<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 0-26784
SPEEDFAM-IPEC, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Illinois 36-2421613
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
305 North 54th Street, Chandler, Arizona 85226
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (602) 705-2100
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO _____
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date (April 9, 1999).
Common Stock, no par value: 29,262,330 shares
<PAGE> 2
SPEEDFAM INTERNATIONAL, INC.
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
February 28, 1999 and May 31, 1998.........................2
Condensed Consolidated Statements of Operations
Three Months and Nine Months Ended February 28, 1999 and
1998.......................................................3
Condensed Consolidated Statements of Cash Flows
Nine Months Ended February 28, 1999 and 1998...............4
Notes to Condensed Consolidated Financial Statements.......5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................10
Item 3. Quantitative and Qualitative Disclosures about Market Risk..20
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................21
SIGNATURE.....................................................................22
EXHIBIT INDEX
Exhibit - 3.1 Amendment to the Articles of Incorporation
Exhibit - 4.1 First Supplemental Indenture by and among
the Registrant, Integrated Process Equipment
Corp. and State Street Bank and Trust
Company of California, N.A., as Trustee,
dated April 6, 1999
Exhibit - 10.1 Employment Agreement between the Registrant
and Ralph Hartung, dated April 6, 1999
Exhibit - 27 Financial Data Schedule
<PAGE> 3
PART I - FINANCIAL INFORMATION
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
FEBRUARY 28, MAY 31,
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 90,883 $ 90,384
Short-term investments 17,534 50,835
Trade accounts and notes receivable, net 46,962 45,197
Inventories 38,474 55,532
Other current assets 17,140 8,195
--------- ---------
Total current assets 210,993 250,143
Investments in affiliates 26,681 24,299
Property, plant and equipment, net 76,952 52,253
Other assets 3,568 3,070
--------- ---------
Total assets $ 318,194 $ 329,765
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current portion $ 26 $ 248
of long-term debt
Accounts payable and due to affiliates 15,530 23,901
Customer deposits 2,852 1,812
Other current liabilities 11,491 13,932
--------- ---------
Total current liabilities 29,899 39,893
--------- ---------
Deferred income taxes 1,020 1,020
--------- ---------
Stockholders' equity:
Common stock, no par value, 60,000 shares
authorized, 16,214 and 15,962 shares
issued and outstanding 1 1
at February 28, 1999 and May 31, 1998,
respectively
Additional paid-in capital 229,088 226,729
Retained earnings 56,177 62,329
Accumulated other comprehensive income (loss) 2,009 (207)
--------- ---------
Total stockholders' equity 287,275 288,852
--------- ---------
Total liabilities and stockholders' equity $ 318,194 $ 329,765
========= =========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
2
<PAGE> 4
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED FEBRUARY 28, 1999 AND 1998
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
February 28, February 28,
---------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Net sales $ 31,295 $ 47,004 $ 90,985 $152,818
Commissions from affiliate 781 1,376 1,518 5,936
-------- -------- -------- --------
Total revenue 32,076 48,380 92,503 158,754
Cost of sales 21,355 28,341 61,573 90,941
-------- -------- -------- --------
Gross margin 10,721 20,039 30,930 67,813
Research, development and engineering 7,468 7,669 26,919 22,372
Selling, general and administrative 9,492 8,726 25,045 26,814
-------- -------- -------- --------
Operating profit (loss) (6,239) 3,644 (21,034) 18,627
Other income, net 1,645 1,581 5,233 3,851
-------- -------- -------- --------
Earnings (loss) from consolidated companies before
income taxes (4,594) 5,225 (15,801) 22,478
Income tax expense (benefit) (2,332) 1,822 (8,009) 7,966
-------- -------- -------- --------
Earnings (loss) from consolidated companies (2,262) 3,403 (7,792) 14,512
Equity in net earnings of affiliates 211 1,740 1,640 3,808
-------- -------- -------- --------
Net earnings (loss) $ (2,051) $ 5,143 $ (6,152) $ 18,320
======== ======== ======== ========
Net earnings (loss) per share:
Basic $ (0.13) $ 0.32 $ (0.38) $ 1.25
======== ======== ======== ========
Diluted $ (0.13) $ 0.31 $ (0.38) $ 1.19
======== ======== ======== ========
Weighted average number of shares:
Basic 16,166 15,861 16,113 14,641
======== ======== ======== ========
Diluted 16,166 16,429 16,113 15,391
======== ======== ======== ========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE> 5
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED FEBRUARY 28, 1999 AND 1998
(in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FEBRUARY 28,
------------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ (6,152) $ 18,320
Adjustments to reconcile net earnings (loss)
to net cash used in operating activities:
Equity in net earnings of affiliates (1,640) (3,808)
Depreciation and amortization 5,595 2,948
Dividend from affiliate 521 875
Other 887 267
Changes in assets and liabilities:
Increase in trade accounts and notes receivable (2,721) (7,384)
(Increase) Decrease in inventories 10,627 (7,413)
Increase in other current assets (7,971) (297)
Decrease in accounts payable and due to affiliates (8,330) (5,010)
Increase (Decrease) in customer deposits and other current liabilities (1,373) 143
--------- ---------
Net cash used in operating activities (10,557) (1,359)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments (46,260) (52,885)
Proceeds from the sale of short-term investments 35,849 --
Maturities of short-term investments 43,666 25,595
Proceeds from sales of assets 600 --
Capital expenditures (24,316) (17,833)
Other investing activities (562) (556)
--------- ---------
Net cash provided by (used in) investing activities 8,977 (45,679)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock -- 116,704
Proceeds from exercise of stock options 360 1,074
Proceeds from sale of stock to employees 1,999 2,088
Principal payments on long-term debt (223) (203)
--------- ---------
Net cash provided by financing activities 2,136 119,663
--------- ---------
Effects of foreign currency rate changes on cash (57) 11
--------- ---------
Net increase in cash and cash equivalents 499 72,636
Cash and cash equivalents at beginning of year 90,384 56,679
--------- ---------
Cash and cash equivalents at February 28, 1999 and 1998 $ 90,883 $ 129,315
========= =========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
4
<PAGE> 6
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
(1) BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by management without audit. Certain information and note
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted, although management believes that the disclosures
made are adequate to make the information presented not misleading. These
condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements of the Company for the year
ended May 31, 1998, as filed with the Securities and Exchange Commission
on August 28, 1998 as part of its Annual Report on Form 10-K/A. In the
opinion of management the information furnished herein reflects all
adjustments (consisting of normal recurring adjustments) necessary for a
fair statement of results for the interim periods presented. Results of
operations for the three and nine months ended February 28, 1999 are not
necessarily indicative of results to be expected for the full fiscal year.
(2) EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted earnings
(loss) per share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
February 28, February 28,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Numerator:
Net earnings (loss) $ (2,051) $ 5,143 $ (6,152) $ 18,320
======== ======== ======== ========
Denominator:
Denominator for basic earnings (loss) per share -
weighted-average shares outstanding 16,166 15,861 16,113 14,641
Effect of dilutive securities:
Employee stock options -- 568 -- 750
-------- -------- -------- --------
Denominator for diluted earnings (loss) per share -
adjusted weighted-average shares outstanding 16,166 16,429 16,113 15,391
======== ======== ======== ========
Basic earnings (loss) per share $ (0.13) $ 0.32 $ (0.38) $ 1.25
======== ======== ======== ========
Diluted earnings (loss) per share $ (0.13) $ 0.31 $ (0.38) $ 1.19
======== ======== ======== ========
</TABLE>
Employee stock options outstanding during the three and nine months ended
February 28, 1999, were not included in the computation of diluted loss
per share because the effect would be antidilutive.
5
<PAGE> 7
SPEEDFAM INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
(3) INVENTORIES
The components of inventory were:
<TABLE>
<CAPTION>
February 28, May 31,
1999 1998
------- -------
<S> <C> <C>
Raw materials $24,837 $25,223
Work-in-process 6,473 11,423
Finished goods 7,164 18,886
------- -------
$38,474 $55,532
======= =======
</TABLE>
(4) SHORT-TERM INVESTMENTS
In August, 1998 the company recorded a realized gain of $46 from the sale
of tax exempt short-term investments, classified as held-to-maturity
securities, with a carrying value of $35,803. The proceeds of $35,849 we
re-invested. The Company sold investments originally intended to be
held-to-maturity to take advantage of more favorable rates of return
available on taxable securities. The Company's short-term investments are
now classified as available-for-sale. The short-term investments are
recorded at fair value and an unrealized loss of $23, net of income taxes
of $23, is included as part of accumulated other comprehensive income
(loss) within stockholders' equity at February 28, 1999.
(5) INVESTMENTS IN AFFILIATES
The Company owns a 50% interest in SpeedFam Co., Ltd. The Company's equity
interest in SpeedFam Co., Ltd. was $23,255 and $20,543 at February 28,
1999 and at May 31, 1998, respectively, based on the balance sheet of
SpeedFam Co., Ltd. at January 31, 1999 and April 30, 1998, respectively.
The remaining equity interest included in investments in affiliates
relates to the Company's 50% ownership interest in Fujimi Corporation.
Condensed consolidated financial statements of SpeedFam Co., Ltd., which
are consolidated on a fiscal year that ends April 30, are as follows:
6
<PAGE> 8
BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Total current assets $ 96,502 $ 128,379
Investment in affiliates 870 853
Property, plant and equipment, net 38,122 35,763
Deferred income taxes and other assets 10,548 8,287
--------- ---------
Total assets $ 146,042 $ 173,282
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Total current liabilities $ 70,755 $ 106,765
Long-term debt 20,885 18,095
Other long-term liabilities 7,891 7,336
Stockholders' equity
Common stock 664 664
Retained earnings 41,944 41,162
Foreign currency translation adjustment 3,844 (844)
Unrealized gain on marketable securities 59 104
--------- ---------
Total liabilities and stockholders' equity $ 146,042 $ 173,282
========= =========
</TABLE>
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
January 31, January 31,
----------------------- -----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 32,344 $ 55,098 $ 105,382 $ 168,893
Costs and operating expenses 32,432 51,059 101,838 160,208
--------- --------- --------- ---------
Earnings (loss) before income taxes (88) 4,039 3,544 8,685
Income taxes 169 1,303 2,269 3,983
--------- --------- --------- ---------
Net earnings (loss) before minority
interest (257) 2,736 1,275 4,702
Minority interest (204) 95 (549) (153)
--------- --------- --------- ---------
Net earnings (loss) (53) 2,641 1,824 4,855
Beginning retained earnings 41,997 37,513 41,162 37,049
Dividends -- -- (1,042) (1,750)
--------- --------- --------- ---------
Ending retained earnings $ 41,944 $ 40,154 $ 41,944 $ 40,154
========= ========= ========= =========
</TABLE>
The Company pays a commission to SpeedFam Co., Ltd. on sales of equipment
produced by the Company in the U. S. and exported to Pacific Rim customers
through SpeedFam Co., Ltd. As of February 28, 1999 the Company had accrued
$3,209 of commission expense to SpeedFam Co., Ltd.
7
<PAGE> 9
(6) DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments to offset exposure to
market risks arising from changes in foreign exchange rates. Derivative
financial instruments currently utilized by the Company include foreign
currency forward contracts. The Company evaluates and monitors
consolidated net exposures by currency and maturity, and external
derivative financial instruments correlate with that net exposure in all
material respects. Gains and losses on hedges of existing assets and
liabilities are included in the carrying amounts of those assets or
liabilities and are ultimately recognized in income when those carrying
amounts are converted. Gains or losses related to hedges of firm
commitments are deferred and included in the bases of the transaction when
they are completed. Gains or losses on unhedged foreign currency
transactions, if any, are included in income as part of cost of sales.
Gains and losses on derivative financial instruments which protect the
Company from exposure in a particular currency, but do not currently have
a designated underlying transaction, are also included in income as part
of cost of sales. If a hedged item matures, or is sold, extinguished,
terminated, or is related to an anticipated transaction that is no longer
likely to take place, the derivative financial instrument is closed and
the related gain or loss is included in income as part of cost of sales.
(7) COMPREHENSIVE INCOME (LOSS)
Effective June 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" which
establishes standards to report and display comprehensive income and its
components in a full set of general purpose financial statements. The
company's comprehensive income (loss) was as follows:
COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
February 28, February 28,
--------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss) $ (2,051) $ 5,143 $ (6,152) $ 18,320
Other comprehensive income (loss):
Foreign currency translation adjustments (516) (2,289) 2,239 (1,370)
Unrealized holding losses, net
of income taxes of $18 and $23
for the three months and nine
months ended February 28, 1999 (16) -- (23) --
-------- -------- -------- --------
Comprehensive income (loss) $ (2,583) $ 2,854 $ (3,936) $ 16,950
======== ======== ======== ========
</TABLE>
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
Foreign Unrealized Accumulated Other
Currency Losses on Comprehensive
Translation Securities Income (Loss)
------- ------- -------
<S> <C> <C> <C>
Balance at May 31, 1998 $ (207) $ (207)
Nine month period change 2,239 (23) 2,216
------- ------- -------
Balance at February 28, 1999 $ 2,032 $ (23) $ 2,009
======= ======= =======
</TABLE>
8
<PAGE> 10
(8) RECENT DEVELOPMENTS
On April 6, 1999, the shareholders and stockholders of the Company and
Integrated Process Equipment Corp. ("IPEC"), respectively, approved the
merger agreement between these two companies. The Company's shareholders
also approved an amendment to the Company's Articles of Incorporation
changing the name of the Company to SpeedFam-IPEC, Inc. Under terms
of the merger agreement entered into on November 19, 1998, each share
of IPEC common stock was exchanged for 0.71 shares of the Company's
common stock. The Company expects to issue approximately 13,049 shares
of the Company's common stock to IPEC stockholders. The merger will be
accounted for as a pooling of interests. Had the merger taken place on
or prior to February 28, 1999, the combined restated financial results
would have been as follows:
<TABLE>
<CAPTION>
Nine Months Ended
February 28,
-------------------------
1999 1998
--------- ---------
<S> <C> <C>
Revenue $ 152,709 $ 309,221
Net earnings (loss) $ (46,468) $ 18,650
Net earnings (loss) per share:
Basic $ (1.61) $ 0.69
Diluted $ (1.61) $ 0.64
</TABLE>
9
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SEGMENTS
The Company's total revenue consists of net sales in two segments: (i)
equipment, parts and expendables, and (ii) slurries, as well as
commissions earned on the distribution in the U.S. and Europe of products
produced by SpeedFam Co., Ltd. (the "Far East Joint Venture").
RESULTS OF OPERATIONS
The following table sets forth certain consolidated statements of earnings
data for the periods indicated as a percentage of total revenue:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
February 28, February 28,
---------------- ----------------
1999 1998 1999 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenue:
Net sales 97.6% 97.2% 98.4% 96.3%
Commissions from affiliate 2.4 2.8 1.6 3.7
----- ----- ----- -----
Total revenue 100.0 100.0 100.0 100.0
Cost of sales 66.6 58.6 66.6 57.3
----- ----- ----- -----
Gross margin 33.4 41.4 33.4 42.7
Research, development and engineering 23.3 15.9 29.0 14.1
Selling, general and administrative 29.6 18.0 27.1 16.9
----- ----- ----- -----
Operating profit (loss) (19.5) 7.5 (22.7) 11.7
Other income, net 5.2 3.3 5.6 2.4
----- ----- ----- -----
Earnings (loss) from consolidated companies
before income taxes (14.3) 10.8 (17.1) 14.1
Income tax expense (benefit) (7.2) 3.8 (8.7) 5.0
----- ----- ----- -----
Earnings (loss) from consolidated companies (7.1) 7.0 (8.4) 9.1
Equity in net earnings of affiliates 0.7 3.6 1.7 2.4
----- ----- ----- -----
Net earnings (loss) (6.4)% 10.6% (6.7)% 11.5%
===== ===== ===== =====
</TABLE>
Net Sales. The Company's net sales for the third quarter of fiscal 1999
were $31.3 million, down 33.4% from net sales of $47.0 million for the
corresponding period in the prior year. Sales of equipment, parts and
expendables decreased to $25.5 million or 81.6% of net sales in the third
quarter of fiscal 1999, against $40.9 million or 87.0% of net sales in the
same period of fiscal 1998. The sales decline in this segment was
primarily attributable to lower sales of the Company's CMP systems to the
semiconductor industry. Sales of CMP systems generated $19.1 million, or
61.1% of net sales in the third quarter of fiscal 1999, down from the
$28.0 million, or 59.5% of net sales, reported a year earlier. The
Company's net sales in this quarter were affected by the continued
worldwide slowdown in overall demand for semiconductor manufacturing
equipment, including CMP systems, which is due to the over-capacity
situation in the semiconductor device market worldwide. In addition, the
Company has experienced increased competition in the sales of CMP systems
to semiconductor manufacturers currently making equipment buying
decisions. The Company believes that these market uncertainties will
likely have an adverse effect on sales of CMP systems, as well as other
equipment products the Company sells, through the next 12 to 18 months.
10
<PAGE> 12
Sales to the thin film memory disk market in the third quarter of fiscal
1999 accounted for $6.1 million, or 19.5% of net sales, compared with
$13.0 million, or 27.0% of net sales, for the third quarter of fiscal
1998. The technology of thin film memory disks has shifted to the use of
alternative substrates (e.g., glass), and a majority of those substrates
are being produced by Far East manufacturers. Consequently, thin film
memory disk manufacturers in the United States have experienced
manufacturing over-capacity which in turn has reduced capital spending for
equipment the Company supplies from its U.S. operations. The Company
expects these manufacturing over-capacity problems to continue in the U.S.
at least through the next 12 months.
Net sales for the nine months ended February 28, 1999 were $91.0 million,
down 40.5% against net sales of $152.8 million in the first nine months of
fiscal 1998. A decline in sales of CMP equipment accounted for the
significant portion of this sales decline. In the first nine months of
fiscal 1999, sales of CMP systems were $53.2 million, or 58.5% of net
sales, compared to $93.4 million or 61.1% of net sales, reported a year
earlier. In addition, net sales in the nine months ended February 28, 1999
decreased due to a decline in sales to the thin film memory disk market.
In the nine months ended February 28, 1999, sales to the thin film memory
disk market were $19.5 million compared to $42.5 million in the same nine
months of the prior year. Equipment sales to the thin film memory disk
market have declined during this period due to the reasons set forth
above.
The decrease in net sales in the three and nine months ended February 28,
1999 was also attributable to a decrease in sales of slurries. Slurries
revenue decreased to $5.8 million or 18.4% of net sales in the third
quarter of fiscal 1999 from $6.1 million or 13.0% in the comparable period
of fiscal 1998. In the first nine months of fiscal 1999, sales of slurries
were $17.2 million or 18.9% of net sales compared to the $22.2 million or
14.5% in the same period of fiscal 1998.
Commissions from Affiliate. Commissions from affiliate decreased to
$781,000 during the third quarter of fiscal 1999 from $1.4 million in the
corresponding period of fiscal 1998. During the first nine months of this
fiscal year, commissions from affiliate decreased to $1.5 from $5.9
million in the first nine months of fiscal 1998. The decline in commission
revenue in the three and nine months ended February 28, 1999 was due to
the continued slowdown in demand for capital equipment primarily from the
silicon wafer market and, to a lesser extent, the thin film memory disk
industry. The Company believes that capital equipment spending will
continue to be weak in the thin film memory and silicon wafer industries
through the next 12 months, in turn further lowering commissions from
affiliate compared to prior year periods.
Gross Margin. Gross margin decreased to $10.7 million or 33.4% of total
revenue for the three months ended February 28, 1999 from $20.0 million or
41.4% of total revenue for the three months ended February 28, 1998. For
the first nine months of fiscal 1999, gross margin was $30.9 million or
33.4% of total revenue, compared to $67.8 million or 42.7% of total
revenue in fiscal 1998. Gross margin, both in dollars and as a percentage
of total revenue, was down year over year primarily due to higher material
costs for the Company's mainline CMP tool, the Auriga-C integrated
dry-in/dry-out system, higher overhead costs due to excess production
capacity, lower commission revenue, pricing pressure in all markets, and
shifts in the product mix.
Research, Development and Engineering. Research, development and
engineering expense was $7.5 million or 23.3% of total revenue in the
third quarter of fiscal 1999, down slightly from $7.7 million or 15.9% of
total revenue in the third quarter of fiscal 1998. In the nine months
ended February 28, 1999, research, development and engineering expense
increased to $26.9 million or 29.0% of total revenue compared to $22.4
million or 14.1% of total revenue in the same period of fiscal year 1998.
Research, development and engineering expense in the three month period
ended February 28, 1999, was comparable to the prior year. However, the
increase in the nine month period of fiscal 1999 ended February 28, 1999
from the same period in fiscal 1998 is a result of the Company continuing
to invest significant amounts of money in its CMP systems' reliability and
productivity improvements, various process technologies for the
semiconductor device market and growing its technical support organization
due to the greater number of the Company's CMP systems now in the field
worldwide. The Company will continue to make significant investments in
research, development and engineering to maintain technological
competitiveness and meet the process requirements of its customers.
Research, development and engineering expense as a percentage of total
revenue increased substantially due to reduced revenues in fiscal 1999.
11
<PAGE> 13
Selling, General and Administrative. In the third quarter of fiscal 1999,
selling, general and administrative expense was $9.5 million, or 29.6% of
total revenue, up from $8.7 million, or 18.0%, last year. Selling, general
and administrative expense decreased to $25.0 million or 27.1% of total
revenue in the first nine months of fiscal 1999 from $26.8 million or
16.9% of total revenue in the first nine months of fiscal 1998. The dollar
increase in the third quarter of fiscal 1999 as compared to the prior year
was due to higher commissions paid to the Far East Joint Venture as a
result of increased sales of CMP systems manufactured in the United States
and sold into the Asian markets. Selling, general and administrative
expense declined in the first nine months of fiscal 1999 from fiscal 1998
due to management's efforts to control expenses to align them with lower
revenue expectations, including decreased travel, an across the board
reduction in all management salaries, a freeze on new hires, and
reductions in the Company's global workforce. Selling, general and
administrative expense as a percentage of total revenue increased
substantially in both the three and nine month periods ended February
28,1999. This was primarily due to reduced revenues in fiscal 1999.
Other Income, Net. At $1.6 million, other income in the third quarter of
fiscal 1999 was level with that recorded in the third quarter of
fiscal 1998. Other income increased to $5.2 million in the first nine
months of fiscal 1999 from $3.9 million in the comparable period of fiscal
1998. Other income consisted almost entirely of interest income in the
third quarter of fiscal 1999. Interest income increased in the first nine
months of fiscal 1999 compared to the prior year period as a result of the
cash infusion from the Company's equity offering in October 1997, as well
as, a change in investment strategy to higher yielding taxable investments
in the first quarter of fiscal 1999.
Income Tax Benefit. In the third quarter and first nine months of fiscal
1999, the Company provided for a tax benefit due to the operating losses
reported. The tax benefit has been recorded at a rate significantly above
the federal benefit rate of 35% due to the impact of significant research
and development tax credits.
Equity in Net Earnings of Affiliates. The Company's equity in the net
earnings of its joint ventures was $211,000 for the third quarter,
compared to $1.7 million a year ago. For the first nine months of fiscal
1999, equity in net earnings of affiliates decreased to $1.6 million from
$3.8 million in the corresponding period in the prior year. The Company
believes that the earnings of the Company's largest joint venture, the Far
East Joint Venture, may be adversely affected for at least the next 12
months by both the slow down in demand for equipment sold into the thin
film memory disk and silicon wafer markets, as well as current economic
challenges facing many Far East economies.
LIQUIDITY AND CAPITAL RESOURCES
As of February 28, 1999, the Company had $108.4 million in cash, cash
equivalents and short-term investments, compared to $141.2 million at May
31, 1998. The Company used $10.6 million of net cash in operating
activities. Cash from operations was used primarily to pay down accounts
payable and amounts due to affiliates, reduce other current liabilities
and increase accounts receivable and other current assets.
Accounts payable and due to affiliates decreased to $15.5 million at
February 28, 1999, from $23.9 million at May 31, 1998. This decrease was a
result of management's ongoing efforts to control inventory purchasing in
anticipation of lower sales volume in the first nine months of fiscal year
1999. Cash used in operations was partially offset by reductions in
inventories.
Accounts receivable increased to $47.0 million at February 28, 1999, from
$45.2 million at May 31, 1998. The small increase in accounts receivable
was primarily due to the effects of extended payment terms on sales of
equipment to certain customers in fiscal 1999.
12
<PAGE> 14
Inventory decreased to $38.5 at February 28, 1999, from $55.5 million at
May 31, 1998. Inventory had increased substantially in fiscal year 1998
due to a build up of CMP systems in the third and fourth quarters of
fiscal 1998, which did not ship until the first and second quarters of
fiscal year 1999. In addition, inventories decreased due to decreased
production in anticipation of lower sales volume in fiscal year 1999.
SpeedFam established an obsolescence reserve for inventories at February
28, 1999 and May 31, 1998, respectively.
The Company made capital expenditures of $24.3 million in the first nine
months of fiscal 1999. The majority of the cash was used to fund the
construction of a new 109,000 square foot Technology Center next to its
corporate headquarters in Chandler, Arizona. Through the nine months ended
February 28, 1999, short-term investments of the Company matured or were
sold providing cash of $75.9 million. Sales of short-term investments also
provided $35.8 million in cash. In total, $46.3 million in cash was
invested in short-term securities in the nine months ended February 28,
1999.
Financing activities provided $2.1 million in cash, primarily through the
sale of stock to employees and the exercise of stock options. In response
to the merger with IPEC, the Company's new management believed its
combined financial resources allowed it to reduce its bank lines of
credit. Consequently, the Company has terminated its $60.0 million credit
facility, and is replacing it with a new $25.0 million secured revolving
line of credit. The Company also has a pound sterling 950,000 ($1.6
million) revolving credit facility with the London branch of a U.S. bank.
As of April 6, 1999, no amounts were outstanding on any loan facility. The
Company believes that the Company's cash, cash equivalents and short-term
investments combined with the available proceeds from available loan
facilities will be sufficient to meet the Company's capital requirements
during at least the next 12 months.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" is effective for financial years beginning after June 15,
1999. SFAS No. 133 establishes accounting and reporting standards for
derivative instruments and hedging activities. The Company is evaluating
the new Statement's provisions and has not yet determined its impact. The
Company will adopt SFAS No. 133 effective June 1, 2000.
RECENT DEVELOPMENTS
On April 6, 1999, the shareholders and stockholders of the Company and
Integrated Process Equipment Corp. ("IPEC"), respectively, approved the merger
agreement between these two companies. The Company's shareholders also approved
an amendment to the Company's Articles of Incorporation changing the name of the
Company to SpeedFam-IPEC, Inc. Under the terms of the merger agreement entered
into on November 19, 1998, each share of IPEC common stock was exchanged for
0.71 shares of the Company's common stock. The Company expects to issue
approximately 13,048,540 shares of the Company's common stock to IPEC
stockholders.
The Company has incurred and will incur substantial expenses to complete the
merger, including estimated costs of approximately $6.5 million for financial
accounting and legal advisors and for the special meetings of shareholders.
The Company is evaluating its strategic alternatives to increase the
profitability of the Company. These strategies relate to work force reductions,
discontinuing product lines and eliminating duplicate facilities. The Company
expects that these strategies will result in recoverability issues for certain
assets. The Company expects to incur in the fourth quarter of its fiscal year
1999, which ends May 31, 1999, a charge for severance costs, inventory
adjustments and asset impairments related to discontinued products lines,
cancellations of real estate leases and other merger expenses totaling an
estimated $50 to $70 million. Additional costs presently unknown may also
negatively impact the results of operations following the merger.
13
<PAGE> 15
YEAR 2000
The Company has addressed the issues associated with the programming code in
existing computer systems as the millennium (Year 2000) approaches. The Year
2000 computer software problem is pervasive and complex, as virtually every
computer operation will be affected in some way. The Company is aware of and is
addressing the potential computing difficulties that may be triggered by the
Year 2000 problem.
The Company has substantially completed a Year 2000 date review and conversion
project to address all the necessary changes, testing and implementation issues.
The project encompassed three major areas of review: internal systems (hardware
and software), supplier compliance and Company products. The Company has
identified the changes required to its computer programs and hardware. The
necessary modifications to the Company's centralized financial, manufacturing
and operational information systems have been completed. The Company's major
suppliers have been sent letters requesting information regarding their own Year
2000 plan, as well as requesting confirmation that the components supplied by
these vendors are Year 2000 compliant. The Company has evaluated the vendor
responses which have been received and concluded that the vendors which have
responded either are Year 2000 compliant or are proceeding with their own Year
2000 compliance programs. The Company will continue to follow-up with vendors
with which the Company has a material relationship and who have not responded to
obtain assurances that they expect to be Year 2000 compliant in time. Equipment
and systems manufactured and supplied by the Company have been evaluated and
determined to be free of any material problems that could be caused by the Year
2000 issue. Management estimates that the Company's remaining Year 2000
compliance expense will be immaterial. The Company believes that Year 2000
problems related to its own internal systems and equipment and systems it sells
have been addressed and resolved and will not have a material effect on the
Company's business, financial condition and results of operations. However,
there can be no assurance that the systems of other companies upon which the
Company's systems and business rely will be timely converted or that any such
failure to convert by another company would not have a material adverse effect
on the Company's business, financial conditions or results of operations. To
mitigate this risk, the Company is reviewing its vendor relationships and
building alternative sources of supply should the business operations of any one
vendor be interrupted due to the Year 2000 problems.
CERTAIN FACTORS AFFECTING THE COMPANY'S BUSINESS
Discussed below are certain factors which may affect the Company's
business. This discussion is not exclusive of other factors that may also affect
the Company's business and should be read in conjunction with the other
information contained in this Form 10-Q including, without limitation,
information provided in "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
RISKS RELATED TO THE MERGER WITH IPEC
IF THE COMPANY DOES NOT INTEGRATE THE TECHNOLOGY AND OPERATIONS OF THE COMPANY
AND IPEC QUICKLY AND EFFECTIVELY, THE POTENTIAL BENEFITS OF THE RECENT MERGER
MAY NOT OCCUR. Achieving the merger's potential benefits will require the
Company to reduce excess personnel and redundant facilities and equipment.
Management's choices in this regard may not prove optimal in the long term. In
addition, the Company must integrate all components of the Company's and IPEC's
previously individual operations, including the following:
- - Sales and marketing operations, including international distribution
channels. Prior to the merger, internationally, the Company distributed
its products through a direct sales force while IPEC used distributors.
Combining international sales channels could result in expense or customer
confusion.
- - Product offerings, including marketing of products to the other's
customers.
- - Research and development programs.
14
<PAGE> 16
- - Manufacturing operations and philosophies. Prior to the merger, the
Company assembled components purchased from multiple vendors, while IPEC
manufactured many of its products' components and purchased others from
vendors.
- - Field service support for CMP equipment.
- - Management information and reporting systems. Since the Company and IPEC
used different management information systems, the Company may face
difficulties obtaining timely and accurate information, data and reports
to operate the combined Company effectively until integration is
completed.
The Company cannot be certain that it can achieve integration of these
components without adversely impacting operations. To the extent management
focuses on integration, it may not be able to develop the business.
SUBSTANTIAL EXPENSES RESULTING FROM THE MERGER. The Company has incurred, and
will incur, substantial expenses to complete the merger, including estimated
costs of approximately $6.5 million for financial, accounting and legal advisors
and for the special meetings of shareholders.
The Company is evaluating its strategic alternatives to increase the
profitability of the Company. These strategies relate to work force reductions,
discontinuing product lines and eliminating duplicate facilities. The Company
expects that these strategies will result in recoverability issues for certain
assets. The Company expects to incur in the fourth quarter of its fiscal year
1999, which ends May 31, 1999, a charge for severance costs, inventory
adjustments and asset impairments related to discontinued products lines,
cancellations of real estate leases and other merger expenses totaling an
estimated $50 to $70 million. Additional costs presently unknown may also
negatively impact the results of operations following the merger.
THE MERGER MAY RESULT IN A LOSS OF KEY EMPLOYEES. The Company's success
following the merger depends on retaining and integrating the Company and IPEC
personnel. The Company has signed agreements with a few key IPEC employees to
retain their services. However, Company employees may leave for many reasons,
including:
- - As integration proceeds, the Company anticipates eliminating excess
personnel in many functional areas. Other employees may leave for varied
reasons, such as increased workloads or the mistaken assumption that the
individual's job will be terminated.
- - New and different corporate culture. Prior to the merger, the Company and
IPEC had different corporate cultures. IPEC's employees had greater
autonomy than in the Company's organization, which emphasized, and
continues to emphasize, more centralized planning and control methods.
- - Competition for qualified personnel in the industry served by the Company,
particularly in the Phoenix metropolitan area, is intense. The Company and
IPEC had experienced difficulty in attracting qualified personnel in the
past. The Company expects to experience the same difficulty in the future.
- - Competitors may continue to recruit employees during integration. This is
common in mergers in the technology industry.
RISKS RELATED TO BUSINESS OPERATIONS
THE COMPANY'S GROWTH DEPENDS ON CONTINUED AND INCREASED ACCEPTANCE OF CMP AMONG
SEMICONDUCTOR MANUFACTURERS. While CMP is used by a number of advanced logic
semiconductor manufacturers, CMP has been used to manufacture advanced memory
devices only in the past 2 years. Continued and increased acceptance of CMP
systems depends on many factors considered by potential customers, including the
CMP product's:
- - Cost of ownership
- - Throughput
15
<PAGE> 17
- - Process flexibility
- - Performance, including reliability
- - Customer support
Failure to adequately meet potential customers' needs with respect to one or
more of these factors will result in decreased acceptance of CMP and, therefore,
the Company's CMP systems, which will in turn negatively impact the Company's
profitability.
THE COMPANY MAY NOT DEVELOP PRODUCTS IN TIME TO MEET CHANGING TECHNOLOGIES.
Semiconductor manufacturing equipment and processes are subject to rapid
technological changes and product obsolescence. Developing new products in the
rapidly evolving industry in which the Company operates involves a number of
risks:
- - Products may be introduced behind schedule or after customers have made
buying decisions.
- - Products may not be accepted in the marketplace.
After the merger, competitive pressures will require the Company to continue to
develop or enhance products, including both the copper and dual damascene
processes, end-point detection metrology, post-CMP cleaning and a 300 mm CMP
system to address current and future needs of semiconductor manufacturers. The
Company will also continue to develop products and processes for thin film
memory disk manufacturers and to enhance the plasma-assisted chemical etch
processes.
PRODUCT OR PROCESS DEVELOPMENT PROBLEMS COULD HARM THE COMPANY'S RESULTS OF
operations. The company's products are complex, and from time to time have
defects or "bugs" that are difficult and costly to fix. This can harm results of
operations for the company in two ways:
- - The company incurs substantial costs to ensure the functionality and
reliability of products earlier in their life cycle. This can reduce
orders, increase manufacturing costs, adversely impact working capital and
increase service and warranty expenses.
- - The company requires significant lead-times between product introduction
and commercial shipment. As a result, the company may have to write off
inventory and other assets related to products and could lose customers
and revenue.
THE CURRENT SLOWDOWN IN THE SEMICONDUCTOR INDUSTRY CONTINUES TO NEGATIVELY
IMPACT THE COMPANY'S PROFITABILITY. The Company is currently experiencing a
slowdown in product demand and volatility in product pricing for the following
reasons:
- - The cyclical nature of the semiconductor industry
- - General over-capacity of customers
- - The financial crisis in Asia
This slowdown has reduced the revenue to the Company in recent periods. The
Company believes that the slowdown will continue to negatively impact revenue
performance for at least the next 12 to 18 months. Despite the slowdown,
however, the Company will continue to invest in research and development and
customer support to remain competitive. This will result in reduced
profitability for the Company.
16
<PAGE> 18
BOTH THE COMPANY AND IPEC HAD LOSSES PRIOR TO THE MERGER AND THE COMPANY EXPECTS
LOSSES IN THE NEAR FUTURE. The Company had net losses of $2.1 million in the
quarter ended February 28, 1999, $4.3 million in the quarter ended November 30,
1998, and $5.5 million in the quarter ended May 31, 1998. The Company did not
have a net loss for the quarter ended August 31, 1998, but did have an operating
loss of $3.5 million. IPEC had net losses of $16.1 million in the quarter ended
March 31, 1999, $14.0 million in the quarter ended December 31, 1998, and $10.1
million in the quarter ended September 30, 1998. These losses were primarily the
result of the slowdown in the industry combined with increasing investment in
research and development. The Company currently believes it will continue to
experience losses as long as the industry slowdown continues.
THE COMPANY FACES INTENSE COMPETITION, INCLUDING FROM COMPANIES WITH GREATER
RESOURCES. Several companies currently market CMP systems that directly compete
with the Company's products, including Applied Materials, Inc. and Ebara
Corporation. For several reasons, the Company may not compete effectively with
competitors, including:
- - Some competitors may have greater financial resources than the Company.
They also may have more extensive engineering, manufacturing, marketing
and customer service and support capabilities.
- - Some competitors may supply a broader range of semiconductor capital
equipment than the Company. As a result, these competitors may have better
relationships with semiconductor manufacturers, including current and
potential customers of the Company.
- - The Company expects competitors to continue to improve their existing
technology and introduce new products. This could cause a decline in the
Company's sales or lead to intensified price-based competition.
- - Other capital equipment manufacturers not currently involved in the
development of CMP systems may enter the market or develop technology
that reduces the need for the Company's products.
THE ASIAN FINANCIAL CRISIS IS HARMING THE COMPANY'S BUSINESS. The Company
expects reduced sales to Asian customers for at least the next 12 to 18 months,
which will negatively impact the Company's sales growth and revenue performance.
A substantial portion of worldwide semiconductor manufacturing capacity is
located in the Far East. Pacific Rim countries are experiencing severe currency
and financing problems that are contributing to economic slowdowns or recessions
in those countries. The Company's U.S. dollar-denominated products have become
more expensive in certain Asian countries. In addition, some customers in these
countries may not be able to obtain satisfactory financing terms to allow them
to place volume orders or pay for equipment that has been shipped.
THE COMPANY'S FUTURE SUCCESS DEPENDS ON INTERNATIONAL SALES. International sales
accounted for 31.7% of the Company's net sales for fiscal year 1998, 31.2% for
fiscal year 1997 and 21.7% for fiscal year 1996. International sales accounted
for 45.5% of IPEC's revenue in its fiscal 1998, 26.6% in fiscal 1997 and 27.8%
in fiscal 1996. The Company expects that international sales will continue to
account for a significant portion of the Company's net sales in future periods.
International sales are subject to risks, including:
- - Foreign exchange issues
- - Political, economic and regulatory environments of the countries where
customers are located
- - Collectability of accounts receivable
- - Inadequate intellectual property protection
17
<PAGE> 19
Foreign exchange issues also affect the value of the Company's foreign
subsidiaries and the Company's equity interest in its Far East joint venture.
The Company does not manage this balance sheet risk through currency
transactions known as "hedging," which are designed to minimize this risk. The
Company does try to manage near-term currency risks through "hedging." However,
efforts may not be enough to decrease the risks involved.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS The Company's quarterly operating
results will fluctuate due to a variety of factors, including:
- - Industry demand for capital equipment, which depends on economic
conditions in the semiconductor, memory disk and silicon wafer markets.
- - Timing, cancellation or delay of customer orders and shipments. The
Company derives a significant portion of revenue from the sale of a
relatively small number of machines during a given quarter. Order and
delivery delays and cancellations, even of one or two systems, may cause
the Company to miss quarterly revenue and profit projections.
- - Unexpected costs associated with sales and service of the CMP tools and
processes.
- - The quarterly operating results of the Company's joint ventures, which the
Company accounts for on the equity method.
- - Foreign currency exchange rates.
Results of operations in any period are not an indication of future results.
Fluctuations in the Company's operating results may also result in fluctuations
in the Company's common stock price. In future quarters, operating results may
not meet the expectations of public market analysts or investors and the trading
price of the Company's common stock could decline.
ORDERS IN BACKLOG MAY NOT RESULT IN FUTURE REVENUE. The Company includes in
backlog only those customer orders for which the Company has accepted purchase
orders. Expected revenue may be lower if customers cancel or reschedule orders,
which they can generally do without penalty. For example, IPEC removed orders of
approximately $12.0 million from its backlog in the fourth quarter of fiscal
1997, primarily due to delays in, and ultimately the suspension of, construction
of a wafer fabrication facility for a customer in Thailand.
THE COMPANY WILL DEPEND ON A SMALL NUMBER OF MAJOR CUSTOMERS. For the
foreseeable future, the Company expects that it will sell machines to a limited
number of major customers. To date, the CMP process has been used primarily to
fabricate advanced semiconductors, which accounts for only a portion of the
overall semiconductor market.
In fiscal 1998, no customer accounted for 10.0% or more of the Company's total
revenue. In fiscal 1997, AMD accounted for 12.8% and Komag accounted for 10.3%
of the Company's total revenue. In fiscal 1998, Intel represented 38.3% and
Tokyo Electron represented 12.0% of IPEC's revenue. In fiscal 1997, Intel
represented 51.0% of IPEC's revenue.
18
<PAGE> 20
IF THE COMPANY IS UNABLE TO PROTECT ITS INTELLECTUAL PROPERTY, ITS BUSINESS
COULD SUFFER. The Company's intellectual property portfolio is very important to
the potential success of the Company. However, the Company may not be able to
protect its technology because:
- - Pending and new patent applications may not be approved in a timely manner
or approved at all
- - Third parties may try to challenge or invalidate existing patents and new
patents
- - Policing unauthorized use of intellectual property is difficult and
expensive
- - The laws of some foreign countries do not protect intellectual property
rights as much as U.S. laws
- - Competitors may independently develop similar technology or design around
intellectual property owned by the Company
THIRD PARTIES MAY PREVENT THE COMPANY FROM SELLING PRODUCTS THAT INFRINGE ON
THOSE THIRD PARTIES' INTELLECTUAL PROPERTY RIGHTS. The Company cannot be certain
that third parties will not in the future claim that its products infringe their
intellectual property rights. Third parties may:
- - Bring claims of patent, copyright or trademark infringement
- - Obtain patents or other intellectual property rights that limit the
Company's ability to do business or require the Company to license or
cross-license technology
- - Bring costly, time-consuming lawsuits
Third parties hold many patents relating to CMP machines and processes. The
Company licenses the right to manufacture CMP machines employing an orbital
motion in its AvantGaard 676, 776 and 876 from a semiconductor manufacturer.
In addition, although the Company believes that its products do not infringe any
valid existing proprietary rights of others, there can be no assurance that
third parties will not assert infringement claims in the future. In the CMP
market the Company serves, there are a number of patents relating to the CMP
process held by third parties. Accordingly, the Company, as a CMP equipment
manufacturer, may be required to attempt to obtain licenses from the holders of
one or more of such patents, which may impede the use of CMP technology by the
Company. There also may be pending patent applications or issued patents of
which the Company is not aware, and which would require the Company to license
or challenge such patents, at significant expense to the Company. There can be
no assurance that any such license would be available on acceptable terms, if at
all, or that the Company would prevail in any such challenge.
19
<PAGE> 21
Certain statements and information in this Form 10-Q constitute
"forward-looking statements" within the meaning of the federal securities laws.
Such forward-looking statements involve risks and uncertainties which may cause
the actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Factors that may affect the
Company's business and may therefore affect actual results include, among
others, the cyclical nature of the Company's business and the industries which
it serves, the Company's dependence on new product development and the effects
of rapid technological change in the semiconductor and disk media industries,
including the effects of significant competition in these industries, the normal
fluctuations in the Company's quarterly operating results, including the effects
of the Far East Joint Venture's results of operations. This is only a summary of
some of the important factors that could cause actual results to vary. For a
more complete description of these and other factors, refer to "Certain Factors
Affecting the Company's Business" elsewhere herein and in the Company's Form
10-K/A filed with the Securities and Exchange Commission. The Company undertakes
no obligation to update the information, including the forward-looking
statements, in the Form 10-Q.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
20
<PAGE> 22
SPEEDFAM INTERNATIONAL, INC.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit - 3.1 Amendment to the Articles of Incorporation
Exhibit - 4.1 First Supplemental Indenture by and among the
Registrant, Integrated Process Equipment Corp. and
State Street Bank and Trust Company of California,
N.A., as Trustee, dated April 6, 1999
Exhibit - 10.1 Employment Agreement between the Registrant and
Ralph Hartung, dated April 6, 1999
Exhibit - 27 Financial Data Schedule
(b) Reports on Form 8-K.
None
21
<PAGE> 23
SPEEDFAM INTERNATIONAL, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPEEDFAM INTERNATIONAL, INC.
/s/ Roger K. Marach
Date: April 14, 1999 -------------------------------------
By Roger K. Marach
Treasurer and Chief Financial Officer
(As Chief Accounting Officer and Duly
Authorized Officer of SpeedFam-IPEC,
Inc.)
22
<PAGE> 24
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------ -----------
3.1 Amendment to the Articles of Incorporation
4.1 First Supplemental Indenture by and among the Registrant,
Integrated Process Equipment Corp. and State Street Bank and
Trust Company of California, N.A., as Trustee, dated April 6,
1999
10.1 Employment Agreement between the Registrant and Ralph Hartung,
dated April 6, 1999
27 Financial Data Schedule
23
<PAGE> 1
Exhibit 3.1
CERTIFICATE OF AMENDMENT
The following resolution was approved by the Board of Directors of
SpeedFam International, Inc., an Illinois corporation (the "Company"), on
November 19, 1998, and approved by the shareholders of the Company on April 6,
1999:
RESOLVED, THAT: the amendment to the articles of incorporation of
SpeedFam International, Inc., which would amend article one to read:
"the name of the corporation is SPEEDFAM-IPEC, Inc." be approved.
The Certificate of Amendment effecting such amendment was filed with the
Illinois Secretary of State on April 6, 1999.
/s/ Frank S. Currie
-------------------------------------
Frank S. Currie
Secretary
SpeedFam-IPEC, Inc.
<PAGE> 1
Exhibit 4.1
INTEGRATED PROCESS EQUIPMENT CORP., Company
SPEEDFAM-IPEC, INC., Guarantor
and
STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A.
Trustee
FIRST SUPPLEMENTAL INDENTURE
Dated as of April 6, 1999
To
INDENTURE
Dated as of September 15, 1997
Relating to
Integrated Process Equipment Corp.
6-1/4% Convertible Subordinated Notes
due 2004
<PAGE> 2
This FIRST SUPPLEMENTAL INDENTURE, dated as of the 6th day of April, 1999,
by and among INTEGRATED PROCESS EQUIPMENT CORP., a corporation duly organized
and existing under the laws of the State of Delaware (the "Company"),
SPEEDFAM-IPEC, INC., a corporation duly organized and existing under the laws of
the State of Illinois (the "Guarantor"), and STATE STREET BANK AND TRUST COMPANY
OF CALIFORNIA, N.A., a national banking association organized under the laws of
the United States of America, and trustee under the Indenture (as hereinafter
defined) (the "Trustee").
WITNESSETH:
WHEREAS, the Company and the Trustee have heretofore entered into that
certain Indenture, dated as of September 15, 1997, providing for the issuance of
6-1/4% Convertible Subordinated Debentures due 2004 (the "Notes"), in the
aggregate principal amount not to exceed $115,000,000 (such Indenture, as
further supplemented or amended in accordance with its terms, herein the
"Indenture");
WHEREAS, the Company, SpeedFam, Inc., a Delaware corporation ("Merger
Sub"), and the Guarantor have entered into an Agreement and Plan of Merger,
dated as of November 19, 1998, as amended (the "Merger Agreement"), pursuant to
which Merger Sub will merge (the "Merger") with and into the Company, and the
Company will then become a wholly-owned subsidiary of the Guarantor, and each
share of the Company's Common Stock outstanding immediately prior to the
effective time of the Merger (the "Effective Time") will be converted into the
right to receive 0.71 shares of Common Stock of the Guarantor in accordance with
the terms of the Merger Agreement;
WHEREAS, Section 15.6 of the Indenture provides that, "If any of the
following events occur, namely (i) any reclassification or change of the
outstanding shares of Common Stock (other than a subdivision or combination to
which Section 15.5(c) applies), (ii) any consolidation, merger or combination of
the Company with another corporation as a result of which holders of Common
Stock shall be entitled to receive stock, securities or other property or assets
(including cash) with respect to or in exchange for such Common Stock, or (iii)
any sale or conveyance of the properties and assets of the Company as, or
substantially as, an entirety to any other corporation as a result of which
holders of Common Stock shall be entitled to receive stock, securities or other
property or assets (including cash) with respect to or in exchange for such
Common Stock, then the Company or the successor or purchasing corporation, as
the case may be, shall execute with the Trustee a supplemental indenture (which
shall comply with the Trust Indenture Act as in force at the date of execution
of such supplemental indenture) providing that such Note shall be convertible
into the kind and amount of shares of stock and other securities or property or
assets (including cash) receivable upon such reclassification, change,
consolidation, merger, combination, sale or conveyance by a holder of a number
of shares of Common Stock issuable upon conversion of such Notes (assuming, for
such purposes, a sufficient number of authorized shares of Common Stock
available to convert all such Notes) immediately prior to such reclassification,
change, consolidation, merger, combination, sale or conveyance assuming such
holder of Common Stock did not exercise
<PAGE> 3
his rights of election, if any, as to the kind or amount of securities, cash or
other property receivable upon such consolidation, merger, statutory exchange,
sale or conveyance (provided that, if the kind or amount of securities, cash or
other property receivable upon such consolidation, merger, statutory exchange,
sale or conveyance is not the same for each share of Common Stock in respect of
which such rights or election shall not have been exercised ("nonelecting
share")), then for purposes of this Section 15.6 the kind and amount of
securities, cash or other property receivable upon such consolidation, merger,
statutory exchange, sale or conveyance for each non-electing share shall be
deemed to be the kind and amount so receivable or share by a plurality of the
non-electing shares. Such supplemental indenture shall provide for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Article;"
WHEREAS, Section 12.1 of the Indenture permits the Company to merge with
another corporation provided certain conditions are satisfied;
WHEREAS, the Guarantor is willing to guarantee, on a subordinated basis as
set forth more fully herein, the payment of the principal of, premium, if any,
and interest on the Notes in order to preserve the exemption available under
Section 3(a)(9) of the Securities Act for the conversion of Notes into Common
Stock;
WHEREAS, Section 11.1 of the Indenture authorizes the Company, with the
consent of the Trustee, to supplement or amend the Indenture to comply with
Section 15.6 hereof and to correct or supplement provisions of or make other
provisions with respect to matters or questions arising under the Indenture that
do not adversely affect the rights of any Noteholder;
WHEREAS, the Company and the Guarantor desire to execute a supplemental
indenture that complies with Section 11.1 of the Indenture;
WHEREAS, all acts and things necessary to make this First Supplemental
Indenture a valid and binding agreement for the purposes and objects herein
expressed have been duly done and performed, and the execution of this First
Supplemental Indenture have been, in all respects, duly authorized;
WHEREAS, the foregoing recitals are made as representations or
statements of fact by the Company or the Guarantor, as applicable, and not by
the Trustee; and
WHEREAS, the Trustee is authorized by Section 11.1 of the Indenture to
execute this First Supplemental Indenture without the consent of the holders of
the Notes;
NOW, THEREFORE, in consideration of the premises and of other good and
valuable consideration, the receipt of which is hereby acknowledged, the
Company and the Guarantor hereby covenant and agree with the Trustee, for the
equal and proportionate benefit of the respective holders from time to time
of the Notes, as follows:
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ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.1 The [Form of Face of Note] in the Indenture is hereby amended
by deleting the reference to "Common Stock of the Company" that appears in the
second paragraph thereof and inserting in lieu thereof the words "Common Stock."
SECTION 1.2 The [Form of Reverse of Note] in the Indenture is hereby
amended by:
(a) Deleting the reference to "Common Stock of the Company" in the
third paragraph thereof and inserting in lieu thereof the words "Common Stock;"
(b) Deleting the reference to "Company's Common Stock" that appears
in the twelfth paragraph thereof and inserting in lieu thereof the words "Common
Stock;"
(c) Deleting the reference to "Common Stock of the Company" that
appears in the thirteenth paragraph thereof and inserting in lieu thereof the
words "Common Stock;" and
(d) Deleting the sixteenth paragraph and inserting in lieu thereof
the following paragraph:
No recourse for the payment of the principal of or any premium or
interest on this Note, or for any claim based hereon or otherwise in
respect hereof, and no recourse under or upon any obligation, covenant or
agreement of the Company or the Guarantor in the Note or any indenture
supplemental thereto or in any Note, or because of the creation of any
indebtedness represented thereby or the guarantee by the Guarantor
thereof, shall be had against any incorporator, stockholder, officer or
director, as such, past, present or future, of the Company or the
Guarantor or of any respective successor corporation, either directly or
through the Company or the Guarantor or any respective successor
corporation, whether by virtue of any constitution, statute or rule of law
or by the enforcement of any assessment or penalty or otherwise, all such
liability being, by the acceptance hereof and as part of the consideration
for the issue hereof, expressly waived and released; provided, however,
that the foregoing shall not affect or impair the obligations of the
Guarantor hereunder.
SECTION 1.3 The [Form of Conversion Notice] in the Indenture is hereby
amended by deleting the phrase "Common Stock of Integrated Process Equipment
Corp." and inserting in lieu thereof the words "Common Stock."
SECTION 1.4 The terms defined in this Section 1.4 (except as herein
otherwise expressly provided or unless the context otherwise requires) for all
purposes of this First Supplemental Indenture shall have the respective meanings
specified in this Section 1.4. All other terms used in this First Supplemental
Indenture which are defined in the Indenture, the Trust Indenture Act or which
are by reference therein defined in the Securities Act (except as herein
otherwise expressly provided or unless the context otherwise requires) shall
have the meanings assigned to such terms in
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said Trust Indenture Act and in said Securities Act as in force at the date of
the execution of this First Supplemental Indenture. The words "herein," "hereof"
and "hereunder," and words of similar import, refer to this First Supplemental
Indenture as a whole and not to any particular Article, Section or other
Subsection. The terms defined in this Article include the plural as well as the
singular.
(a) The definitions of the following words contained in Section 1.1
of the Indenture, are hereby amended by deleting them in their entirety and
inserting in lieu thereof the following respective definitions:
COMMON STOCK: The term "Common Stock" shall mean any stock of any
class of Guarantor which has no preference in respect of dividends or of
amounts payable in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Guarantor and which is not subject to
redemption by the Guarantor. Subject to the provisions of Section 15.6,
however, shares issuable on conversion of Notes shall include only shares
of the class designated as Common Stock of the Guarantor at the date of
this First Supplemental Indenture or shares of any class or classes
resulting from any reclassification or reclassifications thereof and which
have no preference in respect of dividends or of amounts payable in the
event of any voluntary or involuntary liquidation, dissolution or winding
up of the Guarantor and which are not subject to redemption by the
Guarantor; provided that if at any time there shall be more than one such
resulting class, the shares of each such class then so issuable shall be
substantially in the proportion which the total number of shares of such
class resulting from all such reclassifications bears to the total number
of shares of all such classes resulting from all such reclassifications.
CORPORATE TRUST OFFICE: The term "Corporate Trust Office", or other
similar term, shall mean the principal office of the Trustee at which at
any particular time its corporate trust business shall be principally
administered, which office is, at the date as of which this Indenture is
dated, located at 633 West Fifth Street, 12th Floor, Los Angeles,
California 90071, Attention: Corporate Trust Department.
REFERENCE MARKET PRICE: The term "Reference Market Price" shall
initially mean $28.17, and in the event of any adjustment to the
Conversion Price pursuant to Sections 15.5(a), (b), (c), (d), (e), (f) or
(g), the Reference Market Price shall also be adjusted so that the ratio
of the Reference Market Price to the Conversion Price after giving effect
to any such adjustment shall always be the same as the ratio of $28.17 to
the Conversion Price specified in the form of Note herein above set forth
(without regard to any adjustment thereto).
(b) Section 1.1 of the Indenture is hereby amended to add the
following definitions:
DESIGNATED GUARANTOR SENIOR INDEBTEDNESS: The term "Designated
Guarantor Senior Indebtedness" shall mean Guarantor Senior Indebtedness
under the Guarantor Loan Agreement or any other particular Guarantor
Senior Indebtedness in which the instrument creating or evidencing the
same or the assumption or guarantee thereof (or related agreements
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or documents to which the Company is a party) expressly provides that such
Guarantor Senior Indebtedness shall be "Designated Guarantor Senior
Indebtedness" for purposes of this Indenture (provided that such
instrument, agreement or other document may place limitations and
conditions on the right of such Guarantor Senior Indebtedness to exercise
the rights of Designated Guarantor Senior Indebtedness). If any payment
made to any holder of any Designated Guarantor Senior Indebtedness or its
Representative with respect to such Designated Guarantor Senior
Indebtedness is rescinded or must otherwise be returned by such holder or
Representative upon the insolvency, bankruptcy or reorganization of the
Guarantor or otherwise, the reinstated Indebtedness of the Guarantor
arising as a result of such rescission or return shall constitute
Designated Guarantor Senior Indebtedness effective as of the date of such
rescission or return.
GUARANTOR: The term "Guarantor" shall mean SpeedFam-Ipec, Inc.,
an Illinois corporation, and shall include its successors and assigns.
GUARANTOR LOAN AGREEMENT: The term "Guarantor Loan Agreement" shall
mean the credit facility to be entered into between the Guarantor and
First Chicago Capital Markets, Inc., a Bank One company, as further
amended, amended and restated, supplemented or otherwise modified from
time to time.
GUARANTOR SENIOR INDEBTEDNESS: The term "Guarantor Senior
Indebtedness" shall mean the principal of, premium, if any, and interest
on, and any other payment due pursuant to the terms of any instrument
(including, without limitation, fees, expenses, collection expenses
(including attorneys' fees), interest yield amounts, post-petition
interest and taxes) creating, securing or evidencing any of the following,
whether outstanding at the date hereof or hereafter incurred or created:
(a) all indebtedness of the Guarantor for money borrowed
(including any indebtedness secured by a mortgage, conditional sales
contract or other lien which is (i) given to secure all or part of
the purchase price of property subject thereto, whether given to the
vendor of such property or to another or (ii) existing on property
at the time of acquisition thereof);
(b) all indebtedness of the Guarantor evidenced by notes,
debentures, bonds or other similar instruments;
(c) all indebtedness or other obligations of the Guarantor
with respect to interest rate swap agreements, cap, floor and collar
agreements, spot and forward contracts, and similar agreements and
arrangements;
(d) all indebtedness or other obligations of the Guarantor
with respect to letters of credit (including reimbursement
obligations with respect thereto), bank guarantees and bankers'
acceptances;
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(e) all lease obligations of the Guarantor which are
capitalized on the books of the Guarantor in accordance with
generally accepted accounting principles;
(f) all indebtedness of others of the kinds described in the
preceding clauses (a), (b), (c) or (d) and all lease obligations of
others of the kind described in the preceding clause (e) assumed by
or guaranteed in any manner by the Guarantor or in effect guaranteed
by the Guarantor through an agreement to purchase, contingent or
otherwise; and
(g) all renewals, extensions or refundings of indebtedness of
the kinds described in any of the preceding clauses (a), (b), (c),
(d), or (f) and all renewals or extensions of lease obligations of
the kinds described in either of the preceding clauses (e) or (f);
unless, in the case of a particular indebtedness, lease, renewal, extension or
refunding, the instrument or lease creating or evidencing the same or the
assumption or guarantee of the same expressly provides that such indebtedness,
lease, renewal, extension or refunding is not superior in right of payment to or
is pari passu with or is subordinated or junior to, the Guarantor's obligations
under the Guaranty. Notwithstanding the foregoing, Guarantor Senior Indebtedness
shall not include: (i) indebtedness evidenced by the Guaranty or otherwise in
respect of the Notes; (ii) any indebtedness or lease obligation of any kind of
the Guarantor to any subsidiary of the Guarantor; and (iii) indebtedness for
trade payables or constituting the deferred purchase price of assets or services
created or assumed by the Guarantor in the ordinary course of business.
GUARANTY: The term "Guaranty" shall mean the guarantee of the
Guarantor pursuant to Section 17.1 hereof.
SUBSIDIARY: The term "subsidiary" of any specified person shall mean
(i) a corporation a majority of whose capital stock with voting power
under ordinary circumstances, to elect directors is at the time directly
or indirectly owned by such person, or (ii) any other person (other than a
corporation) in which such person or such person and a subsidiary or
subsidiaries of such person or a subsidiary or subsidiaries of such person
directly or indirectly, at the date of determination thereof, has at least
majority ownership.
ARTICLE II
CONVERSION OF NOTES
SECTION 2.1 As a result of the Merger and without any action on the part
of the holder of any Note, on and after the Effective Time each $1,000 principal
amount of Notes shall be convertible into shares of Common Stock of the
Guarantor, in accordance with the provisions of Article XV of the Indenture, at
an initial Conversion Price per share of $54.93, such Conversion Price being
subject to subsequent adjustment after the Effective Time in accordance with the
provisions of Article XV of the Indenture.
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SECTION 2.2 Section 15.2 of the Indenture is hereby amended by adding the
words "or shall cause the Guarantor to" immediately after the words "the Company
shall" that appear in the first sentence of the third paragraph thereof.
SECTION 2.3 Subsections (a) through (g) of Section 15.5 of the Indenture
are hereby amended by deleting all references therein to "the Company" and
inserting in lieu thereof "the Guarantor."
SECTION 2.4 Section 15.6 of the Indenture is hereby amended by deleting
the first paragraph of such Section in its entirety and inserting in lieu
thereof the following:
SECTION 15.6 EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE. If any of the following events occur, namely (i) any
reclassification or change of outstanding shares of Common Stock (other
than a subdivision or combination to which Section 15.5(c) applies), (ii)
any consolidation, merger or combination of the Guarantor with another
corporation as a result of which holders of Common Stock shall be entitled
to receive stock, securities or other property or assets (including cash)
with respect to or in exchange for such Common Stock, or (iii) any sale or
conveyance of the properties and assets of the Guarantor as, or
substantially as, an entirety to any other corporation as a result of
which holders of Common Stock shall be entitled to receive stock,
securities or other property or assets (including cash) with respect to or
in exchange for such Common Stock, then the Company or the successor or
purchasing corporation, as the case may be, shall execute with the Trustee
a supplemental indenture (which shall conform to the Trust Indenture Act
as in force at the date of execution of such supplemental indenture)
providing that such Note shall be convertible into the kind and amount of
shares of stock and other securities or property or assets (including
cash) receivable upon such reclassification, change, consolidation,
merger, combination, sale or conveyance by a holder of a number of shares
of Common Stock issuable upon conversion of such Notes (assuming, for such
purposes, a sufficient number of authorized shares of Common Stock
available to convert all such Notes) immediately prior to such
reclassification, change, consolidation, merger, combination, sale or
conveyance assuming such holder of Common Stock did not exercise his
rights of election, if any, as to the kind or amount of securities, cash
or other property receivable upon such consolidation, merger, statutory
exchange, sale or conveyance (provided that, if the kind or amount of
securities, cash or other property receivable upon such consolidation,
merger, statutory exchange, sale or conveyance is not the same for each
share of Common Stock in respect of which such rights or election shall
not have been exercised ("nonelecting share")), then for purposes of this
Section 15.6 the kind and amount of securities, cash or other property
receivable upon such consolidation, merger, statutory exchange, sale or
conveyance for each non-electing share shall be deemed to be the kind and
amount so receivable or share by a plurality if the non-electing shares.
Such supplemental indenture shall provide for adjustments which shall be
as nearly equivalent as may be practicable to the adjustments provided for
in this Article.
SECTION 2.5 Section 15.8 of the Indenture is hereby amended by deleting such
Section in its entirety and inserting in lieu thereof the following:
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SECTION 15.8 RESERVATION OF SHARES; SHARES TO BE FULLY PAID;
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS; LISTING OF COMMON STOCK. The
Company shall use its best efforts to (a) cause the Guarantor to provide,
free from preemptive rights, out of its authorized but unissued shares or
shares held in treasury or (b) otherwise make available sufficient shares
to provide for the conversion of the Notes from time to time as such Notes
are presented for conversion.
Before the taking of any action by the Guarantor which would cause
an adjustment reducing the Conversion Price below the then par value, if
any, of the shares of Common Stock issuable upon conversion of the Notes,
the Company shall cause the Guarantor to take all corporate action which
may, in the opinion of the Company's counsel, be necessary in order that
the shares of Common Stock issuable or otherwise deliverable upon
conversion of the Notes may be validly and legally issued or delivered (as
the case may be) at such adjusted Conversion Price.
The Company covenants that all shares of Common Stock which may be
issued or otherwise delivered upon conversion of Notes will, when so
issued or delivered, be fully paid and nonassessable by the Guarantor and
the Company and free from all taxes, liens and charges with respect to the
issue or delivery thereof.
The Company covenants that if any shares of Common Stock to be
provided for the purpose of conversion of Notes hereunder require
registration with or approval of any governmental authority under any
federal or state law before such shares may be validly issued upon
conversion, the Company will in good faith and as expeditiously as
possible endeavor to secure such registration or approval, as the case may
be.
The Company further covenants that if at any time Common Stock shall
be listed on the Nasdaq National Market or any other national securities
exchange or automated quotation system the Company will, or shall cause
the Guarantor to, if permitted by the rules of such exchange or automated
quotation system, list and keep listed so long as the Common Stock shall
be so listed on such exchange or automated quotation system, all Common
Stock issuable upon conversion of the Notes; provided, however, that if
rules of such exchange or automated quotation system permit the Company or
the Guarantor to defer the listing of such Common Stock until the first
conversion of the Notes into Common Stock in accordance with the
provisions of this Indenture, the Company covenants to list such Common
Stock issuable upon conversion of the Notes in accordance with the
requirements of such exchange or automated quotation system at such time.
SECTION 2.6 Section 15.10 of the Indenture is hereby amended by deleting
all references to "the Company" in clauses (a) through (d) thereof and inserting
in lieu thereof the words "the Guarantor."
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ARTICLE III
CERTAIN COVENANTS OF THE GUARANTOR
SECTION 3.1 The Guarantor hereby covenants and warrants that (a)
immediately after the Effective Time, no condition or event shall exist which
constitutes or would, after notice or lapse of time or both, constitute a
Default or an Event of Default (both as defined in the Indenture), (b) it has
complied, or has caused the Company to comply, and will comply, or will cause
the Company to comply, with all applicable provisions of Article XV of the
Indenture and (c) it has been authorized by its Board of Directors, pursuant to
Section 11.1 of the Indenture, to execute this First Supplemental Indenture.
ARTICLE IV
GUARANTY OF NOTES
SECTION 4.1 GUARANTY OF NOTES. The Indenture is hereby amended to add the
following provisions as a new Article XVII to be inserted immediately following
Article XVI of the Indenture. Article XVII shall apply to the Notes only.
ARTICLE XVII
SUBORDINATED GUARANTY OF NOTES
SECTION 17.1 GUARANTY. Subject to the provisions of this Article XVII, the
Guarantor hereby unconditionally guarantees, on a subordinated basis as set
forth more fully in this Article XVII, to each holder of a Note authenticated
and delivered by the Trustee in accordance with this Indenture (i) the due and
punctual payment of the principal of, premium, if any, and interest (including
interest on other amounts which may accrue after the filing against the Company
of a petition under the United States Bankruptcy Code (the "Bankruptcy Code"),
whether or not the obligation to pay interest on such amounts shall be
enforceable against the Company) on such Note, when and as the same shall become
due and payable, whether at maturity, by acceleration or otherwise, the due and
punctual payment of interest on the overdue principal of, premium and interest,
if any, on such Note, to the extent lawful, and the due and punctual performance
of all other obligations of the Company to the holders or the Trustee all in
accordance with the terms of such Note and of this Indenture, and (ii) in the
case of any extension of time of payment or renewal of any such Note or any of
such other obligations, that the same will be promptly paid in full when due or
performed in accordance with the terms of the extension or renewal, at stated
maturity, by acceleration or otherwise. A demand for payment under this Article
XVII shall not be effective prior to forty-eight (48) hours after a demand upon
the Company for full and complete payment of all amounts due and payable under
the Notes, unless such demand upon the Company shall be stayed by operation of
Section 362 of the Bankruptcy Code or otherwise. In all other respects, the
Guarantor hereby agrees that its obligations hereunder shall be absolute and
unconditional, irrespective of, and
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shall be unaffected by, any invalidity, irregularity or unenforceability of any
such Note or this Indenture, any failure to enforce the provisions of any such
Note or this Indenture, any waiver, modification or indulgence granted to the
Company with respect thereto, by the holder of such Note or the Trustee, or any
other circumstances which may otherwise constitute a legal or equitable
discharge of a surety or guarantor. The Guarantor hereby waives diligence,
presentment, filing of claims with a court in the event of merger or bankruptcy
of the Company, any right to require a proceeding first against the Company, the
benefit of discussion, protest or notice with respect to any such Note or the
debt evidenced thereby and all demands whatsoever (except as specified above),
and covenants, that this Guaranty will not be discharged as to any such Note
except by payment in full of the principal thereof, premium if any, and interest
thereon. The Guarantor further agrees that, as between the Guarantor, on the one
hand, and the Noteholder and the Trustee, on the other hand, (i) the maturity of
the obligations guaranteed hereby may be accelerated as provided in Article VII
hereof for the purposes of this Guaranty notwithstanding any stay, injunction or
other prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, provided that notice of such acceleration has been given to
the Guarantor by the Trustee, and (ii) in the event of any declarations of
acceleration of such obligations as provided in Article VII hereof, such
obligations (whether or not due and payable) shall forthwith become due and
payable by the Guarantor for the purpose of this Guaranty.
The Guarantor shall be subrogated to all rights of the holders of any
Notes against the Company in respect of any amounts paid to the Noteholder by
the Guarantor pursuant to the provisions of this Guaranty; provided that the
Guarantor shall not be entitled to enforce, or to receive any payments arising
out of or based upon, such right of subrogation until the principal of, premium,
if any, and interest on all the Notes shall have been paid in full and until all
amounts payable under any Senior Indebtedness shall have been paid in full.
SECTION 17.2 AGREEMENT OF SUBORDINATION. The Guarantor covenants and
agrees, and each holder of Notes issued hereunder by its acceptance thereof
likewise covenants and agrees, that all Notes are subject to the provisions of
this Article XVII; and each Person holding any Note, whether upon original issue
or upon transfer, assignment or exchange thereof, accepts and agrees to be bound
by such provisions.
The payment of the principal of, premium, if any, and interest (including
Liquidated Damages, if any) on all Notes (including, but not limited to, the
redemption price with respect to the Notes called for redemption in accordance
with Section 3.2 or submitted for redemption in accordance with Section 3.5, as
the case may be, as provided in the Indenture) issued hereunder shall, to the
extent and in the manner hereinafter set forth, be subordinated and subject in
right of payment to the prior payment in full of all Guarantor Senior
Indebtedness, whether outstanding at the date of this Indenture or thereafter
incurred.
No provision of this Article XVII shall prevent the occurrence of any
default or Event of Default hereunder.
SECTION 17.3 PAYMENTS TO NOTEHOLDERS. No payment shall be made with
respect to the principal of, premium, if any, or interest (including Liquidated
Damages, if any) on the Notes
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(including, but not limited to, the redemption price with respect to the Notes
to be called for redemption in accordance with Section 3.2 or submitted for
redemption in accordance with Section 3.5, as the case may be, as provided in
this Indenture), except payments and distributions made by the Trustee as
permitted by the first or second paragraph of Section 17.6, if:
(i) a default in the payment of principal, premium, if any,
interest, rent or other obligations in respect of Guarantor Senior Indebtedness
occurs and is continuing (or, in the case of Guarantor Senior Indebtedness for
which there is a period of grace, in the event of such a default that continues
beyond the period of grace, if any, specified in the instrument or lease
evidencing such Senior Indebtedness) (a "Payment Default"), unless and until
such Payment Default shall have been cured or waived or shall have ceased to
exist; or
(ii) a default, other than a Payment Default, on any
Designated Guarantor Senior Indebtedness occurs and is continuing that then
permits holders of such Designated Guarantor Senior Indebtedness to accelerate
its maturity and the Trustee receives a notice of the default (a "Payment
Blockage Notice") from a holder of Designated Guarantor Senior Indebtedness, a
Representative of Designated Guarantor Senior Indebtedness or the Guarantor (a
"Non-Payment Default").
If the Trustee receives any Payment Blockage Notice pursuant to clause
(ii) above, no subsequent Payment Blockage Notice shall be effective for
purposes of this Section 17.3 unless and until (A) at least 365 days shall have
elapsed since the initial effectiveness of the immediately prior Payment
Blockage Notice and (B) all scheduled payments of principal, premium, if any,
and interest (including Liquidated Damages, if any) on the Notes that have come
due have been paid in full in cash. No Non-Payment Default that existed or was
continuing on the date of delivery of any Payment Blockage Notice to the Trustee
shall be, or be made, the basis for a subsequent Payment Blockage Notice.
The Guarantor may and shall resume payments on and distributions in
respect of the Notes upon the earlier of:
(1) the date upon which any such Payment Default is cured or waived or
ceases to exist, or
(2) in the case of a Non-Payment Default, the earlier of (a) the date
upon which such default is cured or waived or ceases to exist or (b)
179 days after notice is received if the maturity of such Designated
Guarantor Senior Indebtedness has not been accelerated,
unless this Article XVII otherwise prohibits the payment or distribution at the
time of such payment or distribution.
Upon any payment by the Guarantor, or distribution of assets of the
Guarantor of any kind or character, whether in cash, property or securities, to
creditors upon any dissolution or winding up or
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liquidation or reorganization of the Guarantor, whether voluntary or involuntary
or in bankruptcy, insolvency, receivership or other proceedings, all amounts due
or to become due upon all Guarantor Senior Indebtedness shall first be paid in
full in cash or other payment satisfactory to the holders of such Guarantor
Senior Indebtedness, or payment thereof in accordance with its terms provided
for in cash or other payment satisfactory to the holders of such Guarantor
Senior Indebtedness before any payment is made on account of the principal of,
premium, if any, or interest (including Liquidated Damages, if any) on the Notes
(except payments made pursuant to Article XIII from monies deposited with the
Trustee pursuant thereto prior to commencement of proceedings for such
dissolution, winding up, liquidation or reorganization); and upon any such
dissolution or winding up or liquidation or reorganization of the Guarantor or
bankruptcy, insolvency, receivership or other proceeding, any payment by the
Guarantor, or distribution of assets of the Guarantor of any kind or character,
whether in cash, property or securities, to which the holders of the Notes or
the Trustee would be entitled, except for the provision of this Article XVII,
shall (except as aforesaid) be paid by the Guarantor or by any receiver, trustee
in bankruptcy, liquidating trustee, agent or other Person making such payment or
distribution, or by the holders of the Notes or by the Trustee under this
Indenture if received by them or it, directly to the holders of Guarantor Senior
Indebtedness (pro rata to such holders on the basis of the respective amounts of
Guarantor Senior Indebtedness held by such holders, or as otherwise required by
law or a court order) or their representative or representatives, or to the
trustee or trustees under any indenture pursuant to which any instruments
evidencing any Guarantor Senior Indebtedness may have been issued, as their
respective interests may appear, to the extent necessary to pay all Guarantor
Senior Indebtedness in full, in cash or other payment satisfactory to the
holders of such Guarantor Senior Indebtedness, after giving effect to any
concurrent payment or distribution to or for the holders of Guarantor Senior
Indebtedness, before any payment or distribution is made to the holders of the
Notes or to the Trustee.
For purposes of this Article XVII, the words, "cash, property or
securities" shall not be deemed to include shares of stock of the Guarantor as
reorganized or readjusted, or securities of the Guarantor or any other
corporation provided for by a plan of reorganization or readjustment, the
payment of which is subordinated at least to the extent provided in this Article
XVII with respect to the Notes to the payment of all Guarantor Senior
Indebtedness which may at the time be outstanding; provided that (i) the
Guarantor Senior Indebtedness is assumed by the new corporation, if any,
resulting from any reorganization or readjustment, and (ii) the rights of the
holders of Guarantor Senior Indebtedness (other than leases which are not
assumed by the Guarantor or the new corporation, as the case may be) are not,
without the consent of such holders, altered by such reorganization or
readjustment. The consolidation of the Guarantor with, or the merger of the
Guarantor into, another corporation or the liquidation or dissolution of the
Guarantor following the conveyance or transfer of its property as an entirety,
or substantially as an entirety, to another corporation upon the terms and
conditions provided for in Article XII shall not be deemed a dissolution.
winding-up, liquidation or reorganization for the purposes of this Section 17.3
if such other corporation shall, as a part of such consolidation, merger,
conveyance or transfer, comply with the conditions stated in Article XII.
In the event of the acceleration of the Notes because of an Event of
Default, no payment or distribution shall be made to the Trustee or any holder
of Notes in respect of the principal of, premium, if any, or interest (including
Liquidated Damages, if any) on the Notes (including, but not
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limited to, the redemption price with respect to the Notes called for redemption
in accordance with Section 3.2 or submitted for redemption in accordance with
Section 3.5, as the case may be, as provided in the Indenture), except payments
and distributions made by the Trustee as permitted by the first or second
paragraph of Section 17.6, until all Guarantor Senior Indebtedness has been paid
in full in cash or other payment satisfactory to the holders of Guarantor Senior
Indebtedness or such acceleration is rescinded in accordance with the terms of
this Indenture. If payment of the Notes is accelerated because of an Event of
Default, the Guarantor shall promptly notify holders of Guarantor Senior
Indebtedness of the acceleration.
In the event that, notwithstanding the foregoing provisions, any payment
or distribution of assets of the Guarantor of any kind or character, whether in
cash, property or securities (including, without limitation, by way of setoff or
otherwise), prohibited by the foregoing provisions in this Section 17.3, shall
be received by the Trustee or the holders of the Notes before all Guarantor
Senior Indebtedness is paid in full in cash or other payment satisfactory to the
holders of such Guarantor Senior Indebtedness, or provision is made for such
payment thereof in accordance with its terms in cash or other payment
satisfactory to the holders of such Guarantor Senior Indebtedness, such payment
or distribution shall be held in trust for the benefit of and shall be paid over
or delivered to the holders of Guarantor Senior Indebtedness or their
representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing any Guarantor Senior
Indebtedness may have been issued, as their respective interests may appear, as
calculated by the Guarantor, for application to the payment of any Guarantor
Senior Indebtedness remaining unpaid to the extent necessary to pay all
Guarantor Senior Indebtedness in full in cash or other payment satisfactory to
the holders of such Guarantor Senior Indebtedness, after giving effect to any
concurrent payment or distribution to or for the holders of such Guarantor
Senior Indebtedness.
Nothing in this Section 17.3 shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 8.6. This Section 17.3 shall be subject to
the further provisions of Section 17.6.
SECTION 17.4 SUBROGATION OF NOTES. Subject to the payment in full of all
Guarantor Senior Indebtedness, the rights of the holders of the Notes shall be
subrogated to the extent of the payments or distributions made to the holders of
such Guarantor Senior Indebtedness pursuant to the provisions of this Article
XVII (equally and ratably with the holders of all indebtedness of the Guarantor
which by its express terms is subordinated to other indebtedness of the
Guarantor to substantially the same extent as the Notes are subordinated and is
entitled to like rights of subrogation) to the rights of the holders of
Guarantor Senior Indebtedness to receive payments or distributions of cash,
property or securities of the Guarantor applicable to the Guarantor Senior
Indebtedness until the principal, premium, if any, and interest (including
Liquidated Damages, if any) on the Notes shall be paid in full; and, for the
purposes of such subrogation, no payments or distributions to the holders of the
Guarantor Senior Indebtedness of any cash, property or securities to which the
holders of the Notes or the Trustee would be entitled except for the provisions
of this Article XVII, and no payment over pursuant to the provisions of this
Article XVII, to or for the benefit of the holders of Guarantor Senior
Indebtedness by holders of the Notes or the Trustee, shall, as between the
Guarantor, its creditors other than holders of Guarantor Senior Indebtedness,
and the holders of the Notes, be deemed to be a payment by the Guarantor to or
on account of the Guarantor Senior Indebtedness; and no payments or
distributions of cash, property or securities to or for the
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<PAGE> 15
benefit of the holders of the Notes pursuant to the subrogation provisions of
this Article XVII, which would otherwise have been paid to the holders of
Guarantor Senior Indebtedness shall be deemed to be a payment by the Guarantor
to or for the account of the Notes. It is understood that the provisions of this
Article XVII are and are intended solely for the purposes of defining the
relative rights of the holders of the Notes, on the one hand, and the holders of
the Guarantor Senior Indebtedness, on the other hand.
Nothing contained in this Article XVII or elsewhere in this Indenture or
in the Notes is intended to or shall impair, as among the Guarantor, its
creditors other than the holders of Guarantor Senior Indebtedness, and the
holders of the Notes, the obligation of the Guarantor, which is absolute and
unconditional, to pay to the holders of the Notes the principal of, premium, if
any, and interest (including Liquidated Damages, if any) on the Notes as and
when the same shall become due and payable in accordance with their terms, or is
intended to or shall affect the relative rights of the holders of the Notes and
creditors of the Guarantor other than the holders of the Guarantor Senior
Indebtedness, nor shall anything herein or therein prevent the Trustee or the
holder of any Note from exercising all remedies otherwise permitted by
applicable law upon default under this Indenture, subject to the rights, if any,
under this Article XVII of the holders of Guarantor Senior Indebtedness in
respect of cash, property or securities of the Guarantor received upon the
exercise of any such remedy.
Upon any payment or distribution of assets of the Guarantor referred to in
this Article XVII, the Trustee, subject to the provisions of Section 8.1, and
the holders of the Notes shall be entitled to rely upon any order or decree made
by any court of competent jurisdiction in which such bankruptcy, dissolution,
winding up, liquidation or reorganization proceedings are pending, or a
certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent
or other person making such payment or distribution, delivered to the Trustee or
to the holders of the Notes, for the purpose of ascertaining the persons
entitled to participate in such distribution, the holders of the Guarantor
Senior Indebtedness and other indebtedness of the Guarantor, the amount thereof
or payable thereon and all other facts pertinent thereto or to this Article
XVII.
SECTION 17.5 AUTHORIZATION TO EFFECT SUBORDINATION. Each holder of a Note
by the holder's acceptance thereof authorizes and directs the Trustee on the
holder's behalf to take such action as may be necessary or appropriate to
effectuate the subordination as provided in this Article XVII and appoints the
Trustee to act as the holder's attorney-in-fact for any and all such purposes.
If the Trustee does not file a proper proof of claim or proof of debt in the
form required in any proceeding referred to in the third paragraph of Section
7.2 hereof at least thirty (30) days before the expiration of the time to file
such claim, the holders of any Guarantor Senior Indebtedness or their
representatives are hereby authorized to file an appropriate claim for and on
behalf of the holders of the Notes.
SECTION 17.6 NOTICE TO TRUSTEE. The Guarantor shall give prompt written
notice in the form of an Officers' Certificate to a Responsible Officer of the
Trustee and to any paying agent of any fact known to the Guarantor which would
prohibit the making of any payment of monies to or by the Trustee or any paying
agent in respect of the Notes pursuant to the provisions of this Article XVII.
Notwithstanding the provisions of this Article XVII or any other provision of
this Indenture,
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<PAGE> 16
the Trustee shall not be charged with knowledge of the existence of any facts
which would prohibit the making of any payment of monies to or by the Trustee in
respect of the Notes pursuant to the provisions of this Article XVII, unless and
until a Responsible Officer of the Trustee shall have received written notice
thereof at the Corporate Trust Office from the Guarantor (in the form of an
Officers' Certificate) or a Representative or a holder or holders of Guarantor
Senior Indebtedness or from any trustee thereof; and before the receipt of any
such written notice, the Trustee, subject to the provisions of Section 8.1,
shall be entitled in all respects to assume that no such facts exist; provided
that if on a date not less than two Business Days prior to the date upon which
by the terms hereof any such monies may become payable for any purpose
(including, without limitation, the payment of the principal of, or premium, if
any, or interest (including Liquidated Damages, if any) on any Note) the Trustee
shall not have received, with respect to such monies, the notice provided for in
this Section 17.6, then, anything herein contained to the contrary
notwithstanding, the Trustee shall have full power and authority to apply moneys
received to the purpose for which they were received, and shall not be affected
by any notice to the contrary which may be received by it on or after such prior
date.
Notwithstanding anything in this Article XVII to the contrary, nothing
shall prevent any payment by the Trustee to the Noteholders of monies deposited
with it pursuant to Section 13.1, and any such payment shall not be subject to
the provisions of Section 17.2 or 17.3.
The Trustee, subject to the provisions of Section 8.1, shall be entitled
to rely on the delivery to it of a written notice by a Representative or a
person representing himself to be a holder of Guarantor Senior Indebtedness (or
a trustee on behalf of such holder) to establish that such notice has been given
by a Representative or a holder of Guarantor Senior Indebtedness or a trustee on
behalf of any such holder or holders. The Trustee shall not be required to make
any payment or distribution to or on behalf of a holder of Guarantor Senior
Indebtedness pursuant to this Article XVII unless it has received satisfactory
evidence as to the amount of Guarantor Senior Indebtedness held by such person,
the extent to which such person is entitled to participate in such payment or
distribution and any other facts pertinent to the rights of such person under
this Article XVII.
SECTION 17.7 TRUSTEE'S RELATION TO GUARANTOR SENIOR INDEBTEDNESS. The
Trustee in its individual capacity shall be entitled to all the rights set forth
in this Article XVII in respect of any Guarantor Senior Indebtedness at any time
held by it, to the same extent as any other holder of Guarantor Senior
Indebtedness, and nothing in Section 8.13 or elsewhere in this Indenture shall
deprive the Trustee of any of its rights as such holder.
With respect to the holders of Guarantor Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article XVII, and no implied covenants or
obligations with respect to the holders of Guarantor Senior Indebtedness shall
be read into this Indenture against the Trustee. The Trustee shall not be deemed
to owe any fiduciary duty to the holders of Guarantor Senior Indebtedness and,
subject to the provisions of Section 8.1, the Trustee shall not be liable to any
holder of Guarantor Senior Indebtedness (i) for any failure to make any payments
or distributions to such holder or (ii) if it shall pay over or deliver to
holders of Notes, the Guarantor or any other person money or assets to which any
holder of Guarantor Senior Indebtedness shall be entitled by virtue of this
Article XVII or otherwise.
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<PAGE> 17
SECTION 17.8 NO IMPAIRMENT OF SUBORDINATION. No right of any present or
future holder of any Guarantor Senior Indebtedness to enforce subordination as
herein provided shall at any time in an way be prejudiced or impaired by any act
or failure to act on the part of the Guarantor or by any act or failure to act,
in good faith, by any such holder, or by any noncompliance by the Guarantor with
the terms, provisions and covenants of this Indenture, regardless of any
knowledge thereof which any such holder may have or otherwise be charged with.
SECTION 17.9 CERTAIN CONVERSIONS NOT DEEMED PAYMENT. For the purposes of
this Article XVII only, (1) the issuance and delivery of junior securities upon
conversion of Notes in accordance with Article XV shall not be deemed to
constitute a payment or distribution on account of the principal of, premium, if
any, or interest (including Liquidated Damages, if any) on Notes or on account
of the purchase or other acquisition of Notes, and (2) the payment, issuance or
delivery of cash (except in satisfaction of fractional shares pursuant to
Section 15.3), property or securities (other than junior securities) upon
conversion of a Note shall be deemed to constitute payment on account of the
principal of, premium, if any, or interest (including Liquidated Damages, if
any) on such Note. For the purposes of this Section 17.9, the term "junior
securities" means (a) shares of any stock of any class of the Guarantor or (b)
securities of the Guarantor that are subordinated in right of payment to all
Guarantor Senior Indebtedness that may be outstanding at the time of issuance or
delivery of such securities to substantially the same extent as, or to a greater
extent than, the Notes are so subordinated as provided in this Article. Nothing
contained in this Article XVII or elsewhere in this Indenture or in the Notes is
intended to or shall impair, as among the Guarantor, its creditors (other than
holders of Guarantor Senior Indebtedness) and the Noteholders, the right, which
is absolute and unconditional, of the Holder of any Note to convert such Note in
accordance with Article XV.
SECTION 17.10 ARTICLE APPLICABLE TO PAYING AGENTS. If at any time any
paying agent other than the Trustee shall have been appointed by the Guarantor
and be then acting hereunder, the term "Trustee" as used in this Article shall
(unless the context otherwise requires) be construed as extending to and
including such paying agent within its meaning as fully for all intents and
purposes as if such paying agent were named in this Article in addition to or in
place of the Trustee; provided, however, that the first paragraph of Section
17.6 shall not apply to the Guarantor or any Affiliate of the Guarantor if it or
such Affiliate acts as paying agent.
The Trustee shall not be responsible for the actions or inactions of any
other paying agents (including the Guarantor if acting as its own paying agent)
and shall have no control of any funds held by such other paying agents.
SECTION 17.11 GUARANTOR SENIOR INDEBTEDNESS ENTITLED TO RELY. The holders
of Guarantor Senior Indebtedness (including, without limitation, Designated
Guarantor Senior Indebtedness) shall have the right to rely upon this Article
XVII, and no amendment or modification of the provisions contained herein shall
diminish the rights of such holders unless such holders shall have agreed in
writing thereto.
SECTION 17.12 RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF
LIQUIDATING AGENT. Upon any payment or distribution of assets of the
Guarantor referred to in this Article, the Trustee and the
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<PAGE> 18
Noteholders shall be entitled to rely upon any order or decree entered by any
court of competent jurisdiction in which such insolvency, bankruptcy,
receivership, liquidation, reorganization, dissolution, winding up or similar
case or proceeding is pending, or a certificate of the trustee in bankruptcy,
liquidating trustee, custodian, receiver, assignee for the benefit of creditors,
agent or other person making such payment or distribution, delivered to the
Trustee or to the Noteholders, for the purpose of ascertaining the persons
entitled to participate in such payment or distribution, the holders of
Guarantor Senior Indebtedness and other indebtedness of the Guarantor, the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article.
ARTICLE V
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS
SECTION 5.1 IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND
DIRECTORS. Article XIV of the Indenture is hereby amended by deleting in
entirety Article Fourteen and inserting in lieu thereof the following Article
XIV:
ARTICLE XIV
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS
SECTION 14.1 INDENTURE AND NOTES SOLELY CORPORATE OBLIGATIONS. No recourse
for the payment of the principal of or premium, if any, or interest on any Note,
or for any claim based thereon or otherwise in respect thereof, and no recourse
under or upon any obligation, covenant or agreement of the Company or the
Guarantor in this Indenture or in any supplemental indenture, or in any Note, or
because of the creation of any indebtedness represented thereby or the guarantee
by the Guarantor thereof, shall be had against any incorporator, stockholder,
employee, agent, officer or director or subsidiary, as such, past, present or
future, of the Company or the Guarantor or of any respective successor
corporation, either directly or through the Company or the Guarantor or any
respective successor corporation, whether by virtue of any constitution, statute
or rule of law, or by the enforcement of any assessment or penalty or otherwise;
it being expressly understood that all such liability is hereby expressly waived
and released as a condition of, and as a consideration for, the execution of
this Indenture and the issue of the Notes; provided, however, that the foregoing
shall not affect or impair the obligations of the Guarantor hereunder.
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<PAGE> 19
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.1 This First Supplemental Indenture shall become effective at
the Effective Time and shall be automatically null and void if and in the event
that the Merger shall not become effective on or prior to April 16, 1999.
SECTION 6.2 This First Supplemental Indenture shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to the principles of conflicts of laws thereof.
SECTION 6.3 Except as expressly contemplated by Sections 1.2(d) and 5.1
hereof, nothing in this First Supplemental Indenture, expressed or implied,
shall give or be construed to give any person, firm or corporation, other than
the parties hereto and their successors hereunder, and the holders of the Notes
or the holders of Guarantor Senior Indebtedness, any legal or equitable right,
remedy or claim under or in respect to this First Supplemental Indenture, or
under any covenant, condition or provision herein contained; all such covenants,
conditions and provisions being for the sole benefit of the parties hereto and
their successors hereunder and the holders of the Notes.
SECTION 6.4 The Trustee accepts the amendment of the Indenture effected by
this First Supplemental Indenture and agrees to execute the trust created by the
Indenture as hereby amended, but only upon the terms and conditions set forth in
the Indenture, including the terms and provisions defining and limiting the
liabilities and responsibilities of the Trustee, which terms and provisions
shall in like manner define and limit its liabilities and responsibilities in
the performance of the trust created by the Indenture as hereby amended.
SECTION 6.5 After the Effective Time, any Notes authenticated and
delivered in substitution for, or in lieu of, Notes then outstanding and all
Notes presented or delivered to the Trustee on and after the Effective Time for
such purpose shall be either restated to give the effect to the First
Supplemental Indenture or, in lieu thereof, stamped with a notation
substantially as follows:
The principal amount of this Note has become convertible into
shares of the Common Stock, without par value per share, of
SpeedFam-Ipec, Inc., at an initial Conversion Price per share of
$54.93, such Conversion Price being subject to certain adjustments
as set forth in the Indenture. Reference herein to "Common Stock of
the Company" or the "Company's Common Stock" shall be deemed to be
to the Common Stock of SpeedFam-Ipec, Inc. The payment of principal
of, premium, if any, and interest on the Notes has been guaranteed
by SpeedFam-Ipec, Inc. on a subordinated basis as set forth in the
Indenture. The Indenture, dated as of September 15, 1997, referred
to in this Note has been amended by a First Supplemental Indenture,
dated as of April 6, 1999, to provide for such convertibility and
guarantee. Reference is hereby made to said First
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<PAGE> 20
Supplemental Indenture, copies of which are on file with Integrated
Process Equipment Corp. and SpeedFam-Ipec, Inc., for a statement of
the amendment therein made.
Nothing contained in this First Supplemental Indenture shall require the
holder of any Note to submit or exchange such Note prior to the Effective Time
in order to obtain the benefits of the Guaranty or any other provisions
hereunder.
The Company agrees to provide the Trustee with a stamp or means of
reproducing the above legend on the Notes without materially obscuring the text
of the Notes.
Anything herein contained to the contrary notwithstanding, the Trustee
shall not at any time be under any responsibility to acquire or cause any Note
now or hereafter outstanding to be presented or delivered to it for any purpose
provided for in this Section 6.5.
SECTION 6.6 Except as expressly supplemented by this First Supplemental
Indenture, the Indenture, the Notes issued thereunder and the charge and
obligation created thereby are in all respects ratified and confirmed and all of
the rights, remedies, terms, conditions, covenants and agreements of the
Indenture and the Notes issued thereunder shall remain in full force and effect.
SECTION 6.7 If any provision of this First Supplemental Indenture limits,
qualifies or conflicts with (a) another provision of this First Supplemental
Indenture, or (b) any provision of the Indenture, which is required to be
included by any of the provisions of Section 310 to 317, inclusive, of the Trust
Indenture Act, such required provision shall control.
SECTION 6.8 The recitals contained in this First Supplemental Indenture
shall be taken as statements of the Company or the Guarantor, as applicable, and
the Trustee assumes no responsibility for their correctness. The Trustee makes
no representations as to the validity or sufficiency of this First Supplemental
Indenture.
SECTION 6.9 This First Supplemental Indenture may be executed in any
number of counterparts, each of which shall be an original; but such
counterparts shall together constitute but one and the same instrument.
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<PAGE> 21
IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental
Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above written.
INTEGRATED PROCESS EQUIPMENT CORP.
By: /s/ John S. Hodgson
--------------------------------
Name: John S. Hodgson
--------------------------------
Title: Vice President and CFO
--------------------------------
SPEEDFAM-IPEC, INC.
By: /s/ Richard J. Faubert
--------------------------------
Name: Richard J. Faubert
--------------------------------
Title: President and CEO
--------------------------------
STATE STREET BANK AND TRUST COMPANY
OF CALIFORNIA, N.A.,
as Trustee
By: /s/ Scott C. Emmons
--------------------------------
Name: Scott C. Emmons
--------------------------------
Title: Assistant Vice President
--------------------------------
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Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into this 6th day of April, 1999, by
and between SpeedFam-IPEC, Inc., an Illinois corporation (hereinafter referred
to as the "Company") and Ralph Hartung (hereinafter referred to as the
"Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to retain the services of the Employee in the
capacities set forth herein, and the Employee desires to be employed by the
Company in such capacities;
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, the Company and the Employee hereby agree as follows:
1. Employment. The Company hereby employs the Employee and the
Employee hereby accepts employment with the Company upon the terms and
conditions hereinafter set forth and subject to the policies as published
in the Company's Employee Handbook, as from time to time amended and
provided to the Employee.
2. Term. Subject to the provisions for earlier termination
hereinafter set forth in Section 10 of this Agreement, the initial term of
employment hereunder shall commence on the date hereof, and end on May 31,
2000.
3. Automatic Extension. The term of employment of the Employee
hereunder shall automatically continue for additional one (1) year terms
upon the same terms and conditions contained herein unless either the
Company or the Employee shall notify the other at least thirty (30) days
prior to the expiration of the initial term or any renewal term of its or
his intention to terminate this Agreement as of the end of its then
current term.
4. Compensation. The Company agrees to provide the Employee
with the following compensation for all services rendered under this
Agreement:
4.1. Salary. During the term hereof, the Company shall pay to
the Employee a Base Annual Salary of not less than $300,000, payable
in accordance with the standard payroll practices of the Company
(including any salary-reduction contributions to plans or programs
maintained by the Company). Further, the Base Annual Salary of the
Employee shall be reviewed annually by the Company and adjusted as
appropriate.
4.2. Bonus. The Company shall pay to the Employee such bonuses
as the Company may from time to time determine based upon the
evaluation of the Employee's performance by the President/CEO of the
Company pursuant to goals set by the President/CEO with input from
the Employee at the beginning of each fiscal year. Employee's target
bonus shall be equal to 75% of Employee's Base Salary. Employee
shall be paid an initial bonus for the Company's fiscal year
<PAGE> 2
ending May 31, 1999, of no less than Employee's target bonus
prorated for such part of the Company's fiscal year during which
Employee was employed by the Company hereunder. Employee shall be
paid a bonus for the Company's fiscal year ending May 31, 2000 of no
less than Employee's target bonus.
4.3. Long-term Incentive Opportunity. During the term of this
Agreement, the Employee shall participate in any long-term incentive
plan maintained by the Company, including, but not limited to, stock
options, performance shares, restricted stock and long-term cash
incentive plans, as determined by the Board of Directors of the
Company.
4.4. Other Benefits. To the extent the Employee is eligible
under the appropriate laws, the Employee shall be entitled to
participate in and receive benefits under any and all pension,
profit-sharing, health, disability and insurance plans, if any,
which the Company may maintain.
5. Duties. The Employee shall serve as Chief Operating Officer and
President of the Company's CMP Group. As such, the Employee's duties and
responsibilities shall include, but shall not be limited to, profit and
loss responsibility of CMP business, and performance of manufacturing
operations company wide. The Employee shall also be responsible for the
performance of such other duties and responsibilities as may be prescribed
from time to time by the President/CEO of the Company.
6. Extent of Service. The Employee shall devote the Employee's full
business time, attention, and energies to the business of the Company and
its Affiliates and shall not, during the term of this Agreement, be
engaged in any other business activity, whether or not such activity is
pursued for gain, profit, or other pecuniary advantage, unless written
approval is first secured from the President/CEO of the Company, with such
approval not unreasonably being withheld. Notwithstanding the foregoing,
the Employee may be a passive investor in any business or firm not in
direct competition with the products and services of the Company.
7. Working Facilities. The Employee shall be furnished with office
space, furnishings, secretarial support and such other facilities and
services which are reasonably necessary for the performance of the
Employee's duties.
8. Expenses. The Company will reimburse the Employee for all
reasonable business expenses which are incurred by the Employee in the
promoting of the interests of the Company upon presentation by the
Employee from time to time (at least monthly) of an itemized account of
such expenses containing such detail as may reasonably be required by the
President/CEO of the Company.
9. Vacation. The Employee shall be entitled to paid vacation in
accordance with Company policy as set forth in the Company's Employee
Handbook. All vacation
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<PAGE> 3
time shall be taken by the Employee at such times as shall be mutually and
reasonably agreed upon by the Employee and the President/CEO of the
Company.
10. Termination of Employment.
10.1. Termination for Cause. The Company may terminate the
Employee's employment under this Section of the Agreement for Cause.
Cause shall be defined as:
10.1.1. The Employee's Material Breach of this Agreement,
which breach is not cured within ten (10) business days after
written notice from the Company specifying such breach has
been delivered to the Employee;
10.1.2. Commission by the Employee of any materially
fraudulent, dishonest or other act of misconduct in the
performance of the Employee's duties hereunder, other than at
the specific direction of the President/CEO or the Board of
Directors; or
10.1.3. Arrest for any felony or crime involving moral
turpitude.
Following a Termination for Cause, the Company shall pay to the
Employee the Base Annual Salary as provided in Section 4.1 accrued
up to the date of termination. In no event shall the Company be
obligated to pay any other compensation with respect to any period
before or after the date of such termination.
10.2. Other Termination at the Election of the Company. The
Company may elect to terminate the employment of the Employee, other
than by the giving of notice of intention to terminate this
Agreement pursuant to Section 3, for any reason other than Cause,
upon written notice to the Employee, accompanied by payment in a
lump sum of:
10.2.1. All compensation accrued up to the date of
termination;
10.2.2. An amount equal to one (1) times the Employee's
Base Annual Salary of record on the date of termination; and
10.2.3. An amount equal to the Bonus Employee would have
been entitled to under Section 4.2 if Employee had continued
employment with the Company to the end of its fiscal year,
prorated for such part of the Company's fiscal year during
which Employee was employed by the Company hereunder.
10.3. Voluntary Termination following Change in Duties. Upon the
voluntary termination of employment by the Employee within thirty
(30) days of a Change in Duties, benefits shall be payable under
this Section 10.3.
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<PAGE> 4
10.3.1. The Employee shall receive all compensation
accrued up to the date of termination;
10.3.2. The Employee shall receive an amount equal to one
(1) times the Employee's Base Annual Salary of record on the
date of termination; and
10.3.3. The Employee shall receive an amount equal to the
Bonus Employee would have been entitled to under Section 4.2
if Employee had continued employment with the Company to the
end of its fiscal year, prorated for such part of the
Company's fiscal year during which Employee was employed by
the Company hereunder.
10.4. Benefit Payments. Following the termination of the
Employee's employment for any reason, the Company shall pay to the
Employee, under the terms of the Company's benefit plans, an amount
equal to the vested benefits of the Employee in any pension, or
other benefit plan as of the termination date. If elected by the
Employee, the Company shall, instead of payment to the Employee,
transfer such funds to such other benefit plans as designated by the
Employee.
11. Restrictive Covenants.
11.1. The Employee understands that the Company's business
involves the design, improvement, development, testing,
manufacturing, marketing and sale of products, and that this
business requires substantial investments in capital and substantial
commitments of time and effort by the Company's employees. The
Employee further understands that, as a result, certain of the
Company's personnel, including the Employee, acquire information
with respect to customer goodwill, trade secrets and Confidential
Information, which, of itself and apart from the Employee's
abilities, could be of great value to a competitor of the Company,
potential competitors of the Company, and to others.
11.2. The Employee further understands that employment with the
Company is conditioned upon the Company's being able to place
complete trust and confidence in the Employee and to rely on the
Employee's doing everything possible to avoid the disclosure or use
of Confidential Information to persons, corporations, organizations
and others outside the Company, which may become known to, or
subject to the control of the Employee during the term of employment
hereunder. The Employee also understands that competition in the
manufacture, sale, and development of products is not local in
nature or scope, but involves various corporations, organizations
and others located within the United States and throughout the
world.
11.3. In recognition of these circumstances and for the purpose
of inducing the Company to employ the Employee (or continue the
employment of
-4-
<PAGE> 5
the Employee with appropriate compensation reviews) to repose trust
and confidence in the Employee, and to make Confidential Information
available to the Employee, the Employee agrees that the following
restrictive covenants are necessary and proper for the protection of
the Company.
11.4. Subject to Section 11.6 below, the Employee will promptly
disclose and assign to the Company, without the right to any form of
compensation therefor, every invention that the Employee,
individually or jointly with others, during the term of the
Employee's employment with the Company and for a period of one (1)
year following termination of such employment for any reason, may
discover, invent, conceive or originate, relating in any way to the
present or contemplated scope of the Company's business with regard
to any of its clients, customers or vendors or to any Product,
Technology, process, or device dealt in, used or under development
or manufacture by the Company for itself or others or that results
from or may be suggested by any work the Employee may do for the
Company or at the Company's request. The Employee will fully
cooperate with the Company in applying for and securing in the name
of the Company or its designee patents or copyrights with respect to
said Inventions in each country in which the Company may desire to
secure patent or copyright protection. The Employee will promptly
execute all proper documents presented to the Employee for signature
by the Company to enable the Company or its designee to secure such
patent or copyright protection and to transfer legal title therein,
together with any patents or copyrights that may be issued thereon
or in connection therewith, to the Company or its designee. The
Employee will give such true information and testimony as may be
requested of the Employee by the Company relative to any of said
Inventions.
11.5. Subject to Section 11.6 below, the Company shall have the
exclusive right to use in its business, and to make, use and sell
products, processes, and/or services arising out of any Invention,
whether or not patentable, which is assignable by the Employee to
the Company pursuant to Section 11.4 above.
11.6. The Employee is hereby notified that Sections 11.4 and
11.5 above do not apply to an Invention for which no equipment,
supplies, facility, technology, confidential information, or trade
secret information of the Company was used and which was developed
entirely on the Employee's own time, unless:
11.6.1. The Invention was related:
11.6.1.1. To the business of the Company; or
11.6.1.2. To the Company's actual or demonstrably
anticipated research or development; or
-5-
<PAGE> 6
11.6.2. The Invention results from any work performed by the
Employee for the Company.
11.7. The Employee agrees that all financial data, customer
lists, plans, contracts, agreements, literature, manuals,
catalogues, brochures, books, records, computer files or
applications, maps, correspondence, and other materials furnished or
made available to the Employee by the Company or an Affiliate, or
any of its clients, or created, prepared or secured through the
efforts of the Employee, relating to the business conducted by the
Company or an Affiliate, whether or not containing any Confidential
Information, are and shall remain the property of the Company, and
the Employee agrees to deliver all such materials, including all
copies thereof, to the Company upon termination of the Employee's
employment hereunder, or at any other time at the Company's request.
11.8. Other than as expressly directed by the Company and in the
performance of duties to the Company or with the expressed
permission of the Company, the Employee shall never, during or
following the Employee's employment with the Company, directly or
indirectly, sell, use, disclose, lecture upon, or publish data of
information containing or relating to any Confidential Information
or Technology of the Company or its Affiliates or any Invention
assignable to the Company pursuant to the terms of Section 11.4
above.
11.9. During the term of the Employee's employment with the
Company and for a period of two (2) years after the termination
thereof, the Employee agrees that the Employee will not:
11.9.1. Own or have any interest, directly or indirectly,
in, except through stock traded on a national stock exchange
where the Employee owns less than one percent (1%) of the
total issued and outstanding shares of such stock, or act as
an officer, director, agent, employee, or consultant of, or
assist in any way or in any capacity, any person, firm,
association, partnership, corporation or other entity which
sells or provides products or services in direct competition
with the products or services of the Company or its Affiliates
anywhere within the world where any Confidential Information
acquired by the Employee would reasonably be considered
advantageous to such other competing entity, or
11.9.2. Directly or indirectly entice, induce or in any
manner influence any person who is, or shall be, in the
service of the Company or its Affiliates to leave such service
for the purpose of engaging in business or being employed by
or associated with any person, firm, association, partnership,
corporation or other entity which sells or provides products
or services in direct competition with the products or
services of the Company or its Affiliates anywhere in the
world.
-6-
<PAGE> 7
If any court shall finally hold that the time, territory or
any other provision of this Section 11.9 constitutes an
unreasonable restriction against the Employee, the Employee
agrees that the provisions hereof shall not be rendered null
and void, but shall apply as to such time, territory, and
other extent as such court may determine to be a reasonable
restriction under the circumstances involved.
11.10. The Employee understands that if there is a breach by the
Employee of any duty to the Company with respect to any Confidential
Information or Invention, the Company may suffer irreparable injury
and may not have adequate remedy at law. As a result, the Employee
agrees that if a breach of this Agreement occurs, the Company may,
in addition to any other remedies available to it, bring an action
or actions for injunction, specific performance, or both, and have
entered into a temporary restraining order, preliminary or permanent
injunction, or other action compelling specific performance.
12. Definitions.
12.1. "Affiliate" means any entity in which the Company, or any
entity which owns, directly or indirectly, a majority ownership
interest in the Company, owns, directly or indirectly, at least a
twenty percent (20%) interest in such entity and for which Employee
has performed services or from which Employee has received
Confidential Information.
12.2. "Base Annual Salary" means the annualized value of the
Employee's salary, based on the most recent pay period.
12.3. "Board" means the Board of Directors of the Company.
12.4. "Change in Duties" means:
12.4.1. A significant reduction in the nature or scope of
the Employee's authority or duties;
12.4.2. A material reduction in the Employee's Base
Annual Salary; or
12.4.3. Exclusion from any incentive or benefit program from
which the Employee was previously eligible, and which other
executives with comparable duties participate in;
12.5. "Code" means the Internal Revenue Code of 1986, as
from time to time amended.
12.6. "Company" means SpeedFam-IPEC, Inc., an Illinois
corporation.
-7-
<PAGE> 8
12.7. "Confidential Information" means any and all
Technology and/or information which:
(a) Is provided to the Employee by the Company;
(b) Is created, developed, or otherwise generated by or
on behalf of the Company;
(c) Concerns or relates to any aspect of the
Company's business; or
(d) Is, for any reason, identified by the Company as
confidential.
(e) Notwithstanding the foregoing provisions of this
Section 12.7, Confidential Information shall not include such
information which the Employee can show,
clearly and convincingly:
(i) Is publicly and openly known and in the
public domain;
(ii) Becomes publicly and openly known and in the
public domain through no fault of the Employee; or
(iii) Is in the Employee's possession and documented
prior to this Agreement, lawfully obtained from a source
other than from the Company, and not subject to any
obligation of confidentiality or restricted use.
12.8. "Invention" means any new or useful art, discovery, or
improvement (including any technologies, tests, programs, products,
concepts, ideas, apparatus, equipment, machinery, processes,
methods, formulae, designs or techniques), whether or not related to
a Product and whether or not patentable, and all the know-how
related thereto.
12.9. "Material Breach" means a willful or negligent failure to
perform the Employee's duties as set forth in this Agreement.
12.10. "Product" means any product or service which is, or may in
the reasonable future be, manufactured, sold, designed, developed,
considered by, or of interest to the Company or an Affiliate
(including, but not limited to, any product or service involving CMP
planarization technology, such as CMP tools or any free-abrasive
machining, lapping, polishing and grinding).
12.11. "Technology" means prototypes, models, concepts,
inventions, circuit designs, drawings, hardware, technological
developments and
-8-
<PAGE> 9
improvements, methods, techniques, systems, documentation, data,
works of authorship, products, and related information whether or
not patentable, copyrightable, and whether or not presently used or
used in the future.
13. Miscellaneous.
13.1. This Agreement supersedes all prior agreements and
understandings by and between the Employee and the Company and any
of its Affiliates or their respective directors, officers,
shareholders, employees, attorneys, agents, or representatives,
including any Severance Agreement, Employment Letter, Non-Disclosure
Agreement and/or Employment Agreement and constitutes the entire
agreement between the parties, respecting the subject matter hereof
and there are no representations, warranties or other commitments
other than those expressed herein.
13.2. The Employee represents and warrants to the Company that
the Employee is not a party to or bound by, and the employment of
the Employee by the Company or the Employee's disclosure of any
information to the Company or its use of such information will not
violate or breach any employment, retainer, consulting, license,
non-competition, non-disclosure, trade secrets or other agreement
between the Employee and any other person, partnership, corporation,
joint venture, association or other entity.
13.3. No modification or amendment of, or waiver under, this
Agreement shall be valid unless signed in writing and signed by the
Employee and an appropriate officer of the Company, pursuant to
expressed authority of the President.
13.4. The Employee agrees to indemnify the Company and its
Affiliates against, and to hold the Company and its Affiliates
harmless from, any and all claims, lawsuits, losses, damages,
expenses, costs and liabilities, including, without limitation,
court costs and attorney's fees, which the Company or any of its
Affiliates may sustain as a result of, or in connection with, either
directly or indirectly, the Employee's breach or violation of any of
the provisions of this Agreement.
13.5. The Employee hereby agrees that if the Employee violates
any provision of this Agreement, the Company will be entitled, if it
so elects, to institute and prosecute proceedings at law or in
equity to obtain damages with respect to such violation or to
enforce the specific performance of this Agreement by the Employee
or to enjoin the Employee from engaging in any activity in violation
hereof.
13.6. The Company agrees to indemnify the Employee against, and
to hold the Employee harmless from, any and all claims, lawsuits,
losses, damages, expenses, costs and liabilities, including, without
limitation, court costs and
-9-
<PAGE> 10
attorney's fees, which the Employee may sustain as a result of, or
in connection with, either directly or indirectly, the breach or
violation by the Company or its Affiliates of any of the provisions
of this Agreement or any applicable law or regulations.
13.7. The waiver by either party to this Agreement of a breach
of any provision of this Agreement by the other shall not operate or
be construed as a waiver of any subsequent breach.
13.8. Any communication which may be required under this
Agreement shall be deemed to have been properly given when delivered
personally at the address set forth below for the intended party
during normal business hours, when sent by facsimile or other
electronic transmission to the respective facsimile transmission
numbers of the parties set forth below with telephone confirmation
of receipt, or when sent by U.S. registered or certified mail,
return receipt requested, postage prepaid as follows:
If to the Company: SpeedFam-IPEC, Inc.
305 North 54th Street
Chandler, AZ 85226-2416
United States of America
Attention: President/CEO
Facsimile: 602-705-2122
Confirm: 602-705-2100
If to the Employee: Mr. Ralph Hartung
11219 E. Palomino Road
Scottsdale, AZ 85259
602-614-0733
Notices shall be given to such other addressee or address, or both,
or by way of such other facsimile transmission number, as a
particular party may from time to time request by written notice to
the other party to the Agreement. Each notice, request, demand,
approval or other communication which is sent in accordance with
this Section shall be deemed to be delivered, given and received for
all purposes of this Agreement as of two (2) business days after the
date of deposit thereof for mailing in a duly constituted U.S. post
office or branch thereof, one (1) business day after deposit with a
recognized overnight courier service or upon written confirmation of
receipt of any facsimile transmission. Notice given to a party
hereto by any other method shall only be deemed to be delivered,
given and received when actually received in writing by such party.
-10-
<PAGE> 11
13.9. This Agreement shall inure to the benefit of and be
binding upon the Company and the Employee and their respective
heirs, personal representatives, successors and assigns.
13.10. Except as provided under Section 11.10 of this Agreement,
all claims, disputes and other matters in question arising out of,
or relating to this Agreement, or the breach thereof, shall be
decided by arbitration, pursuant to the rules established by the
American Arbitration Association for the arbitration of such
disputes, and such arbitration shall occur in Chandler, Arizona. The
Company shall pay all reasonable costs of such arbitration.
13.11. This Agreement may be signed in multiple counterparts
which when taken together shall constitute the entire Agreement.
13.12. This Agreement shall be governed and construed in
accordance with the laws of the State of Arizona.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
SPEEDFAM-IPEC, INC., an Illinois
Corporation
By /s/ Richard J. Faubert
------------------------------------
Title: President/CEO
Employee
/s/ Ralph D. Hartung
------------------------------------
-11-
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