UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the Fiscal Year Ended March 31, 1997 Commission File Number 0-21908
MRS Technology, Inc.
(exact name of registrant as specified in its charter)
Massachusetts
(State or other jurisdiction of incorporation or organization)
04-2904966
(I.R.S. Employer Identification No.)
10 Elizabeth Drive, Chelmsford, MA 01824-4112
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508) 250-0450
Effective September 1, 1997 area code will change to: (978)
Securities registered pursuant to Section 12(b) of the Act: None
Exchange on which securities are registered: NASDAQ
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
par value $.01 per share
Indicate by check mark whether the registrant(1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and 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. X Yes __ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of June 2, 1997, the aggregate market value of outstanding shares of
the voting stock held by non-affiliates was $6,607,252.
As of June 2, 1997, 6,792,728 shares of the registrant's Common Stock,
par value $.01 per share, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement relating to the Annual Meeting of
Shareholders to be held on July 30, 1997 are incorporated by reference
into Part III of this Report.
<PAGE>
PART I
ITEM 1. BUSINESS
General
The Company manufactures and sells large-area, high-resolution
photolithographic equipment for the production of giant integrated
circuits or electronic devices, such as those used for active matrix
liquid crystal displays (AMLCDs) and field emission displays (FEDs),
two types of high-information content flat panel displays. The Company's
innovative photolithographic system, the PanelPrinter (Trademark) (the
PanelPrinter), is a "stitching-aligner" which images active circuit
patterns and other microstructures, a critical step in both the AMLCD and
FED production processes. The Company is one of three manufacturers of
large-area, high-resolution, projection photolithographic systems for
AMLCD production,and is the first such manufacturer for FED production.
AMLCD is the flat panel display (FPD) technology currently in commercial
production which best combines rapid response rate, low power consumption,
wide viewing angle and long lifetime while providing contrast, resolution
and color quality that generally rivals the best cathode ray tubes (CRTs)
and surpasses passive matrix displays. AMLCDs are now used in most color
laptop and notebook computers, camcorder viewfinders and miniature color
televisions. FED is an FPD technology currently in development that has
attracted the most investment as an alternative to AMLCD technology.
Management believes that, as the cost of manufacturing FPDs decreases,
their performance advantages should result in their replacing passive
matrix displays in many existing applications, such as laptop and notebook
computers and hand-held video games, and should lead to the use of FPDs
in new applications, such as video telephones, car navigation devices and
hand-held computers. Management also believes that FPDs may ultimately
replace CRTs in such products as personal computers, workstations and
televisions.
The Company's PanelPrinter was specifically designed for the volume
production of large-area, interconnected microstructures, such as giant
integrated circuits or electronic devices. Through a variety of innovative
motions and imaging technologies, controlled and integrated by the Company's
proprietary software, the Company has addressed the production challenges of
AMLCDs, the first high-volume application for large-area electronic devices.
The PanelPrinter images highly accurate circuit patterns over large surface
areas and aligns the patterns on successive layers at high productivity rates
which enables volume production. The PanelPrinter's distinguishing features
include a scaling capability, which detects, measures and compensates for
substrate distortion, and an alignment capability which, using proprietary
technology, stitches and overlays circuit images with submicron accuracy.
In addition, to minimize downtime and enhance throughput, the PanelPrinter
offers ease-of-use features, such as set-up, self-calibration and user
interface software, and employs frictionless motions systems and advanced
diagnostics systems.
From inception through March 31, 1997, the Company sold more than 25
PanelPrinters. Customers include AT&T, the Sarnoff Corporation, EG&G,
Electronics Research & Service Organization (funded by Taiwan government),
Hitachi, Hosiden, IBM, Image Quest Technologies, Litton Systems Canada, OIS
Optical Imaging Systems, Inc., PixTech, Inc. (previously Pixel International),
Ricoh, Sony, Xerox, the University of Stuttgart and certain entities in Japan,
Korea and the United States who have asked not to be identified. In addition,
the Company has developed relationships with U.S. governmental agencies that
have declared the strategic importance of developing FPD manufacturing
technology.
From 1990 through March 31, 1997, the Company had received a total of $19.6
million in funding from the U.S. government through two contracts with
Defense Advanced Research Projects Agency (DARPA) to develop a
next-generation, large-area photolithographic system, as part of an ongoing
program through which DARPA was fostering the commercial development in the
United States of critical aspects of AMLCD manufacturing technology. The
funding for this program was fully utilized in fiscal 1997. The development
effort for the product contemplated by these contracts is incomplete, but
certain parts of the technology developed are now being integrated into the
company's existing product line. The result of this will be a machine
architecture significantly easier to scale up to meet the demands for
increasingly larger substrates and machine productivity.
The Company was incorporated under the laws of the Commonwealth of
Massachusetts in February 1986. Its executive offices are located at 10
Elizabeth Drive, Chelmsford, Massachusetts 01824 and its telephone number is
(508) 250-0450. (Effective September 1, 1997 area code will change to 978.)
Flat Panel Displays
Although CRTs remain the dominant visual display screen technology, FPDs have
emerged as an attractive alternative. Because of differences in design and
construction, FPDs offer certain advantages over CRTs, including minimal
screen depth, lower power consumption, lighter weight and lower radiation
emissions. A typical 14-inch color CRT monitor is approximately 12 inches
deep and weighs approximately 20 pounds; a typical 15-inch FPD is less than
one inch deep and weighs four to five pounds.
There are a number of FPD technologies, including AMLCDs, passive matrix LCDs,
displays based on crystalline silicon devices, "passive-active" devices,
thin-film electroluminescent displays, plasma displays, FEDs (also known as
microtip fluorescent displays) and a number of experimental technologies. To
date, AMLCD is the FPD technology which has attracted the largest amount of
capital invested in manufacturing capacity. Although AMLCDs are currently
more expensive than comparably sized CRTs and current passive matrix displays,
AMLCD manufacturing costs have declined steadily in recent years.
AMLCD Technology
An AMLCD screen is a "sandwich" consisting of, from front to back, a
polarizer, color filters, liquid crystal solution, a circuit plate, a second
polarizer and a light source.
The circuit plate is a critical component of an AMLCD. It is a matrix of rows
and columns of circuit lines the intersections of which create picture
elements or "pixels". Each pixel is actively controlled by its own thin film
transistor -- hence, an "active matrix". To produce an image, ordinary white
light from the screen's light source passes through a polarizing filter, then
through the pixels in the circuit plate. Each pixel is positioned under a
red, green or blue color filter. Pixels and their corresponding filters are
typically grouped in triads of red, green and blue, producing a vivid and
clear display with a broad range of colors.
FED Technology
Instead of transistors, FEDs require a different microstructure, microtips,
which emit electrons to excite a phosphor material, generating light and, with
controllable driver circuitry, viewable images. The basic steps in microtip
construction are as follows. Microscopic holes are precisely imaged on the
top layer of material on a glass substrate. These holes allow the controlled
etching of cavities or wells in the material beneath the top layer. The
etching leaves circular patterns on the surface of the third layer of
materials. These circles become the bases of cones grown inside the wells by
a process of metal deposition. When electrically charged, the tips of the
cones emit electrons which strike a phospor material deposited on a separate
glass substrate. A single pixel or subpixel in a display may consist of
several hundred such microtip structures.
Manufacturing Technology
In the context of electronics manufacturing, photolithography provides
accurate and precise imaging by replicating detailed patterns from master
artwork sources onto successive layers of conductive, semiconductive and
insulating materials to form microstructures, such as transistors, diodes,
resistors, connecting lines and holes, all intended to result in a product
which performs specific functions, most often involving the sensing, storing,
transmitting, processing or displaying of information. This multi-layer
production process is used to manufacture integrated circuits which contain
large numbers of microstructures and the patterns which connect them. The
layers are built up one by one on a substrate base. For AMLCDs the first
layer, a material such as indium tin oxide, a transparent metal, is applied to
the substrate. Next, a coating of light-sensitive photoresist chemical is
applied. A series of master patterns is then successively imaged onto the
photoresist by a photolithography system, using a projection lens and an
illuminator. Each pattern exposed onto the photoresist is then developed and
etched. Developing removes the exposed photoresist pattern, while unexposed
photoresist remains. Through a chemical process, etching then removes the
metal layer in the exposed area, leaving the pattern replicated from the
master artwork. For the second layer, an insulating material, such as silicon
nitride, is applied on top of the previous layer. Again, a coating of
photoresist is added and the plate is exposed, developed and etched. These
steps are typically repeated several times, or as many times as there are
layers in the process. The size, shape and electrical property of each
material remnant, and the order in which they have been layered into the
microstructure, determine the functionality of the microstructure. If the
structure is a transistor (the most common structure in ICs), it functions by
responding to signals from the display driver circuitry. In AMLCDs, the
transistor is a switch which controls the amount of light coming through a
specific pixel or subpixel in a display.
For each layer in the process, the substrate moves through a production line,
with each item of equipment in the line performing one or more of the
fabrication steps. A typical line includes deposition equipment to apply
thin-film layers, photoresist equipment to apply coatings of photoresist, a
photolithographic system to image patterns in each layer of material and other
equipment to perform the development, etching and inspection steps. In a
single production line, the substrate must pass through all production steps
as many times as there are layers. For volume production, one production line,
including one photolithographic system, is dedicated to each layer. A
manufacturing facility could thus require a total of five to seven production
lines, each including a photolithographic system. At present, prices of
photolithographic systems generally range from $2.0 to $4.0 million and each
production line is likely to cost $10 to $15 million, in addition to the
expense of building a fabrication facility to specification with required
clean rooms.
There are two principal methods that large-area photolithography systems use
to create microscopic images. One method, used by systems such as the
Company's PanelPrinter, is called "stitching". Systems using this method are
called "stitching aligners". In the stitching process, the substrate is
placed upon a stage or platform in the machine. Using a master pattern placed
on quartz, called a reticle, within the system's camera, a circuit or other
pattern is printed photographically onto a small section of substrate. The
system then "steps" to an adjacent area of the substrate and prints another
image. The images must be accurately aligned so that they are "stitched"
together without visible seams. The other method of creating large-area
microscopic images, in which the image is continuously scanned across a
substrate, is called "scanning". Largely because of technical difficulties in
focusing a large image, scanning does not at present produce high quality
display screens as large as those produced by stitching technology.
Precise coordination of machine systems is necessary to achieve the accuracy
required to stitch adjacent images and overlay the various layers of a large
area integrated circuit. Stitching alignment, the alignment of adjacent
images on a single circuit layer, requires printing accuracy to three-quarters
of a micron while overlay alignment, the alignment of images on successive
layers, requires accuracy to one-half to one-tenth of a micron. The
technological challenges of stitching alignment and overlay alignment are made
even more complicated by the distortion in substrate shape that can occur as a
result of temperature changes during the production process. In addition,
photolithographic systems must operate with sufficient speed to make volume
production of FPDs possible.
The Company's Technology
Since its organization in 1986, the Company has devoted its capital and
research and development resources to the design and manufacture of a
photolithographic system that meets the technological challenges faced by FPD
manufacturers. Management believes that the PanelPrinter's innovative
motions, scaling and software capabilities are technologically more advanced
than those of any other photolithographic system now available for the
manufacture of FPDs. The Company focuses on the following system features:
* Alignment -- Using an innovative combination of a Company-designed vision
system with proprietary algorithms and proprietary motions software, the
PanelPrinter stitches and overlays circuit plate images with sub-micron
accuracy.
* Scalability -- By detecting and measuring microscopic distortion in
substrate shape, the Company's system compensates for distortion by adjusting
the image projected on the circuit plate.
* Ease of Use and Flexibility -- By employing proprietary set-up,
self-calibration and user interface software, the PanelPrinter simplifies the
set-up, testing, imaging and resetting processes thereby improving
productivity.
* Reliability/Ease of Maintenance -- Designed to employ low-friction air
bearings and advanced diagnostic capabilities -- both on-site and from remote
locations -- the Company's system minimizes downtime and enhances throughput
capability.
Alignment. Accurate measurement is critical to precise image stitching -- the
side-by-side positioning of images on a layer -- and overlay -- the accurate
superimposition of images on successive layers. The PanelPrinter uses laser
interferometry to accurately measure and control the position of the
substrate, and a Company-designed vision system with proprietary algorithms to
precisely measure the location of alignment mark images on the substrate. The
PanelPrinter's job execution software compares the location of the measured
marks to reference marks stored in the system computer. The results are then
translated by the software and used to correct the position of the stage and
camera hardware to bring the substrate into accurate "alignment" with the
system.
Scalability. Substrates tend to distort when subjected to high temperatures
used during the FPD production process. The Company's system addresses the
need to compensate for such distortion by employing a scalability feature.
Measurement data taken during the alignment process is used to determine the
substrate shape changes. The PanelPrinter's job execution software
compensates for these changes by "scaling" the stepping motions of the stage,
and by adjusting the magnification of the projected image. These corrections
optimize the size, shape and position accuracy of the projected image over the
underlying, previously exposed image.
Ease of Use and Flexibility. The complexity inherent in operating a
photolithographic system makes ease of use and flexibility particularly
desirable to customers. The PanelPrinter's software incorporates advanced
computer graphics and flexible, simple user interfaces to set up and carry out
machine instructions. The software facilitates the production of a variety of
AMLCD types and sizes and is intended to improve productivity.
The system's measurements and correction software provides rapid set-up and
self-calibration routines. A number of tests, including statistical analyses,
can be run to verify system performance. This software, among other
functions, calibrates the position of one lens relative to another and enables
automatic adjustment of image positioning. This self-calibration routine
eliminates the need to expose and develop test substrates and reduces setup
time from the hours generally required by mechanical means to under ten
minutes.
The Company's PanelCAD (Trademark) software leads the user through a
graphical, step-by-step process of electing patterns and their appropriate
printing sequence. Once a job execution program is entered into the system,
it can be initiated with a single touch-panel command. The PanelPrinter also
provides its operator with access to extensive, on-line interactive manuals,
which are customized for specific machine configurations and periodically
updated. Moreover, multiple users can access the PanelPrinter from remote
terminals outside the clean room in which the system is located.
Reliability/Ease of Maintenance. The Company's PanelPrinter was designed for
long production runs with minimal downtime. Using air bearings and linear
motors, the PanelPrinter's technological innovations significantly diminish
friction and wear. Moreover, the Company's system provides users with on-line
diagnostics for continuous monitoring of system conditions. The system's
diagnostic capability is enhanced through video tutorials used to isolate and
analyze production anomalies. In addition, the Company's engineers can access
data from remote locations. Customers can also access the PanelPrinter for
service from remote locations, including from outside the clean room. For
example, a customer in Japan experiencing difficulty in aligning a new process
layer would be able to interface with the Company's technical staff via modem
to access real-time support. Company technicians could then direct the system
to transmit circuit plate images, and analyze them to provide a quick
solution.
The electronic imaging display industry is characterized by rapid and
significant technological advances. The Company's success is therefore
dependent upon its ability to maintain the PanelPrinter's technological
competitiveness and to respond to changes in customer requirements. There can
be no assurance that the Company's direct or indirect competitors will not
succeed in developing new technologies or improvements to existing
technologies which could render the Company's technology or the PanelPrinter
less competitive or obsolete.
Customers and Marketing
Customers use photolithographic systems such as the Company's PanelPrinter for
commercial and research purposes. Commercial customers include manufacturers
of electronic products that incorporate FPDs. For a variety of reasons,
including quality control and a desire to insure uninterrupted supply, these
manufacturers have sought to develop in-house FPD manufacturing capability.
Commercial customers also include OEMs that seek to manufacture and sell FPDs
as individual components.
The Company is focusing its marketing efforts on companies that make or use
most FPDs today: computer and workstation manufacturers, telecommunications
companies and manufacturers of electronic toys and games. The Company
believes that these users, in order to ensure that their own FPD needs are
fulfilled, may build manufacturing facilities, separately or through the
formation of alliances or consortiums with other users. The establishment of
an FPD production facility requires significant capital investment and entails
lead times of two years or more. A single-line factory to manufacture AMLCDs
on a commercial basis would likely require a capital investment of
approximately $100 million, and a multiple-line AMLCD factory would likely
require a capital investment of approximately $250 to $600 million.
Because of the capital and technological requirements for entering the FPD
market, there are a limited number of potential customers for the Company's
PanelPrinter. As a result, the decision by any potential customer not to
purchase a PanelPrinter would increase the likelihood of an adverse effect on
the Company's results of operations. Of the limited number of potential
customers, the majority are located outside the United States, principally in
Japan and Korea. The Company's ability to compete effectively in the Japanese
and Korean markets may be limited by its small size, its geographic location
and its selection of regional representatives. The Company's results of
operations may be adversely affected by difficult economic and market
conditions in these regions. The Company's international activities are also
subject to risks common to foreign activities, such as governmental
regulation, political and economic instability and trade barriers. Failure of
the Company to compete effectively in Japan or Korea would have a material
adverse effect on the Company.
In North America, the Company sells directly to customers through the efforts
of its marketing and sales staff and through relationships that its management
have with customers throughout the industry. Overseas, in addition to its
efforts to sell directly, the Company uses distributors and foreign sales
representatives to sell its product. The Company's current distributor and
representative relationships for major markets are as follows: Taesan
Engineering Co., Ltd. (Korea); Ampoc Far East Co., Ltd. (Taiwan); ANERIC
Enterprise PTE. LTD., (Singapore); A.V.B.A. Engineers, Ltd.,(Israel); Fougere
Conseil, (France). The Company remains involved in the marketing process by
providing executive direction and technical assistance.
The Company believes that cooperation with the U.S. government is an important
factor in achieving technological leadership in the FPD manufacturing
equipment industry. The U.S. government has declared the strategic importance
of developing display technologies, and in particular, AMLCD and FED
technology.
In 1990, the Company obtained a $1.0 million research contract from ARPA to
determine the feasibility of constructing a photolithographic system with
enhanced throughput for manufacturing FPDs. Upon the conclusion of that
contract in 1992, the Company was awarded a further ARPA contract to construct
a prototype of a next-generation photolithographic system (the Contract) which
could provide up to $19.2 million, subject to annual renewals and funds
allocation, over a five-year period. Under the Contract, the U.S. government
generally has limited rights to use certain critical technical data and
computer software developed by the Company and has broader, generally
unlimited rights to use certain other technical data and computer software.
Certain amendments and extensions of the Contract have been negotiated, but
ARPA retains the right to terminate the Contract for convenience and the
agencies of the U.S. government could reduce or eliminate its support for
these technologies.
Products
The PanelPrinter features an optical projection system, a high-speed,
laser-metered substrate stage, an automated reticle handler and a
sophisticated substrate alignment system, all integrated with the Company's
proprietary software. For certain applications, the PanelPrinter currently is
capable of an hourly throughput rate of up to 80 large-area substrates.
The Company offers both single and dual camera optical systems with several
projection lens options. In the Company's patented dual camera system, each
camera lens offers 2X reduction and an 80 millimeter image field, insuring
equally sharp detail at the edges of the image as in the center of the lens
field. Two cameras increase throughput by simultaneously exposing two images
on the substrate. The PanelPrinter includes as a standard feature a reticle
library, with storage for 38 reticles, reducing the time required in changing
reticle patterns for exposure.
The Company's high-speed substrate handling system moves the substrate through
the PanelPrinter. One available option is an automatic substrate loading and
unloading system. The substrate handler is designed for maximum flexibility,
by accommodating many different substrate sizes and thicknesses. Linear
induction motors, controlled by laser measurement systems, effect highly
accurate stage movement. Substrate handler pre-alignment and movement
throughout the photolithography process is made more accurate through the use
of air bearings, as well as a vibration isolation and dampening system
supporting a solid granite base. The substrate handling system also permits
easy interface to other production line equipment. A Class 10 environmental
enclosure chamber controls temperature and reduces particulate contamination,
thereby increasing production yields.
The Company's software enhances productivity. The Company's job setup
software -- PanelCAD(Trademark) -- uses a graphical interface rather than
complicated programming language, to set up and edit jobs. PanelCAL
(Trademark) -- the Company's automatic calibration software -- allows the user
to constantly monitor imaging performance without the need for test
substrates, off-line measurements or manual mechanical adjustments. The
Company's PanelSCALE (Trademark) software allows for automatic adjustment for
process-induced substrate distortions. The PanelPrinter's automatic
measurement and topography software adjusts stage and camera positioning to
maximize stitching and overlay accuracy.
During fiscal 1997, the Company's installed base increased and customers which
were no longer under warranty arrangements increased. Therefore, the Company
began to focus its efforts on increasing its service capabilities to its
installed base. As a result, the Company has increased its service revenues
and is working to further develop this business to generate additional profits
in the future.
<PAGE>
Operations
The Company operates primarily as an assembly, test and systems integration
company. Almost all components of the PanelPrinter are either manufactured by
others as custom components or are standard electronic components purchased
from major manufacturers or distributors. The Company generally builds
PanelPrinters to order and lead times can be up to nine months.
The manufacturing process for the PanelPrinter has two stages. The first
stage is assembly. Because the Company purchases most of the system
components, the Company performs little processing of raw materials. The
major components that make up the assembly of a PanelPrinter are the main
projection lens, illuminator, environmental chamber, granite base, stage, air
bearings, laser systems, boards and plate handlers. Following assembly,
testing and integration of the system, the second stage of the process begins.
At this point, the system software is installed and trial panels are
manufactured to ensure that lens assembly and stage motions are coordinated.
The Company generally orders individual components from a single or a limited
group of suppliers in order to assure quality and obtain quantity discounts.
The Company believes that, with the possible exception of the main projection
lens, it could find alternate sources for all components and subassemblies of
the PanelPrinter without significant disruption in its production schedule.
The lead times for major components range from three to four months for the
stage and up to nine months for the lenses. Without incurring significant
additional cost, the Company has been able to shorten the lead time for lenses
to three months by pre-ordering the glass used to make the lenses. To date,
the Company has not experienced any material delays in production due to
component unavailability or delay. Nonetheless, termination or disruption of
supplies from these sources could result in production delays, reductions in
PanelPrinter shipments or increased costs that would have an adverse effect on
the Company's operations. While the Company is exploring ways to reduce its
dependence on these sole and limited-source suppliers, there can be no
assurance that the Company will be successful in doing so.
While many of the components of the PanelPrinter are available from a variety
of outside vendors, the main projection lens is available only from a limited
number of sources. Management believes that a total of four or five companies
worldwide have the ability to manufacture lenses of the quality used in the
PanelPrinter. Two of these manufacturers, Nikon and Canon, are direct
competitors of the Company. To date, substantially all of the Company's
lenses have been provided by Tropel, a precision optics and metrology products
manufacturer. Although an alternative source for PanelPrinter lenses would
likely require at least 24 months to produce a lens to the Company's
specifications, the Company has established relationships with other lens
manufacturers. Management believes that it has on hand or on order sufficient
lenses to meet the Company's projected requirements through fiscal 1998. The
Company continues to investigate other potential sources of lenses.
Competition
The PanelPrinter's market is intensely competitive and subject to rapid
technological change. The Company competes directly with two other major
manufacturers of large-area projection photolithographic systems, Nikon and
Canon. The Company also faces indirect competition because AMLCD and FED
technologies have actual and potential competitors in other display
technologies.
<PAGE>
There are a number of bases on which manufacturers of photolithographic
systems compete. The relative importance of these varies depending on whether
the system is being purchased for use in a research environment or for use in
a volume production environment. In the research environment, the most
important competitive factors are technical performance (including the size of
screen produced and its quality), reliability and technical features
(including scaling, motions technology and systems integration). In the
volume production environment, the critical competitive factors are
throughput, reliability, long-term relationship with the manufacturer,
technical performance and the manufacturer's reputation and financial
stability.
While precise statistics are not available, the Company believes that Nikon is
the industry's market leader, with the largest installed base of large-area
photolithographic machines used in the manufacture of AMLCDs. At present,
most AMLCD production takes place in Japan, and Nikon is the primary source
for photolithographic systems in the Japanese market. Nikon regularly
announces new features for its line of photolithography machines. The
Company's other major competitor is Canon. Both Nikon and Canon have much
greater financial resources, broader product lines and greater customer
service capability than the Company. Additionally, they are located in a
major market area and have larger, more established customer bases.
It is possible that, in addition to Nikon and Canon, other manufacturers of
photolithographic systems for large-area AMLCDs will emerge. However, the
combination of optical, mechanical, electrical and software engineering skills
required to produce photolithographic systems, and the time required to
develop and produce a commercially viable system, have limited the number of
companies committed to developing such systems.
The Company also expects that other FPD technologies will emerge to compete
with AMLCDs. These technologies may or may not require large-area,
high-resolution photolithographic systems such as the PanelPrinter. In
addition, the Company expects to see further developments in existing display
technologies such as CRTs and passive matrix displays, which also compete with
AMLCDs.
Research and Development
Photolithographic equipment design requires the cooperation and management of
four distinct engineering disciplines: electrical, mechanical, optical and
software. As of March 31, 1997, of the Company's 15 engineers, 3 are
administrative, 2 are electrical engineers, 4 opto-mechanical, 6 software.
The Company's primary research focus is the design and development of
enhancements to its PanelPrinter.
In the fiscal years ended March 31, 1995, 1996 and 1997, the Company incurred
aggregate research and development costs of $6.2 million, $4.9 million and
$3.5 million, respectively. Those costs include $4.3 million, $2.6 million
and $0.5 million, respectively, allocable to research contracts in these
periods. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
Intellectual Property and Proprietary Technology
The Company believes that it would be difficult to reproduce the accumulated
know-how embodied in the PanelPrinter and that this is its primary source of
protection. The Company believes that copying the basic motions system of the
PanelPrinter would involve a considerable amount of research into the use of
air bearings and linear motors. Similarly, the Company believes that its
software, which is central to both its motions and throughput technology,
would be difficult to duplicate without access to the source code. However,
there can be no assurance that the Company's accumulated know-how could not be
reproduced, or that its intellectual property and proprietary rights are
adequately protected or can be adequately policed. There may also be pending
or issued patents of which the Company is not aware which the Company might be
required to license or to challenge at possible considerable expense to the
Company. There can be no assurance that any such license would be available
on acceptable terms, if at all, or that the Company would prevail in any such
challenge.
The Company also relies on a combination of patents and confidentiality
agreements. The Company holds four patents in the United States relating to
optical alignment within the photolithographic and precision motion systems.
The Company currently has a total of seven patent applications pending, five
in the United States and two overseas.
Employees
As of March 31, 1997, the Company had 48 employees, of whom 15 are employed
primarily in research and development, 18 are employed in manufacturing and
customer support, 4 are employed in sales and marketing, and 11 are employed
in general and administrative functions. The Company has historically not
encountered difficulties with its employees and turnover has primarily been
associated with workforce reductions taken by the Company. The Company is
highly dependent on certain management and technical employees in such
critical areas as the development of hardware, software and motions and
imaging technology. The loss of any such personnel could have a material
adverse effect on the operations of the Company, and there is no assurance
that the Company will be able to retain such personnel.
Backlog
Backlog at March 31, 1997 was $1.5 million as compared with $2.2 million at
March 31, 1996. The Company includes in backlog only those orders for product
shipments and contract billings for which a confirmed order has been received
at the date at which the backlog is computed. Backlog for which delivery had
been specified within twelve months at March 31, 1997 and March 31, 1996 was
$1.5 million and $2.1 million. Because of the possibility of customer changes
in delivery schedules, cancellation of orders and potential delays in product
shipments and contract performance, the Company's backlog as of any particular
date may not be representative of revenues for any succeeding period.
ITEM 2. PROPERTIES
The Company leases 45,319 square feet of space in its sole manufacturing and
research facility, located at 10 Elizabeth Drive in Chelmsford, Massachusetts.
The Chelmsford facility is also the Company's headquarters. Management
believes that existing space, space under option and space otherwise available
is adequate to support Company operations through fiscal 1998.
ITEM 3. LEGAL PROCEEDINGS
On January 24, 1997, Micron Display Technology, Inc. ("Micron Display")
brought suit against the Company in state court in Ada County, Idaho, alleging
in five counts breach of contract, breach of implied warranties, and breach
of express warranties, in connection with a Model 5200 PanelPrinter (the
"PanelPrinter") which the Company alleges Micron Display purchased from the
Company in 1996. On January 30, 1997, the Company filed an action against
Micron Display in the United States District Court for the District of
Massachusetts, alleging in two counts breach of contract and violation of
M.G.L. c.93A, in connection with Micron Display's nonpayment for the
PanelPrinter.
On February 14, 1997, the Company removed the action filed by Micron Display
from the Idaho state court to the United States District Court for the
District of Idaho, sitting in Boise, Idaho, answered Micron Display's
complaint, counterclaimed for breach of contract and violation of M.G.L. c.
93A, and moved to transfer venue to Massachusetts.
On March 11, 1997, Micron Display filed a motion to dismiss the Massachusetts
action, or in the alternative, to transfer venue therein to Idaho.
On April 17, 1997, the Company filed a motion in the Idaho action seeking a
preliminary injunction that would prohibit Micron Display from interfering
with the Company's efforts to repossess the PanelPrinter and offer it for sale
to another customer, with the proceeds of such sale to be placed in an escrow
account pending resolution of the lawsuit. The Idaho court held a hearing on
the Company's motions to transfer venue and for preliminary injunction on May
23, 1997. The court indicated that the Company's motions to transfer would be
denied, and took the motion for preliminary injunction under advisement.
The Massachusetts court has not yet ruled on Micron Display's motion to
dismiss or transfer the Company's Massachusetts case. It is expected that the
Massachusetts action will be dismissed following the entry of the Idaho
court's written order denying transfer of that case to Massachusetts.
The parties dispute which documents constitute the contract between them.
Further, Micron Display alleges, among other things, that the PanelPrinter
failed to meet certain performance specifications contained in what it
contends constituted the contract, and that, as a consequence, it is entitled
to the return of its $1.0 million deposit, and the conversion of the parties
relationship to a lease of the PanelPrinter, or a PanelPrinter of like
quality. MRS maintains that other documents constitute the contract, pursuant
to which there was no right to convert the relationship to a lease, and
further denies that the PanelPrinter failed to meet specifications set forth
in the document cited by Micron Display. MRS seeks approximately $1.4 million
as the unpaid balance of the contract price, and further remedies under the
Massachusetts Unfair Business Practices Act. No court has as yet ruled on the
substantive merits of the claims asserted by the parties.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal 1997.
<TABLE>
<CAPTION>
Executive Officers of the Registrant
Name Age Position with the Company
- ---------------------- --- -------------------------
<S> <C> <C>
Griffith L. Resor, III 56 President and Director
Patricia F. DiIanni 53 Chief Financial Officer
John L. Steele, Jr. 55 Vice President, Secretary and General
Counsel
</TABLE>
Executive officers of the Company are elected by the Board of Directors on an
annual basis and serve at the discretion of the Board of Directors or until
their successors are duly elected and qualified. There are no family
relationships among any of the directors or executive officers of the Company.
GRIFFITH L. RESOR III, President and Director. Mr. Resor, a founder of the
Company, has served as President and a director of the Company since its
organization in February 1986. Prior to the Company's formation, Mr. Resor
was Vice President and General Manager for new products at GCA Corporation, a
manufacturer of photolithographic equipment for the integrated circuit
industry. Mr. Resor received a B.S. in physics from Yale University and a
M.B.A. from Harvard University.
PATRICIA F. DIIANNI, Chief Financial Officer. Ms. DiIanni has served as Chief
Financial Officer since July, 1996 and prior to that as Controller of the
Company from June, 1993. From November of 1991 to May 1993, Ms. DiIanni was
employed by Symbolics, Inc., a manufacturer of computers and software for
artificial intelligence, most recently as Manager, Treasury and Financial
Planning and Analysis. From 1961 to November 1991, Ms. DiIanni was employed
by GenRad, Inc., a manufacturer of automatic testing equipment, where she held
a variety of financial positions, including Manager, Worldwide Planning and
Analysis from 1990 to November 1991.
JOHN L. STEELE, JR., Vice President, Secretary and General Counsel. Mr.
Steele, a founder of the Company, has served as Vice President, Secretary and
General Counsel since March 1993. Prior to March 1993, he had served as Vice
President, Administration since the Company's organization in February 1986.
Prior to the Company's formation, Mr. Steele was the Secretary and General
Counsel of GenRad, Inc., a manufacturer of automatic testing equipment. Mr.
Steele received an A.B. from Dartmouth College and a J.D. from Suffolk
University.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDERS MATTERS
Stock Market Information
The Company's Common Stock began trading on the NASDAQ National Market System
on July 23, 1993. The following table sets forth the high and low closing
prices per share of Common Stock as reported on the NASDAQ National Market
System for the periods indicated.
<TABLE>
<CAPTION>
Fiscal Year 1996 Fiscal Year 1997
---------------- ----------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter $7.000 $4.750 $6.000 $3.563
Second Quarter $6.625 $4.875 $3.875 $2.375
Third Quarter $5.000 $2.875 $3.250 $1.813
Fourth Quarter $6.000 $3.000 $3.000 $1.250
</TABLE>
Holders
As of June 2, 1997, there were 124 stockholders of record of the Company's
Common Stock, and the estimated number of beneficial owners of such stock on
such date was 2,500.
Dividends
The Company has never paid dividends on its Common Stock and has no present
plans to do so.
<PAGE>
(b) Supplementary Data
<TABLE>
<CAPTION>
Quarterly Financial Information (Unaudited)
(In thousands, except per share amounts)
First Second Third Fourth Year
----- ------ ----- ------ ----
<S> <C> <C> <C> <C> <C>
Year ended March 31, 1997
Total revenues $1,711 $3,487 $1,588 $ 355 $7,141
Gross profit 216 786 150 (115) 1,037
Net income (loss) (1,280) (595) (1,374) 118 (3,131)
Net income (loss) per share (0.19) (0.09) (0.20) 0.02 (0.47)
Year ended March 31, 1996
Total revenues $5,273 $2,290 $1,727 $1,267 $10,557
Gross profit 1,856 34 149 (1,762) 277
Net income (loss) 335 (1,267) (1,264) (7,745) (9,941)
Net income (loss) per share 0.05 (0.19) (0.19) (1.19) (1.52)
</TABLE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table contains certain selected consolidated financial
information and is qualified by reference to and should be read in conjunction
with the Consolidated Financial Statements and related Notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein.
<PAGE>
<TABLE>
<CAPTION>
Year ended March 31,
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues
Product $ 7,838 $ 7,607 $16,897 $ 7,699 $6,562
Contract Research 3,731 7,586 5,501 2,858 579
------- ------- ------- ------- ------
Total revenues 11,569 15,193 22,398 10,557 7,141
Cost of revenues
Product 5,961 4,496 10,893 7,389 5,525
Contract Research 3,118 7,171 5,337 2,891 579
------- ------- ------- ------- ------
Total cost of revenues 9,079 11,667 16,230 10,280 6,104
Gross profit 2,490 3,526 6,168 277 1,037
Operating expenses
Research and development(1) 528 727 1,945 2,279 3,042
Selling, general and
administrative 801 1,379 2,862 3,715 2,944
Other charges - - - 4,469 -
------- ------- ------- ------- ------
Income (loss) from operations 1,161 1,420 1,361 (10,186) (4,949)
Other income (expense), net (16) 228 347 245 1,819
Income before provision for
income taxes 1,145 1,648 1,708 (9,941) (3,130)
Provision for income taxes - 62 72 - -
------ ------ ------ ------- -------
Net income (loss) $ 1,145 $ 1,586 $ 1,636 ($ 9,941) ($3,130)
======= ======= ======= ======== ========
Net income (loss)
per share (2) $0.28 $0.26 $0.24 ($1.52) ($0.47)
Weighted average common and
common equivalent shares
outstanding 4,133 6,146 6,952 6,550 6,717
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Data: 1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 493 $12,147 $ 8,340 $ 4,218 $ 3,291
Working capital 2,338 18,776 18,174 10,097 10,130
Total assets 6,703 24,104 26,993 16,301 13,428
Long-term debt 122 17 15 11 1,000
Stockholders' equity 4,662 20,788 22,600 12,864 9,870
</TABLE>
(1) Net of R&D spending allocated to cost of contract research.
(2) Net income (loss) per share for fiscal 1993 was calculated in accordance
with the Securities and Exchange Commissions Staff Accounting Bulletin (SAB
No. 83).
ITEM 7. MANAGEMENT'S DISSCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 ("the Act") provides a
"safe harbor" for forward-looking statements so long as those statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those discussed in the statement. The Company desires
to take advantage of the "safe harbor" provisions of the Act. Certain
information contained herein, particularly the information appearing under the
headings "Business Development," "Results of Operations," "Liquidity and
Capital Resources" and "Factors Affecting Future Results" are forward-looking.
Information regarding certain important factors that could cause actual
results of operations or outcomes of other events to differ materially from
any such forward-looking statement appear together with such statement, and/or
elsewhere herein. The Company assumes no obligation to update the information
contained herein.
Business Development
During fiscal 1997, demand for the Company's products continued to decline due
to over capacity in certain active matrix liquid crystal display (AMLCD)
markets. The Company still, at the start of fiscal 1997, expected a slight
improvement in product sales as the Company had prospects principally in Asia,
and to a lesser extent the U.S., that planned to purchase tools for R&D and
pilot AMLCD lines. Existing orders were shipped as planned, however, the
collapse of the dynamic random access memory (DRAM) prices in the Company's
second fiscal quarter of fiscal 1997 resulted in customers and prospects in
Asia delaying upgrades and the purchase of new machines.
During the third quarter of fiscal 1997 the Company shipped a PanelPrinter,
however, customer acceptance has not been completed and, as a result, the
Company did not recognize revenue on the system in fiscal 1997. Subsequently
the customer commenced legal action against the Company which has resulted in
a delay in revenue recognition and remaining payments for the system shipped.
See Item 3. Legal Proceedings and Note F to the Consolidated Financial
Statements.
In January of 1997 the Company determined that it could no longer sustain its
current level of expenses and that it would need to take aggressive actions to
preserve its ability to operate successfully in the near-term. The Company
terminated 35% of its employees and terminated or deferred long term research
projects so that it could refocus on its core PanelPrinter business.
During the third and fourth quarter, respectively, of fiscal 1997 the Company
sold its interests in Integrated Circuit Testing GmbH (ICT) and EBETECH
Electron-Beam Technology GmbH (EBETECH) as a part of this refocusing
resulting in additional liquidity and other income for fiscal 1997.
RESULTS OF OPERATIONS
FISCAL YEARS 1997 AND 1996
Product revenues decreased 33% from $7.7 million in fiscal 1996 to $5.2
million in fiscal 1997. This decrease is attributable to the sale of two new
PanelPrinters in fiscal 1996 versus the sale of one new PanelPrinter in fiscal
1997. Fiscal 1996 also had significant product revenues from a substantial
amount of work to rebuild and re-validate PanelPrinters previously sold to one
customer as a result of fire damage in their facility compared to fiscal 1997
which included a lens upgrade and the sale of a PanelPrinter previously held
for lease which reflected lower selling prices.
Service and support revenues grew during fiscal 1997 to $1.4 million or 19% of
total revenues from approximately 8% of total revenues in fiscal 1996 and 2%
of total revenues in fiscal 1995. As the number of machines in the field now
off warranty increased the need for both service contracts and replacement,
spare and consumable parts has grown significantly making this business a
growing part of the Company's total revenues.
Contract research revenues decreased 80% from $2.9 million in fiscal 1996 to
$0.6 million in fiscal 1997 due to the Company reaching the end of its
contract with DARPA during the year. The current year activity with DARPA was
recognized under the final phase of a $19.2 million contract which was
originally awarded in February of 1992. This contract was converted during
fiscal 1996 to a fixed price contract with no additional fee to be billed.
Cost of product revenues decreased 46% from $7.4 million in fiscal 1996 to
$4.0 million in fiscal 1997. The decrease was due to charges taken in fiscal
1996 to reduce the value of inventory as a result of the decline in revenue
and backlog offset by higher under absorption of manufacturing costs in fiscal
1997 resulting from lower production levels.
Cost of service revenue is made up of the service departments expenses, both
locally and in Japan material costs and travel expenses.
Cost of contract research revenue decreased 80% from $2.9 million in fiscal
1996 to $0.6 million in fiscal 1997 due to the decrease in revenue.
Product gross profit increased 267% from $0.3 million in fiscal 1996 to $1.1
million in fiscal 1997. The increase is due to the inventory charges taken in
fiscal 1996, offset by underabsorption in fiscal 1997. In addition, the
fiscal 1996 costs reflected costs of full systems and low margin revenues
associated with revalidating damaged customer owned PanelPrinters compared to
higher margin upgrades and previously leased equipment.
Contract research gross profit was relatively flat in fiscal 1997 compared to
fiscal 1996 due to the change to a fixed price no fee contract early fiscal
1996.
Research and development expenses increased from $2.3 million in fiscal 1996
to $3.0 million in fiscal 1997 or 34%. This increase is due to the decreased
work on the DARPA contract resulting in a lower absorption of labor and
overhead costs. Costs before the absorption of DARPA costs dropped from $4.9
million in fiscal 1996 to $3.5 million in fiscal 1997 or 29% as a result of
lower costs across all expense categories resulting from employment actions
taken in January 1997.
Selling, general and administrative expenses (net of allocation to cost of
contract research) decreased $0.8 million from $3.7 million in fiscal 1996 to
$2.9 million in fiscal 1997 or 22%. This reduction in expense levels is the
result of generally lower expenses across all expense categories in both
Administration and Sales and Marketing being partially offset by higher patent
cost activity and consulting expenses.
Other income for fiscal 1997 reflects a gain on the sale of the Company's
interests in ICT. During fiscal 1997, a portion of ICT business was spun-off
to form EBETECH, a separate corporation owned by MRS, Siemens AG (Siemens) and
a group of other investors. ICT was sold to Opal in October, 1996, and
EBETECH was sold to Etec Systems, Inc. (ETEC) in March, 1997. MRS received
$2.5 million from these sales resulting in a gain of $1.7 million.
<PAGE>
Under the terms of the sale of MRS' interest in EBETECH, MRS may receive an
additional $175,000 upon the conclusion of an indemnification period which
ends in December 1997. The gain does not reflect this amount. See Note I in
Notes to the Consolidated Financial Statements.
RESULTS OF OPERATIONS
FISCAL YEARS 1996 AND 1995
Product revenues decreased 54% from $16.9 million in fiscal 1995 to $7.7
million in fiscal 1996. This decrease resulted from the sale of eight
PanelPrinters in fiscal 1995 versus the sale of two PanelPrinters in fiscal
1996. Twenty-seven percent of fiscal 1996 product revenues represented
revenues derived from a substantial amount of work to rebuild and re-validate
PanelPrinters previously sold to one customer, as a result of fire damage in
their facility. In fiscal 1996, many prospective customers, especially those
who primarily produce semiconductors, deferred PanelPrinter purchasing
decisions.
Contract research revenues decreased 48% from $5.5 million in fiscal 1995 to
$2.9 million in fiscal 1996 due to reduced efforts on the DARPA project with
most of the material having already been purchased. The activity with DARPA
was recognized under the final phase of a $19.2 million contract which was
originally awarded in February 1992 and most recently increased by a contract
modification of $1.6 million in August of 1995, which extended through
October, 1996. This contract was converted during fiscal 1996 to a fixed
price contract with no additional fee to be billed.
Cost of product revenues decreased 32% from $10.9 million in fiscal 1995 to
$7.4 million in fiscal 1996. This decrease was attributable to the lower
volume of PanelPrinter sales in fiscal 1996 versus fiscal 1995. This decrease
was partially offset by additional charges taken to reduce the value of
inventory as a result of the decline in revenue and backlog at March 31, 1996.
Cost of contract research revenue decreased 45% from $5.3 million in fiscal
1995 to $2.9 million in fiscal 1996 due to the decrease in revenue.
Product gross profit decreased 95% from 35.5% of product revenues in fiscal
1995 to 4% in fiscal 1996 due to the significantly lower gross margin on the
revenue received for the product rework done during the year and inventory
provisions of $2.5 million. Product gross margin was flat at 36% before the
inventory provisions taken to reduce inventory value as a result of the
circumstances stated above.
Contract research gross margin was negative for fiscal 1996 due to the
cancellation of two tasks from the contract with associated fees that were
reversed.
Research and development expenses increased from $1.9 million in fiscal 1995
to $2.3 million in fiscal 1996, or 17%. This increase was mainly due to the
decreased work on the DARPA contract resulting in a lower absorption of labor
and overhead costs.
Selling, general, and administrative expenses (net of allocation to cost of
contract research) increased $0.9 million or 30% from $2.9 million in fiscal
1995 to $3.7 million in fiscal 1996. The increase year-to-year is mainly the
result of decreased activity under the DARPA contract resulting in lower
allocation of costs to contract activity and the efforts during fiscal 1996 to
strengthen the Company's sales and marketing organization.
<PAGE>
Other charges for fiscal 1996 of $4.5 million are the direct result of
strategic and resource allocation decisions made by the Company in the fourth
quarter of fiscal 1996 which eliminated or de-emphasized certain project and
business ventures which the Company did not have the resources to fund
adequately. Included in other charges are amounts totaling $2.0 million which
relates to the write-down of deposits and other assets as a result of the
Company's termination of its strategic partnership agreements for the
distribution of a laser imaging tool for the printed circuit board industry
and for a special projection lens development effort.
Also included in the $4.5 million of other charges are amounts totaling $2.1
million which relate primarily to the write-down of the Company's investment
in ICT GmbH and its rights to distribute and manufacture the LCD test system
previously being developed by the Company and ICT included in other assets.
Seasonality and Inflation
The Company's business is not seasonal in nature. The Company does not
believe that its operations have been materially affected by inflationary
forces during its three most recent fiscal years.
Liquidity and Capital Resources
The Company had cash and cash equivalents at March 31, 1997 of $3.3 million, a
decrease of $0.9 million from March 31, 1996. This decrease was mainly the
result of cash used in operations and the purchase of capital equipment,
offset by the proceeds from the sale of the Company's investments in ICT and
EBETECH, and cash provided by borrowings under the Company's line of credit.
In March 1997, the Company entered into a three year asset-based revolving
line of credit agreement which provides for borrowings of up to $4.0 million
based on accounts receivable and inventory balances. The line of credit
requires a minimum outstanding balance of $1.0 million for the fiscal year and
as of March 31, 1997 the Company had an outstanding balance of $1.0 million.
Under the terms of the Company's sale of its ownership interest in EBETECH,
the Company is jointly and severally liable for any claims under an
indemnification clause up to a maximum of $875,000. If certain assets of the
Company, net of certain liabilities, fall below a minimum amount, the Company
is required to place in escrow an amount up to the maximum liability under the
indemnification clause. The amount of potential escrow decreases quarterly
through the indemnification period which ends in September, 1998.
The Company requires significant working capital to support its research and
development efforts and to meet its ongoing production, selling and general
and administrative costs. In addition, the Company is subject to contingent
future obligations related to the sale of one of its PanelPrinters and its
investment in a business alliance which may result in additional liquidity
requirements, the timing of which is uncertain (See Notes F and I in Notes to
Consolidated Financial Statements).
Historically, the Company has been able to meet its working capital
requirements through its existing cash balances and amounts available under
its line of credit; as of May 15, 1997, $600,000 was available under the line
of credit. Subsequent to March 31, 1997, the Company obtained approval for
funding under a research and development contract. The Company also has a
letter of intent from a customer which the Company expects will become a firm
order as a result of the successful funding of this project. The Company
believes these resources are sufficient to meet its working capital needs and
future obligations through fiscal 1998.
The Company continues to actively pursue potential customer orders for its
existing products. Additionally, the Company is actively seeking strategic
relationships with companies which would enhance its ability to commercialize
the technology it has developed, strengthen its balance sheet and maximize its
long-term success. The specific types of relationships under consideration
include equity investments (minority or controlling), debt facilities,
research contracts, equipment purchase commitments, or any combination
thereof.
Factors Affecting Future Results
The ability of the Company to attain the financial or other results that may
be planned, forecasted or projected from time to time is subject to a number
of factors, including the ability to obtain new orders and the timing of
recording the related revenue, the ability to develop and manufacture new
products, the ability to respond to competitive technology and pricing
pressures, adequate availability of major components, and the ability to
maintain key employees for hardware, software, motions and imaging
technicians. In addition, the Company has historically been dependent upon a
limited number of markets and geographic areas to sell its product, the
PanelPrinter, therefore the Companys financial position and results of
operations may be impacted by economic and market conditions in the markets
and regions into which it sells its products.
PanelPrinters and optional equipment generally have ranged in price from $1.8
to $2.7 million and any delay in revenue recognition or cancellation of an
order would adversely affect the Company's results of operations, cash flows,
or both. Fluctuations in product revenues, and consequently quarterly net
income or loss, are largely related to revenue recognition on sales of
PanelPrinter units. In addition, the process for turning prospects into firm
purchasing commitments, and subsequently selling the systems is often lengthy.
Historically a significant portion of the Company's revenue was derived from
research and development contracts. The most significant funding source has
been DARPA. Additionally, a significant portion of the Company's historical
research and development efforts and development of new technologies to
enhance its products have been funded by these contracts. The Company's
ability to continue to develop new technologies is dependent upon the
Company's ability to internally fund its research and development efforts or
to enter into research and development arrangements funded by third parties.
New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 ("SFAS 128"), "Earnings per Share," which is effective for fiscal
years ending after December 15, 1997, including interim periods. SFAS 128
requires the presentation of basic and diluted earnings per share (EPS).
Basic EPS, which replaces primary EPS, excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity.
Diluted EPS is computed similarly to fully diluted EPS under the existing
rules. SFAS 128 requires restatement of all prior period earnings per share
data presented after the effective date. The Company will adopt and disclose
the impact of SFAS 128 in 1997.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a)Financial Statements
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements Page No.
Report of Independent Accountants 24
Consolidated Balance Sheets at March 31, 1996 and 1997 25
Consolidated Statements of Operations, Years ended 26
March 31, 1995, 1996 and 1997
Consolidated Statements of Stockholders' Equity, Years 27
ended March 31, 1995, 1996 and 1997
Consolidated Statements of Cash Flows, Years ended 28
March 31, 1995, 1996 and 1997
Notes to Consolidated Financial Statements 29
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of MRS Technology, Inc.:
We have audited the accompanying consolidated balance sheets of MRS
Technology, Inc. and subsidiaries as of March 31, 1996 and 1997 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three fiscal years in the period ended March 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of MRS Technology,
Inc. and subsidiaries as of March 31, 1996 and 1997 and the consolidated
results of its operations and its cash flows for each of the three fiscal
years in the period ended March 31, 1997, in conformity with generally
accepted accounting principles.
Boston, Massachusetts /s/ COOPERS & LYBRAND L.L.P.
May 23, 1997 COOPERS & LYBRAND L.L.P.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
March 31,
Assets -------------------------------
Current assets 1996 1997
<S> <C> <C>
Cash and cash equivalents $ 4,217,880 $ 3,290,982
Accounts receivable, net of allowance
for doubtful accounts of $25,000 and
$21,000, respectively 1,116,981 1,978,994
Inventories 8,093,014 7,313,982
Deposits 1,024,551 169,730
Other current assets 95,634 102,605
- --------------------------------------------------------------------
Total current assets 14,548,060 12,856,293
Property and equipment, net 1,017,266 533,244
Assets held for lease, net 696,808 -
Other assets 38,948 37,979
- -------------------------------------------------------------------
Total assets $16,301,082 $13,427,516
===================================================================
<CAPTION>
Liabilities and Stockholders' Equity
Current liabilities
<S> <C> <C>
Accounts payable $ 1,867,756 $ 370,644
Accrued expenses 1,456,975 813,224
Current portion of obligations
under capital leases 3,839 11,096
Customer deposits - 1,312,389
Other current liabilities 97,524 49,746
- ------------------------------------------------------------------
Total current liabilities 3,426,094 2,557,099
Long-term debt - 1,000,000
Long-term portion of obligations
under capital leases 11,165 -
- ------------------------------------------------------------------
Total liabilities 3,437,259 3,557,099
Commitments and contingencies (Notes F, I and M)
Stockholders' equity
Common stock, $.01 par value;
authorized, 20,000,000 shares;
issued and outstanding 6,674,320
and 6,776,355 shares respectively 66,743 67,763
Additional paid-in capital 36,246,889 36,383,258
Accumulated deficit (23,449,809) (26,580,604)
- -------------------------------------------------------------------
Total stockholders' equity 12,863,823 9,870,417
- -------------------------------------------------------------------
Total liabilities and stockholders'
equity $16,301,082 $13,427,516
==================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Operations
Years ended March 31,
------------------------------
Revenues 1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Product $16,896,756 $ 7,699,267 $5,173,273
Service - - 1,388,941
Contract research 5,501,407 2,857,927 578,483
---------- ----------- ----------
Total revenues 22,398,163 10,557,194 7,140,697
Cost of revenues
Product 10,892,811 7,389,402 4,040,747
Service - - 1,484,554
Contract research 5,337,269 2,890,661 578,483
---------- ---------- ---------
Total cost of revenues 16,230,080 10,280,063 6,103,784
Gross profit 6,168,083 277,131 1,036,913
Operating expenses:
Research and development 1,944,538 2,279,383 3,042,186
Selling, general and administrative 2,862,484 3,714,918 2,944,188
Other charges - 4,469,120 -
---------- ---------- ---------
Income (loss) from operations 1,361,061 (10,186,290) (4,949,461)
Interest income 339,665 335,803 112,566
Interest expense 33,939 4,906 653
Other income (expense), net 41,175 (85,333) 1,706,753
---------- --------- ----------
Income (loss) before provision for
income taxes 1,707,962 (9,940,726) (3,130,795)
Provision for income taxes 72,000 - -
- ------------------------------------------------------------------------
Net income (loss) $1,635,962 ($9,940,726)($3,130,795)
========================================================================
Net income (loss) per share $0.24 ($1.52) ($0.47)
Weighted average number of common
shares outstanding 6,952,424 6,549,672 6,717,000
</TABLE>
[FN]
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Changes in Stockholders' Equity
for the years ended March 31, 1995, 1996 and 1997
Class A
Commmon Stock
------------------ Additional Total Stock-
$.01 par Paid-In- Accumulated holders'
Shares Value Capital Deficit Equity
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance 3/31/94 6,321,678 $63,217 $35,869,557 ($15,145,045) $20,787,729
Issuance of common
shares in connection
with employee stock
purchase plan 15,290 153 77,827 77,980
Issuance of common
shares in connection
with employee stock
option plan 117,227 1,172 96,271 97,443
Issuance of common
shares in connection
with warrant exercise 1,536 15 1,367 1,382
Net income 1,635,962 1,635,962
--------------------------------------------------------
Balance 3/31/95 6,455,731 64,557 36,045,022 (13,509,083) 22,600,496
Issuance of common
shares in connection
with employee stock
purchase plan 21,866 219 86,533 86,752
Issuance of common
shares in connection
with employee stock
option plan 129,814 1,298 116,003 117,301
Issuance of common
shares in connection
with warrant exercise 66,909 669 (669) -
Net income (loss) (9,940,726) (9,940,726)
---------------------------------------------------------
Balance 3/31/96 6,674,320 66,743 36,246,889 (23,449,809) 12,863,823
Issuance of common
shares in connection
with employee stock
purchase plan 24,577 245 65,087 65,332
Issuance of common
shares in connection
with employee stock
option plan 77,458 775 71,282 72,057
Net income (loss) (3,130,795) (3,130,795)
--------------------------------------------------------
Balance 3/31/97 6,776,355 $67,763 $36,383,258 ($26,580,604) $9,870,417
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows Years ended March 31,
Cash flows from operating activities 1995 1996 1997
<S> <C> <C> <C>
Net income (loss) $1,635,962 ($9,940,726) ($3,130,795)
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Gain on sale of investment in
business alliance - - (1,717,032)
Other charges - 4,468,879 -
Inventory provisions - 2,493,232 -
Depreciation 367,006 795,286 643,554
Amortization 155,488 66,667 2,232
Changes in assets and liabilities:
Accounts receivable (1,110,912) 4,454,018 (862,013)
Inventories (3,099,479) (4,591,902) 779,032
Other assets (1,091,745) (437,430) 663,327
Accounts payable (55,003) (370,771) (1,497,112)
Accrued expenses 641,466 27,100 (643,753)
Other current liabilities - 97,524 (47,778)
Customer deposits from related parties (223,200) - -
Customer deposits from other 840,000 (840,000) 1,312,389
- -------------------------------------------------------------------------
Net cash used in operating activities (1,940,417) (3,778,123) (4,497,949)
Cash flows from investing activities
Purchases of property and equipment (896,540) (531,795) (79,463)
Investment in business alliance (1,000,000) - -
Proceeds from sales of short-term
investments 2,432,220 - -
Proceeds from sale of investment
in business alliance - - 2,517,033
- -------------------------------------------------------------------------
Net cash provided by (used in)
investing activities 535,680 (531,795) 2,437,570
Cash flows from financing activities
Proceeds from stock purchases under
employee stock purchase plan 77,980 86,752 65,332
Proceeds from employee stock option
exercises 97,443 117,301 72,057
Proceeds from warrant exercises 1,382 - -
Net borrowings under line of credit - - 1,000,000
Principal payments under capital
lease obligations (146,629) (16,421) (3,908)
- -------------------------------------------------------------------------
Net cash provided by financing activities 30,176 187,632 1,133,481
Net decrease in cash & equivalents (1,374,561)(4,122,286) (926,898)
Cash and cash equivalents at
beginning of year 9,714,727 8,340,166 4,217,880
Cash and cash equivalents at ----------- --------- ---------
end of year $ 8,340,166 $4,217,880 $3,290,982
=========================================================================
Supplemental cash flow information
Interest paid $33,939 $4,906 $653
Income taxes paid $2,489 $27,120 -
Supplemental disclosure of non-cash
investing and financing activities
Equipment acquired under capital leases $20,320 - -
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Nature of Business and Basis of Presentation
MRS Technology, Inc. (the "Company") was founded in 1986 and operates in one
market segment, the design, development and manufacture of advanced systems
necessary for production of flat panel active matrix displays, field emission
displays and other large area, microlithography-based electronics products.
Overview and Management Action Plan
During fiscal 1997, demand for the Company's products continued to decline
due to over capacity in certain active matrix liquid crystal display (AMLCD)
markets. The Company still, at the start of fiscal 1997, expected a slight
improvement in product sales as the Company had prospects principally in
Asia, and to a lesser extent the U.S., that planned to purchase tools for R&D
and pilot AMLCD lines. Existing orders were shipped as planned, however,
the collapse of the dynamic random access memory (DRAM) prices in the
Company's second fiscal quarter of fiscal 1997 resulted in customers and
prospects in Asia delaying upgrades and the purchase of new machines.
During the third quarter of fiscal 1997 the Company shipped a PanelPrinter,
however, customer acceptance has not been completed and, as a result, the
Company did not recognize revenue on the system in fiscal 1997. Subsequently
the customer commenced legal action against the Company which has resulted in
a delay in revenue recognition and remaining payments for the system shipped.
See Item 3. Legal Proceedings and Note F in Notes to Consolidated Financial
Statements.
In January of 1997 the Company determined that it could no longer sustain its
current level of expenses and that it would need to take aggressive actions
to preserve its ability to operate successfully in the near-term. The
Company terminated 35% of its employees and terminated or deferred long term
research projects so that it could refocus on its core PanelPrinter business.
During the third and fourth quarter, respectively, of fiscal 1997 the Company
sold its interests in Integrated Circuit Testing GmbH (ICT) and EBETECH
Electron-Beam Technology GmbH (EBETECH) as a part of this refocusing
resulting in additional liquidity and other income for fiscal 1997.
Risks and Uncertainties
The ability of the Company to attain the financial or other results that may
be planned, forecasted or projected from time to time is subject to a number
of factors, including the ability to obtain new orders and the timing of
recording the related revenue, the ability to develop and manufacture new
products, the ability to respond to competitive technology and pricing
pressures, adequate availability of major components, and the ability to
maintain key employees for hardware, software, motions and imaging
technicians. In addition, the Company has historically been dependent upon a
limited number of markets and geographic areas to sell its product, the
PanelPrinter, therefore, the Company's financial position and results of
operations may be impacted by economic and market conditions in the markets
and regions into which it sells its products.
<PAGE>
PanelPrinters and optional equipment generally have ranged in price from $1.8
to $2.7 million and any delay in revenue recognition or cancellation of an
order would adversely affect the Company's results of operations, cash flows,
or both. Fluctuations in product revenues, and consequently quarterly net
income or loss, are largely related to revenue recognition on sales of
PanelPrinter units. In addition, the process for turning prospects into firm
purchasing commitments, and subsequently selling the systems is often
lengthy.
Historically a significant portion of the Company's revenue was derived from
research and development contracts. The most significant funding source has
been Defense Advanced Research Projects Agency (DARPA). Additionally, a
significant portion of the Company's historical research and development
efforts and development of new technologies to enhance its products have been
funded by these contracts. The Company's ability to continue to develop new
technologies is dependent upon the Company's ability to internally fund its
research and development efforts or to enter into research and development
arrangements funded by third parties.
B. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statement in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of
the Company and its wholly owned subsidiaries, MRS Securities Corporation and
MRS Asia, Inc. Intercompany accounts and transactions have been eliminated
in consolidation.
Cash and Cash Equivalents
Cash equivalents are highly-liquid securities which include certificates of
deposit, money market funds, or other securities having a maturity of three
months or less at date of acquisition. Cash equivalents are stated at cost
plus accrued interest which approximates market value.
Revenue Recognition
The Company generally records product revenues upon completion of all
significant contractual obligations and product shipment. In certain
situations, where the Company has met all significant obligations and the
customer requests that shipment be delayed for certain post-contract
activity, such as the integration of third party equipment with the
PanelPrinter, revenue is recognized upon customer acceptance at the
Company's facility. Advance payments are recorded as customer deposits.
The Company has entered into research and development contracts with an
agency of the United States government as well as certain third-party
customers. The contracts are generally fixed price or cost-plus fixed fee
arrangements accounted for under the percentage-of-completion method, whereby
revenue and profit are recognized throughout the contract. Government
contract costs include direct labor and other direct costs related to
research and development contracts as well as allocated engineering overhead
and general and administrative costs. Government contract costs are reviewed
periodically and are adjusted to reflect expected reimbursable costs. The
costs and related revenue adjustments are recorded in the period in which
changes in estimates are determined. Estimates of cost to complete are
reviewed periodically, and adjustments to profit resulting from any revisions
are recorded in the accounting period in which the revisions are made.
Losses on contracts are recorded in full when they become evident. All
existing government contracts concluded in fiscal 1997.
The Company generally recognizes post-contract customer support revenue as
the services are performed on a time and material basis.
Warranty and Installation
The Company generally warrants its products for a period of 12 to 24 months
from delivery to an end user. A provision for the estimated future cost of
system installation and warranty is included in cost of sales at the time the
associated revenue is recognized.
Research and Development
Research and development costs for internal products are charged to expense
when incurred until technological feasibility has been established for the
product. Thereafter, all software costs are capitalized until the product is
available for general release to customers. The cost of purchased software
is capitalized for products determined to have reached technological
feasibility, otherwise the cost is charge to expense. Capitalized software
costs are amortized using the straight line method over the economic life of
the product or based upon the anticipated revenues of the product. The
financial statements do not contain any capitalized software development
costs as either the requirements for capitalization have not been met or the
impact of capitalization was insignificant.
<TABLE>
<CAPTION>
Year ended March 31,
-------------------------------
1995 1996 1997
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Research and development expenses $1,945 $2,279 $3,042
Contract-related research and
development costs (1) 4,277 2,664 488
------ ------ ------
Aggregate research and development costs $6,222 $4,943 $3,530
====== ====== ======
</TABLE>
(1) The balance of Cost of Contract Research consists of general and
administrative costs.
Inventories
Inventories are stated at the lower of cost or market, determined on a
first-in, first-out (FIFO) method. This method requires the periodic
assessment of net realizable value. The difference between cost and market
is charge to income in the period the impairment is determined.
<PAGE>
Foreign Currency
For foreign operations, the U.S. dollar has been determined to be the
functional currency. Monetary assets and liabilities are translated at rates
of exchange in effect at the end of the fiscal year, while non-monetary items
are translated at historical rates. Income and expense items are translated
at average exchange rates prevailing during the year, except that inventories
charged to cost of sales and depreciation are translated at historical rates.
The effect of exchange gains and losses, which include transactions
denominated in a foreign currency as well as hedges, is included in the
results of operations. No significant gains or losses were recorded in
fiscal 1995, 1996 or 1997.
Additionally, the Company may hedge certain portions of its exposure to
foreign currency fluctuations through the purchase of forward exchange
contracts. Gains and losses associated with currency rate changes on forward
contracts are recorded currently in income unless the contract hedges a firm
commitment, in which case any gains and losses are deferred and included as a
component of the related transaction. No forward exchange contracts were
outstanding at March 31, 1996 or 1997.
Long Lived Assets
Long lived assets are stated at cost and amortized using the straight-line
method over the assets' estimated useful lives. The Company will evaluate
the possible impairment of long-lived assets whenever events or circumstances
indicate that the carrying value of the assets may be impaired.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are
provided using the straight-line method over the estimated useful lives of
the related assets as follows:
Equipment and software 3-5 years
Furniture and fixtures 3-5 years
Leased equipment 2-5 years
Leasehold improvements are amortized over the lesser of the life of the lease
or the estimated useful life of the improvement.
Cost of additions and improvements are capitalized while expenditures for
maintenance and repairs are charged to expense as incurred. When assets are
retired, the related cost and accumulated allowances are removed from the
accounts, and any gain or loss is reflected in income.
Income Taxes
Income taxes are accounted for under the liability method. Under this method
deferred tax assets and liabilities are recorded based on temporary
differences between the financial statement amounts and tax bases of assets
and liabilities measured using enacted tax rates in effect for the year in
which the differences are expected to reverse. The Company periodically
evaluates the realizability of its net deferred tax asset. A valuation
allowance against the net deferred tax asset is established if, based upon
the available evidence, it is more likely than not that some or all of the
deferred tax asset will not be realized.
Net Income (Loss) Per Common Share
Net income per common share for fiscal 1995 was computed based upon the
weighted average number of common shares and common share equivalents
outstanding using the treasury stock method. Primary and fully diluted per
share information are not separately stated as such information is
substantially the same.
Net loss per common share for fiscal 1996 and 1997 was computed based upon
the weighted average number of common shares outstanding. Common equivalent
shares are not included in loss periods as their effect would be
anti-dilutive.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 ("SFAS 128"), "Earnings per Share," which is effective for fiscal
years ending after December 15, 1997, including interim periods. SFAS 128
requires the presentation of basic and diluted earnings per share (EPS).
Basic EPS, which replaces primary EPS, excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in
the issuance of common stock that then shared in the earnings of the entity.
Diluted EPS is computed similarly to fully diluted EPS under the existing
rules. SFAS 128 requires restatement of all prior period earnings per share
data presented after the effective date. The Company will adopt and disclose
the impact of SFAS 128 in 1997.
Reclassifications
Certain prior year balances have been reclassified to conform to the current
year's presentation.
C. Inventories
Inventories consist of the following ($ in 000's):
<TABLE>
<CAPTION>
March 31,
-------------------
1996 1997
---- ----
<S> <C> <C>
Finished goods $ - $ 726
Work in process 7,622 5,647
Purchased parts 471 941
------ ------
$8,093 $7,314
====== ======
</TABLE>
D. Property and Equipment
Property and equipment consist of the following ($ in 000's):
<TABLE>
<CAPTION>
March 31,
-----------------
1996 1997
---- ----
<S> <C> <C>
Equipment $ 2,718 $2,792
Software 370 375
Leasehold improvements 582 582
Furniture and fixtures 172 172
Asset held for lease 957 -
------- ------
4,799 3,921
Less: Accumulated depreciation
and amortization (3,085) (3,388)
------- -------
$ 1,714 $ 533
======= ======
</TABLE>
E. Capital Leases
Future minimum lease payments under capital leases and their related present
value at March 31, 1997 are as follows ($ in 000's):
<TABLE>
<CAPTION>
Fiscal year ending March 31:
<S> <C>
1998 $11
Total future minimum lease payments 11
Amount representing interest -
---
Present value of future minimum lease payments 11
Current portion 11
---
Long-term portion of obligations under capital leases $ -
===
</TABLE>
<PAGE>
Equipment under capital leases is as follows ($ in 000's):
<TABLE>
<CAPTION>
March 31,
--------------
1996 1997
---- ----
<S> <C> <C>
Equipment $466 $466
Less: accumulated amortization (466) (466)
----- -----
$ - $ -
===== =====
</TABLE>
F. Commitments and Contingencies
Leasing Arrangements
The Company leases its principal office and manufacturing facility and
certain other facilities under operating leases. In fiscal years ending
March 31, 1995, 1996 and 1997, rental expense under such operating leases was
approximately $335,600, $249,502 and $173,367, respectively. The lease terms
expire at various dates through February 1998. The terms include one,
three-year renewal option and require future minimum base rent payments under
noncancellable leases of $145,398 in the fiscal year ending March 31, 1998.
The Company is obligated to pay additional rent comprised of property taxes,
utilities, and facility operating expenses.
<PAGE>
Purchase Commitments
At March 31, 1997, the Company has inventory purchase commitments with one
large vendor for specialized components and equipment manufactured for
resale. Outstanding commitments for these purchases approximated $660,000.
Litigation
On January 24, 1997, Micron Display Technology, Inc. ("Micron Display")
brought suit against the Company alleging in five counts breach of contract,
breach of implied warranties, and breach of express warranties, in connection
with a Model 5200 PanelPrinter (the "PanelPrinter") which the Company alleges
Micron Display purchased from the Company in 1996. On January 30, 1997, the
Company filed an action against Micron Display alleging in two counts breach
of contract and violation of M.G.L. c.93A, in connection with Micron
Display's nonpayment for the PanelPrinter.
On April 17, 1997, the Company filed a motion in the Idaho action seeking a
preliminary injunction that would prohibit Micron Display from interfering
with the Company's efforts to repossess the PanelPrinter and offer it for
sale to another customer, with the proceeds of such sale to be placed in an
escrow account pending resolution of the lawsuit. The Idaho court held a
hearing on the Company's motions to transfer venue and for preliminary
injunction on May 23, 1997. The court indicated that the Company's motions
to transfer would be denied, and took the motion for preliminary injunction
under advisement. The Massachusetts court has not yet ruled on Micron
Display's motion to dismiss or transfer the Company's Massachusetts case. It
is expected that the Massachusetts action will be dismissed following the
entry of the Idaho court's written order denying transfer of that case to
Massachusetts.
The parties dispute which documents constitute the contract between them.
Further, Micron Display alleges, among other things, that the PanelPrinter
failed to meet certain performance specifications contained in what it
contends constituted the contract, and that, as a consequence, it is entitled
to the return of its $1.0 million deposit and the conversion of the parties
relationship to a lease of the PanelPrinter, or a PanelPrinter of like
quality. MRS maintains that other documents constitute the contract,
pursuant to which there was no right to convert the relationship to a lease,
and further denies that the PanelPrinter failed to meet specifications set
forth in the document cited by Micron Display. MRS seeks approximately $1.4
million as the unpaid balance of the contract price, and further remedies
under the Massachusetts Unfair Business Practices Act. No court has as yet
ruled on the substantive merits of the claims asserted by the parties.
Although the Company expects that the potential return of the deposit will
not have a significant impact on results of operations, it may have a
negative impact on liquidity.
G. Accrued Expenses
<TABLE>
<CAPTION>
Accrued expenses consist of the following ($ in 000's):
March 31,
-----------------
1996 1997
---- ----
<S> <C> <C>
Payroll and related costs $ 438 $376
Professional fees 131 132
Warranty 420 124
Accrued machine costs 326 -
Other 142 151
------ ----
$1,457 $783
====== ====
</TABLE>
H. Income Taxes
The Company reported a provision for income taxes for federal and state tax
purposes of $72,000 in fiscal 1995. No provision for income taxes was
recorded in fiscal 1996 or 1997 due to taxable losses in those years.
A reconciliation of the provision for income taxes at the federal statutory
rate is as follows:
<TABLE>
<CAPTION>
March 31,
-----------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Provision for income taxes at
the federal statutory rate 34.0% (34.0)% (34.0)%
State income taxes, net of
federal benefit 6.0 - -
Utilization of net operating
loss carryforwards (35.8) - -
Net loss without tax benefit - 34.0 34.0
---- ---- ----
Provision for income taxes 4.2% 0.0% 0.0%
==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
The components of the deferred taxes are as follows ($ in 000's):
March 31,
--------------------
1996 1997
------- --------
<S> <C> <C>
Deferred tax assets $11,593 $ 12,374
Deferred tax liabilities - -
Valuation allowance (11,593) (12,374)
-------- --------
$ - $ -
======= ========
</TABLE>
<TABLE>
<CAPTION>
The approximate tax of the temporary differences and carryforwards before
allocation of the valuation allowance is as follows ($ in 000's):
March 31,
---------------------
Deferred tax assets (liabilities): 1996 1997
------- -------
<S> <C> <C>
Net operating loss and credit carryforwards $10,586 $11,504
Depreciation and reserves 1,007 870
------- -------
Net deferred tax asset $11,593 $12,374
======= =======
</TABLE>
Due to the uncertainty surrounding the timing of realizing the benefits of
its favorable tax attributes in future tax returns, the Company has
established a 100% valuation allowance against its net deferred tax asset.
At March 31, 1997, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $26,017,000 which will expire
from 2003 to 2012. Approximately $1,505,000 of the net operating loss
carryforward relates to option related deductions which, when benefited will
result in a credit to Additional Paid in Capital of approximately $176,887
rather than a reduction in the current tax provision. At March 31, 1997,
federal and state research and development credit carryforwards were
approximately $1,097,000 which will expire from 2002 to 2012. In general,
such carryforwards may be used to reduce future taxable income or reduce
future taxes. However, certain provisions of the Internal Revenue Code could
potentially limit annual utilization of the operating loss and research and
development tax credit carryforwards if there has been a fifty percent
ownership change within the prior three year period. As a result of the
Company's initial public offering, the Company believes that certain of it's
annual limits are in effect.
I. Investment in Business Alliance
On October 21, 1994, the Company entered into a strategic partnership with
ICT to develop and introduce an electrical test system for AMLCD's. In
connection with this strategic partnership, the Company entered into
agreements under which the Company would purchase electrical test systems,
would develop material handling systems and high-level user interfaces for
the electrical testers, and would acquire distribution and commercialization
rights in all areas of the world except Europe. The Company made payments of
$1,000,000 in each of fiscal 1995 and 1996 related to these agreements. In
addition, in fiscal 1995 the Company acquired a 10% equity interest in ICT
for $1,000,000 which was accounted for under the cost method. In connection
with the equity investment, the Company issued warrants to ICT (see Note J).
During fiscal 1996, ICT began discussions with other companies regarding
being acquired which indicated an impairment in the Company's investment. As
a result, the Company recorded other charges of $2,134,000 to reduce its
investment in ICT and the related tester product and commercialization and
distribution rights to their estimated realizable value.
During fiscal 1997, a portion of ICT was spun-off from EBETECH, a separate
corporation owned by MRS, Seimens AG (Seimens) and a group of other
investors. ICT was sold to Opal in October, 1996 and EBETECH was sold to
ETEC Systems Inc. (ETEC) in March 1997. MRS received $2.5 million.
Under the terms of the Company's sale of its ownership interest in EBETECH,
the Company is jointly and severally liable for any claims under an
indemnification clause up to a maximum of $875,000. In relation to this
should certain assets of the Company, net of certain liabilities, fall below
a minimum amount, the Company is required to place in escrow an amount up to
the maximum liability under the indemnification clause. The amount of
potential escrow decreases quarterly through the indemnification period which
ends in September, 1998.
<PAGE>
In December 1992, the Company and JENOPTIK entered into agreements for the
development of a special lens system and in March 1993 the Company executed
agreements with JENOPTIK which granted to JENOPTIK the exclusive right to
distribute and service the Company's products in Europe and the Commonwealth
of Independent States, and in turn the Company was granted exclusive rights
to distribute and service certain of JENOPTIK's products in the United
States, Canada, and Mexico. On March 7, 1996, the Company and JENOPTIK
agreed to terminate the lens system development agreement and the
distribution agreements. As a result of the termination agreement, the
Company recorded other charges of $2,036,000 to write-down deposits, for the
lens and payment made in connection with the Company's distribution rights
associated with JENOPTIK's products.
J. Stockholders' Equity
Stock Warrants
In connection with certain lease agreements entered into by the Company as
described in Note E, the Company entered into Warrant Purchase Agreements
whereby the lessors were issued warrants to purchase shares of stock. In
fiscal 1994, the remaining warrants to purchase 7,633 shares were exercised
in a cashless transaction into 1,729 shares of Common Stock. In fiscal 1993,
the Company issued warrants to a leasing agent providing for the purchase of
up to 8,080 shares by the lessor at $9.28 per share at any time in a period
of five years from the time of issuance. At March 31, 1997, these warrants
remain exercisable.
In connection with a series of agreements for a strategic partnership with
ICT (see Note I), on October 19, 1994, the Company issued a warrant to
purchase 100,000 shares of Common Stock at $7.625 per share. This warrant
was canceled on September 30, 1996.
In connection with short-term financing received in fiscal 1993, the Company
issued warrants to purchase 9,940 shares of Common Stock which were
exercisable at $.90 per share at any time prior to June 17, 1997. Prior to
March 31, 1997, warrants remain exercisable for an aggregate of 4,714 shares
of Common Stock.
In connection with the issuance of Class B Preferred Stock in fiscal 1993,
the Company issued a warrant for the purchase of 80,000 shares of Common
Stock at $.90 per share. The warrant became exercisable on July 23, 1993.
On March 22, 1996, this warrant was exercised on a net-spread basis for
66,909 shares, with the balance of 13,091 shares being canceled by this
exercise.
Stock-Based Compensation Plans
The Company has adopted the disclosure requirements of Statement of Financial
Accounting Standard (SFAS) No. 123, "Accounting for Stock-Based
Compensation", for stock options granted in fiscal 1996 and 1997. The
company continues to recognize compensation costs using the intrinsic value
based method described in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." No compensation cost were
recognized in 1997 and 1996.
For the purpose of providing pro forma disclosures, the fair values of
options granted were estimated using the Black-Scholes option-pricing model
with the following weighted-average assumptions used for grants in 1997 and
1996, respectively: a risk-free interest rate of 6.2% and 6.4%, and an
expected life of 6 years, expected volatility of 90% and no expected
dividends.
Net loss and net loss per share as reported in these consolidated financial
statements and on a pro forma basis, as if the fair value based method
described in SFAS No. 123 had been adopted, are as follows (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
Year Ended March 31,
----------------------
1996 1997
------- -------
<S> <C> <C>
Net loss
As reported ( 9,941) (3,131)
Pro forma (10,726) (4,115)
Primary net loss per share
As reported ($1.52) ($0.47)
Pro forma ($1.64) ($0.61)
Fully diluted net loss per share
As reported ($1.52) ($0.47)
Pro forma ($1.64) ($0.61)
</TABLE>
The effects of applying SFAS No. 123 for the purpose of providing pro forma
disclosures may not be indicative of the effects on reported net income and
net income per share for future years, as the pro forma disclosures include
the effects of only those awards granted after April 1, 1995.
Stock Option Plans
In July 1986, the Company adopted the 1986 Stock Option Plan (the "1986
Plan"). The 1986 Plan provides for the granting of incentive stock options
(within the meaning of Section 422A of the Internal Revenue Code) and
nonstatutory options to key employees and consultants to purchase shares of
the Company's Common Stock at not less than fair market value at the date of
grant. Options granted pursuant to the plan are exercisable for a period of
ten years from grant and typically vest over four years beginning on the
first anniversary of the grant. The 1986 Plan was terminated on March 29,
1993.
In March 1993, the Company adopted the 1993 Stock Option Plan (the "1993
Plan") which has substantially the same terms as the 1986 Plan and which
provides for the granting of incentive stock options (within the meaning of
Section 422A of the Internal Revenue Code) and nonstatutory options to key
employees, directors, and consultants.
In July 1994, the Stockholders approved a Stock Option Plan for non-employee
directors. Options are granted according to a formula based on term of
office and are exercisable for a period of ten years from date of grant.
Additionally in July 1994 Stockholders approved an amendment to increase the
number of shares reserved for the 1993 Stock Option Plan.
The Company has reserved 1,500,000 shares of Common Stock for issuance
pursuant to the 1986 and 1993 Plans. At March 31, 1997, 272,337 shares were
available for option grants and options for 314,836 shares were exercisable.
The Company has reserved 100,000 shares of Common Stock for issuance pursuant
to the 1994 Non-Employee Director Plan. At March 31, 1997, 25,000 shares
were available for option grant and options for 65,000 shares were
exercisable.
On August 21, 1995, the Company granted 199,643 options at the current fair
market value with similar terms and conditions to previously issued but
unexercised grants. In exchange for the new grant, employees agreed to a
cancellation of the prior options. On February 12, 1997 the Company granted
548,027 options at the current fair market value with similar terms and
conditions to previously issued but unexercised grants. In exchange for the
new grant, employees agreed to a three for four cancellation of the prior
options.
<PAGE>
<TABLE>
<CAPTION>
The following table summarizes the Company's stock option plans at March 31:
1995 1996 1997
----------------- ----------------- -----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 788,268 $3.9069 887,327 $4.9424 1,004,043 $4.5960
Granted 311,280 $7.0576 611,843 $5.3925 1,017,127 $2.1838
Exercised (117,227) $0.8312 (129,814)$0.9036 (77,458) $0.9303
Forfeited (94,994) $8.3543 (365,313)$8.0835 (1,029,509) $4.7382
Outstanding at
end of year 887,327 $4.9424 1,004,043 $4.5960 914,203 $2.0628
Options exercisable
at year-end 466,294 415,202 379,836
1996 1997
---- ----
Weighted-average grant-date fair value
of options granted during the year $5.3925 $2.1838
</TABLE>
<TABLE>
<CAPTION>
The following table summarizes information about stock options outstanding
at March 31, 1997.
Options Outstanding Options Exercisable
---------------------------------- --------------------
Weighted
Average
Remaining Weighted Weighted
Contractual Average Average
Range of Number Life Exercise Number Exercise
Exercise Prices Outstanding (In Years) Price Exercisable Price
- --------------- ----------- ---------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
$0.6000 $0.9000 117,124 3.16 $0.8918 117,124 $0.8918
1.5000 1.6250 654,365 8.45 1.6196 164,998 1.6036
2.5000 3.2500 45,825 9.50 2.6363 5,825 2.9281
4.2000 5.7500 39,166 7.24 4.9229 34,166 4.8018
6.3750 8.2500 57,723 7.18 7.0667 57,723 7.0667
------ ------ ------- ---- ------- ------- -------
$0.6000 $8.2500 914,203 7.69 $2.0628 379,836 $2.5223
======= ======= ======= ==== ======= ======= =======
</TABLE>
<PAGE>
Employee Stock Purchase Plan
Under the 1994 Employee Stock Purchase Plan employees are entitled to
purchase shares of Common Stock through payroll deductions of up to 10% of
their compensation. The price paid for the Common Stock is equal to 85% of
the lower of the fair market value of the Company's Common Stock on either
the first or last day of the offering period. The offering is a six month
period starting each May and November 1st. The Company has reserved 200,000
shares of Common Stock for issuance pursuant to the 1994 Employee Stock
Purchase Plan. At March 31, 1997, 61,733 shares have been issued and 138,267
shares were available for future participants. Shares purchased under the
Employee Stock Purchase Plan total 15,290 in fiscal 1995, 21,866 in fiscal
1996 and 24,577 in fiscal 1997. Weighted average grant date fair value of
shares purchased under the Employee Stock Purchase Plan was $1.83 in fiscal
1997 and $1.52 in fiscal 1996.
For the purpose of providing pro forma disclosures, the fair values of shares
purchased were estimated using the Black-Scholes option-pricing model with
the following weighted-average assumptions used for purchases in 1997 and
1996, respectively: a risk-free interest rate of 5.33% and 5.64%, an expected
life of 6 months, expected volatility of 90% and no expected dividends.
K. Accounts Receivable
The Company had approximately $125,000 and $83,000 of unbilled receivables
included in the accounts receivable balances at March 31, 1996 and March 31,
1997, respectively. The fiscal 1996 and 1997 balances are mainly due under
the DARPA contract. The amounts billed in connection with DARPA are subject
to audit by a government administrative agency. The Company's accounts
receivable are due from large, well established companies. Consequently, in
management's opinion, no significant concentration of credit risk exists for
the Company.
L. Long-term Debt
In March 1997, the Company entered into a three year asset-based revolving
line of credit agreement which provides for borrowings of up to $4.0 million
based on accounts receivable and inventory balances. The line of credit
requires a minimum outstanding balance of $1.0 million for the first year.
At March 31, 1997 the Company had $0.7 available under the line of credit.
The line of credit bears an interest rate charged on the outstanding balance
of the prime rate plus 2.25% but in no event less than 9% per annum. The
borrowing base for accounts receivable is up to 80% of the Company's eligible
receivables and the inventory borrowing base is up to 30% of the Company's
eligible inventory. The line is subject to the Company's compliance with
certain financial covenants the most restrictive of which relates to tangible
net worth. This line requires that the loan be secured by a first priority
lien on all assets of the Company.
M. Export Sales
Export sales have been made to Japan, Korea, Taiwan, Europe and Canada. For
the years ended March 31, 1995, 1996 and 1997, export sales accounted for
approximately $5,716,000, $4,700,000 and $1,000,000, respectively of total
revenues.
N. Significant Customers
During the fiscal years ended March 31, 1995, 1996 and 1997, the Company's
product revenue included sales to five customers of $8.4 million, $2.6
million, $2.0 million, $1.9 million and $1.7 million, sales to three
customers of $2.4 million, $2.1 million and $2.0 million and sales to three
customers of $2.7 million, $1.3 million and $0.8 million, respectively.
Additionally, contract research revenues from an agency of the U. S.
government for the years ended March 31, 1995, 1996, and 1997 accounted for
approximately $5,501,000, $2,858,000 and $579,000 of total revenues,
respectively.
O. 401(k) Savings Plan
Effective April 1, 1993, the Company established the MRS Technology, Inc.
401(k) Savings Plan (the "Plan"). The Plan is a defined contribution plan
which covers substantially all of the Company's employees. Participants may
make voluntary contributions of 1% to 15% of their annual compensation.
Contributions by the Company are discretionary. The Company made no
contributions to the Plan during the fiscal years ended March 31, 1995, 1996
and 1997.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCE DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS OF THE REGISTRANT
(Executive Officers listed in Part I)
<TABLE>
<CAPTION>
(a) Directors Position Term
Director with the Director of Office
Name Age Since Company Class will expire
- --------------------- --- ----- -------- ------ ------------
<S> <C> <C> <C> <C> <C>
Carl P. Herrmann (49) 1997 Director II 1997
Bennett F. Moore (46) 1994 Director II 1997
Ronald K. Haigh (62) 1994 Director III 1998
Griffith L. Resor III (56) 1986 Director III 1998
Robert P. Schechter (48) 1988 Director I 1999
</TABLE>
Carl P. Herrmann, Director. Mr. Herrmann has been an independent management
and international marketing consultant since December 1994. From July 1991
to November 1994, he was at Solbourne Computer, Inc. most recently as
President and Chief Executive Officer. From May 1989 to November 1990 he was
the Hong Kong-based Director of Asia/Pacific Operations for Amphenol Corp.
From October 1984 to April 1989 he was Managing Director of GenRad Inc.'s
regional operations based in Singapore. From August 1993 to September 1994
he was the Tokyo-based Vice President of TEL-GenRad, KK, a joint venture
developing and manufacturing PC board and semiconductor test systems.
Bennett F, Moore, Director. Mr. Moore has been President of Meggitt USA,
Inc., a subsidiary of Meggitt PLC of the UK, since March 1993. He joined
Meggitt in 1986 and has held several positions in the UK and USA, most
recently until March 1993 as Managing Director of Meggitt's US Aerospace
division.
Ronald K. Haigh, Director. Mr. Haigh has been an independent manufacturing
technology consultant since July 1994. From 1988 to June 1994, he was at
Summit Technology, a manufacturer of laser-based ophthalmic surgery systems,
most recently as Vice President, Manufacturing. Prior to that he had
significant semiconductor equipment manufacturing experience at Eaton
Corporation.
Griffith L. Resor III, President and Director. Mr. Resor, a founder of the
Company, has served as President and a director of the Company since its
organization in February 1986. Prior to the Company's formation, Mr. Resor
was Vice President and General Manager for new products at GCA Corporation, a
manufacturer of photolithographic equipment for the integrated circuit
industry. Mr. Resor received a B.S, in physics from Yale University and a
M.B.A. from Harvard University.
Robert P. Schechter, Director. Mr. Schechter joined Natural MicroSystems
Corporation as President and Chief Executive Officer in April, 1995 and in
May 1996 was also elected Chairman of the Board. From 1987 to December, 1994
he was at Lotus Development Corporation, most recently as Senior Vice
President, International Business Group. From 1973 and until he joined
Lotus, Mr. Schechter was associated with Coopers & Lybrand, most recently as
a Partner and Northeast Regional Chairman of Coopers & Lybrand's High
Technology Industry Group. Mr. Schechter is a director of Raptor Systems,
Inc. and Natural MicroSystems Corporation.
(b) Reports of Beneficial Ownership.
See the information under the caption "Compliance with Section 16(a) of the
Exchange Act" on page 2 of the Proxy Statement, which information is
incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
See the information under the caption "Executive Compensation" beginning on
page 7 of the Proxy Statement, which information is incorporated by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the information under the caption "Share Ownership of Principal
Stockholders and Management" beginning on page 2 of the Proxy Statement,
which information is incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the information under the caption "Certain Transactions" on page 13 of
the Proxy Statement, which information is incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1 (a).Financial Statements
See Index to Consolidated Financial Statements Page 23
1 (b).Supplementary Data
See Page 16.
All schedules are omitted as the required information is not applicable or
the information is presented in the Consolidated Financial Statements or
Notes thereto.
<PAGE>
(b) Reports on Form 8-K.
No reports on Form 8-K were filed and no matters submitted to vote of
security holders during the fourth quarter of the fiscal 1997.
(c)Exhibits
Exhibit Description Reference
- ------- ------------------------------------- ---------
3.0 Articles of Incorporation and Bylaws
3.1 Restated Articles of Organization (A)
3.2 Amended and Restated By-Laws (A)
3.3 Articles of Amendment to the Articles of Organization (C)
4.0 Instruments defining the rights of security holders,
including indentures:
4.0 Specimen Certificate of Common Stock (A)
10.0 Material Contracts
10.1 DARPA Contact (A)
10.12 CRADA Agreement for Development of Illumination System (A)
10.13 CRADA Agreement for Development of a High Accuracy
Transport System (A)
10.14 Lease relating to Company's Headquarters (A)
10.15 1986 Stock Option Plan (A)(B)
10.16 1993 Stock Option Plan (B)(D)
10.17 DARPA Modification (C)
10.18 Lease relating to Company's Headquarters-Third Amendment (C)
10.22 1994 Employee Stock Purchase Plan (B)(D)
10.23 Stock Option Plan for Non-Employee Directors (B)(D)
10.25 Lease relating to Company's Headquarters-Fourth Amendment (E)
Dated February 1, 1995
10.27 DARPA Modification - SPIN #P0004 (E)
10.28 DAPRA Modification - SPIN #P0005 (E)
10.29 DAPRA Modification - SPIN #P0006 (E)
10.30 DAPRA Modification - SPIN #P0007 (E)
10.31 DAPRA Modification - SPIN #P0008 (E)
10.32 October 19, 1994 Business Agreement with ICT Integrated (E)
Circuit Testing GmbH
10.33 October 19, 1994 First Amendment to Business Agreement (E)
with ICT
10.34 November 17, 1994 Subscription Agreement with Warranty (E)
and Shareholder Agreement (ICT)
10.35 Common Stock Purchase Warrant dated October 19, 1994 (E)
and delivered November 17, 1994.
10.36 Statement of Takeover Pursuant to Limited Liability (E)
Company Act Section 55(1) dated February 16, 1995.
10.37 Acceleration of ICT Part III Agreement (F)
10.39 DARPA Modification (F)
10.42 Employment Agreement Letters (F)
10.43 Share Purchase Agreement ETEC/EBETECH
10.44 Employment Agreement Letter
11.0 Statement Re: Computation of Earnings (Loss) Per Share
11.0 Statement
21.0 Subsidiaries of the Registrant
21.0. Subsidiaries (A)
23.0 Consents of Experts and Counsel
23.1 Consent of Coopers & Lybrand L.L.P.
(A) Incorporated by reference from Registration Statement on Form S-1
(Commission File No. 33-64220).
(B) These contracts relate to Executive Compensation.
(C) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ending March 31, 1994.
(D) Incorporated by reference to the Company's Proxy Statement for the
Annual Meeting of Stockholders held on July 28, 1994.
(E) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ending March 31, 1995.
(F) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ending March 31, 1996.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the
undersigned, authorized officers.
MRS Technology, Inc.
(Registrant)
/s/ Griffith L. Resor III President and Chief Executive Officer 5/29/97
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
(1) Principal executive officer:
/s/Griffith L. Resor III President & Chief Executive Officer 5/29/97
(2) Principal financial officer:
/s/Patricia F. DiIanni Chief Financial Officer 5/29/97
(3) A majority of the Board of Directors:
/s/Ronald K. Haigh Director 5/27/97
/s/Bennett F. Moore Director 5/30/97
/s/Griffith L. Resor III Director 5/29/97
/s/Robert P. Schechter Director 5/29/97
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Form 10-K
for the fiscal year ended March 31, 1996.
</LEGEND>
<CIK> 0000906768
<NAME> MRS TECHNOLOGY, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 3,290,982
<SECURITIES> 0
<RECEIVABLES> 1,999,994
<ALLOWANCES> 0
<INVENTORY> 7,313,982
<CURRENT-ASSETS> 12,856,293
<PP&E> 3,921,482
<DEPRECIATION> 3,388,238
<TOTAL-ASSETS> 13,427,516
<CURRENT-LIABILITIES> 2,557,099
<BONDS> 0
0
0
<COMMON> 67,763
<OTHER-SE> 9,802,654
<TOTAL-LIABILITY-AND-EQUITY> 13,427,516
<SALES> 5,173,273
<TOTAL-REVENUES> 7,140,697
<CGS> 4,040,747
<TOTAL-COSTS> 6,103,784
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 653
<INCOME-PRETAX> (3,130,795)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,130,795)
<EPS-PRIMARY> (0.47)
<EPS-DILUTED> (0.47)
</TABLE>
EXHIBIT 10.43
SHARE PURCHASE AGREEMENT
Among
ETEC SYSTEMS Inc.,
SXR-2 Vermogensverwaltungsgesellschaft mbH,
Ebetech Electron Beam Technology Vertriebs GmbH
and
THE SELLING SHAREHOLDERS NAMED HEREIN
March 13/14, 1997
INHALTSVERZEICHNIS
ARTICLE 1
PURCHASE AND SALE 1
1.1 Purchase and Sale of Shares 1
ARTICLE 2
CLOSING 2
2.1 Closing Date 2
2.2 Transfer of Shares and Term Debt 2
2.3 Additional Payment 2
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS 2
3.1 Organization 3
3.2 Authority 3
3.3 Capital Structure 3
3.4 Financial Statements 4
3.5 Business Changes 5
3.6 Properties 6
3.7 Accounts Receivable; Notes Receivable 7
3.8 Taxes 7
3.9 Compliance with Law 8
3.10 Litigation 8
3.11 Contracts 9
3.12 Operating Leases 10
3.13 No Default 10
3.14 Business and Customers 10
3.15 Inventories and Work in Progress 10
3.16 Proprietary Rights 11
3.17 CE Mark Certification 12
3.18 Insurance 12
3.19 Bank Accounts 13
3.20 Brokers or Finders 13
3.21 Related Parties 13
3.22 Certain Advances 13
3.23 Employee Benefit Plans 14
3.24 Underlying Documents 14
3.25 Full Disclosure 14
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF ETEC AND ETEC SUB 14
4.1 Organization 14
4.2 Authority 14
4.3 Brokers or Finders 15
4.4 Full Disclosure 15
ARTICLE 5
COVENANTS RELATING TO CONDUCT OF BUSINESS 16
5.1 Conduct of Business in Normal Course 16
5.2 Preservation of Business and Relationships 16
5.3 Maintenance of Insurance 16
5.4 Employees and Compensation 16
5.5 Dividends; Changes in Stock 16
5.6 Issuance of Securities 17
5.7 Governing Documents 17
5.8 No Other Bids 17
5.9 No Acquisitions 17
5.10 No Dispositions 17
5.11 Indebtedness 17
ARTICLE 6
ADDITIONAL AGREEMENTS 17
6.1 Access to Information 17
6.2 Legal Conditions 18
6.3 Good Faith 18
ARTICLE 7
CONDITIONS PRECEDENT 18
7.1 Conditions to Obligations of Etec, Etec Sub and Sellers 18
(a) Government Approvals 18
(b) Third-Party Approvals 18
(c) Legal Action 19
7.2 Conditions to Obligations of Etec and Etec Sub 19
(a) Representations and Warranties 19
(b) Performance of Obligations 19
(c) No Material Adverse Change 19
(d) Patents 19
7.3 Conditions to Obligations of Sellers 19
(a) Representations and Warranties 19
(b) Performance of Obligations of Etec and Etec Sub 20
ARTICLE 8
INDEMNIFICATION 20
8.1 Indemnification by Sellers 20
8.4 Indemnification by Etec 21
ARTICLE 9
PAYMENT OF EXPENSES 22
ARTICLE 10
TERMINATION, AMENDMENT AND WAIVER 22
10.1 Termination 22
10.2 Amendment 22
10.3 Extension; Waiver 22
ARTICLE 11
GENERAL 23
11.1 Notices 23
11.2 Announcements 23
11.3 Headings 23
11.4 Counterparts 23
11.5 Binding Nature 24
11.6 Schedules 24
11.7 Applicable Law 24
<PAGE>
SHARE PURCHASE AGREEMENT
THIS SHARE PURCHASE AGREEMENT (this "Agreement") is made and entered into as
of the 14th day of March, 1997, by and among ETEC SYSTEMS, INC., a Nevada
corporation ("Etec") and SXR-2 Vermogensverwaltungsgesellschaft mbH, a
wholly-owned subsidiary of Etec, (in the future: ETEC SYSTEMS EUROPE (GmbH), a
company organized under the laws of the Federal Republic of Germany ("Etec
Sub"), on the one hand, and VCB VENTURE CAPITAL BETEILIGUNGSGESELLSCHAFT mbH,
MUNICH, a corporation organized under the laws of the Federal Republic of
Germany ("VCB"), MRS TECHNOLOGY INC., a Massachusetts corporation ("MRS"),
URSULA FAZEKAS, an individual, DR. MATTHIAS BRUNNER, an individual, DR.. RALF
SCHMID, an individual, THOMAS SCHWEDES, an individual, VOLKER DAIKER, an
individual, (each individually a "Seller" and collectively "Sellers"), and, as
to the provisions of Articles 5 and 6 hereof only, EBETECH ELECTRON BEAM
TECHNOLOGY VERTRIEBS GmbH, a corporation organized under the laws of the
Federal Republic of Germany ("Ebetech"), on the other hand.
Whereas Etec, either directly or through Etec Sub desires to acquire all of
the issued and outstanding shares (the "Shares") of share capital of Ebetech
as listed in Schedule 3.3.(d) in consideration of certain cash payments as
herein provided, all in accordance with the terms hereof.
NOW, THEREFORE, in consideration of the premises and of the mutual provisions,
agreements and covenants herein contained, Etec, Etec Sub Sellers and Ebetech
agree as follows:
ARTICLE 1
PURCHASE AND SALE
1.1 Purchase and Sale of Shares.
(a) Subject to the terms and conditions set forth in this Agreement,
Etec and Etec Sub hereby agree to purchase from Sellers and Sellers hereby
agree to sell, convey, transfer and assign to Etec or Etec Sub, all of the
Shares and all claims of Sellers towards Ebetech in a total amount of DM
1,694,900 (hereinafter referred to as "Term Debt") as listed in Schedule 3.3
(d). The Shares shall be sold and conveyed to Etec or Etec Sub free and clear
of all mortgages, liens, pledges, charges, encumbrances, equities, claims,
covenants, conditions or restrictions.
(b) As payment for the transfer of the Shares and the Term Debt to Etec
or Etec Sub, subject to and in accordance with Article 2, Etec or Etec Sub
shall pay to Sellers cash in the sum of Five Million dollars (US$5,000,000)
(hereinafter referred to as "Purchase Price") being allocated as follows:
aa) US$ 4,008,483.50 for the purchase of the Shares and
bb) US$ 991,516.50 for the purchase of the Term Debt
which shall be paid in accordance with Sections 2.2 and 2.3.
ARTICLE 2
CLOSING
2.1 Closing Date. The Closing under this Agreement (the "Closing") shall be
held on March 14, 1997, unless any condition to Closing has not been satisfied
or waived, in which event the Closing shall be on a date agreed by the parties
as soon as reasonably practicable thereafter. The date on which the Closing is
to be held is herein referred to as the "Closing Date." The Closing shall be
held at LeopoldstraBe 28a, Munich at the offices of the Notary Public Dr..
Karl, at 01.00 P.M. on such date, or at such other time and place as Etec,
Ebetech and Sellers may agree upon in writing.
2.2 Transfer of Shares and Term Debt. Sellers hereby transfer and assign and
Etec Sub hereby accepts such transfer and assignment of the Term Debt. At the
Closing, Sellers shall transfer and assign the Shares to Etec Sub by notarial
deed. Etec shall at Closing pay cash to Sellers in the amount of the Purchase
Price less Five Hundred Thousand U.S. dollars (US$500,000) being allocated to
Sellers as shown in Schedule 2.2. Such payments shall be made by wire
transfer to any account or accounts which Sellers have designated in Schedule
2.2.
2.3 Additional Payment. On December 15, 1997, Etec shall pay cash to Sellers
in the amount of Five Hundred Thousand U.S. dollars (US$500,000) (the
"Holdback Amount"), less any amounts which may then be due to any Etec
Indemnitee pursuant to Article 8 hereof. If on said date there is pending any
unliquidated claim of Etec or Etec Sub under Article 8, Etec shall make such
payment, less a reasonable estimate of the liquidated amount of such claim,
and, upon resolution of such claim, any net balance due Sellers shall be
promptly paid by Etec. All payments made under this section shall be
allocated to Sellers in a pro rata portion (% ownership in Ebetech) as shown
in Schedule 3.3 (d) and shall be made by any method which Sellers may
designate in writing.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers hereby each separately represent and warrant to Etec and Etec Sub as
of the date hereof as follows:
3.1 Organization. Ebetech is a corporation duly organized, validly existing
and in good standing under the laws of the Federal Republic of Germany, and is
presently not required to be qualified to conduct business in any other
jurisdiction. Ebetech has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted.
3.2 Authority. Sellers have all requisite power and authority to enter into
this Agreement and, subject to satisfaction of the conditions set forth
herein, to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate or other action (including spousal consents), where applicable, on
the part of Sellers. This Agreement has been duly executed and delivered by
Sellers, and constitutes the valid and binding obligation of Sellers,
enforceable in accordance with its terms, subject to the effect of applicable
bankruptcy, insolvency, reorganization or other similar laws affecting the
rights of creditors and the effect or availability of rules of law governing
specific performance, injunctive relief or other equitable remedies. Provided
the conditions set forth in Article 7 are satisfied, the execution and
delivery of this Agreement do not or will not, and the consummation of the
transactions contemplated hereby will not, conflict with, or result in any
violation of or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation under (a) any provision of the Articles of Incorporation or
Bylaws of Ebetech or any corporate Seller or (b) any material agreement or
instrument, permit, franchise, license, judgment or order, applicable to
Ebetech or its respective properties or assets.
No consent, approval, order or authorization of, or registration, declaration
or filing with, any court, administrative agency or commission or other
governmental authority, is required by or with respect to Ebetech or any
Seller in connection with the execution and delivery of this Agreement by
Ebetech or Sellers or the consummation by Ebetech or Sellers of the
transactions contemplated hereby or thereby, except for such consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable federal and state securities laws and the
laws of any foreign country. All consents of parties to agreements or
contracts with Ebetech required for the transfer of such contracts or
agreements are listed on Schedule 3.2 hereto.
3.3 Capital Structure.
(a) The authorized capital of Ebetech is DM 50,000, which consists of
seven (7) shares with the nominal values set forth in Schedule 3.3(d) hereto.
(b) Other than as described in paragraph (a) above, there are no other
outstanding shares or other equity securities of Ebetech and no other options,
warrants, calls, conversion rights, commitments or agreements of any character
to which Ebetech is a party or by which Ebetech may be bound that do or may
obligate Ebetech to issue, deliver or sell, or cause to be issued, delivered
or sold, additional shares of Ebetech's share capital or securities
convertible into or exchangeable for Ebetech's share capital or that do or may
obligate Ebetech to grant, extend or enter into any such option, warrant,
call, conversion right, commitment or agreement.
(c) Except under the Bylaws, none of the issued and outstanding Shares
are subject to repurchase or redemption. All outstanding shares of Ebetech are
validly issued, fully paid and not subject to preemptive rights of third
parties created by statute or any agreement to which Ebetech is a party or by
which Ebetech may be bound. All outstanding shares of Ebetech have been
issued in compliance with applicable laws.
(d) Schedule 3.3(d) contains complete and accurate lists of, and the
number of shares owned of record by, the holders of outstanding Shares,
including in each case the addresses of such holders and the breakdown of the
Term Debt owned by each Seller. Schedule 3.3(d) is complete and accurate on
Closing Date. Schedule 3.3(d) identifies the vesting schedule, applicable
legends, and repurchase rights or other risks of forfeiture of any outstanding
security of Ebetech.
(e) Schedule 3.3(e) contains a complete and accurate list of each stock
option plan, stock appreciation rights or other equity-related stock incentive
plan of Ebetech.
(f) Except for any restrictions imposed by applicable laws or the Bylaws
or Articles of Association of Ebetech, there is no right of first refusal,
co-sale right, right of participation, right of first offer, option or other
restriction on transfer applicable to any shares of Ebetech.
(g) Except for the Bylaws of Ebetech, neither Ebetech nor Sellers are a
party or subject to any agreement or understanding or voting trust, proxy, or
other agreement or understanding between or among any persons that affects or
relates to the voting or giving of written consent with respect to any
outstanding security of Ebetech, the election of directors, the appointment of
officers or other actions of Ebetech's Board of Directors or the management of
Ebetech.
3.4 Financial Statements. Sellers have furnished to Etec an unaudited
statement of income for the five months period ended February 28, 1997 and an
unaudited balance sheet of Ebetech as of February 28, 1997 as shown in
Schedule 3.4. The balance sheet at February 28, 1997 is hereinafter referred
to as the "Ebetech Balance Sheet," and all said financial statements are
hereinafter referred to collectively as the "Ebetech Financial Statements."
The Ebetech Financial Statements have been and will be complete, true and
accurate in all material respects and have been prepared in accordance with
German law and generally accepted accounting principles in Germany ("GAAP")
applied on a consistent basis during the periods involved, and are and will be
in accordance with Ebetech's books and records, and fairly present the
financial position of Ebetech and the results of its operations as of the date
and for the periods indicated thereon, subject in the case of the unaudited
portion of the Ebetech Financial Statements to normal year-end audit
adjustments which will not be material and the absence of certain footnote
disclosures. At the date of the Ebetech Balance Sheet (the "Ebetech Balance
Sheet Date") and as of the Closing Date, Ebetech had and will have no
liabilities or obligations, secured or unsecured (whether accrued, absolute,
contingent or otherwise) not reflected on the Ebetech Balance Sheet or the
accompanying notes thereto except for liabilities and obligations as may have
arisen in the ordinary course of business prior to the date of said Balance
Sheet and which, under GAAP, would not have been required to be reflected on
such Balance Sheet and except for liabilities incurred in the ordinary course
of business since the date of said Balance Sheet which are usual and normal in
amount. Since February 28, 1997, there has been no change in Ebetech's
accounting policies and there has been no change in Ebetech's estimates of
contingent liabilities.
3.5 Business Changes. Since February 28, 1997, except as disclosed in
Schedule 3.5, Ebetech has conducted its business only in the ordinary and
usual course and, without limiting the generality of the foregoing:
(a) There have been no changes in the condition (financial or
otherwise), business, net worth, assets, prospects, properties, employees,
operations, obligations or liabilities of Ebetech which, in the aggregate,
have had or may be reasonably expected to have a materially adverse effect on
the condition, business, net worth, assets, prospects, properties or
operations of Ebetech.
(b) Except for purchase orders for assets, Ebetech has not incurred
additional debt for borrowed money nor incurred any obligation or liability
except in the ordinary and usual course of business and in any event not in
excess of US$15,000 in total.
(c) Ebetech has not declared or made any dividend, payment or other
distribution on or with respect to any share of capital stock of Ebetech.
(d) Ebetech has not sold, assigned, transferred or conveyed, or
committed itself to sell, assign, transfer or convey, any Proprietary Rights
(as defined in Section 3.18).
(e) Ebetech has not adopted or amended any bonus, incentive,
profit-sharing, stock option, stock purchase, pension, retirement,
deferred-compensation, severance, life insurance, medical or other benefit
plan, agreement, trust, fund or arrangement for the benefit of employees of
any kind whatsoever, nor entered into or amended any agreement relating to
employment, services as an independent contractor or consultant, or severance
or termination pay, nor agreed to do any of the foregoing.
3.6 Properties.
(a) The Ebetech Balance Sheet reflects all of the real and personal
property used by Ebetech in its business or otherwise held by Ebetech, except
for (I) property acquired or disposed of in the ordinary and usual course of
the business of Ebetech since the date of such balance sheet, and (ii) real
and personal property not required under GAAP to be reflected thereon. Except
as reflected in the notes to the Ebetech Balance Sheet, Ebetech has good and
marketable title to all assets and properties listed on the Ebetech Balance
Sheet and thereafter acquired, free and clear of any imperfections of title,
lien, claim, encumbrance, restriction, charge or equity of any nature
whatsoever, except for the lien of current taxes not yet delinquent. The
fixed assets described in Schedule 3.6(a) constitute all tangible personal
property (other than inventory) currently used in the business. All of the
fixed assets and properties reflected on the Ebetech Balance Sheet or
thereafter acquired are in sufficient condition and repair for the
requirements of the business as presently conducted by Ebetech.
(b) Schedule 3.6(b) hereto lists of all real property leased by Ebetech
or under option to purchase by Ebetech. All such property leased by Ebetech
is held under valid, sub-sisting and enforceable leases. To the best
knowledge of Sellers after due inquiry of management of Ebetech, neither real
property leased by Ebetech nor the operations of Ebetech thereon, violate any
applicable material building code, zoning requirement or classification, or
pollution control ordinance or statute relating to the property or to such
operations.
(c) To the best knowledge of Sellers after due inquiry of management of
Ebetech, (I) there are no Hazardous Substances in, under or about the soil,
sediment, surface water or groundwater on, under or around any properties at
any time owned, leased or occupied by Ebetech, (ii) Ebetech has not disposed
of any Hazardous Substances on or about such property, and (iii) Ebetech has
not disposed of any materials at any site being investigated or remediated for
contamination or possible contamination of the environment. "Hazardous
Substances" shall mean any substance regulated or prohibited by any law or
designated by any governmental agency to be hazardous, toxic, radioactive,
regulated medical waste or otherwise a danger to health or the environment.
(d) To the best knowledge of Sellers after due inquiry of the management
of Ebetech, Ebetech has conducted its business in accordance with all
applicable material laws, regulations, orders and other requirements of
governmental authorities relating to Hazardous Substances and the use,
storage, treatment, disposal, transport, generation, release and exposure of
others to Hazardous Substances. Ebetech has not received any notice of any
investigation, claim or proceeding against Ebetech relating to Hazardous
Substances and Sellers after due inquiry of management of Ebetech are not
aware of any fact or circumstance which could involve Ebetech in any
environmental litigation, proceeding, investigation or claim or impose any
environmental liability upon Ebetech.
3.7 Accounts Receivable; Notes Receivable. Schedule 3.7 contains a summary
of the accounts receivable of Ebetech as of February 28, 1997, together with
an accurate aging of such accounts receivable. The accounts receivable arose
out of the bona fide furnishing of goods and services, each in the operation
of the business of Ebetech, and require no additional performance by Ebetech
to render them valid. Except as set forth on Schedule 3.7, the notes
receivable are obligations of current customers of Ebetech, whether on an open
account or cash on delivery basis, and there are no disputes between Ebetech
and any obligor under such note receivable with respect to the amount owing or
the payment terms thereunder. Sellers have provided Etec with accurate
information concerning amounts and aging of accounts receivable and with an
accurate customer list of Ebetech. Sellers have no knowledge of any
non-collect ability of such amounts at present.
3.8 Taxes.
(a) The Ebetech Balance Sheet contains sufficient reserves for all tax
obligations of Ebetech at February 28, 1997, independent of whether the
obligations are existent or known at the date of the preparation of the
balance sheet. Tax returns other than Corporate, Trade and Net Asset Tax, have
been properly made and filed on time. Ebetech effected no hidden profit
distribution prior to the Closing Date.
(b) Additional tax payments and tax refunds relating to the period
before the Closing Date which arise ex post facto (e.g. after a tax audit),
will belong to the Sellers and Sellers shall indemnify Etec Sub for any such
tax payments. To the extent that reserves for such tax payments are shown in
the Ebetech Balance Sheet or as long as they are based on a mere time
displacement, or if the Ebetech Balance Sheet shows unused reserves, such tax
payments will not cause an obligation for indemnification.
Sellers shall indemnify Etec Sub for all disadvantages resulting from the fact
that, contrary to Section 3.8 (a), tax returns of Ebetech have not properly
been made and filed on time. Furthermore, Sellers shall indemnify Etec Sub for
all additional taxes (eg corporate, trade and capital with- holding tax)
resulting from a hidden profit distribution contrary to Section 3.8 (a).
Etec Sub will ensure that Ebetech, and Ebetech itself assures that it will
give Sellers and their advisers, being obliged to secrecy according to
professional rules, the opportunity to participate in tax field audits which
covers the term prior to the Closing Date. Etec Sub and Ebetech ensure that
Sellers will be informed immediately about the announcement or the beginning
of such tax field audits. Failing an agreement on the results of the tax field
audit, Etec Sub assures that Ebetech will enter an appeal against the
respective tax assessment and, if necessary, will take court actions according
to the directives of Sellers. Costs of such appeals and court actions will be
borne by Sellers, if the case is lost by Ebetech.
Indemnification obligations of Sellers under this Section 3.8 arise only if
Etec Sub and Ebetech have fulfilled their obligations under Section 3.8 (b).
Schedule 3.8 (statement of KPMG Deutsche Treuhand-Gesellschaft dated March 7,
1997) contains further information on Ebetech's tax situation.
3.9 Compliance with Law. According to the best knowledge of Sellers after
due inquiry of the management of Ebetech, all material licenses, franchises,
permits, clearances, consents, certificates and other evidences of authority
of Ebetech which are necessary to the conduct of Ebetech's business
("Permits") are in full force and effect and Ebetech is not in violation of
any Permit in any material respect. Except for possible exceptions, the
curing or non-curing of which would not have a material adverse effect on the
condition (financial or otherwise), business, net worth, assets, prospects,
properties or operations of Ebetech, the business of Ebetech has been
conducted in accordance with all applicable laws, regulations, orders and
other requirements of governmental authorities.
3.10 Litigation. Except as disclosed in Schedule 3.10, there is no claim,
dispute, action, proceeding, notice, order, suit, appeal or investigation, at
law or in equity, pending against Ebetech, or involving any of its assets or
properties, before any court, agency, authority, arbitration panel or other
tribunal (other than those, if any, with respect to which service of process
or similar notice has not yet been made on Ebetech), and to the best knowledge
of Sellers after due inquiry of management of Ebetech, none have been
threatened. Sellers after due inquiry of management of Ebetech are not aware
of any facts which, if known to shareholders, customers, governmental
authorities or other persons, would result in any such claim, dispute, action,
proceeding, suit or appeal or investigation which would have a material
adverse effect on the condition (financial or otherwise), business, net worth,
assets, prospects, properties or operations of Ebetech. Ebetech is not
subject to any order, writ, injunction or decree of any court, agency,
authority, arbitration panel or other tribunal, nor is it in default with
respect to any notice, order, writ, injunction or decree.
3.11 Contracts. Schedule 3.11 hereto lists each executory contract and
agreement in the following categories to which Ebetech is a party, or by which
it is bound in any respect,
(a) agreements for the purchase, sale, lease or other disposition of
equipment, goods, materials, research and development, supplies, studies or
capital assets, or for the performance of services, not in the ordinary course
of business;
(b) contracts or agreements for the joint per-formance of work or
services, and all other joint venture agreements;
(c) management or employment contracts, consulting contracts, collective
bargaining contracts, termination and severance agreements, including the
terms of any oral agreements with employees;
(d) notes, mortgages, deeds of trust, loan agreements, security
guarantees, debentures, indentures, credit agreements and other evidences of
indebtedness;
(e) pension, retirement, profit-sharing, deferred compensation, bonus,
incentive, life insurance, hospitalization or other employee benefit plans or
arrangements (including, without limitation, any contracts or agreements with
trustees, insurance companies or others relating to any such employee benefit
plan or arrangement);
(f) stock option, stock purchase, warrant, repurchase or other contracts
or agreements relating to any share capital of Ebetech;
(g) contracts or agreements with agents, brokers, consignees, sale
representatives or distributors;
(h) contracts or agreements with any director, officer, employee,
consultant or shareholder;
(I) powers of attorney or similar authorizations granted by Ebetech to
third parties;
(j) licenses, sublicenses, royalty agreements and other contracts or
agreements to which Ebetech is a party, or otherwise subject, relating to
technical assistance or to Proprietary Rights as defined below; and
(k) other material contracts.
Ebetech has not entered into any contract or agreement containing covenants
limiting the right of Ebetech to conduct or carry out any business or any line
of business in any part of the world or to compete in any business or with any
person. As used in this Agreement, the terms "contract" and "agreement"
include every contract, agreement, commitment, understanding and promise,
whether written or oral.
3.12 Operating Leases. Schedule 3.12 lists each operating lease under which
Ebetech leases assets.
3.13 No Default.
(a) Each of the contracts, agreements or other instruments referred to
in Sections 3.11 and 3.12 of this Agreement and each of the standard customer
agreements or contracts of Ebetech is a legal, binding and enforceable
obligation by or against Ebetech, subject to the effect of applicable
bankruptcy, insolvency, reorganization, moratorium or other similar applicable
laws affecting the rights of creditors and the effect or availability of rules
of law governing specific performance, injunctive relief or other
equitable remedies (regardless of whether any such remedy is considered in a
proceeding at law or in equity). To the best knowledge of Sellers, no party
with whom Ebetech has an agreement or contract is in default thereunder or has
breached any terms or provisions thereof which is material to the conduct of
Ebetech's business.
(b) Ebetech has performed, or is now performing, the obligations of, and
Ebetech is not in material default (or would by the lapse of time and/or the
giving of notice be in material default) in respect of, any contract,
agreement or commitment binding upon it or its assets or properties and
material to the conduct of its business. No third party has raised any claim,
dispute or controversy with respect to any of the executory contracts of
Ebetech, nor has Ebetech received notice or warning of alleged nonperformance,
delay in delivery or other noncompliance by Ebetech with respect to its
obligations under any of those contracts, nor are there any facts which exist
indicating that any of those contracts may be totally or partially terminated
or suspended by the other parties thereto.
3.14 Business and Customers. Schedule 3.14 hereto lists of all Ebetech's
customers from whom more than US$10,000 in revenues were received in the
period of five months ended February 28, 1997. Sellers after due inquiry of
management of Ebetech do not have knowledge of any circumstances likely to
result in termination or failure to renew customer contracts or the return of
equipment sold, the loss of which in the aggregate would have a material
adverse effect on the revenues or business of Ebetech.
3.15 Inventories and Work in Progress. The inventories (including work in
progress) of Ebetech consist of items of a quality and quantity usable and
salable in the normal course of the business. A summary of inventory on hand
as of February 28, 1997 is attached hereto as Schedule 3.15. All items
included in such inventories are owned by Ebetech unless bought under usual
retention of title clauses or security provisions. No items included in the
inventories have been pledged as collateral or are held by Ebetech on
consignment from others. All the inventories reflected on the balance sheets
included in the Ebetech Financial Statements and on the books of Ebetech are
based on quantities determined as of February 28, 1997 based on cycle counts,
and are valued in the Ebetech Financial Statements at the lower of average
cost or market and on a basis consistent with that of prior periods.
3.16 Proprietary Rights.
(a) Schedule 3.16(a) hereto is a complete list of all computer software,
software programs, patents and applications for patents, trademarks, trade
names, service marks, and copyrights, and applications therefor, owned or used
by Ebetech or in which it has any rights or licenses, except for software used
by Ebetech and generally available on the commercial market. Sellers have
provided Etec with a complete and accurate description of all agreements of
Ebetech with each officer, employee or consultant of Ebetech providing Ebetech
with title and ownership to patents, patent applications, trade secrets and
inventions developed or used by Ebetech in its business. All of such
agreements so described are valid, enforceable and legally binding, subject to
the effect or availability of rules of law governing specific performance,
injunctive relief or other equitable remedies (regardless of whether any such
remedy is considered in a proceeding at law or in equity).
(b) Ebetech owns or possesses licenses or other rights to use all
computer software, software programs, patents, patent applications,
trademarks, trademark applications, trade secrets, service marks, trade names,
copyrights, inventions, drawings, designs, customer lists, proprietary
know-how or information, or other rights with respect thereto (collectively
referred to as "Proprietary Rights"), used in the business of Ebetech,
including, but not limited to all patents necessary to the design and
development of the electronic beam based electrical test systems for active
matrix liquid crystal displays and other flat panel displays.
(c) To the best knowledge of the Sellers after due inquiry of the
management of Ebetech, the operations of Ebetech do not conflict with or
infringe, and no one has asserted to Ebetech that such operations conflict
with or infringe on any Proprietary Rights, owned, possessed or used by any
third party. There are no claims, disputes, actions, proceedings, suits or
appeals pending against Ebetech with respect to any Proprietary Rights (other
than those, if any, with respect to which service of process or similar notice
may not yet have been made on Ebetech), and to the best knowledge of Sellers,
Ebetech and the management of Ebetech none has been threatened against
Ebetech. To the best knowledge of Sellers after due inquiry of the management
of Ebetech there are no facts or alleged facts which would reasonably serve as
a basis for any claim that Ebetech does not have the right to use, free of any
rights or claims of others, all Proprietary Rights in the development,
manufacture, use, sale or other disposition of any or all products or services
presently being used, furnished or sold in the conduct of the business of
Ebetech as it has been and is now being conducted.
(d) Schedule 3.16(d) contains a complete and accurate list of any
proceedings before any patent or trademark authority to which Ebetech is a
party, a description of the subject matter of each proceeding, and the current
status of each proceeding, including, without limitation, interferences,
priority contests, opposition, and protests. Such list includes any pending
applications for reissue or reexamination of a patent and any pending transfer
of a patent. Ebetech has the exclusive right to file, prosecute and maintain
any such applications for patents, copyrights or trademarks and the patents
and registrations that issue therefrom.
(e) To the best knowledge of Sellers after due inquiry of the management
of Ebetech, all patents and registered trademarks, service marks, and other
company, product or service identifiers and registered copyrights held by
Ebetech are valid and enforceable.
(f) Ebetech has taken all reasonable measures to maintain the
confidentiality of the Proprietary Rights.
(g) To the best of Sellers' knowledge after due inquiry of management,
no employee of Ebetech is in violation of any term of any employment contract,
proprietary information and inventions agreement, non-competition agreement,
or any other contract or agreement relating to the relationship of any such
employee with Ebetech or any previous employer.
3.17 CE Mark Certification. All Ebetech products currently comply with the
European Union regulations relating to electromagmetic fields, electrical
power and human exposure to laser certification that became effective in
January 1997 and all Ebetech products carry the Certificate Europa mark
certification.
3.18 Insurance. Schedule 3.18 hereto lists all policies of insurance to which
Ebetech is a party or is a beneficiary or named insured. Ebetech has in full
force and effect, with all premiums due thereon paid, the policies of
insurance set forth therein. All the insurable properties of Ebetech are
insured in amounts and coverage and against risks and losses which are
adequate and usually insured against by persons holding or operating similar
properties in similar businesses. There were no claims in excess of US$5,000
asserted under any of the insurance policies of Ebetech in respect of all
motor vehicle, general liability, professional liability, errors and
omissions, and worker's compensation, and medical claims for the period from
September 1, 1996 to the date of this Agreement.
Sellers advise Etec and Etec Sub that insurance policies might be terminated
with reasonable notice by insurance companies of Ebetech due to the fact that
the Shares are sold and transferred to Etec Sub.
3.19 Bank Accounts. Sellers and Ebetech have furnished to Etec a true and
correct list setting forth the names and addresses of all banks, other
institutions and state governmental departments at which Ebetech has accounts,
deposits or safety deposit boxes, or special deposits required to be held by
such state governmental departments with the nature of such account and the
names of all persons authorized to draw on or give instructions with respect
to such accounts or deposits, or to have access thereto, and the names and
addresses of all persons, if any, holding a power-of-attorney on behalf of
Ebetech. All cash in such accounts is held in demand or short term time
deposits and is not subject to any restriction or limitation as to withdrawal.
On the Closing Date, Ebetech has an aggregate cash balance in excess of its
liabilities (other than the Term Debt) by at least DM 350,000.
3.20 Brokers or Finders. Except for Pierre Fougere of Fougere Conseil,
Sellers have not, and Ebetech has not dealt with any broker or finder in
connection with the transactions contemplated by this Agreement. Except for
obligations to Pierre Fougere of Fougere Conseil, Sellers have not incurred,
and Ebetech has not incurred, and neither shall incur, directly or indirectly,
any liability for any brokerage or finders' fees or agents' commissions or any
similar charges in connection with this Agreement or any transaction
contemplated hereby. All fees and expenses of Pierre Fougere of Fougere
Conseil are obligations of the Sellers and not of Ebetech or Etec or Etec Sub.
3.21 Related Parties. Except as previously disclosed in writing to Etec and
Etec Sub, no officer or director of Ebetech, or any affiliate of any such
person, has, either directly or indirectly, (l) an interest in any
corporation, partnership, firm or other person or entity which furnishes or
sells services or products which are similar to those furnished or sold by
Ebetech, or (m) a beneficial interest in any contract or agreement to which
Ebetech is a party or by which Ebetech may be bound. For purposes of this
Section 3.21, there shall be disregarded any interest which arose solely from
the ownership of less than a two percent (2%) equity interest in a corporation
whose stock is regularly traded on any national securities exchange or in the
over-the-counter market.
3.22 Certain Advances. There are no receivables of Ebetech owing from
directors, officers, employees, consultants or shareholders of Ebetech, or
owing by any affiliate of any director or officer of Ebetech, other than
advances in the ordinary and usual course of business to officers and
employees for reimbursable business expenses which are not in excess of
US$2,500 for any one individual.
3.23 Employee Benefit Plans. Ebetech does not maintain any employee pension
or welfare benefit plans or any other employee benefit plans of any type other
than required by German law and accrued for in the Financial Statements.
Ebetech is not obligated to make any contributions to any such plans and does
not make any such contributions. Ebetech does not participate in any
multiemployer plans and is not obligated to contribute to any such plans.
Ebetech has no obligations of any type to its employees after their
retirement.
3.24 Underlying Documents. Copies of any underlying documents listed or
described as having been disclosed to Etec and Etec Sub pursuant to this
Agreement, if requested by Etec or Etec Sub, have been furnished to Etec. All
such documents furnished to Etec and Etec Sub are true and correct copies, and
there are no amendments or modifications thereto, that have not been disclosed
to Etec and Etec Sub. The minutes of Ebetech contain complete and accurate
records of all meetings and other corporate actions taken by the shareholders
of Ebetech.
3.25 Full Disclosure. Any information furnished by or on behalf of Ebetech to
Etec and Etec Sub in writing pursuant to this Agreement (including the
Schedules hereto), at any time prior to the Closing Date, does not and will
not contain any untrue statement of a material fact and does not and will not
omit to state any material fact necessary to make any statement, in light of
the circumstances under which such statement is made, not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF ETEC AND ETEC SUB
Except as contemplated by this Agreement, Etec and Etec Sub represent and
warrant to Sellers as of the date hereof as follows:
4.1 Organization. Etec is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Nevada, United States.
Etec is duly qualified to do business and is in good standing in its state of
incorporation and in each other jurisdiction in which it owns or leases
property or conducts business, except where the failure to be so qualified
would not have a material adverse effect on the business of Etec. Etec has
all requisite power and authority to own, lease and operate its properties and
to carry on its business as now being conducted, and possesses all licenses,
franchises, rights and privileges material to the conduct of its business.
4.2 Authority. Etec has all requisite corporate power and authority to enter
into this Agreement and the related agreements contemplated herein, and,
subject to satisfaction of the conditions set forth herein, to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of Etec.
This Agreement has been duly executed and delivered by Etec and constitutes
the valid and binding obligation of Etec enforceable in accordance with its
terms, subject to the effect of applicable bankruptcy, insolvency,
reorganization or other similar federal or state laws affecting the rights of
creditors and the effect or availability of rules of law governing specific
performance, injunctive relief or other equitable remedies. Provided the
conditions set forth in Article 7 are satisfied, the execution and delivery of
this Agreement do not, and the consummation of the transactions contemplated
hereby will not, conflict with, or result in any violation of or default (with
or without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation under (a) any
provision of the corporate charter or Bylaws of Etec, or (b) any material
agreement or instrument, permit, license, judgment, order, statute, law,
ordinance, rule or regulation applicable to Etec or its properties or assets,
other than any such conflicts, violations, defaults, terminations,
cancellations or accelerations which individually or in the aggregate would
not have a material adverse effect on Etec.
No consent, approval, order or authorization of, or registration, declaration
or filing with, any governmental authority is required by or with respect to
Etec in connection with the execution and delivery of this Agreement by Etec
or the consummation by Etec of the transactions contemplated hereby or
thereby.
4.3 Brokers or Finders. Neither Etec nor Etec Sub has dealt with any broker
or finder in connection with the transactions contemplated by this Agreement.
Neither Etec nor Etec Sub has incurred, and neither shall incur, directly or
indirectly, any liability for any brokerage or finders' fees or agents
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
4.4 Full Disclosure. Any information furnished by or on behalf of Etec or
Etec Sub to Ebetech in writing pursuant to this Agreement (including the
Schedules hereto), at any time prior to the Closing Date, does not and will
not contain any untrue statement of a material fact and does not and will not
omit to state any material fact necessary to make any statement, in light of
the circumstances under which such statement is made, not misleading.
4.5 Confirmation. Etec and Etec Sub hereby confirm receipt of all documents
requested by Etec or its advisors. At present, Etec or Etec Sub do not have
knowledge of any facts or circumstances that might give rise to a claim of
Etec or Etec Sub under this Agreement.
ARTICLE 5
COVENANTS RELATING TO CONDUCT OF BUSINESS
During the period from March 12, 1997 and continuing until the Closing Date,
Ebetech and Sellers (except as expressly contemplated by this Agreement or to
the extent that Etec and Etec Sub shall otherwise consent in writing)
covenant, and agree with Etec and Etec Sub that:
5.1 Conduct of Business in Normal Course. Ebetech shall carry on the
business and its activities diligently and in the ordinary course and shall
not make or institute any unusual or novel methods of purchase, sale, lease,
management, accounting or operation that will vary materially from the methods
used by Ebetech as of March 12, 1997. Ebetech shall maintain the nature and
quantities of inventories for the business in a normal and customary manner
consistent with prior practice.
5.2 Preservation of Business and Relationships. Ebetech shall use its best
efforts, without making any commitments on behalf of Etec and Etec Sub, to
preserve its business organization intact, to keep available its present
employees, and to preserve its present relationships with suppliers, customers
and others having business relationships with it.
5.3 Maintenance of Insurance. Prior to the Closing, Ebetech shall maintain
in effect all insurance covering the business. If the Closing shall occur
after a renewal date for any such insurance, Ebetech shall renew the insurance
on the same or substantially similar terms, limits of liability and other
conditions.
5.4 Employees and Compensation. Ebetech shall not do, or agree to do, any of
the following acts: (a) grant any increase in salaries payable or to become
payable to any employee, sales agent or representative; or (b) increase
benefits payable to any employee, sales agent or representative under any
executive compensation, bonus, pension, profit-sharing, retirement, deferred
compensation, severance, employee stock option or stock purchase, group life,
health and other employee benefit plans, arrangements, practices or
commitments. Ebetech shall provide Etec and Etec Sub with reasonable access
to its employees during normal business hours.
5.5 Dividends; Changes in Stock. Ebetech shall not and shall not propose to
(a) declare or pay any dividends on or make other distributions in respect of
any of its capital stock, (b) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of capital stock of Ebetech, or
(c) repurchase or otherwise acquire any shares of its capital stock or rights
to acquire any shares of its capital stock.
5.6 Issuance of Securities. Ebetech shall not issue, deliver, or sell or
authorize or propose the issuance, delivery or sale of, or purchase or propose
the purchase of, any shares of its capital stock of any class or securities
convertible into, or rights, warrants or options to acquire, any such shares
or other convertible securities.
5.7 Governing Documents. Ebetech shall not amend its corporate charter or
Bylaws.
5.8 No Other Bids. Neither Sellers, nor Ebetech nor any of their respective
directors, officers or agents, will, directly or indirectly, solicit or
initiate or encourage any discussions or negotiations with, or participate in
any negotiations with or provide any information to or otherwise cooperate in
any other way with any corporation, partnership, person or other entity or
group (other than Etec and Etec Sub) concerning any merger, sale of
substantial assets, sale of shares of capital stock or any division of Ebetech
or control thereof. Etec and Etec Sub shall be promptly notified in writing
by Sellers and Ebetech of any of the events referred to in this Section 5.8
including a summary of the material terms of any other bid.
5.9 No Acquisitions. Ebetech shall not (a) acquire or agree to acquire by
merging or consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof or
(b) otherwise acquire or agree to acquire any assets which are material,
individually or in the aggregate, to Ebetech except in the ordinary course of
business consistent with prior practice.
5.10 No Dispositions. Ebetech shall not lease or otherwise dispose of any of
its assets, individually or in the aggregate, except in the ordinary course of
business consistent with prior practice and in any event not in excess of
US$5,000 for any single item or more than US$50,000 in the aggregate.
5.11 Indebtedness. Ebetech shall not incur any indebtedness for borrowed
money or guarantee any such indebtedness or issue or sell any debt securities
of Ebetech or guarantee any debt securities of others.
ARTICLE 6
ADDITIONAL AGREEMENTS
6.1 Access to Information. Sellers and Ebetech shall afford to Etec and Etec
Sub and shall cause Ebetech's independent accountants to afford to Etec and
Etec Sub, and their accountants, counsel and other representatives, reasonable
access during normal business hours during the period prior to the Closing
Date to Ebetech's properties, books, contracts, commitments and records and to
the independent accountants reasonable access to the audit work papers and
other records of Ebetech's accountants. During such period, Sellers and
Ebetech shall use reasonable efforts to furnish promptly to Etec and Etec Sub
all information concerning the business, properties and personnel of Ebetech
as Etec and Etec Sub may reasonably request. Etec and Etec Sub will not use
such information for purposes other than this Agreement and will otherwise
hold such information in confidence (and Etec and Etec Sub will cause their
consultants and advisors also to hold such information in confidence).
6.2 Legal Conditions. Each party will take all reasonable actions necessary
to comply promptly with all legal requirements which may be imposed on such
party with respect to this Agreement and will promptly cooperate with and
furnish information to the other party in connection with any such
requirements imposed upon such other party in connection with this Agreement.
Each party will take all reasonable actions to obtain (and to cooperate with
the other party in obtaining) any consent, authorization, order or approval
of, or any exemption by, any governmental authority, or other third party,
required to be obtained or made by such party (or by the other party) in
connection with this Agreement or the taking of any action contemplated
thereby.
6.3 Good Faith. Each party shall act in good faith in an attempt to cause to
be satisfied all the conditions precedent to its obligations and those of the
other parties to this Agreement over which it has control or influence. Each
party will act in good faith and take all reasonable action within its
capability necessary to render accurate as of the Closing Date its
representations and warranties contained in this Agreement.
ARTICLE 7
CONDITIONS PRECEDENT
7.1 Conditions to Obligations of Etec, Etec Sub and Sellers. The obligations
of Etec, Etec Sub and Sellers to consummate this Agreement shall be subject to
the satisfaction on or prior to the Closing Date of the following conditions
unless waived by Etec, Etec Sub and Sellers:
(a) Government Approvals. All authorizations, consents, orders or
approvals of, or declarations or filings with, or expiration of waiting
periods imposed by, any governmental authority necessary for the consummation
of the transactions contemplated by this Agreement.
(b) Third-Party Approvals. Any and all consents or approvals required
from third parties relating to contracts, agreements, licenses, leases and
other instruments, material to the respective businesses of Etec, Etec Sub and
Ebetech shall have been obtained.
(c) Legal Action. No temporary restraining order, preliminary
injunction or permanent injunction or other order preventing the consummation
of this Agreement shall have been issued by any federal, state or foreign
court and remain in effect, and no litigation seeking the issuance of such an
order or injunction, shall be pending which, in the good faith judgment of
Sellers, Etec or Etec Sub has a reasonable probability of resulting in such
order, injunction or damages.
7.2 Conditions to Obligations of Etec and Etec Sub. The obligations of Etec
or Etec Sub to consummate this Agreement are subject to the satisfaction on or
prior to the Closing Date of the following conditions, unless waived by Etec:
(a) Representations and Warranties. The representations and warranties
of Sellers and covenants of Ebetech set forth in this Agreement shall be true
and correct in all material respects as of the date of this Agreement and as
if made at and as of the Closing Date, except as otherwise contemplated by
this Agreement.
(b) Performance of Obligations. Sellers and Ebetech shall have
performed in all material respects all obligations required to be performed by
each, respectively, under this Agreement prior to the Closing Date.
(c) No Material Adverse Change. Since February 28, 1997, there shall
have been no changes in the condition (financial or otherwise), business,
prospects, employees, operations, obligations or liabilities of Ebetech which,
in the aggregate, have had or may be reasonably expected to have a materially
adverse effect on the financial condition, business, or operations of Ebetech.
(d) Patents. All patents now owned by Ebetech, including those which
were transferred by ICT to Ebetech have been registered in the name of
Ebetech.
7.3 Conditions to Obligations of Sellers. The obligations of Sellers to
consummate the transactions contemplated hereby are subject to the
satisfaction on or prior to the Closing Date of the following additional
conditions unless waived by Sellers:
(a) Representations and Warranties. The representations and warranties
of Etec and Etec Sub set forth in this Agreement shall be true and correct in
all material respects as of the date of this Agreement and as if made at and
as of the Closing Date, except as otherwise contemplated by this Agreement.
(b) Performance of Obligations of Etec and Etec Sub. Etec and Etec Sub
shall have performed in all material respects all obligations required to be
performed by each, respectively, under this Agreement prior to the Closing
Date.
ARTICLE 8
INDEMNIFICATION
8.1 Indemnification by Sellers. Sellers agree to defend and indemnify Etec,
Etec Sub and their respective affiliates, directors, officers and
shareholders, and their respective successors and assigns (collectively, "Etec
Indemnitees"), against and hold each of them harmless from any and all losses,
liabilities, taxes, claims, suits, proceedings, demands, judgments, damages,
expenses and costs, including, without limitation, reasonable counsel fees,
costs and expenses incurred in the investigation, defense or settlement of any
claims covered by this indemnity (in this Section 8.1 collectively, the
"Indemnifiable Damages") which any such indemnified person may suffer or incur
by reason of (I) the inaccuracy or breach of any of the representations,
warranties and covenants of Sellers contained in this Agreement or any
documents, certificate or agreement delivered pursuant hereto; (ii) any claim
asserted by and granted to any person relating to or arising out of
transactions, events, acts or omissions of or by Sellers or Ebetech, prior to
the Closing Date; (iii) any liabilities of Ebetech (excluding expenses
incurred in the ordinary course of business, including but not limited to
purchase orders) not disclosed to Etec or Etec Sub, whether or not known to
Sellers, which were incurred prior to the Closing Date; (iv) the absence of
intellectual property essential to the business of Ebetech as it is currently
conducted (not including costs of applying for and perfecting known patents);
or (v) the absence of appropriate accruals in the Ebetech Balance Sheet.
Notwithstanding anything herein to the contrary, Sellers' liability under this
Share Purchase Agreement shall be limited to the following amounts:
a) Holdback Amount shared by all Sellers $ 500,000
b) VCB Venture Capital
Beteiligungsgesellschaft mbH $ 1,000,000
in addition to its pro-rata share of the
Holdback Amount
c) MRS Technology (see 8.2), Inc. $ 875,000
in addition to its pro-rata share of the
Holdback Amount
Any claims by Etec Indemnitees shall be applied first against the Holdback
Amount, and then pro rata against VCB and MRS; provided however, that if
either VCB or MRS are unable to pay their pro rata share of the claim, the
other shall be liable for the full amount of the claim to the extent of such
party's liability set forth above.
No claims shall be payable by Sellers until the aggregate amount of
Indemnifiable Damages exceeds US $ 5,000. Once the aggregate amount of
Indemnifiable Damages exceed US $ 5,000, all claims shall be payable.
Any liability of Sellers under this Share Purchase Agreement applies only to
claims for Indemnifiable Damages being asserted against Sellers in writing
prior to September 15, 1998.
8.2 Collateral MRS Recognizing that MRS is of limited financial resources,
MRS agrees to the following: Should MRS's net ready assets (defined as cash
plus accounts receivable, and less accounts payable, accrued liabilities and
other current liabilities) decline to US $ 1,000,000 at any time during the
imdemnification period, Etec shall have the right to demand that MRS escrow
funds or provide a performance bond in the amount set forth on the following
schedule:
3/15/97 - 6/15/97 US $ 875,000
6/16/97 - 9/15/97 729,167
9/16/97 - 12/15/97 583,333
12/16/97 - 3/15/98 437,500
3/16/98 - 6/15/98 291,667
6/16/98 - 9/15/98 145,833
The obligations of MRS pursuant to this Section 8.2 shall expire on September
15, 1998.
8.3 Notification Etec and Etec Sub shall use their best efforts to notify
Sellers of any claims for Indemnifiable Damages as soon as practicable after
Etec or Etec Sub become aware of such a claim, and shall permit Sellers to
assist in reducing or settling any such claim.
8.4 Indemnification by Etec. After the Closing Date, Etec and Etec Sub
shall, as to those representations, warranties, covenants and agreements which
are herein made or agreed to by Etec and Etec Sub, respectively, indemnify and
hold harmless Sellers and their heirs and assigns ("Seller Indemnitees")
against and in respect of: (I) any damage, deficiency, losses or costs
incurred by a Seller Indemnitee resulting from any misrepresentation or breach
of warranty or any nonfulfillment of any covenant or agreement on the part of
Etec or Etec Sub under this Agreement; (ii) any claim made by any person
relating to or arising out of transactions, events, acts or omissions of or by
Ebetech after the Closing; and (iii) any claim, action, suit, proceeding,
demand, judgment, assessment, cost and expense, including reasonable counsel
fees, incident to any of the foregoing.
ARTICLE 9
PAYMENT OF EXPENSES
Etec, Etec Sub and Sellers shall each pay their own fees and expenses
incurred incident to the preparation and carrying out of the transactions
herein contemplated. Notarial fees will be split half and half between
Etec/Etec Sub and Sellers. Sellers shall pay all sales and use taxes arising
out of the transfer of Shares and related to the sale of the Shares. Etec and
Etec Sub shall not be responsible for any business occupation, withholding, or
similar tax, or any taxes of any kind related to any period before the Closing
Date.
ARTICLE 10
TERMINATION, AMENDMENT AND WAIVER
10.1 Termination. This Agreement may be terminated at any time prior to the
Closing Date:
(a) by mutual written consent of Sellers and Etec;
(b) by either Etec or Sellers if there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of any party set forth in this Agreement and, if such breach is
curable, such breach has not been promptly cured after written notice of such
breach;
(c) by either Etec or Sellers if there shall be a final nonappealable
order of a federal or state court in effect preventing consummation of this
Agreement;
10.2 Amendment. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
10.3 Extension; Waiver. At any time prior to the Closing, Etec, Etec Sub or
Sellers may (I) extend the time for the performance of any of the obligations
or other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions for the benefit thereof contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid if set
forth in an instrument in writing signed on behalf of such party.
ARTICLE 11
GENERAL
11.1 Notices. Any notice, request, instruction or other document to be given
hereunder by any party to the other shall be in writing and delivered
personally or sent by certified mail, postage prepaid by facsimile, or by
courier service, as follows:
To Etec: Etec Systems, Inc.
24640 Corporate Avenue
Hayward, CA 94545
Facsimile: (510) 780-3845
Attn: Mr. Stephen E. Cooper
with a copy to: Pillsbury Madison & Sutro LLP
235 Montgomery Street
San Francisco, CA 94104
Facsimile: (415) 983-1200
Attn: Richard S. Grey, Esq.
To Sellers: Matthias Brunner and Richard L. Haas
Managing Directors
Ebetech Electron-Beam Technology
Vertriebs GmbH
Klausnerring 1a
D-85551 Heimstetten bei Munchen
Germany
Facsimile: 49-89-90-9994-81
with a copy to: Christian Roschmann
Oppenhoff & Radler
Prinzregentenplatz 10
81675 Munchen
Germany
Facsimile: 49-89-41808-343
or to such other persons as may be designated in writing by the parties, by a
notice given as aforesaid.
11.2 Announcements. Except for disclosures required by law, any public
announcements by Sellers, Ebetech or Etec shall be subject to the prior
written consent of both Sellers and Etec, which consent shall not be
reasonably withheld or delayed.
11.3 Headings. The headings of the several sections of this Agreement are
inserted for convenience of reference only and are not intended to affect the
meaning or interpretation of this Agreement.
11.4 Counterparts. This Agreement may be executed in counterparts, and when
so executed each counterpart shall be deemed to be an original, and said
counterparts together shall constitute one and the same instrument.
11.5 Binding Nature. This Agreement shall be binding upon and inure to the
benefit of the parties hereto. No party may assign or transfer any rights
under this Agreement.
11.6 Schedules. Any document included on a Schedule to this Agreement shall
be deemed to have been referred to in any other schedule or section of this
Agreement, as appropriate.
11.7 Applicable Law. This Agreement shall be governed by, construed and
enforced in accordance with the laws of the State of California.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed, all
as of the date first above written.
ETEC SYSTEMS, INC., a Nevada corporation
By Philip Koen
Title Vice President & CFO
SELLERS
VCB VENTURE CAPITAL BETEILIGUNGSGESELLSCHAFT mbH, MUNICH,
a corporation organized under the laws of the Federal Republic of Germany
By Guntersdorfer
Title Managing Director
By Bewerunge
Title Managing Director
MRS TECHNOLOGY INC., a Massachusetts corporation
By John L.Steele, Jr.
Title Vice President
Ursula Fazekas represented by power of attorney by her husband
Mr. Peter Fazekas
Dr. Matthias Brunner
Dr. Ralf Schmid
Thomas Schwedes
Volker Daiker
As to the provisions of Articles 5 and 6 only:
EBETECH ELECTRON BEAM TECHNOLOGY VERTRIEBS GmbH, a German corporation
By Matthias Brunner
Title Managing Director
By Richard Haas
Title Managing Director
Exhibit 10.44
January 10, 1997
Mr. Raymond Benson
MRS Technology, Inc.
10 Elizabeth Drive
Chelmsford, MA 01824
Dear Ray:
You expressed concern at the time of your hire that your position as V.P. of
Sales may be eliminated if MRS was purchased by another company or if another
company made a substantial investment in MRS. This letter confirms our
earlier verbal commitment to provide a severance package in such event.
Beginning at the closing date of any such merger or change of control, your
base salary will be continued at 90% of your salary on 1/10/97 until you find
other employment in a comparable position or at a comparable rate, up to 36
weeks from the date of such closing. You will be paid biweekly (or in lump
sum, at the company's option). Your group medical, group term life insurance,
and group dental plans will be continued for the same time, and under the same
conditions.
If at the time of closing an interim period of employment has been agreed
upon, the 36 week period will begin at the end of such interim period.
This agreement will remain in force so long as you are available to consult
with the surviving company on matters that related to your work at MRS, and so
long as you are not assisting any competitor of the surviving company.
Should MRS be the surviving company, your MRS options will fully vest at the
date of closing, and you will be granted a period of up to 4 years to exercise
these options. If another company purchases MRS, the terms of such a purchase
will prevail.
Note, if within the surviving company a job is found that is acceptable to
you, your salary and option packages will be determined during such
negotiations and this agreement will be superseded.
These arrangements are, of course, contingent upon your continued employment
at MRS through such closing.
Your continued loyalty, support and business advice is much appreciated.
Sincerely yours,
/s/Griff Resor III, President
Exhibit 11.0
Statement re: Computation of Earnings (Loss) Per Share
<TABLE>
<CAPTION>
Primary Fully Diluted
--------- -------------
<S> <C> <C>
For the fiscal year ended March 31, 1995:
Weighted average number of Common
Shares outstanding 6,479,596 6,479,596
Dilutive effect of Common Stock equivalents 472,828 472,468
--------- ---------
6,952,424 6,952,064
For the fiscal year ended March 31, 1996:
Weighted average number of Common
Shares outstanding 6,549,672 6,549,672
--------- ---------
6,549,672 6,549,672
For the fiscal year ended March 31, 1997:
Weighted average number of Common
Shares outstanding 6,717,142 6,717,142
--------- ---------
6,717,142 6,717,142
</TABLE>
Exhibit 23.1
Consent of Independent Accountants
We consent to the incorporation by reference in the registration statements of
MRS Technology, Inc. on Form S-8 (File Nos. 33-79476, 33-85148, 33-85262) of
our report dated May 23, 1997 on our audits of the consolidated financial
statements of MRS Technology, Inc. as of March 31, 1997 and 1996, and for each
of the three years in the period ended March 31, 1997, which report is
included in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts
June 13, 1997
