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IBIS TECHNOLOGY CORPORATION
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period ________________ to ________________
Commission file number: 0-23150
IBIS TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2987600
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
32 CHERRY HILL DRIVE, DANVERS, MA 01923
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (978) 777-4247
Securities registered pursuant to Section 12(b) of the Exchange Act:
None.
Securities registered pursuant to Section 12(g) of the Exchange Act:
Title of each class
Common Stock, $.008 Par Value Per Share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant (without admitting that any person whose shares
are not included in such calculation is an affiliate) on March 11, 1998, was
$72,108,184, based on the last sale price as reported by the Nasdaq National
Market System.
As of March 11, 1998, the registrant had 6,704,674 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents (or parts thereof) are incorporated by reference
into the following parts of this Form 10-K: Certain information required in Part
III of this Annual Report on Form 10-K is incorporated from the Registrant's
Proxy Statement for the Annual Meeting of Stockholders to be held on May 14,
1998.
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IBIS TECHNOLOGY CORPORATION
PART I
ITEM 1. BUSINESS
INTRODUCTION
Ibis Technology Corporation ("Ibis" or the "Company") is an advanced
materials company and the leading supplier of SIMOX (Separation by IMplantation
of OXygen) wafers to the semiconductor industry. SIMOX wafers are
state-of-the-art silicon-on-insulator ("SOI") wafers which enable the production
of integrated circuits with significant advantages over circuits constructed on
conventional bulk silicon or epitaxial wafers. These advantages include
substantially reduced power consumption, more efficient low-voltage operation,
significantly improved speed, and reduced integrated circuit manufacturing
costs. These characteristics make SIMOX-SOI wafers well-suited for many
commercial applications, including cellular phones, wireless communications
devices, portable and desktop computers, automotive electronics, microwave
systems, telecom access networks and optical sensors. SIMOX-SOI wafers are
created by implanting oxygen atoms below the surface of a silicon wafer in
sufficient quantity to transform a layer of the silicon to silicon dioxide,
while maintaining a thin layer of circuit quality single crystal silicon at the
surface.
The Company began its operations in 1988, producing four, five and six
inch SIMOX-SOI wafers, mainly for military applications, on an NV-200 implanter
manufactured by Eaton Corporation ("Eaton"). Since 1989, the Company has spent
in excess of $10 million for the development of its proprietary oxygen implanter
(the Ibis 1000) and advanced proprietary processing technologies which enable
the production of SIMOX-SOI wafers capable of meeting the requirements of high
volume commercial applications, including the production of eight inch wafers.
The Ibis 1000 prototype, with proprietary beam scanning technology, became
operational in 1993, permitting the Company to begin producing wafers of this
size. The first fully-automated production version of the Ibis 1000 implanter
was completed in May 1995, enabling volume production of high-quality SIMOX-SOI
wafers. Since then the Company has constructed two additional implanters, one of
which was sold to one of the Company's largest customers. Two additional
implanters are currently under construction; one is anticipated to be completed
during the first quarter of 1998, the other during the second half of 1998. The
Company believes that its demonstrated ability to supply high quality,
competitively priced wafers and its increased wafer production capacity,
together with substantial progress in customers' development programs, are
accelerating the acceptance of Ibis-produced SIMOX-SOI wafers for mainstream
commercial applications. During 1997, two customers, Mitsubishi Electric
Corporation and Bookham Technology, Ltd., announced the commercial adoption of
SIMOX-SOI technology utilizing Ibis-produced SIMOX-SOI wafers in their products.
In the first quarter of 1998, the Company entered into negotiations
with two current customers of the Company for the sale of an aggregate of three
Ibis 1000 implanters.
In recent years, the Company has focused on integrating SIMOX-SOI
wafers into commercial applications, which have substantially higher volume
potential than military applications, the Company's initial target market. Unit
sales of SIMOX-SOI wafers for commercial applications have expanded from
approximately 48% of the Company's total wafers sold in 1993 to approximately
83% of its wafers sold in 1997.
Ibis has sold SIMOX-SOI wafers to most of the world's leading
commercial semiconductor manufacturers, including Advanced Micro Devices,
Fujitsu, Honeywell, IBM, Intel, Mitsubishi Electric, Motorola, National
Semiconductor, NEC, Philips, Samsung, Sharp, Texas Instruments, and Toshiba.
These commercial shipments have been used principally for evaluation purposes in
products, including ASICs (application specific integrated circuits), memories
(DRAMs, SRAMs, etc.), and cellular and mobile radio components. For any
potential customer who is ultimately committed to designing and building
integrated circuits on SIMOX-SOI wafers, the time required for a customer to
make a definitive buying decision and for
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IBIS TECHNOLOGY CORPORATION
Ibis to "make the sale" - from initial contact to full-scale chip fabrication -
will be lengthy and proceed along definable, targeted stages. The sales cycle
typically goes from intensive evaluation of Ibis' SIMOX-SOI material in the
customer's process laboratory to full circuit evaluations in the chip-design lab
which, the Company hopes, will lead to full scale chip production in the fab.
This is a normal sales cycle in the semiconductor industry for any
technologically advanced material such as Ibis' SIMOX-SOI. In addition, the
Company supplies SIMOX-SOI wafers to military-oriented semiconductor
manufacturers such as Allied-Signal Aerospace and Honeywell for use in
production applications.
The Company believes that strategic alliances will play an important
role in developing a worldwide commercial market for SIMOX-SOI wafers. In
September 1995, the Company and Motorola entered into an agreement for Motorola
to provide funding to the Company to substantially expand the Company's current
SIMOX-SOI wafer production capacity to meet requirements of Motorola for its
commercial programs. The implanter that was constructed with this funding became
operational in September 1996 and shipments to Motorola under the terms of this
Agreement commenced shortly thereafter. The two companies continue to work
closely to advance the processing and testing of SIMOX-SOI material in
conjunction with Motorola's rigorous quality standards. The Company also has a
strategic alliance agreement with Mitsubishi Materials, under which Mitsubishi
markets and sells in Japan SIMOX-SOI wafers manufactured by Ibis. The Company
and Mitsubishi are collaborating on joint research and development focused on
commercial deployment of SIMOX-SOI technology with the ultimate objective of
establishing SIMOX-SOI manufacturing capability in Japan to service this
marketplace.
In May 1996, the Company entered into an agreement with one of the
world's leading semiconductor manufacturers for the sale of an Ibis 1000
implanter, which was delivered to the purchaser in November 1996. Under the
terms of this agreement, there are certain limitations on the purchaser's
ability to sell SIMOX-SOI wafers produced on this implanter. The agreement also
sets forth terms and conditions in the event that the purchaser desires to buy
additional implanters. The revenue, together with related costs, was recognized
on a percentage of completion basis determined by the achievement of various
milestones.
The Company's objective is to make its SIMOX-SOI wafers the preferred
advanced materials substrate for mainstream commercial applications. The
Company's strategy for attaining this objective is to capitalize on the
technology embodied in the Ibis 1000 by building additional high current oxygen
implanters to increase available capacity, further advancing its process
technology, increasing throughput and reducing production costs, and to form
strategic marketing, manufacturing and distribution alliances. The Company
believes that this strategy will enable it to become the world leader in volume
manufacturing of SIMOX-SOI technology and SIMOX-SOI wafers with the quality,
cost, and size required for mainstream commercial applications.
Ibis was incorporated in Massachusetts on October 7, 1987 and commenced
operations in January 1988. Ibis' executive offices are located at 32 Cherry
Hill Drive, Danvers, Massachusetts 01923. Its telephone number is (978)
777-4247.
MARKETING, SALES AND CUSTOMERS
While the silicon wafer market is projected in the Rose Silicon Report
to grow at an approximate 16% compounded annual growth rate through 1999, the
SIMOX-SOI market is projected to expand at a 43% compounded annual growth rate
during the same period. The Company believes that these growth rates are
consistent with its capacity expansion and product development roadmap.
The Company intends to take advantage of this projected growth by
continuing to conduct a direct selling effort focused on the top 20 U.S.
semiconductor manufacturers, most of which are customers of the Company. Ibis'
sales personnel together with Ibis' senior management and engineering and
scientific personnel interact with the research and development, manufacturing,
purchasing and marketing departments of
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IBIS TECHNOLOGY CORPORATION
customers in assisting in the evaluation, prototyping and production of circuits
fabricated on its SIMOX-SOI wafers.
An important element of Ibis' selling strategy is its substantial
commitment to technical support for its customer base. Ibis offers detailed
technical assistance in the areas of device physics, material science, circuit
design, and semiconductor manufacturing, to facilitate customers' integration of
SIMOX-SOI technology into their product lines. Another important element of the
Company's sales and marketing strategy is to develop and maintain a reputation
for technical excellence. To this end, the Company frequently presents papers at
technical conferences and collaborates closely with the research and development
labs of selected customers, industry consortium and government laboratories on
advanced research projects. The Company believes that its ability to make this
technical expertise available to customers will accelerate the incorporation of
SIMOX-SOI technology into mainstream commercial applications.
Overseas, the Company relies on its direct sales force, together with
the use of manufacturer's representatives, to market its products. The Company
has a strategic alliance with Mitsubishi Materials, under which Mitsubishi
markets and sells in Japan SIMOX-SOI wafers manufactured by Ibis. The two
companies are also collaborating on joint research and development focused on
optimizing SIMOX-SOI process technology for high-volume commercial applications
with the ultimate objective of establishing SIMOX-SOI manufacturing capability
in Japan to service this marketplace. See "Business -- Strategic Alliances." The
Company has also targeted Korea, where it has a marketing arrangement, and
Europe, where it sells directly, as areas of focus for its products.
During the fiscal years ended 1995, 1996 and 1997 revenues from
Honeywell, IBM, Motorola, and Texas Instruments accounted for, in the aggregate,
approximately $2,554,000, $6,420,000 and $1,681,000 or approximately 55%, 68%
and 25% of the Company's revenues, respectively.
Customers of the Company that purchase wafers for military applications
are reliant in part on government funding, primarily from the Department of
Defense. During the fiscal years 1995, 1996, and 1997, approximately 18%, 10%
and 10% respectively, of the Company's product sales were generated by product
sales to such customers.
Sales to overseas customers in 1995 and 1996 were less than 10% of
total revenue in those periods. Sales to overseas customers in 1997 were 13% of
total revenue.
STRATEGIC ALLIANCES
The Company has entered into a number of strategic relationships which
the Company believes enables it to better address its target market, to advance
its technology more effectively, and to match its technical developments and
production expansion to the needs of its key customers.
In September 1995, the Company and Motorola entered into a strategic
business development agreement whereby Motorola advanced to Ibis the required
funding to build an Ibis 1000 implanter. The SIMOX-SOI wafer manufacturing
capacity of this implanter will be primarily dedicated to serving Motorola's
production requirements until at least December 31, 2000, with cash price
concessions to Motorola reflecting the amortization of the funding. Ibis has
agreed to grant to Motorola a security interest in the implanter to secure Ibis'
obligations to Motorola. The implanter which was fully funded by Motorola became
operational in September 1996, and Ibis is currently shipping wafers to Motorola
under the terms of this agreement. In connection with this agreement, the two
companies continue to work closely to advance Ibis' processing and testing
technology in conjunction with Motorola's rigorous quality standards.
In July 1994, the Company entered into a business development agreement
with Mitsubishi Materials
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IBIS TECHNOLOGY CORPORATION
under which Mitsubishi markets and sells in Japan SIMOX-SOI wafers manufactured
by Ibis. The two companies are also collaborating on joint research and
development focused on optimizing SIMOX-SOI process technology for high-volume
commercial applications with the ultimate objective of establishing SIMOX-SOI
manufacturing capability in Japan to service the marketplace. The agreement
contemplates that, depending upon the success of their marketing and research
and development arrangements, the parties will enter into future business
relationships for the manufacture and sale of SIMOX-SOI wafers. The initial term
of this agreement expired in July 1997 and was renewed for a one year period. It
can be terminated by either company after the initial term with 120 days written
notice.
From 1994 to 1997, Ibis participated in the Low Power Electronics
Program, sponsored by the Advanced Research Project Agency (ARPA), by performing
research and development and providing SIMOX-SOI wafers for evaluation by other
participants in the program. See "Business -- Research and Development." The
program's mission was to accelerate the development of all aspects of the next
generation of low power electronics. Ibis is also a participant in a program
sponsored by Sematech, a consortium of ten of the largest semiconductor
manufacturers in the United States, to facilitate high-volume production of
SIMOX-SOI wafers. These two complementary programs have provided Ibis with
funding, technology transfer, and visibility and interaction with semiconductor
manufacturers.
RESEARCH AND DEVELOPMENT
The Company has active research and development programs in both
equipment and process technology. Ibis' equipment engineers continually seek to
refine and enhance the capabilities of the Ibis 1000. Current development
projects are aimed at increasing the throughput capacity of the machine, thereby
lowering the per wafer production cost, improving beam line optics, increasing
beam current and the level of systems automation and 300 mm wafer size
capability. The Company's process engineers are refining techniques to produce
SIMOX-SOI wafers of higher quality, developing new processes to produce
SIMOX-SOI wafers with thinner buried oxide layers at lower cost and at the same
time responding to specific customer requirements -- all steps aimed at
enhancing the range of potential commercial applications for Ibis' SIMOX-SOI
wafers. As a result of these research and development efforts, in October 1996,
the Company announced a new SIMOX-SOI product, ADVANTOX(TM), which has received
positive responses from the customers that have tested these wafers. This
product has a thinner buried oxide layer and consequently the ability to
significantly increase the output of the Ibis 1000 implanter compared to the
standard SIMOX-SOI wafer product. During the fiscal years ended 1995, 1996 and
1997, the Company's internally funded research and development expenses were
approximately $1,582,000, $1,477,000 and $1,435,000 or 34%, 16% and 22% of the
Company's revenues, respectively.
Government sponsored research and development activities also comprise
a part of the Company's research and development effort. SIMOX-SOI technology is
important to various government agencies in large part due to its utility in
constructing high performance, radiation-tolerant defense and space-based
systems. As a result of this government sponsored research and development,
radiation-tolerant integrated circuits on Ibis-produced SIMOX-SOI wafers are now
in production for military applications at Honeywell and Allied-Signal
Aerospace. During the fiscal years ended 1995, 1996 and 1997, revenues from
government sponsored research and development contracts were approximately
$764,000, $396,000 and $1,235,000 or 16%, 4% and 19% of the Company's revenues,
respectively. Research and development expenses attributable to research
contracts are expensed as incurred and included in the cost of contract revenue.
The major focus of government-sponsored research and development has
been on improving SIMOX-SOI manufacturing and characterization methods and
processes to ensure that high quality SIMOX-SOI wafers are available for
commercial and military applications. The SBIR program, which is the largest
source of direct government support to the Company, has funded development of
advanced methods of SIMOX-SOI processing, resulting in improved fabrication and
characterization of SIMOX-SOI materials. The Company has
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IBIS TECHNOLOGY CORPORATION
received SBIR contracts from ARPA, the Ballistic Missile Defense Organization,
the Defense Special Weapons Agency, U.S. Army, the U.S. Air Force, the
Department of Energy, National Science Foundation, National Aeronautical and
Space Administration and the Strategic Defense Initiative Organization.
Similarly, the Company expects its cooperative research efforts with entities
including the Naval Research Laboratory, the Microelectronics Research
Laboratory, the National Institute of Standards, the Massachusetts Institute of
Technology, University of Florida, University of Arizona and Arizona State
University to yield benefits to the Company's ongoing commercialization
activities.
From 1994 to 1997, Ibis participated in the Low Power Electronics
Program, sponsored by ARPA. The program's mission was to accelerate the
development of all aspects of the next-generation of low power electronics,
including materials, technologies, and applications. The materials effort is
largely focused on development of processes which address high volume, low cost
SIMOX-SOI manufacturing requirements of the mainstream commercial integrated
circuits industry. Extensive experimental work focused on the optimization of
thinner buried oxide processes to address these requirements. This development
work is consistent with the Company's internal research and development efforts.
The ARPA program provided a large practical database for the development of thin
buried oxide SIMOX-SOI and established a baseline recipe for low cost, high
integrity thin buried oxide SIMOX-SOI product. In addition, the ARPA program
served to promote the deployment of SIMOX-SOI technology in commercial low power
electronics applications. In July 1995, Ibis agreed to develop SIMOX-SOI wafers
for the ARPA program as a subcontractor to a major semiconductor manufacturer.
In 1995, 1996 and 1997, the Company sold approximately $590,000, $568,000 and
$60,000, respectively, of SIMOX-SOI wafers under this program. The program was
completed in February 1997.
Contracts with government agencies require compliance with applicable
government regulations and are generally subject to competitive bidding,
extensive regulation and cancellation at the government's sole discretion.
Pursuant to the terms of such government contracts, the Company will be required
to grant to the U.S. government a royalty-free nonexclusive worldwide license to
any inventions claimed by the Company which were funded by the U.S. government.
Government contracts are subject to termination at the election of the relevant
agency. Additionally, these agreements are subject to negotiated overhead rates
and work performed under government contracts is subject to audit and
retroactive adjustments of amounts paid to the Company.
COMPETITION
Ibis faces three general sources of competition: direct SIMOX-SOI
competition, competing SOI technologies, and competing non-SOI technologies.
Among direct SIMOX-SOI competitors, Ibis is presently the only U.S.
manufacturer of SIMOX-SOI wafers. The first generation oxygen implanter, the
NV-200, was produced in limited quantities by Eaton Corporation and just six are
in operation worldwide. The Company believes that Eaton has no plans to
manufacture additional NV-200's. Of these six implanters, Ibis owns two which
were removed from production in 1997. All SIMOX-SOI wafers are currently
manufactured by Ibis on its proprietary second generation oxygen implanter, the
Ibis 1000. The Company believes that the remaining four NV-200's are owned by
Nippon Telephone and Telegraph ("NTT"), the Fraunhofer Institute, Nippon Steel,
and SOITEC, and only Nippon Steel and SOITEC use these machines for commercial
production, as opposed to research. To date, SOITEC, a French-based company that
spun off from LETI, a French government research lab, has been the primary
source of competition for Ibis. In 1995, Hitachi began marketing its oxygen
implanter and, the Company believes, has sold two to date, to Komatsu and Nippon
Steel. Both Komatsu, in partnership with NTT and Nippon Steel, are marketing
SIMOX-SOI material. The Company believes that, at this stage of the market's
development, the availability of alternate sources of SIMOX-SOI wafers will help
address customer concerns about the lack of available alternate sources of
supply.
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The second source of competition for Ibis is the development of
alternative SOI materials. Two distinct approaches for this method of production
are silicon-on-sapphire ("SOS") and thin-film bonded wafers. In SOS technology,
circuitry is constructed in a layer of silicon which has been deposited on a
sapphire substrate. This material has been used in the construction of radiation
resistant circuits. However, several problems with this material, including
large current conduction in the sapphire when exposed to radiation, brittleness
causing breakage during integrated circuit fabrication and large mismatches
between sapphire and silicon crystal structures, have led to performance and
manufacturability limitations.
Thin-film bonded wafers are constructed by bonding two wafers and then
thinning one of the two layers. In this approach, two bulk silicon wafers, each
with a thermally-grown oxide layer, are first bonded together to form a
silicon/silicon dioxide/silicon wafer. Several alternatives are currently being
explored across the industry to perform the subsequent thinning process --
including mechanical polishing, chemical etching (e.g. the BESOI process),
plasma assisted chemical etching (e.g., the PACE process used by IPEC to create
AcuThin(TM) wafers), bond and selective etching of porous silicon (e.g., Canon
Eltran(R) process) or an implant-enhanced slicing of the wafer (e.g., the
(R)Smartcut process of SOITEC, used to produce (R)Unibond wafers). If this
approach becomes commercially successful, this process could reduce the
competitive cost disadvantage of the bonded wafer method. While the bonded wafer
approach has the advantages that the buried oxide can be made very thick and
that the top silicon layer is generally of very high quality, the Company
believes it suffers from two limitations. To date, achieving uniformity in the
top silicon layer comparable to that of SIMOX-SOI has proven difficult. Also,
the requirement to use two silicon wafers and perform complex processing has, to
date, resulted in a relatively high cost structure for bonded wafers. As wafer
diameters increase, the Company believes that dealing with these limitations may
become increasingly difficult.
The third source of competition is derived from alternative non-SOI
technologies designed to obtain benefits similar to those of SOI, including
improvements to existing technologies. Significant resources are continually
expended to address the shortcomings of epitaxial and bulk silicon wafers. The
semiconductor industry has demonstrated its resourcefulness in overcoming device
physics problems with these materials through creative circuit design and
manufacturing techniques, thereby extending the useful life of conventional
substrates, and there can be no assurance that it will not continue to do so.
The relatively lower cost of these substrates provides an incentive to the
semiconductor industry to solve these problems without moving to new, more
advanced substrates. In addition, complex variations of more conventional
approaches, such as elaborate circuit structures built on bulk silicon
substrates, and compound materials (silicon-germanium, gallium-arsenide, indium
phosphide, etc.), are still in various research and development phases.
BACKLOG
The Company's backlog consists of written orders for SIMOX-SOI wafers
to be delivered during 1998 and research and development (R&D) contracts to be
performed during 1998 and 1999. As of February 28, 1998, the backlog was
$1,542,000 in wafer orders and approximately $1,233,000 in R&D contracts. This
is compared with a backlog of approximately $910,000 in wafer orders and
$800,000 in contracts at February 28, 1997. Approximately 68% of the backlog is
for four-inch wafers, 6% is for five and six-inch wafers, and 26% is for
eight-inch wafers. As customers of the Company move from development and pilot
production into volume production, the Company expects much of the increased
demand will be for eight-inch wafers. Approximately 95% of the present product
backlog is comprised of orders for commercial applications and approximately 91%
is comprised of orders from five customers of the Company. All customer orders
are subject to modification or cancellation by the customers.
Backlog can fluctuate greatly based upon, among other matters, the
timing of receipt of orders. Therefore, variations in backlog may not represent
a fair indication of future business trends.
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PATENTS AND PROPRIETARY RIGHTS
The Company has an exclusive worldwide sublicense to the proprietary
beam scanning system developed and patented by a consultant to the Company
during the development of the Ibis 1000. The sublicense agreement obligates the
Company to pay a royalty of 1% of all revenue derived from the sale and
servicing of products incorporating or produced with the sublicensed technology,
including oxygen implantation machines and oxygen-implanted wafers, up to a
maximum aggregate payment of $160,000. As of February 28, 1998, the Company has
paid $138,241 of this royalty.
The Company's beam scanning system sublicense agreement also grants the
Company certain rights to further sublicense the beam scanning system for
certain applications other than oxygen implantation. Pursuant to these rights,
the Company has entered into four non-exclusive sublicense agreements that
permit the respective sublicensees to manufacture, use and sell implantation
machines incorporating the beam scanning system so long as such machines are not
designed for the production of oxygen implanted wafers. Each sublicensee has
paid to the Company a non-refundable option fee upon signing an agreement and an
initial license fee when it exercised its option to use the licensed technology.
In addition, each sublicensee will pay a royalty fee with respect to each
implantation machine manufactured, used or sold after its option fee and initial
license fee has been applied. License fees received by the Company from
sublicenses are to be shared on a substantially equal basis with the Company's
sublicensor of the beam scanning system. As of December 31, 1997, the Company
has received approximately $715,000 in net license fees, after deducting amounts
paid to the sublicensor.
One of these non-exclusive license agreements (the "License Agreement")
was entered into in June 1996 with Orion Equipment, Inc. ("Orion"). In April
1997, the Company entered into a Consulting Services Agreement (the "Consulting
Agreement") with Orion, under which the Company has provided consulting services
to Orion in order to assist Orion in its product development using the beam
scanning sublicense. The Consulting Agreement provides that while Orion retains
ownership of any information, know-how, inventions and discoveries produced by
or as a result of the consulting services provided by the Company to Orion, the
Company has a perpetual, non-exclusive, royalty fee, worldwide license to
utilize such information and discoveries in connection with the commercial
production of SIMOX-SOI wafers and machines. In 1997, the Company received from
Orion a $62,500 license fee under the License Agreement and approximately
$1,749,000 in revenues under the Consulting Agreement (during 1995, 1996 and
1997, revenues under the Consulting Agreement were approximately 0%, 2% and 26%,
respectively, of the Company's total revenues). Revenues under the Consulting
Agreement have decreased substantially since the beginning of 1998 and the
Company expects that all work under the Consulting Agreement will cease by the
end of the second quarter of 1998.
The Company has also obtained an exclusive license to technology
developed by Superion Limited, a United Kingdom corporation, that facilitates
presentation of wafers to ion beams. The Company has paid $90,000 for license
fees at the rate of $30,000 per implantation machine that has been manufactured
by the Company. Under the terms of this agreement, Superion Limited has retained
the right to utilize the technology for uses not involving oxygen implantation
of silicon or other semiconductor materials.
Although the Company owns or has exclusive rights to several patents
and several pending applications, and the Company diligently monitors the
research and development process to identify inventions which warrant pursuing
patent protection, the Company relies largely upon trade secret protection to
safeguard its proprietary technology. Each of the Company's employees is
currently required to execute confidentiality agreements pursuant to which they
agree to assign to the Company all patent rights and technical or other
information developed by the employees during their employment with the Company,
and agree not to disclose any trade secret or confidential information without
the prior written consent of the Company. Notwithstanding these confidentiality
agreements, no assurance can be given that other companies will not acquire
information which the Company considers to be proprietary. Moreover, no
assurance can be given that the Company's patent rights will be enforceable or
provide the Company with meaningful protection from competitors or that patent
applications will be allowed. Even if a competitor's products were to infringe
patents owned by the Company, it would be very costly for the Company to enforce
its rights in an enforcement action, which would also divert funds and resources
which otherwise could be used in the Company's operations. No assurance can
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be given that the Company would be successful in enforcing such rights, that the
Company's products or processes do not infringe the patent or intellectual
property rights of a third party, or that if the Company is not successful in a
suit involving patents or other intellectual property rights of a third party,
that a license for such technology would be available, if at all, on
commercially reasonable terms.
Pursuant to the terms of its government contracts, the Company will be
required to grant to the U.S. government a royalty-free non-exclusive worldwide
license to any inventions claimed by the Company which were funded by the U.S.
government.
GOVERNMENT REGULATION
The Company has entered into certain research and development contracts
with agencies of the United States government which require compliance with
applicable government regulations. These contracts are generally subject to
competitive bidding and extensive regulation and are generally subject to
cancellation at the U.S. government's sole discretion. See "Business -- Research
and Development."
The Company is subject to a variety of federal, state and local
environmental regulations related to the storage, treatment, discharge or
disposal of chemicals used in its operations and exposure of its personnel to
occupational hazards. Although the Company believes that it has all permits
necessary to conduct its business, the failure to comply with present or future
regulations could result in fines being imposed on the Company, suspension of
production or a cessation of operations. The Company's future activities may
result in it being subject to additional regulation. Such regulations could
require the Company to acquire significant equipment or to incur other
substantial expenses to comply with regulations. Any failure by the Company to
control the use or to restrict adequately the discharge of, hazardous substances
or to properly control other occupational hazards could subject it to
substantial financial liabilities.
MANUFACTURING AND SUPPLIES
The Company manufactures its Ibis 1000 oxygen implanters from standard
components and from components manufactured in-house or by other vendors
according to the Company's design specifications. Most raw materials and
components not produced by the Company are available from more than one
supplier. However, certain raw materials, components and subassemblies are
obtained from a limited group of suppliers. Although the Company seeks to reduce
its dependence on these limited source suppliers and the Company has not
experienced significant production delays due to unavailability or delay in
procurement of component parts or raw materials to date, disruption or
termination of certain of these sources could occur and such disruptions could
have a material adverse effect on the Company's business and results of
operations.
The Company manufactures its SIMOX-SOI wafers using conventional bulk
silicon wafers and a variety of chemicals and gases, all of which are available
from multiple sources. The Company orders the wafers, chemicals and gases
pursuant to blanket purchase orders which generally may be modified or cancelled
by the Company upon 60 days' prior notice to the vendor. The Company is
currently able to purchase its required supply of bulk silicon wafers from its
normal sources. In the periods of increasing demand in the semiconductor
industry for silicon wafers, there is no assurance that the Company will be able
to purchase an adequate supply of such silicon wafers for manufacture of its
products at or near current prices, if at all. Any shortages in the availability
of silicon wafers or a significant increase in the price of silicon wafers could
have a material adverse effect on the Company's business and results of
operations.
EMPLOYEES
As of February 28, 1998, the Company employed 52 persons on a full-time
basis, and three people on a permanent part-time basis. None of the Company's
employees is represented by a labor union and the Company believes its relations
with its employees are good.
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IBIS TECHNOLOGY CORPORATION
BUSINESS OUTLOOK
This Form 10-K contains forward-looking statements within the meaning
of the "safe harbor" provisions of the Private Securities Litigation Reform Act
of 1995. Such statements are based on management's current expectations and are
subject to a number of factors and uncertainties which could cause actual
results to differ materially from those described in the forward-looking
statements. Such factors and uncertainties include, but are not limited to, the
uncertainty that the performance advantages of SIMOX-SOI wafers will be realized
commercially or that a commercial market for SIMOX-SOI wafers will continue to
develop; the dependence by the Company on key customers (during 1995, 1996 and
1997, revenues from four customers averaged in the aggregate 25% and 68% of the
Company's revenues, so that the loss of one or more of these major customers and
the failure of the Company to obtain other sources of revenue could have a
material adverse impact on the Company); the dependence by the Company on
revenues from its consulting arrangement with Orion (during 1995, 1996 and 1997,
consulting revenues were approximately 0%, 2% and 26%, respectively, of the
Company's revenues, so that the expected loss of Orion as a source of consulting
fees by the end of the second quarter of 1998 and the failure of the Company to
obtain other sources of consulting revenue could have a material impact on the
Company); the loss of the services of one or more of the Company's key
individuals, which could have a material adverse impact on the Company; the
development of competing or superior technologies and products from
manufacturers, many of which have substantially greater financial, technical and
other resources than the Company; the Company's lack of experience in producing
commercial quantities of its products at acceptable costs; the Company's ability
to develop and maintain strategic alliances for the manufacturing, marketing and
distribution of its products; the cyclical nature of the semiconductor industry,
which has negatively affected the Company's sales of SIMOX-SOI wafers during
industry downturns and which could continue to do so in the future; the limited
availability of critical materials and components for wafer products and
implanters, as a shortage of such materials and components or a significant
increase in the price thereof could have a material adverse effect on the
Company's business and results of operations; the availability of additional
capital to fund expansion on acceptable terms, if at all; and general economic
conditions.
ITEM 2. DESCRIPTION OF PROPERTY
Ibis' corporate office and manufacturing facilities are located at a
leased facility in Danvers, Massachusetts. The facility, which has approximately
27,000 square feet of space, includes over 2,500 square feet of cleanroom, which
is designed to accommodate a total of four Ibis 1000 implanters. In addition,
the Company has an option to lease an additional contiguous space of
approximately 10,000 square feet on or before August 1, 1998. The Company's
current lease expires on December 31, 2003 and contains an option to renew for
five years. The Company believes that this space should be sufficient for
planned future manufacturing requirements.
Ibis' current manufacturing equipment includes two Ibis 1000 implanters
including one that is primarily dedicated to Motorola's production requirements,
as well as advanced annealing and cleaning equipment. Two additional Ibis 1000
implanters are currently under construction. One of the implanters is
anticipated to be completed during the first quarter of 1998, the other during
the second half of 1998.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings,
and management is not aware of any contemplated proceeding by any governmental
authority against the Company of a material nature.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to stockholders during the fourth quarter of
the year ended December 31, 1997.
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PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's Common Stock and Redeemable Warrants began trading on May
20, 1994 on the Nasdaq SmallCap Market and on the Boston Stock Exchange. Prior
to May 20, 1994, there was no public market for the Common Stock, the Redeemable
Warrants or any other securities of the Company. On April 4, 1996, the Company
commenced trading on the Nasdaq National Market System. The Company's Common
Stock is traded under the symbol "IBIS". The Company's Redeemable Warrants were
traded under the symbol "IBISW". These Warrants were redeemed on August 26, 1997
and therefore no longer trade on Nasdaq. Holders of approximately 92.5% of the
Warrants elected to exercise the conversion option of the Warrant. As a result,
the Company received approximately $10.2 million of net proceeds and issued
approximately 1,327,000 shares of Common Stock. The following tables set forth,
for 1996 and 1997, the high and low sales prices for the Common Stock and the
Redeemable Warrants, as reported by the Nasdaq Small Cap Market and the Nasdaq
National Market System.
<TABLE>
<CAPTION>
REDEEMABLE
----------
COMMON STOCK WARRANTS
---------------- ---------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
1996:
First Quarter............... $9.50 $6.00 $3.50 $1.88
Second Quarter.............. $11.25 $6.88 $5.50 $2.38
Third Quarter............... $9.13 $7.00 $4.00 $2.50
Fourth Quarter.............. $9.13 $6.75 $3.88 $2.63
1997:
First Quarter............... $8.13 $5.13 $3.00 $1.38
Second Quarter.............. $11.88 $5.13 $4.50 $1.50
Third Quarter(1)............ $12.88 $8.50 $4.19 $ .31
Fourth Quarter.............. $14.63 $7.00 -- --
</TABLE>
- -----------------
(1) For the Redeemable Warrants, through August 25, 1997.
STOCKHOLDERS
As of March 11, 1998, there were approximately 111 stockholders of
record of the 6,704,674 outstanding shares of Common Stock and approximately
3,100 beneficial owners of the Common Stock.
DIVIDENDS
The Company has never declared or paid any dividends and does not
anticipate paying such dividends on its Common Stock in the foreseeable future.
The Company currently intends to retain any future earnings for use in the
Company's business. The payment of any future dividends will be determined by
the Board of Directors in light of conditions then existing, including the
Company's financial condition and requirements, future prospects, restrictions
in financing agreements, business conditions and other factors deemed relevant
by the Board of Directors.
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IBIS TECHNOLOGY CORPORATION
RECENT SALES OF UNREGISTERED SECURITIES
During the fiscal year ended December 31, 1997, there were no sales of
securities that were required to be registered under the Securities Act of 1933.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below under the captions
"Statement of Operations Data" and "Balance Sheet Data" for, and as of the end
of each of the years in the five-year period ended December 31, 1997, are
derived from the financial statements of the Company, which financial statements
have been audited by KPMG Peat Marwick LLP, independent certified public
accountants. The audited balance sheets at December 31, 1997 and 1996 and the
related statements of operations and cash flows for each of the years in the
three-year period ended December 31, 1997 and the report thereon, are included
elsewhere in this Annual Report on Form 10-K. The data set forth below should be
read in conjunction with the Company's financial statements, related notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Product sales ........................ $ 2,747 $ 2,360 $ 3,822 $4,766 $ 3,389
4,766
Contract and other revenue ........... 1,331 890 811 887 3,285
Equipment revenue .................... -- -- -- 3,800 --
------- ------- ------- ------ -------
Total revenue ...................... 4,078 3,250 4,633 9,453 6,674
------- ------- ------- ------ -------
Cost of product sales ................ 2,012 3,255 4,071 4,042 4,827
Cost of contract and other revenue ... 622 399 349 320 2,454
Cost of equipment revenue ............ -- -- -- 2,625 --
------- ------- ------- ------ -------
Total cost of revenue .............. 2,634 3,654 4,420 6,987 7,281
------- ------- ------- ------ -------
Gross profit (loss) ................ 1,444 (404) 213 2,466 (607)
------- ------- ------- ------ -------
Operating expenses:
General and administrative ......... 1,349 1,397 1,299 1,423 1,724
Marketing and selling .............. 347 362 495 515 466
Research and development ........... 875 1,237 1,582 1,477 1,435
Write off of prototype Ibis 1000 ... -- -- 724 -- --
------- ------- ------- ------ -------
Total operating expenses ........... 2,571 2,996 4,100 3,415 3,625
------- ------- ------- ------ -------
Loss from operations ............... (1,127) (3,400) (3,887) (949) (4,232)
------- ------- ------- ------ -------
Total other income (expense) ......... (31) (73) (105) 110 296
Proceeds from life insurance policy... -- 2,000 -- -- --
------- ------- ------- ------ -------
Loss before income taxes ............. (1,158) (1,473) (3,992) (839) (3,936)
Income tax expense ................... (1) (1) (1) (1) (1)
------- ------- ------- ------ -------
Net loss ............................. $(1,159) $(1,474) $(3,993) $ (840) $(3,937)
======= ======= ======= ====== =======
Net loss per common share(1) ......... $ (.70) $ (.53) $ (1.17) $ (.18) $ (.69)
======= ======= ======= ====== =======
Weighted average common shares
outstanding ........................ 1,701 2,819 3,424 4,723 5,710
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------ -------
(IN THOUSANDS)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Working capital (deficit)............. $ (761) $ 3,712 $ 3,463 $8,068 $12,857
------- ------- ------- ------ -------
Total assets.......................... 5,907 12,282 10,958 19,542 24,918
Long-term debt, less current portion.. 835 1,022 2,104 973 499
Total liabilities..................... 3,555 3,635 6,149 5,178 4,161
Redeemable preferred stock............ 6,614 -- -- -- --
Stockholders' equity (deficit)........ (4,262) 8,647 4,809 14,364 20,757
</TABLE>
- ----------
(1) Computed on the basis described for net earnings (loss) per common share in
Note 2(g) of Notes to Financial Statements.
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IBIS TECHNOLOGY CORPORATION
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Financial Statements of the Company (including Notes thereto) and Selected
Financial Data included elsewhere in this Annual Report on Form 10-K.
OVERVIEW
The Company was formed in October 1987 and commenced operations in
January 1988. The Company's initial activities consisted of producing and
selling SIMOX-SOI wafers and conducting funded and unfunded research and
development activities. This research led to the Company's development of a
proprietary second generation implanter, the Ibis 1000, and to other proprietary
process technology.
Until 1993, much of the Company's revenue was derived from research and
development contracts and sales of SIMOX-SOI wafers for military applications.
Over the past few years, there has been a shift in revenue to sales of SIMOX-SOI
wafers for commercial applications. For the fiscal year ended December 31, 1997,
commercial product sales (measured in dollar volume) represented 83% of total
product sales compared with 48% of total product sales for the fiscal year ended
December 31, 1993. To date, most customers of the Company that have purchased
wafers for what the Company believes are commercial applications have done so
solely for the purpose of characterizing and evaluating the wafers. Thus,
historical sales are not necessarily indicative of future operations because
such sales would not be considered of a recurring nature. In the second quarter
of 1997, however, the Company announced that two of its customers had indicated
their intentions to adopt SIMOX-SOI technology in commercial products.
During 1996 the Company recognized revenue from the sale of an Ibis
1000 implanter to a semiconductor manufacturer. This is the first implanter the
Company has sold and accounted for 40% of total revenue in 1996. During the
first quarter of 1998, the Company entered into negotiations with two current
customers of the Company for the sale of an aggregate of three Ibis 1000
implanters. There can be no assurance that the Company will successfully
complete these negotiations to sell the implanters. Quarterly wafer sales
remained relatively consistent in the range of $1.1 to $1.3 million per quarter
during 1996. During 1997 wafer sales fell below that range due to reduced wafer
requirements from one of the Company's customers. In addition, repair and
maintenance on the first Ibis 1000, use of the second Ibis 1000 for SIMOX-SOI
development, and a mismatch of capacity and wafer size requirements of customer
orders all contributed to the quarterly fluctuation in wafer sales. The Company
may continue to see fluctuations in revenue as customer demands shift during
various stages of the SIMOX-SOI sales cycle and until the Company has a
sufficient number of Ibis 1000's on-line such that specific implanters can be
dedicated to the various products, sizes and continued research and development
efforts.
The Company currently has two Ibis 1000 oxygen implanters on-line, one
of which is primarily dedicated to serve Motorola's production requirements, and
is currently constructing two additional Ibis 1000 implanters. One Ibis 1000 is
anticipated to be completed during the first quarter of 1998, the other during
the second half of 1998. During the fiscal year ended December 31, 1997, the
Company phased the two NV-200 implanters out of production. Consequently, all
SIMOX-SOI wafers are being produced on the Ibis 1000's. As the Company expands
its production capacity in anticipation of expected increases in demand, it is
anticipated that gross margins on product sales will initially be adversely
affected until the implanters operate at or near full capacity. There can be no
assurance, however, that the Company will succeed in attracting a sufficient
number of customers and/or orders for SIMOX-SOI wafers to offset such production
costs or that the Company will prevail over its competition.
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IBIS TECHNOLOGY CORPORATION
RESULTS OF OPERATIONS
FISCAL YEAR ENDED DECEMBER 31, 1997 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1996
PRODUCT SALES. Product sales decreased to $3,389,128 for the fiscal
year ended December 31, 1997, a decrease of $1,376,680 or 29% from $4,765,808
for the fiscal year ended December 31, 1996. The decrease in product sales is
primarily attributable to reduced wafer requirements from one customer who
supplied its own wafers using the Ibis 1000 it had purchased from the Company in
late 1996. Sales to this customer accounted for 41% of total product sales in
1996 and less than 3% of total product sales in 1997.
CONTRACT AND OTHER REVENUE. Contract and other revenue increased for
the fiscal year ended December 31, 1997 to $3,284,695 from $887,098 for the
fiscal year ended December 31, 1996, an increase of 270%. This increase is
attributable to revenues derived from a contract for consulting services related
to implementation of the magnetic scanning technology previously licensed to
this customer (Orion), as well as a nine-fold increase in government contract
revenue over the same period in 1996. During 1997, the Company began selling
spare parts to the purchaser of the Ibis 1000 implanter, a major semiconductor
manufacturer. Revenue from the Orion contract, government contracts and spare
parts and other services amounted to approximately $1,749,000, $952,000 and
$584,000, respectively, during 1997. Revenues under the Orion contract have
decreased substantially since the beginning of 1998 and the Company expects that
all work under the Orion contract will cease by the end of the second quarter of
1998.
EQUIPMENT REVENUE. There were no equipment sales during 1997 and no
firm commitments for additional sales currently exist (although in the first
quarter of 1998, the Company entered into negotiations with two current
customers of the Company for the sale of an aggregate of three Ibis 100
implanters). Equipment revenue of $3,800,000 in 1996 represents the recognition
on a percentage of completion basis, determined by milestone accomplishments, of
the sale of an Ibis 1000 implanter to one of the world's leading semiconductor
manufacturers. This equipment was shipped to the customer during the fourth
quarter of 1996. The amount of equipment revenue recognized represents 95% of
the total equipment revenue from this sale. The balance of equipment revenue
from this sale will be recognized upon the delivery of certain software upgrades
in 1998. This sale represents the only sale of an Ibis 1000 implanter to a
customer to date.
TOTAL REVENUE. Total revenue for the fiscal year ended December 31,
1997 was $6,673,823, a decrease of $2,779,083 or 29% from total revenue of
$9,452,906 for the fiscal year ended December 31, 1996. The recognition of
equipment revenue of $3,800,000 accounted for 40% of total revenue in 1996. This
decrease resulted from lack of equipment revenue and the decrease in product
sales, which were partially offset by increases in contract and other revenue.
COST OF PRODUCT SALES. Cost of product sales for the fiscal year ended
December 31, 1997 was $4,826,794, as compared to $4,041,170 for the fiscal year
ended December 31, 1996, an increase of $785,624 or 19%. The increase in cost of
product sales primarily resulted from increases in depreciation expense,
payroll, utilities, repairs and maintenance and epitaxial material expenses. In
addition, during 1997 the Company wrote off approximately $300,000 in obsolete
inventory which did not meet the Company's current quality standards based on
the Ibis 1000 implanter capability. The negative gross margin from product sales
for the fiscal year ended December 31, 1997 was 42%, as compared with a gross
margin of 15% for the fiscal year ended December 31, 1996. The decrease is
primarily attributable to the fundamental fixed cost nature of product costs
which did not have a reduction commensurate with the decrease in product sales.
COST OF CONTRACT AND OTHER REVENUE. The cost of contract and other
revenue for the fiscal year ended December 31, 1997 was $2,454,384, as compared
to $320,522 for the fiscal year ended December 31, 1996, an increase of
$2,133,862 or 666%. The increase is a result of changes in the make-up of
contract and
18
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IBIS TECHNOLOGY CORPORATION
other revenue. Cost of contract and other revenue consists of labor and
materials expended in performing contract services and includes the cost of
spare parts.
COST OF EQUIPMENT REVENUE. The cost of equipment revenue represents all
costs related to the equipment revenue that was recognized in 1996 on a
percentage of completion basis for the Ibis 1000 implanter. It includes the
costs to design, build, test and warranty this implanter for one year from date
of site acceptance. The gross margin in 1996 from the sale of this implanter was
31%.
TOTAL COST OF REVENUE. Total cost of revenue for the fiscal year ended
December 31, 1997 was $7,281,178, as compared to $6,986,692 for the fiscal year
ended December 31, 1996, an increase of $294,486 or 4%. This increase is due to
increases in cost of product sales and contract and other revenue, which were
offset by lack of equipment cost of revenue.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses for the fiscal year ended December 31, 1997 were $1,723,852 (26% of
total revenue) as compared to $1,423,476 (15% of total revenue) for the fiscal
year ended December 31, 1996, an increase of $300,376 or 21%. This results from
increases in legal fees, transfer agent fees, liability insurance, and severance
costs associated with a management reorganization.
MARKETING AND SELLING EXPENSES. Marketing and selling expenses for the
fiscal year ended December 31, 1997 were $466,269 (7% of total revenue) as
compared to $515,408 (6% of total revenue) for the fiscal year ended December
31, 1996, a decrease of $49,139 or 10%. The decrease in marketing and sales
expenses is primarily a result of a decrease in payroll and payroll related
expenses.
RESEARCH AND DEVELOPMENT EXPENSES. Internally funded research and
development expenses decreased by $42,501 or 3% to $1,434,543 (22% of total
revenue) for the fiscal year ended December 31, 1997 from $1,476,594 (16% of
total revenue) for the fiscal year ended December 31, 1996. This decrease is
primarily due to the Company's increase in billable labor on various contracts
resulting in these charges being classified as cost of revenues. This was offset
by an increase in material expense primarily associated with the write-off of
parts and wafer holders for the Ibis 1000 implanters due to continued
improvements or upgrades.
LOSS FROM OPERATIONS. The loss from operations for the fiscal year
ended December 31, 1997 was $4,232,019, as compared to a loss from operations of
$949,264 for the fiscal year ended December 31, 1996. The increase in the loss
from operations of $3,282,755 is a result of decreased product sales and lack of
equipment revenue.
OTHER INCOME (EXPENSE). Total other income for the fiscal year ended
December 31, 1997 was $295,819 as compared to $110,404 for the fiscal year ended
December 31, 1996. The increase in other income is due to decreased interest
expense on capitalized leases.
LOSS BEFORE INCOME TAXES. The loss before income taxes was $3,936,200
for the fiscal year ended December 31, 1997, as compared to $838,860 for the
fiscal year ended December 31, 1996. The increase in the loss before income
taxes of $3,097,340 is a result of decreased product sales and lack of equipment
revenue.
As of December 31, 1997, the Company had net operating loss and general
business credit carryforwards of approximately $16,619,000 and $344,000,
respectively, for tax purposes expiring through 2011. As a result of the stock
offering that closed in April 1996 of 1,600,000 shares at $7.25 per share, a
change of ownership within the meaning of Internal Revenue Code Sec. 382(g)
occurred. As a result of this ownership change, the net operating loss
carryforward utilization is limited to approximately $1,500,000 per year, which
limitation, if not utilized, can be carried forward to future years.
19
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IBIS TECHNOLOGY CORPORATION
FISCAL YEAR ENDED DECEMBER 31, 1996 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1995
PRODUCT SALES. Product sales increased to $4,765,808 for the fiscal
year ended December 31, 1996, an increase of $943,682 or 25% from $3,822,126 for
the fiscal year ended December 31, 1995. The increase in product sales is a
result of a 37% increase in product sales for commercial applications which is
attributable to several factors. The first Ibis 1000 implanter was in production
for a full year in 1996. It had been qualified and transferred to full scale
production during the second quarter of 1995. In addition, a second Ibis 1000
implanter was qualified and placed in full scale production during the third
quarter of 1996. With the additional product capacity, the number of wafers
shipped increased 24% in 1996 from the prior year. The transition to the higher
priced eight-inch wafers continued in 1996 with eight-inch wafer shipments
accounting for 32% of total shipments in 1996 compared with 16% of total
shipments in 1995.
CONTRACT AND OTHER REVENUE. Contract and other revenue increased for
the fiscal year ended December 31, 1996 to $887,098 from $811,200 for the fiscal
year ended December 31, 1995, an increase of 9%. This increase is due to receipt
of non-refundable net license fees for the Company's proprietary beam scanning
system for certain applications other than oxygen implantation and consulting
with respect to this technology, offset by lower government contractual
activity. Government contracts are subject to negotiated overhead rates, and
work performed under government contracts is subject to audit and adjustments of
amounts paid to the Company. The Defense Contract Audit Agency concluded its
audit of the Company in connection with the Company's 1990 through 1995 overhead
and general and administrative rates. The amount of the retroactive adjustments
of amounts previously paid to the Company was not material.
EQUIPMENT REVENUE. Equipment revenue of $3,800,000 in 1996 represents
the recognition on a percentage of completion basis, determined by milestone
accomplishments, of the sale of an Ibis 1000 implanter to one of the world's
leading semiconductor manufacturers. This equipment was shipped to the customer
during the fourth quarter of 1996. The amount of equipment revenue recognized
represents 95% of the total equipment revenue from this sale. The balance of
equipment revenue from this sale will be recognized upon the delivery of certain
software upgrades in 1998. This sale represents the only sale of an Ibis 1000
implanter to a customer in the Company's history.
TOTAL REVENUE. Total revenue for the fiscal year ended December 31,
1996 was $9,452,906, an increase of $4,819,580 or 104% from total revenue of
$4,633,326 for the fiscal year ended December 31, 1995. The recognition of
equipment revenue of $3,800,000 accounted for 79% of this increase in total
revenue in 1996.
COST OF PRODUCT SALES. Cost of product sales for the fiscal year ended
December 31, 1996 was $4,041,170, as compared to $4,071,672 for the fiscal year
ended December 31, 1995, a decrease of $30,502 or less than 1%. The decrease in
cost of product sales is a result of decreases in materials cost as more
customers supplied their own wafers in 1996, and decreases in depreciation
expense due to shorter depreciated life of the prototype Ibis 1000 implanter
which was written-off at the end of the third quarter of 1995 compared with the
standard depreciation life of the Ibis 1000 production implanter, offset by
increases in payroll, utilities, warranty and shipping expenses. The gross
margin from product sales for the fiscal year ended December 31, 1996 was 15%,
as compared with a negative gross margin of 7% for the fiscal year ended
December 31, 1995. The significant improvement in gross margin for the fiscal
year ended December 31, 1996 is primarily due to more effective utilization of
production capacity, which consists primarily of fixed costs, caused by a 25%
increase in product sales.
COST OF CONTRACT AND OTHER REVENUE. The cost of contract and other
revenue for the fiscal year ended December 31, 1996 was $320,522, as compared to
$349,029 for the fiscal year ended December 31, 1995, a decrease of $28,507 or
8%. The decrease is due to lower payroll and payroll related expenses partially
20
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IBIS TECHNOLOGY CORPORATION
offset by increased subcontract and materials cost as the nature of the contract
work changed during 1996 from the contract work performed during 1995. The
non-refundable net license fees included in contract and other revenue had no
costs associated with it.
COST OF EQUIPMENT REVENUE. The cost of equipment revenue represents all
costs related to the amount of the equipment revenue that was recognized in 1996
on a percentage of completion basis for the Ibis 1000 implanter. It includes the
costs to design, build, test and warranty this implanter for one year from date
of site acceptance. The gross margin in 1996 from the sale of this implanter was
31%.
TOTAL COST OF REVENUE. Total cost of revenue increased for the fiscal
year ended December 31, 1996 to $6,986,692, as compared to $4,420,701 for the
fiscal year ended December 31, 1995, an increase of $2,565,991 or 58%. This
increase is due to cost of equipment revenue, the costs of which are recognized
in relationship to the equipment revenue recognition.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses for the fiscal year ended December 31, 1996 were $1,423,476 (15% of
total revenue) as compared to $1,299,346 (28% of total revenue) for the fiscal
year ended December 31, 1995, an increase of $124,130 or 10%. This results from
increases in investor relations expense, transfer fees, consulting, liability
insurance, relocation costs and depreciation and amortization expenses.
MARKETING AND SELLING EXPENSES. Marketing and selling expenses for the
fiscal year ended December 31, 1996 were $515,408 (6% of total revenues) as
compared to $494,822 (11% of total revenue) for the fiscal year ended December
31, 1995, an increase of $20,586 or 4%. The increase in marketing and sales
expenses is a result of increases in payroll, payroll related expenses and
travel.
RESEARCH AND DEVELOPMENT EXPENSES. Internally funded research and
development expenses decreased by $104,910 or 7% to $1,476,594 (16% of total
revenue) for the fiscal year ended December 31, 1996 from $1,581,504 (34% of
total revenue) for the fiscal year ended December 31, 1995. This decrease is
primarily the result of certain expenses of the equipment design group being
excluded from research and development expenses and charged to the development
and building of Ibis 1000 implanters for internal and customer use. This
reduction was partially offset by increased expenses, primarily in the areas of
consulting and testing, associated with the wafer technology group's expanded
efforts in various quality improvement programs.
LOSS FROM OPERATIONS. The loss from operations for the fiscal year
ended December 31, 1996 was $949,264, as compared to a loss from operations of
$3,886,589 for the fiscal year ended December 31, 1995. The decrease in the loss
from operations of $2,937,325 is a result of the gross margin recognized on the
equipment revenue in 1996, the write-off of the prototype Ibis 1000 implanter in
1995, and the 25% increase in product sales in 1996 that resulted in a product
sales gross margin of 15% in 1996 compared with a negative product sales gross
margin in 1995 of 7%.
OTHER INCOME (EXPENSE). Total other income for the fiscal year ended
December 31, 1996 was $110,404 as compared with other expense of $104,950 for
the fiscal year ended December 31, 1995. The increase in other income is due to
interest earned from the proceeds of the April 1996 public offering, which was
partially offset by increased interest expense on capitalized leases.
LOSS BEFORE INCOME TAXES. The loss before income taxes was $838,860 for
the fiscal year ended December 31, 1996, as compared to $3,991,539 for the
fiscal year ended December 31, 1995. The decrease in the loss before income
taxes of $3,152,679, is a result of the gross margin recognized on the equipment
revenue in 1996, the write-off of the prototype Ibis 1000 implanter in 1995, the
25% increase in product sales
21
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IBIS TECHNOLOGY CORPORATION
in 1996 that resulted in a product sales gross margin of 15% in 1996 compared
with a negative gross margin in 1995 of 7% and the interest income from proceeds
of the secondary stock offering completed in April 1996.
SUBSEQUENT EVENTS
During the first quarter of 1998, the Company entered into
negotiations with two current customers of the Company for the sale of an
aggregate of three Ibis 1000 implanters. There can be no assurance that the
Company will successfully complete these negotiations to sell the implanters.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 Issue refers to potential problems with computer systems
or any equipment with computer chips or software that use dates where the date
has been stored as just two digits (e.g., 97 for 1997). On January 1, 2000, any
clock or date recording mechanism incorporating date sensitive software which
uses only two digits to represent the year may recognize a date using 00 as the
year 1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruption of operations, including, among other things,
a temporary inability to process transactions, send invoices, or engage in
similar business activities.
The Company is in the process of conducting a review of its internal
information systems to determine the extent of any Year 2000 problem. The
Company is still gathering information, but based on such review to date, the
Company does not believe that the impact of any Year 2000 problem will be
material, because its principal information systems appear to correctly define
the year 2000. Although there exists the possibility that Year 2000 issues will
be identified, based on such review to date, the Company does not currently
expect that any such problems will have a material adverse effect on the
Company's future operating results or financial condition.
The Company is in the process of contacting its major suppliers and
customers in an effort to determine the extent to which the Company may be
vulnerable to those parties' failure to timely correct their own Year 2000
problems. To date, the Company is unaware of any situations of noncompliance
that would materially adversely affect its operations or financial condition.
There can be no assurance, however, that instances of noncompliance which could
have a material adverse effect on the Company's operations or financial
condition will not be identified; that the systems of other companies with which
the Company transacts business will be corrected on a timely basis; or that a
failure by such entities to correct a year 2000 problem or a correction which is
incompatible with the Company's information systems would not have a material
adverse effect on the Company's operations or financial condition.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, the Company had cash and cash equivalents of
$13,309,823. During the fiscal year ended December 31, 1997, the Company used
$2,364,588 in cash for operating activities as compared to cash generated from
operations in the amount of $3,291,555 for the same period in 1996. Depreciation
and amortization expense for the fiscal years ended December 31, 1997 and 1996
was $2,063,018 and $1,678,070, respectively. This accounted for 31% and 18% of
total revenue, respectively. Due to the capital intensive nature of the
Company's business and the anticipated expansion of its production capacity,
management expects that depreciation and amortization will continue to be a
significant portion of its expenses. To date, the Company's working capital
requirements have been funded through debt and equity financings, warrant
conversions, equipment lines of credit, a working capital line of credit, a term
loan, sale leaseback arrangements and government contracts. The principal uses
of cash during the fiscal year ended December 31, 1997 were to fund the
Company's operations, construction of Ibis 1000 implanters and other
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IBIS TECHNOLOGY CORPORATION
additions to property and equipment which totaled approximately $5.7 million. As
of December 31, 1997, the Company had invested $17,695,312 in property and
equipment. At December 31, 1997, the Company had commitments to purchase
approximately $600,000 in material or subassemblies to be used in normal
operations and approximately $487,000 in capital equipment purchases.
On July 24, 1997, the Company notified the holders of its 1,380,000
publicly traded Redeemable Common Stock Purchase Warrants (the "Public
Warrants") and its 120,000 privately held Underwriter Redeemable Common Stock
Purchase Warrants (the "Underwriter Warrants") that it would redeem these
Warrants on August 26, 1997 at the redemption price of $.20 per Warrant. Prior
to August 26, 1997, the holder of a Public Warrant had the right to exercise
such Warrant to acquire 1.044 shares of the Company's Common Stock at a price of
$8.05 per share and the holder of an Underwriter Warrant had the right to
exercise such Warrant to acquire 1.09 shares of Common Stock at a price of $9.26
per share. The Company received net proceeds of approximately $10.1 million
through the exercise of its Public Warrants. The holders of approximately 92% of
these Warrants elected to exercise the Warrants rather than have them redeemed.
Approximately 1,327,000 shares of Common Stock were issued upon exercise of the
Public Warrants. None of the Underwriter Warrants were exercised.
On April 9, 1996, the Company completed a public offering of 1,600,000
shares of common stock at $7.25 per share. The Company's net proceeds were
approximately $10,300,000, after deducting approximately $1,300,000 for
underwriting discounts, commissions and other associated expenses. During the
third quarter of 1996, the Company's line of credit with a bank for both working
capital and term loan borrowing capability expired. It was not renewed since it
was not being used as a result of the completion of this public offering.
On November 22, 1995, the Company and Financing for Science
International, Inc. ("FSI") closed a sale-leaseback transaction, pursuant to
which the Company sold to FSI one Ibis 1000 oxygen implanter for $2,040,000, and
FSI leased back the implanter to the Company for an initial term of four years
at a monthly rent of $48,654. The Company has an option to repurchase the Ibis
1000 at the end of the initial four-year term at a price equal to the fair
market value, provided that such value may not be less than $204,000 nor more
than $408,000. If the Company does not exercise its option to purchase the Ibis
1000 at the end of the initial lease term, the lease will be automatically
renewed for an additional year at a monthly rent of $30,600. At the expiration
of the renewal period, the Company will have an option to repurchase the Ibis
1000 at the then current fair market value, provided that such price shall not
exceed $102,000. The Company provided FSI with a security reserve of $250,000 in
order to secure the Company's faithful performance of its obligations under the
leaseback. As partial consideration for this transaction, the Company issued to
FSI a warrant to purchase up to 35,478 shares of the Company's common stock,
exercisable until December 31, 2002 at an exercise price of $5.75 per share,
subject to adjustment upon the occurrence of certain events.
In September 1993, the Company entered into a $1,000,000 lease for a
used NV-200 oxygen implanter machine, for an initial term of forty-two months.
The Company had an option to repurchase the NV-200 at the end of the initial
forty-two month term at a price equal to the fair market value, provided that
such value was not less than $250,000. Since the Company elected not to exercise
its purchase option, the Company is obligated to use its reasonable best efforts
in cooperation with the lessor to remarket the NV-200. The Company must pay any
shortfall in the amount realized by the lessor below $250,000. The Company has
entered into an arrangement with a third party who is actively trying to sell
the NV-200. The $250,000 remarketing obligation is currently due and has been
accrued for over the life of the lease.
The Company anticipates that it may be required to raise substantial
additional capital in the future in order to finance expansion of its
manufacturing capacity and its research and development programs. The Company's
existing cash resources together with funds generated from operations are
believed to be sufficient to support the Company's operations on their
anticipated scale for at least the next twelve months. Management of the Company
currently believes that this anticipated scale of operations will include
additional
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IBIS TECHNOLOGY CORPORATION
Ibis 1000 oxygen implanters (in addition to its two oxygen implanters currently
on-line), the purchase of support equipment and expansion of the Company's
facilities. Additional implanters are expected to be transferred to production
at various times as additional capacity is needed to meet demand. During 1997
the Company phased the NV-200 implanters out of production; consequently, all
SIMOX-SOI wafers will be produced on the Ibis 1000 implantation equipment.
EFFECTS OF INFLATION
The Company believes that over the past three years inflation has not
had a significant impact on the Company's sales or operating results.
CHANGE IN MANAGEMENT
Effective December 1, 1997, Martin J. Reid became President and Chief
Executive Officer and a member of the Company's Board of Directors. Mr. Reid
succeeded Dr. Geoffrey Ryding as President and Chief Executive Officer. Dr.
Ryding will remain a member of the Board of Directors.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share." SFAS 128 establishes a different method of computing net income per
share than is currently required under the provisions of Accounting Principles
Board Opinion No. 15. Under SFAS No. 128, the Company will be required to
present both basic net income per share and diluted net income per share. Basic
net income per share is expected to be higher than the currently presented net
income per share as the effect of dilutive stock options will not be considered
in computing basic net income per share. The Company adopted SFAS No. 128 in its
quarter ended December 31, 1997 and both basic and diluted net loss per share
represent the same number due to antidilution factors.
In June 1997, the Financial Accounting Standards Board issued SFAS 130,
"Reporting Comprehensive Income," which establishes standards for reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. Under this concept, all revenues,
expenses, gains and losses recognized during the period are included in income,
regardless of whether they are considered to be results of operations of the
period. SFAS 130, which becomes effective for the Company in its year ending
December 31, 1998, is not expected to have a material impact on the financial
statements of the Company.
In June 1997, the Financial Accounting Standards Board issued SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information," which
establishes standards for the way that public business enterprises report
selected information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports to shareholders. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. SFAS 131, which becomes effective for the Company in its
year ending December 31, 1998, is currently not expected to have a material
impact on the Company's financial statements and footnote disclosures.
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IBIS TECHNOLOGY CORPORATION
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
IBIS TECHNOLOGY CORPORATION
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Financial Statements: PAGE
NUMBER
------
Independent Auditors' Report.......................................... 26
Balance Sheets as of December 31, 1996 and 1997....................... 27
Statements of Operations for the Years Ended
December 31, 1995, 1996 and 1997................................... 28
Statements of Stockholders' Equity for the Years Ended
December 31, 1995, 1996 and 1997.................................. 29
Statements of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997 .............................................. 30
Notes to Financial Statements......................................... 31
Schedule:
Schedule II - Valuation and Qualifying Accounts....................... 46
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IBIS TECHNOLOGY CORPORATION
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Ibis Technology Corporation:
We have audited the accompanying balance sheets of Ibis Technology
Corporation as of December 31, 1996 and 1997, and the related statements of
operations, stockholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Ibis Technology
Corporation at December 31, 1996 and 1997, and the results of its operations and
its cash flows for each of the years in the three-year period ended December 31,
1997, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
-------------------------
Boston, Massachusetts
February 19, 1998
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IBIS TECHNOLOGY CORPORATION
IBIS TECHNOLOGY CORPORATION
BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
------------ ------------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents................................... $ 9,201,016 $ 13,309,823
Accounts receivable, trade, net (notes 3 and 12)............. 920,388 1,064,607
Unbilled revenue............................................. 77,860 230,490
Inventories (note 4)........................................ 732,975 487,031
Prepaid expenses and other current assets................... 45,460 124,711
------------ ------------
Total current assets ............................... 10,977,699 15,216,662
------------ ------------
Property and equipment (notes 5 and 6) ....................... 14,392,843 17,695,312
Less: Accumulated depreciation and amortization............. (6,240,062) (8,250,372)
------------ ------------
Net property and equipment.......................... 8,152,781 9,444,940
Patents and other assets, net ................................ 411,902 256,638
------------ ------------
Total assets ....................................... $ 19,542,382 $ 24,918,240
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Capital lease obligation, current (note 6).................. $ 657,070 $ 474,539
Accounts payable ........................................... 955,781 691,325
Accrued liabilities (notes 7 and 8)......................... 1,297,266 1,193,504
------------ ------------
Total current liabilities .......................... 2,910,117 2,359,368
Capital lease obligation, noncurrent (note 6) ................ 973,351 498,685
Other accrued liabilities (notes 7 and 8) .................... 1,294,963 1,303,187
------------ ------------
Total liabilities .................................. 5,178,431 4,161,240
------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTES 5 AND 6)
STOCKHOLDERS' EQUITY (NOTES 10 AND 11):
Undesignated preferred stock, $.01 par value.
Authorized 2,000,000 shares; none issued ................... -- --
Common stock, $.008 par value.
Authorized 10,000,000 shares; issued 5,182,148 shares
and 6,628,728 shares in 1996 and 1997, respectively ...... 41,457 53,030
Additional paid-in capital ................................. 25,292,217 35,593,999
Accumulated deficit ........................................ (10,952,573) (14,890,029)
Less: Notes receivable from stockholders ................... (17,150) --
------------ ------------
Total stockholders' equity .......................... 14,363,951 20,757,000
------------ ------------
Total liabilities and stockholders' equity .......... $ 19,542,382 $ 24,918,240
============ ============
</TABLE>
See accompanying notes to financial statements.
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IBIS TECHNOLOGY CORPORATION
IBIS TECHNOLOGY CORPORATION
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
----------- ---------- -----------
<S> <C> <C> <C>
Product sales ................................... $ 3,822,126 $4,765,808 $ 3,389,128
Contract and other revenue ...................... 811,200 887,098 3,284,695
Equipment revenue ............................... -- 3,800,000 --
----------- ---------- -----------
Total revenue (note 12) ............... 4,633,326 9,452,906 6,673,823
----------- ---------- -----------
Cost of product sales ........................... 4,071,672 4,041,170 4,826,794
Cost of contract and other revenue .............. 349,029 320,522 2,454,384
Cost of equipment revenue ....................... -- 2,625,000 --
----------- ---------- -----------
Total cost of revenue ....................... 4,420,701 6,986,692 7,281,178
----------- ---------- -----------
Gross profit (loss) ................... 212,625 2,466,214 (607,355)
----------- ---------- -----------
Operating expenses:
General and administrative .................... 1,299,346 1,423,476 1,723,852
Marketing and selling ......................... 494,822 515,408 466,269
Research and development ...................... 1,581,504 1,476,594 1,434,543
Write-off of prototype Ibis 1000 (note 5) ..... 723,542 -- --
----------- ---------- -----------
Total operating expenses .............. 4,099,214 3,415,478 3,624,664
----------- ---------- -----------
Loss from operations .................. (3,886,589) (949,264) (4,232,019)
----------- ---------- -----------
Other income (expense):
Interest income ............................... 138,665 462,481 471,590
Interest expense .............................. (255,429) (351,617) (176,027)
Other ......................................... 11,814 (460) 256
----------- ---------- -----------
Total other income (expense) .......... (104,950) 110,404 295,819
----------- ---------- -----------
Loss before income taxes ............. (3,991,539) (838,860) (3,936,200)
Income tax expense (note 9) ..................... 1,256 1,256 1,256
----------- ---------- -----------
Net loss .............................. $(3,992,795) $ (840,116) $(3,937,456)
=========== ========== ===========
Net loss per common share - basic and diluted ... $ (1.17) $ (.18) $ (.69)
=========== ========== ===========
Weighted average number of common shares
outstanding - basic and diluted ............. 3,423,864 4,722,025 5,709,931
=========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
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IBIS TECHNOLOGY CORPORATION
IBIS TECHNOLOGY CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
ADDITIONAL NOTES TOTAL
COMMON PAID-IN ACCUMULATED DEFERRED RECEIVABLE FROM STOCKHOLDERS'
STOCK CAPITAL DEFICIT COMPENSATION STOCKHOLDERS EQUITY
------- ------------ ------------ ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1994 ...... $26,550 $ 14,801,083 $ (6,119,662) $(43,593) $(17,150) $ 8,647,228
------- ------------ ------------ -------- -------- ------------
Amortization of deferred
compensation expense ........... -- (4,545) -- 28,895 -- 24,350
Issuance of warrants ............. -- 106,434 -- -- -- 106,434
Exercise of stock options ........ 1,544 22,332 -- -- -- 23,876
Net loss ......................... -- -- (3,992,795) -- -- (3,992,795)
------- ------------ ------------ -------- -------- ------------
BALANCES AT DECEMBER 31, 1995 ...... 28,094 14,925,304 (10,112,457) (14,698) (17,150) 4,809,093
Amortization of deferred
compensation expense ........... -- -- -- 14,698 -- 14,698
Public offering of 1,600,000
shares of common stock,
net of issuance costs .......... 12,800 10,292,401 -- -- -- 10,305,201
Issuance of 4,177 investor
relations shares ............... 33 17,967 -- -- -- 18,000
Exercise of warrants ............. -- 29,949 -- -- -- 29,949
Exercise of stock options ........ 530 26,596 -- -- -- 27,126
Net loss ......................... -- -- (840,116) -- -- (840,116)
------- ------------ ------------ -------- -------- ------------
BALANCES AT DECEMBER 31, 1996 ...... 41,457 25,292,217 (10,952,573) -- (17,150) 14,363,951
Exercise of underwriter
redeemable warrants ............ -- 1,080 -- -- -- 1,080
Exercise of underwriter non-
redeemable warrants ............ 38 37,781 -- -- -- 37,819
Exercise of redeemable public
warrants ....................... 10,614 10,057,238 -- -- -- 10,067,852
Surrender of warrants ............ -- (48,300) -- -- -- (48,300)
Exercise of stock options ........ 921 237,600 -- -- -- 238,521
Compensation expense
related to acceleration
of stock option vesting ....... -- 16,383 -- -- -- 16,383
Repayment of stockholder notes
receivable .................... -- -- -- -- 17,150 17,150
Net loss ......................... -- -- (3,937,456) -- -- (3,937,456)
------- ------------ ------------ -------- -------- ------------
BALANCES AT DECEMBER 31, 1997 ...... $53,030 $ 35,593,999 $(14,890,029) $ -- $ -- $ 20,757,000
======= ============ ============ ======== ======== ============
</TABLE>
See accompanying notes to financial statements.
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IBIS TECHNOLOGY CORPORATION
IBIS TECHNOLOGY CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ....................................................... $(3,992,795) $ (840,116) $(3,937,456)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Write-off of prototype Ibis 1000 ............................ 723,542 -- --
Depreciation and amortization ............................... 1,811,446 1,678,070 2,063,018
Amortization of deferred compensation ....................... 24,350 14,698 --
Loss on sale of asset ....................................... -- 1,788 --
Changes in assets and liabilities:
Accounts receivable, trade ................................ (2,214,980) 1,727,804 (144,219)
Unbilled revenue .......................................... 24,217 17,038 (152,630)
Inventories ............................................... (380,720) (36,010) 245,944
Prepaid expenses and other assets ......................... (42,871) 35,326 (79,251)
Accounts payable .......................................... (469,196) 471,737 (264,456)
Accrued liabilities ....................................... 1,397,994 221,220 (95,538)
----------- ----------- -----------
Net cash provided by (used in) operating activities .... (3,119,013) 3,291,555 (2,364,588)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment, net ....................... (1,669,933) (4,981,546) (3,302,469)
Proceeds from sale of asset .................................... -- 5,700 --
Other assets ................................................... 324,907 (111,287) 102,556
----------- ----------- -----------
Net cash used in investing ............................. (1,345,026) (5,087,133) (3,199,913)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in bank notes payable ................................. 634,158 -- --
Payments of bank notes payable ................................. (264,572) (845,788) --
Proceeds from sale of equipment ................................ 2,040,000 -- --
Payments of capital lease obligations .......................... (824,065) (817,746) (657,197)
Proceeds from sales of common stock, net of issuance costs ..... -- 10,323,201 --
Exercise of stock options and issuance of warrants ............. 23,876 57,075 293,803
Proceeds from stockholders' notes receivable -- -- 17,150
Proceeds from warrant redemption, net of redemption costs ...... -- -- 10,019,552
----------- ----------- -----------
Net cash provided by financing activities .............. 1,609,397 8,716,742 9,673,308
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents ... (2,854,642) 6,921,164 4,108,807
Cash and cash equivalents, beginning of year ..................... 5,134,494 2,279,852 9,201,016
----------- ----------- -----------
Cash and cash equivalents, end of year ........................... $ 2,279,852 $ 9,201,016 $13,309,823
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest ......................... $ 171,533 $ 308,667 $ 199,563
=========== =========== ===========
Supplemental disclosures of noncash investing and
financing activities:
Capital lease obligations incurred ............................ $ 2,040,000 $ -- $ --
=========== =========== ===========
Issuance of warrants .......................................... $ 106,434 $ -- $ --
=========== =========== ===========
Issuance of shares of common stock ............................ $ -- $ 18,000 $ --
=========== =========== ===========
Acceleration of stock options ................................. $ -- $ -- $ 16,383
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
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IBIS TECHNOLOGY CORPORATION
IBIS TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
(1) NATURE OF BUSINESS AND ORGANIZATION
Ibis Technology Corporation (the "Company") was incorporated in October
1987 for the purpose of supplying silicon-on-insulator (SOI) wafers formed by
the SIMOX (Separation by Implantation of Oxygen) technology. SIMOX-SOI wafers
are manufactured using a specialized oxygen ion implanter which is integrated
with other specialized process and characterization equipment.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Cash and Cash Equivalents
Cash equivalents represent highly liquid investments with original
maturities of three months or less.
(b) Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) cost method.
(c) Property and Equipment
Property and equipment is stated at cost. Depreciation is provided
using the straight-line method over the estimated useful lives of the respective
assets, ranging from three to five years. Amortization is provided using the
straight-line method over the life of the lease, ranging from three and one-half
to five years.
The Company reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. If it is determined that the carrying amount of an asset
cannot be fully recovered, an impairment loss is recognized.
(d) Patents and Other Assets
Other assets consist principally of deferred financing costs, deposits
and prepaid royalties. Patents and prepaid royalties are amortized over five
years using the straight-line method; deferred financing costs are being
amortized over the period of loan or lease commitment.
(e) Revenue Recognition
Product sales are recognized upon shipment. Revenue derived from
consulting services is recognized upon performance. Contract and equipment
revenue is recognized on the percentage of completion method. Provisions for
anticipated losses are made in the period in which such losses become
determinable. Unbilled revenue under customer contracts represents revenue
earned under the percentage of completion method but not yet billable under the
terms of the contract. These amounts are billable based on the terms of the
contract, which include shipment of the product, achievement of milestones or
completion of the contract.
31
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IBIS TECHNOLOGY CORPORATION
IBIS TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
Government contracts are performed under negotiated overhead rates and
are subject to audit and retroactive adjustments of amounts paid to the Company.
In 1996, the Defense Contract Audit Agency ("DCAA") concluded its audit of the
Company in connection with the 1990 through 1995 overhead and general and
administrative rates. The amount of retroactive adjustments of amounts
previously paid to the Company was not material.
(f) Research and Development
Research and development costs are charged to expense as incurred.
Research and development costs funded by contracts are included as a component
of contract revenue.
(g) Net Loss Per Common Share
Net loss per share of common stock is computed based upon the weighted
average number of shares outstanding during each period and including the
dilutive effect, if any, of stock options and warrants. In accordance with SFAS
No. 128, both basic and diluted net loss per share are presented and represent
the same number due to antidilution factors.
(h) Issuance Costs
Issuance costs of common stock are netted against additional paid-in
capital.
(i) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results may differ from these estimates.
(j) Fair Value of Financial Instruments
Financial instruments of the Company consist of cash and cash
equivalents, accounts receivable, accounts payable, accrued liabilities and
capital lease obligations. The carrying amount of these financial instruments
approximates fair value.
32
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IBIS TECHNOLOGY CORPORATION
IBIS TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(3) ACCOUNTS RECEIVABLE
Accounts receivable consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Accounts receivable, trade .................. $ 896,777 $ 1,057,658
Accounts receivable, other ................. 31,161 47,499
Less: Allowance for doubtful accounts ....... (7,550) (40,550)
----------- -----------
$ 920,388 $ 1,064,607
=========== ===========
(4) INVENTORIES
Inventories consist of the following at December 31:
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Raw materials ............................... $ 284,670 $ 221,378
Work in process ............................. 105,401 105,607
Finished goods .............................. 342,904 160,046
----------- -----------
$ 732,975 $ 487,031
=========== ===========
(5) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Machinery and equipment ..................... $10,739,847 $12,338,486
Furniture and fixtures ...................... 238,379 256,533
Leasehold improvements ...................... 554,282 708,236
Construction in progress .................... 2,860,335 4,392,057
----------- -----------
$14,392,843 $17,695,312
=========== ===========
</TABLE>
During September 1995, management of the Company decided to write off
the first Ibis 1000, a prototype implanter, with a net book value of $723,542.
This decision was influenced by the success of the new-generation Ibis 1000 with
its state-of-the-art robotics and full automation. These features have led to
significant reductions in contamination levels and an overall improvement in
yield and throughput. Customers' favorable response to these quality
improvements has resulted in the Company's decision to standardize future
mainstream production on this type of equipment. Consequently, it was no longer
economical to operate the prototype Ibis 1000 implanter.
Construction in progress includes the cost to manufacture additional
Ibis 1000 oxygen implanters and subassemblies.
At December 31, 1997, the Company had commitments to purchase
approximately $600,000 in material or subassemblies to be used in normal
operations and approximately $487,000 in capital equipment purchase commitments.
33
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IBIS TECHNOLOGY CORPORATION
IBIS TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(6) LEASE COMMITMENTS
In November 1995, the Company sold the Ibis 1000 production implanter
for $2,040,000 and leased it back under a capital lease. A security reserve paid
by the Company in the amount of $250,000 was applied to the principal portion of
the lease obligation. Warrants to purchase 35,478 shares of common stock at
$5.75 per share were issued in connection with this lease. The warrants, which
were valued at $106,434 at the time of issuance, have been recorded in other
assets as deferred financing costs and are being amortized over 48 months, the
initial term of the lease.
In September 1993, the Company entered into a $1,000,000 lease for a
used oxygen ion implanter machine. Warrants to purchase 2,500 shares of common
stock at $2.16 per share were issued in connection with this lease. No warrants
were exercised as of December 31, 1997.
The Company drew down approximately $524,000 under an equipment lease
line entered into during 1993. Warrants to purchase 23,333 shares of Class C
convertible preferred stock at $2.70 per share were issued in connection with
this lease. Upon consummation of the initial public offering, the warrants to
purchase 23,333 shares of Class C convertible preferred stock were exchanged for
warrants to purchase 29,166 shares of common stock. The warrants, which were
valued at $16,333, have been recorded in other assets as deferred financing
costs and are being amortized over the life of the lease commitment. Both leases
had a lease term of 42 months.
In January 1997, the Company entered into a noncancelable operating
lease for its office and manufacturing facility expiring in 2003 with a
five-year renewal option. The Company also leases certain equipment under
noncancelable operating leases expiring through 2001, as well as equipment used
in operations under noncancelable capital leases expiring through 1999. Future
minimum lease payments under noncancelable leases at December 31, 1997, are as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- ----------
<S> <C> <C>
Year ending:
1998 ................................................. $ 583,848 $ 239,580
1999 ................................................. 535,194 261,977
2000 ................................................. -- 261,302
2001 ................................................. -- 248,882
2002 ............................................... -- 247,860
Later years ........................................ -- 247,860
--------- ----------
Total minimum lease payments ................... 1,119,042 $1,507,461
Less amount representing interest .................... (145,818) ==========
Less current maturities .............................. (474,539)
Capital lease obligations, less current maturities ... 498,685
=========
</TABLE>
Interest was calculated using an imputed interest rate of 14%.
34
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IBIS TECHNOLOGY CORPORATION
IBIS TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
Rent expense was approximately $228,000, $205,000 and $255,000 for the
years ended December 31, 1995, 1996 and 1997, respectively.
(7) ACCRUED LIABILITIES
Current accrued liabilities were as follows at December 31:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Deferred revenue, current portion ..... $ 433,708 $ 396,475
Accrued vacation ...................... 142,658 162,111
Accrued warranty ...................... 178,197 7,000
Accrued interest ...................... 246,837 250,000
Accrued payroll ....................... 78,698 211,104
Other ................................. 217,168 166,814
---------- ----------
Total ................................. $1,297,266 $1,193,504
========== ==========
<CAPTION>
Noncurrent accrued liabilities were as follows at December 31:
1996 1997
---------- ----------
<S> <C> <C>
Deferred revenue ...................... $1,292,188 $1,303,187
Other liabilities ..................... 2,775 --
---------- ----------
Total ................................. $1,294,963 $1,303,187
========== ==========
</TABLE>
During September 1995, the Company entered into a strategic business
development agreement with a customer whereby the customer advanced to the
Company the required funding to build an Ibis 1000 implanter, whose SIMOX-SOI
wafer manufacturing capacity would be primarily dedicated to serving this
customer's production requirements over a multi-year period, with wafer prices
being reduced to repay this funding. Revenue is being recognized as wafers are
shipped and discounts are earned by the customer. Amounts billed for which
revenue has not been earned are included in deferred revenue.
(8) LICENSE AGREEMENTS
The Company has obtained an exclusive sublicense to the proprietary
beam scanning system developed by a consultant to the Company during the
development of the first Ibis 1000 implanter in the field of oxygen
implantation. Pursuant to the sublicense agreement, the Company is obligated to
pay a royalty of 1% of all sales of wafers from the Ibis 1000 implanter, not to
exceed $160,000 in the aggregate. Royalty expense was approximately $18,400,
$34,600 and $69,900 for the years ended December 31, 1995, 1996 and 1997,
respectively. The sublicense agreement also grants the Company certain rights to
the beam scanning system for applications other than oxygen implantation. During
1994, the Company entered into an agreement with a third party to license the
above-referenced technology and received approximately $156,000, net, in
nonrefundable prepaid royalties from such third party. This revenue had been
deferred and included in other accrued liabilities and was recognized as
royalties when earned. During both 1995 and 1996, approximately $78,000 was
recognized as revenue for this particular agreement. In addition, the Company
received $68,000, $417,000 and $75,000 in 1995, 1996 and 1997, respectively, for
non-refundable option fees in accordance with three additional non-exclusive
sublicense agreements.
35
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IBIS TECHNOLOGY CORPORATION
IBIS TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(9) INCOME TAXES
Income tax expense consists of state income taxes for each year.
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets are presented below at December 31:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards ............................ $ 4,909,000 $ 6,693,000
Property and equipment, principally due to differences in
depreciation ............................................. 191,000 171,000
Accruals not currently deductible for tax purposes .......... 131,000 44,000
General business tax credit carryforwards ................... 313,000 344,000
Other ....................................................... 257,000 210,000
----------- -----------
Total gross deferred tax assets ................... 5,801,000 7,462,000
Less: Valuation allowance ................................... (5,801,000) (7,462,000)
----------- -----------
Net deferred tax assets ........................... $ -- $ --
=========== ===========
</TABLE>
As a result of the losses incurred to date by the Company, a 100%
valuation allowance has been applied against the Company's deferred tax assets.
The amount recorded as net deferred tax assets as of December 31, 1996 and 1997
represents the tax benefits of existing deductible temporary differences or
carryforwards that are more likely than not to be realized through the
generation of sufficient future taxable income within the carryforward period.
The Company has no deferred tax liabilities at December 31, 1996 and 1997. The
net change in the total valuation allowance was an increase of $379,000 and
$1,661,000 for the years ended December 31, 1996 and 1997, respectively.
At December 31, 1997, the Company had net operating loss and general
business credit carryforwards of approximately $16,619,000 and $344,000,
respectively, for tax purposes expiring through 2011. The Company's initial and
secondary public offerings of common stock created an ownership change within
the meaning of Internal Revenue Code Section 382(g) and future annual usage of
net operating loss carryforwards is limited to approximately $1,500,000 per
year. Future equity transactions could cause additional ownership changes which
could result in further limitations of the net operating loss carryforwards.
(10) CAPITALIZATION
In December 1993, the Board of Directors and stockholders approved that
the Restated Articles of Organization of the Company be amended by increasing
the number of authorized shares of common stock from 5,000,000 to 10,000,000,
and authorizing an additional 2,000,000 shares of preferred stock, $.01 par
value ("Undesignated Preferred Stock"), that are subject to issuance by the
Board of Directors and to fix the terms thereof. At December 31, 1997, 63,436,
650,366, 750,000 and 201,239 common shares were reserved for issuance upon
exercise of options outstanding under the Company's 1988 Stock Option Plan, the
1993 Employee, Director and Consultant Stock Option Plan and 1997 Employee,
Director and Consultant Stock
36
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IBIS TECHNOLOGY CORPORATION
IBIS TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
Option Plan and for exercises of warrants respectively.
With respect to the issuance of subordinated convertible demand notes,
the Company entered into Stock Purchase and Repurchase Agreements with two then
officers of the Company to issue and sell 43,750 shares of common stock at a
purchase price of $.40 per share. The Company's right to repurchase the shares
lapsed during 1994 upon consummation of the IPO. In connection with these
agreements, the Company received $17,150 of 4% Promissory Notes, due on or
before November 9, 1997. These promissory notes were paid during 1997.
On May 27, 1994, the Company completed an initial public offering of
1,200,000 shares of common stock at $7.00 per share and 1,380,000 redeemable
warrants at $0.20 per share (see note 11(b)). The Company's net proceeds were
approximately $6,892,000, after deducting approximately $1,784,000 for
underwriting discounts, commissions and other associated expenses. In August
1997, the Company issued approximately 1,327,000 shares of Common Stock upon
exercise of the warrants (see note 11(b)).
On April 9, 1996, the Company completed a secondary public offering of
1,600,000 shares of common stock at $7.25 per share. The Company's net proceeds
were approximately $10,305,000, after deducting approximately $1,295,000 for
underwriting discounts, commissions and other associated expenses.
(11) STOCK OPTIONS AND WARRANTS
(a) Stock Option Plans
In March 1988, the Board of Directors and stockholders of the Company
approved the 1988 Stock Option Plan (the "Plan"). The Plan permits the Company
to grant incentive stock options to its key employees and nonqualified options
to any employees, consultants, directors or officers that the Board deems
appropriate. The incentive stock options must be granted at a price not less
than the fair market value of the common stock at the time of grant or, in the
case of certain optionees, 110% of such fair market value in order to qualify
for certain tax advantages under Section 422A of the Internal Revenue Code. The
purchase price of nonqualified options granted is determined at the discretion
of the Board of Directors. The Company has reserved 63,436 shares of common
stock for issuance under this plan, which represents outstanding options and
options available for grant thereunder.
In December 1993, the Board of Directors and stockholders approved the
adoption of the Company's 1993 Employee, Director and Consultant Stock Option
Plan which provided for the issuance of options to purchase up to 250,000 shares
of common stock of the Company to employees, consultants and non-employee
directors. In May 1996, the stockholders increased to 750,000 shares the
aggregate number of shares that may be granted under this plan.
37
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IBIS TECHNOLOGY CORPORATION
IBIS TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
In October 1997, the Board of Directors approved the adoption of the
Company's 1997 Employee, Director and Consultant Stock Option Plan which
provides for the issuance of options to purchase up to 750,000 shares of common
stock of the Company to employees, consultants and non-employee directors.
The Company plans to request stockholder approval of the Plan at the May 1998
Annual Stockholders meeting.
A summary of stock options activity under the plans as follows:
<TABLE>
<CAPTION>
Number Weighted average
of exercise price of
Shares shares under plan
------ -----------------
<S> <C> <C>
Options outstanding at December 31, 1994 411,762 1.55
-------- ----
Granted 227,250 5.11
Exercised (193,054) 0.12
Cancelled (44,074) 3.36
-------- ----
Options outstanding at December 31, 1995 401,884 3.73
Granted 380,500 6.98
Exercised (70,425) 0.91
Cancelled (45,917) 5.59
-------- ----
Options outstanding at December 31, 1996 666,042 5.76
Granted 290,750 7.84
Exercised (133,266) 3.38
Cancelled (40,997) 5.14
-------- ----
Options outstanding at December 31, 1997 782,529 6.84
======== ====
Options exercisable at December 31, 1997 311,073 6.45
======== ====
</TABLE>
The following table summarizes information concerning outstanding and
exercisable options as of December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------- ------------------------
Weighted
average Weighted Weighted
remaining average average
Range of Number contractual outstanding Number exercise
exercise prices outstanding life (years) option price exercisable price
- --------------- ----------- ----------------- ------------ ----------- ---------
<C> <C> <C> <C> <C> <C>
$0.08 - 6.00 191,940 6.4 $1.10 56,934 $0.46
$6.01 - 7.50 407,339 6.0 $3.60 211,639 $4.70
$7.51 - 10.45 183,250 9.7 $2.14 42,500 $1.26
------- -------
782,529 311,073
======= =======
</TABLE>
38
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IBIS TECHNOLOGY CORPORATION
IBIS TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
In October 1995 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation." This new standard defines a fair value based method
of accounting for an employee stock option or similar equity instrument. This
statement gives entities a choice of recognizing related compensation expense by
adopting the new fair value method or to continue to measure compensation using
the intrinsic value approach under Accounting Principles Board (APB) Opinion No.
25, the former standard. The Company intends to continue using the measurement
prescribed by APB No. 25, and accordingly, this pronouncement will not affect
the Company's financial position or results of operations. Had compensation
costs for the stock option plans been determined based on the fair value at the
grant dates for awards in 1995, 1996 and 1997 consistent with the provisions of
SFAS No. 123, the Company's net loss and net loss per common share would have
been increased to the following pro forma amounts at December 31:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C> <C>
Net loss As reported $(3,992,795) $ (840,116) $(3,937,456)
Pro forma $(4,206,082) $(2,022,985) $(5,340,033)
Net loss per share As reported $ (1.17) $ (.18) $ (.69)
Pro forma $ (1.23) $ (.43) $ (.94)
</TABLE>
The per share weighted-average fair value of each option granted during
1995, 1996 and 1997 was $3.8781, $3.9500 and $5.3033, respectively, on the date
of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions: 1995 - expected volatility of 75.58%, risk-free
interest rate of 6.22%, and an expected life of 3 years; 1996 - expected
volatility of 75.58%, risk-free interest rate of 6.22%, and an expected life of
3 years; 1997 - expected volatility of 100.00%, risk-free interest rate of
5.50%, and an expected life of 3 years. The expected dividend yield rate for
1995, 1996 and 1997 is zero.
Pro forma net loss reflects only options granted in 1995, 1996 and
1997, therefore, the full impact of calculating compensation costs for stock
options under SFAS No. 123 is not reflected because compensation costs for
options granted prior to January 1, 1995 are not considered.
(b) Warrants
Upon completion of the initial public offering, the Company had
1,380,000 publicly traded redeemable warrants outstanding. As a result of the
issuance of warrants in November 1995 in connection with a sale-leaseback
transaction, the closing of the secondary offering of 1,600,000 shares of common
stock at $7.25 per share in April 1996, and the granting of certain stock
options, each redeemable warrant was adjusted based on anti-dilution provisions
to entitle the holder to purchase 1.04 shares of common stock, 1,434,648 shares
in the aggregate, at a price of $8.08 per share through May 20, 1999, and was
redeemable by the Company at a redemption price of $.20 per share at any time
after May 20, 1996, provided certain conditions were met. In connection with the
initial public offering, the Company sold to the underwriter 120,000
non-redeemable warrants to purchase 120,000 shares of common stock and/or
120,000 redeemable warrants.
In July 1996, the holders of the 120,000 underwriter non-redeemable
warrants exercised all of these warrants. Upon exercise at $0.24 per warrant,
the holders received 120,000 redeemable warrants and 120,000 revised
non-redeemable warrants.
39
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IBIS TECHNOLOGY CORPORATION
IBIS TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
On July 24, 1997, the Company notified the holders of its 1,380,000
publicly traded Redeemable Common Stock Purchase Warrants and its 120,000
privately held Underwriter Redeemable Common Stock Purchase Warrants that it
would redeem these Warrants on August 26, 1997 at the redemption price of $.20
per Warrant. Prior to August 26, 1997, based on additional anti-dilutive
adjustments, the holder of a Public Warrant had the right to exercise such
Warrant to acquire 1.044 shares of the Company's Common Stock at a price of
$8.05 per share and the holder of an Underwriter Redeemable Warrant had the
right to exercise such Warrant to acquire 1.09 shares of Common Stock at a price
of $9.26 per share. The Company received net proceeds of approximately $10.1
million through the exercise of its Public Warrants. The holders of
approximately 92% of the Public Warrants elected to exercise the Warrants rather
than have them redeemed. Approximately 1,327,000 shares of Common Stock were
issued upon exercise of the Public Warrants. None of the Underwriter Redeemable
Warrants were exercised and all were redeemed.
During 1997, 4,500 Underwriters Non-Redeemable Warrants were exercised
for 4,698 shares of Common Stock; at December 31, 1997, there were 115,500
Underwriter Non-Redeemable Warrants outstanding, exercisable for an aggregate of
120,582 shares of Common Stock at $8.05 per share.
At December 31, 1997, there were additionally warrants to purchase
9,336, 2,500, 29,166, 35,478 and 4,177 shares of common stock at $7.23, $2.16,
$2.16, $5.75 and $8.40 per share, respectively (see note 6).
(12) SIGNIFICANT CUSTOMERS AND CONCENTRATION OF BUSINESS RISK
The Company sells its products to a limited number of semiconductor
manufacturers primarily in the United States.
Government sales and other significant customers are shown in dollar
amounts and as a percentage of total revenue as follows:
<TABLE>
<CAPTION>
GOVERNMENT OTHER TOTAL
----------------- ------------------------------- -----------------
SIGNIFICANT
YEAR ENDED AMOUNT % CUSTOMERS AMOUNT % AMOUNT %
---------- ---------- --- ----------- ---------- --- ---------- ---
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1995 $ 764,000 16% 2 $1,990,000 43% $2,754,000 59%
December 31, 1996 $ 396,000 4% 1 $5,768,000 61% $6,164,000 65%
December 31, 1997 $1,235,000 18% 1 $ 856,000 13% $2,091,000 31%
</TABLE>
Accounts receivable from government sales amounted to approximately
$93,000 and $159,000 at December 31, 1996 and 1997, respectively. Accounts
receivable from other significant customers amounted to $64,000 and $123,000 at
December 31, 1996 and 1997, respectively.
Export sales to unaffiliated customers in 1995 and 1996 were less than
10% of total revenues. During 1997, export sales to unaffiliated customers
represented 13% of total revenues.
During 1995, 1996 and 1997, the Company purchased substantially all of
its conventional bulk silicon wafers from one supplier. An interruption in the
delivery of these wafers could have a material adverse effect on the Company's
results of operations.
40
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IBIS TECHNOLOGY CORPORATION
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
The Response to this item is incorporated by reference from the
discussion responsive thereto under the captions "Management" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Company's Proxy Statement for
the 1998 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The response to this item is incorporated by reference from the
discussion responsive thereto under the caption "Executive Compensation" in the
Company's Proxy Statement for the 1998 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this item is incorporated by reference from the
discussion responsive thereto under the caption "Share Ownership" in the
Company's Proxy Statement for the 1998 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this item is incorporated by reference from the
discussion responsive thereto under the caption "Certain Transactions" and
"Executive Compensation--Employment Contracts and Change of Control
Arrangements" in the Company's Proxy Statement for the 1998 Annual Meeting of
Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
ITEM 14(a). The following documents are filed as part of this annual report on
Form 10-K.
ITEM 14(a)(1). See "Index to Financial Statements and Financial Statement
AND (2) Schedule" at Item 8 to this Annual Report on Form 10-K. Other
financial statement schedules have not been included because they
are not applicable or the information is included in the
financial statements or notes thereto.
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IBIS TECHNOLOGY CORPORATION
ITEM 14(a)(3) Exhibits
--------
The following is a list of exhibits filed as part of this Annual
Report on Form 10-K.
EXHIBIT
NUMBER DESCRIPTION
------ -----------
* 3.1 - Restated Articles of Organization of Registrant (Filed as
Exhibit 3.1)
* 3.2 - Restated By-Laws of the Registrant, as amended (Filed as
Exhibit 3.2)
* 4.1 - Article 4 of Restated Articles of Organization (Filed as
Exhibit 4.1)
* 4.2 - Form of Common Stock Certificate (Filed as Exhibit 4.2)
* 4.3 - Form of Redeemable Warrant Certificate (Filed as Exhibit 4.3)
* 4.4 - Amended and Restated Shareholders Agreement dated as of August 17,
1989, as amended, among the Registrant and certain holders of
Common Stock (Filed as Exhibit 4.4)
*10.1 - Master Agreement, dated as of August 7, 1992, among the Registrant,
Dr. Hilton Glavish, and Zimec, Inc. (Filed as Exhibit 10.1)
*10.2 - Sublicense Agreement, dated December 21, 1993, among the
Registrant, Dr. Hilton Glavish, and Zimec, Inc. (Filed as
Exhibit 10.2)
*+10.3 - Business Development Agreement, dated as of July 15, 1994, between
the Registrant and Mitsubishi Materials Corporation (Filed as
Exhibit 10.3)
*10.4 - Lease Agreement, dated December 22, 1987, as amended, between the
Registrant and Thomas J. Flatley d/b/a The Flatley Company
("Flatley") (Filed as Exhibit 10.4)
10.4A - Fifth Amendment to Lease Agreement, dated February 4, 1997 between
the Registrant and Flatley (Filed as Exhibit 10.4 to the
Registrant's Quarterly Report on Form 10-Q for the Quarter ended
March 31, 1997 and Incorporated herein by reference).
*10.5 - Master Lease Agreement, dated September 14, 1993, between the
Registrant and Comdisco, Inc. ("Comdisco") (Filed as Exhibit 10.5)
*10.6 - Warrant Agreement, dated as of October 26, 1993, as amended,
between the Registrant and Comdisco (Filed as Exhibit 10.6)
*10.7 - Warrant, dated November 15, 1990, as amended, issued by the
Registrant to Phoenix Venture Incorporated (Filed as Exhibit 10.7)
*10.8 - Master Equipment Lease Agreement, dated as of September 22, 1993,
as amended, between the Registrant and Financing for Science
International, Inc. ("FSI"), as assigned to General Electric
Capital Corporation as of April 29, 1994 (Filed as Exhibit 10.8)
*10.9 - Warrant, dated October 1, 1993, issued by the Registrant to FSI
(Filed as Exhibit 10.9)
*10.10 - Warrant, dated January 2, 1991, as amended, issued by the
Registrant to Venlease Associates (Filed as Exhibit 10.10)
*10.11 - Form of Noncompetition, Nondisclosure and Assignment of Inventions
Agreement between the Registrant and each current employee of the
Registrant (Filed as Exhibit 10.11)
+*10.12 - Employment Agreement, dated December 20, 1993, as amended, between
the Registrant and Geoffrey Ryding (Filed as Exhibit 10.12)
+*10.13 - Ibis Technology Corporation 1988 Stock Option Plan (Filed as
Exhibit 10.13)
+*10.14 - Form of Stock Option Agreement under 1988 Stock Option Plan (Filed
as Exhibit 10.14)
+*10.15 - Ibis Technology Corporation 1993 Employee, Director and Consultant
Stock Option Plan as amended (Filed as Exhibit 10.15 to the
Company's Quarterly Report on Form 10-Q for the Quarter Ended
September 30, 1996 and Incorporated herein by reference)
+*10.16 - Form of Stock Option Agreement under 1993 Employee, Director and
Consultant Stock Option Plan (Filed as Exhibit 10.16)
+*10.17 - 1995/1996 Incentive Compensation Plan of the Registrant (Filed as
Exhibit 10.17)
42
<PAGE> 39
- --------------------------------------------------------------------------------
IBIS TECHNOLOGY CORPORATION
EXHIBIT
NUMBER DESCRIPTION
------ -----------
*++10.18 - Capacity Option Agreement, dated September 21, 1995, between
Registrant and Motorola Corporation (Filed as Exhibit 10.18)
*10.19 - Letter Agreement, dated March 4, 1994, as amended, between the
Registrant and Fleet Bank of Massachusetts, N.A. ("Fleet")
(Filed as Exhibit 10.19)
*10.19A - Amendment to Letter Agreement, dated February 2, 1996, between
the Registrant and Fleet (Filed as Exhibit 10.19A)
*10.20 - Master Equipment Lease Agreement, dated November 1, 1995,
between Registrant and FSI (Filed as Exhibit 10.20)
*10.21 - Bill of Sale dated November 22, 1995 between the Registrant and
FSI (Filed as Exhibit 10.21)
*10.22 - Sale and Leaseback Agreement dated as of November 1, 1995
between the Registrant and FSI (Filed as Exhibit 10.22)
*10.23 - Reserve Pledge and Security Agreement dated as of November 1,
1995 between FSI and Registrant (Filed as Exhibit 10.23)
*10.24 - Warrant issued by Registrant in favor of FSI dated November 22,
1995 for the Purchase of shares of Common Stock of the
Registrant (Filed as Exhibit 10.24)
*10.25 - Sales Representative Agreement, dated February 17, 1995, between
the Registrant and Young Woo High Tech (Filed as Exhibit 10.25)
*10.26 - Exclusive Patent License Agreement, dated November 1, 1994,
between the Registrant and Superion Limited (Filed as Exhibit
10.26)
*10.27 - License Agreement, dated as of September 1, 1994, between the
Registrant and Nissin Electric Co., Ltd. (Filed as Exhibit
10.27)
*10.28 - Underwriter's Warrant Agreement, dated May 27, 1994, between the
Registrant and Josephthal Lyon & Ross Incorporated
("Josephthal") (Filed as Exhibit 10.28)
*10.29 - Underwriting Agreement, dated May 20, 1994, between, the
Registrant and Josephthal (Filed as Exhibit 10.29)
*10.30 - Warrant Agreement, dated as of May 20, 1994, between the
Registrant and Continental Stock Transfer & Trust Company (Filed
as Exhibit 10.30)
10.31 - Contract, as amended, dated May 25, 1994, between the Registrant
and the Defense Nuclear Agency (Filed as Exhibit 10.31 to the
Company's Quarterly Report on Form 10-Q for the Quarter Ended
June 30, 1996 and Incorporated herein by reference).
10.32 - Equipment Purchase Master Agreement, dated as of May 22, 1996,
between Registrant, and IBM (Filed as Exhibit 10.1 to the
Company's Current Report on Form 8-K/A (File No. 0-13078) filed
on September 12, 1996 and Incorporated herein by reference).
10.33 - Description of Fees Paid to Ted R. Dintersmith, Ph.D. (Filed as
Exhibit 10.33 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996).
+10.34 - Employment Agreement, dated October 23, 1997 between the
Registrant and Martin J. Reid.
+10.35 - Ibis Technology Corporation 1997 Employee, Director and
Consultant Stock Option Plan (Filed as Exhibit 99.1 to the
Company's Form S-8 (File No. 333-45247) filed on January 30,
1998 and Incorporated herein by reference).
10.36 - License Agreement, dated June 27, 1996, between the Registrant
and Orion Equipment, Inc. ("Orion")
10.37 - Modification to License Agreement, dated August 28, 1997,
between the Registrant and Orion
10.38 - Consulting Services Agreement, dated as of April 22, 1997,
between the Registrant and Orion
23 - Consent and Report on Financial Statement Schedule of KPMG Peat
Marwick LLP
27 - Financial Data Schedule
43
<PAGE> 40
- --------------------------------------------------------------------------------
IBIS TECHNOLOGY CORPORATION
* Previously filed with the Commission as Exhibits to, and incorporated herein
by reference from, the Company's Registration Statement filed on Form S-1,
File No. 333-1174, effective April 2, 1996.
+ Confidential treatment previously obtained from Securities and Exchange
Commission; filed as Exhibit No. 10.26 to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1994. Request for extension
of confidential treatment filed on November 12, 1997 with the Securities and
Exchange Commission. The portions of the document for which confidential
treatment has been granted are marked "Confidential" and such confidential
portions have been filed separately with the Securities and Exchange
Commission.
++ Confidential treatment previously obtained from Securities and Exchange
Commission; filed as Exhibit No. 10.32 to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1995. The portions of the
document for which confidential treatment has been granted are marked
"Confidential" and such confidential portions have been filed separately
with the Securities and Exchange Commission.
+ Management contract or compensatory plan, contract or arrangement.
Where a document is incorporated by reference from a previous filing, the
Exhibit number of the document in that previous filing is indicated in
parentheses after the description of such document.
(B) Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts
ITEM 14(b) REPORTS ON FORM 8-K
The Company filed with the Commission on October 24, 1997, a Current Report on
Form 8-K for the October 24, 1997 event reporting the public dissemination of a
press release announcing the appointment, effective December 1, 1997, of Martin
J. Reid as its President and Chief Executive Officer and as a member of the
Board of Directors.
The Company filed with the Commission on November 5, 1997, a Current Report on
form 8-K for the November 4, 1997 event reporting the public dissemination of a
press release announcing that it had been awarded three new research and
development contracts, totaling approximately $400,000.
44
<PAGE> 41
- --------------------------------------------------------------------------------
IBIS TECHNOLOGY CORPORATION
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in Danvers,
Massachusetts on March 24, 1998.
IBIS TECHNOLOGY CORPORATION
By: /s/ Martin J. Reid
-------------------------------
Martin J. Reid
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities indicated and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
By: /s/ Richard Hodgson Chairman of the Board March 24, 1998
--------------------------------- of Directors and Director
Richard Hodgson
By: /s/ Martin J. Reid President, Chief Executive March 24, 1998
--------------------------------- Officer (principal executive
Martin J. Reid officer) and Director
By: /s/ Debra L. Nelson Chief Financial Officer, March 24, 1998
--------------------------------- Treasurer, Clerk, (principal
Debra L. Nelson financial and accounting
officer)
By: /s/ Dimitri A. Antoniadis, Ph.D. Director March __, 1998
---------------------------------
Dimitri A. Antoniadis, Ph.D.
By: /s/ Robert L. Gable Director March 24, 1998
---------------------------------
Robert L. Gable
By: /s/ Donald McGuinness Director March 24, 1998
---------------------------------
Donald McGuinness
By: /s/ Peter H. Rose, Ph.D. Director March 24, 1998
---------------------------------
Peter H. Rose, Ph.D.
By: /s/ Geoffrey Ryding, Ph.D. Director March 24, 1998
---------------------------------
Geoffrey Ryding, Ph.D.
</TABLE>
45
<PAGE> 42
- --------------------------------------------------------------------------------
IBIS TECHNOLOGY CORPORATION
SCHEDULE II
IBIS TECHNOLOGY CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING OF CHARGED AMOUNTS END OF
DESCRIPTION PERIOD TO EXPENSE WRITTEN OFF PERIOD
----------- ------ ---------- ----------- ------
<S> <C> <C> <C>
Allowance for Doubtful Accounts
December 31, 1995....................... $ -- 7,550 -- 7,550
December 31, 1996....................... 7,550 -- -- 7,550
December 31, 1997....................... 7,550 33,000 -- 40,550
Reserve for Inventory Obsolescence
December 31, 1995....................... $ 64,000 92,576 65,576 91,000
December 31, 1996....................... 91,000 87,000 11,000 167,000
December 31, 1997....................... 167,000 213,000 302,000 78,000
</TABLE>
46
<PAGE> 1
IBIS TECHNOLOGY CORPORATION
32 CHERRY HILL DRIVE
DANVERS, MA 01923
October 23, 1997
Martin J. Reid
7 Wainwright Road
Unit 59
Winchester, MA 01890
Dear Mr. Reid:
This letter is to confirm our understanding with respect to (i) your future
employment by Ibis Technology Corporation, a Massachusetts corporation (the
"Company"), (ii) your agreement not to compete with the Company and (iii) your
agreement to protect and preserve information and property which is confidential
and proprietary to the Company, subject to your agreement with the terms hereof
as indicated by your execution of this letter on the final page (the terms and
conditions agreed to in this letter shall hereinafter be referred to as the
"Agreement"). In consideration of the mutual promises and covenants contained in
this Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, we have agreed as follows:
1. EMPLOYMENT. The Company will employ you, and you agree to work for the
Company, as its President and Chief Executive Officer, to have such
responsibilities, duties and authority as are customary to such position,
including, without limitation, general supervision and responsibility for the
general management and operation of the Company and its subsidiaries, if any.
You will also have such other responsibilities, duties and authority as may from
time to time be assigned to you by the Board of Directors of the Company (the
"Board") that are consistent with such position. You will also, if so elected,
serve as an officer or director of the Company or any subsidiary or affiliate of
the Company. You agree to devote your full business time and energies to the
business and affairs of the Company and its subsidiaries, if any; however,
nothing contained in this Section 1 shall be deemed to prevent or limit your
right to: (a) make passive investments in the securities of any publicly-owned
corporation, or (b) make any other passive investments with respect to which you
are not obligated or required to, and which you do not in fact, devote any
substantial efforts which interfere with your fulfillment of your duties
hereunder.
2. TERM OF EMPLOYMENT. (a) Your employment pursuant to the terms of this
Agreement shall commence on or before December 1, 1997 and will continue until
November 30, 2000; provided, however, that notwithstanding the foregoing your
employment hereunder shall be terminated by the first to occur of the following:
<PAGE> 2
(i) Immediately upon your death;
(ii) Upon notice from the Company following your inability, due to
illness, accident or any other physical or mental incapacity, to perform
the services provided for hereunder for an aggregate of 180 business days
within any one year period during the term hereof, as determined pursuant
to Section 8 herein;
(iii) By the Company upon notice, for Cause, as defined herein, and as
set forth below;
(iv) By the Company, upon notice subject to Section 3 hereof, without
Cause; or
(v) By you, upon notice to the Company, PROVIDED, that if you do not
give at least 60 days prior written notice of your intention to terminate
your employment hereunder, you will forfeit all unused vacation, prepaid
benefits, any unpaid incentive compensation, and any stock options which
have not vested as of the date such notice is given.
The right of the Company to terminate your employment hereunder to which
you hereby agree, shall be exercisable by written notice sent to you by the
Company and shall be effective as of the date of such notice.
(b) The Company may, by majority vote of the Board or its Compensation
Committee, immediately and unilaterally, terminate your employment hereunder for
Cause at any time upon ten (10) days' advance written notice to you. Termination
of your employment by the Company shall constitute a termination for Cause if
such termination is for one or more of the following reasons: (i) your
continuing failure to render services to the Company in accordance with your
assigned duties consistent with Section 1 of this Agreement and such failure of
performance continues for a period of more than 120 days after notice thereof
has been provided to you by the Board or its Compensation Committee; (ii) your
willful misconduct or gross negligence; (iii) you are convicted of a felony,
either in connection with the performance of your obligations to the Company or
which conviction materially adversely affects your ability to perform such
obligations, or materially adversely affects the business activities,
reputation, good will or image of the Company; (iv) willful disloyalty,
deliberate dishonesty, breach of fiduciary duty or breach of the terms of this
Agreement; (v) the commission by you of an act of fraud, embezzlement or
deliberate disregard of the rules or policies of the Company which results in
significant loss, damage or injury to the Company; (vi) your willful
unauthorized disclosure of any trade secret or confidential information of the
Company; or (vii) your willful commission of an act which constitutes unfair
competition with the Company or which induces any employee or customer of the
Company to break a contract with the Company.
-2-
<PAGE> 3
In making any determination under this Section 2(b), the Board or its
Compensation Committee shall act fairly and in utmost good faith and shall give
you an opportunity to appear and be heard at a meeting of the Board or any
committee thereof and present evidence on your behalf. For purposes of this
Section, no act, or failure to act, on your part shall be considered "willful"
unless done, or admitted to be done, by you in bad faith and without reasonable
belief that such action or omission was in the best interest of the Company.
3. COMPENSATION. (a) In consideration for your services under this
Agreement, you shall be paid at the annual rate of One Hundred Seventy-five
Thousand Dollars ($175,000.00) subject to increase from time to time by action
of the Board in accordance with your performance and the Company's performance
("Base Salary"), and payable at such intervals as may be agreed upon by the
Company and you, less any amounts required to be withheld under applicable law.
Such compensation will be reduced by any disability payments which you receive,
after taking into account the tax benefits (if any) of such payments.
(b) In the event your employment shall be terminated by the Company without
Cause, the Company shall continue to pay you your Base Salary then in effect and
the cost of your health insurance for a period of one year following any such
termination. All payments made under this section 3(b) shall be made at the
times and at the rate specified in section 3(a) hereof.
(c) In the event your employment shall be terminated by the Company for
Cause, no further compensation or benefits of any kind shall be payable to you
hereunder (except for any health insurance benefits required by applicable law).
4. BONUSES. You will be entitled to such bonuses as are determined from
time to time by the Board or its Compensation Committee in its discretion,
taking into account, among other factors, your performance and the Company's
performance. It is anticipated that if your performance and the Company's
performance satisfy certain predetermined goals that are reasonable and mutually
agreed upon by you and the Board or its Compensation Committee at the
commencement of each one year period hereunder, that the amount of the annual
bonus will equal up to thirty percent (30%) of your Base Salary.
5. STOCK OPTIONS. Upon the commencement of your employment with the
Company, the Company will grant you a stock option or options to purchase an
aggregate of 140,000 shares of the common stock, $.008 par value, of the
Company, with an exercise price per share equal to the fair market value of the
Common Stock on the date of grant and subject to the terms and conditions set
forth in the Company's standard stock option agreement (the "Option Agreement").
The Option Agreement shall provide that one quarter of such options shall be
vested upon the commencement of your employment with the Company, with an
additional one quarter to vest on each annual anniversary of the commencement of
your employment.
6. EXPENSES. The Company will reimburse you for travel, entertainment and
other business expenses reasonably incurred by you in connection with the
business of the Company to
-3-
<PAGE> 4
the extent and in a manner consistent with then
Company policy and appropriate to someone in a position of your stature.
7. BENEFITS. In connection with your employment hereunder, you will be
entitled during your employment to the following additional benefits:
(a) At the Company's expense, such fringe benefits as the Company may
provide from time to time for its senior management.
(b) You shall be entitled to no less than the number of vacation days in
each calendar year determined in accordance with the Company's vacation policy
as in effect from time to time, but not less than four (4) weeks in any calendar
year (prorated in any calendar year during which you are employed hereunder for
less than the entire such year in accordance with the number of days in such
calendar year in which you are so employed). You shall also be entitled to all
paid holidays and personal days given by the Company to its executives.
(c) The Company shall furnish you with office space, stenographic
assistance and such other facilities and services as shall be suitable to and
appropriate for your position and for the performance of your duties as set
forth herein.
(d) In addition to the foregoing, you shall also be entitled to participate
in any employee benefit plans which the Company provides or may establish for
the benefit of its executive employees generally.
8. TERMINATION UPON DEATH OR DISABILITY. Your employment by the Company
shall terminate upon your death, or if, by virtue of total and permanent
disability, you are unable to perform your duties hereunder.
The determination that, by virtue of total and permanent disability, you
are unable to perform your duties hereunder shall be made by a physician chosen
by the Company and reasonably satisfactory to you (or your legal
representative). The cost of such examination shall be borne by the Company.
Without limiting the generality of the foregoing, you shall be conclusively
presumed to be totally and permanently disabled hereunder if for reasons
involving mental or physical illness or physical injury you fail to perform your
duties hereunder for a period aggregating one hundred eighty (180) days or more
in any twelve (12) consecutive month period.
For purposes of this Section 8, the termination date in the event of death
shall be the date of death and in the event of such total and permanent
disability shall be the earlier of the date of such physician's examination
pursuant to which such determination is made or the first business day after
which such 180 days has expired.
-4-
<PAGE> 5
In the event of such a termination of employment as a result of your death
or total and permanent disability, the Company shall have no further obligations
hereunder except as provided in Section 9 hereof and except as provided below in
this Section 8:
(a) In the event of death, the Company shall pay to your estate amounts, at
the annual Base Salary rate in effect on the termination date, in monthly
payments, for a period of twelve (12) months following the termination date (or,
in lieu of the obligation to make such payments, or in partial satisfaction of
the obligation to make such payments, the Company may provide you with one or
more life insurance policies, in which event the death benefit payable
thereunder shall reduce, on a dollar-for-dollar basis, the amount of the
payments which the Company would otherwise be obligated to make under this
Section 8(a)); and
(b) In the event of total and permanent disability, the Company shall pay
to you (or your estate) amounts, at the annual Base Salary rate in effect on the
termination date, payable in monthly payments, for a period of twelve (12)
months following the termination date. Amounts to which you would otherwise be
entitled under this subparagraph (b) shall be reduced by the amount of any
disability insurance proceeds actually paid to you or paid for your benefit (or
to your estate or legal representatives) with respect to such twelve (12) months
following the termination date under any disability policy provided by the
Company, after taking into account the tax benefits (if any) of such payments.
9. ACCRUED COMPENSATION. In the event of any termination of your employment
for any reason, you (or your estate) shall be paid such portion of your Base
Salary and bonuses as has accrued by virtue of your employment during the period
prior to termination and has not yet been paid, together with any amounts for
expense reimbursement and similar items which have been properly incurred in
accordance with the provisions hereof prior to termination and have not yet been
paid. Such amounts shall be paid within ten (10) days of the termination date.
The amount due to you (or your estate) under this Section 9 in payment of any
bonus shall be a proportionate amount of the bonus, if any, that had been
determined by the Board pursuant to Section 4 and would otherwise have been due
to you as if such termination had not occurred.
10. PROHIBITED COMPETITION. You agree and covenant that, with respect to
the business of the Company, until your termination of employment, whether or
not such termination is voluntary or involuntary, and for a period of one (1)
year following such termination, you shall not, without the prior written
consent of the Company, for yourself or on behalf of any other, directly or
indirectly, either as principal, agent, stockholder, employee, consultant,
representative or in any other capacity, own, manage, operate or control, or be
concerned, connected or employed by, or otherwise associate in any manner with,
engage in or have a financial interest in any business which is directly or
indirectly competitive with the business of the Company, including, without
limiting the generality of the foregoing, any business engaged in manufacturing,
marketing or sale of SIMOX wafers or the design and development of associated
manufacturing equipment and processing techniques; PROVIDED, HOWEVER, that
nothing contained herein shall preclude you from purchasing or owning stock in
any such business if
-5-
<PAGE> 6
such stock is publicly traded, and provided that your holdings do not exceed
three percent (3%) of the issued and outstanding capital stock of such business.
You further agree that during such time, you will not attempt to or hire, or
assist in the hiring of any director, officer or employee or agent of the
Company, or encourage any person to terminate his or her employment or business
relationship with the Company, encourage any customer or supplier of the Company
to terminate its relationship with the Company, or obtain or assist in
obtaining, for the benefit of any person or entity other than the Company or a
Subsidiary, any customer or supplier of the Company.
11. PROTECTED INFORMATION. You shall not, without the prior written consent
of the Company, use, except in the course of performance of your duties for the
Company, disclose or give to others any fact or information which was disclosed
to or developed by you during the course of performing services for the Company,
and is not generally available to the public, unless if such information is so
generally available as a result of your fault, including but not limited to
information and facts concerning business plans, customers, prospects, client
lists, or any other scientific, technical, trade or business secret or
confidential or proprietary information of the Company.
12. OWNERSHIP OF IDEAS, COPYRIGHTS AND PATENTS. You agree that all ideas,
discoveries, creations, manuscripts and properties, innovations, improvements,
know-how, inventions, developments, apparatus, techniques, methods, and formulae
(all of the foregoing being hereinafter referred to as "the inventions") which
may be used in the business of the Company, whether patentable, copyrightable or
not, which you may conceive or develop during your term of employment with the
Company, alone or in conjunction with another, or others, whether during or out
of regular business hours, and whether at the request, or upon the suggestion of
the Company, or otherwise, shall be the sole and exclusive property of the
Company, and that you shall not publish any of the inventions without the prior
consent of the Company. You hereby assign to the Company all of your right,
title and interest in and to all of the foregoing. You further represent and
agree that to the best of your knowledge and belief none of the inventions will
violate or infringe upon any right, patent, copyright, trademark or right of
privacy, or constitute libel or slander against or violate any other rights of
any person, firm or corporation, and that you will use your best efforts to
prevent any such violation.
At any time during or after your term of employment with the Company, you
agree that you will fully cooperate with the Company, its attorneys and agents,
in the preparation and filing of all papers and other documents as may be
required to perfect the Company's rights in and to any of such inventions,
including, but not limited to, joining in any proceeding to obtain letters
patent, copyrights, trademarks or other legal rights of the United States and of
any and all other countries on such inventions, provided that the Company will
bear the expense of such proceedings, and that any patent or other legal right
so issued to you, personally, shall be assigned by you to the Company without
charge by you.
13. DISCLOSURE TO FUTURE EMPLOYERS. You agree that you will provide, and
that the
-6-
<PAGE> 7
Company may similarly provide in its discretion, a copy of the covenants
contained in Sections 10, 11 and 12 of this Agreement to any business or
enterprise which you may directly, or indirectly, own, manage, operate, finance,
join, control or in which you participate in the ownership, management,
operation, financing, or control, or with which you may be connected as an
officer, director, employee, partner, principal, agent, representative,
consultant or otherwise.
14. RECORDS. Upon termination of your relationship with the Company, you
shall deliver to the Company any property of the Company which may be in your
possession including products, materials, memoranda, notes, records, reports, or
other documents or photocopies of the same.
15. NO CONFLICTING AGREEMENTS. You represent and warrant that you have no
commitments or obligations inconsistent with this Agreement and you agree to
indemnify and hold the Company harmless against loss, damage, liability or
expense arising from any claim based upon circumstances alleged to be
inconsistent with such representation and warranty.
16. PARTIES. This Agreement is personal and shall in no way be subject to
assignment by you except as contemplated hereby. This Agreement shall be binding
upon and shall inure to the benefit of the Company and its successors and
assigns either by merger, operation of law, consolidation, assignment, purchase
or otherwise of a controlling interest in the business of the Company and shall
be binding upon and shall inure to the benefit of you, your heirs, executors,
administrators, personal and legal representatives, distributees, devisees,
legatees, successors and permitted assigns. If you should die while any amounts
would still be payable to you hereunder if you had continued to live (other than
amounts to which you would be entitled by reason of continued employment), all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to your devisees, legatees or other designees or, if
there be no such designee, to your estate. The Company agrees that a successor
in interest by merger, operation of law, consolidation, assignment, purchase or
otherwise of a controlling interest in the business of the Company will be
informed prior to such event of the existence of this Agreement. The Company
will require any successor (whether direct or indirect, by purchase, merger,
operation of law, consolidation, assignment or otherwise of a controlling
interest in the business, stock or other assets of the Company) to assume
expressly and agree to perform this Agreement. As used in this Agreement, "the
Company" shall mean the Company as hereinbefore defined and any successor as
aforesaid.
17. INVALIDITY. We mutually intend this Agreement to be enforced as
written. However, if any term or provision of this Agreement shall to any extent
be declared illegal or unenforceable by a duly authorized court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
term or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, each term and
provision of this Agreement shall be valid and be enforceable to the fullest
extent permitted by
-7-
<PAGE> 8
law and the illegal or unenforceable term or provision shall be deemed replaced
by a term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision.
18. NOTICES. All notices and communications required or permitted to be
given hereunder shall be duly given by delivering the same in hand or by
depositing such notice or communication in the mail, sent by certified or
registered mail, return receipt requested, postage prepaid, or by delivery by
overnight courier, with a receipt obtained therefor, if to you, at the address
listed above or if to the Company: Ibis Technology Corporation, 32 Cherry Hill
Drive, Danvers, MA 01923, Attn: Board of Directors, or such other address as
either party furnishes to the other by like notice, provided, however, that any
notice of a change of address shall be effective only upon receipt.
19. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between us in relation to the subject matter hereof and there are
no promises, representations, conditions, provisions or terms related thereto
other than those set forth or referred to in this Agreement and the exhibits
hereto. This Agreement supersedes all previous understandings, agreements and
representations between the Company and you regarding your employment by the
Company, whether written or oral.
20. HEADINGS. All captions in this Agreement are intended solely for the
convenience of the parties, and none shall be deemed to affect the meaning or
construction of any provision hereof.
21. WAIVER. No failure of the Company or you to exercise any power reserved
to it or you, respectively, by this Agreement, or to insist upon strict
compliance by you or the Company, respectively, with any obligation or condition
hereunder, and no custom or practice of the parties at variance with the terms
hereof, shall constitute a waiver of the Company's or your right, as the case
may be, to demand exact compliance with any of the terms hereof. Waiver by
either party of any particular default by the other party hereto shall not
affect or impair the waiving party's rights with respect to any subsequent
default of the same, similar or different nature, nor shall any delay,
forbearance or omission of either party to exercise any power or right arising
out of any breach or default by the other party of any of the terms, provisions
or covenants hereof, affect or impair our or your right to exercise the same,
nor shall such constitute a waiver by the Company or you, as the case may be, of
any right hereunder, or the right to declare any subsequent breach or default
and to terminate this Agreement prior to the expiration of its term.
22. SUBSIDIARIES. As used herein, the term "Subsidiaries" shall mean all
entities a majority of the equity of which entitling the holder thereof to vote
is owned by the Company or a Subsidiary.
-8-
<PAGE> 9
23. GOVERNING LAW. This Agreement shall be construed under and be governed
in all respects by the law of the Commonwealth of Massachusetts.
24. AMENDMENT. No amendment or modification to this Agreement shall be
effective unless in writing and signed by both parties hereto.
25. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each executed counterpart constituting an original and such
counterparts together constituting one agreement.
If you agree with the terms of your employment as set forth in this
Agreement, please execute the duplicate copy hereof in the space provided below.
IBIS TECHNOLOGY CORPORATION
By: /s/ G. Ryding
-------------------------------
Name: G. Ryding
-----------------------------
Title: CEO and President
----------------------------
ACCEPTED AND AGREED
- -------------------
as of October 23, 1997:
/s/ Martin J. Reid
- ------------------
Martin J. Reid
-9-
<PAGE> 1
Execution Version
LICENSE AGREEMENT
BETWEEN
IBIS TECHNOLOGY CORPORATION
AND
ORION EQUIPMENT, INC.
<PAGE> 2
LICENSE AGREEMENT
THIS AGREEMENT, effective this 27th day of June, 1996, ("EFFECTIVE DATE")
by and between ORION EQUIPMENT, INC., a corporation organized and existing under
the laws of California with its principal place of business at 528 Weddell
Drive, Sunnyvale, California 94089-2113 ("Licensee") and IBIS TECHNOLOGY
CORPORATION, a corporation organized and existing under the laws of the
Commonwealth of Massachusetts, with its principal place of business at 32A
Cherry Hill Drive, Danvers, Massachusetts 01923, U.S.A. ("IBIS").
WHEREAS, IBIS is the sublicensee of certain technology related to the use
of a periodically varying magnetic field to cause the scanning of a focused ion
beam in one dimension pursuant to the documents appended as Exhibit A; and
WHEREAS, IBIS is willing to further sublicense such technology on the terms
set forth herein; and
WHEREAS, Licensee desires to obtain a sublicense of such technology upon
the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties herein contained, the parties hereto, intending to be legally bound,
do hereby agree as follows:
ARTICLE 1 - DEFINITIONS
For the purpose of this Agreement, the following words and phrases shall
have the following meanings:
1.1 "FIELD" shall mean all fields of use other than the commercial
production of SIMOX wafers.
1.2 "ION IMPLANTATION MACHINE" means a machine constructed to implant ions
uniformly over the surface of a substrate, and does not include other machines
such as ion projection lithography machines.
1.3 "LICENSED PRODUCTS" shall mean ORIGINAL 1-D MAGNETIC SCANNING MACHINES
and RETROFITTED 1-D MAGNETIC SCANNING MACHINES, the manufacture, use or sale of
which is within the claims of the PATENT RIGHTS.
1.4 "MAGNETIC SCANNING" means the use of a periodically varying magnetic
field to cause the scanning of a focused ion beam in one dimension.
1.5 "PATENT RIGHTS" shall mean: (a) 1-D patent rights: United States Patent
Application No. 07/843,391, now U.S. Patent No. 5,311,028; United States Patent
Application No. 08/106,351, now U.S. Patent No. 5,393,984; and United States
Patent Application No. 08/383,422, (b) United States Patent Application
08/259,919, filed June 10, 1994 (Wiggler), (c) a United States Patent
Application for the subject known as Dual Field Scanning, filed June 10, 1995,
entitled System and Method for Producing Superimposed Static and Time-Varying
Magnetic Fields, (d) any U.S. patents issuing , reissuing or otherwise based on
the inventions claimed in (a), (b) or (c) above, and any foreign patent
applications and patents corresponding thereto.
1.6 "ORIGINAL 1-D MAGNETIC SCANNING MACHINE" means an ION IMPLANTATION
MACHINE originally constructed, to employ MAGNETIC SCANNING to implant ions in
one dimension.
<PAGE> 3
1.7 "RETROFITTED 1-D MAGNETIC SCANNING MACHINE" means an ION IMPLANTATION
MACHINE originally constructed to implant ions by means other than MAGNETIC
SCANNING, and subsequently retrofitted by Licensee to employ MAGNETIC SCANNING
to implant ions in one dimension.
ARTICLE 2 - GRANT OF LICENSE AND OPTION
2.1 GRANT OF LICENSE. IBIS hereby grants to Licensee, subject to the terms
herein recited, a non-exclusive, non-transferable (except as provided in ARTICLE
10.2 herein), perpetual, royalty-bearing, worldwide right and sublicense under
the PATENT RIGHTS to develop, make, have made, use, sell and distribute
RETROFITTED 1-D MAGNETIC SCANNING MACHINES in the FIELD.
2.2 GRANT OF OPTION. IBIS hereby grants to Licensee, subject to the terms
herein recited, an option to acquire a non-exclusive, non-transferrable (except
as provided in ARTICLE 10.2 herein), perpetual, royalty-bearing, worldwide right
and sublicense under the PATENT RIGHTS to develop, make, have made, use, sell
and distribute ORIGINAL 1-D MAGNETIC SCANNING MACHINES in the FIELD.
2.3 EXERCISE OF OPTION. Licensee may exercise the option granted pursuant
to Section 2.2 hereof by delivering written notice of such exercise to IBIS
together with the Option Exercise Fee as provided in Section 3.2 hereof. Upon
delivery of such notice and such Option Exercise Fee. Licensees shall have,
subject to the terms herein recited, the license described in Section 2.2
hereof.
2.4 SALE OF LICENSED PRODUCTS. IBIS acknowledges that Licensee cannot
restrict or control the end use of general purpose ION IMPLANTATION MACHINES.
However, Licensee acknowledges and agrees that it shall not, under rights
provided under this agreement, sell LICENSED PRODUCTS or scanning components
which are specifically designed for the commercial production of SIMOX wafers.
2.5 IMPROVEMENTS. If Licensee makes any invention which is an improvement
to inventions claimed in the PATENT RIGHTS, whether or not patentable, Licensee
shall disclose such invention to IBIS and grant to IBIS a non-exclusive,
perpetual, royalty free, worldwide right and license with the right to grant
sublicenses to use such invention(s).
ARTICLE 3 - ROYALTIES
3.1 INITIAL LICENSE FEE. Upon signing this Agreement, Licensee shall pay
IBIS a non-refundable license fee of One Hundred Twenty Thousand Dollars
($120,000) in consideration of the license granted pursuant to Section 2.1
hereof and the option granted pursuant to Section 2.2 hereof.
3.2 OPTION EXERCISE FEE. Upon and in connection with exercise of the option
granted by Section 2.3 hereof, Licensee shall pay IBIS a non-refundable option
exercise fee (the "Option Exercise Fee") of (a) Three Hundred Eighty Thousand
Dollars ($380,000.00) MINUS (b) the product of $25,000 and the number of
RETROFITTED 1-D MAGNETIC SCANNING MACHINES in excess of four (4) that are
shipped or put into use by Licensee prior to the option exercise date.
3.3 ROYALTIES. (a) Licensee agrees to pay to IBIS, as partial consideration
for the rights granted under this Agreement, Thirty Thousand Dollars ($30,000)
for each of the first four (4) RETROFITTED 1-D MAGNETIC SCANNING MACHINES
shipped or put into use by it and Twenty Five Thousand
-2-
<PAGE> 4
Dollars ($25,000) for each RETROFITTED 1-D MAGNETIC SCANNING MACHINE shipped or
put into use by it in excess of four (4) RETROFITTED 1-D MAGNETIC SCANNING
MACHINES.
(b) Licensee agrees to pay to IBIS, as partial consideration for the rights
granted under this Agreement, Twenty Five Thousand Dollars ($25,000) for each of
the first sixty (60) ORIGINAL 1-D MAGNETIC SCANNING MACHINES shipped or put into
use by it and Fifteen Thousand Dollars ($15,000) for each ORIGINAL 1-D MAGNETIC
SCANNING MACHINE shipped or put into use by it in excess of sixty (60) ORIGINAL
1-D MAGNETIC SCANNING MACHINES;
(c) Amounts paid pursuant to Section 3.1 shall be credited against
royalties payable pursuant to Section 3.3(a) and amounts paid pursuant to
Section 3.2 shall be credited against royalties payable pursuant to Sections
3.3(a) or 3.3(b).
(d) The applicable royalty amounts payable hereunder shall be increased
annually, as of January 1 of each year, over the respective amounts established
for the preceding year by a factor equal to the increase in the U.S. Consumer
Price Index (CPI) for the prior year, taking the CPI in effect December 31, 1995
as the base index.
3.4 ROYALTY PERIOD. The obligation to pay royalties under Section 3.3 shall
continue in each country in which manufacture, use or sale of Licensed Products
occurs until the date of expiration of the last to expire of any patent issued
in such country which is part of the PATENT RIGHTS.
3.5 PAYMENT. Royalties will be due and payable within sixty (60) days of
the end of each calendar quarter. Royalty payments shall be made in United
States Dollars at IBIS' offices in Danvers, Massachusetts.
ARTICLE 4 - REPORTS AND RECORDS
4.1 REPORTS. At the time of each royalty payment, Licensee shall provide a
full account of all business activities subject to royalty payments hereunder.
4.2 RECORDS. Licensee shall keep complete and accurate books of account
containing all particulars which may be reasonably necessary for the purpose of
showing the royalties payable to IBIS. Said books of account of Licensee shall
be kept at the principal place of business of Licensee. Said books and
particulars shall be available during normal business hours, upon reasonable
notice, for five (5) years following the end of the calendar year to which they
pertain, to the inspection of an independent certified public accountant
retained by IBIS for the purpose of verifying Licensee's records related to
Licensee's royalty obligations under this Agreement.
4.3 AUDIT COSTS. If an audit conducted on behalf of IBIS pursuant to
Section 4.2 reveals that Licensee has made an error in its favor of the sum of
royalty payments due IBIS in a calendar year, Licensee, in addition to payment
of the amount owing, shall be obliged to pay the audit fee in connection with
the audit, said payments to be made within sixty (60) days of delivery of the
auditor's report to Licensee. Except as provided in the prior sentence, IBIS
shall be responsible for all fees and expenses of said independent certificate
public accountant.
4.4 MARKING. Licensee agrees to mark all LICENSED PRODUCTS shipped or put
into use in the United States with all applicable U.S. patent numbers, to the
extent commercially practicable. All LICENSED PRODUCTS shipped to other
countries shall be marked in such a manner as to conform with
-3-
<PAGE> 5
the patent laws and practice of the country to which such products are shipped,
to the extent commercially practicable.
ARTICLE 5 - ABATEMENT OF INFRINGEMENT
5.1 LICENSOR ACTION. Licensee shall give immediate notice to IBIS of any
infringement of PATENT RIGHTS by third parties which may come to its attention.
If at any time any third party shall infringe any unexpired patent licensed
hereunder, IBIS may at its election bring suit in its own name or in the name of
Licensee against such infringer. Licensee shall execute such legal papers
necessary for the prosecution of such suit as may be requested by IBIS, and IBIS
shall be liable for all costs and expenses of such litigation and shall be
entitled to receive and retain all recoveries therefrom. Licensee will at all
times fully cooperate with IBIS in the enforcement of the PATENT RIGHTS and
shall furnish IBIS all information and records requested by IBIS in connection
therewith.
5.2 LICENSEE ACTION. If IBIS fails for the period of ninety (90) days after
its attention has been called to the matter by notice in writing by Licensee, in
accordance with Section 5.1, to institute any proceedings or actions necessary
to prevent any infringement on a commercial scale competitive with Licensee,
Licensee may, unless otherwise objected to by IBIS within the ninety (90) day
period, at its own cost institute and prosecute actions or proceedings, if
necessary, in its name or in the name of IBIS, or both if required by law.
Licensee agrees to notify IBIS of any such action. IBIS agrees to cooperate
reasonably in the preparation for and prosecution of any such action. Any
amounts realized by Licensee from the successful prosecution of any such
infringement suit(s) will be applied first to reimburse IBIS for its cost and
expenses in connection therewith, then to reimburse Licensee for its costs and
expenses in connection with said suit(s), and the balance, if any, shall be
divided equally between the parties. Should IBIS object to Licenses initiating
suit, then Licensee's continuing obligation to pay royalties shall cease during
any such period of non-abatement.
ARTICLE 6 - REPRESENTATIONS AND WARRANTIES
6.1 AUTHORITY. Each party represents and warrants that it has the right and
authority to enter this Agreement.
6.2 EXCEPTIONS. Nothing in this Agreement shall be construed as:
(a) a warranty or representation that anything made, used, sold or
otherwise disposed of under any license granted in this Agreement is or will be
free from infringement of patents, copyrights or trademarks of third parties;
(b) conferring rights on Licensee to use in advertising, publicity or
otherwise the name of IBIS or of its employees or affiliates without prior
written approval of IBIS.
(c) conferring rights on IBIS to use in advertising, publicity or otherwise
the name of Licensee or of its employees or affiliates without the prior written
approval of Licensee.
6.3 DISCLAIMER. EXCEPT AS EXPRESSLY PROVIDED HEREIN, IBIS MAKES NO
REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR
IMPLIED. THERE ARE NO EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY,
SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT. IBIS HAS
-4-
<PAGE> 6
NOT CONDUCTED ANY STUDY OF THE PATENTABILITY OF THE TECHNOLOGY AND MAKES NO
REPRESENTATIONS OR WARRANTIES OF ANY KIND WITH RESPECT TO THE LIKELIHOOD OF THE
ISSUANCE OF ANY PATENTS, OR THE VALIDITY OF ANY PATENTS WHICH HAVE ISSUED OR MAY
ISSUE, IN CONNECTION THEREWITH.
ARTICLE 7 - TERM AND TERMINATION
7.1 BANKRUPTCY. If Licensee undergoes a liquidation in bankruptcy, or files
a petition for liquidation in bankruptcy, or applies for or consents to the
appointment of a receiver of trustee, of makes an assignment for the benefit of
creditors, whether by the voluntary act of Licensee or otherwise, and if
Licensee fails to terminate any such proceeding within one hundred twenty (120)
days after its commencement, IBIS may at its election terminate this Agreement
upon thirty (30) days written notice to Licensee. Licensee agrees to provide
written notice to IBIS of Licensee's or third party's intention to file a
petition for liquidation of Licensee in bankruptcy prior to such filing, if
known.
7.2 MATERIAL BREACH. Upon any material breach or default by Licensee, IBIS
shall have the right to terminate this Agreement and the rights and license
granted hereunder by thirty (30) days written notice to Licensee. Such
termination shall become effective at the end of such thirty (30) day period
unless Licensee has cured any breach or default prior to the expiration such
period.
7.3 LATE ROYALTIES. Any royalties which are not paid when due shall accrue
interest at the average prime rate plus two (2) percent as established in the
Wall Street Journal for the period from the date such amount shall have been due
until such amount is paid in full.
7.4 OBLIGATIONS ON TERMINATION. Upon termination of this Agreement for any
reason, nothing herein shall be construed to release either party from any
obligation which matured prior to the effective date of such termination.
7.5 SURVIVAL. Sections 4.2, 6.1, 6.3 and Article 8 shall survive
termination of this Agreement as well as the right of IBIS to collect any
accrued royalties as recited in Article 3.
ARTICLE 8 - INDEMNIFICATION
Licensee agrees to hold harmless, indemnify and defend IBIS and its
officers, directors, agents and employees, from all liabilities, demands,
damages, expenses and losses arising out of (a) use by Licensee, or by any party
acting on behalf of or under authorization from Licensee, including, without
limitation, customers of Licensee, of the PATENT RIGHTS; and (b) use, sale or
other disposition by Licensee, or by any party acting on behalf of or under
authorization from Licensee, including, without limitation, customers of
Licensee, of LICENSED PRODUCTS. The provisions of this Article 8 shall survive
termination of this Agreement.
-5-
<PAGE> 7
ARTICLE 9 - PAYMENTS, NOTICES AND COMMUNICATIONS
Except as otherwise provided for herein, any payment, notice or other
communication pursuant to this Agreement shall be in writing, shall be addressed
to the receiving party's address set forth below or to such other address as a
party may designate by notice hereunder, and shall be either (i) delivered by
hand, (ii) sent by overnight courier, or (iii) sent by registered mail, return
receipt requested, postage prepaid.
In the case of IBIS: IBIS Technology Corporation
32A Cherry Hill Drive
Danvers, MA 01923
ATTN: Geoffrey Ryding, President
In the case of LICENSEE: Orion Equipment, Inc.
528 Weddell Drive
Sunnyvale, CA 94089-2113
ATTN: President
All notices, requests, consents and other communications hereunder shall be
deemed to have been given either (i) if by hand, at the time of the delivery
thereof to the receiving party at the address of such party set forth above,
(ii) if sent by overnight courier, on the next business day following the day
such notice is delivered to the courier service, or (iii) if sent by registered
mail, on the 5th business day following the day such mailing is made.
ARTICLE 10 - MISCELLANEOUS PROVISIONS
10.1 TAX PAYMENT. Licensee may withhold any withholding taxes as required
by any applicable laws regarding its payments under this Agreement. Licensee
shall provide IBIS with certification of any such tax payments for IBIS tax
credit purposes.
10.2 ASSIGNMENT. Neither party may assign its rights or obligations
hereunder without the prior written consent of the other party, which consent
may not be unreasonably withheld, except that:
(a) Licensee, may, without such consent and at its sole discretion, assign
this Agreement or the resulting license to a company of which Licensee controls
directly or indirectly the majority of the voting power, provided that the
assignee undertakes to be bound to perform, and Licensee hereby undertakes and
covenants to guaranty the full performance by such assignee of, all obligations
of Licensee under this Agreement and any license granted pursuant to its
exercise and
(b) IBIS may, without such consent, assign its right to receive royalties
hereunder at its sole discretion, provided that IBIS will, prior to the
assignment, provide Licensee evidence of the agreement between the assignee and
IBIS that creates the obligation to assign and give Licensee full information
regarding the assignee's name, address and other necessary data on the assignee.
10.3 GOVERNING LAW. This Agreement shall be construed, governed,
interpreted and applied in accordance with the laws of the Commonwealth of
Massachusetts, U.S.A., except that questions affecting construction and effect
of any patent shall be determined by the law of the country in which the patent
was granted.
-6-
<PAGE> 8
10.4 ENTIRE AGREEMENT. The parties hereto acknowledge that this instrument
sets forth the entire agreement and understanding of the parties hereto as to
the subject of the matter hereof, and shall not be subject to any change or
modification except by the execution of a written instrument subscribed to be
the parties hereto.
10.5 SEVERABILITY. The provisions of this Agreement are severable, and in
the event that any provisions of this Agreement are determined to be invalid or
unenforceable under any controlling body of law, such invalidity or
unenforceability shall not in any way affect the validity or enforceability of
the remaining provisions hereof.
10.6 DISPUTES. Any dispute, claim, or difference arising in connection with
this Agreement or as to the rights or liabilities of the parties hereunder (each
such event being hereinafter called a "dispute"), shall be referred to
arbitration in Boston, Massachusetts in accordance with the then obtaining the
Rules of the American Arbitration Association. The Arbitrational tribunal shall
consist of three arbitrators. The party initiating arbitration shall nominate
one arbitrator (who shall not be affiliated with such party) in the request for
arbitration and the other party shall nominate a second arbitrator (who shall
not be affiliated with such party) in the answer thereto. The two arbitrators so
named will then jointly appoint the third arbitrator as chairman of the
Arbitration Tribunal. In the event a party shall fail to nominate its arbitrator
or the two shall fail to nominate the third arbitrator, such nomination shall be
made by the office of the American Arbitration Association in Boston,
Massachusetts. The award of the Arbitration tribunal shall be final and judgment
upon such an award may be entered in any competent court or application may be
made to any competent court for judicial acceptance of such an award and an
order of enforcement. In the event of any procedural matter not covered by the
aforesaid Rules, the procedural law of the Commonwealth of Massachusetts shall
govern.
10.7 COUNTERPARTS. This Agreement may be executed in multiple counterparts,
each of which shall be deemed on original, and counterpart signature pages may
be assembled to form a single document.
-7-
<PAGE> 9
IN WITNESS WHEREOF, and intending to be bound hereby, the parties have
caused this agreement to be signed by their duly authorized representatives.
IBIS TECHNOLOGY CORPORATION ORION EQUIPMENT, INC.
By: /s/ Geoffrey Ryding By: /s/ Wesley H. Weisenberger
------------------------ --------------------------------
Name: Geoffrey Ryding Name: Wesley H. Weisenberger
---------------------- ------------------------------
Title: President Title: Chief Executive Officer
--------------------- -----------------------------
Date: June 27, 1996 Date: June 27, 1996
-8-
<PAGE> 1
EXHIBIT 10.37
[Ibis Technology Corporation Logo]
- --------------------------------------------------------------------------------
August 28, 1997
Mr. Mark Bone
Orion Equipment, Inc.
528 Weddell Drive
Sunnyvale, California 94089-2113
Dear Mark:
I would like to follow up on our recent telephone conversation in regard to
the license agreement between Ibis Technology Corporation and Orion Equipment,
Inc. dated June 27, 1996 (the "License Agreement"). It is my understanding that
Orion would now like to exercise the option set forth in Section 2.2 of the
Agreement in order to develop and market an `original 1-D Magnetic Scanning
Machine' (complete implanter). As we discussed, I propose that the payment of
the Option Exercise Fee set forth in Section 3.2 is modified.
By Orion's execution hereof, it acknowledges that Orion has exercised the
option set forth in Section 2.2. The Option Exercise Fee set forth in Section
3.2 is hereby amended such that $125,000 of the $380,000 Fee is due as of the
date hereof and the balance of $255,000 shall be due one year from the date
hereof. If Orion fails to pay the balance of $255,000 at that time, the license
described in Section 2.2 shall terminate and be of no further force and effect.
It is understood that any payments of the Option Exercise Fee described
above and the Initial License Fee as described in our License Agreement, dated
June 27, 1996, will be applied as specified in Article 3.3 of this Agreement in
the event that Orion Equipment, Inc. is acquired by or enters into a strategic
relationship with a third party to the extent the assignment of the license is
permitted under this Agreement.
The above paragraphs are the only modification to the License Agreement. If
the above modification is in accordance with your understanding of our telephone
conversation, please sign below and return this letter to me. The duplicate copy
is for your files.
Sincerely,
/s/ Geoffrey Ryding
------------------------------------------
Geoffrey Ryding
President and Chief Executive Officer
Agreed to:
Orion Equipment, Inc.
By: /s/ Mark R. Bone
-----------------------
Title: C.F.O.
-------------------
Ibis Technology Corporation 32 Cherry Hill Drive Danvers, MA 01923
Telephone (508) 777-4247 or (508) 777-IBIS Fas (508) 777-6570
<PAGE> 1
EXHIBIT 10.38
CONSULTING SERVICES AGREEMENT
This Consulting Services Agreement (the "Agreement") is entered into as of
April 22, 1997 by Ibis Technology Corporation, of 32 Cherry Hill Drive, Danvers,
Massachusetts 01923 ("Ibis") and Orion Equipment, Inc., of 528 Weddell Drive,
Sunnyvale, California 94089 ("Orion").
1. BACKGROUND. Ibis and Orion are parties to a License Agreement dated June
27, 1996 pursuant to which Ibis has licensed to Orion its "Magnetic Scanning"
technology (the "Technology") subject to certain terms and conditions more
particularly set forth in such License Agreement.
Orion is engaged in implementing the Technology and has requested the
technical assistance of Ibis in such implementation activity. Ibis has provided
and is willing to continue to provide such assistance as a consultant to Orion.
Ibis and Orion wish to memorialize the essential terms on which Ibis will
provide consulting services to Orion and to delineate the property interests of
Ibis and Orion, respectively, in the work product of such consulting services.
2. SCOPE. Ibis and Orion mutually acknowledge that Ibis has heretofore
provided consulting services to Orion of a nature intended to facilitate
implementation by Orion of the Technology in accordance with the License
Agreement. Ibis and Orion further mutually acknowledge that as of the date of
this Agreement Ibis is continuing to provide consulting services on a best
effort basis, under a "Phase 2" scope of work, more particularly described in
Exhibit A. To the extent that Ibis provides additional consulting services to
Orion, the parties shall amend Exhibit A to enlarge the scope of work described
therein.
3. COMPENSATION. Ibis shall be compensated for the Phase 2 scope of work
described in Exhibit A in accordance with the hourly rate schedule and
not-to-exceed values set forth in Exhibit B. To the extent that Ibis provides
additional consulting services to Orion, the parties shall amend Exhibit B as
necessary to set forth the compensation arrangements applicable to such
additional services.
4. RIGHTS IN WORK PRODUCT. All information, reports, studies, know-how,
techniques, inventions and discoveries produced by, or as a result of, or in
connection with the consulting services rendered by Ibis to Orion, including
consulting services rendered prior to the date of this Agreement, (the "Work
Product"), shall be the sole and exclusive property of Orion; PROVIDED, HOWEVER,
that Ibis shall have, and Orion hereby grants to Ibis, a perpetual,
non-exclusive, royalty free, worldwide license (with the right to sublicense) to
utilize the Work Product in connection with the commercial production of SIMOX
(Separation by IMplantation of Oxygen) wafers and machines specifically
constructed for such production.
<PAGE> 2
5. MISCELLANEOUS. This Agreement may be amended only by written agreement of
the parties, will be governed by Massachusetts Law, and shall be binding upon
the parties and their respective successors and permitted assigns.
IBIS TECHNOLOGY CORPORATION ORION EQUIPMENT INC.
By /s/ Geoffrey Ryding By /s/ Don Lindsay
------------------------ -------------------------
Name: Geoffrey Ryding Name: Don Lindsay
Title: President Title: President
Date: 4-23-97 Date: 23 Apr 97
2
<PAGE> 3
Exhibit A
SCOPE OF WORK
Phase 2 will involve the detail design and fabrication of the following:
o E.S. Chamber - Upstream interface to magnetic collimator
- Downstream interface to "Equipe" robotics
o Linear scan and drive system. 12" stroke, 1Hz.
o Linear seal housing with 90 degree rotation, bearing, seal and drive motor
with 1 second index time.
o Scan Faraday system for Dose Control
o Dose control electronics
o Beam Dump system
o Wafer platen with water, electrical connections, etc.
3
<PAGE> 4
Exhibit B
COMPENSATION
o Phase 2 Design Labor- not to exceed $250,000
o Phase 2 Prototype End Station Material - not to exceed $150,000
The above ceilings are for billings for material and labor incurred after
January 31, 1997.
Ibis will bill as the charges are incurred at the following rates:
o Senior Design Engineering (Smick, Farley, Ryding) $100 per hour
o Engineering (Ayotte, Roberts, Technician etc.) $60 per hour
o Material Cost +20%
4
<PAGE> 1
- -------------------------------------------------------------------------------
Ibis Technology Corporation
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Ibis Technology Corporation:
The audits referred to in our report dated February 19, 1998, included the
related financial statement schedule for each of the years in the three-year
period ended December 31, 1997, included in the annual report on Form 10-K. The
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statement schedule
based on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We consent to incorporation by reference in the registration statements
(No. 333-1174) on Form S-1, (No. 33-78440) on Form S-3, (No. 333-9237) on Form
S-3, (No. 333-9239) on Form S-8, (No. 33-81452) on Form S-8, and (No. 333-45247)
on Form S-8 of Ibis Technology Corporation of our report dated February 19,
1998, relating to the balance sheets of Ibis Technology Corporation as of
December 31, 1996 and 1997, and the related statements of operations,
stockholders' equity, and cash flows for each of the years in the
three-year period ending December 31, 1997, which report appears in the December
31, 1997 annual report on 10-K of Ibis Technology Corporation.
KPMG Peat Marwick LLP
Boston, Massachusetts
March 31, 1998
47
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0
0
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<EPS-PRIMARY> (0.69)
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</TABLE>
