alleging infringement claims.
Although there currently are no pending claims or lawsuits against the Company
regarding any possible infringement claims, there can be no assurance that
infringement claims by third parties or claims for indemnification resulting
from infringement claims in the future will not be asserted or that such
assertions, if proven to be true, will not materially adversely affect the
Company's business, financial condition and results of operations. If any such
claims are asserted against the Company, the Company may seek to obtain a
license under the third party's intellectual property rights. There can be no
assurance that a license will be available on reasonable terms or at all. The
Company could decide, in the alternative, to resort to litigation to challenge
such claims or enforce its proprietary rights. Such challenges could be
extremely expensive and time consuming and could materially adversely affect the
Company's business, financial condition and results of operations.
EMPLOYEES
At September 30, 1996, the Company had approximately 480 full-time
employees. The Company believes its future success will depend in large part on
its ability to attract and retain highly skilled and motivated employees. None
of the employees of the Company is covered by a collective bargaining agreement.
The Company considers its relationships with its employees to be good.
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ADDITIONAL RISK FACTORS
SIGNIFICANT FLUCTUATIONS IN OPERATING RESULTS
The Company's operating results have fluctuated significantly in the past
and will fluctuate significantly in the future. The Company anticipates that
factors continuing to affect its future operating results will include the
cyclicality of the semiconductor industry and the markets served by the
Company's customers, the timing of significant orders, patterns of capital
spending by customers, the proportion of direct sales and sales through
distributors, the proportion of international sales to net sales, changes in
pricing by the Company, its competitors, customers or suppliers, market
acceptance of new and enhanced versions of the Company's products, the mix of
products sold, financial systems, procedures and controls, discounts, the timing
of new product announcements and releases by the Company or its competitors,
delays, cancellations or rescheduling of orders due to customer financial
difficulties or otherwise, the Company's ability to produce systems in volume
and meet customer requirements, changes in overhead absorption levels due to
changes in the number of systems manufactured, political and economic
instability and lengthy sales cycles. Gross margins have varied and will vary
materially based on a variety of factors including the mix and average selling
prices of systems sales, the mix of revenues, including service and support
revenues, and the costs associated with new product introductions and
enhancements and the customization of systems. Furthermore, announcements by the
Company or its competitors of new products and technologies could cause
customers to defer purchases of the Company's existing systems, which would also
materially adversely affect the Company's business, financial condition and
results of operations. The Company has expended significant resources with
respect to the development and ramp up of production and anticipated commercial
shipments of four recently introduced products, the Strata, a high selectivity
etch system, the VHP, a vertical high pressure furnace system, the PEP, a
performance enhancement platform, and the 2106 LPCVD, a low pressure chemical
vapor deposition system. Gross margins in fiscal 1996 decreased from the level
attained during fiscal 1995, in part, to start-up inefficiencies associated with
these introductions and sales, competitive pricing pressures, changes in product
mix, including the products sold by the Company's LCD division in Japan, and
other factors. Additionally, sales and earnings for the last half of fiscal 1996
were materially adversely impacted by the current semiconductor business
slowdown and, while the Company has and is continuing to manage its expenses to
partially offset the loss of income from the decline in revenue, it is
anticipated that this slowdown in the industry will continue into next fiscal
year and will continue to have a material adverse affect on the Company's future
revenues and operating results. See "Expansion of Operations; Management of
Growth" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
LIMITED SYSTEM SALES; BACKLOG
The Company derives a substantial portion of its sales from the sale of a
relatively small number of systems which typically range in purchase price from
approximately $150,000 to $600,000 for its photoresist removal systems and up to
approximately $2.0 million for its other products. As a result, the timing of
recognition of revenue for a single transaction could have a material adverse
effect on the Company's sales and operating results. The Company's backlog at
the beginning of a quarter typically does not include all sales required to
achieve the Company's sales objectives for that quarter. Moreover, all customer
purchase orders are subject to cancellation or rescheduling by the customer with
limited or no penalties and, therefore, backlog at any particular date is not
necessarily representative of actual sales for any succeeding period. The
Company's net sales and operating results for a quarter may depend upon the
Company obtaining orders for systems to be shipped in the same quarter that the
order is received. The Company's business and financial results for a particular
period could be materially adversely affected if an anticipated order for even
one system is not received in time to permit shipment during such period.
Furthermore, most of the Company's quarterly net sales have recently been
realized near the end of the quarter. A delay in a shipment near the end of a
particular quarter, due, for example, to an unanticipated shipment
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rescheduling, to cancellations or deferrals by customers, to unexpected
manufacturing difficulties experienced by the Company or to supply shortages,
may cause net sales in a particular quarter to fall significantly below the
Company's expectations and may materially adversely affect the Company's
operating results for such quarter. In addition, significant investments in
research and development, capital equipment and customer service and support
capability worldwide have resulted in significant fixed costs which the Company
will not be able to reduce rapidly if sales goals for a particular period are
not met, which has recently been the case. Because the Company builds its
systems according to forecast, a reduction in customer orders or backlog could
present further difficulties regarding the Company's ability to plan production
and inventory levels, which could adversely impact operating results. The impact
of these and other factors on the Company's operating results in any future
period cannot be forecasted accurately. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
CYCLICALITY OF SEMICONDUCTOR INDUSTRY
The Company's business depends in significant part upon capital expenditures
by manufacturers of semiconductor devices, including manufacturers that are
opening new or expanding existing fabrication facilities, which, in turn, depend
upon the current and anticipated market demand for such devices and products
utilizing such devices. The semiconductor industry is highly cyclical and
historically has experienced periods of oversupply, resulting in significantly
reduced demand for capital equipment, including systems manufactured and
marketed by the Company. The semiconductor industry has experienced significant
growth in recent years which has resulted in significant growth in the capital
equipment industry. However, in recent months the semiconductor industry has
experienced a cyclical downturn, as evidenced by recent results of the
industry's book-to-bill ratio as published by the Semiconductor Industry
Association. More recently, the semiconductor equipment industry's book-to-bill
ratio, as published by the Semiconductor Equipment Industry Association, has
shown a dramatic decline in new equipment orders for the entire equipment
industry relative to current sales levels, indicating a pronounced cyclical
downturn. Additional evidence of an existing industry downturn is exhibited by
recent announcements by several semiconductor manufacturers of delays or
cancellations of previously planned capacity additions. The Company has recently
experienced significant delays of new orders and rescheduling of existing orders
that have materially adversely affected the Company's fiscal 1996 financial
results and is expected to materially adversely affect future financial results.
Accordingly, the Company can give no assurance that it will be able to achieve
or maintain its current level of sales. Additionally, the Company anticipates
that a significant portion of new orders depend upon demand from integrated
circuit ("IC") manufacturers building or expanding large fabrication facilities,
and there can be no assurance that such demand will exist. See
"Business--Industry Background."
HIGHLY COMPETITIVE INDUSTRY
The semiconductor capital equipment industry is intensely competitive. A
substantial investment is required by customers to install and integrate capital
equipment into a semiconductor production line. As a result, once a
semiconductor manufacturer has selected a particular vendor's capital equipment,
the Company believes that the manufacturer generally relies upon that equipment
for the specific production line application and frequently will attempt to
consolidate its other capital equipment requirements with the same vendor.
Accordingly, the Company expects to experience difficulty in selling to a
particular customer for a significant period of time if that customer selects a
competitor's capital equipment. The Company currently has only one principal
product line and experiences intense competition worldwide from a number of
foreign and domestic manufacturers, including Alcantech, Applied Materials,
Inc., Fusion Systems Corporation, Lam Research Corporation, Matrix Semiconductor
Systems, Inc., Mattson Technology, Inc., Plasma Systems and Ramco, many of which
have substantially greater installed bases and greater financial, marketing,
technical and other resources than the Company. Certain of the Company's
competitors have recently announced the introduction of, or have introduced,
competitive products that
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offer other technologies and improvements. Applied Materials and Lam Research
have introduced and sells modules to their products which remove photoresist
using dry chemical processing and, therefore, compete with the Company's
products. The Company expects its competitors to continue to develop
enhancements to and future generations of competitive products that may offer
improved price or performance features. New product introductions and
enhancements by the Company's competitors could cause a significant decline in
sales or loss of market acceptance of the Company's systems in addition to
intense price competition or otherwise make the Company's systems or technology
obsolete or noncompetitive In addition, by virtue of its reliance on sales of
advanced dry chemistry processing equipment, the Company could be at a
disadvantage compared to certain competitors that offer more diversified product
lines. The Company believes that it will continue to face competition from
current and new vendors employing other technologies, such as wet chemistry,
traditional dry chemistry and other ashing techniques, as such competitors
attempt to extend the capabilities of their existing products. Increased
competitive pressure has led to reduced demand and lower prices for the
Company's products, thereby materially adversely affecting the Company's
operating results. There can be no assurance that the Company will be able to
compete successfully in the future. See "Business--Competition."
Competitors of the Company's LCD division in Japan include Japan-based
companies and Japan-based joint ventures such as Applied Komatsu and Koyo
Lindbergh. These competitors manufacture alternative technology systems and they
could, at any time, enter the Company's markets with improved technology or with
systems that are directly competitive with those of the Company's LCD division.
DEPENDENCE ON KEY CUSTOMERS
Historically, the Company has sold a significant proportion of its systems
in any particular period to a limited number of customers. Sales to the
Company's ten largest customers in fiscal 1994, 1995 and 1996 accounted for
approximately 71%, 68% and 51% of net sales, respectively. The Company expects
that sales of its products to relatively few customers, particularly Intel,
Motorola, Samsung, Siemens and Lucent Technologies will continue to account for
a high percentage of net sales in the foreseeable future. None of the Company's
customers has entered into a long-term agreement requiring it to purchase the
Company's products. Moreover, sales to certain of its customers have decreased
as those customers have completed or delayed purchasing requirements for new or
expanded fabrication facilities. Although the composition of the group
comprising the Company's largest customers has varied from year to year, the
loss of a significant customer or any reduction in orders from any significant
customer, including reductions from recent buying patterns, market, economic or
competitive conditions in the semiconductor industry or in the industries that
manufacture products utilizing ICs, could materially adversely affect the
Company's business, financial condition and results of operations. The Company's
ability to increase or maintain current sales levels in the future will depend
in part upon its ability to obtain orders from new customers as well as the
financial condition and success of its customers and the general economy, of
which there can be no assurance. See "Business--Customers."
EXPANSION OF OPERATIONS; MANAGEMENT OF GROWTH
The Company has undergone a period of rapid growth. Since 1993, the Company
has significantly increased the scale of its operations to support increased
sales levels and has expanded its operations to address critical infrastructure
requirements, including the hiring of additional personnel, commencement of
independent operations in the United Kingdom, France, Italy, Korea, Japan,
Singapore and Taiwan and significant investments in research and development to
support product development. The Company's expansion has resulted in
significantly higher operating expenses and due to the recent slowdown in new
orders, it is anticipated that the Company's future operating results will be
materially adversely affected.
The growth in the Company's sales and expansion in the scope of its
operations has placed a considerable strain on its management, financial and
other resources and has required the Company to initiate an extensive
reevaluation of its operating and financial systems, procedures and controls.
Although
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the Company is currently implementing new management information, manufacturing
and cost accounting systems, these systems are not currently expected to be
fully operational until the second quarter of fiscal 1997 at the earliest. There
can be no assurance that any existing or new systems, procedures or controls
will be adequate to support the Company's operations or that its new systems
will be implemented in a cost-effective and timely manner.
RAPID TECHNOLOGICAL CHANGE; IMPORTANCE OF TIMELY PRODUCT INTRODUCTION
The semiconductor manufacturing industry is subject to rapid technological
change and new product introductions and enhancements. The Company's ability to
be competitive will depend in part upon its ability to develop new and enhanced
systems and to introduce these systems at competitive prices and in a timely and
cost effective manner to enable customers to integrate the systems into their
operations either prior to or upon commencement of volume product manufacturing.
In addition, new product introductions or enhancements by the Company's
competitors could cause a decline in sales or loss of market acceptance of the
Company's existing products. Increased competitive pressure has led to
intensified price-based competition resulting in lower prices and margins, which
has and could continue to materially adversely affect the Company's business,
financial condition and results of operations. Any success of the Company in
developing, introducing and selling new and enhanced systems depends upon a
variety of factors including product selection, timely and efficient completion
of product design and development, timely and efficient implementation of
manufacturing and assembly processes, effective sales and marketing and product
performance in the field. In particular, the Company's future performance will
depend in part upon the successful commercialization of the Strata, the VHP and
the PEP. There can be no assurance that any such product will achieve any
significant revenues or contribute to the profitability of the Company. Because
new product development commitments must be made well in advance of sales, new
product decisions must anticipate both the future demand for the type of ICs
under development by leading IC manufacturers and the equipment required to
produce such ICs. There can be no assurance that the Company will be successful
in selecting, developing, manufacturing and marketing new products or in
enhancing existing products.
Because of the large number of components in, and the complexity of, the
Company's systems, significant delays can occur between a system's initial
introduction and the commencement of volume production. As is typical in the
semiconductor capital equipment market, the Company has experienced delays from
time to time in the introduction of, and certain technical and manufacturing
difficulties with, certain of its systems and enhancements and may experience
delays and technical and manufacturing difficulties in future introductions or
volume production of new systems or enhancements. The Company's inability to
complete the development or meet the technical specifications of any of its new
systems or enhancements or to manufacture and ship these systems or enhancements
in volume and in a timely manner would materially adversely affect the Company's
business, financial condition and results of operations as well as its customer
relationships. In addition, the Company may incur substantial unanticipated
costs to ensure the functionality and reliability of its future product
introductions early in the product's life cycle. If new products have
reliability or quality problems, reduced orders or higher manufacturing costs,
delays in collecting accounts receivable and additional service and warranty
expenses may result, which events could materially adversely affect the
Company's business, financial condition and results of operations. See
"Business--Research and Development."
LENGTHY SALES CYCLE
Sales of the Company's systems depend, in significant part, upon the
decision of a prospective customer to increase manufacturing capacity through
the expansion of existing fabrication facilities or the opening of new
facilities, which typically involves a significant capital commitment. The
Company often experiences delays in finalizing system sales following initial
system qualification while the customer evaluates and receives approvals for the
purchase of the Company's systems and completes a new or
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expanded facility. Due to these and other factors, the Company's systems
typically have a lengthy sales cycle during which the Company may expend
substantial funds and management effort. The Company believes that the length of
the sales cycle will continue to increase as certain of its customers centralize
purchasing decisions into one decision making entity, which is expected to
intensify the evaluation process and require additional sales and marketing
expenditures by the Company.
RISKS ASSOCIATED WITH THE JAPANESE MARKET
The Company believes that increased penetration of the Asia Pacific market,
particularly Japan, will be essential to its future financial performance. The
Company has sold a relatively few number of systems to Japanese semiconductor
manufacturers, although there was a significant increase in the Company's sales
from Japan in fiscal 1996 compared to fiscal 1995. To date, the Company has not
fully developed a customer service and support capability in Japan and remains
at a disadvantage in selling, servicing and supporting products in Japan. The
Japanese semiconductor market (including fabrication plants operated outside of
Japan by Japanese semiconductor manufacturers) represents a substantial
percentage of the worldwide semiconductor manufacturing capacity, and has been
difficult for non-Japanese companies to penetrate. Furthermore, the licensing of
products and process technologies by Japanese semiconductor manufacturers to
non-Japanese semiconductor manufacturers could result in a recommendation to use
certain semiconductor capital equipment manufactured by Japanese companies. Late
in fiscal 1995, the Company acquired a local company in Japan which
manufactures, markets and sells LPCVD equipment for the FPD market, but there
can be no assurance that this company will enable the Company to penetrate the
photoresist removal market in Japan. In addressing this market, the Company is
at a distinct competitive disadvantage compared to leading Japanese suppliers,
many of which have long-standing collaborative relationships with Japanese
semiconductor manufacturers. In addition, since 1992, Japanese semiconductor
manufacturers have substantially reduced their levels of capital spending on new
fabrication facilities and equipment, thereby increasing competitive pressures
in the Japanese market. Although the Company is investing significant resources
in Japan which has significantly increased operating expenses, there can be no
assurance that the Company will be able to achieve significant sales to the
Japanese semiconductor market. See "Business--Sales, Service and Customer
Support."
INTERNATIONAL SALES
International sales accounted for 41%, 40% and 54% of net sales in fiscal
years 1994, 1995 and 1996, respectively. The Company has established independent
operations in the United Kingdom, France, Italy, Korea, Japan, Singapore and
Taiwan and acquired a company in Japan. The Company anticipates that
international sales will continue to account for a significant portion of net
sales. International sales are subject to certain risks, including unexpected
changes in regulatory requirements, difficulty in satisfying existing regulatory
requirements, exchange rates, foreign currency fluctuations, tariffs and other
barriers, political and economic instability, potentially adverse tax
consequences, natural disasters, outbreaks of hostilities, difficulties in
accounts receivable collection, extended payment terms, difficulties in managing
distributors or representatives and difficulties in staffing and managing
foreign subsidiary and branch operations. The Company is also subject to the
risks associated with the imposition of legislation and import and export
regulations. The Company cannot predict whether tariffs, quotas, duties, taxes
or other charges or restrictions will be implemented by the United States, Japan
or any other country upon the importation or exportation of the Company's
products in the future. There can be no assurance that these factors will not
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business--Sales, Service and Customer Support."
INTELLECTUAL PROPERTY RIGHTS
Although the Company attempts to protect its intellectual property rights
through patents, copyrights, trade secrets and other measures, it believes that
its financial performance will depend more upon the
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innovation, technological expertise and marketing abilities of its employees
than upon such protection. There can be no assurance that any of the Company's
pending patent applications will be issued or that foreign intellectual property
laws will protect the Company's intellectual property rights. There can be no
assurance that any patent issued to the Company will not be challenged,
invalidated or circumvented or that the rights granted thereunder will provide
competitive advantages to the Company. Furthermore, there can be no assurance
that others will not independently develop similar products, duplicate the
Company's products or, if patents are issued to the Company, design around the
patents issued to the Company.
As is typical in the semiconductor industry, the Company has received
notices from time to time from third parties alleging infringement claims.
Although there are currently no pending claims or lawsuits against the Company
regarding any possible infringement claims, there can be no assurance that
infringement claims by third parties or claims for indemnification resulting
from infringement claims will not be asserted in the future or that such
assertions, if proven to have merit, will not materially adversely affect the
Company's business, financial condition and results of operations. If any such
claims are asserted against the Company, the Company may seek to obtain a
license under the third party's intellectual property rights. There can be no
assurance that a license will be available on reasonable terms or at all. The
Company could decide, in the alternative, to resort to litigation to challenge
such claims. Such challenges could be extremely expensive and time consuming and
could materially adversely affect the Company's business, financial condition
and results of operations. See "Business--Intellectual Property Rights."
SOLE OR LIMITED SOURCES OF SUPPLY; RELIANCE ON SUBCONTRACTORS; COMPLEXITY IN
MANUFACTURING PROCESS
Certain components, subassemblies and services necessary for the manufacture
of the Company's systems are obtained from a sole supplier or a limited group of
suppliers. Specifically, the Company relies on three companies for supply of the
robotics used in its products and two other companies for microwave power
supplies used in all of its ashing systems. The Company does not maintain any
long-term supply agreements with any of its suppliers. The Company is relying
increasingly on outside vendors to manufacture certain components and
subassemblies. The Company's reliance on sole or a limited group of suppliers
and the Company's increasing reliance on subcontractors involve several risks,
including a potential inability to obtain an adequate supply of required
components and reduced control over pricing and timely delivery of components
and subassemblies. Because the manufacture of certain of these components and
subassemblies is an extremely complex process and requires long lead times,
there can be no assurance that delays or shortages caused by suppliers will not
occur in the future. Certain of the Company's suppliers have relatively limited
financial and other resources. Any inability to obtain adequate deliveries or
any other circumstance that would require the Company to seek alternative
sources of supply or to manufacture such components internally could delay the
Company's ability to ship its products, which could damage relationships with
current and prospective customers and could have a material adverse effect on
the Company's business, financial condition and results of operations. The
Company's LCD division in Japan is heavily dependent on one key supplier for
quartz and ceramic fabrication and is seeking alternative sources. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Manufacturing."
FUTURE ACQUISITIONS
In August 1995, the Company acquired its flat panel display equipment (LCD)
division in Japan (formerly called Tekisco). In the future, the Company may
pursue acquisitions of additional product lines, technologies or businesses.
Future acquisitions by the Company may result in potentially dilutive issuances
of equity securities, incurrence of debt and amortization expenses related to
goodwill and other intangible assets, which could materially adversely affect
the Company's financial condition and results of operations. In addition,
acquisitions involve numerous risks, including difficulties in the assimilation
of the operations,
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technologies and products of the acquired companies, the diversion of
management's attention from other business concerns, risks of entering markets
in which the Company has no or limited direct prior experience, and the
potential loss of key employees of the acquired company. From time to time, the
Company has engaged in preliminary discussions with third parties concerning
potential acquisitions of product lines, technologies and businesses; however,
there are currently no negotiations, commitments or agreements with respect to
any acquisition. In the event that such an acquisition does occur, there can be
no assurance as to the effect thereof on the Company's business, financial
condition or operating results.
DEPENDENCE ON KEY PERSONNEL
The Company's financial performance will depend in significant part upon the
continued contributions of its officers and key personnel, many of whom would be
difficult to replace. No employee has an employment or noncompetition agreement
with the Company. The loss of any key person could have a material adverse
effect on the business, financial condition and results of operations of the
Company. During the last twelve months, a number of senior management personnel
have left the Company to pursue other opportunities. Although the Company has
replaced most of these senior management personnel, there can be no assurance
that these individuals will successfully integrate into the Company's senior
management team. In addition, the Company's future operating results depend in
part upon its ability to attract and retain other qualified management,
engineering, financial and accounting, technical, marketing and sales and
support personnel for its operations. Competition for such personnel is intense,
and there can be no assurance that the Company will be successful in attracting
or retaining such personnel. The failure to attract or retain such persons could
materially adversely affect the Company's business, financial condition and
results of operations. See "Business--Employees" and "Executive Officers of the
Registrant."
ENVIRONMENTAL REGULATIONS
The Company is subject to a variety of governmental regulations relating to
the use, storage, discharge, handling, emission, generation, manufacture and
disposal of toxic or other hazardous substances used to manufacture the
Company's products. The Company believes that it is currently in compliance in
all material respects with such regulations and that it has obtained all
necessary environmental permits to
conduct its business. Nevertheless, the failure to comply with current or future
regulations could result in substantial fines being imposed on the Company,
suspension of production, alteration of its manufacturing process or cessation
of operations. Such regulations could require the Company to acquire expensive
remediation equipment or to incur substantial expenses to comply with
environmental regulations. Any failure by the Company to control the use,
disposal or storage of, or adequately restrict the discharge of, hazardous or
toxic substances could subject the Company to significant liabilities. See
"Business-- Manufacturing."
EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS
As of November 15, 1996, the Company's officers, directors and members of
their families that may be deemed affiliates of such persons beneficially owned
approximately 27.9% of the Company's outstanding shares of Common Stock.
Accordingly, these stockholders will be able to significantly influence the
election of the Company's directors and the outcome of corporate actions
requiring stockholder approval, such as mergers and acquisitions, regardless of
how other stockholders of the Company may vote. Such a high level of ownership
by such persons or entities may have a significant effect in delaying, deferring
or preventing a change in control of the Company and may adversely affect the
voting and other rights of other holders of Common Stock. Certain provisions of
the Company's Certificate of Incorporation, 1994 Stock Option/Stock Issuance
Plan, Bylaws and Delaware law may also discourage certain transactions involving
a change in control of the Company. In addition to the foregoing, the ability of
the Company's
18
<PAGE>
Board of Directors to issue preferred stock without further stockholder approval
could have the effect of delaying, deferring or preventing a change in control
of the Company.
VOLATILITY OF STOCK PRICE
The Company believes that factors such as announcements of developments
related to the Company's business, fluctuations in the Company's operating
results, sales of the Company's Common Stock into the market place, failure to
meet or changes in analysts' expectations, natural disasters, outbreaks of
hostilities, general conditions in the semiconductor industry or the worldwide
economy, announcements of technological innovations or new products or
enhancements by the Company or its competitors, developments in patents or other
intellectual property rights and developments in the Company's relationships
with its customers and suppliers could cause the price of the Company's common
stock to fluctuate, perhaps substantially. In addition, in recent years the
stock market in general, and the market for shares of small capitalization
stocks in particular, have experienced extreme price fluctuations, which have
often been unrelated to the operating performance of affected companies. There
can be no assurance that the market price of the Company's common stock will not
experience significant fluctuations in the future, including fluctuations that
are unrelated to the Company's performance.
ITEM 2. PROPERTIES
The Company maintains its headquarters in San Jose, California in three
leased facilities, aggregating approximately 148,500 square feet, which contain
general administration and finance, marketing and sales, customer service and
support, manufacturing and research and development. The three buildings have
separate leases with two of the leases expiring on December 31, 1999 and the
third lease expiring on August 31, 1998.
The Company also leases seven sales and support offices in the United States
in Austin, Texas; Dallas, Texas; Fort Washington, Pennsylvania; Rockaway, New
Jersey; Aloha, Oregon; Mesa, Arizona; and Hopewell, New York under leases with
terms of one to three years.
Additionally, the Company leases sales and support offices in Korea, Japan,
Scotland, Singapore and Taiwan. Lease terms vary from two to ten years.
The Company also leases two facilities totaling approximately 34,000 square
feet in Japan which is dedicated to the Company's LCD division (formerly called
Tekisco). One of the facilities totaling approximately 20,000 square feet is
used for administration, marketing and sales, customer service and support,
manufacturing and research and development. The lease on this facility expires
September 30, 1998. The other facility totaling approximately 14,000 square feet
was acquired in December 1995 to expand production capability. The lease on this
facility expires November 30, 1997.
The Company believes that its existing facilities will adequately meet its
anticipated requirements for the next twelve months and that suitable additional
or substitute space will be available as needed.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter ended September 30, 1996.
19
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------- --- ------------------------------------------------------------
<S> <C> <C>
Monte M. Toole........... 65 Chairman of the Board
Dave Toole............... 41 Chief Executive Officer, President and Director
Avner Shelem............. 43 Vice President, General Manager, Engineering and Operations
Terry Gibson............. 43 Vice President, Finance and Chief Financial Officer
Jeannine Sargent......... 32 Vice President, Marketing and Customer Technology
Pascal Didier............ 37 Vice President, Worldwide Sales and Customer Support
Ralph Kerns.............. 50 Vice President, Technology
</TABLE>
MONTE M. TOOLE founded the Company in March 1971 and has served as Chairman
of the Board since the Company's inception and as Chief Executive Officer from
inception to December 31, 1994. Between March 1971 and May 1993, Mr. Toole also
served as President of the Company. Prior to founding the Company, Mr. Toole was
a representative of semiconductor equipment manufacturers at Monte Toole and
Associates, Inc., a manager at Fairchild Semiconductor and a systems analyst at
IBM. From October 1991 to June 1993, Mr. Toole served on the Board of Directors
of Integrated Process Equipment Corporation, a semiconductor equipment company.
DAVE TOOLE became the Company's President and Chief Operating Officer in May
1993, and became the Companys' Chief Executive Officer on December 31, 1994.
Prior to that time, Mr. Toole served as the Company's Vice President, Sales and
Marketing from October 1986 to April 1989 and has served as a Director since
April 1979. Mr. Toole also served as the Company's Vice President and General
Manager from April 1989 to May 1991 and as Vice President, Commercial Operations
from May 1991 to May 1993. Mr. Toole has held various other positions in
purchasing, manufacturing, marketing and sales since joining the Company in
1979. Prior to 1979, Mr. Toole was employed by Advanced Micro Devices, a
semiconductor manufacturer.
AVNER SHELEM joined the Company as Vice President, Research, Development and
Engineering in March 1994 and was promoted to Vice President, General Manager,
Engineering and Operations in September 1996. Between December 1992 and March
1994, Mr. Shelem was a partner at Intertech Management Group, a management
consulting firm. From September 1990 to December 1992, Mr. Shelem served as
Chief Operating Officer of AG Associates, a manufacturer of rapid thermal
processing equipment. From January 1983 to September 1990, Mr. Shelem held
various positions at Intel Corporation, including Material and General Site
Services Manager, Lithography Manager, Diffusion Manager and Industrial
Engineering Manager.
TERRY GIBSON became the Company's Vice President, Finance and Chief
Financial Officer in May 1996. Before joining GaSonics, Mr. Gibson had been
employed by Lam Research Corporation, since 1991 where he served as Vice
President, Corporate Controller. From 1990 to 1991, Mr. Gibson was the Corporate
Controller at Silicon Valley Group and from 1989 to 1990 served as Corporate
Controller of Flextronics, Inc. From 1983 to 1989, Mr. Gibson held various
financial management positions at National Semiconductor and prior to that began
his career with the independent public accounting firm of Deloitte, Haskins and
Sells.
JEANNINE SARGENT became the Company's Vice President, Marketing and Customer
Technology in February 1996. Prior to joining GaSonics, Ms. Sargent was employed
by Tencor Instruments from August 1992 to January 1996 where she most recently
held the position of Director of Marketing. From October 1990 to July 1992 she
served as Technical Marketing and Applications Manager at Semi Test and from
20
<PAGE>
August 1987 to September 1990 was a Senior Development and Integration Engineer
at Digital Equipment.
PASCAL DIDIER joined the Company in May 1995 as Director of Asian Sales and
was promoted to Vice President of Worldwide Sales and Customer Support in June
1996. Prior to GaSonics, Mr. Didier had been employed since 1983 by Megatest
Corporation where he held various positions including European Technical
Manager, Director of International Operations and in June 1993, became Vice
President of International Operations.
RALPH KERNS PH.D. became the Company's Vice President, Technology in October
1996. Prior to joining the Company, Dr. Kerns was employed by Lam Research from
July 1993 to September 1996, first as Director, then as Vice President of Lam's
Metal Etch Business Unit. Dr. Kerns came to Lam through its acquisition of
Drytek Incorporated in July 1993. Dr. Kerns was Drytek's Director of Technology
from February 1991 until the acquisition. Before that, Dr. Kerns held R&D
positions in wafer fabrication at Commodore Semiconductor Group and in materials
science at Solarex Corporation and Solar Energy Research Institute (now National
Renewable Energy Laboratory).
The executive officers serve at the discretion of the Board of Directors,
until their successors are appointed. No family relationships exist among the
officers and directors, except Monte Toole and Dave Toole are father and son.
21
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS
The information required by this Item is incorporated by reference from page
13 of the Company's 1996 Annual Report to Stockholders.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated by reference from page
13 of the Company's 1996 Annual Report to Stockholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information required by this Item is incorporated by reference from
pages 14-17 of the Company's 1996 Annual Report to Stockholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Report of Independent Public Accountants and consolidated financial
statements required by this Item are incorporated by reference from pages 18-29
of the Company's 1996 Annual Report to Stockholders.
22
<PAGE>
PART III
Certain information required by Part III is omitted from this Report in that
the Registrant intends to file a definitive proxy statement within 120 days
after the end of its fiscal year pursuant to Regulation 14A for its Annual
Meeting of Stockholders to be held March 3, 1997 ( the "Proxy Statement") and
the information included therein is incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors required by this Item is
incorporated by reference from "Election of Directors" in the Proxy Statement.
The information required by this item relating to the Company's executive
officers is included under the caption "Executive Officers of the Registrant" in
Part I of this Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference from the
Proxy Statement under the heading "Executive Compensation and Related
Information".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference from the
Proxy Statement under the heading "Election of Directors" and "Ownership of
Securities".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference from the
Proxy Statement under the heading "Certain Transactions".
23
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report on Form 10-K:
(1) Financial Statements
The following consolidated financial statements of GaSonics
International Corporation are set forth in the Company's 1996 Annual
Report to the Stockholders and are incorporated by reference hereto
in Item 8:
<TABLE>
<CAPTION>
ANNUAL REPORT
PAGE NUMBER
---------------
<S> <C>
Consolidated Balance Sheets--September 30, 1996 and 1995............. 18
Consolidated Statements of Operations--Years Ended September 30,
1996, 1995 and 1994................................................ 19
Consolidated Statements of Stockholders' Equity--Years Ended
September 30, 1996, 1995 and 1994.................................. 20
Consolidated Statements of Cash Flows--Years Ended September 30,
1996, 1995 and 1994................................................ 21
Notes to Consolidated Financial Statements........................... 22-28
Report of Independent Public Accountants............................. 29
</TABLE>
(2) Financial Statement Schedules
The following consolidated financial statement schedule is included
herein:
<TABLE>
<CAPTION>
PAGE NUMBER
---------------
<S> <C>
Report of Independent Public Accountants on Schedule................. 28
Schedule II--Valuation and Qualifying Accounts....................... 29
</TABLE>
Schedules other than those listed above have been omitted since they are
either not required, are not applicable, or the required information is shown in
the financial statements or related notes.
(3) Exhibits
24
<PAGE>
The following exhibits are referenced or included in this report:
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
2.1(1) Form of Agreement and Plan of Merger between Gasonics International Corporation, a California
corporation, and the Registrant
2.2(1) Stock Purchase Agreement dated February 28, 1991 between Emerson Electric Company and the Registrant
2.3(5) Asset Purchase Agreement dated as of July 30, 1995 among the Registrant, GaSonics International
Japan, K.K., Tekisco, Inc. and Kishimoto Sangyo Co. Ltd.
2.4(5) Stock Purchase Agreement dated as of July 30, 1995 between the Registrant and Kishimoto Sangyo Co.
Ltd.
2.5(5) Commission Agreement dated as of July 30, 1995 between the Registrant and Kishimoto Sangyo Co. Ltd.
3.1(1) Certificate of Incorporation of the Registrant
3.2(1) Bylaws of the Registrant
3.3 Amended and Restated Bylaws of the Registrant
4.1(1) Form of Common Stock Certificate
10.1(1) Form of Indemnification Agreement between the Company and each of its officers and directors
10.2(8) 1994 Stock Option/Stock Issuance Plan and forms of agreements thereunder, as amended and restated
effective February 1, 1996
10.3(8) 1994 Employee Stock Purchase Plan, as amended and restated effective November 4, 1996
10.4(1) Form of Light Industrial Lease between Teachers Insurance and Annuity Association of America and the
Registrant for office space at 2730 Junction Avenue, San Jose, California
10.5(1) Secured Promissory Note dated February 28, 1991 in the principal amount of $4,500,000 issued by the
Registrant and Branson International Plasma Corporation in favor of Emerson Electric Company
10.6(1) Promissory Note dated November 10, 1993 in the principal amount of $359,375 issued by the Registrant
in favor of Robert Champagne
10.7(1) Continuing Guaranty dated November 10, 1993 in the principal amount of $359,375 issued by the
Registrant in favor of Robert Champagne
10.8(1) Promissory Note dated November 10, 1993 in the principal amount of $339,999.60 issued by Dave Toole
in favor of the Registrant
10.9(1) Demand Note dated November 30, 1993 in the principal amount of $62,500 issued by Dave Toole in favor
of the Registrant
10.10(1) Sale of Shares Pursuant to Redemption Agreement dated November 10, 1993 between Robert Champagne and
the Registrant
10.11(1) Non-Compete Agreement dated as of November 10, 1993 and Addendum to Non-Compete Agreement dated as of
November 18, 1993 between Robert Champagne and the Registrant
10.12(1) Credit Agreement dated August 6, 1993 between Union Bank, International Plasma Corporation and the
Registrant
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.13(2) Business Loan Agreement dated April 28, 1994 between Registrant and Union Bank and related Promissory
Note
10.14(3) Lease Agreement dated November 14, 1994 between Registrant and Realtech Properties I, L.P.
10.15(4) Loan Agreement dated April 19, 1995 between Registrant and Union Bank, a California banking
corporation
10.16(4) Lease Agreement dated June 5, 1995 between Registrant and Orchard Investment Company
10.17(6) Underwriting Agreement dated March 21, 1994 by and among the Registrant, the underwriters named
therein and the selling stockholders named therein
10.18(7) Underwriting Agreement dated March 9, 1995 by and among the Registrant, the underwriters named
therein and the selling stockholders named therein
10.19(8) Continuing Guarantee Agreement dated July 31, 1995, executed by the Registrant in favor of the Bank
of Tokyo, Ltd.
10.20(9) Loan Agreement dated March 4, 1996 between Registrant and Union Bank
13 Portions of the Annual Report to Stockholders for the year ended September 30, 1996
which are expressly incorporated herein by reference
16.1(1) Letter from Ernst & Young dated March 8, 1994 regarding the change in the Certifying Accountant of
the Registrant
21.1 List of Subsidiaries of the Registrant
23.1 Consent of Independent Public Accountants
24.1(1) Power of Attorney (Included on signature page)
27 Financial Data Schedule
</TABLE>
- ------------------------
(1) Incorporated by reference to identically numbered exhibits included in
Registrant's Registration Statement on Form S-1 (File No. 33-74872) declared
effective with the Securities and Exchange Commission on March 21, 1994.
(2) Incorporated by reference to identically numbered exhibit included in
Registrant's Report on Form 10-Q for the quarter ended June 30, 1994.
(3) Incorporated by reference to an exhibit in Registrant's Report on Form 10-Q
for the quarter ended December 31, 1994.
(4) Incorporated by reference to exhibits included in Registrant's Report on
Form 10-Q for the quarter ended June 30, 1995.
(5) Incorporated by reference to exhibits filed with Registrant's Current Report
on Form 8-K filed with the Securities and Exchange Commission on August 24,
1995.
(6) Incorporated by reference to an exhibit in Registrant's Registration
Statement on Form S-1 (File No. 33-74872) declared effective with the
Securities and Exchange Commission on March 21, 1994.
(7) Incorporated by reference to an exhibit in Registrant's Registration
Statement on Form S-1 (File No. 33-89636) declared effective with the
Securities and Exchange Commission on March 9, 1995.
(8) Incorporated by reference to exhibits filed with the Registrant's Annual
Report on Form 10-K for the year ended September 30, 1995.
(9) Incorporated by reference to an exhibit included in Registrant's Report on
Form 10-Q for the quarter ended March 31, 1996.
26
<PAGE>
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the fourth quarter ended
September 30, 1996.
(c) Exhibits. See list of exhibits under (a) (3) above.
(d) Financial Statement Schedules. See list of schedules under (a) (2)
above.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: December 20, 1996 GASONICS INTERNATIONAL CORPORATION
By: /s/ DAVE TOOLE
-----------------------------------------
Dave Toole
PRESIDENT & CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Monte M. Toole and David J. Toole, jointly and
severally, his attorneys-in-fact, each with the power of substitution, for him
in any and all capacities, to sign any amendments to the Report on Form 10-K and
to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorney-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated below:
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ MONTE M. TOOLE
- ------------------------------ Chairman of the Board of December 20, 1996
Monte M. Toole Directors
Chief Executive Officer,
/s/ DAVE TOOLE President and Director
- ------------------------------ (Principal Executive December 20, 1996
Dave Toole Officer)
Vice President, Finance
/s/ TERRY R. GIBSON and Chief Financial
- ------------------------------ Officer (Principal December 20, 1996
Terry R. Gibson Financial and Accounting
Officer)
/s/ KENNETH L. SCHROEDER
- ------------------------------ Director December 20, 1996
Kenneth L. Schroeder
/s/ F. JOSEPH VAN POPPELEN
- ------------------------------ Director December 20, 1996
F. Joseph Van Poppelen
27
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To GaSonics International Corporation:
We have audited in accordance with generally accepted auditing standards,
the financial statements included in GaSonics International Corporation's Annual
Report to Stockholders incorporated by reference in this Form 10-K, and have
issued our report thereon dated November 4, 1996. Our audit was made for the
purpose of forming an opinion on those statements taken as a whole. The schedule
listed in the index under item 14(a)(2) is the responsibililty of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
San Jose, California
November 4, 1996
28
<PAGE>
SCHEDULE II
GASONICS INTERNATIONAL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING OF COSTS AND OTHER AT END
DESCRIPTIONS PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- --------------------------------------------------- ------------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Years Ended September 30,:
1994............................................. $ 154 $ 239 $ -- $ 105 $ 288
1995............................................. $ 288 $ 179 $ -- $ 98 $ 369
1996............................................. $ 369 $ 240 $ 2 $ -- $ 611
INVENTORY RESERVES
Years Ended September 30,:
1994............................................. $ 681 $ 564 $ -- $ 44 $ 1,201
1995............................................. $ 1,201 $ 1,212 $ -- $ 851 $ 1,562
1996............................................. $ 1,562 $ 2,266 $ -- $ 1,593 $ 2,235
</TABLE>
29
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
GASONICS INTERNATIONAL CORPORATION
AS OF JULY 29, 1996
ARTICLE I
OFFICES
SECTION 1. The registered office shall be in the City of Dover,
County of Kent, State of Delaware.
SECTION 2. The corporation may also have offices at such other places
both within and without the State of Delaware as the Board of Directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. All meetings of the stockholders for the election of
directors shall be held at such time and place, within or without the State of
Delaware, as may be fixed from time to time by the Board of Directors, and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
SECTION 2. Annual meetings of stockholders, commencing with the year
1995, shall be held at such date and time as shall be designated from time to
time by the Board of Directors and stated in the notice of the meeting, at which
they shall elect by a plurality vote a board of directors, and transact such
other business as may properly be brought before the meeting.
SECTION 3. Written notice of the annual meeting stating the place,
date and hour of the meeting shall be given to each stockholder entitled to vote
at such meeting not fewer than ten (10) nor more than sixty (60) days before the
date of the meeting.
SECTION 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten (10) days before every
meeting of stockholders, a complete list of the stockholders entitled to vote
at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the
<PAGE>
examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior
to the meeting, either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting, or, if not
so specified, at the place where the meeting is to be held. The list shall
also be produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any stockholder who is present.
SECTION 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the Board of
Directors, or at the request in writing of stockholders owning not less than ten
percent (10%) of the entire capital stock of the corporation issued and
outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
SECTION 6. Written notice of a special meeting stating the place,
date and hour of the meeting and the purpose or purposes for which the meeting
is called, shall be given not fewer than ten (10) nor more than sixty (60) days
before the date of the meeting, to each stockholder entitled to vote at such
meeting.
SECTION 7. Notwithstanding anything in these Bylaws to the contrary,
stockholders may include on the agenda for a regular or special stockholders'
meeting (i) stockholder nominations to the corporation's Board of Directors and
(ii) any other business such stockholders desire to be acted upon at such
meeting, ((i) and (ii) above to be referred to herein as a "Stockholder
Proposal"), only if such Stockholder Proposal is (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors, (b) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (c) otherwise properly brought before
the meeting by a stockholder. A Stockholder Proposal shall be considered
properly brought before the meeting by a stockholder if such stockholder
delivers to the secretary of the corporation, not fewer than thirty (30) nor
more than sixty (60) days prior to the meeting, a notice (the "Stockholder
Notice") containing the information set forth below. The Stockholder Notice
shall set forth:
(A) the name and address of the stockholder intending to
make the Stockholder Proposal and, as the case may be, the name and address
of the person or persons to be nominated or a detailed description of the
nature of the business to be proposed;
(B) a representation that the stockholder is a holder of
record of stock of the corporation and is entitled to vote at such meeting
and, if applicable, intends to appear in person or by proxy at the meeting
to nominate the person or persons specified in the notice or introduce the
business specified in the notice;
2.
<PAGE>
(C) if applicable, a description of all arrangements or
understandings between the stockholder and each nominee and any other
person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder;
(D) such other information regarding each nominee or each
matter of business to be proposed by such stockholder as would be required
to be included in a proxy statement filed pursuant to the proxy rules
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended, had the nominee been nominated, or
intended to be nominated, or the matter been proposed, or intended to be
proposed by the Board of Directors; or
(E) if applicable, the consent of each nominee to serve as
director of the corporation if so elected.
The chairman of the meeting may refuse to acknowledge the nomination of any
person or the proposal of any business not made in compliance with the foregoing
procedures.
SECTION 8. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
SECTION 9. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
SECTION 10. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
3.
<PAGE>
SECTION 11. Unless otherwise provided in the certificate of
incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three (3) years from its date, unless the proxy provides for a longer
period.
SECTION 12. Unless otherwise provided in the certificate of
incorporation, any action required to be taken at any annual or special meeting
of stockholders of the corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a meeting
and without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted; provided however, that before any action may be taken by written consent
in lieu of a meeting, the stockholders seeking to take such action must give the
Board of Directors advance written notice of their intentions ("Consent
Notice"), which Consent Notice shall be deemed received when delivered to, or
mailed and received by, the Chairman of the Board of Directors or, if no
Chairman exists, to each of the members of the Board of Directors. Within ten
(10) days after receipt of the Consent Notice, the Board of Directors shall set
a record date for the purpose of determining those stockholders entitled to act
by such written consent, and such record date shall be not later than ten (10)
days after such action by the Board of Directors. Prompt notice of the taking
of the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
SECTION 1. The number of directors which shall constitute the whole
board shall be determined by resolution of the Board of Directors or by the
stockholders at the annual meeting of the stockholders, except as provided in
Section 2 of this Article, and each director elected shall hold office until his
successor is elected and qualified. Directors need not be stockholders.
SECTION 2. Vacancies and new created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual
election and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole board (as
4.
<PAGE>
constituted immediately prior to any such increase), the Court of Chancery
may, upon application of any stockholder or stockholders holding at least ten
(10%) percent of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to
be held to fill any such vacancies or newly created directorships, or to
replace the directors chosen by the directors then in office.
SECTION 3. The business of the corporation shall be managed by or
under the direction of its board of directors which may exercise all such powers
of the corporation and do all such lawful acts and things as are not by statute
or by the certificate of incorporation or by these bylaws directed or required
to be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
SECTION 4. The Board of Directors of the corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
SECTION 5. The first meeting of each newly elected Board of Directors
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
Board of Directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
SECTION 6. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
SECTION 7. Special meetings of the board may be called by the
president on ten (10) days' notice to each director by mail or forty-eight (48)
hours notice to each director either personally or by telephone, telegram or
facsimile; special meetings shall be called by the president or secretary in
like manner and on like notice on the written request of two (2) directors
unless the board consists of only one director, in which case special meetings
shall be called by the president or secretary in like manner and on like notice
on the written request of the sole director.
SECTION 8. At all meetings of the board a majority of the directors
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the
5.
<PAGE>
certificate of incorporation. If a quorum shall not be present at any
meeting of the Board of Directors, the directors present thereat may adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
SECTION 9. Unless otherwise restricted by the certificate of
incorporation of these bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
SECTION 10. Unless otherwise restricted by the certificate of
incorporation or these bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
SECTION 11. The Board of Directors may, by resolution passed by a
majority of the whole board, designate one (1) or more committees, each
committee to consist of one (1) or more of the directors of the corporation.
The board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee.
In the absence of disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the bylaws of the corporation; and,
unless the resolution or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or
6.
<PAGE>
names as may be determined from time to time by resolution adopted by the
Board of Directors.
SECTION 12. Each committee shall keep regular minutes of its meetings
and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
SECTION 13. Unless otherwise restricted by the certificate of
incorporation or these bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving
the corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like compensation for
attending committee meetings.
REMOVAL OF DIRECTORS
SECTION 14. Unless otherwise restricted by the certificate of
incorporation or bylaw, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.
ARTICLE IV
NOTICES
SECTION 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram, telephone or facsimile.
SECTION 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
7.
<PAGE>
ARTICLE V
OFFICERS
SECTION 1. The officers of the corporation shall be chosen by the
Board of Directors and shall be a president, treasurer and a secretary. The
Board of Directors may elect from among its members a Chairman of the Board and
a Vice Chairman of the Board. The Board of Directors may also choose one or
more vice-presidents, assistant secretaries and assistant treasurers. Any
number of offices may be held by the same person, unless the certificate of
incorporation or these bylaws otherwise provide.
SECTION 2. The Board of Directors at its first meeting after each
annual meeting of stockholders shall choose a president, a treasurer, and a
secretary and may choose vice presidents.
SECTION 3. The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
SECTION 4. The salaries of all officers and agents of the corporation
shall be fixed by the Board of Directors.
SECTION 5. The officers of the corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by
the Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
SECTION 6. The Chairman of the Board, if any, shall preside at all
meetings of the Board of Directors and of the stockholders at which he shall be
present. He shall have and may exercise such powers as are, from time to time,
assigned to him by the Board and as may be provided by law.
SECTION 7. In the absence of the Chairman of the Board, the Vice
Chairman of the Board, if any, shall preside at all meetings of the Board of
Directors and of the stockholders at which he shall be present. He shall have
and may exercise such powers as are, from time to time, assigned to him by the
Board and as may be provided by law.
8.
<PAGE>
THE PRESIDENT AND VICE-PRESIDENTS
SECTION 8. The president shall be the chief operating officer of the
corporation; and in the absence of the Chairman and Vice Chairman of the Board
he shall preside at all meetings of the stockholders and the Board of Directors;
he shall have general and active management of the business of the corporation
and shall see that all orders and resolutions of the Board of Directors are
carried into effect.
SECTION 9. He shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the corporation.
SECTION 10. In the absence of the president or in the event of his
inability or refusal to act, the vice-president, if any, (or in the event there
be more than one vice-president, the vice-presidents in the order designated by
the directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the president, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
president. The vice-presidents shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
SECTION 11. The secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
president, under whose supervision he shall be. He shall have custody of the
corporate seal of the corporation and he, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such assistant
secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
signature.
SECTION 12. The assistant secretary, or if there be more than one,
the assistant secretaries in the order determined by the Board of Directors (or
if there be no such determination, then in the order of their election) shall,
in the absence of the secretary or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
9.
<PAGE>
THE TREASURER AND ASSISTANT TREASURERS
SECTION 13. The treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors. Unless
otherwise appointed, the Chief Financial Officer shall be the treasurer.
SECTION 14. He shall disburse the funds of the corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
SECTION 15. If required by the Board of Directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
SECTION 16. The assistant treasurer, or if there shall be more than
one, the assistant treasurers in the order determined by the Board of Directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the treasurer or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the treasurer and
shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
SECTION 1. Every holder of stock in the corporation shall be
entitled to have a certificate, signed by, or in the name of the corporation
by, the chairman or vice-chairman of the Board of Directors, or the president
or a vice-president and the treasurer or an assistant treasurer, or the
secretary or an assistant secretary of the corporation, certifying the number
of shares owned by him in the corporation.
Certificates may be issued for partly paid shares and in such case
upon the face or back of the certificates issued to represent any such partly
paid shares, the total
10.
<PAGE>
amount of the consideration to be paid therefor, and the amount paid thereon
shall be specified.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
SECTION 2. Any of or all the signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
SECTION 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
SECTION 4. Upon surrender to the corporation or the transfer agent of
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the corporation
11.
<PAGE>
to issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon its books.
FIXING RECORD DATE
SECTION 5. Subject to Section 12 of Article II hereof, in order that
the corporation may determine the stockholders entitled to notice of or to vote
at any meeting of stockholder or any adjournment thereof, or to express consent
to corporate action in writing without a meeting, or entitled to receive payment
of any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting, nor more than sixty (60) days
prior to any other action. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
REGISTERED STOCKHOLDERS
SECTION 6. The corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
SECTION 1. Dividends upon the capital stock of the corporation,
subject to the provisions of the certificate of incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation.
SECTION 2. Before payment of any dividend, there may be set aside out
of any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to
12.
<PAGE>
meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the corporation, or for such other purposes as
the directors shall think conducive to the interest of the corporation, and
the directors may modify or abolish any such reserve in the manner in which
it was created.
CHECKS
SECTION 3. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
FISCAL YEAR
SECTION 4. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
SEAL
SECTION 5. The Board of Directors may adopt a corporate seal having
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
SECTION 6. The corporation shall, to the fullest extent authorized
under the laws of the State of Delaware, as those laws may be amended and
supplemented from time to time, indemnify each of its agents made, or threatened
to be made, a party to an action or proceeding, whether criminal, civil,
administrative or investigative, by reason of being an agent of the corporation
or a predecessor corporation or, at the corporation's request, a director or
officer of another corporation, provided, however, that the corporation shall
indemnify any such agent in connection with a proceeding initiated by such agent
only if such proceeding was authorized by the Board of Directors of the
corporation. The indemnification provided for in this Section 6 shall: (i) not
be deemed exclusive of any other rights to which those indemnified may be
entitled under any bylaw, agreement or vote of stockholders or disinterested
directors or otherwise, both as to action in their official capacities and as to
action in another capacity while holding such office, (ii) continue as to a
person who has ceased to be an agent, and (iii) inure to the benefit of the
heirs, executors and administrators of such a person. The corporation's
obligation to provide indemnification under this Section 6 shall be offset to
the extent of any other source of indemnification or any otherwise applicable
insurance coverage under a policy maintained by the corporation or any other
person.
13.
<PAGE>
Expenses incurred by an agent of the corporation in defending a
civil or criminal action, suit or proceeding by reason of the fact that he is
or was an agent of the corporation (or was serving at the corporation's
request as a director or officer of another corporation) shall be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such agent to
repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation as authorized by relevant
sections of the General Corporation Law of Delaware. Notwithstanding the
foregoing, the corporation shall not be required to advance such expenses to
an agent who is a party to an action, suit or proceeding brought by the
corporation and approved by a majority of the Board of Directors of the
corporation which alleges willful misappropriation of corporate assets by
such agent, disclosure of confidential information in violation of such
agent's fiduciary or contractual obligations to the corporation or any other
willful and deliberate breach in bad faith of such agent's duty to the
corporation or its stockholders.
The foregoing provisions of this Section 6 shall be deemed to be a
contract between the corporation and each agent who serves in such capacity
at any time while this bylaw is in effect, and any repeal or modification
thereof shall not affect any rights or obligations then existing with respect
to any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought based in whole or in part upon
any such state of facts.
The Board of Directors in its discretion shall have power on behalf
of the corporation to indemnify any person, other than a director, made a
party to any action, suit or proceeding by reason of the fact that he, his
testator or intestate, is or was an officer or employee of the corporation.
To assure indemnification under this Section 6 of all directors,
officers and employees who are determined by the corporation or otherwise to
be or to have been "fiduciaries" of any employee benefit plan of the
corporation which may exist from time to time, Section 145 of the General
Corporation Law of Delaware shall, for the purposes of this Section 6, be
interpreted as follows: an "other enterprise" shall be deemed to include such
an employee benefit plan, including without limitation, any plan of the
corporation which is governed by the Act of Congress entitled "Employee
Retirement Income Security Act of 1974," as amended from time to time; the
corporation shall be deemed to have requested a person to serve an employee
benefit plan where the performance by such person of his duties to the
corporation also imposes duties on, or otherwise involves services by, such
person to the plan or participants or beneficiaries of the plan; excise taxes
assessed on a person with respect to an employee benefit plan pursuant to
such Act of Congress shall be deemed "fines."
14.
<PAGE>
ARTICLE VIII
AMENDMENTS
SECTION 1. These bylaws may be altered, amended or repealed or new
bylaws may be adopted by the stockholders or by the Board of Directors, when
such power is conferred upon the Board of Directors by the certificate of
incorporation, at any regular meeting of the stockholders or of the Board of
Directors or at any special meeting of the stockholders or of the Board of
Directors if notice of such alteration, amendment, repeal or adoption of new
bylaws be contained in the notice of such special meeting. If the power to
adopt, amend or repeal bylaws is conferred upon the Board of Directors by the
certificate or incorporation it shall not divest or limit the power of the
stockholders to adopt, amend or repeal bylaws. Notwithstanding the
foregoing, any amendment, modification or repeal of Section 7 or Section 12
of Article II of these bylaws shall require the affirmative vote of at least
two-thirds (2/3) of the "Continuing Directors," as such term is defined
below. "Continuing Directors" shall be defined as (i) those directors who
were members of the corporation's Board of Directors on July 29, 1996, the
date this supermajority bylaw provision was adopted (the "Adopting
Directors") who are Board members as and when such amendment, modification or
repeal is to be voted upon plus (ii) those directors who were nominated by
the Adopting Directors and who are Board members as and when such amendment,
modification or repeal is to be voted upon. If no such Adopting Directors or
directors nominated by such Adopting Directors exist at the time such
amendment, modification or repeal is voted upon, a vote of the Board of
Directors will be required to approve such amendment, modification or repeal
of such two sections.
15.
<PAGE>
CERTIFICATE OF ADOPTION BY THE SECRETARY OF
GASONICS INTERNATIONAL CORPORATION
The undersigned, Terry Gibson, hereby certifies that he is the duly
elected and acting Secretary of GaSonics International Corporation, a Delaware
corporation (the "Corporation"), and that the Bylaws attached hereto constitute
the Bylaws of said Corporation in effect as of the date hereof.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his name
this 29th day of July, 1996.
-----------------
Terry Gibson
Secretary
<PAGE>
FINANCIAL CONTENTS
SELECTED FINANCIAL DATA 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 14
CONSOLIDATED BALANCE SHEETS 18
CONSOLIDATED STATEMENTS OF OPERATIONS 19
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 20
CONSOLIDATED STATEMENTS OF CASH FLOWS 21
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 29
12 GASONICS INTERNATIONAL
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net sales $127,043 $102,047 $ 66,590 $ 41,882 $ 29,748
Gross margin 62,626 57,930 37,865 21,509 12,357
Operating income 12,601 19,942 14,450 5,777 1,446
Net income 8,930 16,126 9,890 3,512 805
Net income per share $ 0.65 $ 1.21 $ 0.87 $ 0.34 $ 0.08
BALANCE SHEET:
Cash, cash equivalents and marketable securities $ 25,909 $ 36,599 $ 21,230 $ 1,217 $ 127
Working capital 59,224 55,130 32,129 9,467 7,730
Total assets 96,430 85,367 43,682 20,083 15,757
Long-term debt, less current portion -- -- -- 1,807 2,910
Stockholders' equity 72,689 63,188 33,370 8,418 4,886
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
QUARTERLY 1996
UNAUDITED (IN THOUSANDS, EXCEPT PER SHARE DATA) 1ST 2ND 3RD 4TH
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 33,782 $ 36,997 $ 29,058 $ 27,206
Gross margin 18,505 19,973 13,182 10,966
Operating income (loss) 6,418 6,384 893 (1,094)
Net income (loss)(1) 4,354 4,270 774 (468)
Net income (loss) per share(1) $ 0.32 $ 0.32 $ 0.06 $ (0.03)
Price range per share $10.25-24.50 $8.75-13.88 $9.25-15.13 $6.63-11.00
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
QUARTERLY 1995
UNAUDITED (IN THOUSANDS, EXCEPT PER SHARE DATA) 1ST 2ND 3RD 4TH
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 20,342 $ 23,679 $ 27,884 $ 30,142
Gross margin 11,923 13,423 15,760 16,824
Operating income 4,243 4,606 5,594 5,499
Net income(2) 2,751 3,056 5,570 4,749
Net income per share(2) $ 0.22 $ 0.24 $ 0.41 $ 0.34
Price range per share $9.33-14.00 $10.17-14.83 $12.83-19.83 $18.50-26.83
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Net income for the third quarter and year ended September 30, 1996 includes
a non-operating after tax gain of approximately $93,000 or $0.01 per share
realized from the sale of stock from a third party. See Note 8 of Notes to
the Consolidated Financial Statements.
(2) Net income for the third and fourth quarters and year ended September 30,
1995 includes non-operating after tax gains of approximately $1.8 million
or $0.13 per share, $1.2 million or $0.09 per share and $3.0 million or
$0.22 per share, respectively, realized from the sale of stock from a third
party. Net income for the fourth quarter and year ended September 30, 1995
also includes an after tax non-recurring charge of approximately $575,000
or $0.04 per share for the write-off of in-process research and development
related to the Company's acquisition of Tekisco.
STOCK AND DIVIDEND INFORMATION:
The Company has one class of stock outstanding, its Common Stock, which has a
par value of $.001 per share. The Company's Common Stock is traded on The Nasdaq
National Market under the symbol "GSNX". The price range per share is the
highest and lowest closing prices as reported by The Nasdaq National Market.
In October 1995, the Company declared a three-for-two stock split in the form of
a 50% stock dividend paid on November 20, 1995. All share and per share amounts
have been restated to give effect to the stock split.
The Company has not paid cash dividends on its Common Stock since inception, and
its Board of Directors presently plans to reinvest the Company's earnings in its
business. Accordingly, it is anticipated that no cash dividends will be paid to
holders of Common Stock in the foreseeable future. Additionally, certain
financial covenants set forth in the Company's bank line of credit limit the
Company's ability to pay cash dividends. On September 30, 1996, the Company had
approximately 260 stockholders of record and approximately 3,351 beneficial
stockholders.
GASONICS INTERNATIONAL 13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations may contain forward-looking statements which involve
numerous risks and uncertainties. The Company's actual results could differ
materially from those anticipated in any such forward-looking statements as a
result of certain factors, including those set forth under "Additional Risk
Factors" in the Company's Annual Report on Form 10-K and in the last paragraph
of this Overview.
OVERVIEW
The Company is a leading developer and supplier of a portfolio of products and
services used in the fabrication of advanced integrated circuits ("ICs") and
flat panel displays ("FPDs"). The Company's products consist of photoresist
removal systems, residual removal systems, isotropic etch systems and high-
pressure furnaces for the semiconductor industry and low-pressure chemical vapor
deposition ("LPCVD") systems for the flat panel display industry. In addition,
the Company provides spare parts and upgrades, as well as maintenance and
support services.
In fiscal 1995, the Company completed development of four new systems, the
Strata (a high-selectivity isotropic etcher), the VHP (a vertical high-pressure
furnace), the PEP (a performance enhancing platform cluster system) and the 2106
LPCVD (a low-pressure chemical vapor deposition system). Initial shipments for
these systems commenced in April, August, November 1995 and June 1996,
respectively. The Strata system is intended to replace a costly and toxic wet
chemistry process step for the selective etching of certain materials on a
wafer. The VHP system is intended to provide process simplification by
eliminating a mask step and reducing the time the wafer is exposed to elevated
temperatures, thereby permitting smaller geometries and increasing yields in the
manufacture of advanced ICs. The PEP is a dual chamber platform which provides
users with higher throughput using GaSonics' downstream microwave processing.
The 2106 LPCVD is a unique horizontal furnace with handler/Auto Guided Vehicle
interface which provides users with lower cost of ownership and allows larger
size glass plates to be held vertically minimizing warpage of glass.
The Company has undergone a period of rapid growth. Since 1993, the Company has
significantly increased the scale of its operations to support increased sales
levels and during most of the period expanded its operations to address critical
infrastructure requirements, including the hiring of additional personnel,
commencing of independent operations in the United Kingdom, France, Italy,
Korea, Japan, Singapore and Taiwan and significantly investing in research and
development to support product development. The Company's expansion has resulted
in significantly higher operating expenses and due to the relatively fixed
nature of such costs, a slowdown or decline in revenue, such as occurred
starting in the Company's third fiscal quarter of 1996, will have a significant
adverse impact on operating results.
In August 1995, the Company acquired Tekisco, Ltd., a Japanese-based supplier of
low-pressure chemical vapor deposition systems for flat panel display
manufacturing, which is now known as its Liquid Crystal Display ("LCD")
division. The acquisition was accounted for as a purchase, and accordingly, the
acquired assets and liabilities were recorded at their estimated fair market
values as of the acquisition date. Tekisco's results of operations have been
included since the date of acquisition. In connection with the acquisition, the
Company recorded intangible assets amounting to $1,107,000, of which $575,000
was expensed in fiscal 1995 as a write-off of in-process research and
development. In fiscal 1996, the Company recorded an additional $2.0 million of
contingent consideration from a commission agreement related to the purchase
resulting in a direct increase in intangible assets. See Note 4 of Notes to the
Consolidated Financial Statements.
The Company's operating results have fluctuated significantly in the past and
will fluctuate significantly in the future. The Company anticipates that factors
continuing to affect its future operating results will include the cyclicality
of the semiconductor industry and the markets served by the Company's customers,
the timing of significant orders, patterns of capital spending by customers, the
proportion of direct sales and sales through distributors, the proportion of
international sales to net sales, changes in pricing by the Company, its
competitors, customers or suppliers, market acceptance of new and enhanced
versions of the Company's products, the mix of products sold, financial systems,
procedures and controls, discounts, credit terms, the timing of new product
announcements and releases by the Company or its competitors, delays,
cancellations or rescheduling of orders due to customer financial difficulties
or otherwise, the Company's ability to produce systems in volume and meet
customer requirements, changes in overhead absorption levels due to changes in
the number of systems manufactured, political and economic instability and
lengthy sales cycles. Gross margins have varied and will continue to vary
materially based on a variety of factors including the mix and average selling
prices of systems sales, the mix of revenues, including service and support
revenues, and the costs associated with new product introductions and
enhancements and the customization of systems. Furthermore, announcements by the
Company or its competitors of new products and technologies could cause
customers to defer purchases of the Company's existing systems, which would also
materially adversely affect the Company's business, financial condition and
results of operations. The Company has expended significant resources with
respect to the development and ramp up of production and commercial shipments of
four products introduced in fiscal 1995, the Strata, the VHP, the PEP and the
2106 LPCVD. Gross margins in fiscal 1996 decreased from the level attained in
fiscal 1995, in part, due to startup inefficiencies associated with these
introductions and sales, competitive pricing pressures, changes in product mix,
including lower margin products sold by the Company's LCD division in Japan, and
other factors. In addition, sales and earnings for the last half of fiscal 1996
were materially adversely impacted by the current semiconductor business
slowdown and, while the Company has and is continuing to manage its expenses to
partially offset this
14 GASONICS INTERNATIONAL
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
loss of income from the decline in revenue, it is anticipated that this slowdown
in the industry will continue into next fiscal year and will continue to have a
material adverse affect on the Company's future revenues and operating results.
RESULTS OF OPERATIONS
The following table sets forth consolidated statements of operations data of the
Company expressed as a percentage of net sales for the periods indicated:
YEARS ENDED SEPTEMBER 30,
1996 1995 1994
- --------------------------------------------------------------------------------
Net sales 100.0% 100.0% 100.0%
Cost of sales 50.7 43.2 43.1
- --------------------------------------------------------------------------------
Gross margin 49.3 56.8 56.9
- --------------------------------------------------------------------------------
Operating expenses:
Non-recurring charges -- .6 .9
Research and development 14.2 12.1 9.0
Selling, general and administrative 25.2 24.6 25.3
- --------------------------------------------------------------------------------
Total operating expenses 39.4 37.3 35.2
- --------------------------------------------------------------------------------
Operating income 9.9 19.5 21.7
Other income (expense):
Interest expense -- -- (.2)
Interest and other income .8 1.1 .6
Gain on sale of investment .1 4.6 1.4
- --------------------------------------------------------------------------------
Income before provision
for income taxes 10.8 25.2 23.5
Provision for income taxes 3.8 9.4 8.6
- --------------------------------------------------------------------------------
Net income 7.0% 15.8% 14.9%
- --------------------------------------------------------------------------------
NET SALES. Net sales consist of revenues from system sales, spare part and
upgrade sales and maintenance. Net sales increased 53.2% from $66.6 million in
fiscal 1994 to $102.0 million in fiscal 1995 and increased 24.5% to $127.0
million in fiscal 1996. During these periods, demand for the Company's
photoresist removal systems, specifically the Company's L3500 series of advanced
dry chemistry processing systems, and more recently, the Company's new PEP dual
chamber platform, increased as the Company's customers equipped new or expanded
facilities, resulting in certain instances in multiple system purchases by major
customers, including new customers. Net sales have also increased as a result of
greater acceptance of the Company's products for photoresist removal in the
manufacturing of advanced ICs. The increase in fiscal 1996 revenue over fiscal
1995 is also due to sales of LPCVD systems from the Company's LCD operation in
Japan that was acquired in August 1995. Revenues from sales of spare parts,
upgrades and maintenance also increased due to a greater number of retrofits to
older systems in the Company's installed base and an increase in maintenance
revenues resulting from a larger number of systems in the installed base. As the
Company's systems have become more complex, the Company believes that its
customers may increasingly rely on its expertise for service and support.
As a result of the current semiconductor business slowdown, the Company
experienced significant delays of new orders and rescheduling of existing orders
which materially adversely affected sales for the last half of fiscal 1996 and
is expected to materially adversely impact future sales. Sales of single chamber
photoresist removal products were materially adversely affected by the business
slowdown, while new products, including the PEP, the VHP and LPCVD systems for
flat panel display manufacturing increased as a percentage of sales during this
period.
International sales, which are predominantly to customers based in Europe, Asia
Pacific and Japan accounted for approximately 41%, 40% and 54% of total net
sales in fiscal 1994, 1995 and 1996, respectively. During fiscal 1994, the
Company began to increase it sales, marketing and service activities in Japan,
Asia Pacific and in the United Kingdom. The Company continued to invest
significant resources in international markets, particularly in Japan, Korea,
Singapore, Taiwan, France, Italy and the United Kingdom to increase its market
presence in Japan, Asia Pacific and in Europe. The Company's percentage of
international sales may fluctuate from period to period, but the Company
anticipates that international sales will continue to account for a significant
portion of net sales in fiscal 1997.
GROSS MARGIN. The Company's gross margin as a percentage of net sales was 56.9%
in fiscal 1994, 56.8% in fiscal 1995 and decreased to 49.3% in fiscal 1996. The
gross margin rate in fiscal 1995 was virtually unchanged from that of fiscal
1994 as startup inefficiencies on new products were offset, in part, by improved
manufacturing efficiencies related to higher production volume of mature
products and a favorable product mix, specifically in sales of the L3500 series
products which carry higher selling prices and gross margins. The decrease in
gross margin for fiscal 1996 is attributable to several factors, including a
less favorable product mix which is, in part, due to a product shift from higher
margin, more mature products to newly introduced products, which typically have
lower margins due to inefficiencies during initial stages of production and
sales of flat panel display equipment from the Company's LCD division in Japan.
The Company's flat panel display equipment has significantly lower gross margins
than its photoresist removal systems. Additionally, gross margins have been
negatively impacted by an increase in field service costs related to the
building of worldwide direct service and new product support capability and due
to the underabsorption of manufacturing costs resulting from reduced
manufacturing activity in the last half of fiscal 1996 resulting from the
current industry business slowdown. The Company's gross margin as a percentage
of net sales has been, and will continue to be, affected by a variety of
factors, including the mix and average selling prices of products sold and the
costs to manufacture, service and support of new product introductions and
enhancements. The Company expects that its anticipated gross margin next fiscal
year will continue to be adversely impacted by inefficiencies associated with
new product introductions, continued increase in sales of lower margin flat
panel display equipment products from the Company's LCD division
GASONICS INTERNATIONAL 15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
in Japan, competitive pricing pressures, changes in product mix and other
factors including those referred to above.
NON-RECURRING CHARGES. The Company incurred an expense in fiscal 1994 of
$612,000 related to the write-off of a non-compete agreement with a former
officer of the Company (see Note 11 of Notes to the Consolidated Financial
Statements). In the fourth quarter of fiscal 1995, the Company recorded a non-
recurring charge of $575,000 for the write-off of in-process research and
development associated with the acquisition of certain of Tekisco's products as
they had not achieved technological feasibility and, in management's opinion,
had no probable alternative future use (see Note 4 of Notes to the Consolidated
Financial Statements).
RESEARCH AND DEVELOPMENT. Research and development expenses consist primarily of
salaries, project materials, consultant fees and other costs associated with the
Company's research and development efforts. Research and development expenses as
a percentage of net sales increased from 9.0% in fiscal 1994 to 12.1% in fiscal
1995 and to 14.2% in fiscal 1996. In absolute dollars, expenses increased from
$6.0 million in fiscal 1994 to $12.3 million in fiscal 1995 and to $18.0 million
in fiscal 1996. The absolute dollar increase in fiscal years 1995 and 1996
compared to fiscal 1994 is primarily attributable to the hiring of additional
personnel, an increase in services performed by consultants and project material
costs required to support ongoing and new product development, including
customer specification and customization of current products, the PEP product
development program and numerous factory automation designs to improve wafer
handling at customers' facilities. To a lessor extent, research and development
expenses increased in fiscal 1995 due to the redeployment of certain engineers
from manufacturing to engineering. Additionally, fiscal 1996 includes $1.4
million in research and development expenses associated with the Company's LCD
division which was acquired in August 1995. The Company anticipates that
research and development expenses may increase in absolute dollars in fiscal
1997 due, in part, to the anticipated significant continued investment in new
product development.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased from $16.8 million in fiscal 1994 to $25.1 million in fiscal
1995 and to $32.0 million in fiscal 1996. As a percentage of net sales, selling,
general and administrative expenses decreased from 25.3% in fiscal 1994 to 24.6%
in fiscal 1995 and increased to 25.2% in fiscal 1996. The increase in absolute
dollars from fiscal 1994 to fiscal 1995 was primarily due to the additional
costs to support increases in sales levels and further expansion of the
Company's operations overseas. Specifically, expenses increased in fiscal 1995
for employee and third-party commissions and overall employee compensation
relating to the hiring of new personnel, principally in marketing and sales,
including the expansion of operations in Europe and Asia Pacific. Additionally,
the increase in fiscal 1995 reflected a full year of expenses associated with
the employee incentive program and costs connected with operating a publicly-
traded company. The increase in selling, general and administrative expenses
from fiscal 1995 to fiscal 1996 was principally due to an increase in the number
of employees, primarily in sales and marketing, increased third party
commissions in connection with higher international sales and a full year of
expenses associated with the operations of the LCD division in Japan. A
significant component of selling, general and administrative expenses is third
party commissions which are payable on a significant portion of the overseas
business. This expense can fluctuate significantly depending on the mix of
domestic versus foreign sales in any period. Although the Company has taken
steps to manage its spending due to the uncertainties of the current business
climate, it anticipates that the current level of selling, general and
administrative spending will continue and may increase in absolute dollars in
fiscal 1997 due in part to an anticipated higher concentration of sales in
foreign locations that are subject to third party commissions.
OTHER INCOME (EXPENSE). Other income and expense consists primarily of interest
expense, interest income and gain on sale of stock of a third party. Interest
expense in fiscal 1994 was primarily attributable to the indebtedness incurred
in connection with the acquisition of IPC in February 1991. The decrease in
interest expense in fiscal 1995 from fiscal 1994 reflects the repayment of the
outstanding promissory note related to the IPC acquisition following the
Company's initial public offering in March 1994. The increase in interest and
other income from fiscal 1994 to fiscal 1995 principally reflects interest
income received on increased investments in marketable securities that resulted
from the proceeds received from the sale of Common Stock in the Company's
initial and secondary public offerings in March 1994 and 1995 and cash provided
from operating activities. Interest and other income decreased from fiscal 1995
to fiscal 1996 primarily due to a decline in interest income resulting from a
decrease in the Company's investments in marketable securities, cash and cash
equivalents that were used to fund operating activities.
Net income for fiscal 1994, fiscal 1995 and fiscal 1996 was favorably impacted
by sales of a portion of the shares held by the Company in a corporation that
were received in exchange for technology and certain services rendered in fiscal
1990. The Company realized pretax gains in fiscal years 1994, 1995 and 1996 of
approximately $956,000, $4.7 million and $143,000, respectively, from these
sales. See Note 8 of Notes to the Consolidated Financial Statements.
PROVISION FOR INCOME TAXES. The Company's effective tax rate was 36.6%, 37.3%
and 35.0% in fiscal 1994, 1995 and 1996, respectively. The increase in the
fiscal 1995 effective tax rate over fiscal 1994 principally resulted from an
increase in the statutory rate, a decrease in benefit from the Company's foreign
sales corporation due to a slightly lower percentage of international sales and
losses incurred at certain foreign operations against which the Company provided
a valuation allowance as
16 GASONICS INTERNATIONAL
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
their realizability was not likely. These decreases in benefits were partially
offset by an increase in tax benefits due to an increase in tax exempt interest
income from the Company's marketable securities. The decrease in the fiscal 1996
from the fiscal 1995 tax rate resulted primarily from the benefit derived from
the Company's foreign sales corporation due to the increase in international
sales during fiscal 1996, as well as from benefits derived from research and
development credits and from tax exempt income from certain marketable
securities. In the past, the Company has derived significant benefits from
research and development tax credits, and, to the extent such credits may be
unavailable to the Company in the future, the Company's effective tax rate could
increase.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1996, cash, cash equivalents and marketable securities decreased
by $10.7 million to $25.9 million at September 30, 1996 from $36.6 million at
September 30, 1995. Operations provided cash of approximately $9.0 million and
$6.4 million in fiscal 1994 and 1995, respectively, and used approximately $4.3
million in fiscal 1996. Investing activities utilized cash of approximately $.9
million, $7.4 million and $7.0 million in fiscal 1994, 1995 and 1996,
respectively, for the acquisition of property and equipment, and $2.4 million
for the acquisition of Tekisco in 1995. Investing activities also used cash of
approximately $8.1 million in fiscal 1994 and $18.5 million in fiscal 1995 for
the purchase of marketable securities and in fiscal 1996, provided cash of
approximately $13.4 million from the sale of securities. In fiscal 1994,
financing activities provided cash of approximately $12.0 million primarily from
the net proceeds of $15.4 million from the Company's sale of common stock in the
Company's initial public offering in March 1994, partially offset by the
retirement of the long-term debt related to notes payable to Emerson of
approximately $3.0 million. In fiscal 1995, financing activities provided $14.0
million principally related to the sale of common stock in the Company's
secondary public offering in March 1995 and in connection with the employee
stock purchase plan, partially offset by borrowings of $2.9 million in
connection with the Company's acquisition of Tekisco. Financing activities in
fiscal 1996 provided cash of $2.1 million from the sale of stock under the
Company's stock plans.
At September 30, 1996, the Company had working capital of approximately $59.2
million. Accounts receivable increased to $23.0 million from $17.0 million at
the end of fiscal 1995 primarily due to a disproportionately higher percentage
of sales late in the fourth quarter of fiscal 1996 and longer credit terms
related to receivables in Japan. Inventories increased from $19.1 million at the
end of fiscal 1995 to $26.8 million at the end of fiscal 1996 due principally to
the purchase of materials needed to support the anticipated demand of the new
PEP system, a rescheduling of existing orders and, to a lesser extent, an
increase in spare parts inventory at the Company's newly established parts
depots located in Singapore and Holland to support increased sales levels. The
Company expects future inventory levels to fluctuate from period to period, and
believes that because of the relatively long manufacturing cycle of its
equipment, its investment in inventories will continue to require a significant
portion of working capital. As a result of such investment in inventories, the
Company may be subject to an increasing risk of inventory obsolescence, which
could materially adversely affect the Company's operating results.
At September 30, 1996, the Company's principal sources of liquidity consisted of
approximately $11.8 million of cash and cash equivalents, $14.1 million in
marketable securities, and $15.0 million available under the Company's unsecured
working capital line of credit with Union Bank which was entered into on
March 4, 1996. A commercial letter of credit provision of $500,000 and a foreign
exchange contract provision of $1.0 million is also provided under the line of
credit. Available borrowing under the credit line is reduced by the amount of
outstanding letters of credit. This line of credit contains certain covenants,
including covenants relating to financial ratios and tangible net worth which
must be maintained by the Company. As of September 30, 1996, except for $69,193
outstanding under the letter of credit provision, there were no borrowings under
this line, and the Company was in compliance with its bank covenants. The line
of credit bears interest at the lower of 1.75% above the bank's adjusted Libor-
rate or at the bank's reference rate (8.25% at September 30, 1996) and expires
in February 1997 (see Note 5 of Notes to the Consolidated Financial Statements).
The Company's wholly-owned Japanese subsidiary, GaSonics International Japan KK,
has an outstanding loan of 270 million yen (equivalent to approximately
$2.5 million in U.S. dollars at September 30, 1996) from the Bank of Tokyo
against a promissory note which is secured by a Letter of Guarantee issued by
the Company. The loan carries an interest rate of 1.625% per annum and is due
and payable on January 31, 1997. The primary purpose of the loan was to fund the
purchase of the Company's LCD division in Japan which was acquired in August
1995.
The Company believes that anticipated cash flows from operations, funds
available under its existing revolving line of credit facility and existing
cash, cash equivalents and marketable securities will be sufficient to meet the
Company's cash requirements during the next twelve months. Beyond the next
twelve months, the Company may require additional equity or debt financing to
address its working capital or capital equipment needs. There can be no
assurance that additional financing will be available when required or, if
available, will be on reasonable terms.
GASONICS INTERNATIONAL 17
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $11,774 $ 7,595
Marketable securities 14,135 29,004
Trade accounts receivable, net of allowance for doubtful accounts of $611 in 1996
and $369 in 1995 23,032 16,974
Inventories 26,817 19,123
Prepaid and deferred income taxes 3,451 2,190
Prepaid expenses and other current assets 3,204 1,802
- -------------------------------------------------------------------------------------------------------------------
Total current assets 82,413 76,688
- -------------------------------------------------------------------------------------------------------------------
Property and Equipment:
Furniture and fixtures 741 344
Machinery and equipment 10,807 6.510
Leasehold improvements 3,762 2,934
- -------------------------------------------------------------------------------------------------------------------
15,310 9,788
Less - Accumulated depreciation and amortization (3,735) (1,853)
- -------------------------------------------------------------------------------------------------------------------
Net property and equipment 11,575 7,935
- -------------------------------------------------------------------------------------------------------------------
Deposits and Other Assets 2,442 744
- -------------------------------------------------------------------------------------------------------------------
Total assets $96,430 $85,367
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Note payable $ 2,455 $ 2,894
Accounts payable 7,318 7,343
Income taxes payable 1,100 1,393
Accrued liabilities 12,316 9,928
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 23,189 21,558
- -------------------------------------------------------------------------------------------------------------------
Long-term Liabilities:
Deferred rent 552 621
Commitments (Note 9)
Stockholders' Equity:
Preferred stock, $0.001 par value: Authorized shares - 2,000,000 -- --
Common stock, $0.001 par value: Authorized shares - 20,000,000
Outstanding shares - 13,472,276 and 13,229,541 13 13
Additional paid-in capital 31,400 29,455
Unrealized gain on investments 902 2,376
Note receivable from stockholder (65) (165)
Retained earnings 40,439 31,509
- -------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 72,689 63,188
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $96,430 $85,367
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
18 GASONICS INTERNATIONAL
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $127,043 $102,047 $ 66,590
Cost of sales 64,417 44,117 28,725
- -------------------------------------------------------------------------------------------------------------------
Gross margin 62,626 57,930 37,865
Operating expenses:
Non-recurring charges -- 575 612
Research and development 18,006 12,346 5,983
Selling, general and administrative 32,019 25,067 16,820
- -------------------------------------------------------------------------------------------------------------------
Total operating expenses 50,025 37,988 23,415
- -------------------------------------------------------------------------------------------------------------------
Operating income 12,601 19,942 14,450
Other income (expense):
Interest expense (64) (10) (162)
Interest and other income, net 1,058 1,095 367
Gain on sale of investment 143 4,700 956
- -------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 13,738 25,727 15,611
Provision for income taxes 4,808 9,601 5,721
- -------------------------------------------------------------------------------------------------------------------
Net income $ 8,930 $ 16,126 $ 9,890
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Net income per share $ 0.65 $ 1.21 $ 0.87
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Weighted average common and common equivalent shares 13,644 13,285 11,372
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
GASONICS INTERNATIONAL 19
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED NOTE
COMMON STOCK ADDITIONAL GAIN ON RECEIVABLE TOTAL
----------------------- PAID-IN MARKETABLE FROM RETAINED STOCKHOLDERS'
(IN THOUSANDS, EXCEPT SHARE DATA) SHARES AMOUNT CAPITAL SECURITIES STOCKHOLDER EARNINGS EQUITY
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1993 10,438,313 $11 $ 253 $ -- $ -- $ 8,154 $ 8,418
Issuance of common stock from
initial public offering 2,025,000 1 15,066 -- -- -- 15,067
Issuance of stock under employee
stock purchase plan 28,266 -- 196 -- -- -- 196
Issuance of common stock under
stock option plan 588,016 -- 484 -- (340) -- 144
Forgiveness of note receivable
from stockholder -- -- -- -- 75 -- 75
Repurchase of common stock (937,500) -- (8) -- -- (412) (420)
Net income -- -- -- -- -- 9,890 9,890
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1994 12,142,095 12 15,991 -- (265) 17,632 33,370
Issuance of common stock from
secondary offering 1,110,000 1 12,494 -- -- -- 12,495
Issuance of stock under employee
stock purchase plan 100,529 -- 754 -- -- -- 754
Issuance of common stock under
stock option plan 26,917 -- 219 -- -- -- 219
Forgiveness of note receivable
from stockholder -- -- -- -- 100 -- 100
Unrealized gain on marketable
securities -- -- -- 2,376 -- -- 2,376
Repurchase of common stock (150,000) -- (3) -- -- (2,249) (2,252)
Net income -- -- -- -- -- 16,126 16,126
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1995 13,229,541 13 29,455 2,376 (165) 31,509 63,188
Issuance of stock under employee
stock purchase plan 197,510 -- 1,708 -- -- -- 1,708
Issuance of common stock under
stock option plan 45,225 -- 237 -- -- -- 237
Forgiveness of note receivable
from stockholder -- -- -- -- 100 -- 100
Change in unrealized gain on
marketable securities -- -- -- (1,474) -- -- (1,474)
Net income -- -- -- -- -- 8,930 8,930
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1996 13,472,276 $13 $31,400 $ 902 $ (65) $40,439 $72,689
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
20 GASONICS INTERNATIONAL
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
(IN THOUSANDS) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,930 $ 16,126 $ 9,890
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 2,901 770 401
Amortization of negative goodwill -- -- (20)
Provision for doubtful accounts 242 179 239
Rent expense greater (less) than rent payments (69) (43) 127
Forgiveness of note receivable from stockholder 100 100 75
Write-off of in-process research and development -- 575 --
Gift of stock to employees -- 111 --
Sale of fixed assets 1,254 -- --
Changes in Assets and Liabilities:
Accounts receivable (6,300) (7,586) (2,915)
Receivables from related party -- -- 58
Inventories (7,694) (10,275) 205
Prepaids and other current assets (3,479) (1,581) (661)
Deposits and other assets (l,697) (123) (10)
Accounts payable (26) 3,796 407
Income taxes payable (293) 1,077 (1,213)
Accrued liabilities 2,260 3,242 2,374
Note payable (439) -- --
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) operating activities (4,310) 6,368 8,957
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities (55,097) (90,499) --
Proceeds from sales of available-for-sale securities 68,492 71,970 --
Increase in marketable securities -- -- (8,099)
Purchases of property and equipment (6,979) (4,965) (903)
Payment for purchase of Tekisco, net of cash acquired -- (2,409) --
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities 6,416 (25,903) (9,002)
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable to bank -- 2,894 2,220
Payments of note payable to bank -- -- (2,220)
Principal payments under capital lease obligations -- -- (60)
Proceeds from issuance of common stock 2,073 13,357 15,407
Repurchase of common stock from stockholder -- (2,252) (420)
Payment of long-term debt -- -- (2,968)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 2,073 13,999 11,959
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 4,179 (5,536) 11,914
Cash and cash equivalents at beginning of period 7,595 13,131 1,217
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 11,774 $ 7,595 $ 13,131
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
GASONICS INTERNATIONAL 21
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1. ORGANIZATION AND OPERATIONS OF THE COMPANY:
GaSonics International Corporation (the "Company") is a developer and supplier
of products and services used in the fabrication of advanced integrated circuits
("semiconductors" or "ICs") and flat panel displays ("FPDs"). The Company
markets its products in the United States, Europe and the Asia Pacific region
primarily to large semiconductor and liquid crystal manufacturing concerns. The
Company is subject to a number of risks including, but not limited to,
volatility in the semiconductor markets and the related demand for semiconductor
equipment and the risk of inventory obsolescence resulting from new product
developments by competitors.
In October 1995, the Company declared a three-for-two stock split in the form of
a 50% stock dividend paid on November 20, 1995. All common and common equivalent
shares and per share amounts in the accompanying consolidated financial
statements have been restated to give effect to the stock split.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries and branches after elimination of intercompany
accounts and transactions.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ materially from those
estimates.
FISCAL YEAR
The Company maintains a fifty-two/fifty-three week fiscal year cycle ending on
the Friday closest to September 30. Fiscal 1996, fiscal 1995 and fiscal 1994
contain fifty-two weeks. For external reporting purposes, the Company indicates
its fiscal period as ending on September 30.
CASH AND CASH EQUIVALENTS
For purposes of the Consolidated Statements of Cash Flows, the Company considers
all highly liquid investments with an original maturity of 90 days or less to be
cash equivalents.
Cash paid for interest, including amounts paid under capital lease obligations,
and domestic and foreign income taxes was as follows (in thousands):
YEARS ENDED SEPTEMBER 30,
1996 1995 1994
- --------------------------------------------------------------------------------
Interest $ 41 $ 10 $ 188
Income taxes $6,188 $8,732 $5,941
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTMENTS IN MARKETABLE SECURITIES
Pursuant to the provisions of Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", the Company's investments are classified as available-for-sale and
are stated at fair value. The Company's investments in debt securities mature at
various dates through June 1998.
The fair value of available-for-sale securities was determined based on quoted
market prices at the reporting date for the instruments.
The components of available-for-sale securities by major security type as of
September 30, 1996 and 1995 are as follows (in thousands):
GROSS
AGGREGATE UNREALIZED
AMORTIZED FAIR HOLDING
FISCAL 1996 COST VALUE GAINS
- --------------------------------------------------------------------------------
Corporate debt securities $ 2,050 $ 2,050 $ --
Debt securities issued by states of
the United States and political
subdivisions of the states 11,183 11,183 --
Equity securities -- 902 902
- --------------------------------------------------------------------------------
$ 13,233 $ 14,135 $ 902
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GROSS
AGGREGATE UNREALIZED
AMORTIZED FAIR HOLDING
FISCAL 1995 COST VALUE GAINS
- --------------------------------------------------------------------------------
Corporate debt securities $ 4,500 $ 4,500 $ --
Debt securities issued by states of
the United States and political
subdivisions of the states 24,504 24,504 --
Equity securities -- 2,376 2,376
- --------------------------------------------------------------------------------
$29,004 $31,380 $2,376
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
22 GASONICS INTERNATIONAL
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
Proceeds from sales of available-for-sale securities, excluding
the Company's equity securities which are discussed in Note 8, were
approximately $68.5 million in fiscal 1996 and $72.0 million in fiscal 1995.
Gross realized gains on those sales were approximately $22,000 in fiscal 1996
and $12,000 in fiscal 1995. The Company used specific identification as the cost
basis in computing realized gains. The net unrealized holding gain on available-
for-sale securities has been included as a separate component of stockholders'
equity.
REVENUE RECOGNITION AND PRODUCT WARRANTY
Product revenue is recognized upon transfer of title and risk of loss to the
customer. For substantially all of the Company's product sales, this occurs upon
product shipment. The Company provides for the estimated costs of installation
and warranty at the time of sale. Maintenance and service revenues account for
less than 10% of net sales and are recognized as the related work is performed.
MAJOR CUSTOMERS
One customer accounted for 11%, 20% and 26% of net sales for each of fiscal
years 1996, 1995 and 1994, respectively. One other customer accounted for 10% of
net sales in fiscal 1994.
SOFTWARE DEVELOPMENT COSTS
SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased
or Otherwise Marketed," requires the capitalization of certain computer software
development costs incurred after technological feasibility is established.
Amounts qualifying for capitalization under the statement are immaterial and
have not been capitalized to date.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out)
or market and include material, labor and manufacturing costs. Inventory is
valued at currently adjusted standards which approximate actual costs on a
first-in, first-out basis.
The Company provides inventory reserves for excess, obsolete, damaged or lost
inventory. The process of estimating required inventory reserves is judgmental
and is based on a number of factors which require input and discussion among
various members of management. Such factors include changes in customer demand,
changes in technology and other economic factors.
Inventories consisted of the following (in thousands):
SEPTEMBER 30,
1996 1995
- --------------------------------------------------------------------------------
Raw materials $12,985 $ 7,492
Work-in-process 7,648 7,656
Finished goods 6,184 3,975
- --------------------------------------------------------------------------------
$26,817 $19,123
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are generally depreciated over the
estimated useful lives of the assets (four to seven years) using the straight-
line method. Leasehold improvements are amortized on a straight-line basis over
the shorter of the useful lives of the assets or the remaining lease term.
Assets acquired under capital leases are recorded at the present value of the
related lease obligations and amortized on a straight-line basis over the
related lease term.
OTHER ACCRUED LIABILITIES
Other accrued liabilities included the following (in thousands):
SEPTEMBER 30,
1996 1995
Warranty $ 2,916 $2,377
Sales commissions 2,526 647
Employee compensation 2,514 4,041
Accrued purchase price 1,261 --
Other 3,099 2,863
- --------------------------------------------------------------------------------
$12,316 $9,928
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NET INCOME PER SHARE
Net income per share data has been computed using the weighted average number of
shares of common stock and dilutive common equivalent shares from stock options
computed using the treasury stock method.
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company's foreign subsidiaries is the U.S.
dollar. Accordingly, foreign translation and exchange gains and losses, which
have not been material, are reflected in the accompanying consolidated
statements of operations.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration of
credit risk consist principally of temporary cash investments and trade
receivables. The Company has cash investment policies that limit the amount of
credit exposure to any one financial institution evaluated as highly
creditworthy. Concentration of credit risk with respect to trade receivables
exists because the Company's revenues are derived primarily from the sale of
photoresist removal equipment to companies in the semiconductor industry. The
Company performs ongoing credit evaluation of its customers and generally does
not require collateral.
GASONICS INTERNATIONAL 23
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
EFFECT ON RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of". This pronouncement requires that long-lived assets and certain
intangible assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. An impairment loss is to be recognized when the sum of undiscounted
cash flows is less than the carrying amount of the asset. Measurement of the
loss for assets that the entity expects to hold and use are to be based on the
fair market value of the asset.
The Company adopted SFAS No. 121 effective October 1, 1996, and believes there
will be no material impact on the results of operations or financial condition
of the Company.
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation". The disclosure requirements of SFAS
No. 123 are effective as of the beginning of the Company's 1997 fiscal year. The
Company does not expect the new pronouncement to have an impact on its results
since the intrinsic value-based method prescribed by APB Opinion No. 25, and
also allowed by SFAS No. 123, will continue to be used.
3. GEOGRAPHIC AREA DATA:
The Company's operations by geographical area for the three years ended
September 30 were as follows (in thousands):
<TABLE>
<CAPTION>
UNITED OTHER
1996 STATES JAPAN FOREIGN ELIMINATIONS CONSOLIDATED
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Domestic $ 58,967 $ 7,904 $ 1,791 $ -- $ 68,662
Exports Europe 23,788 -- -- -- 23,788
Exports Asia Pacific 30,554 -- -- -- 30,554
Exports Japan 4,039 -- -- -- 4,039
Intercompany 1,212 1,496 4,744 (7,452) --
- --------------------------------------------------------------------------------------------------------------
Total revenues $118,560 $ 9,400 $ 6,535 $ (7,452) $127,043
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Operating income (loss) $ 12,055 $ (292) $ 835 $ 3 $ 12,601
Identifiable assets $ 86,458 $ 9,250 $ 1,935 $ (1,213) $ 96,430
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
UNITED OTHER
1995 STATES JAPAN FOREIGN ELIMINATIONS CONSOLIDATED
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Domestic $ 60,845 $ 8 $ 201 $ -- $ 61,054
Exports Europe 19,885 -- -- -- 19,885
Exports Asia Pacific 18,832 -- -- -- 18,832
Exports Japan 2,276 -- -- -- 2,276
Intercompany -- -- 965 (965) --
- --------------------------------------------------------------------------------------------------------------
Total revenues $101,838 $ 8 $ 1,166 $ (965) $102,047
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Operating income (loss) $ 20,334 $ (539) $ 147 $ -- $ 19,942
Identifiable assets $ 80,876 $ 4,040 $ 451 $ -- $ 85,367
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
UNITED OTHER
1994 STATES JAPAN FOREIGN ELIMINATIONS CONSOLIDATED
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Domestic $ 39,342 $ -- $ -- $ -- $ 39,342
Exports Europe 15,427 -- -- -- 15,427
Exports Asia Pacific 11,821 -- -- -- 11,821
Intercompany -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------
Total revenues $ 66,590 $ -- $ -- $ -- $ 66,590
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Operating income $ 14,450 $ -- $ -- $ -- $ 14,450
Identifiable assets $ 43,682 $ -- $ -- $ -- $ 43,682
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
24 GASONICS INTERNATIONAL
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
In fiscal 1994, the Company had not established foreign subsidiaries; therefore,
no foreign sales are shown in the table above.
The Company's operations are structured to achieve consolidated objectives. As a
result, significant interdependencies and overlaps exist among the Company's
operating units. Accordingly, the revenue, operating income (loss) and
identifiable assets shown for each geographic area may not be indicative of the
amounts that would have been reported if the operating units were independent of
one another.
Intercompany sales between areas are accounted for based on established
intercompany sales prices.
Operting income (loss) is revenue less related costs and direct and allocated
operating expenses, excluding interest and, for all areas except the United
States, the unallocated portion of corporate expenses. United States
operating income is net of corporate engineering and development and
administrative expenses.
Corporate assets include assets maintained for general purposes, principally
cash equivalents and short-term investments.
4. ACQUISITION OF TEKISCO:
In August 1995, the Company purchased the net assets, intellectual property and
all of the outstanding stock of Tekisco, Ltd., a Japanese-based supplier of low-
pressure chemical vapor deposition systems for flat panel display manufacturing,
which is now known as its Liquid Crystal Display ("LCD") division, for cash of
approximately $2.4 million and contingent consideration of approximately $2.0
million. The contingent consideration was based on specified future events,
including the attainment of certain sales levels and the provision of marketing
and sales services to be provided by Kishimoto Sangyo Co. Ltd, the company from
which Tekisco was acquired. In fiscal 1996, the Company determined that such
contingencies were met or were likely to be met and recorded the full $2.0
million of the contingent consideration as additional goodwill. The related
liability, net of amounts paid in fiscal 1996, was accrued at September 30,
1996. In February 1996, the LCD division was merged with the Company's wholly-
owned subsidiary, GaSonics International Japan.
The acquisition was accounted for as a purchase, and the results of Tekisco from
the date of acquisition forward have been recorded in the Company's consolidated
financial statements. In connection with the acquisition, net intangibles of
$3.1 million were acquired, including the $2.0 million contingent consideration
recorded in fiscal 1996, of which $575,000 is reflected as a one-time charge to
operations for the write-off of in-process research and development that had not
reached technological feasibility and, in management's opinion, had no probable
alternative future use. The one-time charge is reflected in the Company's
consolidated statement of operations as a non-recurring charge within operating
expenses in fiscal 1995. The remaining intangibles, net of accumulated
amortization of approximately $815,000 and the write-off of in-process research
and development of $575,000, are included in deposits and other assets in the
accompanying balance sheet and are being amortized over the useful life of five
years.
The purchase price, including the amounts payable under the commission
agreement, was allocated to the fair market value of net assets acquired as
follows (in thousands):
Accounts receivable $ 57
Inventory 176
Prepaid expenses 46
Property and equipment, net 1,875
Other assets 49
Intangibles, including in-process
research and development 3,107
Accounts payable and accrued liabilities (901)
- -------------------------------------------------------------------------------
Net assets acquired $ 4,409
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The following unaudited pro forma information shows the results of operations
for the twelve months ended September 30, 1995 and 1994 as if the acquisition
had occurred at the beginning of each period presented. The results are not
necessarily indicative of what would have occurred had the acquisition actually
been made at the beginning of each of the respective periods presented or of
future operations of the combined companies. The pro forma results for 1995
combine the Company's results for the twelve-month period ended September 30,
1995 with the results of Tekisco, for the same period through the
date of acquisition. The proforma results for 1994 combine
the Company's results for the twelve month period ended September 30, 1994 with
Tekisco's results for the same period. The following unaudited pro forma results
include the straight-line amortization of intangibles over a period of five
years
(in thousands, except per share data):
YEARS ENDED
SEPTEMBER 30,
1995 1994
- -------------------------------------------------------------------------------
Revenue $104,628 $68,098
Net income $ 15,286 $ 7,811
Net income per share $ 1.18 $ 0.69
Weighted average common and common
equivalent shares outstanding 13,285 11,372
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
5. LINE OF CREDIT AGREEMENT:
The Company has an unsecured $15,000,000 revolving line of credit agreement
(the "Agreement") with a bank which expires on February 28, 1997. There were
no borrowings outstanding under the Agreement as of September 30, 1996. At the
option of the Company, borrowings bear interest at the lower of 1.75% above
the bank's adjusted Libor-rate or at the bank's reference rate (8.25% at
September 30, 1996). The line of credit agreement contains provisions that
limit the ability of the Company to pay cash dividends and require the
maintenance of specified levels of tangible net worth and certain financial
ratios. The Company was in compliance with the financial covenants of the
Agreement as of September 30, 1996.
GASONICS INTERNATIONAL 25
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
Under the Agreement, the Company may also request standby letters of credit not
to exceed $500,000. As of September 30, 1996, there were letters of credit
outstanding in the amount of $69,163.
6. NOTE PAYABLE:
In August 1995, the Company's wholly-owned subsidiary in Japan, GaSonics
International Japan, K.K., borrowed 270 million yen (equivalent to approximately
$2.5 million U.S. dollars as of September 30, 1996) from the Bank of Tokyo
against a promissory note which was secured by a Letter of Guarantee issued by
the Company. The loan bears an interest rate of 1.625% per annum and is due and
payable on January 31, 1997. The primary purpose of the loan was to fund the
purchase of Tekisco (see Note 4-Acquisition of Tekisco). The Company intends to
enter into a new loan agreement or extend the term of the existing loan prior to
the due date, however, there can be no assurance that such financing will be
available when required or, if available, will be on reasonable terms.
7. INCOME TAXES:
The Company accounts for income taxes pursuant to the provisions of SFAS No.
109, "Accounting for Income Taxes," which requires an asset and liability
approach to accounting for income taxes.
The provision (credit) for income taxes consisted of the following (in
thousands):
YEARS ENDED SEPTEMBER 30,
1996 1995 1994
CURRENT
Federal $4,528 $ 8,464 $4,899
State 518 1,628 1,103
- -------------------------------------------------------------------------------
Total current 5,046 10,092 6,002
- -------------------------------------------------------------------------------
PREPAID
Federal (211) (437) (228)
State (27) (54) (53)
- -------------------------------------------------------------------------------
Total prepaid (238) (491) (281)
- -------------------------------------------------------------------------------
Provision for income taxes $4,808 $ 9,601 $5,721
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The provision (benefit) for income taxes differs from the amount computed by
applying the statutory Federal income tax rate of 35.0% in fiscal years 1996 and
1995 and 34.5% in fiscal 1994, as follows:
YEARS ENDED SEPTEMBER 30,
1996 1995 1994
Statutory Federal tax rate 35.0% 35.0% 34.5%
State income taxes, net 4.0 4.8 5.0
Foreign sales corporation (1.8) (1.3) (2.0)
Research and
development credit (2.7) (2.2) (2.3)
Tax exempt income (2.0) (1.2) --
Other 2.5 2.2 1.4
- -------------------------------------------------------------------------------
Provision for income taxes 35.0% 37.3% 36.6%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The major components of the net deferred tax asset are as
follows: (in thousands):
SEPTEMBER 30,
1996 1995
- -------------------------------------------------------------------------------
Inventory reserves $2,176 $1,154
Accrued warranty 1,085 867
Deferred rent 207 180
Accrued vacation 256 296
Other temporary differences 533 523
- -------------------------------------------------------------------------------
Deferred tax asset 4,527 3,020
Deferred tax liabilities (806) (830)
- -------------------------------------------------------------------------------
Total net deferred tax asset $3,451 $2,190
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
8. INVESTMENT IN IPEC:
During fiscal 1990, the Company and Integrated Process Equipment Corporation
("IPEC") entered into an agreement in which the Company received 294,600 shares
of IPEC Class A common stock in exchange for certain services and technology. In
fiscal 1996, 1995 and 1994, the Company sold 5,000, 136,927 and 98,000 shares of
IPEC common stock, respectively, and realized pretax gains of $143,000, $4.7
million and $956,000, respectively, which is reported in Other Income (Expense)
in the accompanying Consolidated Statement of Operations. The Company has
classified the remaining 54,673 shares it holds as available-for-sale under SFAS
No. 115 and has recorded an Unrealized Gain on Investment of $902,000 which is
reported in Stockholders' Equity in the accompanying Consolidated Balance Sheets
as of September 30, 1996.
26 GASONICS INTERNATIONAL
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
9. COMMITMENTS:
The Company leases its facilities and certain machinery and equipment under
operating lease agreements that expire at various dates through June 2005.
Minimum commitments under the non-cancelable leases as of September 30, 1996
were as follows (in thousands):
FISCAL YEAR
1997 $1,724
1998 1,571
1999 1,240
2000 321
2001 20
Thereafter 76
- ----------------------------------------
$4,952
- ----------------------------------------
- ----------------------------------------
Rent expense was approximately $2.0 million, $1.2 million and $1.0 million for
the years ended September 30, 1996, 1995 and 1994, respectively.
The Company's lease agreement for one of its facilities provides for the
deferral of three months cash rental payments in fiscal 1990 and subsequent
scheduled rent increases. Rent expense under this agreement is being recognized
on a straight-line basis over the term of the lease. The difference between the
amounts paid and the amounts expensed is classified as deferred rent in the
accompanying Consolidated Balance Sheets.
10. INCENTIVE STOCK OPTION PLANS AND STOCK PURCHASE PLAN:
In November 1993, the Company's President and Chief Executive Officer (the
"President") exercised options to purchase an aggregate of 566,665 shares of
common stock at $0.60 per share, with a 5% interest bearing promissory note
payable to the Company in the amount of $340,000. In January 1994, the Board of
Directors authorized a special bonus program for the President, pursuant to
which $100,000 of the principal of the note will be forgiven upon his completion
of each calendar year of service to the Company from January 1, 1994 through
January 1, 1997. Accordingly, $300,000 of the loan will be amortized to
compensation expense over this period. In fiscal years 1996 and 1995, $100,000
of the loan and in fiscal 1994, $75,000 of the loan was amortized to
compensation expense, respectively.
1994 STOCK OPTION/STOCK ISSUANCE PLAN
During fiscal 1994, the Board adopted, and the stockholders subsequently
approved, the 1994 Stock Option/Stock Issuance Plan (the "1994 Stock Option
Plan") and authorized a total of 1,450,000 shares for issuance under the Plan.
The 1994 Stock Option Plan replaces the Company's 1985 Stock Option Plan and the
Company's 1988 Stock Option Plan which have both been terminated. During fiscal
1996, the Company's Board of Directors authorized, and the stockholders
subsequently approved, an additional 750,000 shares for issuance under the Plan.
The 1994 Stock Option Plan is divided into three separate components: i) the
Discretionary Option Grant Program under which key employees (including
officers) and consultants may, at the discretion of the Plan Administrator, be
granted options to purchase shares of common stock at an exercise price not less
than 85% of the fair market value of such shares on the grant date, ii) the
Automatic Option Grant Program under which option grants will automatically be
made at periodic intervals to the nonemployee Board members to purchase shares
of common stock at an exercise price equal to 100% of the fair market value of
the option shares on the grant date, and iii) the Stock Issuance Program under
which key employees (including officers) and consultants may be issued shares of
common stock directly, either through the purchase of such shares at a price not
less than 85% of their fair market value at the time of issuance or as a bonus
tied to the performance of services or the Company's attainment of financial
objectives. In no event may the aggregate number of shares of common stock for
which any individual participating in the 1994 Plan may be granted stock options
and direct stock issuances exceed 825,000 shares over the term of the Plan.
Options granted under the Discretionary and Automatic Option Grant Programs have
a maximum term of ten years and generally vest over periods of one to five years
from the date of grant, at the discretion of the Plan Administrator. For 1995
and 1994, there were 8,917 and 16,350 shares issued, respectively, under the
1994 Stock Option Plan. There were no stock issuances in fiscal 1996.
In August 1996, holders of the Company's options were given the opportunity to
exchange previously granted stock options for new common stock options. Option
holders, excluding non-employee directors of the Company, who held an
outstanding stock option with an exercise price in excess of $7.25 per share
were granted a new option with an exercise price of $7.25 per share, the market
price of the common stock on that date, in exchange for his or her higher-priced
option. Each optionee was given the choice of accepting the new option with a
new four year vesting schedule and having the higher-priced option
GASONICS INTERNATIONAL 27
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
canceled or rejecting the new option and retaining the higher-priced option with
its original vesting schedule. Under the terms of the new options, one-quarter
of the shares vest one year from the date of grant and the remaining shares vest
in 36 monthly installments. Options to purchase 416,725 shares were exchanged.
Option and stock issuance activity under the 1994 Stock Option Plan was as
follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
SHARES ------------------------
AVAILABLE NUMBER OF PRICE
FOR GRANT SHARES PER SHARE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at
January 1994 (inception of the 1994 Plan) 700,000 -- --
Additional options authorized 750,000 -- --
Stock issuances (16,350) -- --
Granted (769,500) 769,500 $ 7.17- 9.67
- -----------------------------------------------------------------------------------------------
Balance at
September 30, 1994 664,150 769,500 7.17- 9.67
Stock issuances (8,917) -- --
Granted (344,925) 344,925 10.67-19.33
Exercised -- (18,000) 7.20- 8.67
Canceled 40,675 (40,675) 7.20-16.33
- -----------------------------------------------------------------------------------------------
Balance at
September 30, 1995 350,983 1,055,750 7.17-19.33
Additional options authorized 750,000 -- --
Granted (1,002,325) 1,002,325 7.25-20.00
Exercised -- (45,225) 9.13-14.38
Canceled 505,580 (505,580) 7.20-20.00
- -----------------------------------------------------------------------------------------------
Balance at
September 30, 1996 604,238 1,507,270 $ 7.20-20.00
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
As of September 30, 1996, options to purchase 301,695 shares are vested and
exercisable.
1985 AND 1988 STOCK OPTION PLANS
Option activity under the 1985 and 1988 plans were as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
SHARES ------------------------
AVAILABLE NUMBER OF PRICE
FOR GRANT SHARES PER SHARE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at
September 30, 1993 184,999 576,666 $0.60
Terminated (184,999) -- --
Exercised -- (571,666) 0.60
Canceled -- (5,000) 0.60
- -----------------------------------------------------------------------------------------------
Balance at
September 30, 1994 -- -- --
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
As of September 30, 1996, there were no options outstanding under the 1985 and
1988 Stock Option Plans.
1994 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1994 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors on January 27, 1994 and approved by the
stockholders in March 1994. The Purchase Plan is designed to allow eligible
employees of the Company to purchase shares of common stock, at semiannual
intervals, through their periodic payroll deductions under the Purchase Plan.
The Company had initially reserved 300,000 shares of Common Stock for issuance
under the Purchase Plan. During fiscal 1996, the Company's Board of Directors
authorized, and the stockholders subsequently approved, an additional 400,000
shares of Common Stock under the Purchase Plan.
Participants in the Purchase Plan may purchase shares at 85% of the lower of i)
the fair market value of the common stock on the participant's entry date into
the offering period or ii) the fair market value on the semi-annual purchase
date. The Purchase Plan will in all events terminate on December 31, 2003.
Of the 700,000 shares reserved for the 1994 Employee Stock Purchase Plan,
326,305 shares were purchased as of September 30, 1996.
11. RELATED PARTY TRANSACTIONS:
STOCK REPURCHASE AND PAYABLE TO RELATED PARTY
In November 1993, in connection with the anticipated retirement of a then Senior
Vice President (the "Vice President") of the Company and pursuant to a prior
arrangement, the Company and its President each purchased 937,500 shares of
common stock from the Vice President for an aggregate purchase price of $421,875
each. The Company and its President each paid the Vice President $62,500 in cash
and each issued promissory notes to the Vice President for the balance of
$359,375. The Company also loaned its President the $62,500 down payment
pursuant to an agreement approved by the Board of Directors under which the
President may borrow up to $350,000 at an interest rate equal to Bank of
America's prime rate plus 1%. The promissory note for $359,375 was repaid in
April 1994 following the Company's initial public offering and the loan of
$62,500 plus accrued interest was repaid in full by the President in September
1994.
The Company also agreed to pay the Vice President $612,000, ratably over a 48-
month period, in exchange for a covenant not to compete for four years. The
entire amount of this payment was charged to operating expenses in fiscal year
1994 as management had been advised by its legal counsel that it is probable
that the covenant not to compete is unenforceable under California law. As such,
management determined that the realizability of the covenant is impaired. The
entire amount due under this agreement was paid in April 1994 following the
Company's initial public offering.
28 GaSonics International
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTS
TO GASONICS INTERNATIONAL CORPORATION:
We have audited the accompanying consolidated balance sheets of GaSonics
International Corporation (a Delaware Corporation) and subsidiaries as of
September 30, 1996 and 1995, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended September 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of GaSonics
International Corporation and subsidiaries as of September 30, 1996 and 1995,
and the results of its operations and its cash flows for each of the three years
in the period ended September 30, 1996 in conformity with generally accepted
accounting principles.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
San Jose, California
November 4, 1996
GASONICS INTERNATIONAL 29
<PAGE>
CORPORATE INFORMATION
BOARD OF DIRECTORS
Monte M. Toole
CHAIRMAN,
GASONICS INTERNATIONAL
Dave Toole
PRESIDENT AND CHIEF EXECUTIVE OFFICER,
GASONICS INTERNATIONAL
Kenneth L. Schroeder
PRESIDENT,
KLA INSTRUMENTS
F. Joseph Van Poppelen
THE VAN POPPELEN COMPANY
EXECUTIVE OFFICERS
Dave Toole
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Terry R. Gibson
VICE PRESIDENT, FINANCE AND CHIEF FINANCIAL OFFICER
Ralph Kerns
VICE PRESIDENT, TECHNOLOGY
Jeannine P. Sargent
VICE PRESIDENT, MARKETING AND CUSTOMER TECHNOLOGY
Avner Shelem
VICE PRESIDENT, GENERAL MANAGER, ENGINEERING AND OPERATIONS
Pascal Didier
VICE PRESIDENT, WORLDWIDE SALES AND CUSTOMER SUPPORT
CORPORATE HEADQUARTERS
GaSonics International Corporation
2540 Junction Avenue
San Jose, CA 95134-1909
Telephone: (408) 325-1200
THE ANNUAL MEETING
The Annual Meeting of stockholders will be held on March 3, 1997 at Techmart,
5201 Great America Parkway, Santa Clara, California. Those unable to attend the
Annual Meeting are invited to address questions and comments to Terry Gibson at
the Company's Corporate Headquarters.
FORM 10-K
Stockholders who wish to receive, without charge, a copy of the Company's 1996
Annual Report on Form 10-K filed with the Securities and Exchange Commission may
do so by writing to the Financial Relations Board, 180 Montgomery Street, Suite
1050, San Francisco, California, 94104.
STOCK MARKET INFORMATION
GaSonics International Common Stock is traded on The Nasdaq National Market
System under the symbol GSNX.
During fiscal 1996, the following securities firms acted as market makers of
GaSonics International Common Stock:
<TABLE>
<S> <C> <C>
Montgomery Securities, Inc. Hambrecht & Quist, Inc. Knight Securities
Herzog, Heine, Geduld, Inc. Troster Singer Corp. Mayer & Schweitzer Inc.
Sherwood Securities Corp. Everen Securities Inc. Nash Weiss/Shatkin Investments
Garden State Securities Bear Stearns & Co. Inc. Kaufman Brothers
G.V.R. Company
</TABLE>
The following table gives trading ranges for the Company's Common Stock during
fiscal 1996, and a calendar of quarterly closings for fiscal 1997.
STOCK TRADING RANGE, QUARTER CLOSING DATE,
QUARTER FISCAL 1996 FISCAL 1997
- --------------------------------------------------------------------------------
First $10.25-$24.50 December 27, 1996
Second $ 8.75-$13.88 March 28, 1997
Third $ 9.25-$15.13 June 27, 1997
Fourth $ 6.63-$11.00 September 26, 1997
TRANSFER AGENT & REGISTRAR
U.S. Stock Transfer Corporation
1745 Gardena Avenue, Glendale, CA 91204-2991
Telephone: (818) 502-1404
INVESTOR RELATIONS COUNSEL
The Financial Relations Board
180 Montgomery Street Suite 1050, San Francisco, CA 94104
Telephone (415) 986-1591
INDEPENDENT AUDITORS
Arthur Andersen LLP
River Park Tower
333 West San Carlos Street Suite 1500, San Jose, CA 95110-2710
LEGAL COUNSEL
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place, 2200 Geng Road, Palo Alto, CA 94303
GaSonics-Registered Trademark- is a registered trademark of GaSonics
International Corporation.
All other trademarks are the property of their respective owners.-C- 1997
GaSonics International Corporation. All rights reserved.
Designed and Produced by Jacobs Fulton Design Group, Palo Alto, CA
30 GASONICS INTERNATIONAL
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF THE REGISTRANT
GaSonics World Trade, Inc.
GaSonics International Europe Limited
GaSonics International Japan, Kabushiki Kaisha
GaSonics International Korea Corporation
GaSonics International France Societe a Responsabilite Limitee
30
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included (or incorporated by reference) in this Form 10-K, into the
Company's previously filed Registration Statements File Nos. 33-76698, 33-79134
and 33-89634 on Form S-8.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
San Jose, California
December 20, 1996
31
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from The
Consolidated Balance Sheets and Consolidated Statements of Operations found
on pages 18 and 19 in exhibit 13 of the Company's Form 10-K for the year,
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 11,744
<SECURITIES> 14,135
<RECEIVABLES> 23,643
<ALLOWANCES> 611
<INVENTORY> 26,817
<CURRENT-ASSETS> 82,413
<PP&E> 15,310
<DEPRECIATION> 3,735
<TOTAL-ASSETS> 96,430
<CURRENT-LIABILITIES> 23,189
<BONDS> 0
0
0
<COMMON> 604
<OTHER-SE> 72,085
<TOTAL-LIABILITY-AND-EQUITY> 96,430
<SALES> 127,043
<TOTAL-REVENUES> 127,043
<CGS> 64,417
<TOTAL-COSTS> 64,417
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 242
<INTEREST-EXPENSE> 64
<INCOME-PRETAX> 13,738
<INCOME-TAX> 4,808
<INCOME-CONTINUING> 8,930
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,930
<EPS-PRIMARY> 0.65
<EPS-DILUTED> 0.65
</TABLE>
