<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________ to _____________________
Commission file number 0-20470
Integrated Process Equipment Corp.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 77-0296222
(State or other jurisdiction of incorporation or organization) (I.R.S. employer identification no.)
911 Bern Court, San Jose, California 95112
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code (408) 436-2170
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by [X] 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 [ ]
--- ---
As of November 11, 1996, 521,650 shares of Class A Common Stock and
14,354,511 shares of Common Stock of the registrant were outstanding.
Page 1 of 23
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
ASSETS 1996 1996
---- ----
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 11,681 $ 7,304
Accounts receivable 44,079 39,510
Inventories 31,681 41,539
Prepaid expenses 1,590 1,812
Deferred income taxes 5,175 5,175
--------- ---------
Total current assets 94,206 95,340
--------- ---------
Property, plant and equipment, net 52,655 50,830
Intangible assets, net 28,046 27,085
Deferred income taxes 13,175 15,245
Other assets 3,602 3,405
--------- ---------
$ 191,684 $ 191,905
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 2,056 $ 1,046
Current portion of long-term debt 2,124 2,244
Accounts payable 15,176 16,226
Accrued liabilities 21,150 21,911
--------- ---------
Total current liabilities 40,506 41,427
Long-term debt, less current portion 22,841 24,372
--------- ---------
Total liabilities 63,347 65,799
--------- ---------
Stockholders' equity:
Preferred stock, $.01 par value per share. Nonvoting, authorized
2,000,000 shares:
Series B-1 cumulative preferred stock. Authorized 21,478 shares,
issued and outstanding 20,941 shares at June 30, 1996, 15,572
shares at September 30, 1996. Liquidation preference of $1,450 -- --
Series B-2 cumulative preferred stock. Authorized 21,478 shares,
issued and outstanding 20,941shares. Liquidation preference of $1,950 -- --
Series B-3 cumulative preferred stock. Authorized 21,478 shares,
issued and outstanding 21,210 shares. Liquidation preference of $1,975 -- --
Common stock, $.01 par value per share. Authorized 50,000,000 shares;
one vote per share; issued and outstanding
14,238,406 shares at June 30, 1996 and 14,354,272 at September 30, 1996 142 143
Class A common stock, $.01 par value per share. Authorized 3,500,000
shares, four votes per share; issued and outstanding 521,650 shares 5 5
Additional paid-in capital 151,730 153,256
Accumulated deficit (23,546) (27,319)
Foreign currency translation adjustment 6 21
--------- ---------
Total stockholders' equity 128,337 126,106
--------- ---------
$ 191,684 $ 191,905
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements
2
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INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------
1995 1996
---- ----
<S> <C> <C>
Revenue $ 38,012 $ 32,017
Cost of goods sold 22,304 21,766
-------- --------
Gross margin 15,708 10,251
-------- --------
Operating expenses:
Research and development 3,698 7,271
Selling, general and administrative 7,072 8,027
-------- --------
Total operating expenses 10,770 15,298
-------- --------
Operating income (loss) 4,938 (5,047)
Other income (expense):
Interest income 840 115
Interest expense (178) (582)
Other, net 64 67
-------- --------
Total other income (expense) 726 (400)
-------- --------
Income (loss) before income taxes 5,664 (5,447)
Income tax expense (benefit) 2,152 (2,070)
-------- --------
Net income (loss) 3,512 (3,377)
Cumulative dividend on preferred stock (309) (81)
-------- --------
Net income (loss) attributable to
common stockholders $ 3,203 $ (3,458)
======== ========
Net income (loss) per share $ .20 $ (.23)
======== ========
Shares used in per share calculation 16,280 14,785
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Series B Class A Foreign
Preferred Stock Common Stock Common Stock Additional Currency
--------------- ------------ ------------ Paid-In Accumulated Translation
Shares Amount Shares Amount Shares Amount Capital Deficit Adjustment
------ ------ ------ ------ ------ ------ ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance -
June 30, 1996 63,092 $-- 14,238,406 $142 521,650 $5 $ 151,730 $(23,546) $ 6
Net loss -- -- -- -- -- - -- (3,377) --
Retirement of Series B-1
Preferred Stock (5,369) -- -- -- -- - (500) -- --
Issuance of Warrants -- -- -- -- -- - 657 -- --
Exercise of Stock Options
(including tax benefits of
$265,000) -- -- 115,866 1 -- - 1,369 -- --
Cumulative translation
adjustment -- -- -- -- -- - -- -- 15
Dividends Paid -- -- -- -- -- - -- (396) --
------- ---- ---------- ---- ------- -- --------- -------- ---
Balance -
September 30, 1996 57,723 $-- 14,354,272 $143 521,650 $5 $ 153,256 $(27,319) $21
======= ==== ========== ==== ======= == ========= ======== ===
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------
Cash flows from operating activities: 1995 1996
---- ----
<S> <C> <C>
Net income (loss) $ 3,512 $ (3,377)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,160 2,830
Deferred tax benefit (118) (1,806)
Acquisition adjustments -- (865)
Costs of warrants issued -- 657
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (3,397) 4,486
(Increase) decrease in inventories 459 (9,858)
(Increase) in prepaid expenses and other assets (647) (25)
Increase (decrease) in accounts payable (164) 1,050
Increase in accrued liabilities 4,128 761
-------- --------
Net cash provided by (used in) operating activities 4,933 (6,147)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (11,087) (116)
Proceeds from sale of property and equipment -- 745
-------- --------
Net cash provided by (used in) investing activities (11,087) 629
-------- --------
Cash flows from financing activities:
Proceeds from long-term debt -- 1,407
Repayment of long-term debt (361) (409)
Repayment of notes payable -- (434)
Repayment of capital leases (73) (147)
Payment of preferred stock dividends (351) (396)
Net proceeds from issuance of common stock
and warrants 1,945 1,105
-------- --------
Net cash provided by financing activities 1,160 1,126
-------- --------
Effect of exchange rate changes on cash -- 15
-------- --------
Net decrease in cash and cash equivalents (4,994) (4,377)
Cash and cash equivalents, beginning of period 66,007 11,681
-------- --------
Cash and cash equivalents, end of period $ 61,013 $ 7,304
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest during the period $ 178 $ 735
======== ========
Supplemental disclosure of noncash activities:
Release from escrow (retirement) of Class B 6% cumulative
convertible preferred stock issued for the Westech acquisition $ 2,000 $ (500)
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PREPARATION:
The accompanying condensed consolidated financial statements at
September 30, 1996 and for the three month periods ended September 30, 1995 and
September 30, 1996 are unaudited; however, in the opinion of the management of
Integrated Process Equipment Corp. ("IPEC") and subsidiaries (the "Company"),
such statements include all adjustments (consisting solely of normal recurring
accruals) necessary for the fair statement of the information presented therein.
The condensed consolidated balance sheet as of June 30, 1996 was derived from
the audited financial statements at such date.
Pursuant to accounting requirements of the Securities and Exchange
Commission applicable to quarterly reports on Form 10-Q, the accompanying
condensed consolidated financial statements and these notes do not include all
disclosures required by generally accepted accounting principles for complete
financial statements. Accordingly, these statements should be read in
conjunction with the Company's annual financial statements and notes thereto
included in the Company's annual report on Form 10-K for the year ended June 30,
1996.
Results of operations for interim periods are not necessarily
indicative of those to be achieved for full fiscal years.
ESTIMATES IN FINANCIAL STATEMENTS
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,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
ORGANIZATION:
Westech Systems, Inc.:
On September 3, 1993, IPEC acquired Westech Systems, Inc. ("Westech"),
a privately owned company engaged in manufacturing chemical mechanical
planarization ("CMP") equipment for the semiconductor industry. The name of
Westech has subsequently been changed to IPEC Planar Phoenix, Inc.
Acquisition of Athens Corp.:
On November 22, 1994, the Company acquired approximately 94% of the
outstanding common stock of Athens Corp. ("Athens"), a privately owned company
engaged in manufacturing wet process reprocessing systems for the semiconductor
industry. The purchase price consisted of 1,095,695 shares of the Company's
common stock. The Company acquired the remaining 6% in the first quarter of
fiscal
6
<PAGE> 7
INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1996 in exchange for 211,670 shares of the Company's common stock. The name of
Athens has subsequently been changed to IPEC Clean, Inc.
Acquisition of GAARD Automation, Inc.:
On October 30, 1995, the Company acquired all of the outstanding common
stock of GAARD Automation, Inc. ("GAARD"), a privately owned company that has
developed and sells an advanced high throughput CMP system for metal
planarization. GAARD also designs and manufactures custom flexible automation
systems used outside the semiconductor industry. The name of GAARD has
subsequently been changed to IPEC Planar Portland, Inc.
Acquisition of Precision Materials:
On December 29, 1995, the Company's subsidiary IPEC Precision, Inc.
("Precision") acquired substantially all of the assets constituting the
Precision Materials Operation of Hughes Danbury Optical Systems, Inc. (HDOS).
Precision is engaged in the design, manufacture, and sale of precision
equipment, based on proprietary plasma assisted chemical etching and metrology
technologies, for use in the production of advanced semiconductor wafers and
devices, and provides wafer processing services that use such proprietary
technology and equipment.
The aforementioned acquisitions have all been accounted for as
purchases and, accordingly, the condensed consolidated financial statements
include the results of operations from the respective dates of acquisition.
Pro forma financial information:
Pro forma summary of consolidated operations (excluding charges for
purchased in-process research and development), assuming the acquisitions of
GAARD and Precision had taken place on July 1, 1995 is as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended
September 30, 1995
------------------
<S> <C>
Revenues $44,150
Net income $ 3,161
Net income per common share $ .19
</TABLE>
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Income (loss) per share of common stock:
Net income (loss) per common share is computed by dividing net income
(loss) less dividends on convertible preferred stock by the weighted average
number of common shares outstanding during the
7
<PAGE> 8
INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
period, plus, when their effect is dilutive, common stock equivalents consisting
of certain shares subject to stock options and warrants.
Inventories:
Inventories are summarized as follows (in thousands):
<TABLE>
<CAPTION>
June 30, 1996 September 30, 1996
------------- ------------------
(Unaudited)
<S> <C> <C>
Raw materials $ 20,781 $ 28,359
Work in process 10,559 14,128
Finished goods 2,302 2,265
-------- --------
33,642 44,752
Less inventory obsolescence reserve (1,961) (3,213)
-------- --------
$ 31,681 $ 41,539
======== ========
</TABLE>
RELATED PARTY TRANSACTIONS:
During the three months ended September 30, 1996, the Company had
purchases of services and raw materials of approximately $1.3 million from the
business entities of a stockholder and director of the Company.
PREFERRED STOCK:
During the three months ended September 30, 1996, 5,370 shares of B-1
Preferred Stock were released from escrow to the selling shareholders of Westech
(including a director) upon settlement of the purchase price of Westech, now
known as IPEC Planar Phoenix. In accordance with the escrow settlement, the
remaining 5,369 shares of the B-1 preferred stock held in escrow were retired.
LOAN AGREEMENT:
The Company entered into a loan agreement in April 1996 with a bank.
Under the terms of the agreement, the Company received a $10 million term loan
and a $30 million revolving loan facility to provide working capital for general
corporate purposes. The borrowing base for the revolving loan facility consists
of eighty percent of eligible accounts receivable as defined by the agreement.
The loans bear interest at the Company's option at the prime rate or
LIBOR plus 2.75%. The term loan matures in October 1997. The revolving loan
facility matures in April 1997 with options to renew the facility annually for a
two year period which the Bank must approve. If the revolving credit facility
expires, the Company is obligated to repay the outstanding balance in eight
equal quarterly
8
<PAGE> 9
INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
payments of principal plus interest. The term loan and revolving loan facility
are secured by a blanket first lien on all assets of the Company and its
subsidiaries.
The terms of the loan agreement include various covenants, which, among
others, limits the amount of dividends that can be paid to common stockholders
and purchase of the Company's stock. At September 30, 1996 the Company was in
compliance with all covenants of the agreement.
CONTINGENCIES AND COMMITMENTS:
Concentration of credit risk:
The Company extends credit to domestic and international customers in
the semiconductor industry. Cash is held in banks and at times, such amounts may
be in excess of the FDIC limit.
NEW ACCOUNTING STANDARDS:
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. The Company has adopted
Statement 121 in the first quarter of 1997, and the impact of adoption was not
material.
In October 1995, the FASB issued Statement No. 123, "Accounting for
Stock Based Compensation" (SFAS 123). Under the provisions of SFAS 123,
companies can elect to account for stock-based compensation plans using a
fair-value based method or continue measuring compensation expense for those
plans using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS 123 requires
that companies electing to continue using the intrinsic value method must make
pro forma disclosures of net income and earnings per share as if the fair value
method had been applied. The Company has continued to account for stock-based
compensation using the intrinsic value method which will not have an impact on
the Company's results of operations or financial position.
9
<PAGE> 10
PART I -- FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information should be read in conjunction with the
condensed consolidated financial statements and notes thereto included in this
Quarterly Report and in the audited Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in the Company's Annual Report on Form 10-K for the year ended June
30, 1996.
IPEC is a Delaware corporation organized in December 1991 and is the
successor by merger to a California corporation of the same name that was
incorporated in October 1989. The Company is primarily engaged in designing,
manufacturing, marketing and servicing equipment for the semiconductor
manufacturing industry.
In connection with the acquisitions described in the notes to financial
statements under "Organization," in the second quarter of fiscal 1996, the
Company reorganized its business into three divisions. IPEC Planar, the
Company's CMP division, consists of the Company's IPEC Planar Phoenix operation,
(formerly named Westech) and the IPEC Planar Portland operation (formerly named
GAARD). IPEC Clean consists of the former Athens operation and produces on site
wet ultra high purity chemical reprocessing systems, chemical distribution
systems and cleaning systems that can be marketed as stand alone products or
clustered with Planar's CMP systems. IPEC Precision consists of the Precision
Materials Operation acquired from HDOS and is engaged in manufacturing of
advanced plasma assisted chemical etching equipment and metrology equipment for
use primarily in manufacturing of silicon wafers and semiconductor devices.
The Company's revenue is derived from the sale of products, related
spare parts and service. In accordance with generally accepted accounting
principles, the Company recognizes revenue when a product is shipped. Revenue
from spare part sales or service is recognized when shipped or upon completion
of service.
The Company's gross margins may vary due to many factors, and are
especially dependent on direct versus indirect sales, product mix and domestic
versus international sales. The Company sells directly in the United States and
such sales have higher gross margins than indirect international sales. Thus,
gross margins in any period may not be indicative of margins for future periods.
See "Factors Affecting Operating Results--International Sales."
This report contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, which are subject to the
"safe harbor" created by that section. These forward-looking statements include,
but are not limited to, statements concerning future revenues; operating
margins; expenses and income; dividend and tax rates; and access to equity or
debt financing. The Company's actual future results could differ materially from
those projected in the forward-looking statements. Some factors which could
cause future actual results to differ materially from the Company's recent
results or those projected in the forward-looking statements are described in
"Factors
10
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Affecting Operating Results" below. The Company assumes no obligation to update
the forward-looking statements or such factors.
RESULTS OF OPERATIONS
The following table represents the results of operations for the
Company on a percentage basis for the three month periods ending September 30,
1995 and 1996.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------
1995 1996
---- ----
<S> <C> <C>
Revenue 100.0 % 100.0 %
Cost of goods sold 58.7 % 68.0 %
------- -------
Gross margin 41.3 % 32.0 %
------- -------
Operating expenses:
Research and development 9.7 % 22.7 %
Selling, general and administrative 18.6 % 25.1 %
------- -------
Total operating expense 28.3 % 47.8 %
------- -------
Operating income (loss) 13.0 % (15.8)%
Interest income 2.2 % 0.4 %
Interest expense (0.5)% (1.8)%
Other, net 0.2 % 0.2 %
------- -------
Income (loss) before income taxes 14.9 % (17.0)%
Income tax expense (benefit) 5.7 % (6.5)%
------- -------
Net income (loss) 9.2 % (10.5)%
Cumulative dividend on preferred stock (0.8)% (0.3)%
------- -------
Net income (loss) attributable to common stockholders 8.4 % (10.8)%
======= =======
</TABLE>
Revenue for the first fiscal quarter ended September 30, 1996 decreased
16% to $32 million compared to $38 million in the quarter ended September 30,
1995. This decrease was primarily attributable to a shortfall in revenues from
sulfuric acid reprocessors and Plasma Jet systems. Due to the current industry
slowdown, backlog at September 30, 1996 was approximately $45 million, and if
the current slowdown continues the Company expects that revenue for all of
fiscal 1997 will be below the $184.5 million of revenue recorded for all of
fiscal 1996.
Gross margin for the first quarter for fiscal 1997 was 32% compared to
gross margin of 41% in the first quarter of fiscal 1996. This decrease is
primarily attributable to the allocation of higher levels of customer service
expenditures across lower revenue, costs associated with the repositioning of
the Avanti 672, and a higher percentage of sales through international
distributors.
Gross margin during the first quarter of fiscal 1997 was also adversely
affected by a $657,000 increase in cost of goods sold related to warrants issued
to a major customer in connection with an
11
<PAGE> 12
agreement permitting the Company to accelerate certain deliveries in the first,
second and third quarters of fiscal 1997. This arrangement is intended to
achieve manufacturing efficiencies by more fully utilizing IPEC Planar Phoenix
employees, currently trained to manufacture older CMP machines scheduled for
delivery to the client in fiscal 1997 and 1998, until the Company begins
manufacturing the AvantGAARD 676 in Phoenix. During the first quarter of fiscal
1997 the customer accelerated orders which accounted for approximately 20% of
revenue in the first quarter. The Company is committed to issue during the first
three quarters of fiscal 1997 warrants to purchase an aggregate minimum of
155,000 shares of Common Stock (of which warrants to purchase 60,000 shares have
been issued) and an aggregate maximum of 250,000 shares. The number of warrant
shares to be issued depends on the extent to which IPEC accelerates shipments to
the customer. The first quarter $657,000 charge was based on the market value of
the minimum 155,000 warrant shares on the date the agreement was signed. To the
extent IPEC accelerates these shipments during fiscal 1997, this will reduce
shipments anticipated for fiscal 1998 if additional replacement orders are not
received, and will result in a charge for warrants issued in excess of 155,000
warrant shares based on the price of IPEC Common Stock on the date the original
agreement was signed. There can be no assurance that the Company can obtain
additional orders from other customers for shipments in fiscal 1998 to replace
orders shifted to fiscal 1997.
Research and development expense increased to $7.3 million in the first
quarter of fiscal 1997 from $3.7 million in the first quarter of fiscal 1996.
Increased research and development costs resulted primarily from costs incurred
to develop the Company's Avanti 672 and AvantGAARD 676 high-throughput CMP
tools. Additional incremental costs were incurred at IPEC Precision, which was
acquired in December 1995, for the development of CMP metrology technology.
Selling, general and administrative expenses increased to $8 million in
the first quarter of fiscal 1997 from $7.1 million in the first quarter of
fiscal 1996. This increase is primarily due to additional depreciation,
amortization and higher overhead resulting from acquisitions in the first half
of fiscal 1996. Selling, general and administrative expenses for the first
quarter of fiscal 1997 were offset in part by an $865,000 benefit resulting from
adjustments for both the fiscal 1994 Westech and fiscal 1996 GAARD acquisitions.
As part of its focus on its core CMP business, which accounted for
approximately 88% of revenue in the first quarter of fiscal 1997, the Company in
October 1996 initiated a work force reduction, primarily at its non-CMP related
subsidiaries and in product development. The first quarter results reflect a
reserve for these reductions which will be completed by the end of the Company's
second fiscal quarter ending December 31, 1996.
Interest income decreased from $.8 million for the quarter ending
September 30, 1995 to $.1 million for the quarter ending September 30, 1996 as a
result of lower cash and cash equivalent balances in the first quarter of fiscal
1997. Higher balances resulted from the exercise of the Company's Class B
warrants in the fourth quarter of fiscal 1995 that realized proceeds of $63.2
million. Interest expense increased from $.2 million in the first quarter of
fiscal 1996 to $.6 million in the first quarter of fiscal 1997 as a result of
increased borrowings.
The operating loss in the first quarter of fiscal 1997 was $5 million
compared to operating income of $4.9 million in the first quarter of fiscal
1996. The net loss attributable to common
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<PAGE> 13
stockholders in the first quarter of fiscal 1997 was $3.5 million, or $.23 per
share, on 14.8 million weighted average shares outstanding. This compares to net
income attributable to common stockholders in the first quarter of fiscal 1996
of $3.2 million, or $.20 per share, on 16.3 million primary shares outstanding.
While the Company is reducing its operating expenses, due to industry conditions
there can be no assurance that the Company will be profitable in the second
quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity include cash and cash
equivalents of $7.3 million at September 30, 1996. At September 30, 1996, $11.2
million was outstanding under the revolving loan facility. It is estimated that
an additional $6.3 million was available under the revolving loan facility for
borrowings at September 30, 1996 based on eligible accounts receivable which can
be used to collateralize such borrowings. In addition, the Company has entered
into a letter of intent to raise net proceeds of approximately $8 million in a
sale/leaseback transaction for its Phoenix facility. There can be no assurance
at this time whether a binding agreement will be signed for this transaction, or
if a binding agreement is signed, whether this transaction will occur.
The Company believes that its cash and cash equivalents will need to be
supplemented during the second quarter of fiscal 1997 by additional equity or
debt financing to fund the Company's operations. The Company's ability to
finance its operations at the current level and to fund working capital
requirements will be adversely impacted if it is unable to complete an equity or
debt financing during the second quarter of fiscal 1997. There can be no
assurance that such additional financing will be available when needed or if
available, will be on satisfactory terms. In order to raise capital, the Company
may issue debt or equity securities senior to the outstanding Common Stock and
may incur substantial dilution. The failure to obtain additional financing when
needed on satisfactory terms would also hinder the Company's ability to make
continued capital investments, which could materially adversely affect the
Company's competitive position and results of operations.
Although management is attempting to raise additional cash, a financing
is not assured. If management determines during the second quarter of fiscal
1997 that additional capital will not be provided in a timely manner, then
management will take actions to preserve available cash and maintain operations.
These actions could adversely affect operating results for the second fiscal
quarter and subsequent quarters. If the Company does not obtain additional
financing during the second fiscal quarter, the Company may lose the ability to
borrow additional funds under its line of credit, and due to a failure to meet
certain financial covenants under its bank loan agreements be considered in
default under those bank loan agreements, requiring negotiations with the bank
to modify those covenants in an effort to avoid outstanding debt immediately
coming due. There can be no assurance that such negotiations would be
successful.
FACTORS AFFECTING OPERATING RESULTS
History of Losses. Prior to the Company's acquisition of Westech in
fiscal 1994, the Company did not have significant revenue. The Company had a net
loss in fiscal 1994 and fiscal 1996 of $8.9 million and $10.7 million,
respectively. The Company had a $3.4 million net loss in the first quarter of
fiscal 1997. Operating results for future periods are subject to numerous
uncertainties, and there can be no assurance that the Company will be profitable
in fiscal 1997 or on a quarterly basis.
13
<PAGE> 14
Fluctuations in Operating Results. The Company's operating results are
subject to quarterly fluctuations due to a variety of factors, including
industry-wide changes in the demand for semiconductors or for semiconductor
production equipment; the timing of significant shipments and delays or
postponements of orders; acceptance of the Company's products; the gain or loss
of significant customers; competitive pressures; availability and costs of
components from the Company's suppliers; the timing of product announcements and
introductions by the Company, its customers or its competitors; the timing and
structure of acquisitions and dispositions or spin-offs; changes in the mix of
products sold; the level of international sales, which have lower margins than
domestic sales; delayed or canceled construction of wafer fabrication facilities
by customers; research and development expenses associated with new product
introductions; market acceptance of new or enhanced versions of the Company's
and its customers' products; reductions in personnel and the sufficiency of
capital resources to support operations at current levels. The Company cannot
assure that it will be able to anticipate or respond timely to changes in any of
the factors listed above, which could adversely affect operating results in one
or more fiscal quarters. For example, the Company's results in fiscal 1994 were
adversely impacted by an engineering redesign of its 372M CMP product. In the
second quarters of fiscal 1995 and 1996, the Company had losses due to
nonrecurring charges associated with the Athens, GAARD and HDOS acquisitions.
The Company had a loss in the first quarter of fiscal 1997, primarily because
the Company incurred operating expenses based on sales plans which were not
achieved, and to a lesser degree due to increased cost of goods sold arising
from warrants issued to a major customer as described below. While the Company
is reducing its operating expenses, there can be no assurance that the Company
will be profitable in the second quarter. The Company intends to move IPEC
Clean's bulk chemical distribution and cleaning systems operations to Phoenix,
Arizona during fiscal 1997 in an effort to improve gross margins in the long
term. This move may adversely affect margins during the quarter in which the
move occurs and in following quarters. If current industry conditions continue,
the Company expects that revenue for fiscal 1997 will be below the $184.5
million of revenue recorded in fiscal 1996.
The Company derives most of its revenue from the sale of products in a
price range from $100,000 to $1,300,000 per unit and the sale of a clustered
system can be priced much higher. As a result, the timing of individual
shipments can have a significant impact on the Company's results of operations
for a particular period. The Company has previously experienced order and
delivery delays and cancellations which caused the Company to miss its quarterly
revenue and profit projections and there can be no assurance that the Company
can avoid such order and delivery delays in the future. IPEC Clean does not have
significant backlog, and bookings in any quarter may vary. Significant shipments
by IPEC Precision are not expected before the fourth quarter of fiscal 1997. A
significant portion of the Company's operating expenses are relatively fixed in
nature and planned expenditures are based in part on anticipated orders. Ongoing
expenditures for product development and engineering make it difficult to reduce
expenses in a particular quarter if the Company's sales goals for the quarter
are not met. Any inability to reduce spending quickly enough to mitigate any
revenue shortfall would magnify the adverse impact of the revenue shortfall on
the Company's results of operations.
The Company's fiscal 1997 operating results will also be affected by
the Company's exercise of its right to cause a significant customer to
accelerate planned orders and the issuance to the customer of additional
warrants to purchase IPEC Common Stock. During the first quarter of fiscal 1997
the customer accelerated orders which accounted for approximately 20% of revenue
in the first quarter. The
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<PAGE> 15
Company is committed to issue during the first three quarters of fiscal 1997
warrants to purchase an aggregate minimum of 155,000 shares of Common Stock (of
which warrants to purchase 60,000 shares have been issued) and an aggregate
maximum of 250,000 shares. The number of warrant shares to be issued depends on
the extent to which IPEC accelerates shipments to the customer. The first
quarter $657,000 charge was based on the market value of the minimum 155,000
warrant shares on the date the agreement was signed. To the extent IPEC
accelerates these shipments during fiscal 1997, this will reduce shipments
anticipated for fiscal 1998 if additional replacement orders are not received,
and will result in a charge for warrants issued in excess of 155,000 warrant
shares based on the price of IPEC Common Stock on the date the original
agreement was signed. There can be no assurance that the Company can obtain
additional orders from other customers for shipments in fiscal 1998 to replace
orders shifted to fiscal 1997.
Results of operations in any period should not be considered indicative
of the results to be expected for future periods. Fluctuations in operating
results may also result in fluctuations in the price of the Company's Common
Stock.
Dependence on Major Customers. A small number of customers account for
a significant percentage of the Company's sales volume and revenue. In fiscal
1995, Intel, IBM and Motorola represented 18%, 20% and 14%, respectively, of the
Company's revenue. In fiscal 1996, Intel represented 29% of the Company's
revenue. In the first quarter of fiscal 1997, Intel represented 48% of the
Company's revenue. The Company anticipates that its revenue will continue to
depend on major customers, although the companies considered major customers and
the percentage of the Company's revenue represented by each major customer may
vary from quarter to quarter. The loss of a major customer or any material
reduction in orders by such customers, including reductions due to market or
competitive conditions, would have a material adverse effect on the Company's
business, financial condition and results of operations. The Company's future
success depends in part upon its ability to obtain orders from new customers, as
well as the financial condition of its customers and the general economy. Sales
of certain of the Company's products generally depend on new facility
construction projects and facility upgrades and there can be no assurance that
the Company's current customers will make significant purchases of the Company's
products in the future. See "MD&A--Results of Operations."
Product Concentration; Dependence on New Products and Technologies. In
fiscal 1996, the Company derived approximately 78% of its revenue from sales by
IPEC Planar and approximately 20% of its revenue from sales by IPEC Clean. In
the first quarter of fiscal 1997, sales by IPEC Planar were 88% of the Company's
revenue. Semiconductor manufacturing equipment and processes are subject to
rapid technological changes and product obsolescence. The Company's strategy
depends in part on developing and introducing products which lower the
semiconductor manufacturer's cost of ownership, which involves a number of
factors, including product acquisition and operating expenses, throughput,
reliability, footprint and wafer yields. The Company believes that its future
success will depend in part upon its ability to develop and enhance its existing
products and develop new products to meet such anticipated technological
changes. The Company's future results are highly dependent on market acceptance
of the Company's AvantGAARD 676, which is designed to be a high-throughput metal
and oxide CMP tool, but is now qualified only for metal processing. While the
Company has developed an oxide process for the AvantGAARD 676, this process is
being qualified and has not yet been commercially adopted by any customer. The
Company has also been developing its Avanti 672 to
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<PAGE> 16
integrate CMP processing and water cleaning, and its Plasma Jet wafer etching
tool. The Company is attempting to market product bays and, with other
companies, to develop "performance optimized production systems" ("POPS").
Semiconductor equipment companies often experience delays in completing advanced
products. The Company has experienced delays in developing new CMP tools and
processes, cleaning and reprocessing products and the Plasma Jet tool and the
Company cannot assure that any product in development will be completed as
scheduled or that completed products will be commercially adopted. If any of the
Company's products are not commercialized in a timely manner, the Company could
be required to write off inventory and other assets related to the development
project. To the extent products developed by the Company are based upon
anticipated changes in semiconductor production technologies, sales for such
products may be adversely affected if other technology becomes accepted in the
industry.
Competition. The semiconductor equipment industry is an intensely
competitive market. The Company believes that domestic and international
competition in CMP polisher systems, clustered CMP polisher and cleaning
systems, and chemical reprocessing systems is likely to increase substantially.
The Company is aware of a number of companies currently marketing CMP systems
that directly compete with the Company's systems. Competition is increasing
significantly in the market for high throughput planarization systems. In
addition, in December 1995, Applied Materials, Inc. announced a CMP system for
oxide that has not yet been commercially accepted, but which would compete
directly with the Company's CMP product offerings. The Company is aware that
other capital equipment manufacturers not currently involved in the development
of CMP systems may also attempt to enter and develop products for this market or
to develop alternative technologies which, if successful, would reduce the need
for the Company's products. The Company is aware of several companies that
market chemical reprocessing systems similar to those sold by the Company. The
trend towards consolidation in the semiconductor equipment industry has made it
increasingly important to have the financial resources necessary to compete
effectively across a broad range of product offerings, to fund customer service
and support on a world-wide basis and to invest in both product and process
research and development. Certain current and potential competitors have
substantially greater financial resources, name recognition and more extensive
engineering, manufacturing, marketing and customer service and support
capabilities than the Company. The Company expects its current competitors to
continue to improve the design and performance of their existing products and
processes, and to introduce new products and processes with improved price and
performance characteristics. New product introductions or product announcements
by the Company's competitors could cause a decline in sales or loss of market
acceptance of the Company's existing products. Moreover, increased competitive
pressure could lead to intensified price based competition, which could have a
materially adverse effect on the Company's business, financial condition and
results of operations.
International Sales. International sales accounted for approximately
24% and 34% of the Company's revenue in fiscal 1995 and 1996, respectively.
International sales were approximately 47% of revenue in the first quarter of
fiscal 1997. International sales carry lower gross margins than domestic sales.
The Company expects that international sales will continue to account for a
significant portion of its revenue in future periods. International sales are
subject to certain inherent risks including tariffs, embargoes and other trade
barriers, staffing and operating foreign sales and service operations, managing
distributors and collecting accounts receivable. The Company is also subject to
risks associated with regulations relating to the import and export of high
technology products. The export of the Company's products to certain countries
is limited by law. The Company cannot predict whether quotas, duties,
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<PAGE> 17
taxes or other charges or restrictions upon the importation or exportation of
the Company's products in the future will be implemented by the United States or
any other country. Fluctuations in currency exchange rates could cause the
Company's products to become relatively more expensive to customers in a
particular country, leading to a reduction in sales or profitability in that
country. While the Company's sales are currently denominated only in U.S.
dollars, future international activity may result in foreign currency
denominated sales. Gains and losses on the conversion to U.S. dollars of
accounts receivable and accounts payable arising from international operations
may contribute to fluctuations in the Company's results of operations. There can
be no assurance that any of these factors will not have a material adverse
effect on the Company's business, financial condition and results of operations.
Asian Market. The Company believes that its future success will depend
in part upon continued acceptance of its products by Asian semiconductor
manufacturers. This market segment is large, represents a substantial percentage
of the worldwide semiconductor manufacturing capacity, and is difficult for
foreign companies to penetrate. Asian manufacturers may develop alternative
techniques, or may enhance existing techniques such as spin-on glass and
deposited glass, to achieve acceptable yields for DRAMs and other integrated
circuits involving three or more metal layers and line widths at or below 0.5
micron. The Company believes that increased penetration of the Asian markets is
critical to its financial results and intends to continue to invest significant
resources in such markets in order to meet this objective. The Company currently
sells its products in Asian countries through distributors. If the Company
determines to develop a direct presence in these markets, particularly Japan,
such decision would require the allocation of substantial management and
financial resources, may adversely affect the Company's relationship with its
current distributors, and would increase a number of risks related to
international sales as described above. There can be no assurance that the
Company will achieve acceptance of its products in this market.
Cyclicality of Semiconductor Industry. The Company's business depends
upon capital expenditures by manufacturers of semiconductor devices, primarily
for the opening of new or expansion of existing fabrication facilities which, in
turn, depends upon the current and anticipated market demand for semiconductor
devices and products utilizing such devices. The semiconductor industry is
highly cyclical and has experienced significant overall growth in recent years,
which has resulted in growth in the semiconductor capital equipment industry.
However, the semiconductor industry is currently experiencing a downturn, which
could have a severe adverse effect on the industry's demand for semiconductor
processing equipment. In certain instances, industry downturns have lasted for
extended periods of time. There can be no assurance that past growth in the
semiconductor and semiconductor capital equipment industries, or the resulting
growth in the Company's business, can be sustained in the future or that the
recent downturn in the market will not continue. The Company's planned
operations assume that a significant portion of new orders will result from
demand from semiconductor manufacturers building or expanding fabrication
facilities for advanced multi-level semiconductor devices with design
requirements of 0.5 micron and below, and there can be no assurance that such
demand will exist. The Company's business, financial condition and results of
operations would be materially adversely affected if semiconductor manufacturers
do not increase their capacity to produce these advanced semiconductor devices,
or if there is a slowing of growth or a decline in production by the
semiconductor industry.
Recent Acquisitions. The Company's growth in annual revenues from
fiscal 1994 through fiscal 1996 has resulted not only from expansion of its core
CMP business, but also from acquisitions in fiscal
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<PAGE> 18
1994, 1995 and 1996. The companies acquired had not operated profitably before
their acquisition by IPEC. IPEC Clean's financial performance has declined in
recent periods and IPEC Precision has not yet achieved significant revenue from
shipments of production equipment. The Company's expansion through acquisitions
has resulted in significantly higher operating expenses, particularly because
the Company's strategy has been to initially operate each acquired business
independently, resulting in separate marketing, customer support and
administrative functions. The Company is currently in the process of
consolidating these functions. There can be no assurance that the Company will
be able to improve the revenue or operating results of these acquired
businesses.
Future Acquisitions and Dispositions. The Company's strategy is to
obtain additional wafer fabrication technologies and may involve, in part,
acquisitions of products, technologies or businesses from third parties. In
addition, the Company may make additional acquisitions to obtain additional
distribution capacity in specified geographic markets. An acquisition could
absorb substantial cash resources, require the Company to incur or assume debt
obligations, or involve the issuance of additional Common Stock which could
dilute the Company's outstanding Common Stock. An acquisition which is accounted
for as a purchase, like the acquisitions of Westech, Athens, GAARD or the
Precision Materials Operation of HDOS, could involve significant one-time
non-cash write-offs, or could involve the amortization of goodwill over a number
of years, which would adversely affect earnings in those years. An acquired
entity may have unknown liabilities, and its business may not achieve the
results anticipated at the time of the acquisition. The Company may dispose of
or spin off portions of its businesses which the Company determines are not
complementary to its strategy. Any acquisition, disposition or spin off would
absorb significant management time and could adversely affect the Company's
business, financial condition and results of operations.
Industry Acceptance of Products. The CMP process is in an early stage
of implementation and has not yet been broadly adopted by semiconductor
manufacturers for volume production. Most major semiconductor manufacturers are
beginning to introduce the CMP process only for pilot line production of
integrated circuits with three or more metal layers and line widths at or less
than 0.5 micron. Only a limited number of semiconductor manufacturers are
producing commercial quantities of integrated circuits with these
characteristics using CMP machines. To date, the Company's products have been
used primarily in the manufacture of advanced semiconductor logic and memory
devices. There can be no assurance that the CMP process will be broadly adopted
or that alternative processes will not be used to achieve planarity in the
manufacture of advanced semiconductor devices. If the CMP process is not
accepted in the market, or if alternatives to the CMP process emerge, or if
other planarization technologies improve to serve the industry's planarity
requirements, then the Company's business, financial condition and results of
operations would be materially adversely affected.
IPEC Clean's revenue prior to its acquisition primarily consisted of
chemical reprocessing systems and related products which were sold to a small
number of leading semiconductor manufacturers. IPEC Clean's future results
depend largely upon broader acceptance of its chemical reprocessing systems,
upon acceptance of the Company as a provider of chemical distribution systems,
and upon successful integration of IPEC Clean's cleaners with the Company's CMP
products. Similarly, IPEC Precision's products are based on technologies which
have not been adopted by the semiconductor manufacturing industry, and there can
be no assurance that customers will accept these products, or that these
products can be sold profitably or in volume. The failure of the semiconductor
industry to accept
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<PAGE> 19
the Company's systems and products could have a material adverse effect on the
Company's business, financial condition and results of operations.
Future Capital Needs. The Company believes that its cash and cash
equivalents will need to be supplemented by additional equity or debt financing
during the second quarter of fiscal 1997 to finance the Company's operations.
The Company's ability to finance its operations at the current level and to fund
working capital requirements will be adversely impacted if it is unable to
complete an equity or debt financing during the second quarter of fiscal 1997.
There can be no assurance that such additional financing will be available when
needed or, if available, will be on satisfactory terms. In order to raise
capital, the Company may issue debt or equity securities senior to the
outstanding Common Stock, and may incur substantial dilution. The failure to
obtain additional financing when needed on satisfactory terms would also hinder
the Company's ability to make continued capital investments, which could
materially adversely affect the Company's competitive position and results of
operations.
Although management is attempting to raise additional cash, a financing
is not assured. If management determines during the second quarter of fiscal
1997 that additional capital will not be provided in a timely manner, then
management will take actions to preserve available cash and maintain operations.
These actions could adversely affect operating results for the second fiscal
quarter and subsequent quarters. If the Company does not obtain additional
financing during the second fiscal quarter, the Company may lose the ability to
borrow additional funds under its line of credit, and due to a failure to meet
certain financial covenants under its bank loan agreements be considered in
default under those bank loan agreements, requiring negotiations with the bank
to modify those covenants in an effort to avoid outstanding debt immediately
coming due. There can be no assurance that such negotiations would be
successful.
Dependence on Third Party Manufacturers and on Single Source Suppliers.
The Company relies on a limited number of independent manufacturers to provide
certain components in assemblies made to the Company's specifications and use in
the Company's products. In the event that the Company's subcontractors were to
experience financial, operational, production or quality assurance difficulties
that resulted in the reduction or interruption of supply to the Company, the
Company's business, financial condition and results of operations would be
materially adversely affected. In addition, the Company purchases certain key
components from qualified vendors for which alternative qualified sources are
not currently available. Any prolonged inability to obtain adequate amounts of
qualified components would have a material adverse effect on the Company's
business, financial condition and results of operations.
Intellectual Property. The Company's success depends in significant
part on the proprietary nature of its technology. There can be no assurance that
the patents issued to the Company will provide the Company with meaningful
advantages, or that any patent issued to the Company will not be challenged. The
two initial patents relating to the Company's single wafer planarization system
products are scheduled to expire in 1997. In 1993, the technology covered by
these patents currently forming the basis of the CMP process and used in the
Company's primary products was licensed on a royalty-free basis to a competitor
pursuant to a settlement arrangement in which the Company also incurred
settlement obligations aggregating $1.4 million, of which $150,000 remained
outstanding at September 30, 1996. The Company currently has no patents with
respect to its acid reprocessing technology outside the United States. To the
extent that a competitor of the Company is able to reproduce or otherwise
capitalize on the Company's technology prior to the issuance of a patent, it may
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<PAGE> 20
be difficult or impossible for the Company to obtain necessary intellectual
property protection in the United States or other countries where such
competitor conducts its operations. Moreover, the laws of foreign countries may
not protect the Company's intellectual property to the same extent as do the
laws of the United States. There can be no assurance that the steps taken by the
Company to protect its proprietary technology will be adequate or that its
competitors will not be able to develop similar or functionally equivalent
technology. There has been substantial litigation regarding patent and other
intellectual property rights in semiconductor related industries.
In the future the Company may receive notice of claims of infringement
of other parties' proprietary rights, and there can be no assurance that a claim
for infringement, invalidity or indemnification will not be asserted against the
Company or that any such assertions will not have a material adverse effect on
the Company's business, financial condition and results of operations. If any
Company equipment is found to infringe a patent, a court may grant an injunction
to prevent making, selling or using the equipment in the applicable country.
Irrespective of the validity or success of such claims, the Company could incur
significant costs with respect to the defense thereof, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. If infringement claims are asserted against the Company,
the Company may seek to obtain a license of such third party's intellectual
property rights, which may not be available under reasonable terms or at all.
Litigation may be necessary to enforce patents issued to the Company, to protect
trade secrets or know-how owned by the Company, to defend the Company against
claimed infringement of the rights of others and to determine the scope and
validity of proprietary rights of others. The Company also relies on trade
secrets and proprietary technology that it seeks to protect, in part, through
confidentiality agreements with employees and other parties. There can be no
assurance that these agreements will not be breached, that the Company will have
adequate remedies for any breach or that the Company's trade secrets will not
otherwise become known to or independently developed by others.
The Company also has entered into significant agreements that provide
for the escrow, licensing and royalty payment of the Company's technology to
various third parties. The Company manufactures the AvantGAARD 676 under a
license from a volume manufacturer of advanced microprocessors. The Company has
escrowed technical data sufficient to permit such manufacturer to manufacture
the Company's AvantGAARD 676, for release if the Company does not meet certain
criteria regarding product or spare part delivery schedules to the manufacturer.
If the data is released from escrow, the manufacturer could manufacture the
AvantGAARD 676 or have the AvantGAARD 676 manufactured by others for its use.
The escrow terminates in October 1998.
Product Liability and Environmental Regulations. The nature of the
Company's business exposes it to product liability claims, as well as the risk
that harmful substances will escape into the workplace and the environment and
cause damage or injuries. For example, in June 1995 and again in July 1996, an
acid reprocessor malfunctioned and caused sulfuric acid to escape from its
quartz cylinder container. In these instances no acid escaped from the
compartment containing the quartz cylinder and no damage to the manufacturing
facility resulted; however, there can be no assurance that the Company's
products will not malfunction in the future or that damage to a customer's
facilities will not result. The Company and its customers are subject to
stringent federal, state and local regulations governing the storage, use,
discharge and disposal of toxic, volatile or otherwise hazardous chemicals used
in their manufacturing operations. Current or future regulations could require
the Company or its customers to make substantial expenditures for preventive or
remedial action, reduction of chemical
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exposure or waste treatment or disposal. To the extent that the Company's
strategy to provide integrated on-site wet chemical management services to its
customers is successful, the Company faces increased risks with respect to
environmental and occupational health and safety liabilities.
Effect of Certain Anti-Takeover Provisions. The Company's Certificate
of Incorporation authorizes the Company's Board of Directors to issue preferred
stock in one or more series and to fix the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly unissued shares of preferred
stock and to fix the number of shares constituting any series and the
designation of such series, without further vote or action by its stockholders.
The voting power held by the Company's officers and directors may give those
individuals substantial influence over any corporate action submitted to the
Company's shareholders. Pursuant to Delaware corporate law, the approval of the
outstanding Preferred Stock may be required for certain corporate actions. Any
series of Preferred Stock which the Company may issue in the future would
participate in these class voting rights and may have additional independent
rights to approve certain actions. The Company is subject to Section 203 of the
Delaware General Corporate Law. The voting power held by officers and directors,
outstanding rights to elect members of the Company's Board of Directors, the
voting rights of outstanding Preferred Stock and Preferred Stock which may be
issued in the future and the application of Delaware General Corporate Law
Section 203 could discourage certain types of transactions involving an actual
or potential change in control of the Company, including transactions in which
the holders of Common Stock who are not officers and directors might otherwise
receive a premium for their shares over then current prices, and may limit the
ability of such stockholders to cause or approve transactions which they may
deem to be in their best interests.
Dependence on Key Personnel. The Company's future success is dependent
upon its ability to attract and retain qualified management, technical, sales
and support personnel. The competition for such personnel is intense. The loss
of certain key people or the Company's inability to attract and retain new key
employees could have a material adverse effect on the Company's business,
financial condition and results of operations. During July and October 1996 the
Company effected reductions in its work force to reduce its expenses and may do
so in the future. Repeated layoffs could adversely affect the retention of
employees, and could adversely affect the Company's ability to hire new
personnel if industry conditions improve and the Company's volume of production
increases. Personnel terminations included technical personnel, who could be
difficult to replace if IPEC successfully markets its products and requires
additional engineering staff to support customers.
Volatility of Stock Price. The Company's Common Stock has experienced
substantial price volatility and such volatility may occur in the future,
particularly as a result of quarter to quarter variations in the actual or
anticipated financial results of the Company or of other companies in the
semiconductor industry, or in the markets served by the Company, or
announcements by the Company or its competitors regarding new product
introductions. In addition, the stock market has experienced extreme price and
volume fluctuations that have affected the market price of many technology
companies' stocks in particular and that have often been unrelated or
disproportionate to the operating performance of these companies. These factors
may adversely affect the market price of the Common Stock.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Warrant Purchase Agreement with Intel Corporation,
dated October 2, 1996.
10.2 Warrant to purchase 60,000 shares of common stock of
Integrated Process Equipment Corp., dated October 2,
1996.
10.3 Notice of Settlement of Indemnification Claims under
Westech Agreement and Plan of Merger and Related
Escrow Agreement, dated September 19, 1996.
(b) Reports on Form 8-K:
None.
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<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: November 14, 1996 INTEGRATED PROCESS EQUIPMENT CORP.
AND SUBSIDIARIES
By: /s/ John S. Hodgson
-----------------------------------
John S. Hodgson
Vice President
and Chief Financial Officer
23
<PAGE> 1
WARRANT PURCHASE AGREEMENT
THIS WARRANT PURCHASE AGREEMENT (this "Agreement"), dated as of October 4,
1996, is entered into by and between INTEGRATED PROCESS EQUIPMENT CORP., a
Delaware corporation (the "Company") and INTEL CORPORATION, a Delaware
corporation (together with its successors and assigns, the "Purchaser").
RECITALS
A. The Company has agreed to sell to the Purchaser, and the Purchaser has
agreed to purchase warrants to purchase shares of capital stock of the Company,
subject to the terms and conditions of this Agreement.
B. The Purchaser and the Company previously have entered into that certain
Intel Corporation Equipment and Services Purchase Agreement No. C-04536,
effective as of April 1, 1996, as amended by that certain Amendment No. 1
thereto, dated as of September 26, 1996 (as so amended, the "Equipment
Agreement").
AGREEMENT
In consideration of the mutual covenants contained in this Agreement and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. ISSUANCE OF WARRANTS; CONSIDERATION; CLOSING.
1.1. Issuance of Warrants. Subject to the terms and conditions
hereof, on the date of each Closing (as defined in Section 1.3 below) the
Company shall issue to the Purchaser, and the Purchaser shall accept from the
Company, a Warrant in the form attached hereto as Exhibit A ("Warrant"), which
shall entitled the Purchaser to acquire, at an exercise price of $14.6625 per
share, a number of shares of the Common Stock, $0.01 par value, of the Company
as determined in accordance with the provisions of Section 1.4. The shares of
capital stock issued or issuable upon exercise of the Warrants, as well as any
shares of capital stock issued or issuable upon conversion of such capital
stock, shall be referred to collectively herein as the "Warrant Stock", and the
Warrants and the Warrant Stock shall be referred to collectively herein as the
"Securities."
1.2. Warrant Consideration. As consideration for the issuance of the
Warrants (the "Warrant Consideration"), the Purchaser has agreed to pull in its
total forecast equipment requirements from the Company, as set forth in that
certain Amendment No. 1 to the Equipment Agreement (the "Amendment") between the
Company and the Purchaser, dated as of September 26, 1996, and the Purchaser
shall issue Releases (as defined in the Equipment Agreement) with respect to the
equipment pursuant to the Amendment.
1.3. Closings. The first closing under this Agreement (the "First
Closing") shall take place on October 4, 1996, the second closing under this
Agreement (the "Second Closing") shall take place on December 31, 1996, and the
third closing under this Agreement (the
<PAGE> 2
"Third Closing") shall take place on March 31, 1997. The First Closing, Second
Closing and Third Closing shall be referred to herein, individually, as a
"Closing" and, collectively, as the "Closings." Each of the Closings shall be
held at the offices of Intel Corporation at 10:00 a.m., Pacific Time, or at such
other place, date and time as may be agreed upon by the parties. At each
Closing, the Company shall deliver to the Purchaser a Warrant and the parties
shall deliver to each other such other agreements, instruments and documents as
are required to be delivered pursuant hereto.
1.4. Number of Shares Covered by Warrants; Etc.
(a) Intel intends to issue Releases for the Company's equipment in
accordance with the pulled-in forecast equipment requirements from the Company
as set forth in the Equipment Agreement (the "Pulled-In Forecast"). As set forth
in the Equipment Agreement, the Company shall provide Intel with written
acknowledgment of and acceptance or rejection of any Release (as defined in the
Equipment Agreement) issued by Intel no later than five (5) business days
following the receipt thereof by the Company. For purposes of this Section 1.4,
"Value of Equipment Accepted" shall mean the purchase price of the Company's
equipment with respect to which Releases have been issued by Intel and accepted
by the Company, and "Value of Equipment Forecasted" shall mean the purchase
price of the Company's equipment set forth in the Pulled-In Forecast.
(b) At the First Closing, the Company shall issue to the Purchaser
an immediately exercisable Warrant to purchase 60,000 shares of Common Stock of
the Company, in consideration of the issuance of Releases for the equipment of
the Company for the period of September 1996 as set forth in the Equipment
Agreement, all of which Releases have been accepted by the Company.
(c) At the Second Closing, the Company shall issue to the Purchaser
an immediately exercisable Warrant to purchase a number of shares of Common
Stock of the Company equal to the number derived by the following formula:
90,000 multiplied by a fraction, the numerator of which is equal to the Value of
Equipment Accepted during the quarter ended December 31, 1996 and the
denominator of which is the Value of Equipment Forecasted for the quarter ended
December 31, 1996. Notwithstanding the foregoing, the fraction calculated in the
previous sentence in no event shall be less than one-half (1/2) or greater than
one (1).
(d) At the Third Closing, the Company shall issue to the Purchaser
an immediately exercisable Warrant to purchase a number of shares of Common
Stock of the Company equal to the number derived by the following formula:
100,000 multiplied by a fraction, the numerator of which is equal to the Value
of Equipment Accepted during the quarter ended March 31, 1997 and the
denominator of which is the Value of Equipment Forecasted for the quarter ended
March 31, 1997. Notwithstanding the foregoing, the fraction calculated in the
previous sentence in no event shall be less than one-half (1/2) or greater than
one (1).
(e) Each of the Warrants shall expire three (3) years from its
respective date of issuance.
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2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Purchaser, as of the date hereof, as of the date
of each Closing and as of the date of exercise of each of the Warrants, except
as set forth in the Schedule of Exceptions ("Schedule of Exceptions") attached
to this Agreement as Exhibit B (which Schedule of Exceptions shall be deemed to
be representations and warranties to the Purchaser, and may be updated by the
Company to the extent reasonably necessary to make the representations and
warranties set forth herein true and complete as of each Closing and as of the
exercise of each of the Warrants), as follows:
2.1. Organization, Good Standing and Qualification; Subsidiaries.
The Company is a corporation duly organized, validly existing and in good
standing under, and by virtue of, the laws of the State of Delaware and has all
requisite corporate power and authority to own its properties and assets and to
carry on its business as now conducted. The Company is qualified to do business
as a foreign corporation in each jurisdiction where failure to be so qualified
would have a material adverse effect on its financial condition, business,
prospects or operations. The Company does not presently own or control, directly
or indirectly, any interest in any other corporation, partnership, trust, joint
venture, association, or other entity.
2.2. Due Authorization; Consents. All corporate action on the part
of the Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of, and the performance of all obligations
of the Company under, this Agreement, the authorization, issuance and delivery
of the Warrant, and the authorization, issuance, reservation for issuance and
delivery of all of the Warrant Stock, has been taken or will be taken prior to
each Closing. This Agreement is a valid and binding obligation of the Company
enforceable in accordance with its terms, subject, as to enforcement of
remedies, to applicable bankruptcy, insolvency, moratorium, reorganization and
similar laws affecting creditors' rights generally and to general equitable
principles and as to the enforceability of the indemnification provisions of
this Agreement, to limitations of public policy and the effect of applicable
statutes and judicial decisions. All consents, approvals and authorizations of,
and registrations, qualifications and filings with, any federal or state
governmental agency, authority or body, or any third party, required in
connection with the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby and thereby shall have
been obtained prior to and be effective as of each Closing.
2.3. Status of Non-Patent and Patent Proprietary Assets.
(a) Ownership. The Company has full title and ownership of, or
has license to, or can acquire on reasonable terms, all trademarks, service
marks, trade names, copyrights, moral rights, mask works, trade secrets,
confidential and proprietary information, compositions of matter, formulas,
designs, proprietary rights, know-how and processes (all of the foregoing
collectively hereinafter referred to as the "Non-Patent Proprietary Assets")
necessary to enable it to carry on its business as now conducted without any
conflict with or infringement of the rights of others. To the best of the
Company's knowledge after reasonable investigation (the "Company's Best
Knowledge"), the Company has full title and ownership of, or has license to, or
can acquire on reasonable terms, all patents and patent applications
(collectively hereinafter referred to as the "Patent Proprietary Assets")
necessary to enable it to carry on its business as now conducted without any
conflict with or infringement of the rights of others. To the
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Company's Best Knowledge, no governmental agency, authority or body or third
party has any ownership right, title, interest, claim in or lien on any of the
Company's Non-Patent Proprietary Assets or Patent Proprietary Assets and the
Company has taken, and in the future the Company will use its best efforts to
take, all steps reasonably necessary to preserve its legal rights in, and the
secrecy of, all its Non-Patent Proprietary Assets and Patent Proprietary Assets,
except those for which disclosure is required for legitimate business or legal
reasons.
(b) Licenses; Other Agreements. The Company has not granted,
and, to the Company's Best Knowledge, there are not outstanding, any options,
licenses or agreements of any kind relating to any Non-Patent Proprietary Assets
or Patent Proprietary Assets of the Company, nor is the Company bound by or a
party to any option, license or agreement of any kind with respect to any of its
Non-Patent Proprietary Assets or Patent Proprietary Assets. The Company is not
obligated to pay any royalties or other payments to third parties with respect
to the marketing, sale, distribution, manufacture, license or use of any
Non-Patent Proprietary Asset or Patent Proprietary Asset or any other property
or rights.
(c) No Infringement. To the Company's Best Knowledge, the
Company has not violated or infringed, and is not currently violating or
infringing, and the Company has not received any communications alleging that
the Company (or any of its employees or independent contractors) has violated or
infringed any Non-Patent Proprietary Asset of any other person or entity. To the
Company's Best Knowledge, the Company has not violated or infringed, and is not
currently violating or infringing, and the Company has not received any
communications alleging that the Company (or any of its employees or independent
contractors) has violated or infringed any Patent Proprietary Asset of any other
person or entity.
(d) No Breach by Employee. To the Company's Best Knowledge,
the Company is not aware that any employee or independent contractor of the
Company is obligated under any agreement (including licenses, covenants or
commitments of any nature), or subject to any judgment, decree or order of any
court or administrative agency or any other restriction, that would interfere
with the use of his or her best efforts to carry out his or her duties for the
Company or to promote the interests of the Company or that would conflict with
the Company's business as proposed to be conducted.
2.4. Litigation. There is no action, suit, proceeding, claim,
arbitration or investigation ("Action") pending (or, to the Company's Best
Knowledge, threatened) against the Company, its activities, properties or assets
or, to the Company's Best Knowledge, against any officer, director or employee
of the Company in connection with such officer's, director's or employee's
relationship with, or actions taken on behalf of, the Company which might
result, individually or in the aggregate in any material adverse change in the
business, properties, assets, financial condition, affairs or prospects of the
Company. To the Company's Best Knowledge, there is no factual or legal basis for
any such Action.
2.5. Reports; Accuracy of Information. The Company has previously
delivered to the Purchaser true and complete copies of (i) the Company's annual
report on Form 10-K for the fiscal year ended June 30, 1996, as filed with the
Securities and Exchange Commission (the "SEC"), (ii) all other periodic reports
required to be filed by the Company with the SEC pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
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<PAGE> 5
Act"), since June 30, 1995 and (iii) all proxy statements and annual and
quarterly reports furnished to the Company's shareholders since June 30, 1995.
As of their respective dates (or, if any such report or proxy statement shall
have been amended, as of the date of such amendment), such reports and proxy
statements (A) complied with all applicable provisions, rules and regulations of
federal securities laws and (B) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements contained therein, in light of the
circumstances in which such statements were made, not misleading. Since June 30,
1995, the Company has timely filed all reports and registration statements
required to be filed by the Company with the SEC under the rules and regulations
of the SEC.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
represents and warrants to the Company as follows:
3.1. Authorization. This Agreement when executed and delivered by
the Purchaser constitutes a valid and legally binding obligation of the
Purchaser, enforceable in accordance with its terms, subject, as to enforcement
of remedies, to applicable bankruptcy, insolvency, moratorium, reorganization
and similar laws affecting creditors' rights generally and to general equitable
principles and as to the enforceability of the indemnification provisions of
this Agreement, to limitations of public policy and the effect of applicable
statutes and judicial decisions.
3.2. Investigation; Economic Risk. The Purchaser acknowledges that
it has had an opportunity to discuss the business, affairs and current prospects
of the Company with its officers. The Purchaser further acknowledges having had
access to information about the Company that it has requested. The Purchaser
acknowledges that it is able to fend for itself in the transactions contemplated
by this Agreement and has the ability to bear the economic risks of its
investment pursuant to this Agreement.
3.3. Purchase for Own Account. The Securities will be acquired for
the Purchaser's own account, not as a nominee or agent, and not with a view to
or in connection with the sale or distribution of any part thereof.
3.4. Exempt from Registration; Restricted Securities. The Purchaser
understands that the Warrants will not be registered under the Securities Act of
1933, as amended (the "Act"), on the ground that the sale provided for in this
Agreement is exempt from registration under of the Act, and that the reliance of
the Company on such exemption is predicated in part on the Purchaser's
representations set forth in this Agreement. The Purchaser understands that the
Securities are restricted securities within the meaning of Rule 144 under the
Act, and must be held indefinitely unless they are subsequently registered or an
exemption from such registration is available.
3.5. Restrictive Legends. It is understood that the Warrants and
each certificate representing the Warrant Stock and any other securities issued
in respect of the Warrant Stock upon any stock split, stock dividend,
recapitalization, merger or similar event (unless no longer required in the
opinion of counsel for the Company) shall be stamped or otherwise imprinted
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with a legend substantially in the following form (in addition to any legend
that may now or hereafter be required by applicable state law):
THE WARRANT/SECURITIES EVIDENCED OR CONSTITUTED HEREBY [AND THE
SHARES OF COMMON STOCK ISSUABLE HEREUNDER] HAVE BEEN AND WILL BE ISSUED WITHOUT
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY
NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED WITHOUT
REGISTRATION UNDER THE ACT UNLESS EITHER (i) THE COMPANY HAS RECEIVED AN OPINION
OF COUNSEL TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED IN CONNECTION WITH
SUCH DISPOSITION OR (ii) THE SALE OF SUCH SECURITIES IS MADE PURSUANT TO
SECURITIES AND EXCHANGE COMMISSION RULE 144.
The legend set forth above shall be removed by the Company from any
certificate evidencing Warrant Stock upon delivery to the Company of an opinion
by counsel, reasonably satisfactory to the Company, that a registration
statement under the Act is at that time in effect with respect to the legend
security or that such security can be freely transferred in a public sale
without such a registration statement being in effect and that such transfer
will not jeopardize the exemption or exemptions from registration pursuant to
which the Company issued the Warrant Stock.
4. REGISTRATION RIGHTS.
4.1. Definitions. As used in this Section 4:
(a) The terms "register", "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement in compliance with the Act and the declaration or ordering of the
effectiveness of such registration statement;
(b) The term "Registrable Securities" means: (i) any Common
Stock issued or to be issued pursuant to exercise of the Warrants and (ii) any
Common Stock or other securities issued as a dividend or other distribution with
respect to, or in exchange for, or in replacement of, the Common Stock described
in subsection (i) of this Section 4.1(b); provided, however, that any such
securities shall cease to be Registrable Securities with respect to a proposed
offer or sale thereof when such securities shall have been disposed of under SEC
Rule 144 or in accordance with the plan of distribution set forth in an
effective registration statement under the Act; and
(c) The term "Holder" means any holder of outstanding
Registrable Securities or any person to which the registration rights provided
for in this Section 4 shall have been properly assigned in accordance with
Section 4.10 hereof.
4.2. Form S-3 Shelf Registration. Promptly following each Closing,
the Company shall use its diligent best efforts to prepare a registration
statement on Form S-3 covering the Registrable Securities (or any amendment to
an already effective Registration Statement) and, within forty-five (45) days of
the date of each Closing, to file such registration and all related
qualifications and compliances (including, without limitation, the execution of
an undertaking to file post-effective amendments, appropriate qualification
under the applicable
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blue sky or other state securities laws and appropriate compliance with
applicable regulations issued under the Act and any other governmental
requirements or regulations) as may be requested by Holder so as to permit or
facilitate the sale and distribution of the Registrable Securities. The Company
agrees to use its diligent best efforts to cause each such registration
statement to be declared effective by the SEC as quickly as possible. The
Company agrees to maintain the effectiveness of such registration statement
until the Holder has completed the distribution of the Registrable Securities
described in such registration statement or until all of the Registrable
Securities could be sold by the Holder to the public in an offering without
registration pursuant to Rule 144 within a period of three consecutive months.
4.3. Failure to Register; Acceleration of Warrants. If (a) the
Company does not effect the registration of the Registrable Securities
contemplated by Section 4.2 within the 45-day period following the Closing or
(b) the Company does not maintain the effectiveness of such registration
statement during the period it is required to do so pursuant to Section 4.2,
then all of the Warrants shall be deemed issued and immediately exercisable with
respect to the full amount of the Warrant Stock (regardless of the Value of
Equipment Accepted or any other provisions of Section 1.4, although the
Purchaser shall continue to be obligated to pull in its total forecast equipment
requirements in accordance with the Equipment Agreement). The Company shall take
such action as is necessary or requested by the Holder to document the issuance
of such Warrants and, at the request of the Holder, the Company take such action
as shall be necessary to register the Registrable Securities as promptly as
practicable.
4.4. Blackout Periods. Notwithstanding any other provisions of this
Agreement, if the Company provides to the Holder a certificate signed by the
President or Chief Financial Officer of the Company stating that, in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its shareholders for the Holder to sell the
Registrable Securities under the Form S-3 registration during any sixty (60) day
period (the "Blackout Period") designated by the Company, then the Holder shall
not sell any shares of the Registrable Securities under the registration
statement during the Blackout Period; provided, however, that there shall be no
more than two (2) Blackout Periods during any calendar year and no more than
three (3) Blackout Periods during any consecutive two-year period; and,
provided, further, that if a Blackout Period is in effect at the time any
Warrant expires, then the expiration date of such Warrant shall be extended
until thirty (30) days after the end of the Blackout Period.
4.5. Expenses of Registration. All expenses incurred in connection
with any registration, qualification or compliance pursuant to Section 4.2,
including without limitation, all registration, filing and qualification fees,
printing expenses, fees and disbursements of counsel for the Company, expenses
of any special audits incidental to or required by such registration shall be
borne by Company, except that the Company shall not be required to pay any
underwriters' discounts, commissions or stock transfer taxes relating to
Registrable Securities.
4.6. Provision of Documentation and Information. The Company shall:
(a) furnish such number of prospectuses and other documents
incident to the Form S-3 registration statement as the Holder from time to time
may reasonably request;
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<PAGE> 8
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statements as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement;
(c) notify the Holder, at any time when a prospectus relating
thereto covered by such registration statement is required to be delivered under
the Act, of the happening of any event as a result of which the prospectus
included in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing;
(d) as promptly as practicable upon the occurrence of any
event contemplated by clause (c) above (other than during a Blackout Period),
prepare a supplement or post-effective amendment to the registration statement,
or file any other required documents so that, as thereafter delivered to the
purchasers of the Registrable Securities being sold hereunder, the prospectus
will not contain an untrue statement of a material fact or an omission to state
a material fact to be required to be stated in a registration statement or
prospectus or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and
(e) furnish, at the request of the Holder, on the date that
the registration statement with respect to such securities becomes effective, an
opinion, date as of such date, of the counsel representing the Company for the
purposes of such registration, in form and substance customarily given in
connection with such registrations.
4.7. Indemnification.
(a) Indemnification by the Company. The Company will indemnify
each Holder of Registrable Securities with respect to which registration,
qualification or compliance has been effected pursuant to this Section 4, each
of its officers and directors, and each person controlling such Holder, against
all claims, losses, damages, costs, expenses and liabilities of any nature
whatsoever (or actions in respect thereof) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other documents
(including any related registration, statement, notification or the like)
incident to any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
any violation by the Company of the Act or any state securities law or of any
rule or regulation promulgated under the Act or any state securities law
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, qualification or compliance,
and will reimburse each such Holder, each of its officers and directors, and
each person controlling such Holder, for any legal and other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, cost, expense, liability or action, except that the Company will not be
liable in any such case to the extent that any such claim, loss, damage, cost,
expense, liability or action arises out of or is based on any untrue statement
or omission based upon written information furnished to the Company in an
instrument duly
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<PAGE> 9
executed by any Holder and stated to be specifically for use therein, and except
that the foregoing indemnity agreement is subject to the condition that, insofar
as it relates to any such untrue statement (or alleged untrue statement) or
omission (or alleged omission) made in the preliminary prospectus but eliminated
or remedied in the amended prospectus on file with the SEC at the time the
registration statement becomes effective or in the amended prospectus filed with
the SEC pursuant to Rule 424(b) (the "Final Prospectus"), such indemnity
agreement shall not inure to the benefit of any Holder if a copy of the Final
Prospectus was furnished to the person or entity asserting the claim, loss,
damage, cost, expense, liability or action at or prior to the time such action
is required by the Act.
(b) Indemnification by the Holders. Each Holder will, if
Registrable Securities held by or issuable to such Holder are included in the
securities to which such registration, qualification or compliance is being
effected, indemnify the Company, each of its directors and officers, each person
who controls the Company within the meaning of the Act, and each other Holder,
each of such other Holder's officers and directors and each person controlling
such other Holder, against all claims, losses, damages, costs, expenses and
liabilities of any nature whatsoever (or actions in respect thereof) arising out
of or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, offering circular
or other documents (including any related registration statement, notification
or the like) incident to any such registration, qualification or compliance, or
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or any violation by such Holder of the Act or any state securities
law or of any rule or regulation promulgated under the Act or any state
securities law applicable to such Holder and relating to action or inaction
required of such Holder in connection with any such registration, qualification
or compliance, and will reimburse the Company, such other Holders, such
directors, officers or persons for any legal or other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, cost, expense, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company in an instrument
duly executed by such Holder and stated to be specifically for use therein,
except that the foregoing indemnity agreement is subject to the condition that,
insofar as it relates to any such untrue statement (or alleged untrue statement)
or omission (or alleged omission) made in the preliminary prospectus but
eliminated or remedied in the Final Prospectus, such indemnity agreement shall
not inure to the benefit of the Company or any Holder if a copy of the Final
Prospectus was furnished to the person or entity asserting the claim, loss,
damage, cost, expense, liability or action at or prior to the time such action
is required by the Act. In no event shall the indemnity under this Section
4.7(b) exceed the gross proceeds from the offering received by such Holder.
(c) Procedures for Indemnification. Each party entitled to
indemnification under this Section 4.7 (the "Indemnified Party"), shall give
notice to the party required to provide indemnification (the "Indemnifying
Party") promptly after such Indemnified Party has actual knowledge of any claim
as to which indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting therefrom,
provided that counsel for the Indemnifying Party, who shall conduct the defense
of such claim or litigation, shall be approved by the Indemnified Party (whose
approval shall not
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unreasonably be withheld), and the Indemnified Party may participate in such
defense. Failure of the Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this Section
4.7, unless the failure or delay in giving notice has a material adverse impact
on the ability of the Indemnifying Party to defend against such claim. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement that does not include as an unconditional
term thereof, the giving of a release from all liability in respect to such
claim or litigation. If any such Indemnified Party shall have been advised by
counsel chosen by it that there may be one or more legal defenses available to
such Indemnified Party that are different from or additional to those available
to the Indemnifying Party, the Indemnifying Party shall not have the right to
assume the defense of such action on behalf of such Indemnified Party and will
reimburse such Indemnified Party and any person controlling such Indemnified
Party for the reasonable fees and expenses of any counsel retained by the
Indemnified Party, it being understood that the Indemnifying Party shall not, in
connection with any one action or separate but similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate firm of
attorneys for such Indemnified Party or controlling person, which firm shall be
designated in writing by the Indemnified Party to the Indemnifying Party.
4.8. Information by Holder. The Holders of Registrable Securities
included in any registration shall furnish to the Company such information
regarding such Holders and the distribution proposed by such Holders as the
Company may reasonably request in writing and as shall be required in connection
with any registration, qualification or compliance referred to in this Section
4.
4.9. Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the SEC which may permit the sale
of Warrant Stock or Registrable Securities to the public without registration,
the Company agrees to:
(a) at all times make and keep public information available,
as those terms are understood and defined in SEC Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the Exchange Act; and
(c) furnish to the Purchaser, so long as the Purchaser owns
any Warrant Stock or Registrable Securities, forthwith upon written request, a
written statement by the Company that it has complied with the reporting
requirements of the Act and the Exchange Act, a copy of the most recent annual
or quarterly report of the Company, and such other reports and documents so
filed by the Company as may be reasonably requested in availing the Purchaser of
any rule or regulation of the SEC permitting the selling of any such securities
without registration.
4.10. Transfer of Registration Rights. The registration rights
granted by the Company under this Section 4 may be assigned by any Holder to any
permitted transferee or permitted assignee of the Warrant, Warrant Stock or
Registrable Securities, provided that any transfer or assignment of the Warrant
is approved in advance in writing by the Company, and
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provided further, that such transfer may otherwise be and is effected in
accordance with applicable federal and state securities laws and provided
further that the Company is given written notice of such transfer at the time of
or within a reasonable time after such transfer, stating the name and address of
the transferee or assignee and identifying the securities with respect to which
such registration rights are being assigned.
5. CONDITIONS TO CLOSINGS. The Purchaser's obligation to purchase the
Warrants at each Closing is subject to the fulfillment to the satisfaction of
the Purchaser on or prior to each Closing of the following conditions:
5.1. Representations and Warranties. The representations and
warranties made by the Company in Section 2 hereof shall be true when made, and
shall be true as of each Closing with the same force and effect as if they had
been made on and as of such date, subject to changes contemplated by this
Agreement.
5.2. Performance. The Company shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before each Closing and
shall have obtained all approvals, consents and qualifications necessary to
complete the purchase and sale described herein.
5.3. Securities Laws. The offer and sale of the Warrants to the
Purchaser pursuant to this Agreement shall be exempt from the registration
requirements of the Act and the registration and/or qualification requirements
of all applicable state securities laws.
5.4. Consents and Waivers. The Company shall have obtained any and
all consents and waivers necessary or appropriate for consummation of the
transactions contemplated by this Agreement.
5.5. Compliance Certificate. At each Closing, the Company shall have
delivered to the Purchaser a certificate, dated as of the date of such Closing
and signed by the Company's President or Chief Financial Officer, certifying
that the conditions specified in Sections 5.1, 5.2, 5.3 and 5.4 have been
fulfilled.
5.6. Proceedings and Documents. All corporate and other proceedings
in connection with the transactions contemplated at the each Closing hereby and
all documents and instruments incident to such transactions shall be
satisfactory in substance and form to the Purchaser, and the Purchaser shall
have received all such counterpart originals or certified or other copies of
such documents as it may reasonably request.
6. GENERAL PROVISIONS.
6.1. Governing Law. This Agreement shall be governed in all respects
by the laws of the state of Delaware without regard to provisions of such laws
concerning conflicts or choice of law.
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6.2. Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by any party hereto
and the closing of the transactions contemplated hereby.
6.3. Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
6.4. Entire Agreement. This Agreement and the exhibits hereto
constitute the entire understanding and agreement between the parties with
regard to the subjects hereof and thereof; provided, however, that nothing in
this Agreement shall be deemed to terminate or supersede the provisions of any
confidentiality and nondisclosure agreements executed by the parties hereto
prior to the date hereof, which agreements shall continue in full force and
effect until terminated in accordance with their respective terms.
6.5. Notices. Except as otherwise provided, all notices and other
communications required or permitted hereunder shall be in writing and shall be
mailed by first class mail, postage prepaid, addressed (a) if to the Purchaser,
to 2200 Mission College Boulevard, Mail Stop SC4-210, Santa Clara, California
95052-8119, Attn: Treasurer, and (b) if to the Company, to Integrated Process
Equipment Corporation, 4717 East Hilton, Phoenix, Arizona 85034, Attn: Chief
Financial Officer, or (c) to such other address as the receiving party shall
have furnished to the other in writing.
6.6. Amendments and Waivers. Any term of this Agreement may be
amended, and the observance of any term of the Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Purchaser
and only to the extent specifically set forth in such writing.
6.7. Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to any party hereto upon any breach or default
of the other party hereto under this Agreement shall impair any such right,
power or remedy, nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of any similar breach of default
thereafter occurring. All remedies, either under this Agreement or by law or
otherwise afforded to the Company or the Purchaser shall be cumulative and not
alternative.
6.8. Legal Fees. In the event of any action at law, suit in equity
or arbitration proceeding in relation to this Agreement or any securities of
Company issued or to be issued to the Purchaser, the prevailing party shall be
paid by the other party a reasonable sum for attorney's fees and expenses for
such prevailing party.
6.9. Finder's Fees. Each party (a) represents and warrants to the
other party hereto that it has retained no finder or broker in connection with
the transactions contemplated by this Agreement, and (b) hereby agrees to
indemnify and to hold harmless the other party hereto from and against any
liability for any commission or compensation in the nature of a finder's fee of
any broker or other person or firm (and the costs and expenses of defending
against such liability or asserted liability) for which the indemnifying party
or any of its employees or representatives are responsible.
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<PAGE> 13
6.10. Titles and Subtitles. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
6.11. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
6.12. Severability. Should any provision of this Agreement be
determined to be illegal or unenforceable, such determination shall not affect
the remaining provisions of this Agreement.
6.13. Confidentiality. The parties acknowledge that each party (a
"Disclosing Party") may, from time to time, disclose to the other party (a
"Receiving Party") confidential or proprietary information of the Disclosing
Party. The Receiving Party agrees to keep such information in confidence, to
disclose such information to its employees only on a need to know basis, and not
to disclose such information to any third party without the prior written
permission of the Disclosing Party. Only information which is in tangible form
and marked with a "confidential" or "proprietary" or similar legend, or if
disclosed orally or visually, which is identified as confidential at the time of
disclosure and is summarized in writing within thirty (30) days of its initial
disclosure shall be subject to the nondisclosure obligations set forth herein.
The Receiving Party shall be under no obligation with respect to any portion of
such information which is: (a) published or otherwise made available to the
public other than by breach of this Agreement by the Receiving Party; or (b)
rightfully received by the Receiving Party from a third party without disclosure
limitations; or (c) independently developed by the Receiving Party; or (d) known
to the Receiving Party prior to its first receipt of same from the Disclosing
Party; or (e) hereinafter disclosed by the Disclosing Party to a third party
without restriction on disclosure; or (f) disclosed by the Receiving Party with
the written consent of the Disclosing Party; or (g) disclosed by the Receiving
Party more than five years after the receipt of such information. Such
information may be disclosed by the Receiving Party if, in the reasonable
opinion of the Receiving Party, such disclosure is required by applicable law or
regulation, provided that the Receiving Party shall, a reasonable time before
making any such disclosure, consult with the Disclosing Party regarding such
disclosure and seek confidential treatment for such portions of those agreements
as may be requested by the Disclosing Party, so long as the Disclosing Party's
confidentiality requests are consistent with applicable regulations.
6.14. Public Announcements. The Company shall not use the
Purchaser's name or refer to the Purchaser directly or indirectly in connection
with the Purchaser's relationship with the Company in any advertisement, news
release or professional or trade publication, or in any other manner, unless
otherwise required by law or with the Purchaser's prior written consent, which
consent will generally not be granted. The parties agree that there will be no
press release or other public statement issued by either party relating to this
Agreement or the transactions contemplated hereby unless required by law. If the
Company determines that it is required by law to file this Agreement or the
Warrants with the SEC, it shall, a reasonable time before making any such
filing, consult with the Purchaser regarding such filing and seek confidential
treatment for such portions of those agreements as may be requested by the
Purchaser, so long as Purchaser's confidentiality requests are consistent with
applicable regulations. Notwithstanding
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<PAGE> 14
the foregoing, the Purchaser acknowledges that it has reviewed and approved the
press release of the Company issued on October 3, 1996.
6.15 Acknowledgments. The Company and the Purchaser acknowledge and
agree that this Agreement replaces and supersedes that certain Binding Letter of
Intent, dated September 27, 1996, between the Company and the Purchaser, and
specifically acknowledge that the exercise price of the Warrant hereunder is
different from the exercise price set forth in the Binding Letter of Intent. The
Company and the Purchaser also acknowledge that two units of model 372M of the
Company's equipment ordered by the Purchaser in September 1996 were not
delivered by the Company to the Purchaser until October 1996. These two units of
model 372M shall not be counted toward the 15 units of model 372M in the
Pulled-In Forecast for the October-December 1996 quarter but shall be counted
for the September 1996 quarter. This delay in delivery to the October-December
1996 quarter shall not affect the Pulled-In Forecast for the October-December
1996 quarter, which remains as 15 units of model 372M and 3 units of model
676MP.
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<PAGE> 15
The parties have executed this Agreement to be effective as of the date first
set forth above.
INTEL CORPORATION INTEGRATED PROCESS
EQUIPMENT CORP.
/s/ Arvind Sodhani
- ------------------------------------ --------------------------------------
Signature Signature
/s/ Arvind Sodhani
- ------------------------------------ --------------------------------------
Printed Name Printed Name
Treasurer
- ------------------------------------ --------------------------------------
Title Title
LIST OF EXHIBITS
Exhibit A Form of Warrant
Exhibit B Schedule of Exceptions
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<PAGE> 1
WARRANT
THE WARRANT EVIDENCED OR CONSTITUTED HEREBY AND THE SHARES OF COMMON STOCK
ISSUABLE HEREUNDER HAVE BEEN AND WILL BE ISSUED WITHOUT REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("THE ACT"), AND MAY NOT BE SOLD, OFFERED FOR
SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED WITHOUT REGISTRATION UNDER THE ACT
UNLESS EITHER (i) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL TO THE EFFECT
THAT REGISTRATION IS NOT REQUIRED IN CONNECTION WITH SUCH DISPOSITION OR (ii)
THE SALE OF SUCH SECURITIES IS MADE PURSUANT TO SECURITIES AND EXCHANGE
COMMISSION RULE 144.
WARRANT TO PURCHASE 60,000 SHARES OF COMMON STOCK
OF
INTEGRATED PROCESS EQUIPMENT CORP.
(Subject to Adjustment)
NO. IC-1
THIS CERTIFIES THAT, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Intel Corporation, a Delaware
corporation ("Intel"), or its permitted registered assigns ("Holder"), is
entitled, subject to the terms and conditions of this Warrant, at any time after
October 4, 1996 (the "Effective Date"), and before 5:00 p.m. Pacific Time on
October 4, 1999 (the "Expiration Date"), to purchase from Integrated Process
Equipment Corp., a Delaware corporation (the "Company"), Sixty Thousand (60,000)
fully paid and nonassessable shares of the Common Stock of the Company, $0.01
par value per share (the "Warrant Stock"), at the Exercise Price (as defined in
Section 1.5 below). Both the number of shares of Warrant Stock purchasable under
this Warrant and the Exercise Price are subject to adjustment as provided
herein. This Warrant is issued pursuant to that certain Warrant Purchase
Agreement between the Company and Intel Corporation of even date herewith (the
"Purchase Agreement"). This Warrant shall terminate on the Expiration Date. In
certain circumstances described in Section 4.4 of the Purchase Agreement, the
Expiration Date may be extended.
1. CERTAIN DEFINITIONS. As used in this Warrant:
1.1. The term "Warrant Stock" shall mean the Common Stock, $0.01 par value
per share, of the Company, and any other securities and property at any time
receivable or issuable upon exercise of this Warrant, unless the context
otherwise requires.
1.2. The term "Warrant" as used herein, shall include this Warrant and any
warrant delivered in substitution or exchange therefor as provided herein.
1.3. The term "Registered Holder" shall mean any Holder in whose name this
Warrant is registered upon the books and records maintained by the Company.
<PAGE> 2
1.4. The term "Fair Market Value" of a share of Warrant Stock as of a
particular date (the "Determination Date") shall mean:
(a) If traded on a securities exchange or the Nasdaq National
Market, the Fair Market Value shall be deemed to be the average of the closing
prices of the Common Stock of the Company on such exchange over the 5 business
days ending two (2) days prior to the Determination Date;
(b) If actively traded over-the-counter, the Fair Market Value shall
be deemed to be the average of the closing bid prices over the 30-day period
ending three (3) days prior to the Determination Date; and
(c) If there is no active public market, the Fair Market Value shall
be the value thereof, as determined in good faith by the Board of Directors of
the Company.
1.5. The term "Exercise Price" shall mean $14.6625 per share, subject to
adjustment as provided herein.
2. EXERCISE OF WARRANT
2.1. Payment.
Subject to compliance with the terms and conditions of this Warrant
and applicable securities laws, this Warrant may be exercised, in whole or in
part at any time on or before the Expiration Date, by surrendering this Warrant
at the principal office of the Company together with:
(a) the form of Notice of Exercise attached hereto as Exhibit 1 (the
"Notice of Exercise") duly executed by the Holder, and
(b) payment, (i) in cash (by check) or by wire transfer, (ii) by
cancellation by the Holder of indebtedness of the Company to the Holder, or
(iii) by any combination of (i) or (ii), of an amount equal to the product
obtained by multiplying the number of shares of Warrant Stock being purchased
upon such exercise by the then effective Exercise Price (the "Exercise Amount").
2.2. Net Issue Exercise
In lieu of the payment methods set forth in Section 2.1(b) above,
the Holder may elect to exchange the Warrant for shares of Warrant Stock equal
to the value of the amount of the Warrant being exchanged on the date of
exchange. If Holder elects to exchange this Warrant as provided in this Section
2.2, Holder shall tender to the Company the Warrant for the amount being
exchanged, along with written notice of Holder's election to exchange up to the
full amount of the Warrant, and the Company shall issue to Holder the number of
shares of the Company's Warrant Stock computed using the following formula:
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<PAGE> 3
X = Y (A-B)
-------
A
Where X = the number of shares of Warrant Stock to be issued to
Holder;
Y = the number of shares of Warrant Stock purchasable under the
amount of the Warrant being exchanged (as adjusted to the date
of such calculation);
A = the Fair Market Value of one share of the Company's Common
Stock; and
B = Exercise Price (as adjusted to the date of such calculation).
All references herein to an "exercise" of the Warrant shall include
an exchange pursuant to this Section 2.2.
2.3. Partial Exercise; Effective Date of Exercise.
In case of any partial exercise of this Warrant, the Company shall
cancel this Warrant upon surrender hereof and shall execute and deliver a new
Warrant of like tenor and date for the balance of the shares of Warrant Stock
purchasable hereunder. This Warrant shall be deemed to have been exercised
immediately prior to the close of business on the date of its surrender for
exercise as provided above. The person entitled to receive the shares of Warrant
Stock issuable upon exercise of this Warrant shall be treated for all purposes
as the holder of record of such shares as of the close of business on the date
the Holder is deemed to have exercised this Warrant.
2.4. Stock Certificates; Fractional Shares.
As soon as practicable on or after such date, the Company shall
issue and deliver to the person or persons entitled to receive the same a
certificate or certificates for the number of whole shares of Warrant Stock
issuable upon such exercise, together with cash in lieu of any fraction of a
share equal to such fraction of the Fair Market Value of one whole share of
Warrant Stock as of the date of exercise of this Warrant. No fractional shares
or scrip representing fractional shares shall be issued upon an exercise of this
Warrant, and any fractional shares shall be rounded to the nearest whole share.
3. VALID ISSUANCE; TAXES.
All shares of Warrant Stock issued upon the exercise of this Warrant shall
be validly issued, fully paid and non-assessable, and the Company shall pay all
taxes and other governmental charges that may be imposed in respect of the issue
or delivery thereof. The Company shall not be required to pay any tax or other
charge imposed in connection with any transfer involved in the issuance of any
certificate for shares of Warrant Stock in any name other than that of the
Registered Holder of this Warrant, and in such case the Company shall not be
required to issue or deliver any stock certificate or security until such tax or
other charge has been paid, or it has been established to the Company's
reasonable satisfaction that no tax or other charge is due.
-3-
<PAGE> 4
4. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES.
The number of shares of Warrant Stock issuable upon exercise of this
Warrant (or any shares of stock or other securities or property receivable or
issuable upon exercise of this Warrant) and the Exercise Price are subject to
adjustment upon occurrence of the following events:
4.1. Adjustment for Stock Splits, Stock Subdivisions or Combinations of
Shares.
The Exercise Price of this Warrant shall be proportionally decreased
and the number of shares of Warrant Stock issuable upon exercise of this Warrant
(or any shares of stock or other securities at the time issuable upon exercise
of this Warrant) shall be proportionally increased to reflect any stock split or
subdivision of the Company's Common Stock. The Exercise Price of this Warrant
shall be proportionally increased and the number of shares of Warrant Stock
issuable upon exercise of this Warrant (or any shares of stock or other
securities at the time issuable upon exercise of this Warrant) shall be
proportionally decreased to reflect any combination of the Company's Common
Stock.
4.2. Adjustment for Dividends or Distributions of Stock or Other
Securities or Property.
In case the Company shall make or issue, or shall fix a record date
for the determination of eligible holders entitled to receive, a dividend or
other distribution with respect to the Warrant Stock (or any shares of stock or
other securities at the time issuable upon exercise of the Warrant) payable in
(i) securities of the Company or (ii) assets (excluding cash dividends paid or
payable solely out of retained earnings), then, in each such case, the Holder of
this Warrant on exercise hereof at any time after the consummation, effective
date or record date of such dividend or other distribution, shall receive, in
addition to the shares of Warrant Stock (or such other stock or securities)
issuable on such exercise prior to such date, and without the payment of
additional consideration therefor, the securities or such other assets of the
Company to which such Holder would have been entitled upon such date if such
Holder had exercised this Warrant on the date hereof and had thereafter, during
the period from the date hereof to and including the date of such exercise,
retained such shares and/or all other additional stock available by it as
aforesaid during such period giving effect to all adjustments called for by this
Section 4.
4.3. Reclassification.
If the Company, by reclassification of securities or otherwise,
shall change any of the securities as to which purchase rights under this
Warrant exist into the same or a different number of securities of any other
class or classes, this Warrant shall thereafter represent the right to acquire
such number and kind of securities as would have been issuable as the result of
such change with respect to the securities that were subject to the purchase
rights under this Warrant immediately prior to such reclassification or other
change and the Exercise Price therefore shall be appropriately adjusted, all
subject to further adjustment as provided in this Section 4.
-4-
<PAGE> 5
4.4. Adjustment for Capital Reorganization, Merger or Consolidation.
In case of any capital reorganization of the capital stock of the
Company (other than a combination, reclassification, exchange or subdivision of
shares otherwise provided for herein), or any merger or consolidation of the
Company with or into another corporation, or the sale of all or substantially
all the assets of the Company then, and in each such case, as a part of such
reorganization, merger, consolidation, sale or transfer, lawful provision shall
be made so that the Holder of this Warrant shall thereafter be entitled to
receive upon exercise of this Warrant, during the period specified herein and
upon payment of the Exercise Price then in effect, the number of shares of stock
or other securities or property of the successor corporation resulting from such
reorganization, merger, consolidation, sale or transfer that a holder of the
shares deliverable upon exercise of this Warrant would have been entitled to
receive in such reorganization, consolidation, merger, sale or transfer if this
Warrant had been exercised immediately before such reorganization, merger,
consolidation, sale or transfer, all subject to further adjustment as provided
in this Section 4. The foregoing provisions of this Section 4.4 shall similarly
apply to successive reorganizations, consolidations, mergers, sales and
transfers and to the stock or securities of any other corporation that are at
the time receivable upon the exercise of this Warrant. If the per-share
consideration payable to the Holder hereof for shares in connection with any
such transaction is in a form other than cash or marketable securities, then the
value of such consideration shall be determined in good faith by the Company's
Board of Directors. In all events, appropriate adjustment (as determined in good
faith by the Company's Board of Directors) shall be made in the application of
the provisions of this Warrant with respect to the rights and interests of the
Holder after the transaction, to the end that the provisions of this Warrant
shall be applicable after that event, as near as reasonably may be, in relation
to any shares or other property deliverable after that event upon exercise of
this Warrant.
4.5. Reservation of Securities and Assets.
The Company shall reserve, for the life of the Warrant, such
securities or such other assets of the Company the Holder is entitled to receive
pursuant to this Section 4.
5. CERTIFICATE AS TO ADJUSTMENTS.
In each case of any adjustment in the Exercise Price, or number or type of
shares issuable upon exercise of this Warrant, the Chief Financial Officer of
the Company shall compute such adjustment in accordance with the terms of this
Warrant and prepare a certificate setting forth such adjustment and showing in
detail the facts upon which such adjustment is based, including a statement of
the adjusted Exercise Price. The Company shall promptly send (by facsimile and
by either first class mail, postage prepaid or overnight delivery) a copy of
each such certificate to the Holder.
6. LOSS OR MUTILATION.
Upon receipt of evidence reasonably satisfactory to the Company of the
ownership of and the loss, theft, destruction or mutilation of this Warrant, and
of indemnity reasonably satisfactory to it, and (in the case of mutilation) upon
surrender and cancellation of this Warrant, the
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<PAGE> 6
Company will execute and deliver in lieu thereof a new Warrant of like tenor as
the lost, stolen, destroyed or mutilated Warrant.
7. RESERVATION OF COMMON STOCK.
The Company hereby covenants that at all times there shall be reserved for
issuance and delivery upon exercise of this Warrant such number of shares of
Common Stock or other shares of capital stock of the Company as are from time to
time issuable upon exercise of this Warrant and, from time to time, will take
all steps necessary to amend its Certificate of Incorporation to provide
sufficient reserves of shares of Common Stock issuable upon exercise of this
Warrant. All such shares shall be duly authorized, and when issued upon such
exercise, shall be validly issued, fully paid and non-assessable, free and clear
of all liens, security interests, charges and other encumbrances or restrictions
on sale and free and clear of all preemptive rights, except encumbrances or
restrictions arising under federal or state securities laws. Issuance of this
Warrant shall constitute full authority to the Company's officers who are
charged with the duty of executing stock certificates to execute and issue the
necessary certificates for shares of Common Stock upon the exercise of this
Warrant.
8. TRANSFER AND EXCHANGE.
Neither this Warrant nor the rights hereunder may be transferred, in whole
or in part, without the prior written consent of the Company.
9. RESTRICTIONS ON TRANSFER.
Subject to Section 8, the Holder, by acceptance hereof, agrees that,
absent an effective registration statement filed with the U.S. Securities and
Exchange Commission ("SEC") under the Act covering the disposition or sale of
this Warrant or the Warrant Stock issued or issuable upon exercise hereof, as
the case may be, and registration or qualification under applicable state
securities laws, such Holder will not sell, transfer pledge, or hypothecate any
or all such Warrants or Warrant Stock, as the case may be, unless either (i) the
Company has received an opinion of counsel to the effect that such registration
is not required in connection with such disposition or (ii) the sale of such
securities is made pursuant to SEC Rule 144.
10. COMPLIANCE WITH SECURITIES LAWS.
By acceptance of this Warrant, the Holder hereby represents, warrants and
covenants that any shares of stock purchased upon exercise of this Warrant shall
be acquired for investment only and not with a view to, or for sale in
connection with, any distribution thereof; that the Holder has had such
opportunity as such Holder has deemed adequate to obtain from representatives of
the Company such information as is necessary to permit the holder to evaluate
the merits and risks of its investment in the Company; that the Holder is able
to bear the economic risk of holding such shares as may be acquired pursuant to
the exercise of this Warrant for an indefinite period; that the Holder
understands that the shares of stock acquired pursuant to the exercise of this
Warrant will not be registered under the Act (unless otherwise required pursuant
to exercise by the holder of the registration rights, if any, previously granted
to the
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<PAGE> 7
registered Holder) and will be "restricted securities" within the meaning of
Rule 144 under the Act and that the exemption from registration under Rule 144
will not be available for at least two years from the date of exercise of this
Warrant, subject to any special treatment by the Securities and Exchange
Commission for exercise of this Warrant pursuant to Section 2.2, and even then
will not be available unless a public market then exists for the stock, adequate
information concerning the Company is then available to the public, and other
terms and conditions of Rule 144 are complied with; and that all stock
certificates representing shares of stock issued to the Holder upon exercise of
this Warrant may have affixed thereto a legend substantially in the following
form:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE BEEN AND WILL BE
ISSUED WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
("THE ACT"), AND MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, PLEDGED
OR HYPOTHECATED WITHOUT REGISTRATION UNDER THE ACT OR UNLESS EITHER (i)
THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL TO THE EFFECT THAT
REGISTRATION IS NOT REQUIRED IN CONNECTION WITH SUCH DISPOSITION OR (ii)
THE SALE OF SUCH SECURITIES IS MADE PURSUANT TO SECURITIES AND EXCHANGE
COMMISSION RULE 144.
11. NO RIGHTS OR LIABILITIES AS SHAREHOLDERS.
This Warrant shall not entitle the Holder to any voting rights or other
rights as a shareholder of the Company. In the absence of affirmative action by
such Holder to purchase Warrant Stock by exercise of this Warrant, no provisions
of this Warrant, and no enumeration herein of the rights or privileges of the
Holder hereof shall cause such Holder hereof to be a shareholder of the Company
for any purpose.
12. REGISTRATION RIGHTS.
All shares of Common Stock issuable upon exercise of this Warrant shall be
"Registrable Securities" as defined in Paragraph 4.1(b) of the Purchase
Agreement and entitled, subject to the terms and conditions of that agreement,
to all registration rights granted to holders of Registrable Securities
thereunder.
13. NOTICES.
All notices and other communications from the Company to the Holder shall
be given in accordance with Paragraph 6.5 of the Purchase Agreement.
14. HEADINGS.
The headings in this Warrant are for purposes of convenience in reference
only, and shall not be deemed to constitute a part hereof.
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<PAGE> 8
15. LAW GOVERNING.
This Warrant shall be construed and enforced in accordance with, and
governed by, the laws of the State of Delaware.
16. NO IMPAIRMENT.
The Company will not, by amendment of its Certificate of Incorporation or
bylaws, or through reorganization, consolidation, merger, dissolution, issue or
sale of securities, sale of assets or any other voluntary action, avoid or seek
to avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Registered Holder of this Warrant against impairment.
Without limiting the generality of the foregoing, the Company (a) will not
increase the par value of any shares of stock issuable upon the exercise of this
Warrant above the amount payable therefor upon such exercise, and (b) will take
all such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and non-assessable shares of Warrant Stock
upon exercise of this Warrant.
17. NOTICES OF RECORD DATE. In case:
17.1. the Company shall take a record of the holders of its Common Stock
(or other stock or securities at the time receivable upon the exercise of this
Warrant) for the purpose of entitling them to receive any dividend or other
distribution, or any right to subscribe for or purchase any shares of stock of
any class or any other securities or to receive any other right; or
17.2. of any consolidation or merger of the Company with or into another
corporation, any capital reorganization or the Company, any reclassification of
the Capital Stock of the Company, or any conveyance of all or substantially all
of the assets of the Company to another corporation in which holders of the
Company's stock are to receive stock, securities or property of another
corporation; or
17.3. of any voluntary dissolution, liquidation or winding-up of the
Company; or
17.4. of any redemption or conversion of all outstanding shares of Common
Stock;
then, and in each such case, the Company will mail or cause to be mailed to the
Registered Holder of this Warrant a notice specifying, as the case may be, (i)
the date on which a record is to be taken for the purpose of such dividend,
distribution or right, or (ii) the date on which such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation,
winding-up, redemption or conversion is to take place, and the time, if any is
to be fixed, as of which the holders of record of shares of Common Stock (or
such stock or securities as at the time are receivable upon the exercise of this
Warrant) shall be entitled to exchange their shares of Common Stock (or such
other stock or securities) for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up. Such notice shall be delivered at least
thirty (30) days prior to the date therein specified.
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<PAGE> 9
18. SEVERABILITY.
If any term, provision, covenant or restriction of this Warrant is held by
a court of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated.
19. COUNTERPARTS.
For the convenience of the parties, any number of counterparts of this
Warrant may be executed by the parties hereto and each such executed counterpart
shall be, and shall be deemed to be, an original instrument.
20. NO INCONSISTENT AGREEMENTS.
The Company will not on or after the date of this Warrant enter into any
agreement with respect to its securities which is inconsistent with the rights
granted to the Holders of this Warrant or otherwise conflicts with the
provisions hereof. The rights granted to the Holders hereunder do not in any way
conflict with and are not inconsistent with the rights granted to holders of the
Company's securities under any other agreements, except rights that have been
waived.
21. SATURDAYS, SUNDAYS AND HOLIDAYS.
If the Expiration Date falls on a Saturday, Sunday or legal holiday, the
Expiration Date shall automatically be extended until 5:00 p.m. the next
business day.
AGREED:
INTEL CORPORATION INTEGRATED PROCESS
EQUIPMENT CORP.
/s/ Arvind Sodhani /s/ John S. Hodgson
- ------------------------------------ --------------------------------------
Signature Signature
/s/ Arvind Sodhani /s/ John S. Hodgson
- ------------------------------------ --------------------------------------
Printed Name Printed Name
Treasurer Vice President and Chief Financial
Officer
- ------------------------------------ --------------------------------------
Title Title
10/3/96
- ------------------------------------ --------------------------------------
Date Date
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<PAGE> 10
EXHIBIT 1
NOTICE OF EXERCISE
(To be executed upon exercise of Warrant)
INTEGRATED PROCESS EQUIPMENT CORP.:
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant Certificate for, and to purchase thereunder,
shares of Common Stock, as provided for therein, and (check the applicable box):
[ ] (a) tenders herewith payment of the exercise price in full in the form of
cash or a certified or official bank check in same-day funds in the amount
of $____________; and/or
(b) hereby agrees to cancel $_________ of indebtedness owed by the Company
to the Holder;
for a total of _________ shares of Common Stock.
[ ] Elects the Net Issue Exercise option pursuant to Section 2.2 of the
Warrant, and accordingly requests delivery of a net of ______________
shares of Common Stock.
Please issue a certificate or certificates for such shares of Common Stock in
the name of, and pay any cash for any fractional share to (please print name,
address and social security number):
Name: _________________________________________
Address: _________________________________________
Signature:_________________________________________
Note: The above signature should correspond exactly with the name on the first
page of this Warrant Certificate or with the name of the assignee appearing in
the assignment form below.
If said number of shares shall not be all the shares purchasable under the
within Warrant Certificate, a new Warrant Certificate is to be issued in the
name of said undersigned for the balance remaining of the shares purchasable
thereunder rounded up to the next higher whole number of shares.
<PAGE> 1
NOTICE OF SETTLEMENT OF INDEMNIFICATION CLAIMS UNDER
WESTECH AGREEMENT AND PLAN OF MERGER AND RELATED ESCROW AGREEMENT
-----------------------------------------------------------------
September 19, 1996
VIA FACSIMILE AND FEDERAL EXPRESS
- ---------------------------------
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
New York, NY 10112
Telecopier No.: (212) 698-7826
Attention: Richard L. Sadowsky, Esq.
Quarles Brady
One East Camelback Road
Phoenix, AZ 85102-1659
Telecopier No.: (602) 238-5590
Attention: P. Robert Moya, Esq.
Gentlemen:
Reference is made to (i) the Agreement and Plan of Merger [Revised],
dated as of august 25, 1993 (the "Merger Agreement"), by and among WSI Merger
Corp., a Delaware corporation now known as IPEC Planar Phoenix, Inc. (the
"Surviving Corporation"), Integrated Process Equipment Corp., a Delaware
corporation ("IPEC"), Westech Systems, Inc., an Arizona corporation
("Westech"), Harold C. Baldauf ("HCB"), Janet A. Baldauf ("JAB"), Gerald L.
Gill, Jr. ("GLG"), Annette E. Gill ("AEG"), Edmund Chonczynski ("EC") and
Giesela Chonczynski ("GC;" HCB, JAB, GLG, AEG, EC and GC are collectively
referred to as the "Shareholders"); (ii) the Escrow Agreement, dated as of
August 31, 1993, as amended (the "Escrow Agreement"), by and among the
Surviving Corporation, IPEC, Westech, the Shareholders and Rubin Baum Levin
Constant & Friedman ("RBLCF") and Quarles & Brady ("Q&B;" RHBLC&F and Q&B are
collectively referred to as the "Escrow Agents"); and (III) the indemnification
claims letter, dated August 28, 1996 (the "Claim Letter") from IPEC and the
Surviving Corporation to the Representative and the Escrow Agents. Terms
defined in the Escrow Agreement are used as defined therein.
1. Pursuant to Section 3.2(c) of the Escrow Agreement, the
Shareholders, the Representative, IPEC and the Surviving Corporation hereby
give notice to the Escrow Agents that the claims for indemnification set forth
in the Claim Letter have been settled by the Shareholders, IPEC and the
Surviving Corporation. Under the settlement an aggregate of 50% of the Indemnity
Shares (and related dividends thereon held by the Escrow Agents) are to be
returned to the Shareholders (including The Weil Company) and the
<PAGE> 2
remaining 50% of the Indemnity Shares (and related dividends thereon held by
the Escrow Agents) are to be returned to IPEC. Since, however, IPEC had not yet
deposited with the Escrow Agents the cash dividends on the Indemnity Shares for
dividend payment dates after June 30, 1995, the Escrow Agents are also herein
instructed to deliver to the Shareholders (including the Weil Company) from the
one-half of the cash which would otherwise be returned to IPEC an aggregate of
$30,018.30 in satisfaction of the December 31, 1995 and June 30, 1996 dividends
accrued but unpaid on the 5,370 Indemnity Shares to be delivered by the Escrow
Agents to the Shareholders (including The Weil Company) pursuant to this
Notice. Accordingly the Escrow Agents are hereby instructed by the undersigned
to release from escrow and (a) dispose of all 10,739 shares of the Series B-1
Preferred Stock constituting the Indemnity Shares held by the Escrow Agents,
and (b) disburse the $109,618.27 previously received (and currently held) by
the Escrow Agents from IPEC as dividends on the Indemnity Shares, as follows:
(i) Deliver 5,369 Indemnity Shares to IPEC for cancellation and return
$24,785.73 to IPEC;
(ii) Deliver 135 Indemnity Shares (constituting 2.5% of the remaining
Indemnity Shares) and $2,132.66 to The Weil Company or its designee; and
(iii) Deliver 5,235 Indemnity Shares and $82,699.88 to the
Shareholders, such shares to be registered in the following names and amounts
and such cash payments to be in the following amounts:
<TABLE>
<CAPTION>
Number of
Shareholders Shares Cash Payment
------------ --------- ------------
<S> <C> <C>
Harold C. Baldauf and 2,443 $38,593.28
Janet A. Baldauf, as JTWRS
Gerald L. Gill, Jr. and 2,443 $38,593.28
Annette E. Gill, as JTWRS
Edmund Chonczynski and 349 $ 5,513.33
Giesela Chonczynski, as JTWRS
</TABLE>
2. Effective upon completion by the Escrow Agents of the deliveries of
Indemnity Shares and cash set forth in the preceding Section 1, each of the
undersigned (a) acknowledges that the Escrow Agents have no further obligations
or liabilities to any of the undersigned under the Escrow Agreement, and (b)
releases each of the Escrow Agents from any liabilities for any act or omission
taken as Escrow Agents under the Escrow Agreement.
-2-
<PAGE> 3
This Notice may be signed in counterparts and by telecopier.
Very truly yours,
INTEGRATED PROCESS EQUIPMENT CORP.
By: /s/ [illegible]
-------------------------------------------
IPEC PLANAR PHOENIX, INC.
(formerly Westech Systems, Inc.)
By: /s/ [illegible]
-------------------------------------------
/s/ Harold C. Baldauf
-------------------------------------------
Harold C. Baldauf
(as a Shareholder and as the Representative)
/s/ Janet A. Baldauf
-------------------------------------------
Janet A. Baldauf
/s/ Gerald L. Gill
-------------------------------------------
Gerald L. Gill
/s/ Annette E. Gill
-------------------------------------------
Annette E. Gill
/s/ Edmund Chonczynski
-------------------------------------------
Edmund Chonczynski
/s/ Giesela Chonczynski
-------------------------------------------
Giesela Chonczynski
THE WEIL COMPANY
By: /s/ [illegible]
----------------------------------------
-3-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 7804
<SECURITIES> 0
<RECEIVABLES> 39510
<ALLOWANCES> 150
<INVENTORY> 41539
<CURRENT-ASSETS> 95340
<PP&E> 58989
<DEPRECIATION> 8159
<TOTAL-ASSETS> 191905
<CURRENT-LIABILITIES> 41427
<BONDS> 27662
0
5375
<COMMON> 148
<OTHER-SE> 120583
<TOTAL-LIABILITY-AND-EQUITY> 191905
<SALES> 32017
<TOTAL-REVENUES> 32017
<CGS> 21766
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 15298
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 582
<INCOME-PRETAX> (5447)
<INCOME-TAX> (2070)
<INCOME-CONTINUING> (3377)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3377)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> (.23)
</TABLE>
