<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(MARK ONE)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1998
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-23372
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GASONICS INTERNATIONAL CORPORATION
----------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-2159729
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2540 Junction Avenue, San Jose, California 95134
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (408) 570-7000
----------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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
----- -----
At May 6, 1998, there were 14,045,946 shares of the Registrant's Common
Stock, $0.001 par value per share, outstanding.
<PAGE>
GASONICS INTERNATIONAL CORPORATION
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 1998
and September 30, 1997 3
Condensed Consolidated Statements of Operations for the
three and six month periods ended March 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows for the six
month periods ended March 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition 10
and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 2. Changes in Securities 24
Item 3. Defaults Upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Securityholders 24
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 25
SIGNATURES 26
Exhibit Index 27
</TABLE>
2
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PART I . FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GASONICS INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MAR. 31, Sept. 30,
1998 1997
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<S> <C> <C>
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents $ 14,022 $ 13,307
Marketable securities 14,613 11,577
Trade accounts receivable, net 21,917 28,315
Inventories 29,650 27,075
Net deferred tax asset 4,868 4,868
Prepaid expenses and other current assets 4,037 2,617
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Total current assets 89,107 87,759
Property and equipment, net 14,842 14,941
Deposits and other assets 1,454 1,682
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Total assets $ 105,403 $ 104,382
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LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under credit facility $ 442 $ 2,036
Accounts payable 6,729 6,812
Income taxes payable 3,286 3,054
Accrued expenses 12,088 12,886
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Total current liabilities 22,545 24,788
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Long-term liabilities 312 401
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Stockholders' equity:
Common stock and
additional paid-in capital 36,863 35,847
Subscription receivable - (100)
Retained earnings 45,683 43,446
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Total stockholders' equity 82,546 79,193
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Total liabilities and stockholders'
equity $ 105,403 $ 104,382
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</TABLE>
See accompanying notes.
3
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GASONICS INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------------ ----------------------
1998 1997 1998 1997
------------------------ ----------------------
<S> <C> <C> <C> <C>
Net sales $ 27,616 $ 29,592 $ 60,467 $ 59,278
Cost of sales 14,928 16,405 32,343 33,429
--------- --------- --------- ---------
Gross margin 12,688 13,187 28,124 25,849
--------- --------- --------- ---------
Operating expenses:
Research & development 5,367 4,328 10,404 8,417
Selling, general & administrative 7,191 7,124 14,711 14,323
--------- --------- --------- ---------
Total operating expenses 12,558 11,452 25,115 22,740
--------- --------- --------- ---------
Operating income 130 1,735 3,009 3,109
Other income and expenses, net 210 236 336 291
--------- --------- --------- ---------
Income before provision for income taxes 340 1,971 3,345 3,400
Provision for income taxes 112 690 1,108 1,190
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Net income $ 228 $ 1,281 $ 2,237 $ 2,210
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income per share - Basic (see Note 5) $ 0.02 $ 0.09 $ 0.16 $ 0.16
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income per share - Diluted (see Note 5) $ 0.02 $ 0.09 $ 0.15 $ 0.16
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average common shares 14,027 13,599 13,972 13,539
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average common &
common equivalent shares 14,408 14,275 14,456 14,047
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
4
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GASONICS INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
-------------------------
1998 1997
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net cash provided by (used for) operating
activities $ 6,045 $ (3,052)
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Cash flows from investing activities:
Purchases of property & equipment (1,817) (3,238)
(Increase) decrease in marketable securities (3,036) 1,679
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Net cash used for investing activities (4,853) (1,559)
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Cash flows from financing activities:
Decrease in borrowings under credit facility (1,593) -
Proceeds from issuance of common stock 1,116 1,452
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Net cash provided by (used for) financing
activities (477) 1,452
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Net increase (decrease) in cash and cash
equivalents 715 (3,159)
Cash & cash equivalents at beginning of period 13,307 11,774
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Cash & cash equivalents at end of period $ 14,022 $ 8,615
--------- --------
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</TABLE>
See accompanying notes.
5
<PAGE>
GASONICS INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements have been prepared
by the Company without audit and reflect all adjustments which are, in the
opinion of management, necessary for a fair presentation of the financial
position and the results of operations of the Company for the interim periods.
The statements have been prepared in accordance with the regulations of the
Securities and Exchange Commission. Accordingly, they do not include all
information and footnotes required by generally accepted accounting principles.
The results of operations for the six months ended March 31, 1998 are not
necessarily indicative of the operating results to be expected for the full
fiscal year. Such financial statements should be read in conjunction with the
information contained in the Company's Annual Report on Form 10-K for the year
ended September 30, 1997. Certain reclassifications have been made to prior
year amounts to conform to current year presentation.
2. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
----------- -------------
(unaudited)
<S> <C> <C>
Raw Materials $ 15,385 $ 13,919
Work in Process 6,797 6,809
Finished Goods 7,468 6,347
----------- -----------
$ 29,650 $ 27,075
----------- -----------
----------- -----------
</TABLE>
3. 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
(using the treasury stock method).
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share", which simplifies and replaces the standards for computing earnings per
share previously found in Accounting Principles Board Opinion ("APB") No. 15.
SFAS No. 128 requires companies to compute under two different methods, basic
and diluted earnings per share, and to disclose the methodology used for the
calculation. All prior period earnings per share data presented have been
restated to conform to the requirements under SFAS No. 128.
6
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4. RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, FASB issued SFAS No. 129, "Disclosure of Information about
Capital Structures", which will be adopted by the Company in fiscal 1999. The
adoption of SFAS No. 129 is not anticipated to have a material impact on its
consolidated financial statement disclosures of the Company.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
and SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information" both of which will be adopted by the Company in fiscal 1999. SFAS
No. 130 requires companies to disclose certain information regarding the nature
and amounts of comprehensive income included in the financial statements. SFAS
No. 131 requires companies to disclose certain information about operating
segments within their business. The Company does not anticipate that either
SFAS No. 130, or SFAS No. 131, will have a material impact on its consolidated
financial statement disclosures.
7
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5. RECONCILIATION OF EARNINGS AND SHARE AMOUNTS USED IN EPS CALCULATION
Effective December 31, 1997, the Company adopted SFAS No. 128, "Earnings per
Share." Basic earnings per common share were computed by dividing net income by
the weighted average number of shares of common stock outstanding during this
period. Diluted earnings per common share for the three and six months ended
March 31, 1997 and 1998, were calculated using the treasury stock method to
compute the weighted average common stock outstanding. As a result, the
Company's reported earnings per share for fiscal 1997 were restated. There has
been no impact on reported earnings per share (EPS) data when compared to basic
and diluted earnings per share calculated under the provisions of SFAS No. 128
for the three and six month period ended March 31, 1997.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PER SHARE
FOR THE THREE MONTHS ENDED MAR. 31, 1997 INCOME SHARES AMOUNT
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income $ 1,281,000
BASIC EARNINGS PER SHARE
Income available to common stockholders $ 1,281,000 13,599,000 $ 0.09
Effect of Dilutive Securities:
Options issued to purchase Common stock 676,000
DILUTIVE EARNINGS PER SHARE
Income available to common stockholders $ 1,281,000 14,275,000 $ 0.09
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PER SHARE
FOR THE THREE MONTHS ENDED MAR. 31, 1998 INCOME SHARES AMOUNT
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income $ 228,000
BASIC EARNINGS PER SHARE
Income available to common stockholders $ 228,000 14,027,000 $ 0.02
Effect of Dilutive Securities:
Options issued to purchase Common stock 381,000
DILUTIVE EARNINGS PER SHARE
Income available to common stockholders $ 228,000 14,408,000 $ 0.02
- --------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PER SHARE
FOR THE SIX MONTHS ENDED MAR. 31, 1997 INCOME SHARES AMOUNT
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income $ 2,210,000
BASIC EARNINGS PER SHARE
Income available to common stockholders $ 2,210,000 13,539,000 $ 0.16
Effect of Dilutive Securities:
Options issued to purchase Common stock 508,000
DILUTIVE EARNINGS PER SHARE
Income available to common stockholders $ 2,210,000 14,047,000 $ 0.16
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PER SHARE
FOR THE SIX MONTHS ENDED MAR. 31, 1998 INCOME SHARES AMOUNT
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income $ 2,237,000
BASIC EARNINGS PER SHARE
Income available to common stockholders $ 2,237,000 13,972,000 $ 0.16
Effect of Dilutive Securities:
Options issued to purchase Common stock 484,000
DILUTIVE EARNINGS PER SHARE
Income available to common stockholders $ 2,237,000 14,456,000 $ 0.15
- --------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
With the exception of historical facts, the following Management's Discussion
and Analysis of Financial Condition and Results of Operations contains
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended, including, but not limited to, future sales,
gross margins, the anticipated increase in inventories and operating expenses
and the sufficiency of financial resources to support operations, and are
subject to the Safe Harbor provisions created by that statute. Such statements
are based on current expectations that involve inherent risks and uncertainties,
including those discussed below and under the heading "Additional Risk Factors",
that could cause actual results to differ materially from those expressed.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The Company undertakes no
obligation to publicly release the results of any revisions to any
forward-looking statements, which may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
This discussion should be read in conjunction with the unaudited Condensed
Consolidated Financial Statements and Notes to the Condensed Financial
Statements presented in the Company's 1997 Annual Report on Form 10-K, available
upon request, for a more complete understanding of the Company's financial
position, business and results of operations.
RESULTS OF OPERATIONS
NET SALES for the quarter ended March 31, 1998 decreased 6.7% to $27.6 million
compared to net sales of $29.6 million for the quarter ended March 31, 1997.
For the six month period ending March 31, 1998, net sales increased 2.0% to
$60.5 million compared to net sales of $59.3 million for the same period last
fiscal year.
Sales for the second quarter and six months of fiscal 1998 were negatively
impacted by the current economic climate in Korea and Japan and the overall
worldwide slowdown in the semiconductor industry. Although North American sales
for the second quarter and six months ended March 31, 1998 increased over the
same periods of last year and lessened in part the impact of lower sales in the
Asia Pacific region, the Company is also currently continuing to experience
order delays and reschedulings of previously ordered equipment by North American
customers. It is anticipated that such delays and reschedulings will continue
to adversely impact the Company's business and results of operations. Sales to
customers in North America, Europe and Asia Pacific accounted for approximately
58%, 24% and 18% of net sales, respectively, for the six month period ended
March 31, 1998, compared to approximately 50%, 26% and 24%, respectively, for
the six month period ended March 31, 1997.
When comparing sales by product in the second quarter of fiscal 1998 to the same
quarter last year, the Company experienced lower sales of both single and dual
chamber photoresist removal systems and flat panel display equipment systems,
partly offset by increased sales of vertical high pressure (VHP) systems and
spare part sales. In the first six months of fiscal 1998, improved sales of
single chamber products, VHP systems and spare parts were partially offset by
lower dual
10
<PAGE>
chamber and flat panel display equipment system sales when compared to the same
period in fiscal 1997.
As a result in part of the apparent caution on the part of North American
customers and the continuing impact of the financial situation in Korea and
Japan, the Company believes that its net sales will be below prior period levels
and may fall below current levels over the next several quarters.
GROSS MARGIN as a percentage of net sales for the second quarter and six
months ended March 31, 1998 was 46% in both periods compared to 45% and 44%,
respectively, for the same periods of fiscal 1997. The increase in gross
margin percentage in fiscal 1998 was primarily the result of a favorable
sales mix of higher margin products and lower manufacturing costs on the
Company's Performance Enhancement Platform (PEP) systems. Gross margin for
the second quarter dropped to 46% from 47% in the first quarter of fiscal
1998 primarily due to the impact of lower sales volume against the fixed
costs of manufacturing and the service and support infrastructure. The
Company's gross margin as a percentage of net sales is affected by a variety
of other factors, including the mix and average selling prices of products
sold and the costs to manufacture, including service and support revenues,
and the costs associated with new product introductions and enhancements.
The Company expects that its gross margin may be materially adversely
impacted by inefficiencies associated with new product introductions, sales
of lower margin PEP systems and flat panel display equipment products,
competitive pricing pressures, the general slowdown in the semiconductor
industry, the economic troubles currently being experienced by many companies
in Asia, including some of the Company's major markets such as Japan and
Korea, changes in product mix and other factors including those referred to
above. The Company will continue to focus on its gross margin improvement
programs, including the introduction of new value-added applications,
features and options on the PEP systems, targeted cost reduction programs and
controlled spending.
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 for the
second quarter of fiscal 1998 were $5.4 million or 19.4% of net sales compared
to $4.3 million or 14.6% of net sales for the second quarter of fiscal 1997.
For the six month period ended March 31, 1998 and 1997, research and development
expenses were $10.4 million or 17.2% of net sales and $8.4 million or 14.2% of
net sales, respectively. These increases are primarily attributable to the
Company's continued investment in the development of the Millennia 300mm
platform as well as increased spending in the development of new technologies,
processes and products for new clean applications. Due to steps being taken to
reduce spending levels, such as reducing discretionary spending, strict hiring
controls, reducing temporary help and contractors and reprioritizing programs,
the Company anticipates that research and development expenses in absolute
dollars should decrease over the next two quarters.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES increased to $7.2 million in the
second quarter of fiscal 1998 and $14.7 million for the six month period of
fiscal 1998, from $7.1 million and $14.3 million, respectively, for the same
periods of fiscal 1997. Although the absolute dollars spent on selling, general
and administrative expenses for the second quarter of fiscal 1998 were
essentially the same as in the second quarter of fiscal 1997, there was a
significant decrease in third party
11
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commissions in 1998 due to the Company building its worldwide direct sales and
support organization. This reduction in third party commissions was generally
offset by increased expenses related to hiring and other expenses associated
with building the Company's direct sales and support capabilities. During the
second quarter of fiscal 1998, the Company also moved the operations of its
Japan subsidiary to a technology development center in Kawasaki, Japan. The
Company believes this new location may provide the necessary infrastructure,
including state-of-the-art demo capabilities to support its direct semiconductor
operations in Japan. The Company anticipates that selling, general and
administrative spending may decrease in absolute dollars over the next two
quarters as a result of previously mentioned cost reduction activities.
OTHER INCOME AND EXPENSES primarily consists of interest income and expense and
foreign currency translation gains and losses. Interest expense of
approximately $5,000 for the second quarter and $25,000 for the six month period
ended March 31, 1998 as compared to $16,000 for the quarter and $30,000 for the
six month period March 31, 1997, has been incurred by the Company as a result of
borrowing under a short-term credit facility from the Bank of Tokyo-Mitsubishi
by the Company's wholly-owned subsidiary in Japan, GaSonics International Japan
K.K. As of March 31, 1998, borrowings under this loan agreement were 55.3
million yen which is equivalent to approximately $442,000. Interest income from
the Company's short-term investments was approximately $226,000 for the second
quarter and $458,000 for the six month period ended March 31, 1998, as compared
to $155,000 and $372,000 for periods of fiscal 1997. The increase in interest
income primarily resulted from higher average short-term investments and cash
and cash equivalent balances for the period. Foreign currency translations
resulted in a net loss for the second quarter and six month period of fiscal
1998 of approximately $19,000 and $128,000, respectively, as compared to net
losses of approximately $43,000 and $56,000 for the corresponding periods of
fiscal 1997. This increase in foreign currency loss for the six month period of
fiscal 1998 as compared to the same period last year was due primarily to the
current economic climate in Korea and Japan.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of fiscal 1998, cash, cash equivalents and
marketable securities increased by $3.7 million to $28.6 million at March 31,
1998 from $24.9 million at September 30, 1997. Operating activities provided
$6.0 million of cash for the six month period ended March 31, 1998 compared to
$3.1 million of cash used by operations for the corresponding period of fiscal
1997. Cash provided by operating activities was principally due to the decrease
in accounts receivable of $6.4 million as compared to an increase in accounts
receivable of $12.8 million for the same period of fiscal 1997.
Investing activities for the first six months of fiscal 1998 used cash of
approximately $4.8 million resulting from the investment in marketable
securities of $3.0 million and $1.8 million in purchases of capital equipment.
For the first six months of fiscal 1997, $3.2 million was used to purchase
capital equipment, offset by proceeds of $1.7 million from the sale of
marketable securities.
Financing activities, primarily from the issuance of common stock in connection
with the Company's employee stock purchase and stock option plans, provided $1.1
million for the first
12
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six months of fiscal 1998 and $1.5 million for the same period last year.
Additionally, for the first six months of fiscal 1998, $1.6 million was used to
reduce the borrowings by GaSonics International Japan K.K. under its credit
facility with the Bank of Tokyo-Mitsubishi.
At March 31, 1998, the Company had working capital of $66.6 million compared to
$63.0 million at September 30, 1997. Accounts receivable at March 31, 1998,
decreased $6.4 million from September 30, 1997, due primarily to lower sales and
higher collections of accounts receivable from customers compared to the quarter
ending September 30, 1997. Inventory increased $2.6 million from September 30,
1997 to March 31, 1998, primarily from delays in receiving anticipated sales
orders and rescheduling of existing orders. The Company expects future
inventory levels to fluctuate from period to period, and believes that because
of the relatively long manufacturing cycle of its products, its investment in
inventories will continue to represent 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.
The Company's principal sources of liquidity at March 31, 1998, consisted of
approximately $14.0 million in cash and cash equivalents, $14.6 million in
marketable securities and a $20.0 million unsecured line of credit with Union
Bank which was renewed on March 23, 1998 and expires on March 31, 1999. Under
the line of credit as renewed, all borrowings bear interest at a rate of the
bank's LIBOR rate plus 1.25% per annum, as compared to 1.50 % under the prior
agreement. A commercial letter of credit provision of $500,000 and a foreign
exchange contract provision of $1.0 million are also available under this credit
line. Available borrowing under the credit line is reduced by the amount of any
outstanding letters of credit. The 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 March 31, 1998, except for $69,193
outstanding under the letter of credit provision, there were no borrowings
outstanding under this line, and the Company was in compliance with its bank
covenants. On March 23, 1998, GaSonics International Japan K.K. renewed its
credit facility with the Bank of Tokyo-Mitsubishi, increasing the amount
available under such facility from 300 million yen to 320 million yen which is
equivalent to approximately $2.6 million U.S. dollars. Such facility bears
interest at a rate of 1.65% per annum and is secured by a Letter of Guarantee
issued by the Company. The credit facility expires on March 31, 1999. As of
March 31, 1998, GaSonics International Japan K.K. had borrowed 55.3 million yen
available under this credit facility, which is equivalent to approximately
$442,000 U.S. dollars as of that date.
The Company believes anticipated cash flows from operations, funds available
under its existing revolving line of credit and separate 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 achieve its working capital or capital equipment needs.
13
<PAGE>
ADDITIONAL RISK FACTORS
SIGNIFICANT FLUCTUATIONS IN OPERATING RESULTS
The Company's operating results have fluctuated significantly in the past and
will continue to 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, inventory
obsolescence, accounts receivable write-offs, 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 reschedulings of orders due to customer financial difficulties
or otherwise, the Company's ability to produce systems in volume and meet
customer requirements, the ability of any customer to finance its purchases of
the Company's equipment, 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's gross margin and overall gross margin rate
has sharply declined from the level attained in prior years, in part, due to
start-up inefficiencies associated with new products, competitive pricing
pressures, changes in product mix from fewer higher margin rate and mature
single chamber products to lower margin rate dual chamber products, products
sold by the Company's liquid crystal display manufacturing equipment (LCD)
division in Japan, and other factors. Additionally, sales and earnings for
approximately the last two years were materially adversely effected by the
current semiconductor business slowdown and it is anticipated that the slowdown
in the industry will continue to have a material adverse effect on the Company's
future revenues and operating results for the next several quarters.
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 price from
approximately $150,000 to $700,000 for its photoresist removal systems and up to
approximately $2.0 million or more 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
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sales and operating results for a quarter usually 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 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.
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
materially adversely effect operating results. The impact of these and other
factors on the Company's operating results in any future period cannot be
forecasted accurately.
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. Beginning in 1996, the semiconductor industry has
experienced a cyclical downturn, which the Company believes will continue for
the next several quarters. The Company has experienced significant delays of
new orders and rescheduling of existing orders that have materially adversely
affected the Company's financial results during the last two years and the
Company expects will continue 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.
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
15
<PAGE>
experiences intense competition worldwide from a number of foreign and domestic
manufacturers, including Canon, Applied Materials, Inc., Eaton Corporation, Lam
Research Corporation, Matrix Semiconductor Systems, Inc., Mattson
Technology, Inc., Plasma Systems and MC Electronics, many of which have
substantially greater installed bases and greater financial, marketing,
technical and other resources than the Company. One of the Company's
competitors, Fusion, was acquired by Eaton Corporation, a very large
corporation, further enhancing the resources of one of the Company's
competitors. The Company believes that the industry will continue to be subject
to consolidation which will increase the number of larger more powerful
companies in the industry sector in which the Company competes. Certain of the
Company's competitors have announced the introduction of, or have introduced or
acquired, competitive products that offer other technologies and improvements.
Applied Materials and Lam Research have introduced and currently sell 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.
Competitors of the Company's LCD division in Japan include Japan-based companies
and Japan-based joint ventures such as Applied Komatsu, Koyo Lindbergh and
ULVAC. 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 1995, 1996 and 1997 and the first six months of
fiscal 1998 accounted for approximately 68%, 51%, 66% and 64% of net sales,
respectively. The Company expects that sales of its products to relatively few
customers 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,
16
<PAGE>
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.
EXPANSION OF OPERATIONS; MANAGEMENT OF GROWTH
Since 1993, the Company has significantly increased the scale of its operations
to support 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, Ireland, France,
Italy, Korea, Japan, Singapore, Taiwan and Israel and significant investments in
research and development to support product development. The Company recently
hired a new President and Chief Executive Officer. The Company's expansion has
resulted in significantly higher operating expenses and until there is a
sustained upturn in the economic climate of the semiconductor industry resulting
in an increased demand for equipment, it is anticipated that the Company's
future operating results will continue to be materially adversely affected
through at least the end of fiscal 1998.
The past 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.
The Company implemented new management information, manufacturing and cost
accounting systems during the second quarter of fiscal 1997. There can be no
assurance, however, 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 VHP, LPCVD systems
and
17
<PAGE>
Millennia 300mm systems. There can be no assurance that any such product will
achieve any significant revenues or contribute to any 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 been experiencing delays
from time to time in the introduction of, and certain technical, quality and
manufacturing difficulties with, certain of its systems and enhancements and may
continue to 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.
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 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. To
date, however, the Company has sold relatively few systems to Japanese
semiconductor manufacturers. Sales in Japan accounted for approximately 2% of
the Company's total net sales in fiscal 1995 and 9% of total net sales in both
fiscal 1996 and fiscal 1997 and 3% of total net sales for the first six months
of fiscal 1998. To
18
<PAGE>
date, for its photoresist business, the Company has not fully developed a
customer service and support capability in Japan and remains at a disadvantage
in selling, servicing and supporting such 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 its LCD division in Japan, 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, particularly over the past two years due
to the overall downturn in the Japanese economy, thereby, further increasing
competitive pressures in the Japanese market. Although the Company is investing
significant resources and is establishing a direct presence in Japan which will
significantly increase operating expenses, there can be no assurance that the
Company will be able to achieve significant sales to the Japanese semiconductor
market.
INTERNATIONAL SALES
International sales accounted for 40%, 54%, 55% and 42% of net sales in fiscal
years 1995, 1996, 1997 and the first six months of fiscal 1998, respectively.
The Company has established independent operations in the United Kingdom,
Ireland, France, Italy, Korea, Japan, Singapore, Taiwan and Israel. 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.
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 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
19
<PAGE>
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 occasionally receives
notices 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 if 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.
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, two other companies for microwave power supplies
and one company for microwave applicators used in all of its ashing systems. The
Company's LCD division in Japan is heavily dependent on one key supplier for
quartz and ceramic fabrication. The Company is exploring alternative sources of
technology. In addition, the Company has been establishing longer term
contracts with these suppliers to mitigate the potential risks of inadequate
supply of required components and control over pricing and timely delivery of
components and subassemblies. However, 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.
20
<PAGE>
FUTURE ACQUISITIONS
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, technologies, personnel 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 agreements
with respect to any such 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. 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.
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.
21
<PAGE>
EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS
As of March 31, 1998, the Company's officers, directors and members of their
families that may be deemed affiliates of such persons beneficially owned
approximately 23% 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 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. Moreover, in
recent years the stocks of many companies in the semiconductor capital equipment
business have declined substantially due to the worldwide semiconductor
downturn. 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.
YEAR 2000 COMPLIANCE
The Company is currently in the process of assessing and testing the software
components of its products for year 2000 compliance. There can be no assurance
that the Company's current products do not contain undetected errors or defects
associated with year 2000 date functions that may result in material costs to
the Company, including repair costs and costs incurred in litigation due to any
such defects. Many commentators have stated that a significant amount of
litigation will arise out of year 2000 compliance issues. Because of the
unprecedented nature of such litigation, and the Company's current lack of
knowledge as to whether its products are year 2000 compliant, there can be no
assurance that the Company will not be materially adversely affected by claims
related to year 2000 compliance.
22
<PAGE>
Although the Company is not aware of any material operational issues or costs
associated with preparing its internal systems for the year 2000, there can be
no assurance that the Company will not experience serious unanticipated negative
consequences and/or material costs caused by undetected errors or defects in the
technology used in its internal operating systems, which are composed
predominantly of third party software and hardware technology.
23
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any material litigation.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.
The following proposals were voted upon by the Company's stockholders
at the Annual Meeting of Stockholders held on March 6, 1998.
1. The following four directors were nominated to serve until the next
Annual Meeting, or until their successors are elected and qualified,
were elected by the stockholders.
<TABLE>
<CAPTION>
VOTES BROKER
VOTES FOR WITHHELD ABSTENTIONS NON-VOTES
<S> <C> <C> <C> <C>
Monte M. Toole 12,624,410 33,547 - -
Dave Toole 12,602,645 55,315 - -
Kenneth Schroeder 12,623,445 34,512 - -
F. Joseph Van Poppelen 12,623,745 34,212 - -
</TABLE>
2. An amendment to the Company's 1994 Stock Option/Stock Issuance Plan
(the "Option Plan") to increase the maximum number of shares of Common
Stock authorized for issuance over the term of the Option Plan from
2,700,000 shares to 3,100,000 shares was approved with 12,657,957
shares of the Company's voting securities voted on the matter, of
which 6,880,478 were voted for the proposal, 5,687,951 were voted
against, 15,296 were abstained from voting and there were 74,232
broker non-votes.
3. A proposal to ratify the appointment of Arthur Andersen LLP as
independent auditors of the Company for the fiscal year ending
September 30, 1998, was approved with 12,657,957 shares of the
Company's voting securities were voted on the matter, of which
12,630,868 were voted for the proposal, 17,408 were voted against,
9,681 were abstained from voting and there were no broker non-votes.
24
<PAGE>
ITEM 5. OTHER INFORMATION.
Effective March 24, 1998, Dave Toole, who was the Company's President
and Chief Executive Officer resigned those positions and assumed the
position of Chairman of the Board, previously held by Monte Toole, who
will remain on the board as a director and Vice-Chairman. Effective
March 24, 1998, Asuri Raghavan joined the Company as President and
Chief Executive Officer and was appointed a member of the Board of
Directors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith:
Exhibit 10.2 Amended and Restated 1994 Stock Option/Stock Issuance
Plan. Incorporated by reference to an exhibit filed
with the Registrant's Registration Statement on Form
S-8 (File No. 333-50337) declared effective with the
Securities and Exchange Commission on April 17, 1998
Exhibit 10.21 Loan agreement dated March 23, 1998 between Registrant
and Union Bank, a California banking corporation
Exhibit 10.23 Asuri Raghaven Employment Agreement
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended March 31,
1998
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GASONICS INTERNATIONAL CORPORATION
(Registrant)
\s\ Terry R. Gibson
-----------------------------------
Date: May 12, 1998 By: Terry R. Gibson
Vice President, Finance
Chief Financial Officer
26
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION SEQUENTIALLY
NUMBERED
PAGE
<S> <C> <C>
10.2 Amended and Restated 1994 Stock Option/Stock Issuance Plan
10.21 Loan agreement dated March 23, 1998 between Registrant and
and Union Bank, a California banking corporation
10.23 Asuri Raghaven Employment Agreement
27 Financial Data Schedule
</TABLE>
27
<PAGE>
[LOGO]
LOAN AGREEMENT
THIS AMENDED AND RESTATED LOAN AGREEMENT ("Agreement") is made and entered
into as of March 23, 1998 by and between GaSonics International Corporation, a
Delaware corporation ("Borrower") and UNION BANK OF CALIFORNIA, N.A. ("Bank").
This Agreement amends and restates in its entirety that certain loan agreement
dated March 4, 1997 between Bank and Borrower.
SECTION 1. THE LOAN
1.1 THE REVOLVING LOAN. Bank will loan to Borrower an amount not
to exceed Twenty Million Dollars ($20,000,000) outstanding in the aggregate
at any one time (the "Revolving Loan"). Borrower may borrow, repay and
reborrow all or part of the Revolving Loan in amounts not less than One
Hundred Fifty Thousand Dollars ($150,000.00) in accordance with the terms of
the Revolving Note; provided, however, that for at least thirty (30)
consecutive days during each twelve (12)-month period, the principal amount
outstanding under the Revolving Loan must be zero (0). All borrowings of the
Revolving Loan must be made before March 31, 1999, at which time all unpaid
principal and interest of the Revolving Loan shall be due and payable. The
Revolving Loan shall be evidenced by a promissory note (the "Revolving Note")
on the standard form used by Bank for commercial loans. Bank shall enter
each amount borrowed and repaid in Bank's records and such entries shall be
deemed to accurately evidence advances and payments on the Revolving Loan.
Omission of Bank to make any such entries shall not discharge Borrower of its
obligation to repay in full with interest all amounts borrowed.
1.1.1 THE STANDBY L/C SUBLIMIT. As a sublimit to the
Revolving Loan, Bank shall issue, for the account of Borrower, one or more
irrevocable, standby letters of credit (individually, an "L/C" and collectively,
the "L/Cs"). All such standby L/Cs shall be drawn on such terms and conditions
as are acceptable to Bank. The aggregate amount available to be drawn under all
outstanding L/Cs and the aggregate amount of unpaid reimbursement obligations
under drawn L/Cs shall not exceed Five Hundred Thousand Dollars ($500,000) and
shall reduce, dollar for dollar, the maximum amount available under the
Revolving Loan. No standby L/C shall have an expiry date more than twelve (12)
months from its date of issuance and each L/C shall be governed by the terms of
(and Borrower agrees to execute) Bank's standard form for standby L/C
applications and reimbursement agreements. No L/C shall expire after February
27, 1998.
1.2 GASONICS INTERNATIONAL JAPAN K.K. CREDIT FACILITIES. Borrower
has a subsidiary known as Gasonics International Japan K.K. ("Gasonics
International Japan"). Gasonics International Japan has yen credit facilities
aggregating Y320,000,000 with Bank of Tokyo-Mitsubishi, Ltd. Bank and Borrower
have agreed that the aggregate United States Dollar equivalent of these credit
facilities shall reduce, dollar for dollar, the maximum amount available under
the Revolving Loan. For purposes of determining from time to time the United
States Dollar equivalent of the principal amount outstanding under Gasonics
International Japan's yen facilities with Bank of Tokyo-Mitsubishi, Ltd., Bank
shall convert the yen amount outstanding into United States Dollars at the rate
of exchange which Bank can use to make such conversion, measured by the offered
rate as determined by Bank of yen for United States Dollars prevailing on the
last day of each most recently completed month during the term of Borrower's
Revolving Loan with Bank ("Conversion Figure"). Thereafter, for the following
month, Borrower's availability under the Revolving Loan shall be reduced by the
Conversion Figure.
1.2.1 The intent of Bank and Borrower is to remove uncertainties
as to what exchange rate should be applied, and to place the risk of any change
in market value of yen on Borrower.
1.3 TERMINOLOGY.
As used herein the word "Loan" shall mean, collectively, all the
credit facilities described above.
-1-
<PAGE>
As used herein the word "Note" shall mean, collectively, all the
promissory notes described above.
As used herein, the words "Loan Documents" shall mean all
documents executed in connection with this Agreement.
1.4 PURPOSE OF LOAN. The proceeds of the Revolving Loan shall be
used for general working capital purposes.
1.5 INTEREST. The unpaid principal balance of the Revolving Loan
shall bear interest at the rate or rates provided in the Revolving Note and
selected by Borrower. The Revolving Loan may be prepaid in full or in part
only in accordance with the terms of the Revolving Note and any such prepayment
shall be subject to the prepayment fee provided for therein.
1.6 BALANCES. Borrower shall maintain its major depository accounts
with Bank until the Note and all sums payable pursuant to this Agreement have
been paid in full.
1.7 DISBURSEMENT. Upon execution hereof, Bank shall disburse the
proceeds of the Loan as provided in Bank's standard form Authorization executed
by Borrower.
1.8 CONTROLLING DOCUMENT. In the event of any inconsistency between
the terms of this Agreement and any Note or any of the other Loan Documents, the
terms of such Note or other Loan Documents will prevail over the terms of this
Agreement.
SECTION 2. CONDITIONS PRECEDENT
Bank shall not be obligated to disburse all or any portion of the proceeds
of the Loan unless at or prior to the time for the making of such disbursement,
the following conditions have been fulfilled to Bank's satisfaction:
2.1 COMPLIANCE. Borrower shall have performed and complied with all
terms and conditions required by this Agreement to be performed or complied with
by it prior to or at the date of the making of such disbursement and shall have
executed and delivered to Bank the Note and other documents deemed necessary by
Bank.
2.2 BORROWING RESOLUTION. Borrower shall have provided Bank with
certified copies of resolutions duly adopted by the Board of Directors of
Borrower, authorizing this Agreement and the Loan Documents. Such resolutions
shall also designate the persons who are authorized to act on Borrower's behalf
in connection with this Agreement and to do the things required of Borrower
pursuant to this Agreement.
2.3 TERMINATION STATEMENTS. Borrower shall have provided Bank with
UCC-2 termination statements executed by such secured creditors as may be
required by Bank suitable for filing with the Secretary of State in each state
designated by Bank.
2.4 CONTINUING COMPLIANCE. At the time any disbursement is to be
made, there shall not exist any event, condition or act which constitutes an
event of default under Section 6 hereof or any event, condition or act which
with notice, lapse of time or both would constitute such event of default; nor
shall there be any such event, condition, or act immediately after the
disbursement were it to be made.
-2-
<PAGE>
SECTION 3. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants that:
3.1 BUSINESS ACTIVITY. The principal business of Borrower is the
design and manufacturing of semiconductor manufacturing equipment.
3.2 AFFILIATES AND SUBSIDIARIES. Borrower's affiliates and
subsidiaries (those entities in which Borrower has either a controlling interest
or at least a 25% ownership interest) and their addresses, and the names of
Borrower's principal shareholders, are as provided on a schedule delivered to
Bank on or before the date of this Agreement.
3.3 AUTHORITY TO BORROW. The execution, delivery and performance of
this Agreement, the Note and all other agreements and instruments required by
Bank in connection with the Loan are not in contravention of any of the terms of
any indenture, agreement or undertaking to which Borrower is a party or by which
it or any of its property is bound or affected.
3.4 FINANCIAL STATEMENTS. The financial statements of Borrower,
including both a balance sheet at December 31, 1997 together with supporting
schedules, and an income statement for the three (3) months ended December 31,
1997, have heretofore been furnished to Bank, and are true and complete and
fairly represent the financial condition of Borrower during the period covered
thereby. Since December 31, 1997, there has been no material adverse change in
the financial condition or operations of Borrower.
3.5 TITLE. Except for assets which may have been disposed of in the
ordinary course of business, Borrower has good and marketable title to all of
the property reflected in its financial statements delivered to Bank and to all
property acquired by Borrower since the date of said financial statements, free
and clear of all liens, encumbrances, security interests and adverse claims
except those specifically referred to in said financial statements.
3.6 LITIGATION. There is no litigation or proceeding pending or
threatened against Borrower or any of its property which is reasonably likely to
affect the financial condition, property or business of Borrower in a materially
adverse manner or result in liability in excess of Borrower's insurance
coverage.
3.7 DEFAULT. Borrower is not now in default in the payment of any of
its material obligations, and there exists no event, condition or act which
constitutes an event of default under Section 6 hereof and no condition, event
or act which with notice or lapse of time, or both, would constitute an event of
default.
3.8 ORGANIZATION. Borrower is duly organized and existing under the
laws of the state of its organization, and has the power and authority to carry
on the business in which it is engaged and/or proposes to engage.
3.9 POWER. Borrower has the power and authority to enter into this
Agreement and to execute and deliver the Note and all of the other Loan
Documents.
3.10 AUTHORIZATION. This Agreement and all things required by this
Agreement have been duly authorized by all requisite action of Borrower.
3.11 QUALIFICATION. Borrower is duly qualified and in good standing
in any jurisdiction where such qualification is required.
3.12 COMPLIANCE WITH LAWS. Borrower is not in violation with respect
to any applicable laws, rules, ordinances or regulations which materially affect
the operations or financial condition of Borrower.
3.13 ERISA. Any defined benefit pension plans as defined in the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), of
Borrower meet, as of the date hereof, the minimum funding standards of Section
302 of ERISA, and no Reportable Event or Prohibited Transaction as defined in
ERISA has occurred with respect to any such plan.
-3-
<PAGE>
3.14 REGULATION U. No action has been taken or is currently planned
by Borrower, or any agent acting on its behalf, which would cause this Agreement
or the Note to violate Regulation U or any other regulation of the Board of
Governors of the Federal Reserve System or to violate the Securities and
Exchange Act of 1934, in each case as in effect now or as the same may hereafter
be in effect. Borrower is not engaged in the business of extending credit for
the purpose of purchasing or carrying margin stock as one of its important
activities and none of the proceeds of the Loan will be used directly or
indirectly for such purpose.
3.15 CONTINUING REPRESENTATIONS. These representations shall be
considered to have been made again at and as of the date of each disbursement of
the Loan and shall be true and correct as of such date or dates.
SECTION 4. AFFIRMATIVE COVENANTS
Until the Note and all sums payable pursuant to this Agreement or any other
of the Loan Documents have been paid in full, unless Bank waives compliance in
writing, Borrower agrees that:
4.1 USE OF PROCEEDS. Borrower will use the proceeds of the Loan only
as provided in subsection 1.4 above.
4.2 PAYMENT OF OBLIGATIONS. Borrower will pay and discharge promptly
all taxes, assessments and other governmental charges and claims levied or
imposed upon it or its property, or any part thereof, provided, however, that
Borrower shall have the right in good faith to contest any such taxes,
assessments, charges or claims and, pending the outcome of such contest, to
delay or refuse payment thereof provided that adequately funded reserves are
established by it to pay and discharge any such taxes, assessments, charges and
claims.
4.3 MAINTENANCE OF EXISTENCE. Borrower will maintain and preserve
its existence and assets and all rights, franchises, licenses and other
authority necessary for the conduct of its business and will maintain and
preserve its property, equipment and facilities in good order, condition and
repair. Bank may, at reasonable times, visit and inspect any of the properties
of Borrower.
4.4 RECORDS. Borrower will keep and maintain full and accurate
accounts and records of its operations according to generally accepted
accounting principles and will permit Bank to have access thereto, to make
examination and photocopies thereof, and to make audits during regular business
hours. Costs for such audits shall be paid by Borrower.
4.5 INFORMATION FURNISHED. Borrower will furnish to Bank:
(a) Within Fifty (50) days after the close of each fiscal
quarter, except for the final quarter of each fiscal year, its unaudited
consolidated balance sheet as of the close of such fiscal quarter, its
unaudited consolidated income and expense statement with supportive schedules
and statement of retained earnings for that fiscal quarter, prepared in
accordance with generally accepted accounting principles;
(b) Within One Hundred Twenty (120) days after the close of
each fiscal year, a copy of its statement of financial condition including at
least its consolidated balance sheet as of the close of such fiscal year, its
consolidated income and expense statement and retained earnings statement for
such fiscal year, examined and prepared on an audited basis by independent
certified public accountants selected by Borrower and reasonably satisfactory
to Bank, in accordance with generally accepted accounting principles applied
on a basis consistent with that of the previous year;
(c) Such other financial statements and information as Bank may
reasonably request from time to time;
(d) In connection with each fiscal year-end statement required
hereunder, any management letter of Borrower's certified public accountants;
-4-
<PAGE>
(e) Prompt written notice to Bank of all events of default under
any of the terms or provisions of this Agreement or of any other agreement,
contract, document or instrument entered, or to be entered into with Bank; and
of any litigation which, if decided adversely to Borrower, would have a
material adverse effect on Borrower's financial condition; and of any other
matter which has resulted in, or is likely to result in, a material adverse
change in its financial condition or operations; and
(f) Prior written notice to Bank of any changes in Borrower's
officers and other senior management; Borrower's name; and location of
Borrower's assets, principal place of business or chief executive office.
4.6 QUICK RATIO. Borrower shall maintain at all times a ratio of
cash, accounts receivable and marketable securities to current liabilities of
not less than 1.75:1.0, as such terms are defined by generally accepted
accounting principles.
4.7 TANGIBLE NET WORTH. Borrower will at all times maintain
Tangible Net Worth of not less than Seventy Million Dollars ($70,000,000).
"Tangible Net Worth" shall mean net worth increased by indebtedness of
Borrower subordinated to Bank and decreased by patents, licenses, trademarks,
trade names, goodwill and other similar intangible assets, organizational
expenses, and monies due from affiliates (including officers, shareholders
and directors).
4.8 DEBT TO TANGIBLE NET WORTH. Borrower will at all times maintain
a ratio of total liabilities to tangible net worth of not greater than 1.0 :1.0.
4.9 PROFITABILITY. Borrower will maintain a net profit, after
provision for income taxes, of any positive amount for any consecutive twelve
month period, as reported at the end of each fiscal quarter.
4.10 INSURANCE. Borrower will keep all of its insurable property,
real, personal or mixed, insured by good and responsible companies against fire
and such other risks as are customarily insured against by companies conducting
similar business with respect to like properties. Borrower will maintain
adequate worker's compensation insurance and adequate insurance against
liability for damages to persons and property.
4.11 ADDITIONAL REQUIREMENTS. Borrower will promp tly, upon demand
by Bank, take such further action and execute all such additional documents and
instruments in connection with this Agreement as Bank in its reasonable
discretion deems necessary, and promptly supply Bank with such other information
concerning its affairs as Bank may request from time to time.
4.12 LITIGATION AND ATTORNEYS' FEES. Borrower will pay promptly to
Bank upon demand, reasonable attorneys' fees (including but not limited to the
reasonable estimate of the allocated costs and expenses of in-house legal
counsel and legal staff) and all costs and other expenses paid or incurred by
Bank in collecting, modifying or compromising the Loan or in enforcing or
exercising its rights or remedies created by, connected with or provided for in
this Agreement or any of the Loan Documents, whether or not an arbitration,
judicial action or other proceeding is commenced. If such proceeding is
commenced, only the prevailing party shall be entitled to attorneys' fees and
court costs.
4.13 BANK EXPENSES. Borrower will pay or reimburse Bank for all
costs, expenses and fees incurred by Bank in preparing and documenting this
Agreement and the Loan, and all amendments and modifications thereof, including
but not limited to all filing and recording fees, costs of appraisals, insurance
and attorneys' fees, including the reasonable estimate of the allocated costs
and expenses of in-house legal counsel and legal staff.
4.14 REPORTS UNDER PENSION PLANS. Borrower will furnish to Bank, as
soon as possible and in any event within 15 days after Borrower knows or has
reason to know that any event or condition with respect to any defined benefit
pension plans of Borrower described in Section 3 above has occurred, a statement
of an authorized officer of Borrower describing such event or condition and the
action, if any, which Borrower proposes to take with respect thereto.
-5-
<PAGE>
SECTION 5. NEGATIVE COVENANTS
Until the Note and all other sums payable pursuant to this Agreement or any
other of the Loan Documents have been paid in full, unless Bank waives
compliance in writing, Borrower agrees that:
5.1 ENCUMBRANCES AND LIENS. Borrower will not create, assume or
suffer to exist any mortgage, pledge, security interest, encumbrance, or lien
(other than for taxes not delinquent and for taxes and other items being
contested in good faith) on property of any kind, whether real, personal or
mixed, now owned or hereafter acquired, or upon the income or profits thereof,
except to Bank and except for minor encumbrances and easements on real property
which do not affect its market value, and except for existing liens on
Borrower's personal property and future purchase money security interests
encumbering only the personal property purchased.
5.2 BORROWINGS. Borrower will not sell, discount or otherwise
transfer any account receivable or any note, draft or other evidence of
indebtedness, except to Bank or except to a financial institution at face value
for deposit or collection purposes only and without any fee other than fees
normally charged by the financial institution for deposit or collection
services. Borrower will not borrow any money, become contingently liable to
borrow money, nor enter any agreement to directly or indirectly obtain borrowed
money, except pursuant to agreements made with Bank.
5.3 SALE OF ASSETS, LIQUIDATION OR MERGER. Borrower will neither
liquidate nor dissolve nor enter into any consolidation, merger, partnership or
other combination, nor convey, nor sell, nor lease all or the greater part of
its assets or business, nor purchase or lease all or the greater part of the
assets or business of another; provided, however, Borrower may acquire, merge or
consolidate with another corporation if Borrower is the surviving corporation
and the aggregate value of the assets so transferred does not exceed Ten Million
Dollars ($10,000,000) in any fiscal year and such assets will not be subject to
any lien or encumbrance following the effective date of such combination.
5.4 LOANS, ADVANCES AND GUARANTIES. Borrower will not, except in
the ordinary course of business as currently conducted, make any loans or
advances, become a guarantor or surety, pledge its credit or properties in
any manner or extend credit exceeding an aggregate of Five Million Dollars
($5,000,000) with the exception of loans, advances, and guaranties to support
Borrower's Japanese subsidiary, Gasonics International Japan K.K. and
hereafter created consolidated subsidiaries of Borrower.
5.5 INVESTMENTS. Borrower will not purchase the debt or equity of
another person or entity except for savings accounts and certificates of deposit
of Bank, direct U.S. Government obligations and commercial paper issued by
corporations with the top ratings of Moody's or Standard & Poor's, provided all
such permitted investments shall mature within one year of purchase.
5.6 PAYMENT OF DIVIDENDS. Borrower will not declare or pay any
dividends, other than a dividend payable in its own common stock, or authorize
or make any other distribution with respect to any of its stock now or hereafter
outstanding.
5.7 RETIREMENT OF STOCK. Borrower will not acquire or retire any
share of its capital stock for value.
5.8 PARENT AND SUBSIDIARY PROPERTY. Borrower will not transfer any
property to its parent or any affiliate of its parent, except for value received
in the normal course of business as business would be conducted with an
unrelated or unaffiliated entity. In no event shall management fees or fees for
services be paid by Borrower to any such direct or indirect affiliate without
Bank's prior written approval.
-6-
<PAGE>
SECTION 6. EVENTS OF DEFAULT
The occurrence of any of the following events ("Events of Default") shall
terminate any obligation on the part of Bank to make or continue the Loan and
automatically, unless otherwise provided under the Note, shall make all sums of
interest and principal and any other amounts owing under the Loan immediately
due and payable, without notice of default, presentment or demand for payment,
protest or notice of nonpayment or dishonor, or any other notices or demands:
6.1 Borrower shall default in the due and punctual payment of the
principal of or the interest on the Note or any of the other Loan Documents; or
6.2 Any default shall occur under the Note; or
6.3 Borrower shall default in the due performance or observance of
any covenant or condition of the Loan Documents;
6.4 Any guaranty or subordination agreement required hereunder is
breached or becomes ineffective, or any Guarantor or subordinating creditor
dies, disavows or attempts to revoke or terminate such guaranty or subordination
agreement; or
6.5 There is a change in ownership or control of ten percent (10%) or
more of the issued and outstanding stock of Borrower.
SECTION 7. MISCELLANEOUS PROVISIONS
7.1 ADDITIONAL REMEDIES. The rights, powers and remedies given to
Bank hereunder shall be cumulative and not alternative and shall be in addition
to all rights, powers and remedies given to Bank by law against Borrower or any
other person, including but not limited to Bank's rights of setoff or banker's
lien.
7.2 NONWAIVER. Any forbearance or failure or delay by Bank in
exercising any right, power or remedy hereunder shall not be deemed a waiver
thereof and any single or partial exercise of any right, power or remedy shall
not preclude the further exercise thereof. No waiver shall be effective unless
it is in writing and signed by an officer of Bank.
7.3 INUREMENT. The benefits of this Agreement shall inure to the
successors and assigns of Bank and the permitted successors and assignees of
Borrower, and any assignment of Borrower without Bank's consent shall be null
and void.
7.4 APPLICABLE LAW. This Agreement and all other agreements and
instruments required by Bank in connection therewith shall be governed by and
construed according to the laws of the State of California.
7.5 SEVERABILITY. Should any one or more provisions of this
Agreement be determined to be illegal or unenforceable, all other provisions
nevertheless shall be effective.
7.6 INTEGRATION CLAUSE. Except for documents and instruments
specifically referenced herein, this Agreement constitutes the entire agreement
between Bank and Borrower regarding the Loan and all prior communications verbal
or written between Borrower and Bank shall be of no further effect or
evidentiary value.
7.7 CONSTRUCTION. The section and subsection headings herein are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
7.8 AMENDMENTS. This Agreement may be amended only in writing signed
by all parties hereto.
-7-
<PAGE>
7.9 COUNTERPARTS. Borrower and Bank may execute one or more
counterparts to this Agreement, each of which shall be deemed an original.
SECTION 8. SERVICE OF NOTICES
8.1 Any notices or other communications provided for or allowed
hereunder shall be effective only when given by one of the following methods and
addressed to the respective party at its address given with the signatures at
the end of this Agreement and shall be considered to have been validly given:
(a) upon delivery, if delivered personally; (b) upon receipt, if mailed, first
class postage prepaid, with the United States Postal Service; (c) on the next
business day, if sent by overnight courier service of recognized standing; and
(d) upon telephoned confirmation of receipt, if telecopied.
8.2 The addresses to which notices or demands are to be given may be
changed from time to time by notice delivered as provided above.
THIS AGREEMENT is executed on behalf of the parties by duly authorized
officers as of the date first above written.
UNION BANK
By: Allan Miner
Title Vice President /s/ Allan Miner
--------------------------------------
By: Kelly Takahashi
Title Vice President /s/ Kelly D. Takahashi
--------------------------------------
San Francisco, CA 94104-1402
Attention: Kelly D. Takahashi
Telecopier: (415) 705-7111
Telephone: (415) 705-7098
GASONICS INTERNATIONAL CORPORATION
By: Terry Gibson
Title Chief Financial Officer /S/ Terry R. Gibson
------------------------------------------------------
By: Dave Toole
Title President /s/ Dave Toole
-------------------------------
Address: 2730 Junction Avenue
San Jose, CA 95134
Attention: Jerald P. Shaevitz
Telecopier: (408) 325-6691
Telephone: (408) 325-1222
<PAGE>
March 3, 1998
Mr. Asuri Raghavan
14 Charter Circle
Doylestown, Pennsylvania 18901
Dear Asuri,
I am very pleased to extend GaSonics International's offer to you to join
our organization. The following is our offer to you:
1) The position of President and Chief Executive Officer.
2) Your base salary will be $300,000 annually ($25,000 monthly) less all
applicable withholding.
3) You will be eligible to receive an Executive Incentive payment (which at
target would equal 70% of your base salary) upon achievement of specific
individual and/or corporate goals. Your participation will be pro-rated
for the balance of FY'98.
4) You have the choice of one of the following option grants upon commencement
of employment:
- A stock option for 300,000 shares of common stock with an exercise
price per share equal to the closing selling price on the date you
commence employment. This option will vest over a four (4) year
period and will have a maximum term of 10 years, subject to earlier
termination upon your termination of employment with GaSonics
International. 25% of the option shares shall become exercisable upon
completion of one year of service. The options will become
exercisable for the balance of the shares in 36 successive equal
monthly installments upon completion of each additional month of
service over the succeeding three (3) years. You will be eligible to
receive a replenishment grant in April/May 1999.
- A stock option for 350,000 shares of common stock with an exercise
price per share equal to the closing selling price on the date you
commence employment. This option will vest over a five (5) year
period and will have a maximum term of ten (10) years, subject to
earlier termination upon your termination of employment with GaSonics
International. 20% of the option shares shall become exercisable upon
completion of one (1) year of service. The options will become
exercisable for the balance of the shares in 48 successive equal
monthly installments upon completion of each additional month of
service over the succeeding four (4) years. You will be eligible to
receive a replenishment grant in April/May 2000.
<PAGE>
Mr. Asuri Raghavan
March 3, 1998
Page 2
5) GaSonics International will pay all reasonable and necessary costs (grossed
up) of relocating you and your family to California including selling
commissions and closing costs of the new residence. Temporary housing in
California will be provided up to six (6) months. Additionally, GaSonics
International will provide you with round-trip airfare to return to
Pennsylvania every two weeks during this period.
6) GaSonics International will loan you $250,000 on an interest free-basis,
and you will be required to execute a promissory note for such loan. Upon
your completion of each year of service with GaSonics International over
the four-year period measured from the commencement date of your
employment, one-fourth of the principal balance of the note will be
forgiven, and you will receive a special bonus payment at that time in an
amount sufficient to cover the federal and state income tax liability you
incur by reason of (i) the forgiveness of such principal amount, (ii) the
compensation income you must recognize for the year under Internal Revenue
Code Section 7872 because of the interest-free nature of the loan and (iii)
the bonus payment itself, with the net result that you will incur no
out-of-pocket cost for the forgiven principal and the imputed compensation
income for the year. However, should you voluntarily leave GaSonics
International's employ or should you be terminated for cause (as hereafter
defined) prior to the fourth anniversary of the commencement date of your
employment, then the remaining unpaid principal balance of your note will
become immediately due and payable, without any bonus payment due from
GaSonics International with respect to such unpaid balance, and your note
will bear interest at the minimum rate required under the federal tax laws
until paid. Should any of the following events occur before the fourth
anniversary of the commencement date of your employment, the unpaid balance
of your note will automatically be forgiven, and you will become entitled
to the special bonus payment described above with respect to the forgiven
principal and any imputed compensation income for the year of such
forgiveness: (i) your employment is terminated without cause or (ii) you
resign for good reason (as such term in hereafter defined) within twelve
(12) months after a change in control (as defined below).
7) You will receive a signing bonus of $77,000 less all applicable withholding
upon commencement of employment.
8) In the event that your employment is terminated in the absence of a Change
of Control, GaSonics International will provide the following severance,
which includes salary continuation and continued stock option vesting.
In case of:
<PAGE>
Mr. Asuri Raghavan
March 3, 1998
Page 3
- Termination without cause within the first 18 months: two (2) years
salary continuation payments, and continued option vesting.
- Termination without cause after the first 18 months: Severance "if
any," will be provided at the sole discretion of GaSonics
International's Board of Directors. In no case will severance be paid
or any continued option vesting occur, if you are terminated for
cause.
9) In the event your employment is terminated or you resign for good reason,
other than for cause, following Change of Control of the GaSonics
International you will receive two (2) years salary continuation and
continued option vesting.
10) All salary continuation payments under paragraph 8 or 9 will be made at
biweekly intervals, subject to applicable withholdings.
11) You will receive an executive car allowance of $650.00 per month.
12) You will be eligible to participate in GaSonics International's Deferred
Compensation Plan.
For purposes of the letter agreement, the following special provisions will
be in effect. A "change in control" will be deemed to occur in the event
GaSonics International is acquired pursuant to a Corporate Transaction, as that
term is defined in GaSonics International's 1994 Stock Option/Stock Issuance
Plan, or in the event there is any other change in ownership or control of
GaSonics International which qualifies as a Change in Control within the meaning
of that term under the 1994 Stock Option/Stock Issuance Plan. Your employment
will be deemed to have been terminated for "cause" if such termination is
attributable to any one of the following: misconduct, including but not limited
to, fraud, embezzlement, misappropriation of GaSonics International proprietary
information or trade secrets, breach of fiduciary duty, neglect of duties, or
any other act or omission that may have a material adverse effect on GaSonics
International or its business operation. You will be deemed to have resigned
for "good reason" if you resign for any of the following reasons within twelve
(12) months after a change in control: (a) a change in your position with
GaSonics International which materially reduces your duties and responsibilities
or the level of management to which you report, (b) a reduction in your level of
compensation (including base salary, fringe benefits and target bonus under any
corporate-performance based bonus or incentive programs) by more than fifteen
percent (15%) or (c) a relocation of your place of employment by more than fifty
(50) miles, provided and only if such change, reduction or relocation is
effected without your consent.
Upon accepting this offer, you will receive the standard GaSonics
International benefits package. Benefit coverage will commence on your date of
hire. Verification of
<PAGE>
Mr. Asuri Raghavan
March 3, 1998
Page 4
your citizenship or right to work in the United States is required, and you will
need to provide proof of this on your first day of employment. Benefits
Orientation will be conducted on your first day of employment at 8:00 am in
Building One, 2730 Junction Avenue.
Employment with GaSonics International is for no specified period of time.
As a result, either you or GaSonics International are free to terminate your
employment relationship at any time for any reason, with or without cause. This
is the full and complete agreement between us on this term. Although your job
duties, title, compensation and benefits, as well as GaSonics International's
personnel policies and procedures may change from time to time, the "at-will"
nature of your employment may only be changed in an express writing signed by
you and the Chairman of the Board.
To indicate your concurrence and acceptance, please sign one copy of this
letter and return it to my attention by March 9, 1998.
Rags, we are delighted that you will be joining GaSonics International. We
believe you bring the skills to help continue to build our solid reputation in
the industry. We look forward to working with you in developing our potential.
Sincerely,
Dave Toole
President, CEO
GaSonics International
Agreed and Accepted:
------------------------- ---------------
Name Date
Employment Start Date:
-------------------------
Date
<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 3 AND 4 OF THE COMPANY'S FORM 10Q FOR THE YEAR-TO-DATE AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 14022
<SECURITIES> 14613
<RECEIVABLES> 22697
<ALLOWANCES> 780
<INVENTORY> 29650
<CURRENT-ASSETS> 89107
<PP&E> 23219
<DEPRECIATION> 8377
<TOTAL-ASSETS> 105403
<CURRENT-LIABILITIES> 22545
<BONDS> 0
0
0
<COMMON> 605
<OTHER-SE> 81941
<TOTAL-LIABILITY-AND-EQUITY> 105403
<SALES> 60467
<TOTAL-REVENUES> 60467
<CGS> 32343
<TOTAL-COSTS> 32343
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 30
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2237
<EPS-PRIMARY> .16
<EPS-DILUTED> .15
</TABLE>
