<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 March 31, 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)
Delaware 77-0296222
- - --------------------------------- ------------------
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
911 Bern Court, San Jose, California 95112
- - ----------------------------------------
(Address of principal executive offices)
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 May 8, 1996, 521,704 shares of Class A Common Stock and
14,050,398 shares of Common Stock of the registrant were outstanding.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
ASSETS 1995 1996
- - ------ ---- ----
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash investments, including
restricted cash of $13,000,000 at
March 31, 1996 $ 66,007,000 $ 27,503,000
Accounts receivable, less allowance for
doubtful accounts of $50,000 and
$330,000, respectively 30,622,000 46,048,000
Inventory 22,882,000 28,391,000
Prepaid expenses 1,419,000 3,334,000
Deferred tax asset 2,204,000 4,876,000
------------ ------------
Total current assets 123,134,000 110,152,000
------------ ------------
Property and equipment, net of accumulated
depreciation and amortization 11,701,000 48,840,000
Goodwill, less amortization of $639,000
and $1,203,000, respectively 4,385,000 5,869,000
Patents, less amortization of $1,899,000
and $2,780,000, respectively 3,278,000 6,620,000
Developed technology less amortization
of $529,000 and $1,209,000, respectively 13,063,000 12,383,000
Assembled workforce less amortization
of $103,000 and $326,000, respectively 778,000 2,377,000
Deferred tax asset -- 13,372,000
Other 1,638,000 3,229,000
------------ ------------
$157,977,000 $202,842,000
============ ============
</TABLE>
(Continued)
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 3
INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(CONTINUED)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
LIABILITIES 1995 1996
- - ----------- ---- ----
(Unaudited)
<S> <C> <C>
Current liabilities:
Notes payable $ -- $ 14,790,000
Current portion of long-term debt 4,448,000 1,727,000
Current portion of capital leases 324,000 307,000
Accounts payable:
Trade 9,268,000 14,687,000
Related parties 359,000 1,714,000
Accrued warranty 2,899,000 8,442,000
Accrued expenses 7,399,000 16,113,000
Other current liabilities 293,000 1,527,000
------------- -------------
Total current liabilities 24,990,000 59,307,000
------------- -------------
Long-term debt, less current portion 1,436,000 18,723,000
Capital leases, less current portion 312,000 1,385,000
Deferred tax liability 1,119,000 --
------------- -------------
Total liabilities 27,857,000 79,415,000
------------- -------------
STOCKHOLDERS' EQUITY
- - --------------------
Preferred stock, par value $ .01 per share,
Non-voting, cumulative preferred stock
Series B-1, 20,941 shares issued and outstanding
at June 30, 1995 and March 31, 1996.
Series B-2, 20,941 shares issued and outstanding
at June 30, 1995 and March 31, 1996.
Series B-3, no shares issued and outstanding
at June 30, 1995 and 21,478 shares at March 31, 1996. 3,900,000 5,900,000
Common stock, par value $ .01 per share,
one vote per share, 13,501,756 shares issued
and outstanding at June 30, 1995 and
14,001,905 shares at March 31, 1996 135,000 140,000
Class A common stock, par value $ .01 per
share 521,704 shares issued and
outstanding at June 30, 1995 and March 31, 1996. 5,000 5,000
Additional paid-in capital 138,522,000 143,000,000
Accumulated deficit (12,450,000) (25,626,000)
Cumulative translation adjustment 8,000 8,000
------------- -------------
Total stockholders' equity 130,120,000 123,427,000
------------- -------------
$ 157,977,000 $ 202,842,000
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
--------- ---------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue $ 24,493,000 $ 50,490,000 $ 53,915,000 $ 136,479,000
Cost of goods sold 12,932,000 29,350,000 30,951,000 80,847,000
------------- ------------- ------------- -------------
Gross profit 11,561,000 21,140,000 22,964,000 55,632,000
------------- ------------- ------------- -------------
Operating expenses:
Research and development 2,296,000 5,756,000 4,557,000 13,828,000
Purchased research and development -- -- 8,485,000 36,961,000
Selling, general and administrative 5,969,000 10,408,000 13,680,000 26,185,000
------------- ------------- ------------- -------------
Total operating expense 8,265,000 16,164,000 26,722,000 76,974,000
------------- ------------- ------------- -------------
Operating income (loss) 3,296,000 4,976,000 (3,758,000) (21,342,000)
Interest income 22,000 401,000 108,000 1,577,000
Interest expense (205,000) (1,138,000) (598,000) (1,437,000)
Debt discount and deferred
financing fees (72,000) -- (165,000) --
Other income 18,000 181,000 18,000 361,000
------------- ------------- ------------- -------------
Income (loss) before provision for income taxes 3,059,000 4,420,000 (4,395,000) (20,841,000)
Provision for income tax (expense) benefit (212,000) (1,724,000) (292,000) 8,103,000
------------- ------------- ------------- -------------
Net income (loss) 2,847,000 2,696,000 (4,687,000) (12,738,000)
Dividends on Preferred Stock (257,000) (90,000) (317,000) (489,000)
------------- ------------- ------------- -------------
Net income (loss) attributable to common
stockholders $ 2,590,000 $ 2,606,000 $ (5,004,000) $ (13,227,000)
============= ============= ============= =============
Weighted average number of common
stock and common stock equivalents
outstanding - primary 13,392,045 15,375,568 6,677,869 14,356,452
============= ============= ============= =============
Net income (loss) per share $ .19 $ .17 $ (.75) $ (.92)
============= ============= ============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE-MONTH PERIOD ENDED MARCH 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Series B-1 Series B-2 Series B-3
Preferred Stock Preferred Stock Preferred Stock
--------------- --------------- ---------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance -
June 30, 1995 20,941 $ 1,950,000 20,941 $ 1,950,000 -- --
Net loss -- -- -- -- -- --
Issuance of Series B-3
Preferred Stock -- -- -- -- 21,478 $ 2,000,000
Issuance of Warrants -- -- -- -- -- --
Exercise of Stock Options
(including tax benefits of $1,287,000) -- -- -- -- -- --
Exercise of Unit Purchase Options -- -- -- -- -- --
Exercise of Bridge Warrants -- -- -- -- -- --
Conversion of Debenture -- -- -- -- -- --
Acquisition of remaining
Athens shares -- -- -- -- -- --
Compensation expense -- -- -- -- -- --
Employee Stock Purchase Plan -- -- -- -- -- --
Dividends Paid -- -- -- -- -- --
------- ----------- ------- ------------- -------- -------------
Balance -
March 31, 1996 20,941 $ 1,950,000 20,941 $ 1,950,000 21,478 $ 2,000,000
======= =========== ======= ============= ======== =============
</TABLE>
<TABLE>
<CAPTION>
Class A
Common Stock Common Stock Additional Cumulative
---------------------- ----------------- Paid-In Accumulated Translation
Shares Amount Shares Amount Capital Deficit Adjustment
------ ------ ------ ------ ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance -
June 30, 1995 13,501,756 $ 135,000 521,704 $ 5,000 $ 138,522,000 $ (12,450,000) $ 8,000
Net loss -- -- -- -- -- (12,738,000) --
Issuance of Series B-3
Preferred Stock -- -- -- -- -- -- --
Issuance of Warrants -- -- -- -- 100,000 -- --
Exercise of Stock Options
(including tax benefits of $1,287,000) 133,221 2,000 -- -- 2,654,000 -- --
Exercise of Unit Purchase Options 68,880 1,000 -- -- 926,000 -- --
Exercise of Bridge Warrants 6,250 -- -- -- 25,000 -- --
Conversion of Debenture 50,000 -- -- -- 110,000 -- --
Acquisition of remaining
Athens shares 211,669 2,000 -- -- 204,000 -- --
Compensation expense -- -- -- -- (14,000) -- --
Employee Stock Purchase Plan 30,129 -- -- -- 473,000 -- --
Dividends Paid -- -- -- -- -- (438,000) --
----------- ---------- -------- ------- ------------- ------------- -------
Balance -
March 31, 1996 14,001,905 $ 140,000 521,704 $ 5,000 $ 143,000,000 $ (25,626,000) $ 8,000
=========== ========== ======== ======= ============= ============= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
---------
1995 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(4,687,000) $(12,738,000)
Adjustment to reconcile net loss to net
cash provided by (used in) operating activities:
Purchased research and development 8,485,000 36,961,000
Depreciation and amortization 663,000 2,896,000
Amortization of intangible assets 1,440,000 2,301,000
Tax benefit from employee stock option plan - 1,287,000
Deferred tax benefit - (15,855,000)
Changes in operating assets and liabilities:
(Increase) in accounts receivable (9,993,000) (13,099,000)
(Increase) in inventory (3,849,000) (524,000)
(Increase) decrease in prepaid expenses 513,000 (3,316,000)
Increase in accounts payable 747,000 3,061,000
Increase (decrease) in related party payables (2,140,000) 1,355,000
Increase in accrued expenses 2,710,000 11,404,000
Decrease in other liabilities (1,049,000) (584,000)
----------- ------------
Net cash provided by (used in) operating activities (7,160,000) 13,149,000
----------- ------------
Cash flows from investing activities:
Purchases of property and equipment (2,604,000) (31,326,000)
Proceeds from sale of property and equipment - 431,000
Purchase of subsidiaries, net of cash acquired (929,000) (23,593,000)
----------- ------------
Net cash used in investing activities (3,533,000) (54,488,000)
----------- ------------
Cash flows from financing activities:
Proceeds from long-term debt 352,000 26,000,000
Repayment of long-term debt (700,000) (14,657,000)
Repayment of notes payable (2,907,000) (11,000,000)
Borrowing from related parties 5,195,000 -
Repayment of related party notes payable (6,867,000) -
Repayment of capital leases (157,000) (266,000)
Payment of preferred stock dividends (59,000) (438,000)
Option compensation expense - (14,000)
Net proceeds from issuance of common stock 19,026,000 889,000
Proceeds from exercise of unit purchase options - 927,000
Proceeds from exercise of stock options 658,000 1,369,000
Proceeds from exercise of warrants 339,000 25,000
----------- ------------
Net cash provided by financing activities 14,880,000 2,835,000
----------- ------------
Net increase (decrease) in cash and cash investments 4,187,000 (38,504,000)
Cash and cash investments, beginning of period 979,000 66,007,000
----------- ------------
Cash and cash investments, end of period $ 5,166,000 $ 27,503,000
=========== ============
</TABLE>
See accompanying notes to condensed financial statements.
6
<PAGE> 7
INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - SUPPLEMENTAL INFORMATION
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
---------
1995 1996
---- ----
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for interest during the period $ 441,000 $ 818,000
========= ==========
Cash paid for taxes during the period $ -- $3,317,000
========= ==========
NINE MONTHS ENDED
MARCH 31,
---------
1995 1996
---- ----
Supplemental disclosure of noncash investing activities:
Release from escrow of Class B 6% cumulative convertible
preferred stock resulting in adjustment of the
Westech purchase price $ 2,000,000 $2,000,000
=========== ==========
Assets acquired under capital lease obligations $ -- $1,322,000
=========== ==========
</TABLE>
The Company made acquisitions for $929,000 and $23,593,000 of cash in the nine
month periods ended March 31, 1995 and March 31, 1996, respectively. The
purchase price was allocated to the assets acquired and liabilities assumed
based on their fair value as indicated in the notes to the condensed
consolidated financial statements. A summary of cash paid for the
acquisitions follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
---------
1995 1996
---- ----
<S> <C> <C>
Purchase price $ 21,747,000 $ 53,875,000
Less cash acquired (18,000) (1,269,000)
Common stock issued (20,800,000) --
Notes payable -- (25,790,000)
Long-term debt -- (3,223,000)
------------ ------------
$ 929,000 $ 23,593,000
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
<PAGE> 8
INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PREPARATION:
The accompanying condensed consolidated financial statements
at March 31, 1996 and for the three and nine-month periods ended March 31, 1995
and March 31, 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, 1995 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,
1995.
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:
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 and the transaction has been accounted for as a purchase.
The Company acquired the remaining 6% in the first quarter of fiscal 1996 in
exchange for 211,669 shares of the Company's common stock. The name of Athens
Corp has 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 chemical
mechanical planarization (CMP) system for metal planarization. GAARD also
designs and manufactures custom flexible automation systems used outside the
semiconductor industry.
8
<PAGE> 9
INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The transaction was accounted for as a purchase, and,
accordingly, the accompanying condensed consolidated financial statements
include the results of GAARD from the date of acquisition. The name of GAARD has
subsequently been changed to IPEC Planar Portland Inc. The purchase price has
been allocated to the assets (including cash of $1,269,000) acquired, and
liabilities assumed, based on their fair values as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchase price:
Cash $12,000,000
Notes payable 15,700,000
Long-term debt 3,223,000
Costs of acquisition 620,000
-----------
$31,543,000
===========
Assets acquired and liabilities assumed:
Current assets $ 7,958,000
Equipment and leasehold improvements 128,000
Deferred taxes 1,010,000
Purchased in-process research and development 28,793,000
Current liabilities (6,346,000)
----------
Total $31,543,000
===========
</TABLE>
The purchased in-process research and development has been
expensed upon acquisition. At March 31, 1996 the note payable amounting to
$13,000,000 issued in connection with the acquisition was secured by a bank
letter of credit, which in turn was secured by cash deposited with the bank. The
note was paid in April, 1996. At March 31, 1996, the $13,000,000 cash deposited
with the bank is restricted cash and is reflected in the Company's balance sheet
as cash and cash investments.
Acquisition of Precision Materials:
On December 29, 1995, the Company's subsidiary IPEC Precision,
Inc. acquired substantially all of the assets constituting the Precision
Materials Operation of Hughes Danbury Optical Systems, Inc. (HDOS). IPEC
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 transaction was accounted for as a purchase and,
accordingly, the accompanying condensed consolidated financial statements
include the results of Precision from the date of acquisition. The purchase
price has been allocated to the assets acquired and liabilities assumed, based
on their fair values as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchase price:
Cash $ 11,517,000
Notes payable 10,090,000
Costs of acquisition 725,000
------------
$ 22,332,000
============
Assets acquired and liabilities assumed:
Current assets $ 813,000
Equipment 7,690,000
Deferred taxes 298,000
Patents 4,224,000
Assembled workforce 1,822,000
Purchased in-process research and development 8,168,000
Current liabilities (683,000)
------------
Total $ 22,332,000
============
</TABLE>
9
<PAGE> 10
INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The purchased in-process research and development has been
expensed upon acquisition. A $9 million note payable to HDOS relating to the
acquisition bearing interest at the rate of 11% per annum was repaid on February
27, 1996. The Company also financed $10 million of the $11 million paid to HDOS
through borrowing from a stockholder, which was also repaid in April, 1996. See
"Bank Loan Agreement" below.
Pro forma:
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:
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1995 March 31, 1996
-------------- --------------
<S> <C> <C>
Revenues $32,878,000 $50,490,000
Net income $ 3,565,000 $ 2,606,000
Net income per common share $ .27 $ .17
Nine Months Ended
March 31, 1995 March 31, 1996
-------------- --------------
Revenues $ 71,882,000 $144,628,000
Net income $ 1,392,000 $ 9,721,000
Net income per common share $ .11 $ .59
</TABLE>
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Income (loss) per share of common stock:
Net income (loss) per share of common stock is based on the
weighted average number of common stock and common stock equivalent shares
outstanding and after giving effect to the cumulative dividends on preferred
stock. Anti-dilutive common stock equivalent shares are excluded from the
calculation. Fully diluted shares outstanding include the maximum dilutive
effect of stock issuable upon conversion of convertible preferred stock and
debentures. Conversion was not assumed for the three and nine month periods
ending March 31, 1995 and the nine month period ending March 31, 1996 due to the
anti-dilutive effect on the calculation of fully diluted earnings per share.
Fully diluted shares outstanding amounted to 16,103,629 for the three months
ended March 31, 1996, resulting in net income per share of $.17.
INVENTORY:
Inventories are summarized as follows:
<TABLE>
<CAPTION>
June 30, 1995 March 31, 1996
------------- --------------
(Unaudited)
<S> <C> <C>
Raw Materials $15,807,000 $18,090,000
Work In Process 6,598,000 9,432,000
Finished Goods 477,000 869,000
----------- -----------
$22,882,000 $28,391,000
=========== ===========
</TABLE>
10
<PAGE> 11
INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
RELATED PARTY TRANSACTIONS:
During the nine months ended March 31, 1996, the Company had
purchases of approximately $7,880,000 from the business entities of a
stockholder and director of the Company.
During the nine months ended March 31, 1996, the Company sold
approximately $25,151,000 of products and services to a customer affiliated with
a director.
On December 29, 1995, the Company loaned $900,000 to the
Chairman of the Company. The loan bears interest at the prime rate and is due on
the earliest to occur of (i) 90 days after the Chairman's ability to sell
Company stock without restriction under Section 16 of the Securities Exchange
Act or a lockup agreement, (ii) immediately on voluntary termination of
employment, (iii) 90 days after involuntary termination of employment for
"cause," or (iv) immediately on the sale of a personal residence. The loan is
secured by all of the executive's options to purchase Company Common Stock and
shares of Common Stock.
PREFERRED STOCK:
During the nine months ended March 31, 1996, 21,478 shares of
B-3 Preferred Stock were released from escrow to the selling shareholders of
Westech Systems, Inc. ("Westech"), a company acquired in 1993, (including a
director) upon achievement of calendar 1995 revenue targets. The name Westech
has subsequently been changed to IPEC Planar Phoenix Inc.
BANK 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
and 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 payments of principal plus interest. The term loan and
revolving loan facility are secured by a blanket lien on the assets of the
Company and its subsidiaries.
The terms of the loan agreement include various covenants,
which, among others, limit the amount of dividends that can be paid to common
stockholders and acquisitions of treasury stock.
Proceeds from the bank loans were used to repay the $10
million term loan from a stockholder disclosed below and $6 million of notes
payable due in April, 1996 to a stockholder and a company affiliated with the
stockholder. Accordingly, the refinancing of the note payable to a stockholder
has been classified as long-term debt in the accompanying March 31, 1996
condensed consolidated balance sheets.
STOCKHOLDER LOAN AGREEMENT:
IPEC, Westech Systems, Inc. (now known as IPEC Planar Phoenix)
and an individual stockholder entered into a two-year $10 million revolving
credit facility in September, 1994. In December, 1995 in connection with the
IPEC Precision acquisition, this facility was converted to a term loan due on
September 30, 1997. The loan bears interest at a floating rate equal to the
prime rate in effect from time to time plus 2% and is secured by a first lien on
the assets of IPEC and Westech and a pledge of the stock of IPEC's subsidiaries.
The loan was repaid in full in April, 1996.
11
<PAGE> 12
INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
As consideration for making the loan available, IPEC and
Westech agreed to pay the stockholder administrative fees of $300,000 in the
aggregate ($100,000 of which has been paid and the balance of which is payable
by September 8, 1996). IPEC also issued to the stockholder three-year warrants
to purchase 50,000 shares of IPEC Common Stock at a purchase price of $10 per
share and a 10-year debenture in the principal amount of $500,000 bearing
interest at the prime rate. The debenture was converted into 50,000 shares of
IPEC Common Stock in the third quarter of fiscal 1996.
CONTINGENCIES AND COMMITMENTS:
Environmental study:
During 1993, a Phase I Environmental Study was completed on
real property that the Company uses for its operating and office facilities. The
report contained recommendations for Westech to complete a Phase II
investigation to test above environmental action levels. The Company is in the
process of receiving closure of the environmental study from the State of
Arizona, and has provided $25,000 for the estimated costs in connection with
this matter.
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.
12
<PAGE> 13
PART I -- FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 Form 10-K for the fiscal year ended June 30, 1995.
The Company consummated two significant acquisitions during its second quarter
of fiscal 1996, both of which were accounted for as purchases. On October 30,
1995, the Company acquired all of the stock of GAARD Automation, Inc., ("GAARD")
a manufacturer of advanced chemical mechanical planarization ("CMP") equipment,
for an aggregate of $30,900,000, consisting of $12 million in cash, a $13
million note secured by a standby letter of credit due in April, 1996, a $3.2
million note payable over three years and the Company's obligation to reimburse
sellers for tax obligations of approximately $2.7 million. On December 29, 1995,
the Company's newly formed subsidiary, IPEC Precision, Inc. ("IPEC Precision")
acquired the precision materials operations of Hughes Danbury Optical Systems
("HDOS") for an aggregate of $21.6 million, consisting of $11.5 million in cash,
a $9 million, 11% promissory note due on February 27, 1996 secured by the
outstanding IPEC Precision stock and fixed assets and a $1.1 million note for
specific inventory and equipment which is payable in equal installments on June
30, 1996 and September 30, 1996. The Company financed the cash used for the HDOS
acquisition with a $10 million term loan, which is described further in
"Liquidity and Capital Resources."
The Company has reorganized its business into three divisions. IPEC Planar, the
Company's CMP division, consists of the Company's IPEC Planar Phoenix Inc.
subsidiary, formerly named Westech Systems, Inc. subsidiary and its IPEC Planar
Portland subsidiary, formerly named GAARD; IPEC Clean consists of the subsidiary
previously named Athens Corp, and IPEC Precision consists of the Precision
Materials Operations acquired from HDOS.
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and 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 Affecting Operating
Results" below.
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<PAGE> 14
The following table represents the results of operations for the Company on a
percentage of revenues basis for the three and nine month periods ending March
31, 1995 and 1996.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
--------- ---------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 52.8% 58.1% 57.4% 59.2%
------- ------- ------- -------
Gross margin 47.2% 41.9% 42.6% 40.8%
------- ------- ------- -------
Expenses:
Research and development 9.4% 11.4% 8.5% 10.1%
Purchased research and development 0.0% 0.0% 15.7% 27.1%
Selling, general and administrative 24.4% 20.6% 25.4% 19.2%
------- ------- ------- -------
Total operating expense 33.8% 32.0% 49.6% 56.4%
------- ------- ------- -------
Operating income (loss) 13.4% 9.9% (7.0)% (15.6)%
Interest income 0.1% 0.8% 0.2% 1.2%
Interest expense (0.8)% (2.3)% (1.1)% (1.1)%
Debt discount and deferred financing fees (0.3)% 0.0% (0.3)% 0.0%
Other income 0.1% 0.4% 0.0% 0.2%
------- ------- ------- -------
Income (loss) before provision for income taxes 12.5% 8.8% (8.2)% 15.3%
Provision for income tax (expense) benefit (0.9)% 3.4% (0.5)% 6.0%
------- ------- ------- -------
Net income (loss) 11.6% 5.4% (8.7)% (9.3)%
Dividends on Preferred Stock (1.1)% (0.2)% (0.6)% (0.4)%
------- ------- ------- -------
Net income (loss) attributable to common
stockholders 10.5% 5.2% (9.3)% (9.7)%
======= ======= ======= =======
</TABLE>
QUARTER ENDED MARCH 31, 1996 COMPARED TO QUARTER ENDED MARCH 31, 1995
Revenues for the quarter ended March 31, 1996 were approximately $50.5 million
compared to approximately $24.5 million for the quarter ended March 31, 1995.
This increase is primarily attributable to the increased sales of chemical
mechanical planarization ("CMP") equipment by IPEC Planar, and increased
revenues from IPEC Clean. Due to rescheduling of CMP equipment shipments which
was announced in the third quarter of fiscal 1996, IPEC Planar revenues in the
fourth quarter are expected to be lower than in the third quarter, and overall
revenues may be flat when compared to the third quarter.
Cost of goods sold as a percentage of revenue was 58.1% in the quarter ending
March 31, 1996, compared to 52.8% for the third quarter of fiscal 1995. The
fiscal 1995 percentage reflects a restatement of cost of goods sold to research
and development and selling, general and administrative expenses in the quarter
ending March 31, 1995. The increase in cost of goods sold as a percentage of
revenue in the fiscal 1996 quarter was due to a greater level of international
sales. The company sells its products at a discount to international
distributors, which results in lower revenue and higher cost of goods sold as a
percentage of sales when compared to similar domestic sales, which are made
directly by the Company to the customer. Margins were also adversely impacted by
CMP sales to a major customer by IPEC Planar Portland which has relatively low
margins for sales. Although the Company has a margin improvement plan in place,
margins are affected by a number of factors, such as product mix, material costs
and the level of international sales. During the Company's planned transition to
direct field service, sales and distributor discounts are expected to negatively
impact gross margins. Due to these factors, there is no assurance that margins
will improve in the near future.
Research and development costs increased 151% in the March, 1996 quarter, from
$2.3 million in the third quarter of fiscal 1995 to $5.8 million in the third
quarter of fiscal 1996, primarily due to the development of new products and
processes and the acquisition of IPEC Planar Portland and IPEC Precision.
Research and development costs represented 11.4% of revenue in the third quarter
of fiscal 1996, compared to 9.4% of revenue in the prior-year period. Research
and development expenditures are expected to increase in the future on an
absolute dollar basis due to increases for research and development expected in
the fourth quarter for the IPEC Precision division, as well as increases in IPEC
Planar research and development expenditures due to the new Avanti 672 and 676
CMP machines.
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<PAGE> 15
Selling, general and administrative expenses increased to approximately $10.4
million in the third quarter of fiscal 1996, or 20.6% of revenues compared to
approximately $6.0 million, or 24.4% of revenues in fiscal 1995. The absolute
dollar increase is primarily due to the addition of personnel, sales
commissions, and depreciation and amortization of approximately $450,000 per
quarter resulting from recent acquisitions. The percentage may fluctuate in the
future depending upon the dollar amount of the Company's revenue levels.
Operating income in the fiscal 1996 third quarter totaled approximately $5.0
million, compared to approximately $3.3 million in the year-earlier quarter. The
dollar improvement in operating income in the fiscal 1996 period was primarily
due to the higher level of revenue, and the lower percentage of selling, general
and administrative expenses, compared to the fiscal 1995 period. However, as a
percentage of revenues, operating income in the third quarter of fiscal 1996 was
9.9% compared to 13.4% in the fiscal 1995 period, principally due to lower gross
margin percentages, increased levels of research and development, and
depreciation and amortization of assets associated with the acquisition of IPEC
Precision in the 1996 period.
Interest expense increased in the third quarter, to $1.1 million from $205,000,
as a result of interest payable on $16.2 million of deferred purchase price for
the IPEC Planar Portland acquisition, long term debt of $16 million related to
the acquisition of IPEC Precision, and a higher level of short-term borrowings.
Interest income was higher, at $401,000 versus $22,000 in the year-earlier
quarter, due to higher levels of interest-bearing cash, restricted cash and
investment accounts. In April, 1996 the Company entered into a loan agreement
with a bank which is more fully described in the "Bank Loan Agreement" note in
Notes to Condensed Consolidated Financial Statements. Proceeds from the loan
were used to repay debt and notes payable with higher interest rates.
Additionally, a $13 million note payable relating to the acquisition of GAARD
was paid in April, 1996 by using $13 million of restricted cash.
Net income for the third quarter of fiscal 1996 totaled approximately $2.7
million, or 5.4% of net sales, compared to net income of approximately $2.8
million, or 11.6% of sales, in fiscal 1995. Net margins in the 1996 fiscal
quarter were adversely impacted by the higher level of interest paid in the
period, lower operating income as a percent of revenues and because the
Company's earnings are fully taxed in fiscal 1996. The Company fully utilized
its net operating loss carry-forwards during fiscal 1995, and is therefore taxed
at an effective tax rate of 39% in the third quarter of fiscal 1996, versus
minimal taxes in fiscal 1995.
The holders of the Series B Preferred Stock are entitled to an annual cumulative
dividend of $5.59 per share payable occurring from September 3, 1993, payable on
each December 31 and June 30, beginning on June 30, 1994, June 30, 1995 and June
30, 1996 for the Series B-1, B-2 and B-3 Preferred, respectively. Dividends are
estimated to total $90,000 per quarter in the future until such time as the
shares are converted to common stock.
Net income attributable to common stock was $2.6 million or $.17 per share on
15,375,568 primary weighted average common shares and common share equivalents
outstanding for the quarter ended March 31, 1996. Net income for the comparable
prior-year period was $2.6 million or $.19 per share on 13,392,045 weighted
average shares outstanding. The increase in the weighted average number of
common shares and common share equivalents outstanding is due to new option
grants, the release of preferred stock from escrow, the Class B Warrant call in
May 1995 and the issuance of common shares in August 1995 in connection with the
acquisition of IPEC Clean.
NINE MONTHS ENDED MARCH 31, 1996 COMPARED TO NINE MONTHS ENDED MARCH 31, 1995
Revenues for the nine months ended March 31, 1996 were approximately $136.5
million compared to approximately $53.9 million for the nine months ended March
31, 1995. This increase is primarily attributable to the increased sales of CMP
equipment by IPEC Planar and increased revenues from IPEC Clean.
Cost of goods sold as a percentage of revenue was 59.2% in the nine month period
ending March 31, 1996, compared to 57.4% for the same period in fiscal 1995. The
fiscal 1995 percentage reflects a restatement of cost of goods sold to research
and development and selling, general and administrative expenses. The increase
in cost of goods sold was higher as a percentage of revenue in the 1996 period,
due to the increased level of international sales in the fiscal 1996 period.
During the nine months in fiscal 1996, IPEC Planar Portland had relatively low
margins for sales to a major customer, and IPEC Clean had increased
installation/warranty costs for certain bulk chemical delivery systems.
Research and development costs increased 203% in the first nine months of fiscal
1996, from $4.6 million in the fiscal 1995 period to $13.8 million in the fiscal
1996 period, primarily due to the development of new products and processes and
the acquisition of IPEC Planar Portland and IPEC Precision. Research and
development represented 10.1% of revenue in fiscal
15
<PAGE> 16
1996, compared to 8.5% of revenue in the prior-year period. The Company incurred
a charge of $37 million for purchased research and development in the nine
months ended March 31, 1996 related to the acquisitions of IPEC Planar Portland
and IPEC Precision. Purchased research and development for the nine months ended
March 31, 1995 totaled $8.5 million and was attributable to the acquisition of
Athens .
Selling, general and administrative expenses increased to approximately $26.2
million in the first nine months of fiscal 1996, or 19.2% of revenue compared to
approximately $13.7 million, or 25.4% of revenues in fiscal 1995. The absolute
dollar increase is due to the addition of personnel, sales commissions, and
additional depreciation and amortization of approximately $450,000 per quarter
resulting from recent acquisitions.
The operating loss for the first nine months of fiscal 1996 totaled
approximately $21.3 million, compared to an operating loss of approximately $3.8
million in fiscal 1995. The increase in the fiscal 1996 loss was principally due
to the $37 million in charges for purchased research and development associated
with the acquisitions of IPEC Planar Portland and IPEC Precision, approximately
$800,000 of acquisition charges relating to IPEC Planar Portland, and the higher
levels of research and development and selling, general and administrative
expenses discussed above.
Interest expense for the nine months ended March 31, 1996 increased to $1.4
million from $598,000 as a result of higher average debt balance and interest
rates for the nine months compared to the prior year. Interest income was
higher, at $1.6 million versus $108,000 in the year-earlier period, due to
higher levels of interest-bearing cash, restricted cash and investment accounts.
As a result of the above factors, the loss before provision for income taxes was
approximately $20.8 million for the nine months ended March 31, 1996 compared to
a loss of approximately $4.4 million for the comparable prior year period. In
addition, the Company fully utilized its net operating loss carry-forwards
during fiscal 1995. The effective tax rate for fiscal 1996 is estimated to be
39%, versus minimal taxes in fiscal 1995.
The Company recorded dividends of $489,000 on Preferred Stock outstanding in the
first nine months of fiscal 1996 compared to dividends of $317,000 in the same
period in fiscal 1995. Dividends in fiscal 1996 were higher due to shares
released from escrow along with cumulative dividends triggered by the
achievement of revenue targets at IPEC Planar Phoenix.
The net loss attributable to common stock was $13.2 million or $.92 per share on
14,356,452 primary weighted average common shares outstanding for the nine
months ended March 31, 1996. The net loss in the comparable prior-year period
was $5 million or $.75 per share on 6,677,869 weighted average shares
outstanding. The increase in the weighted average number of common shares
outstanding is due to the Class B Warrant call effected in May 1995, shares
issued in connection with the acquisition of IPEC Clean.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, cash and cash investments decreased by approximately $38.5
million from the fiscal 1995 year end. The cash was used primarily for
acquisitions, discussed below, and the purchase of land, a structure and
construction of the Company's new headquarters and manufacturing facility in
Phoenix, Arizona.
The Company's principal sources of liquidity included cash, cash equivalents,
and short-term investments of $27.5 million at March 31, 1996. Of this amount,
$13 million was restricted cash, which secured a letter of credit supporting the
Company's obligation to pay the balance of the IPEC Planar Portland acquisition
price, which obligation has since been repaid. As a result, the Company's liquid
assets at March 31, 1996 were $14.5 million.
In connection with the IPEC Planar Portland acquisition, the Company also
provided an unsecured $3.2 million note payable over 36 months, and committed to
pay $2.7 million for the seller's tax costs in the acquisition, of which $2
million was paid in January 1996 and the remainder will be due in fiscal 1997.
In connection with the IPEC Precision acquisition, the Company borrowed $10
million under a term loan agreement from a stockholder, payable in September
1997, and borrowed $9 million on a note due February 27, 1996, and borrowed an
estimated $1.1 million for specific inventory and equipment, payable in equal
installments of approximately $550,000 each on June 30, 1996 and September 30,
1996. On February 27, 1996 the $9 million note was paid with $3 million of cash
and $6 million in proceeds from sixty day notes payable to a stockholder and a
company affiliated with the same stockholder.
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<PAGE> 17
The Company entered into a loan agreement with a bank in April 1996. Under the
terms of the agreement, which are more fully described in the "Bank Loan
Agreement" note in Notes to Condensed Consolidated Financial Statements, the
Company received a $10 million term loan and a $30 million revolving loan
facility to provide working capital and for general corporate purposes. Proceeds
were utilized to pay the $10 million term loan and the $6 million notes payable
in April, 1996, described above in connection with the IPEC Precision
acquisition.
At April 30, 1996, cash and cash equivalents were in excess of $10 million.
Additionally, under the terms of the loan agreement, it is estimated that an
additional $10 million is available based on eligible accounts receivable which
can be used to collateralize such borrowings.
FACTORS AFFECTING OPERATING RESULTS
Future Capital Needs. Rapidly growing companies, including CMP systems suppliers
such as IPEC, have substantial ongoing capital requirements. In order to remain
competitive, the Company must continue to make significant investments in
capital equipment and expansion of facilities, as well as research and
development. The Company believes that existing sources of liquidity and
anticipated funds from operations will satisfy the Company's projected capital
requirements through fiscal 1996. However, it may become necessary for the
Company to seek additional equity or debt financing to fund anticipated or
additional expansion. The timing or amount of such capital requirements cannot
be precisely determined and will depend on a number of factors, including demand
for the Company's products, product mix, changes in the semiconductor industry
conditions and competitive factors. There can be no assurance that such
additional financing will be available when needed or if available, will be on
satisfactory terms. The failure to obtain financing could hinder the Company's
ability to make continued capital investments, which could materially adversely
affect the Company's results of operations.
Fluctuations in Operating Results. The Company's operating results are subject
to quarterly fluctuations due to a variety of factors, including acceptance of
the Company's products; the gain or loss of significant customers; competitive
pressures; production capacity; availability and costs of components from the
Company's suppliers; the timing and accounting treatment of product
announcements and introductions by the Company, its customers or its
competitors; the timing and structure of acquisitions; changes in the mix of
products sold; the level of international sales, which have lower margins than
domestic sales; industry-wide changes in the demand for semiconductors or for
semiconductor production equipment; research and development expenses associated
with new product introductions; market acceptance of new or enhanced versions of
the Company's and its customers' products; and the timing of significant
shipments. For example, the Company's results of operations for the fiscal
quarter ended March 31, 1994 were adversely impacted as a result of a delay in
product shipments caused by the engineering redesign of its 372M CMP product. In
the second quarter of fiscal 1995, the Company had a loss due to the
nonrecurring charges associated with the Athens acquisition. In the second
quarter of fiscal 1996, the Company had a loss due to nonrecurring charges
associated with the IPEC Planar Portland and IPEC Precision acquisitions. 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.
The Company derives most of its revenues from the sale of products in a price
range from $100,000 to $1,300,000 per unit, and a clustered system of its
products can be priced as high as $2,000,000. As a result, the timing of
individual shipments can have a significant impact on the Company's results of
operations for a particular period. A major customer has requested deferred
shipment of CMP products manufactured by IPEC Planar, which are expected to
cause IPEC Planar revenues to be lower and overall Company revenues to be flat
in the fourth quarter of fiscal 1996 compared to the third quarter of fiscal
1996. IPEC Clean does not have significant backlog, and bookings in any quarter
may vary. Significant shipments by IPEC Precision are not expected before the
first 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 adjust
spending quickly enough to compensate for any revenue shortfall would magnify
the adverse impact of the revenue shortfall on the Company's results of
operations. Results of operations in any period should not be considered
indicative of the results to be expected for future periods. There can be no
assurance that the Company will be profitable in any future period. 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 revenues. In fiscal
1994, Intel and IBM represented 17% and 45%, respectively, of the Company's
revenues. In fiscal 1995, Intel, IBM and Motorola represented 18%, 20% and 14 %,
respectively, of the Company's revenues. The Company's future success depends in
part upon its ability to obtain orders from new customers, as well as the
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<PAGE> 18
financial condition of its customers and the general economy. Sales of certain
of the Company's products generally depend on its customers' 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. A major customer has delayed shipments to it of the
Company's CMP products, as discussed above in "Fluctuations in Operating
Results." The Company has announced a multi-year agreement with a major
customer. This agreement provides only for pricing and other terms of sale and
does not obligate the customer to order product on a specific schedule or at
all. The Company's projections assume certain orders by the customer, which, if
delayed, would adversely affect the Company. 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.
History of Losses. Prior to the Company's acquisition of IPEC Planar Phoenix in
September 1993, the Company did not have significant revenues. The Company had a
net loss in fiscal 1994 and will have a net loss in the year ended June 30,
1996. For the year ended June 30, 1995, the Company had a net income of $599,000
on revenues of $88.4 million. At March 31, 1996 the Company had an accumulated
deficit of $25.6 million. Operating results for future periods are subject to
numerous uncertainties, and there can be no assurance that the Company will be
profitable in 1997 or sustain profitability on a quarterly basis.
Recent Acquisitions. The growth in the Company's revenues is attributable to the
acquisition of IPEC Planar Phoenix during fiscal 1994 and its subsequent growth
in fiscal 1995 and the acquisition of IPEC Clean during fiscal 1995 as well as
growth in IPEC Planar Phoenix's business during fiscal 1995 and 1996. The
Company acquired both IPEC Planar Portland and IPEC Precision in the second
fiscal quarter of 1996. IPEC Planar Phoenix's earnings fluctuated substantially
prior to its acquisition by the Company, and IPEC Clean was not profitable for
any fiscal year prior to its acquisition by the Company. IPEC Clean was
unprofitable for the portion of fiscal year 1995 that is included in the
Company's results of operations. While IPEC Clean's operating margins continue
to improve, there can be no assurances that it will operate profitably in the
future. IPEC Precision has not operated profitably prior to its acquisition by
the Company or in the third quarter of fiscal 1996, and there can be no
assurances that IPEC Precision will operate profitably in the future.
Each of these acquisitions represented the addition of new products to the
Company, which has caused changes in the allocation of management resources,
marketing strategies and production systems. The Company's expansion through
acquisitions has resulted in significantly higher operating expenses,
particularly because the Company's strategy has been to operate each acquired
business independently, resulting in separate marketing, customer support and
administrative functions. The Company's ability to manage its acquired
businesses effectively will depend on its ability to hire additional management
and technical personnel and to continue to improve the operating, financial and
management systems and controls in each of its operating units. There can be no
assurance that the Company will be able to continue to improve the revenues or
operating results of these acquired businesses or other companies which the
Company may acquire in the future.
The costs associated with the IPEC Planar Portland and IPEC Precision
acquisitions in the second quarter of fiscal 1996 are expected to increase
interest expense for the remainder of fiscal 1996, as well as to increase
research and development and selling general and administrative expenses by
significant amounts.
Future Acquisitions. 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. Identifying and negotiating these acquisitions may divert
substantial management time. An acquisition could absorb substantial cash
resources, could require the Company to incur or assume debt obligations, or
could involve the issuance of additional Common Stock. The issuance of
additional equity securities could dilute the Company's outstanding Common
Stock. An acquisition which is accounted for as a purchase, like the
acquisitions of IPEC Planar Phoenix and Portland, IPEC Clean, or IPEC Precision
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. Acquisitions outside the CMP area may be viewed by
outside market analysts as a diversion of the Company's focus on CMP. For these
and other reasons, the market for the Company's stock may react positively or
negatively to the announcement of any acquisition. An acquisition will continue
to require attention from the Company's management to integrate the acquired
entity into the Company's operations, may require the Company to develop
expertise in a semiconductor process equipment field outside CMP or other
existing businesses and may result in departures of management of the acquired
entity. An acquired entity may have unknown liabilities, and its business may
not achieve the results anticipated at the time of the acquisition. Any
acquisitions that adversely affect the operations of the Company may have an
adverse impact on the Company's stock price.
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<PAGE> 19
Management of Growth. The recent growth of the Company's sales and expansion in
the scope of its operations has placed pressure on its management resources and
financial controls and has required the Company to enhance its operating and
financial systems, procedures and controls. In this regard, in connection with
their audit of the Company's fiscal 1995 financial statements, the Company's
auditors noted that the Company had a number of reportable conditions, including
the inability to accumulate direct labor hours and monitor labor and overhead
standard rates, inadequate systems and procedures for recording and valuing
intercompany transfers of inventory, and improper accounts payable verification
and payment procedures. Corrective actions have been implemented in fiscal 1996.
While the Company continues to devote resources to the improvement of its
systems, the Company must hire additional accounting and management information
systems personnel, and must train existing and additional personnel, to
implement these system and procedural improvements. In the past, the Company's
production operations also have experienced difficulties in shipping products to
customers at the scheduled shipping date. When the Company acquired IPEC Planar
Phoenix, its products had a reputation for late delivery and insufficient
reliability. While the Company has applied resources to resolve these production
issues, the Company must continue to actively manage its manufacturing
operations to produce sufficient high quality products in a timely manner to
meet demand. There can be no assurance that the Company can successfully add
such personnel in a timely fashion, that any existing or new systems, procedures
or controls will be adequate to support the Company's administrative or
production operations, that these systems will be implemented in a cost
effective and timely manner or that, if customer demand increases, the Company
will be able to efficiently manufacture increasing amounts of its products. Any
such failure to manage growth could have a material adverse effect on 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 revenues 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 the
Company's systems and products would have a material adverse effect on the
Company's business, financial condition and results of operations.
Product Concentration; Dependence on New Products and Technologies. In fiscal
1995, the Company derived approximately 69% of its revenue from its 472 and 372M
planarization systems and 7% of its revenue from its chemical reprocessors and
7% from its clustered CMP polisher/cleaner systems. A decline in sales of any of
these products would adversely affect the Company if the Company has not created
other products which at that time are producing significant revenues.
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, reliability, space occupied in the
fabrication facility 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 timely completion
and market acceptance of the Company's Avanti 672, which is designed to
integrate CMP processing and wafer cleaning in a single piece of equipment.
Additionally, the Company's future results may be dependent on the market
acceptance of the Company's Avanti 676, which is designed to be a
high-throughput metal CMP tool. Semiconductor equipment companies often
experience delays in completing advanced products, particularly those which
integrate functions previously performed by separate equipment in the wafer
fabrication facility, and the Company cannot assure that the Avanti 672 or 676
will be completed as scheduled. In addition, the Company cannot assure that
semiconductor manufacturers will purchase the Avanti 672 or 676, or any other
product developed by the Company. To the extent products developed by the
Company are based upon anticipated changes in semiconductor production
technologies, sales for such products may be adversely
19
<PAGE> 20
affected if other technology becomes accepted in the industry. If the Company
does not successfully introduce new products or enhanced versions of its current
products in a timely manner, the Company's sales would decline. There can be no
assurance that the Company will be able to develop and introduce enhanced or new
products that satisfy customer needs and achieve market acceptance.
The Company's strategy is to develop and acquire technologies ancillary to the
processes of wafer deposition, photolithography and etch. The Company may not be
able to identify and complete such acquisitions. In addition to the risks
associated with acquiring such technologies, described above, there can be no
assurance that disparate technologies, and equipment designed to accomplish
independently different steps in wafer processing, can be integrated efficiently
or at all. The effort to integrate such technologies will absorb substantial
technological, financial and managerial resources, which could adversely affect
the Company's business, financial condition and results of operations.
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 historically has experienced periods of oversupply,
resulting in significantly reduced demand for capital equipment. Although the
semiconductor industry has experienced significant growth in recent years, which
has resulted in growth in the semiconductor capital equipment industry. 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.
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. In addition, Applied Materials, Inc., the largest
U.S. semiconductor equipment manufacturer, plans to offer a CMP system which
will compete directly with the Company's CMP product offerings. 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 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. Applied
Materials, Inc. and other 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% of the
Company's revenues in fiscal 1995. 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 revenues in future periods, and
international sales at IPEC Planar in the fourth quarter of fiscal 1996 are
expected to be at levels consistent with the third quarter of fiscal 1996.
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, 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
20
<PAGE> 21
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.
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 1996 and 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 payment
obligations aggregating $1.4 million. 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
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, even after a patent issues, 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. The Company has filed an opposition to a Japanese patent application
relating to a process of performing CMP. The third party's patent application
does not contain claims relating to the Company's CMP system or apparatus. The
Japanese patent office may grant the patent notwithstanding the Company's
opposition, or may limit the scope of a patent it will grant. If the patent were
granted which covered a CMP process for which the Company's products can be
used, the Company would seek a license for the benefit of its customers in
Japan. There can be no assurance as to any action which may be taken by the
Japanese patent office or the availability of any required license.
In the future the Company may receive notice of claims of infringement of other
parties' proprietary rights, and there can be no assurance that infringement or
invalidity claims (or claims for indemnification resulting from infringement
claims against third parties, such as customers) 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.
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.
21
<PAGE> 22
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
(a) An amendment of the Certificate of Incorporation to increase
the number of authorized shares of common stock from
30,000,000 shares to 50,000,000 shares was approved by
stockholders in the annual meeting on January 18, 1996. A
Certificate of Amendment was filed with the State of Delaware
on January 31, 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) An annual meeting of stockholders of the Company was held on
January 18, 1996.
(b) The name of each director elected at the meeting is as
follows: Sanjeev R. Chitre, Harold C. Baldauf, Roger D.
Emerick, William J. Freschi, Kenneth Levy, and Michael R.
Splinter.
(c) The matters voted upon and the results of the voting were as
follows.
(1) The following six persons were elected as Directors
at the annual meeting pursuant to the following vote:
<TABLE>
<CAPTION>
Votes For Votes Against Votes Withheld
--------- ----------------------------
<S> <C> <C> <C>
Sanjeev R. Chitre 13,816,452 77,187 1,025,956
Harold C. Baldauf 13,650,539 243,100 1,025,956
Roger D. Emerick 13,818,452 75,187 1,025,956
William J. Freschi 13,818,452 75,187 1,025,956
Kenneth Levy 13,818,452 75,187 1,025,956
Michael R. Splinter 13,817,452 76,187 1,025,956
(2) The amendments of the 1992 Stock Option Plan were
approved at the annual meeting pursuant to the
following vote:
Votes For: 5,604,520
Votes Against: 3,629,486
Votes Abstaining: 90,786
Broker Non-Votes: 5,594,803
(3) The amendments of the Company's Certificate of
Incorporation were approved at the annual meeting
pursuant to the following vote:
Votes For: 12,509,403
Votes Against: 1,200,790
Votes Abstaining: 76,246
Broker Non-Votes: 1,133,156
(4) The agreement by which the Company indemnifies its
officers and directors was approved at the annual
meeting pursuant to the following vote:
Votes For: 12,954,618
Votes Against: 655,829
Votes Abstaining: 125,992
Broker Non-Votes: 1,183,156
</TABLE>
23
<PAGE> 23
(5) The appointment of Richard A. Eisner & Company, LLP
at the independent auditors of the Company was
ratified at the annual meeting pursuant to the
following vote:
<TABLE>
<S> <C>
Votes For: 13,420,200
Votes Against: 322,993
Votes Abstaining: 100,446
Broker Non-Votes: 1,075,956
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3(i).1 Certificate of Amendment of the Certificate of
Incorporation of Integrated Process Equipment Corp.,
filed with the State of Delaware on January 31, 1996.
10.1 Promissory note from IPEC to Fred Kassner, dated
February 27, 1996.
10.2 Promissory note from IPEC to Liberty Travel, Inc.,
dated February 27, 1996.
11 Statement re: computation of per share earnings.
27 Financial Data Schedule
(b) Reports on Form 8-K:
A report on Form 8-K was filed on November 14, 1995 for the
reporting date October 30, 1995 reporting (under Item 2) with
respect to the acquisition of GAARD and related financial
statements, and amended on Form 8-K/A on January 11, 1996,
January 17, 1996 and February 15, 1996, respectively.
A report on Form 8-K was filed on January 13, 1996 reporting
(under Item 2) with respect to the acquisition of assets from
HDOS and related financial statements, and amended on Form
8-K/A on March 11, 1996.
A report on Form 8-K was filed on April 2, 1996 reporting
(Under Item 4) a change in IPEC's certifying accountant, and
amended on Form 8-K/A on April 4, 1996.
24
<PAGE> 24
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: May 13, 1996 INTEGRATED PROCESS EQUIPMENT CORP.
AND SUBSIDIARIES
By: /s/ John S. Hodgson
-----------------------------
John S. Hodgson
Vice President
and Chief Financial Officer
22
<PAGE> 1
EXHIBIT 3(i)1
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "INTEGRATED PROCESS EQUIPMENT CORP.", FILED IN THIS OFFICE ON THE
THIRTY-FIRST DAY OF JANUARY, A.D. 1996, AT 3 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
[SECRETARY'S OFFICE OF DELAWARE SEAL]
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
2281778 8100 AUTHENTICATION: 7811602
960030164 DATE: 01-31-96
<PAGE> 2
CERTIFICATE OF AMENDMENT OF
THE CERTIFICATE OF INCORPORATION
OF INTEGRATED PROCESS EQUIPMENT CORP.
INTEGRATED PROCESS EQUIPMENT CORP., a corporation organized and
existing under the laws of the State of Delaware (the "Corporation"), pursuant
to the provisions of the General Corporation Law of the State of Delaware (the
"GCL"), DOES HEREBY CERTIFY:
FIRST: The Certificate of Incorporation of the Corporation is hereby amended by
deleting the first paragraph of Article Fourth of the Certificate of
Incorporation in its present form and substituting, therefore, a new first
paragraph of Article Fourth in the following form:
"ARTICLE FOURTH: The total number of shares of all classes of capital
stock which the Corporation shall have authority to issue is Fifty Five
Million Five Hundred Thousand (55,500,000) shares, consisting of Fifty
Million (50,000,000) shares of Common Stock, par value $0.01 per share
(the "Common Stock"), Three Million Five Hundred Thousand (3,500,000)
shares of Class A Common Stock, par value $0.01 per share (the "Class A
Common Stock"), and Two Million (2,000,000) shares of Preferred Stock,
par value $0.01 per share (the "Preferred Stock")."
SECOND: The amendment to the Certificate of Incorporation of the Corporation
set forth in this Certificate of Amendment has been duly adopted in accordance
with the provisions of Section 242(b)(1) of the GCL, the Board of Directors of
the Corporation having duly adopted the resolution setting forth such amendment
and declaring its advisability and submitting it to the stockholders of the
Corporation for their approval.
THIRD: The amendment to the Certificate of Incorporation of the Corporation set
forth in this Certificate of Amendment has been duly adopted in accordance with
the provisions of Section 242(b)(2) of the GCL, the stockholders of the
Corporation having duly adopted such amendment by a vote of the holders of a
majority of the outstanding stock entitled to vote thereon.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
hereunto affixed and this Certificate of Amendment to be signed by Sanjeev R.
Chitre, its Chairman of the Board and attested by John S. Hodgson, its
Secretary, this 30th day of January, 1996.
INTEGRATED PROCESS EQUIPMENT CORP.
By: /s/ Sanjeev R. Chitre
------------------------------
Sanjeev R. Chitre,
Chairman of the Board
ATTEST:
/s/ John S. Hodgson
- - --------------------------
John S. Hodgson, Secretary
<PAGE> 1
EXHIBIT 10.1
$3,000,000 As of February 27, 1996
INTEGRATED PROCESS EQUIPMENT CORP.
18% PROMISSORY NOTE
DUE APRIL 29, 1996
Integrated Process Equipment Corp., a Delaware corporation (hereinafter
call the "Company"), for value received, hereby promises to pay to FRED
KASSNER, an individual with an address at 69 Spring Street, Ramsey, New Jersey
07446 (the "Holder"), the principal sum of Three Million Dollars ($3,000,000)
on April 29, 1996 (the "Maturity Date"), together with interest on said
principal sum at the rate of 18% per annum (calculated as hereinafter
provided), from and including the date hereof, until payment of said principal
sum has been made. All cash payments hereunder shall be made in such coin or
currency of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts and shall be made at
69 Spring Street, Ramsey, New Jersey, or such other location as the Holder
shall designate from time to time in writing. Upon the occurrence and during
the continuance of an Event of Default, (as hereinafter defined), all amounts
outstanding under this Note (including past due interest, if any) shall bear
interest at the rate of 22% per annum.
In case an Event of Default (as hereinafter defined) shall have
occurred and be continuing, the principal hereof may be declared, and upon such
declaration shall become, due and payable in the manner, with the effect and
subject to the conditions provided in this Note.
The Company may prepay this Note, in whole but not in part, upon 10
days written notice to the Holder in cash at any time prior to April 29, 1996,
without premium or penalty. Any such prepayment shall include unpaid interest
accrued to the date of prepayment.
This Note is issued subject to, and shall be governed by, the following
terms and conditions:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
1.1 Definitions. For all purposes of this Note, except as otherwise
expressly provided or unless the context otherwise requires:
<PAGE> 2
(1) all references in this instrument to designated "Articles",
"Sections" and other subdivisions are to the designated Articles, Sections and
other subdivisions of this instrument. The words "herein", "hereof" and
"hereunder" and other words of similar import refer to this Note as a whole and
not to any particular Article, Section or other subdivision; and
(2) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular.
"Board of Directors" means the Board of Directors or the Executive
Committee or any other committee thereof duly authorized to act hereunder of
the Company.
"Business Day" means any day of the week other than Saturday, Sunday or
a day which shall be in The City of New York a legal holiday or a day on which
banking institutions are authorized by law to close.
"Dollars" and the symbol "$" means United States dollars.
"Event of Default" has the meaning specified in Section 3.1.
1.2 Headings. The Article and Section headings herein are for
convenience only and shall not affect the construction hereof.
1.3 Successors and Assigns. All covenants and agreements in this
Note by the Company shall bind its successors and assigns, whether so expressed
or not.
1.4 Severability. In case any provision in this Note shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
1.5 No Third-Party Benefits. Nothing express or implied in this
Note shall give to any person, other than the Company, the Holder and their
successors hereunder any benefit or any legal or equitable right, remedy or
claim under this Note.
1.6 Notice. Any notice or demand which by any provision of this
Note is required or permitted to be given or served by the Holder to or on the
Company may be given or served by being deposited postage prepaid in a post
office letter box addressed as follows:
Integrated Process Equipment Corp.
911 Bern Court
Suite 110
San Jose, California 95112
-2-
<PAGE> 3
Telecopier No.: (602) 517-6012
Attention: Sanjeev R. Chitre
with copies to:
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
New York, New York 10112
Attention: Irwin M. Rosenthal, Esq.
1.7 Legal Holidays. In any case where a payment of principal of or
interest on this Note shall be due on a date which is not a Business Day at the
place of payment, then payment of the principal of, or interest on, this Note
need not be made on such date but may be made on the next succeeding Business
Day at the place of payment or conversion, with the same force and effect as if
made on the due date thereof, and no interest shall accrue for the period from
and after such date.
1.8 Interest Basis. Interest on this Note shall be computed on the
basis of a 360-day year for actual days elapsed.
1.9 Governing Law. This Note shall be deemed to be a contract made
under the laws of the State of New York, and all rights and obligations
hereunder and thereunder shall for all purposes be governed by the laws of said
State.
ARTICLE II
COVENANTS
2.1 Payment of Principal and Interest. The Company will duly and
punctually pay the principal of and interest on this Note in accordance with
the terms of this Note.
2.2 Use of Proceeds. The Company will use the proceeds of the sale of
this Note to (a) satisfy its obligations to Hughes Danbury Optical Systems,
Inc. ("HDOS") arising out of that certain Asset Purchase Agreement, dated
December 28, 1995, between the Company and HDOS and (b) working capital and
other general purposes of the Company including, without limitation, the
payment of interest, fees and expenses relating to the negotiation, execution
and delivery of, and performance under, this Note (and any notes of like tenor
issued concurrently herewith).
ARTICLE III
REMEDIES
3.1 Events of Default. "Event of Default", wherever used herein,
means any one of the following events (whatever the reason for such Event of
Default and whether it shall be voluntary or involuntary or be effected by
operation of law
-3-
<PAGE> 4
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(1) default in the payment of the principal of, or interest on this
Note as and when the same shall become due and payable at maturity, by
declaration or otherwise; or
(2) default in the performance, or breach, of any covenant or warranty
of the Company in this Note (other than a covenant or warranty a default in
whose performance or whose breach is elsewhere in this Section specifically
dealt with), and continuance of such default or breach for a period of 30 days
after there has been given, by registered or certified mail, to the Company by
the Holder, a written notice specifying such default or breach and requiring it
to be remedied and stating that such notice is a "Notice of Default" hereunder;
or
(3) default in the performance, or breach, of any covenant or warranty
of the Company in any note of like tenor issued concurrently herewith or that
certain Loan Agreement, dated as of September 9, 1994, as amended (the "Loan
Agreement"), between Fred Kassner and the Company or in any agreement or other
instrument securing the payment of the sums due under or pursuant to the Loan
Agreement; or
(4) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Company bankrupt or insolvent, or approving as
properly filed a petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company under the Title 11 of the United
States Code or any other applicable federal or State law, or appointing a
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Company or of any substantial part of its property, or ordering
the winding-up or liquidation of its affairs, and the continuance of any such
decree or order unstayed and in effect for a period of 30 consecutive days; or
(5) the institution by the Company of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by the Company to the institution of
bankruptcy or insolvency proceedings against it, or the filing by the Company
of a petition or answer or consent seeking reorganization or relief under the
Title 11 of the United States Code or any other applicable federal or State
law, or the consent by the Company to the filing of any such petition or to the
appointment of a receiver, liquidator, assignee, trustee sequestrator (or other
similar official) of the Company or of any substantial part of its property, or
the making by the Company of an assignment for the benefit of creditors, or
the admission by the Company in writing of its inability to pay its debts
generally as they become due, or the taking of corporate action by the Company
in furtherance of any such action.
-4-
<PAGE> 5
3.2 Acceleration of Maturity; Rescission and Annulment. If an Event
of Default occurs and is continuing, then and in every such case the Holder may
declare the principal of this Note to be immediately due and payable, by a
notice in writing to the Company and upon any such declaration such principal
shall become come immediately due and payable.
3.3 Application of Money Collected. Any money collected by the Holder
pursuant to this Article III shall be applied in the following order:
FIRST: To the payment of all costs and expenses (including reasonable
attorneys' fees and costs) incurred by the Holder in connection with such
collection;
SECOND: In case the principal of this Note shall have become due, by
declaration as authorized by this Article III or otherwise, to the payment of
the whole amount then owing and unpaid upon this Note for principal and
interest, with interest on the overdue principal at the rate per annum
expressed in this Note; and
FOURTH: To the payment of the remainder, if any, to the Company, its
successors or assigns, or to whosever may be lawfully entitled to receive the
same, or as a court of competent jurisdiction may direct.
3.4 Rights and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Holder is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the extent
permitted by law, be cumulative and in addition to every other right and remedy
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, (or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy.
3.5 Delay or Omission Not Waiver. No delay or omission of the Holder
to exercise any right or remedy accruing upon any Event of Default shall
impair any such right or remedy or constitute a waiver of any such Event of
Default or an acquiescence therein. Every right and remedy given by this
Article or by law to the Holder may be exercised from time to time, and as
often as may be deemed expedient, by the Holder.
3.6 Ranking and Security. This Note is intended to rank pari passu
with the obligations of the Company arising under or pursuant to the Loan
Agreement and is secured by the security agreements and other instruments
securing the payment and performance of such obligations. The Company covenants
and agrees that it will, as promptly as practicable, take such actions as may
be reasonably necessary to perfect the security interests securing the payment
of this Note.
-5-
<PAGE> 6
ARTICLE IV
CONSOLIDATION, MERGER, CONVEYANCE OR TRANSFER
4.1 Company May Consolidate, etc., Only on Certain Terms. The
Company shall not consolidate with or merge into any other corporation or
convey or transfer its properties and assets substantially as an entirety to
any person, unless
(1) the corporation formed by such consolidation or into which the
Company is merged or the person which acquires by conveyance or transfer the
properties and assets of the Company substantially as an entirety shall
expressly assume, by a supplement, in form and substance reasonably
satisfactory to the Holder, the due and punctual payment of the principal of
and interest on all this Note and the performance of every covenant of this
Note on the part of the Company to be performed or observed;
(2) immediately after giving effect to such transaction, no Event of
Default, and no event which, after notice or lapse of time, or both, would
become an Event of Default, shall have happened and be continuing.
4.2 Successor Corporation Substituted. Upon any consolidation or
merger, or any conveyance or transfer of the properties and assets of the
Company substantially as an entirety, the successor corporation formed by such
consolidation or into which the Company is merged or to which such conveyance
or transfer is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under this Note with the same effect as
if such successor corporation had been named as the Company herein and
therein. In the event of any conveyance or transfer referred to in the first
sentence of this Section 4.2, other than by way of lease, the Company as the
predecessor corporation may be dissolved, wound up and liquidated at any time
thereafter.
ARTICLE V
IMMUNITY OF INCORPORATORS, STOCKHOLDERS;
OFFICERS AND DIRECTORS
5.1 Exemption from Individual Liability. No recourse under or upon any
obligation, covenant or agreement of this Note, or for any claim based hereon
or otherwise in respect hereof, shall be had against any incorporator,
stockholder, officer or director, as such, past, present or future, of the
Company or of any successor corporation, either directly or through the
Company, whether by virtue of any constitution, statute or rule of law, or by
the enforcement of any assessment or penalty or otherwise; it being expressly
understood that this Note and the obligations issued hereunder are solely
corporate obligations of the Company and that no personal liability whatever
shall attach to, or is or shall be incurred by, the incorporators,
-6-
<PAGE> 7
stockholder, officers or directors, as such, of the Company or of any successor
corporation, or any of them, because of the creation of the indebtedness hereby
authorized, or under or by reason of the obligations, covenants or agreements
contained in this Note or implied therefrom; and that any and all such personal
liability, either at common law or in equity or by constitution or statute,
of, and any and all such rights and claims against, every such incorporator,
stockholder, officer or director, as such, because of the creation of the
indebtedness hereby authorized, or under or by reason of the obligations,
covenants or agreements contained in this Note or implied therefrom, are hereby
expressly waived and released as a condition of, and as a consideration for,
the execution of this Note.
IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed on the date first above written.
INTEGRATED PROCESS EQUIPMENT CORP.
By: John S. Vodgsan
------------------------------
Title: V.P. & C.F.O.
<PAGE> 1
Exhibit 10.2
$3,000,000 As of February 27, 1996
INTEGRATED PROCESS EQUIPMENT CORP.
18% PROMISSORY NOTE
DUE APRIL 29, 1996
Integrated Process Equipment Corp., a Delaware corporation (hereinafter
called the "Company"), for value received, hereby promises to pay to LIBERTY
TRAVEL, INC., a corporation with an address at 69 Spring Street, Ramsey, New
Jersey 07446 (the "Holder"), the principal sum of Three Million Dollars
($3,000,000) on April 29, 1996 (the "Maturity Date"), together with interest on
said principal sum at the rate of 18% per annum (calculated as hereinafter
provided), from and including the date hereof, until payment of said principal
sum has been made. All cash payments hereunder shall be made in such coin or
currency of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts and shall be made at 69
Spring Street, Ramsey, New Jersey, or such other location as the Holder shall
designate from time to time in writing. Upon the occurrence and during the
continuance of an Event of Default, (as hereinafter defined), all amounts
outstanding under this Note (including past due interest, if any) shall bear
interest at the rate of 22% per annum.
In case an Event of Default (as hereinafter defined) shall have
occurred and be continuing, the principal hereof may be declared, and upon such
declaration shall become, due and payable in the manner, with the effect and
subject to the conditions provided in this Note.
The Company may prepay this Note, in whole but not in part, upon 10
days written notice to the Holder in cash at any time prior to April 29, 1996,
without premium or penalty. Any such prepayment shall include unpaid interest
accrued to the date of prepayment.
This Note is issued subject to, and shall be governed by, the following
terms and conditions:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
1.1 Definitions. For all purposes of this Note, except as otherwise
expressly provided or unless the context otherwise requires:
<PAGE> 2
(1) all references in this instrument to designated "Articles",
"Sections" and other subdivisions are to the designated Articles, Sections and
other subdivisions of this instrument. The words "herein", "hereof" and
"hereunder" and other words of similar import refer to this Note as a whole and
not to any particular Article, Section or other subdivision; and
(2) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular.
"Board of Directors" means the Board of Directors or the Executive
Committee or any other committee thereof duly authorized to act hereunder of the
Company.
"Business Day" means any day of the week other than Saturday, Sunday or
a day which shall be in The City of New York a legal holiday or a day on which
banking institutions are authorized by law to close.
"Dollars" and the symbol "$" means United States dollars.
"Event of Default" has the meaning specified in Section 3.1.
1.2 Headings. The Article and Section headings herein are for
convenience only and shall not affect the construction hereof.
1.3 Successors and Assigns. All covenants and agreements in this Note
by the Company shall bind its successors and assigns, whether so expressed or
not.
1.4 Severability. In case any provision in this Note shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
1.5 No Third-Party Benefits. Nothing express or implied in this Note
shall give to any person, other than the Company, the Holder and their
successors hereunder any benefit or any legal or equitable right, remedy or
claim under this Note.
1.6 Notice. Any notice or demand which by any provisions of this Note
is required or permitted to be given or served by the Holder to or on the
Company may be given or served by being deposited postage prepaid in a post
office letter box addressed as follows:
Integrated Process Equipment Corp.
911 Bern Court
Suite 110
San Jose, California 95112
-2-
<PAGE> 3
Telecopier No.: (602) 517-6012
Attention: Sanjeev R. Chitre
with copies to:
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
New York, New York 10112
Attention: Irwin M. Rosenthal, Esq.
1.7 Legal Holidays. In any case where a payment of principal of or
interest on this Note shall be due on a date which is not a Business Day at the
place of payment, then payment of the principal of, or interest on, this Note
need not be made on such date but may be made on the next succeeding Business
Day at the place of payment or conversion, with the same force and effect as if
made on the due date thereof, and no interest shall accrue for the period from
and after such date.
1.8 Interest Basis. Interest on this Note shall be computed on the
basis of a 360-day year for actual days elapsed.
1.9 Governing Law. This Note shall be deemed to be a contract made
under the laws of the State of New York, and all rights and obligations
hereunder and thereunder shall for all purposes be governed by the laws of said
State.
ARTICLE II
COVENANTS
2.1 Payment of Principal and Interest. The Company will duly and
punctually pay the principal of and interest on this Note in accordance with
the terms of this Note.
2.2 Use of Proceeds. The Company will use the proceeds of the sale of
this Note to (a) satisfy its obligations to Hughes Danbury Optical Systems,
Inc. ("HDOS") arising out of that certain Asset Purchase Agreement, dated
December 28, 1995, between the Company and HDOS and (b) working capital and
other general purposes of the Company including, without limitation, the
payment of interest, fees and expenses relating to the negotiation, execution
and delivery of, and performance under, this Note (and any notes of like tenor
issued concurrently herewith).
ARTICLE III
REMEDIES
3.1 Events of Default. "Event of Default", wherever used herein,
means any one of the following events (whatever the reason for such Event of
Default and whether it shall be voluntary or involuntary or be effected by
operation of law
-3-
<PAGE> 4
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(1) default in the payment of the principal of, or interest on this
Note as and when the same shall become due and payable at maturity, by
declaration or otherwise; or
(2) default in the performance, or breach, of any covenant or warranty
of the Company in this Note (other than a covenant or warranty a default in
whose performance or whose breach is elsewhere in this Section specifically
dealt with), and continuance of such default or breach for a period of 30 days
after there has been given, by registered or certified mail, to the Company by
the Holder, a written notice specifying such default or breach and requiring it
to be remedied and stating that such notice is a "Notice of Default" hereunder;
or
(3) default in the performance, or breach, of any covenant or warranty
of the Company in any note of like tenor issued concurrently herewith or that
certain Loan Agreement, dated as of September 9, 1994, as amended (the "Loan
Agreement"), between Fred Kassner and the Company or in any agreement or other
instrument securing the payment of the sums due under or pursuant to the Loan
Agreement; or
(4) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Company bankrupt or insolvent, or approving as
properly filed a petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company under the Title 11 of the United
States Code or any other applicable federal or State law, or appointing a
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Company or of any substantial part of its property, or
ordering the winding-up or liquidation of its affairs, and the continuance of
any such decree or order unstayed and in effect for a period of 30 consecutive
days; or
(5) the institution by the Company of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by the Company to the institution of
bankruptcy or insolvency proceedings against it, or the filing by the Company
of a petition or answer or consent seeking reorganization or relief under the
Title 11 of the United States Code or any other applicable federal or State
law, or the consent by the Company to the filing of any such petition or to the
appointment of a receiver, liquidator, assignee, trustee sequestrator (or other
similar official) of the Company or of any substantial part of its property, or
the making by the Company of an assignment for the benefit of creditors, or the
admission by the Company in writing of its inability to pay its debts generally
as they become due, or the taking of corporate action by the Company in
furtherance of any such action.
-4-
<PAGE> 5
3.2 Acceleration of Maturity; Rescission and Annulment. If an Event
of Default occurs and is continuing, then and in every such case the Holder may
declare the principal of this Note to be immediately due and payable, by a
notice in writing to the Company and upon any such declaration such principal
shall become come immediately due and payable.
3.3 Application of Money Collected. Any money collected by the Holder
pursuant to this Article III shall be applied in the following order:
FIRST: To the payment of all costs and expenses (including reasonable
attorneys' fees and costs) incurred by the Holder in connection with such
collection;
SECOND: In case the principal of this Note shall have become due, by
declaration as authorized by this Article III or otherwise, to the payment of
the whole amount then owing and unpaid upon this Note for principal and
interest, with interest on the overdue principal at the rate per annum
expressed in this Note; and
FOURTH: To the payment of the remainder, if any, to the Company, its
successors or assigns, or to whosoever may be lawfully entitled to receive the
same, or as a court of competent jurisdiction may direct.
3.4 Rights and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Holder is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the extent
permitted by law, be cumulative and in addition to every other right and remedy
given hereunder or now or hereafter existing at law or in equity or otherwise.
The assertion or employment of any right or remedy hereunder, (or otherwise,
shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
3.5 Delay or Omission Not Waiver. No delay or omission of the Holder
to exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Article or by law
to the Holder may be exercised from time to time, and as often as may be deemed
expedient, by the Holder.
3.6 Ranking and Security. This Note is intended to rank pari passu
with the obligations of the Company arising under or pursuant to the Loan
Agreement and is secured by the security agreements and other instruments
securing the payment and performance of such obligations. The Company covenants
and agrees that it will, as promptly as practicable, take such actions as may
be reasonably necessary to perfect the security interests securing the payment
of this Note.
-5-
<PAGE> 6
ARTICLE IV
CONSOLIDATION, MERGER, CONVEYANCE OR TRANSFER
4.1 Company May Consolidate, etc., Only on Certain Terms. The Company
shall not consolidate with or merge into any other corporation or convey or
transfer its properties and assets substantially as an entirety to any person,
unless
(1) the corporation formed by such consolidation or into which the
Company is merged or the person which acquires by conveyance or transfer the
properties and assets of the Company substantially as an entirety shall
expressly assume, by a supplement, in form and substance reasonably
satisfactory to the Holder, the due and punctual payment of the principal of
and interest on all this Note and the performance of every covenant of this
Note on the part of the Company to be performed or observed;
(2) Immediately after giving effect to such transaction, no Event
of Default, and no event which, after notice or lapse of time, or both, would
become an Event of Default, shall have happened and be continuing.
4.2 Successor Corporation Substituted. Upon any consolidation or
merger, or any conveyance or transfer of the properties and assets of the
Company substantially as an entirety, the successor corporation formed by such
consolidation or into which the Company is merged or to which such conveyance
or transfer is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under this Note with the same effect as
if such successor corporation had been named as the Company herein and therein.
In the event of any conveyance or transfer referred to in the first sentence of
this Section 4.2, other than by way of lease, the Company as the predecessor
corporation may be dissolved, wound up and liquidated at any time thereafter.
ARTICLE V
IMMUNITY OF INCORPORATORS, STOCKHOLDERS;
OFFICERS AND DIRECTORS
5.1 Exemption from Individual Liability. No recourse under or upon any
obligation, covenant or agreement of this Note, or for any claim based hereon
or otherwise in respect hereof, shall be had against any incorporator,
stockholder, officer or director, as such, past, present or future, of the
Company or of any successor corporation, either directly or through the
Company, whether by virtue of any constitution, statute or rule of law, or by
the enforcement of any assessment or penalty or otherwise; it being expressly
understood that this Note and the obligations issued hereunder are solely
corporate obligations of the Company and that no personal liability whatever
shall attach to, or is or shall be incurred by, the incorporators,
-6-
<PAGE> 7
stockholder, officers or directors, as such, of the Company or of any successor
corporation, or any of them, because of the creation of the indebtedness hereby
authorized, or under or by reason of the obligations, covenants or agreements
contained in this Note or implied therefrom; and that any and all such personal
liability, either at common law or in equity or by constitution or statute, of,
and any and all such rights and claims against, every such incorporator,
stockholder, officer or director, as such, because of the creation of the
indebtedness hereby authorized, or under or by reason of the obligations,
covenants or agreements contained in this Note or implied therefrom, are hereby
expressly waived and released as a condition of, and as a consideration for,
the execution of this Note.
IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed on the date first above written.
INTEGRATED PROCESS EQUIPMENT CORP.
By: /s/ John S. Hodgson
-------------------------------
Title: V.P. & C.F.O.
-7-
<PAGE> 1
Exhibit 11
INTEGRATED PROCESS EQUIPMENT CORP.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended March 31, Nine Months Ended March 31,
1995 1996 1995 1996
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
PRIMARY INCOME (LOSS) PER COMMON SHARE:
Net income (loss) attributable
to common stockholders $2,590,000 $2,606,000 $(5,004,000) $(13,227,000)
========== ========== =========== ============
Weighted average number of
shares outstanding 8,062,648 14,464,008 6,677,869 14,356,452
Add: Weighted average number of
shares which could have been issued
upon exercise of outstanding options
and warrants 5,329,397 911,560
---------- ---------- ----------- ------------
Weighted average number of shares
used to compute primary income
(loss) per share 13,392,045 15,375,568 6,677,869 14,356,452
========== ========== =========== ============
Primary income (loss) per share $0.19 $0.17 $(0.75) $(0.92)
========== ========== =========== ============
FULLY DILUTED INCOME (LOSS) PER SHARE:
Net income (loss) attributable
to common stockholders $2,590,000 $2,606,000 $(5,004,000) $(13,227,000)
Add backs:
Interest reduction less 39% tax effect 1,595,360
Dividends on Preferred Stock 60,000 74,000
Debt discount on convertible debentures 60,000 29,000
---------- ---------- ----------- ------------
Net income (loss) used to compute
fully diluted income (loss) per share $2,710,000 $2,709,000 $(3,408,640) $(13,227,000)
========== ========== =========== ============
Weighted average number of
shares outstanding 8,062,648 14,464,008 6,677,869 14,356,452
Add: Weighted average number of
shares of Series B Convertible
Preferred Stock assuming conversion 372,997 689,040
Add: Weighted average number of
shares which could have been issued
upon conversion of debenture 50,000 39,011
Add: Weighted average number of
shares which could have been issued
upon exercise of outstanding options
and warrants 5,330,152 911,570 5,337,915 1,426,920
---------- ---------- ----------- ------------
Weighted average number of shares
used to compute fully diluted income
(loss) per share 13,815,797 16,103,629 12,015,784 15,783,372
========== ========== =========== ============
Fully diluted income (loss) per share $0.20* $0.17 $(0.28)* $(0.84)*
========== ========== =========== ============
</TABLE>
* Anti-dilutive
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 27,503
<SECURITIES> 0
<RECEIVABLES> 46,378
<ALLOWANCES> 330
<INVENTORY> 28,391
<CURRENT-ASSETS> 110,152
<PP&E> 53,410
<DEPRECIATION> 4,570
<TOTAL-ASSETS> 202,842
<CURRENT-LIABILITIES> 59,307
<BONDS> 36,932
0
5,900
<COMMON> 145
<OTHER-SE> 117,382
<TOTAL-LIABILITY-AND-EQUITY> 202,842
<SALES> 136,479
<TOTAL-REVENUES> 136,479
<CGS> 80,847
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 76,974
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,437
<INCOME-PRETAX> (20,841)
<INCOME-TAX> (8,103)
<INCOME-CONTINUING> (12,738)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,738)
<EPS-PRIMARY> (.92)
<EPS-DILUTED> (.92)
</TABLE>
