<PAGE>
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-46568
TO THE STOCKHOLDERS OF MATTSON TECHNOLOGY, INC. AND
THE SHAREHOLDERS OF CFM TECHNOLOGIES, INC.:
A BUSINESS COMBINATION AND MERGER PROPOSAL--YOUR VOTE IS VERY IMPORTANT!
Mattson Technology, Inc. has agreed to simultaneously combine with CFM
Technologies, Inc. and with the semiconductor equipment division of STEAG
Electronic Systems AG. We are proposing this three-way combination because we
believe the combined company will gain significant advantages in terms of size,
product line breadth, geographic scope and other synergies.
[MATTSON TECHNOLOGY, INC. LOGO]
When the merger with CFM is completed, CFM shareholders will receive .5233
shares of Mattson common stock for each CFM share they own, and will hold in
the aggregate approximately 11% of the outstanding common stock of the combined
company. STEAG will receive 11,850,000 shares of Mattson common stock, and will
hold approximately 32% of the outstanding common stock of the combined company.
The combined company will continue to operate under the name Mattson
Technology, Inc., and its common stock will continue to be listed on the Nasdaq
National Market System under the symbol "MTSN."
The board of directors of Mattson has approved the transactions and
unanimously recommends that its stockholders vote FOR the proposed share
issuance and increase in the option plan share reserve to complete the
transactions. Likewise, the board of directors of CFM has approved the merger
agreement and merger with a Mattson subsidiary and unanimously recommends that
CFM's shareholders vote FOR the approval of the merger agreement. Detailed
information about the transactions is contained in this joint proxy statement-
prospectus. The boards of directors of both Mattson and CFM urge you to read
this document, including the section describing the risk factors that begins on
page 13.
The dates, times and places of the two special meetings are as follows:
November 8, 2000, 10:00 a.m. November 8, 2000, 1:00 p.m.
For Mattson stockholders:
For CFM shareholders:
Newark Hilton Sheraton Great Valley Hotel
39900 Balentine Drive 707 East Lancaster Avenue
Newark, California 94560 Frazer, Pennsylvania 19355
Your vote is very important, regardless of the number of shares you own.
Whether or not you plan to attend either special meeting, please vote as soon
as possible to make sure that your shares are represented at the meeting.
We strongly support the proposed transactions and join with our boards of
directors in enthusiastically recommending that you vote in favor of the
proposals presented to you for approval.
/S/ BRAD MATTSON
/S/ ROGER A. CAROLIN
Brad Mattson
Chairman and Chief Executive Roger A. Carolin
Officer President and Chief Executive Officer
Mattson Technology, Inc. CFM Technologies, Inc.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the shares of Mattson common stock to
be issued in connection with the transactions nor determined whether this joint
proxy statement-prospectus is adequate or accurate. Any representation to the
contrary is a criminal offense.
This joint proxy statement-prospectus is dated October 9, 2000, and is first
being mailed to stockholders of Mattson and shareholders of CFM on or about
October 11, 2000.
<PAGE>
Under the Strategic Business Combination Agreement (the "Combination
Agreement") dated as of June 27, 2000 with STEAG Electronic Systems AG
("STEAG"), Mattson will acquire STEAG's semiconductor equipment division (the
"STEAG Semiconductor Division"), consisting of eleven subsidiaries (the "STEAG
Semiconductor Subsidiaries") in exchange for issuing 11,850,000 shares of
Mattson common stock to STEAG. At the closing, Mattson will also grant options
to purchase 850,000 shares of common stock to employees of the STEAG
Semiconductor Division. Mattson, STEAG, and Brad Mattson have also agreed to
enter into a Stockholder Agreement (the "Stockholder Agreement") providing for,
among other things, the expansion of Mattson's board of directors from five
members to seven, the election of two persons designated by STEAG to Mattson's
board of directors, restrictions on future acquisitions or dispositions of
Mattson common stock by STEAG, and registration rights in favor of STEAG. The
terms of the transaction with STEAG are more fully described in this joint
proxy statement-prospectus and in the Combination Agreement and Stockholder
Agreement, which are attached hereto as Annex A and Annex B, and are
incorporated herein by reference.
Under the Agreement and Plan of Merger (the "Merger Agreement") dated as of
June 27, 2000 with CFM, Mattson will acquire CFM in a stock-for-stock merger in
which Mattson will issue 0.5223 shares of Mattson's common stock for each share
of CFM common stock outstanding at the closing (which would represent
approximately 4,115,000 shares of Mattson common stock as of October 4, 2000).
The merger with CFM is intended to qualify as a tax-free reorganization for
purposes of U.S. tax law. In addition to the share issuance, Mattson will
assume all outstanding CFM stock options, based on the same 0.5223 exchange
ratio. As of October 4, 2000, CFM had options to purchase approximately
1,782,000 shares of CFM common stock outstanding, which would become options to
purchase approximately 930,740 shares of Mattson common stock upon completion
of the merger. Mattson has agreed, at the closing, to issue additional options
to purchase 500,000 shares of its common stock to employees of CFM. The terms
of the transaction with CFM are more fully described in this joint proxy
statement-prospectus and in the Merger Agreement which is attached hereto as
Annex C and incorporated herein by reference.
The transactions with STEAG and CFM (together referred to as the
"Transactions") are mutually conditioned on one another and are required to
close simultaneously. The closing of the Transactions is expected to occur in
early January 2001. The parties agreed not to close the Transactions until
after January 1, 2001 because of German tax and accounting considerations.
Mattson will account for the Transactions as purchases.
ADDITIONAL INFORMATION
This joint proxy statement-prospectus incorporates important business and
financial information about Mattson and CFM from other documents that are not
included in or delivered with the joint proxy statement-prospectus. This
information is available to you without charge upon your written or oral
request. You can obtain the documents incorporated by reference in this joint
proxy statement-prospectus by requesting them in writing or by telephone or
over the Internet from the appropriate company at one of the following
addresses:
Mattson Technology, Inc. CFM Technologies, Inc.
Peter Brown, Corporate Marketing Jeff Randall, Chief Financial Officer
Manager 150 Oaklands Boulevard
2800 Bayview Drive Exton, Pennsylvania 19341
Fremont, California 94538 Phone: (610) 280-8509
Phone: (510) 657-5900 E-Mail: [email protected]
E-Mail: [email protected] Web Address: http://www.cfmtech.com
Web Address: http://www.mattson.com
If you would like to request any documents, please do so by October 27, 2000
in order to receive them before the special meetings. See "Where You Can Find
More Information" on page 192.
This joint proxy statement-prospectus does not constitute an offer to sell,
or a solicitation of an offer to purchase, common stock of Mattson, or the
solicitation of a proxy, in any jurisdiction, to or from any person, to whom or
from whom it is unlawful to make such offer, solicitation of an offer, or proxy
solicitation in such jurisdiction. Neither the delivery of this joint proxy
statement-prospectus nor any distribution of securities pursuant to this joint
proxy statement-prospectus shall, under any circumstances, create any
implication that there has been no change in the information set forth or
incorporated by reference herein, or in the affairs of Mattson, the STEAG
semiconductor equipment division, or CFM, since the date hereof. This joint
proxy statement-prospectus contains forward-looking statements. See "Risk
Factors-Special Note Regarding Forward Looking Statements" on page 13.
<PAGE>
[LOGO OF MATTSON TECHNOLOGY, INC.]
MATTSON TECHNOLOGY, INC.
2800 Bayview Drive
FREMONT, CALIFORNIA 94538
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 8, 2000
TO THE STOCKHOLDERS OF MATTSON TECHNOLOGY, INC.:
A Special Meeting of the stockholders of Mattson Technology, Inc.
("Mattson") will be held on Wednesday, November 8, 2000, beginning at 10:00
A.M., local time, at the Newark Hilton, 39900 Balentine Drive, Newark,
California 94560, to consider and vote upon the following proposals:
1. To approve the issuance by Mattson of an aggregate of approximately
16,890,000 shares of common stock, and an amendment to Mattson's Amended
and Restated 1989 Stock Option Plan (the "Stock Option Plan") to increase
the number of shares reserved for issuance thereunder by 1,350,000 shares
in order to complete the business combination transactions contemplated by
the Strategic Business Combination Agreement (the "Combination Agreement")
between Mattson and STEAG Electronic Systems AG ("STEAG") under which
Mattson will acquire the subsidiaries comprising the semiconductor
equipment division of STEAG, and the Agreement and Plan of Merger (the
"Merger Agreement") among Mattson, M2C Acquisition Corporation, a wholly
owned subsidiary of Mattson, and CFM Technologies, Inc. ("CFM"), under
which CFM will become a wholly owned subsidiary of Mattson.
2. To approve an amendment to the Stock Option Plan to further increase
the number of shares reserved for issuance thereunder by 750,000 shares (in
addition to the Stock Option Plan reserve increase included in proposal 1).
3. To approve an amendment to Mattson's 1994 Employee Stock Purchase
Plan (the "Purchase Plan") to increase the number of shares reserved for
issuance thereunder by 250,000 shares.
4. To approve an amendment to Mattson's Certificate of Incorporation to
increase the authorized number of shares of common stock available for
issuance from 60 million shares to 120 million shares.
5. To approve an amendment to Mattson's Certificate of Incorporation to
increase the number of directors on Mattson's board from five to seven and
to change the procedure for filling board vacancies.
6. To act upon such other matters as may properly come before the
meeting.
The board of directors of Mattson unanimously recommends that stockholders
vote FOR the approval of the issuance of shares and increase in the Stock
Option Plan share reserve needed to complete the transactions contemplated by
the Combination Agreement and the Merger Agreement, FOR the additional
amendment of the Stock Option Plan, FOR the amendment of the Purchase Plan, FOR
the proposed increase in the authorized number of shares under Mattson's
Certificate of Incorporation, and FOR the proposed increase in the size of
Mattson's board and change in the procedure for filling board vacancies as set
forth in Mattson's Certificate of Incorporation.
Only stockholders of record at the close of business on October 4, 2000 will
be entitled to vote at the meeting. A complete list of stockholders entitled to
vote on the above matters at the meeting, arranged in alphabetical order,
indicating the respective address of each such stockholder, and the number of
shares
<PAGE>
registered in the name of each such stockholder, will be open to the
examination of any stockholder during ordinary business hours, at the offices
of Mattson, for a period of ten (10) days prior to the date of the meeting.
Such list shall also be produced and kept at the time and place of the meeting,
for the duration of such, and may be inspected by any stockholder who is
present at the meeting. Each of the stockholders of record is cordially invited
to be present and vote at the meeting in person.
By order of the board of directors,
/S/ BRAD MATTSON
Brad Mattson
Chief Executive Officer
Fremont, California
October 11, 2000
You are cordially invited to attend the meeting. However, whether or not you
plan to attend the meeting in person, please complete, date, and sign the
accompanying proxy and mail it promptly in the return envelope to assure
that your shares are represented at the meeting. If you later desire to
revoke your proxy, you may do so at any time before it is exercised.
<PAGE>
[LOGO OF CFM TECHNOLOGIES, INC.]
CFM TECHNOLOGIES, INC.
150 Oaklands Blvd.
EXTON, PA 19341
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 8, 2000
TO OUR SHAREHOLDERS:
You are invited to be present either in person or by proxy at the Special
Meeting of Shareholders of CFM Technologies, Inc. to be held at the Sheraton
Great Valley Hotel, 707 East Lancaster Avenue, Frazer, Pennsylvania 19355, on
Wednesday, November 8, 2000, beginning at 1:00 P.M., local time, for the
following purposes:
1. To consider and vote on a proposal to approve and adopt the Agreement
and Plan of Merger, dated as of June 27, 2000, by and among Mattson
Technology, Inc., M2C Acquisition Corporation, a wholly owned subsidiary of
Mattson, and CFM Technologies, Inc.
2. To act upon such other matters as may properly come before the
meeting.
The board of directors of CFM unanimously recommends that the shareholders
vote FOR the proposal to approve and adopt the Agreement and Plan of Merger,
dated as of June 27, 2000, by and among Mattson Technology, Inc., M2C
Acquisition Corporation, and CFM Technologies, Inc.
The board of directors of CFM has fixed the close of business on October 4,
2000 as the record date for determining shareholders entitled to notice of and
to vote at the meeting and any adjournments or postponements thereof.
The board of directors of CFM hopes that you will find it convenient to
attend the meeting in person, but whether or not you plan to attend, please
sign, date, and return the enclosed proxy promptly to ensure your shares are
represented at the meeting. Shareholders who execute proxies retain the right
to revoke them (in writing) at any time prior to the voting thereof. A return
envelope, which requires no postage if mailed in the United States, is enclosed
for your convenience.
By order of the board of directors,
/s/ LORIN J. RANDALL
Lorin J. Randall
Secretary
Exton, Pennsylvania
October 11, 2000
YOUR VOTE IS IMPORTANT.
PLEASE COMPLETE, SIGN, DATE, AND RETURN YOUR PROXY.
HOLDERS OF CFM COMMON STOCK SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY
CARDS.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS.............................. 1
SUMMARY OF THE JOINT PROXY STATEMENT-PROSPECTUS........................... 5
The Companies........................................................... 5
The Structure of the Transactions....................................... 6
Treatment of STEAG and CFM Stock Options................................ 7
Relative Percentages of Ownership....................................... 7
Tax Consequences........................................................ 7
Board Composition....................................................... 7
Reasons for the Transactions............................................ 7
Recommendation of the Boards of Directors............................... 8
Fairness Opinions of Financial Advisors................................. 8
Stockholder Approvals................................................... 8
The Special Meetings.................................................... 9
Interests of Directors and Officers of Mattson, STEAG, and CFM in the
Transactions........................................................... 9
Accounting Treatment.................................................... 10
Regulatory Approvals.................................................... 10
Dissenters' Rights...................................................... 11
Comparative Per Share Data ............................................. 12
RISK FACTORS.............................................................. 13
Special Note Regarding Forward-Looking Statements....................... 13
Risks Related to the Transactions....................................... 13
Risks Relating to Mattson's Business Following Consummation of the
Transactions........................................................... 18
MATTSON SELECTED HISTORICAL FINANCIAL INFORMATION......................... 26
STEAG SEMICONDUCTOR DIVISION SELECTED HISTORICAL FINANCIAL INFORMATION.... 27
CFM SELECTED HISTORICAL FINANCIAL INFORMATION............................. 28
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION........................ 29
Unaudited Pro Forma Combined Condensed Balance Sheet.................... 30
Unaudited Pro Forma Combined Condensed Statement of Operations.......... 31
Unaudited Pro Forma Combined Condensed Consolidated Statement of
Operations............................................................. 32
Notes to Unaudited Combined Condensed Pro Forma Financial Information... 33
MARKET PRICE DATA AND DIVIDEND POLICY..................................... 34
THE MATTSON SPECIAL MEETING............................................... 35
Date, Time and Place of Meeting......................................... 35
Purpose of the Mattson Special Meeting.................................. 35
Record Date and Outstanding Shares...................................... 35
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Share Ownership of Management and Certain Stockholders................. 35
Vote Required.......................................................... 35
Quorum; Abstentions.................................................... 36
Solicitation of Proxies; Expenses...................................... 36
Voting of Proxies...................................................... 36
Recommendation of the Board of Directors............................... 37
THE CFM SPECIAL MEETING.................................................. 38
Date, Time and Place of Meeting........................................ 38
Purpose of the CFM Special Meeting..................................... 38
Record Date and Outstanding Shares..................................... 38
Share Ownership of Management and Certain Shareholders................. 38
Vote Required.......................................................... 38
Quorum; Abstentions.................................................... 38
Solicitation of Proxies; Expenses...................................... 39
Voting of Proxies...................................................... 39
Rights of Dissenting Shareholders...................................... 39
Recommendation of the Board of Directors............................... 40
PROPOSAL NO. 1........................................................... 41
(FOR MATTSON STOCKHOLDERS):
APPROVAL OF ISSUANCE OF SHARES AND INCREASE IN OPTION PLAN SHARE
RESERVE IN CONNECTION WITH THE TRANSACTIONS........................... 41
(FOR CFM SHAREHOLDERS):
APPROVAL OF ADOPTION OF THE MERGER AGREEMENT........................... 41
Background of the Transactions......................................... 41
Mattson's Reasons for the Transactions................................. 47
Recommendation of Mattson's Board of Directors......................... 49
Opinion of Mattson's Financial Advisor................................. 50
Interests of Mattson's Directors, Officers, and Affiliates in the
Transactions.......................................................... 54
CFM's Reasons for the Merger........................................... 55
Recommendation of CFM's Board of Directors............................. 58
Opinion of CFM's Financial Advisor, UBS Warburg LLC.................... 58
Interests of CFM's Directors, Officers, and Affiliates in the
Transactions.......................................................... 64
Material Federal Income Tax Consequences............................... 65
Anticipated Accounting Treatment of the Transactions................... 66
Regulatory Filings and Approvals Required to Complete the
Transactions.......................................................... 67
Appraisal or Dissenters' Rights........................................ 67
Restrictions on Sales of Shares by Affiliates.......................... 68
THE STRATEGIC BUSINESS COMBINATION AGREEMENT............................. 69
Result of Business Combination......................................... 69
Organization of New German Corporation................................. 69
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Closing of the Business Combination; Consideration..................... 69
Time of Closing........................................................ 69
Post-Closing Cash Adjustments.......................................... 70
Conditions to The Business Combination................................. 71
Representations and Warranties......................................... 72
Covenants; Conduct of Business Prior To The Business Combination....... 72
Limitation on Other Negotiations....................................... 76
Additional Agreements and Covenants.................................... 76
Termination............................................................ 78
Indemnification........................................................ 80
AGREEMENTS RELATED TO THE BUSINESS COMBINATION........................... 81
Stockholder Agreement.................................................. 81
Voting Agreement Between STEAG and Brad Mattson........................ 84
Transition Services Agreement.......................................... 85
THE MERGER AGREEMENT..................................................... 86
Effective Time of the Merger........................................... 86
Closing of the Merger.................................................. 86
Merger Consideration................................................... 86
Conditions to the Merger............................................... 86
Representations and Warranties......................................... 88
Covenants; Conduct of Business Prior to the Merger..................... 88
Limitation on Discussing or Negotiating Other Acquisition Proposals.... 91
Indemnification by CFM................................................. 92
Employee Agreements and Benefit Plans.................................. 92
Termination of the Merger Agreement.................................... 93
AGREEMENTS RELATED TO THE MERGER AGREEMENT............................... 96
Stock Option Agreement................................................. 96
Voting Agreements...................................................... 97
COMPARISON OF RIGHTS OF HOLDERS OF MATTSON COMMON STOCK AND CFM COMMON
STOCK................................................................... 99
Fiduciary Duties of Directors.......................................... 106
Anti-Takeover Laws..................................................... 108
MANAGEMENT OF MATTSON AFTER THE TRANSACTIONS............................. 110
Board of Directors of Mattson.......................................... 110
Board Meetings and Committees.......................................... 111
Compensation of Directors.............................................. 112
Executive Officers..................................................... 113
DESCRIPTION OF MATTSON CAPITAL STOCK..................................... 115
Common Stock........................................................... 115
Preferred Stock........................................................ 115
PROPOSALS RELATING TO AMENDING MATTSON EQUITY COMPENSATION PLANS......... 116
Historical Executive Compensation...................................... 116
Stock Options Granted During Fiscal 1999............................... 117
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values................................................................ 118
Compensation Committee Interlocks and Insider Participation............ 118
Allocation of Benefits Under Stock Option and Stock Purchase Plans..... 119
PROPOSAL NO. 2 (FOR MATTSON STOCKHOLDERS ONLY): APPROVAL OF INCREASE IN
SHARES RESERVED FOR ISSUANCE UNDER THE AMENDED AND RESTATED 1989 STOCK
OPTION PLAN............................................................. 120
General................................................................ 120
Description of Plan.................................................... 120
Summary of United States Federal Income Tax Consequences............... 123
Incentive Stock Options............................................... 123
Non-Statutory Stock Options........................................... 124
Vote Required and Recommendation of the Board of Directors............. 124
PROPOSAL NO. 3 (FOR MATTSON STOCKHOLDERS ONLY): APPROVAL OF INCREASE IN
SHARES RESERVED FOR ISSUANCE UNDER 1994 EMPLOYEE STOCK PURCHASE PLAN.... 125
General................................................................ 125
Description of Plan.................................................... 125
Summary of United States Federal Income Tax Consequences............... 126
Vote Required and Recommendation of the Board of Directors............. 127
PROPOSALS RELATING TO AMENDING MATTSON'S CERTIFICATE OF INCORPORATION.... 128
PROPOSAL NO. 4 (FOR MATTSON STOCKHOLDERS ONLY): APPROVAL OF AMENDMENT TO
THE CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED
SHARES OF COMMON STOCK.................................................. 128
Background............................................................. 128
Purpose and Effect of The Amendment.................................... 128
Vote Required and Recommendation of Board of Directors ................ 129
PROPOSAL NO. 5 (FOR MATTSON STOCKHOLDERS ONLY): APPROVAL OF AMENDMENT TO
THE CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF DIRECTORS AND
CHANGE THE PROCEDURE FOR FILLING BOARD VACANCIES ....................... 130
Background............................................................. 130
Purpose and Effect of the Amendment.................................... 130
Vote Required and Recommendation of the Board of Directors ............ 130
BUSINESS OF MATTSON...................................................... 132
Overview............................................................... 132
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Industry Background.................................................... 132
The Mattson Strategy................................................... 134
Markets and Applications............................................... 135
Products and Technology................................................ 137
Customer Support....................................................... 141
Sales and Marketing.................................................... 141
Customers.............................................................. 142
Backlog................................................................ 142
Research, Development, and Engineering................................. 142
Competition............................................................ 143
Manufacturing.......................................................... 144
Intellectual Property.................................................. 144
Employees.............................................................. 145
Properties............................................................. 145
Legal Proceedings...................................................... 146
MATTSON MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 147
Overview............................................................... 147
Results of Operations.................................................. 148
Years Ended December 31, 1999 and 1998................................. 148
Years Ended December 31, 1998, 1997.................................... 150
Quarterly Results of Operations........................................ 151
Three and Six Months Period Ended June 30, 2000 and 1999............... 152
Liquidity and Capital Resources........................................ 152
Recent Accounting Pronouncements....................................... 154
Quantitative and Qualitative Disclosures Regarding Market Risk......... 154
PRINCIPAL STOCKHOLDERS OF MATTSON........................................ 155
BUSINESS OF THE STEAG SEMICONDUCTOR DIVISION............................. 156
General................................................................ 156
Products and Technology................................................ 156
Customers.............................................................. 160
Sales and Support...................................................... 160
Suppliers.............................................................. 161
Competition............................................................ 161
Intellectual Property.................................................. 162
Litigation............................................................. 162
Employees.............................................................. 163
Properties............................................................. 163
STEAG SEMICONDUCTOR DIVISION MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................... 164
Overview............................................................... 164
Recent Developments.................................................... 166
Results of Operations.................................................. 167
Fiscal Year Ended December 31, 1999 Compared to Fiscal Year Ended
December 31, 1998..................................................... 167
Liquidity and Capital Resources........................................ 169
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30,
1999.................................................................. 171
Qualitative and Quantitative Disclosures About Market Risk............. 172
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Security Ownership..................................................... 172
BUSINESS OF CFM.......................................................... 173
General................................................................ 173
Industry Background.................................................... 73
The CFM Solution....................................................... 175
Strategy............................................................... 176
Products............................................................... 176
Customers.............................................................. 178
Sales and Marketing.................................................... 179
Customer Satisfaction.................................................. 179
Backlog................................................................ 179
Research, Development and Engineering.................................. 179
Competition............................................................ 180
Manufacturing.......................................................... 180
Regulatory Matters..................................................... 181
Intellectual Property.................................................. 181
Employees.............................................................. 181
Litigation............................................................. 182
CFM MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 184
Overview............................................................... 184
Results of Operations.................................................. 185
Years Ended October 31, 1999, 1998, and 1997........................... 185
Three Month and Nine Month Period Ended July 31, 2000 and 1999......... 186
Backlog................................................................ 188
Liquidity and Capital Resources........................................ 188
Impact of Recently Issued Accounting Standards......................... 190
PRINCIPAL SHAREHOLDERS OF CFM............................................ 191
REGULATORY MATTERS AFFECTING MATTSON, STEAG AND CFM...................... 191
LEGAL MATTERS............................................................ 191
EXPERTS.................................................................. 192
STOCKHOLDER PROPOSALS TO BE PRESENTED AT NEXT ANNUAL MEETING............. 192
WHERE YOU CAN FIND MORE INFORMATION...................................... 192
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......................... 193
MATTSON INDEX TO FINANCIAL STATEMENTS.................................... F-1
STEAG SEMICONDUCTOR INDEX TO FINANCIAL STATEMENTS........................ F-29
CFM INDEX TO CONSOLIDATED FINANCIAL STATEMENTS........................... F-56
APPENDIX:
Annex A--Strategic Business Combination Agreement...................... A-1
Annex B--Stockholder Agreement......................................... B-1
Annex C--Agreement and Plan of Merger.................................. C-1
Annex D--Fairness Opinions............................................. D-1
Annex E--Pennsylvania Dissenters' Rights............................... E-1
Annex F--Article Sixth of Mattson's Certificate of Incorporation....... F-1
</TABLE>
iii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS
Q: Why are Mattson, STEAG, and CFM engaging in the Transactions?
A: Mattson, STEAG, and CFM are engaging in the Transactions because they
believe the resultant synergy and combined strengths of their three companies's
semiconductor equipment businesses will enable them to build one of the world's
leading suppliers of semiconductor manufacturing process equipment. The
combined enterprise, which will continue to operate under the name Mattson
Technology, Inc., will become one of the world's top 15 semiconductor industry
equipment suppliers, based on pro forma 2000 annual sales, thereby attaining a
size or "critical mass" that is becoming increasingly important to successfully
compete in the semiconductor equipment industry. The integration of the
semiconductor equipment businesses of Mattson, STEAG, and CFM will also give
Mattson a leadership position in more than one product line: the STEAG
Semiconductor Division, which already ranks second worldwide in annual sales of
rapid thermal process (RTP) equipment systems, will add to Mattson's No. 1
worldwide market position in strip equipment systems, and the combination of
the wet processing businesses of the STEAG Semiconductor Division and CFM will
place Mattson in the first tier of suppliers in the market for semiconductor
wet processing equipment.
Q: What will I receive in the Transactions?
A: In connection with the merger, shareholders of CFM will receive 0.5223
shares of Mattson common stock for each share of CFM common stock they hold at
closing, which will result in their holding in the aggregate approximately 11%
of the outstanding common stock of Mattson following the Transactions. In
addition, Mattson will assume all outstanding CFM stock options, based on the
same 0.5223 exchange ratio. As of October 4, 2000, CFM had 7,878,866
outstanding shares of common stock and 1,782,000 outstanding options to
purchase shares of CFM common stock. At the time of closing, Mattson has agreed
to issue additional options to purchase 500,000 shares of Mattson common stock
to employees of CFM.
Stockholders of Mattson will retain their existing shares of Mattson common
stock. As a result of the Transactions, current Mattson stockholders will hold
in the aggregate approximately 57% of the outstanding common stock of Mattson.
As a result of the business combination, STEAG, the sole owner of the STEAG
Semiconductor Division, will hold approximately 32% of the outstanding common
stock of Mattson, and will become the largest Mattson stockholder.
Q: What stockholder approvals are needed for the Transactions?
A: For Mattson, the affirmative vote of the holders of a majority of the
votes present or represented by proxy and entitled to a vote at the special
meeting, at which a quorum is present, is required for approval of the share
issuance and the option plan reserve increase needed to complete the
Transactions. Each holder of common stock is entitled to one vote per share. As
of the record date, Mattson directors and officers and their affiliates owned
in the aggregate approximately 18.9% of the outstanding shares, and Brad
Mattson individually owned approximately 17.7% of the outstanding shares of
Mattson. Pursuant to the voting agreements with each of STEAG and CFM, Brad
Mattson has agreed to vote all of his shares in favor of the share issuances
under the Transactions.
For CFM, the affirmative vote of a majority of the votes cast by all
shareholders of CFM's common stock is required to adopt the Merger Agreement.
No vote shall be taken unless a quorum is present, in person or by proxy. If a
quorum is not present, however, those present may vote to adjourn the meeting
to such time and place as they may determine, at which time if a quorum is not
then present, and at least 15 days has elapsed since the adjournment for lack
of a quorum, those present shall constitute a quorum for the purpose of voting
upon the CFM proposal set forth in this joint proxy statement-prospectus. CFM
common shareholders are entitled to one vote per share. As of the record date,
CFM directors and officers and their affiliates owned in the aggregate
approximately 20.3% of the outstanding shares, and Christopher McConnell,
Chairman of CFM's board of directors, individually owned approximately 14.7% of
the outstanding shares. Pursuant to a voting agreement
1
<PAGE>
with Mattson, Christopher McConnell has agreed to vote all of his shares in
favor of adoption of the Merger Agreement and approval of the merger.
Because STEAG is a privately-held corporation organized under the laws of
the Federal Republic of Germany, approval by STEAG's sole shareholder, STEAG
AG, is not required in order to effect the business combination. In accordance
with German law, the Supervisory Board (Aufsichtsrat) and the Management Board
(Vorstand) of STEAG previously approved the business combination.
Q: Are Mattson stockholders and CFM shareholders voting on the same thing?
A: No. Mattson stockholders are being asked to approve the proposed issuance
by Mattson of approximately 16.9 million shares and a 1,350,000 share increase
in the share reserve under the Stock Option Plan in connection with the
Transactions. Such approval is required because Mattson is proposing to issue
in aggregate approximately 43% of its total outstanding shares (based on the
total number of shares outstanding following the share issuance). Under Nasdaq
rules, Mattson is required to obtain stockholder approval to issue such a large
number of its shares as part of a business combination and to reserve shares
under any compensation plans in which officers of Mattson may participate. CFM
is not a party to the Combination Agreement between Mattson and STEAG, and
therefore CFM shareholders are not required to vote to approve the business
combination. CFM shareholders will be voting only on the proposed Merger
Agreement with Mattson. However, because the Transactions are mutually
conditioned on one another and are required to close simultaneously, the
failure to approve the Merger Agreement between Mattson and CFM by the CFM
shareholders would also result in termination of the proposed business
combination between Mattson and the STEAG Semiconductor Division.
Q: Are Mattson stockholders voting on any other proposals in addition to the
Transactions?
A: Yes. Mattson stockholders (but not CFM shareholders) are also being asked
to approve a second proposal to increase the number of shares reserved for
issuance under Mattson's Stock Option Plan by 750,000 shares (in addition to
the 1,350,000 share reserve increase to be approved in connection with the
Transactions), to approve a third proposal to increase the number of shares
reserved for issuance under Mattson's Purchase Plan by 250,000 shares, to
approve a fourth proposal to amend Mattson's Certificate of Incorporation to
increase the number of authorized shares of common stock from 60 million to 120
million shares, and to approve a fifth proposal to amend Mattson's Certificate
of Incorporation to increase the number of directors of Mattson from five to
seven and to change the procedure for filling board vacancies. However, it is
important to note that approval of these four additional proposals is not
required in order for the proposed share issuance and Stock Option Plan share
reserve increase in connection with the Transactions to be approved or for the
Transactions to be consummated. The further increase in the number of shares
reserved for issuance under the Stock Option Plan and Purchase Plan will allow
Mattson, on a going-forward basis, to continue to provide meaningful equity
incentives to attract, motivate, and retain employees and officers. The
amendment of Mattson's Certificate of Incorporation to increase the number of
authorized shares will provide the board of directors of Mattson increased
flexibility to issue shares for various corporate purposes, including stock
splits (which usually take the form of a stock dividend), issuances of shares
in connection with acquisitions of other businesses or the raising of
additional capital through the sale of equity securities, actions that would be
significantly constrained under Mattson's current Certificate of Incorporation.
However, Mattson's board of directors has no current intent, plans,
arrangements, or agreements to issue any of the proposed additional authorized
shares of common stock. The amendment of Mattson's Certificate of Incorporation
to increase the number of directors from five to seven and to change the
procedure for filling board vacancies is consistent with the terms of the
Transactions and will allow room on Mattson's board for the two director-
nominees of STEAG.
Q: What do I need to do now?
A: After carefully reading and considering the information contained in this
joint proxy statement-prospectus, please respond by completing, signing, and
dating your proxy card and returning it in the enclosed postage paid envelope
as soon as possible so that your shares may be represented at your company's
special meeting.
2
<PAGE>
Q: What if I do not vote?
A: If a Mattson stockholder fails to respond, the risk is increased that a
quorum, which is a majority of the outstanding voting shares of Mattson common
stock, may not be obtained. If a quorum is not obtained at the special meeting
or any continuation of the special meeting, the share issuance to complete the
Transactions will not be approved.
If a CFM shareholder fails to respond, it will have the same effect as a
vote against the Merger Agreement.
Q: Can I change my vote after I have delivered my proxy?
A: Yes. You can change your vote at any time before your proxy is voted at
the relevant special meeting. You can do this in one of three ways. First, you
can revoke your proxy. Second, you can submit a new proxy. If you choose either
of these two methods, you must submit your notice of revocation or your new
proxy to the Secretary of Mattson or CFM, as appropriate, before the relevant
special meeting. If your shares are held in an account at a brokerage firm or
bank, you should contact your brokerage firm or bank to change your vote.
Third, if you are a holder of record, you can attend the special meeting and
vote in person.
Q: If I am a CFM shareholder, should I send in my stock certificates to be
exchanged now?
A: No. After the merger between Mattson and CFM is completed, you will
receive written instructions from the exchange agent on how to exchange your
CFM stock certificates for shares of Mattson. Please do not send in your CFM
stock certificates with your proxy.
Q: Who is the exchange agent for the merger?
A: Chase Mellon Shareholder Services LLP is the exchange agent. Its address
and phone number is:
85 Challenger Road
Ridgefield Park, NJ 07660
(201) 329-8285
Q: Where will my shares of Mattson common stock be listed?
A. Shares of Mattson common stock will continue to be listed on the Nasdaq
under the symbol "MTSN."
Q: When do you expect the Transactions to be completed?
A: The actual closing of the Transactions is expected to occur in early
January 2001. The parties agreed that the closing would occur no earlier than
January 1, 2001 because of certain German tax and accounting considerations
applicable to STEAG. However, in order to reduce the risk that the Transactions
will not close if approval by Mattson stockholders and CFM shareholders has
been obtained and all other closing conditions that are beyond the parties'
control have been satisfied by December 1, 2000, the parties will take a pre-
closing step at which all remaining conditions, other than the exchange of the
Mattson shares, the absence of litigation, and the arrival of January 1, 2001,
will either be considered fulfilled or irrevocably waived. This pre-closing
step could take place as early as November 15, 2000.
3
<PAGE>
Q. Who can help answer my questions?
A. If you have any questions about either of the Transactions or how to
submit your proxy, or if you need additional copies of this joint proxy
statement-prospectus or the enclosed proxy card or voting instructions, you
should contact the individuals listed below:
If you are a Mattson stockholder, you should contact:
Mattson Technology Inc.
2800 Bayview Drive
Fremont, California 94538
Attention: Peter Brown, Corporate Marketing Manager
Phone Number: (510) 657-5900
If you are a CFM shareholder, you should contact:
CFM Technologies, Inc.
150 Oaklands Boulevard
Exton, Pennsylvania 19341
Attention: Jeff Randall, Chief Financial Officer
Phone Number: (610) 280-8509
If you have additional questions about the solicitation of your proxy, you
should contact:
[Logo of MacKenzie Partners, Inc.]
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (call collect)
Call Toll Free (800) 322-2885
Mattson, the Mattson logo, Aspen, Aspen CVD, Aspen RTPFR\\3\\, Aspen
LiteEtch, ICPSM, and EpiPro are trademarks of Mattson used in this joint proxy
statement-prospectus. MARANGONI(R), Starfire(R), Poseidon STT(R), and
ElectroDep 2000(R) are registered trademarks of the STEAG Semiconductor
Subsidiaries used in this joint proxy statement-prospectus. Other product and
brand names are trademarks or registered trademarks of their respective
holders.
4
<PAGE>
SUMMARY OF THE JOINT PROXY STATEMENT-PROSPECTUS
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
Transactions fully and for a more complete description of the legal terms of
the Transactions, you should read carefully this entire document and the other
available information referred to in "Where You Can Find More Information" on
page 192 of this joint proxy statement-prospectus. The Combination Agreement
and the Merger Agreement are attached to this joint proxy statement-prospectus
as Annex A and Annex C, respectively, and are incorporated herein by reference.
Whether you are a stockholder of Mattson or a shareholder of CFM, both Mattson
and CFM encourage you to read both the Combination Agreement and the Merger
Agreement, as they are the main legal documents that govern the Transactions.
Mattson has provided the information in this joint proxy statement-
prospectus about Mattson, CFM has provided the information in this joint proxy
statement-prospectus about CFM, and STEAG has provided the information in this
joint proxy statement-prospectus about the STEAG Semiconductor Division.
The risk factors beginning on page 13 of this joint proxy statement-
prospectus should be considered carefully by the Mattson stockholders and the
CFM shareholders in evaluating whether to approve, in the case of Mattson's
stockholders, the share issuance and Stock Option Plan share reserve increase
in connection with the Transactions, and, in the case of CFM's shareholders,
the Merger Agreement and merger. These factors should be considered along with
any additional risk factors in documents incorporated by reference in this
joint proxy statement-prospectus and any other information included or
incorporated by reference herein, including in conjunction with forward-looking
statements made herein.
The Companies
Mattson (page 132)
Mattson is a leading supplier of semiconductor process equipment for
photoresist strip/etch, chemical vapor deposition, epitaxial and rapid thermal
processing. Mattson's products combine advanced process technology on a high
productivity platform. In addition, through Mattson's international technical
support organization and comprehensive warranty program, Mattson provides world
class customer support. Nearly all of Mattson's tools are built on a single
platform, known as the Aspen system. Each tool in the Aspen system shares the
same principal architecture, including the main mechanical design, robotics,
systems software, wafer handling interfaces, and wafer flow design. Mattson's
Aspen platform is designed to deliver high throughput and low cost of
ownership, enhancing the ability of manufacturers to achieve productivity
gains.
Mattson's product offerings include:
. photoresist stripping systems that remove photoresist and residue from
semiconductor wafers after photolithography and other processing steps
such as etch;
. isotropic etching systems that perform a variety of etch processes on
semiconductor wafers;
. plasma enhanced chemical vapor deposition (CVD) systems that deposit
insulating or conducting films on semiconductor wafers;
. rapid thermal processing (RTP) systems that heat semiconductor wafers
during the manufacturing process; and
. epitaxial processing systems that deposit a thin silicon film onto
semiconductor wafers.
Mattson's principal executive offices are located at 2800 Bayview Drive,
Fremont, California 94538. Mattson's telephone number is (510) 657-5900.
CFM (page 173)
CFM is a leading manufacturer of advanced cleaning equipment for the
semiconductor industry. Its systems provide superior contamination control and
processing capabilities using a totally enclosed
5
<PAGE>
processing chamber. Watermarks and other drying defects are eliminated through
CFM's Direct-Displace(TM) IPA vapor drying technology. CFM believes that its
patented Full-Flow(TM) technology and direct-displacement drying enable it to
provide wet processing systems that address a variety of limitations inherent
in conventional semiconductor wet processing systems, including wet benches and
spray tools, resulting in significantly lower cost of ownership.
CFM's principal executive offices are located at 150 Oaklands Boulevard,
Exton, Pennsylvania 19341. CFM's telephone number is (610) 280-8300.
STEAG (page 156)
Through the STEAG Semiconductor Division, STEAG is one of the world's
leading suppliers of capital equipment for the semiconductor industry. The
STEAG Semiconductor Division's broad technology portfolio includes rapid
thermal processing (RTP), clean process, chemical vapor deposition (CVD), and
copper plating. The STEAG Semiconductor Subsidiaries own manufacturing, sales,
and support facilities located throughout the United States, Asia, and Europe.
STEAG is also engaged in the optical storage and photomask businesses, neither
of which is included in the business combination with Mattson. STEAG is a
wholly owned subsidiary of STEAG AG, a power generation and electronics company
based in Essen, Germany.
STEAG's principal executive offices are located at Ruttenscheider Strasse 1-
3, 45128 Essen, Germany. STEAG's telephone number is 011-49-201-801-0.
The Structure of the Transactions (page 69)
Under the Combination Agreement, Mattson will acquire the stock of those
eleven subsidiaries comprising the STEAG Semiconductor Division. In
consideration for all the equity interests in the STEAG Semiconductor
Subsidiaries, Mattson will issue 11,850,000 shares of common stock to STEAG
upon the closing. As a result, STEAG will become Mattson's largest stockholder.
Mattson and STEAG have agreed to enter into a Stockholder Agreement on or
before the Closing Date providing for, among other things, the expansion of
Mattson's board of directors from five members to seven, the election of two
persons designated by STEAG to Mattson's board of directors (Dr. Jochen
Melchior, who will serve as initial Chairman of the Board of the combined
company, and Dr. Hans-Georg Betz), certain restrictions on future acquisitions
or dispositions of Mattson common stock by STEAG, and registration rights in
favor of STEAG. The terms of the transaction with STEAG are more fully
described in the Combination Agreement, which is attached hereto as Annex A,
and in the Stockholder Agreement, which is attached hereto as Annex B.
Under the Merger Agreement with CFM, Mattson will acquire CFM in a stock-
for-stock merger in which Mattson will issue 0.5223 shares of Mattson common
stock for each share of CFM common stock issued and outstanding at the closing
(which would represent approximately 4,115,000 shares of Mattson common stock
as of October 4, 2000). A representative of CFM, James J. Kim, will join
Mattson's board of directors at closing. The terms of the transaction with CFM
are more fully described in the Merger Agreement, which is attached hereto as
Annex C.
The Transactions are mutually conditioned on one another and are required to
close simultaneously. The Transactions are subject to, among other things, the
approval of the share issuance and Stock Option Plan share reserve increase in
connection with the Transactions by the stockholders of Mattson, the approval
of the Merger Agreement and merger by the shareholders of CFM, clearance under
the U.S. and German antitrust laws (each of which has already been obtained),
and other customary closing conditions. The closing of the Transactions is
expected to occur in early January 2001. The parties agreed that the closing
would take place no earlier than January 1, 2001 because of certain German tax
and accounting considerations applicable to STEAG. However, in order to reduce
the risk that the transactions will not close if approval by Mattson
stockholders and CFM shareholders has been obtained and all the other closing
conditions beyond the control of the parties have been satisfied prior to
December 1, 2000, the parties will take a pre-closing step at which all
remaining conditions, other than the exchange of
6
<PAGE>
the Mattson shares, the absence of litigation, and the arrival of January 1,
2001, either will be irrevocably waived or deemed fulfilled. This pre-closing
step could take place as early as November 15, 2000.
Treatment of STEAG and CFM Stock Options
None of the STEAG Semiconductor Subsidiaries has any outstanding stock
options, and thus no stock options of any STEAG Semiconductor Subsidiary will
be assumed by Mattson pursuant to the business combination. Pursuant to the
merger, Mattson will assume all outstanding CFM stock options, based on the
same merger exchange ratio of 0.5223. As of October 4, 2000, CFM had
outstanding options to purchase approximately 1,782,000 shares of CFM common
stock.
At the closing, Mattson has agreed to issue options to purchase 850,000
shares of Mattson common stock to employees of the STEAG Semiconductor
Division. Mattson has also agreed at the closing to issue options to purchase
500,000 shares of common stock to employees of CFM. Therefore, as an integral
part of the approval by Mattson stockholders of the share issuance in
connection with the Transactions, Mattson is also requesting that stockholders
approve an increase in the number of shares reserved for issuance under the
Stock Option Plan by 1,350,000 shares.
Relative Percentages of Ownership
Once the Transactions close, STEAG will hold approximately 32% of the
outstanding common stock of Mattson on a non-diluted basis, and shareholders of
CFM prior to the closing will hold in the aggregate approximately 11% of the
outstanding common stock of Mattson on a non-diluted basis. Mattson
stockholders prior to the closing will hold in the aggregate the remaining
approximately 57% of the outstanding common stock on a non-diluted basis after
the closing.
Tax Consequences (page 65)
The parties have structured the merger so that CFM and its shareholders who
exchange their shares solely for shares of Mattson common stock will not
recognize gain or loss for United States federal income tax purposes in
connection with the merger. Mattson's stockholders also will not recognize gain
or loss for United States federal income tax purposes in connection with the
Transactions.
Board Composition (page 110)
Following the Transactions, Mattson's board of directors will be composed of
four of the five current directors of Mattson, with two new additional
directors to be designated by STEAG (Dr. Jochen Melchior, who will serve as the
initial Chairman of the Board of the combined company, and Dr. Hans-Georg
Betz), and one of the existing directors of Mattson to be replaced by a
director designated by CFM (James J. Kim), for a total of seven directors.
Senior management of Mattson will be comprised of personnel from each of
Mattson, the STEAG Semiconductor Division, and CFM.
Reasons for the Transactions (pages 47 and 55)
Mattson, STEAG, and CFM have agreed to engage in the Transactions because of
the synergy and market strength that would result by their combining their
businesses. Following the consummation of the Transactions, Mattson would
immediately become one of the top 15 semiconductor industry equipment
suppliers, based on pro forma 2000 annual sales. This would represent the
attainment of a critical mass that semiconductor equipment buyers are
increasingly demanding from their vendors.
In addition, Mattson would hold a market leadership position in multiple
product lines. The STEAG Semiconductor Division currently ranks second
worldwide in rapid thermal process (RTP) equipment systems. Mattson ranks first
worldwide in plasma-based strip process equipment systems, and fifth in RTP.
The combination of the wet processing businesses of the STEAG Semiconductor
Division and CFM would also place Mattson in the first tier of suppliers in the
market for semiconductor wet processing equipment. Thus, Mattson would become a
multi-product, multi-technology company providing "one-stop shopping" to
semiconductor equipment buyers. These complementary product lines will give
Mattson the opportunity to gain market share in each. Mattson intends to become
a "vendor of choice" to customers who are among the Top 20 semiconductor
equipment buyers.
7
<PAGE>
Further, the consummation of the Transactions would give Mattson a truly
global presence and reach. Both Mattson and CFM have a significant presence in
Asia, and the STEAG Semiconductor Division has a strong presence in Asia and
Europe.
Finally, the settlement in connection with the proposed Transactions of the
ongoing patent litigation between one of the STEAG Semiconductor Subsidiaries
and CFM relating to one of CFM's patents relieves the combined wet processing
business of the costs of that lawsuit and opens opportunities for sales of wet
processing products of the STEAG Semiconductor Division in the U.S.
Recommendation of the Boards of Directors (pages 49 and 58)
To Mattson stockholders: The Mattson board of directors believes that the
proposed issuance of shares pursuant to the Transactions is fair to you and in
your best interest and voted to approve the terms and provisions of both the
Combination Agreement and the Merger Agreement, and unanimously recommends that
you vote FOR the approval of the issuance of shares and increase in the Stock
Option Plan share reserve in connection with the Combination Agreement and the
Merger Agreement. The Mattson board of directors also unanimously recommends
that you vote FOR the approval of the amendment to Mattson's Stock Option Plan
and Purchase Plan to further increase the number of shares reserved for
issuance thereunder by 750,000 shares and by 250,000 shares, respectively, FOR
the amendment of Mattson's Certificate of Incorporation to increase the
authorized number of shares of common stock available for issuance from 60
million shares to 120 million shares, and FOR the amendment of Mattson's
Certificate of Incorporation to increase the designated number of directors of
Mattson from five to seven and change the procedure for filling board
vacancies.
To CFM shareholders: The CFM board of directors believes that the merger is
fair to you and in your best interest and unanimously voted to approve the
Merger Agreement, and unanimously recommends that you vote FOR the adoption of
the Merger Agreement.
Fairness Opinions of Financial Advisors (pages 50 and 58)
Opinion of Mattson's Financial Advisor. In deciding to approve the
Transactions, the Mattson board of directors considered the opinion of its
financial advisor, Alliant Partners, that, as of the date of its opinion, and
subject to and based on the considerations referred to in its opinion, the
total consideration to be provided by Mattson in connection with the
Transactions is fair, from a financial point of view, to Mattson's
stockholders. The full text of this opinion is attached as Annex D-1 to this
joint proxy statement-prospectus. Mattson urges its stockholders to read the
opinion of Alliant Partners in its entirety.
Opinion of CFM's Financial Advisor. In deciding to approve the merger, the
CFM board of directors considered the opinion of its financial advisor, UBS
Warburg LLC (formerly known as Warburg Dillon Read LLC), that, as of the date
of its opinion, and subject to and based on the considerations referred to in
its opinion, the ratio to exchange CFM common stock for Mattson common stock is
fair, from a financial point of view, to the holders of CFM common stock. The
full text of this opinion is attached as Annex D-2 to this joint proxy
statement-prospectus. CFM urges its shareholders to read the opinion of UBS
Warburg LLC in its entirety.
Stockholder Approvals
For Mattson, the affirmative vote of the holders of a majority of the shares
present or represented by proxy and entitled to vote at the special meeting, at
which a quorum is present and voting, by proxy or in person, is required for
approval of the proposed share issuance and the increase in the reserve under
the Stock Option Plan needed to complete the Transactions, and for approval of
the separate proposals to amend the Stock Option Plan and the Purchase Plan to
increase the number of shares reserved for issuance thereunder by 750,000
shares and 250,000 shares, respectively. The affirmative vote of a majority of
the outstanding shares of common stock is required for approval of the
amendment of Mattson's Certificate of Incorporation to increase the authorized
number of shares available for issuance from 60 million shares to 120 million
shares. The affirmative vote of at least two-thirds of the outstanding shares
of common stock is required for approval of the amendment of Mattson's
Certificate of Incorporation to increase the
8
<PAGE>
designated number of directors from five to seven and to change the procedure
for filling board vacancies. Each holder of common stock is entitled to one
vote per share. As of the record date, Mattson directors and officers and their
affiliates owned in the aggregate approximately 18.9% of the outstanding
shares, and Brad Mattson individually owned approximately 17.7% of the
outstanding shares. Pursuant to voting agreements with each of STEAG and CFM,
Brad Mattson has agreed to vote all of his shares in favor of the share
issuance under the Transactions.
For CFM, the affirmative vote of a majority of the votes cast by all
shareholders of CFM's common stock is required to adopt the Merger Agreement.
No vote shall be taken unless a quorum is present, in person or by proxy.
However, if a quorum is not present, those present may vote to adjourn the
meeting to such time and place as they may determine, at which time if a quorum
is not then present and at least 15 days has passed since the adjournment for
lack of a quorum, those present shall constitute a quorum for the purpose of
voting upon the CFM proposals set forth herein. CFM common shareholders are
entitled to one vote per share. As of the record date, the directors and
executive officers of CFM owned in the aggregate approximately 20.3% of the
outstanding shares, and Christopher McConnell individually owned approximately
14.7% of the outstanding shares. Pursuant to a voting agreement with Mattson,
Christopher McConnell has agreed to vote all of his shares in favor of the
adoption of the Merger Agreement.
Because STEAG is a privately-held corporation organized under the laws of
the Federal Republic of Germany, approval of STEAG's sole shareholder, STEAG
AG, is not required in order to effect the business combination. In accordance
with German law, both the Supervisory Board (Aufsichtsrat) and the Management
Board (Vorstand) of STEAG previously approved the business combination.
The Special Meetings (pages 35 and 38)
The special meeting of the stockholders of Mattson will be held on
Wednesday, November 8, 2000, at 10:00 am, local time, at the Newark Hilton,
39900 Balentine Drive, Newark, California 94560.
The special meeting of the shareholders of CFM will be held on Wednesday,
November 8, 2000, at 1:00 pm, local time, at the Sheraton Great Valley Hotel,
707 East Lancaster Avenue, Frazer, Pennsylvania 19355.
Interests of Directors and Officers of Mattson, STEAG, and CFM in the
Transactions (pages 54 and 64)
As of the record date, Brad Mattson, the Chief Executive Officer and current
chairman of the board of Mattson, held options to purchase 21,163 shares of CFM
common stock exercisable within 60 days. These options were granted in
connection with Mr. Mattson's previous service on the board of directors of
CFM. These options will become options to purchase Mattson common stock under
the terms of the Merger Agreement. Mr. Mattson took no part in the
deliberations of the CFM board regarding the proposed merger, and Mr. Mattson
resigned from the CFM board effective April 26, 2000.
John Savage, a director of Mattson, is also a partner at Alliant Partners,
the technology merger and acquisition advisory firm that has provided Mattson
with its opinion regarding the fairness of the proposed Transactions to
Mattson's stockholders from a financial point of view. Mattson has entered into
a Financial Advisory Agreement with Alliant Partners, dated as of May 17, 2000,
(the "Alliant Partners Agreement"), providing for Alliant Partners to act as
financial advisor in connection with the Transactions. Under the Alliant
Partners Agreement, Mattson has agreed to pay Alliant Partners a fee of
$300,000 to render an opinion as to the fairness from a financial point of view
to Mattson and its stockholders of the consideration to be provided by Mattson
in connection with the Transactions. The Alliant Partners Agreement further
provides for a "success fee" of $2 million in the event the Transactions close,
with the $300,000 fairness opinion fee being applied against such amount. Under
the terms of the Alliant Partners Agreement, Mattson has also agreed to
reimburse Alliant Partners reasonable expenses, and to indemnify Alliant
Partners against any losses, claims, damages, or liabilities to which Alliant
Partners may become subject in connection with its use of information that is
provided to Alliant Partners by Mattson that is
9
<PAGE>
inaccurate in any respect or any other aspect of its rendering such services,
unless it is finally judicially determined that such losses, claims, damages,
or liabilities relating thereto arose only out of the gross negligence or
willful misconduct of Alliant Partners. The Alliant Partners Agreement was
determined based on arm's length negotiation and Mattson believes the terms of
the Alliant Partners Agreement are no less favorable than could have been
obtained from third party consultants and investment bankers.
Christopher F. McConnell, the Chairman of the Board of CFM, is party to a
Change of Control and Severance Agreement dated as of April 10, 2000 with CFM
(the "McConnell Severance Agreement"). In connection with the proposed merger,
the Severance Agreement of Roger Carolin, the President and Chief Executive
Officer of CFM, dated April 10, 2000 was amended pursuant to Amendment No. 1,
Change of Control and Severance Agreement dated as of June 27, 2000 (as
amended, the "Carolin Severance Agreement" and collectively the "Severance
Agreements"). The Severance Agreements provide, among other things, that
following any Change of Control Event (as defined therein), if employment is
terminated by the employer Without Cause or by employee for a Good Reason Event
(as such terms are defined in the Severance Agreements): any options to
purchase common stock of the employer shall vest immediately as of the date of
such termination; the employer shall pay the employee his annual target bonus
for the then-current fiscal year on a pro rata basis and 24 monthly payments
equal to one-twelfth of the employee's then-current annual base salary plus
annual target bonus.
Lorin J. Randall, the Secretary and Chief Financial Officer of CFM, is a
party to an Employment Agreement with CFM dated October 25, 1999 which was
amended by Amendment No. 1 dated as of April 10, 2000 (as amended, the
"Employment Agreement"). The Employment Agreement provides, among other things,
that following any Change of Control Event (as defined therein), if Mr.
Randall's employment is terminated (1) by the employer Without Cause (as
defined in the Employment Agreement): the employer will pay Mr. Randall twelve
monthly payments equal to one-twelfth of Mr. Randall's then current annual base
salary plus annual target bonus; his annual target bonus for the current fiscal
year on a pro rata basis; monthly compensation equal to one-twelfth of
Mr. Randall's then current annual base salary plus annual target bonus for a
period of 18 months following the date of termination; and if the change of
control occurs within a year following termination, fully vested options to
purchase a number of shares of common stock of the employer equal to the number
of unvested options held by Mr. Randall and cancelled at the time of
termination; or (2) by Mr. Randall upon a Good Reason Event: any options to
purchase common stock of the employer and held by Mr. Randall shall vest
immediately as of the date of such termination; and the employer will pay Mr.
Randall his annual target bonus for the current fiscal year on a pro rata
basis.
Accounting Treatment (Page 66)
Mattson will account for the Transactions as purchases of the STEAG
Semiconductor Subsidiaries and CFM by Mattson under the purchase method of
accounting. Under purchase accounting, Mattson will record the fair value of
the consideration given for the stock of the STEAG Semiconductor Subsidaries,
as well as the fair value of the consideration given for the CFM common stock
and for options to purchase CFM common stock assumed by Mattson, plus the
amount of direct transaction costs, as the cost of acquiring the STEAG
Semiconductor Subsidaries and CFM. Mattson will allocate these costs to the
individual assets and liabilities of the companies being acquired, including
various identifiable intangible assets such as acquired technology, acquired
trademarks and trade names and acquired workforce, and to in-process research
and development, based on their respective fair values. Intangible assets,
including goodwill, will be generally amortized over a three- to seven-year
period.
Regulatory Approvals (page 67)
Mattson, STEAG, and CFM have already received the required clearances with
respect to the Transactions under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 (the "HSR Act") and
10
<PAGE>
the German Act Against Restraints on Competition of 1958 (Gesetz gegen
Wettbewerbs-beschraenkungen) (the "German Cartel Act").
Dissenters' Rights (page 67)
Delaware corporate law, which governs Mattson as a Delaware corporation,
does not afford dissenters' or appraisal rights to holders of shares that are
quoted on Nasdaq, as are Mattson's shares. In addition, Delaware law does not
provide dissenters' or appraisal rights to stockholders of a surviving
corporation in a merger if the surviving corporation's stockholders were not
required to approve the merger. Mattson's stockholders are not required to
approve the Transactions, but rather are required to approve the issuance of
shares that are proposed to be issued in connection with the Transactions.
Therefore, Mattson stockholders shall have no dissenters' or appraisal rights
with respect to the Transactions.
Pennsylvania corporate law, which governs CFM as a Pennsylvania corporation,
entitles CFM shareholders to dissent from the merger and instead demand payment
from CFM of the fair value of their shares.
To claim dissenters' rights, a CFM shareholder must deliver to CFM prior to
the vote written notice of the shareholder's intent to demand payment for the
shareholder's shares if the merger is effected and not vote the shareholder's
shares in favor of the merger at the CFM special meeting. CFM will then send
the shareholder written notice after the completion of the merger, indicating
when and how to demand payment for the shareholder's shares. After receiving
the notice, the shareholder must demand payment for the shareholder's shares in
the manner required by the notice sent by CFM. The shareholder must also
certify to CFM the date the shareholder acquired beneficial ownership of the
shareholder's shares. If the shareholder does not comply with the requirements
outlined above, the shareholder will not be entitled to receive payment for the
shareholder's shares under the dissenters' rights provisions of Pennsylvania
law and will be entitled to 0.5223 shares of Mattson common stock for each of
the shareholder's shares of CFM common stock. If the shareholder complies with
the outlined requirements, promptly following the later of the date of
effectiveness of the merger or the date CFM received the shareholder's demand
for payment, CFM will pay to the shareholder the amount CFM estimates to be the
fair value of the shareholder's shares of CFM common stock. Within 30 days of
the shareholder's receipt of CFM's remittance or estimate of fair value, if the
shareholder believes CFM's estimate of the fair value of the shareholder's
shares is incorrect, the shareholder may notify CFM in writing of the
shareholder's own estimate of the fair value of the shareholder's shares of CFM
common stock and demand payment of the shareholder's estimate. Within 60 days
of the later to occur of the effectuation of the merger, timely receipt of the
shareholder's demand for payment and timely receipt of an estimate of fair
value from the shareholder, if the demand for payment of the shares remains
unsettled, CFM may request the fair value be determined by a court. The
shareholder's dissenters' rights are set out in their entirety in Sections
1571-1580 of the Pennsylvania Business Corporation Law, which is attached to
this joint proxy statement-prospectus as Annex E.
11
<PAGE>
Comparative Per Share Data
Set forth below are the net income and book value per common share data for
Mattson on an historical basis and on a combined pro forma basis, and certain
equivalent pro forma per share data for CFM. The Mattson combined pro forma
data was derived by combining historical consolidated financial information of
Mattson, the STEAG Semiconductor Division and CFM using the purchase method of
accounting. The equivalent combined pro forma per share data for CFM was
calculated by multiplying the Mattson combined pro forma per common share data
by the exchange ratio of 0.5223.
The information in the table below should be read in conjunction with the
respective audited and unaudited consolidated financial statements and related
notes of Mattson and CFM either incorporated by reference or included elsewhere
in this joint proxy statement-prospectus.
<TABLE>
<CAPTION>
Fiscal Year Ended Six Months Ended
December 31, 1999 June 25, 2000
----------------- ----------------
<S> <C> <C>
Historical--Mattson
Net income (loss) per share:
Basic...................................... $(0.05) $0.57
Diluted.................................... $(0.05) $0.51
Book value per share(1)..................... $ 3.19 $9.41
</TABLE>
--------
(1) Historical book value per share is computed by dividing shareholders'
equity by the number of shares of common stock outstanding at the end of
each period presented.
<TABLE>
<CAPTION>
Fiscal Year Ended Nine Months Ended
October 31, 1999 July 31, 2000
----------------- -----------------
<S> <C> <C>
Historical--CFM
Net income (loss) per share:
Basic..................................... $(1.34) $(2.85)
Diluted................................... $(1.34) $(2.85)
Book value per share(1).................... $ 8.30 $ 5.54
</TABLE>
--------
(1) Historical book value per share is computed by dividing shareholders'
equity by the number of shares of common stock outstanding at the end of
each period presented.
<TABLE>
<CAPTION>
Fiscal Year Ended Six Months Ended
December 31, 1999 June 25, 2000
----------------- ----------------
<S> <C> <C>
Unaudited Pro Forma Combined
Net Income (Loss) Per Share
Pro forma net loss per Mattson share (2):
Basic...................................... $(4.48) $(1.75)
Diluted.................................... $(4.48) $(1.75)
Equivalent pro forma net loss per CFM share:
Basic...................................... $(2.34) $(0.91)
Diluted.................................... $(2.34) $(0.91)
</TABLE>
--------
(2) Pro forma net loss per Mattson share is computed by dividing the unaudited
pro forma combined condensed net loss by the pro forma number of weighted
average outstanding shares for the period presented.
<TABLE>
<CAPTION>
June 25,
2000
--------
<S> <C>
Unaudited Pro Forma Combined Book Value Per Share
Pro forma book value per Mattson share(3):........................... $22.24
Equivalent pro forma book value per CFM share:....................... $11.62
</TABLE>
--------
(3) Pro forma book value per Mattson share is computed by dividing unaudited
pro forma shareholders' equity by the pro forma number of weighted average
outstanding shares for the period.
The following table sets forth the closing per share sales price of Mattson
common stock and CFM common stock, as reported on Nasdaq, and the estimated
equivalent per share price, as explained below, of Mattson common stock on June
27, 2000, the last trading day before the public announcement of the
Transactions, and on October 4, 2000:
<TABLE>
<CAPTION>
Estimated
Equivalent
Per Share
MTSN CFMT Price
-------- ------- ----------
<S> <C> <C> <C>
June 27, 2000....................................... $39.4375 $14.375 $20.5982
October 4, 2000..................................... 13.75 7.125 7.1816
</TABLE>
The estimated equivalent per share price of a share of CFM common stock
based on a Mattson share price of $39.4375 equals the exchange ratio of 0.5223
multiplied by the price of a share of Mattson common stock. If the merger had
occurred on June 27, 2000, CFM shareholders would have received a fraction of a
share of Mattson common stock worth approximately $20.5982 per share for each
share of CFM common stock CFM shareholders owned. If the merger had occurred on
October 4, 2000, CFM shareholders would have received a fraction of a share of
Mattson common stock worth approximately $7.1816 per share for each share of
CFM common stock CFM shareholders owned. The actual equivalent per share price
of a share of Mattson common stock that CFM shareholders would receive if the
merger closes may be different from these prices because the per share price of
Mattson common stock on the Nasdaq fluctuates continuously.
Following the merger, Mattson common stock will continue to be quoted on the
Nasdaq, and there will be no further market for the CFM common stock. Mattson
has never paid cash dividends on its common stock and has no present plans to
do so. CFM has never paid cash dividends on its common stock.
12
<PAGE>
RISK FACTORS
You should carefully consider the risks described below regarding the
Transactions and Mattson's business following the Transactions, together with
all of the other information included in or annexed to this joint proxy
statement-prospectus, before making a decision about how to vote on the
proposals submitted for your consideration.
By voting in favor of the Merger Agreement, CFM shareholders will be
choosing to exchange their current investment in CFM common stock for an
investment in Mattson common stock. By voting in favor of the share issuance
and Stock Option Plan share reserve increase in connection with the
Transactions, Mattson stockholders will be choosing to permit Mattson to engage
in the Transactions, which will affect the risks to Mattson's business. An
investment in Mattson common stock involves a high degree of risk.
If any of the following risks actually occur, Mattson's business, financial
condition, or results of operations could be materially harmed. If Mattson's
business is harmed, the trading price of Mattson's common stock could decline,
and Mattson stockholders (including former CFM shareholders following the
Transactions) may lose all or part of their investment.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the information in this joint proxy statement-prospectus and in the
documents that are incorporated by reference, including the risk factors in
this section, contains forward-looking statements that involve risks and
uncertainties. These statements relate to future events or Mattson's future
financial performance. In many cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential," or "continue,"
or the negative of these terms and other comparable terminology. These
statements are only predictions. Mattson's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of a number of factors, including, but not limited to, the risks faced
by Mattson following completion of the Transactions described below, elsewhere
in this joint proxy statement-prospectus, and in Mattson's periodic filings
incorporated herein by reference.
Mattson believes it is important to communicate its expectations to
investors. However, there may be events in the future that it is not able to
predict accurately or over which it has no control. The risk factors listed
below, as well as any cautionary language in this joint proxy statement-
prospectus, provide examples of risks, uncertainties, and events that may cause
Mattson's actual results to differ materially from the expectations it
describes in its forward-looking statements. Before making your decision
regarding the Transactions, you should be aware that the occurrence of the
events described in these risk factors and elsewhere in this joint proxy
statement-prospectus could have a material adverse effect on Mattson's
business, operating results, and financial condition.
RISKS RELATED TO THE TRANSACTIONS
The ability of Mattson to integrate successfully the businesses of the STEAG
Semiconductor Division and CFM with each other and with its own business is
uncertain.
After the Transactions, Mattson, the STEAG Semiconductor Division, and CFM,
each of which had previously operated independently of each other, will need to
integrate their operations. The integration of the three businesses will be
complex, time consuming, and expensive. The integration will require
significant efforts from each company, including the coordination of their
research and development and sales and marketing efforts. Mattson may find it
difficult to integrate the operations of the STEAG Semiconductor Division and
CFM, and vice versa. The combined company will have a large number of employees
in widely dispersed operations in California, Germany, Pennsylvania, and other
locations, which will increase the difficulty of integrating operations.
Current personnel may leave Mattson, the STEAG Semiconductor Division, or CFM
13
<PAGE>
because of the business combination or the merger. The challenges involved in
this integration include, but are not limited to, the following:
. Retaining existing customers of each company;
. Retaining and integrating management and other key employees of each of
Mattson, the STEAG Semiconductor Division, and CFM;
. Coordinating research and development activities to enhance introduction
of new products and technologies;
. Integrating purchasing and procurement operations in multiple locations;
. Combining product offerings and product lines effectively and quickly;
. Integrating sales and marketing efforts so that customers can understand
and do business easily with the combined company;
. Coordinating manufacturing operations in a rapid and efficient manner;
. Transitioning all world-wide facilities to common accounting and
information technology systems;
It is not certain that Mattson, the STEAG Semiconductor Division, and CFM
can be successfully integrated in a timely manner or at all or that any of the
anticipated benefits will be realized. Risks from unsuccessful integration of
the companies include:
. The impairment of relationships with employees, customers, and suppliers;
. The potential disruption of the combined company's ongoing business and
distraction of its management;
. Delay in introducing new product offerings by the combined company; and
. Unanticipated expenses related to integration of the three companies.
The combined company may not succeed in addressing these risks. Further,
neither Mattson nor CFM can assure you that the growth rate of the combined
company will equal the historical growth rates experienced by Mattson, the
STEAG Semiconductor Division, or CFM, individually.
The Transactions between Mattson, STEAG, and CFM may fail to achieve beneficial
synergies.
The managements of Mattson, STEAG, and CFM have entered into the
Transactions with the expectation that they will result in beneficial synergies
between and among the three parties' semiconductor equipment businesses.
Achieving these anticipated synergies and the potential benefits underlying
their reasons for entering into the Transactions will depend on a number of
factors, some of which include:
. Mattson's ability to timely develop new products and integrate the
products and sales efforts of the combined company;
. The risk that the customers of Mattson, the STEAG Semiconductor Division,
or CFM may defer purchasing decisions;
. The risk that it may be more difficult to retain key management,
marketing, and technical personnel after the Transactions; and
. Competitive conditions and cyclicality in the semiconductor manufacturing
process equipment market.
Even if the companies are able to integrate operations, there can be no
assurance that the anticipated synergies will be achieved. The failure to
achieve such synergies could have a material adverse effect on the business,
results of operations, and financial condition of the combined company.
14
<PAGE>
The STEAG Semiconductor Subsidiaries and CFM have experienced financial losses
and may require significant financial support from Mattson.
The STEAG Semiconductor Subsidiaries and CFM have suffered losses from
operations in recent periods. After consummation of the Transactions, the
acquired businesses may experience further losses, which would affect the
financial results of Mattson, reduce Mattson earnings per share, and require
funding by Mattson to sustain their operations. If losses continue at historic
levels for the STEAG Semiconductor Subsidiaries and CFM, the Transactions may
require Mattson to use a significant portion of its cash balances.
The ratio for the exchange of CFM shares for Mattson shares is fixed.
The ratio of the number of shares of Mattson common stock to be exchanged
for each share of CFM common stock will not change. Upon completion of the
merger, each share of CFM common stock will be exchanged for 0.5223 shares of
Mattson common stock. There will be no adjustment to this exchange ratio for
changes in the market price of either Mattson common stock or CFM common stock.
In addition, neither Mattson nor CFM may terminate the Merger Agreement or
"walk away" from the merger solely because of changes in the market price of
either company's common stock. Therefore, if the market value of Mattson common
stock or CFM common stock changes relative to the market value of the other,
there will be no change, either upward or downward, in the aggregate number of
shares of Mattson common stock to be issued to CFM shareholders in the merger.
The share prices of Mattson common stock and CFM common stock are by nature
subject to the general price fluctuations in the market for publicly traded
equity securities, and in particular fluctuations in the market prices of
equity securities of semiconductor equipment companies have experienced
significant volatility. You should obtain recent market quotations for Mattson
common stock and CFM common stock in order to accurately assess the market
value of the Mattson shares that will be issued in exchange for the CFM shares.
Mattson cannot predict or give any assurances as to the relative market prices
of Mattson or CFM common stock before the closing of the merger.
The combined company's reported financial results will suffer as a result of
purchase accounting treatment and the impact of amortization of goodwill and
other intangibles, and restructuring charges relating to the Transactions.
Mattson will account for the Transactions as purchases of the STEAG
Semiconductor Subsidiaries and CFM by Mattson under the purchase method of
accounting. Under purchase accounting, Mattson will record the fair value of
the consideration given to STEAG in exchange for the stock of the STEAG
Semiconductor Subsidiaries, as well as the fair value of the consideration
given in exchange for the outstanding CFM common stock and for the outstanding
options to purchase CFM common stock assumed by Mattson, plus the amount of
direct transaction costs, as the cost of acquiring the STEAG Semiconductor
Subsidiaries and CFM. Mattson will allocate these costs to the individual
assets and liabilities of the companies being acquired, including various
identifiable intangible assets such as acquired technology, acquired trademarks
and trade names and acquired workforce, and to in-process research and
development, based on their respective fair values. Intangible assets,
including goodwill, will be generally amortized over a three- to seven-year
period.
As described in the Unaudited Pro Forma Condensed Combined Financial
Statements, the amount of purchase cost allocated to goodwill and other
intangibles is estimated to be approximately $400 million. Assuming goodwill
and other intangible assets were amortized in equal quarterly amounts over 5
years following completion of the Transactions, the accounting charge
attributable to these items would be approximately $20 million per quarter or
$80 million per fiscal year. As a result, purchase accounting treatment of the
Transactions could have a material adverse effect on the market value of
Mattson common stock following completion of the Transactions.
Mattson may incur restructuring costs in order to achieve desired synergies
after the Transactions, which would adversely impact future financial results.
These restructuring costs could be a result of, but not limited to, the
following:
. Severance costs associated with possible headcount reductions due to
duplication; and
. Asset write-offs associated with manufacturing and facility
consolidations.
15
<PAGE>
Uncertainty related to the Transactions could harm the combined company.
In response to the announcement of the Transactions, customers or suppliers
of Mattson, the STEAG Semiconductor Division, and CFM may delay or defer
product purchase or other decisions. Any delay or deferral in product purchase
or other decisions by customers or suppliers could have a material adverse
effect on the business of the relevant party, regardless of whether the
Transactions are ultimately completed. Similarly, current and prospective
Mattson, STEAG Semiconductor Division, and/or CFM employees may experience
uncertainty about their future roles with Mattson until the Transactions are
completed and Mattson's strategies with regard to the integration of operations
of Mattson, the STEAG Semiconductor Division, and CFM are announced or
executed. This may adversely affect Mattson's, the STEAG Semiconductor
Division's, and/or CFM's ability to attract and retain key management, sales,
marketing, and technical personnel.
The Transactions could adversely affect combined financial results.
Mattson, the STEAG Semiconductor Division, and CFM are expected to incur
direct transaction costs of approximately $4.7 million in connection with the
Transactions. If the benefits of the Transactions do not exceed the costs
associated with the Transactions, including any dilution to Mattson
stockholders and CFM shareholders resulting from the issuance of shares in
connection with the Transactions, the combined company's financial results,
including earnings per share, could be adversely affected.
The rights of holders of CFM common stock will be changed as a result of the
merger.
Following the merger, holders of CFM common stock outstanding on the date of
the merger will become holders of Mattson common stock. Certain differences
exist between the rights of Mattson stockholders under Mattson's Certificate of
Incorporation, Bylaws and the corporate law of Delaware, Mattson's state of
incorporation and the rights of CFM shareholders under CFM's Articles of
Incorporation, Bylaws and the corporate law of Pennsylvania, CFM's state of
incorporation. See "Comparison of Rights of Holders of Mattson Common Stock and
CFM Common Stock" beginning on page 99 of this joint proxy statement-
prospectus. Certain rights that CFM shareholders currently have under CFM's
Articles of Incorporation, Bylaws, and under Pennsylvania law may cease to
exist following the merger.
Officers and directors of Mattson and CFM have certain conflicts of interest
that may influence them to support or approve the Transactions.
Some of the directors and officers of Mattson and CFM participate in
arrangements and have continuing indemnification against liabilities that give
them interests in the Transactions that are different from the interests of
other Mattson stockholders or CFM shareholders interests, including the
following:
. John Savage, a director of Mattson, is also a partner at Alliant
Partners, the technology merger and acquisition advisory firm that
provided Mattson with its opinion regarding the fairness of the proposed
Transactions, from a financial point of view, to Mattson's stockholders.
Mattson has paid Alliant Partners a fee of $300,000 for rendering an
opinion as to the fairness from a financial point of view to Mattson's
stockholders of the consideration to be provided by Mattson in connection
with the Transactions. Mattson has agreed to pay Alliant Partners a
success fee of $2,000,000 in the event the Transactions close, against
which the fairness opinion fee will be credited.
. Brad Mattson was formerly a member of the board of directors of CFM. As
of the record date, Brad Mattson held options to purchase 21,163 shares
of CFM common stock exercisable within 60 days. These options will become
options to purchase Mattson common stock under the terms of the Merger
Agreement.
. Some officers of CFM will be entitled to severance payments and
additional accelerated vesting of options if they are terminated or
constructively terminated by Mattson after completion of the merger.
. Mattson and CFM have agreed that Mr. James Kim will be designated by CFM
to serve on Mattson's board of directors upon completion of the
Transactions.
For the above reasons, the directors and officers of Mattson and CFM could
be more likely to vote to approve the terms of the Transactions than if they
did not have these interests. Mattson stockholders and CFM
16
<PAGE>
shareholders should consider whether these interests may have influenced these
directors and officers to support or recommend the Transactions.
Failure to complete the Transactions could have a negative impact on Mattson's
and/or CFM's stock price, future business and operations, or financial results.
If the Transactions are not completed for any reason, Mattson and CFM may be
subject to a number of material risks, including the following:
. Depending on the reasons for termination, Mattson may be required to pay
CFM, or CFM may be required to pay Mattson, a termination fee of
$7,110,000;
. Depending on the reasons for termination, Mattson may be required to pay
STEAG either a termination fee of $20,000,000, STEAG's fees and expenses
in connection with the Combination Agreement up to $5,000,000, or one-
half of a $40,000,000 lump sum payment which may be required to be made
by STEAG to CFM under the interim patent license agreement dated June 28,
2000 between CFM, CFMT, Inc., and STEAG;
. The price of Mattson and/or CFM common stock may decline to the extent
that the relevant current market price reflects a market assumption that
the Transactions will be completed;
. Some costs related to the Transactions, such as legal, accounting,
financial advisor, and financial printing fees, must be paid even if the
Transactions are not completed; and
. There may be substantial disruption to the businesses of Mattson and CFM
and distraction of their workforces and management teams.
The Transactions may be challenged by regulatory authorities.
Mattson, STEAG, and CFM have obtained regulatory clearance under both the
HSR Act and the German Cartel Act with respect to the Transactions. However,
even though these regulatory clearances have been obtained, any federal, state,
or foreign governmental agency or private person may still challenge the
Transactions at any time before, or even after, their completion. The transfers
of certain STEAG Semiconductor Subsidiaries require local governmental or
regulatory approvals. There can be no assurance that such approvals will be
obtained or that they will be obtained on a timely basis.
STEAG may terminate the business combination, and therefore the Transactions,
if Mattson's common stock is trading at less than $20.00 at the time of
closing.
As set forth in the Combination Agreement, STEAG may terminate the
Combination Agreement if the average closing price of Mattson's common stock
over a 20-trading-day period measured two business days prior to the proposed
closing of the business combination is below $15.78 per share. In addition,
STEAG may terminate the Combination Agreement if the 20-trading-day average
closing price of Mattson's common stock measured two business days prior to the
proposed closing of the business combination is above $15.78 but below $20.00
per share, unless Mattson elects to pay, in the form of a 3-year promissory
note, the product obtained by multiplying 11,850,000 by the difference between
$20.00 and such 20-trading-day average common stock closing price. The
principal amount of any such note will not exceed $50 million. See "The
Strategic Business Combination Agreement--Termination" that begins on page 78
of this joint proxy statement-prospectus. On October 4, 2000, the closing sales
price of Mattson common stock as reported on Nasdaq was $13.75.
Because the Transactions are mutually conditioned on each other, in the
event the Combination Agreement is terminated, the Merger Agreement will
automatically be terminated as well.
17
<PAGE>
RISKS RELATING TO MATTSON'S BUSINESS FOLLOWING CONSUMMATION OF THE TRANSACTIONS
In addition to the risk factors set forth above with respect to the
Transactions, following the consummation of the Transactions, Mattson's
combined business will be subject to risk factors including the following:
The combined companies' sales have reflected the cyclicality of the
semiconductor industry. Such continued cyclicality following the consummation
of the Transactions may cause Mattson's operating results to fluctuate
significantly and could cause Mattson to fail to achieve anticipated sales.
The business of each of Mattson, the STEAG Semiconductor Division, and CFM
has depended in significant part upon capital expenditures by manufacturers of
semiconductor devices, including manufacturers that are opening new or
expanding existing fabrication facilities. Mattson will continue to depend on
these factors after the consummation of the Transactions. The level of capital
expenditures by these manufacturers of semiconductor devices depends upon the
current and anticipated market demand for such devices and the products
utilizing such devices. The semiconductor industry is highly cyclical. The
industry has in the past, and will likely in the future, experience periods of
oversupply that result in significantly reduced demand for capital equipment,
including Mattson's systems in each of the post-combination product lines. When
these periods occur, Mattson's operating results and financial condition may be
adversely affected. Mattson anticipates that a significant portion of new
orders will continue to depend upon demand from semiconductor manufacturers and
independent foundries that build or expand large fabrication facilities. If
existing fabrication facilities are not expanded or new facilities are not
built, demand for Mattson's systems may not develop or increase, and Mattson
may be unable to generate significant new orders for Mattson's systems. If
Mattson is unable to develop new orders for Mattson's systems, Mattson will not
achieve anticipated net sales levels. Any future downturns or slowdowns in the
semiconductor industry will materially and adversely affect Mattson's net sales
and operating results. Following the Transactions, Mattson will be a larger,
more geographically diverse company and may be less able to react quickly to
the cyclicality of the semiconductor business, particularly in Europe and in
other regions with restrictive laws relating to termination of employees.
Most of Mattson's revenue will come from a small number of large sales, and any
delay in the timing of individual sales could cause Mattson's operating results
to fluctuate from quarter to quarter.
A delay in a shipment near the end of a quarter may cause net sales in that
quarter to fall below Mattson's expectations and the expectations of market
analysts or investors. Currently, each of Mattson, the STEAG Semiconductor
Division, and CFM derives most of its revenues from the sale of a relatively
small number of expensive systems and Mattson will continue to depend on a
small number of sales after the consummation of the Transactions. The list
prices on these systems range from $500,000 to over $4 million. Following the
Transactions, each sale, or failure to make a sale, could have a material
effect on Mattson. Mattson's lengthy sales cycle for each of its systems,
coupled with customers' competing capital budget considerations, make the
timing of customer orders uneven and difficult to predict. In addition,
Mattson's backlog at the beginning of a quarter is not expected to include all
orders required to achieve Mattson's sales objectives for that quarter. As a
result, Mattson's net sales and operating results for a quarter depend on
Mattson's shipping orders as scheduled during that quarter as well as obtaining
new orders for systems to be shipped in that same quarter. Any delay in
scheduled shipments or in shipments from new orders would materially adversely
affect Mattson's operating results for that quarter, which could cause
Mattson's stock price to decline.
In the past, Mattson has experienced cancellation of orders, and there can
be no assurance that further order cancellations or reductions in order growth
or the level of overall orders for semiconductor capital equipment will not
have a further material adverse effect upon Mattson's business or results of
operations. The need for continued investment in research, development and
engineering, marketing, and customer satisfaction activities may limit
Mattson's ability to reduce expenses in response to continued or future
downturns in the semiconductor industry. Mattson's net sales and results of
operations could be materially adversely affected if other downturns or
slowdowns in the semiconductor markets occur in the future.
18
<PAGE>
Mattson's quarterly financial results fluctuate significantly and may fall
short of anticipated levels, which could cause Mattson's stock price to
decline.
Mattson intends to base its operating expenses on anticipated revenue
levels, and a substantial percentage of Mattson's expenses may be fixed in the
short term. As a result, any delay in generating or recognizing revenues could
cause Mattson's operating results to be below the expectations of market
analysts or investors, which could cause the price of Mattson's common stock to
decline. Mattson's quarterly revenue and operating results have varied
significantly in the past and may vary significantly in the future due to a
number of factors, including: market acceptance of Mattson's systems and the
products of Mattson's customers; substantial changes in revenues from
significant customers; increased manufacturing overhead expenses due to
reductions in the number of systems manufactured; timing of announcement and
introduction of new systems by Mattson and its competitors; sudden changes in
component prices or availability; changes in product mix; delays in orders due
to customer financial difficulties; manufacturing inefficiencies caused by
uneven or unpredictable order patterns, reducing Mattson's gross margins; and
higher fixed costs due to increased levels of research and development or
patent litigation costs and expansion of Mattson's worldwide sales and
marketing organization. Due to the foregoing factors, Mattson believes that
period-to-period comparisons of Mattson's operating results should not be
relied upon as an indicator of Mattson's future performance.
Moreover, in December 1999, the Securities and Exchange Commission staff
issued Staff Accounting Bulletin No. 101--Revenue Recognition in Financial
Statements ("SAB 101"). SAB 101 summarizes certain of the SEC's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. SAB 101 does not become applicable to Mattson until the
fourth quarter of 2000. While Mattson's management believes that its revenue
recognition policies conform with the generally accepted accounting principles
that have been used consistently in practice in the capital equipment industry,
certain issues raised in SAB 101, including installation and acceptance
criteria, could be interpreted to cause a change in accounting principles by
Mattson and many other companies in the capital equipment industry. Such a
change could cause added fluctuations in Mattson's revenues and profits. At
this time, the effect of SAB 101 on Mattson's operating results in any future
period cannot be fully determined; however, such a change could materially
adversely affect Mattson's financial position and results of operations.
Each of Mattson, the STEAG Semiconductor Division, and CFM has incurred net
operating losses for the prior two years. After consummation of the
Transactions, Mattson may not achieve or maintain profitability on an annual
basis, and if it does not, it may not utilize deferred tax assets.
Mattson incurred net losses of approximately $800,000 for the year ended
December 31, 1999 and $22.4 million for the year ended December 31, 1998; the
STEAG Semiconductor Division incurred losses of approximately $51.5 million for
the year ended December 31, 1999 and $22.3 million for the year ended December
31, 1998; and CFM incurred net losses of approximately $10.5 million for the
year ended October 31, 1999 and $11.8 million for the year ended October 31,
1998. Mattson expects to continue to incur significant research and development
and selling, general and administrative expenses. Mattson will need to generate
significant increases in net sales to achieve and maintain profitability on an
annual basis, and it may not be able to do so. In addition, because of these
factors, through December 31, 1999, Mattson had not been in a position to
utilize its deferred tax assets. Mattson's ability to realize its deferred tax
assets in future periods will depend on its ability to achieve and maintain
profitability on an annual basis. See "Mattsons Management's Discussion and
Analysis of Financial Condition and Results of Operations" beginning on
page 147 for a further discussion of Mattson's net operating losses.
Year-to-year changes in Mattson's list of major customers make it difficult to
forecast Mattson's revenue and achieve Mattson's sales goals.
During 1999, one customer, Samsung, accounted for approximately 20% of
Mattson's net sales. During 1998, Mattson had no individually significant
customers, although sales to Mattson's Japanese distributor,
19
<PAGE>
Marubeni, constituted 16% of Mattson's net sales. For the year ended December
31, 1999, sales to the STEAG Semiconductor Division's top three customers
accounted for approximately 24% of net sales; no customer accounted for more
than 10% of the STEAG Semiconductor Division's net sales. For the year ended
December 31, 1998, sales to one customer accounted for approximately 13% of the
STEAG Semiconductor Division's net sales; sales to the STEAG Semiconductor
Division's top three customers accounted for approximately 29% of net sales.
UMC Microelectronics accounted for approximately 25% and 20% of CFM's net sales
during fiscal 1999 and 1998, respectively. During 1999 and 1998, one and four
customers, respectively, accounted for more than 10% but less than 15% of CFM's
net sales. Although the composition of the group comprising Mattson's largest
customers has varied from year to year, Mattson's top ten customers accounted
for 63% of Mattson's net sales in 1999 and 56% in 1998. Each of Mattson's, the
STEAG Semiconductor Division's, and CFM's systems have represented major
capital investments for its customers, thus the customers and potential
customers of each of Mattson, the STEAG Semiconductor Division, and CFM
purchase or replace the equipment infrequently. Therefore, Mattson's list of
major customers changes substantially from year to year, and Mattson cannot
predict that a major customer in one year will make significant purchases from
it in future years. Accordingly, it is difficult for Mattson to accurately
forecast its revenues and operating results from year to year. While Mattson
will continue to actively pursue new customers, if Mattson is unable to
successfully make significant sales to new customers or sell additional systems
to existing customers, it may not achieve anticipated net sales levels and
Mattson's business and operating results would suffer.
Mattson's lengthy sales cycle increases its costs and reduces the
predictability of its revenue.
Sales of the systems of Mattson, the STEAG Semiconductor Division, and CFM
have depended upon the decision of a prospective customer to increase or
replace manufacturing capacity. That decision typically involves a significant
capital commitment. Accordingly, the purchase of Mattson's, the STEAG
Semiconductor Division's, and CFM's systems typically involves time consuming
internal procedures associated with the evaluation, testing, implementation,
and introduction of new technologies into their customers' manufacturing
facilities. For many potential customers, an evaluation as to whether new
semiconductor manufacturing equipment is needed typically occurs infrequently.
Following an evaluation by the customer as to whether these systems meet their
qualification criteria, each of Mattson, the STEAG Semiconductor Division, and
CFM have experienced in the past and expects to continue to experience in the
future delays in finalizing system sales while their customers evaluate and
receive approval for the purchase of systems and construct new facilities or
expand existing facilities. Due to these factors, the systems of Mattson, the
STEAG Semiconductor Division, and CFM typically have lengthy sales cycles
during which they may have had to expend substantial funds and management
effort. The time between Mattson's first contact with a customer regarding a
specific potential purchase and the customer's placing its first order
typically lasts from nine to twelve months and is often even longer. This
lengthy sales cycle is expected to continue after the consummation of the
Transactions, thus making it difficult to accurately forecast future sales and
potentially causing Mattson's quarterly and annual revenue and operating
results to fluctuate significantly from period to period. If anticipated sales
from a particular customer are not realized in a particular period due to this
lengthy sales cycle, Mattson's operating results may be adversely affected.
Mattson is highly dependent on its international sales, particularly sales in
Asian countries, and if it is unable to sustain and increase its international
sales, Mattson may not achieve anticipated revenue growth.
Asia has been a particularly important region for the businesses of Mattson,
the STEAG Semiconductor Division, and CFM and is expected to continue to be
important for Mattson following the consummation of the Transactions. Sales by
Mattson to Taiwan, Japan, and other Asian countries accounted for 59% of
Mattson's total net sales in 1999, and 50% in 1998, and all international sales
of Mattson accounted for 71% of Mattson's total net sales in 1999 and 67% in
1998. Sales to customers located outside the United States accounted for
approximately 33% of CFM's net sales in fiscal 1999 and 46% in fiscal 1998.
Sales by the STEAG Semiconductor Division to Taiwan, Japan, Singapore, and
Korea together accounted for 41% and 24% of its
20
<PAGE>
net sales in 1999 and 1998, respectively. Mattson anticipates that, following
the consummation of the Transactions, international sales will continue to
account for a significant portion of Mattson's net sales. Because of Mattson's
anticipated continuing dependence upon international sales in general and on
sales to Taiwan, Japan, and other Asian countries in particular, Mattson is
expected to be subject to risk from the effects of regional economic problems.
Asian economies have been highly volatile and prone to recession in recent
years. Mattson's international sales are expected to continue to be subject to
a number of additional risks, including: unexpected changes in law or
regulations resulting in more burdensome governmental controls, tariffs,
restrictions, embargoes, or export license requirements; exchange rate
volatility; political and economic instability, particularly in Asia;
difficulties in accounts receivable collections; extended payment terms beyond
those customarily used in the United States; difficulties in managing
distributors or representatives; difficulties in staffing and managing foreign
subsidiary operations; and potentially adverse tax consequences. The sales to
date of Mattson and CFM have been denominated in U.S. dollars. The sales to
date of the STEAG Semiconductor Division have been denominated in various
currencies, primarily U.S. dollars and German marks. If it becomes necessary
for Mattson to make sales in the future denominated in foreign currencies,
Mattson will become more exposed to the risk of currency fluctuations. With
prices set in U.S. dollars, Mattson's products become less price competitive in
countries with currencies that are declining in value in comparison to the
dollar. This could cause Mattson to lose sales or force Mattson to lower its
prices, which would reduce Mattson's gross margins.
Mattson may not achieve anticipated revenue growth if it is not selected as
"vendor of choice" for new or expanded fabrication facilities and if its
systems and products do not achieve broader market acceptance.
Because semiconductor manufacturers must make a substantial investment to
install and integrate capital equipment into a semiconductor fabrication
facility, these manufacturers will tend to choose semiconductor equipment
manufacturers based on established relationships, product compatibility, and
proven financial performance. Once a semiconductor manufacturer selects a
particular vendor's capital equipment, the manufacturer generally relies for a
significant period of time upon equipment from this "vendor of choice" for the
specific production line application. In addition, the semiconductor
manufacturer frequently will attempt to consolidate its other capital equipment
requirements with the same vendor. Accordingly, Mattson may face narrow windows
of opportunity to be selected as the "vendor of choice" by substantial new
customers. It may be difficult for Mattson to sell to a particular customer for
a significant period of time once that customer selects a competitor's product,
and Mattson may not be successful in obtaining broader acceptance of Mattson's
systems and technology. If Mattson is unable to achieve broader market
acceptance of Mattson's systems and technology, Mattson may be unable to grow
its business and Mattson's operating results and financial condition will be
adversely affected.
Unless Mattson can continue to develop and introduce new systems that compete
effectively on the basis of price and performance following completion of the
Transactions, it may lose future sales and customers, its business may suffer,
and its stock price may decline.
Because of continual changes in the markets in which Mattson, the STEAG
Semiconductor Division, and CFM and their customers compete, Mattson's future
success following completion of the Transactions will depend in part upon its
ability to continue to improve its systems and technologies. These markets are
characterized by rapidly changing technology, evolving industry standards, and
continuous improvements in products and services. Due to the continual changes
in these markets, Mattson's success will also depend upon its ability to
develop new technologies and systems that compete effectively on the basis of
price and performance and that adequately address customer requirements. In
addition, Mattson must adapt its systems and processes to technological changes
and to support emerging target market industry standards. The success of any
new systems Mattson introduces is dependent on a number of factors. These
factors include timely completion of new system designs and market acceptance.
Mattson may not be able to improve its existing systems or develop new
technologies or systems in a timely manner. In particular, the transition of
the market
21
<PAGE>
to 300 millimeter wafers will present Mattson with both an opportunity and a
risk. To the extent that Mattson is unable to introduce 300 millimeter systems
which meet customer requirements on a timely basis, its business could be
harmed. See "Business of Mattson," beginning on page 132 of this joint proxy
statement-prospectus.
The success of new system introductions is dependent on a number of factors,
including timely completion of new system designs, system performance, and
market acceptance, and may be adversely affected by manufacturing
inefficiencies associated with the start up of such new introductions and the
challenge of producing systems in volume which meet customer requirements.
Because it is generally not possible to predict the time required and costs
involved in reaching certain research, development and engineering objectives,
actual development costs could exceed budgeted amounts and estimated product
development schedules may require extension. Any delays or additional
development costs could have a material adverse effect on Mattson's business
and results of operations. There can be no assurance that Mattson will
successfully develop and introduce new products or enhancements to its existing
products on a timely basis or in a manner which satisfies potential customers
or achieves widespread market acceptance.
Because of the complexity of Mattson's, the STEAG Semiconductor Division's,
and CFM's systems, significant delays can occur between the introduction of
systems or system enhancements and the commencement of commercial shipments.
From time to time, Mattson, the STEAG Semiconductor Division, and CFM have
experienced delays in the introduction of, and certain technical and
manufacturing difficulties with, certain systems and enhancements, and may
experience such delays and technical and manufacturing difficulties in future
introductions or volume production of new systems or enhancements. Mattson's
inability to overcome such difficulties, to meet the technical specifications
of any new systems or enhancements, or to manufacture and ship these systems or
enhancements in volume and in a timely manner following consummation of the
Transactions, would materially adversely affect its business and results of
operations, as well as its customer relationships. In addition, Mattson from
time to time may incur unanticipated costs to ensure the functionality and
reliability of Mattson's products early in their life cycles, which costs can
be substantial. If, following consummation of the Transactions, new products or
enhancements experience reliability or quality problems, Mattson could
encounter a number of difficulties, including reduced orders, higher
manufacturing costs, delays in collection of accounts receivable, and
additional service and warranty expenses, all of which could materially
adversely affect Mattson's business and results of operations.
Mattson may not be able to continue to successfully compete in the highly
competitive semiconductor industry.
The semiconductor equipment industry is both highly competitive and subject
to rapid technological change. Significant competitive factors include the
following: system performance; cost of ownership; size of installed base;
breadth of product line; and customer support. The following characteristics of
Mattson's major competitors' systems give them a competitive advantage over
Mattson: broader product lines; longer operating history; greater experience
with high volume manufacturing; broader name recognition; substantially larger
customer bases; and substantially greater financial, technical, and marketing
resources. In addition, to expand its sales Mattson must often replace the
systems of its competitors or sell new systems to customers of its competitors.
Mattson's competitors may develop new or enhanced competitive products that
will offer price or performance features that are superior to Mattson's
systems. Mattson's competitors may also be able to respond more quickly to new
or emerging technologies and changes in customer requirements, or to devote
greater resources to the development, promotion, and sale of their product
lines. Mattson may not be able to maintain or expand its sales if competition
increases and Mattson is unable to respond effectively.
Mattson depends upon a limited number of suppliers for many components and
subassemblies, and supply shortages or the loss of these suppliers could result
in increased cost or delays in manufacture and sale of its products.
After the consummation of the Transactions, Mattson may rely to a
substantial extent on outside vendors to manufacture many of the components and
subassemblies of its systems. Mattson may obtain many of these
22
<PAGE>
components and subassemblies from a sole source or a limited group of
suppliers. Because of its anticipated reliance on outside vendors generally,
and on a sole or a limited group of suppliers in particular, Mattson may be
unable to obtain an adequate supply of required components. In addition,
Mattson may have reduced control over pricing and timely delivery of
components. Mattson often quotes prices to its customers and accepts customer
orders for its products prior to purchasing components and subassemblies from
its suppliers. If Mattson's suppliers increase the cost of components or
subassemblies, Mattson may not have alternative sources of supply and may not
be able to raise the cost of the system being evaluated by its customers to
cover all or part of the increased cost of components. The manufacture of some
of these components and subassemblies is an extremely complex process and
requires long lead times. As a result, Mattson, the STEAG Semiconductor
Division, and CFM have in the past and Mattson may in the future experience
delays or shortages. If Mattson is unable to obtain adequate and timely
deliveries of Mattson's required components or subassemblies, it may have to
seek alternative sources of supply or manufacture such components internally.
This could delay Mattson's ability to manufacture or timely ship its systems,
causing it to lose sales, incur additional costs, delay new product
introductions, and harm its reputation.
To effectively manage its growth and greatly expanded operations following the
completion of the Transactions, Mattson will need to improve existing and
implement new systems, procedures, and controls.
After the consummation of the Transactions, Mattson will experience a period
of rapid growth and expansion, including operations in new geographic
locations, that may place a significant strain on its management information
systems and its administrative, financial, and operational resources. Mattson
is currently undertaking a significant expansion of its operations to support
increased sales levels of its strip, CVD, and RTP products as a result of the
recent economic improvement in the semiconductor industry, including the
expansion of Mattson's international operations and a transition to direct
sales operations in Japan. Mattson is making additional significant investments
in research and development to support product development, and intends to
continue to do so following completion of the Transactions. This expansion will
continue to result in substantial demands on Mattson's management resources. To
accommodate continued anticipated growth and expansion following completion of
the Transactions, Mattson will be required to: improve existing, and implement
new, operational and financial systems, procedures, and controls; hire, train,
manage, retain, and motivate qualified personnel; and obtain additional
facilities and suppliers. These measures may place additional burdens on
Mattson's management and internal resources.
If Mattson does not have sufficient CVD evaluation systems available to its
customers, it may miss sales opportunities.
Mattson has experienced increased interest in evaluation of its CVD
products. In the past, during periods of high growth, Mattson has been
constrained by a lack of available CVD evaluation units for timely delivery to
prospective customers. If Mattson is not able to make a sufficient number of
evaluation systems available when requested, potential customers may not be
able to evaluate Mattson's products before making equipment purchase decisions
and Mattson may miss opportunities to make sales, causing Mattson's growth to
be adversely affected.
Mattson is highly dependent on its key personnel to manage its business and
their knowledge of Mattson's business, management skills, and technical
expertise would be difficult to replace.
Mattson's success after completion of the Transactions will depend to a
large extent upon the efforts and abilities of Brad Mattson, Mattson's current
chairman and chief executive officer, current Mattson management and technical
staff, as well as key managerial and technical employees of the STEAG
Semiconductor Division and CFM who will join Mattson in connection with the
Transactions, any of whom would be difficult to replace. The loss of Mr.
Mattson or other key employees could limit or delay Mattson's ability to
develop new products and adapt existing products to Mattson's customers'
evolving requirements and result in lost sales and diversion of management
resources. Other than Roger Carolin, following consummation of the merger, none
of Mattson's executive officers are bound by a written employment agreement and
Mattson's relationships with its officers are at will.
23
<PAGE>
Because of competition for additional qualified personnel, Mattson may not be
able to recruit or retain necessary personnel, which could impede development
or sales of its products.
Mattson's growth after completion of the Transactions will depend on its
ability to attract and retain qualified, experienced employees. There is
substantial competition for experienced engineering, technical, financial,
sales, and marketing personnel in Mattson's industry. In particular, Mattson
must attract and retain highly skilled design and process engineers.
Competition for such personnel is intense in every Mattson location, but
particularly in the San Francisco Bay Area where Mattson's headquarters is
located. If Mattson is unable to retain existing key personnel, including key
personnel of the STEAG Semiconductor Division and CFM, or attract and retain
additional qualified personnel, Mattson may from time to time experience
inadequate levels of staffing to develop and market its products and perform
services for its customers. As a result, Mattson's growth could be limited due
to its lack of capacity to develop and market its products to its customers, or
Mattson could fail to meet its delivery commitments or experience deterioration
in service levels or decreased customer satisfaction.
If Mattson is unable to protect its intellectual property, it may lose a
valuable asset and experience reduced market share. In the effort to protect
its proprietary technology, Mattson may fail to prevail in existing litigation
or experience additional costly litigation, including pending litigation
involving CFM.
Mattson will rely on a combination of patents, copyrights, trademark and
trade secret laws, non-disclosure agreements, and other intellectual property
protection methods to protect its proprietary technology. Despite Mattson's
efforts to protect its intellectual property, Mattson's competitors may be able
to legitimately ascertain the non-patented proprietary technology embedded in
Mattson's systems. If this occurs, Mattson may not be able to prevent the use
of such technology. Mattson's means of protecting its proprietary rights may
not be adequate and its patents may not be sufficiently broad to protect its
technology. In addition, any other patents owned by Mattson could be
challenged, invalidated, or circumvented and any rights granted under any
patent may not provide adequate protection to Mattson. Furthermore, Mattson may
not have sufficient resources to protect its rights. Mattson's competitors may
independently develop similar technology, duplicate Mattson's products, or
design around patents that may be issued to Mattson. In addition, the laws of
some foreign countries may not protect Mattson's proprietary rights to as great
an extent as do the laws of the United States and it may be more difficult to
monitor the use of Mattson's products in such foreign countries. As a result of
these threats to Mattson's proprietary technology, Mattson may have to resort
to additional costly litigation to enforce its intellectual property rights.
CFM is currently litigating three ongoing cases involving CFM's intellectual
property. See "Business of CFM--Litigation," beginning on page 182 of this
joint proxy statement-prospectus. If these litigation matters are still ongoing
at the time of closing of the merger, Mattson will succeed to such litigation.
As a result of such litigation, Mattson may incur significant and ongoing legal
costs. There can be no assurance as to the outcome of such litigation. Defenses
or counterclaims in these proceedings could result in the nullification of any
or all of the subject CFM patents.
Mattson might face intellectual property infringement claims that may be costly
to resolve and could divert management attention, including the potential for
patent infringement litigation as a result of Mattson's increased market
strength in RTP and entry into the wet processing market.
Mattson may from time to time be subject to claims of infringement of other
parties' proprietary rights. Certain STEAG Semiconductor Subsidiaries have in
the past been sued by competitors alleging infringement of such competitors'
patents. See "Business of the STEAG Semiconductor Division--General--
Litigation," beginning on page 162 of this joint proxy statement-prospectus.
Although all of such lawsuits have been settled or terminated, the risk of
further intellectual property litigation for Mattson may be increased following
the completion of the Transactions. Mattson's involvement in any patent dispute
or other intellectual property dispute or action to protect trade secrets, even
if the claims are without merit, could be very expensive to defend and could
divert the attention of Mattson's management.
24
<PAGE>
Adverse determinations in any litigation could subject Mattson to significant
liabilities to third parties, require Mattson to seek costly licenses from
third parties, and prevent Mattson from manufacturing and selling Mattson's
products. Any of these situations could have a material adverse effect on
Mattson's business and operating results in one or more countries.
Mattson's failure to comply with environmental regulations could result in
substantial liability.
Following the consummation of the Transactions, Mattson will continue to be
subject to a variety of federal, state, local, and foreign laws, rules, and
regulations relating to environmental protection. These laws, rules, and
regulations govern the use, storage, discharge, and disposal of hazardous
chemicals during manufacturing, research and development and sales
demonstrations. If Mattson fails to comply with present or future regulations,
Mattson could be subject to substantial liability for clean up efforts,
personal injury, and fines or suspension or cessation of Mattson's operations
and, after the Transactions, Mattson may be exposed to liability if there are
past or future violations by CFM or the STEAG Semiconductor Subsidiaries.
Restrictions on Mattson's ability to expand or continue to operate its, CFM's
or the STEAG Semiconductor Division's present locations could be imposed upon
Mattson or Mattson could be required to acquire costly remediation equipment or
incur other significant expenses.
The price of Mattson's common stock has fluctuated in the past and may continue
to fluctuate significantly in the future, which may lead to losses by investors
or to securities litigation.
The market price of Mattson's common stock has been highly volatile in the
past, and Mattson's stock price may decline in the future. Mattson believes
that a number of factors could cause the price of its common stock to
fluctuate, perhaps substantially, including: general conditions in the
semiconductor industry or in the worldwide economy; announcements of
developments related to Mattson's business; fluctuations in Mattson's operating
results and order levels; announcements of technological innovations by Mattson
or by its competitors; new products or product enhancements by Mattson or by
its competitors; developments in patent litigation or other intellectual
property rights; or developments in Mattson's relationships with its customers,
distributors, and suppliers. In addition, in recent years the stock market in
general, and the market for shares of high technology stocks in particular,
have experienced extreme price fluctuations. These fluctuations have frequently
been unrelated to the operating performance of the affected companies. Such
fluctuations could adversely affect the market price of Mattson's common stock.
In the past, securities class action litigation has often been instituted
against a company following periods of volatility in its stock price. This type
of litigation, if filed against Mattson, could result in substantial costs and
divert Mattson's management's attention and resources.
Any future business acquisitions may disrupt Mattson's business, dilute
stockholder value, or distract management attention.
As part of Mattson's ongoing business strategy, Mattson may consider
additional acquisitions of, or significant investments in, businesses that
offer products, services, and technologies complementary to its own. Such
acquisitions could materially adversely affect Mattson's operating results
and/or the price of Mattson's common stock. Acquisitions also entail numerous
risks, including: difficulty of assimilating the operations, products, and
personnel of the acquired businesses; potential disruption of Mattson's ongoing
business; unanticipated costs associated with the acquisition; inability of
management to manage the financial and strategic position of acquired or
developed products, services, and technologies; inability to maintain uniform
standards, controls, policies, and procedures; and impairment of relationships
with employees and customers which may occur as a result of integration of the
acquired business. To the extent that shares of Mattson's stock or other rights
to purchase stock are issued in connection with any future acquisitions,
dilution to Mattson's existing stockholders will result and Mattson's earnings
per share may suffer. Any future acquisitions may not generate additional
revenue or provide any benefit to Mattson's business, and Mattson may not
achieve a satisfactory return on its investment in any acquired businesses.
25
<PAGE>
MATTSON SELECTED HISTORICAL FINANCIAL INFORMATION
The following table presents selected historical financial information for
Mattson for each of the fiscal years ended December 31, 1995 through 1999 and
for the unaudited six months ended June 27, 1999 and June 25, 2000. The
information for the fiscal year ended December 31, 1999 has been derived from
Mattson's consolidated financial statements, which have been audited by Arthur
Andersen, independent public accountants. The information for each of the
fiscal years ended December 31, 1995 through 1998 has been derived from
Mattson's consolidated financial statements which have been audited by
PricewaterhouseCoopers LLP, independent public accountants, through 1998. For
additional information regarding plans and objectives of management for future
operations and financial condition and results of operations, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in Mattson's annual report on Form 10-K for the fiscal year ended
December 31, 1999 and its quarterly reports on Form 10-Q for the quarters ended
March 31, 2000 and June 30, 2000, incorporated by reference in this joint proxy
statement-prospectus. The information set forth below has been derived from,
and is qualified by reference to, and should be read in conjunction with, the
consolidated financial statements and related notes included in Mattson's
annual report on Form 10-K for the fiscal year ended December 31, 1999 and its
quarterly reports on Form 10-Q for the quarters ended March 31, 2000 and June
30, 2000 incorporated by reference in this joint proxy statement-prospectus.
Historical results are not necessarily indicative of results to be expected in
any future period.
<TABLE>
<CAPTION>
Six Months
Ended(1)
Year Ended December 31,(1) (unaudited)
------------------------------------------- ------------------
June 27, June 25,
1995 1996 1997 1998 1999 1999 2000
-------- ------- ------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net sales............... $ 55,342 $73,260 $76,730 $ 59,186 $103,458 $38,448 $92,711
Cost of sales........... 24,958 33,231 37,130 37,595 53,472 19,824 46,170
-------- ------- ------- -------- -------- ------- -------
Gross profit............ 30,384 40,029 39,600 21,591 49,986 18,624 46,541
-------- ------- ------- -------- -------- ------- -------
Operating expenses:
Research, development
and engineering....... 6,330 11,507 14,709 16,670 19,547 8,423 13,165
Selling, general and
administrative........ 11,416 20,900 24,495 24,542 31,784 13,137 23,630
Acquired in-process
research and
development........... -- -- -- 4,220 -- --
-------- ------- ------- -------- -------- ------- -------
Total operating
expenses............ 17,746 32,407 39,204 45,432 51,331 21,560 36,795
-------- ------- ------- -------- -------- ------- -------
Income (loss) from
operations............. 12,638 7,622 396 (23,841) (1,345) (2,936) 9,746
Interest and other
income, net............ 1,906 2,027 1,486 1,811 743 426 1,909
-------- ------- ------- -------- -------- ------- -------
Income (loss) before
provision for income
taxes.................. 14,544 9,649 1,882 (22,030) (602) (2,510) 11,655
Provision for income
taxes.................. 4,052 3,184 451 337 247 117 1,165
-------- ------- ------- -------- -------- ------- -------
Net income (loss)....... $ 10,492 $ 6,465 $ 1,431 $(22,367) $ (849) $(2,627) $10,490
======== ======= ======= ======== ======== ======= =======
Net income (loss) per
share:
Basic.................. $ 0.80 $ 0.46 $ 0.10 $ (1.52) $ (0.05) $ (0.17) $ 0.57
Diluted................ $ 0.71 $ 0.42 $ 0.09 $ (1.52) $ (0.05) $ (0.17) $ 0.51
Shares used in computing
net income loss per
share:
Basic.................. 13,109 13,997 14,117 14,720 15,730 15,512 18,370
Diluted................ 14,854 15,275 15,311 14,720 15,730 15,512 20,422
</TABLE>
--------
(1) Mattson paid no cash dividends during the five-year period and six months
interim periods.
<TABLE>
<CAPTION>
As of December 31, As of June 25,
--------------------------------------- 2000
1995 1996 1997 1998 1999 (unaudited)
------- ------- ------- ------- ------- --------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash and cash
equivalents............ $14,310 $21,547 $25,583 $11,863 $16,965 $125,493
Working capital......... 56,425 56,780 56,996 31,034 37,009 174,064
Total assets............ 74,089 84,489 84,443 68,120 81,148 221,208
Total stockholders'
equity................. 61,076 69,115 68,184 49,880 52,019 189,435
</TABLE>
26
<PAGE>
STEAG SEMICONDUCTOR DIVISION SELECTED HISTORICAL FINANCIAL INFORMATION
The following table presents selected historical financial data for the
STEAG Semiconductor Division for each of the years ended December 31, 1995
through 1999 and for the six month periods ended June 30, 1999 and 2000. The
information with respect to the years ended December 31, 1998 and 1999 has been
derived from the Combined Financial Statements of the STEAG Semiconductor
Division, which have been audited by Arthur Andersen, LLP, independent public
accountants, and which appear elsewhere in this joint proxy statement-
prospectus. The information with respect to the years ended December 31, 1995,
1996, and 1997 has been derived from the unaudited financial statements of the
STEAG Semiconductor Subsidiaries incorporated or organized in the U.S. or
Germany and does not include the financial results of the STEAG Semiconductor
Division's foreign sales and service subsidiaries during such periods. In
addition, the information with regard to such earlier years was prepared in
accordance with German generally accepted accounting principles and,
accordingly, is not directly comparable to the other financial information for
the STEAG Semiconductor Division presented elsewhere in this joint proxy
statement-prospectus, all of which was prepared in accordance with U.S.
generally accepted accounting principles. The information with respect to the
six months ended June 30, 1999 and 2000 has been derived from the unaudited
Combined Financial Statements of the STEAG Semiconductor Division for such
periods, which appear elsewhere in this joint proxy statement-prospectus.
Historical results are not necessarily indicative of results to be expected in
any future period.
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
(in thousands) (in thousands)
------------------------------------------------------ ------------------
1995 1996 1997 1998 1999 1999 2000
----------- ----------- ----------- -------- -------- -------- --------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales .............. $95,072 $151,012 $174,292 $108,865 $146,847 $ 56,000 $115,271
Income (loss) from
continuing operations.. 1,368 12,166 (10,938) (22,751) (51,462) (34,656) (10,850)
<CAPTION>
As of December 31, As of June 30,
(in thousands) (in thousands)
------------------------------------------------------ ------------------
1995 1996 1997 1998 1999 1999 2000
----------- ----------- ----------- -------- -------- -------- --------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets............ 88,554 131,842 130,065 144,806 198,105 189,814 260,719
Long-term obligations
(including long-term
debt, capital leases,
and redeemable
preferred stock)....... 7,957 12,652 10,895 9,685 19,424 24,107 1,034
</TABLE>
27
<PAGE>
CFM SELECTED HISTORICAL FINANCIAL INFORMATION
The following table presents selected historical consolidated financial
information for CFM for each of the fiscal years ended October 31, 1995 through
1999 and for the unaudited nine months ended July 31, 1999 and 2000. The
consolidated statement of operations data for the fiscal years ended October
31, 1997, 1998 and 1999 and the consolidated balance sheet data as of October
31, 1998 and 1999 have been derived from the CFM consolidated financial
statements which have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report included elsewhere herein. The
consolidated statement of operations data for the fiscal years ended October
31, 1995 and 1996 and the consolidated balance sheet data as of October 31,
1995, 1996 and 1997 have been derived from the CFM consolidated financial
statements which have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports not included herein. The
consolidated statement of operations data for the nine months ended July 31,
1999 and 2000 and the consolidated balance sheet data as of July 31, 2000 have
been derived from unaudited financial statements. The unaudited financial
statements include all adjustments, consisting only of normal adjustments, that
CFM considers necessary for a fair presentation of the financial position and
results of operations for such periods. For additional information regarding
plans and objectives of management for future operations and financial
condition and results of operations, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included in CFM's annual
report on Form 10-K for the fiscal year ended October 31, 1999 and its
quarterly reports on Form 10-Q for the quarters ended January 31, 2000, April
30, 2000, and July 31, 2000 incorporated by reference in this joint proxy
statement-prospectus. The information set forth below has been derived from and
is qualified by reference to and should be read in conjunction with the
consolidated financial statements and related notes included in CFM's annual
report on Form 10-K for the fiscal year ended October 31, 1999 and its
quarterly reports on Form 10-Q for the quarters ended January 31, 2000, April
30, 2000, and July 31, 2000 incorporated by reference in this joint proxy
statement-prospectus. Historical results are not necessarily indicative of
results to be expected in any future period.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended October 31, ------------------
-------------------------------------------- July 31, July 31,
1995 1996 1997 1998 1999 1999 2000
------- ------- ------- -------- -------- -------- --------
(in thousands, except per share data) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net sales............... $23,430 $44,013 $75,772 $ 33,155 $ 31,563 $22,396 $ 37,678
Cost of sales........... 13,463 23,317 40,072 24,426 20,997 15,169 23,923
------- ------- ------- -------- -------- ------- --------
Gross Profit............ 9,967 20,696 35,700 8,729 10,566 7,227 13,755
------- ------- ------- -------- -------- ------- --------
Operating expenses:
Research, development
and engineering....... 1,717 4,375 9,334 11,496 10,040 7,674 7,181
Selling, general and
administrative........ 5,972 11,679 19,360 17,568 17,812 12,738 18,169
------- ------- ------- -------- -------- ------- --------
Total operating
expenses............ 7,689 16,054 28,694 29,064 27,852 20,412 25,350
------- ------- ------- -------- -------- ------- --------
Income (loss) from
operations............. 2,278 4,642 7,006 (20,335) (17,286) (13,185) (11,595)
Interest income, net.... (173) (157) 1,882 1,806 1,409 1,106 565
------- ------- ------- -------- -------- ------- --------
Income (loss) before
provision for income
taxes.................. 2,105 4,485 8,888 (18,529) (15,877) (12,079) (11,030)
Income tax provision
(benefit).............. 703 1,525 2,666 (6,746) (5,398) (4,107) 11,397
------- ------- ------- -------- -------- ------- --------
Net income (loss)....... $ 1,402 $ 2,960 $ 6,222 $(11,783) $(10,479) $(7,972) $(22,427)
======= ======= ======= ======== ======== ======= ========
Net income (loss) per
share:
Basic.................. $ 0.37 $ 0.64 $ 0.85 $ (1.49) $ (1.34) $ (1.01) $ (2.85)
Diluted................ $ 0.35 $ 0.61 $ 0.80 $ (1.49) $ (1.34) $ (1.01) $ (2.85)
Shares used in computing
net income (loss) per
share:
Basic.................. 3,802 4,624 7,318 7,908 7,849 7,859 7,865
Diluted................ 3,994 4,831 7,764 7,908 7,849 7,859 7,865
</TABLE>
<TABLE>
<CAPTION>
As of October 31, As of
-------------------------------------- July 31,
1995 1996 1997 1998 1999 2000
------ ------- ------- ------- ------- -----------
(in thousands) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA:
Cash, cash equivalents and
short-term investments.... $ 408 $12,254 $46,181 $41,394 $24,216 $13,814
Working capital............ 8,136 27,525 81,796 64,266 45,070 32,279
Total assets............... 18,454 44,251 109,496 89,813 82,086 58,326
Long-term debt, less
current portion........... 3,005 2,525 2,571 2,186 1,628 1,252
Total shareholders'
equity.................... 9,775 32,711 89,868 77,782 66,693 44,708
</TABLE>
28
<PAGE>
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
Overview
As of June 27, 2000, Mattson reached a definitive agreement to acquire from
STEAG the STEAG Semiconductor Division and entered into a merger agreement to
acquire CFM. Both Transactions are to be accounted for using the purchase
method of accounting. Mattson will issue 11,850,000 shares of Mattson common
stock for the purchase of the STEAG Semiconductor Division. Mattson will issue
0.5223 shares of Mattson common stock for each issued and outstanding share of
CFM common stock on the closing date and assume all outstanding CFM stock
options based on the same exchange ratio. Mattson also anticipates incurring
approximately $4.7 million in acquisition expenses, including financial
advisory and legal fees and other direct transaction costs, which will also be
included as a component of the purchase price. The allocation of the aggregate
purchase price of approximately $423.7 million for the STEAG Semiconductor
Division and $154.6 million for CFM will be finalized following receipt of the
closing balance sheet and a final independent appraisal of certain tangible and
intangible assets of both companies. It is expected that a portion of the
purchase price will be allocated to in-process research and development, which
will be expensed at the time of acquisition as a one time charge. The
allocation to in-process research and development, which will be made by
independent appraisal, is not included in the accompanying unaudited pro forma
combined condensed balance sheet or statements of operations.
The accompanying unaudited pro forma combined condensed balance sheet gives
effect to Mattson's business combination with the STEAG Semiconductor Division,
and its merger with CFM as if the Transactions occurred on June 25, 2000. The
unaudited pro forma combined condensed balance sheet combines the unaudited
consolidated balance sheet of Mattson as of June 25, 2000, the unaudited
combined balance sheet of the STEAG Semiconductor Division as of June 30, 2000,
and the unaudited consolidated balance sheet of CFM as of July 31, 2000.
The accompanying unaudited pro forma combined condensed statements of
operations present the results of operations of Mattson for the year ended
December 31, 1999 and the six-month period ended June 25, 2000, combined with
the combined statements of operations of the STEAG Semiconductor Division for
the year ended December 31, 1999 and the six-month period ended June 30, 2000
(unaudited), and statements of operations of CFM for the year ended October 31,
1999 and the six-month period ended July 31, 2000 (unaudited). The unaudited
pro forma combined condensed statements of operations give effect to the
Transactions as if they had occurred as of January 1, 1999.
The unaudited pro forma combined condensed balance sheet and statements of
operations are not necessarily indicative of the financial position and
operating results that would have been achieved had the Transactions been in
effect as of the dates indicated and should not be construed as being a
representation of financial position or future operating results of the
combined companies.
The unaudited pro forma combined condensed financial information should be
read in conjunction with the consolidated financial statements and related
notes of Mattson and CFM and the combined financial statements and related
notes of the STEAG Semiconductor Division, which are included and/or
incorporated in this joint proxy statement-prospectus by reference.
29
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
Historical Pro forma adjustments
------------------------------- -----------------------
STEAG
Semiconductor
Mattson Division CFM
--------- ------------- -------
As of
As of July STEAG Pro
June 25, As of June 31, Semiconductor forma
2000 30, 2000 2000 Division (A) CFM (C) combined
--------- ------------- ------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
------
Current assets:
Cash and cash
equivalents.......... $ 125,493 $ 23,992 $10,149 $ -- $ -- $159,634
Short-term
investments.......... -- -- 3,665 -- -- 3,665
Receivables, net of
allowances........... 41,432 77,434 14,940 -- -- 133,806
Inventories........... 36,516 66,510 15,210 -- -- 118,236
Prepaid expenses and
other current
assets............... 2,396 10,385 681 -- 184(C) 13,646
--------- -------- ------- -------- -------- --------
Total current
assets............. 205,837 178,321 44,645 -- 184 428,987
Property and equipment,
net.................... 11,450 29,859 13,367 -- -- 54,676
Goodwill & Other
intangible assets.... 3,674 51,538 -- (51,538) 109,942(D) 399,609
285,993(B)
Other long term
assets............... 247 1,001 314 -- -- 1,562
--------- -------- ------- -------- -------- --------
Total Assets........ $ 221,208 $260,719 $58,326 $234,455 $110,126 $884,834
========= ======== ======= ======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
--------------------
Current liabilities:
Accounts payable...... $ 10,193 $ 22,642 $ 2,845 $ -- $ -- $ 35,680
Accrued liabilities... 21,580 33,788 8,976 3,304(E) 1,416(E) 69,064
Current portion of
long-term debt....... -- 7,481 545 -- -- 8,026
Deferred revenue...... -- 6,464 -- -- -- 6,464
--------- -------- ------- -------- -------- --------
Total current
liabilities........ 31,773 70,375 12,366 3,304 1,416 119,234
Total long term
liabilities.......... -- 1,034 1,252 -- -- 2,286
--------- -------- ------- -------- -------- --------
Total liabilities... 31,773 71,409 13,618 3,304 1,416 121,520
--------- -------- ------- -------- -------- --------
Total stockholders'
equity................. 189,435 189,310 44,708 231,151 108,710 763,314
--------- -------- ------- -------- -------- --------
$ 221,208 $260,719 $58,326 $234,455 $110,126 $884,834
========= ======== ======= ======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
information on page 33 of this joint proxy statement-prospectus.
30
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Historical
Six Months Ended
------------------------------
STEAG
Semiconductor
Mattson Division CFM
------- ------------- -------- Pro forma Adjustments
------------------------
June STEAG
25, June 30, July 31, Semiconductor Combined
2000 2000 2000 Division CFM Pro forma
------- ------------- -------- ------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $92,711 $115,271 $ 24,972 $ -- $ -- $232,954
Cost of sales........... 46,170 58,308 16,143 -- -- 120,621
------- -------- -------- -------- -------- --------
Gross profit............ 46,541 56,963 8,829 -- -- 112,333
Operating expenses:
Research, development
& engineering........ 13,165 20,629 4,684 -- -- 38,478
Selling, general &
administrative....... 23,280 34,372 12,000 -- -- 69,652
Amortization of
goodwill and
intangibles.......... 350 8,210 -- 28,599 (F) 10,994 (F) 48,153
------- -------- -------- -------- -------- --------
Total operating
expenses........... 36,795 63,211 16,684 28,599 10,994 156,283
------- -------- -------- -------- -------- --------
Income (loss) from
operations............. 9,746 (6,248) (7,855) (28,599) (10,994) (43,950)
Interest and other
income (expense), net.. 1,909 (1,400) 299 -- -- 808
------- -------- -------- -------- -------- --------
Income (loss) before
income taxes........... 11,655 (7,648) (7,556) (28,599) (10,994) (43,142)
Provision for income
taxes.................. 1,165 3,202 12,578 -- -- 16,945
------- -------- -------- -------- -------- --------
Net income (loss)....... $10,490 $(10,850) $(20,134) $(28,599) $(10,994) $(60,087)
======= ======== ======== ======== ======== ========
Net income (loss) per
share:
Basic................. $ 0.57 -- $ (2.56) $ (1.75)
======= ======== ======== ========
Diluted............... $ 0.51 -- $ (2.56) $ (1.75)
======= ======== ======== ========
Weighted average shares
outstanding:
Basic................. 18,370 -- 7,865 11,850 4,100 34,320
======= ======== ======== ======== ======== ========
Diluted............... 20,422 -- 7,865 11,850 4,100 34,320
======= ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
information on page 33 of this joint proxy statement-prospectus.
31
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Historical
Year Ended
--------------------------------------
STEAG
Semiconductor
Mattson Division CFM
------------ ------------- ----------- Proforma Adjustments
-----------------------
STEAG
December 31, December 31, October 31, Semiconductor Combined
1999 1999 1999 Division CFM Pro forma
------------ ------------- ----------- ------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $103,458 $146,847 $ 31,563 $ -- $ -- $ 281,868
Cost of sales .......... 53,472 109,352 20,997 -- -- 183,821
-------- -------- -------- -------- -------- ---------
Gross profit ........... 49,986 37,495 10,566 -- -- 98,047
Operating expenses:
Research, development
& engineering ....... 19,547 30,642 10,040 -- -- 60,229
Selling, general &
administrative ...... 31,084 46,470 17,812 -- -- 95,366
Amortization of
goodwill and
intangibles.......... 700 13,279 -- 57,198(F) 21,988(F) 93,165
-------- -------- -------- -------- -------- ---------
Total operating
expenses .......... 51,331 90,391 27,852 57,198 21,988 248,760
-------- -------- -------- -------- -------- ---------
Loss from operations ... (1,345) (52,896) (17,286) (57,198) (21,988) (150,713)
Interest and other
income (expense), net
....................... 743 (4,376) 1,409 -- -- (2,224)
-------- -------- -------- -------- -------- ---------
Loss before income taxes
....................... (602) (57,272) (15,877) (57,198) (21,988) (152,937)
Provision for (benefit
from) income taxes .... 247 (5,810) (5,398) -- -- (10,961)
-------- -------- -------- -------- -------- ---------
Net loss................ $ (849) $(51,462) $(10,479) $(57,198) $(21,988) $(141,976)
======== ======== ======== ======== ======== =========
Net loss per share:
Basic ................ $ (0.05) $ -- $ (1.34) $ (4.48)
======== ======== ======== =========
Diluted $ (0.05) $ -- $ (1.34) $ (4.48)
======== ======== ======== =========
Weighted average shares
outstanding:
Basic................. 15,730 -- 7,849 11,850 4,100 31,680
======== ======== ======== ======== ======== =========
Diluted............... 15,730 -- 7,849 11,850 4,100 31,680
======== ======== ======== ======== ======== =========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
information on page 33 of this joint proxy statement-prospectus.
32
<PAGE>
NOTES TO UNAUDITED COMBINED CONDENSED
PRO FORMA FINANCIAL INFORMATION
(A) For purposes of these unaudited pro forma financial statements, the
purchase price of the STEAG Semiconductor Division acquisition was calculated
based on the average closing market price of Mattson common stock from June 23,
2000 through July 1, 2000. The total purchase price includes consideration of
11,850,000 shares of Mattson common stock and estimated direct acquisition
related costs of the STEAG Semiconductor Division purchase.
The total purchase price of the STEAG Semiconductor Division acquisition is
calculated as follows (in thousands):
<TABLE>
<S> <C>
Value of Mattson common shares issued (11,850,000 shares at
$35.48 per share)............................................... $420,461
Estimated direct acquisition related costs....................... 3,304
--------
Total purchase price............................................. $423,765
========
</TABLE>
(B) The preliminary calculation of the excess cost over fair value of the
net assets acquired (goodwill) for the STEAG Semiconductor Division is as
follows (in thousands):
<TABLE>
<S> <C>
Total purchase price of the STEAG Semiconductor Division: $423,765
Estimated fair value of net assets acquired:
historical net book value at June 30, 2000 (excluding historical
goodwill of $51,538)........................................... (137,772)
--------
Estimated goodwill................................................ $285,993
========
</TABLE>
(C) For purposes of these unaudited pro forma financial statements, the
purchase price of the CFM acquisition was calculated based on the average
closing market price of Mattson common stock from June 23, 2000 through July 1,
2000. The total purchase price includes consideration of 0.5223 shares of
Mattson common stock for each share of CFM common stock outstanding, fair value
associated with the assumption of CFM stock options using the same exchange
ratio, and estimated direct acquisition related costs of the CFM purchase, less
the intrinsic value of assumed unvested CFM stock options, which will be
accounted for as prepaid compensation.
The total purchase price of the CFM acquisition is calculated as follows (in
thousands):
<TABLE>
<S> <C>
Value of Mattson common shares issued (4,100,000 shares at
$35.48 per share).............................................. $145,924
Fair value associated with assumption of vested CFM stock
options........................................................ 6,547
Fair value associated with assumption of unvested CFM stock
options........................................................ 947
Less: intrinsic value of assumed unvested CFM stock options..... (184)
Estimated direct acquisition related costs...................... 1,416
--------
Total estimated purchase price.................................. $154,650
========
</TABLE>
(D) The preliminary calculation of the excess cost over fair value of the
net assets acquired (goodwill) for CFM is as follows:
<TABLE>
<S> <C>
Total purchase price of CFM: $154,650
Estimated fair value of net assets acquired:
historical net book value at July 31, 2000...................... (44,708)
--------
Estimated goodwill.................................................. $109,942
========
</TABLE>
(E) Preliminary purchase accounting adjustment to reflect estimated direct
acquisition related costs.
(F) To record amortization of goodwill using an estimated average
amortization period of 5 years.
33
<PAGE>
MARKET PRICE DATA AND DIVIDEND POLICY
Mattson common stock and CFM common stock are included in the National
Association of Securities Dealers Automated Quotation System and designated on
the Nasdaq under the symbols "MTSN" and "CFMT," respectively. This table sets
forth, for the calendar quarters indicated, the range of high and low per share
sales prices for Mattson common stock and CFM common stock as reported by
Nasdaq. Each STEAG Semiconductor Subsidiary is directly or indirectly wholly
owned by STEAG, which is a privately held German corporation whose shares are
not publicly traded or listed on any stock exchange.
<TABLE>
<CAPTION>
MTSN CFMT
--------------- --------------
High Low High Low
-------- ------ ------- ------
<S> <C> <C> <C> <C>
2000
First Quarter.................................... $45.6875 $15.75 $ 15.75 $8.875
Second Quarter................................... 50.50 27.00 17.00 6.75
1999
First Quarter.................................... $ 10.125 $ 5.50 $ 13.00 $ 7.00
Second Quarter................................... 13.375 5.75 11.125 6.625
Third Quarter.................................... 15.375 10.00 11.00 7.00
Fourth Quarter................................... 18.25 11.00 12.50 7.8125
1998
First Quarter.................................... $ 10.00 $ 6.00 $19.375 $10.75
Second Quarter................................... 7.8125 5.125 15.00 8.25
Third Quarter.................................... 6.1875 2.9062 15.00 5.50
Fourth Quarter................................... 7.750 2.75 11.25 6.25
1997
First Quarter.................................... $ 12.00 $9.125 $ 41.75 $20.75
Second Quarter................................... 11.125 7.25 38.625 25.75
Third Quarter.................................... 16.25 10.25 40.875 22.625
Fourth Quarter................................... 15.00 6.9375 39.750 13.50
</TABLE>
The following table sets forth the closing per share sales price of Mattson
common stock and CFM common stock, as reported on Nasdaq, and the estimated
equivalent per share price, as explained below, of Mattson common stock on June
27, 2000, the last trading day before the public announcement of the
Transactions, and on October , 2000:
<TABLE>
<CAPTION>
Estimated
Equivalent
Per Share
MTSN CFMT Price
-------- ------- ----------
<S> <C> <C> <C>
June 27, 2000....................................... $39.4375 $14.375 $20.5982
October 4, 2000..................................... $ 13.75 $ 7.125 $ 7.1816
</TABLE>
The estimated equivalent per share price of a share of CFM common stock
based on a Mattson share price of $39.4375 equals the exchange ratio of 0.5223
multiplied by the price of a share of Mattson common stock. If the merger had
occurred on June 27, 2000, CFM shareholders would have received a fraction of a
share of Mattson common stock worth approximately $20.5982 per share for each
share of CFM common stock CFM shareholders owned. If the merger had occurred on
October 4, 2000, CFM shareholders would have received a fraction of a share of
Mattson common stock worth approximately $7.1816 per share for each share of
CFM common stock CFM shareholders owned. The actual equivalent per share price
of a share of Mattson common stock that CFM shareholders would receive if the
merger closes may be different from these prices because the per share price of
Mattson common stock on the Nasdaq fluctuates continuously.
Following the merger, Mattson common stock will continue to be quoted on the
Nasdaq, and there will be no further market for the CFM common stock.
Mattson has never paid cash dividends on its common stock and has no present
plans to do so.
CFM has never paid cash dividends on its common stock.
34
<PAGE>
THE MATTSON SPECIAL MEETING
DATE, TIME, AND PLACE OF MEETING
This joint proxy statement-prospectus is being furnished to stockholders of
Mattson as part of the solicitation of proxies by the Mattson board of
directors for use at a special meeting of stockholders to be held Wednesday,
November 8, 2000, beginning at 10:00 A.M., local time, at the Newark Hilton,
39900 Balentine Drive, Newark, California, or any adjournment or postponement
of the special meeting. This joint proxy statement-prospectus is first being
mailed to Mattson stockholders on or about October 11, 2000.
PURPOSE OF THE MATTSON SPECIAL MEETING
The purpose of the Mattson special meeting is to vote upon a proposal to
permit Mattson to issue in the aggregate approximately 16,890,000 shares of its
common stock and increase the Stock Option Plan share reserve by 1,350,000
shares in order to effect the Transactions, to approve an amendment to
Mattson's Stock Option Plan to increase the number of shares available for
grant thereunder by 750,000 shares, to approve an amendment to Mattson's
Purchase Plan to increase the number of shares available for grant thereunder
by 250,000 shares, to approve an amendment to Mattson's Certificate of
Incorporation to increase the authorized number of shares available for
issuance from 60 million shares to 120 million shares, and to approve an
amendment to Mattson's Certificate of Incorporation to increase the initial
number of directors of Mattson from five to seven and to change the procedure
for filling board vacancies.
Representatives of Arthur Andersen LLP, Mattson's independent public
accountants, are expected to be present at the special meeting, will have the
opportunity to make a statement if they desire to do so, and will be available
to respond to appropriate questions.
RECORD DATE AND OUTSTANDING SHARES
The close of business on October 4, 2000 has been fixed by the Mattson board
of directors as the record date for determination of the stockholders of
Mattson entitled to notice of, and to vote at, the Mattson special meeting or
any postponement or adjournment of the Mattson special meeting. Holders of
record of the Mattson common stock at the close of business on the record date
are entitled to notice of, and to vote at, the Mattson special meeting. As of
the record date, there were approximately 143 stockholders of record holding an
aggregate of approximately 20,956,157 shares of Mattson common stock. See
"Principal Stockholders of Mattson" on page 155 of this joint proxy statement-
prospectus.
SHARE OWNERSHIP OF MANAGEMENT AND CERTAIN STOCKHOLDERS
As of the record date, the directors and executive officers of Mattson owned
in the aggregate approximately 18.9% of the outstanding shares, and Brad
Mattson individually owned approximately 17.7% of the outstanding shares.
Pursuant to voting agreements with each of STEAG and CFM, Brad Mattson has
agreed to vote all of his shares in favor of the share issuance and Stock
Option Plan share reserve increase in connection with the Transactions.
VOTE REQUIRED
Approval of Proposal No. 1 seeking authorization to issue in the aggregate
approximtely 16,890,000 shares of common stock and to increase the Stock Option
Plan share reserve in connection with the Transactions, approval of Proposal
No. 2 seeking approval of the further amendment of Mattson's Stock Option Plan,
and approval of Proposal No. 3 seeking approval of the amendment of Mattson's
Purchase Plan, each require the affirmative vote of the holders of a majority
of the shares present or represented by proxy and entitled to a vote at the
special meeting, at which a quorum is present and voting. Approval of Proposal
No. 4 seeking approval of the amendment of Mattson's Certificate of
Incorporation to increase the authorized number
35
<PAGE>
of shares of common stock requires the affirmative vote of the holders of a
majority of the shares of Mattson common stock outstanding as of the record
date. Approval of Proposal No. 5 seeking approval of the amendment of Mattson's
Certificate of Incorporation to increase the number of directors from five to
seven and to change the procedure for filling board vacancies requires the
affirmative vote of holders of at least two thirds of the shares of Mattson
common stock outstanding as of the record date. Each stockholder of record of
Mattson common stock on the record date is entitled to cast one vote per share,
exercisable in person or by properly executed proxy, on each matter properly
submitted for the vote of the stockholders of Mattson at the Mattson special
meeting. As of the record date, Mattson directors and officers and their
affiliates in the aggregate owned approximately 18.9% of the outstanding
shares, and Brad Mattson owned approximately 17.7% of the outstanding shares.
QUORUM; ABSTENTIONS
The presence, in person or by proxy duly authorized, of the holders of a
majority of the outstanding voting shares of Mattson common stock will
constitute a quorum for the transaction of business at the special meeting and
any continuation or adjournment thereof. Both broker non-votes (i.e. shares
held by brokers or nominees which are represented at the meeting, but with
respect to which such broker or nominee is not empowered to vote on a
particular proposal) and abstentions will be counted in determining whether a
quorum is present at the special meeting. Broker non-votes will not be counted
in determining the number of votes necessary for approval of Proposal Nos. 1,
2, and 3 and thus will have no effect on those proposals. However, broker non-
votes will have the same effect as a negative vote on Proposal Nos. 4 and 5
pertaining to the amendment of Mattson's Certificate of Incorporation, and
abstentions will have the same effect as a negative vote on all proposals.
SOLICITATION OF PROXIES; EXPENSES
Regardless of whether Mattson and CFM consummate the Transactions, each of
Mattson and CFM will pay its own costs and expenses incurred in connection with
the Transactions. Mattson and CFM will equally share the expenses incurred in
connection with the printing and mailing of this joint proxy statement--
prospectus. Mattson and CFM have jointly retained MacKenzie Partners, Inc. at a
fee not to exceed $13,000 plus reimbursement of expenses to assist in the
solicitation of proxies. Mattson, CFM and MacKenzie Partners, Inc. also will
request banks, brokers and other intermediaries holding shares beneficially
owned by others to send this joint proxy statement-prospectus and related
materials to and obtain voting instructions from the beneficial owners and will
reimburse the holders for their reasonable expenses in doing so.
Subject to the foregoing, Mattson will bear the cost of the solicitation of
proxies from its stockholders and all related costs. In addition, Mattson may
reimburse brokerage firms and other persons representing beneficial owners of
shares for their expenses in forwarding solicitation materials to such
beneficial owners. Certain directors, officers, or other employees of Mattson
may supplement the original solicitation of proxies by mail with telephone,
facsimile, or personal solicitation, without payment of additional
compensation.
VOTING OF PROXIES
The proxy accompanying this joint proxy statement-prospectus is solicited on
behalf of the Mattson board of directors for use at the meeting. Please
complete, date, and sign the accompanying proxy and promptly return it in the
enclosed envelope or otherwise mail it to MacKenzie Partners at the address
specified on page 4 of this joint proxy statement-prospectus under "Who can
help answer my questions." All properly signed proxies that Mattson receives
prior to the vote at the meeting and that are not revoked will be voted at the
meeting according to the instructions indicated on the proxies or, if no
direction is indicated, will be voted FOR the issuance of shares and Stock
Options Plan share reserve increase in connection with the Transactions, FOR
the amendments of the Stock Option Plan and Purchase Plan to increase the
number of shares reserved for grant thereunder, and FOR the amendments of
Mattson's Certificate of Incorporation to increase the authorized
36
<PAGE>
number of shares of common stock available for issuance, and to increase the
number of directors of Mattson from five to seven and change the procedure for
filling board vacancies. You may revoke your proxy at any time before it is
exercised at the meeting by taking any of the following actions:
. Delivering a written notice to the Secretary of Mattson by any means,
including facsimile, bearing a date later than the date of the proxy,
stating that the proxy is revoked.
. Signing and delivering a proxy relating to the same shares and bearing a
later date prior to the vote at the meeting.
. Attending the meeting and voting in person, although attendance at the
meeting will not, by itself, revoke a proxy. Please note, however, that
if your shares are held of record by a broker, bank, or other nominee and
you wish to vote at the meeting, you must bring to the meeting a letter
from the broker, bank, or other nominee confirming your beneficial
ownership of the shares.
Mattson's board of directors does not know of any matter that is not
referred to in this joint proxy statement-prospectus to be presented for action
at the meeting. If any other matters are properly brought before the meeting,
the persons named in the proxies will have discretion to vote on such matters
in accordance with their best judgment.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Mattson board of directors has unanimously determined (with director
John Savage abstaining) that the terms of the Transactions are fair to and in
the best interests of Mattson and the Mattson stockholders. Accordingly, the
Mattson board of directors unanimously recommends that Mattson stockholders
vote FOR the proposal to issue the shares and increase the Stock Option Plan
share reserve in connection with the Transactions. In addition, the Mattson
board of directors also unanimously recommends that Mattson stockholders vote
FOR the proposal to further increase the number of shares reserved for issuance
under Mattson's Stock Option Plan by 750,000 shares, FOR the proposal to
increase the number of shares reserved for issuance under Mattson's Purchase
Plan by 250,000 shares, FOR the proposal to amend Mattson's Certificate of
Incorporation to increase the number of authorized shares of common stock from
60 million shares to 120 million shares, and FOR the proposal to amend
Mattson's Certificate of Incorporation to increase the number of directors from
five to seven and to change the procedure for filling board vacancies.
Your vote is very important, regardless of the number of shares you own.
Please vote as soon as possible to make sure that your shares are represented
at the meeting. To vote your shares, please complete, date, and sign the
enclosed proxy and mail it promptly in the postage-paid envelope provided,
whether or not you plan to attend the meeting. You may revoke your proxy at any
time before it is voted. If you are a holder of record, you may also cast your
vote in person at the special meeting. If your shares are held in an account at
a brokerage firm or bank, you must instruct them on how to vote your shares. If
you do not vote, it may jeopardize Mattson's ability to obtain a quorum,
thereby resulting in a disapproval of the Transactions and the other proposals.
37
<PAGE>
THE CFM SPECIAL MEETING
DATE, TIME, AND PLACE OF MEETING
This joint proxy statement-prospectus is being furnished to shareholders of
CFM as part of the solicitation of proxies by the CFM board of directors for
use at a special meeting of shareholders to be held Wednesday,
November 8, 2000, beginning at 1:00 p.m., local time, at the Sheraton Great
Valley Hotel, 707 East Lancaster Avenue, Frazer, Pennsylvania 19355, or any
adjournment or postponement of the special meeting. This joint proxy statement-
prospectus is first being mailed to CFM shareholders on or about October 11,
2000.
PURPOSE OF THE CFM SPECIAL MEETING
The purpose of the CFM special meeting is to vote upon a proposal to adopt
and approve the Merger Agreement pursuant to which CFM will become a wholly
owned subsidiary of Mattson.
RECORD DATE AND OUTSTANDING SHARES
The close of business on October 4, 2000 has been fixed by the CFM board of
directors as the record date for determination of the shareholders of CFM
entitled to notice of, and to vote at, the CFM special meeting or any
postponement or adjournment of the CFM special meeting. Holders of record of
the CFM common stock at the close of business on the record date are entitled
to notice of, and to vote at, the CFM special meeting. As of the record date,
there were approximately 175 shareholders of record holding an aggregate of
approximately 7,878,866 shares of CFM common stock. See "Principal Shareholders
of CFM" on page 191 of this joint proxy statement-prospectus. Except for the
shareholders identified herein under "Principal Shareholders of CFM," as of the
record date, to the knowledge of CFM, no other person beneficially owned more
than 5% of the outstanding CFM common stock.
This joint proxy statement-prospectus was mailed to all CFM shareholders of
record as of the record date and constitutes notice of the CFM special meeting
in conformity with the requirements of the Pennsylvania Business Corporation
Law.
SHARE OWNERSHIP OF MANAGEMENT AND CERTAIN SHAREHOLDERS
As of the record date, the directors and executive officers of CFM owned in
the aggregate approximately 20.3% of the outstanding shares, and Christopher
McConnell individually owned approximately 14.7% of the outstanding shares.
Pursuant to a voting agreement with Mattson, Christopher McConnell has agreed
to vote all of his shares in favor of the Merger Agreement.
VOTE REQUIRED
Adoption and approval of the Merger Agreement requires the affirmative vote
of holders of a majority of the votes cast by all shareholders of CFM common
stock outstanding as of the record date at a meeting at which a quorum is
present. If a quorum is not present, those holders present, in person or by
proxy, may vote to adjourn the meeting to such time and place as they may
determine. Upon any reconvening of any adjournment thereof, if a quorum is not
then present and at least 15 days has passed since the initial adjournment for
lack of a quorum, those present shall constitute a quorum for the purpose of
voting upon the CFM proposals set forth herein. Each shareholder of record of
CFM common stock on the record date is entitled to cast one vote per share,
exercisable in person or by properly executed proxy, on each matter properly
submitted for the vote of the shareholders of CFM at the CFM special meeting.
QUORUM; ABSTENTIONS
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of CFM common stock entitled to vote at the
CFM special meeting, is necessary to constitute a quorum. Abstentions will be
counted for purposes of determining a quorum, but will have no effect on the
vote to appove the Merger Agreement. If a broker holding shares in street name
returns an executed proxy that indicates that the broker does not have
discretionary authority as to certain shares to vote on one or more
38
<PAGE>
matters, such shares will be considered represented at the CFM special meeting
for purposes of determining a quorum, but will have no effect on the vote to
approve the Merger Agreement.
SOLICITATION OF PROXIES; EXPENSES
Regardless of whether CFM and Mattson consummate the merger, each of CFM and
Mattson will pay its own costs and expenses incurred in connection with the
Merger Agreement and the transactions contemplated by the Merger Agreement,
except that CFM and Mattson will share equally the fees and expenses (other
than attorneys' and accounting fees) incurred in connection with the printing,
filing, and mailing of this joint proxy statement-prospectus.
CFM and Mattson have jointly retained MacKenzie Partners, Inc., at a fee not
to exceed $13,000. See "The Mattson Special Meeting-Solicitation of Proxies;
Expenses" on page 36 of this joint proxy statement-prospectus.
Subject to the foregoing, CFM will bear the cost of the solicitation of
proxies from its shareholders and all related costs. In addition, CFM may
reimburse brokerage firms and other persons representing beneficial owners of
shares for their expenses in forwarding solicitation materials to such
beneficial owners. Certain directors, officers, or other employees of CFM may
supplement the original solicitation of proxies by mail with telephone,
facsimile, or personal solicitation, without payment of additional
compensation.
VOTING OF PROXIES
The proxy accompanying this joint proxy statement-prospectus is solicited on
behalf of the CFM board of directors for use at the meeting. Please complete,
date, and sign the accompanying proxy and promptly return it in the enclosed
envelope or otherwise mail it to CFM. All properly signed proxies that CFM
receives prior to the vote at the meeting and that are not revoked will be
voted at the meeting according to the instructions indicated on the proxies or,
if no direction is indicated, will be voted FOR adoption and approval of the
Merger Agreement. You may revoke your proxy at any time before it is exercised
at the meeting by taking any of the following actions:
. Delivering a written notice to the Secretary of CFM by any means,
including facsimile, bearing a date later than the date of the proxy,
stating that the proxy is revoked.
. Signing and delivering a proxy relating to the same shares and bearing a
later date prior to the vote at the meeting.
. Attending the meeting and voting in person, although attendance at the
meeting will not, by itself, revoke a proxy. Please note, however, that
if your shares are held of record by a broker, bank, or other nominee
and you wish to vote at the meeting, you must bring to the meeting a
letter from the broker, bank, or other nominee confirming your
beneficial ownership of the shares.
CFM's board of directors does not know of any matter that is not referred to
in this joint proxy statement-prospectus to be presented for action at the
meeting. If any other matters are properly brought before the meeting, the
persons named in the proxies will have discretion to vote on such matters in
accordance with their best judgment.
YOU SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH YOUR PROXIES. A
TRANSMITTAL FORM WITH INSTRUCTIONS FOR THE SURRENDER OF STOCK CERTIFICATES FOR
SHARES OF CFM WILL BE MAILED TO YOU AS SOON AS PRACTICABLE AFTER COMPLETION OF
THE MERGER.
RIGHTS OF DISSENTING SHAREHOLDERS
Under Pennsylvania law, CFM shareholders are entitled to dissent from the
merger and instead demand payment from CFM of the fair value of their shares.
To claim dissenters' rights, you must comply with the following requirements:
. Before the shareholder vote on the Merger Agreement is taken, you must
deliver to CFM written notice of your intent to demand payment for your
shares if the merger is effected.
39
<PAGE>
. You must not vote your shares in favor of the Merger Agreement at the CFM
shareholder meeting.
. If you properly notify CFM of your intent to demand dissenters' rights,
CFM will send you written notice after the completion of the merger,
indicating when and how to demand payment for your shares. After
receiving the notice, you must demand payment for your shares in the
manner required by the notice sent by CFM.
You must certify to CFM as to the date you acquired beneficial ownership of
your shares.
You must deposit the certificates representing your shares in the manner
required by the notice you receive from CFM.
If you do not comply with the requirements outlined above, you will not be
entitled to receive payment for your shares under the dissenters' rights
provisions of Pennsylvania law.
If you comply with the outlined requirements, promptly following the later
of the date of effectiveness of the merger or the date CFM received your demand
for payment, CFM will pay to you the amount CFM estimates to be the fair value
of your shares of CFM common stock. Within 30 days of your receipt of CFM's
remittance of the payment or estimate of the fair value, if you believe CFM's
estimate of the fair value of your shares is incorrect, you may notify CFM in
writing of your own estimate of the fair value of your shares of CFM common
stock and demand payment of your estimate. Within 60 days of the later to occur
of the effectuation of the merger, timely receipt of your demand for payment
and timely receipt of an estimate of fair value from you, if the demand for
payment of the shares remains unsettled, CFM may request the fair value be
determined by a court. YOUR DISSENTERS' RIGHTS ARE SET OUT IN THEIR ENTIRETY IN
SECTIONS 1571-1580 OF THE PENNSYLVANIA BUSINESS CORPORATION LAW, WHICH IS
ATTACHED TO THIS JOINT PROXY STATEMENT-PROSPECTUS AS ANNEX E.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The CFM board of directors has unanimously determined that the terms of the
Merger Agreement are fair to and in the best interests of CFM and the CFM
shareholders. Accordingly, the CFM board of directors recommends that CFM
shareholders vote FOR the proposal to approve the Merger Agreement.
Your vote is very important, regardless of the number of shares you own.
Please vote as soon as possible to make sure that your shares are represented
at the meeting. To vote your shares, please complete, date and sign the
enclosed proxy and mail it promptly in the postage-paid envelope provided,
whether or not you plan to attend the meeting. You may revoke your proxy at any
time before it is voted. If you are a holder of record, you may also cast your
vote in person at the special meeting. If your shares are held in an account at
a brokerage firm or bank, you must instruct them on how to vote your shares. If
you do not vote or do not instruct your broker or bank how to vote, it will
have the same effect as voting against approval of the Merger Agreement.
40
<PAGE>
PROPOSAL NO. 1
FOR MATTSON STOCKHOLDERS:
APPROVAL OF ISSUANCE OF SHARES AND INCREASE IN OPTION PLAN SHARE RESERVE IN
CONNECTION WITH THE TRANSACTIONS
FOR CFM SHAREHOLDERS:
APPROVAL OF ADOPTION OF THE MERGER AGREEMENT
BACKGROUND OF THE TRANSACTIONS
A patent lawsuit was brought by CFM against a U.S. subsidiary of STEAG,
STEAG Electronic Systems, Inc. ("SES"), in July of 1995 asserting infringement
of a U.S. patent owned by CFM by certain wet processing products of SES. After
a trial, SES was held to have infringed the CFM patent and a judgment was
entered against SES. In June 1998, an injunction was issued prohibiting SES
from selling the infringing products in the United States. From time to time
throughout the pendency of the lawsuit and various appeals, STEAG and CFM held
discussions concerning resolution of the dispute. During March and April of
1999, STEAG and CFM held substantive discussions about a possible combination
of the wet processing business of STEAG's semiconductor equipment division with
CFM. Those discussions ended in April 1999 as a result of an inability to agree
upon relative valuation.
Brad Mattson, Chairman and Chief Executive Officer of Mattson, became a
member of the board of directors of CFM in December 1995. As a director of CFM,
Mr. Mattson had ongoing contact with CFM and was familiar with CFM's products,
market position, and management. He was also familiar with the lawsuit between
CFM and SES and the effect that ongoing dispute had on each of those companies.
In late August 1999, Mr. Mattson and Roger Carolin, President and Chief
Executive Officer of CFM, discussed the potential for a business combination
between Mattson and CFM. Mr. Carolin and Mr. Mattson exchanged emails and
letters in September of 1999 regarding valuation methodologies and possible
transaction structures, and requesting financial and other information needed
to evaluate the potential for a transaction. On October 5, 1999, Mr. Mattson
and Mr. Carolin met with other executives from Mattson and CFM to pursue
discussion of the advantages and possible terms of a combination of Mattson and
CFM. Following this meeting, Mr. Carolin conferred with other members of the
board of directors of CFM (excluding Mr. Mattson) on the potential combination.
On October 5, 1999, Mr. Carolin and Mr. Mattson met and agreed that their
relative valuation discussions did not support further pursuing a combination
of the two companies.
On November 4, 1999, Mr. Mattson sent by email a letter to Dr. Jochen
Melchior, Chief Executive Officer of STEAG's parent company, STEAG AG, and Dr.
Hans-Georg Betz, Chief Executive Officer of STEAG, suggesting that it might be
mutually beneficial to explore the possibility for a business combination
between Mattson and the semiconductor equipment division of STEAG. On November
22, 1999, Dr. Betz responded positively to Mr. Mattson, indicating interest in
a transaction involving STEAG's wet processing business and suggesting the
involvement of CFM.
In mid-January 2000, Mr. Carolin and Mr. Lorin J. Randall, Chief Financial
Officer of CFM, met with the President and the Chief Financial Officer of a
third party which was an alternative potential acquisition partner for CFM (the
"Alternate Partner"), along with legal and financial advisors representing the
Alternate Partner. The representatives of the Alternate Partner made a
presentation concerning proposed terms of a possible combination between CFM
and the Alternate Partner, including a relative valuation for CFM in that
combination. CFM management had held a series of discussions with management
and representatives of the Alternate Partner during July, October, November,
and December of 1999 concerning the advantages and potential terms of a
business combination with the Alternate Partner. CFM and the Alternate Partner
had previously engaged in discussions of a business combination between May and
September of 1998, which were formally terminated in October of 1998.
41
<PAGE>
On January 17, 2000, Michael A. Fink, Chief Executive Officer of STEAG
MicroTech GmbH, a German subsidiary of STEAG engaged in the wet processing
business, telephoned Mr. Carolin to renew discussions of a possible combination
of STEAG's wet processing business with CFM and a settlement of the pending
patent litigation between the companies.
On January 27, 2000, a representative of UBS Warburg LLC (formerly known as
Warburg Dillon Read LLC), financial advisor to CFM, met with representatives of
STEAG to discuss possible structures and scenarios for a potential transaction
involving STEAG's wet processing business and CFM, including the possible
involvement of Mattson.
On January 31, 2000, Mr. Mattson sent an email to Mr. Carolin noting that
the recent increase in the share price of Mattson common stock could create an
opportunity for a business combination with Mattson at an attractive relative
valuation. Mr. Mattson suggested that they renew discussions about a possible
combination.
On February 7, 2000, Mr. Mattson sent Mr. Carolin an outline of a valuation
model, and proposed further discussions after Mr. Carolin had time to evaluate
CFM's situation. Later that day, the board of directors of CFM met, except for
Mr. Mattson who was excused. During the meeting, a Special Committee for
Mergers and Acquisitions was formed with Mr. John Osborne, Chairman, and Mr.
Milton S. Stearns, Jr., member, to review all matters related to business
combination proposals and to report their findings and recommendations to the
board. The board directed Mr. Carolin to pursue the discussions with Mattson
and also to conduct due diligence on the Alternate Partner and take steps as
necessary to assess and validate the value of the offer received from the
Alternate Partner.
Representatives of CFM and the Alternate Partner conducted their respective
due diligence reviews during February of 2000.
On February 9, 2000, Mr. Fink sent Mr. Carolin an outline of possible terms
for a combination of the wet processing business of CFM and STEAG.
On February 10, 2000, Mr. Carolin contacted Dr. Melchior at STEAG and Mr.
Mattson at Mattson, suggesting a meeting in New York City among Messrs. Carolin
and Mattson and Dr. Melchior to discuss the potential for a trilateral business
combination among CFM, Mattson, and the STEAG Semiconductor Division. Dr.
Melchior indicated that he would be unable to attend such a meeting, but that
he would send appropriate STEAG representatives to the proposed meeting.
On February 15, 2000, Mr. Mattson, Mr. Carolin, Dr. Berthold Luetke-Daldrup,
Director of Strategic Planning for STEAG, and Mr. Fink, met in New York City
where they participated in a video conference with Dr. Melchior and a telephone
conference with Dr. Betz. The business advantages of combining the Mattson and
STEAG rapid thermal processing businesses and the STEAG and CFM semiconductor
wet processing businesses were discussed. It was agreed that such a combination
could offer significant benefits to each of the participating companies and
their shareholders, and that further meetings to pursue discussion of a
possible combination of the three businesses should be scheduled.
During the following week, the parties held several discussions regarding
further steps and requested basic financial and other information from each
other. Mattson, STEAG and CFM entered into a Mutual Non-Disclosure Agreement on
February 25, 2000.
On February 27, 2000, a group including Mr. Carolin, Mr. Randall, Mr.
Ferdinand Seemann, a Vice President of Mattson, Mr. John Savage representing
Alliant Partners, financial advisor to Mattson (and a director of Mattson), Dr.
Luetke-Daldrup, Dr. Rolf Thaler, Chief Financial Officer of STEAG, Mr. Fink and
representatives of Morgan Stanley & Co., Incorporated ("Morgan Stanley"),
financial advisor to STEAG, met in New York City to discuss the potential for a
combination of the parties' businesses, and to identify structural and other
issues.
42
<PAGE>
On February 28, 2000, Mr. Carolin, Mr. Randall, Mr. Fink, Dr. Luetke-
Daldrup, and Dr. Thaler met again in New York City, without representatives of
Mattson, to continue discussion of the potential for a business combination
involving Mattson, the STEAG Semiconductor Division, and CFM, including
relative valuation.
On March 9, 2000, Mr. Seemann, Mr. Savage, and the Corporate Controller of
Mattson met in New York City with Mr. Fink, Dr. Luetke-Daldrup, Dr. Thaler, and
representatives of Morgan Stanley to continue discussion of a potential
combination of the semiconductor business of STEAG with Mattson and CFM,
including relative valuations for the companies. Later that day, Mr. Seemann,
Mr. Savage, and the Coporate Controller of Mattson also met with Mr. Carolin
and Mr. Randall. The discussions ended with CFM in disagreement with Mattson
over relative valuation. The representatives of Mattson and STEAG met again on
March 10, 2000.
On March 15, 2000, a videoconference was held among Mr. Savage, Mr. Seemann,
Mr. Brian McDonald, Chief Financial Officer of Mattson, Dr. Thaler, Mr. Fink,
Dr. Luetke-Daldrup and representatives of Morgan Stanley. It was agreed during
the meeting to move ahead with bilateral discussions between STEAG and Mattson.
On March 20, 2000, a meeting was held in Germany among Dr. Melchior, Dr.
Betz, Dr. Luetke-Daldrup, Mr. Mattson and Mr. Seemann. A general outline of
terms for a proposed transaction was discussed and issues were identified. The
parties confirmed a valuation for the STEAG Semiconductor Division and
preliminarily agreed on a price of 12 million newly issued Mattson shares. The
parties also agreed to exchange more detailed due diligence information.
On March 21, Mr. Carolin, Mr. McConnell and Mr. Mattson met and discussed
the conditions under which the two companies might continue their discussions.
Mr. Carolin and Mr. Mattson subsequently exchanged a number of email messages
discussing possible valuation scenarios.
On March 24, 2000, Mr. Seemann, Mr. Savage, the Corporate Controller of
Mattson, and Mattson's outside legal counsel met by videoconference with Dr.
Luetke-Daldrup, Dr. Thaler, Mr. Fink, and Dr. Peter Lockowandt, STEAG's general
counsel, representatives of Morgan Stanley, and representatives of STEAG's U.S.
outside legal advisor, to review a draft term sheet for a possible business
combination. From time to time thereafter, the parties continued to exchange
comments and revised drafts.
On March 28, 2000, the Special Committee on Mergers and Acquisitions of the
board of directors of CFM met and reviewed the status of due diligence and the
negotiation of a definitive merger agreement with the Alternate Partner.
Between March 30 and April 6, 2000, Mattson's due diligence team met in
Germany with representatives from STEAG and visited various STEAG Semiconductor
Division facilities in Germany, Israel, and Slovakia.
On April 7, 2000, the Alternate Partner's President met with Mr. Carolin.
The Alternate Partner's President informed Mr. Carolin that the Alternate
Partner would not proceed with the proposed combination at the relative
valuation previously discussed, but was authorized to continue negotiations
based on a reduced valuation.
On April 8, 2000, Mr. Carolin conveyed to Mr. Mattson that CFM might soon
conclude an agreement to combine with another company. Following a series of
telephone discussions, Mr. Mattson proposed to increase the consideration
previously offered with respect to a merger of CFM and Mattson to approximately
4.85 million shares of Mattson common stock, with additional shares of Mattson
common stock to be set aside to cover existing options to purchase shares of
CFM common stock.
Between April 8 and April 10, 2000, Mr. Seemann and Mr. Savage communicated
by telephone and email with Dr. Betz, Dr. Luetke-Daldrup, and Dr. Thaler
regarding the negotiations between Mattson and CFM and the relative valuations
of the companies. As a result of these discussions, STEAG agreed to accept a
reduced number of Mattson shares for its semiconductor equipment business,
subject to completion of a merger between Mattson and CFM, and resolution of
the patent litigation between CFM and SES, at the same time.
43
<PAGE>
On April 11, 2000, the Special Committee on Mergers and Acquisitions of the
board of directors of CFM met and reviewed the status of discussions with the
Alternate Partner and Mattson. It was agreed that the new Mattson proposal
represented an excellent alternative to the reduced proposal of the Alternate
Partner, and should be pursued in parallel with the proposal of the Alternate
Partner. The Committee requested that all due diligence and negotiation of a
form of definitive merger agreement with Mattson should be concluded by April
18, 2000, the scheduled date for the CFM board of directors to meet and take
action on the Alternate Partner merger proposal.
Representatives of Mattson and CFM proceeded to negotiate the terms of a
form of definitive merger agreement and to complete a due diligence review of
the respective companies.
During the week of April 11, 2000, a due diligence team for STEAG met with
Mattson representatives in California.
On April 12, 2000, Mr. Mattson, Mr. Seemann, Dr. Melchior, and Dr.
Lockowandt participated in a videoconference to further discuss the proposed
terms of a combination of the STEAG Semiconductor Division and Mattson.
On April 17, 2000, the Mattson board of directors met by conference call,
along with members of Mattson management, outside legal counsel, and Mr.
Savage, as representative of Alliant Partners. The Mattson board of directors
reviewed the status of discussions with STEAG and negotiations with CFM. The
Mattson board approved entering into a binding no-shop agreement and making a
termination fee commitment to CFM based on the negotiated form of merger
agreement, and authorized Mr. Mattson to pursue both the proposed STEAG
Semiconductor Division business combination and the proposed merger with CFM.
On April 18, 2000, the board of CFM (excluding Mr. Mattson) met and
considered the merger proposals from Mattson and from the Alternate Partner,
each of which included a form of a fully-negotiated definitive merger
agreement. The board approved the Mattson merger offer and the entering into of
a binding no-shop agreement which obligated the parties to either enter into
the proposed definitive merger agreement within 60 days, the time Mattson
estimated it would take to enter into a Combination Agreement with STEAG, or
pay substantial termination penalties, subject to certain termination
provisions.
Later on April 18, 2000, Mattson and CFM executed a binding no-shop
agreement which obligated the parties to either enter into the attached form of
definitive merger agreement within 60 days or pay substantial termination
penalties, consistent with the terms approved by the CFM and Mattson boards of
directors.
On April 20, 2000, the Mattson board of directors met and received an update
and discussed the potential business combination with the STEAG Semiconductor
Division and the merger with CFM.
Effective April 26, 2000, Mr. Mattson resigned from the CFM board of
directors.
On April 26 and 27, 2000, Dr. Betz, Dr. Luetke-Daldrup, other
representatives of STEAG, Mr. Mattson, Mr. Seemann, other executives of
Mattson, and Mr. Carolin met in San Jose, California to continue discussion of
a trilateral business combination. A number of structural, timing, and
integration issues were discussed without resolution.
On May 3 and 4, 2000, Mr. Mattson, Mr. Seemann, other representatives of
Mattson, and Mr. Carolin, met in Germany with Dr. Melchior, Dr. Betz, Dr.
Luetke-Daldrup, Mr. Ludger Viefhues, Chief Financial Officer of STEAG RTP
Systems, Dr. Thaler, and other representatives of STEAG, to continue discussion
of open issues.
On May 17, 2000, the Mattson board of directors was updated concerning the
status of discussions with STEAG and CFM.
On May 18 and 19, 2000, Mr. Mattson and Dr. Melchior exchanged email
messages seeking to revive the discussions, which had previously stalled as a
result of structural, timing, and integration issues.
44
<PAGE>
On May 22 and 23, 2000, video conference meetings took place between Dr.
Melchior, Dr. Betz, representatives of Morgan Stanley, Mr. Mattson, Mr.
Seemann, Mr. Savage, and other representatives of Mattson, seeking resolution
of open issues.
On May 23, 2000, the Supervisory Board of STEAG approved the proposed
combination of the STEAG Semiconductor Division with Mattson based on the
proposed terms.
On May 25 and 26, 2000, Mattson and STEAG executed a binding no-shop
agreement and a non-binding outline of terms for the proposed business
combination. Representatives of Mattson and STEAG proceeded with their
respective due diligence reviews and prepared definitive agreements relating to
the business combination.
On June 2 and 3, 2000, Mr. Mattson, Mr. McDonald, and Mr. Savage met in
Essen, Germany with Dr. Betz, Dr. Luetke-Daldrup, Dr. Thaler, Dr. Lockowandt,
and other representatives of STEAG, representatives of Morgan Stanley,
representatives of U.S. and German outside counsel to Mattson, and
representatives of U.S. outside counsel to STEAG, to negotiate the terms of
definitive agreements relating to the business combination.
On June 8, 2000, Mr. Savage and Mr. McDonald held a conference call with Mr.
Carolin and Mr. Randall to discuss CFM's financial performance in the quarter
ended April 30, 2000, updated financial projections for CFM, and issues related
to the change of control vesting feature of the CFM stock option plans. The
Mattson representatives proposed a reduction in the number of Mattson shares to
be issued to the CFM shareholders and optionholders in the merger.
On June 12, 2000, the Special Committee for Mergers and Acquisitions of the
board of directors of CFM met to receive an update from Mr. Carolin and to
discuss the new Mattson proposal.
During June 13, 14, and 15, 2000, numerous telephone conversations took
place between representatives of Mattson and CFM to clarify each party's
position on valuation, stock options needed to retain key CFM employees, and
the termination provisions under the merger agreement.
On June 15, 2000, the Special Committee for Mergers and Acquisitions of the
board of directors of CFM received an update regarding the discussions with
Mattson. Mattson and CFM agreed to extend their binding no-shop agreement until
June 30, 2000, and to continue negotiation of a definitive merger agreement.
On June 16, 2000, Mr. Mattson and Mr. Carolin spoke by telephone and agreed
to adjusted consideration in the CFM merger based on approximately 4.1 million
Mattson shares, plus the assumption of outstanding CFM options.
Between June 21 and 23, 2000, Dr. Betz, Dr. Luetke-Daldrup, Dr. Thaler, Dr.
Lockowandt, and other representatives of STEAG, met daily with Mr. Mattson, Mr.
McDonald, Mr. David Dutton, Chief Operating Officer of Mattson, and Mr. Savage
in Newark, California, along with representatives of Morgan Stanley,
representatives of U.S. outside counsel to Mattson, and representatives of U.S.
outside counsel to STEAG, to finalize the definitive agreements relating to the
business combination. During these meetings, in light of the decreased price
Mattson had agreed to pay for CFM, Mattson agreed to increase the consideration
to be paid for the semiconductor equipment division of STEAG to 11,850,000
shares.
During the period in which STEAG and Mattson were discussing the terms of
the proposed business combination of the STEAG Semiconductor Division and
Mattson, the German Parliament (Bundestag) was reported to be considering
adopting legislation that would eliminate capital gains tax on the sale of
shares in German companies and that would lower corporate tax rates. It was
expected that such legislation would be adopted during the summer of 2000 and
would become effective on January 1, 2001. Partly in anticipation of such
changes in the German tax law, and partly because certain profit and loss
absorption agreements between
45
<PAGE>
STEAG and the STEAG Semiconductor Subsidiaries organized in Germany could not,
under applicable German law, be terminated prior to the end of the year, the
parties agreed that, regardless of when the conditions to closing were
satisfied, the closing of the business combination would not occur earlier than
January 1, 2001. As the merger of CFM and Mattson was structured to occur
concurrently with the business combination, a similar provision was added to
the Merger Agreement. However, in order to reduce the uncertainty that the
actual closing will occur, Mattson agreed with STEAG and CFM in the Combination
Agreement and the Merger Agreement, respectively, that, if the requisite
approvals of Mattson's stockholders and CFM's shareholders have been obtained
and all other closing conditions that are beyond the parties' control have been
satisfied prior to December 1, 2000, the parties will hold a pre-closing at
which all remaining conditions to closing (other than the arrival of January 1,
2000, the absence of litigation, and delivery of the Mattson shares) will
either be fulfilled or irrevocably waived.
Between June 24 and June 26, 2000, Mr. Fink and other representatives of
STEAG, and Mr. Carolin and other representatives of CFM, agreed upon terms of
an interim patent license agreement granting STEAG rights to certain CFM
patents relating to the wet processing business and terms of a settlement of
the lawsuit between CFM and SES, under which SES would withdraw its pending
appeal of the lower court decision in favor of CFM, and STEAG would cause
certain foreign proceedings seeking to invalidate CFM's foreign patent right to
be dismissed.
On June 26, 2000, at a special meeting of the Mattson board of directors,
management and Mattson's outside legal counsel reviewed the principal terms of
the draft Combination Agreement, Merger Agreement and related agreements, as
revised, including the mutual dependency of the Transactions, other conditions
to the Transactions, the no-shop commitments of each party and the amount and
timing of fees that might be payable in connection with termination of the
Transactions, as well as the resolution of previously open issues, and reviewed
with Mattson management and advisors the strategic rationale for the merger and
the business combination, and the potential benefits and risks of the proposed
Transactions to Mattson. Mr. Savage, as representative of Alliant Partners,
reviewed with the Mattson board of directors financial analyses related to the
proposed Transactions.
On June 26, 2000, at a meeting of CFM's Special Committee on Mergers and
Acquisitions of the board of directors, management described to the committee
the termination provisions of the interim patent license agreement to be
entered into with STEAG. In the early hours of June 28, 2000, at a special
meeting of the board of directors of CFM, management and CFM's outside legal
counsel reviewed the due diligence that had been completed during the preceding
week and discussed risks involved, and the protection afforded CFM, upon
entering into a merger agreement with Mattson, the closing of which was
conditioned on the simultaneous closing of the business combination between
Mattson and STEAG. Following the discussion, the board considered other
conditions to the closing, as well as the resolution of previously open issues.
The financial advisor reviewed with the board the financial analyses related to
the proposed merger and delivered an opinion that the merger was fair to CFM
shareholders from a financial point of view. After consideration of the
presentations and the benefits of the transaction, along with a consideration
of the risks, the board unanimously voted to approve the merger and related
agreements, concluding that the merger was in the best interests of the CFM
shareholders.
On June 27, 2000, Mr. Mattson and Mr. Carolin spoke by telephone and, based
on the aggregate number of shares and options of CFM common stock to be
exchanged for the agreed upon number of Mattson shares, concurred in the
formulation of a fixed exchange ratio of 0.5223 shares of Mattson common stock
for each share of common stock of CFM.
Also on June 27, 2000, at a special meeting of the Mattson board of
directors, management and outside legal counsel to Mattson reported on the
finalized terms of the Combination Agreement, the Merger Agreement, and related
agreements. Representatives of Alliant Partners reviewed their financial
analyses with respect to the proposed Transactions and delivered an oral
opinion (subsequently confirmed in writing) that the number of Mattson shares
to be issued in the Transactions was fair to the Mattson stockholders from a
financial point of view. After consideration of these presentations, the
Mattson board of directors (other than
46
<PAGE>
Mr. Savage, who abstained from voting) unanimously approved the Transactions
and the related agreements, concluding that the Transactions were in the best
interests of the Mattson stockholders.
During the night of June 27, 2000, Mattson, M2C Acquisition Corporation, and
CFM executed the definitive Merger Agreement and Mattson and STEAG executed the
definitive Combination Agreement. Concurrently with the execution of the Merger
Agreement and the Combination Agreement, STEAG, SES, and CFM entered into a
settlement agreement with regard to the patent lawsuit and CFM, STEAG, and
CFMT, Inc. entered into an interim patent license agreement.
MATTSON'S REASONS FOR THE TRANSACTIONS
In reaching its determination to approve and adopt both the Combination
Agreement and the Merger Agreement, the Mattson board of directors consulted
with Mattson's management and its financial and legal advisors, and considered
a number of factors. The Mattson board did not assign any relative or specific
weights to the factors considered in reaching such determination, and
individual directors may have given differing weights to different factors. In
its decision to recommend and approve the issuance of shares needed to complete
the Transactions, the most important benefits identified by the board of
directors of Mattson were the following:
. The combination of the three parties' semiconductor equipment businesses
will provide the critical mass required for Mattson to compete in the
long term. As a result of the Transactions, Mattson will become a top
tier process equipment supplier that will be better able to meet the
needs of the larger customers in the industry.
. To reduce the risk of being dependent on a single product line in a
rapidly changing technology market, one of Mattson's strategies has been
to become a multi-product, multi-technology company. Mattson's board
believes that the combined companies will address this strategy by
offering leading products with strong market share position in three
major market segments: dry strip, RTP, and wet processing.
. Mattson will become a truly global company with operations located
around the world. As a result, Mattson will be able to leverage
resources from around the world to improve operating costs, while
providing better support to its customers.
. The Transactions will improve Mattson's positioning at the top 20
equipment purchasers, which purchasers account for more than 70% of the
total world market for semiconductor equipment.
. Given the complementary nature of the product lines of Mattson, the
STEAG Semiconductor Division, and CFM, Mattson's board believes that the
Transactions will enhance the opportunity for the potential realization
of Mattson's strategic objectives;
. Mattson's stockholders would have the opportunity to participate in the
potential for growth of the combined company after the Transactions;
. The combination of the complementary distribution strategies of Mattson,
the STEAG Semiconductor Division, and CFM will allow the combined
company to distribute its products more widely;
. Combined technological resources may allow the combined company to
compete more effectively and to develop new products at lower price
points with greater functionality than existing products; and
. The broader customer base of the combined company will allow it to
mitigate the risk of customer concentration to which Mattson is
currently exposed.
The Mattson board of directors consulted with management and its outside
legal and financial advisors as part of the process of approving the
Transactions. In its evaluation the Mattson board considered the following
factors among others:
. The potential strategic benefits of the Transactions;
. The complementary product lines of Mattson, the STEAG Semiconductor
Division, and CFM;
47
<PAGE>
. Historical information concerning the respective businesses, prospects,
financial performance and condition, operations, technologies,
managements, and competitive positions of Mattson, the STEAG
Semiconductor Division, and CFM;
. Mattson management's view of the financial condition, results of
operations, and businesses of Mattson, the STEAG Semiconductor Division,
and CFM before and after giving effect to the Transactions;
. The increased value of the wet processing businesses of the STEAG
Semiconductor Division and CFM if their ongoing patent dispute could be
quickly resolved;
. Current financial market conditions and historical market prices,
volatility and trading information with respect to Mattson's common stock
and CFM's common stock;
. The consideration to be provided by Mattson in the Transactions and the
relationship between the current and historical market values of
Mattson's common stock and CFM's common stock and a comparison of similar
business combination and merger transactions;
. The belief that the terms of the Combination Agreement and the Merger
Agreement, including the CFM exchange ratio and the parties'
representations, warranties, and covenants, and the conditions to their
respective obligations, are reasonable. The Mattson board of directors
also considered the provisions in the Combination Agreement and the
Merger Agreement that prohibited solicitation of third-party bids and the
acceptance, approval, or recommendation of any unsolicited third-party
bids, and the provisions which require the payment of substantial fees
upon certain termination events. The Mattson board of directors
considered that the provisions in the Combination Agreement and the
Merger Agreement for the benefit of Mattson reasonably protected the
interests of Mattson stockholders, and those for the benefit of STEAG and
CFM did not present any significant impediments to proceeding with the
Transactions considering all of the circumstances;
. The target closing date after January 1, 2001;
. The prospects of Mattson as an independent company;
. The potential for other third parties to enter into strategic
relationships with or to acquire Mattson, the STEAG Semiconductor
Division, or CFM;
. Detailed financial analyses and pro forma and other information with
respect to the companies presented to the board, including the opinion of
Alliant Partners that the total consideration provided by Mattson under
the Transactions is fair, from a financial point of view, to Mattson's
stockholders. The Mattson board viewed the analyses and opinion of an
independent, nationally recognized financial advisor such as Alliant
Partners to be an important factor in reaching a determination that the
Transactions and the issuance of shares under the Transactions should be
approved.
. The expectation that the merger will be treated as a tax-free
reorganization for federal income tax purposes;
. The expected impact of the Transactions on Mattson's customers and
employees;
. Reports from management, legal and financial advisors as to the results
of the due diligence investigation of both the STEAG Semiconductor
Division and CFM; and
. The interests of the officers and directors of Mattson in the
Transactions, including the matters disclosed under "Interests of
Mattson's Directors, Officers, and Affiliates in the Transactions"
beginning on page 54 of this joint proxy statement-prospectus.
Potential risks or other negative factors identified by the Mattson board
of directors include the following:
. The risk that the potential benefits of the Transactions may not be
realized;
. The challenges of integrating the management teams, products, strategies,
cultures and organizations of the three companies, especially in light of
the physical distance between Mattson's headquarters in Fremont,
California, the STEAG Semiconductor Division's two headquarters in
Germany, and CFM's headquarters in Exton, Pennsylvania;
48
<PAGE>
. The risk of disruption of sales momentum and potential delay or reduction
in orders as a result of uncertainties created by the announcement of the
Transactions;
. The risk that the parties' agreement to close after January 1, 2001 meant
there would be a significant period of uncertainty for customers,
employees and stockholders in the face of rapidly changing market
conditions;
. The significant challenge and added risk of effecting two concurrent
business combinations;
. The risk that the Transactions might not be consummated despite the
parties' efforts, even if the required stockholders' approvals are
obtained;
. The significant adverse impact to the net income of the combined company
that will arise due to non-cash charges for the amortization of goodwill
and other intangibles in light of the impact of purchase accounting for
the Transactions;
. The substantial charges to be incurred in connection with the
Transactions, including costs of integrating the businesses and
transaction expenses arising from the Transactions;
. The possibility that the Transactions might not be consummated and the
effect of public announcement of the Transactions on (a) Mattson's sales
and operating results, (b) Mattson's ability to attract and retain key
management, marketing and technical personnel and (c) progress of certain
development projects;
. The risk that, despite the efforts of the combined company, other key
technical and management personnel might not remain employed by the
combined company; and
. Other risks described above under "Risk Factors" beginning on page 13 of
this joint proxy statement-prospectus.
The foregoing discussion of the information and factors considered by the
Mattson board of directors is not intended to be exhaustive but includes the
material factors considered by the Mattson board of directors. In view of the
complexity and wide variety of information and factors, both positive and
negative, considered by the Mattson board of directors, it did not find it
practical to quantify, rank, or otherwise assign relative or specific weights
to the factors considered. In addition, the Mattson board did not reach any
specific conclusion with respect to each of the factors considered, or any
aspect of any particular factor. Instead, the Mattson board of directors
conducted an overall analysis of the factors described above, including
discussions with Mattson's management and legal, financial and accounting
advisors. In considering the factors described above, individual members of the
Mattson board of directors may have given different weight to different
factors. The Mattson board considered all these factors as a whole and believed
the factors supported its determination to approve the Transactions. After
taking into consideration all of the factors set forth above, Mattson's board
of directors concluded that the Transactions were fair to, and in the best
interests of, Mattson and its stockholders and that Mattson should proceed with
the Transactions.
RECOMMENDATION OF MATTSON'S BOARD OF DIRECTORS
After careful consideration, the Mattson board of directors has determined
that the Transactions are fair to and in the best interests of Mattson's
stockholders, has approved the Transactions, and recommends that Mattson
stockholders vote in favor of the issuance of shares and the increase in the
Stock Option Plan share reserve in connection with the Transactions.
In considering the recommendation by Mattson's board of directors of the
Transactions, you should be aware that some directors and officers of Mattson
have interests in the Transactions that are different from, or are in addition
to, the interests of Mattson's stockholders generally. Please see the section
entitled "Interests of Mattson's Directors, Officers, and Affiliates in the
Transactions" on page 54 of this joint proxy statement-prospectus.
49
<PAGE>
OPINION OF MATTSON'S FINANCIAL ADVISOR
Pursuant to approval by the board of directors of Mattson on May 17, 2000,
Mattson retained Alliant Partners to render an opinion regarding the fairness,
from a financial point of view, of the consideration to be provided by Mattson
pursuant to the proposed Transactions with STEAG and CFM.
On June 27, 2000, Alliant Partners delivered to the Mattson board of
directors by teleconference, its opinion (the "Alliant Partners Opinion") that
as of June 27, 2000, and based on the matters described therein, the total
consideration provided in the Transactions by Mattson to STEAG and to CFM is
fair, from a financial point of view, to the stockholders of Mattson. Alliant
Partners noted that its presentation reflected the closing stock prices and
general market conditions as of June 26, 2000. No limitations were imposed by
Mattson on the scope of Alliant Partners' investigations or the procedures to
be followed by Alliant Partners in rendering the Alliant Partners Opinion. The
number of shares to be issued were determined through negotiations between the
managements of Mattson, STEAG, and CFM.
The full text of the Alliant Partners Opinion, which sets forth, among other
things, assumptions made, matters considered, and limitations on the review
undertaken, is attached hereto as Annex D-1, and is incorporated herein by
reference. Stockholders of Mattson are urged to read the Alliant Partners
Opinion in its entirety. The Alliant Partners Opinion was prepared for the
benefit and use of the Mattson board in its consideration of the Transactions
and does not constitute a recommendation to stockholders of Mattson as to how
they should vote at the special meeting in connection with the Transactions.
The Alliant Partners Opinion does not address the relative merits of the
Transactions and any other transactions or business strategies discussed by the
Mattson board of directors as alternatives to the Transactions. The Alliant
Partners Opinion does not address the underlying business decision of the
Mattson board to proceed with or effect the Transactions. The summary of the
Alliant Partners Opinion set forth in this joint proxy statement-prospectus is
qualified in its entirety by reference to the full text of the Alliant Partners
Opinion.
In connection with the preparation of the Alliant Partners Opinion, Alliant
Partners, among other things: reviewed the terms of the Combination Agreement
and the associated exhibits thereto, and the terms of the Merger Agreement, and
the associated exhibits thereto; reviewed the Mattson Form 10-K for the fiscal
years ended December 31, 1998 and 1999, including the audited financial
statements included therein; reviewed the Mattson Form 10-Q for the quarter
ended March 26, 2000; reviewed certain internal financial and operating
information relating to Mattson prepared by Mattson management; participated in
discussions with Mattson management concerning the operations, business
strategy, financial performance, and prospects for Mattson; reviewed the recent
reported closing prices and trading activity for Mattson common stock; reviewed
the CFM Form 10-K for the fiscal years ended October 31, 1998 and 1999,
including the audited financial statements included therein; reviewed the CFM
Form 10-Q for the quarters ended January 31, 2000 and April 30, 2000, including
the financial statements included therein; reviewed certain internal financial
and operating information relating to CFM prepared by CFM management;
participated in discussions with CFM management concerning the operations,
business strategy, financial performance, and prospects for CFM; participated
in discussions related to the merger with CFM among CFM, Mattson, and their
financial and legal advisors; considered the effect of the merger with CFM on
the future financial performance of the consolidated entity; reviewed the
recent reported closing prices and trading activity for CFM common stock;
compared certain aspects of the financial performance and business strategy of
Mattson and CFM with comparable public companies; reviewed recent equity
analyst reports covering CFM; reviewed the financial statements for the year
ended December 31, 1999; reviewed certain internal financial and operating
information relating to the STEAG Semiconductor Division prepared by STEAG
Semiconductor Division management; participated in discussions with STEAG
Semiconductor Division management concerning the operations, business strategy,
financial performance, and prospects for the STEAG Semiconductor Division;
participated in discussions related to the business combination with the STEAG
Semiconductor Division among STEAG, Mattson, and their financial and legal
advisors; considered the effect of the business combination with the STEAG
Semiconductor Division on the future financial performance of the consolidated
entity; compared certain aspects of the financial performance and business
strategy of Mattson and the STEAG Semiconductor Division with comparable public
companies;
50
<PAGE>
analyzed available information, both public and private, concerning other
mergers and acquisitions comparable in whole or in part to the Transactions;
and conducted such other financial studies, analyses and investigations as
Alliant Partners deemed appropriate for purposes of rendering its opinion.
In conducting its review and arriving at the Alliant Partners Opinion,
Alliant Partners relied upon and assumed the accuracy and completeness of the
financial statements and other information provided by Mattson, STEAG, and CFM
or otherwise made available to Alliant Partners and did not assume
responsibility to verify such information independently. Alliant Partners
further relied upon the assurances of Mattson's, the STEAG Semiconductor
Division's and CFM's respective managements that the information provided was
prepared on a reasonable basis in accordance with industry practice; with
respect to financial planning data, that such data reflected the best currently
available estimates and good faith judgments of the respective managements of
Mattson, the STEAG Semiconductor Division, and CFM as to the expected future
financial performance of Mattson, the STEAG Semiconductor Division, and CFM;
and that such parties were not aware of any information or facts that would
make the information provided to Alliant Partners incomplete or misleading.
Without limiting the generality of the foregoing, for the purpose of the
Alliant Partners Opinion, Alliant Partners assumed that none of Mattson, CFM,
and the STEAG Semiconductor Division was a party to any pending transaction,
including external financing, recapitalizations, acquisitions or merger
discussions, other than the Transactions or in the ordinary course of business.
Alliant Partners also assumed that the Transactions would be free of federal
tax to the Mattson stockholders.
In arriving at the Alliant Partners Opinion, Alliant Partners did not
perform any appraisals or valuations of specific assets or liabilities of
Mattson, the STEAG Semiconductor Division, or CFM and was not furnished with
any such appraisals or valuations.
Without limiting the generality of the foregoing, Alliant Partners did not
undertake any independent analysis of any pending or threatened litigation,
possible unasserted claims or other contingent liabilities to which Mattson,
the STEAG Semiconductor Division or CFM or any of their respective affiliates
was a party or may be subject and, at Mattson's direction and with its consent,
the Alliant Partners Opinion made no assumption concerning and therefore did
not consider the possible assertion of claims, outcomes, or damages arising out
of any such matters. Although developments following the date of the Alliant
Partners Opinion may affect the Alliant Partners Opinion, Alliant Partners
assumed no obligation to update, revise, or reaffirm the Alliant Partners
Opinion.
The following is a summary explanation of the various sources of information
and valuation methodologies employed by Alliant Partners in conjunction with
rendering its opinion to the Mattson board.
Comparable Company Analysis
Alliant Partners compared certain financial information and valuation ratios
relating to both the STEAG Semiconductor Division and CFM to corresponding
publicly available data and ratios from a group of selected publicly traded
companies deemed comparable to both the STEAG Semiconductor Division and CFM.
For CFM, the comparable companies selected included eight publicly traded
companies in the semiconductor equipment sector. Financial information reviewed
by Alliant Partners included each company's: Enterprise Value, calculated as
the market capitalization of the selected company, plus such company's debt,
less such company's cash; Trailing Twelve Months Revenue, calculated as the
most recent four quarters revenue as filed with the SEC; Trailing Twelve Months
Earnings before Interest, Taxes, Depreciation, and Amortization (EBITDA);
Trailing Twelve Months Earnings, adjusted to exclude non-recurring charges;
Trailing Twelve Months EBITDA Margin; Trailing Twelve Months Earnings Margin;
Trailing Twelve Months Return on Equity; Trailing Twelve Months Return on
Assets; Prior Fiscal Year Revenue; Prior Year Revenue Growth Rate; Last Five
Year Revenue Growth Rate; Current Year Earnings per Share Growth Rate; and Next
Year's Projected Earnings per Share Growth Rate. Companies included: FSI
International Inc.; Genus, Inc.; GaSonics International Corporation; Lam
Research, Inc.; Mattson Technology, Inc., Novellus Systems, Inc.; Semitool,
Inc.; and Veeco Instruments, Inc.
51
<PAGE>
The comparable companies had an Enterprise Value/TTM Revenue ratio range of
2.8x to 9.5x with a weighted narrow average (narrow average excludes the
highest and lowest estimates) of 4.9x. After making certain adjustments for
differences in performance, control, and intellectual property, this analysis
yielded an implied CFM equity value of $307.7 million.
Alliant Partners compared certain financial information and valuation ratios
relating to the STEAG Semiconductor Division to corresponding publicly
available data and ratios from a group of selected publicly traded companies
deemed comparable to the STEAG Semiconductor Division. The comparable companies
selected included nine publicly traded companies in the semiconductor equipment
sector. The companies selected included the same companies used in the
comparable company analysis for CFM with the addition of CFM as a comparable
company. The information reviewed by Alliant Partners included the same
financial information reviewed in the CFM analysis.
The comparable companies had an Enterprise Value/TTM Revenue ratio range of
1.7x to 9.5x with a weighted narrow average of 4.6x. After making certain
adjustments for differences in performance, control, and intellectual property,
this analysis yielded an implied STEAG Semiconductor Division equity value of
$658.0 million.
No company utilized as a comparison in the comparable company analysis is
identical to CFM, the STEAG Semiconductor Division, or Mattson. In evaluating
the comparable companies, Alliant Partners made judgments and assumptions with
regard to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
CFM, the STEAG Semiconductor Division, or Mattson.
Comparable Transaction Analysis
Alliant Partners reviewed seven comparable merger and acquisition
transactions from April 1999 through the present which involve sellers sharing
many characteristics with both the STEAG Semiconductor Division and CFM
including revenue size, products offered, and business model. These comparable
transactions of companies in the semiconductor equipment sector are: Speedfam
International's acquisition of Integrated Process Equipment Corp.; STEAG
Electronic Systems AG's acquisition of AG Associates, Inc.; FSI International,
Inc.'s acquisition of Yieldup International Corp.; Veeco Instruments Inc.'s
acquisition of Ion Tech, Inc.; Oerlikon-Buehrle Holding AG's acquisition of
Plasma-Therm, Inc.; Applied Materials, Inc.'s acquisition of Etec Systems,
Inc.; and Veeco Instruments, Inc.'s acquisition of CVC, Inc.
The Price/Revenue multiples of the seven transactions range from 0.7x to
13.0x with an average of 3.8x. The comparable transaction analysis yielded an
implied equity value of $165.3 million for CFM and $629.7 million for the STEAG
Semiconductor Division.
Estimated multiples paid in the comparable transactions were based on
information obtained from public filings, public company disclosures, press
releases, industry and popular press reports, research reports, databases, and
other sources. No company, transaction, or business used in the comparable
transaction analysis as a comparison is identical to CFM, the STEAG
Semiconductor Division, or the Transactions. Accordingly, an analysis of the
foregoing results is not entirely mathematical; rather it involves complex
considerations and judgments concerning differences in financial and operating
characteristics and other factors that could affect the acquisition, public
trading, and other values of the comparable companies, comparable transactions,
or the business segment, company, or transactions to which they are being
compared.
Discounted Cash Flow
Alliant Partners estimated the present value of the projected future cash
flows of both the STEAG Semiconductor Division and CFM on a stand-alone basis
using internal financial planning data prepared by the respective management
teams.
52
<PAGE>
Alliant Partners analyzed the financial projections for CFM for the years
ended December 31, 2001 through 2007 and the financial projections for the
STEAG Semiconductor Division for the years ended December 31, 2001 through
2004. Alliant Partners obtained a terminal valuation based on the average for
three terminal value methods: Average Revenue Multiple derived from the
comparable companies analysis applied to 2007 revenue; Average Revenue multiple
derived from the comparable transactions analysis applied to 2007 revenue; and
the Gordon Growth Model which assumed a long-term growth rate of 17%. In all
cases, Alliant Partners used a discount rate of 22%. This analysis yielded
estimated present values of equity for the STEAG Semiconductor Division and CFM
of $861.1 million and $292.3 million, respectively.
Relative Contribution
Alliant Partners analyzed the respective contributions of Mattson and CFM to
the estimated total revenue for calendar years 1998 and 1999 and based on
management's projections for 2000 and 2001. Alliant Partners also evaluated
certain Balance Sheet contributions including cash, working capital, total
assets, and stockholder's equity. Alliant Partners applied a weighting to the
Income Statement and Balance Sheet analysis of 80% and 20%, respectively. Based
on the above analysis, the relative contribution of Mattson and CFM is 75.52%
and 24.48%, respectively, and when applied to the Adjusted Market
Capitalization of Mattson produced an estimated equity value of CFM of $207.9
million.
Alliant Partners analyzed the respective contributions of Mattson and the
STEAG Semiconductor Division to the estimated total revenue and gross margin
for calendar years 1999 and 2000 and based on management's projections for
2001. Alliant Partners also evaluated certain Balance Sheet contributions
including cash, working capital, total assets, and stockholder's equity.
Alliant Partners applied a weighting to the Income Statement and Balance Sheet
analysis of 80% and 20%, respectively. Based on the above analysis, the
relative contribution of the STEAG Semiconductor Division and Mattson is 51.93%
and 48.07%, respectively, and when applied to the Adjusted Market
Capitalization of Mattson, produced an estimated equity value of the STEAG
Semiconductor Division of $701.6 million.
Pro Forma Transactions Analysis
A pro forma merger analysis calculates the EPS accretion/(dilution) of the
pro forma combined entity taking into consideration various financial effects
which will result from consummation of the Transactions. This analysis relies
upon certain financial and operational assumptions provided by equity research
analysts, publicly available data about Mattson and CFM, and financial
information for Mattson, the STEAG Semiconductor Division, and CFM prepared by
their respective managements. Based on forecasts for Mattson and financial and
operating information for the STEAG Semiconductor Division and CFM, the pro
forma pooling analysis indicates EPS accretion, before amortization, for the
combined company.
Conclusion
While the foregoing summary describes certain analyses and factors that
Alliant Partners deemed material in its presentation to the Mattson board of
directors, it is not a comprehensive description of all analyses and factors
considered by Alliant Partners. The preparation of a fairness opinion is a
complex process that involves various determinations as to the most appropriate
and relevant methods of financial analysis and the application of such methods
to particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Alliant Partners believes that its analyses
must be considered as a whole and that selecting portions of its analyses and
the factors considered by it, without considering all analyses and factors,
would create an incomplete view of the evaluation process underlying the
Alliant Partners Opinion. Several analytical methodologies were employed and no
one method of analysis should be regarded as critical to the overall conclusion
reached by Alliant Partners. Each analytical technique has inherent strengths
and weaknesses, and the nature of the available information may further affect
the value of particular techniques. The conclusions reached by Alliant Partners
are based on all analyses and factors taken as a whole and also on
53
<PAGE>
application of Alliant Partners' own experience and judgment. Such conclusions
may involve significant elements of subjective judgment and qualitative
analysis. Alliant Partners therefore gives no opinion as to the value or merit
standing alone of any one or more parts of the analysis it performed. In
performing its analyses, Alliant Partners considered general economic, market,
and financial conditions and other matters, many of which are beyond the
control of Mattson, the STEAG Semiconductor Division, and CFM. The analyses
performed by Alliant Partners are not necessarily indicative of actual values
or future results, which may be significantly more or less favorable than those
suggested by such analyses. Accordingly, analyses relating to the value of a
business do not purport to be appraisals or to reflect the prices at which the
business actually may be purchased. Furthermore, no opinion is being expressed
as to the prices at which shares of Mattson common stock may trade at any
future time.
Pursuant to the approval by the board of directors of Mattson on May 17,
2000, Alliant Partners has received a fee of $300,000 for the fairness opinion
rendered to the Mattson board. For its financial advisory and investment
banking services on the Transactions, Alliant Partners will also receive a
success fee, in the event of the closing of the Transactions, of $2,000,000,
against which Mattson will receive credit for the $300,000 fairness opinion
fee. Mattson has also agreed to reimburse Alliant Partners for its out-of-
pocket expenses and to indemnify and hold harmless Alliant Partners and its
affiliates and any person, director, employee, or agent acting on behalf of
Alliant Partners or any of its affiliates, or any person controlling Alliant
Partners or its affiliates for certain losses, claims, damages, expenses, and
liabilities relating to or arising out of services provided by Alliant Partners
as financial advisor to Mattson. The terms of the fee arrangement with Alliant
Partners, which Mattson and Alliant Partners believe are customary in
transactions of this nature, were negotiated at arm's length between Mattson
and Alliant Partners, and the Mattson board was aware of such fee arrangements.
As part of its investment banking business, Alliant Partners is frequently
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, sales and divestitures, joint ventures and strategic
partnerships, private financings, and other specialized studies. Alliant
Partners was retained based on Alliant Partners' experience as a financial
advisor in connection with mergers and acquisitions and in securities
valuations generally, as well as Alliant Partners' investment banking
relationship and familiarity with Mattson. Alliant Partners provided financial
advisory and investment banking services on the Transactions and will be
provided fees in accordance with the engagement letter covering these services
as described above.
INTERESTS OF MATTSON'S DIRECTORS, OFFICERS, AND AFFILIATES IN THE TRANSACTIONS
When considering the recommendation of Mattson's board of directors, Mattson
stockholders should be aware that Mattson directors and officers have interests
in the Transactions that are different from, or are in addition to, your
interests. The Mattson board of directors was aware of these potential
conflicts and considered them.
As of the record date, Brad Mattson, the Chief Executive Officer and
chairman of the board of Mattson, held options to purchase 21,163 shares of
common stock of CFM exercisable within 60 days. These options were granted in
connection with Mr. Mattson's service on the board of directors of CFM. These
options will be converted into options for Mattson common stock under the terms
of the Merger Agreement. Mr. Mattson took no part in the deliberations of the
CFM board regarding the proposed merger transaction, and Mr. Mattson resigned
from the CFM board effective April 26, 2000.
John Savage, a director of Mattson, is also a partner at Alliant Partners,
the technology merger and acquisition advisory firm that has provided Mattson
with its opinion regarding the fairness of the proposed Transactions to
Mattson's stockholders from a financial point of view. Mattson has entered into
the Alliant Partners Agreement providing for Alliant Partners to act as
financial advisor in connection with the Transactions. Under the Alliant
Partners Agreement, Mattson has paid to pay Alliant Partners a fee of $300,000
to render an opinion as to the fairness from a financial point of view to
Mattson's stockholders of the consideration to be provided by Mattson in
connection with the Transactions. The Alliant Partners Agreement
54
<PAGE>
further provides for a "success fee" of $2 million in the event the
Transactions close, with the $300,000 fairness opinion fee being applied
against such amount. Under the terms of the Alliant Partners Agreement, Mattson
has also agreed to reimburse Alliant Partners reasonable expenses, and to
indemnify Alliant Partners against any losses, claims, damages, or liabilities
to which Alliant Partners may become subject in connection with its use of
information that is provided to Alliant Partners by Mattson that is inaccurate
in any respect or any other aspect of its rendering such services, unless it is
finally judicially determined that such losses, claims, damages, or liabilities
relating thereto arose only out of the gross negligence or willful misconduct
of Alliant Partners. The Alliant Partners Agreement was determined based on
arm's length negotiation and Mattson believes the terms of the Alliant Partners
Agreement are no less favorable than could have been obtained from third party
consultants and investment bankers.
CFM'S REASONS FOR THE MERGER
The CFM board of directors believes that, despite CFM's success to date,
increasing competition and industry consolidation has made it important for CFM
to gain critical mass in order to compete with larger companies with
substantially greater resources and broader, integrated product offerings.
CFM's customers have made it clear that they prefer to deal exclusively with
large equipment suppliers. As such, CFM's management has considered a number of
alternatives for enhancing its size and competitive position, including
additional sales of conventional wet bench products coupled with significant
growth in the penetration of full-flow platforms, the acquisition of smaller
companies that could extend CFM's product offerings and enhance the
distribution of CFM's products and services, or a merger with a larger company.
After approximately two years of trying to increase access to conventional "wet
bench" equipment through strategic combinations, the board decided it was
necessary for CFM to become part of a larger, higher-profile enterprise
offering additional types of semiconductor manufacturing equipment in order to
place CFM in the arena of large companies preferred by its customers. In the
industry environment referred to above, the CFM board of directors identified
several potential benefits for the CFM shareholders, employees and customers
that it believes could result from a merger with Mattson. These potential
benefits include:
. providing CFM shareholders with shares of Mattson (which following the
business combination with the STEAG Semiconductor Division will be one of
the largest companies in the semiconductor processing equipment industry
with annual sales expected to be over $500 million) in a tax-free
exchange at a substantial premium over the prevailing market price for
CFM common stock immediately prior to the announcement of the merger;
. mitigating the risk of large changes in CFM's stock price due to
significant variations in CFM's shipments from quarter to quarter;
. dampening the magnitude of swings in the semiconductor chip market;
. enabling the combined company, including the STEAG Semiconductor
Division, to offer complementary product lines, which presents the
opportunity to increase the breadth of products offered;
. enabling the combined company to expand the utilization of CFM"s
proprietary Direct-Displacement(TM) drying technology through application
of that technology to complementary product lines;
. eliminating the cost of continued litigation with certain STEAG
Semiconductor Subsidiaries.
The board of directors of CFM believes that the exchange ratio will result
in a significant financial premium to the CFM shareholders. Based upon the
$39.4375 per share closing price of Mattson common stock on June 27, 2000, the
last trading day before the public announcement of the proposed merger, the
merger implied a $20.5982 share price for CFM, representing a premium of 43.3
percent over CFM's closing price on June 27, 2000, of $14.375. The share prices
of Mattson and CFM common stock have generally fluctuated in tandem since the
announcement of the proposed merger.
Historically, one of the greatest risks to CFM shareholders has been the
extreme quarter to quarter fluctuations in operating results. CFM has derived
substantially all of its net sales from the sale of a limited
55
<PAGE>
number of wet processing systems which typically have list prices, before
customer configurations, ranging from approximately $1.1 million to $3.0
million per system. Systems with custom configurations can be priced in excess
of $4.1 million per system. At CFM's current revenue level, each sale or
failure to make a sale can have a material effect on CFM. A cancellation,
rescheduling or delay in a shipment near the end of a particular quarter may
cause net sales in the quarter to fall significantly below CFM's expectations
and thus may materially adversely affect CFM's operating results for such
quarter. Events causing a shortfall in units sold during a particular quarter
may also include a general downturn in the semiconductor chip or semiconductor
equipment industry, a delay in acceptance of a unit by a customer for technical
reasons, or other special circumstances. Such variations of a few units can
cause relatively large swings in reported operating results and make the CFM
stock price inherently more volatile and unpredictable than that of other
companies that sell a much larger number of units at lower average selling
prices in a quarter. The board of directors of CFM believes that a merger with
Mattson, a much larger company, especially following consummation of the
business combination with the STEAG Semiconductor Division, will significantly
mitigate the effects of variation in CFM's revenue pattern.
Mattson also participates in the semiconductor chip equipment market. Both
Mattson's and CFM's businesses depend, in significant part, upon capital
expenditures by manufacturers of semiconductor devices, which in turn depend
upon the current and anticipated market demand for such devices and the
products utilizing such devices. The semiconductor industry has been highly
volatile and historically has experienced periods of oversupply, resulting in
significantly reduced demand for capital equipment, including wet processing
systems. Worldwide demand for semiconductor chips may grow more or less quickly
or suffer a downturn. The board of directors of CFM believes that the
combination of the two companies should serve to dampen the magnitude of swings
in the semiconductor chip market, as larger companies have historically enjoyed
financial returns superior to those of smaller companies in both up and down
markets.
Additionally, CFM expects the business combination between Mattson and the
STEAG Semiconductor Division to expand its business among customers who have
expressed a historical preference for conventional wet bench processing
systems. CFM believes that the STEAG Semiconductor Division produces finely-
engineered products which are well regarded in the industry with excellent
customer acceptance. CFM expects to benefit through a combination of the
efforts and know-how between CFM and the STEAG Semiconductor Division in wet
bench processing equipment.
In the course of its deliberations, the CFM board of directors reviewed with
CFM's management and outside advisors a number of factors relevant to the
merger, including the strategic overview and prospects for CFM. The CFM board
of directors also considered the following potentially positive factors, among
others, in connection with its review and analysis of the merger. The
conclusion reached by the CFM board of directors with respect to each of the
factors supported its determination that the Merger Agreement and the merger
were fair to, and in the best interests of, CFM and its shareholders:
. historical information concerning Mattson's and CFM's respective
businesses, financial performance and condition, operations, technology,
management and competitive position;
. CFM management's view as to the financial condition, results of
operations and businesses of Mattson and CFM before and after giving
effect to the merger based on management due diligence and publicity,
available earnings estimates and, in particular, the view that, in light
of, among other things, market and industry conditions, the potential
synergy and compatibility between CFM, the STEAG Semiconductor Division
and Mattson, the financial strength of Mattson and the ability to
leverage STEAG Semiconductor and Mattson sales network to increase sales
of CFM's products, the long-term financial condition, results of
operations, prospects and competitive position of the combined company
would be better than the long-term financial condition, results of
operations, prospects and competitive position of CFM on a stand-alone
basis;
. current financial market conditions and historical market prices,
volatility and trading information with respect to Mattson common stock
and CFM common stock, which supported a favorable view of Mattson's stock
market presence and positive reputation with investors, as well as the
greater liquidity of an investment in Mattson common stock compared to an
investment in CFM common stock;
56
<PAGE>
. the belief that the terms of the Merger Agreement, including the parties'
representations, warranties and covenants, and the conditions to the
parties' respective obligations, are reasonable;
. the analyses prepared by UBS Warburg LLC and presented to the CFM board
of directors, and the oral opinion of UBS Warburg LLC subsequently
confirmed in writing, that as of June 28, 2000 and based upon and subject
to certain considerations set forth in UBS Warburg's opinion (the full
text of which is attached as Annex D-2 to this joint proxy statement-
prospectus), the exchange ratio was fair, from a financial point of view,
to the holders of CFM common stock, as described more fully under
"Opinion of CFM's Financial Advisor;"
. the impact of the merger on CFM's customers and employees; and
. reports from management, legal advisors and financial advisors as to the
results of their due diligence investigations of Mattson.
The CFM board of directors also considered a number of potentially negative
factors in its deliberations concerning the merger. The potentially negative
factors considered by the CFM board of directors included:
. the risk that, because the exchange ratio will not be adjusted for
changes in the market price of either Mattson common stock or CFM common
stock, the per share value of the consideration to be received by CFM
shareholders might be less than the price per share implied by the
exchange ratio immediately before the announcement of the merger due to
fluctuations in the market value of Mattson common stock and CFM common
stock;
. the risk that the merger might not be completed in a timely manner or at
all;
. the negative impact of any customer or supplier confusion after
announcement of the proposed merger;
. the challenges relating to the integration of the three companies;
. the loss of control over the future operations of CFM following the
merger;
. the possibility of management and employee disruption associated with the
potential merger and integrating the operations of the companies, and the
risk that, despite the efforts of the combined company, key management,
marketing, technical and administrative personnel of CFM might not
continue with the combined company;
. certain terms of the Merger Agreement and related agreements that
prohibit CFM and its representatives from soliciting third party bids or
from entering into discussions regarding, accepting, approving or
recommending unsolicited third party bids except in very limited
circumstances, which terms would reduce the likelihood that a third party
would make a bid for CFM;
. the termination fee payable by CFM in certain circumstances (see "
Termination of the Merger Agreement," beginning on page 93 of this joint
proxy statement-prospectus);
. the negative impact of the stock option agreement on CFM's ability to
attract a higher bid from a third party;
. the risks relating to Mattson's business and how they would affect the
operations of the combined company;
. the risk that the combined company will not be able to successfully
integrate with the STEAG Semiconductor Division; and
. the other risks described above under "Risk Factors" beginning on page 13
of this joint proxy statement-prospectus.
CFM's board of directors believed that these risks were outweighed by the
potential benefits of the merger.
57
<PAGE>
The foregoing discussion, information and factors considered by the CFM
board of directors is not intended to be exhaustive but is believed to include
all material factors considered by the CFM board of directors. In view of the
wide variety of factors considered by the CFM board of directors, the CFM board
of directors did not find it practicable to quantify or otherwise assign
relative weight to the specific factors considered. In addition, the CFM board
did not reach any specific conclusions on each factor considered, or any aspect
of any particular factor, but conducted an overall analysis of these factors.
Individual members of the CFM board may have given different weight to
different factors. However, after taking into account all of the factors set
forth above, the CFM board of directors unanimously agreed that the Merger
Agreement and the merger were fair to, and in the best interests of, CFM and
its shareholders and that CFM should proceed with the merger.
RECOMMENDATION OF CFM'S BOARD OF DIRECTORS
The CFM board of directors believes that the merger is fair to CFM
shareholders and in their best interest and, after careful consideration,
unanimously approved and adopted the Merger Agreement and the merger
contemplated thereunder. Therefore, CFM's board of directors unanimously
recommends that CFM shareholders vote in favor of approval and adoption of the
Merger Agreement.
OPINION OF CFM'S FINANCIAL ADVISOR, UBS WARBURG LLC
On June 28, 2000, at a meeting of the CFM board held to evaluate the
proposed merger, UBS Warburg delivered to the board a written opinion to the
effect that, as of that date and based on and subject to various assumptions,
matters considered and limitations described in the opinion, the exchange ratio
provided for in the merger was fair, from a financial point of view, to the
holders of CFM common stock.
The full text of UBS Warburg's opinion describes the assumptions made,
procedures followed, matters considered and limitations on the review
undertaken by UBS Warburg. This opinion is attached as Annex D-2 and is
incorporated into this joint proxy statement-prospectus by reference. UBS
Warburg's opinion is directed only to the fairness, from a financial point of
view, of the exchange ratio provided for in the merger and does not address any
other aspect of the merger or any related transaction. The opinion does not
address the underlying business decision of CFM to effect the merger or
constitute a recommendation to any holder of CFM common stock as to how to vote
with respect to any matters relating to the merger. Holders of CFM common stock
are encouraged to read this opinion carefully in its entirety. The summary of
UBS Warburg's opinion described below is qualified in its entirety by reference
to the full text of its opinion.
In arriving at its opinion, UBS Warburg:
. reviewed certain publicly available business and historical financial
information relating to CFM, Mattson, and the subsidiaries comprising the
STEAG Semiconductor Division;
. reviewed certain internal financial information and other data relating
to the business and financial prospects of CFM, including estimates and
financial forecasts prepared by management of CFM, that were provided to
UBS Warburg by CFM and not publicly available;
. reviewed certain internal financial information and other data relating
to the businesses and financial prospects of each of Mattson and the
STEAG Semiconductor Division, including estimates and financial forecasts
prepared by the managements of each of Mattson and STEAG Semiconductor,
that were provided to UBS Warburg by Mattson and the STEAG Semiconductor
Division, respectively, and not publicly available;
. conducted discussions with members of the senior managements of CFM,
Mattson, and the STEAG Semiconductor Division;
. reviewed publicly available financial and stock market data with respect
to certain other companies in lines of business UBS Warburg believed to
be generally comparable to those of CFM, Mattson, and the STEAG
Semiconductor Division;
58
<PAGE>
. compared the financial terms of the merger with CFM and the business
combination with the STEAG Semiconductor Division with the publicly
available financial terms of certain other transactions which UBS Warburg
believed to be generally relevant;
. considered certain pro forma effects of the merger with CFM and the STEAG
Semiconductor Division acquisition on the Mattson financial statements;
. performed an analysis of the contributions of CFM, Mattson, and the STEAG
Semiconductor Division to certain historical and projected financial
results of the combined companies;
. performed a discounted cash flow analysis of the pro forma combined
Mattson, CFM, and the STEAG Semiconductor Division;
. reviewed drafts of the Merger Agreement, the Combination Agreement and
related agreements; and
. conducted such other financial studies, analyses, and investigations, and
considered such other information, as UBS Warburg deemed necessary or
appropriate.
In connection with its review, at CFM's direction, UBS Warburg did not
assume any responsibility for independent verification of any of the
information that UBS Warburg was provided or reviewed for the purpose of its
opinion and, at CFM's direction, UBS Warburg relied on that information being
complete and accurate in all material respects. In addition, at CFM's
direction, UBS Warburg did not make any independent evaluation or appraisal of
any of the assets or liabilities, contingent or otherwise, of CFM, Mattson, or
the STEAG Semiconductor Division, and was not furnished with any evaluation or
appraisal.
With respect to the financial forecasts, estimates and pro forma effects
related thereto that it reviewed, UBS Warburg assumed, at the direction of CFM,
that they were reasonably prepared on a basis reflecting the best currently
available estimates and judgments of the managements of CFM, Mattson, and the
STEAG Semiconductor Division as to the future financial performance of their
respective companies and the potential incremental revenue and other financial
benefits (including the amount, timing and achievability thereof) resulting
from the merger and the business combination. UBS Warburg also assumed, with
CFM's consent, that the merger will be treated as a tax-free reorganization for
federal income tax purposes. UBS Warburg's opinion is necessarily based on
economic, monetary, market and other conditions existing, and information made
available to UBS Warburg, on the date of its opinion.
At CFM's direction, UBS Warburg was not asked to, and it did not, offer any
opinion as to the material terms of the Merger Agreement, the form of the
merger, or any related agreement to be entered into by CFM, including the
interim patent license agreement between CFM, CFMT, Inc., and STEAG. In
rendering its opinion, UBS Warburg assumed, with CFM's consent, that Mattson,
M2C Acquisition Corporation, and CFM will comply with all the material terms of
the Merger Agreement and that the merger will be validly consummated in
accordance with its terms. At CFM's direction, UBS Warburg also assumed that
the closing under the Combination Agreement, pursuant to which Mattson will
acquire the STEAG Semiconductor Division, will occur contemporaneously with the
effective time of the merger, that Mattson and STEAG will comply with all the
material terms of the Combination Agreement, and that the transactions
contemplated by the Combination Agreement will be validly consummated in
accordance with its terms. UBS Warburg expressed no opinion as to the value of
the Mattson common stock when issued in the merger or the prices at which the
Mattson common stock will trade or otherwise be transferable after the
announcement or consummation of the merger.
In connection with rendering its opinion to CFM's board of directors, UBS
Warburg performed a variety of financial analyses which are summarized below.
The following summary is not a complete description of all of the analyses
performed and factors considered by UBS Warburg in connection with its opinion.
The preparation of a fairness opinion is a complex process involving subjective
judgments and is not necessarily susceptible to partial analysis or summary
description. With respect to the analysis of selected publicly traded companies
and the analysis of selected transactions summarized below, no company or
transaction used as a
59
<PAGE>
comparison is either identical or directly comparable to CFM, Mattson or the
merger. These analyses necessarily involve complex considerations and judgments
concerning financial and operating characteristics and other factors that could
affect the public trading or acquisition values of the companies concerned.
UBS Warburg believes that its analyses and the summary below must be
considered as a whole and that selecting portions of its analyses and factors
or focusing on information presented in tabular format, without considering all
analyses and factors or the narrative description of the analyses, could create
a misleading or incomplete view of the processes underlying UBS Warburg's
analyses and opinion. None of the analyses performed by UBS Warburg was
assigned greater significance by UBS Warburg than any other. UBS Warburg
arrived at its ultimate opinion based on the results of all the analyses
undertaken by it and assessed as a whole. UBS Warburg did not draw, in
isolation, conclusions from or with regard to any one factor or method of
analysis.
The estimates of CFM's, Mattson's, and the STEAG Semiconductor Division's
future performance provided by these companies' respective managements in or
underlying UBS Warburg's analyses are not necessarily indicative of future
results or values, which may be significantly more or less favorable than those
estimates. In performing its analyses, UBS Warburg considered industry
performance, general business and economic conditions and other matters, many
of which are beyond CFM's, Mattson's and the STEAG Semiconductor Division's
control. Estimates of the financial value of companies do not necessarily
purport to be appraisals or reflect the prices at which companies actually may
be sold.
The exchange ratio provided for in the merger was determined through
negotiation between CFM and Mattson and the decision to enter into the merger
was solely that of CFM's board of directors. UBS Warburg's opinion and
financial analyses were only one of many factors considered by CFM's board of
directors in its evaluation of the merger and should not be viewed as
determinative of the views of CFM's board of directors or management with
respect to the merger or the exchange ratio provided for in the merger.
The following is a brief summary of the material financial analyses
performed by UBS Warburg and reviewed with CFM's board of directors in
connection with its opinion. The financial analyses summarized below include
information presented in tabular format. In order to fully understand UBS
Warburg's financial analyses, the tables must be read together with the text of
each summary. The tables alone do not constitute a complete description of the
financial analyses. Considering the data below without considering the full
narrative description of the financial analyses, including the methodologies
and assumptions underlying the analyses, could create a misleading or
incomplete view of UBS Warburg's financial analyses.
Analysis of Selected Public Companies
UBS Warburg compared selected financial information and operating statistics
for CFM and Mattson with corresponding financial information and operating
statistics of the following ten selected publicly held companies in the
semiconductor capital equipment industry:
<TABLE>
<CAPTION>
Comparable Companies Comparable Large-Cap Companies
-------------------- ------------------------------
<S> <C>
--ASM International N.V. --Lam Research Corporation
--Dainippon Screen Mfg. Co., Ltd. --Novellus Systems, Inc.
--FSI International, Inc.
--Gasonics International Corporation
--Semitool, Inc.
--SEZ Holdings AG
--Speedfam-IPEC, Inc.
--
Varian Semiconductor Equipment Associates, Inc.
</TABLE>
60
<PAGE>
UBS Warburg reviewed common equity market prices per share as multiples of
latest twelve months earnings per share and estimated calendar years 2000 and
2001 earnings per share. UBS Warburg also reviewed enterprise values,
calculated as equity value, plus debt, less cash, as multiples of latest twelve
months revenue and estimated calendar years 2000 and 2001 revenue. UBS Warburg
then compared the multiples derived from the selected companies with
corresponding multiples for CFM and Mattson based on the closing prices of
their common stock on June 23, 2000, as well as the multiples implied for CFM
based on the exchange ratio provided for in the merger and the closing price of
Mattson common stock on June 23, 2000. Multiples for the selected companies
also were based on closing stock prices on June 23, 2000. Estimated financial
data for the selected companies were based on publicly available research
analyst estimates, and estimated financial data for CFM and Mattson were based
on internal estimates of CFM's and Mattson's managements. This analysis
indicated the following implied low, mean, median and high equity value and
enterprise value multiples for the selected comparable companies and implied
mean equity value and enterprise value multiples for the comparable large-cap
companies, as compared to the multiples implied for CFM and Mattson based on
the closing prices of their common stock on June 23, 2000 and the multiples
implied for CFM based on the exchange ratio provided for in the merger and the
closing price of Mattson common stock on June 23, 2000:
<TABLE>
<CAPTION>
Implied
Multiples of
Mean CFM
Multiples of Selected Multiple of Technologies
Comparable Companies Comparable Multiples of Based on
---------------------- Large-cap CFM Multiples of Exchange
Low Mean Median High Companies Technologies Mattson Ratio
---- ---- ------ ----- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Values as
Multiple of:
Latest 12 months EPS.... 32.0 93.7 82.2 157.4 49.5 NM(1) 119.3 NM(1)
Estimated 2000 EPS...... 20.0 57.8 30.5 188.8 26.4 NM(1) 36.7 NM(1)
Estimated 2001 EPS...... 13.9 21.7 20.5 38.9 20.3 NM(1) 22.4 NM(1)
Enterprise Value as a
Multiple of:
Latest 12 Months
Revenue................ 2.13 5.17 3.11 18.32 7.42 1.77 4.95 3.66
Estimated 2000 Revenue.. 1.51 3.42 2.26 10.69 4.77 1.34 3.32 2.75
Estimated 2001 Revenue.. 1.24 2.56 1.78 7.05 3.55 1.10 2.32 2.26
</TABLE>
--------
(1) Not meaningful because CFM did not have or is not projected to have, as the
case may be, earnings for the applicable period.
Analysis of Selected Precedent Transactions
UBS Warburg reviewed implied enterprise values in the following eleven
selected transactions in the semiconductor capital equipment industry:
<TABLE>
<CAPTION>
Acquiror Target
-------- ------
<S> <C>
--Veeco Instruments, Inc. --CVC, Inc.
--Oerlikon-Buehrle Holding AG --Plasma-Therm, Inc.
--Photronics, Inc. --Align-Rite International, Inc.
--STEAG Electronic Systems AG --AG Associates, Inc.
--FEI Company --Micrion Corporation
--Speedfam International, Inc. --Integrated Process Equipment, Corp.
--Advanced Energy Industries, Inc. --RF Power Products, Inc.
--Eaton Corporation --Fusion Systems Corporation
--LAM Research Corporation --OnTrak Systems Corporation
--Millipore Corporation --Tylan General, Inc.
--Plasma and Materials --Electrotech Equipment
</TABLE>
UBS Warburg reviewed enterprise values as multiples of latest twelve months
revenues and estimated calendar year 2000 revenues. UBS Warburg then compared
the implied multiples derived from the selected
61
<PAGE>
transactions with corresponding multiples for CFM based on the exchange ratio
provided for in the merger and the closing price of the Mattson common stock on
June 23, 2000. All multiples were based on publicly available information at
the time of announcement of the relevant transaction. This analysis indicated
the following implied low, mean, median and high enterprise value multiples for
the selected transactions, as compared to the multiples implied for CFM based
on the exchange ratio provided for in the merger and the closing price of the
Mattson common stock on June 23, 2000:
<TABLE>
<CAPTION>
Implied
Multiples of Multiples
Selected Precedent of CFM
Transactions Based on
--------------------- Exchange
Low Mean Median High Ratio
---- ---- ------ ---- ---------
<S> <C> <C> <C> <C> <C>
Enterprise Values as a Multiple of:
Latest 12 Months Revenue........................ 0.85 2.36 2.10 4.69 3.66
Estimated 2000 Revenue.......................... 1.20 2.66 2.22 4.95 2.75
</TABLE>
UBS Warburg also analyzed the premium to be paid per share of CFM common
stock over selected periods based on the Mattson common stock closing price on
June 23, 2000 and compared it to the premiums paid in the selected precedent
transactions over similar time periods. The following table summarizes the
results of this analysis:
<TABLE>
<CAPTION>
Premium Based On
Stock Prices Prior
to Announcement
----------------------
30 Days 7 Days 1 Day
------- ------ -----
<S> <C> <C> <C>
Low..................................................... 16.4% (0.6)% (2.9)%
Mean.................................................... 56.9% 32.5 % 27.0 %
Median.................................................. 42.1% 30.0 % 20.7 %
High.................................................... 151.2% 105.5 % 94.9 %
CFM(1).................................................. 156.4% 77.8 % 84.0 %
</TABLE>
--------
(1) Based on the closing price of the CFM common stock thirty days, seven days,
and one day prior to June 23, 2000.
Discounted Cash Flow Analysis
UBS Warburg performed a discounted cash flow analysis of the pro forma
combined Mattson, CFM, and the STEAG Semiconductor Division using operating
projections provided by the respective companies' managements. In performing
its discounted cash flow analysis, UBS Warburg considered various assumptions
and applied valuation parameters that it deemed appropriate. Utilizing the
projections provided by such managements, UBS Warburg calculated the
theoretical discounted present value per share for CFM (based on the exchange
ratio in the merger) after giving effect to the merger by adding together (a)
the projected future stream of unleveraged free cash flow through December 31,
2004 and (b) the projected continuing value of the combined company at December
31, 2004, defined as the terminal value. The terminal value was calculated
based on earnings before interest, taxes, depreciation and amortization
multiples of 12x to 14x. The cash flow streams and the terminal values were
then discounted to present values using a range of discount rates from 15% to
21%. By adding the present value of the cash flow streams and terminal value
and subtracting the net debt, a range of implied equity values was determined.
Based on the analysis above, UBS Warburg arrived at an implied equity value per
share valuation range of CFM (based on the exchange ratio in the merger) after
giving effect to the merger of $20.43 to $29.78 per share.
Contribution Analysis
UBS Warburg reviewed the contributions of CFM, Mattson, and the STEAG
Semiconductor Divsion to the combined company's fiscal 1999 revenues, estimated
calendar year 2000 revenue and estimated calendar year 2001 revenues, EBIT and
net income (such estimates based on internal estimates of the respective
companies'
62
<PAGE>
managements), as well as book value at 1999 fiscal year end. Based on the
exchange ratio provided for in the merger and the closing price of Mattson
common stock on June 23, 2000, this analysis indicated the following relative
contributions of CFM, Mattson, and the STEAG Semiconductor Division, as
compared to the percentages that CFM, Mattson, and the STEAG Semiconductor
Division would each constitute of the combined company's equity value and
enterprise value:
<TABLE>
<CAPTION>
Percentage Contribution to
Combined Company
---------------------------
STEAG
Semiconductor
Mattson CFM Division
------- ---- -------------
<S> <C> <C> <C>
Equity Value........................................ 56.0% 12.2% 31.9%
Enterprise Value.................................... 50.1% 12.2% 37.7%
Revenue 1999 ....................................... 34.7% 10.6% 54.7%
2000E......................................... 39.0% 11.5% 49.6%
2001E......................................... 39.6% 9.9% 50.5%
Estimated 2001 EBIT................................. 58.8% 0.5% 40.7%
Estimated 2001 Net Income........................... 64.2% 1.2% 34.6%
Fiscal 1999 Book Value.............................. 71.7% 27.9% 0.3%
</TABLE>
Other Factors
In rendering its opinion, UBS Warburg also reviewed and considered other
factors, including:
. that, based upon the internal estimates of the managements of CFM and
Mattson and excluding any expense associated with the amortization of
goodwill or other intangibles arising from the merger, the merger is
expected to be dilutive to Mattson's earning per share for calendar year
2000 and accretive to Mattson's earnings per share for calendar year
2001;
. that, based upon the internal estimates of the managements of Mattson,
CFM, and the STEAG Semiconductor Division and excluding any expenses
associated with the amortization of goodwill or other intangibles arising
from the Transactions are expected to be dilutive to Mattson's earning
per share for calendar year 2000 and accretive to Mattson's earning per
share for calendar year 2001; and
. historical market prices and volumes for the CFM common stock and Mattson
common stock and the relationship between movements in the CFM common
stock and movements in the Mattson common stock.
Miscellaneous
CFM paid to UBS Warburg a fee of $350,000 in connection with the delivery of
the UBS Warburg opinion, and has agreed to pay to UBS Warburg for its financial
advisory services upon completion of the merger a transaction fee equal to
1.25% of transaction value, determined at closing. In addition, CFM has agreed
to reimburse UBS Warburg for its reasonable expenses, including reasonable fees
and disbursements of its counsel, and to indemnify UBS Warburg and related
parties against liabilities, including liabilities under federal securities
laws, relating to, or arising out of, its engagement.
CFM selected UBS Warburg as its financial advisor in connection with the
merger because UBS Warburg is an internationally recognized investment banking
firm with substantial experience in similar transactions. UBS Warburg is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, leveraged buyouts, negotiated
underwritings, competitive bids, secondary distributions of listed and unlisted
securities and private placements.
In the ordinary course of business, UBS Warburg, its successors and
affiliates may actively trade the securities of CFM and Mattson for their own
accounts and the accounts of their customers and, accordingly, may at any time
hold a long or short position in these securities.
63
<PAGE>
INTERESTS OF CFM'S DIRECTORS, OFFICERS, AND AFFILIATES IN THE TRANSACTIONS
When considering the recommendation of CFM's board of directors, CFM
shareholders should be aware that CFM directors and officers have interests in
the Transactions that are different from, or are in addition to, your
interests. The CFM board of directors was aware of these potential conflicts
and considered them.
Stock Options
As of the record date, Brad Mattson, the Chief Executive Officer and
Chairman of the board of Mattson, held 21,163 options in CFM exercisable within
60 days. These options were granted in connection with Mr. Mattson's service on
the board of directors of CFM. These options will be converted into options for
Mattson common stock under the terms of the Merger Agreement. Mr. Mattson took
no part in the deliberations of the CFM board regarding the proposed merger
transaction, and Mr. Mattson resigned from the CFM board effective April 26,
2000.
Employment Arrangements
Under the terms of the Merger Agreement, certain members of CFM's board of
directors and executive management team will become officers and/or members of
the board of directors of Mattson, as follows:
James J. Kim will become a member of the board of directors of Mattson.
Roger A. Carolin will serve as the President of Mattson's Wet Processing
Group.
Christopher F. McConnell, the Chairman of the Board of CFM, is party to the
McConnell Severance Agreement. Roger Carolin is party to the Carolin Severance
Agreement. The McConnell Severance Agreement provides, among other things, that
for 5 years from the date of its execution, unless earlier terminated by the
mutual agreement of the parties, following any Change of Control Event (as
defined therein), if Mr. McConnell's employment is terminated by the employer
Without Cause or by Mr. McConnell for a Good Reason Event (as such terms are
defined in McConnell Severance Agreement):
. any options to purchase common stock of the employer shall vest
immediately as of the date of such termination;
. the employer shall pay the employee his annual target bonus for the
then-current fiscal year on a pro rata basis;
. the employer shall pay the employee 24 monthly payments equal to one-
twelfth of the employee's then-current annual base salary plus annual
target bonus.
Additionally, if Mr. McConnell's employment is terminated for a Good Reason
Event, the employer shall be entitled to 26 days of consulting time from the
employee during the 6 months following termination and for any additional days
agreed to by Mr. McConnell, the employer shall pay Mr. McConnell $3,500 a day.
The Carolin Severance Agreement provides, among other things, that for 5
years from the date of its execution or two years following a Change in Control
Event (as defined therein), whichever is longer, unless earlier terminated by
the mutual agreement of the parties, following a Change in Control Event, if
Mr. Carolin's employment is terminated by the employer Without Cause or by Mr.
Carolin for a Good Reason Event (as such terms are defined in the Carolin
Severance Agreement):
. any options to purchase common stock of the employer shall vest
immediately as of the date of such termination;
. the employer shall pay the employee his annual target bonus for the
then-current fiscal year on a pro rata basis;
64
<PAGE>
. the employer shall pay the employee 24 monthly payments equal to one-
twelfth of the employee's then-current annual base salary plus annual
target bonus.
Additionally, if Mr. Carolin's employment is terminated for a Good Reason
Event, the employer shall be entitled to 26 days of consulting time during the
6 months following termination and for any additional days agreed to by Mr.
Carolin, the employer shall pay Mr. Carolin $3,100 a day.
Lorin J. Randall, the Secretary and Chief Financial Officer of CFM, is a
party to the Employment Agreement. The Employment Agreement provides, among
other things, that for 5 years from the date of its execution, unless earlier
terminated by the mutual agreement of the parties, following any Change of
Control Event (as defined therein), if Mr. Randall's employment is terminated:
(1) by the employer Without Cause (as defined in the Employment Agreement):
. if the termination occurs within 18 months of a Change of Control Event
the employer will pay Mr. Randall:
. his annual target bonus for the current fiscal year on a pro rata
basis;
. monthly compensation equal to one-twelfth of Mr. Randall's then-
current annual base salary plus annual target bonus for a period of
18 months following the date of termination.
. If a Change of Control Event occurs during the one-year period following
Mr. Randall's termination, the employer shall pay Mr. Randall:
. his annual target bonus for the then-current fiscal year on a pro
rata basis;
. monthly compensation equal to one-twelfth of Mr. Randall's then-
current annual base salary plus annual target bonus for a period of
18 months following the date of termination;
. fully vested options to purchase a number of shares of common stock
of the employer equal to the number of unvested options held by Mr.
Randall and cancelled at the time of termination. The purchase price
of each such share shall equal the lowest share purchase price of
any of the cancelled options or the fair market value of a share of
common stock of the employer on the date of the Change of Control
Event, whichever is lower. All other terms of the newly granted
option shall be similar to the terms of the cancelled options.
(2) by Mr. Randall upon a Good Reason Event:
. any options to purchase common stock of the employer and held by Mr.
Randall shall vest immediately as of the date of such termination;
. the employer will pay Mr. Randall his annual target bonus for the
current fiscal year on a pro rata basis;
. Mr. Randall shall agree to serve as a consultant to CFM for up to 26
days during the 6 months after his termination; and
. the employer will pay Mr. Randall 18 monthly payments equal to one-
twelfth of his then-current annual base salary plus annual target bonus
and the amount of $3,000 for each day of consulting Mr. Randall agrees
to in excess of 26 days.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes material federal income tax consequences
of the merger to holders of CFM common stock, and to Mattson, M2C Acquisition
Corporation, and CFM. The discussion is based on the current provisions of the
Internal Revenue Code of 1986, as amended (the Code), existing and proposed
Treasury Regulations, interpretive rulings of the Internal Revenue Service and
court decisions, all of which are subject to change at any time, possibly with
retroactive effect. Any such change could affect the continuing validity of
this summary.
65
<PAGE>
Holders of CFM common stock should be aware that this discussion does not
deal with federal income tax considerations that may be relevant to individual
shareholders in light of their particular circumstances or to shareholders who
are subject to special treatment under the Code. Thus, for example, the
discussion may not be applicable to tax-exempt organizations, financial
institutions, nonresident alien individuals or foreign entities. Other
shareholders also may have special considerations, including those who are
subject to alternative minimum tax provisions of the Code, who own, or are
deemed to own, a significant amount of Mattson common stock prior to the
merger, who do not hold their shares of CFM common stock as capital assets or
who acquired their shares in connection with stock option plans or in other
compensatory transactions. In addition, the following discussion does not
address the tax consequences of the merger under foreign, state or local tax
laws, the tax consequences to holders of options to acquire CFM common stock
and to holders of CFM common stock exercising dissenters rights, or the tax
consequences of transactions effectuated before, after or concurrently with the
merger, including any transactions in which shares of CFM common stock are
acquired or shares of Mattson common stock are sold, exchanged or otherwise
disposed of.
It is expected that the merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code,
that Mattson, M2C Acquisition Corporation, and CFM will each be a party to a
reorganization within the meaning of Section 368(b) of the Code and that no
gain or loss will be recognized by a stockholder of CFM as a result of the
merger with respect to the shares of CFM common stock that are converted solely
into Mattson common stock. However, a shareholder of CFM may recognize gain or
loss with respect to the receipt of cash in lieu of the issuance of fractional
shares of Mattson common stock. Neither Mattson nor CFM will request a ruling
from the Internal Revenue Service in connection with the merger.
The Merger Agreement provides that the obligation of CFM to complete the
merger is subject to the receipt of a written opinion from its counsel, Ballard
Spahr Andrews & Ingersoll, LLP, that the tax consequences of the merger shall
be as set forth above. CFM does not have any current intention to waive this
condition regarding the tax opinion. However, CFM shareholders should be aware
that such opinion of counsel will not bind the IRS or any court, and that the
IRS may assert a contrary position. This tax opinion will be made subject to
assumptions and qualifications, including the truth and accuracy of
representations made by CFM and Mattson in certificates to be delivered to
counsel by the respective managements of CFM and Mattson.
If the merger were to fail to qualify as a reorganization under section
368(a) of the Code, then CFM shareholders would recognize taxable gain or loss
with respect to each share of CFM common stock surrendered equal to the
difference between the shareholders basis in the share and the fair market
value, as of the effective time of the merger, of the Mattson common stock
received in exchange for such share.
The preceding discussion is not a complete analysis or discussion of all
potential tax effects relevant to the merger. Holders of CFM common stock are
urged to consult their own tax advisers as to the specific consequences of the
merger to them, including tax return reporting requirements, the applicability
and effect of federal, state, local, and other tax laws and the effects of any
proposed changes in the tax laws.
ANTICIPATED ACCOUNTING TREATMENT OF THE TRANSACTIONS
Mattson intends to account for the Transactions as a "purchase" of the STEAG
Semiconductor Division and CFM by Mattson for financial reporting and
accounting purposes, in accordance with generally accepted accounting
principles. The purchase accounting treatment of the transactions will result
in a purchase price in excess of net assets acquired. This number is expected
to be in the $350 to $450 million range based on the market price of Mattson
stock at the time of announcement of the Transactions and the current value of
the net assets. The allocation of the purchase price among net assets acquired,
in-process research and development, goodwill and other intangibles will be
determined using independent appraisers. It is anticipated that the goodwill
and other intangibles will be amortized by Mattson over a period of three to
seven years.
66
<PAGE>
REGULATORY FILINGS AND APPROVALS REQUIRED TO COMPLETE THE TRANSACTIONS
The Transactions are subject to the requirements of the HSR Act which
prevents reportable transactions from being completed until statutory waiting
periods expire or are terminated. During such waiting periods, the Antitrust
Division of the Department of Justice or the Federal Trade Commission may
request the parties to provide, voluntarily or otherwise, certain information
relevant to their review. Mattson, STEAG and CFM have already received the
required clearances under both the HSR Act and the German Cartel Act with
respect to the Transactions.
The requirements of the HSR will be satisfied if the Transactions are
completed within one year from the termination of the waiting period. During or
after the statutory waiting periods, and even after completion of the
Transactions, either the Antitrust Division of the Department of Justice or the
Federal Trade Commission could challenge or seek to block the Transactions
under the antitrust laws, as it deems necessary or desirable in the public
interest. Foreign competition agencies with jurisdiction over the Transactions
could also initiate action to challenge or block the Transactions. In addition,
a competitor, customer, or other third party could initiate a private action
under the antitrust laws challenging or seeking to enjoin the Transactions,
before or after they are completed. Mattson, STEAG, and CFM cannot be sure that
a challenge to the Transactions will not be made or that, if a challenge is
made, Mattson, STEAG, and CFM will prevail. If either of the Transactions is
blocked, then neither can be completed.
None of Mattson, STEAG, or CFM is aware of any other material governmental
or regulatory approval required for completion of the Transactions, other than
the effectiveness of the registration statement of which this joint proxy
statement-prospectus is a part, and compliance with applicable corporate laws
of Delaware, Pennsylvania, the Federal Republic of Germany, and the corporate
laws of the countries in which any of the STEAG Semiconductor Subsidiaries may
be located.
APPRAISAL OR DISSENTERS' RIGHTS
Under Section 262 of the Delaware General Corporation Law, Mattson
stockholders who do not vote in favor of or consent to a merger are not
entitled to appraisal rights if the stock subject to such merger is designated
as a National Market System Security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. and the consideration to be
received in such merger consists of stock listed on a national securities
exchange or designated as a National Market System Security on an interdealer
quotation system by the National Association of Securities Dealers, Inc.
Because Nasdaq is designated as such a system and the Mattson common stock is
and will continue to be quoted on Nasdaq, holders of Mattson common stock are
not entitled to appraisal rights with respect to the merger.
Under Pennsylvania law, CFM shareholders are entitled to dissent from the
merger and instead demand payment from CFM of the fair value of their shares.
To claim dissenters' rights, CFM shareholders must comply with the following
requirements:
. Before the shareholder vote on the Merger Agreement is taken, CFM
shareholders must deliver to CFM written notice of their intent to demand
payment for their shares if the merger is effected.
. CFM shareholders must not vote their shares in favor of the merger and
the Merger Agreement at the CFM shareholder meeting.
. If CFM shareholders notify CFM of their intent to demand dissenters'
rights, CFM will send them written notice after the completion of the
merger, indicating when and how to demand payment for their shares. After
receiving the notice, they must demand payment for their shares in the
manner required by the notice sent by CFM.
. CFM shareholders must certify to CFM the date they acquired beneficial
ownership of their shares.
. CFM shareholders must deposit the certificates representing their shares
in the manner required by the notice they receive from CFM.
67
<PAGE>
If CFM shareholders do not comply with the requirements outlined above, they
will not be entitled to receive payment for their shares under the dissenters'
rights provisions of Pennsylvania law.
If CFM shareholders comply with the outlined requirements, promptly
following the later of the date of effectiveness of the merger or the date CFM
received demand for payment, CFM will pay to dissenting CFM shareholders the
amount CFM estimates to be the fair value of their shares of CFM common stock.
Within 30 days of receipt of CFM's remittance of payment or estimate of the
fair value, if CFM shareholders believe CFM's estimate of the fair value of
their shares is incorrect, CFM shareholders may notify CFM in writing of their
own estimate of the fair value of their shares of CFM common stock and demand
payment of their estimate. Within 60 days of the later to occur of the
effectuation of the merger, timely receipt of the shareholder's demand for
payment and timely receipt of an estimate of fair value from the shareholder,
if demand for payment of the shares remains unsettled, CFM may request the fair
value be determined by a court. YOUR DISSENTERS' RIGHTS ARE SET OUT IN THEIR
ENTIRETY IN SECTIONS 1571-1580 OF THE PENNSYLVANIA BUSINESS CORPORATION LAW,
WHICH IS ATTACHED TO THIS JOINT PROXY STATEMENT-PROSPECTUS AS ANNEX E.
RESTRICTIONS ON SALES OF SHARES BY AFFILIATES
The shares of Mattson common stock to be issued to CFM shareholders in the
merger will be registered under the Securities Act. These shares will be freely
transferable under the Securities Act, except for shares of Mattson common
stock issued to any person who is an affiliate of Mattson. Persons who may be
deemed to be affiliates include individuals or entities that control, are
controlled by, or are under common control of Mattson and may include some of
their respective officers and directors, as well as their respective principal
shareholders. Affiliates may not sell their shares of Mattson common stock
acquired in the Transactions except pursuant to (1) an effective registration
statement under the Securities Act covering the resale of those shares, (2) an
exemption under paragraph (d) of Rule 145 under the Securities Act or (3) any
other applicable exemption under the Securities Act.
68
<PAGE>
THE STRATEGIC BUSINESS COMBINATION AGREEMENT
This section of the joint proxy statement-prospectus describes the material
terms of the Strategic Business Combination Agreement between Mattson and STEAG
dated as of June 27, 2000 (the "Combination Agreement"). While Mattson and CFM
believe this description covers the material terms of the Combination
Agreement, this summary may not contain all of the information that is
important to you. This description is qualified in its entirety by reference to
the Combination Agreement attached as Annex A hereto, which Mattson and CFM
urge you to read carefully.
Result of Business Combination
Pursuant to the Combination Agreement, Mattson will directly or indirectly
acquire 100% of the issued and outstanding capital stock, equity ownership, or
its equivalent, of the following STEAG Semiconductor Subsidiaries which
comprise the STEAG Semiconductor Division: STEAG RTP Systems GmbH, STEAG
MicroTech GmbH, STEAG RTP Systems, Inc., STEAG CVD Systems Ltd., STEAG CVD
Systems, Inc., STEAG Cutek, Inc., STEAG Electronic Systems Inc., STEAG
Electronic Systems (UK) Ltd., STEAG Electronic Systems South East Asia PTE
Ltd., STEAG Electronic Systems Korea Ltd., and STEAG Electronic Systems Japan
Co., Ltd.
Organization of New German Corporation
In connection with the Combination Agreement, STEAG has recently organized
under German law a new corporation, STEAG Electronic Systems Semiconductor GmbH
("Newco"). Prior to the closing, STEAG will transfer all of the capital stock
it owns in each STEAG Semiconductor Subsidiary organized or incorporated
outside of Germany and the United States to Newco and, at STEAG's option, may
also transfer to Newco all of the capital stock STEAG owns in the STEAG
Semiconductor Subsidiaries incorporated in the United States. At the closing,
STEAG will transfer to Mattson all of the capital stock of Newco, each of the
STEAG Semiconductor Subsidiaries organized in Germany, and each of the STEAG
Semiconductor Subsidiaries incorporated in the United States not previously
transferred to Newco.
Closing of The Business Combination; Consideration
At the closing of the business combination, Mattson will receive all of the
shares of Newco and the other STEAG Semiconductor Subsidiaries, and will in
exchange issue and deliver to STEAG 11,850,000 shares of Mattson common stock
and US$100,000. Mattson, at its option, may elect to increase the consideration
paid to STEAG by also delivering to STEAG a promissory note if STEAG would
otherwise have a right to terminate the Combination Agreement due to the market
price of Mattson common stock at the time for closing. See "Termination--
Optional Termination" beginning on page 78 of this joint proxy statement-
prospectus. Mattson shall also assume certain obligations of STEAG and STEAG
AG, and will grant options to purchase 850,000 shares of Mattson common stock
to directors, officers, and employees of the STEAG Semiconductor Division under
existing Mattson stock option plans, with an exercise price equal to the fair
market value of Mattson common stock on the date of the closing and under terms
consistent with outstanding Mattson stock options.
Time of Closing
If all of the conditions to the business combination contained in the
Combination Agreement are satisfied or waived, the Combination Agreement
provides that the closing will occur as soon as practicable following January
1, 2001.
If prior to December 1, 2000, all of the mutual closing conditions have been
satisfied, Brad Mattson has executed and delivered the Stockholder Agreement,
and all of the other closing conditions (other than those conditions which, by
their nature, can only be satisfied by delivery of securities, documents, or
other
69
<PAGE>
instruments on the closing date) would have been either satisfied or waived by
the relevant party were the closing to occur at such time, and simultaneously,
the same situation applies under the Merger Agreement with CFM, then the
parties will take the following pre-closing steps prior to the actual closing:
. Mattson and STEAG will each deliver or cause to be delivered to the other
the closing certificates and legal opinions that would otherwise be
required at the closing;
. Mattson and STEAG will each execute and deliver the Stockholder
Agreement, and will also execute and deliver the Transition Services
Agreement (described in further detail below) and such other agreements
as would have been required at the closing;
. Mattson will execute and deliver to STEAG an irrevocable acknowledgement
and waiver of the satisfaction or waiver of the closing conditions
applicable to Mattson and the waiver of Mattson's termination rights
under the Combination Agreement and STEAG will execute and deliver to
Mattson an irrevocable acknowledgement and waiver of the satisfaction or
waiver of the closing conditions applicable to STEAG and the waiver of
STEAG's termination rights under the Combination Agreement.
However, despite taking these pre-closing steps, the actual closing shall
not occur, and STEAG shall not sell or transfer to Mattson, and Mattson shall
not acquire ownership of the STEAG Semiconductor Subsidiaries, prior to January
1, 2001.
Post-Closing Cash Adjustments
The following adjustments will be made with regard to the profits and
losses, cash position, and working capital of the STEAG Semiconductor Division
following the closing:
. As promptly as practicable, but in no event more than 60 days following
the closing date, Mattson will prepare and deliver to STEAG (i) audited
income statements of STEAG RTP Systems GmbH and STEAG MicroTech GmbH for
the year ended December 31, 2000 (the "Year 2000 Income Statements"), and
(ii) a statement of the aggregate cash and cash equivalents of the
combined STEAG Semiconductor Subsidiaries as of December 31, 2000 (the
"Closing Cash Statement" and, together with the Year 2000 Income
Statements, the "Closing Financial Statements"). The Year 2000 Income
Statements shall be prepared in accordance with German GAAP. The Closing
Cash Statement shall be certified by PricewaterhouseCoopers.
. Within 5 days after the Closing Financial Statements become final in
accordance with the Combination Agreement, in accordance with certain
profit transfer and loss absorption agreements between STEAG, on the one
hand, and each of STEAG RTP Systems GmbH and STEAG MicroTech GmbH, on the
other hand, (i) Mattson will cause each of STEAG RTP Systems GmbH and
STEAG MicroTech GmbH to transfer its net profit, if any, for fiscal year
2000 to STEAG, or (ii) STEAG will reimburse each of STEAG RTP Systems
GmbH and STEAG MicroTech GmbH for its net loss, if any, for fiscal year
2000, as the case may be.
. If, after taking into account any profit and loss reimbursement as
provided above, the aggregate cash balance of the combined STEAG
Semiconductor Subsidiaries would exceed $10,075,000, Mattson shall cause
the additional cash in excess of $10,075,000 to be transferred to STEAG
at the time of any payments as provided above; provided, that Mattson
shall not be obligated to transfer more than DM20,000,000 of such excess
cash. If, after taking into account any profit and loss reimbursement as
provided above, the aggregate cash balance of the combined STEAG
Semiconductor Subsidiaries would be less than $10,075,000, STEAG shall
contribute to the STEAG Semiconductor Subsidiaries (allocated among the
STEAG Semiconductor Subsidiaries as agreed by the parties) cash in the
amount of such deficit at the time of any payments as provided above;
provided, that STEAG shall not be obligated to contribute more than
DM20,000,000 of such deficit.
. Under certain circumstances, at the time of any contribution or
reimbursement to or from the STEAG Semiconductor Subsidiaries pursuant to
the post-closing adjustments described above, as the case may be, STEAG
may be required to contribute to the STEAG Semiconductor Subsidiaries (or
the profit to be transferred to STEAG shall be reduced by) an amount
equal to $12,300,000.
70
<PAGE>
Conditions to The Business Combination
Conditions to the Obligations of Each Party.
The obligations of Mattson and STEAG to complete the business combination
are subject to the following conditions:
. approval by the stockholders of Mattson of the proposed issuance of
shares of Mattson common stock pursuant to the Combination Agreement;
. the absence of any legal proceeding, action, law, or regulation
challenging, prohibiting or making the business combination illegal;
. receipt of all consents and approvals of governmental entities necessary
to consummate the business combination;
. listing on Nasdaq of the Mattson common stock to be issued in the
business combination;
. Newco being the owner of the outstanding capital stock of all of the
STEAG Semiconductor Subsidiaries incorporated or organized outside the
U.S. and Germany; and
. concurrent closing of the merger between Mattson and CFM.
Conditions to the Obligations of Mattson.
The obligations of Mattson to complete the business combination are also
subject to the following conditions:
. compliance by STEAG and the STEAG Semiconductor Subsidiaries with their
obligations under the Combination Agreement and the representations and
warranties made by STEAG in the Combination Agreement being true and
correct in all material respects as of the date of the Combination
Agreement and the closing date of the business combination;
. receipt by Mattson from STEAG of a certificate certifying that the
closing conditions that apply to STEAG under the Combination Agreement
have been satisfied;
. all required consents and approvals for the contemplated transactions
shall have been obtained and all required filings shall have been made;
. no material adverse effect shall have occurred or be reasonably likely to
occur with respect to the business, operations, assets, liabilities,
results of operations, cash flows or condition of the STEAG Semiconductor
Subsidiaries taken as a whole;
. STEAG shall have executed the Stockholder Agreement (described in further
detail below);
. counsel for STEAG in the United States shall have delivered to Mattson a
legal opinion in the form agreed to by the parties;
. STEAG shall have executed a Transition Services Agreement;
. Mattson shall have received the written resignations, effective as from
the closing date, of the directors of all STEAG Semiconductor
Subsidiaries, except for those employee/directors whom the parties have
mutually agreed to retain immediately following the closing; and
. Mattson shall have received the share certificates evidencing the
outstanding capital stock of Newco, each of the STEAG Semiconductor
Subsidiaries incorporated or organized in Germany and each of the STEAG
Semiconductor Subsidiaries incorporated in the U.S. that STEAG has not
previously transferred to Newco, the documents and instruments required
for the notarization and transfer of the outstanding Newco and German and
U.S. STEAG Semiconductor Subsidiary shares and such other closing and
transfer documents as Mattson shall reasonably request to effect and
consummate the business
71
<PAGE>
combination and the transactions contemplated thereby, in each case in
form and substance reasonably satisfactory to Mattson and its counsel.
Conditions to the Obligations of STEAG.
The obligations of STEAG to complete the business combination are also
subject to the following conditions:
. compliance by Mattson with its obligations under the Combination
Agreement and the representations and warranties made by Mattson in the
Combination Agreement being true and correct in all material respects as
of the date of the Combination Agreement and the closing date of the
business combination;
. receipt by STEAG from Mattson of a certificate certifying that the
closing conditions that apply to Mattson under the Combination Agreement
have been satisfied;
. all required consents and approvals for the contemplated transactions
shall have been obtained and all required filings shall have been made;
. no material adverse effect shall have occurred or be reasonably likely
to occur with respect to the business, operations, assets, liabilities,
results of operations, cash flows, or condition of Mattson and its
subsidiaries, taken as a whole, on a consolidated basis;
. delivery by Mattson to STEAG of the share certificates evidencing the
11,850,000 Mattson shares and such other documents and instruments as
STEAG shall reasonably request to effect and consummate the business
combination and the transactions contemplated thereby, in each case in
form and substance reasonably satisfactory to STEAG and its counsel;
. Mattson and Brad Mattson's execution and delivery to STEAG of the
Stockholder Agreement, and the taking of the actions required under the
Stockholder Agreement;
. Mattson's execution and delivery to STEAG of the Transition Services
Agreement;
. STEAG's receipt of a written opinion from Mattson's legal counsel in the
form to be agreed to by the parties; and
. grant by Mattson of the 850,000 stock options granted to directors,
officers, and employees of the STEAG Semiconductor Division with an
exercise price equal to the fair market value of Mattson common stock on
the closing date.
Representations and Warranties
The Combination Agreement contains customary representations and warranties
of Mattson, STEAG, and the STEAG Semiconductor Subsidiaries relating to, among
other things, aspects of the respective businesses of the companies and other
matters. The representations and warranties expire upon the termination of the
Combination Agreement or closing of the business combination.
Covenants; Conduct of Business Prior To The Business Combination
Affirmative Covenants of STEAG.
STEAG has agreed that, prior to the closing, STEAG will:
. carry on the business of the STEAG Semiconductor Subsidiaries in the
ordinary course of business in substantially the same manner as before;
. pay and cause to be paid the debts and taxes of the STEAG Semiconductor
Subsidiaries when due, and pay and perform other obligations when due;
and
72
<PAGE>
. use all reasonable efforts to preserve intact the business organizations
and keep available the services of the present officers, employees, and
consultants of the STEAG Semiconductor Subsidiaries, and preserve the
STEAG Semiconductor Subsidiaries' relationships with customers,
suppliers, distributors, licensors, licensees, and others having
business dealings with the STEAG Semiconductor Subsidiaries.
Negative Covenants of STEAG.
STEAG has agreed that, prior to the closing, except with the prior written
consent of Mattson or as expressly contemplated by the Combination Agreement or
previously disclosed to Mattson, STEAG shall not allow any of the STEAG
Semiconductor Subsidiaries to do or permit any of the following:
. cause or permit any amendments to any of their organizational or charter
documents;
. declare or pay any dividends;
. accelerate, amend, or change the period of exercisability or vesting of
options;
. issue, deliver, or sell any shares of their capital stock other than
issuances pursuant to the exercise of stock options outstanding as of
the date of the Combination Agreement;
. transfer to any person or entity any intellectual property rights other
than in the ordinary course of business consistent with past practice;
. enter into or amend any agreements pursuant to which any party is
granted exclusive marketing or other exclusive rights of any type;
. sell, lease, license, or otherwise dispose of or encumber any of their
material properties or assets except in the ordinary course of business
consistent with past practice;
. incur any indebtedness for borrowed money or guarantee any such debt
other than intercompany loans which loans will be cancelled at or prior
to the closing;
. enter into, amend or terminate certain agreements which would adversely
affect the business of the STEAG Semiconductor Subsidiaries;
. pay, discharge, or satisfy any claim or liability in excess of
$2,000,000 arising other than in the ordinary course of business;
. make any capital expenditures or capital improvements in excess of
$2,000,000 beyond the amounts provided in the operations plans for the
STEAG Semiconductor Subsidiaries in effect as of the date of the
Combination Agreement;
. materially reduce the amount of any material insurance coverage other
than in the ordinary course of business;
. terminate or waive any right of substantial value other than in the
ordinary course;
. amend any STEAG Semiconductor Subsidiary employee benefit plan or adopt
any plan that would constitute an employee benefit plan, or hire any new
executive officer-level employee or hire additional employees such that
the number of worldwide employees of the STEAG Semiconductor
Subsidiaries exceeds, in the aggregate, 120% of the worldwide aggregate
number of such employees on the date of the Combination Agreement, pay
any special bonus, or increase the benefits, salaries, or wage rates of
employees except in the ordinary course of business;
. grant any severance or termination pay or benefits to any director or
officer or to any other employee of a U.S. STEAG Semiconductor
Subsidiary except payments made pursuant to any written agreement
outstanding as of the date of the Combination Agreement or previously
disclosed to Mattson;
. acquire or agree to acquire by merging into or consolidating with, or by
purchasing a substantial portion of the assets of, any business or
corporation;
73
<PAGE>
. make or change any material tax election, or adopt or change any
material accounting method with respect to taxes other than in the
ordinary course; and
. revalue any assets, including writing down the value of inventory other
than in the ordinary course.
Affirmative Covenants of Mattson.
Mattson has agreed that, prior to the closing,
. Mattson shall carry on its business in the ordinary course and in
substantially the same manner as before, pay the debts and taxes of
itself and its subsidiaries when due, pay and perform other obligations
when due, and use all reasonable efforts to preserve intact its business
organizations, keep available the services of its present officers, key
employees, and consultants, and preserve its relationships with
customers, suppliers, distributors, licensors, licensees, and others
having business dealings with Mattson, to the end that its good will and
ongoing businesses shall be unimpaired at the time of the closing.
. Mattson shall prepare and file with the SEC, at its own expense, a joint
proxy statement-prospectus relating to the Mattson stockholder proposal
to be presented for voting and adoption at meetings of the Mattson
stockholders and CFM shareholders. Mattson shall duly call, give notice
of, convene, and hold the Mattson stockholders' meeting as promptly as
practicable to consider and vote on the Mattson stockholder proposal.
Subject to its fiduciary obligations under applicable law, the board of
directors of Mattson shall recommend to its stockholders the approval of
the Mattson stockholder proposal.
. For a period of two years following the closing, Mattson shall provide
or cause benefits to be provided to all employees of the STEAG
Semiconductor Subsidiaries who were employees of U.S. STEAG
Semiconductor Subsidiaries immediately prior to the closing that are no
less favorable in the aggregate to the benefits provided to such STEAG
Semiconductor Subsidiaries employees on the date of the Combination
Agreement, and thereafter shall provide such STEAG Semiconductor
Subsidiaries employees with benefits comparable to those provided to
similarly-situated and located employees of Mattson. Time of service
with the STEAG Semiconductor Subsidiaries shall be credited for all
purposes, other than benefit accrual, under any comparable plans
maintained by Mattson, except to the extent such credit would result in
a duplication of benefits.
. Mattson shall use reasonable commercial efforts to cause the Mattson
shares issuable pursuant to the terms of the Combination Agreement to be
listed on Nasdaq, subject to official notice of issuance, as promptly as
practicable after the date of the Combination Agreement and in any event
prior to the closing.
Negative Covenants of Mattson.
Mattson has agreed that, prior to the closing, except with the prior written
consent of STEAG or as expressly contemplated by the Combination Agreement or
previously disclosed to STEAG, it shall not:
. cause or permit any amendments to its Certificate of Incorporation or
Bylaws;
. declare or pay any dividends;
. sell, transfer, convey, assign, or otherwise dispose of any of its
material assets or properties except sales of inventory in the ordinary
course of business and consistent with past practice;
. waive, release, or cancel any claims against third parties, debts owing
to it, or rights valued in excess of $5,000,000;
. make any change to its accounting systems, policies, principles, or
practices, except as required by law or by any change in generally
accepted accounting principles;
. authorize or make any capital expenditures in excess of $25,000,000 in
the aggregate;
74
<PAGE>
. make or change any tax election or accounting method, settle or
compromise any material tax dispute, or waive or extend the statute of
limitations on any tax liability except in filing for extensions of tax
returns or in the ordinary course of business and consistent with past
practice;
. sell, lease, license, or otherwise dispose of any material properties or
assets, except in the ordinary course of business;
. settle or compromise any suit or claim involving payment of more than
$10,000,000;
. issue, sell, transfer, or pledge any of its shares, or securities
convertible into its shares, or options, or warrants exercisable for its
shares, other than issuances of common stock pursuant to the exercise of
options previously granted, the issuance of up to 4,500,000 shares of
Mattson common stock, plus the assumption of unexercised options to
purchase shares of CFM common stock, in the merger with CFM, additional
options to acquire Mattson common stock granted under the terms of any
employee or director stock option plan in the ordinary course, or the
issuance of up to 2,000,000 shares of Mattson common stock in connection
with acquisitions of assets or businesses; and
. adopt a plan or agreement of complete or partial liquidation, merger, or
reorganization.
Mutual Covenants of Mattson and STEAG.
Mattson and STEAG have agreed that from the date of the Combination
Agreement, each party shall:
. use its reasonable commercial efforts to take all action required of it
to satisfy the conditions set forth in the Combination Agreement, and
otherwise fulfill its respective obligations under the terms of the
Combination Agreement and facilitate the consummation of the
transactions contemplated by the Combination Agreement;
. cooperate in the preparation of the joint proxy statement-prospectus;
. each of the parties and their respective counsel and advisors shall have
reasonable access during normal business hours to all books, records,
assets, and contracts of or relating to the other party, in each case to
complete such party's respective diligence investigation;
. confer on a regular and frequent basis with one or more representatives
of the other party to report material operational matters and the
general status of ongoing operations;
. continue to abide by the terms of the previously executed Mutual Non-
Disclosure Agreement dated February 25, 2000;
. consult with each other before issuing any press release or otherwise
making any public statement or making any other public (or non-
confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of the Combination Agreement and the transactions
contemplated by the Combination Agreement;
. use all reasonable efforts to file, as promptly as practicable, all
notices, reports, and other documents required to be filed by such party
with any governmental entity with respect to the Combination Agreement
and the transactions contemplated by the Combination Agreement and to
submit promptly any additional information requested by any such
governmental entity;
. use all reasonable efforts to resolve any objections that may be
asserted by any governmental entity with respect to the transactions
contemplated by the Combination Agreement under any U.S. or foreign
antitrust law;
. each party shall, and shall cause their respective subsidiaries to, take
all reasonable actions necessary to comply promptly with all of the legal
requirements which may be imposed on them with respect to the
consummation of the transactions contemplated by the Combination
Agreement; and
. cooperate in the preparation, execution, and filing of all tax returns
and other tax documents in connection with the transactions contemplated
by the Combination Agreement.
75
<PAGE>
Limitation on Other Negotiations
Prior to the termination of the Combination Agreement (the "Exclusivity
Period"), STEAG will not take any action to solicit, initiate, seek, encourage,
or support any inquiry, proposal, or offer (whether written or oral) from,
furnish any information to, or participate in any negotiations with, any
corporation, partnership, person, or other entity or group (other than
discussions with Mattson) regarding any acquisition of STEAG or the STEAG
Semiconductor Subsidiaries, any merger or consolidation with or involving STEAG
or the STEAG Semiconductor Subsidiaries, or any acquisition of any material
portion of the stock or assets of STEAG or any of the STEAG Semiconductor
Subsidiaries. STEAG agrees that any such negotiations in progress as of the
date of the Combination Agreement will be terminated or suspended during the
Exclusivity Period. During the Exclusivity Period, STEAG will immediately
notify Mattson regarding any contact by any third party regarding any offer,
proposal or inquiry regarding any such acquisition or financing of STEAG or any
of the STEAG Semiconductor Subsidiaries. In no event will STEAG or any of the
STEAG Semiconductor Subsidiaries accept or enter into an agreement concerning
any such third party transaction during the Exclusivity Period. During the
Exclusivity Period, STEAG will immediately notify Mattson regarding any contact
by any third party regarding any offer proposal or inquiry regarding any such
acquisition.
During the Exclusivity Period, Mattson will not take any action to solicit,
initiate, seek, or encourage any inquiry, proposal or offer (whether written or
oral) from any corporation, partnership, person or other entity or group (other
than discussions with STEAG), or, except in response to an unsolicited inquiry,
proposal or offer (whether written or oral) from any such person, furnish any
information to, or participate in any negotiations with any such person,
regarding (i) any merger or consolidation with or involving Mattson which would
result in the stockholders of Mattson prior to such transaction owning less
than 50% of the capital stock of the surviving corporation, or any acquisition
of any material portion of the stock or assets of Mattson, or (ii) any
acquisition, whether by merger, stock acquisition, asset acquisition, joint
venture, partnership or otherwise, by Mattson of any business which competes
with STEAG or the STEAG Semiconductor Subsidiaries in the RTP, CVD, wet
processing or copper-plating businesses. Mattson agrees that any such
negotiations in progress as of the date of the Combination Agreement will be
terminated or suspended during the Exclusivity Period. In no event will Mattson
accept or enter into an agreement concerning any such third party transaction
during the Exclusivity Period. During the Exclusivity Period, Mattson will
immediately notify STEAG regarding any contact by any third party regarding any
offer, proposal or inquiry regarding any such acquisition.
Additional Agreements and Covenants
Integration Committee.
To facilitate transition and integration planning, Mattson, STEAG, and CFM
will maintain an integration committee consisting of the Chief Executive
Officers of Mattson, STEAG, and CFM, Ludger Viefhues (a STEAG Semiconductor
Division executive), and the future head of integration planning for Mattson,
which will continue to develop the organization and staffing plan prior to
closing. As of the closing, in accordance with the procedures for establishing
committees set forth in Mattson's Bylaws, the Mattson board of directors will
establish and appoint an "Executive Staffing Committee" consisting of Dr.
Jochen Melchior and Brad Mattson (and, if agreed by Mattson and STEAG, one
additional representative of each of STEAG and Mattson), which will remain in
place for one year following closing, and will be responsible during that
period for making key personnel decisions (including the hiring and firing of
Mattson's Chief Executive Officer, Chief Financial Officer, Chief Operating
Officer, and division general managers). A mutually acceptable independent
Mattson board member will be appointed by Mattson and STEAG as a tiebreaker in
the event the Executive Staffing Committee reaches deadlock on an issue.
Regulatory Approvals.
Each party shall use all reasonable efforts to file, as promptly as
practicable after the date of the Combination Agreement, all notices, reports,
and other documents required to be filed by such party with any
76
<PAGE>
governmental entity with respect to the business combination and the other
transactions contemplated by the Combination Agreement, and to submit promptly
any additional information requested by any such governmental entity. STEAG and
Mattson shall, promptly after the date of the Combination Agreement, prepare
and file the notifications required under the HSR Act in connection with the
business combination, and such filings as are required under the German Cartel
Act. Each party shall use all reasonable efforts to furnish to each other all
information required for any application or other filing to be made in
connection with the business combination and the other transactions
contemplated by the Combination Agreement. The parties have already obtained
the required clearance under the HSR Act and the German Cartel Act.
STEAG Intercompany Indebtedness.
Prior to the closing, STEAG will take such action as is reasonably necessary
to cause all indebtedness of any of the STEAG Semiconductor Subsidiaries to
STEAG or any of its affiliates (other than another STEAG Semiconductor
Subsidiary), other than certain excluded indebtedness, to be cancelled without
any payment on the part of such STEAG Semiconductor Subsidiary. As of the date
of the Combination Agreement, the amount of indebtedness of the STEAG
Semiconductor Subsidiaries to STEAG that will be forgiven pursuant to this
provision was approximately DM200,000,000.
Non-Solicitation of Employees.
Each of Mattson and STEAG agree that, without the prior written consent of
the other, they will not, and will cause their controlled affiliates not to,
during the term of the Combination Agreement and for a period of one year from
the date of termination of the Combination Agreement, directly or indirectly
(including through instruction to its agents) solicit for employment any person
who is now employed by the other; provided, however, that neither Mattson nor
STEAG nor any of their respective affiliates is prohibited from making general,
public solicitations for employment for any position or from employing any
current employee of the other party who contacts the party on his or her own
initiative and without impermissible solicitation by such party.
Directors; Nominating Committee; Officers.
Mattson shall cause the actions required to be taken as of closing under
Section 1 of the Stockholder Agreement to be taken on or prior to the closing
date, including (a) causing the board of directors of Mattson to be expanded
from five to seven members; (b) causing two persons designated by STEAG to be
appointed to the board of directors of Mattson; (c) causing one of the STEAG
designees to be named Chairman of the board of directors of Mattson; and (d)
causing Mattson's Bylaws to be amended.
Company Name.
The name of the company after the consummation of the transactions
contemplated by the Combination Agreement will be Mattson or such other name,
if any, which the parties, acting through the Integration Committee, mutually
determine to be more beneficial to the company's business, such determination
to be made in a timely manner. In the event that a different name is agreed
upon, Mattson shall take such corporate and other action as is reasonably
necessary to effect such name change. Within one year after the closing date,
Mattson will cause the names of each of the STEAG Semiconductor Subsidiaries to
be changed so as to no longer include the name "STEAG," and from and after the
first anniversary of the closing date, Mattson shall, and shall cause its
subsidiaries to, otherwise discontinue the use of the name "STEAG."
Notwithstanding the foregoing, Mattson and its subsidiaries may continue to use
any current product names and trademarks containing the name "STEAG" to the
extent associated with any products currently manufactured and sold by the
STEAG Semiconductor Division, as well as modified, but otherwise substantially
similar, versions of such products.
77
<PAGE>
Termination
Optional Termination.
The Combination Agreement may be terminated at any time prior to the closing
by action taken or authorized by the board of directors or the supervisory
board, as applicable, of the terminating party or parties and, except as
provided below, whether before or after approval of the Mattson stockholder
proposal by the stockholders of Mattson:
. by mutual written consent of Mattson, STEAG and CFM;
. by either Mattson or STEAG, if the closing shall not have occurred on or
before February 28, 2001 (the "Termination Date"); provided, however,
that the right to terminate the Combination Agreement shall not be
available to any party whose failure to fulfill any obligation under the
Combination Agreement has been the cause of, or resulted in, the failure
of the closing to occur on or before the Termination Date;
. by either Mattson or STEAG, if any governmental entity (i) shall have
issued an order, decree or ruling or taken any other action permanently
restraining, enjoining, or otherwise prohibiting the transactions
contemplated by the Combination Agreement, and such order, decree,
ruling, or other action shall have become final and nonappealable or (ii)
shall have failed to issue an order, decree, or ruling or to take any
other action, and such denial of a request to issue such order, decree,
ruling or take such other action shall have become final and
nonappealable, in the case of each of (i) and (ii) which is necessary to
fulfill the conditions set forth in Article VII of the Combination
Agreement, as applicable; provided, however, that the right to terminate
the Combination Agreement under this provision shall not be available to
any party whose failure to use their reasonable commercial efforts has
been the cause of such action or inaction;
. by either Mattson or STEAG, if the approval of the stockholders of
Mattson contemplated by the Combination Agreement shall not have been
obtained by reason of the failure to obtain the required vote at a duly
held meeting of Mattson stockholders (including any adjournment or
postponement thereof) at which the vote was taken; provided, however,
that a party shall not be permitted to terminate the Combination
Agreement pursuant to this provision if the failure to obtain such
approval is attributable to a failure on the part of such party to
perform any material obligation required to be performed by such party;
. by STEAG, if (i) Mattson shall have materially breached its obligations
under the Combination Agreement by reason of a failure to call the
Mattson stockholders meeting in accordance with the Combination Agreement
or a failure to prepare and mail to its stockholders the proxy statement,
(ii) Mattson's board of directors shall have failed to recommend that
Mattson's stockholders vote in favor of approval of the proposal to issue
the shares under the Combination Agreement or shall have withdrawn,
modified, or changed in a manner adverse to STEAG such recommendation,
whether or not permitted by the terms of the Combination Agreement (iii)
Mattson shall have entered into a definitive acquisition agreement for an
acquisition transaction involving Mattson, (iv) an acquisition
transaction involving Mattson shall have occurred, (v) Mattson shall have
materially breached its obligations to not solicit or enter into an
acquisition transaction, or (vi) Brad Mattson shall have materially
breached his obligations under the voting agreement;
. by STEAG if (i) any of Mattson's representations and warranties shall
have been inaccurate as of the date of the Combination Agreement or shall
have become inaccurate as of a date subsequent to the date of the
Combination Agreement (as if made on such subsequent date), such that the
closing condition with respect to Mattson's representations and
warranties would not be satisfied or (ii) any of Mattson's covenants
contained in the Combination Agreement shall have been breached such that
the closing condition with respect to Mattson's covenants would not be
satisfied; provided, however, that if an inaccuracy in Mattson's
representations and warranties arising as of a date subsequent to the
date of the
78
<PAGE>
Combination Agreement is curable by Mattson by the Termination Date and
Mattson is continuing to exercise all reasonable efforts to cure such
inaccuracy, then STEAG may not terminate the Combination Agreement under
this provision on account of such inaccuracy;
. by STEAG, if the 20-trading day average closing stock price immediately
preceding the date two business days prior to the time of satisfaction of
the closing conditions is less than $20.00. However, STEAG shall not be
permitted to terminate the Combination Agreement pursuant to this
provision if the 20-trading day average closing stock price is at least
$15.78, provided that Mattson, in its sole discretion, elects to deliver
to STEAG at the closing a note (as described below) as additional
consideration for the sale of the STEAG Semiconductor Subsidiaries shares
by STEAG to Mattson, which note is in a principal amount equal to the
product obtained by multiplying 11,850,000 by the shortfall between
$20.00 and such 20-trading day average closing stock price, and in any
event up to a maximum principal amount of approximately $50 million. The
note will be an unsecured promissory note payable by Mattson with a term
of three years, with simple interest payable annually at LIBOR plus 2%;
. by Mattson if (i) Mattson shall have entered into a definitive
acquisition agreement for an acquisition transaction or (ii) an
acquisition transaction involving Mattson shall have occurred;
. by Mattson, if STEAG shall have materially breached its obligations to
not solicit or enter into an acquisition transaction, but only if such
breach results in STEAG entering into a third party acquisition agreement
prohibited by such provision or otherwise materially adversely affects
Mattson's ability to consummate the transactions contemplated by the
Combination Agreement; or
. by Mattson if (i) any of STEAG's representations and warranties shall
have been inaccurate as of the date of the Combination Agreement or shall
have become inaccurate as of a date subsequent to the date of the
Combination Agreement (as if made on such subsequent date), such that the
condition to closing with respect to STEAG's representations and
warranties would not be satisfied or (ii) any of STEAG's covenants
contained in the Combination Agreement shall have been breached such that
the condition to closing with respect to STEAG's covenants would not be
satisfied; provided, however, that if an inaccuracy in the
representations and warranties of STEAG arising as of a date subsequent
to the Combination Agreement is curable by STEAG by the Termination Date
and STEAG is continuing to exercise all reasonable efforts to cure such
inaccuracy, then Mattson may not terminate the Combination Agreement
under this provision on account of such inaccuracy.
In the event of termination of the Combination Agreement and abandonment of
the business combination, neither party (or any of its directors or officers)
shall have any liability or further obligation to any other party to the
Combination Agreement, except as provided below with respect to the effect of
termination, and except that (i) nothing herein will relieve any party from
liability for any material breach of the Combination Agreement and (ii) the
agreements regarding the listing of the Mattson shares on Nasdaq, the
provisions regarding the effect of termination, and the provisions regarding
certain payments by Mattson, shall survive.
Automatic Termination.
Upon the termination for any reason of the Merger Agreement prior to the
consummation of the business combination, the Combination Agreement shall
automatically terminate without any further action on the part of either party.
If the Combination Agreement automatically terminates by reason of the
termination of the Merger Agreement by Mattson under certain circumstances ,
then Mattson shall promptly, but in no event later than three business days
following the date of such termination (or such later date as STEAG shall
request), make a nonrefundable cash payment to STEAG in an amount equal to the
aggregate amount of all actual and documented fees and expenses (including all
attorneys' fees, accountants' fees, financial advisory fees and filing fees)
that have been paid by or on behalf of STEAG in connection with the preparation
and negotiation of the Combination Agreement or otherwise in connection with
the business combination, provided that in no event shall such amount exceed
$5,000,000, such amount to be payable by wire transfer of immediately available
funds to an account designated by STEAG.
79
<PAGE>
If the Combination Agreement automatically terminates by reason of the
termination of the Merger Agreement by Mattson or CFM under circumstances
obligating (or potentially obligating) CFM to pay Mattson the termination fee
specified in the Merger Agreement, then Mattson shall, within three business
days of receipt of such termination fee or any portion thereof, remit to STEAG
one-half of the amount actually received by Mattson from CFM.
Effect of Termination.
If STEAG shall terminate the Combination Agreement because of a breach by
Mattson in relation to obtaining the stockholder approval or as result of
Mattson materially breaching its obligations to not solicit or enter into an
acquisition transaction or Brad Mattson having materially breached his
obligations under the voting agreement, or if Mattson shall terminate the
Combination Agreement as a result of entering into an acquisition transaction,
then Mattson shall promptly, but in no event later than the date of such
termination, pay STEAG a nonrefundable fee in an amount equal to $20,000,000,
payable by wire transfer of immediately available funds to an account
designated by STEAG.
If Mattson shall terminate the Combination Agreement because STEAG has
entered into a third party acquisition transaction prohibited by the
Combination Agreement, then STEAG shall promptly, but in no event later than
the date of such termination, pay Mattson a nonrefundable fee in an amount
equal to $20,000,000, payable by wire transfer of immediately available funds
to an account designated by Mattson.
If the Combination Agreement is terminated by Mattson because of a
misrepresentation or a breach of covenant by STEAG and, as a result of such
termination, STEAG is required to pay CFM the $40 million fee specified in the
Interim Patent License Agreement dated June 28, 2000 between CFM, CFM, Inc., a
subsidiary of CFM, and STEAG, Mattson shall, immediately upon request from
STEAG, provide written notice that it is required to make or has made such
payment to CFM, remit to CFM or STEAG, as the case may be, one-half of the
amount to be paid as so paid by STEAG to CFM, provided that Mattson shall not
be required to make any payment in advance of, or in an amount greater than, a
payment by STEAG.
Indemnification
Subject to certain limitations, STEAG will indemnify and hold harmless
Mattson, its affiliates and its and their respective officers, directors,
agents, attorneys, and employees from and against any and all losses, costs,
damages, liabilities, and expenses arising from claims, demands, actions, and
causes of action, including, without limitation, legal fees, arising out of any
misrepresentation or breach of the representations and warranties by STEAG
regarding due incorporation, due authorization, non-contravention, capital
structure, and taxes. Subject to certain limitations, Mattson will indemnify,
defend and hold harmless STEAG, its affiliates and its and their respective
officers, directors, agents, attorneys and employees from and against any and
all damages arising out of any misrepresentation or breach of the
representations and warranties by Mattson regarding due incorporation, non-
contravention, and capitalization.
The representations and warranties of STEAG pertaining to due incorporation,
due authorization, noncontravention, and its capital structure, and the
representations and warranties of Mattson pertaining to due incorporation, due
authorization, its capital structure and noncontravention, shall survive the
closing and continue in full force and effect for a period of one year
following the closing. The representation and warranty by STEAG that at the
closing Mattson will receive good and valid title to all the shares of Newco
and each STEAG Semiconductor Subsidiary incorporated or organized in Germany
and each STEAG Semiconductor Subsidiary incorporated in the U.S. that STEAG
does not contribute or otherwise transfer to Newco, and that Newco will hold
good and valid title to each STEAG Semiconductor Subsidiary that STEAG
contributes or transfers to Newco, free and clear of any encumbrances, and the
representation and warranty by Mattson that all of the shares of Mattson, and
all the shares to be issued to STEAG, when issued in accordance with the
Combination Agreement, will be duly and validly authorized and issued and
outstanding, fully paid, and nonassessable, shall both survive indefinitely.
Finally, the representations and warranties of STEAG pertaining to its tax
liability shall survive for 30 days after the expiration of the applicable
statute of limitations.
80
<PAGE>
AGREEMENTS RELATED TO THE BUSINESS COMBINATION
Stockholder Agreement
The following describes the material terms of the Stockholder Agreement
between Mattson, STEAG, and Brad Mattson. The full text of the Stockholder
Agreement is attached as Annex B to this joint proxy statement-prospectus and
is incorporated by this reference. Mattson encourages you to read the entire
Stockholder Agreement.
Board Representation, Executive Staffing, Nominating Committee, and Voting
Arrangements
As of the closing of the business combination and during the term of the
Stockholder Agreement:
. Mattson's board of directors will consist of seven members, two of whom
will be STEAG board designees, one of whom will be the Chief Executive
Officer of Mattson, and the remaining four of whom will be incumbent
independent directors (or their successors, at least three of whom shall
be independent directors), Mattson may also cause one designee of CFM to
serve on the Mattson board of directors in place of an incumbent director
to the extent required under the Merger Agreement with CFM;
. Dr. Jochen Melchior, a STEAG board designee, will serve as Chairman of
the board of Mattson;
. Brad Mattson will be Vice Chairman of the board and Chief Executive
Officer of Mattson;
. Ludger Viefhues will be Chief Operating Officer/President of Mattson;
. an Executive Staffing Committee comprised of Brad Mattson, Dr. Melchior
and, subject to the mutual consent of Mattson and STEAG, one additional
representative of each of Mattson and STEAG, will be established and
remain in place for one year and be responsible for key personnel
decisions (including hiring and firing of Mattson's Chief Executive
Officer, Chief Operating Officer, Chief Financial Officer, and division
general managers). One independent director may be appointed by Mattson
and STEAG to serve as tiebreaker in the event the committee reaches
deadlock;
. a STEAG designee will be nominated by Mattson to fill the seat of any
STEAG board designee or any successor thereto if such designee or
successor for any reason ceases to be a director of Mattson at any time
prior to the expiration of its designated term as director, as well as at
each annual meeting of Mattson's stockholders at which the term of a
STEAG board designee will expire;
. Mattson's Bylaws will establish a nominating committee to evaluate and
propose nominees for directors to succeed the board designee of CFM, any
independent director or any vacancies not provided for above. The
committee will be comprised of three board members, at least one of whom
must be a STEAG board designee. For a period of three years from the date
of closing, the committee can only nominate nominees by unanimous
approval. The board of directors may act to elect and appoint a nominee
if the committee fails to nominate a nominee within four months after a
board seat becomes vacant;
. Brad Mattson and STEAG agree to be present and vote affirmatively for the
election of nominees as described above at each meeting of the Mattson
stockholders where directors are to be elected; and
. whenever a proposed transaction between Mattson and STEAG (or any of its
affiliates) is submitted to Mattson stockholders for approval, STEAG will
vote its shares of voting stock regarding the proposal in the same
proportion as all shares of voting stock not owned by STEAG and
represented and voting with regard to the proposal. This voting
arrangement does not apply to proposed transactions between Mattson and
Mattson stockholders generally or transactions otherwise provided for in
the Stockholder Agreement.
81
<PAGE>
Standstill Restrictions Regarding STEAG Purchases of Additional Mattson Voting
Stock and Restrictions Regarding STEAG Participation in Solicitations
STEAG and its majority-owned and controlled affiliates will not directly or
indirectly acquire, agree to acquire or make a tender or exchange offer to
acquire any additional shares of Mattson voting stock except:
. if prior disinterested director approval has been obtained for the
acquisition;
. if the acquisition is necessary to maintain STEAG's aggregate percentage
of beneficial ownership of Mattson's outstanding voting stock (as of the
closing of the business combination) following an additional issuance of
voting stock by Mattson;
. if the acquisition is pursuant to a stock issuance by Mattson in respect
of a stock split, stock dividend, recapitalization or similar corporate
transaction, or upon exercise of securities issued pursuant to rights
distributed to common stockholders generally; and
. transfers of voting stock between STEAG and any affiliate that agrees to
be bound by the terms and conditions of the Stockholder Agreement and to
hold such voting stock subject to all obligations and restrictions
applicable to STEAG under the Stockholder Agreement. If such affiliate
ceases to be an affiliate of STEAG, then such affiliate shall transfer
the voting stock back to STEAG or an affiliate of STEAG.
Without prior disinterested director approval, STEAG and its majority-owned
and controlled affiliates may not:
. solicit or in any way participate, directly or indirectly, in a
solicitation of proxies with respect to any Mattson voting stock (except
in connection with the election of directors as set forth above);
. make any public announcement regarding any acquisition proposal, as
defined in the Stockholder Agreement, not solicited or approved by
Mattson's board of directors;
. deposit shares of voting stock in a voting trust or subject such shares
to any other voting arrangement or agreement with any other person or
group aside from Mattson or others within STEAG's control group; or
. form or join any group with any person other than those within STEAG's
control group for the purpose of voting, holding, purchasing or disposing
of Mattson voting stock or taking any of the prohibited actions regarding
voting stock set forth above.
The above prohibitions and restrictions shall be suspended, but not
terminated, when any person or group (other than Mattson, STEAG or an affiliate
of STEAG), without the prior approval of Mattson's board of directors:
. commences a tender offer for purposes of Rule 14d-2 under the Securities
Exchange Act of 1934;
. acquires beneficial ownership of more than 20% of the outstanding shares
of Mattson voting stock; or
. acquires beneficial ownership of more than 10% of the outstanding shares
of Mattson voting stock and also commences or publicly announces an
intent to effect a change of control of Mattson.
The prohibitions and restrictions described above will terminate upon the
earlier of (i) five years from the closing of the business combination or (ii)
the termination of the Stockholder Agreement as described below.
Right of First Offer to Purchase Additional Common Stock
Prior to any sale or issuance by Mattson of any shares of Mattson common
stock, STEAG shall have a right of first offer to purchase its proportional
share of such common stock on terms which are at least as favorable to STEAG as
the terms on which Mattson proposes to sell such common stock to any other
82
<PAGE>
prospective investor. This right of first offer is subject to certain
exceptions including, among others, sales and issuances by Mattson of common
stock in an amount up to 1.0% of the outstanding common stock as of the date of
the Stockholder Agreement, in the case of any single transaction, or up to 2.5%
of the outstanding common stock as of the date of the Stockholder Agreement, in
the aggregate, in connection with any equipment financing in excess of
$10,000,000 or any technology licensings, research or development agreements or
asset acquisitions approved by Mattson's board of directors.
This right of first offer terminates upon the closing of any acquisition
transaction resulting in a change of control of Mattson, the sale of all or
substantially all of Mattson's assets or the termination of the Stockholder
Agreement as described below, whichever occurs first.
Restrictions on Transfers of Common Stock by STEAG
For a one-year lockup period following the date of the closing of the
business combination, STEAG shall not directly or indirectly transfer or
dispose of any common stock of Mattson except: (i) with prior disinterested
director approval, or (ii) transfers to affiliates of STEAG permitted under
certain terms and conditions as set forth in the Stockholder Agreement.
Following the initial one-year lockup period described above, STEAG shall
not directly or indirectly transfer or dispose of any common stock of Mattson
without first giving Mattson the chance to purchase such common stock pursuant
to Mattson's right of first refusal as set forth in the Stockholder Agreement,
except: (i) pursuant to a bona fide public offering registered under the
Securities Act and conducted through an underwriter or otherwise so as not to
result in the transfer of 5% or more beneficial ownership of Mattson's
outstanding common stock to a single person or group other than a qualified
institutional buyer purchasing securities for investment purposes; (ii)
pursuant to Rule 144 (but not 144A) under the Securities Act; or
(iii) transfers to affiliates of STEAG permitted under certain terms and
conditions as set forth in the Stockholder Agreement.
Also following the one-year lockup period, STEAG shall not directly or
indirectly sell or transfer more than 2.4 million shares of Mattson common
stock in a transaction or series of related transactions to a single person or
group, except: (i) with disinterested director approval; (ii) as permitted
under the exceptions listed in the preceding paragraph; (iii) pursuant to an
acquisition transaction (as defined in the Stockholder Agreement) that will
result in a change of control and has received disinterested director approval
or approval by a majority of Mattson stockholders, excluding STEAG; (iv) after
the third anniversary of the date of closing of the business combination, or
(v) in response to any tender or exchange offer made by another person or group
(other than Mattson, STEAG or an affiliate of STEAG) to purchase or exchange
for consideration all outstanding voting stock of Mattson if such person or
group has acquired beneficial ownership of more than 20% of the outstanding
Mattson common stock.
Registration Rights
STEAG is entitled to the following registration rights under the Stockholder
Agreement:
. the right to include its shares of Mattson common stock in a registration
of common stock effected by Mattson under the Securities Act for sale
after the one-year lockup period; and
. the right, up to once every 12 months, to request registrations of its
shares of Mattson common stock on Form S-3 for sale after the one year
lockup period.
The Stockholder Agreement contains customary provisions regarding expenses
of registration, indemnification, Exchange Act reporting, assignment of
registration rights, "market stand-off" agreements, termination of registration
rights and limitations on subsequent registration rights.
83
<PAGE>
Notice of Common Stock Transfers by Brad Mattson
With certain limited exceptions, Brad Mattson is obligated to give prior
notice to STEAG of any sale or transfer of Mattson common stock by Brad
Mattson.
Effective Date and Termination of the Stockholder Agreement
The Stockholder Agreement is effective upon the closing of the business
combination.
Except with respect to: (i) rights and obligations of the parties with
respect to registration rights which by their terms expressly survive
termination of the Stockholder Agreement, and (ii) general provisions contained
in Section 8 of the Stockholder Agreement entitled "Miscellaneous", the
Stockholder Agreement shall terminate upon termination of the Combination
Agreement or the earliest to occur of:
. STEAG's beneficially owning less than 20% of the outstanding common stock
of Mattson;
. STEAG's beneficially owning 50% or more of the outstanding common stock
of Mattson, but not as a result of STEAG's violation of standstill
restrictions on the acquisition of common stock or prohibitions regarding
participation in solicitations; or
. material breach by Mattson of any of its material obligations under the
Stockholder Agreement.
Voting Agreement Between STEAG and Brad Mattson
The following describes the material terms of the voting agreement between
STEAG and Brad Mattson. The voting agreement was entered into as an inducement
to STEAG to enter into the Combination Agreement with Mattson.
Voting of Shares
From the date of the voting agreement through the earlier of the date when
the Combination Agreement is terminated or the business combination becomes
effective, Brad Mattson agrees that:
. at any meeting of Mattson stockholders, he will be present and voting and
cause the Mattson securities owned by him as of the record date to be
voted in favor of the proposals to Mattson stockholders that are a
condition to consummation of the business combination;
. in the event written consents are solicited for the proposals described
above, he will execute, with respect to the Mattson securities owned by
him as of the record date, a written consent or written consents to such
proposed actions; and
. he will not cause or permit the Mattson securities owned by him as of the
applicable record date to be voted in favor of, and will not cause or
permit the execution of written consents with respect to such securities
consenting to a transaction by Mattson which would cause Mattson to
breach or allow STEAG to terminate the Combination Agreement.
Restrictions on Transfer of Securities and Voting Rights
Brad Mattson also agrees that during that same period, he will not cause or
permit any of the Mattson securities owned by him as of the date of the voting
agreement (i) to be transferred unless any such transferee agrees to be bound
by and to hold such securities subject to the same terms and provisions of the
voting agreement or (ii) to be deposited into a voting trust. He also agrees
not to grant any proxy and not to enter into any other voting or similar
agreement with respect to such securities.
84
<PAGE>
Waiver of Appraisal Rights
Brad Mattson irrevocably and unconditionally waives and agrees to prevent
the exercise of any rights of appraisal, dissenters' rights and similar rights
relating to the business combination and related transactions that he or any
other person may hold by virtue of ownership of any Mattson securities owned by
Brad Mattson.
No Solicitation
Brad Mattson agrees that from the date of the voting agreement through the
earlier of the date when the Combination Agreement is terminated or the
business combination becomes effective, he and his representatives will not
directly or indirectly solicit, initiate, seek or encourage any inquiry,
proposal or offer (whether written or oral) from any third person, or, except
in response to an unsolicited inquiry, proposal or offer (whether written or
oral) from any third person, furnish any information to or negotiate with any
third person regarding:
. any acquisition of Mattson;
. any merger or consolidation involving Mattson which results in Mattson
stockholders prior to such transaction owning less than 50% of the
surviving corporation;
. any acquisition of a material portion of the stock or assets of Mattson;
or
. any acquisition by Mattson of any business which competes with STEAG in
any of the RTP, CVD, wet processing or copper businesses, with certain
limited exceptions.
The foregoing restrictions apply to Brad Mattson in his capacity as a
stockholder and not to Brad Mattson in his capacity as an officer or director
of Mattson.
Representations and Warranties
The voting agreement contains customary representations and warranties of
the parties.
Transition Services Agreement
STEAG and Mattson have agreed to enter into a Transition Services Agreement
on or prior to the date of closing, for an initial term of one year following
the closing, pursuant to which STEAG shall make available to Mattson at market
rates:
. information technology services for the STEAG Semiconductor Subsidiaries
organized in Germany,
. intellectual property administration services,
. payroll services for the STEAG Semiconductor Subsidiaries organized in
Germany, and
. certain supplies.
At its option, Mattson may elect to terminate such services upon 90 days
prior written notice.
85
<PAGE>
THE MERGER AGREEMENT
This section of the joint proxy statement-prospectus describes the material
terms of the Agreement and Plan of Merger by and among Mattson, M2C Acquisition
Corporation, and CFM dated as of June 27, 2000 (the "Merger Agreement"). While
Mattson and CFM believe that the description covers the material terms of the
Merger Agreement, this summary may not contain all of the information that is
important to you. The Merger Agreement is attached to this joint proxy
statement-prospectus as Annex C, and Mattson and CFM urge you to read it
carefully.
Effective Time of the Merger
The merger will become effective when the articles of merger are filed with
the Pennsylvania Department of State and the certificate of merger is filed
with the Secretary of State of the State of Delaware. If all the conditions to
the merger contained in the Merger Agreement are satisfied or waived, the
Merger Agreement provides that the closing will occur as soon as practicable
after January 1, 2001.
Closing of the Merger
If prior to December 1, 2000, all of the mutual closing conditions have been
satisfied and all of the other closing conditions (other than those conditions
which, by their nature, can only be satisfied by delivery of documents or other
instruments on the closing date) would have been either satisfied or waived by
the relevant party were the closing to occur at such time, and simultaneously,
the same situation applies under the Combination Agreement with STEAG, then the
parties may conduct a pre-closing step by taking the following actions:
Mattson and CFM will each deliver or cause to be delivered to the other the
closing certificates and other documents that would have been required at the
closing; and
Mattson shall execute and deliver to CFM an irrevocable acknowledgement and
waiver of the satisfaction or waiver of the closing conditions applicable to
Mattson and the waiver of Mattson's termination rights, and CFM shall execute
and deliver to Mattson an irrevocable acknowledgement and waiver of the
satisfaction or waiver of the closing conditions applicable to CFM and the
waiver of CFM's termination rights.
However, despite conducting this pre-closing step, the actual closing shall
not occur, and Mattson shall not acquire ownership of any the shares of CFM
under the merger, prior to January 1, 2001.
Merger Consideration
At the effective time of the merger, Mattson will issue 0.5223 shares of
Mattson common stock for each outstanding share of CFM common stock. In
addition, Mattson will assume all outstanding CFM stock options, based on the
same exchange ratio, and Mattson will issue additional options to purchase
500,000 shares of common stock to employees of CFM.
Conditions to the Merger
Conditions to the Obligations of Each Party
The obligations of Mattson and CFM to complete the merger are subject to the
following conditions:
. adoption of the Merger Agreement and approval of the merger by the
shareholders of CFM;
. approval by Mattson stockholders of the issuance of Mattson common stock
pursuant to the Merger Agreement and the approval by Mattson stockholders
of any increase to the amount of shares reserved under the Mattson stock
option plans pursuant to the Merger Agreement;
. the absence of any legal action, law or regulation prohibiting or making
the merger illegal;
86
<PAGE>
. receipt of all material consents and approvals of governmental entities
necessary to consummate the merger;
. the registration statement of which this joint proxy statement-prospectus
is a part is declared effective under the Securities Act;
. receipt of all approvals or other authorizations required by applicable
state securities laws for the issuance and trading of Mattson common
stock to be issued pursuant to the merger;
. authorization for listing by Nasdaq of the Mattson common stock to be
issued in the merger and upon exercise of CFM stock options assumed by
Mattson; and
. concurrent closing of the business combination between Mattson and STEAG.
Conditions to the Obligations of Mattson and M2C Acquisition Corporation
The obligations of Mattson and M2C Acquisition Corporation to complete the
merger are subject to the following conditions:
. compliance by CFM with its obligations under the Merger Agreement and the
representations and warranties made by CFM in the Merger Agreement being
true and correct in all material respects as of the date of the Merger
Agreement and the closing date of the merger;
. receipt by Mattson of CFM's officers' certificate certifying that the
closing conditions that apply to CFM under the Merger Agreement have been
satisfied;
. all required consents and approvals for the contemplated transactions
have been obtained and all required filings have been made;
. no material adverse effect has occurred or is reasonably likely to occur
with respect to the business, operations, assets, liabilities, results of
operations, cash flows, condition or prospects of CFM and its
subsidiaries taken as a whole, on a consolidated basis. This does not
include any failure by CFM to meet revenue or earnings projections or
expectations after the date of the Merger Agreement, any disruption of
customer relationships caused by the pendency of the Merger Agreement, or
any litigation, claim or other action relating to infringement of CFM's
intellectual property rights or the validity or enforceability of CFM's
patents, except for any relating to U.S. Patent Number 4,911,761;
. shares of CFM common stock held by dissenting shareholders represent no
more than 5% of the total issued and outstanding CFM common stock just
prior to closing;
. no action or proceeding has been threatened or instituted which could
prohibit any integration of CFM's operations with those of Mattson or any
Mattson subsidiary;
. Mattson's receipt of the written resignations of all officers and
directors of CFM's subsidiaries; and
. Mattson's receipt of a copy of the executed articles of merger to be
filed with the Pennsylvania Department of State and any other agreements
and instruments reasonably requested by Mattson.
Conditions to the Obligations of CFM
The obligation of CFM to complete the merger is subject to the following
conditions:
. compliance by Mattson and M2C Acquisition Corporation with their
obligations under the Merger Agreement and the representations and
warranties made by each in the Merger Agreement being true and correct in
all material respects as of the date of the Merger Agreement and the
closing date of the merger;
. receipt by CFM of Mattson's officers' certificate certifying that the
closing conditions that apply to Mattson under the Merger Agreement have
been satisfied;
. all required consents and approvals for the contemplated transactions
have been obtained and all required filings have been made;
87
<PAGE>
. no material adverse effect has occurred or is reasonably likely to occur
with respect to the business, operations, assets, liabilities, results of
operations, cash flows, condition or prospects of Mattson and its
subsidiaries taken as a whole, on a consolidated basis;
. CFM's receipt of a written opinion from its legal counsel to the effect
that the merger will be a reorganization under Internal Revenue Code
Section 368(a) and that CFM and the shareholders of CFM who exchange
their shares solely for Mattson common stock in the merger will recognize
no gain or loss for federal income tax purposes as a result;
. no action or proceeding has been threatened or instituted which could
prohibit any integration of Mattson's operations with those of CFM or any
CFM subsidiary; and
. CFM's receipt of a copy of the executed certificate of merger to be filed
with the Secretary of State of the State of Delaware and any other
agreements and instruments reasonably requested by CFM.
There can be no assurance that all of the conditions to the merger will be
satisfied.
Representations and Warranties
The Merger Agreement contains customary representations and warranties of
Mattson, M2C Acquisition Corporation, and CFM relating to, among other things,
aspects of the respective businesses of the companies and other matters. The
representations and warranties expire upon termination of the Merger Agreement
or the effective time of the merger.
Covenants; Conduct of Business Prior to the Merger
Affirmative Covenants of CFM
CFM has agreed that, prior to the effective time, CFM and its subsidiaries
will:
. operate in the ordinary and usual course of business consistent with past
practice; and
. use commercially reasonable efforts to preserve intact their business
organization, preserve goodwill and advantageous relationships with
customers, suppliers, independent contractors, employees and others who
are material to its business operations, and not permit any
representations and warranties contained in the Merger Agreement to
become inaccurate or any of the covenants to be breached.
Negative Covenants of CFM
CFM has agreed that, prior to the effective time, except with the prior
written consent of Mattson or as may reasonably be required to consummate the
transactions described in the Merger Agreement and the Combination Agreement
and certain other exceptions, CFM and its subsidiaries will not:
. enter into any contract requiring payment or payments by any party in
excess of $3,000,000, requiring delivery of goods or services valued in
excess of $500,000, having a term or requiring performance of any
obligations over a period in excess of 6 months, or involving payment or
receipt by CFM or any CFM subsidiary of more than $100,000 (not including
customer purchase orders for less than $3,000,000);
. take any action outside the ordinary course of business and inconsistent
with past practice;
. sell, transfer, convey, assign or otherwise dispose of any of their
assets or properties except sales of inventory in the ordinary course and
consistent with past practice;
. waive, release or cancel any claims against third parties, debts owing to
it or rights valued in excess of $100,000;
. make any change to their accounting systems, policies, principles or
practices, except as required by law or by any change in generally
accepted accounting principles;
88
<PAGE>
. except for continuation of their normal stock option and employee stock
purchase program in a manner consistent with Mattson's compensation
guidelines, stock option plan and standard stock option agreements, (i)
issue, sell, or deliver, or agree to issue, sell, or deliver any shares
of its capital stock or any other securities, (ii) amend any terms of
such securities, (iii) grant any stock option or right to acquire stock,
(iv) enter into, adopt, amend or terminate any bonus, profit-sharing,
compensation, termination, stock option, stock appreciation right,
restricted stock, performance unit, pension, retirement, deferred
compensation, employment, severance or other employee benefit agreements,
trusts, plans, funds or other arrangements for the benefit of any
director or employee, (v) increase any compensation or benefits of any
director or employee, or (vi) pay any benefit not required under any
existing plan or arrangement;
. except for distributions to shareholders in accordance with past
practice, (i) split, combine or reclassify any shares of their capital
stock, (ii) declare, set aside or pay any dividend or other distribution,
or (iii) redeem or otherwise acquire any of their securities;
. except for trade payables incurred in the ordinary course of business,
incur or otherwise become liable for any debt or make unscheduled
payments of long term debt;
. make new investments in or loans, advances or capital contributions to
any other person other than advances or loans to or from subsidiaries in
the normal course of business;
. except for aggregate capital expenditures of less than $500,000 per
quarter, authorize or make any capital expenditure or acquire, lease or
encumber any assets outside the ordinary course of business or any
material assets;
. make any tax election, settle or compromise any tax liability or waive or
extend the statute of limitations on any tax liability except in filing
for extensions of tax returns or in the ordinary course of business and
consistent with past practice;
. settle or compromise any suit or claim involving payment of more than
$100,000; and
. change the term of any contract or pay any amount in excess of $100,000
not required by law or contract other than changes to purchase orders
done in the ordinary course of business and not in excess of $300,000.
Affirmative Covenants of Mattson
Mattson has agreed that, prior to the effective time, Mattson and its
subsidiaries will use commercially reasonable efforts to preserve intact its
business organization, preserve goodwill and advantageous relationships with
customers, suppliers, independent contractors, employees and others who are
material to its business operations, and not permit any representations and
warranties contained in the Merger Agreement to become inaccurate or any of the
covenants to be breached.
Mattson also agreed to use its reasonable commercial efforts to cause the
Mattson common stock being issued pursuant to the Merger Agreement to be listed
on Nasdaq prior to the closing date. Additionally, as of the effective time,
Mattson shall cause a nominee designated by CFM to be appointed to Mattson's
board of directors.
Negative Covenants of Mattson
Mattson has agreed that, prior to the effective time, except with the prior
written consent of CFM or as may reasonably be required to consummate the
transactions described in the Merger Agreement and the Combination Agreement,
Mattson and its subsidiaries will not:
. sell, transfer, convey, assign or otherwise dispose of any of its
material assets or properties except sales of inventory in the ordinary
course and consistent with past practice;
89
<PAGE>
. waive, release or cancel any claims against third parties, debts owing to
it or rights valued in excess of $5,000,000;
. make any change to its accounting systems, policies, principles or
practices, except as required by law or by any change in generally
accepted accounting principles;
. except for distributions to stockholders in accordance with past
practice, (i) split, combine or reclassify any shares of its capital
stock, (ii) declare, set aside or pay any dividend or other distribution,
or (iii) redeem or otherwise acquire any of its securities;
. authorize or make any capital expenditures in excess of $25,000,000 in
the aggregate;
. make any tax election, settle or compromise any tax liability or waive or
extend the statute of limitations on any tax liability except in filing
for extensions of tax returns or in the ordinary course of business and
consistent with past practice; and
. settle or compromise any suit or claim involving payment of more than
$10,000,000.
Mutual Covenants of Mattson and CFM
Mattson and CFM have agreed that from the date of the Merger Agreement, each
party will:
. permit the other party to have access to its facilities, properties and
records during normal business hours and make available its officers and
employees and furnish the other party with information upon reasonable
request;
. use reasonable commercial efforts to satisfy those conditions that apply
to it in the Merger Agreement to fulfill its obligations under the Merger
Agreement and to facilitate consummation of the transactions in the
Merger Agreement;
. as soon as practicable, prepare and file a joint proxy statement-
prospectus with the other party containing the proposals to be presented
at the CFM shareholders meeting and the proposals to be presented at the
Mattson stockholders meeting. The two meetings are to be convened as soon
as practicable after the registration statement containing the joint
proxy statement-prospectus registering the issuance of Mattson common
stock pursuant to the merger is deemed effective.
. use all reasonable efforts to have the Registration Statement declared
effective as soon as practicable and recommend to its shareholders or
stockholders that the required proposals be approved;
. use reasonable commercial efforts to obtain all consents and approvals
and to take other actions necessary to consummate the transactions under
the Merger Agreement;
. until the effective time of the merger and subject to applicable laws,
furnish the other party with all filings to be made to the SEC and all
materials to be mailed to its shareholders or stockholders and solicit
comments from the other party at least 48 hours before filing or mailing;
. subject to applicable laws, consult with the other party and allow the
other party the opportunity to review any public announcement concerning
the merger or the business combination and any filing with any
governmental entity or securities exchange regarding the same;
. not willfully take any action to breach any provision of the Merger
Agreement or the Combination Agreement or cause any of the party's
representations or warranties to be untrue as of the closing date;
. obtain all necessary state securities law permits and approvals;
. if any antitakeover statute is applicable to the merger, take such
actions as are required to consummate the transactions contemplated by
the Merger Agreement as soon as practicable;
. use its reasonable commercial efforts to overturn or lift any order or
injunction prohibiting the consummation of the transactions contemplated
by the Merger Agreement, provided that no party is
90
<PAGE>
required to enter into any commitment to divest itself or any of its
subsidiaries of assets, to hold separate any assets or to take any other
action that would have a material adverse effect on the business,
operations, assets, liabilities, results of operations, cash flows,
condition or prospects of such party and its subsidiaries taken as a
whole, on a consolidated basis;
. use its reasonable commercial efforts to cause the merger to be, and not
knowingly take or omit to take any action to prevent the merger from
being, a reorganization within the meaning of Internal Revenue Code
Section 368(a); and
. use its reasonable commercial efforts to have its independent public
accountants deliver to the other party comfort letters customarily
delivered in connection with similar Registration Statements, with one
letter dated within two business days prior to the date on which the
Registration Statement goes effective and the other dated the closing
date.
Limitation on Discussing or Negotiating Other Acquisition Proposals
CFM has agreed that neither it nor any of its subsidiaries will, directly or
indirectly:
. initiate, solicit, encourage or knowingly facilitate any inquiries or the
making of any offer, proposal, inquiry or indication of interest
regarding an acquisition transaction (as defined below) involving CFM or
any of its significant subsidiaries;
. provide any nonpublic information to any third party or engage in any
discussions or negotiations with any third party regarding an acquisition
transaction;
. approve, endorse or recommend any acquisition transaction, or publicly
propose to take such actions; or
. execute or enter into any letter of intent, agreement in principle,
Merger Agreement, acquisition agreement, option agreement or other
similar agreement regarding an acquisition transaction, or approve,
endorse or recommend, or propose to approve, endorse or recommend, any
such agreement.
As used in the Merger Agreement, the term "acquisition transaction" means
any single or series of transactions involving (i) a merger, consolidation,
reorganization, share exchange, business combination, issuance of securities
representing more than 20% of any class of outstanding voting securities,
recapitalization, acquisition of securities representing more than 20% of any
class of outstanding voting securities, tender offer, exchange offer, or other
similar transaction, (ii) any sale, lease, exchange, transfer, exclusive
license, acquisition, or disposition of any business or assets representing 20%
or more of consolidated net revenues, net income, or assets, or (iii) any
liquidation or dissolution;
CFM has also agreed:
. that its officers, directors, key employees, agents and representatives
will be informed of these obligations and will cease and terminate any
activities, negotiations or discussions existing as of the date of the
Merger Agreement with any third parties regarding an acquisition
transaction; and
. not to submit to the vote of its shareholders any proposal for an
acquisition transaction.
However, these clauses and the other clauses of the Merger Agreement do not
prohibit CFM or its board of directors from:
. complying with Rule 14e-2 and 14d-9 of the Securities Exchange Act of
1934; or
. changing its recommendation that the shareholders of CFM vote in favor of
the merger or engaging in discussions or negotiations with, or providing
nonpublic information to, any third party, if and only to the extent that
(i) the foregoing restrictions are not violated, (ii) the meeting of
CFM's shareholders has not occurred, (iii) a third party makes an
unsolicited superior proposal (as defined below), (iv) the board of
directors, after consultation with outside counsel, determines in good
faith that such action is required
91
<PAGE>
in order for the board to comply with its fiduciary duties, (v) prior to
taking such action, such third party executes and delivers to the board a
confidentiality agreement containing customary provisions which are no
less restrictive than those contained in the confidentiality agreement
between Mattson and CFM, (vi) at least two business days prior to
providing any information or data to such third party, or entering into
discussions or negotiations with such third party, CFM notifies Mattson of
the inquiries, proposals or offers received by, any information requested
from, or any discussions or negotiations sought with, such third party
indicating the third party's name and material terms and conditions of any
inquiries, proposals or offers and also furnishing Mattson any non-public
information to be provided to the third party, and (vii) promptly keeps
Mattson informed of the status and terms of any proposals, offers,
discussions or negotiations.
As used in the Merger Agreement, the term "superior proposal" means a bona
fide written proposal from a third party for a merger, reorganization,
consolidation, share exchange, business combination or similar transaction
involving CFM and a third party as a result of which the third party or its
shareholders will own 40% or more of the combined voting power of the resulting
entity, or a tender offer for all outstanding CFM shares. Further, a superior
proposal must be on terms which the CFM board of directors concludes in good
faith, after consultation with financial advisors and outside counsel and
taking into account all relevant factors, would be more favorable to CFM
shareholders and is reasonably likely to be consummated.
Indemnification by CFM
As of the effective time of the merger, CFM will indemnify, defend and hold
harmless, to the full extent permitted under Pennsylvania law, each person who
is, or has been or becomes prior to the effective time of the merger, an
officer or director of CFM against all losses, claims (not including claims of
gross negligence or willful misconduct), damages, costs, expenses, liabilities,
judgments or amounts paid in settlement in connection with any claim, action,
suit, proceeding or investigation (i) to the extent based on or arising out of
the fact that such person is or was an officer, director or employee of CFM or
(ii) pertaining to the Merger Agreement or the contemplated transactions. All
rights to indemnification held by any current or former directors, officers or
employees of CFM as of the date of the Merger Agreement will also continue in
effect following the effective time of the merger.
For a period of six years following the effective time, (i) the certificate
of incorporation and bylaws of CFM will contain provisions no less favorable
regarding indemnification of officers, directors and employees as those in
effect on the date of the Merger Agreement unless otherwise required by law,
and (ii) CFM shall maintain the existing policies of directors' and officers'
liability insurance, or policies with comparable coverage, covering matters
occurring prior to the effective time to the extent reasonably obtainable for
premiums not greater than 1.5 times the amount paid by CFM as of the date of
the Merger Agreement.
Employee Agreements and Benefit Plans
After the effective time, CFM will continue to honor all agreements and
commitments that apply to any current or former employees of CFM.
Each employee of CFM or any of its subsidiaries who continues employment
with CFM, Mattson or any of their subsidiaries after the effective time and who
is not covered by a collective bargaining agreement will be provided with
credit under the applicable employee benefit plan providing benefits after the
effective time, for all purposes other than benefit accrual, for such
employee's years of service with CFM or its subsidiaries before the effective
time to the extent the employee was entitled to such a credit under a
comparable employee benefit plan before the effective time. Duplication of
benefits is not allowed.
Each continuing employee will also be eligible to participate immediately in
any employee benefit plans replacing coverage under comparable plans in which
the employee participated immediately prior to the effective time and to roll
over any amounts held under the previous plans. With respect to any new
medical,
92
<PAGE>
dental, pharmaceutical and vision plan for continuing employees, all pre-
existing condition exclusions and actively-at-work requirements will be waived
and all eligible expenses incurred during the unexpired plan year of the
previous plan will be taken into account for purposes of deductible,
coinsurance and maximum out-of-pocket requirement.
The above provisions do not apply for purposes of determining eligibility to
participate in any Mattson sabbatical plan.
With respect to severance benefits, any continuing employee, with a few
exceptions, may choose to receive certain benefits described in the Merger
Agreement instead of any benefits to which they were previously entitled in the
event that the employee is involuntarily terminated without cause within four
months following the effective time of the merger.
Unless Mattson provides written notice to the contrary, the 401(k) plans of
CFM and its subsidiaries will be terminated immediately prior to the closing
date.
Termination of the Merger Agreement
The Merger Agreement may be terminated at any time prior to the effective
time as follows:
. by mutual written consent of Mattson, STEAG and CFM;
. by either party if the effective time of the merger has not occurred by
February 28, 2001, assuming the failure of the effective time to occur by
that date is not the result of the terminating party's breach of the
Merger Agreement;
. by either party if any governmental entity shall have issued or denied a
request to issue an order, decree or ruling or taken any other action
prohibiting the transactions contemplated by the Merger Agreement or
preventing the fulfillment of the conditions to the merger, assuming the
issuance or denial described above is not the result of the terminating
party's failure to use reasonable commercial efforts to oppose it;
. by either party if the required shareholder or stockholder approvals have
not been obtained, assuming the failure to obtain such approval is not
attributable to the terminating party's failure to perform any material
obligation under the Merger Agreement;
. by CFM if Mattson has failed to recommend the approval of the proposals
to Mattson stockholders required under the Merger Agreement or has
withdrawn, modified or resolved to take such actions regarding its
recommendation in a manner adverse to CFM;
. by CFM if Mattson has failed to call the required stockholders meeting or
to prepare and mail the joint proxy statement to its stockholders;
. by Mattson if (i) CFM has failed to call the required shareholders
meeting or to prepare and mail the joint proxy statement to its
shareholders, (ii) CFM's board of directors has failed to recommend the
approval of the proposals to CFM shareholders required under the Merger
Agreement or has withdrawn or modified its recommendation or resolved to
take such actions regarding its recommendation in a manner adverse to
Mattson, (iii) CFM has failed to include in its joint proxy statement to
shareholders the board's recommendation and statement that the merger is
in the best interests of the CFM shareholders, (iv) CFM's board of
directors has failed within five business days of Mattson's written
request to reaffirm, without qualification, the board's recommendation or
has failed to publicly state, without qualification, that the merger is
in the best interests of the CFM shareholders, (v) CFM's board of
directors has approved, endorsed, recommended or entered into an
agreement regarding a proposal for an alternative transaction (as
described above), (vi) a tender or exchange offer for CFM securities has
been commenced and CFM has not, within ten business days of such
commencement, sent its securityholders a statement that the board
recommends rejection of the tender or exchange offer, (vii) an
93
<PAGE>
alternative transaction is publicly announced and CFM has failed to issue
a press release in opposition within ten business days, or (viii) CFM has
breached any of its covenants regarding discussing or negotiating
alternative transactions.
. by Mattson if any of CFM's representations or warranties under the Merger
Agreement have been inaccurate as of the date of the Merger Agreement or
the closing date of the merger (assuming CFM is not exercising all
reasonable efforts to cure such inaccuracies if they are curable prior to
February 28, 2001) or if any of CFM's covenants under the Merger
Agreement have been breached as of the closing date;
. by CFM if any of Mattson's representations or warranties under the Merger
Agreement have been inaccurate as of the date of the Merger Agreement or
the closing date of the merger (assuming Mattson is not exercising all
reasonable efforts to cure such inaccuracies if they are curable prior to
February 28, 2001) or if any of Mattson's covenants under the Merger
Agreement have been breached as of the closing date;
. by Mattson if since the date of the Merger Agreement, there has occurred
or there is reasonably likely to occur any material adverse effect
regarding CFM as described in the above section entitled "Conditions to
the Obligations of Mattson and M2C Acquisition Corporation;"
. by CFM if since the date of the Merger Agreement, there has occurred or
there is reasonably likely to occur any material adverse effect regarding
Mattson as described in the above section entitled "Conditions to the
Obligations of CFM" beginning on page 87 of this joint proxy statement-
prospectus; or
. by automatic termination upon termination of the Combination Agreement.
In the event of termination of the Merger Agreement as set forth above,
neither of the parties nor any of their officers or directors shall have any
liability or further obligation under the Merger Agreement except as set forth
below:
. liability for willful breach of the Merger Agreement;
. obligations under the Merger Agreement to bear their own expenses, except
that expenses relating to printing the joint proxy statement-prospectus
and filing the Registration Statement, including the filing fee, shall be
shared equally between Mattson and CFM;
. if Mattson or CFM terminates the Merger Agreement because the required
Mattson stockholder approvals have not been obtained, assuming the
failure to obtain such approval is not attributable to the terminating
party's failure to perform any material obligation under the Merger
Agreement and further assuming CFM does not otherwise receive a
termination fee as set forth below, then Mattson will pay CFM an amount
equal to one percent of the Mattson common stock to be issued and the
cash to be paid in lieu of fractional shares of Mattson common stock as
contemplated to consummate the merger;
. if Mattson or CFM terminates the Merger Agreement because the required
CFM shareholder approvals have not been obtained, assuming the failure to
obtain such approval is not attributable to the terminating party's
failure to perform any material obligation under the Merger Agreement and
further assuming Mattson does not otherwise receive a termination fee as
set forth below, then CFM will pay Mattson an amount equal to one percent
of the Mattson common stock to be issued and the cash to be paid in lieu
of fractional shares of Mattson common stock as contemplated to
consummate the merger;
. if (A) (i) Mattson or CFM terminates the Merger Agreement because the
required Mattson stockholder approvals have not been obtained, assuming
the failure to obtain such approval is not attributable to the
terminating party's failure to perform any material obligation under the
Merger Agreement, (ii) before such termination a proposal regarding an
acquisition transaction (defined below) with respect to Mattson has been
publicly announced or communicated to its senior management, board of
directors or stockholders and such proposal is not withdrawn prior to the
vote of Mattson's stockholders on the proposal, and (iii) within twelve
months of such termination, Mattson or any of its subsidiaries enters
94
<PAGE>
into a definitive agreement regarding or consummates the acquisition
transaction, or (B) CFM terminates the Merger Agreement because (i)
Mattson has failed to recommend the approval of the proposals to Mattson
stockholders required under the Merger Agreement or has withdrawn,
modified or resolved to take such actions regarding its recommendation in
a manner adverse to CFM or (ii) Mattson has failed to call the required
stockholders meeting or to prepare and mail the joint proxy statement to
its stockholders, then Mattson will pay CFM $7,110,000; and
. if (A) (i) Mattson or CFM terminates the Merger Agreement because the
required CFM shareholder approvals have not been obtained, assuming the
failure to obtain such approval is not attributable to the terminating
party's failure to perform any material obligation under the Merger
Agreement, (ii) before such termination a proposal regarding an
acquisition transaction (defined below) with respect to CFM has been
publicly announced or communicated to its senior management, board of
directors or shareholders and such proposal is not withdrawn prior to the
vote of CFM's shareholders on the proposal, and (iii) within twelve
months of such termination, CFM or any of its subsidiaries enters into a
definitive agreement regarding or consummates the acquisition
transaction, or (B) Mattson terminates the Merger Agreement because (i)
CFM has failed to call the required shareholders meeting or to prepare
and mail the joint proxy statement to its shareholders, (ii) CFM's board
of directors has failed to recommend the approval of the proposals to CFM
shareholders required under the Merger Agreement or has withdrawn,
modified or resolved to take such actions regarding its recommendation in
a manner adverse to Mattson, (iii) CFM has failed to include in its joint
proxy statement to shareholders the board's recommendation and statement
that the merger is in the best interests of the CFM shareholders, (iv)
CFM's board of directors has failed within five business days of
Mattson's written request to reaffirm, without qualification, the board's
recommendation or has failed to publicly state, without qualification,
that the merger is in the best interests of the CFM shareholders, (v)
CFM's board of directors has approved, endorsed, recommended or entered
into an agreement regarding a proposal for an acquisition transaction (as
described above in the section entitled "Limitation on Discussing or
Negotiating Other Acquisition Proposals" beginning on page 91 of this
joint proxy statement-prospectus), (vi) a tender or exchange offer for
CFM securities has been commenced and CFM has not, within ten business
days of such commencement, sent its securityholders a statement that the
board recommends rejection of the tender or exchange offer, (vii) an
acquisition transaction is publicly announced and CFM has failed to issue
a press release in opposition within ten business days, or (viii) CFM has
breached any of its covenants regarding discussing or negotiating
acquisition transactions, then CFM will pay Mattson $7,110,000.
Where the term "acquisition transaction" is used in the preceding two
subparagraphs regarding effects of termination of the Merger Agreement (except
where the term specifically refers to the definition contained in the above
section entitled "Limitation on Discussing or Negotiating Other Acquisition
Proposals"), an acquisition transaction means any single or series of
transactions involving (i) a merger, consolidation, reorganization, share
exchange, business combination, issuance of securities representing more than
40% of any class of outstanding voting securities, recapitalization,
acquisition of securities representing more than 40% of any class of
outstanding voting securities, tender offer, exchange offer or other similar
transaction, (ii) any sale, lease, exchange, transfer, exclusive license,
acquisition or disposition of any business or assets representing 40% or more
of consolidated net revenues, net income or assets, or (iii) any liquidation or
dissolution.
If either party fails to pay the termination fee for which it is obligated
as set forth above and the other party brings suit resulting in a judgment
against the non-paying party for the termination fee, the non-paying party
shall pay to the other party its attorneys' fees, costs and expenses in
connection with the suit, in addition to interest on the termination fee. The
parties also agreed that the specific remedies relating to payment of
termination fees are not exclusive.
95
<PAGE>
AGREEMENTS RELATED TO THE MERGER AGREEMENT
Stock Option Agreement
The following describes the material terms of the stock option agreement
between Mattson and CFM. The stock option agreement was entered into as an
inducement to Mattson to enter into the Merger Agreement with CFM. Under the
Merger Agreement, CFM agreed to grant Mattson an option to acquire up to 19.9%
of CFM common stock issued and outstanding as of the date of the agreement on
the terms and conditions summarized below.
Right to Exercise; Exercise Price
Mattson's option is exercisable, in whole or in part, following the
occurrence of any of the specified trigger events regarding CFM as described in
the Merger Agreement with CFM. However, Mattson's option may not be exercised
if Mattson is in material breach of any of its representations, warranties,
covenants or agreements contained in the stock option agreement or Merger
Agreement.
The exercise price for CFM common stock pursuant to the option is payable at
Mattson's option in cash or in shares of Mattson common stock. In the event of
a cash exercise, the per share exercise price is equal to the average of the
last sales prices of CFM common stock on the ten trading days prior to
announcement of the merger between Mattson and CFM. In the event of a stock
exercise, the per share exercise price shall be a number of shares or fraction
of a share of Mattson common stock with a value (based on the average of the
last sales prices of Mattson common stock on the 10 trading days prior to the
applicable closing) equal to the cash exercise price.
Conditions To Closing
The closing of purchases pursuant to the option is subject to the expiration
or termination of the applicable waiting period under the HSR Act and other
conditions as set forth in the agreement.
Representations And Warranties
The agreement contains customary representations and warranties of Mattson
and CFM.
Mattson's "Put" Right and CFM's Right of Repurchase
Subject to the dollar value limits described below, Mattson has the right:
(i) prior to termination of the option, to have CFM repurchase all or any
portion of the option at a repurchase price calculated based on a formula set
forth in the agreement, and (ii) prior to the expiration of 24 months following
the first exercise of the option, to have CFM repurchase all or any portion of
the shares of CFM common stock purchased by Mattson pursuant to the option (the
repurchase price to be calculated based on a formula set forth in the stock
option agreement).
Also subject to the dollar value limits described below and except to the
extent that Mattson has exercised its "put" right as described above, CFM has
the right to repurchase from Mattson all (but not less than all) of the shares
of CFM common stock purchased by Mattson pursuant to Mattson's option. This
repurchase right is subject to certain other limitations as set forth in the
stock option agreement. The repurchase price will be calculated according to a
formula as set forth in the stock option agreement.
The maximum aggregate amount payable by CFM to Mattson and its affiliates
pursuant to the above "put" and repurchase rights and the termination fees
payable under the Merger Agreement cannot exceed
96
<PAGE>
(i) $8,000,000 plus (ii) the aggregate exercise price, if any, paid upon
exercise of Mattson's right to have CFM repurchase all or any portion of the
shares of CFM common stock purchased by Mattson pursuant to Mattson's option
(as described above). This dollar limit does not apply to any amounts
receivable by Mattson from persons other than CFM.
Restrictions On Transfer And Rights Of First Refusal
The agreement imposes restrictions on the ability of each party to transfer
shares of capital stock of the other party acquired pursuant to the agreement.
In addition, each party holds limited rights of first refusal with respect to
the shares of its capital stock acquired by the other party pursuant to the
agreement.
Registration Rights
Following termination of the Merger Agreement, either party that owns shares
of capital stock of the other party acquired pursuant to the agreement may
request that the other party register all or any part of those shares under the
Securities Act pursuant to a bona fide firm commitment underwritten public
offering (as more fully set forth in the agreement). Neither party is entitled
to demand more than an aggregate of two effective registration statements under
the agreement. The agreement contains customary provisions relating to
registration rights including, among others, expenses of registration,
indemnification and information obligations.
Termination Of Option
With certain limited exceptions, Mattson's option terminates upon the
earliest to occur of: (i) the effective time of the merger, (ii) termination of
the Merger Agreement other than upon a trigger event as referred to above, or
(iii) 12 months following Mattson's receipt of CFM's notice that a trigger
event has occurred. The termination of Mattson's option will not terminate the
rights of Mattson with respect to the "put" rights and registration rights of
Mattson as described above.
Voting Agreements
The following describes the material terms of the voting agreement between
Mattson and Christopher McConnell, and the voting agreement between CFM and
Brad Mattson. The voting agreements were entered into as an inducement to each
of Mattson and CFM to enter into the Merger Agreement.
Voting Of Shares
From the date of the applicable voting agreement through the earlier of the
date when the Merger Agreement is terminated or the merger becomes effective:
. Brad Mattson agrees that: (i) at any meeting of Mattson stockholders, he
will cause the Mattson securities owned by him as of the record date to
be voted in favor of the proposals submitted to Mattson stockholders that
are a condition to consummation of the merger, and (ii) in the event
written consents are solicited for the same proposals, he will execute,
with respect to the Mattson securities owned by him as of the record
date, a written consent or written consents to such proposed action; and
. Christopher McConnell agrees that: (i) at any meeting of CFM
shareholders, he will cause the CFM securities owned by him as of the
record date to be voted in favor of the proposals submitted to CFM
shareholders that are a condition to consummation of the merger, and (ii)
in the event written consents are solicited for the same proposals, he
will execute, with respect to the CFM securities owned by him as of the
record date, a written consent or written consents to such proposed
action.
97
<PAGE>
Restrictions on Transfer of Securities and Voting Rights
Each of these individuals also agrees that during that same period, he will
not allow any of the subject securities owned by him as of the date of the
voting agreement (i) to be transferred unless any such transferee agrees to be
bound by and to hold such securities subject to the same terms and provisions
of the applicable voting agreement, or (ii) to be deposited into a voting
trust. Each also agrees not to grant any proxy and not to enter into any other
voting or similar agreement with respect to such securities.
Waiver of Appraisal Rights
Both individuals also irrevocably and unconditionally waive and agree to
prevent the exercise of any rights of appraisal, dissenters' rights and similar
rights relating to the merger and related transactions that they or any other
person may hold by virtue of their ownership of the applicable securities.
No Solicitation
Each individual agrees that from the date of the applicable voting agreement
through the earlier of the date when the Merger Agreement is terminated or the
merger becomes effective, he and his representatives will not:
. solicit, initiate, encourage or induce the making, submission or
announcement of any offer, proposal, inquiry or indication of interest
regarding an alternative transaction to the merger or the business
combination between Mattson and STEAG;
. furnish any information to any person regarding the applicable company or
any of its direct or indirect subsidiaries regarding an alternative
transaction; or
. engage in discussions with any person regarding an alternative
transaction.
Each also agrees that he and his representatives will immediately cease any
existing discussions regarding an alternative transaction. The foregoing
restrictions, however, do not apply to either of these individuals in his
capacity as an officer or director of the applicable company.
Representations and Warranties
The agreements contain customary representations and warranties of the
parties.
Termination
The voting agreement between Mattson and Christopher McConnell further
provides that the agreement will terminate immediately prior to Mattson's
exercise of its option pursuant to the stock option agreement between Mattson
and CFM, described above.
98
<PAGE>
COMPARISON OF RIGHTS OF HOLDERS OF MATTSON COMMON STOCK
AND CFM COMMON STOCK
This section of the joint proxy statement-prospectus describes material
differences between the rights of stockholders of Mattson and the rights of
shareholders of CFM. The rights compared are those found in the respective
companies' charter documents and corporate law provisions for the state in
which each is incorporated. While Mattson believes that these descriptions
address the material differences, this summary may not contain all of the
information that is important to the stockholders of Mattson and CFM. Mattson
and CFM stockholders should read this entire document and the documents
referred to in this summary carefully for a more complete understanding of the
differences between the rights of Mattson stockholders, on the one hand, and
the rights of CFM shareholders, on the other.
Mattson is incorporated under the laws of the State of Delaware. The rights
of Mattson stockholders are currently governed by the Delaware General
Corporation Law and the Certificate of Incorporation and Bylaws of Mattson. CFM
is incorporated under the laws of the Commonwealth of Pennsylvania. As a result
of the merger, current shareholders of CFM will become stockholders of Mattson
and their rights will be governed by the Delaware General Corporation Law and
the Certificate of Incorporation and Bylaws of Mattson. The following is a
summary of the principal differences between the rights of Mattson stockholders
and the current rights of CFM shareholders. This summary is not intended to be
complete and is qualified in its entirety by reference to the relevant
provisions of the Certificate of Incorporation and Bylaws of Mattson, the
Articles of Incorporation and Bylaws of CFM, and Delaware and Pennsylvania law.
<TABLE>
<CAPTION>
Mattson CFM
------- ---
<S> <C> <C>
Board of Directors
Size of board........... Currently fixed by the Currently has six directors.
certificate of incorporation at
five.
Classification.......... Divided into three classes, with Not classified.
each class serving a staggered
three year term.
Removal of Directors.... Bylaws provide that directors may Pennsylvania law provides that
be removed only for cause by shareholders may remove
holders of a majority of the directors, with or without cause,
outstanding shares which would be by a vote of the majority of
entitled to vote at an election votes cast by those shareholders
of directors. entitled to vote for the election
of directors.
Vacancies............... Bylaws provide that any vacancies CFM's bylaws provide that
on the Mattson board may be vacancies are to be filled only
filled only by the majority of by a majority vote of the
remaining directors. remaining directors, or by the
sole remaining director.
Limitation of Director
Liability.............. Delaware law permits a Pennsylvania law permits a
corporation to limit or eliminate corporation to limit a director's
a director's personal liability, personal liability, with certain
with certain specified specified exceptions. The
exceptions. The corporation's corporation's articles of
certificate of incorporation must incorporation and bylaws must set
set forth any such limitation. forth any such limitation, and
the limitation must have been
approved by shareholder action.
</TABLE>
99
<PAGE>
<TABLE>
<CAPTION>
Mattson CFM
------- ---
<S> <C> <C>
Certificate of
Incorporation/Articles
of Incorporation...... The Certificate of Incorporation The articles of incorporation and
of Mattson specifically bylaws of CFM eliminate a
eliminates a director's personal director's liability to the
liability for monetary damages fullest extent permitted by
unless the director has breached Pennsylvania law. Under
his or her duty of loyalty to the Pennsylvania law, this means that
corporation or its stockholders, a director will not be liable for
or has taken actions, or failed any action taken or omitted
to take actions, which were not unless the director breaches or
in good faith or which involved fails to perform his or her
intentional misconduct or a duties and the breach or failure
knowing violation of the law. In to perform constitutes self-
addition, the limitation of dealing, willful misconduct or
liability will not apply to a recklessness. Under Pennsylvania
declaration of an improper law, a director also remains
dividend, to an improper personally liable where the
redemption of stock or to any responsibility or liability is
transaction from which the under any criminal statute or is
director derived an improper for the non-payment of taxes
personal benefit. under federal, state or local
law.
Indemnification of
Directors and
Officers.............. Delaware law permits a The relevant provisions of
corporation to indemnify any Pennsylvania law are essentially
person involved in a third party the same as those of Delaware
action because of such person's law.
service as an officer, director,
employee, or agent of the
corporation against expenses
incurred and amounts paid in such
an action (and against expenses
incurred in any derivative
action) if such person acted in
good faith and reasonably
believed that his actions were
in, or not opposed to, the best
interests of the corporation. In
a criminal proceeding, such
person is also required not to
have had reasonable cause to
believe that his conduct was
unlawful. A corporation may
advance expenses incurred in
defending any action so long as
the person agrees to repay the
amount advanced if it is
ultimately determined that such
person is not entitled to
indemnification.
</TABLE>
100
<PAGE>
<TABLE>
<CAPTION>
Mattson CFM
------- ---
<S> <C> <C>
Expenses in Derivative
Actions................ In general, Delaware law does not The relevant provisions of
permit a corporation to indemnify Pennsylvania law are essentially
a person for expenses in a the same as those of Delaware
derivative action if the person law.
has been adjudged liable to the
corporation, unless a court finds
such person entitled to such
indemnification. If, however, the
person has successfully defended
a third party or derivative
action, the corporation is
required to provide
indemnification for expenses
incurred.
Exclusion of Other
Rights................. The statutory provisions for The relevant provisions of
indemnification do not exclude Pennsylvania law are essentially
any other rights a person seeking the same as those of Delaware
indemnification may have under law.
any bylaw, agreement, vote of
stockholders, vote of
disinterested directors or
otherwise.
Charter and Bylaw
Provisions............. The Certificate of Incorporation The articles of incorporation and
of Mattson contains specific bylaws of CFM provide for
indemnification provisions that indemnification of its directors
generally track the provisions of and officers to the fullest
Delaware law, except that the extent permitted by Pennsylvania
Bylaws also provide that, if an law.
officer, director, or employee
initiates a proceeding, the
corporation will generally
indemnify such person only if the
board had authorized the
proceeding or such
indemnification is expressly
required to be made by law.
Amendments to Charter...
Delaware law provides that the Unless a corporation's articles
holders of a majority of the of incorporation require a
outstanding shares of each class greater percentage, Pennsylvania
of stock entitled to vote must law only requires the affirmative
approve any charter amendment. vote by the holders of a majority
of the votes of each class of
The Certificate of Incorporation shares actually cast on a
of Mattson requires a two-thirds proposed amendment at a meeting
vote of the then outstanding at which a quorum is present.
shares in order to amend or Pennsylvania law also does not
repeal charter provisions with require shareholder approval of
respect to, among other things, certain non-material amendments
no stockholder action by written to the articles of incorporation.
consent, the number of directors
and classification of the board
into three classes, or amendment
of the company's bylaws.
</TABLE>
101
<PAGE>
<TABLE>
<CAPTION>
Mattson CFM
------- ---
<S> <C> <C>
Mergers and Other
Fundamental
Transactions........... Delaware law provides that the Pennsylvania law requires the
holders of a majority of the approval by the holders of a
shares entitled to vote must majority of the votes actually
approve any fundamental corporate cast by the shareholders at a
transactions such as mergers, meeting at which a quorum is
sales of all or substantially all present.
of the corporation's assets,
dissolutions, etc. A corporation may increase the
minimum percentage vote required,
A corporation may increase the but the articles of incorporation
minimum percentage vote required, of CFM do not contain any super-
but the Certificate of majority vote requirements to
Incorporation of Mattson does not approve any fundamental
contain any super-majority vote transaction.
requirements to approve any
fundamental transaction.
Authorized Capital
Stock.................. The Certificate of Incorporation The CFM articles of incorporation
of Mattson authorizes the authorize the issuance of up to
issuance of up to 60,000,000 30,000,000 shares of common
shares of common stock, par value stock, no par value per share, up
$0.001 per share, 2,000,000 to 1,000,000 shares of preferred
shares of preferred stock, par stock, of which 300,000 shares
value $0.001 per share. As of are designated as Series A Junior
October 4, 2000, 20,956,157 Participating Preferred Stock, no
shares of common stock and no par value per share. As of
shares of preferred stock were October 4, 2000, approximately
issued and outstanding. 7,878,866 shares of common stock,
no shares of preferred stock, and
no shares of Series A Junior
Participating Preferred Stock,
were outstanding.
Dividends............... Delaware law permits a Pennsylvania law permits a
corporation to pay dividends out corporation to pay dividends
of surplus, which is the excess unless doing so would make the
of net assets of the corporation corporation unable to pay its
over capital, or, if the debts as they become due in the
corporation does not have usual course of business, or
adequate surplus, out of net unless, as a result of paying
profits for the current or such dividends, the corporation's
immediately preceding fiscal total assets would be less than
year, unless the net assets are its total liabilities plus the
less than the capital of any amount that would be needed to
outstanding preferred stock. pay the holders of shares having
a liquidation preference if the
corporation were dissolved.
</TABLE>
102
<PAGE>
<TABLE>
<CAPTION>
Mattson CFM
------- ---
<S> <C> <C>
Stock Repurchases....... Under Delaware law, a corporation Pennsylvania law permits a
may not purchase or redeem its corporation to redeem any and all
own shares if its capital is classes of its shares and treats
impaired or if the purchase or such redemption or repurchase
redemption would cause its like a dividend, subject to the
capital to be impaired. However, same limitations described under
a Delaware corporation may "Dividends" on page 102 of this
purchase or redeem preferred joint proxy-statement prospectus
shares out of capital if the above.
shares will then be retired,
reducing the capital of the
corporation.
Election of Directors... Delaware law permits stockholders Pennsylvania law automatically
to cumulate their votes and gives shareholders cumulative
either cast them for one voting rights unless a
candidate or distribute them corporation's articles of
among two or more candidates in incorporation provide otherwise.
the election of directors only if The CFM articles of incorporation
expressly authorized in a expressly prohibit cumulative
corporation's charter. The voting.
Certificate of Incorporation of
Mattson does not expressly
authorize cumulative voting.
Appraisal or Dissenters'
Rights................. Delaware law does not afford Pennsylvania law with respect to
appraisal rights to holders of dissenters' rights is similar to
shares that are either listed on Delaware law with respect to
a national securities exchange, appraisal rights, except that
quoted on Nasdaq or held of Pennsylvania law currently does
record by more than 2,000 not deny dissenters' rights to
stockholders, provided that such holders of shares which are
shares will be converted solely quoted on Nasdaq.
into cash in lieu of fractional
shares, or into stock of the The definition of "fair value" in
surviving corporation or another payment for shares upon exercise
corporation, which corporation in of appraisal or dissenters'
either case must also be listed rights is substantially similar
on a national securities under both states' laws. Any
exchange, quoted on Nasdaq or valuation methods that are
held of record by more than 2,000 generally acceptable in the
stockholders. In addition, financial community may be used.
Delaware law denies appraisal
rights to stockholders of the
surviving corporation in a merger
if the surviving corporation's
stockholders were not required to
approve the merger.
</TABLE>
103
<PAGE>
<TABLE>
<CAPTION>
Mattson CFM
------- ---
<S> <C> <C>
Amendments to Bylaws....
If the certificate of Pennsylvania law limits the
incorporation of a Delaware board's power to adopt or amend
company gives the board of bylaw provisions on specified
directors the power to amend the subjects absent a contrary
bylaws, which the Mattson provision in the articles. There
certificate of incorporation is no such contrary provision in
does, Delaware law does not limit the articles of incorporation of
the board's power to make changes CFM, so the Mattson board has
in the bylaws. broader authority to amend the
Mattson bylaws than the board of
Under Delaware law, stockholders directors of CFM has to amend
may amend a corporation's bylaws CFM's bylaws.
at any meeting, without the
consent of the board of Under Pennsylvania law, a copy or
directors. However, Article VI of summary of any proposed amendment
Mattson's bylaws provides that must be included with the notice
stockholders may only amend of the meeting.
Mattson's bylaws by a two-thirds
vote of the then outstanding
shares voting together as a
single class.
Action by Written
Consent................ Delaware law permits a majority Under Pennsylvania law,
of stockholders to act by written shareholders of a registered
consent, without a meeting, corporation such as CFM may act
unless a corporation's charter without a meeting by less than
provides otherwise. The unanimous consent only if
Certificate of Incorporation of permitted by the corporation's
Mattson expressly prohibits the articles of incorporation. CFM's
stockholders from acting by articles currently do not permit
written consent. such action.
Annual Meeting.......... Held on the date fixed by the Held on the date fixed by the
board of directors or president board of directors, or if not
and chief executive officer. If fixed, on the first day in May of
an annual meeting for the each year. Under Pennsylvania
election of directors is not held law, if the annual meeting for
on a designated date, Delaware the election of directors is not
law requires the directors to called and held within six months
cause the meeting to be held as after the designated time, any
soon thereafter as convenient. If shareholder may call such meeting
they fail to do so for a period at any time thereafter without
of 30 days after the designated application to any court.
date, or if no date has been
designated for a period of
13 months after the organization
of the corporation or after its
last annual meeting, then, upon
application of any stockholder or
director, the Court of Chancery
may order a meeting to be held.
</TABLE>
104
<PAGE>
<TABLE>
<CAPTION>
Mattson CFM
------- ---
<S> <C> <C>
Special Meeting of
Stockholders........... Delaware law permits the board of Pennsylvania law permits the
directors or any other person board of directors, the
authorized by a corporation's president, any vice president,
charter or bylaws to call a the secretary, the holders of at
special meeting of stockholders. least 20% of a corporation's
The Mattson bylaws permit the outstanding shares, or any other
board of directors, the chairman person authorized by a
of the board, the president, or corporation's articles or bylaws,
the chief executive officer to to call a special meeting of
call a special meeting of shareholders. Pennsylvania law,
stockholders. however, explicitly states that
shareholders of a registered
corporation, such as CFM, do not
have a statutory right to call
special meetings, except that an
interested shareholder may call a
meeting in order to seek approval
of a business combination between
the corporation and such
interested shareholder.
Advance Notice
Requirements of
Stockholder Nominations
and Other Business.....
A stockholder wishing to nominate Pennsylvania law and CFM's
directors or bring other business Articles of Incorporation and
before an annual meeting of bylaws do not specify any advance
Mattson stockholders must give notice for a shareholder wishing
notice at least 120 days before to nominate directors at an
the first anniversary of the day annual meeting of CFM
written notice of the previous shareholders.
year's meeting was given.
Rights of Inspection.... Under Delaware law, a stockholder Under Pennsylvania law, a
may inspect a corporation's books shareholder may inspect a
and records during normal corporation's books and records
business hours as long as such during normal business hours as
inspection is for a proper long as such inspection is for a
purpose, and as long as the proper purpose, and as long as
stockholder has made proper the shareholder has made proper
written demand stating the written demand stating the
purpose of the inspection. A purpose of the inspection. A
proper purpose is any purpose proper purpose is any purpose
reasonably related to the reasonably related to the
interests of the inspecting interests of the inspecting
person as a stockholder. person as a shareholder.
Case Law................ There is a substantial body of Pennsylvania does not have a
case law in Delaware interpreting comparable body of judicial
the corporation laws of that interpretation.
state.
Court Systems........... Delaware has established a system Pennsylvania has not established
of Chancery Courts to adjudicate an equivalent court system and
matters arising under the matters arising under the
Delaware General Corporation Law. Pennsylvania Business Corporation
Law are adjudicated by general
state courts.
</TABLE>
105
<PAGE>
Fiduciary Duties of Directors
General
Both Delaware and Pennsylvania law provide that the business and affairs of
a corporation are managed under the direction of the board of directors. In
discharging this function, directors of Pennsylvania and Delaware corporations
owe fiduciary duties of care and loyalty to the corporations they serve.
Directors of Delaware corporations also owe fiduciary duties of care and
loyalty to stockholders.
The fiduciary duty provisions included in the Pennsylvania law, which apply
to CFM, may provide significantly broader discretion, and increased protection
from liability, to directors in exercising their fiduciary duties, particularly
in the context of a change in control.
The following summarizes certain aspects of Delaware and Pennsylvania law as
they relate to fiduciary duties of directors.
Standard of Care
Delaware courts have held that the directors of a Delaware corporation are
required to exercise an informed business judgment in performing their duties.
An informed business judgment means that the directors have informed themselves
of all material information reasonably available to them. Delaware courts have
also imposed a heightened standard of conduct on directors in matters involving
a contest for control of the corporation.
A director of a Pennsylvania business corporation stands in a fiduciary
relationship to the corporation (unlike in Delaware, where a director also
stands in a fiduciary relationship to stockholders) and must perform his or her
duties as a director in good faith, in a manner he or she reasonably believes
to be in the best interests of the corporation and with such care, including
reasonable inquiry, skill and diligence, as a person of ordinary prudence would
use under similar circumstances.
Justifiable Reliance
A director of a Delaware corporation, in performing his or her duties, is
fully protected in relying, in good faith, upon the records of the corporation
and upon such information, opinions, reports, or statements presented to the
corporation by any of the corporation's officers or employees, or by committees
of the board of directors, or by any other person as to matters the director
reasonably believes are within such other person's professional or expert
competence. Such person must also have been selected with reasonable care by or
on behalf of the corporation.
In performing his or her duties, a director of a Pennsylvania business
corporation is entitled to rely, in good faith, on information, opinions,
reports, or statements (including financial statements and other financial
data), prepared or presented by any of the following:
. officers or employees of the corporation, so long as the director
reasonably believes them to be reliable and competent in the matters
presented;
. counsel, public accountants, investment bankers, or other persons as to
matters which the director reasonably believes to be within the
professional or expert competence of such persons; and
. a duly designated committee of the board which the director reasonably
believes merits confidence and upon which the director does not serve,
but only as to matters within the committee's designated authority.
However, a director will not be considered to be acting in good faith if he
or she has knowledge concerning the matter in question which would cause such
reliance to be unwarranted.
106
<PAGE>
Consideration of Factors
Delaware law does not contain any statutory provision permitting the board
of directors, committees of the board, and individual directors, when
discharging their duties, to consider the interests of any constituencies other
than the corporation or its stockholders.
Pennsylvania law, on the other hand, provides that in discharging their
duties, the board of directors, committees of the board and individual
directors shall, in considering what is in the best interests of the
corporation, consider, to the extent they deem appropriate, all pertinent
factors, including the following:
. the effects of any action upon any groups affected by such action,
including shareholders, employees, suppliers, customers, and creditors of
the corporation, and on communities served by the corporation;
. the corporation's short-term and long-term interests, including benefits
which may accrue to the corporation from its long-term plans and the
possibility that these interests may be best served by the corporation's
continued independence; and
. the resources, intent, and conduct (past, stated and potential) of any
person seeking to acquire control of the corporation.
Under current Delaware law it is unclear whether the board of directors,
committees of the board, and individual directors of a Delaware corporation may
take into account, in considering what is in the corporation's best interests
or what the effects of any action on the corporation may be, the interests of
any constituency other than the corporation's stockholders. In contrast to
Delaware law, Pennsylvania law provides that a director owes a duty only to the
corporation (and not to the shareholders), and in considering what is in the
best interests of the corporation, may choose to subordinate the interests of
shareholders to the interests of employees, suppliers, customers, or creditors
of the corporation or to the interests of the communities served by the
corporation.
In addition, the duty of the board of directors, committees of the board,
and individual directors of a Delaware corporation may be enforced directly by
the corporation, or may be enforced by a stockholder, as such, by an action in
the right of the corporation, or may be enforced directly by a stockholder or
by any other person or group. In contrast, the duty of the board of a
Pennsylvania corporation may not be enforced directly by a shareholder, but may
be enforced by a shareholder in a derivative action.
Specific Applications
Delaware courts have imposed a heightened standard of conduct upon directors
of a Delaware corporation who take any action designed to defeat a threatened
change in control of the corporation. The heightened standard has two elements.
First, the board must demonstrate some basis for concluding that a proper
corporate purpose is served by implementation of any defensive measure, and,
second, that measure must be reasonable in relation to the perceived threat
posed by the change in control.
The fiduciary duty of directors of a Pennsylvania corporation does not
require them to act solely because of the effect such action might have on an
acquisition or potential or proposed acquisition of control of the corporation
or on the consideration which might be offered or paid to shareholders in such
an acquisition. In particular, directors of a Pennsylvania corporation are not
required to redeem rights under any shareholder rights plan.
In addition, under Delaware law, unlike under Pennsylvania law, when the
board of directors approves the sale of a corporation, the board of directors
may have a duty to obtain the highest value reasonably available to the
stockholders.
Presumption
Under Delaware law, it is presumed that the directors of a Delaware
corporation acted on an informed basis, in good faith and in the honest belief
that their actions were in the best interest of the corporation. This
107
<PAGE>
presumption may be overcome, however, if a preponderance of the evidence shows
that the directors' decision involved a breach of fiduciary duty such as fraud,
overreaching, lack of good faith, failure of the board to inform itself
properly or actions by the board to entrench itself in office.
Under Pennsylvania law, unless there is a breach of fiduciary duty, a lack
of good faith or self-dealing (in other words, entering into a contract or
transaction with a director or an entity in which a director has a financial or
other interest), any act of the board of directors, any committee of the board
or any individual director is presumed to be in the corporation's best
interest. No higher burden of proof or greater obligation to justify applies to
any act relating to or affecting an acquisition or a potential or proposed
acquisition of control of the corporation than to any other action.
Under Pennsylvania law, any board action relating to an acquisition or
potential or proposed acquisition of control which a majority of the
corporation's "disinterested directors" approve is presumed to satisfy the
statutory duty of care under Pennsylvania law, unless it is proven by clear and
convincing evidence that the disinterested directors did not assent to such act
in good faith, after reasonable investigation. Disinterested directors are
those who are not affiliated with the person seeking control and, in certain
circumstances, are not officers or employees of the corporation.
Anti-Takeover Laws
Section 203 of the Delaware General Corporation Law contains certain "anti-
takeover" provisions that apply to a Delaware corporation unless, among other
things, the corporation elects not to be governed by such provisions in its
certificate of incorporation or bylaws. Neither the Certificate of
Incorporation nor the Bylaws of Mattson contain such an election. Thus, Mattson
is governed by Section 203, which precludes a corporation from engaging in any
"business combination" with any person that owns 15% or more of its outstanding
voting stock for a period of three years following the time that such
stockholder obtained ownership of more than 15% of the outstanding voting stock
of the corporation. A business combination includes, among other things, any
merger, consolidation, or sale of ten percent or more of a corporation's
assets.
The three-year waiting period does not apply, however, if any of the
following conditions are met:
. the board of directors of the corporation approved either the business
combination or the transaction which resulted in such stockholder owning
more than 15% of such stock before the stockholder obtained ownership of
more than 15% of the corporation's stock;
. once the transaction which resulted in the stockholder owning more than
15% of the outstanding voting stock of the corporation is completed, such
stockholder owns at least 85% of the voting stock of the corporation
outstanding at the time that the transaction commenced; or
. at or after the time the stockholder obtains more than 15% of the
outstanding voting stock of the corporation, the business combination is
approved by the board of directors and authorized at an annual or special
meeting of stockholders (and not by written consent) by the affirmative
vote of at least 66 2/3% of the outstanding voting stock that is not
owned by the acquiring stockholder.
In addition, Section 203 does not apply to any person who became the owner
of more than 15% of a corporation's stock if it was as a result of action taken
solely by the corporation. Section 203 also does not apply to the corporation
itself or to any of the corporation's majority-owned subsidiaries.
Chapter 25 of the Pennsylvania Business Corporation Law contains several
anti-takeover provisions that apply to registered corporations such as CFM.
Section 2538 of the Pennsylvania Business Corporation Law, which is similar to
Section 203 of the Delaware General Corporation Law, requires shareholder
approval for certain transactions between a registered corporation and a
shareholder. Section 2538 applies if an interested shareholder (together with
anyone acting jointly with such shareholder and any affiliates of such
shareholder):
. is to be a party to a merger or consolidation, a share exchange or
certain sales of assets involving the corporation or one of its
subsidiaries;
108
<PAGE>
. is to receive a disproportionate amount of any of the securities of any
corporation which survives or results from a division of the corporation;
. is to be treated differently from others holding shares of the same class
in a voluntary dissolution of such corporation; or
. is to have his or her percentage of voting or economic share interest in
such corporation materially increased relative to substantially all other
shareholders in a reclassification.
In such a case, the proposed transaction must be approved by the affirmative
vote of the holders of shares representing at least a majority of the votes
that all shareholders are entitled to cast with respect to such transaction.
Shares held by the interested shareholder are not included in calculating the
number of shares entitled to be cast, and the interested shareholder is not
entitled to vote on the transaction. This special voting requirement does not
apply if the proposed transaction has been approved in a prescribed manner by a
majority of the corporation's disinterested directors or if certain other
conditions (including conditions relating to the amount of consideration to be
paid to certain shareholders) are satisfied.
Section 2555 of the Pennsylvania Business Corporation Law may also apply to
a business combination between a registered corporation and an interested
shareholder, even if Section 2538 also applies. Section 2555 prohibits a
corporation from engaging in a business combination with an interested
shareholder unless one of the following conditions is met:
. the board of directors has previously approved either the proposed
transaction or the interested shareholder's acquisition of shares;
. the interested shareholder owns at least 80% of the stock entitled to
vote in an election of directors and, no earlier than three months after
the interested shareholder reaches the 80% level, the majority of the
remaining shareholders approve the proposed transaction, the shareholders
receive a minimum "fair price" for their shares in the transaction and
the other conditions of Section 2556 of the Pennsylvania Business
Corporation Law are met;
. holders of all outstanding common stock approve the transaction;
. no earlier than five years after the interested shareholder became an
interested shareholder, a majority of the remaining shares entitled to
vote in an election of directors approve the transaction; or
. no earlier than five years after the interested shareholder became an
interested shareholder, a majority of all the shares approve the
transaction, all shareholders receive a minimum fair price for their
shares, and certain other conditions are met.
Neither of Sections 2538 or 2555 apply to the merger because a majority of
the CFM board, including a majority of disinterested directors of the CFM
board, has previously approved of the merger. The articles of incorporation of
CFM also provide that CFM may not repurchase any stock from an interested
shareholder at prices greater than the current fair market value.
Pennsylvania law deems a person (or group of persons acting in concert) that
holds 20% of the shares of a registered corporation entitled to vote in the
election of directors to be a control group. A shareholder who objects to the
"control transaction" that makes the control group a control group can, under
procedures set forth in the statute, require the control group to purchase for
cash his or her shares at "fair value," as defined under Pennsylvania law.
Pennsylvania law also contains certain provisions that apply to a registered
corporation such as CFM which, under certain circumstances, permit a
corporation to redeem "control shares," as defined under Pennsylvania law,
restore the voting rights of control shares, and require the disgorgement of
profits by a "controlling person," as defined under Pennsylvania law.
109
<PAGE>
MANAGEMENT OF MATTSON AFTER THE TRANSACTIONS
Board of Directors of Mattson
Upon completion of the Transactions, the board of directors of Mattson will
be comprised of seven individuals, four of whom have been designated by
Mattson, two of whom will be designated by STEAG, and one of whom will be
designated by CFM. Mattson will have a classified board of directors consisting
of two Class I directors (Brad Mattson and Kenneth Kannappan), two Class II
directors (Kenneth G. Smith and Dr. Hans-Georg Betz), and three Class III
directors (Shigeru Nakayama, Dr. Jochen Melchior, and James J. Kim). One
incumbent member of the Mattson board of directors, John Savage, has agreed to
step down from the board immediately prior to the closing. Class I, II, and III
directors will serve until the Annual Meetings of Stockholders to be held in
2001, 2002, and 2003, respectively, and until their respective successors are
duly elected and qualified. At each Annual Meeting of Stockholders, directors
will be elected for a full term of three years to succeed those directors whose
terms expire on the Annual Meeting dates.
To date, Mattson, STEAG, and CFM have designated the following individuals
to be directors of Mattson upon completion of the Transactions:
<TABLE>
<CAPTION>
Director
Name Age Position With the Company Since
---- --- ------------------------- --------
<S> <C> <C> <C>
Class I directors whose
terms expire at the
2001 Annual Meeting of
Stockholders:
Brad Mattson............ 45 Director (Vice Chairman) and Chief Executive Officer 1988
Kenneth Kannappan....... 40 Director 1998
Class II directors whose
terms expire at the
2002 Annual Meeting of
Stockholders:
Kenneth G. Smith........ 50 Director 1994
Dr. Hans-Georg Betz..... 54 Director --
Class III director whose
term expires at the
2003 Annual Meeting of
Stockholders:
Shigeru Nakayama........ 65 Director 1996
Dr. Jochen Melchior..... 58 Director (Chairman) --
James J. Kim............ 64 Director --
</TABLE>
Brad Mattson, age 45, founded Mattson in November 1988 and has served as
Chief Executive Officer and Chairman since its inception, and as President from
inception until January 1997. Mr. Mattson was the founder of Novellus Systems,
Inc. ("Novellus"), a semiconductor equipment company, and formerly served as
its President, Chief Executive Officer and Chairman. He has held previous
executive positions at Applied Materials, Inc. and LFE Corporation,
semiconductor equipment companies.
Dr. Jochen Melchior, age 58, became a member of the Management Board of
STEAG AG in June 1987 and became Chairman of the Management Board and Chief
Executive Officer of STEAG AG in November 1995. Since November 1995, Dr.
Melchior has also served as Chairman of the Supervisory Board of STEAG. From
April 1992 to July 1993, Dr. Melchior served as Chairman of the Management
Board and Chief Executive Officer of STEAG. Dr. Melchior also currently serves
as a member of the Supervisory Boards of Nationalbank AG, Vinci Deutschland AG,
Saarberg AG, TUV Mitte AG, and Colonia Nordstern
110
<PAGE>
Versicherungs-Management AG. He also serves as Vice-Chairman of the Supervisory
Board of Westfalische Hypothekenbank AG and Chairman of the Supervisory Board
of STEAG HamaTech AG, and STEAG Walsum Immobilien AG.
Dr. Hans-Georg Betz, age 54, has served as Chairman of the Management Board
and Chief Executive Officer of STEAG since January 1996 and became a member of
the Management Board of STEAG in October 1992. Dr. Betz has also served as a
member of the Management Board of STEAG AG since January 1997. Dr. Betz also
currently serves as Vice-Chairman of the Supervisory Board of STEAG HamaTech
AG.
Kenneth Kannappan, age 40, joined Mattson as a member of its board of
directors in July 1998. In March 1998, Mr. Kannappan was appointed the
President and Chief Executive Officer of Plantronics, Inc., a
telecommunications equipment manufacturer. From February 1995 to 1998, Mr.
Kannappan held various positions at Plantronics, Inc. From 1991 to 1995 Mr.
Kannappan was Senior Vice President of Kidder, Peabody & Co. Incorporated, an
investment banking company. Mr. Kannappan is a member of the Compensation
Committee and the Audit Committee of the board of directors.
James J. Kim, age 64, has been a director of CFM since December 1991. Mr.
Kim is the founder, Chairman and Chief Executive Officer of Amkor Technology,
Inc. Amkor, headquartered in West Chester, Pennsylvania, is a leader in
semiconductor assembly, test, packaging, and technology, utilizing the
facilities of Anam Industrial Co., Ltd., of Seoul, and Amkor/Anam Pilipinas,
Inc., in Manila. Mr. Kim received his BS and MA in Economics from the
University of Pennsylvania.
Shigeru Nakayama, age 65, joined Mattson as a member of its board of
directors in May 1996. Since 1996, Mr. Nakayama has been a business consultant
to Semiconductor Equipment and Materials International, an international
association of semiconductor equipment manufacturers and materials suppliers.
From 1984 to 1994, Mr. Nakayama was the President of SEMI Japan, a member of
Semiconductor Equipment and Materials International.
Kenneth G. Smith, age 50, joined Mattson as a member of its board of
directors in August 1994. Since May 1996, Mr. Smith has been President, Chief
Operating Officer and a director of WaferTech, a semiconductor manufacturer.
From 1991 to 1995, Mr. Smith was Vice President of Operations at Micron
Semiconductor, Inc., a semiconductor manufacturer, and from 1989 to 1991, Mr.
Smith was a Fabrication Manager at Micron Semiconductor. Mr. Smith is a member
of the Audit Committee and the Compensation Committee of the board of
directors.
Board Meetings and Committees
Upon completion of the Transactions, the board of directors of Mattson will
initially have four committees: an Audit Committee, a Compensation Committee, a
newly formed Nominating Committee and a newly formed Executive Staffing
Committee.
The Audit Committee oversees Mattson's accounting and financial reporting
policies and internal controls, reviews annual audit reports and management
letters and makes recommendations to the board of directors regarding
appointment of independent public accountants. Prior to completion of the
Transactions, the Audit Committee consists of Messrs. Smith, Savage, and
Kannappan.
The principal functions of the Compensation Committee are to recommend to
the board the compensation of directors and officers of Mattson, to oversee the
administration of Mattson's stock option plans and to perform such other duties
regarding compensation for employees and consultants as the board may delegate
from time to time. Prior to completion of the Transactions, the Compensation
Committee consists of Messrs. Smith, Savage, and Kannappan.
111
<PAGE>
Effective as of the completion of the business combination, and in
accordance with the terms of the Stockholder Agreement, Mattson's Bylaws will
be amended to establish a Nominating Committee to evaluate and propose nominees
to serve as directors to succeed the CFM representative or any independent
director who leaves office, or to fill additional vacancies on the board not
otherwise provided for. During the term of the Stockholder Agreement, the
Nominating Committee will consist of three board members, at least one of whom
will be a STEAG representative. For a period of three years following the date
of completion of the business combination, the Nominating Committee will only
nominate nominees who have received the unanimous approval of the Nominating
Committee members. The Mattson Bylaws will provide that in the event the
Nominating Committee fails to nominate a nominee within four months after a
board seat becomes vacant, the board may act to elect and appoint a nominee to
fill the vacancy.
As of the closing, the Mattson Board of Directors will establish and appoint
in accordance with the procedures for establishing committees set forth in
Mattson's By-laws an Executive Staffing Committee, consisting of Dr. Jochen
Melchior and Brad Mattson (and, if agreed by Mattson and STEAG, one additional
representative of each of STEAG and Mattson), which will remain in place for
one year following closing, and will be responsible during that period for
making key personnel decisions (including the hiring and firing of the chief
executive officer, the chief financial officer, and the chief operating
officer, and the general managers for divisions). A mutually acceptable
independent Mattson board member will be appointed as a tiebreaker in the event
the Executive Staffing Committee reaches deadlock on an issue.
Compensation of Directors
In accordance with existing practice of Mattson, following the completion of
the Transactions, Mattson will reimburse each of its outside directors for out-
of-pocket expenses associated with attending meetings of the board of
directors, but otherwise will not provide any cash compensation to outside
directors for their services as such. On December 16, 1999, the Mattson board
of directors approved a proposal under which non-employee directors are to be
reimbursed $5,000 per board of directors meeting attended, up to a maximum of
four meetings per year. This policy will continue following completion of the
Transactions.
In addition, Mattson's Amended and Restated 1989 Stock Option Plan (the
"Stock Option Plan") provides for the automatic grant of options to Mattson's
non-employee directors, and before December 16, 1999, each non-employee
director elected or appointed after July 24, 1997 had been granted an option to
purchase 12,500 shares on the date of appointment or election. In addition,
each non-employee director was thereafter granted an option to purchase 5,000
shares on the date immediately after each annual meeting of stockholders
following which he remains a non-employee director of Mattson, as long as such
director has continuously served on the board for six months as of the date of
such annual meeting. On December 16, 1999, the board of directors increased the
number of options to be granted to non-employee directors upon appointment from
12,500 to 30,000 and approved an increase in the number of options to be
granted to non-employee directors from 5,000 shares per year to 10,000 shares
per year. In addition, the board of directors approved the grant of options to
purchase 17,500 shares to the non-employee directors for fiscal year 2000.
These options were granted to the non-employee directors on January 3, 2000.
Thereafter, non-employee directors will be granted options to purchase 10,000
shares per year. See Proposal No. 2, "APPROVAL OF INCREASE IN SHARES RESERVED
FOR ISSUANCE UNDER THE AMENDED AND RESTATED 1989 STOCK OPTION PLAN" on page 120
of this joint proxy statement-prospectus.
112
<PAGE>
Executive Officers
The principal executive officers of Mattson upon completion of the
Transactions will be as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Brad Mattson............ 45 Vice Chairman of the Board and Chief Executive Officer
Ludger Viefhues......... 58 President and Chief Operating Officer
David Dutton............ 39 President, Plasma Products Division
Brian McDonald.......... 43 Executive Vice President, Finance and Chief Financial Officer
Walter Kasianchuk....... 50 Executive Vice President, Thermal Products Division
Roger Carolin........... 45 President, Wet Processing Division
</TABLE>
--------
Brad Mattson founded Mattson in November 1988 and has served as Chief
Executive Officer and Chairman since its inception, and until January 1997
served as its President. Mr. Mattson was the founder of Novellus Systems, Inc.
and formerly served as its President, Chief Executive Officer and Chairman. He
has held previous executive positions at Applied Materials and LFE Corporation,
semiconductor equipment companies.
Ludger Viefhues joined STEAG RTP Systems GmbH, a STEAG Semiconductor
Subsidiary, as Chief Financial Officer in December 1999. From August 1996 to
August 1999, Mr. Viefhues served as Chief Executive Officer and member of the
Board of Directors of MEMC Electronic Materials Inc. From October 1993 to July
1996, Mr. Viefhues served as a member of the Management Board of Huels AG, and
Chairman of the Board of Directors of MEMC Electronic Materials Inc. Mr.
Viefhues also served as a member of the Supervisory Board of STEAG from July
1999 to December 1999.
David Dutton joined Mattson as General Manager in the Strip/Plasma Etch
division in 1994. In March 1998, Mr. Dutton became Executive Vice President and
Chief Operating Officer of Mattson. From 1984 to 1993, Mr. Dutton served as an
engineer and then manager in plasma etch processing and yield enhancement at
Intel Corp. From 1993 to 1994, Mr. Dutton was Engineering Manager for Thin
Films Processing at Maxim Integrated Products.
Brian McDonald joined Mattson as Vice President, Finance and Chief Financial
Officer in April 1999. From 1993 to July 1998, Mr. McDonald was Vice President
of Finance for the Central Technology and Manufacturing division of National
Semiconductor Corporation. Mr. McDonald previously held senior finance
positions at National Semiconductor, Read-Rite Corporation and Micro Linear
Corporation.
Walter Kasianchuk joined Mattson as General Manager and Vice President,
Epitaxial Product Division in September 1999. From 1995 to 1999, Mr. Kasianchuk
was Executive Vice President of Engineering and Technology at Mitsubishi
Silicon America. From 1983 to 1995, Mr. Kasianchuk held senior management
positions with Siltec Corp., and from 1977 to 1982, Mr. Kasianchuk held
management positions with Monsanto.
Roger Carolin, age 45, has served CFM as a director since its inception in
1984 and as President and Chief Executive Officer since April 1991. From
October 1990 to April 1991, he served as a marketing and sales consultant to
CFM. From June 1984 to October 1990, Mr. Carolin was Senior Vice President of
The Mills Group, Inc., a real estate development firm. Previously, Mr. Carolin
worked for The General Electric Company and Honeywell, Inc. in a variety of
technical positions. Mr. Carolin received his BS in Electrical Engineering from
Duke University and his MBA from Harvard Business School.
113
<PAGE>
Additional officers will be appointed by the Mattson board of directors
immediately after completion of the Transactions.
Compensation of Executive Officers
For information concerning the compensation paid to, and the employment
agreements with, the chief executive officer and the other four most highly
compensated officers of Mattson for the 1999 fiscal year, see "Proposals
Relating to Amendment of Mattson's Equity Compensation Plans -- Historical
Executive Compensation" on page 116 of this joint proxy statement-prospectus.
For information concerning the compensation paid to, and the employment
agreements with, the chief executive officer and the other four most highly
compensated executive officers of CFM for the 1999 fiscal year, see CFM's proxy
statement used in connection with its 2000 annual meeting of stockholders, the
relevant portions of which are incorporated by reference into CFM's annual
report on Form 10-K for the fiscal year ended October 31, 1999.
114
<PAGE>
DESCRIPTION OF MATTSON CAPITAL STOCK
Mattson's authorized capital stock consists of 60,000,000 shares of common
stock and 2,000,000 shares of preferred stock. As of October 4, 2000, there
were 20,956,157 shares of common stock and no shares of preferred stock
outstanding.
Common Stock
Subject to preferences that may be applicable to any outstanding preferred
stock, holders of common stock are entitled to receive ratably dividends as may
be declared by Mattson's board of directors out of the funds legally available
therefor. Each holder of common stock is entitled to one vote for each share
held of record by the holder. If Mattson liquidates, dissolves, or wind ups the
company, holders of common stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preference of any
outstanding preferred stock. The outstanding shares of common stock have no
preemptive, subscription, redemption or conversion rights. Cumulative voting
for the election of directors is not authorized by Mattson's Certificate of
Incorporation, which means that the holders of a majority of the shares voted
can elect all of the directors then standing for election. All of the
outstanding shares of common stock are, and the shares to be outstanding upon
completion of this offering will be, fully paid and nonassessable. The rights,
preferences and privileges of the holders of common stock are subject to, and
may be adversely affected by, the rights of the holders of any series of
preferred stock which Mattson may designate and issue in the future.
Preferred Stock
The board of directors is authorized, without further action by the
stockholders, subject to any limitations prescribed by law, to designate and
issue up to 2,000,000 shares of preferred stock in one or more series. The
board of directors can fix the rights, preferences and privileges of the shares
of each series and any qualifications, limitations or restrictions on these
shares.
The board of directors may authorize the issuance of preferred stock with
voting or conversion rights that could adversely affect the voting power or
other rights of the holders of common stock. The issuance of preferred stock,
while providing flexibility in connection with possible acquisitions and other
corporate purposes could, under some circumstances, has the effect of delaying,
deferring or preventing a change in control of Mattson. Mattson has no current
plans to issue any shares of preferred stock.
115
<PAGE>
PROPOSALS RELATING TO AMENDING MATTSON
EQUITY COMPENSATION PLANS
Proposals No. 2 and No. 3 below relate to proposed amendments to increase
the shares reserved for issuance under Mattson's existing 1989 Stock Option
Plan and 1994 Employee Stock Purchase Plan. These proposals are being made at
this time because Mattson anticipates needing additional shares to support the
compensation requirements of a substantially increased number of employees
following completion of the Transactions. However, approval of these proposals
is not required as a condition to the Transactions, and the vote to approve
each of these proposals is independent of the vote to approve Proposal No. 1.
Only Mattson stockholders are voting upon Proposals No. 2 and No. 3.
Historical Executive Compensation
The following table sets forth information concerning the compensation of
Chief Executive Officer and the four highest compensated executive officers of
Mattson whose total salary and bonus for the fiscal years ended December 31,
specified below, exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
--------------------- ------------
Name and Principal Options
Function Year Salary($) Bonus($)(4) Granted(#)
------------------ ---- --------- ----------- ------------
<S> <C> <C> <C> <C>
Brad Mattson............. 1999 313,272 201,000(5) 100,000
Chief Executive Officer 1998 273,134 87,000 --
1997 299,134 79,000 116,500
Brian McDonald(2)........ 1999 136,924 70,750(5) 83,750
Vice President, Finance,
Chief
Financial Officer and
Secretary
David Dutton............. 1999 194,692 119,000 37,500
Executive Vice
President, 1998 167,722 34,000 --
Chief Operating Officer 1997 155,999 32,000 45,500
Yasuhiko Morita(1)....... 1999 200,936 81,000(5) 20,000
Executive Vice
President, Global Sales 1998 114,141 44,000 --
1997 172,985 39,000 37,000
Walter Kasianchuk(3)..... 1999 53,570 20,000(5) 30,000
General Manager and Vice
President,
Epitaxial Product
Division
</TABLE>
--------
(1) Mr. Morita's salary was denominated in Japanese yen and converted to US
dollars.
(2) Mr. McDonald joined Mattson in April 1999.
(3) Mr. Kasianchuk joined Mattson in September 1999.
(4) 1997 bonus figures represent bonuses accrued at the end of the 1997 fiscal
year but paid in the succeeding fiscal year.
(5) 1999 bonus figures represent bonuses accrued at the end of the 1999 fiscal
year but paid in the 2000 fiscal year.
116
<PAGE>
Stock Options Granted During Fiscal 1999
The following table provides the specified information concerning grants of
options to purchase Mattson common stock made during the fiscal year ended
December 31, 1999, to the persons named in the Summary Compensation Table.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed Annual
Rates of Stock
Price
Appreciation for
Individual Grants in Fiscal 1999 Option Term(2)
---------------------------------------------- -----------------
Number of % of Total
Securities Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration
Name Granted(1) Fiscal Year ($/Sh) Date 5% (8) 10% (9)
---- ---------- ------------ ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Brad Mattson............ 14,269 1.56% $ 7.77 05/20/04 $ 18,000 $ 51,000
35,731 3.90% $ 7.77 05/20/04 $ 44,000 $129,000
768 0.08% $16.78 12/16/04 $ 2,000 $ 6,000
49,232 5.38% $16.78 12/16/04 $132,000 $383,000
Brian McDonald.......... 49,105 5.36% $ 7.00 04/21/09 $216,000 $548,000
25,895 2.83% $ 7.00 04/21/09 $114,000 $289,000
3,688 0.40% $15.25 12/16/09 $ 35,000 $ 90,000
5,062 0.55% $15.25 12/16/09 $ 49,000 $123,000
David Dutton............ 6,100 0.67% $ 7.06 05/20/09 $ 27,000 $ 69,000
16,392 1.79% $ 7.06 05/20/09 $ 73,000 $185,000
6,557 0.72% $15.25 12/16/09 $ 63,000 $159,000
8,443 0.92% $15.25 12/16/09 $ 81,000 $205,000
Yasuhiko Morita......... 14,192 1.55% $ 7.06 05/20/09 $ 63,000 $160,000
808 0.09% $ 7.06 05/20/09 $ 4,000 $ 9,000
2,091 0.23% $ 7.06 05/20/09 $ 9,000 $ 24,000
2,909 0.32% $ 7.06 05/20/09 $ 13,000 $ 33,000
Walter Kasianchuk....... 28,468 3.11% $12.75 09/09/09 $228,000 $578,000
1,532 0.17% $12.75 09/09/09 $ 12,000 $ 31,000
</TABLE>
--------
(1) Options granted in fiscal 1999 under the Stock Option Plan generally vest
one-quarter of the number of shares granted one year after commencement of
employment or grant and continue to vest thereafter monthly over a period
of three years, conditioned upon continued employment with Mattson. Under
the Stock Option Plan, the Board retains discretion to modify the terms,
including the price, of outstanding options.
(2) Potential gains are net of exercise price, but before taxes associated with
exercise. These amounts represent certain assumed rates of appreciation
only, in accordance with the Securities and Exchange Commission's rules.
Actual gains, if any, on stock option exercises are dependent on the future
performance of Mattson's common stock, overall market conditions and the
optionholders' continued employment through the vesting period. The amounts
reflected in this table may not necessarily be achieved. One share of stock
purchased at $7.00 in fiscal 1999 would yield profits of approximately
$4.40 per share at 5% appreciation over ten years, or approximately $11.16
per share at 10% appreciation over the same period. One share of stock
purchased at $7.06 in fiscal 1999 would yield profits of approximately
$4.44 per share at 5% appreciation over ten years, or approximately $11.25
per share at 10% appreciation over the same period. One share of stock
purchased at $7.77 in fiscal 1999 would yield profits of approximately
$4.89 per share at 5% appreciation over ten years, or approximately $12.38
per share at 10% appreciation over the same period. One share of stock
purchased at $12.75 in fiscal 1999 would yield profits of approximately
$8.02 per share at 5% appreciation over ten years, or approximately $20.32
per
117
<PAGE>
share at 10% appreciation over the same period. One share of stock
purchased at $15.25 in fiscal 1999 would yield profits of approximately
$9.59 per share at 5% appreciation over ten years, or approximately $24.30
per share at 10% appreciation over the same period. One share of stock
purchased at $16.78 in fiscal 1999 would yield profits of approximately
$10.55 per share at 5% appreciation over ten years, or approximately $26.74
per share at 10% appreciation over the same period.
Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
The following table sets forth information concerning the option exercises
during the fiscal year ended December 31, 1999 by the persons named in the
Summary Compensation Table and the fiscal 1999 year-end option values.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised Options at In-The-Money Options at
FY-End(#) Yr-End ($)(1)
Shares Acquired Value ---------------------------------- -------------------------------
Name on Exercise(#) Realized($) Exercisable(1)(2) Unexercisable(3) Exercisable(2) Unexercisable(4)
---- --------------- ----------- ----------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Brad Mattson............ 124,000 705,720 141,499 175,001 889,107 1,077,941
Brian McDonald.......... -- -- -- 83,750 -- 775,781
David Dutton............ -- -- 36,900 68,000 350,369 544,625
Yasuhiko Morita......... -- -- 51,998 42,502 477,128 401,185
Walter Kasianchuk....... -- -- -- 30,000 -- 131,250
</TABLE>
--------
(1) Options granted in fiscal 1999 under the Stock Option Plan generally vest
and become exercisable as follows: one-quarter of the shares vest after
one year and thereafter the remaining shares vest monthly over a period of
three years, with vesting conditioned upon continued employment with
Mattson. Under the Stock Option Plan, the board retains discretion to
modify the terms including the price of outstanding options.
(2) Represents shares which are immediately exercisable and/or vested. Based
on the closing price of $17.13, as reported on the Nasdaq National Market
on December 31, 1999, less the exercise price.
(3) Represents shares which are unvested and not immediately exercisable.
(4) Based on the closing price of $17.13, as reported on the Nasdaq National
Market on December 31, 1999, less the exercise price.
Compensation Committee Interlocks and Insider Participation
During 1999, Mattson sold approximately $3.4 million in systems to
WaferTech. Kenneth Smith is the President, Chief Operating Officer and a
Director of WaferTech. Mr. Smith is a member of Mattson's Board of Directors
and serves on both the Audit Committee and the Compensation Committee of
Mattson's Board of Directors. Each transaction was determined based on arm's
length negotiations and Mattson believes the terms of these transactions were
no more favorable to WaferTech than would have been offered to third party
customers.
During 1999, Mattson paid Alliant Partners for investment banking services.
John Savage is a Partner of Alliant Partners. Mr. Savage is a member of the
Audit Committee of Mattson's Board of Directors and served on the Compensation
Committee of Mattson's Board of Directors during part of 1999. The agreement
for services with Alliant Partners was determined based on arm's length
negotiation and Mattson believes the terms of the agreement were no less
favorable than could have been obtained from third party consultants
118
<PAGE>
and investment bankers. Mattson has engaged Alliant Partners to provide
financial advisory services in connection with acquisition transactions.
Allocation of Benefits Under Stock Option and Stock Purchase Plans
Mattson has proposed the amendments of the Stock Option Plan to increase the
maximum aggregate number of shares of the Mattson's common stock issuable under
the Stock Option Plan by a total of 2,100,000 shares from 6,575,000 shares to
8,675,000 shares and to increase the maximum aggregate number of shares of
Mattson common stock issuable under the 1994 Employee Stock Purchase Plan (the
"Purchase Plan") from 1,925,000 shares to 2,175,000 shares. As of October 4,
2000, no grant of options conditioned on stockholder approval of an increase in
the share reserve under the Stock Option Plan had been made to any employee.
Grants under the Stock Option Plan are made at the discretion of the
compensation committee or the board of directors. Participation and purchase
levels under the Purchase Plan depend upon investment decisions by individual
eligible employees. Accordingly, future grants under the Stock Option Plan and
future purchases under the Purchase Plan are not yet determinable. See
Proposal No. 2, "APPROVAL OF INCREASE IN SHARES RESERVED FOR ISSUANCE UNDER THE
AMENDED AND RESTATED 1989 STOCK OPTION PLAN" immediately below.
119
<PAGE>
PROPOSAL NO. 2
FOR MATTSON STOCKHOLDERS ONLY:
APPROVAL OF INCREASE IN SHARES RESERVED FOR
ISSUANCE UNDER THE AMENDED AND RESTATED 1989 STOCK OPTION PLAN
General
Mattson's Stock Option Plan became effective on September 29, 1989 and was
restated in August 1994. Mattson obtained stockholder approval of the restated
Stock Option Plan in August 1994. A reserve of 1,200,000 shares of Mattson's
common stock was originally established for issuance under the restated Stock
Option Plan. In March 1995, the number of shares reserved for issuance under
the Stock Option Plan was increased to 1,500,000 by the board of directors and
such increase was approved by Mattson's stockholders in May 1995. In March
1996, the number of shares reserved for issuance under the Stock Option Plan
was increased by 1,000,000 to 4,000,000 (post stock split effective September
1995) by the board of directors and such increase was approved by Mattson's
stockholders in May 1996. In April 1997, the board of directors amended and
restated the Stock Option Plan to make certain technical changes and increase
the number of shares reserved for issuance thereunder by 300,000 to 4,300,000
and such changes were approved by Mattson's stockholders in July 1997. In March
1998, the number of shares reserved for issuance under the Stock Option Plan
was increased to 4,550,000 by the board of directors and such increase was
approved by Mattson's stockholders in May 1998. In April 1999, the number of
shares reserved for issuance under the Stock Option Plan was increased to
5,675,000 by the board of directors and such increase was approved by Mattson's
stockholders in May 1999. In April 2000, the number of shares reversed for
issuance under the Stock Option Plan was increased to 6,575,000 by the board of
directors and such increase was approved by Mattson's stockholders in May 2000.
At the special meeting, the stockholders are being requested to approve an
increase in the number of shares authorized for issuance under the Stock Option
Plan by 750,000 shares (in addition to the share reserve increase under
Proposal One). The affirmative vote of the holders of a majority of the shares
of Mattson's common stock present, or represented by proxy and entitled to vote
at the meeting, will be required to ratify the share reserve increase. The
board of directors believes that the increase under the Stock Option Plan is
necessary to enable Mattson to provide meaningful equity incentives to attract,
motivate and retain employees and recommends that the stockholders vote FOR
approval of this increase.
Description Of Plan
The following summary of the Stock Option Plan is qualified in its entirety
by the specific language of the Stock Option Plan, a copy of which is available
to any stockholders upon request.
General. The Stock Option Plan provides for the discretionary grant of
incentive stock options within the meaning of section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") and nonstatutory stock options.
In addition, the Stock Option Plan also provides for the automatic grant of
nonstatutory stock options to non-employee directors of Mattson.
Shares Subject to Plan. The stockholders have previously authorized the
reservation of an aggregate of 6,675,000 shares of Mattson's common stock for
issuance upon the exercise of options granted under the Stock Option Plan. As
of October 4, 2000, a total of 2,974,088 shares were subject to outstanding
options granted under the Stock Option Plan, 674,951 shares were available for
future grant under the Stock Option Plan (without taking the proposed amendment
into account) and options to purchase 2,025,961 shares of common stock granted
under the Stock Option Plan had been exercised. The maximum number of
authorized but unissued or reacquired shares of Mattson's common stock
available for issuance under the Stock Option Plan, is 6,575,000. The Stock
Option Plan imposes a grant limit under which no employee may receive in any
fiscal year options to purchase in excess of 500,000 shares (the "Grant
Limit"). Appropriate adjustments will be
120
<PAGE>
made to the shares subject to the Stock Option Plan, to the Grant Limit, to the
automatic non-employee director option grant provisions (discussed below) and
to outstanding options upon any stock dividend, stock split, reverse stock
split, recapitalization, combination, reclassification, or similar change in
the capital structure of Mattson. To the extent that any outstanding option
under the Stock Option Plan expires or terminates prior to exercise in full,
the shares of common stock for which such option is not exercised are returned
to the Stock Option Plan and become available for future grant. The Stock
Option Plan also provides that if shares issued upon exercise of an option are
repurchased by Mattson, the repurchased shares are returned to the Stock Option
Plan and become available for future grant.
Administration. The Stock Option Plan is administered by the board of
directors or a duly appointed committee of the board. With respect to the
participation of individuals whose transactions in Mattson's equity securities
are subject to Section 16 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), the Stock Option Plan must be administered in compliance
with the requirements of Rule 16b-3 under the Exchange Act, if any. Subject to
the provisions of the Stock Option Plan, the board determines the persons to
whom options are to be granted, the number of shares to be covered by each
option, whether an option is to be an incentive stock option or a nonstatutory
stock option, the timing and terms of exercisability of each option or the
vesting of shares acquired upon the exercise of an option, including the effect
thereon of an optionee's termination of service, the exercise price of and the
type of consideration to be paid to Mattson upon the exercise of each option,
the duration of each option, and all other terms and conditions of the options.
The Stock Option Plan also authorizes the board to delegate to an officer of
Mattson the power to grant options for up to 25,000 shares per fiscal year to
any eligible person other than an officer or director of Mattson.
The Stock Option Plan authorizes the board to amend, reprice, modify,
extend, renew, or grant a new option in substitution for, any option, to waive
any restrictions or conditions applicable to any option or any shares acquired
upon the exercise thereof, and to accelerate, continue, extend or defer the
exercisability of any option or the vesting of any shares acquired upon the
exercise of an option, including with respect to the period following an
optionee's termination of service with Mattson. The Stock Option Plan also
provides, subject to certain limitations, for indemnification by Mattson of any
director, officer or employee against all reasonable expenses, including
attorneys' fees, incurred in connection with any legal action arising from such
person's action or failure to act in administering the Stock Option Plan. The
board will interpret the Stock Option Plan and options granted thereunder, and
all determinations of the board will be final and binding on all persons having
an interest in the Stock Option Plan or any option.
Eligibility. The Stock Option Plan permitted the grant of options to
employees, consultants and directors of Mattson or of any present or future
parent or subsidiary corporations of Mattson. Options may also be granted to
prospective employees, consultants and directors in connection with written
offers of employment or engagement, provided that such options may not become
exercisable prior to the individual's commencement of service. While any person
eligible under the Stock Option Plan may be granted a nonstatutory option, only
employees may be granted incentive stock options. In addition, only non-
employee directors of Mattson are eligible to receive non-employee director
options.
Terms and Conditions of Options. Each option granted under the Stock Option
Plan is evidenced by a written agreement between Mattson and the optionee
specifying the number of shares subject to the option and the other terms and
conditions of the option, consistent with the requirements of the plan. The
exercise price per share of each incentive stock option granted under the Stock
Option Plan must equal at least the fair market value of a share of Mattson's
common stock on the date of grant and the exercise price per share of each
nonstatutory stock option granted under the Stock Option Plan must equal at
least 85% of the fair market value of a share of Mattson's common stock on the
date of grant. In addition, any incentive stock option granted to a person who
at the time of grant owns stock equal to more than 10% of the total combined
voting power of all classes of stock of Mattson or any parent or subsidiary
corporation of Mattson (a "Ten Percent Stockholder") must have an exercise
price equal to at least 110% of the fair market value of a share of common
stock on the
121
<PAGE>
date of grant. As of October 4, 2000, the closing price of a share of Mattson's
common stock as reported on Nasdaq was $13.75.
The option exercise price may be paid in cash, by check, or in cash
equivalent, by the assignment of the proceeds of a sale or loan with respect to
some or all of the shares of common stock being acquired upon the exercise of
the option, by means of a promissory note, by any other lawful consideration
approved by the board, or by any combination thereof. The board may
nevertheless restrict the forms of payment permitted in connection with any
option grant. The Stock Option Plan also authorizes (i) Mattson to withhold
from shares otherwise issuable upon the exercise of an option or (ii) to accept
the tender of shares of Mattson's common stock in full or partial payment of
any tax withholding obligations.
Options granted under the Stock Option Plan become exercisable and vested at
such times and subject to such conditions as specified by the board. Generally,
options granted under the Stock Option Plan become exercisable in installments
over a period of time specified by the board at the time of grant, subject to
the optionee's continued service with Mattson. The Stock Option Plan provides
that the maximum term of an incentive stock option is ten years unless granted
to a Ten Percent Stockholder, in which case the maximum term is five years.
Consistent with the Code, the Stock Option Plan does not limit the term of a
nonstatutory stock option. Options are generally nontransferable by the
optionee other than by will or by the laws of descent and distribution, and are
exercisable during the optionee's lifetime only by the optionee. However, the
Stock Option Plan provides that a nonstatutory stock option may be assignable
or transferable to the extent permitted by the board and set forth in the
option agreement.
Terms and Conditions of Non-employee Director Options. The Stock Option Plan
provides for the automatic grant of options to non-employee directors of
Mattson. The Stock Option Plan further provides that each non-employee director
first elected or appointed to the board after July 24, 1997 (the "Effective
Date") will be granted automatically, on the date of such initial election or
appointment, an option to purchase 12,500 shares of common stock. A non-
employee director option granted on the Effective Date or on the date of
initial appointment or election as a non-employee director is referred to
herein as an "Initial Option." The Stock Option Plan also provides for the
automatic annual grant, on the day following each annual meeting of the
stockholders of Mattson which occurs after the Effective Date, of an additional
option to purchase 5,000 shares of common stock to each non-employee director
who continues to serve in such capacity. However, a non-employee director who
has not continuously served on the board for at least six months as of the date
of such annual meeting will not receive an annual option on such date. On
December 16, 1999, the board of directors approved for an increase in the
initial grant of options to non-employee directors from 12,500 shares to 30,000
shares. In addition, the annual options granted to non-employee directors were
increased from 5,000 shares per year to 10,000 shares per year. Lastly, the
board of directors approved a grant of 17,500 shares of options to each non-
employee director during 2000. For 2000, the non-employee directors were each
granted 17,500 shares on January 3, 2000 in lieu of the options which were
originally to be granted on May 17, 2000. The exercise price per share of each
non-employee director option will be equal to the fair market value of a share
of Mattson's common stock on the date of grant and each non-employee director
option will have a term of 10 years.
Non-employee director options are exercisable only to the extent that the
shares subject to the option are vested. In general, initial options granted
after the Effective Date will vest as follows: 5,000 shares will vest one year
after the date of grant, 3,750 shares will vest two years after the date of
grant, 2,500 shares will vest three years after the date of grant and 1,250
shares will vest four years after the date of grant. Effective December 16,
1999 based on the approved initial grant of 30,000 shares, 12,000 shares will
vest one year after the date of grant, 9,000 shares will vest two years after
the date of grant, 6,000 shares will vest three years after the date of grant
and 3,000 shares will vest four years after the date of grant. Annual options
become vested cumulatively for 25% of the shares initially subject to the
option on each of the first four anniversaries of the date of grant. Vesting of
shares subject to a non-employee director option is subject to the optionee's
continued service through the relevant date.
122
<PAGE>
Transfer of Control. As restated, the Stock Option Plan provides that, in
the event of (i) a sale or exchange by the stockholders in a single or series
of related transactions of more than 50% of Mattson's voting stock, (ii) a
merger or consolidation in which Mattson is a party, (iii) the sale, exchange,
or transfer of all or substantially all of the assets of Mattson, or (iv) a
liquidation or dissolution of Mattson wherein, upon any such event, the
stockholders of Mattson immediately before such event do not retain, in
substantially the same proportions as their ownership of shares immediately
before the transaction, direct or indirect beneficial ownership of more than
50% of the total combined voting power of the voting stock of Mattson, its
successor, or the corporation to which the assets of Mattson were transferred
(a "Transfer of Control"), any unexercisable or unvested portion of the
outstanding options will become immediately exercisable and vested in full
prior to the Transfer of Control unless the acquiring or successor corporation
assumes Mattson's rights and obligations under the outstanding options or
substitutes substantially equivalent options for such corporation's stock. To
the extent that the options outstanding under the Stock Option Plan are not
assumed, substituted for, or exercised prior to the Transfer of Control, they
will terminate.
Termination or Amendment. The Stock Option Plan will continue in effect
until the earlier of its termination by the board or the date on which all
shares available for issuance under the Stock Option Plan have been issued and
all restrictions on such shares under the terms of the Stock Option Plan and
the option agreements have lapsed, provided that all incentive stock options
must be granted within ten years of April 24, 1997. The board may terminate or
amend the Stock Option Plan at any time. However, subject to changes in the law
that would permit otherwise, without stockholder approval, the board may not
adopt an amendment to the Stock Option Plan which would increase the total
number of shares of common stock issuable thereunder, change the class of
persons eligible to receive incentive stock options, or otherwise require
approval of Mattson's stockholders under any applicable law, regulation or
rule. No amendment may adversely affect an outstanding option without the
consent of the optionee, unless the amendment is required to preserve the
option's status as an incentive stock option or is necessary to comply with any
applicable law.
Summary of United States Federal Income Tax Consequences
The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law of participation in
the Stock Option Plan and does not attempt to describe all possible federal or
other tax consequences of such participation or tax consequences based on
particular circumstances.
Incentive Stock Options
An optionee recognizes no taxable income for regular income tax purposes as
the result of the grant or exercise of an incentive stock option qualifying
under section 422 of the Code. Optionees who do not dispose of their shares for
two years following the date the option was granted nor within one year
following the exercise of the option will normally recognize a long-term
capital gain or loss equal to the difference, if any, between the sale price
and the purchase price of the shares. If an optionee satisfies such holding
periods upon a sale of the shares, Mattson will not be entitled to any
deduction for federal income tax purposes. If an optionee disposes of shares
within two years after the date of grant or within one year from the date of
exercise (a "disqualifying disposition"), the difference between the fair
market value of the shares on the exercise date and the option exercise price
(not to exceed the gain realized on the sale if the disposition is a
transaction with respect to which a loss, if sustained, would be recognized)
will be taxed as ordinary income at the time of disposition. Any gain in excess
of that amount will be a capital gain. If a loss is recognized, there will be
no ordinary income, and such loss will be a capital loss. A capital gain or
loss will be long-term if the optionee's holding period is more than 12 months
and short-term if the optionee's holding period is 12 months or less. Long-term
capital gains are currently subject to a maximum tax rate of 20% and short-term
capital gains are subject to taxation at ordinary rates. Any ordinary income
recognized by the optionee upon the disqualifying disposition of the shares
generally should be deductible by Mattson for federal income tax purposes,
except to the extent such deduction is limited by applicable provisions of the
Code or the regulations thereunder.
123
<PAGE>
The difference between the option exercise price and the fair market value
of the shares on the exercise date of an incentive stock option is an
adjustment in computing the optionee's alternative minimum taxable income and
may be subject to an alternative minimum tax which is paid if such tax exceeds
the regular tax for the year. Special rules may apply with respect to certain
subsequent sales of the shares in a disqualifying disposition, certain basis
adjustments for purposes of computing the alternative minimum taxable income on
a subsequent sale of the shares and certain tax credits which may arise with
respect to optionees subject to the alternative minimum tax.
Nonstatutory Stock Options
Options not designated or qualifying as incentive stock options will be
nonstatutory stock options. Nonstatutory stock options have no special tax
status. An optionee generally recognizes no taxable income as the result of the
grant of such an option. Upon exercise of a nonstatutory stock option, the
optionee normally recognizes ordinary income in the amount of the difference
between the option exercise price and the fair market value of the shares on
the exercise date. If the optionee is an employee, such ordinary income
generally is subject to withholding of income and employment taxes. Upon the
sale of stock acquired by the exercise of a nonstatutory stock option, any gain
or loss, based on the difference between the sale price and the fair market
value on the exercise date, will be taxed as capital gain or loss. A capital
gain or loss will be long-term if the optionee's holding period is more than 12
months and short-term if the optionee's holding period is 12 months or less.
Long-term capital gains are currently subject to a maximum tax rate of 20% and
short-term capital gains are subject to taxation at ordinary rates. No tax
deduction is available to Mattson with respect to the grant of a nonstatutory
stock option or the sale of the stock acquired pursuant to such grant. Mattson
generally should be entitled to a deduction equal to the amount of ordinary
income recognized by the optionee as a result of the exercise of a nonstatutory
stock option, except to the extent such deduction is limited by applicable
provisions of the Code or the regulations thereunder.
Vote Required and Recommendation of the Board of Directors
The affirmative vote of a majority of the shares present or represented by
proxy and entitled to a vote at the special meeting of stockholders, at which a
quorum representing a majority of all outstanding shares of common stock of
Mattson is present, is required for approval of this proposal. Abstentions and
broker nonvotes will each be counted as present for purposes of determining
whether a quorum is present. Abstentions will have the same effect as a
negative vote on this proposal. Broker won-votes will have no effect on the
outcome of this vote.
The board of directors believes that the proposed 750,000 share increase in
the number of shares reserved for issuance under Mattson's Stock Option Plan
(in addition to the 1,350,000 share reserve increase proposed in connection
with the Transactions is important if Mattson is to be able to attract and
retain qualified directors, officers, and employees to Mattson.
The board unanimously recommends a vote FOR approval of the amendment of the
Stock Option Plan to increase the number of shares reserved for issuance by
750,000 shares for the reasons stated above.
124
<PAGE>
PROPOSAL NO. 3
FOR MATTSON STOCKHOLDERS ONLY:
APPROVAL OF INCREASE IN SHARES RESERVED
FOR ISSUANCE UNDER 1994 EMPLOYEE STOCK PURCHASE PLAN
General
In August 1994, the board of Mattson adopted the 1994 Employee Stock
Purchase Plan (the "Purchase Plan"). The Purchase Plan provides a means by
which employees may purchase common stock of Mattson through payroll
deductions. The Purchase Plan originally authorized Mattson to issue up to
200,000 shares of common stock under the plan. In March, 1995, the board of
directors of Mattson increased the number of shares authorized under the
Purchase Plan to 300,000 (600,000 post stock split effective September 1995)
and the stockholders approved the increase in May 1995. In April 1997, the
board increased the number of shares authorized for issuance under the Purchase
Plan by 400,000 to 1,000,000 shares, and the stockholders approved the increase
in May 1997. In March 1998, the board of directors increased the number of
shares authorized for issuance under the Purchase Plan by 450,000 shares and
the stockholders approved the increase. In April 1999, the board of directors
increased the number of shares authorized for issuance under the Purchase Plan
by 475,000 to 1,925,000 shares.
At the special meeting, the stockholders are being requested to approve the
increase in the number of shares authorized under the Purchase Plan from
1,925,000 shares to 2,175,000 shares. The affirmative vote of the holders of a
majority of the shares of Mattson's common stock present, or represented and
entitled to vote at the meeting, will be required to approve the increase. The
board of directors believes that the increase under the Purchase Plan is
necessary to enable Mattson to provide meaningful equity incentives to attract,
motivate, and retain employees and recommends that the stockholders vote for
approval of this increase.
Description of Plan
The following summary of the Purchase Plan is qualified in its entirety by
the specific language of the Purchase Plan, a copy of which is available to any
stockholder upon request.
General. The Purchase Plan is intended to qualify as an "employee stock
purchase plan" under section 423 of the Code. Each participant in the Purchase
Plan is granted at the beginning of each Offering Period under the plan (an
"Offering Period") an option to purchase through accumulated payroll deductions
up to a number of shares of the common stock of Mattson (an "Option")
determined on the first day of the Offering Period. The Option is automatically
exercised on the last day of each six-month purchase period during the Offering
Period unless the participant has withdrawn from participation prior to such
date. The Committee will determine the length of each Offering Period and may
vary the duration of a purchase period.
Shares Subject to Plan. Currently, a maximum of 1,925,000 shares of
Mattson's common stock may be issued under the Purchase Plan, subject to
appropriate adjustment in the event of a stock dividend, stock split,
recapitalization, combination, or similar change in Mattson's capital structure
or in the event of any merger, sale of assets, or other reorganization of
Mattson. The board of directors has amended the Purchase Plan, subject to
stockholder approval, to increase by 250,000 shares the maximum number of
shares of common stock issuable thereunder to an aggregate of 2,175,000 shares.
Administration. The Purchase Plan is administered by a duly appointed
committee of the board of directors (hereinafter referred to as the
"Committee"). Subject to the provisions of the Purchase Plan, the Committee
determines the terms and conditions of Options granted under the plan. The
Committee will interpret the Purchase Plan and Options granted thereunder, and
all determinations of the Board will be final and binding on all persons having
an interest in the Purchase Plan or any Options.
Eligibility. Any employee of Mattson or of any subsidiary corporation of
Mattson designated by the board for inclusion in the Purchase Plan is eligible
to participate in an Offering Period under the plan so long
125
<PAGE>
as the employee is customarily employed for more than 20 hours per week and
more than five months in any calendar year. However, no employee who owns or
holds options to purchase, or as a result of participation in the Purchase Plan
would own or hold options to purchase, five percent or more of the total
combined voting power or value of all classes of stock of Mattson or of any
subsidiary corporation of Mattson is entitled to participate in the Purchase
Plan.
Participation and Purchase of Shares. Participation in an Offering Period
under the Purchase Plan is limited to eligible employees who authorize payroll
deductions prior to the first day of the Offering Period (an "Entry Date").
Payroll deductions may not exceed 15% (or such other rate as the Board
determines) of an employee's compensation for any pay period during the
Offering Period.
No participant may purchase under the Purchase Plan shares of Mattson's
common stock having a fair market value exceeding $25,000 in any calendar year
(measured by the fair market value of Mattson's common stock on the first day
of the Offering Period in which the shares are purchased), and the maximum
number of shares subject to any Option may not exceed the limit set by the
board prior to the beginning of the Offering Period.
On the last business day of each purchase period (an "Exercise Date") during
an Offering Period, Mattson issues to each participant in the Offering Period
the number of shares of Mattson's common stock determined by dividing the
amount of payroll deductions accumulated for the participant during that
Purchase Period by the purchase price, limited in any case by the number of
shares subject to the participant's Option for that Offering Period. The price
per share at which shares are sold at the end of a Purchase Period generally
equals 85% of the lesser of the fair market value per share of Mattson's common
stock on the Entry Date or on the Exercise Date. The fair market value of the
common stock on any relevant date generally will be the closing price per share
on such date as reported on the Nasdaq National Market. Any payroll deductions
under the Purchase Plan not applied to the purchase of shares will be returned
to the participant, unless the amount remaining is less than the amount
necessary to purchase a whole share of common stock, in which case the
remaining amount may be applied to the next purchase period.
Merger, Liquidation, Other Corporation Transactions. In the event of the
proposed liquidation or dissolution of Mattson, the Offering Period will
terminate immediately prior to the consummation of such proposed transaction,
unless otherwise provided by the Committee in its sole discretion, and all
outstanding options shall automatically terminate and the amounts of all
payroll deductions will be refunded without interest to the participants. In
the event of a proposed sale of all or substantially all of the assets of
Mattson, or the merger or consolidation of Mattson with or into another
corporation, then in the sole discretion of the Committee, (1) each Option
shall be assumed or an equivalent option shall be substituted by the successor
corporation or parent or subsidiary of such successor corporation, (2) a date
established by the Committee on or before the date of consummation of such
merger, consolidation or sale shall be treated as an Exercise Date, and all
outstanding Options shall be deemed exercisable on such date or (3) all
outstanding Options shall terminate and the accumulated payroll deductions
shall be returned to the participants.
Termination or Amendment. The Purchase Plan will continue until August 31,
2004, terminated by the board, or until all of the shares reserved for issuance
under the Purchase Plan have been issued. The board may at any time amend or
terminate the Purchase Plan, except that the approval of Mattson's stockholders
is required for any amendment which materially increases the number of shares
authorized for issuance under the Purchase Plan, materially modifies the
requirements as to eligibility for participation in the Plan, materially
increases the benefits accruing to participants, reduces the purchase price of
Options, or extends the term of the Plan beyond August 31, 2004.
Summary of United States Federal Income Tax Consequences
The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law of participation in
the Purchase Plan and does not attempt to describe all possible federal or
other tax consequences of such participation or tax consequences based on
particular circumstances.
126
<PAGE>
Generally, there are no tax consequences to an employee of either becoming a
participant in the Purchase Plan or purchasing shares under the Purchase Plan.
The tax consequences of a disposition of shares vary depending on the period
such stock is held before its disposition. If a participant disposes of shares
within two years after the Purchase Date or within one year after the Purchase
Date on which the shares are acquired (a "disqualifying disposition"), the
participant recognizes ordinary income in the year of disposition in an amount
equal to the difference between the fair market value of the shares on the
Purchase Date and the purchase price. Such income may be subject to withholding
of tax. Any additional gain or resulting loss recognized by the participant
from the disposition of the shares is a capital gain or loss. If the
participant disposes of shares at least two years after the Purchase Date and
at least one year after the Purchase Date on which the shares are acquired, the
participant recognizes ordinary income in the year of disposition in an amount
equal to the lesser of (i) the difference between the fair market value of the
shares on the date of disposition and the purchase price or (ii) 15% of the
fair market value of the shares on the Purchase Date. Any additional gain
recognized by the participant on the disposition of the shares is a capital
gain. If the fair market value of the shares on the date of disposition is less
than the purchase price, there is no ordinary income, and the loss recognized
is a capital loss. If the participant owns the shares at the time of the
participant's death, the lesser of (i) the difference between the fair market
value of the shares on the date of death and the purchase price or (ii) 15% of
the fair market value of the shares on the Purchase Date is recognized as
ordinary income in the year of the participant's death.
If the exercise of an Option does not constitute an exercise pursuant to an
"employee stock purchase plan" under section 423 of the Code, the exercise of
the Option will be treated as the exercise of a nonstatutory stock option. The
participant would therefore recognize ordinary income on the Purchase Date
equal to the excess of the fair market value of the shares acquired over the
purchase price. Such income is subject to withholding of income and employment
taxes. Any gain or loss recognized on a subsequent sale of the shares, as
measured by the difference between the sale proceeds and the sum of (i) the
purchase price for such shares and (ii) the amount of ordinary income
recognized on the exercise of the Option, will be treated as a capital gain or
loss, as the case may be.
A capital gain or loss will be long-term if the participant holds the shares
for more than 12 months and short-term if the participant holds the shares for
12 months or less. Both long-term and short-term capital gains are at present
generally subject to the same tax rates as ordinary income, except that long-
term capital gains are currently subject to a maximum tax rate of 28%.
If the participant disposes of the shares in a disqualifying disposition
Mattson should be entitled to a deduction equal to the amount of ordinary
income recognized by the participant as a result of the disposition, except to
the extent such deduction is limited by applicable provisions of the Code or
the regulations thereunder. In all other cases, no deduction is allowed
Mattson.
Vote Required and Recommendation of the Board of Directors.
The affirmative vote of a majority of the shares present or represented by
proxy and entitled to a vote at the special meeting of stockholders, at which a
quorum representing a majority of all outstanding shares of common stock of
Mattson is present, is required for approval of this proposal. Abstentions and
broker nonvotes will each be counted as present for purposes of determining
whether a quorum is present. Abstentions will have the same effect as a
negative vote on this proposal. Broker non-votes will have no effect on the
outcome of this vote.
The board of directors believes that the availability of an opportunity to
purchase shares under the Purchase Plan at a discount from market price is
important to attracting and retaining qualified officers and employees
essential to the success of Mattson, and that stock ownership is important to
providing such persons with incentive to perform in the best interest of
Mattson.
The board unanimously recommends a vote FOR approval of the increase in the
number of shares reserved for issuance under the Purchase Plan by 250,000
shares.
127
<PAGE>
PROPOSALS RELATING TO AMENDING MATTSON'S CERTIFICATE OF INCORPORATION
Proposals No. 4 and No. 5 below relate to proposed amendments to the Mattson
Certificate of Incorporation. These proposals are being made at this time
because of the additional shares of common stock anticipated to be issued and
the changes in the composition of the Mattson board of directors as a result of
the Transactions. However, approval of these proposals is not required as a
condition to the Transactions, and the vote to approve each of these proposals
is independent of the vote to approve Proposal No. 1. Only Mattson stockholders
are voting upon Proposals No. 4 and No. 5.
PROPOSAL NO. 4
FOR MATTSON STOCKHOLDERS ONLY:
APPROVAL OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
Background
Under Delaware law, Mattson may only issue shares of common stock to the
extent such shares have been authorized for issuance under Mattson's
Certificate of Incorporation. The Certificate of Incorporation currently
authorizes the issuance by Mattson of up to 60,000,000 shares of common stock.
However, as of October 4, 2000, 20,956,157 shares of Mattson's common stock
were issued and outstanding, 6,575,000 unissued shares of common stock were
reserved for issuance under Mattson's Stock Option Plan (proposed to be
increased to 8,675,000 under Proposal Nos. 1 and 2 taken together), and
approximately 16,890,000 shares of common stock are proposed to be issued
pursuant to the Transactions. As a result, assuming approval of Proposal Nos. 1
and 2, approximately 13,478,843 shares of common stock will be unissued and
unreserved under Mattson's Certificate of Incorporation, an amount that the
board believes to be inadequate for future purposes. In order to ensure
sufficient shares of common stock will be available for issuance by Mattson,
the board of directors has approved, subject to stockholder approval, an
amendment to Mattson's Certificate of Incorporation to increase the number of
shares of common stock authorized for issuance to 120,000,000 shares.
Purpose and Effect of the Amendment
The purpose of the proposed amendment to the Certificate of Incorporation is
to authorize additional shares of common stock which will be available in the
event the board of directors determines that it is necessary or appropriate to
issue additional shares in connection with a stock dividend, raising additional
capital, acquiring other businesses, establishing strategic relationships with
corporate partners or providing equity incentives to employees and officers or
for other corporate purposes. The availability of additional shares of common
stock is particularly important in the event that Mattson needs to undertake
any of the foregoing actions on an expedited basis and wishes to avoid the time
and expense of seeking stockholder approval in connection with the contemplated
issuance of common stock. Mattson has no present agreement or arrangement to
issue any of the shares for which approval is sought. If the amendment is
approved by the stockholders, the board of directors does not intend to solicit
further stockholder approval prior to the issuance of any additional shares of
common stock, except as may be required by applicable law or the requirements
of the Nasdaq Stock Market.
The increase in authorized common stock will not have any immediate effect
on the rights of existing stockholders. However, the board will have the
authority to issue common stock without requiring future stockholder approval
of such issuances, except as may be required by applicable law. To the extent
that additional shares are issued in the future, they may decrease the existing
stockholders' percentage equity ownership and, depending on the price at which
they are issued, could be dilutive to the existing stockholders.
The increase in the authorized number of shares of common stock and the
subsequent issuance of such shares could have the effect of delaying or
preventing a change in control of Mattson without further action by the
stockholders. Shares of authorized and unissued common stock could, within the
limits imposed by
128
<PAGE>
applicable law, be issued in one or more transactions which would make a
change in control of Mattson more difficult, and therefore less likely. Any
such issuance of additional stock could have the effect of diluting the
earnings per share and book value per share of outstanding shares of common
stock, and such additional shares could be used to dilute the stock ownership
or voting rights of a person seeking to obtain control of Mattson. The board
of directors is not currently aware of any attempt to take over or acquire
Mattson. While it may be deemed to have potential anti-takeover effects, the
proposed amendment to increase the authorized common stock is not prompted by
any specific effort or takeover threat currently perceived by management.
If the proposed amendment is approved by the stockholders, Article Fourth,
A. of Mattson's Certificate of Incorporation will be amended to read as
follows:
A. The total number of shares of all classes of stock which the Corporation
shall have authority to issue is One Hundred Twenty-Two Million
(122,000,000) Shares consisting of:
1. One Hundred Twenty Million (120,000,000) shares of Common Stock, par
value one-tenth of one cent ($.001) per share (the "Common Stock"); and
2. Two Million (2,000,000) shares of Preferred Stock, par value one-
tenth of one cent ($.001) per share (the "Preferred Stock").
(Mattson's Certificate of Incorporation currently authorizes two million
shares of Preferred Stock, and therefore the proposed amendment would result
in no change to Article Fourth, A.2.)
Vote Required and Recommendation of the Board of Directors
The affirmative vote of a majority of the shares of outstanding common
stock is required for approval of this proposal. Abstentions and broker non-
votes will each be counted as present for purposes of determining if a quorum
is present but will both have the same effect as a negative vote on this
proposal.
The board of directors unanimously recommends that the stockholder vote FOR
approval of the amendment to the Certificate of Incorporation to increase the
number of authorized shares of common stock from 60,000,000 shares to
120,000,000 shares.
129
<PAGE>
PROPOSAL NO. 5
FOR MATTSON STOCKHOLDERS ONLY:
APPROVAL OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION
TO INCREASE THE NUMBER OF DIRECTORS AND CHANGE THE
PROCEDURE FOR FILLING BOARD VACANCIES
Background
Article Sixth, A. of Mattson's Certificate of Incorporation provides that
the number of directors of Mattson shall be five, subject to adjustment from
time to time exclusively by the board of directors pursuant to a resolution
adopted by a majority of the total number of authorized directors. Article
Sixth, B. of Mattson's Certificate of Incorporation sets forth the manner in
which vacancies on the board of directors are filled. A copy of Article Sixth
of Mattson's Certificate of Incorporation is attached hereto as Annex F.
Mattson's board of directors is currently composed of five directors.
The Stockholder Agreement to be entered into between Mattson, STEAG, and
Brad Mattson will provide that, at the closing of the business combination,
Mattson's board of directors will consist of seven members, two of whom shall
be designees of STEAG. The Stockholders Agreement further provides that
Mattson's Bylaws shall establish a nominating committee to evaluate and
propose nominees to serve as directors, to succeed any Independent Director
(as defined in the Stockholder Agreement) who leaves office, or to fill
additional vacancies on the board. Mattson has agreed to effect an amendment
to its Bylaws so that they comport with the terms of the Stockholder Agreement
prior to or simultaneously with the closing of the business combination.
Purpose and Effect of the Amendment
The purpose of the proposed amendment to the Certificate of Incorporation
is to explicitly increase the authorized number of directors of Mattson from
five to seven, consistent with the terms of the Stockholder Agreement. Such
increase in the size of Mattson's board will ensure that there is sufficient
room for the appointment of the two director-nominees designated by STEAG. The
change in procedure by which directors are nominated and elected and by which
vacancies are filled will also reflect the terms of the Stockholder Agreement.
If the proposed amendment is approved by the stockholders, Article Sixth of
Mattson's Certificate of Incorporation will be amended to read as follows:
A. The number of directors shall be seven (7) or such other number as may
from time to time be established, and directors shall be nominated and
elected, in accordance with the Delaware General Corporation Law and the
Bylaws of the Corporation. The directors shall be divided into three
classes with the term of office of the first class to expire at the annual
meeting of the stockholders to be held in 2001, the term of office of the
second class to expire at the annual meeting of stockholders to be held in
2002, the term of office of the third class to expire at the annual meeting
of stockholders to be held in 2003, and thereafter for each such term to
expire at each third succeeding annual meeting of stockholders after such
election. All directors shall hold office until the expiration of the term
for which elected, and until their respective successors are elected,
except in the case of the death, resignation, or removal of any director.
B. Newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, or other cause (including removal from
office by a vote of the stockholders) may be filled only in accordance with
the Delaware General Corporation Law and the Bylaws of the Corporation.
Vote Required and Recommendation of Board of Directors
Pursuant to the requirements of Article Ninth of Mattson's Certificate of
Incorporation, the affirmative vote of at least two-thirds of the outstanding
shares of common stock is required for approval of this proposal.
130
<PAGE>
Abstentions and broker non-votes will each be counted as present for purposes
of determining if a quorum is present but will both have the same effect as a
negative vote on this proposal.
The board of directors unanimously recommends that the stockholders vote FOR
approval of the amendment to the Certificate of Incorporation to increase the
number of directors of Mattson from five to seven and to change the procedures
for filling board vacancies.
131
<PAGE>
BUSINESS OF MATTSON
Overview
Mattson is a leading supplier of advanced, high productivity semiconductor
processing equipment used in the fabrication of integrated circuits. Mattson
provides its customers with semiconductor manufacturing equipment that delivers
higher productivity and advanced process capability. In addition, through
Mattson's international technical support organization and comprehensive
warranty program, Mattson provides world class customer support. Nearly all of
Mattson's tools are built on a single platform, known as the Aspen platform.
Each Aspen system shares the same principal architecture, including the main
mechanical design, robotics, systems software, wafer handling interfaces and
wafer flow design. Mattson's Aspen platform is designed to deliver high
throughput and low cost of ownership, enhancing the ability of manufacturers to
achieve productivity gains. Mattson's products include strip, etch, deposition,
rapid thermal processing and Epi systems. Mattson's customers include nine of
the top ten semiconductor manufacturers worldwide.
Industry Background
The manufacture of an integrated circuit, commonly called a chip, requires a
number of complex steps and processes. Most integrated circuits are built on a
base of silicon, called a wafer, and consist of two main structures. The lower
structure is made up of components, typically transistors or capacitors, and
the upper structure consists of the circuitry that connects the components.
Building an integrated circuit requires the deposition of a series of film
layers, which may be conductors, dielectrics (insulators), or semiconductors.
The deposition of these film layers is interspersed with numerous other
processes that create circuit patterns, remove portions of the film layers, and
perform other functions such as heat treatment, measurement, and inspection.
Each step of the manufacturing process for integrated circuits requires
specialized manufacturing equipment. The overall growth of the semiconductor
industry and the increasing complexity of integrated circuits has led to
increasing demand for advanced semiconductor capital equipment.
History of Increasing Semiconductor Manufacturing Productivity
The growth of computer markets and the emergence and growth of new markets
such as wireless communication and digital consumer electronics have
contributed to recent growth in the semiconductor industry. This increase also
has been fueled by the semiconductor industry's ability to supply increasingly
complex, higher performance integrated circuits, while continuing to reduce
cost. The more complex integrated circuits and the accompanying reductions in
feature size require more advanced and expensive wafer fabrication equipment
and increase the average cost of advanced wafer fabrication facilities. For
example, the average cost in 1984 for a 64 kilobit dynamic random access memory
integrated circuit, called a DRAM, fabrication facility was approximately $60.0
million. Today the cost for a 64 megabit DRAM fabrication facility can range
from $1.0 billion to $2.0 billion. As the semiconductor industry has matured
and pricing has become more competitive, it has become increasingly difficult
to achieve manufacturing efficiencies to offset these increased costs.
Technological advances in semiconductor manufacturing equipment have
historically enabled integrated circuit manufacturers to increase productivity
dramatically by:
. reducing feature size of integrated circuits;
. increasing manufacturing yields;
. improving the utilization of wafer fabrication equipment; and
. increasing the wafer size.
Reducing feature sizes. Smaller feature sizes allow more circuits to fit on
one wafer. Due to this reduction in feature size, the semiconductor industry
has historically been able to double the number of
132
<PAGE>
transistors on a given space of silicon every 18 to 24 months. These reductions
have contributed significantly to reducing the manufacturing cost per chip.
Continued innovation in equipment technology would be required, however, to
maintain this trend in device size reduction.
Higher manufacturing yields. In the last fifteen years, manufacturing
yields, or the percentage of good integrated circuits per wafer, have increased
substantially, while the time to reach maximum yield levels during a production
lifecycle has decreased significantly. For example, the percentage of good
DRAMs per wafer during initial production has increased from 20% fifteen years
ago to over 80% at present. Given this high yield, the potential for further
yield improvement per wafer is limited.
Improved equipment utilization. The utilization of semiconductor
manufacturing lines has improved in the last ten years. Manufacturing lines now
operate continuously. In addition, equipment is typically run at utilization
rates of greater than 90%, leaving limited room for further improvement in
equipment utilization.
Larger wafer sizes. By increasing the wafer size, integrated circuit
manufacturers can produce more circuits per wafer, thus reducing the overall
manufacturing costs per chip. Leading edge wafer fabrication lines are
currently using 200 millimeter diameter wafers, up from the 100 millimeter
diameter wafers used ten to fifteen years ago. Currently, some integrated
circuit makers are commencing pilot production lines using 300 millimeter
diameter wafers. Mattson believe that many more manufacturers will add 300
millimeter production capabilities within the next two to five years.
Equipment Productivity Has Declined
While the semiconductor manufacturing industry has achieved significant
productivity gains through technological advances during the last ten to
fifteen years, equipment productivity has actually declined in favor of
improved process control. Demands from integrated circuit manufacturers for
better process quality control, reduced feature sizes and larger wafer sizes
have resulted in a shift from batch processing, where multiple wafers are
processed simultaneously, to single wafer processing, where one wafer is
processed at a time. Although this shift has enhanced semiconductor quality, it
has reduced total wafer throughput and increased overall equipment cost.
Semiconductor equipment manufacturers initially responded to the problem of
declining equipment productivity by developing cluster tools, which attempt to
increase throughput by employing multiple single wafer processing chambers on a
common handling platform. This architecture provides customers the precision
and control of a single wafer system together with the benefits of increased
productivity. However, compared to batch processing, cluster tools are highly
complex systems, requiring redundant hardware systems that often result in
lower reliability. In addition, cluster tools have only modestly improved upon
the wafer throughput of single wafer processing and have not fully met the
productivity needs of semiconductor manufacturers.
Faced with diminishing productivity gains and increasing equipment costs,
integrated circuit manufacturers have challenged equipment manufacturers to
provide more cost-effective, higher productivity fabrication equipment. This
challenge has led to the use of cost of ownership to measure productivity. Cost
of ownership measures the costs associated with the operation of equipment in a
fabrication line. Mattson calculates the cost of ownership by first estimating
the total costs to operate a system including depreciation, overhead, and labor
and materials, and then dividing those costs by the total wafer production by
the system.
The focus by semiconductor manufacturers on cost of ownership and the high
cost of expanding integrated circuit manufacturing facilities has led many of
them to outsource their manufacturing to independent foundries. These foundries
have responded to rapidly growing demand by producing integrated circuits for
semiconductor companies that do not own fabrication lines or manufacturing
facilities or for semiconductor manufacturers which have decided to outsource
some of their manufacturing. Since foundries operate a volume business and
produce different integrated circuits for each manufacturer, they require
equipment that can be modified to suit multiple requirements and are even more
focused on productivity and low cost of ownership.
133
<PAGE>
The Mattson Solution
Mattson provides its semiconductor manufacturing customers with equipment
that delivers higher productivity and advanced process capability, together
with world class support. The unique multi-station, multi-chamber architecture
of Mattson's Aspen systems integrates all of Mattson's common wafer handling
functions into two core platforms, which serve as the foundation for nearly all
of Mattson's products. These platforms are designed to deliver high throughput,
low cost of ownership, and savings of expensive cleanroom space, enhancing the
ability of manufacturers to achieve productivity gains.
The key benefits of Mattson's solution are:
High productivity. Mattson's systems offer semiconductor manufacturers
improvements in wafer manufacturing productivity and throughput over
conventional single wafer systems and cluster tools. Mattson's unique multi-
station, multi-chamber architecture improves process precision and control
while increasing throughput. In contrast to typical cluster tools, Mattson's
systems process multiple wafers in each process chamber, resulting in
correspondingly higher throughput. For example, Mattson's Aspen III platform
can have three process modules, each with two process stations, resulting in
six wafer processing stations on one system. In this way, Mattson's platform
allows multiple process chambers that support various applications or increased
capacity for any one application. By processing multiple wafers concurrently in
one process chamber and using multiple process chambers, Mattson is able to
significantly increase throughput without sacrificing process quality.
Further productivity gains are achieved by reducing the time during which
the system is not actually processing wafers. For example, Mattson's Aspen
platform robotics handle multiple wafers simultaneously. In addition, by using
a vacuum loadlock and handling wafers under vacuum, Mattson's Aspen system
eliminates the overhead time required to pump down the process chambers to
vacuum and backfill the chambers to atmospheric pressure after processing. With
higher throughput, Mattson's customers require fewer systems, and, accordingly,
realize substantial savings in capital outlay and cleanroom space.
Innovative technology. Mattson's systems provide innovative solutions that
address technical or manufacturing problems of the semiconductor equipment
industry, where traditional technologies have been unable to satisfy emerging
process requirements. For example, when using traditional stripping systems,
submicron etching results in residues that can require multiple acid processing
steps for removal. Using Mattson's proprietary inductively coupled plasma strip
source technology, Mattson's Aspen Strip's plasma processes are capable of
removing many of these residues without the need for the acid steps. Mattson's
Aspen III CVD system has one of the first process chambers that can process
either 200 or 300 millimeter wafers with only minor modifications. In addition,
Mattson's Aspen RTP system employs susceptor-based heating which provides the
uniformity and thermal budget control of a rapid thermal processing system with
the reliability and low cost of ownership of a batch furnace.
World class customer support. Mattson delivers superior customer support and
service to enhance its long term customer relationships. Mattson offers an
extensive warranty, provides broad access to training, and maintains an
international customer support infrastructure with local support personnel to
install systems, perform warranty and out-of-warranty service, and sales
support. Mattson offers a comprehensive standard warranty of up to 36 months in
most geographic regions of the world.
The Mattson Strategy
Mattson's objective is to enhance its market position as a leading supplier
of advanced, high productivity manufacturing equipment to the worldwide
semiconductor industry. The key elements of Mattson's strategy include:
Deliver high productivity, cost-effective systems. Mattson intends to
continue to be a leading provider of high productivity, low cost of ownership
semiconductor manufacturing equipment. Leveraging the unique
134
<PAGE>
benefits of its Aspen platform and its multi-station process chamber, Mattson
intends to continue developing systems that enable high throughput while
maintaining high precision and control, at a manufacturing cost advantage.
Leverage innovative technologies to provide product differentiation. Mattson
intends to apply its design expertise to provide new solutions that combine
advanced technology with higher productivity. Mattson will leverage its
innovative process chamber design to develop new products that address
specific, unmet needs in the semiconductor manufacturing industry. When Mattson
entered the rapid thermal processing (RTP), it developed a unique process
chamber design that utilized a susceptor-based heater to eliminate the problems
associated with traditional lamp-based rapid thermal processing heating.
Similarly, with Mattson's strip system it offers one of the only inductively
coupled plasma (ICP) sources.
Increase global market penetration. Mattson plans to increase the
penetration of Mattson's products on a worldwide basis and to expand Mattson's
customer base by leveraging its position as a global supplier of
technologically advanced semiconductor manufacturing solutions. Mattson
believes the Asia-Pacific region, where it has had a long-standing presence and
commitment, offers one of the best growth opportunities due to the
proliferation of independent foundries located in this region. Mattson believes
its global commitment, its extensive customer support, and the high
productivity and low cost of ownership of Mattson's products, make its
solutions particularly well-suited to independent foundries seeking increased
efficiency and reliability.
Capitalize on Mattson's diversified product line and rapid time to
market. Mattson intends to leverage its leadership position with the Aspen
Strip products to sell additional products that share Mattson's common
platform, including Mattson's CVD, RTP, and etch products. Mattson believes
that its success with its strip products has created an installed base of
existing customers and highlighted the productivity and cost of ownership
advantages of Mattson's products. In addition, the modular design of its Aspen
platform enables Mattson to develop new systems by adding different process
chambers to the same platform. By focusing its internal development efforts on
the process module rather than on an overall system, Mattson reduces
development time for new products, reduces time to market, and lowers
development costs. Mattson intends to develop new products to meet the evolving
requirements of existing customers and to penetrate into new customer markets.
Pursue leadership in the emerging 300 millimeter market. Mattson seeks to
take a leading role in the emerging 300 millimeter market and have designed its
Aspen III CVD system to be compatible with both 200 millimeter and 300
millimeter wafers. Mattson has sold more than twenty 300 millimeter compatible
Aspen III Strip and CVD systems, with systems running at production volumes on
both 200 millimeter and 300 millimeter wafers. Mattson's 300 millimeter
compatible tools include the Aspen III Strip, Aspen III LiteEtch, and Aspen III
CVD systems.
Provide world class customer support. Mattson believes that its
international customer support organization is an important element in
establishing and maintaining long term customer relationships that are often
the basis upon which a semiconductor manufacturer selects an equipment vendor.
Further, Mattson intends to enhance the benefits provided by its products by
continuing to build customer loyalty through the quality of Mattson's service
and support. Mattson intends to continue to offer leading all-inclusive
warranties, unlimited training, and regional field and process support.
Markets And Applications
Photoresist Stripping Market
A stripping system removes photoresist and post-etch film residues from a
wafer between every step before further film deposition or diffusion
processing. Methods for stripping photoresist include wet chemistries and dry,
or plasma, technologies. Wet chemical stripping removes photoresist by
immersing the wafer into acid or solvent baths. See description of products of
CFM under "Business of CFM" beginning on page 173 of this
135
<PAGE>
joint proxy statement-prospectus. Dry stripping systems, such as Mattson's
Aspen Strip, create gaseous atomic oxygen to which the wafer is exposed to
remove the photoresist and residue while maintaining device integrity.
The demand for photoresist strip equipment has grown as the complexity and
number of strip steps required for each wafer have increased. Complex
integrated circuits require multiple additional photoresist stripping steps,
which increase cost and cycle time, create environmental concerns, increase
cleanroom space requirements, and reduce yield. The increase in strip steps in
the integrated circuit manufacturing process has led to a need for
semiconductor manufacturers to increase their photoresist strip capacity and to
place greater emphasis on low damage results and residue-free photoresist
stripping. The added complexity of the strip process has also contributed to
higher average selling prices of such equipment.
Fabrication of advanced integrated circuits with feature sizes under 0.18
micron requires advanced dry strip technologies such as Mattson's Aspen Strip.
In addition, faster devices require new interconnect materials, such as low
capacitance, or low k dielectric films and copper for conducting materials. The
use of these new materials creates new challenges for photoresist stripping
equipment. The resist or residues must be removed from these materials without
degrading the low k materials and without oxidizing any exposed copper.
According to Dataquest, the dry strip market was projected to grow from $163
million in 1999 to more than $300 million by the year 2002. Mattson entered
this market in 1991 with its Aspen Strip system.
Chemical Vapor Deposition Market
Chemical vapor deposition processes are used to deposit dielectric and
conducting films on wafers. These films are the basic material used to form the
resistors, capacitors, and transistors of an integrated circuit. These
materials are also used for the wiring and insulation between these electrical
components.
Plasma enhanced chemical vapor deposition is a type of chemical vapor
deposition process used to deposit insulating films. Plasma enhanced chemical
vapor deposition allows the system to process wafers at a relatively low
temperature, reducing the risk of damage to aluminum metalization layers during
processing. Film stress and density can be controlled independently of process
chemistry.
As feature sizes continue to decrease, chemical vapor deposition processing
equipment must meet increasingly stringent requirements. Particles or defect
densities must be minimized and controlled to achieve the desired yields. Film
properties such as stress must also be improved and more tightly controlled.
Compatibility with metallization steps, such as aluminum and copper deposition,
are critical. Finally, as process complexity increases with the use of low k
and dual damascene processing solutions, the number of plasma enhanced chemical
vapor deposition steps increases significantly and system productivity
increases in importance.
Dataquest estimates that the segments of the CVD market for CVD dielectrics
in which Mattson competes was approximately $1.1 billion in 1999 and would grow
to more than $2.5 billion in the year 2002. Mattson entered this market in 1994
with the introduction of Mattson's second system, Aspen CVD.
Rapid Thermal Processing Market
Rapid thermal processing is the process by which annealing or heating of
semiconductor wafers is accomplished with minimum thermal exposure.
Historically, diffusion furnaces have been used to heat-treat large batches of
wafers. As device features have become smaller, the total temperature exposure
of the wafer, or the thermal budget, has decreased. Diffusion furnaces have
long processing times, which is unacceptable for many annealing processes.
Rapid thermal processing subjects the wafer to much shorter processing times,
thus reducing the thermal budget. Individual wafers are rapidly heated to
process temperature, held for a few seconds, and rapidly cooled. Traditional
rapid thermal processing systems use heat lamps, located outside the process
area, and heat the wafer by radiant energy that passes through transparent
windows.
136
<PAGE>
As device geometries and thermal budgets shrink, rapid thermal processing is
emerging as a key semiconductor processing technology. As the number of layers
on semiconductor wafers has increased, the demand for rapid thermal processing
equipment specific to applications in the fabrication process has also
increased. As with chemical vapor deposition technology, rapid thermal
processing systems are continuing to be subject to increasingly stringent
processing demands and must maintain uniformity and repeatability to ensure the
integrity of the integrated circuit.
Dataquest estimated that the combined rapid thermal processing and furnace
market was $553 million in 1999 and projected that the market would increase to
more than $1.2 billion in the year 2002.
Isotropic Etch Market
The etching process selectively removes patterned material from the surface
of a wafer to create the device structures. With the development of sub-micron
integrated circuit feature sizes, dry, or plasma etching, has become one of the
most frequently used processes in semiconductor manufacturing. Today, chemical
dry etch processes are applicable to a broad range of critical and non-critical
applications throughout the wafer manufacturing process.
An isotropic, or multi-directional, etch system performs a variety of etch
processes on semiconductor wafers that can be used in several steps in a
typical 0.18 micron chip fabrication. As device feature sizes continue to
decrease, processes used to remove films from wafers must be ever more
selective to prevent damage to the films in the underlying layers. This process
capability and control is necessary to produce reliable and yielding devices.
As device geometries shrink below 0.18 micron, the ability to maintain process
control with wet chemicals will be limited.
Epi Market
Epitaxial, or Epi, deposition systems grow a layer of extremely pure silicon
on a wafer in a uniform crystalline structure to form a high quality base for
building certain types of chips. The silicon properties of the epitaxy produce
a more controlled silicon growth than do manufactured silicon wafers and offer
features that differentiate it from manufactured silicon wafers. The use of
epitaxy can result in significant increases in yield during the manufacturing
process and can enable the manufacture of novel structures. In addition, device
manufacturers are able to manipulate and tightly control the quality and
conductivity of the silicon.
The market is broken into two segments: applications that require thin Epi,
which are typically less than five microns thick, and applications that require
thicker Epi film layers, including analog and power devices, sometimes as thick
as 100 microns. Mattson's EpiPro series uses a dual chamber batch system that
addresses the thick Epi market. Mattson's EpiPro series was introduced in 1998.
Products And Technology
Nearly all of Mattson's tools are built on a common platform, known as the
Aspen System. The Aspen II platform was introduced in 1993 and is used for four
product lines, accounting for the majority of Mattson's historical revenue.
This platform processes wafers from 100 millimeter to 200 millimeter in
diameter. The Aspen Strip, Aspen CVD, Aspen RTP, and LiteEtch products are all
based on the Aspen II platform, which includes wafer handling robotics, dual
loadlocks, control electronics, and system software.
Mattson's Aspen III platform was introduced in 1998 and is targeted for
advanced design features on 300 millimeter and some 200 millimeter wafers. This
next generation platform is designed to improve productivity and throughput.
All of Mattson's 300 millimeter systems are built using this platform. In 1998,
Mattson developed the Aspen III Strip and Aspen III CVD equipment for 300
millimeter strip and chemical vapor deposition processes based on the new Aspen
III platform.
137
<PAGE>
The chart below summarizes Mattson's product offerings and applications and
the platforms used for each product line.
<TABLE>
<CAPTION>
Product Name Applications System Platform
------------ ------------ ---------------
<S> <C> <C>
ASPEN II STRIP Using dry chemistry, this Aspen II for 100-200mm
ASPEN III STRIP inductively coupled plasma Aspen III for 300mm
strip system removes
photoresist and post-etch
residues before further film
deposition or diffusion
processing while maintaining
device integrity.
ASPEN II CVD Plasma enhanced chemical vapor Aspen II for 100-200mm
ASPEN III CVD deposition system deposits Aspen III for 200-300mm
insulating dielectric films on
wafers.
ASPEN RTP(FR3) Rapid thermal processing using Aspen II for 100-200mm
a susceptor-based heater used Aspen III for 300 mm under
for implant anneals, silicide development
formations, high and low k
development dielectric anneals,
glass reflow, and copper
anneal.
ASPEN II LITEETCH Isotropic etch system using a Aspen II for 100-200mm
ASPEN III LITEETCH proprietary inductively coupled Aspen III for 300mm
plasma source, designed for a
variety of etch processes used
in several steps in a typical
0.18 micron chip fabrication.
EPIPRO SERIES Dual chamber, batch reactor Non-Aspen platform for 75-200mm
deposits a wide range of
epitaxial silicon film
thickness with tight process
control.
</TABLE>
The Aspen Strip
The Aspen II Strip consists of the standard Aspen II platform together with
one or two processing chambers. Each chamber processes two wafers at a time.
System throughput varies with the photoresist thickness and is approximately 90
to 130 wafers per hour with one chamber and 110 to 160 wafers per hour with two
chambers for most applications. The residue removal capability of this system
reduces the need for wet chemical steps, which allows a greater reduction in
cost of ownership by decreasing the number of wet stations required.
The Aspen III Strip consists of the standard Aspen III platform together
with one, two or three processing chambers. Each chamber processes two wafers
at a time. System throughput varies with the resist thickness and is
approximately 140 to 180 wafers per hour with one chamber, 160 to 200 wafers
per hour with two chambers, and greater than or equal to 200 wafers per hour
with three chambers for most applications. The innovative system design exceeds
the current throughput, cost of ownership, and footprint requirements set by
industry consortia for 300 millimeter strip equipment. Mattson believes the two
chamber Aspen III Strip offers a substantial reduction in cost of ownership
relative to conventional 300 millimeter single wafer systems.
Each of Mattson's Aspen II and Aspen III Strip systems use one of Mattson's
two proprietary inductively coupled plasma, or ICP, source technologies to
remove photoresist and residue from the wafer. Mattson's ICP technology was
introduced in 1997 to further extend the capability for removal of the most
difficult residues
138
<PAGE>
formed during semiconductor processing. The ICP's thorough residue removal
capability reduces the need for wet chemical steps. This physically remote
plasma source generates a gentle, low energy plasma that achieves advanced
photoresist stripping and residue removal and low contamination while
maintaining device integrity and without additional chemical processing. The
ICP source was specifically designed for advanced semiconductor device
manufacturing processes of 0.18 micron and below. When combined with an Aspen
II or Aspen III platform, Mattson believes that the Aspen Strip system provides
significant cost of ownership advantages.
Mattson's second source technology, Mattson's Aspen ICPSM, with selectable
mode, offers manufacturers advanced low temperature strip capabilities and
allows the user to select the plasma mode for each step in the process. The
Aspen ICPSM system is applicable to a variety of advanced applications,
including high dose implant strip, via residue removal, post metal etch residue
removal, and surface cleaning for advanced silicide applications, as well as
cleaning low k trenches or vias.
Mattson has also developed a strip solution for low k cleaning that is
currently being used in production. Mattson's new strip capability provides
advanced processing recipes that enable interconnect technology for 0.18 micron
and smaller geometries using a wide range of hydrogen and fluorine chemistries.
This Aspen Strip feature enables manufacturers to clean vias or trenches with
exposed low k materials while maintaining low k film integrity. In addition, it
enables effective cleaning of copper films. The low k strip feature can be
ordered as an option with ICP and/or ICPSM chambers.
The Aspen CVD
The Aspen II CVD system is based on the Aspen II platform. The Aspen II CVD
system can be configured with one or two process chambers, and each chamber can
process four wafers at a time. The second chamber can be used to increase
throughput with a minimal increase in footprint.
The Aspen III CVD system is based on the Aspen III platform and can be
configured with one, two, or three process chambers, where each chamber can
process two wafers at a time. The Aspen III CVD system deposits dielectric film
and silane-based films, and Mattson offers a number of plasma enhanced chemical
vapor deposition applications. Depending on the type of film deposited, the
Aspen III CVD has the capability to process up to 180 wafers per hour,
affording a cost of ownership advantage not found on competitive systems. The
Aspen III CVD features a small volume chamber design that allows shortened
automatic clean times for increased system availability and uptime. The smaller
chamber also permits higher deposition rates. The resulting higher throughput
permits the use of slower, more consistent and less damaging process
technologies than are economically feasible in conventional single wafer
systems.
Mattson's plasma enhanced chemical vapor deposition technology allows the
system to process wafers at the relatively low temperature of 400 degrees
Celsius or less required for processing after aluminum metallization layers are
deposited on the wafer. Film stress and density can be controlled independently
of process chemistry by the use of a low frequency radio frequency bias.
Mattson's dual loadlocks isolate the process chamber from pressure and
temperature fluctuations. This isolation of the process chamber reduces
particulates and improves film quality and repeatability.
The Aspen III CVD system is one of the first chemical vapor deposition
bridge systems in the industry that is capable of handling both 200 millimeter
and 300 millimeter wafer production with minor modifications to the platform.
Other 200 millimeter systems cannot convert to 300 millimeter production, or
may require completely new process chambers to convert to 300 millimeter
production. The flexible system design addresses the needs of large volume
manufacturing where cost is a major consideration. Aspen III CVD has one of the
smallest footprints available in 200 and 300 millimeter plasma enhanced
chemical vapor deposition tools and provides a throughput advantage for
selected thin film applications.
139
<PAGE>
Mattson believes that the Aspen III CVD system is well positioned for dual
damascene processing applications, where more plasma enhanced chemical vapor
deposition layers are required. Dual damascene applications require two to
three thin dielectric layers.
The Aspen RTP (FR3)
Based on the Aspen II platform, the Aspen RTP(FR3) is designed to meet the
requirements for advanced sub 0.18 micron processing while satisfying the
demands of high volume manufacturing. It handles up to 110 wafers per hour for
selected processes. The simple design of the process chamber has no moving
parts and no consumables, which contributes to its low preventive maintenance
requirements. Because the system uses a susceptor instead of conventional lamp
rapid thermal processing technology, power consumption has been minimized,
further reducing maintenance requirements, consumables costs and cost of
ownership.
Mattson's Aspen RTP(FR3) system employs susceptor-based heating technology
for temperature stability, uniformity and repeatability in a wide operating
range of 100 to 1200 degrees Celsius to handle both rapid thermal processing
and many furnace applications. The system provides a number of leading edge
applications. Mattson's Aspen RTP(FR3) system features thermal isolation to
keep the uniformity of the wafer temperature independent of the process
temperature. Uniformity can be achieved over a wide range of process
temperatures for both long and short process times. Proprietary wafer handling
techniques are used to remove wafers from the chamber at process temperature,
eliminating the cool-down time required by other systems. Mattson's wafer
handling also achieves high throughput that results in lower thermal budgets.
After processing, the system can also perform chamber cleaning without operator
intervention.
The Aspen LiteEtch
Mattson's isotropic etch products, the Aspen II LiteEtch and Aspen III
LiteEtch, use Mattson's proprietary ICP source, the same source used in
Mattson's Aspen Strip product. This physically remote ICP source uses a high
pressure plasma process to produce a low energy plasma that achieves high etch
rates with better etch rate uniformity, greater profile control and selectivity
and low wafer damage, while minimizing electrically charged particles that can
damage sensitive semiconductor devices. With the transition from wet to dry
processing for key application steps, Mattson believes that Aspen LiteEtch
offers enabling technological capabilities with the benefits of dry etch tools.
These benefits include lower cost of ownership than wet stations and lower
capital outlay than anisotropic etchers, savings in cleanroom floorspace and
greater process automation for ease of use, as well as reduced chemical waste.
The Aspen LiteEtch system is available on Mattson's standard Aspen II
platform, together with one or two process chambers, or Mattson's Aspen III
platform, together with one, two or three process chambers. Each chamber
processes two wafers at a time, while retaining single wafer process control.
For most applications, system throughput typically varies with the process from
40 to 80 wafers per hour for a single chamber system and from 70 to 110 wafers
per hour for a dual chamber system.
EpiPro Systems
The EpiPro series is Mattson's next-generation, cost-effective Epi reactor
for epitaxial deposition. This high capacity system is capable of depositing a
wide range of film thicknesses on 75 millimeter to 200 millimeter silicon
wafers, while simultaneously reducing the cost of Epi processing. By improving
throughput, the customer is able to reduce the cost of depositing Epi layers.
This is a primary purchasing consideration of Mattson's targeted market
segment, manufacturers of semiconductors with thick Epi layers.
The EpiPro epitaxy reactor is specifically designed for growing Epi layers
on silicon wafers. The system supports long processing times at high
temperatures with a high degree of thickness and resistivity uniformity across
the wafer and achieves customer specifications for silicon lattice defects.
140
<PAGE>
Customer Support
Mattson believes that its customer support organization is critical to
establishing and maintaining the long term customer relationships that often
are the basis upon which semiconductor manufacturers select their equipment
vendor. Mattson's customer support organization is headquartered in Fremont,
California, with additional employees located domestically in Arizona, Idaho,
Maryland, Massachusetts, New Jersey, Oregon, Texas, and Virginia and
internationally in Germany, Italy, France, Japan, Korea, Singapore, Taiwan and
the United Kingdom. Mattson's support personnel have technical backgrounds,
with process, mechanical, and electronics training, and are supported by
Mattson's engineering and applications personnel. Support personnel install
systems, perform warranty and out-of-warranty service, and provide sales
support.
Mattson was the first in the industry to offer a standard 24 month warranty,
and in 1996, the first to offer a standard 36 month warranty. Mattson offers a
36 month warranty on all of its systems sold after January 1996, other than
Mattson's EpiPro 5000 system and other than systems sold in Japan. Mattson's 36
month warranty, designed to differentiate its service from other semiconductor
equipment suppliers, includes preventive maintenance during warranty as well as
installation support. Mattson's 36 month warranty also specifies no consumables
costs, which can be a significant factor in cost of ownership calculations.
Mattson offers a 12 month warranty in Japan and on its EpiPro 5000 system.
Mattson also offers unlimited access to no-cost training at Mattson's
headquarters, maintains spare parts depots in every region for four hour parts
turnaround, and provides regional field and process support.
Sales And Marketing
Mattson sells its systems primarily through its direct sales force. In
addition to the direct sales force at its headquarters in Fremont, California,
Mattson has domestic regional sales offices located in Arizona, Maryland, New
Jersey, Oregon, and Texas. Mattson also maintains sales support offices in
Germany, Italy, Japan, Korea, Singapore, Taiwan, and the United Kingdom.
Mattson is continuing to increase the size of its sales force both domestically
and internationally.
Mattson has completed its establishment of a direct sales force in Japan and
terminated its distribution relationship with its distributor, Marubeni. By
establishing its own direct sales force, Mattson believes it can continue to
increase its sales in Japan and provide its customers with improved customer
service. Although Mattson intends to invest significant resources in Mattson's
sales efforts in Japan, including hiring additional personnel to support its
direct sales effort, Mattson may not be able to maintain or increase its sales
to the Japanese semiconductor industry. Mattson may miss sales opportunities or
lose competitive sales as a result of this transition in its sales
organization. When it makes sales directly to customers in Japan, Mattson
expects payment terms to be as long as 180 days from shipment, and Mattson may
incur currency risk if sales are denominated in Japanese Yen.
International sales accounted for 71% of total net sales in 1999, 67% in
1998, and 65% in 1997. Mattson anticipates that international sales will
continue to account for a significant portion of net sales. International sales
are subject to certain risks, including unexpected changes in regulatory
requirements, exchange rates, tariffs and other barriers, political and
economic instability, difficulties in accounts receivable collections, extended
payment terms, difficulties in managing distributors or representatives,
difficulties in staffing and managing foreign subsidiary operations, and
potentially adverse tax consequences. Because of its dependence upon
international sales in general, and on sales to Japan and Pacific Rim countries
in particular, Mattson is particularly at risk to effects from developments
such as the recent Asian economic problems. Mattson's foreign sales are also
subject to certain governmental restrictions, including the Export
Administration Act and the regulations promulgated under this Act. For a
discussion of the risks associated with Mattson's international sales, see
"Risk Factors," beginning on page 13 of this joint proxy statement-prospectus.
141
<PAGE>
Customers
The following is a representative list of Mattson's major semiconductor
manufacturing customers:
<TABLE>
<S> <C> <C>
Advanced Micro Devices Microchip Technology Sony
Hitachi NEC Corporation STMicroelectronics
IBM Microelectronics Samsung Texas Instruments
</TABLE>
The following is a representative list of Mattson's major foundry customers:
Chartered Semiconductor Manufacturing/Silicon Manufacturing Partners Pte.
Ltd.
Taiwan Semiconductor Manufacturing Company
Silicon Integrated Systems
UMC Group
WaferTech
In 1999, one customer, Samsung, accounted for approximately 20% of Mattson's
net sales, and in 1997, one customer, Taiwan Semiconductor Manufacturing
Company, accounted for approximately 11% of Mattson's net sales. Although the
composition of the group comprising its largest customers has varied from year
to year, Mattson's top ten customers accounted for 63% of its net sales in
1999, 56% in 1998, and 60% in 1997. For a discussion of risks associated with
changes in Mattson's customer base, see "Risk Factors" beginning on page 13 of
this joint proxy statement-prospectus.
Backlog
Mattson schedules production of its systems based on both backlog and
regular sales forecasts. Mattson includes in backlog only those systems for
which it has accepted purchase orders and assigned shipment dates within the
next 12 months. All orders are subject to cancellation or delay by the customer
with limited or no penalty. Mattson's backlog was approximately $56.1 million
as of December 31, 1999, $22.7 million as of December 31, 1998, and $41.5
million as of December 31, 1997. The year-to-year fluctuation is due primarily
to the cyclical nature of the semiconductor industry. Because of possible
changes in delivery schedules and cancellations of orders, Mattson's backlog at
any particular date is not necessarily representative of actual sales for any
succeeding period and Mattson's actual sales for the year may not meet or
exceed the backlog represented. In particular, during periods of industry
downturns, Mattson has experienced significant delays relating to orders that
were previously booked and included in backlog.
Research, Development, and Engineering
Mattson's research, development, and engineering efforts are focused upon
Mattson's multi-product strategy. During recent periods, Mattson has devoted a
significant amount of resources to Mattson's Aspen III platform, the Aspen III
CVD system, improvements to Mattson's Aspen RTP(FR3) system, and the EpiPro
5000 system. Mattson expects to focus its future efforts on Mattson's Aspen III
RTP system for 300 millimeter applications, development of a low k chemical
vapor deposition film using Mattson's Aspen CVD system, development of advanced
resist and residue cleaning capabilities, and additional features on Mattson's
Aspen III platform.
Mattson has been actively involved in the development of advanced low k
plasma enhanced chemical vapor deposition processing with various customers
around the world. By using standard hardware with gas changes, Mattson has been
able to deposit stable films with k values as low as 2.6. These low k values
will become increasingly important as device feature sizes continue to be
reduced and line-to-line capacitance becomes a limiter to the speed of
integrated circuit devices.
Mattson maintains an applications laboratory in Fremont to test new systems
and customer-specific equipment designs. By basing products on the Aspen
platform, Mattson believes that it can focus its development activities on the
process chamber and develop new products quickly and at relatively low cost.
For example, Mattson believes it was able to reduce new product development
time on Mattson's CVD, RTP, and LiteEtch products.
142
<PAGE>
The markets in which Mattson and its customers compete are characterized by
rapidly changing technology, evolving industry standards, and continuous
improvements in products and services. Because of continual changes in these
markets, Mattson believes that its future success will depend upon its ability
to continue to improve its existing systems and process technologies, and to
develop systems and new technologies that compete effectively. In addition,
Mattson must adapt its systems and processes to technological changes and to
support emerging industry standards for target markets. Mattson cannot be sure
that it will complete its existing and future development efforts within its
anticipated schedule or that its new or enhanced products will have the
features to make them successful. Mattson may experience difficulties that
could delay or prevent the successful development, introduction, or marketing
of new or improved systems or process technologies. In addition, these new and
improved systems and process technologies may not meet the requirements of the
marketplace and achieve market acceptance. Furthermore, despite testing by
Mattson, difficulties could be encountered with its products after shipment,
resulting in loss of revenue or delay in market acceptance and sales, diversion
of development resources, injury to Mattson's reputation, or increased service
and warranty costs. The success of new system introductions is dependent on a
number of factors, including timely completion of new system designs and market
acceptance. If Mattson is unable to improve its existing systems and process
technologies or to develop new technologies or systems, it may lose sales and
customers.
Mattson's research, development, and engineering expenses were $19.5 million
for the year ended December 31, 1999, $16.7 million for the year ended December
31, 1998, and $14.7 million for the year ended December 31, 1997, representing
18.9% of net sales in 1999, 28.2% in 1998, and 19.2% in 1997.
Competition
The global semiconductor fabrication equipment industry is intensely
competitive and is characterized by rapid technological change and demanding
customer service requirements. Mattson's ability to compete depends upon its
ability to continually improve its products, processes, and services and its
ability to develop new products that meet constantly evolving customer
requirements.
A substantial capital investment is required by semiconductor manufacturers
to install and integrate new fabrication equipment into a semiconductor
production line. As a result, once a semiconductor manufacturer has selected a
particular supplier's products, the manufacturer often relies for a significant
period of time upon that equipment for the specific production line application
and frequently will attempt to consolidate its other capital equipment
requirements with the same supplier. Accordingly, it is difficult for Mattson
to sell to a particular customer for a significant period of time after that
customer has selected a competitor's product, and it may be difficult for
Mattson to unseat an existing relationship that a potential customer has with
one of Mattson's competitors in order to increase sales of Mattson's products
to that customer.
Each of Mattson's product lines competes in markets defined by the
particular wafer fabrication process it performs. In each of these markets
Mattson has multiple competitors. At present, however, no single competitor
competes with Mattson in all of the same market segments in which Mattson
competes. Competitors in a given technology tend to have different degrees of
market presence in the various regional geographic markets. Competition is
based on many factors, primarily technological innovation, productivity, total
cost of ownership of the systems, including yield, price, product performance,
and throughput capability, quality, contamination control, reliability, and
customer support. Mattson believe that its competitive position in each of its
markets is based on the ability of Mattson's products and services to address
customer requirements related to these competitive factors.
Mattson's principal competitors in the dry strip market include Alcan
Technology, Axcelis Corporation, GaSonics International, Hitachi, KEM, Matrix
Integrated Systems, and Plasma Systems. Mattson believes that it competes
favorably on each of the competitive elements in this market and estimate that
it is the leading provider of dry strip products. The market in which Mattson's
Aspen LiteEtch products compete is a relatively small niche market with no
dominant competitors. Principal competitors for Mattson's Aspen LiteEtch
systems
143
<PAGE>
include GaSonics, Lam Research, Shibaura Mechatronics, and Tegal. Principal
competitors for Mattson's Aspen CVD systems include Applied Materials, ASM
International, and Novellus Systems, with Applied Materials and Novellus
representing a major share of the market. Principal competitors for Mattson's
Aspen RTP systems include Applied Materials. Principal competitors for
Mattson's EpiPro systems include Advanced Semiconductor Manufacturing, LPE
Products, Moore Technology, and Toshiba.
Mattson may not be able to maintain its competitive position against current
and potential competition. New products, pricing pressures, rapid changes in
technology, and other competitive actions from both new and existing
competitors could materially affect Mattson's market position. Some of
Mattson's competitors have substantially greater installed customer bases and
greater financial, marketing, technical, and other resources than Mattson does
and may be able to respond more quickly to new or changing opportunities,
technologies, and customer requirements. Mattson's competitors may introduce or
acquire competitive products that offer enhanced technologies and improvements.
In addition, some of Mattson's competitors or potential competitors have
greater name recognition and more extensive customer bases that could be
leveraged to gain market share to Mattson's detriment. Mattson believe that the
semiconductor equipment industry will continue to be subject to increased
consolidation, which will increase the number of larger, more powerful
companies and increase competition.
Manufacturing
Mattson's manufacturing operations are based in Mattson's Fremont facility
and consist of procurement, subassembly, final assembly, test, and reliability
engineering. Mattson's current Strip, CVD, RTP, and LiteEtch systems are based
on the Aspen platform, enabling Mattson to use a large number of common
subassemblies and components. Many of the major assemblies are procured
complete from outside sources. Mattson focuses its internal manufacturing
efforts on those precision mechanical and electro-mechanical assemblies that
differentiate Mattson's systems from those of its competitors.
Some of Mattson's components are obtained from a sole supplier or a limited
group of suppliers. Mattson generally acquires these components on a purchase
order basis and not under long term supply contracts. Mattson's reliance on
outside vendors generally, and a limited group of suppliers in particular,
involves several risks, including a potential inability to obtain an adequate
supply of required components and reduced control over pricing and timely
delivery of components. Because the manufacture of certain of these components
and subassemblies is an extremely complex process and can require long lead
times, Mattson could experience delays or shortages caused by suppliers.
Historically, Mattson has not experienced any significant delays in
manufacturing due to an inability to obtain components, and Mattson is not
currently aware of any specific problems regarding the availability of
components that might significantly delay the manufacturing of Mattson's
systems in the future. However, any inability to obtain adequate deliveries or
any other circumstance that would require Mattson to seek alternative sources
of supply or to manufacture such components internally could delay its ability
to ship its systems and could have a material adverse effect on Mattson.
Mattson is subject to a variety of federal, state, and local laws, rules and
regulations relating to the use, storage, discharge, and disposal of hazardous
chemicals used during its sales demonstrations and research and development.
Public attention has increasingly been focused on the environmental impact of
operations which use hazardous materials. Failure to comply with present or
future regulations could result in substantial liability to Mattson, suspension
or cessation of its operations, restrictions on its ability to expand at its
present locations, or requirements for the acquisition of significant equipment
or other significant expense. To date, compliance with environmental rules and
regulations has not had a material effect on Mattson's operations.
Intellectual Property
Mattson relies on a combination of patent, copyright, trademark, and trade
secret laws, non-disclosure agreements, and other intellectual property
protection methods to protect its proprietary technology. Mattson
144
<PAGE>
holds eight United States patents and more than 20 patent applications pending
in the United States as well as several foreign patents and patent applications
covering various aspects of its products and processes. Where appropriate,
Mattson intends to file additional patent applications on inventions resulting
from its ongoing research, development, and manufacturing activities to
strengthen its intellectual property rights.
Although Mattson attempts to protect its intellectual property rights
through patents, copyrights, trade secrets, and other measures, it cannot be
sure that it will be able to protect its technology adequately, and Mattson's
competitors could independently develop similar technology, duplicate Mattson's
products, or design around Mattson's patents. To the extent Mattson wishes to
assert its patent rights, Mattson cannot be sure that any claims of its patents
will be sufficiently broad to protect its technology or that its pending patent
applications will be approved. In addition, there can be no assurance that any
patents issued to Mattson will not be challenged, invalidated, or circumvented,
that any rights granted under these patents will provide adequate protection to
Mattson, or that Mattson will have sufficient resources to protect and enforce
its rights. In addition, the laws of some foreign countries may not protect
Mattson's proprietary rights to as great an extent as do the laws of the United
States.
As is customary in Mattson's industry, from time to time it receives or
makes inquiries regarding possible infringement of patents or other
intellectual property rights. Although there are no pending claims against
Mattson regarding infringement of any existing patents or other intellectual
property rights or any unresolved notices that Mattson is infringing
intellectual property rights of others, such infringement claims could be
asserted against Mattson or its suppliers by third parties in the future. Any
claims, with or without merit, could be time-consuming, result in costly
litigation, cause product shipment delays, subject Mattson to significant
liabilities to third parties, require Mattson to enter into royalty or
licensing agreements, or prevent Mattson from manufacturing and selling its
products. If Mattson's products were found to infringe a third party's
proprietary rights, Mattson could be required to enter into royalty or
licensing agreements in order to continue to be able to sell its products.
Royalty or licensing agreements, if required, may not be available on terms
acceptable to Mattson or at all, which could seriously harm Mattson's business.
Mattson's involvement in any patent dispute or other intellectual property
dispute or action to protect trade secrets and know-how could have a material
adverse effect on its business.
Employees
As of December 31, 1999, Mattson had 443 employees. There were 104 employees
in manufacturing operations, 96 in research, development and engineering, 200
in sales, marketing, field service, and customer support, and 43 in general,
administrative, and finance.
The success of Mattson's future operations depends in large part on
Mattson's ability to recruit and retain qualified employees, particularly those
highly skilled design, process, and test engineers involved in the manufacture
of existing systems and the development of new systems and processes. The
competition for such personnel is intense, particularly in the San Francisco
Bay Area, where Mattson's headquarters are located. At times, Mattson has
experienced difficulty in attracting new personnel and Mattson may not be
successful in retaining or recruiting sufficient key personnel in the future.
None of Mattson's employees is represented by a labor union and Mattson has
never experienced a work stoppage, slowdown, or strike. Mattson considers its
relationships with its employees to be good.
Properties
Mattson maintains its headquarters in Fremont, California. Mattson has
leases for two facilities of 61,000 and 60,000 square feet which expire in
February 2001 and April 2003, respectively. Mattson's future growth may require
that it secure additional facilities or expand its current facilities further
before the term of its headquarters lease expires. Any move to new facilities
or expansion could be disruptive and cause Mattson to incur significant
unexpected expense. Mattson also leases sales support offices in Japan,
Singapore, Korea, Taiwan, and Germany with expiration dates from August 2000
through January 2001.
145
<PAGE>
Legal Proceedings
Mattson is not aware of any pending legal proceedings against Mattson that,
individually or in the aggregate, would have a material adverse effect on
Mattson's business, operating results, or financial condition. Mattson may in
the future be party to litigation arising in the course of Mattson's business,
including claims that it allegedly infringed third party trademarks and other
intellectual property rights. Such claims, even if not meritorious, could
result in the expenditure of significant financial and managerial resources.
146
<PAGE>
MATTSON MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of Mattson's financial condition and
results of operations should be read in conjunction with its consolidated
financial statements and related notes included elsewhere in this joint proxy
statement-prospectus. In addition to historical information, this discussion
contains certain forward-looking statements that involve risks and
uncertainties. Mattson's actual results could differ materially from those
anticipated by these forward-looking statements due to factors, including but
not limited to, those set forth under "Risk Factors" and elsewhere in this
joint proxy statement-prospectus.
Overview
Mattson is a leading supplier of advanced, high-productivity semiconductor
processing equipment used in the fabrication of integrated circuits. Mattson
currently offers Aspen Strip, CVD, RTP, LiteEtch and EpiPro products. Mattson
began operations in 1989 and in 1991 shipped its first product, the Aspen
Strip, a photoresist removal system. Mattson's current Aspen Strip, CVD, RTP
and LiteEtch product lines are based on a common Aspen platform with a modular,
multi-station, multi-chamber architecture, designed to deliver high
productivity, low cost of ownership and savings of cleanroom space.
Until 1999, Mattson derived a substantial majority of its sales from its
Aspen Strip systems, with its remaining sales derived from its CVD, RTP,
LiteEtch and Epi systems, as well as spare parts and maintenance services.
During 1999, Mattson's sales of CVD systems increased significantly, comprising
27% of its net sales, while its Aspen Strip sales accounted for 60% of its net
sales. In July 1999, Mattson introduced its next generation rapid thermal
processing system, RTPFR3, and the EpiPro 5000 epitaxial silicon deposition
system.
Mattson generally recognizes sales upon shipment of a system. From time to
time, however, Mattson allows customers to evaluate systems, and since
customers can return such systems any time with limited or no penalty, Mattson
does not recognize the associated revenue until the evaluation system is
accepted by the customer. Service and maintenance contract revenue, which to
date has been insignificant, is recognized on a straight-line basis over the
service period of the related contract. A provision for the estimated future
cost of system installation and warranty is recorded at the time revenue is
recognized.
International sales, predominantly to customers based in Europe, Japan and
the Pacific Rim, including Taiwan, Singapore and Korea, accounted for 71% of
total net sales for 1999, 67% of total net sales for 1998 and 65% of total net
sales for 1997. To date, all sales have been denominated in U.S. dollars.
Mattson anticipates that international sales will continue to account for a
significant portion of sales, primarily due to orders from customers in Japan
and the Pacific Rim.
The local currency is the functional currency for all foreign operations
except those in Japan, where the U.S. dollar is the functional currency. Gains
or losses from translation of foreign operations where the local currencies are
the functional currency are included as a component of stockholders' equity.
Foreign currency transaction gains and losses are recognized in the statement
of operations and have not been material.
Mattson's business depends upon capital expenditures by manufacturers of
semiconductor devices. The level of capital expenditures by these manufacturers
depends upon the current and anticipated market demand for such devices. The
semiconductor industry suffered a significant downturn beginning in 1998, as a
result of several factors including the economic crisis in Asia, semiconductor
industry over-capacity and reduced profitability for semiconductor
manufacturers resulting from the decreasing prices of personal computers.
Accordingly, many semiconductor manufacturers delayed planned new equipment
purchases until 1999, which significantly impacted Mattson's 1998 sales. From
the fourth quarter of 1998 through 1999, the industry began to improve, and
during that time Mattson's sales increased sequentially from quarter to
quarter. The cyclicality and uncertainties regarding overall market conditions
continue to present significant challenges to Mattson and impair Mattson's
ability to forecast near term revenue. Mattson's ability to quickly modify its
operations in response to changes in market conditions is limited.
147
<PAGE>
In order to support long term growth in its business, Mattson has continued
to increase research and development expenses from previous years. In addition,
selling, general and administrative costs in 1999 increased from 1998 as sales
continued to increase. Mattson is still dependent upon increases in sales in
order to achieve profitability. If Mattson's sales do not increase, its current
operating expenses could both prevent it from increasing profitability and
adversely affect its financial results.
On July 24, 1998, Mattson completed its acquisition of Concept Systems
Design, Inc., a supplier of epitaxial systems. The merger was accounted for as
a purchase at a price of $4,689,000, which included $650,000 of estimated
acquisition-related costs. In connection with the merger, Mattson issued
795,138 shares of its common stock to the former stockholders of Concept. The
purchase price was allocated to assets acquired and liabilities assumed based
on the fair value of Concept's current assets and liabilities, which Mattson
believes approximated their book value, the estimated fair value of property
and equipment and an independent appraisal for all other identifiable assets.
The excess of the purchase price over the net tangible and intangible assets
acquired and liabilities assumed was allocated to goodwill.
In the first quarter of 1999, a preacquisition contingency was resolved
which reduced the liabilities assumed from Concept by approximately $2.2
million. Under the provisions of Statement of Financial Accounting Standards
No. 38, this has been recorded by Mattson in the first quarter of 1999 on a
prospective basis as an elimination of previously recorded goodwill and a pro-
rata reduction of the balance to the acquired developed technology, workforce
and property and equipment. The acquired developed technology and workforce are
recorded on the balance sheet as other assets and will be amortized on a
straight-line basis over periods ranging from three to seven years. The
acquired in-process research and development was expensed at the time of
acquisition as a one-time charge.
Results of Operations
The following table sets forth selected consolidated financial data for the
periods indicated, expressed as a percentage of net sales:
<TABLE>
<CAPTION>
Year Ended Three Months Six Months
December 31, Ended Ended
-------------------- ----------------- -----------------
June 25, June 27, June 25, June 27,
1997 1998 1999 2000 1999 2000 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........... 48.4% 63.5 % 51.7 % 49.0% 52.8 % 49.8% 51.6 %
----- ----- ----- ----- ----- ----- -----
Gross margin............ 51.6% 36.5 % 48.3 % 51.0% 47.2 % 50.2% 48.4 %
===== ===== ===== ===== ===== ===== =====
Operating expenses:
Research, development
and engineering...... 19.2% 28.2 % 18.9 % 13.7% 18.8 % 14.2% 21.9 %
Selling, general and
administrative....... 31.9% 41.5 % 30.7 % 26.0% 29.5 % 25.5% 34.2 %
Acquired in-process
research and
development.......... -- 7.1 % --
Total operating
expenses........... 39.7% 48.2 % 39.7% 56.1 %
Income (loss) from
operations............. .5% (40.3)% (1.3)% 11.3% (1.0)% 10.5% (7.6)%
Interest and other
income, net............ 2.0% 3.1 % 0.7 % 3.0% 0.6 % 2.1% 1.1 %
Income (loss) before
provision for income
taxes.................. 2.5% (37.2)% (.6)% 14.3% (0.5)% 12.6% (6.5)%
Net income (loss)....... 1.9% (37.8)% (.8)% 12.9% (0.8)% 11.3% (6.8)%
</TABLE>
Years Ended December 31, 1999 And 1998
Net Sales. Mattson's net sales for the year ended December 31, 1999 were
$103.5 million, representing an increase of $44.3 million, or 74.8%, over net
sales of $59.2 million for the year ended December 31, 1998. Net sales
increased in 1999 primarily as a result of a 53.1% increase in unit shipments
and a 16.2% increase in average selling prices.
148
<PAGE>
Until 1999, Mattson's sales consisted principally of single and dual chamber
Aspen Strip products and to a lesser extent, CVD, RTP and LiteEtch systems,
spare parts and service revenue. During 1999, sales of Mattson's Aspen CVD
accounted for 26.6% of net sales. The increase in average selling prices has
resulted primarily from a change in sales mix to CVD, RTP and LiteEtch systems,
which generally carry higher selling prices than the Aspen Strip systems.
Gross Margin. Gross profit was $50.0 million for the year ended December 31,
1999, representing 48.3% of net sales, up from $21.6 million, or 36.5% of net
sales, for the year ended December 31, 1998. Mattson's cost of sales includes
labor, materials and overhead. Gross margin increased in 1999 primarily due to
favorable manufacturing overhead efficiencies, as the number of systems shipped
increased 53.1% in 1999 compared to 1998.
Mattson's gross margin has varied over the years and will continue to vary
based on multiple factors including its product mix, economies of scale,
overhead absorption levels, and costs associated with the introduction of new
products. Mattson's gross margin on international sales, other than sales to
Marubeni, have been substantially the same as domestic sales. Sales to Marubeni
typically carry a lower gross margin, as Marubeni has been primarily
responsible for sales and support costs in Japan. Mattson has recently
terminated its distribution agreement with Marubeni and has shifted to a direct
sales model in Japan.
Research, Development and Engineering. Research, development and engineering
expenses were $19.5 million, or 18.9% of net sales, for the year ended December
31, 1999, compared to $16.7 million, or 28.2% of net sales, for the year ended
December 31, 1998. The increase was primarily due to compensation and related
benefits, which increased to $9.8 million in 1999 from $8.6 million in 1998,
and depreciation expense, which increased to $2.3 million in 1999 from $1.9
million in 1998. The increase in compensation and related benefits expense was
due to increased personnel required to support Mattson's anticipated long term
future growth. The increase in depreciation expense was due to additional fixed
assets as a result of Mattson's acquisition of Concept in July 1998. The
decrease in research, development and engineering expense as a percentage of
net sales in 1999 compared to 1998 was primarily attributable to increased
sales in 1999.
Selling, General and Administrative. Selling, general and administrative
expenses were $31.8 million, or 30.7% of net sales, for the year ended December
31, 1999, compared with $24.5 million, or 41.5% of net sales, for the year
ended December 31, 1998. The increase was primarily due to compensation and
related benefits, which increased to $22.4 million in 1999 from $15.2 million
in 1998 due to increased personnel during 1999 and the reimplementation during
the first quarter of 1999 of compensation programs that had been reduced or
eliminated as part of the overall cost cutting measures implemented by
management in the second quarter of 1998. The decrease in selling, general and
administrative expenses as a percentage of net sales in 1999 compared to 1998
was primarily attributable to increased net sales in 1999.
Acquired In-Process Research and Development. In 1998, in connection with
Mattson's acquisition of Concept, it allocated $4.2 million to in-process
research and development, which Mattson expensed as a one-time charge, and $6.9
million to other intangible assets.
The value assigned to in-process research and development was determined by
identifying research projects in areas for which technological feasibility had
not been established. These included the Concept EpiPro 5000 system and a
single wafer Epi system. The value was determined by estimating the expected
cash flows from the projects, taking into consideration an estimate of future
obsolescence of the technology once commercially viable, applying a percentage
of completion and then discounting the net cash flows to their present value.
Mattson believes that its efforts to complete its in-process research and
development projects will consist of internally staffed engineers and will be
completed in 2001. The estimated costs to complete the research and development
is approximately $1.7 million. There is substantial risk associated with the
completion of each project and Mattson cannot be certain that any of the
projects will meet with technological or commercial success.
149
<PAGE>
The percentage of completion for each project was determined using
management estimates of time and dollars spent as compared to time and dollars
that were expected to be required to complete the project. The degree of
difficulty of the portion of each project completed as of July 24, 1998 was
also compared to the estimated remaining research and development to be
completed to bring each project to technical feasibility. At July 24, 1998, the
percentage of completion for the Concept EpiPro 5000 was estimated at 80% and
the percentage of completion for the single wafer Epi system was estimated at
50%.
Tax Provision. Mattson recorded a tax provision of $247,000 for the year
ended December 31, 1999 compared to $337,000 for the year ended December 31,
1998. Mattson recognized provision for income taxes at an effective tax rate of
(41.0)% during 1999 and (1.5)% during 1998. In 1999 and 1998 Mattson did not
recognize any tax benefits from its operating losses. The 1999 and 1998 income
tax provision primarily relates to foreign income tax. FASB Statement No. 109
provides for the recognition of deferred tax assets if realization of such
assets is more likely than not. Based upon available data, which includes
Mattson's historical operating performance and the reported cumulative net
losses in prior years, Mattson has provided a full valuation allowance against
its net deferred tax assets as the future realization of the tax benefit is not
sufficiently assured. Mattson intends to evaluate the realization of the
deferred tax assets on a quarterly basis.
Years Ended December 31, 1998 And 1997
Net Sales. Mattson's net sales of $59.2 million for the year ended December
31, 1998 represented a decrease of $17.5 million, or 22.8%, from net sales of
$76.7 million for the year ended December 31, 1997. The decrease was primarily
the result of a 32.7% decrease in unit shipments, partially offset by a 6.6%
increase in average selling prices.
Gross Margin. Gross profit was $21.6 million for the year ended December 31,
1998, representing 36.5% of net sales, compared to gross profit of $39.6
million, representing 51.6% of net sales, for the year ended December 31, 1997.
The lower gross margin in 1998 compared to 1997 was primarily attributable to
overhead inefficiencies caused by lower production volumes, as well as a one-
time inventory write-down.
Research, Development and Engineering. Research, development and engineering
expenses for the year ended December 31, 1998 were $16.7 million, or 28.2% of
net sales, and increased from $14.7 million, or 19.2% of net sales, for the
year ended December 31, 1997. The increase was primarily due to compensation
and benefits, which increased to $8.6 million in 1998 from $7.9 million in
1997, engineering project materials, which increased to $3.3 million in 1998
from $3.1 million in 1997, and depreciation, which increased to $1.9 million in
1998 from $1.4 million in 1997. The increase in compensation expense was
primarily due to increased personnel required to support Mattson's anticipated
long term future growth, including the support of its multi-product strategy.
The increase in engineering project materials was due to ongoing and new
product development. The increase in depreciation expense was due to the
additional fixed assets acquired from the Concept acquisition. The increase in
research, development and engineering expense as a percentage of net sales in
1998 compared to 1997 was primarily attributable to lower sales in 1998.
Selling, General and Administrative. Selling, general and administrative
expenses for the year ended December 31, 1998 were $24.5 million, or 41.5% of
net sales, compared to expenses of $24.5 million, or 31.9% of net sales, for
the year ended December 31, 1997. Cost cutting measures implemented in the
second quarter of 1998 were offset by increased expenditures relating to the
acquired Concept workforce and related overhead. Salaries, commissions and
related expenses remained constant at $15.2 million in 1997 and 1998. Building
and utilities expenses increased to $3.1 million in 1998 from $2.0 million in
1997. The increase in building and utilities expenses was due to an additional
31,000 square foot facility leased at the end of 1997, which was vacated in the
third quarter of 1998. The increase in building and utilities charges was
offset by nominal decreases in advertisement and promotion and travel and
entertainment expenses in 1998.
Tax provision. Mattson recorded a tax provision of $337,000 for the year
ended December 31, 1998 compared to $451,000 for the year ended December 31,
1997. Mattson recognized provision for income taxes at an effective rate of
(1.5)% during 1998 and 24.0% during 1997. The provision for income taxes in
1998
150
<PAGE>
consists primarily of foreign taxes. FASB Statement No. 109 provides for the
recognition of deferred tax assets if realization of such assets is more likely
than not. Based upon available data, Mattson has provided a full valuation
allowance against its December 31, 1998 net deferred tax assets as the future
realization of the tax benefit is not sufficiently assured. Mattson intends to
evaluate the realization of the deferred tax assets on a quarterly basis. The
1997 tax rate is less than the federal statutory rate as a result of benefits
from Mattson's foreign sales corporation and the research and development tax
credit.
Quarterly Results Of Operations
The following tables set forth Mattson's unaudited consolidated statement of
operations data for each of the eight quarterly periods ended December 31,
1999. You should read this information in conjunction with Mattson's
consolidated financial statements and related notes appearing elsewhere in this
prospectus. Mattson has prepared this unaudited consolidated information on a
basis consistent with its audited consolidated financial statements, reflecting
all normal recurring adjustments that it considers necessary for a fair
presentation of its financial position and operating results for the quarters
presented. You should not draw any conclusions about Mattson's future results
from the operating results for any quarter.
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------------------------
Mar. June Dec. June Sept. Dec.
29, 28, Sept. 31, Mar. 28 27, 26, 31,
1998 1998 27, 1998 1998 1999 1999 1999 1999
------- ------- -------- ------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
Of Operations
Net sales............... $20,248 $15,649 $ 9,420 $13,869 $14,320 $24,128 $29,189 $35,821
Cost of sales........... 11,173 8,448 8,920 9,054 7,076 12,748 15,171 18,477
------- ------- -------- ------- ------- ------- ------- -------
Gross profit............ 9,075 7,201 500 4,815 7,244 11,380 14,018 17,344
------- ------- -------- ------- ------- ------- ------- -------
Operating expenses:
Research, development
and engineering...... 4,501 3,770 4,107 4,292 3,898 4,525 5,297 5,827
Selling, general and
administrative....... 6,725 5,643 6,294 5,880 6,031 7,106 8,567 10,080
Acquired in-process
research and
development.......... -- -- 4,220 -- -- -- -- --
------- ------- -------- ------- ------- ------- ------- -------
Total operating
expenses........... 11,226 9,413 14,621 10,172 9,929 11,631 13,864 15,907
------- ------- -------- ------- ------- ------- ------- -------
Income (loss) from
operations............. (2,151) (2,212) (14,121) (5,357) (2,685) (251) 154 1,437
Interest and other
income, net............ 481 508 431 391 293 133 221 96
------- ------- -------- ------- ------- ------- ------- -------
Income (loss) before
provision for Income
taxes.................. (1,670) (1,704) (13,690) (4,966) (2,392) (118) 375 1,533
Provision for (benefit
from) Income taxes..... (450) (459) 1,109 137 49 68 59 71
------- ------- -------- ------- ------- ------- ------- -------
Net income (loss)....... $(1,220) $(1,245) $(14,799) $(5,103) $(2,441) $ (186) $ 316 $ 1,462
======= ======= ======== ======= ======= ======= ======= =======
Net income (loss) per
share:
Basic................. $ (.09) $ (.09) $ (1.00) $ (.33) $ (.16) $ (.01) $ .02 $ .09
Diluted............... $ (.09) $ (.09) $ (1.00) $ (.33) $ (.16) $ (.01) $ .02 $ .08
Shares used in computing
Net income (loss) per
share:
Basic................. 14,254 14,474 14,839 15,315 15,423 15,601 15,887 16,055
Diluted............... 14,254 14,474 14,839 15,315 15,423 15,601 17,191 17,552
</TABLE>
151
<PAGE>
Three And Six Month Periods Ended June 30, 2000 And 1999
Net Sales. Net sales for the second quarter of 2000 increased 108% to $50.1
million from $24.1 million for the same quarter last year. The increase in
quarterly sales reflects a 136% increase in unit sales for the second quarter
of 2000 compared to the second quarter of 1999. This increase was partially
offset by a different product mix and a resulting per unit average sales price
for products sold during the second quarter of 2000 as compared to the same
quarter last year.
Second quarter bookings were $65.7 million, an increase of 122% compared to
bookings of $29.6 million in the second quarter of 1999, resulting in a book to
bill ratio of 1.3 to 1.0 for the second quarter of 2000. Backlog increased by
$51.5 million to $86.5 million in the second quarter 2000 from $35 million in
the second quarter of 1999.
International sales, which are predominantly to customers based in Japan and
the Pacific Rim (which includes Taiwan, Singapore and Korea), accounted for 66%
and 70% of net sales for the second quarter of 2000 and 1999, respectively. In
1999, Mattson shifted its strategy in Japan to a direct sales model, and it
completed this transition during the second quarter of 2000. Mattson
anticipates that international sales will continue to account for a significant
portion of total net sales for 2000.
Gross Margin. Mattson's gross margin for the second quarter of 2000
increased to 51% from 47% for the second quarter of 1999. This increase in
gross margins was due to fixed cost absorption over higher sales volume,
partially-offset by a different product mix sold during the second quarter of
2000 as compared to the same period last year.
Mattson's gross margin may continue to be affected by a variety of factors.
Although Mattson has not offered substantial discounts on its systems to date,
there can be no assurance that it will not experience pricing pressures in the
future. Mattson's gross margin on international sales is substantially the same
as domestic sales.
Research, Development and Engineering. Research, development and engineering
expenses for the second quarter of 2000 were $6.9 million, or 14% of net sales,
as compared to $4.5 million, or 19% of net sales, for the second quarter of
1999. The increase was primarily due to compensation and related benefits,
which increased to $3.1 million in the second quarter of 2000 from $2.1 million
in the second quarter of last year and engineering materials, which increased
to $1.7 million in the second quarter of 2000 from $0.7 million in the second
quarter of 1999. The increase in compensation and related benefits expense was
due to increased personnel required to support Mattson's anticipated growth.
The increase in engineering materials is due to ongoing and new product
development. The decrease in research, development and engineering materials as
a percentage of net sales during the second quarter of 2000 as compared to the
same period last year is due to higher sales during the second quarter of 2000.
Selling, General and Administrative. Selling, general and administrative
expenses for the second quarter of 2000 were $13.0 million, or 26% of net
sales, as compared to $7.1 million, or 29% of net sales, for the second quarter
of 1999. The increase was comprised primarily of $2.7 million in compensation
and related benefits, $1.9 million in professional fees, advertising and
promotion, and travel and entertainment. These increases in selling, general
and administrative expenses are the result of higher spending levels required
to support the increased sales activity incurred during the second quarter of
2000 over the previous year and the transition in Japan from a distributorship
to direct sales. The decrease in selling, general and administrative expenses
as a percentage of net sales during the second quarter of 2000 as compared to
the same period last year is due to higher net revenues.
Provision for Income Taxes. During the second quarter of 2000, Mattson
provided for taxes at an effective tax rate of 10%. The 2000 tax rate is less
than the federal statutory rate primarily as a result of the planned
utilization of net operating loss and credit carryforwards that would partially
offset the Company's tax liability.
Liquidity and Capital Resources
Mattson's cash and cash equivalents and short term investments were $125
million at June 25, 2000, an increase of $108 million from $17 million at
December 31, 1999. Mattson did not have an outstanding balance on its line of
152
<PAGE>
credit and had no long term debt at June 25, 2000. Stockholders' equity at June
25, 2000 was approximately $189 million.
Net cash used in operating activities was $12.9 million during the six
months ended June 25, 2000 as compared to $8.7 million during the same period
last year. The net cash used in operating activities during the six months
ended June 25, 2000 was primarily due to an increase in accounts receivable and
inventories of $19.9 million and $11.1 million, respectively. The increase in
accounts receivable and inventories was partially offset by Mattson's net
income of $10.5 million and depreciation and amortization expense of $2.7
million.
Net cash used in investing activities was $2.5 million during the six months
ended June 25, 2000 as compared to net cash provided by investing activities of
$7.3 million during the same period of 1999. The net cash used in investing
activities during the six months ended June 25, 2000 is attributable to the
purchase of property and equipment of $2.5 million. The net cash provided by
investing activities during the same period last year was attributable to the
sale of short term investments of $8.1 million offset by purchases of property
and equipment of $0.9 million.
Net cash provided by financing activities was $124 million during the six
months ended June 25, 2000 as compared to $0.7 million during the same period
last year. The net cash provided by financing activities during the six months
ended June 25, 2000 is primarily attributable to the completion of Mattson's
follow-on public offering of 3,000,000 shares of common stock on March 8, 2000.
The public offering price was $42.50 per share before offering costs. This
increase was offset by a $3.0 million repayment against Mattson's line of
credit.
Mattson's Board of Directors authorized the repurchase by Mattson, through
the year 2000, of up to 1,000,000 shares of its Common Stock in the open market
from time to time. As of June 25, 2000, 274,800 of such shares have been
repurchased. Mattson does not intend to repurchase any additional shares of its
stock under this repurchase program.
During 1999 Mattson entered into a one-year revolving line of credit with a
bank in the amount of $15.0 million. This line of credit expired in July 2000.
All borrowings under this line of credit bore interest at a per annum rate
equal to the lender's prime rate, which was 9.75% at June 25, 2000. Mattson
borrowed $3.0 million under this line of credit during the third quarter of
1999 and repaid the balance in full during the first quarter of 2000. The line
of credit required Mattson to maintain certain financial covenants, including a
minimum quick ratio and minimum tangible net worth. Mattson was in compliance
with all of its financial covenants at June 25, 2000.
On March 8, 2000 Mattson completed its public offering of 3,000,000 shares
of our common stock. The public offering price was $42.50 per share. On March
16, 2000, the underwriters exercised a right to purchase an additional 90,000
shares to cover over-allotments. Mattson expects to use the net proceeds for
general corporate purposes, principally working capital and capital
expenditures. Mattson currently anticipates that the net proceeds from the
offering discussed above, together with its current cash, cash equivalents and
available credit facilities, will be sufficient to meet its anticipated cash
needs for working capital and capital expenditures for at least the next 12
months. However, Mattson may need to raise additional funds in future periods
through public or private financings, or other sources, to fund its operations
and any potential acquisitions. Mattson may not be able to obtain adequate or
favorable financing when needed. Failure to raise capital when needed could
harm Mattson's business. If Mattson raises additional funds through the
issuance of equity securities, the percentage ownership of its stockholders
will be reduced. Furthermore, these equity securities may have rights,
preferences or privileges senior to Mattson's common stock.
As of December 31, 1999, Mattson had no short term investments and thus no
exposure to changes in market values for investments.
Mattson has international facilities and is, therefore, subject to foreign
currency exposure. The local currency is the functional currency for all
foreign sales operations except those in Japan, where the U.S. dollar
153
<PAGE>
is the functional currency. To date, Mattson's exposure related to exchange
rate volatility has not been significant. Due to the short term nature of
Mattson's investments, Mattson does not believe that it has a material risk
exposure with respect to financial instruments.
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." SFAS 133 establishes new standards of accounting and
reporting for derivative instruments and hedging activities. SFAS 133 requires
that all derivatives be recognized at fair value in the statement of financial
position, and that the corresponding gains or losses be reported either in the
statement of operations or as a component of comprehensive income, depending on
the type of hedging relationship that exists. SFAS 133 is effective for fiscal
years beginning after June 15, 2000 and cannot be applied retroactively. The
effect of SFAS 133 is not expected to be material to Mattson's financial
statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements. SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. Among other
things, SAB 101 would result in a change from the established practice in many
industries of recognizing revenue at the time of shipment of a system, and
instead delay revenue recognition until the time of installation or customer
acceptance. Because of the cyclical nature of the semiconductor equipment
industry and Mattson's dependence on a small number of comparatively large
sales, a change in revenue recognition practices could have a material affect
on revenue in any particular reporting period. Mattson is currently evaluating
the effect that such adoption may have on its consolidated results of
operations. Mattson will be required to adopt SAB 101 in the fourth quarter of
2000.
Quantitative And Qualitative Disclosures Regarding Market Risk
As of December 31, 1999 and June 25, 2000, Mattson had no short term
investments and thus no exposure to changes in market values for investments.
Mattson has international facilities and is, therefore, subject to foreign
currency exposure. The local currency is the functional currency for all
foreign sales operations except those in Japan, where the U.S. dollar is the
functional currency. To date, Mattson's exposure related to exchange rate
volatility has not been significant. Due to the short term nature of its
investments, Mattson does not believe that it has a material risk exposure with
respect to financial instruments.
154
<PAGE>
PRINCIPAL STOCKHOLDERS OF MATTSON
The following table sets forth certain information regarding the beneficial
ownership of Mattson's common stock as of October 4, 2000 by (i) each director,
director-nominee, and executive officer of Mattson; (ii) all current executive
officers and directors of Mattson as a group; and (iii) all persons known by
Mattson to own beneficially 5% or more of the outstanding shares or voting
power of Mattson's voting securities. The table is based upon information
supplied by directors, officers and principal stockholders. Unless otherwise
indicated, each of the listed persons has sole voting and sole investment power
with respect to the shares beneficially owned, subject to community property
laws where applicable.
<TABLE>
<CAPTION>
Shares
Beneficial Owner(1) Beneficially Owned Percentage
------------------- ------------------ ----------
<S> <C> <C>
Brad Mattson.................................... 3,701,192(2) 17.7%
Dimensional Fund Advisors Inc. ................. 830,400(3) 5.4%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
John C. Savage.................................. 35,500(4) *
Shigeru Nakayama................................ 24,792(5) *
Kenneth G. Smith................................ 43,125(6) *
Kenneth S. Kannappan............................ 7,250(7) *
Yasuhiko Morita................................. 58,895(8) *
David Dutton.................................... 50,045(9) *
Brian McDonald.................................. 22,293(10) *
Walter Kasianchuk(11)........................... -- *
Dr. Jochen Melchior............................. -- *
Dr. Hans-Georg Betz............................. -- *
James J. Kim.................................... -- *
All directors, director nominees, and executive
officers as a group (12 persons)............... 3,943,092(12) 18.9%
</TABLE>
--------
* Less than 1%
(1) Except as set forth herein the address of the directors and executive
officers set forth in the table is 2800 Bayview Drive, Fremont, California
94538.
(2) Includes 165,676 shares subject to options exercisable within 60 days of
October 4, 2000.
(3) According to a Schedule 13G filed February 3, 2000 by Dimensional Fund
Advisers Inc. ("Dimensional") with the Securities and Exchange Commission,
Dimensional may be deemed to beneficially own an aggregate of 830,400
shares of Mattson's common stock, has sole voting power with respect to
830,400 shares of Mattson's common stock and has sole dispositive power
over 830,400 shares of Mattson's common stock.
(4) Includes 35,500 shares subject to options exercisable within 60 days of
October 4, 2000.
(5) Includes 24,792 shares subject to options exercisable within 60 days of
October 4, 2000.
(6) Includes 43,125 shares subject to options exercisable within 60 days of
October 4, 2000.
(7) Includes 6,250 shares subject to options exercisable within 60 days of
October 4, 2000.
(8) Includes 58,541 shares subject to options exercisable within 60 days of
October 4, 2000.
(9) Includes 42,819 shares subject to options exercisable within 60 days of
October 4, 2000.
(10) Includes 20,312 shares subject to options exercisable within 60 days of
October 4, 2000.
(11) This individual is not an executive officer or director but is deemed to
be a significant employee who makes or is expected to make a significant
contribution to Mattson's business.
(12) Includes 397,015 shares subject to options exercisable within 60 days of
October 4, 2000.
155
<PAGE>
BUSINESS OF THE STEAG SEMICONDUCTOR DIVISION
General
Through its semiconductor equipment division, STEAG is one of the leading
suppliers of capital equipment for the global semiconductor industry. The
division is comprised of the following business units:
. Rapid thermal processing--STEAG RTP Systems
. Chemical vapor deposition--STEAG CVD Systems
. Automatic wet cleaning equipment--STEAG MicroTech
. Copper plating--STEAG CuTek
The STEAG Semiconductor Division's strategy has been to address the
stringent requirements associated with the manufacture of increasingly smaller,
faster and higher-performance semiconductors by offering a comprehensive
portfolio of integrated processing solutions.
The STEAG Semiconductor Division has manufacturing facilities in the United
States, Germany, and Israel and sells its products primarily through a direct
sales force and wholly-owned sales and service subsidiaries. In 2000, the STEAG
Semiconductor Division was ranked as one of the 10 best small suppliers of
wafer processing equipment by the VLSI Research Incorporated based on its
customer satisfaction survey. The STEAG Semiconductor Division consists of
eleven wholly owned subsidiaries of STEAG, which is a wholly owned subsidiary
of STEAG AG, based in Essen, Germany.
Products and Technology
Rapid Thermal Processing (RTP)
In March 1999, STEAG acquired AG Associates, Inc. and combined its
operations with the former AST Elektronik, which it acquired in 1996, to form
STEAG RTP Systems. AG Associates was the first company to introduce products
utilizing rapid thermal processing technology. The STEAG Semiconductor Division
is now the second largest supplier of RTP products in the world, with over
2,000 RTP tools delivered worldwide and has, STEAG believes, the largest number
of installed systems in the industry.
Traditionally, silicon wafers were thermally treated in large furnaces that
handled large batches at a time with heating cycles that would take several
hours. This process provides very limited process control and results in the
wafer experiencing a long thermal cycle (high thermal budget) which can cause
yield loss and the inability to perform next generation processes. Rapid
thermal processing is the process by which semiconductor wafers are heated to
extremely high temperatures in a very short period of time. The RTP systems
produced by STEAG RTP Systems heat silicon wafers to temperatures of over
1,000(degrees)C in just a few seconds (low thermal budget). This technology
enables the development of smaller, faster and more power-efficient chips that
are used in everything from computers to cell phones. The STEAG Semiconductor
Division's RTP systems have enabled its customers to overcome the limitations
of traditional thermal processing and to process today's complex devices by:
. Meeting thermal budget limitations. RTP permits the thermal processing of
advanced integrated circuits to be completed within their limited thermal
budgets. By heating and cooling a wafer more rapidly than a furnace, RTP
permits processing at higher temperatures for a shorter duration than a
furnace. This reduces thermal budget demands and improves performance
characteristics at approximately the same cost of ownership.
. Providing superior contamination control. The small size and ambient
purge capabilities of RTP processing chambers permit the removal of
unwanted gases from the wafer-processing environment, thereby reducing
the possibility of contamination. For the past several years, RTP has
been used
156
<PAGE>
extensively to heat wafers with metal layers that are sensitive to
residual oxygen. Such precise contamination control is impractical in a
batch furnace.
. Improving wafer process flow. RTP's single wafer technology is well
matched to the single wafer cassette processes used in modern wafer
fabrication facilities. Since most other integrated circuit process steps
are single wafer processes, RTP streamlines the process flow of wafers,
avoiding bottlenecks in production, and enables users to reduce work-in-
progress.
. Reducing cost of processing errors. RTP's single wafer processing
technology has dramatically reduced the cost of processing errors. In the
event of a malfunction, self-tests and interlock mechanisms shut down the
processing equipment, generally limiting losses to one or two wafers. The
reduced wafer loss also enables cost-efficient testing of new
technologies.
With over 12 years experience in the RTP industry, STEAG RTP Systems is
recognized for its significant contributions to RTP technology development. Its
products include the following:
. The 2800 RTP system is the STEAG Semiconductor Division's workhorse for
mainstream applications. Over 500 have been installed worldwide.
Applications include silicide/barrier formation, BPSG reflow and
densification, shallow junction formation, thin gate dielectrics, thermal
donor annihilation and multilayer annealing.
. The 2800cs RTP system, which is based on the 2800 platform, is designed
for the high volume production of compound semiconductor devices.
Applications include contact alloying and implant anneal.
. The 8800 RTP system is a workhorse RTP tool developed specifically to
address 0.25 micron process requirements. This advanced 200 mm single
wafer RTP tool incorporates a number of proprietary design features that
dramatically improve temperature uniformity and repeatability, while
significantly improving throughput.
. The 2900 RTP system addresses 0.25-0.13 micron RTP applications at, what
STEAG believes to be, the best cost of ownership in the industry. It
incorporates the advanced capabilities of the 3000 RTP tool and the field
proven capabilities of the 2800 and 8800 systems. Applications include
silicide/barrier formation, BPSG reflow and densification, thin gate
dielectrics, thermal donor annihilation and multilayer annealing.
. The 3000 RTP system is the advanced generation RTP tool available with
dual side heating to minimize pattern induced thermal non-uniformity and
to achieve fast ramp rates of up to 250(degrees)C per second. The 3000
RTP system can be configured for both 200 mm and 300 mm wafers and its
applications include ultra-shallow junction formation, implant annealing,
cobalt silicide formation and oxinitride formation.
. The STEAMpulse(TM) was developed in anticipation of the need for thinner
gate oxides, delivering superior control of oxide thickness and quality
for sub 0.25 micron steam-based applications. STEAG believes it is the
industry's first RTP system that offers catalytic processing capability
to deliver a full range of high-quality thin and thick oxide films, as
well as low temperature metal annealing.
. The 3000 Steam is an advanced 200 mm and 300 mm RTP system with pyrogenic
H2- and 02- rich steam capabilities for shallow trench isolation (STI)
and selective oxidation applications. The 3000 Steam's unique steam-based
pyrogenic capability grows thin oxide layers at low temperatures and
offers superior edge rounding and step coverage without sacrificing
uniformity, repeatability, throughput or quality.
In addition to its advances in RTP technology, STEAG RTP Systems is well
prepared for the industry transition to 300 mm wafers. Its 3000 RTP system,
which is compatible for 200 mm and 300 mm wafers, puts the STEAG Semiconductor
Division on the leading edge of modern wafer processing technology as the
industry converts from 200 mm to 300 mm technology. The 3000 RTP system can
handle both straight 200/300
157
<PAGE>
mm and combined 200 mm and 300 mm wafers and contains an excellent temperature
control system. STEAG believes the 3000 RTP system has the fastest ramp rate in
the industry and is the only RTP tool with two-sided heating. Several RTP
systems for processing of the next generation 300 mm wafers have been shipped
to customers, including Semiconductor 300, a joint venture of Infineon and
Motorola, in Dresden, Germany.
Chemical Vapor Deposition (CVD)
STEAG acquired AG Associates (Israel) Ltd. at the beginning of 1999, and
subsequently changed the name of the company to STEAG CVD Systems. The company
is a supplier of integrated RTP-based chemical vapor deposition (CVD) systems
("RTCVD" systems) for semiconductor production. CVD is the process by which
dielectric and conducting films are deposited on wafers. These films are the
basic material used to form the resistors, capacitators and transistors of an
integrated circuit. These films are also used to form the wiring and insulation
between these electrical components.
STEAG CVD Systems designs and manufactures the IntegraPro(TM), an advanced
cluster tool with application-specific configuration of processing modules for
pilot line and production applications. This single wafer thermal CVD tool
offers significant feature advantages over conventional batch and mini-batch
technologies such as clean ambient between critical deposition steps and low
defect density, precise heating and deposition control, and a flexible platform
to configure the tool to meet the optimal processing requirements. Processing
capabilities include CVD using precision RTP heating for stack gate and
capacitor applications, and vapor phase-dry clean technology for effective in-
situ wafer surface preparation.
Its unique processing capabilities, including the precision control of an
RTP-based CVD system, ultra high vacuum capability and clustered dry clean
capability, distinguish the IntegraPro(TM) system from the performance
limitations of conventional CVD technologies that dominate production fabs
today.
. Utilizing STEAG CVD Systems' Selective HSG technology, the IntegraPro(TM)
system provides advanced dynamic random access memory integrated circuit
(DRAM) processing capability and dramatically increases capacitance over
conventional bottom electrode technologies. By seeding the surface with a
high density of silicon nuclei then quickly ramping to a higher annealing
temperature optimized for the HSG grain morphology, STEAG believes that
the IntegraPro(TM) is the first tool to offer the advantages of precise
RTP heating in conjunction with the vapor phase cleaning module. Grain
density and shape is optimized for a guaranteed area enhancement factor
of 2.2X over conventional technology.
. At device generations of 0.13mm and below, incorporation of new materials
in the transistor stack is one of the challenges chip makers currently
face. The transistor performance is limited by both the new material
integration and the desired low leakage performance. IntegraPro(TM),
because of the vacuum cluster capability, has demonstrated superior
interfaces and higher quality dielectric deposition which results in
excellent transistor circuit performance.
. For advanced logic applications in the 0.13 / 0.10mm device generations,
STEAG CVD Systems developed the CVD nitride film with the lowest leakage
current for 1.5nm equivalent oxide thickness (EOT) film. This CVD nitride
is processed in an integrated configuration for advanced gate stack
applications. Development has been initiated on high dielectric constant
(high K) materials for 0.7nm EOT applications.
With its processing capabilities, flexible platform and Modular Equipment
Standards Committee (MESC) compatible architecture, the IntegraPro(TM) also
offers the flexibility for an R&D effort to explore new transistor and cell
architectures.
Wet Cleaning Systems
Acquired by STEAG in 1991, STEAG MicroTech successfully managed the
transition to become a leading supplier of advanced surface preparation
equipment and is a respected developer of innovative cleaning and drying
solutions for the semiconductor industry. Based on a patent licensed from
Koninklijke Philips
158
<PAGE>
Electronics N.V., STEAG believes that STEAG MicroTech was the first equipment
supplier to introduce real surface tension gradient drying technology, often
referred to as MARANGONI(R) drying to the market. Today, this drying method is
recognized as the key enabling technology for the manufacture of high
performance semiconductor devices.
By establishing a broad product portfolio covering all key applications and
processes in semiconductor wet processing today, STEAG MicroTech has succeeded
in positioning itself among the leading equipment suppliers in this particular
market segment.
STEAG MicroTech's product offerings include traditional multi-bath wet
benches, advanced single-bath processing systems and combinations thereof (so
called "Hybrids"), and drying systems. The drying systems are sold to end users
and to major competitors as original equipment manufacturer (OEM) modules. In
addition, most advanced single wafer cleaning technology is in an early stage
of the product cycle. Wet bench, single-bath and Hybrid systems are also
available for the new 300mm wafer generation and have proven their production
viability at Semiconductor 300 in Dresden, Germany, from whom STEAG MicroTech
received a "TopSupplier" award. Apart form these more standardized systems,
STEAG MicroTech also excels in making custom designed equipment for special wet
deposition, cleaning, and etching applications.
STEAG MicroTech's products include:
. The AWP-Gen III 200 wet bench, a high performance work horse of the
industry with high throughput and a large installed base. Its
applications cover all typical critical and non-critical front end
cleaning, etching and stripping applications, such as pre-deposition and
pre-diffusion cleans, polymer removal and nitride etch. In addition,
special new processes are available to address the necessity for reduced
CoO, such as processes using diluted chemistries and ozone instead of
expensive concentrated chemicals.
. Poseidon STT(R), the STEAG Semiconductor Division's the most advanced
single-bath processing technology, provides the lowest CoO based on an
innovative and proprietary tank design with the industry's smallest bath
volume. It also features an integrated MEGAsonic cleaning support and the
option to flexibly reuse or discard the diluted processing chemicals.
This product is available for 200 mm and 300 mm wafer sizes.
. STEAG MicroTech's "Double-Tank-Technology" (DTT) overcomes the natural
throughput restrictions of the Poseidon STT(R) single-bath processing
approach and provides a high throughput, maximum flexibility
manufacturing tool. This product line, introduced in 1999, addresses the
requirements of today's most advanced semiconductor volume manufacturers
for efficiency and performance.
. The AWP 300 mm is designed to service the full scope of 300 mm production
requirements without sacrificing high performance, reliability and
maintainability. During the past two years, it has proven it's viability
in a real production environment at Semiconductor 300, the first 300 mm
wafer pilot line.
. The Hybrid 300 is based on wet bench and single-bath technology. The
Hybrid 300 combines the benefits of conventional AWP and the single-bath
tank technology of the Poseidon STT(R), i.e. high throughput, a small
footprint, maximum process flexibility and minimized CoO. It covers the
entire front-end application range as described above.
. A 200 mm single wafer cleaning system has been developed and is under
beta-evaluation at a customer site. This system is equipped with fully
modular cleaning and drying units, providing maximized flexibility and
employing highly innovative cleaning technology as well as STEAG
MicroTech's exclusive MARANGONI(R) drying technology.
. The proprietary MARANGONI(R) dryer developed by STEAG MicroTech based on
a Koninklijke Philips Electronics N.V. patent has become the industry
standard for advanced substrate drying. This product provides a particle
neutral and watermark free drying process combined with minimized media
consumption. MARANGONI(R) dryers are available for various substrate
sizes up to 300 mm and are sold in the STEAG Semiconductor Division's own
products, as stand-alone systems to end users, and as OEM-modules to
competitors.
159
<PAGE>
Concurrently with the execution of the Combination Agreement, STEAG entered
into a license agreement with CFM and CFMT, Inc. which allows the STEAG
Semiconductor Division to market and sell its MARANGONI(R) dryer in the United
States, both as a stand-alone product and as a component of wet bench systems.
Copper Plating
STEAG CuTek, which was acquired by STEAG in February 2000, provides advanced
solutions for interconnect technology applications through metal plating. The
interconnect is a complex matrix of microscopic wires that carry electrical
signals to connect the transistor and capacitor components of an integrated
circuit. STEAG CuTek's ElectroDep 2000(R) system, available in 200 mm and 300
mm configurations, offers unique plating technology, excellent gap filling
capability, process and chemical stability, and the flexibility of a cluster
tool. Its advanced, patented anode technology enables face-up wafer processing.
STEAG believes the ElectroDep 2000(R) is the first cluster-based manufacturing
system for copper electroplating in the industry. This unique system design
simplifies operation by using an insoluble anode electrolyte cell and standard
cluster tool process modules. Dry-wafers-in and dry-wafers-out capability is
delivered from a single process module. The ElectroDep 2000(R) will be utilized
by semiconductor manufacturers to deposit copper and fill trenches and via
holes down to 0.10 micron. While specializing in damascene and copper
application, ElectroDep 2000(R) has also proven successful for other metal
depositions in the backend area.
Copper is replacing aluminum as interconnect material in advanced generation
integrated circuits, because copper offers lower resistivity and increased
electromigration resistance compared to aluminum. As the density of transistors
per chip increases, so does the number of metal layers. This drives the
transition to new process flows such as damascene and to electroplating
processes for copper deposition. The introduction of copper in IC processing is
a new cornerstone and STEAG CuTek's plating capability stands to play a vital
role in the years to come both as a standalone plating tool as well as a
cluster tool that is capable of delivering superior performance beyond 0.1mm
feature sizes. STEAG CuTek continues to pursue advanced development in related
areas such as electropolishing, passivation, and anneal in order for it to be
able to deliver other associated processes in overall damascene flow in
addition to the basic plating technology.
Customers
The STEAG Semiconductor Division's customers include the top semiconductor
manufacturers worldwide. Sales to the STEAG Semiconductor Division's top three
customers accounted for approximately 24% of net sales in fiscal 1999; no
single customer accounted for more than 10% of net sales. In 1998, sales to one
customer accounted for approximately 13% of net sales while the top three
customers accounted for approximately 29% of net sales.
Sales and Support
The STEAG Semiconductor Division markets its products worldwide primarily
through in-house sales personnel, complemented by independent sales
representatives. In Japan, the STEAG Semiconductor Division has a relationship
with an independent distributor, primarily for RTP sales and service, in
addition to its own sales and service subsidiary. The STEAG Semiconductor
Division and its independent sales representatives and distributor have sales
and support centers located in the United States, Germany, Japan, Korea,
Taiwan, Singapore, United Kingdom, France and Israel. When a higher level of
technical expertise is needed, the sales effort is supported by product
marketing managers and process engineers who work closely with customers and
potential customers to find solutions to their current and future processing
challenges. The STEAG Semiconductor Division's distributor in Japan provides
essential pre- and post-sale support for his products and accounts for a
significant percentage of sales worldwide. Certain STEAG Semiconductor
Subsidiaries have volume purchase agreements with large domestic customers. In
addition, many customer sales are made using purchase orders.
160
<PAGE>
Suppliers
Certain components and subassemblies included in the products manufactured
by the STEAG Semiconductor Division are obtained from a single source or a
limited group of suppliers and subcontractors in order to assure overall
quality and timeliness of delivery. The STEAG Semiconductor Division's reliance
on a sole or a limited group of suppliers involves several risks, including a
potential inability to obtain adequate supplies of certain components and
reduced control over pricing and timely delivery of components. Although the
timeliness, quality and pricing of deliveries to date from suppliers have been
acceptable and STEAG believes that additional sources of supply will be
available to the STEAG Semiconductor Division should one or more of the STEAG
Semiconductor Division's suppliers be unable to meet its needs, supplies may
not continue to be available on an acceptable basis. Inability to obtain
adequate supplies of components or to manufacture such components internally
could delay the ability of the STEAG Semiconductor Division to ship its
products, which could result in the loss of customers that may seek alternative
sources of supply.
The STEAG Semiconductor Division purchases certain subassemblies from STEAG
Electronic Systems spol. s r.o., Slovakia, a wholly owned subsidiary of STEAG
that is not included in the STEAG Semiconductor Subsidiaries. The current
supply arrangements are based on agreed hourly rates for assembly operations
performed.
Competition
The global semiconductor capital equipment industry is highly competitive
and characterized by rapid technological change, product obsolescence and
increased competition in many markets. The STEAG Semiconductor Division
competes with several major domestic and international companies in supplying a
complete line of RTP, wet-process, CVD and electroplating tools.
Competition in a given technology is based on factors including
technological innovation, productivity, and total cost of the systems. A
system's total cost is based on factors such as yield, price, product
performance and throughput capability, quality, contamination control,
reliability and customer support. STEAG believes that the STEAG Semiconductor
Division maintains a competitive position in each of its markets through its
ability to develop new products to meet customer requirements and continuously
improve its existing products, processes and services.
Applied Materials, Inc. ("Applied Materials"), the world's largest
manufacturer of semiconductor manufacturing equipment located in the United
States, holds the number one position in the RTP segment of the thermal
processing market. Other manufacturers have also announced their intention to
enter the RTP market. The STEAG Semiconductor Division also competes with
manufacturers of batch diffusion furnaces for application of their differing
technologies in various steps of the integrated circuit fabrication process.
Principal competitors in the market for wet cleaning systems include Tokyo
Electron Ltd., the world's second largest manufacturer of semiconductor
manufacturing equipment, Dainippon Screen Mfg. Co., Ltd., S.E.S. Co., Ltd,
Kaijo Corporation, all located in Japan, and SCP Global Technologies located in
the United States.
In copper plating, principal competitors include Applied Materials, Novellus
Systems, Inc., and Semitool, Inc. Principal competitors for the STEAG
Semiconductor Division's RTCVD equipment include Applied Materials, Tokyo
Electron, ASM International N.V., and Jusung Engineering Co. Ltd.
STEAG believes that the STEAG Semiconductor Division's continued competitive
performance depends on its ability to successfully develop and introduce new
products, features and processes meeting future customer requirements and to
continuously improve existing products, processes and services. Broadening
process capability and flexibility, reducing the overall cost of ownership and
protecting its proprietary technology will also play an important role in its
ability to compete.
161
<PAGE>
Intellectual Property
The STEAG Semiconductor Division relies on a combination of patent,
copyright, trademark and trade secret laws, non-disclosure agreements and other
intellectual property protection methods to protect its proprietary technology.
STEAG believes that the duration of the STEAG Semiconductor Division's patents
generally exceeds the life cycles of the technologies disclosed and claimed
therein. Though the STEAG Semiconductor Division has additional patent
applications pending in various foreign countries, no patents may result from
these applications. The STEAG Semiconductor Division restricts access to its
technology and enters into confidentiality agreements with its employees and
consultants.
Currently, the STEAG Semiconductor Subsidiaries own more than 60 inventions
protected by patents. Patent applications for more than 90 additional
inventions are currently pending and under examination in various countries. It
is the STEAG Semiconductor Division's policy to protect its enabling technology
by seeking patent protection in the countries where the STEAG Semiconductor
Division's R&D centers and production sites are located as well as in its major
markets, such as the United States, Europe, Taiwan, Singapore, Japan and Korea.
Accordingly, most of its patent applications are filed in more than one
country, and the STEAG Semiconductor Subsidiaries have patents and pending
patent applications in at least 13 countries. The STEAG Semiconductor Division
routinely monitors the works of its engineers and has implemented procedures
designed to assure that applications for patents to protect its intellectual
property are filed as early as possible. In addition, the STEAG Semiconductor
Division also screens the patents and patent applications of certain
competitors to ensure that its products do not infringe the intellectual
property rights of third parties.
Patents and other means of intellectual property protection, including
confidentiality agreements and applicable trade secret laws, may not provide
adequate protection for the STEAG Semiconductor Division's intellectual
property rights. Further, it is possible that others will develop, copyright or
patent similar technology or reverse engineer its products. In addition, the
laws of certain territories in which the STEAG Semiconductor Division's
products are or may be developed, manufactured or sold, including Asia and
Europe, may not protect its products and intellectual property rights to the
same extent as the laws of the United States. While the STEAG Semiconductor
Division intends to continue to seek patent, copyright, trademark and trade
secret protection for its products and manufacturing technology where
appropriate, it believes that its success depends more on the technical
expertise and innovative abilities of its personnel, rather than the
protections that these laws can provide.
There can be no assurance that other third parties will not assert claims
against STEAG Semiconductor Subsidiaries with respect to existing or future
products or technologies or that, in case of a dispute, licenses will be
available on commercially reasonable terms, or at all, with respect to disputed
third-party technology.
Litigation
In April 1997, Applied Materials initiated lawsuits against both AST
Elektronik USA, Inc. (which was merged into STEAG Electronic Systems, Inc.) and
AST Elektronik GmbH (now STEAG RTP Systems GmbH), which were then subsidiaries
of STEAG, and AG Associates, Inc. (now STEAG RTP Systems, Inc.), which was
subsequently acquired by STEAG in 1999, alleging infringement of certain
patents concerning rapid thermal processing. The companies filed counterclaims
and, in August 1998, AG Associates filed two lawsuits against Applied Materials
alleging that Applied Materials was infringing certain RTP patents. In February
1999, Applied Materials and AST reached a settlement of the litigation between
them, which settlement included cross-licenses of certain technology and a
covenant by Applied Materials not to sue AST subject to certain conditions. In
December 1999, Applied Materials and AG Associates mutually agreed to dismiss
their respective lawsuits against each other. As a result of Mattson's
acquisition of STEAG RTP and its resulting increased market strength and higher
profile in RTP, Applied Materials may again assert the same patent infringement
claims against Mattson.
On July 10, 1995, CFM filed an action against a STEAG subsidiary, STEAG
Electronic Systems, Inc. ("SES") in the United States District Court for the
District of Delaware alleging infringement, inducement of
162
<PAGE>
infringement, and contributory infringement of U.S. Patent No. 4,911,761 (the
"761 patent"). CFM sought damages and a permanent injunction to prevent further
infringement. SES denied infringement and asserted, among other things, that
the "761 patent is invalid and unenforceable. On December 12, 1997, following a
two-week trial, the jury returned a verdict that SES willfully infringed the
"761 patent and that the patent was not invalid. The jury awarded CFM damages
of $3,105,000. The District Court subsequently upheld the jury's verdict and
entered final judgment and a permanent injunction in CFM's favor. SES appealed
the verdict and various rulings by the District Court to the Court of Appeals
for the Federal Circuit. On May 13, 1999, the Appeals Court vacated the
judgment solely with regard to infringement and remanded the case to the
District Court for reconsideration of its holding of literal infringement; the
Appeals Court affirmed the District Court judgment in all other respects. On
November 8, 1999 the District Court issued an opinion that upheld the finding
of literal infringement and reinstated the judgment and injunction in favor of
CFM. SES subsequently filed an appeal of this November 8, 1999 decision.
Concurrently with the execution of the Combination Agreement and the Merger
Agreement, STEAG and CFM entered into a settlement agreement pursuant to which
SES withdrew its appeal of the District Court judgment that it infringed the
"761 patent, and confirmed the District Court's judgment that the patent is
valid and enforceable, and CFM waived all damages. STEAG also has taken action
to cause nullification proceedings against CFM's drying patent rights in
Germany, France, Netherlands, Ireland and Japan to be withdrawn. At the same
time, CFM, CFMT, Inc. and STEAG entered into a licensing agreement with respect
to the "761 patent and related patent rights pursuant to which CFM licenses the
"761 patent and such other patent rights to the STEAG Semiconductor Division
worldwide.
Employees
As of June 30, 2000, the STEAG Semiconductor Division employed 1,123 full-
time employees. There were 319 employees in manufacturing operations, 330 in
research, development and engineering, 57 in sales and marketing, 261 in
customer service and field support and 156 in general administrative and
finance functions.
Properties
The STEAG Semiconductor Division's main manufacturing facilities are located
in Dornstadt, Pliezhausen and Donaueschingen, Germany, San Jose, California and
Migdal Ha'Emek, Israel. STEAG Semiconductor Subsidiaries also lease properties
with regard to foreign sales and service operations in Scotland, Singapore,
Korea, Taiwan, Japan, and France.
163
<PAGE>
STEAG SEMICONDUCTOR DIVISION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results
of operations of the STEAG Semiconductor Division should be read in conjunction
with "STEAG Semiconductor Division Selected Historical Financial Information"
and the STEAG Semiconductor Division's combined financial statements and
related notes included elsewhere in this proxy statement/prospectus. In
addition to historical information, the discussion in this proxy
statement/prospectus contains certain forward-looking statements that involve
risks and uncertainties. The STEAG Semiconductor Division's actual results
could differ materially from those anticipated by these forward-looking
statements due to various factors, including but not limited to, those set
forth under "Risk Factors" and elsewhere in this proxy statement/prospectus.
Overview
The STEAG Semiconductor Division develops, manufactures, markets and
supports fabrication equipment for the worldwide semiconductor and wafer
manufacturing industry. Its products include advanced rapid thermal processing
(RTP), chemical vapor deposition (CVD), automatic wet cleaning and copper
plating equipment used in the manufacture of integrated circuits. The STEAG
Semiconductor Division has manufacturing facilities in the United States,
Germany, and Israel and sells its products primarily through a direct sales
force and wholly-owned sales and service subsidiaries.
In 1998 and 1999, nearly all revenues of the STEAG Semiconductor Division
were derived from the wet cleaning and RTP businesses. The CVD business unit,
acquired in early 1999, did not significantly contribute to revenue during that
fiscal year, as it was still introducing its advanced tools to the market.
Compared with 1998, the RTP business unit increased its share of total sales in
fiscal 1999, primarily as a result of the acquisition of STEAG RTP Systems,
Inc.
At the beginning of 1999, STEAG purchased 100% of each of STEAG RTP Systems,
Inc. and STEAG CVD Systems Ltd. for $35.2 million and $22.8 million,
respectively. The acquisitions were accounted for using the purchase method.
The purchase price was allocated to assets and liabilities based on their
respective estimated fair values at the time of the respective acquisitions. In
each case, the excess of the purchase price over the net tangible and
intangible assets acquired and liabilities assumed was allocated to goodwill.
The results of operations and the assets and liabilities of each entity were
combined in the STEAG Semiconductor Division's financial statements from the
date the respective acquisitions became effective. The combination resulted in
an increase in goodwill of $37.1 million for the two companies. Goodwill is
amortized on a straight line basis over five years.
The STEAG Semiconductor Division recorded an unusual charge of $12.4 million
in 1999 for various charges incurred by STEAG RTP Systems, Inc., consisting of
$5.2 million for costs associated with the discontinuance of Starfire(R)
machines; $2.8 million for costs associated with the write-off of fixed assets
used for the production of Starfire(R) machines; $1.7 million for Starfire(R)
inventory write-offs; $1.9 million for stay bonuses as compensation for the
cancellation of employee stock option plans as a result of the acquisition of
STEAG RTP Systems, Inc., and $0.8 million for other costs, relating primarily
to lay-offs and management severance packages.
On December 12, 1997, a jury in Delaware district court found that STEAG
Electronic Systems, Inc. ("SES"), a STEAG Semiconductor Subsidiary, had
willfully infringed upon a patent held by CFM and awarded CFM damages of $3.1
million. In June 1998, the district court upheld the jury's verdict and entered
a final judgement and a permanent injunction in CFM's favor. Concurrently with
the execution of the Combination Agreement and the Merger Agreement, STEAG, SES
and CFM entered into a settlement agreement pursuant to which SES withdrew its
appeal before the Federal Circuit Court of Appeals, and confirmed the Delaware
district court's judgment. At the same time, CFM, CFMT, Inc. and STEAG entered
164
<PAGE>
into a licensing agreement with respect to U.S. Patent No. 4,911,761 and
related patent rights pursuant to which CFM licenses such patent rights to the
STEAG Semiconductor Division worldwide.
As a result of the settlement and licensing agreements with CFM, the STEAG
Semiconductor Division will be able to sell MARANGONI(R) dryers in the United
States which will impact its domestic sales. As customers upgrade their
fabrication equipment and expand their operations, they prefer to acquire
equipment that is compatible with their systems on a worldwide basis.
Consequently, the STEAG Semiconductor Division's ability to sell MARANGONI(R)
dryers into the U.S. market will improve its ability to sell to those same
customers in the international market as well. Pursuant to the licensing
agreement and subject to adjustment under certain circumstances, CFM is
entitled to royalty payments on sales of stand alone dryers and wet cleaning
equipment by the STEAG Semiconductor Division in the United States.
Domestic (U.S.) sales accounted for approximately 25% of total net sales for
1999 and approximately 41% of total net sales in 1998. STEAG anticipates that
domestic sales will increase, primarily due to the settlement and licensing
agreements with CFM which are expected to result in a significant increase in
sales of wet cleaning equipment. Sales to customers based in Taiwan, Singapore,
Japan, and Korea represented 41% and 24% of total net sales in 1999 and 1998,
respectively. European sales accounted for 27% of total net sales in 1999, down
from 32% in 1998. STEAG anticipates that international (non-U.S.) sales will
continue to account for a significant portion of sales, primarily due to orders
from customers in Asia and Europe.
The STEAG Semiconductor Division participates in a dynamic, technology-
driven industry and STEAG believes that changes in any of the following areas
could have a material adverse effect on the STEAG Semiconductor Division's
future financial position or results of operations:
Rapid Technological Change and Development Risks. The STEAG Semiconductor
Division derives substantially all of its revenue from a relatively small line
of products. The semiconductor industry is subject to rapid technological
change, and the STEAG Semiconductor Division and its competitors continuously
seek to introduce new products that provide improved process results and
manufacturing performance at prices acceptable to customers. There can be no
assurance that the STEAG Semiconductor Division can develop new products more
quickly than its competitors or that its products will have better
price/performance characteristics than competitors' products. The failure of
the STEAG Semiconductor Division to timely develop new products, the failure of
new products to meet customer expectations regarding performance and cost or
the failure of new products to achieve market acceptance following product
introduction would each have a material adverse effect on the STEAG
Semiconductor Division's business, results of operations and financial
condition of the STEAG Semiconductor Division.
Semiconductor Industry Volatility. The semiconductor industry has
historically been cyclical and subject to unexpected periodic downturns
associated with sudden changes in supply and demand. During fiscal 1998, the
STEAG Semiconductor Division's business, financial condition and operating
results were adversely impacted by a sudden downturn in the semiconductor
equipment industry caused, in part, by economic instability in Asia. This
recession had an adverse effect on the volume of the STEAG Semiconductor
Division's orders. The industry began to recover and improve towards the end of
1998 and through 1999 during which time the STEAG Semiconductor Division's
orders have steadily increased. STEAG cannot predict future industry cycles or
their effect on the market.
Foreign Operations. The STEAG Semiconductor Division's foreign operations
are subject to certain risks common to international operations, such as
government regulations, import restrictions, currency exchange rate
fluctuations, repatriation restrictions and, in certain jurisdictions, reduced
protection for copyrights and trademarks and economic volatility. Gains and
losses from foreign currency exchange transactions in 1999 and 1998 were not
material. Germany, the location of STEAG's international headquarters, is one
of the European countries that participate in the use of the Euro. This new
currency unit has been available since January 1, 1999 and was adopted by
Germany as a second legal currency in addition to the German Mark. The Euro
will become the sole currency in 2002. The exchange rate of the German Mark
(DM)
165
<PAGE>
to the Euro has been permanently fixed at 1 Euro to 1.95583 DM by the European
Economic and Monetary Union. While STEAG does not expect an adverse effect on
the business of the STEAG Semiconductor Division as a result of the
introduction of the Euro, the transition to the Euro will require availability
of reliable software for accounting, payroll and other internal functions.
Competition. The ability of the STEAG Semiconductor Division to compete
depends upon its ability to successfully develop and introduce new products,
features and processes that meet future customer requirements such as
broadening process capability and flexibility and reducing cost of ownership.
In addition, the STEAG Semiconductor Division needs to continuously improve
existing products, processes and services in order to remain competitive. The
STEAG Semiconductor Division's competitors, many of whom have substantially
greater resources than the STEAG Semiconductor Division, also seek to compete
in these areas. In addition, STEAG expects to see increased competition from
batch furnace vendors as those companies increase functionality available in
such machines. Some competitors, such as Applied Materials, have made
significant gains in the STEAG Semiconductor Division's markets by offering
certain functionality that the STEAG Semiconductor Division was not previously
able to provide with its products, allowing such competitors to capture
significant customers. There are also larger foreign and domestic companies
that possess the technical resources to enter segments of the semiconductor
equipment market the STEAG Semiconductor Division serves.
Potential Fluctuations in Operating Results. The STEAG Semiconductor
Division's operating results are subject to quarterly and other fluctuations
due to a variety of factors, including the volume and timing of orders
received, potential cancellation or rescheduling of orders, and competitive
pricing pressures. In addition, operating results are subject to the STEAG
Semiconductor Division's ability to manage costs during periods of low or
negative earnings growth, the availability and cost of component parts and
materials from the STEAG Semiconductor Division's suppliers, the adequate
forecasting of the mix of product demand due to production lead times and
capacity constraints, the timing of new product introductions by the STEAG
Semiconductor Division or its competitors, changes in the mix of products sold,
research and development expenses associated with new product introductions,
the timing and level of development costs, market acceptance of new or enhanced
versions of the STEAG Semiconductor Division's products, seasonal customer
demand, the cyclical nature of the semiconductor industry, the impact of the
STEAG Semiconductor Division's efforts to implement its evolving long-term
strategy, the uncertainties of ongoing negotiations and economic conditions
generally or in various geographic areas. Further, because of the relatively
high selling prices of the STEAG Semiconductor Division's products, a
significant portion of the STEAG Semiconductor Division's net sales in any
given period is derived from the sale of a relatively small number of units,
and even a minor change in the number of units sold during a quarter can result
in a large fluctuation in net sales and operating results for the quarter.
Recent Developments
On June 27, 2000, STEAG entered into the Combination Agreement to sell the
STEAG Semiconductor Division to Mattson in exchange for approximately 32% of
Mattson's outstanding shares. The transaction is conditioned on the merger of
Mattson and CFM pursuant to the Merger Agreement. Concurrently with the
execution of the Combination Agreement and the Merger Agreement, STEAG, SES and
CFM entered into a settlement agreement pursuant to which SES withdrew its
appeal before the Federal Circuit Court of Appeals, and confirmed the Delaware
district court's judgment. At the same time, CFM, CFMT, Inc. and STEAG entered
into a licensing agreement with respect to U.S. Patent No. 4,911,761 and
related patent rights pursuant to which CFM licenses such patent rights to the
STEAG Semiconductor Division worldwide.
In February, 2000, STEAG completed its acquisition of CuTek Research, Inc.,
a manufacturer of copper plating systems. The merger was accounted for as a
purchase at a price of $15.4 million. The purchase price was allocated to
assets acquired and liabilities assumed based on the estimated fair value at
the time of the acquisition. The excess of the purchase price over the net
tangible and intangible assets acquired and liabilities assumed was allocated
to goodwill. Goodwill is being amortized over five years.
166
<PAGE>
Results of Operations
The following table sets forth selected consolidated financial data for the
periods indicated, expressed as a percentage of net sales:
<TABLE>
<CAPTION>
For the Six
For the Year Months
Ended Ended June
December 31, 30,
--------------- -------------
1999 1998 2000 1999
------ ------ ----- -----
<S> <C> <C> <C> <C>
Net sales................................... 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales............................... 74.5 % 74.6 % 50.6 % 68.7 %
Gross Profit................................ 25.5 % 25.4 % 49.4 % 31.3 %
Operating expenses:
Research and Development.................. 20.9 % 16.6 % 17.9 % 29.1 %
Selling, general and administrative
expenses................................. 31.6 % 27.0 % 29.8 % 45.9 %
Goodwill amortization..................... 9.0 % 6.0 % 7.1 % 11.3 %
Loss from operations........................ (36.0)% (24.2)% (5.4)% (54.9)%
Other income (expense)...................... (3.0)% (3.2)% (1.2)% (7.1)%
Loss from continuing operations before
income tax provisions...................... (39.0)% (27.4)% (6.6)% (62.0)%
Net loss.................................... (35.0)% (20.5)% (9.4)% (61.9)%
</TABLE>
Fiscal Year Ended December 31, 1999 Compared to Fiscal Year Ended December 31,
1998
Net sales increased to $146.8 million in fiscal 1999 from $108.9 million in
fiscal 1998, an increase of approximately 34.8%. The increase in net sales in
the current fiscal year was primarily due to the acquisition in 1999 of STEAG
RTP Systems Inc. as well as to the recovery of the Asian markets.
Domestic (U.S.) sales decreased to $36.0 million in fiscal 1999 from $44.8
million in fiscal 1998. The decrease in domestic sales was primarily due to
lower sales of wet cleaning equipment. This was mainly a consequence of the
STEAG Semiconductor Division being prevented from selling its MARANGONI(R)
drying technology, a key component of its wet benches, to customers in the U.S.
following a court ruling that SES was infringing a patent held by CFM. The
lower domestic wet cleaning sales were in part offset by increased domestic RTP
sales resulting from the acquisition of STEAG RTP Systems, Inc. The increase in
international sales was primarily due to higher sales in Japan, Taiwan, Korea,
Singapore and Europe. Compared with fiscal 1998, sales to Japanese customers
increased by more than 500% in fiscal 1999, primarily as a result of the
acquisition of STEAG RTP Systems Inc. in early 1999. Based upon the geographic
locations of semiconductor manufacturers, STEAG anticipates that international
sales in general will continue to account for a significant portion of net
sales in fiscal 2000. However, international sales as a percentage of net sales
will vary on a quarterly basis depending on the impact of the economic
condition in Asia, the timing of orders and the relative strength of domestic
sales.
International sales by the STEAG Semiconductor Division are settled mainly
in U.S. dollars, which is the functional currency for the STEAG Semiconductor
Division. As a result, changes in foreign currency exchange rates had a direct
impact on the STEAG Semiconductor Division's operating results. In order to
limit the STEAG Semiconductor Division's exposure to exchange rate
fluctuations, the STEAG Semiconductor Division enters into forward contracts
which are only intended to secure receivables in foreign currency and are not
entered into for speculative or trading purposes.
The STEAG Semiconductor Division's end-user customers include most of the
leading semiconductor manufacturers worldwide. For the year ended December 31,
1999, sales to the top three customers accounted for approximately 24% of net
sales; no customer accounted for more than 10% of net sales. For the year ended
December 31, 1998, sales to one customer accounted for approximately 13% of net
sales; sales to the top three customers accounted for approximately 29% of net
sales. There can be no assurance that the STEAG Semiconductor Division will be
able to retain its strategic customers or that such customers will not cancel,
167
<PAGE>
reschedule or significantly reduce the volume of orders or, in the event orders
are canceled, that such orders will be replaced by other sales. The loss of any
significant end-user customer, even if replaced by a different significant end-
user customer, could have a material adverse effect on the STEAG Semiconductor
Division's business, results of operations and financial conditions.
Gross profit increased to $37.5 million in fiscal 1999 from $27.7 million in
the prior fiscal year, an increase of approximately 35.4%. Gross profit as a
percentage of net sales was approximately 25.5% in fiscal 1999, up from
approximately 25.4% in fiscal 1998. Gross profit increased from fiscal 1998 to
fiscal 1999 primarily because of improvements in efficiency, in part resulting
from higher production volumes, and a more favorable product mix. The increase
was partially offset by unusual charges of $9.7 million in 1999 following the
acquisition of STEAG RTP Systems, Inc., consisting of $5.2 million for costs
associated with the discontinuance of Starfire(R) machines; $2.8 million for
costs associated with the write-off of fixed assets used for the production of
Starfire(R) machines and $1.7 million for Starfire(R) inventory write-offs.
Research and Development ("R&D") expenses increased to $30.6 million in
fiscal 1999 from $18.1 million in the prior fiscal year, an increase of
approximately 69.0%. As a percentage of net sales, R&D expenses increased to
approximately 20.9% in fiscal 1999 from approximately 16.6% in fiscal 1998,
reflecting the STEAG Semiconductor Division's commitment to bring new products
in wet cleaning, RTP and, through the acquisition of STEAG CVD Systems Ltd.,
CVD to market. R&D efforts are focused on STEAG Semiconductor Division's multi-
product strategy. Significant resources have been devoted to develop
production-ready systems for processing next generation 300 mm wafers,
including the 3000 RTP system and the AWP 300, a wet cleaning tool. The Hybrid
300 wet cleaning tool and a new vacuum cluster tool combining CVD and RTP
technologies are being developed. Additional R&D efforts have been made to
further improve existing products and to introduce new tools, such as the
2900 RTP system and the DTT wet cleaning system, addressing the requirements of
today's most advanced semiconductor volume manufacturers for throughput,
performance, and low cost of ownership. The STEAG Semiconductor Division also
maintains application labs in the U.S. and Germany to test new equipment and
processes. The STEAG Semiconductor Division continues to believe that
significant investment in R&D is required to remain competitive, particularly
during semiconductor market downturns, when reduced customer orders may result
in additional capacity.
Selling, general and administrative ("SG&A") expenses increased to $46.5
million in fiscal 1999 from $29.4 million in fiscal 1998, an increase of
approximately 58.2%. As a percentage of net sales, SG&A expenses increased to
approximately 31.6% in fiscal 1999 from approximately 27.0% in fiscal 1998. The
increase is mainly due to additional SG&A expenses resulting from the
acquisitions of STEAG RTP Systems Inc. ($7.8 million) and STEAG CVD Systems
Ltd. ($2.2 million) and to unusual charges related to these acquisitions of
$1.9 million for stay bonuses as compensation for the cancellation of employee
stock option plans, and $0.8 million for other costs, relating primarily to
lay-offs and management severance packages. In addition, SG&A expenses
increased as a result of higher sales volumes, primarily in the sales and
service subsidiaries in Asia. In fiscal 2000, SG&A spending in absolute dollars
is expected to increase as a result of the expenses incurred for legal and
financial advisers in connection with the proposed business combination with
Mattson.
Goodwill amortization increased to $13.3 million in fiscal 1999 from $6.5
million in fiscal 1998. The increase in goodwill amortization from 1998 to 1999
reflects the acquisitions of STEAG RTP Systems, Inc. (formerly AG Associates,
Inc.) and STEAG CVD Systems Ltd. (formerly AG Associates (Israel) Ltd.) in
1999. The goodwill represents the excess of cost over the fair value of assets
acquired and liabilities assumed related to the acquisitions. Goodwill is being
amortized using the straight-line method over the life of the underlying
assets, generally 5 years.
Other expense was $4.4 million in fiscal 1999 and $3.5 million in fiscal
1998. Other expense is mainly interest expense, net of interest income, of $4.5
million in fiscal 1999 and $3.2 million in fiscal 1998. This interest expense
is primarily due to financing provided by STEAG to the STEAG Semiconductor
Division by inter-company loans.
168
<PAGE>
For fiscal 1999, the STEAG Semiconductor Division recorded an income tax
benefit of $5.8 million compared to an income tax benefit of $7.1 million in
fiscal 1998. These tax benefits derive from the existing tax sharing unity
between the German STEAG Semiconductor Subsidiaries, STEAG RTP Systems GmbH and
STEAG MicroTech GmbH, on one side, and STEAG on the other side. This tax
sharing unity is achieved through profit and loss absorption agreements each of
the two German STEAG Semiconductor Subsidiaries has entered into with STEAG. As
a consequence of this tax sharing unity, no separate tax returns are prepared
for the subsidiaries but a consolidated tax return is filed at the parent
company level. Income and losses incurred by STEAG RTP Systems GmbH and STEAG
MicroTech GmbH are used for tax purposes at the STEAG level. STEAG either
charges the subsidiaries for its use of their taxable income or reimburses them
for use of their taxable loss, in each case using the "separate return method"
to calculate the hypothetical tax amount to be charged or reimbursed. In
addition, STEAG charges or reimburses, as the case may be, STEAG RTP Systems
GmbH and STEAG MicroTech GmbH for the remaining part of the subsidiary's income
or loss, respectively. At tax rates of 49% and 53% (corporate income tax plus
trade tax) in 1999 and 1998, respectively, the tax benefit from tax sharing
(without taking into account provisions for current taxes in Germany) amounted
to $5.6 million and $8.8 million in 1999 and 1998, respectively. As a result of
the proposed business combination agreement with Mattson, the profit and loss
absorption agreements will be canceled at the end of fiscal year 2000. New tax
legislation recently passed by the German Parliament (Bundestag) will
significantly lower the effective tax rate for fiscal year 2001. The STEAG
Semiconductor Division will be subject to an applicable tax rate of 39% for
fiscal 2001.
For the non-German STEAG Semiconductor Subsidiaries, realization of the tax
benefits related to the group's deferred tax assets is dependent upon the
generation of future taxable income. Due to significant net losses incurred
through December 31, 1999 and uncertainty surrounding the utilization of
deferred tax assets, management has evaluated its deferred tax assets and
provided a full valuation allowance at December 31, 1999 and 1998.
The STEAG Semiconductor Division's systems backlog as of December 31, 1999
was approximately $49.8 million, as compared to $19.6 million at December 31,
1998. The increase in backlog was mainly a result of increased orders for wet
processing products and the acquisition of STEAG RTP Systems, Inc. The STEAG
Semiconductor Division includes in its backlog customer purchase orders that
have been accepted and to which shipment dates have been assigned within the
next twelve months. All orders are subject to cancellation or delay with
limited or no penalty. Because of possible changes in the delivery schedules
and additions or cancellations of orders, the STEAG Semiconductor Division's
backlog at any particular date is not necessarily indicative of actual sales
for any succeeding period.
Liquidity and Capital Resources
As of June 30, 2000, the STEAG Semiconductor Division had cash and cash
equivalents of $24.0 million compared to $7.0 million as of June 30, 1999.
During the six month period ended June 30, 2000, cash and cash equivalents
increased by $13.8 million. Shareholder's equity at June 30, 2000 was $189.3
million, up from $68.6 million as of June 30, 1999. The increase in
shareholder's equity is primarily due to a conversion of intercompany debt into
equity by STEAG, effective June 30, 2000. Working capital at June 30, 2000 was
$108.0 million, up from $3.4 million at June 30, 1999.
Net cash used in operating activities was $30.6 million during the six
months ended June 30, 2000 as compared to $0.9 million during the same period
of last year. The net cash used in operating activities during
the six months ended June 30, 2000 was primarily due to the net loss of $10.8
million, an increase in accounts receivable of $18.8 million, and an increase
in inventories of $18.1 million. These were partially offset by depreciation
and amortization expense of $12.3 million and an increase of accrued
liabilities of $10.5 million.
Net cash used in investing activities was $16.6 million during the six
months ended June 30, 2000 and $53.4 million during the corresponding period in
1999. Capital expenditures of $2.9 million in the first half of fiscal year
2000 were partially offset by proceeds from sales of equipment of $1.1 million.
In addition, $14.7 million, net of cash acquired, was spent for the acquisition
of STEAG CuTek Inc. during the six months
169
<PAGE>
ended June 30, 2000. The net cash used in investing activities during the first
half of fiscal year 1999 consisted of $50.2 million for the acquisition of
STEAG RTP Systems Inc. and STEAG CVD Systems Ltd. and capital expenditures of
$3.7 million, offset by proceeds from sales of equipment of $0.4 million.
Net cash provided by financing activities was $61.3 million during the six
months ended June 30, 2000 as compared to $45.5 million during the
corresponding period in 1999. The net cash provided by financing activities
during the six months ended June 30, 2000 is primarily attributable to an
increase in short term borrowings and a capital increase of $45.9 million and
$15.4 million, respectively. Effective June 30, 2000, intercompany debt
totaling $100.9 million was converted into equity by STEAG.
The STEAG Semiconductor Division was dependent on STEAG for financial
support in order to meet its obligations as they became due. STEAG has provided
to management of the STEAG Semiconductor Division assurance of continued
financial support at least through December 31, 2000.
As of December 31, 1999, the STEAG Semiconductor Division had cash, cash
equivalents and short-term investments of $10.2 million compared to $16.0
million as of December 31, 1998. The decrease of $5.8 million from fiscal 1998
to 1999 was primarily attributable to cash used in operations and capital
expenditures, offset in part by short-term borrowings. Working capital
increased to $18.9 million at December 31, 1999 from $2.9 million at
December 31, 1998, caused by the acquisitions of STEAG RTP Systems, Inc., and
STEAG CVD Systems Ltd. and by the market recovery during 1999.
As described above, the two German STEAG Semiconductor Subsidiaries, STEAG
MicroTech GmbH and STEAG RTP Systems GmbH, are parties to profit and loss
absorption agreements, pursuant to which the subsidiaries transfer profits, if
any, at the end of the fiscal year to STEAG and in return STEAG compensates the
subsidiaries for any losses that the subsidiaries may suffer at the end of the
fiscal year. The profit and loss absorption agreements enable STEAG to file tax
returns in Germany on a consolidated basis. In connection with the proposed
business combination with Mattson, the profit and loss absorption agreements
will be terminated as of December 31, 2000. The net losses reimbursed by STEAG
to the two German STEAG Semiconductor Subsidiaries pursuant to such agreements
were $11.5 million and $16.7 million in 1999 and 1998, respectively, and were
offset against intercompany loans from STEAG.
Substantially all of the STEAG Semiconductor Division's financing
requirements are provided by loans from STEAG. In connection with the
Transactions, the existing balances on these loans as of June 30, 2000, are
being converted into equity investments by STEAG. This will lead to
significantly lower interest expenses in fiscal year 2000. The STEAG
Semiconductor Division was dependent on STEAG for financial support in order to
meet its obligations as they became due. STEAG has provided to management of
the STEAG Semiconductor Division assurance of continued financial support at
least through December 31, 2000.
STEAG Electronic Systems Japan Co., Ltd., a STEAG Semiconductor Subsidiary,
has a Yen 700 million line of credit agreement with the Bank of Yokohama, Ltd.
(Japan), dated August 19, 1997, which is guaranteed by STEAG's parent company,
STEAG AG. The interest rate on the line of credit is TIBOR + 1.88% and the
STEAG Semiconductor Subsidiary had an outstanding balance as of June 30, 2000,
of Yen 513.2 million. The STEAG Semiconductor Subsidiary has negotiated a Yen
500 million line of credit with another bank in order to replace the Bank of
Yokohama line of credit which expires on September 30, 2000. The interest rate
on the new line of credit is TIBOR + 1.5% and it expires on September 30, 2002.
Capital expenditures decreased from $13.6 million in fiscal 1998 to $10.9
million in fiscal 1999. An amount of $6.8 million was spent in 1998 for wet
processing demonstration tools. In 1999, $3.5 million was spent by the newly
acquired STEAG RTP Systems, Inc.
The STEAG Semiconductor Division's operating activities used cash of $30.8
million during fiscal 1999. The net loss of $51.5 million, increases in
accounts receivable of $11.1 million and inventories of $2.7 million, were
offset by depreciation and amortization of $25.5 million, increases in accounts
payable of $5.3 million and an increase in accrued liabilities of $2.2 million.
170
<PAGE>
The STEAG Semiconductor Division's operating activities generated cash of
$3.2 million during fiscal 1998. The net loss of $22.3 million and a decrease
in accrued liabilities of $23.5 million were offset by depreciation and
amortization of $13.8 million, a decrease in inventories of $17.8 million, a
decrease of accounts receivables of $12.2 million and an increases in accounts
payable of $4.9 million.
Cash used in investing activities was $59.2 million in fiscal 1999 and $12.9
million in fiscal 1998. Capital expenditures of $10.9 million in fiscal 1999
were partially offset by proceeds from sales of equipment of $1.9 million. An
amount of $50.2 million was spent for the acquisitions of STEAG RTP Systems
Inc. and STEAG CVD Systems Ltd. Capital expenditures totaling $13.6 million
were the principal uses of cash in investment activities in fiscal 1998. This
amount was partially offset by proceeds from sales of equipment of $0.6
million. STEAG expects that capital expenditures will be approximately $10
million in fiscal 2000, principally to support facilities and new product
development.
Financing activities provided cash of $84.1 million in fiscal 1999,
primarily from a capital increase of $54.8 million and borrowings under a line
of credit provided by STEAG to the STEAG Semiconductor Division. Financing
activities provided cash of $17.8 million in fiscal 1998, primarily from short
term borrowings of $19.7 million, offset in part by repayment of loans from
STEAG.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Net sales for the six month period ended June 30, 2000 were $115.3 million
and increased 106% from $56.0 million in the corresponding period in fiscal
year 1999. The increase in net sales in the first half of 2000 was a result of
the strong recovery of the semiconductor equipment market.
Bookings in the first half of fiscal year 2000 were $163.9 million, an
increase of 82.1% compared to bookings of $90.0 million in the first half of
fiscal year 1999, resulting in a book to bill ratio of 1.42 to 1.0 in the first
half of fiscal year 2000. As of June 30, 2000, backlog was $93.1 million, as
compared to $56.9 million at June 30, 1999.
Gross profit as a percentage of net sales improved to 49.4% for the six
month period ended June 30, 2000 from 31.3% in the same period of the prior
year. The increase in gross profit is in part due to fixed cost absorption over
higher sales volumes and efficiency improvements. In addition, the gross profit
in the six month period ended June 30, 1999 was negatively affected by certain
charges following the acquisition of STEAG RTP Systems, Inc.; no such charges
have been recorded in the first half of fiscal 2000.
R&D expenses in the first half of fiscal year 2000 were $20.6 million or
17.9% of net sales, as compared to $16.3 million, or 29.1% of net sales for the
corresponding period in fiscal year 1999. The increase in absolute dollars in
2000 is in part due to the acquisition of STEAG CuTek ($1.2 million) and to the
consolidation of STEAG RTP Systems, Inc. for the whole six-month period in
fiscal year 2000, compared with a consolidation over 4 months in the first half
of fiscal year 1999.
SG&A expenses increased to $34.4 million in the six month period ended June
30, 2000 from $25.7 million in the corresponding prior year period, an increase
of approximately 33.9%. As a percentage of net sales, SG&A expenses decreased
to approximately 29.8% in the first half of fiscal year 2000 from approximately
45.9% in the first six months of fiscal year 1999. The increase in absolute
dollars reflects mainly higher sales volumes. In the remainder of fiscal year
2000, SG&A spending in absolute dollars is expected to further increase as a
result of the expenses incurred for auditors, legal and financial advisers in
connection with the proposed business combination with Mattson.
Goodwill amortization increased from $6.3 million in the first half of
fiscal year 1999 to $8.2 million in the first half of fiscal year 2000. This
increase is due to the acquisition in the first quarter of fiscal year 1999
(STEAG RTP Systems, Inc.) and in February 2000 (STEAG CuTek, Inc.).
171
<PAGE>
Other expense was $1.4 million and $4.0 million in the period ended June 30,
2000 and 1999, respectively. Interest expense, net of interest income,
increased to $2.4 million in the first half of fiscal year 2000 from $1.8
million in the corresponding prior year period. This interest expense is
primarily due to financing STEAG provided to the STEAG Semiconductor Division
by inter-company loans.
For the six month period ended June 30, 2000, the STEAG Semiconductor
Division recorded income taxes of $3.2 million, compared to an income tax
benefit of $0.1 million in the corresponding period of fiscal year 1999. The
income taxes are mainly caused by the profits of STEAG RTP Systems GmbH. Income
taxes and tax benefits are affected by the existing tax sharing unity resulting
from the profit and loss absorption agreements between the two German STEAG
Semiconductor Subsidiaries, STEAG RTP Systems GmbH and STEAG MicroTech GmbH, on
one side, and STEAG, on the other side, described above.
For the non-German STEAG Semiconductor Subsidiaries, realization of the tax
benefit related to the group's deferred tax assets is dependent upon the
generation of future taxable income. Despite profits generated in some entities
through June 30, 2000 and due to uncertainty surrounding the utilization of
deferred tax assets, management has evaluated its deferred tax assets and
provided a full valuation allowance at June 30, 2000 and 1999.
Qualitative and Quantitative Disclosures About Market Risk
Due to the STEAG Semiconductor Division's international business activities,
the STEAG Semiconductor Division settles numerous purchase orders in foreign
currency, which, because of changes in foreign currency exchange rates, may
adversely affect the results of operations and financial position of the STEAG
Semiconductor Division. In order to limit these risks, the STEAG Semiconductor
Division enters into forward contracts. These forward contracts serve only to
secure receivables in foreign currency and are not for speculative or trading
purposes. As of December 31, 1999, the STEAG Semiconductor Division had forward
contracts with nominal values of $52,928 and fair values of $56,018,
respectively. Other than such forward contracts, the STEAG Semiconductor
Division does not hold derivative instruments or other investments subject to
market risks.
Security Ownership
The STEAG Semiconductor Division is comprised of eleven companies. All of
the issued and outstanding share capital of each of the STEAG Semiconductor
Subsidiaries is beneficially owned by STEAG. All of the outstanding shares of
STEAG are beneficially owned by STEAG AG, a power generation and electronics
company based in Essen, Germany.
172
<PAGE>
BUSINESS OF CFM
General
CFM and its subsidiaries design, manufacture and market advanced wet
processing equipment for sale to the worldwide semiconductor industry. CFM
believes that its patented Full-Flow(TM) Technology and Direct-Displacement(TM)
drying enable it to provide wet processing systems that address a variety of
limitations inherent in conventional semiconductor wet processing systems,
including wet benches and spray tools, resulting in significantly lower cost of
ownership. CFM's customers include: Agilent Technology, Anam Semiconductor
Company, Infineon Technology, International Business Machines, Macronix,
Microchip Semiconductor, Motorola, National Semiconductor, STMicroelectronics,
Texas Instruments, Tower Semiconductor and United Microelectronics.
Industry Background
Market Overview
Over the past two decades, increasing demand for integrated circuits ("ICs")
has resulted primarily from the growth of the personal computer and data
communication markets, as well as the emergence of new markets such as wireless
communications, mobile computing and multimedia and the addition of
microprocessor control to many common consumer products such as automobiles,
kitchen appliances and audio/video equipment. In large part, this demand has
been driven by the semiconductor industry's ability to provide increasingly
complex, higher performance ICs while steadily reducing the cost per function
along with lower power consumption. These improvements in the ratio of price to
performance have been driven by advancements in semiconductor process
technology, which have enabled the cost-effective production of high density
ICs with linewidths well below 0.25 micron.
As demand for ICs has grown, semiconductor manufacturers have increased
capacity by expanding and updating existing fabrication facilities ("fabs") and
constructing new fabs. This expansion has historically exhibited strong
cyclical characteristics, and continues to do so. For example, in 1997 a
significant overcapacity situation developed in the semiconductor device
market, especially in dynamic random access memory ("DRAM") chips. This,
together with the Asian financial crisis, led to a reduction in the
semiconductor capital equipment demand as semiconductor manufacturers cancelled
or postponed capacity expansions. This situation continued into 1998.
The increasing complexity of ICs has resulted in an increase in both the
number and cost of process tools (such as steppers, etchers, furnaces and wet
processors) required to manufacture semiconductors. In a typical fab in the
1980s, the cost of equipment represented approximately 50-55% of the total
facility costs.
Today, the total cost of an advanced fab exceeds $1 billion, of which
equipment costs can account for over 80%. Semiconductor manufacturers place
great pressure on process equipment manufacturers to decrease the cost of
ownership of their products. The principal elements of cost of ownership are
yield, throughput, capital costs and direct costs. Yield is primarily
determined by contamination levels and process uniformity.
Throughput is primarily a function of the time required to complete a
process cycle, the number of wafers processed in a single cycle and the
handling time between process cycles. Capital costs include the cost of
acquisition and installation of the process equipment. Direct costs primarily
include consumables used in the manufacturing process and costs of cleanroom
space occupied by the equipment. Semiconductor device manufacturers must also
address environmental costs such as water usage and costs related to the
control and disposal of chemical waste and atmospheric emissions associated
with operating a fab. Measuring and maintaining an acceptable level of cost of
ownership becomes increasingly challenging as manufacturing processes become
more complex and process tolerances narrow.
173
<PAGE>
Wet Processing in Semiconductor Manufacturing
The manufacture of semiconductors requires a large number of complex process
steps during which transistors are formed and layers of electrically insulating
or conducting materials are created or deposited on the surface of a silicon
wafer. Before and after many of these steps, it is necessary to clean, etch,
strip or otherwise condition the surface of the wafer in order to remove
unwanted material or surface contamination in preparation for a subsequent
process step. SEMATECH, a consortium of semiconductor manufacturers, has
estimated that over 400 fabrication steps are required to manufacture advanced
logic ICs, and that approximately 55 of these steps are accomplished by wet
processing.
Wet processing steps have traditionally been accomplished using wet benches
and spray tools. Advanced wet benches utilize a succession of open chemical
baths and extensive robotic automation to move wafers from one chemical or
rinse bath to the next. Spray tools subject wafers to sequential spray
applications of chemicals as the wafers are spun inside an enclosed chamber.
CFM believes that, for certain wet processing applications, these conventional
wet processing methods are subject to a number of inherent limitations,
including:
Particle Contamination. Certain process steps in the manufacture of
submicron ICs are extremely sensitive to small amounts of particle
contamination which can result in device failure. As device geometries become
smaller, the reduction of particle contamination has become an increasingly
critical factor in maximizing yields for these process steps. Open-bath wet
benches are exposed to the cleanroom environment and therefore are susceptible
to external contamination. Since particles tend to reside on the surfaces of
liquids due to surface tension, the movement of wafers in and out of liquids
can result in the transfer of particles to the wafer surfaces through a
"skimming" effect. The tendency to add particles from air-liquid transitions is
inherent in wet benches due to multiple immersions and withdrawals and in spray
processing where each spray droplet striking the wafer surface can act as a
separate miniature immersion and withdrawal.
Watermark Defects and Native Oxide Growth. Both wet benches and spray tools
subject the surface of wafers to repeated wetting and evaporative drying,
creating watermark defects on the surface that can significantly impact device
performance and interfere with certain subsequent process steps.
Process Control Limitations. Process liquids in wet benches and spray tools
are subject to evaporation and absorption of atmospheric gases. As a result, it
can be difficult to achieve precise repeatability of process results.
Additionally, wafers in a wet bench must be robotically transferred from bath
to bath through the cleanroom atmosphere. This gap in processing during
transport adds variability due to the effects of wafer exposure to the
cleanroom atmosphere.
Large Physical Size. The cost of cleanroom space is a significant component
in the overall cost of ownership calculation for a specific piece of equipment.
Wet benches configured for the multiple-step wet processes required by many
manufacturers can be over 30 feet in length. Recently, manufacturers of wet
benches have begun to develop products which use more than one processing fluid
in a single bath in an effort to reduce the size of their products. These
"reduced bath" or "single bath" wet bench products use more expensive cleanroom
space than a Full-Flow platform and retain the other disadvantages of this
conventional wet processing method.
Environmental Impact. Due to the large volume of the open baths which
comprise a wet bench and the need for multiple step wet processes to
manufacture increasingly complex ICs, wet benches typically consume large
quantities of water during processing. Water costs represent a significant
portion of the total cost of cleaning. Additionally, in many wet bench
processes, large amounts of chemicals are utilized. The open nature of the
baths in a typical wet bench necessitates expensive ventilation and air
filtration systems in order to remediate chemical fume emissions. As a result,
municipalities and environmental authorities are increasingly concerned about
water consumption and chemical fume emissions by fabs. Due to the continuing
reduction of semiconductor device geometries and the escalating cost of leading
edge fabs, CFM believes that semiconductor manufacturers are becoming
increasingly sensitive to the foregoing limitations inherent in conventional
wet processing methods.
174
<PAGE>
The CFM Solution
CFM's systems are based on its proprietary Full-Flow wet processing
technology and are used to perform various cleaning, stripping and etching
process steps in the manufacture of semiconductors. In CFM's OMNI wet
processing systems, up to 150 wafers automatically load into an enclosed, flow-
optimized vessel that has a lower fluid inlet and an upper fluid outlet. The
system process chamber is fabricated to conform to the size of silicon wafers
used by the customer. Once a selected process is begun, the vessel is
completely filled with process fluid at all times, with fluids displacing one
directly after another without exposing the wafers to air.
CFM believes that its patented Full-Flow and Direct-Displacement drying
technologies result in superior process performance and lower cost of ownership
by offering the following advantages over conventional wet processing systems:
Reduced Particle Contamination. Full-Flow processing takes place in a fully-
enclosed processing vessel which isolates the wafers from the external
cleanroom environment and associated contaminants. Additionally, particle
contamination through particle skimming is substantially reduced. Since Full-
Flow processing is capable of directly displacing one chemical or rinse step
with the next without draining the vessel, it can eliminate the air-liquid
interfaces (where particles tend to reside) that normally occur in wet benches
and spray tools. The wafers are kept completely immersed in fluid until they
are ready to be dried using CFM's patented in situ Direct-Displacement drying
technology.
Substantial Elimination of Watermark Defects and Native Oxide Growth. The
formation of watermarks is substantially eliminated through the prevention of
water evaporation from the wafer surface. Once the chemical treatment of the
wafers is completed, drying is accomplished using CFM's patented Direct-
Displacement drying technology. With this technique, the final rinse water is
directly displaced with isopropyl alcohol ("IPA") vapor and substantially all
water is forced off the surface of the wafer before it is exposed to an air
environment. Additionally, native oxide growth is suppressed by deoxygenating
the water immediately before it enters the vessel. Since the vessel itself is
totally enclosed, the ultra pure water in the vessel is not able to absorb
oxygen, carbon dioxide and other gases from the cleanroom environment. As a
result, the gas content of the water at the surface of the wafers is controlled
to a degree not possible in a wet bench or spray tool.
Tight Process Control. Process precision and repeatability result in large
part from the ability to control accurately the physical and chemical
properties of the processing liquids as well as transitions between process
steps.
CFM's processes are performed in an enclosed vessel, thereby substantially
reducing variability of the processing fluid such as water and chemical
evaporation and absorption of atmospheric gases. Additionally, because one
process liquid directly displaces the previous one, there is no exposure to the
cleanroom atmosphere between process steps.
Cleanroom Space Savings. OMNI systems have been designed to consume a
minimum amount of cleanroom space. System support modules can be located
outside the cleanroom and away from the vessel module. In many fabs, this means
that these support modules can be located on a separate level, further reducing
the amount of footprint that is required on the main floor of the fab where
floor space is most expensive. One of CFM's products, a shared-module OMNI
system capable of processing 100 8-inch wafers in each of two vessels requires
approximately 13 linear feet of cleanroom wall space and makes no direct usage
of cleanroom floor space when flush-mounted. This is significantly less than
the space requirements of a wet bench with a similar processing capacity, which
CFM believes can require up to 350 square feet of total cleanroom floor space
and approximately 35 linear feet of cleanroom wall space.
Environmental Advantages. CFM believes that its OMNI systems utilize less
than one-half of the water required by traditional wet bench systems performing
similar processing steps. Additionally, most of the water in wet bench systems
flows around the wafer carrier rather than across the surface of the wafers. In
CFM's
175
<PAGE>
flow-optimized OMNI systems, substantially no water is lost as bypass flow.
These enclosed systems also reduce the amount of process chemicals consumed and
the equipment and related costs of remediation of chemical fume emissions
associated with traditional wet processing.
Strategy
CFM's objective is to become a leading supplier of advanced wet processing
equipment to the worldwide semiconductor industry. CFM intends to achieve this
objective by focusing on the following key elements of its strategy.
Increase Current Market Share. CFM seeks to continue to expand its share of
the semiconductor critical cleaning and etching wet processing market through
expansion of its sales and marketing and customer satisfaction efforts.
Significant effort has been expended to increase CFM's responsiveness to
customer needs. CFM believes that the customer community has responded
positively to these efforts. CFM also intends to continually improve its
existing OMNI platform in order to offer enhanced technical capabilities and
lower cost of ownership benefits for currently served critical wet processing
applications. Following an analysis of the size of the FPD wet processing
equipment market, the potential for successful market penetration and the
volatility of that market, CFM will offer for sale only those FPD system
configurations that have already been developed and tested and does not
anticipate significant continuing sales to manufacturers of FPD's.
Broaden Semiconductor Market Penetration. CFM intends to leverage its OMNI
products to address additional wet processing applications in the semiconductor
manufacturing process where it believes its proprietary technology can provide
important benefits over competing wet processing technologies. By basing new
process applications on these platforms, CFM will focus primarily on the
development and optimization of each application's process recipes. CFM
believes this approach will reduce the time and cost associated with supporting
new wet processing applications. CFM has completed a joint development project
with a major customer to qualify an OMNI system to perform aqueous cleaning
during copper interconnect formation, which is a new process application for
CFM's systems.
Focus on Customer Satisfaction. CFM believes that its commitment to customer
satisfaction has been a critical factor in its success to date. To ensure a
high level of customer satisfaction, CFM provides comprehensive customer
service and support, thorough customer training and ongoing process
consultation. CFM has already developed a comprehensive customer service and
support organization, and has invested in this area by locating direct sales
and service staff in Europe in 1996 and in East Asia in 1997. CFM also intends
to continue to increase the utilization of its applications laboratory to
design and test new processes and equipment features. Finally, CFM has provided
an OMNI system completely dedicated to training CFM's customers and employees
at its West Chester training facility. In 1999 and again in 2000, CFM was
chosen as one of the 10 best customer rated companies in the VLSI Research
Incorporated Customer Satisfaction Companies report for wafer processing
equipment suppliers with sales of less than $300 million.
Continue Commitment to Worldwide Markets. CFM believes that its long-term
success is substantially dependent on its ability to compete on a worldwide
basis. As such, CFM intends to continue to focus on expanding its sales
activities in the primary worldwide market for semiconductor capital equipment.
To date, CFM has achieved considerable success in selling to customers outside
the United States, with international sales accounting for over 60% of total
sales in 1996 and 1997, 46% of total sales in 1998, and 33% of total sales in
1999.
Products
CFM's systems are based on its proprietary wet processing technology and are
used to perform various cleaning and etching process steps in the manufacture
of semiconductors.
The Full-Flow Platform. CFM's proprietary Direct-Displacement drying
technology is embodied in its OMNI products, which principally consist of a
fully-enclosed processing vessel incorporating megasonic
176
<PAGE>
technology and associated systems software, hardware and control electronics.
Megasonic technology utilizes high frequency sonic energy to enhance particle
removal from the surface of semiconductor wafers during wet processing,
enabling a quicker process cycle and a significant reduction in the quantity of
process chemicals used. CFM believes that its OMNI products offer significant
improvements in process performance and a lower cost of ownership relative to
competing technologies. Conventional wet bench processes used for many wet
processing applications rely on a succession of open chemical baths and
extensive robotic automation to move semiconductor wafers from one chemical
bath to the next, which exposes them to contamination.
In CFM's OMNI systems, wafers are loaded automatically into a enclosed flow-
optimized processing vessel. They are isolated from cleanroom air and
accompanying contaminants as a succession of process fluids are introduced into
the processing vessel one directly after another, flowing over the wafers to
complete the desired process application. Once processing is completed, wafers
are dried in situ using CFM's patented Direct-Displacement drying process. With
this technique, the final rinse water is directly displaced with IPA vapor and
substantially all water is removed from the surface of the wafers before they
are exposed to the environment.
This process substantially eliminates evaporative drying defects such as
watermarks, inhibits native oxide growth and significantly reduces particle
contamination. In competing technologies, wafers are exposed to intermediate
evaporative drying within the cleanroom atmosphere prior to the completion of
the final drying process. The optimized flow characteristics of the OMNI
processing vessels and their advanced process control and monitoring
capabilities provide process uniformity and repeatability. Also, CFM's systems
can be flush-mounted in the cleanroom wall, with the majority of the floor
space needed by the system components located outside the cleanroom
environment. Due to this flush-mounting and the OMNI system's comparatively
smaller size, it requires significantly less cleanroom floor space than
competing wet bench systems. CFM's OMNI system is based on a modular design and
can be configured to accomplish a broad range of wet processing applications
using a variety of process and support modules. By basing new process
applications on its proprietary OMNI platform, CFM can focus primarily on the
development and optimization of each application's process recipes.
CFM believes this approach significantly reduces the time and cost
associated with developing new products to address additional market
opportunities.
The following tables list CFM's product offerings:
CFM OMNI PLATFORM CONFIGURATIONS
<TABLE>
<CAPTION>
Configuration Capacity List Price Range
------------- ------------ -----------------
<S> <C> <C>
Single Vessel 50-150 wafer $1.1-$1.9 million
Shared Module 50-150 wafer $1.8-$3.0 million
</TABLE>
Semiconductor Manufacturing Applications
CFM first introduced its wet processing systems for use in semiconductor
manufacturing research and development facilities in 1988, and shipped its
first system for use in semiconductor production in 1990. To date, CFM has sold
over 240 vessels to more than 30 manufacturers. OMNI systems can currently be
configured with either one or two vessels, each of which can be designed to
accommodate 150mm, 200mm or 300mm wafers.
177
<PAGE>
The following table identifies the typical wet processing steps in
semiconductor manufacturing and indicates those which CFM's OMNI systems
currently perform in capital letters.
<TABLE>
<CAPTION>
Photoresist Strip
Critical Cleaning Applications Critical Etching Applications Applications
------------------------------ ------------------------------ -----------------
<S> <C> <C>
INITIAL WAFER CLEAN SILICON OXIDE ETCH CONCENTRATED ACID CHEMISTRY
PRE-DIFFUSION CLEAN POLYSILICON ETCH RESIST
PRE-OXIDATION CLEAN Silicon nitride etch STRIP/POST-ASH
PRE-THIN FILMS DEPOSITION CLEAN SILICIDE ETCH CLEAN (FRONT-END)
Solvent chemistry resist
strip/post-ash clean (back end)
</TABLE>
For classification purposes, the process to fabricate a semiconductor device
(without testing or packaging) is divided into two major phases referred to as
"front-end" and "back-end." Front-end steps are those that are performed to
fabricate individual components on an IC, such as transistors. Back-end steps
are those that involve the creation of metal patterns in order to connect these
individual components and create an IC. For a high-performance logic IC,
approximately 60% of the wet processing steps are front-end and the balance are
back-end.
Critical Cleaning Applications. Critical cleans are those wet processing
steps that are performed in the front-end to remove surface contamination prior
to performing highly sensitive fabrication steps such as gate oxidation or
diffusion. CFM believes that approximately 40% of the wet processing operations
in the front-end fall into this category. To date, most of CFM's wet processing
systems have been purchased by semiconductor manufacturers for use in these
applications.
Critical Etching Applications. Wet processing is also commonly used in the
front-end to etch the surface of the wafer to remove silicon dioxide or other
surface material. It is generally important to tightly control the amount of
material removed and the uniformity of the etch. CFM believes that
approximately 20% of the wet processing steps in the front-end involve etching.
These etching steps are often performed as part of a wet clean rather than as
stand-alone operations, and as such, most of the wet critical cleaning sold by
CFM to date are also performing critical etching applications.
Photoresist Strip Applications. Photoresist stripping operations involve the
removal of either ashed photoresist residue or un-ashed photoresist from the
surface of wafers after a patterning step has been completed. Resist stripping
is performed in both the front-end and the back-end, and CFM believes that this
process represents approximately 40% of all wet processing operations. Front-
end cleans and resist strips are generally performed with aqueous chemistries.
However, back-end cleans and resist strips presently must be accomplished with
different chemistries that often utilize solvents, as front-end water-based
chemistries are incompatible with aluminum, which is often present on wafers in
the back-end.
Future Applications. Approximately 40% of semiconductor wet processing
operations are performed in the back-end and are comprised primarily of
solvent-based cleans and solvent-based resist strips. CFM believes that its
OMNI systems offer a range of attractive benefits for many of these
applications, especially as process requirements become more demanding and
regulatory restrictions on the release of chemical fumes become more stringent.
Furthermore, CFM believes that its proprietary Direct-Displacement drying
method is well suited for drying wafers with complex topographies that often
exist in the back-end.
Customers
CFM sells its systems to leading semiconductor manufacturers located in the
United States, Europe and East Asia. Sales to IBM and Macronix accounted for
approximately 25.1% and 14.3%, respectively, of net sales in fiscal 1999. Sales
to Agilent Technology, Anam Semiconductor Company, IBM, Infineon and National
Semiconductor accounted for approximately 10.3%, 14.8%, 19.6%, 13.3% and 10.4%,
respectively, of net sales in fiscal 1998.
178
<PAGE>
While CFM actively pursues new customers, there can be no assurance that CFM
will be successful in its efforts, and any significant weakening in customer
demand would have a material adverse effect on CFM.
Sales And Marketing
CFM sells its systems through a combination of a direct sales force and East
Asian sales agents. CFM's field service personnel support its sales force. In
addition to the direct sales force at CFM's headquarters in Exton,
Pennsylvania, CFM has direct sales personnel located in Georgia, Texas, Arizona
and California. CFM supports the European market through its North American
direct sales force. CFM covers the Asian market with a director of sales and
marketing and a direct salesperson based in Singapore. CFM signed agreements
with Ampoc Far East Company Limited ("AMPOC") a sales agent in Taiwan in 1996,
Silicon International Ltd ("Silicon International") CFM's sales distributor in
the Peoples Republic of China in 1997, and Aneric Enterprise Pte Ltd.
("Aneric") CFM's sales agent in other areas of southeast Asia in 1997.
Customer Satisfaction
CFM believes that high quality customer support, customer training and
process consultation are key elements in the creation of customer satisfaction.
CFM also believes that product reliability, as it is perceived by the
individual customer technician, manager and executive, is strongly correlated
with customer satisfaction and the resulting decisions to select CFM's
technology and its products for broad application within that individual
customer's area of personal authority. CFM has made substantial investments in
its customer support, customer training, customer communication and reliability
engineering and testing programs and intends to continue to make such
investments in the future.
CFM's customer satisfaction organization is headquartered in Exton,
Pennsylvania, with additional employees and consultants located in Arizona,
Colorado, Texas, Vermont, France, Germany, Taiwan and the United Kingdom.
Generally, CFM's support personnel have prior technical backgrounds in the
mechanical, electronic or chemical processing industries and prior experience
or training in semiconductor manufacturing processes. Field support personnel
also perform warranty and after-warranty service and sales support. CFM's
products are typically sold with a 12 month warranty covering all parts and
labor, which commences upon completion of installation and final acceptance.
Backlog
CFM manages its production forecast using both backlog and projected system
orders. CFM includes in backlog only customer purchase orders which have been
accepted by CFM and for which shipment dates have been assigned within the
following 12 months. Orders are generally subject to delay without penalty, but
may contain cancellation penalties. As of October 31, 1999, CFM's backlog was
approximately $10.6 million. As of October 31, 1998, CFM's backlog was
approximately $8.8 million. It has been the experience of CFM that neither the
backlog nor the pattern of receipt of orders is necessarily indicative of
future orders or revenues.
Research, Development And Engineering
CFM utilizes its applications and component testing laboratories in West
Chester, Pennsylvania to test new equipment and processes, design new features
and train customer and Company personnel. By basing new applications on its
proprietary OMNI platform, CFM can reduce substantially the time and cost
required to develop new process applications by focusing primarily on the
optimization of each application's process recipe. CFM is currently focusing
its research, development and engineering efforts on equipment to support
additional wet process applications, to extend the productivity of the current
platform and to improve system reliability. In April 1998, CFM shipped its
first 300mm system. In November 1999 CFM received a follow-on 300mm order based
upon the success of the initial system. See "Risk Factors" beginning on page 13
of this joint proxy statement-prospectus.
179
<PAGE>
The markets in which CFM and its customers compete are characterized by
rapidly changing technology, evolving industry standards and continuous
improvements in products and services. Because of continual changes in these
markets, CFM believes that its future success will depend, in part, upon its
ability to continue to improve its systems and its process technologies and to
develop new system applications which compete effectively on the basis of COO,
including yield, throughput, capital and direct costs and system performance.
In addition, CFM must adapt its systems and processes to technological changes
in order to support the standards required by emerging target markets.
CFM's research, development and engineering expenses for the 1999, 1998 and
1997 fiscal years were $10.0 million, $11.5 million and $9.3 million,
respectively, representing 31.8%, 34.6% and 12.3% of net sales, respectively.
Research, development and engineering expenses were net of reimbursements of
$0, $0 and $890,000, respectively, for the 1999, 1998 and 1997 fiscal years.
Competition
CFM faces substantial competition in its markets from both established
competitors and potential new entrants. CFM believes that the primary
competitive factors in the markets in which it competes are customer
satisfaction, yield, throughput, capital and direct costs, system performance,
size of installed base and breadth of product line. CFM believes that it
competes favorably with respect to each of these factors. CFM also faces the
challenge posed by the commitment of most semiconductor manufacturers to
entrenched, competing technologies.
Most of CFM's competitors have been in business longer than CFM, offer
traditional wet processing technology, and have broader product lines, more
experience with high volume manufacturing, broader name recognition,
substantially larger installed bases and significantly greater financial,
technical and marketing resources than CFM. In the semiconductor wet processing
market, CFM competes primarily with Dainippon Screen, FSI International, SCP
Global Technologies, Akrion, Semitool, Tokyo Electron Limited and Verteq. There
can be no assurance that these competitors will not also develop enhancements
to or future generations of competitive products that will offer price or
performance features that are superior to CFM's systems or that CFM's products
will gain market acceptance.
CFM believes that in order to remain competitive, it must invest significant
financial resources in developing new product features and enhancements,
defending its intellectual property and in maintaining customer satisfaction
worldwide. In marketing its products, CFM will face competition from suppliers
employing new technologies in order to extend the capabilities of competitive
products beyond their current limits or increase their productivity. Once a
manufacturer has selected a particular vendor's capital equipment, CFM believes
that the manufacturer generally relies upon that equipment and frequently will
attempt to consolidate related capital equipment requirements with the same
vendor, to the degree that such consolidation is possible. In addition,
increased competitive pressure could lead to intensified price-based
competition, resulting in lower prices and margins, which would materially
adversely affect CFM's business and results of operations.
Manufacturing
CFM's primary manufacturing operations are based in Exton, Pennsylvania, and
consist of procurement, assembly and test engineering. CFM also has operations
in a Company owned facility in West Chester, Pennsylvania, where it
manufactures certain subassemblies. CFM leases a 60,000 square foot production
facility in Exton, Pennsylvania. The facility more than doubled the previous
production capacity and was substantially completed as of October 31, 1998.
Occupancy of this new production facility took place in February 1999.
CFM's OMNI systems are based upon a common set of modules, enabling CFM to
reduce manufacturing costs by using a large number of common subassemblies and
components. Many of the major subassemblies
180
<PAGE>
are purchased complete from outside sources. CFM focuses its manufacturing
efforts on carefully documented assembly and integration activities which CFM
has determined to be critical to the successful operation of its products.
In 1994, as a result of adoption of SEMATECH measurement and improvement
methodologies, CFM began a concerted effort to meet the requirements of ISO
9001, the international standard for quality systems. In February 1997, CFM
received ISO 9001 certification, which it continues to maintain. In 2000, CFM
received certification under ISO 14001, the international standard for
environmental management systems.
Certain of CFM's components and subassemblies are obtained from sole
suppliers or limited groups of suppliers, which are often small, independent
companies. Moreover, CFM believes that certain of these components and
subassemblies can only be obtained from its current suppliers. CFM generally
acquires such components on a purchase order basis and has supply contracts of
up to one year in duration. CFM's reliance on outside vendors generally, and on
sole suppliers in particular, involves several risks which are discussed in
"Forward Looking Statements and Risk Factors--Sole or Limited Sources of
Supply." However, historically CFM has not experienced any significant delays
in manufacturing due to an inability to obtain components, and CFM is not
currently aware of any specific problems regarding the availability of
components which might significantly delay the manufacturing of its systems in
the future.
Regulatory Matters
CFM is subject to a variety of federal, state and local laws, rules and
regulations relating to the use, storage, discharge and disposal of hazardous
chemicals used in its research, development and engineering activities. CFM
believes that it is currently in compliance in all material respects with such
laws, rules and regulations. However, failure to so comply could result in
substantial liability to CFM, suspension or cessation of CFM's operations,
restrictions on CFM's ability to expand at its present location or requirements
for the acquisition of additional equipment or other significant expense. To
date, the cost of compliance with environmental rules and regulations has not
had a material effect on CFM's operations.
Intellectual Property
CFM relies on a combination of patent, copyright, trademark, trade secret
laws, nondisclosure agreements, and other forms of intellectual property
protection to protect its proprietary technology. CFM currently holds thirteen
patents in the United States, eight patents in Japan, three patents in Korea,
one patent in Singapore, and thirteen patents in various European countries.
CFM also has multiple patent applications pending in the United States and
various foreign jurisdictions.
The technology covered in the existing patents includes CFM's Full-Flow
process and Direct-Displacement drying technologies upon which CFM's current
product offerings are based. While CFM recognizes that these patents have
significant value, CFM also believes that the innovative skills, technical
expertise and know-how of its personnel in applying the art reflected in these
patents would be difficult, costly, and time consuming to reproduce.
Employees
As of October 31, 1999, CFM had 258 employees, of which 221 were full-time
and the balance part-time employees. There were 76 employees in manufacturing
operations, 56 in research, development and engineering, 22 in sales and
marketing, 78 in customer satisfaction and field support and 26 in general
administrative and finance positions. Of the 258 total full-time employees, 10
were located in Asia and 16 were located in Europe.
While CFM has generally been able to find qualified candidates to fill new
positions, personnel shortages occasioned by the strong economy and low
unemployment continue to make it more difficult to recruit
181
<PAGE>
qualified candidates for certain positions in design, field support, testing
and process engineering. Once replacement personnel are recruited, CFM then
faces the task of training and integrating these new employees. There can be no
assurance that CFM will be successful in retaining, recruiting, training and
integrating the necessary key personnel following the end of the downturn in
the semiconductor equipment sector, and any failure to expand these areas in an
efficient manner could have a material effect on CFM's results of operations.
None of CFM's employees is represented by a labor union and CFM has never
experienced a work stoppage, slowdown or strike. CFM considers its
relationships with its employees to be good.
Litigation
CFM is currently litigating three ongoing cases involving the CFM's
intellectual property. CFM has asserted claims of its U.S. Patent No. 4,911,761
(the "761 patent") against a defendant in CFM and CFM Technologies, Inc. v.
YieldUP International Corp., Civil Action No. 95-549-RRM, alleging
infringement, inducement of infringement, and contributory infringement. CFM
further asserted claims of U.S. Patent Nos. 4,778,532 (the "532 patent") and
4,917,123 (the "123 patent") against this defendant in a subsequent action,
CFM, Inc. and CFM Technologies. v. YieldUP International Corp., Civil Action
No. 98-790-RRM. In addition, CFM is also both a defendant and a counterclaim
plaintiff in a third litigation, Dainippon Screen Manufacturing Co., Ltd. and
DNS Electronics, LLC v. CFM, Inc. and CFM Technologies, Inc., Civil Action No.
97-20270 JW. In this action, the plaintiffs seek a declaratory judgment of
invalidity and unenforceability of the "761 patent and U.S. Patent No.
4,984,597 (the "597 patent"), and a declaratory judgment of non-infringement of
the "761 patent. CFM has counterclaimed alleging infringement, inducement of
infringement, and contributory infringement of certain claims of each of the
"761 patent, the "532 patent, the "123 patent, and the "597 patent. Dainippon
Screen Manufacturing Co., Ltd. and DNS Electronics, LLC have also filed an
antitrust count against CFM charging improper use of patents known to be
invalid.
On September 11, 1995, CFM brought an action against YieldUP International
Corp. ("YieldUP") in the United States District Court for the District of
Delaware. CFM seeks damages and a permanent injunction to prevent further
infringement. YieldUP has denied infringement and has asserted, among other
things, that the subject patent is invalid and unenforceable. On October 14,
1997, the District Court issued a decision granting summary judgment in favor
of YieldUP on the grounds that the process used in YieldUP processing equipment
does not infringe the "761 patent. The District Court subsequently granted
CFM's request for reargument of the decision, and CFM and YieldUP have
submitted additional briefs on the issue. The District Court has not issued a
decision on the reargued summary judgment motion.
On December 30, 1998, CFM filed an additional lawsuit in the United States
District Court for the District of Delaware charging patent infringement of the
"123 and "532 patents by YieldUP. CFM is seeking a permanent injunction
preventing YieldUP from using, making or selling equipment that violates these
patents and requests damages for past infringement. YieldUP amended its Answer
to CFM's Complaint, asserting counterclaims for alleged tortious interference
with prospective economic advantage and defamation, a declaratory judgment that
the patents are unenforceable due to applicants' alleged inequitable conduct in
obtaining the patents, and seeking compensatory and punitive damages. Fact
discovery in this lawsuit closed on December 10, 1999. A claims construction
and pre-trial hearing for this action was held on March 15, 2000. On April 4,
2000, the District Court issued an Order granting a YieldUP motion for summary
judgment and denying CFM's cross-motion for summary judgment. In this Order,
the District Court found that the "532 and "123 patents were both invalid due
to lack of enablement. In this same Order, the District Court construed the
claims of the "532 and "123 patents. CFM filed a motion seeking reconsideration
and re-argument of the summary judgment ruling, which the District Court denied
on August 10, 2000. YieldUP has agreed to withdraw with prejudice the tortious
interference and defamation counts. A bench trial on the remaining inequitable
conduct count was held on July 28, 2000. The District Court has not yet ruled
on the inequitable conduct count nor entered final judgment that the "532 and
"123 patents are invalid for lack of enablement.
182
<PAGE>
In March, 1997, another competitor, Dainippon Screen Mfg. Co. Ltd. and DNS
Electronics LLC (collectively "DNS"), filed a suit against CFM in the United
States District Court for the Northern District of California. In this action,
DNS requested the Court to declare that DNS does not infringe the "761 patent
and that the patent is invalid and unenforceable. DNS also sought monetary
damages and injunctive relief for alleged violations of the Lanham Act, unfair
competition, tortious interference with prospective economic advantage, and
unfair advertising. The Court dismissed the patent counts on the grounds of
lack of personal jurisdiction and absence of an indispensable party. DNS
appealed this ruling and the appellate court reversed the district court
decision on April 29, 1998. The causes of action relating to the Lanham Act,
unfair competition, tortious interference with prospective economic advantage,
and unfair advertising were dismissed without prejudice. The remainder of the
case has been returned to the district court.
CFM answered DNS's Complaint and counterclaimed, alleging infringement by
DNS of the "532, "123, and "761 patents. A claims construction hearing was held
on November 12, 1999, and an initial Claims Construction Order issued on
December 9, 1999, and two subsequent claims construction Orders were issued on
July 12, 2000. In February, 2000, DNS added two additional counts to this
litigation: one for antitrust violations and additional declaratory judgment
counts that the "597 patent was invalid and unenforceable. The antitrust count
asserts that CFM knowingly brought causes of action against competitors with
patents--the "761 patent and the "597 patent--that CFM knew were invalid or
unenforceable. In the new declaratory judgment count, DNS has asked the court
to declare that DNS does not infringe the "597 patent and that this patent is
invalid and unenforceable. CFM counterclaimed asserting infringement,
inducement of infringement, and contributory infringement of the "597 patent. A
Markman (i.e., Claims Construction) hearing on the "597 patent was held on July
21, 2000, and there has been subsequent briefing as to the proper construction
of the asserted claims of the "597 patent. No claims construction ruling has
issued yet as to the "597 patent. As a result of the additional new counts, the
liability trial now is scheduled for February 2001.
DNS has recently moved the court for permission to update its antitrust
count, and to add new counts for unfair competition, interference with business
relations, and trade libel into the case. That motion is still pending.
Furthermore, as a result of the Summary Judgment finding of invalidity due to
lack of enablement of the "532 and "123 patents in the YieldUP case, DNS has
requested that the counts concerning these two patents be stayed pending
further results in the YieldUP case. The damages issues for all patent and
antitrust counts have been bifurcated, and will be tried only after liability
issues have been resolved.
CFM has recently settled actions with a third competitor, STEAG, as a result
of the pending mergers involving STEAG, CFM, and Mattson. These settled actions
include an infringement case brought by CFM and CFMT, Inc. against STEAG
Electronic Systems, Inc. (formerly STEAG MicroTech, Inc.) in the United States
District Court for the District of Delaware involving the "761 patent, CFMT,
Inc. and CFM Technologies, Inc. v. STEAG MicroTech, Inc., Civil Action No. 95-
CV442, as well as nullification proceedings brought by a subsidiary of STEAG
against CFM's drying patents in Germany (DE68921757.8), France (EP428,784),
Netherlands (23184), Ireland (66389) and Japan (2,135,270).
As a result of the transaction, STEAG Electronic Systems, Inc. withdrew its
appeal of a federal district court judgment that it infringed a CFM patent
covering Direct-DisplaceTM Drying, and confirmed the court's judgment that the
patent is valid and enforceable. This settled the companies' patent dispute
with all complaints withdrawn and the validity of the relevant CFM patent
upheld. The CFM patent is also a subject of pending suits against Dainippon
Screen Manufacturing and FSI International Corp.
183
<PAGE>
CFM MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
CFM designs, manufactures and markets advanced wet processing equipment for
sale to the worldwide semiconductor manufacturing industry. CFM was founded in
1984 and began commercial operations in 1990 following a period of technology
and product development, during which time CFM's patented Full-Flow(TM)
enclosed processing and Direct-Displacement(TM) drying technologies
were developed.
CFM has derived substantially all of its revenues from the sale of a
relatively small number of its systems, recent sales of which have ranged in
price from approximately $1.1 million to $3.0 million. As of October 31, 1999,
CFM has shipped over 220 processing vessels (some shared-module systems have
two processing vessels) to more than 30 manufacturers worldwide. During fiscal
year 1999, CFM's net sales declined slightly from fiscal year 1998 and CFM
realized a net loss of $10.5 million. Fiscal year 1998 net sales declined
significantly from fiscal year 1997 and CFM realized a net loss of $11.8
million. Both fiscal years 1999 and 1998 losses were the result of lower net
sales because of continued excess production capacity in the semiconductor
manufacturing industry. Prior to fiscal year 1998, CFM had been undergoing a
period of rapid growth with net sales during fiscal year 1997 increasing by 72%
over net sales for fiscal year 1996. Net sales of Full-Flow systems to
companies in the Flat Panel Display ("FPD") manufacturing industry represented
0%, 6% and 24% of total net sales, primarily international sales, in fiscal
years 1999, 1998 and 1997, respectively. Following an analysis of the size of
the FPD wet processing equipment market, the potential for successful market
penetration and the volatility of that market, CFM will offer for sale only
those FPD system configurations that have already been developed and tested and
does not anticipate significant continuing sales to manufacturers of FPD's.
CFM sells its systems worldwide and records a significant portion of its
sales to customers outside the United States. In fiscal year 1999,
international sales constituted approximately 33% of net sales, down from 46%
in fiscal year 1998 and 65% in fiscal year 1997.
Sales to customers in East Asia represented 29%, 28% and 47% of total sales
in fiscal years 1999, 1998 and 1997, respectively. Beginning in the fall of
1997 and continuing through most of 1999, the currencies and economies of
certain Asian countries, including Korea, were distressed. Some of these Asian
countries subsequently experienced changes in currency valuation, received
external financial support and agreed to certain economic reorganization
programs anticipated to reduce growth and credit demand.
CFM reduced its staff in fiscal year 1998 by approximately 30% in response
to reductions in demand for its products and services. CFM adopted a strategy
of continued investment in new product and process development and the
retention of field and customer support personnel necessary to improve customer
satisfaction. The significant decline in overall demand for CFM's products in
the global marketplace resulted in significant losses. Future results will
depend upon a variety of factors, including the timing of significant orders,
the ability of CFM to bring new systems to market, the timing of new product
releases by CFM's competitors, the timing of the recovery from the downturn in
capital spending by CFM's customers, the impact of economic controls in
countries where CFM does business, market acceptance of new or enhanced
versions of CFM's systems, changes in pricing by CFM or its competitors and the
volatility of the semiconductor industry and of the markets served by CFM's
customers.
CFM's gross margin has been and will continue to be affected by a variety of
factors including underabsorption of manufacturing overhead and fixed costs,
the mix and average selling prices of systems and the mix of sales to domestic
and international markets. CFM pays significant commissions and service and
support fees to agents on sales in East Asia. As a result, gross margin and
selling, general and administrative expenses as a percentage of net sales, have
in the past and will continue in the future, to fluctuate with significant
changes in the proportion of net sales in East Asia.
184
<PAGE>
Results of Operations
The following table sets forth the components of CFM's statements of
operations for the fiscal years ended October 31, 1999, 1998 and 1997,
expressed as a percentage of net sales:
<TABLE>
<CAPTION>
Fiscal Year Ended
October 31,
---------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Net sales................... 100.0 % 100.0 % 100.0 %
Cost of sales............... 66.5 73.7 52.9
----- ----- -----
Gross profit............ 33.5 26.3 47.1
----- ----- -----
Operating expenses:
Research, development and
engineering.............. 31.8 34.6 12.3
Selling, general and
administrative........... 56.4 53.0 25.6
----- ----- -----
Total operating
expenses............... 88.2 87.6 37.9
----- ----- -----
Operating income (loss)..... (54.8) (61.3) 9.2
Interest (income) expense,
net........................ (4.5) (5.4) (2.5)
----- ----- -----
Income (loss) before income
taxes...................... (50.3) (55.9) 11.7
Income tax provision
(benefit).................. (17.1) (20.4) 3.5
----- ----- -----
Net income (loss)....... (33.2)% (35.5)% 8.2 %
===== ===== =====
</TABLE>
Years Ended October 31, 1999, 1998 and 1997
Net Sales. Net sales decreased 5% to $31.6 million in fiscal year 1999 from
$33.2 million in fiscal year 1998. Net sales for fiscal year 1998 decreased 56%
from $75.8 million in fiscal year 1997. The decrease in net sales in both
fiscal years 1999 and 1998 resulted primarily from a reduction in overall
demand for semiconductor manufacturing equipment as semiconductor device
manufacturers curtailed expansion plans because of industry-wide overcapacity.
Net sales for fiscal years 1998 and 1997 included sales of Full-Flow systems to
companies in the FPD manufacturing industry representing approximately 6% and
24%, respectively, of net sales. CFM will continue to offer for sale only those
FPD system configurations that have already been developed and tested, which it
believes will constitute a small portion of net sales in fiscal year 2000 and
thereafter.
International sales represented 33%, 46% and 65% of total net sales in
fiscal years 1999, 1998 and 1997, respectively. CFM expects international sales
to continue to represent a significant portion of its net sales. See the
section entitled "Risk Factors."
Gross Profit. Gross profit as a percentage of net sales was 33.5%, 26.3% and
47.1% in fiscal years 1999, 1998 and 1997, respectively. Gross profit in fiscal
year 1999, and more so in fiscal year 1998, declined as a result of
underabsorption of manufacturing overhead and fixed costs because of low
production levels relative to fiscal year 1997 and because of price competition
from competitors with underutilized production capacity. CFM occupied a new
60,000 square foot production facility in February of 1999 which more than
doubled its previous production capacity. This new facility has generated
operating efficiencies through improved material flow. Such efficiencies are
anticipated to increase with increasing production volume. Gross profit will
continue to be affected by sales prices, product mix and production levels.
Research, Development and Engineering. Research, development and engineering
expenses decreased to $10.0 million or 31.8% of net sales in fiscal year 1999
from $11.5 million or 34.6% of net sales in fiscal year 1998. Fiscal year 1998
expenses increased over fiscal year 1997, which were $9.3 million or 12.3% of
net sales. In fiscal year 1998, CFM funded a portion of the costs of a joint
development agreement with Semiconductor 300 which and engineering is critical
to maintaining a strong technological position and, therefore, competitive
advantage and accordingly expects such expenses in fiscal year 2000 will
continue at approximately the fiscal year 1999 level.
185
<PAGE>
Selling, General and Administrative. Selling, general and administrative
expenses remained relatively constant in fiscal year 1999 at $17.8 million or
56.4% of net sales from $17.6 million or 53.0% of net sales in fiscal year
1998. Fiscal year 1998 expenses decreased from $19.4 million or 25.6% of net
sales in fiscal year 1997 as a result of reduced sales and sales commission
expenses. Fiscal year 1999 expenses include approximately $2.9 million of
litigation expenses undertaken to protect CFM's patents compared to
$2.2 million in fiscal year 1998. Litigation expenses are expected to be $1.0
to 1.5 million per quarter in fiscal year 2000 as a result of two scheduled
jury trials. CFM believes that, subject to improved demand in the markets which
it serves, selling, general and administrative expenses will increase in fiscal
year 2000, as increased personnel and sales and support expenses are
anticipated in connection with CFM's efforts to increase its net sales and as
CFM continues to invest in developing and protecting its patents and other
intellectual property rights.
Interest (Income) Expense, Net. Interest income, net of interest expense, of
$1.4 million in fiscal year 1999 represented 4.5% of net sales, compared to
$1.8 million or 5.4% of net sales in fiscal year 1998 and $1.9 million or 2.5%
of net sales in fiscal year 1997. Net interest income for fiscal years 1999,
1998 and 1997 was earned as a result of the investment of funds not immediately
required for CFM's operations which were available as a result of CFM's follow-
on offering completed in February 1997. Net interest income declined in fiscal
years 1999 and 1998 as a result of lower invested balances and lower interest
rates.
Income Tax Provision (Benefit). CFM's effective tax benefit rate was 34.0%
in fiscal year 1999 compared to a benefit rate of 36.4% for fiscal year 1998.
The effective income tax benefit rate primarily reflects the absence of any tax
impact from CFM's foreign sales corporation based on the loss incurred for both
fiscal years 1999 and 1998. The effective tax rate for fiscal year 1997 was
30.0%. The rate for fiscal year 1997 reflected tax benefits from a
reinstitution of the research and development tax credit along with significant
tax benefits from CFM's foreign sales corporation.
Approximately $2.2 million of income tax benefits were realized as a refund
in fiscal year 1999 from the carryback of fiscal year 1998 losses to prior
years' tax returns. The remainder of the tax benefits from fiscal year 1998 and
all of fiscal year 1999 have been recorded as deferred tax assets. Based on an
assessment of CFM's taxable earnings history and expected future taxable income
at the end of fiscal 1999, management determined that it was more likely than
not that the net deferred tax assets would be realized in future periods. CFM
did subsequently provide a valuation allowance for these assets as it became
clear during the quarter ended April 30, 2000 that it was no longer more likely
than not that CFM would generate sufficient taxable income as planned.
Additionally, the ultimate realization of these assets could be negatively
impacted by market conditions other variables not known or anticipated at this
time. See additional discussion below in the income taxes section related to
the three and nine month periods ended July 31, 2000 and 1999 related to the
realizability of the deferred tax assets.
Three Month and Nine Month Periods Ended July 31, 2000 and 1999
The following table sets forth certain financial data for the periods
indicated, expressed as a percentage of net sales:
<TABLE>
<CAPTION>
Three Month
Period Nine Month
Ended Period Ended
July 31, July 31,
------------- ---------------
2000 1999 2000 1999
----- ----- ------ ------
<S> <C> <C> <C> <C>
Net sales................................. 100.0 % 100.0 % 100.0 % 100.0 %
Gross profit.............................. 36.1 % 37.0 % 36.5 % 32.3 %
Research, development and engineering..... 19.4 % 25.9 % 19.1 % 34.3 %
Selling, general and administrative....... 45.9 % 50.1 % 48.2 % 56.9 %
Operating loss............................ (29.2)% (39.1)% (30.8)% (58.9)%
Loss before income taxes.................. (28.0)% (36.1)% (29.3)% (53.9)%
Net Loss.................................. (28.0)% (23.8)% (59.5)% (35.6)%
</TABLE>
186
<PAGE>
Net Sales. Net sales for the three month period ended July 31, 2000 of $13.0
million increased 34.6% from $9.6 million in the corresponding period in fiscal
year 1999. International sales represented 32.3% and 40.1% of total net sales
for the three months ended July 31, 2000 and 1999, respectively. Net sales in
the second quarter of fiscal year 2000 were $12.0 million. The increase in net
sales for the third quarter of 2000 was the result of the continuing impact of
the broad semiconductor industry upturn.
For the nine months ended July 31, 2000, net sales of $37.7 million
increased 68% from $22.4 million during the nine months ended July 31, 1999.
International sales represented 53.7% and 36.8% of total net sales for the nine
months ended July 31, 2000 and 1999, respectively. The increase in net sales
for nine months ended July 31, 2000, is primarily the result of the
semiconductor industry upturn.
Gross Profit. Gross profit as a percentage of net sales was slightly lower
at 36.1% for the three-month period ended July 31, 2000 compared to 37.0% for
the same corresponding period in fiscal year 1999. Gross profit was 34.5% in
the second quarter of fiscal year 2000.
During the first nine months of fiscal year 2000, gross profit increased to
36.5% from 32.3% for the corresponding nine months of fiscal year 1999. The
increase in the gross profit percentage is attributable to increased
manufacturing production in fiscal year 2000. CFM's gross margins have varied
significantly from quarter to quarter and will continue to be affected by a
variety of factors. These factor include sales volumes, the mix and average
selling prices of systems, sales of OEM automation equipment which yield
relatively lower gross margins and the customization of systems.
Research, Development and Engineering. Research, development and engineering
expenses for the quarter ended July 31, 2000, compared to the corresponding
period of fiscal year 1999, remained stable at $2.5 million. Research,
development and engineering expenses were $2.2 million in the second quarter of
fiscal year 2000. CFM anticipates that research, development and engineering
spending in the coming quarters will continue at the current level.
Research, development and engineering expenses for the nine months ended
July 31, 2000 decreased slightly to $7.2 million from $7.7 million for the
corresponding period during fiscal year 1999. During the nine month period
ended July 31, 2000, CFM continued its support of the joint development project
with Semiconductor 300 (a joint venture of Infineon and Motorola) in Dresden,
Germany. As part of this joint development program, Semiconductor 300 and CFM
have qualified the CFM system's performance for a broad spectrum of production
processes using 300mm silicon wafers. CFM continues to develop new processes
for existing and new equipment and to invest in its applications laboratory,
which is used for process development and demonstrations.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $5.9 million or 45.9% of net sales in the quarter ended
July 31, 2000 from $4.8 million or 50.1% of net sales in the quarter ended July
31, 1999. Selling, general and administrative expenses were $6.1 million for
the second quarter of fiscal year 2000. Selling, general and administrative
expenses for the third quarter of fiscal year 1999 reflects higher patent
litigation costs compared to the same period in the prior year. See
"Litigation" below. CFM anticipates that selling, general and administrative
expenses will continue at current levels.
For the nine months ended July 31, 2000, selling, general and administrative
expenses were $18.2 million, or 48.2% of net sales, compared to $12.7 million,
or 56.9% of net sales, for the nine months ended July 31, 1999. During the nine
months ended July 31, 2000, expenses included approximately $4.1 million
related to CFM's ongoing efforts to protect its intellectual property compared
to $1.7 million in the comparable prior year period. Sales commission expenses
were higher in both the three and nine month period of fiscal year 2000 and
fiscal year 1999 as a result of higher net sales.
Interest (Income) Expense, Net. Interest income, net of interest expense,
was $149,000 and $283,000 for the quarters ended July 31, 2000 and 1999,
respectively.
187
<PAGE>
Interest income, net of interest expense, for the nine months ended July 31,
2000 and 1999 was $565,000 and $1,106,000, respectively. The net interest
income recorded during these periods was the result of interest income earned
by CFM from investment of funds not immediately needed to support CFM's
operations.
Income Taxes. CFM's effective tax rate was 34% for the three and nine month
periods ended July 31, 1999. The income tax benefit recorded in 1999 was
recorded as a deferred income tax asset. Based on an assessment of CFM's recent
earnings history and uncertainties related to expected future taxable income,
management has determined that it can no longer make the assertion that it is
more likely than not that any of the net deferred tax assets recorded as of
January 31, 2000 totaling $12,578,000 will be realized in future periods. As a
result, CFM recorded a full valuation allowance against its net deferred tax
assets in the fiscal quarter ended April 30, 2000. The valuation allowance was
recorded in the income tax provision (benefit) in the accompanying statements
of operations for the nine months ended July 31, 2000. In addition, based on
the factors noted above, CFM has recorded a full valuation allowance against
the income tax benefit for the quarter ended July 31, 2000.
Backlog
As of July 31, 2000, CFM's backlog of orders was $9.9 million, compared to
$10.7 million as of July 31, 1999. Customer orders for the third quarter of
fiscal 2000 were $14.1 million and $37.0 million for the first nine months of
fiscal 2000. Orders from the U.S. accounted for 80% of total orders for the
third quarter, 18% were from Asia and the remainder were from Europe. For the
nine months ended July 31, 2000, U.S. orders accounted for 44.9% of the total
orders, 50.7% were from Asia and the remainder were from Europe. It has been
the experience of CFM that neither reported backlog at a particular date nor
the pattern of receipt of orders is necessarily indicative of future orders or
revenues.
Liquidity and Capital Resources
Since its inception, CFM has funded its capital requirements through funding
from two research and development limited partnerships, the private sale of
equity securities, CFM's initial public offering of common stock completed in
June 1996, a follow-on offering of common stock completed in February 1997 and,
to a lesser extent, bank borrowings and equipment leases. At July 31, 2000, CFM
had $10.1 million in cash and cash equivalents, $3.7 million in short-term
investments and $32.3 million in working capital. At October 31, 1999 CFM had
$14.0 million in cash and cash equivalents, $10.2 million in short-term
investments and $45.1 million in working capital.
Net cash used in operating activities was $10.2 and $12.1 million for fiscal
years 1999 and 1997, respectively, while net cash of $0.3 million was provided
by operating activities in fiscal year 1998, predominantly as a result of
significant net collections of accounts receivable. CFM had a net loss of
$10.5 million in fiscal year 1999 and a net loss of $11.8 in fiscal year 1998.
Accounts receivable increased $0.8 million in fiscal year 1999 and decreased
$19.4 million in fiscal year 1998. Inventories increased $3.4 million in fiscal
year 1999 and decreased $2.4 million in fiscal year 1998. Inventories increased
in fiscal year 1999 to meet forecasted fiscal year 2000 sales. Fiscal year 1999
inventory balances also include equipment at a customer site for joint process
development in anticipation of a subsequent customer purchase.
Approximately $8.4 million was used in operating activities during the nine
months ended July 31, 2000, as compared with $11.6 million used in operating
activities during the nine months ended July 31, 1999. The cash used in
operating activities during the nine months ended July 31, 2000 was primarily
the result of the net loss of $22.4 million and a decrease in accounts payable
of $1.1 million. Cash provided by operating activities was derived from a
decrease in inventories of $1.1 million and non-cash charges of $2.2 million of
depreciation and amortization and $11.4 million related to deferred taxes.
The cash used in operating activities during the nine months ended July 31,
1999 was primarily the result of the net loss of $8.0 million and an increase
in accounts receivable of $5.2 million. Cash provided by
188
<PAGE>
operating activities was derived from the receipt of income tax payments of
$2.5 million related to the carry back of net operating losses to prior
periods, an increase in accounts payable of $2.3 million and non-cash charges
of $1.6 million of depreciation and amortization.
Purchases of property, plant and equipment were $5.7 million and $3.9
million in fiscal years 1999 and 1998, respectively. During fiscal year 1999,
capital expenditures were primarily related to equipment for and improvements
to CFM's new leased manufacturing and office facilities occupied during 1999.
In addition, CFM constructed and capitalized one of its systems for development
and testing of new hardware and software under production conditions. In fiscal
year 1998, capital expenditures primarily were for continued investment in
CFM's applications laboratory and improvements to the leased facilities
occupied by CFM during fiscal year 1999.
Acquisitions of property, plant and equipment were $2.0 million for the
first nine months of fiscal year 2000 and $3.9 million for the first nine
months of fiscal 1999. Acquisitions during the first nine months of fiscal year
2000 were primarily for the purchase of systems control software while
acquisitions in the first nine months of fiscal year 1999 were related to the
acquisition of leasehold improvements for CFM's production and administrative
facilities.
During fiscal year 1998, production activities were consolidated and leased
premises in the same industrial park as CFM's owned manufacturing and leased
administrative facilities were reduced to 8,000 square feet, and were
subsequently vacated in March 1999. CFM's new 60,000 square foot production
facility was occupied in February 1999 and its new 80,000 square foot office
facility was occupied in April 1999; both facilities are located in Exton,
Pennsylvania adjacent to each other. During fiscal year 1998, CFM leased 32,000
square feet of temporary prototype laboratory and storage facility which was
vacated during fiscal year 1999. CFM has retained its owned facility in West
Chester, Pennsylvania for use in manufacturing, customer and employee training
and research. All other functions are now located in Exton. CFM also has a
lease on its vacated former office facility in West Chester, Pennsylvania,
which will expire in November of 2000. Since August 1999, CFM has had tenants
that sublease approximately 70% of this building.
CFM has a relationship with a commercial bank which includes a mortgage on
one of CFM's manufacturing facilities in the amount of $0.6 million and a $7.5
million unsecured revolving demand line of credit with an interest rate equal
to the bank's prime rate. The mortgage bears interest at an annual rate of
8.56%. As of July 31, 2000, no balance was outstanding under CFM's line of
credit.
CFM also has mortgage notes payable to the Pennsylvania Industrial
Development Authority in the amount of $0.4 million bearing interest at 2.0%
and to the Chester County Development Council in the amount of $0.05 million
bearing interest at 5.0%. In addition, CFM has outstanding capital lease
obligations in the amount of $.8 million bearing interest at rates ranging from
7% to 12% per annum.
CFM had outstanding accounts receivable of approximately $14.9 million and
$14.8 million as of July 31, 2000 and October 31, 1999, respectively. CFM has
recorded an allowance for doubtful accounts of $13,000 as of July 31, 2000.
Management believes that no additional allowance for doubtful accounts
receivable is needed at this time as CFM believes that such accounts receivable
are fully realizable. Management performs an ongoing evaluation of the status
of accounts receivable balances in order to determine if any additional
allowances or any write-offs are necessary. CFM may be required to record
significant additional allowances in future periods should it determine that
any of its accounts receivable become uncollectible.
CFM believes that existing cash, cash equivalents and short-term investment
balances and its available line of credit will be sufficient to meet CFM's cash
requirements during the next 12 months. However, depending upon its rate of
growth and profitability, CFM may require additional equity or debt financing
to meet its working capital requirements or capital expenditure needs. There
can be no assurance that additional financing, if needed, will be available
when required or, if available, will be on terms satisfactory to CFM. It is
management's expectation that the announced transaction with Mattson will take
place on or shortly after January 1, 2001, at which point CFM will be acquired
by Mattson. See "Merger Agreement with Mattson Technology," beginning on page
86 of this joint proxy statement-prospectus.
189
<PAGE>
Impact of Recently Issued Accounting Standards
In December 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin No. 101--Revenue Recognition in Financial Statements ("SAB
101"). SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
CFM is reviewing these views and assessing whether any of these interpretations
of generally accepted accounting principles may cause CFM to report a change in
accounting principle. In compliance with SAB 101, CFM is required to and will
make such a determination and report the impact of such a change, if any, no
later than the fourth quarter of fiscal year 2001. While management believes
that its revenue recognition policies conform with the generally accepted
accounting principles that have been used consistently in practice in the
capital equipment industry, certain issues raised in SAB 101, including
delivery and performance revenue recognition criteria, could be interpreted to
cause a change in accounting principle by CFM and many other companies in the
capital equipment industry. At this time, the effect of SAB 101 on CFM's
operating results in any future period cannot be fully determined; however,
such a change could materially adversely affect CFM's financial position and
results of operations.
190
<PAGE>
PRINCIPAL SHAREHOLDERS OF CFM
The following table sets forth certain information as of October 4, 2000,
with respect to the beneficial ownership of CFM's common stock by (i) all
persons known by CFM to be the beneficial owners of more than 5% of the
outstanding common stock of CFM, (ii) each director of CFM, (iii) the Chief
Executive Officer and the three other executive officers of CFM as of October
4, 2000 whose salary and bonus for the year ended December 31, 2000 exceeded
$100,000, and (iv) all executive officers and directors of CFM as a group.
<TABLE>
<CAPTION>
Shares Owned(2)
------------------------
Number of Percentage
Name and Address of Beneficial Owners(1) Shares of Class
---------------------------------------- --------- ----------
<S> <C> <C>
Christopher F. McConnell............................. 1,135,095 (3) 14.7
Roger A. Carolin..................................... 269,134 (4) 3.3
James J. Kim......................................... 36,743 (5) *
John F. Osborne...................................... 13,041 (6) *
Milton S. Stearns, Jr. .............................. 55,006 (7) *
Lorin J. Randall..................................... 85,054 (8) 1.0
Executive officers and directors as a group (6
persons)............................................ 1,594,073 20.3%
</TABLE>
--------
* Less than 1%
(1) Except as otherwise indicated, the address of each beneficial owner is c/o
CFM Technologies, Inc., 150 Oaklands Boulevard, Exton, Pennsylvania 19341.
(2) Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to all shares
of common stock shown as beneficially owned by them, subject to community
property laws, where applicable.
(3) Includes vested options to purchase 35,000 shares of common stock.
(4) Includes vested options to purchase 217,428 shares of common stock.
(5) Includes vested options to purchase 7,763 shares of common stock.
(6) Includes vested options to purchase 5,041 shares of common stock.
(7) Includes vested options to purchase 19,806 shares of common stock.
(8) Includes vested options to purchase 76,216 shares of common stock.
REGULATORY MATTERS AFFECTING MATTSON, STEAG, AND CFM
Mattson, STEAG Semiconductor, and CFM have received the required clearances
under both the HSR Act and the German Cartel Act.
LEGAL MATTERS
The validity of the shares of Mattson common stock to be issued in the
Transactions will be passed upon for Mattson by Gray Cary Ware & Freidenrich
LLP, Palo Alto, California. The tax consequences of the merger will be passed
upon for CFM by Ballard Spahr Andrews & Ingersoll, LLP, Philadelphia,
Pennsylvania.
191
<PAGE>
EXPERTS
The consolidated financial statements of Mattson Technology Inc. as of
December 31, 1999 and for the year then ended included and incorporated by
reference in this joint proxy statement-prospectus and elsewhere in the
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said report.
The combined financial statements of STEAG Semiconductor as of December 31,
1999 and 1998 and for the years then ended, included in this joint proxy
statement-prospectus and elsewhere in the registration statement have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
The consolidated financial statements of CFM Technologies, Inc. as of
October 31, 1999 and 1998, and for the three years ended October 31, 1999
included in and incorporated by reference in this joint proxy statement-
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
The financial statements of Mattson as of December 31, 1998 and for each of
the two years ended December 31, 1998 included in this joint proxy statement-
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
STOCKHOLDER PROPOSALS TO BE PRESENTED AT NEXT MATTSON ANNUAL MEETING
Mattson has an advance notice provision under its bylaws for stockholder
business to be presented at meetings of stockholders. Such provision states
that in order for stockholder business to be properly brought before a meeting
by a stockholder, such stockholder must have given timely notice thereof in
writing to the Secretary of Mattson. A stockholder proposal, to be timely, must
be received at the Mattson's principal executive offices not less than 120
calendar days in advance of the one year anniversary of the date the Mattson's
proxy statement was released to stockholders in connection with the previous
year's annual meeting of stockholders; except that (i) if no annual meeting was
held in the previous year, (ii) if the date of the annual meeting has been
changed by more than thirty calendar days from the date contemplated at the
time of the previous year's proxy statement, or (iii) in the event of a special
meeting, then notice must be received not later than the close of business on
the tenth day following the day on which notice of the date of the meeting was
mailed or public disclosure of the meeting date was made.
Proposals of stockholders intended to be presented at the next annual
meeting of stockholders of Mattson (i) must be received by Mattson at its
offices no later than December 18, 2000, and (ii) must satisfy the conditions
established by the Securities and Exchange Commission for stockholder proposals
to be included in Mattson's proxy statement for that meeting.
WHERE YOU CAN FIND MORE INFORMATION
Mattson and CFM each file annual, quarterly, and special reports, proxy
statements, and other information with the United States Securities and
Exchange Commission (the "SEC"). Mattson's common stock is traded on the Nasdaq
National Market ("Nasdaq") under the symbol "MTSN." CFM's common stock is
traded on the Nasdaq under the symbol "CFMT." You may read and copy any
document filed by Mattson or CFM at the SEC's public reference facilities or on
the SEC's website at http://www.sec.gov, as discussed in more detail below.
Neither STEAG nor any of the STEAG Semiconductor Subsidiaries is a reporting
company and therefore no additional reports or financial information about
STEAG or any of the STEAG Semiconductor Subsidiaries are publicly available.
192
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows Mattson and CFM to "incorporate by reference" the
information they file with the SEC, which means that they can disclose
important information by referring you to documents previously filed with the
SEC. The information incorporated by reference is considered a part of this
joint proxy statement-prospectus, and any later information that Mattson or
CFM file with the SEC, including any reports filed pursuant to Section 13(a)
or 15(d) the Securities Exchange Act, will automatically update and supersede
this information. This joint proxy statement-prospectus is part of a
registration statement on Form S-4 filed by Mattson with the SEC.
Mattson incorporates by reference the documents listed below, and any
additional documents filed by Mattson with the SEC between the date of this
joint proxy statement-prospectus and the date of the Mattson special meeting.
The documents Mattson incorporates by reference are:
Mattson's annual report on Form 10-K for the fiscal year ended December 31,
1999;
Mattson's quarterly report on Form 10-Q for the quarter ended March 31,
2000; and
Mattson's quarterly report on Form 10-Q for the quarter ended June 30,
2000.
CFM incorporates by reference the documents listed below and any documents
that CFM may file with the SEC between the date of this joint proxy statement-
prospectus and the date of the CFM special meeting. The documents CFM
incorporates by reference are:
CFM's annual report on Form 10-K for the fiscal year ended October 31,
1999;
CFM's quarterly report on Form 10-Q for the quarter ended January 31, 2000;
CFM's amended quarterly report on Form 10-Q/A for the quarter ended January
31, 2000;
CFM's quarterly report on Form 10-Q for the quarter ended April 30, 2000;
and
CFM's quarterly report on Form 10-Q for the quarter ended July 31, 2000.
Documents incorporated by reference are available without charge, excluding
all exhibits unless such exhibits have been specifically incorporated by
reference in this joint proxy statement-prospectus. You may obtain documents
incorporated by reference by requesting them in writing or by telephone from
the appropriate company as follows:
Mattson Technology, Inc. CFM Technologies, Inc.
2800 Bayview Drive 150 Oaklands Boulevard
Fremont, California 94538 Exton, Pennsylvania 19341
Attention: Peter Brown, Corporate Marketing Manager
Attention: Jeff Randall, Chief
Phone Number: (510) 657-5900 Financial Officer
Phone Number: (610) 280-8509
In order to ensure timely delivery of the documents, any requests should be
made by October 27, 2000.
In addition, copies of the documents incorporated by reference may be
inspected and copied at the following public reference facilities maintained
by the SEC:
Judiciary Plaza Citicorp Center Seven World Trade Center
Room 1024 500 West Madison 13th Floor
450 Fifth Street, Street New York, New York 10048
N.W. Suite 1400
Washington, D.C. Chicago, Illinois
20549 60661
193
<PAGE>
Copies of these materials can also be obtained by mail at prescribed rates
from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549, or by calling the SEC at 1-800-SEC-0330. The SEC
maintains a website that contains reports, proxy statements, and other
information regarding each of Mattson and CFM. The address of the SEC website
is http://www.sec.gov. Reports, proxy statements, and other information
concerning Mattson and CFM can also be inspected at the Nasdaq National Market,
Operations, 1735 K Street, N.W., Washington, D.C.
Mattson has filed a registration statement under the Securities Act of 1933,
as amended (the "Securities Act"), with the SEC with respect to the Mattson
common stock to be issued under the Merger Agreement with CFM. This joint proxy
statement-prospectus constitutes the prospectus of Mattson filed as part of the
registration statement. This joint proxy statement-prospectus does not contain
all of the information set forth in the registration statement because certain
parts of the registration statement are omitted as provided by the rules and
regulations of the SEC. You may inspect and copy the registration statement at
any of the addresses listed above.
194
<PAGE>
MATTSON INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
---------
<S> <C>
ANNUAL AUDITED FINANCIAL STATEMENTS
Report of Independent Public Accountants (Arthur Andersen LLP)..... F-2
Report of Independent Accountants (PricewaterhouseCoopers LLP)..... F-3
Consolidated Balance Sheets as of December 31, 1999 and 1998....... F-4
Consolidated Statements of Operations for the years ended December
31, 1999, 1998 and 1997........................................... F-5
Consolidated Statements of Stockholders' Equity for the three years
ended December 31, 1999........................................... F-6
Consolidated Statements of Cash Flows for the years ended December
31, 1999, 1998 and 1997........................................... F-7
Notes to Consolidated Financial Statements......................... F-8-F-21
UNAUDITED INTERIM FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets.............................. F-22
Condensed Consolidated Statements of Operations.................... F-23
Condensed Consolidated Statements of Cash Flows.................... F-24
Notes to Condensed Consolidated Financial Statements............... F-25-F-28
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS (ARTHUR ANDERSEN LLP)
To Mattson Technology, Inc.:
We have audited the accompanying consolidated balance sheet of Mattson
Technology, Inc. and subsidiaries (a Delaware corporation) as of December 31,
1999 and the related consolidated statements of operations, stockholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit 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 the significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides 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 Mattson Technology, Inc.
and subsidiaries as of December 31, 1999 and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
San Jose, California
January 21, 2000
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS (PRICEWATERHOUSECOOPERS LLP)
To the Board of Directors and Stockholders of
Mattson Technology, Inc.:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
Mattson Technology, Inc. and its subsidiaries at December 31, 1998 and the
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1998, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Jose, California
February 9, 1999
F-3
<PAGE>
MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
As of December
31,
------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents................................ $ 16,965 $ 11,863
Short-term investments................................... -- 8,128
Accounts receivable, net of allowances for doubtful
accounts of $141 in 1999 and 1998....................... 21,500 9,614
Inventories.............................................. 25,374 10,924
Refundable income taxes.................................. -- 3,300
Note receivable from stockholder......................... -- 3,129
Prepaid expenses and other current assets................ 2,299 2,316
-------- --------
Total current assets................................... 66,138 49,274
Property and equipment, net................................ 11,260 12,090
Goodwill, intangibles and other assets..................... 3,750 6,756
-------- --------
$ 81,148 $ 68,120
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Line of credit........................................... $ 3,000 $ --
Accounts payable......................................... 8,494 3,399
Accrued liabilities...................................... 17,635 14,841
-------- --------
Total current liabilities.............................. 29,129 18,240
-------- --------
Commitments and contingencies (Note 13)
Stockholders' equity:
Common Stock, par value $0.001, 60,000 shares authorized;
16,591 issued, 16,216 outstanding in 1999 and 15,772
shares issued and 15,397 outstanding in 1998............ 16 16
Additional paid in capital............................... 66,280 63,239
Accumulated other comprehensive loss..................... (191) (138)
Treasury stock, 375 shares in 1999 and 1998 at cost...... (2,987) (2,987)
Retained earnings (deficit).............................. (11,099) (10,250)
-------- --------
Total stockholders' equity............................. 52,019 49,880
-------- --------
$ 81,148 $ 68,120
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Net sales......................................... $103,458 $ 59,186 $76,730
Cost of sales..................................... 53,472 37,595 37,130
-------- -------- -------
Gross profit...................................... 49,986 21,591 39,600
-------- -------- -------
Operating expenses:
Research, development and engineering........... 19,547 16,670 14,709
Selling, general and administrative............. 31,784 24,542 24,495
Acquired in-process research and Development.... -- 4,220 --
-------- -------- -------
Total operating expenses...................... 51,331 45,432 39,204
-------- -------- -------
Income (loss) from operations..................... (1,345) (23,841) 396
Interest and other income, net.................... 743 1,811 1,486
-------- -------- -------
Income (loss) before provision for income taxes... (602) (22,030) 1,882
Provision for income taxes........................ 247 337 451
-------- -------- -------
Net income (loss)................................. $ (849) $(22,367) $ 1,431
======== ======== =======
Net income (loss) per share:
Basic........................................... $ (0.05) $ (1.52) $ 0.10
======== ======== =======
Diluted......................................... $ (0.05) $ (1.52) $ 0.09
======== ======== =======
Shares used in computing net income (loss) per
share:
Basic........................................... 15,730 14,720 14,117
======== ======== =======
Diluted......................................... 15,730 14,720 15,311
======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Common Stock Accumulated
Capital Additional Other Treasury Stock Retained
-------------- Paid in Comprehensive -------------- Earnings
Shares Amount Capital Other (Loss) Shares Amount (Deficit) Total
------ ------ ---------- ----- ------------- ------ ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996................... 14,197 $ 14 $57,566 $(13) $ (77) - $ - $ 11,625 $ 69,115
Repurchase of Common
Stock, net............. (335) - (2,197) - - (100) (1,075) (939) (4,211)
Exercise of stock
options................ 183 - 261 - - - - - 261
Shares issued under
employee stock purchase
plan................... 244 - 1,598 - - - - - 1,598
Income tax benefits
realized from activity
in employee stock
plans.................. - - 190 - - - - - 190
Amortization of deferred
compensation........... - - - 13 - - - - 13
Net unrealized gain on
investments............ - - - - 23 - - - -
Cumulative translation
adjustments............ - - - - (236) - - - -
Net income.............. - - - - - - - 1,431 -
Total comprehensive
income................. - - - - - - - - 1,218
------ ---- ------- ---- ----- ---- ------- -------- --------
Balance at December 31,
1997................... 14,289 14 57,418 - (290) (100) (1,075) 12,117 68,184
Repurchase of Common
Stock, net............. - - - - (275) (1,912) (1,912)
Exercise of stock
options................ 380 - 163 - - - - - 163
Shares issued under
employee stock purchase
plan................... 308 1 1,620 - - - - - 1,621
Shares issued for
acquisition of Concept
Systems Design, Inc.... 795 1 4,038 - - - - - 4,039
Cumulative translation
adjustments............ - - - - 152 - - - -
Net loss................ - - - - - - - (22,367) -
Total comprehensive
loss................... - - - - - - - - (22,215)
------ ---- ------- ---- ----- ---- ------- -------- --------
Balance at December 31,
1998................... 15,772 16 63,239 - (138) (375) (2,987) (10,250) 49,880
Exercise of stock
options, net........... 456 - 1,431 - - - - - 1,431
Shares issued under
employee stock purchase
plan................... 363 - 1,610 - - - - - 1,610
Cumulative translation
adjustments............ - - - - (53) - - - -
Net loss................ - - - - - - - (849) -
Total comprehensive
loss................... - - - - - - - - (902)
------ ---- ------- ---- ----- ---- ------- -------- --------
Balance at December 31,
1999................... 16,591 $ 16 $66,280 $ - $(191) (375) $(2,987) $(11,099) $ 52,019
====== ==== ======= ==== ===== ==== ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................... $ (849) $(22,367) $ 1,431
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization................. 4,801 4,441 2,856
Acquired in-process research and development.. -- 4,220 --
Deferred taxes................................ -- 4,222 (25)
Deferred compensation related to stock
options...................................... -- -- 13
Changes in assets and liabilities:
Accounts receivable........................... (11,886) 5,509 1,170
Inventories................................... (14,822) 10,714 (6,114)
Refundable income taxes....................... 3,300 (2,748) --
Prepaid expenses and other current assets..... (603) (1,183) (118)
Other assets.................................. 39 72 2,962
Accounts payable.............................. 5,095 (4,468) 2,109
Accrued liabilities........................... 5,415 (3,771) (1,224)
-------- -------- --------
Net cash provided by (used in) operating
activities................................. (9,510) (5,359) 3,060
-------- -------- --------
Cash flows from investing activities:
Acquisition of property and equipment........... (3,250) (1,726) (4,671)
Note receivable from stockholder................ 3,749 (3,129) --
Purchases of short term investments............. -- (13,606) (16,468)
Sales and maturities of short term investments.. 8,128 14,090 24,513
Repayment of debt acquired in acquisition....... -- (4,000) --
-------- -------- --------
Net cash provided by (used in) investing
activities................................. 8,627 (8,371) 3,374
-------- -------- --------
Cash flows from financing activities:
Borrowings against line of credit............... 3,000 -- --
Proceeds from the issuance of Common Stock...... 3,041 1,784 2,049
Net repurchase of common Stock.................. -- (1,912) (4,211)
-------- -------- --------
Net cash provided by (used in) financing
activities................................. 6,041 (128) (2,162)
-------- -------- --------
Effect of exchange rate changes................... (56) 138 (236)
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents...................................... 5,102 (13,720) 4,036
Cash and cash equivalents, beginning of year...... 11,863 25,583 21,547
-------- -------- --------
Cash and cash equivalents, end of year............ $ 16,965 $ 11,863 $ 25,583
======== ======== ========
Supplemental disclosures:
Cash paid for interest.......................... $ 58 $ -- $ --
Cash paid for income taxes...................... $ 224 $ 280 $ 629
Common stock issued for acquisition of Concept.. $ -- $ 4,039 $ --
Non-cash adjustment to goodwill and
intangibles.................................... $ 2,200 $ -- $ --
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Mattson Technology, Inc. (the "Company") was incorporated in California on
November 18, 1988. In September 1997, the Company was reincorporated in the
State of Delaware. As part of the reincorporation, each outstanding share of
the California corporation, no par value common stock, was converted
automatically to one share of the new Delaware corporation, $0.001 par value
common stock.
The Company designs, manufactures and markets advanced fabrication equipment
to the semiconductor manufacturing industry worldwide.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated. The preparation of 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 disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses
during the reported periods. Actual results could differ from those estimates.
The Company's fiscal year ends on December 31. The Company's fiscal quarters
end on the last Sunday in the calendar quarter.
CASH EQUIVALENTS AND SHORT TERM INVESTMENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid instruments with an original maturity of three months or less to
be cash equivalents. Cash equivalents consist primarily of money market funds.
Short term investments consist of commercial paper and U.S. Treasury securities
with maturities of more than three months. The Company classifies its
investments in commercial paper and U.S. Treasury securities as "available for
sale" and the investments are reported at fair market value. As of December 31,
1998, the fair value of the investments in commercial paper and U.S. Treasury
securities approximated amortized cost and, as such, unrealized holding gains
and losses were insignificant. The fair value of the Company's investments was
determined based on quoted market prices at the reporting date for those
instruments.
INVENTORIES
Inventories are stated at the lower of standard cost, which approximates
actual cost, using the first-in, first-out method, or market, and include
material, labor and manufacturing overhead costs.
WARRANTY COSTS
Upon shipment of product, the Company accrues the estimated cost of
warranty. The Company offers a 36 month warranty on all of its systems sold
after January 1996, other than the EpiPro 5000 system and any systems sold in
Japan, and a 12 month warranty in Japan and on its EpiPro products.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method based upon the estimated useful lives of the assets,
which range from three to five years. Leasehold improvements are amortized
using the straight-line method over the term of the related lease or the
estimated useful lives of the improvements, whichever is less.
F-8
<PAGE>
MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
GOODWILL AND INTANGIBLE ASSETS
Purchased technology, workforce and goodwill are presented at cost, net of
accumulated amortization, and are being amortized using the straight-line
method over their estimated useful lives of three to seven years.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." As allowed by the provisions of SFAS No. 123, the Company has
continued to apply APB Opinion No. 25 in accounting for its stock option plans
and, accordingly, does not recognize compensation cost because the exercise
price equals the market price of the underlying stock at the date of grant. The
Company has adopted the disclosure only provisions of SFAS No. 123 and Note 6
to the Consolidated Financial Statements contains a summary of the pro forma
effects to reported net income (loss) and earnings (loss) per share for 1999,
1998 and 1997 for compensation cost based on the fair value of the options
granted at the grant date as prescribed by SFAS No. 123.
REVENUE RECOGNITION
System sales are generally recognized upon shipment. However, in certain
circumstances, the Company allows customers to evaluate systems, and since
customers can return such systems to the Company at any time with limited or no
penalty, the Company does not recognize the associated revenue until an
evaluation system is accepted by the customer. Sales to our distributor in
Japan are recognized upon shipment with reserves provided for limited rights of
return (see Note 10). Service and maintenance contract revenue, which to date
has been insignificant, is recognized on a straight-line basis over the service
period of the related contract. A provision for the estimated future cost of
system installation and warranty is recorded at the time revenue is recognized.
COMPREHENSIVE INCOME
In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for disclosure and financial statement
display for reporting total comprehensive income and its individual components.
Comprehensive income, as defined, includes all changes in equity during a
period from non-owner sources. The Company's comprehensive income includes net
income, foreign currency translation adjustments and unrealized gains and
losses on investments and is displayed in the statement of stockholders'
equity.
FOREIGN CURRENCY ACCOUNTING
The local currency is the functional currency for all foreign operations
except those in Japan, where the U.S. dollar is the functional currency. Gains
or losses from translation of foreign operations where the local currencies are
the functional currency are included as a component of stockholders' equity.
Foreign currency transaction gains and losses are recognized in the statements
of operations and have not been material.
NET INCOME (LOSS) PER SHARE
Basic earnings per share (EPS) is computed by dividing income available to
common stockholders (numerator) by the weighted average number of common shares
outstanding (denominator) for the period. Diluted EPS gives effect to all
dilutive potential common shares outstanding during the period. The computation
of diluted EPS uses the average market prices during the period.
SEGMENT REPORTING
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." SFAS No. 131 changes the way companies
report selected segment information in annual
F-9
<PAGE>
MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
financial statements and also requires companies to report selected segment
information in interim financial reports. The Company operates in one
reportable segment. Note 11 of the Consolidated Financial Statements contains a
summary table of industry segment, geographic and customer information.
SFAS NO. 133 "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES"
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 establishes new standards of accounting and reporting for derivative
instruments and hedging activities. SFAS No. 133 requires that all derivatives
be recognized at fair value in the statement of financial position, and that
the corresponding gains or losses be reported either in the statement of
operations or as a component of comprehensive income, depending on the type of
hedging relationship that exists. SFAS No. 133 is effective for fiscal years
beginning after June 15, 2000 and cannot be applied retroactively. The effect
of adopting SFAS No. 133 is not expected to be material to the Company's
financial statements.
2. ACQUISITION OF CONCEPT SYSTEMS DESIGN
On July 24, 1998, the Company acquired Concept Systems Design. The
transaction was achieved through the merger of a wholly owned subsidiary of the
Company with and into Concept. In connection with the merger, the Company
issued 795,138 shares of Common Stock to the former shareholders of Concept.
In addition to the issuance of the 795,138 shares mentioned above, the
agreement for the acquisition of Concept also includes the contingent issuance
and distribution of 100,000 shares of Mattson Common Stock to the Concept
shareholders if Concept achieves net revenues of at least $16,667,000 during
the first 24 full calendar months following the acquisition date. Additional
shares issued, if any, will be valued at the fair value of the shares at the
date of issue and will result in additional goodwill.
The merger has been accounted for as a purchase and the results of
operations of Concept were included in the consolidated statement of operations
of the Company from the date of acquisition. The purchase price of the
acquisition of $4,689,000, which included $650,000 of estimated acquisition
related costs, was used to acquire the net assets of Concept. The purchase
price was allocated to assets acquired and liabilities assumed based on the
fair value of Concept's current assets and liabilities, which management
believed approximated their book value, the estimated fair value of property
and equipment, based on management's estimates of fair value, and an
independent appraisal for all other identifiable assets. The excess of the
purchase price over the net tangible and intangible assets acquired and
liabilities assumed was allocated to goodwill. The allocation of the purchase
price was as follows (in thousands):
<TABLE>
<S> <C>
Property and equipment........................................... $ 3,055
Current and other assets......................................... 4,041
Liabilities assumed.............................................. (13,570)
Acquired developed technology and workforce...................... 5,300
Goodwill......................................................... 1,643
Acquired in-process research and development..................... 4,220
--------
$ 4,689
========
</TABLE>
In the first quarter of 1999, a preacquisition contingency was resolved
which reduced the liabilities assumed from Concept by approximately $2.2
million. Under the provisions of Statement of Financial Accounting Standards
No. 38, this has been recorded by the Company in the first quarter of 1999 on a
prospective basis as an elimination of previously recorded goodwill and a pro-
rata reduction of the balance to
F-10
<PAGE>
MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the acquired developed technology, workforce and property and equipment. The
acquired developed technology and workforce are recorded on the balance sheet
as long term assets and will be amortized on a straight line basis over periods
ranging from 3 to 7 years. The acquired in-process research and development was
expensed at the time of acquisition as a one time charge.
The original amount allocated to in-process research and development and
other intangible assets in the third quarter of 1998 of $5.7 million and $5.4
million, respectively, relating to the acquisition of Concept, was made in a
manner consistent with widely recognized appraisal practices that were being
utilized at the time of acquisition. Subsequent to the acquisition, in a letter
dated September 15, 1998 to the American Institute of Certified Public
Accountants, the Chief Accountant of the Securities and Exchange Commission
expressed views of the SEC staff that took issue with certain appraisal
practices employed in the determination of the fair value of the in-process
research and development that was the basis for the Company's measurement of
its in-process research and development charge. Accordingly, the Company
resolved to adjust the amount originally allocated to acquired in-process
research and development and other intangible assets in a manner to reflect the
SEC staff's views and restated its third quarter 1998 consolidated financial
statements and filed an amended Form 10-Q. The revised amount of in-process
research and development and other intangible assets that resulted from this
change was $4.2 million and $6.9 million, respectively.
The value assigned to in-process research and development was determined by
identifying research projects in areas for which technological feasibility had
not been established. These included the Concept EpiPro 5000 system and a
single wafer Episystem. The value was determined by estimating the expected
cash flows from the projects (taking into consideration an estimate of future
obsolescence of the technology) once commercially viable, applying a percentage
of completion and then discounting the net cash flows back to their present
value. The Company believes the efforts to complete the in-process research and
development projects will consist of internally staffed engineers and will be
completed in 2001. The estimated costs to complete the research and development
is approximately $1.7 million. There is substantial risk associated with the
completion of each project and there is no assurance that any of the projects
will meet with technological or commercial success.
The percentage of completion for each project was determined using
management estimates of time and dollars spent as of the acquisition date as
compared to time and dollars that were expected to be required to complete the
projects. The degree of difficulty of the portion of each project completed as
of July 24, 1998 was also compared to the remaining research and development to
be completed to bring each project to technical feasibility. At July 24, 1998,
the percentage of completion for the Concept EpiPro 5000 was estimated at 80%
and for the single wafer Episystem at 50%.
If the projects discussed above are not successfully developed, the sales
and profitability of the combined company may be adversely affected in future
periods. Additionally, the value of other intangible assets acquired may become
impaired. Company management believes that the restated in-process research and
development charge of $4.2 million is valued consistently with the SEC staff's
current views regarding valuation methodologies. There can be no assurance,
however, that the SEC staff will not take issue with any assumptions used in
the Company's valuation model and require the Company to further revise the
amount allocated to in-process research and development.
The following pro forma summary is provided for illustrative purposes only
and is not necessarily indicative of the consolidated results of operations for
future periods or that actually would have been realized had the Company and
Concept been a consolidated entity during the periods presented. The summary
combines the results of operations as if Concept had been acquired as of the
beginning of the periods presented.
F-11
<PAGE>
MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The summary includes the impact of certain adjustments such as goodwill
amortization and changes in depreciation. Additionally, the non-recurring in-
process research and development charge of $4.2 million has been excluded from
the periods presented.
The following table represents unaudited pro forma information assuming that
the acquisition took place at the beginning of the periods presented:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1998 1997
------------ ------------
(unaudited)
(in thousands, except
per share data)
<S> <C> <C>
Net sales........................................ $ 62,503 $ 83,040
Net loss......................................... $ (32,632) $ (8,694)
Basic and diluted loss per share................. $ (2.25) $ (0.58)
</TABLE>
3. LINE OF CREDIT
In July 1999, the Company entered into a revolving line of credit agreement
with a bank under which it can borrow up to $15 million. The line of credit
bears interest at the Company's option of a per annum rate of 200 percentage
points above LIBOR or a per annum rate equal to the lender's Prime Rate. At
December 31, 1999, the interest rate was 8.5%. The line of credit expires on
July 8, 2000. At December 31, 1999 the Company had $3.0 million outstanding
under the line of credit agreement. The line of credit is secured by the
Company's accounts receivable and other tangible assets and contains certain
financial covenants determined on a quarterly basis.
4. NOTES RECEIVABLE FROM STOCKHOLDER
During the third quarter of 1998, the Company extended a one year loan to
its Chief Executive Officer in the amount of $3.1 million. The loan was
collateralized by 2.2 million shares of the Company's Common Stock owned by the
Chief Executive Officer and was a full recourse note bearing interest at 8%.
Interest was payable at the end of the one year loan. During 1999, the Company
extended the loan for an additional six months and increased the note to $3.7
million. The $3.7 million includes accrued interest of $0.3 million and an
additional $0.3 million loaned to the Chief Executive Officer. During the
fourth quarter of 1999, the Chief Executive Officer fully repaid the note and
all accrued interest.
F-12
<PAGE>
MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. BALANCE SHEET DETAIL
<TABLE>
<CAPTION>
As of December
31,
-----------------
1999 1998
-------- -------
(in thousands)
<S> <C> <C>
INVENTORIES:
Purchased parts and raw materials....................... $ 13,656 $ 7,128
Work-in-process......................................... 9,433 2,586
Finished goods.......................................... -- 1,147
Evaluation systems...................................... 2,285 63
-------- -------
$ 25,374 $10,924
======== =======
PROPERTY AND EQUIPMENT, NET:
Machinery and equipment................................. $ 13,544 $12,487
Furniture and fixtures.................................. 5,509 4,583
Leasehold improvements.................................. 3,705 2,880
Construction-in-progress................................ 1,738 740
-------- -------
24,496 20,690
Less: accumulated depreciation and amortization......... (13,236) (8,600)
-------- -------
$ 11,260 $12,090
======== =======
GOODWILL, INTANGIBLES AND OTHER ASSETS:
Developed technology.................................... $ 3,897 $ 4,340
Purchased workforce..................................... 875 960
Goodwill................................................ -- 1,643
Other................................................... 334 375
-------- -------
5,106 7,318
Less: accumulated amortization.......................... (1,356) (562)
-------- -------
$ 3,750 $ 6,756
======== =======
ACCRUED LIABILITIES:
Warranty and installation reserve....................... $ 7,371 $ 5,820
Accrued compensation and benefits....................... 5,041 1,214
Income taxes............................................ 1,392 1,131
Commissions............................................. 1,045 539
Customer deposits....................................... 253 2,690
Deferred income......................................... 1,308 1,437
Other................................................... 1,225 2,010
-------- -------
$ 17,635 $14,841
======== =======
</TABLE>
6. CAPITAL STOCK
COMMON STOCK
In 1996, the Board of Directors authorized the Company to repurchase up to
500,000 shares of the Company's Common Stock in the open market. As of December
31, 1997, all 500,000 shares had been repurchased by the Company for funding
the Company's Employee Stock Purchase Plan. Of the shares purchased, 400,000
shares were purchased prior to the Company's reincorporation in Delaware in
September
F-13
<PAGE>
MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1997, and were retired. The 100,000 shares repurchased after the
reincorporation in Delaware are held as treasury stock. In 1998, the Board of
Directors authorized the Company to repurchase up to 1,000,000 shares of the
Company's Common Stock in the open market. As of December 31, 1999, the Company
had repurchased 274,800 of these shares. The total cost of share repurchases
was $2,987,000 and these shares are held as treasury stock.
STOCK OPTION PLAN
In September 1989, the Company adopted an incentive and non-statutory stock
option plan under which a total of 4,300,000 shares of Common Stock have been
reserved for future issuance, including increases of 1,000,000 shares in 1996,
300,000 shares in 1997, 250,000 shares in 1998 and 1,125,000 shares in 1999.
Options granted under this Plan are for periods not to exceed ten years.
Incentive stock option and non-statutory stock option grants under the Plan
must be at prices at least 100% and 85%, respectively, of the fair market value
of the stock on the date of grant. The options generally vest 25% one year from
the date of grant, with the remaining vesting 1/36th per month thereafter.
A summary of the status of the Company's stock option plans at December 31,
1999, 1998 and 1997 and changes during the years then ended is presented in the
following tables and narrative. Share amounts are shown in thousands.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1999 1998 1997
----------------- ----------------- -----------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Activity Shares Price Shares Price Shares Price
-------- ------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 3,084 $6.19 3,067 $6.82 2,544 $5.62
Granted................. 881 9.97 1,337 5.71 926 9.66
Exercised............... (489) 3.59 (380) 0.57 (182) 1.43
Forfeited............... (333) 6.98 (940) 9.85 (221) 9.48
----- ----- -----
Outstanding at end of
year................... 3,143 7.57 3,084 6.19 3,067 6.82
===== ===== =====
Exercisable, end of
year................... 1,353 6.85 1,138 5.35 1,361 3.97
===== ===== =====
Weighted-average fair
value per option
granted................ $6.13 $3.53 $4.67
===== ===== =====
</TABLE>
In November 1998, the Board of Directors approved a proposal under which all
employees, other than executive officers, could elect to cancel certain options
in exchange for grants of new options with exercise prices which were equal to
the fair value of the Company's Common Stock on the date of the Board's
approval and for which a new four year vesting period commenced as of the new
date of grant. Employees canceled options for the purchase of a total of
681,315 shares at exercise prices ranging from $3.41 to $24.50, in exchange for
newly issued options with an exercise price of $6.00 per share, which was the
fair market value on the date of the Board's approval.
F-14
<PAGE>
MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes information about stock options outstanding
at December 31, 1999 (amounts in thousands except exercise price and
contractual life):
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
-------------------------- ----------------
Weighted- Weighted- Weighted-
Average Average Average
Remaining Exercise Exercise
Range Of Exercise Prices Number Years Price Number Price
------------------------ ------ --------- --------- ------ ---------
<S> <C> <C> <C> <C> <C>
$0.20-$ 5.09....................... 555 6.5 $ 3.45 407 $ 2.94
$5.13-$ 5.88....................... 171 8.7 $ 5.54 51 $ 5.50
$6.00-$ 6.00....................... 664 8.1 $ 6.00 267 $ 6.00
$6.06-$ 7.31....................... 530 9.1 $ 7.04 30 $ 7.02
$7.50-$ 9.38....................... 564 6.4 $ 8.90 338 $ 9.08
$9.75-$23.00....................... 659 6.8 $12.48 260 $11.19
----- --- ------ ----- ------
3,143 7.5 $ 7.57 1,353 $ 6.85
===== === ====== ===== ======
</TABLE>
Compensation cost under SFAS No. 123 for the fair value of each incentive
stock option grant is estimated on the date of grant using the Black-Scholes
option-pricing model for the multiple option approach with the following
weighted average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- ------
<S> <C> <C> <C>
Expected dividend yield.......................... -- -- --
Expected stock price volatility.................. 80% 80% 60%
Risk-free interest rate.......................... 5.8% 4.5% 6.0%
Expected life of options......................... 2 years 2 years 1 year
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
In August 1994, the Company adopted an employee stock purchase plan under
which 1,925,000 shares of Common Stock have been reserved for future issuance,
including an increase of 65,000 in 1996, 400,000 shares in 1997, 450,000 shares
in 1998 and 475,000 shares in 1999. The Purchase Plan is administered generally
over offering periods of 24 months, with each offering period divided into four
consecutive six-month purchase periods beginning May 1 and November 1 of each
year. Eligible employees may designate not more than 15% of their cash
compensation to be deducted each pay period for the purchase of Common Stock
under the employee stock purchase plan and participants may not purchase more
than $25,000 worth of Common Stock in any calendar year or 10,000 shares in any
offering period. On the last business day of each purchase period, shares of
Common Stock are purchased with the employees' payroll deductions accumulated
during the six months, at a price per share of 85% of the market price of the
Common Stock on the date immediately preceding the offering date or the date
immediately preceding the purchase date, whichever is lower.
The weighted average fair value on the grant date of rights granted under
the employee stock purchase plan was approximately $3.15 in 1999, $3.42 in 1998
and $2.96 in 1997.
Compensation cost under SFAS No. 123 is calculated for the estimated fair
value of the employees' stock purchase rights using the Black-Scholes option-
pricing model with the following average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ --------
<S> <C> <C> <C>
Expected dividend yield......................... -- -- --
Expected stock price volatility................. 80% 80% 60%
Risk-free interest rate......................... 5.8% 4.5% 6.0%
Expected life of options........................ 2 years 1 year 6 months
</TABLE>
F-15
<PAGE>
MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
PRO FORMA EFFECT OF STOCK BASED COMPENSATION PLANS
In accordance with the provisions of SFAS No. 123, the Company applies APB
Opinion No. 25 in accounting for its incentive stock option and employee stock
purchase plans, and accordingly, does not recognize compensation cost in the
statement of operations because the exercise price of the stock options equals
the market price of the underlying stock on the date of grant. If the Company
had elected to recognize compensation cost based on the fair value of the
options granted at grant date as prescribed by SFAS No. 123, net income (loss)
and earnings (loss) per share would have been adjusted to the pro forma amounts
indicated in the table below:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1999 1998 1997
------- -------- -------
(in thousands, except
per share amounts)
<S> <C> <C> <C>
Net income (loss):
As reported................................... $ (849) $(22,367) $ 1,431
Pro forma..................................... $(5,430) $(25,471) $(2,154)
Diluted earnings (loss) per share:
As reported................................... $ (0.05) $ (1.52) $ 0.09
Pro forma..................................... $ (0.35) $ (1.73) $ (0.15)
</TABLE>
Since SFAS No. 123 method of accounting has not been applied to options
granted prior to July 1995, the resulting pro forma compensation cost may not
be representative of that to be expected in future years.
7. INCOME TAX PROVISION
The components of income (loss) before provision for income taxes are as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1999 1998 1997
------- -------- ------
(in thousands)
<S> <C> <C> <C>
Domestic income (loss)............................ $(1,065) $(22,467) $1,347
Foreign income.................................... 463 437 535
------- -------- ------
Income (loss) before provision for income
taxes.......................................... $ (602) $(22,030) $1,882
======= ======== ======
</TABLE>
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended
December 31,
-------------------
1999 1998 1997
---- ------- -----
(in thousands)
<S> <C> <C> <C>
Current:
Federal.............................................. $ -- $(3,589) $ 237
State................................................ -- (633) 2
Foreign.............................................. 247 337 237
---- ------- -----
Total Current...................................... 247 (3,885) 476
---- ------- -----
Deferred:
Federal.............................................. -- 3,589 180
State................................................ -- 633 (205)
---- ------- -----
Total Deferred..................................... -- 4,222 (25)
---- ------- -----
Provision for income taxes............................. $247 $ 337 $ 451
==== ======= =====
</TABLE>
F-16
<PAGE>
MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The provision for income taxes reconciles to the amount computed by
multiplying income (loss) before income tax by the U.S. statutory rate of 35%
as follows:
<TABLE>
<CAPTION>
Year Ended December
31,
---------------------
1999 1998 1997
----- ------- -----
(in thousands)
<S> <C> <C> <C>
Provision (benefit) at statutory rate................. $(211) $(7,710) $ 659
Research and development tax credits.................. (499) -- (307)
State taxes, net of federal benefit................... 2 -- 51
Foreign earnings taxed at higher rates................ 85 184 81
Benefit of foreign sales corporation.................. -- -- (51)
Deferred tax asset valuation allowance................ 816 7,863 --
Other................................................. 54 -- 18
----- ------- -----
Total provision for income taxes.................... $ 247 $ 337 $ 451
===== ======= =====
</TABLE>
Deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
As of December
31,
------------------
1999 1998
-------- --------
(in thousands)
<S> <C> <C>
Reserves not currently deductible........................ $ 6,600 $ 4,824
Deferred income.......................................... 603 985
Net operating loss and credit carryforwards.............. 6,905 6,682
Other.................................................... 961 1,245
-------- --------
Total net deferred taxes................................. 15,069 13,736
Deferred tax assets valuation allowance.................. (15,069) (13,736)
-------- --------
$ -- $ --
======== ========
</TABLE>
The deferred tax assets valuation allowance at December 31, 1999 and 1998 is
attributable to federal and state deferred tax assets. Management believes that
sufficient uncertainty exists with regard to the realizability of these tax
assets such that a full valuation allowance is necessary. These factors include
the lack of a significant history of consistent profits and the lack of
carryback capacity to realize these assets. Based on this absence of objective
evidence, management is unable to assert that it is more likely than not that
the Company will generate sufficient taxable income to realize the Company's
net deferred tax assets. At December 31, 1999, the Company had Federal net
operating loss carryforwards of approximately $11.5 million which expire in
2019. This amount includes approximately $2.5 million of net operating loss
carryforwards from the acquisition of Concept which are generally limited to a
utilization of approximately $0.2 million per year. The net operating loss
carryforward also includes approximately $0.7 million resulting from employee
exercises of non qualified stock options or disqualifying dispositions, the tax
benefits of which, when realized, will be accounted for as an addition to
additional paid in capital rather than as a reduction of the provision for
income taxes. The deferred tax assets related to the acquisition of Concept,
approximately $2.5 million as of December 31, 1999, if and when realized will
be used to reduce the amount of goodwill and intangibles recorded at the date
of acquisition. Federal and state research and development credit carryforwards
of approximately $1.7 million are also available to reduce future Federal and
state income taxes and expire in 2011 to 2019. If certain substantial changes
in the Company's ownership occur, there would be an additional annual
limitation on the amount of the net operating loss carryforwards which can be
utilized.
F-17
<PAGE>
MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. EMPLOYEE BENEFIT PLANS
RETIREMENT/SAVINGS PLAN
The Company has a retirement/savings plan, which qualifies as a thrift plan
under section 401(k) of the Internal Revenue Code. All employees who are
twenty-one years of age or older are eligible to participate in the Plan. The
Plan allows participants to contribute up to 20% of the total compensation that
would otherwise be paid to the participant, not to exceed the amount allowed by
applicable Internal Revenue Service guidelines. The Company may make a
discretionary matching contribution equal to a percentage of the participant's
contributions. In 1999, the Company made a matching contribution of $226,000
and in 1998, the Company made a matching contribution of $197,000. There were
no matching contributions in 1997.
PROFIT SHARING PLAN
The Company has a profit sharing plan, wherein, as determined by the board
of directors, a percentage of income from operations is accrued and distributed
to all employees excluding management. The total charge to operations under the
profit sharing plan was approximately $80,000 for the year ended December 31,
1999, $0 for 1998, and $85,000 for 1997.
9. NET INCOME (LOSS) PER SHARE
SFAS No. 128 requires dual presentation of basic and diluted earnings per
share on the face of the income statement. Basic EPS is computed by dividing
income (loss) available to common stockholders (numerator) by the weighted
average number of common shares outstanding (denominator) for the period.
Diluted EPS gives effect to all dilutive potential common shares outstanding
during the period. The computation of diluted EPS uses the average market
prices during the period. All amounts in the following table are in thousands
except per share data.
<TABLE>
<CAPTION>
Year Ended December
31,
------------------------
1999 1998 1997
------ -------- ------
<S> <C> <C> <C>
NET INCOME............................................ $ (849) $(22,367) $1,431
BASIC EARNINGS (LOSS) PER SHARE:
Income available to common shareholders............. $ (849) $(22,367) $1,431
Weighted average common shares outstanding.......... 15,730 14,720 14,117
------ -------- ------
Basic earnings (loss) per share..................... $(0.05) $ (1.52) $ 0.10
====== ======== ======
DILUTED EARNINGS (LOSS) PER SHARE:
Income available to common shareholders............. $ (849) $(22,367) $1,431
Weighted average common shares outstanding.......... 15,730 14,720 14,117
Diluted potential common shares from stock options.. -- -- 1,194
------ -------- ------
Weighted average common shares and dilutive
potential common shares............................ 15,730 14,720 15,311
------ -------- ------
Diluted earnings (loss) per share................... $(0.05) $ (1.52) $ 0.09
====== ======== ======
</TABLE>
Total stock options outstanding at December 31, 1999 of 3,143,000 and at
December 31, 1998 of 3,084,000 and options to purchase 221,000 weighted shares
outstanding during 1997 were excluded from the computations of diluted earnings
(loss) per share because of their anti-dilutive effect on diluted earnings
(loss) per share.
F-18
<PAGE>
MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. CERTAIN TRANSACTIONS
The Company has a distribution agreement with Marubeni Solutions Corp., a
Japanese distributor. The Company formed a subsidiary in Japan in October 1995
in which Marubeni has a 19% minority interest. In 1999, the Company shifted its
strategy to a direct sales model. The Company is in the process of terminating
its distribution relationship with Marubeni and establishing its own sales
force in Japan.
The following is a summary of the Company's transactions with Marubeni (in
thousands):
<TABLE>
<CAPTION>
Year Ended December
31,
-----------------------
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Net sales to the distributor for the period............ $10,706 $9,289 $9,987
Percentage of net sales................................ 10.3% 15.7% 13.0%
Accounts receivable at period end...................... $ 803 $2,103 $1,555
Deferred income at period end.......................... $ 591 $ 591 $ 591
Minority interest in joint venture at period end....... $ 159 $ 180 $ 200
</TABLE>
Upon termination of the distribution agreement, the Company may be required
to repurchase up to a maximum of $1,000,000 of inventory related to the
Company's sales to Marubeni. The Company recorded deferred income at the time
of sale to cover this right of return. At December 31, 1999 and 1998, deferred
income of $591,000 related to this agreement resulted from deferred revenue of
$1,000,000, less the estimated inventory value to the Company of $409,000.
The Company purchases certain inventory parts from a supplier company, which
is majority owned by the Chief Executive Officer of the Company. Net purchases
were $680,000 for the year ended December 31, 1999, $363,000 for 1998 and
$739,000 for 1997.
11. REPORTABLE SEGMENTS
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" supersedes SFAS No. 14, "Financial Reporting for Segments of a
Business Enterprise", replacing the "industry segment" approach with the
"management" approach. SFAS No. 131 establishes standards for reporting
information about operating segments in financial statements. Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker, or chief decision making group, in deciding how to
allocate resources and in assessing performance. Brad Mattson, Chairman and
Chief Executive Officer of the Company, is the Company's chief decision maker.
As the Company's business is completely focused on one industry segment,
design, manufacturing and marketing of advanced fabrication equipment to the
semiconductor manufacturing industry, management believes that the Company has
one reportable segment. The Company's revenues and profits are generated
through the sale and service of products for this one segment.
F-19
<PAGE>
MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following is net sales information by geographic area for the years
ended December 31 (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
United States....................................... $ 30,428 $19,395 $26,831
Japan............................................... 10,706 9,289 9,987
Taiwan.............................................. 20,173 14,057 21,634
Korea............................................... 22,081 2,247 2,798
Singapore........................................... 8,441 3,845 10,961
Europe.............................................. 11,629 10,353 4,519
-------- ------- -------
$103,458 $59,186 $76,730
======== ======= =======
</TABLE>
The net sales above have been allocated to the geographic areas based upon
the installation location of the systems.
For the purposes of determining sales to significant customers, the Company
includes sales to customers through its distributor (at the sales price to the
distributor) and excludes the distributor as a significant customer. The
Company had sales to one customer of 11% of net sales in 1997 and 20% of net
sales to another customer in 1999. In 1998, no sales to a single customer
exceeded 10% of net sales.
12. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
CURRENCY SWAP CONTRACTS
Currency swap contracts are entered into primarily to hedge against the
short term impact of fluctuations in the Yen-denominated monetary assets of the
Company's subsidiary in Japan. At December 31, 1999, the Company had a contract
to sell 21.0 million Yen ($200,000) which matures in 2000. Because the impact
of movements in currency exchange rates on currency swap contracts offsets the
related impact on the underlying items being hedged, these financial
instruments do not subject the Company to speculative risk that would otherwise
result from changes in currency exchange rates. Net foreign currency unrealized
transaction gains and losses as of December 31, 1999 and realized transaction
gains and losses to date have not been material.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash equivalents, short
term investments, trade accounts receivable and financial instruments used in
hedging activities.
The Company invests in a variety of financial instruments such as
certificates of deposit, corporate bonds and treasury bills. The Company limits
the amount of credit exposure to any one financial institution or commercial
issuer.
The fair values of the Company's cash and cash equivalents and short term
investments are not significantly different than cost. All short term
investments mature within one year.
The Company's trade accounts receivable are derived from sales in the United
States, Japan, other Pacific Rim countries and Europe. The Company performs
ongoing credit evaluations of its customers (semiconductor manufacturers and
its Japanese distributor) and to date has not experienced any material losses.
The Company is exposed to credit loss in the event of non performance by
counterparties on the currency swap contracts used in hedging activities. The
Company does not anticipate nonperformance by these counterparties.
F-20
<PAGE>
MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. COMMITMENTS AND CONTINGENCIES
The Company leases its facilities under operating leases, which expire at
various dates through 2003, with minimum annual rental commitments as follows
(in thousands):
<TABLE>
<S> <C>
2000................................................................ $1,722
2001................................................................ 856
2002................................................................ 709
2003................................................................ 236
2004................................................................ --
------
$3,523
======
</TABLE>
Rent expense was $1,932,000 for 1999, $2,009,000 for 1998, and $1,755,000
for 1997.
The Company is party to certain claims arising in the ordinary course of
business. While the outcome of these matters is not presently determinable,
management believes that they will not have a material adverse effect on the
financial position or results of operations of the Company.
14. SUBSEQUENT EVENTS (UNAUDITED)
On January 28, 2000, the Company filed a registration statement with the
Securities and Exchange Commission ("SEC") relating to a proposed underwritten
public offering of up to 3.45 million shares of the Company's common stock. The
net proceeds of approximately $100 million are expected to be used for general
corporate purposes, principally working capital and capital expenditures.
F-21
<PAGE>
MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
June 25, Dec. 31,
2000 1999
-------- --------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents................................. $125,493 $ 16,965
Accounts receivable, net.................................. 41,432 21,500
Inventories............................................... 36,516 25,374
Prepaid expenses and other current assets................. 2,396 2,299
-------- --------
Total current assets.................................... 205,837 66,138
Property and equipment, net................................. 11,450 11,260
Goodwill, intangibles and other assets...................... 3,921 3,750
-------- --------
$221,208 $ 81,148
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Line of credit............................................ $ -- $ 3,000
Accounts payable.......................................... 10,193 8,494
Accrued liabilities....................................... 21,580 17,635
-------- --------
Total current liabilities............................... 31,773 29,129
-------- --------
Stockholders' equity:
Common stock.............................................. 20 16
Additional paid in capital................................ 193,235 66,280
Retained earnings (deficit)............................... (609) (11,099)
Treasury stock............................................ (2,987) (2,987)
Accumulated other comprehensive loss...................... (224) (191)
-------- --------
Total stockholders' equity.............................. 189,435 52,019
-------- --------
$221,208 $ 81,148
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-22
<PAGE>
MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
--------------- ---------------
June June June June
25, 27, 25, 27,
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales................................... $50,130 $24,128 $92,711 $38,448
Cost of sales............................... 24,564 12,748 46,170 19,824
------- ------- ------- -------
Gross profit................................ 25,566 11,380 46,541 18,624
------- ------- ------- -------
Operating expenses:
Research, development and engineering..... 6,867 4,525 13,165 8,423
Selling, general and administrative....... 13,020 7,106 23,630 13,137
------- ------- ------- -------
Total operating expenses................ 19,887 11,631 36,795 21,560
------- ------- ------- -------
Income (loss) from operations............... 5,679 (251) 9,746 (2,936)
Interest and other income, net.............. 1,511 133 1,909 426
------- ------- ------- -------
Income (loss) before income taxes........... 7,190 (118) 11,655 (2,510)
Provision for income taxes.................. 719 68 1,165 117
------- ------- ------- -------
Net income (loss)........................... $ 6,471 $ (186) $10,490 $(2,627)
======= ======= ======= =======
Net income (loss) per share:
Basic..................................... $ 0.33 $ (0.01) $ 0.57 $ (0.17)
======= ======= ======= =======
Diluted................................... $ 0.30 $ (0.01) $ 0.51 $ (0.17)
======= ======= ======= =======
Shares used in computing net income (loss)
per share:
Basic..................................... 19,877 15,601 18,370 15,512
======= ======= ======= =======
Diluted................................... 21,929 15,601 20,422 15,512
======= ======= ======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-23
<PAGE>
MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
------------------
June 25, June 27,
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................ $ 10,490 $ (2,627)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization.......................... 2,264 2,360
Amortization of intangibles............................ 451 207
Changes in assets and liabilities:
Accounts receivable.................................... (19,932) (10,729)
Inventories............................................ (11,142) (4,598)
Prepaid expenses and other current assets.............. (97) 4,153
Goodwill, intangibles and other assets................. (622) --
Accounts payable....................................... 1,699 1,527
Accrued liabilities.................................... 3,945 1,041
-------- --------
Net cash used in operating activities................ (12,944) (8,666)
-------- --------
Cash flows from investing activities:
Acquisition of property and equipment.................... (2,454) (861)
Sales and maturities of short-term investments........... -- 8,128
-------- --------
Net cash (used in) provided by investing activities.. (2,454) 7,267
-------- --------
Cash flows from financing activities:
Repayment of line of credit.............................. (3,000) --
Increase in offering costs............................... (8,536) --
Proceeds from the issuance of Common Stock, net.......... 135,495 741
-------- --------
Net cash provided by financing activities............ 123,959 741
-------- --------
Effect of exchange rate changes on cash and cash
equivalents............................................... (33) (50)
-------- --------
Net increase (decrease) in cash and cash equivalents....... 108,528 (708)
Cash and cash equivalents, beginning of period............. 16,965 11,863
-------- --------
Cash and cash equivalents, end of period................... $125,493 $ 11,155
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-24
<PAGE>
MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included.
The financial statements should be read in conjunction with the audited
financial statements included in our Annual Report on Form 10-K for the year
ended December 31, 1999.
The results of operations for the three month and six month periods ended
June 25, 2000 are not necessarily indicative of results that may be expected
for the entire year ending December 31, 2000.
NOTE 2 BALANCE SHEET DETAIL (in thousands):
<TABLE>
<CAPTION>
June Dec.
25, 31,
2000 1999
------- -------
<S> <C> <C>
Inventories:
Purchased parts and raw materials......................... $22,459 $13,656
Work-in-process........................................... 10,829 9,433
Evaluation systems........................................ 3,228 2,285
------- -------
$36,516 $25,374
======= =======
Accrued liabilities:
Warranty and installation reserve......................... $ 9,510 $ 7,371
Accrued compensation and benefits......................... 5,464 5,041
Income taxes.............................................. 1,830 1,392
Commissions............................................... 1,357 1,045
Deferred income and customer deposits..................... 1,769 1,561
Other..................................................... 1,650 1,225
------- -------
$21,580 $17,635
======= =======
</TABLE>
NOTE 3 ACQUISITION OF CONCEPT SYSTEMS DESIGN, INC.
On July 24, 1998, we acquired Concept Systems Design. The transaction was
achieved through the merger of a wholly owned subsidiary of the Company with
and into Concept and has been accounted for as a purchase. In connection with
the merger, the Company issued 795,138 shares of Common Stock to the former
shareholders of Concept.
In addition to the issuance of the 795,138 shares mentioned above, the
agreement for the acquisition of Concept also includes the contingent issuance
and distribution of 100,000 shares of Mattson Common Stock to the Concept
shareholders if Concept achieves net revenues of at least $16,667,000 during
the first 24 full calendar months following the acquisition date. These revenue
goals were not achieved by Concept during the specified period, and no such
additional shares will be issued.
F-25
<PAGE>
MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In the first quarter of 1999, a preacquisition contingency was resolved
which reduced the liabilities assumed from Concept by approximately $2.2
million. Under the provisions of Statement of Financial Accounting Standards
No. 38, this has been recorded by the Company in the first quarter of 1999 on a
prospective basis as an elimination of previously recorded goodwill and a pro-
rata reduction of the balance to the acquired developed technology, workforce
and property and equipment.
NOTE 4 NET INCOME (LOSS) PER SHARE
SFAS No. 128 requires dual presentation of basic and diluted earnings per
share on the face of the income statement. Basic EPS is computed by dividing
income (loss) available to common stockholders (numerator) by the weighted
average number of common shares outstanding (denominator) for the period.
Diluted EPS gives effect to all dilutive potential common shares outstanding
during the period. The computation of diluted EPS uses the average market
prices during the period. All amounts in the following table are in thousands
except per share data.
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
----------------- ---------------
June June
June 25, June 27, 25, 27,
2000 1999 2000 1999
-------- -------- ------- -------
<S> <C> <C> <C> <C>
NET INCOME (LOSS)........................... $6,471 $ (186) $10,490 $(2,627)
BASIC EARNINGS (LOSS) PER SHARE:
Income (loss) available to common
shareholders............................. $6,471 $ (186) $10,490 $(2,627)
Weighted average common shares
outstanding.............................. 19,877 15,601 18,370 15,512
------ ------ ------- -------
Basic earnings (loss) per share........... $ 0.33 $(0.01) $ 0.57 $ (0.17)
====== ====== ======= =======
DILUTED EARNINGS (LOSS) PER SHARE:
Income (loss) available to common
shareholders............................. $6,471 $ (186) $10,490 $(2,627)
Weighted average common shares
outstanding.............................. 19,877 15,601 18,370 15,512
Diluted potential common shares from stock
options.................................. 2,052 -- 2,052 --
------ ------ ------- -------
Weighted average common shares and
dilutive potential common shares......... 21,929 15,601 20,422 15,512
------ ------ ------- -------
Diluted earnings (loss) per share......... $ 0.30 $(0.01) $ 0.51 $ (0.17)
====== ====== ======= =======
</TABLE>
Options to purchase 101,725 shares during the three months ended June 25,
2000 were excluded from the computation of diluted EPS because these options'
exercise price were greater than the average market price of the Company's
common stock during the period. Total stock options outstanding at June 27,
1999 of 2,920,933 were excluded from the computation of diluted EPS because the
effect of including them would have been anitdilutive due to the loss available
to common stockholders.
NOTE 5 COMPREHENSIVE INCOME
SFAS 130 establishes rules for the reporting and display of comprehensive
income and its components; however, the adoption of this Statement had no
impact on the Company's net income or stockholders' equity.
F-26
<PAGE>
MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following are the components of comprehensive income (loss):
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
----------------- ----------------
June June
June 25, June 27, 25, 27,
2000 1999 2000 1999
-------- -------- ------- -------
(in thousands)
<S> <C> <C> <C> <C>
Net income (loss)...................... $6,471 $(186) $10,490 $(2,627)
Foreign currency translation
adjustments........................... (26) 38 (33) (50)
------ ----- ------- -------
Comprehensive income (loss)............ $6,445 $(148) $10,457 $(2,677)
====== ===== ======= =======
</TABLE>
The components of accumulated other comprehensive income, net of related tax
are as follows:
<TABLE>
<CAPTION>
June 25, Dec. 31,
2000 1999
-------- --------
(in thousands)
<S> <C> <C>
Cumulative translation adjustments......................... $(224) $(191)
===== =====
</TABLE>
NOTE 6 REPORTABLE SEGMENTS
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" supersedes SFAS No. 14, "Financial Reporting for Segments of a
Business Enterprise", replacing the "industry segment" approach with the
"management" approach. SFAS No. 131 establishes standards for reporting
information about operating segments in financial statements. Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker, or chief decision making group, in deciding how to
allocate resources and in assessing performance. Brad Mattson, Chairman and
Chief Executive Officer of the Company, is the Company's chief decision maker.
As the Company's business is completely focused on one industry segment,
design, manufacturing and marketing of advanced fabrication equipment to the
semiconductor manufacturing industry, management believes that the Company has
one reportable segment. The Company's revenues and profits are generated
through the sale and service of products for this one segment. As a result, no
additional operating segment information is required to be disclosed.
NOTE 7 LINE OF CREDIT
During 1999 we entered into a one-year revolving line of credit with a bank
in the amount of $15.0 million. This line of credit expired in July 2000. All
borrowings under this line of credit bore interest at a per annum rate equal to
the lender's prime rate, which was 9.75% at June 25, 2000. The line of credit
was secured by our accounts receivable and other tangible assets. During the
third quarter of 1999 we had borrowed $3.0 million against this revolving line
of credit. The outstanding balance was fully repaid during the first quarter of
2000. Our revolving credit line required us to maintain certain quarterly
financial covenants, including a minimum quick ratio and minimum tangible net
worth. We were in compliance with all of our financial covenants at June 25,
2000. At this time the Company is reviewing further line of credit
requirements.
NOTE 8 REVENUE RECOGNITION
We generally recognize sales upon shipment of a system. From time to time,
however, we allow customers to evaluate systems, and since customers can return
such systems any time with limited or no penalty, we do not recognize the
associated revenue until the evaluation system is accepted by the customer.
Service and maintenance contract revenue, which to date has been insignificant,
is recognized on a straight-line basis over
F-27
<PAGE>
MATTSON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the service period of the related contract. A provision for the estimated
future cost of system installation and warranty is recorded at the time revenue
is recognized.
NOTE 9 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." SFAS 133 establishes new standards of accounting and
reporting for derivative instruments and hedging activities. SFAS 133 requires
that all derivatives be recognized at fair value in the statement of financial
position, and that the corresponding gains or losses be reported either in the
statement of operations or as a component of comprehensive income, depending on
the type of hedging relationship that exists. SFAS 133 is effective for fiscal
years beginning after June 15, 2000 and cannot be applied retroactively. The
effect of SFAS 133 is not expected to be material to our financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements. SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. Among other
things, SAB 101 would result in a change from the established practice in many
industries of recognizing revenue at the time of shipment of a system, and
instead delay revenue recognition until the time of installation or customer
acceptance. Because of the cyclical nature of the semiconductor equipment
industry, and our dependence on a small number of comparatively large sales, a
change in revenue recognition practices could have a material affect on revenue
in any particular reporting period. We are currently evaluating the effect that
such adoption may have on our consolidated results of operations and financial
position and may be required to adopt SAB 101 in the fourth quarter of 2000.
F-28
<PAGE>
STEAG SEMICONDUCTOR DIVISION INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ANNUAL AUDITED FINANCIAL STATEMENTS
Report of Independent Public Accountants................................. F-30
Combined Balance Sheets.................................................. F-31
Combined Statements of Operations........................................ F-32
Combined Statements of Shareholders' Equity.............................. F-33
Combined Statements of Cash Flows........................................ F-34
Notes to Combined Financial Statements................................... F-35
UNAUDITED INTERIM FINANCIAL STATEMENTS
Combined Balance Sheets.................................................. F-48
Combined Statements of Operations........................................ F-49
Combined Statements of Cash Flows........................................ F-50
Notes to Combined Financial Statements................................... F-51
</TABLE>
F-29
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of STEAG Electronic Systems AG, Essen, Germany, the
shareholder of the STEAG Semiconductor Division:
We have audited the accompanying combined balance sheets of the STEAG
Semiconductor Division identified in Note 1.1 as of December 31, 1999 and 1998,
and the related combined statements of operations, shareholder's equity and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 the STEAG Semiconductor
Division as of December 31, 1999 and 1998, and the results of its operations
and its cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States.
Arthur Andersen LLP
Dusseldorf, Germany
August 31, 2000
F-30
<PAGE>
STEAG SEMICONDUCTOR DIVISION
COMBINED BALANCE SHEETS
(all amounts in thousands of U.S. Dollars)
<TABLE>
<CAPTION>
As of December
31,
------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
------
Current Assets:
Cash and cash equivalents................................ $ 10,181 $ 15,950
Accounts receivables net of allowance for doubtful
accounts of 2,265 and 1,507 at December 31, 1999 and
1998, respectively ..................................... 52,298 33,205
Receivables from related parties......................... 3,914 5,771
Notes and other receivables.............................. 1,141 605
Inventories.............................................. 46,765 36,454
Prepaid expenses......................................... 1,382 594
Other current assets..................................... 2,975 1,468
-------- --------
Total current assets................................... 118,656 94,047
-------- --------
Noncurrent Assets
Property, plant and equipment less accumulated
depreciation............................................ 33,648 29,060
Intangible assets less accumulated amortization.......... 976 923
Goodwill less accumulated amortization of 25,857 and
12,578 at December 31, 1999 and 1998, respectively ..... 43,915 20,102
Other noncurrent assets.................................. 910 674
-------- --------
Total noncurrent assets................................ 79,449 50,759
-------- --------
Total assets........................................... $198,105 $144,806
======== ========
LIABILITIES
-----------
Current liabilities
Short term borrowings and current portion of long-term
debt.................................................... $ 46,223 $ 50,620
Accounts payable......................................... 27,536 18,627
Accrued liabilities...................................... 24,396 20,710
Other current liabilities................................ 1,599 1,202
-------- --------
Total current liabilities.............................. 99,754 91,159
-------- --------
Noncurrent liabilities
Long-term debt........................................... 16,107 7,322
Other noncurrent liabilities............................. 3,317 2,363
-------- --------
Total noncurrent liabilities........................... 19,424 9,685
-------- --------
Total liabilities...................................... $119,178 $100,844
-------- --------
Commitments and contingencies (Note 10, 11 and 13)
Shareholders' equity
Common stock............................................. 63,418 16,979
Additional paid-in capital............................... 82,856 39,284
Accumulated other comprehensive income/(loss)............ (1,970) 1,614
Accumulated deficit...................................... (65,377) (13,915)
-------- --------
Total shareholders' equity............................. 78,927 43,962
-------- --------
Total liabilities and shareholders' equity............. $198,105 $144,806
======== ========
</TABLE>
Note: The accompanying notes are an integral part of these combined financial
statements.
F-31
<PAGE>
STEAG SEMICONDUCTOR DIVISION
COMBINED STATEMENTS OF OPERATIONS
(all amounts in thousands of U.S. Dollars)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net sales........................................... $ 146,847 $ 108,865
Cost of sales....................................... 109,352 81,164
----------- -----------
Gross profit........................................ 37,495 27,701
----------- -----------
Operating expenses:
Research and development.......................... 30,642 18,116
Selling, general and administrative expenses...... 46,470 29,432
Goodwill amortization............................. 13,279 6,536
----------- -----------
Total operating expenses........................ (90,391) (54,084)
----------- -----------
Loss from operations................................ (52,896) (26,383)
----------- -----------
Other income (expense):
Interest income................................... 161 267
Interest expense.................................. (4,662) (3,484)
Other income and expense.......................... 125 (265)
----------- -----------
Other income (expense)............................ (4,376) (3,482)
----------- -----------
Loss from continuing operations before income
taxes.............................................. (57,272) (29,865)
----------- -----------
Income tax benefit.................................. 5,810 7,114
----------- -----------
Loss from continuing operations..................... (51,462) (22,751)
----------- -----------
Income from discontinued operations
Net of income taxes of $91 in 1998.................. -- 424
----------- -----------
Net loss............................................ $ (51,462) $ (22,327)
=========== ===========
</TABLE>
Note: The accompanying notes are an integral part of these combined financial
statements.
F-32
<PAGE>
STEAG SEMICONDUCTOR DIVISION
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended December 31, 1999 and 1998
(all amounts in thousands of U.S. Dollars)
<TABLE>
<CAPTION>
Accumulated
Additional Accumulated Other Total
Common Paid-in (Deficit)/ Comprehensive Shareholders'
Stock Capital Earnings Income/(Loss) Equity
-------- ---------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1,
1998................... $ 16,372 $30,217 $ 8,412 $ (21) $ 54,980
-------- ------- -------- ------- --------
Net loss................ -- -- (22,327) -- (22,327)
Foreign currency
translation gain....... -- -- -- 1,635 1,635
-------- ------- -------- ------- --------
Net loss and changes in
other comprehensive
income (loss).......... -- -- (22,327) 1,635 (20,692)
Shares issued........... 607 -- -- -- 607
Capital contribution.... -- 9,067 -- -- 9,067
-------- ------- -------- ------- --------
Balance, December 31,
1998................... 16,979 39,284 (13,915) 1,614 43,962
-------- ------- -------- ------- --------
Net loss................ -- -- (51,462) -- (51,462)
Foreign currency
translation loss....... -- -- -- (3,584) (3,584)
-------- ------- -------- ------- --------
Net loss and changes in
other comprehensive
income (loss).......... -- -- (51,462) (3,584) (55,046)
Inclusion of new
companies into group .. 36,439 25,677 -- -- 62,116
Conversion of debt to
equity................. 10,000 12,000 -- -- 22,000
Capital contribution.... -- 5,895 -- -- 5,895
-------- ------- -------- ------- --------
Balance, December 31,
1999................... $663,418 $82,856 $(65,377) $(1,970) $ 78,927
======== ======= ======== ======= ========
</TABLE>
Note: The accompanying notes are an integral part of these combined financial
statements.
F-33
<PAGE>
STEAG SEMICONDUCTOR DIVISION
COMBINED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1999 and 1998
(all amounts in thousands of U.S. Dollars)
<TABLE>
<CAPTION>
Year ended
December 31,
------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................. $(51,462) $(22,327)
Reconciliation to net cash provided (used in) operating
activities:
Depreciation and amortization.......................... 25,532 13,799
Loss (gain) on disposal of fixed assets................ 2,701 (169)
Deferred income taxes.................................. -- 1,641
Other changes in net cash from operating assets and
liabilities
Accounts receivables................................... (11,112) 12,158
Inventories............................................ (2,704) 17,776
Prepaid expenses and other assets...................... (28) 577
Accounts payable....................................... 5,270 4,949
Accrued liabilities.................................... 2,240 (23,521)
Other current liabilities.............................. (1,261) (1,649)
-------- --------
Net cash (used in) provided by operating activities.. (30,824) 3,234
-------- --------
Cash flows from investing activities:
Inclusion of net assets less cash of subsidiaries
acquired by parent...................................... (50,192) --
Capital expenditures..................................... (10,939) (13,589)
Proceeds from sales of equipment......................... 1,935 644
-------- --------
Net cash used in investing activities................ (59,196) (12,945)
-------- --------
Cash flows from financing activities:
Borrowings under line of credit........................ -- 19,674
Repayments to line of credit........................... (6,462) --
Borrowings from stockholders........................... 35,952 159
Repayment of loans from stockholders................... (1,545) (2,275)
Other long term liabilities............................ 1,346 240
Capital contribution..................................... 4,602 --
Addition of equity of subsidiaries acquired by parent.... 50,192 --
-------- --------
Net cash provided by financing activities............ 84,085 17,798
-------- --------
Effect of foreign exchange rate changes on cash and cash
equivalents............................................... 166 (553)
-------- --------
Net (decrease) increase in cash and cash equivalents....... (5,769) 7,534
Cash and equivalents at beginning of year.................. 15,950 8,416
-------- --------
Cash and equivalents at end of year........................ $ 10,181 $ 15,950
======== ========
Supplemental schedule of noncash investing and financing
activities:
Conversion of debt to equity............................. $ 22,000 $ --
Supplemental disclosure of cash flow information:
Cash paid for interest................................... $ 3,780 $ 2,739
Cash paid for income taxes............................... $ 232 $ 5,043
</TABLE>
Note: The accompanying notes are an integral part of these combined financial
statements.
F-34
<PAGE>
STEAG SEMICONDUCTOR DIVISION
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(all amounts in thousands of U.S. Dollars, except as otherwise indicated)
1. ORGANIZATION, PURPOSE AND BASIS OF PRESENTATION
1.1. Organization
The combined financial statements of the semiconductor equipment division
(the "STEAG Semiconductor Division" or the "Company") of STEAG Electronic
Systems AG, Essen, Germany ("STEAG") include the accounts of certain direct and
indirect wholly-owned subsidiaries of STEAG. The STEAG subsidiaries included in
this combination are STEAG MicroTech GmbH, Pliezhausen, Germany; STEAG
Electronic Systems Inc., Austin, USA; STEAG RTP Systems GmbH, Dornstadt,
Germany; STEAG Electronic Systems Korea Ltd., Seoul, Korea; STEAG Electronic
Systems Japan Co., Kawasaki, Japan; STEAG Electronic Systems UK Ltd., Renfrew,
UK and STEAG Electronic Systems South East Asia Pte. Ltd., Singapore, for both
years reported herein.
Effective March 1, 1999, STEAG purchased 100 percent of STEAG RTP Systems
Inc., San Jose, USA (formerly AG Associates, Inc.). Effective January 1, 1999,
STEAG purchased STEAG CVD Systems Ltd., Migdal Ha'Emek, Israel (formerly AG
Associates (Israel) Ltd.). The purchase prices amounted to $35,200 and $22,800,
respectively. The acquisitions were accounted for using the purchase method.
The results of operations and their respective assets and liabilities were
combined in the financial statements of the Company since the respective
acquisition dates. The goodwill for these companies was accounted for using the
push down method, resulting in an increase in goodwill of $37.1 million.
Goodwill is amortized on a straight line basis over five years.
The Company develops, manufactures, markets and supports fabrication
equipment for the worldwide semiconductor and wafer manufacturing industry. The
Company's products include advanced rapid thermal processing (RTP), wet
processing, and chemical vapor deposition (CVD) equipment used in the
manufacture of integrated circuits. The Company has manufacturing facilities in
the United States, Germany and Israel and sells its products primarily through
a direct sales force and wholly-owned sales and service subsidiaries. The
Company was dependent on STEAG for financial support in order to meet its
obligations as they became due. STEAG has provided to management of the Company
assurance of continued financial support at least through December 31, 2000.
1.2. Purpose and basis of presentation
Solely for purposes of this presentation, these combined financial
statements have been prepared as if the above mentioned wholly-owned
subsidiaries of STEAG were combined into one reporting entity. The purchase
price paid by STEAG for the acquisition of each entity has been pushed down.
The portion of the purchase price not allocated to assets or liabilities has
been recorded as goodwill.
The statements are presented in thousands of U.S. Dollars translated from
different local currencies.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2.1. Combination
The investment of STEAG in the STEAG semiconductor equipment business has
been shown as combined equity of the STEAG Semiconductor Division. It comprises
the equity of the above mentioned entities. All significant intercompany
balances and transactions have been eliminated.
F-35
<PAGE>
STEAG SEMICONDUCTOR DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(all amounts in thousands of U.S. Dollars, except as otherwise indicated)
2.2. Concentration of credit risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist primarily of cash, cash equivalents and
short-terms investments, as well as accounts receivable. The Company
has placed the majority of its cash, cash equivalent and short-term investments
with high-quality financial institutions.
The Company sells its products primarily to large companies in the
semiconductor industry. Credit risk is further mitigated by the Company's
credit evaluation process. The Company does not require collateral or other
security to support receivables. The Company maintains allowances for potential
credit losses.
As of December 31, 1998 the Company had receivables from two significant
customers in amounts of $4,881 and $3,586. The Company had significant sales to
one customer amounting to $14,479 for the year ended December 31, 1998. The
Company had no significant customers as of and for the year ended December 31,
1999.
2.3. Financial statement estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. Such estimates include the allowance for
potentially uncollectible receivables, inventory reserves for obsolete, slow-
moving or non-salable inventory, analysis of impairment of long-lived assets,
certain accruals and estimated costs for litigation, installation, warranty and
other customer support obligations. Actual results could significantly differ
from these estimates.
2.4. Significant risks and uncertainties
The Company participates in the dynamic high technology industry and
believes that changes in any of the following areas could have a material
adverse effect on the Company's future financial position or results of
operations: advances and trends in new technologies; competitive pressures in
the form of new products or price reductions on current products; changes in
product mix; changes in the overall demand for products and services offered by
the Company; changes in certain strategic partnerships or customers
relationships; litigation or claims against the Company based on intellectual
property, patent, products, regulatory or other factors; risks associated with
changes in domestic and international economic and/or political conditions or
regulations; availability of necessary components, and the Company's ability to
attract and retain employees necessary to support its growth.
2.5. Fair value of financial instruments
The estimated fair value of financial instruments has been determined by the
Company, using available market information and valuation methodology
considered to be appropriate. However, considerable judgement is required in
interpreting market data to develop the estimates of fair value. The use of
different market assumptions and/or estimation methodologies could have a
material effect on estimated fair value amounts. The estimated fair value of
the Company's financial instruments at December 31, 1999 and 1998 was not
materially different from the values presented in the combined balance sheets.
2.6. Cash equivalents
Cash equivalents are highly liquid debt instruments acquired with a maturity
of three months or less at date of purchase.
F-36
<PAGE>
STEAG SEMICONDUCTOR DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(all amounts in thousands of U.S. Dollars, except as otherwise indicated)
2.7. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
The Company reviews the levels of its inventories in light of current and
forecasted demand to identify and provide reserves for obsolete, slow-moving,
or non-salable inventory.
2.8. Property and equipment
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Buildings..................................................... 39 to 40 years
Machinery..................................................... 5 to 10 years
Automobiles................................................... 4 to 7 years
Furniture, fixtures and equipment............................. 3 to 16 years
Computers and software........................................ 3 to 5 years
</TABLE>
2.9. Goodwill
The goodwill represents the excess of cost over the fair value of assets
acquired and liabilities assumed related to the acquisitions by the Company.
Goodwill is being amortized using the straight-line method over the life of the
underlying assets, generally 5 years. Accumulated amortization of the goodwill
for the years ended December 31, 1999 and 1998 was $25,857 and $12,578,
respectively.
2.10. Long-lived asset impairment
The Company periodically reviews the recorded values of its long-lived
assets and associated intangible assets to determine if future cash flows to be
derived from these assets will be sufficient to recover the remaining recorded
values. Recognition of asset impairment write downs has not had a material
impact on the Company's financial statements for the years ended December 31,
1999 or 1998.
2.11. Revenue recognition
Sales are generally recognized upon shipment. Estimated costs for
installation, warranty and other customer support obligations, which are
considered significant, are accrued in the period that sales are recognized.
Revenue related to services provided to customers outside the warranty period
are generally recognized when the services are performed.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements. SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. Among other
things, SAB 101 would result in a change from the established practice in many
industries of recognizing revenue at the time of shipment of a system, and
instead delay revenue recognition until the time of installation or customer
acceptance. Because of the cyclical nature of the semiconductor equipment
industry, and our dependence on a small number of comparatively large sales, a
change in revenue recognition practices could have a material effect on revenue
in any particular reporting period. Although the Company is not a U.S.
reporting company, as a result of the proposed business combination with
Mattson Technology, Inc. (See Note 17), we may be required to adopt SAB 101 in
the future.
F-37
<PAGE>
STEAG SEMICONDUCTOR DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(all amounts in thousands of U.S. Dollars, except as otherwise indicated)
2.12. Research and development
All research and development costs are expensed as incurred. The Company's
products include certain software applications. The costs to develop such
software have not been capitalized as the Company believes its current software
development process is essentially completed concurrent with the establishment
of the technological feasibility of the software and/or development of the
related hardware.
2.13. Translation of foreign currencies
Assets and liabilities of foreign subsidiaries are translated at current
exchange rates, and revenues and expenses are translated at average exchange
rates for the year into United States Dollars. The effects of these translation
adjustments are reported as a component of accumulated other comprehensive
income in shareholders' equity.
2.14. Income taxes
The Company has adopted Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes". SFAS No. 109 requires recognition of
deferred tax liabilities and assets of the expected future tax consequences of
events that have been included in the financial statements or tax returns.
Under this method, deferred tax liabilities and assets are determined based on
the differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts expected to be realized.
Income tax expense is the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
See Note 14 for a description of the tax sharing arrangements.
2.15. Financial instruments
Financial instruments, including derivatives (especially currency futures),
which are not designated as hedges of specific assets, liabilities, or firm
commitments are marked to market and any resulting unrealized gains or losses
are recognized as income. If there is a direct connection between a derivative
financial instrument and an underlying transaction and derivative is so
designated, a valuation unit is formed. Once allocated, gains and losses from
these valuation units, which are used to manage interest rate and currency
risks of identifiable assets, liabilities, or firm commitments, do not affect
income until the underlying transaction is realized.
The Company uses derivative financial instruments for hedging purposes. The
contracts are discussed in Note 15 "Derivative financial instruments".
2.16. Recently issued accounting standards
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. It
requires that an entity recognizes all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. For a derivative not designated as a hedging
instrument, changes in the fair value of the derivative are recognized in
earnings in the period of change. This statement, as amended by SFAS 137, will
be effective for fiscal years beginning after June 15, 2000 and cannot be
applied retroactively. Adoption of this statement is not expected to have a
material effect on the Company's financial position or results of operations.
F-38
<PAGE>
STEAG SEMICONDUCTOR DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(all amounts in thousands of U.S. Dollars, except as otherwise indicated)
3. Inventories
Inventories consist of:
<TABLE>
<CAPTION>
December 31,
---------------
1999 1998
------- -------
<S> <C> <C>
Raw materials................................................ $20,475 $17,788
Work-in-process.............................................. 16,832 7,371
Finished goods............................................... 9,458 11,295
------- -------
$46,765 $36,454
======= =======
</TABLE>
Inventories are shown net of reserves for obsolete, slow-moving, and non-
salable inventory of $12,805 and $7,646 at December 31, 1999 and 1998,
respectively.
4. Property and equipment
Property, plant and equipment consist of:
<TABLE>
<CAPTION>
December 31,
------------------
1999 1998
-------- --------
<S> <C> <C>
Land..................................................... $ 702 $ 700
Buildings................................................ 10,732 10,823
Leasehold improvements................................... 2,858 53
Furniture, fixtures and equipment........................ 46,076 39,538
Construction in progress................................. 1,075 51
Accumulated depreciation................................. (27,795) (22,105)
-------- --------
Property, plant and equipment, net....................... $ 33,648 $ 29,060
======== ========
</TABLE>
Depreciation expenses amounted to $12,253 and $7,263 for the years ended
December 31, 1999 and 1998, respectively.
5. Short term borrowings and current portion of long term debt
The Company entered into several credit agreements as listed below:
<TABLE>
<CAPTION>
December 31,
---------------
1999 1998
------- -------
<S> <C> <C>
Line of credit from STEAG.................................. $43,526 $36,970
Loan from STEAG, expiration not before January 2000,
LIBOR..................................................... 2,031 --
Bank loans................................................. 666 13,650
------- -------
$46,223 $50,620
======= =======
</TABLE>
STEAG has granted a credit facility of $124,000 to the Company. Draws under
the line of credit bear interest at LIBOR (3.87% and 3.21% on December 31, 1999
and 1998, respectively). This credit facility is negotiated with STEAG each
year in February.
F-39
<PAGE>
STEAG SEMICONDUCTOR DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(all amounts in thousands of U.S. Dollars, except as otherwise indicated)
6. ACCOUNTS PAYABLE
The Company acquires materials and supplies to be used in the production of
goods or in conjunction with the providing of services from third parties and
from related parties. The accounts payable are summarized below:
<TABLE>
<CAPTION>
December 31,
---------------
1999 1998
------- -------
<S> <C> <C>
Accounts payable--third parties............................. $22,134 $ 8,741
Accounts payable--related parties........................... 5,402 9,886
------- -------
$27,536 $18,627
======= =======
</TABLE>
7. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------
1999 1998
------- -------
<S> <C> <C>
Warranty reserve............................................ $ 5,561 $ 6,094
Product replacement reserve................................. 4,900 --
Employee related liabilities:
Compensated absence....................................... 1,483 1,032
Employee bonus............................................ 1,128 956
Other..................................................... 2,351 798
Accrued federal and state/local income tax.................. 715 3,426
Other accruals.............................................. 8,258 8,404
------- -------
$24,396 $20,710
======= =======
</TABLE>
8. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------
1999 1998
------- ------
<S> <C> <C>
Loan from STEAG: Expiration 2001, LIBOR...................... $ 3,100 $ --
Expiration September 2001 or earlier, LIBOR.................. 1,189 4,357
Expiration December 2007, bearing interest 5.8%.............. 2,225 2,965
Expiration December 2001, bearing interest of 4.55%.......... 605 --
Expiration December 2001, bearing interest of 4.55%.......... 795 --
Expiration December 2001, LIBOR.............................. 4,809 --
Expiration December 2002, bearing interest of 4.0%........... 3,384 --
------- ------
$16,107 $7,322
======= ======
</TABLE>
LIBOR on December 31, 1999 and 1998 amounted to 3.87% and 3.21%,
respectively.
F-40
<PAGE>
STEAG SEMICONDUCTOR DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(all amounts in thousands of U.S. Dollars, except as otherwise indicated)
9. DISCONTINUED OPERATIONS
On December 21, 1998, and amended March 9, 1999, STEAG Electronic Systems,
Inc. entered into an asset purchase agreement with STEAG HamaTech USA, Inc.
STEAG Electronic System, Inc.'s Mask/CD division net liabilities were sold to
and the liabilities assumed by STEAG HamaTech USA, Inc. The amount of
liabilities in excess of assets assumed by STEAG HamaTech USA, Inc. has been
credited as capital contribution in the amount of $1,256 in 1998 as this
represents a transaction between commonly controlled entities. The Mask/CD
operations are reflected as discontinued operation in 1998. Mask/CD net
revenues were $ 16,033 in 1998. Net liabilities of the Mask/CD division are
excluded from the combined balance sheet as of December 31, 1998.
10. CONTINGENCIES
In April 1997, Applied Materials, Inc. ("Applied Materials") initiated
separate lawsuits in the Northern District of California against AST Elektronik
GmbH (now known as STEAG RTP Systems GmbH) and AST Elektronik USA, Inc.
(subsequently merged into STEAG Electronic Systems, Inc.), (collectively "AST")
and AG Associates, Inc. (now known as STEAG RTP Systems, Inc.) ("AG"), alleging
infringement of certain patents concerning rapid thermal processing technology.
In October 1997, AST and AG each filed counterclaims alleging infringement by
Applied Materials of patents concerning related technology. In addition, on
August 5, 1998, AG filed a lawsuit in California against Applied Materials
alleging infringement of another patent relating to rapid thermal processing
technology and, on August 13, 1998, AG filed a lawsuit in Delaware against
Applied Materials alleging infringement of two other patents concerning related
technology. The Delaware case was subsequently transferred to California.
Management believed Applied Materials' claims were without merit, and that the
Company's claims against Applied Materials were meritorious.
In February 1999, Applied Materials and AST resolved their dispute on
mutually acceptable terms and conditions. In addition, in December 1999,
Applied Materials and AG agreed on a stipulation of mutual dismissal without
prejudice, whereby all current claims and contingencies are dismissed, each
party having to bear its own and attorneys fees. The mutual dismissal was filed
with the Northern District Court of California, San Jose Division. All such
legal costs have been accrued by the Company as of December 31, 1999.
There has been substantial litigation regarding patent and other
intellectual property rights in the semiconductor industry. General Signal
Corporation has made a claim against at least two manufacturers of cluster
tools that has resulted in litigation to the effect that certain of their
cluster tool technologies infringe on General Signal patents. In 1991, at the
time that General Signal first raised patent claims in the cluster tool area,
the predecessor to STEAG RTP Systems Inc. joined with six major manufacturers
of semiconductor process tool equipment in forming an "Ad Hoc Committee for
Defense against General Signal Cluster Tool Patents" (the "Ad Hoc Committee").
Based in part on an opinion of patent counsel, the members of the Ad Hoc
Committee notified General Signal that the member companies were of the opinion
that the General Signal patents were invalid based on (a) prior art, (b)
inequitable conduct before the Patent & Trademark Office and (c) estoppel as a
result of General Signal's activities in establishing standards for cluster
tools and interfaces within the semiconductor industry. The Company believes
that the position taken by the Ad Hoc Committee remains valid. Based upon a
review of the subject patents, the Company believes, based on advice from
outside patent counsel, that the subject patents are invalid or, if somehow
found to be valid, that the Company's cluster tool technology does not
infringe. In 1997, the General Signal Patents were acquired by Applied
Materials. One of the patents has expired.
F-41
<PAGE>
STEAG SEMICONDUCTOR DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(all amounts in thousands of U.S. Dollars, except as otherwise indicated)
On December 12, 1997, a jury in Delaware district court found that STEAG
Electronic Systems, Inc., Austin, Texas, USA, had willfully infringed upon a
patent held by CFM Technologies, Inc. ("CFM"). STEAG Electronic Systems, Inc.
reserved an amount sufficient to cover damages of $ 3.1 million plus attorneys'
fees and certain reserves for assets related to the technology. In early 1998,
STEAG Electronic Systems, Inc. appealed the jury verdict to the Federal Circuit
Court. In May 1999, the Federal appeals court remanded the case back to the
District Court for further consideration of the jury's findings. In November
1999, the District Court reaffirmed its earlier ruling. STEAG Electronic
Systems, Inc. appealed this District Court ruling once again to the Federal
Circuit Court, and also requested that the injunction issued in the initial
jury trial be stayed. In January 2000, the Federal Appeals Court issued a
ruling that did not grant the stay motion. The lawsuit has subsequently been
settled. As part of the settlement, STEAG Electronic Systems, Inc. was not
required to pay any damages to CFM. Additionally, as part of the settlement,
STEAG entered into a patent license agreement with CFM (see Note 11).
From time to time, the Company may receive or initiate claims or inquiries
against third parties for infringement of the Company's proprietary rights or
to establish the validity of the Company's proprietary rights. Such claims or
inquiries may result in litigation and could result in significant expense to
the Company and divert the effort of the Company's technical and management
personnel from other tasks, whether or not such claims or inquiries are
determined in favor of the Company. In the event of an adverse ruling in any
such litigation, the Company might be required to pay substantial damages,
cease the manufacture, use and sale of infringing products, discontinue the use
of certain processes or expend significant resources to develop non-infringing
technology or obtain licenses to the infringing technology.
11. COMMITMENTS
On June 27, 2000, in connection with its strategic business combination
agreement to sell the STEAG Semiconductor Division to Mattson Technology, Inc.
("Mattson") (see note 17) and the settlement of its patent litigation with CFM,
STEAG entered an interim patent license agreement with CFM, pursuant to which
CFM granted the Company a non-exclusive, non-transferable worldwide license to
certain patent rights with respect to drying technologies and wet bench
products (including U.S. Patent No. 4,911,761).
Under the terms of the license agreement, STEAG is required to pay CFM
royalties on net sales in the United States both for stand-alone dryers and
dryer modules, and for wet processing systems that include dryers. In the event
the strategic business combination agreement and the CFM merger agreement are
terminated due to CFM's failure to obtain shareholders' approval or due to a
Mattson material adverse effect, the royalty payments will be permanently
reduced by 50%. STEAG's obligation to pay royalties terminates upon expiration
or a final, non-appealable judicial determination of unenforceability or
invalidity of U.S. Patent No. 4,911,761 or if the strategic business
combination agreement and the CFM merger agreement are terminated under certain
circumstances involving voluntary termination or intentional breach by CFM. In
the event that the strategic business combination agreement is terminated
voluntarily by STEAG under certain circumstances or by Mattson due to certain
breaches by STEAG, STEAG is required to pay to CFM a one-time lump sum royalty
payment and all other royalty payments will cease. Due to uncertainty
management has not recorded an accrual for the potential one-time lump sum
royalty.
The license agreement terminates (i) when the last of the licensed patents
expires or is determined to be unenforceable by a final, non-appealable court
judgment, (ii) upon termination of the strategic business combination agreement
resulting from certain intentional breaches by STEAG, or (iii) if, within 24
months after the strategic business combination agreement and the CFM merger
agreement are terminated under certain circumstances, Mattson and STEAG enter
into a similar transaction including STEAG's wet processing
F-42
<PAGE>
STEAG SEMICONDUCTOR DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(all amounts in thousands of U.S. Dollars, except as otherwise indicated)
business but not involving CFM (unless CFM has entered into an alternative
transaction prior to such new transaction between Mattson and STEAG).
12. LEASES
Future minimum annual non-cancelable operating lease commitments at
December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000 $ 4,859
2001 4,749
2002 3,613
2003 1,820
2004 1,576
2005 and thereafter............................................... 4,582
-------
Total minimum lease payments.................................... $21,199
=======
</TABLE>
Rent expense for operating leases for the years ended December 31, 1999 and
1998 was $4,395 and $2,429, respectively.
13. SHAREHOLDERS' EQUITY
Shareholders' equity comprises the net investment of STEAG in the STEAG
Semiconductor Division.
STEAG acquired 100% of STEAG RTP Systems, Inc. under the agreement and plan
of merger of January 18, 1999 between STEAG, MIG Acquisition Corporation and
STEAG RTP Systems, Inc. Pursuant to the merger agreement, the stock option
plan for the directors was terminated. The employee stock option plan was
terminated by agreements with each employee. Each employee's vested options
were replaced by a stay bonus, which became due twelve months after the
effective date (March 2000). The amount was limited to an aggregate amount of
$2,040. An accrual amounting to $1.2 million was set-up as of December 31,
1999 and was paid in March and April 2000.
Ownership of 25% of STEAG CVD Systems Ltd. is held by STEAG RTP Systems,
Inc. STEAG acquired directly the additional 75% of STEAG CVD Systems Ltd.
under the share purchase agreement of January 15, 1999 between STEAG, Clal
Electronics Industries and additional holders of preferred shares. The
employee stock option plan was terminated by agreements with each employee.
The options (authorized and vested) were replaced by a stay bonus, which was
due in three portions, to be paid by STEAG. The portion due at the closing and
after the first anniversary of the closing have already been paid. The third
portion is due at the second anniversary of the closing, which took place on
March 23, 1999. Depending on the employees still employed in March 2001, there
will be an amount to be paid of up to $680.
Furthermore, STEAG paid $282 into an escrow account as an additional cash
stay bonus. Only certain key employees are entitled to this bonus. The
payments are due according to the regular stay bonus. If there is money left
after the second anniversary, it will be paid to the sellers and to the
general manager of STEAG CVD Systems Ltd.
The capital contributions in the amount of $5,895 and $9,067 in 1999 and
1998 result from the profit and loss absorption agreement ($5,895 and $7,895
in 1999 and 1998, respectively) with STEAG (reference is made to Note 14
"Income taxes") including the reimbursement of discontinued operations by
STEAG (reference is made to Note 9 "Discontinued operations").
F-43
<PAGE>
STEAG SEMICONDUCTOR DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(all amounts in thousands of U.S. Dollars, except as otherwise indicated)
14. INCOME TAXES
The pre-tax income (loss) of the Company is as follows:
<TABLE>
<CAPTION>
December 31,
------------------
1999 1998
-------- --------
<S> <C> <C>
Germany............................................... $(26,918) $(20,559)
Foreign............................................... (30,354) (9,306)
-------- --------
$(57,272) $(29,865)
======== ========
The provision (benefits) for taxes on earnings consists of:
<CAPTION>
December 31,
------------------
1999 1998
-------- --------
<S> <C> <C>
Current:
Germany............................................... $ 113 $ 5,272
Foreign............................................... 78 (1,002)
-------- --------
191 4,270
Deferred:
Tax benefit........................................... (8,699) (4,897)
Valuation allowance................................... 8,298 2,341
Tax benefit from tax sharing.......................... (5,600) (8,828)
-------- --------
(6,001) (11,384)
-------- --------
Total tax benefit....................................... $ (5,810) $ (7,114)
======== ========
Deferred tax assets:
Net operating loss carry-forward...................... $ 31,705 $ 1,468
Accruals and other reserves........................... 5,469 883
Depreciation.......................................... 701 --
Inventory............................................. 997 490
General business credits.............................. 2,490 --
Non-current--accrued warranty......................... 473 568
Valuation allowance................................... (41,835) (3,409)
-------- --------
Total deferred tax assets........................... $ -- $ --
======== ========
</TABLE>
STEAG RTP Systems GmbH and STEAG MicroTech GmbH entered into a profit and
loss absorption agreement with their parent company, STEAG. As part of this
agreement, STEAG RTP Systems GmbH and STEAG MicroTech GmbH formed a tax sharing
unity with STEAG. As a consequence thereof no separate tax returns are prepared
for those entities but a consolidated tax return is filed at the STEAG level.
Income and losses incurred by STEAG RTP Systems GmbH and STEAG MicroTech
GmbH are used at the STEAG level. STEAG charges or reimburses STEAG RTP Systems
GmbH and STEAG MicroTech GmbH for the use of their taxable income or loss,
respectively, using the separate return method to calculate the charged or
reimbursed tax amount. In addition, STEAG charges or reimburses STEAG RTP
Systems GmbH and STEAG MicroTech GmbH for the remaining part of the income or
loss, respectively. The net operating losses were $11,496 and $16,724 in 1999
and 1998, respectively. Using a tax rate of 49% and 53% (corporate income tax
plus trade tax) in 1999 and 1998, the tax benefit for the Company amounts to
$5,600 and $8,828 in 1999 and 1998, respectively.
F-44
<PAGE>
STEAG SEMICONDUCTOR DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(all amounts in thousands of U.S. Dollars, except as otherwise indicated)
Realization of the tax benefit related to the Company's deferred tax assets
is dependent upon the generation of future taxable income. Due to significant
net losses incurred through December 31, 1999 and uncertainty surrounding the
utilization of deferred tax assets, management has evaluated its deferred tax
assets and provided a full valuation allowance at December 31, 1999 and 1998.
The net operating loss carry-forwards expire on various dates through the
year 2019. At December 31, 1999, the Company also had general business credits
for income tax purposes of $2,490, available to offset future taxable income.
The credits expire on various dates through the year 2018. The extent to which
the loss and the credit carryforward can be used to offset future taxable
income and tax liabilities, respectively, may be limited depending on the
extent of ownership change within any three-year period.
In 1999, retained corporate income in Germany is initially subject to a
federal corporation income tax of 40 percent (1998: 45 percent). Effective
January 1, 1995 a solidarity surcharge of 7.5 percent on the federal corporate
tax rate was introduced which was reduced to 5.5 percent, effective as of
January 1, 1998. Upon distribution of retained earnings to stockholders, the
corporate tax rate on the distributed earnings is adjusted to 30 percent
through the receipt of a refund for taxes previously paid in excess of 30
percent on income. This refund is passed on to stockholders resident in Germany
through a gross up of the dividend from the corporation.
15. DERIVATIVE FINANCIAL INSTRUMENTS
One of the results of the international business activities of the Company
is the settlement of numerous orders in foreign currency, which, because of the
changes in foreign currency exchange rates, has a direct impact on the results
of operations and financial position of the Company. In order to limit these
risks, the Company enters into forward contracts as hedging instruments. This
serves only to secure receivables in foreign currency and is not for
speculation or trading purposes.
The nominal and fair values of the forward contracts as of the respective
balance sheet dates are as follows:
<TABLE>
<CAPTION>
December 31,
---------------
1999 1998
------- -------
<S> <C> <C>
Nominal value................................................ $52,928 $29,752
Fair value................................................... $56,018 $30,065
</TABLE>
16. RELATED PARTY TRANSACTIONS
The following is a summary of the transactions between the Company, STEAG
and the Company's affiliates included in the financial statements for the years
ended December 31:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Purchases from affiliates..................................... $1,830 $ 754
Sales to affiliates........................................... 781 86
Rental payments to affiliated parties......................... 1,924 1,724
Insurance premiums to affiliates.............................. 576 609
Patent services from affiliates............................... 207 110
Interest expense to affiliates................................ 4,001 2,880
Services concerning labor and environmental safety............ 23 --
</TABLE>
F-45
<PAGE>
STEAG SEMICONDUCTOR DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(all amounts in thousands of U.S. Dollars, except as otherwise indicated)
Purchases from and sales to affiliates relate to subassemblies that are
manufactured by STEAG Electronic Systems spol. sr.o, a Slovak Republic based
subsidiary of STEAG which is not part of the STEAG Semiconductor Division.
STEAG AG, the parent company of STEAG, provides certain patent skeleton and
several agreements for insurances for the Company. Additionally, the Company
makes use of insurance services provided by RAG Versicherungs-Dienst GmbH, an
affiliate of RAG Aktiengesellschaft which is the parent company of STEAG AG.
Facilities in Dornstadt and Pliezhausen are leased from STEAG Walsum Immobilien
AG, a subsidiary of STEAG AG.
The Company leases real estate from related parties. Future minimum annual
operating lease commitments at December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000................................................................ $ 2,019
2001................................................................ 2,019
2002................................................................ 1,576
2003................................................................ 1,576
2004................................................................ 1,576
2005................................................................ 4,582
-------
Total minimum lease payments........................................ $13,348
=======
</TABLE>
The amounts are included in the minimum lease payments in Note 12 "Leases".
17. SUBSEQUENT EVENTS (UNAUDITED)
Effective in February 2000, STEAG acquired all of the shares of CuTek
Research, Inc., San Jose, USA, for a purchase price of $15,400. CuTek Research,
Inc. was subsequently renamed STEAG CuTek, Inc. Currently, STEAG CuTek is
primarily engaged in the development and marketing of electroplating equipment
for depositing copper and other conductive films.
On June 27, 2000, STEAG and Mattson entered into a strategic business
combination agreement. STEAG will transfer ownership of all of its subsidiaries
comprising the STEAG Semiconductor Division to Mattson. In exchange, STEAG will
receive 11,850,000 shares of Mattson common stock. As a result of the
transaction, and the CFM Merger described below, STEAG will hold approximately
32% of the outstanding Mattson common stock. The closing is planned to occur on
or about January 1, 2001.
On June 27, 2000 Mattson also entered into an agreement and plan of merger
with CFM Technologies, Inc. ("CFM"). Mattson is to acquire CFM in a stock-for-
stock merger in which Mattson will issue 0.5223 shares of its common stock for
each share of CFM stock outstanding at the closing. In addition, Mattson will
assume all outstanding CFM stock options, based on the same exchange ratio. The
business combination with STEAG and the merger with CFM are each conditioned
upon the closing of the other.
Simultaneously, STEAG and STEAG Electronic Systems, Inc. entered into a
settlement agreement with CFM with respect to the patent litigation and STEAG,
CFM and CFMT, Inc. entered into a license agreement (reference is made to Note
11 "Commitments"). STEAG Electronic Systems, Inc. withdrew the pending appeal
with respect to the patent litigation and STEAG agreed to cause the withdrawal
or termination of five invalidity lawsuits against the foreign counterpart
patents of the CFM 761 patent.
F-46
<PAGE>
STEAG SEMICONDUCTOR DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(all amounts in thousands of U.S. Dollars, except as otherwise indicated)
18. Debt to equity conversion
Effective June 30, 2000, STEAG has increased its investment in the STEAG
Semiconductor Division in accordance with the above mentioned strategic
business combination agreement between STEAG and Mattson Technology Inc. by a
capital contribution in kind. The capital increase amounted to $100.9 million
and was made by a conversion of intercompany loans to equity.
<TABLE>
<CAPTION>
Debt to
additional
paid-in
capital
----------
<S> <C>
STEAG MicroTech GmbH, Pliezhausen, Germany....................... $ 38,657
STEAG Electronic Systems Inc., Austin, USA....................... 4,800
STEAG RTP Systems GmbH, Dornstadt, Germany....................... 27,180
STEAG RTP Systems Inc., San Jose, USA............................ 17,400
STEAG CVD Systems Ltd., Migdal Ha'Emek, Israel................... 7,000
STEAG Electronic Systems South East Asia Pte. Ltd., Singapore.... 4,454
STEAG Electronic Systems Korea Ltd., Seoul, Korea................ 759
STEAG Electronic Systems UK Ltd., Renfrew, UK.................... 724
--------
Total.......................................................... $100,974
========
</TABLE>
F-47
<PAGE>
STEAG SEMICONDUCTOR DIVISION
COMBINED BALANCE SHEETS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
June 30,
------------------
2000 1999
-------- --------
<S> <C> <C>
ASSETS
------
Current Assets:
Cash and cash equivalents................................ $ 23,992 $ 7,017
Accounts and notes receivable, net....................... 74,932 41,165
Receivables from related parties......................... 288 376
Notes and other receivables.............................. 2,214 182
Inventories.............................................. 66,510 47,422
Prepaid expenses and other............................... 10,385 4,321
-------- --------
Total current assets................................... 178,321 100,483
Net property, plant and equipment........................ 29,859 36,938
Intangible assets and deferred charges, less accumulated
amortization............................................ 1,033 833
Goodwill, net of accumulated amortization................ 50,505 50,892
Other non current assets, net of accumulated
amortization............................................ 1,001 668
-------- --------
$260,719 $189,814
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
Current Liabilities:
Current portion of long-term debt and short term
borrowings.............................................. $ 7,481 $ 22,079
Accounts payable......................................... 22,642 46,782
Accrued liabilities...................................... 33,788 26,541
Other current liabilities................................ 6,464 1,679
-------- --------
Total current liabilities.............................. 70,375 97,081
-------- --------
Long-term debt........................................... 1,034 13,388
Loans from shareholders and other non current
liabilities............................................. -- 10,719
-------- --------
Total liabilities...................................... 71,409 121,188
-------- --------
Shareholder's equity:
Subscribed capital/common stock.......................... 82,100 53,715
Additional paid-in capital............................... 186,829 64,961
Accumulated other comprehensive income (loss)............ (3,392) (1,478)
Retained earnings (deficit).............................. (76,227) (48,572)
-------- --------
Total shareholders' equity............................. 189,310 68,626
-------- --------
$260,719 $189,814
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-48
<PAGE>
STEAG SEMICONDUCTOR DIVISION
COMBINED STATEMENTS OF OPERATIONS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
------------------
2000 1999
-------- --------
<S> <C> <C>
Net sales.................................................. $115,271 $ 56,000
Cost of sales.............................................. 58,308 38,486
-------- --------
Gross profit............................................... 56,963 17,514
-------- --------
Operating expenses:
Research, development and engineering.................... 20,629 16,299
Selling, general and administrative...................... 34,372 25,676
Goodwill amortization.................................... 8,210 6,302
-------- --------
Total operating expenses............................... 63,211 48,277
-------- --------
Operating income (loss).................................... (6,248) (30,763)
Interest income............................................ 215 130
Interest expense........................................... (2,656) (1,906)
Other income (expense)..................................... 1,041 (2,179)
-------- --------
Loss before income taxes................................... (7,648) (34,718)
Income tax provision (benefit)............................. 3,202 (62)
-------- --------
Net loss from continuing operations........................ $(10,850) $(34,656)
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-49
<PAGE>
STEAG SEMICONDUCTOR DIVISION
COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................ $(10,850) $(34,656)
Reconciliation to net cash provided (used in) operating
activities:
Depreciation and amortization......................... 12,287 12,993
Gain on disposal of fixed assets...................... (192) (113)
Deferred income taxes.................................
Other changes in net cash from operating assets and
liabilities............................................
Accounts receivables.................................. (18,838) (528)
Inventories........................................... (18,060) (4,333)
Prepaid expenses and other assets..................... (6,335) (2)
Accounts payable...................................... (4,019) 24,022
Accrued liabilities................................... 10,518 3,020
Other current liabilities............................. 4,916 (1,268)
-------- --------
Net cash used in operating activities............... (30,573) (865)
-------- --------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired......... (14,740) (50,192)
Capital expenditures.................................... (2,931) (3,656)
Proceeds from sales of equipment........................ 1,063 431
-------- --------
Net cash used in investing activities............... (16,608) (53,417)
-------- --------
Cash flows from financing activities:
Increase (decrease) of
Short term borrowings................................. 45,940 (32,431)
Borrowings from stockholders.......................... 2,055 3,897
Other long term liabilities........................... (2,166) 11,608
Capital increase........................................ 15,438 62,411
-------- --------
Net cash provided by financing activities........... 61,267 45,485
-------- --------
Effect of foreign exchange rate changes on cash and cash
equivalents.............................................. (275) (136)
-------- --------
Net increase (decrease) in cash and cash equivalents...... 13,811 (8,933)
Cash and cash equivalents at beginning of period.......... 10,181 15,950
-------- --------
Cash cash and equivalents at end of period................ $ 23,992 $ 7,017
======== ========
Supplemental schedule of noncash investing and financing
activities:
Conversion of debt to equity............................ 100,974 --
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest.................................. 1,720 1,533
======== ========
Cash paid for income taxes.............................. 3,202 49
======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-50
<PAGE>
STEAG SEMICONDUCTOR DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(all amounts in thousands of U.S. Dollars, except as otherwise indicated)
(unaudited)
1. ORGANIZATION, PURPOSE AND BASIS OF PRESENTATION
1.1. Organization
The combined financial statements of the STEAG semiconductor equipment
division (the "STEAG Semiconductor Division" or the "Company") include the
accounts of certain direct and indirect wholly-owned subsidiaries of STEAG
Electronic Systems AG, Essen, Germany (STEAG). The STEAG subsidiaries included
in this combination are STEAG MicroTech GmbH, Pliezhausen, Germany; STEAG
Electronic Systems Inc., Austin, USA; STEAG RTP Systems GmbH, Dornstadt,
Germany; STEAG Electronic Systems Korea Ltd., Seoul, Korea; STEAG Electronic
Systems Japan Co., Kawasaki, Japan; STEAG Electronic Systems UK Ltd., Renfrew,
UK and STEAG Electronic Systems South East Asia Pte. Ltd., Singapore, for both
six months periods reported herein.
Effective March 1, 1999, STEAG purchased 100 percent of STEAG RTP Systems
Inc., San Jose, USA (formerly AG Associates, Inc.). Effective January 1, 1999,
STEAG purchased STEAG CVD Systems Ltd., Migdal Ha'Emek, Israel (formerly AG
Associates (Israel) Ltd.). The purchase prices amounted to $ 35.2 million and $
22.8 million, respectively. Effective February 2000, STEAG acquired CuTek
Research, Inc., San Jose, USA, for a purchase price of $ 15.4 million. CuTek
Research, Inc. was subsequently renamed STEAG CuTek, Inc. The acquisitions were
accounted for using the purchase method.
The results of operations and their respective assets and liabilities were
combined in the financial statements of the Company since the respective
acquisition dates. The goodwill for these companies was accounted for using the
push down method, resulting in an increase in goodwill of $ 51.9 million.
Goodwill is amortized on a straight line basis over five years.
The Company develops, manufactures, markets and supports fabrication
equipment for the worldwide semiconductor and wafer manufacturing industry. The
Company's products include advanced rapid thermal processing (RTP), wet
processing, chemical vapor deposition (CVD) and copper plating equipment used
in the manufacture of integrated circuits. The Company has manufacturing
facilities in the United States, Germany and Israel and sells its products
primarily through a direct sales force and wholly-owned sales and service
subsidiaries.
1.2. Purpose and basis of presentation
Solely for purposes of this presentation, these combined financial
statements have been prepared as if the above mentioned wholly-owned
subsidiaries of STEAG were combined into one reporting entity. The purchase
price paid by STEAG for the acquisition of each entity has been pushed down.
The portion of the purchase price not allocated to assets or liabilities has
been recorded as goodwill.
The accompanying unaudited condensed combined financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included.
The financial statements should be read in conjunction with the audited
financial statements included in the STEAG Semiconductor Division Combined
Financial Statements for the years ended December 31, 1999 and 1998.
F-51
<PAGE>
STEAG SEMICONDUCTOR DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(all amounts in thousands of U.S. Dollars, except as otherwise indicated)
The results of operations for the six months ended June 30, 2000 are not
necessarily indicative of results that may be expected for the entire year
ending December 31, 2000.
The statements are presented in thousands of U.S. Dollars translated from
different local currencies.
2. INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
June 30,
---------------
1999 1998
------- -------
<S> <C> <C>
Raw materials................................................ $18,616 $21,008
Work-in-process.............................................. 24,662 12,987
Finished goods............................................... 23,231 13,427
------- -------
$66,510 $47,422
======= =======
</TABLE>
Inventories are shown net of reserves for obsolete, slow-moving, and non-
salable inventory.
3. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
June 30,
---------------
2000 1999
------- -------
<S> <C> <C>
Warranty reserve............................................ $ 7,390 $ 6,306
Accrued compensation and benefits........................... 3,941 5,678
Accrued federal and state/local income tax.................. 4,063 898
Other accruals.............................................. 18,394 13,659
------- -------
$33,788 $26,541
======= =======
</TABLE>
4. DEBT TO EQUITY CONVERSION
Effective June 30, 2000, STEAG has increased its investment in the STEAG
Semiconductor Division by a capital contribution in kind. The capital increase
amounted to $100.9 million and was made by a conversion of intercompany loans
to equity. The capital increase consists of:
<TABLE>
<CAPTION>
Debt to
additional
paid-in
capital
----------
<S> <C>
STEAG MicroTech GmbH, Pliezhausen, Germany....................... $ 38,657
STEAG Electronic Systems Inc., Austin, USA....................... 4,800
STEAG RTP Systems GmbH, Dornstadt, Germany....................... 27,180
STEAG RTP Systems Inc., San Jose, USA............................ 17,400
STEAG CVD Systems Ltd., Migdal Ha'Emek, Israel................... 7,000
STEAG Electronic Systems South East Asia Pte. Ltd., Singapore.... 4,454
STEAG Electronic Systems Korea Ltd., Seoul, Korea................ 759
STEAG Electronic Systems UK Ltd., Renfrew, UK.................... 724
--------
Total.......................................................... $100,974
========
</TABLE>
F-52
<PAGE>
STEAG SEMICONDUCTOR DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(all amounts in thousands of U.S. Dollars, except as otherwise indicated)
5. CONTINGENCIES
In April 1997, Applied Materials, Inc. ("Applied Materials") initiated
separate lawsuits in the Northern District of California against AST Elektronik
GmbH (now known as STEAG RTP Systems GmbH) and AST Elektronik U.S.A, Inc.
(subsequently merged into STEAG Electronic Systems, Inc.) (collectively "AST")
and AG Associates, Inc. (now known as STEAG RTP Systems, Inc.) ("AG"), alleging
infringement of certain patents concerning rapid thermal processing technology.
In October 1997, AST and AG each filed counterclaims alleging infringement by
Applied Materials of patents concerning related technology. In addition, on
August 5, 1998, AG filed a lawsuit in California against Applied Materials
alleging infringement of another patent relating to rapid thermal processing
technology and, on August 13, 1998, AG filed a lawsuit in Delaware against
Applied Materials alleging infringement of two other patents concerning related
technology. The Delaware case was subsequently transferred to California.
Management believed Applied Materials' claims were without merit, and that the
Company's claims against Applied Materials were meritorious.
In February 1999, Applied Materials and AST resolved their dispute on
mutually acceptable terms and conditions. In addition, in December 1999,
Applied Materials and AG agreed on a stipulation of mutual dismissal without
prejudice, whereby all current claims and contingencies are dismissed, each
party having to bear its own and attorneys fees. The mutual dismissal was filed
with the Northern District Court of California, San Jose Division. All such
legal costs have been accrued by the Company as of December 31, 1999.
There has been substantial litigation regarding patent and other
intellectual property rights in the semiconductor industry. General Signal
Corporation has made a claim against at least two manufacturers of cluster
tools that has resulted in litigation to the effect that certain of their
cluster tool technologies infringe on General Signal patents. In 1991, at the
time that General Signal first raised patent claims in the cluster tool area,
the predecessor to STEAG RTP Systems Inc. joined with six major manufacturers
of semiconductor process tool equipment in forming an "Ad Hoc Committee for
Defense against General Signal Cluster Tool Patents" (the "Ad Hoc Committee").
Based in part on an opinion of patent counsel, the members of the Ad Hoc
Committee notified General Signal that the member companies were of the opinion
that the General Signal patents were invalid based on (a) prior art, (b)
inequitable conduct before the Patent & Trademark Office and (c) estoppel as a
result of General Signal's activities in establishing standards for cluster
tools and interfaces within the semiconductor industry. The Company believes
that the position taken by the Ad Hoc Committee remains valid. Based upon a
review of the subject patents, the Company believes, based on advice from
outside patent counsel, that the subject patents are invalid or, if somehow
found to be valid, that the Company's cluster tool technology does not
infringe. In 1997, the General Signal Patents were acquired by Applied
Materials. One of the patents has expired.
On December 12, 1997, a jury in Delaware district court found that STEAG
Electronic Systems, Inc., Austin, Texas, USA, had willfully infringed upon a
patent held by CFM Technologies, Inc. ("CFM"). STEAG Electronic Systems, Inc.
reserved an amount sufficient to cover damages of $ 3.1 million plus attorneys'
fees and certain reserves for assets related to the technology. In early 1998,
STEAG Electronic Systems, Inc. appealed the jury verdict to the Federal Circuit
Court. In May 1999, the Federal appeals court remanded the case back to the
District Court for further consideration of the jury's findings. In November
1999, the District Court reaffirmed its earlier ruling. STEAG Electronic
Systems, Inc. appealed this District Court ruling once again to the Federal
Circuit Court, and also requested that the injunction issued in the initial
jury trial be stayed. In January 2000, the Federal Appeals Court issued a
ruling that did not grant the stay motion. The lawsuit has subsequently been
settled. As part of the settlement, STEAG Electronic Systems, Inc. was not
required to pay any damages to CFM. Additionally, as part of the settlement,
STEAG entered into a patent license agreement with CFM (See Note 6).
F-53
<PAGE>
STEAG SEMICONDUCTOR DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(all amounts in thousands of U.S. Dollars, except as otherwise indicated)
From time to time, the Company may receive or initiate claims or inquiries
against third parties for infringement of the Company's proprietary rights or
to establish the validity of the Company's proprietary rights. Such claims or
inquiries may result in litigation and could result in significant expense to
the Company and divert the effort of the Company's technical and management
personnel from other tasks, whether or not such claims or inquiries are
determined in favor of the Company. In the event of an adverse ruling in any
such litigation, the Company might be required to pay substantial damages,
cease the manufacture, use and sale of infringing products, discontinue the use
of certain processes or expend significant resources to develop non-infringing
technology or obtain licenses to the infringing technology.
6. COMMITMENTS
On June 27, 2000, in connection with its strategic business combination
agreement to sell the STEAG Semiconductor Division to Mattson Technology, Inc.
("Mattson") (see note 8) and the settlement of its patent litigation with CFM,
STEAG entered an interim patent license agreement with CFM, pursuant to which
CFM granted the Company a non-exclusive, non-transferable worldwide license to
certain patent rights with respect to drying technologies and wet bench
products (including U.S. Patent No. 4,911,761).
Under the terms of the license agreement, STEAG is required to pay CFM
royalties on net sales in the United States both for stand-alone dryers and
dryer modules, and for wet processing systems that include dryers. In the event
the strategic business combination agreement and the CFM merger agreement are
terminated due to CFM's failure to obtain shareholders' approval or due to a
Mattson material adverse effect, the royalty payments will be permanently
reduced by 50%. STEAG's obligation to pay royalties terminates upon expiration
or a final, non-appealable judicial determination of unenforceability or
invalidity of U.S. Patent No. 4,911,761 or if the strategic business
combination agreement and the CFM merger agreement are terminated under certain
circumstances involving voluntary termination or intentional breach by CFM. In
the event that the strategic business combination agreement is terminated
voluntarily by STEAG under certain circumstances or by Mattson due to certain
breaches by STEAG, STEAG is required to pay to CFM a one-time lump sum royalty
payment and all other royalty payments will cease. Due to uncertainty
management has not recorded an accrual for the potential one-time lump sum
royalty.
The license agreement terminates (i) when the last of the licensed patents
expires or is determined to be unenforceable by a final, non-appealable court
judgment, (ii) upon termination of the strategic business combination agreement
resulting from certain intentional breaches by STEAG, or (iii) if, within 24
months after the strategic business combination agreement and the CFM merger
agreement are terminated under certain circumstances, Mattson and STEAG enter
into a similar transaction including STEAG's wet processing business but not
involving CFM (unless CFM has entered into an alternative transaction prior to
such new transaction between Mattson and STEAG).
7. SHAREHOLDERS' EQUITY
Shareholders' equity comprises the net investment of STEAG in the STEAG
Semiconductor Division.
The capital increase in 2000 results mainly from a debt to equity conversion
(see note 4) and one capital contribution in kind in the amount of $25.5
million.
Furthermore equity was increased in the amount of $15.4 million for the
purchase of STEAG CuTek Inc. (push down of the purchase price).
F-54
<PAGE>
STEAG SEMICONDUCTOR DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(all amounts in thousands of U.S. Dollars, except as otherwise indicated)
8. IMPORTANT EVENTS
On June 27, 2000, STEAG and Mattson entered into a strategic business
combination agreement. STEAG will transfer ownership of all of its subsidiaries
comprising the STEAG Semiconductor Division to Mattson. In exchange, STEAG will
receive 11,850,000 shares of Mattson common stock. As a result of the business
combination and the CFM merger described below, STEAG will hold approximately
32% of the outstanding Mattson common stock. The closing is planned to occur on
or about January 1, 2001.
On June 27, 2000 Mattson also entered into an agreement and plan of merger
with CFM. Mattson is to acquire CFM in a stock-for-stock merger in which
Mattson will issue 0.5223 shares of its common stock for each share of CFM
stock outstanding at the closing. In addition, Mattson will assume all
outstanding CFM stock options, based on the same exchange ratio. The business
combination with STEAG and the merger with CFM are each conditioned upon the
closing of the other.
Simultaneously, STEAG and STEAG Electronic Systems, Inc. entered into a
settlement agreement with CFM with respect to the patent litigation and STEAG,
CFM, and CFMT, Inc. entered into a license agreement (reference is made to note
6 "Commitments"). STEAG Electronic Systems, Inc. withdrew the pending appeal
with respect to the patent litigation and STEAG agreed to cause the withdrawal
or termination of five invalidity lawsuits against the foreign counterpart
patents of the CFM 761 patent.
F-55
<PAGE>
CFM INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
AUDITED ANNUAL FINANCIAL STATEMENTS
Report of Independent Public Accountants................................ F-57
Consolidated Balance Sheets as of October 31, 1999 and 1998............. F-58
Consolidated Statements of Operations for the years ended October 31,
1999, 1998 and 1997.................................................... F-59
Consolidated Statements of Shareholders' Equity for the years ended
October 31, 1999, 1998 and 1997........................................ F-60
Consolidated Statements of Cash Flows for the years ended October 31,
1999, 1998 and 1997.................................................... F-61
Notes to Consolidated Financial Statements.............................. F-62
UNAUDITED INTERIM FINANCIAL STATEMENTS
Consolidated Balance Sheets (unaudited) as of July 31, 2000 and October
31, 1999............................................................... F-75
Consolidated Statements of Operations (unaudited) for the Three and Six
months ended July 31, 2000 and 1999.................................... F-76
Consolidated Statements of Cash Flows (unaudited) for the Nine months
ended July 31, 2000 and 1999........................................... F-77
Notes to Consolidated Financial Statements.............................. F-78
</TABLE>
F-56
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CFM Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of CFM
Technologies, Inc. (a Pennsylvania corporation) and subsidiaries as of October
31, 1999 and 1998, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended October 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CFM Technologies, Inc. and
subsidiaries as of October 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
October 31, 1999, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Philadelphia, Pennsylvania
December 10, 1999
F-57
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
October 31,
-----------------
1999 1998
-------- -------
<S> <C> <C>
ASSETS
------
Current Assets:
Cash and cash equivalents................................. $ 13,967 $31,649
Short-term investments.................................... 10,249 9,745
Accounts receivable....................................... 14,826 14,040
Inventories............................................... 17,039 13,657
Prepaid expenses and other................................ 796 3,209
Deferred income taxes..................................... 1,958 1,811
-------- -------
Total current assets.................................... 58,835 74,111
-------- -------
Property, plant and equipment:
Land...................................................... 540 540
Building and improvements................................. 5,932 5,981
Machinery and equipment................................... 14,239 9,599
Furniture and fixtures.................................... 1,565 1,423
-------- -------
22,276 17,543
Less--Accumulated depreciation and amortization............. (8,739) (6,377)
-------- -------
Net property, plant and equipment........................... 13,537 11,166
-------- -------
Other assets................................................ 9,714 4,536
-------- -------
$ 82,086 $89,813
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Current portion of long-term debt......................... $ 589 $ 672
Accounts payable.......................................... 3,930 1,800
Accrued expenses.......................................... 9,246 7,373
-------- -------
Total current liabilities............................... 13,765 9,845
-------- -------
Long-term debt.............................................. 1,628 2,186
-------- -------
Commitments and contingencies (note 16)
Shareholders' equity:
Preferred stock, no par value; 1,000,000 authorized
shares; no shares issued or outstanding.................. -- --
Common stock, no par value; 30,000,000 authorized shares;
8,035,328 and 7,964,366 shares issued.................... 81,495 81,033
Treasury stock, 223,100 and 96,200 shares at cost........... (1,858) (762)
Deferred compensation....................................... (23) (47)
Retained earnings (deficit)................................. (12,921) (2,442)
-------- -------
Total shareholders' equity.............................. 66,693 77,782
-------- -------
$ 82,086 $89,813
======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-58
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except for per-share data)
<TABLE>
<CAPTION>
Year Ended October 31,
---------------------------
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Net sales........................................ $ 31,563 $ 33,155 $75,772
Cost of sales.................................... 20,997 24,426 40,072
-------- -------- -------
Gross profit..................................... 10,566 8,729 35,700
-------- -------- -------
Operating expenses:
Research, development and engineering.......... 10,040 11,496 9,334
Selling, general and administrative............ 17,812 17,568 19,360
-------- -------- -------
Total operating expenses..................... 27,852 29,064 28,694
-------- -------- -------
Operating income (loss).......................... (17,286) (20,335) 7,006
Interest (income)................................ (1,658) (2,048) (2,163)
Interest expense................................. 249 242 281
-------- -------- -------
Income (loss) before income taxes................ (15,877) (18,529) 8,888
Income tax provision (benefit)................... (5,398) (6,746) 2,666
-------- -------- -------
Net income (loss)................................ $(10,479) $(11,783) $ 6,222
======== ======== =======
Net income (loss) per common share:
Basic.......................................... $ (1.34) $ (1.49) $ 0.85
======== ======== =======
Diluted........................................ $ (1.34) $ (1.49) $ 0.80
======== ======== =======
Shares used in computing net income (loss) per
common share:
Basic.......................................... 7,849 7,908 7,318
======== ======== =======
Diluted........................................ 7,849 7,908 7,764
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-59
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Common Stock Treasury Stock Deferred Retained
-------------- -------------- Compen- Earnings
Shares Amount Shares Amount Sation (Deficit) Total
------ ------- ------ ------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, October 31,
1996................... 6,053 $29,592 -- $ -- $ -- $ 3,119 $ 32,711
Proceeds from sale of
common stock, net.... 1,751 49,288 -- -- -- -- 49,288
Proceeds from exercise
of stock options..... 96 545 -- -- -- -- 545
Tax benefit from
exercise of stock
options.............. -- 764 -- -- -- -- 764
Deferred compensation
charge............... -- 317 -- -- (317) -- --
Amortization of
deferred
compensation......... -- -- -- -- 82 -- 82
Common stock issued
under Employee Stock
Purchase Plan........ 14 256 -- -- -- -- 256
Net income............ -- -- -- -- -- 6,222 6,222
----- ------- --- ------- ----- -------- --------
Balance, October 31,
1997................... 7,914 80,762 -- -- (235) 9,341 89,868
Proceeds from exercise
of stock options..... 1 6 -- -- -- -- 6
Tax benefit from
exercise of stock
options.............. -- (2) -- -- -- -- (2)
Deferred compensation
adjustment........... -- (164) -- -- 164 -- --
Amortization of
deferred
compensation......... -- -- -- -- 24 -- 24
Common stock issued
under Employee Stock
Purchase Plan........ 49 425 -- -- -- -- 425
Options issued for
services............. -- 6 -- -- -- -- 6
Purchase of treasury
shares, at cost...... -- -- 96 (762) -- -- (762)
Net loss.............. -- -- -- -- -- (11,783) (11,783)
----- ------- --- ------- ----- -------- --------
Balance, October 31,
1998................... 7,964 81,033 96 (762) (47) (2,442) 77,782
Proceeds from exercise
of stock options..... -- 2 -- -- -- -- 2
Deferred compensation
charge............... -- 16 -- -- (16) -- --
Amortization of
deferred
compensation......... -- -- -- -- 40 -- 40
Common stock issued
under Employee Stock
Purchase Plan........ 71 444 -- -- -- -- 444
Purchase of treasury
shares, at cost...... -- -- 127 (1,096) -- -- (1,096)
Net loss.............. -- -- -- -- -- (10,479) (10,479)
----- ------- --- ------- ----- -------- --------
Balance, October 31,
1999................... 8,035 $81,495 223 $(1,858) $ (23) $(12,921) $ 66,693
===== ======= === ======= ===== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-60
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended October 31,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Operating Activities:
Net income (loss)............................... $(10,479) $(11,783) $ 6,222
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization................. 3,116 3,085 2,317
Loss on property, plant and equipment
disposal..................................... 223 421 --
Deferred compensation......................... 24 30 82
Deferred income tax benefit................... (5,436) (4,578) (757)
(Increase) decrease in:
Accounts receivable............................. (786) 19,352 (18,302)
Inventories..................................... (3,382) 2,424 (8,034)
Prepaid expenses and other...................... 2,413 (1,500) (1,347)
Other assets.................................... 73 120 (186)
Increase (decrease) in:
Accounts payable................................ 2,130 (5,909) 2,780
Accrued expenses................................ 1,881 (1,377) 5,161
-------- -------- --------
Net cash provided by (used in) operating
activities................................. (10,223) 285 (12,064)
-------- -------- --------
Investing Activities:
Purchases of short-term investments............. (44,820) (28,993) (44,245)
Proceeds from short-term investments............ 44,316 38,564 27,875
Purchases of property, plant and equipment...... (5,680) (3,920) (4,286)
-------- -------- --------
Net cash provided by (used in) investing
activities................................. (6,184) 5,651 (20,656)
-------- -------- --------
Financing Activities:
Payments on long-term debt...................... (641) (819) (576)
Proceeds from sale of common stock, net......... 460 425 49,544
Purchase of treasury shares..................... (1,096) (762) --
Proceeds from exercise of stock options......... 2 6 545
Tax benefits from exercise of stock options..... -- (2) 764
-------- -------- --------
Net cash provided by (used in) financing
activities................................. (1,275) (1,152) 50,277
-------- -------- --------
Net (Decrease) Increase in Cash and Cash
Equivalents...................................... (17,682) 4,784 17,557
Cash and Cash Equivalents, Beginning of Period.... 31,649 26,865 9,308
-------- -------- --------
Cash and Cash Equivalents, End of Period.......... $ 13,967 $ 31,649 $ 26,865
======== ======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest expense.................. $ 196 $ 296 $ 284
Cash received for interest income............... $ 1,670 $ 2,185 $ 1,975
Cash paid for income taxes...................... $ 10 $ 1,795 $ 2,031
Cash received from income tax refunds........... $ 2,505 $ 3,023 $ --
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Machinery acquired under capital leases......... $ -- $ 489 $ 750
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-61
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS:
CFM Technologies, Inc. (the Company) designs, manufactures and markets
advanced wet processing equipment for sale to the worldwide semiconductor
industry.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
Use of Estimates
The preparation of 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
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual amounts could differ from those estimates.
Cash, Cash Equivalents and Short-Term Investments
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents. Short-term
investments are carried at amortized cost which equals market value. The
investments have various maturity dates which generally do not exceed one year.
All of the Company's short-term investments are classified as available for
sale pursuant to Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115).
Therefore any unrealized holding gains or losses would be presented as a
separate component of shareholders' equity. At October 31, 1999 and 1998, there
were no material unrealized holding gains or losses. The gross proceeds from
sales and maturities of investments were $44,316,000, $38,564,000 and
$27,875,000 for the years ended October 31, 1999, 1998 and 1997, respectively.
Gross realized gains and losses for the years ended October 31, 1999, 1998 and
1997 were not material. For the purpose of determining gross realized gains and
losses, the cost of securities sold is based upon specific identification.
Cash and cash equivalents and short-term investments consisted of the
following:
<TABLE>
<CAPTION>
October 31,
-----------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash and cash equivalents:
Municipal and government securities............... $ 5,055,000 $ 6,568,000
Money market funds and demand account............. 5,126,000 16,822,000
Commercial paper.................................. 3,123,000 5,034,000
Repurchase agreements............................. 663,000 3,225,000
----------- -----------
$13,967,000 $31,649,000
=========== ===========
Short-term investments:
Municipal and government securities............... $ 4,555,000 $ 8,260,000
Commercial paper.................................. 5,694,000 985,000
Mortgage-backed government securities............. -- 500,000
----------- -----------
$10,249,000 $ 9,745,000
=========== ===========
</TABLE>
F-62
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Inventories
Inventories are valued at the lower of first-in, first-out cost or market.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Significant improvements
are capitalized and expenditures for maintenance and repairs are charged to
expense as incurred. Upon the sale or retirement of these assets, the cost and
related accumulated depreciation are removed from the accounts and any gain or
loss is included in income.
Depreciation and amortization are provided using the straight-line method
based on the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Building and improvements....................................... 5-40 years
Machinery and equipment......................................... 3-10 years
Furniture and fixtures.......................................... 5-10 years
</TABLE>
Depreciation and amortization expense was $3,086,000, $3,025,000 and
$2,294,000 in fiscal 1999, 1998 and 1997, respectively.
Revenue Recognition
Net sales are generally recognized upon shipment of the system. If
recognized prior to shipment to accommodate a customer's request to delay
shipment, revenue is recognized upon completion of the customer's inspection or
acceptance where risk of loss is transferred to the customer. The estimated
costs of system installation and warranty are accrued when the related sale is
recognized.
Research, Development and Engineering Expenses
Research, development and engineering expenses are charged to expense as
incurred. Research, development and engineering expenses were net of
reimbursement of $0, $0 and $890,000 in fiscal 1999, 1998 and 1997,
respectively.
Engineering expenses consist of personnel and material costs related to the
development of new products and the integration of existing products into
application-specific systems.
Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109).
SFAS No. 109 requires the liability method of accounting for deferred income
taxes. Deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities. Deferred tax assets or liabilities at the end of each period are
determined using the tax rate expected to be in effect when taxes are actually
paid or recovered.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration
of credit risk are accounts receivable. The Company's customer base principally
comprises companies within the semiconductor industry, which historically has
been volatile. The Company does not require collateral from its customers.
F-63
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, short-term investments, accounts receivable, accounts payable and
debt instruments. The book values of cash and cash equivalents, short-term
investments, accounts receivable and accounts payable are considered to be
representative of their respective fair values. None of the Company's debt
instruments that are outstanding as of October 31, 1999 have readily
ascertainable market values; however, the carrying values are considered to
approximate their respective fair values. See Note 8 for the terms and carrying
values of the Company's various debt instruments.
Net Income (Loss) Per Common Share
Basic net income (loss) per common share was computed by dividing net income
(loss) by the weighted average number of shares of common stock outstanding
during the period. Diluted net income per common share for the fiscal year
ended October 31, 1997 reflects the potential dilution from the exercise of
outstanding stock options into common stock. Inclusion of shares of common
stock potentially issuable upon the exercise of stock options in calculating
diluted net loss per common share for the years ended October 31, 1999 and
1998, would have been antidilutive, and therefore such shares were not included
in the calculation. The Company adopted SFAS No. 128, "Earnings per Share,"
effective December 15, 1997. As a result, the Company's reported earnings per
share for the year ended October 31, 1997 were restated.
The net income (loss) and weighted average common and common equivalent
shares outstanding for purposes of calculating net income (loss) per common
share are computed as follows:
<TABLE>
<CAPTION>
Year Ended October 31,
--------------------------------------
1999 1998 1997
------------ ------------ ----------
<S> <C> <C> <C>
Net income (loss) used for basic
and diluted net income (loss) per
common share...................... $(10,479,000) $(11,783,000) $6,222,000
============ ============ ==========
Weighted average common shares
outstanding used for basic net
income (loss) per common share.... 7,849,000 7,908,000 7,318,000
Dilutive effect of common stock
options outstanding............... -- -- 446,000
------------ ------------ ----------
Weighted average common and common
equivalent shares outstanding used
for diluted net income (loss) per
common share...................... 7,849,000 7,908,000 7,764,000
============ ============ ==========
Net income (loss) per common share:
Basic............................ $ (1.34) $ (1.49) $ 0.85
============ ============ ==========
Diluted.......................... $ (1.34) $ (1.49) $ 0.80
============ ============ ==========
</TABLE>
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 "Disclosures about Segments of an
Enterprise and Related Information" (SFAS No. 131). SFAS No. 131 applies to all
public companies and is effective for fiscal years beginning after December 15,
1997. SFAS No. 131 requires that business segment financial information be
reported in the financial statements utilizing the management approach. The
management approach is defined as the manner in which management organizes the
segments within the enterprise for making operating decisions and assessing
performance. Management believes that the Company operates in one industry
segment and, accordingly, the adoption of SFAS No. 131 had no impact on the
Company's financial statements.
F-64
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1 requires that
certain costs related to the development or purchase of internal-use software
be capitalized and amortized over the estimated useful life of the software,
and is effective for fiscal years beginning after December 15, 1998. SOP 98-1
also requires that costs related to the preliminary project stage and post
implementation/operations stage in an internal-use computer software
development project be expensed as incurred. Management believes that the
adoption of SOP 98-1 will not have a material impact on the Company's financial
position or results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133). SFAS No. 133 is effective for fiscal
years beginning after June 15, 2000. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for derivatives used for hedging
activities. SFAS No. 133 requires that all derivatives be recognized either as
an asset or liability and measures them at fair value. Management believes that
the adoption of SFAS No. 133 will not have a material impact on the Company's
financial statements.
Reclassifications
Certain reclassifications of previously reported balances have been made to
conform with the current year classification of such balances.
3. ACCOUNTS RECEIVABLE:
<TABLE>
<CAPTION>
October 31,
-----------------------
1999 1998
----------- -----------
<S> <C> <C>
Billed............................................. $13,760,000 $10,058,000
Unbilled........................................... 1,066,000 3,982,000
----------- -----------
$14,826,000 $14,040,000
=========== ===========
</TABLE>
Unbilled receivables represent final retainage amounts to be billed upon
completion of the installation process.
As of October 31, 1999, the Company had outstanding accounts receivable
totaling $2,446,000 from a customer who purchased several of the Company's
systems for Korean installations.
No allowance for doubtful accounts receivable has been recorded because the
Company believes that all such accounts receivable are fully realizable.
4. INVENTORIES:
<TABLE>
<CAPTION>
October 31,
-----------------------
1999 1998
----------- -----------
<S> <C> <C>
Raw material....................................... $ 9,282,000 $ 8,669,000
Work in progress................................... 6,813,000 4,988,000
Finished goods..................................... 944,000 --
----------- -----------
$17,039,000 $13,657,000
=========== ===========
</TABLE>
F-65
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. OTHER LONG-TERM ASSSETS:
<TABLE>
<CAPTION>
October 31,
---------------------
1999 1998
---------- ----------
<S> <C> <C>
Deferred income taxes............................... $9,440,000 $4,157,000
Other............................................... 274,000 379,000
---------- ----------
$9,714,000 $4,536,000
========== ==========
</TABLE>
6. LINE OF CREDIT:
The Company has a $7,500,000 unsecured demand line of credit with a bank.
The line of credit agreement does not have a stated maturity or expiration
date; however, outstanding borrowings are due upon demand by the bank. Interest
is charged at the bank's prime rate and was 8.25% at October 31, 1999. As of
October 31, 1999 and 1998, the Company had no borrowings on the line. The line
also provides for the issuance of letters of credit. As of October 31, 1999,
the Company had outstanding letters of credit in the amount of $423,000
guaranteeing payments associated with its new leased facility in Exton,
Pennsylvania (see Note 16) and guaranteeing payments related to inventory in a
foreign location.
7. ACCRUED EXPENSES:
<TABLE>
<CAPTION>
October 31,
---------------------
1999 1998
---------- ----------
<S> <C> <C>
Warranty and installation costs..................... $2,815,000 $2,016,000
Payroll and payroll related......................... 1,740,000 1,263,000
Accrued legal fees.................................. 1,195,000 521,000
Accrued commissions................................. 573,000 1,608,000
Other............................................... 2,923,000 1,965,000
---------- ----------
$9,246,000 $7,373,000
========== ==========
</TABLE>
8. LONG-TERM DEBT:
<TABLE>
<CAPTION>
October 31,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
Mortgage note payable to bank, payable in monthly
installments of $6,250 plus interest at 8.9% through
February 2009, collateralized by land and building... $ 700,000 $ 775,000
Mortgage note payable to Pennsylvania Industrial
Development Authority (PIDA), payable in monthly
installments of $4,363, including interest at 2%
through August 2009, collateralized by land and
building............................................. 467,000 510,000
Mortgage note payable to Chester County Development
Council, payable in monthly installments of $1,067,
including interest at 5% through August 2004,
collateralized by land and building.................. 55,000 64,000
Term notes payable to bank, payable in monthly
installments of $5,834 plus interest at the bank's
prime rate plus 1% through October 1999,
collateralized by certain assets..................... -- 104,000
Capitalized lease obligations; lease periods expiring
at various dates through 2003, interest rates range
from 7% to 12%, collateralized by the leased assets.. 995,000 1,405,000
---------- ----------
2,217,000 2,858,000
Less--Current portion................................. (589,000) (672,000)
---------- ----------
$1,628,000 $2,186,000
========== ==========
</TABLE>
F-66
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Maturities of long-term debt as of October 31, 1999 are as follows:
<TABLE>
<CAPTION>
Fiscal Year:
<S> <C>
2000............................................................ $ 589,000
2001............................................................ 492,000
2002............................................................ 297,000
2003............................................................ 146,000
2004............................................................ 132,000
2005 and thereafter............................................. 561,000
----------
$2,217,000
==========
</TABLE>
The mortgage note due to PIDA contains certain financial covenants, the most
restrictive of which requires minimum levels of shareholders' equity.
The Company leases machinery and equipment and furniture and fixtures under
capital leases expiring in various years through 2003. The assets and
liabilities under these leases are recorded at the lower of the present value
of the minimum lease payments or the fair value of the asset. The assets are
depreciated over their estimated useful lives since ownership will transfer
upon lease expiration. The net book value of equipment under capitalized lease
obligations as of October 31, 1999 was $932,000. The minimum lease payments,
including interest, under the capital lease obligations as of October 31, 1999
were $546,000, $408,000, $176,000 and $13,000 for fiscal 2000, 2001, 2002 and
2003, respectively.
9. SHAREHOLDERS' EQUITY:
On April 17, 1997, the Company's Board of Directors adopted a Shareholder
Rights Plan designed to protect the Company's shareholders in the event of an
attempt to acquire control of the Company on terms which do not deal fairly
with all of the Company's shareholders. Terms of the Rights Plan provide for a
dividend distribution of one right for each share of Common Stock to holders of
record at the close of business on May 9, 1997. The rights will become
exercisable only in the event, with certain exceptions, an acquiring party
accumulates, or announces an offer to acquire, 20% or more of the Company's
Common Stock. The rights will expire on April 24, 2007. Each right will entitle
the holder to buy one one-hundredth of a share of a new series of preferred
stock at a price of $180. In addition, upon the occurrence of certain events,
holders of the rights will be entitled to purchase either Company stock or
shares in an "acquiring entity" at one-half of market value. The Company will
generally be entitled to redeem the rights at $.001 per right at any time until
the tenth day following the acquisition of 20% of its Common Stock.
On February 19, 1997, the Company consummated a follow-on public offering of
its Common Stock. The Company sold 1,750,500 shares (including the
underwriters' over-allotment) of its Common Stock, no par value, at an offering
price of $30.00 per share. After deducting the underwriters' discount and other
offering expenses, the net proceeds to the Company were approximately
$49,288,000.
On June 21, 1996, the Company consummated an initial public offering of its
Common Stock. The Company sold 2,249,661 shares (including the underwriters'
over-allotment) of its Common Stock, no par value, at an initial public
offering price of $10.00 per share. After deducting the underwriters' discount
and other offering expenses, the net proceeds to the Company were approximately
$19,976,000.
On December 19, 1995, the Company's Board of Directors adopted, and on
January 3, 1996, the Company's shareholders approved the Employee Stock
Purchase Plan (Purchase Plan). The Purchase Plan allows eligible employees to
purchase up to 300,000 shares of common stock at the lower of 85% of the fair
F-67
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
market value of the stock on the first or last day of the applicable six month
purchase period. Eligible employees were able to participate in the Purchase
Plan beginning on October 1, 1996 through payroll withholding of up to $500 per
pay period. As of October 31, 1999 and 1998, employee withholdings included in
accrued expenses were $66,000 and $36,000, respectively.
During fiscal 1999, 1998 and 1997, 70,662 and 49,939 and 13,829 shares of
Common Stock, respectively, were issued under the Purchase Plan.
On June 9, 1998, the Board of Directors authorized the Company to repurchase
up to 750,000 shares of the Company's Common Stock in open market, privately
negotiated or other transactions in conformity with the rules of the Securities
and Exchange Commission. As of October 31, 1999, the Company had repurchased
223,100 shares of the Company's common stock at a cost of $1,858,046.
10. STOCK OPTIONS:
The Company has a stock option plan (the 1992 Plan) whereby options to
purchase common shares were issued to key management personnel, directors and
consultants at exercise prices not less than fair market value. The options
have vesting terms set by the Executive Compensation and Stock Option Committee
of the Board of Directors and expire 10 years after the date of grant.
On December 19, 1995, the Company's Board of Directors adopted, and on
January 3, 1996, the Company's shareholders approved, the 1995 Incentive Plan
(Incentive Plan) and the Non-Employee Directors' Stock Option Plan (Directors'
Plan). The Incentive Plan and the Directors' Plan authorize the granting of up
to 1,750,000 shares of Common Stock or options to purchase Common Stock to
Company employees and up to 150,000 options to purchase Common Stock to non-
employee directors, respectively. The Company will not grant any additional
options under the 1992 Plan.
The following table summarizes stock option activity:
<TABLE>
<CAPTION>
Weighted
Range Of Average
Exercise Exercise
Number Of Prices Per Price
Shares Share Per Share
--------- ------------- ---------
<S> <C> <C> <C>
Options outstanding at October 31,
1996.................................. 745,323 $ 0.24-$10.75 $ 5.10
Granted.............................. 401,600 18.25-38.625 21.01
Exercised............................ (96,335) 2.41-18.25 5.66
Canceled............................. (11,480) 7.52-18.25 9.18
--------- ------------- ------
Options outstanding at October 31,
1997.................................. 1,039,108 0.24-38.625 11.14
Granted.............................. 307,767 7.625-19.937 12.56
Exercised............................ (839) 7.516 7.52
Canceled............................. (77,743) 7.516-38.625 21.49
--------- ------------- ------
Options outstanding at October 31,
1998.................................. 1,268,293 0.24-36.13 10.95
Granted.............................. 227,766 7.125-1.688 7.35
Exercised............................ (300) 7.516 7.52
Canceled............................. (57,239) 7.125-18.25 10.97
--------- ------------- ------
Options outstanding at October 31,
1999.................................. 1,438,520 $0.24-$ 36.13 $10.35
========= ============= ======
</TABLE>
F-68
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes information regarding stock options
outstanding as of October 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------ -----------------------
Weighted
Average Weighted
Number Remaining Average Number Weighted
Outstanding At Contractual Exercise Exercisable At Average
October 31, Life In Price October 31, Exercise
Range Of Exercise Prices 1999 Years Per Share 1999 Price
------------------------ -------------- ----------- --------- -------------- --------
<S> <C> <C> <C> <C> <C>
$0.24................... 3,327 2.2 $ 0.24 3,327 $ 0.24
$2.41................... 330,053 3.5 $ 2.41 330,053 $ 2.41
$7.125.................. 172,252 9.1 $ 7.13 4,645 $ 7.13
$7.516.................. 223,707 5.9 $ 7.52 218,618 $ 7.52
$7.625.................. 71,365 8.8 $ 7.63 20,622 $ 7.63
$7.75 -$10.938......... 101,150 9.2 $ 8.72 55,371 $ 9.17
$11.563-$13.875......... 27,800 8.5 $11.57 27,200 $11.57
$14.313................. 112,553 8.1 $14.31 5,790 $14.31
$15.745-$17.75.......... 47,907 8.3 $16.97 24,521 $16.74
$18.25.................. 305,250 7.1 $18.25 211,900 $18.25
$19.938-$36.13.......... 43,156 7.4 $33.59 20,621 $31.56
</TABLE>
As of October 31, 1999, there were 983,383 stock options available for
grant under the Company's stock option plans.
The Company applies Accounting Principles Board Opinion No. 25,"Accounting
For Stock Issued To Employees" and the related interpretations in accounting
for its stock option plans. The disclosure requirements of statement of
Financial Accounting Standards No. 123 "Accounting for Stock Based
Compensation" (SFAS No. 123) were adopted by the Company in fiscal 1997. Had
compensation cost for options granted during fiscal 1999, 1998 and 1997 under
the stock option plans, as well as the Common Stock issued under the Purchase
Plan (see Note 9), been determined based upon the fair value of the options
and Common Stock at the date of grant, as prescribed by SFAS No. 123, the
Company's pro forma net income (loss) and pro forma net income (loss) per
common share would have been reduced to the following amounts:
<TABLE>
<CAPTION>
Year Ended October 31,
--------------------------------------
1999 1998 1997
------------ ------------ ----------
<S> <C> <C> <C>
Net income (loss)................... $(10,479,000) $(11,783,000) $6,222,000
Pro forma net income (loss)......... $(11,871,000) $(12,994,000) $5,369,000
Net income (loss) per common share:
Basic............................. $ (1.34) $ (1.49) $ 0.85
Diluted........................... $ (1.34) $ (1.49) $ 0.80
Pro forma net income (loss) per
common share:
Basic............................. $ (1.56) $ (1.68) $ 0.74
Diluted........................... $ (1.56) $ (1.68) $ 0.69
</TABLE>
F-69
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The weighted average fair value of each stock option granted during the
years ended October 31, 1999, 1998 and 1997 was $4.13, $6.67 and $13.36,
respectively. As of October 31, 1999, the weighted average remaining
contractual life of each stock option outstanding was 6.4 years. The weighted
average remaining contractual life of each stock option granted during the
years ended October 31, 1999, 1998 and 1997 was 9.2, 8.4 and 7.2 years,
respectively. The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions:
<TABLE>
<CAPTION>
Year Ended October 31,
-------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Risk-free interest rate..................... 4.66% 5.37% 6.26%
Expected dividend yield..................... -- -- --
Expected life............................... 5.5 years 5.5 years 5.5 years
Expected volatility......................... 58% 58% 53%
</TABLE>
Because additional option grants are expected to be made each year, the
above pro forma disclosures are not representative of pro forma effects of
reported net income for future years.
In fiscal 1997, the Company granted stock options to purchase an aggregate
of up to 56,000 shares of Common Stock to an employee and certain consultants
for which the Company has recorded deferred compensation based upon the
difference between the deemed value for accounting purposes of the Company's
Common Stock and the exercise price per share on the date of option grant. The
deferred compensation balance will be amortized as compensation expense over
the option vesting periods which range from one to four years. In fiscal 1998,
the Company granted stock options to purchase up to 1,205 shares of Common
Stock to a consultant in exchange for services provided to the Company. In
fiscal 1999 the Company granted stock options to purchase up to 2,585 shares of
Common Stock to consultants in exchange for services provided to the Company.
The difference between the deemed value for accounting purposes of the
Company's Common Stock and the exercise price per share on the date of option
grant was recorded as an expense.
11. EMPLOYEE BENEFIT PLANS:
The Company has a defined contribution retirement plan for the benefit of
eligible employees. Management believes that the plan qualifies under Section
401(k) of the Internal Revenue Code of 1986, as amended. The plan provides for
matching contributions by the Company at a discretionary percentage of eligible
pre-tax contributions by the employee. Matching contributions by the Company
were $308,000, $310,000 and $206,000 for the years ended October 31, 1999, 1998
and 1997, respectively.
In fiscal 1995, the Company established a profit-sharing plan for the
benefit of eligible employees. The plan provides for a target contribution of
approximately 2% of total planned salaries and wages, with actual payments
based upon the achievement of certain annual performance results. The Company
recorded profit sharing expense of $0, $ 0 and $175,000 for the years ended
October 31, 1999, 1998 and 1997, respectively.
12. RELATED PARTY TRANSACTIONS:
The Company recorded commission expense in fiscal 1999, 1998 and 1997 of
$597,000, $391,000 and $3,948,000, respectively, related to commissions payable
to a sales agent which is partially owned by a shareholder of the Company.
Commissions payable to this sales agent included in accrued expenses as of
October 31, 1999 and 1998 were $377,000 and $1,437,000, respectively. The
distributor is controlled by an individual who is a director and shareholder of
the Company. The Company also recorded net sales in fiscal 1998 and 1997 of
$4,891,000 and $6,760,000, respectively, to a semiconductor company controlled
by the same director of the Company.
F-70
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. INCOME TAXES:
The components of income (loss) before income taxes are as follows:
<TABLE>
<CAPTION>
Year Ended October 31,
---------------------------------------
1999 1998 1997
------------- ------------ ----------
<S> <C> <C> <C>
Domestic............................. $ (15,972,000) $(18,707,000) $7,729,000
Foreign.............................. 95,000 178,000 1,159,000
------------- ------------ ----------
$(15,877,000) $(18,529,000) $8,888,000
============= ============ ==========
</TABLE>
The components of the income tax provision (benefit) are as follows:
<TABLE>
<CAPTION>
Year Ended October 31,
-------------------------------------
1999 1998 1997
------------ ----------- ----------
<S> <C> <C> <C>
Current:
Federal............................. $ -- $(2,280,000) $2,936,000
Foreign............................. 38,000 116,000 412,000
State............................... -- (4,000) 75,000
------------ ----------- ----------
38,000 (2,168,000) 3,423,000
Deferred:
Federal............................. (5,362,000) (4,528,000) (732,000)
State............................... (74,000) (50,000) (25,000)
------------ ----------- ----------
(5,436,000) (4,578,000) (757,000)
------------ ----------- ----------
$(5,398,000) $(6,746,000) $2,666,000
============ =========== ==========
</TABLE>
Income tax expense (benefit) differs from the amount currently payable or
receivable because certain expenses, primarily depreciation and accruals, are
reported in different periods for financial reporting and income tax purposes.
The federal statutory income tax rate is reconciled to the effective income
tax rate as follows:
<TABLE>
<CAPTION>
Year Ended October
31,
----------------------
1999 1998 1997
------- ----- ----
<S> <C> <C> <C>
Federal statutory rate............................. (34.0)% (34.0)% 34.0%
State income taxes, net of federal benefit......... (0.3) (0.2) 0.4
Foreign and U.S. tax effects attributable to
foreign operations................................ 0.1 0.3 (4.9)
Research and development credit.................... (0.1) (0.9) (0.3)
Other.............................................. 0.3 (1.6) 0.8
------- ----- ----
(34.0)% (36.4)% 30.0%
======= ===== ====
</TABLE>
F-71
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The components of the net current and long-term deferred tax assets and
liabilities, measured under SFAS No. 109, are as follows:
<TABLE>
<CAPTION>
October 31,
-----------------------
1999 1998
----------- ----------
<S> <C> <C>
Deferred tax assets-
Net operating loss carry forwards................. $ 8,026,000 $2,715,000
Tax credit carry forwards......................... 1,557,000 1,374,000
Inventories....................................... 445,000 400,000
Warranty and installation accrual................. 957,000 685,000
Commissions....................................... 244,000 387,000
Other............................................. 285,000 435,000
----------- ----------
11,514,000 5,996,000
Deferred tax liability--Depreciation................ (116,000) (28,000)
----------- ----------
Net deferred tax asset............................ $11,398,000 $5,968,000
=========== ==========
</TABLE>
Based on an assessment of the Company's taxable earnings history and
expected future taxable income, management has determined that it is more
likely than not that the net deferred tax assets will be realized in future
periods. The Company may be required to provide a valuation allowance for this
asset in the future if it does not generate sufficient taxable income as
planned. Additionally, the ultimate realization of this asset could be
negatively impacted by market conditions and other variables not known or
anticipated at this time.
14. CUSTOMER AND GEOGRAPHIC INFORMATION:
The Company's operations are conducted in one business segment. Export net
sales were $10,430,000, $15,228,000, and $49,019,000 in fiscal 1999, 1998 and
1997, respectively. Export net sales to Europe and East Asia were $1,138,000
and $9,293,000 in fiscal 1999, $5,982,000 and $9,245,000 in fiscal 1998 and
$13,427,000 and $35,592,000 in fiscal 1997, respectively,
The following table summarizes significant customers with net sales in
excess of 10% of net sales:
<TABLE>
<CAPTION>
Year Ended October 31,
---------------------------------
Customer 1999 1998 1997
-------- ---------- ---------- -----------
<S> <C> <C> <C>
A............................................ $7,914,000 $6,499,000 *
B............................................ 4,504,000 * *
C............................................ * 4,891,000 *
D............................................ * 4,404,000 $ 8,534,000
E............................................ * 3,452,000 *
F............................................ * 3,427,000 *
G............................................ * * 16,100,000
</TABLE>
--------
* Net sales less than 10% of net sales
15. SUPPLIER CONCENTRATION:
The Company relies to a substantial extent on outside vendors to manufacture
and supply many of the components and subassemblies used in the Company's
systems. Certain of these are obtained from a sole supplier or a limited group
of suppliers, many of which are small, independent companies. Moreover, the
Company believes that certain of these components and subassemblies can only be
obtained from its current
F-72
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
suppliers. The Company's reliance on outside vendors generally, and on sole
suppliers in particular, involves several risks, including a potential
inability to obtain an adequate supply of required components and reduced
control over pricing, timely delivery and quality of components.
16. COMMITMENTS AND CONTINGENCIES:
In fiscal 1995, the Company entered into a non-cancelable lease for office
facilities with an expiration date in November 2000 and annual rental payments
of $548,000 per year. In fiscal 1997, the Company entered into a non-cancelable
agreement to lease a 60,000 square foot production facility and an 80,000
square foot office facility to be built for the Company in Exton, Pennsylvania.
The operating lease has an initial term of 20 years and minimum annual rental
payments of $1,482,250 for each year of the initial term. Options to extend the
term of the lease for a total of 9.5 additional years at minimum annual rental
payments of not more than $1,518,037 and a subsequent additional 5.5 years at
fair market value are included in the lease. Rentals began on the production
facility in October 1998 and rentals on the office facility began in April
1999. The Company occupied the production facility in February 1999 and the
office facility in April 1999.
Future minimum rental payments as of October 31, 1999 on these leases are as
follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
2000......................................................... $ 1,582,000
2001......................................................... 1,482,000
2002......................................................... 1,482,000
2003......................................................... 1,482,000
2004......................................................... 1,482,000
Thereafter................................................... 21,087,000
</TABLE>
The Company has asserted claims of its U.S. Patent Nos. 4,911,761 (the
" "761 patent"), 4,778,532 (the " "532 patent") and 4,917,123 (the " "123")
patent against three defendants in four actions, alleging infringement,
inducement of infringement, and contributory infringement of various claims of
these patents. In the first of these actions, on December 12, 1997, a jury in
the United States District Court for the District of Delaware returned a
verdict that the defendant willfully infringed the "761 patent, that the "761
patent was not invalid and awarded the Company damages of $3,105,000. The
defendant appealed the verdict and various rulings by the District Court. On
May 13, 1999, the United States Court of Appeals for the Federal Circuit
("CAFC") affirmed the judgment of the District Court in all respects except
one. With respect to infringement, the CAFC vacated the judgment and remanded
the case to the District Court for reconsideration of its holding of literal
infringement. On November 8, 1999, the District Court issued an opinion that
upheld the finding of literal infringement by the defendant and reinstated the
judgement and injunction in favor of the Company. The defendant has appealed
this decision.
In the second action on the "761 patent, the Company seeks damages and a
permanent injunction to prevent further infringement. The District Court issued
a decision granting summary judgment in favor of the defendant stating that the
"761 patent was not infringed. The District Court has subsequently agreed to
reconsider this decision and has not yet acted on this reconsideration. The
Company has sued this same defendant in a separate, third action over the "532
and "123 patents. The defendant has asserted counter claims for alleged
tortious interference with prospective economic advantage and defamation, and
seeks compensatory and punitive damages. Discovery in this action closed on
December 10, 1999 and the related trial is scheduled to begin for May 2000.
In addition, the Company is both a defendant and a counterclaim plaintiff in
a fourth litigation where the plaintiff seeks a declaratory judgment that the
"761 patent is not infringed and that the "761 patent is invalid.
F-73
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company has counterclaimed alleging infringement and contributory
infringement of all of the "761, "532 and "123 patents. Discovery is presently
ongoing. A claims construction hearing was held on November 12, 1999, and an
initial claims construction order issued on December 9, 1999. Trial currently
is scheduled for late September, 2000.
Furthermore, in Europe, a competitor has filed nullification proceedings
against the Company's drying patents in Germany (DE68921757.8), UK (EP428,784),
France (EP428,784), Netherlands (23184), and Ireland (66389). The same
competitor filed a similar nullification proceeding in Japan (2,135,270). The
Company chose to abandon the UK patent (UK EP 428,784) because in its judgment,
the anticipated costs of defending the nullity action were not warranted in
view of the patent's limited added value to its existing patent portfolio in
the UK. The Company is proceeding to defend the remaining patents, but may
choose to abandon one or more based on a cost benefit analysis. These remaining
proceedings could result in the nullification of any or all of the subject
patents in the respective countries.
Although management believes that the ultimate resolution of these matters
will not have a material negative impact on the Company's financial position or
results of operations, there can be no assurance in that regard.
F-74
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
July 31, October 31,
2000 1999
-------- -----------
<S> <C> <C>
ASSETS
------
Current Assets:
Cash and cash equivalents.............................. $ 10,149 $ 13,967
Short-term investments................................. 3,665 10,249
Accounts receivable.................................... 14,940 14,826
Inventories............................................ 15,210 17,039
Prepaid expenses and other............................. 681 796
Deferred income taxes.................................. -- 1,958
-------- --------
Total current assets................................. 44,645 58,835
-------- --------
Property, plant and equipment:
Land................................................... 540 540
Building and improvements.............................. 6,057 5,932
Machinery and equipment................................ 16,064 14,239
Furniture and fixtures................................. 1,574 1,565
-------- --------
24,235 22,276
Less--Accumulated depreciation and amortization........ (10,868) (8,739)
-------- --------
Net property, plant and equipment........................ 13,367 13,537
-------- --------
Other assets............................................. 314 9,714
-------- --------
$ 58,326 $ 82,086
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Current portion of long-term debt...................... $ 545 $ 589
Accounts payable....................................... 2,845 3,930
Accrued expenses....................................... 8,976 9,246
-------- --------
Total current liabilities............................ 12,366 13,765
-------- --------
Long-term debt........................................... 1,252 1,628
-------- --------
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value; 1,000,000 authorized
shares; no shares issued or outstanding............... -- --
Common stock, no par value; 30,000,000 authorized
shares; 8,066,875 and 8,035,328 shares issued......... 81,804 81,495
Treasury stock, 189,617 and 223,100 shares at cost..... (1,560) (1,858)
Deferred compensation.................................. (116) (23)
Retained earnings (deficit)............................ (35,420) (12,921)
-------- --------
Total shareholders' equity........................... 44,708 66,693
-------- --------
$ 58,326 $ 82,086
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-75
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Six Months ended
ended July 31 July 31
---------------- ------------------
2000 1999 2000 1999
------- ------- -------- --------
<S> <C> <C> <C> <C>
Net sales............................... $12,953 $ 9,620 $ 37,678 $ 22,396
Cost of sales........................... 8,273 6,064 23,923 15,169
------- ------- -------- --------
Gross profit............................ 4,680 3,556 13,755 7,227
------- ------- -------- --------
Operating expenses:
Research, development and
engineering.......................... 2,512 2,492 7,181 7,674
Selling, general and administrative... 5,948 4,821 18,169 12,738
------- ------- -------- --------
Total operating expenses............ 8,460 7,313 25,350 20,412
------- ------- -------- --------
Operating income (loss)................. (3,780) (3,757) (11,595) (13,185)
Interest (income) expense, net.......... (149) (283) (565) (1,106)
------- ------- -------- --------
Loss before income taxes................ (3,631) (3,474) (11,030) (12,079)
Income tax provision (benefit).......... -- (1,181) 11,397 (4,107)
------- ------- -------- --------
Net income (loss)....................... $(3,631) $(2,293) $(22,427) $ (7,972)
======= ======= ======== ========
Net income (loss) per common share:
Basic................................. $ (0.46) $ (0.29) $ (2.85) $ (1.01)
======= ======= ======== ========
Diluted............................... $ (0.46) $ (0.29) $ (2.85) $ (1.01)
======= ======= ======== ========
Shares used in computing net income
(loss) per common share:
Basic................................. 7,874 7,852 7,865 7,859
======= ======= ======== ========
Diluted............................... 7,874 7,852 7,865 7,859
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-76
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
July 31,
------------------
2000 1999
-------- --------
<S> <C> <C>
Operating Activities:
Net income (loss)....................................... $(22,427) $ (7,972)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization........................... 2,159 1,628
Deferred compensation................................... 83 18
Deferred income tax provision (benefit)................. 11,376 (4,107)
(Increase) decrease in:
Accounts receivable..................................... (114) (5,196)
Inventories............................................. 1,829 (1,332)
Prepaid expenses and other current assets............... 115 2,458
Other assets............................................ (48) 20
Increase (decrease) in:
Accounts payable........................................ (1,085) 2,296
Accrued expenses........................................ (270) 546
-------- --------
Net cash used in operating activities................. (8,382) (11,641)
-------- --------
Investing Activities:
Purchases of short-term investments..................... (4,912) (29,727)
Proceeds from short-term investments.................... 11,496 30,982
Purchases of property, plant and equipment.............. (1,959) (3,867)
-------- --------
Net cash provided by (used in) investing activities... 4,625 (2,612)
-------- --------
Financing Activities:
Payments on long-term debt.............................. (420) (495)
Proceeds from sale of common stock, net................. -- 225
Proceeds from exercise of stock options................. 133 2
Proceeds from sale of treasury stock.................... 226 --
Purchase of treasury stock.............................. -- (628)
-------- --------
Net cash used in financing activities................. (61) (896)
-------- --------
Net Decrease in Cash and Cash Equivalents................. (3,818) (15,149)
Cash and Cash Equivalents, Beginning of Period............ 13,967 31,649
-------- --------
Cash and Cash Equivalents, End of Period.................. $ 10,149 $ 16,500
======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest expense.......................... $ 139 $ 160
Cash received for interest income....................... $ 747 $ 1,300
Cash paid (refunded) for income taxes................... $ 6 $ (2,505)
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-77
<PAGE>
CFM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) BASIS OF PRESENTATION:
The condensed financial statements included herein have been prepared by CFM
Technologies, Inc. without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. These statements include all
adjustments that, in the opinion of management, are necessary to provide a fair
statement of the results for the periods covered. These financial statements
should be read in conjunction with the audited financial statements and the
notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1999. The results of operations for the interim
periods presented are not necessarily indicative of the results for the full
year.
(2) INVENTORIES:
<TABLE>
<CAPTION>
July 31, October 31,
2000 1999
----------- -----------
<S> <C> <C>
Raw materials........................................ $ 7,560,000 $ 9,282,000
Work in progress..................................... 6,363,000 6,813,000
Finished goods....................................... 1,287,000 944,000
----------- -----------
$15,210,000 $17,039,000
=========== ===========
</TABLE>
Finished goods is comprised of evaluation units located at customer sites.
(3) NET LOSS PER COMMON SHARE:
Basic net loss per common share was computed by dividing net loss by the
weighted average number of shares of common stock outstanding during the
period. Inclusion of shares of common stock potentially issuable upon the
exercise of outstanding stock options would have been antidilutive in the
calculation of diluted net loss per common share for the three and nine month
periods ended July 31, 2000 and 1999, and therefore was not included in the
calculation.
The net loss and weighted average common shares outstanding for purposes of
calculating net loss per common share are computed as follows:
<TABLE>
<CAPTION>
Three Months Ended July Nine Months Ended July
31, 31,
------------------------ -------------------------
2000 1999 2000 1999
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net loss used for basic
and diluted net loss
per common share....... $(3,631,000) $(2,293,000) $(22,427,000) $(7,972,000)
=========== =========== ============ ===========
Weighted average common
shares outstanding used
for basic and diluted
net loss per common
share.................. 7,874,000 7,852,000 7,865,000 7,859,000
=========== =========== ============ ===========
Net loss per common
share, basic and
diluted................ $ (0.46) $ (0.29) $ (2.85) $ (1.01)
=========== =========== ============ ===========
</TABLE>
(4) GEOGRAPHIC INFORMATION:
Historically, a significant portion of the Company's sales has been to Asian
companies. Sales to Asian customers for the three and nine months ended July
31, 2000 were $3,826,000 and $18,649,000 respectively. Accounts receivable as
of July 31, 2000 included $4,215,000 due from Asian customers.
F-78
<PAGE>
CFM TECHNOLOGIES, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(5) INCOME TAXES:
Based on an assessment of the Company's recent earnings history and
uncertainties related to expected future taxable income, management has
determined that it can no longer make the assertion that it is more likely than
not that any of the net deferred tax assets recorded as of January 31, 2000
totaling $12,578,000 will be realized in future periods. As a result, the
Company recorded a full valuation allowance against its net deferred tax assets
in the fiscal quarter ended April 30, 2000. The valuation allowance was
recorded in the income tax provision (benefit) in the accompanying statements
of operations for the three and nine months ended July 31, 2000. In addition,
based on the factors noted above the Company has recorded a full valuation
allowance against the income tax benefit for the quarter ended July 31, 2000.
(6) NEW ACCOUNTING PRONOUNCEMENT:
In December 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin No. 101--Revenue Recognition in Financial Statements ("SAB
101"). SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
The Company is reviewing these views and assessing whether any of these
interpretations of generally accepted accounting principles may cause the
Company to report a change in accounting principle. In compliance with SAB 101,
the Company is required to and will make such a determination and report the
impact of such a change, if any, no later than the fourth quarter of fiscal
year 2001. While management believes that its revenue recognition policies
conform with the generally accepted accounting principles that have been used
consistently in practice in the capital equipment industry, certain issues
raised in SAB 101, including delivery and performance revenue recognition
criteria, could be interpreted to cause a change in accounting principle by the
Company and many other companies in the capital equipment industry. At this
time, the effect of SAB 101 on the Company's operating results in any future
period cannot be fully determined; however, such a change could materially
adversely affect the Company's financial position and results of operations.
F-79
<PAGE>
ANNEX A
STRATEGIC BUSINESS COMBINATION AGREEMENT
by and between
STEAG ELECTRONIC SYSTEMS AG
and
MATTSON TECHNOLOGY, INC.
JUNE 27, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE I. CAPITALIZATION OF
NEWCO........................... A-2
Transfer of Foreign
STEAG Subsidiary Shares
1.1 to Newco................ A-2
ARTICLE II. PURCHASE AND SALE OF
STOCK........................... A-2
2.1 Purchase and Sale of A-2
Stock...................
2.2 Adjustment for Capital A-2
Changes.................
2.3 Assumed Obligations of A-2
STEAG...................
2.4 Closing................. A-2
2.5 Certificate Legends..... A-2
2.6 Allocation of Purchase A-3
Price...................
2.7 Tax Election............ A-3
2.8 Early Condition A-3
Satisfaction Date.......
2.9 Post-Closing A-4
Adjustments.............
ARTICLE III. REPRESENTATIONS AND
WARRANTIES OF STEAG............. A-5
3.1 Due Incorporation....... A-5
3.2 Due Authorization....... A-6
3.3 Non- A-6
Contravention/Consents
and Approvals...........
3.4 Capital Structure....... A-7
3.5 Financial Statements; A-7
Undisclosed Liabilities;
Other Documents.........
3.6 No Material Adverse A-8
Effects or Changes......
3.7 Properties.............. A-8
3.8 Intellectual Property... A-9
3.9 Insurance............... A-10
3.10 International Employee A-10
Plans...................
3.11 United States Employee A-10
Matters and ERISA.......
3.12 Labor Matters........... A-12
3.13 Tax Returns and Audits.. A-12
3.14 Environmental Matters... A-14
3.15 Litigation.............. A-15
3.16 Compliance with A-16
Applicable Laws.........
3.17 Contracts; No Defaults.. A-16
3.18 Change in Control and A-16
Severance Payments......
3.19 Year 2000............... A-17
3.20 Broker's/Finder's Fees.. A-17
3.21 Interim Operations of A-17
Newco...................
3.22 Investment.............. A-17
ARTICLE IV. REPRESENTATIONS AND
WARRANTIES OF MATTSON........... A-17
4.1 Due Incorporation, A-17
Subsidiaries, and Due
Authorization...........
4.2 Non-Contravention; A-18
Consents and Approvals..
4.3 Capitalization.......... A-19
4.4 Financial Statements; A-19
Undisclosed Liabilities;
Other Documents.........
4.5 SEC Filings............. A-20
4.6 No Material Adverse A-20
Effects or Changes......
4.7 Properties.............. A-20
4.8 Intellectual Property... A-21
4.9 Insurance............... A-21
4.10 Employee Matters and A-22
ERISA...................
4.11 Labor Matters........... A-23
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
4.12 Tax Returns and Audits......................................... A-23
4.13 Environmental Matters.......................................... A-24
4.14 Litigation..................................................... A-25
4.15 Compliance with Applicable Laws................................ A-26
4.16 Contracts; No Defaults......................................... A-26
4.17 Change in Control and Severance Payments....................... A-26
4.18 Year 2000...................................................... A-26
4.19 Brokers and Finders............................................ A-27
4.20 Opinion of Financial Advisor................................... A-27
4.21 Vote Required.................................................. A-27
4.22 Investment Company Act......................................... A-27
4.23 CFM Agreement.................................................. A-27
ARTICLE V. CONDUCT PRIOR TO THE CLOSING................................. A-27
5.1 Conduct of Business of STEAG Subsidiaries...................... A-27
5.2 Conduct of Business of Mattson................................. A-29
5.3 Other Negotiations............................................. A-31
5.4 German Counterpart Agreement................................... A-32
ARTICLE VI. ADDITIONAL AGREEMENTS AND COVENANTS......................... A-32
6.1 Covenant to Satisfy Conditions................................. A-32
6.2 Proxy Materials and Stockholder Approval....................... A-32
6.3 Integration Committee.......................................... A-33
6.4 Employee Benefits.............................................. A-33
6.5 Sale of Shares Pursuant to Regulation D........................ A-34
6.6 Access to Information.......................................... A-34
6.7 Confidentiality................................................ A-34
6.8 Public Disclosure.............................................. A-34
6.9 Regulatory Approval; Further Assurances........................ A-35
6.10 Legal Requirements............................................. A-36
6.11 Stock Option Grants............................................ A-36
6.12 Conveyance Taxes............................................... A-36
6.13 STEAG Intercompany Indebtedness; Transfer to Newco............. A-36
6.14 Non-Solicitation of Employees.................................. A-36
6.15 NASDAQ Listing................................................. A-37
6.16 Directors; Nominating Committee; Officers...................... A-37
6.17 Name........................................................... A-37
6.18 Access to Business Records..................................... A-37
ARTICLE VII. CONDITIONS TO THE STRATEGIC BUSINESS COMBINATION........... A-37
7.1 Conditions to Each Party's Obligation to Consummate the
Strategic Business Combination................................. A-37
7.2 Conditions to Obligations of Mattson........................... A-38
7.3 Conditions to Obligations of STEAG............................. A-39
ARTICLE VIII. TERMINATION, AMENDMENT AND WAIVER......................... A-40
8.1 Optional Termination........................................... A-40
8.2 Automatic Termination.......................................... A-42
8.3 Effect of Termination.......................................... A-42
8.4 Amendment...................................................... A-42
8.5 Extension; Waiver.............................................. A-42
8.6 Notice of Termination.......................................... A-42
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE IX. INDEMNIFICATION............................................... A-43
9.1 Indemnification................................................. A-43
9.2 Procedures for Indemnification.................................. A-43
9.3 Defense of Third Party Claims................................... A-44
9.4 Settlement of Third Party Claims................................ A-44
9.5 Limitation on Indemnification................................... A-45
ARTICLE X. GENERAL PROVISIONS............................................. A-45
10.1 Notices......................................................... A-45
10.2 Definitions..................................................... A-46
10.3 Counterparts.................................................... A-46
10.4 Entire Agreement; Nonassignability.............................. A-46
10.5 Severability.................................................... A-46
10.6 Remedies Cumulative............................................. A-46
10.7 No Survival of Warranties....................................... A-47
10.8 Expenses........................................................ A-47
10.9 United States Dollars........................................... A-47
10.10 Governing Law................................................... A-47
10.11 Consent to Jurisdiction......................................... A-47
10.12 Rules of Construction........................................... A-47
10.13 Third Party Beneficiaries....................................... A-47
10.14 Certain Payments by Mattson..................................... A-47
</TABLE>
A-iii
<PAGE>
STRATEGIC BUSINESS COMBINATION AGREEMENT
THIS STRATEGIC BUSINESS COMBINATION AGREEMENT (this "Agreement"), dated as
of June 27, 2000, is entered into by and among STEAG Electronic Systems AG, an
Aktiengesellschaft organized and existing under the laws of the Federal
Republic of Germany ("STEAG"), and Mattson Technology, Inc., a Delaware
corporation ("Mattson").
RECITALS
A. STEAG and Mattson desire to enter into a transaction pursuant to which
Mattson will directly or indirectly acquire 100% of the issued and outstanding
capital stock, equity ownership or its equivalent (which, for purposes of this
Agreement, shall be referred to as "capital stock") (the "Stock Acquisition")
of the STEAG subsidiaries listed on Exhibit A to this Agreement and STEAG
Electronic Systems Semiconductor GmbH, a Gesellschaft mit beschraenkter Haftung
recently organized in connection with this Agreement and existing under the
laws of the Federal Republic of Germany ("Newco") (collectively with the
subsidiaries listed on Exhibit A, the "STEAG Subsidiaries").
B. Prior to the Closing (as defined below), STEAG will contribute, assign or
otherwise transfer all of the capital stock it owns directly in of each of
those STEAG Subsidiaries incorporated or organized in jurisdictions other than
the U.S.A. and Germany to Newco, and at STEAG's option, STEAG may also
contribute, assign or otherwise transfer to Newco all of the capital stock
STEAG owns directly in of each of those STEAG Subsidiaries incorporated in the
U.S.A. (collectively, all such subsidiaries of STEAG that STEAG contributes or
transfers to Newco, the "Foreign STEAG Subsidiaries" and such capital stock,
the "Foreign Subsidiary Shares"), after which STEAG will own 100% of the
capital stock of Newco.
C. To effect the Stock Acquisition, at the Closing, STEAG will sell, assign
and transfer to Mattson 100% of the issued and outstanding capital stock of
Newco, each of the other STEAG Subsidiaries incorporated or organized in
Germany and each of the STEAG Subsidiaries incorporated in the U.S.A. that
STEAG owns directly and does not contribute or otherwise transfer to Newco (the
"Direct STEAG Subsidiaries", and such capital stock, the "Direct Subsidiary
Shares"), and in consideration thereof Mattson will issue and deliver to STEAG
shares of Mattson's common stock, par value $0.001 per share (the "Mattson
Common Stock"), as provided in Article II below (the "Share Issuance";
together, the Stock Acquisition and the Share Issuance are referred to herein
as the "Strategic Business Combination").
D. Concurrently herewith, Mattson, M2C Acquisition Corporation, a Delaware
corporation and a wholly-owned subsidiary of Mattson ("M2C"), and CFM
Technologies, Inc., a Pennsylvania corporation ("CFM"), are executing an
Agreement and Plan of Merger of even date herewith (the "CFM Agreement") which
provides (among other things) that, subject to the terms and conditions
thereof, M2C shall be merged with and into CFM (the "CFM Merger"), and it is
the intent and desire of STEAG, Mattson and CFM that the Strategic Business
Combination and the CFM Merger be mutually conditioned on the simultaneous
consummation of both such transactions for the long-term strategic benefit of
their respective stockholders.
E. STEAG and Mattson desire to make certain representations, warranties,
covenants, and agreements in connection with the transactions contemplated by
this Agreement.
F. The Supervisory Board (Aufsichtsrat) and the Management Board (Vorstand)
of STEAG and the Board of Directors of Mattson have approved the transactions
contemplated by this Agreement in accordance with the laws of their respective
jurisdictions of organization and have authorized the execution and delivery of
this Agreement.
G. In order to induce STEAG to enter into this Agreement, Brad Mattson has
entered into an agreement, dated the date hereof, between STEAG and Brad
Mattson (the "Voting Agreement"), pursuant to which Brad Mattson has agreed to
vote all of his shares of Mattson Common Stock in favor of the Mattson
Stockholder Proposal (as defined in Section 4.2(b)(iii) below).
A-1
<PAGE>
NOW, THEREFORE, in consideration of the covenants and representations set
forth herein, and for other good and valuable consideration, STEAG and Mattson
agree as follows:
ARTICLE I.
CAPITALIZATION OF NEWCO
1.1 Transfer of Foreign STEAG Subsidiary Shares to Newco. Prior to the
Closing (as defined below in Section 2.4), STEAG shall transfer and deliver,
whether by capital contribution, sale or otherwise, the Foreign Subsidiary
Shares to Newco, notarized in accordance with applicable law as necessary to
effect their transfer. The transactions described in this Section 1.1 will be
effected in such manner that (a) Newco will own all of the Foreign Subsidiary
Shares, (b) Newco will have no other assets or liabilities (other than its
initial 25,000 Euro cash capitalization) and (c) STEAG will own 100% of the
issued and outstanding capital stock of Newco (the "Newco Shares" and, together
with the Direct Subsidiary Shares, the "STEAG Shares").
ARTICLE II.
PURCHASE AND SALE OF STOCK
2.1 Purchase and Sale of Stock. At the Closing, Mattson shall purchase and
accept delivery of the STEAG Shares from STEAG, and STEAG shall sell, transfer,
and deliver the STEAG Shares to Mattson. In consideration of such sale, at the
Closing, (a) Mattson shall issue and deliver to STEAG: (i) 11,850,000 shares of
Mattson Common Stock, subject to adjustment pursuant to Section 2.2 below (the
"Mattson Shares"), (ii) US$100,000 payable in immediately available funds to an
account designated in a written notice delivered to Mattson by STEAG at least
three (3) business days prior to the Closing and (iii) if applicable, the
Mattson Note referred to in Section 8.1(j), and (b) Mattson shall assume the
obligations referred to in Section 2.3.
2.2 Adjustment for Capital Changes. If, between the date of this Agreement
and the Closing, the outstanding shares of Mattson Common Stock shall have been
changed into a different number of shares or a different class by reason of any
reclassification, recapitalization, stock split, reverse stock split,
combination, or exchange of shares, or a stock dividend or dividend payable in
any other securities shall be declared with a record date within such period,
or any similar event affecting shares of Mattson Common Stock shall have
occurred (each a "Capital Change"), the number of Mattson Shares and/or type of
security issuable to STEAG pursuant to the Share Issuance (the "Mattson Share
Amount") shall be proportionately adjusted to reflect any such Capital Change.
2.3 Assumed Obligations of STEAG. Effective upon the Closing, STEAG will
assign to Mattson, and Mattson will assume from STEAG, STEAG's rights and
obligations under the agreements, guarantees or other instruments listed on
Schedule 2.3 attached hereto. Except as provided in this Section 2.3 and
Schedule 2.3 or as expressly provided elsewhere in this Agreement, Mattson does
not assume any obligation or right of STEAG.
2.4 Closing. The closing of the transactions contemplated hereby (the
"Closing") shall take place as soon as practicable, but no later than three (3)
business days, after the later of (i) satisfaction or waiver of each of the
conditions set forth in Article VII hereof and (ii) January 1, 2001, or at such
other time as the parties hereto agree (the "Closing Date"). The Closing shall
take place at the offices of Gray Cary Ware & Freidenrich llp, 400 Hamilton
Avenue, Palo Alto, CA 94301-1825 or at such other location or locations as the
parties hereto agree.
2.5 Certificate Legends. The Mattson Shares to be issued pursuant to this
Article II shall not have been registered and shall be characterized as
"restricted securities" under the United States federal securities laws, and
under such laws such shares may be resold without registration under the
Securities Act of 1933, as
A-2
<PAGE>
amended (the "Securities Act"), only in certain limited circumstances. Each
certificate evidencing the Mattson Shares to be issued pursuant to this Article
II shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
SUCH SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION UNDER THE SECURITIES ACT, SUCH EXEMPTION TO BE
EVIDENCED BY AN OPINION OF LEGAL COUNSEL OR OTHER DOCUMENTATION REASONABLY
ACCEPTABLE TO THE COMPANY."
and such other legends as required pursuant to the Stockholder Agreement (as
defined in Section 7.2(f)).
2.6 Allocation of Purchase Price. STEAG and Mattson agree to allocate the
value of (i) the Newco Shares among the Foreign STEAG Subsidiaries and (ii) the
Mattson Shares among the Direct STEAG Subsidiaries and Newco for financial
accounting and tax purposes in accordance with the percentages set forth on the
allocation schedule attached as Schedule 2.6 attached hereto. Neither STEAG nor
Mattson shall voluntarily take any position for purposes of any federal, state,
provincial, or local income tax with respect to the allocation of the Mattson
Shares and Newco Shares which is inconsistent with such allocation. Nothing
herein will limit STEAG's right to determine the stated values of the Direct
Subsidiary Shares contributed to Newco or the number of Newco Shares issued as
long as the percentages provided on Schedule 2.6 are unaffected.
2.7 Tax Election. After consummation of the Strategic Business Combination,
Mattson may, in its sole discretion, make an election, and may cause some or
all of the STEAG Subsidiaries, to make an election, under Section 338(g) of the
United States Internal Revenue Code of 1986, as amended (the "Code") (and any
corresponding elections under state, local, or foreign law) with regard to the
transactions contemplated by this Agreement. Mattson acknowledges and agrees
that STEAG makes no representations or warranties that any such election is
available and that STEAG shall have no liability to Mattson or any other person
for the consequences of any such election.
2.8 Early Condition Satisfaction Date. If (i) prior to December 1, 2000, all
of the conditions set forth in Section 7.1 have been satisfied, Brad Mattson
shall have executed and delivered counterparts of the Stockholder Agreement,
and all of the conditions set forth in Sections 7.2 and 7.3 (other than
conditions which, by their nature, can only be satisfied by delivery of
securities, documents or other instruments on the Closing Date) would have been
either satisfied or waived by the relevant party were the Closing to occur at
such time and (ii) simultaneously with the actions contemplated by this Section
2.8, the actions contemplated by Section 1.10 of the CFM Agreement (the "CFM
Early Satisfaction Date Actions") also occur and STEAG is provided reasonably
satisfactory evidence of the simultaneous occurrence thereof, then, no later
than three (3) business days thereafter (the "STEAG Early Condition
Satisfaction Date") at a place and time (simultaneous with the CFM Early
Satisfaction Date Actions), to be mutually agreed upon by the parties and CFM,
the parties shall take the following actions:
(a) Mattson and STEAG will each deliver or cause to be delivered to the
other the closing certificates and legal opinions that would have been
required at the Closing pursuant to Sections 7.2 (c) and (g) and Sections
7.3 (c) and (i); provided, that such certificates and opinions shall be
dated as of the STEAG Early Condition Satisfaction Date and shall address
representations, warranties and covenants, in the case of certificates, and
opinions, in the case of legal opinions, as of such date;
(b) Mattson and STEAG shall each execute and deliver the Stockholder
Agreement; and Mattson and STEAG shall execute and deliver the Transition
Services Agreement and such other agreements as would have been required at
the Closing pursuant to Sections 7.2 and 7.3; provided, that such
agreements shall be dated as of the STEAG Early Condition Satisfaction Date
and shall become effective upon, but not before, the Closing Date; and
A-3
<PAGE>
(c) Mattson shall execute and deliver to STEAG an irrevocable
acknowledgement and waiver, in form and substance reasonably satisfactory
to STEAG and CFM, of the satisfaction or waiver of the closing conditions
set forth in Sections 7.2 and the waiver of Mattson's termination rights
set forth in Sections 8.1; and STEAG shall execute and deliver to Mattson
an irrevocable acknowledgement and waiver, in form and substance reasonably
satisfactory to Mattson and CFM, of the satisfaction or waiver of the
closing conditions set forth in Sections 7.3 and the waiver of STEAG's
termination rights set forth in Sections 8.1.
Notwithstanding anything contained in this Section 2.8 above, the Closing
shall not occur, and STEAG shall not sell or transfer to Mattson, and Mattson
shall not acquire ownership of, any of the STEAG Subsidiaries, prior to January
1, 2001.
For the purposes of this Section 2.8, the condition set forth in Section
7.1(g) shall be deemed satisfied if, concurrently with the taking of the
actions referred to in clauses (a), (b) and (c) above of this Section 2.8 on
the STEAG Early Condition Satisfaction Date, the CFM Early Satisfaction Date
Actions are taken.
2.9 Post-Closing Adjustments. The following adjustments will be made with
regard to the profits and losses, cash position and capitalization of the STEAG
Subsidiaries following the Closing:
(a) As promptly as practicable, but in no event more than 60 days
following the Closing Date, Mattson shall prepare and deliver to STEAG (i)
audited income statements of STEAG RTP Systems GmbH and STEAG MicroTech
GmbH for the year ended December 31, 2000 (the "Year 2000 Income
Statements"), and (ii) a statement of the aggregate cash and cash
equivalents of the combined STEAG Subsidiaries as of December 31, 2000 (the
"Closing Cash Statement" and, together with the Year 2000 Income
Statements, the "Closing Financial Statements"). The Year 2000 Income
Statements shall be prepared in accordance with German GAAP (as defined in
Section 3.5) applied on a basis consistent with the accounting principles
used in preparation of the income statements for STEAG RTP Systems GmbH and
STEAG MicroTech GmbH referred to in Section 3.5(a). The Year 2000 Income
Statements shall be audited by PricewaterhouseCoopers ("PWC"), using
procedures and methods consistent with past practice; provided that
Mattson's auditors, Arthur Andersen ("AA"), shall be permitted to
participate in such audits. The Closing Cash Statement shall be certified
by PWC. STEAG will make available such STEAG employees who are reasonably
necessary for the preparation of the Closing Financial Statements, using
the books and records of the STEAG Subsidiaries, to assist Mattson in
preparing the Closing Financial Statements.
(b) Unless within 10 business days after its receipt of the Closing
Financial Statements, STEAG delivers to Mattson a detailed written
statement describing its objections to the Year 2000 Income Statements or
the Closing Cash Statement, such Closing Financial Statements shall be
final and binding. If STEAG delivers such a written objection statement to
Mattson, the parties and their respective auditors will use reasonable
efforts to resolve any disputes, but if a final resolution is not reached
within 20 business days after Mattson has submitted its objections, any
remaining disputes will be resolved by an internationally recognized firm
of independent certified public accountants (excluding PWC and AA) mutually
selected by Mattson and STEAG or, if they are unable to agree, by PWC and
AA (the "Reviewing Accountants"). The Reviewing Accountants shall be
instructed to resolve any matters in dispute as promptly as practicable
and, in any event, within 30 days after the dispute is submitted to them.
The determination of the Reviewing Accountants will be final and binding.
Mattson and STEAG will each pay one-half of the fees and expenses of the
Reviewing Accountants. Mattson and STEAG shall cooperate with each other
and the Reviewing Accountants in connection with the matters contemplated
by this Section 2.9, including by furnishing such information and access to
such books, records (including accountants' work papers), personnel and
properties as may be reasonably requested.
(c) Within 5 days after the Closing Financial Statements become final,
in accordance with the Profit Transfer Contracts (as defined in Section
3.5(c)), (i) Mattson will cause STEAG RTP Systems GmbH
A-4
<PAGE>
and/or STEAG MicroTech GmbH to transfer the net profit, if any, for fiscal
year 2000 to STEAG, or (ii) STEAG will reimburse STEAG RTP Systems GmbH
and/or STEAG MicroTech GmbH for the net loss, if any, for fiscal 2000.
(d) If, after taking into account any profit and loss reimbursement
pursuant to Section 2.9(c), the aggregate cash balance of the combined
STEAG Subsidiaries would exceed $10,075,000, Mattson shall cause the
additional cash in excess of $10,075,000 to be transferred to STEAG at the
time of any payments under Section 2.9(c); provided, that Mattson shall not
be obligated to transfer more than DM20,000,000 of such excess cash. If,
after taking into account any profit and loss reimbursement pursuant to
Section 2.9(c), the aggregate cash balance of the combined STEAG
Subsidiaries would be less than $10,075,000, STEAG shall contribute to the
STEAG Subsidiaries (allocated among the STEAG Subsidiaries as agreed by the
parties) cash in the amount of such deficit at the time of any payments
under Section 2.9(c ); provided, that STEAG shall not be obligated to
contribute more than DM20,000,000 of such deficit.
2.10 Transfer of U.S. STEAG Subsidiaries to Newco. Not later than 10 days
prior to the Closing, STEAG may, at its sole discretion, transfer the shares of
each of the STEAG Subsidiaries incorporated in the U.S.A. that STEAG owns
directly to Newco. In such event, notwithstanding anything to the contrary
contained in this Agreement, (i) STEAG shall have no obligation to transfer the
shares of such U.S. STEAG Subsidiaries to Mattson at the Closing, and (ii) at
the time of any contribution or reimbursement to or from the STEAG Subsidiaries
pursuant to Section 2.9(c), STEAG shall contribute to the STEAG Subsidiaries
(or the profit to be transferred to STEAG shall be reduced by) an amount equal
to $12,300,000.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF STEAG
STEAG represents and warrants to Mattson as follows, except as disclosed in
a document of even date herewith and delivered by STEAG to Mattson referring to
the representations and warranties in this Agreement (the "STEAG Disclosure
Schedule"). (The STEAG Disclosure Schedule will be arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this Article
III, and the disclosure in any such numbered and lettered section of the STEAG
Disclosure Schedule shall qualify only the corresponding section in this
Article III, except to the extent disclosure in any numbered and lettered
section of the STEAG Disclosure Schedule is specifically cross-referenced in
another numbered and lettered section of the STEAG Disclosure Schedule.)
3.1 Due Incorporation.
(a) STEAG and each of the STEAG Subsidiaries is a corporation duly
organized, validly existing, and, where such term is recognized under
applicable law, in good standing under the laws of its jurisdiction of
organization, with all requisite corporate power and authority to own,
lease, and operate its properties and to carry on its business as now being
conducted. STEAG and each of the STEAG Subsidiaries is qualified to do
business and is, where such term is recognized under applicable law, in
good standing as a foreign corporation in each jurisdiction where the
nature of the properties owned, leased, or operated by it and the business
transacted by it require such qualification, except where the failure to be
so qualified would not reasonably be expected to have a STEAG Material
Adverse Effect (as defined in Section 3.6 hereof). The jurisdictions in
which the STEAG Subsidiaries are qualified to do business as a foreign
corporation are set forth next to each such entity's name on Section 3.1 of
the STEAG Disclosure Schedule. True, correct, and complete copies of
STEAG's Memorandum and Articles of Association (Satzung) and Management
Board (Vorstand) Rules of Procedure (Geschaeftsordnung), and the
organizational documents of each STEAG Subsidiary have been delivered to
Mattson.
(b) Section 3.1 of the STEAG Disclosure Schedule sets forth the name of
each STEAG Subsidiary, the nation or jurisdiction of its incorporation or
organization, a description of the equity ownership interest
A-5
<PAGE>
in each such STEAG Subsidiary by STEAG, any other STEAG Subsidiary, and/or
any other person, and a brief description of the principal line or lines of
business conducted by each such entity. Except as set forth on Section 3.1
of the STEAG Disclosure Schedule, all of the issued and outstanding shares
or other units of capital stock of each STEAG Subsidiary are validly
issued, fully paid, nonassessable, and free of preemptive rights, and are
owned, directly or indirectly, by STEAG free and clear of any liens,
claims, encumbrances, security interests, equities, charges, and options of
any nature whatsoever, and there are no outstanding subscriptions, options,
calls, contracts, voting trusts, proxies, or other commitments,
understandings, restrictions, arrangements, rights, or warrants, including
any right of conversion or exchange under any outstanding security,
instrument, or other agreement, obligating any such subsidiary to issue,
deliver, or sell, or cause to be issued, delivered, or sold, additional
shares of its capital stock or obligating it to grant, extend, or enter
into any such agreement or commitment (collectively, "Encumbrances"). None
of the STEAG Subsidiaries are subject or party to any profit distribution,
profit-sharing or profit transfer agreements other than the Profit Transfer
Contracts as defined in Section 3.5(c). At the Closing, Mattson will
receive good and valid title to shares or other units of capital stock
representing one hundred percent (100%) of the equity ownership interest of
Newco and each Direct STEAG Subsidiary, and Newco will hold good and valid
title to each Foreign STEAG Subsidiary, free and clear of any Encumbrances.
3.2 Due Authorization. STEAG has full corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. The
execution, delivery, and performance by STEAG of this Agreement have been duly
and validly approved and authorized by the Management Board (Vorstand) and the
Supervisory Board (Aufsichtsrat) of STEAG and, except for resolutions and
corporate formalities required to implement Section 1.1, no other actions or
proceedings on the part of STEAG are necessary to authorize this Agreement and
the transactions contemplated hereby. STEAG has duly and validly executed and
delivered this Agreement. This Agreement constitutes the legal, valid, and
binding obligation of STEAG enforceable against it in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, fraudulent transfer, moratorium, reorganization, or other laws from
time to time in effect which affect creditors' rights generally and by general
principles of equity (regardless of whether such enforceability is considered
in a proceeding in equity or at law).
3.3 Non-Contravention/Consents and Approvals.
(a) The execution and delivery of this Agreement by STEAG does not, and
the performance by STEAG of its obligations hereunder and the consummation
of the transactions contemplated hereby, will not conflict with, result in
a violation or breach of, constitute (with or without notice or lapse of
time or both) a default under, result in or give to any person any right of
payment or reimbursement, termination, cancellation, modification or
acceleration of, or result in the creation or imposition of any lien upon
any of the assets or properties of STEAG or any STEAG Subsidiary under, any
of the terms, conditions or provisions of (i) Memorandum and Articles of
Association (Satzung) or Management Board (Vorstand) Rules of Procedure, or
the articles of incorporation or bylaws (or other comparable charter
documents) of STEAG or any STEAG Subsidiary, or (ii) subject to the taking
of the actions described in paragraph (b) of this Section 3.3, (x) any
statute, law, rule, regulation, or ordinance (together, "Laws") applicable
to STEAG and the STEAG Subsidiaries, or any judgment, decree, order, writ,
permit, or license, of any Governmental Entity (as defined in paragraph (b)
below), applicable to STEAG or any STEAG Subsidiary or any of their
respective assets or properties, or (y) any contract, agreement, or
commitment to which STEAG or any STEAG Subsidiary is a party or by which
STEAG or any STEAG Subsidiary or any of their respective assets or
properties is bound, excluding from the foregoing clauses (x) and (y)
conflicts, violations, breaches, defaults, terminations, modifications,
accelerations, and creations and impositions of liens which would not
reasonably be expected to have a STEAG Material Adverse Effect or would not
result in the inability of STEAG to consummate the transactions
contemplated by this Agreement.
(b) No consent, approval, order, or notice to or authorization of, or
registration, declaration, or filing with, any United States federal,
state, local, or foreign court, administrative agency or commission, or
A-6
<PAGE>
other governmental entity or instrumentality (including a stock exchange or
other self-regulatory body) (a "Governmental Entity"), is required to be
made or obtained by STEAG or any of the STEAG Subsidiaries for the
execution and delivery of this Agreement or the consummation by STEAG of
the transactions contemplated hereby, the failure to obtain which would
reasonably be expected to have a STEAG Material Adverse Effect or prevent
or materially delay the consummation of the transactions contemplated
hereby, except for:
(i) the filing of a pre-merger notification report by STEAG or its
ultimate parent entity under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), and the expiration
or termination of the applicable waiting period thereunder;
(ii) the filing of required documents with the relevant Governmental
Entities of the countries or political subdivisions in which STEAG is
qualified to transact business, including, if applicable, any filing
under the German Act Against Restraints on Competition of 1958 (Gesetz
gegen Wettbewerbsbeschraenkungen), and the expiration or termination of
the waiting period thereunder;
(iii) ministerial notices, filings and registrations with local
Governmental Entities in connection with the transfers of the Direct
Subsidiary Shares to Newco by STEAG; and
(iv) such other filings, authorization orders and approvals as may be
required of state and local Governmental Entities (the "Local
Approvals") which are specified in Schedule 3.3 hereto.
3.4 Capital Structure.
(a) Section 3.4 of the STEAG Disclosure Schedule sets forth for each of
the STEAG Subsidiaries:
(i) where such concept is recognized under applicable legal and
accounting principles, the number of authorized shares or other units of
each class or series of capital stock;
(ii) the number of shares or other units of each class or series of
capital stock which are issued and outstanding as of the date of this
Agreement;
(iii) where applicable, the registered share capital;
(iv) the number of shares of other units of each class or series of
capital stock, if any, which are held in the treasury of such entity as
of the date of this Agreement;
(v) the number of shares or other units of each class or series of
capital stock, if any, which are reserved for issuance, indicating each
particular reservation; and
(vi) the aggregate number of shares or other units of each class or
series of capital stock, if any, subject to employee stock options or
other rights to purchase or receive capital stock granted under any
stock option or other stock-based employee or non-employee director
benefit plans.
(b) There are no authorized, issued, reserved for issuance, or
outstanding, (i) securities of STEAG or any of the STEAG Subsidiaries
convertible into or exchangeable for shares of capital stock or voting
securities of the STEAG Subsidiaries, or (ii) warrants, calls, options, or
other rights to acquire from the STEAG Subsidiaries, or any obligation of
any of the STEAG Subsidiaries to issue, any shares of capital stock or
voting securities or securities convertible into or exchangeable or
exercisable for capital stock or voting securities of the STEAG
Subsidiaries; and, except for this Agreement, there are no outstanding
obligations of the STEAG Subsidiaries to repurchase, redeem, or otherwise
acquire any such securities or to issue, deliver, or sell, or cause to be
issued, delivered, or sold, any such securities.
3.5 Financial Statements; Undisclosed Liabilities; Other Documents.
(a) For purposes of this Agreement, the "STEAG Financial Statements"
shall mean the separate audited financial statements of each of the STEAG
Subsidiaries as of December 31, 1999 and December 31, 1998 (including all
notes thereto) and the unaudited combined, consolidated financial
statements of the STEAG Subsidiaries as of December 31, 1999 and December
31, 1998, consisting of the
A-7
<PAGE>
balance sheets at such dates and the related statements of income for the
years then ended (except as otherwise specified in Section 3.5(a) of the
STEAG Disclosure Schedule). The audited STEAG Financial Statements for each
STEAG Subsidiary have been prepared in accordance with generally accepted
accounting principles ("GAAP") applicable in the respective countries in
which each STEAG Subsidiary is incorporated or organized, and the unaudited
combined, consolidated STEAG Financial Statements have been prepared in
accordance with U.S. GAAP, in each case consistently applied. The STEAG
Financial Statements present fairly the financial position of the STEAG
Subsidiaries as at the dates thereof and the results of operations of the
STEAG Subsidiaries for the periods covered thereby, except for the absence
of notes to the unaudited combined, consolidated STEAG Financial
Statements.
(b) The STEAG Subsidiaries do not have any liabilities or obligations of
any nature, whether accrued, absolute, contingent, or otherwise, except (i)
as set forth on or reflected in the December 31, 1999 unaudited combined,
consolidated balance sheet of the STEAG Entities (the "STEAG Base Balance
Sheet") or the notes to the December 31, 1999 audited STEAG Financial
Statements for each of the STEAG Subsidiaries, (ii) liabilities and
obligations incurred since December 31, 1999 which are either incurred in
the ordinary course of its business consistent with past practice, or, if
incurred outside the ordinary course of business, are not substantial in
amount, (iii) such other liabilities and obligations that, individually and
in the aggregate, do not have and would not reasonably be expected to have
a STEAG Material Adverse Effect, and (iv) as otherwise set forth on the
STEAG Disclosure Schedule.
(c) The Profit Transfer Contracts, dated September 30 and 26, 1997,
respectively, between STEAG, on the one hand, and STEAG RTP Systems GmbH
and STEAG MicroTech GmbH, on the other hand (the "Profit Transfer
Contracts") shall have terminated on or before December 31, 2000; provided
that such German STEAG Subsidiaries will continue to be obligated in
accordance with such agreements to transfer any profits or losses for the
year ending December 31, 2000 at such time after December 31, 2000 and in
such manner as is set forth in Section 2.9.
3.6 No Material Adverse Effects or Changes. Except as described on Section
3.6 of the STEAG Disclosure Schedule, or as disclosed in or reflected in the
STEAG Financial Statements, or as contemplated by this Agreement, since
December 31, 1999, none of the STEAG Subsidiaries has (i) taken any of the
actions set forth in subparagraphs (a) through (r) of Section 5.1 hereof, (ii)
suffered any STEAG Material Adverse Effect, and no facts or conditions exist
which are reasonably likely to have, in the aggregate, a STEAG Material Adverse
Effect, (iii) suffered any damage, destruction, or Loss to any of its assets or
properties which is material to the STEAG Subsidiaries, taken as a whole
(whether or not covered by insurance), or (iv) increased the base compensation
of any executive officer of any of the STEAG Subsidiaries, other than in the
ordinary course of business consistent with past practice by more than 10%.
"Loss" shall mean liabilities, losses, costs, claims, damages, penalties, and
expenses (including attorneys' fees and expenses and costs of investigation and
litigation). "STEAG Material Adverse Effect" shall mean an effect on the
business, operations, assets, liabilities, results of operations, cash flows or
condition (financial or otherwise), of all or any of the STEAG Subsidiaries,
which is materially adverse to the STEAG Subsidiaries, taken as a whole;
provided, that any Loss (including loss of business) suffered by STEAG or any
of the STEAG Subsidiaries as a result of certain patent litigation between CFM
and certain STEAG affiliates or the settlement thereof shall not be deemed to
constitute a STEAG Material Adverse Effect for purposes of this Agreement.
3.7 Properties.
(a) Except as disclosed on Section 3.7 of the STEAG Disclosure Schedule,
the STEAG Subsidiaries (i) have good and valid title to all of the tangible
and intangible assets, properties, and rights reflected in the STEAG Base
Balance Sheet or acquired after December 31, 1999 (other than assets leased
under the leases set forth in Section 3.7 of the STEAG Disclosure Schedule
and assets disposed of in the ordinary course of business since the date of
the STEAG Base Balance Sheet), and (ii) at the Closing Date will have good
and valid title to all material tangible and intangible assets, properties,
and rights referred to in clause (i) above, in each case free and clear of
any lien, encumbrance, pledge, or similar interest, except
A-8
<PAGE>
for liens for Taxes not yet due and payable and other imperfections of
title that, individually and in the aggregate, are not substantial in
character or amount and do not materially interfere with the business of
the STEAG Subsidiaries as presently conducted ("Permitted Liens"). The
tangible and intangible assets, properties and rights owned by the STEAG
Subsidiaries taken together are sufficient to permit the conduct of such
business as presently conducted.
(b) Except as otherwise identified in Section 3.7 of the STEAG
Disclosure Schedule hereto, the material tangible assets of each of the
STEAG Subsidiaries, including all mobile equipment, are, in the aggregate,
in good condition and repair, reasonable wear and tear excepted, and are,
in the aggregate, in condition suitable for the use to which they are put
in the respective business of each of the STEAG Subsidiaries.
(c) Set forth on Section 3.7(b) of the STEAG Disclosure Schedule is a
complete list of the facilities in which the STEAG Subsidiaries operate or
conduct business, and for each such facility identifying the title of the
lease, the date of expiration, the monthly rent and the landlord. True and
complete copies of every such lease have been delivered to Mattson or its
counsel.
3.8 Intellectual Property. Except as disclosed in Section 3.8 of the STEAG
Disclosure Schedule hereto:
(a) All of the trademarks, trade names, service marks, patents,
copyrights (including any registrations of or pending applications for any
of the foregoing), technology, trade secrets, inventions, know-how,
designs, computer programs, mask works, processes, and all other intangible
assets, properties, and rights used by any STEAG Subsidiary in the conduct
of its business, other than such items the loss or absence of which
(individually or in the aggregate) would not have a STEAG Material Adverse
Effect (the "STEAG Intellectual Property"), are either (i) owned by the
relevant STEAG Subsidiary free and clear of any lien, encumbrance, pledge,
or similar interest and are not subject to any license, royalty or other
agreement or (ii) licensed by the relevant STEAG Subsidiary pursuant to an
agreement described in Section 3.8(g).
(b) None of the STEAG Intellectual Property has been since January 1,
1998 or is the subject of any pending or, to STEAG's knowledge, threatened
(in writing) litigation or claim of infringement.
(c) No license or royalty agreement to which any STEAG Subsidiary is a
party (including any agreement regarding Licensed Intellectual Property as
defined below) is, to STEAG's knowledge, in breach or default by any party
thereto or the subject of any notice of termination given or threatened (in
writing), which breach, default or termination would reasonably be expected
to have a STEAG Material Adverse Effect.
(d) To STEAG's knowledge, none of the products manufactured or sold by
the STEAG Subsidiaries, nor any process, method, part, design, or material
they employ, nor the marketing, distribution and use by the STEAG
Subsidiaries of any such product or any service, infringe any trademark,
service mark, trade name, copyright, trade secret, patent, or confidential
or proprietary rights of a third party and the STEAG Subsidiaries have not
received any written notice contesting their right to use any STEAG
Intellectual Property, which claim or contestation, if successful, would
reasonably be expected to have a STEAG Material Adverse Effect.
(e) To the extent that any STEAG Intellectual Property is licensed by a
third party to any STEAG Subsidiary (such STEAG Intellectual Property
referred to as "Licensed Intellectual Property"), the consummation of the
transactions contemplated hereunder will not (i) constitute a breach or
default under any such license agreement which would give the other
contracting party a right to terminate such agreement; (ii) alter or
diminish the rights assigned or transferred to Mattson or Newco from that
originally granted to any STEAG Subsidiary (as the case may be) under such
agreement; or (iii) alter or increase the obligations delegated or
transferred to Mattson or Newco from that originally imposed on any STEAG
Subsidiary (as the case may be) under such agreement.
(f) STEAG has disclosed to Mattson any standard forms of Assignment
Agreement generally signed by employees of STEAG Subsidiaries. To STEAG's
knowledge, all employees of the STEAG Subsidiaries
A-9
<PAGE>
who are employed for the purpose of the development, invention or creation
of any STEAG Intellectual Property have signed an agreement which is
substantially similar to the aforementioned form which, when signed by an
employee, is valid and enforceable against such employee.
(g) Section 3.8(g) of the STEAG Disclosure Schedule sets forth a true
and complete list of (i) all material agreements regarding Licensed
Intellectual Property; (ii) all patents and patent applications, registered
trademarks and service marks, registered copyrights, registered mask works,
trade names and service marks and any applications therefor, included in
the STEAG Intellectual Property (other than any Licensed Intellectual
Property), and specifies the jurisdictions in which such STEAG Intellectual
Property has been issued or registered or in which an application for such
issuance and registration has been filed, including the respective
registration or application numbers and the names of all registered owners;
and (iii) all agreements to which any of the STEAG Intellectual Property
(other than any Licensed Intellectual Property) may be subject.
(h) There are no exclusive licenses, exclusive distributorship
agreements, or noncompetition agreements with respect to the use of any
STEAG Intellectual Property or the development, sale, or distribution of
any products of any STEAG Subsidiary, or any other material restrictions
regarding the right of any of the STEAG Subsidiaries to fully exploit any
STEAG Intellectual Property anywhere in the world. None of the STEAG
Subsidiaries is a party to any reseller or distribution agreement, other
than agreements that can be cancelled or terminated without cost or penalty
upon notice of sixty (60) days or less.
3.9 Insurance. Section 3.9 of the STEAG Disclosure Schedule hereto contains
an accurate and complete list of all policies of fire, liability, worker's
compensation, title, and other forms of insurance owned or held by any STEAG
Subsidiary. All such policies are in full force and effect, all premiums with
respect thereto covering all periods up to and including the Closing Date have
been, or prior to the Closing Date, will be, paid and no notice of cancellation
or termination has been received with respect to any such policy except as
would not have a STEAG Material Adverse Effect. STEAG has delivered to Mattson
a true and complete copy or description of all insurance policies, including
all occurrence-based policies, applicable to the STEAG Subsidiaries, since
January 1, 1998. Except as set forth in Section 3.9 of the STEAG Disclosure
Schedule, none of the STEAG Subsidiaries has been unable to obtain insurance
with respect to its assets or operations since January 1, 1998.
3.10 International Employee Plans. Section 3.10 of the STEAG Disclosure
Schedule contains a complete list or a description of each material
compensation scheme, retirement plan or program, collective agreement with a
union or worker's council, employee loan, bonus, and/or incentive system, stock
option, stock purchase, stock bonus, phantom stock, stock appreciation right,
or fringe benefits, whether written or, to STEAG's knowledge, unwritten, that
has been adopted or maintained by any of the STEAG Subsidiaries, whether
formally or, to STEAG's knowledge, informally, for the benefit of employees
outside the United States ("STEAG International Employee Plans"). Each STEAG
International Employee Plan has been established, maintained, and administered
in material compliance with its terms and conditions and with the requirements
prescribed by any and all statutory or regulatory laws that are applicable to
such STEAG International Employee Plan. No STEAG International Employee Plan
has unfunded liabilities, that as of the Closing Date, will not be offset by
insurance or fully accrued. Except as required by law, no condition exists that
would prevent any of the STEAG Subsidiaries (or Mattson following the Strategic
Business Combination) from terminating or amending any STEAG International
Employee Plan at any time for any reason.
3.11 United States Employee Matters and ERISA. With regard to those
employees of any STEAG Subsidiary which is located within the United States (a
"US STEAG Subsidiary"):
(a) Section 3.11 of STEAG Disclosure Schedule contains a true and
complete list of each employee benefit plan, program, policy, arrangement,
or agreement which is or has been sponsored, maintained, or contributed to
by any US STEAG Subsidiary covering employees, former employees, directors,
or former directors of such US STEAG Subsidiary or their beneficiaries, or
providing benefits to such persons in
A-10
<PAGE>
respect of services provided to any such entity, including, but not limited
to, any employee benefit plans within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
any severance or change in control agreement, plan, policy, or program
between the US STEAG Subsidiary and any employee thereof (collectively, the
"US STEAG Benefit Plans"). For purposes of this Section 3.11, "US STEAG
Subsidiary" includes any STEAG Subsidiary which has employees in the U.S.,
other than employees of STEAG subsidiaries incorporated outside the U.S.A.
on temporary assignment or secondment in the U.S.A.
(b) Contributions. All contributions and other payments required to be
made for any period through the date to which this representation speaks,
by any US STEAG Subsidiary to any US STEAG Benefit Plan (or to any person
pursuant to the terms thereof) have been timely made or paid in full, or,
to the extent not required to be made or paid on or before the date to
which this representation speaks, have been properly reflected in the STEAG
Financial Statements.
(c) Qualification; Compliance. Each of the US STEAG Benefit Plans
intended to be "qualified" within the meaning of Section 401(a) of the Code
has either obtained from the Internal Revenue Service (the "IRS") a
favorable determination letter as to its qualified status under the Code,
including all amendments to the Code which are currently effective, or has
time remaining to apply under applicable Treasury Regulations or Internal
Revenue Service pronouncements for a determination or opinion letter and to
make any amendments necessary to obtain a favorable determination or
opinion letter; and, to the knowledge of STEAG, no circumstances exist that
could reasonably be expected to result in the revocation of any such
determination. Each US STEAG Subsidiary is in compliance in all material
respects with, and each of the US STEAG Benefit Plans is and has been
operated in all material respects in compliance with, all applicable laws,
rules, and regulations governing such plan, including, without limitation,
ERISA and the Code. Each US STEAG Benefit Plan intended to provide for the
deferral of income, the reduction of salary or other compensation, or to
afford other income tax benefits, complies in all material respects with
the requirements of the applicable provisions of the Code or other laws,
rules, and regulations required to provide such income tax benefits. There
are no pending or, to the knowledge of STEAG, threatened claims under or in
respect of any US STEAG Benefit Plan by or on behalf of any employee,
former employee, director, former director, or beneficiary thereof, or
otherwise involving any US STEAG Benefit Plan (other than routine claims
for benefits).
(d) Title I or IV Liabilities. No event has occurred and, to the
knowledge of STEAG, there exists no condition or set of circumstances that
would reasonably be expected (and none of the transactions contemplated
hereunder are reasonably likely) to subject (i) any US STEAG Subsidiary to
any material liability (whether to a governmental agency, a multiemployer
plan, or any other person or entity) arising under or based upon any
provision of Title I or Title IV of ERISA or (ii) STEAG, any US STEAG
Subsidiary or any entity which under Code Section 414(b), (c), (m) or (o)
would be required to be a single employer with any US STEAG Subsidiary to
any material liability (whether to a governmental agency, a multiemployer
plan or any other person or entity) arising under or based upon any
provision under Title IV of ERISA.
(e) Documents Made Available. STEAG has made available to Mattson a true
and correct copy of each collective bargaining agreement to which any US
STEAG Subsidiary is a party or under which any US STEAG Subsidiary has
obligations and, with respect to each US STEAG Benefit Plan, where
applicable, (i) such plan, including all amendments thereto, and the most
recent summary plan description, (ii) the five (5) most recent annual
reports filed with the IRS, (iii) each related trust agreement and
insurance contract, (iv) the most recent determination of the IRS with
respect to the qualified status of such US STEAG Benefit Plan, (v) the most
recent actuarial report or valuation for the most recent three (3) years,
(vi) compliance and nondiscrimination tests for the last three (3) plan
years, (vii) all insurance policies and certificates purchased by or to
provide benefits under such plan, (viii) all contracts and agreements to
which any US STEAG Subsidiary is a party with third party administrators,
actuaries, investment managers, consultants, and other independent
contractors that relate to such plan, and (ix) standard Consolidated
Omnibus Budget Reconciliation Act of 1985 ("COBRA") forms and notices and
A-11
<PAGE>
(x) every private letter ruling, prohibited transaction exemption or other
ruling or determination from the IRS, Department of Labor, Pension Benefit
Guaranty Corporation, or other Governmental Entity with respect to such
plan. To the knowledge of STEAG, in the case of each US STEAG Benefit Plan,
no employee handbook or similar employee communication relating to such
plan nor any written communication of benefits under such plan from the
administrator thereof, in either case that has not been delivered or made
available to Mattson, describes the terms of such plan in a manner that is
materially inconsistent with the documents and summary plan descriptions
relating to such plan that have been made available pursuant to the
foregoing sentence.
(f) Post-Retirement Obligations. No US STEAG Benefit Plan provides post-
retirement health or welfare benefits to any individual, other than as
required by Section 601 et seq. of ERISA and Section 4980B of the Code or
any other laws, rules, or regulations.
3.12 Labor Matters. Each STEAG Subsidiary has conducted and currently is
conducting its business in compliance in all material respects with all laws
relating to employment and employment practices, terms, and conditions of
employment, wages, and hours and nondiscrimination in employment. Except as
disclosed in Section 3.12 of the STEAG Disclosure Schedule, there are, and
during the past three years there have been, no labor strikes, slow-downs or
work stoppages pending or, to STEAG's knowledge, threatened against or
involving any STEAG Subsidiary. Except as disclosed in Section 3.12 of the
STEAG Disclosure Schedule, none of the employees of any STEAG Subsidiary is
covered by any collective bargaining agreement, no collective bargaining
agreement is currently being negotiated, and, to STEAG's knowledge, no attempt
is currently being made or during the past three years has been made to
organize any employees of any STEAG Subsidiary to form or enter a labor union
or similar organization.
3.13 Tax Returns and Audits. For the purposes of this Agreement, a "Tax" or,
collectively, "Taxes" means any and all federal, state, local, foreign, and
other taxes, assessments, and other governmental charges, duties, impositions,
and liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use, and occupation, and value added, ad valorem,
transfer, gains, franchise, capital stock, severance, withholding, payroll,
recapture, employment, excise, unemployment insurance, social security,
business license, occupation, business organization, stamp, environmental, and
property taxes, together with all interest, penalties, and additions imposed
with respect to such amounts. "Tax Return" as used in this Agreement, means a
report, return, or other information required to be supplied to a Governmental
Entity with respect to Taxes including, where permitted or required, combined
or consolidated returns for any group of entities that includes STEAG or any
STEAG Subsidiary, as the case may be, or Mattson or any Mattson Subsidiary, as
the case may be.
Except as set forth in Section 3.13 of the STEAG Disclosure Schedule hereto:
(a) Filing of Timely Tax Returns. Each STEAG Subsidiary has filed (or
there has been filed on its behalf) all material Tax Returns required to be
filed by each of them under applicable law. All such Tax Returns were and
are in all material respects true, complete, and correct and filed on a
timely basis.
(b) Payment of Taxes. Each STEAG Subsidiary has, within the time and in
the manner prescribed by law, paid all Taxes required to have been paid
except for those contested in good faith and for which adequate reserves
have been taken.
(c) Tax Liens. There are no Tax liens upon the assets of any STEAG
Subsidiary except liens for Taxes not yet due.
(d) Withholding Taxes. Each STEAG Subsidiary has complied in all
material respects with the provisions of applicable law relating to the
withholding of Taxes, including the requirement, within the time and in the
manner prescribed by law, to withhold from employee wages and pay over to
the proper Governmental Entities all amounts required.
(e) Extensions of Time for Filing Tax Returns. No STEAG Subsidiary has
requested any extension of time within which to file any Tax Return, which
Tax Return has not since been filed.
A-12
<PAGE>
(f) Waivers of Statute of Limitations. No STEAG Subsidiary has executed
any outstanding waivers or comparable consents regarding the application of
the statute of limitations with respect to any Taxes or Tax Returns.
(g) Expiration of Statute of Limitations. The statute of limitations for
the assessment of all Taxes has expired for all applicable Tax Returns of
each STEAG Subsidiary or those Tax Returns have been examined by the
appropriate taxing authorities for all periods through the date hereof, and
no deficiency for any Taxes has been proposed, asserted, or assessed
against any STEAG Subsidiary that has not been resolved and paid in full.
(h) Audit, Administrative and Court Proceedings. No audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of any STEAG Subsidiary.
(i) Powers of Attorney. No power of attorney currently in force has been
granted by any STEAG Subsidiary concerning any Tax matter.
(j) Tax Rulings. No STEAG Subsidiary has received a Tax Ruling (as
defined below) or entered into a Closing Agreement (as defined below) with
any taxing authority that would reasonably be expected to have a continuing
STEAG Material Adverse Effect after the Closing Date. "Tax Ruling," as used
in this Agreement, shall mean a written ruling of a taxing authority
relating to Taxes. "Closing Agreement," as used in this Agreement, shall
mean a written and legally binding agreement with a taxing authority
relating to Taxes.
(k) Availability of Tax Returns. STEAG has made available to Mattson
complete and accurate copies of (i) all Tax Returns, and any amendments
thereto, filed by any STEAG Subsidiary since January 1, 1998, (ii) all
audit reports received from any taxing authority relating to any Tax Return
filed by any STEAG Subsidiary and (iii) any Closing Agreements entered into
by any STEAG Subsidiary with any taxing authority.
(l) Tax Sharing Agreements. No STEAG Subsidiary is a party to any
agreement relating to allocating or sharing of Taxes.
(m) Liability for Others. No STEAG Subsidiary has any liability for
Taxes of any person other than STEAG and the STEAG Subsidiaries (i) under
any applicable law as a transferee or successor, (ii) by contract, or (iii)
otherwise, excluding potential obligations to pay tax liabilities for
foreign consultants or employees not to exceed $250,000 in the aggregate.
(n) Affiliated Group. None of the STEAG Subsidiaries is and none has
been a member of an affiliated group of corporations filing a consolidated
income tax return, or a group of corporations filing a consolidated,
combined, or unitary income tax return under applicable tax law, other than
a group the common parent of which is or was STEAG itself, STEAG's parent
company or another STEAG Subsidiary.
(o) Accounting Adjustments. None of the STEAG Subsidiaries has agreed to
make, nor is it required to make, any material adjustments under applicable
tax law by reason of a change in accounting method or otherwise.
(p) Partnerships or Joint Ventures. None of the STEAG Subsidiaries is
and none has been a member of a limited liability company or a party to any
joint venture, partnership, or other arrangement or contract that is
reported as a partnership for income tax purposes.
(q) Indemnities. None of the STEAG Subsidiaries has entered into any
indemnity for the benefit of any person in connection with any Tax such as
would reasonably be expected to result in a STEAG Material Adverse Effect.
A-13
<PAGE>
3.14 Environmental Matters. Except as disclosed in Section 3.14 of the
STEAG Disclosure Schedule:
(a) Compliance. Each STEAG Subsidiary is in compliance with all
applicable Environmental Laws (as defined in Section 3.14(g)(ii) hereof),
and neither STEAG nor any STEAG Subsidiary has received any written
communication from any person or Governmental Entity that alleges that any
STEAG Subsidiary is not in compliance with applicable Environmental Laws,
except where the failure to be in such compliance would not in the
aggregate reasonably be expected to have a STEAG Material Adverse Effect.
STEAG has provided Mattson with complete and correct copies of or access to
all reports, studies, assessments, and test results in its possession
relating to any storage, use, or disposal of Hazardous Materials (as
defined in Section 3.14(g)(iii) hereof) by any STEAG Subsidiary or on any
property owned, leased to, controlled by, used by or adjacent to that of
any STEAG Subsidiary.
(b) Environmental Permits. Each STEAG Subsidiary has obtained or has
applied for all environmental, health and safety permits, and governmental
authorizations (collectively, the "Environmental Permits") necessary for
the construction of its facilities or the conduct of its operations, and
all such Environmental Permits are in good standing or, where applicable, a
renewal application has been timely filed and is pending agency approval,
and each STEAG Subsidiary is in compliance with all terms and conditions of
the Environmental Permits, except where the failure to be in compliance
would not in the aggregate reasonably be expected to have a STEAG Material
Adverse Effect, and STEAG believes that any transfer, renewal, or
reapplication for any Environmental Permit required as a result of the
Strategic Business Combination can be accomplished in the ordinary course
of business.
(c) Environmental Claims. There are no Environmental Claims (as defined
in Section 3.14(g)(i) hereof) pending or, to STEAG's knowledge, threatened
(i) against any STEAG Subsidiary or joint ventures, or (ii) against any
real or personal property or operations that any STEAG Subsidiary owns,
leases, or manages, in whole or in part.
(d) Releases. To STEAG's knowledge, there have been no Releases (as
defined in Section 3.14(g)(iv) hereof) of any Hazardous Material (as
defined in Section 3.14(g)(iii) hereof) on, at, upon, into or from any
property owned, leased to, controlled by or used by any STEAG Subsidiary,
nor has there been any Release of Hazardous Material, including, but, not
limited to, the off-site disposal of Hazardous Material, that would
reasonably be expected to form the basis of any Environmental Claim against
any STEAG Subsidiary, except any Environmental Claims that, individually or
in the aggregate, would not have a STEAG Material Adverse Effect.
(e) USTs, ACM and Lead-Based Paint. To STEAG's knowledge, there are no
underground storage tanks or related piping located on, at, upon, into or
from any property owned, leased to, controlled by or used by any STEAG
Subsidiary, nor is there any asbestos or asbestos-containing material or
lead-based paint in, on or at any property or any facility or equipment
owned, leased or operated in connection with the business of any STEAG
Subsidiary which would reasonably be expected to result in a STEAG Material
Adverse Effect.
(f) Predecessors. STEAG has no knowledge of any Environmental Claim
pending or threatened, or of any Release of Hazardous Materials that would
reasonably be likely to form the basis of any Environmental Claim, in each
case against any person or entity (including, without limitation, any
predecessor of any STEAG Subsidiary) whose liability any STEAG Subsidiary
has or may have retained or assumed either contractually or by operation of
law or against any real or personal property which any STEAG Subsidiary
formerly owned, leased or managed, in whole or in part which would
reasonably be expected to result in a STEAG Material Adverse Effect.
A-14
<PAGE>
(g) As used in this Agreement:
(i) "Environmental Claim" means any and all administrative,
regulatory, or judicial actions, suits, demands, demand letters,
directives, claims, liens, investigations, proceedings, or notices of
noncompliance or violation by any person or entity (including any
Governmental Entity) alleging liability or potential liability
(including, without limitation, potential responsibility for or
liability for enforcement costs, investigatory costs, cleanup costs,
governmental response costs, removal costs, remedial costs, natural
resources damages, property damages, personal injuries, fines or
penalties) arising out of, based on or resulting from (A) the presence,
or Release or threatened Release into the environment, of any Hazardous
Materials at any location, whether or not owned, operated, leased, or
managed by any STEAG Subsidiaries or joint ventures (for purposes of
this Section 3.14); (B) circumstances forming the basis of any
violation, or alleged violation, of any Environmental Law; or (C) any
and all claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation, or injunctive relief
resulting from the presence or Release of any Hazardous Materials.
(ii) "Environmental Laws" means all applicable federal, state,
local, and foreign laws, rules, regulations, and requirements of common
law relating to pollution, the environment (including, without
limitation, ambient air, surface water, groundwater, land surface, or
subsurface strata) or protection of human health as it relates to
Hazardous Materials, including, without limitation, laws and
regulations relating to Releases or threatened Releases of Hazardous
Materials, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling
of Hazardous Materials.
(iii) "Hazardous Materials" means (a) any petroleum or petroleum
products, radioactive materials, asbestos, urea formaldehyde foam
insulation and transformers or other equipment that contain dielectric
fluid containing polychlorinated biphenyls ("PCBs") in regulated
concentrations; (b) any chemicals, materials, or substances which are
now defined as or included in the definition of "hazardous substances,"
"hazardous wastes," "hazardous materials," "extremely hazardous
wastes," "restricted hazardous wastes," "toxic substances," "toxic
pollutants," or words of similar import, under any Environmental Law;
and (c) any other chemical, material, substance, or waste, which is
regulated under any Environmental Law in a jurisdiction in which STEAG
or any of its subsidiaries or joint ventures operate.
(iv) "Release" means any release, spill, emission, leaking,
injection, deposit, disposal, discharge, dispersal, leaching or
migration into the atmosphere, soil, surface water, groundwater, or
property.
3.15 Litigation.
(a) Except as disclosed in Section 3.15 of the STEAG Disclosure Schedule
or in the STEAG Financial Statements (including the notes thereto), there
are no actions, suits, arbitrations, regulatory or other proceedings,
litigation, or governmental investigations by or before any court,
arbitration or Governmental Entity (collectively, a "Legal Proceeding"),
which is now pending or, to STEAG's knowledge, threatened (in writing)
against or affecting any of the STEAG Subsidiaries, or any of the STEAG
Subsidiaries' officers or directors in their capacity as such, or any of
the STEAG Subsidiaries' respective properties or businesses, which, if
decided adversely to the STEAG Subsidiaries, would reasonably be expected
to have a STEAG Material Adverse Effect. Except as disclosed in Section
3.15 of the STEAG Disclosure Schedule, none of the STEAG Subsidiaries is
currently subject to any order, judgment, decree, injunction, stipulation,
or consent order of or with any court or other Governmental Entity. Since
January 1, 1998, none of the STEAG Subsidiaries has entered into any
agreement to settle or compromise any Legal Proceeding pending or
threatened against it which has involved any obligation other than the
payment of money or for which any STEAG Subsidiary, as the case may be, has
any continuing obligation.
A-15
<PAGE>
(b) There are no claims or Legal Proceedings pending or, to STEAG's
knowledge, threatened (in writing) by or against STEAG with respect to this
Agreement or in connection with the transactions contemplated hereby or
thereby.
(c) Except as set forth on Section 3.15 of the STEAG Disclosure
Schedule, to STEAG's knowledge, there are no pending or threatened (in
writing) claims against any director, officer, employee, or agent of the
STEAG Subsidiaries in their capacity as such, or any other Person which, if
decided adversely to such Person, would reasonably be expected to give rise
to any claim for indemnification against any STEAG Subsidiary.
3.16 Compliance with Applicable Laws. Except as disclosed in Section 3.16 of
the STEAG Disclosure Schedule, each STEAG Subsidiary holds all permits,
licenses, variances, exemptions, orders, and approvals of all Governmental
Entities which are required for the operation of their respective businesses,
except those the absence of which would not reasonably be expected to have a
STEAG Material Adverse Effect (the "STEAG Permits"). Each STEAG Subsidiary is
in compliance with the terms of the STEAG Permits, except where the failure so
to comply would not reasonably be expected to have a STEAG Material Adverse
Effect. Except as disclosed in Section 3.16 of the STEAG Disclosure Schedule,
to STEAG's knowledge, neither STEAG nor any STEAG Subsidiary is in violation of
any law, ordinance, or regulation of any Governmental Entity, except for
possible violations which individually and in the aggregate do not have a STEAG
Material Adverse Effect.
3.17 Contracts; No Defaults. Except as described in Section 3.17 of the
STEAG Disclosure Schedule, none of the STEAG Subsidiaries is a party to or
subject to any agreement, contract, or commitment, written or, to the knowledge
of STEAG, oral (including, without limitation, leases of real property), which
(i) has expected receipts or expenditures by any of the STEAG Subsidiaries,
alone or in the aggregate, in excess of $5 million, other than purchase orders
from customers and purchase orders to suppliers in the ordinary course of
business, (ii) requires, as its primary purpose, any of the STEAG Subsidiaries
to indemnify any Person, (iii) grants any exclusive material licenses or
distributorships to any party, (iv) evidences indebtedness for borrowed or
loaned money of $1 million or more, including guarantees of such indebtedness
(other than trade accounts receivable and trade accounts payable), or (v) has
an initial term of more than one year and is not cancelable without significant
penalties by any of the STEAG Subsidiaries on 60 days' or less notice (other
than employment agreements with a current term of three years or less) (each of
the items described under (i) through (v), a "Material Contract"). None of the
STEAG Subsidiaries is in default or, to STEAG's knowledge, alleged to be in
default under any such Material Contract and, to STEAG's knowledge, no other
party thereto is in default except as would not reasonably be expected to have
a STEAG Material Adverse Effect. To STEAG's knowledge, nothing has occurred
which, with or without the passage of time or giving of notice or both, would
constitute a default by any STEAG Subsidiary or by any other party under any
such Material Contract except as would not reasonably be expected to have a
STEAG Material Adverse Effect. STEAG has not received any written or, to its
knowledge, oral, notification that any such Material Contract is not likely to
be renewed. The Strategic Business Combination contemplated by this Agreement
will not create a default under or permit the termination of or otherwise
adversely affect any such Material Contract in a manner that would reasonably
be expected to have a STEAG Material Adverse Effect. Except as described in
Section 3.17 of the STEAG Disclosure Schedule hereto, neither STEAG nor any
STEAG Subsidiary is required to give any notice to any person regarding this
Agreement or the transactions contemplated hereby pursuant to the terms of any
such Material Contract.
3.18 Change in Control and Severance Payments. Except as set forth on
Section 3.18 of the STEAG Disclosure Schedule, none of the STEAG Subsidiaries
have any material plans, programs, or agreements to which they are parties, or
to which they are subject, pursuant to which payments (or acceleration of
benefits) may be required upon, or may become payable directly or indirectly as
a result of, a change of control of any of the STEAG Subsidiaries (including by
reason of the consummation of the Strategic Business Combination), or otherwise
upon termination of employment of any individual with any STEAG Subsidiary.
A-16
<PAGE>
3.19 Year 2000. As of the date hereof, the computer systems used by any of
the STEAG Subsidiaries, and any third party service providers used by any of
the foregoing, have not exhibited any material deficiencies with respect to
formatting in connection with processing any dates after December 31, 1999
("Year 2000 Problem"). All issues and modifications, if any, regarding the Year
2000 Problem compliance by the STEAG Subsidiaries have been resolved by third-
party service providers and the STEAG Subsidiaries. To STEAG's knowledge, there
is no inability on the part of any customer, insurance company, or service
provider with which the STEAG Subsidiaries transact business to timely remedy
their own deficiencies in respect of the Year 2000 Problem, which inability,
individually or in the aggregate, would reasonably be expected to have a STEAG
Material Adverse Effect.
3.20 Broker's/Finder's Fees. Except for Morgan Stanley & Co. Incorporated,
neither STEAG nor any officer, director, or employee of STEAG has employed any
broker, finder, or investment banker or incurred any liability for any
brokerage or investment banking fees, commissions, or finders' fees in
connection with the transactions contemplated by this Agreement.
3.21 Interim Operations of Newco. Newco is a newly organized Gesellschaft
mit beschraenkter Haftung formed solely for the purpose of engaging in the
transactions contemplated by this Agreement. Prior to the Closing, Newco will
not have conducted any business, incurred any liabilities, or engaged in any
other transactions, other than entering into this Agreement and doing such acts
as are necessary in its capacity as a holding company with respect to the
Foreign STEAG Subsidiaries under this Agreement.
3.22 Investment. STEAG is an "accredited investor" as defined in Rule 501(a)
under the Securities Act of 1933, as amended. In making its investment decision
to acquire the Mattson Shares, STEAG is not relying on any oral or written
representations or assurances from Mattson or any other person other than as
set forth in this Agreement, in a document executed by a duly authorized
representative of Mattson making reference to this Agreement, or the Mattson
SEC Documents (as defined in Section 4.5). STEAG has such experience in
business and financial matters that it is capable of evaluating the risk of its
investment in the Mattson Shares and determining the suitability of its
investment. By reason of STEAG's business and financial and the business and
financial experience of STEAG's professional advisors, STEAG has the capacity
to protect its own interest in connection with the Strategic Business
Combination. STEAG represents that it is able to bear the economic risk of an
investment in the Mattson Shares. STEAG understands that no United States
federal or state agency or similar agency of any other country has passed upon
or made any recommendation or endorsement of Mattson, this transaction, or the
acquisition of the Mattson Shares.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF MATTSON
Mattson represents and warrants to STEAG as follows, except as disclosed in
a document of even date herewith and delivered by Mattson to STEAG referring to
the representations and warranties in this Agreement (the "Mattson Disclosure
Schedule"). (The Mattson Disclosure Schedule will be arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this Article
IV, and the disclosure in any such numbered and lettered section of the Mattson
Disclosure Schedule shall qualify only the corresponding section in this
Article IV, except to the extent disclosure in any numbered and lettered
section of the Mattson Disclosure Schedule is specifically cross-referenced in
another numbered and lettered section of the Mattson Disclosure Schedule.)
4.1 Due Incorporation, Subsidiaries, and Due Authorization.
(a) Due Incorporation. Mattson is a corporation duly organized, validly
existing, and in good standing under the laws of Delaware, with all
requisite corporate power and authority to own, lease, and operate its
properties and to carry on its business as now being conducted. Mattson is
qualified to do business and is in good standing as a foreign corporation
in each jurisdiction where the nature of the
A-17
<PAGE>
properties owned, leased, or operated by it and the business transacted by
it require such qualification, except where the failure to be so qualified
would not reasonably be expected to have a Mattson Material Adverse Effect
(as defined in Section 4.6 hereof). True, correct, and complete copies of
Mattson's Certificate of Incorporation and By-Laws, as amended, have been
delivered to STEAG.
(b) Subsidiaries. Except as set forth in Section 4.1 of the Mattson
Disclosure Schedule, Mattson has no direct or indirect subsidiaries, either
wholly or partially owned, and Mattson does not hold any economic, voting,
or management interest in any Person or own any security issued by any
Person. For purposes of this Agreement, any direct or indirect subsidiary
of Mattson, whether wholly or partially owned, is a "Mattson Subsidiary."
Except as set forth on in Section 4.1 of the Mattson Disclosure Schedule
hereto, all of the issued and outstanding shares of capital stock of each
Mattson Subsidiary are validly issued, fully paid, nonassessable, and free
of preemptive rights, and are owned, directly or indirectly, by Mattson
free and clear of any liens, claims, encumbrances, security interests,
equities, charges, and options of any nature whatsoever, and there are no
outstanding subscriptions, options, calls, contracts, voting trusts,
proxies, or other commitments, understandings, restrictions, arrangements,
rights or warrants, including any right of conversion or exchange under any
outstanding security, instrument, or other agreement, obligating any such
subsidiary to issue, deliver, or sell, or cause to be issued, delivered, or
sold, additional shares of its capital stock or obligating it to grant,
extend, or enter into any such agreement or commitment.
(c) Due Authorization. Mattson has full corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery, and performance by Mattson of this
Agreement have been duly and validly approved by the Board of Directors of
Mattson, and no other actions or proceedings on the part of Mattson are
necessary to authorize this Agreement and the transactions contemplated
hereby, other than the approval of the Mattson Stockholder Proposal (as
defined in Section 4.2(b)(iii)) by the stockholders of Mattson. Mattson has
duly and validly executed and delivered this Agreement. This Agreement
constitutes the legal, valid, and binding obligation of Mattson,
enforceable against it in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
fraudulent transfer, moratorium, reorganization, or other laws from time to
time in effect which affect creditors' rights generally and by general
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
4.2 Non-Contravention; Consents and Approvals.
(a) The execution and delivery of this Agreement by Mattson does not,
and the performance by of its obligations hereunder and the consummation of
the transactions contemplated hereby will not, conflict with, result in a
violation or breach of, constitute (with or without notice or lapse of time
or both) a default under, result in or give to any person any right of
payment or reimbursement, termination, cancellation, modification, or
acceleration of, or result in the creation or imposition of any lien upon
any of the assets or properties of Mattson under any of the terms,
conditions, or provisions of (i) the Certificate of Incorporation or Bylaws
of Mattson, or (ii) subject to obtaining the necessary approval by the
stockholders of Mattson and the taking of the actions described in
paragraph (b) of this Section 4.2, (x) any Law applicable to Mattson or any
judgment, decree, order, writ, permit, or license of any Governmental
Entity applicable to Mattson or (y) any contract, agreement, or commitment
to which Mattson is a party or by which Mattson or any of its assets or
properties is bound, excluding from the foregoing clauses (x) and (y)
conflicts, violations, breaches, defaults, terminations, modifications,
accelerations, and creations and impositions of liens which would not
reasonably be expected to have a Mattson Material Adverse Effect or result
in the inability of Mattson to consummate the transactions contemplated by
this Agreement.
(b) No consent, approval, order, or notice to or authorization of, or
registration, declaration, or filing with any Governmental Entity is
required to be made or obtained by Mattson in connection with the execution
and delivery of this Agreement or the consummation by Mattson of the
transactions contemplated hereby, the failure to obtain which would
reasonably be expected to have a Mattson Material
A-18
<PAGE>
Adverse Effect or prevent or materially delay the consummation of the
transactions contemplated hereby, except for:
(i) the filing of a pre-merger notification report under the HSR Act
and the expiration or termination of the applicable waiting period
thereunder, and, if applicable, the filing of required documents with
relevant Governmental Entities of the countries or political
subdivisions in which the STEAG Subsidiaries or CFM conduct business
including, if applicable, any filing under the German Act Against
Restraints on Competition of 1958 (Gesetz gegen
Wettbewerbsbeschraenkungen) and the expiration or termination of the
waiting period thereunder;
(ii) the approval of the Mattson Shares for listing on NASDAQ upon
official notice of issuance;
(iii) the approval by the stockholders of Mattson of a single
proposal (the "Mattson Stockholder Proposal") that provides for: (A) the
Share Issuance and the issuance of shares of Mattson Common Stock
pursuant to the CFM Agreement, and (B) if necessary to effect the
Strategic Business Combination and/or the CFM Merger, an increase in the
shares reserved under Mattson's stock option plans (the "Plan Reserve
Increase"); and
(iv) the consents and approvals specified on Section 4.2 of the
Mattson Disclosure Schedule.
4.3 Capitalization.
(a) The authorized capital stock of Mattson consists of 60,000,000
shares of Mattson Common Stock, par value $0.001 per share, and 2,000,000
shares of Preferred Stock, par value $0.001 per share. On the date hereof,
there are issued and outstanding 20,887,000 shares of Mattson Common Stock
and no shares of Preferred Stock. All of the issued and outstanding shares
of Mattson Common Stock are, and the Mattson Shares, when issued in
accordance with the terms of this Agreement, will be, duly and validly
authorized and issued and outstanding, fully paid, and nonassessable. On
the date hereof, there are 6,575,000 shares of Mattson Common Stock
reserved for issuance under Mattson stock option plans, of which 1,523,204
shares are subject to outstanding options, and no shares are reserved for
issuance upon exercise of outstanding warrants.
(b) Except for this Agreement and the CFM Agreement, and except as set
forth above and in Section 4.3 of the Mattson Disclosure Schedule, there
are no shares of Mattson Common Stock or other equity securities (whether
or not such securities have voting rights) of Mattson issued or outstanding
or any subscriptions, options, warrants, calls, rights, convertible
securities, or other agreements or commitments of any character and no
preemptive or similar rights obligating Mattson to issue, transfer, or sell
any shares of capital stock or other securities (whether or not such
securities have voting rights) of Mattson. Except for this Agreement and
the CFM Agreement, and except as set forth in Section 4.3 of the Mattson
Disclosure Schedule hereto, there are no outstanding contractual
obligations of Mattson which relate to the purchase, sale, issuance,
repurchase, redemption, acquisition, transfer, disposition, holding, or
voting of any shares of capital stock or other securities of Mattson. Brad
Mattson has entered into the Voting Agreement.
4.4 Financial Statements; Undisclosed Liabilities; Other Documents.
(a) For purposes of this Agreement, "Mattson Financial Statements" shall
mean the audited financial statements of Mattson as of December 31, 1999
and December 31, 1998 (including all notes thereto), and the unaudited
financial statements of Mattson included in Mattson's Quarterly Report on
Form 10-Q for the quarter ended March 26, 2000, consisting of the
consolidated balance sheets at such dates and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the
twelve-month periods ended December 31, 1999, December 31, 1998, and
December 31, 1997, and the three month period ended March 26, 2000. The
Mattson Financial Statements have been prepared in accordance with US GAAP
consistently applied and present fairly the financial position, assets and
liabilities of Mattson as at the dates thereof and the revenues, expenses,
results of operations, and cash flows of Mattson for the periods covered
thereby.
A-19
<PAGE>
(b) Mattson and the Mattson Subsidiaries do not have any liabilities or
obligations of any nature, whether accrued, contingent, absolute, or
otherwise, except (i) as set forth or reflected in the March 26, 2000
balance sheet (the "Mattson Base Balance Sheet") in Mattson's Form 10-Q for
the fiscal quarter ended March 26, 2000; (ii) such other liabilities and
obligations that individually and in the aggregate, do not have and would
not reasonably be expected to have a Mattson Material Adverse Effect; (iii)
liabilities and obligations incurred since March 26, 2000 which are either
incurred in the ordinary course of its business consistent with past
practices or, if incurred outside the ordinary course of business are not
substantial in amount; and (iv) as otherwise set forth on the Mattson
Disclosure Schedule.
4.5 SEC Filings. Except as set forth in Section 4.5 of the Mattson
Disclosure Schedule hereto, Mattson has timely filed all required forms,
reports, and other documents with the SEC since November 1, 1997, all of which
complied when filed, in all material respects, with all applicable requirements
of the Securities Act and Securities Exchange Act, as applicable. Mattson has
heretofore delivered to STEAG complete and correct copies of (i) its Annual
Report on Form 10-K for the fiscal year ended December 31, 1999, (ii) its
Quarterly Report on Form 10-Q for the fiscal quarter ended March 26, 2000,
(iii) all proxy statements relating to Mattson's meetings of shareholders
(whether annual or special) since November 1, 1997 and (iv) all other reports,
forms and other documents filed by Mattson with the SEC since November 1, 1997
(together, the "Mattson SEC Documents"). Except as set forth on Section 4.5 of
the Mattson Disclosure Schedule hereto, as of their respective dates, such
reports, forms and other documents (including all exhibits and schedules
thereto and documents incorporated by reference therein) did not contain any
untrue statement of material fact or omit to state a material fact required to
be stated therein, or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading. The audited financial
statements and the unaudited interim financial statements of STEAG included or
incorporated by reference in such reports, forms and other documents were
prepared in accordance with GAAP consistently applied during the periods
involved (except as may be otherwise indicated in the notes thereto), and
fairly present the financial position of Mattson as of the dates thereof and
the results of its operations and changes in financial position for the periods
then ended (subject, in the case of any unaudited interim financial statements,
to normal year-end adjustments).
4.6 No Material Adverse Effects or Changes. Except as listed on Section 4.6
of the Mattson Disclosure Schedule hereto, as contemplated by this Agreement,
or as described in Mattson's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 26, 2000, since January 1, 2000, neither Mattson nor any
Mattson Subsidiary has (i) taken any of the actions set forth in subparagraphs
(a) through (k) of Section 5.2 hereof, (ii) suffered any Mattson Material
Adverse Effect, and no facts or conditions exist which are reasonably likely to
have, in the aggregate, a Mattson Material Adverse Effect, or (iii) suffered
any damage, destruction, or Loss to any of its assets or properties which is
material to Mattson (whether or not covered by insurance). "Mattson Material
Adverse Effect" shall mean an effect on the business, operations, assets,
liabilities, results of operations, cash flows or condition (financial or
otherwise) of Mattson and the Mattson Subsidiaries, taken as a whole, which is
materially adverse to Mattson and the Mattson Subsidiaries on a consolidated
basis.
4.7 Properties.
(a) Except as disclosed on Section 4.7 of the Mattson Disclosure
Schedule hereto, Mattson and each Mattson Subsidiary (i) has good and valid
title to all of the tangible and intangible assets, properties, and rights
reflected in the Mattson Base Balance Sheet or acquired after March 26,
2000 (other than assets leased under the leases set forth in Section 4.7 of
the Mattson Disclosure Schedule hereto and assets disposed of in the
ordinary course of business since the date of the Mattson Base Balance
Sheet), and (ii) at the Closing Date will have good and valid title to all
of such material tangible and intangible assets, properties, and rights
referred to in clause (i) above, in each case free and clear of any lien,
encumbrance, pledge or similar interest, except for Permitted Liens.
(b) Except as otherwise identified in Section 4.7 of the Mattson
Disclosure Schedule hereto, the material tangible assets of Mattson and
each Mattson Subsidiary, taken as a whole, including all mobile
A-20
<PAGE>
equipment, are, in the aggregate, in good condition and repair, reasonable
wear and tear excepted, and are, in the aggregate, in condition suitable
for the use to which they are put in Mattson's business.
4.8 Intellectual Property. Except as disclosed on Section 4.8 of the
Mattson Disclosure Schedule hereto:
(a) All of the trademarks, trade names, service marks, patents,
copyrights (including any registrations of or pending applications for any
of the foregoing), technology, trade secrets, inventions, know-how,
designs, computer programs, processes, and all other intangible assets,
properties, and rights used by Mattson or any Mattson Subsidiary in the
conduct of its business, other than such items the loss or absence of which
(individually or in the aggregate) would not have a Mattson Material
Adverse Effect (the "Mattson Intellectual Property"), are either (i) owned
by Mattson or any Mattson Subsidiary free and clear of any liens, and are
not subject to any license, royalty, or other agreement or (ii) licensed by
Mattson or the relevant Mattson Subsidiary pursuant to a valid and
subsisting license agreement.
(b) None of the Mattson Intellectual Property has been since January 1,
1998 or is the subject of any pending or, to Mattson's knowledge,
threatened (in writing) litigation or claim of infringement.
(c) No license or royalty agreement to which Mattson or any Mattson
Subsidiary is a party, including any agreement regarding Licensed
Intellectual Property as defined below, is, to Mattson's knowledge, in
breach or default by any party thereto or the subject of any notice of
termination given or threatened (in writing), which breach, default or
termination would reasonably be expected to have a Mattson Material Adverse
Effect.
(d) To Mattson's knowledge, none of the products manufactured or sold by
Mattson or any Mattson Subsidiary, nor any process, method, part, design,
nor material they employ, nor the marketing and use by Mattson or any
Mattson Subsidiary of any such product or any service, infringe any
trademark, service mark, trade name, copyright, trade secret, patent, or
confidential or proprietary rights of another and Mattson and the Mattson
Subsidiaries have not received any written notice contesting their right to
use any Mattson Intellectual Property, which claim or contestation, if
successful, would reasonably be expected to have a Mattson Material Adverse
Effect.
(e) Mattson has disclosed to STEAG any standard forms of Assignment
Agreement generally signed by employees of Mattson Subsidiaries. To
Mattson's knowledge, all employees of the Mattson Subsidiaries who are
employed for the purpose of the development, invention or creation of any
Mattson Intellectual Property have signed an agreement which is
substantially similar to the aforementioned form which, when signed by an
employee, is valid and enforceable against such employee.
(f) There are no exclusive licenses, exclusive distributorship
agreements, or noncompetition agreements with respect to the use of any
Mattson Intellectual Property or the development, sale, or distribution of
any Mattson products, or any other material restrictions regarding the
right of Mattson or any of the Mattson Subsidiaries to fully exploit
Mattson Intellectual Property anywhere in the world. Neither Mattson nor
any of the Mattson Subsidiaries is a party to any reseller or distribution
agreement, other than agreements that can be cancelled or terminated
without cost or penalty upon notice of sixty (60) days or less.
4.9 Insurance. Section 4.9 of the Mattson Disclosure Schedule hereto
contains an accurate and complete list of all policies of fire, liability,
worker's compensation, title, and other forms of insurance owned or held by
Mattson or any Mattson Subsidiary. All such policies are in full force and
effect, all premiums with respect thereto covering all periods up to and
including the Closing Date have been, or prior to the Closing Date, will be,
paid and no notice of cancellation or termination has been received with
respect to any such policy except as would not have a Mattson Material Adverse
Effect. Mattson has delivered to STEAG a true and complete copy or description
of all insurance policies, including all occurrence-based policies, applicable
to Mattson or the Mattson Subsidiaries, since January 1, 1998. Except as set
forth in Section 4.9 of the Mattson Disclosure Schedule, neither Mattson nor
any Mattson Subsidiary has been unable to obtain insurance with respect to its
assets or operations since January 1, 1998.
A-21
<PAGE>
4.10 Employee Matters and ERISA. Except as set forth in Section 4.10 of the
Mattson Disclosure Schedule hereto:
(a) Benefit Plans. Section 4.11 of the Mattson Disclosure Schedule
contains a true and complete list of each employee benefit plan, program,
policy, arrangement, or agreement which is or has been sponsored,
maintained, or contributed to by Mattson and the Mattson Subsidiaries
covering employees, former employees, directors, or former directors of
Mattson and the Mattson Subsidiaries or their beneficiaries, or providing
benefits to such persons in respect of services provided to any such
entity, including, but not limited to, any employee benefit plans within
the meaning of Section 3(3) of ERISA, and any severance or change in
control agreement, plan, policy, or program between Mattson and the Mattson
Subsidiaries and any employee thereof (collectively, the "Mattson Benefit
Plans"). Neither Mattson nor any Mattson Subsidiary is obligated to
contribute to any "multi-employer plan" as defined in Section 3(37) ERISA.
Section 4.11 of the Mattson Disclosure Schedule separately lists each
Mattson Benefit Plan that has been adopted or maintained by any Mattson
Subsidiary, whether formally or informally, for the benefit of employees
outside of the United States ("Mattson International Benefit Plans").
(b) Contributions. All contributions and other payments required to be
made for any period through the date to which this representation speaks,
by Mattson or any Mattson Subsidiary to any Mattson Benefit Plan (or to any
person pursuant to the terms thereof) have been timely made or paid in
full, or, to the extent not required to be made or paid on or before the
date to which this representation speaks, have been properly reflected in
the Mattson Financial Statements.
(c) Qualification; Compliance. Each of the Mattson Benefit Plans
intended to be "qualified" within the meaning of Section 401(a) of the Code
has either obtained from the IRS a favorable determination letter as to its
qualified status under the Code, including all amendments to the Code which
are currently effective, or has time remaining to apply under applicable
Treasury Regulations or Internal Revenue Service pronouncements for a
determination or opinion letter and to make any amendments necessary to
obtain a favorable determination or opinion letter; and, to the knowledge
of Mattson, no circumstances exist that could reasonably be expected to
result in the revocation of any such determination. Mattson and each
Mattson Subsidiary is in compliance in all material respects with, and each
of Mattson Benefit Plans is and has been operated in all material respects
in compliance with, all applicable laws, rules, and regulations governing
such plan, including, without limitation, ERISA and the Code. Each Mattson
Benefit Plan intended to provide for the deferral of income, the reduction
of salary or other compensation, or to afford other income tax benefits
complies in all material respects with the requirements of the applicable
provisions of the Code or other laws, rules, and regulations required to
provide such income tax benefits. There are no pending or, to the knowledge
of Mattson, threatened claims under or in respect of any Mattson Benefit
Plan by or on behalf of any employee, former employee, director, former
director, or beneficiary thereof, or otherwise involving any Mattson
Benefit Plan (other than routine claims for benefits).
(d) Title I or IV Liabilities. No event has occurred and, to the
knowledge of Mattson, there exists no condition or set of circumstances
that would reasonably be expected (and none of the transactions
contemplated hereunder are reasonably likely) to subject Mattson or any
Mattson Subsidiary to any material liability (whether to a governmental
agency, a multiemployer plan, or any other person or entity) arising under
or based upon any provision of Title I or Title IV of ERISA.
(e) Documents Made Available. Mattson has made available to STEAG a true
and correct copy of each collective bargaining agreement to which Mattson
is a party or under which Mattson has obligations and, with respect to each
Mattson Benefit Plan, where applicable, (i) such plan, including all
amendments thereto, and the most recent summary plan description, (ii) the
five (5) most recent annual reports filed with the IRS, (iii) each related
trust agreement and insurance contract, (iv) the most recent determination
of the IRS with respect to the qualified status of such Mattson Benefit
Plan, (v) the most recent actuarial report or valuation for the most recent
three (3) years, (vi) compliance and nondiscrimination tests for the
A-22
<PAGE>
last three (3) plan years, (vii) all insurance policies and certificates
purchased by or to provide benefits under such plan, (viii) all contracts
and agreements to which Mattson or any Mattson Subsidiary is a party with
third party administrators, actuaries, investment managers, consultants and
other independent contractors that relate to such plan, (ix) standard COBRA
forms and notices, and (x) every private letter ruling, prohibited
transaction exemption, or other ruling or determination from the IRS,
Department of Labor, Pension Benefit Guaranty Corporation, or other
Governmental Entity with respect to such plan. To the knowledge of Mattson,
in the case of each Mattson Benefit Plan, no employee handbook or similar
employee communication relating to such plan nor any written communication
of benefits under such plan from the administrator thereof, in either case
that has not been delivered or made available to STEAG, describes the terms
of such plan in a manner that is materially inconsistent with the documents
and summary plan descriptions relating to such plan that have been made
available pursuant to the foregoing sentence.
(f) Post Retirement Obligations. No Mattson Benefit Plan provides post-
retirement health or welfare benefits to any individual, other than as
required by Section 601 et seq. of ERISA and Section 4980B of the Code or
any other laws, rules, or regulations.
4.11 Labor Matters. Mattson and each Mattson Subsidiary have conducted and
currently are conducting their businesses in compliance in all material
respects with all laws relating to employment and employment practices, terms
and conditions of employment, wages and hours, and nondiscrimination in
employment. Except as disclosed on Section 4.11 of the Mattson Disclosure
Schedule hereto, there are, and during the past three years there have been,
no labor strikes, slow-downs or work stoppages pending or, to Mattson's
knowledge, threatened against or involving Mattson or any Mattson Subsidiary.
Except as disclosed in Section 4.11 of the Mattson Disclosure Schedule, none
of the employees of Mattson or any Mattson Subsidiary is covered by any
collective bargaining agreement, no collective bargaining agreement is
currently being negotiated and, to Mattson's knowledge, no attempt is
currently being made or during the past three years has been made to organize
any employees of Mattson or the Mattson Subsidiaries to form or enter a labor
union or similar organization.
4.12 Tax Returns and Audits. Except as set forth in Section 4.12 of the
Mattson Disclosure Schedule hereto:
(a) Filing of Timely Tax Returns. Mattson and each Mattson Subsidiary
have filed (or there has been filed on its behalf) all material Tax Returns
required to be filed by it under applicable law. All such Tax Returns were
and are in all material respects true, complete, and correct, and filed on
a timely basis.
(b) Payment of Taxes. Mattson and each Mattson Subsidiary have, within
the time and in the manner prescribed by law, paid all Taxes required to
have been paid except for those contested in good faith and for which
adequate reserves have been taken.
(c) Tax Liens. There are no Tax liens upon the assets of Mattson except
liens for Taxes not yet due.
(d) Withholding Taxes. Mattson and each Mattson Subsidiary have complied
in all material respects with the provisions of applicable law relating to
the withholding of Taxes, including the requirement, within the time and in
the manner prescribed by law, to withhold from employee wages and pay over
to the proper governmental authorities all amounts required.
(e) Extensions of Time for Filing Tax Returns. Neither Mattson nor any
Mattson Subsidiary has requested any extension of time within which to file
any Tax Return, which Tax Return has not since been filed.
(f) Waivers of Statute of Limitations. Neither Mattson nor any Mattson
Subsidiary has executed any outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect to any
Taxes or Tax Returns.
(g) Expiration of Statute of Limitations. The statute of limitations for
the assessment of all Taxes has expired for all applicable Tax Returns of
Mattson and each Mattson Subsidiary or those Tax Returns
A-23
<PAGE>
have been examined by the appropriate taxing authorities for all periods
through the date hereof, and no deficiency for any Taxes has been proposed,
asserted or assessed against Mattson or any Mattson Subsidiary that has not
been resolved and paid in full.
(h) Audit, Administrative and Court Proceedings. No audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of Mattson or any Mattson Subsidiary.
(i) Powers of Attorney. No power of attorney currently in force has been
granted by Mattson or any Mattson Subsidiary concerning any Tax matter.
(j) Tax Rulings. Neither Mattson nor any Mattson Subsidiary has received
a Tax Ruling or entered into a Closing Agreement with any taxing authority
that would reasonably be expected to have a continuing Mattson Material
Adverse Effect after the Closing Date.
(k) Tax Sharing Agreements. Neither Mattson nor any Mattson Subsidiary
is a party to any agreement relating to allocating or sharing of Taxes.
(l) Liability for Others. Neither Mattson nor any Mattson Subsidiary has
any liability in excess of $250,000 for Taxes of any person other than
Mattson and the Mattson Subsidiaries (i) under any applicable law, as a
transferee or successor, (ii) by contract or (iii) otherwise.
(m) Affiliated Group. Neither Mattson nor any Mattson Subsidiary is or
has been a member of an affiliated group of corporations filing a
consolidated, combined, or unitary income tax return under applicable tax
law other than a group the common parent of which is or was Mattson itself
(or a Mattson subsidiary).
(n) Accounting Adjustments. Neither Mattson nor any Mattson Subsidiary
has agreed to make, nor is required to make, any material adjustment under
applicable tax law by reason of a change in accounting method or otherwise.
(o) Partnerships or Joint Ventures. Neither Mattson nor any Mattson
Subsidiary is or has been a member of a limited liability company or a
party to any joint venture, partnership, or other arrangement or contract
that is reported as a partnership for federal income tax purposes.
(p) Indemnities. Neither Mattson nor any Mattson Subsidiary has entered
into an indemnity for the benefit of any person in connection with any Tax
such as would reasonably be expected to have a Mattson Material Adverse
Effect.
(q) Availability of Tax Returns. Mattson has made available to STEAG
complete and accurate copies of (i) all Tax Returns, and any amendments
thereto, filed by Mattson and any Mattson Subsidiary since January 1, 1998,
(ii) all audit reports received from any taxing authority relating to any
Tax Return filed by Mattson or any Mattson Subsidiary and (iii) any Closing
Agreements entered into by Mattson or any Mattson Subsidiary with any
taxing authority.
4.13 Environmental Matters. Except as disclosed in Section 4.13 of the
Mattson Disclosure Schedule hereto:
(a) Compliance. Mattson and each Mattson Subsidiary is in compliance
with all applicable Environmental Laws and Mattson has not received any
written communication from any person or Governmental Entity that alleges
that Mattson or any Mattson Subsidiary is not in compliance with applicable
Environmental Laws, except where the failure to be in such compliance would
not in the aggregate reasonably be expected to have a Mattson Material
Adverse Effect. Mattson has provided STEAG with complete and correct copies
of or access to all reports, studies, assessments, and test results in its
possession relating to any storage, use, or disposal of Hazardous Materials
by Mattson and any Mattson Subsidiary or on any property owned, leased to,
controlled by, used by or adjacent to that of Mattson or any Mattson
Subsidiary.
A-24
<PAGE>
(b) Environmental Permits. Mattson and each Mattson Subsidiary have
obtained or have applied for all Environmental Permits necessary for the
construction of their facilities or the conduct of their operations, and
all such Environmental Permits are in good standing or, where applicable, a
renewal application has been timely filed and is pending agency approval,
and Mattson and each Mattson Subsidiary is in compliance with all terms and
conditions of the Environmental Permits, except where the failure to be in
compliance would not in the aggregate reasonably be expected to have a
Mattson Material Adverse Effect, and Mattson believes that any transfer,
renewal or reapplication for any Environmental Permit required as a result
of the Strategic Business Combination can be accomplished in the ordinary
course of business.
(c) Environmental Claims. There are no Environmental Claims pending or
threatened (i) against Mattson or any Mattson Subsidiary, any subsidiary or
joint ventures, or (ii) against any real or personal property or operations
Mattson or any Mattson Subsidiary owns, leases or manages, in whole or in
part.
(d) Releases. To Mattson's knowledge, there have been no Releases of any
Hazardous Materials on, at, upon, into or from any property owned, leased
to, controlled by or used by Mattson or any Mattson Subsidiary, nor has
there been any Release of Hazardous Materials, including, but, not limited
to, the off-site disposal of Hazardous Materials, that would reasonably be
expected to form the basis of any Environmental Claim against Mattson or
any Mattson Subsidiary, except any Environmental Claims that, individually
or in the aggregate, would not have a Mattson Material Adverse Effect.
(e) USTs, ACM and Lead-Based Paint. To Mattson's knowledge, there are no
underground storage tanks or related piping located on, at, upon, into or
from any property owned, leased to, controlled by or used by Mattson or any
Mattson Subsidiary, nor is there any asbestos or asbestos-containing
material or lead-based paint in, on or at any property or any facility or
equipment owned, leased or operated in connection with the business of
Mattson or any Mattson Subsidiary which would reasonably be expected to
result in a Mattson Material Adverse Effect.
(f) Predecessors. Mattson has no knowledge of any Environmental Claim
pending or threatened, or of any Release of Hazardous Materials that would
reasonably be likely to form the basis of any Environmental Claim, in each
case against any person or entity (including, without limitation, any
predecessor of Mattson or any Mattson Subsidiary) whose liability Mattson
has or may have retained or assumed either contractually or by operation of
law or against any real or personal property which Mattson or any Mattson
Subsidiary formerly owned, leased or managed, in whole or in part which
would reasonably be expected to result in a Mattson Material Adverse
Effect.
4.14 Litigation.
(a) Except as disclosed in Section 4.14 of the Mattson Disclosure
Schedule hereto or in the Mattson Financial Statements (including the notes
thereto), there are no actions, suits, arbitrations, regulatory proceedings
or other litigation, proceedings or governmental investigations by or
before any court, arbitration or Governmental Entity which is now pending
or, to Mattson's knowledge, threatened (in writing) against or affecting
Mattson, Mattson Subsidiaries or any of their officers or directors in
their capacity as such, or any of their respective properties or businesses
which, if decided adversely to Mattson or the Mattson subsidiaries, would
reasonably be expected to have a Mattson Material Adverse Effect. Except as
set forth in Section 4.14 of the Mattson Disclosure Schedule, all of the
proceedings pending against Mattson and Mattson Subsidiaries are covered
and being defended by insurers (subject to such deductibles as are set
forth in such Schedule). Except as disclosed in Section 4.14 of the Mattson
Disclosure Schedule hereto, neither Mattson nor any Mattson Subsidiary is
currently subject to any order, judgment, decree, injunction, stipulation
or consent order of or with any court or other Governmental Entity. Since
January 1, 2000, neither Mattson nor any Mattson Subsidiary has entered
into any agreement to settle or compromise any proceeding pending or
threatened against it which has involved any obligation other than the
payment of money or for which Mattson or any Mattson Subsidiary, as the
case may be, has any continuing obligation.
A-25
<PAGE>
(b) There are no claims, actions, suits, proceedings, or investigations
pending or, to Mattson's knowledge, threatened (in writing) by or against
Mattson with respect to this Agreement or in connection with the
transactions contemplated hereby.
(c) Except as set forth in Section 4.14 of the Mattson Disclosure
Schedule, to Mattson's knowledge, there are no pending or threatened (in
writing) claims against any director, officer, employee or agent of Mattson
or the Mattson Subsidiaries, in their capacity as such, or any other Person
which, if decided adversely to such Person would reasonably be expected to
give rise to any claim for indemnification against Mattson or any Mattson
Subsidiary.
4.15 Compliance with Applicable Laws. Except as disclosed in Section 4.15 of
the Mattson Disclosure Schedule hereto, Mattson and each Mattson Subsidiary
holds all permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities which are required for the operation of its business,
except those the absence of which would not reasonably be expected to have a
Mattson Material Adverse Effect (the "Mattson Permits"). Mattson and each
Mattson Subsidiary is in compliance with the terms of Mattson Permits, except
where the failure so to comply would not reasonably be expected to have a
Mattson Material Adverse Effect. Except as disclosed in Section 4.15 of the
Mattson Disclosure Schedule, to Mattson's knowledge, Mattson and each Mattson
Subsidiary is not in violation of any law, ordinance or regulation of any
Governmental Entity, except for possible violations which individually and in
the aggregate do not have a Mattson Material Adverse Effect.
4.16 Contracts; No Defaults. Except as described in Section 4.16 of the
Mattson Disclosure Schedule, neither Mattson nor any Mattson Subsidiary is a
party to or subject to any agreement, contract, or commitment, written or, to
the knowledge of Mattson, oral (including, without limitation, leases of real
property), which (i) has expected receipts or expenditures by Mattson or any
Mattson Subsidiary, alone or in the aggregate, in excess of $2 million, other
than purchase orders from customers and purchase orders to suppliers in the
ordinary course of business, (ii) requires, as its primary purpose, Mattson or
any Mattson Subsidiary to indemnify any Person, (iii) grants any exclusive
material licenses or distributorships to any party, (iv) evidences indebtedness
for borrowed or loaned money of $1 million or more, including guarantees of
such indebtedness (other than trade accounts receivable and trade accounts
payable), or (v) has an initial term of more than one year and is not
cancelable without significant penalties by Mattson or any Mattson Subsidiary
on 60 days' or less notice or (other than employment agreements with a current
term of three years or less) (each of the items described under (i) through
(v), a "Material Contract"). Neither Mattson nor any Mattson Subsidiary is in
default or alleged to be in default under any such Material Contract and, to
Mattson's knowledge, no other party thereto is in default except as would not
reasonably be expected to have a Mattson Material Adverse Effect. To Mattson's
knowledge, nothing has occurred which, with or without the passage of time or
giving of notice or both, would constitute a default by Mattson or any Mattson
Subsidiary or by any other party under any such Material Contract except as
would not reasonably be expected to have a Mattson Material Adverse Effect.
Mattson has not received any written or, to its knowledge, oral, notification
that any such Material Contract is not likely to be renewed. The Strategic
Business Combination contemplated by this Agreement will not create a default
under or permit the termination of or otherwise adversely affect any such
Material Contract in a manner that would reasonably be expected to have a
Mattson Material Adverse Effect. Except as described in Section 4.16 of the
Mattson Disclosure Schedule hereto, neither Mattson nor any Mattson Subsidiary
is required to give any notice to any person regarding this Agreement or the
transactions contemplated hereby pursuant to the terms of any such Material
Contract.
4.17 Change in Control and Severance Payments. Except as set forth in
Section 4.17 of the Mattson Disclosure Schedule, neither Mattson nor any
Mattson Subsidiary has any material plans, programs or agreements to which it
is a party, or to which it is subject, pursuant to which payments (or
acceleration of benefits) may be required upon, or may become payable directly
or indirectly as a result of, or by reason of the consummation of the Strategic
Business Combination.
4.18 Year 2000. As of the date hereof, the computer systems used by Mattson,
any Mattson Subsidiary and any third party service providers used by either of
the foregoing have not exhibited any material
A-26
<PAGE>
deficiencies with respect to formatting for the Year 2000 Problem. All issues
and modification, if any, regarding Year 2000 Problem compliance by Mattson or
Mattson Subsidiaries have been resolved by third-party service providers and
Mattson. To Mattson's knowledge, there is no inability on the part of any
customer, insurance company or service provider with which Mattson or Mattson
Subsidiaries transact business to timely remedy their own deficiencies in
respect of the Year 2000 Problem, which inability, individually or in the
aggregate, would reasonably be expected to have a Mattson Material Adverse
Effect.
4.19 Brokers and Finders. Except for Alliant Partners, neither Mattson nor
any officer, director, or employee of Mattson has employed any brokers, finder
or investment banker or incurred any liability for any brokerage or investment
banking fees, commissions or finders' fees in connection with the transactions
contemplated by this Agreement.
4.20 Opinion of Financial Advisor. Mattson has received the opinion of
Alliant Partners to the effect that the shares of Mattson Common Stock to be
issued to STEAG in the Strategic Business Combination and the shares of Mattson
Common Stock to be issued to stockholders of CFM pursuant to the CFM Merger,
taken together, are fair from a financial point of view to the holders of
Mattson Common Stock, and a true and correct copy of such opinion has been
provided to STEAG.
4.21 Vote Required. The approval of the Mattson Stockholder Proposal by the
affirmative vote of a majority of the votes cast in person or by proxy by the
holders of Mattson Common Stock is the only vote of the holders of any class or
series of the capital stock of Mattson required to approve the Mattson
Stockholder Proposal.
4.22 Investment Company Act. Mattson and each Mattson Subsidiary (i) is not
an "investment company," or a company "controlled" by, or an "affiliated
company" with respect to, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended (the "Investment Company Act"), or
(ii) satisfies all conditions for an exemption from the Investment Company Act,
and, accordingly, neither Mattson nor any Mattson Subsidiary is required to be
registered under the Investment Company Act.
4.23 CFM Agreement. Mattson has furnished to STEAG a true and complete copy
of the proposed CFM Agreement, as well as the disclosure schedules thereto and
the proposed related stock option and voting agreements contemplated by the
recitals thereto, in each case in the form in which such document is being
executed by the respective parties thereto concurrently with the execution of
this Agreement by STEAG and Mattson.
ARTICLE V.
CONDUCT PRIOR TO THE CLOSING
5.1 Conduct of Business of STEAG Subsidiaries. During the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement or the Closing, STEAG and Newco agree (except to the extent
expressly contemplated by this Agreement or as consented to in writing by
Mattson), to carry on the business of the STEAG Subsidiaries in the ordinary
course in substantially the same manner as heretofore conducted; to pay and to
cause to be paid the debts and Taxes of the STEAG Subsidiaries when due subject
to good faith disputes over such debts or Taxes, to pay or perform other
obligations when due, and to use all reasonable efforts to preserve intact its
present business organizations, keep available the services of the present
officers, employees and consultants of the STEAG Subsidiaries and preserve the
STEAG Subsidiaries' relationships with customers, suppliers, distributors,
licensors, licensees, and others having business dealings with the STEAG
Subsidiaries. STEAG agrees to promptly notify Mattson of any event or
occurrence described in clauses (a) through (s) below. Without limiting the
foregoing, except as expressly contemplated by this
A-27
<PAGE>
Agreement (including with respect to the formation and capitalization of Newco
and the transfer of the Foreign Subsidiaries Shares to Newco) or Section 5.1 of
the STEAG Disclosure Schedule, STEAG shall not allow, cause or permit any of
the STEAG Subsidiaries to do, cause, or permit any of the following as to any
of them, without the prior written consent of Mattson:
(a) Charter Documents. Cause or permit any amendments to any of their
Memorandum and Articles of Association (Satzung), Management Board
(Vorstand) Rules of Procedure (Geschaftsordnung), Articles, Bylaws, or
other applicable organizational or charter documents;
(b) Dividends; Change in Capital Stock. Declare or pay any dividends on
or make any other distributions (whether in cash, stock, or property) in
respect of any of their capital stock, or split, combine, or reclassify any
of their capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of, or in substitution for shares of
their capital stock, or repurchase or otherwise acquire, directly or
indirectly, any shares of their capital stock except from former employees,
directors, and consultants in accordance with agreements providing for the
repurchase of shares in connection with any termination of service;
(c) Stock Option Plans, Etc. Accelerate, amend, or change the period of
exercisability or vesting of options or other rights granted under any of
their stock plans or authorize cash payments in exchange for any options or
other rights granted under any of such plans;
(d) Issuance of Securities. Issue, deliver, or sell or authorize or
propose the issuance, delivery, or sale of, or purchase or propose the
purchase of, any shares of their capital stock or securities convertible
into, or subscriptions, rights, warrants, or options to acquire, or other
agreements or commitments of any character obligating them to issue any
such shares or other convertible securities other than the issuance of
shares of their common stock pursuant to the exercise of stock options,
warrants, or other rights therefore outstanding as of the date of this
Agreement;
(e) Intellectual Property. Transfer to any person or entity any rights
to STEAG Intellectual Property other than in the ordinary course of
business consistent with past practice;
(f) Exclusive Rights. Enter into or amend any agreements pursuant to
which any other party is granted exclusive marketing or other exclusive
rights of any type or scope with respect to any of the STEAG Products or
STEAG Intellectual Property;
(g) Dispositions. Sell, lease, license, or otherwise dispose of or
encumber any of their properties or assets which are material individually
or in the aggregate, to the STEAG Subsidiaries, taken as a whole, except in
the ordinary course of business, consistent with past practice;
(h) Indebtedness. Incur any indebtedness for borrowed money or guarantee
any such indebtedness or issue or sell any debt securities or guarantee any
debt securities of others other than intercompany loans from STEAG or any
of its affiliates which loans will be cancelled at or prior to Closing;
(i) Agreements. Enter into, terminate, or amend, in a manner which will
adversely affect the business of the STEAG Subsidiaries (i) any agreement
involving an obligation to pay or the right to receive $2,000,000 or more,
(ii) any agreement relating to the license, transfer, or other disposition
or acquisition of STEAG Intellectual Property rights or rights to market or
sell STEAG Products, or (iii) any other agreement which is or would be a
Material Contract, other than, in the case of clauses (i), (ii) and (iii),
in the ordinary course of business;
(j) Payment of Obligations. Pay, discharge, or satisfy in an amount in
excess of $2,000,000 in the aggregate, any claim, liability, or obligation
(absolute, accrued, asserted or unasserted, contingent, or otherwise)
arising other than in the ordinary course of business, other than the
payment, discharge, or satisfaction of liabilities reflected or reserved
against in the STEAG Financial Statements;
A-28
<PAGE>
(k) Capital Expenditures. Make any capital expenditures, capital
additions, or capital improvements in excess of $2,000,000 beyond the
aggregate amounts provided in the operation plans for the STEAG
Subsidiaries in effect on the date of the Agreement;
(l) Insurance. Materially reduce the amount of any material insurance
coverage provided by existing insurance policies, other than in the
ordinary course of business;
(m) Termination or Waiver. Terminate or waive any right of substantial
value, other than in the ordinary course of business;
(n) Employee Benefit Plans; New Hires; Pay Increases. Amend any STEAG
Employee Plan or STEAG International Employee Plan or adopt any plan that
would constitute a STEAG Employee Plan or STEAG International Employee Plan
except as required by law, regulation or tax qualification requirement,
hire any new executive officer-level employee or hire additional employees
such that the number of worldwide employees of the STEAG Subsidiaries
exceeds, in aggregate, 120% of the worldwide aggregate number of such
employees on the date of this Agreement, pay any special bonus (except
payments made pursuant to written agreements outstanding on the date
hereof), or increase the benefits, salaries, or wage rates of its employees
except in the ordinary course of business in accordance with its standard
past practice; provided, that the STEAG Subsidiaries may pay such
reasonable special bonuses and grant such reasonable increases in salaries,
wages and other benefits as STEAG deems appropriate in order to attract or
retain its employee work force and management personnel at levels
consistent with current practice;
(o) Severance Arrangements. Grant any severance or termination pay or
benefits (i) to any director or officer or (ii) to any other employee of a
US STEAG Subsidiary except payments made pursuant to written agreements
outstanding on the date hereof and/or disclosed on the STEAG Disclosure
Schedule and except for reasonable severance or termination arrangements as
STEAG deems appropriate in order to attract or retain its employee work
force and management personnel at levels consistent with current practice;
(p) Acquisitions. Acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets
of, or by any other manner, any business or any corporation, partnership,
association, or other business organization or division thereof or
otherwise acquire or agree to acquire any assets which are material
individually or in the aggregate, to the business of any of the STEAG
Subsidiaries;
(q) Taxes. Other than in the ordinary course of business, make or change
any material election in respect of Taxes, adopt or change any material
accounting method in respect of Taxes, file any material Tax Return or any
amendment to a material Tax Return, enter into any closing agreement
pertaining to material matters, settle any material claim or assessment in
respect of Taxes, or consent to any extension or waiver of the limitation
period applicable to any material claim or assessment in respect of Taxes;
(r) Revaluation. Revalue any of its assets, including without limitation
writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business or as required by
applicable law or regulations; or
(s) Other. Agree in writing or otherwise to take, any of the actions
described in Sections 5.1(a) through (r) above, or take any action which
would cause a material breach of its representations or warranties
contained in this Agreement or prevent it from materially performing or
cause it not to materially perform its covenants hereunder.
5.2 Conduct of Business of Mattson. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Closing, Mattson agrees (except to the extent expressly contemplated by
this Agreement or as consented to in writing by STEAG), to carry on the
business of Mattson in the ordinary course in substantially the same manner as
heretofore conducted; to pay and to
A-29
<PAGE>
cause to be paid the debts and Taxes of Mattson and the Mattson Subsidiaries
when due subject to good faith disputes over such debts or Taxes and to pay or
perform other obligations when due, and to use all reasonable efforts to
preserve intact its present business organizations, keep available the services
of the present officers, key employees and consultants of Mattson and preserve
Mattson's relationships with customers, suppliers, distributors, licensors,
licensees, and others having business dealings with Mattson, to the end that
Mattson's good will and ongoing businesses shall be unimpaired at the Closing.
Mattson agrees to promptly notify STEAG of any event or occurrence not in the
ordinary course of business for Mattson, and of any event which could have a
Mattson Material Adverse Effect. Without limiting the foregoing, except as
expressly contemplated by this Agreement or Section 5.2 of the Disclosure
Schedule, Mattson shall not do, cause, or permit any of the following, without
the prior written consent of STEAG:
(a) Charter Documents. Cause or permit any amendments to its Certificate
of Incorporation or Bylaws;
(b) Dividend; Changes in Capital Stock. Declare or pay any dividends on
or make any other distributions (whether in cash, stock, or property) in
respect of any of its capital stock, or split, combine, or reclassify any
of its capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of, or in substitution for shares of
their capital stock, or repurchase or otherwise acquire, directly or
indirectly, any shares of its capital stock except from former employees,
directors, and consultants in accordance with agreements providing for the
repurchase of shares in connection with any termination of service;
(c) Transfer of Material Assets. Sell, transfer, convey, assign or
otherwise dispose of its material assets or properties, except sales of
inventory in the ordinary course of business, consistent with past
practice;
(d) Waiver of Claims. Waive, release or cancel any claims against third
parties or debts owing to it, or any rights which have any value in an
amount greater than $5,000,000;
(e) Change in Accounting. Make any changes in its accounting systems,
policies, principles or practices, other than as may be required by reason
of changes in GAAP or rules and regulations of the SEC pertaining to
accounting principles or practices;
(f) Capital Expenditures. Authorize or make any capital expenditures
which individually or in the aggregate are in excess of $25,000,000;
(g) Tax Elections. Make or change any Tax election or Tax accounting
method or settle or compromise any material federal, state, local or
foreign Tax dispute, or waive or extend the statute of limitations in
respect of any such Taxes or make any other Tax filings other than in the
ordinary course of business and consistent with past practice or incident
to the filing for extensions for Tax Reports;
(h) Settlement. Pay or agree to pay any amount in settlement or
compromise of any suits or claims of liability in an amount more than
$10,000,000;
(i) Issuances. Issue, sell, transfer, pledge, dispose of or encumber any
shares of, or securities convertible into or exchangeable for, or options,
warrants, calls, commitments or rights of any kind to acquire, any shares
of capital stock of any class or series of Mattson or any of its
Subsidiaries, other than (i) issuances of Common Stock pursuant to the
exercise of employee or director stock options outstanding on the date of
this Agreement or that are granted in accordance with clause (iii) below,
(ii) the issuance of up to 4,500,000 shares of Mattson Common Stock, plus
the assumption of unexercised options to purchase stock of CFM, in the CFM
Merger, (iii) additional options or stock-based awards to acquire Mattson
Common Stock granted under the terms of any employee or director stock
option or compensation plan or arrangement of Mattson as in effect as of
this Agreement in the ordinary course consistent with past practice, or
(iv) the issuance of up to 2,000,000 shares of Mattson Common Stock in
connection with acquisitions of assets or businesses;
A-30
<PAGE>
(j) Certain Transactions. Adopt a plan or agreement of complete or
partial liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization of Mattson or any of its
significant Subsidiaries, other than transactions permitted under Sections
5.3(b) and (c);
(k) Dispositions. Sell, lease, license or otherwise dispose of any of
their properties or assets which are material individually or in the
aggregate to the business of Mattson and its subsidiaries, taken as a
whole, except in the ordinary course of business, consistent with past
practice; or
(l) Other. Take or agree in writing or otherwise to take, any of the
actions described in Sections 5.2(a) through (k) above, or any action which
would cause a material breach of its representations or warranties
contained in this Agreement or prevent it from materially performing or
cause it not to materially perform its covenants hereunder.
5.3 Other Negotiations.
(a) Prior to the termination of this Agreement pursuant to Article VIII
(the "Exclusivity Period"), STEAG will not (and it will use its best
efforts to assure that its officers, directors, employees, agents and
affiliates do not on its behalf) take any action (directly or indirectly)
to solicit, initiate, seek, encourage or support any inquiry, proposal or
offer (whether written or oral) from, furnish any information to, or
participate in any negotiations with, any corporation, partnership, person
or other entity or group (other than discussions with Mattson) regarding
any acquisition of STEAG or the STEAG Subsidiaries, any merger or
consolidation with or involving STEAG or the STEAG Subsidiaries, or any
acquisition of any material portion of the stock or assets of STEAG or any
of the STEAG Subsidiaries. STEAG agrees that any such negotiations in
progress as of the date hereof will be terminated or suspended during the
Exclusivity Period. During the Exclusivity Period, STEAG will immediately
notify Mattson regarding any contact by any third party regarding any
offer, proposal or inquiry regarding any such acquisition or financing of
STEAG or any of the STEAG Subsidiaries. In no event will STEAG or any of
the STEAG Subsidiaries accept or enter into an agreement concerning any
such third party transaction during the Exclusivity Period. During the
Exclusivity Period, STEAG will immediately notify Mattson regarding any
contact by any third party regarding any offer proposal or inquiry
regarding any such acquisition.
(b) During the Exclusivity Period, Mattson will not (and it will use its
best efforts to assure that its officers, directors, employees, agents and
affiliates do not on its behalf) take any action (directly or indirectly)
to solicit, initiate, seek, or encourage any inquiry, proposal or offer
(whether written or oral) from any corporation, partnership, person or
other entity or group (other than discussions with STEAG), or, except in
response to an unsolicited inquiry, proposal or offer (whether written or
oral) from any such person, furnish any information to, or participate in
any negotiations with any such person, regarding (i) any merger or
consolidation with or involving Mattson which results in the stockholders
of Mattson prior to such transaction owning less than 50% of the capital
stock of the surviving corporation, or any acquisition of any material
portion of the stock or assets of Mattson (an "Acquisition Transaction") or
(ii) any acquisition, whether by merger, stock acquisition, asset
acquisition, joint venture, partnership or otherwise, by Mattson of any
business which competes with STEAG or the STEAG Subsidiaries in the RTP,
CVD, wet processing or copper businesses. Mattson agrees that any such
negotiations in progress as of the date hereof will be terminated or
suspended during the Exclusivity Period. In no event will Mattson accept or
enter into an agreement concerning any such third party transaction during
the Exclusivity Period. During the Exclusivity Period, Mattson will
immediately notify STEAG regarding any contact by any third party regarding
any offer, proposal or inquiry regarding any such acquisition.
(c) Notwithstanding the foregoing provisions of this Section 5.3,
Mattson and STEAG will each have the right to conduct discussions with and
furnish information to CFM with regard to the CFM Merger and the Strategic
Business Combination, and further provided that Mattson and STEAG agree to
provide each other prompt updates regarding any such discussions.
Notwithstanding the foregoing provisions of this paragraph 5.3, Mattson is
permitted to pursue negotiations with and furnish information in connection
with potential transaction(s) disclosed to STEAG in writing prior to the
date of this Agreement, and to enter into and consummate agreements to
effectuate such transaction(s).
A-31
<PAGE>
5.4 German Counterpart Agreement. As promptly as practicable following the
date of this Agreement, Mattson and STEAG shall execute and deliver the German-
law-governed agreement attached as Exhibit D hereto (the "Counterpart
Agreement"), which shall be notarized in accordance with German law or as
otherwise agreed among the parties.
ARTICLE VI.
ADDITIONAL AGREEMENTS AND COVENANTS
6.1 Covenant to Satisfy Conditions. Subject to the terms and conditions
hereof, each party hereto shall use its reasonable commercial efforts to take
all action required of it to satisfy the conditions set forth in Article VII,
and otherwise to fulfill its obligations under the terms of this Agreement and
to facilitate the consummation of the transactions contemplated hereby. No
party shall, nor shall any party permit any of its subsidiaries to, willfully
take any action that would or is reasonably likely to result in a material
breach of any provision of this Agreement or in any of its representations and
warranties set forth in this Agreement being untrue in any material respect on
and as of the Closing Date.
6.2 Proxy Materials and Stockholder Approval. As soon as practicable after
the date hereof, Mattson will prepare and file with the SEC, at its own
expense, a joint proxy statement/prospectus relating to the Mattson Stockholder
Proposal (the "Proxy Statement") to be presented for voting and adoption at
meetings of the Mattson stockholders (the "Mattson Stockholders' Meeting") and
the shareholders of CFM. Mattson will duly call, give notice of, convene and
hold the Mattson Stockholders' Meeting as promptly as practicable to consider
and vote on the Mattson Stockholder Proposal. Subject to its fiduciary
obligations under applicable law, the Board of Directors of Mattson shall
recommend to Mattson's stockholders the approval of the Mattson Stockholder
Proposal. The Proxy Statement will comply as to form in all material respects
with all applicable laws, including the Securities Exchange Act of 1934, as
amended. STEAG shall provide such information about the STEAG Subsidiaries as
Mattson shall reasonably request. The information supplied by Mattson for
inclusion in the Proxy Statement shall not, on the date the Proxy Statement is
first mailed to Mattson's stockholders or at the Closing, contain any statement
which, at such time, is false or misleading with respect to any material fact,
or omit to state any material fact necessary in order to make the statements
made therein, in light of the circumstances under which they are made, not
false or misleading, or omit to state any material fact necessary to correct
any statement in any earlier communication which has become false or
misleading. Notwithstanding the foregoing, Mattson makes no representation,
warranty or covenant with respect to any information supplied by STEAG in
writing expressly for inclusion in the Proxy Statement. The information
supplied by STEAG in writing expressly for inclusion in the Proxy Statement
shall not, on the date the Proxy Statement is first mailed to Mattson's
stockholders, nor at the Closing, contain any statement which, at such time, is
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements therein, in light of
the circumstances under which it is made, not false or misleading; or omit to
state any material fact necessary to correct any statement in any earlier
communication which has become false or misleading. Notwithstanding the
foregoing, STEAG makes no representation, warranty or covenant with respect to
any information contained in the Proxy Statement which was not provided in
writing by STEAG expressly for inclusion in the Proxy Statement. Each of STEAG
and Mattson agrees to provide promptly to the other such information concerning
its business and financial statements and affairs as, in the reasonable
judgment of the providing party or its counsel, may be required or appropriate
for inclusion in the Proxy Statement or in any amendments or supplements
thereto, and to cause its counsel and auditors to cooperate with the other's
counsel and auditors in the preparation of the Proxy Statement. Mattson will
promptly advise STEAG, and STEAG will promptly advise Mattson, in writing if at
any time prior to the Closing either Mattson or STEAG shall obtain knowledge of
any facts that might make it necessary or appropriate to amend or supplement
the Proxy Statement in order to make the statements contained or incorporated
by reference therein not misleading or to comply with applicable law (including
information relating to CFM). If at any time prior to the Closing Date any
event with respect to Mattson, its officers, and directors or any of its
subsidiaries shall occur which is or should be described in an amendment of, or
a
A-32
<PAGE>
supplement to, the Proxy Statement, such event shall be so described and the
presentation in such amendment or supplement of such information will not
contain any statement which, at the time and in light of the circumstances
under which it is made, is false or misleading in any material respect or omits
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not false or misleading.
6.3 Integration Committee. To facilitate transition and integration
planning, Mattson, STEAG and CFM will maintain an integration committee (the
"Integration Committee") consisting of the CEO's of Mattson, CFM and STEAG, Dr.
Ludger Viefhues and the future head of integration planning for Mattson, which
will continue to develop the organization and staffing plan prior to Closing.
As of the Closing, the Mattson Board of Directors will establish and appoint in
accordance with the procedures for establishing committees set forth in
Mattson's By-laws an "Executive Staffing Committee," consisting of Dr. Jochen
Melchior and Brad Mattson (and, if agreed by Mattson and STEAG, one additional
representative of each of STEAG and Mattson), which will remain in place for
one year following closing, and will be responsible during that period for
making key personnel decisions (including the hiring and firing of CEO, CFO,
COO, general managers for divisions). A mutually acceptable independent Mattson
board member will be appointed as a tiebreaker in the event the Executive
Staffing Committee reaches deadlock on an issue.
6.4 Employee Benefits. For a period of two years following the Closing,
Mattson will provide or cause benefits to be provided to all employees of the
STEAG Subsidiaries who were employees of US STEAG Subsidiaries who were so
employed immediately prior to the Closing ("STEAG Employees") that are no less
favorable in the aggregate to the benefits provided to the STEAG Employee on
the date of this Agreement, and thereafter will provide STEAG Employees with
benefits comparable to those provided to similarly-situated and located
employees of Mattson. Time of service with STEAG Subsidiaries shall be credited
for all purposes, other than benefit accrual, under any comparable plans
maintained by Mattson, except to the extent such credit would result in a
duplication of benefits. Notwithstanding the foregoing, to the extent a Mattson
sabbatical plan remains in effect for employees in a particular country, the
service credited to STEAG Employees under the Mattson employee benefit programs
shall not be considered for purposes of eligibility to participate in Mattson's
sabbatical plan. Mattson and STEAG agree that where applicable with respect to
any medical or dental benefit plan of Mattson, (i) Mattson shall waive, with
respect to any STEAG Employee, any pre-existing condition exclusion and
actively-at-work requirements (to the extent such exclusion or requirement
would not have applied under the applicable Mattson employee benefit plan) and
(ii) any covered expenses incurred on or before the Closing by a STEAG Employee
or a STEAG Employee's covered dependents shall be taken into account for
purposes of satisfying applicable deductible, coinsurance and maximum out-of-
pocket provisions after the Closing to the same extent as such expenses would
be taken into account if incurred by similarly situated employees of Mattson.
STEAG Employees shall receive compensation no less favorable than their current
salaries. Mattson acknowledges the obligations of German companies toward their
employees. Mattson shall provide continuation health care coverage to all STEAG
Employees and their qualified beneficiaries who incur a qualifying event after
the Closing Date in accordance with and to the extent required, under the
continuation health care coverage requirements of Section 4980D of the Code and
Sections 601 through 608 of ERISA ("COBRA"). STEAG shall be responsible for
providing continuation coverage and all related notices to the extent required
by law to any STEAG Employee (or qualified beneficiary) who incurs a
"qualifying event" under COBRA on or before the Closing Date. STEAG and/or the
relevant STEAG Subsidiary, as applicable, will terminate the STEAG RTP Systems
Inc. 401(k) Savings Plan immediately prior to Closing, unless Mattson, in its
sole and absolute discretion, agrees to sponsor and maintain such plan by
providing STEAG with written notice of such election at thirty (30) days before
the Closing Date. Unless Mattson provides such notice to STEAG, Mattson shall
receive from STEAG evidence that the STEAG RTP Systems Inc. 401(k) Savings Plan
has been terminated pursuant to resolutions of the relevant STEAG Subsidiary's
Board of Directors (the form and substance of which resolutions shall be
subject to review and approval by Mattson), effective as of the day immediately
preceding the Closing Date.
A-33
<PAGE>
6.5 Sale of Shares Pursuant to Regulation D. The parties hereto acknowledge
and agree that the Mattson Shares issuable to STEAG pursuant to Article II
hereof, shall constitute "restricted securities" under the Securities Act.
Until such time as such shares are no longer "restricted securities" under the
Securities Act, the certificates of Mattson Common Stock shall bear the legend
set forth in Section 2.5 hereof.
6.6 Access to Information.
(a) STEAG and its counsel and advisors shall have reasonable access
during normal business hours to all books, records, assets and contracts of
or relating to Mattson, and Mattson and its counsel and advisors shall have
reasonable access during normal business hours to all books, records,
assets and contracts of or relating to the STEAG Subsidiaries, in each case
to complete such party's respective diligence investigation for the
purposes of the Strategic Business Combination. Key personnel shall be made
available by each party as necessary to assist in this diligence effort.
Each party will permit the other party on prior notice to contact key
customers and suppliers as part of the due diligence process.
(b) Subject to compliance with applicable law, from the date hereof
until the Closing, each of Mattson and STEAG shall confer on a regular and
frequent basis with one or more representatives of the other party to
report material operational matters and the general status of ongoing
operations.
(c) No information or knowledge obtained in any investigation pursuant
to this Section 6.6 shall affect or be deemed to modify any representation
or warranty contained herein or the conditions to the obligations of the
parties to consummate the transactions contemplated hereby. Notwithstanding
the foregoing sentence, to the extent that either Mattson or STEAG obtains
information which the receiving party knows the failure of which to include
in the STEAG Disclosure Schedule or the Mattson Disclosure Schedule, as the
case may be, would result in a breach of a representation and warranty
herein by the other party, then the party that first obtained such
information shall promptly notify the other in writing of such information
and such other party may supplement or amend the STEAG Disclosure Schedule
or the Mattson Disclosure Schedule, as the case may be; provided, however,
that, if the disclosure pursuant to such supplement or amendment would
constitute a basis pursuant to Section 7.2(b) or Section 7.3(b), as the
case may be, under which Mattson or STEAG, respectively, would have the
right to not consummate the Strategic Business Combination and the
transactions contemplated hereby, then Mattson or STEAG shall have ten (10)
days from the date of such amendment or supplement being delivered to the
other party pursuant to Section 10.1 to terminate this Agreement pursuant
to Section (h) or (i), respectively, after which such amendment or
supplement shall be deemed accepted. Notwithstanding any other provision
hereof, if the Closing occurs, any such supplement or amendment of the
STEAG Disclosure Schedule or the Mattson Disclosure Schedule, as the case
may be, will be effective to cure and correct for all purposes any breach
of any representation, warranty or covenant which would have existed by
reason of STEAG or Mattson, respectively, not having made such supplement
or amendment.
6.7 Confidentiality. The parties acknowledge that Mattson and STEAG have
previously executed a Mutual Non-Disclosure Agreement dated February 25, 2000
(the "Non-Disclosure Agreement"), which Non-Disclosure Agreement is hereby
incorporated herein by reference and shall continue in full force and effect in
accordance with its terms.
6.8 Public Disclosure. Unless otherwise permitted by this Agreement, Mattson
and STEAG shall consult with each other before issuing any press release or
otherwise making any public statement or making any other public (or non-
confidential) disclosure (whether or not in response to an inquiry) regarding
the terms of this Agreement and the transactions contemplated hereby, and
neither shall issue any such press release or make any such statement or
disclosure without the prior approval of the other (which approval shall not be
unreasonably withheld), except as may be required by law or by obligations
pursuant to any listing agreement with any national securities exchange or with
the NASDAQ Stock Market (in which case the disclosing party shall, to the
extent practicable within the time available to comply therewith, use its
reasonable efforts to obtain the consent of the other party prior to such
disclosure).
A-34
<PAGE>
6.9 Regulatory Approval; Further Assurances.
(a) Each party shall use all reasonable efforts to file, as promptly as
practicable after the date of this Agreement, all notices, reports, and
other documents required to be filed by such party with any Governmental
Entity with respect to the Strategic Business Combination and the other
transactions contemplated by this Agreement, and to submit promptly any
additional information requested by any such Governmental Entity. Without
limiting the generality of the foregoing, STEAG and Mattson shall, promptly
after the date of this Agreement, prepare and file the notifications
required under the HSR Act in connection with the Strategic Business
Combination, and such filings as are required under the Act Against
Restraints on Competition of 1958 (Gesetz gegen Wettbewerbsbeschrankungen).
Each party shall use all reasonable efforts to furnish to each other all
information required for any application or other filing to be made
pursuant hereto in connection with the Strategic Business Combination and
the other transactions contemplated by this Agreement. STEAG and Mattson
shall respond as promptly as practicable to (i) any inquiries or requests
received from the Federal Trade Commission or the Department of Justice for
additional information or documentation and (ii) any inquiries or requests
received from any state attorney general or other Governmental Entity in
connection with antitrust or related matters. Each of STEAG and Mattson
shall give the other party prompt notice of the commencement of any Legal
Proceeding by or before any Governmental Entity with respect to the
Strategic Business Combination or any of the other transactions
contemplated by this Agreement, keep the other party informed as to the
status of any such Legal Proceeding, and promptly inform the other party of
any communication to or from, and any proposed undertaking or agreement
with the Federal Trade Commission, the Department of Justice or any other
Governmental Entity regarding any such filings or the Strategic Business
Combination. STEAG and Mattson will consult and cooperate with one another
in connection with any analysis, appearance, presentation, memorandum,
brief, argument, opinion, or proposal made or submitted in connection with
any Legal Proceeding under or relating to the HSR Act, the Sherman Act, as
amended, the Clayton Act, as amended, the Federal Trade Commission Act, as
amended, and any other federal, state or foreign statutes, rules,
regulations, orders, decrees, administrative or judicial doctrines or other
laws that are designed to prohibit, restrict or regulate actions having the
purpose or effect of monopolization or restraint of trade (collectively,
"Antitrust Laws"). In addition, each party shall give the other prior
notice of, and except as may be prohibited by any Governmental Entity or by
any legal requirement, in connection with any Legal Proceeding under or
relating to the Antitrust Laws or any other similar Legal Proceeding, each
of STEAG and Mattson will permit authorized representatives of the other
party to be present at and participate in each meeting or conference
relating to any such Legal Proceeding and to have access to and be
consulted in connection with any document, opinion, or proposal made or
submitted to any Governmental Entity in connection with any such Legal
Proceeding.
(b) Each of Mattson and STEAG shall use all reasonable efforts to
resolve such objections, if any, as may be asserted by any Governmental
Entity with respect to the transactions contemplated by this Agreement
under the Antitrust Laws. In connection therewith, if any Legal Proceeding
is instituted (or threatened to be instituted) challenging any transaction
contemplated by this Agreement is violative of any Antitrust Law, each of
Mattson and STEAG shall cooperate and use all reasonable efforts vigorously
to contest and resist any such Legal Proceeding, and to have vacated,
lifted, reversed, or overturned any decree, judgment, injunction or other
order whether temporary, preliminary or permanent (each an "Order"), that
is in effect and that prohibits, prevents, or restricts consummation of the
Strategic Business Combination or any other transactions contemplated by
this Agreement, including, without limitation, by vigorously pursuing all
available avenues of administrative and judicial appeal and all available
legislative action, unless by mutual agreement Mattson and STEAG decide
that litigation is not in their respective best interests. Notwithstanding
the foregoing or any other provisions of this Agreement, nothing in this
Section 6.9(b) shall limit a party's right to terminate this Agreement
pursuant to Article VIII, so long as such party has up to then complied in
all material respects with its obligations under this Section 6.9(b). Each
of STEAG and Mattson shall use all reasonable efforts to take such action
as may be required to cause the expiration of the notice periods under the
HSR Act or other Antitrust Laws with respect to such transactions as
promptly as possible after the execution of this Agreement. Notwithstanding
anything to
A-35
<PAGE>
the contrary in this Agreement, neither Mattson nor STEAG shall be required
to hold separate (including by trust or otherwise) or divest any of their
respective businesses or assets.
6.10 Legal Requirements. Subject to 6.9(b), each of STEAG, and Mattson will,
and will cause their respective subsidiaries to, take all reasonable actions
necessary to comply promptly with all legal requirements which may be imposed
on them with respect to the consummation of the transactions contemplated by
this Agreement and will promptly cooperate with and furnish information to any
party hereto necessary in connection with any such requirements imposed upon
such other party in connection with the consummation of the transactions
contemplated by this Agreement and will take all reasonable actions necessary
to obtain (and will cooperate with the other parties hereto in obtaining) any
consent, approval, order or authorization of or any registration, declaration,
or filing with, any Governmental Entity or other person, required to be
obtained or made in connection with the taking of any action contemplated by
this Agreement.
6.11 Stock Option Grants. Effective on the Closing, the Board of Directors
of Mattson will grant options to purchase 850,000 shares of Mattson Common
Stock (as adjusted for any stock split, stock dividend, reverse stock split and
recapitalization) to directors, officers and employees of the STEAG
subsidiaries under existing Mattson Stock Option Plans, with an exercise price
equal to the fair market value of Mattson Common Stock on the date of the
Closing and with other terms consistent with outstanding Mattson Stock options.
6.12 Conveyance Taxes. STEAG and Mattson shall cooperate in the preparation,
execution, and filing of all returns, questionnaires, applications, or other
documents regarding any property transfer or gains, sales, use, value added,
stock transfer, and stamp Taxes, any transfer, recording, registration, and
other fees or any similar taxes that become payable in connection with the
transactions contemplated by this Agreement that are required or permitted to
be filed on or before the Closing. Each party shall pay any such Taxes or fees
imposed on it by any taxing authority (and any penalties and interest with
respect to such Taxes and fees) that become payable in connection with the
transactions contemplated by this Agreement.
6.13 STEAG Intercompany Indebtedness; Transfer to Newco.
(a) As soon as practicable after the date of this Agreement, STEAG will
cause agreements or instruments of transfer with respect to the transfer of
the Foreign STEAG Subsidiaries to Newco to be duly executed and, to the
extent necessary, filed or registered. Thereafter, STEAG will use
commercially reasonable efforts to cause Newco to become the owner, in
accordance with all applicable legal requirements, of the Foreign
Subsidiary Shares.
(b) As soon as practicable after the date of this Agreement but, in any
event, prior to the Closing, STEAG will take such action as is reasonably
necessary to cause all indebtedness of any of the STEAG Subsidiaries to
STEAG or any of its affiliates (other than another STEAG Subsidiary), other
than Excluded Indebtedness (as defined in the next sentence) to be
cancelled without any payment on the part of such STEAG Subsidiaries. The
term Excluded Indebtedness means: (i) accounts payable to STEAG Electronic
Systems spol s r.o.; (ii) any reimbursement obligations under any other
provision of this Agreement; (iii) rental payments owed under leases
between any STEAG Subsidiary and STEAG Walsum Immobilien AG; (iv)
obligations under the Profit Transfer Contracts; and (v) obligations to
reimburse payments made by STEAG to or on behalf of certain employees in
France. As of the date of this Agreement, the amount of indebtedness of the
STEAG Subsidiaries to STEAG that will be forgiven pursuant to this Section
6.13(b) is approximately DM 200,000,000.
6.14 Non-Solicitation of Employees. Mattson and STEAG each agrees that,
without the prior written consent of the other, it will not, and will cause its
controlled affiliates not to, during the term of this Agreement and for a
period of one year from the date of termination of this Agreement directly or
indirectly (including through instruction to its agents) solicit for employment
any person who is now employed by the other; provided however, that neither
Mattson nor STEAG nor any of their respective affiliates is prohibited from
making general, public solicitations for employment for any position or from
employing any current employee of the other party who contacts the party on his
or her own initiative and without impermissible solicitation by such party. The
obligations set forth in this Section 6.14 will survive the termination of this
Agreement.
A-36
<PAGE>
6.15 NASDAQ Listing. Mattson will use its reasonable commercial efforts to
cause the Mattson Shares issuable pursuant to the terms of this Agreement to be
approved for listing on NASDAQ, subject to official notice of issuance, as
promptly as practicable after the date of this Agreement and in any event prior
to the Closing.
6.16 Directors; Nominating Committee; Officers. Mattson shall cause the
actions required to be taken as of Closing under Section 1 of the Stockholder
Agreement to be taken on or prior to the Closing Date, including (a) causing
the Board of Directors of Mattson to be expanded from five (5) to seven (7)
members; (b) causing two (2) persons designated by STEAG to be appointed to the
Board of Directors of Mattson; (c) causing one of the STEAG designees to be
named Chairman of the Board of Directors of Mattson; and (d) causing Mattson's
Bylaws to be amended. During the period between the Early Condition
Satisfaction Date, if applicable, and the Closing Date, Mattson will provide
the STEAG designees with notice of all meetings of the Board (at such times and
with such additional information as is provided to current directors) and shall
permit such STEAG designees to attend, either in person or by videoconference,
all such meetings, subject to such STEAG designees agreeing to keep
confidential all information disclosed in connection with such meetings.
6.17 Name. The name of the company resulting from the Strategic Business
Combination (the "Company") will be Mattson or such other name, if any, which
the parties, acting through the Integration Committee, mutually determine to be
more beneficial to the company's business, such determination to be made in a
timely manner. In the event that a different name is agreed upon, Mattson shall
take such corporate and other action as is reasonably necessary to effect such
name change. Within one year after the Closing Date, Mattson will cause the
names of each of the STEAG Subsidiaries to be changed so as to no longer
include the name "STEAG," and from and after the first anniversary of the
Closing Date, Mattson shall, and shall cause its subsidiaries to, otherwise
discontinue the use of the name "STEAG". Notwithstanding the foregoing, Mattson
and its subsidiaries may continue to use any current product names and
trademarks containing the name "STEAG" to the extent associated with any
products currently manufactured and sold by the STEAG Subsidiaries, as well as
modified, but otherwise substantially similar, versions of such products.
6.18 Access to Business Records. From and after the Closing, each party
shall afford the other reasonable access to all preclosing business records of
or directly relating to the STEAG Subsidiaries, upon reasonable notice during
ordinary business hours for all reasonable business purposes, and each party
shall permit the other party to make copies of any such records and retain
possession of such copies.
ARTICLE VII.
CONDITIONS TO THE STRATEGIC BUSINESS COMBINATION
7.1 Conditions to Each Party's Obligation to Consummate the Strategic
Business Combination. The respective obligations of each party to consummate
the Strategic Business Combination shall be subject to the satisfaction on or
prior to the Closing Date of the following conditions, except that, to the
extent permitted by applicable law, such conditions may be waived in writing by
the joint action of the parties hereto; provided, however, that the condition
specified in Section 7.1(g) hereof may be waived only by a written instrument
executed by each of Mattson, STEAG and CFM:
(a) Stockholder Approval. The stockholders of Mattson shall have
approved the Mattson Stockholder Proposal in accordance with Mattson's
Certificate of Incorporation and By-laws, applicable state corporate laws
and the rules and listing requirements of NASDAQ and in accordance with
this Agreement.
(b) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction, or other order issued by any
court of competent jurisdiction or any other Governmental Entities, or
other legal or regulatory restraint or prohibition preventing the
consummation of the Strategic Business Combination shall be and remain in
effect, nor shall there be any action taken, or any law, statute, rule,
regulation, decree or order been enacted, adopted, entered, enforced, or
deemed applicable to the Strategic Business Combination, which remains in
effect and which makes the consummation of the Strategic Business
Combination illegal.
A-37
<PAGE>
(c) Regulatory Approval. Any waiting period applicable to the Strategic
Business Combination or any of the transactions contemplated hereby,
including but not limited to a waiting period under HSR Act or the Act
Against Restraint on Competition of 1958 (Gesetz gegen
Wettbewerbeschrenkuyen) shall have expired or been terminated, and any
other required U.S. or German regulatory approvals, including, but not
limited to, any approvals required by the German cartel office or the
European Union or any council, commission, or subdivision thereof, shall
have been obtained. STEAG and each of the STEAG Subsidiaries, and Mattson
shall have timely obtained from each Governmental Entity all approvals,
waivers, and consents, if any, necessary for consummation of the Strategic
Business Combination and the several transactions contemplated hereby,
including such approvals, waivers, and consents as may be required under
the Securities Act, and under state Blue Sky laws.
(d) NASDAQ Listing. The Mattson Shares issuable pursuant to the
Strategic Business Combination shall have been approved for listing by
NASDAQ upon official notice of issuance.
(e) Legal Proceedings. There shall not be pending any Legal Proceeding
by any Governmental Entity or other person: (i) challenging or seeking to
restrain or prohibit the consummation of the Strategic Business
Combination; (ii) relating to the Strategic Business Combination and
seeking to obtain from Mattson, STEAG, or the STEAG Subsidiaries any
damages or other relief that would be material to either Mattson or STEAG;
(iii) seeking to prohibit or limit in any material respect Mattson's
ability to vote, receive dividends with respect to, or otherwise exercise
ownership rights with respect to the stock of the STEAG Subsidiaries; (iv)
seeking to prohibit or limit in any material respect STEAG's ability to
vote, receive dividends with respect to, or otherwise exercise ownership
rights with respect to the Mattson Shares, (v) which would materially and
adversely affect the right of Mattson to own the assets or operate the
business of the STEAG Subsidiaries; (vi) seeking to compel Mattson, STEAG
or any of their controlled affiliates to dispose of or hold separate any
material assets, (vii) which is reasonably likely to have a STEAG Material
Adverse Effect or a Mattson Material Adverse Effect, or (viii) which is
reasonably likely to enjoin, restrain or prohibit any integration of any
operations of the STEAG Subsidiaries with those of Mattson or Mattson's
Subsidiaries.
(f) Transfers to Newco. Newco shall have become the owner, in accordance
with all applicable legal requirements, of the outstanding capital stock of
all of the Foreign STEAG Subsidiaries.
(g) Closing of CFM Merger. The closing of the CFM Merger shall occur
concurrently with the Closing.
7.2 Conditions to Obligations of Mattson. The obligations of Mattson to
consummate the Strategic Business Combination and the transactions contemplated
under the Agreement shall be further subject to the satisfaction, at or prior
to the Closing, of the following conditions, except as may be waived by Mattson
in writing:
(a) Compliance With Agreements and Covenants. STEAG and the STEAG
Subsidiaries each shall have performed and complied in all material
respects with all of its covenants, obligations and agreements contained in
this Agreement to be performed and complied with on or prior to the Closing
Date.
(b) Representations and Warranties. The representations and warranties
of STEAG contained herein (i) shall be true and correct in all material
respects, on and as of the date of this Agreement, and (ii) shall also be
true and correct, on and as of the Closing Date with the same force and
effect as though made on and as of the Closing Date, except for such
inaccuracies which in the aggregate do not constitute, and are not
reasonably expected to result in, a STEAG Material Adverse Effect
(disregarding for purposes of evaluating whether subsection (b)(ii) of this
condition is satisfied, any "Material Adverse Effect" or other materiality
qualifications contained in such representations and warranties).
(c) Closing Certificate. Mattson shall have received a certificate
signed by authorized officers of STEAG, dated the Closing Date, certifying
that the conditions set forth in Section 7.2(a) and 7.2(b) have been
satisfied.
A-38
<PAGE>
(d) Consents and Approvals. Mattson shall have received written evidence
reasonably satisfactory to it that all consents and approvals required to
be obtained in connection with the Strategic Business Combination and the
transactions contemplated hereby have been obtained and shall be in full
force and effect, and all required filings have been made, other than those
consents and approvals which, individually and in the aggregate, would not
have a Mattson Material Adverse Effect.
(e) No STEAG Material Adverse Effect. No STEAG Material Adverse Effect
shall have occurred and no event shall have occurred which, in the
reasonable judgment of Mattson, is reasonably likely to have a STEAG
Material Adverse Effect.
(f) Stockholder Agreement. STEAG shall have executed the Stockholder
Agreement substantially in the form set forth as Exhibit B (the
"Stockholder Agreement"), with full force and effect from and after the
Closing.
(g) Opinion. Counsel for STEAG in the U.S.A. shall have delivered to
Mattson an opinion in the form attached hereto as Exhibit 7.2(g).
(h) Transition Services Agreement. STEAG shall have executed a
Transition Services Agreement to be mutually agreed by STEAG and Mattson,
acting through the Integration Committee, and having terms consistent with
the key points set forth in Exhibit C (the "Transition Services
Agreement"), with full force and effect from and after the Closing.
(i) Subsidiary Director Resignations. Mattson shall have received the
written resignations, effective as from the Closing Date, of the directors
of all of the STEAG Subsidiaries, except for those employee/directors whom
the parties have mutually agreed, through the Integration Committee, to
retain immediately following the Closing.
(j) Other Closing Documents. Mattson shall have received the share
certificates evidencing the STEAG Shares, the documents and instruments
required for the notarization and transfer of the STEAG Shares and such
other closing and transfer documents as Mattson shall reasonably request to
effect and consummate the Strategic Business Combination and the
transactions contemplated hereby, in each case in form and substance
reasonably satisfactory to Mattson and its counsel.
7.3 Conditions to Obligations of STEAG. The obligations of STEAG to
consummate the Strategic Business Combination under this Agreement shall be
further subject to the satisfaction, at or prior to the Closing, of the
following conditions except as may be waived by STEAG in writing:
(a) Compliance with Agreements and Covenants. Mattson shall have
performed and complied in all material respects with all of its covenants,
obligations and agreements contained in this Agreement, to be performed and
complied with on or prior to the Closing Date.
(b) Representations and Warranties. The representations and warranties
of Mattson contained herein (i) shall be true and correct on and as of the
date of this Agreement in all material respects, and (ii) shall also be
true and correct on and as of the Closing Date with the same force and
effect as though made on and as of the Closing Date, except for such
inaccuracies which, in the aggregate, do not constitute and are not
reasonably expected to result in, a Mattson Material Adverse Effect
(disregarding for purposes of evaluating whether subsection (b)(ii) of this
condition is satisfied, any "Material Adverse Effect" or other materiality
qualifications contained in such representations and warranties).
(c) Closing Certificate. STEAG shall have received a certificate signed
by the Chief Executive Officer and Chief Financial Officer of Mattson,
dated the Closing Date, certifying that the conditions set forth in Section
7.3(a) and 7.3(b) have been satisfied.
(d) Consents and Approvals. STEAG shall have received written evidence
reasonably satisfactory to it that all consents and approvals required to
be obtained in connection with the Strategic Business Combination and the
transactions contemplated hereby have been obtained and shall be in full
force and effect, and all required filings have been made other than those
consents and approvals which, individually and in the aggregate, would not
have a STEAG Material Adverse Effect.
A-39
<PAGE>
(e) No Mattson Material Adverse Effect. No Mattson Material Adverse
Effect shall have occurred and no event shall have occurred which, in the
reasonable judgment of STEAG, is reasonably likely to have a Mattson
Material Adverse Effect.
(f) Other Closing Documents. STEAG shall have received share
certificates evidencing the Mattson Shares and such other documents and
instruments as STEAG shall reasonably request to effect and consummate the
Strategic Business Combination and the transactions contemplated hereby, in
each case in form and substance reasonably satisfactory to STEAG and its
counsel.
(g) Stockholder Agreement. Mattson and Brad Mattson shall have executed
the Stockholder Agreement, with full force and effect from and after the
Closing.
(h) Transition Services Agreement. Mattson shall have executed the
Transition Services Agreement, with full force and effect from and after
the Closing.
(i) Opinion. Counsel for Mattson shall have delivered to STEAG an
opinion in the form attached hereto as Exhibit 7.3(i).
(j) Composition of Board of Directors; Officers; Nominating Committee;
Bylaws. The actions required under Section 1 of the Stockholder Agreement
as of Closing shall have been taken.
(k) Option Grants. The grants of options contemplated under Section 6.11
of this Agreement shall have been made effective as of the Closing.
ARTICLE VIII.
TERMINATION, AMENDMENT AND WAIVER
8.1 Optional Termination. This Agreement may be terminated at any time prior
to the Closing by action taken or authorized by the Board of Directors or the
Supervisory Board, as applicable, of the terminating party or parties and,
except as provided below, whether before or after approval of the Mattson
Stockholder Proposal by the stockholders of Mattson:
(a) By mutual written consent of Mattson, STEAG and CFM;
(b) By either Mattson or STEAG, if the Closing shall not have occurred
on or before February 28, 2001 (the "Termination Date"); provided, however,
that the right to terminate this Agreement under this Section 8.1(b) shall
not be available to any party whose failure to fulfill any obligation under
this Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before the Termination Date;
(c) By either Mattson or STEAG, if any Governmental Entity (i) shall
have issued an order, decree or ruling or taken any other action (which the
parties shall have used their reasonable commercial efforts to resist,
resolve or lift, as applicable, in accordance with Section 6.9) permanently
restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement, and such order, decree, ruling or other
action shall have become final and nonappealable or (ii) shall have failed
to issue an order, decree or ruling or to take any other action, and such
denial of a request to issue such order, decree, ruling or take such other
action shall have become final and nonappealable (which order, decree,
ruling or other action the parties shall have used their reasonable
commercial efforts to obtain, in accordance with Section 6.9), in the case
of each of (i) and (ii) which is necessary to fulfill the conditions set
forth in Article VII, as applicable; provided, however, that the right to
terminate this Agreement under this Section 8.1(c) shall not be available
to any party whose failure to use their reasonable commercial efforts has
been the cause of such action or inaction;
(d) By either Mattson or STEAG, if the approval of the stockholders of
Mattson contemplated by this Agreement shall not have been obtained by
reason of the failure to obtain the required vote at a duly held meeting of
Mattson stockholders (including any adjournment or postponement thereof) at
which the vote was taken; provided, however, that a party shall not be
permitted to terminate this Agreement pursuant to this Section 8.1(d) if
the failure to obtain such approval is attributable to a failure on the
part of such party to perform any material obligation required to be
performed by such party;
A-40
<PAGE>
(e) By STEAG, if (i) Mattson shall have materially breached its
obligations under this Agreement by reason of a failure to call the Mattson
Stockholders Meeting in accordance with this Agreement or a failure to
prepare and mail to its stockholders the Proxy Statement as required
hereunder, (ii) Mattson's Board of Directors shall have failed to recommend
that Mattson's stockholders vote in favor of approval of the Mattson
Stockholder Proposal or shall have withdrawn, modified or changed in a
manner adverse to STEAG such recommendation, whether or not permitted by
the terms of this Agreement (iii) Mattson shall have entered into a
definitive acquisition agreement for an Acquisition Transaction involving
Mattson, or (iv) an Acquisition Transaction involving Mattson shall have
occurred, or (v) Mattson shall have materially breached its obligations
under Section 5.3(b), or (vi) Brad Mattson shall have materially breached
his obligations under the Voting Agreement;
(f) By Mattson if (i) Mattson shall have entered into a definitive
acquisition agreement for an Acquisition Transaction or (ii) an Acquisition
Transaction involving Mattson shall have occurred;
(g) By Mattson, if STEAG shall have materially breached its obligations
under Section 5.3(a), but only if such breach results in STEAG entering
into a third party acquisition agreement prohibited by such provision or
otherwise materially adversely affects Mattson's ability to consummate the
transactions contemplated by this Agreement.
(h) By Mattson if (i) any of STEAG's representations and warranties
shall have been inaccurate as of the date of this Agreement or shall have
become inaccurate as of a date subsequent to the date of this Agreement (as
if made on such subsequent date), such that the condition set forth in
Section 7.2(b) would not be satisfied or (ii) any of STEAG's covenants
contained in this Agreement shall have been breached such that the
condition set forth in Section 7.2(a) would not be satisfied; provided,
however, that if an inaccuracy in the representations and warranties of
STEAG arising as of a date subsequent to this Agreement is curable by STEAG
by the Termination Date and STEAG is continuing to exercise all reasonable
efforts to cure such inaccuracy, then Mattson may not terminate this
Agreement under this Section 8.1(h) on account of such inaccuracy;
(i) By STEAG if (i) any of Mattson's representations and warranties
shall have been inaccurate as of the date of this Agreement or shall have
become inaccurate as of a date subsequent to the date of this Agreement (as
if made on such subsequent date), such that the condition set forth in
Section 7.3(b) would not be satisfied or (ii) if any of Mattson's covenants
contained in this Agreement shall have been breached such that the
condition set forth in Section 7.3(a) would not be satisfied; provided,
however, that if an inaccuracy in Mattson's representations and warranties
arising as of a date subsequent to the date of this Agreement is curable by
Mattson by the Termination Date and Mattson is continuing to exercise all
reasonable efforts to cure such inaccuracy, then STEAG may not terminate
this Agreement under this Section 8.1(i) on account of such inaccuracy; or
(j) By STEAG, if the Closing Stock Price (as defined in this Section
8.1(j)) is less than $20.00 (subject to appropriate adjustment in the event
of a Capital Change). The "Closing Stock Price" shall mean the average of
the closing sale prices of Mattson Common Stock as reported in the Wall
Street Journal on the basis of information provided by the Nasdaq National
Market for each of the twenty trading days immediately preceding (but not
including) the date two (2) business days prior to the earlier of (i) the
satisfaction or waiver of each of the conditions set forth in Article VII
hereof and (ii) the STEAG Early Condition Satisfaction Date, if applicable.
Notwithstanding the foregoing, STEAG shall not be permitted to terminate
this Agreement pursuant to this Section 8.1(j) if the Closing Stock Price
is at least $15.78, provided that Mattson, in its sole discretion, elects
to deliver to STEAG at the Closing a Mattson Note (as defined below) as
additional consideration for the sale of the STEAG Shares by STEAG to
Mattson, which Mattson note is in a principal amount equal to the product
obtained by multiplying 11,850,000 by the difference between $20.00 and the
Closing Stock Price. A "Mattson Note" is an unsecured promissory note
payable by Mattson with a term of three (3) years, with simple interest
payable annually at LIBOR plus 2%.
A-41
<PAGE>
In the event of termination of this Agreement and abandonment of the
Strategic Business Combination pursuant to this Article VIII, no party hereto
(or any of its directors or officers) shall have any liability or further
obligation to any other party to this Agreement, except as provided in Section
8.3 hereof and except that (i) nothing herein will relieve any party from
liability for any material breach of this Agreement and (ii) the agreements
contained in Sections 6.15, 8.3 and 10.14 hereof shall survive.
8.2 Automatic Termination. Upon the termination for any reason of the CFM
Agreement prior to the consummation of the Strategic Business Combination, this
Agreement shall automatically terminate without any further action on the part
of either party.
8.3 Effect of Termination.
(a) If STEAG shall terminate this Agreement pursuant to Section 8.1(d)
or (e) or Mattson shall terminate this Agreement pursuant to Section
8.1(f), then Mattson shall promptly, but in no event later than the date of
such termination, pay STEAG a nonrefundable fee in an amount equal to
$20,000,000, payable by wire transfer of immediately available funds to an
account designated by STEAG.
(b) If Mattson shall terminate this Agreement pursuant to Section
8.1(g), then STEAG shall promptly, but in no event later than the date of
such termination, pay Mattson a nonrefundable fee in an amount equal to
$20,000,000, payable by wire transfer of immediately available funds to an
account designated by Mattson.
(c) The parties acknowledge that the agreements contained in this
Section 8.3 are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, none of the parties would
enter into this Agreement; accordingly, if either the STEAG or Mattson
fails promptly to pay any amount due pursuant to this Section 8.3, and, in
order to obtain such payment, the other party commences a suit which
results in a judgment against such party for the fee set forth in this
Section 8.3, such party shall pay to the other party its costs and expenses
(including attorneys' fees and expenses) in connection with such suit,
together with interest on the amount of the fee at two points above the
prime rate of Citibank, N.A. in effect on the date such payment was
required to be made. The parties agree that any remedy or amount payable
pursuant to this Section 8.3 shall not preclude any other remedy or amount
payable hereunder and shall not be an exclusive remedy for any breach of
any representation, warranty, covenant or agreement contained in this
Agreement.
8.4 Amendment. This Agreement may be amended by the parties at any time
before or after receipt of approval by Mattson stockholders of the Mattson
Stockholder Proposal; provided, however, that after receipt of the Mattson
stockholder approval, there shall be made no amendment that by law requires
further approval by the stockholders of Mattson without the further approval of
such stockholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties.
8.5 Extension; Waiver. At any time prior to the Closing, the parties may, to
the extent legally allowed, (a) extend the time for the performance of any of
the obligations or other acts of the other party, (b) waive any inaccuracies in
the representations and warranties contained in this Agreement or in any
document delivered pursuant to this Agreement, or (c) subject to the proviso of
Section 8.4, waive compliance with any of the agreements or conditions
contained in this Agreement. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of such rights.
8.6 Notice of Termination. Any party wishing to terminate this Agreement
under Section 8.1 shall deliver written notice to the other party, setting
forth the paragraph under Section 8.1 pursuant to which the Agreement is being
terminated and, unless obvious from the nature of the termination clause, a
description of the facts and circumstances forming the basis for such
termination; provided, that any failure to provide such additional details
shall not affect the validity of the termination. Upon the automatic
termination of the
A-42
<PAGE>
Agreement under Section 8.2, Mattson shall give STEAG written notice thereof.
Any such termination notice shall be delivered in accordance with Section 10.1
of this Agreement.
ARTICLE IX.
INDEMNIFICATION
9.1 Indemnification.
(a) Survival of Warranties. The representations and warranties made by
STEAG in Sections 3.1 through 3.4 and by Mattson in Sections 4.1 through
4.3 shall survive the Closing and continue in full force and effect for a
period of one year following the Closing, except for the last sentence of
Section 3.1(b) and the third sentence of Section 4.3(a), each of which
shall survive for an unlimited period of time. The representations and
warranties by STEAG set forth in Section 3.13 shall survive the Closing and
continue in full force and effect until thirty (30) days after the
expiration of the applicable statute of limitations.
(b) STEAG will indemnify and hold harmless Mattson, its affiliates and
its and their respective officers, directors, agents, attorneys and
employees (hereinafter referred to individually as an "Mattson Indemnified
Person" and collectively as "Mattson Indemnified Persons") from and against
any and all losses, costs, damages, liabilities and expenses arising from
claims, demands, actions, causes of action, including, without limitation,
legal fees, (collectively, "Damages") arising out of any misrepresentation
or breach of any of the representations and warranties by STEAG in Sections
3.1 through 3.4 and 3.13. Mattson will indemnify, defend and hold harmless
STEAG, its affiliates and its and their respective officers, directors,
agents, attorneys and employees (hereinafter referred to individually as a
"STEAG Indemnified Person" and collectively as "STEAG Indemnified Persons")
from and against any and all Damages arising out of any misrepresentation
or breach of the representations and warranties by Mattson in Sections 4.1
through 4.3. The obligations of STEAG to indemnify a Mattson Indemnified
Person for any Damages is subject to the condition that STEAG shall have
received an Indemnification Claim (as defined in Section 9.2) for all
Damages for which indemnity is sought on or before the expiration date for
the applicable representation or warranty set forth in Section 9.1(a)
above. The obligation of Mattson to indemnify a STEAG Indemnified Person
for Damages is subject to the condition that Mattson shall have received an
Indemnification Claim for all Damages for which indemnity is sought on or
before the expiration date for the applicable representation or warranty
set forth in Section 9.1(a) above.
9.2 Procedures for Indemnification.
(a) As used in this ARTICLE IX, the term "Indemnitor" means the party
against whom indemnification hereunder is sought, and the term "Indemnitee"
means the party seeking indemnification hereunder.
(b) A claim for indemnification hereunder (an "Indemnification Claim")
shall be made by Indemnitee by delivery of a written notice to Indemnitor
requesting indemnification and specifying the basis on which
indemnification is sought in reasonable detail (and shall attach relevant
documentation related to the Indemnification Claim), the amount of the
asserted Damages, and, in the case of a Third Party Claim, containing (by
attachment or otherwise) such other information as Indemnitee shall have
concerning such Third Party Claim.
(c) If the Indemnification Claim involves a Third Party Claim, then the
procedures set forth in Section 9.3 hereof shall be observed by Indemnitee
and Indemnitor.
(d) If the Indemnification Claim involves a matter other than a Third
Party Claim (as defined below), Indemnitor shall have thirty (30) days to
object to such Indemnification Claim by delivery of a written notice of
such objection to Indemnitee specifying in reasonable detail the basis for
such objection. Failure to timely so object shall constitute a final and
binding acceptance of the Indemnification Claim by
A-43
<PAGE>
Indemnitor, and the Indemnification Claim shall thereafter be paid by
Indemnitor in accordance with Section 9.2 (e)hereof. If an objection is
timely delivered by Indemnitor and the dispute is not resolved within
twenty (20) business days from the delivery of such objection (the
"Negotiation Period"), the parties shall be entitled to pursue their
remedies at law and in equity subject to the terms of this Agreement.
(e) Upon determination of the amount of an Indemnification Claim,
whether by (i) an agreement between Indemnitor and Indemnitee, (ii) an
arbitration award or (iii) a final judgment (after expiration of all
periods for appeal of such judgment) or other final nonappealable order,
Indemnitor shall pay the amount of such Indemnification Claim by check
within ten (10) days of the date such amount is determined.
9.3 Defense of Third Party Claims. Should any claim be made, or suit or
proceeding (including, without limitation, a binding arbitration or an audit by
any taxing authority) be instituted against Indemnitee which, if prosecuted
successfully, would be a matter for which Indemnitee is entitled to
indemnification under this Agreement (a "Third Party Claim"), the obligations
and liabilities of the parties hereunder with respect to such Third Party Claim
shall be subject to the following terms and conditions:
(a) Indemnitee shall give Indemnitor written notice of any such claim
promptly after receipt by Indemnitee of notice thereof. Any delay in giving
notice hereunder which does not materially prejudice Indemnitor, shall not
affect Indemnitee's rights to Indemnification hereunder. Indemnitor may, at
its option, (i) undertake control of the defense thereof by counsel of its
own choosing reasonably acceptable to Indemnitee, or (ii) decline to assume
control of but participate in the defense thereof provided that such
participation by Indemnitee shall be at its own expense. Indemnitee may
participate in the defense through its own counsel at its own expense. The
assumption of the defense of any Third Party Claim by Indemnitor shall be
an acknowledgment by Indemnitor that such Third Party Claim is subject to
indemnification under the provisions of this ARTICLE IX and that such
provisions are binding on Indemnitor. If, however, Indemnitor fails or
refuses to undertake the defense of such Third Party Claim within twenty
(20) days after written notice of such claim has been delivered to
Indemnitor by Indemnitee, Indemnitee shall have the right to undertake the
defense, compromise and, subject to Section 9.4, settlement of such Third
Party Claim with counsel of its own choosing. In the circumstances
described in the preceding sentence, Indemnitee shall, promptly upon its
assumption of the defense of such Third Party Claim, make an
Indemnification Claim as specified in Section 9.2(b) which shall be deemed
an Indemnification Claim that is not a Third Party Claim for the purposes
of the procedures set forth herein. Failure of Indemnitee to furnish
written notice to Indemnitor of a Third Party Claim shall not release
Indemnitor from Indemnitor's obligations hereunder, except to the extent
Indemnitor is prejudiced by such failure.
(b) Indemnitee and Indemnitor shall cooperate with each other in all
reasonable respects in connection with the defense of any Third Party
Claim, including making available records relating to such claim and
furnishing employees of Indemnitee as may be reasonably necessary for the
preparation of the defense of any such Third Party Claim or for testimony
as witness in any proceeding relating to such claim.
9.4 Settlement of Third Party Claims. Unless Indemnitor has failed to
fulfill its obligations under this ARTICLE IX, no settlement by Indemnitee of a
Third Party Claim shall be made without the prior written consent by or on
behalf of Indemnitor, which consent shall not be unreasonably withheld or
delayed. If Indemnitor has assumed the defense of a Third Party Claim as
contemplated by Section 9.3, no settlement of such Third Party Claim may be
made by Indemnitor without the prior written consent by or on behalf of
Indemnitee, which consent shall not be unreasonably withheld or delayed. In the
event of any dispute regarding the reasonableness of a proposed settlement, the
party that will bear the larger financial loss resulting from such settlement
shall make the final determination in respect thereto, which determination
shall be final and binding on all involved parties.
A-44
<PAGE>
9.5 Limitation on Indemnification. Notwithstanding anything contained in
this Article IX to the contrary, except for breaches of Section 3.13 (which
shall not be limited),(a) the maximum aggregate liability of STEAG to Mattson
Indemnified Persons for indemnification pursuant to Section 9.1(b) shall not
exceed the value of the Mattson Shares on the Closing Date (the "Transaction
Value"), in the case of a breach of Sections 3.1, 3.2, 3.3 or 3.4, and (b) the
maximum aggregate liability of Mattson to STEAG Indemnified Persons for
indemnification pursuant to Section 9.1(b) shall not exceed the Transaction
Value. Notwithstanding the preceding sentence, to the extent any breach of
Sections 3.1, 3.2, 3.3 or 3.4 relates to one or more of the STEAG Subsidiaries
denoted as "Foreign Sales Subsidiaries" on Schedule 2.6, the maximum aggregate
liability of STEAG to Mattson Indemnified Persons for indemnification pursuant
to Section 9.1(b) shall not exceed twice the value of that percentage of the
Mattson Shares on the Closing Date allocated to such Foreign Sales Subsidiaries
in accordance with Section 2.6.
ARTICLE X.
GENERAL PROVISIONS
10.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed duly delivered if delivered personally (upon
receipt), or three (3) business days after being mailed by registered or
certified mail, postage prepaid (return receipt requested), or one (1) business
day after it is sent by commercial overnight courier service, or upon
transmission, if sent via facsimile (with confirmation of receipt) to the
parties at the following address (or at such other address for a party as shall
be specified by like notice):
(a) if to Mattson, to:
Mattson Technology, Inc.
3550 West Warren Avenue
Fremont, California 94538
Attention: Brad Mattson
Fax:(510) 492-7052
Tel:(510) 657-5900
with a copy to:
Gray Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, CA 94301
Attention: Bradley J. Rock
Fax:(650) 327-3699
Tel:(650) 833-2000
(b) if to STEAG or the STEAG Subsidiaries, to:
STEAG Electronic Systems AG
Ruettenscheider Strasse 1-3
D-45128 Essen, Germany
Attention: Chief Executive Officer
Fax:011-49-201-801-6630
Tel:011-49-201-801-2193
Attention: General Counsel
Fax:011-49-201-801-6684
Tel:011-49-201-801-2510
A-45
<PAGE>
with a copy to:
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, NY 10019
Attention: Marc R. Packer
Fax:(212) 259-6333
Tel:(212) 259-8000
10.2 Definitions. In this Agreement any reference to any event, change,
condition or effect being "material" with respect to any entity or group of
entities means any material event, change, condition or effect related to the
financial condition, properties, assets (including intangible assets),
liabilities, business, operations or results of operations of such entity or
group of entities. In this Agreement, any reference to a party's "knowledge"
means such party's actual knowledge after reasonable inquiry of officers,
directors, and other employees of such party reasonably believed to have
knowledge of such matters; provided, that "such other employees" shall be
limited to those persons listed on Schedule 10.2 under such party's name. A
"person" means any corporation, proprietorship, firm, partnership, limited
partnership, trust, association, individual, or other entity. In this
Agreement, "affiliate" means, with respect to any person, any other person,
directly or indirectly, controlling, controlled by, or under common control
with, such person, and "control" (including the correlative terms
"controlling", "controlled by" and "under common control with") means the
possession, direct or indirect, of the power to direct or cause the direction
of the management and policies of a person, whether through the ownership of
voting securities, by contract, or otherwise. The term "joint venture" of a
person shall mean any person that is not a subsidiary of such person, in which
such person or one or more of its subsidiaries owns an equity interest, other
than equity interests held for passive investment purposes which are less than
10% of any class of the outstanding voting securities or equity of any such
person.
10.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
10.4 Entire Agreement; Nonassignability. This Agreement and the documents
and instruments and other agreements specifically referred to herein or
delivered pursuant hereto, including the Exhibits, the Schedules, the STEAG
Disclosure Schedule, and the Mattson Disclosure Schedule constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof, including the letter
agreement between the parties dated May 25, 2000, provided that the Non-
Disclosure Agreement shall continue in full force and effect, and shall survive
any termination of this Agreement or the Closing, in accordance with its terms.
This Agreement shall not be assigned by operation of law or otherwise without
the written consent of the other party.
10.5 Severability. In the event that any provision of this Agreement, or the
application thereof becomes or is declared by a court of competent jurisdiction
to be illegal, void, or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to
other persons or circumstances will be interpreted so as reasonably to effect
the intent of the parties hereto. The parties further agree to replace such
void or unenforceable provision of this Agreement with a valid and enforceable
provision that will achieve, to the extent possible, the economic, business,
and other purposes of such void or unenforceable provision.
10.6 Remedies Cumulative. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity
upon such party, and the exercise by a party of any one remedy will not
preclude the exercise of any other remedy.
A-46
<PAGE>
10.7 No Survival of Warranties. Except as otherwise provided in Article IX,
none of the representations and warranties in this Agreement or in any
instrument or document delivered pursuant to this Agreement shall survive the
Closing. This Section 10.7 shall not limit any covenant or agreement of the
parties which by its terms contemplates performance after the Closing.
10.8 Expenses. In the event that the Strategic Business Combination is not
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby, including legal, accounting and
investment banking fees, shall be paid by the party incurring such expense,
except as provided in Sections 8.3 and 10.14. In the event the Strategic
Business Combination is consummated, the costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby,
including legal, accounting and investment banking fees, by (i) STEAG shall be
borne fifty percent (50%) by STEAG and fifty percent (50%) by the STEAG
Subsidiaries, and (ii) Mattson shall be borne by Mattson.
10.9 United States Dollars. All references to dollars herein shall mean
United States dollars.
10.10 Governing Law. The assignment and transfer of capital stock of the
Foreign STEAG Subsidiaries to Newco, the issuance of shares of Newco, and the
assignment and transfer of capital stock of Newco and the other Direct STEAG
Subsidiaries to Mattson (to the extent such actions are conducted in Germany)
shall be governed by and effected in accordance with German law. In all other
respects, this Agreement shall be governed by and effected in accordance with
Delaware law without regard to the principles of conflicts of laws thereof.
10.11 Consent to Jurisdiction. Except with respect to the matters described
in the first sentence of Section 10.10, each of the parties hereto (a) consents
to submit itself to the personal jurisdiction of any federal court located in
the State of Delaware or any Delaware state court in the event any dispute
arising out of or relates to this Agreement or any of the transactions
contemplated by this Agreement, (b) agrees that it will not attempt to deny or
defeat such personal jurisdiction by motion or other request for leave from any
such court, including, without limitation, a motion to dismiss on the grounds
of forum non conveniens, (c) agrees that it will not bring any action arising
out of or relating to this Agreement or any of the transactions contemplated by
this Agreement in any court other than a federal court sitting in the State of
Delaware or a Delaware state court, and (d) waives any right to a trial by jury
with respect to any claim, counterclaim, or action arising out of or in
connection with this Agreement or the transactions contemplated hereby.
10.12 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation, preparation and execution of
this Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.
10.13 Third Party Beneficiaries. This Agreement is not intended to and shall
not confer upon any person other than the parties hereto any rights or remedies
hereunder.
10.14 Certain Payments by Mattson.
(a) If this Agreement shall automatically terminate pursuant to Section
8.2 hereof by reason of the CFM Agreement terminating pursuant to Sections
8.1(g) or (i) of the CFM Agreement, then Mattson shall promptly, but in no
event later than three (3) business days following the date of such
termination (or such later date as STEAG shall request), make a
nonrefundable cash payment to STEAG in an amount equal to the aggregate
amount of all actual and documented fees and expenses (including all
attorneys' fees, accountants' fees, financial advisory fees and filing
fees) that have been paid by or on behalf of STEAG in connection with the
preparation and negotiation of this Agreement or otherwise in connection
with the Strategic Business Combination, provided that in no event shall
such amount exceed $5,000,000, such amount to be payable by wire transfer
of immediately available funds to an account designated by STEAG.
A-47
<PAGE>
(b) If (i) this Agreement shall automatically terminate pursuant to
Section 8.2 hereof and (ii) the reason for such termination is that either
Mattson or CFM has terminated the CFM Agreement under circumstances
obligating (or potentially obligating) CFM to pay Mattson the termination
fee specified in Section 8.2(b) or (c) of the CFM Agreement, then Mattson
shall, within three (3) business days of receipt of such termination fee or
any portion thereof, remit to STEAG, in the manner specified in Section
10.14 (a) hereof, one-half of the amount actually received by Mattson from
CFM.
(c) If (i) this Agreement is terminated by Mattson pursuant to Section
8.1(h) and (ii) as a result of such termination, STEAG is required to pay
CFM the $40 million fee specified in Section 3.04(ii) of the Interim Patent
License Agreement dated the date hereof between CFM, a subsidiary of CFM
and STEAG, Mattson shall, immediately upon request from STEAG, by written
notice given in the manner specified in Section 10.1, that it is required
to make or has made such payment to CFM, remit to CFM or STEAG, as the case
may be, one-half of the amount to be paid as so paid by STEAG to CFM
provided that Mattson shall not be required to make any payment in advance
of, or in an amount greater than, a payment by STEAG.
(The remainder of this page is left intentionally blank)
A-48
<PAGE>
IN WITNESS WHEREOF, STEAG and Mattson have caused this Agreement to be
executed and delivered by each of them or their respective officers thereunto
duly authorized, all as of the date first written above.
Steag Electronic Systems AG
/s/ Dr. Hans Betz
By: _________________________________
Dr. Hans Betz
Chief Executive Officer
/s/ ppa. Dr. Berthold Luetke-
Daldrup
By: _________________________________
Dr. Berthold Luetke-Daldrup
Mattson Technology, Inc.
/s/ Brad Mattson
By: _________________________________
Brad Mattson,
Chairman and Chief Executive
Officer
A-49
<PAGE>
Exhibit A
STEAG ELECTRONIC SYSTEMS AG SUBSIDIARIES
STEAG RTP Systems GmbH
STEAG MicroTech GmbH
STEAG RTP Systems, Inc.
STEAG CVD Systems Ltd.
STEAG CVD Systems, Inc.
STEAG Cutek, Inc.
STEAG Electronic Systems Inc.
STEAG Electronic Systems (UK) Ltd.
STEAG Electronic Systems South East Asia PTE Ltd.
STEAG Electronic Systems Korea Ltd.
STEAG Electronic Systems Japan Co., Ltd.
A-50
<PAGE>
Exhibit C
TRANSITION SERVICES AGREEMENT
Set forth below are the transition services STEAG is prepared to make
available to Mattson and Mattson is prepared to obtain from STEAG following
the Closing. Also set forth are certain key terms that would be included in
the Transition Services Agreement. This list is not intended to be exclusive
or to require that the parties agree on the provision of all of the services
listed. The final list of services and the terms and conditions upon which
they will be provided will be set forth in the Transition Services Agreement.
Services to be provided:
1) IT Services for the German subsidiaries with regard to two issues
a) SAP/R3: Service will be delivered through the RAG subsidiary "RAG
Informatik GmbH"
b) Office-services (e-mail; Internet access, etc.)
2) IP Administration
STEAG is currently performing the patent administration for the whole
STEAG Electronic Systems semiconductor equipment group, e.g., filing of
patent applications, filing of trademark applications, correspondence
with patent offices and patent attorneys, checking and paying invoices
of patent attorneys, supervision and payment of annual fees, Regulation
of employee's compensation
3) Payroll services for the German subsidiaries, using SAP R/3 HR
Monthly settlement of remuneration using the valid legal settlements; all
preparation and reworking relevant for the settlement; remuneration
settlement and servicing of STEAG MicroTech pensioners.
4) Supplier agreement between STEAG MicroTech and STEAG Electronic Systems
spol s r.o. (Slovakia)
Pricing:
All of the above services will be provided at market rates. In the case of
item 4, it will be presumed that the rates and prices charged by STEAG to the
HamaTech group are market rates.
Duration:
The above services will be provided for an initial period of one year;
provided that Mattson, at its option, may elect to terminate such services
earlier upon at least [90 days] prior written notice.
A-51
<PAGE>
ANNEX B
STOCKHOLDER AGREEMENT
THIS STOCKHOLDER AGREEMENT (the "Agreement") is entered into as of ,
2000, by and between MATTSON TECHNOLOGY, INC., a Delaware corporation (the
"Company"), STEAG ELECTRONIC SYSTEMS AG, an Aktiengesellschaft organized and
existing under the laws of the Federal Republic of Germany ("Stockholder") and
BRAD MATTSON, an individual who is a director and the Chief Executive Officer
of the Company ("Mattson").
A. On June 27, 2000, the Company and Stockholder entered into a Strategic
Business Combination Agreement (the "Combination Agreement") pursuant to which,
subject to satisfaction or waiver of the conditions therein, (i) Stockholder
will sell and transfer 100% of the issued and outstanding capital stock or
other equity ownership interests of certain wholly-owned subsidiaries of
Stockholder to the Company, and (ii) the Company shall issue to Stockholder
11,850,000 shares of restricted common stock, par value $.001 per share
("Common Stock"), of the Company (the "STEAG Transaction").
B. Upon consummation of the STEAG Transaction, Stockholder will own
approximately, 31.9% of all outstanding shares of Common Stock and Mattson will
own 3,535,516 shares of Common Stock (or approximately 9.5% of all outstanding
shares of Common Stock).
C. On June 27, 2000, the Company, CFM Technologies, Inc., a Pennsylvania
corporation ("CFM"), and M2C Acquisition Corporation, a Delaware corporation
and wholly-owned subsidiary of the Company ("M2C"), entered into an Agreement
and Plan of Merger (the "CFM Merger Agreement") pursuant to which, subject to
satisfaction or waiver of the conditions therein, and concurrently with the
consummation of the STEAG Transaction, (i) M2C will merge with and into CFM,
resulting in CFM continuing as the surviving corporation and M2C ceasing to
exist as a separate corporation (the "CFM Merger") and (ii) the Company will
issue approximately 4,100,000 shares of Common Stock to the stockholders of CFM
and will assume outstanding CFM stock options in accordance with the CFM Merger
Agreement.
D. The parties believe that it is in the best interests of the Company, the
Stockholder and Mattson to provide for certain rights and obligations of the
parties with respect to various corporate matters.
NOW THEREFORE, the parties hereto agree as follows:
1. Board Representation; Executive Staffing; Nominating Committee; Voting
Arrangements.
1.1 Board Representation; Executive Staffing. Commencing on the
Effective Date, during the term of this Agreement, the Board of Directors
of the Company shall consist of seven (7) members, two of whom shall be
designated by Stockholder (the "Stockholder Representatives"), one of whom
shall be the Chief Executive Officer of the Company and, subject to Section
1.1(b) below, the remaining four of whom shall be incumbent Independent
Directors (as such term and certain other capitalized terms are defined in
Section 8.11) as of the Effective Date, or successors, at least three of
whom shall be Independent Directors, nominated in accordance with the
Company's Bylaws, as amended from time to time (the "Bylaws").
(a) Effective as of the Effective Date (as defined in Section 7.1),
the Company shall cause the authorized size of the Board of Directors
to be increased to seven (7) members from five (5) members, and the
Company shall cause two (2) persons designated by Stockholder as the
initial Stockholder Representatives to be appointed to fill the two
vacant seats so created. One such initial Stockholder Representative
shall be Dr. Jochen Melchior, who shall be elected and appointed to the
class of the Company's Board of Directors scheduled to be elected at
the third (3rd) Annual Meeting of the Company's stockholders following
the Closing (i.e., Class III). The other initial Stockholder
Representative shall be elected and appointed to the class of the
Company's Board of Directors
B-1
<PAGE>
scheduled to be elected at the second (2nd) Annual Meeting of the
Company's stockholders following the Closing (i.e., Class II). The
second initial Stockholder Representative will be identified and
designated by Stockholder in Exhibit A attached hereto. If either
Stockholder Representative or any successor thereto ceases to be a
director of the Company at any time prior to the expiration of such
Stockholder Representative's designated term as director, whether as a
result of death, resignation, retirement, disqualification, removal
from office or other cause, the Company shall cause a successor
designated by Stockholder to be elected and appointed to fill the
vacancy so created. The Company agrees that, at the request of
Stockholder, as soon as practicable following such request, it will
cooperate with Stockholder to attempt to remove any Stockholder
Representative, to the extent permitted by Delaware law, and to take
any action reasonably requested by Stockholder for that purpose
including, without limitation, to call a stockholders meeting and hold
such meeting as soon as practicable following such request. Stockholder
Representatives who are not employees of the Company will receive the
same benefits and compensation as other non-employee directors of the
Company.
(b) To the extent required pursuant to the CFM Merger Agreement,
effective as of the effective time of the CFM Merger, the Company may
cause one person designated by CFM (the "CFM Representative") to serve
on the Company's Board of Directors as a member of Class III of the
Board of Directors, in place of an incumbent Independent Director of
the Company. If the CFM Representative ceases to be a director of the
Company prior to the expiration of the CFM Representative's designated
term as director, whether as a result of death, resignation,
retirement, disqualification, removal from office or other cause, the
vacancy so created shall be filled by the Company's Board of Directors,
in accordance with the Company's Bylaws, with an Independent Director
or other person unanimously approved by the Nominating Committee (as
defined in Section 1.2).
(c) Effective as of the Effective Date, the members of the Company's
Board of Directors other than the members elected and appointed
pursuant to Section 1.1(a) and (b) herein shall be the Chief Executive
Officer of the Company and the other incumbent directors of the Company
as of such date.
(d) Effective as of the Effective Date, the Company shall cause: (i)
Dr. Jochen Melchior, a Stockholder Representative, to serve as Chairman
of the Board for a term of one (1) year, and (ii) Mattson to serve as
Vice-Chairman of the Board and as Chief Executive Officer of the
Company.
(e) Effective as of the Effective Date, the Company shall cause Dr.
Ludger Viefhues to be named Chief Operating Officer/President of the
Company for a term of one year, subject to removal by the Executive
Staffing Committee (as defined below).
(f) Effective as of the Effective Date, the Board of Directors of
the Company will establish an "Executive Staffing Committee," in
accordance with the provisions set forth in the Bylaws with respect to
the formation of committees of the Board of Directors, with members
consisting of Dr. Jochen Melchior and Mattson and, if agreed by the
Company and Stockholder, one additional representative of each of
Stockholder and the Company. The Executive Staffing Committee will
remain in place for one year following the Effective Date, and will be
responsible during that period for making key personnel decisions
(including the hiring and firing of the Chief Executive Officer, the
Chief Operating Officer, the Chief Financial Officer and the general
managers for divisions). One (1) Independent Director reasonably
acceptable to Stockholder and the Company will be appointed as a
tiebreaker member of the Executive Staffing Committee in the event the
committee reaches deadlock on an issue or staffing decision.
(g) The Company will cause the nomination of the Stockholder
Representatives for election as directors of the Company at each Annual
Meeting of the Company's stockholders at which the term of an incumbent
Stockholder Representative will expire, until the termination of this
Agreement.
B-2
<PAGE>
1.2 Nominating Committee. Effective as of the Effective Date, the
Company's Bylaws shall establish a nominating committee (the "Nominating
Committee") to evaluate and propose nominees to serve as directors to
succeed the CFM Representative or any Independent Director who leaves
office, or to fill additional vacancies on the Board of Directors not
otherwise provided for in Section 1.1(a) herein. During the term of this
Agreement, the Nominating Committee shall be comprised of three (3) Board
members, at least one of whom shall be a Stockholder Representative. For a
period of three (3) years following the Effective Date, the Nominating
Committee shall nominate only those nominees who have received the
unanimous approval of the Nominating Committee members. The Bylaws will
further provide that in the event the Nominating Committee fails to
nominate a nominee within four (4) months after a Board seat becomes
vacant, the Board of Directors may act to elect and appoint a nominee to
fill the vacancy.
1.3 Election of Nominees. Each of Stockholder and Mattson agrees to be
present and voting and to affirmatively vote for the election of the
nominees for director designated or nominated pursuant to Sections 1.1 and
1.2 herein, including without limitation, the Stockholder Representatives,
at each meeting of the Company's stockholders at which directors are to be
elected.
1.4 Interested Party Transactions. In the event any proposed transaction
between the Company, on the one hand, and Stockholder or any of its
Affiliates, on the other hand, is submitted to the Company's stockholders
for their approval, Stockholder agrees to vote its shares of Voting Stock
with regard to such proposed transaction in the same proportion (for,
against or abstain) as all shares of Voting Stock not owned by Stockholder
and represented and voting at a stockholders' meeting are voted with regard
to such proposed transaction; provided, that the foregoing shall not apply
to a transaction among the Company and its stockholders generally or with
respect to any transaction provided for in this Agreement including,
without limitation, Stockholder's exercise of its rights under Section 3
hereto.
1.5 Amendment to Bylaws. Prior to or simultaneous with the Closing, the
Company shall cause the Bylaws of the Company to be amended and restated in
the form of Exhibit B hereto.
2. Standstill Restrictions on Further Purchases of Company Stock.
2.1 Restriction on Acquisition of Voting Stock. Except with prior
Disinterested Director Approval, except as otherwise provided in Section
2.4 of this Agreement and except for any stock issuances by the Company in
respect of any stock split, stock dividend, recapitalization or similar
corporate transaction, or upon exercise of securities issued pursuant to
rights distributed to holders of Common Stock generally, Stockholder shall
not (and Stockholder shall not permit any of its majority-owned and
controlled Affiliates to) acquire, either directly or indirectly, agree to
acquire or make a tender or exchange offer to acquire any shares of Voting
Stock of the Company; provided, however, that the foregoing restriction
shall not apply to a transfer by Stockholder of all or any portion of the
Voting Stock held by Stockholder to any of its Affiliates made in
accordance with Section 4.5, or any transfer back to Stockholder pursuant
to such Section 4.5.
2.2 Participation in Solicitations. Except with prior Disinterested
Director Approval, Stockholder shall not (and Stockholder shall not permit
any of its majority-owned and controlled Affiliates to) (i) "solicit" or in
any way participate, directly or indirectly, in the "solicitation" of
"proxies," as those terms are defined in Rule 14a-1 under the Exchange Act,
in respect of any Voting Stock (provided, that Stockholder shall not be
deemed to have violated the restrictions in this clause (i) by virtue of
any action taken in connection with the election of directors pursuant to
Section 1 above), (ii) make any public announcement in response or with
respect to an Acquisition Proposal not solicited or approved by the
Company's Board of Directors, (iii) deposit any shares of Voting Stock in a
voting trust or subject any Voting Stock to any arrangement or agreement
with respect to the voting of such Voting Stock with any Person or "group"
(as such term is defined under the Exchange Act) other than the Company or
other entities within Stockholder's control group or (iv) form or join any
"group" (as such term is defined under the Exchange Act) with any other
Person other than entities within Stockholder's control group for
B-3
<PAGE>
the purpose of voting, holding, purchasing or disposing of Voting Stock or
for the purpose of taking any of the actions set forth in this Section 2.2
or Section 2.1, above.
2.3 Suspension of Standstill Restrictions. The restrictions set forth in
Sections 2.1 and 2.2 shall be suspended in the event that any Person or
"group" (as such term is defined under the Exchange Act) (other than
Stockholder, any Person who is then an Affiliate of Stockholder, or the
Company), without the prior approval of the Board of Directors of the
Company, (i) commences a tender offer for purposes of Rule 14d-2
promulgated under the Exchange Act, (ii) acquires shares of Voting Stock
resulting in such Person or group having beneficial ownership of Voting
Stock representing more than twenty percent (20%) of the then-outstanding
Voting Stock of the Company or (iii) acquires shares of Voting Stock
resulting in such Person or group having beneficial ownership of Voting
Stock representing more than ten percent (10%) of the then-outstanding
Voting Stock of the Company and commences or publicly announces its
intention to seek to effect a Change of Control, whether through an
Acquisition Transaction or otherwise. Upon the cessation of the event or
events that lead to suspension of the restrictions in Sections 2.1 and 2.2
pursuant to this Section, those restrictions shall be reinstated in
accordance with their terms unless this Agreement has been terminated in
accordance with Section 7.2; provided however that, notwithstanding any
provision of Section 2.1 or 2.2 to the contrary, Stockholder shall have no
obligation to dispose of any Voting Stock that Stockholder has acquired or
agreed to acquire, or to reverse, rescind, violate or breach (x) any
contractual obligation Stockholder has undertaken, (y) any other commitment
Stockholder has made, the reversal, rescission, violation or breach of
which would have adverse consequences to Stockholder, or (z) any legal or
regulatory requirement imposed on Stockholder, in each case during any
suspension of Sections 2.1 and 2.2 pursuant to this Section.
2.4 Right to Maintain Ownership. Notwithstanding the provisions of
Section 2.1 to the extent that Stockholder's percentage beneficial
ownership is reduced as a result of any issuance of Voting Stock by the
Company (an "Issuance") for any reason whatsoever, Stockholder may purchase
additional shares of Voting Stock in the open market or in privately
negotiated transactions (to the extent Stockholder has not already
exercised its rights pursuant to Section 3 below with respect to a
particular Issuance) as required to maintain Stockholder's aggregate
percentage beneficial ownership of the Company's outstanding Voting Stock
on the Effective Date.
2.5 Notice of Stockholder Position. Upon written request from the
Company, but not more than once each calendar quarter, a duly authorized
officer of Stockholder will certify to the Company in writing the numbers
and classes of shares of Voting Stock beneficially owned by Stockholder and
its majority-owned and controlled Affiliates as of any record date or other
date reasonably requested.
2.6 Notice of Issuances by the Company. The Company shall, as promptly
as practicable, but not later than the date of Issuance, provide written
notice to Stockholder of all Issuances of Voting Stock by the Company,
other than issuances described under Section 3.4 (d) or (e), specifying the
number of shares of Voting Stock being issued and the purchase price
therefor; provided, that with respect to the foregoing Issuances of Voting
Stock by the Company in amounts less than 1% of the shares of Voting Stock
outstanding on such date, the Company may provide notice to Stockholder of
such Issuances on a quarterly basis. Within fifteen days following the end
of each fiscal quarter, the Company shall provide written notice to
Stockholder of all Issuances of Voting Stock described under Section 3.4,
(d), and (e), specifying the number of shares of Voting Stock so issued
during the fiscal quarter.
2.7 Company Repurchases. Stockholder shall not be deemed to have
violated its obligations under Section 2.1 by virtue of any increase in the
aggregate percentage of outstanding Voting Stock of the Company
beneficially owned by Stockholder and its Affiliates solely as a result of
a recapitalization of the Company, a repurchase of securities by the
Company or other actions taken by the Company or any of the Company's
Affiliates that have the effect of reducing the number of shares of Voting
Stock outstanding.
2.8 Termination. Notwithstanding any other provision in this Agreement,
all rights and obligations of any party under this Section 2 shall
terminate upon the earlier of (x) the fifth (5th) anniversary of the
B-4
<PAGE>
Closing regardless of whether such rights and obligations are suspended for
any portion of such five-year period or (y) the termination of this
Agreement pursuant to Section 7 hereof.
3. Stockholder Right to Purchase Additional Company Stock.
3.1 Right of Offer to Purchase Additional Shares of Common Stock. Prior
to any sale or issuance by the Company of any shares of Voting Stock (other
than a sale or issuance described in Section 3.4) (a "Proposed Issuance"),
the Company shall give Stockholder advanced written notice (the "Notice of
Issuance") of the Proposed Issuance, setting forth the proposed price,
quantity (which the Company may indicate is a fixed amount to be offered to
third parties, subject to increase to make allowance for issuance to
Stockholder) and other material terms and conditions under which the
Company proposes to make such sale (the date such notice is received by
Stockholder is hereinafter referred to in this Section 3.1 as the "Notice
Date"). Stockholder shall have the right, exercisable as hereinafter
provided, to purchase its proportional share of such Voting Stock (as
defined below) on terms which are at least as favorable to Stockholder as
the terms on which the Company sells such Voting Stock to any other
prospective investor. Stockholder shall have twenty (20) days after the
Notice Date to notify the Company in writing that it elects to purchase
some or all of its share of the Voting Stock so offered. If any material
term of the Proposed Issuance is changed from those set forth in the Notice
of Issuance, the Company shall give Stockholder prompt written notice (the
"Revised Notice of Issuance") of the revised terms of the Proposed Issuance
setting forth the revised terms of the Proposed Issuance (the date such
Revised Notice of Issuance is received by Stockholder is hereinafter
referred to in this Section 3 as the "Revised Notice Date"). Stockholder
shall have until the later of (x) five (5) days from the Revised Notice
Date or (y) twenty (20) days from the original Notice Date to notify the
Company in writing that it elects to purchase some or all of its share of
the Voting Stock so offered. The proportional share amount of Voting Stock
which Stockholder is entitled to acquire in the Proposed Issuance shall be
equal to (i) the amount of Voting Stock proposed to be sold or issued by
the Company in the Proposed Issuance (which the Company at its election may
indicate to be a fixed amount to be offered to third parties, subject to
increase to make allowance for sales to Stockholder) multiplied by (ii) a
fraction calculated by dividing (A) the number of shares of Voting Stock
owned by Stockholder as of the Notice Date by (B) the total number of
shares of Voting Stock issued and outstanding as of the Notice Date.
3.2 Company Sale. If, within the later of twenty (20) days after the
Notice Date or five (5) days after the latest Revised Notice Date,
Stockholder does not notify the Company that it desires to purchase a
portion of the Voting Stock proposed to be sold or issued by the Company in
a Proposed Issuance, then the Company may, during a period of ninety (90)
days following the end of such twenty (20) day period or five (5) day
period, as the case may be, sell and issue such Voting Stock not otherwise
purchased by Stockholder to other third parties at a price and upon terms
and conditions no more favorable to such parties than those set forth in
the Notice of Issuance.
3.3 Purchase; Payment. If Stockholder elects to purchase Voting Stock
from the Company pursuant to this Section 3, Stockholder and the Company
shall consummate the purchase and sale of such Voting Stock in the manner
and on the terms and date of the closing of the Proposed Issuance as set
forth in the Notice of Issuance or Revised Notice of Issuance, as the case
may be or, if on a later date, the second (2nd) business day after all
regulatory filings required for the consummation of such purchase have been
obtained. Payment for such Voting Stock shall be by check (or wire transfer
of immediately available funds to an account designated by the Company by
written notice delivered to Stockholder not less than two (2) business days
prior to the scheduled closing of such purchase) or, at Stockholder's
election, to the extent practicable, such other form of consideration as
set forth in the Notice of Issuance or Revised Notice of Issuance, as the
case may be, against delivery of such Voting Stock at the executive offices
of the Company at the time of the scheduled closing therefor. The Company
shall take all such action as may reasonably be required by any regulatory
authority in connection with the exercise by Stockholder of the right to
purchase Voting Stock as set forth in this Section 3.
B-5
<PAGE>
3.4 Limitation. Stockholder's right to participate in a Proposed
Issuance pursuant to this Section 3 shall not apply to the following sales
and issuances of shares of Voting Stock by the Company on or after the date
hereof:
(a) Voting Stock issued to employees, officers, directors and
consultants pursuant to any stock option plan, stock incentive or
purchase plan or agreement approved by the Board of Directors of the
Company;
(b) Voting Stock issued pursuant to or upon exercise or conversion
of securities issued in connection with a merger, consolidation, share
exchange, or other reorganization or business combination involving the
Company, in which the Company is the acquiring corporation or
stockholders of the Company immediately prior to such merger,
consolidation or other reorganization or business combination own
securities with a majority of the voting power of the resulting entity;
(c) Common Stock, in an amount up to 1.0% of the Company's
outstanding Common Stock as of the date hereof, in the case of any
single transaction, or 2.5% of the Company's outstanding Common Stock
as of the date hereof, in the aggregate, issued pursuant to or upon
exercise or conversion of securities issued in connection with (A) any
equipment financing in an amount in excess of $10,000,000 or (B) any
technology licensings, research or development agreements or asset
acquisitions approved by the Company's Board of Directors;
(d) Common Stock issued upon exercise of securities issued pursuant
to rights distributed to holders of Common Stock generally;
(e) Common Stock issued proportionately to all Stockholders in
connection with any stock split, stock dividend or recapitalization of
the Company; or
(f) Common Stock issued pursuant to the exercise of any stock
options or warrants or any other rights to acquire shares of Common
Stock outstanding on the Effective Date.
3.5 Termination. The right contained in this Section 3 shall terminate
upon the earliest to occur of (i) the closing of any Acquisition
Transaction that results in a Change of Control, (ii) the sale of all or
substantially all of the Company's assets, or (iii) termination of this
Agreement pursuant to Section 7 hereof.
4. Restrictions on Transfer of Voting Stock by Stockholder.
4.1 Lockup Period. For a period of one (1) year commencing upon the
Effective Date ("Lockup Period"), except with prior Disinterested Director
Approval, Stockholder shall not offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, lend, or otherwise
transfer or dispose of, directly or indirectly, any Voting Stock or enter
into any swap or other arrangement that transfers to another, in whole or
in part, any of the economic consequences of ownership of Voting Stock,
whether any such transaction described in this section is to be settled by
delivery of Voting Stock, in cash or otherwise; provided, however, that
Stockholder shall be permitted to transfer all or any portion of the Voting
Stock to an Affiliate of Stockholder in accordance with Section 4.5.
4.2 Permitted Transfers. Following the Lockup Period, Stockholder shall
not, without first complying with its obligations under Section 4.4 herein,
sell or transfer, directly or indirectly, any shares of Voting Stock,
except (i) pursuant to a bona fide public offering of Voting Stock
registered under the Securities Act (which shall be structured and
conducted through an underwriter or otherwise in a manner reasonably
calculated not to result in the transfer of beneficial ownership of five
percent (5%) or more of the total Voting Stock of the Company then
outstanding to a single Person or group (other than a qualified
institutional buyer, as defined in Rule 144A(a)(1), who is purchasing the
securities for investment purposes)); (ii) pursuant to and in compliance
with Rule 144 (but not pursuant to Rule 144A) under the Securities Act; or
(iii) to an Affiliate of Stockholder in accordance with Section 4.5.
B-6
<PAGE>
4.3 Transfers Subject to Company Approval. Following the Lockup Period,
except with Disinterested Director Approval, Stockholder shall not sell or
transfer, directly or indirectly, more than 2,400,000 shares (as adjusted
as a result of stock dividends, stock splits, recapitalizations and the
like after the date of this Agreement) of Voting Stock in a transaction or
series of related transactions to a single Person or "group" (as such term
is defined under the Exchange Act), except (i) as provided in Section
4.2(i) through (iii); (ii) pursuant to an Acquisition Transaction that will
result in a Change of Control and that has received Disinterested Director
Approval or that has received approval by a majority of the stockholders of
the Company excluding Stockholder; (iii) following the third (3rd)
anniversary of the Effective Date; or (iv) during the suspension or
following termination of the Voting Stock acquisition restrictions pursuant
to Section 2.3(ii), in response to any tender or exchange offer made by
another Person or group to purchase or exchange for cash or other
consideration all outstanding Voting Stock of the Company.
4.4 Right of First Refusal on Permitted Sales by Stockholder.
(a) General. Prior to consummating any sale or transfer of any
Voting Stock, except for sales or transfers described in Section 4.2(i)
through (iii), Stockholder shall give the Company the opportunity to
purchase such Voting Stock in the following manner:
(i) Stockholder shall give notice (the "Transfer Notice") to the
Company in writing of such intention, specifying the names of the
proposed purchasers or transferees, the securities proposed to be
sold or transferred, the proposed price per share therefor (the
"Transfer Price") and the other material terms upon which such
disposition is proposed to be made.
(ii) The Company shall have the right, exercisable by written
notice given by the Company to Stockholder within twenty (20) days
after receipt of such Transfer Notice, to agree to purchase all, but
not less than all, of the securities specified in such Transfer
Notice. The Company shall have the right to pay for such securities:
(a) the same amount in cash per share, if the consideration to be
paid by the third party consists of cash, or (b) to the extent the
consideration to be paid by the third party does not consist of
cash, consideration per share equivalent to that offered by the
third party, or an amount of cash having equivalent value as
determined, at the expense of the Company, by an investment banking
firm mutually agreed to by the Company and Stockholder.
(iii) If the Company exercises its right of first refusal
hereunder, the closing of the purchase of the securities with
respect to which such right has been exercised shall take place
within ten (10) days after the Company gives notice of such
exercise, or, if later, upon the date on which the proposed transfer
was to occur with the third party. Upon exercise by the Company of
its right of first refusal, the Company and Stockholder shall be
legally obligated to consummate the purchase contemplated thereby
and shall use their reasonable commercial efforts to secure any
approvals required in connection therewith. The Company may elect by
notice in writing to Stockholder that, at the closing of such
transaction, the shares be delivered to and payment made to
Stockholder by a designee of the Company, provided that the Company
shall remain liable for its obligations under this Section 4.4.
(iv) If the Company does not exercise its right of first refusal
hereunder within the time specified for such exercise, Stockholder
shall be free, subject to the terms of Section 4.3 herein, during
the period of one hundred and eighty (180) days following the
expiration of such time for exercise, to sell the securities
specified in such Transfer Notice on terms no less favorable to
Stockholder than the terms specified in such Transfer Notice.
(b) No Assignment. The rights of first refusal provided by this
Section 4.4 may not be assigned by the Company; provided, however, that
the Company may provide that a purchase of Voting Stock will be made by
a designee in accordance with Section 4.4(a)(iii).
B-7
<PAGE>
4.5 Affiliate Transfer; Obligation to Transfer Back. As a condition to
the permitted transfer of Voting Stock held by Stockholder to any Affiliate
of Stockholder (each, an "Affiliate Holder"), such Affiliate Holder must
agree to be bound by the terms and conditions of this Agreement and to hold
such Voting Stock subject to all obligations and restrictions applicable to
Stockholder, including Sections 1.3, 2, 4 and 5.11 hereof, in which event
such Affiliate shall be entitled to share, jointly with Stockholder, the
rights and benefits applicable to Stockholder under this Agreement. If any
Affiliate Holder ceases to be an Affiliate of Stockholder, then not later
than thirty (30) days following the date on which the control relationship
ends between such Affiliate Holder and Stockholder, such Affiliate Holder
shall transfer its Voting Stock to Stockholder or to an Affiliate of
Stockholder, or otherwise transfer such Voting Stock in accordance with
Section 4 of this Agreement.
4.6 Merger of Stockholder. For avoidance of doubt, nothing in this
Section 4 shall be deemed to prohibit a transfer of Voting Stock by
operation of law to a successor entity as a result of a merger involving
Stockholder.
5. Registration Rights.
5.1 Definitions. For purposes of this Section 5:
(a) The terms "Holder" or "Holders" means Stockholder and/or any
other person who shall subsequently own or have the right to acquire
Registrable Securities or any assignee thereof in accordance with
Section 5.10 hereof.
(b) The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement
or similar document in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement
or document.
(c) The term "Registrable Securities" means (i) any shares of Common
Stock issued by the Company to Stockholder pursuant to the Combination
Agreement or subsequently acquired by Stockholder in compliance with
Section 3 of this Agreement; (ii) any and all shares of Common Stock
issued or issuable upon exercise, conversion or exchange of equity
securities acquired by Stockholder in compliance with Section 3; (iii)
equity securities issued in lieu thereof in any reorganization; or (iv)
equity securities issued in respect of the stock referred to in (i) or
(ii), above, as a result of a stock split, stock dividend,
recapitalization or the like, excluding in all cases, however, any of
the foregoing sold by a Holder pursuant to a registration statement, in
a transaction pursuant to Rule 144 promulgated under the Securities
Act, or in any other transaction in which registration rights are not
transferred pursuant to this Section 5.
(d) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common
Stock outstanding which are, and the number of shares of Common Stock
issuable pursuant to then exercisable or convertible securities which
are exercisable or convertible into, Registrable Securities.
5.2 Company Registration
(a) If (but without any obligation to do so) the Company proposes to
register (including for this purpose a registration effected by the
Company for stockholders other than the Holders) any of its Common
Stock under the Securities Act for sale after the Lockup Period in
connection with a secondary offering of such securities solely for cash
(other than a registration relating solely to the sale of securities to
participants in a Company stock option, stock purchase or similar plan,
or a registration relating solely to a transaction of the type
described in Rule 145(a) under the Securities Act), the Company shall,
at such time, promptly give each Holder written notice of such
registration. Upon the written request of any Holder given within
twenty (20) days after mailing of such notice by the Company in
accordance with Section 8.3 of this Agreement, the Company shall,
subject to the provisions of Section 5.2(b), include in such
registration (and any related qualification under blue sky
B-8
<PAGE>
laws or other compliance) and in any underwriting involved therein, all
of the Registrable Securities that each such Holder has requested to be
registered.
(b) In connection with any offering involving an underwriting of
shares being issued by the Company, the Company shall not be required
under this Section 5.2 to include any Holder's securities in such
underwriting unless such Holder accepts the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it,
and then only in such quantity as will not, in the opinion of the
underwriters, jeopardize the success of the offering by the Company. In
the event that any registration pursuant to this Section 5.2 shall be,
in whole or in part, an underwritten public offering of Registrable
Securities, the number of shares of Registrable Securities of the
Holders to be included in such an underwriting may be reduced (pro rata
among the requesting Holders based upon the number of shares of
Registrable Securities then outstanding that are owned by such Holders)
if and to the extent that the managing underwriter advises the Company
in writing that in its opinion such inclusion would materially
adversely affect the marketing of the securities to be sold by the
Company therein. If any Holder disapproves of the terms of any such
underwriting, it may elect to withdraw therefrom by written notice to
the Company and the underwriter delivered at least seven (7) days prior
to the effective date of the Registration Statement. Any Registrable
Securities or other securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration. The Holders
shall have no right to participate in the selection of the underwriters
for an offering pursuant to this Section 5.2.
(c) The Company shall have the right to terminate or withdraw any
registration initiated by it under this Section 5.2 prior to the
effectiveness of such registration whether or not any Holder has
elected to include securities in such registration.
5.3 Form S-3 Demand Registration.
(a) After the Lockup Period, Holders shall have the right to request
registrations on Form S-3 (such requests shall be in writing and shall
state the number of shares of Registrable Securities to be disposed of
and the intended methods of disposition of such shares by the Holders);
provided, however, that the Company shall not be obligated to effect
any such registration: (i) with effectiveness prior to the end of the
Lockup Period, (ii) if the Holders, together with the holders of any
other securities of the Company entitled to inclusion in such
registration, propose to sell Registrable Securities and such other
securities (if any) on Form S-3 at an aggregate price to the public of
less than $5,000,000, (iii) if the Company reasonably determines,
following consultation with its outside counsel, that a Holder's sale
of Registrable Securities pursuant to the registration statement would
require disclosure of material information and such disclosure would be
materially detrimental to the Company, but only for so long as such
disclosure is required and would be materially detrimental; (iv) in a
given twelve-month period, after the Company has effected one (1) such
registration pursuant to this Section 5.3 in any such period; or (v)
within sixty (60) days of the effective date of a Company registration
statement of the type described in Section 5.2 involving an
underwritten offering, or within one hundred twenty (120) days of the
effective date of a registration statement in which the Holders shall
have been entitled to participate pursuant to Section 5.2 hereto and in
which there shall have been effectively registered all of the
Registrable Securities as to which registration shall have been
requested by the Holders, if any; provided; however, that the Company
may not postpone any registration pursuant to clause (iii) above for
more than 60 days from the date of such request; and, provided, further
that such right to delay a request shall be exercised by the Company
not more than once in any twelve-month period.
(b) Following receipt of any notice from Holders initiating a
request for registration in accordance with Section 5.3(a), the Company
shall use its best efforts to register under the Act, for public sale
in accordance with the method of disposition specified in such notice
from Holders, the number of shares of Registrable Securities specified
in such notice and in all notices received by the Company. If such
method of disposition shall be an underwritten public offering, the
Holders may
B-9
<PAGE>
designate the managing underwriter of such offering, subject to the
approval of the Company, which approval shall not be unreasonably
withheld or delayed. If and to the extent the managing underwriter of
any underwritten public offering conducted pursuant to this Section 5.3
advises the Company in writing that in its opinion the amount of
securities requested to be included in such offering is sufficiently
large to materially adversely affect the marketing of the securities to
be sold by the stockholders therein, the amount of securities to be
included in such offering by Persons other than the Holders shall be
reduced.
(c) Subject to the provisions of Section 5.3(b) above, the Company
shall be entitled to include in any registration statement referred to
in this Section 5.3, for sale in accordance with the method of
disposition specified by the requesting Holders, shares of Common Stock
to be sold by the Company for its own account, except as and to the
extent that, in the opinion of the managing underwriter (if such method
of disposition shall be an underwritten public offering), such
inclusion would adversely affect the marketing of the Registrable
Securities to be sold. Except for registration statements on Form S-4,
Form S-8 or any successor forms thereto, the Company will not file with
the Commission any other registration statement under the Act with
respect to its Common Stock, whether for its own account or that of
other stockholders, from the date of receipt of a notice from
requesting Holders pursuant to this Section 5.3 until the completion of
the period of distribution of the registration contemplated thereby.
5.4 Obligations of the Company. Whenever required under this Agreement
to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) prepare and file with the Commission a registration statement
with respect to such Registrable Securities within 45 days after
receipt of requisite requests from Holders for registration and use its
best efforts to cause such registration statement to become effective
and, upon the request of the Holders of a majority of the Registrable
Securities registered thereunder, keep such registration statement
effective for the period of the distribution contemplated thereby
(determined as hereinafter provided);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to keep
the registration statement effective for the period specified in
paragraph (a) above and comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
registration statement;
(c) furnish to the Holders of Registrable Securities covered by such
registration statement such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements
of the Securities Act and such other documents as they may reasonably
request in order to facilitate the disposition of such Registrable
Securities;
(d) use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be requested by the
Holders thereof, provided that (i) the Company shall not be required in
connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such
states or jurisdictions and (ii) notwithstanding anything in this
Agreement to the contrary, in the event any jurisdiction in which the
securities shall be qualified imposes a non-waivable requirement that
expenses incurred in connection with the qualification of the
securities be borne by selling stockholders, such expenses shall be
payable pro rata by selling stockholders;
(e) in the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each
Holder participating in such underwriting shall also enter into and
perform its obligations under such an agreement;
B-10
<PAGE>
(f) promptly notify each Holder participating in the registration
covered by such registration statement at any time when a prospectus
relating thereto is required to be delivered under the Securities Act
of the happening of any event as a result of which the prospectus
included in such registration statement, as then in effect, includes an
untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing
and at the request of any Holder, within 5 days, prepare and furnish to
such Holder so requesting a reasonable number of copies of a supplement
to or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such Registrable Securities,
such prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they are made, not misleading; provided that, if the
Company reasonably determines, following consultation with its outside
counsel, that such a supplement or amendment would require disclosure
of material information and such disclosure would be materially
detrimental to the Company, then upon written notice to participating
Holders to that effect, each Holder shall suspend any sales or trades
of the Company's securities under any registration statement for so
long as the Company determines such disclosure is required and
materially detrimental, but in any case not longer than thirty (30)
days immediately following such notice;
(g) cause all such Registrable Securities registered pursuant to
this Agreement to be listed on each securities exchange or national
market system on which similar securities issued by the Company are
then listed or traded;
(h) furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Agreement, (i) such
representations and warranties to such Holder and the underwriters, if
any, as is customary in primary underwritten offerings, (ii) an
opinion, dated such date, of the counsel representing the Company for
the purposes of such registration, in form and substance as is
customarily given to underwriters in an underwritten public offering,
addressed to the underwriters, and (iii) a letter dated such date, from
the independent certified public accountants of the Company, in form
and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering,
addressed to the underwriters;
(i) make available upon reasonable notice for inspection by each
seller of Registrable Securities, any underwriter participating in any
distribution pursuant to such registration statement, and any attorney,
accountant or other agent retained by such seller of Registrable
Securities or underwriter, all pertinent financial and other records,
pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all
information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with preparation and
verification of such registration statement;
(j) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make available to its security
holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months, but not more than
eighteen (18) months, beginning with the first month after the
effective date of the registration statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act;
and
(k) take such other actions as are reasonably required in order to
expedite or facilitate the sale of such Registrable Securities,
including, without limitation, causing management of the Company to
participate in "road show" presentations.
For purposes of Sections 5.4(a) and 5.4(b), the period of distribution of
Registrable Securities in a firm commitment underwritten public offering shall
be deemed to extend until each underwriter has completed the distribution of
all securities purchased by it, and the period of distribution of Common Stock
in any other registration shall be deemed to extend until the earlier of the
sale of all Common Stock covered thereby or 120 days after the effective date
thereof.
B-11
<PAGE>
5.5 Provision of Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 5
that the selling Holders shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them and the
intended method of disposition of such securities as shall be required to
effect the registration of the Registrable Securities.
5.6 Expenses of Registration. All expenses other than underwriting
discounts and commissions incurred in connection with registrations,
filings or qualifications of Registrable Securities pursuant to Sections
5.2 and 5.3, including (without limitation) all registration, filing and
qualification fees, printers' and accounting fees, fees and disbursements
of counsel for the Company, and the reasonable fees and disbursements of
one counsel for the participating Holders, shall be borne by the Company.
5.7 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder of such Registrable Securities, the officers
and directors of each such Holder, any underwriter (as defined in the
Securities Act) for such Holder and each person, if any, who controls
such Holder or underwriter within the meaning of the Securities Act or
the Exchange Act, against any losses, claims, damages or liabilities
(joint or several) to which they may become subject under the
Securities Act, the Exchange Act or other federal or state law, insofar
as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively, a "Violation"): (i)
any untrue statement or alleged untrue statement of a material fact
contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) 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, or (iii) any violation or
alleged violation by the Company of the Securities Act, the Exchange
Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law;
and the Company will reimburse each such Holder, officer or director,
underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,
however, that the indemnity agreement contained in this Section 5.7(a)
shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably
withheld or delayed), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent
that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such
Holder, officer, director, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder, severally
and not jointly, will indemnify and hold harmless the Company, each of
its directors, each of its officers who have signed the registration
statement, each person, if any, who controls the Company within the
meaning of the Securities Act, any underwriter and any other Holder
selling securities in such registration statement or any of its
directors or officers or any person who controls such Holder, against
any losses, claims, damages or liabilities (joint or several) to which
the Company or any such director, officer, controlling person,
underwriter, or other such Holder or director, officer, controlling
person or underwriter may become subject, under the Securities Act, the
Exchange Act or other federal or state law, insofar as such losses,
claims, damages or liabilities (or actions in respect thereto) arise
out of or are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by such Holder expressly
for use in connection with such registration; and each such Holder will
reimburse any legal or other expenses reasonably incurred by the
Company or any such director, officer, controlling person, underwriter,
or other such Holder or director, officer, controlling person or
underwriter in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that the
indemnity agreement contained in this Section 5.7(b) shall not apply to
amounts
B-12
<PAGE>
paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Holder from
whom indemnification is sought (which consent shall not be unreasonably
withheld or delayed); provided, that, in no event shall any indemnity
under this Section 5.7(b) exceed the gross proceeds from the offering
received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 5.7 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this
Section 5.7, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party shall have the right to
retain its own counsel, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due
to actual or potential differing interests between such indemnified
party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying
party within a reasonable time of the commencement of any such action,
shall only relieve such indemnifying party of any liability to the
indemnified party under this Section 5.7 if and to the extent the
indemnifying party is materially prejudiced by such omission, but the
omission so to deliver written notice to the indemnifying party will
not relieve it of any liability that it may have to any indemnified
party otherwise than under this Section 5.7. No indemnifying party, in
the defense of any such claim or litigation against an indemnified
party, shall consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect of such claim or litigation,
unless such indemnified party shall otherwise consent in writing.
(d) In order to provide for just and equitable contributions in any
case in which either (i) any Holder exercising registration rights
under Sections 5.2 or 5.3 of this Agreement, or any controlling person
of any such Holder, makes a claim for indemnification pursuant to this
Section 5.7 but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and following
the expiration of time to appeal or the denial of the last right of
appeal) that such indemnification may not be enforced in such case,
notwithstanding the fact that this Section 5.7 provides for
indemnification in such case, or (ii) contribution under the Act may be
required on the part of any such Holder or any such controlling person
in circumstances for which indemnification is provided under this
Section 5.7; then, and in each such case, the Company and such Holder
shall contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from
others) in such proportion as is appropriate to reflect both the
relative benefit received by such Holder and the relative fault of the
Company and such Holder; provided, however, that, in any such case, (A)
no such Holder will be required to contribute any amount in excess of
the net proceeds received by such selling Holder from the sale of
Registrable Securities covered by such registration statement; and (B)
no person or entity guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) will be entitled to contribution
from any person or entity who was not guilty of such fraudulent
misrepresentation. For purposes of the preceding sentence, the relative
benefit received by such Holder shall be deemed to be in the same
proportion as the public offering price of its Registrable Securities
offered by the registration statement bears to the public offering
price of all securities offered by such registration statement; and the
relative fault of the Company and such Holder shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or omission of a material fact relates to
information supplied by the Company or by such Holder and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
(e) The obligations of the Company and Holders under this Section
5.7 shall survive the completion of any offering of Registrable
Securities in a registration statement filed pursuant to this
Agreement, the termination of this Agreement pursuant to Section 7
hereof and otherwise.
B-13
<PAGE>
5.8 Reports Under the Exchange Act. With a view to making available to
the Holders the benefits of Rule 144 under the Securities Act and any other
rule or regulation of the Commission that may at any time permit a Holder
to sell securities of the Company to the public without registration, the
Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times;
(b) file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and
the Exchange Act; and
(c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement
by the Company that it has complied with the reporting requirements of
Rule 144, the Securities Act and the Exchange Act, (ii) a copy of the
most recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company and (iii) such other
information as may be reasonably requested in availing any Holder of
any rule or regulation of the Commission which permits the selling of
any such securities without registration.
5.9 Assignment of Registration Rights. The rights to cause the Company
to register Registrable Securities pursuant to this Agreement may be
assigned by a Holder; provided, that within a reasonable time after such
transfer, the Company is furnished with written notice of the name and
address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned; and provided, further,
that such assignment shall be effective only if immediately following such
transfer the further disposition of such securities by the transferee or
assignee is restricted under the Securities Act. Any assignee or transferee
asserting rights under this Agreement shall be deemed to have consented to
the terms and conditions hereof. Notwithstanding the foregoing, Holders'
rights to cause the Company to register their Registrable Securities and to
keep information available, granted to them by the Company under this
Section 5, may be assigned (or assigned in part and retained in part) to
one or more transferees or assignees who either (x) are Affiliates of
Stockholder or (y) receive Registrable Securities which, upon full exercise
and conversion, represent the right to obtain at least five hundred
thousand (500,000) shares of Registrable Securities (as adjusted for stock
dividends, stock split, recapitalizations and the like that occur after the
date of this Agreement), provided, that (i) the Company is given written
notice by such Holder at the time of or within a reasonable time after said
transfer or assignment, stating the name and address of said transferee or
assignee and identifying the securities with respect to which such rights
are being assigned, and (ii) upon request by the Company, such permitted
transferee or assignee executes a counterpart to Section 5 of this
Agreement.
5.10 "Market Stand-Off" Agreement. Each Holder hereby agrees that it
shall not, to the extent requested by the Company and an underwriter of
Common Stock (or other securities) of the Company, sell, make short sale
of, loan, grant any option for the purchase of or otherwise transfer or
dispose (other than to donees who agree to be similarly bound) of any
Registrable Securities for a period of time, as agreed to by the Company
and the underwriter not to exceed ninety (90) days, following the effective
date of a registration statement of the Company filed under the Securities
Act for an offering in which the Holder participates; provided, however,
that all officers and directors of the Company and all other persons with
registration rights (whether or not pursuant to this Agreement) except
passive, outside investors enter into similar agreements.
5.11 Termination of Registration Rights. The Company's obligations
pursuant to this Section 5 shall terminate as to any Holder of Registrable
Securities when the Holder can sell all of such Holder's Registrable
Securities pursuant to Rule 144(k) under the Securities Act and shall be
suspended, but not terminated, during any three-month period in which such
Holder is entitled to sell all shares issued or issuable to such Holder
under Rule 144. This Section 5 shall expressly survive termination of this
Agreement pursuant to Section 7 hereto.
5.12 No Inconsistent Agreements. The Company shall not, on or after the
date of this Agreement, enter into any agreement with respect to its
securities which is inconsistent with the rights granted to the
B-14
<PAGE>
Stockholder and other Holders in this Section 5 or otherwise conflicts with
the provisions of this Section 5. The Company represents and warrants to
Stockholder that the rights granted to the Holders hereunder do not in any
way conflict with and are not inconsistent with any registration rights
granted to any holders of the Company's securities.
5.13 Limitations on Subsequent Registration Rights. From and after the
date of this Agreement, the Company shall not, without the prior written
consent of Stockholder, enter into any agreement with any holder or
prospective holder of any securities of the Company giving such holder or
prospective holder any registration rights, other than registration rights
which are no more favorable (in terms of rights and limitations) than those
granted to Stockholder hereunder and under which the rights of such third
party holder or prospective holder to include securities in such
registration are subordinate to the right of Holders to include Registrable
Securities therein; provided however that the Company may grant
registration rights which are equivalent in priority to the registration
rights granted hereunder to recipients of Voting Stock issued by the
Company in connection with a transaction of the type described in Rule
145(a) under the Securities Act or a share exchange in which the Company is
the acquiring corporation.
6. Notice of Voting Stock Transfers by Mattson.
6.1 General. Except as otherwise provided in Section 6.2, ten (10)
business days prior to any sale or transfer of, or entering into any
agreement to sell or transfer, Voting Stock by Mattson (other than a sale
or transfer that would satisfy section 4.2(i) or (ii) if such sale or
transfer were made by Stockholder), Mattson shall provide Stockholder
written notice stating: (i) the number of shares of Voting Stock to be sold
or transferred; (ii) the name, address and relationship to Mattson, if any,
of the purchaser or transferee; and (iii) the cash price or other
consideration per share for which the Voting Stock is to be sold or
transferred.
6.2 Exceptions. Section 6.1 shall not apply to any of the following
sales or transfers of Voting Stock by Mattson:
(a) any transfer to Mattson's spouse, lineal descendant or
antecedent, father, mother, brother or sister, the adopted child or
adopted grandchild of Mattson, or the spouse of any child, adopted
child, grandchild or adopted grandchild of Mattson, or to a trust or
trusts for the exclusive benefit of Mattson or his family members as
described in this Section 6.2(a), transfers from Mattson by devise or
descent, or transfers by way of any pledge by Mattson;
(b) any transfer pursuant to a bona fide loan transaction that
creates a mere security interest; or
(c) sales or transfers not exceeding 100,000 shares in any single
transaction or series of related transactions, or 200,000 shares in the
aggregate in any twelve (12) month period.
7. Effectiveness; Termination.
7.1 Effectiveness. This Agreement shall become effective upon the
Closing of the STEAG Transaction as contemplated by the Combination
Agreement (the "Effective Date") and prior thereto shall be of no force or
effect. If the Combination Agreement shall be terminated in accordance with
its terms, this Agreement shall automatically be deemed to have been
terminated and shall thereafter be of no force or effect.
7.2 Termination. Except with respect to the rights and obligations set
forth in Section 5 which by their terms expressly survive until terminated
pursuant to Section 5.11 and the general provision set forth in Section 8,
all rights, remedies, obligations and liabilities of the parties under this
Agreement shall terminate upon the earliest to occur of:
(a) Stockholder's beneficial ownership of Voting Stock constituting
less than twenty percent (20%) of the then-outstanding Voting Stock;
(b) Stockholder's beneficial ownership of fifty percent (50%) or more
of the then-outstanding Voting Stock other than as a result of
Stockholder's violation of Section 2 of this Agreement; or
B-15
<PAGE>
(c) a material breach by the Company of any of its material
obligations under this Agreement. Notwithstanding the foregoing, a good
faith disagreement with respect to the Company's indemnification
obligations under Section 5.7, or the failure by the Company to timely
satisfy a notice or filing obligation under Sections 2.6, 3.1, 5.3,
5.4(a) or 5.8, if such notice or filing is ultimately made by the
Company not more than thirty (30) days after the date prescribed
therefor, shall not result in termination of the parties' rights,
remedies, obligations and liabilities under this Section 7.2(c);
provided, that nothing contained in this Section 7.2(c) shall limit any
rights Stockholder may have to damages or other remedies, whether at
law or in equity, as a result of any of the breaches described in this
Section 7.2(c).
8. Miscellaneous.
8.1 Other Agreements Superseded. This Agreement supersedes all prior
agreements or understandings written or oral between the parties hereto,
relating to the subject matter hereof, and incorporates the entire
understanding of the parties with respect thereto.
8.2 Amendment or Modification; Waiver. This Agreement may be amended or
supplemented only by a written instrument signed by the party against whom
the amendment or supplement is sought to be enforced. The party benefited
by any condition or obligation may waive the same, but such waiver shall
not be enforceable by another party unless made by written instrument
signed by the waiving party. Any waiver by any party of a breach of any
provision of this Agreement on one occasion shall not operate as or be
construed to be a waiver of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict compliance with any
term of this Agreement on one or more occasions shall not be considered a
waiver or deprive that party of the right thereafter to insist upon strict
compliance with that term or any other term of this Agreement.
8.3 Notices. Any notice or other communication under or relating to this
Agreement shall be given in writing and shall be deemed sufficiently given
and served for all purposes when personally delivered or given by telecopy
with receipt verified by printout of the transmitting machine (or otherwise
confirmed in writing, in which case the notice shall be deemed given when
such written confirmation is received):
(a) If to the Company:
Mattson Technology, Inc.
3550 West Warren Avenue
Fremont, California 94538
Attn: Chief Executive Officer
Fax: 510-492-7052
Attn: Chief Operating Officer
Fax: 510-492-7052
with a copy to:
Gray Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, California 94301
Attn: Bradley J. Rock, Esq.
Fax: 650-327-3699
(b) If to Stockholder:
STEAG Electronic Systems AG
Ruettenscheider Strasse 1-3
45128 Essen Germany
Attn: Chief Executive Officer
Fax: 011-49-201-801-6630
Attn: General Counsel
Fax: 011-49-201-801-6684
B-16
<PAGE>
with a copy to:
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019
Attn: Marc R. Packer, Esq.
Fax: 212-259-6333
(c) If to Brad Mattson:
Mr. Brad Mattson
c/o Mattson Technology, Inc.
Mattson Technology, Inc.
3550 West Warren Avenue
Fremont, California 94538
Fax: 510-492-7052
8.4 Law Governing; Consent to Jurisdiction; Equitable Relief; Attorneys'
Fees.
(a) This Agreement shall be construed in accordance with and
governed by the laws of the State of Delaware, without regard to the
principles of conflicts of laws thereof.
(b) Each of the parties hereto (i) consents to submit itself to the
personal jurisdiction of any federal court located in the State of
Delaware or any Delaware state court in the event of any dispute
arising out of or relating to this Agreement or any of the transactions
contemplated by this Agreement, (ii) agrees that it will not attempt to
deny or defeat such personal jurisdiction by motion or other request
for leave from any such court, including, without limitation, a motion
to dismiss on the grounds of forum non conveniens, (iii) agrees that it
will not bring any action arising out of or relating to this Agreement
or any of the transactions contemplated by this Agreement in any court
other than a federal court sitting in the State of Delaware or a
Delaware state court, and (iv) waives any right to a trial by jury with
respect to any claim, counterclaim, or action arising out of or in
connection with this Agreement or the transactions contemplated hereby.
(c) If any provisions of this Agreement is breached, the
nonbreaching party shall be entitled without limiting any other remedy
available at law or equity, to an injunction, specific performance or
other forms of equitable relief. The nonbreaching party shall be
entitled to recover the costs (including attorneys' fees) of enforcing
its rights and the breaching party's obligations pursuant to this
Agreement.
8.5 Successors; Assignability. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns. Neither this Agreement nor any right,
remedy, obligation or liability hereunder may be assigned by any of the
parties hereto without the prior written consent of the other parties
hereto.
8.6 Counterparts. This Agreement may be executed in any number of
counterparts, and each such executed counterpart shall be deemed to be an
original instrument, but all such executed counterparts together shall
constitute one and the same instrument.
8.7 Parties in Interest. Nothing in this Agreement, express or implied,
is intended to confer any rights or remedies under or by reason of this
Agreement on any Person other than the parties hereto and their respective
permitted successors and assigns, nor is anything in this Agreement
intended to relieve or discharge any obligation of any third Person to any
party hereto or give any third Person any right of subrogation or action
over or against any party hereto.
8.8 Headings. The headings used in this Agreement are provided for
convenience only and this Agreement shall be interpreted as though they did
not appear herein.
B-17
<PAGE>
8.9 Transactional Expenses. Except as otherwise specifically provided
herein, each party shall pay its own fees and expenses incident to the
negotiation, preparation, execution, delivery and performance of this
Agreement including, without limitation, the fees and expenses of its
counsel, accountants and other advisors.
8.10 Severability. Should any provisions of this Agreement be held by a
court of law to be illegal, invalid or unenforceable, the legality,
validity and enforceability of the remaining provisions of this Agreement
shall not be affected or impaired thereby.
8.11 Certain Definitions. As used in this Agreement, the following terms
have the respective meanings set forth below:
(a) Acquisition Proposal means any offer, proposal, inquiry or
indication of interest contemplating or otherwise relating to any
Acquisition Transaction.
(b) Acquisition Transaction means any transaction or series of
transactions involving:
(i) any merger, consolidation, reorganization, share exchange,
business combination, issuance of securities, recapitalization,
acquisition of securities, tender offer, exchange offer or other
similar transaction (i) in which the Company or any of its
Significant Subsidiaries (as defined in Rule 1-02 of Regulation S-X
of the Commission) is a constituent corporation, (ii) in which a
Person or "group" (as defined in the Exchange Act) of Persons
directly or indirectly acquires beneficial or record ownership of
securities representing more than 20% of the outstanding securities
of any class of voting securities of the Company or any of its
Significant Subsidiaries or (iii) in which the Company or any of its
Significant Subsidiaries issues securities representing more than
20% of the outstanding securities of any class of voting securities
of the Company or any of its Significant Subsidiaries;
(ii) any sale, lease, exchange, transfer, exclusive license,
acquisition or disposition of any business or businesses or assets
that constitute or account for 20% or more of the consolidated net
revenues, net income or assets of the Company or any of its
Significant Subsidiaries; or
(iii) any liquidation or dissolution of any of the Company or any
of its Significant Subsidiaries.
(c) Affiliate means any Person which controls, is controlled by or
is under common control with, another Person. For purposes of this
definition, "control" means with respect to a corporation or limited
liability company the right to exercise, directly or indirectly, more
than fifty percent (50%) of the voting rights attributable to the
controlled corporation or limited liability company and, with respect
to any individual, partnership, trust, other entity or association, the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of the controlled entity.
(d) Beneficial owner, beneficially own, beneficial ownership and
words of similar import have the meanings ascribed to such terms in
Rule 13d-3 of the General Rules and Regulations under the Exchange Act.
(e) Change of Control means (i) the Company's sale of all or
substantially all of its assets, (ii) any transaction or series of
related transactions (including, without limitation, any
reorganization, merger or consolidation) which will result in the
holders of the outstanding Voting Stock immediately prior to such
transaction or series of related transactions holding less than fifty
percent (50%) of the voting equity securities of the surviving entity
immediately following such transaction or (iii) any Person or group
(other than Stockholder or any of its Affiliates) becomes the
beneficial owner of more than fifty percent (50%) of the total voting
power of the outstanding voting equity securities of the Company.
(f) Closing means the closing of the STEAG Transaction contemplated
by the Combination Agreement.
B-18
<PAGE>
(g) Commission means the Securities and Exchange Commission.
(h) Common Stock means the common stock, par value $0.001 per share,
of the Company.
(i) Disinterested Director means a director of the Company who is
not a Stockholder Representative and who is not and has never been an
officer, employee or paid consultant of Stockholder or any of its
Affiliates.
(j) Disinterested Director Approval means approval by the Board of
Directors, which approval included votes to approve by a majority of
all the Disinterested Directors, or a public recommendation to the
stockholders of the Company approved by a majority of the Disinterested
Directors.
(k) Exchange Act means the Securities Exchange Act of 1934, as
amended, or any successor rule (together with the rules and regulations
of the Commission promulgated thereunder).
(l) Independent Director means any incumbent director of the Company
as of the Effective Date other than Mattson, and any future director of
the Company who is not and has never been an officer, employee or paid
consultant of (i) Stockholder or any of its Affiliates or (ii) the
Company or any of its Affiliates.
(m) Person means an individual, partnership, corporation, trust or
unincorporated organization or any federal, state, local or foreign
government or any political subdivision thereof (including, without
limitation, the executive and legislative branches thereof) or any
department, commission, board, bureau, agency, court, panel or other
instrumentality of any kind of any of the foregoing.
(n) Securities Act means the Securities Act of 1933, as amended, or
any successor rule (together with the rules and regulations of the
Commission promulgated thereunder).
(o) Subsidiary means, with respect to any party, any corporation,
limited liability company, partnership, joint venture or other business
association or entity, at least a majority of the voting securities or
economic interests of which is directly or indirectly owned or
controlled by such party or by any one or more of its Subsidiaries.
(p) Voting Stock means Common Stock, any securities convertible into
or exchangeable for Common Stock or any other right or option to
acquire Common Stock of the Company.
[Signature page follows.]
B-19
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
Mattson Technology, Inc.
By: _________________________________
Brad Mattson,
Chairman and Chief Executive
Officer
Steag Electronic Systems AG
By: _________________________________
Dr. Hans Betz,
Chief Executive Officer
By: _________________________________
Dr. Berthold Luetke-Daldrup
BRAD MATTSON
_____________________________________
B-20
<PAGE>
ANNEX C
AGREEMENT AND PLAN OF MERGER
by and among
MATTSON TECHNOLOGY, INC.,
M2C ACQUISITION CORPORATION
AND
CFM TECHNOLOGIES, INC.
JUNE 27, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE 1 THE MERGER.................................................... C-2
Section 1.1 The Merger............................................. C-2
Section 1.2 The Closing............................................ C-2
Section 1.3 Effective Time......................................... C-2
Section 1.4 Effects of the Merger.................................. C-2
Section 1.5 Certificate of Incorporation and Bylaws................ C-2
Section 1.6 Officers............................................... C-2
Section 1.7 Conversion of Company Common Stock..................... C-2
Section 1.8 Stock Options.......................................... C-3
Section 1.9 Conversion of the Acquisition Corporation Common C-5
Stock..................................................
Section 1.10 Early Condition Satisfaction Date...................... C-5
ARTICLE 2 STOCKHOLDER AND SHAREHOLDER APPROVALS......................... C-6
Section 2.1 Company Actions........................................ C-6
Section 2.2 Parent Corporation Actions............................. C-6
Section 2.3 Cooperation............................................ C-7
ARTICLE 3 EXCHANGE OF CERTIFICATES...................................... C-7
Section 3.1 Exchange of Certificates............................... C-7
Section 3.2 Exchange Agent; Exchange Procedures.................... C-7
Section 3.3 Transfer Books......................................... C-8
Section 3.4 Termination of Exchange Fund........................... C-8
Section 3.5 Lost Certificates...................................... C-8
Section 3.6 No Rights as Stockholder............................... C-9
Section 3.7 Withholding............................................ C-9
Section 3.8 Escheat................................................ C-9
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY................. C-9
Section 4.1 Due Incorporation...................................... C-9
Section 4.2 Due Authorization...................................... C-10
Section 4.3 Non-Contravention/Consents and Approvals............... C-10
Section 4.4 Capitalization......................................... C-11
Section 4.5 Financial Statements; Undisclosed Liabilities; Other C-12
Documents..............................................
Section 4.6 SEC Filings............................................ C-12
Section 4.7 No Company Material Adverse Effects or Changes......... C-12
Section 4.8 Properties............................................. C-13
Section 4.9 Registration Statement and Proxy Statement/Prospectus.. C-13
Section 4.10 Intellectual Property.................................. C-13
Section 4.11 Insurance.............................................. C-15
Section 4.12 Employee Matters and ERISA............................. C-15
Section 4.13 Labor Matters.......................................... C-16
Section 4.14 Tax Returns and Audits................................. C-16
Section 4.15 Environmental Matters.................................. C-19
Section 4.16 Litigation............................................. C-20
Section 4.17 Compliance with Applicable Laws........................ C-21
Section 4.18 Contracts; No Defaults................................. C-21
Section 4.19 Opinion of Financial Advisor........................... C-21
Section 4.20 Change in Control and Severance Payments............... C-21
Section 4.21 Year 2000.............................................. C-21
Section 4.22 Vote Required.......................................... C-22
</TABLE>
C-i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
Section 4.23 Broker's/Finder's Fees................................. C-22
Section 4.24 Ownership of Parent Common Stock....................... C-22
Section 4.25 Applicability of Certain Pennsylvania Law.............. C-22
Section 4.26 The Company Rights Agreement........................... C-22
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE PARENT CORPORATION AND
THE ACQUISITION CORPORATION............................................ C-23
Section 5.1 Due Incorporation, Subsidiaries and Due Authorization.. C-23
Section 5.2 Non-Contravention; Consents and Approvals.............. C-24
Section 5.3 Capitalization......................................... C-25
Section 5.4 Financial Statements; Undisclosed Liabilities; Other C-25
Documents..............................................
Section 5.5 SEC Filings............................................ C-26
Section 5.6 No Parent Corporation Material Adverse Effects or C-26
Changes................................................
Section 5.7 Properties............................................. C-26
Section 5.8 Registration Statement and Proxy Statement/Prospectus.. C-26
Section 5.9 Intellectual Property.................................. C-27
Section 5.10 Insurance.............................................. C-28
Section 5.11 Employee Matters and ERISA............................. C-28
Section 5.12 Labor Matters.......................................... C-29
Section 5.13 Tax Returns and Audits................................. C-30
Section 5.14 Environmental Matters.................................. C-31
Section 5.15 Litigation............................................. C-32
Section 5.16 Compliance with Applicable Laws........................ C-32
Section 5.17 Contracts; No Defaults................................. C-32
Section 5.18 Change in Control and Severance Payments............... C-33
Section 5.19 Year 2000.............................................. C-33
Section 5.20 Brokers and Finders.................................... C-33
Section 5.21 Ownership of the Company Common Stock.................. C-33
Section 5.22 Opinion of Financial Advisor........................... C-33
Section 5.23 Vote Required.......................................... C-33
Section 5.24 Steag Agreement........................................ C-33
ARTICLE 6 COVENANTS..................................................... C-34
Section 6.1 Covenant to Satisfy Conditions......................... C-34
Section 6.2 Access to Information and Facilities................... C-34
Section 6.3 Company Conduct of Business Pending Effective Time..... C-34
Section 6.4 Parent Corporation Conduct of Business Pending C-36
Effective Time.........................................
Section 6.5 Proxy Materials and Shareholder Approval............... C-36
Section 6.6 Intentionally Omitted.................................. C-37
Section 6.7 Consents and Approvals................................. C-37
Section 6.8 Periodic Reports....................................... C-37
Section 6.9 Publicity.............................................. C-37
Section 6.10 Acquisition Proposals.................................. C-37
Section 6.11 No Breach, Etc......................................... C-38
Section 6.12 Blue Sky Approvals..................................... C-38
Section 6.13 Indemnification by the Surviving Corporation........... C-39
Section 6.14 Certain Employee Agreements............................ C-40
Section 6.15 Employee Benefit Plans................................. C-40
Section 6.16 Actions Regarding Antitakeover Statutes................ C-42
Section 6.17 Defense of Orders and Injunctions...................... C-42
Section 6.18 Preservation of Tax Treatment.......................... C-42
Section 6.19 Accountants' Comfort Letters........................... C-43
</TABLE>
C-ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
Section 6.20 NASDAQ Listing.......................................... C-43
Section 6.21 Directors............................................... C-43
ARTICLE 7 CONDITIONS TO THE CONSUMMATION OF THE MERGER................... C-44
Section 7.1 Conditions to Each Party's Obligation to Consummate the C-44
Merger..................................................
Section 7.2 Conditions to Obligations of Parent Corporation and the
Acquisition Corporation to Consummate the Merger........ C-44
Section 7.3 Conditions to Obligations of the Company to Consummate C-45
the Merger..............................................
ARTICLE 8 TERMINATION, AMENDMENT AND WAIVER.............................. C-46
Section 8.1 Optional Termination.................................... C-46
Section 8.2 Automatic Termination................................... C-48
Section 8.3 Effect of Termination................................... C-48
ARTICLE 9 MISCELLANEOUS.................................................. C-49
Section 9.1 Nonsurvival of Representations.......................... C-49
Section 9.2 Remedies................................................ C-49
Section 9.3 Successors and Assigns.................................. C-49
Section 9.4 Amendment............................................... C-49
Section 9.5 Extension and Waiver.................................... C-49
Section 9.6 Severability............................................ C-50
Section 9.7 Counterparts............................................ C-50
Section 9.8 Descriptive Headings.................................... C-50
Section 9.9 Notices................................................. C-50
Section 9.10 No Third Party Beneficiaries............................ C-51
Section 9.11 Entire Agreement........................................ C-51
Section 9.12 Construction............................................ C-51
Section 9.13 Submission to Jurisdiction.............................. C-51
Section 9.14 Governing Law........................................... C-51
Section 9.15 Expenses................................................ C-51
Section 9.16 Confidentiality and Return Information.................. C-51
</TABLE>
C-iii
<PAGE>
EXHIBITS
Exhibit ACertain Definitions
Exhibit A-1Certain Company Option Holders
Exhibit A-2Form of Voting Agreement
Exhibit A-3Form of Stockholder Voting Agreement
TABLE OF DEFINED TERMS
<TABLE>
<S> <C>
Acquisition Corporation Preamble
Acquisition Corporation Common Stock Section 5.3(b)
Acquisition Proposal Exhibit A
Acquisition Transaction Exhibit A
Additional Benefit Section 6.15(b)
Additional Parent Options Section 1.8(e)
Cap Section 6.13(e)
Certificate Section 3.1
Charter Amendment Section 2.2(a)
Closing Section 1.2
Closing Agreement Section 4.14(k)
Closing Date Section 1.2
COBRA Section 4.12(e)
Code Preamble
Company Preamble
Company Base Balance Sheet Section 4.5(b)
Company Benefit Plans Section 4.12(a)
Company Board Recommendation Section 2.1(d)
Company Common Stock Section 1.7(a)
Company Dissenting Shares Section 1.7(e)
Company Financial Statements Section 4.5(a)
Company Intellectual Property Section 4.10(a)
Company International Benefit Plans Section 4.12(a)
Company Material Adverse Effect Section 4.7
Company Option Section 1.8(a)
Company Permits Section 4.17
Company Preferred Stock Section 4.4(a)
Company Proposals Section 2.1(a)
Company Public Proposal Section 8.3(b)
Company Rights Section 4.4(a)
Company Rights Agreement Section 4.4(a)
Company SEC Documents Section 4.6
Company Shareholder Approval Section 2.1(a)
Company Shareholders Meeting Section 2.1(a)
Company Subsidiary Section 4.12(a)
Company Subsidiary Section 4.1(a)
Company Triggering Event Exhibit A
Confidentiality Agreement Section 9.16
Continuing Employee Section 6.15(a)
Company Early Condition Satisfaction Date Section 1.10
Delaware Act Section 1.1
Effective Time Section 1.3
</TABLE>
C-iv
<PAGE>
<TABLE>
<S> <C>
Environmental Claim Section 4.15(f)(i)
Environmental Laws Section 4.15(f)(ii)
Environmental Permits Section 4.15(b)
ERISA Section 4.12(a)
Exchange Agent Section 3.1
Exchange Fund Section 3.2(a)
Governmental Entity Section 4.3(b)
Hazardous Materials Section 4.15(f)(iii)
HSR Act Section 4.3(b)(i)
Indemnified Liabilities Section 6.13(a)
Indemnified Parties Section 6.13(a)
IRS Section 4.12(c)
Joint Proxy Statement Section 2.1(b)
Laws Section 4.3(a)
Licensed Intellectual Property Section 4.10(f)
Local Approvals Section 4.3(b)(v)
Long Term Debt Section 6.3(h)
Loss Section 4.7
Merger Section 1.1
Merger Consideration Section 1.7(c)
NASDAQ Section 2.1
New Plans Section 6.15(a)
Old Plans Section 6.15(a)
Parent Common Stock Section 1.7(a)
Parent Corporation Preamble
Parent Corporation Base Balance Sheet Section 5.4(b)
Parent Corporation Benefit Plans Section 5.11(a)
Parent Corporation Material Adverse Effect Section 5.6
Parent Corporation Stockholder Approval Section 2.2(a)
Parent Corporation Stockholders Meeting Section 2.2(a)
Registration Statement Section 2.2(b)
SEC Section 1.8(c)
Second Additional Parent Options Section 1.8(e)
Securities Act Section 2.1(b)
Securities Exchange Act Section 1.8(f)
Share Issuance Section 2.2(a)
Steag Early Condition Satisfaction Date Actions Section 1.10
Stock Option Plans Section 1.8(a)
Subsidiary Section 1.7(d)
Surviving Corporation Section 1.1
Tax Section 4.14
Tax Return Section 4.14
Termination Fee Section 8.3(b)
</TABLE>
C-v
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of June 27, 2000 among Mattson
Technology, Inc., a Delaware corporation (the "Parent Corporation"), M2C
Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary
of the Parent Corporation (the "Acquisition Corporation"), and CFM
Technologies, Inc., a Pennsylvania corporation (the "Company").
WHEREAS, the Boards of Directors of the Parent Corporation and the Company
have each determined that a business combination between the Parent Corporation
and the Company is desirable and in the best interests of the Parent
Corporation and its stockholders and the Company and its shareholders, and the
Boards of Directors of the Parent Corporation and the Company accordingly have
each duly adopted resolutions approving this Agreement and the transactions
contemplated hereby, including the Merger (as defined in Section 1.1);
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the Company is entering into a stock option agreement with the
Parent Corporation (the "Stock Option Agreement"), pursuant to which the
Company has granted to the Parent Corporation an option to purchase up to
nineteen and nine-tenths percent (19.9%) of the total number of shares of
Company Common Stock (as defined in Section 1.7(a) herein) issued and
outstanding as of the date of the Stock Option Agreement (which amount shall be
adjusted to reflect changes in the Company's capitalization occurring after the
date of the Stock Option Agreement in accordance with Section 11 thereof) at a
price per share equal to the average of the last sale prices of Company Common
Stock on the ten (10) trading days immediately prior to the announcement of the
Merger;
WHEREAS, it is intended that the Merger provided for in this Agreement will
qualify as a reorganization within the meaning of Section 368 of the Internal
Revenue Code of 1986, as amended (the "Code");
WHEREAS, prior to the execution and delivery of this Agreement, the Company
and Roger A. Carolin, the President and Chief Executive Officer of the Company,
have entered into an Amendment No. 1 dated June 27, 2000 to Change of Control
and Severance Agreement.
WHEREAS, in order to induce the Parent Corporation and the Company to enter
this Agreement and to consummate the merger, a certain shareholder of the
Company is entering into a voting agreement pursuant to which he is agreeing to
vote in favor of the adoption and approval of the Merger, and a certain
stockholder of the Parent Corporation is entering into a voting agreement
pursuant to which he is agreeing to vote in favor of increasing the number of
shares of common stock that the Parent Corporation is authorized to issue and
to issue shares of the Parent Corporation common stock pursuant to the Merger;
and
WHEREAS, concurrently herewith, the Parent Corporation and Steag Electronic
Systems A.G., an Aktiengesellschaft organized and existing under the laws of
the Federal Republic of Germany ("Steag"), are executing a Strategic Business
Combination Agreement of even date herewith (the "Steag Agreement") which
provides (among other things) that, subject to the terms and conditions
thereof, the parties thereto will consummate certain transactions that are
collectively referred to therein as the "Strategic Business Combination" and
are collectively referred to herein as the "Steag Combination," and it is the
intent and desire of the Parent Corporation, the Company and Steag that the
Merger and the Steag Combination be mutually conditioned on the simultaneous
consummation of both such transactions for the long-term strategic benefit of
their respective stockholders.
C-1
<PAGE>
NOW, THEREFORE, in consideration of the mutual agreements contained herein
and for other good and valuable consideration, the value, receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, agree as follows:
ARTICLE 1
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, at the Effective Time (as defined in Section 1.3) the
Acquisition Corporation will be merged with and into the Company (the "Merger")
in accordance with the provisions of both the Pennsylvania Business Corporation
Law (the "Pennsylvania Act") and the Delaware General Corporation Law (the
"Delaware Act"). Following the Merger, the Company will continue as the
surviving corporation (the "Surviving Corporation") and the separate corporate
existence of the Acquisition Corporation will cease.
Section 1.2 The Closing. Upon the terms and subject to the conditions set
forth in this Agreement, the consummation of the Merger and the other
transactions contemplated by this Agreement (the "Closing") will take place at
the offices of Gray Cary Ware & Freidenrich LLP located at 400 Hamilton Avenue,
Palo Alto, California 94301, at 10:00 a.m., local time, on the first business
day following the satisfaction or waiver of the conditions set forth in Article
7 (other than those conditions that by their nature are to be satisfied at the
Closing, but subject to the satisfaction or, where permitted, waiver of those
conditions), or at such other date, time or place as the Parent Corporation and
the Company may agree. The date upon which the Closing occurs is referred to in
this Agreement as the "Closing Date."
Section 1.3 Effective Time. The Merger will be consummated by the filing of
Articles of Merger, prepared in accordance with Section 1926 of the
Pennsylvania Act, in the Pennsylvania Department of State in accordance with
Section 1927 of the Pennsylvania Act, and by the filing of a Certificate of
Merger with the Secretary of State of the State of Delaware in accordance with
Section 252(c) of the Delaware Act. The time the Merger becomes effective in
accordance with Section 1928 of the Pennsylvania Act and Sections 103(d) and
252(c) of the Delaware Act is referred to in this Agreement as the "Effective
Time."
Section 1.4 Effects of the Merger. The Merger will have the effects set
forth in the Pennsylvania Act and the Delaware Act. Without limiting the
generality of the foregoing, as of the Effective Time, all properties, rights,
privileges, powers and franchises of the Company and the Acquisition
Corporation will vest in the Surviving Corporation and all debts, liabilities
and duties of the Company and the Acquisition Corporation will become debts,
liabilities and duties of the Surviving Corporation.
Section 1.5 Certificate of Incorporation and Bylaws. At the Effective Time,
the Certificate of Incorporation and Bylaws of the Acquisition Corporation in
the respective forms delivered by the Parent Corporation to the Company prior
to the date of this Agreement will be amended and restated to change the name
of the Acquisition Corporation to such name as the Parent Corporation may
determine. The Certificate of Incorporation and Bylaws of the Acquisition
Corporation, as so amended and restated, will be the Certificate of
Incorporation and Bylaws of the Surviving Corporation.
Section 1.6 Officers. From and after the Effective Time, the individuals
identified as Surviving Corporation Officers on Schedule 1.6 hereto shall be
the officers of the Surviving Corporation, each to hold office in accordance
with the Certificate of Incorporation and By-Laws of the Surviving Corporation.
Section 1.7 Conversion of Company Common Stock.
(a) Subject to the provisions of Section 1.7(b), each share of the
Company's Common Stock, no par value (the "Company Common Stock"), issued
and outstanding immediately prior to the Effective Time (except as
otherwise provided in Section 1.7(b)) will, by virtue of the Merger and
without any action on
C-2
<PAGE>
the part of the holder thereof, be canceled and converted into the right to
receive, upon the surrender of the certificate formerly representing such
share, that number of shares of the Parent Corporation's Common Stock, par
value $0.001 per share (the "Parent Common Stock") equal to the Exchange
Ratio. The Exchange Ratio shall be .5223. In the event the number of shares
of Parent Common Stock issuable upon surrender of Company Common Stock by
any holder shall include a fraction of a share, the number of shares of
Parent Common Stock issuable to such holder shall be rounded down to the
next lowest whole number of shares and such holder shall be paid cash in
lieu of such fractional share as set forth in Section 3.2(c). In the event
that, subsequent to the date of this Agreement but prior to the Effective
Time, the outstanding shares of Parent Common Stock or Company Common Stock
are changed into a different number of shares or a different class as a
result of a stock split, reverse stock split, stock dividend, subdivision,
reclassification, combination, exchange, recapitalization or similar
transaction, the number of shares of Parent Common Stock into which each
share of Company Common Stock will be converted as a result of the Merger
will be adjusted appropriately.
(b) Each share of Company Common Stock held in the treasury of the
Company, held by any Subsidiary (as defined in Section 1.7(d)) of the
Company or held by the Parent Corporation or any Subsidiary of the Parent
Corporation immediately prior to the Effective Time will, by virtue of the
Merger and without any action on the part of the holder thereof, be
canceled and retired and will cease to exist. For purposes of this Section
1.7(b), shares of Company Common Stock owned beneficially or held of record
by any plan, program or arrangement sponsored or maintained for the benefit
of any current or former employee of the Company, the Parent Corporation or
any of their respective Subsidiaries will not be deemed to be held by the
Company, the Parent Corporation or any such Subsidiary, regardless of
whether the Company, the Parent Corporation or any such Subsidiary has the
power, directly or indirectly, to vote or control the disposition of such
shares.
(c) The shares of Parent Common Stock to be issued upon the conversion
of shares of Company Common Stock pursuant to Section 1.7(a) and any cash
to be paid in lieu of fractional shares of Parent Common Stock pursuant to
Section 3.2(c) are referred to in this Agreement collectively as the
"Merger Consideration."
(d) The term "Subsidiary" as used in this Agreement means any
corporation, partnership, limited liability company or other business
entity 50 percent or more of the outstanding voting equity securities of
which are owned, directly or indirectly, by the Company or the Parent
Corporation, as applicable.
(e) Company Dissenting Shares. Shares of Company Common Stock held by
any holder entitled to and seeking relief as a dissenting shareholder under
the Pennsylvania Act (the "Company Dissenting Shares") shall not be
converted into the right to receive Surviving Corporation Common Stock but
shall be converted into such consideration as may be due with respect to
such shares pursuant to the applicable
provisions of the Pennsylvania Act, unless and until the right of such
holder to receive fair cash value for such Company Dissenting Shares
terminates in accordance with the Pennsylvania Act. If such right is
terminated otherwise than by the purchase of such shares by the Surviving
Corporation, then such shares shall cease to be Company Dissenting Shares
and shall be converted into and represent the right to receive the Parent
Common Stock as provided in Section 1.7(a).
Section 1.8 Stock Options.
(a) Subject to Section 1.8(b), at the Effective Time, each outstanding
option to purchase shares of Company Common Stock (a "Company Option")
granted under any stock option plan, program, agreement or arrangement of
the Company or any of its Subsidiaries ("Stock Option Plans") shall be
converted into an option to purchase Parent Common Stock, and the Parent
Corporation shall assume each such Company Option in accordance with the
terms (as in effect as of the date of this Agreement) of the Stock Option
Plan under which it was issued and the stock option agreement by which it
is evidenced. From and after the Effective Time, (i) each Company Option
assumed by the Parent Corporation may be exercised solely for shares of the
Parent Common Stock, (ii) the number of shares of Parent Common
C-3
<PAGE>
Stock subject to each such Company Option shall be equal to the number of
shares of Company Common Stock subject to such Company Option immediately
prior to the Effective Time multiplied by the Exchange Ratio, rounding down
to the nearest whole share, (iii) the per share exercise price under each
such Company Option shall be adjusted by dividing the per share exercise
price under such Company Option by the Exchange Ratio and rounding up to
the nearest tenth of a cent and (iv) any restriction on the exercise of any
such Company Option shall continue in full force and effect and the term,
exercisability, vesting schedule and other provisions of such Company
Option shall otherwise remain unchanged; provided, however, that each
Company Option assumed by the Parent Corporation in accordance with this
Section 1.8(a) shall, in accordance with its terms, be subject to further
adjustment as appropriate to reflect any stock split, division or
subdivision of shares, stock dividend, reverse stock split, consolidation
of shares, reclassification, recapitalization or other similar transaction
subsequent to the Effective Time.
(b) Notwithstanding anything to the contrary contained in this Section
1.8, in lieu of assuming outstanding Company Options in accordance with
Section 1.8(a), the Parent Corporation may, at its election, cause such
outstanding Company Options to be replaced by issuing replacement stock
options in substitution therefor containing provisions and terms equivalent
in all material respects with those contained in such Company Options
("Replacement Options"). The number of shares of Parent Common Stock
subject to a Replacement Option, as well as the per share exercise price of
such Replacement Option shall be determined in the manner specified in
Section 1.8(a). If the Parent Corporation elects to substitute Replacement
Options in lieu of assuming outstanding Company Options, the Parent
Corporation shall take all corporate action necessary to approve the
Replacement Options described in this Section 1.8(b) in a manner qualifying
under Section 424(a) of the Code and shall deliver an agreement evidencing
such Replacement Options to each applicable holder of a Company Option
within 30 days after the Effective Time. Shares of Parent Common Stock
issuable pursuant to the Replacement Options granted pursuant to this
Section 1.8(b) shall be registered on the Form S-8 Registration Statement
referred to in Section 1.8(c).
(c) The Parent Corporation will take all corporate action necessary to
reserve for issuance a sufficient number of shares of Parent Common Stock
for delivery upon exercise of all of the Company Options converted into
options to purchase Parent Common Stock pursuant to Section 1.8(a),
Replacement Options granted under Section 1.8(b), the Additional Parent
Options and Second Additional Parent Options (as defined in Section
1.8(e)). Not later than two business days following the Effective Time, the
Parent Corporation will file with the Securities and Exchange Commission
(the "SEC") a registration statement on Form S-8 (or any successor or other
appropriate form) with respect to the shares of Parent Common Stock subject
to the converted stock options and will deliver prospectuses to the holders
of such stock options. The Parent Corporation will use all reasonable
efforts to maintain the effectiveness of the foregoing registration
statement (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as any of the converted stock
options remain outstanding and unexercised.
(d) At the Effective Time, (i) all outstanding and unvested Company
Options granted under any Stock Option Plan, other than those Company
Options held by the individuals listed on Exhibit A-1 hereto, shall
completely vest to the extent and in the manner provided under the
applicable Stock Option Plan, and (ii) the vesting schedule of the Company
Options held by the individuals listed on Exhibit A-1 hereto shall
accelerate such that vesting of those Company Options will occur at twice
the rate of vesting in effect immediately prior to the Effective Time.
Notwithstanding Section 1.8(d)(ii) herein, as soon as reasonably
practicable following the Effective Time, the Surviving Corporation and the
individuals listed on Exhibit A-1 shall enter into separate agreements
providing for the complete and immediate vesting of such individual's
outstanding Company Options in the event that the Parent Corporation or the
Surviving Corporation terminates such individual's employment without cause
following the Effective Time.
(e) At the Effective Time, the Parent Corporation will assume the
obligations of the Company under the Stock Option Plans as in effect at the
Effective Time. At the Effective Time, the Parent Corporation shall
authorize and grant 400,000 options to purchase Parent Common Stock (the
"Additional Parent
C-4
<PAGE>
Options") to be allocated among those individuals employed by the Company
or any Company Subsidiary immediately before the Effective Time who remain
employed by the Surviving Corporation, Parent Corporation or any of its
Subsidiaries after the Effective Time, including those individuals listed
on Exhibit A-1 hereto, which options shall be subject to the terms and
conditions of the Parent Corporation's 1989 Stock Option Plan (the "Parent
Stock Option Plan") and the applicable stock option agreement under which
the respective options are issued. The Additional Parent Options shall vest
ratably on a monthly basis over a four (4) year period and will otherwise
be pursuant to the Parent Corporation standard terms for employee stock
options. The basis of allocating the Additional Parent Options shall be
developed jointly by the Boards of Directors of the Company and the Parent
Corporation and shall be substantially similar to the Company's past
practice of allocating Company Options to its employees. At the Effective
Time, the Parent Corporation shall also, subject to approval by the Board
of Directors of the Parent Corporation, authorize and grant 100,000 options
to purchase Parent Common Stock (the "Second Additional Parent Options") to
those individuals listed on Exhibit A-1 hereto, which options shall be
subject to the terms and conditions of the Parent Stock Option Plan and the
applicable stock option agreement under which the respective options are
issued. The Second Additional Parent Options shall "cliff vest" 100% two
years after the Effective Time. The basis of allocating the Second
Additional Parent Options to these individuals shall be determined by the
President and Board of Directors of the Company as of the Effective Time.
No additional Company Options will be granted pursuant to the Stock Option
Plans after the Effective Time.
(f) The Boards of Directors or Compensation Committees of the Company
and the Parent Corporation will each grant all approvals and take all other
actions required pursuant to Rules 16b-3(d) and 16b-3(e) under the
Securities Exchange Act of 1934, as amended (together with the rules and
regulations of the SEC thereunder, the "Securities Exchange Act"), to cause
the disposition in the Merger of Company Common Stock and Company Options
and the acquisition in the Merger of Parent Common Stock and options to
acquire Parent Common Stock to be exempt from the provisions of Section
16(b) of the Securities Exchange Act.
Section 1.9 Conversion of the Acquisition Corporation Common Stock. Each
share of the Common Stock, par value $0.001 per share, of the Acquisition
Corporation issued and outstanding immediately prior to the Effective Time
will, by virtue of the Merger and without any action on the part of the holder
thereof, be converted into one share of the Common Stock, no par value per
share, of the Surviving Corporation.
Section 1.10 Early Condition Satisfaction Date. If prior to December 1,
2000, (i) all of the conditions set forth in Section 7.1 have been satisfied
and all of the conditions set forth in Sections 7.2 and 7.3 (other than
conditions which, by their nature, can only be satisfied by delivery of
documents or other instruments on the Closing Date) would have been either
satisfied or waived by the relevant party were the Closing to occur at such
time and (ii) simultaneously with the actions contemplated by this Section
1.10, the actions contemplated to be taken by Section 2.8 of the Steag
Agreement (the "Steag Early Condition Satisfaction Date Actions") also occur
and the Company is provided reasonably satisfactory evidence of the
simultaneous occurrence thereof, then, no later than three (3) business days
thereafter (the "Company Early Condition Satisfaction Date") at a place and
time (simultaneous with the Steag Early Condition Satisfaction Date Actions) to
be mutually agreed upon by the parties and Steag, the parties shall take the
following actions:
(a) the Parent Corporation and the Company shall each deliver or cause
to be delivered to the other the closing certificates and other documents
that would have been required at the Closing pursuant to Sections 7.2(c),
(d), (h) and (i) and Sections 7.3(c), (d), (e) and (h); provided, that such
certificates and other documents shall be dated as of the Company Early
Condition Satisfaction Date and shall address representations, warranties
and covenants, in the case of certificates, opinions, in the case of legal
opinions, and other circumstances, in the case of other documents, as of
such date; and
(b) the Parent Corporation shall execute and deliver to the Company an
irrevocable acknowledgement and waiver, in form and substance reasonably
satisfactory to the Company and Steag, of the satisfaction or waiver of the
closing conditions set forth in Section 7.2 and the waiver of the Parent
C-5
<PAGE>
Corporation's termination rights set forth in Section 8.1; and the Company
shall execute and deliver to the Parent Corporation an irrevocable
acknowledgement and waiver, in form and substance reasonably satisfactory
to the Parent Corporation and Steag, of the satisfaction or waiver of the
closing conditions set forth in Section 7.3 and the waiver of the Company's
termination rights set forth in Section 8.1.
Notwithstanding anything contained in this Article 1, the Closing shall not
occur, and the Parent Corporation shall not acquire ownership of any equity
securities of the Company pursuant to the Merger or become obligated to issue
any of its equity securities pursuant thereto, prior to January 1, 2001.
For the purposes of this Section 1.10, the condition set forth in Section
7.1(f) shall be deemed satisfied if, concurrently with the taking of the
actions referred to in clauses (a) and (b) above of this Section 1.10 on the
Company Early Condition Satisfaction Date, the Steag Early Condition
Satisfaction Date Actions are taken.
ARTICLE 2
STOCKHOLDER AND SHAREHOLDER APPROVALS
Section 2.1 Company Actions. The Company, acting through its Board of
Directors, in accordance with applicable law, its Articles of Incorporation, as
amended, and Bylaws, as amended, and the rules and listing requirements of the
Nasdaq National Market ("NASDAQ"), will:
(a) duly call, give notice of, convene and hold a special meeting of its
shareholders (the "Company Shareholders Meeting"), to be held (on a date
selected by the Company in consultation with the Parent Corporation) as
soon as practicable after the Form S-4 Registration Statement is declared
effective, for the purpose of submitting this Agreement, the Merger and the
other transactions contemplated hereby, as a single proposal (the "Company
Proposals") for adoption and approval by the affirmative vote of the
holders of Company Common Stock as set forth in Section 4.22 hereof (the
"Company Shareholder Approval");
(b) cooperate with the Parent Corporation in preparing and filing with
the SEC as promptly as practicable after the date of this Agreement a Joint
Proxy Statement/Prospectus and related materials (the "Joint Proxy
Statement") with respect to the Company Shareholders Meeting satisfying the
requirements of the Securities Act of 1933, as amended (together with the
rules and regulations of the SEC thereunder, the "Securities Act"), and the
Securities Exchange Act, respond promptly to any comments raised by the SEC
with respect to the preliminary version of the Joint Proxy Statement, and
cause the definitive version of the Joint Proxy Statement to be mailed to
its shareholders as soon as it is legally permitted to do so;
(c) provide the Parent Corporation with the information concerning the
Company required to be included in the Joint Proxy Statement and the
Registration Statement (as defined in Section 2.2(b)); and
(d) subject to the provisions of Section 6.10 and the fiduciary duty of
the Company's Board of Directors, include in the Joint Proxy Statement (i)
the recommendation of the Board of Directors of the Company that the
shareholders of the Company vote in favor of the Merger and the adoption
and approval of this Agreement and the transactions contemplated hereby
(the "Company Board Recommendation") and (ii) the written opinion dated as
of the date of this Agreement of Warburg Dillon Read LLC, financial advisor
to the Board of Directors of the Company, to the effect that as of the date
of this Agreement, the Merger Consideration is fair to the shareholders of
the Company, other than the Parent Corporation and its affiliates, from a
financial point of view.
Section 2.2 Parent Corporation Actions. The Parent Corporation, acting
through its Board of Directors, in accordance with applicable law, its
Certificate of Incorporation and Bylaws and the rules and listing requirements
of NASDAQ, will:
(a) duly call, give notice of, convene and hold a special meeting of its
stockholders (the "Parent Corporation Stockholders Meeting"), to be held as
soon as practicable after the date of this Agreement, for the purpose of
submitting, as a single proposal, the proposal adopted by the Board of
Directors of the
C-6
<PAGE>
Parent Corporation to (i) issue shares of Parent Common Stock pursuant to
the Merger and the Steag Combination (the "Share Issuance") to effectuate
such transactions and (ii) if necessary, increase the shares reserved under
the Parent Stock Option Plans (collectively, the "Parent Corporation
Proposal") for the approval by the holders of the outstanding shares of
Parent Common Stock as set forth in Section 5.23 hereof (the "Parent
Corporation Stockholder Approval");
(b) file with the SEC as promptly as practicable after the date of this
Agreement a Registration Statement on Form S-4 (which will include the
Joint Proxy Statement) complying in all material respects with the
Securities Act and the Securities Exchange Act registering the issuance of
the Parent Common Stock proposed to be issued by the Parent Corporation
pursuant to the Merger (the "Registration Statement"), respond promptly to
any comments raised by the SEC with respect to the preliminary version of
the Joint Proxy Statement or the Registration Statement, use all its
reasonable efforts to cause the Registration Statement to be declared
effective by the SEC as promptly as practicable and cause the definitive
version of the Joint Proxy Statement to be mailed to its stockholders as
soon as it is legally permitted to do so;
(c) provide the Company with the information concerning the Parent
Corporation, the Acquisition Corporation and Steag (to the extent available
to the Parent Corporation) required to be included in the Joint Proxy
Statement; and
(d) subject to the fiduciary duty of the Parent Corporation's Board of
Directors, include in the Joint Proxy Statement (i) the recommendation of
the Board of Directors of the Parent Corporation that the stockholders of
the Parent Corporation vote in favor of the Parent Corporation Proposal
(the "Parent Corporation Board of Recommendation") and (ii) the written
opinion dated as of June 27, 2000 of Alliant Partners, financial advisor to
the Board of Directors of the Parent Corporation, to the effect that the
Merger and Steag Combination, together, are fair, from a financial point of
view, to the Parent Corporation stockholders.
Section 2.3 Cooperation. Each party will promptly advise the other of its
receipt of, and will promptly furnish the other party with copies of, all
comments received from the SEC with respect to the Registration Statement and
the Joint Proxy Statement and will consult with the other party in responding
to such comments.
ARTICLE 3
EXCHANGE OF CERTIFICATES
Section 3.1 Exchange of Certificates. From and after the Effective Time,
each holder of a certificate that immediately prior to the Effective Time
represented outstanding shares of Company Common Stock (a "Certificate") will
be entitled to receive in exchange therefor, upon surrender thereof to an
exchange agent to be designated by the parties (the "Exchange Agent"), the part
of the Merger Consideration into which the shares of Company Common Stock
evidenced by such Certificate were converted pursuant to the Merger. No
interest will be payable on the Merger Consideration to be paid to any holder
of a Certificate irrespective of the time at which such Certificate is
surrendered for exchange.
Section 3.2 Exchange Agent; Exchange Procedures.
(a) As soon as reasonably practicable following the Effective Time, the
Parent Corporation will deposit, or cause to be deposited, with the
Exchange Agent, in trust for the benefit of holders of Certificates,
certificates representing the Merger Consideration and the amount of any
dividends or distributions payable in accordance with the provisions of
Section 3.2(b) (the "Exchange Fund").
(b) As soon as reasonably practicable after the Effective Time, the
Parent Corporation will instruct the Exchange Agent to mail to each record
holder of a Certificate (i) a letter of transmittal (which will specify
that delivery will be effected, and risk of loss and title to such
Certificates will pass, only upon delivery of the Certificate to the
Exchange Agent and will be in such form and have such other provisions
C-7
<PAGE>
as the Parent Corporation will reasonably specify) and (ii) instructions
for use in effecting the surrender of Certificates for certificates
representing shares of Parent Common Stock. Commencing immediately after
the Effective Time, upon the surrender to the Exchange Agent of such
Certificate or Certificates, together with a duly executed and completed
letter of transmittal and all other documents and other materials required
by the Exchange Agent to be delivered in connection therewith, the holder
will be entitled to receive a certificate or certificates representing the
number of shares of Parent Common Stock into which the Certificate or
Certificates so surrendered have been converted in accordance with the
provisions of Section 1.7 and an amount of cash in lieu of fractional
shares which such holder has the right to receive pursuant to Section
3.2(c). Unless and until any Certificate or Certificates are so
surrendered, no dividend or other distribution, if any, payable to the
holders of record of shares of Parent Common Stock as of any date
subsequent to the Effective Time will be paid to the holders of such
Certificate or Certificates in respect of the shares of Parent Common Stock
into which such Certificates are convertible. Upon the surrender of any
Certificate or Certificates, the record holder of the certificate or
certificates representing shares of Parent Common Stock issued in exchange
therefor will be entitled to receive (i) at the time of surrender, the
amount of any dividends or other distributions (net of any applicable tax
withholdings) having a record date after the Effective Time and a payment
date prior to the surrender date, payable in respect of such shares of
Parent Common Stock and (ii) at the appropriate payment date, the amount of
dividends or other distributions (net of any applicable tax withholdings)
having a record date after the Effective Time and a payment date subsequent
to the date of such surrender, payable in respect of such shares of Parent
Common Stock.
(c) No Fractional Securities. Notwithstanding any other provision of
this Agreement, no certificates or scrip representing fractional shares of
Parent Common Stock shall be issued upon the surrender for exchange of
Certificates and such fractional shares shall not entitle the owner thereof
to vote or to any other rights of a holder of Parent Common Stock. A holder
of Company Common Stock who would otherwise have been entitled to a
fractional share of Parent Common Stock shall be entitled to receive a cash
payment in lieu of such fractional share in an amount equal to the product
of such fraction multiplied by the average closing prices for the Company
Common Stock as reported in NASDAQ for the ten (10) days immediately
preceding the date immediately prior to the date on which the Effective
Time occurs.
Section 3.3 Transfer Books. The stock transfer books of the Company will be
closed at the Effective Time and no transfer of any shares of Company Common
Stock will thereafter be recorded on any of the stock transfer books. In the
event of a transfer of ownership of any Company Common Stock prior to the
Effective Time that is not registered in the stock transfer records of the
Company at the Effective Time, a certificate or certificates representing the
number of shares of Parent Common Stock into which such Company Common Stock
has been converted in the Merger will be issued to the transferee together with
a cash payment in respect of dividends and distributions, if any, in accordance
with the provisions of Section 3.2(b), only if the Certificate is surrendered
as provided in Section 3.1, accompanied by all documents required to evidence
and effect such transfer and by evidence of payment of any applicable stock
transfer taxes.
Section 3.4 Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed one year after the Effective Time will be delivered
to the Parent Corporation upon demand, and each holder of Company Common Stock
who has not theretofore surrendered Certificates in accordance with the
provisions of this Article 3 will thereafter look only to the Parent
Corporation for satisfaction of such holder's claims for shares of Parent
Common Stock and any dividends or distributions payable in accordance with the
provisions of Section 3.2(b).
Section 3.5 Lost Certificates. If any Certificate has been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange
Agent will deliver in exchange for such lost, stolen or destroyed certificate
the shares
C-8
<PAGE>
of Parent Common Stock issuable pursuant to Section 1.7, unpaid dividends and
distributions, if any, on shares of Parent Common Stock deliverable in respect
thereof, pursuant to this Agreement and any payment in lieu of fractional
shares.
Section 3.6 No Rights as Stockholder. From and after the Effective Time, the
holders of Certificates will cease to have any rights as stockholders of the
Surviving Corporation except as otherwise provided in this Agreement or by
applicable law and the Parent Corporation will be entitled to treat each
Certificate that has not yet been surrendered for exchange solely as evidence
of the right to receive the part of the Merger Consideration into which the
shares of Company Common Stock evidenced by such Certificate have been
converted pursuant to the Merger and the right to receive dividends and
distributions, if any, in accordance with the provisions of Section 3.2(b).
Section 3.7 Withholding. The Parent Corporation will be entitled to deduct
and withhold from the Merger Consideration otherwise payable to any former
holder of Company Common Stock all amounts required by law to be deducted or
withheld therefrom.
Section 3.8 Escheat. Neither the Parent Corporation, the Acquisition
Corporation nor the Company will be liable to any former holder of Company
Common Stock for any portion of the Merger Consideration delivered to any
public official pursuant to any applicable abandoned property, escheat or
similar law. In the event any Certificate has not been surrendered for exchange
prior to the sixth anniversary of the Closing Date, or prior to such earlier
date as of which such Certificate or the Merger Consideration payable upon the
surrender thereof would otherwise escheat to or become the property of any
governmental entity, then the Merger Consideration and any other distribution
otherwise payable upon the surrender of such Certificate will, to the extent
permitted by applicable law, become the property of the Surviving Corporation,
free and clear of all rights, interests and adverse claims of any person.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Parent Corporation and the
Acquisition Corporation that except as disclosed in the reports, schedules,
forms, statements and other documents filed by the Company with the SEC and
publicly available prior to the date of this Agreement, as disclosed in the
Quarterly Report on Form 10-Q for the Company's fiscal quarter ended April 30,
2000 delivered to the Parent Corporation prior to the date of this Agreement or
as disclosed on a Schedule hereto as contemplated below in this Article 4:
Section 4.1 Due Incorporation.
(a) Each of the Company and its Subsidiaries (each a "Company
Subsidiary" and collectively, the "Company Subsidiaries") is a corporation
duly organized, validly existing and in good standing or subsisting under
the laws of its jurisdiction of organization, with all requisite power and
authority to own, lease and operate its properties and to carry on its
business as they are now being owned, leased, operated and conducted. Each
of the Company and Company Subsidiaries is qualified to do business and is
in good standing as a foreign corporation in each jurisdiction where the
nature of the properties owned, leased or operated by it and the business
transacted by it require such qualification, except where the failure to be
so qualified could not have a Company Material Adverse Effect (as defined
in Section 4.7 hereof). The jurisdictions in which the Company and Company
Subsidiaries are qualified to do business as a foreign corporation are set
forth next to each entity's name on Schedule 4.1 hereto. True, correct and
complete copies of the Company's Articles of Incorporation, as amended, and
By-laws, as amended, and the organizational documents of each Company
Subsidiary, have been delivered to the Parent Corporation.
(b) Except as set forth on Schedule 4.1 hereto, the Company has no
direct or indirect subsidiaries, either wholly or partially owned, and the
Company does not hold any economic, voting or management interest in any
corporation, proprietorship, firm, partnership, limited partnership, trust,
association,
C-9
<PAGE>
individual or other entity (a "Person") or own any security issued by any
Person. Schedule 4.1 hereto sets forth a description as of the date hereof,
of all subsidiaries and joint ventures of the Company, including the name
of each such entity, the state or jurisdiction of its incorporation or
organization, the Company's interest therein and a brief description of the
principal line or lines of business conducted by each such entity. Except
as set forth on Schedule 4.1 hereto, all of the issued and outstanding
shares of capital stock of each Company Subsidiary are validly issued,
fully paid, nonassessable and free of preemptive rights, and are owned,
directly or indirectly, by the Company free and clear of any liens, claims,
encumbrances, security interests, equities, charges and options of any
nature whatsoever and there are no outstanding subscriptions, options,
calls, contracts, voting trusts, proxies or other commitments,
understandings, restrictions, arrangements, rights or warrants, including
any right of conversion or exchange under any outstanding security,
instrument or other agreement, obligating any such subsidiary to issue,
deliver or sell, or cause to be issued, delivered or sold, additional
shares of its capital stock or obligating it to grant, extend or enter into
any such agreement or commitment, except for any of the foregoing that
could not reasonably be expected to have a Company Material Adverse Effect.
As used in this Agreement, the term "joint venture" of a Person shall mean
any Person that is not a subsidiary of such Person, in which such Person or
one or more of its subsidiaries owns an equity interest, other than equity
interests held for passive investment purposes which are less than 10% of
any class of the outstanding voting securities or equity of any such
Person.
Section 4.2 Due Authorization. The Company has full power and authority to
enter into this Agreement and to execute and file the Certificate of Merger and
to consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance by the Company of this Agreement have been duly and
validly approved and authorized by the Board of Directors of the Company, and,
subject to obtaining the necessary approval of the Merger by the shareholders
of the Company, no other actions or proceedings on the part of the Company are
necessary to authorize this Agreement and the transactions contemplated hereby.
The Company has duly and validly executed and delivered this Agreement. This
Agreement constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, fraudulent transfer, moratorium,
reorganization or other laws from time to time in effect which affect
creditors' rights generally and by general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
Section 4.3 Non-Contravention/Consents and Approvals.
(a) The execution and delivery of this Agreement by the Company do not,
and the performance by the Company of its obligations hereunder and the
consummation of the transactions contemplated hereby will not, conflict
with, result in a violation or breach of, constitute (with or without
notice or lapse of time or both) a default under, result in or give to any
person any right of payment or reimbursement, termination, cancellation,
modification or acceleration of, or result in the creation or imposition of
any lien upon any of the assets or properties of the Company or any Company
Subsidiary under, any of the terms, conditions or provisions of (i) the
articles of incorporation or bylaws (or other comparable charter documents)
of the Company or any Company Subsidiary, or (ii) subject to obtaining the
necessary approval of this Agreement and the Merger by the shareholders of
the Company and the taking of the actions described in paragraph (b) of
this Section, (x) any statute, law, rule, regulation or ordinance
(together, "Laws"), or any judgment, decree, order, writ, permit or
license, of any Governmental Entity (as defined in paragraph (b) below),
applicable to the Company or any Company Subsidiary or any of their
respective assets or properties, or (y) any contract, agreement or
commitment to which the Company or any Company Subsidiary is a party or by
which the Company or any Company Subsidiary or any of their respective
assets or properties is bound, excluding from the foregoing clauses (x) and
(y) conflicts, violations, breaches, defaults, terminations, modifications,
accelerations and creations and impositions of liens which would not have a
Company Material Adverse Effect or would not result in the inability of the
Company to consummate the transactions contemplated by this Agreement.
C-10
<PAGE>
(b) No consent, approval, order or notice to or authorization of, or
registration, declaration or filing with any United States federal, state,
local or foreign court, administrative agency or commission or other
governmental authority or instrumentality, (including a stock exchange or
other self-regulatory body) (a "Governmental Entity"), is required by the
Company or any of the Company Subsidiaries for the execution and delivery
of this Agreement or the consummation by the Company of the transactions
contemplated hereby, the failure to obtain which would have a Company
Material Adverse Effect or the consummation of the transactions
contemplated hereby, except for:
(i) the filing of a pre-merger notification report by the Company
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act") and the expiration or termination of the
applicable waiting period thereunder;
(ii) the filing of Articles of Merger with the Department of State
of the Commonwealth of Pennsylvania in accordance with the requirements
of the Pennsylvania Act, and the filing of the appropriate documents
with the relevant authorities of other states in which the Company is
qualified to transact business;
(iii) the filing of the Joint Proxy Statement with the SEC pursuant
to the Securities Exchange Act and the Securities Act and the
declaration of the effectiveness of the Registration Statement by the
SEC and, to the extent required, filings with various blue sky
authorities;
(iv) required notices to NASDAQ; and
(v) such filings, authorization orders and approvals as may be
required of state and local governmental authorities (the "Local
Approvals") which are specified in Schedule 4.3 hereto.
Section 4.4 Capitalization.
(a) The authorized capital stock of the Company consists of (i)
1,000,000 shares of preferred stock, no par value per share (the "Company
Preferred Stock"), of which 300,000 are designated Series A Junior
Participating Preferred Stock, no par value per share (the "Series A
Preferred Stock"); and (ii) 30,000,000 shares of Company Common Stock. On
the date hereof, there are issued and outstanding 7,812,713 shares of
Company Common Stock (net of 189,617 treasury shares held by the Company)
and no shares of preferred stock or Series A Preferred Stock (all of which
Series A Preferred Stock are reserved for issuance in accordance with the
Rights Agreement (the "Company Rights Agreement") dated as of April 24,
1997, between the Company and American Stock Transfer & Trust Co., as
Rights Agent (the "Rights Agent") pursuant to which the Company has issued
rights (the "Company Rights") to purchase the Series A Preferred Stock).
All of the issued and outstanding shares of Company Common Stock are
validly issued, fully paid and nonassessable and the issuance thereof was
not subject to preemptive rights. On the date hereof, there are 612,517
shares of Company Common Stock reserved for issuance under the Stock Option
Plans of the Company set forth on Schedule 4.4 hereto.
(b) Schedule 4.4 sets forth the person who shall enter into a voting
agreement with the Parent Corporation (the "Voting Agreement"), the form of
which agreement is attached as Exhibit A-2; and which shall be and remain
in full force and effect through and until the last to occur of (i) the
effective date of any written consent controlling any vote regarding the
Merger or (ii) any shareholder meeting (including adjournments) at which a
vote regarding the Merger is taken. Except as set forth in Schedule 4.4
hereto and the Company Rights, there are no subscriptions, options,
warrants, calls, rights, convertible securities or other agreements or
commitments of any character obligating the Company to issue, transfer or
sell any shares of capital stock or other securities (whether or not such
securities have voting rights) of the Company. Except as set forth in
Schedule 4.4 hereof, there are no outstanding contractual obligations of
the Company which relate to the purchase, sale, issuance, repurchase,
redemption, acquisition, transfer, disposition, holding or voting of any
shares of capital stock or other securities of the Company.
C-11
<PAGE>
Section 4.5 Financial Statements; Undisclosed Liabilities; Other Documents.
(a) For purposes of this Agreement, "Company Financial Statements" shall
mean the audited financial statements of the Company as of October 31, 1999
and October 31, 1998 (including all notes thereto) and the unaudited
financial statements of the Company as of April 30, 2000 which are included
in the Company's Quarterly Report on Form 10-Q for the period ended April
30, 2000, consisting of the consolidated balance sheets at such dates and
the related consolidated statements of income, stockholders' equity and
cash flows. The Company Financial Statements have been prepared in
accordance with GAAP consistently applied and present fairly the financial
position, assets and liabilities of the Company as at the dates thereof and
the revenues, expenses, results of operations and cash flows of the Company
for the periods covered thereby.
(b) The Company and Company Subsidiaries do not have any liabilities or
obligations of any nature, whether accrued, absolute, contingent or
otherwise, except (i) as set forth on the April 30, 2000 balance sheet (the
"Company Base Balance Sheet") in the Company's Form 10-Q for the fiscal
quarter ended April 30, 2000 or (ii) trade payables incurred since April
30, 2000 in the ordinary and usual course of its business and consistent in
type and amount, with past practices and experience.
Section 4.6 SEC Filings. The Company has timely filed all required forms,
reports and other documents with the SEC since November 1, 1997, all of which
complied when filed, in all material respects, with all applicable requirements
of the Securities Act and Securities Exchange Act, as applicable. The Company
has heretofore delivered to the Parent Corporation complete and correct copies
of (i) its Annual Report on Form 10-K for the fiscal year ended October 31,
1999, (ii) its Quarterly Report on Form 10-Q for the quarter ended April 30,
2000, (iii) all proxy statements relating to the Company's meetings of
shareholders (whether annual or special) since November 1, 1997 and (iv) all
other reports, forms and other documents filed by the Company with the SEC
since November 1, 1997 (together, the "Company SEC Documents"). As of their
respective dates, such reports, forms and other documents (including all
exhibits and schedules thereto and documents incorporated by reference therein)
did not contain any untrue statement of material fact or omit to state a
material fact required to be stated therein, or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading. The audited financial statements and the unaudited interim
financial statements of the Company included or incorporated by reference in
such reports, forms and other documents were prepared in accordance with GAAP
consistently applied during the periods involved (except as may be otherwise
indicated in the notes thereto), and fairly present the financial position of
the Company as of the dates thereof and the results of its operations and
changes in financial position for the periods then ended (subject, in the case
of any unaudited interim financial statements, to normal year-end adjustments).
Section 4.7 No Company Material Adverse Effects or Changes. Except as
described on Schedule 4.7 hereto, or as disclosed in or reflected in the
financial statements included in the Company SEC Documents, or as contemplated
by this Agreement, since April 30, 2000, neither the Company nor any Company
Subsidiary have (i) taken any of the actions set forth in subparagraphs (a)
through (o) of Section 6.3 hereof, (ii) suffered any Company Material Adverse
Effect, and no facts or conditions exist which could have, in the aggregate, a
Company Material Adverse Effect (iii) suffered any damage, destruction or Loss
to any of its assets or properties (whether or not covered by insurance), or
(iv) increased the compensation of any executive officer of the Company or
Company Subsidiaries. "Loss" shall mean liabilities, losses, costs, claims,
damages (including consequential damages), penalties and expenses (including
attorneys' fees and expenses and costs of investigation and litigation).
"Company Material Adverse Effect" shall mean an effect (or circumstance
involving a prospective effect) on the business, operations, assets,
liabilities, results of operations, cash flows, condition (financial or
otherwise) or prospects of the Company and Company Subsidiaries taken as a
whole which is materially adverse to the Company on a consolidated basis and
not arising in connection with any litigation, claim or other action relating
to infringement by a third party of any Company Intellectual Property or the
validity or enforceability of patents owned by the Company. Notwithstanding the
foregoing, a "Company Material Adverse Effect" shall include any litigation,
claim or other action related to U.S. Patent
C-12
<PAGE>
Number 4,911,761 (the "761 Patent") resulting in the substantial and permanent
impairment of the Company's ability to assert or exploit the 761 Patent.
Further notwithstanding the foregoing, a "Company Material Adverse Effect"
shall not include (a) any failure by the Company to meet internal earnings or
revenue projections, or any other revenue or earnings predictions or
expectations, for any period ending (or for which earnings are released) on or
after the date of this Agreement, or (b) any disruption of customer
relationships, to the extent attributable to or arising out of the announcement
or the pendency of this Agreement and the transactions contemplated hereby.
Section 4.8 Properties.
(a) Except as disclosed on Schedule 4.8 hereto, the Company and Company
Subsidiaries (i) have good and marketable title to, and are the lawful
owners of, all of the tangible and intangible assets, properties and rights
used in connection with or necessary for the conduct of their respective
businesses and all of the tangible and intangible assets, properties and
rights reflected in the Company Base Balance Sheet (other than assets
leased under the leases set forth in Schedule 4.8 hereto and assets
disposed of in the ordinary course of business since the date of the
Company Base Balance Sheet), and (ii) at the Effective Time will have good
and marketable title to, and will be the lawful owner of, all of such
tangible and intangible assets, properties and rights, in any case free and
clear of any lien, encumbrance, pledge or similar interest.
(b) Except as otherwise identified in Schedule 4.8 hereto, the material
tangible assets of the Company and Company Subsidiaries, taken as a whole,
including all mobile equipment, are in all respects in good condition and
repair, reasonable wear and tear excepted, and are in condition suitable
for the use to which they are put in the respective business of the Company
and Company Subsidiaries.
Section 4.9 Registration Statement and Proxy Statement/Prospectus. None of
the information to be supplied by the Company or any of its accountants,
counsel or other authorized representatives for inclusion in (a) the
Registration Statement or (b) the Joint Proxy Statement will, in the case of
the Joint Proxy Statement or any amendments thereof or supplements thereto, at
the time of the mailing of the Joint Proxy Statement and any amendments or
supplements thereto, and at the time of the meeting of the shareholders of the
Company to be held in connection with the Merger, or, in the case of the
Registration Statement and any amendments thereto, at the time it is declared
effective and at the Effective Time, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading, it being understood
and agreed that no representation or warranty is made by the Company with
respect to any information supplied by the Parent Corporation or its
accountants, counsel or other authorized representatives. If at any time prior
to the Effective Time any event with respect to the Company, its officers and
directors or any Company Subsidiaries shall occur which is or should be
described in an amendment of, or a supplement to, the Joint Proxy Statement or
the Registration Statement, such event shall be so described and the
presentation in such amendment or supplement of such information will not
contain any statement which, at the time and in light of the circumstances
under which it is made, is false or misleading in any material respect or omits
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not false or misleading.
Section 4.10 Intellectual Property. Except as disclosed on Schedule 4.10
hereto:
(a) All of the trademarks, trade names, service marks, patents,
copyrights (including any registrations of or pending applications for any
of the foregoing), technology, trade secrets, inventions, know-how,
designs, computer programs, processes and all other intangible assets,
properties and rights used by the Company or any Company Subsidiary in the
conduct of its respective business (the "Company Intellectual Property")
are either owned by the Company or Company Subsidiary free and clear of any
lien, encumbrance, pledge or similar interest and are not subject to any
license, royalty or other agreement or are licensed to the Company pursuant
to an agreement as set forth on Schedule 4.10(h).
C-13
<PAGE>
(b) None of the Company Intellectual Property has been or is the subject
of any pending or, to the Company's knowledge, threatened litigation or
claim of infringement.
(c) No license or royalty agreement to which the Company or any Company
Subsidiary is a party (including any agreement regarding licensed
intellectual property as defined below) is in breach or default by any
party thereto or the subject of any notice of termination given or
threatened.
(d) The products manufactured or sold by the Company and Company
Subsidiaries and any process, method, part, design or material they employ,
and the marketing and use by the Company and Company Subsidiaries of any
such product or any service, do not infringe any trademark, service mark,
trade name, copyright, trade secret, patent or confidential or proprietary
rights of another (except such representation is qualified by the Company's
knowledge with respect to trademarks, service marks, trade names and
patents), and the Company and Company Subsidiaries have not received any
notice contesting their right to use any Company Intellectual Property.
(e) Each of the Company and the Company Subsidiaries owns or possesses
adequate rights in perpetuity in and to all the Company Intellectual
Property necessary to conduct its respective business as presently
conducted.
(f) To the extent that any Company Intellectual Property is licensed by
a third party to Company or any Company Subsidiary (such Company
Intellectual Property referred to as "Licensed Intellectual Property"), the
assignment or transfer of such Licensed Intellectual Property to the Parent
Corporation upon or following the consummation of the transactions
contemplated hereunder will not (i) constitute a breach or default under
any such agreement which would give the other contracting party a right to
terminate such agreement; (ii) alter or diminish the rights assigned or
transferred to the Parent Corporation from that originally granted to the
Company or Company Subsidiary (as the case may be) under such agreement; or
(iii) alter or increase the obligations delegated or transferred to the
Parent Corporation from that originally imposed on the Company or Company
Subsidiary (as the case may be) under such agreement.
(g) The Company and Company Subsidiaries require all employees,
consultants and contractors having access to any Company Intellectual
Property to execute nondisclosure agreements with respect to the protection
of the Company Intellectual Property and the preservation of its
proprietary and trade secret nature, and where the development, invention
or creation of any Company Intellectual Property is involved, the Company
and Company Subsidiaries have obtained valid and enforceable assignment
agreements from each such employee, consultant and contractor such that all
right, title and interest in and to the Company Intellectual Property is
vested in the Company and/or Company Subsidiaries.
(h) Subsection (h) of Schedule 4.10 sets forth a true and complete list
of (i) all agreements regarding Licensed Intellectual Property; (ii) all
patents and patent applications, registered trademarks and service marks,
registered copyrights, registered mask works, trade names and service marks
and any applications therefor, included in the Company Intellectual
Property (other than any Licensed Intellectual Property), and specifies the
jurisdictions in which such Company Intellectual Property has been issued
or registered or in which an application for such issuance and registration
has been filed, including the respective registration or application
numbers and the names of all registered owners; (iii) all agreements to
which any of the Company Intellectual Property (other than any Licensed
Intellectual Property) may be subject.
(i) There are no exclusive licenses, exclusive distributorship
agreements or noncompetition agreements with respect to the use of any
Company Intellectual Property or the development, sale or distribution of
any Company products, or any other restrictions regarding the right of the
Company or any of the Company Subsidiaries to fully exploit the Company
Intellectual Property anywhere in the world. Neither the Company nor any of
the Company Subsidiaries is a party to any reseller or distribution
agreement, other than agreements that can be cancelled or terminated
without cost or penalty upon notice of sixty (60) days or less.
C-14
<PAGE>
Section 4.11 Insurance. Schedule 4.11 hereto contains an accurate and
complete list of all policies of fire, liability, worker's compensation, title
and other forms of insurance owned or held by the Company or any Company
Subsidiary. All such policies are in full force and effect, all premiums with
respect thereto covering all periods up to and including the Closing Date have
been, or prior to the Closing Date, will be, paid and no notice of cancellation
or termination has been received with respect to any such policy. Each of the
Company and Company Subsidiaries will, no later than sixty (60) days prior to
Closing, deliver to the Parent Corporation a true and complete copy of all
insurance policies, including all occurrence-based policies applicable to the
Company and Company Subsidiaries, for the three years prior to the Closing
Date. Except as set forth in Schedule 4.11 hereto, neither the Company nor any
Company Subsidiary has been unable to obtain insurance with respect to its
assets or operations during the last three (3) years.
Section 4.12 Employee Matters and ERISA. Except as set forth in Schedule
4.12 hereto:
(a) Benefit Plans. Schedule 4.12 hereto contains a true and complete
list of each employee benefit plan, program, policy, arrangement or
agreement which is or has been sponsored, maintained or contributed to by
the Company and Company Subsidiaries covering employees, former employees,
directors or former directors of the Company and Company Subsidiaries or
their beneficiaries, or providing benefits to such persons in respect of
services provided to any such entity, including, but not limited to, any
employee benefit plans within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and any
severance or change in control agreement, plan, policy or program between
the Company and Company Subsidiaries and any employee thereof
(collectively, the "Company Benefit Plans"). For purposes of this Section
4.12, "Company Subsidiary" includes any entity which, under Code Section
414(b), (c), (m) or (o), is required to be considered as a single employer
with the Company. Neither the Company nor any Company Subsidiary is
obligated to contribute to any "multiemployer plan" as defined in Section
3(37) of ERISA. Schedule 4.12 separately lists each Company Benefit Plan
that has been adopted or maintained by the Company or Company Subsidiary,
whether formally or informally, for the benefit of employees outside the
United States ("Company International Benefit Plans").
(b) Contributions. All contributions and other payments required to be
made for any period through the date to which this representation speaks,
by the Company or any Company Subsidiary to any Company Benefit Plan (or to
any person pursuant to the terms thereof) have been timely made or paid in
full, or, to the extent not required to be made or paid on or before the
date to which this representation speaks, have been properly reflected in
the Company Financial Statements.
(c) Qualification; Compliance. Each of the Company Benefit Plans
intended to be "qualified" within the meaning of Section 401(a) of the Code
has either obtained from the Internal Revenue Service (the "IRS") a
favorable determination letter as to its qualified status under the Code,
including all amendments to the Code which are currently effective, or has
time remaining to apply under applicable Treasury Regulations or Internal
Revenue Service pronouncements for a determination or opinion letter and to
make any amendments necessary to obtain a favorable determination or
opinion letter; and, to the knowledge of the Company, no circumstances
exist that could reasonably be expected to result in the revocation of any
such determination. The Company and each Company Subsidiary is in
compliance in all material respects with, and each of the Company Benefit
Plans is and has been operated in all material respects in compliance with,
all applicable laws, rules and regulations governing such plan, including,
without limitation, ERISA and the Code. Each Company Benefit Plan intended
to provide for the deferral of income, the reduction of salary or other
compensation, or to afford other income tax benefits, complies in all
material respects with the requirements of the applicable provisions of the
Code or other laws, rules and regulations required to provide such income
tax benefits. There are no pending or, to the knowledge of the Company,
threatened claims under or in respect of any Company Benefit Plan by or on
behalf of any employee, former employee, director, former director, or
beneficiary thereof, or otherwise involving any Company Benefit Plan (other
than routine claims for benefits).
C-15
<PAGE>
(d) Title I or IV Liabilities. No event has occurred and, to the
knowledge of the Company, there exists no condition or set of circumstances
that could reasonably be expected (and none of the transactions
contemplated hereunder are reasonably expected) to subject the Company or
any Company Subsidiary to any liability (whether to a governmental agency,
a multiemployer plan or any other person or entity) arising under or based
upon any provision of Title I or Title IV of ERISA.
(e) Documents Made Available. The Company has made available to the
Parent Corporation a true and correct copy of each collective bargaining
agreement to which the Company or any Company Subsidiary is a party or
under which the Company or any Company Subsidiary has obligations and, with
respect to each Company Benefit Plan, where applicable, (i) such plan,
including all amendments thereto, and the most recent summary plan
description, (ii) the five (5) most recent annual reports filed with the
IRS, (iii) each related trust agreement and insurance contract, (iv) the
most recent determination of the IRS with respect to the qualified status
of such Company Benefit Plan, (v) the most recent actuarial report or
valuation for the most recent three (3) years, (vi) compliance and
nondiscrimination tests for the last three (3) plan years, (vii) all
insurance policies and certificates purchased by or to provide benefits
under such plan, (viii) all contracts and agreements to which the Company
or any Company Subsidiary is a party with third party administrators,
actuaries, investment managers, consultants and other independent
contractors that relate to such plan, and (ix) standard Consolidated
Omnibus Budget Reconciliation Act of 1985 ("COBRA") forms and notices and
(x) every private letter ruling, prohibited transaction exemption or other
ruling or determination from the IRS, Department of Labor, Pension Benefit
Guaranty Corporation or other Governmental Entity with respect to such
plan. To the knowledge of the Company, in the case of each Company Benefit
Plan, no employee handbook or similar employee communication relating to
such plan nor any written communication of benefits under such plan from
the administrator thereof, in either case that has not been delivered or
made available to the Parent Corporation, describes the terms of such plan
in a manner that is materially inconsistent with the documents and summary
plan descriptions relating to such plan that have been made available
pursuant to the foregoing sentence.
(f) Post-Retirement Obligations. No Company Benefit Plan provides post-
retirement health or welfare benefits to any individual, other than as
required by Section 601 et seq. of ERISA and Section 4980B of the Code or
any other laws, rules or regulations.
(g) International Employee Plans. Each Company International Benefit
Plan has been established, maintained and administered in compliance with
its terms and conditions and with the requirements prescribed by any and
all statutory or regulatory laws that are applicable to such Company
International Benefit Plan. No Company International Benefit Plan has
unfunded liabilities that, as of the Effective Time, will not be offset by
insurance or fully accrued. Except as required by law, no condition exists
that would prevent the Company or the Surviving Corporation from
terminating or amending any Company International Benefit Plan at any time
for any reason.
Section 4.13 Labor Matters. The Company and each Company Subsidiary have
conducted and currently are conducting, their respective businesses in full
compliance with all laws relating to employment and employment practices, terms
and conditions of employment, wages and hours and nondiscrimination in
employment. Except as disclosed on Schedule 4.13 hereto, the relationship of
the Company and each Company Subsidiary with their respective employees is good
and there are, and during the past three years there have been, no labor
strikes, disputes, slow-downs, work stoppages or other labor difficulties
pending or, to the Company's knowledge, threatened against or involving the
Company or any Company Subsidiary. None of the employees of the Company or any
Company Subsidiary is covered by any collective bargaining agreement, no
collective bargaining agreement is currently being negotiated and no attempt is
currently being made or during the past three years has been made to organize
any employees of the Company or any Company Subsidiary to form or enter a labor
union or similar organization.
Section 4.14 Tax Returns and Audits. For the purposes of this Agreement, a
"Tax" or, collectively, "Taxes," means (i) any and all federal, state, local,
foreign and other taxes, assessments and other governmental charges, duties,
impositions and liabilities, including taxes based upon or measured by gross
C-16
<PAGE>
receipts, income, profits, sales, use and occupation, and value added, ad
valorem, transfer, gains, franchise, capital stock, severance, withholding,
payroll, recapture, employment, excise, unemployment insurance, social
security, business license, occupation, business organization, stamp,
environmental and property taxes, together with all interest, penalties and
additions imposed with respect to such amounts; (ii) any liability for the
payment of any amounts described in clause (i) as a result of being a successor
to or transferee of any individual or entity or a member of an affiliated,
consolidated or unitary group for any period (including pursuant to Treas. Reg.
(S) 1.1502-6 or comparable provisions of state, local or foreign tax law); and
(iii) any liability for the payment of amounts described in clause (i) or
clause (ii) as a result of any express or implied obligation to indemnify any
Person or as a result of any obligations under agreements or arrangements with
any Person. Except as otherwise specifically provided, for the purposes of this
section, the Company means the Company and each Company Subsidiary, as if each
such entity were named separately. "Tax Return", as used in this Agreement,
means a report, return or other information required to be supplied to a
governmental entity with respect to Taxes including, where permitted or
required, combined or consolidated returns for any group of entities that
includes the Company or any Company Subsidiary or the Parent Corporation or any
Parent Corporation Subsidiary, as the case may be.
Except as set forth in Schedule 4.14 hereto:
(a) Filing of Timely Tax Returns. The Company and each Company
Subsidiary have filed (or there has been filed on its behalf) all Tax
Returns required to be filed by each of them under applicable law. All such
Tax Returns were and are in all material respects true, complete and
correct and filed on a timely basis.
(b) Payment of Taxes. The Company and each Company Subsidiary have,
within the time and in the manner prescribed by law, paid all Taxes that
are currently due and payable except for those contested in good faith and
for which adequate reserves have been taken.
(c) Deferred Taxes. The Company and each Company Subsidiary have
accounted for deferred income taxes in accordance with GAAP.
(d) Tax Liens. There are no Tax liens upon the assets of the Company or
any Company Subsidiary except liens for Taxes not yet due.
(e) Withholding Taxes. The Company and each Company Subsidiary have
complied in all material respects with the provisions of the Code relating
to the withholding of Taxes, as well as similar provisions under any other
laws, and have, within the time and in the manner prescribed by law,
withheld from employee wages and paid over to the proper governmental
authorities all amounts required.
(f) Extensions of Time for Filing Tax Returns. Neither the Company nor
any Company Subsidiary has requested any extension of time within which to
file any Tax Return, which Tax Return has not since been filed.
(g) Waivers of Statute of Limitations. Neither the Company nor any
Company Subsidiary has executed any outstanding waivers or comparable
consents regarding the application of the statute of limitations with
respect to any Taxes or Tax Returns.
(h) Expiration of Statute of Limitations. The statute of limitations for
the assessment of all Taxes has expired for all applicable Tax Returns of
the Company and each Company Subsidiary or those Tax Returns have been
examined by the appropriate taxing authorities for all periods through the
date hereof, and no deficiency for any Taxes has been proposed, asserted or
assessed against the Company or any Company Subsidiary that has not been
resolved and paid in full.
(i) Audit, Administrative and Court Proceedings. No audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of the Company or any Company
Subsidiary.
C-17
<PAGE>
(j) Powers of Attorney. No power of attorney currently in force has been
granted by the Company or any Company Subsidiary concerning any Tax matter.
(k) Tax Rulings. Neither the Company nor any Company Subsidiary has
received a Tax Ruling (as defined below) or entered into a Closing
Agreement (as defined below) with any taxing authority that would have a
continuing Company Material Adverse Effect after the Closing Date. "Tax
Ruling," as used in this Agreement, shall mean a written ruling of a taxing
authority relating to Taxes. "Closing Agreement," as used in this
Agreement, shall mean a written and legally binding agreement with a taxing
authority relating to Taxes.
(l) Availability of Tax Returns. The Company has made available to the
Parent Corporation complete and accurate copies of (i) all Tax Returns, and
any amendments thereto, filed by the Company or any Company Subsidiary
since January 1, 1996, (ii) all audit reports received from any taxing
authority relating to any Tax Return filed by the Company or any Company
Subsidiary and (iii) any Closing Agreements entered into by the Company or
any Company Subsidiary with any taxing authority.
(m) Tax Sharing Agreements. Neither the Company nor any Company
Subsidiary is a party to any agreement relating to allocating or sharing of
Taxes.
(n) Code Section 280G; Deductibility of Certain Payments. Neither the
Company nor any Company Subsidiary is a party to any agreement, contract or
arrangement that could result, on account of the transactions contemplated
hereunder, separately or in the aggregate, in the payment of any "excess
parachute payments" within the meaning of Section 280G of the Code or could
give rise to the payment of any amount that would not be deductible
pursuant to Sections 404 or 162(m) of the Code.
(o) Liability for Others. Neither the Company nor any Company Subsidiary
has any liability for Taxes of any person other than the Company and the
Company Subsidiaries (i) under Treasury Regulations Section 1.1502-6 (or
any similar provision of state, local or foreign law) as a transferee or
successor, (ii) by contract or (iii) otherwise.
(p) Disposition of Certain Assets. The Company has not filed any consent
agreement under Section 341(f) of the Code or otherwise agreed to have
Section 341(f)(2) of the Code apply to any disposition of a Subsection (f)
asset (as defined in Section 341(f)(4) of the Code) owned by the Company.
(q) Affiliated Group. The Company is not and has not been a member of an
affiliated group of corporations filing a consolidated federal income tax
return (or a group of corporations filing a consolidated, combined or
unitary income tax return under comparable provisions of state, local or
foreign tax law) other than a group the common parent of which is or was
the Company itself (and not a subsidiary of the Company).
(r) Tax-Exempt Use Property. None of the assets of the Company is "tax-
exempt use property" within the meaning of Section 168(h) of the Code.
(s) Accounting Adjustments. The Company has not agreed to make, nor is
it required to make, any adjustment under Section 481 of the Code by reason
of a change in accounting method or otherwise.
(t) Partnerships or Joint Ventures. The Company is not and has not been
a member of a limited liability company or a party to any joint venture,
partnership or other arrangement or contract that is or could be treated as
a partnership for federal income tax purposes.
(u) Indemnities. The Company has not indemnified any person against Tax
in connection with any arrangement for the leasing of real or personal
property, except for indemnity with respect to acts of the Company.
(v) FIRPTA. The Company is not now and has not been within the preceding
five years a United States real property holding corporation within the
meaning of Section 897(c)(2) of the Code.
C-18
<PAGE>
(w) Reorganization Treatment. Neither the Company nor any Company
Subsidiary has taken or agreed to take any action that would prevent the
Merger from constituting a reorganization qualifying under the provisions
of Section 368(a) of the Code.
Section 4.15 Environmental Matters. Except as disclosed in Schedule 4.15
hereto:
(a) Compliance. The Company and each Company Subsidiary are in
compliance with all applicable Environmental Laws (as defined in Section
4.15(f)(ii) hereof); and neither the Company nor any Company Subsidiary has
received any communication from any person or Governmental Authority that
alleges that the Company or any Company Subsidiary is not in compliance
with applicable Environmental Laws, except where the failure to be in such
compliance would not in the aggregate have a Company Material Adverse
Effect. The Company has provided the Parent Corporation with complete and
correct copies of all inventories, reports, studies, assessments and test
results in its possession relating to any storage, use or disposal of
Hazardous Materials (as defined in Section 4.15(f)(iii) hereof) by the
Company or any Company Subsidiary or on any property owned, leased to,
controlled by or used by the Company or any Company Subsidiary.
(b) Environmental Permits. The Company and each Company Subsidiary have
obtained or have applied for all environmental, health and safety permits
and governmental authorizations (collectively, the "Environmental Permits")
necessary for the construction of their facilities or the conduct of their
operations, and all such Environmental Permits are in good standing or,
where applicable, a renewal application has been timely filed and is
pending agency approval, and the Company and each Company Subsidiary are in
compliance with all terms and conditions of the Environmental Permits,
except where the failure to be in compliance would not in the aggregate
have a Company Material Adverse Effect and the Company believes that any
transfer, renewal or reapplication for any Environmental Permit required as
a result of the Merger can be accomplished in the ordinary course of
business.
(c) Environmental Claims. There are no Environmental Claims (as defined
in Section 4.15(f)(i) hereof) pending or threatened (i) against the Company
or any Company Subsidiary or joint ventures, or (ii) against any real or
personal property or operations the Company or any Company Subsidiary owns,
leases or manages, in whole or in part.
(d) Releases. To the Company's knowledge, there have been no Releases
(as defined in Section 4.15(f)(iv) hereof) of any Hazardous Materials that
would be reasonably likely to form the basis of any Environmental Claim
against the Company or any Company Subsidiary.
(e) Predecessors. The Company has no knowledge of any Environmental
Claim pending or threatened, or of any Release of Hazardous Materials that
would be reasonably likely to form the basis of any Environmental Claim, in
each case against any person or entity (including, without limitation, any
predecessor of the Company or any Company Subsidiary) whose liability the
Company or any Company Subsidiary has or may have retained or assumed
either contractually or by operation of law or against any real or personal
property which the Company or any Company Subsidiary formerly owned, leased
or managed, in whole or in part.
(f) As used in this Agreement:
(i) "Environmental Claim" means any and all administrative,
regulatory or judicial actions, suits, demands, demand letters,
directives, claims, liens, investigations, proceedings or notices of
noncompliance or violation by any person or entity (including any
Governmental Authority) alleging liability or potential liability
(including, without limitation, potential responsibility for or
liability for enforcement costs, investigatory costs, cleanup costs,
governmental response costs, removal costs, remedial costs, natural
resources damages, property damages, personal injuries, fines or
penalties) arising out of, based on or resulting from (A) the presence,
or Release or threatened Release into the environment, of any Hazardous
Materials at any location, whether or not owned, operated, leased or
managed by the Company or any of its subsidiaries or joint ventures
(for purposes of this
C-19
<PAGE>
Section 4.15) or the Parent Corporation or any of its subsidiaries or
joint ventures (for purposes of Section 5.14); or (B) circumstances
forming the basis of any violation, or alleged violation, of any
Environmental Law; or (C) any and all claims by any third party seeking
damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from the presence or Release of any
Hazardous Materials.
(ii) "Environmental Laws" means all federal, state, local laws,
rules, regulations and requirements of common law relating to
pollution, the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata) or
protection of human health as it relates to protection of the
environment including, without limitation, laws and regulations
relating to Releases or threatened Releases of Hazardous Materials, or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous
Materials.
(iii) "Hazardous Materials" means (a) any petroleum or petroleum
products, radioactive materials, asbestos, urea formaldehyde foam
insulation and transformers or other equipment that contain dielectric
fluid containing polychlorinated biphenyls ("PCBs") in regulated
concentrations; and (b) any chemicals, materials or substances which
are now defined as or included in the definition of "hazardous
substances," "hazardous wastes," "hazardous materials," "extremely
hazardous wastes," "restricted hazardous wastes," "toxic substances,"
"toxic pollutants," or words of similar import, under any Environmental
Law; and (c) any other chemical, material, substance or waste, which is
regulated under any Environmental Law in a jurisdiction in which the
Company or any of its subsidiaries or joint ventures operate (for
purposes of this Section 4.15) or the Parent Corporation or any of its
subsidiaries or joint ventures operate (for purposes of Section 5.14).
(iv) "Release" means any release, spill, emission, leaking,
injection, deposit, disposal, discharge, dispersal, leaching or
migration into the atmosphere, soil, surface water, groundwater or
property.
Section 4.16 Litigation.
(a) Except as disclosed in Schedule 4.16 hereto or in the Company SEC
Documents, there are no actions, suits, arbitrations, regulatory
proceedings or other litigation, proceedings or governmental investigations
pending or, to the Company's knowledge, threatened against or affecting the
Company, Company Subsidiaries or any of the Company's or Company
Subsidiaries' respective officers or directors in their capacity as such,
or any of their respective properties or businesses, which, if adversely
decided, would have a Company Material Adverse Effect, and the Company is
not aware of any facts or circumstances which may give rise to any of the
foregoing. Except as set forth on Schedule 4.16 hereto all of the
proceedings pending against the Company and Company Subsidiaries are
covered and being defended by insurers (subject to such deductibles as are
set forth in such Schedule). Except as disclosed in Schedule 4.16 hereto,
neither the Company nor any Company Subsidiary is subject to any order,
judgment, decree, injunction, stipulation or consent order of or with any
court or other Governmental Authority. Since November 1, 1997, neither the
Company nor any Company Subsidiary has entered into any agreement to settle
or compromise any proceeding pending or threatened against it which has
involved any obligation other than the payment of money or for which the
Company or any Company Subsidiary, as the case may be, has any continuing
obligation.
(b) There are no claims, actions, suits, proceedings, or investigations
pending or, to the Company's knowledge, threatened by or against the
Company with respect to this Agreement or in connection with the
transactions contemplated hereby or thereby, and the Company has no reason
to believe there is a valid basis for any such claim, action, suit,
proceeding, or investigation.
(c) Except as set forth on Schedule 4.16 hereto, there are no pending
or, to the Company's knowledge, threatened claims against any director,
officer, employee or agent of the Company, Company Subsidiaries, or any
other Person which could give rise to any claim for indemnification against
the Company or any Company Subsidiary.
C-20
<PAGE>
Section 4.17 Compliance with Applicable Laws. Except as disclosed in
Schedule 4.17 hereto, the Company and each Company Subsidiary holds all
permits, licenses, variances, exemptions, orders and approvals of all
Governmental Authorities which are material to the operation of their
respective businesses (the "Company Permits"). The Company and each Company
Subsidiary are in compliance with the terms of the Company Permits, except
where the failure so to comply would not have a Company Material Adverse
Effect. Except as disclosed in Schedule 4.17 hereto, to the Company's
knowledge, neither the Company nor any Company Subsidiary is in violation of
any law, ordinance or regulation of any Governmental Authority, except for
possible violations which individually and in the aggregate do not, and,
insofar as reasonably can be foreseen by the Company, will not in the future
have a Company Material Adverse Effect.
Section 4.18 Contracts; No Defaults. Except as set forth on the Exhibit
Index to the Company's Annual Report on Form 10-K for the year ended October
31, 1999, or as described in Schedule 4.18 hereto or any customer purchase
order not in excess of $3,000,000 received in the ordinary course of business,
neither the Company nor any Company Subsidiary is a party to or subject to any
oral or written agreement, contract or commitment (including, without
limitation, leases of real property) which (i) involve the payment or receipt
by the Company or any of the Company Subsidiaries of more than $100,000 under
any one of such contracts, (ii) have an initial term of more than one year and
are not cancelable without significant penalties by the Company or Company
Subsidiary on 60 days' or less notice or (iii) otherwise would be required to
be included as an exhibit to an annual report of the Company on Form 10-K under
the regulations promulgated by the SEC under the Securities Exchange Act.
Neither the Company nor any Company Subsidiary is in default or alleged to be
in default under any such agreement, contract or commitment and, to the
Company's knowledge, no other party thereto is in default. Nothing has occurred
which, with or without the passage of time or giving or notice or both, would
constitute a default by the Company or any Company Subsidiary or, to the
Company's knowledge, by any other party under any such agreement, contract or
commitment. The Company has no reason to believe any material renewable
agreement, contract or commitment will not be renewed and has not received any
notification that any such agreement, contract or commitment is not likely to
be renewed. The Merger contemplated by this Agreement will not create a default
under or permit the termination of or otherwise adversely affect any such
agreement, contract or commitment in a manner that will have a Company Material
Adverse Effect. Except as described in Schedule 4.18 hereto, neither the
Company nor any Company Subsidiary is required to give any notice to any person
regarding this Agreement or the transactions contemplated hereby with respect
to any such agreement, contract or commitment.
Section 4.19 Opinion of Financial Advisor. The Company has received the
opinion of Warburg Dillon Read LLC, to the effect that, as of June 27, 2000,
the consideration to be received by the holders of Company Common Stock in the
Merger is fair from a financial point of view to the holders of Company Common
Stock. The Company has delivered to the Parent Corporation a copy of the
agreement between the Company and Warburg Dillon Read LLC.
Section 4.20 Change in Control and Severance Payments. Except as set forth
on Schedule 4.20 hereto, neither the Company nor any Company Subsidiary have
any plans, programs or agreements to which they are parties, or to which they
are subject, pursuant to which payments (or acceleration of benefits) may be
required upon, or may become payable directly or indirectly as a result of, a
change of control of the Company (including by reason of the consummation of
the Merger) or otherwise upon termination of employment of any individual with
the Company or any Company Subsidiary.
Section 4.21 Year 2000. As of the date hereof, the computer systems used by
the Company, any of the Company Subsidiaries and any third party service
providers used by either of the foregoing have not exhibited any deficiencies
with respect to formatting in connection with processing any dates after
December 31, 1999 ("Year 2000 Problem"). All issues and modifications, if any,
regarding Year 2000 Problem compliance by the Company or Company Subsidiaries
have been resolved and undertaken and, will in the future be resolved and
undertaken, by third-party service providers and the Company. The Company is
not aware of any inability on
C-21
<PAGE>
the part of any customer, insurance company or service provider with which the
Company or Company Subsidiaries transact business to timely remedy their own
deficiencies in respect of the Year 2000 Problem, which inability, individually
or in the aggregate, reasonably could be expected to have a Company Material
Adverse Effect.
Section 4.22 Vote Required. The approval of the Merger and the approval and
adoption of the Merger Agreement by the affirmative vote of a majority of the
votes cast in person or by proxy by the holders of Company Common Stock
entitled to vote is the only vote of the holders of any class or series of
capital stock of the Company or any of its subsidiaries required to approve the
Company Proposal and the transactions contemplated hereby.
Section 4.23 Broker's/Finder's Fees. Except for Warburg Dillon Read LLC,
neither the Company nor any officer, director or employee of the Company has
employed any broker, finder or investment banker or incurred any liability for
any brokerage or investment banking fees, commissions or finders' fees in
connection with the transactions contemplated by this Agreement.
Section 4.24 Ownership of Parent Common Stock. The Company does not
"beneficially own" (as such term is defined for purposes of Section 13(d) of
the Securities Exchange Act) any shares of any class of capital stock of the
Parent Corporation.
Section 4.25 Applicability of Certain Pennsylvania Law. None of the
provisions of Section 2538 and Subchapters E, F, G, H, I and J of Chapter 25 of
the Pennsylvania Act (except to the extent that Subchapter H may apply until
the shareholders of the Company have approved the Merger), or any similar
provisions of the Articles of Incorporation, as amended, or By-Laws, as
amended, of the Company are applicable to the transactions contemplated by this
Agreement. Without limiting the foregoing, the Company's Board of Directors has
taken all such action (i) under Subchapter F of Chapter 25 of the Pennsylvania
Act to approve (A) any acquisition of shares of Company Common Stock by the
Parent Corporation as contemplated in the Stock Option Agreement (assuming the
acquisition of the Company Common Stock thereunder will not then increase the
ownership interest attributable to the Parent Corporation in the Company to 20%
or more) and the Voting Agreements and (B) the Merger, in order that Subchapter
F shall not prohibit the transactions contemplated by the Agreement, and (ii)
under Section 2538(b) of the Pennsylvania Act, so that Section 2538 shall not
apply to any transaction contemplated by this Agreement.
Section 4.26 The Company Rights Agreement. Prior hereto, the Company has
delivered to the Parent Corporation and its designated counsel a true and
complete copy of the Company Rights Agreement in effect on the date hereof, and
assuming the accuracy of the representation contained in Section 5.21, neither
the Company's execution and delivery of the Stock Option Agreement, the
execution and delivery of the Voting Agreement by certain shareholders of the
Company, the execution and delivery of this Agreement, nor the consummation of
the transactions contemplated by this Agreement will cause any change, effect
or result under the Company Rights Agreement or any similar agreement to which
the Company or its affiliates is a party which is adverse to the interests of
the Parent Corporation. Without limiting the generality of the foregoing, if
necessary to accomplish the foregoing, the Company Rights Agreement has been
amended to (i) render the Company Rights Agreement inapplicable to the Merger
and the other transactions contemplated by this Agreement, the Stock Option
Agreement and the Voting Agreement, (ii) ensure that (x) none of the Parent
Corporation or its Subsidiaries is an Acquiring Person (as defined in the
Company Rights Agreement) pursuant to the Company Rights Agreement by virtue of
the execution of this Agreement, the Stock Option Agreement or the Voting
Agreement, the consummation of the Merger or the other transactions
contemplated hereby or thereby and (y) a Distribution Date, Flip-In Event, or
Flip-Over Event (as such terms are defined in the Company Rights Agreement)
does not occur by reason of the execution of this Agreement, the Voting
Agreement or the Stock Option Agreement, the consummation of the Merger or the
consummation of the transactions contemplated hereby or thereby, and such
provisions may not be further amended by the Company without the prior consent
of the Parent Corporation in its sole discretion.
C-22
<PAGE>
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF
THE PARENT CORPORATION AND THE ACQUISITION
CORPORATION
Each of the Parent Corporation and the Acquisition Corporation represents
and warrants to the Company, jointly and severally, that except as disclosed in
the reports, schedules, forms, statements and other documents filed by the
Parent Corporation with the SEC and publicly available prior to the date of
this Agreement, as disclosed in the Quarterly Report on Form 10-Q for the
Parent Corporation's fiscal quarter ended March 26, 2000 delivered to the
Company prior to the date of this Agreement or as disclosed on a Schedule
hereto as contemplated below in this Article 5:
Section 5.1 Due Incorporation, Subsidiaries and Due Authorization.
(a) Due Incorporation. Each of the Parent Corporation, each of the
subsidiaries of the Parent Corporation (each a "Parent Corporation
Subsidiary" and collectively, the "Parent Corporation Subsidiaries") and
the Acquisition Corporation is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, with all requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted. Each of the Parent Corporation, each Parent Corporation
Subsidiary, and the Acquisition Corporation is qualified to do business and
is in good standing as a foreign corporation in each jurisdiction where the
nature of the properties owned, leased or operated by it and the business
transacted by it require such qualification, except where the failure to be
so qualified could not have a Parent Corporation Material Adverse Effect
(as defined in Section 5.6 hereof). True, correct and complete copies of
the Parent Corporation's Certificate of Incorporation and Bylaws, as
amended, have been delivered to the Company.
(b) Subsidiaries. Except as set forth on Schedule 5.1 hereto, the Parent
Corporation has no direct or indirect subsidiaries, either wholly or
partially owned, and the Parent Corporation does not hold any economic,
voting or management interest in any Person or own any security issued by
any Person. Except as set forth on Schedule 5.1 hereto, all of the issued
and outstanding shares of capital stock of each Parent Corporation
Subsidiary are validly issued, fully paid, nonassessable and free of
preemptive rights, and are owned, directly or indirectly, by the Parent
Corporation free and clear of any liens, claims, encumbrances, security
interests, equities, charges and options of any nature whatsoever and there
are no outstanding subscriptions, options, calls, contracts, voting trusts,
proxies or other commitments, understandings, restrictions, arrangements,
rights or warrants, including any right of conversion or exchange under any
outstanding security, instrument or other agreement, obligating any such
subsidiary to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of its capital stock or obligating it to grant,
extend or enter into any such agreement or commitment, except for any of
the foregoing that could not reasonably be expected to have a Parent
Corporation Material Adverse Effect.
(c) Due Authorization. Each of the Parent Corporation and the
Acquisition Corporation have full power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby. The
execution, delivery and performance by the Parent Corporation of this
Agreement have been duly and validly approved by the Board of Directors of
the Parent Corporation, and no other actions or proceedings on the part of
the Parent Corporation are necessary to authorize this Agreement and the
transactions contemplated hereby, other than the approval of the Parent
Corporation Proposal by the stockholders of the Parent Corporation. The
execution, delivery and performance by the Acquisition Corporation of this
Agreement have been duly and validly approved by the Board of Directors and
the sole stockholder of the Acquisition Corporation, and no other actions
or proceedings on the part of the Acquisition Corporation or its
stockholder are necessary to authorize this Agreement and the transactions
contemplated hereby. Each of the Parent Corporation and the Acquisition
Corporation has duly and validly executed and delivered this Agreement.
This Agreement constitutes the legal, valid and binding obligation of each
of the Parent Corporation and the Acquisition Corporation, enforceable in
accordance with its
C-23
<PAGE>
terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, fraudulent transfer, moratorium, reorganization or
other laws from time to time in effect which affect creditors' rights
generally and by general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
Section 5.2 Non-Contravention; Consents and Approvals.
(a) The execution and delivery of this Agreement by the Parent
Corporation and the Acquisition Corporation do not, and the performance by
the Parent Corporation and the Acquisition Corporation of their respective
obligations hereunder and the consummation of the transactions contemplated
hereby will not, conflict with, result in a violation or breach of,
constitute (with or without notice or lapse of time or both) a default
under, result in or give to any person any right of payment or
reimbursement, termination, cancellation, modification or acceleration of,
or result in the creation or imposition of any lien upon any of the assets
or properties of the Parent Corporation or any of the Parent Corporation
Subsidiaries under any of the terms, conditions or provisions of (i) the
articles or certificates of incorporation or bylaws (or other comparable
charter documents) of the Parent Corporation, any Parent Corporation
Subsidiary, or the Acquisition Corporation, or (ii) subject to obtaining
the necessary approval by the stockholders of the Parent Corporation and
the taking of the actions described in paragraph (b) of this Section, (x)
any Law or any judgment, decree, order, writ, permit or license of any
Governmental Entity or (y) any contract, agreement or commitment to which
the Parent Corporation, any Parent Corporation Subsidiary or the
Acquisition Corporation is a party or by which the Parent Corporation, any
Parent Corporation Subsidiary or the Acquisition Corporation or any of
their respective assets or properties is bound, including the Steag
Agreement or any other agreements relating to the Steag Combination but
excluding from the foregoing clauses (x) and (y) conflicts, violations,
breaches, defaults, terminations, modifications, accelerations and
creations and impositions of liens which would not have a Parent
Corporation Material Adverse Effect or result in the inability of the
Parent Corporation or the Acquisition Corporation to consummate the
transactions contemplated by this Agreement.
(b) No consent, approval, order or notice to or authorization of, or
registration, declaration or filing with any Governmental Entity is
required by the Parent Corporation or any of the Parent Corporation
Subsidiaries in connection with the execution and delivery of this
Agreement or the consummation by each of the Parent Corporation and the
Acquisition Corporation of the transactions contemplated hereby, the
failure to obtain which would have a Parent Corporation Material Adverse
Effect or the consummation of the transactions contemplated hereby, except
for:
(i) the filing of a pre-merger notification report under the HSR Act
and the expiration or termination of the applicable waiting period
thereunder;
(ii) the filing of the Certificate of Merger with the Secretary of
State of the State of the State of Delaware in accordance with the
requirements of the Delaware Act and the filing of the appropriate
documents with the relevant authorities of other states in which each
of the Parent Corporation and the Acquisition Corporation are qualified
to transact business;
(iii) the filing of the Joint Proxy Statement with the SEC pursuant
to the Securities Act and Securities Exchange Act and the declaration
of the effectiveness of the Registration Statement by the SEC and, to
the extent required, filings with various blue sky authorities;
(iv) the approval of the shares of Parent Common Stock for listing
on NASDAQ upon official notice of issuance;
(v) the approval by the stockholders of the Parent Corporation of
the issuance of shares of Parent Common Stock pursuant to this
Agreement; and
(vi) the consents and approvals specified on Schedule 5.2 hereto,
all of which have been obtained or made.
C-24
<PAGE>
Section 5.3 Capitalization.
(a) The authorized capital stock of the Parent Corporation consists of
60,000,000 shares of Parent Common Stock, par value $0.001 per share, and
2,000,000 shares of Preferred Stock, par value $0.001 per share. On the
date hereof, there are issued and outstanding 20,887,070 shares of Parent
Common Stock and no shares of Preferred Stock. All of the issued and
outstanding shares of Parent Common Stock are, and all of the shares of
Parent Common Stock, when issued in accordance with the terms of this
Agreement are or will be, duly and validly authorized and issued and
outstanding, fully paid and nonassessable. On the date hereof, there are
1,523,204 shares of Parent Common Stock reserved for issuance under the
Parent Corporation Stock Option Plans and warrants.
(b) The authorized capital stock of the Acquisition Corporation consists
of 1,000 shares of Common Stock, par value $0.001 per share (the
"Acquisition Corporation Common Stock"). On the date hereof, there are
issued and outstanding 1,000 shares of Acquisition Corporation Common
Stock, all of which are owned by the Parent Corporation. All of the issued
and outstanding shares of Acquisition Corporation Common Stock are validly
issued, fully paid and nonassessable and the issuances thereof were not
subject to preemptive rights.
(c) Schedule 5.3 sets forth the person who shall enter into a voting
agreement with the Company (the "Stockholder Voting Agreement"), the form
of which agreement is attached as Exhibit A-3; and which shall be and
remain in full force and effect through and until the last to occur of (i)
the effective date of any written consent controlling any vote regarding
the Parent Corporation Proposal, or (ii) any shareholder meeting (including
adjournments) at which a vote regarding the Parent Corporation Proposal is
taken. Except as set forth in Schedule 5.3 hereto, there are no
subscriptions, options, warrants, calls, rights, convertible securities or
other agreements or commitments of any character obligating the Parent
Corporation and/or the Acquisition Corporation to issue, transfer or sell
any shares of capital stock or other securities (whether or not such
securities have voting rights) of the Parent Corporation and the
Acquisition Corporation. Except as set forth in Schedule 5.3 hereto, there
are no outstanding contractual obligations of the Parent Corporation or the
Acquisition Corporation which relate to the purchase, sale, issuance,
repurchase, redemption, acquisition, transfer, disposition, holding or
voting of any shares of capital stock or other securities of each of the
Parent Corporation and the Acquisition Corporation.
Section 5.4 Financial Statements; Undisclosed Liabilities; Other Documents.
(a) For purposes of this Agreement, "Parent Corporation Financial
Statements" shall mean the audited financial statements of the Parent
Corporation as of December 31, 1999 and December 31, 1998 (including all
notes thereto), and the unaudited financial statements of the Parent
corporation that are included in the Parent Corporation's Quarterly Report
on Form 10-Q for the quarter ended March 26, 2000, consisting of the
consolidated balance sheets at such dates and the related consolidated
statements of income, stockholders' equity and cash flows for each of the
twelve-month periods ended December 31, 1999, December 31, 1998 and
December 31, 1997, and for the three month period ended March 26, 2000. The
Parent Corporation Financial Statements have been prepared in accordance
with GAAP consistently applied and present fairly the financial position,
assets and liabilities of the Parent Corporation as at the dates thereof
and the revenues, expenses, results of operations and cash flows of the
Parent Corporation for the periods covered thereby.
(b) The Parent Corporation and Parent Corporation Subsidiaries do not
have any liabilities or obligations of any nature, whether accrued,
contingent, absolute or otherwise, except (i) as set forth in the December
31, 1999 balance sheet (the "Parent Corporation Base Balance Sheet") in the
Parent Corporation's Form 10-K for the year ended December 31, 1999 or (ii)
trade payables incurred since December 31, 1999 in the ordinary and usual
course of its business and consistent in type and amount with past
practices and experience.
C-25
<PAGE>
Section 5.5 SEC Filings. Except as set forth on Schedule 5.5 hereto, the
Parent Corporation has timely filed all required forms, reports and other
documents with the SEC since November 1, 1997 all of which complied when filed,
in all material respects, with all applicable requirements of the Securities
Act and Securities Exchange Act as applicable. The Parent Corporation has
heretofore delivered to the Company complete and correct copies of (i) its
Annual Report on Form 10-K for the fiscal year ended December 31, 1999, (ii)
its Quarterly Report or Form 10-Q for the fiscal quarter ended March 26, 2000,
(iii) all proxy statements relating to the Parent Corporation's meetings of
shareholders (whether annual or special) since November 1, 1997 and (iv) all
other reports, forms and other documents filed by the Parent Corporation with
the SEC since November 1, 1997 (together, the "Parent Corporation SEC
Documents"). Except as set forth on Schedule 5.5 hereto, as of their respective
dates, such reports, forms and other documents (including all exhibits and
schedules thereto and documents incorporated by reference therein) did not
contain any untrue statement of material fact or omit to state a material fact
required to be stated therein, or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading. The audited
financial statements and the unaudited interim financial statements of the
Company included or incorporated by reference in such reports, forms and other
documents were prepared in accordance with GAAP consistently applied during the
periods involved (except as may be otherwise indicated in the notes thereto),
and fairly present the financial position of the Parent Corporation as of the
dates thereof and the results of its operations and changes in financial
position for the periods then ended (subject, in the case of any unaudited
interim financial statements, to normal year-end adjustments).
Section 5.6 No Parent Corporation Material Adverse Effects or
Changes. Except as listed on Schedule 5.6 hereto, or as contemplated by this
Agreement, since March 26, 2000 neither the Parent Corporation nor any Parent
Corporation Subsidiary has (i) taken any of the actions set forth in
subparagraphs (a) through (g) of Section 6.4 hereof, (ii) suffered any Parent
Corporation Material Adverse Effect, and no fact or condition exists which
could have, in the aggregate, a Parent Corporation Material Adverse Effect, or
(iii) suffered any damage, destruction or Loss to any of its assets or
properties (whether or not covered by insurance), "Parent Corporation Material
Adverse Effect" shall mean an effect (or circumstance involving a prospective
effect) on the business, operations, assets, liabilities, results of
operations, cash flows, conditions or prospects of the Parent Corporation and
the Parent Corporation Subsidiaries taken as a whole which is materially
adverse to the Parent Corporation and the Parent Corporation Subsidiaries on a
consolidated basis.
Section 5.7 Properties.
(a) Except as disclosed on Schedule 5.7 hereto, the Parent Corporation
and each Parent Corporation Subsidiary (i) has good and marketable title
to, and is the lawful owner of, all of the tangible and intangible assets,
properties and rights used in connection with its businesses and all of the
tangible and intangible assets, properties and rights reflected in the
Parent Corporation Base Balance Sheet (other than assets leased under the
leases set forth in Schedule 5.7 hereto and assets disposed of in the
ordinary course of business since the date of the Parent Corporation Base
Balance Sheet), and (ii) at the Effective Time will have good and
marketable title to, and will be the lawful owner of, all of such tangible
and intangible assets, properties and rights, in any case free and clear of
any lien.
(b) Except as otherwise identified in Schedule 5.7 hereto, the material
tangible assets of the Parent Corporation and each Parent Corporation
Subsidiary, taken as a whole, including all mobile equipment, are in all
respects in good condition and repair, reasonable wear and tear excepted,
and are in condition suitable for the use to which they are put in the
Parent Corporation's business.
Section 5.8 Registration Statement and Proxy Statement/Prospectus. None of
the information to be supplied by the Parent Corporation or any of its
accountants, counsel or other authorized representatives for inclusion in (a)
the Registration Statement or (b) the Joint Proxy Statement will, in the case
of the Joint Proxy Statement or any amendments thereof or supplements thereto,
at the time of the mailing of the Joint Proxy Statement and any amendments or
supplements thereto and at the time of the meeting of the stockholders of the
Parent Corporation to be held in connection with the Merger, or, in the case of
the Registration Statement and
C-26
<PAGE>
any amendments thereto, at the time it is declared effective and at the
Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading, it being understood and agreed that no representation or
warranty is made by the Parent Corporation with respect to any information
supplied by the Company or its accountants, counsel or other authorized
representatives. If at any time prior to the Effective Time any event with
respect to the Parent Corporation, its officers and directors or any of its
subsidiaries shall occur which is or should be described in an amendment of, or
a supplement to, the Joint Proxy Statement or the Registration Statement, such
event shall be so described and the presentation in such amendment or
supplement of such information will not contain any statement which, at the
time and in light of the circumstances under which it is made, is false or
misleading in any material respect or omits to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not false or misleading.
The Registration Statement will comply as to form in all material respects with
all applicable laws, including the provisions of the Securities Act.
Section 5.9 Intellectual Property. Except as disclosed on Schedule 5.9
hereto:
(a) All of the trademarks, trade names, service marks, patents,
copyrights (including any registrations of or pending applications for any
of the foregoing), technology, trade secrets, inventions, know-how,
designs, computer programs, processes and all other intangible assets,
properties and rights used by the Parent Corporation or any Parent
Corporation Subsidiary in the conduct of its business (the "Parent
Corporation Intellectual Property") are either owned by the Parent
Corporation or Parent Corporation Subsidiary free and clear of any liens,
and are not subject to any license, royalty or other agreement or are
licensed to the Parent Corporation or Parent Corporation Subsidiary.
(b) None of the Parent Corporation Intellectual Property has been or is
the subject of any pending or, to the Parent Corporation's knowledge,
threatened litigation or claim of infringement.
(c) No license or royalty agreement to which the Parent Corporation or
any Parent Corporation Subsidiary is a party is in breach or default by any
party thereto or the subject of any notice of termination given or
threatened.
(d) The products manufactured or sold by the Parent Corporation or any
Parent Corporation Subsidiary and any process, method, part, design or
material they employ, or the marketing and use by the Parent Corporation or
any Parent Corporation Subsidiary of any such product or any service, do
not infringe any trademark, service mark, trade name, copyright, trade
secret, patent or confidential or proprietary rights of another (except
such representation is qualified by the Parent Corporation's knowledge with
respect to trademarks, service marks, trade names and patents), and the
Parent Corporation and Parent Corporation Subsidiaries have not received
any notice contesting their right to use any Parent Corporation
Intellectual Property.
(e) Each of the Parent Corporation and Parent Corporation Subsidiaries
owns or possesses adequate rights in perpetuity in and to all Parent
Corporation Intellectual Property necessary to conduct its respective
business as presently conducted.
(f) The Parent Corporation and Parent Corporation Subsidiaries require
all employees, consultants and contractors having access to any Parent
Corporation Intellectual Property to execute nondisclosure agreements with
respect to the protection of the Parent Corporation Intellectual Property
and the preservation of its proprietary and trade secret nature, and where
the development, invention or creation of any Parent Corporation
Intellectual Property is involved, the Parent Corporation and Parent
Corporation Subsidiaries have obtained valid and enforceable assignment
agreements from each such employee, consultant and contractor such that all
right, title and interest in and to the Parent Corporation Intellectual
Property is vested in the Parent Corporation and/or Parent Corporation
Subsidiaries.
C-27
<PAGE>
(g) There are no exclusive licenses, exclusive distributorship
agreements or noncompetition agreements with respect to the use of any
Parent Corporation Intellectual Property or the development, sale or
distribution of any Parent Corporation products, or any other restrictions
regarding the right of the Parent Corporation or any of the Parent
Corporation Subsidiaries to fully exploit the Parent Corporation
Intellectual Property anywhere in the world. Neither the Parent Corporation
nor any of the Parent Corporation Subsidiaries is a party to any reseller
or distribution agreement, other than agreements that can be cancelled or
terminated without cost or penalty upon notice of sixty (60) days or less.
Section 5.10 Insurance. Schedule 5.10 hereto contains an accurate and
complete list of all policies of fire, liability, worker's compensation, title
and other forms of insurance owned or held by the Parent Corporation and Parent
Corporation Subsidiaries. All such policies are in full force and effect, all
premiums with respect thereto covering all periods up to and including the
Closing Date have been or, prior to the Closing Date, will be paid and no
notice of cancellation or termination has been received with respect to any
such policy. Parent Corporation will, no later than sixty (60) days prior to
Closing, deliver to the Company a true and complete copy of all insurance
policies, including all occurrence-based policies applicable to the Parent
Corporation or the Parent Corporation Subsidiaries, for the three years prior
to the Closing Date. Except as set forth in Schedule 5.10 hereto, neither the
Parent Corporation nor any Parent Corporation Subsidiary has been unable to
obtain insurance with respect to its assets or operations during the last three
(3) years.
Section 5.11 Employee Matters and ERISA. Except as set forth in Schedule
5.11 hereto:
(a) Benefit Plans. Schedule 5.11 hereto contains a true and complete
list of each employee benefit plan, program, policy, arrangement or
agreement which is or has been sponsored, maintained or contributed to by
the Parent Corporation and Parent Corporation Subsidiaries covering
employees, former employees, directors or former directors of the Parent
Corporation and Parent Corporation Subsidiaries or their beneficiaries, or
providing benefits to such persons in respect of services provided to any
such entity, including, but not limited to, any employee benefit plans
within the meaning of Section 3(3) of ERISA, and any severance or change in
control agreement, plan, policy or program between the Parent Corporation
and Parent Corporation Subsidiaries and any employee thereof (collectively,
the "Parent Corporation Benefit Plans"). Neither the Parent Corporation nor
any Parent Corporation Subsidiary is obligated to contribute to any
"multiemployer plan" as defined in Section 3(37) of ERISA. Schedule 5.11
separately lists each Parent Corporation Benefit Plan that has been adopted
or maintained by any Parent Corporation Subsidiary, whether formally or
informally, for the benefit of employees outside of the United States
("Parent Corporation International Benefit Plans").
(b) Contributions. All contributions and other payments required to be
made for any period through the date to which this representation speaks,
by the Parent Corporation or any Parent Corporation Subsidiary to any
Parent Corporation Benefit Plan (or to any person pursuant to the terms
thereof) have been timely made or paid in full, or, to the extent not
required to be made or paid on or before the date to which this
representation speaks, have been properly reflected in the Parent
Corporation Financial Statements.
(c) Qualification; Compliance. Each of the Parent Corporation Benefit
Plans intended to be "qualified" within the meaning of Section 401(a) of
the Code has either obtained from the IRS a favorable determination letter
as to its qualified status under the Code, including all amendments to the
Code which are currently effective, or has time remaining to apply under
applicable Treasury Regulations or Internal Revenue Service pronouncements
for a determination or opinion letter and to make any amendments necessary
to obtain a favorable determination or opinion letter; and, to the
knowledge of the Parent Corporation, no circumstances exist that could
reasonably be expected to result in the revocation of any such
determination. The Parent Corporation and each Parent Corporation
Subsidiary is in compliance in all material respects with, and each of the
Parent Corporation Benefit Plans is and has been operated in all material
respects in compliance with, all applicable laws, rules and regulations
governing such plan, including, without limitation, ERISA and the Code.
Each Parent Corporation Benefit Plan intended to
C-28
<PAGE>
provide for the deferral of income, the reduction of salary or other
compensation or to afford other income tax benefits complies in all
material respects with the requirements of the applicable provisions of the
Code or other laws, rules and regulations required to provide such income
tax benefits. There are no pending or, to the knowledge of the Parent
Corporation, threatened claims under or in respect of any Parent
Corporation Benefit Plan by or on behalf of any employee, former employee,
director, former director or beneficiary thereof, or otherwise involving
any Parent Corporation Benefit Plan (other than routine claims for
benefits).
(d) Title I or IV Liabilities. No event has occurred and, to the
knowledge of the Parent Corporation, there exists no condition or set of
circumstances that could reasonably be expected (and none of the
transactions contemplated hereunder are reasonably expected) to subject the
Parent Corporation or any Parent Corporation Subsidiary to any liability
(whether to a governmental agency, a multiemployer plan or any other person
or entity) arising under or based upon any provision of Title I or Title IV
of ERISA.
(e) Documents Made Available. The Parent Corporation has made available
to the Company a true and correct copy of each collective bargaining
agreement to which the Parent Corporation is a party or under which the
Parent Corporation has obligations and, with respect to each Parent
Corporation Benefit Plan, where applicable, (i) such plan, including all
amendments thereto, and the most recent summary plan description, (ii) the
five (5) most recent annual reports filed with the IRS, (iii) each related
trust agreement and insurance contract, (iv) the most recent determination
of the IRS with respect to the qualified status of such Parent Corporation
Benefit Plan, (v) the most recent actuarial report or valuation for the
most recent three (3) years, (vi) compliance and nondiscrimination tests
for the last three (3) plan years, (vii) all insurance policies and
certificates purchased by or to provide benefits under such plan, (viii)
all contracts and agreements to which the Parent Corporation or any Parent
Corporation Subsidiary is a party with third party administrators,
actuaries, investment managers, consultants and other independent
contractors that relate to such plan, (ix) standard COBRA forms and
notices, and (x) every private letter ruling, prohibited transaction
exemption, or other ruling or determination from the IRS, Department of
Labor, Pension Benefit Guaranty Corporation or other Governmental Entity
with respect to such plan. To the knowledge of the Parent Corporation, in
the case of each Parent Corporation Benefit Plan, no employee handbook or
similar employee communication relating to such plan nor any written
communication of benefits under such plan from the administrator thereof,
in either case that has not been delivered or made available to the
Company, describes the terms of such plan in a manner that is materially
inconsistent with the documents and summary plan descriptions relating to
such plan that have been made available pursuant to the foregoing sentence.
(f) Post Retirement Obligations. No Parent Corporation Benefit Plan
provides post-retirement health or welfare benefits to any individual,
other than as required by Section 601 et seq. of ERISA and Section 4980 B
of the Code or any other laws, rules or regulations.
Section 5.12 Labor Matters. The Parent Corporation and each Parent
Corporation Subsidiary have conducted and currently are conducting their
businesses in full compliance with all laws relating to employment and
employment practices, terms and conditions of employment, wages and hours and
nondiscrimination in employment. Except as disclosed on Schedule 5.12 hereto,
the relationships of the Parent Corporation and Parent Corporation Subsidiaries
with their employees are good and there are, and during the past three years
there have been, no labor strikes, disputes, slow-downs, work stoppages or
other labor difficulties pending or, to the Parent Corporation's knowledge,
threatened against or involving the Parent Corporation or any Parent
Corporation Subsidiary. None of the employees of the Parent Corporation or any
Parent Corporation Subsidiary is covered by any collective bargaining
agreement, no collective bargaining agreement is currently being negotiated and
no attempt is currently being made or during the past three years has been made
to organize any employees of the Parent Corporation or Parent Corporation
Subsidiaries to form or enter a labor union or similar organization.
C-29
<PAGE>
Section 5.13 Tax Returns and Audits. Except as set forth in Schedule 5.13
hereto:
(a) Filing of Timely Tax Returns. The Parent Corporation and each Parent
Corporation Subsidiary have filed (or there has been filed on its behalf)
all Tax Returns required to be filed by it under applicable law. All such
Tax Returns were and are in all material respects true, complete and
correct and filed on a timely basis.
(b) Payment of Taxes. The Parent Corporation and each Parent Corporation
Subsidiary have, within the time and in the manner prescribed by law, paid
all Taxes that are currently due and payable except for those contested in
good faith and for which adequate reserves have been taken.
(c) Deferred Taxes. The Parent Corporation and each Parent Corporation
Subsidiary have accounted for deferred income taxes in accordance with
GAAP.
(d) Tax Liens. There are no Tax liens upon the assets of the Parent
Corporation except liens for Taxes not yet due.
(e) Withholding Taxes. The Parent Corporation and each Parent
Corporation Subsidiary have complied in all material respects with the
provisions of the Code relating to the withholding of Taxes, as well as
similar provisions under any other laws, and have, within the time and in
the manner prescribed by law, withheld from employee wages and paid over to
the proper governmental authorities all amounts required.
(f) Extensions of Time for Filing Tax Returns. Neither the Parent
Corporation nor any Parent Corporation Subsidiary has requested any
extension of time within which to file any Tax Return, which Tax Return has
not since been filed.
(g) Waivers of Statute of Limitations. Neither the Parent Corporation
nor any Parent Corporation Subsidiary has executed any outstanding waivers
or comparable consents regarding the application of the statute of
limitations with respect to any Taxes or Tax Returns.
(h) Expiration of Statute of Limitations. The statute of limitations for
the assessment of all Taxes has expired for all applicable Tax Returns of
the Parent Corporation and each Parent Corporation Subsidiary or those Tax
Returns have been examined by the appropriate taxing authorities for all
periods through the date hereof, and no deficiency for any Taxes has been
proposed, asserted or assessed against the Parent Corporation or any Parent
Corporation Subsidiary that has not been resolved and paid in full.
(i) Audit, Administrative and Court Proceedings. No audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of the Parent Corporation or any Parent
Corporation Subsidiary.
(j) Powers of Attorney. No power of attorney currently in force has been
granted by the Parent Corporation or any Parent Corporation Subsidiary
concerning any Tax matter.
(k) Tax Rulings. Neither the Parent Corporation nor any Parent
Corporation Subsidiary has received a Tax Ruling or entered into a Closing
Agreement with any taxing authority that would have a continuing adverse
effect after the Closing Date.
(l) Tax Sharing Agreements. Neither the Parent Corporation nor any
Parent Corporation Subsidiary is a party to any agreement relating to
allocating or sharing of Taxes.
(m) Liability for Others. The Parent Corporation does not have any
liability for Taxes of any person other than the Parent Corporation (i)
under Treasury Regulations Section 1.1502-6 (or any similar provision of
state, local or foreign law) as a transferee or successor, (ii) by contract
or (iii) otherwise.
(n) Disposition of Certain Assets. The Parent Corporation has not filed
any consent agreement under Section 341(f) of the Code or otherwise agreed
to have Section 341(f)(2) of the Code apply to any disposition of a
Subsection (f) asset (as defined in Section 341(f)(4) of the Code) owned by
the Parent Corporation.
C-30
<PAGE>
(o) Affiliated Group. The Parent Corporation is not and has not been a
member of an affiliated group of corporations filing a consolidated federal
income tax return (or a group of corporations filing a consolidated,
combined or unitary income tax return under comparable provisions of state,
local or foreign tax law) other than a group the common parent of which is
or was the Parent Corporation itself (and not a subsidiary of the Parent
Corporation).
(p) Accounting Adjustments. The Parent Corporation has not agreed to
make, nor is it required to make, any adjustment under Section 481 of the
Code by reason of a change in accounting method or otherwise.
(q) Partnerships or Joint Ventures. The Parent Corporation is not and
has not been a member of a limited liability company or a party to any
joint venture, partnership or other arrangement or contract that is or
could be treated as a partnership for federal income tax purposes.
(r) Indemnities. The Parent Corporation has not indemnified any person
against Tax in connection with any arrangement for the leasing of real or
personal property, except for indemnity with respect to acts of the Parent
Corporation.
(s) Reorganization Treatment. The Parent Corporation, the Acquisition
Corporation and, to the knowledge of the Parent Corporation, the Parent
Corporation Subsidiaries, have not taken, agreed to take or proposed to
take any action that would prevent the Merger from constituting a
reorganization qualifying under the provisions of Section 368(a) of the
Code.
(t) The Acquisition Corporation is a newly organized corporation that
has been formed to effect the transactions contemplated hereunder. The
Acquisition Corporation will not have conducted any business, incurred any
liabilities or engaged in any other transactions (other than entering into
this Agreement) prior to the Closing Date.
Section 5.14 Environmental Matters. Except as disclosed in Schedule 5.14
hereto:
(a) Compliance. The Parent Corporation and each Parent Corporation
Subsidiary is in compliance with all applicable Environmental Laws and the
Parent Corporation has not received any communication from any person or
Governmental Authority that alleges that the Parent Corporation or any
Parent Corporation Subsidiary is not in compliance with applicable
Environmental Laws, except where the failure to be in such compliance would
not in the aggregate have a Parent Corporation Material Adverse Effect.
(b) Environmental Permits. The Parent Corporation and each Parent
Corporation Subsidiary have obtained or have applied for all Environmental
Permits necessary for the construction of their facilities or the conduct
of their operations, and all such Environmental Permits are in good
standing or, where applicable, a renewal application has been timely filed
and is pending agency approval, and the Parent Corporation and each Parent
Corporation Subsidiary is in compliance with all terms and conditions of
the Environmental Permits, except where the failure to be in compliance
would not in the aggregate have a Parent Corporation Material Adverse
Effect, and the Parent Corporation believes that any transfer, renewal or
reapplication for any Environmental Permit required as a result of the
Merger can be accomplished in the ordinary course of business.
(c) Environmental Claims. There are no Environmental Claims pending or
threatened (i) against the Parent Corporation or any Parent Corporation
Subsidiary, any subsidiary or joint ventures, or (ii) against any real or
personal property or operations the Parent Corporation or any Parent
Corporation Subsidiary owns, leases or manages, in whole or in part.
(d) Releases. To the Parent Corporation's knowledge, there have been no
Releases of any Hazardous Materials that would be reasonably likely to form
the basis of any Environmental Claim against the Parent Corporation or any
Parent Corporation Subsidiary.
(e) Predecessors. The Parent Corporation has no knowledge of any
Environmental Claim pending or threatened, or of any Release of Hazardous
Materials that would be reasonably likely to form the basis
C-31
<PAGE>
of any Environmental Claim, in each case against any person or entity
(including, without limitation, any predecessor of the Parent Corporation
or any Parent Corporation Subsidiary) whose liability the Parent
Corporation has or may have retained or assumed either contractually or by
operation of law or against any real or personal property which the Parent
Corporation or any Parent Corporation Subsidiary formerly owned, leased or
managed, in whole or in part.
Section 5.15 Litigation.
(a) Except as disclosed on Schedule 5.15 hereto, there are no actions,
suits, arbitrations, regulatory proceedings or other litigation,
proceedings or governmental investigations pending or, to the Parent
Corporation's knowledge, threatened against or affecting the Parent
Corporation, Parent Corporation Subsidiaries or any of their officers or
directors in their capacity as such, or any of their respective properties
or businesses which, if adversely decided, would have a Parent Corporation
Material Adverse Effect, and the Parent Corporation is not aware of any
facts or circumstances which may give rise to any of the foregoing. Except
as set forth on Schedule 5.15 hereto, all of the proceedings pending
against the Parent Corporation and Parent Corporation Subsidiaries are
covered and being defended by insurers (subject to such deductibles as are
set forth in such Schedule). Except as disclosed on Schedule 5.15 hereto,
neither the Parent Corporation nor any Parent Corporation Subsidiary is
subject to any order, judgment, decree, injunction, stipulation or consent
order of or with any court or other Governmental Authority. Since January
1, 2000, neither the Parent Corporation nor any Parent Corporation
Subsidiary has entered into any agreement to settle or compromise any
proceeding pending or threatened against it which has involved any
obligation other than the payment of money or for which the Parent
Corporation or any Parent Corporation Subsidiary, as the case may be, has
any continuing obligation.
(b) There are no claims, actions, suits, proceedings, or investigations
pending or, to the Parent Corporation's knowledge, threatened by or against
the Parent Corporation with respect to this Agreement or in connection with
the transactions contemplated hereby, and the Parent Corporation has no
reason to believe there is a valid basis for any such claim, action, suit,
proceeding, or investigation.
(c) Except as set forth on Schedule 5.15 hereof, there are no pending
or, to the Parent Corporation's knowledge, threatened claims against any
director, officer, employee or agent of the Parent Corporation, the Parent
Corporation Subsidiaries, or any other Person which could give rise to any
claim for indemnification against the Parent Corporation or any Parent
Corporation Subsidiary.
Section 5.16 Compliance with Applicable Laws. Except as disclosed in
Schedule 5.16 hereto, the Parent Corporation and each Parent Corporation
Subsidiary holds all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Authorities which are material to the operation
of its business (the "Parent Corporation Permits"). The Parent Corporation and
each Parent Corporation Subsidiary is in compliance with the terms of the
Parent Corporation Permits, except where the failure so to comply would not
have a Parent Corporation Material Adverse Effect. Except as disclosed in
Schedule 5.16 hereto, to the Parent Corporation's knowledge, the Parent
Corporation and each Parent Corporation Subsidiary is not in violation of any
law, ordinance or regulation of any Governmental Authority, except for possible
violations which individually and in the aggregate do not, and, insofar as
reasonably can be foreseen by the Parent Corporation, will not in the future
have a Parent Corporation Material Adverse Effect.
Section 5.17 Contracts; No Defaults. Except as set forth on the Exhibit
Index to the Parent Corporation's Annual Report on Form 10-K for the year ended
December 31, 1999, or as described on Schedule 5.17 hereto, neither the Parent
Corporation nor any Parent Corporation Subsidiary is a party to or subject to
any oral or written agreement, contract or commitment (including, without
limitation, leases of real property) which would be required to be included as
an Exhibit to an annual report of the Parent Corporation on Form 10-K under the
Securities Exchange Act. Neither the Parent Corporation nor any Parent
Corporation Subsidiary is in default or alleged to be in default under any such
agreement, contract or commitment and, to the Parent Corporation's knowledge,
no other party thereto is in default. Nothing has occurred which, with or
without the passage of time or giving or notice or both, would constitute a
default by the Parent Corporation or
C-32
<PAGE>
any Parent Corporation Subsidiary or, to the Parent Corporation's knowledge, by
any other party under any such agreement, contract or commitment. The Parent
Corporation has no reason to believe any material renewable agreement, contract
or commitment will not be renewed and has not received any notification that
any such agreement, contract or commitment is not likely to be renewed. The
Merger contemplated by this Agreement will not create a default under or permit
the termination of or otherwise adversely affect any such agreement, contract
or commitment in a manner that will have a Parent Corporation Material Adverse
Effect. Except as described in Schedule 5.17 hereto, neither the Parent
Corporation nor any Parent Corporation Subsidiary is required to give any
notice to any person regarding this Agreement or the transactions contemplated
hereby with respect to any such agreement, contract or commitment.
Section 5.18 Change in Control and Severance Payments. Except as set forth
on Schedule 5.18 hereto, neither the Parent Corporation nor any Parent
Corporation Subsidiary has any plans, programs or agreements to which it is a
party, or to which it is subject, pursuant to which payments (or acceleration
of benefits) may be required upon, or may become payable directly or indirectly
as a result of, or by reason of the consummation of the Merger.
Section 5.19 Year 2000. As of the date hereof, the computer systems used by
the Parent Corporation, any Parent Corporation Subsidiary and any third party
service providers used by either of the foregoing have not exhibited any
deficiencies with respect to formatting for the Year 2000 Problem. All issues
and modification, if any, regarding Year 2000 Problem compliance by the Parent
Corporation or Parent Corporation Subsidiaries have been resolved and
undertaken, and will in the future be resolved and undertaken, by third-party
service providers and the Parent Corporation. The Parent Corporation is not
aware of any inability on the part of any customer, insurance company or
service provider with which the Parent Corporation or Parent Corporation
Subsidiaries transact business to timely remedy their own deficiencies in
respect of the Year 2000 Problem, which inability, individually or in the
aggregate, reasonably could be expected to have a Parent Corporation Material
Adverse Effect.
Section 5.20 Brokers and Finders. Except for Alliant Partners, neither the
Parent Corporation nor any officer, director, or employee of the Parent
Corporation has employed any brokers, finder or investment banker or incurred
any liability for any brokerage or investment banking fees, commissions or
finders' fees in connection with the transactions contemplated by this
Agreement.
Section 5.21 Ownership of the Company Common Stock. Except as set forth in
Schedule 5.21 hereto, as of the date of this Agreement, the Parent Corporation
does not "beneficially own" (as such term is defined for purposes of Section
13(d) of the Securities Exchange Act) any shares of the Company Common Stock.
Section 5.22 Opinion of Financial Advisor. The Parent Corporation has
received the opinion of Alliant Partners, as of June 27, 2000, to the effect
that the merger and Steag Combination, together, are fair, from a financial
point of view to the holders of Parent Common Stock. The Parent Corporation has
delivered to the Company a copy of the agreement between the Parent Corporation
and Alliant Partners.
Section 5.23 Vote Required. The approval of the Parent Corporation Proposal
by the affirmative vote of a majority of the votes cast in person or by proxy
by the holders of Parent Common Stock is the only vote of the holders of any
class or series of the capital stock of the Parent Corporation or any of its
subsidiaries required to approve the Parent Corporation Proposal.
Section 5.24 Steag Agreement. The Parent Corporation has furnished to the
Company a true and complete copy of the proposed Steag Agreement as well as the
disclosure schedule thereto and the proposed related voting agreement
contemplated by Recital G thereto, in each case in the form in which such
document is being executed by the respective parties thereto concurrently with
the execution of this Agreement by the Parent Corporation, the Acquisition
Corporation and the Company.
C-33
<PAGE>
ARTICLE 6
COVENANTS
Section 6.1 Covenant to Satisfy Conditions. Subject to the terms and
conditions hereof, each party hereto shall use its reasonable commercial
efforts to take all action required of it to satisfy the conditions set forth
in Article 7, and otherwise to fulfill its obligations under the terms of this
Agreement and to facilitate the consummation of the transactions contemplated
hereby.
Section 6.2 Access to Information and Facilities.
(a) From and after the date of this Agreement, the Company and each
Company Subsidiary shall give the Parent Corporation and the Acquisition
Corporation and their representatives access during normal business hours
to all of the facilities, properties, books, contracts, commitments and
records of the Company and each Company Subsidiary and shall make their
respective officers and employees available to the Parent Corporation and
the Acquisition Corporation and their representatives as the Parent
Corporation or the Acquisition Corporation or their representatives shall
from time to time reasonably request. The Parent Corporation and the
Acquisition Corporation and their representatives will be furnished with
any and all information concerning the Company and Company Subsidiaries
which the Parent Corporation or the Acquisition Corporation or their
representatives reasonably request.
(b) From and after the date of this Agreement, the Parent Corporation
and each Parent Corporation Subsidiary and the Acquisition Corporation
shall give the Company and its representatives access during normal
business hours to all of the facilities, properties, books, contracts,
commitments and records of the Parent Corporation and the Acquisition
Corporation and shall make the officers and employees of the Parent
Corporation and each Parent Corporation Subsidiary and the Acquisition
Corporation available to the Company and its representatives as the Company
or its representatives shall from time to time reasonably request. The
Company and its representatives will be furnished with any and all
information concerning the Parent Corporation and each Parent Corporation
Subsidiary and the Acquisition Corporation, and, to the extent accessible
to the Parent Corporation or its representatives, all information
concerning Steag, which the Company or its representatives reasonably
requests.
Section 6.3 Company Conduct of Business Pending Effective Time. From the
date of this Agreement until the Closing Date, the Company and each Company
Subsidiary shall operate only in the ordinary and usual course of business
consistent with past practice, and shall use reasonable commercial efforts to
(a) preserve intact its respective business organization, (b) preserve the good
will and advantageous relationships with customers, suppliers, independent
contractors, employees and other Persons material to the operation of its
business and (c) not permit any action or omission which would cause any of the
representations or warranties contained herein to become inaccurate or any of
the covenants to be breached. Without limiting the generality of the foregoing,
or as may reasonably be required in order to effectuate the transactions
described in Section 6.7 prior to the Closing, except as set forth on Schedule
6.3, neither the Company nor any Company Subsidiary, shall, without the prior
written consent of the Parent Corporation:
(a) incur any obligation or enter into any contract which (x) either (I)
requires a payment by any party in excess of, or a series of payments which
in the aggregate exceed, $3,000,000 or provides for the delivery of goods
or performance of services, or any combination thereof, having a value in
excess of $500,000 or (II) has a term of, or requires the performance of
any obligations, over a period in excess of six months or (y) if the
Company were a party to such contract or agreement on the date hereof, such
contract or agreement would be required to be disclosed pursuant to Section
4.18 hereof;
(b) take any action, or enter into or authorize any contract or
transaction other than in the ordinary course of business and consistent
with past practice;
(c) sell, transfer, convey, assign or otherwise dispose of any of its
assets or properties, except sales of inventory in the ordinary course of
business consistent with past practice;
C-34
<PAGE>
(d) waive, release or cancel any claims against third parties or debts
owing to it, or any rights which have any value in an amount greater than
$100,000;
(e) make any changes in its accounting systems, policies, principles or
practices, other than as may be required by reason of changes in GAAP or
rules and regulations of the SEC pertaining to accounting principles or
practices;
(f) except as otherwise provided under subsection (j) of this Section
6.3, authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of
options, warrants, convertible or exchangeable securities, commitments,
subscriptions, rights to purchase or otherwise) any shares of its capital
stock or any other securities, or amend any of the terms of any such
securities;
(g) other than distributions by the Company to its shareholders in
accordance with past practice, split, combine or reclassify any shares of
its capital stock, declare, set aside or pay any dividend or other
distribution (whether in cash, stock or property or any combination
thereof) in respect of its capital stock or redeem or otherwise acquire any
of its securities;
(h) make any borrowings, incur any debt (other than trade payables in
the ordinary course of business) or assume, guarantee, endorse or otherwise
become liable (whether directly, contingently or otherwise) for the
obligations of any other Person or make any unscheduled payment or
repayment of principal in respect of any Long Term Debt. "Long Term Debt"
shall mean the aggregate original principal amount (less any cash
repayments of principal previously made) of, and any and all accrued
interest on, all indebtedness with respect to borrowed money and all other
obligations (or series of related obligations) to pay money with respect to
extensions of credit, including capitalized lease and deferred compensation
obligations, except indebtedness or obligations for which all installments
are payable within six months from the date of the advancement of funds or
extension of credit. The term "Long Term Debt" shall include any amount
listed or to be listed as a current liability on financial statements which
reflects the current portion or final installments of obligations
originally reflected as noncurrent liabilities;
(i) make any new loans, advances or capital contributions to, or new
investments in, any other Person, other than in the form of advances and
loans to and from subsidiaries existing at the Effective Date and in the
normal course of business;
(j) issue any shares of stock or grant any option or right to acquire
any shares of stock, enter into, adopt, amend or terminate any bonus,
profit sharing, compensation, termination, stock option, stock appreciation
right, restricted stock, performance unit, pension, retirement, deferred
compensation, employment, severance or other employee benefit agreements,
trusts, plans, funds or other arrangements for the benefit or welfare of
any director, officer or employee, or increase in any manner the
compensation or fringe benefits of any director, officer or employee or pay
any benefit not required by any existing plan or arrangement or enter into
any contract, agreement, commitment or arrangement to do any of the
foregoing, other than (i) the issuance of shares of stock upon the exercise
of stock options outstanding prior to the effectiveness of this Agreement
(ii) the granting of stock options to newly hired employees after the date
of this Agreement in amounts consistent, on an as-converted basis, based on
the Exchange Ratio, with the Parent Corporation's compensation guidelines,
and on terms and conditions consistent with the Parent Stock Option Plan
and the related standard Parent Corporation stock option agreement (which
vest ratably on a monthly basis over a four (4) year period, with no
vesting until the first anniversary date of the commencement of full-time
employment, and no acceleration of vesting upon the Closing or any a change
of control), (iii) issuance of shares under the Employee Stock Purchase
Plan of the Company, and (iv) changes in compensation planned and executed
as a part of the annual salary review policy in the normal course of
business;
(k) except for capital expenditures contemplated by (l) below, acquire,
lease or encumber any assets outside the ordinary course of business or any
assets which are material;
(l) authorize or make any capital expenditures which individually or in
the aggregate are in excess of $500,000 per quarter;
C-35
<PAGE>
(m) make any Tax election or settle or compromise any federal, state,
local or foreign income Tax liability, or waive or extend the statute of
limitations in respect of any such Taxes other than in the ordinary course
of business and consistent with past practice or incident to the filing for
extensions for Tax Returns;
(n) pay or agree to pay any amount in settlement or compromise of any
suits or claims of liability in an amount more than $100,000; or
(o) terminate, modify, amend or otherwise alter or change any of the
terms or provisions of any contract, or pay any amount not required by law
or by any contract in an amount more than $100,000, other than
modifications to purchase orders done in the ordinary course of business
and not exceeding $300,000.
Section 6.4 Parent Corporation Conduct of Business Pending Effective
Time. From the date of this Agreement until the Closing Date, the Parent
Corporation and each Parent Corporation Subsidiary shall use reasonable
commercial efforts to (a) preserve intact its respective business organization,
(b) preserve the good will and advantageous relationships with customers,
suppliers, independent contractors, employees and other Persons material to the
operation of its business, and (c) not permit any action or omission which
would cause any of the representations or warranties contained herein to become
inaccurate or any of the covenants to be breached. Without limiting the
generality of the foregoing, or as may reasonably be required in order to
effectuate the transactions described in Section 6.7 prior to the Closing,
neither the Parent Corporation nor any Parent Corporation Subsidiary, shall,
without the prior written consent of the Parent Corporation:
(a) sell, transfer, convey, assign or otherwise dispose of any of its
material assets or properties, except sales of inventory in the ordinary
course of business consistent with past practice;
(b) waive, release or cancel any claims against third parties or debts
owing to it, or any rights which have any value in an amount greater than
$5,000,000;
(c) make any changes in its accounting systems, policies, principles or
practices, other than as may be required by reason of changes in GAAP or
rules and regulations of the SEC pertaining to accounting principles or
practices;
(d) other than distributions by the Parent Corporation to its
stockholders in accordance with past practice, split, combine, or
reclassify any shares of its capital stock, declare, set aside or pay any
dividend or other distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock, or redeem or
otherwise acquire any of its securities;
(e) authorize or make any capital expenditures which individually or in
the aggregate are in excess of $25,000,000;
(f) make any Tax election or settle or compromise any federal, state,
local or foreign income Tax liability, or waive or extend the statute of
limitations in respect of any such Taxes other than in the ordinary course
of business and consistent with past practice or incident to the filing for
extensions for Tax Reports; or
(g) pay or agree to pay any amount in settlement or compromise of any
suits or claims of liability in an amount more than $10,000,000.
Section 6.5 Proxy Materials and Shareholder Approval. As soon as practicable
after the date hereof, the Parent Corporation, the Company and the Acquisition
Corporation will prepare and file the Joint Proxy Statement that will be
included in the Registration Statement containing (i) the Joint Proxy Statement
relating to the Company Proposal and the Parent Corporation Proposal to be
presented at the Company Shareholders meeting and the Parent Corporation
Stockholders meetings, respectively and (ii) a prospectus relating to the Share
Issuance to be conducted in connection with the Merger, and each of the Parent
Corporation, the Company and the Acquisition Corporation shall use all
reasonable efforts to have the Registration Statement declared effective as
promptly as practicable. The Company will convene the Company Shareholders
Meeting
C-36
<PAGE>
as promptly as practicable after the Registration Statement is declared
effective to consider and vote upon the adoption and approval of the Company
Proposal. The Parent Corporation will convene the Parent Corporation
Stockholders Meeting as promptly as practicable after the Registration
Statement is declared effective to consider and vote upon the adoption and
approval of the Parent Corporation Proposal. Subject to fiduciary obligations
under applicable law, and, in the case of the Company, subject to the further
provisions of Section 6.10 (b), the Boards of Directors of the Company and the
Parent Corporation shall recommend to their respective shareholders the
approval of the Company Proposal and the Parent Corporation Proposal,
respectively. The Registration Statement and the Joint Proxy Statement will
comply as to form in all material respects with all applicable laws, including
the Securities Act and the Securities Exchange Act.
Section 6.6 Intentionally Omitted.
Section 6.7 Consents and Approvals. Each of the parties hereto shall use
reasonable commercial efforts to obtain all consents, approvals, certificates
and other documents required in connection with, and to have removed any
impediments to, the performance by it of this Agreement, the Steag Agreement
and the consummation of the transactions contemplated hereby. Each of the
parties hereto shall make all filings, applications, statements and reports to
all Governmental Authorities and other Persons which are required to be made
prior to the Closing Date pursuant to any applicable law or contract in
connection with this Agreement and the transactions contemplated hereby.
Section 6.8 Periodic Reports. Until the Effective Time, each of the Company
and the Parent Corporation will, subject to the requirements of applicable
laws, furnish to the other party all filings to be made with the SEC and all
materials to be mailed to its respective shareholders or stockholders and will
solicit comments with respect thereto from the other party, in each case at
least 48 hours prior to the time of such filings and the time of such mailings,
unless otherwise required by law, in which case the Company and the Parent
Corporation will afford the other party such opportunities for comment as is
reasonable and practicable under the circumstances.
Section 6.9 Publicity. Prior to issuing any public announcement or statement
with respect to the transactions contemplated by this Agreement or the Steag
Agreement and prior to making any filing with any Federal or state Governmental
Entity or with any securities exchange with respect thereto, the Parent
Corporation and the Company will consult with each other and will allow each
other a reasonable opportunity to review the contents of any such public
announcement or statement and any such filing, unless otherwise required by
law, in which case the Company will afford the Parent Corporation such
opportunities for comment as is reasonable and practicable under the
circumstances. The Parent Corporation and the Company each agree to furnish to
the other copies of all other public announcements they may make concerning
their respective business and operations promptly after such public
announcements are made.
Section 6.10 Acquisition Proposals.
(a) Without limitation on any of the Company's other obligations under
this Agreement (including under Article V hereof), the Company agrees that
neither it nor any of its Subsidiaries nor any of the officers and
directors of it or its Subsidiaries shall, and that it shall use its
reasonable commercial efforts to cause its and its Subsidiaries' employees,
agents and representatives (including any investment banker, attorney or
accountant retained by it or any of its Subsidiaries) not to, directly or
indirectly, (i) initiate, solicit, encourage or knowingly facilitate any
inquiries or the making of any Acquisition Proposal (as defined in Exhibit
A hereto), (ii) provide any nonpublic information or data to any Person
relating to or in response to an Acquisition Proposal or any inquiry or
indication of interest that could lead to an Acquisition Proposal, or
engage in any discussions or negotiations with any Person with respect to
an Acquisition Proposal, or knowingly facilitate any effort or attempt to
make or implement an Acquisition Proposal, (iii) approve, endorse or
recommend, or propose publicly to approve, endorse or recommend, any
Acquisition Proposal or (iv) approve, endorse or recommend, or propose to
approve, endorse or recommend, or execute or enter into, any letter of
intent, agreement in principle, merger agreement,
C-37
<PAGE>
acquisition agreement, option agreement or other similar agreement or
propose publicly or agree to do any of the foregoing related to any
Acquisition Proposal.
(b) Notwithstanding anything in this Agreement to the contrary, this
Section 6.10 shall not prohibit the Company or its Board of Directors (i)
to the extent applicable, from complying with Rule 14e-2 and Rule 14d-9
promulgated under the Securities Exchange Act with regard to an Acquisition
Proposal, (ii) from effecting a change in the Company Board Recommendation
or (iii) from engaging in any discussions or negotiations with, or
providing any nonpublic information to, any Person in response to an
unsolicited bona fide written Acquisition Proposal by any such Person, if
and only to the extent that, (A) in any such case referred to in Clause
(ii) or (iii) above, neither the Company nor any representative of the
Company shall have violated any of the restrictions of this Section 6.10,
(B) in any such case referred to in clause (ii) or (iii), its meeting of
shareholders shall not have occurred, (C) in the case of clause (ii) or
(iii) above, it has received an unsolicited bona fide written Acquisition
Proposal from a third party (which has not been withdrawn) and its Board of
Directors concludes in good faith that such Acquisition Proposal
constitutes a Superior Proposal (as defined below), (D) in the case of
clause (ii) or (iii) above, its Board of Directors, after consultation with
outside counsel, determines in good faith that such action is required in
order for the Board of Directors to comply with its fiduciary duties under
applicable law, (E) prior to providing any information or data to any
Person in connection with an Acquisition Proposal by any such Person, its
Board of Directors receives from such Person an executed confidentiality
agreement having provisions that are customary in such agreements, as
advised by counsel, and no less restrictive than the comparable provisions
contained in the confidentiality agreement between the Company and the
Parent Corporation, and at least two business days prior to furnishing any
such nonpublic information to such person, the Company furnishes such
nonpublic information to the Parent Corporation (to the extent not
furnished previously), and (F) at least two business days prior to
providing any information or data to any Person or entering into
discussions or negotiations with any Person, the Company notifies the
Parent Corporation of such inquiries, proposals or offers received by, any
such information requested from, or any such discussions or negotiations
sought to be initiated or continued with, such Person or any of its
representatives indicating, in connection with such notice, the name of
such Person and the material terms and conditions of any inquiries,
proposals or offers. The Company agrees that it will promptly keep the
Parent Corporation informed of the status and terms of any such proposals
or offers and the status and terms of any such discussions or negotiations.
The Company agrees that it will, and will cause its officers, directors and
representatives to, immediately cease and cause to be terminated any
activities, discussions or negotiations existing as of the date of this
Agreement with any parties with respect to any Acquisition Proposal. The
Company agrees that it will use reasonable commercial efforts to promptly
inform its directors, officers, key employees, agents and representatives
of the obligations undertaken in this section. Without limiting the
generality of the foregoing, the Company acknowledges and agrees that any
violation of any of the restrictions set forth in this Section 6.10 by any
representative of the Company or any of its Significant Subsidiaries (as
defined in Rule 1-02 of Regulation S-X of the SEC), whether or not such
representative is purporting to act on behalf of the Company or any of its
Significant Subsidiaries, shall be deemed to constitute a breach of this
Section 6.10 by the Company. Nothing in this section shall (1) permit the
Company to terminate this Agreement (except as specifically provided in
Article VIII hereof) or (2) affect any other obligation of the Company
under this Agreement. The Company shall not submit to the vote of its
shareholders any Acquisition Proposal (other than the Merger).
Section 6.11 No Breach, Etc. No party shall, nor shall any party permit any
of its subsidiaries to, willfully take any action that would or is reasonably
likely to result in a material breach of any provision of this Agreement, the
Steag Agreement or in any of its representations and warranties set forth in
this Agreement being untrue on and as of the Closing Date.
Section 6.12 Blue Sky Approvals. The Parent Corporation and the Company will
obtain, prior to the effective date of the Registration Statement, all
necessary state securities law or "Blue Sky" permits and approvals required to
carry out the transactions contemplated by this Agreement and the Merger.
C-38
<PAGE>
Section 6.13 Indemnification by the Surviving Corporation.
(a) Assuming consummation of the Merger, commencing as of the Effective
Time, the Surviving Corporation shall (i) indemnify, defend and hold
harmless each person who is, or has been at any time prior to the date of
this Agreement or who becomes prior to the Effective Time, an officer or
director of the Company against all losses, claims, damages, costs,
expenses, liabilities or judgments or amounts that are paid in settlement
with the approval of the indemnifying party (which approval shall not be
unreasonably withheld) in connection with any claim, action, suit,
proceeding or investigation to the extent based on or arising out of the
fact that such person is or was a director, officer or employee of the
Company ("Indemnified Liabilities"), pertaining to any matter existing or
occurring at or prior to the Effective Time and whether asserted or claimed
prior to, or at or after, the Effective Time and (ii) indemnify, defend and
hold harmless each person who is, or has been at any time prior to the date
of this Agreement or who becomes prior to the Effective Time, an officer,
director or employee of the Company (the "Indemnified Parties") against all
Indemnified Liabilities based in whole or in part on, or arising in whole
or in part out of, or pertaining to this Agreement or the transactions
contemplated hereby, in each case to the full extent a corporation is
permitted under the laws of its state of incorporation to indemnify its own
directors, officers or employees, as the case may be (and the Surviving
Corporation will pay expenses in advance of the final disposition of any
such action or proceeding to each Indemnified Party to the full extent
permitted by law), except for a claim arising or based upon the gross
negligence or willful misconduct of the Indemnified Party. Without limiting
the foregoing, in the event any such claim, action, suit, proceeding or
investigation is brought against any Indemnified Party (whether arising
before or after the Effective Time), (i) the Indemnified Party may retain
counsel satisfactory to it and the Surviving Corporation, (ii) the
Surviving Corporation will pay all reasonable fees and expenses of such
counsel for the Indemnified Party promptly as statements therefor are
received, and (iii) the Surviving Corporation will use all reasonable
efforts to assist in the vigorous defense of any such matter, provided that
the Surviving Corporation shall not be liable for any settlement of any
claim effected without its prior written consent, which consent shall not
be unreasonably withheld, and if more than one Indemnified Party is subject
to a claim giving rise to Indemnification hereunder, the Indemnified
Parties as a group may retain one law firm to represent them with respect
to each such matter unless there is, under applicable standards of
professional conduct (as determined by counsel to the Indemnified Parties),
a conflict on any significant issue between the positions of any two or
more Indemnified Parties, in which event, such additional counsel as may be
required may be retained by the Indemnified Parties at the Surviving
Corporation's expense. Any Indemnified Party wishing to claim
indemnification under this Section 6.13, upon learning of any such claim,
action, suit, proceeding or investigation, shall notify the Surviving
Corporation (but the failure so to notify an indemnifying party shall not
relieve it from any liability which it may have under this Section 6.13,
except to the extent such failure prejudices such party), and shall, to the
extent required by laws of the indemnifying party's state of incorporation,
deliver to the Surviving Corporation any undertaking required prior to
payment of expenses in advance of final disposition.
(b) All rights to indemnification now existing in favor of any of the
current or former directors, officers and employees of the Company, whether
arising under the Company's Articles of Incorporation or By-Laws, by law,
or under indemnification agreements between the Company and any such
person, in each case as of the date of this Agreement, shall survive the
Merger and the Surviving Corporation shall cause all such rights to
indemnification to continue in full force and effect from and after
consummation of the Merger in accordance with their terms, as such terms
exist on the date hereof.
(c) In the event that the Surviving Corporation or any of its successors
or assigns (i) consolidates with or merges into any other person and shall
not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then and in each such case, proper
provisions shall be made so that the successors and assigns of the Parent
Corporation shall assume the obligations set forth in paragraph (a) and (b)
above.
(d) The Certificate of Incorporation and By-Laws of the Surviving
Corporation shall contain provisions no less favorable with respect to
indemnification of officers, directors and employees than are
C-39
<PAGE>
set forth in the current Articles of Incorporation and By-Laws of the
Company, which provisions shall not be amended, repealed or otherwise
modified for a period of six years from the Effective Time, unless such
modification is required by law.
(e) For six years after the Effective Time, to the extent reasonably
obtainable, the Surviving Corporation shall cause to be maintained in
effect the current policies of directors' and officers' liability insurance
maintained by the Company (provided that the Surviving Corporation may
substitute therefor policies having at least comparable coverage containing
terms that are no less advantageous, except to a de minimus extent) with
respect to matters occurring prior to the Effective Time to the extent such
liability insurance can be maintained at a cost for officers and directors
of the Company and Company Subsidiaries not greater than 1.5 times the
current amount paid by the Company annually for its existing coverage (the
"Cap"); provided that if comparable coverage cannot be obtained, or can be
obtained only by paying an annual premium in excess of the Cap, the
Surviving Corporation shall only be required to obtain as much coverage as
can be obtained by paying an annual premium equal to the Cap.
(f) The Surviving Corporation shall pay all expenses, including
reasonable attorneys' fees, that may be incurred by any indemnified party
in enforcing the indemnity and other obligations provided for in this
Section 6.13.
Section 6.14 Certain Employee Agreements. Subject to Section 6.15 hereof,
the Surviving Corporation shall honor, without modification, all contracts,
agreements, collective bargaining agreements and commitments of the parties
prior to the date hereof which apply to any current or former employee or
current or former director of the Company; provided, however, that the
foregoing shall not prevent the Surviving Corporation or its Subsidiaries from
enforcing such contracts, agreements, collective bargaining agreements and
commitments in accordance with their terms, including, without limitation, any
reserved right to amend, modify, suspend, revoke or terminate any such
contract, agreement, collective bargaining agreement or commitment.
Section 6.15 Employee Benefit Plans.
(a) Each individual employed by the Company or any Company Subsidiary
immediately before the Effective Time who (i) remains employed by the
Surviving Corporation, Parent Corporation or any of its Subsidiaries and
(ii) is not covered by a collective bargaining agreement (each such
individual, a "Continuing Employee"), shall be provided with credit, for
all purposes other than benefit accrual, under the employee benefit plans
of the Surviving Corporation, Parent Corporation or any of its Subsidiaries
providing benefits after the Effective Time to Continuing Employees, for
his or her years of service with the Company and Company Subsidiaries, as
the case may be, before the Effective Time, to the same extent as such
Continuing Employee was entitled, before the Effective Time, to credit for
such service under any comparable plans, maintained by the Company or
Company Subsidiaries, except to the extent such credit would result in a
duplication of benefits. In addition, and without limiting the generality
of the foregoing, (i) each Continuing Employee shall be immediately
eligible to participate, without any waiting time, in any and all employee
benefit plans sponsored by Surviving Corporation, Parent Corporation or and
his or her covered dependents, and the Surviving Corporation, Parent
Corporation or any of its Subsidiaries shall cause any eligible expenses
incurred by such employee and his or her covered dependents during the
portion of the plan year of the Old Plan ending on the date such employee's
participation in the corresponding New Plan begins to be taken into account
under such New Plan for purposes of satisfying all deductible, coinsurance
and maximum out-of-pocket requirements applicable to such employee and his
or her covered dependents for the applicable plan year as if such amounts
had been paid in accordance with such New Plan. Notwithstanding the
foregoing, a Continuing Employee's service with the Company and Company
Subsidiaries, as the case may be before the Effective Time, shall not be
considered for purposes of eligibility to participate in the Parent
Corporation's sabbatical plan. any of its Subsidiaries for the benefit of
Continuing Employees (such plans, collectively, the "New Plans") to the
extent coverage under such New Plan replaces coverage under a comparable
Plan in which such Continuing Employee participated immediately before the
Effective Time (such plans, collectively, the "Old Plans") and to roll over
any amounts held under any Old Plan into the respective New Plan in
C-40
<PAGE>
accordance with applicable law and the applicable New Plan and Old Plan;
and (ii) for purposes of each New Plan providing medical, dental,
pharmaceutical and/or vision benefits to any Continuing Employee, the
Surviving Corporation, Parent Corporation or any of its Subsidiaries shall
cause all pre-existing condition exclusions and actively-at-work
requirements of such New Plan to be waived for such employee and his or her
covered dependents, and the Surviving Corporation, Parent Corporation or
any of its Subsidiaries shall cause any eligible expenses incurred by such
employee and his or her covered dependents during the portion of the plan
year of the Old Plan ending on the date such employee's participation in
the corresponding New Plan begins to be taken into account under such New
Plan for purposes of satisfying all deductible, coinsurance and maximum
out-of-pocket requirements applicable to such employee and his or her
covered dependents for the applicable plan year as if such amounts had been
paid in accordance with such New Plan. Notwithstanding the foregoing, a
Continuing Employee's service with the Company and Company Subsidiaries, as
the case may be before the Effective Time, shall not be considered for
purposes of eligibility to participate in the Parent Corporation's
sabbatical plan.
(b) In lieu of any severance benefits to which any Company or Company
Subsidiary employee who shall become a Continuing Employee was entitled
(not including Roger Carolin, Christopher McConnell or Lorin J. Randall),
each such Continuing Employee shall be entitled to the following severance
benefits, as applicable, provided, however that such Continuing Employee's
employment is involuntarily terminated by the Surviving Corporation, Parent
Corporation or any of its Subsidiaries without "cause," (as that term is
defined below) prior to the expiration of four (4) months after the
Effective Time.
(i) Four weeks salary (which shall be calculated as the Continuing
Employee's final base salary rate, excluding any expected bonuses and
the value of any stock options or other employee benefits)
continuation, plus two weeks salary continuation for each completed
year of service with the Company or any Company Subsidiary before the
Effective Time (each a "Year of Service"); and
(ii) continuation of medical benefits comparable to those received
by ongoing employees of the Surviving Corporation, Parent Corporation
or any of its Subsidiaries for three (3) months following termination,
if the Continuing Employee has less than one (1) Year of Service; six
(6) months following termination, if the Continuing Employee has
completed more than one (1) but less than fifteen (15) Years of
Service; or nine (9) months following termination, if the Continuing
Employee has completed at least fifteen (15) Years of Service; it is
provided, however, that if the insurance carriers for the medical
benefit plans of the Surviving Corporation, Parent Corporation or any
of its Subsidiaries, as the case may be, will not permit such
terminated Continuing Employee to receive benefits under such plans
except under the applicable health care continuation and notice
provisions of COBRA, then the COBRA premiums of such employee will be
paid by the Surviving Corporation for the time period based on such
employee's Years of Service, as described in the preceding clause; and
(iii) payment of salary for the number of weeks of vacation that
accrued but was unused during Continuing Employee's Years of Service
and that remained unused at the time of termination of employment.
A Continuing Employee who resigns from his or her employment shall not be
entitled to any benefits pursuant to this section, regardless of such
Continuing Employee's purported reason for resignation.
For purposes of this section, a termination with "cause" occurs if an
employee is terminated for any of the following reasons: (i) theft, dishonesty
or falsification of any employment or any records of the Surviving Corporation,
Parent Corporation or any of its Subsidiaries (ii) conviction of a felony or
any act involving moral turpitude; (iii) insubordination or gross misconduct;
(iv) improper disclosure of the confidential or proprietary information of the
Surviving Corporation, Parent Corporation or any of its Subsidiaries or (v) any
intentional act that has a material detrimental effect on the business or
reputation of the Surviving Corporation, Parent Corporation or any of its
Subsidiaries.
C-41
<PAGE>
Further, for purposes this section, a Continuing Employee will not be
considered to have incurred an involuntary termination of employment if such
employee is employed by the Surviving Corporation and then becomes an employee
of or is transferred to the Parent Corporation (or vice versa) prior to the
expiration of four (4) months after the Effective Time.
Notwithstanding subsections (b)(i), (ii) and (iii), if such Continuing
Employee is entitled contractually or by law to any severance benefit not
listed in subsections (b)(i), (ii) and (iii) above (each an "Additional
Benefit"), or entitled to any severance benefit at a higher level than that
specified in subsection (b)(i), (ii) and (iii) above, such Continuing Employee
shall be entitled to receive those benefits provided in subsections (b)(i),
(ii) and (iii), in addition to any Additional Benefits and any incremental
increase over the benefit levels provided for in subsections (b)(i), (ii) and
(iii) to which such Continuing Employee is entitled by contract or by law.
(c) The Company and Company Subsidiaries, as applicable, each agrees to
terminate their 401(k) plans immediately prior to Closing, unless the
Parent Corporation, in its sole and absolute discretion, agrees to sponsor
and maintain such plans by providing the Company with written notice of
such election at least three (3) days before the Effective Time. Unless the
Parent Corporation provides such contrary notice to the Company, the Parent
Corporation shall receive from the Company evidence that the 401(k) plans
of the Company and each Company Subsidiary, as applicable, have been
terminated pursuant to resolutions of each such entity's Board of Directors
(the form and substance of which resolutions shall be subject to review and
approval of the Parent Corporation), effective as of the day immediately
preceding the Closing Date.
Section 6.16 Actions Regarding Antitakeover Statutes. If any fair price,
moratorium, control share acquisition or other form of antitakeover statute,
rule or regulation is or becomes applicable to the transactions contemplated by
this Agreement, the Board of Directors of each of the Company and the Parent
Corporation will grant such approvals and take such other actions as may be
required so that the transactions contemplated hereby may be consummated as
promptly as practicable on the terms and conditions set forth in this
Agreement. Without limiting the foregoing, the Company (i) will take such
action as may be required so that Subchapter F of Chapter 25 of the
Pennsylvania Act shall not prohibit any transaction contemplated by this
Agreement and (ii) will take such action as may be required under Section
2538(b) so that Section 2538 of the Pennsylvania Act shall not apply to any
transaction contemplated by this Agreement.
Section 6.17 Defense of Orders and Injunctions. In the event any party
becomes subject to any order or injunction of a court of competent jurisdiction
which prohibits the consummation of the transactions contemplated by this
Agreement, each party will use its reasonable commercial efforts to overturn or
lift such order or injunction. The foregoing will not be deemed to require any
party to enter into any agreement, consent decree or other commitment requiring
it or any of its Subsidiaries to divest or hold separate any assets or to take
any other action that would have a Company Material Adverse Effect or Parent
Corporation Material Adverse Effect, as the case may be, on such party.
Section 6.18 Preservation of Tax Treatment.
(a) From and after the date of this Agreement (a) the Parent Corporation
and the Company and their respective Subsidiaries will use their reasonable
commercial efforts to cause the Merger to constitute a reorganization
within the meaning of Section 368(a) of the Code and (b) neither the Parent
Corporation nor the Company, nor any of their respective Subsidiaries, will
knowingly take or omit to take any action that would prevent the Merger
from constituting a reorganization within the meaning of Section 368(a) of
the Code.
(b) The Parent Corporation has no plan or intention to cause the Company
to issue additional shares of stock of the Company on or after the Closing
that would result in the Parent Corporation losing "control" of the Company
within the meaning of Section 368(c) of the Code. Following the Closing,
the Parent Corporation will either continue at least one significant
historic line of business of the Company or
C-42
<PAGE>
use a significant portion of the Company's historic business assets in a
business. For purposes of this representation, the Parent Corporation will
be treated (i) as holding all of the businesses and assets of all of the
members of the "qualified group" and (ii) as conducting the business of a
partnership if members of the "qualified group" own (in the aggregate) more
than a thirty three and one-third percentage (33- 1/3%) interest in the
capital and general profits and losses of the partnership or own more than
a twenty percent (20%) interest in the capital and general profits and
losses of the partnership and have active and substantial management
functions as a partner with respect to the business of the partnership. The
"qualified group" is one or more chains of corporations conducted through
stock ownership with the Parent Corporation, but only if the Parent
Corporation owns directly an amount of stock meeting the control
requirements of Section 368(c) of the Code in at least one of the
corporations and stock meeting the control requirements of Section 368(c)
of the Code in each of the corporations (except the Parent Corporation) is
owned directly by one of the other corporations. Except for transfers of
stock and assets described in Treas. Reg. Section 1.368-2(k)(2) and
dispositions of assets in the ordinary course of business, the Parent
Corporation has no plan or intention to liquidate the Company; merge the
Company with or into another corporation; sell, distribute or otherwise
dispose of the stock of the Company; or cause the Company to sell or
otherwise dispose of any of its assets or any of the assets acquired from
the Acquisition Corporation.
(c) Except for the payment of cash in lieu of the issuance of fractional
shares provided in Section 3.2(c) of this Agreement, for purchases of
shares of the Parent Corporation on the open market as part of any current
or future general stock repurchase program of the Parent Corporation and
repurchases in the ordinary course of business of unvested shares, if any,
acquired from terminating employees, neither the Parent Corporation nor any
corporation related to the Parent Corporation (as defined in Section
1.368-1(e)(3) of the Treasury Regulations) shall redeem or otherwise
reacquire, in connection with the Merger, any of the shares of Parent
Common Stock issued in the Merger for consideration other than shares of
the Parent Corporation.
(d) The Parent Corporation, the Acquisition Corporation and the Company
shall treat the Merger in all relevant federal, state and local tax returns
as a reorganization described in Section 368(a) of the Code (or as
similarly described under analogous provisions of state or local law). This
covenant shall survive with respect to any such return until the expiration
of the applicable statute of limitations on assessment of tax for the
fiscal period covered by said return.
Section 6.19 Accountants' Comfort Letters. Each party will use its
reasonable commercial efforts to cause to be delivered to the other party two
letters from its independent public accountants, one dated a date within two
business days before the date on which the Registration Statement becomes
effective and one dated the Closing Date, in form and substance reasonably
satisfactory to the recipient and customary in scope and substance for comfort
letters delivered by independent accountants in connection with registration
statements similar to the Registration Statement.
Section 6.20 NASDAQ Listing. The Parent Corporation will use its reasonable
commercial efforts to cause the Parent Common Stock issuable in the Merger or
otherwise pursuant to the terms of this Agreement to be approved for listing on
NASDAQ, subject to official notice of issuance, as promptly as practicable
after the date of this Agreement and in any event prior to the Closing Date.
Section 6.21 Directors. The Parent Corporation shall cause a nominee
designated by the Company to be appointed to the Board of Directors of the
Parent Corporation, effective as of the Effective Time, to hold office in
accordance with the Certificate of Incorporation and By-Laws of the Parent
Corporation. If the nominee designated by the Company is unable to serve at the
Effective Time, then the Company shall designate such person's successor.
C-43
<PAGE>
ARTICLE 7
CONDITIONS TO THE CONSUMMATION OF THE MERGER
Section 7.1 Conditions to Each Party's Obligation to Consummate the
Merger. The respective obligations of each party to consummate the Merger shall
be subject to the satisfaction on or prior to the Closing Date of the following
conditions, except that, to the extent permitted by applicable law, such
conditions may be waived in writing pursuant to Section 9.5 hereof by the joint
action of the parties hereto; provided, however, that the condition specified
in Section 7.1(f) may be waived only by a written instrument executed by the
parties hereto and by Steag:
(a) Shareholder Approval. The shareholders of the Company shall have
approved the Company Proposals and the stockholders of the Parent
Corporation shall have approved the Parent Corporation Proposals in
accordance with their respective Articles of Incorporation or Certificate
of Incorporation, as applicable, and By-laws, applicable state corporate
laws and the rules and listing requirements of NASDAQ and in accordance
with this Agreement.
(b) No Injunction. No temporary restraining order or permanent
injunction or other order by any federal or state court preventing
consummation of the Merger shall have been issued and be continuing in
effect, and the Merger and the other transactions contemplated hereby shall
not have been prohibited under any applicable federal or state law or
regulation.
(c) Regulatory Approvals. All consents of and filings (including
modifications thereto) with all Governmental Entities required for
consummation of the Merger have been obtained, other than consents,
filings, registration or notice requirements which, if not obtained, made
or complied with would not, in the reasonable judgment of the Parent
Corporation, or so far as may reasonably be foreseen, is not likely to
have, (i) a Company Material Adverse Effect, considering the Company and
Company Subsidiaries separately, (ii) a Parent Corporation Material Adverse
Effect, considering the Parent Corporation and Parent Corporation
Subsidiaries separately or (iii) a material adverse effect on the
Acquisition Corporation.
(d) Registration Statement. The Registration Statement shall have been
declared effective under the Securities Act, no stop order suspending the
effectiveness of the Registration Statement shall have been issued, no
action, suit or proceeding or investigation by the SEC to suspend the
effectiveness of the Registration Statement shall have been initiated and
be continuing and all necessary approvals under state securities laws or
the Securities Act or the Securities Exchange Act relating to the issuance
or trading of the shares of Parent Common Stock issuable pursuant to the
Merger shall have been received.
(e) NASDAQ Listing. The shares of Parent Common Stock issuable pursuant
to the Merger, upon the exercise of the Company Stock Options assumed by
the Parent Corporation pursuant to Section 1.8 shall have been approved for
listing by NASDAQ upon official notice of issuance.
(f) Closing of Steag Combination. The closing of the Steag Combination
shall occur concurrently with the Closing.
Section 7.2 Conditions to Obligations of Parent Corporation and the
Acquisition Corporation to Consummate the Merger. The obligations of the Parent
Corporation and the Acquisition Corporation to consummate the Merger shall be
further subject to the satisfaction, on the Closing Date, of the following
conditions, except as may be waived by the Parent Corporation in writing
pursuant to Section 9.5 hereof:
(a) Compliance With Agreements and Covenants. The Company shall have
performed and complied with all of its covenants, obligations and
agreements contained in this Agreement to be performed and complied with by
the Company on or prior to the Closing Date.
(b) Warranties True as of Both Present Date and Closing Date. The
representations and warranties of the Company contained herein shall be
true and correct in all material respects on and as of the date of this
Agreement, and shall also be true and correct in all material respects on
and as of the Closing Date with the same force and effect as though made on
and as of the Closing Date.
C-44
<PAGE>
(c) Closing Certificate. The Parent Corporation shall have received a
certificate signed by the Chief Executive Officer and the Chief Financial
Officer of the Company, dated the Closing Date, to the effect that, to the
knowledge of such officers after due inquiry, as of the Closing Date, the
conditions applicable to the Company set forth in Section 7.2(a) and 7.2(b)
have been satisfied.
(d) Consents and Approvals. The Parent Corporation shall have received
written evidence reasonably satisfactory to it that all consents and
approvals required for the consummation of the transactions contemplated
hereby have been obtained, and all required filings have been made,
including (without limitation) those set forth on Schedule 4.3. All
applicable waiting periods under the HSR Act shall have been terminated or
shall have expired.
(e) No Company Material Adverse Effect. No Company Material Adverse
Effect shall have occurred and no event shall have occurred which, in the
reasonable judgment of the Parent Corporation, is reasonably likely to have
a Company Material Adverse Effect.
(f) The Company Dissenting Shares. The Company Dissenting Shares, if
any, shall represent no more than 5% of the total number of shares of the
Company Common Stock issued and outstanding immediately prior to the
Closing Date.
(g) Actions or Proceedings. No action or proceeding by any Governmental
Authority or other Person shall have been instituted or threatened which is
reasonably likely to have a Company Material Adverse Effect, or could
enjoin, restrain or prohibit any integration of any operations of the
Company with those of the Parent Corporation or Parent Corporation's
Subsidiaries.
(h) Subsidiary Director and Officer Resignations. The Parent Corporation
and the Acquisition Corporation shall have received the written
resignations of the officers and directors of all of the Company
Subsidiaries.
(i) Other Closing Documents. The Parent Corporation shall have received
the executed Articles of Merger and such other agreements and instruments
as the Parent Corporation shall reasonably request, in each case in form
and substance reasonably satisfactory to the Parent Corporation.
Section 7.3 Conditions to Obligations of the Company to Consummate the
Merger. The obligations of the Company to consummate the Merger under this
Agreement shall be further subject to the satisfaction, on or before the
Closing Date, of the following conditions except as may be waived by the
Company in writing pursuant to Section 9.5 hereof:
(a) Compliance with Agreements and Covenants. The Parent Corporation and
the Acquisition Corporation shall have performed and complied with all of
their covenants, obligations and agreements contained in this Agreement, to
be performed and complied with by them on or prior to the Closing Date.
(b) Warranties True as of Both Present Date and Closing Date. The
representations and warranties of the Parent Corporation and the
Acquisition Corporation contained herein shall be true and correct in all
material respects on and as of the date of this Agreement, and shall also
be true and correct in all material respects on and as of the Closing Date
with the same force and effect as though made by the Parent Corporation and
the Acquisition Corporation on and as of the Closing Date.
(c) Closing Certificate. The Company shall have received a certificate
signed by the Chief Executive Officer and Chief Financial Officer of the
Parent Corporation, dated the Closing Date, to the effect that, to the
knowledge of such officer after due inquiry, as of the Closing Date, the
conditions applicable to the Parent Corporation set forth in Section 7.3(a)
and 7.3(b) have been satisfied.
(d) Consents and Approvals. The Company shall have received written
evidence reasonably satisfactory to it that all consents and approvals
required for the consummation of the transactions contemplated hereby have
been obtained, and all required filings have been made, including (without
limitation), those set forth on Schedule 5.3(b) hereto. All applicable
waiting periods under the HSR Act shall have been terminated or shall have
expired.
C-45
<PAGE>
(e) Tax Opinion. The Company shall have received a written opinion from
Ballard Spahr Andrews & Ingersoll LLP, counsel to the Company, to the
effect that the Merger will be a reorganization under Section 368(a) of the
Code and that the Company and its shareholders who exchange their shares
solely for shares of Parent Common Stock will recognize no gain or loss for
federal income tax purposes as a result of the consummation of the Merger.
In rendering such opinion, such counsel shall be entitled to rely upon
representations of officers of the Parent Corporation, the Acquisition
Corporation and the Company reasonably satisfactory in form and substance
to such counsel contained in certificates of officers of the Parent
Corporation, the Acquisition Corporation and the Company (which
certificates the Parent Corporation, the Acquisition Corporation and the
Company shall use their best efforts to make available to counsel).
(f) No Parent Corporation Material Adverse Effect. No Parent Corporation
Material Adverse Effect shall have occurred and no event shall have
occurred which, in the reasonable judgment of the Parent Corporation, is
reasonably likely to have a Parent Corporation Material Adverse Effect.
(g) Actions or Proceedings. No action or proceeding by any Governmental
Authority or other Person shall instituted or threatened which is
reasonably likely to have a Parent Corporation Material Adverse Effect, or
could enjoin, restrain or prohibit any integration of any operations of the
Parent Corporation with those of the Company or Company Subsidiaries.
(h) Other Closing Documents. Company shall have received the executed
Articles of Merger and Certificate of Merger and such other agreements and
instruments as Company shall reasonably request, in each case in form and
substance reasonably satisfactory to Company.
ARTICLE 8
TERMINATION, AMENDMENT AND WAIVER
Section 8.1 Optional Termination. This Agreement may be terminated at any
time prior to the Effective Time by action taken or authorized by the Board of
Directors of the terminating party or parties and, except as provided below,
whether before or after approval of the matters presented in connection with
the Merger by the shareholders of the Company or the stockholders of the Parent
Corporation:
(a) By mutual written consent of the Company, the Parent Corporation and
Steag;
(b) By either the Parent Corporation or the Company, if the Effective
Time shall not have occurred on or before February 28, 2001 (the
"Termination Date"); provided, however, that the right to terminate this
Agreement under this Section 8.1(b) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the
cause of, or resulted in, the failure of the Effective Time to occur on or
before the Termination Date;
(c) By either the Parent Corporation or the Company, if any Governmental
Entity (i) shall have issued an order, decree or ruling or taken any other
action (which the parties shall have used their reasonable commercial
efforts to resist, resolve or lift, as applicable, in accordance with
Section 6.7) permanently restraining, enjoining or otherwise prohibiting
the transactions contemplated by this Agreement, and such order, decree,
ruling or other action shall have become final and nonappealable or (ii)
shall have failed to issue an order, decree or ruling or to take any other
action, and such denial of a request to issue such order, decree, ruling or
take such other action shall have become final and nonappealable (which
order, decree, ruling or other action the parties shall have used their
reasonable commercial efforts to obtain, in accordance with Section 6.7),
in the case of each of (i) and (ii) which is necessary to fulfill the
conditions set forth in Article 7, as applicable; provided, however, that
the right to terminate this Agreement under this Section 8.1(c) shall not
be available to any party whose failure to use their reasonable commercial
efforts has been the cause of such action or inaction;
C-46
<PAGE>
(d) By either the Parent Corporation or the Company, if the approvals of
the shareholders of the Company or the stockholders of the Parent
Corporation contemplated by this Agreement shall not have been obtained by
reason of the failure to obtain the required vote at a duly held meeting of
stockholders or shareholders (including any adjournment or postponement
thereof) at which the vote was taken; provided, however, that a party shall
not be permitted to terminate this Agreement pursuant to this Section
8.1(d) if the failure to obtain such approval is attributable to a failure
on the part of such party to perform any material obligation required to be
performed by such party;
(e) By the Company, if the Parent Corporation shall have (i) failed to
recommend the issuance of the Parent Common Stock in the Merger and the
approval of the Parent Corporation Proposals to its stockholders or
withdrawn or modified the Parent Corporation Board Recommendation in a
manner adverse to the Company (or resolved to take any such action),
whether or not permitted by the terms hereof or (ii) materially breached
its obligations under this Agreement by reason of a failure to call the
Parent Corporation Stockholders Meeting in accordance with this Agreement
or a failure to prepare and mail to its stockholders the Joint Proxy
Statement as required hereunder;
(f) By the Parent Corporation (at any time prior to the adoption of this
Agreement by the Company shareholders) (i) if a Company Triggering Event
(as defined in Exhibit A hereto) shall have occurred or (ii) the Company
materially breaches its obligations under this Agreement by reason of a
failure to call the Company Shareholders Meeting in accordance with this
Agreement or failure to prepare and mail its shareholders the Joint Proxy
Statement as required hereunder;
(g) By the Parent Corporation if (i) any of the Company's
representations and warranties shall have been inaccurate as of the date of
this Agreement or shall have become inaccurate as of a date subsequent to
the date of this Agreement (as if made on such subsequent date), such that
the condition set forth in Section 7.2(b) would not be satisfied or (ii)
any of the Company's covenants contained in this Agreement shall have been
breached such that the condition set forth in Section 7.2(a) would not be
satisfied; provided, however, that if an inaccuracy in the Company's
representations and warranties arising as of a date subsequent to this
Agreement is curable by the Company by the Termination Date and the Company
is continuing to exercise all reasonable efforts to cure such inaccuracy,
then the Parent Corporation may not terminate this Agreement under this
Section 8.1(g) on account of such inaccuracy;
(h) By the Company if (i) any of the Parent Corporation's
representations and warranties shall have been inaccurate as of the date of
this Agreement or shall have become inaccurate as of a date subsequent to
the date of this Agreement (as if made on such subsequent date), such that
the condition set forth in Section 7.3(b) would not be satisfied or (ii) if
any of the Parent Corporation's covenants contained in this Agreement shall
have been breached such that the condition set forth in Section 7.3(a)
would not be satisfied; provided, however, that if an inaccuracy in the
Parent Corporation's representations and warranties arising as of a date
subsequent to this Agreement is curable by the Parent Corporation by the
Termination Date and the Parent Corporation is continuing to exercise all
reasonable efforts to cure such inaccuracy, then the Company may not
terminate this Agreement under this Section 8.1(h) on account of such
inaccuracy;
(i) By the Parent Corporation if, since the date of this Agreement,
there shall have occurred any Company Material Adverse Effect, or there
shall have occurred any event or circumstance that, in combination with any
other events or circumstances, could reasonably be expected to have a
Company Material Adverse Effect; or
(j) By the Company if, since the date of this Agreement, there shall
have occurred any Parent Corporation Material Adverse Effect, or there
shall have occurred any event or circumstance that, in combination with any
other events or circumstances, could reasonably be expected to have a
Parent Corporation Material Adverse Effect.
(k) In the event of termination of this Agreement and abandonment of the
Merger pursuant to this Article 8, no party hereto (or any of its directors
or officers) shall have any liability or further obligation to
C-47
<PAGE>
any other party to this Agreement, except as provided in Section 8.3 hereof
and except that (i) nothing herein will relieve any party from liability
for any willful breach of this Agreement and (ii) the agreements contained
in Sections 9.15 and 9.16 hereof shall survive.
Section 8.2 Automatic Termination. Upon the termination for any reason of
the Steag Agreement prior to the consummation of the Merger, this Agreement
shall automatically terminate without any further action on the part of either
party.
Section 8.3 Effect of Termination.
(a) If (A) (I) the Company or the Parent Corporation shall terminate
this Agreement pursuant to Section 8.1(d) (provided that the basis for such
termination is the failure of the Parent Corporation's stockholders to
approve the issuance of Parent Common Stock in the Merger), (II) at any
time after the date of this Agreement and before such termination, an
Acquisition Proposal with respect to the Parent Corporation shall have been
publicly announced or otherwise publicly communicated to the senior
management, the Board of Directors or the stockholders of the Parent
Corporation (a "Parent Corporation Public Proposal") (and shall not have
been withdrawn at the time of the vote by the Parent Corporation
stockholders) and (III) within twelve months of such termination the Parent
Corporation or any of its Subsidiaries enters into any definitive agreement
with respect to or consummates any Acquisition Proposal (for purposes of
this clause (III), the term "Acquisition Proposal" shall have the meaning
assigned to such term in Exhibit A except that references to "20%" therein
shall be deemed to be references to "40%") or (B) the Company shall
terminate this Agreement pursuant to Section 8.1(e); then the Parent
Corporation shall promptly, but in no event later than the date of such
termination (or in the case of clause (A), if later, the date the Parent
Corporation or its Subsidiary enters into such agreement with respect to or
consummates such Acquisition Proposal), pay the Company an amount equal to
$7,110,000.
(b) If (A) (I) the Company or the Parent Corporation shall terminate
this Agreement pursuant to Section 8.1(d) (provided that the basis for such
termination is the failure of the Company's shareholders to adopt this
Agreement), (II) at any time after the date of this Agreement and before
such termination an Acquisition Proposal with respect to the Company shall
have been publicly announced or otherwise publicly communicated to the
senior management, Board of Directors or shareholders of the Company
(a "Company Public Proposal") (and shall not have been withdrawn at the
time of the vote by the Company shareholders) and (III) within twelve
months of such termination the Company or any of its Subsidiaries enters
into any definitive agreement with respect to, or consummates, any
Acquisition Proposal (for purposes of this clause (III), the term
"Acquisition Proposal" shall have the meaning assigned to such term in
Exhibit A, except that references to "20%" therein shall be deemed to be
references to "40%") or (B) the Parent Corporation shall terminate this
Agreement pursuant to Section 8.1(f); then the Company shall promptly, but
in no event later than the date of such termination (or in the case of
clause (A), if later, the date the Company or its Subsidiary enters into
such agreement with respect to or consummates such Acquisition Proposal),
pay the Parent Corporation an amount equal to $7,110,000 (the "Termination
Fee").
(c) If the Company or the Parent Corporation shall terminate this
Agreement pursuant to Section 8.1(d) and the basis for such termination is
the failure of the Parent Corporation's stockholders to approve the
issuance of the Parent Common Stock in the Merger, then the Parent
Corporation shall promptly, but in no event later than the date of such
termination, pay the Company an amount equal to one percent of Merger
Consideration, payable by wire transfer of immediately available funds;
provided that no payment shall be made pursuant to this sentence if the fee
has been paid pursuant to Section 8.3(a). If the Company or the Parent
Corporation shall terminate this Agreement pursuant to Section 8.1(d) and
the basis for such termination is the failure of the Company's shareholders
to adopt this Agreement, then the Company shall promptly, but in no event
later than the date of such termination, pay the Parent Corporation an
amount equal to one percent of the Merger Consideration, payable by wire
transfer of immediately available funds;
C-48
<PAGE>
provided that no payment shall be made pursuant to this sentence if the fee
has been paid pursuant to Section 8.3(b).
(d) The parties acknowledge that the agreements contained in this
Section 8.3 are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, none of the parties would
enter into this Agreement; accordingly, if either the Company or the Parent
Corporation fails promptly to pay any amount due pursuant to this Section
8.3, and, in order to obtain such payment, the other party commences a suit
which results in a judgment against such party for the fee set forth in
this Section 8.3, such party shall pay to the other party its costs and
expenses (including attorneys' fees and expenses) in connection with such
suit, together with interest on the amount of the fee at the prime rate of
Citibank, N.A. in effect on the date such payment was required to be made
notwithstanding the provisions of Section 9.15. The parties agree that any
remedy or amount payable pursuant to this Section 8.3 shall not preclude
any other remedy or amount payable hereunder and shall not be an exclusive
remedy for any breach of any representation, warranty, covenant or
agreement contained in this Agreement.
(e) Any party wishing to terminate this Agreement under Section 8.1
shall deliver written notice to the other party, setting forth the
paragraph under Section 8.1 pursuant to which the Agreement is being
terminated and, unless obvious from the nature of the termination clause, a
description of the facts and circumstances forming the basis for such
termination; provided, that any failure to provide such additional details
shall not affect the validity of the termination. Upon the automatic
termination of the Agreement under Section 8.2, the Parent Corporation
shall give the Company written notice thereof. Any such termination notice
shall be delivered in accordance with Section 9.9 of this Agreement.
ARTICLE 9
MISCELLANEOUS
Section 9.1 Nonsurvival of Representations. The representations, warranties,
covenants and agreements contained in this Agreement will not survive the
Merger or the termination of this Agreement except as otherwise provided in
this Agreement and except for the agreements contained in this Section 9.1 and
in Articles I, II and VIII and Section 6.18.
Section 9.2 Remedies. The parties agree that irreparable damage would occur
in the event that the provisions of this Agreement were not performed in
accordance with their specific terms. It is accordingly agreed that the parties
will be entitled to specific performance of the terms of this Agreement,
without posting a bond or other security, this being in addition to any other
remedy to which they are entitled at law or in equity.
Section 9.3 Successors and Assigns. No party hereto may assign or delegate
any of such party's rights or obligations under or in connection with this
Agreement without the written consent of the other party hereto. Except as
otherwise expressly provided herein, all covenants and agreements contained in
this Agreement by or on behalf of any of the parties hereto or thereto will be
binding upon and enforceable against the respective successors and assigns of
such party and will be enforceable by and will inure to the benefit of the
respective successors and permitted assigns of such party.
Section 9.4 Amendment. This Agreement may be amended by the execution and
delivery of an written instrument by or on behalf of the Parent Corporation,
the Acquisition Corporation and the Company at any time before or after the
Company Shareholder Approval and the Parent Corporation Stockholder Approval;
provided that after the date of the Company Shareholder Approval, no amendment
to this Agreement will be made without the approval of stockholders of the
Company to the extent such approval is required under either the Pennsylvania
Act or the Delaware Act.
Section 9.5 Extension and Waiver. At any time prior to the Effective Time,
the parties may extend the time for performance of or waive compliance with any
of the covenants or agreements of the other parties to
C-49
<PAGE>
this Agreement and may waive any breach of the representations or warranties of
such other parties. No agreement extending or waiving any provision of this
Agreement will be valid or binding unless it is in writing and is executed and
delivered by or on behalf of the party against which it is sought to be
enforced.
Section 9.6 Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the
remainder of this Agreement.
Section 9.7 Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together will constitute
one and the same Agreement.
Section 9.8 Descriptive Headings. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
Section 9.9 Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement will
be in writing and will be deemed to have been given when delivered personally
to the recipient or when sent to the recipient by telecopy (receipt confirmed),
one business day after the date when sent to the recipient by reputable express
courier service (charges prepaid) or three business days after the date when
mailed to the recipient by certified or registered mail, return receipt
requested and postage prepaid. Such notices, demands and other communications
will be sent to the Parent Corporation and the Company at the addresses
indicated below:
If to the Parent Corporation:
MATTSON TECHNOLOGY, INC.
3550 West Warren Avenue
Fremont, CA 94538
Attn: Brad Mattson
Fax: (51) 492-7052
With a copy (which will not constitute notice) to:
Bradley J. Rock, Esquire
Gray Cary Ware & Freidenrich llp
400 Hamilton Avenue
Palo Alto, CA 94301-1825
If to the Company:
CFM TECHNOLOGIES, INC.
150 Oaklands Boulevard
Exton, PA 19341
Attn: William M. Hoxie, Controller
Fax: (610) 280-8884
With a copy (which will not constitute notice) to:
Justin P. Klein, Esquire
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, PA 19103-7599
C-50
<PAGE>
or to such other address or to the attention of such other party as the
recipient party has specified by prior written notice to the sending party.
Section 9.10 No Third Party Beneficiaries. This Agreement will not confer
any rights or remedies upon any person or entity other than the Parent
Corporation, the Acquisition Corporation and the Company and their respective
successors and permitted assigns, except that the respective beneficiaries of
the provisions of Sections 1.8, 6.10, 6.18 and 6.20 will, for all purposes, be
third party beneficiaries of the covenants and agreements contained therein
and, accordingly, will be treated as a party to this Agreement for purposes of
the rights and remedies relating to enforcement of such covenants and
agreements and will be entitled to enforce any such rights and exercise any
such remedies directly against the Parent Corporation and the Surviving
Corporation.
Section 9.11 Entire Agreement. This Agreement (including the Confidentiality
Agreement (as defined in Section 9.16, below) and the other documents referred
to herein) constitutes the entire agreement among the parties and supersedes
any prior understandings, agreements or representations by or among the
parties, written or oral, including that certain letter dated April 18, 2000,
and any amendments thereto, between the Parent Corporation and the Company,
that may have related in any way to the subject matter hereof.
Section 9.12 Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent
and no rule of strict construction will be applied against any party. The use
of the word "including" in this Agreement means "including without limitation"
and is intended by the parties to be by way of example rather than limitation.
Section 9.13 Submission to Jurisdiction. Each of the parties to this
Agreement submits to the jurisdiction of any state or federal court sitting in
Wilmington, Delaware, in any action or proceeding arising out of or relating to
this Agreement, agrees that all claims in respect of the action or proceeding
may be heard and determined in any such court, and agrees not to bring any
action or proceeding arising out of or relating to this Agreement in any other
court. Each of the parties to this Agreement waives any defense of inconvenient
forum to the maintenance of any action or proceeding so brought and waives any
bond, surety or other security that might be required of any other party with
respect thereto.
Section 9.14 Governing Law. ALL QUESTIONS CONCERNING THE CONSTRUCTION,
VALIDITY AND INTERPRETATION OF THIS AGREEMENT AND THE SCHEDULES HERETO WILL BE
GOVERNED BY THE INTERNAL LAW, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF
DELAWARE.
Section 9.15 Expenses. Except as set forth in Section 8.2, each party hereto
shall bear its own expenses with respect to the transactions contemplated
hereby, except that those expenses incurred in connection with printing the
Joint Proxy Statement and filing the Registration Statement, including the
filing fee relating thereto, shall be shared equally by the Parent Corporation
and the Company.
Section 9.16 Confidentiality and Return Information. Each party shall, and
shall cause its subsidiaries to, hold in strict confidence all Evaluation
Material (as defined in the Confidentiality Agreement) concerning the other
parties furnished to it in connection with the transactions contemplated by
this Agreement in accordance with the Mutual Nondisclosure Agreement, dated as
of February 25, 2000 between the Parent Corporation, the Company and Steag as
it may be amended from time to time (the "Confidentiality Agreement").
(The remainder of this page is intentionally left blank)
C-51
<PAGE>
(Agreement and Plan of Merger Signature Page)
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the date first written above.
CFM Technologies, INC.
/s/ Roger A. Carolin
By: _________________________________
Roger A Carolin,
President and Chief Executive
Officer
M2C Acquisition Corporation
/s/ Brad Mattson
By: _________________________________
Brad Mattson,
Chairman and Chief Executive
Officer
Mattson Technology, INC.
/s/ Brad Mattson
By: _________________________________
Brad Mattson,
Chairman and Chief Executive
Officer
C-52
<PAGE>
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
Acquisition Proposal. "Acquisition Proposal" shall mean any offer, proposal,
inquiry or indication of interest (other than an offer, proposal, inquiry or
indication of interest by the Parent Corporation or the Company) contemplating
or otherwise relating to any Acquisition Transaction.
Acquisition Transaction. "Acquisition Transaction" shall mean any
transaction or series of transactions involving:
(a) any merger, consolidation, reorganization, share exchange, business
combination, issuance of securities, recapitalization, acquisition of
securities, tender offer, exchange offer or other similar transaction (i)
in which the party or any of its Significant Subsidiaries (as defined in
Rule 1-02 of Regulation S-X of the SEC) is a constituent corporation, (ii)
in which a Person or "group" (as defined in the Securities Exchange Act) of
Persons directly or indirectly acquires beneficial or record ownership of
securities representing more than 20% of the outstanding securities of any
class of voting securities of the party or any of its Significant
Subsidiaries, or (iii) in which the party or any of its Significant
Subsidiaries issues securities representing more than 20% of the
outstanding securities of any class of voting securities of the party or
any of its Significant Subsidiaries;
(b) any sale, lease, exchange, transfer, exclusive license, acquisition
or disposition of any business or businesses or assets that constitute or
account for 20% or more of the consolidated net revenues, net income or
assets of the party or any of its Significant Subsidiaries; or
(c) any liquidation or dissolution of any of the party or any of its
Significant Subsidiaries;
provided that with respect to the Parent Corporation, the transactions
contemplated pursuant to that certain Strategic Business Combination Agreement
dated June 27, 2000 between the Parent Corporation and Steag shall not be
deemed an Acquisition Proposal for purposes of Article 8 hereof.
Company Triggering Event. A "Company Triggering Event" shall mean: (i) the
failure of the board of directors of the Company to recommend that the
Company's shareholders vote to approve the Company Proposals, or the withdrawal
or modification of the Company Board Recommendation in a manner adverse to the
Parent; (ii) the Company shall have failed to include in the Proxy Statement
the Company Board Recommendation and a statement to the effect that the board
of directors of the Company has determined and believes that the Merger is in
the best interests of the Company's shareholders; (iii) the board of directors
of the Company fails to reaffirm, without qualification the Company Board
Recommendation or fails to publicly state, without qualification that the
Merger is in the best interests of the Company's shareholders, within five
business days after the Parent Corporation requests in writing that such action
be taken; (iv) the board of directors of the Company shall have approved,
endorsed or recommended or entered into an agreement regarding any Acquisition
Proposal; (v) a tender or exchange offer relating to securities of the Company
shall have been commenced and the Company shall not have sent to its
securityholders, within ten business days after the commencement of such tender
or exchange offer, a statement disclosing that the board of directors
recommends rejection of such tender or exchange offer; (vi) an Acquisition
Proposal is publicly announced, and the Company fails to issue a press release
announcing its opposition to such Acquisition Proposal within ten business days
after such Acquisition Proposal is announced; or (ix) the Company shall have
breached any of the covenants set forth in Section 6.10.
Superior Proposal. "Superior Proposal" means with respect to the Company, a
bona fide written proposal made by a Person other than the Parent Corporation
which (y) is for a merger, reorganization, consolidation, share exchange,
business combination or similar transaction in which the Company is a
constituent corporation and as a result of which the other party thereto or its
shareholders will own 40% or
C-53
<PAGE>
more of the combined voting power of the entity surviving or resulting from
such transaction (or the ultimate parent entity thereof) or a tender offer for
all of the outstanding shares of the Company and (z) is on terms which the
Board of Directors of the Company in good faith concludes (following receipt of
the advice of its financial advisors and outside counsel), taking into account,
among other things, all legal, financial, regulatory and other aspects of the
proposal and the Person making the proposal, (I) would, if consummated, result
in a transaction that is more favorable to its shareholders (in their
capacities as shareholders), from a financial point of view, than the
transactions contemplated by this Agreement and (II) is reasonably likely to be
consummated.
C-54
<PAGE>
EXHIBIT A-1
CERTAIN COMPANY OPTION HOLDERS
Steven Bay
Joseph Berger
Roger Carolin
Rudra Kar
Garry Mayers
Alan Walter
EXHIBIT A-2
FORM OF VOTING AGREEMENT
[Intentionally Omitted]
EXHIBIT A-3
FORM OF STOCKHOLDER VOTING AGREEMENT
[Intentionally Omitted]
C-55
<PAGE>
ANNEX D-1
June 27, 2000
Board of Directors
Mattson Technology, Inc.
2800 Bayview Drive
Fremont, CA 94538
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the shareholders of Mattson Technology, Inc. ("Mattson") of the total
consideration provided by Mattson in the business combination with STEAG
Electronic Systems AG ("STEAG") pursuant to which Mattson will acquire the
eleven subsidiaries comprising the Semiconductor Equipment Division of STEAG
(the "STEAG Semiconductor Division") and the merger with CFM Technologies, Inc.
("CFM") (collectively, the "Transactions").
As contemplated by the Strategic Business Combination Agreement
("Combination Agreement") dated as of June 27, 2000, between STEAG and Mattson,
Mattson will exchange 11,850,000 shares of Mattson common stock in exchange for
all the stock of STEAG Semiconductor. Total enterprise consideration provided
to STEAG is valued at $515.9 million as of June 27, 2000.
As contemplated by the Agreement and Plan of Merger ("Merger Agreement")
dated as of June 27, 2000, between Mattson, M2C Acquisition Corporation,
Mattson's wholly owned subsidiary, and CFM, Mattson will exchange approximately
4,115,000 shares (based on the exchange ratio specified in the Merger
Agreement) of Mattson common stock for all of CFM's outstanding stock and
vested stock options for all CFM stock. The total enterprise consideration
provided to CFM is valued at $178.8 million as of June 27, 2000.
The transactions contemplated by the Business Combination Agreement and the
Merger Agreement are mutually conditioned on one another according to the terms
of the agreements.
For purposes of the opinion set forth herein, we have:
(a) Reviewed public financial statements and other information
concerning Mattson and CFM as well as selected analyst reports discussing
historical and projected future performance of CFM;
(b) Reviewed certain internal financial statements and other financial
and operating data concerning the STEAG Semiconductor Division and CFM that
was prepared by the management of the STEAG Semiconductor Division and CFM;
(c) Analyzed certain financial projections prepared by the management of
Mattson, the STEAG Semiconductor Division, and CFM;
(d) Discussed the past and current operations, financial condition, and
the prospects of the STEAG Semiconductor Division and CFM with senior
executives of Mattson, the STEAG Semiconductor Division, and CFM;
(e) Discussed with the senior managements of Mattson, the STEAG
Semiconductor Division, and CFM the strategic objectives of the
Transactions;
(f) Compared the financial performance of the STEAG Semiconductor
Division and CFM with that of certain comparable publicly-traded companies
and the prices paid for securities in those publicly-traded companies;
(g) Reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions of comparable companies;
D-1-1
<PAGE>
(h) Assessed the value of the STEAG Semiconductor Division and CFM based
upon a forecast of future cash flows using a discounted cash flow analysis;
(i) Assessed the relative contribution of the STEAG Semiconductor
Division and CFM to the combined entity based on present and projected
financial performance;
(j) Reviewed the Combination Agreement and the Merger Agreement, and
discussed the proposed terms of the Transactions with the respective
managements of Mattson, the STEAG Semiconductor Division, and CFM; and
(k) Performed such other analyses and considered such other factors as
we have deemed appropriate.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by us for the purposes
of this opinion. With respect to the financial projections of Mattson, the
STEAG Semiconductor Division, and CFM, we have assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the future financial performance of the combined company. The
financial and other information regarding Mattson, the STEAG Semiconductor
Division, and CFM and reviewed by Alliant Partners in connection with the
rendering of this opinion was limited to information provided by Mattson, the
STEAG Semiconductor Division, and CFM management and certain discussions with
Mattson's senior management regarding Mattson's financial condition and
prospects as well as the strategic objectives of the Transactions. In
addition, we have assumed that the Transaction will be consummated in
accordance with the terms set forth in the agreements and, in particular, that
the Transactions will be consummated simultaneously with one another. We have
not made any independent valuation or appraisal of the assets or liabilities
of the STEAG Semiconductor Division and CFM, nor have we been furnished with
any such appraisals. Our opinion is necessarily based on economic, market, and
other conditions as in effect on, and the information made available to us, as
of June 27, 2000.
Our opinion addresses only the fairness in aggregate of the proposed
Transactions, from a financial point of view, to the stockholders of Mattson,
and we do not express any views on any other terms of the proposed
Transactions or the business and strategic bases underlying the Combination
Agreement and Merger Agreement.
Alliant Partners will receive fees from Mattson for this transaction.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the total consideration provided in the Transactions by Mattson,
to STEAG pursuant to the Combination Agreement and to CFM pursuant to the
Merger Agreement, is fair, from a financial point of view, to the Mattson
stockholders.
Very truly yours,
/s/ Alliant Partners
D-1-2
<PAGE>
ANNEX D-2
June 27, 2000
The Board of Directors
CFM Technologies Inc.
150 Oaklands Blvd.
Exton, PA 19341
Dear Members of the Board:
We understand that CFM Technologies Inc., a Pennsylvania corporation (the
"Company"), is considering a transaction whereby the Company will merge (the
"Merger") with M2C Acquisition Corporation, a Delaware corporation
("Acquisition Corporation") and a wholly-owned subsidiary of Mattson
Technology, Inc., a Delaware corporation ("Mattson"). Upon the effectiveness of
the Merger, each issued and outstanding share of Company common stock, no par
value (the "Company Common Stock"), will be converted into and become the right
to receive 0.5223 shares (the "Exchange Ratio") of Mattson common stock, par
value $0.001 per share (the "Mattson Common Stock"). The terms and conditions
of the Merger are more fully set forth in the Agreement and Plan of Merger,
dated as of June 27, 2000, among Mattson, the Company and Acquisition
Corporation (the "Merger Agreement").
You have requested our opinion as to the fairness, from a financial point of
view, of the Exchange Ratio as of the date hereof to the holders of Company
Common Stock.
UBS Warburg LLC ("UBS Warburg") has acted as financial advisor to the
Company in connection with the Merger and will receive a fee upon the
consummation thereof. In the past, UBS Warburg and its predecessors have
provided investment banking services to the Company and received customary
compensation for the rendering of such services. In the ordinary course of
business, UBS Warburg, its predecessors and affiliates may have traded
securities of the Company and Mattson for their own accounts, and UBS Warburg,
its successors and affiliates may trade such securities for their own accounts
in the future. Accordingly, such persons have in the past and may currently or
in the future hold a long or short position in such securities.
Our opinion does not address the Company's underlying business decision to
effect the Merger nor constitute a recommendation to any shareholder of the
Company as to how such shareholder should vote with respect to the Merger. At
your direction, we have not been asked to, nor do we, offer any opinion as to
the material terms of the Merger Agreement, the form of the Merger, or any
related agreement to be entered into by the Company, including the Interim
Patent License Agreement dated June 27, 2000 between the Company and Steag
Electronic Systems AG ("Steag"). In rendering this opinion, we have assumed,
with your consent, that the final executed form of the Merger Agreement does
not differ in any material respect from the draft that we have examined, and
that Mattson, Acquisition Corporation and the Company will comply with all the
material terms of the Merger Agreement and that the Merger will be validly
consummated in accordance with its terms. At your direction, we have also
assumed that the closing under the Strategic Business Combination Agreement,
dated as of June 27, 2000, by and among Steag, and Mattson (the "Steag
Agreement"), pursuant to which Mattson will acquire (the "Steag Acquisition")
certain semiconductor production equipment businesses of Steag as more fully
described in the Steag Agreement (the "Steag SPE Businesses"), will occur
contemporaneously with the effective time of the Merger, that the final
executed form of the Steag Agreement does not differ in any material respect
from the draft we have examined, that Mattson and Steag will comply with all
the material terms of the Steag Agreement, and that the transactions
contemplated by the Steag Agreement will be validly consummated in accordance
with its terms. We express no opinion as to what the value of Mattson Common
Stock will be when issued pursuant to the Merger or the price at which Mattson
Common Stock will trade or otherwise be transferable subsequent to the Merger.
In arriving at our opinion, we have, among other things: (i) reviewed
certain publicly available business and historical financial information
relating to the Company, Mattson and the Steag SPE Businesses,
D-2-1
<PAGE>
(ii) reviewed certain internal financial information and other data relating to
the business and financial prospects of the Company, including estimates and
financial forecasts prepared by management of the Company, that were provided
to us by the Company and not publicly available, (iii) reviewed certain
internal financial information and other data relating to the businesses and
financial prospects of each of Mattson and the Steag SPE Businesses, including
estimates and financial forecasts prepared by the managements of each of
Mattson and the Steag SPE Businesses, that were provided to us by Mattson and
Steag, respectively, and not publicly available, (iv) conducted discussions
with members of the senior managements of the Company, Mattson and the Steag
SPE Businesses, (v) reviewed publicly available financial and stock market data
with respect to certain other companies in lines of business we believe to be
generally comparable to those of the Company, Mattson and the Steag SPE
Businesses, (vi) compared the financial terms of the Merger and the Steag
Acquisition with the publicly available financial terms of certain other
transactions which we believe to be generally relevant, (vii) considered
certain pro forma effects of the Merger and the Steag Acquisition on Mattson
financial statements, (viii) performed an analysis of the contributions of the
Company, Mattson and the Steag SPE Businesses to certain historical and
projected financial results of the combined companies, (ix) performed
discounted cash flow analyses of the Company, Mattson and the Steag SPE
Businesses, (x) reviewed drafts of the Merger Agreement and the Steag
Agreement, and (xi) conducted such other financial studies, analyses, and
investigations, and considered such other information, as we deemed necessary
or appropriate.
In connection with our review, at your direction, we have not assumed any
responsibility for independent verification of any of the information reviewed
by us for the purpose of this opinion and have, at your direction, relied on
its being complete and accurate in all material respects. In addition, at your
direction, we have not made any independent evaluation or appraisal of any of
the assets or liabilities (contingent or otherwise) of the Company, Mattson or
the Steag SPE Businesses, nor have we been furnished with any such evaluation
or appraisal. With respect to the financial forecasts of each of Coors, Mattson
and the Steag SPE Businesses, estimates and pro forma effects related thereto,
we have assumed, at your direction, that they have been reasonably prepared on
a basis reflecting the best currently available estimates and judgments of the
management of each company as to the future performance of their respective
companies and the potential incremental revenue and other financial benefits
(including the amount, timing and achievability thereof) resulting from the
Merger and the Steag acquisition. Our opinion is necessarily based on economic,
monetary, market and other conditions as in effect on, and the information made
available to us as of, the date hereof.
Based upon and subject to the foregoing, it is our opinion that, as the date
hereof, the Exchange Ratio is fair, from a financial point of view, to the
holders of Company Common Stock.
Very truly yours,
UBS WARBURG LLC
/s/ UBS WARBURG LLC
D-2-2
<PAGE>
ANNEX E
PURDON'S PENNSYLVANIA STATUTES AND CONSOLIDATED STATUTES ANNOTATED
PURDON'S PENNSYLVANIA CONSOLIDATED STATUTES ANNOTATED
TITLE 15. CORPORATIONS AND UNINCORPORATED ASSOCIATIONS
PART II. CORPORATIONS
SUBPART B. BUSINESS CORPORATIONS
ARTICLE B. DOMESTIC BUSINESS CORPORATIONS GENERALLY
CHAPTER 15. CORPORATE POWERS, DUTIES AND SAFEGUARDS
SUBCHAPTER D. DISSENTERS RIGHTS
(S) 1571. Application and effect of subchapter
(a) General rule. Except as otherwise provided in subsection (b), any
shareholder of a business corporation shall have the right to dissent from, and
to obtain payment of the fair value of his shares in the event of, any
corporate action, or to otherwise obtain fair value for his shares, where this
part expressly provides that a shareholder shall have the rights and remedies
provided in this subchapter. See:
Section 1906(c) (relating to dissenters rights upon special treatment).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share exchanges).
Section 1932(c) (relating to dissenters rights in asset transfers).
Section 1952(d) (relating to dissenters rights in division).
Section 1962(c) (relating to dissenters rights in conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a restriction on
transfer of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(c) (relating to dissenters rights upon election).
Section 2705(d) (relating to dissenters rights upon renewal of
election).
Section 2907(a) (relating to proceedings to terminate breach of
qualifying conditions).
Section 7104(b)(3) (relating to procedure).
(b) Exceptions.
(1) Except as otherwise provided in paragraph (2), the holders of the
shares of any class or series of shares that, at the record date fixed to
determine the shareholders entitled to notice of and to vote at the meeting
at which a plan specified in any of section 1930, 1931(d), 1932(c) or
1952(d) is to be voted on, are either:
(i) listed on a national securities exchange; or
(ii) held of record by more than 2,000 shareholders;
shall not have the right to obtain payment of the fair value of any such
shares under this subchapter.
(2) Paragraph (1) shall not apply to and dissenters rights shall be
available without regard to the exception provided in that paragraph in the
case of:
(i) Shares converted by a plan if the shares are not converted
solely into shares of the acquiring, surviving, new or other
corporation or solely into such shares and money in lieu of fractional
shares.
E-1
<PAGE>
(ii) Shares of any preferred or special class unless the articles,
the plan or the terms of the transaction entitle all shareholders of
the class to vote thereon and require for the adoption of the plan or
the effectuation of the transaction the affirmative vote of a majority
of the votes cast by all shareholders of the class.
(iii) Shares entitled to dissenters rights under section 1906(c)
(relating to dissenters rights upon special treatment).
(3) The shareholders of a corporation that acquires by purchase, lease,
exchange or other disposition all or substantially all of the shares,
property or assets of another corporation by the issuance of shares,
obligations or otherwise, with or without assuming the liabilities of the
other corporation and with or without the intervention of another
corporation or other person, shall not be entitled to the rights and
remedies of dissenting shareholders provided in this subchapter regardless
of the fact, if it be the case, that the acquisition was accomplished by
the issuance of voting shares of the corporation to be outstanding
immediately after the acquisition sufficient to elect a majority or more of
the directors of the corporation.
(c) Grant of optional dissenters rights. The bylaws or a resolution of the
board of directors may direct that all or a part of the shareholders shall have
dissenters rights in connection with any corporate action or other transaction
that would otherwise not entitle such shareholders to dissenters rights.
(d) Notice of dissenters rights. Unless otherwise provided by statute, if a
proposed corporate action that would give rise to dissenters rights under this
subpart is submitted to a vote at a meeting of shareholders, there shall be
included in or enclosed with the notice of meeting:
(1) a statement of the proposed action and a statement that the
shareholders have a right to dissent and obtain payment of the fair value
of their shares by complying with the terms of this subchapter; and
(2) a copy of this subchapter.
(e) Other statutes. The procedures of this subchapter shall also be
applicable to any transaction described in any statute other than this part
that makes reference to this subchapter for the purpose of granting dissenters
rights.
(f) Certain provisions of articles ineffective. This subchapter may not be
relaxed by any provision of the articles.
(g) Cross references. See sections 1105 (relating to restriction on
equitable relief), 1904 (relating to de facto transaction doctrine abolished)
and 2512 (relating to dissenters rights procedure).
(S) 1572. Definitions
The following words and phrases when used in this subchapter shall have the
meanings given to them in this section unless the context clearly indicates
otherwise:
"Corporation." The issuer of the shares held or owned by the dissenter
before the corporate action or the successor by merger, consolidation,
division, conversion or otherwise of that issuer. A plan of division may
designate which of the resulting corporations is the successor corporation
for the purposes of this subchapter. The successor corporation in a
division shall have sole responsibility for payments to dissenters and
other liabilities under this subchapter except as otherwise provided in the
plan of division.
"Dissenter." A shareholder or beneficial owner who is entitled to and
does assert dissenters rights under this subchapter and who has performed
every act required up to the time involved for the assertion of those
rights.
"Fair value." The fair value of shares immediately before the
effectuation of the corporate action to which the dissenter objects, taking
into account all relevant factors, but excluding any appreciation or
depreciation in anticipation of the corporate action.
E-2
<PAGE>
"Interest." Interest from the effective date of the corporate action
until the date of payment at such rate as is fair and equitable under all
the circumstances, taking into account all relevant factors, including the
average rate currently paid by the corporation on its principal bank loans.
(S) 1573. Record and beneficial holders and owners
(a) Record holders of shares. A record holder of shares of a business
corporation may assert dissenters rights as to fewer than all of the shares
registered in his name only if he dissents with respect to all the shares of
the same class or series beneficially owned by any one person and discloses the
name and address of the person or persons on whose behalf he dissents. In that
event, his rights shall be determined as if the shares as to which he has
dissented and his other shares were registered in the names of different
shareholders.
(b) Beneficial owners of shares. A beneficial owner of shares of a business
corporation who is not the record holder may assert dissenters rights with
respect to shares held on his behalf and shall be treated as a dissenting
shareholder under the terms of this subchapter if he submits to the corporation
not later than the time of the assertion of dissenters rights a written consent
of the record holder. A beneficial owner may not dissent with respect to some
but less than all shares of the same class or series owned by the owner,
whether or not the shares so owned by him are registered in his name.
(S) 1574. Notice of intention to dissent
If the proposed corporate action is submitted to a vote at a meeting of
shareholders of a business corporation, any person who wishes to dissent and
obtain payment of the fair value of his shares must file with the corporation,
prior to the vote, a written notice of intention to demand that he be paid the
fair value for his shares if the proposed action is effectuated, must effect no
change in the beneficial ownership of his shares from the date of such filing
continuously through the effective date of the proposed action and must refrain
from voting his shares in approval of such action. A dissenter who fails in any
respect shall not acquire any right to payment of the fair value of his shares
under this subchapter. Neither a proxy nor a vote against the proposed
corporate action shall constitute the written notice required by this section.
(S) 1575. Notice to demand payment
(a) General rule. If the proposed corporate action is approved by the
required vote at a meeting of shareholders of a business corporation, the
corporation shall mail a further notice to all dissenters who gave due notice
of intention to demand payment of the fair value of their shares and who
refrained from voting in favor of the proposed action. If the proposed
corporate action is to be taken without a vote of shareholders, the corporation
shall send to all shareholders who are entitled to dissent and demand payment
of the fair value of their shares a notice of the adoption of the plan or other
corporate action. In either case, the notice shall:
(1) State where and when a demand for payment must be sent and
certificates for certificated shares must be deposited in order to obtain
payment.
(2) Inform holders of uncertificated shares to what extent transfer of
shares will be restricted from the time that demand for payment is
received.
(3) Supply a form for demanding payment that includes a request for
certification of the date on which the shareholder, or the person on whose
behalf the shareholder dissents, acquired beneficial ownership of the
shares.
(4) Be accompanied by a copy of this subchapter.
(b) Time for receipt of demand for payment. The time set for receipt of the
demand and deposit of certificated shares shall be not less than 30 days from
the mailing of the notice.
E-3
<PAGE>
(S) 1576. Failure to comply with notice to demand payment, etc.
(a) Effect of failure of shareholder to act. A shareholder who fails to
timely demand payment, or fails (in the case of certificated shares) to timely
deposit certificates, as required by a notice pursuant to section 1575
(relating to notice to demand payment) shall not have any right under this
subchapter to receive payment of the fair value of his shares.
(b) Restriction on uncertificated shares. If the shares are not represented
by certificates, the business corporation may restrict their transfer from the
time of receipt of demand for payment until effectuation of the proposed
corporate action or the release of restrictions under the terms of section
1577(a) (relating to failure to effectuate corporate action).
(c) Rights retained by shareholder. The dissenter shall retain all other
rights of a shareholder until those rights are modified by effectuation of the
proposed corporate action.
(S) 1577. Release of restrictions or payment for shares
(a) Failure to effectuate corporate action. Within 60 days after the date
set for demanding payment and depositing certificates, if the business
corporation has not effectuated the proposed corporate action, it shall return
any certificates that have been deposited and release uncertificated shares
from any transfer restrictions imposed by reason of the demand for payment.
(b) Renewal of notice to demand payment. When uncertificated shares have
been released from transfer restrictions and deposited certificates have been
returned, the corporation may at any later time send a new notice conforming to
the requirements of section 1575 (relating to notice to demand payment), with
like effect.
(c) Payment of fair value of shares. Promptly after effectuation of the
proposed corporate action, or upon timely receipt of demand for payment if the
corporate action has already been effectuated, the corporation shall either
remit to dissenters who have made demand and (if their shares are certificated)
have deposited their certificates the amount that the corporation estimates to
be the fair value of the shares, or give written notice that no remittance
under this section will be made. The remittance or notice shall be accompanied
by:
(1) The closing balance sheet and statement of income of the issuer of
the shares held or owned by the dissenter for a fiscal year ending not more
than 16 months before the date of remittance or notice together with the
latest available interim financial statements.
(2) A statement of the corporation's estimate of the fair value of the
shares.
(3) A notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy of this
subchapter.
(d) Failure to make payment. If the corporation does not remit the amount of
its estimate of the fair value of the shares as provided by subsection (c), it
shall return any certificates that have been deposited and release
uncertificated shares from any transfer restrictions imposed by reason of the
demand for payment. The corporation may make a notation on any such certificate
or on the records of the corporation relating to any such uncertificated shares
that such demand has been made. If shares with respect to which notation has
been so made shall be transferred, each new certificate issued therefor or the
records relating to any transferred uncertificated shares shall bear a similar
notation, together with the name of the original dissenting holder or owner of
such shares. A transferee of such shares shall not acquire by such transfer any
rights in the corporation other than those that the original dissenter had
after making demand for payment of their fair value.
(S) 1578. Estimate by dissenter of fair value of shares
(a) General rule. If the business corporation gives notice of its estimate
of the fair value of the shares, without remitting such amount, or remits
payment of its estimate of the fair value of a dissenter's shares as
E-4
<PAGE>
permitted by section 1577(c) (relating to payment of fair value of shares) and
the dissenter believes that the amount stated or remitted is less than the fair
value of his shares, he may send to the corporation his own estimate of the
fair value of the shares, which shall be deemed a demand for payment of the
amount or the deficiency.
(b) Effect of failure to file estimate. Where the dissenter does not file
his own estimate under subsection (a) within 30 days after the mailing by the
corporation of its remittance or notice, the dissenter shall be entitled to no
more than the amount stated in the notice or remitted to him by the
corporation.
(S) 1579. Valuation proceedings generally
(a) General rule. Within 60 days after the latest of:
(1) effectuation of the proposed corporate action;
(2) timely receipt of any demands for payment under section 1575
(relating to notice to demand payment); or
(3) timely receipt of any estimates pursuant to section 1578 (relating
to estimate by dissenter of fair value of shares);
if any demands for payment remain unsettled, the business corporation may
file in court an application for relief requesting that the fair value of
the shares be determined by the court.
(b) Mandatory joinder of dissenters. All dissenters, wherever residing,
whose demands have not been settled shall be made parties to the proceeding as
in an action against their shares. A copy of the application shall be served on
each such dissenter. If a dissenter is a nonresident, the copy may be served on
him in the manner provided or prescribed by or pursuant to 42 Pa.C.S. Ch. 53
(relating to bases of jurisdiction and interstate and international
procedure).1
(c) Jurisdiction of the court. The jurisdiction of the court shall be
plenary and exclusive. The court may appoint an appraiser to receive evidence
and recommend a decision on the issue of fair value. The appraiser shall have
such power and authority as may be specified in the order of appointment or in
any amendment thereof.
(d) Measure of recovery. Each dissenter who is made a party shall be
entitled to recover the amount by which the fair value of his shares is found
to exceed the amount, if any, previously remitted, plus interest.
(e) Effect of corporation's failure to file application. If the corporation
fails to file an application as provided in subsection (a), any dissenter who
made a demand and who has not already settled his claim against the corporation
may do so in the name of the corporation at any time within 30 days after the
expiration of the 60-day period. If a dissenter does not file an application
within the 30-day period, each dissenter entitled to file an application shall
be paid the corporation's estimate of the fair value of the shares and no more,
and may bring an action to recover any amount not previously remitted.
(S) 1580. Costs and expenses of valuation proceedings
(a) General rule. The costs and expenses of any proceeding under section
1579 (relating to valuation proceedings generally), including the reasonable
compensation and expenses of the appraiser appointed by the court, shall be
determined by the court and assessed against the business corporation except
that any part of the costs and expenses may be apportioned and assessed as the
court deems appropriate against all or some of the dissenters who are parties
and whose action in demanding supplemental payment under section 1578 (relating
to estimate by dissenter of fair value of shares) the court finds to be
dilatory, obdurate, arbitrary, vexatious or in bad faith.
--------
/1/42 Pa.C.S.A. (S)5301 et seq.
E-5
<PAGE>
(b) Assessment of counsel fees and expert fees where lack of good faith
appears. Fees and expenses of counsel and of experts for the respective parties
may be assessed as the court deems appropriate against the corporation and in
favor of any or all dissenters if the corporation failed to comply
substantially with the requirements of this subchapter and may be assessed
against either the corporation or a dissenter, in favor of any other party, if
the court finds that the party against whom the fees and expenses are assessed
acted in bad faith or in a dilatory, obdurate, arbitrary or vexatious manner in
respect to the rights provided by this subchapter.
(c) Award of fees for benefits to other dissenters. If the court finds that
the services of counsel for any dissenter were of substantial benefit to other
dissenters similarly situated and should not be assessed against the
corporation, it may award to those counsel reasonable fees to be paid out of
the amounts awarded to the dissenters who were benefited.
E-6
<PAGE>
ANNEX F
Article Sixth
A. The number of directors shall initially be five (5) and thereafter shall
be fixed from time to time exclusively by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of authorized directors
(whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board for
adoption). Upon the effective date of the merger of Mattson Technology, Inc., a
California corporation, with and into the Corporation (the "Effective Date")
the directors shall be divided into three classes with the term of office of
the first class to expire at the first annual meeting of the stockholders
following the Effective Date, the term of office of the second class to expire
at the second annual meeting of stockholders held following the Effective Date,
the term of office of the third class to expire at the third annual meeting of
stockholders following the Effective Date, and thereafter for each such term to
expire at each third succeeding annual meeting of stockholders after such
election. All directors shall hold office until the expiration of the term for
which elected, and until their respective successors are elected, except in the
case of the death, resignation, or removal of any director.
B. Subject to the rights of the holders of any series of Preferred Stock
then outstanding, newly created directorships resulting from any increase in
the authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation or other cause (including removal from office
by a vote of the stockholders) may be filled only by a majority vote of the
directors then in office, though less than a quorum, or by sole remaining
director, and directors so chosen shall hold office for a term expiring at the
next annual meeting of stockholders at which the term of office of the class to
which they have been elected expires, and until their respective successors are
elected, except in the case of the death, resignation, or removal of any
director.
F-1
<PAGE>
[LOGO OF MATTSON TECHNOLOGY, INC. APPEARS HERE]
