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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MAY 2, 1997 COMMISSION FILE NUMBER: 0-26968
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ETEC SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 94-3094580
(I.R.S. EMPLOYER IDENTIFICATION NO.)
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
26460 CORPORATE AVENUE,
HAYWARD, CALIFORNIA 94545
(ADDRESS AND ZIP CODE OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (510) 783-9210
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [_]
21,361,763 shares of Common Stock were outstanding as of May 29, 1997.
This report, including exhibits, consists of 62 pages. The Index of Exhibits
is found on page 17.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<C> <S> <C>
PART I--FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements............................... 3
Consolidated Balance Sheets at April 30, 1997 and July 31, 1996. 3
Consolidated Statements of Income for the three months and nine
months ended April 30, 1997 and 1996........................... 4
Consolidated Statements of Cash Flows for the nine months ended
April 30, 1997 and 1996......................................... 5
Notes to Consolidated Financial Statements...................... 6
Management's Discussion and Analysis of Financial Condition and
Item 2. Results of Operations........................................... 10
PART II--OTHER INFORMATION
Item 1. Legal Proceedings............................................... N/A
Item 2. Changes in Securities........................................... N/A
Item 3. Defaults Upon Senior Securities................................. N/A
Item 4. Submission of Matters to a Vote of Security Holders............. N/A
Item 5. Other Information............................................... N/A
Item 6. Exhibits and Reports on Form 8-K................................ 15
Signature................................................................ 16
</TABLE>
2
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PART I--FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ETEC SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
APRIL 30, JULY 31,
1997 1996
--------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 34,701 $ 44,472
Marketable securities.................................... 46,099 24,153
Accounts receivable, less allowance for doubtful accounts
of $1,073 and $1,102.................................... 61,942 37,316
Inventory................................................ 72,794 52,135
Other current assets..................................... 3,091 3,042
Deferred tax assets...................................... 25,670 24,508
-------- --------
Total current assets................................... 244,297 185,626
Property, plant and equipment, net......................... 34,871 19,381
Other assets............................................... 4,231 3,864
-------- --------
$283,399 $208,871
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt..................... $ 7,500 $ 3,333
Accounts payable......................................... 15,600 14,184
Accrued and other liabilities............................ 67,009 51,084
Taxes payable............................................ 8,568 5,826
-------- --------
Total current liabilities.............................. 98,677 74,427
Long-term debt, less current portion....................... -- 6,667
Deferred gain on sale of asset............................. 2,938 5,571
Other liabilities.......................................... 1,791 6,329
-------- --------
Total liabilities....................................... 103,406 92,994
-------- --------
Commitments and Contingencies
Stockholders' equity:
Preferred Stock, par value $0.01 per share; 10,000,000
shares authorized; none issued and outstanding.......... -- --
Common Stock, par value $0.01 per share; 40,000,000 and
30,000,000 shares authorized; 21,360,695 and 19,610,964
issued and outstanding.................................. 214 196
Warrants................................................. 631 1,096
Additional paid-in capital............................... 193,631 149,858
Cumulative translation adjustments....................... (1,175) 211
Accumulated deficit...................................... (13,308) (35,484)
-------- --------
Total stockholders' equity............................. 179,993 115,877
-------- --------
$283,399 $208,871
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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ETEC SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
APRIL 30, APRIL 30,
-------------------- -------------------
1997 1996 1997 1996
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Revenue:
Products.......................... $ 61,717 $ 33,358 $ 143,428 $ 73,983
Services.......................... 7,984 8,364 24,840 24,052
--------- --------- --------- --------
69,701 41,722 168,268 98,035
--------- --------- --------- --------
Cost of revenue:
Products.......................... 28,827 16,399 68,102 37,606
Services.......................... 6,149 5,875 19,343 16,794
--------- --------- --------- --------
34,976 22,274 87,445 54,400
--------- --------- --------- --------
Gross profit........................ 34,725 19,448 80,823 43,635
--------- --------- --------- --------
Operating expenses:
Research, development and engi-
neering.......................... 9,470 5,152 24,066 11,991
Write-off of in-process technology
acquired......................... 3,874 6,269 3,874 6,269
Selling, general and administra-
tive............................. 8,287 5,749 20,472 14,973
--------- --------- --------- --------
21,631 17,170 48,412 33,233
--------- --------- --------- --------
Income from operations.............. 13,094 2,278 32,411 10,402
Interest expense.................... (287) (338) (797) (1,462)
Other income, net................... 981 543 2,802 2,143
--------- --------- --------- --------
Income before income tax provision
(benefit) and extraordinary item... 13,788 2,483 34,416 11,083
Income tax provision (benefit)...... 6,182 (13,213) 12,240 (11,063)
--------- --------- --------- --------
Income before extraordinary item.... 7,606 15,696 22,176 22,146
Extraordinary loss on early extin-
guishment of debt.................. -- -- -- (300)
--------- --------- --------- --------
Net income.......................... 7,606 15,696 22,176 21,846
Accretion of mandatorily redeemable
convertible preferred stock........ -- -- -- 1,078
--------- --------- --------- --------
Net income attributable to Common
Stockholders....................... $ 7,606 $ 15,696 $ 22,176 $ 20,768
========= ========= ========= ========
Per share data:
Income before extraordinary item.. $ 0.34 $ 0.80 $ 1.02 $ 1.25
Extraordinary loss................ -- -- -- (0.02)
========= ========= ========= ========
Net income........................ $ 0.34 $ 0.80 $ 1.02 $ 1.23
========= ========= ========= ========
Number of weighted average common
equivalent shares used in per share
calculation........................ 22,498 19,540 21,807 17,750
========= ========= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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ETEC SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
APRIL 30,
------------------
1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net income................................................. $ 22,176 $ 21,846
Adjustments to reconcile net income to net cash used in op-
erating activities:
Extraordinary loss on early extinguishment of debt....... -- 300
Write-off of in-process technology acquired.............. 3,874 6,269
Depreciation and amortization............................ 2,996 2,165
Deferred taxes........................................... (1,162) (15,401)
Changes in assets and liabilities:
Accounts receivable...................................... (12,021) (19,512)
Inventory................................................ (21,986) (17,473)
Other assets............................................. (207) 1,216
Accounts payable......................................... 2,683 6,786
Accrued and other liabilities............................ 18,628 9,285
-------- --------
Net cash provided by (used in) operating activities.... 14,981 (4,519)
-------- --------
Cash flows from investing activities:
Purchases of marketable securities, net.................. (21,946) (12,965)
Capital expenditures for property and equipment, net..... (18,219) (7,947)
Loan to Polyscan, Inc.................................... -- (637)
Payment for purchase of Ebetech.......................... (4,182) --
New building construction costs.......................... (5,000) --
Proceeds from sale of plant.............................. 5,000 --
-------- --------
Net cash used in investing activities.................. (44,347) (21,549)
-------- --------
Cash flows from financing activities:
Repayment of debt and capital leases..................... (2,742) (13,099)
(Repayment to) financing from intermediary............... (13,842) 3,497
Repurchase of warrants in connection with building fi-
nancing................................................. (2,633) --
Issuance of notes receivable to stockholders............. (200) --
Proceeds from issuance of Common Stock................... 40,521 40,884
-------- --------
Net cash provided by financing activities.............. 21,104 31,282
-------- --------
Effect of exchange rate changes on cash.................... (1,509) (821)
-------- --------
Net change in cash and cash equivalents.................... (9,771) 4,393
Cash and cash equivalents at the beginning of the period... 44,472 23,638
-------- --------
Cash and cash equivalents at the end of the period......... $ 34,701 $ 28,031
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest................... $ 727 $ 1,552
======== ========
Cash paid during the period for income taxes............... $ 7,831 $ 2,513
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Acquisition of substantially all assets and certain
liabilities of Polyscan, Inc. in exchange for 350,000
shares of Common Stock ................................... -- $ 3,500
======== ========
Conversion of mandatorily redeemable convertible preferred
stock to Common Stock..................................... -- $ 77,475
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
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ETEC SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION
In the opinion of the management of Etec Systems, Inc. (the "Company"), the
unaudited consolidated interim financial statements included herein have been
prepared on the same basis as the July 31, 1996 audited consolidated financial
statements and include all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the interim period results.
The results of operations for current interim periods are not necessarily
indicative of results to be expected for the current year or any other period.
These consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto for the fiscal
year ended July 31, 1996 included in the Company's Annual Report on Form 10-K
(File No. 0-26968). The July 31, 1996 balance sheet included herein was
derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles.
For the purposes of presentation, the Company has indicated its interim
fiscal periods as ending April 30, 1997 and 1996. As the Company's annual
fiscal period is accounted for on a 52-53 week year, the interim period
financial statements included herein represent results for the three- and
nine-month periods ended May 2, 1997 and April 26, 1996.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share." This
statement is effective for the Company's fiscal year ending July 31, 1997. The
Statement redefines earnings per share under generally accepted accounting
principles. Under the new standard, primary earnings per share is replaced by
basic earnings per share and fully diluted earnings per share is replaced by
diluted earnings per share. If the Company had adopted this Statement as of
the beginning of fiscal 1996, earnings per share for the three- and nine-month
periods ended April 30, 1997 and April 30, 1996, respectively, would have been
as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
APRIL 30, APRIL 30,
------------------- ------------------
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Income from operations before ex-
traordinary loss.................... $ 0.36 $ 0.88 $ 1.08 $ 1.39
========= ========= ======== =========
Extraordinary loss................... $ -- $ -- $ -- $ (0.02)
========= ========= ======== =========
Net income........................... $ 0.36 $ 0.88 $ 1.08 $ 1.37
========= ========= ======== =========
DILUTED EARNINGS PER SHARE
Income from operations before extraor-
dinary loss........................... $ 0.34 $ 0.80 $ 1.02 $ 1.25
========= ========= ======== =========
Extraordinary loss..................... $ -- $ -- $ -- $ (0.02)
========= ========= ======== =========
Net income............................. $ 0.34 $ 0.80 $ 1.02 $ 1.23
========= ========= ======== =========
</TABLE>
6
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ETEC SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CAPITALIZATION OF INTERNAL USE SOFTWARE
The Company capitalizes certain costs related to the purchase of software
for internal use and its implementation which include purchased software,
consulting fees, and use of certain specified Company resources. As of April
30, 1997, approximately $9.0 million of costs associated with internal use
software had been capitalized and is included in construction in process. The
Company anticipates that it will commence depreciating this asset in the
fourth quarter of fiscal 1997.
NOTE 2--CASH EQUIVALENTS AND MARKETABLE SECURITIES
At April 30, 1997, the fair value of the Company's investments approximated
cost. At April 30, 1997, $28.6 million of investments are included in cash and
cash equivalents on the balance sheet. The investment portfolio at April 30,
1997 is comprised of money market funds, corporate debentures, asset-backed
obligations, U.S. Government agency securities, certificates of deposit,
commercial paper, auction-rate preferred, and municipal obligations.
NOTE 3--CERTAIN BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
APRIL 30, 1997 JULY 31, 1996
-------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Accounts receivable:
Accounts receivable........................... $43,690 $32,638
Financed receivables*......................... 18,252 4,678
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$61,942 $37,316
======= =======
Inventory:
Purchased parts............................... $21,396 $16,861
Work-in-process............................... 40,298 25,380
Spares........................................ 11,100 9,894
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$72,794 $52,135
======= =======
</TABLE>
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* Included in accrued and other liabilities are the amounts $18,252 and
$4,678, respectively, which are due to a trading partner as a result of
third-party financing arrangements.
NOTE 4--LINE OF CREDIT AMENDMENT
In April 1997, the Company entered into an amendment to its existing credit
agreement with ABN-AMRO Bank, N.V. to change its $20.0 million revolving line
of credit expiring May 31, 1998 to a $50.0 million revolving line of credit
expiring May 31, 1999. No amounts have been drawn under this line of credit.
NOTE 5--INCOME TAXES
The Company recorded a provision for income taxes for the nine months ended
April 30, 1997 of $12.2 million. For the nine months ended April 30, 1996, the
Company recorded an income tax benefit of $11.1 million. Reflected in the
provisions for the nine months ended April 30, 1997 and 1996, respectively,
are $1.1 million and $15.4 million income tax benefits recorded as a result of
releasing a portion of the valuation allowance previously recorded against the
Company's deferred tax assets. Management's evaluation of the recoverability
of the Company's deferred tax assets is based in part upon the current product
backlog and the Company's proven ability to increase manufacturing capacity.
Management has fully reserved deferred tax assets that would be realized, if
at all, more than one year in the future. Because of the uncertainty of
realization, management will continue to evaluate the recoverability of the
Company's deferred tax assets. The Company's provision for income taxes for
the quarter ended April 30, 1997 is below the statutory rate due to the
utilization of net
7
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ETEC SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
operating loss carryforwards. The provision for income taxes for the nine
months ended April 30, 1996 primarily reflects taxes payable by the Company's
foreign subsidiaries.
NOTE 6--STOCKHOLDERS' EQUITY
In December 1996, the Company completed a public offering of 5,029,916
shares of Common Stock, of which 500,000 shares were issued and sold by the
Company and 4,529,916 shares were sold by stockholders. In December 1996, the
underwriters of the public offering exercised their option to purchase an
additional 754,487 shares of Common Stock from the Company. All of these
shares were sold at a price of $33.25 per share before deducting underwriting
discounts and commissions. Net proceeds to the Company from the offering
totaled approximately $39.4 million after deducting estimated offering
expenses. Concurrent with the public offering, Grumman exercised 150,000
warrants at an aggregate price of $255,000.
The Company's Articles of Incorporation were amended on January 30, 1997 to
provide for the issuance of 50,000,000 shares of stock. Such shares include
40,000,000 shares of Common Stock with a par value of $0.01 per share and
10,000,000 shares of Preferred Stock with a par value of $0.01 per share.
On January 15, 1997, the Board of Directors adopted a shareholder rights
plan. Under the plan, the Board of Directors issued rights to acquire Series A
Participating Preferred Stock. The number of shares constituting such series
is equal to the number of shares of authorized Common Stock divided by 100.
The holders of the Series A Participating Preferred Stock would have 100 votes
for each share held by them. Holders of the Series A Participating Preferred
Stock would be entitled to receive, when and as declared by the Board of
Directors of the Registrant, commencing after the close of business on January
31, 1997, a dividend of $1,600 per share. No shares of Series A Participating
Preferred Stock have yet been issued, as the conditions necessary for the
exercise of rights have not yet occurred.
NOTE 7--NET INCOME PER SHARE
Net income per share is computed using the weighted average number of common
and common equivalent shares outstanding for the three- and nine-month periods
ended April 30, 1997 and 1996. Common equivalent shares consist of stock
options and warrants using the treasury stock method except when antidilutive.
NOTE 8--ACQUISITION OF EBETECH
In March 1997, the Company's wholly-owned subsidiary, Etec Systems, Europe,
acquired substantially all of the assets, properties, and business of Ebetech
Electron Beam Technology GmbH from VCB, the Venture Capital Company of Siemens
AG, MRS Technology, Inc. and a group of founding employees in exchange for
$5.1 million. The allocation of the Company's purchase price to tangible and
identifiable intangible assets and liabilities assumed was as follows (in
thousands):
<TABLE>
<S> <C>
Inventory............................................................ $ 368
Other current assets................................................. 328
Other assets......................................................... 674
In-process technology................................................ 3,874
Accounts payable and accrued expenses................................ (128)
------
Total acquisition costs............................................ $5,116
======
</TABLE>
Management's estimate of the value of the in-process technology and the
existing technology was prepared using an income approach methodology which
considered the present value of the cash flows expected to be generated over
an Asset's useful life. The amount allocated to in-process technology of
$3,874 was written off in the quarter ended April 30, 1997 because of the
uncertainty as to realization.
8
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ETEC SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--SUBSEQUENT EVENTS
Included in accrued and other liabilities is a $4.3 million payable to a
nonprofit research and development organization for machinery and equipment
acquired. In the fourth quarter of fiscal 1997, the Company repaid this
liability. The Company also repaid $7.5 million of term debt that was
outstanding at April 30, 1997. No gain or loss was recorded as a result of the
early repayments.
9
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ETEC SYSTEMS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
A. RESULTS OF OPERATIONS
QUARTERS ENDED APRIL 30, 1997 AND APRIL 30, 1996
Revenue. Revenues are primarily comprised of sales of MEBES, CORE and ALTA
systems, accessories and upgrades, and sales of technical support, maintenance
and other services. The Company derives most of its revenues from the sale of
a small number of systems and upgrades and any delay in the recognition of
revenue for a single system or upgrade can have a material adverse effect on
the Company's consolidated results of operations in a particular quarter.
Product revenue increased 85% to $61.7 million from $33.4 million for the
quarters ended April 30, 1997 and 1996, respectively. This increase primarily
reflects the sale of four additional systems, higher average selling prices,
and changes in the product mix.
Service revenue decreased 5% to $8.0 million from $8.4 million for the
quarters ended April 30, 1997 and 1996, respectively.
Gross Profit. The Company's gross profit on product revenue increased 94% to
$32.9 million from $17.0 million for the quarters ended April 30, 1997 and
1996, respectively. The increase in gross profit on product revenue was due to
an increase in product revenue and a higher gross margin on product revenue,
which increased to 53% from 51% for the quarter ended April 30, 1997 compared
to the quarter ended April 30, 1996. The increase in product gross margin is
primarily attributable to generally higher selling prices for the Company's
products.
The Company's gross profit on service revenue decreased 27% to $1.8 million
from $2.5 million for the quarters ended April 30, 1997 and 1996,
respectively. Gross margin on service revenue was 23% and 30% for the quarters
ended April 30, 1997 and 1996, respectively. The decreases in gross profit and
gross margin reflect an investment in service personnel and training to
support the number of systems serviced. The Company expects that such costs
will continue to increase with the result being a further decline in service
margins.
Research, Development and Engineering. Research, development and engineering
expenses, net of third-party funding under cooperative development agreements,
increased 84% to $9.5 million, representing 14% of revenue, from $5.2 million,
representing 12% of revenue, for the quarters ended April 30, 1997 and 1996,
respectively. This increase primarily reflects the Company's increased
commitment to product development. Due to the Company's commitment to product
development, net research, development and engineering expenses are expected
to increase in future periods.
Write-Off of In-Process Technology Acquired. In the third quarter of fiscal
1997, the Company acquired all of the shares of Ebetech Electron Beam
Technology GmbH from VCB, the Venture Capital Company of Siemens AG, MRS
Technology, Inc. and a group of founding employees for $5.1 million. The
amount allocated to in-process technology of $3,874 was written off in the
quarter ended April 30, 1997 because of the uncertainty as to realization.
In the third quarter of fiscal 1996, the Company acquired substantially all
of the assets and assumed certain specified liabilities of Polyscan, Inc. in
exchange for 350,000 shares of the Company's Common Stock. The excess of the
purchase price over the fair value of the net assets of $6.3 million was
allocated to in-process technology acquired that, because of the uncertainty
as to realization, the Company wrote off in the third quarter of fiscal 1996.
10
<PAGE>
Selling, General and Administrative. Selling, general and administrative
expenses increased 44% to $8.3 million, representing 12% of revenue, from $5.7
million, representing 14% of revenue, for the quarters ended April 30, 1997
and 1996, respectively. Selling, general and administrative expenses increased
due to market development fees for increased laser beam system sales in Asia,
increased profit-sharing, the addition of selling, general, and administrative
expenses from the acquisition of Polyscan, Inc., costs associated with being a
public company, and costs associated with an increase in hiring.
Income Tax Provision (Benefit). The Company recorded a provision for income
taxes for the quarter ended April 30, 1997 of $6.2 million and an income tax
benefit for the quarter ended April 30, 1996 of $13.2 million. The Company's
provision for income taxes for the quarter ended April 30, 1997 is below the
statutory rate due to the utilization of net operating loss carryforwards.
NINE MONTHS ENDED APRIL 30, 1997 AND APRIL 30, 1996
Revenue. Product revenue increased 94% to $143.4 million from $74.0 million
for the nine months ended April 30, 1997 and 1996, respectively. This increase
reflects the sale of ten additional systems, higher average selling prices,
changes in product mix, and an increase in the sales of upgrades and
accessories.
Service revenue increased 3% to $24.8 million from $24.1 million for the
nine months ended April 30, 1997 and 1996, respectively. This increase
primarily reflects generally higher service activity caused by an increase in
the number of systems under service contracts.
Gross Profit. The Company's gross profit on product revenue increased 107%
to $75.3 million from $36.4 million for the nine months ended April 30, 1997
and 1996, respectively. The increase in gross profit on product revenue was
due to an increase in product revenue and a higher gross margin on product
revenue, which increased to 53% from 49% for the nine months ended April 30,
1997 compared to the nine months ended April 30, 1996. The increase in product
gross margin is primarily attributable to generally higher selling prices for
the Company's products and an increase in the level of sales of accessories
(which tend to have higher gross margins).
The Company's gross profit on service revenue decreased 24% to $5.5 million
from $7.3 million for the nine months ended April 30, 1997 and 1996,
respectively. Gross margin on service revenue was 22% and 30% for the nine
months ended April 30, 1997 and 1996, respectively. The decreases in gross
profit and gross margin reflect an investment in service personnel and
training to support the number of systems serviced. The Company expects that
such costs will continue to increase with the result being a further decline
in service margins.
Research, Development and Engineering. Research, development and engineering
expenses, net of third-party funding under cooperative development agreements,
increased 101% to $24.1 million, representing 14% of revenue, from $12.0
million, representing 12% of revenue, for the nine months ended April 30, 1997
and 1996, respectively. This increase primarily reflects the Company's
increased commitment to product development. Due to the Company's commitment
to product development, net research, development and engineering expenses are
expected to increase in future periods.
Write-Off of In-Process Technology Acquired. In the third quarter of fiscal
1997, the Company acquired all of the shares of Ebetech Electron Beam
Technology GmbH from VCB, the Venture Capital Company of Siemens AG, MRS
Technology, Inc. and a group of founding employees for $5.1 million. The
amount allocated to in-process technology of $3,874 was written off in the
quarter ended April 30, 1997 because of the uncertainty as to realization.
In the third quarter of fiscal 1996, the Company acquired substantially all
of the assets and assumed certain specified liabilities of Polyscan, Inc. in
exchange for 350,000 shares of the Company's Common Stock. The excess of the
purchase price over the fair value of the net assets of $6.3 million was
allocated to in-process
11
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technology acquired that, because of the uncertainty as to realization, the
Company wrote off in the third quarter of fiscal 1996.
Selling, General and Administrative. Selling, general and administrative
expenses increased 37% to $20.5 million, representing 12% of revenue, from
$15.0 million, representing 15% of revenue, for the nine months ended April
30, 1997 and 1996, respectively. Selling, general and administrative expenses
increased due market development fees for increased laser beam system sales in
Asia, increased profit-sharing, the addition of selling, general, and
administrative expenses from the acquisition of Polyscan, Inc., costs
associated with being a public company, and costs associated with an increase
in hiring.
Income Tax Provision (Benefit). The Company recorded a provision for income
taxes for the nine months ended April 30, 1997 of $12.2 million. For the nine
months ended April 30, 1996, the Company recorded an income tax benefit of
$11.1 million. Reflected in the provisions for the nine months ended April 30,
1997 and 1996, respectively, are $1.1 million and $15.4 million income tax
benefits recorded as a result of releasing a portion of the valuation
allowance previously recorded against the Company's deferred tax assets.
Management's evaluation of the recoverability of the Company's deferred tax
assets is based in part upon the current product backlog and the Company's
proven ability to increase manufacturing capacity. Management has fully
reserved deferred tax assets that would be realized, if at all, more than one
year in the future. Because of the uncertainty of realization, management will
continue to evaluate the recoverability of the Company's deferred tax assets.
The Company's provision for income taxes for the quarter ended April 30, 1997
is below the statutory rate due to the utilization of net operating loss
carryforwards. The provision for income taxes for the nine months ended April
30, 1996 primarily reflects taxes payable by the Company's foreign
subsidiaries.
Extraordinary Loss on Early Extinguishment of Debt. During the nine months
ended April 30, 1996, the Company paid $5.0 million of its 10.65% senior
secured notes before their due dates. As a result of this repayment, the
Company recorded an extraordinary loss of approximately $300,000 related to
unamortized debt issuance costs.
B. LIQUIDITY AND CAPITAL RESOURCES
Since the beginning of fiscal 1994, the Company has financed its cash needs
primarily with cash from operations, approximately $16.0 in net receipts from
the sale and leaseback of the Company's Hayward, California facilities in
fiscal 1997 and fiscal 1995, $98.1 million from the Company's IPO and
additional public offerings in fiscal 1996 and fiscal 1997, and $10.0 million
from a private placement with Intel Corporation in fiscal 1996.
The Company has spent approximately $18.2 million for net capital
expenditures in the first nine months of fiscal 1997 primarily to purchase
testing and other equipment, upgrade manufacturing facilities, and implement
an enterprise-wide business software system.
The Company has budgeted a total of approximately $34.0 million for capital
expenditures in fiscal 1997, approximately $10.0 million of which the Company
has financed or intends to finance through operating leases.
As of April 30, 1997, the Company had cash and cash equivalents and
marketable securities, totaling $80.8 million. The Company believes that
existing cash balances (including cash equivalents and marketable securities),
together with existing sources of liquidity, including cash from operations
and amounts available under the existing revolving line of credit, will
provide adequate cash to fund its operations for at least the next twelve
months.
In the fourth quarter of fiscal 1997, the Company repaid $7.5 million of
term debt and a $4.3 million liability to a nonprofit research and development
organization for machinery and equipment acquired.
12
<PAGE>
CASH FLOWS FROM OPERATIONS
Net cash provided by operating activities for the nine months ended April 30,
1997 was $15.0 million, compared to net cash used in operating activities of
$4.5 million for the corresponding period in 1996.
Cash flows from operating activities for the nine months ended April 30, 1997
primarily reflected net income of $22.2 million; adjusted by noncash items
(which include $1.2 million of deferred taxes, partially offset by depreciation
and by amortization of $3.0 million and the write-off of in-process technology
acquired of $3.9 million); and increases in accounts receivable of $12.0
million, inventory of $22.0 million, accounts payable of $2.7 million and
accrued and other liabilities of $18.4 million.
Cash flows from operating activities for the nine months ended April 30, 1996
primarily reflected net income of $21.8 million; adjusted by noncash items
(which include $15.4 million of deferred taxes, partially offset by
depreciation and amortization of $2.2 million and the write-off of in-process
technology acquired of $6.3 million); and increases in accounts receivable of
$19.5 million, inventory of $17.5 million, accounts payable of $6.8 million,
and accrued and other liabilities of $9.3 million.
Fluctuations in accounts receivable, inventory, and current liabilities for
the above periods were caused primarily by the timing of system orders, the
timing of shipments, customer requested delivery dates, and the timing of
payments to vendors. The significant increase in inventory from July 31, 1996
to April 30, 1997 was due primarily to increases in material purchases and
work-in-process to meet scheduled production.
Prior to the shipment of a system, the Company receives payment for a portion
of the system sales price. Such payments are generally received when the
Company receives an order and at various agreed-upon times while the system is
being manufactured. As a result, the amount of customer advances fluctuates
based on the number of systems that are on order and each system's status
within the manufacturing cycle. Advances from customers decreased to $14.4
million at April 30, 1997 from $24.1 million at July 31, 1996; the decreases
are included in accrued and other liabilities on the Company's balance sheet.
FINANCING AND INVESTING ACTIVITIES
Net cash used in investing activities for the nine months ended April 30,
1997 was $44.3 million compared to $21.6 million for the nine months ended
April 30, 1996. Cash flows from investing activities for the nine months ended
April 30, 1997 reflected net purchases of marketable securities of $22.0
million, net capital expenditures of $18.2 million, and payment for the
purchase of Ebetech of $4.2 million. Cash flows from investing activities for
the nine months ended April 30, 1996 primarily reflected net purchases of
marketable securities of $13.0 million and net capital expenditures of $7.9
million.
Net cash provided by financing activities for the nine months ended April 30,
1997 was $21.4 million compared to the nine months ended April 30, 1996 of
$31.3 million. The decrease in net cash provided by financing activities is
primarily attributable to the repayment of intermediary financing.
C. CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Statements in this report which are prefaced with words such as "expects,"
"anticipates," "believes" and similar words and other statements of similar
sense, are forward-looking statements. These statements are based on the
Company's current expectations and estimates as to prospective events and
circumstances which may or may not be within the Company's control and as to
which there can be no firm assurances given. These forward-looking statements,
like any other forward-looking statements, involve risks and uncertainties that
could cause actual results to differ materially from those projected or
anticipated.
In addition to other risks and uncertainties that may be described elsewhere
in this document, certain risks and uncertainties that could affect the
Company's financial results include: potential delays in shipments; cyclicity
of the maskmaking and semiconductor equipment industries; the capital spending
decisions of
13
<PAGE>
customers or potential customers; the development, market acceptance and
successful production of new products and enhancements; competitors' product
introductions and enhancements; risks associated with acquisitions, including
the Company's ability to successfully integrate acquired businesses, products,
or technologies; risks associated with stock market volatility; risks
associated with a reduction in cooperative development funding; and risks
associated with foreign operations, such as foreign exchange risk, import-
export controls, and political risks.
14
<PAGE>
ETEC SYSTEMS, INC.
PART II--OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.1 Share Purchase Agreement dated March 13/14, 1997 by and between
Registrant, SXR-2 Vermogensverwaltungsgesellschaft mbH, Ebetech
Electron Beam Technology Vertriebs GmbH and the Selling
Shareholders named therein
10.2 First Amendment to Credit Agreement dated April 23, 1997 by and
between Registrant, the Lenders named therein, and ABN AMRO Bank
N.V. amending Credit Agreement dated May 24, 1996
11 Statement of computation of earnings per common share and
equivalents
27 Financial Data Schedule
</TABLE>
See Exhibit Index on page 17.
(b) Reports on Form 8-K.
The Company filed a current report on Form 8-K on March 25, 1997 reporting
the acquisition of Ebetech Electron-Beam Technology GmbH.
15
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on June 12, 1997.
ETEC SYSTEMS, INC.(Registrant)
/s/ Edward B. Quigley
By:__________________________________
Edward B. Quigley Controller,
Chief Accounting Officer
16
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----
<C> <S> <C>
10.1 Share Purchase Agreement dated March 13/14, 1997 by and
between Registrant, SXR-2 Vermogensverwaltungsgesellschaft
mbH, Ebetech Electron-Beam Technology Vertriebs GmbH and
the Selling Shareholders named therein 18
10.2 First Amendment to Credit Agreement dated April 23, 1997 by
and between Registrant, the Lenders named therein, and ABN
AMRO Bank N.V. amending Credit Agreement dated May 24, 1996 48
11 Statement of computation of earnings per common share and
equivalents 61
27 Financial Data Schedule 62
</TABLE>
17
<PAGE>
EXHIBIT 10.1
SHARE PURCHASE AGREEMENT
Among
ETEC SYSTEMS Inc.,
SXR-2 Vermogensverwaltungsgesellschaft mbH,
Ebetech Electron Beam Technology Vertriebs GmbH
and
THE SELLING SHAREHOLDERS NAMED HEREIN
March 13/14, 1997
<PAGE>
INHALTSVERZEICHNIS
<TABLE>
<CAPTION>
ARTICLE 1
<S> <C> <C>
PURCHASE AND SALE............................1
1.1 Purchase and Sale of Shares..................................1
ARTICLE 2
CLOSING.................................2
2.1 Closing Date.................................................2
2.2 Transfer of Shares and Term Debt.............................2
2.3 Additional Payment...........................................2
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS................2
3.1 Organization.................................................3
3.2 Authority....................................................3
3.3 Capital Structure............................................3
3.4 Financial Statements.........................................4
3.5 Business Changes.............................................5
3.6 Properties...................................................6
3.7 Accounts Receivable; Notes Receivable........................7
3.8 Taxes........................................................7
3.9 Compliance with Law..........................................8
3.10 Litigation...................................................8
3.11 Contracts....................................................9
3.12 Operating Leases............................................10
3.13 No Default..................................................10
3.14 Business and Customers......................................10
3.15 Inventories and Work in Progress............................10
3.16 Proprietary Rights..........................................11
3.17 CE Mark Certification.......................................12
3.18 Insurance...................................................12
3.19 Bank Accounts...............................................13
3.20 Brokers or Finders..........................................13
3.21 Related Parties.............................................13
3.22 Certain Advances............................................13
3.23 Employee Benefit Plans......................................14
3.24 Underlying Documents........................................14
3.25 Full Disclosure.............................................14
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF ETEC AND ETEC SUB..........14
4.1 Organization................................................14
4.2 Authority...................................................14
4.3 Brokers or Finders..........................................15
4.4 Full Disclosure.............................................15
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARTICLE 5
<S> <C> <C>
COVENANTS RELATING TO CONDUCT OF BUSINESS...............16
5.1 Conduct of Business in Normal Course........................16
5.2 Preservation of Business and Relationships..................16
5.3 Maintenance of Insurance....................................16
5.4 Employees and Compensation..................................16
5.5 Dividends; Changes in Stock.................................16
5.6 Issuance of Securities......................................17
5.7 Governing Documents.........................................17
5.8 No Other Bids...............................................17
5.9 No Acquisitions.............................................17
5.10 No Dispositions.............................................17
5.11 Indebtedness................................................17
ARTICLE 6
ADDITIONAL AGREEMENTS.........................17
6.1 Access to Information.......................................17
6.2 Legal Conditions............................................18
6.3 Good Faith..................................................18
ARTICLE 7
CONDITIONS PRECEDENT..........................18
7.1 Conditions to Obligations of Etec, Etec Sub and Sellers.....18
(a) Government Approvals.................................18
(b) Third-Party Approvals................................18
(c) Legal Action.........................................19
7.2 Conditions to Obligations of Etec and Etec Sub .............19
(a) Representations and Warranties.......................19
(b) Performance of Obligations...........................19
(c) No Material Adverse Change...........................19
(d) Patents..............................................19
7.3 Conditions to Obligations of Sellers........................19
(a) Representations and Warranties.......................19
(b) Performance of Obligations of Etec and Etec Sub......20
ARTICLE 8
INDEMNIFICATION............................20
8.1 Indemnification by Sellers..................................20
8.4 Indemnification by Etec.....................................21
ARTICLE 9
PAYMENT OF EXPENSES..........................22
ARTICLE 10
TERMINATION, AMENDMENT AND WAIVER...................22
10.1 Termination.................................................22
10.2 Amendment...................................................22
10.3 Extension; Waiver...........................................22
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARTICLE 11
<S> <C> <C>
GENERAL................................23
11.1 Notices.....................................................23
11.2 Announcements...............................................23
11.3 Headings....................................................23
11.4 Counterparts................................................23
11.5 Binding Nature..............................................24
11.6 Schedules...................................................24
11.7 Applicable Law..............................................24
</TABLE>
<PAGE>
SHARE PURCHASE AGREEMENT
THIS SHARE PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of the 14th day of March, 1997, by and among ETEC SYSTEMS. INC., a
Nevada corporation ("Etec") and SXR-2 Vermogensverwaltungsgesellschaft mbH, a
wholly-owned subsidiary of Etec, (in the future: ETEC SYSTEMS EUROPE GmbH) , a
company organized under the laws of the Federal Republic of Germany ("Etec
Sub"), on the one hand, and PCB VENTURE CAPITAL BETEILIGUNGSGESELLSCHAFT mbH,
MUNICH, A corporation organized under the laws of the Federal Republic of
Germany ("VCB"), MRS TECHNOLOGY INC., a Massachusetts corporation ("MRS"),
URSULA FAZEKAS, an individual, DR. MATTHIAS BRUNNER, an individual, DR. RALF
SCHMID, an individual, THOMAS SCHWEDES, an individual, VOLKER DAIKER, an
individual, (each individually a "Seller" and collectively "Sellers"), and, as
to the provisions of Articles 5 and 6 hereof only, EBETECH ELECTRON BEAM
TECHNOLOGY VERTRIEBS GmbH, a corporation organized under the laws of the Federal
Republic of Germany ("Ebetech"), on the other hand.
WHEREAS Etec, either directly or through Etec Sub desires to acquire
all of the issued and outstanding shares (the "Shares") of share capital of
Ebetech as listed in Schedule 3.3.(d) in consideration of certain cash payments
as herein provided, all in accordance with the terms hereof.
NOW, THEREFORE, in consideration of the premises and of the mutual
provisions, agreements and covenants herein contained, Etec, Etec Sub Sellers
and Ebetech agree as follows:
ARTICLE 1
PURCHASE AND SALE
1.1 Purchase and Sale of Shares.
---------------------------
(a) Subject to the terms and conditions set forth in this Agreement,
Etec and Etec Sub hereby agree to purchase from Sellers and Sellers hereby agree
to sell, convey, transfer and assign to Etec or Etec Sub, all of the Shares and
all claims of Sellers towards Ebetech in a total amount of DM 1,694,900
(hereinafter referred to as "Term Debt") as listed in Schedule 3.3 (d) . The
Shares shall be sold and conveyed to Etec or Etec Sub free and clear of all
mortgages, liens, pledges, charges, encumbrances, equities, claims, covenants,
conditions or restrictions.
(b) As payment for the transfer of the Shares and the Term Debt to
Etec or Etec Sub, subject to and in accordance with Article 2, Etec or Etec Sub
shall pay to Sellers cash in the sum of Five Million dollars (US$5,000,000)
(hereinafter referred to as "Purchase Price") being allocated as follows:
<PAGE>
aa) US$ 4,008,483.50 for the purchase of the Shares and
bb) US$ 991,516.50 for the purchase of the Term Debt
which shall be paid in accordance with Sections 2.2 and 2.3.
ARTICLE 2
CLOSING
2.1 Closing Date. The Closing under this Agreement (the "Closing")
------------
shall be held on March 14, 1997, unless any condition to Closing has not been
satisfied or waived, in which event the Closing shall be on a date agreed by the
parties as soon as reasonably practicable thereafter. The date on which the
Closing is to be held is herein referred to as the "Closing Date." The Closing
shall be held at LeopoldstraBe 28a, Munich at the offices of the Notary Public
Dr. Karl, at 01.00 P.M. on such date, or at such other time and place as Etec,
Ebetech and Sellers may agree upon in writing.
2.2 Transfer of Shares and Term Debt. Sellers hereby transfer and
--------------------------------
assign and Etec Sub hereby accepts such transfer and assignment of the Term
Debt. At the Closing, Sellers shall transfer and assign the Shares to Etec Sub
by notarial deed. Etec shall at Closing pay cash to Sellers in the amount of the
Purchase Price less Five Hundred Thousand U.S. dollars (US$500,000) being
allocated to Sellers as shown in Schedule 2.2. Such payments shall be made by
wire transfer to any account or accounts which Sellers have designated in
Schedule 2.2.
2.3 Additional Payment. On December 15, 1997, Etec shall pay cash to
------------------
Sellers in the amount of Five Hundred Thousand U.S. dollars (US$500,000) (the
"Holdback Amount"), less any amounts which may then be due to any Etec
Indemnitee pursuant to Article 8 hereof. If on said date there is pending any
unliquidated claim of Etec or Etec Sub under Article 8, Etec shall make such
payment, less a reasonable estimate of the liquidated amount of such claim, and,
upon resolution of such claim, any net balance due Sellers shall be promptly
paid by Etec. All payments made under this section shall be allocated to Sellers
in a pro rata portion (% ownership in Ebetech) as shown in Schedule 3.3 (d) and
shall be made by any method which Sellers may designate in writing.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers hereby each separately represent and warrant to Etec and Etec
Sub as of the date hereof as follows:
2
<PAGE>
3.1 Organization. Ebetech is a corporation duly organized, validly
------------
existing and in good standing under the laws of the Federal Republic of Germany,
and is presently not required to be qualified to conduct business in any other
jurisdiction. Ebetech has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted.
3.2 Authority. Sellers have all requisite power and authority to enter
---------
into this Agreement and, subject to satisfaction of the conditions set forth
herein, to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate or other action (including spousal consents), where applicable, on
the part of Sellers. This Agreement has been duly executed and delivered by
Sellers, and constitutes the valid and binding obligation of Sellers,
enforceable in accordance with its terms, subject to the effect of applicable
bankruptcy, insolvency, reorganization or other similar laws affecting the
rights of creditors and the effect or availability of rules of law governing
specific performance, injunctive relief or other equitable remedies. Provided
the conditions set forth in Article 7 are satisfied, the execution and delivery
of this Agreement do not or will not, and the consummation of the transactions
contemplated hereby will not, conflict with, or result in any violation of or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation under
(a) any provision of the Articles of Incorporation or Bylaws of Ebetech or any
corporate Seller or (b) any material agreement or instrument, permit, franchise,
license, judgment or order, applicable to Ebetech or its respective properties
or assets.
No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority, is required by or with respect to Ebetech or any
Seller in connection with the execution and delivery of this Agreement by
Ebetech or Sellers or the consummation by Ebetech or Sellers of the transactions
contemplated hereby or thereby, except for such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable federal and state securities laws and the laws of any foreign
country. All consents of parties to agreements or contracts with Ebetech
required for the transfer of such contracts or agreements are listed on Schedule
3.2 hereto.
3.3 Capital Structure.
-----------------
(a) The authorized capital of Ebetech is DM 50,000, which consists of
seven (7) shares with the nominal values set forth in Schedule 3.3(d) hereto.
3
<PAGE>
(b) Other than as described in paragraph (a) above, there are no other
outstanding shares or other equity securities of Ebetech and no other options,
warrants, calls, conversion rights, commitments or agreements of any character
to which Ebetech is a party or by which Ebetech may be bound that do or may
obligate Ebetech to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of Ebetech's share capital or securities convertible
into or exchangeable for Ebetech's share capital or that do or may obligate
Ebetech to grant, extend or enter into any such option, warrant, call,
conversion right, commitment or agreement.
(c) Except under the Bylaws, none of the issued and outstanding Shares
are subject to repurchase or redemption. All outstanding shares of Ebetech are
validly issued, fully paid and not subject to preemptive rights of third parties
created by statute or any agreement to which Ebetech is a party or by which
Ebetech may be bound. All outstanding shares of Ebetech have been issued in
compliance with applicable laws.
(d) Schedule 3.3(d) contains complete and accurate lists of, and the
number of shares owned of record by, the holders of outstanding Shares,
including in each case the addresses of such holders and the breakdown of the
Term Debt owned by each Seller. Schedule 3.3(d) is complete and accurate on
Closing Date. Schedule 3.3(d) identifies the vesting schedule, applicable
legends, and repurchase rights or other risks of forfeiture of any outstanding
security of Ebetech.
(e) Schedule 3.3(e) contains a complete and accurate list of each
stock option plan, stock appreciation rights or other equity-related stock
incentive plan of Ebetech.
(f) Except for any restrictions imposed by applicable laws or the
Bylaws or Articles of Association of Ebetech, there is no right of first
refusal, co-sale right, right of participation, right of first offer, option or
other restriction on transfer applicable to any shares of Ebetech.
(g) Except for the Bylaws of Ebetech, neither Ebetech nor Sellers are
a party or subject to any agreement or understanding or voting trust, proxy, or
other agreement or understanding between or among any persons that affects or
relates to the voting or giving of written consent with respect to any
outstanding security of Ebetech, the election of directors, the appointment of
officers or other actions of Ebetech's Board of Directors or the management of
Ebetech.
3.4 Financial Statements. Sellers have furnished to Etec an unaudited
--------------------
statement of income for the five months period ended February 28, 1997 and an
unaudited balance sheet of Ebetech as of February 28, 1997 as shown in Schedule
3.4. The balance sheet at February 28, 1997 is hereinafter referred to as the
"Ebetech Balance Sheet," and all said
4
<PAGE>
financial statements are hereinafter referred to collectively as the "Ebetech
Financial Statements." The Ebetech Financial Statements have been and will be
complete, true and accurate in all material respects and have been prepared in
accordance with German law and generally accepted accounting principles in
Germany ("GAAP") applied on a consistent basis during the periods involved, and
are and will be in accordance with Ebetech's books and records, and fairly
present the financial position of Ebetech and the results of its operations as
of the date and for the periods indicated thereon, subject in the case of the
unaudited portion of the Ebetech Financial Statements to normal year-end audit
adjustments which will not be material and the absence of certain footnote
disclosures. At the date of the Ebetech Balance Sheet (the "Ebetech Balance
Sheet Date") and as of the Closing Date, Ebetech had and will have no
liabilities or obligations, secured or unsecured (whether accrued, absolute,
contingent or otherwise) not reflected on the Ebetech Balance Sheet or the
accompanying notes thereto except for liabilities and obligations as may have
arisen in the ordinary course of business prior to the date of said Balance
Sheet and which, under GAAP, would not have been required to be reflected on
such Balance Sheet and except for liabilities incurred in the ordinary course of
business since the date of said Balance Sheet which are usual and normal in
amount. Since February 28, 1997, there has been no change in Ebetech's
accounting policies and there has been no change in Ebetech's estimates of
contingent liabilities.
3.5 Business Changes. Since February 28, 1997, except as disclosed
----------------
in Schedule 3.5, Ebetech has conducted its business only in the ordinary and
usual course and, without limiting the generality of the foregoing:
(a) There have been no changes in the condition (financial or
otherwise), business, net worth, assets, prospects, properties, employees,
operations, obligations or liabilities of Ebetech which, in the aggregate, have
had or may be reasonably expected to have a materially adverse effect on the
condition, business, net worth, assets, prospects, properties or operations of
Ebetech.
(b) Except for purchase orders for assets, Ebetech has not incurred
additional debt for borrowed money nor incurred any obligation or liability
except in the ordinary and usual course of business and in any event not in
excess of US$15,000 in total.
(c) Ebetech has not declared or made any dividend, payment or other
distribution on or with respect to any share of capital stock of Ebetech.
(d) Ebetech has not sold, assigned, transferred or conveyed, or
committed itself to sell, assign, transfer or convey, any Proprietary Rights (as
defined in Section 3.18).
5
<PAGE>
(e) Ebetech has not adopted or amended any bonus, incentive, profit-
sharing, stock option, stock purchase, pension, retirement, deferred-
compensation, severance, life insurance, medical or other benefit plan,
agreement, trust, fund or arrangement for the benefit of employees of any kind
whatsoever, nor entered into or amended any agreement relating to employment,
services as an independent contractor or consultant, or severance or termination
pay, nor agreed to do any of the foregoing.
3.6 Properties.
----------
(a) The Ebetech Balance Sheet reflects all of the real and personal
property used by Ebetech in its business or otherwise held by Ebetech, except
for (i) property acquired or disposed of in the ordinary and usual course of the
business of Ebetech since the date of such balance sheet, and (ii) real and
personal property not required under GAAP to be reflected thereon. Except as
reflected in the notes to the Ebetech Balance Sheet, Ebetech has good and
marketable title to all assets and properties listed on the Ebetech Balance
Sheet and thereafter acquired, free and clear of any imperfections of title,
lien, claim, encumbrance, restriction, charge or equity of any nature
whatsoever, except for the lien of current taxes not yet delinquent. The fixed
assets described in Schedule 3.6(a) constitute all tangible personal property
(other than inventory) currently used in the business. All of the fixed assets
and properties reflected on the Ebetech Balance Sheet or thereafter acquired are
in sufficient condition and repair for the requirements of the business as
presently conducted by Ebetech.
(b) Schedule 3.6(b) hereto lists of all real property leased by
Ebetech or under option to purchase by Ebetech. All such property leased by
Ebetech is held under valid, subsisting and enforceable leases. To the best
knowledge of Sellers after due inquiry of management of Ebetech, neither real
property leased by Ebetech nor the operations of Ebetech thereon, violate any
applicable material building code, zoning requirement or classification, or
pollution control ordinance or statute relating to the property or to such
operations.
(c) To the best knowledge of Sellers after due inquiry of management
of Ebetech, (i) there are no Hazardous Substances in, under or about the soil,
sediment, surface water or groundwater on, under or around any properties at any
time owned, leased or occupied by Ebetech, (ii) Ebetech has not disposed of any
Hazardous Substances on or about such property, and (iii) Ebetech has not
disposed of any materials at any site being investigated or remediated for
contamination or possible contamination of the environment. "Hazardous
Substances" shall mean any substance regulated or prohibited by any law or
designated by any governmental agency to be hazardous, toxic, radioactive,
regulated medical waste or otherwise a danger to health or the environment.
6
<PAGE>
(d) To the best knowledge of Sellers after due inquiry of the
management of Ebetech, Ebetech has conducted its business in accordance with all
applicable material laws, regulations, orders and other requirements of
governmental authorities relating to Hazardous Substances and the use, storage,
treatment, disposal, transport, generation, release and exposure of others to
Hazardous Substances. Ebetech has not received any notice of any investigation,
claim or proceeding against Ebetech relating to Hazardous Substances and Sellers
after due inquiry of management of Ebetech are not aware of any fact or
circumstance which could involve Ebetech in any environmental litigation,
proceeding, investigation or claim or impose any environmental liability upon
Ebetech.
3.7 Accounts Receivable; Notes Receivable. Schedule 3.7 contains a
-------------------------------------
summary of the accounts receivable of Ebetech as of February 28, 1997, together
with an accurate aging of such accounts receivable. The accounts receivable
arose out of the bona fide furnishing of goods and services, each in the
operation of the business of Ebetech, and require no additional performance by
Ebetech to render them valid. Except as set forth on Schedule 3.7, the notes
receivable are obligations of current customers of Ebetech, whether on an open
account or cash on delivery basis, and there are no disputes between Ebetech and
any obligor under such note receivable with respect to the amount owing or the
payment terms thereunder. Sellers have provided Etec with accurate information
concerning amounts and aging of accounts receivable and with an accurate
customer list of Ebetech. Sellers have no knowledge of any non-collectability of
such amounts at present.
3.8 Taxes.
-----
(a) The Ebetech Balance Sheet contains sufficient reserves for all tax
obligations of Ebetech at February 28, 1997, independent of whether the
obligations are existent or known at the date of the preparation of the balance
sheet. Tax returns other than Corporate, Trade and Net Asset Tax, have been
properly made and filed on time. Ebetech effected no hidden profit distribution
prior to the Closing Date.
(b) Additional tax payments and tax refunds relating to the period
before the Closing Date which arise ex post facto (e.g. after a tax audit), will
belong to the Sellers and Sellers shall indemnify Etec Sub for any such tax
payments. To the extent that reserves for such tax payments are shown in the
Ebetech Balance Sheet or as long as they are based on a mere time displacement,
or if the Ebetech Balance Sheet shows unused reserves, such tax payments will
not cause an obligation for indemnification.
Sellers shall indemnify Etec Sub for all disadvantages resulting from
the fact that, contrary to Section 3.8 (a),
7
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tax returns of Ebetech have not properly been made and filed on time.
Furthermore, Sellers shall indemnify Etec Sub for all additional taxes (e.g.
corporate, trade and capital withholding tax) resulting from a hidden profit
distribution contrary to Section 3.8 (a).
Etec Sub will ensure that Ebetech, and Ebetech itself assures that it
will give Sellers and their advisers, being obliged to secrecy according to
professional rules, the opportunity to participate in tax field audits which
covers the term prior to the Closing Date. Etec Sub and Ebetech ensure that
Sellers will be informed immediately about the announcement or the beginning of
such tax field audits. Failing an agreement on the results of the tax field
audit, Etec Sub assures that Ebetech will enter an appeal against the respective
tax assessment and, if necessary, will take court actions according to the
directives of Sellers. Costs of such appeals and court actions will be borne by
Sellers, if the case is lost by Ebetech.
Indemnification obligations of Sellers under this Section 3.8 arise
only if Etec Sub and Ebetech have fulfilled their obligations under Section 3.8
(b).
Schedule 3.8 (statement of KPMG Deutsche Treuhand-Gesellschaft dated
March 7, 1997) contains further information on Ebetech's tax situation.
3.9 Compliance with Law. According to the best knowledge of Sellers
-------------------
after due inquiry of the management of Ebetech, all material licenses,
franchises, permits, clearances, consents, certificates and other evidences of
authority of Ebetech which are necessary to the conduct of Ebetech's business
("Permits") are in full force and effect and Ebetech is not in violation of any
Permit in any material respect. Except for possible exceptions, the curing or
non-curing of which would not have a material adverse effect on the condition
(financial or otherwise) , business, net worth, assets, prospects, properties or
operations of Ebetech, the business of Ebetech has been conducted in accordance
with all applicable laws, regulations, orders and other requirements of
governmental authorities.
3.10 Litigation. Except as disclosed in Schedule 3.10, there is no
----------
claim, dispute, action, proceeding, notice, order, suit, appeal or
investigation, at law or in equity, pending against Ebetech, or involving any of
its assets or properties, before any court, agency, authority, arbitration panel
or other tribunal (other than those, if any, with respect to which service of
process or similar notice has not yet been made on Ebetech), and to the best
knowledge of Sellers after due inquiry of management of Ebetech, none have been
threatened. Sellers after due inquiry of management of Ebetech are not aware of
any facts which, if known to shareholders, customers, governmental authorities
or other persons, would result in any such claim, dispute, action,
8
<PAGE>
proceeding, suit or appeal or investigation which would have a material adverse
effect on the condition (financial or otherwise), business, net worth, assets,
prospects. properties or operations of Ebetech. Ebetech is not subject to any
order, writ, injunction or decree of any court, agency, authority, arbitration
panel or other tribunal, nor is it in default with respect to any notice, order,
writ, injunction or decree.
3.11 Contracts. Schedule 3.11 hereto lists each executory contract and
---------
agreement in the following categories to which Ebetech is a party, or by which
it is bound in any respect,
(a) agreements for the purchase, sale, lease or other disposition of
equipment, goods, materials, research and development, supplies, studies or
capital assets, or for the performance of services, not in the ordinary course
of business;
(b) contracts or agreements for the joint performance of work or
services, and all other joint venture agreements;
(c) management or employment contracts, consulting contracts,
collective bargaining contracts, termination and severance agreements, including
the terms of any oral agreements with employees;
(d) notes, mortgages, deeds of trust, loan agreements, security
guarantees, debentures, indentures, credit agreements and other evidences of
indebtedness;
(e) pension, retirement, profit-sharing, deferred compensation, bonus,
incentive, life insurance, hospitalization or other employee benefit plans or
arrangements (including, without limitation, any contracts or agreements with
trustees, insurance companies or others relating to any such employee benefit
plan or arrangement);
(f) stock option, stock purchase, warrant, repurchase or other
contracts or agreements relating to any share capital of Ebetech;
(g) contracts or agreements with agents, brokers, consignees, sale
representatives or distributors;
(h) contracts or agreements with any director, officer, employee,
consultant or shareholder;
(i) powers of attorney or similar authorizations granted by Ebetech to
third parties;
(j) licenses, sublicenses, royalty agreements and other contracts or
agreements to which Ebetech is a party, or otherwise subject, relating to
technical assistance or to Proprietary Rights as defined below; and
(k) other material contracts.
Ebetech has not entered into any contract or agreement containing
covenants limiting the right of Ebetech to conduct or carry out any business or
any line of business in any part of the world or to compete in any business or
with any person. As used in this Agreement, the terms "contract" and "agreement"
include every contract, agreement, commitment, understanding and promise,
whether written or oral.
9
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3.12 Operating Leases. Schedule 3.12 lists each operating lease under
----------------
which Ebetech leases assets.
3.13 No Default.
----------
(a) Each of the contracts, agreements or other instruments referred to
in Sections 3.11 and 3.12 of this Agreement and each of the standard customer
agreements or contracts of Ebetech is a legal, binding and enforceable
obligation by or against Ebetech, subject to the effect of applicable
bankruptcy, insolvency, reorganization, moratorium or other similar applicable
laws affecting the rights of creditors and the effect or availability of rules
of law governing specific performance, injunctive relief or other equitable
remedies (regardless of whether any such remedy is considered in a proceeding at
law or in equity) . To the best knowledge of Sellers, no party with whom Ebetech
has an agreement or contract is in default thereunder or has breached any terms
or provisions thereof which is material to the conduct of Ebetech's business.
(b) Ebetech has performed, or is now performing, the obligations of,
and Ebetech is not in material default (or would by the lapse of time and/or the
giving of notice be in material default) in respect of, any contract, agreement
or commitment binding upon it or its assets or properties and material to the
conduct of its business. No third party has raised any claim, dispute or
controversy with respect to any of the executory contracts of Ebetech, nor has
Ebetech received notice or warning of alleged nonperformance, delay in delivery
or other noncompliance by Ebetech with respect to its obligations under any of
those contracts, nor are there any facts which exist indicating that any of
those contracts may be totally or partially terminated or suspended by the other
parties thereto.
3.14 Business and Customers. Schedule 3.14 hereto lists of all
----------------------
Ebetech's customers from whom more than US$10,000 in revenues were received in
the period of five months ended February 28, 1997. Sellers after due inquiry of
management of Ebetech do not have knowledge of any circumstances likely to
result in termination or failure to renew customer contracts or the return of
equipment sold, the loss of which in the aggregate would have a material adverse
effect on the revenues or business of Ebetech.
3.15 Inventories and Work in Progress. The inventories (including work
--------------------------------
in progress) of Ebetech consist of items of a quality and quantity usable and
salable in the normal course of the business. A summary of inventory on hand as
of February 28, 1997 is attached hereto as Schedule 3.15. All items included in
such inventories are owned by Ebetech unless bought under usual retention of
title clauses or security provisions. No items included in the inventories have
been pledged as collateral or are held by Ebetech on consignment from others.
All the inventories reflected on the balance sheets included in the Ebetech
Financial
10
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Statements and on the books of Ebetech are based on quantities determined as of
February 28, 1997 based on cycle counts, and are valued in the Ebetech Financial
Statements at the lower of average cost or market and on a basis consistent with
that of prior periods.
3.16 Proprietary Rights.
------------------
(a) Schedule 3.16(a) hereto is a complete list of all computer
software, software programs, patents and applications for patents, trademarks,
trade names, service marks, and copyrights, and applications therefor, owned or
used by Ebetech or in which it has any rights or licenses, except for software
used by Ebetech and generally available on the commercial market. Sellers have
provided Etec with a complete and accurate description of all agreements of
Ebetech with each officer, employee or consultant of Ebetech providing Ebetech
with title and ownership to patents, patent applications, trade secrets and
inventions developed or used by Ebetech in its business. All of such agreements
so described are valid, enforceable and legally binding, subject to the effect
or availability of rules of law governing specific performance, injunctive
relief or other equitable remedies (regardless of whether any such remedy is
considered in a proceeding at law or in equity).
(b) Ebetech owns or possesses licenses or other rights to use all
computer software, software programs, patents, patent applications, trademarks,
trademark applications, trade secrets, service marks, trade names, copyrights,
inventions, drawings, designs, customer lists, proprietary know-how or
information, or other rights with respect thereto (collectively referred to as
"Proprietary Rights") , used in the business of Ebetech, including, but not
limited to all patents necessary to the design and development of the electronic
beam based electrical test systems for active matrix liquid crystal displays and
other flat panel displays.
(c) To the best knowledge of the Sellers after due inquiry of the
management of Ebetech, the operations of Ebetech do not conflict with or
infringe, and no one has asserted to Ebetech that such operations conflict with
or infringe on any Proprietary Rights, owned, possessed or used by any third
party. There are no claims, disputes, actions, proceedings, suits or appeals
pending against Ebetech with respect to any Proprietary Rights (other than
those, if any, with respect to which service of process or similar notice may
not yet have been made on Ebetech), and to the best knowledge of Sellers,
Ebetech and the management of Ebetech none has been threatened against Ebetech.
To the best knowledge of Sellers after due inquiry of the management of Ebetech
there are no facts or alleged facts which would reasonably serve as a basis for
any claim that Ebetech does not have the right to use, free of any rights or
claims of others, all Proprietary Rights in the development, manufacture, use,
sale or other disposition of any or all products or services presently being
used, furnished or sold
11
<PAGE>
in the conduct of the business of Ebetech as it has been and is now being
conducted.
(d) Schedule 3.16(d) contains a complete and accurate list of any
proceedings before any patent or trademark authority to which Ebetech is a
party, a description of the subject matter of each proceeding, and the current
status of each proceeding, including, without limitation, interferences,
priority contests, opposition, and protests. Such list includes any pending
applications for reissue or reexamination of a patent and any pending transfer
of a patent. Ebetech has the exclusive right to file, prosecute and maintain any
such applications for patents, copyrights or trademarks and the patents and
registrations that issue therefrom.
(e) To the best knowledge of Sellers after due inquiry of the
management of Ebetech, all patents and registered trademarks, service marks, and
other company, product or service identifiers and registered copyrights held by
Ebetech are valid and enforceable.
(f) Ebetech has taken all reasonable measures to maintain the
confidentiality of the Proprietary Rights.
(g) To the best of Sellers' knowledge after due inquiry of management,
no employee of Ebetech is in violation of any term of any employment contract,
proprietary information and inventions agreement, non-competition agreement, or
any other contract or agreement relating to the relationship of any such
employee with Ebetech or any previous employer.
3.17 CE Mark Certification. All Ebetech products currently comply with
---------------------
the European Union regulations relating to electromagnetic fields, electrical
power and human exposure to laser certification that became effective in January
1997 and all Ebetech products carry the Certificate Europa mark certification.
3.18 Insurance. Schedule 3.18 hereto lists all policies of insurance to
---------
which Ebetech is a party or is a beneficiary or named insured. Ebetech has in
full force and effect, with all premiums due thereon paid, the policies of
insurance set forth therein. All the insurable properties of Ebetech are insured
in amounts and coverage and against risks and losses which are adequate and
usually insured against by persons holding or operating similar properties in
similar businesses. There were no claims in excess of US$5,000 asserted under
any of the insurance policies of Ebetech in respect of all motor vehicle,
general liability, professional liability, errors and omissions, and worker's
compensation, and medical claims for the period from September 1, 1996 to the
date of this Agreement.
Sellers advise Etec and Etec Sub that insurance policies might be
terminated with reasonable notice by insurance
12
<PAGE>
companies of Ebetech due to the fact that the Shares are sold and transferred to
Etec Sub.
3.19 Bank Accounts. Sellers and Ebetech have furnished to Etec a true
-------------
and correct list setting forth the names and addresses of all banks, other
institutions and state governmental departments at which Ebetech has accounts,
deposits or safety deposit boxes, or special deposits required to be held by
such state governmental departments with the nature of such account and the
names of all persons authorized to draw on or give instructions with respect to
such accounts or deposits, or to have access thereto, and the names and
addresses of all persons, if any, holding a power-of-attorney on behalf of
Ebetech. All cash in such accounts is held in demand or short term time deposits
and is not subject to any restriction or limitation as to withdrawal. On the
Closing Date, Ebetech has an aggregate cash balance in excess of its liabilities
(other than the Term Debt) by at least DM 350,000.
3.20 Brokers or Finders. Except for Pierre Fougere of Fougere Conseil,
------------------
Sellers have not, and Ebetech has not dealt with any broker or finder in
connection with the transactions contemplated by this Agreement. Except for
obligations to Pierre Fougere of Fougere Conseil, Sellers have not incurred, and
Ebetech has not incurred, and neither shall incur, directly or indirectly, any
liability for any brokerage or finders' fees or agents' commissions or any
similar charges in connection with this Agreement or any transaction
contemplated hereby. All fees and expenses of Pierre Fougere of Fougere Conseil
are obligations of the Sellers and not of Ebetech or Etec or Etec Sub.
3.21 Related Parties. Except as previously disclosed in writing to Etec
---------------
and Etec Sub, no officer or director of Ebetech, or any affiliate of any such
person, has, either directly or indirectly, (1) an interest in any corporation,
partnership, firm or other person or entity which furnishes or sells services or
products which are similar to those furnished or sold by Ebetech, or (m) a
beneficial interest in any contract or agreement to which Ebetech is a party or
by which Ebetech may be bound. For purposes of this Section 3.21, there shall be
disregarded any interest which arose solely from the ownership of less than a
two percent (2%) equity interest in a corporation whose stock is regularly
traded on any national securities exchange or in the over-the-counter market.
3.22 Certain Advances. There are no receivables of Ebetech owing from
----------------
directors, officers, employees, consultants or shareholders of Ebetech, or owing
by any affiliate of any director or officer of Ebetech, other than advances in
the ordinary and usual course of business to officers and employees for
reimbursable business expenses which are not in excess of US$2,500 for any one
individual.
13
<PAGE>
3.23 Employee Benefit Plans. Ebetech does not maintain any employee
----------------------
pension or welfare benefit plans or any other employee benefit plans of any type
other than required by German law and accrued for in the Financial Statements.
Ebetech is not obligated to make any contributions to any such plans and does
not make any such contributions. Ebetech does not participate in any
multiemployer plans and is not obligated to contribute to any such plans.
Ebetech has no obligations of any type to its employees after their retirement.
3.24 Underlying Documents. Copies of any underlying documents listed or
--------------------
described as having been disclosed to Etec and Etec Sub pursuant to this
Agreement, if requested by Etec or Etec Sub, have been furnished to Etec. All
such documents furnished to Etec and Etec Sub are true and correct copies, and
there are no amendments or modifications thereto, that have not been disclosed
to Etec and Etec Sub. The minutes of Ebetech contain complete and accurate
records of all meetings and other corporate actions taken by the shareholders of
Ebetech.
3.25 Full Disclosure. Any information furnished by or on behalf of
---------------
Ebetech to Etec and Etec Sub in writing pursuant to this Agreement (including
the Schedules hereto), at any time prior to the Closing Date, does not and will
not contain any untrue statement of a material fact and does not and will not
omit to state any material fact necessary to make any statement, in light of the
circumstances under which such statement is made, not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF ETEC AND ETEC SUB
Except as contemplated by this Agreement, Etec and Etec Sub represent
and warrant to Sellers as of the date hereof as follows:
4.1 Organization. Etec is a corporation duly incorporated, validly
------------
existing and in good standing under the laws of the State of Nevada, United
States. Etec is duly qualified to do business and is in good standing in its
state of incorporation and in each other jurisdiction in which it owns or leases
property or conducts business, except where the failure to be so qualified would
not have a material adverse effect on the business of Etec. Etec has all
requisite power and authority to own, lease and operate its properties and to
carry on its business as now being conducted, and possesses all licenses,
franchises, rights and privileges material to the conduct of its business.
4.2 Authority. Etec has all requisite corporate power and authority to
---------
enter into this Agreement and the related agreements contemplated herein, and,
subject to satisfaction of the conditions set forth herein, to consummate the
transactions contemplated hereby. The execution and delivery of
14
<PAGE>
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of Etec. This
Agreement has been duly executed and delivered by Etec and constitutes the valid
and binding obligation of Etec enforceable in accordance with its terms, subject
to the effect of applicable bankruptcy, insolvency, reorganization or other
similar federal or state laws affecting the rights of creditors and the effect
or availability of rules of law governing specific performance, injunctive
relief or other equitable remedies. Provided the conditions set forth in Article
7 are satisfied, the execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby will not, conflict with, or
result in any violation of or default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation under (a) any provision of the corporate charter
or Bylaws of Etec, or (b) any material agreement or instrument, permit, license,
judgment, order, statute, law, ordinance, rule or regulation applicable to Etec
or its properties or assets, other than any such conflicts, violations,
defaults, terminations, cancellations or accelerations which individually or in
the aggregate would not have a material adverse effect on Etec.
No consent, approval, order or authorization of, or registration,
declaration or filing with, any governmental authority is required by or with
respect to Etec in connection with the execution and delivery of this Agreement
by Etec or the consummation by Etec of the transactions contemplated hereby or
thereby.
4.3 Brokers or Finders. Neither Etec nor Etec Sub has dealt with any
------------------
broker or finder in connection with the transactions contemplated by this
Agreement. Neither Etec nor Etec Sub has incurred, and neither shall incur,
directly or indirectly, any liability for any brokerage or finders' fees or
agents commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby.
4.4 Full Disclosure. Any information furnished by or on behalf of Etec
---------------
or Etec Sub to Ebetech in writing pursuant to this Agreement (including the
Schedules hereto), at any time prior to the Closing Date, does not and will not
contain any untrue statement of a material fact and does not and will not omit
to state any material fact necessary to make any statement, in light of the
circumstances under which such statement is made, not misleading.
4.5 Confirmation. Etec and Etec Sub hereby confirm receipt of all
------------
documents requested by Etec or its advisors. At present, Etec or Etec Sub do not
have knowledge of any facts or circumstances that might give rise to a claim of
Etec or Etec Sub under this Agreement.
15
<PAGE>
ARTICLE 5
COVENANTS RELATING TO CONDUCT OF BUSINESS
During the period from March 12, 1997 and continuing until the Closing
Date, Ebetech and Sellers (except as expressly contemplated by this Agreement or
to the extent that Etec and Etec Sub shall otherwise consent in writing)
covenant, and agree with Etec and Etec Sub that:
5.1 Conduct of Business in Normal Course. Ebetech shall carry on the
------------------------------------
business and its activities diligently and in the ordinary course and shall not
make or institute any unusual or novel methods of purchase, sale, lease,
management, accounting or operation that will vary materially from the methods
used by Ebetech as of March 12, 1997. Ebetech shall maintain the nature and
quantities of inventories for the business in a normal and customary manner
consistent with prior practice.
5.2 Preservation of Business and Relationships. Ebetech shall use its
------------------------------------------
best efforts, without making any commitments on behalf of Etec and Etec Sub, to
preserve its business organization intact, to keep available its present
employees, and to preserve its present relationships with suppliers, customers
and others having business relationships with it.
5.3 Maintenance of Insurance. Prior to the Closing, Ebetech shall
------------------------
maintain in effect all insurance covering the business. If the Closing shall
occur after a renewal date for any such insurance, Ebetech shall renew the
insurance on the same or substantially similar terms, limits of liability and
other conditions.
5.4 Employees and Compensation. Ebetech shall not do, or agree to do,
--------------------------
any of the following acts: (a) grant any increase in salaries payable or to
become payable to any employee, sales agent or representative; or (b) increase
benefits payable to any employee, sales agent or representative under any
executive compensation, bonus, pension, profit-sharing, retirement, deferred
compensation, severance, employee stock option or stock purchase, group life,
health and other employee benefit plans, arrangements, practices or commitments.
Ebetech shall provide Etec and Etec Sub with reasonable access to its employees
during normal business hours.
5.5 Dividends; Changes in Stock. Ebetech shall not and shall not
---------------------------
propose to (a) declare or pay any dividends on or make other distributions in
respect of any of its capital stock, (b) split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of capital stock of
Ebetech, or (c) repurchase or otherwise acquire any shares of its capital stock
or rights to acquire any shares of its capital stock.
16
<PAGE>
5.6 Issuance of Securities. Ebetech shall not issue, deliver, or sell
----------------------
or authorize or propose the issuance, delivery or sale of, or purchase or
propose the purchase of, any shares of its capital stock of any class or
securities convertible into, or rights, warrants or options to acquire, any such
shares or other convertible securities.
5.7 Governing Documents. Ebetech shall not amend its corporate charter
-------------------
or Bylaws.
5.8 No Other Bids. Neither Sellers, nor Ebetech nor any of their
-------------
respective directors, officers or agents, will, directly or indirectly, solicit
or initiate or encourage any discussions or negotiations with, or participate in
any negotiations with or provide any information to or otherwise cooperate in
any other way with any corporation, partnership, person or other entity or group
(other than Etec and Etec Sub) concerning any merger, sale of substantial
assets, sale of shares of capital stock or any division of Ebetech or control
thereof. Etec and Etec Sub shall be promptly notified in writing by Sellers and
Ebetech of any of the events referred to in this Section 5.8 including a summary
of the material terms of any other bid.
5.9 No Acquisitions. Ebetech shall not (a) acquire or agree to acquire
---------------
by merging or consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof or (b) otherwise
acquire or agree to acquire any assets which are material, individually or in
the aggregate, to Ebetech except in the ordinary course of business consistent
with prior practice.
5.10 No Dispositions. Ebetech shall not lease or otherwise dispose of
---------------
any of its assets, individually or in the aggregate, except in the ordinary
course of business consistent with prior practice and in any event not in excess
of US$5,000 for any single item or more than US$50,000 in the aggregate.
5.11 Indebtedness. Ebetech shall not incur any indebtedness for
------------
borrowed money or guarantee any such indebtedness or issue or sell any debt
securities of Ebetech or guarantee any debt securities of others.
ARTICLE 6
ADDITIONAL AGREEMENTS
6.1 Access to Information. Sellers and Ebetech shall afford to Etec
---------------------
and Etec Sub and shall cause Ebetech's independent accountants to afford to Etec
and Etec Sub, and their accountants, counsel and other representatives,
reasonable access during normal business hours during the period prior to the
Closing Date to Ebetech's properties,
17
<PAGE>
books, contracts, commitments and records and to the independent accountants
reasonable access to the audit work papers and other records of Ebetech's
accountants. During such period, Sellers and Ebetech shall use reasonable
efforts to furnish promptly to Etec and Etec Sub all information concerning the
business, properties and personnel of Ebetech as Etec and Etec Sub may
reasonably request. Etec and Etec Sub will not use such information for purposes
other than this. Agreement and will otherwise hold such information in
confidence (and Etec and Etec Sub will cause their consultants and advisors also
to hold such information in confidence).
6.2 Legal Conditions. Each party will take all reasonable actions
----------------
necessary to comply promptly with all legal requirements which may be imposed on
such party with respect to this Agreement and will promptly cooperate with and
furnish information to the other party in connection with any such requirements
imposed upon such other party in connection with this Agreement. Each party will
take all reasonable actions to obtain (and to cooperate with the other party in
obtaining) any consent, authorization, order or approval of, or any exemption
by, any governmental authority, or other third party, required to be obtained or
made by such party (or by the other party) in connection with this Agreement or
the taking of any action contemplated thereby.
6.3 Good Faith. Each party shall act in good faith in an attempt to
----------
cause to be satisfied all the conditions precedent to its obligations and those
of the other parties to this Agreement over which it has control or influence.
Each party will act in good faith and take all reasonable action within its
capability necessary to render accurate as of the Closing Date its
representations and warranties contained in this Agreement.
ARTICLE 7
CONDITIONS PRECEDENT
7.1 Conditions to Obligations of Etec, Etec Sub and Sellers. The
-------------------------------------------------------
obligations of Etec, Etec Sub and Sellers to consummate this Agreement shall be
subject to the satisfaction on or prior to the Closing Date of the following
conditions unless waived by Etec, Etec Sub and Sellers:
(a) Government Approvals. All authorizations, consents, orders or
--------------------
approvals of, or declarations or filings with, or expiration of waiting periods
imposed by, any governmental authority necessary for the consummation of the
transactions contemplated by this Agreement.
(b) Third-Party Approvals. Any and all consents or approvals required
---------------------
from third parties relating to contracts, agreements, licenses, leases and other
instruments, material
18
<PAGE>
to the respective businesses of Etec, Etec Sub and Ebetech shall have been
obtained.
(c) Legal Action. No temporary restraining order, preliminary
------------
injunction or permanent injunction or other order preventing the consummation of
this Agreement shall have been issued by any federal, state or foreign court and
remain in effect, and no litigation seeking the issuance of such an order or
injunction, shall be pending which, in the good faith judgment of Sellers, Etec
or Etec Sub has a reasonable probability of resulting in such order, injunction
or damages.
7.2 Conditions to Obligations of Etec and Etec Sub. The obligations of
----------------------------------------------
Etec or Etec Sub to consummate this Agreement are subject to the satisfaction on
or prior to the Closing Date of the following conditions, unless waived by Etec:
(a) Representations and Warranties. The representations and warranties
------------------------------
of Sellers and covenants of Ebetech set forth in this Agreement shall be true
and correct in all material respects as of the date of this Agreement and as if
made at and as of the Closing Date, except as otherwise contemplated by this
Agreement.
(b) Performance of Obligations. Sellers and Ebetech shall have
--------------------------
performed in all material respects all obligations required to be performed by
each, respectively, under this Agreement prior to the Closing Date.
(c) No Material Adverse Change. Since February 28, 1997, there shall
--------------------------
have been no changes in the condition (financial or otherwise), business,
prospects, employees, operations, obligations or liabilities of Ebetech which,
in the aggregate, have had or may be reasonably expected to have a materially
adverse effect on the financial condition, business, or operations of Ebetech.
(d) Patents. All patents now owned by Ebetech, including those which
-------
were transferred by ICT to Ebetech have been registered in the name of Ebetech.
7.3 Conditions to Obligations Of Sellers. The obligations of Sellers
------------------------------------
to consummate the transactions contemplated hereby are subject to the
satisfaction on or prior to the Closing Date of the following additional
conditions unless waived by Sellers:
(a) Representations and Warranties. The representations and warranties
------------------------------
of Etec and Etec Sub set forth in this Agreement shall be true and correct in
all material respects as of the date of this Agreement and as if made at and as
of the Closing Date, except as otherwise contemplated by this Agreement.
19
<PAGE>
(b) Performance of Obligations of Etec and Etec Sub. Etec and Etec Sub
-----------------------------------------------
shall have performed in all material respects all obligations required to be
performed by each, respectively, under this Agreement prior to the Closing Date.
ARTICLE 8
INDEMNIFICATION
8.1 Indemnification by Sellers. Sellers agree to defend and indemnify
--------------------------
Etec, Etec Sub and their respective affiliates, directors, officers and
shareholders, and their respective successors and assigns (collectively, "Etec
Indemnitees"), against and hold each of them harmless from any and all losses,
liabilities, taxes, claims, suits, proceedings, demands, judgments, damages,
expenses and costs, including, without limitation, reasonable counsel fees,
costs and expenses incurred in the investigation, defense or settlement of any
claims covered by this indemnity (in this Section 8.1 collectively, the
"Indemnifiable Damages") which any such indemnified person may suffer or incur
by reason of (i) the inaccuracy or breach of any of the representations,
warranties and covenants of Sellers contained in this Agreement or any
documents, certificate or agreement delivered pursuant hereto; (ii) any claim
asserted by and granted to any person relating to or arising out of
transactions, events, acts or omissions of or by Sellers or Ebetech, prior to
the Closing Date; (iii) any liabilities of Ebetech (excluding expenses incurred
in the ordinary course of business, including but not limited to purchase
orders) not disclosed to Etec or Etec Sub, whether or not known to Sellers,
which were incurred prior to the Closing Date; (iv) the absence of intellectual
property essential to the business of Ebetech as it is currently conducted (not
including costs of applying for and perfecting known patents) ; or (v) the
absence of appropriate accruals in the Ebetech Balance Sheet.
Notwithstanding anything herein to the contrary, Sellers' liability under this
Share Purchase Agreement shall be limited to the following amounts:
<TABLE>
<CAPTION>
<S> <C> <C>
a) Holdback Amount shared by all Sellers $ 500,000
b) VCB Venture Capital
Beteiligungsgesellschaft mbH $ 1,000,000
in addition to its
pro-rata share of the
Holdback Amount
c) MRS Technology (see 8.2), Inc. $ 875,000
in addition to its
pro-rata share of the
Holdback Amount
</TABLE>
Any claims by Etec Indemnitees shall be applied first against the Holdback
Amount, and then pro rata against VCB and MRS;
20
<PAGE>
provided however, that if either VCB or MRS are unable to pay their pro
rata share of the claim, the other shall be liable for the full amount of the
claim to the extent of such party's liability set forth above.
No claims shall be payable by Sellers until the aggregate amount of
Indemnifiable Damages exceeds US $ 5,000. Once the aggregate amount of
Indemnifiable Damages exceed US $ 5,000, all claims shall be payable.
Any liability of Sellers under this Share Purchase Agreement applies only to
claims for Indemnifiable Damages being asserted against Sellers in writing prior
to September 15, 1998.
8.2 Collateral MRS. Recognizing that MRS is of limited financial
--------------
resources, MRS agrees to the following: Should MRS's net ready assets (defined
as cash plus accounts receivable, and less accounts payable, accrued liabilities
and other current liabilities) decline to US $ 1,000,000 at any time during the
indemnification period, Etec shall have the right to demand that MRS escrow
funds or provide a performance bond in the amount set forth on the following
schedule:
<TABLE>
<CAPTION>
<S> <C>
3/15/97 - 6/15/97 US $ 875,000
6/16/97 - 9/15/97 729,167
9/16/97 - 12/15/97 583,333
12/16/97 - 3/15/98 437,500
3/16/98 - 6/15/98 291,667
6/16/98 - 9/15/98 145,833
</TABLE>
The obligations of MRS pursuant to this Section 8.2 shall expire on
September 15, 1998.
8.3 Notification. Etec and Etec Sub shall use their best efforts to
------------
notify Sellers of any claims for Indemnifiable Damages as soon as practicable
after Etec or Etec Sub become aware of such a claim, and shall permit Sellers to
assist in reducing or settling any such claim.
8.4 Indemnification by Etec. After the Closing Date, Etec and Etec Sub
-----------------------
shall, as to those representations, warranties, covenants and agreements which
are herein made or agreed to by Etec and Etec Sub, respectively, indemnify and
hold harmless Sellers and their heirs and assigns ("Seller Indemnitees") against
and in respect of: (i) any damage, deficiency, losses or costs incurred by a
Seller Indemnitee resulting from any misrepresentation or breach of warranty or
any nonfulfillment of any covenant or agreement on the part of Etec or Etec Sub
under this Agreement; (ii) any claim made by any person relating to or arising
out of transactions, events, acts or omissions of or by Ebetech after the
Closing; and (iii) any claim, action, suit, proceeding, demand, judgment,
assessment, cost and expense, including reasonable counsel fees, incident to any
of the foregoing.
21
<PAGE>
ARTICLE 9
PAYMENT OF EXPENSES
Etec, Etec Sub and Sellers shall each pay their own fees and expenses
incurred incident to the preparation and carrying out of the transactions herein
contemplated. Notarial fees will be split half and half between Etec/Etec Sub
and Sellers. Sellers shall pay all sales and use taxes arising out of the
transfer of Shares and related to the sale of the Shares. Etec and Etec Sub
shall not be responsible for any business occupation, withholding, or similar
tax, or any taxes of any kind related to any period before the Closing Date.
ARTICLE 10
TERMINATION, AMENDMENT AND WAIVER
10.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Closing Date:
(a) by mutual written consent of Sellers and Etec;
(b) by either Etec or Sellers if there has been a material breach of
any representation, warranty, covenant or agreement contained in this Agreement
on the part of any party set forth in this Agreement and, if such breach is
curable, such breach has not been promptly cured after written notice of such
breach;
(c) by either Etec or Sellers if there shall be a final nonappealable
order of a federal or state court in effect preventing consummation of this
Agreement;
10.2 Amendment. This Agreement may not be amended except by an
---------
instrument in writing signed on behalf of each of the parties hereto.
10.3 Extension: Waiver. At any time prior to the Closing, Etec, Etec
-----------------
Sub or Sellers may (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions for the benefit thereof contained herein. Any agreement
on the part of a party hereto to any such extension or waiver shall be valid if
set forth in an instrument in writing signed on behalf of such party.
22
<PAGE>
ARTICLE 11
GENERAL
11.1 Notices. Any notice, request, instruction or other document to be
-------
given hereunder by any party to the other shall be in writing and delivered
personally or sent by certified mail, postage prepaid by facsimile, or by
courier service, as follows:
To Etec: Etec Systems, Inc.
24640 Corporate Avenue
Hayward, CA 94545
Facsimile: (510) 780-3845
Attn: Mr. Stephen E. Cooper
with a copy to: Pillsbury Madison & Sutro LLP
235 Montgomery Street
San Francisco, CA 94104
Facsimile: (415) 983-1200
Attn: Richard S. Grey, Esq.
To Sellers: Matthias Brunner and Richard L. Haas
Managing Directors
Ebetech Electron-Beam Technology
Vertriebs GmbH
Klausnerring la
D-85551 Heimstetten bei Munchen
Germany
Facsimile: 49-89-90-9994-81
with a copy to: Christian Roschmann
Oppenhoff & Radler
Prinzregentenplatz 10
81675 Munchen
Germany
Facsimile: 49-89-41808-343
or to such other persons as may be designated in writing by the parties, by a
notice given as aforesaid.
11.2 Announcements. Except for disclosures required by law, any public
--------------
announcements by Sellers, Ebetech or Etec shall be subject to the prior written
consent of both Sellers and Etec, which consent shall not be reasonably withheld
or delayed.
11.3 Headings. The headings of the several sections of this Agreement
--------
are inserted for convenience of reference only and are not intended to affect
the meaning or interpretation of this Agreement.
11.4 Counterparts. This Agreement may be executed in counterparts, and
------------
when so executed each counterpart shall be deemed to be an original, and said
counterparts together shall constitute one and the same instrument.
23
<PAGE>
11.5 Binding Nature. This Agreement shall be binding upon and inure to
--------------
the benefit of the parties hereto. No party may assign or transfer any rights
under this Agreement.
11.6 Schedules. Any document included on a Schedule to this Agreement
---------
shall be deemed to have been referred to in any other schedule or section of
this Agreement, as appropriate.
11.7 Applicable Law. This Agreement shall be governed by, construed and
--------------
enforced in accordance with the laws of the State of California.
24
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed, all as of the date first above written.
ETEC SYSTEMS, INC., a Nevada corporation
By: /s/ Philip J. Koen, Jr.
-----------------------
Title: Vice President, Chief Financial Officer
SELLERS
VCB VENTURE CAPITAL
BETEILIGUNGSGESELLSCHAFT
MbH MUNICH, a corporation
organized under the laws
of the Federal Republic
of Germany
By: /s/ Guntersdorfer
-----------------
/s/ Carl Bewerunge
------------------
Title: Managing Directors
MRS TECHNOLOGY INC., a
Massachusetts corporation
By: /s/ J.L. Steele, Jr.
--------------------
Title: Vice President
By: /s/ Peter Fazekas
-----------------
Ursula Fazekas represented
by power of attorney by her
husband Mr. Peter Fazekas
By: /s/ M. Brunner
--------------
Dr. Matthias Brunner
25
<PAGE>
By: /s/ R. Schmid
-------------
Dr. Ralf Schmid
By: /s/ T. Schwedes
---------------
Thomas Schwedes
By: /s/ Volker Daiker
-----------------
Volker Daiker
As to the provisions of Articles 5 and 6 only:
EBETECH ELECTRON BEAM
TECHNOLOGY VERTRIEBS GmbH,
a German corporation
By: /s/ M. Brunner
--------------
Title: Managing Director
By: /s/ Richard L. Haas
-------------------
Title: Managing Director
26
<PAGE>
EXHIBIT 10.2
FIRST AMENDMENT TO CREDIT AGREEMENT
-----------------------------------
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of
---------
April 23, 1997, is entered into by and among:
(1) ETEC SYSTEMS, INC., a Nevada corporation ("Borrower");
--------
(2) Each of the financial institutions currently a party to the Credit
Agreement referred to in Recital A below (collectively, the "Lenders"); and
--------- -------
(3) ABN AMRO BANK N.V., a public company with limited liability organized
under the laws of The Netherlands, as agent for the Lenders (in such capacity,
"Agent").
-----
RECITALS
--------
A. Borrower, the Lenders and Agent are parties to a Credit Agreement dated
as of May 24, 1996 (the "Credit Agreement").
----------------
B. Borrower has requested the Lenders and Agent to amend the Credit
Agreement in certain respects.
C. The Lenders and Agent are willing so to amend the Credit Agreement upon
the terms and subject to the conditions set forth below.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the above recitals and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Borrower, the Lenders and Agent hereby agree as follows:
1. DEFINITIONS, INTERPRETATION. All capitalized terms defined above and
---------------------------
elsewhere in this Amendment shall be used herein as so defined. Unless otherwise
defined herein, all other capitalized terms used herein shall have the
respective meanings given to those terms in the Credit Agreement, as amended by
this Amendment. The rules of construction set forth in Section I of the Credit
-----------------------
Agreement shall, to the extent not inconsistent with the terms of this
- ---------
Amendment, apply to this Amendment and are hereby incorporated by reference.
2. AMENDMENTS TO CREDIT AGREEMENT. Subject to the satisfaction of the
------------------------------
conditions set forth in paragraph 4 below, the Credit Agreement is hereby
-----------
amended as follows:
(a) Paragraph 1.01 is amended by adding thereto, in the appropriate
--------------
alphabetical order, the following definitions to read in their entirety as
follows:
A-1
<PAGE>
"First Amendment Effective Date" shall mean April 23, 1997.
------------------------------
"Quick Ratio" shall mean, with respect to Borrower and its
-----------
Subsidiaries at any time, the ratio, determined on a consolidated basis
in accordance with GAAP, of:
(a) The sum at such time of all (i) cash of Borrower and its
Subsidiaries; (ii) Cash Equivalents of Borrower and its
Subsidiaries; (iii) accounts receivable of Borrower and its
Subsidiaries, less all reserves therefor; provided, however, that
-------- -------
in computing the foregoing sum, there shall be excluded therefrom
any cash, Cash Equivalent or accounts receivable subject to a
security interest in favor of any Person other than any Lender;
to
--
(b) The sum at such time of (i) the current liabilities of
Borrower and its Subsidiaries; and (ii) to the extent not included
in such current liabilities, the Outstanding Revolver Credit at
such time.
"Revolving Lender" shall mean, at any time, a Lender which then has
----------------
a Revolving Loan Commitment or which then holds Revolving Loans.
"Revolving Loan Proportionate Share" shall mean, with respect to
----------------------------------
each Lender, the percentage set forth under the caption "Revolving Loan
Proportionate Share" opposite such Lender's name on Schedule I, or, if
----------
different, such percentage as may be set forth for such Lender in the
Register. (The Revolving Loan Proportionate Share of each Lender on the
First Amendment Effective Date is as set forth in Schedule I.)
----------
"Term Lender" shall mean, at any time, a Lender which then has a
-----------
Term Loan Commitment or which then holds a Term Loan.
"Term Loan Proportionate Share" shall mean, with respect to each
-----------------------------
Lender, the percentage set forth under the caption "Term Loan
Proportionate Share" opposite such Lender's name on Schedule I, or, if
----------
different, such percentage as may be set forth for such Lender in the
Register. (The Term Loan Proportionate Share of each Lender on the
First Amendment Effective Date is as set forth in Schedule I.)
----------
A-2
<PAGE>
(b) Paragraph 1.01 is further amended by changing the definitions of
--------------
"Proportionate Share", "Required Lenders", "Revolving Loan Borrowing",
"Revolving Loan Commitment", "Revolving Loan Maturity Date", "Term Loan
Borrowing", "Term Loan Commitment" and "Total Revolving Loan Commitment"
set forth therein to read in their entirety as follows:
"Proportionate Share" shall mean, with respect to each Lender at
-------------------
any time, a fraction (expressed as a percentage rounded to the sixth
digit to the right of the decimal point), the numerator of which is the
sum at such time of such Lender's Revolving Loan Commitment and Term
Loan and the denominator of which is the sum at such time of the Total
Revolving Loan Commitment and the Term Loan Borrowing.
"Required Lenders" shall mean (a) at any time Loans are outstanding
----------------
and the Revolving Lenders are obligated to make Revolving Loans
pursuant to their Revolving Loan Commitments, Lenders holding more than
sixty-six and two-thirds percent (66 2/3%) of the aggregate principal
amount of all Loans outstanding, calculated as if Revolving Loans in
the full amount of the Revolving Lenders' Revolving Loan Commitments
were outstanding, (b) at any time Loans are outstanding and the
Revolving Lenders are not obligated to make Revolving Loans pursuant to
their Revolving Loan Commitments, Lenders holding more than sixty-six
and two-thirds percent (66 2/3%) of the aggregate principal amount of
all Loans outstanding and (c) at any time no Loans are outstanding,
Lenders whose aggregate Revolving Loan Commitments and Term Loan
Commitments equal or exceed sixty-six and two-thirds percent (66 2/3%)
of the aggregate Revolving Loan Commitments and Term Loan Commitments
of all Lenders at such time.
"Revolving Loan Borrowing" shall mean a borrowing by Borrower
------------------------
consisting of the Revolving Loans made by each of the Revolving Lenders
on the same date and of the same Type pursuant to a single Notice of
Revolving Loan Borrowing.
"Revolving Loan Commitment" shall mean, with respect to any
-------------------------
Revolving Lender at any time, such Lender's Revolving Loan
Proportionate Share at such time of the Total Revolving Loan Commitment
at such time. (The Revolving Loan Commitment of each Lender on the
First Amendment Effective Date is as set forth in Schedule I.)
----------
"Revolving Loan Maturity Date" shall mean May 31, 1999.
----------------------------
"Term Loan Borrowing" shall mean the borrowing by
-------------------
A-3
<PAGE>
Borrower consisting of the Term Loans made by each of the Term Lenders.
"Term Loan Commitment" shall mean, with respect to any Term Lender
--------------------
at any time, such Lender's Term Loan Proportionate Share at such time
of the Total Term Loan Commitment at such time. (The Term Loan
Commitment of each Lender on the First Amendment Effective Date is as
set forth in Schedule I.)
----------
"Total Revolving Loan Commitment" shall mean Fifty Million Dollars
-------------------------------
($50,000,000,00) or, if reduced pursuant to Subparagraph 2.03(a), the
--------------------
amount to which so reduced.
(c) Paragraph 1.01 is further amended by deleting the definition of
--------------
"Current Ratio" set forth therein.
(d) Subparagraph 2.01(a) is amended to read in its entirety as follows:
--------------------
(a) Revolving Loan Availability. Subject to the terms and
---------------------------
conditions of this Agreement, each Revolving Lender severally agrees to
advance to Borrower from time to time during the period beginning on
the Closing Date and ending on the Revolving Loan Maturity Date such
loans as Borrower may request under this Paragraph 2.01 (individually,
--------------
a "Revolving Loan"); provided, however, that (i) the aggregate
-------------- -------- -------
principal amount of all Revolving Loans made by such Revolving Lender
at any time outstanding shall not exceed such Revolving Lender's
Revolving Loan Commitment at such time and (ii) the aggregate principal
amount of all Revolving Loans made by all Revolving Lenders at any time
outstanding shall not exceed the Total Revolving Loan Commitment at
such time. All Revolving Loans shall be made on a pro rata basis by the
Revolving Lenders in accordance with their respective Revolving Loan
Proportionate Shares, with each Revolving Loan Borrowing to be
comprised of a Revolving Loan by each Revolving Lender equal to such
Revolving Lender's Revolving Loan Proportionate Share of such Revolving
Loan Borrowing. Except as otherwise provided herein, Borrower may
borrow, repay and reborrow Revolving Loans until the Revolving Loan
Maturity Date.
(e) Subparagraph 2.01(b) is amended by deleting each of the two (2)
--------------------
references therein to "Lender" and replacing them with "Revolving Lender".
(f) Subparagraph 2.01(d) is amended by deleting the one (1) reference
--------------------
therein to "Lender" and replacing it with "Revolving Lender".
A-4
<PAGE>
(g) Subparagraph 2.02(a) is amended to read in its entirety as follows:
--------------------
(a) Term Loan Availability. Subject to the terms and conditions of
----------------------
this Agreement, each Term Lender severally agrees to advance to
Borrower under this Paragraph 2.02, on or prior to June 7, 1996, a term
--------------
loan in the principal amount of such Lender's Term Loan Commitment
(individually, a "Term Loan"); provided, however, that the aggregate
--------- -------- -------
principal amount of all Term Loans made by all Term Lenders shall not
exceed the Total Term Loan Commitment. The Term Loans shall be made on
a pro rata basis by the Term Lenders in accordance with their
respective Term Loan Proportionate Shares, with the Term Loan Borrowing
to be comprised of a Term Loan by each Term Lender equal to such Term
Lender's Proportionate Share of the Term Loan Borrowing. Each Term
Lender shall advance its Term Loan in a single advance. Borrower may
not reborrow the principal amount of a Term Loan after repayment or
prepayment thereof.
(h) Subparagraph 2.02(b) is amended by deleting the one (1) reference
--------------------
therein to "Lender" and replacing it with "Term Lender".
(i) Subparagraph 2.03(b) is amended by deleting each of the two (2)
--------------------
references therein to "Lender" and replacing them with "Revolving Lender".
(j) Subparagraph 2.04(b) is amended by deleting the one (1) reference
--------------------
therein to "Lender" and replacing it with "Revolving Lender".
(k) Subparagraph 2.07(a) is amended by deleting each of the six (6)
--------------------
references therein to "Lender" and replacing them with "Revolving Lender"
and deleting each of the three (3) references therein to "Lender's" and
replacing them with "Revolving Lender's".
(l) Subparagraph 2.07(b) is amended by deleting each of the two (2)
--------------------
references therein to "Lender" and replacing them with "Term Lender" and
deleting the one (1) reference therein to "Lender's" and replacing it with
"Term Lender's".
(m) Clause (i) of Subparagraph 2.09(a) is amended to read in its
----------------------------------
entirety as follows:
(i) Each Revolving Loan Borrowing and reduction of the Total
Revolving Loan Commitment shall be made or shared among the Revolving
Lenders pro rata according to their respective Proportionate Shares;
and the Term Loan Borrowing shall be made by the Term Lenders pro rata
according to their respective Term Loan
A-5
<PAGE>
Proportionate Share;
(n) Clause (iv) of Subparagraph 2.09(a) is amended to read in its
-----------------------------------
entirety as follows:
(iv) Each payment of Commitment Fees shall be shared among the
Revolving Lenders (except for Defaulting Lenders) pro rata according to
(A) their respective Revolving Loan Proportionate Shares and (B) in the
case of each Revolving Lender which becomes a Revolving Lender
hereunder after the date hereof, the date upon which such Revolving
Lender so became a Revolving Lender;
(o) Subparagraph 5.03(b) is amended to read in its entirety as follows:
--------------------
(b) Quick Ratio. Borrower shall not permit the Quick Ratio on the
-----------
last day of any fiscal quarter set forth below to be less than the
ratio set forth opposite such quarter below:
Quarters ending on April 30, 1997, July 31,
1997, October 31, 1997, &
January 31, 1998........................1.00 to 1.00;
Each quarter thereafter..........................1.10 to 1.00.
(p) Subparagraph 5.03(e) is amended by changing the word "greater"
--------------------
appearing in the fourth line thereof to "less".
(r) Paragraph 8.04 is amended to read in its entirety as follows:
--------------
8.04. Waivers; Amendments. Any term, covenant, agreement or
-------------------
condition of this Agreement or any other Credit Document may be amended
or waived, and any consent under this Agreement or any other Credit
Document may be given, if such amendment, waiver or consent is in
writing and is signed by Borrower and the Required Lenders (or Agent on
behalf of the Required Lenders with the written approval of the
Required Lenders); provided, however that:
-------- -------
(a) Any amendment, waiver or consent which would (i) amend
this Paragraph 8.04, or (ii) amend the definition of Required
--------------
Lenders, must be in writing and signed or approved in writing by
all Lenders;
(b) Any amendment, waiver or consent which would (i) increase
the Total Revolving Loan
A-6
<PAGE>
Commitment, (ii) extend the Revolving Loan Maturity Date, (iii)
reduce the principal of or interest on any Revolving Loan or any
fees or other amounts payable for the account of the Revolving
Lenders hereunder, or (iv) extend any scheduled principal, interest
or fee payment date with respect to any Revolving Loan, must be in
writing and signed or approved in writing by all Revolving Lenders;
(c) Any amendment, waiver or consent which would (i) increase
the Total Term Loan Commitment, (ii) extend the Term Loan Maturity
Date, (iii) reduce the principal of or interest on any Term Loan or
any fees or other amounts payable for the account of the Term
Lenders hereunder, or (iv) extend any scheduled principal, interest
or fee payment date with respect to any Term Loan, must be in
writing and signed or approved in writing by all Term Lenders;
(d) Any amendment, waiver or consent which increases or
decreases the Revolving Loan Proportionate Share of any Revolving
Lender must be in writing and signed by such Revolving Lender;
(e) Any amendment, waiver or consent which increases or
decreases the Term Loan Proportionate Share of any Term Lender must
be in writing and signed by such Term Lender; and
(f) Any amendment, waiver or consent which affects the rights
or obligations of Agent must be in writing and signed by Agent.
No failure or delay by Agent or any Lender in exercising any right
under this Agreement or any other Credit Document shall operate as a
waiver thereof or of any other right hereunder or thereunder nor shall
any single or partial exercise of any such right preclude any other
further exercise thereof or of any other right hereunder or thereunder.
Unless otherwise specified in such waiver or consent, a waiver or
consent given hereunder shall be effective only in the specific
instance and for the specific purpose for which given.
(s) Subparagraph 8.05(c) is amended to read in its entirety as follows:
--------------------
(c) Assignments. Any Lender may, at any time, sell and assign to
-----------
any Lender, any affiliate of a Lender or any other bank or financial
institution (individually, an "Assignee Lender") all or a portion of
---------------
A-7
<PAGE>
its rights and obligations under this Agreement and the other Credit
Documents (such a sale and assignment to be referred to herein as an
"Assignment") pursuant to an assignment agreement in the form of
----------
Exhibit H (an "Assignment Agreement"), executed by each Assignee Lender
--------- --------------------
and such assignor Lender (an "Assignor Lender") and delivered to Agent
---------------
for its acceptance and recording in the Register; provided, however,
that -------- -------
(i) Without the written consent of Borrower and Agent (which
consent of Borrower and Agent shall not be unreasonably withheld),
no Revolving Lender may make any Assignment to any Assignee Lender
which is not, immediately prior to such Assignment, a Revolving
Lender hereunder or an Affiliate thereof; or
(ii) Without the written consent of Borrower and Agent (which
consent of Borrower and Agent shall not be unreasonably withheld),
no Term Lender may make any Assignment to any Assignee Lender which
is not, immediately prior to such Assignment, a Term Lender
hereunder or an Affiliate thereof; or
(iii) Without the written consent of Borrower and Agent (which
consent of Borrower and Agent shall not be unreasonably withheld),
no Revolving Lender may make any Assignment to any Assignee Lender
if, after giving effect to such Assignment, the Revolving Loan
Commitment of such Lender or such Assignee Lender would be less
than Five Million Dollars ($5,000,000) (except that a Lender may
make an Assignment which reduces its Commitment to zero without the
written consent of Borrower and Agent); or
(iv) Without the written consent of Borrower and Agent (which
consent of Borrower and Agent shall not be unreasonably withheld),
no Revolving Lender may make any Assignment which does not assign
and delegate an equal pro rata interest in such Revolving Lender's
Revolving Loan Commitment or Revolving Loan and all other rights,
duties and obligations of such Revolving Lender under this
Agreement and the other Credit Documents; or
(v) Without the written consent of Borrower and Agent (which
consent of Borrower and Agent shall not be unreasonably withheld),
no Term Lender may make any Assignment which does not assign and
delegate an equal pro rata interest in such Term Lender's Term Loan
Commitment or Term Loan and all other rights, duties and
obligations
A-8
<PAGE>
of such Term Lender under this Agreement and the other
Credit Documents.
Upon such execution, delivery, acceptance and recording of each
Assignment Agreement, from and after the Assignment Effective Date
determined pursuant to such Assignment Agreement, (A) each Assignee
Lender thereunder shall be a Revolving Lender and/or Term Lender (as
the case may be) hereunder with a Revolving Loan Proportionate Share
and/or Term Loan Proportionate Share (as the case may be) as set forth
on Attachment 1 to such Assignment Agreement and shall have the rights,
-----------------------------------------
duties and obligations of such a Lender under this Agreement and the
other Credit Documents, and (B) the Assignor Lender thereunder shall be
a Revolving Lender and/or Term Lender (as the case may be) with a
Revolving Loan Proportionate Share and/or Term Loan Proportionate Share
(as the case may be) as set forth on Attachment 1 to such Assignment
-------------------------------
Agreement, or, if the Revolving Loan Proportionate Share and/or Term
---------
Loan Proportionate Share (as the case may be) of the Assignor Lender
has been reduced to 0%, the Assignor Lender shall cease to be a
Revolving Lender and/or Term Lender (as the case may be) and to have
any obligation to make any Revolving Loan and/or Term Loan (as the case
may be); provided, however, that any such Assignor Lender which ceases
-------- -------
to be a Lender shall continue to be entitled to the benefits of any
provision of this Agreement which by its terms survives the termination
of this Agreement. Each Assignment Agreement shall be deemed to amend
Schedule I to the extent, and only to the extent, necessary to reflect
----------
the addition of each Assignee Lender, the deletion of each Assignor
Lender which reduces its Proportionate Share to 0% and the resulting
adjustment of Proportionate Shares arising from the purchase by each
Assignee Lender of all or a portion of the rights and obligations of an
Assignor Lender under this Agreement and the other Credit Documents. On
or prior to the Assignment Effective Date determined pursuant to each
Assignment Agreement, Borrower, at its own expense, shall execute and
deliver to Agent, in exchange for the surrendered Revolving Loan Note
or Term Loan Note of the Assignor Lender thereunder, a new Revolving
Loan Note or Term Loan Note to the order of each Assignee Lender
thereunder (with each new Revolving Loan Note to be in an amount equal
to the Commitment assumed by such Assignee Lender and each new Term
Loan Note to be in the original principal amount of the Term Loan then
held by such Assignee Lender) and, if the Assignor Lender is continuing
as a Lender hereunder, a new Revolving Loan Note or Term Loan Note to
the order of the Assignor Lender (with the new Revolving Loan Note to
be in an amount equal to the Commitment retained by it and the new Term
Loan Note to
A-9
<PAGE>
be in the original principal amount of the Term Loan
retained by it). Each such new Revolving Loan shall be dated the
Closing Date, each such new Term Loan Note shall be dated the Revolving
Loan Maturity Note, and each such new Note shall otherwise be in the
form of the Note replaced thereby. The Notes surrendered by the
Assignor Lender shall be returned by Agent to Borrower marked
"replaced". Each Assignee Lender which was not previously a Lender
hereunder and which is not incorporated under the laws of the United
States of America or a state thereof shall, within three (3) Business
Days of becoming a Lender, deliver to Borrower and Agent two duly
completed copies of United States Internal Revenue Service Form 1001 or
4224 (or successor applicable form), as the case may be, certifying in
each case that such Lender is entitled to receive payments under this
Agreement without deduction or withholding of any United States federal
income taxes.
(t) Subparagraph 8.05(d) is amended to read in its entirety as follows:
--------------------
(d) Register. Agent shall maintain at its address referred to in
--------
Paragraph 8.01 a copy of each Assignment Agreement delivered to it and
--------------
a register (the "Register") for the recordation of the names and
--------
addresses of the Lenders and the Revolving Loan Proportionate Shares
and/or Term Loan Proportionate Shares (as the case may be) of each
Lender from time to time. The entries in the Register shall be
conclusive in the absence of manifest error, and Borrower, Agent and
the Lenders may treat each Person whose name is recorded in the
Register as the owner of the Loans recorded therein for all purposes of
this Agreement. The Register shall be available for inspection by
Borrower or any Lender at any reasonable time and from time to time
upon reasonable prior notice.
(u) Subparagraph 8.05(e) is amended to read in its entirety as follows:
--------------------
(e) Registration. Upon its receipt of an Assignment Agreement
------------
executed by an Assignor Lender and an Assignee Lender (and, to the
extent required by Subparagraph 8.05(c), by Borrower and Agent)
--------------------
together with payment to Agent by Assignor Lender of a registration and
processing fee of $2,500, Agent shall (i) promptly accept such
Assignment Agreement and (ii) on the Effective Date determined pursuant
thereto record the information contained therein in the Register and
give notice of such acceptance and recordation to the Lenders and
Borrower. Agent may, from time to time at its election, prepare and
deliver
A-10
<PAGE>
to the Lenders and Borrower a revised Schedule I reflecting the
names, addresses and respective Revolving Loan Proportionate Shares and
Term Loan Proportionate Shares of all Lenders then parties hereto.
(v) Schedule I is amended to read in its entirety as set forth in
----------
Attachment 1 hereto.
------------
(w) Exhibit H is amended to read in its entirety as set forth in
---------
Attachment 2 hereto.
------------
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and warrants
------------------------------
to Agent and the Lenders that the following are true and correct on the date of
this Amendment and that, after giving effect to the amendments set forth in
paragraph 2 above, the following will be true and correct on the Effective Date
- -----------
(as defined below):
(a) The representations and warranties of Borrower and its Subsidiaries
set forth in Paragraph 4.01 of the Credit Agreement and in the other Credit
--------------------------------------
Documents are true and correct in all material respects (except for
representations and warranties expressly made as of a specified date, which
shall be true as of such date);
(b) No Default or Event of Default has occurred and is continuing; and
(c) All of the Credit Documents are in full force and effect.
(Without limiting the scope of the term "Credit Documents," Borrower expressly
acknowledges in making the representations and warranties set forth in this
paragraph 3 that, on and after the date hereof, such term includes this
- -----------
Amendment.)
4. EFFECTIVE DATE. The amendments effected by paragraph 2 above shall
-------------- -----------
become effective on April 23, 1997 (the "Effective Date"), subject to receipt by
--------------
Agent and the Lenders on or prior to the Effective Date of the following, each
in form and substance satisfactory to Agent, the Lenders and their respective
counsel:
(a) This Amendment duly executed by Borrower, each Lender and Agent;
(b) A Revolving Loan Note payable to each Lender, in the amount of such
Lender's Revolving Loan Commitment after giving effect to this Amendment,
dated the Closing Date and duly executed by Borrower;
(c) A favorable written opinion of Pillsbury, Madison & Sutro, counsel
to Borrower, addressed to Agent and dated
A-11
<PAGE>
the Effective Date, as to the matters set forth in Exhibit A and such other
matters as Agent may reasonably request; and
(d) Such other evidence as Agent or any Lender may reasonably request
to establish the accuracy and completeness of the representations and
warranties and the compliance with the terms and conditions contained in
this Amendment and the other Credit Documents.
5. EFFECT OF THIS AMENDMENT. On and after the Effective Date, (a) each
------------------------
reference in the Credit Agreement and the other Credit Documents to the Credit
Agreement or the Revolving Loan Notes shall mean the Credit Agreement as amended
hereby or the Revolving Loan Notes delivered pursuant hereto and (b) the
Revolving Loan Notes delivered pursuant hereto shall supersede and replace the
Revolving Loan Notes previously delivered by Borrower to the Lenders and each
Lender agrees to return to Borrower the Revolving Loan Note previously delivered
by Borrower to such Lender marked "superseded". Except as specifically amended
above, (a) the Credit Agreement and the other Credit Documents (other than the
Revolving Loan Notes previously delivered by Borrower to the Lenders) shall
remain in full force and effect and are hereby ratified and confirmed and (b)
the execution, delivery and effectiveness of this Amendment shall not, except as
expressly provided herein, operate as a waiver of any right, power, or remedy of
the Lenders or Agent, nor constitute a waiver of any provision of the Credit
Agreement or any other Credit Document (other than the Revolving Loan Notes
previously delivered by Borrower to the Lenders).
6. MISCELLANEOUS.
-------------
(a) Counterparts. This Amendment may be executed in any number of
------------
identical counterparts, any set of which signed by all the parties hereto
shall be deemed to constitute a complete, executed original for all
purposes.
(b) Headings. Headings in this Amendment are for convenience of
--------
reference only and are not part of the substance hereof.
(c) Governing Law. This Amendment shall be governed by and construed in
-------------
accordance with the laws of the State of California without reference to
conflicts of law rules.
[The signature pages follow.]
A-12
<PAGE>
IN WITNESS WHEREOF, Borrower, the Agent and the Lenders have caused
this Amendment to be executed as of the day and year first above written.
BORROWER: ETEC SYSTEMS, INC.
By: /s/Melanie J. Mock
------------------
Name: Melanie J. Mock
Title: Treasurer
AGENT: ABN AMRO BANK N.V.
By: /s/ Robin S. Yim
----------------
Name: Robin S. Yim
Title: Group Vice President
By: /s/ Candace J. Hsu
------------------
Name: Candace J. Hsu
Title: Corporate Banking Officer
LENDERS: ABN AMRO BANK N.V.
By: /s/ Robin S. Yim
----------------
Name: Robin S. Yim
Title: Group Vice President
By: /s/ Candace J. Hsu
------------------
Name: Candace J. Hsu
Title: Corporate Banking Officer
COMERICA BANK-CALIFORNIA
By: /s/ Mary Beth Suhr
------------------
Name: Mary Beth Suhr
Title: Vice President
THE INDUSTRIAL BANK OF JAPAN, LTD.
By: /s/Haruhiko Masuda
------------------
Name: Haruhiko Masuda
Title: Deputy General Manager
A-13
<PAGE>
EXHIBIT 11
ETEC SYSTEMS, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE AND EQUIVALENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
APRIL 30, APRIL 30,
------------------- ------------------
1997 1996 1997 1996
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding 21,334 17,860 20,538 15,936
Weighted average common stock
equivalents calculated by the treasury
stock method applied to options and
warrants issued 1,164 1,680 1,269 1,814
------- ------- ------- -------
Weighted average common shares and
equivalents 22,498 19,540 21,807 17,750
======= ======= ======= =======
Net income $ 7,606 $15,696 $22,176 $21,846
======= ======= ======= =======
Net income per share $ 0.34 $ 0.80 $ 1.02 $ 1.23
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> APR-30-1997
<CASH> 34,701
<SECURITIES> 46,099
<RECEIVABLES> 63,015
<ALLOWANCES> 1,073
<INVENTORY> 72,794
<CURRENT-ASSETS> 244,297
<PP&E> 47,796
<DEPRECIATION> 12,925
<TOTAL-ASSETS> 283,399
<CURRENT-LIABILITIES> 98,677
<BONDS> 0
0
0
<COMMON> 214
<OTHER-SE> 179,779
<TOTAL-LIABILITY-AND-EQUITY> 283,399
<SALES> 143,428
<TOTAL-REVENUES> 168,268
<CGS> 68,102
<TOTAL-COSTS> 87,445
<OTHER-EXPENSES> 27,940<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 797
<INCOME-PRETAX> 34,416
<INCOME-TAX> 12,240
<INCOME-CONTINUING> 22,176
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,176
<EPS-PRIMARY> 1.02
<EPS-DILUTED> 1.02
<FN>
<F1> EXCLUDES SG&A AS SG&A IS PART OF 5-03(b)(4).
</FN>
</TABLE>
