-----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, O/t1Xrhn+OAXy+X1LWMsJx+/wzTRXCmTtZK/nCnLq5LTiJ/YNVasYOQWXLJmDiyw coyx0lfJtaEkOSQzgEizBw== 0000912057-97-015922.txt : 19970508 0000912057-97-015922.hdr.sgml : 19970508 ACCESSION NUMBER: 0000912057-97-015922 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970507 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GASONICS INTERNATIONAL CORP CENTRAL INDEX KEY: 0000918647 STANDARD INDUSTRIAL CLASSIFICATION: SPECIAL INDUSTRY MACHINERY, NEC [3559] IRS NUMBER: 942159729 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23372 FILM NUMBER: 97597110 BUSINESS ADDRESS: STREET 1: 2540 JUNCTION AVENUE CITY: SAN JOSE STATE: CA ZIP: 95134 BUSINESS PHONE: 4083251200 MAIL ADDRESS: STREET 1: 2730 JUNCTION AVE CITY: SAN JOSE STATE: CA ZIP: 95134 10-Q 1 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------- FORM 10-Q (MARK ONE) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997 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 number: 0-23372 GASONICS INTERNATIONAL CORPORATION (Exact name of registrant as specified in its charter) Delaware 94-2159729 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2540 Junction Avenue, San Jose, California 95134 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (408) 570-7000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ------- At March 31, 1997, there were 13,650,090 shares of the Registrant's Common Stock, $0.001 par value per share, outstanding. GASONICS INTERNATIONAL CORPORATION FORM 10-Q INDEX PAGE NO. -------- PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets as of March 31, 1997 and September 30, 1996 3 Condensed Consolidated Statements of Operations for the three and six month periods ended March 31, 1997 and 1996 4 Condensed Consolidated Statements of Cash Flows for the six month periods ended March 31, 1997 and 1996 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION Item 1. Legal Proceedings 21 Item 2. Changes in Securities 21 Item 3. Defaults Upon Senior Securities 21 Item 4. Submission of Matters to a Vote of Securityholders 21 Item 5. Other Information 22 Item 6. Exhibits and Reports on Form 8-K 22 SIGNATURES 23 Exhibit Index 24 2 PART I . FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS GASONICS INTERNATIONAL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) MAR. 31, Sept. 30, ASSETS 1997 1996 ----------- --------- (UNAUDITED) Current assets: Cash and cash equivalents $ 8,615 $ 11,774 Marketable securities 12,463 14,135 Trade accounts receivable, net 35,823 23,032 Inventories 25,472 26,817 Prepaid and deferred income taxes 3,451 3,451 Prepaid expenses & other current assets 1,879 3,204 ---------- --------- Total current assets 87,703 82,413 Property & equipment, net 13,543 11,575 Deposits and other assets 2,362 2,442 ---------- --------- Total assets $ 103,608 $ 96,430 ---------- --------- ---------- --------- LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Note payable $ 2,455 $ 2,455 Accounts payable 10,367 7,318 Income taxes payable 1,856 1,100 Accrued expenses 12,032 12,316 ---------- --------- Total current liabilities 26,710 23,189 ---------- --------- Long-term liabilities 490 552 ---------- --------- Stockholders' equity: Common stock & additional paid-in capital 32,865 31,413 Unrealized gain on investment 909 902 Note receivable from stockholder (15) (65) Retained earnings 42,649 40,439 ---------- --------- Total stockholders' equity 76,408 72,689 ---------- --------- Total liabilities & stockholders' equity $ 103,608 $ 96,430 ---------- --------- ---------- --------- See accompanying notes. 3 GASONICS INTERNATIONAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31, ---------------------- ---------------------- 1997 1996 1997 1996 --------- --------- --------- --------- Net sales $ 29,592 $ 36,997 $ 59,278 $ 70,779 Cost of sales 16,405 17,024 33,429 32,301 --------- --------- --------- --------- Gross margin 13,187 19,973 25,849 38,478 --------- --------- --------- --------- Operating expenses: Research & development 4,328 4,618 8,417 8,787 Selling, general & administrative 7,124 9,130 14,323 17,059 --------- --------- --------- --------- Total operating expenses 11,452 13,748 22,740 25,846 --------- --------- --------- --------- Operating income 1,735 6,225 3,109 12,632 Other income 236 344 291 636 --------- --------- --------- --------- Income before provision for income taxes 1,971 6,569 3,400 13,268 Provision for income taxes 690 2,299 1,190 4,644 --------- --------- --------- --------- Net income $ 1,281 $ 4,270 $ 2,210 $ 8,624 --------- --------- --------- --------- --------- --------- --------- --------- Net income per share $ 0.09 $ 0.32 $ 0.16 $ 0.64 --------- --------- --------- --------- --------- --------- --------- --------- Weighted average common & common equivalent shares 14,276 13,512 14,198 13,618 --------- --------- --------- --------- --------- --------- --------- ---------
See accompanying notes. 4 GASONICS INTERNATIONAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) SIX MONTHS ENDED MARCH 31, ------------------------ 1997 1996 ---------- ---------- Cash flows from operating activities: Net cash used for operating activities $ (3,052) $ (10,443) --------- --------- Cash flows from investing activities: Purchases of property & equipment (3,238) (3,746) Decrease in marketable securities 1,679 11,710 --------- --------- Net cash provided by (used for) investing activities (1,559) 7,964 --------- --------- Cash flows from financing activities: Proceeds from issuance of common stock 1,452 922 --------- --------- Net cash provided by financing activities 1,452 922 --------- --------- Net decrease in cash and cash equivalents (3,159) (1,557) Cash & cash equivalents at beginning of period 11,774 7,595 --------- --------- Cash & cash equivalents at end of period $ 8,615 $ 6,038 --------- --------- --------- --------- See accompanying notes. 5 GASONICS INTERNATIONAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The accompanying condensed consolidated financial statements have been prepared by the Company without audit and reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position and the results of operations of the Company for the interim periods. The statements have been prepared in accordance with the regulations of the Securities and Exchange Commission. Accordingly, they do not include all information and footnotes required by generally accepted accounting principles. The results of operations for the six months ended March 31, 1997 are not necessarily indicative of the operating results to be expected for the full fiscal year. Such financial statements should be read in conjunction with the information contained in the Company's Annual Report on Form 10-K for the year ended September 30, 1996. Certain reclassifications have been made to prior year amounts to conform to current year presentation. 2. INVENTORIES Inventories consist of the following (in thousands): March 31, September 30, 1997 1996 ----------- ------------- (unaudited) Raw Materials $12,657 $12,985 Work in Process 7,200 7,648 Finished Goods 5,615 6,184 ------- --------- $25,472 $ 26,817 ------- --------- ------- --------- 3. NET INCOME PER SHARE Net income per share data has been computed using the weighted average number of shares of common stock and dilutive common equivalent shares from stock options (using the treasury stock method). In February, 1997, the FASB issued SFAS No. 128, Earnings Per Share, which simplifies the standards for computing earnings per share previously found in Accounting Principles Board Opinion ("APBO") No. 15. SFAS No. 128 replaces the presentation of primary earnings per share with a presentation of basic earnings per share, which excludes dilution. SFAS No. 128 also requires dual presentation of basic and diluted earnings per share on the face of the income statement for all entities with complex capital structures and requires a reconciliation. Diluted earnings per share is computed similarly to fully diluted earnings per share pursuant to APBO No. 15. SFAS No. 128 must be adopted for financial statements issued for periods ending after December 15, 1997, including interim periods: earlier application is not permitted. SFAS No. 6 128 requires restatement of all prior-period earnings per share data presented. The Company has determined that adoption of SFAS No. 128 will not have a material impact on its financial position or results of operations. The Company plans to adopt SFAS No. 128 during the first quarter of fiscal 1998. 4. LONG TERM DEBT On March 4, 1997 the Company entered into a new loan agreement with Union Bank that increased the unsecured line of credit from $15 million to $20 million. The new loan agreement expires on February 27, 1998. There are no balances due under this loan agreement. 5. RECENT ACCOUNTING PRONOUNCEMENTS In February 1997, FASB issued SFAS No. 129, "Disclosure of Information about Capital Structures", which will be adopted by the Company in the first quarter of 1998. SFAS No. 129 requires companies to disclose certain information about their capital structure. The Company does not anticipate that SFAS NO. 129 will have a material impact on its financial position, results of operations, or cash flows. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management's Discussion and Analysis of Financial Condition and Results of Operations may contain forward-looking statements which involve numerous risks and uncertainties. The Company's actual results could differ materially from those anticipated in any such forward-looking statements as a result of certain factors, including those set forth under "Additional Risk Factors." RESULTS OF OPERATIONS NET SALES for the second quarter and six month period of fiscal 1997 ended March 31, 1997 decreased 20.0% to $29.6 million and 16.2% to $59.3 million, respectively, compared to net sales of $37.0 million and $70.8 million for the comparable two periods in fiscal 1996. This decrease in net sales was principally due to the effect of the current business slowdown in the semiconductor industry. Order and shipment levels for the industry had been strong through March 1996, and the Company shipped record numbers of single chamber ash systems in the first six months of the last fiscal year. For the six months ended March 31, 1997, however, revenues, particularly from the sales of single chamber photoresist removal products, spare parts and service, were materially adversely impacted by the current business slowdown. Due to this slowdown, the Company has experienced significant delays of new orders and rescheduling of existing orders that have materially adversely affected the results of operations of the Company during its last two fiscal quarters of 1996 and the first half of fiscal 1997. The decrease in the sale of single chamber systems and in spare parts and service revenues was partially offset by revenues from shipments of the Company's new performance enhancing platform (PEP) systems. Multiple system PEP shipments were made in the first six months of fiscal 1997 to fabrication facilities in Taiwan, Southeast Asia and Europe. Also offsetting, in part, the decrease in revenue from single chamber systems compared to the last year, was an increase in revenue from the sale of flat panel display equipment from the Company's liquid crystal display ("LCD") division in Japan and from the new Vertical High Pressure (VHP) furnace equipment. The Pacific Rim , North America and Europe accounted for approximately 49%, 35% and 16% of net sales, respectively, for the six month period ended March 31, 1997 compared to approximately 24%, 50% and 26%, respectively, for the six month period ended March 31, 1996. The Company's bookings of new orders for the quarter ended March 31, 1997 were less than the proceeding quarter and were also less then net sales for the quarter ended March 31, 1997. The Company expects that its future sales will continue to be materially adversely impacted by the current business climate and other factors as discussed herein. GROSS MARGIN as a percentage of net sales for the second quarter and six month period of fiscal 1997 was 45% and 44%, respectively, compared to 54% for the same quarter and six month period of fiscal 1996. The significant decrease in gross margin percentage as compared to the prior year was primarily due to several factors, including significantly lower sales volume of the more mature, higher margin single chamber systems, underutilization of the manufacturing and 8 field service and support operations and increased revenues of lower margin new products including the PEP and flat panel display equipment. The Company's gross margin as a percentage of net sales is affected by a variety of factors, including the mix and average selling prices of products sold and the costs to manufacture, service and support new product introductions and enhancements. The Company expects that its gross margin will continue to be materially adversely impacted by inefficiencies associated with new product introductions, sales of lower margin PEP systems and flat panel display equipment products, competitive pricing pressures, changes in product mix and other factors including those referred to above. RESEARCH AND DEVELOPMENT EXPENDITURES for the second quarter of fiscal 1997 were $4.3 million or 14.6% of net sales compared to $4.6 million or 12.5% of net sales for the second quarter of fiscal 1996. For the six month period of fiscal 1997 and fiscal 1996, research and development expenses were $8.4 million or 14.2% of net sales and $8.8 million or 12.4% of net sales, respectively. Research and development expenses consist primarily of salaries, project materials, consultant fees and other costs associated with the Company's research and development efforts. The overall level of absolute dollar spending in the second quarter and the six month period ended March 31, 1997 was slightly less than the same periods last fiscal year. Increased spending for new product development including the PEP and VHP, customization of current products and next generation programs including new products to accommodate 300MM wafers was offset by reduced spending in other areas of engineering including sustaining, product design and LCD product engineering. The Company anticipates that research and development spending in absolute dollars may increase in subsequent quarters due to the emphasis placed by the Company on new product development. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES of $7.1 million in the second quarter of fiscal 1997 and $14.3 million for the six month period of fiscal 1997 decreased from $9.1 million and $17.1 million for the second quarter and six month period, respectively, of fiscal 1996. As a percentage of net sales, selling, general and administrative expenses also decreased in the second quarter of fiscal 1997 to 24.1% from 24.7% for the same quarter of fiscal 1996 and remained essentially unchanged at approximately 24.1% for the six month periods of fiscal 1997 and 1996. The decrease in absolute dollars from the corresponding period last year is primarily due to lower third party commissions which are payable on a significant portion of the international sales and, to a lesser extent, to the reduction in headcount that occurred in late fiscal 1996. Third party commissions can fluctuate significantly in any period depending on the mix of domestic versus foreign sales that are subject to third party commissions. While international sales accounted for approximately 59% of the net sales for the second quarter of fiscal 1997 and 65% for the six month period ended March 31, 1997 compared to 49% for both the same quarter and six month period last fiscal year, a significant portion of fiscal 1997 international sales were not subject to third party commissions. The Company has and is continuing to build an infrastructure worldwide to provide direct sales and support which is lessening the Company's dependence on third party representatives for these services. Consequently, third party commissions in some regions have been eliminated or reduced. Although the Company has taken steps to manage its spending due to the uncertainties of the current business climate, it anticipates that selling, general and administrative spending may increase modestly in absolute dollars in subsequent quarters. 9 OTHER INCOME AND EXPENSES primarily consists of interest expense and interest income. Interest expense of approximately $16,000 for the quarter and $30,000 for the six month period of fiscal 1997 compared to $21,000 for the quarter and $47,000 for the six month period of fiscal 1996 is for a short-term loan from the Bank of Tokyo-Mitsubishi made to the Company's wholly owned subsidiary in Japan, GaSonics International Japan K.K., in the amount of 270 million yen which is equivalent to approximately $2.5 million as of March 31, 1997. Interest income from the Company's short-term investments was approximately $155,000 for the second quarter and $372,000 for the six month period of fiscal 1997 compared to $365,000 and $683,000 for second quarter and six month period of fiscal 1996, respectively. This decrease is essentially due to a decline in the Company's investments in marketable securities, cash and cash equivalents that were used to fund operating activities. LIQUIDITY AND CAPITAL RESOURCES During the first six months of fiscal 1997, cash, cash equivalents and marketable securities decreased by $4.8 million to $21.1 million at March 31, 1997 from $25.9 million at September 30, 1996. Operating activities used $3.1 million of cash for the six month period ended March 31, 1997 compared to the use of $10.4 million for the same period of fiscal 1996. Investing activities for the first six months of fiscal 1997 used cash of approximately $1.6 million as capital spending of $3.2 million was partially offset by proceeds from the sale of marketable securities of $1.7 million. Capital spending included purchases of equipment and the installation of a new computer system. For the same six month period last year, the Company received proceeds from the sale of $11.7 million in marketable securities and used $3.7 million to purchase equipment and leasehold improvements. Financing activities provided $1.5 million and $922,000 for the six month periods ended March 31, 1997 and 1996, respectively, primarily from the issuance of stock in connection with the Company's employee stock purchase and stock option plans. At March 31, 1997, the Company had working capital of $61.0 million compared to $59.2 million at September 30, 1996. Accounts receivable at March 31, 1997 increased $12.8 million from September 30, 1996 due primarily to $7.5 million due from one customer who is experiencing delays in obtaining financing, extended final acceptance and payment terms for two customers, and due to an increase in current quarter revenue over the quarter ending September 30, 1996. If any such customer is unable to pay for the Company's equipment, the Company's financial condition and results of operations could be materially adversely affected. Inventory decreased $1.3 million from September 30, 1996 to March 31, 1997 reflecting volume production and shipment of PEP systems and efforts focused on cycle time reduction. The Company expects future inventory levels to fluctuate from period to period, and believes that because of the relatively long manufacturing cycle of its products, its investment in inventories will continue to represent a significant portion of working capital. As a result of such investment in inventories, the Company may be subject to an increasing risk of inventory obsolescence, which could materially adversely affect the Company's operating results. 10 The Company's principal sources of liquidity at March 31, 1997 consisted of approximately $8.6 million in cash and cash equivalents, $12.5 million in marketable securities and a $20.0 million unsecured line of credit with Union Bank which was entered into on March 4, 1997. A commercial letter of credit provision of $500,000 and a foreign exchange contract provision of $1.0 million is also provided under the credit line. Available borrowing under the credit line is reduced by the amount of outstanding letters of credit. The line of credit contains certain covenants, including covenants relating to financial ratios and tangible net worth which must be maintained by the Company. As of March 31, 1997, except for $69,193 outstanding under the letter of credit provision, there were no borrowings outstanding under this line, and the Company was in compliance with its bank covenants. The line of credit agreement expires February 28, 1998. As of March 31, 1997, GaSonics International Japan KK had an outstanding loan of approximately $2.5 million from the Bank of Tokyo-Mitsubishi against a promissory note which is secured by a Letter of Guarantee issued by the Company. This loan was repaid in April, 1997 and the Company is currently negotiating a new line of credit agreement with the Bank of Tokyo-Mitsubishi. The Company believes anticipated cash flows from operations, funds available under its existing revolving line of credit facility and existing cash, cash equivalents and marketable securities will be sufficient to meet the Company's cash requirements during the next twelve months. Beyond the next twelve months, the Company may require additional equity or debt financing to achieve its working capital or capital equipment needs. 11 ADDITIONAL RISK FACTORS SIGNIFICANT FLUCTUATIONS IN OPERATING RESULTS The Company's operating results have fluctuated significantly in the past and will continue to fluctuate significantly in the future. The Company anticipates that factors continuing to affect its future operating results will include the cyclicality of the semiconductor industry and the markets served by the Company's customers, the timing of significant orders, patterns of capital spending by customers, the proportion of direct sales and sales through distributors, the proportion of international sales to net sales, changes in pricing by the Company, its competitors, customers or suppliers, market acceptance of new and enhanced versions of the Company's products, the mix of products sold, financial systems, procedures and controls, discounts, the timing of new product announcements and releases by the Company or its competitors, delays, cancellations or rescheduling of orders due to customer financial difficulties or otherwise, the Company's ability to produce systems in volume and meet customer requirements, the ability of any customer to finance its purchases of the Company's equipment, changes in overhead absorption levels due to changes in the number of systems manufactured, political and economic instability and lengthy sales cycles. Gross margins have varied and will continue to vary materially based on a variety of factors including the mix and average selling prices of systems sales, the mix of revenues, including service and support revenues, and the costs associated with new product introductions and enhancements and the customization of systems. Furthermore, announcements by the Company or its competitors of new products and technologies could cause customers to defer purchases of the Company's existing systems, which would also materially adversely affect the Company's business, financial condition and results of operations. The Company's gross margin and overall gross margin rate has sharply declined from the level attained less than a year ago due, in part, to start-up inefficiencies associated with new products, competitive pricing pressures, changes in product mix from fewer higher margin rate and mature single chamber products to lower margin rate dual chamber products, products sold by the Company's LCD division in Japan, and other factors. Additionally, sales and earnings for the last half of fiscal 1996 and the first half of fiscal 1997 were materially adversely impacted by the current semiconductor business slowdown and, while the Company has and is continuing to attempt to manage its expenses to partially offset the loss of income from the decline in revenue, it is anticipated that this slowdown in the industry will continue throughout fiscal 1997 and will continue to have a material adverse affect on the Company's future revenues and operating results. LIMITED SYSTEM SALES; BACKLOG The Company derives a substantial portion of its sales from the sale of a relatively small number of systems which typically range in purchase price from approximately $150,000 to $700,000 for its photoresist removal systems and up to approximately $2.0 million or more for its other products. As a result, the timing of recognition of revenue for a single transaction could continue to have a material adverse effect on the Company's sales and operating results. The Company's backlog at the beginning of a quarter typically does not include all sales required to achieve the Company's sales objectives for that quarter. Moreover, all customer purchase orders are subject to cancellation or rescheduling by the customer with limited or no penalties and, therefore, backlog at any particular date is not necessarily representative of actual sales for any succeeding period. The Company's net 12 sales and operating results for a quarter may depend upon the Company obtaining orders for systems to be shipped in the same quarter that the order is received. The Company's business and financial results for a particular period could be materially adversely affected if an anticipated order for even one system is not received in time to permit shipment during such period. Furthermore, most of the Company's quarterly net sales have recently been realized near the end of the quarter. A delay in a shipment near the end of a particular quarter, due, for example, to an unanticipated shipment rescheduling, to cancellations or deferrals by customers, to unexpected manufacturing difficulties experienced by the Company or to supply shortages, may cause net sales in a particular quarter to fall significantly below the Company's expectations and may materially adversely affect the Company's operating results for such quarter. In addition, significant investments in research and development, capital equipment and customer service and support capability worldwide have resulted in significant fixed costs which the Company will not be able to reduce rapidly if sales goals for a particular period are not met, which has recently been the case. Because the Company builds its systems according to forecast, a reduction in customer orders or backlog could present further difficulties regarding the Company's ability to plan production and inventory levels, which could adversely impact operating results. The impact of these and other factors on the Company's operating results in any future period cannot be forecasted accurately. CYCLICALITY OF SEMICONDUCTOR INDUSTRY The Company's business depends in significant part upon capital expenditures by manufacturers of semiconductor devices, including manufacturers that are opening new or expanding existing fabrication facilities, which, in turn, depend upon the current and anticipated market demand for such devices and products utilizing such devices. The semiconductor industry is highly cyclical and historically has experienced periods of oversupply, resulting in significantly reduced demand for capital equipment, including systems manufactured and marketed by the Company. The semiconductor industry has experienced significant growth in recent years which has resulted in significant growth in the capital equipment industry. However, in the last year the semiconductor industry has experienced a cyclical downturn. The Company has experienced significant delays of new orders and rescheduling of existing orders that have materially adversely affected the Company's last two quarters of fiscal 1996 and the first half of fiscal 1997 financial results and is expected to materially adversely affect future financial results. Accordingly, the Company can give no assurance that it will be able to achieve or maintain its current level of sales. Additionally, the Company anticipates that a significant portion of new orders depend upon demand from integrated circuit ("IC") manufacturers building or expanding large fabrication facilities, and there can be no assurance that such demand will exist. 13 HIGHLY COMPETITIVE INDUSTRY The semiconductor capital equipment industry is intensely competitive. A substantial investment is required by customers to install and integrate capital equipment into a semiconductor production line. As a result, once a semiconductor manufacturer has selected a particular vendor's capital equipment, the Company believes that the manufacturer generally relies upon that equipment for the specific production line application and frequently will attempt to consolidate its other capital equipment requirements with the same vendor. Accordingly, the Company expects to experience difficulty in selling to a particular customer for a significant period of time if that customer selects a competitor's capital equipment. The Company currently has only one principal product line and experiences intense competition worldwide from a number of foreign and domestic manufacturers, including Alcantech, Applied Materials, Inc., Fusion Systems Corporation, Lam Research Corporation, Matrix Semiconductor Systems, Inc., Mattson Technology, Inc., Plasma Systems and Ramco, many of which have substantially greater installed bases and greater financial, marketing, technical and other resources than the Company. Certain of the Company's competitors have announced the introduction of, or have introduced, competitive products that offer other technologies and improvements. Applied Materials and Lam Research have introduced and currently sell modules to their products which remove photoresist using dry chemical processing and, therefore, compete with the Company's products. The Company expects its competitors to continue to develop enhancements to and future generations of competitive products that may offer improved price or performance features. New product introductions and enhancements by the Company's competitors could cause a significant decline in sales or loss of market acceptance of the Company's systems in addition to intense price competition or otherwise make the Company's systems or technology obsolete or noncompetitive. In addition, by virtue of its reliance on sales of advanced dry chemistry processing equipment, the Company could be at a disadvantage compared to certain competitors that offer more diversified product lines. The Company believes that it will continue to face competition from current and new vendors employing other technologies, such as wet chemistry, traditional dry chemistry and other ashing techniques, as such competitors attempt to extend the capabilities of their existing products. Increased competitive pressure has led to reduced demand and lower prices for the Company's products, thereby materially adversely affecting the Company's operating results. There can be no assurance that the Company will be able to compete successfully in the future. Competitors of the Company's LCD division in Japan include Japan-based companies and Japan-based joint ventures such as Applied Komatsu and Koyo Lindbergh. These competitors manufacture alternative technology systems and they could, at any time, enter the Company's markets with improved technology or with systems that are directly competitive with those of the Company's LCD division. DEPENDENCE ON KEY CUSTOMERS Historically, the Company has sold a significant proportion of its systems in any particular period to a limited number of customers. Sales to the Company's ten largest customers in fiscal 1994, 1995 and 1996 and the first six months of fiscal 1997 accounted for approximately 71%, 68%, 51% and 68% of net sales, respectively. The Company expects that sales of its products to relatively few customers will continue to account for a high percentage of net sales in the foreseeable future. None 14 of the Company's customers has entered into a long-term agreement requiring it to purchase the Company's products. Moreover, sales to certain of its customers have decreased as those customers have completed or delayed purchasing requirements for new or expanded fabrication facilities. Although the composition of the group comprising the Company's largest customers has varied from year to year, the loss of a significant customer or any reduction in orders from any significant customer, including reductions from recent buying patterns, market, economic or competitive conditions in the semiconductor industry or in the industries that manufacture products utilizing ICs, could materially adversely affect the Company's business, financial condition and results of operations. The Company's ability to increase or maintain current sales levels in the future will depend in part upon its ability to obtain orders from new customers as well as the financial condition and success of its customers and the general economy, of which there can be no assurance. EXPANSION OF OPERATIONS; MANAGEMENT OF GROWTH The Company has undergone a period of rapid growth. Since 1993, the Company has significantly increased the scale of its operations to support increased sales levels and has expanded its operations to address critical infrastructure requirements, including the hiring of additional personnel, commencement of independent operations in the United Kingdom, France, Italy, Korea, Japan, Singapore and Taiwan and significant investments in research and development to support product development. The Company's expansion has resulted in significantly higher operating expenses and due to the recent slowdown in new orders, it is anticipated that the Company's future operating results will continue to be materially adversely affected. The past growth in the Company's sales and expansion in the scope of its operations has placed a considerable strain on its management, financial and other resources and has required the Company to initiate an extensive reevaluation of its operating and financial systems, procedures and controls. The Company successfully implemented new management information, manufacturing and cost accounting systems during the second quarter of fiscal 1997. There can be no assurance, however, that any existing or new systems, procedures or controls will be adequate to support the Company's operations or that its new systems will be implemented in a cost-effective and timely manner. RAPID TECHNOLOGICAL CHANGE; IMPORTANCE OF TIMELY PRODUCT INTRODUCTION The semiconductor manufacturing industry is subject to rapid technological change and new product introductions and enhancements. The Company's ability to be competitive will depend in part upon its ability to develop new and enhanced systems and to introduce these systems at competitive prices and in a timely and cost effective manner to enable customers to integrate the systems into their operations either prior to or upon commencement of volume product manufacturing. In addition, new product introductions or enhancements by the Company's competitors could cause a decline in sales or loss of market acceptance of the Company's existing products. Increased competitive pressure has led to intensified price-based competition resulting in lower prices and margins, which has and could continue to materially adversely affect the Company's business, financial condition and results of operations. Any success of the Company in developing, introducing and selling new and enhanced systems depends upon a variety of factors including product selection, timely and efficient completion of product design and development, 15 timely and efficient implementation of manufacturing and assembly processes, effective sales and marketing and product performance in the field. In particular, the Company's future performance will depend in part upon the successful commercialization of the VHP and the PEP. There can be no assurance that any such product will achieve any significant revenues or contribute to any profitability of the Company. Because new product development commitments must be made well in advance of sales, new product decisions must anticipate both the future demand for the type of ICs under development by leading IC manufacturers and the equipment required to produce such ICs. There can be no assurance that the Company will be successful in selecting, developing, manufacturing and marketing new products or in enhancing existing products. Because of the large number of components in, and the complexity of, the Company's systems, significant delays can occur between a system's initial introduction and the commencement of volume production. As is typical in the semiconductor capital equipment market, the Company has experienced delays from time to time in the introduction of, and certain technical and manufacturing difficulties with, certain of its systems and enhancements and may experience delays and technical and manufacturing difficulties in future introductions or volume production of new systems or enhancements. The Company's inability to complete the development or meet the technical specifications of any of its new systems or enhancements or to manufacture and ship these systems or enhancements in volume and in a timely manner would materially adversely affect the Company's business, financial condition and results of operations as well as its customer relationships. In addition, the Company may incur substantial unanticipated costs to ensure the functionality and reliability of its future product introductions early in the product's life cycle. If new products have reliability or quality problems, reduced orders or higher manufacturing costs, delays in collecting accounts receivable and additional service and warranty expenses may result, which events could materially adversely affect the Company's business, financial condition and results of operations. LENGTHY SALES CYCLE Sales of the Company's systems depend, in significant part, upon the decision of a prospective customer to increase manufacturing capacity through the expansion of existing fabrication facilities or the opening of new facilities, which typically involves a significant capital commitment. The Company often experiences delays in finalizing system sales following initial system qualification while the customer evaluates and receives approvals for the purchase of the Company's systems and completes a new or expanded facility. Due to these and other factors, the Company's systems typically have a lengthy sales cycle during which the Company may expend substantial funds and management effort. The Company believes that the length of the sales cycle will continue to increase as certain of its customers centralize purchasing decisions into one decision making entity, which is expected to intensify the evaluation process and require additional sales and marketing expenditures by the Company. RISKS ASSOCIATED WITH THE JAPANESE MARKET The Company believes that increased penetration of the Asia Pacific market, particularly Japan, will be essential to its future financial performance. The Company has sold a relatively few number of systems to Japanese semiconductor manufacturers, although there was a significant increase in 16 the Company's sales from Japan in fiscal 1996 compared to fiscal 1995 and for the first half of fiscal 1997 compared to the same period of fiscal 1996. To date, for its photoresist business, the Company has not fully developed a customer service and support capability in Japan and remains at a disadvantage in selling, servicing and supporting such products in Japan. The Japanese semiconductor market (including fabrication plants operated outside of Japan by Japanese semiconductor manufacturers) represents a substantial percentage of the worldwide semiconductor manufacturing capacity, and has been difficult for non-Japanese companies to penetrate. Furthermore, the licensing of products and process technologies by Japanese semiconductor manufacturers to non-Japanese semiconductor manufacturers could result in a recommendation to use certain semiconductor capital equipment manufactured by Japanese companies. Late in fiscal 1995, the Company acquired its LCD division in Japan, but there can be no assurance that this company will enable the Company to penetrate the photoresist removal market in Japan. In addressing this market, the Company is at a distinct competitive disadvantage compared to leading Japanese suppliers, many of which have long-standing collaborative relationships with Japanese semiconductor manufacturers. In addition, since 1992, Japanese semiconductor manufacturers have substantially reduced their levels of capital spending on new fabrication facilities and equipment, thereby increasing competitive pressures in the Japanese market. Although the Company is investing significant resources in Japan which has significantly increased operating expenses, there can be no assurance that the Company will be able to achieve significant sales to the Japanese semiconductor market. INTERNATIONAL SALES International sales accounted for 41%, 40%, 54% and 65% of net sales in fiscal years 1994, 1995, 1996 and the first half of fiscal 1997, respectively. The Company has established independent operations in the United Kingdom, France, Italy, Korea, Japan, Singapore and Taiwan and acquired a company in Japan. The Company anticipates that international sales will continue to account for a significant portion of net sales. International sales are subject to certain risks, including unexpected changes in regulatory requirements, difficulty in satisfying existing regulatory requirements, exchange rates, foreign currency fluctuations, tariffs and other barriers, political and economic instability, potentially adverse tax consequences, natural disasters, outbreaks of hostilities, difficulties in accounts receivable collection, extended payment terms, difficulties in managing distributors or representatives and difficulties in staffing and managing foreign subsidiary and branch operations. The Company is also subject to the risks associated with the imposition of legislation and import and export regulations. The Company cannot predict whether tariffs, quotas, duties, taxes or other charges or restrictions will be implemented by the United States, Japan or any other country upon the importation or exportation of the Company's products in the future. There can be no assurance that these factors will not have a material adverse effect on the Company's business, financial condition and results of operations. 17 INTELLECTUAL PROPERTY RIGHTS Although the Company attempts to protect its intellectual property rights through patents, copyrights, trade secrets and other measures, it believes that its financial performance will depend more upon the innovation, technological expertise and marketing abilities of its employees than upon such protection. There can be no assurance that any of the Company's pending patent applications will be issued or that foreign intellectual property laws will protect the Company's intellectual property rights. There can be no assurance that any patent issued to the Company will not be challenged, invalidated or circumvented or that the rights granted thereunder will provide competitive advantages to the Company. Furthermore, there can be no assurance that others will not independently develop similar products, duplicate the Company's products or, if patents are issued to the Company, design around the patents issued to the Company. As is typical in the semiconductor industry, the Company has received notices from time to time from third parties alleging infringement claims. Although there are currently no pending claims or lawsuits against the Company regarding any possible infringement claims, there can be no assurance that infringement claims by third parties or claims for indemnification resulting from infringement claims will not be asserted in the future or that such assertions, if proven to have merit, will not materially adversely affect the Company's business, financial condition and results of operations. If any such claims are asserted against the Company, the Company may seek to obtain a license under the third party's intellectual property rights. There can be no assurance that a license will be available on reasonable terms or at all. The Company could decide, in the alternative, to resort to litigation to challenge such claims. Such challenges could be extremely expensive and time consuming and could materially adversely affect the Company's business, financial condition and results of operations. SOLE OR LIMITED SOURCES OF SUPPLY; RELIANCE ON SUBCONTRACTORS; COMPLEXITY IN MANUFACTURING PROCESS Certain components, subassemblies and services necessary for the manufacture of the Company's systems are obtained from a sole supplier or a limited group of suppliers. Specifically, the Company relies on three companies for supply of the robotics used in its products and two other companies for microwave power supplies used in all of its ashing systems. The Company does not maintain any long-term supply agreements with any of its suppliers. The Company is relying increasingly on outside vendors to manufacture certain components and subassemblies. The Company's reliance on sole or a limited group of suppliers and the Company's increasing reliance on subcontractors involve several risks, including a potential inability to obtain an adequate supply of required components and reduced control over pricing and timely delivery of components and subassemblies. Because the manufacture of certain of these components and subassemblies is an extremely complex process and requires long lead times, there can be no assurance that delays or shortages caused by suppliers will not occur in the future. Certain of the Company's suppliers have relatively limited financial and other resources. Any inability to obtain adequate deliveries or any other circumstance that would require the Company to seek alternative sources of supply or to manufacture such components internally could delay the Company's ability to ship its products, which could damage relationships with current and prospective customers and could have a 18 material adverse effect on the Company's business, financial condition and results of operations. The Company's LCD division in Japan is heavily dependent on one key supplier for quartz and is seeking alternative sources. FUTURE ACQUISITIONS In August 1995, the Company acquired its flat panel display equipment (LCD) division in Japan (formerly called Tekisco). In the future, the Company may pursue acquisitions of additional product lines, technologies or businesses. Future acquisitions by the Company may result in potentially dilutive issuances of equity securities, incurrence of debt and amortization expenses related to goodwill and other intangible assets, which could materially adversely affect the Company's financial condition and results of operations. In addition, acquisitions involve numerous risks, including difficulties in the assimilation of the operations, technologies and products of the acquired companies, the diversion of management's attention from other business concerns, risks of entering markets in which the Company has no or limited direct prior experience, and the potential loss of key employees of the acquired company. From time to time, the Company has engaged in preliminary discussions with third parties concerning potential acquisitions of product lines, technologies and businesses; however, there are currently no agreements with respect to any acquisition. In the event that such an acquisition does occur, there can be no assurance as to the effect thereof on the Company's business, financial condition or operating results. DEPENDENCE ON KEY PERSONNEL The Company's financial performance will depend in significant part upon the continued contributions of its officers and key personnel, many of whom would be difficult to replace. No employee has an employment or noncompetition agreement with the Company. The loss of any key person could have a material adverse effect on the business, financial condition and results of operations of the Company. During the last twelve months, a number of senior management personnel have left the Company to pursue other opportunities. Although the Company has replaced these senior management personnel, there can be no assurance that these individuals will successfully integrate into the Company's senior management team. In addition, the Company's future operating results depend in part upon its ability to attract and retain other qualified management, engineering, financial and accounting, technical, marketing and sales and support personnel for its operations. Competition for such personnel is intense, and there can be no assurance that the Company will be successful in attracting or retaining such personnel. The failure to attract or retain such persons could materially adversely affect the Company's business, financial condition and results of operations. ENVIRONMENTAL REGULATIONS The Company is subject to a variety of governmental regulations relating to the use, storage, discharge, handling, emission, generation, manufacture and disposal of toxic or other hazardous substances used to manufacture the Company's products. The Company believes that it is currently in compliance in all material respects with such regulations and that it has obtained all necessary environmental permits to conduct its business. Nevertheless, the failure to comply with current or future regulations could result in substantial fines being imposed on the Company, suspension of 19 production, alteration of its manufacturing process or cessation of operations. Such regulations could require the Company to acquire expensive remediation equipment or to incur substantial expenses to comply with environmental regulations. Any failure by the Company to control the use, disposal or storage of, or adequately restrict the discharge of, hazardous or toxic substances could subject the Company to significant liabilities. EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS As of March 31, 1997, the Company's officers, directors and members of their families that may be deemed affiliates of such persons beneficially owned approximately 25.4% of the Company's outstanding shares of Common Stock. Accordingly, these stockholders will be able to significantly influence the election of the Company's directors and the outcome of corporate actions requiring stockholder approval, such as mergers and acquisitions, regardless of how other stockholders of the Company may vote. Such a high level of ownership by such persons or entities may have a significant effect in delaying, deferring or preventing a change in control of the Company and may adversely affect the voting and other rights of other holders of Common Stock. Certain provisions of the Company's Certificate of Incorporation, 1994 Stock Option/Stock Issuance Plan, Bylaws and Delaware law may also discourage certain transactions involving a change in control of the Company. In addition to the foregoing, the ability of the Company's Board of Directors to issue preferred stock without further stockholder approval could have the effect of delaying, deferring or preventing a change in control of the Company. VOLATILITY OF STOCK PRICE The Company believes that factors such as announcements of developments related to the Company's business, fluctuations in the Company's operating results, sales of the Company's Common Stock into the market place, failure to meet or changes in analysts' expectations, natural disasters, outbreaks of hostilities, general conditions in the semiconductor industry or the worldwide economy, announcements of technological innovations or new products or enhancements by the Company or its competitors, developments in patents or other intellectual property rights and developments in the Company's relationships with its customers and suppliers could cause the price of the Company's Common Stock to fluctuate, perhaps substantially. In addition, in recent years the stock market in general, and the market for shares of small capitalization stocks in particular, have experienced extreme price fluctuations, which have often been unrelated to the operating performance of affected companies. There can be no assurance that the market price of the Company's Common Stock will not experience significant fluctuations in the future, including fluctuations that are unrelated to the Company's performance. 20 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS. The following proposals were voted upon by the Company's stockholders at the Annual Meeting of Stockholders held on March 3, 1997. 1. The following four directors nominated to serve until the next Annual Meeting, or until their successors are elected and qualified, were elected by the stockholders. BROKER VOTES NON- VOTES FOR WITHHELD ABSTENTIONS VOTES Monte M. Toole 9,094,100 523,813 - - Dave Toole 9,094,100 523,627 - - Kenneth Schroeder 9,094,859 523,054 - - F. Joseph Van Poppelen 9,093,980 523,933 - - 2. An amendment to the Company's 1994 Stock Option/Stock Issuance Plan (the "Option Plan") to (a) increase the maximum number of shares of Common Stock authorized for issuance over the term of the Option Plan from 2,200,000 to 2,700,000 shares, (b) render the non-employee Board members eligible to receive option grants and direct stock issuances under the Discretionary Option Grant and Stock Issuance Programs in effect the Option Plan, (c) allow unvested shares issued under the Option Plan and subsequently repurchased by the Company at the option exercise price or issue price paid per share to be reissued under the Option Plan and (d) remove certain restrictions on the eligibility of non-employee Board members to serve as Plan Administrator and effect a series of additional changes to the provisions of the Option Plan (including stockholder approval requirements) in order to take advantage of recent amendments to Rule 16b-3 of the Securities 21 Exchange Act of 1934, as amended, was approved with 9,617,913 shares of the Company's voting securities voting on the matter, of which 3,633,951 voted for the proposal, 1,999,126 voted against, 77,918 abstained from voting and 3,906,918 were broker non-voters. 3. An amendment to the Company's Employee Stock Purchase Plan (the "Purchase Plan") to increase the number of shares of Common Stock authorized for issuance over the term of the Purchase Plan from 700,000 to 1,100,000 shares was approved with 9,617,913 shares of the Company's voting securities voting on the matter, of which 3,930,578 voted for the proposal, 1,715,093 voted against, 65,324 abstained from voting and 3,906,918 were broker non-voters. 4. A proposal to ratify the appointment of Arthur Andersen LLP as independent auditors of the Company for the fiscal year ending September 30, 1997, was approved with 9,617,913 shares of the Company's voting securities voting on the matter, of which 9,443,527 voted for the proposal, 36,025 voted against, 42,862 abstained from voting and 95,499 were broker non-voters. ITEM 5. OTHER INFORMATION. Ralph Kerns, Vice President of Technology, resigned on April 18, 1997. The Company intends to recruit a suitable replacement. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are filed herewith: Exhibit 10.2 Amended and Restated 1994 Stock Option/Stock Issuance Plan, effective December 17, 1996 and approved by the Stockholders on March 3, 1997 Exhibit 10.3 Amended and Restated 1994 Employee Stock Purchase Plan, effective December 17, 1996 and approved by the Stockholders on March 3, 1997 Exhibit 10.21 Loan agreement dated March 4, 1997 between Registrant and Union Bank, a California banking corporation Exhibit 27 Financial Data Schedule (b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter ended March 31, 1997. 22 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, as amended, the registrant duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GASONICS INTERNATIONAL CORPORATION (Registrant) \s\ Terry R. Gibson ---------------------------- Date: May 2, 1997 By: Terry R. Gibson Vice President, Finance Chief Financial Officer 23 INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION SEQUENTIALLY NUMBERED PAGE 10.2 Amended and Restated 1994 Stock Option/Stock Issuance Plan 10.3 Amended and Restated Employee Stock Purchase Plan 10.21 Loan agreement dated March 4, 1997 between Registrant and Union Bank, a California banking corporation 27 Financial Data Schedule 24 EX-10.2 2 EXHIBIT 10.2 Exhibit 10.2 GASONICS INTERNATIONAL CORPORATION 1994 STOCK OPTION/STOCK ISSUANCE PLAN ------------------------------------- (AS AMENDED AND RESTATED EFFECTIVE DECEMBER 17, 1996) ARTICLE ONE GENERAL ------- I. PURPOSE OF THE PLAN A. This 1994 Stock Option/Stock Issuance Plan (the "Plan") is intended to promote the interests of GaSonics International Corporation, a Delaware corporation or any successor corporation (the "Corporation") adopting the Plan, by providing (i) key employees (including officers) of the Corporation (or its parent or subsidiary corporations) who are responsible for the management, growth and financial success of the Corporation (or its parent or subsidiary corporations), (ii) the non-employee members of the Board and (iii) consultants and other independent contractors who provide valuable services to the Corporation (or its parent or subsidiary corporations) with the opportunity to acquire a proprietary interest, or otherwise increase their proprietary interest, in the Corporation as an incentive for them to remain in the Service of the Corporation (or its parent or subsidiary corporations). B. The Plan became effective upon adoption by the Board of Directors of Gasonics International Corporation, a California corporation ("Gasonics California") on January 27, 1994, and such date shall accordingly constitute the Effective Date of the Plan. The Plan was subsequently assumed by the Corporation in connection with the merger (the "Merger") of Gasonics California into the Corporation in February, 1994. II. DEFINITIONS A. For purposes of the Plan, the following definitions shall be in effect: BOARD: the Corporation's Board of Directors. CHANGE IN CONTROL: a change in ownership or control of the Corporation effected through either of the following transactions: a. the direct or indirect acquisition by any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's stockholders which the Board does not recommend such stockholders to accept; or b. a change in the composition of the Board over a period of thirty-six (36) consecutive months or less such that a majority of the Board members (rounded up to the next whole number) ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (i) have been Board members continuously since the beginning of such period or (ii) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (i) who were still in office at the time such election or nomination was approved by the Board. CODE: the Internal Revenue Code of 1986, as amended. COMMON STOCK: shares of the Corporation's common stock, par value $0.001 per share. CORPORATE TRANSACTION: any of the following stockholder-approved transactions to which the Corporation is a party: a. a merger or consolidation in which the Corporation is not the surviving entity, except for a transaction the principal purpose of which is to change the state in which the Corporation is incorporated, b. the sale, transfer or other disposition of all or substantially all of the assets of the Corporation in complete liquidation or dissolution of the Corporation, or c. any reverse merger in which the Corporation is the surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such merger. EMPLOYEE: an individual who performs services while in the employ of the Corporation or one or more parent or subsidiary corporations, subject to the control and direction of the employer entity not only as to the work to be performed but also as to the manner and method of performance. EXERCISE DATE: the date on which the Corporation shall have received written notice of the option exercise. 2. FAIR MARKET VALUE: the Fair Market Value per share of Common Stock determined in accordance with the following provisions: a. If the Common Stock is not at the time listed or admitted to trading on any national securities exchange but is traded on the Nasdaq National Market, the Fair Market Value shall be the closing selling price per share on the date in question, as such price is reported by the National Association of Securities Dealers on the Nasdaq National Market or any successor system. If there is no reported closing selling price for the Common Stock on the date in question, then the closing selling price on the last preceding date for which such quotation exists shall be determinative of Fair Market Value. b. If the Common Stock is at the time listed or admitted to trading on any national securities exchange, then the Fair Market Value shall be the closing selling price per share on the date in question on the securities exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no reported sale of Common Stock on such exchange on the date in question, then the Fair Market Value shall be the closing selling price on the exchange on the last preceding date for which such quotation exists. c. If the Common Stock is on the date in question neither listed nor admitted to trading on any national securities exchange nor traded on the Nasdaq National Market, then the Fair Market Value of the Common Stock on such date shall be determined by the Plan Administrator after taking into account such factors as the Plan Administrator shall deem appropriate. HOSTILE TAKE-OVER: the direct or indirect acquisition by any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's stockholders which the Board does not recommend such stockholders to accept. INCENTIVE OPTION: a stock option which satisfies the requirements of Code Section 422. 1934 ACT: the Securities and Exchange Act of 1934, as amended from time to time. 3. NON-STATUTORY OPTION: a stock option not intended to meet the requirements of Code Section 422. OPTIONEE: any person to whom an option is granted under the Discretionary Option Grant or Automatic Option Grant Program in effect under the Plan. PARTICIPANT: any person who receives a direct issuance of Common Stock under the Stock Issuance Program in effect under the Plan. PERMANENT DISABILITY OR PERMANENTLY DISABLED: the inability of the Optionee or the Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve (12) months or more. PLAN ADMINISTRATOR: the particular entity, whether the Primary Committee, the Board or the Secondary Committee, which is authorized to administer the Discretionary Option Grant and Stock Issuance Programs with respect to one or more classes of eligible persons, to the extent such entity is carrying out its administrative functions under those programs with respect to the persons under its jurisdiction. PRIMARY COMMITTEE: the committee of two (2) or more non-employee Board members appointed by the Board to administer the Discretionary Option Grant and Stock Issuance Programs with respect to Section 16 Insiders. SERVICE: the performance of services on a periodic basis to the Corporation (or any parent or subsidiary corporation) in the capacity of an Employee, a non-employee member of the board of directors or an independent consultant or advisor, except to the extent otherwise specifically provided in the applicable stock option or stock issuance agreement. SECONDARY COMMITTEE: a committee of one (1) or more Board members appointed by the Board to administer the Discretionary Option Grant and Stock Issuance Programs with respect to eligible persons other than Section 16 Insiders. SECTION 12(g) REGISTRATION DATE: the date on which the initial registration of the Common Stock under Section 12(g) of the 1934 Act becomes effective. SECTION 16 INSIDER: an executive officer of the Company or a member of the Board subject to the short-swing liability provisions of Section 16(b) of the 1934 Act. TAKE-OVER PRICE: the GREATER of (a) the Fair Market Value per share of Common Stock on the date the particular option to purchase such stock is surrendered to the Corporation in connection with a Hostile Take-Over or (b) the highest reported price 4. per share of Common Stock paid by the tender offeror in effecting such Hostile Take-Over. However, if the surrendered option is an Incentive Option, the Take-Over Price shall not exceed the clause (a) price per share. B. The following provisions shall be applicable in determining the parent and subsidiary corporations of the Corporation: Any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation shall be considered to be a PARENT of the Corporation, provided each such corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. Each corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation shall be considered to be a SUBSIDIARY of the Corporation, provided each such corporation in the unbroken chain (other than the last corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. III. STRUCTURE OF THE PLAN A. STOCK PROGRAMS. The Plan shall be divided into three (3) separate components: the Discretionary Option Grant Program specified in Article Two, the Automatic Option Grant Program specified in Article Three and the Stock Issuance Program specified in Article Four. Under the Discretionary Option Grant Program, eligible individuals may, at the discretion of the Plan Administrator, be granted options to purchase shares of Common Stock in accordance with the provisions of Article Two. Under the Automatic Option Grant Program, non-employee members of the Board will receive special option grants at periodic intervals to purchase shares of Common Stock in accordance with the provisions of Article Three. Under the Stock Issuance Program, eligible individuals may be issued shares of Common Stock directly, either through the immediate purchase of such shares at a price not less than eighty-five percent (85%) of the Fair Market Value of the shares at the time of issuance or as a bonus tied to the performance of services or the Corporation's attainment of financial objectives. B. GENERAL PROVISIONS. Unless the context clearly indicates otherwise, the provisions of Articles One and Five shall apply to the Discretionary Option Grant Program, the Automatic Option Grant Program and the Stock Issuance Program and shall accordingly govern the interests of all individuals under the Plan. 5. IV. ADMINISTRATION OF THE PLAN A. The persons eligible to participate in the Discretionary Option Grant and Stock Issuance Programs shall be limited to the following: (i) Employees of the Corporation or any parent or subsidiary, whether now existing or subsequently established, (ii) non-employee members of the Board or the board of directors of any parent or subsidiary corporation, and (iii) consultants and other independent advisors who provide services to the Corporation (or any parent or subsidiary corporation). B. The Primary Committee shall have sole and exclusive authority to administer the Discretionary Option Grant and Stock Issuance Programs with respect to Section 16 Insiders. C. Administration of the Discretionary Option Grant and Stock Issuance Programs with respect to all other persons eligible to participate in those programs may, at the Board's discretion, be vested in the Primary Committee or a Secondary Committee, or the Board may retain the power to administer those programs with respect to all such persons. The member or members of the Secondary Committee may be comprised of one or more Board members who are Employees eligible to receive discretionary option grants or direct stock issuances under the Plan or any other stock option, stock appreciation, stock bonus or other stock plan of the Corporation (or any Parent or Subsidiary). D. Members of the Primary Committee or any Secondary Committee shall serve for such period of time as the Board may determine and may be removed by the Board at any time. The Board may also at any time terminate the functions of any Secondary Committee and reassume all powers and authority previously delegated to such committee. E. Each Plan Administrator shall, within the scope of its administrative functions under the Plan, have full power and authority to establish such rules and regulations as it may deem appropriate for proper administration of the Discretionary Option Grant and Stock Issuance Programs and to make such determinations under, and issue such interpretations of, the provisions of such programs and any outstanding options or stock issuances thereunder as it may deem necessary or advisable. Decisions of the Plan Administrator within the scope of its administrative functions under the Plan shall be final and binding on all parties who have an interest in the Discretionary Option Grant or Stock Issuance Program under its jurisdiction or any stock option or stock issuance thereunder. 6. F. Service on the Primary Committee or the Secondary Committee shall constitute service as a Board member, and members of each such committee shall accordingly be entitled to full indemnification and reimbursement as Board members for their service on such committee. No member of the Primary Committee or the Secondary Committee shall be liable for any act or omission made in good faith with respect to the Plan or any option grants or stock issuances under the Plan. G. Administration of the Automatic Option Grant Program shall be self-executing in accordance with the terms of that program, and no Plan Administrator shall exercise any discretionary functions with respect to option grants made thereunder. V. STOCK SUBJECT TO THE PLAN A. Shares of Common Stock shall be available for issuance under the Plan and shall be drawn from either the Corporation's authorized but unissued shares of Common Stock or from reacquired shares of Common Stock, including shares repurchased by the Corporation on the open market. The maximum number of shares of Common Stock which may be issued over the term of the Plan shall not exceed 2,700,000 shares,(1) subject to adjustment from time to time in accordance with the provisions of this Section VI. Such share reserve includes the 500,000-share increase authorized by the Board on December 17, 1996, subject to stockholder approval at the 1997 Annual Stockholders Meeting. B. In no event shall the aggregate number of shares of Common Stock for which any one individual participating in the Plan may be granted stock options and direct stock issuances exceed 825,000 shares(1) over the term of the Plan. C. Should one or more outstanding options under this Plan expire or terminate for any reason prior to exercise in full (including any option cancelled in accordance with the cancellation-regrant provisions of Section IV of Article Two of the Plan), then the shares subject to the portion of each option not so exercised shall be available for subsequent issuance under the Plan. Unvested shares issued under the Plan and subsequently repurchased by the Corporation at the original option or issue price paid per share will be added back to the share reserve and will accordingly be made available for subsequent issuance under the Plan. Shares subject to any option or portion thereof surrendered in accordance with Section V of Article Two or Section III of Article Three shall not be available for subsequent issuance under the Plan. In addition, should the exercise price of an outstanding option under the Plan be paid with shares of Common Stock or should shares of Common Stock otherwise issuable under the Plan be withheld by - ---------------------------- (1) Each number reflects the 3-for-2 split of the Common Stock effected by the Corporation on November 20, 1995. In no event, however, may more than 2,604,008 shares of Common Stock be issued under the Plan after November 15, 1996, including the shares subject to options outstanding under the Plan on that date. 7. the Corporation in satisfaction of the withholding taxes incurred in connection with the exercise of an outstanding option under the Plan or the vesting of a direct share issuance made under the Plan, then the number of shares of Common Stock available for issuance under the Plan shall be reduced by the gross number of shares for which the option is exercised or which vest under the share issuance, and not by the net number of shares of Common Stock actually issued to the holder of such option or share issuance. D. Should any change be made to the Common Stock issuable under the Plan by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration, then appropriate adjustments shall be made to (i) the maximum number and/or class of securities issuable under the Plan, (ii) the maximum number and/or class of securities for which any one individual participating in the Plan may be granted stock options and direct stock issuances in the aggregate over the term of the Plan, (iii) the number and/or class of securities for which automatic option grants are to be subsequently made per newly-elected or continuing non-employee Board member under the Automatic Option Grant Program and (iv) the number and/or class of securities and price per share in effect under each option outstanding under the Discretionary Option Grant or Automatic Option Grant Program. Such adjustments to the outstanding options are to be effected in a manner which shall preclude the enlargement or dilution of rights and benefits under such options. The adjustments determined by the Plan Administrator shall be final, binding and conclusive. 8. ARTICLE TWO DISCRETIONARY OPTION GRANT PROGRAM ---------------------------------- I. TERMS AND CONDITIONS OF OPTIONS Options granted under the Discretionary Option Grant Program shall be authorized by action of the Plan Administrator and may, at the Plan Administrator's discretion, be either Incentive Options or Non-Statutory Options. Each granted option shall be evidenced by one or more instruments in the form approved by the Plan Administrator; PROVIDED, however, that each such instrument shall comply with the terms and conditions specified below. Each instrument evidencing an Incentive Option shall, in addition, be subject to the applicable provisions of Section II of this Article Two. A. EXERCISE PRICE. 1. The exercise price per share shall be fixed by the Plan Administrator in accordance with the following provisions: a. The exercise price per share of the Common Stock subject to an Incentive Option shall in no event be less than one hundred percent (100%) of the Fair Market Value of such Common Stock on the grant date. b. The exercise price per share of the Common Stock subject to a Non-Statutory Option shall in no event be less than eighty-five percent (85%) of the Fair Market Value of such Common Stock on the grant date. 2. The exercise price shall become immediately due upon exercise of the option and, subject to the provisions of Section I of Article Five and the instrument evidencing the grant, shall be payable in one of the alternative forms specified below: a. full payment in cash or check made payable to the Corporation's order; b. full payment in shares of Common Stock held for the requisite period necessary to avoid a charge to the Corporation's earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date; 9. c. full payment in a combination of shares of Common Stock held for the requisite period necessary to avoid a charge to the Corporation's earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date and cash or check made payable to the Corporation's order; or d. to the extent the option is exercised for vested shares, full payment through a broker-dealer sale and remittance procedure pursuant to which the Optionee shall provide concurrent irrevocable written instructions (i) to a Corporation-designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable Federal, state and local income and employment taxes required to be withheld by the Corporation in connection with such purchase and (ii) to the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale transaction. Except to the extent the sale and remittance procedure is utilized in connection with the exercise of the option, payment of the exercise price for the purchased shares must accompany such notice. B. TERM AND EXERCISE OF OPTIONS. Each option granted under this Discretionary Option Grant Program shall be exercisable at such time or times and during such period as is determined by the Plan Administrator and set forth in the instrument evidencing the grant. No such option, however, shall have a maximum term in excess of ten (10) years measured from the grant date. C. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee, Incentive Options shall be exercisable only by the Optionee and shall not be assignable or transferable other than by will or by the laws of descent and distribution following the Optionee's death. However, a Non-Statutory Option may, in connection with the Optionee's estate plan, be assigned in whole or in part during the Optionee's lifetime to one or more members of the Optionee's immediate family or to a trust established exclusively for one or more such family members. The assigned portion may only be exercised by the person or persons who acquire a proprietary interest in the option pursuant to the assignment. The terms applicable to the assigned portion shall be the same as those in effect for the option immediately prior to such assignment and shall be set forth in such documents issued to the assignee as the Plan Administrator may deem appropriate. 10. D. TERMINATION OF SERVICE. 1. The following provisions shall govern the exercise period applicable to any outstanding options held by the Optionee at the time of cessation of Service or death. a. Should an Optionee cease Service for any reason (including death or Permanent Disability) while holding one or more outstanding options under this Article Two, then none of those options shall (except to the extent otherwise provided pursuant to subparagraph 3 below) remain exercisable for more than a thirty-six (36)-month period (or such shorter period determined by the Plan Administrator and set forth in the instrument evidencing the grant) measured from the date of such cessation of Service. b. Any option held by the Optionee under this Article Two and exercisable in whole or in part on the date of his or her death may be subsequently exercised by the personal representative of the Optionee's estate or by the person or persons to whom the option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution. However, the right to exercise such option shall lapse upon the EARLIER of (i) the third anniversary of the date of the Optionee's death (or such shorter period determined by the Plan Administrator and set forth in the instrument evidencing the grant) or (ii) the specified expiration date of the option term. Accordingly, upon the occurrence of the earlier event, the option shall terminate and cease to remain outstanding. c. Under no circumstances shall any such option be exercisable after the specified expiration date of the option term. d. During the applicable post-Service exercise period, the option may not be exercised in the aggregate for more than the number of shares (if any) in which the Optionee is vested at the time of his or her cessation of Service. Upon the expiration of the limited post-Service exercise period or (if earlier) upon the specified expiration date of the option term, each such option shall terminate and cease to remain outstanding with respect to any vested shares for which the option has not otherwise been exercised. However, each outstanding option shall immediately terminate and cease to remain outstanding, at the time of the Optionee's cessation of Service, with respect to any shares for which the option is not otherwise at that time exercisable or in which the Optionee is not otherwise vested. 11. e. Should (i) the Optionee's Service be terminated for misconduct (including, but not limited to, any act of dishonesty, willful misconduct, fraud or embezzlement) or (ii) the Optionee make any unauthorized use or disclosure of confidential information or trade secrets of the Corporation or its parent or subsidiary corporations, then in any such event all outstanding options held by the Optionee under this Article Two shall terminate immediately and cease to remain outstanding. 2. The Plan Administrator shall have complete discretion, exercisable either at the time the option is granted or at any time while the option remains outstanding, to permit one or more options held by the Optionee under this Article Two to be exercised, during the limited post-Service exercise period applicable under this paragraph C., not only with respect to the number of vested shares of Common Stock for which each such option is exercisable at the time of the Optionee's cessation of Service but also with respect to one or more subsequent installments of vested shares for which the option would otherwise have become exercisable had such cessation of Service not occurred. 3. The Plan Administrator shall also have full power and authority, exercisable either at the time the option is granted or at any time while the option remains outstanding, to extend the period of time for which the option is to remain exercisable following the Optionee's cessation of Service or death from the limited period in effect under subparagraph 1. above to such greater period of time as the Plan Administrator shall deem appropriate. In no event, however, shall such option be exercisable after the specified expiration date of the option term. E. STOCKHOLDER RIGHTS. An Optionee shall have no stockholder rights with respect to any shares covered by the option until such individual shall have exercised the option and paid the exercise price for the purchased shares. F. REPURCHASE RIGHTS. The shares of Common Stock acquired upon the exercise of any Article Two option grant may be subject to repurchase by the Corporation in accordance with the following provisions: 1. The Plan Administrator shall have the discretion to authorize the issuance of unvested shares of Common Stock under this Article Two. Should the Optionee cease Service while holding such unvested shares, the Corporation shall have the right to repurchase any or all of those unvested shares at the exercise price paid per share. The terms and conditions upon which such repurchase right shall be exercisable (including the period and procedure for exercise and the appropriate vesting schedule for the purchased shares) shall be established by the Plan Administrator and set forth in the instrument evidencing such repurchase right. 12. 2. All of the Corporation's outstanding repurchase rights under this Article Two shall automatically terminate, and all shares subject to such terminated rights shall immediately vest in full, upon the occurrence of a Corporate Transaction, except to the extent: (i) any such repurchase right is expressly assigned to the successor corporation (or parent thereof) in connection with the Corporate Transaction or (ii) such termination is precluded by other limitations imposed by the Plan Administrator at the time the repurchase right is issued. 3. The Plan Administrator shall have the discretionary authority, exercisable either before or after the Optionee's cessation of Service, to cancel the Corporation's outstanding repurchase rights with respect to one or more shares purchased or purchasable by the Optionee under this Discretionary Option Grant Program and thereby accelerate the vesting of such shares in whole or in part at any time. II. INCENTIVE OPTIONS The terms and conditions specified below shall be applicable to all Incentive Options granted under this Article Two. Incentive Options may only be granted to individuals who are Employees. Options which are specifically designated as Non-Statutory Options when issued under the Plan shall NOT be subject to such terms and conditions. A. DOLLAR LIMITATION. The aggregate Fair Market Value (determined as of the respective date or dates of grant) of the Common Stock for which one or more options granted to any Employee under this Plan (or any other option plan of the Corporation or its parent or subsidiary corporations) may for the first time become exercisable as incentive stock options under the Federal tax laws during any one calendar year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee holds two (2) or more such options which become exercisable for the first time in the same calendar year, the foregoing limitation on the exercisability of such options as incentive stock options under the Federal tax laws shall be applied on the basis of the order in which such options are granted. Should the number of shares of Common Stock for which any Incentive Option first becomes exercisable in any calendar year exceed the applicable One Hundred Thousand Dollar ($100,000) limitation, then that option may nevertheless be exercised in such calendar year for the excess number of shares as a non-statutory option under the Federal tax laws. B. 10% STOCKHOLDER. If any individual to whom an Incentive Option is granted is the owner of stock (as determined under Section 424(d) of the Code) possessing ten percent (10%) or more of the total combined voting power of all classes of stock of the Corporation or any one of its parent or subsidiary corporations, then the exercise price per share shall not be less than one hundred ten percent (110%) of the Fair Market Value per share of Common Stock on the grant date, and the option term shall not exceed five (5) years, measured from the grant date. 13. Except as modified by the preceding provisions of this Section II, the provisions of Articles One, Two and Five of the Plan shall apply to all Incentive Options granted hereunder. III. CORPORATE TRANSACTION/CHANGE IN CONTROL A. In the event of any Corporate Transaction, each option which is at the time outstanding under this Article Two shall automatically accelerate so that each such option shall, immediately prior to the specified effective date for the Corporate Transaction, become fully exercisable with respect to the total number of shares of Common Stock at the time subject to such option and may be exercised for all or any portion of such shares. However, an outstanding option under this Article Two shall NOT so accelerate if and to the extent: (i) such option is, in connection with the Corporate Transaction, either to be assumed by the successor corporation or parent thereof or to be replaced with a comparable option to purchase shares of the capital stock of the successor corporation or parent thereof, (ii) such option is to be replaced with a cash incentive program of the successor corporation which preserves the option spread existing at the time of the Corporate Transaction and provides for subsequent payout in accordance with the same vesting schedule applicable to such option or (iii) the acceleration of such option is subject to other limitations imposed by the Plan Administrator at the time of the option grant. The determination of option comparability under clause (i) above shall be made by the Plan Administrator, and its determination shall be final, binding and conclusive. B. Immediately following the consummation of the Corporate Transaction, all outstanding options under this Article Two shall terminate and cease to remain outstanding, except to the extent assumed by the successor corporation or parent company. C. Each outstanding option under this Article Two which is assumed in connection with the Corporate Transaction or is otherwise to continue in effect shall be appropriately adjusted, immediately after such Corporate Transaction, to apply and pertain to the number and class of securities which would have been issued to the option holder, in consummation of such Corporate Transaction, had such person exercised the option immediately prior to such Corporate Transaction. Appropriate adjustments shall also be made to the exercise price payable per share, PROVIDED the aggregate exercise price payable for such securities shall remain the same. In addition, the class and number of securities available for issuance under the Plan following the consummation of the Corporate Transaction shall be appropriately adjusted. D. The Plan Administrator shall have the discretion, exercisable either at the time the option is granted or at any time while the option remains outstanding, to provide (upon such terms as it may deem appropriate) for (i) the automatic acceleration of one or more outstanding options granted under the Plan which are assumed or replaced in the Corporate Transaction and do not otherwise accelerate at that time and/or (ii) the subsequent termination of one or more of the Corporation's outstanding repurchase rights 14. which are assigned in connection with the Corporate Transaction and do not otherwise terminate at that time, in the event Optionee's Service should subsequently terminate within a designated period following such Corporate Transaction. E. The Plan Administrator shall have the discretionary authority, exercisable either at the time the option is granted or at any time while the option remains outstanding, to provide for the automatic acceleration of one or more outstanding options under this Article Two (and the immediate termination of one or more of the Corporation's outstanding repurchase rights under this Article Two) upon the occurrence of a Change in Control. The Plan Administrator shall also have full power and authority to condition any such option acceleration (and the termination of any outstanding repurchase rights) upon the subsequent termination of the Optionee's Service within a specified period following the Change in Control. F. Any options accelerated in connection with the Change in Control shall remain fully exercisable until the expiration or sooner termination of the option term. G. The grant of options under this Article Two shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. H. The portion of any Incentive Option accelerated under this Section III in connection with a Corporate Transaction or Change in Control shall remain exercisable as an incentive stock option under the Federal tax laws only to the extent the dollar limitation of Section II of this Article Two is not exceeded. To the extent such dollar limitation is exceeded, the accelerated portion of such option shall be exercisable as a non-statutory option under the Federal tax laws. IV. CANCELLATION AND REGRANT OF OPTIONS The Plan Administrator shall have the authority to effect, at any time and from time to time, with the consent of the affected Optionees, the cancellation of any or all outstanding options under this Article Two and to grant in substitution new options under the Plan covering the same or different numbers of shares of Common Stock but with an exercise price per share not less than (i) eighty-five percent (85%) of the Fair Market Value per share of Common Stock on the new grant date or (ii) one hundred percent (100%) of such Fair Market Value in the case of an Incentive Option. V. STOCK APPRECIATION RIGHTS A. Provided and only if the Plan Administrator determines in its discretion to implement the stock appreciation right provisions of this Section V, one or more Optionees may be granted the right, exercisable upon such terms and conditions as the Plan 15. Administrator may establish, to surrender all or part of an unexercised option under this Article Two in exchange for a distribution from the Corporation in an amount equal to the excess of (i) the Fair Market Value (on the option surrender date) of the number of shares in which the Optionee is at the time vested under the surrendered option (or surrendered portion thereof) over (ii) the aggregate exercise price payable for such vested shares. B. No surrender of an option shall be effective hereunder unless it is approved by the Plan Administrator, either at the time of the option surrender or at any earlier time. If the surrender is so approved, then the distribution to which the Optionee shall accordingly become entitled under this Section V may be made in shares of Common Stock valued at Fair Market Value on the option surrender date, in cash, or partly in shares and partly in cash, as the Plan Administrator shall in its sole discretion deem appropriate. C. One or more officers of the Corporation subject to the short-swing profit restrictions of the Federal securities laws may, in the Plan Administrator's sole discretion, be granted limited stock appreciation rights in tandem with their outstanding options under this Article Two. Upon the occurrence of a Hostile Take-Over, the officer shall have a thirty (30)-day period in which he or she may surrender any outstanding options with such a limited stock appreciation right to the Corporation, to the extent such option is at the time exercisable for fully vested shares of Common Stock. The officer shall in return be entitled to a cash distribution from the Corporation in an amount equal to the excess of (i) the Take-Over Price of the vested shares of Common Stock at the time subject to each surrendered option (or surrendered portion of such option) over (ii) the aggregate exercise price payable for such shares. The cash distribution shall be made within five (5) days following the date the option is surrendered to the Corporation. The Plan Administrator shall pre-approve, at the time the limited right is granted, the subsequent exercise of that right in accordance with the terms of the grant and the provisions of this Section V. No additional approval of the Plan Administrator or the Board shall be required at the time of the actual option surrender and cash distribution. Any unsurrendered portion of the option shall continue to remain outstanding and become exercisable in accordance with the terms of the instrument evidencing such grant. D. The shares of Common Stock subject to any option surrendered for an appreciation distribution pursuant to this Section V shall NOT be available for subsequent issuance under the Plan. 16. ARTICLE THREE AUTOMATIC OPTION GRANT PROGRAM ------------------------------ I. ELIGIBILITY ELIGIBLE DIRECTORS. The individuals eligible to receive automatic option grants pursuant to the July 19, 1995 restated provisions of this Article Three program shall be limited to (i) those individuals who are continuing to serve as non-employee Board members on July 19, 1995 and (ii) those individuals who are first elected or appointed as non-employee Board members on or after July 19, 1995. A non-employee Board member who has previously been in the employ of the Corporation (or any parent or subsidiary) shall not be eligible to receive an option grant under the Automatic Option Grant Program at the time he or she first becomes a non-employee Board member, but such individual shall be eligible to receive periodic option grants under the Automatic Option Grant Program upon his or her continued service as a non-employee Board member. Any non-employee Board member eligible to participate in the Automatic Option Grant Program pursuant to the foregoing criteria shall be designated an Eligible Director for purposes of this Article Three. II. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS A. GRANT DATES. Option grants shall be made pursuant to the July 19, 1995 restated provisions of this Article Three on the dates specified below: INITIAL GRANT. Each individual who first becomes an Eligible Director on or after July 19, 1995, whether through election by the stockholders or appointment by the Board, shall automatically be granted, at the time of such initial election or appointment (the "Initial Grant Date"), a Non-Statutory Option to purchase 30,000 shares (2) of Common Stock upon the terms and conditions of this Article Three. ANNUAL GRANT. Each Eligible Director who receives an initial 30,000-share option grant shall automatically be granted, on each successive anniversary of the Initial Grant Date on which he or she continues to serve as an Eligible Director, beginning with the fourth anniversary of such Initial Grant Date, a Non-Statutory - -------------------------- (2) This number reflects the 3-for-2 split of the Common Stock effected by the Corporation on November 20, 1995. 17. Option to purchase an additional 7,500 shares(3) of Common Stock upon the terms and conditions of this Article Three. In addition, each individual who is an Eligible Director on July 19, 1995 but who is not otherwise to receive an initial 30,000-share grant on such date shall automatically be granted, on July 19, 1995 and each subsequent anniversary of that grant date on which he or she continues to serve as an Eligible Director, a Non-Statutory Option to purchase an additional 7,500 shares of Common Stock upon the terms and conditions of this Article Three. Any Eligible Director previously in the Corporation's employ shall receive his or her initial 7,500-share option grant under this Article Three at the first Annual Stockholders Meeting at which he is she is elected as a non-employee Board member and shall automatically be granted, on the date of each succeeding Annual Stockholders Meeting at which he or she is re-elected as a non-employee Board member, a Non-Statutory Option to purchase an additional 7,500 shares of Common Stock upon the terms and conditions of this Article Three. There shall be no limit on the number of such 7,500-share option grants any one Eligible Director may receive over his or her period of Board service. The number of shares for which the automatic option grants are to be made to each newly-elected or continuing Eligible Director shall be subject to periodic adjustment pursuant to the applicable provisions of Section VI.C. of Article One. B. EXERCISE PRICE. The exercise price per share of Common Stock subject to each automatic option grant made under this Article Three shall be equal to one hundred percent (100%) of the Fair Market Value per share of Common Stock on the automatic grant date. C. PAYMENT. The exercise price shall be payable in one of the alternative forms specified below: 1. full payment in cash or check made payable to the Corporation's order; 2. full payment in shares of Common Stock held for the requisite period necessary to avoid a charge to the Corporation's earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date; 3. full payment in a combination of shares of Common Stock held for the requisite period necessary to avoid a charge to the Corporation's earnings for financial reporting purposes and valued at Fair - -------------------------- (3) This number reflects the 3-for-2 split of the Common Stock effected by the Corporation on November 20, 1995. 18. Market Value on the Exercise Date and cash or check made payable to the Corporation's order; or 4. full payment through a sale and remittance procedure pursuant to which the non-employee Board member shall provide concurrent irrevocable written instructions (i) to a Corporation- designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares and (ii) to the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale transaction. D. OPTION TERM. Each automatic grant under this Article Three shall have a maximum term of ten (10) years measured from the automatic grant date. E. EXERCISABILITY. Option grants made under this Article Three shall become exercisable as specified below: INITIAL GRANT. Each initial 30,000-share automatic grant shall become exercisable in four (4) successive equal annual installments upon the Optionee's completion of each year of Board service over the four (4)-year period measured from the Initial Grant Date. ANNUAL GRANT. Each annual 7,500-share automatic grant shall become exercisable upon the Optionee's completion of one (1) year of Board service measured from the grant date. Each option granted under this Article Three shall automatically accelerate and become fully exercisable for all of the shares of Common Stock at the time subject to the option: - should the Optionee cease to serve as a Board member by reason of death or Permanent Disability, or - should there occur an acceleration event specified in Section III of this Article Three. F. LIMITED TRANSFERABILITY. During the lifetime of the Optionee, each automatic option grant, together with the limited stock appreciation right pertaining to such option, shall be exercisable only by the Optionee and shall not be assignable or transferable by the Optionee other than a transfer of the option to one or more immediate family members or a trust established exclusively for one or more such family members. The assigned portion of may only be exercised by the person or persons who acquire a 19. proprietary interest in the option pursuant to the assignment. The terms applicable to the assigned portion shall be the same as those in effect for the option immediately prior to such assignment and shall be set forth in such documents issued to the assignee as the Plan Administrator may deem fit. G. TERMINATION OF BOARD SERVICE. 1. Should the Optionee cease to serve as a Board member for any reason other than death or Permanent Disability while holding one or more automatic option grants under this Article Three, then each of those options may, during the twelve (12)-month period measured from the date of such cessation of Board service (the "Post-Service Exercise Period"), be exercised in accordance with the following parameters: INITIAL 30,000-SHARE GRANT a. Should the Optionee cease Board service prior to the fourth anniversary of the Initial Grant Date, then the Optionee may, at any time during the Post-Service Exercise Period, exercise the option for any or all of the option shares for which the option is exercisable at the time of such cessation of Board service. In addition, the option shall become exercisable for an additional twenty-five percent (25%) of the option shares on the next anniversary of the Initial Grant Date following the Optionee's cessation of Board service and shall remain so exercisable until the expiration date of the Post-Service Exercise Period. b. If the Optionee ceases Board service on or after the fourth anniversary of the Initial Grant Date, then the Optionee may, at any time during the Post-Service Exercise Period, exercise the option for any or all of the option shares for which the option is exercisable at the time of such cessation of Board service. c. However, the option shall, immediately upon the Optionee's cessation of Board service, terminate and cease to be outstanding with respect to any and all option shares for which the option is not otherwise at that time exercisable or for which it is not otherwise to become exercisable in accordance with clause a. above. ANNUAL 7,500-SHARE GRANT a. The option shall become exercisable for all of the option shares on the first anniversary of the grant date, whether or not the Optionee continues in Board service, and shall remain so exercisable for any or all of those shares until the expiration date of the Post-Service Exercise Period. 20. b. Should the Optionee die after his or her cessation of Board service but while holding one or more automatic option grants under this Article Three, then the personal representative of the Optionee's estate or the person or persons to whom the option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution shall have the remainder of the applicable Post-Service Exercise Period in which to exercise each such option in accordance with the parameters established for the Optionee in Paragraph 1. c. Should the Optionee cease to serve as a Board member by reason of death or Permanent Disability while holding one or more automatic option grants under this Article Three, then such individual (or the personal representative of the Optionee's estate or by the person or persons to whom the option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution) shall have a twelve (12)-month period following the date of such cessation of Board service in which to exercise each such option for any or all of the option shares at the time subject to the option, whether or not the option would otherwise at that time be exercisable for those shares. 2. In no event shall any automatic grant under this Article Three remain exercisable after the expiration date of the ten (10)-year option term. H. STOCKHOLDER RIGHTS. The holder of an automatic option grant under this Article Three shall have none of the rights of a stockholder with respect to any shares subject to such option until such individual shall have exercised the option and paid the exercise price for the purchased shares. I. REMAINING TERMS. The remaining terms and conditions of each automatic option grant shall be as set forth in the form Automatic Stock Option Agreement attached as Exhibit A. III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER A. In the event of any Corporate Transaction, each Article Three option, to the extent outstanding at the time but not otherwise fully exercisable, shall automatically accelerate so that each such option shall, immediately prior to the specified effective date for the Corporate Transaction, become exercisable for all of the shares of Common Stock at the time subject to such option and may be exercised for all or any portion of such shares as fully-vested shares. Immediately following the consummation of the Corporate Transaction, all automatic option grants under this Article Three shall terminate and cease to be outstanding, except to the extent assumed by the acquiring company (or parent thereof). 21. B. In connection with any Change in Control of the Corporation, each Article Three option, to the extent outstanding at the time but not otherwise fully exercisable, shall automatically accelerate so that each such option shall, immediately prior to the specified effective date for the Change in Control, become exercisable for all of the shares of Common Stock at the time subject to such option and may be exercised for all or any portion of such shares as fully-vested shares. Each such option shall remain so exercisable for all the option shares following the Change in Control, until the expiration or sooner termination of the option term. C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a thirty (30)-day period in which to surrender to the Corporation each Article Three option held by him or her. The Optionee shall in return be entitled to a cash distribution from the Corporation in an amount equal to the excess of (i) the Take-Over Price of the shares of Common Stock at the time subject to the surrendered option (whether or not the option is otherwise at the time exercisable for those shares) over (ii) the aggregate exercise price payable for such shares. Such cash distribution shall be paid within five (5) days following the surrender of the option to the Corporation. At the time of each Article Three option grant, the Board shall concurrently pre-approve any subsequent surrender of that option in accordance with the provisions of this Section III.C, and no additional approval of the Board or any Plan Administrator shall accordingly be required at the time of the actual option surrender and cash distribution. The shares of Common Stock subject to each option surrendered in connection with the Hostile Take-Over shall NOT be available for subsequent issuance under the Plan. D. The automatic option grants outstanding under this Article Three shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. 22. ARTICLE FOUR STOCK ISSUANCE PROGRAM ---------------------- I. TERMS AND CONDITIONS OF STOCK ISSUANCES Shares of Common Stock may be issued under the Stock Issuance Program through direct and immediate purchases without any intervening stock option grants. The issued shares shall be evidenced by a Stock Issuance Agreement ("Issuance Agreement") that complies with the terms and conditions of this Article Four. A. CONSIDERATION. 1. Shares of Common Stock drawn from the Corporation's authorized but unissued shares of Common Stock ("Newly Issued Shares") shall be issued under the Stock Issuance Program for one or more of the following items of consideration which the Plan Administrator may deem appropriate in each individual instance: a. full payment in cash or check made payable to the Corporation's order; b. a promissory note payable to the Corporation's order in one or more installments, which may be subject to cancellation in whole or in part upon terms and conditions established by the Plan Administrator; or c. past services rendered to the Corporation or any parent or subsidiary corporation. 2. Newly Issued Shares may, in the absolute discretion of the Plan Administrator, be issued for consideration with a value less than one hundred percent (100%) of the Fair Market Value of such shares at the time of issuance, but in no event less than eighty-five percent (85%) of such Fair Market Value. 3. Shares of Common Stock reacquired by the Corporation and held as treasury shares ("Treasury Shares") may be issued under the Stock Issuance Program for such consideration (including one or more of the items of consideration specified in subparagraph 1 above) as the Plan Administrator may deem appropriate, whether such consideration is in an amount less than, equal to or greater than the Fair Market Value of the Treasury Shares at the time of issuance. Treasury Shares may, in lieu of any cash consideration, be issued subject to such vesting requirements tied to the Participant's period 23. of future Service or the Corporation's attainment of specified performance objectives as the Plan Administrator may establish at the time of issuance. B. VESTING PROVISIONS. 1. Shares of Common Stock issued under the Stock Issuance Program may, in the absolute discretion of the Plan Administrator, be fully and immediately vested upon issuance or may vest in one or more installments over the Participant's period of Service. The elements of the vesting schedule applicable to any unvested shares of Common Stock issued under the Stock Issuance Program, namely: a. the Service period to be completed by the Participant or the performance objectives to be achieved by the Corporation, b. the number of installments in which the shares are to vest, c. the interval or intervals (if any) which are to lapse between installments, and d. the effect which death, Permanent Disability or other event designated by the Plan Administrator is to have upon the vesting schedule, shall be determined by the Plan Administrator and incorporated into the Issuance Agreement executed by the Corporation and the Participant at the time such unvested shares are issued. 2. The Participant shall have full stockholder rights with respect to any shares of Common Stock issued to him or her under the Plan, whether or not his or her interest in those shares is vested. Accordingly, the Participant shall have the right to vote such shares and to receive any regular cash dividends paid on such shares. Any new, additional or different shares of stock or other property (including money paid other than as a regular cash dividend) which the Participant may have the right to receive with respect to his or her unvested shares by reason of any stock dividend, stock split, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration or by reason of any Corporate Transaction shall be issued, subject to (i) the same vesting requirements applicable to his or her unvested shares and (ii) such escrow arrangements as the Plan Administrator shall deem appropriate. 3. Should the Participant cease to remain in Service while holding one or more unvested shares of Common Stock under the Stock Issuance Program, then those shares shall be immediately surrendered to the Corporation and made available for 24. subsequent issuance. The Participant shall have no further stockholder rights with respect to those shares. To the extent the surrendered shares were previously issued to the Participant for consideration paid in cash or cash equivalent (including the Participant's purchase-money promissory note), the Corporation shall repay to the Participant the cash consideration paid for the surrendered shares and shall cancel the unpaid principal balance of any outstanding purchase-money note of the Participant attributable to such surrendered shares. The surrendered shares may, at the Plan Administrator's discretion, be retained by the Corporation as Treasury Shares or may be retired to authorized but unissued share status. 4. The Plan Administrator may in its discretion elect to waive the surrender and cancellation of one or more unvested shares of Common Stock (or other assets attributable thereto) which would otherwise occur upon the non-completion of the vesting schedule applicable to such shares. Such waiver shall result in the immediate vesting of the Participant's interest in the shares of Common Stock as to which the waiver applies. Such waiver may be effected at any time, whether before or after the Participant's cessation of Service or the attainment or non-attainment of the applicable performance objectives. II. CORPORATE TRANSACTION/CHANGE IN CONTROL A. Upon the occurrence of any Corporate Transaction, all unvested shares of Common Stock at the time outstanding under this Stock Issuance Program shall immediately vest in full and the Corporation's repurchase rights shall terminate, except to the extent: (i) any such repurchase right is expressly assigned to the successor corporation (or parent thereof) in connection with the Corporate Transaction or (ii) such termination is precluded by other limitations imposed in the Issuance Agreement. B. The Plan Administrator shall have the discretionary authority, exercisable either at the time the stock issuance is made or at any time while that issuance remains outstanding, to provide for the automatic vesting of one or more unvested shares outstanding under the Stock Issuance Program (and the immediate termination of the Corporation's repurchase rights with respect to those shares) at the time of a Change in Control. The Plan Administrator shall also have full power and authority to condition any such accelerated vesting upon the subsequent termination of the Participant's Service within a specified period following the Change in Control. III. TRANSFER RESTRICTIONS/SHARE ESCROW A. Unvested shares may, in the Plan Administrator's discretion, be held in escrow by the Corporation until the Participant's interest in such shares vests or may be issued directly to the Participant with restrictive legends on the certificates evidencing such unvested shares. To the extent an escrow arrangement is utilized, the unvested shares and any securities or other assets distributed with respect to such shares (other than regular cash dividends) shall be delivered in escrow to the Corporation to be held until the Participant's 25. interest in such shares (or the distributed securities or assets) vests. If the unvested shares are issued directly to the Participant, the restrictive legend on the certificates for such shares shall read substantially as follows: THE SHARES REPRESENTED BY THIS CERTIFICATE ARE UNVESTED AND ARE ACCORDINGLY SUBJECT TO (I) CERTAIN TRANSFER RESTRICTIONS AND (II) CANCELLATION OR REPURCHASE IN THE EVENT THE REGISTERED HOLDER (OR HIS/HER PREDECESSOR IN INTEREST) CEASES TO REMAIN IN THE CORPORATION'S SERVICE. SUCH TRANSFER RESTRICTIONS AND THE TERMS AND CONDITIONS OF SUCH CANCELLATION OR REPURCHASE ARE SET FORTH IN A STOCK ISSUANCE AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER (OR HIS/HER PREDECESSOR IN INTEREST) DATED , 199 , A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION." B. The Participant shall have no right to transfer any unvested shares of Common Stock issued to him or her under the Stock Issuance Program. For purposes of this restriction, the term "transfer" shall include (without limitation) any sale, pledge, assignment, encumbrance, gift or other disposition of such shares, whether voluntary or involuntary. Upon any such attempted transfer, the unvested shares shall immediately be cancelled in accordance with substantially the same procedure in effect under Section I.B.3 of this Article Four, and neither the Participant nor the proposed transferee shall have any rights with respect to such cancelled shares. However, the Participant shall have the right to make a gift of unvested shares acquired under the Stock Issuance Program to his or her spouse or issue, including adopted children, or to a trust established for such spouse or issue, provided the donee of such shares delivers to the Corporation a written agreement to be bound by all the provisions of the Stock Issuance Program and the Issuance Agreement applicable to the gifted shares. 26. ARTICLE FIVE MISCELLANEOUS ------------- I. LOANS OR INSTALLMENT PAYMENTS A. The Plan Administrator may, in its discretion, assist any Optionee or Participant, to the extent such Optionee or Participant is an Employee (including an Optionee or Participant who is an officer of the Corporation), in the exercise of one or more options granted to such Optionee under the Discretionary Option Grant Program or the purchase of one or more shares issued to such Participant under the Stock Issuance Program, including the satisfaction of any Federal, state and local income and employment tax obligations arising therefrom, by (i) authorizing the extension of a loan from the Corporation to such Optionee or Participant or (ii) permitting the Optionee or Participant to pay the exercise price or purchase price for the purchased shares in installments over a period of years. The terms of any loan or installment method of payment (including the interest rate and terms of repayment) shall be upon such terms as the Plan Administrator specifies in the applicable option or issuance agreement or otherwise deems appropriate under the circumstances. Loans or installment payments may be authorized with or without security or collateral. However, the maximum credit available to the Optionee or Participant may not exceed the exercise or purchase price of the acquired shares (less the par value of such shares) plus any Federal, state and local income and employment tax liability incurred by the Optionee or Participant in connection with the acquisition of such shares. B. The Plan Administrator may, in its absolute discretion, determine that one or more loans extended under this financial assistance program shall be subject to forgiveness by the Corporation in whole or in part upon such terms and conditions as the Plan Administrator may deem appropriate. II. AMENDMENT OF THE PLAN AND AWARDS A. The Board has complete and exclusive power and authority to amend or modify the Plan (or any component thereof) in any or all respects whatsoever. However, no such amendment or modification shall adversely affect rights and obligations with respect to options at the time outstanding under the Plan, nor adversely affect the rights of any Participant with respect to Common Stock issued under the Stock Issuance Program prior to such action, unless the Optionee or Participant consents to such amendment. In addition, certain amendments may require stockholder approval in accordance with applicable laws and regulations. 27. B. (i) Options to purchase shares of Common Stock may be granted under the Discretionary Option Grant Program and (ii) shares of Common Stock may be issued under the Stock Issuance Program, which are in both instances in excess of the number of shares then available for issuance under the Plan, provided any excess shares actually issued under the Discretionary Option Grant Program or the Stock Issuance Program are held in escrow until stockholder approval is obtained for a sufficient increase in the number of shares available for issuance under the Plan. If such stockholder approval is not obtained within twelve (12) months after the date the first such excess option grants or excess share issuances are made, then (i) any unexercised excess options shall terminate and cease to be exercisable and (ii) the Corporation shall promptly refund the purchase price paid for any excess shares actually issued under the Plan and held in escrow, together with interest (at the applicable Short Term Federal Rate) for the period the shares were held in escrow. III. TAX WITHHOLDING A. The Corporation's obligation to deliver shares of Common Stock upon the exercise of stock options for such shares or the vesting of such shares under the Plan shall be subject to the satisfaction of all applicable Federal, state and local income and employment tax withholding requirements. B. The Plan Administrator may, in its discretion and in accordance with the provisions of this Section III and such supplemental rules as the Plan Administrator may from time to time adopt (including the applicable safe-harbor provisions of Securities and Exchange Commission Rule 16b-3), provide any or all holders of Non-Statutory Options (other than the automatic option grants made pursuant to Article Three of the Plan) or unvested shares under the Plan with the right to use shares of the Corporation's Common Stock in satisfaction of all or part of the Federal, state and local income and employment tax liabilities incurred by such holders in connection with the exercise of their options or the vesting of their shares (the "Taxes"). Such right may be provided to any such holder in either or both of the following formats: STOCK WITHHOLDING: The holder of the Non-Statutory Option or unvested shares may be provided with the election to have the Corporation withhold, from the shares of Common Stock otherwise issuable upon the exercise of such Non-Statutory Option or the vesting of such shares, a portion of those shares with an aggregate Fair Market Value to exceed one hundred percent (100%) of the applicable Taxes. STOCK DELIVERY: The Plan Administrator may, in its discretion, provide the holder of the Non-Statutory Option or the unvested shares with the election to deliver to the Corporation, at the time the Non-Statutory Option is exercised or the shares vest, one or more shares of Common Stock previously acquired by such individual (other than in connection with the option exercise or share vesting 28. triggering the Taxes) with an aggregate Fair Market Value not to exceed one hundred percent (100%) of the Taxes incurred in connection with such option exercise or share vesting. IV. EFFECTIVE DATE AND TERM OF PLAN A. This Plan became effective immediately upon adoption by the Board of Directors of Gasonics California. This Plan was subsequently assumed by the Corporation in connection with the Merger. Stock options and share issuances may be made under Articles Two and Four of the Plan from and after the Effective Date. B. The Plan was amended by the Board on September 21, 1994 to (i) increase the number of shares of Common Stock issuable under the Plan by an additional 500,000 shares (4) (ii) increase the maximum number of shares of Common Stock for which any one individual may be granted stock options and direct stock issuances under the Plan by an additional 250,000 shares(4) (the "1994 Amendment"). The stockholders approved the 1994 Amendment at the 1995 Annual Meeting which was held on February 14, 1995. The Plan was subsequently restated by the Board on July 19, 1995 to revise the provisions of the Automatic Option Grant Program in effect under Article III (the "June 1995 Restatement") and was amended in November 1995 to increase the number of shares available for issuance under the Plan by an additional 750,000 shares (the "November 1995 Increase"). Both the June 1995 and the November 1995 Share Increase were approved by the stockholders at the 1996 Annual Meeting. The Plan was subsequently amended on December 17, 1996 (the "December 1996 Amendment") to effect the following changes: (i) increase the number of shares of Common Stock authorized for issuance over the term of the Plan by an additional 500,000 shares, (ii) render the non-employee Board members eligible to receive option grants and direct stock issuances under the Discretionary Option Grant and Stock Issuance Programs, (iii) allow unvested shares issued under the Plan and subsequently repurchased by the Corporation at the option exercise price or issue price paid per share to be reissued under the Plan and (iv) effect a series of technical changes to the provisions of the Plan in order to take advantage of the recent amendments to Rule 16b-3 of the Securities Exchange Act of 1934 which exempts certain officer and director transactions under the Plan from the short-swing liability provisions of the federal securities laws. The December 1996 Amendment is subject to stockholder approval at the 1997 Annual Meeting, and no option grants made on the basis of the December 1996 share increase shall become exercisable in whole or in part unless and until the December 1996 Amendment is approved by the stockholders. Should such stockholder approval not be obtained at the 1997 Annual Meeting, then each option grant made pursuant to the - ----------------------- (4) The numbers DO NOT reflect the 3-for-2 split of the Common Stock effected by the Corporation on November 20, 1995. 29. December 1996 share increase shall terminate and cease to remain outstanding, and no further option grants shall be made on the basis of that share increase. However, the provisions of the Plan as in effect immediately prior to the December 1996 Amendment shall automatically be reinstated, and option grants and direct stock issuances may thereafter continue to be made pursuant to the reinstated provisions of the Plan. All option grants and direct stock issuances made prior to the December 1996 Amendment shall remain outstanding in accordance with the terms and conditions of the respective instruments evidencing those options or issuances, and nothing in the December 1996 Amendment shall be deemed to modify or in any way affect those outstanding options or issuances. Subject to the foregoing limitations, the Plan Administrator may make option grants and direct stock issuances under the Plan at any time before the date fixed herein for the termination of the Plan. C. The Plan was amended on February 1, 1996 to authorize the appointment of the Secondary Committee for purposes of administering the Discretionary Option Grant and Stock Issuance Programs with respect to individuals who are non Section 16 Insiders. The Primary Committee shall also retain separate but concurrent authority to administer the Discretionary Option Grant and Stock Issuance Programs with respect to such individuals. D. The Plan shall terminate upon the EARLIER of (i) December 31, 2003 or (ii) the date on which all shares available for issuance under the Plan shall have been issued or cancelled pursuant to the exercise, surrender or cash-out of the options granted under the Plan or the issuance of shares (whether vested or unvested) under the Stock Issuance Program. If the date of termination is determined under clause (i) above, then all option grants and unvested share issuances outstanding on such date shall thereafter continue to have force and effect in accordance with the provisions of the instruments evidencing such grants or issuances. V. USE OF PROCEEDS Any cash proceeds received by the Corporation from the sale of shares pursuant to option grants or share issuances under the Plan shall be used for general corporate purposes. VI. REGULATORY APPROVALS A. The implementation of the Plan, the granting of any stock option or stock appreciation right under the Plan, the issuance of any shares under the Stock Issuance Program and the issuance of Common Stock upon the exercise of the stock options or stock appreciation rights granted hereunder shall be subject to the Corporation's procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the stock options and stock appreciation rights granted under it and the Common Stock issued pursuant to it. 30. B. No shares of Common Stock or other assets shall be issued or delivered under this Plan unless and until there shall have been compliance with all applicable requirements of Federal and state securities laws, including the filing and effectiveness of the Form S-8 registration statement for the shares of Common Stock issuable under the Plan, and all applicable listing requirements of any securities exchange on which the Common Stock is then listed for trading. VII. NO EMPLOYMENT/SERVICE RIGHTS Neither the action of the Corporation in establishing the Plan, nor any action taken by the Plan Administrator hereunder, nor any provision of the Plan shall be construed so as to grant any individual the right to remain in the Service of the Corporation (or any parent or subsidiary corporation) for any period of specific duration, and the Corporation (or any parent or subsidiary corporation retaining the services of such individual) may terminate such individual's Service at any time and for any reason, with or without cause. VIII. MISCELLANEOUS PROVISIONS A. Except to the extent otherwise expressly provided in the Plan, the right to acquire Common Stock or other assets under the Plan may not be assigned, encumbered or otherwise transferred by any Optionee or Participant. B. The provisions of the Plan relating to the exercise of options and the vesting of shares shall be governed by the laws of the State of California without resort to that State's conflict-of-laws rules, as such laws are applied to contracts entered into and performed in such State. C. The provisions of the Plan shall inure to the benefit of, and be binding upon, the Corporation and its successors or assigns, whether by Corporate Transaction or otherwise, and the Participants and Optionees, the legal representatives of their respective estates, their respective heirs or legatees and their permitted assignees. 31. EX-10.3 3 EXHIBIT 10.3 Exhibit 10.3 GASONICS INTERNATIONAL CORPORATION EMPLOYEE STOCK PURCHASE PLAN ---------------------------- (AS AMENDED AND RESTATED EFFECTIVE DECEMBER 17, 1996) I. PURPOSE A. The GaSonics International Corporation Employee Stock Purchase Plan (the "Plan") is intended to provide eligible employees of the Corporation and one or more of its Corporate Affiliates with the opportunity to acquire a proprietary interest in the Corporation through participation in a payroll-deduction based employee stock purchase plan designed to qualify under Section 423 of the Code. B. The Plan was adopted on January 27, 1994 by the Board of Directors of Gasonics International Corporation, a California corporation ("Gasonics California"). The Plan was subsequently assumed by the Corporation in connection with the merger of Gasonics California with and into the Corporation in February 1994. II. DEFINITIONS For purposes of administration of the Plan, the following terms shall have the meanings indicated: BASE SALARY means the regular base salary paid to a Participant by one or more Participating Companies during such individual's period of participation in the Plan, plus any pre-tax contributions made by the Participant to any Code Section 401(k) salary deferral plan or any Code Section 125 cafeteria benefit program now or hereafter established by the Corporation or any Corporate Affiliate. The following items of compensation shall NOT be included in Base Salary: (i) all overtime payments, bonuses, commissions (other than those functioning as base salary equivalents), profit-sharing distributions and other incentive-type payments and (ii) any and all contributions (other than Code Section 401(k) or Code Section 125 contributions) made on the Participant's behalf by the Corporation or one or more Corporate Affiliates under any employee benefit or welfare plan now or hereafter established. BOARD means the Board of Directors of the Corporation. CODE means the Internal Revenue Code of 1986, as periodically amended. COMMON STOCK means shares of the Corporation's common stock, par value $0.001 per share. CORPORATE AFFILIATE means any parent or subsidiary corporation of the Corporation (as determined in accordance with Code Section 424), including any parent or subsidiary corporation which becomes such after the Effective Time. CORPORATION means GaSonics International Corporation, a Delaware corporation, and any corporate successor to all or substantially all of the assets or voting stock of GaSonics International Corporation which shall by appropriate action adopt the Plan. EFFECTIVE TIME means the time at which the Underwriting Agreement for the initial public offering of the Common Stock is executed and finally priced. The initial offering period under the Plan shall start at the time of such execution and pricing of the Underwriting Agreement. Any Corporate Affiliate which becomes a Participating Corporation in the Plan after such Effective Time shall designate a subsequent Effective Time with respect to its employee-Participants. ELIGIBLE EMPLOYEE means any person who is engaged, on a regularly-scheduled basis of more than twenty (20) hours per week for more than five (5) months per calendar year, in the rendition of personal services to the Corporation or any other Participating Corporation as an employee for earnings considered wages under Section 3401(a) of the Code. ENTRY DATE means the Semi-Annual Entry Date on which an Eligible Employee first joins the offering period in effect under the Plan. However, the first Entry Date for the initial offering period under the Plan shall be the Effective Time. FAIR MARKET VALUE means, for the Effective Time at which the initial offering period under the Plan begins, the price per share at which the Common Stock is to be sold in the initial public offering of the Common Stock pursuant to the Underwriting Agreement. For any subsequent date under the Plan on which the Common Stock is registered under Section 12(g) of the 1934 Act and traded on the open market, Fair Market Value means the closing selling price per share of the Common Stock on such date, as officially quoted on the principal securities exchange on which the Common Stock is at the time traded or, if not traded on any securities exchange, the closing selling price per share of the Common Stock on such date, as reported on the Nasdaq National Market System. If there are no sales of the Common Stock on such day, then the closing selling price per share on the next preceding day for which such closing selling price is quoted shall be determinative of Fair Market Value. 1933 ACT means the Securities Act of 1933, as amended. 1934 ACT means the Securities Exchange Act of 1934, as amended. 2. PARTICIPANT means any Eligible Employee of a Participating Corporation who is actively participating in the Plan. PARTICIPATING CORPORATION means the Corporation and such Corporate Affiliate or Affiliates as may be authorized from time to time by the Board to extend the benefits of the Plan to their Eligible Employees. The Participating Corporations in the Plan, as of the Effective Time, are listed in attached Schedule A. PLAN ADMINISTRATOR shall have the meaning given such term in Article III. SEMI-ANNUAL ENTRY DATE means the first business day of January and July each calendar year within an offering period in effect under the Plan. However, the first Semi-Annual Entry Date for the initial offering period under the Plan shall be deemed to be the Effective Time. SEMI-ANNUAL PERIOD OF PARTICIPATION means each semi-annual period for which the Participant actually participates in an offering period in effect under the Plan. There shall be a maximum of four (4) semi-annual periods of participation within each offering period. The first such semi-annual period (which may actually be less than six (6) months for the initial offering period) shall extend from the Effective Time through the last business day in June 1994. Subsequent semi-annual periods shall be measured from the first business day of July to the last business day of December each calendar year and from the first business day of January in the succeeding calendar year to the last business day of June in that calendar year. SEMI-ANNUAL PURCHASE DATE means the last business day of June and December each calendar year on which shares of Common Stock are automatically purchased for Participants under the Plan. The initial Semi-Annual Purchase Date shall be June 30, 1994. III. ADMINISTRATION The Plan Administrator shall have sole and exclusive authority to administer the Plan and shall consist of a committee (the "Plan Administrator") of two (2) or more non-employee Board members appointed by the Board. The Plan Administrator shall have full authority to interpret and construe any provision of the Plan and to adopt such rules and regulations for administering the Plan as it may deem necessary in order to comply with the requirements of Code Section 423. Decisions of the Plan Administrator shall be final and binding on all parties who have an interest in the Plan. 3. IV. OFFERING PERIODS A. Shares of Common Stock shall be offered for purchase under the Plan through a series of successive offering periods until such time as (i) the maximum number of shares of Common Stock available for issuance under the Plan shall have been purchased or (ii) the Plan shall have been sooner terminated in accordance with Subsection I of Article VII, Subsection A of Article IX or Subsection B of Article X. B. Each offering period shall have a maximum duration of twenty-four (24) months. The duration of each offering period shall be designated by the Plan Administrator prior to the start date. However, the initial offering period shall run from the Effective Time to the last business day in December 1995. The next offering period shall commence on the first business day in January 1996 and end on the last business day in December 1997. Subsequent offering periods shall commence as designated by the Plan Administrator. C. The Participant shall be granted a separate purchase right for each offering period in which he or she participates. The purchase right shall be granted on the Entry Date on which such individual first joins the offering period in effect under the Plan and shall be automatically exercised in successive semi-annual installments on the last business day of June and December of each year. Accordingly, each purchase right may be exercised up to two (2) times each calendar year it remains outstanding. D. No purchase rights granted under the Plan shall be exercised, and no shares of Common Stock shall be issued hereunder, until such time as (i) the Plan shall have been approved by the stockholders of Gasonics California and (ii) the Corporation shall have complied with all applicable requirements of the 1933 Act (including the registration of the shares of Common Stock issuable under the Plan on a Form S-8 registration statement filed with the Securities and Exchange Commission), all applicable listing requirements of any securities exchange on which the Common Stock is listed for trading and all other applicable requirements established by law or regulation. E. The Participant's acquisition of Common Stock under the Plan on any Semi-Annual Purchase Date shall neither limit nor require the Participant's acquisition of Common Stock on any subsequent Semi-Annual Purchase Date, whether within the same or a different offering period. V. ELIGIBILITY AND PARTICIPATION A. Each Eligible Employee of a Participating Corporation shall be eligible to participate in the Plan in accordance with the following provisions: - An individual who is an Eligible Employee on the start date of any offering period under the Plan shall be eligible to commence participation in that 4. offering period on such start date or on any subsequent Semi-Annual Entry Date within that offering period. The date on which the Eligible Employee commences participation in the offering period shall constitute his/her Entry Date for that offering period, and on that date such individual shall be granted his/her purchase right for the offering period. - An individual who first becomes an Eligible Employee after the start date of any offering period under the Plan may enter that offering period on the first Semi-Annual Entry Date on which he/she is an Eligible Employee or on any subsequent Semi-Annual Entry Date within that offering period, provided he/she remains an Eligible Employee. The Semi-Annual Entry Date on which such Eligible Employee enters the offering period shall constitute his/her Entry Date for that offering period, and on that date such individual shall be granted his/her purchase right for the offering period. B. To participate in the Plan for a particular offering period, the Eligible Employee must complete the enrollment forms prescribed by the Plan Administrator (including a purchase agreement and a payroll deduction authorization) and file such forms with the Plan Administrator (or its designate) on or before his/her scheduled Entry Date. C. The payroll deduction authorized by the Participant for purposes of acquiring shares of Common Stock under the Plan may be any multiple of one percent (1%) of the Base Salary paid to the Participant during each Semi-Annual Period of Participation within the offering period, up to a maximum of fifteen percent (15%). The deduction rate so authorized shall continue in effect for the remainder of the offering period, except to the extent such rate is changed in accordance with the following guidelines: - The Participant may, at any time during a Semi-Annual Period of Participation, reduce his/her rate of payroll deduction to become effective as soon as possible after filing of the requisite reduction form with the Plan Administrator. The Participant may not, however, effect more than one such reduction per Semi-Annual Period of Participation. - The Participant may, prior to the commencement of any new Semi-Annual Period of Participation within the offering period, increase the rate of his/her payroll deduction by filing the appropriate form with the Plan Administrator. The new rate (which may not exceed the fifteen percent (15%) maximum) shall become effective as of the first day of the first Semi-Annual Period of Participation following the filing of such form. D. Payroll deductions will automatically cease upon the termination of the Participant's purchase right in accordance with the applicable provisions of Section VII below. 5. VI. STOCK SUBJECT TO PLAN A. The Common Stock purchasable under the Plan shall, solely in the discretion of the Plan Administrator, be made available from either authorized but unissued shares of Common Stock or from shares of Common Stock reacquired by the Corporation, including shares of Common Stock purchased on the open market. The total number of shares of Common Stock which may be issued under the Plan shall not exceed 1,100,000 shares(1) (subject to adjustment under Section VI.B below). Such share reserve includes (i) the 400,000 share-increase(1) authorized by the Board on November 6, 1995 and approved by the stockholders at the 1996 Annual Stockholders Meeting plus (ii) an additional 400,000 share increase authorized by the Board on December 17, 1996, subject to stockholder approval at the 1997 Annual Stockholders Meeting. No shares of Common Stock shall be issued under the Plan on the basis of the December 1996 share increase unless that increase is approved by the stockholders at the 1997 Annual Meeting, and in no event shall more than 773,695 shares of Common Stock be issued after November 15, 1996, assuming stockholder approval of the December 1996 share increase. B. In the event any change is made to the Corporation's outstanding Common Stock by reason of any stock dividend, stock split, exchange or combination of shares, recapitalization or any other change affecting the Common Stock as a class without the Corporation's receipt of consideration, appropriate adjustments shall be made by the Plan Administrator to (i) the class and maximum number of securities issuable over the term of the Plan, (ii) the class and maximum number of securities purchasable per Participant on any one Semi-Annual Purchase Date and (iii) the class and number of securities and the price per share in effect under each purchase right at the time outstanding under the Plan. Such adjustments shall be designed to preclude the dilution or enlargement of rights and benefits under the Plan. VII. PURCHASE RIGHTS An Eligible Employee who participates in the Plan for a particular offering period shall have the right to purchase shares of Common Stock, in a series of successive semi-annual installments during such offering period, upon the terms and conditions set forth below and shall execute a purchase agreement embodying such terms and conditions and such other provisions (not inconsistent with the Plan) as the Plan Administrator may deem advisable. A. PURCHASE PRICE. Common Stock shall be purchasable on each Semi- Annual Purchase Period within the offering period at a purchase price equal to eighty-five percent (85%) of the LOWER of (i) the Fair Market Value per share of Common Stock on the - --------------------------------- (1) Each number reflects the 3-for-2 split of the Common Stock effected by the Corporation on November 20, 1995. 6. Participant's Entry Date into that offering period or (ii) the Fair Market Value per share on that Semi-Annual Purchase Date. However, for each Participant whose Entry Date is other than the start date of the offering period, the clause (i) amount shall in no event be less than the Fair Market Value of the Common Stock on the start date of that offering period. B. NUMBER OF PURCHASABLE SHARES. The number of shares purchasable per Participant on each Semi-Annual Purchase Date during the offering period shall be the number of whole shares obtained by dividing the amount collected from the Participant through payroll deductions during the Semi-Annual Period of Participation ending with that Semi-Annual Purchase Date (together with any carryover deductions from the preceding Semi-Annual Period of Participation) by the purchase price in effect for the Participant for such Semi-Annual Purchase Date. However, the maximum number of shares of Common Stock purchasable per Participant on any Semi-Annual Purchase Date shall not exceed One Thousand Eight Hundred (1,800) shares(2), subject to periodic adjustment under Section VI.B. Under no circumstances shall purchase rights be granted under the Plan to any Eligible Employee if such individual would, immediately after the grant, own (within the meaning of Code Section 424(d)) or hold outstanding options or other rights to purchase, stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Corporation or any of its Corporate Affiliates. C. PAYMENT. Payment for the Common Stock purchased under the Plan shall be effected by means of the Participant's authorized payroll deductions. Such deductions shall begin on the first pay day following the Participant's Entry Date into the offering period and shall (unless sooner terminated by the Participant) continue through the pay day ending with or immediately prior to the last day of the offering period. The amounts so collected shall be credited to the Participant's book account under the Plan, but no interest shall be paid on the balance from time to time outstanding in such account. The amounts collected from the Participant shall not be held in any segregated account or trust fund and may be commingled with the general assets of the Corporation and used for general corporate purposes. D. TERMINATION OF PURCHASE RIGHT. The following provisions shall govern the termination of outstanding purchase rights: - A Participant may, at any time prior to the next Semi-Annual Purchase Date, terminate his/her outstanding purchase right under the Plan by filing the prescribed notification form with the Plan Administrator (or its designate), and no - ------------------------- (2) Such number reflects the 3-for-2 split of the Common Stock effected by the Corporation on November 20, 1995. 7. further payroll deductions shall be collected from the Participant with respect to the terminated purchase right. Any payroll deductions collected for the Semi-Annual Period of Participation in which such termination occurs shall, at the Participant's election, be immediately refunded or held for the purchase of shares on the Semi-Annual Purchase Date immediately following such termination. If no such election is made at the time such purchase right is terminated, then the payroll deductions collected with respect to the terminated right shall be refunded as soon as possible. - The termination of such purchase right shall be irrevocable, and the Participant may not subsequently rejoin the offering period for which the terminated purchase right was granted. In order to resume participation in any subsequent offering period, such individual must re- enroll in the Plan (by making a timely filing of a new stock purchase agreement and enrollment form) on or before his/her scheduled Entry Date into that offering period. - Should the Participant cease to remain an Eligible Employee for any reason (including death, disability or change in status) while his/her purchase right remains outstanding, then that purchase right shall immediately terminate and all of the Participant's payroll deductions for the Semi-Annual Period of Participation in which such cessation of Eligible Employee status occurs shall be immediately refunded. E. STOCK PURCHASE. Shares of Common Stock shall automatically be purchased on behalf of each Participant (other than Participants whose payroll deductions have previously been refunded in accordance with the Termination of Purchase Right provisions above) on each Semi-Annual Purchase Date. The purchase shall be effected by applying each Participant's payroll deductions for the Semi-Annual Period of Participation ending on such Semi-Annual Purchase Date (together with any carryover deductions from the preceding Semi-Annual Period of Participation) to the purchase of whole shares of Common Stock (subject to the limitation on the maximum number of purchasable shares imposed under subsection B. of this Article VII) at the purchase price in effect for the Participant for that Semi-Annual Purchase Date. Any payroll deductions not applied to such purchase because they are not sufficient to purchase a whole share shall be held for the purchase of Common Stock on the next Semi-Annual Purchase Date. However, any payroll deductions not applied to the purchase of Common Stock by reason of the limitation on the maximum number of shares purchasable by the Participant on the Semi-Annual Purchase Date shall be promptly refunded to the Participant. F. PRORATION OF PURCHASE RIGHTS. Should the total number of shares of Common Stock which are to be purchased pursuant to outstanding purchase rights on any particular date exceed the number of shares then available for issuance under the Plan, the Plan Administrator shall make a pro-rata allocation of the available shares on a uniform and nondiscriminatory basis, and the payroll deductions of each Participant, to the extent in 8. excess of the aggregate purchase price payable for the Common Stock pro-rated to such individual, shall be refunded to such Participant. G. RIGHTS AS STOCKHOLDER. A Participant shall have no stockholder rights with respect to the shares subject to his/her outstanding purchase right until the shares are actually purchased on the Participant's behalf in accordance with the applicable provisions of the Plan. No adjustments shall be made for dividends, distributions or other rights for which the record date is prior to the date of such purchase. A Participant shall be entitled to receive, as soon as practicable after each Semi-Annual Purchase Date, a stock certificate for the number of shares purchased on the Participant's behalf. Such certificate may, upon the Participant's request, be issued in the names of the Participant and his/her spouse as community property or as joint tenants with right of survivorship. Alternatively, the Participant may request the issuance of such certificate in "street name" for immediate deposit in a Corporation-designated brokerage account. H. ASSIGNABILITY. No purchase right granted under the Plan shall be assignable or transferable by the Participant other than by will or by the laws of descent and distribution following the Participant's death, and during the Participant's lifetime the purchase right shall be exercisable only by the Participant. I. CHANGE IN OWNERSHIP. Should any of the following transactions (a "Change in Ownership") occur during the offering period: - a merger or consolidation in which the Corporation is not the surviving entity, except for a transaction the principal purpose of which is to change the state in which the Corporation is incorporated, - the sale, transfer or other disposition of all or substantially all of the assets of the Corporation in complete liquidation or dissolution of the Corporation, or - any reverse merger in which the Corporation is the surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such merger, then all outstanding purchase rights under the Plan shall automatically be exercised immediately prior to the effective date of such Change in Ownership by applying the payroll deductions of each Participant for the Semi-Annual Period of Participation in which such Change in Ownership occurs to the purchase of whole shares of Common Stock at eighty-five percent (85%) of the LOWER of (i) the Fair Market Value of 9. the Common Stock on the Participant's Entry Date into the offering period in which such Change in Ownership occurs or (ii) the Fair Market Value of the Common Stock immediately prior to the effective date of such Change in Ownership. However, the applicable share limitations of Articles VII and VIII shall continue to apply to any such purchase, and the clause (i) amount above shall not, for any Participant whose Entry Date for the offering period is other than the start date of that offering period, be less than the Fair Market Value of the Common Stock on such start date. The Corporation shall use its best efforts to provide at least ten (10)-days prior written notice of the occurrence of any Change in Ownership, and Participants shall, following the receipt of such notice, have the right to terminate their outstanding purchase rights in accordance with the applicable provisions of this Article VII. VIII. ACCRUAL LIMITATIONS A. No Participant shall be entitled to accrue rights to acquire Common Stock pursuant to any purchase right outstanding under this Plan if and to the extent such accrual, when aggregated with (i) rights to purchase Common Stock accrued under any other purchase right outstanding under this Plan and (ii) similar rights accrued under other employee stock purchase plans (within the meaning of Code Section 423) of the Corporation or its Corporate Affiliates, would otherwise permit such Participant to purchase more than $25,000 worth of stock of the Corporation or any Corporate Affiliate (determined on the basis of the fair market value of such stock on the date or dates such rights are granted) for each calendar year such rights are at any time outstanding. B. For purposes of applying such accrual limitations, the right to acquire Common Stock pursuant to each purchase right outstanding under the Plan shall accrue as follows: - The right to acquire Common Stock under each such purchase right shall accrue in a series of successive semi-annual installments as and when the purchase right first becomes exercisable for each such installment on the last business day of each Semi-Annual Period of Participation for which the right remains outstanding. - No right to acquire Common Stock under any outstanding purchase right shall accrue to the extent the Participant has already accrued in the same calendar year the right to acquire Common Stock under one or more other purchase rights at a rate equal to $25,000 worth of Common Stock (determined on the basis of the Fair Market Value on the date or dates of grant) for each calendar year during which one or more of those purchase rights were at any time outstanding. - If by reason of such accrual limitations, any purchase right of a Participant does not accrue for a particular Semi-Annual Period of Participation, 10. then the payroll deductions which the Participant made during that Semi-Annual Period of Participation with respect to such purchase right shall be promptly refunded. C. In the event there is any conflict between the provisions of this Article VIII and one or more provisions of the Plan or any instrument issued thereunder, the provisions of this Article VIII shall be controlling. IX. AMENDMENT AND TERMINATION A. The Board may alter, amend, suspend or discontinue the Plan following the close of any Semi-Annual Period of Participation. However, the Board may not, without the approval of the Corporation's stockholders: - materially increase the number of shares issuable under the Plan or the maximum number of shares purchasable per Participant on any one Semi-Annual Purchase Date, except that the Plan Administrator shall have the authority, exercisable without such stockholder approval, to effect adjustments to the extent necessary to reflect changes in the Corporation's capital structure pursuant to Subsection B of Article VI; or - alter the purchase price formula so as to reduce the purchase price payable for the shares purchasable under the Plan; or - materially increase the benefits accruing to Participants under the Plan or materially modify the requirements for eligibility to participate in the Plan. B. The Corporation shall have the right, exercisable in the sole discretion of the Plan Administrator, to terminate all outstanding purchase rights under the Plan immediately following the close of any Semi-Annual Period of Participation. Should the Corporation elect to exercise such right, then the Plan shall terminate in its entirety. No further purchase rights shall thereafter be granted or exercised, and no further payroll deductions shall thereafter be collected, under the Plan. X. GENERAL PROVISIONS A. The Plan was initially adopted by the Board on January 27, 1994 and approved by the stockholders in March 1994. On November 6, 1995, the Board authorized a 400,000 share increase(3) to the number of shares of Common Stock available for issuance under the Plan, and stockholders approved that share increase at the 1996 Annual Stockholders Meeting. On December 17, 1996, the Board amended the Plan to increase the - -------------------- (3) As adjusted for the 3-for-2 split of the Common Stock effected on November 20, 1995. 11. number of shares of Common Stock reserved for issuance under the Plan by an additional 400,000 shares. However, no purchase rights shall be granted under the Plan on the basis of such share increase, and no shares of Common Stock shall accordingly be issued on the basis of that increase, unless and until the increase shall have been approved by the Corporation's stockholders at the 1997 Annual Stockholders Meeting. Should such stockholder approval not be obtained, then the 400,000-share increase authorized by the Board on December 17, 1996 shall not be implemented. However, all outstanding purchase rights under the Plan which have NOT been granted on the basis of that 400,000-share increase shall remain outstanding in accordance with the terms and provisions of the agreements evidencing those grants, whether or not stockholder approval of such share increase is obtained. B. On November 6, 1995, the Board also amended the Plan to allow Eligible Employees to enter an offering period under the Plan on any Semi-Annual Entry Date within that offering period on which they remain in Eligible Employee status. Prior to such amendment, Eligible Employees were only allowed to enter the offering period on the first Semi-Annual Entry Date on which they satisfied such Eligible Employee requirement. The stockholders approved such amendment at the 1996 Annual Stockholders Meeting. C. The Plan shall terminate upon the EARLIER of (i) the last business day in December 2003 or (ii) the date on which all shares available for issuance under the Plan shall have been sold pursuant to purchase rights exercised under the Plan. D. All costs and expenses incurred in the administration of the Plan shall be paid by the Corporation. E. Neither the action of the Corporation in establishing the Plan, nor any action taken under the Plan by the Board or the Plan Administrator, nor any provision of the Plan itself shall be construed so as to grant any person the right to remain in the employ of the Corporation or any of its Corporate Affiliates for any period of specific duration, and such person's employment may be terminated at any time, with or without cause. F. The provisions of the Plan shall be governed by the laws of the State of California without resort to that State's conflict-of-laws rules. 12. SCHEDULE A ---------- CORPORATIONS PARTICIPATING IN EMPLOYEE STOCK PURCHASE PLAN AS OF THE EFFECTIVE TIME ------------------------ GaSonics International Corporation GaSonics International Europe Limited GaSonics International Japan, Kabushiki Kaisha GaSonics International Korea Corporation Tekisco, Inc. EX-10.21 4 EXHIBIT 10.21 LOAN AGREEMENT [LOGO] LOAN AGREEMENT THIS AMENDED AND RESTATED LOAN AGREEMENT ("Agreement") is made and entered into as of March 4, 1997 by and between GaSonics International Corporation, a Delaware corporation ("Borrower") and UNION BANK OF CALIFORNIA, N.A. ("Bank"). This Agreement amends and restates in its entirety that certain loan agreement dated March 5, 1996 between Bank and Borrower. SECTION 1. THE LOAN 1.1 THE REVOLVING LOAN. Bank will loan to Borrower an amount not to exceed Twenty Million Dollars ($20,000,000) outstanding in the aggregate at any one time (the "Revolving Loan"). Borrower may borrow, repay and reborrow all or part of the Revolving Loan in amounts not less than One Hundred Fifty Thousand Dollars ($150,000.00) in accordance with the terms of the Revolving Note; provided, however, that for at least thirty (30) consecutive days during each twelve (12)-month period, the principal amount outstanding under the Revolving Loan must be zero (0). All borrowings of the Revolving Loan must be made before February 27, 1998, at which time all unpaid principal and interest of the Revolving Loan shall be due and payable. The Revolving Loan shall be evidenced by a promissory note (the "Revolving Note") on the standard form used by Bank for commercial loans. Bank shall enter each amount borrowed and repaid in Bank's records and such entries shall be deemed to accurately evidence advances and payments on the Revolving Loan. Omission of Bank to make any such entries shall not discharge Borrower of its obligation to repay in full with interest all amounts borrowed. 1.1.1 THE STANDBY L/C SUBLIMIT. As a sublimit to the Revolving Loan, Bank shall issue, for the account of Borrower, one or more irrevocable, standby letters of credit (individually, an "L/C" and collectively, the "L/Cs"). All such standby L/Cs shall be drawn on such terms and conditions as are acceptable to Bank. The aggregate amount available to be drawn under all outstanding L/Cs and the aggregate amount of unpaid reimbursement obligations under drawn L/Cs shall not exceed Five Hundred Thousand Dollars ($500,000) and shall reduce, dollar for dollar, the maximum amount available under the Revolving Loan. No standby L/C shall have an expiry date more than twelve (12) months from its date of issuance and each L/C shall be governed by the terms of (and Borrower agrees to execute) Bank's standard form for standby L/C applications and reimbursement agreements. No L/C shall expire after February 27, 1998. 1.2 GASONICS INTERNATIONAL JAPAN K.K. CREDIT FACILITIES. Borrower has a subsidiary known as Gasonics International Japan K.K. ("Gasonics International Japan"). Gasonics International Japan has yen credit facilities aggregating Y290,000,000 with Bank of Tokyo-Mitsubishi, Ltd. Bank and Borrower have agreed that the aggregate United States Dollar equivalent of these credit facilities shall reduce, dollar for dollar, the maximum amount available under the Revolving Loan. For purposes of determining from time to time the United States Dollar equivalent of the principal amount outstanding under Gasonics International Japan's yen facilities with Bank of Tokyo-Mitsubishi, Ltd., Bank shall convert the yen amount outstanding into United States Dollars at the rate of exchange which Bank can use to make such conversion, measured by the offered rate as determined by Bank of yen for United States Dollars prevailing on the last day of each most recently completed month during the term of Borrower's Revolving Loan with Bank ("Conversion Figure"). Thereafter, for the following month, Borrower's availability under the Revolving Loan shall be reduced by the Conversion Figure. 1.2.1 The intent of Bank and Borrower is to remove uncertainties as to what exchange rate should be applied, and to place the risk of any change in market value of yen on Borrower. 1.3 TERMINOLOGY. As used herein the word "Loan" shall mean, collectively, all the credit facilities described above. -1- As used herein the word "Note" shall mean, collectively, all the promissory notes described above. As used herein, the words "Loan Documents" shall mean all documents executed in connection with this Agreement. 1.4 PURPOSE OF LOAN. The proceeds of the Revolving Loan shall be used for general working capital purposes. 1.5 INTEREST. The unpaid principal balance of the Revolving Loan shall bear interest at the rate or rates provided in the Revolving Note and selected by Borrower. The Revolving Loan may be prepaid in full or in part only in accordance with the terms of the Revolving Note and any such prepayment shall be subject to the prepayment fee provided for therein. 1.6 BALANCES. Borrower shall maintain its major depository accounts with Bank until the Note and all sums payable pursuant to this Agreement have been paid in full. 1.7 DISBURSEMENT. Upon execution hereof, Bank shall disburse the proceeds of the Loan as provided in Bank's standard form Authorization executed by Borrower. 1.8 CONTROLLING DOCUMENT. In the event of any inconsistency between the terms of this Agreement and any Note or any of the other Loan Documents, the terms of such Note or other Loan Documents will prevail over the terms of this Agreement. SECTION 2. CONDITIONS PRECEDENT Bank shall not be obligated to disburse all or any portion of the proceeds of the Loan unless at or prior to the time for the making of such disbursement, the following conditions have been fulfilled to Bank's satisfaction: 2.1 COMPLIANCE. Borrower shall have performed and complied with all terms and conditions required by this Agreement to be performed or complied with by it prior to or at the date of the making of such disbursement and shall have executed and delivered to Bank the Note and other documents deemed necessary by Bank. 2.2 BORROWING RESOLUTION. Borrower shall have provided Bank with certified copies of resolutions duly adopted by the Board of Directors of Borrower, authorizing this Agreement and the Loan Documents. Such resolutions shall also designate the persons who are authorized to act on Borrower's behalf in connection with this Agreement and to do the things required of Borrower pursuant to this Agreement. 2.3 TERMINATION STATEMENTS. Borrower shall have provided Bank with UCC-2 termination statements executed by such secured creditors as may be required by Bank suitable for filing with the Secretary of State in each state designated by Bank. 2.4 CONTINUING COMPLIANCE. At the time any disbursement is to be made, there shall not exist any event, condition or act which constitutes an event of default under Section 6 hereof or any event, condition or act which with notice, lapse of time or both would constitute such event of default; nor shall there be any such event, condition, or act immediately after the disbursement were it to be made. -2- SECTION 3. REPRESENTATIONS AND WARRANTIES Borrower represents and warrants that: 3.1 BUSINESS ACTIVITY. The principal business of Borrower is the design and manufacturing of semiconductor manufacturing equipment. 3.2 AFFILIATES AND SUBSIDIARIES. Borrower's affiliates and subsidiaries (those entities in which Borrower has either a controlling interest or at least a 25% ownership interest) and their addresses, and the names of Borrower's principal shareholders, are as provided on a schedule delivered to Bank on or before the date of this Agreement. 3.3 AUTHORITY TO BORROW. The execution, delivery and performance of this Agreement, the Note and all other agreements and instruments required by Bank in connection with the Loan are not in contravention of any of the terms of any indenture, agreement or undertaking to which Borrower is a party or by which it or any of its property is bound or affected. 3.4 FINANCIAL STATEMENTS. The financial statements of Borrower, including both a balance sheet at December 31, 1996 together with supporting schedules, and an income statement for the three (3) months ended December 31, 1996, have heretofore been furnished to Bank, and are true and complete and fairly represent the financial condition of Borrower during the period covered thereby. Since December 31, 1996, there has been no material adverse change in the financial condition or operations of Borrower. 3.5 TITLE. Except for assets which may have been disposed of in the ordinary course of business, Borrower has good and marketable title to all of the property reflected in its financial statements delivered to Bank and to all property acquired by Borrower since the date of said financial statements, free and clear of all liens, encumbrances, security interests and adverse claims except those specifically referred to in said financial statements. 3.6 LITIGATION. There is no litigation or proceeding pending or threatened against Borrower or any of its property which is reasonably likely to affect the financial condition, property or business of Borrower in a materially adverse manner or result in liability in excess of Borrower's insurance coverage. 3.7 DEFAULT. Borrower is not now in default in the payment of any of its material obligations, and there exists no event, condition or act which constitutes an event of default under Section 6 hereof and no condition, event or act which with notice or lapse of time, or both, would constitute an event of default. 3.8 ORGANIZATION. Borrower is duly organized and existing under the laws of the state of its organization, and has the power and authority to carry on the business in which it is engaged and/or proposes to engage. 3.9 POWER. Borrower has the power and authority to enter into this Agreement and to execute and deliver the Note and all of the other Loan Documents. 3.10 AUTHORIZATION. This Agreement and all things required by this Agreement have been duly authorized by all requisite action of Borrower. 3.11 QUALIFICATION. Borrower is duly qualified and in good standing in any jurisdiction where such qualification is required. 3.12 COMPLIANCE WITH LAWS. Borrower is not in violation with respect to any applicable laws, rules, ordinances or regulations which materially affect the operations or financial condition of Borrower. 3.13 ERISA. Any defined benefit pension plans as defined in the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), of Borrower meet, as of the date hereof, the minimum funding standards of Section 302 of ERISA, and no Reportable Event or Prohibited Transaction as defined in ERISA has occurred with respect to any such plan. -3- 3.14 REGULATION U. No action has been taken or is currently planned by Borrower, or any agent acting on its behalf, which would cause this Agreement or the Note to violate Regulation U or any other regulation of the Board of Governors of the Federal Reserve System or to violate the Securities and Exchange Act of 1934, in each case as in effect now or as the same may hereafter be in effect. Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock as one of its important activities and none of the proceeds of the Loan will be used directly or indirectly for such purpose. 3.15 CONTINUING REPRESENTATIONS. These representations shall be considered to have been made again at and as of the date of each disbursement of the Loan and shall be true and correct as of such date or dates. SECTION 4. AFFIRMATIVE COVENANTS Until the Note and all sums payable pursuant to this Agreement or any other of the Loan Documents have been paid in full, unless Bank waives compliance in writing, Borrower agrees that: 4.1 USE OF PROCEEDS. Borrower will use the proceeds of the Loan only as provided in subsection 1.4 above. 4.2 PAYMENT OF OBLIGATIONS. Borrower will pay and discharge promptly all taxes, assessments and other governmental charges and claims levied or imposed upon it or its property, or any part thereof, provided, however, that Borrower shall have the right in good faith to contest any such taxes, assessments, charges or claims and, pending the outcome of such contest, to delay or refuse payment thereof provided that adequately funded reserves are established by it to pay and discharge any such taxes, assessments, charges and claims. 4.3 MAINTENANCE OF EXISTENCE. Borrower will maintain and preserve its existence and assets and all rights, franchises, licenses and other authority necessary for the conduct of its business and will maintain and preserve its property, equipment and facilities in good order, condition and repair. Bank may, at reasonable times, visit and inspect any of the properties of Borrower. 4.4 RECORDS. Borrower will keep and maintain full and accurate accounts and records of its operations according to generally accepted accounting principles and will permit Bank to have access thereto, to make examination and photocopies thereof, and to make audits during regular business hours. Costs for such audits shall be paid by Borrower. 4.5 INFORMATION FURNISHED. Borrower will furnish to Bank: (a) Within Fifty (50) days after the close of each fiscal quarter, except for the final quarter of each fiscal year, its unaudited consolidating and consolidated balance sheet as of the close of such fiscal quarter, its unaudited consolidated and consolidating income and expense statement with supportive schedules and statement of retained earnings for that fiscal quarter, prepared in accordance with generally accepted accounting principles; (b) Within One Hundred Twenty (120) days after the close of each fiscal year, a copy of its statement of financial condition including at least its consolidating and consolidated balance sheet as of the close of such fiscal year, its consolidating and consolidated income and expense statement and retained earnings statement for such fiscal year, examined and prepared on an audited basis by independent certified public accountants selected by Borrower and reasonably satisfactory to Bank, in accordance with generally accepted accounting principles applied on a basis consistent with that of the previous year; (c) Such other financial statements and information as Bank may reasonably request from time to time; (d) In connection with each fiscal year-end statement required hereunder, any management letter of Borrower's certified public accountants; -4- (e) Within Fifty (50) days after each fiscal quarter, a certification of compliance with all covenants under this Agreement, executed by Borrower's chief financial officer or other duly authorized officer of Borrower, in form acceptable to Bank; (f) Prompt written notice to Bank of all events of default under any of the terms or provisions of this Agreement or of any other agreement, contract, document or instrument entered, or to be entered into with Bank; and of any litigation which, if decided adversely to Borrower, would have a material adverse effect on Borrower's financial condition; and of any other matter which has resulted in, or is likely to result in, a material adverse change in its financial condition or operations; and (g) Prior written notice to Bank of any changes in Borrower's officers and other senior management; Borrower's name; and location of Borrower's assets, principal place of business or chief executive office. 4.6 QUICK RATIO. Borrower shall maintain at all times a ratio of current assets to current liabilities of at least 1.75:1.0, as such terms are defined by generally accepted accounting principles. 4.7 TANGIBLE NET WORTH. Borrower will at all times maintain Tangible Net Worth of not less than Sixty Five Million Dollars ($65,000,000). "Tangible Net Worth" shall mean net worth increased by indebtedness of Borrower subordinated to Bank and decreased by patents, licenses, trademarks, trade names, goodwill and other similar intangible assets, organizational expenses, and monies due from affiliates (including officers, shareholders and directors). 4.8 DEBT TO TANGIBLE NET WORTH. Borrower will at all times maintain a ratio of total liabilities to tangible net worth of not greater than 1.0 :1.0. 4.9 PROFITABILITY. Borrower will maintain a net profit, after provision for income taxes, of any positive amount for any consecutive twelve month period, as reported at the end of each fiscal quarter. 4.10 INSURANCE. Borrower will keep all of its insurable property, real, personal or mixed, insured by good and responsible companies against fire and such other risks as are customarily insured against by companies conducting similar business with respect to like properties. Borrower will maintain adequate worker's compensation insurance and adequate insurance against liability for damages to persons and property. 4.11 ADDITIONAL REQUIREMENTS. Borrower will promp tly, upon demand by Bank, take such further action and execute all such additional documents and instruments in connection with this Agreement as Bank in its reasonable discretion deems necessary, and promptly supply Bank with such other information concerning its affairs as Bank may request from time to time. 4.12 LITIGATION AND ATTORNEYS' FEES. Borrower will pay promptly to Bank upon demand, reasonable attorneys' fees (including but not limited to the reasonable estimate of the allocated costs and expenses of in-house legal counsel and legal staff) and all costs and other expenses paid or incurred by Bank in collecting, modifying or compromising the Loan or in enforcing or exercising its rights or remedies created by, connected with or provided for in this Agreement or any of the Loan Documents, whether or not an arbitration, judicial action or other proceeding is commenced. If such proceeding is commenced, only the prevailing party shall be entitled to attorneys' fees and court costs. 4.13 BANK EXPENSES. Borrower will pay or reimburse Bank for all costs, expenses and fees incurred by Bank in preparing and documenting this Agreement and the Loan, and all amendments and modifications thereof, including but not limited to all filing and recording fees, costs of appraisals, insurance and attorneys' fees, including the reasonable estimate of the allocated costs and expenses of in-house legal counsel and legal staff. 4.14 REPORTS UNDER PENSION PLANS. Borrower will furnish to Bank, as soon as possible and in any event within 15 days after Borrower knows or has reason to know that any event or condition with respect to any defined benefit pension plans of Borrower described in Section 3 above has occurred, a statement of an authorized officer of Borrower describing such event or condition and the action, if any, which Borrower proposes to take with respect thereto. -5- SECTION 5. NEGATIVE COVENANTS Until the Note and all other sums payable pursuant to this Agreement or any other of the Loan Documents have been paid in full, unless Bank waives compliance in writing, Borrower agrees that: 5.1 ENCUMBRANCES AND LIENS. Borrower will not create, assume or suffer to exist any mortgage, pledge, security interest, encumbrance, or lien (other than for taxes not delinquent and for taxes and other items being contested in good faith) on property of any kind, whether real, personal or mixed, now owned or hereafter acquired, or upon the income or profits thereof, except to Bank and except for minor encumbrances and easements on real property which do not affect its market value, and except for existing liens on Borrower's personal property and future purchase money security interests encumbering only the personal property purchased. 5.2 BORROWINGS. Borrower will not sell, discount or otherwise transfer any account receivable or any note, draft or other evidence of indebtedness, except to Bank or except to a financial institution at face value for deposit or collection purposes only and without any fee other than fees normally charged by the financial institution for deposit or collection services. Borrower will not borrow any money, become contingently liable to borrow money, nor enter any agreement to directly or indirectly obtain borrowed money, except pursuant to agreements made with Bank. 5.3 SALE OF ASSETS, LIQUIDATION OR MERGER. Borrower will neither liquidate nor dissolve nor enter into any consolidation, merger, partnership or other combination, nor convey, nor sell, nor lease all or the greater part of its assets or business, nor purchase or lease all or the greater part of the assets or business of another; provided, however, Borrower may acquire, merge or consolidate with another corporation if Borrower is the surviving corporation and the aggregate value of the assets so transferred does not exceed Ten Million Dollars ($10,000,000) in any fiscal year and such assets will not be subject to any lien or encumbrance following the effective date of such combination. 5.4 LOANS, ADVANCES AND GUARANTIES. Borrower will not, except in the ordinary course of business as currently conducted, make any loans or advances, become a guarantor or surety, pledge its credit or properties in any manner or extend credit, with the exception of loans, advances, and guaranties to support Borrower's Japanese subsidiary, Gasonics International Japan K.K. The same limitation applies to any now existing or hereafter created affiliates of Borrower where such loans, advances and guarantees exceed an aggregate of Five Million Dollars ($5,000,000). 5.5 INVESTMENTS. Borrower will not purchase the debt or equity of another person or entity except for savings accounts and certificates of deposit of Bank, direct U.S. Government obligations and commercial paper issued by corporations with the top ratings of Moody's or Standard & Poor's, provided all such permitted investments shall mature within one year of purchase. 5.6 PAYMENT OF DIVIDENDS. Borrower will not declare or pay any dividends, other than a dividend payable in its own common stock, or authorize or make any other distribution with respect to any of its stock now or hereafter outstanding. 5.7 RETIREMENT OF STOCK. Borrower will not acquire or retire any share of its capital stock for value. 5.8 PARENT AND SUBSIDIARY PROPERTY. Borrower will not transfer any property to its parent or any affiliate of its parent, except for value received in the normal course of business as business would be conducted with an unrelated or unaffiliated entity. In no event shall management fees or fees for services be paid by Borrower to any such direct or indirect affiliate without Bank's prior written approval. -6- SECTION 6. EVENTS OF DEFAULT The occurrence of any of the following events ("Events of Default") shall terminate any obligation on the part of Bank to make or continue the Loan and automatically, unless otherwise provided under the Note, shall make all sums of interest and principal and any other amounts owing under the Loan immediately due and payable, without notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor, or any other notices or demands: 6.1 Borrower shall default in the due and punctual payment of the principal of or the interest on the Note or any of the other Loan Documents; or 6.2 Any default shall occur under the Note; or 6.3 Borrower shall default in the due performance or observance of any covenant or condition of the Loan Documents; 6.4 Any guaranty or subordination agreement required hereunder is breached or becomes ineffective, or any Guarantor or subordinating creditor dies, disavows or attempts to revoke or terminate such guaranty or subordination agreement; or 6.5 There is a change in ownership or control of ten percent (10%) or more of the issued and outstanding stock of Borrower or any Guarantor, or (if Borrower is a partnership) there is a change in ownership or control of any general partner's interest. SECTION 7. MISCELLANEOUS PROVISIONS 7.1 ADDITIONAL REMEDIES. The rights, powers and remedies given to Bank hereunder shall be cumulative and not alternative and shall be in addition to all rights, powers and remedies given to Bank by law against Borrower or any other person, including but not limited to Bank's rights of setoff or banker's lien. 7.2 NONWAIVER. Any forbearance or failure or delay by Bank in exercising any right, power or remedy hereunder shall not be deemed a waiver thereof and any single or partial exercise of any right, power or remedy shall not preclude the further exercise thereof. No waiver shall be effective unless it is in writing and signed by an officer of Bank. 7.3 INUREMENT. The benefits of this Agreement shall inure to the successors and assigns of Bank and the permitted successors and assignees of Borrower, and any assignment of Borrower without Bank's consent shall be null and void. 7.4 APPLICABLE LAW. This Agreement and all other agreements and instruments required by Bank in connection therewith shall be governed by and construed according to the laws of the State of California. 7.5 SEVERABILITY. Should any one or more provisions of this Agreement be determined to be illegal or unenforceable, all other provisions nevertheless shall be effective. 7.6 INTEGRATION CLAUSE. Except for documents and instruments specifically referenced herein, this Agreement constitutes the entire agreement between Bank and Borrower regarding the Loan and all prior communications verbal or written between Borrower and Bank shall be of no further effect or evidentiary value. 7.7 CONSTRUCTION. The section and subsection headings herein are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 7.8 AMENDMENTS. This Agreement may be amended only in writing signed by all parties hereto. -7- 7.9 COUNTERPARTS. Borrower and Bank may execute one or more counterparts to this Agreement, each of which shall be deemed an original. SECTION 8. SERVICE OF NOTICES 8.1 Any notices or other communications provided for or allowed hereunder shall be effective only when given by one of the following methods and addressed to the respective party at its address given with the signatures at the end of this Agreement and shall be considered to have been validly given: (a) upon delivery, if delivered personally; (b) upon receipt, if mailed, first class postage prepaid, with the United States Postal Service; (c) on the next business day, if sent by overnight courier service of recognized standing; and (d) upon telephoned confirmation of receipt, if telecopied. 8.2 The addresses to which notices or demands are to be given may be changed from time to time by notice delivered as provided above. THIS AGREEMENT is executed on behalf of the parties by duly authorized officers as of the date first above written. UNION BANK By: Mark P. Gilles Title Vice President /s/ Mark P. Gilles -------------------------------------- By: Kelly D. Takahashi Title Vice President -------------------------------------- Address: 350 California Street, 10th floor San Francisco, CA 94104-1402 Attention: Kelly D. Takahashi Telecopier: (415) 705-7111 Telephone: (415) 705-7098 GASONICS INTERNATIONAL CORPORATION By: Terry Gibson Title Chief Financial Officer /S/ Terry R. Gibson ------------------------------------------------------ By: Dave Toole Title President /s/ Dave Toole ------------------------------- Address: 2730 Junction Avenue San Jose, CA 95134 Attention: Jerald P. Shaevitz Telecopier: (408) 325-6691 Telephone: (408) 325-1222 EX-27 5 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENT OF OPERATIONS FOUND ON PAGES 3 AND 4 OF THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS SEP-30-1997 JAN-01-1997 MAR-31-1997 8,615 12,463 36,488 665 25,472 87,703 18,548 5,005 103,608 26,710 0 0 0 605 75,803 103,608 29,592 29,592 16,405 16,405 0 30 16 1,971 690 1,281 0 0 0 1,281 .09 .09
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