-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PhaA2EBIcSa2RFPc3xtIkDG3ZO7xKdIrzDhPHLcwTbo9jVaYENyIX4+AZHqTXS+8 mWdbG8DWKicrPDBUL+4QNg== 0001010410-00-000004.txt : 20000202 0001010410-00-000004.hdr.sgml : 20000202 ACCESSION NUMBER: 0001010410-00-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19991031 FILED AS OF DATE: 20000121 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CFM TECHNOLOGIES INC CENTRAL INDEX KEY: 0000849323 STANDARD INDUSTRIAL CLASSIFICATION: SPECIAL INDUSTRY MACHINERY, NEC [3559] IRS NUMBER: 232298698 STATE OF INCORPORATION: PA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-27498 FILM NUMBER: 510898 BUSINESS ADDRESS: STREET 1: 1336 ENTERPRISE DRIVE CITY: WEST CHESTER STATE: PA ZIP: 19380 BUSINESS PHONE: 6106968300 MAIL ADDRESS: STREET 1: 1336 ENTERPRISE DRIVE CITY: WEST CHESTER STATE: PA ZIP: 19380 10-K 1 CFM TECHNOLOGIES, INC. 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K For Annual and Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Mark One) [ X ] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended October 31, 1999. or [ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _________ to __________ Commission File No. 0-27498 CFM Technologies, Inc. ----------------------- (Exact name of registrant as specified in its charter) Pennsylvania 23-2786977 ------------ ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 150 Oaklands Blvd., Exton, PA 19341 ----------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (610) 280-8300 -------------- Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, no par value -------------------------- Title of Class Indicate by check mark whether the Registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. The number of outstanding shares of the Registrant's Common Stock, no par value per share, on January 13, 2000 was 7,812,228. The aggregate market value of the voting stock held by non-affiliates of the Registrant (computed by reference to the closing price of such stock on The Nasdaq Stock Market on January 13, 2000 of $9.75) was approximately $56,079,000. In making such calculation, Registrant is not making a determination of the affiliate or non-affiliate status of any holders of shares of Common Stock. Documents incorporated by reference: Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held on March 9, 2000 are incorporated herein by reference in Part III, Items 10,11,12 and 13. Table of Contents Item No. Page - -------- ---- Part I 1. Business 3 2. Properties 19 3. Legal Proceedings 19 4. Submission of Matters to a Vote of Security Holders 21 Executive Officers of the Registrant 21 Part II 5. Markets for Registrant's Common Equity and Related Stockholder Matters 23 6. Selected Financial Data 23 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 25 7a. Quantitative and Qualitative Disclosures about Market Risk 31 8. Financial Statements and Supplementary Data 31 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 31 Part III 10. Directors and Executive Officers of the Registrant 32 11. Executive Compensation 32 12. Security Ownership of Certain Beneficial Owners and Management 32 13. Certain Relationships and Related Transactions 32 Part IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 32 Signatures E-1 2 PART I ITEM 1. BUSINESS CFM Technologies, Inc. and subsidiaries ("CFM" or the "Company") designs, manufactures and markets advanced wet processing equipment for sale to the worldwide semiconductor industry. The Company believes that its patented Full-Flow(TM) Technology and Direct-Displacement(TM) drying enable it to provide wet processing systems that address a variety of limitations inherent in conventional semiconductor wet processing systems, including wet benches and spray tools, resulting in significantly lower cost of ownership ("COO"). The Company's customers include: Agilent Technology, Anam Semiconductor Company, Infineon Technology, International Business Machines ("IBM"), Macronix, Microchip Semiconductor, Motorola, National Semiconductor, STMicroelectronics, Texas Instruments, Tower Semiconductor and United Microelectronics ("UMC"). INDUSTRY BACKGROUND Market Overview Over the past two decades, increasing demand for integrated circuits ("ICs") has resulted primarily from the growth of the personal computer and data communication markets, as well as the emergence of new markets such as wireless communications, mobile computing and multimedia and the addition of microprocessor control to many common consumer products such as automobiles, kitchen appliances and audio/video equipment. In large part, this demand has been driven by the semiconductor industry's ability to provide increasingly complex, higher performance ICs while steadily reducing the cost per function along with lower power consumption. These improvements in the ratio of price to performance have been driven by advancements in semiconductor process technology, which have enabled the cost-effective production of high density ICs with linewidths well below 0.25 micron. As demand for ICs has grown, semiconductor manufacturers have increased capacity by expanding and updating existing fabrication facilities ("fabs") and constructing new fabs. This expansion has historically exhibited strong cyclical characteristics, and continues to do so. For example, in 1997 a significant overcapacity situation developed in the semiconductor device market, especially in dynamic random access memory ("DRAM") chips. This, together with the Asian financial crisis, led to a reduction in the semiconductor capital equipment demand as semiconductor manufacturers cancelled or postponed capacity expansions. This situation continued into 1998. Recent industry analyst forecasts estimate total spending for semiconductor equipment worldwide will be up approximately 17% over 1998 to $34 billion during 1999. The increasing complexity of ICs has resulted in an increase in both the number and cost of process tools (such as steppers, etchers, furnaces and wet processors) required to manufacture semiconductors. In a typical fab in the 1980s, the cost of equipment represented approximately 50-55% of the total facility costs. Today, the total cost of an advanced fab exceeds $1 billion, of which equipment costs can account for over 80%. Semiconductor manufacturers place great pressure on process equipment manufacturers to decrease the COO of their products. The principal elements of COO are yield, throughput, capital costs and direct costs. Yield is primarily determined by contamination levels and process uniformity. Throughput is primarily a function of the time required to complete a process cycle, the number of wafers processed in a single cycle and the handling time between process cycles. Capital costs include the cost of acquisition and installation of the process equipment. Direct costs primarily include consumables used in the manufacturing process and costs of cleanroom space occupied by the equipment. Semiconductor device manufacturers must also address environmental costs such as water usage and costs related to the control and disposal of chemical waste and atmospheric emissions associated with operating a fab. Measuring and maintaining an acceptable level of COO becomes increasingly challenging as manufacturing processes become more complex and process tolerances narrow. 3 Wet Processing in Semiconductor Manufacturing The manufacture of semiconductors requires a large number of complex process steps during which transistors are formed and layers of electrically insulating or conducting materials are created or deposited on the surface of a silicon wafer. Before and after many of these steps, it is necessary to clean, etch, strip or otherwise condition the surface of the wafer in order to remove unwanted material or surface contamination in preparation for a subsequent process step. SEMATECH, a consortium of semiconductor manufacturers, has estimated that over 400 fabrication steps are required to manufacture advanced logic ICs, and that approximately 55 of these steps are accomplished by wet processing. Wet processing steps have traditionally been accomplished using wet benches and spray tools. Advanced wet benches utilize a succession of open chemical baths and extensive robotic automation to move wafers from one chemical or rinse bath to the next. Spray tools subject wafers to sequential spray applications of chemicals as the wafers are spun inside an enclosed chamber. The Company believes that these conventional wet processing methods are subject to a number of inherent limitations, including: Particle Contamination. Certain process steps in the manufacture of submicron ICs are extremely sensitive to small amounts of particle contamination which can result in device failure. As device geometries become smaller, the reduction of particle contamination has become an increasingly critical factor in maximizing yields for these process steps. Open-bath wet benches are exposed to the cleanroom environment and therefore are susceptible to external contamination. Since particles tend to reside on the surfaces of liquids due to surface tension, the movement of wafers in and out of liquids can result in the transfer of particles to the wafer surfaces through a "skimming" effect. The tendency to add particles from air-liquid transitions is inherent in wet benches due to multiple immersions and withdrawals and in spray processing where each spray droplet striking the wafer surface can act as a separate miniature immersion and withdrawal. Watermark Defects and Native Oxide Growth. Both wet benches and spray tools subject the surface of wafers to repeated wetting and evaporative drying, creating watermark defects on the surface that can significantly impact device performance and interfere with certain subsequent process steps. Process Control Limitations. Process liquids in wet benches and spray tools are subject to evaporation and absorption of atmospheric gases. As a result, it can be difficult to achieve precise repeatability of process results. Additionally, wafers in a wet bench must be robotically transferred from bath to bath through the cleanroom atmosphere. This gap in processing during transport adds variability due to the effects of wafer exposure to the cleanroom atmosphere. Large Physical Size. The cost of cleanroom space is a significant component in the overall COO calculation for a specific piece of equipment. Wet benches configured for the multiple-step wet processes required by many manufacturers can be over 30 feet in length. Recently, manufacturers of wet benches have begun to develop products which use more than one processing fluid in a single bath in an effort to reduce the size of their products. These "reduced bath" or "single bath" wet bench products use more expensive cleanroom space than a Full-Flow platform and retain the other disadvantages of this conventional wet processing method. Environmental Impact. Due to the large volume of the open baths which comprise a wet bench and the need for multiple step wet processes to manufacture increasingly complex ICs, wet benches typically consume large quantities of water during processing. Water costs represent a significant portion of the total cost of cleaning. Additionally, in many wet bench processes, large amounts of chemicals are utilized. The open nature of the baths in a typical wet bench necessitates expensive ventilation and air filtration systems in order to remediate chemical fume emissions. As a result, municipalities and environmental authorities are increasingly concerned about water consumption and chemical fume emissions by fabs. Due to the continuing reduction of semiconductor device geometries and the escalating cost of leading edge fabs, the Company believes that semiconductor manufacturers are becoming increasingly sensitive to the foregoing limitations inherent in conventional wet processing methods. 4 THE CFM SOLUTION The Company's systems are based on its proprietary Full-Flow wet processing technology and are used to perform various cleaning, stripping and etching process steps in the manufacture of semiconductors. Full-Flow technology is offered in two product lines: OMNI and PRISM. OMNI systems are highly flexible and can be configured to accomplish all of the process steps supported by the Company. PRISM systems are optimized to accomplish a single, frequently repeated, process at the lowest possible capital and operating cost. In the Company's OMNI and PRISM wet processing systems, up to 150 wafers automatically load into an enclosed, flow-optimized vessel that has a lower fluid inlet and an upper fluid outlet. The system process chamber is fabricated to conform to the size of silicon wafers used by the customer. Once a selected process is begun, the vessel is completely filled with process fluid at all times, with fluids displacing one directly after another without exposing the wafers to air. The Company believes that its patented Full-Flow and Direct-Displacement drying technologies result in superior process performance and lower COO by offering the following advantages over conventional wet processing systems: Reduced Particle Contamination. Full-Flow processing takes place in a fully-enclosed processing vessel which isolates the wafers from the external cleanroom environment and associated contaminants. Additionally, particle contamination through particle skimming is substantially reduced. Since Full- Flow processing is capable of directly displacing one chemical or rinse step with the next without draining the vessel, it can eliminate the air-liquid interfaces (where particles tend to reside) that normally occur in wet benches and spray tools. The wafers are kept completely immersed in fluid until they are ready to be dried using the Company's patented in situ Direct-Displacement drying technology. Substantial Elimination of Watermark Defects and Native Oxide Growth. The formation of watermarks is substantially eliminated through the prevention of water evaporation from the wafer surface. Once the chemical treatment of the wafers is completed, drying is accomplished using CFM's patented Direct-Displacement drying technology. With this technique, the final rinse water is directly displaced with isopropyl alcohol ("IPA") vapor and substantially all water is forced off the surface of the wafer before it is exposed to an air environment. Additionally, native oxide growth is suppressed by deoxygenating the water immediately before it enters the vessel. Since the vessel itself is totally enclosed, the ultra pure water in the vessel is not able to absorb oxygen, carbon dioxide and other gases from the cleanroom environment. As a result, the gas content of the water at the surface of the wafers is controlled to a degree not possible in a wet bench or spray tool. Tight Process Control. Process precision and repeatability result in large part from the ability to control accurately the physical and chemical properties of the processing liquids as well as transitions between process steps. The Company's processes are performed in an enclosed vessel, thereby substantially reducing variability of the processing fluid such as water and chemical evaporation and absorption of atmospheric gases. Additionally, because one process liquid directly displaces the previous one, there is no exposure to the cleanroom atmosphere between process steps. Cleanroom Space Savings. OMNI and PRISM systems have been designed to consume a minimum amount of cleanroom space. System support modules can be located outside the cleanroom and away from the vessel module. In many fabs, this means that these support modules can be located on a separate level, further reducing the amount of footprint that is required on the main floor of the fab where floor space is most expensive. One of the Company's products, a shared-module OMNI system capable of processing 100 8-inch wafers in each of two vessels requires approximately 13 linear feet of cleanroom wall space and makes no direct usage of cleanroom floor space when flush-mounted. This is significantly less than the space requirements of a wet bench with a similar processing capacity, which the Company believes can require up to 350 square feet of total cleanroom floor space and approximately 35 linear feet of cleanroom wall space. 5 Environmental Advantages. The Company believes that its OMNI and PRISM systems utilizes less than one-half of the water required by traditional wet bench systems performing similar processing steps. Additionally, most of the water in wet bench systems flows around the wafer carrier rather than across the surface of the wafers. In the Company's flow-optimized OMNI and PRISM systems, substantially no water is lost as bypass flow. These enclosed systems also reduce the amount of process chemicals consumed and the equipment and related costs of remediation of chemical fume emissions associated with traditional wet processing. STRATEGY The Company's objective is to become a leading supplier of advanced wet processing equipment to the worldwide semiconductor industry. The Company intends to achieve this objective by focusing on the following key elements of its strategy. Increase Current Market Share. The Company seeks to continue to expand its share of the semiconductor critical cleaning and etching wet processing market through expansion of its sales and marketing and customer satisfaction efforts. Significant effort has been expended to increase the Company's responsiveness to customer needs. The Company believes that the customer community has responded positively to these efforts. The Company also intends to continually improve its existing OMNI and PRISM platforms in order to offer enhanced technical capabilities and lower COO benefits for currently served critical wet processing applications. The high-throughput version of the platform that was recently introduced for resist stripping and post-ash cleaning, the PRISM RS, has met with positive response from customers due to significant COO advantages. Following an analysis of the size of the FPD wet processing equipment market, the potential for successful market penetration and the volatility of that market, the Company will offer for sale only those FPD system configurations that have already been developed and tested and does not anticipate significant continuing sales to manufacturers of FPD's. Broaden Semiconductor Market Penetration. The Company intends to leverage its OMNI and PRISM products to address additional wet processing applications in the semiconductor manufacturing process where it believes its proprietary technology can provide important benefits over competing wet processing technologies. By basing new process applications on these platforms, the Company will focus primarily on the development and optimization of each application's process recipes. The Company believes this approach will reduce the time and cost associated with supporting new wet processing applications. The Company has undertaken a joint development project with a major customer to qualify an OMNI system to perform aqueous cleaning during copper interconnect formation, which is a new process application for the Company's systems. Focus on Customer Satisfaction. The Company believes that its commitment to customer satisfaction has been a critical factor in its success to date. To ensure a high level of customer satisfaction, the Company provides comprehensive customer service and support, thorough customer training and ongoing process consultation. The Company has already developed a comprehensive customer service and support organization, and has invested in this area by locating direct sales and service staff in Europe in 1996 and in East Asia in 1997. The Company also intends to continue to increase the utilization of its applications laboratory to design and test new processes and equipment features. Finally, the Company has provided an OMNI system completely dedicated to training the Company's customers and employees at its West Chester training facility. In 1999, the Company was chosen as one of the 10 best customer rated companies in the VLSI Research Incorporated Customer Satisfaction Companies report for wafer processing equipment suppliers with sales of less than $300 million. 6 Continue Commitment to Worldwide Markets. The Company believes that its long-term success is substantially dependent on its ability to compete on a worldwide basis. As such, the Company intends to continue to focus on expanding its sales activities in the primary worldwide market for semiconductor capital equipment. To date, the Company has achieved considerable success in selling to customers outside the United States, with international sales accounting for over 60% of total sales in 1996 and 1997, 46% of total sales in 1998, and 33% of total sales in 1999. PRODUCTS The Company's systems are based on its proprietary wet processing technology and are used to perform various cleaning and etching process steps in the manufacture of semiconductors. The Full-Flow Platform. The Company's proprietary Direct-Displacement drying technology is embodied in its OMNI and PRISM products, which principally consist of a fully-enclosed processing vessel incorporating megasonic technology and associated systems software, hardware and control electronics. Megasonic technology utilizes high frequency sonic energy to enhance particle removal from the surface of semiconductor wafers during wet processing, enabling a quicker process cycle and a significant reduction in the quantity of process chemicals used. The Company believes that its OMNI and PRISM products offer significant improvements in process performance and a lower COO relative to competing technologies. Conventional wet bench processes used for many wet processing applications rely on a succession of open chemical baths and extensive robotic automation to move semiconductor wafers from one chemical bath to the next, which exposes them to contamination. In the Company's OMNI and PRISM systems, wafers are loaded automatically into a enclosed flow-optimized processing vessel. They are isolated from cleanroom air and accompanying contaminants as a succession of process fluids are introduced into the processing vessel one directly after another, flowing over the wafers to complete the desired process application. Once processing is completed, wafers are dried in situ using the Company's patented Direct-Displacement drying process. With this technique, the final rinse water is directly displaced with IPA vapor and substantially all water is removed from the surface of the wafers before they are exposed to the environment. This process substantially eliminates evaporative drying defects such as watermarks, inhibits native oxide growth and significantly reduces particle contamination. In competing technologies, wafers are exposed to intermediate evaporative drying within the cleanroom atmosphere prior to the completion of the final drying process. The optimized flow characteristics of the OMNI and PRISM processing vessels and their advanced process control and monitoring capabilities provide process uniformity and repeatability. Also, the Company's systems can be flush-mounted in the cleanroom wall, with the majority of the floor space needed by the system components located outside the cleanroom environment. Due to this flush-mounting and the OMNI system's comparatively smaller size, it requires significantly less cleanroom floor space than competing wet bench systems. The Company's OMNI system is based on a modular design and can be configured to accomplish a broad range of wet processing applications using a variety of process and support modules. By basing new process applications on its proprietary OMNI platform, the Company can focus primarily on the development and optimization of each application's process recipes. The Company believes this approach significantly reduces the time and cost associated with developing new products to address additional market opportunities. 7 The following tables list the Company's product offerings: CFM OMNI PLATFORM CONFIGURATIONS CONFIGURATION CAPACITY LIST PRICE RANGE ------------- -------- ---------------- Single Vessel 50-150 wafer $1.2 - $1.9 million Shared Module 50-150 wafer $1.8 - $3.0 million Semiconductor Manufacturing Applications The Company first introduced its wet processing systems for use in semiconductor manufacturing research and development facilities in 1988, and shipped its first system for use in semiconductor production in 1990. To date, the Company has sold over 220 vessels to more than 30 manufacturers. OMNI systems can currently be configured with either one or two vessels, each of which can be designed to accommodate 150mm, 200mm or 300mm wafers. The following table identifies the typical wet processing steps in semiconductor manufacturing and indicates those which the Company's OMNI systems currently perform (in bold).
CRITICAL CLEANING CRITICAL ETCHING PHOTORESIST STRIP APPLICATIONS APPLICATIONS APPLICATIONS - -------------------------------------------------------------------------------- INITIAL WAFER CLEAN SILICON OXIDE ETCH CONCENTRATED ACID CHEMISTRY PRE-DIFFUSION CLEAN POLYSILICON ETCH RESIST PRE-OXIDATION CLEAN Silicon nitride etch STRIP/POST-ASH PRE-THIN FILMS DEPOSITION SILICIDE ETCH CLEAN(FRONT-END) CLEAN Solvent chemistry resist strip/post-ash clean(back end)
For classification purposes, the process to fabricate a semiconductor device (without testing or packaging) is divided into two major phases referred to as "front-end" and "back-end." Front-end steps are those that are performed to fabricate individual components on an IC, such as transistors. Back-end steps are those that involve the creation of metal patterns in order to connect these individual components and create an IC. For a high-performance logic IC, approximately 60% of the wet processing steps are front-end and the balance are back-end. Critical Cleaning Applications. Critical cleans are those wet processing steps that are performed in the front-end to remove surface contamination prior to performing highly sensitive fabrication steps such as gate oxidation or diffusion. The Company believes that approximately 40% of the wet processing operations in the front-end fall into this category. To date, most of the Company's wet processing systems have been purchased by semiconductor manufacturers for use in these applications. Critical Etching Applications. Wet processing is also commonly used in the front-end to etch the surface of the wafer to remove silicon dioxide or other surface material. It is generally important to tightly control the amount of material removed and the uniformity of the etch. The Company believes that approximately 20% of the wet processing steps in the front-end involve etching. These etching steps are often performed as part of a wet clean rather than as stand-alone operations, and as such, most of the wet critical cleaning sold by the Company to date are also performing critical etching applications. Photoresist Strip Applications. Photoresist stripping operations involve the removal of either ashed photoresist residue or un-ashed photoresist from the surface of wafers after a patterning step has been completed. Resist stripping is performed in both the front-end and the back-end, and the Company believes that this process represents approximately 40% of all wet processing operations. Front-end cleans and resist strips are generally performed with aqueous chemistries. However, back-end cleans and resist strips presently must be accomplished with different chemistries that often utilize solvents, as front-end water-based chemistries are incompatible with aluminum, which is often present on wafers in the back-end. 8 Future Applications. Approximately 40% of semiconductor wet processing operations are performed in the back-end and are comprised primarily of solvent-based cleans and solvent-based resist strips. The Company believes that its OMNI systems offer a range of attractive benefits for many of these applications, especially as process requirements become more demanding and regulatory restrictions on the release of chemical fumes become more stringent. Furthermore, the Company believes that its proprietary Direct-Displacement drying method is well suited for drying wafers with complex topographies that often exist in the back-end. CUSTOMERS The Company sells its systems to leading semiconductor manufacturers located in the United States, Europe and East Asia. Sales to IBM and Macronix accounted for approximately 25.1% and 14.3%, respectively, of net sales in fiscal 1999. Sales to Agilent Technology, Anam Semiconductor Company, IBM, Infineon and National Semiconductor accounted for approximately 10.3%, 14.8%, 19.6%, 13.3% and 10.4%, respectively, of net sales in fiscal 1998. While the Company actively pursues new customers, there can be no assurance that the Company will be successful in its efforts, and any significant weakening in customer demand would have a material adverse effect on the Company. SALES AND MARKETING The Company sells its systems through a combination of a direct sales force and East Asian sales agents. The Company's field service personnel support its sales force. In addition to the direct sales force at the Company's headquarters in Exton, Pennsylvania, the Company has direct sales personnel located in Georgia, Texas and California. The Company employs a direct salesperson in France and also supports the European market through its North American direct sales force. The Company covers the Asian market with a director of sales and marketing and a direct salesperson based in Singapore. The Company signed agreements with PKL Ltd. which markets in Korea, Innotech Corporation ("Innotech") the Company's agent in Japan in 1992, Ampoc Far East Company Limited ("AMPOC") a sales agent in Taiwan in 1996, Silicon International Ltd ("Silicon International") the Company's sales distributor in the Peoples Republic of China in 1997, and Aneric Enterprise Pte Ltd. ("Aneric") the Company's sales agent in other areas of southeast Asia in 1997. See Part III, Item 13 - "Certain Relationships and Related Transactions". CUSTOMER SATISFACTION The Company believes that high quality customer support, customer training and process consultation are key elements in the creation of customer satisfaction. The Company also believes that product reliability, as it is perceived by the individual customer technician, manager and executive, is strongly correlated with customer satisfaction and the resulting decisions to select the Company's technology and its products for broad application within that individual customer's area of personal authority. The Company has made substantial investments in its customer support, customer training, customer communication and reliability engineering and testing programs and intends to continue to make such investments in the future. The Company's customer satisfaction organization is headquartered in Exton, Pennsylvania, with additional employees and consultants located in Arizona, Colorado, Texas, Vermont, France, Germany, Taiwan and the United Kingdom. PKL Ltd. and Innotech provide service to customers located in Korea and Japan, respectively. 9 Generally, the Company's support personnel have prior technical backgrounds in the mechanical, electronic or chemical processing industries and prior experience or training in semiconductor manufacturing processes. Field support personnel also perform warranty and after-warranty service and sales support. The Company's products are typically sold with a 12 month warranty covering all parts and labor, which commences upon completion of installation and final acceptance. BACKLOG The Company manages its production forecast using both backlog and projected system orders. The Company includes in backlog only customer purchase orders which have been accepted by the Company and for which shipment dates have been assigned within the following 12 months. Orders are generally subject to delay without penalty, but may contain cancellation penalties. As of October 31, 1999, the Company's backlog was approximately $10.6 million. As of October 31, 1998, the Company's backlog was approximately $8.8 million. It has been the experience of the Company that neither the backlog nor the pattern of receipt of orders is necessarily indicative of future orders or revenues. RESEARCH, DEVELOPMENT AND ENGINEERING CFM utilizes its applications and component testing laboratories in West Chester, Pennsylvania to test new equipment and processes, design new features and train customer and Company personnel. By basing new applications on its proprietary OMNI platform, the Company can reduce substantially the time and cost required to develop new process applications by focusing primarily on the optimization of each application's process recipe. The Company is currently focusing its research, development and engineering efforts on equipment to support additional wet process applications, to extend the productivity of the current platform and to improve system reliability. In April 1998, the Company shipped its first 300mm system. In November 1999 the Company received a follow-on 300mm order based upon the success of the initial system. See "Forward Looking Statements and Risk Factors -- Dependence Upon Product Development". The markets in which the Company and its customers compete are characterized by rapidly changing technology, evolving industry standards and continuous improvements in products and services. Because of continual changes in these markets, the Company believes that its future success will depend, in part, upon its ability to continue to improve its systems and its process technologies and to develop new system applications which compete effectively on the basis of COO, including yield, throughput, capital and direct costs and system performance. In addition, the Company must adapt its systems and processes to technological changes in order to support the standards required by emerging target markets. The Company's research, development and engineering expenses for the 1999, 1998 and 1997 fiscal years were $10.0 million, $11.5 million and $9.3 million, respectively, representing 31.8%, 34.6% and 12.3% of net sales, respectively. Research, development and engineering expenses were net of reimbursements of $0, $0 and $890,000, respectively, for the 1999, 1998 and 1997 fiscal years. COMPETITION The Company faces substantial competition in its markets from both established competitors and potential new entrants. The Company believes that the primary competitive factors in the markets in which it competes are customer satisfaction, yield, throughput, capital and direct costs, system performance, size of installed base and breadth of product line. The Company believes that it competes favorably with respect to each of these factors. The Company also faces the challenge posed by the commitment of most semiconductor manufacturers to entrenched, competing technologies. 10 Most of the Company's competitors have been in business longer than the Company, offer traditional wet processing technology, and have broader product lines, more experience with high volume manufacturing, broader name recognition, substantially larger installed bases and significantly greater financial, technical and marketing resources than the Company. In the semiconductor wet processing market, the Company competes primarily with Dainippon Screen, FSI International, SCP Global Technologies, STEAG Electronic Systems Inc., S.E.S.C., Ltd, Akrion, Semitool, Tokyo Electron Limited and Verteq. There can be no assurance that these competitors will not also develop enhancements to or future generations of competitive products that will offer price or performance features that are superior to the Company's systems or that the Company's products will gain market acceptance. The Company believes that in order to remain competitive, it must invest significant financial resources in developing new product features and enhancements, defending its intellectual property and in maintaining customer satisfaction worldwide. In marketing its products, the Company will face competition from suppliers employing new technologies in order to extend the capabilities of competitive products beyond their current limits or increase their productivity. Once a manufacturer has selected a particular vendor's capital equipment, the Company believes that the manufacturer generally relies upon that equipment and frequently will attempt to consolidate related capital equipment requirements with the same vendor, to the degree that such consolidation is possible. In addition, increased competitive pressure could lead to intensified price-based competition, resulting in lower prices and margins, which would materially adversely affect the Company's business and results of operations. MANUFACTURING The Company's primary manufacturing operations are based in Exton, Pennsylvania, and consist of procurement, assembly and test engineering. The Company also has operations in a Company owned facility in West Chester, Pennsylvania, where it manufactures certain subassemblies. The Company leases a 60,000 square foot production facility in Exton, Pennsylvania. The facility more than doubled the previous production capacity and was substantially completed as of October 31, 1998. Occupancy of this new production facility took place in February 1999. The Company's OMNI and PRISM systems are based upon a common set of modules, enabling the Company to reduce manufacturing costs by using a large number of common subassemblies and components. Many of the major subassemblies are purchased complete from outside sources. The Company focuses its manufacturing efforts on carefully documented assembly and integration activities which the Company has determined to be critical to the successful operation of its products. In 1994, as a result of adoption of SEMATECH measurement and improvement methodologies, the Company began a concerted effort to meet the requirements of ISO 9001, the international standard for quality systems. In February 1997, the Company received ISO 9001 certification, which it continues to maintain. Certain of the Company's components and subassemblies are obtained from sole suppliers or limited groups of suppliers, which are often small, independent companies. Moreover, the Company believes that certain of these components and subassemblies can only be obtained from its current suppliers. The Company generally acquires such components on a purchase order basis and has supply contracts of up to one year in duration. The Company's reliance on outside vendors generally, and on sole suppliers in particular, involves several risks which are discussed in "Forward Looking Statements and Risk Factors - Sole or Limited Sources of Supply." However, historically the Company has not experienced any significant delays in manufacturing due to an inability to obtain components, and the Company is not currently aware of any specific problems regarding the availability of components which might significantly delay the manufacturing of its systems in the future. 11 REGULATORY MATTERS The Company is subject to a variety of federal, state and local laws, rules and regulations relating to the use, storage, discharge and disposal of hazardous chemicals used in its research, development and engineering activities. The Company believes that it is currently in compliance in all material respects with such laws, rules and regulations. However, failure to so comply could result in substantial liability to the Company, suspension or cessation of the Company's operations, restrictions on the Company's ability to expand at its present location or requirements for the acquisition of additional equipment or other significant expense. To date, the cost of compliance with environmental rules and regulations has not had a material effect on the Company's operations. INTELLECTUAL PROPERTY The Company relies on a combination of patent, copyright, trademark, trade secret laws, nondisclosure agreements, and other forms of intellectual property protection to protect its proprietary technology. The Company currently holds thirteen patents in the United States, eight patents in Japan, three patents in Korea, one patent in Singapore, and thirteen patents in various European countries. The Company also has multiple patent applications pending in the United States and various foreign jurisdictions. The technology covered in the existing patents includes the Company's Full-Flow process and Direct-Displacement drying technologies upon which the Company's current product offerings are based. While the Company recognizes that these patents have significant value, the Company also believes that the innovative skills, technical expertise and know-how of its personnel in applying the art reflected in these patents would be difficult, costly, and time consuming to reproduce. The Company is involved in several lawsuits concerning intellectual property. See Item 3 "Legal Proceedings". EMPLOYEES As of October 31, 1999, the Company had 258 employees, of which 221 were full-time and the balance part-time employees. There were 76 employees in manufacturing operations, 56 in research, development and engineering, 22 in sales and marketing, 78 in customer satisfaction and field support and 26 in general administrative and finance positions. Of the 258 total full-time employees, 10 were located in Asia and 16 were located in Europe. While the Company has generally been able to find qualified candidates to fill new positions, personnel shortages occasioned by the strong economy and low unemployment continue to make it more difficult to recruit qualified candidates for certain positions in design, field support, testing and process engineering. Once replacement personnel are recruited, the Company then faces the task of training and integrating these new employees. There can be no assurance that the Company will be successful in retaining, recruiting, training and integrating the necessary key personnel following the end of the downturn in the semiconductor equipment sector, and any failure to expand these areas in an efficient manner could have a material effect on the Company's results of operations. See "Forward Looking Statements and Risk Factors - Management of Growth". None of the Company's employees is represented by a labor union and the Company has never experienced a work stoppage, slowdown or strike. The Company considers its relationships with its employees to be good. 12 FORWARD LOOKING STATEMENTS AND RISK FACTORS Statements in this Annual Report on Form 10-K, including those concerning the Company's expectations of future sales, gross profits, research, development and engineering expenses, selling, general and administrative expenses, product introductions and cash requirements, include certain forward-looking statements. As such, actual results may vary materially from such expectations. Factors which could cause actual results to differ from expectations include variations in the level of orders which can be affected by general economic conditions and growth rates in the semiconductor manufacturing industry and in the markets served by the Company's customers, the international economic and political climates, difficulties or delays in product functionality or performance, the delivery performance of sole source vendors, the timing of future product releases, failure to respond adequately to either changes in technology or customer preferences, changes in pricing by the Company or its competitors, ability to manage growth, risk of nonpayment of accounts receivable, changes in budgeted costs or failure to realize a successful outcome in pending patent litigation, all of which constitute significant risks. For a description of additional risks, see below. There can be no assurance that the Company's results of operations will not be adversely affected by one or more of these factors. Fluctuations in Operating Results. The Company incurred a net loss of approximately $10.5 million in fiscal 1999 and $11.8 million in fiscal 1998 due primarily to a decline in sales. The Company has derived substantially all of its net sales from the sale of a limited number of wet processing systems which typically have list prices, before custom configurations, ranging from $1.2 million to $3.0 million per system. Systems with custom configurations can be priced in excess of $4.1 million per system. At the Company's current revenue level, each sale or failure to make a sale can have a material effect on the Company. A cancellation, rescheduling or delay in a shipment near the end of a particular quarter may cause net sales in that quarter to fall significantly below the Company's expectations and thus may materially adversely affect the Company's operating results for such quarter. Other factors which may lead to fluctuations in the Company's quarterly and annual operating results include: market acceptance of the Company's systems and its customers' products; the number of systems being manufactured during any particular period; the geographic mix of sales; the mix of sales by distribution channel; the timing of announcement and introduction of new systems by the Company and its competitors; a downturn in the market for personal computers or other products incorporating semiconductors; variations in the types of systems sold; product discounts and changes in pricing; delays in deliveries from suppliers; delays in orders due to customers' financial difficulties; and volatility in the semiconductor industry and the markets served by the Company's customers. Also, customers may face competing capital budget considerations, thus making the timing of customer orders uneven and difficult to predict. Many of the factors listed above are beyond the control of the Company. In addition, continued investments in research, development and engineering and the development of worldwide sales, marketing and customer satisfaction organization will result in significantly higher fixed costs. There can be no assurance that the Company will be able to achieve a rate of growth or level of sales in any future period commensurate with its level of expenses. The impact of these and other factors on the Company's operating results in any future period cannot be forecast with any degree of certainty. Due to the foregoing factors, the Company has experienced and it is likely that in some future quarter or quarters the Company will continue to experience operating results which may be below the expectations of analysts and investors. In such event, the price of the Company's Common Stock would likely be materially adversely affected. See Item 7 and "Business-Industry Background". 13 Acceptance by Customers of New Technology. The Company's products all rely upon proprietary technology to accomplish wet chemical processing during semiconductor manufacturing, which technology is significantly different from the technological approaches in current usage for these processes. Most of the Company's competitors make use of established technology with competitive product variations. The semiconductor industry is especially resistant to the introduction of changes in process or approach in a manufacturing cycle which is quite long (up to twelve weeks), consists of many separate process events (up to 400 or more) and suffers from limited control measurement points during the overall fabrication process. Accordingly, managers of semiconductor fabs have exhibited a strong resistance to changing equipment and have been reluctant to embrace new technology, including the Company's wet processing systems. Because a substantial investment is required by semiconductor manufacturers to install and integrate capital equipment into a semiconductor production line, these manufacturers will tend to choose semiconductor equipment suppliers based on past relationships, product compatibility and proven operating performance. Once a manufacturer has selected a particular vendor's capital equipment, the Company believes that the manufacturer generally relies upon that equipment for a specific production line application and frequently will attempt to consolidate related capital equipment purchases with the same vendor, to the degree that such consolidation is possible. Many semiconductor manufacturers continue to extract marginal improvements from existing wet processing technology in order to address issues such as increases in feature density, reductions in line width and planned increases in wafer size. There can be no assurance that the Company's products will achieve broad market acceptance. See "Business-Industry Background" and "Business-Products". Customer Concentration. Historically, relatively few customers have accounted for a substantial portion of the Company's net sales. The Company expects a significant portion of its future sales to remain concentrated within a limited number of customers. The Company's arrangements with its customers are generally on a purchase order basis and not pursuant to long-term contracts. There can be no assurance that the Company will be able to retain its major customers or that such customers will not cancel or reschedule orders or that canceled orders will be replaced by other sales. A cancellation, reduction or delay in orders from any of the Company's significant customers, including cancellations, reductions or delays due to market, economic or competitive conditions in the semiconductor industry, or the loss of any such customers, could have a material adverse effect upon the Company's results of operations. See "Business-Customers". Sole or Limited Sources of Supply. The Company relies to a substantial extent on outside vendors to manufacture and supply many of the components and subassemblies used in the Company's systems. As discussed under "Business-Manufacturing", certain components and subassemblies are obtained from a sole supplier or a limited group of suppliers, many of which are small, independent companies. Moreover, the Company believes that certain of these components and subassemblies can only be obtained from its current suppliers. The Company's reliance on outside vendors generally and a sole or a limited group of suppliers in particular, involves several risks, including a potential inability to obtain an adequate supply of required components and reduced control over pricing, timely delivery and quality of components. The Company has experienced and continues to experience some reliability and quality problems with certain key components and subassemblies provided by single source suppliers. Because the manufacture of certain of these components and subassemblies is a complex process and requires long lead times, there can be no assurance that delays or shortages caused by suppliers will not occur. The process of obtaining and qualifying replacement suppliers could be lengthy, and no assurance can be given that any additional sources would be available to the Company on a timely basis. Any inability to obtain adequate or timely deliveries of components and subassemblies which conform to the Company's reliability and quality requirements or any other circumstance that would require the Company to seek alternate sources of supply or, if possible, to manufacture such components internally could delay the Company's ability to ship its systems and could have a material adverse effect on the Company. See "Business-Manufacturing". 14 Dependence on Limited Product Offerings. To date, the Company's net sales have consisted primarily of sales to the semiconductor industry, although the Company has developed and sold a version of its wet processing system for use in Flat Panel Display ("FPD")manufacturing. The Company will continue to offer for sale only those FPD system configurations that have already been developed and tested. The ability of the Company to diversify its operations through the introduction and sale of system enhancements with new applications is dependent upon the success of the Company's continuing research, development and engineering activities, as well as its marketing efforts. The Company's continued sales growth will depend upon achieving market acceptance of its OMNI and PRISM systems and future products. There can be no assurance that the Company will be able to develop, introduce or market new systems or system enhancements in a timely or cost-effective manner or that any such systems or enhancements will achieve market acceptance. See "Business-Products". Dependence on Product Development. The markets in which the Company and its customers compete are characterized by rapidly changing technology, evolving industry standards and continuous improvements in products and services. In order to remain competitive in the future, the Company will need to develop and commercialize additional cleaning and etching processes based on its Full-Flow technology. Further, the Company will need to develop new products which are capable of supporting customers' increasingly complex process requirements and which compete effectively on the basis of overall COO, including process performance and capital productivity. The success of new system introductions is dependent on a number of factors, including timely completion of new system designs, system performance and market acceptance, and may be adversely affected by manufacturing inefficiencies associated with the start up of such new introductions and the challenge of producing systems in volume which meet customer requirements. Because it is generally not possible to predict the time required and costs involved in reaching certain research, development and engineering objectives, actual development costs could exceed budgeted amounts and estimated product development schedules may require extension. Any delays or additional development costs could have a material adverse effect on the Company's business and results of operations. There can be no assurance that the Company will successfully develop and introduce new products or enhancements to its existing products on a timely basis or in a manner which satisfies potential customers or achieves widespread market acceptance. Because of the complexity of the Company's systems, significant delays can occur between the introduction of systems or system enhancements and the commencement of commercial shipments. The Company has from time to time experienced delays in the introduction of, and certain technical and manufacturing difficulties with, certain of its systems and enhancements, and may experience such delays and technical and manufacturing difficulties in future introductions or volume production of new systems or enhancements. The Company's inability to overcome such difficulties, to meet the technical specifications of any new systems or enhancements, or to manufacture and ship these systems or enhancements in volume and in a timely manner, would materially adversely affect the Company's business and results of operations, as well as its customer relationships. In addition, the Company from time to time incurs unanticipated costs to ensure the functionality and reliability of its products early in their life cycles, which costs can be substantial. If new products or enhancements experience reliability or quality problems, the Company could encounter a number of difficulties, including reduced orders, higher manufacturing costs, delays in collection of accounts receivable and additional service and warranty expenses, all of which could materially adversely affect the Company's business and results of operations. See "Business-Products" and "Business-Research, Development and Engineering". 15 Management of Growth. The Company has previously undergone periods of rapid growth. It is possible that a recovery in the semiconductor capital equipment sector could be marked with another period of rapid growth. To accommodate this growth, the Company would face the task of identifying, recruiting, training and integrating new employees quickly enough to keep pace with such rapid growth, should it occur. Many of the positions which are critical to supporting such growth require experience with semiconductor capital equipment and recruitment of such experienced personnel can be quite difficult. Another period of rapid growth may also strain the Company's management, manufacturing, financial and other resources. Any failure to expand these areas in an efficient manner in response to such growth, should it occur, could have a material adverse effect on the Company. See "Business-Employees". Dependence upon Personnel. The success of the Company depends to a large extent upon the efforts of key managerial and technical employees. The loss of services of any of these persons could have a material adverse effect on the Company. The Company has not entered into written employment agreements with any of its executive officers other than its Chief Financial Officer and Vice President - Engineering, nor does the Company maintain key man life insurance on any of its personnel. In addition, the success of the Company will also depend upon its ability to attract and retain qualified employees, particularly highly skilled design and process engineers involved in the manufacture of existing systems, the development of new applications and systems and the installation, training and maintenance related to those systems already installed at customer sites. There can be no assurance that the Company will be successful in retaining or recruiting, training and integrating the necessary personnel to support such growth, which could have a material adverse effect on the Company's results of operations. See "Business-Employees" and "Executive Officers of the Registrant". Lengthy Sales Cycle. Sales of the Company's systems depend upon the decision of a prospective customer to increase manufacturing capacity. These decisions typically involve significant capital commitments or a change in process approach, which may require the approval of a customer's senior management. The amount of time from the initial contact with the customer to the first order is typically one to two years. The Company's ability to obtain orders from potential customers has depended in the past and may continue to depend in the future upon customers purchasing a new system in order to evaluate Full-Flow and Direct-Displacement drying technologies as an alternative to existing wet processing technologies. For many potential customers, decisions to undertake such evaluations occur infrequently. The Company often experiences delays in finalizing further system sales while the customer evaluates and receives approvals for the purchase of additional systems. Such delays may include the time necessary to plan, design or complete a new or expanded fab. Due to these factors, the Company's systems typically have a lengthy sales cycle during which the Company may expend substantial funds and management effort. There can be no assurance that any of these expenditures or efforts on the part of the Company will result in sales. See "Business-Products" and "Business-Competition". Volatility of the Semiconductor Industry. The Company's business depends, in significant part, upon capital expenditures by manufacturers of semiconductor devices, which in turn depend upon the current and anticipated market demand for such devices and the products utilizing such devices. The semiconductor industry has been highly volatile and historically has experienced periods of oversupply, resulting in significantly reduced demand for capital equipment, including wet processing systems. The industry recently had an over-capacity situation which began during the period between 1995 and 1997 when a significant number of new or expanded fabs were brought into production, creating a significant over capacity and declining prices for devices, especially DRAM. 16 These events caused certain semiconductor manufacturers to postpone or cancel equipment deliveries to previously planned expansions or new fab construction projects which, in turn, resulted, according to an industry analyst, in a 29% decline in the worldwide sales of semiconductor capital equipment in 1998. Current estimates project a 17% worldwide sales growth in the semiconductor capital equipment market for 1999. Historically, a significant portion of the Company's sales have been to Asian companies. The significant over capacity in the semiconductor industry and the recent economic crisis in Asia has had a material adverse effect on the Company's operating results in fiscal 1998 and 1999. The Company has experienced cancellation of orders, and, there can be no assurance that further order cancellations or reductions in order growth or the level of overall orders for semiconductor capital equipment will not have a further material adverse effect upon the Company's business or results of operations. The need for continued investment in research, development and engineering, marketing and customer satisfaction activities may limit the Company's ability to reduce expenses in response to continued or future downturns in the semiconductor industry. The Company's net sales and results of operations could be materially adversely affected if other downturns or slowdowns in the semiconductor markets occur in the future. International Sales. Sales to customers located outside the United States accounted for approximately 33% of the Company's net sales in fiscal 1999, 46% in fiscal 1998 and 65% in fiscal year 1997. The Company anticipates that such international sales are subject to numerous risks, including United States and international regulatory requirements and policy changes, political and economic instability, increased installation costs, difficulties in accounts receivable collection, exchange rates, tariffs and other barriers, extended payment terms, difficulty in staffing and managing international operations, dependence on and difficulties in managing international distributors or representatives and potentially adverse tax consequences. Furthermore, although the Company endeavors to meet technical standards established by foreign regulatory bodies, there can be no assurance that the Company will be able to comply with such standards in the future. In addition, the laws of certain other countries may not protect the Company's intellectual property to the same extent as the laws of the United States. Although management believes that it maintains good relationships with PKL, Innotech, AMPOC, Silicon International and Aneric, there can be no assurance that these relationships will continue. In the event of a termination of any of the Company's representation, agency or distribution arrangements, the Company's international sales could be adversely affected. Although the Company's sales are curently denominated in United States dollars, to the extent that the Company expands its international operations or changes its pricing practices to denominate prices in international currencies, the Company will be exposed to increased risks of currency fluctuation. Additionally, a strengthening in the value of the United States dollar in relation to international currencies may adversely affect the Company's future sales to international customers. There can be no assurance that any of these factors will not have a material adverse effect on the Company. See "Business-Sales and Marketing" and Part II, Item-7 "Management's Discussion and Analysis of Financial Condition and Results of Operations Overview". Highly Competitive Industry. As discussed more fully under "Business-Competition", the Company faces substantial competition in its market segments from both established competitors and potential new entrants. In marketing its products, the Company will face competition from suppliers employing new technologies in order to extend the capabilities of competitive products beyond their current limits or increase their productivity. 17 In addition, increased competitive pressure could lead to intensified price-based competition, resulting in lower prices and margins, which would materially adversely affect the Company's business and results of operations. Intellectual Property Rights The Company relies on a combination of patent, copyright, trademark, and trade secret laws, nondisclosure agreements, and other forms of intellectual property protection to protect its proprietary technology. Currently the Company is involved in several lawsuits concerning intellectual property. See "Business - - Intellectual Property", and Item 3 "Legal Proceedings". In all of these cases, there can be no assurance that any claim of the subject patents will be finally adjudged to encompass use of the competitors' product or that the subject patent will not be found to be unenforceable or invalid during prosecution of the actions. A finding of invalidity or unenforceability could result in the Company's competitors developing products using the Company's proprietary technology, which in turn could have a material adverse effect on the Company. The Company believes that these proceedings, even if completely successful, will be costly to the Company in terms of both financial and management resources. There can be no assurance that additional patents will be issued on the Company's pending applications or that competitors will not legitimately be able to ascertain proprietary information embedded in the Company's products, which is not covered by patent or copyright. In such case, the Company may be precluded from preventing its competitors from making use of such information. There are no pending lawsuits or claims against the Company regarding infringement of any existing patents or other intellectual property rights of others. There can be no assurance, however, that such infringement clams will not be asserted in the future, nor can there be any assurance, if such claims are made, that the Company will be able to defend such claims successfully or, if necessary, obtain licenses on reasonable terms. Adverse determinations in any litigation naming the Company could subject the Company to significant liabilities to third parties, require the Company to seek licenses from third parties, and prevent the Company from manufacturing and selling its systems. Any of these events could have a material adverse effect on the Company. Environmental Regulation. The Company is subject to a variety of federal, state and local laws, rules and regulations relating to the use, storage, discharge and disposal of hazardous chemicals used during its research, development and engineering activities. See "Business-Manufacturing". Volatility of Stock Price. The Company believes that a variety of factors could cause the price of the Company's Common Stock to fluctuate, perhaps substantially, including: announcements of developments related to the Company's business; quarterly fluctuations in the Company's actual or anticipated operating results and order levels; general conditions in the semiconductor and FPD industries or the worldwide economy; announcements of technological innovations; new products or product enhancements by the Company or its competitors; developments in patents or other intellectual property rights and litigation; and developments in the Company's relationships with its customers, distributors and suppliers. In addition, in recent years the stock market in general and the market for shares of small capitalization and semiconductor industry-related stocks in particular have experienced extreme price fluctuations which have often been unrelated to the operating performance of affected companies. Any such fluctuations in the future could adversely affect the market price of the Company's Common Stock. There can be no assurance that the market price of the Common Stock of the Company will not decline. 18 Year 2000 Issues There can be no assurances that the Company will not experience serious unanticipated negative consequences and/or material costs caused by undetected errors or defects in technology used in its products or internal systems, which are comprised predominantly of third-party software and hardware, or by the inability of third-parties to adequately disclose and correct their Year 2000 issues. While the Company presently believes that the ultimate outcome of its efforts to be Year 2000 ready will not have a material effect on the Company's financial position, liquidity or operations, there can be no assurances that unanticipated increased costs will not have a material effect on the results of operations. ITEM 2. PROPERTIES In the first quarter of fiscal 1999, the Company conducted its manufacturing in a 26,000 square foot facility which it owns in West Chester, Pennsylvania. Occupancy of a new 60,000 square foot production facility located in Exton, Pennsylvania occurred in February of 1999. Once the new facility became fully operational, the Company converted its West Chester, Pennsylvania facility to a multi-use facility that houses the Company's applications laboratory, a training facility and manufacturing operations for production of certain subassemblies. The applications laboratory is used for research and development and as a marketing tool for prospective customers and to test new processes using the Company's patented technology. The Company also leased a 32,000 square foot prototype laboratory and storage facility through June 1999. In January 1996, the Company commenced occupancy of a 38,400 square foot leased office building located in West Chester, to serve as the location for its engineering, sales and marketing, customer satisfaction and administration activities, prior to completion of its new facilities in Exton, Pennsylvannia. The lease expires in November 2000. The Company has tenants that sublease approximately 30% of this building until November 2000. In April 1997, the Company leased an 8,023 square foot facility in the same industrial park as its manufacturing facility for its customer satisfaction staff. The lease on this facility expired in March 1999 at which time the Company vacated the facility. In April 1999, the Company occupied an 80,000 square foot office facility in Exton, Pennsylvania, adjacent to its new 60,000 square foot production facility. The Company moved its engineering, sales and marketing, customer satisfaction and administrative functions to this new facility. The Company is actively seeking a tenant for approximately 20,000 square feet of this facility. See Note 16 of the Notes to Consolidated Financial Statements. The Company believes that suitable additional space, if ultimately needed, will be available on terms acceptable to the Company. ITEM 3. LEGAL PROCEEDINGS The Company has asserted claims of its U.S. Patent No. 4,911,761 (the "`761 patent") against defendants in two actions, CFMT, INC. AND CFM TECHNOLOGIES, INC. V. STEAG MICROTECH, INC., Civil Action No. 95-CV442 and CFMT, INC. AND CFM TECHNOLOGIES, INC. V. YIELDUP INTERNATIONAL CORP., Civil Action No. 95-549-RRM, alleging infringement, inducement of infringement, and contributory infringement of the patent. The Company asserted claims of U.S. Patent Nos. 4,778,532 (the "`532 patent") and 4,917,123 (the "`123 patent") against the second defendant in a subsequent action, CFMT, Inc and CFM Technologies. v. YieldUP International Corp., Civil Action No. 98-790-RRM. In addition, the Company is also both a defendant and a counterclaim plaintiff in a fourth litigation, DAINIPPON SCREEN MANUFACTURING CO., LTD. AND DNS ELECTRONICS, LLC V. CFMT, INC. AND CFM TECHNOLOGIES, INC., Civil Action No. 97-20270 JW, where the plaintiff seeks a declaratory judgment of non-infringement and that the `761 patent is invalid and the Company HAs counterclaimed alleging infringement, inducement of infringement, and contributory infringement of both the `761 patent and U.S. Patent Nos. 4,778,532 (the "`532 patent") and 4,917,123 (the "`123 patent"). 19 On July 10, 1995, the Company filed an action against STEAG Microtech, Inc. ("STEAG") in the United States District Court for the District of Delaware. The Company sought damages and a permanent injunction to prevent further infringement. STEAG Microtech Inc. denied infringement and has asserted, among other things, that the `761 patent is invalid ANd unenforceable. On December 12, 1997, following a two-week trial, the jury returned a verdict that STEAG Microtech Inc. willfully infringed the `761 patent and that the patent was not invalid. The jury awarded the Company damages of $3,105,000. The District Court subsequently upheld the jury's verdict and entered final judgment and a permanent injunction in the Company's favor. STEAG, appealed the verdict and various rulings by the District Court to the Court of Appeals for the Federal Circuit ("CAFC"). On May 13, 1999, the CAFC affirmed the judgment of the District Court in all respects except one. With respect to infringement, the CAFC vacated the judgment and remanded the case to the District Court for reconsideration of its holding of literal infringement. On November 8, 1999 the District Court issued an opinion that upheld the finding of literal infringement and reinstated the judgement and injunction in favor of CFM. STEAG has appealed this November 8, 1999 decision. On September 11, 1995, the Company brought an action against YieldUP International Corp. ("YieldUP") in the United States District Court for the District of Delaware. The Company seeks damages and a permanent injunction to prevent further infringement. YieldUP has denied infringement and has asserted, among other things, that the subject patent is invalid and unenforceable. On October 14, 1997, the District Court issued a decision granting summary judgment in favor of YieldUP on the grounds that the process used in YieldUP processing equipment does not infringe the `761 patent. THe District Court subsequently granted the Company's request for reargument of the decision, and the Company and YieldUP have submitted additional briefs on the issue. The District Court has not issued a decision on the reargued summary judgment motion. On December 30, 1998, the Company filed an additional lawsuit in Federal Court in Wilmington, Delaware charging patent infringement of the `123 and `532 patents against YieldUP. The Company is seeking a permanent injunction preventing YieldUP from using, making or selling equipment that violates these patents and requests damages for past infringement. YieldUP amended its answer to the Company's Complaint, asserting counter claims for alleged tortious interference with prospective economic advantage and defamation, and seeking compensatory and punitive damages. Fact discovery in this lawsuit closed on December 10, 1999. Trial is currently scheduled for May 1, 2000. In March, 1997, a third competitor, Dainippon Screen Mfg. Co. Ltd. and DNS Electronics LLC (collectively "DNS"), filed a suit against the Company in the United States District Court for the Northern District of California. In this action, DNS requested the Court to declare that DNS does not infringe the `761 patent and that the patent is invalid and unenforceable. DNS souGHt monetary damages and injunctive relief for alleged violations of the Lanham Act, unfair competition, tortious interference with prospective economic advantage, and unfair advertising. The Court dismissed this action on the grounds of lack of personal jurisdiction and absence of an indispensable party. DNS appealed this ruling and the appellate court reversed the district court decision on April 29, 1998. The causes of action relating to the Lanham Act, unfair competition, tortious interference with prospective economic advantage, and unfair advertising have been dismissed. The remainder of the case has been returned to the district court. The Company has answered DNS's Complaint and has counterclaimed, alleging infringement by DNS of the `532, `123, and `761 patents. Discovery is presently ongoing. A claims construction hearing was held on November 12, 1999 and an initial claims construction Order issued on December 9, 1999. Trial currently set to begin in late September 2000. 20 Furthermore, STEAG Microtech Inc. has filed nullification proceedings against the Company's drying patents in Germany (DE68921757.8), UK (EP428,784), France (EP428,784), Netherlands (23184), Ireland (66389) and Japan (2,135,270). CFM chose to abandon the UK patent (UK EP428,784) because in its judgment, the anticipated costs of defending the nullity action were not warranted in view of the patent's limited added value to CFM's existing patent portfolio in the UK. The Company is proceeding to defend the remaining patents, but may chose to abandon one or more based on a cost benefit analysis. These proceedings could result in the nullification of any or all of the subject patents in the respective countries. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information concerning the Company's executive officers and key employees: NAME AGE POSITION ---- --- -------- Steven T. Bay 43 Vice President-Marketing and Technical Joseph E. Berger 41 Vice President-Worldwide Sales Roger A. Carolin 44 President, Chief Executive Officer and Director Jonathan A. Chlan 48 Director of Manufacturing Heinrich S. Erhardt 55 Vice President-Product Development Rudra N. Kar 43 Vice President-Engineering Garry M. Mayers 46 Vice President-Customer Service Christopher F. McConnell 46 Chairman of the Board of Directors Lorin J. Randall 56 Vice President-Finance, Chief Financial Officer, Secretary and Treasurer Steven Verhaverbeke 34 Director of Process Technology Alan E. Walter 45 Senior Vice President-Business Development STEVEN T. BAY joined the Company in April 1992 and is currently Vice President-Marketing and Technology. From July 1998 to February 1999 he served as Vice President-Chief Technical Officer. From September 1994 to July 1998 he served as Chief Technical Officer. From April 1992 to September 1994 he served as Director of Technology. Mr. Bay was formerly employed by Bridgetek, Inc. of San Jose, California, which was the manufacturer's representative for the Company in California and the Pacific Northwest. Mr. Bay received his BA in Chemistry from St. Louis University. JOSEPH E. BERGER joined the Company in June 1993 and is currently Vice President-Worldwide Sales. He served as Vice President-Worldwide Sales and Marketing from December 1995 to March 1999. Mr. Berger served as the Company's Director of Sales and Marketing from June 1995 to December 1995, and as Program Director from June 1993 to June 1995. Mr. Berger received his BS in Chemical Engineering from the University of Virginia and his MBA from the Harvard Business School. ROGER A. CAROLIN has served the Company as a director since its inception in 1984 and as President and Chief Executive Officer since April 1991. From October 1990 to April 1991, he served as a marketing and sales consultant to the Company. From June 1984 to October 1990 Mr. Carolin was Senior Vice President of The Mills Group, Inc., a real estate development firm. Previously, Mr. Carolin was with The General Electric Company and Honeywell, Inc. in a variety of technical positions. Mr. Carolin received his BS in Electrical Engineering from Duke University and his MBA from the Harvard Business School. 21 JONATHAN A. CHLAN joined the Company in January 1997 as Director of Manufacturing. From 1993 to January 1997 he served as Director of Operations for Echo Data Services, Inc., a disk duplication and fulfillment company. From 1984 to 1993 Mr. Chlan was the Director of Manufacturing of Commodore Business Machines, Inc., a computer manufacturer. HEINRICH S. ERHARDT joined the Company in January 1992 and is currently Vice President-Product Development. From January 1992 to September 1996, he served as Vice President-Engineering. Mr. Erhardt received his BS in Mechanical Engineering from City University of New York and his MS in Engineering Science from the Pennsylvania State University. Mr. Erhardt resigned from the Company on December 31, 1999 to become the sole-proprietor of one of the Company's suppliers. RUDRA N. KAR joined the Company in January 1999 as the Vice President Engineering. From 1996 to 1998 he served as the Vice President, Engineering and Process Technology for Integrated Process and Equipment Company ("IPEC"), a manufacturer of CMP equipment and CMP-related products for use principally in manufacturing of semiconductor devices. From 1995 to 1996 he served as the Director, Product Engineering at IPEC. From 1992 to 1995 he was the General Manager of FICO America, an assembly equipment manufacturer. Mr. Kar received his BS degree from the Indian Institute of Technology and his MSME from Iowa State and his MBA degree from The University of Phoenix. GARRY M. MAYERS joined the Company in October 1996 as Vice President-Customer Support. From April 1991 until October 1996, Mr. Mayers was Director of World Wide Customer Support at ADE Corporation, a manufacturer of metrology equipment for silicon wafers. Mr. Mayers attended Northeastern University, majoring in electrical engineering. CHRISTOPHER F. MCCONNELL founded the Company in May 1984 and served as President and Chief Executive Officer until April 1991. In October 1990 he was named Chairman of the Board of Directors. Prior to forming the Company, Mr. McConnell held various technical and marketing positions with Dow Chemical. Mr. McConnell received his BS and MS degrees in Chemical Engineering from Dartmouth College and Purdue University, respectively, and his MBA from Harvard Business School. Mr. McConnell is a named inventor on several of the Company's patents. Mr. McConnell is a director and Chairman of the Board of Directors of Batteries Batteries, Inc., (NASDAQ: BATS) a company which is an assembler and distributor of specialty batteries and cellular products. LORIN J. RANDALL joined the Company in January 1995 as Vice President-Finance, Chief Financial Officer, Secretary and Treasurer. From May 1994 to June 1995, Mr. Randall served as the President and Chief Executive Officer of Greenwich Pharmaceuticals Incorporated, a drug development company where from September 1991 to May 1994, he served as Vice President-Finance and Chief Financial Officer. Previously, Mr. Randall served as chief executive officer or chief financial officer of three companies in the electronics or software business. Mr. Randall received his BS in Accounting from The Pennsylvania State University and his MBA from Northeastern University. STEVEN VERHAVERBEKE joined the Company in February 1995 as Director of Process Technology. Dr. Verhaverbeke was employed by IMEC of Leuven, Belgium, a microelectronics research institute, as a senior researcher from August 1994 to January 1995 and as a doctoral researcher from September 1988 to July 1993. Dr. Verhaverbeke also served as a researcher at Tohoku University in Sendai, Japan from August 1993 to August 1994. Dr. Verhaverbeke received his Ph.D. in Chemical Engineering from K. U. Leuven, Belgium. ALAN E. WALTER co-founded the Company in 1984 and currently serves as Senior Vice President-Business Development. Prior to joining the Company, he was with the Cochrane Division of Crane Company, a producer of ultra-high purity water systems. Mr. Walter received his BS in Chemical Engineering from the University of Delaware. He is a named inventor on ten of the Company's patents. 22 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock is traded in The Nasdaq Stock Market under the symbol CFMT. The range of high and low closing prices for the Common Stock as reported by the National Association of Securities Dealers, Inc. for the periods indicated below is as follows: FISCAL 1998 HIGH LOW -------- ------- 1st Quarter................................... $21.87 $13.50 2nd Quarter .................................. 19.37 10.75 3rd Quarter .................................. 15.00 8.00 4th Quarter .................................. 9.75 5.50 FISCAL 1999 1st Quarter................................... $12.25 $6.63 2nd Quarter .................................. 13.00 6.63 3rd Quarter................................... 11.13 7.00 4th Quarter .................................. 11.13 7.63 - ------------------------------------------------------------------------------ These prices reflect inter-dealer quotations, without retail mark-ups, mark-downs or other fees or commissions, and may not necessarily represent actual transactions. As of January 13, 2000, the closing quotation for the Common Stock was $9.75. As of January 13, 2000, there were approximately 175 holders of record and the Company believes that there were approximately 4,000 beneficial owners of the Company's Common Stock. The Company has never declared or paid a cash dividend on its Common Stock and does not anticipate paying any cash dividends in the foreseeable future. The Company currently intends to retain its earnings, if any, for the development of its business. The declaration of any future dividends by the company is within the discretion of its Board of Directors and will be dependent on the earnings, financial condition and capital requirements of the company as well as any other factors deemed relevant by its Board of Directors. ITEM 6. SELECTED FINANCIAL DATA. The following table contains certain selected consolidated financial data of the Company and is qualified by the more detailed Consolidated Financial Statements and Notes thereto included elsewhere in this report. The consolidated statement of operations data for the fiscal years ended October 31, 1997, 1998 and 1999 and the consolidated balance sheet data as of October 31, 1998 and 1999 have been derived from the Consolidated Financial Statements of the Company which have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report included elsewhere herein. The consolidated statement of operations data for the fiscal years ended October 31, 1995 and 1996 the consolidated balance sheet data as of October 31, 1995, 1996 and 1997 have been derived from the Consolidated Financial Statements of the Company which have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports not included herein. This data should be read in conjunction with the Consolidated Financial Statements and Notes thereto and Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere herein. 23
FISCAL YEAR ENDED OCTOBER 31, ------------------------------------------------------------------ 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Net sales ................... $31,563 $33,155 $75,772 $44,013 $23,430 Cost of sales ............... 20,997 24,426 40,072 23,317 13,463 ------- ------- ------- ------- ------- Gross profit ............. 10,566 8,729 35,700 20,696 9,967 ------- ------- ------- ------- ------- Operating Expenses: Research, development and engineering ........... 10,040 11,496 9,334 4,375 1,717 Selling, general and administrative ........ 17,812 17,568 19,360 11,679 5,972 ------- ------- ------- ------- ------- Total operating expenses 27,852 29,064 28,694 16,054 7,689 ------- ------- ------- ------- ------- Operating income(loss) ...... (17,286) (20,335) 7,006 4,642 2,278 Interest (income) ........... (1,658) (2,048) (2,163) (271) (72) Interest expense ............ 249 242 281 428 245 ------- ------- ------- ------- ------- Income (loss) before income taxes ..................... (15,877) (18,529) 8,888 4,485 2,105 Income tax provision (benefit) ................. (5,398) (6,746) 2,666 1,525 703 ------- ------- ------- ------- ------- Net income (loss) ........... $(10,479) $(11,783) $6,222 $2,960 $1,402 ======= ======= ======= ======= ======= Net income (loss) per common share: Basic ................... $(1.34) $(1.49) $0.85 $0.64 $0.37 ======= ======= ======= ======= ======= Diluted ................. $(1.34) $(1.49) $0.80 $0.61 $0.35 ======= ======= ======= ======= ======= Shares used in computing net income (loss) per common share: Basic ................... 7,849 7,908 7,318 4,624 3,802 ======= ======= ======= ======= ======= Diluted ................. 7,849 7,908 7,764 4,831 3,994 ======= ======= ======= ======= =======
OCTOBER 31, ---------------------------------------------------------------- 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- (IN THOUSANDS) BALANCE SHEET DATA: Cash, cash equivalents and short-term investments ....... $24,216 $41,394 $12,254 $ 46,181 $ 408 Working capital ...... 45,070 64,266 27,525 81,796 8,136 Total assets ......... 82,086 89,813 44,251 109,496 18,454 Long-term debt, less current portion ... 1,628 2,186 2,525 2,571 3,005 Shareholders' equity . 66,693 77,782 32,711 89,868 9,775
24 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW CFM Technologies, Inc. designs, manufactures and markets advanced wet processing equipment for sale to the worldwide semiconductor manufacturing industry. The Company was founded in 1984 and began commercial operations in 1990 following a period of technology and product development, during which time the Company's patented Full-Flow enclosed processing and Direct-Displacement drying technologies were developed. The Company has derived substantially all of its revenues from the sale of a relatively small number of its systems, recent sales of which have ranged in price from approximately $1.2 million to $3.0 million. As of October 31, 1999, the Company had shipped over 220 processing vessels (some shared-module systems have two processing vessels) to more than 30 manufacturers worldwide. During fiscal 1999, the Company's net sales declined slightly from fiscal 1998 and the Company realized a net loss of $10.5 million. Fiscal 1998 net sales declined significantly from fiscal 1997 and the Company realized a net loss of $11.8 million. Both fiscal 1999 and 1998 losses were the result of lower net sales because of continued excess production capacity in the semiconductor manufacturing industry. Prior to fiscal 1998, the Company had been undergoing a period of rapid growth with net sales during fiscal 1997 increasing by 72% over net sales for fiscal 1996. Net sales of Full-Flow systems to companies in the Flat Panel Display ("FPD") manufacturing industry represented 0%, 6% and 24% of total net sales, primarily international sales, in fiscal 1999, 1998 and 1997, respectively. Following an analysis of the size of the FPD wet processing equipment market, the potential for successful market penetration and the volatility of that market, the Company will offer for sale only those FPD system configurations that have already been developed and tested and does not anticipate significant continuing sales to manufacturers of FPD's. The Company sells its systems worldwide and records a significant portion of its sales to customers outside the United States. In fiscal 1999, international sales constituted approximately 33% of net sales, down from 46% in fiscal 1998 and 65% in fiscal 1997. Sales to customers in East Asia represented 29%, 28% and 47% of total sales in fiscal 1999, 1998 and 1997, respectively. Beginning in the fall of 1997 and continuing through most of 1999, the currencies and economies of certain Asian countries, including Korea, were distressed. Some of these Asian countries subsequently experienced changes in currency valuation, received external financial support and agreed to certain economic reorganization programs anticipated to reduce growth and credit demand. The Company reduced its staff in fiscal 1998 by approximately 30% in response to reductions in demand for its products and services. The Company adopted a strategy of continued investment in new product and process development and the retention of field and customer support personnel necessary to improve customer satisfaction. The significant decline in overall demand for the Company's products in the global marketplace resulted in significant losses. Future results will depend upon a variety of factors, including the timing of significant orders, the ability of the Company to bring new systems to market, the timing of new product releases by the Company's competitors, the timing of the recovery from the downturn in capital spending by the Company's customers, the impact of economic controls in countries where the Company does business, market acceptance of new or enhanced versions of the Company's systems, changes in pricing by the Company or its competitors and the volatility of the semiconductor industry and of the markets served by the Company's customers. The Company's gross margin has been and will continue to be affected by a variety of factors including underabsorption of manufacturing overhead and fixed costs, the mix and average selling prices of systems and the mix of sales to domestic and international markets. The Company pays significant commissions and service and support fees to agents on sales in East Asia. As a result, gross margin and selling, general and administrative expenses as a percentage of net sales have in the past and will continue in the future to fluctuate with significant changes in the proportion of net sales in East Asia. 25 RESULTS OF OPERATIONS The following table sets forth the components of the Company's statements of operations for the fiscal years ended October 31, 1999, 1998 and 1997, expressed as a percentage of net sales: FISCAL YEAR ENDED OCTOBER 31, ----------------------------------- 1999 1998 1997 ---- ---- ---- Net sales ....................... 100.0% 100.0% 100.0% Cost of sales ................... 66.5 73.7 52.9 ----- ----- ----- Gross profit ............ 33.5 26.3 47.1 ----- ----- ----- Operating expenses: Research, development and engineering .............. 31.8 34.6 12.3 Selling, general and ....... administrative ........... 56.4 53.0 25.6 ----- ----- ----- Total operating expenses 88.2 87.6 37.9 ----- ----- ----- Operating income (loss) ......... (54.8) (61.3) 9.2 Interest (income) expense, net .. (4.5) (5.4) (2.5) ----- ----- ----- Income (loss) before income taxes (50.3) (55.9) 11.7 Income tax provision (benefit) .. (17.1) (20.4) 3.5 ----- ----- ----- Net income (loss) ............... (33.2)% (35.5)% 8.2% ===== ===== ===== Net Sales. Net sales decreased 5% to $31.6 million in fiscal 1999 from $33.2 million in fiscal 1998. Net sales for fiscal 1998 decreased 56% from $75.8 million in fiscal 1997. The decrease in net sales in both fiscal 1999 and 1998 resulted primarily from a reduction in overall demand for semiconductor manufacturing equipment as semiconductor device manufacturers curtailed expansion plans because of industry-wide overcapacity. Net sales for fiscal 1998 and 1997 included sales of Full-Flow systems to companies in the FPD manufacturing industry representing approximately 6% and 24%, respectively, of net sales. The Company will continue to offer for sale only those FPD system configurations that have already been developed and tested, which it believes will be small portion of net sales in fiscal 2000 and thereafter. International sales represented 33%, 46% and 65% of total net sales in fiscal 1999, 1998 and 1997, respectively. The Company expects international sales to continue to represent a significant portion of its net sales. For a description of economic events in Asian countries and their effects on the Company, see "Overview". Gross Profit. Gross profit as a percentage of net sales was 33.5%, 26.3% and 47.1% in fiscal 1999, 1998 and 1997, respectively. Gross profit in fiscal 1999, and more so in 1998, declined as a result of underabsorption of manufacturing overhead and fixed costs because of low production levels relative to fiscal 1997 and because of price competition from competitors which underutilized production capacity. The Company occupied a new 60,000 square foot production facility in February of 1999 which more than doubled its previous production capacity. This new facility has generated operating efficiencies through improved material flow. Such efficiencies are anticipated to increase with increasing production volume. Gross profit will continue to be affected by sales prices, product mix and production levels. Research, Development and Engineering. Research, development and engineering expenses decreased to $10.0 million or 31.8% of net sales in fiscal 1999 from $11.5 million or 34.6% of net sales in 1998. Fiscal 1998 expenses increased over fiscal 1997, which were $9.3 million or 12.3% of net sales. In fiscal 1998, the Company funded a portion of the costs of a joint development agreement with Semiconductor 300 which culminated in production validation of the Company's first Full-Flow platform to process 300mm semiconductor wafers and its associated processes. The Company believes that having a production-ready 300mm system positions it favorably to compete for sales of wet processing equipment to support the next generation of wafers for use in semiconductor manufacturing. The Company believes that continued substantial investment in research, development and engineering is critical to maintaining a strong technological position and, therefore, competitive advantage and accordingly expects such expenses in fiscal 2000 will continue at approximately the fiscal 1999 level. 26 Selling, General and Administrative. Selling, general and administrative expenses remained relatively constant in fiscal 1999 at $17.8 million or 56.4% of net sales from $17.6 million or 53.0% of net sales in fiscal 1998. Fiscal 1998 expenses decreased from $19.4 million or 25.6% of net sales in fiscal 1997 as a result of reduced sales and sales commission expenses. Fiscal 1999 expenses include approximately $2.9 million of litigation expenses undertaken to protect the Company's patents compared to $2.2 million in fiscal 1998. Litigation expenses are expected to be $1.0 to 1.5 million per quarter in fiscal 2000 as a result of two scheduled jury trials. See Part I, Item 3, "Legal Proceedings". The Company believes that, subject to improved demand in the markets which it serves, selling, general and administrative expenses will increase in fiscal 2000, as increased personnel and sales and support expenses are anticipated in connection with the Company's efforts to increase its net sales and as the Company continues to invest in developing and protecting its patents and other intellectual property rights. Interest (Income) Expense, Net. Interest income, net of interest expense, of $1.4 million in fiscal 1999 represented 4.5% of net sales, compared to $1.8 million or 5.4% of net sales in fiscal 1998 and $1.9 million or 2.5% of net sales in fiscal 1997. Net interest income for fiscal 1999, 1998 and 1997 was earned as a result of the investment of funds not immediately required for the Company's operations which were available as a result of the Company's follow-on offering completed in February 1997. Net interest income declined in fiscal 1999 and 1998 as a result of lower invested balances and lower interest rates. Income Tax Provision (Benefit). The Company's effective tax benefit rate was 34.0% in fiscal 1999 compared to a benefit rate of 36.4% for fiscal 1998. The effective income tax benefit rate primarily reflects the absence of any tax impact from the Company's foreign sales corporation based on the loss incurred for both fiscal 1999 and 1998. The effective tax rate for 1997 was 30.0%. The rate for fiscal 1997 reflected tax benefits from a reinstitution of the research and development tax credit along with significant tax benefits from the Company's foreign sales corporation. Approximately $2.2 million of income tax benefits were realized as a refund in 1999 from the carryback of 1998 losses to prior years' tax returns. The remainder of the tax benefits from fiscal 1998 and all of 1999 have been recorded as deferred tax assets. Based on an assessment of the Company's taxable earnings history and expected future taxable income, management has determined that it is more likely than not that the net deferred tax assets will be realized in future periods. The Company may be required to provide a valuation allowance for these assets in the future if it does not generate sufficient taxable income as planned. Additionally, the ultimate realization of these assets could be negatively impacted by market conditions and other variables not known or anticipated at this time. LIQUIDITY AND CAPITAL RESOURCES Since its inception, the Company has funded its capital requirements through funding from two research and development limited partnerships, the private sale of equity securities, the Company's initial public offering of Common Stock completed in June 1996, a follow-on offering of Common Stock completed in February 1997 and, to a lesser extent, bank borrowings and equipment leases. As of October 31, 1999, the Company had $24.2 million in cash, cash equivalents and short-term investments and $45.1 million in working capital. Net cash used in operating activities was $10.2 and $12.1 million for fiscal 1999 and 1997, respectively, while net cash of $0.3 million was provided by operating activities in fiscal 1998, predominantly as a result of significant net collections of accounts receivable. The Company had a net loss of $10.5 million in fiscal 1999 and a net loss of $11.8 in fiscal 1998. Accounts receivable increased $0.8 million in fiscal 1999 and decreased $19.4 million in fiscal 1998. Inventories increased $3.4 million in fiscal 1999 and decreased $2.4 million in fiscal 1998. Inventories increased in fiscal 1999 to meet forecasted fiscal 2000 sales. Fiscal 1999 inventory balances also include equipment at a customer site for joint process development in anticipation of a subsequent customer purchase. 27 Purchases of property, plant and equipment were $5.7 million and $3.9 million in fiscal 1999 and 1998, respectively. During fiscal 1999, capital expenditures were primarily related to equipment for and improvements to the Company's new leased manufacturing and office facilities occupied during 1999. In addition, the Company constructed and capitalized one of its systems for development and testing of new hardware and software under production conditions. In fiscal 1998, capital expenditures primarily were for continued investment in the Company's applications laboratory and improvements to the leased facilities occupied by the Company during fiscal 1999. During fiscal 1998, production activities were consolidated and leased premises in the same industrial park as the Company's owned manufacturing and leased administrative facilities were reduced to 8,000 square feet, and were subsequently vacated in March 1999. The Company's new 60,000 square foot production facility was occupied in February 1999 and its new 80,000 square foot office facility was occupied in April 1999; both facilities are located in Exton, Pennsylvania adjacent to each other. During fiscal 1998, the Company leased 32,000 square feet of temporary prototype laboratory and storage facility which was vacated during fiscal 1999. The Company has retained its owned facility in West Chester, Pennsylvania for use in manufacturing, customer and employee training and research. All other functions are now located in Exton. The Company also has a lease on its vacated former office facility in West Chester, Pennsylvania, which will expire in November of 2000. Since August 1999, the Company has had tenants that sublease approximately 30% of this building. The Company has a relationship with a commercial bank which includes a mortgage on the Company's manufacturing facility in the amount of $0.7 million and a $7.5 million revolving demand line of credit. The mortgage bears interest at an annual rate of 8.9%. The line of credit is unsecured and borrowings are at an interest rate equal to such bank's prime rate. There were no borrowings outstanding at October 31, 1999. The Company also has mortgage notes payable to the Pennsylvania Industrial Development Authority in the amount of $0.5 million bearing interest at 2.0% and to the Chester County Development Council in the amount of $0.1 million bearing interest at 5.0%. In addition, the Company has outstanding capital lease obligations in the amount of $1.0 million bearing interest at rates ranging from 7% to 12% per annum. The Company had outstanding accounts receivable of $14.8 million and $14.0 million as of October 31, 1999 and 1998, respectively. No allowance for doubtful accounts receivable has been recorded as the Company believes that all such accounts receivable are fully realizable. The Company believes that existing cash balances will be sufficient to meet the Company's cash requirements through the next twelve months. However, depending upon its rate of growth and profitability, the Company may require additional equity or debt financing to meet its working capital requirements or capital expenditure needs. There can be no assurance that additional financing, if needed, will be available when required, or, if available, will be on terms satisfactory to the Company. The discussions above regarding the Company's expectations of future sales, gross profits, research, development and engineering expenses, selling, general and administrative expenses, use of deferred tax assets, product introductions and cash requirements include certain forward-looking statements on these subjects. As such, actual results may vary materially from such expectations. Factors which could cause actual results to differ from expectations include variations in the level of orders, which can be affected by general economic conditions and growth rates in specific geographic areas where the Company may have a concentration of business, in the semiconductor manufacturing industry and in the markets served by the Company's customers, the international economic and political climates, difficulties or delays in product functionality or performance, the delivery performance of sole source vendors, the timing of future product releases, failure to respond adequately to either changes in technology or customer preferences, changes in pricing by the Company or its competitors, ability to manage growth, risks of non-payment of accounts receivable, changes in budgeted costs or failure to realize a successful outcome to pending patent litigation, all of which constitute significant risks. There can be no assurance that the Company's results of operations will not be adversely affected by one of more of these factors. 28 YEAR 2000 Beginning January 1, 2000, all computer systems that use two digits to represent the year were at risk of malfunction or failure. Many systems continue to run, but may interpret any date in the year '00 to be prior to any date in the year '99, posing potential data comparison problems, or may fail to recognize that the year 2000, unlike 1900, is a leap year. Businesses and systems that use a four-digit format to report and process dates later than December 31, 1999 are often denoted as "Year 2000 compliant". While many systems have no date comparison functions and operate in a date-independent mode, they may have a date function. If full system operation and correct display of dates subsequent to January 1, 2000 are possible, these systems may be denoted as "Year 2000 operationally ready". Many systems and subsystems using two digit dates will operate smoothly until the end of their technological or economic life without regard to the actual date. These systems are unaffected by whether it is 2000 or 1900, make no "real-time" date comparisons and have no date display features. At the other extreme are systems which will cease functioning or malfunction when an unacceptable date is perceived. Background The Company's Chief Financial Officer was selected by the Company's senior management as the coordinator for the Company's Year 2000 compliance efforts. A team was formed with active participation by the information systems, purchasing, software engineering, marketing and customer services departments and has been working since 1997 to enable the Company to meet its Year 2000 readiness goal. The Company focused its Year 2000 efforts on four categories of potential exposure: Products - This encompasses the Company's products offered for sale and the products that are currently in service at customer sites. Business applications and infrastructure - This includes all client/server, desktop and network hardware and software used in routine business operations. Business relationships and third parties - This includes the supply chain for the Company's products, customers and service providers, including banks, insurance companies, payroll and pension plan administrators, legal, accounting and consulting firms, as well as public utilities, long distance telecommunications providers, transportation and overnight delivery companies and local government services. Non-Information Technology ("Non-IT") - This includes embedded microprocessors used in building facilities, manufacturing equipment and systems and control systems and instrumentation. State of Readiness For the two week period following January 1, 2000, the Company can report that there have been no incidents with its products, business applications and infrastructure, business relationships with third parties or non-information technology events that interfered with or interrupted its business operations or those of its customers. While there are risks going forward of encountering Year 2000 issues, the Company believes these issues will not cause any material interruptions to the Company or its customers. 29 Costs to Address Year 2000 Issues Costs to address Year 2000 issues have primarily been incurred internally. As the Company does not have a project tracking system, past and future Year 2000 costs can only be estimated. Costs associated with the Company's Year 2000 efforts were estimated to be approximately $45,000. The new telecommunications equipment, heating and air-conditioning systems, and elevators acquired in Exton, PA are the result of moving to newly built facilities and not a result of Year 2000 issues. There may be additional costs incurred for unforeseen Year 2000 issues. All costs will be funded out of general operating funds and are not expected to be material. Risks of the Company's Year 2000 Issues Although not expected, the most likely worst case scenario includes the inability of vendors to supply product on a timely basis and the inability of customers to take delivery of currently ordered equipment, order more equipment or to pay the Company for products already purchased. To date, there has been no evidence of any vendors inability to supply product as a result of Year 2000 issues. Management will, in conjunction with its customers, continue to evaluate currently identified and as yet unforeseen potential Year 2000 issues in its products that could adversely affect customers' production capabilities. There can be no assurances that the Company will not experience serious unanticipated negative consequences and/or material costs caused by undetected errors or defects in technology used in its products or internal systems, which are comprised predominantly of third-party software and hardware, or by the inability of third-parties to adequately disclose and correct their Year 2000 issues. While the Company presently believes that the ultimate outcome of its efforts to be Year 2000 ready will not have a material effect on the Company's financial position, liquidity or operations, there can be no assurances that unanticipated increased costs will not have a material effect on the results of operations. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In March 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1 requires that certain costs related to the development or purchase of internal-use software be capitalized and amortized over the estimated useful life of the software, and is effective for fiscal years beginning after December 15, 1998. SOP 98-1 also requires that costs related to the preliminary project stage and post implementation/operations stage in an internal-use computer software development project be expensed as incurred. Management believes that the adoption of SOP 98-1 will not have a material impact on the Company's financial position or results of operations. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133). SFAS No. 133 is effective for fiscal years beginning after June 15, 2000. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for derivatives used for hedging activities. SFAS No. 133 requires that all derivatives be recognized either as an asset or liability and measures them at fair value. Management believes that the adoption of SFAS No. 133 will not have a material impact on the Company's financial statements. 30 EFFECTS OF INFLATION Inflation has not been a material factor affecting the Company's business. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk The Company's exposure to market risk for changes in interest rates relates primarily to the Company's investment portfolio and long-term debt obligations. The Company does not use derivative financial instruments in its investment portfolio. The Company places its investments with high credit quality issuers and by policy, is averse to principal loss and ensures the safety and preservation of its invested funds by limiting default risk, market risk and reinvestment risk. As of October 31, 1999, the Company's investments consisted primarily of municipal and government securities that mature in one year or less. As of October 31, 1999, the Company's fixed rate long-term debt consists of mortgage notes and capital lease obligations. Foreign Currency Risk The Company does not use foreign currency forward exchange contracts or purchased currency options to hedge local currency cash flows or for trading purposes. All sales arrangements with international customers are denominated in U.S. dollars. The Company has subsidiary operations in Scotland, France, Taiwan and Singapore which are subject to currency fluctuations. These foreign subsidiaries are limited in their operations and level of investment by the parent company so that the risk of currency fluctuations is not expected to be material. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The audited financial statements of the Company appear beginning on Page F-1 of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 31 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item with respect to directors will be set forth in the Company's definitive Proxy Statement, to be filed within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, and is incorporated by reference to the Proxy Statement. The information required by this Item with respect to Executive Officers is set forth under "Executive Officers of the Registrant". ITEM 11. EXECUTIVE COMPENSATION The information required by this Item will be set forth in the Company's definitive Proxy Statement, to be filed within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, and is incorporated by reference to the Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item will be set forth in the Company's definitive Proxy Statement, to be filed within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, and is incorporated by reference to the Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item will be set forth in the Company's definitive Proxy Statement, to be filed within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, and is incorporated by reference to the Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K FINANCIAL STATEMENTS The financial statements and financial statement information required by this Item are included on pages F-1 through F-21 of this report. The Report of Independent Public Accountants appears on page F-2 of this report. All other schedules have been omitted because they are inapplicable, not required, or the information is included elsewhere in the financial statements or notes thereto. 32 EXHIBITS The following is a list of exhibits. Where so indicated by footnote, exhibits which were previously filed are incorporated by reference. For exhibits incorporated by reference, the location of the exhibit in the previous filing is indicated in parentheses. EXHIBIT NUMBER 3.1 Articles of Incorporation of CFM Technologies, Inc., as amended.* 3.1.1 Amendment to Articles of Incorporation.** 3.2 Amended and Restated By-Laws of CFM Technologies, Inc.* 4.1 Form of Common Stock Certificate.* 4.2 Statement with Respect to Shares filed with the Pennsylvania Department of State on May 1, 1997.***** 10.1 Stock Option Agreement dated March 18, 1991 between CFM Technologies, Inc. and Burton McGillivray, as extended and amended on June 11, 1993 and as amended on September 25, 1994.* 10.2 Stock Option Agreement dated as of December 9, 1994 by and between CFM Technologies, Inc. and Milton Stearns, as amended on November 3, 1995.* 10.3 CFM Technologies, Inc. Annual Profit Sharing Plan.* 10.3.1 Amendment to CFM Technologies, Inc. Annual Profit Sharing Plan.*** 10.4 CFM Technologies, Inc. 1992 Employee Stock Option Plan.* 10.5 Amended and Restated CFM Technologies, Inc. 1995 Incentive Plan.**** 10.6 Amended and Restated CFM Technologies, Inc. Non-Employee Directors' Stock Option Plan.**** 10.7 CFM Technologies, Inc. Employee Stock Purchase Plan.* 10.8 Rights Agreement dated as of April 24, 1997 between CFM Technologies, Inc. and American Stock Transfer and Trust Co., as Rights Agent.***** 10.9 Distributor Agreement dated November 28, 1991 by and between ANAM Semiconductor Design Co., Ltd. and CFM Technologies, Incorporated, and supplement to the Distributor Agreement dated August 26, 1994.* 10.10 Distributor Agreement dated March 3, 1992 by and between Innotech Corporation and CFM Technologies, Inc., as modified on June 15, 1994.* 10.11 Lease Agreement dated October 10, 1995 by and between Hough/Loew Construction, Inc. and CFM Technologies, Inc. and Addendum to Lease Agreement dated October 10,1995.* 33 10.11.1 Amendment Number Two to Lease Agreement dated April 30, 1996 by and between CFM Technologies, Inc. and Hough/Loew Construction, Inc.*** 10.12 Commercial Lease Agreement dated December 16, 1996 between CFM Technologies, Inc. and Devereux Properties, Inc.*** 10.12.1 First Amendment to Commercial Lease Agreement dated August 22, 1997 between CFM Technologies, Inc. and Devereux Properties, Inc.#. 10.13 Loan Agreement dated July 27, 1994 by and between Chester County Development Council("CCDC") and CFM Technologies, Incorporated.* 10.14 $100,000 Mortgage dated as of July 27, 1994, CFM Technologies, Incorporated to CCDC.* 10.15 Guaranties dated October 13, 1995 executed by CFMT, Inc. and CFM International Corp. in favor of CoreStates Bank, N.A. ("CoreStates").* 10.16 Mortgage dated February 16, 1994 between CFM Technologies, Incorporated and CoreStates.* 10.17 Assignment of Leases, Rents, Agreements of Sale, Licenses and Permits dated February 16, 1994 by CFM Technologies, Inc. to CoreStates.* 10.18.1 Agent Agreement dated December 16, 1996 between CFM Technologies, Inc. and Ampoc Far East Company Limited.*** 10.18.2 Amendment Number 2 dated October 4, 1999 between CFM Technologies, Inc. and Ampoc Far East Company Limited. 10.18 Amendment Number 3 dated December 27, 1999 between CFM Technologies, Inc. and Ampoc Far East Company Limited. 10.19 Letter Agreement dated March 25, 1996 between CoreStates and CFM Technologies, Inc. and $7,500,000 Master Demand Note dated April 1, 1996 from CFM Technologies, Inc. to CoreStates.* 10.20 Lease Agreement dated July 16, 1997 between CFM Technologies, Inc. and CFM Partners (No relationship with CFM Technologies, Inc.). # 10.21 Agent Agreement dated April 15, 1997 by and between Aneric Enterprise PTE Limited and CFM Technologies, Inc. # 10.22 Agent Agreement dated October 29, 1997 by and between Silicon International Ltd. and CFM Technologies, Inc. # 10.23 Agent Agreement dated January 7, 1999 by and between PKL Ltd. And CFM Technologies, Inc. ## 34 10.24 Employment Agreement dated as of December 2, 1998 by and between CFM Technologies, Inc. and Rudra N. Kar. 10.25 Employment Agreement dated as of October 25, 1999 by and between CFM Technologies, Inc. and Lorin J. Randall. 10.26 License Agreement dated December 28, 1998 between STEAG MICROTECH, INC. and CFM Technologies, Inc. 21 Subsidiaries of the registrant. 23.1 Consent of Arthur Andersen LLP. 27 Financial Data Schedule. - ------------- * Incorporated by reference to the Registrant's Registration Statement on Form S-1 (Registration No. 33-80359) declared effective on June 18, 1996. ** Incorporated by reference to the Registrant's definitive Proxy Statement dated and filed on February 13, 1997. *** Incorporated by reference to the Registrant's Registration Statement on Form S-1 (Registration No. 333-20325), filed on January 24, 1996, and the Amendment No. 1 to such Registration Statement filed on January 27, 1997. **** Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 1997. ***** Incorporated by reference to the Registrant's Registration Statement on Form 8-A filed on April 24, 1997. # Incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1997. ## Incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1998. REPORTS ON FORM 8-K The Company filed no reports on Form 8-K during the fiscal quarter ended October 31, 1999. 35 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Public Accountants .............................F-2 Consolidated Balance Sheets as of October 31, 1999 and 1998...........F-3 Consolidated Statements of Operations for the years ended October 31, 1999, 1998 and 1997 ................................F-4 Consolidated Statements of Shareholders' Equity for the years ended October 31, 1999, 1998 and 1997.................................F-5 Consolidated Statements of Cash Flows for the years ended October 31, 1999, 1998 and 1997 ................................F-6 Notes to Consolidated Financial Statements ...........................F-7 F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To CFM Technologies, Inc.: We have audited the accompanying consolidated balance sheets of CFM Technologies, Inc. (a Pennsylvania corporation) and subsidiaries as of October 31, 1999 and 1998, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended October 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of CFM Technologies, Inc. and subsidiaries as of October 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 1999, in conformity with generally accepted accounting principles. Arthur Andersen LLP Philadelphia, Pa., December 10, 1999 F-2 CFM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS OCTOBER 31, ----------------------------- 1999 1998 ---- ---- ASSETS (IN THOUSANDS) CURRENT ASSETS: Cash and cash equivalents ................ $ 13,967 $ 31,649 Short-term investments ................... 10,249 9,745 Accounts receivable ...................... 14,826 14,040 Inventories .............................. 17,039 13,657 Prepaid expenses and other ............... 796 3,209 Deferred income taxes .................... 1,958 1,811 -------- -------- Total current assets .................. 58,835 74,111 -------- -------- PROPERTY, PLANT AND EQUIPMENT: Land ..................................... 540 540 Building and improvements ................ 5,932 5,981 Machinery and equipment .................. 14,239 9,599 Furniture and fixtures ................... 1,565 1,423 -------- -------- 22,276 17,543 Less - Accumulated depreciation and amortization .......................... (8,739) (6,377) -------- -------- Net property, plant and equipment ... 13,537 11,166 -------- -------- OTHER ASSETS ................................... 9,714 4,536 -------- -------- $ 82,086 $ 89,813 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt .......... $ 589 $ 672 Accounts payable ........................... 3,930 1,800 Accrued expenses ........................... 9,246 7,373 -------- -------- Total current liabilities .............. 13,765 9,845 -------- -------- LONG-TERM DEBT ................................. 1,628 2,186 -------- -------- COMMITMENTS AND CONTINGENCIES (Note 16) SHAREHOLDERS' EQUITY: Preferred stock, no par value; 1,000,000 authorized shares; no shares issued or outstanding .............................. -- -- Common stock, no par value; 30,000,000 authorized shares; 8,035,328 and 7,964,366 shares issued ............................ 81,495 81,033 Treasury stock, 223,100 and 96,200 shares at cost .................................. (1,858) (762) Deferred compensation ...................... (23) (47) Retained earnings (deficit) ................ (12,921) (2,442) -------- -------- Total shareholders' equity ............... 66,693 77,782 -------- -------- $ 82,086 $ 89,813 ======== ======== The accompanying notes are an integral part of these financial statements. F-3 CFM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEAR ENDED OCTOBER 31, -------------------------------------- 1999 1998 1997 ---- ---- ---- (IN THOUSANDS, EXCEPT PER SHARE DATA) NET SALES ..................... $31,563 $33,155 $75,772 COST OF SALES ................. 20,997 24,426 40,072 -------- -------- -------- Gross profit ............. 10,566 8,729 35,700 -------- -------- -------- OPERATING EXPENSES: Research, development and engineering ............... 10,040 11,496 9,334 Selling, general and administrative ............ 17,812 17,568 19,360 -------- -------- -------- Total operating expenses . 27,852 29,064 28,694 -------- -------- -------- Operating income (loss) .. (17,286) (20,335) 7,006 INTEREST (INCOME) ............. (1,658) (2,048) (2,163) INTEREST EXPENSE .............. 249 242 281 -------- -------- -------- Income (loss) before income taxes ..................... (15,877) (18,529) 8,888 INCOME TAX PROVISION (BENEFIT) (5,398) (6,746) 2,666 -------- -------- -------- NET INCOME (LOSS) ............. $(10,479) $(11,783) $ 6,222 ======== ======== ======== NET INCOME (LOSS) PER COMMON SHARE: Basic ................... $(1.34) $(1.49) $0.85 ======== ======== ======== Diluted ................. $(1.34) $(1.49) $0.80 ======== ======== ======== SHARES USED IN COMPUTING NET INCOME (LOSS) PER COMMON SHARE: Basic ................... 7,849 7,908 7,318 ======== ======== ======== Diluted ................. 7,849 7,908 7,764 ======== ======== ======== The accompanying notes are an integral part of these financial statements. F-4 CFM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON STOCK TREASURY STOCK DEFERRED RETAINED ------------------ ------------------ COMPEN- EARNINGS SHARES AMOUNT SHARES AMOUNT SATION (DEFICIT) TOTAL ------ ------ ------ ------ ------ --------- ----- (IN THOUSANDS) BALANCE, OCTOBER 31, 1996 .................. 6,053 $29,592 -- $ -- $ -- $ 3,119 $32,711 Proceeds from sale of common stock, net .. 1,751 49,288 -- -- -- -- 49,288 Proceeds from exercise of stock options .. 96 545 -- -- -- -- 545 Tax benefit from exercise of stock options -- 764 -- -- -- -- 764 Deferred compensation charge ............. -- 317 -- -- (317) -- -- Amortization of deferred compensation .... -- -- -- -- 82 -- 82 Common stock issued under Employee Stock Purchase Plan .................... 14 256 -- -- -- -- 256 Net income ............................... -- -- -- -- -- 6,222 6,222 -------- ------- -------- -------- -------- -------- -------- BALANCE, OCTOBER 31, 1997 .................. 7,914 80,762 -- -- (235) 9,341 89,868 Proceeds from exercise of stock options .. 1 6 -- -- -- -- 6 Tax benefit from exercise of stock options -- (2) -- -- -- -- (2) Deferred compensation adjustment ......... -- (164) -- -- 164 -- -- Amortization of deferred compensation .... -- -- -- -- 24 -- 24 Common stock issued under Employee Stock Purchase Plan ................... 49 425 -- -- -- -- 425 Options issued for services .............. -- 6 -- -- -- -- 6 Purchase of treasury shares, at cost ..... -- -- 96 (762) -- -- (762) Net loss ................................. -- -- -- -- -- (11,783) (11,783) -------- ------- -------- -------- -------- -------- -------- BALANCE, OCTOBER 31, 1998 .................. 7,964 81,033 96 (762) (47) (2,442) 77,782 Proceeds from exercise of stock options .. -- 2 -- -- -- -- 2 Deferred compensation charge ............. -- 16 -- -- (16) -- -- Amortization of deferred compensation .... -- -- -- -- 40 -- 40 Common stock issued under Employee Stock Purchase Plan .................... 71 444 -- -- -- -- 444 Purchase of treasury shares, at cost ..... -- -- 127 (1,096) -- -- (1,096) Net loss ................................. -- -- -- -- -- (10,479) (10,479) -------- ------- -------- -------- -------- -------- -------- BALANCE, OCTOBER 31, 1999 .................. 8,035 $81,495 223 $(1,858) $ (23) $(12,921) $66,693 ======== ======== ======== ======== ======== ======== ========
The accompanying notes are an integral part of these financial statements F-5 CFM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED OCTOBER 31, ------------------------------------ 1999 1998 1997 ---- ---- ---- (IN THOUSANDS) OPERATING ACTIVITIES: Net income (loss) .............................. $(10,479) $(11,783) $ 6,222 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization ................ 3,116 3,085 2,317 Loss on property, plant and equipment disposal 223 421 -- Deferred compensation ........................ 24 30 82 Deferred income tax benefit .................. (5,436) (4,578) (757) (Increase) decrease in: Accounts receivable ........................ (786) 19,352 (18,302) Inventories ................................ (3,382) 2,424 (8,034) Prepaid expenses and other ................. 2,413 (1,500) (1,347) Other assets ............................... 73 120 (186) Increase (decrease) in: Accounts payable ........................... 2,130 (5,909) 2,780 Accrued expenses ........................... 1,881 (1,377) 5,161 ------- ------- ------- Net cash provided by(used in) operating activities ................................ (10,223) 285 (12,064) ------- ------- ------- INVESTING ACTIVITIES: Purchases of short-term investments ............ (44,820) (28,993) (44,245) Proceeds from short-term investments ........... 44,316 38,564 27,875 Purchases of property, plant and equipment ..... (5,680) (3,920) (4,286) ------- ------- ------- Net cash provided by (used in) investing activities ...... ......................... (6,184) 5,651 (20,656) ------- ------- ------- FINANCING ACTIVITIES: Payments on long-term debt ..................... (641) (819) (576) Proceeds from sale of common stock, net ........ 460 425 49,544 Purchase of treasury shares .................... (1,096) (762) -- Proceeds from exercise of stock options ........ 2 6 545 Tax benefits from exercise of stock options .... -- (2) 764 ------- ------- ------- Net cash provided by(used in) by financing activities ............................... (1,275) (1,152) 50,277 ------- ------- ------- NET DECREASE INCREASE IN CASH AND CASH EQUIVALENTS . (17,682) 4,784 17,557 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ..... 31,649 26,865 9,308 ------- ------- ------- CASH AND CASH EQUIVALENTS, END OF PERIOD ........... $13,967 $31,649 $26,865 ======= ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest expense ................. $ 196 $ 296 $ 284 Cash received for interest income .............. 1,670 2,185 1,975 Cash paid for income taxes ..................... 10 1,795 2,031 Cash received from income tax refunds .......... 2,505 3,023 -- SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Machinery acquired under capital leases ........ $ -- $ 489 $ 750
The accompanying notes are an integral part of these financial statements. F-6 CFM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS: CFM Technologies, Inc. (the Company) designs, manufactures and markets advanced wet processing equipment for sale to the worldwide semiconductor industry. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates. Cash, Cash Equivalents and Short-Term Investments The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Short-term investments are carried at amortized cost which equals market value. The investments have various maturity dates which generally do not exceed one year. All of the Company's short-term investments are classified as available for sale pursuant to Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115). Therefore any unrealized holding gains or losses would be presented as a separate component of shareholders' equity. At October 31, 1999 and 1998, there were no material unrealized holding gains or losses. The gross proceeds from sales and maturities of investments were $44,316,000, $38,564,000 and $27,875,000 for the years ended October 31, 1999, 1998 and 1997, respectively. Gross realized gains and losses for the years ended October 31, 1999 1998 and 1997 were not material. For the purpose of determining gross realized gains and losses, the cost of securities sold is based upon specific identification. F-7 Cash and cash equivalents and short-term investments consisted of the following: OCTOBER 31, ------------------------------- 1999 1998 ---- ---- Cash and cash equivalents: Municipal and government securities ................. $ 5,055,000 $ 6,568,000 Money market funds and demand accounts .................. 5,126,000 16,822,000 Commercial paper ............. 3,123,000 5,034,000 Repurchase agreements ........ 663,000 3,225,000 ----------- ----------- $13,967,000 $31,649,000 =========== =========== Short-term investments: Municipal and government securities ................ $ 4,555,000 $ 8,260,000 Commercial paper ............ 5,694,000 985,000 Mortgage-backed government securities ................ -- 500,000 =========== =========== $10,249,000 $ 9,745,000 =========== =========== Inventories Inventories are valued at the lower of first-in, first-out cost or market. Property, Plant and Equipment Property, plant and equipment are recorded at cost. Significant improvements are capitalized and expenditures for maintenance and repairs are charged to expense as incurred. Upon the sale or retirement of these assets, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in income. Depreciation and amortization are provided using the straight-line method based on the estimated useful lives of the assets as follows: Building and improvements .................. 5-40 years Machinery and equipment .................... 3-10 years Furniture and fixtures ..................... 5-10 years Depreciation and amortization expense was $3,086,000, $3,025,000 and $2,294,000 in fiscal 1999, 1998 and 1997, respectively. Revenue Recognition Net sales are generally recognized upon shipment of the system. If recognized prior to shipment to accommodate a customer's request to delay shipment, revenue is recognized upon completion of the customer's inspection or acceptance where risk of loss is transferred to the customer. The estimated costs of system installation and warranty are accrued when the related sale is recognized. F-8 Research, Development and Engineering Expenses Research, development and engineering expenses are charged to expense as incurred. Research, development and engineering expenses were net of reimbursement of $0, $0 and $890,000 in fiscal 1999, 1998 and 1997, respectively. Engineering expenses consist of personnel and material costs related to the development of new products and the integration of existing products into application-specific systems. Income Taxes The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109). SFAS No. 109 requires the liability method of accounting for deferred income taxes. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities. Deferred tax assets or liabilities at the end of each period are determined using the tax rate expected to be in effect when taxes are actually paid or recovered. Concentration of Credit Risk Financial instruments that potentially subject the Company to concentration of credit risk are accounts receivable. The Company's customer base principally comprises companies within the semiconductor industry, which historically has been volatile. The Company does not require collateral from its customers. Fair Value of Financial Instruments The Company's financial instruments consist primarily of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and debt instruments. The book values of cash and cash equivalents, short-term investments, accounts receivable and accounts payable are considered to be representative of their respective fair values. None of the Company's debt instruments that are outstanding as of October 31, 1999 have readily ascertainable market values; however, the carrying values are considered to approximate their respective fair values. See Note 8 for the terms and carrying values of the Company's various debt instruments. Net Income (Loss) Per Common Share Basic net income (loss) per common share was computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted net income per common share for the fiscal year ended October 31, 1997 reflects the potential dilution from the exercise of outstanding stock options into common stock. Inclusion of shares of common stock potentially issuable upon the exercise of stock options in calculating diluted net loss per common share for the years ended October 31, 1999 and 1998, would have been antidilutive, and therefore such shares were not included in the calculation. The Company adopted SFAS No. 128, "Earnings per Share," effective December 15, 1997. As a result, the Company's reported earnings per share for the year ended October 31, 1997 were restated. F-9 The net income (loss) and weighted average common and common equivalent shares outstanding for purposes of calculating net income (loss) per common share are computed as follows:
YEAR ENDED OCTOBER 31, ----------------------------------------------- 1999 1998 1997 ---- ---- ---- Net income (loss) used for basic and diluted net income (loss) per common share ....................... $(10,479,000) $(11,783,000) $6,222,000 ============ ============ ========== Weighted average common shares outstanding used for basic net income (loss) per common share......................... 7,849,000 7,908,000 7,318,000 Dilutive effect of common stock options outstanding .................... -- -- 446,000 ------------ ------------ ---------- Weighted average common and common equivalent shares outstanding used for diluted net income (loss) per common share........... 7,849,000 7,908,000 7,764,000 ============ ============ ========== Net income (loss) per common share: Basic .................................. $(1.34) $(1.49) $0.85 ============ ============ ========== Diluted ................................ $(1.34) $(1.49) $0.80 ============ ============ ==========
New Accounting Pronouncements In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information" (SFAS No. 131). SFAS No. 131 applies to all public companies and is effective for fiscal years beginning after December 15, 1997. SFAS No. 131 requires that business segment financial information be reported in the financial statements utilizing the management approach. The management approach is defined as the manner in which management organizes the segments within the enterprise for making operating decisions and assessing performance. Management believes that the Company operates in one industry segment and, accordingly, the adoption of SFAS No. 131 had no impact on the Company's financial statements. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1 requires that certain costs related to the development or purchase of internal-use software be capitalized and amortized over the estimated useful life of the software, and is effective for fiscal years beginning after December 15, 1998. SOP 98-1 also requires that costs related to the preliminary project stage and post implementation/operations stage in an internal-use computer software development project be expensed as incurred. Management believes that the adoption of SOP 98-1 will not have a material impact on the Company's financial position or results of operations. F-10 In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133). SFAS No. 133 is effective for fiscal years beginning after June 15, 2000. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for derivatives used for hedging activities. SFAS No. 133 requires that all derivatives be recognized either as an asset or liability and measures them at fair value. Management believes that the adoption of SFAS No. 133 will not have a material impact on the Company's financial statements. Reclassifications Certain reclassifications of previously reported balances have been made to conform with the current year classification of such balances. 3. ACCOUNTS RECEIVABLE: OCTOBER 31, ---------------------------- 1999 1998 ---- ---- Billed $13,760,000 $10,058,000 Unbilled 1,066,000 3,982,000 =========== =========== $14,826,000 $14,040,000 =========== =========== Unbilled receivables represent final retainage amounts to be billed upon completion of the installation process. As of October 31, 1999, the Company had outstanding accounts receivable totaling $2,446,000 from a customer who purchased several of the Company's systems for Korean installations. No allowance for doubtful accounts receivable has been recorded because the Company believes that all such accounts receivable are fully realizable. 4. INVENTORIES: OCTOBER 31, --------------------------- 1999 1998 ---- ---- Raw material $ 9,282,000 $ 8,669,000 Work in progress 6,813,000 4,988,000 Finished goods 944,000 -- ----------- ----------- $17,039,000 $13,657,000 =========== =========== 5. OTHER LONG-TERM ASSSETS: OCTOBER 31, --------------------------- 1999 1998 ---- ---- Deferred income taxes $9,440,000 $4,157,000 Other 274,000 379,000 ========== ========== $9,714,000 $4,536,000 ========== ========== F-11 6. LINE OF CREDIT: The Company has a $7,500,000 unsecured demand line of credit with a bank. The line of credit agreement does not have a stated maturity or expiration date; however, outstanding borrowings are due upon demand by the bank. Interest is charged at the bank's prime rate and was 8.25% at October 31, 1999. As of October 31, 1999 and 1998, the Company had no borrowings on the line. The line also provides for the issuance of letters of credit. As of October 31, 1999, the Company had outstanding letters of credit in the amount of $423,000 guaranteeing payments associated with its new leased facility in Exton, Pennsylvania (see Note 16) and guaranteeing payments related to inventory in a foreign location. 7. ACCRUED EXPENSES: OCTOBER 31, -------------------------- 1999 1998 ---- ---- Warranty and installation costs $2,815,000 $2,016,000 Payroll and payroll related 1,740,000 1,263,000 Accrued legal fees 521,000 1,195,000 Accrued commissions 573,000 1,608,000 Other 2,923,000 1,965,000 ---------- ---------- $9,246,000 $7,373,000 ========== ========== 8. LONG-TERM DEBT:
OCTOBER 31, --------------------------- 1999 1998 ---- ---- Mortgage note payable to bank, payable in monthly installments of $6,250 plus interest at 8.9% through February 2009, collateralized by land and building $ 700,000 $ 775,000 Mortgage note payable to Pennsylvania Industrial Development Authority (PIDA), payable in monthly installments of $4,363 including interest at 2% through August 2009, collateralized by land and building 467,000 510,000 Mortgage note payable to Chester County Development Council, payable in monthly installments of $1,067 including interest at 5% through August 2004, collateralized by land and building 55,000 64,000 Term notes payable to bank, payable in monthly installments of $5,834 plus interest at the bank's prime rate plus 1% through October 1999, collateralized by certain assets - 104,000 Capitalized lease obligations, lease periods expiring at various dates through 2003, interest rates range from 7% to 12%, collateralized by the leased assets 995,000 1,405,000 ---------- ---------- 2,217,000 2,858,000 Less - Current portion (589,000) (672,000) ---------- ---------- $1,628,000 $2,186,000 ========== ==========
F-12 Maturities of long-term debt as of October 31, 1999 are as follows: FISCAL YEAR ----------- 2000 $ 589,000 2001 492,000 2002 297,000 2003 146,000 2004 132,000 2005 and thereafter 561,000 ---------- $2,217,000 ========== The mortgage note due to PIDA contains certain financial covenants, the most restrictive of which requires minimum levels of shareholders' equity. The Company leases machinery and equipment and furniture and fixtures under capital leases expiring in various years through 2003. The assets and liabilities under these leases are recorded at the lower of the present value of the minimum lease payments or the fair value of the asset. The assets are depreciated over their estimated useful lives since ownership will transfer upon lease expiration. The net book value of equipment under capitalized lease obligations as of October 31, 1999 was $932,000. The minimum lease payments, including interest, under the capital lease obligations as of October 31, 1999 were $546,000, $408,000, $176,000 and $13,000 for fiscal 2000, 2001, 2002 and 2003, respectively. 9. SHAREHOLDERS' EQUITY: On April 17, 1997, the Company's Board of Directors adopted a Shareholder Rights Plan designed to protect the Company's shareholders in the event of an attempt to acquire control of the Company on terms which do not deal fairly with all of the Company's shareholders. Terms of the Rights Plan provide for a dividend distribution of one right for each share of Common Stock to holders of record at the close of business on May 9, 1997. The rights will become exercisable only in the event, with certain exceptions, an acquiring party accumulates, or announces an offer to acquire, 20% or more of the Company's Common Stock. The rights will expire on April 24, 2007. Each right will entitle the holder to buy one one-hundredth of a share of a new series of preferred stock at a price of $180. In addition, upon the occurrence of certain events, holders of the rights will be entitled to purchase either Company stock or shares in an "acquiring entity" at one-half of market value. The Company will generally be entitled to redeem the rights at $.001 per right at any time until the tenth day following the acquisition of 20% of its Common Stock. On February 19, 1997, the Company consummated a follow-on public offering of its Common Stock. The Company sold 1,750,500 shares (including the underwriters' over-allotment) of its Common Stock, no par value, at an offering price of $30.00 per share. After deducting the underwriters' discount and other offering expenses, the net proceeds to the Company were approximately $49,288,000. On June 21, 1996, the Company consummated an initial public offering of its Common Stock. The Company sold 2,249,661 shares (including the underwriters' over-allotment) of its Common Stock, no par value, at an initial public offering price of $10.00 per share. After deducting the underwriters' discount and other offering expenses, the net proceeds to the Company were approximately $19,976,000. F-13 On December 19, 1995, the Company's Board of Directors adopted, and on January 3, 1996, the Company's shareholders approved the Employee Stock Purchase Plan (Purchase Plan). The Purchase Plan allows eligible employees to purchase up to 300,000 shares of common stock at the lower of 85% of the fair market value of the stock on the first or last day of the applicable six month purchase period. Eligible employees were able to participate in the Purchase Plan beginning on October 1, 1996 through payroll withholding of up to $500 per pay period. As of October 31, 1999 and 1998, employee withholdings included in accrued expenses were $66,000 and $36,000, respectively. During fiscal 1999, 1998 and 1997, 70,662 and 49,939 and 13,829 shares of Common Stock, respectively, were issued under the Purchase Plan. On June 9, 1998, the Board of Directors authorized the Company to repurchase up to 750,000 shares of the Company's Common Stock in open market, privately negotiated or other transactions in conformity with the rules of the Securities and Exchange Commission. As of October 31, 1999, the Company had repurchased 223,100 shares of the Company's common stock at a cost of $1,858,046. 10. STOCK OPTIONS: The Company has a stock option plan (the 1992 Plan) whereby options to purchase common shares were issued to key management personnel, directors and consultants at exercise prices not less than fair market value. The options have vesting terms set by the Executive Compensation and Stock Option Committee of the Board of Directors and expire 10 years after the date of grant. On December 19, 1995, the Company's Board of Directors adopted, and on January 3, 1996, the Company's shareholders approved, the 1995 Incentive Plan (Incentive Plan) and the Non-Employee Directors' Stock Option Plan (Directors' Plan). The Incentive Plan and the Directors' Plan authorize the granting of up to 1,750,000 shares of Common Stock or options to purchase Common Stock to Company employees and up to 150,000 options to purchase Common Stock to non-employee directors, respectively. The Company will not grant any additional options under the 1992 Plan. F-14 The following table summarizes stock option activity:
WEIGHTED RANGE OF AVERAGE EXERCISE EXERCISE NUMBER OF PRICES PER PRICE PER SHARES SHARE SHARE ------------ -------------- --------- Options outstanding at October 31, 1996............... 745,323 $0.24-$10.75 $ 5.10 Granted...................... 401,600 18.25-38.625 21.01 Exercised.................... (96,335) 2.41-18.25 5.66 Canceled..................... (11,480) 7.52-18.25 9.18 ---------- ------------- -------- Options outstanding at October 31, 1997.............. 1,039,108 0.24-38.6257 11.14 Granted..................... 307,767 7.625-19.937 12.56 Exercised................... (839) 7.516 7.52 Canceled ................... (77,743) 7.516-38.625 21.49 ---------- ------------- -------- Options outstanding at October 31, 1998.............. 1,268,293 0.24-36.138 10.95 Granted .................... 227,766 7.125-11.688 7.35 Exercised................... (300) 7.516 7.52 Canceled ................... (57,239) 7.125-18.25 10.97 ---------- ------------- -------- Options outstanding at October 31, 1999.............. 1,438,520 $0.24-$36.13 $10.35 ========== ============= ========
The following table summarizes information regarding stock options outstanding as of October 31, 1999: OPTIONS OPTIONS OUTSTANDING EXERCISABLE ------------------------------------- --------------------- WEIGHTED WEIGHTED AVERAGE AVERAGE NUMBER REMAINING EXERCISE NUMBER WEIGHTED RANGE OF OUTSTANDING CONTRACTUAL PRICE EXERCISABLE AVERAGE EXERCISE AT OCTOBER LIFE IN PER AT OCTOBER EXERCISE PRICES 31, 1999 YEARS SHARE 31, 1999 PRICE - -------------------------------------------------------------------------------- $ 0.24 3,327 2.2 $ 0.24 3,327 $ 0.24 $ 2.41 330,053 3.5 $ 2.41 330,053 $ 2.41 $ 7.125 172,252 9.1 $ 7.13 4,645 $ 7.13 $ 7.516 223,707 5.9 $ 7.52 218,618 $ 7.52 $ 7.625 71,365 8.8 $ 7.63 20,622 $ 7.63 $ 7.75-$10.938 101,150 9.2 $ 8.72 55,371 $ 9.17 $ 11.563-$13.875 27,800 8.5 $11.57 27,200 $11.57 $ 14.313 112,553 8.1 $14.31 5,790 $14.31 $ 15.745-$17.75 47,907 8.3 $16.97 24,521 $16.74 $ 18.25 305,250 7.1 $18.25 211,900 $18.25 $ 19.938-$36.13 43,156 7.4 $33.59 20,621 $31.56 F-15 As of October 31, 1999, there were 983,383 stock options available for grant under the Company's stock option plans. The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and the related interpretations in accounting for its stock option plans. The disclosure requirements of Statement of Financial Accounting Standards No. 123 "Accounting for Stock Based Compensation" (SFAS No. 123) were adopted by the Company in fiscal 1997. Had compensation cost for options granted during fiscal 1999, 1998 and 1997 under the stock option plans, as well as the Common Stock issued under the Purchase Plan (see Note 9), been determined based upon the fair value of the options and Common Stock at the date of grant, as prescribed by SFAS No. 123, the Company's pro forma net income (loss) and pro forma net income (loss) per common share would have been reduced to the following amounts:
YEAR ENDED OCTOBER 31, -------------------------------------------------- 1999 1998 1997 ---- ---- ---- Net income (loss)............................ $(10,479,000) $(11,783,000) $6,222,000 Pro forma net income (loss) (11,871,000) (12,994,000) 5,369,000 Net income (loss) per common share: Basic ................................. (1.34) (1.49) 0.85 Diluted ............................... (1.34) (1.49) 0.80 Pro forma net income (loss) per common share: Basic ................................. (1.56) (1.68) 0.74 Diluted ............................... (1.56) (1.68) 0.69
The weighted average fair value of each stock option granted during the years ended October 31, 1999, 1998 and 1997 was $4.13, $6.67 and $13.36, respectively. As of October 31, 1999, the weighted average remaining contractual life of each stock option outstanding was 6.4 years. The weighted average remaining contractual life of each stock option granted during the years ended October 31, 1999, 1998 and 1997 was 9.2, 8.4 and 7.2 years, respectively. The fair value of each option grant is estimated on the date of grant using the Black - Scholes option pricing model with the following weighted average assumptions: YEAR ENDED OCTOBER 31, --------------------------------------- 1999 1998 1997 ---- ---- ---- Risk - free interest rate .......................... 4.66% 5.37% 6.26% Expected dividend yield ......... - - - Expected life ................... 5.5 years 5.5 years 5.5 years Expected volatility ............. 58% 58% 53% Because additional option grants are expected to be made each year, the above pro forma disclosures are not representative of pro forma effects of reported net income for future years. In fiscal 1997, the Company granted stock options to purchase an aggregate of up to 56,000 shares of Common Stock to an employee and certain consultants for which the Company has recorded deferred compensation based upon the difference between the deemed value for accounting purposes of the Company's Common Stock and the exercise price per share on the date of option grant. The deferred compensation balance will be amortized as compensation expense over the option vesting periods which range from one to four years. In fiscal 1998, the Company granted stock options to purchase up to 1,205 shares of Common Stock to a consultant in exchange for services provided to the Company. In fiscal 1999 the Company granted stock options to purchase up to 2,585 shares of Common Stock to consultants in exchange for services provided to the Company. The difference between the deemed value for accounting purposes of the Company's Common Stock and the exercise price per share on the date of option grant was recorded as an expense. F-16 11. EMPLOYEE BENEFIT PLANS: The Company has a defined contribution retirement plan for the benefit of eligible employees. Management believes that the plan qualifies under Section 401(k) of the Internal Revenue Code of 1986, as amended. The plan provides for matching contributions by the Company at a discretionary percentage of eligible pre-tax contributions by the employee. Matching contributions by the Company were $308,000, $310,000 and $206,000 for the years ended October 31, 1999, 1998 and 1997, respectively. In fiscal 1995, the Company established a profit-sharing plan for the benefit of eligible employees. The plan provides for a target contribution of approximately 2% of total planned salaries and wages, with actual payments based upon the achievement of certain annual performance results. The Company recorded profit sharing expense of $0, $ 0 and $175,000 for the years ended October 31, 1999, 1998 and 1997, respectively. 12. RELATED PARTY TRANSACTIONS: The Company recorded commission expense in fiscal 1999, 1998 and 1997 of $597,000, $391,000 and $3,948,000, respectively, related to commissions payable to a sales agent which is partially owned by a shareholder of the Company. Commissions payable to this sales agent included in accrued expenses as of October 31, 1999 and 1998 were $377,000 and $1,437,000, respectively. The distributor is controlled by an individual who is a director and shareholder of the Company. The Company also recorded net sales in fiscal 1998 and 1997 of $4,891,000 and $6,760,000, respectively, to a semiconductor company controlled by the same director of the Company. 13. INCOME TAXES: The components of income (loss) before income taxes are as follows: YEAR ENDED OCTOBER 31, -------------------------------------------------- 1999 1998 1997 ---- ---- ---- Domestic $(15,972,000) $(18,707,000) $7,729,000 Foreign 95,000 178,000 1,159,000 ------------ ------------ ---------- $(15,877,000) $(18,529,000) $8,888,000 ============ ============ ========== The components of the income tax provision (benefit) are as follows: YEAR ENDED OCTOBER 31, ----------------------------------------------- 1999 1998 1997 ---- ---- ---- Current: Federal $ - $(2,280,000) $2,936,000 Foreign 38,000 116,000 412,000 State - (4,000) 75,000 ----------- ----------- ---------- 38,000 (2,168,000) 3,423,000 ----------- ----------- ---------- Deferred: Federal (5,362,000) (4,528,000) (732,000) State (74,000) (50,000) (25,000) ----------- ----------- ---------- (5,436,000) (4,578,000) (757,000) ----------- ----------- ---------- $(5,398,000) $(6,746,000) $2,666,000 =========== =========== ========== F-17 Income tax expense (benefit) differs from the amount currently payable or receivable because certain expenses, primarily depreciation and accruals, are reported in different periods for financial reporting and income tax purposes. The federal statutory income tax rate is reconciled to the effective income tax rate as follows: YEAR ENDED OCTOBER 31, ------------------------------- 1999 1998 1997 ---- ---- ---- Federal statutory rate .................... (34.0)% (34.0)% 34.0% State income taxes, net of federal benefit ......................... (0.3) (0.2) 0.4 Foreign and U.S. tax effects attributable to foreign operations 0.1 0.3 (4.9) Research and development credit ........... (0.1) (0.9) (0.3) Other ..................................... 0.3 (1.6) 0.8 ------ ------ ------ (34.0)% (36.4)% 30.0% ====== ====== ====== The components of the net current and long-term deferred tax assets and liabilities, measured under SFAS No. 109, are as follows: OCTOBER 31, ------------------------------- 1999 1998 ---- ---- Deferred tax assets- Net operating loss carry forwards..................... $8,026,000 $2,715,000 Tax credit carry forwards 1,557,000 1,374,000 Inventories ................... 445,000 400,000 Warranty and installation accrual ..................... 957,000 685,000 Commissions.................... 244,000 387,000 Other ......................... 285,000 435,000 ----------- ----------- 11,514,000 5,996,000 Deferred tax liability- Depreciation ................. (116,000) (28,000) ----------- ----------- Net deferred tax asset ..... $11,398,000 $5,968,000 =========== =========== Based on an assessment of the Company's taxable earnings history and expected future taxable income, management has determined that it is more likely than not that the net deferred tax assets will be realized in future periods. The Company may be required to provide a valuation allowance for this asset in the future if it does not generate sufficient taxable income as planned. Additionally, the ultimate realization of this asset could be negatively impacted by market conditions and other variables not known or anticipated at this time. F-18 14. CUSTOMER AND GEOGRAPHIC INFORMATION: The Company's operations are conducted in one business segment. Export net sales were $10,430,000, $15,228,000, and $49,019,000 in fiscal 1999, 1998 and 1997, respectively. Export net sales to Europe and East Asia were $1,138,000 and $9,293,000 in fiscal 1999, $5,982,000 and $9,245,000 in fiscal 1998 and $13,427,000 and $35,592,000 in fiscal 1997, respectively, The following table summarizes significant customers with net sales in excess of 10% of net sales: YEAR ENDED OCTOBER 31, ---------------------------------------- CUSTOMER 1999 1998 1997 -------- ---- ---- ---- A ....................... $7,914,000 $6,499,000 * B ....................... 4,504,000 * * C ....................... * 4,891,000 * D ....................... * 4,404,000 $ 8,534,000 E ....................... * 3,452,000 * F ....................... * 3,427,000 * G ....................... * * 16,100,000 - ---------- * Net sales less than 10% of net sales 15. SUPPLIER CONCENTRATION: The Company relies to a substantial extent on outside vendors to manufacture and supply many of the components and subassemblies used in the Company's systems. Certain of these are obtained from a sole supplier or a limited group of suppliers, many of which are small, independent companies. Moreover, the Company believes that certain of these components and subassemblies can only be obtained from its current suppliers. The Company's reliance on outside vendors generally, and on sole suppliers in particular, involves several risks, including a potential inability to obtain an adequate supply of required components and reduced control over pricing, timely delivery and quality of components. 16. COMMITMENTS AND CONTINGENCIES: In fiscal 1995, the Company entered into a non-cancelable lease for office facilities with an expiration date in November 2000 and annual rental payments of $548,000 per year. In fiscal 1997, the Company entered into a non-cancelable agreement to lease a 60,000 square foot production facility and an 80,000 square foot office facility to be built for the Company in Exton, Pennsylvania. The operating lease has an initial term of 20 years and minimum annual rental payments of $1,482,250 for each year of the initial term. Options to extend the term of the lease for a total of 9.5 additional years at minimum annual rental payments of not more than $1,518,037 and a subsequent additional 5.5 years at fair market value are included in the lease. Rentals began on the production facility in October 1998 and rentals on the office facility began in April 1999. The Company occupied the production facility in February 1999 and the office facility in April 1999. Future minimum rental payments as of October 31, 1999 on these leases are as follows: FISCAL YEAR ----------- 2000 $1,582,000 2001 1,482,000 2002 1,482,000 2003 1,482,000 2004 1,482,000 Thereafter 21,087,000 F-19 The Company has asserted claims of its U.S. Patent Nos. 4,911,761 (the "761 patent"), 4,778,532 (the "`532 patent") and 4,917,123 (the "`123) patent against three defendants in four actions, alleging infringement, inducement of infringement, and contributory infringement of various claims of these patents. In the first of these actions, on December 12, 1997, a jury in the United States District Court for the District of Delaware returned a verdict that the defendant willfully infringed the `761 patent, that the `761 patent was not invalid and awarded the Company damages of $3,105,000. The defendant appealed the verdict and various rulings by the District Court. On May 13, 1999, the United States Court of Appeals for the Federal Circuit ("CAFC") affirmed the judgment of the District Court in all respects except one. With respect to infringement, the CAFC vacated the judgment and remanded the case to the District Court for reconsideration of its holding of literal infringement. On November 8, 1999, the District Court issued an opinion that upheld the finding of literal infringement by the defendant and reinstated the judgement and injunction in favor of the Company. The defendant has appealed this decision. In the second action on the `761 patent, the Company seeks damages and a permanent injunction to prevent further infringement. The District Court issued a decision granting summary judgment in favor of the defendant stating that the `761 patent was not infringed. The District Court has subsequently agreed to reconsider this decision and has not yet acted on this reconsideration. The Company has sued this same defendant in a separate, third action over the `532 and `123 patents. The defendant has asserted counter claims for alleged tortious interference with prospective economic advantage and defamation, and seeks compensatory and punitive damages. Discovery in this action closed on December 10, 1999 and the related trial is scheduled to begin for May 2000. In addition, the Company is both a defendant and a counterclaim plaintiff in a fourth litigation where the plaintiff seeks a declaratory judgment that the `761 patent is not infringed and that the `761 patent is invalid. The Company has counterclaimed alleging infringement and contributory infringement of all of the `761, `532 and `123 patents. Discovery is presently ongoing. A claims construction hearing was held on November 12, 1999, and an initial claims construction order issued on December 9, 1999. Trial currently is scheduled for late September, 2000. Furthermore, in Europe, a competitor has filed nullification proceedings against the Company's drying patents in Germany (DE68921757.8), UK (EP428,784), France (EP428,784), Netherlands (23184), and Ireland (66389). The same competitor filed a similar nullification proceeding in Japan (2,135,270). The Company chose to abandon the UK patent (UK EP 428,784) because in its judgment, the anticipated costs of defending the nullity action were not warranted in view of the patent's limited added value to its existing patent portfolio in the UK. The Company is proceeding to defend the remaining patents, but may choose to abandon one or more based on a cost benefit analysis. These remaining proceedings could result in the nullification of any or all of the subject patents in the respective countries. Although management believes that the ultimate resolution of these matters will not have a material negative impact on the Company's financial position or results of operations, there can be no assurance in that regard. F-20 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. CFM Technologies, Inc. By: /s/ ROGER A. CAROLIN --------------------------------------- Roger A. Carolin President and Chief Executive Officer PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED. SIGNATURE TITLE DATE --------- ----- ---- /s/ CHRISTOPHER F. MCCONNELL Chairman of the Board January 21, 2000 - ----------------------------- of Directors /s/ ROGER A. CAROLIN President, Chief Executive January 21, 2000 - ----------------------------- Officer and Director (Principal Executive Officer) /s/ LORIN J. RANDALL Vice President, Chief January 21, 2000 - ----------------------------- Financial Officer, Treasurer and Secretary (Principal Financial Officer and Principal Accounting Officer) /s/ JAMES J. KIM Director January 21, 2000 - ----------------------------- /s/ BRAD S. MATTSON Director January 21, 2000 - ----------------------------- /s/ JOHN F. OSBORNE Director January 21, 2000 - ------------------------------ /s/ MILTON S. STEARNS, JR. Director January 21, 2000 - ----------------------------- E-1 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION - ------ ----------- 3.1 Articles of Incorporation of CFM Technologies, Inc., as amended* 3.1.1 Amendment to Articles of Incorporation.** 3.2 By-Laws of CFM Technologies, Inc.* - amended 4.1 Form of Common Stock Certificate.* 4.2 Statement with Respect to Shares filed with the Pennsylvania Department of State on May 1, 1997.***** 10.1 Employment Agreement dated as of January 9, 1995 by and between CFM Technologies, Inc. and Lorin Jeffry Randall.* 10.2 Stock Option Agreement dated March 18, 1991 between CFM Technologies, Inc. and Burton McGillivray, as extended and amended on June 11, 1993 and as amended on September 25, 1994.* 10.3 Stock Option Agreement dated as of December 9, 1994 by and between CFM Technologies, Inc. and Milton Stearns, as amended on November 3, 1995.* 10.4 CFM Technologies, Inc. Annual Profit Sharing Plan.* 10.4.1 Amendment to CFM Technologies, Inc. Annual Profit Sharing Plan.*** 10.5 CFM Technologies, Inc. 1992 Employee Stock Option Plan.* 10.6 Amended and Restated CFM Technologies, Inc. 1995 Incentive Plan.**** 10.7 Amended and Restated CFM Technologies, Inc. Non-Employee Directors' Stock Option Plan.**** 10.8 CFM Technologies, Inc. Employee Stock Purchase Plan.* 10.9 Rights Agreement dated as of April 24, 1997 between CFM Technologies, Inc. and American Stock Transfer and Trust Co., as Rights Agent.***** 10.10 Distributor Agreement dated November 28, 1991 by and between ANAM Semiconductor Design Co., Ltd. and CFM Technologies, Incorporated, and supplement to the Distributor Agreement dated August 26, 1994.* 10.11 Distributor Agreement dated March 3, 1992 by and between Innotech Corporation and CFM Technologies, Inc., as modified on June 15, 1994.* 10.12 Lease Agreement dated October 10, 1995 by and between Hough/Loew Construction, Inc. and CFM Technologies, Inc. and Addendum to Lease Agreement dated October 10,1995.* 10.12.1 Amendment Number Two to Lease Agreement dated April 30, 1996 by and between and CFM Technologies, Inc. and Hough/Loew Construction, Inc.*** 10.13 Commercial Lease Agreement dated December 16, 1996 between CFM Technologies, Inc. and Devereau Properties, Inc.*** 10.13.1 First Amendment to Commercial Lease Agreement dated August 22, 1997 between CFM Technologies, Inc. and Devereau Properties, Inc. 10.14 Loan Agreement dated July 27, 1994 by and between Chester County Development Council("CCDC") and CFM Technologies, Incorporated.* 10.15 $100,000 Mortgage dated as of July 27, 1994, CFM Technologies, Incorporated to CCDC.* 10.16 Guaranties dated October 13, 1995 executed by CFMT, Inc. and CFM International Corp. in favor of Corestates Bank, N.A. ("CoreStates").* 10.17 Mortgage dated February 16, 1994 between CFM Technologies, Incorporated and Corestates.* 10.18 $150,000 Commercial Promissory Note dated September 28, 1994 from CFM Technologies, Incorporated to Corestates.* 10.19 $100,000 Commercial Promissory Note dated August 11, 1994 from CFM Technologies, Incorporated to Corestates.* 10.20 Assignment of Leases, Rents, Agreements of Sale, Licenses and Permits dated February 16, 1994 by CFM Technologies, Inc. to CoreStates.* 10.21 Agent Agreement dated December 16, 1996 between CFM Technologies, Inc. and Ampoc Far East Company Limited.*** 10.22 Letter Agreement dated March 25, 1996 between CoreStates and CFM Technologies, Inc. and $7,500,000 Master Demand Note dated April 1, 1996 from CFM Technologies, Inc. to CoreStates.* 10.23 Lease Agreement dated July 16, 1997 between CFM Technologies, Inc. and CFM Partners (No relationship with CFM Technologies, Inc.). 10.24 Agent Agreement dated April 15, 1997 by and between Aneric Enterprise PTE Limited and CFM Technologies, Inc. 10.25 Agent Agreement dated October 29, 1997 by and between Silicon International Ltd. and CFM Technologies, Inc. 21 Subsidiaries of the registrant. 23.1 Consent of Arthur Andersen LLP. 27 Financial Data Schedule. - ------------- * Incorporated by reference to the Registrant's Registration Statement on Form S-1 (Registration No. 33-80359) declared effective on June 18, 1996. ** Incorporated by reference to the Registrant's definitive Proxy Statement dated and filed on February 13, 1997. *** Incorporated by reference to the Registrant's Registration Statement on Form S-1 (Registration No. 333-20325), filed on January 24, 1997, and the Amendment No. 1 to such Registration Statement filed on January 27, 1997. **** Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended April 30, 1997. ***** Incorporated by reference to the Registrant's Registration Statement on Form 8-A filed on April 24, 1997. EX-10.18.1 2 EXHIBIT 10.18.1 Exhibit 10.18.1 AMENDMENT NUMBER 2 This agreement shall amend a certain Distributor Agreement (the "Agreement") made and entered into 16 December 1996, by and between Ampoc Far East Company Limited. a corporation organized and existing under the laws of the Republic of China on Taiwan with its principal place of business located at 99-1, Ning PO W. Street, Taipei, Taiwan (hereinafter referred to a as "Agent") and CFM TECHNOLOGIES, INC., a Pennsylvania corporation, with its principal place of business located at 150 Oaklands Boulevard, Exton, Pennsylvania, 19341 (hereinafter referred to as the "Company"). TERM The term of the Agreement is hereby extend until 16 December 2001. COMMISSIONS Commissions for systems sold for use in semiconductor manufacturing shall be paid at the following rates: 1. The first system sold to Taiwan Semiconductor Manufacturing Corporation, its subsidiaries or affiliates ("TSMC"), shall earn commission at the rate of 9%. All subsequent sales to TSMC shall earn commission at the rate of 6%. 2. The systems sold to United Microelectronics Corporation, it subsidiaries or affiliates ("UMC"), shall earn commission at the rate of 6%. 3. The 300mm systems sold during the term of the Agreement shall earn commission at the rate of 8%. 4. The first system sold to any customer who is not a current customer or the subsidiary or affiliate of a current customer shall earn commission at the rate of 7%. 5. The sale of all other systems shall earn commission at the rate of 4.5% 6. Only one commission rate shall apply to each sale. 1 IN WITNESS WHEREOF, the parties hereto have executed this Amendment this 4th day of October 1999. CFM TECHNOLOGIES, INC. /s/ Roger A. Carolin --------------------------------------- Roger A. Carolin President and Chief Executive Officer AMPOC FAR EAST COMPANY LIMITED /s/ Ronald Su --------------------------------------- Ronald Su President 2 EX-10.18.2 3 EXHIBIT 10.18.2 Exhibit 10.18.2 AMENDMENT NUMBER 3 This agreement shall amend a certain Distributor Agreement (the "Agreement") made and entered into 16 December 1996, by and between Ampoc Far East Company Limited. a corporation organized and existing under the laws of the Republic of China on Taiwan with its principal place of business located at 17F, No. 171 Sung-Teh Road, Taipei, Taiwan (hereinafter referred to a as "Agent") and CFM Technologies, Inc., a Pennsylvania corporation, with its principal place of business located at 150 Oaklands Boulevard, Exton, Pennsylvania, 19341 (hereinafter referred to as "CFM" or the "Company"). WHEREAS, Agent and CFM have secured the sale of certain FPD Equipment to Electronics Research Service Organization (ERSO) in Hsinchu, Taiwan, and CFM and ERSO have agreed to the delivery of a single vessel FPD processing system that is to be used for general cleaning, stripping, etching, and organic cleaning of poly-silicon FPD panels (the "Equipment") on or about April 30, 1999, and ERSO has agreed to pay US$ 1,906,365 for this system, payable 80% on delivery and 20% on final acceptance. NOW, THEREFORE, in consideration for the commissions and payments further described herein, the parties hereby agree to the following: 1. AGENT RESPONSIBILITIES 1.1 Send a minimum of four persons (engineers and manufacturing personnel) to CFM, at Agent's expense, to assist in the final assembly, integration and test of the Equipment for a duration of not less than six weeks. 1.2 Provide personnel of a number and with skills as requested by CFM to assist CFM in the install, setup and qualification of the Equipment at ERSO. 1.3 Warrant the operation of the Equipment from the date of acceptance of the system by ERSO until the last day required in the specifications accepted as a part of the order and any extensions thereto (the "Warranty Period") by providing both parts and labor, as needed, to assure operation of the Equipment in accordance with its specifications. 1.4 Pay for packaging, shipping, customs duties and taxes, if any, for spare parts which may be required during the Warranty Period. 1 1.5 Provide first line applications support to the Equipment during the Warranty Period. 1.6 Pay for support provided by personnel assigned to CFM Taiwan in excess of 100 hours during the Warranty Period at the rate of US$85 per hour. 1.1 Pay for US-based CFM service and support personnel, requested by Agent, at the rate of US$85 per hour plus actual, out-of-pocket expenses for hotel, meals and travel (hotel and meal expenses not to exceed US$125 per day). Travel time will be billed as eight hours per day, from departure from Exton (or other US home base) to arrival back at home base location. 2. CFM RESPONSIBILITIES 2.1 Manufacture the Equipment. 2.2 Provide the primary installation personnel for the Equipment. 2.3 Secure process acceptance of the Equipment. 2.4 CFM will forward spare parts replacements received under warranty from OEM parts suppliers in exchange for identical, but defective, parts returned by Agent without charge (other than those costs in 1.4, above). 2.5 Warrant all process carriers for a period of nine months from the date of acceptance. 2.6 Make available up to 100 hours of service support from personnel assigned to CFM Taiwan to Agent during the Warranty Period at no charge. 2.7 Make US service and support personnel available upon reasonable advance notice to Agent. 2.8 Provide quotations for software support for customer-requested changes which do not interfere with the product meeting its written specifications. COMMISSIONS An amount equal to 13% of any payments received from ERSO for the system ordered on Purchase Order No. F-E3-89025, dated October 29, 1999, shall be paid to Agent within tem (10) days following receipt of payment from ERSO by CFM in consideration for completion by Agent of the responsibilities in Section 1, herein. SPARE PARTS 1. During the Warranty Period, CFM agrees to sell spare parts for the Equipment on open account (terms: net 30 days from date of shipment). The price for such spare parts shall be the CFM List Price then in effect, less 15%. 2. Agent is not obligated to purchase spare parts from CFM and may purchase spare parts from any source. 2 IN WITNESS WHEREOF, the parties hereto have executed this Amendment this 27th day of December 1999. CFM TECHNOLOGIES, INC. /s/ Roger A. Carolin --------------------------------------- Roger A. Carolin President and Chief Executive Officer AMPOC FAR EAST COMPANY LIMITED /s/ Ronald Su --------------------------------------- Ronald Su President 3 EX-10.23 4 EXHIBIT 10.23 Exhibit 10.23 EMPLOYMENT AGREEMENT Agreement (hereinafter "Agreement") dated as of October 25, 1999 by and between CFM Technologies, Inc., a Pennsylvania Business Corporation having a place of business at 150 Oaklands Boulevard, Exton, PA 19341 ("CFM"), and Lorin J. Randall, an individual residing at 120 S. Wawaset Road, West Chester, PA 19382 ("Randall"). WITNESSETH: WHEREAS, based upon Randall's demonstrated commitment and unique contributions to the Company, especially with respect to the timely raising of equity capital, and a desire to motivate Randall's continued employment, CFM desires to employ Randall as Vice President - Finance, Secretary, Treasurer and Chief Financial Officer and, Randall desires to be employed by CFM as Vice President - Finance, Secretary, Treasurer and Chief Financial Officer, all pursuant to the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the foregoing and the mutual promises and covenants herein contained, and intending to be legally bound hereby, it is agreed as follows: 1. EMPLOYMENT: DUTIES CFM engages and employs Randall, and Randall hereby accepts engagement and employment, as Vice President - Finance, Secretary, Treasurer and Chief Financial Officer to direct, supervise and have responsibility for the finance and administration functions of CFM and its subsidiaries and to perform such other services and duties as the President of CFM, in his sole discretion, shall reasonably determine. Subject to Paragraph 4, Randall shall devote his full business time, energy and skill to his duties hereunder and such level of effort shall be on a full time basis. It is understood and agreed that Randall may not engage in other business activities during the term of this contract, whether or not for profit or other pecuniary advantage; provided, however, that Randall may make personal financial investments which do not involve his active participation and may engage in other activities, including service as a member of the board of directors of any bank or other financial institution, or as a member of the board of directors of Quad Systems Corporation, Two Technologies, Inc., Polymer Chemistry Innovations, Inc. and any other corporation with written approval of the Board, to the extent that none of such activities hinder or interfere with the performance of his duties under this agreement or conflict with CFM's policies concerning conflict of interest or the business of CFM in any material way. 1 2. COMPENSATION As compensation for the performance of his duties on behalf of CFM, Randall shall be compensated as follows: (a) A base salary of $165,000 per annum. (b) Employee fringe benefits including, but not limited to, such health insurance, long-term disability insurance, life insurance, company savings and investment plan participation, vacations and holidays as are made available to other employees, as such benefits may be changed from time to time for other employees. (c) Participation in an annual cash incentive bonus award program with a target annual payment of not less than 30% of Randall's base salary. Determination of Randall's payments hereunder shall be made in a manner substantially similar for Randall as shall be determined for all other executive officers and key individual contributors of CFM. 3. TERM This Agreement shall remain in full force and effect for a period of five (5) years from the first date above (the "Initial Term") and shall renew for a period of three (3) additional years unless CFM shall notify Randall in writing, a minimum of twelve (12) months prior to completion of the Initial Term. 4. REPRESENTATIONS AND WARRANTIES BY RANDALL AND CFM Randall hereby represents and warrants to CFM as follows: (a) Neither the execution and delivery of this Agreement nor the performance by Randall of his duties and other obligations hereunder violate or will violate any statute, law, determination or award, or conflict with or constitute a default under (whether immediately, upon the giving of notice or lapse of time or both) any prior employment agreement, contract, or other instrument to which Randall is a party or by which he is bound. (b) Randall has the right, power and legal capacity to enter and deliver this Agreement and to perform his duties and other obligations hereunder. This agreement constitutes the legal, valid and binding obligation of Randall enforceable against him in accordance with its terms. No approvals or consents of any persons or entities are required for Randall to execute and deliver this Agreement or perform his duties and other obligations hereunder. 2 CFM hereby represents and warrants to Randall as follows: (a) CFM is duly organized, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania, with all requisite corporate power and authority to own its properties and conduct its business in the manner presently contemplated. (b) CFM has full power and authority to enter into this Agreement and to incur and perform its obligations hereunder. (c) The execution, delivery and performance by CFM of this Agreement does not conflict with or result in a breach or violation of or constitute a default under (whether immediately, upon the giving of notice or lapse of time or both) the certificate of incorporation or by-laws of CFM, or any agreement or instrument to which CFM is a party or by which CFM or any of its properties may be bound or affected. 5. TERMINATION Randall's employment hereunder began on or about January 9, 1995 and shall continue until terminated upon the first to occur of the following events: (a) THE DEATH OR DISABILITY OF RANDALL. CFM may, at its option, terminate Randall's employment for "disability" (as hereinafter defined). In the event of termination for death or disability, Randall or his designated beneficiary, shall be entitled to termination benefits pursuant to Paragraph 5(d), which monthly benefits shall be reduced in each month such benefit may be received by any amounts received by Randall from disability insurance during such month from a program provided by CFM. For purposes of this Agreement, the term "disability" means any physical or mental illness, disability or incapacity which prevents Randall from performing, with or without accommodation, substantially all of his duties hereunder for a period totaling not less than one hundred eighty (180) days during any period of twelve (12) consecutive months. (b) TERMINATION BY THE PRESIDENT, CHAIRMAN OR BOARD OF DIRECTORS OF CFM FOR CAUSE. Any of the following actions by Randall shall constitute cause: (i) Material breach by Randall of the provisions of the CFM Non-Disclosure and Invention Agreement which he is a party to, a copy of which is attached hereto provided that Randall has received written notice of such breach from the President, Chairman or Board of Directors of CFM, has had an opportunity to respond to the notice in a meeting and has failed to substantially cure such breach or neglect within thirty (30) days of such notice; or (ii) Theft; a material act of dishonesty or fraud; intentional falsification of any employment or Company records; or the commission of any criminal act which impairs Randall's ability to perform appropriate employment duties under this Agreement; or 3 (iii) Randall's conviction (including any plea of guilty or nolo contendere) for a crime involving moral turpitude causing material harm to the reputation and standing of the CFM; or (iv) Gross negligence or willful misconduct in the performance of Randall's assigned duties; provided however, that merely unsatisfactory performance by Randall of such duties and responsibilities shall not constitute "cause" for purposes of the Agreement; and provided further that Randall has received written notice of such breach or neglect from the President, Chairman or Board of Directors of CFM, has had an opportunity to respond to the notice in a meeting and has failed to substantially cure such breach or neglect within thirty (30) days of such notice. (c) TERMINATION BY RANDALL FOR GOOD REASON. Any of the following actions or omissions by CFM shall constitute good reason: (i) Material breach by CFM of any provision of this Agreement which is not cured by CFM within fifteen (15) days of written notice thereof from Randall; or (ii) Any action by CFM to intentionally harm Randall; or (iii) If following, at any time subsequent to the date of this Agreement, a Change of Control Event and within eighteen (18) months following the date of such Event, a change occurs in Randall's status, title, position, compensation, or responsibilities (including reporting responsibilities) which, in Randall's reasonable judgment, represents a material adverse change from his status, title, position, compensation, or responsibility as provided for in this Agreement, Randall may, at his sole option by providing written notice within sixty (60) days following such change, deem such change to be just cause under this Section 5(c). (iv) The failure of CFM to obtain an agreement, satisfactory to Randall, from any Successors and Assigns to assume and agree to perform this Agreement. (v) Randall's right to terminate his employment pursuant to this Section 5(c) shall not be affected by his incapacity due to disability. (vi) In the event of termination by Randall for good reason, (1) CFM will retain Randall as a consultant to the Company with duties as Randall and the Company may mutually agree for a period of eighteen (18) months, which term may be extended by mutual agreement between the parties, with monthly compensation equal to one twelfth of Randall's then current annual base salary plus annual target bonus and (2) all options to purchase common stock of CFM held by Randall shall vest immediately as of the date of such termination. 4 (d) TERMINATION BY THE PRESIDENT, CHAIRMAN OR BOARD OF DIRECTORS OF CFM WITHOUT CAUSE. (i) If such Termination shall occur, CFM will retain Randall as a consultant to the company with duties as Randall and the company may mutually agree and will pay Randall monthly an amount equal to one twelfth of Randall's then current annual base salary plus annual target bonus commencing with the date of such termination and ending twelve (12) months thereafter; and (ii) Following the occurrence of a Change of Control Event during the one year period following any Termination of Randall under 5(d)(i), above, CFM shall immediately (1) extend the term of Randall's consulting period as agreed to in 5(d)(i), above to a total of eighteen (18) months from the initial date of Termination and (2) grant to Randall fully-vested options to purchase a number of shares of common stock of CFM equal to the number of unvested options held by Randall and cancelled at the time of such Termination (the "Cancelled Options"). The purchase price of each such share shall equal the lowest share purchase price of any of the Cancelled Options or the fair market value of a share of common stock of CFM on the date of the Change of Control Event, whichever shall be lower, and all other terms of such newly granted options shall be substantially similar to the terms of the Cancelled Options. (e) TERMINATION BY RANDALL WITHOUT GOOD REASON. In the event Randall wishes to resign, he shall give not less than thirty (30) days prior notice of such resignation and CFM shall have the option of terminating Randall's duties and responsibilities at any time prior to Randall's proposed termination date, subject to payment by CFM of the lesser of Randall's then current base pay for a thirty (30) day period, or such other period as may remain under the notice given by Randall. 6. CHANGE OF CONTROL For purposes of this Agreement, a "Change of Control Event" shall mean any of the following: (a) An acquisition (other than directly from CFM) of any voting securities of CFM (the "Voting Securities") by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act") immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of thirty percent (30%) or more of the combined voting power of CFM's then outstanding Voting Securities; provided, however, that in determining whether a Change of Control Event has occurred, Voting Securities which are acquired in a "Non-Control Acquisition" (as defined below) shall not constitute an acquisition which would cause a Change of Control Event. A "Non-Control Acquisition" shall mean an acquisition by (1) an employee benefit plan (or trust forming a part thereof) maintained by (x) CFM or (y) any corporation or other Person of which a majority of its voting power or its equity securities or equity interest is owned directly or indirectly by CFM (a "Subsidiary"), (2) CFM or any Subsidiary, or (3) any Person in connection with a "Non-Control Transaction." 5 (b) The individuals who, as of the date hereof, are members of the Board (the "Incumbent Board"), cease for any reason to constitute at least two-thirds of the Board; provided, however, that if the election, or nomination for election by CFM's stockholders, of any new director was approved by a vote of at least two-thirds of the then Incumbent Board, such new director shall, for purposes of this Agreement, be considered as a member of the Incumbent board; provided, further, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the 1934 Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (c) Approval by stockholders of CFM of: (i) A merger, consolidation, or reorganization involving CFM, unless (1) the stockholders of CFM, immediately before such merger, consolidation or reorganization, own, directly or indirectly, immediately following such merger, consolidation or reorganization, at least seventy percent (70%) of the combined voting power of the outstanding Voting Securities of the corporation resulting from such merger or consolidation or reorganization (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation, or reorganization, and (2) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation, or reorganization constitute at least two-thirds of the members of the board of directors of the Surviving Corporation or corporation beneficially owning, directly or indirectly, a majority of the Voting Securities of the Surviving Corporation, and 6 (3) no Person (other than CFM, any Subsidiary, any employee benefit plan (or any trust forming a part thereof) maintained by CFM, the Surviving Corporation or any Subsidiary, or any Person who, immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of fifteen percent (15%) or more of the then outstanding Voting Securities) owns, directly or indirectly, fifteen percent (15%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities, and (4) a transaction described in clauses 1 through 3 shall herein be referred to as a "Non-Control Transaction"; (ii) A complete liquidation or dissolution of CFM, or (iii) A sale or other disposition of all or substantially all of the assets of CFM to any Person (other than a transfer to a Subsidiary). (d) Notwithstanding the foregoing, a Change of Control Event shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the outstanding Voting Securities as a result of the acquisition of Voting Securities by CFM which by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by the Subject Person, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of Voting Securities by CFM, and after such share acquisition by CFM, the Subject Person becomes the Beneficial Owner of any additional Voting Securities which increases the percentage of the then outstanding Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. (e) Notwithstanding anything contained in this Agreement to the contrary, if Randall's employment is terminated prior to a Change of Control Event and Randall reasonably demonstrates that such termination (i) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change of Control Event and who effectuates a Change of Control Event (a "Third Party") or (ii) otherwise occurred in connection with, or in anticipation of, a Change of Control Event which actually occurs, then for all purposes of this Agreement, the date of a Change of Control Event with respect to Randall shall mean the date immediately prior to the date of such termination of Randall's employment and shall constitute grounds for Termination for good reason by Randall under Section 5(c) of this Agreement. 7 7. FEDERAL EXCISE TAX UNDER IRC SECTION 280G (a) If (1) any amounts payable under this Agreement are characterized as excess parachute payments pursuant to Section 4999 of the Internal Revenue Code, and (2) Randall thereby would be subject to any United States federal excise tax due to that characterization, then (3) Randall may elect, in Randall's sole discretion, to reduce the amounts payable under this Agreement or to have any portion of applicable options not be granted or vest in order to avoid any "excess parachute payment" under Section 280(G)(b)(1) of the Internal Revenue Code of 1986, as amended. (b) Unless CFM and Randall otherwise agree in writing, any determination required under this Section 6 shall be made in writing by independent public accountants agreed to by CFM and Randall (the "Accountants"), whose determination shall be conclusive and binding upon CFM and Randall for all purposes. For purposes of making the calculations required by this Section 6, the Accountants may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. CFM and Randall shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make the required determinations. CFM shall bear all fees and expenses the Accountants may reasonably charge in connection with the services contemplated by this Section 7. 8. EXTENDED MEDICAL AND DENTAL BENEFITS In the event of an event of Termination under Section 5(a), 5(c) or 5(d) of this Agreement, Randall and Randall's dependents shall receive continued provision of CFM's standard employee medical and dental benefits for twenty-four (24) months for Termination under Section 5(a) or Section 5(d) and for thirty (30) months for Termination under Section 5(c). Notwithstanding the foregoing, in the event Randall becomes covered as a primary insured (that is, not as a beneficiary under a spouse's plan) under another employer's group health plan during the extended benefit period provided for herein, Randall shall promptly inform CFM and CFM shall cease provision of continued group health benefits for Randall and any dependents. 9. RELEASE OF CLAIMS CFM may condition payment of the cash termination benefits described in Sections 5(c) or 5(d) of this Agreement upon the delivery by Randall of a signed release of claims in a form reasonably satisfactory to CFM; provided, however, that Randall shall not be required to release any rights Randall may have to be indemnified by CFM. 8 10. NON-COMPETITION AND NON-SOLICITATION During any period of post-Termination consulting, Randall agrees not to (1) engage in (as an employee, consultant, director, principal, partner, officer, agent, advisor or otherwise) or be financially interested in any business operating anywhere in the world which, in the reasonable judgment of the Company, directly competes with the Company through the design, manufacture or distribution of semiconductor wet processing equipment or (2) directly or indirectly solicit, induce, encourage, or attempt to influence any client, customer, employee, consultant, independent contractor, salesman, or supplier of the Company to cease to do business or terminate his employment with the Company. 11. NOTICES Any notice or other communication under this Agreement shall be in writing and shall be deemed to have been given: (i) upon delivery when delivered personally against receipt therefor; (ii) one (1) day after being sent by Federal Express or similar overnight delivery; or (iii) three (3) days after being mailed via registered or certified mail, postage prepaid, return receipt requested, to either party at the address set forth above, or to such other address as such party shall give by notice hereunder to the other party. 12. SEVERABILITY OF PROVISIONS If any provision of this Agreement shall be declared by a court of competent jurisdiction to be invalid, illegal or incapable of being enforced in whole or in part, such provision shall be interpreted so as to remain enforceable to the maximum extent permissible consistent with applicable law and the remaining conditions and provisions or portions thereof shall nevertheless remain in frill force and effect and enforceable to the extent they are valid, legal and enforceable, and no provision shall be deemed dependent upon any other covenant or provision unless so expressed herein. 13. ARBITRATION Any dispute or disagreement arising out of this Agreement or a claimed breach, shall be resolved by arbitration in Chester County, Pennsylvania under the Voluntary Labor Arbitration Rules of the American Arbitration Association. The arbitrator's decision shall be final and binding upon the parties and judgment may be entered in any court. 14. SUCCESSORS This Agreement shall be binding upon and shall inure to the benefit of CFM, its Successors and Assigns and CFM shall require any Successors and Assigns to expressly assume and agree to perform this Agreement in the same manner and to the same extent that CFM would be required to perform it if no such succession or assignment had taken place. 9 15. ENTIRE AGREEMENT MODIFICATION This Agreement contains the entire agreement of the parties relating to the subject matter hereof and the parties hereto have made no agreements, representations or warranties relating to the subject matter of this Agreement which are not set forth herein. No modification of this Agreement shall be valid unless made in writing and signed by the parties hereto 16. BINDING EFFECT The rights, benefits, duties and obligations under this Agreement shall inure to, and be binding upon, CFM, its successors and assigns, and upon Randall and his legal representatives. This Agreement constitutes a personal service agreement, and the performance of Randall's obligations hereunder may not be transferred or assigned by Randall. 17. GOVERNING LAW This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the Commonwealth of Pennsylvania without regard to principles of conflict of laws. 18. HEADINGS The headings of paragraphs are inserted for convenience and shall not affect any interpretation of this Agreement. IN WITNESS WHEREOF, the parties hereto. intending to be legally bound hereby, have executed this Agreement as of the day and year first above written. LORIN J. RANDALL /s/ Lorin J. Randall 10/25/99 - ----------------------------- ---------------------- Lorin J. Randall Date CFM TECHNOLOGIES, INC /s/ Roger A. Carolin 10/25/99 - ----------------------------- ---------------------- Roger A. Carolin Date 10 EX-10.24 5 EXHIBIT 10.24 Exhibit 10.24 EMPLOYMENT AGREEMENT Agreement (hereinafter "Agreement") dated as of December 2, 1998 by and between CFM Technologies, Inc., a Pennsylvania corporation having a place of business at 1381 Enterprise Drive, West Chester, PA 19380 ("CFM"), and Rudra Kar, an individual residing at 5840 West Park Avenue, Chandler, AZ 85226 ("Kar"). WITNESSETH: WHEREAS, CFM desires to employ Kar as Vice President - Engineering and Kar desires to be employed by CFM as Vice President - Engineering, all pursuant to the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the foregoing and the mutual promises and covenants herein contained, and intending to be legally bound hereby, it is agreed as follows: 1. EMPLOYMENT: DUTIES CFM engages and employs Kar, and Kar hereby accepts engagement and employment, as Vice President - Engineering to direct, supervise and have responsibility for the engineering operations of CFM and to perform such other services and duties as the President of CFM, in his sole discretion, shall reasonably determine. Subject to Paragraph 4, Kar shall devote his full business time, energy and skill to his duties hereunder and such level of effort shall be on a full time basis. It is understood and agreed that Kar may not engage in other business activities during the term of this contract, whether or not for profit or other pecuniary advantage; provided, however, that Kar may make personal financial investments which do not involve his active participation and may engage in other activities, including service as a member of the board of directors of any bank or other financial institution, or as a member of the board of directors of any other corporation with written approval of the Board, to the extent that none of such activities hinder or interfere with the performance of his duties under this agreement or conflict with CFM's policies concerning conflict of interest or the business of CFM in any material way. 1 2. COMPENSATION As compensation for the performance of his duties on behalf of CFM, Kar shall be compensated as follows: (a) A base salary of $145,000 per annum. (b) Employee fringe benefits including, but not limited to, such health insurance, long-term disability insurance, life insurance, company savings and investment plan participation, vacations and holidays as made available to other employees. (c) The grant of non-qualified options to purchase 50,000 shares of the common stock of CFM are subject to the terms and conditions of CFM's then applicable Employee Stock Option Plan. (d) Other compensation as described in CFM's employment offer letter to you dated December 2, 1998. 3. REPRESENTATIONS AND WARRANTIES BY KAR AND CFM Kar hereby represents and warrants to CFM as follows: (a) Neither the execution and delivery of this Agreement nor the performance by Kar of his duties and other obligations hereunder violate or will violate any statute, law, determination or award, or conflict with or constitute a default under (whether immediately, upon the giving of notice or lapse of time or both) any prior employment agreement, contract, or other instrument to which Kar is a party or by which he is bound. (b) Kar has the right, power and legal capacity to enter and deliver this Agreement and to perform his duties and other obligations hereunder. This agreement constitutes the legal, valid and binding obligation of Kar enforceable against him in accordance with its terms. No approvals or consents of any persons or entities are required for Kar to execute and deliver this Agreement or perform his duties and other obligations hereunder. CFM hereby represents and warrants to Kar as follows: (a) CFM is duly organized, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania, with all requisite corporate power and authority to own its properties and conduct its business in the manner presently contemplated. (b) CFM has full power and authority to enter into this Agreement and to incur and perform its obligations hereunder. (c) The execution, delivery and performance by CFM of this Agreement does not conflict with or result in a breach or violation of or constitute a default under (whether immediately, upon the giving of notice or lapse of time or both) the certificate of incorporation or by-laws of CFM, or any agreement or instrument to which CFM is a party or by which CFM or any of its properties may be bound or affected. 2 4. TERMINATION (a) Kar's employment hereunder shall begin on or about January 15, 1999 and shall continue until terminated upon the first to occur of the following events: (i) The death or disability of Kar. CFM may, at its option, terminate Kar's employment for "disability" (as hereinafter defined). In the event of termination for death or disability, Kar or his designated beneficiary, shall only be entitled to termination benefits pursuant to Paragraph 4(a)(iv). For purposes of this Agreement, the term "disability" means any physical or mental illness, disability or incapacity which prevents Kar from performing, with or without accommodation, substantially all of his duties hereunder for a period totaling not less than one hundred eighty (180) days during any period of twelve (12) consecutive months. (ii) Termination by the President, Chairman or Board of Directors of CFM for cause. Any of the following actions by Kar shall constitute cause: (A) Material breach by Kar of the provisions of the CFM Non-Disclosure and Invention Agreement which he is a party to, a copy of which is attached hereto; (B) Theft; a material act of dishonesty or fraud; intentional falsification of any employment or Company records; or the commission of any criminal act which impairs Kar's ability to perform appropriate employment duties under this Agreement; (C) Kar's conviction (including any plea of guilty or nolo contendere) for a crime involving moral turpitude causing material harm to the reputation and standing of the CFM; (D) Gross negligence or willful misconduct in the performance of Kar's assigned duties (but not mere unsatisfactory performance). (iii) Termination by Kar for cause. Any of the following actions or omissions by CFM shall constitute just cause: (A) Material breach by CFM of any provision of this Agreement which is not cured by CFM within fifteen (15) days of written notice thereof from Kar; or (B) Any action by CFM to intentionally harm Kar. (iv) Termination by the President, Chairman or Board of Directors of CFM without cause. In such case, the following provisions will apply: (A) If termination occurs within two (2) years from Kar's starting date of employment, then CFM will continue to pay Kar's then current base salary for the period commencing with the date of such termination and ending twelve months thereafter. 3 (B) If termination occurs after two (2) years from the date of Kar's starting date of employment, then CFM will continue to pay Kar's then current base salary for the period commencing with the date of such termination and ending twelve months thereafter, or until the date Kar shall commence permanent, full-time employment elsewhere, whichever shall first occur; provided however, that such payments will continue for a period of no less than six (6) months, irrespective of Kar's subsequent employment elsewhere. (v) Termination by Kar without cause, providing that notice of such termination shall be not less than 90 days prior to the effective date of such termination. In such case, CFM shall have the option of terminating Kar's duties and responsibilities at any time prior to Kar's proposed termination date, subject to payment by CFM of the lesser of Kar's then current base pay for the ninety (90) day period, or such other period as would be otherwise remaining under the notice given by Kar. 5. RELEASE OF CLAIMS CFM may condition payment of the cash termination benefits described in Section 4(iv) of this Agreement upon the delivery by Kar of a signed release of claims in a form reasonably satisfactory to CFM; provided, however, that Kar shall not be required to release any rights Kar may have to be indemnified by the Company. 6. NOTICES Any notice or other communication under this Agreement shall be in writing and shall be deemed to have been given: (i) upon delivery when delivered personally against receipt therefor; (ii) one (1) day after being sent by Federal Express or similar overnight delivery; or (iii) three (3) days after being mailed via registered or certified mail, postage prepaid, return receipt requested, to either party at the address set forth above, or to such other address as such party shall give by notice hereunder to the other party. 7. SEVERABILITY OF PROVISIONS If any provision of this Agreement shall be declared by a court of competent jurisdiction to be invalid, illegal or incapable of being enforced in whole or in part, such provision shall be interpreted so as to remain enforceable to the maximum extent permissible consistent with applicable law and the remaining conditions and provisions or portions thereof shall nevertheless remain in frill force and effect and enforceable to the extent they are valid, legal and enforceable, and no provision shall be deemed dependent upon any other covenant or provision unless so expressed herein. 8. ARBITRATION Any dispute or disagreement arising out of this Agreement or a claimed breach, shall be resolved by arbitration in Chester County, Pennsylvania under the Voluntary Labor Arbitration Rules of the American Arbitration Association. The arbitrator's decision shall be final and binding upon the parties and judgment may be entered in any court. 4 9. ENTIRE AGREEMENT MODIFICATION This Agreement contains the entire agreement of the parties relating to the subject matter hereof and the parties hereto have made no agreements, representations or warranties relating to the subject matter of this Agreement which are not set forth herein. No modification of this Agreement shall be valid unless made in writing and signed by the parties hereto 10. BINDING EFFECT The rights, benefits, duties and obligations under this Agreement shall inure to, and be binding upon, CFM, its successors and assigns, and upon Kar and his legal representatives. This Agreement constitutes a personal service agreement, and the performance of Kar's obligations hereunder may not be transferred or assigned by Kar. 11. GOVERNING LAW This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the Commonwealth of Pennsylvania without regard to principles of conflict of laws. 12. HEADINGS The headings of paragraphs are inserted for convenience and shall not affect any interpretation of this Agreement. IN WITNESS WHEREOF, the parties hereto. intending to be legally bound hereby, have executed this Agreement as of the day and year first above written. 5 RUDRA KAR ACCEPTED: /s/ Rudra N. Kar 12/2/98 -------------------------- ------------------- Rudra N. Kar Date CFM TECHNOLOGIES, INC /s/ Roger A. Carolin 12/2/98 - -------------------------------------------- ------------------- Roger A. Carolin Date 6 EX-10.26 6 EXHIBIT 10.26 Exhibit 10.26 PATENT LICENSE AGREEMENT THIS AGREEMENT is entered into this 28th day of December, 1998 (the "Effective Date") by and between CFM TECHNOLOGIES INC., having its principal place of business at 1336 Enterprise Drive, West Chester, PA 19380, CFMT Inc., having its principal place of business at 1403 Foulk Rd, Suite 106-FWilmington, DE 19803, hereinafter collectively referred to as "CFM," and STEAG MICROTECH, INC., having its principal place of business at 8305 Cross Park Drive, Austin, Texas 78754, hereinafter referred to as "STEAG". WITNESSETH: WHEREAS, CFM is the owner of U.S. Patent No. 4,911,761; WHEREAS, the parties desire to submit a mutually beneficial proposal to IBM to supply certain equipment for IBM's U.S. plant in Burlington, Vermont; WHEREAS, STEAG is subject to an injunction issued by the District Court for the District of Delaware, resulting from a finding of infringement liability which is now on appeal; WHEREAS, in order for STEAG to supply certain Marangoni drying equipment to IBM, IBM has required STEAG to be licensed by CFM under U.S. Patent No. 4,911,761; and WHEREAS, CFM is willing to grant such a limited-purpose license, and STEAG is willing to accept the license, under the terms and conditions herein. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, the parties agree as follows: 1 ARTICLE 1 - DEFINITIONS As used in this Agreement, the following terms shall have the following meanings: 1.01 The term "Patent Rights" shall mean rights under U.S. Patent 4,911,761. 1.02 "Licensed Product(s)" shall mean certain drying equipment and replacement parts therefor to be sold by STEAG to IBM, the use of such equipment having been held to be covered by one or more issued claims of the Patent Rights by the US District Court of the District of Delaware in CFMT, Inc., et al. vs. STEAG, Civil Action 95-442. For purpose of this Agreement only, the STEAG Marangoni dryers, as configured on the Effective Date, shall be deemed to be Licensed Products. 1.03 "Net Sales Value" of Licensed Products sold by STEAG to IBM shall mean the gross invoice price received therefor, less allowance for returns and less (to the extent separately stated on such invoice) any normal discounts and allowances actually granted and less any sales, use or other excise taxes and shipping charges included in such invoice price. In cases when the Licensed Products are included as part of a larger system, the Net Sales Value will be fixed at U.S. $150,370 irrespective of the price of the total system. 1.04 "Field of Use" shall mean sales of the Licensed Product to IBM pursuant to a certain proposal of STEAG (attached as Exhibit A) and IBM's Request For Quotation dated December 16, 1998. 1.05 "Territory" shall mean the United States. 1.06 "Term of this Agreement" shall mean the period described in Article 6.01. 2 ARTICLE 2 - LICENSE 2.01 Subject to the terms and conditions of this Agreement, CFM hereby grants to STEAG, and STEAG hereby accepts, a non-exclusive, non-transferable license in the Field of Use under the Patent Rights, without the right to grant sublicenses except as in Article 12: (a) to have manufactured by STEAG's affiliate, STEAG Microtech GmbH, and to import into the United States solely for sale to IBM in connection with the proposal attached as Exhibit A during the Term of this Agreement, and (b) to provide after-sales service and spare parts to IBM to maintain and repair during their useful life no more than twenty-one (21) Licensed Products. 2.02 CFM shall not assert against IBM any claim for infringement of the Patent Rights by IBM's internal commercial use of the Licensed Products obtained from STEAG under this Agreement. 2.03 Neither this License Agreement nor anything contained herein shall be construed as an agreement that the `761 patent is either valid or infringed by STEAG. ARTICLE 3 - ROYALTIES 3.01 STEAG shall pay CFM fifteen percent (15%) of the STEAG Net Sales Value of Licensed Products. Such 15% payment shall not be construed as a STEAG recognition or admission of the correctness of the 15% royalty rate found by the jury in CFMT, Inc. et al. vs. STEAG, U.S. District Court, Delaware, Civil Action 95-442. 3.02 Within thirty (30) days after the delivery of each Licensed Product, STEAG shall pay to CFM one hundred percent (100%) of the royalty due pursuant to Article 3.01. Each payment will be accompanied by a written report in such detail as CFM reasonably requires of all amounts paid. 3 ARTICLE 4 - PAYMENT TERMS 4.01 All royalties and other amounts payable pursuant to Article 3 hereof shall be paid in United States Dollars by wire transfer. 4.02 Payments provided for in this Agreement shall, when overdue, bear interest at a rate per annum equal to one and one-half percent (1 1/2%) per month from the date such payment shall be due until payment shall be received by CFM. ARTICLE 5 - AUDIT RIGHTS STEAG shall keep accurate and complete books of account containing record of all data necessary for the determination of the amount of the royalty payments that shall become due under Article 3 hereof, and shall permit CFM or its agent to examine such books of account at all reasonable times during normal business hours to such extent as may be necessary to determine the accuracy or inaccuracy of any of the statements to be rendered by STEAG pursuant to Article 4 hereof. Such inspection shall be completed at the expense of CFM, provided that if any deficiency exceeding three percent (3%) of the money actually due shall be found in connection with the computation, the cost of such inspection shall be borne by STEAG. 4 ARTICLE 6 - TERM AND TERMINATION 6.01 The term of this Agreement shall commence on January 1, 1999 and end on the earlier of December 31, 2000, or delivery to IBM of the eleventh and final permitted Licensed Products herein. 6.02 In the event that STEAG shall fail to comply with any material term of this Agreement, CFM shall have the option to give STEAG a written notice of default. If STEAG shall not have cured such default within thirty (30) days of such notice, CFM shall have the right to terminate this Agreement effective immediately upon written notice. 6.03 The provisions of Articles 1, 5, 6.03, 7, 9, 10, 12, 13, 14 and the license granted in Article 2.01(b) shall survive expiration or termination of this Agreement. In addition, expiration or termination of this Agreement shall not relieve the parties of any obligations accruing prior to such expiration or termination, including the obligations set forth in Article 3. The remainder of the earned royalties due to CFM pursuant to Article 3, if any, shall be paid by STEAG within twenty (20) days from the Effective Date of termination of this Agreement 5 ARTICLE 7 - NOTICE All notices, requests or communications hereunder shall be in writing and shall be deemed to have been fully given: (i) upon delivery, if delivered personally against written receipt; (ii) three (3) days after posting by certified mail, postage prepaid, return receipt requested; (iii) upon confirmed receipt, if delivered by telecopier; or (iv) the next day if delivered by a recognized overnight commercial courier, addressed in each instance to the parties at the following address: CFM Technologies Inc. STEAG MicroTech, Inc. 1336 Enterprise Drive 8305 Cross Park Drive West Chester, PA 19380 Austin, TX 78754 Attn.: L. Jeff Randall Attn.: J. Brinkmann, President Facsimile No: 610-696-8300 Facsimile No: 512-438-1397 ARTICLE 8 - WARRANTIES 8.01 CFM warrants and represents to STEAG that CFM has the right, title and interest to the Patent Rights sufficient to grant the licenses and rights granted herein. CFM warrants and represents that it will not assert any other patents or claims which would interfere with the enjoyment of the rights granted herein. 8.02 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, CFM MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, VALIDITY OF PATENT RIGHTS' CLAIMS, ISSUED OR PENDING, AND THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE. NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS A REPRESENTATION MADE OR WARRANTY GIVEN BY CFM THAT THE PRACTICE BY STEAG OF THE LICENSE GRANTED HEREUNDER SHALL NOT INFRINGE THE PATENT RIGHTS OF ANY THIRD PARTY. 6 ARTICLE 9 - LIMITATION OF LIABILITY IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR INCIDENTAL, SPECIAL CONSEQUENTIAL OR PUNITIVE DAMAGES OF ANY KIND, INCLUDING ECONOMIC DAMAGE OR INJURY TO PROPERTY AND LOST PROFITS, REGARDLESS OF WHETHER SUCH PARTY SHALL BE ADVISED, SHALL HAVE OTHER REASON TO KNOW, OR IN FACT SHALL KNOW OF THE POSSIBILITY OF THE FOREGOING. ARTICLE 10 - INDEMNITY STEAG shall indemnify and hold harmless CFM, its officers, directors, employees, and affiliates from any IBM or other third party product liability loss, claim, demand, action, liability and expense (including legal and expert fees and costs) arising out of, resulting from or related to the manufacture, sale or use of Licensed Products. STEAG shall control the investigation and defense of any such action alleging such liability, with counsel of its choice reasonably satisfactory to CFM. CFM shall cooperate in any defense at STEAG's expense. STEAG may settle any such action without CFM's consent provided that there is no cost to CFM and otherwise with CFM's consent, which will not be withheld unreasonably. 7 ARTICLE 11 - CONFIDENTIALITY 11.01 Each of the parties undertakes to maintain the confidentiality of the terms and conditions of this Agreement, provided that the parties may disclose the existence and the terms and conditions of this Agreement as required to enforce their rights hereunder, or as otherwise may be required by law. Neither party may issue a press release disclosing or otherwise disclose to third parties, except for IBM, the existence of this Agreement between the parties. 11.02 Both parties agree that the terms and existence of this Agreement shall not be used as evidence or otherwise in support of patent litigation between them. ARTICLE 12 - ASSIGNMENT STEAG may not assign this Agreement, in whole or in part, without the prior written consent of CFM. Notwithstanding the previous sentence, STEAG may, without such consent, transfer or assign all of its rights and obligations under this Agreement to an entity that is STEAG's successor in connection with a merger or that purchases all or substantially all of STEAG's stock or assets to which this Agreement pertains. Subject to the above limitations, this Agreement will mutually benefit and be binding upon the parties, their successors and assigns. 8 ARTICLE 13 - DISPUTE RESOLUTION Any and all claims, disputes or controversies arising under, resulting from, or related to this Agreement ("Dispute"), shall be resolved by negotiation and, if necessary, litigation, as follows. The party raising such Dispute shall promptly advise the other party in writing describing in reasonable detail the nature of such Dispute ("Notice of Dispute"). The senior management of the parties shall by good faith negotiations attempt to resolve the Dispute within thirty (30) days of the Notice of Dispute. In the event the senior management negotiations shall not resolve the Dispute in the thirty-day period, then either party may seek legal relief in any court of competent jurisdiction. ARTICLE 14 - GENERAL PROVISIONS 14.01 This Agreement shall be governed by, interpreted and construed in accordance with the laws of the Commonwealth of Pennsylvania. Venue for any dispute arising under this Agreement will be in Philadelphia, Pennsylvania. Each of the parties hereby irrevocably submits to the exclusive venue and jurisdiction of the United States federal court sitting in Philadelphia, Pennsylvania in any action, suit or proceeding brought against it by the other party under this Agreement. 14.02 STEAG acknowledges that it is subject to United States laws and regulations controlling the export of technical data, computer software and other commodities and agrees not to export or allow the export or re-export of such data, software or other commodities in violation of such laws and regulations. 9 14.03 This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures were upon the same instrument. 14.04 This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, understandings and negotiations, both written and oral, between the parties with respect to the subject matter of this Agreement. No representation, inducement, promise, understanding, condition or warranty not set forth herein has been made or relied upon by either party hereto. 14.05 In the event any provision of this Agreement is held by a tribunal of competent jurisdiction to be contrary to the law, the remaining provisions of this Agreement will remain in full force and effect. The parties hereto agree to replace such unenforceable provision with a new provision which has the most nearly similar permissible economic or other effect. 14.06 No failure or delay by either party in enforcing any right or remedy under this Agreement shall be construed as a waiver of any future or other exercise of such right or remedy by such party. No waiver shall be effective unless made in writing and signed by an authorized representative of the waiving party. 14.07 No modification of this Agreement shall be binding unless it is in writing and is signed by an authorized representative of the party against whom enforcement of the modification is sought. 14.08 Headings are used in this Agreement for convenience only and shall not affect any construction or interpretation of this Agreement. 10 14.09 The parties to this Agreement are and shall remain independent contractors. Nothing herein shall be construed to create a partnership or joint venture between them, and neither shall have the power of authority to bind or obligate the other in any manner not expressly set forth herein. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year above first written. CFMT, INC. STEAG MICROTECH, INC. - ------------------------------------- ------------------------------------ By: /s/ Lorin J. Randall By: /s/ Johannes Brinkmann ------------------------------ ----------------------------- Title: /s/ Treasurer Title: /s/ President & CEO ---------------------------- --------------------------- CFM TECHNOLOGIES, INC. - ------------------------------------- By: /s/ Roger A. Carolin ------------------------------ Title: /s/ President & CEO ----------------------------- 11 EXHIBIT A IBM ARCPS REPLACEMENT - DECK AND LAYOUT SPECIFICATIONS from IBM 200mm ARCPSWETS -1298 Specification, Appendix E Rev 2.0 - -------------------------------------------------------------------------------- DECK SPECIFICATION 1 - BHF/SC-1/SC-2 DRYERS - -------------------------------------------------------------------------------- *R05v LEFT TO RIGHT: 2 BHF(500:1), JR1, BHF(8:5:1), SC1, JR2, SC2, JR3, FR/Dryer1, FR/Dryer2, I/O Area. R07v LEFT TO RIGHT: 2 BHF(500:1), JR1, BHF(8:5:1), SC1, JR2, SC2, JR3, FR/Dryer1, FR/Dryer2, I/O Area. *113v LEFT TO RIGHT: 2 BHF(500:1), JR1, BHF(8:5:1), SC1, JR2, SC2, JR3, FR/Dryer1, FR/Dryer2, I/O Area. R06v RIGHT TO LEFT: 2 -------------- I/O Area, Dryer2/FR, Dryer1/FR, JR3, BLANKC, JR2, BHF(5:1), JR1, BHF(500:1). *Note: Decks R05V &113V shall also be accompanied by power monitors for the megasonics modules. - -------------------------------------------------------------------------------- DECK SPECIFICATION 2 - CR/PHOS & HOT PEROXIDE (H2O2) DRYERS - -------------------------------------------------------------------------------- R43v RIGHT TO LEFT: 2 I/O Area, Dryer2/FR, Dryer1/FR, BLANKR3, BLANKC, DI Rinse2, Cr/Phos, DI Rinse1, Hot H2O2. 266v RIGHT TO LEFT: 2 I/O Area, Dryer2/FR, Dryer1/FR, BLANKR3, BLANKC, DI Rinse2, Cr/Phos, DI Rinse1, Hot H2O2. - -------------------------------------------------------------------------------- DECK SPECIFICATION 3 - MONITOR RECLAIM DRYERS - -------------------------------------------------------------------------------- R08v LEFT TO RIGHT: 2 S-Etch, DI Jet Rinse1, 49% HF, DI Jet Rinse2, BLANKC, BLANKR3, FR/Dryer1, FR/Dryer2, I/O Area. 120v RIGHT TO LEFT: 2 I/O Area, Dryer2/FR, Dryer1/FR, BLANKR3, BLANKC, DI Jet Rinse2, 49% HF, DI Jet Rinse1, S-Etch - -------------------------------------------------------------------------------- DECK SPECIFICATION 4 - MONITOR REWORK DRYERS - -------------------------------------------------------------------------------- R48v LEFT TO RIGHT: 2 SC1, DI JR1, HF/Nitric, DI JR2, HF/Nitric, DI JR3, FR/Dryer2, FR/Dryer1, I/O Area - -------------------------------------------------------------------------------- DECK SPECIFICATION 5 - HOT PHOSPHORIC ACID DRYERS - -------------------------------------------------------------------------------- R20v RIGHT TO LEFT: 1 -------------- I/O Area, FR/Dryer, DI Rinse, H3PO4, DI Rinse, H3PO4. - -------------------------------------------------------------------------------- SPECIFICATION 6 - KOH/SC-1/DHF/DI-03 (SPIKED HCL) - -------------------------------------------------------------------------------- R10v LEFT TO RIGHT: 2 -------------- KOH, JR, DHF, DI-O3(spiked HCL), SC1, DI-03(spiked HCL), Dryer1/FR, Dryer2/FR, I/O Area. - -------------------------------------------------------------------------------- DRYER TOTAL 21 - -------------------------------------------------------------------------------- EX-21 7 EXHIBIT 21 Exhibit 21 SUBSIDIARIES OF CFM TECHNOLOGIES, INC. JURISDICTION OF NAME INCORPORATION - ---- ------------- CFMT, Inc. .................................................... Delaware CFM International Corp. ....................................... Guam CFM Technologies Limited ...................................... Scotland CFM Technologies, S.A. ........................................ France CFM Technologies Limited Singapore Branch ..................... Singapore CFM Technologies Limited Taiwan Branch ........................ Taiwan EX-23.1 8 EXHIBIT 23.1 Exhibit 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K, into CFM Technologies, Inc.'s previously filed Form S-8 Registration Statement File No. 333-19749. Philadelphia, Pa., January 20, 2000 EX-27 9 EXHIBIT 27 (FDS -- FORM 10-K)
5 12-MOS OCT-31-1999 OCT-31-1999 13967 10249 14826 0 17039 58835 22276 8739 82086 13765 0 0 0 81495 (14802) 82086 31563 31563 20997 20997 0 0 (1409) (15877) (5398) (10479) 0 0 0 (10479) (1.34) (1.34)
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