<PAGE>
As filed with the Securities and Exchange Commission on May 18, 2000
Registration No. 333-34418
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
GASONICS INTERNATIONAL CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
---------------
<TABLE>
<S> <C> <C>
Delaware 3559 94-2159729
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
2730 Junction Avenue
San Jose, California 95134
(408) 570-7000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------
Asuri Raghavan
Chief Executive Officer
GASONICS INTERNATIONAL CORPORATION
2730 Junction Avenue
San Jose, California 95134
(408) 570-7000
(Name, address, including zip code, and telephone number, including area code,
of agent for service of process)
---------------
Copies to:
<TABLE>
<S> <C>
Timothy R. Curry, Esq. John Campbell, Esq.
Jonathan P. Shanberge, Esq. Matt Crowley, Esq.
Colby R. Gartin, Esq. Melissa L. Mong, Esq.
Traci Fernandez, Esq. Brian Bills, Esq.
Brobeck, Phleger & Harrison LLP Morrison & Foerster LLP
Two Embarcadero Place 425 Market Street
2200 Geng Road San Francisco, CA 94105
Palo Alto, CA 94303 (415) 268-7000
(650) 424-0160
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration
Statement.
---------------
If the only securities being registered on this form are being offered
pursuant to a dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_] ____________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that the Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities, and we are not soliciting offers to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Prospectus (Not Complete)
Issued May 18, 2000
3,300,000 Shares
[GASONICS INTERNATIONAL CORPORATION LOGO APPEARS HERE]
Common Stock
-----------
GaSonics International Corporation is offering 2,800,000 shares of common
stock and the selling stockholders are offering 500,000 shares of common stock
in a firmly underwritten offering. We will not receive any of the proceeds from
the sale of shares by the selling stockholders.
-----------
Our common stock is traded on the Nasdaq National Market under the symbol
"GSNX." The last reported sale price of our common stock on the Nasdaq National
Market on May 16, 2000 was $29.13 per share.
-----------
Investing in our common stock involves a high degree of risk. See "Risk
Factors" beginning on page 7.
-----------
<TABLE>
<CAPTION>
Per Share Total
------------ ------------
<S> <C> <C>
Offering Price....................................... $ $
Discounts and Commissions to Underwriters............ $ $
Offering Proceeds to GaSonics........................ $ $
Offering Proceeds to the Selling Stockholders........ $ $
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
We have granted the underwriters the right to purchase up to an additional
495,000 shares from us and the selling stockholders to cover any over-
allotments. The underwriters can exercise this right at any time within thirty
days after the offering. Banc of America Securities LLC expects to deliver the
shares of common stock to investors on , 2000.
Banc of America Securities LLC
CIBC World Markets
Robertson Stephens
-----------
The date of this prospectus is , 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Forward-Looking Statements............................................... 17
Use of Proceeds.......................................................... 17
Price Range of Our Common Stock.......................................... 18
Dividend Policy.......................................................... 18
Capitalization........................................................... 19
Selected Consolidated Financial Data..................................... 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Business................................................................. 30
Management............................................................... 38
Principal and Selling Stockholders....................................... 40
Underwriting............................................................. 42
Legal Matters............................................................ 44
Experts.................................................................. 44
Where You Can Find More Information...................................... 44
Index to Consolidated Financial Statements............................... F-1
</TABLE>
You should rely only upon the information contained in this prospectus. We
have not, and the underwriters have not, authorized anyone to provide you with
information different from that contained in this prospectus. We are not, and
the underwriters are not, offering to sell these securities in any jurisdiction
where offers and sales are not permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless of
the time of delivery of this prospectus or of any sale of common stock.
Information contained in our web site does not constitute part of this
prospectus.
GaSonics(R) is our registered trademark. Integrated Clean, Performance
Enhancement Platform and Iridia are our trademarks. This prospectus also
includes trademarks of other companies.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights certain information contained elsewhere in this
prospectus. This summary is not complete and does not contain all of the
information that you should consider before investing in our common stock. You
should read the following summary together with the more detailed information
regarding our company and the common stock being sold in this offering,
especially the risks of investing in our common stock discussed under the
caption "Risk Factors" and our consolidated financial statements and the
related notes appearing elsewhere in this prospectus. The terms "we," "us,"
"our" and "GaSonics" mean GaSonics International Corporation and its
subsidiaries. Unless otherwise indicated, all information in this prospectus
assumes that the underwriters do not exercise their over-allotment option.
GaSonics International Corporation
We are a leading developer and global supplier of photoresist removal and
Integrated Clean solutions used in advanced semiconductor device manufacturing.
Our versatile Integrated Clean solutions, which combine photoresist removal and
residue removal technologies within a single platform, allow our customers to
integrate manufacturing process steps, increasing their yields and throughput.
We also provide low pressure chemical vapor deposition, or LPCVD, systems for
the flat panel display, or FPD, industry. We market and sell our products to
leading semiconductor device and FPD manufacturers worldwide, including 15 of
the top 20 semiconductor device manufacturers.
Growth in the communications industry, particularly in the Internet and
mobile electronic device markets, as well as in the traditional markets for
semiconductors, such as computers, automobiles and other consumer and
industrial products, has driven an increase in the demand for semiconductors,
and consequently semiconductor capital equipment. According to Dataquest, the
semiconductor industry is expected to grow at an annual rate of 22.5%, from
$168.7 billion in 1999 to $253.3 billion in 2001. Dataquest also estimates that
the semiconductor capital equipment market is expected to grow at an annual
rate of 39.6%, from $17.5 billion in 1999 to $34.0 billion in 2001.
The manufacturing of semiconductor devices requires a large number of
complex and repetitive processing steps to layer different materials and
imprint various features on a single wafer. Photoresist removal and residue
removal are used to clean the wafer between these processing steps. As
semiconductor devices are becoming more advanced, there are a number of trends
increasing the demand for complex photoresist removal and residue removal
solutions, which include the following:
. manufacturing these advanced semiconductor devices requires an increasing
number of photolithographic masking layers and corresponding photoresist
removal and residue removal steps;
. line geometries, or feature sizes, of semiconductor devices continue to
decrease, increasing the complexity and difficulty of photoresist removal
and residue removal; and
. new processes and materials, including dual damascene, copper and low-k
dielectrics, are complicating preparation of the wafer surface and
therefore complicating photoresist removal and residue removal for
subsequent masking steps.
As a result, we believe the market for cleaning solutions will grow more
rapidly than the semiconductor industry and the semiconductor capital equipment
industry.
Our photoresist removal systems use our innovative microwave downstream
plasma technology, which is designed to increase yields in the manufacturing of
semiconductor devices. This technology offers our customers significant
advantages over traditional techniques by reducing the damage that typically
occurs to the wafer in the photoresist removal processes, thus increasing
yields and reducing cost of ownership. Moreover, our technologically advanced
systems offer a high degree of flexibility, reliability and serviceability.
3
<PAGE>
Our Integrated Clean systems use our microwave downstream plasma technology
in concert with directional RF plasma technology to remove photoresist and more
difficult to remove residues. These systems allow our customers to achieve
greater fab efficiency and reduced costs by simplifying process flows. In
addition, these systems provide industry leading technology for the complex
cleaning requirements associated with smaller feature sizes as well as new
processes and materials, such as dual damascene, copper and low-k dielectrics.
To further address these new requirements, we have recently entered into joint
development agreements with a number of customers and semiconductor equipment
manufacturers, such as our recently announced participation in the Damascus
Alliance.
Our objective is to be the leading supplier of photoresist removal and
Integrated Clean solutions for the advanced semiconductor manufacturing
industry. Key elements of our strategy include:
. expanding leadership in Integrated Clean solutions;
. providing versatile processing systems;
. extending technological expertise;
. enhancing strategic customer relationships; and
. further penetrating the Pacific Rim market.
Our global infrastructure, developed over our 29-year history in the
semiconductor capital equipment industry, includes sales, service and
applications personnel, as well as spare part depots, in all of the major
semiconductor producing regions in the world.
Recent Operating Results
For the second fiscal quarter ended March 31, 2000, total net sales were
$33.7 million and net income was $3.6 million. As a result, net sales increased
31.6% when compared to the prior quarter and 155.0% when compared to the same
quarter last fiscal year. Increased demand across most geographies and product
lines, including our Integrated Clean Systems, was the principal reason for the
net sales increase. Net income increased $2.3 million versus the prior quarter
and $9.6 million versus the same quarter last fiscal year.
Total net sales to our customers in North America, Europe, Asia Pacific and
Japan, accounted for approximately 48%, 16%, 27% and 9%, respectively, of total
net sales for the second fiscal quarter ended March 31, 2000. These percentages
compare to approximately 62%, 22%, 13% and 3%, respectively, of total net sales
for these regions for the prior quarter.
Both gross margin and operating income improved as well. Gross margin for
the quarter, at 44.3%, was up slightly from the prior quarter, and up from
34.5% for the same quarter last fiscal year. Operating income improved to $3.5
million for the quarter, increasing $2.5 million versus the prior quarter and
$9.7 million from the same quarter last fiscal year.
Recent Events
We have filed a proxy statement with the SEC in connection with a special
meeting of stockholders to be held on July 17, 2000 at which the stockholders
are being asked to approve an amendment to our certificate of incorporation to
increase the authorized shares of common stock from 20,000,000 to 60,000,000
shares.
Additional Information
Our principal executive offices are located at 2730 Junction Avenue, San
Jose, California 95134. Our telephone number is (408) 570-7000.
4
<PAGE>
The Offering
Common stock offered by GaSonics.......... 2,800,000 shares
Common stock offered by the selling
stockholders.............................. 500,000 shares
Common stock to be outstanding after the
offering.................................. 17,479,907 shares
Use of proceeds........................... We will use the net proceeds from
the offering for working capital
and general corporate purposes. We
may use a portion of the net
proceeds to acquire complementary
assets, technologies and
businesses.
Nasdaq National Market symbol............. "GSNX"
- --------
The number of shares of our common stock outstanding after the offering is
based upon 14,679,907 shares of common stock outstanding as of February 29,
2000 and does not include the following:
. 1,951,137 shares of common stock subject to outstanding options as of
February 29, 2000 at a weighted average exercise price of $9.73 per
share;
. 738,896 additional shares reserved for future issuance under our 1994
Stock Option Plan; and
. 219,740 additional shares reserved for future issuance under our 1994
Employee Stock Purchase Plan.
In no event, however, shall our total number of outstanding shares of common
stock plus our total number of shares of common stock subject to outstanding
options exceed our total number of authorized shares of common stock.
5
<PAGE>
Summary Consolidated Financial Data
The following table presents our summary consolidated financial data as of
and for the periods indicated. The summary consolidated balance sheet data as
of December 31, 1999 is presented on an actual basis and as adjusted to reflect
the sale of 2,800,000 shares of common stock offered by us in this offering at
an assumed public offering price of $29.13 per share and after deducting the
estimated underwriting discounts and commissions and offering expenses and
giving effect to the application of the net proceeds.
<TABLE>
<CAPTION>
Three Months
Ended December
Fiscal Years Ended September 30, 31,
--------------------------------------------- ----------------
1995 1996 1997 1998 1999 1998 1999
-------- -------- -------- -------- -------- ------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Net sales............... $102,047 $127,043 $121,256 $100,430 $ 64,279 $10,022 $25,603
Gross margin............ 57,930 62,626 53,964 41,304 24,385 2,152 11,310
Operating income
(loss)................. 19,942 12,370 2,780 (9,597) (15,357) (7,194) 1,029
Net income (loss)....... 16,126 8,930 3,007 (5,713) (14,082) (6,879) 1,338
Net income (loss) per
share:
Basic................. $ 1.26 $ 0.67 $ 0.22 $ (0.41) $ (0.98) $ (0.49) $ 0.09
Diluted............... $ 1.23 $ 0.65 $ 0.21 $ (0.41) $ (0.98) $ (0.49) $ 0.09
Shares used in the
computation of net
income (loss) per
share:
Basic................. 12,798 13,328 13,635 14,039 14,316 14,172 14,659
Diluted............... 13,111 13,738 14,209 14,039 14,316 14,172 15,258
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1999
------------------------
Actual As Adjusted
----------- ------------
(In thousands)
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents and marketable securities... $ 27,456 $ 104,063
Working capital....................................... 52,715 129,322
Total assets.......................................... 87,079 163,686
Total stockholders' equity............................ 64,083 140,690
</TABLE>
6
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. Our business, financial condition and results of
operations could be harmed by any of these risks. In addition, the trading
price of our common stock could decline due to any of these risks, and you may
lose all or part of your investment. This prospectus also contains forward-
looking statements that involve risks and uncertainties. Our actual results
could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including the risks faced by us
described below and elsewhere in this prospectus.
Risks Related to Our Business
Our operating results could fluctuate, which may cause our stock price to
decline.
Our operating results have fluctuated significantly in the past, and we
expect that results will continue to fluctuate significantly in the future for
a number of reasons, including:
. the cyclicality of the semiconductor industry;
. changes in pricing by us, competitors, customers or suppliers;
. inventory obsolescence;
. accounts receivable write-offs;
. product mix;
. the timing of new product announcements and releases by us or our
competitors;
. delays, cancellations or rescheduling of customer orders;
. our ability to produce systems in volume and meet customer requirements;
. the ability of any customer to finance purchases of our equipment;
. procedures and controls;
. changes in overhead absorption levels due to changes in the number of
systems manufactured; and
. lengthy sales cycles.
Fluctuations in our operating results may adversely impact our stock price.
Furthermore, if these factors are not adequately addressed, they may harm our
business.
Cyclicality in the semiconductor device industry could harm our operating
results.
Our operating results have varied, and may vary in the future, due to the
cyclical nature of the semiconductor device industry. Downturns in the
semiconductor device industry will likely lead to proportionately greater
downturns in our revenues. Our business depends upon the capital expenditures
of semiconductor device manufacturers, which, in turn, depend upon the current
and anticipated market demand for semiconductors and products using
semiconductors. The semiconductor device industry is cyclical and has
historically experienced periodic downturns, which have often resulted in
substantial decreases in demand for semiconductor capital equipment, including
photoresist removal and residue removal equipment. There is typically a six to
twelve month lag between a change in the economic condition of the
semiconductor device industry and the resulting change in the level of capital
expenditures by semiconductor device manufacturers. In most cases, the
resulting decrease in capital expenditures has been more pronounced than the
precipitating downturn in semiconductor device industry revenues. The
semiconductor device industry experienced downturns in 1998 and 1996, during
which industry revenues declined by an estimated 8.4% and 8.6% as reported by
World Semiconductor Trade Statistics, Inc. During these periods, we experienced
significant cancellations and delays of new orders and rescheduling of existing
orders, which harmed our financial results.
7
<PAGE>
The semiconductor device industry may experience severe and prolonged
downturns in the future. Future downturns in the semiconductor device industry,
or any failure of that industry to fully recover from its recent downturn, will
seriously harm our business, financial condition and results of operations.
Our quarterly results may fluctuate, which may harm our business.
In the past, we have experienced fluctuations in our quarterly results and
fluctuations may continue in the future. Specifically, our quarterly net sales
and operating results have in the past, and will in the future, depend upon
obtaining orders and shipping systems in the same quarter. Backlog at the
beginning of a quarter typically does not include all orders required to
achieve our sales objectives for that quarter. In addition, orders in backlog
are subject to cancellations or reschedulings by customers with limited or no
penalties. We cannot forecast the timing of these occurrences or their impact
on our sales and operating results. We have experienced and will continue to
experience cancellations and rescheduling of orders. Consequently, backlog at
any particular date is not necessarily representative of actual sales expected
for the succeeding period. Our business for a particular quarter may also be
harmed if an anticipated order is not received in time to permit shipment
during the same quarter.
Moreover, our quarterly results fluctuate because a substantial portion of
our revenues is derived from the sale of our systems, which typically range in
price from approximately $150,000 to $2.0 million or more. As a result,
operating results for a particular quarter could be significantly impacted by
the timing of a single transaction.
Furthermore, significant investments in research and development, capital
equipment and customer service and support capability worldwide have resulted
in significant fixed costs, which we have not been and will not be able to
reduce rapidly if sales goals for a particular period are not met. As a result,
a delay in generating or recognizing revenue for any reason could cause
significant variations in our operating results from quarter to quarter and
could result in greater than expected operating losses. Also, because we
manufacture our systems according to forecast, a reduction in customer orders
or backlog could lead to excess inventory and possible inventory obsolescence,
increasing costs and reducing margins that could harm our business, financial
condition and results of operations.
Our gross margins may fluctuate, which may harm our business.
Historically, our gross margins have varied significantly, and we expect
that our gross margins will continue to vary based on a variety of factors,
including:
. sales mix and average selling prices of our systems;
. price-based competition;
. mix of revenues, including spare parts, service and support revenues;
. costs associated with new product introductions and enhancements;
. configuration and installation costs;
. delays, cancellations or rescheduling of customer orders;
. underabsorption of manufacturing overhead and field service and support
infrastructure; and
. start-up inefficiencies associated with new products.
If the factors causing fluctuations are not adequately addressed, they may
harm our business and adversely impact our stock price.
8
<PAGE>
If we do not continually improve our systems in response to rapid technological
changes, we would encounter a decline in sales or a loss of market acceptance.
The semiconductor manufacturing industry is characterized by rapid
technological change resulting in new product introductions and enhancements.
Failure to keep pace with technological developments in the semiconductor
manufacturing industry, to translate technological development into systems and
products on a timely and cost-effective basis, or to develop a sufficient
volume of manufacturing for new products would significantly harm our business.
Furthermore, new product introductions or enhancements and new technologies
developed by our competitors could result in a decline in our sales and loss of
market acceptance of our existing products.
Our success in developing, introducing and selling new and enhanced systems
depends upon a variety of factors, including:
. product selection relative to the technological and commercial needs of
the industry;
. timely and efficient completion of product design and development;
. timely and efficient execution of the manufacturing and assembly
processes;
. effective sales and marketing; and
. product performance and reliability in the field.
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 semiconductor devices under development by leading semiconductor device
manufacturers and the equipment required to produce semiconductor devices. We
may not be successful in selecting, developing, manufacturing and marketing new
products or enhancing our existing products. If we are unable to offer these
products in a competitive manner, our business will be harmed.
Additionally, our future performance depends, in part, on the successful
commercialization of our low pressure chemical vapor deposition, or LPCVD,
systems and 300mm systems. However, these products may not lead to significant
revenues or enhance our profitability.
A limited number of our customers account for a significant portion of our net
sales, and the loss of, or reduction in orders from, a major customer could
harm our business.
We sell a significant proportion of our systems to a limited number of
customers. Sales to our ten largest customers accounted for approximately 69%
of our net sales in fiscal 1999, 64% in fiscal 1998 and 66% in fiscal 1997. In
fiscal 1999, Intel accounted for greater than 10% of net sales. In fiscal 1998,
Intel and Motorola each accounted for more than 10% of net sales. In fiscal
1997, Samsung, Promos Technologies and Intel each accounted for more than 10%
of net sales. We expect that a high percentage of our net sales will continue
to come from a limited number of customers.
We have no long-term purchase agreements with our customers. If we lose a
significant customer, our sales could decline and our business will be harmed.
In addition, if sales to some customers decrease or those customers complete or
delay purchasing requirements for new or expanded fabrication facilities, our
business could be harmed. For example, Intel has recently announced a decision
to diversify its supplier base and may decrease its purchases from us in the
future.
Our long and variable sales cycle depends on many factors outside of our
control and could cause us to expend significant time and resources prior to
earning associated revenues.
Sales of our systems depend, in part, upon the decision of prospective
customers to increase manufacturing capacity by expanding existing
manufacturing facilities or building new facilities. Because facilitization of
these plants requires significant capital commitment, equipment qualification
and equipment installation, we
9
<PAGE>
often experience delays in finalizing these sales following initial system
qualification. Due to these and other factors, our systems typically have a
lengthy and variable sales cycle during which we may expend substantial funds
and management effort to secure final sale and installation of our products.
The length of the sales cycle may increase if customers centralize
purchasing decisions or if they delay purchase decisions in periods of industry
downturns. The lengthy sales cycles may also intensify the evaluation process,
which may increase sales and marketing expenditures, exposing us to risks,
including obsolescence, fluctuations and the resulting difficulties in
forecasting operating results.
The complexity of our systems may result in a significant delay between the
initial introduction of our systems and the commencement of volume production.
The large number of components in, and the complexity of, our systems can
lead to significant delays between the initial introduction of our systems and
the commencement of volume production. As is typical in the semiconductor
capital equipment market, we experience occasional delays in the introduction
of some of our systems and enhancements, and we may continue to experience
delays in the future. We have experienced and will continue to experience
technical, quality and manufacturing difficulties with some of our systems and
enhancements. Any delay in the introduction of our systems could cause us to
lose revenue, incur substantial expenses and harm our reputation. In addition,
if new products have reliability or quality problems, our operating results
will be harmed because of additional expenses, such as service and warranty
expenses.
Our operations are characterized by the need for continued investment in
research and development and, as a result, our ability to reduce costs is
limited.
Our operations are characterized by the need for continued investment in
research and development. If our revenues are below expectations, our operating
results could be harmed because our ability to reduce these costs while
remaining competitive is limited. In addition, because of our emphasis on
research and development and technological innovation, there can be no
assurance that our operating costs will not increase in the future. We expect
the level of research and development expenses to increase in the near future
in absolute dollar terms.
The semiconductor capital equipment industry is intensely competitive, which
could impair sales of our products and harm our revenues and results of
operations.
We operate in the highly competitive semiconductor capital equipment
industry and face competition from a number of companies, including Eaton
Corporation, Mattson Technology, Plasma Systems and ULVAC, some of which have
greater financial, engineering, manufacturing, marketing and customer support
resources and broader product offerings than we do. As a result, our
competitors may be able to respond more quickly to new or emerging technologies
or market developments by devoting greater resources to the development,
promotion and sale of products, which could impair sales of our products.
Moreover, there has been significant merger and acquisition activity among our
competitors and potential competitors, particularly during the recent downturn
in the semiconductor device and semiconductor capital equipment industries.
These transactions by our competitors and potential competitors may provide
them with a competitive advantage over us by enabling them to rapidly expand
their product offerings and service capabilities to meet a broader range of
customer needs. Many of our customers and potential customers in the
semiconductor device manufacturing industry are large companies that require
global support and service for their semiconductor capital equipment. While we
believe that our global support and service infrastructure is sufficient to
meet the needs of our current customers, future or existing competitors may
have more extensive infrastructures than we do, or better infrastructures in
particular geographic regions, which could place us at a disadvantage when
competing for the business of global semiconductor device manufacturers.
In addition, because we rely on sales of our dry chemistry processing
equipment, we may be at a disadvantage to some competitors that offer more
diversified product lines. We believe that we will continue to face competition
from current and new suppliers employing other technologies, such as wet
chemistry,
10
<PAGE>
traditional dry chemistry and other techniques, as those competitors attempt to
extend the capabilities of their existing products.
Furthermore, many of our competitors invest heavily in the development of
new systems that will compete directly with ours. We expect our competitors in
each product area to continue to improve the design and performance of their
products and to introduce new products with competitive prices and performance
characteristics. Our systems may not be able compete successfully with those of
our competitors. Increased competitive pressure has led and may continue to
lead to reduced demand and lower prices for some of our products, which could
harm our business.
Competitors of our LCD division in Japan include Japan-based companies and
Japan-based joint ventures who manufacture alternative technologies and are
well established in Japan. At any time they could enter our markets with
improved technologies or with systems that directly compete with our LCD
division.
Our future depends on our ability to further penetrate the Asia/Pacific market,
which consists of Japan, Korea, Singapore and Taiwan.
In 1999, the Asia/Pacific market represented 26% of our revenue while the
Asia/Pacific market represents 57% of the worldwide semiconductor capital
equipment industry. Some of our competitors have products that are targeted to
address the need for low-cost, high-throughput equipment found in Taiwan
foundries. Some of our competitors also have well entrenched positions in these
markets as a result of long personal relationships, robust infrastructures and
experienced management teams. We may not be able to displace our entrenched
competitors. As a result, our market share and overall global competitive
position may be harmed, and the future growth of our business may be limited.
Our efforts to further penetrate these increasingly important Pacific Rim
markets may not be successful.
We are dependent on international sales and subject to the risks of
international business.
International sales accounted for 46% of our total net sales in fiscal 1999,
45% in fiscal 1998 and 55% in fiscal 1997. As a result of our expanded
international operations, we anticipate that international sales will continue
to account for a significant portion of our total net sales in the foreseeable
future. These international sales will continue to be subject to a number of
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;
. outbreaks of hostilities;
. difficulties in accounts receivable collection;
. longer collection cycles;
. difficulties in managing distributors or representatives; and
. difficulties in staffing and managing foreign subsidiary and branch
operations.
We are also subject to the risks associated with the imposition of domestic
and foreign legislation and regulations relating to the import or export of
semiconductor equipment. We cannot predict if the import or
11
<PAGE>
export of our products will be subject to tariffs, quotas, duties, taxes or
other charges or restrictions imposed by the United States or any other country
in the future.
In addition, Taiwan accounts for a growing portion of the world's
semiconductor manufacturing. There are currently strained relations between
China and Taiwan. Any adverse development in those relations could
significantly impact the worldwide production of semiconductors, which would
lead to reduced sales of our products and harm our operating results.
We are highly dependent on our key personnel and they may be difficult to
replace.
Our success depends to a large extent upon the efforts and abilities of our
key managerial and technical employees. The loss of key employees could limit
our ability to develop new products and adapt existing products to our
customers' evolving requirements and result in lost sales and diversion of
management resources. We have no employment agreements preventing our officers
or key employees from joining our competitors or competing with us.
Furthermore, much of our competitive advantage and intellectual property is
based on the expertise, experience and know-how of our key personnel regarding
our technologies, systems and products. If we are unable to retain our key
personnel, or if any of our key personnel join a competitor or otherwise
compete with us, our business and operating results could be harmed.
Our future performance depends on our ability to attract key personnel.
Our growth depends in part on our ability to attract and retain qualified
management, engineering, financial and accounting, technical, marketing and
sales and support personnel for our operations. Competition for personnel is
intense, particularly in Northern California where we are based. We may not be
successful in attracting or retaining personnel, which could harm our business.
If we are found to infringe intellectual property rights of others, our
business may be harmed.
As is typical in the semiconductor industry, we occasionally receive notices
from third parties alleging infringement claims. Although we have no
significant claims or lawsuits regarding any possible infringement claims
currently filed against us, there can be no assurance that infringement claims
by third parties, or claims for indemnification by our customers resulting from
infringement claims, will not be asserted against us in the future. These
assertions, whether or not proven to be true, could harm our business.
If any claims are asserted against us, we may seek to obtain a license under
the third party's intellectual property rights. However, whether such a license
would be available to us at all, or on terms acceptable to us, is unclear. Any
license would likely increase our expenses. We could also decide to resort to
litigation to challenge claims or enforce our intellectual property rights.
Litigation against us, even if unsuccessful, could be very expensive and time
consuming and could harm our business.
If we fail to adequately protect our intellectual property rights, our business
may be harmed.
We attempt to protect our intellectual property rights through patents,
copyrights, trade secrets and other measures. However, there can be no
assurance that we will be able to protect our technology adequately or that
competitors will not independently develop similar technology. Nor can we be
sure that any of our pending patent applications will be issued or that foreign
intellectual property laws will protect our intellectual property rights. Our
issued patents could be challenged, invalidated or circumvented and the rights
granted may not provide us with competitive advantages. Furthermore, we cannot
be certain that others will not independently develop similar products,
duplicate our products or design around our patents or patent applications.
12
<PAGE>
If we engage in acquisitions, we will incur a variety of expenses, and we may
not be able to realize the anticipated benefits.
In the future, we may pursue acquisitions of additional product lines,
technologies or businesses. We may have to issue debt or equity securities to
pay for future acquisitions, which could be dilutive, and in the case of debt
would have to be repaid, and could harm our business. In addition, we have
limited experience in the acquisition process. Acquisitions involve a number of
risks, including:
. difficulties in and costs associated with the assimilation of the
operations, technologies, personnel and products of the acquired
companies;
. assumption of known or unknown liabilities or other unanticipated events
or circumstances;
. diversion of management's attention;
. risks of entering markets in which we have limited or no experience; and
. potential loss of key employees.
From time to time, we have engaged in preliminary discussions with third
parties concerning potential acquisitions of product lines, technologies and
businesses. However, there are currently no commitments or agreements with
respect to any acquisitions.
We produce a majority of our products at a single facility and any disruption
in the operations of that facility could harm our business.
We produce most of our products in our manufacturing facility located in San
Jose, California. Our manufacturing processes are highly complex and require
sophisticated and costly equipment and a specially designed facility. As a
result, any prolonged disruption in the operations of our manufacturing
facility, whether due to technical or labor difficulties, destruction of or
damage to this facility as a result of an earthquake, fire or any other reason,
could harm our business, financial condition or results of operations.
Furthermore, San Jose is located on a primary fault line. We currently do not
have a disaster recovery plan and do not carry sufficient business interruption
insurance to compensate us for losses that may occur.
We depend on a limited number of suppliers for products, and the loss of any
supplier may harm our business.
We purchase a number of components and subassemblies necessary for
manufacturing our systems from a limited number of suppliers and in some
instances a sole supplier. Specifically, we rely on a limited number of
suppliers for robotics, microwave power supplies and platens, and on single
sources for magnetrons and microwave applicators used in our products. Our LCD
division in Japan is heavily dependent on a single supplier for quartz
fabrication used in its LPCVD systems.
We are exploring alternative sources for these critical materials. In
addition, we have been establishing longer term contracts with some of these
suppliers to mitigate the potential risks of shortages, lack of control over
pricing and delays in delivery of components and subassemblies. However, we are
also increasingly relying on outside vendors to manufacture components and
subassemblies.
Our reliance on sole or a limited number of suppliers and our increasing
reliance on subcontractors involve several risks, including shortages, lack of
control over pricing and delays in delivery of components and subassemblies.
Because our manufacturing process is typically a complex process and requires
long lead times, there may be delays or shortages caused by suppliers in the
future. Some of our suppliers may have relatively limited financial and other
resources, which could impact their ability to deliver products in a timely
manner. Inadequate deliveries or any other circumstance that would require us
to seek alternative sources of supply or to manufacture necessary components
internally could significantly delay shipments, which could damage
relationships with current and prospective customers and harm our business.
13
<PAGE>
A new accounting pronouncement may cause our operating results to fluctuate.
In December 1999, the SEC staff released Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements." As a result of this
pronouncement, companies will be required to recognize revenue only when they
substantially complete the applicable sales agreements, which will typically
occur upon customer acceptance. This pronouncement particularly impacts the
semiconductor manufacturing industry and the semiconductor capital equipment
industry. Historically, the industry has recognized revenue upon shipment, and
we have consistently applied this revenue recognition policy. In compliance
with this pronouncement, we will adopt the accounting change in revenue
recognition in the first fiscal quarter of 2001, which we expect to have a
significant effect on our operating results in the first quarter. Furthermore,
adoption of this pronouncement will impact the comparability of our financial
statements from period to period, relationships with customers and internal
procedures and controls.
If we cannot successfully expand our operations and management systems, we may
not be able to grow or maintain our business.
Sales growth and expansion in the scope of our operations in the past placed
a considerable strain on our operations and management systems. To effectively
deal with changes brought on by the cyclical nature of the industry, we may be
required to initiate an extensive reevaluation of our operating and financial
systems, procedures and controls. We will continue to upgrade and implement new
management systems as required. If we do not succeed in these efforts, we may
not be able to grow or maintain our business, and our business may be harmed.
Our officers, directors and related family members can control the outcome of
matters requiring stockholder approval.
As of February 29, 2000, our officers, directors and members of their
families who may be deemed affiliates of such persons, beneficially owned
approximately 20.2% of our outstanding shares of common stock. Accordingly,
these stockholders will be able to significantly influence the election of our
directors and the outcome of corporate actions requiring stockholder approval,
such as mergers and acquisitions, regardless of how our other stockholders may
vote. Such a high level of ownership by these persons or entities could have a
significant effect in delaying, deferring or preventing a change in control and
may impact the voting power and other rights of other holders of common stock.
Anti-takeover provisions contained in our charter documents and under Delaware
law could delay, impair or prevent a change in control.
Provisions of our Certificate of Incorporation, 1994 Stock Option/Stock
Issuance Plan, Bylaws and Delaware law may discourage transactions involving a
change in control. Our Certificate of Incorporation and Bylaws contain
provisions that limit liability and provide indemnification of our directors
and officers and provide that our stockholders can take action only at a duly
called annual or special meeting of stockholders. These provisions may have the
effect of deterring hostile takeovers or delaying changes in the control or
management of us. In addition, the ability of our board of directors to issue
preferred stock without further stockholder approval could have the effect of
delaying, deferring or preventing a change in control.
The Delaware anti-takeover law restricts business combinations with some
stockholders once the stockholder acquires 15% or more of our common stock. The
Delaware statute makes it more difficult for our company to be acquired without
the consent of our board of directors and management. We are also subject to
the provisions of Section 203 of the Delaware General Corporation Law
prohibiting, under various circumstances, publicly-held Delaware corporations
from engaging in business combinations with interested stockholders for a
specified period of time without the approval of the holders of substantially
all of its outstanding voting stock. These provisions could delay or impede the
removal of incumbent directors and could make more difficult a merger, tender
offer or proxy contest involving us, even if these events could be
14
<PAGE>
beneficial, in the short-term, to the interests of the stockholders. In
addition, these provisions could limit the price that investors might be
willing to pay in the future for shares of our common stock.
Our failure to comply with current or future environmental regulations could
harm our business.
We are 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 our products. We
believe that we are currently in compliance, in all material respects, with
these regulations and that we have obtained all necessary environmental permits
to conduct our business. Nevertheless, the failure to comply with current or
future regulations could result in substantial fines being imposed on us,
suspension of production, alteration of our manufacturing process or cessation
of operations. These regulations could require us to acquire expensive
remediation equipment or to incur substantial expenses to comply with
environmental regulations. Our failure to control the use, disposal or storage
of, or adequately restrict the discharge of, hazardous or toxic substances
could subject us to significant liabilities and could harm our business.
Risks Related to this Offering
A variety of factors may cause the price of our stock to be volatile.
Our stock price may fluctuate due to a variety of factors, including:
. announcements of developments related to our business;
. fluctuations in our operating results;
. sales of our common stock into the marketplace;
. failure to meet or changes in analysts' expectations;
. general conditions in the semiconductor industry or the worldwide
economy;
. announcements of technological innovations, new products or product
enhancements by us or by our competitors;
. developments in patents or other intellectual property rights or any
litigation relating to these rights;
. developments in our relationships with our customers and suppliers;
. natural disasters; and
. outbreaks of hostilities.
In recent years, our stock, the stock market in general and the market for
shares of small capitalization stocks have experienced extreme price
fluctuations, which have often been unrelated to the operating performance of
affected companies. Moreover, in recent years the stock prices of many
companies in the semiconductor capital equipment business, including ours, have
declined substantially due to the worldwide semiconductor downturn. There can
be no assurance that the market price of our common stock will not continue to
experience significant fluctuations in the future, including fluctuations that
are unrelated to our performance.
In the past, securities class action litigation has often been instituted
against a company following periods of volatility in the company's stock price.
This type of litigation, if filed against us, could result in substantial costs
or declines in the price of our common stock and divert our management's
attention and resources.
We will retain broad discretion in the use of proceeds from this offering and
may not obtain a significant return on the use of these proceeds.
We currently have no specific plans for a significant portion of our net
proceeds from this offering. Consequently, our management has discretion as to
how to spend the proceeds from this offering and may
15
<PAGE>
spend these proceeds in ways with which our stockholders may not agree.
Management's allocation of the proceeds of this offering may not benefit our
business and the investment of the proceeds may not yield a favorable return.
Investors in this offering could suffer immediate and substantial dilution.
Investors purchasing shares in the offering could incur immediate and
substantial dilution in net tangible book value per share. To the extent
outstanding options to purchase common stock are exercised, there could be
further dilution.
16
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 that address, among other things: our strategy; the
anticipated development of our solutions and products; our anticipated use of
proceeds; our projected capital expenditures and liquidity; our development of
additional revenue sources; our development and expansion in international
markets; market acceptance of our solutions and products; and our technological
advancement. We intend for these forward-looking statements to be covered by
the safe harbor provisions for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995, and we are including this
statement for purposes of complying with these safe harbor provisions. We have
based these forward-looking statements on our current expectations and
projections about future events. These statements are not guarantees of future
performance and are subject to certain risks, uncertainties and other factors,
some of which are beyond our control, are difficult to predict and could cause
actual results to differ materially from those expressed or forecasted in the
forward-looking statements. These risks and uncertainties include those
described in "Risk Factors" and elsewhere in this prospectus.
We use words such as "anticipate," "expect," "intend," "plan," "believe,"
"seek," "estimate" and variations of these words and similar expressions to
identify forward-looking statements. You should not place undue reliance on
these forward-looking statements, which reflect our management's view only as
of the date of this prospectus. We undertake no obligation to update these
statements or publicly release the result of any revision to the forward-
looking statements that we may make to reflect events or circumstances after
the date of this prospectus or to reflect the occurrence of unanticipated
events.
Market data and forecasts used in this prospectus, including, for example,
estimates of growth in the semiconductor and the semiconductor capital
equipment industries, have been obtained from independent industry sources. We
have not independently verified the data obtained from these sources, and we
cannot assure you of the accuracy or completeness of the data. Forecasts and
other forward-looking information obtained from these sources are subject to
the same qualifications and additional uncertainties accompanying any estimates
of future market size.
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the 2,800,000 shares of
common stock offered by us, after deducting estimated underwriting discounts
and commissions and estimated expenses, will be approximately $76.6 million
($88.2 million if the underwriters' over-allotment option is exercised in
full).
We expect to use these net proceeds for working capital and general
corporate purposes. In addition, we may use a portion of the net proceeds to
acquire complementary assets, technologies and businesses. We currently have no
commitments or agreements with respect to any acquisitions. Pending use of the
net proceeds, we plan to invest the net proceeds in short-term investment grade
securities. We will have broad discretion as to the allocation and use of the
net proceeds that we will receive.
17
<PAGE>
PRICE RANGE OF OUR COMMON STOCK
Our common stock is traded on the Nasdaq National Market under the symbol
"GSNX." The following table presents, for the periods indicated, the intraday
high and low sales prices for our common stock as reported by the Nasdaq
National Market.
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
Year ended September 30, 1998
First Quarter.................................................. $22.81 $ 8.75
Second Quarter................................................. $14.88 $ 9.75
Third Quarter.................................................. $12.63 $ 6.94
Fourth Quarter................................................. $ 8.13 $ 3.44
Year ended September 30, 1999
First Quarter.................................................. $ 9.50 $ 3.56
Second Quarter................................................. $13.75 $ 7.88
Third Quarter.................................................. $15.06 $10.88
Fourth Quarter................................................. $17.56 $13.00
Year ended September 30, 2000
First Quarter.................................................. $19.75 $14.19
Second Quarter................................................. $46.88 $17.88
Third Quarter through May 16, 2000............................. $39.44 $23.38
</TABLE>
On May 16, 2000, the last reported sale price for our common stock as
reported by the Nasdaq National Market was $29.13 per share. As of February 29,
2000, there were 14,679,907 shares of our common stock outstanding, held by 111
stockholders of record.
DIVIDEND POLICY
We have not paid any dividends since our inception. We currently intend to
retain any earnings for use in developing and growing our business and do not
anticipate paying any cash dividends on our common stock in the foreseeable
future. Our bank line of credit with Union Bank of California permits stock
dividends but prohibits cash dividends. Any determination to pay dividends in
the future will be at the discretion of our board of directors and will be
dependent on results of operations, financial condition, contractual
restrictions, restrictions imposed by applicable law and other factors deemed
relevant by our board of directors.
18
<PAGE>
CAPITALIZATION
The following table presents our capitalization as of December 31, 1999 on
an actual basis and as adjusted to reflect the sale of the 2,800,000 shares of
common stock we are offering at an assumed offering price of $29.13 per share
and after deducting the estimated underwriting discounts and commissions and
offering expenses and giving effect to the application of the net proceeds.
This table should be read in conjunction with our consolidated financial
statements and the related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of December 31, 1999
---------------------------
Actual As Adjusted
----------- --------------
(In thousands)
<S> <C> <C>
Stockholders' equity:
Preferred stock, $0.001 par value; 2,000,000
shares authorized; no shares issued and
outstanding actual and as adjusted............... $ -- $ --
Common stock, $0.001 par value; 20,000,000 shares
authorized; 14,513,082 shares issued and
outstanding actual; 17,313,082 shares issued and
outstanding as adjusted.......................... 15 17
Additional paid-in capital........................ 41,795 118,400
Treasury stock, at cost........................... (2,639) (2,639)
Subscription receivable........................... (27) (27)
Unrealized loss on investment..................... (50) (50)
Retained earnings................................. 24,989 24,989
----------- ------------
Total stockholders' equity...................... $ 64,083 $ 140,690
=========== ============
</TABLE>
The number of shares of our common stock outstanding after the offering is
based upon 14,513,082 shares of common stock outstanding as of December 31,
1999 and does not include:
. 2,650,216 shares of common stock subject to outstanding options as of
December 31, 1999 at a weighted average exercise price of $8.68 per
share;
. 824,636 additional shares reserved for future issuance under our 1994
Stock Option Plan; and
. 219,740 additional shares reserved for future issuance under our 1994
Employee Stock Purchase Plan.
In no event, however, shall our total number of outstanding shares of common
stock plus our total number of shares subject to outstanding options exceed our
total number of authorized shares of common stock.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial data as of and
for the periods indicated. The consolidated statement of operations data and
other data for each of the fiscal years in the three-year period ended
September 30, 1999 and the consolidated balance sheet data as of September 30,
1998 and 1999 were derived from our consolidated financial statements audited
by Arthur Andersen LLP included elsewhere in this prospectus. The consolidated
statement of operations data for the fiscal years ended September 30, 1995 and
1996 and the consolidated balance sheet data as of September 30, 1995, 1996 and
1997 were derived from our consolidated financial statements audited by Arthur
Andersen LLP not included in this prospectus. The consolidated statement of
operations data for the three month periods ended December 31, 1998 and 1999
and the consolidated balance sheet data as of December 31, 1999 are derived
from unaudited interim consolidated financial statements included in this
prospectus. The unaudited interim consolidated financial statements include all
adjustments, consisting only of normal recurring adjustments, which we consider
necessary for a fair presentation of the data. You should read this information
together with the discussion in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements and condensed consolidated financial statements, including the
related notes, included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Three Months
Fiscal Years Ended September 30, Ended December 31,
--------------------------------------------- --------------------
1995 1996 1997 1998 1999 1998 1999
-------- -------- -------- -------- -------- --------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Net sales............... $102,047 $127,043 $121,256 $100,430 $ 64,279 $ 10,022 $ 25,603
Cost of sales........... 44,117 64,417 67,292 59,126 39,894 7,870 14,293
-------- -------- -------- -------- -------- --------- ---------
Gross margin............ 57,930 62,626 53,964 41,304 24,385 2,152 11,310
Operating expenses:
Research and
development.......... 12,346 18,006 17,410 20,493 17,696 3,636 4,366
Selling, general and
administrative....... 25,067 32,250 29,257 28,727 21,639 5,303 5,915
Special charges....... 575 -- 4,517 1,681 407 407 --
-------- -------- -------- -------- -------- --------- ---------
Total operating
expenses............ 37,988 50,256 51,184 50,901 39,742 9,346 10,281
Operating income
(loss)................. 19,942 12,370 2,780 (9,597) (15,357) (7,194) 1,029
Interest and other
income, net............ 1,025 1,225 631 1,070 1,275 315 309
Gain on sale of
investment............. 4,700 143 1,215 -- -- -- --
-------- -------- -------- -------- -------- --------- ---------
Income (loss) before
income tax provision
(benefit).............. 25,727 13,738 4,626 (8,527) (14,082) (6,879) 1,338
Income tax provisions
(benefit).............. 9,601 4,808 1,619 2,814 -- -- --
-------- -------- -------- -------- -------- --------- ---------
Net income (loss)....... $ 16,126 $ 8,930 $ 3,007 $ (5,713) $(14,082) $ (6,879) $ 1,338
======== ======== ======== ======== ======== ========= =========
Net income (loss) per
share:
Basic................. $ 1.26 $ 0.67 $ 0.22 $ (0.41) $ (0.98) $ (0.49) $ 0.09
Diluted............... $ 1.23 $ 0.65 $ 0.21 $ (0.41) $ (0.98) $ (0.49) $ 0.09
Number of shares used in
computing net income
(loss) per share
amounts:
Basic................. 12,798 13,328 13,635 14,039 14,316 14,172 14,659
Diluted............... 13,111 13,738 14,209 14,039 14,316 14,172 15,258
</TABLE>
<TABLE>
<CAPTION>
As of
September 30, December 31, 1999
---------------------------------------- ------------------
1995 1996 1997 1998 1999 Actual
------- ------- -------- ------- ------- ------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data:
Cash, cash equivalents
and marketable
securities............. $36,599 $25,909 $ 24,884 $32,338 $27,757 $27,456
Working capital......... 55,130 59,224 62,971 59,735 49,575 52,715
Total assets............ 85,367 96,430 104,382 97,216 84,208 87,079
Total stockholders'
equity................. 63,188 72,689 79,193 75,408 61,623 64,083
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion of our financial condition and results of
operations should be read in conjunction with our supplemental consolidated
financial statements included elsewhere in this prospectus. This discussion
contains forward-looking statements which involve risks and uncertainties. Our
actual results could differ materially from those anticipated in the forward-
looking statements as a result of certain factors, including but not limited to
those discussed in "Risk Factors" and elsewhere in this prospectus.
Overview
We are a leading developer and global supplier of photoresist removal and
Integrated Clean solutions used in advanced semiconductor device manufacturing.
Our versatile Integrated Clean solutions, which combine photoresist removal and
residue removal technologies within a single platform, allow our customers to
integrate manufacturing process steps, increasing their yields and throughput.
We also provide low pressure chemical vapor deposition, or LPCVD, systems for
the flat panel display, or FPD, industry. We market and sell our products to
leading semiconductor device and FPD manufacturers worldwide, including 15 of
the top 20 semiconductor device manufacturers.
Our operating results have fluctuated significantly in the past and will
continue to fluctuate significantly in the future. We anticipate that factors
continuing to affect our future operating results will include the cyclicality
of the semiconductor industry and the markets served by our customers,
including the prolonged and severe downturn in the worldwide semiconductor
industry, among others. Furthermore, announcements by us or our competitors of
new products and technologies could cause customers to defer purchases of our
systems, which would also harm our business. Our gross margins have varied and
will continue to vary significantly based on a variety of factors, including
the following:
. sales mix and average selling prices of our systems;
. price-based competition;
. mix of revenues, including spare parts, service and support revenues;
. costs associated with new product introductions and enhancements;
. configuration and installation costs;
. delays, cancellations or rescheduling of customer orders;
. underabsorption of manufacturing overhead and field service and support
infrastructure; and
. start-up inefficiencies associated with new products.
Our gross margin as a percentage of net sales for the first quarter of
fiscal 2000 increased compared to the prior sequential quarter and the
comparable quarter of fiscal 1999. These increases were primarily due to
increased utilization of our field service organization and manufacturing
capability resulting from higher sales volume. Gross margin as a percentage of
net sales has decreased in fiscal 1999 from fiscal 1998 and in fiscal 1998 from
fiscal 1997 principally due to an increased underabsorption of manufacturing
overhead and field service and support infrastructure due to the prolonged and
severe worldwide semiconductor business slowdown that occurred during these
periods. In addition, gross margin in fiscal 1998 was negatively impacted by
approximately $2.5 million of charges to increase reserves for potentially
excess and obsolete inventory.
21
<PAGE>
Results of Operations
The following table presents consolidated statements of operations data
expressed as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
Three Months
Fiscal Years Ended Ended
September 30, December 31,
---------------------------------- ---------------
1995 1996 1997 1998 1999 1998 1999
----- ----- ----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........... 43.2 50.7 55.5 58.9 62.1 78.5 55.8
----- ----- ----- ----- ----- ------ ------
Gross margin.......... 56.8 49.3 44.5 41.1 37.9 21.5 44.2
Operating expenses:
Research and
development.......... 12.1 14.2 14.4 20.4 27.5 36.3 17.1
Selling, general and
administrative....... 24.6 25.4 24.1 28.6 33.7 52.9 23.1
Special charges....... 0.6 -- 3.7 1.7 0.6 4.1 --
----- ----- ----- ----- ----- ------ ------
Total operating
expenses........... 37.5 39.6 42.2 50.7 61.8 93.3 40.2
Operating income
(loss)................. 19.5 9.7 2.3 (9.6) (23.9) (71.8) 4.0
Interest and other
income, net............ 1.1 1.0 0.5 1.1 2.0 3.1 1.2
Gain on sale of
investment............. 4.6 0.1 1.0 -- -- -- --
----- ----- ----- ----- ----- ------ ------
Income (loss) before
income tax provision .. 25.2 10.8 3.8 (8.5) (21.9) (68.7) 5.2
Income tax provisions
(benefit).............. 9.4 3.8 1.3 2.8 -- -- --
----- ----- ----- ----- ----- ------ ------
Net income (loss)....... 15.8% 7.0% 2.5% (5.7)% (21.9)% (68.7)% 5.2%
===== ===== ===== ===== ===== ====== ======
</TABLE>
Three Months Ended December 31, 1999 Compared to Three Months Ended December
31, 1998
Net sales. Net sales consists of revenues from system sales, spare parts,
upgrade sales and maintenance and support. Net sales in the first quarter of
fiscal 2000 increased 155% to $25.6 million compared to net sales of $10.0
million in the first quarter of fiscal 1999. The severe worldwide business
slowdown in the semiconductor industry, which resulted in many semiconductor
device manufacturers in nearly all geographic regions reducing and delaying
capital equipment purchases, is the principal reason for lower sales in fiscal
1999. The industry climate began to slowly improve throughout fiscal 1999, and
we believe is now beginning to accelerate. As a result, our sales are
increasing due to increased demand across most geographies and most products.
Assuming the global semiconductor industry continues and sustains this
recovery, we anticipate that quarter to quarter sales for at least the balance
of fiscal 2000 will continue to increase compared to the first quarter of
fiscal 2000.
Sales to customers in North America, Europe, Asia/Pacific and Japan
accounted for approximately 62%, 22%, 13% and 3%, respectively, of total net
sales for the first quarter of fiscal 2000, compared to approximately 63%, 18%,
14% and 5%, respectively, of total net sales for the same period in fiscal
1999. Our percentage of international sales will continue to fluctuate from
period to period, but we anticipate that international sales will continue to
account for a significant portion of net sales in fiscal 2000.
Gross margin. Our gross margin as a percentage of net sales for the first
quarter of fiscal 2000 was 44.2% compared to 21.5% for the same period of
fiscal 1999. The increase in gross margin for the first quarter of fiscal 2000
was primarily due to increased utilization of our field service organization
and manufacturing capability resulting from higher sales volume. We continue to
focus on our gross margin improvement programs, including the introduction of
new value-added applications, features and options on our PEP systems, targeted
cost reduction programs and controlled spending. We expect that our gross
margin for the next few quarters of fiscal 2000 will be higher than prior year
comparable periods and slightly higher than that reported in the first quarter
of fiscal 2000 due to further utilization of field service and manufacturing
capability, product
22
<PAGE>
cost reductions and improved efficiencies in manufacturing. Gross margins,
however, will continue to be at risk and could be significantly harmed by
inefficiencies associated with new product introductions, sales of lower margin
FPD systems, competitive pricing pressures, the semiconductor industry climate,
the economic troubles still being experienced by many countries in Asia,
including companies in some of our major markets such as Japan and Korea,
changes in product mix and other factors.
Costs associated with reduction in workforce. In the first quarter of fiscal
1999, we reduced our workforce in response to market conditions and recorded a
charge of $407,000 primarily for severance costs. As of December 31, 1999,
these severance costs had been paid.
Research and development. Our research and development, or R&D, expenses as
a percentage of net sales decreased to 17.1% in the first quarter of fiscal
2000 compared to 36.3% of net sales in the first quarter of fiscal 1999 due
primarily to our higher sales volume. In absolute dollars, R&D expenses for the
first quarter of fiscal 2000 increased to $4.4 million from $3.6 million in the
same period of fiscal 1999. This increase principally reflects increased
salaries in general and specifically, increased development costs associated
with our 300mm product development and new process development for our advanced
photoresist removal and Integrated Clean applications. Additionally, R&D
expenses in the current quarter increased compared to the same period in the
last fiscal year due to the reduced work schedule that was in effect during the
first half of fiscal 1999 as part of our cost reduction efforts during the
industry downturn.
We continue to focus our R&D efforts on areas where we believe we may be
able to gain market share. In particular, we have focused our R&D spending on
programs to support the expanding number of available applications that target
our Integrated Clean strategy, the development of our 300mm platform, the
support of the LCD flat panel business and applications development of our VHP
technology. In June 1999, we formally introduced the PEP Iridia product, which
is a leading-edge solution targeting the growing market for photoresist removal
and Integrated Clean solutions. We anticipate that R&D spending in absolute
dollars for the next several quarters of fiscal 2000 will increase when
compared to prior year periods. This increase will primarily result from 300mm
product development, new process applications primarily for Integrated Clean
solutions and, for the second quarter of fiscal 2000, the increase will also
reflect that we were on a reduced work schedule for the first half of fiscal
1999.
Selling, general and administrative. Our selling, general and
administrative, or SG&A, expenses for the first quarter of fiscal 2000
increased to $5.9 million from $5.3 million in the first quarter of fiscal
1999. As a percentage of net sales, SG&A expenses decreased to 23.1% from 52.9%
in the same period in the last fiscal year due primarily to higher sales
volume. The increase in spending was attributable to increased sales and
marketing activities, specifically sales and third-party commissions and
increased marketing costs for the demonstration and evaluation of equipment.
Additionally, SG&A expenses in the first quarter of fiscal 2000 increased due
to the reduced work schedule that was in effect during the first half of fiscal
1999. We anticipate that SG&A expenses for the remaining quarters of fiscal
2000 will increase when compared to the same periods in the last fiscal year
due to hiring and other expenses needed to support increased business levels
and due to the lower expenses incurred in the first half of fiscal 1999 from
our reduced work schedule .
Other income (loss). Other income and loss generally consists of interest
expense, interest income, currency translation gains and losses and royalty
income. Interest expense of approximately $19,000 was incurred in the first
quarter of fiscal 2000, compared to $12,000 in the first quarter of fiscal
1999, primarily as a result of borrowings under a short-term credit facility
from the Bank of Tokyo-Mitsubishi made to our wholly-owned subsidiary in Japan,
GaSonics International Japan K.K., and due to an accounts receivable factoring
arrangement in Japan. As of December 31, 1999, the amount borrowed under this
loan agreement was approximately 285.0 million yen, which is equivalent to
approximately $2.7 million. Interest income received, which is primarily
derived from our short-term investments, was approximately $330,000 for the
first quarter of fiscal 2000 compared to $277,000 for the same period of fiscal
1999. Foreign currency translations were a net loss of approximately $45,000
and $40,000 in the first quarter of fiscal 2000 and fiscal 1999, respectively,
due to fluctuations in currency exchange rates primarily in Japan. Royalty
income in connection with the sale of the
23
<PAGE>
industrial plasma cleaning products was approximately $49,000 and $78,000 for
the first quarter of fiscal 2000 and fiscal 1999, respectively.
Income tax proxisions (benefit). We did not record a provision for income
taxes related to our net income for the fiscal quarter ended December 31, 1999
because of our tax loss carry-forward that was available to offset applicable
tax liabilities. However, we may begin to record a tax provision later in
fiscal 2000, should our projected pretax income exceed our net tax loss carry-
forward.
Fiscal Year Ended September 30, 1999 Compared to Fiscal Years Ended September
30, 1998 and September 30, 1997
Net sales. Net sales consists of revenues from system sales, spare parts,
upgrade sales and maintenance and support. Net sales in fiscal 1999 of $64.3
million decreased 36% from $100.4 million in fiscal 1998 and decreased 47% from
$121.3 million in fiscal 1997. The severe worldwide business slowdown in the
semiconductor industry, which resulted in many semiconductor device
manufacturers in nearly all geographic regions reducing and delaying capital
equipment purchases, is the principal reason for the decrease in sales from
year to year. This industry slowdown was largely due to a supply and demand
imbalance of dynamic random access memory, or DRAM, depressed DRAM pricing and
the poor economic climate in Asia and Japan. Additionally, logic and
microprocessor manufacturers were adversely impacted by price decreases
resulting from low-cost PCs. As a result of the above, we experienced lost
orders, delays in receiving new orders and rescheduling or cancellations of
previously ordered equipment by North American and Asian customers, which
harmed sales for all of fiscal 1997, fiscal 1998 and fiscal 1999. However,
beginning in fiscal 1999, the industry climate began to slowly improve and
sequential improvement in quarter to quarter sales began in the second fiscal
quarter and continued throughout the balance of fiscal 1999. Assuming the
global semiconductor industry continues to recover, we anticipate that quarter
to quarter sales for at least the first half of fiscal 2000 will increase
moderately compared to the fourth quarter of fiscal 1999.
International sales, which are predominantly to customers based in Europe,
Japan and Asia/Pacific, accounted for approximately 46%, 45% and 55% of total
net sales in fiscal 1999, 1998 and 1997, respectively. Sales to customers in
North America were 54% of total net sales in fiscal 1999 compared to 55% in
fiscal 1998 and 45% in fiscal 1997. In Europe, sales decreased to 20% of total
net sales in fiscal 1999 from 24% in fiscal 1998 and increased from 16% of
total net sales in fiscal 1997. The decrease in European net sales for fiscal
1999 from fiscal 1998 can be attributed primarily to the lack of investment in
new fabrication facilities or expansions during fiscal 1999. In Japan and
Asia/Pacific, sales increased to 26% of total net sales in fiscal 1999 from 21%
in fiscal 1998 and decreased from 38% in fiscal 1997. The decrease in the Japan
and Asia/Pacific sales in fiscal 1999 and fiscal 1998 from fiscal 1997 is
attributable primarily to the financial crisis in parts of that region and a
significant sale in Thailand recorded early in fiscal 1997 that was written-off
in the third quarter of fiscal 1997 as an uncollectible account receivable. We
continued to invest significant resources in international markets,
particularly in Japan, Singapore, Taiwan and the United Kingdom during fiscal
1999 in an attempt to increase our global market share. Our percentage of
international sales will continue to fluctuate from period to period, but we
anticipate that international sales will continue to account for a significant
portion of net sales in fiscal 2000.
Gross margin. Our gross margin as a percentage of net sales was 37.9% in
fiscal 1999, 41.1% in fiscal 1998 and 44.5% in fiscal 1997. The decrease in
gross margin for fiscal 1999 and 1998 primarily reflects our underabsorbed
manufacturing overhead and field service and support resulting from lower
overall net sales. The decrease also resulted from lower sales volume of our
more mature, higher margin single chamber systems as well as competitive
pricing pressures. Additionally, gross margin in fiscal 1998 was negatively
impacted by approximately $2.5 million of charges to increase reserves for
potentially excess manufacturing and spare parts inventory resulting from the
reduction in product demand and for obsolete finished units. The charge related
to finished units was for older generation single chamber products which have
not met sales expectations. This reserve was also driven partially by the
success of our PEP in that customers have transitioned to the multi-chamber PEP
platform faster than anticipated resulting in reduced demand for single chamber
systems. We
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<PAGE>
expect that our gross margin will continue to be harmed by inefficiencies
associated with new product introductions, sales of lower margin multi-chamber
and FPD systems, competitive pricing pressures, the semiconductor industry
climate, the economic troubles still being experienced by many countries in
Asia, including companies in some of our major markets such as Japan and Korea,
changes in product mix and other factors. We will continue to focus on our
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. We expect that our gross margin
during fiscal 2000 will be slightly higher as compared to prior year comparable
periods due to expected higher sales levels resulting in increased overhead
absorption and better utilization of field service and support resources.
Provision for uncollectible account. In the third quarter of fiscal 1997, we
recorded an expense of $4.5 million related to the write-off of an
uncollectible account receivable.
Costs associated with reduction in workforce. In fiscal 1999 and 1998, we
reduced our workforce in response to market conditions and recorded charges of
$407,000 and $1.7 million, respectively, primarily for severance costs and
consolidation of facilities. As of September 30, 1999, approximately $1.9 of
the $2.1 million has been paid and approximately $198,000 remains on our books
as an accrual.
Research and development. Our R&D expenses as a percentage of net sales
increased to 27.5% in fiscal 1999 from 20.4% in fiscal 1998 and from 14.4% in
fiscal 1997 due in large part to significantly lower sales volume. In absolute
dollars, R&D expenses for fiscal 1999 decreased to $17.7 million from $20.5
million in fiscal 1998 and increased slightly from $17.4 million in fiscal
1997. The $2.8 million decrease in R&D spending in fiscal 1999 compared to
fiscal 1998 is due to the cumulative impact of three reductions in workforce
that occurred in the second half of fiscal 1998 and the first quarter of fiscal
year 1999, a charge of $500,000 recorded in fiscal 1998 related to accelerated
write-downs of some older-generation applications development equipment and
consulting charges and the reprioritization of engineering projects. Partially
offsetting the above was a $1.8 million charge recorded in the second quarter
of fiscal 1999 primarily for the accelerated write-off of equipment produced
and used in connection with our first-generation 300mm product development
program. This equipment, which consisted primarily of 300mm tools produced for
test, demonstration and evaluation, had significantly declined in value since
we have now transitioned to the next-generation of 300mm product development.
The increase in R&D spending in fiscal 1998 from fiscal 1997 is primarily
attributable to the development of several new product and process capabilities
for advanced photoresist removal and Integrated Clean solutions utilizing our
PEP platform and for the development of a 300mm platform. Expenses for fiscal
1998 also included the $500,000 in charges mentioned above for the accelerated
write-downs of some older generation development equipment and consulting
charges.
We continue to focus our R&D efforts on areas where we believe we may be
able to gain market share. In particular, we have focused our R&D spending on
programs to support the expanding number of available applications that target
our Integrated Clean strategy, the development of our 300mm platform, the
support of the LCD flat panel business and applications development of our VHP
technology. In June 1999, we formally introduced the PEP Iridia, which is a
leading-edge solution targeting the growing market for photoresist removal and
Integrated Clean solutions. We anticipate that R&D spending in absolute dollars
for fiscal 2000 will be slightly higher when compared to fiscal 1999 excluding
the $1.8 million write-off discussed above. This increase will likely be due
primarily to the fact that we were on a reduced work schedule for the first
half of fiscal 1999, salary increases in the fourth quarter of fiscal 1999,
scheduled salary increases in the second quarter of fiscal 2000 and a 53-week
fiscal 2000 compared to a 52-week fiscal 1999.
Selling, general and administrative. Our SG&A expenses in fiscal 1999
decreased to $21.6 million from $28.7 million in fiscal 1998 and from $29.3
million in fiscal 1997. As a percentage of net sales, SG&A expenses increased
to 33.7% from 28.6% in fiscal 1998 and from 24.1% in fiscal 1997 due to
significantly lower sales volume. The spending decrease in fiscal 1999 compared
to fiscal 1998 results in part from charges
25
<PAGE>
taken in the third quarter of fiscal 1998 for the consolidation of our San
Jose, California operations of approximately $300,000 and for the write-down of
older generation demonstration and evaluation equipment of approximately
$700,000. The balance of the decrease primarily results from the cumulative
impact of our three reductions in workforce and lower third-party sales
commissions on international sales. For approximately the last three years, we
have built a worldwide direct sales and support organization, which has
decreased our dependence on third-party representatives for these services.
Consequently, third-party commissions in all but three regions have been
eliminated, partially offset by increased expenses related to the hiring of and
other expenses associated with building our direct sales and support
organizations. SG&A expenses in fiscal 1998 were lower than fiscal 1997
primarily due to reductions in workforce that occurred in the third and fourth
quarter of fiscal 1998, reduced work schedules and shutdown days during fiscal
1998 and lower third-party sales commission on international sales. These
expense reductions were partially offset by the $700,000 equipment write-down
mention above.
We currently anticipate that SG&A expenses for fiscal 2000 will increase
from fiscal 1999 due to salary increases, hiring and other related expenses
needed to support anticipated increases in business activities during fiscal
2000.
Other income (loss). Other income and loss generally consists of interest
expense, interest income, currency translation gains and losses, royalty income
and gains on sales of stock of a third party. Interest expense of approximately
$42,000, $26,000 and $91,000 was incurred by us in fiscal 1999, 1998 and 1997,
respectively, primarily as a result of borrowings under a short-term credit
facility from the Bank of Tokyo-Mitsubishi by our wholly-owned Japanese
subsidiary, GaSonics International Japan K.K. As of September 30, 1999, the
amount borrowed under this loan agreement was approximately 297.0 million yen,
which is equivalent to approximately $2.8 million. The increase in interest and
other income in fiscal 1999 from fiscal 1998 primarily reflects an increase in
interest income received principally from our short-term investments. This
increase resulted from a change in our investment portfolio early in fiscal
1999 from tax-exempt securities to taxable securities since we are not
incurring a tax liability due to our net operating losses. This increase was
partly offset by a decrease in interest income received on a combined decrease
of cash, cash equivalents and marketable securities that were used to fund
operating and investing activities. The increase in interest and other income
in fiscal 1998 from fiscal 1997 is primarily due to royalty income received in
connection with the sale of our industrial plasma cleaning products and
services business that was sold in July 1997. In fiscal 1999 and 1998 royalty
income was $342,000 and $350,000, respectively. There was no royalty income
recorded in fiscal 1997.
Foreign exchange currency translations were a net loss for fiscal 1999, 1998
and 1997 of approximately $140,000, $52,000 and $52,000, respectively. The
increase in the loss from fiscal 1998 to fiscal 1999 primarily reflects
currency translation impact of a strengthening U.S. dollar against the yen that
has occurred during 1999.
Net income for fiscal 1997 was favorably impacted by sales of shares held by
us in a third-party corporation, which shares were received in exchange for
technology and services rendered in fiscal 1990. We realized pretax gains in
fiscal 1997 of approximately $1,215,000 from this sale. There were no gains
recorded in fiscal 1998 or fiscal 1999 as the last shares were sold in fiscal
1997.
Income tax provisions (benefit). We did not record a provision for tax
benefits related to our net loss in fiscal 1999 because the net loss cannot be
carried back to offset previous amounts of taxable income. The tax loss and
other tax benefits will be carried forward and will be available to offset
future tax liabilities. We do not anticipate recording these tax benefits until
returning to profitability. We had an effective tax benefit rate of 33% in
fiscal 1998 and an effective tax rate of 35% in fiscal 1997. We recognized a
tax benefit in fiscal 1998 due to a carry back of current net operating losses
to prior periods.
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<PAGE>
Quarterly Results of Operations
The following table presents unaudited consolidated statement of operations
data for each of the five quarters ended December 31, 1999, as well as such
data expressed as a percentage of net sales. The operating results of any
quarter are not necessarily indicative of the results for any subsequent
quarter.
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------------
December 31, March 31, June 30, September 30, December 31,
1998 1999 1999 1999 1999
------------ --------- -------- ------------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net sales............... $10,022 $13,215 $17,902 $23,140 $25,603
Cost of sales........... 7,870 8,658 10,280 13,086 14,293
------- ------- ------- ------- -------
Gross margin............ 2,152 4,557 7,622 10,054 11,310
Operating expenses:
Research and
development.......... 3,636 5,662 4,151 4,247 4,366
Selling, general and
administrative....... 5,303 5,136 5,454 5,746 5,915
Special charges....... 407 -- -- -- --
------- ------- ------- ------- -------
Total operating
expenses........... 9,346 10,798 9,605 9,993 10,281
Operating income
(loss)................. (7,194) (6,241) (1,983) 61 1,029
Interest and other
income, net............ 315 263 362 335 309
Income (loss) before
income taxes........... (6,879) (5,978) (1,621) 396 1,338
Income tax provision
(benefit).............. -- -- -- -- --
------- ------- ------- ------- -------
Net income (loss)... $(6,879) $(5,978) $(1,621) $ 396 $ 1,338
======= ======= ======= ======= =======
</TABLE>
Net sales. Net sales in the first quarter of fiscal 1999 were at their
lowest point following several quarters of consecutive sales decrease due to
the severe worldwide business slowdown in the semiconductor industry. Beginning
in the second quarter of fiscal 1999, as the semiconductor industry climate
began to improve, our net sales began to increase and have continued to
increase sequentially each quarter.
Gross margin. Gross margins improve sequentially by quarter from 21.5% in
the first quarter of fiscal 1999 to 44.2% in the first quarter of fiscal 2000
primarily due to improved utilization of the field service and support
organization and manufacturing capacity resulting from increased sales volume.
Research and development. R&D expenses have increased from $3.6 million in
the first quarter of fiscal 1999 to $4.3 million in the first quarter of fiscal
2000. The second quarter fiscal 1999 expense increase reflects a $1.8 million
charge primarily for the accelerated write-off of equipment produced and used
in connection with our first generation 300mm product development program.
Sequentially, R&D expenses have increased over the past five quarters primarily
due to increased development costs associated with our 300mm product and new
process development and beginning in the third quarter of fiscal 1999, due to
our return to a full work schedule and salary increases. We were on a reduced
work schedule during the first and second quarter of fiscal 1999 due to the
industry downturn.
Selling, general and administrative. SG&A expenses decreased in the second
quarter of fiscal 1999 compared to the first quarter of fiscal 1999 primarily
due to a reduction in workforce that occurred in December 1998. Beginning in
the third quarter of fiscal 1999, SG&A expenses increased sequentially by
quarter due to increased sales and marketing activities related to and in
support higher sales volume, salary increases and our return to a full work
schedule.
Our quarterly and annual revenue and operating results have varied
significantly in the past and may vary significantly in the future due to a
number of factors. For a discussion of these factors, see "Risk Factors--Our
quarterly results may fluctuate, which may harm our business."
27
<PAGE>
Liquidity and Capital Resources
During the first quarter of fiscal 2000, cash, cash equivalents and
marketable securities decreased by approximately $300,000 to $27.5 million at
December 31, 1999 from $27.8 million at September 30, 1999. Operations used
cash of approximately $700,000 for the first quarter of fiscal 2000 compared to
$3.4 million in the first quarter of fiscal 1999. The decrease in cash used by
operating activities in the first quarter of fiscal 2000 compared to the same
quarter of last fiscal year is primarily the result of our operating income in
fiscal 2000 compared to an operating loss for the same period last year partly
offset by increases in receivables and inventory resulting from increased
business levels.
Investing activities in the first quarter of fiscal 2000 used cash of
approximately $8.4 million resulting from the net purchases of marketable
securities of approximately $7.8 million and $600,000 for the acquisition of
equipment and programs in progress for improved operating and information
systems. For the first quarter of fiscal 1999, a total of approximately
$900,000 was used for investing activities consisting of approximately $600,000
used for the net purchases of marketable securities and approximately $300,000
on programs for improved operating and information systems.
Financing activities in the first quarter of fiscal 2000 provided cash of
approximately $1.2 million from the issuance of common stock in connection with
our employee stock purchase and stock option programs and used cash of
approximately $119,000 to reduce borrowings by GaSonics International Japan
K.K. under its credit facility with the Bank of Tokyo-Mitsubishi. This compares
to the first quarter of fiscal 1999 where $673,000 was provided from the
issuance of common stock under our stock purchase and option plans and $234,000
provided from borrowings by GaSonics International Japan K.K. under its credit
facility. As of December 31, 1999, borrowings under this line of credit
agreement with the Bank of Tokyo-Mitsubishi totaled $2.7 million.
As of December 31, 1999, we had working capital of approximately $52.7
million compared to $49.6 million at September 30, 1999. Accounts receivable
and inventory at December 31, 1999 increased by approximately $2.4 million and
$1.4 million, respectively, from September 30, 1999. Receivables increased
primarily due to higher sales levels in the current period. Inventory increased
due to increasing demand for our products. We expect future inventory levels to
fluctuate from period to period, and believe that because of the relatively
long manufacturing cycle of our equipment, our investment in inventories will
continue to require a significant portion of working capital. As a result of
such investment in inventories, we may be subject to an increasing risk of
inventory obsolescence, which could harm our operating results.
As of December 31, 1999, our principal sources of liquidity consisted of
approximately $8.8 million of cash and cash equivalents, $18.7 million in
marketable securities and $20.0 million available under our unsecured working
capital line of credit with Union Bank of California, which expires on May 1,
2000 and is currently being renegotiated. A commercial letter of credit
provision of $500,000 is also provided under the line of credit. This line of
credit bears interest at the bank's LIBOR rate plus 1.25% per annum. Available
borrowing under the credit line is reduced by the amount of outstanding letters
of credit. As of December 31, 1999, except for $69,193 outstanding under the
letter of credit provision, there were no borrowings under this line. This line
of credit contains various covenants, including covenants relating to financial
ratios and tangible net worth that must be maintained by us. As of December 31,
1999, we were in compliance with our bank covenants. Our wholly-owned Japanese
subsidiary, GaSonics International Japan K.K., has a credit facility with the
Bank of Tokyo-Mitsubishi with an available credit line of 300.0 million yen,
which as of December 31, 1999, is equivalent to approximately $2.9 million U.S.
dollars. This credit facility was renewed on October 1, 1999, bears interest at
a rate of 1.375% per annum, is secured by a Letter of Guarantee issued by us
and expires on May 31, 2001. As of December 31, 1999, GaSonics International
Japan K.K. had borrowed 285.0 million yen under this credit facility, which was
equivalent to approximately $2.7 million as of that date. We anticipate
renewing both the working capital line of credit with Union Bank of California
and the credit line with the Bank of Tokyo-Mitsubishi prior to expiration.
However, there can be no assurance that it will be successful in renewing
either such facility or that we will be able to secure other sources of funding
on acceptable terms, or at all.
28
<PAGE>
We believe that our existing cash, cash equivalents, marketable securities
and available lines of credit at March 31, 2000 are sufficient to meet our
working capital cash requirements during the next twelve months. Beyond the
next twelve months, we may require additional equity or debt financing to
achieve our working capital or capital equipment needs. There can be no
assurance that additional financing will be available when required or, if
available, will be on reasonable terms.
Year 2000 Readiness Disclosure
We did not experience any material difficulties in connection with the
changeover to the year 2000. Our in-house systems were switched off during the
actual changeover and a phased start-up of our systems and networks on January
1, 2000 did not reveal any issues, nor did the later normalized use of these
systems and networks. Access to and operation of our facilities were not
compromised.
We were asked to assist, and assisted, in the start-up of some older units
in our worldwide installed base. We are not aware of any millenium-related
disruption in connection with our products.
We estimate the total cost of our year 2000 compliance program at
approximately $1.5 million, not including investments in software upgrades that
we had previously planned and accelerated in connection with the year 2000.
Although we believe that our expenditures have been sufficient, we cannot be
certain, for the reasons stated in the next paragraph, that the actual costs of
finalizing the plan will not differ materially from the costs so far. A
significant portion of total year 2000 project expenses have been represented
by existing staff that have been redeployed to this project. We do not believe
that the redeployment of existing staff harmed our business, results of
operations or financial position. Nor do we expect incremental expenses related
to the year 2000 project to materially impact operating results in any one
period.
Although we are not aware of any significant operational issues associated
with the year 2000, we cannot ensure that we will not experience material
unanticipated negative consequences or material costs caused by undetected
errors or defects in such systems or by our failure to adequately prepare for
the results of such errors or defects, including the costs of related
litigation, if any. The impact of such consequences could harm our business,
financial condition or results of operations.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," or SFAS No. 133, which establishes accounting and
reporting standards for derivative instruments, including specific derivative
instruments embedded in other contracts and for hedging activities. It requires
that we recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. We
are required to adopt SFAS No. 133 in the first quarter of fiscal 2001.
Currently, we do not engage in hedging activities or purchase derivative
instruments. We do not expect the impact of adopting SFAS No. 133 to be
material to us.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements," or SAB No. 101. SAB No. 101 provides
guidance on applying generally accepted accounting principles to revenue
recognition issues in financial statements. We will adopt SAB No. 101 as
required in the first quarter of fiscal 2001. When we adopt SAB No. 101, we
will recognize revenue when we substantially complete the terms of the
applicable sales arrangement, which generally occurs upon the customers'
acceptance. We believe the adoption will have a significant impact on our
revenue recognition policy because we currently recognize sales upon shipment
with appropriate accruals of the associated costs. We are currently evaluating
the effect on our financial statements.
29
<PAGE>
BUSINESS
We are a leading developer and global supplier of photoresist removal and
Integrated Clean solutions used in advanced semiconductor device manufacturing.
Our versatile Integrated Clean solutions, which combine photoresist removal and
residue removal technologies within a single platform, allow our customers to
integrate manufacturing process steps, increasing yields and throughput. We
also provide low pressure chemical vapor deposition, or LPCVD, systems for the
flat panel display, or FPD, industry. We market and sell our products to
leading semiconductor device and FPD manufacturers worldwide, including 15 of
the top 20 semiconductor device manufacturers.
Our photoresist removal systems use our innovative microwave downstream
plasma technology, which is designed to increase yields in the manufacturing of
semiconductor devices. This technology offers our customers significant
advantages over traditional techniques by reducing the damage that typically
occurs to the wafer in the photoresist removal processes, thus increasing
yields and reducing cost of ownership. Moreover, our technologically advanced
systems offer a high degree of flexibility, reliability and serviceability.
Our Integrated Clean systems use our microwave downstream plasma technology
in concert with directional RF plasma technology to remove photoresist and more
difficult to remove residues. These systems allow our customers to achieve
greater fab efficiency and reduce costs through a simplified process flow. In
addition, these systems provide industry leading technology for the complex
cleaning requirements associated with smaller line widths as well as new
processes and materials, such as dual damascene, copper and low-k dielectrics.
To further address these new requirements, we have recently entered into joint
development agreements with a number of customers and semiconductor equipment
manufacturers, such as our recently announced participation in the Damascus
Alliance.
Industry Background
Growth in the communications industry, particularly in the Internet and
mobile electronic device markets, as well as in the traditional markets for
semiconductors, such as computers, automobiles and other consumer and
industrial products, has driven an increase in the demand for semiconductors
and consequently semiconductor capital equipment. According to Dataquest, the
semiconductor industry is expected to grow at an annual rate of 22.5%, from
$168.7 billion in 1999 to $253.3 billion in 2001. Dataquest also estimates that
the semiconductor capital equipment market is expected to grow at an annual
rate of 39.6%, from $17.5 billion in 1999 to $34.0 billion in 2001.
The manufacturing of semiconductor devices requires a large number of
complex and repetitive processing steps, including deposition, photolithography
and etch, to layer different materials and imprint various features on a single
wafer. Prior to processing additional layers on the wafer, the photoresist and
post-etch residues from the previous layer must be carefully removed in order
to create a clean and functional foundation for deposition of the next layer.
These processes between etch and deposition, often referred to as photoresist
removal, or ashing, and residue removal are critical to the achievement of
semiconductor manufacturers' fundamental goals, including improved device
performance, higher yields and greater equipment effectiveness. As
semiconductor devices are becoming more advanced, the demand for complex
photoresist removal and residue removal solutions is increasing.
The manufacturing of advanced semiconductor devices, which offer increased
capabilities, more power and greater performance, requires an increasing number
of photolithographic masking layers and corresponding photoresist removal and
residue removal steps. For example, a typical one megabit dynamic random access
memory, or DRAM, chip requires 11 masking steps, each with a corresponding
photoresist and residue removal step. By comparison, a 64 megabit DRAM is
expected to require between 20 and 25 masking steps. Line geometries, or
feature sizes, of a semiconductor device also continue to decrease, increasing
the complexity and difficulty of photoresist removal and residue removal. In
addition, new processes and materials, which include dual damascene, copper,
low-k dielectrics and deep ultraviolet photolithography resists, are
complicating preparation of the wafer surface, and therefore complicating
photoresist removal and residue removal for
30
<PAGE>
subsequent masking steps. Because of these trends, the number and complexity of
photoresist removal and residue removal systems per production line of advanced
semiconductor devices are expected to increase. Consequently, we believe the
market for cleaning solutions will grow more rapidly than the semiconductor
industry or semiconductor capital equipment industry.
In the 1970s, photoresist and residue were typically removed through wet
chemistry processing, which immersed semiconductor devices into large liquid
chemical baths. In the 1980s, dry chemistry processing, which utilizes gases to
remove unwanted materials, began to replace wet chemistry processing for those
advanced processing steps for which wet chemistry was no longer effective, such
as photoresist removal. The dry chemistry processing alternative for
photoresist removal has continued to become more widely used because this
alternative is believed to offer significant cost of ownership savings as
compared with wet chemistry processing, especially for complex semiconductor
devices with small feature sizes. Wet chemistry processing also poses
environmental concerns due to the risks associated with chemical storage,
handling and disposal.
Traditional dry chemistry photoresist processing involves the creation of
plasma and exposure of the wafer to the plasma in a single chamber in order to
remove the photoresist. However, because elements of the plasma can cause
damage to the wafer, direct exposure of the wafer to the plasma results in
reduced yields. This damage becomes increasingly problematic as feature sizes
decrease and could result in significantly reduced yields. Accordingly, the
creation of the plasma must be separated from the wafer processing chamber to
maintain and enhance yields.
New materials, including copper, low-k dieletrics and deep ultraviolet
photolithography resist, new processes, including dual damascene, and an
increasing number of masking layers are all unprecedented residue removal
challenges that current wet chemistry technologies are not equipped to address.
The same factors that prompted the shift from wet to dry photoresist removal is
prompting the shift from wet to dry residue removal for specific applications.
These factors include reduction and inconsistency in yields, the essential
requirement for improved process control, the higher cost of ownership
associated with wet process steps and the hazardous nature of wet chemicals.
Additionally, semiconductor device manufacturers are looking to reduce costs
and simplify process flow by combining multiple cleaning technologies within
one system.
The GaSonics Solution
We are a leading developer and global supplier of photoresist removal and
Integrated Clean solutions used in advanced semiconductor device manufacturing.
Our versatile Integrated Clean solutions, which combine photoresist removal and
residue removal technologies within a single platform, allow our customers to
integrate manufacturing process steps, increasing their yields and throughput.
We also provide low pressure chemical vapor deposition systems for the FPD
industry.
We pioneered microwave downstream plasma technology in 1986 to address
challenges in removing photoresist. Our microwave downstream plasma technology
separates the creation of the plasma from its exposure to the wafer. We believe
this technology offers our customers significant yield advantages by reducing
the damage that typically occurs to the wafer in other plasma photoresist
removal systems.
We have leveraged our market leadership in providing advanced photoresist
removal systems to develop Integrated Clean solutions that combine photoresist
and residue removal technologies. These solutions utilize a combination of our
microwave downstream processing technology along with directional RF plasma to
remove photoresist and residues. Our solutions meet the challenges of emerging
technologies, which include:
. decreased line geometries;
. increased wafer sizes; and
. new processes and materials, including dual damascene, copper and low-k
dielectrics.
31
<PAGE>
In addition, we believe our solutions allow our customers to:
. achieve greater fab efficiency;
. solve complex cleaning problems;
. reduce costs through a simplified process flow; and
. configure our systems for their specific processing needs.
To further address our customers' processing requirements, we provide
quality customer service and support through our global infrastructure. In
addition, we have recently entered into joint development agreements with a
number of customers and semiconductor equipment manufacturers, such as our
recently announced participation in the Damascus Alliance.
The GaSonics Strategy
Our objective is to be the leading supplier of photoresist removal and
Integrated Clean solutions for the advanced semiconductor device manufacturing
industry. Key elements of our strategy include:
Expanding Leadership in Integrated Clean Solutions. We are a leader in
providing Integrated Clean solutions. Our PEP Iridia product, which combines
our microwave downstream plasma technology and directional RF plasma
technology, integrates photoresist removal and residue removal capabilities in
one chamber. This technology enables us to expand our portfolio of Integrated
Clean applications to include new materials, such as copper and low-k
dielectrics. These systems also allow greater fab efficiency and reduced costs
by simplifying process flow.
Providing Versatile Processing Systems. We focus on providing multi-chamber
systems for a variety of process applications. This multi-chamber capability
enables our customers to configure our products based on their process
requirements. We also focus on providing flexible process chambers, which allow
us to incorporate different technologies within any given chamber for process
optimization. We plan to continue to provide versatile processing systems as we
move to next-generation products.
Extending Technological Expertise. We are a technological leader in
providing photoresist removal and Integrated Clean solutions to the advanced
semiconductor device industry. We intend to continue to invest in research and
development to extend our technology solutions to meet our customers'
increasingly complex cleaning requirements, arising from decreasing geometries,
increased wafer sizes and the introduction of new processes and new materials.
Enhancing Strategic Customer Relationships. Our long-standing relationships
with leading worldwide semiconductor device manufacturers will be critical to
extending our position as a leading provider of photoresist removal and
Integrated Clean solutions used in the fabrication of advanced semiconductor
devices. We intend to continue to focus our resources on our key customers in
order to develop the process equipment solutions needed to manufacture the next
generation of semiconductor devices. We also intend to build upon our
relationships with leading FPD manufacturers to expand our market share within
the FPD industry.
As part of this focus, we believe that providing dedicated personnel at key
customer facilities enables us to better understand the process requirements of
our customers, design new systems and position ourselves as a principal vendor
of volume equipment orders. In addition, we have a worldwide customer service
and support infrastructure that enables us to supply parts and deploy support
personnel to our customers quickly.
Further Penetrating the Pacific Rim Markets. The Pacific Rim markets for
semiconductor device processing equipment represent over one-half of the total
worldwide market for this industry. Although a significant portion of our sales
has been in Europe and the United States, we have successfully penetrated a
number of large customers in Japan, Korea, Singapore and Taiwan. We intend to
continue to invest in regional infrastructure and to leverage our leadership
position in Integrated Clean solutions to further penetrate the Pacific Rim
markets.
32
<PAGE>
Technology
Microwave Downstream Plasma Processing. Our microwave downstream plasma
processing technology is a dry chemistry process that uses elements created by
plasma in order to remove photoresist and other materials on a wafer. In
traditional dry chemistry processing, the plasma is created in the same chamber
in which the active gases are exposed to the photoresist on the wafer. This
method typically causes significant damage to the wafer because elements that
result from the creation of the plasma react negatively with the wafer. In our
system, the plasma is generated in one chamber and, using our proprietary
technology, the active gases are separated from the rest of the plasma and
introduced downstream into the wafer processing chamber. We believe the
resulting reduction in damage to the wafer increases yields and lowers the
total cost of ownership of the photoresist removal process equipment in
manufacturing advanced semiconductor devices.
Directional RF Plasma Processing. Directional RF plasma technology in our
Iridia product is a dry chemistry process that uses elements created by plasma
that can be directed to the wafer surface. Unlike non-directional, isotropic
technologies, this technology is designed to remove photoresist and other
materials in high aspect ratio structures. Additionally, we believe that many
residues, including fluoropolymers that form on dielectric layers and
carbonized resist surfaces, are best removed with a directional RF plasma
process.
Dual Plasma Source and Temperature Operation. Our temperature control
capability allows customers to use microwave downstream plasma and directional
RF plasma sources together or separately in the same chamber. Specifically,
microwave processing is possible at higher temperatures or at lower
temperatures while RF processing is accomplished only in the lower temperature
range. This dual source and temperature flexibility allows independent
optimization of processes for a wide variety of process applications.
Products
Our product line consists of photoresist removal and Integrated Clean
systems for the semiconductor device industry and LPCVD systems for the FPD
industry.
Performance Enhancement Platform. The PEP is a modular, multi-chamber system
that enables our customers to configure our products based on their process
requirements. The PEP's versatility provides a common platform for new
technology introductions. It accommodates interchangeable process modules while
delivering maximum utilization. The platform's architecture offers process
flexibility through sequential, parallel or independent processing. We offer
both the PEP 3510A and the PEP Plus 3510 for photoresist removal and the PEP
Iridia for Integrated Clean.
PEP 3510A. The PEP 3510A is a versatile photoresist removal system
introduced in 1995. This system uses our innovative microwave downstream
plasma technology and is designed for damage-free removal of photoresist.
This system utilizes a combination of platen and lamp wafer heating
resulting in high removal rates and uniformity.
PEP Plus 3510. The PEP Plus 3510 is an enhanced version of the PEP 3510A
product, introduced in March 2000 and is expected to ship later this year.
It includes an advanced digital microwave power source and delivers
improved photoresist removal rates. In addition, wafer transport and other
reliability upgrades combine to reduce both cost of ownership and cost of
consumables.
PEP Iridia. The PEP Iridia is a versatile Integrated Clean system
combining photoresist and residue removal technologies. This system was
introduced in June 1999. Iridia's directional downstream plasma source is
comprised of a directional RF source paired with our downstream microwave
source. This system also includes an integrated lamp module with our
advanced, closed-loop wafer temperature control enabling multi-temperature
processing in a single chamber. This system uses fluorine and reducing
chemistries, providing flexibility in handling production needs, including
high-dose implant strip, front-end-of-line cleans and back-end-of-line
cleans, such as post-etch cleans for aluminum, copper and low-k dielectric
interconnect structures.
33
<PAGE>
Next-Generation Platform. Our next-generation platform is a modular multi-
chamber system that enables customers to configure our products based on their
process requirements. This platform packages advanced process technology,
flexibility and high throughput in a compact footprint. The platform supports
configurations of up to four independent process chambers in a space-efficient,
linear layout for throughput and flexibility in handling 300mm wafer production
needs. Each process chamber includes innovative features such as a patented
load-lock design, unique wafer transport sub-system and an integrated cooling
station. The independent process chamber design on the 300mm platform
accommodates direct transfer of photoresist removal processes from our large
installed base of 200mm PEP systems.
LPCVD Systems. In August 1995, we acquired Tekisco, Ltd., one of Japan's
leading manufacturers of LPCVD systems for the FPD industry, to create our LCD
Division. Our LPCVD systems have been sold to a number of leading Japanese and
Korean FPD manufacturers. Our GX-2104 vertical low pressure chemical deposition
system and our GX-2106 horizontal low pressure chemical deposition system
provide uniform amorphous film deposition on large glass substrates (up to 600
x 720mm) for low temperature poly-silicon thin-film transistor LCD
manufacturing.
Vertical High Pressure Diffusion System. Our VHP system is a fully
automated, thermal processing, vertical high-pressure oxidation furnace. In
1999, this business represented 2.1% of our revenues. In March 2000, we
announced plans to divest this business so we can better focus on our core
businesses.
Spare Parts and Other. We provide a series of products, including spare
parts, retrofit and upgrade kits, contract and billable services, and training
designed to support or enhance the capability of our installed base of systems.
Customers
We sell our products to leading semiconductor device manufacturers and FPD
manufacturers located throughout the United States, Europe and Asia, including
the Pacific Rim markets. In fiscal 1999, Intel accounted for approximately 23%
of net sales. In fiscal 1998, Intel and Motorola accounted for approximately
20% and 11% of net sales. In fiscal 1997, Samsung and Promos Technologies each
accounted for approximately 11% of net sales and Intel accounted for
approximately 10% of net sales. We expect that sales of our products to large
customers, including those listed above, will continue to account for a high
percentage of our net sales in the foreseeable future. We have no long-term
purchase agreements with our customers. Although the composition of the group
comprising our largest customers has varied from year to year, the loss of a
significant customer or any reduction in orders by any significant customer,
could harm our business, financial condition and results of operations.
Sales and Customer Support
We market, sell and service our products domestically and internationally
primarily through our marketing and direct sales and customer support
organizations, including service, applications and logistics personnel. We have
sales, service and applications personnel in Israel, Japan, Korea, Singapore,
Taiwan and five European locations, which are the major semiconductor producing
regions outside the United States. We also maintain three third-party
representatives to sell and service our products. In addition to our principal
executive offices in San Jose, California, we have four United States sales and
service centers strategically located to service our customers.
Our field service and applications engineering personnel based throughout
the United States, Europe and Asia/Pacific, directly support domestic and
international equipment installations, process development, training, spare
parts logistics, warranty service and post-warranty contract service. Our field
service engineers include dedicated site-specific engineers contracted by key
customers. In support of our numerous field support centers located throughout
the world, we also maintain a headquarters-based customer satisfaction
organization.
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<PAGE>
To provide customers with rapid access to replacement service parts, we have
strategically placed an inventory of spare parts in sales and service centers,
customers' sites, and distribution hubs. These inventory depots are located in
several European and Asian countries and in the eastern, central and western
regions of the United States. In addition, the stock room at our headquarters
in San Jose, California keeps buffer inventory to support offsite stock rooms
in case of unexpected demand.
We believe our sales and customer support organizations are critical to our
success in establishing and maintaining long-term customer relationships and
provide us with a competitive advantage. These organizations develop close
working relationships with customers in order to identify their current and
future semiconductor equipment requirements and to assist customers in
overcoming their technology challenges as they move to manufacturing
increasingly complex devices.
Backlog
Backlog includes only those accepted customer orders for systems for which
we have assigned shipment dates within twelve months, as well as orders for
spare parts and service and support of systems. Historically, our backlog
fluctuates significantly from quarter to quarter primarily as a result of the
cyclical nature of construction and equipping of new semiconductor device
fabrication facilities. The equipment requirements of new fabrication
facilities cannot be determined with accuracy and, therefore, our backlog at
any given date is not necessarily indicative of future sales. In addition, our
backlog at any particular date is not necessarily representative of actual
sales for any succeeding period. We have in the past experienced, and will
likely continue to experience, cancellations, deferrals and rescheduling of
product orders.
Manufacturing
Our manufacturing strategy is to produce high quality, cost-effective and
reliable systems and assemblies to support on-going and growing requirements
for more environmentally-friendly semiconductor processing equipment. In order
to provide the best added value to our customers and to preserve standards in
performance, we are placing emphasis on in-house system integration and test
activities that require proprietary core technology or specialized knowledge
and are increasing our outsourcing of routine fabrication and assembly to
strategic suppliers. In addition, we have implemented a formalized reliability
system to further strengthen the quality of our products.
To measure and improve customer satisfaction with our products and services,
metrics, such as cycle time, quality, installation discrepancies, on-time
deliveries, backorders, employee flexibility and productivity, are monitored,
measured and compared on a weekly basis.
We offer standard warranty terms for two years on parts and labor on
equipment sales. We also offer service contracts to our customers for continued
maintenance of systems that are not covered by warranty.
Research and Development
The markets for semiconductor manufacturing equipment, including the markets
that utilize our equipment, are characterized by rapid technological
development and product innovation. We intend to continue our commitment of
substantial resources to research and development in photoresist removal,
Integrated Clean and LPCVD for existing and new products.
In order to maintain our long-term relationships with existing customers and
to develop relationships with potential customers, we work to continuously
improve our existing products and develop new products and technologies.
Customers with large installed bases increasingly require their suppliers to
improve existing products with respect to cost-of-ownership, reliability and
process capability to meet their future needs in order to avoid the long
qualifying evaluations required with new equipment, which can be costly and
risky. To further address our customers' processing requirements, we have
recently entered into joint development agreements
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<PAGE>
with a number of customers and semiconductor equipment manufacturers, such as
our recently announced participation in the Damascus Alliance. Our goal is to
continue to develop new products and technologies to meet the changing needs of
the marketplace.
Historically, we have devoted a significant portion of our financial
resources to research and development programs and expect to continue to
allocate significant resources to these efforts. For fiscal 1999, 1998 and
1997, total research and development expenditures were approximately $17.7
million, $20.5 million and $17.4 million and represented approximately 28% of
our total net sales in fiscal 1999, 20% in fiscal 1998 and 14% in fiscal 1997.
As of February 29, 2000, our research, development and engineering staff
included 94 full-time employees.
Competition
The semiconductor capital equipment industry is intensely competitive. We
currently experience intense competition worldwide from a number of leading
foreign and domestic manufacturers, including Eaton Corporation, Mattson
Technology, Plasma Systems and ULVAC. There has been significant merger and
acquisition activity among our competitors and potential competitors,
particularly during the recent downturn in the semiconductor device and
semiconductor capital equipment industries. These transactions by our
competitors and potential competitors may provide them with a competitive
advantage over us by enabling them to rapidly expand their product offerings
and service capabilities to meet a broader range of customer needs. We believe
that the semiconductor capital equipment industry will continue to be subject
to increased consolidation, which will increase the number of larger companies
in the industry sector in which we compete. We also expect our competitors to
continue to develop, enhance or acquire competitive products that may offer
improved price or performance features. New product announcements,
introductions and enhancements by our competitors could cause a significant
decline in sales or loss of market acceptance of our systems, in addition to
intense price competition or otherwise could make our systems or technology
obsolete or noncompetitive. We also believe competition will continue from
current and new suppliers employing other technologies, such as wet chemistry,
traditional dry chemistry and other techniques. Increased competitive pressure
may lead to reduced demand and lower prices our products, thereby harming our
business, financial condition and results of operations.
The principal competitive elements in dry chemistry processing for
photoresist removal and residue removal are technological innovation, total
cost of ownership, including yield, price, product performance and throughput
capability, quality, reliability and customer service and support. Although we
believe that we compete favorably in these areas, competitive product
introductions could cause a decline in sales or loss of market acceptance of
our existing products. In addition, by virtue of our reliance on sales of
advanced dry chemistry processing equipment, we could be at a disadvantage
compared to some competitors that offer more diversified product lines. We
believe that to remain competitive we will have to commit significant financial
resources to develop new product features and enhancements, to introduce next-
generation photoresist removal and Integrated Clean solutions on a timely
basis, and to maintain customer service and support centers worldwide.
Intellectual Property Rights
We hold a number of U.S. patents and corresponding foreign patents and have
pending patent applications covering various aspects of our products and
processes. Where appropriate, we intend to file additional patent applications
on inventions resulting from our ongoing research and development and
manufacturing activities to strengthen our intellectual property rights. In
addition, we own several trademarks including the GaSonics name, Integrated
Clean and others applicable to our products. Nevertheless, we rely primarily on
innovation, technological expertise, know-how and the marketing abilities of
our employees rather than patent, trademark, copyright or other intellectual
property rights protection.
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<PAGE>
Although we attempt to protect our intellectual property rights through
patents, copyrights, trade secrets and other measures, there can be no
assurance that we will be able to protect our technology adequately or that
competitors will not develop similar technology independently. There can be no
assurance that any of our pending patent applications will be issued or that
foreign intellectual property laws will protect our intellectual property
rights. Patents issued to us could be challenged, invalidated or circumvented
and the rights granted thereunder may not provide competitive advantages to us.
Furthermore, there can be no assurance that others will not independently
develop similar products, duplicate our products or, if patents are issued to
us, design around our patents or patent applications.
Employees
As of February 29, 2000, we had 413 full-time employees. We believe our
future success will depend in large part on our ability to attract and retain
highly skilled and motivated employees. Our employees are not covered by a
collective bargaining agreement or represented by a labor union. We consider
our relationships with our employees to be good.
Facilities
Our corporate headquarters are located in San Jose, California and consist
of approximately 117,000 square feet used for administration and manufacturing.
In addition, we lease sales and service facilities in five U.S. locations. In
Asia, our offices are located in Japan, Korea, Singapore and Taiwan.
Legal Proceedings
We are not a party to any material legal proceedings.
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<PAGE>
MANAGEMENT
Directors, Executive Officers and Key Employees
Our directors, executive officers and key employees, and their ages and
positions as of February 29, 2000, are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Executive Officers & Key
Employees
Asuri Raghavan.......... 47 Chief Executive Officer, President and Director
Jerauld J. Cutini....... 40 Senior Vice President of Marketing and Business Development
Rammy Rasmussen......... 57 Vice President of Finance, Chief Financial Officer and Secretary
Bill Alexander.......... 43 Vice President, Worldwide Sales and Field Operations
Graham Hills Ph.D....... 50 Vice President, Chief Technical Officer
John Villadsen.......... 47 Vice President, Manufacturing Operations
Directors
Dave Toole.............. 44 Chairman of the Board of Directors
Monte M. Toole.......... 68 Vice Chairman of the Board of Directors
Kenneth L. Schroeder.... 53 Director
Kenneth M. Thompson..... 61 Director
F. Joseph Van Poppelen.. 72 Director
</TABLE>
Asuri Raghavan joined us as Chief Executive Officer, President and a
director in April 1998. Mr. Raghavan was formerly employed by Kulicke and Soffa
Industries, Inc. from November 1988 to March 1998 where he most recently served
as President of the Equipment Group. Prior to that position with Kulicke, Mr.
Raghavan served as its Senior Vice President of Marketing from 1995 to 1997,
its Vice President of the Wire Bonding Business from 1993 to 1995, its Vice
President of Strategic Development from 1991 to 1993 and its Director of
Marketing for the Equipment Group from 1988 to 1991. From 1985 to 1988, Mr.
Raghavan was employed by American Optical Corporation where he held the
position of Director of Research and Technology. From 1980 to 1985, Mr.
Raghavan held various engineering, marketing and product development positions
with Kulicke.
Jerauld J. Cutini joined us as Senior Vice President of Marketing and
Business Development in October 1999. Prior to joining us in August 1990, Mr.
Cutini co-founded OnTrak Systems and from August 1990 to August 1997 served as
OnTrak's Executive Vice President of Marketing, Sales and Customer Service
until the company was acquired by Lam Research Corporation in August 1997.
Following the acquisition, Mr. Cutini served as President of OnTrak, a wholly-
owned subsidiary of Lam Research, until October 1999. From 1988 to 1990, he
served as an Account Manager for Applied Materials, Inc. and from 1980 to 1988
he served at various times as a Field Service Engineer, Product Marketing
Engineering and Sales Engineer for Silicon Valley Group.
Rammy Rasmussen joined us as Vice President of Finance, Chief Financial
Officer and Secretary in January 2000. Mr. Rasmussen served as Chief Financial
Officer for Vadem Limited throughout 1999, for Fujitsu Microelectronics from
March 1996 to January 1999, and for Exponent, Inc. from May 1994 to February
1996. He also held senior financial positions at Raynet from 1990 to 1994, at
Cypress Semiconductor from 1987 to 1990 and at Advanced Micro Devices from 1979
to 1987. Mr. Rasmussen is a Certified Public Accountant.
Bill Alexander joined us as Vice President, Worldwide Sales and Field
Operations in August 1997. Mr. Alexander was employed by Tencor Corporation
(now KLA-Tencor Corporation) from November 1996 to August 1997 where he served
as Vice President of Asia-Pacific Operations. From 1993 to 1996, he first
served as Director of Asia Operations and later as Vice President of
International Operations with Watkins-Johnson Company and from 1990 to 1993
held various senior sales and marketing positions at Lam Research Corporation.
From 1981 to 1990, Mr. Alexander held various management positions with
Watkins-Johnson Company, Innovus Corporation, VLSI Technology and FMC
Corporation.
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<PAGE>
Graham Hills joined us as Vice President and Chief Technical Officer in June
1999. Prior to joining us, Dr. Hills was employed by Lam Research Corporation
since August 1996 where he served as Vice President of Dielectric Etch
Technology and Engineering from January 1998 to June 1999 and Senior Director
of Dielectric Etch Technology from August 1996 to January 1998. From 1995 to
1996, Dr. Hills was employed by Applied Materials Corporation where he served
as Director of Silicon Etch Product Unit, Director of Technology from 1991 to
1996 and a senior technology staff member and an account technology manager
from 1989 to 1991. From 1984 to 1989, Dr. Hills served on the technical staff
of ATT, Bell Laboratories, was an Assistant Professor at the University of
North Carolina from 1978 to 1984 and did postdoctoral work at Rice University
and NRC, Canada from 1974 to 1977.
John Villadsen joined us as Vice President of Manufacturing Operations in
September 1999. Mr. Villadsen was employed by Watkins-Johnson Company from 1982
to 1999. From April 1998 to September 1999, he held the position of Vice
President of Customer Service and Manufacturing. From May 1995 to April 1998,
he served as Director of Assembly and Test for the Semiconductor Equipment
Group. From 1982 to 1985, Mr. Villadsen held various manufacturing management
positions for the Microwave Products Division of Watkins-Johnson.
Dave Toole was appointed Chairman of our board of directors in April 1998.
Mr. Toole has served as the President of Outhink, Inc., a corporate performance
portal company, since April 1999. Mr. Toole served as our Chief Executive
Officer from December 1994 to April 1998. Between May 1993 and April 1998, Mr.
Toole served as President and Chief Operating Officer. Prior to that time, Mr.
Toole served as Vice President, Commercial Operations from May 1991 to May 1993
and as our Vice President and General Manager from April 1989 to May 1991. Mr.
Toole served as our Vice President, Sales and Marketing from October 1986 to
April 1989 and has served as a Director Since April 1979. Mr. Toole has held
various other positions in purchasing, manufacturing, marketing and sales since
joining us in 1979. Prior to 1979, Mr. Toole was employed by Advanced Micro
Devices.
Monte M. Toole founded GaSonics in March 1971 and currently serves as Vice
Chairman of the board of directors. Mr. Toole served as Chairman of the Board
from our inception until April 1998. Mr. Toole served as Chief Executive
Officer from the our inception to December 31, 1994. Between March 1971 and May
1993, Mr. Toole also served as our President. Prior to founding GaSonics, Mr.
Toole was a representative of semiconductor equipment manufacturers at Monte
Toole and Associates, Inc., a manager at Fairchild Semiconductor and a systems
analyst at IBM. From October 1991 to June 1993, Mr. Toole served on the board
of directors of Integrated Process Equipment Corporation.
Kenneth L. Schroeder joined us as a director in July 1995. Mr. Schroeder has
been the President, Chief Executive Officer, and a director of KLA-Tencor
Corporation since July 1999. From November 1991 until June 1999, he was
President and Chief Operating Officer and a director of KLA-Tencor. Mr.
Schroeder has been employed by KLA-Tencor for 17 years in various management
positions. Mr. Schroeder is also a director of SEMI, the trade association for
the semiconductor capital equipment industry.
Kenneth M. Thompson joined us as a director in June 1998. Prior to joining
us, Mr. Thompson was employed by Intel Corporation for 25 years in various
management positions, most recently as Vice President of Manufacturing
Technology Engineering. Mr. Thompson has been a director of Lam Research
Corporation since October 1998, a director of PRI Automation Inc. since June
1989 and a director of Avant Com since June 1999.
F. Joseph Van Poppelen joined us as a director in July 1995. Mr. Van
Poppelen has been the President of The Van Poppelen Company, a consulting firm
focused on marketing and business strategies for high technology companies
since 1989. From 1975 to 1989, Mr. Poppelen served as Senior Vice President,
Worldwide Marketing and Sales of National Semiconductor Corporation. Mr. Van
Poppelen currently serves on the board of directors of Novellus Systems, Inc.
39
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information regarding the ownership of our
common stock as of February 29, 2000 by: (i) each director; (ii) certain of our
executive officers; (iii) all executive officers and directors of the Company
as a group; (iv) all those known by us to be beneficial owners of more than
five percent (5%) of our common stock; and (v) each of our current stockholders
who is expected to sell in the offering:
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to Owned After the
Offering Number of Offering
Name and Address of -------------------- Shares Being --------------------
Beneficial Owner (1) Number Percent(2) Offered Number Percent(2)
- -------------------- ------ ---------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Principal Stockholders:
Capital Guardian Trust
Company
11100 Santa Monica
Blvd., 15th Floor
Los Angeles, CA
90025(3).............. 3,270,000 22.3% -- 3,270,000 18.7%
Wisconsin Investment
Board
121 East Wilson Street
Madison , WI 53707..... 1,000,000 6.8 -- 1,000,000 5.7
Directors and Executive
Officers:
Monte M. Toole (4)...... 1,885,728 12.8 300,000 1,585,728 9.1
Dave Toole (5).......... 915,914 6.2 200,000 715,914 4.1
Asuri Raghavan (6)...... 125,956 * -- 125,956 *
Kenneth M. Thompson
(7).................... 7,500 * -- 7,500 *
Kenneth L. Schroeder
(8).................... 22,500 * -- 22,500 *
F. Joseph Van Poppelen
(9).................... 32,500 * -- 32,500 *
Bill N. Alexander (10).. 32,800 * -- 32,800 *
Rammy Rasmussen ........ -- -- -- -- --
Graham W. Hills ........ -- -- -- -- --
Jerauld J. Cutini ...... 3,000 * -- 3,000 *
John R. Villadsen ...... -- -- -- -- --
All directors and
executive officers as a
group (11 persons)
(11)................... 3,025,898 20.2 -- 2,525,898 14.2
</TABLE>
- --------
* Less than one percent of the outstanding common stock.
(1) Unless otherwise specified, the address of each beneficial owner is 2730
Junction Avenue, San Jose, California 95134-1909.
(2) Percentage of ownership is based on 14,679,907 shares of common stock
outstanding as of February 29, 2000 and 17,479,907 shares of common stock
outstanding immediately following the offering. Beneficial ownership is
determined in accordance with the rules of the SEC and generally includes
voting or investment power with respect to securities. Shares of common
stock subject to options or warrants currently exercisable or convertible,
or exercisable or convertible within 60 days of February 29, 2000, are
deemed outstanding for computing the ownership percentage of the person
holding such option or warrant but are not deemed outstanding for
computing the ownership percentage of any other person.
(3) Includes 1,698,000 shares held by Capital Group International, Inc., an
affiliate of Capital Guardian Trust Company.
(4) Includes 997,999 shares of common stock held by the Monte M. Toole Family
Limited Partnership, of which Monte M. Toole is the sole General Partner.
(5) Includes 146,456 shares underlying stock options that are currently
exercisable or which will become exercisable within 60 days after February
29, 2000. Also includes 94,999 shares of common stock held by the David
Toole Family Limited Partnership, of which Dave Toole and his wife, Diane
Toole, are the sole general partners, and 686,062 shares of common stock
held by the David Toole and Diane L. Toole
40
<PAGE>
Family Trust, of which Dave and Diane Toole are the sole Trustees.
Excludes 59,998 shares of common stock held by the trustee of the David
Toole and Diane L. Toole Children's Trust for the benefit of Mr. and Mrs.
Toole's two minor children. Dave Toole disclaims beneficial ownership of
such 59,998 shares. Also excludes 32,462 shares held by the David and
Diane L. Toole Charitable Remainder Unitrust. Dave Toole disclaims
beneficial ownership of such 32,462 shares. Also excludes 6,500 shares
held by the David and Diane L. Toole Charitable Foundation. Dave Toole
disclaims beneficial ownership of such 6,500 shares. Includes 133,017
shares underlying stock options that are currently exercisable or that
will become exercisable within 60 days after February 29, 2000.
(6) Includes 123,956 shares underlying stock options that are currently
exercisable or that will become exercisable within 60 days after February
29, 2000.
(7) Represents 7,500 shares underlying stock options that are currently
exercisable or that will become exercisable within 60 days after February
29, 2000
(8) Represents 22,500 shares underlying stock options that are currently
exercisable or that will become exercisable within 60 days after February
29, 2000.
(9) Includes 10,000 shares held by Trust Company of America, FBO F. Joseph
Van Poppelen. Also includes 22,500 shares underlying stock options that
are currently exercisable or that will become exercisable within 60 days
after February 29, 2000.
(10) Includes 13,201 shares underlying stock options that are currently
exercisable or that will become exercisable within 60 days after February
29, 2000.
(11) Includes 336,113 shares underlying stock options held by five officers
and two directors (one director which is also an officer) that are
currently exercisable or that will become exercisable within 60 days
after February 29, 2000.
41
<PAGE>
UNDERWRITING
General
We and the selling stockholders are offering the shares of common stock
described in this prospectus through a number of underwriters. Banc of America
Securities LLC, CIBC World Markets Corp. and FleetBoston Robertson Stephens
Inc. are the representatives of the underwriters. We have entered into an
underwriting agreement with the representatives. Subject to the terms and
conditions of the underwriting agreement, we have agreed to sell to the
underwriters, and each underwriter has severally agreed to purchase, the number
of shares of common stock listed next to its name below at the public offering
price, less the underwriting discounts and commissions described on the cover
page of the prospectus:
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Banc of America Securities LLC............................
CIBC World Markets Corp...................................
FleetBoston Robertson Stephens Inc........................
---------
Total................................................... 3,300,000
=========
</TABLE>
The underwriting agreement is subject to a number of terms and conditions
and provides that the underwriters must buy all of the shares if they buy any
of them, except those covered by the underwriter's over-allotment option
described below. The underwriters will sell the shares to the public when and
if the underwriters buy the shares from us.
The underwriters initially will offer the shares to the public at the price
specified on the cover page of the prospectus. The underwriters may allow
selected dealers a concession of not more than $ per share. The underwriters
may also allow, and any other dealers may reallow, a concession of not more
than $ per share to some other dealers. If all the shares are not sold at the
public offering price, the underwriters may change the public offering price
and the other selling terms. No change in the public offering price will vary
the proceeds to be received by us as specified on the cover page of the
prospectus. The common stock is offered subject to a number of conditions,
including:
. receipt and acceptance of the common stock by the underwriters; and
. the right on the part of the underwriters to reject orders in whole or in
part.
We and the selling stockholders have granted the underwriters an option to
buy up to 495,000 additional shares of common stock. These additional shares
would cover sales of shares by the underwriters that exceed the number of
shares specified in the table above. The underwriters may exercise this option
at any time within 30 days after the date of the prospectus. If the
underwriters exercise this option, they will each purchase, subject to a number
of terms and conditions, additional shares approximately in proportion to the
amounts specified above. If purchased, the underwriters will offer such
additional shares on the same terms as those on which the 3,300,000 shares are
being offered.
The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters. These amounts are shown assuming no
exercise and full exercise of the underwriters' option to purchase additional
shares:
<TABLE>
<CAPTION>
No Full
Exercise Exercise
-------- --------
<S> <C> <C>
Per share underwriting discounts and commissions......... $ $
Total underwriting discounts and commissions to be
paid by us.............................................. $ $
Total underwriting discounts and commissions to be
paid by the selling stockholders........................ $ $
</TABLE>
The expenses of the offering, not including the underwriting discounts and
commissions, are estimated to be approximately $ and will be paid by us.
Expenses of the offering, exclusive of the underwriting discounts and
commissions, include the SEC filing fee, the NASD filing fee, Nasdaq listing
fees, printing expenses, transfer agent and registration and other
miscellaneous fees.
42
<PAGE>
We, our executive officers and directors have entered into lock-up
agreements with the underwriters. Under these agreements, subject to
exceptions, we may not issue any new shares of common stock, and our executive
officers and directors may not offer, sell, contract to sell or otherwise
dispose of or hedge any common stock or securities convertible into or
exchangeable for shares of common stock. These restrictions will be in effect
for a period of 90 days after the date of the prospectus. At any time and
without notice, Banc of America Securities LLC may, in its sole discretion,
release all or some of the securities from these lock-up agreements.
We will indemnify the underwriters against some liabilities, including some
liabilities under the Securities Act. If we are unable to provide this
indemnification, we will contribute to payments the underwriters may be
required to make in respect of those liabilities.
In connection with the offering, the underwriters may engage in activities
that stabilize, maintain or otherwise affect the price of the common stock.
These transactions may include:
. short sales;
. over-allotment;
. syndicate covering transactions;
. purchases to cover positions created by short sales; and
. stabilizing transactions.
Short sales involve the sale by the underwriters of a greater number of
shares than they are required to purchase in the offering. In order to cover a
short position, the underwriters may bid for and purchase shares of common
stock in the open market or may exercise their over-allotment option.
Stabilizing transactions consist of bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the common stock while
the offering is in progress.
The underwriters may also impose a penalty bid. This means that if the
representatives purchase shares in the open market in stabilizing transactions
or to cover short sales, the representatives can require the underwriters that
sold those shares as part of the offering to repay the underwriting discounts
and commissions received by them.
As a result of these activities, the price of the common stock may be higher
than the price that otherwise might exist in the open market. If the
underwriters commence these activities, they may discontinue them at any time.
The underwriters may carry out these transactions on the Nasdaq National
Market, in the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed 5%
of the total number of shares of common stock offered by the prospectus.
In connection with the offering, some underwriters and any selling group
members who are qualified market makers on the Nasdaq National Market may
engage in passive market making transactions in the common stock on the Nasdaq
National Market in accordance with Rule 103 of Regulation M. Rule 103 permits
passive market making during the period when Regulation M would otherwise
prohibit market activity by the participants in the offering. Passive market
making may occur during the business day before the pricing of the offering,
before the commencement of offers or sales of the common stock. Passive market
makers must comply with applicable volume and price limitations and must be
identified as a passive market maker. In general, a passive market maker must
display its bid at a price not in excess of the highest independent bid for the
security. If all independent bids are lowered below the passive market maker's
bid, however, the bid must then be lowered when purchase limits are exceeded.
Net purchases by a passive market maker on each day are limited to a specified
percentage of the passive market maker's average daily trading volume in the
common stock during a specified period and must be discontinued when such limit
is reached. Underwriters and dealers are not required to engage in passive
market making and may end passive market making activities at any time.
43
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered by us hereby will be
passed upon for us by Brobeck, Phleger & Harrison LLP, Palo Alto, California.
Certain legal matters will be passed upon for the underwriters by Morrison &
Foerster LLP, San Francisco, California.
EXPERTS
The consolidated financial statements included in this prospectus and
elsewhere in the registration statement, to the extent and for the period
indicated in their report, have been audited by Arthur Andersen LLP,
independent public accountants, and are included herein in reliance upon the
said firm as experts in given said report.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. We have also filed with the SEC a registration
statement on Form S-3 to register the shares of common stock being offered in
this prospectus. This prospectus, which forms part of the registration
statement, does not contain all of the information included in the registration
statement. For further information about us and the shares of common stock
offered in this prospectus, you should refer to the registration statement and
its exhibits and our other SEC filings. You may read and copy any document we
file at the SEC's public reference rooms in Washington, D.C., New York, New
York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available
to the public from the SEC's website at http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus. We incorporate by reference the
documents listed below:
. Our Annual Report on Form 10-K for the fiscal year ended September 30,
1999;
. Our Quarterly Reports on Form 10-Q for the fiscal quarter ended December
31, 1999 and on Form 10-Q for the fiscal quarter ended March 31, 2000;
. The description of our common stock contained in our Registration
Statement on Form 8-A filed under Section 12 of the Exchange Act with
the Commission on February 4, 1994, as amended on March 7, 1994.
. Our Proxy Statement filed in connection with a special meeting of
stockholders to be held on July 17, 2000.
In addition, all documents subsequently filed by us pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the termination of this
offering, shall be deemed incorporated by reference into this prospectus.
If you request a copy of any or all of the documents incorporated by
reference, then we will send to you the copies you requested at no charge.
However, we will not send exhibits to such documents, unless such exhibits are
specifically incorporated by reference in such documents. You should direct any
request for such copies to GaSonics International Corporation, Chief Financial
Officer, 2730 Junction Avenue, San Jose, California 95134, (408) 570-7000.
You should rely only on the information contained in this prospectus and
incorporated by reference into this prospectus. We have not authorized anyone
to provide you with information different from that contained or incorporated
by reference in this prospectus. We are offering to sell, and seeking offers to
buy, shares of our common stock only in jurisdictions where offers and sales
are permitted. The information contained in this prospectus is accurate only as
of the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of the shares.
44
<PAGE>
GASONICS INTERNATIONAL CORP
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants................................. F-2
Consolidated Balance Sheets as of September 30, 1999 and September 30,
1998.................................................................... F-3
Consolidated Statements of Operations for the years ended September 30,
1999, 1998 and 1997..................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended
September 30, 1999, 1998 and 1997....................................... F-5
Consolidated Statements of Cash Flows for the years ended September 30,
1999, 1998 and 1997..................................................... F-6
Notes to the Consolidated Financial Statements........................... F-7
Condensed Consolidated Balance Sheets as of December 31, 1999 and
September 30, 1999...................................................... F-19
Condensed Consolidated Statements of Operations for the Three Months
Ended December 31, 1999 and 1998........................................ F-20
Condensed Consolidated Statements of Cash Flows for the Three Months
Ended December 31, 1999 and 1998........................................ F-21
Notes to Condensed Consolidated Financial Statements (unaudited)......... F-22
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To GaSonics International Corporation:
We have audited the accompanying consolidated balance sheets of GaSonics
International Corporation (a Delaware corporation) and subsidiaries as of
September 30, 1999 and 1998, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended September 30, 1999. These financial statements and the
schedules referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of GaSonics International
Corporation and subsidiaries as of September 30, 1999 and 1998, and the results
of their operations and cash flows for each of the three years in the period
ended September 30, 1999 in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
San Jose, California
October 27, 1999
F-2
<PAGE>
GASONICS INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
September 30,
------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................... $ 16,858 $ 14,698
Marketable securities........................................ 10,899 17,640
Trade accounts receivable, net of allowance for doubtful
accounts of $654 in 1999 and $840 in 1998................... 18,986 15,026
Inventories.................................................. 16,523 20,822
Net deferred tax asset....................................... 5,697 5,697
Prepaid expenses and other current assets.................... 3,197 7,437
-------- --------
Total current assets....................................... 72,160 81,320
-------- --------
PROPERTY AND EQUIPMENT:
Furniture and fixtures....................................... 426 786
Machinery and equipment...................................... 21,160 20,099
Leasehold improvements....................................... 4,076 4,023
-------- --------
25,662 24,908
Less--accumulated depreciation and amortization.............. (14,396) (10,098)
-------- --------
NET PROPERTY AND EQUIPMENT..................................... 11,266 14,810
-------- --------
DEPOSITS AND OTHER ASSETS...................................... 782 1,086
-------- --------
TOTAL ASSETS................................................... $ 84,208 $ 97,216
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Borrowings under credit facility............................. $ 2,832 $ 2,116
Accounts payable............................................. 5,691 4,008
Income taxes payable......................................... 4,616 4,038
Other accrued liabilities.................................... 9,446 11,423
-------- --------
Total current liabilities.................................. 22,585 21,585
-------- --------
LONG-TERM LIABILITIES:
Deferred rent................................................ -- 223
COMMITMENTS (NOTE 12)
STOCKHOLDERS' EQUITY:
Preferred stock, $0.001 par value: Authorized shares--
2,000,000................................................... -- --
Common stock, $0.001 par value: Authorized shares--
20,000,000.................................................. -- --
Outstanding shares--14,382,629 and 14,169,227................ 14 14
Additional paid-in capital................................... 40,623 37,661
Treasury stock............................................... (2,639) --
Subscription receivable...................................... (26) --
Retained earnings............................................ 23,651 37,733
-------- --------
Total stockholders' equity................................. 61,623 75,408
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..................... $ 84,208 $ 97,216
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
GASONICS INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years ended September 30,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
NET SALES....................................... $ 64,279 $100,430 $121,256
COST OF SALES................................... 39,894 59,126 67,292
-------- -------- --------
GROSS MARGIN.................................... 24,385 41,304 53,964
-------- -------- --------
OPERATING EXPENSES:
Costs associated with reduction in force (Note
5)........................................... 407 1,681 --
Provision for uncollectible account (Note 2).. -- -- 4,517
Research and development...................... 17,696 20,493 17,410
Selling, general and administrative........... 21,639 28,727 29,257
-------- -------- --------
Total operating expenses........................ 39,742 50,901 51,184
-------- -------- --------
OPERATING INCOME (LOSS)......................... (15,357) (9,597) 2,780
OTHER INCOME (EXPENSE):
Interest expense.............................. (42) (26) (91)
Interest and other income, net................ 1,317 1,096 722
Gain on sale of investment.................... -- -- 1,215
-------- -------- --------
INCOME (LOSS) BEFORE PROVISION (BENEFIT)
FOR INCOME TAXES............................... (14,082) (8,527) 4,626
PROVISION (BENEFIT) FOR INCOME TAXES............ -- (2,814) 1,619
-------- -------- --------
NET INCOME (LOSS)............................... $(14,082) $ (5,713) $ 3,007
======== ======== ========
Net income (loss) per share--Basic.............. $ (0.98) $ (0.41) $ 0.22
======== ======== ========
Net income (loss) per share--Diluted............ $ (0.98) $ (0.41) $ 0.21
======== ======== ========
Weighted average common shares--Basic........... 14,316 14,039 13,635
======== ======== ========
Weighted average common and common equivalent
shares--Diluted................................ 14,316 14,039 14,209
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
GASONICS INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except per share data)
<TABLE>
<CAPTION>
Unrealized Note
Common Stock Additional Gain on Receivable Total
------------------ Paid-in Subscription Marketable From Retained Stockholders'
Shares Amount Capital Receivable Securities Stockholder Earnings Equity
---------- ------ ---------- ------------ ----------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30,
1996.................... 13,472,276 $13 $31,400 $ -- $902 $(65) $40,439 $72,689
Issuance of common
stock under employee
stock purchase plan.... 138,325 -- 1,348 -- -- -- -- 1,348
Issuance of common
stock under stock
option plan............ 305,500 1 3,085 (100) -- -- -- 2,986
Forgiveness of note
receivable from
stockholder............ -- -- -- -- -- 65 -- 65
Change in unrealized
gain on marketable
securities............. -- -- -- -- (902) -- -- (902)
Net income............. -- -- -- -- -- -- 3,007 3,007
---------- --- ------- ----- ---- ---- ------- -------
BALANCE, SEPTEMBER 30,
1997.................... 13,916,101 14 35,833 (100) -- -- 43,446 79,193
Issuance of common
stock under employee
stock purchase plan.... 189,177 -- 1,198 -- -- -- -- 1,198
Issuance of common
stock under stock
option plan............ 63,949 -- 630 100 -- -- -- 730
Net loss............... -- -- -- -- -- -- (5,713) (5,713)
---------- --- ------- ----- ---- ---- ------- -------
BALANCE, SEPTEMBER 30,
1998.................... 14,169,227 14 37,661 -- -- -- 37,733 75,408
Issuance of common
stock under employee
stock purchase plan.... 171,753 -- 1,131 -- -- -- -- 1,131
Issuance of common
stock under stock
option plan............ 241,649 -- 1,831 (26) -- -- -- 1,805
Stock repurchase....... (200,000) -- (2,639) -- -- -- -- (2,639)
Net loss............... -- -- -- -- -- (14,082) (14,082)
---------- --- ------- ----- ---- ---- ------- -------
BALANCE, SEPTEMBER 30,
1999.................... 14,382,629 $14 $37,984 $(26) $ -- $ -- $23,651 $61,623
========== === ======= ===== ==== ==== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
GASONICS INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years ended September 30,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).............................. $(14,082) $ (5,713) $ 3,007
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization................ 4,993 3,970 2,773
Provision for doubtful accounts.............. 180 120 4,637
Forgiveness of note receivable from
stockholder................................. -- -- 65
Write-off of fixed assets.................... 62 173 --
Changes in assets and liabilities:
Accounts receivable.......................... (4,140) 13,168 (12,564)
Inventories.................................. 4,299 6,254 2,387
Prepaid expenses and other current assets.... 4,240 (5,650) (830)
Deposits and other assets.................... 304 596 554
Accounts payable............................. 1,683 (2,804) (505)
Income taxes payable......................... 578 984 1,954
Accrued liabilities.......................... (1,977) (1,464) 570
Deferred rent................................ (223) (178) (151)
-------- -------- --------
Net cash provided by (used for) operating
activities.................................. (4,083) 9,456 1,897
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities............. (79,370) (67,114) (25,636)
Proceeds from sales of marketable securities... 86,111 61,051 27,292
Purchases of property and equipment............ (1,511) (4,011) (5,935)
-------- -------- --------
Net cash provided by (used for) investing
activities.................................. 5,230 (10,074) (4,279)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of note payable to bank............... -- -- (2,455)
Proceeds from borrowings under credit
facility...................................... 716 80 2,036
Repurchases of common stock.................... (2,639) -- --
Proceeds from issuance of common stock......... 2,936 1,929 4,334
-------- -------- --------
Net cash provided by financing activities.... 1,013 2,009 3,915
-------- -------- --------
Net increase in cash and cash equivalents.... 2,160 1,391 1,533
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD.......................................... 14,698 13,307 11,774
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD....... $ 16,858 $ 14,698 $ 13,307
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
GASONICS INTERNATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
1. ORGANIZATION AND OPERATIONS OF THE COMPANY:
GaSonics International Corporation (the "Company") is a leading global
supplier of products and services used in the fabrication of advanced
integrated circuits ("semiconductors" or "ICs") and flat panel displays
("FPDs"). The Company markets its products in the Asia/Pacific region, Europe
and the United States primarily to large semiconductor and liquid crystal
manufacturing concerns. The Company is subject to a number of risks including,
but not limited to, volatility in the semiconductor markets and the related
demand for semiconductor equipment and the risk of inventory obsolescence
resulting from new product developments by competitors. See "Additional Risk
Factors."
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries and branches after elimination of
intercompany accounts and transactions.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ materially from those
estimates.
Fiscal Year
The Company maintains a 52/53 week fiscal year cycle ending on the Saturday
closest to September 30. Fiscal 1999, fiscal 1998 and fiscal 1997 contain 52
weeks. For external reporting purposes, the Company indicates its fiscal period
as ending on September 30.
Cash and Cash Equivalents
For purposes of the Consolidated Statements of Cash Flows, the Company
considers all highly liquid investments with an original maturity of 90 days or
less to be cash equivalents.
Cash paid for interest, including amounts paid under capital lease
obligations, and domestic and foreign income taxes were as follows (in
thousands):
<TABLE>
<CAPTION>
Years ended September 30,
--------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Interest.......................................... $ 140 $ 25 $ 94
Income taxes...................................... $ 590 $ 224 $ 625
</TABLE>
The Company had one significant non-cash transaction for the year ended
September 30, 1997 related to the Submicron Technologies PLC (see Concentration
of Credit Risk below) write-off of their uncollectible account. Non-cash
activity included a before tax bad debt expense of $4.5 million.
F-7
<PAGE>
GASONICS INTERNATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Investments in Marketable Securities
Pursuant to the provisions of Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", the Company's investments are classified as available-for-sale and
are stated at fair value. Material unrealized gains and losses are recorded as
a separate component of stockholders' equity, net of tax. The Company's
investments in debt securities mature at various dates through July 2000.
The fair value of available-for-sale securities was determined based on
quoted market prices at the reporting date for the instruments.
The components of available-for-sale securities by major security type as of
September 30, 1999 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Gross
Aggregate Unrealized
Amortized Fair Holding
Gross Value Gains
--------- --------- ----------
<S> <C> <C> <C>
Fiscal 1999
Debt securities issued by the United States
Government and agencies of the United States
Government.................................. $23,001 $23,001 $--
Fiscal 1998
Debt securities issued by states of the
United States and political subdivisions of
the states.................................. $25,774 $25,774 $--
</TABLE>
Proceeds from sales of available-for-sale securities were approximately
$86.1 million, $61.1 million and $27.3 million in fiscal 1999, 1998 and 1997,
respectively. Gross realized gains on those sales were approximately $27,500,
$8,000 and $3,000 in fiscal 1999, 1998 and 1997, respectively. The Company used
specific identification as the cost basis in computing realized gains.
Revenue Recognition and Product Warranty
Revenues from the Company's products are generally recognized upon shipment.
The Company provides for the estimated costs of installation and warranty at
the time revenue is recognized. Maintenance and service revenues account for
approximately 15% of net sales and are recognized as the related work is
performed.
Major Customers
One customer accounted for approximately 23%, 20% and 10% of net sales for
each of fiscal years 1999, 1998 and 1997, respectively. Two other customers
each accounted for approximately 11% of net sales in fiscal 1997. There was one
other customer in fiscal 1998 that accounted for approximately 11% of net
sales.
Software Development Costs
SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed," requires the capitalization of certain computer
software development costs incurred after technological feasibility is
established. Amounts qualifying for capitalization under the statement are
immaterial and have not been capitalized to date.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and include material, labor and manufacturing costs. Inventory is valued at
currently adjusted standards which approximate actual costs on a first-in,
first-out basis.
F-8
<PAGE>
GASONICS INTERNATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company provides inventory reserves for excess, obsolete, damaged or
lost inventory. The process of estimating required inventory reserves is
judgmental and is based on a number of factors which require input and
discussion among various members of management. Such factors include changes in
customer demand, changes in technology and other economic factors.
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 30,
---------------
1999 1998
------- -------
<S> <C> <C>
Raw materials................................................ $ 7,784 $12,547
Work-in-process.............................................. 5,409 2,254
Finished goods............................................... 3,330 6,021
------- -------
$16,523 $20,822
======= =======
</TABLE>
Property and Equipment
Property and equipment are stated at cost and are generally depreciated over
the estimated useful lives of the assets (four to ten years) using the
straight-line method. Leasehold improvements are amortized on a straight-line
basis over the shorter of the useful lives of the assets or the remaining lease
term. Assets acquired under capital leases are recorded at the present value of
the related lease obligations and amortized on a straight-line basis over the
related lease term.
Other Accrued Liabilities
Other accrued liabilities included the following (in thousands):
<TABLE>
<CAPTION>
September 30,
--------------
1999 1998
------ -------
<S> <C> <C>
Warranty...................................................... $2,252 $ 3,213
Sales commissions............................................. 1,056 805
Employee compensation......................................... 3,538 3,744
Other......................................................... 2,600 3,661
------ -------
$9,446 $11,423
====== =======
</TABLE>
Net Income (Loss) Per Share
Net income (loss) per share data has been computed using the weighted
average number of shares of common stock outstanding for the Basic net income
(loss) per share calculation, and using the weighted average number of shares
of common stock and common stock equivalent shares calculated under the
treasury stock method for the Diluted net income (loss) per share calculation.
Foreign Currency Translation
The functional currency of the Company's foreign subsidiaries is the U.S.
dollar. Accordingly, foreign translation and exchange gains and losses, which
have not been material, are reflected in the accompanying consolidated
statements of operations.
F-9
<PAGE>
GASONICS INTERNATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of temporary cash investments and trade
receivables. The Company has cash investment policies that limit the amount of
credit exposure to any one financial institution evaluated as highly
creditworthy. Concentration of credit risk with respect to trade receivables
exists because the Company's revenues are derived primarily from the sale of
photoresist removal equipment to companies in the semiconductor industry. The
Company performs ongoing credit evaluations of its customers and generally does
not require collateral.
A write-off of accounts receivable was recorded in the third quarter of
fiscal 1997 for the uncollectible account receivable due from SubMicron
Technologies PLC in Thailand. The Company recorded a $4.5 million pre-tax
charge to cover the unpaid balance on accounts receivable, less the value of
the recovered equipment, which the Company resold during fiscal 1998.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year presentation.
Effect of Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which requires
companies to record derivative financial instruments on the balance sheet as
assets or liabilities. It establishes accounting and reporting standards for
derivative instruments including standalone instruments, such as forward
currency exchange contracts and interest rate swaps or embedded derivatives and
requires that these instruments be marked-to-market on an ongoing basis. These
market value adjustments are to be included either in the income statement or
stockholders' equity, depending on the nature of the transaction. SFAS No. 133
is effective for fiscal years beginning after June 15, 2000 and cannot be
applied retroactively. The effect of SFAS No. 133 is not expected to be
material to the Company's financial statements.
F-10
<PAGE>
GASONICS INTERNATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. GEOGRAPHIC AREA DATA:
The Company's operations by geographical area for the three years ended
September 30, 1999 were as follows (in thousands):
<TABLE>
<CAPTION>
United Other
States Japan Foreign Eliminations Consolidated
-------- ------ -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
1999
Net sales:
Domestic................ $ 34,727 $4,692 $ 3,794 $ -- $ 43,213
Exports Europe.......... 5,004 -- -- -- 5,004
Exports Asia/Pacific.... 16,357 -- -- -- 16,357
Exports Japan........... (295) -- -- -- (295)
Intercompany............ 3,805 1,767 6,726 (12,298) --
-------- ------ ------- -------- --------
Total revenues............ $ 59,598 $6,459 $10,520 $(12,298) $ 64,279
-------- ------ ------- -------- --------
Operating income (loss)... $(15,060) $ (149) $ 143 $ (291) $(15,357)
Identifiable assets....... $ 76,006 $6,492 $ 3,432 $ (1,722) $ 84,208
======== ====== ======= ======== ========
1998
Net sales:
Domestic................ $ 55,294 $3,753 $ 3,596 $ -- $ 62,643
Exports Europe.......... 21,360 -- -- -- 21,360
Exports Asia/Pacific.... 15,121 1,111 -- -- 16,232
Exports Japan........... 195 -- -- -- 195
Intercompany............ 2,303 1,675 7,649 (11,627) --
-------- ------ ------- -------- --------
Total revenues............ $ 94,273 $6,539 $11,245 $(11,627) $100,430
-------- ------ ------- -------- --------
Operating income (loss)... $(10,728) $ 378 $ 755 $ (2) $ (9,597)
Identifiable assets....... $ 88,100 $7,541 $ 3,007 $ (1,432) $ 97,216
======== ====== ======= ======== ========
1997
Net sales:
Domestic................ $ 54,899 $7,829 $ 3,280 $ -- $ 66,008
Exports Europe.......... 16,998 -- -- -- 16,998
Exports Asia/Pacific.... 35,557 -- -- -- 35,557
Exports Japan........... 2,693 -- -- -- 2,693
Intercompany............ 1,916 1,155 7,046 (10,117) --
-------- ------ ------- -------- --------
Total revenues............ $112,063 $8,984 $10,326 $(10,117) $121,256
-------- ------ ------- -------- --------
Operating income.......... $ 67 $1,729 $ 967 $ 17 $ 2,780
Identifiable assets....... $ 95,003 $8,273 $ 2,302 $ (1,196) $104,382
======== ====== ======= ======== ========
</TABLE>
The Company's operations are structured to achieve consolidated objectives.
As a result, significant interdependencies and overlaps exist among the
Company's various operations. Accordingly, the revenue, operating income (loss)
and identifiable assets shown for each geographic area may not be indicative of
the amounts that would have been reported if the operating units were
independent of one another.
Intercompany sales between areas are accounted for based on established
intercompany sales prices.
Operating income (loss) is revenue less related costs and direct and
allocated operating expenses, excluding interest and, for all areas except the
United States, the unallocated portion of corporate expenses. United States
operating income is net of corporate engineering and development and
administrative expenses.
F-11
<PAGE>
GASONICS INTERNATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Corporate assets include assets maintained for general purposes, principally
cash equivalents and marketable securities.
4. SEGMENT REPORTING
In 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise", replacing the
"industry segment" approach with the "management" approach. The management
approach designates the internal organization that is used by management for
making operating decisions and assessing performance as the source of the
Company's reportable segments. SFAS No. 131 also requires disclosures about
products and services, geographic areas and major customers. The adoption of
SFAS No. 131 did not affect the Company's results of operations or financial
position, but did affect the disclosure of segment information. The Company is
organized on the basis of products and services. All of the Company's business
units have been aggregated into one operating segment. The Company's service
business is a separate operating segment; however, this segment does not meet
the quantitative thresholds as prescribed in SFAS No. 131. As a result, in the
opinion of management, no additional operating segment information is required
to be disclosed.
5. CHARGES TAKEN DURING THE FISCAL YEAR
The twelve month period ended September 30, 1998 included pre-tax charges of
approximately $1.7 million, related to costs of reductions in force completed
in June 1998 and September 1998 and costs of facility consolidations. As of
September 30, 1999, $1.5 million of the $1.7 million has been paid and $175,000
remains on the Company's books as an accrual. Also included in the twelve month
period ended September 30, 1998 are pre-tax charges of approximately $4.0
million, related primarily to reserves for potential excess inventory and
accelerated write-downs of certain demonstration equipment. The twelve month
period ended September 30, 1999 included pre-tax charges of approximately
$407,000, related to costs of a reduction in force completed in December 1998.
As of September 30, 1999, $384,000 of the $407,000 has been paid and $23,000
remains on the Company's books as an accrual.
6. COMPREHENSIVE INCOME
Effective December 31, 1998 the Company adopted SFAS No. 130 "Reporting
Comprehensive Income," which establishes standards for reporting and display of
comprehensive income and its components (revenue, expenses, gains and losses)
in a full set of general-purpose financial statements. For the twelve months
ended September 30, 1999 and 1998, there were no material items of
comprehensive income (loss), thus comprehensive income for these periods did
not differ materially from net income as reported in the accompanying financial
statements.
7. RECONCILIATION OF EARNINGS AND SHARE AMOUNTS USED IN EARNINGS PER SHARE
CALCULATION
Effective December 31, 1997, the Company adopted SFAS No. 128, "Earnings per
Share." Basic earnings (loss) per common share were computed by dividing net
income (loss) by the weighted average number of shares of common stock
outstanding during this period. Diluted earnings (loss) per common share for
the twelve months ended September 30, 1999, 1998 and 1997, 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
year 1997 was restated. There has been no impact on reported earnings per share
data when compared to basic and diluted earnings per share calculated under the
provisions of SFAS No. 128 for the twelve month period ended September 30,
1997.
F-12
<PAGE>
GASONICS INTERNATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Per Share
For the twelve months ended September 30, 1999 Loss Shares Amount
- ---------------------------------------------- ------------ ---------- ---------
<S> <C> <C> <C>
Net loss.................................... $(14,082,000)
Basic and diluted loss per share
Loss to common stockholders................. $(14,082,000) 14,316,000 $(0.98)
<CAPTION>
Per Share
For the twelve months ended September 30, 1998 Loss Shares Amount
- ---------------------------------------------- ------------ ---------- ---------
<S> <C> <C> <C>
Net loss.................................... $ (5,713,000)
Basic and diluted loss per share
Loss to common stockholders................. $ (5,713,000) 14,039,000 $(0.41)
<CAPTION>
Per Share
For the twelve months ended September 30, 1997 Loss Shares Amount
- ---------------------------------------------- ------------ ---------- ---------
<S> <C> <C> <C>
Net income.................................. $ 3,007,000
Basic income per share
Income available to common stockholders..... $ 3,007,000 13,635,000 $ 0.22
Effect of dilutive securities:
Options issued to purchase common stock..... 574,000
Dilutive income per share
Income available to common stockholders..... $ 3,007,000 14,209,000 $ 0.21
</TABLE>
8. LINE OF CREDIT AGREEMENT AND CREDIT FACILITY:
The Company has an unsecured $20,000,000 revolving line of credit agreement
(the "Agreement") with Union Bank of California which expires on March 31,
2000. There were no borrowings outstanding under the Agreement as of September
30, 1999. Under the line of credit, all borrowings bear interest at the bank's
LIBOR rate plus 1.25% per annum. The line of credit agreement contains certain
covenants, including covenants relating to financial ratios, profitability and
tangible net worth which must be maintained by the Company. In June 1999 Union
Bank of California renewed the Loan Agreement to provide a profitability
covenant that the Company may not incur losses in two consecutive quarters
after December 31, 1999. The Company was in compliance with the financial
covenants of the Agreement as of September 30, 1999.
Under the Agreement, the Company has a provision for standby letters of
credit not to exceed $500,000. As of September 30, 1999, there were letters of
credit outstanding in the amount of $69,163. Available borrowing under the
credit line is reduced by any amounts outstanding under the letter of credit
provision.
The Company's wholly-owned subsidiary in Japan, GaSonics International
Japan, K.K. entered into an agreement with the Bank of Tokyo-Mitsubishi to
secure a credit facility to provide operating capital to fund operations. The
credit facility provides for borrowings up to a maximum of 300 million Japanese
yen (equivalent to approximately $2.9 million in U.S. dollars as of September
30, 1999), and is secured by a Letter of Guarantee issued by the Company. The
outstanding balance bears interest at 1.375% per annum and is due and payable
on demand. This credit facility expires on March 31, 2000. At September 30,
1999, borrowings under this credit facility agreement were 297 million Japanese
yen, which is equivalent to approximately $2.8 million U.S. dollars as of that
date. The Company intends to enter into a new agreement or extend the term of
the existing credit facility prior to the due date; however, there can be
assurance that such financing will be available when required or, will be on
reasonable terms.
F-13
<PAGE>
GASONICS INTERNATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. INCOME TAXES:
The Company accounts for income taxes using an asset and liability approach.
The provision (benefit) for income taxes consisted of the following (in
thousands):
<TABLE>
<CAPTION>
Years ended September 30,
-----------------------------
1999 1998 1997
------------------ ---------
<S> <C> <C> <C>
Current
Federal..................................... $ -- $ (2,773) $ 1,509
State....................................... -- 130 223
------
Total current............................. -- (2,643) 1,732
------ ---------- ---------
Deferred
Federal..................................... -- (149) (98)
State....................................... -- (22) (15)
------ ---------- ---------
Total deferred............................ -- (171) (113)
------ ---------- ---------
Provision (benefit) for income taxes.......... $ -- $ (2,814) $ 1,619
====== ========== =========
</TABLE>
The provision (benefit) for income taxes differs from the amount computed by
applying the statutory Federal income tax rate, as follows:
<TABLE>
<CAPTION>
Years ended September 30,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Statutory Federal tax rate.................... (35.0)% (35.0)% 35.0%
State income taxes, net....................... (3.8) -- 3.6
Foreign operations............................ 4.2 3.2 1.7
Research and development credit............... (1.0) (3.0) (5.5)
Tax exempt income............................. (1.3) (3.1) (4.6)
Valuation allowance........................... 44.1 -- --
Other......................................... (7.2) 4.9 4.8
-------- -------- -------
Provision (benefit) for income taxes........ (0.0)% (33.0)% 35.0%
======== ======== =======
</TABLE>
The major components of the net deferred tax asset are as follows (in
thousands):
<TABLE>
<CAPTION>
September 30,
--------------
1999 1998
------ ------
<S> <C> <C>
Inventory reserves........................................... $4,605 $3,268
Accrued warranty............................................. 859 1,237
Deferred rent................................................ 17 87
Accrued vacation............................................. 299 274
Net operating loss carryforwards............................. 3,153 --
Valuation allowance for deferred assets...................... (6,215) --
State tax carryovers......................................... 1,186 512
Other temporary differences.................................. 1,793 1,189
------ ------
Deferred tax asset........................................... 5,697 6,567
Deferred tax liabilities..................................... -- (870)
------ ------
Total net deferred tax asset............................... $5,697 $5,697
====== ======
</TABLE>
F-14
<PAGE>
GASONICS INTERNATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. INVESTMENT IN IPEC
During fiscal 1990, the Company and Integrated Process Equipment Corporation
(IPEC) entered into an agreement in which the Company received 294,600 shares
of IPEC Class A common stock in exchange for certain services and technology.
In fiscal 1997, the Company sold 54,673 shares of IPEC common stock and
realized an after tax gain of $790,000 which was reported in other income and
(expense) in the accompanying Consolidated Statements of Operations. As of
September 30, 1997, the Company held no shares of IPEC common stock.
11. STOCK REPURCHASE PROGRAM
On December 16, 1998, the Company's Board of Directors authorized a stock
repurchase program. Under this program 500,000 shares of its Common Stock may
be repurchased by the Company in the open market, from time-to-time at market
prices not to exceed $15.00 per share using available cash. As of September 30,
1999, the Company had repurchased 200,000 shares of common stock in the open
market at an aggregate cost of approximately $2.6 million.
12. COMMITMENTS:
The Company leases its facilities and certain machinery and equipment under
operating lease agreements that expire at various dates through June 2005.
Minimum commitments under the non-cancelable leases as of September 30, 1999
were as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
2000.................................................................. $2,764
2001.................................................................. 2,282
2002.................................................................. 675
2003.................................................................. 32
2004.................................................................. 32
Thereafter............................................................ 23
------
$5,808
======
</TABLE>
Rent expense was approximately $2,235,000, $2,263,000 and $2,113,000 for the
years ended September 30, 1999, 1998 and 1997, respectively.
The Company's lease agreement for one of its facilities provides for the
deferral of three months cash rental payments in fiscal 1990 and subsequent
scheduled rent increases. Rent expense under this agreement is being recognized
on a straight-line basis over the term of the lease. The difference between the
amounts paid and the amounts expensed is classified as deferred rent in the
accompanying Consolidated Balance Sheets.
No new capital lease obligations were incurred in fiscal 1999 or 1998.
13. INCENTIVE STOCK OPTION PLAN AND STOCK PURCHASE PLAN:
In November 1993, the Company's then President and Chief Executive Officer
(the "President") exercised options to purchase an aggregate of 566,665 shares
of common stock at $0.60 per share, with a 5% interest bearing promissory note
payable to the Company in the amount of $340,000. In January 1994, the Board of
Directors authorized a special bonus program for the President, pursuant to
which $100,000 of the principal of the promissory note would be forgiven upon
his completion of each calendar year of service to the Company from January 1,
1994 through January 1, 1997. Accordingly, the promissory note has been
amortized to compensation expense in the amounts of $65,000 for fiscal 1997 and
$100,000 in fiscal years 1996 and 1995, respectively. The promissory note was
fully amortized at September 30, 1997.
F-15
<PAGE>
GASONICS INTERNATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1994 Stock Option/Stock Issuance Plan
In fiscal 1994, the Board adopted, and the stockholders subsequently
approved, the 1994 Stock Option/Stock Issuance Plan (the "1994 Stock Option
Plan") and authorized a total of 1,450,000 shares for issuance under the Plan.
The 1994 Stock Option Plan replaced the Company's 1985 Stock Option Plan and
the Company's 1988 Stock Option Plan which have both been terminated. During
fiscal years 1998 and 1997, the Company's Board of Directors authorized, and
the stockholders subsequently approved, an additional 400,000 and 500,000
shares, respectively, for issuance under the Plan. During fiscal 1999, there
were no new shares authorized.
The 1994 Stock Option Plan is divided into three separate components: i) the
Discretionary Option Grant Program under which key employees (including
officers and directors) and consultants may, at the discretion of the Plan
Administrator, be granted options to purchase shares of common stock at an
exercise price not less than 85% of the fair market value of such shares on the
grant date, ii) the Automatic Option Grant Program under which option grants
will automatically be made at periodic intervals to the nonemployee Board
members to purchase shares of common stock at an exercise price equal to 100%
of the fair market value of the option shares on the grant date, and iii) the
Stock Issuance Program under which key employees (including officers and
directors) and consultants may be issued shares of common stock directly,
either through the purchase of such shares at a price not less than 85% of
their fair market value at the time of issuance or as a bonus tied to the
performance of services or the Company's attainment of financial objectives. In
no event may the aggregate number of shares of common stock for which any
individual participating in the 1994 Plan may be granted stock options and
direct stock issuances exceed 825,000 shares over the term of the Plan. Options
granted under the Discretionary and Automatic Option Grant Programs have a
maximum term of ten years and generally vest over periods of one to five years
from the date of grant, at the discretion of the Plan Administrator. There were
no stock issuances under the 1994 Stock Option Plan in fiscal years 1999, 1998
and 1997.
In August 1996, holders of the Company's options were given the opportunity
to exchange previously granted stock options for new common stock options.
Option holders, excluding non-employee directors of the Company, who held an
outstanding stock option with an exercise price in excess of $7.25 per share
were granted a new option with an exercise price of $7.25 per share, the market
price of the common stock on that date, in exchange for his or her higher-
priced option. Each optionee was given the choice of accepting the new option
with a new four year vesting schedule and having the higher-priced option
canceled or rejecting the new option and retaining the higher-priced option
with its original vesting schedule. Under the terms of the new options, one-
quarter of the shares vest one year from the date of grant and the remaining
shares vest in 36 monthly installments. Options to purchase 416,725 shares were
so exchanged.
In November 1998, holders of the Company's options were given the
opportunity to exchange previously granted stock options for new common stock
options. Option holders, excluding non-employee directors of the Company, who
held an outstanding stock option with an exercise price in excess of $5.625 per
share were granted a new option with an exercise price of $5.625 per share, the
market price of the common stock on that date, in exchange for his or her
higher-priced option. Each optionee was given the choice of accepting the new
option with a new four year vesting schedule and having the higher-priced
option canceled or rejecting the new option and retaining the higher-priced
option with its original vesting schedule. Under the terms of the new options,
one-quarter of the shares vest one year from the date of grant and the
remaining shares vest in 36 monthly installments. Options to purchase 960,131
shares were so exchanged.
F-16
<PAGE>
GASONICS INTERNATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Option and stock issuance activity under the 1994 Stock Option Plan was as
follows:
<TABLE>
<CAPTION>
Weighted
Shares Average
Available Number of Exercise
For Grant Shares Price
---------- ---------- --------
<S> <C> <C> <C>
Balance at September 30, 1996............... 604,238 1,507,270 $8.37
Additional options authorized............. 500,000 -- --
Granted................................... (653,850) 653,850 9.82
Exercised................................. -- (305,500) 8.04
Canceled.................................. 349,559 (349,559) 10.83
---------- ----------
Balance at September 30, 1997............... 799,947 1,506,061 8.50
Additional options authorized............. 400,000 -- --
Granted................................... (872,150) 872,150 9.27
Exercised................................. -- (63,949) 7.83
Canceled.................................. 221,973 (221,973) 9.04
---------- ----------
Balance at September 30, 1998............... 549,770 2,092,289 9.08
Granted................................... (1,398,731) 1,398,731 7.86
Exercised................................. -- (241,649) 7.60
Canceled.................................. 1,278,341 (1,278,341) 9.83
---------- ----------
Balance at September 30, 1999............... 429,380 1,971,030 $7.91
========== ==========
</TABLE>
The following table summarizes the options outstanding under the 1994 Stock
Option Plan as of September 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Exercisable Options
------------------------------------------------------------------------------------
Weighted
Number Average Number Weighted
Outstanding Remaining Weighted Exercisable Average
Range of As of Contractual Average As of Exercise
Exercise Prices Sept. 30, 1999 Life Exercise Price Sept. 30, 1999 Price
---------------- -------------- ----------- -------------- -------------- --------
<S> <C> <C> <C> <C> <C>
$ 3.59-$ 5.62 875,681 9.11 $ 5.57 6,375 $ 3.73
$ 6.88-$ 7.20 168,819 6.88 $ 7.17 98,126 7.20
$ 7.25-$ 7.25 284,222 6.86 $ 7.25 208,918 7.25
$ 7.88-$ 8.88 202,433 7.14 $ 8.41 120,499 8.52
$ 9.17-$12.12 277,500 9.30 $11.87 25,739 9.59
$12.75-$16.00 162,375 9.42 $14.90 11,708 13.23
--------- -------
$ 3.59-$16.00 1,971,030 8.44 $ 7.91 471,365 $ 7.81
========= =======
</TABLE>
1994 Employee Stock Purchase Plan
The Company's 1994 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors on January 27, 1994 and approved by the
stockholders in March 1994. The Purchase Plan is designed to allow eligible
employees of the Company to purchase shares of common stock, at semi-annual
intervals, through their periodic payroll deductions under the Purchase Plan.
The Company had initially reserved 300,000 shares of Common Stock for issuance
under the Purchase Plan. The Company's Board of Directors authorized, and the
stockholders subsequently approved, an additional 400,000 shares of Common
Stock under the Purchase Plan in each of fiscal years 1997 and 1996.
Participants in the Purchase Plan may purchase shares at 85% of the lower of
i) the fair market value of the common stock on the participant's entry date
into the offering period or ii) the fair market value on the semi-annual
purchase date. The Purchase Plan will in all events terminate on December 31,
2003.
F-17
<PAGE>
GASONICS INTERNATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Of the 1,100,000 shares reserved for the 1994 Employee Stock Purchase Plan,
826,235 shares were purchased as of September 30, 1999.
Stock Based Compensation Expense
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation," which establishes a fair value
based method of accounting for stock-based compensation plans and requires
additional disclosures for those companies who elect not to adopt the new
method of accounting. The Company adopted SFAS No. 123 in fiscal 1997, and in
accordance with the provisions of SFAS No. 123, the Company applies APB Opinion
25 and related interpretations in accounting for its stock option and stock
purchase plans.
The Company's stock plans, as described above, are accounted for under APB
Opinion No. 25. Because the FASB Statement No. 123 method of accounting has not
been applied to options granted prior to October 1, 1995, the resulting pro
forma compensation cost may not be representative of that to be expected in
future years. Had compensation cost for these plans been determined consistent
with Statement No. 123, the Company's consolidated net income and earnings per
share would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
(In thousands, except per share data) 1999 1998 1997
------------------------------------- -------- ------- ------
<S> <C> <C> <C>
Net income (loss)--as reported.................... $(14,082) $(5,713) $3,007
Net income (loss)--pro forma...................... $(17,424) $(7,682) $1,325
Earnings (loss) per share--Basic--as reported..... $ (0.98) $ (0.41) $ 0.22
Earnings (loss) per share--Diluted--as reported... $ (0.98) $ (0.41) $ 0.21
Earnings (loss) per share--Basic--pro forma....... $ (1.22) $ (0.55) $ 0.10
Earnings (loss) per share--Diluted--pro forma..... $ (1.22) $ (0.55) $ 0.09
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Dividend yield................................ 0.0% 0.0% 0.0%
Expected life of options from vest date....... 0.9 Years 0.9 Years 0.9 years
Expected stock volatility..................... 83.5% 84.3% 84.8%
Risk-free interest rates...................... 4.3%-5.9% 4.3%-6.0% 5.6%-6.8%
</TABLE>
The weighted average fair value of option grants using the Black-Scholes
option pricing model was $4.48, $5.55 and $5.91 for the fiscal years ended
September 30, 1999, 1998 and 1997, respectively.
14. EMPLOYEE BENEFIT PLANS:
The Company maintains a 401(k) benefit plan covering all employees meeting
certain requirements. The plan includes a deferred compensation arrangement
permitting elective contributions to be made by the participants. Company
contributions are made at the discretion of the Board of Directors. Company
contributions were approximately $437,000, $506,000 and $476,000 in fiscal
1999, 1998 and 1997, respectively.
F-18
<PAGE>
GASONICS INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
------------ -------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 8,756 $16,858
Marketable securities.............................. 18,700 10,899
Trade accounts receivable, net..................... 21,344 18,986
Inventories........................................ 17,892 16,523
Net deferred tax asset............................. 5,697 5,697
Prepaid expenses and other current assets.......... 3,322 3,197
------- -------
Total current assets............................. 75,711 72,160
PROPERTY AND EQUIPMENT, NET.......................... 10,708 11,266
DEPOSITS AND OTHER ASSETS............................ 660 782
------- -------
TOTAL ASSETS......................................... $87,079 $84,208
======= =======
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Borrowings under credit facility................... $ 2,713 $ 2,832
Accounts payable................................... 6,277 5,691
Income taxes payable............................... 4,121 4,616
Accrued expenses................................... 9,885 9,446
------- -------
Total current liabilities........................ 22,996 22,585
------- -------
STOCKHOLDERS' EQUITY:
Common stock and additional paid-in capital........ 41,810 40,637
Treasury stock (see Note 8)........................ (2,639) (2,639)
Subscription receivable............................ (27) (26)
Unrealized loss on investment...................... (50) --
Retained earnings.................................. 24,989 23,651
------- -------
Total stockholders' equity....................... 64,083 61,623
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........... $87,079 $84,208
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-19
<PAGE>
GASONICS INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
-------------------
1999 1998
--------- ---------
<S> <C> <C>
NET SALES................................................ $ 25,603 $ 10,022
COST OF SALES............................................ 14,293 7,870
--------- ---------
Gross margin........................................... 11,310 2,152
--------- ---------
OPERATING EXPENSES:
Costs associated with reduction in force............... -- 407
Research & development................................. 4,366 3,636
Selling, general & administrative...................... 5,915 5,303
--------- ---------
Total operating expenses................................. 10,281 9,346
--------- ---------
OPERATING INCOME (LOSS).................................. 1,029 (7,194)
OTHER INCOME AND EXPENSE, NET............................ 309 315
--------- ---------
Income (loss) before provision for income taxes........ 1,338 (6,879)
Provision for income taxes............................. -- --
--------- ---------
NET INCOME (LOSS)........................................ $ 1,338 $ (6,879)
========= =========
NET INCOME (LOSS) PER SHARE--BASIC....................... $ 0.09 $ (0.49)
========= =========
NET INCOME (LOSS) PER SHARE--DILUTED..................... $ 0.09 $ (0.49)
========= =========
WEIGHTED AVERAGE COMMON SHARES--BASIC.................... 14,659 14,172
========= =========
WEIGHTED AVERAGE COMMON & COMMON EQUIVALENT SHARES--
DILUTED................................................. 15,258 14,172
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-20
<PAGE>
GASONICS INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash used for operating activities................. $ (709) $ (3,383)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property & equipment...................... (595) (290)
Increase in marketable securities...................... (7,850) (578)
--------- ---------
Net cash used for investing activities............... (8,445) (868)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in borrowings under credit
facility.............................................. (119) 234
Proceeds from issuance of common stock................. 1,171 673
--------- ---------
Net cash provided by financing activities............ 1,052 907
--------- ---------
Net decrease in cash and cash equivalents................ (8,102) (3,344)
CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD........... 16,858 14,698
--------- ---------
CASH & CASH EQUIVALENTS AT END OF PERIOD................. $ 8,756 $ 11,354
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-21
<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 three months ended December 31, 1999 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
fiscal year ended September 30, 1999.
2. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
------------ -------------
(unaudited)
<S> <C> <C>
Raw Materials..................................... $ 7,780 $ 7,784
Work in Process................................... 6,179 5,409
Finished Goods.................................... 3,933 3,330
------- -------
$17,892 $16,523
======= =======
</TABLE>
3. RECONCILIATION OF EARNINGS AND SHARE AMOUNTS USED IN EPS CALCULATION
Net income (loss) 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).
Effective December 31, 1997, the Company adopted SFAS No. 128, "Earnings per
Share." Basic earnings per common share for the three months ended December 31,
1999 and 1998 were computed by dividing net income (loss) by the weighted
average number of shares of common stock outstanding during the period. Diluted
earnings per common share for the three months ended December 31, 1999 and
1998, were calculated using the treasury stock method to compute the weighted
average common stock outstanding (in thousands, except per share data).
<TABLE>
<CAPTION>
Per Share
For the three months ended Dec. 31, 1999 Income Shares Amount
- ---------------------------------------- ------- ------ ---------
<S> <C> <C> <C>
Net income........................................... $ 1,338
Basic earnings per share
Income available to common stockholders.............. $ 1,338 14,659 $ 0.09
Effect of dilutive securities:
Options issued to purchase common stock.............. 599
Diluted earnings per share
Income available to common stockholders.............. $ 1,338 15,258 $ 0.09
<CAPTION>
Per Share
For the three months ended Dec. 31, 1998 Income Shares Amount
- ----------------------------------------- ------- ------ ---------
<S> <C> <C> <C>
Net loss............................................. $(6,879)
Basic and diluted loss per share
Loss to common stockholders.......................... $(6,879) 14,172 $(0.49)
</TABLE>
F-22
<PAGE>
GASONICS INTERNATIONAL CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which requires
companies to record derivative financial instruments including standalone
instruments, such as forward currency exchange contracts and interest rate
swaps or embedded derivatives and requires that these instruments be marked-to-
market on an ongoing basis. These market value adjustments are to be included
either in the income statement or stockholders' equity, depending on the nature
of the transaction. SFAS No. 133 is effective for fiscal years beginning after
June 15, 2000 and cannot be applied retroactively. The effect of SFAS No. 133
is not expected to be material to the Company's financial statements.
5. SEGMENT REPORTING
In 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise", replacing the
"industry segment" approach with the "management" approach. The management
approach designates the internal organization that is used by management for
making operating decisions and assessing performance as the source of the
Company's reportable segments. SFAS No. 131 also requires disclosures about
products and services, geographic areas and major customers. The adoption of
SFAS No. 131 did not affect the Company's results of operations or financial
position, but did affect the disclosure of segment information. The Company is
organized on the basis of products and services. All of the Company's business
units have been aggregated into one operating segment. The Company's service
business is a separate operating segment: however, this segment does not meet
the quantitative thresholdsprescribed in SFAS No. 131. As a result, in the
opinion of management, no additional operating segment information is required
to be disclosed.
6. COMPREHENSIVE INCOME
Effective December 31, 1998, the Company adopted SFAS No. 130 "Reporting
Comprehensive Income," which establishes standards for reporting and display of
comprehensive income and its components (revenue, expenses, gains and losses)
in a full set of general-purpose financial statements. For the three months
ended December 31, 1999 and 1998, there were no material items of other
comprehensive income (loss), thus comprehensive income for these periods did
not differ materially from net income as reported in the accompanying financial
statements.
7. CHARGES TAKEN DURING FISCAL YEAR 1999
The three month period ended December 31, 1998 included pre-tax charges of
approximately $407,000, related primarily to costs of a reduction in force
completed in December 1998. As of December 31, 1999, these costs have been
paid.
8. STOCK REPURCHASE PROGRAM
On December 16, 1998, the Company's Board of Directors authorized a stock
repurchase program. Under this program 500,000 shares of its Common Stock may
be repurchased by the Company in the open market, from time-to-time at market
prices not to exceed $15.00 per share using available cash. As of December 31,
1999, the Company had repurchased 200,000 shares of common stock in the open
market at an aggregate cost of approximately $2.6 million.
F-23
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3,300,000 Shares
[LOGO OF GASONICS INTERNATIONAL CORPORATION]
----------------
Prospectus
, 2000
----------------
Banc of America Securities LLC
CIBC World Markets
Robertson Stephens
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14.Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of common stock being registered. All amounts are estimates except the SEC
registration fee, the Nasdaq National Market listing fee and the NASD filing
fees.
<TABLE>
<S> <C>
SEC registration fee............................................ $ 32,842
NASD fee........................................................ 12,940
Nasdaq National Market listing fee.............................. 17,500
Printing and engraving.......................................... 100,000
Legal fees and expenses......................................... 300,000
Accounting fees and expenses.................................... 125,000
Blue sky fees and expenses...................................... 5,000
Transfer agent fees............................................. 5,000
Miscellaneous................................................... 76,718
--------
Total......................................................... $675,000
========
</TABLE>
Item 15.Indemnification of Directors and Officers
We have adopted provisions in our Amended and Restated Certificate of
Incorporation that limit the liability of our directors in certain instances.
As permitted by the Delaware General Corporation Law, directors will not be
liable to us for monetary damages arising from a breach of their fiduciary duty
as directors in certain circumstances. See Item 17 of this Registration
Statement regarding the opinion of the Securities and Exchange Commission as to
indemnification of liabilities arising under the Securities Act. Such
limitation does not affect liability for any breach of a director's duty to us
or our stockholders (i) with respect to approval by the director of any
transaction from which he derives an improper personal benefit, (ii) with
respect to acts or omissions involving an absence of good faith, that he
believes to be contrary to our best interests or the best interest of our
stockholders, that involve intentional misconduct or a knowing and culpable
violation of law, that constitute an unexcused pattern of inattention that
amounts to an abdication of his duty to us or our stockholders, or that show a
reckless disregard for his duty to us or our stockholders in circumstances in
which he was, or should have been, aware, in the ordinary course of performing
his duties, of a risk of serious injury to us or our stockholders, or (iii)
based on transactions between us and our directors or another corporation with
interrelated directors or on improper distributions, loans, or guarantees under
applicable sections of the Delaware General Corporation Law. Such limitation of
liability also does not affect the availability of equitable remedies such as
injunctive relief or rescission, although in certain circumstances equitable
relief may not be available as a practical matter. The limitation may relieve
the directors of monetary liability to us for grossly negligent conduct,
including conduct in situations involving attempted takeovers. No claim or
litigation is currently pending against our directors that would be affected by
the limitation of liability.
Our Amended and Restated Certificate of Incorporation and Bylaws provide
that we shall indemnify our directors and may indemnify our officers to the
fullest extent permitted by Delaware law, including circumstances in which
indemnification is otherwise discretionary under Delaware law. We have entered
into separate indemnification agreements with our directors and officers, which
may require us, among other things, to indemnify them against certain
liabilities that may arise by reason of their status or service as directors or
officers (other than liabilities arising from willful misconduct of a culpable
nature), and to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified. To the extent we may be
required to make substantial payments under the indemnification agreements that
are not covered by insurance, our available cash and stockholder's equity would
be adversely affected.
Reference is made to the form of Underwriting Agreement filed as Exhibit 1.1
to this Registration Statement for certain provisions regarding the
indemnification of officers and directors by the several Underwriters.
II-1
<PAGE>
Item 16.Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement
4.1(1) Form of Stock Certificate
5.1(2) Opinion of Brobeck, Phleger & Harrison LLP
23.1 Consent of Arthur Andersen LLP, independent public accountants
23.2(2) Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit
5.1)
24.1(2) Power of Attorney (included in the signature page of this Regis-
tration Statement)
</TABLE>
- --------
(1) Incorporated by reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-1, Commission File No. 33-74872.
(2) Previously filed
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons pursuant to the
Delaware General Corporation Code, our Certificate of Incorporation or the
Bylaws, indemnification agreements entered into between us and our officers and
directors, the Underwriting Agreement and all prior underwriting agreements, or
otherwise, we have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
us of expenses incurred or paid by a director, officer or controlling person in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, we will, unless in the opinion of our counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by us is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
We hereby undertake that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by us pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this Registration Statement as of
the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
GaSonics International Corporation certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form S-3 and has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Jose, State of
California, on this 18th day of May 2000.
GASONICS INTERNATIONAL CORPORATION
/s/ Asuri Raghavan
By __________________________________
Asuri Raghavan
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Asuri Raghavan Chief Executive Officer May 18, 2000
______________________________________ (Principal Executive
(Asuri Raghavan) Officer), President and
Director
* Vice President of Finance May 18, 2000
______________________________________ and Chief Financial
(Rammy Rasmussen) Officer (Principal
Financial and Accounting
Officer)
* Chairman of the Board May 18, 2000
______________________________________
(Dave Toole)
* Director May 18, 2000
______________________________________
(Monte M. Toole)
Director
______________________________________
(Kenneth L. Schroeder)
* Director May 18, 2000
______________________________________
(F. Joseph Van Poppelen)
Director
______________________________________
(Kenneth M. Thompson)
</TABLE>
/s/ Asuri Raghavan
*By:_____________________________
Asuri Raghavan
Attorney-in-fact
II-3
<PAGE>
EXHIBIT 1.1
3,300,000 Shares
GaSonics International Corporation
Common Stock
Underwriting Agreement
dated [___], 2000
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
<S> <C>
Section 1. Representations And Warranties Of The Company And The Selling Stockholders............ 2
A) Representations And Warranties Of The Company............................................... 2
Compliance With Registration Requirements................................................... 2
Offering Materials Furnished To Underwriters................................................ 3
Distribution Of Offering Material By The Company............................................ 3
The Underwriting Agreement.................................................................. 3
Authorization Of The Common Shares.......................................................... 3
No Applicable Registration Or Other Similar Rights.......................................... 3
No Material Adverse Change.................................................................. 4
Independent Accountants..................................................................... 4
Preparation Of The Financial Statements..................................................... 4
Incorporation And Good Standing Of The Company And Its Subsidiaries......................... 4
Capitalization And Other Capital Stock Matters.............................................. 5
Stock Exchange Listing;..................................................................... 5
Non-Contravention Of Existing Instruments; No Further Authorizations Or Approvals Required.. 5
No Material Actions Or Proceedings.......................................................... 6
Intellectual Property Rights................................................................ 6
All Necessary Permits, Etc.................................................................. 6
Title To Properties......................................................................... 7
Tax Law Compliance.......................................................................... 7
Company Not An Investment Company........................................................... 7
Insurance................................................................................... 7
No Price Stabilization Or Manipulation...................................................... 7
Related Party Transactions.................................................................. 8
No Unlawful Contributions Or Other Payments................................................. 8
Company's Accounting System................................................................. 8
Compliance With Environmental Laws.......................................................... 8
Erisa Compliance............................................................................ 9
(B) Representations And Warranties Of The Selling Stockholders................................. 10
The Underwriting Agreement.................................................................. 10
The Custody Agreement And Power Of Attorney................................................. 10
Title To Common Shares To Be Sold; All Authorizations Obtained.............................. 10
Delivery Of The Common Shares To Be Sold.................................................... 10
Non-Contravention; No Further Authorizations Or Approvals Required.......................... 10
No Registration Or Other Similar Rights..................................................... 11
No Further Consents, Etc.................................................................... 11
Disclosure Made By Such Selling Stockholder In The Prospectus............................... 11
No Price Stabilization Or Manipulation...................................................... 11
Confirmation Of Company Representations And Warranties...................................... 11
Section 2. Purchase, Sale And Delivery Of Common Shares.......................................... 12
The Firm Common Shares...................................................................... 12
The First Closing Date...................................................................... 12
The Optional Common Shares; The Second Closing Date......................................... 12
Public Offering Of The Common Shares........................................................ 13
Payment For The Common Shares............................................................... 13
Delivery Of The Common Shares............................................................... 13
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Delivery Of Prospectus To The Underwriters.................................................. 14
Section 3. Additional Covenants.................................................................. 14
A) Covenants Of The Company.................................................................... 14
Representatives' Review Of Proposed Amendments And Supplements.............................. 14
Securities Act Compliance................................................................... 14
Amendments And Supplements To The Prospectus And Other Securities Act Matters............... 15
Copies Of Any Amendments And Supplements To The Prospectus.................................. 15
Blue Sky Compliance......................................................................... 15
Use Of Proceeds............................................................................. 15
Transfer Agent.............................................................................. 15
Earnings Statement.......................................................................... 16
Periodic Reporting Obligations.............................................................. 16
Agreement Not To Offer Or Sell Additional Securities........................................ 16
Future Reports To The Representatives....................................................... 16
Exchange Act Compliance..................................................................... 16
(B) Covenants Of The Selling Stockholders...................................................... 17
Agreement Not To Offer Or Sell Additional Securities........................................ 17
Delivery Of Forms W-8 And W-9............................................................... 17
Section 4. Payment Of Expenses................................................................... 17
Section 5. Conditions Of The Obligations Of The Underwriters..................................... 18
Accountants' Comfort Letter................................................................. 18
Compliance With Registration Requirements; No Stop Order, No Objection From Nasd............ 18
No Material Adverse Change.................................................................. 19
Opinion Of Counsel For The Company.......................................................... 19
Opinion Of Counsel For The Underwriters..................................................... 19
Officers' Certificate....................................................................... 19
Bring-Down Comfort Letter................................................................... 20
Opinion Of Counsel For The Selling Stockholders............................................. 20
Selling Stockholders' Certificate........................................................... 20
Selling Stockholders' Documents............................................................. 20
Lock-Up Agreement From Certain Stockholders Of The Company Other Than Selling Stockholders.. 20
Additional Documents........................................................................ 21
Section 6. Reimbursement Of Underwriters' Expenses............................................... 21
Section 7. Effectiveness Of This Agreement....................................................... 21
Section 8. Indemnification....................................................................... 21
Indemnification Of The Underwriters......................................................... 22
Indemnification Of The Company, Its Directors And Officers.................................. 23
Notifications And Other Indemnification Procedures.......................................... 23
SETTLEMENTS................................................................................. 24
Section 9. Contribution.......................................................................... 24
Section 10. Default Of One Or More Of The Several Underwriters................................... 26
Section 11. Termination Of This Agreement........................................................ 26
Section 12. Representations And Indemnities To Survive Delivery.................................. 27
Section 13. Notices.............................................................................. 27
Section 14. Successors........................................................................... 28
Section 15. Partial Unenforceability............................................................. 28
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 16. Governing Law Provisions............................................................. 28
Section 17. Failure Of One Or More Of The Selling Stockholders To Sell And Deliver Common
Shares............................................................................................ 29
Section 17 [18]. General Provisions.............................................................. 29
</TABLE>
<PAGE>
Underwriting Agreement
[Date]
BANC OF AMERICA SECURITIES LLC
CIBC World Markets
Robertson Stephens
Co-Managers
c/o BANC OF AMERICA SECURITIES LLC
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
Introductory. GaSonics International Corporation, a Delaware
corporation (the "Company), proposes to issue and sell to the several
underwriters named in Schedule A (the "Underwriters") an aggregate of 2,800,000
shares of its Common Stock, par value $0.001 per share (the "Common Stock"); and
the stockholders of the Company named in Schedule B (collectively, the "Selling
Stockholders") severally propose to sell to the Underwriters an aggregate of
500,000 shares of Common Stock. The 2,800,000 shares of Common Stock to be sold
by the Company and the 500,000 shares of Common Stock to be sold by the Selling
Stockholders are collectively called the "Firm Common Shares". In addition, the
Company has granted to the Underwriters an option to purchase up to an
additional 495,000 shares (the "Optional Common Shares") of Common Stock, as
provided in Section 2. The Firm Common Shares and, if and to the extent such
option is exercised, the Optional Common Shares are collectively called the
"Common Shares". Banc of America Securities LLC ("BAS"), CIBC World Markets and
Robertson Stephens have agreed to act as representatives of the several
Underwriters (in such capacity, the "Representatives") in connection with the
offering and sale of the Common Shares.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-3 (File No.
333-34418), as amended by Amendment No. 1 to Form S-3 filed with the Commission
on May 3, 2000, which contains a form of prospectus to be used in connection
with the public offering and sale of the Common Shares. Such registration
statement, as amended, including the financial statements, exhibits and
schedules thereto, in the form in which it was declared effective by the
Commission under the Securities Act of 1933 and the rules and regulations
promulgated thereunder (collectively, the "Securities Act"), including all
documents incorporated or deemed to be incorporated by reference therein and any
information deemed to be a part thereof at the time of effectiveness pursuant to
Rule 430A or Rule 434 under the Securities Act or the Securities Exchange Act of
1934 and the rules and regulations promulgated thereunder (the "Exchange Act"),
is called the "Registration Statement". Any registration statement filed by the
Company pursuant to Rule 462(b) under the Securities Act is called the "Rule
462(b) Registration Statement", and from and after the date and time of filing
of the Rule 462(b) Registration
<PAGE>
Statement the term "Registration Statement" shall include the Rule 462(b)
Registration Statement. Such prospectus, in the form first used by the
Underwriters to confirm sales of the Common Shares, is called the "Prospectus";
provided, however, if the Company has, with the consent of BAS, elected to rely
upon Rule 434 under the Securities Act, the term "Prospectus" shall mean the
Company's prospectus subject to completion (each, a "preliminary prospectus")
dated May 3, 2000 (such preliminary prospectus is called the "Rule 434
preliminary prospectus"), together with the applicable term sheet, if any, (the
"Term Sheet") prepared and filed by the Company with the Commission under Rules
434 and 424(b) under the Securities Act and all references in this Agreement to
the date of the Prospectus shall mean the date of the Term Sheet. All references
in this Agreement to the Registration Statement, the Rule 462(b) Registration
Statement, a preliminary prospectus, the Prospectus or the Term Sheet, or any
amendments or supplements to any of the foregoing, shall include any copy
thereof filed with the Commission pursuant to its Electronic Data Gathering,
Analysis and Retrieval System ("EDGAR"). All references in this Agreement to
financial statements and schedules and other information which is "contained,"
"included" or "stated" in the Registration Statement or the Prospectus (and all
other references of like import) shall be deemed to mean and include all such
financial statements and schedules and other information which is or is deemed
to be incorporated by reference in the Registration Statement or the Prospectus,
as the case may be; and all references in this Agreement to amendments or
supplements to the Registration Statement or the Prospectus shall be deemed to
mean and include the filing of any document under the Exchange Act which is or
is deemed to be incorporated by reference in the Registration Statement or the
Prospectus, as the case may be.
The Company and each of the Selling Stockholders hereby confirm their
respective agreements with the Underwriters as follows:
Section 1. Representations and Warranties of the Company and the
Selling Stockholders.
A. Representations and Warranties of the Company. The Company hereby
represents, warrants and covenants to each Underwriter as follows:
(a) Compliance with Registration Requirements. The Registration
Statement and any Rule 462(b) Registration Statement have been declared
effective by the Commission under the Securities Act. The Company has
complied to the Commission's satisfaction with all requests of the Commission
for additional or supplemental information. No stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement is in effect and no proceedings for such purpose have been
instituted or are pending or, to the best knowledge of the Company, are
contemplated or threatened by the Commission.
Each preliminary prospectus and the Prospectus when filed complied in all
material respects with the Securities Act and, if filed by electronic
transmission pursuant to EDGAR (except as may be permitted by Regulation S-T
under the Securities Act), was identical to the copy thereof delivered to the
Underwriters for use in connection with the offer and sale of the Common
Shares. Each of the Registration Statement, any Rule 462(b) Registration
Statement and any post-effective amendment thereto, at the time it became
effective and at all subsequent times, complied and will comply in all
material respects with the Securities Act and did not and will not contain any
untrue statement of a material fact or omit to state a
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material fact required to be stated therein or necessary to make the
statements therein not misleading. The Prospectus, as amended or supplemented,
as of its date and at all subsequent times, did not and will not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The representations and warranties
set forth in the two immediately preceding sentences do not apply to
statements in or omissions from the Registration Statement, any Rule 462(b)
Registration Statement, or any post-effective amendment thereto, or the
Prospectus, or any amendments or supplements thereto, made in reliance upon
and in conformity with information relating to any Underwriter furnished to
the Company in writing by the Representatives expressly for use therein. There
are no contracts or other documents required to be described in the Prospectus
or to be filed as exhibits to the Registration Statement which have not been
described or filed as required.
(b) Offering Materials Furnished to Underwriters. The Company has
delivered to the Representatives three complete manually signed copies of the
Registration Statement and of each consent and certificate of experts filed as
a part thereof, and conformed copies of the Registration Statement (without
exhibits) and preliminary prospectuses and the Prospectus, as amended or
supplemented, in such quantities and at such places as the Representatives
have reasonably requested for each of the Underwriters.
(c) Distribution of Offering Material By the Company. The Company has
not distributed and will not distribute, prior to the later of the Second
Closing Date (as defined below) and the completion of the Underwriters'
distribution of the Common Shares, any offering material in connection with
the offering and sale of the Common Shares other than a preliminary
prospectus, the Prospectus or the Registration Statement.
(d) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding agreement
of, the Company, enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except as the
enforcement hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the rights and
remedies of creditors or by general equitable principles.
(e) Authorization of the Common Shares. The Common Shares to be
purchased by the Underwriters from the Company have been duly authorized for
issuance and sale pursuant to this Agreement and, when issued and delivered by
the Company pursuant to this Agreement, will be validly issued, fully paid and
nonassessable.
(f) No Applicable Registration or Other Similar Rights. There are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by this Agreement, except for such rights as have
been duly waived.
(g) No Material Adverse Change. Except as otherwise disclosed in the
Prospectus, subsequent to the respective dates as of which information is
given in the Prospectus: (i) there has been no material adverse change, or any
development that could reasonably be expected to result in a material adverse
change, in the condition, financial or otherwise, or in the earnings,
business, operations or prospects, whether or not arising from transactions in
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the ordinary course of business, of the Company and its subsidiaries,
considered as one entity (any such change is called a "Material Adverse
Change"); (ii) the Company and its subsidiaries, considered as one entity,
have not incurred any material liability or obligation, indirect, direct or
contingent, not in the ordinary course of business nor entered into any
material transaction or agreement not in the ordinary course of business; and
(iii) there has been no dividend or distribution of any kind declared, paid or
made by the Company or, except for dividends paid to the Company or other
subsidiaries, any of its subsidiaries on any class of capital stock or
repurchase or redemption by the Company or any of its subsidiaries of any
class of capital stock.
(h) Independent Accountants. Arthur Andersen LLP, who have expressed
their opinion with respect to the financial statements (which term as used in
this Agreement includes the related notes thereto) filed with the Commission
as a part of the Registration Statement and included in the Prospectus, are
independent public or certified public accountants as required by the
Securities Act and the Exchange Act.
(i) Preparation of the Financial Statements. The financial statements
filed with the Commission as a part of the Registration Statement and included
in the Prospectus present fairly the consolidated financial position of the
Company and its subsidiaries as of and at the dates indicated and the results
of their operations and cash flows for the periods specified. Such financial
statements have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis throughout the periods involved,
except as may be expressly stated in the related notes thereto. No other
financial statements or supporting schedules are required to be included in
the Registration Statement. The financial data set forth in the Prospectus
under the captions "Prospectus Summary--Summary Consolidated Financial Data",
"Selected Consolidated Financial Data" and "Capitalization" fairly present the
information set forth therein on a basis consistent with that of the audited
financial statements contained in the Registration Statement.
(j) Incorporation and Good Standing of the Company and its Subsidiaries.
Each of the Company and its subsidiaries has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation and has corporate power and authority to
own, lease and operate its properties and to conduct its business as described
in the Prospectus and, in the case of the Company, to enter into and perform
its obligations under this Agreement. Each of the Company and each subsidiary
is duly qualified as a foreign corporation to transact business and the
Company is in good standing in the State of California and each of the Company
and each subsidiary are in good standing in each other jurisdiction in which
such qualification is required, whether by reason of the ownership or leasing
of property or the conduct of business, except for such jurisdictions (other
than the State of California in the case of the Company) where the failure to
so qualify or to be in good standing would not, individually or in the
aggregate, result in a Material Adverse Change. All of the issued and
outstanding capital stock of each subsidiary has been duly authorized and
validly issued, is fully paid and nonassessable and is owned by the Company,
directly or through subsidiaries, free and clear of any security interest,
mortgage, pledge, lien, encumbrance or claim. The Company does not own or
control, directly or indirectly, any corporation, association or other entity
other than the subsidiaries listed in Exhibit 22i to the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 1999.
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(k) Capitalization and Other Capital Stock Matters. The authorized,
issued and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" (other than for subsequent
issuances, if any, pursuant to employee benefit plans described in the
Prospectus or upon exercise of outstanding options described in the
Prospectus). The Common Stock (including the Common Shares) conforms in all
material respects to the description thereof contained in the Prospectus. All
of the issued and outstanding shares of Common Stock (including the shares of
Common Stock owned by Selling Stockholders) have been duly authorized and
validly issued, are fully paid and nonassessable and have been issued in
compliance with federal and state securities laws. None of the outstanding
shares of Common Stock were issued in violation of any preemptive rights,
rights of first refusal or other similar rights to subscribe for or purchase
securities of the Company. There are no authorized or outstanding options,
warrants, preemptive rights, rights of first refusal or other rights to
purchase, or equity or debt securities convertible into or exchangeable or
exercisable for, any capital stock of the Company or any of its subsidiaries
other than those accurately described in the Prospectus. The description of
the Company's stock option, stock bonus and other stock plans or arrangements,
and the options or other rights granted thereunder, set forth in the
Prospectus accurately and fairly presents the information required to be shown
with respect to such plans, arrangements, options and rights.
(l) Stock Exchange Listing. The Common shares have been approved for
inclusion on the Nasdaq National Market. The Common Stock (including the
Common Shares) is registered pursuant to Section 12(g) of the Exchange Act and
is listed on the Nasdaq National Market, and the Company has taken no action
designed to, or likely to have the effect of, terminating the registration of
the Common Stock under the Exchange Act or delisting the Common Stock from the
Nasdaq National Market, nor has the Company received any notification that the
Commission or the National Association of Securities Dealers, LLC (the "NASD")
is contemplating terminating such registration or listing.
(m) Non-Contravention of Existing Instruments; No Further Authorizations
or Approvals Required. Neither the Company nor any of its subsidiaries is in
violation of its charter or by-laws or is in default (or, with the giving of
notice or lapse of time, would be in default) ("Default") under any indenture,
mortgage, loan or credit agreement, note, contract, franchise, lease or other
instrument to which the Company or any of its subsidiaries is a party or by
which it or any of them may be bound, or to which any of the property or
assets of the Company or any of its subsidiaries is subject (each, an
"Existing Instrument"), except for such Defaults as would not, individually or
in the aggregate, result in a Material Adverse Change. The Company's
execution, delivery and performance of this Agreement and consummation of the
transactions contemplated hereby and by the Prospectus (i) have been duly
authorized by all necessary corporate action and will not result in any
violation of the provisions of the charter or by-laws of the Company or any
subsidiary, (ii) will not conflict with or constitute a breach of, or Default
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to, or require the consent of any other party to, any
Existing Instrument, except for such conflicts, breaches, Defaults, liens,
charges or encumbrances as would not, individually or in the aggregate, result
in a Material Adverse Change and (iii) will not result in any violation of any
law, administrative regulation or administrative or court decree applicable to
the Company or any subsidiary. No consent, approval, authorization or other
order of, or registration or filing with, any court or other governmental or
regulatory
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authority or agency, is required for the Company's execution, delivery and
performance of this Agreement and consummation of the transactions
contemplated hereby and by the Prospectus, except such as have been obtained
or made by the Company and are in full force and effect under the Securities
Act, applicable state securities or blue sky laws and from the National
Association of Securities Dealers, Inc. (the "NASD").
(n) No Material Actions or Proceedings. There are no legal or
governmental actions, suits or proceedings pending or, to the best of the
Company's knowledge, threatened (i) against or affecting the Company or any of
its subsidiaries, (ii) which has as the subject thereof any officer or
director of, or property owned or leased by, the Company or any of its
subsidiaries or (iii) relating to environmental or discrimination matters,
where in any such case (A) there is a reasonable possibility that such action,
suit or proceeding might be determined adversely to the Company or such
subsidiary and (B) any such action, suit or proceeding, if so determined
adversely, would reasonably be expected to result in a Material Adverse Change
or adversely affect the consummation of the transactions contemplated by this
Agreement. No material labor dispute with the employees of the Company or any
of its subsidiaries exists or, to the best of the Company's knowledge, is
threatened or imminent.
(o) Intellectual Property Rights. The Company and its subsidiaries own
or possess sufficient trademarks, trade names, patent rights, copyrights,
licenses, approvals, trade secrets and other similar rights (collectively,
"Intellectual Property Rights") reasonably necessary to conduct their
businesses as now conducted; and the expected expiration of any of such
Intellectual Property Rights would not result in a Material Adverse Change.
Neither the Company nor any of its subsidiaries has received any notice of
infringement or conflict with asserted Intellectual Property Rights of others,
which infringement or conflict, if the subject of an unfavorable decision,
would result in a Material Adverse Change.
(p) All Necessary Permits, etc. The Company and each subsidiary possess
such valid and current certificates, authorizations or permits issued by the
appropriate state, federal or foreign regulatory agencies or bodies necessary
to conduct their respective businesses, and neither the Company nor any
subsidiary has received any notice of proceedings relating to the revocation
or modification of, or non-compliance with, any such certificate,
authorization or permit which, singly or in the aggregate, if the subject of
an unfavorable decision, ruling or finding, could result in a Material Adverse
Change.
(q) Title to Properties. The Company and each of its subsidiaries has
good and marketable title to all the properties and assets reflected as owned
in the financial statements referred to in Section 1(A)(i) above, in each case
free and clear of any security interests, mortgages, liens, encumbrances,
equities, claims and other defects, except such as do not materially and
adversely affect the value of such property and do not materially interfere
with the use made or proposed to be made of such property by the Company or
such subsidiary. The real property, improvements, equipment and personal
property held under lease by the Company or any subsidiary are held under
valid and enforceable leases, with such exceptions as are not material and do
not materially interfere with the use made or proposed to be made of such real
property, improvements, equipment or personal property by the Company or such
subsidiary.
(r) Tax Law Compliance. The Company and its consolidated subsidiaries
have filed all necessary federal, state and foreign income and franchise tax
returns or have properly
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requested extensions thereof and have paid all taxes required to be paid by
any of them and, if due and payable, any related or similar assessment, fine
or penalty levied against any of them. The Company has made adequate charges,
accruals and reserves in the applicable financial statements referred to in
Section 1(A)(i) above in respect of all federal, state and foreign income and
franchise taxes for all periods as to which the tax liability of the Company
or any of its consolidated subsidiaries has not been finally determined.
(s) Company Not an "Investment Company". The Company has been advised
of the rules and requirements under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Company is not, and after receipt
of payment for the Common Shares will not be, an "investment company" within
the meaning of Investment Company Act and will conduct its business in a
manner so that it will not become subject to the Investment Company Act.
(t) Insurance. Each of the Company and its subsidiaries are insured by
recognized, financially sound and reputable institutions with policies in such
amounts and with such deductibles and covering such risks as are generally
deemed adequate and customary for their businesses including, but not limited
to, policies covering real and personal property owned or leased by the
Company and its subsidiaries against theft, damage, destruction, acts of
vandalism and earthquakes. The Company has no reason to believe that it or
any subsidiary will not be able (i) to renew its existing insurance coverage
as and when such policies expire or (ii) to obtain comparable coverage from
similar institutions as may be necessary or appropriate to conduct its
business as now conducted and at a cost that would not result in a Material
Adverse Change. Neither of the Company nor any subsidiary has been denied any
insurance coverage which it has sought or for which it has applied.
(u) No Price Stabilization or Manipulation. The Company has not taken
and will not take, directly or indirectly, any action designed to or that
might be reasonably expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or resale
of the Common Shares.
(v) Related Party Transactions. There are no business relationships or
related-party transactions involving the Company or any subsidiary or any
other person required to be described in the Prospectus which have not been
described as required.
(w) Exchange Act Compliance. The documents incorporated or deemed to be
incorporated by reference in the Prospectus, at the time they were or
hereafter are filed with the Commission, complied and will comply in all
material respects with the requirements of the Exchange Act, and, when read
together with the other information in the Prospectus, at the time the
Registration Statement and any amendments thereto become effective and at the
First Closing Date and the Second Closing Date, as the case may be, will not
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(x) No Unlawful Contributions or Other Payments. Neither the Company
nor any of its subsidiaries nor, to the best of the Company's knowledge, any
employee or agent of the Company or any subsidiary, has made any contribution
or other payment to any official of,
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or candidate for, any federal, state or foreign office in violation of any law
or of the character required to be disclosed in the Prospectus.
(y) Company's Accounting System'. The Company maintains a system of
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access
to assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(z) Compliance with Environmental Laws. Except as would not,
individually or in the aggregate, result in a Material Adverse Change (i)
neither the Company nor any of its subsidiaries is in violation of any
federal, state, local or foreign law or regulation relating to pollution or
protection of human health or the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata) or
wildlife, including without limitation, laws and regulations relating to
emissions, discharges, releases or threatened releases of chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous substances,
petroleum and petroleum products (collectively, "Materials of Environmental
Concern"), or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Materials of
Environment Concern (collectively, "Environmental Laws"), which violation
includes, but is not limited to, noncompliance with any permits or other
governmental authorizations required for the operation of the business of the
Company or its subsidiaries under applicable Environmental Laws, or
noncompliance with the terms and conditions thereof, nor has the Company or
any of its subsidiaries received any written communication, whether from a
governmental authority, citizens group, employee or otherwise, that alleges
that the Company or any of its subsidiaries is in violation of any
Environmental Law; (ii) there is no claim, action or cause of action filed
with a court or governmental authority, no investigation with respect to which
the Company has received written notice, and no written notice by any person
or entity alleging potential liability for investigatory costs, cleanup costs,
governmental responses costs, natural resources damages, property damages,
personal injuries, attorneys' fees or penalties arising out of, based on or
resulting from the presence, or release into the environment, of any Material
of Environmental Concern at any location owned, leased or operated by the
Company or any of its subsidiaries, now or in the past (collectively,
"Environmental Claims"), pending or, to the best of the Company's knowledge,
threatened against the Company or any of its subsidiaries or any person or
entity whose liability for any Environmental Claim the Company or any of its
subsidiaries has retained or assumed either contractually or by operation of
law; and (iii) to the best of the Company's knowledge, there are no past or
present actions, activities, circumstances, conditions, events or incidents,
including, without limitation, the release, emission, discharge, presence or
disposal of any Material of Environmental Concern, that reasonably could
result in a violation of any Environmental Law or form the basis of a
potential Environmental Claim against the Company or any of its subsidiaries
or against any person or entity whose liability for any Environmental Claim
the Company or any of its subsidiaries has retained or assumed either
contractually or by operation of law.
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(aa) ERISA Compliance. The Company and its subsidiaries and any
"employee benefit plan" (as defined under the Employee Retirement Income
Security Act of 1974, as amended, and the regulations and published
interpretations thereunder (collectively, "ERISA")) established or maintained
by the Company, its subsidiaries or their "ERISA Affiliates" (as defined
below) are in compliance in all material respects with ERISA. "ERISA
Affiliate" means, with respect to the Company or a subsidiary, any member of
any group of organizations described in Sections 414(b),(c),(m) or (o) of the
Internal Revenue Code of 1986, as amended, and the regulations and published
interpretations thereunder (the "Code") of which the Company or such
subsidiary is a member. No "reportable event" (as defined under ERISA) has
occurred or is reasonably expected to occur with respect to any "employee
benefit plan" established or maintained by the Company, its subsidiaries or
any of their ERISA Affiliates. No "employee benefit plan" established or
maintained by the Company, its subsidiaries or any of their ERISA Affiliates,
if such "employee benefit plan" were terminated, would have any "amount of
unfunded benefit liabilities" (as defined under ERISA). Neither the Company,
its subsidiaries nor any of their ERISA Affiliates has incurred or reasonably
expects to incur any liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "employee benefit plan" or (ii)
Sections 412, 4971, 4975 or 4980B of the Code. Each "employee benefit plan"
established or maintained by the Company, its subsidiaries or any of their
ERISA Affiliates that is intended to be qualified under Section 401(a) of the
Code is so qualified and nothing has occurred, whether by action or failure to
act, which would cause the loss of such qualification.
Any certificate signed by an officer of the Company and delivered to
the Representatives or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
set forth therein.
B. Representations and Warranties of the Selling Stockholders. In
addition to the representations, warranties and covenants set forth in Section
1(A), each Selling Stockholder represents, warrants and covenants to each
Underwriter as follows:
(a) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by or on behalf of such Selling Stockholder
and is a valid and binding agreement of such Selling Stockholder, enforceable
in accordance with its terms, except as rights to indemnification hereunder
may be limited by applicable law and except as the enforcement hereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting the rights and remedies of creditors or by
general equitable principles.
(b) The Custody Agreement and Power of Attorney. Each of the (i)
Custody Agreement signed by such Selling Stockholder and [___], as custodian
(the "Custodian"), relating to the deposit of the Common Shares to be sold by
such Selling Stockholder (the "Custody Agreement") and (ii) Power of Attorney
appointing certain individuals named therein as such Selling Stockholder's
attorneys-in-fact (each, an "Attorney-in-Fact") to the extent set forth
therein relating to the transactions contemplated hereby and by the Prospectus
(the "Power of Attorney"), of such Selling Stockholder has been duly
authorized, executed and delivered by such Selling Stockholder and is a valid
and binding agreement of such Selling Stockholder, enforceable in accordance
with its terms, except as rights to indemnification thereunder may be limited
by applicable law and except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other
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similar laws relating to or affecting the rights and remedies of creditors or
by general equitable principles.
(c) Title to Common Shares to be Sold; All Authorizations Obtained.
Such Selling Stockholder has, and on the First Closing Date will have, good
and valid title to all of the Common Shares which may be sold by such Selling
Stockholder pursuant to this Agreement on such date and the legal right and
power, and all authorizations and approvals required by law to enter into this
Agreement and its Custody Agreement and Power of Attorney, to sell, transfer
and deliver all of the Common Shares which may be sold by such Selling
Stockholder pursuant to this Agreement and to comply with its other
obligations hereunder and thereunder.
(d) Delivery of the Common Shares to be Sold. Delivery of the Common
Shares which are sold by such Selling Stockholder pursuant to this Agreement
will pass good and valid title to such Common Shares, free and clear of any
security interest, mortgage, pledge, lien, encumbrance or other claim.
(e) Non-Contravention; No Further Authorizations or Approvals Required.
The execution and delivery by such Selling Stockholder of, and the performance
by such Selling Stockholder of its obligations under, this Agreement, the
Custody Agreement and the Power of Attorney will not contravene or conflict
with, result in a breach of, or constitute a Default under, or require the
consent of any other party to, any agreement or instrument to which such
Selling Stockholder is a party or by which it is bound or under which it is
entitled to any right or benefit, any provision of applicable law or any
judgment, order, decree or regulation applicable to such Selling Stockholder
of any court, regulatory body, administrative agency, governmental body or
arbitrator having jurisdiction over such Selling Stockholder. No consent,
approval, authorization or other order of, or registration or filing with, any
court or other governmental authority or agency, is required for the
consummation by such Selling Stockholder of the transactions contemplated in
this Agreement, except such as have been obtained or made and are in full
force and effect under the Securities Act, applicable state securities or blue
sky laws and from the NASD.
(f) No Registration or Other Similar Rights. Such Selling Stockholder
does not have any registration or other similar rights to have any equity or
debt securities registered for sale by the Company under the Registration
Statement or included in the offering contemplated by this Agreement.
(g) No Further Consents, etc. Except for the consent of such Selling
Stockholder to the respective number of Common Shares to be sold by all of the
Selling Stockholders pursuant to this Agreement, no consent, approval or
waiver is required under any instrument or agreement to which such Selling
Stockholder is a party or by which it is bound or under which it is entitled
to any right or benefit, in connection with the offering, sale or purchase by
the Underwriters of any of the Common Shares which may be sold by such Selling
Stockholder under this Agreement or the consummation by such Selling
Stockholder of any of the other transactions contemplated hereby.
(h) Disclosure Made by Such Selling Stockholder in the Prospectus. All
information furnished by or on behalf of such Selling Stockholder in writing
expressly for use in the Registration Statement and Prospectus is, and on the
First Closing Date will be, true, correct,
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and complete in all material respects, and does not, and on the First Closing
Date will not, contain any untrue statement of a material fact or omit to
state any material fact necessary to make such information not misleading.
Such Selling Stockholder confirms as accurate the number of shares of Common
Stock set forth opposite such Selling Stockholder's name in the Prospectus
under the caption "Principal and Selling Stockholders" (both prior to and
after giving effect to the sale of the Common Shares).
(i) No Price Stabilization or Manipulation. Such Selling Stockholder
has not taken and will not take, directly or indirectly, any action designed
to or that might be reasonably expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or resale
of the Common Shares.
(j) Confirmation of Company Representations and Warranties. Such
Selling Stockholder has no reason to believe that the representations and
warranties of the Company contained in Section 1(A) hereof are not true and
correct, is familiar with the Registration Statement and the Prospectus and
has no knowledge of any material fact, condition or information not disclosed
in the Registration Statement or the Prospectus which has had or may have a
Material Adverse Change and is not prompted to sell shares of Common Stock by
any information concerning the Company which is not set forth in the
Registration Statement and the Prospectus.
Any certificate signed by or on behalf of any Selling Stockholder and
delivered to the Representatives or to counsel for the Underwriters shall be
deemed to be a representation and warranty by such Selling Stockholder to each
Underwriter as to the matters covered thereby.
Section 2. Purchase, Sale and Delivery of the Common Shares.
(a) The Firm Common Shares. Upon the terms herein set forth, (i) the
Company agrees to issue and sell to the several Underwriters an aggregate of
2,800,000 Firm Common Shares and (ii) the Selling Stockholders agree to sell to
the several Underwriters an aggregate of 500,000 Firm Common Shares, each
Selling Stockholder selling the number of Firm Common Shares set forth opposite
such Selling Stockholder's name on Schedule B. On the basis of the
representations, warranties and agreements herein contained, and upon the terms
but subject to the conditions herein set forth, the Underwriters agree,
severally and not jointly, to purchase from the Company and the Selling
Stockholders the respective number of Firm Common Shares set forth opposite
their names on Schedule A. The purchase price per Firm Common Share to be paid
by the several Underwriters to the Company and the Selling Stockholders shall be
$[___] per share.
(b) The First Closing Date. Delivery of certificates for the Firm
Common Shares to be purchased by the Underwriters and payment therefor shall be
made at the offices of BAS, 600 Montgomery Street, San Francisco, California
(or such other place as may be agreed to by the Company and the Representative)
at 6:00 a.m. San Francisco time, on [___], or such other time and date not later
than 10:30 a.m. San Francisco time , on [___] as the Representatives shall
designate by notice to the Company (the time and date of such closing are called
the "First Closing Date"). The Company and the Selling Stockholders hereby
acknowledge that circumstances under which the Representatives may provide
notice to postpone the First Closing Date as originally scheduled include, but
are in no way limited to, any determination by the Company, the Selling
Stockholders or the Representatives to recirculate to the public copies of
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an amended or supplemented Prospectus or a delay as contemplated by the
provisions of Section 10.
(c) The Optional Common Shares; the Second Closing Date. In addition,
on the basis of the representations, warranties and agreements herein contained,
and upon the terms but subject to the conditions herein set forth, the Company
hereby grants an option to the several Underwriters to purchase, severally and
not jointly, up to an aggregate of 495,000 Optional Common Shares from the
Company at the purchase price per share to be paid by the Underwriters for the
Firm Common Shares. The option granted hereunder is for use by the Underwriters
solely in covering any over-allotments in connection with the sale and
distribution of the Firm Common Shares. The option granted hereunder may be
exercised at any time (but not more than once) upon notice by the
Representatives to the Company, which notice may be given at any time within 30
days from the date of this Agreement. Such notice shall set forth (i) the
aggregate number of Optional Common Shares as to which the Underwriters are
exercising the option, (ii) the names and denominations in which the
certificates for the Optional Common Shares are to be registered and (iii) the
time, date and place at which such certificates will be delivered (which time
and date may be simultaneous with, but not earlier than, the First Closing Date;
and in such case the term "First Closing Date" shall refer to the time and date
of delivery of certificates for the Firm Common Shares and the Optional Common
Shares). Such time and date of delivery, if subsequent to the First Closing
Date, is called the "Second Closing Date" and shall be determined by the
Representative and shall not be earlier than three nor later than five full
business days after delivery of such notice of exercise. If any Optional Common
Shares are to be purchased, each Underwriter agrees, severally and not jointly,
to purchase the number of Optional Common Shares (subject to such adjustments to
eliminate fractional shares as the Representatives may determine) that bears the
same proportion to the total number of Optional Common Shares to be purchased as
the number of Firm Common Shares set forth on Schedule A opposite the name of
such Underwriter bears to the total number of Firm Common Shares. The
Representatives may cancel the option at any time prior to its expiration by
giving written notice of such cancellation to the Company.
(d) Public Offering of the Common Shares. The Representatives hereby
advise the Company and the Selling Stockholders that the Underwriters intend to
offer for sale to the public, as described in the Prospectus, their respective
portions of the Common Shares as soon after this Agreement has been executed and
the Registration Statement has been declared effective as the Representative, in
its sole judgment, has determined is advisable and practicable.
(e) Payment for the Common Shares. Payment for the Common Shares to
be sold by the Company shall be made at the First Closing Date (and, if
applicable, at the Second Closing Date) by wire transfer of immediately
available funds to the order of the Company. Payment for the Common Shares to
be sold by the Selling Stockholders shall be made at the First Closing Date by
wire transfer of immediately available funds to the order of the Custodian.
It is understood that the Representatives have been authorized, for
their own accounts and the accounts of the several Underwriters, to accept
delivery of and receipt for, and make payment of the purchase price for, the
Firm Common Shares and any Optional Common Shares the Underwriters have agreed
to purchase. BAS, individually and not as a Representative of the Underwriters,
may (but shall not be obligated to) make payment for any Common Shares to be
purchased by any Underwriter whose funds shall not have been received by the
Representatives by the First Closing Date or the Second Closing Date, as the
case may be, for the
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account of such Underwriter, but any such payment shall not relieve such
Underwriter from any of its obligations under this Agreement.
Each Selling Stockholder hereby agrees that (i) it will pay all stock
transfer taxes, stamp duties and other similar taxes, if any, payable upon the
sale or delivery of the Common Shares to be sold by such Selling Stockholder to
the several Underwriters, or otherwise in connection with the performance of
such Selling Stockholder's obligations hereunder and (ii) the Custodian is
authorized to deduct for such payment any such amounts from the proceeds to such
Selling Stockholder hereunder and to hold such amounts for the account of such
Selling Stockholder with the Custodian under the Custody Agreement.
(f) Delivery of the Common Shares. The Company and the Selling
Stockholders shall deliver, or cause to be delivered, to the Representatives for
the accounts of the several Underwriters certificates for the Firm Common Shares
to be sold by them at the First Closing Date, against the irrevocable release of
a wire transfer of immediately available funds for the amount of the purchase
price therefor. The Company shall also deliver, or cause to be delivered, to
the Representatives for the accounts of the several Underwriters, certificates
for the Optional Common Shares the Underwriters have agreed to purchase at the
First Closing Date or the Second Closing Date, as the case may be, against the
irrevocable release of a wire transfer of immediately available funds for the
amount of the purchase price therefor. The certificates for the Common Shares
shall be in definitive form and registered in such names and denominations as
the Representatives shall have requested at least two full business days prior
to the First Closing Date (or the Second Closing Date, as the case may be) and
shall be made available for inspection on the business day preceding the First
Closing Date (or the Second Closing Date, as the case may be) at a location in
New York City as the Representatives may designate. Time shall be of the
essence, and delivery at the time and place specified in this Agreement is a
further condition to the obligations of the Underwriters.
(g) Delivery of Prospectus to the Underwriters. Not later than 12:00
p.m. on the second business day following the date the Common Shares are first
released by the Underwriters for sale to the public, the Company shall deliver
or cause to be delivered, copies of the Prospectus in such quantities and at
such places as the Representatives shall request.
Section 3. Additional Covenants.
A. Covenants of the Company. The Company further covenants and
agrees with each Underwriter as follows:
(a) Representatives' Review of Proposed Amendments and Supplements'.
During such period beginning on the date hereof and ending on the later of the
First Closing Date or such date, as in the opinion of counsel for the
Underwriters, the Prospectus is no longer required by law to be delivered in
connection with sales by an Underwriter or dealer (the "Prospectus Delivery
Period"), prior to amending or supplementing the Registration Statement
(including any registration statement filed under Rule 462(b) under the
Securities Act) or the Prospectus (including any amendment or supplement
through incorporation by reference of any report filed under the Exchange
Act), the Company shall furnish to the Representatives for review a copy of
each such proposed amendment or supplement, and the Company shall not file any
such proposed amendment or supplement to which the Representatives reasonably
objects.
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(b) Securities Act Compliance. After the date of this Agreement, the
Company shall promptly advise the Representatives in writing (i) of the
receipt of any comments of, or requests for additional or supplemental
information from, the Commission, (ii) of the time and date of any filing of
any post-effective amendment to the Registration Statement or any amendment or
supplement to any preliminary prospectus or the Prospectus, (iii) of the time
and date that any post-effective amendment to the Registration Statement
becomes effective and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or any post-
effective amendment thereto or of any order preventing or suspending the use
of any preliminary prospectus or the Prospectus, or of any proceedings to
remove, suspend or terminate from listing or quotation the Common Stock from
any securities exchange upon which it is listed for trading or included or
designated for quotation, or of the threatening or initiation of any
proceedings for any of such purposes. If the Commission shall enter any such
stop order at any time, the Company will use its best efforts to obtain the
lifting of such order at the earliest possible moment. Additionally, the
Company agrees that it shall comply with the provisions of Rules 424(b), 430A
and 434, as applicable, under the Securities Act and will use its reasonable
efforts to confirm that any filings made by the Company under such Rule 424(b)
were received in a timely manner by the Commission.
(c) Amendments and Supplements to the Prospectus and Other Securities
Act Matters. If, during the Prospectus Delivery Period, any event shall occur
or condition exist as a result of which it is necessary to amend or supplement
the Prospectus in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not misleading,
or if in the opinion of the Representatives or counsel for the Underwriters it
is otherwise necessary to amend or supplement the Prospectus to comply with
law, the Company agrees to promptly prepare (subject to Section 3(A)(a)
hereof), file with the Commission and furnish at its own expense to the
Underwriters and to dealers, amendments or supplements to the Prospectus so
that the statements in the Prospectus as so amended or supplemented will not,
in the light of the circumstances when the Prospectus is delivered to a
purchaser, be misleading or so that the Prospectus, as amended or
supplemented, will comply with law.
(d) Copies of any Amendments and Supplements to the Prospectus. The
Company agrees to furnish the Representatives, without charge, during the
Prospectus Delivery Period, as many copies of the Prospectus and any
amendments and supplements thereto (including any documents incorporated or
deemed incorporated by reference therein) as the Representatives may request.
(e) Blue Sky Compliance. The Company shall cooperate with the
Representatives and counsel for the Underwriters to qualify or register the
Common Shares for sale under (or obtain exemptions from the application of)
the state securities or blue sky laws or Canadian provincial Securities laws
of those jurisdictions designated by the Representatives, shall comply with
such laws and shall continue such qualifications, registrations and exemptions
in effect so long as required for the distribution of the Common Shares. The
Company shall not be required to qualify as a foreign corporation or to take
any action that would subject it to general service of process in any such
jurisdiction where it is not presently qualified or where it would be subject
to taxation as a foreign corporation. The Company will advise the
Representatives promptly of the suspension of the qualification or
registration of (or any
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such exemption relating to) the Common Shares for offering, sale or trading in
any jurisdiction or any initiation or threat of any proceeding for any such
purpose, and in the event of the issuance of any order suspending such
qualification, registration or exemption, the Company shall use its best
efforts to obtain the withdrawal thereof at the earliest possible moment.
(f) Use of Proceeds. The Company shall apply the net proceeds from the
sale of the Common Shares sold by it in the manner described under the caption
"Use of Proceeds" in the Prospectus.
(g) Transfer Agent. The Company shall engage and maintain, at its
expense, a registrar and transfer agent for the Common Stock.
(h) Earnings Statement. As soon as practicable, the Company will make
generally available to its security holders and to the Representatives an
earnings statement (which need not be audited) covering the twelve-month
period ending [___] that satisfies the provisions of Section 11(a) of the
Securities Act.
(i) Periodic Reporting Obligations. During the Prospectus Delivery
Period the Company shall file, on a timely basis, with the Commission and the
Nasdaq National Market all reports and documents required to be filed under
the Exchange Act.
(j) Agreement Not To Offer or Sell Additional Securities During the
period of 90 days following the date of the Prospectus, the Company will not,
without the prior written consent of BAS (which consent may be withheld at the
sole discretion of BAS), directly or indirectly, sell, offer, contract or
grant any option to sell, pledge, transfer or establish an open "put
equivalent position" within the meaning of Rule 16a-1(h) under the Exchange
Act, or otherwise dispose of or transfer, or announce the offering of, or file
any registration statement under the Securities Act in respect of, any shares
of Common Stock, options or warrants to acquire shares of the Common Stock or
securities exchangeable or exercisable for or convertible into shares of
Common Stock (other than as contemplated by this Agreement with respect to the
Common Shares); provided, however, that the Company may issue shares of its
Common Stock or options to purchase its Common Stock, or Common Stock upon
exercise of options, pursuant to any stock option, stock bonus or other stock
plan or arrangement described in the Prospectus, but only if the holders of
such shares, options, or shares issued upon exercise of such options, agree in
writing not to sell, offer, dispose of or otherwise transfer any such shares
or options during such 90 day period without the prior written consent of BAS
(which consent may be withheld at the sole discretion of the BAS).
(l) Future Reports to the Representatives. During the period of five
years hereafter the Company will furnish to the Representatives at 600
Montgomery Street, San Francisco, CA 94111 Attention:[ ]: (i) as soon as
practicable after the end of each fiscal year, copies of the Annual Report of
the Company containing the balance sheet of the Company as of the close of
such fiscal year and statements of income, stockholders' equity and cash flows
for the year then ended and the opinion thereon of the Company's independent
public or certified public accountants; (ii) as soon as practicable after the
filing thereof, copies of each proxy statement, Annual Report on Form 10-K,
Quarterly Report on Form 10-Q, Current Report on Form 8-K or other report
filed by the Company with the Commission, the NASD
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<PAGE>
or any securities exchange; and (iii) as soon as available, copies of any
report or communication of the Company mailed generally to holders of its
capital stock.
(m) Exchange Act Compliance. During the Prospectus Delivery Period, the
Company will file all documents required to be filed with the Commission
pursuant to Section 13, 14 or 15 of the Exchange Act in the manner and within
the time periods required by the Exchange Act.
B. Covenants of the Selling Stockholders. Each Selling Stockholder
further covenants and agrees with each Underwriter:
(a) Agreement Not to Offer or Sell Additional Securities. Such Selling
Stockholder will not, without the prior written consent of BAS (which consent
may be withheld in its sole discretion), directly or indirectly, sell, offer,
contract or grant any option to sell (including without limitation any short
sale), pledge, transfer, establish an open "put equivalent position" within the
meaning of Rule 16a-1(h) under the Exchange Act, or otherwise dispose of any
shares of Common Stock, options or warrants to acquire shares of Common Stock,
or securities exchangeable or exercisable for or convertible into shares of
Common Stock currently or hereafter owned either of record or beneficially (as
defined in Rule 13d-3 under Securities Exchange Act of 1934, as amended) by the
undersigned, or publicly announce the undersigned's intention to do any of the
foregoing, for a period commencing on the date hereof and continuing through the
close of trading on the date 90 days after the date of the Prospectus.
(b) Delivery of Forms W-8 and W-9. To deliver to the Representative prior
to the First Closing Date a properly completed and executed United States
Treasury Department Form W-8 (if the Selling Stockholder is a non-United States
person) or Form W-9 (if the Selling Stockholder is a United States person).
BAS, on behalf of the several Underwriters, may, in its sole discretion,
waive in writing the performance by the Company or any Selling Stockholder of
any one or more of the foregoing covenants or extend the time for their
performance.
Section 4. Payment of Expenses. The Company and the Selling
Stockholders, jointly and severally, agree to pay in such proportions as they
may agree upon among themselves all costs, fees and expenses incurred in
connection with the performance of their obligations hereunder and in connection
with the transactions contemplated hereby, including without limitation (i) all
expenses incident to the issuance and delivery of the Common Shares (including
all printing and engraving costs), (ii) all fees and expenses of the registrar
and transfer agent of the Common Stock, (iii) all necessary issue, transfer and
other stamp taxes in connection with the issuance and sale of the Common Shares
to the Underwriters, (iv) all fees and expenses of the Company's counsel,
independent public or certified public accountants and other advisors, (v) all
costs and expenses incurred in connection with the preparation, printing,
filing, shipping and distribution of the Registration Statement (including
financial statements, exhibits, schedules, consents and certificates of
experts), each preliminary prospectus and the Prospectus, and all amendments and
supplements thereto, and this Agreement, (vi) all filing fees, attorneys' fees
and expenses incurred by the Company or the Underwriters in connection with
qualifying or registering (or obtaining exemptions from the qualification or
registration of) all or any part of the Common Shares for offer and sale under
the state securities or blue sky laws or the provincial securities laws of
Canada, and, if requested by the Representative, preparing and printing a
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"Blue Sky Survey" or memorandum, and any supplements thereto, advising the
Underwriters of such qualifications, registrations and exemptions, (vii) the
filing fees incident to, and the reasonable fees and expenses of counsel for the
Underwriters in connection with, the NASD's review and approval of the
Underwriters' participation in the offering and distribution of the Common
Shares, (viii) the fees and expenses associated with including the Common Shares
on the Nasdaq National Market, and (ix) all other fees, costs and expenses
referred to in Item 14 of Part II of the Registration Statement. Except as
provided in this Section 4, Section 6, Section 8 and Section 9 hereof, the
Underwriters shall pay their own expenses, including the fees and disbursements
of their counsel.
The Selling Stockholders further agree with each Underwriter to pay
(directly or by reimbursement) all fees and expenses incident to the performance
of their obligations under this Agreement which are not otherwise specifically
provided for herein, including but not limited to (i) fees and expenses of
counsel and other advisors for such Selling Stockholders, (ii) fees and expenses
of the Custodian and (iii) expenses and taxes incident to the sale and delivery
of the Common Shares to be sold by such Selling Stockholders to the Underwriters
hereunder (which taxes, if any, may be deducted by the Custodian under the
provisions of Section 2 of this Agreement).
This Section 4 shall not affect or modify any separate, valid agreement
relating to the allocation of payment of expenses between the Company, on the
one hand, and the Selling Stockholders, on the other hand.
Section 5. Conditions of the Obligations of the Underwriters. The
obligations of the several Underwriters to purchase and pay for the Common
Shares as provided herein on the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date, shall be subject to the
accuracy of the representations and warranties on the part of the Company and
the Selling Stockholders set forth in Sections 1(A) and 1(B) hereof as of the
date hereof and as of the First Closing Date as though then made and, with
respect to the Optional Common Shares, as of the Second Closing Date as though
then made, to the timely performance by the Company and the Selling Stockholders
of their respective covenants and other obligations hereunder, and to each of
the following additional conditions:
(a) Accountants' Comfort Letter'. On the date hereof, the
Representatives shall have received from Arthur Andersen LLP, independent
public or certified public accountants for the Company, a letter dated the
date hereof addressed to the Underwriters, in form and substance satisfactory
to the Representatives, containing statements and information of the type
ordinarily included in accountant's "comfort letters" to underwriters,
delivered according to Statement of Auditing Standards No. 72 (or any
successor bulletin), with respect to the audited and unaudited financial
statements and certain financial information contained in the Registration
Statement and the Prospectus (and the Representatives shall have received an
additional [___] conformed copies of such accountants' letter for each of the
several Underwriters).
(b) Compliance with Registration Requirements; No Stop Order; No
Objection from NASD. For the period from and after effectiveness of this
Agreement and prior to the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date:
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(i) the Company shall have filed the Prospectus with the Commission
(including the information required by Rule 430A under the Securities Act)
in the manner and within the time period required by Rule 424(b) under the
Securities Act; or the Company shall have filed a post-effective amendment
to the Registration Statement containing the information required by such
Rule 430A, and such post-effective amendment shall have become effective;
or, if the Company elected to rely upon Rule 434 under the Securities Act
and obtained the Representatives' consent thereto, the Company shall have
filed a Term Sheet with the Commission in the manner and within the time
period required by such Rule 424(b);
(ii) no stop order suspending the effectiveness of the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment to the Registration Statement, shall be in effect and no
proceedings for such purpose shall have been instituted or threatened by
the Commission; and
(iii) the NASD shall have raised no objection to the fairness and
reasonableness of the underwriting terms and arrangements.
(c) No Material Adverse Change. For the period from and after the date
of this Agreement and prior to the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date in the judgment of the
Representatives there shall not have occurred any Material Adverse Change.
(d) Opinion of Counsel for the Company. On each of the First Closing
Date and the Second Closing Date the Representatives shall have received the
favorable opinion of Brobeck Phleger & Harrison LLP, counsel for the Company,
dated as of such Closing Date, the form of which is attached as Exhibit A (and
the Representatives shall have received an additional [___] conformed copies
of such counsel's legal opinion for each of the several Underwriters).
(e) Opinion of Counsel for the Underwriters. On each of the First
Closing Date and the Second Closing Date the Representatives shall have
received the favorable opinion of Morrison & Foerster LLP, counsel for the
Underwriters, dated as of such Closing Date, with respect to the matters set
forth in paragraphs(i), (viii), (ix), (x) and (xi), and the next-to-last
paragraph of Exhibit A (and the Representative shall have received an
additional [___] conformed copies of such counsel's legal opinion for each of
the several Underwriters).
(f) Officers' Certificate'. On each of the First Closing Date and the
Second Closing Date the Representatives shall have received a written
certificate executed by the Chairman of the Board, Chief Executive Officer or
President of the Company and the Chief Financial Officer or Chief Accounting
Officer of the Company, dated as of such Closing Date, to the effect set forth
in subsection (b)(ii) of this Section 5, and further to the effect that:
(i) for the period from and after the date of this Agreement and
prior to such Closing Date, there has not occurred any Material Adverse
Change;
(ii) the representations, warranties and covenants of the Company set
forth in Section 1(A) of this Agreement are true and correct with the same
force and effect as though expressly made on and as of such Closing Date;
and
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(iii) the Company has complied with all the agreements hereunder and
satisfied all the conditions on its part to be performed or satisfied
hereunder at or prior to such Closing Date.
(g) Bring-down Comfort Letter. On each of the First Closing Date and the
Second Closing Date the Representatives shall have received from Arthur
Andersen LLP, independent public or certified public accountants for the
Company, a letter dated such date, in form and substance satisfactory to the
Representatives, to the effect that they reaffirm the statements made in the
letter furnished by them pursuant to subsection (a) of this Section 5, except
that the specified date referred to therein for the carrying out of procedures
shall be no more than three business days prior to the First Closing Date or
Second Closing Date, as the case may be (and the Representatives shall have
received an additional [___] conformed copies of such accountants' letter for
each of the several Underwriters).
(h) Opinion of Counsel for the Selling Stockholders. On each of the
First Closing Date and the Second Closing Date the Representative shall have
received the favorable opinion of Brobeck Phleger & Harrison LLP, counsel for
the Selling Stockholders, dated as of such Closing Date, the form of which is
attached as Exhibit B (and the Representatives shall have received an
additional [___] conformed copies of such counsel's legal opinion for each of
the several Underwriters).
(i) Selling Stockholders' Certificate'. On each of the First Closing Date
and the Second Closing Date the Representatives shall receive a written
certificate executed by each Selling Stockholder, dated as of such Closing
Date, to the effect that:
(i) the representations, warranties and covenants of such Selling
Stockholder set forth in Section 1(B) of this Agreement are true and
correct with the same force and effect as though expressly made by such
Selling Stockholder on and as of such Closing Date; and
(ii) such Selling Stockholder has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at or
prior to such Closing Date.
(j) Selling Stockholders' Documents'. On the date hereof, the Company
and the Selling Stockholders shall have furnished for review by the
Representatives copies of the Powers of Attorney and Custody Agreements
executed by each of the Selling Stockholders and such further information,
certificates and documents as the Representatives may reasonably request.
(k) Lock-Up Agreement from Certain Securityholders of the Company Other
Than Selling Stockholders. On the date hereof, the Company shall have
furnished to the Representatives an agreement in the form of Exhibit C hereto
from the parties listed on Schedule C hereto, and such agreement shall be in
full force and effect on each of the First Closing Date and the Second Closing
Date.
(l) Additional Documents. On or before each of the First Closing Date
and the Second Closing Date, the Representatives and counsel for the
Underwriters shall have received such information, documents and opinions as
they may reasonably require for the
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purposes of enabling them to pass upon the issuance and sale of the Common
Shares as contemplated herein, or in order to evidence the accuracy of any of
the representations and warranties, or the satisfaction of any of the
conditions or agreements, herein contained.
If any condition specified in this Section 5 is not satisfied when and
as required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company and the Selling Stockholders at any
time on or prior to the First Closing Date and, with respect to the Optional
Common Shares, at any time prior to the Second Closing Date, which termination
shall be without liability on the part of any party to any other party, except
that Section 4, Section 6, Section 8 and Section 9 shall at all times be
effective and shall survive such termination.
Section 6. Reimbursement of Underwriters' Expenses'. If this
Agreement is terminated by the Representatives pursuant to Section 5, Section 7,
Section 10 or Section 11 or Section 17, or if the sale to the Underwriters of
the Common Shares on the First Closing Date is not consummated because of any
refusal, inability or failure on the part of the Company or the Selling
Stockholders to perform any agreement herein or to comply with any provision
hereof, the Company agrees to reimburse the Representatives and the other
Underwriters (or such Underwriters as have terminated this Agreement with
respect to themselves), severally, upon demand for all out-of-pocket expenses
that shall have been reasonably incurred by the Representatives and the
Underwriters in connection with the proposed purchase and the offering and sale
of the Common Shares, including but not limited to fees and disbursements of
counsel, printing expenses, travel expenses, postage, facsimile and telephone
charges.
Section 7. Effectiveness of this Agreement.
This Agreement shall not become effective until the later of (i) the
execution of this Agreement by the parties hereto and (ii) notification by the
Commission to the Company and the Representatives of the effectiveness of the
Registration Statement under the Securities Act.
Prior to such effectiveness, this Agreement may be terminated by any
party by notice to each of the other parties hereto, and any such termination
shall be without liability on the part of (a) the Company or the Selling
Stockholders to any Underwriter, except that the Company and the Selling
Stockholders shall be obligated to reimburse the expenses of the Representative
and the Underwriters pursuant to Sections 4 and 6 hereof, (b) of any Underwriter
to the Company or the Selling Stockholders, or (c) of any party hereto to any
other party except that the provisions of Section 8 and Section 9 shall at all
times be effective and shall survive such termination.
Section 8. Indemnification.
(a) Indemnification of the Underwriters. Each of the Company and each
of the Selling Stockholders, jointly and severally, agree to indemnify and
hold harmless each Underwriter, its officers and employees, and each person,
if any, who controls any Underwriter within the meaning of the Securities Act
and the Exchange Act against any loss, claim, damage, liability or expense, as
incurred, to which such Underwriter or such
20
<PAGE>
controlling person may become subject, under the Securities Act, the Exchange
Act or other federal or state statutory law or regulation, or at common law or
otherwise (including in settlement of any litigation, if such settlement is
effected with the written consent of the Company), insofar as such loss,
claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based (i) upon any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement, or any amendment thereto, including any information deemed to be a
part thereof pursuant to Rule 430A or Rule 434 under the Securities Act, or
the omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not misleading; or
(ii) upon any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto), or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading; or (iii) in
whole or in part upon any inaccuracy in the representations and warranties of
the Company or the Selling Stockholders contained herein; or (iv) in whole or
in part upon any failure of the Company or the Selling Stockholders to perform
their respective obligations hereunder or under law; or (v) any act or failure
to act or any alleged act or failure to act by any Underwriter in connection
with, or relating in any manner to, the Common Stock or the offering
contemplated hereby, and which is included as part of or referred to in any
loss, claim, damage, liability or action arising out of or based upon any
matter covered by clause (i) or (ii) above, provided that the Company and the
Selling Stockholders shall not be liable under this clause (v) to the extent
that a court of competent jurisdiction shall have determined by a final
judgment that such loss, claim, damage, liability or action resulted directly
from any such acts or failures to act undertaken or omitted to be taken by
such Underwriter through its bad faith or willful misconduct; and to reimburse
each Underwriter and each such controlling person for any and all expenses
(including the fees and disbursements of counsel chosen by BAS) as such
expenses are reasonably incurred by such Underwriter or such controlling
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action; provided,
however, that the foregoing indemnity agreement shall not apply to any loss,
claim, damage, liability or expense to the extent, but only to the extent,
arising out of or based upon any untrue statement or alleged untrue statement
or omission or alleged omission made in reliance upon and in conformity with
written information furnished to the Company and the Selling Stockholders by
the Representatives expressly for use in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto); and provided, further, that with respect to any preliminary
prospectus, the foregoing indemnity agreement shall not inure to the benefit
of any Underwriter from whom the person asserting any loss, claim, damage,
liability or expense purchased Common Shares, or any person controlling such
Underwriter, if copies of the Prospectus were timely delivered to the
Underwriter pursuant to Section 2 and a copy of the Prospectus (as then
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such Underwriter
to such person, if required by law so to have been delivered, at or prior to
the written confirmation of the sale of the Common Shares to such person, and
if the Prospectus (as so amended or supplemented) would have cured the defect
giving rise to such loss, claim, damage, liability or expense. The indemnity
agreement set forth in this Section 8(a) shall be in addition to any
liabilities that the Company and the Selling Stockholders may otherwise have.
21
<PAGE>
(b) Indemnification of the Company, its Directors and Officers. Each
Underwriter agrees, severally and not jointly, to indemnify and hold harmless
the Company, each of its directors, each of its officers who signed the
Registration Statement, the Selling Stockholders and each person, if any, who
controls the Company within the meaning of the Securities Act or the Exchange
Act, against any loss, claim, damage, liability or expense, as incurred, to
which the Company, or any such director, officer, Selling Stockholder or
controlling person may become subject, under the Securities Act, the Exchange
Act, or other federal or state statutory law or regulation, or at common law
or otherwise (including in settlement of any litigation, if such settlement is
effected with the written consent of such Underwriter), insofar as such loss,
claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based upon any untrue or alleged
untrue statement of a material fact contained in the Registration Statement,
any preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or arises out of or is based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent, but
only to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in the Registration Statement, any
preliminary prospectus, the Prospectus (or any amendment or supplement
thereto), in reliance upon and in conformity with written information
furnished to the Company and the Selling Stockholders by the Representatives
expressly for use therein; and to reimburse the Company, or any such director,
officer, Selling Stockholder or controlling person for any legal and other
expense reasonably incurred by the Company, or any such director, officer,
Selling Stockholder or controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action. Each of the Company and each of the Selling
Stockholders hereby acknowledges that the only information that the
Underwriters have furnished to the Company and the Selling Stockholders
expressly for use in the Registration Statement, any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto) are the statements set
forth (A) as the last [two] paragraphs on the inside front cover page of the
Prospectus concerning stabilization [and passive market making] by the
Underwriters and (B) in the table in the first paragraph and as the ninth,
tenth, thirteenth and last paragraphs under the caption "Underwriting" in the
Prospectus; and the Underwriters confirm that such statements are correct. The
indemnity agreement set forth in this Section 8(b) shall be in addition to any
liabilities that each Underwriter may otherwise have.
(c) Notifications and Other Indemnification Procedures. Promptly after
receipt by an indemnified party under this Section 8 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 8,
notify the indemnifying party in writing of the commencement thereof, but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party for contribution or
otherwise than under the indemnity agreement contained in this Section 8 or to
the extent it is not prejudiced as a proximate result of such failure. In
case any such action is brought against any indemnified party and such
indemnified party seeks or intends to seek indemnity from an indemnifying
party, the indemnifying party will be entitled to participate in, and, to the
extent that it shall elect, jointly with all other indemnifying parties
similarly notified, by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party; provided, however, if the defendants in any such action
include both
22
<PAGE>
the indemnified party and the indemnifying party and the indemnified party
shall have reasonably concluded that a conflict may arise between the
positions of the indemnifying party and the indemnified party in conducting
the defense of any such action or that there may be legal defenses available
to it and/or other indemnified parties which are different from or additional
to those available to the indemnifying party, the indemnified party or parties
shall have the right to select separate counsel to assume such legal defenses
and to otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of such indemnifying party's election so to
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified party
under this Section 8 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with local counsel), approved by the indemnifying
party (BAS in the case of Section 8(b) and Section 9), representing the
indemnified parties who are parties to such action) or (ii) the indemnifying
party shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action, in each of which cases the fees and expenses of
counsel shall be at the expense of the indemnifying party.
(d) Settlements. The indemnifying party under this Section 8 shall not
be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified
party against any loss, claim, damage, liability or expense by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any time
an indemnified party shall have requested an indemnifying party to reimburse
the indemnified party for fees and expenses of counsel as contemplated by
Section 8(c) hereof, the indemnifying party agrees that it shall be liable for
any settlement of any proceeding effected without its written consent if (i)
such settlement is entered into more than 30 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying party
shall not have reimbursed the indemnified party in accordance with such
request prior to the date of such settlement. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement, compromise or consent to the entry of judgment in any pending or
threatened action, suit or proceeding in respect of which any indemnified
party is or could have been a party and indemnity was or could have been
sought hereunder by such indemnified party, unless such settlement, compromise
or consent includes an unconditional release of such indemnified party from
all liability on claims that are the subject matter of such action, suit or
proceeding.
Section 9. Contribution.
If the indemnification provided for in Section 8 is for any reason
held to be unavailable to or otherwise insufficient to hold harmless an
indemnified party in respect of any losses, claims, damages, liabilities or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount paid or payable by such indemnified party, as incurred, as
a result of any losses, claims, damages, liabilities or expenses referred to
therein (i) in such
23
<PAGE>
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Stockholders, on the one hand, and the Underwriters, on
the other hand, from the offering of the Common Shares pursuant to this
Agreement or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company and the Selling Stockholders, on the one hand, and the
Underwriters, on the other hand, in connection with the statements or omissions
or inaccuracies in the representations and warranties herein which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative benefits received by the Company
and the Selling Stockholders, on the one hand, and the Underwriters, on the
other hand, in connection with the offering of the Common Shares pursuant to
this Agreement shall be deemed to be in the same respective proportions as the
total net proceeds from the offering of the Common Shares pursuant to this
Agreement (before deducting expenses) received by the Company and the Selling
Stockholders, and the total underwriting discount received by the Underwriters,
in each case as set forth on the front cover page of the Prospectus (or, if Rule
434 under the Securities Act is used, the corresponding location on the Term
Sheet) bear to the aggregate initial public offering price of the Common Shares
as set forth on such cover. The relative fault of the Company and the Selling
Stockholders, on the one hand, and the Underwriters, on the other hand, shall be
determined by reference to, among other things, whether any such untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact or any such inaccurate or alleged inaccurate
representation or warranty relates to information supplied by the Company or the
Selling Stockholders, on the one hand, or the Underwriters, on the other hand,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 8(c), any legal or
other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim. The provisions set forth in
Section 8(c) with respect to notice of commencement of any action shall apply if
a claim for contribution is to be made under this Section 9; provided, however,
that no additional notice shall be required with respect to any action for which
notice has been given under Section 8(c) for purposes of indemnification.
The Company, the Selling Stockholders and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section 9
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in this Section 9.
Notwithstanding the provisions of this Section 9, no Underwriter shall
be required to contribute any amount in excess of the underwriting commissions
received by such Underwriter in connection with the Common Shares underwritten
by it and distributed to the public. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 9 are several, and not joint, in proportion to their
respective underwriting commitments as set forth opposite their names in
Schedule A. For purposes of this Section 9, each officer and employee of an
Underwriter and each person, if any, who controls an Underwriter within the
24
<PAGE>
meaning of the Securities Act and the Exchange Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each officer
of the Company who signed the Registration Statement, and each person, if any,
who controls the Company with the meaning of the Securities Act and the Exchange
Act shall have the same rights to contribution as the Company.
Section 10. Default of One or More of the Several Underwriters. If,
on the First Closing Date or the Second Closing Date, as the case may be, any
one or more of the several Underwriters shall fail or refuse to purchase Common
Shares that it or they have agreed to purchase hereunder on such date, and the
aggregate number of Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase does not exceed 10% of the
aggregate number of the Common Shares to be purchased on such date, the other
Underwriters shall be obligated, severally, in the proportions that the number
of Firm Common Shares set forth opposite their respective names on Schedule A
bears to the aggregate number of Firm Common Shares set forth opposite the names
of all such non-defaulting Underwriters, or in such other proportions as may be
specified by the Representatives with the consent of the non-defaulting
Underwriters, to purchase the Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date. If, on the
First Closing Date or the Second Closing Date, as the case may be, any one or
more of the Underwriters shall fail or refuse to purchase Common Shares and the
aggregate number of Common Shares with respect to which such default occurs
exceeds 10% of the aggregate number of Common Shares to be purchased on such
date, and arrangements satisfactory to the Representatives and the Company for
the purchase of such Common Shares are not made within 48 hours after such
default, this Agreement shall terminate without liability of any party to any
other party except that the provisions of Section 4, Section 6, Section 8 and
Section 9 shall at all times be effective and shall survive such termination. In
any such case either the Representatives or the Company shall have the right to
postpone the First Closing Date or the Second Closing Date, as the case may be,
but in no event for longer than seven days in order that the required changes,
if any, to the Registration Statement and the Prospectus or any other documents
or arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this Section
10. Any action taken under this Section 10 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
Section 11. Termination of this Agreement. Prior to the First
Closing Date this Agreement may be terminated by the Representatives by notice
given to the Company and the Selling Stockholders if at any time (i) trading or
quotation in any of the Company's securities shall have been suspended or
limited by the Commission or by the Nasdaq National Market, or trading in
securities generally on either the Nasdaq Stock Market or the New York Stock
Exchange shall have been suspended or limited, or minimum or maximum prices
shall have been generally established on any of such stock exchanges by the
Commission or the NASD; (ii) a general banking moratorium shall have been
declared by any of federal, New York, Delaware or California authorities; (iii)
there shall have occurred any outbreak or escalation of national or
international hostilities or any crisis or calamity, or any change in the United
States or international financial markets, or any substantial change or
development involving a
25
<PAGE>
prospective substantial change in United States' or international political,
financial or economic conditions, as in the judgment of the Representatives is
material and adverse and makes it impracticable to market the Common Shares in
the manner and on the terms described in the Prospectus or to enforce contracts
for the sale of securities; (iv) in the judgment of the Representatives there
shall have occurred any Material Adverse Change; or (v) the Company shall have
sustained a loss by strike, fire, flood, earthquake, accident or other calamity
of such character as in the judgment of the Representatives may interfere
materially with the conduct of the business and operations of the Company
regardless of whether or not such loss shall have been insured. Any termination
pursuant to this Section 11 shall be without liability on the part of (a) the
Company or the Selling Stockholders to any Underwriter, except that the Company
and the Selling Stockholders shall be obligated to reimburse the expenses of the
Representatives and the Underwriters pursuant to Sections 4 and 6 hereof, (b)
any Underwriter to the Company or the Selling Stockholders, or (c) of any party
hereto to any other party except that the provisions of Section 8 and Section 9
shall at all times be effective and shall survive such termination.
Section 12. Representations and Indemnities to Survive Delivery.
The respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers, of the Selling Stockholders and of
the several Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter or the Company or any of its or their partners,
officers or directors or any controlling person, or the Selling Stockholders, as
the case may be, and will survive delivery of and payment for the Common Shares
sold hereunder and any termination of this Agreement.
Section 13. Notices. All communications hereunder shall be in
writing and shall be mailed, hand delivered or telecopied and confirmed to the
parties hereto as follows:
If to the Representatives:
Banc of America Securities LLC
600 Montgomery Street
San Francisco, California 94111
Facsimile: 415-913-5558
Attention: R. Revell Horsey
with a copy to:
Banc of America Securities LLC
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 913-5553
Attention: Jeffrey R. Lapic, Esq.
If to the Company:
GaSonics International Corporation
2730 Junction Avenue
26
<PAGE>
San Jose, California 95134
Facsimile: (408) 570-7612
Attention: Chief Executive Officer
If to the Selling Stockholders:
[Custodian]
[address]
Facsimile: [___]
Attention: [___]
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
Section 14. Successors. This Agreement will inure to the benefit of
and be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 10 hereof, and to the benefit of the employees, officers and
directors and controlling persons referred to in Section 8 and Section 9, and in
each case their respective successors, and no other person will have any right
or obligation hereunder. The term "successors" shall not include any purchaser
of the Common Shares as such from any of the Underwriters merely by reason of
such purchase.
Section 15. Partial Unenforceability. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
Section 16. (a) Governing Law Provisions. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
(b) Consent to Jurisdiction. Any legal suit, action or proceeding
arising out of or based upon this Agreement or the transactions contemplated
hereby ("Related Proceedings") may be instituted in the federal courts of the
United States of America located in the City and County of San Francisco or
the courts of the State of California in each case located in the City and
County of San Francisco (collectively, the "Specified Courts"), and each party
irrevocably submits to the exclusive jurisdiction (except for proceedings
instituted in regard to the enforcement of a judgment of any such court (a
"Related Judgment"), as to which such jurisdiction is non-exclusive) of such
courts in any such suit, action or proceeding. Service of any process,
summons, notice or document by mail to such party's address set forth above
shall be effective service of process for any suit, action or other proceeding
brought in any such court. The parties irrevocably and unconditionally waive
any objection to the laying of venue of any
27
<PAGE>
suit, action or other proceeding in the Specified Courts and irrevocably and
unconditionally waive and agree not to plead or claim in any such court that
any such suit, action or other proceeding brought in any such court has been
brought in an inconvenient forum.
Section 17. Failure of One or More of the Selling Stockholders to
Sell and Deliver Common Shares. If one or more of the Selling Stockholders
shall fail to sell and deliver to the Underwriters the Common Shares to be sold
and delivered by such Selling Stockholders at the First Closing Date pursuant to
this Agreement, then the Underwriters may at their option, by written notice
from the Representatives to the Company and the Selling Stockholders, either (i)
terminate this Agreement without any liability on the part of any Underwriter
or, except as provided in Sections 4, 6, 8 and 9 hereof, the Company or the
Selling Stockholders, or (ii) purchase the shares which the Company and other
Selling Stockholders have agreed to sell and deliver in accordance with the
terms hereof. If one or more of the Selling Stockholders shall fail to sell and
deliver to the Underwriters the Common Shares to be sold and delivered by such
Selling Stockholders pursuant to this Agreement at the First Closing Date, then
the Underwriters shall have the right, by written notice from the
Representatives to the Company and the Selling Stockholders, to postpone the
First Closing Date, but in no event for longer than seven days in order that the
required changes, if any, to the Registration Statement and the Prospectus or
any other documents or arrangements may be effected.
Section 18. General Provisions. This Agreement constitutes the
entire agreement of the parties to this Agreement and supersedes all prior
written or oral and all contemporaneous oral agreements, understandings and
negotiations with respect to the subject matter hereof. This Agreement may be
executed in two or more counterparts, each one of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement may not be amended or modified unless in writing by
all of the parties hereto, and no condition herein (express or implied) may be
waived unless waived in writing by each party whom the condition is meant to
benefit. The Table of Contents and the Section headings herein are for the
convenience of the parties only and shall not affect the construction or
interpretation of this Agreement.
Each of the parties hereto acknowledges that it is a sophisticated
business person who was adequately represented by counsel during negotiations
regarding the provisions hereof, including, without limitation, the
indemnification provisions of Section 8 and the contribution provisions of
Section 9, and is fully informed regarding said provisions. Each of the parties
hereto further acknowledges that the provisions of Sections 8 and 9 hereto
fairly allocate the risks in light of the ability of the parties to investigate
the Company, its affairs and its business in order to assure that adequate
disclosure has been made in the Registration Statement, any preliminary
prospectus and the Prospectus (and any amendments and supplements thereto), as
required by the Securities Act and the Exchange Act.
28
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to the Company and the Custodian the enclosed
copies hereof, whereupon this instrument, along with all counterparts hereof,
shall become a binding agreement in accordance with its terms.
Very truly yours,
GASONICS INTERNATIONAL
CORPORATION
By:__________________________
Name:________________________
Title:__________________________
[SELLING STOCKHOLDERS]
By:__________________________
(Attorney-in-fact)
The foregoing Underwriting Agreement is hereby confirmed and accepted
by the Representatives in San Francisco, California as of the date first above
written.
BANC OF AMERICA SECURITIES LLC
CIBC WORLD MARKETS
ROBERTSON STEPHENS
Acting as Representatives of the
several Underwriters named in
the attached Schedule A.
By BANC OF AMERICA SECURITIES LLC
By:___________________________________
R. Revell Horsey
Managing Director
29
<PAGE>
SCHEDULE A
@@
<TABLE>
<CAPTION>
Number of
Firm Common
Underwriters Shares
to be Purchased
<S> <C>
Banc of America Securities LLC................. [___]
CIBC World Markets............................. [___]
Robertson Stephens............................. [___]
Total....................................... [___]
</TABLE>
@@
<PAGE>
SCHEDULE B
@@
<TABLE>
<CAPTION>
Number of
Selling Stockholder Firm Common
Shares
to be Sold
<S> <C> <C>
Selling Stockholder
[address]
Attention: [___].................................... [___]
Selling Stockholder
[address]
Attention: [___].................................... [___]
Total:.............................................. [___]
============= ============
</TABLE>
A-1
<PAGE>
EXHIBIT A
The final opinion in draft form should be attached as Exhibit A at the time this
Agreement is executed.
Opinion of counsel for the Company to be delivered pursuant to Section 5(d)
of the Underwriting Agreement.
References to the Prospectus in this Exhibit A include any supplements
thereto at the Closing Date.
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under the
Underwriting Agreement.
(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in the State of California and in
each other jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of business,
except for such jurisdictions (other than the State of California) where the
failure to so qualify or to be in good standing would not, individually or in
the aggregate, result in a Material Adverse Change.
(iv) Each significant subsidiary of the Company (as defined in Rule 405
under the Securities Act) has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus and, to
the best knowledge of such counsel, is duly qualified as a foreign corporation
to transact business and is in good standing in each jurisdiction in which
such qualification is required, whether by reason of the ownership or leasing
of property or the conduct of business, except for such jurisdictions where
the failure to so qualify or to be in good standing would not, individually or
in the aggregate, result in a Material Adverse Change.
(v) All of the issued and outstanding capital stock of each such
significant subsidiary of the Company has been duly authorized and validly
issued, is fully paid and non-assessable and is owned by the Company, directly
or through subsidiaries, free and clear of any security interest, mortgage,
pledge, lien, encumbrance or, to the best knowledge of such counsel, any
pending or threatened claim.
(vi) The authorized, issued and outstanding capital stock of the
Company (including the Common Stock) conform to the descriptions thereof set
forth or incorporated by reference in the Prospectus. All of the outstanding
shares of Common Stock (including the shares of Common Stock owned by Selling
Stockholders) have been duly authorized and validly issued, are fully paid and
nonassessable and, to the best of such counsel's knowledge,
A-2
<PAGE>
have been issued in compliance with the registration and qualification
requirements of federal and state securities laws. The form of certificate
used to evidence the Common Stock is in due and proper form and complies with
all applicable requirements of the charter and by-laws of the Company and the
General Corporation Law of the State of Delaware. The description of the
Company's stock option, stock bonus and other stock plans or arrangements, and
the options or other rights granted and exercised thereunder, set forth in the
Prospectus accurately and fairly presents the information required to be shown
with respect to such plans, arrangements, options and rights.
(vii) No stockholder of the Company or any other person has any
preemptive right, right of first refusal or other similar right to subscribe
for or purchase securities of the Company arising (i) by operation of the
charter or by-laws of the Company or the General Corporation Law of the State
of Delaware or (ii) to the best knowledge of such counsel, otherwise.
(viii) The Underwriting Agreement has been duly authorized, executed
and delivered by, and is a valid and binding agreement of, the Company,
enforceable in accordance with its terms, except as rights to indemnification
thereunder may be limited by applicable law and except as the enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting creditors' rights generally or
by general equitable principles.
(ix) The Common Shares to be purchased by the Underwriters from the
Company have been duly authorized for issuance and sale pursuant to the
Underwriting Agreement and, when issued and delivered by the Company pursuant
to the Underwriting Agreement against payment of the consideration set forth
therein, will be validly issued, fully paid and nonassessable.
(x) Each of the Registration Statement and the Rule 462(b) Registration
Statement, if any, has been declared effective by the Commission under the
Securities Act. To the best knowledge of such counsel, no stop order
suspending the effectiveness of either of the Registration Statement or the
Rule 462(b) Registration Statement, if any, has been issued under the
Securities Act and no proceedings for such purpose have been instituted or are
pending or are contemplated or threatened by the Commission. Any required
filing of the Prospectus and any supplement thereto pursuant to Rule 424(b)
under the Securities Act has been made in the manner and within the time
period required by such Rule 424(b).
(xi) The Registration Statement, including any Rule 462(b) Registration
Statement, the Prospectus including any document incorporated by reference
therein, and each amendment or supplement to the Registration Statement and
the Prospectus including any document incorporated by reference therein, as of
their respective effective or issue dates (other than the financial statements
and supporting schedules included or incorporated by reference therein or in
exhibits to or excluded from the Registration Statement, as to which no
opinion need be rendered) comply as to form in all material respects with the
applicable requirements of the Securities Act and the Exchange Act.
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(xii) The Common Shares have been approved for listing on the Nasdaq
National Market.
(xiii) The statements (i) in the Prospectus under the captions "Risk
Factors", "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources", "Business--
Intellectual Property", "Business-Legal Proceedings", and "Underwriting" and
(ii) in Item 14 and Item 15 of the Registration Statement, insofar as such
statements constitute matters of law, summaries of legal matters, the
Company's charter or by-law provisions, documents or legal proceedings, or
legal conclusions, has been reviewed by such counsel and fairly present and
summarize, in all material respects, the matters referred to therein.
(xiv) To the best knowledge of such counsel, there are no legal or
governmental actions, suits or proceedings pending or threatened which are
required to be disclosed in the Registration Statement, other than those
disclosed therein.
(xv) To the best knowledge of such counsel, there are no Existing
Instruments required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those described or
referred to therein or filed or incorporated by reference as exhibits thereto;
and the descriptions thereof and references thereto are correct in all
material respects.
(xvi) No consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental authority or
agency, is required for the Company's execution, delivery and performance of
the Underwriting Agreement and consummation of the transactions contemplated
thereby and by the Prospectus, except as required under the Securities Act,
applicable state securities or blue sky laws and from the NASD.
(xvii) The execution and delivery of the Underwriting Agreement by the
Company and the performance by the Company of its obligations thereunder
(other than performance by the Company of its obligations under the
indemnification section of the Underwriting Agreement, as to which no opinion
need be rendered) (i) have been duly authorized by all necessary corporate
action on the part of the Company; (ii) will not result in any violation of
the provisions of the charter or by-laws of the Company or any subsidiary;
(iii) will not constitute a breach of, or Default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any of its subsidiaries pursuant to, to the best
knowledge of such counsel, any material Existing Instrument; or (iv) to the
best knowledge of such counsel, will not result in any violation of any law,
administrative regulation or administrative or court decree applicable to the
Company or any subsidiary.
(xviii) The Company is not, and after receipt of payment for the Common
Shares will not be, an "investment company" within the meaning of Investment
Company Act.
(xix) To the best knowledge of such counsel, there are no persons with
registration or other similar rights to have any equity or debt securities
registered for sale under the
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Registration Statement or included in the offering contemplated by the
Underwriting Agreement, other than the Selling Stockholders, except for such
rights as have been duly waived.
(xx) To the best knowledge of such counsel, neither the Company nor any
subsidiary is in violation of its charter or by-laws or any law,
administrative regulation or administrative or court decree applicable to the
Company or any subsidiary or is in Default in the performance or observance of
any obligation, agreement, covenant or condition contained in any material
Existing Instrument, except in each such case for such violations or Defaults
as would not, individually or in the aggregate, result in a Material Adverse
Change.
(xxi) Each document filed pursuant to the Exchange Act (other than the
financial statements and supporting schedules included therein, as to which no
opinion need be rendered) and incorporated or deemed to be incorporated by
reference in the Prospectus complied when so filed as to form in all material
respects with the Exchange Act.
In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the Company,
representatives of the independent public or certified public accountants for
the Company and with representatives of the Underwriters at which the contents
of the Registration Statement and the Prospectus, and any supplements or
amendments thereto, and related matters were discussed and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus (other than as specified above), and
any supplements or amendments thereto, on the basis of the foregoing, nothing
has come to their attention which would lead them to believe that either the
Registration Statement or any amendments thereto, at the time the Registration
Statement or such amendments became effective, contained an untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus, as of its date or at the First Closing Date or the Second Closing
Date, as the case may be, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no belief as to
the financial statements or schedules or other financial or statistical data
derived therefrom, included or incorporated by reference in the Registration
Statement or the Prospectus or any amendments or supplements thereto).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the General
Corporation Law of the State of Delaware, the General Corporation Law of the
State of California or the federal law of the United States, to the extent they
deem proper and specified in such opinion, upon the opinion (which shall be
dated the First Closing Date or the Second Closing Date, as the case may be,
shall be satisfactory in form and substance to the Underwriters, shall expressly
state that the Underwriters may rely on such opinion as if it were addressed to
them and shall be furnished to the Representative) of other counsel of good
standing whom they believe to be reliable and who are satisfactory to counsel
for the Underwriters; provided, however, that such counsel shall
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further state that they believe that they and the Underwriters are justified in
relying upon such opinion of other counsel, and (B) as to matters of fact, to
the extent they deem proper, on certificates of responsible officers of the
Company and public officials.
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EXHIBIT B
The final opinion in draft form should be attached as Exhibit B at the time this
Agreement is executed.
The opinion of such counsel pursuant to Section 5(h) shall be rendered
to the Representative at the request of the Company and shall so state therein.
References to the Prospectus in this Exhibit B include any supplements thereto
at the Closing Date.
(i) The Underwriting Agreement has been duly authorized, executed and
delivered by or on behalf of, and is a valid and binding agreement of, such
Selling Stockholder, enforceable in accordance with its terms, except as
rights to indemnification thereunder may be limited by applicable law and
except as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles.
(ii) The execution and delivery by such Selling Stockholder of, and the
performance by such Selling Stockholder of its obligations under, the
Underwriting Agreement and its Custody Agreement and its Power of Attorney
will not contravene or conflict with, result in a breach of, or constitute a
default under, the charter or by-laws, partnership agreement, trust agreement
or other organizational documents, as the case may be, of such Selling
Stockholder, or, to the best of such counsel's knowledge, violate or
contravene any provision of applicable law or regulation, or violate, result
in a breach of or constitute a default under the terms of any other agreement
or instrument to which such Selling Stockholder is a party or by which it is
bound, or any judgment, order or decree applicable to such Selling Stockholder
of any court, regulatory body, administrative agency, governmental body or
arbitrator having jurisdiction over such Selling Stockholder.
(iii) Such Selling Stockholder has good and valid title to all of the
Common Shares which may be sold by such Selling Stockholder under the
Underwriting Agreement and has the legal right and power, and all
authorizations and approvals required to enter into the Underwriting Agreement
and its Custody Agreement and its Power of Attorney, to sell, transfer and
deliver all of the Common Shares which may sold by such Selling Stockholder
under the Underwriting Agreement and to comply with its other obligations
under the Underwriting Agreement, its Custody Agreement and its Power of
Attorney.
(iv) Each of the Custody Agreement and Power of Attorney of such
Selling Stockholder has been duly authorized, executed and delivered by such
Selling Stockholder and is a valid and binding agreement of such Selling
Stockholder, enforceable in accordance with its terms, except as rights to
indemnification thereunder may be limited by applicable law and except as the
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general e quitable principles.
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(v) Assuming that the Underwriters purchase the Common Shares which are
sold by such Selling Stockholder pursuant to the Underwriting Agreement for
value, in good faith and without notice of any adverse claim, the delivery of
such Common Shares pursuant to the Underwriting Agreement will pass good and
valid title to such Common Shares, free and clear of any security interest,
mortgage, pledge, lieu encumbrance or other claim.
(vi) To the best of such counsel's knowledge, no consent, approval,
authorization or other order of, or registration or filing with, any court or
governmental authority or agency, is required for the consummation by such
Selling Stockholder of the transactions contemplated in the Underwriting
Agreement, except as required under the Securities Act, applicable state
securities or blue sky laws, and from the NASD.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the General
Corporation Law of the State of Delaware, the General Corporation Law of the
State of California or the federal law of the United States, to the extent they
deem proper and specified in such opinion, upon the opinion (which shall be
dated the First Closing Date or the Second Closing Date, as the case may be,
shall be satisfactory in form and substance to the Underwriters, shall expressly
state that the Underwriters may rely on such opinion as if it were addressed to
them and shall be furnished to the Representative) of other counsel of good
standing whom they believe to be reliable and who are satisfactory to counsel
for the Underwriters; provided, however, that such counsel shall further state
that they believe that they and the Underwriters are justified in relying upon
such opinion of other counsel, and (B) as to matters of fact, to the extent they
deem proper, on certificates of the Selling Stockholders and public officials
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EXHIBIT 23.1
INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our firm included in or made a part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
Arthur Andersen LLP
San Jose, California
May 17, 2000
