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, 1998
Commission File Number 0-21908
MRS Technology, Inc.
(exact name of registrant as specified in its charter)
Massachusetts 04-2904966
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 Elizabeth Drive, Chelmsford, MA 01824-4112
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (978)250-0450
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. Yes X No___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
As of June 1, 1998, the aggregate market value of outstanding shares of the
voting stock held by non-affiliates was $1.4375.
As of June 1, 1998, 6,858,763 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 28, 1998 are incorporated by reference into Part III of
this Report.
PART I
Item 1. Business
General
MRS Technology, Inc. was founded in February 1986 to develop and manufacture
photolithographic equipment for the production of flat panel displays (FPDs),
principally active matrix liquid crystal displays (AMLCDs). The Company's
innovative photolithographic system, the PanelPrinter, is a "stitching
step-and-repeat" imaging system which prints large-area integrated circuit
patterns, a critical step in the FPD production process.
Two years and $10,000,000 were spent developing the first PanelPrinter, which
pioneered the high speed stitching of integrated circuit (IC) images using the
thin film transistor (TFT) process. With technology superior to its
competitors, especially for larger, higher-resolution FPDs, the Company
succeeded in winning a dominant share of the market for FPD research and
development laboratories and pilot production lines. This success led to an
initial public offering (IPO) in July 1993, in which the Company raised
$15,600,000 of additional capital. From fiscal 1993, just prior to the
Company's IPO, through fiscal 1995, the Company generated three successive
years of profitable operations, attaining revenues of $22,400,000 and profits
of $1,600,000 in fiscal 1995. Since its inception, through IPO funding,
Defense Advanced Research Projects Agency (DARPA) contracts and from margins
on over $50,000,000 of products sold, MRS continued to develop and advance
the technology required for production of much larger FPDs on increasingly
larger substrates.
MRS succeeded in capturing a portion of the worldwide research and
development market and substantially all of the U.S. FPD production market.
However, the U.S. production market has not developed as a volume producer of
FPDs. Additionally, MRS was unsuccessful in penetrating the Japanese market,
the largest producer of FPDs, which is dominated by Nikon and Canon, the
Company's principal competitors.
Japanese manufacturers received little or no competitive pressure for FPD
manufacturing from the rest of the world. Therefore advances in display sizes
and resolution came slowly, delaying the need for the Company's principal
competitive advantages. As a result of these factors, in late fiscal 1997,
the Company reduced its expense base. Additionally, in early fiscal 1998, the
Company narrowed its focus to the high volume FPD manufacturing market for
its growth rather than the lower volume research and development market. More
specifically, the Company primarily focused on the Asian market where the
production plans for desktop FPDs were greatest and requirements for larger,
higher resolution displays better matched the Company's strengths. However,
the Asian economic crisis in the Company's fiscal 1998 prevented the Company
from achieving its expected growth. Additionally, desktop FPDs remain an
expensive, optional luxury further delaying market demand. All of these
factors left the Company with extensive technology designed for markets which
were either already dominated by competitors' products or which did not grow
as expected, and are not expected to show significant growth in the near term.
In the fourth quarter of fiscal 1998, the Company identified a new potential
market for its large-area photolithograpic technology. The Company observed
that fabricators of advanced chip (IC) packaging applications are experiencing
yield loss related to rapidly increasing complexity and operating speeds of
microprocessors and other logic chips. Resulting demands on printed circuit
board (PCB) manufacturing technology include reduced linewidths and tightened
registration, demands which are beyond the capability of traditional contact
printing techniques. In March 1998, the Company announced that it would enter
a new large-area lithography market of high density interconnect (HDI).
The HDI market is being driven by the factors described above. The Company
believes that certain of its existing product capabilities encompass the
functionality required to reduce the yield loss being experienced. In April
1998, the Company received its first order for a Model 5200 PanelPrinter from
an HDI fabricator.
HDI Overview
The Company plans to use its existing PanelPrinter inventory to help key
customers through process development. The first such sale was announced on
April 21, 1998. Information and experience gained in these initial
installations will be applied to the development of a new product optimized
for HDI market requirements, using much of the Company's existing technology.
The initial focus will be on the chip packaging segment of the HDI market
where linewidth reduction and layer-to-layer registration requirements have
been greatest. Other segments of the much larger total HDI market will be
targeted after a significant market share has been established in the chip
packaging segment. Downstream development of these systems will be driven by
industry and customer requirements as these evolve.
The printed circuit industry is in the midst of significant technological
change aimed at producing a significant increase in density at no additional
cost to the board purchaser. The fabrication technology that is enabling this
change is called microvia construction. This technology, which is useful
over a wide range of electronics interconnect applications, is being driven
primarily by:
Area array silicon platforms. Ball grid array and chip scale substrates are
needed for bare silicon applications providing access to high device
leadcounts in small package areas. These high I/O count requirements outstrip
the traditional, single metal, peripheral leadframes that have formed the
backbone of silicon packaging since the integrated circuit was invented. They
result in film, rigid, and build up multilayer silicon platforms to provide
electrical access and a standardized physical interface to leading edge
silicon.
Interconnection of area array platforms. Ball grid arrays and chip scale
packages will coexist with traditional surface mount components for many
years. Their increased use means more solder joints per square centimeter of
substrate. This increases the density of the substrate in two ways: first,
connection access to the array grids with via structures and line widths that
can be accommodated within the array, and; second, interconnection between
arrays and other components. Both of these requirements increase demand for
microvias.
Small form factor systems. Eighteen percent of the world's electronic systems
fall into the category of being complex enough and small enough to potentially
demand microvia substrates. These systems are often dense double-sided
assemblies with solder joint densities that are typically double today's
conventional multilayer-based assemblies. These systems are not limited to
hand-held applications (e.g., cellphones), they are also seen in such areas
as automotive electronics and embedded processor modules. All of these small
form factor systems are driving toward the need for microvias, as
manufacturers must produce smaller, denser system packages, which in turn,
increase system performance and decrease system cost.
Microvia substrate fabrication, which involves the sequential build-up of
multiple levels of interconnect, is reaching a limit in interconnect density
due to poor layer to layer registration control and inadequate feature
definition below 3 mils (0.003 inches). In order to meet the Semiconductor
Industry Association road maps for chip carriers, the industry must change the
way it performs the imaging process on microvia substrates. Projection
lithography has been commonly accepted as the solution, however, no
particular projection lithography method has yet emerged as the best choice.
Up to this point, no tool has offered the combination of higher resolution,
better registration, and high throughput. The Company believes that its
stepper technology is ideally suited to satisfy all three of these demands.
Several methods of fine feature formation are being explored by the industry
including scanning projection lithography, laser drilling of via holes, laser
direct imaging, and laser ablation of metallization levels. None of these
techniques, however, offer the level of process control afforded by large area
step-and-repeat lithography. There is no consensus in the market for which
method will ultimately dominate, but there is a clear precedent in the wafer
processing industry. The situation is closely analogous to that of twenty
years ago in the integrated circuit industry, when increasing chip-level
device and interconnect densities moved beyond the ability of then current
manufacturing equipment, contact and proximity printers. The first wafer
stepper was installed in an integrated circuit production line in 1979.
Today, the wafer stepper is the dominant imaging tool for integrated circuits
with a total available, worldwide equipment market measured in billions of
U.S. Dollars.
The HDI market for lithography tools is split between circuit layer
patterning and via hole patterning. The split is primarily the result of the
dramatically different throughput constraints for these two segments due to
the nature of the photo materials used. Laser drilling of vias is seen as a
significant competitive technology in via formation for low via-count
applications, but suffers a dramatic throughput disadvantage in the high
via-count chip carrier segment. The chip carrier segment is projected to be
the fastest growing segment of the microvia market and is the one best suited
to the Company's step-and-repeat technology.
The Company has a good entry position for supplying tools into the chip
carrier market through the existing 5200 PanelPrinter systems. This machine
is not optimized for the market, but will satisfy the needs of early adopter
manufacturers anxious to supply high performance chip carrier substrates.
Medium and long term market growth for the Company will be based on an
evolved 5200 platform that provides large substrate support (such as the
18-inch by 24-inch substrate now standard in the PCB industry), a wide field
i-line projection lens, and a cost-reduced manufacturing infrastructure.
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, FPDs, and more
recently, multi-layer printed circuit boards and chip carriers, products
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 the first
layer, a material 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.
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.
Precise coordination of machine systems is necessary to achieve the accuracy
required to position adjacent images and registration of the various image
layers of a large area integrated circuit. The technological challenges of
image positioning and registration 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
products possible.
Imaging equipment used in HDI fabrication is evaluated in terms of
registration, resolution, and cost or value of ownership. Alternate
technologies and competing equipment options each have benefits on one or more
category of performance. The Company believes that its new HDI system will be
the first to excel in all three of the categories.
- - Registration A board's capacity can be increased by adding layers of
circuitry. Advanced PCBs typically require four to sixty layers, with the
majority between the four and ten layers. Circuit traces from one layer must
be connected to at least one other layer. Connection between layers is
accomplished by a variety of via technologies. A via is typically a hole
placed in a "pad" area of a signal trace, cut through one or more insulating
layers, and plated or filled to provide electrical continuity to a lower
layer. The pad in the upper layer must be positioned accurately with respect
to the lower layer. The relative alignment of pads on corresponding layers is
referred to as registration.
- - Resolution Smaller features allows more signals to be routed through a
given area on a board. Shorter run lengths also have a benefit of better
impedance control, resulting in faster switching rates and lower power
requirements. Lithography tools must be able to produce patterns in very
thick layers of photoresist and on substrates with large planar deviations
(warp, bow, taper, etc.).
- - Cost of Ownership Cost of ownership is made up of many contributing
factors. The purchase price is typically allocated over three years. In
addition to the cost of the system, fabricators consider the cost of factory
clean room space, utilities, maintenance costs, and tooling, such as the cost
of master artwork reticles or photomasks. Additional factors are becoming
more significant as equipment costs rise and production specifications
increase, the most significant of which are utilization, or up-time, and
product yield, the percentage of good parts produced to total parts produced.
Competing equipment options for imaging equipment used in HDI fabrication
include contact printing, projection scanning, laser direct imaging, and step
and repeat lithography.
Contact printing is currently used for the majority of PCB fabrication. With
an average selling price of $100,000 to $600,000 and little maintenance, it is
a cost effective method for low to medium resolution work. Many leaders
participating in small scale production of laminate multi-chip modules and
other chip carriers, as well as those producing dense miniature boards for
portable applications, have reduced contact printing resolution to 3 to 4 mil
(75 to 100 microns), but suffer from extremely low yield at this resolution
level, mostly as a result of particle contamination.
The most significant problem with contact printing is inaccurate
layer-to-layer registration. Standard processes between exposure steps cause
the boards to shrink or expand while master artwork is fixed in size, causing
registration errors in scaled boards. An initiative has been put in place to
characterize dimensional instability in the boards so masks can be created
with prescaled artwork. This may improve registration on average, but
board-to-board scale variation and within-board scale variation cannot be
corrected.
Contact printing does benefit from the lowest initial purchase price.
Simplicity allows for a very low maintenance cost and high utilization.
However, for high resolution, yield loss becomes a significant factor in the
overall cost of ownership.
Projection scanning systems have been developed to provide a large field
non-contact lithography process. The initial purchase price of a scanning
system is approximately $1,200,000, or twice that of a contact printer. The
optics are capable of producing better than 4 micron images without potential
contamination from contact. However, in actual production the 4 micron
specification has not been achieved due to thick, low contrast resists
typically used, and the inability to automatically change focus during
exposure. Limited depth of focus of the optics may cause problems with many
of the warped and tapered boards. Thick photoresist layers and focusing
requirements over rolling topography make matter much worse. Scanning
requires large, expensive mater artwork masks to produce the images. This
process lends itself well to large format boards which require nonrepetitive
artwork. However, it is less effective for small format boards such as chip
carriers and portable applications. Such applications can use less expensive
and more precise small format masks with patterns stepped and repeated across
the substrate.
Registration on projection scanners is better than that of a typical contact
printer due to use of advanced alignment systems. Complicated motions of both
mask and substrate make registration accuracy more difficult to achieve than
with step and repeat systems. In addition, the fixed 1:1 relationship between
artwork and printed image does not allow a simple means to adjust for board
scaling. Complexity of the system, and reputed poor reliability raise the
total cost. With the potential failure to meet resolution goals, the yield
improvement may not justify the increase in other cost factors.
Laser Direct Imaging (LDI) is a relatively new technology which has some
advantages for PCB R & D and prototyping. The initial purchase price of an
LDI tool is in the range of $850,000 to $1,400,000. Its non-contact
lithography process eliminates the contamination problem associated with
contact printers. The laser beam is directed to create an image directly from
a computer file without the need for an expensive mask. LDI systems produce
finer resolution than contact printers, but at a cost of reduced throughput.
Registration on LDI tools is better than that on contact printers. Control of
the writing beam is accurate. The writing pattern may be adjusted to correct
for a predetermined substrate scale. Compensation for board-to-board
variation and within-board variation may also be possible in the future, but
with a potentially significant loss in throughput due to computation time.
The Cost of ownership on LDI tools may be too high for a high-volume
production environment, due to high cost and relatively low throughput.
Optics for step and repeat systems can be built to resolve sub-micron
features, but this capability will not be required in the HDI market for
several years. The Company's new HDI system balances lens cost with
resolution and field size to achieve the initially required 12.5 micron
resolution with the best customer cost of ownership. The resulting lens has a
large depth of focus to compensate for warped and bowed substrates. The HDI
system design provides the tightest registration control of all HDI imaging
technologies. The alignment system can accurately measure substrate scaling.
Corrections may be applied at each exposure site allowing compensation for
board to board variations and within board variations.
The average selling price of step-and-repeat systems is expected to be
approximately $1,600,000. The cost of small masks used on step and repeat
systems is less than the larger masks for scanners. Reliability is better
than that of LDI and scanners, but not as good as contact printers. The total
cost of ownership is lowest because throughput approaches that of contact
printing, and higher yields are achievable at lower resolution levels.
The Company's Technology
Since its organization in 1986, the Company has devoted substantially all of
its resources to the design and manufacture of photolithographic systems that
meet technological challenges faced by manufacturers. The Company has focused
on the following system features:
- - Alignment - A combination of a vision system with proprietary algorithms and
proprietary motions software provides highly accurate layer-to-layer
registration.
- - Scalability - Detecting and measuring microscopic distortion in substrate
shape compensates for distortion by adjusting the image projected on the
substrate.
- - Ease of Use and Flexibility - Employing proprietary set-up, self-calibration
and user interface software 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 positioning and
registration, 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 machine vision system to precisely
measure the location of alignment mark images on the substrate. 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 production process. Compensation for such distortion is done
with the scalability feature. Measurement data taken during the alignment
process is used to determine the substrate shape changes. 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 Company'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 product
types and sizes and improves productivity.
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 the lens and enables automatic
adjustment of image positioning. This self-calibration routine eliminates the
need to expose and develop test substrates and reduces set-up time from the
hours generally required by mechanical means to under ten minutes.
One of the Company's software modules 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 command. Other software modules provide operators
with access to extensive, on-line interactive manuals, which are customized
for specific machine configurations and periodically updated.
All of the technology referred to above were developed for the FPD market, but
will also be useful in addressing the needs of the HDI market. Although the
Company believes its existing technology is sufficient to meet the needs of
HDI in the short term, additional technology will need to be developed for
completing the new product optimized for the HDI market. Initially, this will
involve relaxing some of the precision and resolution previously developed to
achieve higher throughput and reduce costs. Previously developed precision
and resolution can be worked back in on future systems, as industry technology
road maps suggest may be required, but additional technology will need to be
developed to maintain high throughput. There can be no assurance that the
Company will have adequate resources todevelop such additional technology.
Customers and Marketing
Historically, photolithographic systems such as the Company's PanelPrinter
have been used for commercial and research purposes. Potential commercial
customers included manufacturers of electronic products that incorporate FPDs.
Potential commercial customers also include original equipment manufacturers
that seek to manufacture and sell FPDs as individual components.
The capital and technological investments required for manfacturers entering
the FPD market are substantial. As a result, there has been a limited number
of potential customers for the Company's PanelPrinter. Of the limited number
of potential customers, the majority are located outside the United States to
date, principally in Japan and Korea. The Company's ability to compete
effectively in the Japanese and Korean markets has been limited by its small
size, its geographic location and its selection of regional representatives.
The chip carrier segment of the HDI market is an emerging market, with the
initial fabricators representing the initial potential customers, most of whom
are in the process of evaluating new lithography methods for high performance
chip carrier production requirements. The Company intends to serve these
customers with simple variants of the Company's existing stepper products
having only minor modifications from the standard FPD configurations. These
tools are expected to be used in pilot production lines where new and/or
modified processes will be required.
Through strategic partnerships with these initial customers, especially those
who are volume manufacturers, the Company expects to leverage its early
relationships into a marketing program which is reference driven;
manufacturers recommending to other manufacturers. The Company believes these
partnerships will establish the credibility necessary to penetrate the broader
HDI market.
Historically, cooperation with the U.S. government has been an important
factor in achieving technological leadership in the FPD manufacturing
equipment industry. Since 1990, the Company has received funding from
agencies of the U.S. government for certain feasibility studies and production
of a next-generation FPD photolithographic system. Under these funding
arrangements, the U.S. government generally has limited rights to use certain
critical technical data and computer software, however, the Company retains
ownership of the developed technology. The Company does not intend to seek
funding from the U.S. government for developing technology for the HDI market.
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.
Products
The Model 5200 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.
Other Products
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 has several software products that enhance productivity. The
Company's job setup software -- PanelCADTM -- uses a graphical interface
rather than complicated programming language, to set up and edit jobs.
PanelCALTM -- 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 PanelSCALETM 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 registration accuracy.
Future Product
A new lithography system for cost effective, high volume HDI fabrication will
be developed. The initial specifications for this system have been
established. Additional refinements to the specification will be provided by
likely users. This development project will incorporate a newly designed
i-line lens (purchased) and illumination system (purchased), a new motions
system with at least 18 x 24 inches of travel (purchased), a new
machine-vision based alignment system (purchased), and a new substrate
handling system (purchased). The remaining subsystems will be primarily MRS
designed and will, wherever practicable, use existing MRS designs (modified)
from the Model 5200, 6700, and 11000 PanelPrinter systems.
Operations
Historically, the Company has operated primarily as an assembly, test and
systems integration company. Except for extensive motion systems, vision
systems and proprietary software, most other 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 an 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 12 months to produce a lens to the Company's
specifications, the Company has established relationships with other lens
manufacturers.
The primary difference in operations based on the plan for entering the HDI
market will be to place an even greater reliance on purchased subsystems over
Company-developed subsystems. The objective will be to build lower-cost,
higher throughput systems which increase the value of ownership of such
systems to customers.
Competition
The market for FPD manufacturing equipment is intensely competitive and
subject to rapid technological change. Historically, the Company competed
directly with two other major manufacturers of large-area projection
photolithographic systems, Nikon and Canon.
For both HDI and FPD markets, 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 resolution and uniform critical dimension control),
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 FPD lithography 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.
Imaging equipment used in HDI fabrication includes contact printers,
projection scanners, laser direct imaging systems, and most recently, step and
repeat lithography systems. There are a large number of manufacturers of
contact printers. Performance of contact printing is not expected to match
the requirements for HDI.
There is one strong competitor for projection scanning, Tamarack, supplying a
mature scanning system to both flat panel and PCB markets (Tamarack also
produces contact printing equipment). There are also two competitors, Anvik
and Ultratech, with systems in prototype phase. The Tamarack system has
achieved a fair level of success in flat panel manufacturing, primarily in
production of color filter plates. This application requires fairly high
resolution (approximately 5.0 microns), but less than 5 micron registration
control.
Anvik has been working on various models under a number of government funded
projects. Anvik systems have yet to be placed into actual production.
Ultratech has also applied their 1X optics to a prototype high resolution
scanning machine, but only at the smaller silicon wafer sizes. Both Anvik and
Ultratech claim lower depth of focus than the Tamarack system.
Two competitors in laser direct imaging, ETEC and Jenoptik, produce laser
direct imaging equipment for PCB applications. Jenoptik's Model DP-40 was
installed at one customer site, and never reached either throughput or
reliability goals. The Jenoptik product line is now marketed by Israel-based
Orbotech. Resolution performance falls below the requirements for HDI
applications with no indication that a high resolution model is on the way.
ETEC acquired Polyscan to add to their world leadership portfolio of e-beam
and laser direct write systems for mask generation. The original product was
based on lower resolution, like the Jenoptik DP-40. New optics have allowed
migration to competitive resolution, at the cost of throughput. Emphasis on
mask generation equipment may hamper efforts to develop registration
improvements.
The Company believes that it is the only company actively pursuing step and
repeat technology for HDI applications. Barriers to entry include material
handling, scale compensation, and imaging requirements through a large depth
of focus. Companies that could have the ability to develop step and repeat
equipment for HDI applications are those with current wafer stepper or flat
panel display stepper experience, such as ASM Lithography, Canon, Nikon,
Silicon Valley Group, and Ultratech Stepper. All of these companies have
historically focused substantially all of their development efforts on their
primary market, wafer steppers, however.
Research and Development
Since inception, the Company has strived to develop the highest performance
tools for the FPD market. Because of this and the complexity of
photolithographic technology, very few outside vendors had the capability to
provide modules at the subsystem level that would meet the demanding
performance criteria expected. As a result, many of the mechanical and
electrical components in the PanelPrinter were custom designed and fabricated
internally by the Company. This has led to a relatively high cost structure
for the existing PanelPrinter products.
The performance level requirements of the HDI market, although high, are not
expected to require that the Company continue to design and manufacture many
of the mechanical and electrical components internally. The Company's product
development strategy for HDI lithography systems is expected to incorporate
purchased, commercial components and subsystems wherever practicable.
Internal development of proprietary components and subsystems will only be
done where necessary in cases which exploit our core competencies in precision
mechanics, optics, and software.
Photolithographic equipment design requires the cooperation and management of
four distinct engineering disciplines: electrical, mechanical, optical and
software. As of March 31, 1998, of the Company's 18 engineers, 3 are
administrative, 2 are electrical engineers, 7 opto-mechanical, and 6 software.
The Company's primary research focus has been the design and development of
enhancements to its PanelPrinter.
In the fiscal years ended March 31, 1998, 1997 and 1996, the Company incurred
aggregate research and development costs of $3.4 million, $3.5 million and
$4.9 million, respectively. Those costs include $1.1 million, $0.5 million and
$2.6 million, respectively, allocable to product development or contract
research related 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. For instance, the Company believes that its software, which is
central to its motions, throughput, and image control 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 eight patent applications pending, five
in the United States and three overseas.
Employees
As of March 31, 1998, the Company had 55 employees, of whom 18 are employed
primarily in research and development, 10 are employed in manufacturing, 9 are
employed in customer support, 4 are employed in sales and marketing, and 14
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, 1998 was $0.5 million as compared with $1.5 million at
March 31, 1997 and $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 by the date on which the backlog is
computed. Backlog for which delivery had been specified within twelve months
at March 31, 1998, March 31, 1997 and March 31, 1996 was $0.5 million, $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 34,579 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 and space otherwise available is adequate to
support Company operations through fiscal 1999.
Item 3. Legal Proceedings
On January 24, 1997, Micron Display Technology ("Micron Display") brought suit
in Idaho against the Company alleging in five counts of breach of contract,
breach of implied warranties, and breach of express warranties, in connection
with a Model 5200 PanelPrinter (the "PanelPrinter") which the Company alleged
Micron Display purchased from the Company in 1996. On January 30, 1997, the
Company filed an action in Massachusetts 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.
The parties disputed which documents constituted the contract between them.
Further, Micron Display alleged, among other things, that the PanelPrinter
failed to meet certain performance specifications contained in what it
contended constituted the contract, and that, as a consequence, it was
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. The Company maintained that other documents constituted the
contract, pursuant to which there was no right to convert the relationship to
a lease, and further denied that the PanelPrinter failed to meet
specifications set forth in the document cited by Micron Display. The Company
sought approximately $1.4 million as the balance of the unpaid contract price,
and additional remedies under the Massachusetts Unfair Business Practices Act.
On July 23, 1997, the parties executed a Settlement Agreement resolving their
disputes and releasing all claims against each other. Both lawsuits have now
been dismissed. While the specific terms of the Settlement Agreement are
confidential, the settlement generally provided for a lump sum payment to be
made by Micron Display to the Company at the time the Settlement Agreement was
executed, and further monthly installment payments to be made thereafter.
These payments, together with Micron Display's initial deposit, constitute
payment in full for the PanelPrinter. The Company in turn has agreed to
provide Micron Display with an extended warranty with respect to the
PanelPrinter, as well as technical assistance and certain modifications to the
PanelPrinter. No significant amounts due to or from Micron remain outstanding
at March 31, 1998.
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 1998.
<TABLE>
<CAPTION>
Item 4a. Executive Officers of the Registrant
<S> <C>
Name Position with the Company
Carl P. Herrmann President, CEO and Chairman of the Board
Patricia F. DiIanni Vice President and Chief Financial Officer
John L. Steele, Jr. 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.
Carl P. Herrmann, has been President, CEO and Chairman of the Board since
February 1998. Mr. Herrmann has been serving on the Board of Directors since
May of 1997. Prior to joining the Company's Board of Directors he had been an
independent management and international marketing consultant since December
1994. From July 1991 to November 1994, he was at Solbourne Computer, Inc.
from April 1992 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 1983 to
September 1984 he was the Tokyo-based Vice President of TEL-GenRad, KK, a
joint venture developing and manufacturing PC board and semiconductor test
systems. Mr. Herrmann received a BA from the University of Pennsylvania and
an MBA from the Wharton School.
Patricia F. DiIanni, Vice President and 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 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 theCompany'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 Shareholders 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 sales price
per share of Common Stock as reported on the NASDAQ National Market System for
the periods indicated.
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
1998
First Quarter $1.3750 $0.7500
Second Quarter $1.7500 $1.0000
Third Quarter $2.0000 $0.6250
Fourth Quarter $1.7500 $0.6875
1997
First Quarter $6.0000 $3.5630
Second Quarter $3.8750 $2.3750
Third Quarter $3.2500 $1.8130
Fourth Quarter $3.0000 $1.2500
</TABLE>
Holders
As of June 1, 1998, there were 127 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.
<TABLE>
<CAPTION>
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.
Year ended March 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues
Product $ 5,265 $ 5,173 $ 7,699 $16,897 $ 7,607
Contract research 0 579 2,858 5,501 7,586
Service and other 1,883 1,389 0 0 0
Total revenues 7,148 7,141 10,557 22,398 15,193
Cost of revenues
Product 6,276 4,040 7,389 10,893 4,496
Contract research 0 579 2,891 5,337 7,171
Service and other 1,382 1,485 0 0 0
Total cost of revenues 7,658 6,104 10,280 16,230 11,667
Gross margin (510) 1,037 277 6,168 3,526
Operating expenses
Research and development 2,237 3,042 2,279 1,945 727
Selling, general and
administrative 2,414 2,944 3,715 2,862 1,379
Other charges 0 0 4,469 0 0
Income (loss) from operations (5,161) (4,949) (10,186) 1,361 1,420
Other income (expense), net 18 1,819 245 347 228
Income before provision
for income taxes (5,143) (3,130) (9,941) 1,708 1,648
Provision for income taxes 0 0 0 72 62
Net income (loss) ($5,143) ($3,130) ($9,941) $ 1,636 $ 1,586
Net income (loss) per share
Basic ($0.75) ($0.47) ($1.52) $0.25 $0.29
Diluted ($0.75) ($0.47) ($1.52) $0.24 $0.26
Weighted average common shares
outstanding
Basic 6,814 6,717 6,550 6,480 5,533
Diluted 6,814 6,717 6,550 6,952 6,146
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents $ 1,095 $ 3,291 $ 4,218 $ 8,340 $12,147
Working capital 5,605 10,130 10,097 18,174 18,776
Total assets 7,884 13,428 16,301 26,993 24,104
Long-term debt 0 1,000 11 15 17
Stockholders' equity 4,832 9,870 12,864 22,600 20,788
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This document and documents incorporated by reference include forward-looking
statements about the Company's businesses, revenues and expenses, effective
tax rate and operating and capital requirements. Forward-looking statements
made or incorporated by reference herein are not guarantees of future
performance. In addition, forward-looking statements may be included in
various other Company documents to be issued in the future and in various oral
statements by the Company representatives to security analysts and investors
from time to time. Any forward-looking statements are subject to risks that
could cause the actual results to vary materially. Such risks are discussed
below ("Risk Factors Which May Effect Future Results") and in related portions
of this document, including documents incorporated by reference.
Overview
Since it's inception in 1986, the Company has devoted substantially all of its
resources toward the research, development and manufacture of advanced
lithography systems for the flat panel display and other large area electronic
devices markets. Through fiscal 1998, the Company has principally sold its
products for research and development purposes. The Company has also
generated sales of its products for purposes of volume production of flat
panel displays, however, these sales have been limited and have been
principally to U.S. manufacturers. The Company's sales have been declining
since fiscal 1996. This has been due to several factors including intense
competition in the Japanese market, the principal market for volume production
of flat panel displays, because that market is dominated by competitors such
as Nikon and Canon. Additionally, due to a number of unforeseen market and
economic conditions, there has been little or no competitive pressure for
manufacturers to increase display sizes or resolution which are the Company's
competitive advantages. Therefore, the market for volume production of FPDs
has not expanded beyond Japan or into technology where the Company expected it
would have the ability to effectively compete. As a result of these
circumstances, in late fiscal 1997 and early fiscal 1998, the Company reduced
its workforce, implemented cost reduction programs and directed its efforts to
the Asian market where the vast majority of worldwide production of desktop
PCs, including those with FPDs, occurred. The Asian economic crisis, which
began in the Company's fiscal 1998 caused a substantial decline in the growth
of the PC market and further reduced the Company's sales through fiscal 1998.
As a result of these circumstances, the Company has continued to experience
significant losses from operations and negative cash flows and has defaulted
on debt covenants during fiscal 1998.
Recent Developments
During the fourth quarter of fiscal 1998, the Company identified a potential
new market opportunity for the Company's large area photolithography
technology, the high density interconnect (HDI ) market. HDI manufacturers
are faced with a demand to produce printed wiring boards (PWB) with
increasing complexity and component density. Growth in portable consumer
products (cell phones, PDAs, etc.) as well as a number of high speed data
applications is creating a requirement for new manufacturing technologies.
Leading the increased density demand is an area of integrated circuit
packaging referred to as chip carriers. High numbers of input and output
signals must be routed through the PWB in a limited area, requiring tight
circuit dimensions and precise layer to layer interconnect registration. The
Company's technology is uniquely suited to meet these requirements. See also
"Business". The Company believes that its existing products are uniquely well
suited for the needs of the HDI market and, therefore has refocused its
marketing efforts from the flat panel display industry to the HDI market. As
a result of this refocus, the Company received its first HDI purchase order
for a Model 5200 PanelPrinter in April 1998.
Although the Company received its first HDI purchase in April 1998, the HDI
market is an emerging market which is currently represented by a limited
number of customers. Most of these customers are in the process of evaluating
new lithography methods in anticipation of expected significant growth in high
performance chip carrier production. The Company believes that its
lithography tool and related technology are best suited to meet the needs of
these customers. However, there are a number of risks associated with the
Company's transition to the HDI market including, but not limited to the
Company's ability to obtain sufficient financing to continue to fund its
operations and its research and development efforts. Though the technology
foundation is in place, a considerable effort is required to develop new
technologies which will meet the needs of the HDI market in the longer-term.
Further, the ability of the Company to develop strategic partnerships with HDI
manufacturers to gain acceptance of its products and technology, the risks
attendant to an emerging market including its actual potential size and
success, and the market's acceptance of the Company's product as the, or one
of the, methods for future fabrication are also potential risks.
As a result of the Company's transition to a new market for its technology,
the Company terminated its work under its contract with the United States
Display Consortium (USDC), an industry-led public/private partnership, in
March 1998. The contract with the USDC was entered into in June 1998 for the
research, development and manufacture of an advanced large-area high
throughput step-and-repeat imaging tool. Under the contract, MRS and the USDC
would share in the cost of the new imaging tool which was expected to be
delivered to a member of the USDC at the end of the contract. As a result of
the contract prior to cancellation the Company earned product revenue and
incurred research and development costs which have been allocated to the
contract and included in cost of product revenues.
See "Liquidity" and Note A to Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
Results of Operations
Fiscal Years 1998 and 1997
Revenues ($ in 000's)
Year ended March 31,
1998 1997
<S> <C> <C> <C> <C>
Product $5,265 74% $5,173 72%
Contract research 0 0% 579 8%
Service and other 1,883 26% 1,389 20%
Total revenues $7,148 100% $7,141 100%
</TABLE>
Product revenues remained relatively consistent in fiscal 1998 as compared to
fiscal 1997, however, the mix of product revenues varied. Revenues for fiscal
1998 included the sale of two PanelPrinters at selling prices consistent with
the Company's historical average selling prices. Revenues for fiscal 1997
also included the sale of two PanelPrinters, however, one of these systems was
sold at a substantially higher than average selling price as a result of its
more complex configuration. The impact of the lower average selling prices in
fiscal 1998 as compared to fiscal 1997 were offset by revenues from the
Company's contract with the USDC.
Service and other revenues increased 36% year to year as the Company continued
its efforts to increase service contracts and sales of spares and consumables
to its installed base of customers in the flat panel display market.
<TABLE>
<CAPTION>
Gross Margin ($ in 000's)
Year ended March 31,
1998 1997 1996
%Change %Change
<S> <C> <C> <C> <C> <C>
Product ($1,011) -189% $1,133 265% $310
As % of revenue -19% 22%
Contract research 0% -100% ($33)
As % of revenue 0 0
Service and other $ 501 -622% ($96) 0% $ 0
As % of revenue 27% -7%
Total gross margin ($ 510) -7% $1,037 275% $277
</TABLE>
Product gross margin in fiscal 1998 declined as a result of inventory
provisions of $1.0 million recorded in the fourth quarter. These inventory
provisions were recorded to reduce inventory to its net realizable value as a
result of the Company's change in market direction. Product gross margin in
fiscal 1998 was further reduced by underabsorped manufacturing costs due to
lower than expected demand and product revenues under the USDC contract which
had no gross profit.
Service and other gross margin increased due to revenues increasing faster
than the related costs. This was due to the Company having invested in its
service infrastructure in fiscal 1997, therefore, its infrastructure costs
remained relatively constant.
See also "Business Developments," "Factors Affecting Future Results," and
Note A to Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
Research and Development ($ in 000's)
Year ended March 31,
1998 1997 1996
%Change %Change
<S> <C> <C> <C> <C> <C>
Research and development $2,237 -26% $3,042 33% $2,279
As a % of revenue 31% 43%
</TABLE>
Research and development expenses declined 26% in fiscal 1998 compared to
fiscal 1997 due to the Company's reduction in headcount in the fourth quarter
of fiscal 1997. Historically the Company has funded a substantial portion of
its aggregate research and development costs through contracts with the
Defense Advanced Research Projects Agency ("DARPA"), an agency of the U.S.
government, in addition to the contract with the USDC in fiscal 1998.
Aggregate research and development costs declined in fiscal 1998 to $3.4
million from $3.5 million in fiscal 1997 also as a result of the headcount
reduction. Research and development expenditures allocated to contracts were
$1.1 million in fiscal 1998 compared to $0.5 million in fiscal 1997. The
fiscal 1998 contract-related costs resulted from the initial phase of the USDC
contract which required more effort than the fiscal 1997 efforts under the
DARPA contract which ended that year. The Company does not expect to continue
to fund its aggregate research and development costs through similar
contracts.
See also "Business Developments," "Factors Affecting Future Results," and
Notes A and B to Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
Selling, General and Administrative ($ in 000's)
Year ended March 31,
1998 1997 1996
%Change %Change
<S> <C> <C> <C> <C> <C>
Selling, general and
administrative $2,414 -18% $2,944 -21% $3,715
As % of revenue 34% 41%
</TABLE>
Selling, general and administrative expenses declined 18% in fiscal 1998
compared to fiscal 1997 as a result of generally lower expenses across all
expense categories due to headcount reductions and efforts to control costs
which were taken in the fourth quarter of fiscal 1997.
Other Income/Expense
Interest expense grew year to year as a result of the line of credit that the
Company entered into during the fourth quarter of fiscal 1997 with a $1
million required minimum borrowing.
Other income dropped in fiscal 1998 compared to an unusual high fiscal year
1997 which had a gain on the sale of $1.7 million of certain assets.
Results of Operations
Fiscal Years 1997 and 1996
Revenues
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.
Gross Margin
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 to reduce the value of inventory as a result of the decline in
revenue and backlog, offset by underabsorption in fiscal 1997 resulting from
lower production levels. In addition, the fiscal 1996 costs reflected costs
of full systems and low margin revenues associated with re-validating 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 in fiscal
1996.
Research and Development
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
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/Expense
Other income for fiscal 1997 reflects a gain on the sale of the Company's
interests in Integrated Circuit Testing GmbH (ICT). During fiscal 1997, a
portion of ICT business was spun-off to form Electron-Beam Technology GmbH
(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.
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, 1998 of $1.1 million, a
decrease of $2.2 million from March 31, 1997. This decrease was mainly the
result of negative cash flows from operations in fiscal 1998 which have
resulted from declining sales and, therefore, significant losses from
operations.
Historically, the Company has required significant working capital to support
its research and development efforts and to meet its ongoing production,
selling and general and administrative costs. Additionally, the Company's
transition to a new market will require substantial investments to develop new
technologies specifically for this new market as well as substantial funding
for its ongoing operations until such time as orders from this new market are
sufficient to meet its working capital needs. In addition, historically, the
Company has funded a substantial portion of its aggregate research and
development costs through contracts with an agency of the U.S. government and
other contracts. However, the Company does not expect to continue to fund its
research and development efforts through similar contracts in the future. The
Company's ability to develop new technologies is dependent upon its ability to
fund research and development through working capital and/or other financing
alternatives.
In the past, the Company has been able to meet its working capital
requirements through its existing cash balances and amounts available under
its line of credit. However, as a result of its significant net loss in
fiscal 1998, the Company was not in compliance with a financially restrictive
debt covenant, minimum tangible net worth, as of March 31, 1998. The Company
has received a waiver of the covenant default for the period March 31 through
June 30, 1998. However, it is probable that the Company will not be in
compliance with this covenant for the remainder of fiscal 1999.
Management's plans in regard to these circumstances are discussed below.
In the fourth quarter of fiscal 1998, the Company hired a new chief executive
officer with extensive experience in the high technology industry. Under the
direction of the new chief executive, the Company refocused its marketing
efforts toward a new market which the Company believes provides significant
opportunity in the future. The Company is actively seeking strategic
relationships with customers in the new market in order to gain new orders for
its products, in the short-term, and market acceptance of its technology in
the longer-term. Additionally, the Company is in the process of renegotiating
its line of credit agreement to less restrictive covenants and is seeking
potential additional financing through private equity offerings.
There is no assurance that the Company will be successful in obtaining
sufficient additional financing to fund its operations and research and
development efforts or renegotiate the terms of its line of credit on terms
acceptable to the Company. Additionally, there is no assurance that the
Company will be successful in attracting new customers in the HDI market or
that its products and technologies will be accepted by the new market. These
circumstances raise substantial doubt as to the Company's ability to continue
as a going concern. See Note A to Notes to Consolidated Financial Statements.
Factors Affecting Future Results
In addition to the risks discussed in "Recent Developments" and "Liquidity and
Capital Resources" above, 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, 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. 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. PanelPrinters and
optional equipment generally have ranged in price from $1.2 to $2.7 million.
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 and annual net income or loss,
are largely related to revenue recognition on sales of PanelPrinter units. In
addition, the process for turning prospects into firm purchase commitments and
subsequently selling the systems is often lengthy.
Year 2000 Computer Systems Compliance
Concerns have been widely expressed regarding the inability of certain
computer programs to process date information beyond year 1999. These
concerns focus on the impact of the Year 2000 problem on business operations
and the potential costs associated with identifying and addressing the
problem. The Company is in the process of evaluating and taking steps to deal
with the potential impact of this problem in areas under its control, in
particular its products, its administrative and business systems, and its
sources of supply.
Based on its review to date, the Company believes that its own products are
"Year 2000 compliant". The Company is in the process of upgrading its business
systems. The upgrade will enable proper processing of transactions relating
to the Year 2000 and beyond. The Company has also undertaken a program to
survey suppliers to determine the status and schedule for their Year 2000
compliance. Where it is believed that a particular supplier's situation poses
unacceptable risks, the Company plans to identify an alternative source.
Costs incurred in the compliance effort will be expensed as incurred. While
the Company's Year 2000 compliance evaluation is not yet complete, the Company
does not foresee a material impact on its business, operating results or
financial position from the Year 2000 problem. The Company cannot, of course,
predict the nature or materiality of the impact on its operations or operating
results of noncompliance by parties outside its control.
Item 8. Financial Statements and Supplementary Data
(a) Financial Statements
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements Page No.
<S> <C>
Report of Independent Accountants 24
Consolidated Balance Sheets at March 31, 1998 and 1997 25
Consolidated Statements of Operations, Years ended
March 31, 1998, 1997 and 1996 26
Consolidated Statements of Stockholders' Equity,
Years ended March 31, 1998, 1997 and 1996 27
Consolidated Statements of Cash Flows, Years ended
March 31, 1998, 1997 and 1996 28
Notes to Consolidated Financial Statements 29
Quarterly Financial Information (Unaudited) 40
</TABLE>
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, 1998 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, 1998.
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, 1998 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, 1998, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note A to the
financial statements, the Company has suffered recurring losses from
operations, negative cash flows, default on debt covenants and requires
additional financing. These factors raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note A. The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
Boston, Massachusetts
May 5, 1998 COOPERS & LYBRAND.L.L.P.
<TABLE>
<CAPTION>
MRS Technology, Inc.
Consolidated Balance Sheets
March 31,
ASSETS 1998 1997
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 1,094,636 $ 3,290,982
Accounts receivable, net of allowance for doubtful
accounts of $21,000 and $21,000, respectively 862,155 1,978,994
Inventories 5,643,432 7,313,982
Deposits 20,989 169,730
Other current assets 56,076 102,605
Total current assets 7,677,288 12,856,293
Property and equipment, net 176,969 533,244
Other assets 29,965 37,979
Total assets $ 7,884,222 $13,427,516
<CAPTION>
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities
<S> <C> <C>
Accounts payable $ 723,516 $ 370,644
Accrued expenses 1,187,700 813,224
Short-term debt 1,000,000 0
Current portion of obligations under
capital leases 0 11,096
Customer deposits 0 1,312,389
Other current liabilities 140,714 49,746
Total current liabilities 3,051,930 2,557,099
Long-term debt 0 1,000,000
Total liabilities 3,051,930 3,557,099
Commitments and contingencies (Notes A, E, H, and K)
Stockholders' equity
Common stock, $.01 par value; authorized,
20,000,000 shares;issued and outstanding
6,838,165 and 6,776,355 shares, respectively 68,381 67,763
Additional paid-in-capital 36,487,455 36,383,258
Accumulated deficit (31,723,544) (26,580,604)
Total stockholders' equity 4,832,292 9,870,417
Total liabilities & stockholders' equity- $ 7,884,222 $13,427,516
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<TABLE>
<CAPTION>
MRS Technology, Inc.
Consolidated Statement of Operations
Years ended March 31,
1998 1997 1996
Revenues
<S> <C> <C> <C>
Product $ 5,265,075 $ 5,173,273 $ 7,699,267
Contract research 0 578,483 2,857,927
Service and other 1,883,035 1,388,941 0
Total revenues 7,148,110 7,140,697 10,557,194
Cost of revenues
Product 6,275,561 4,040,747 7,389,402
Contract research 0 578,483 2,890,661
Service and other 1,382,257 1,484,554 0
Total cost of revenues 7,657,818 6,103,784 10,280,063
Gross margin (509,708) 1,036,913 277,131
Operating expenses
Research and development 2,237,321 3,042,186 2,279,383
Selling, general and
administrative 2,413,903 2,944,188 3,714,918
Other charges 0 0 4,469,120
Loss from operations (5,160,932) (4,949,461) (10,186,290)
Interest income 109,345 112,566 335,803
Interest expense 116,771 653 4,906
Other income (expense), net 25,418 1,706,753 (85,333)
Net loss ($5,142,940) ($3,130,795) ($9,940,726)
Net loss per share -
Basic and Diluted ($0.75) ($0.47) ($1.52)
Weighted average common and common
equivalent shares outstanding -
Basic and Diluted 6,814,000 6,717,000 6,549,672
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<TABLE>
<CAPTION>
MRS Technology, Inc.
Consolidated Statements of Changes in Stockholdrs' Equity
Years ended March 31, 1996, 1997 and 1998
Class A Common Stock Additional
Shares $.01 Par Value Paid-In-Capital
<S> <C> <C> <C>
Balance, March 31,1995 6,455,731 $64,557 $36,045,022
Issuance of common shares in
connection with employee
stock purchase plan 21,866 219 86,533
Issuance of common shares in
connection with employee
stock option plan 129,814 1,298 116,003
Issuance of common shares in
connection with warrant exercise 66,909 669 (669)
Net loss
Balance, March 31, 1996 6,674,320 66,743 36,246,889
Issuance of common shares in
connection with employee
stock purchase plan 24,577 245 65,087
Issuance of common shares in
connection with employee
stock option plan 77,458 775 71,282
Net Loss
Balance, March 31, 1997 6,776,355 67,763 36,383,258
Issuance of common shares in
connection with employee
stock purchase plan 17,014 170 14,263
Compensation associated with
stock option grant to a
consultant 50,000
Issuance of common shares in
connection with employee
stock option plan 44,796 448 39,934
Net loss
Balance, March 31, 1998 6,838,165 $68,381 $36,487,455
The accompanying notes are an integral part of the consolidated
financial statements.
</TABLE>
<TABLE>
<CAPTION>
MRS Technology, Inc.
Consolidated Statements of Changes in Stockholdrs' Equity
Years ended March 31, 1996, 1997 and 1998
Total
Accumulated Stockholders
Deficit Equity
<S> <C> <C>
Balance, March 31,1995 ($13,509,083) $22,600,496
Issuance of common shares in
connection with employee
stock purchase plan 86,752
Issuance of common shares in
connection with employee
stock option plan 117,301
Issuance of common shares in
connection with warrant exercise
Net loss (9,940,726) (9,940,726)
Balance, March 31, 1996 (23,449,809) 12,863,823
Issuance of common shares in
connection with employee
stock purchase plan 65,332
Issuance of common shares in
connection with employee
stock option plan 72,057
Net loss (3,130,795) (3,130,795)
Balance, March 31, 1997 (26,580,604) 9,870,417
Issuance of common shares in
connection with employee
stock purchase plan 14,433
Compensation associated with
stock option grant to a
consultant 50,000
Issuance of common shares in
connection with employee
stock option plan 40,382
Net loss (5,142,940) (5,142,940)
Balance, March 31, 1998 ($31,723,544) $4,832,292
The accompanying notes are an integral part of the consolidated
financial statements.
</TABLE>
<TABLE>
<CAPTION>
MRS Technology, Inc.
Consolidated Statements of Cash Flows
Years ended March 31,
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities
Net loss ($5,142,940) ($3,130,795) ($9,940,726)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation 342,676 643,554 795,286
Amortization 2,232 2,232 66,667
Gain on sale of investment in
business alliance 0 (1,717,032) 0
Other charges 50,000 0 4,468,879
Inventory provisions 1,400,000 200,000 2,493,232
Changes in assets and liabilities:
Accounts receivable 1,116,839 (862,013) 4,454,018
Inventories 311,654 579,032 (4,591,902)
Other assets 203,284 663,327 (437,430)
Accounts payable 352,872 (1,497,112) (370,771)
Accrued expenses 374,479 (643,753) 27,100
Other current liabilities 90,968 (47,778) 97,524
Customer deposits (1,312,389) 1,312,389 (840,000)
Net cash used in operating activities (2,210,325) (4,497,949) (3,778,123)
Cash flows from investing activities
Purchases of property and equipment (29,740) (79,463) (531,795)
Proceeds from sale of investment in
business alliance 0 2,517,033 0
Net cash provided by (used in)
investing activities (29,740) 2,437,570 (531,795)
Cash flows from financing activities
Proceeds from stock purchases under
employee stock purchase plan 14,433 65,332 86,752
Proceeds from employee stock
option exercises 40,382 72,057 117,301
Net borrowings under line of credit 0 1,000,000 0
Principal payments under capital
lease obligations (11,096) (3,908) (16,421)
Net cash provided by financing
activities 43,719 1,133,481 187,632
Net decrease in cash and cash
equivalents (2,196,346) (926,898) (4,122,286)
Cash and cash equivalents at
beginning of year 3,290,982 4,217,880 8,340,166
Cash and cash equivalents at
end of year $1,094,636 $3,290,982 $4,217,880
Supplemental cash flow information
Interest paid $109,345 $653 $4,906
Income taxes paid 0 0 $27,120
Supplemental disclosure of non-cash
investing and financing activities
Property and equipment transferred
to inventory 41,104 0 0
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
A. Nature of Business and Basis of Presentation
MRS Technology, Inc. was founded in February 1986 to develop and manufacture
photolithographic equipment for the production of flat panel displays (FPDs),
principally active matrix liquid crystal displays (AMLCDs). Through fiscal
1998, the Company's equipment was used primarily for the production of and
research on FPDs. The Company's innovative photolithographic system, the
PanelPrinter, is a "stitching step-and-repeat" imaging system which prints
large-area integrated circuit patterns, a critical step in the FPD production
process.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern which contemplates the continuity of
operations, realization of assets and satisfaction of liabilities in the
normal course of business. The Company has suffered recurring losses from
operations, negative cash flows, default of debt covenants and requires
additional financing. These factors raise substantial doubt about the
Company's ability to continue as a going concern. These financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
Risks and Uncertainties and Management's Plan
Since it's inception in 1986, the Company has devoted substantially all of its
resources toward the research, development and manufacture of advanced
lithography systems for the flat panel display and other large area electronic
devices markets. Through fiscal 1998, the Company has principally sold its
products for research and development purposes. The Company has also
generated sales of its products for purposes of volume production of flat
panel displays, however, these sales have been limited and have been
principally to U.S. manufacturers. The Company's sales have been declining
since fiscal 1996. This has been due to several factors including intense
competition in the Japanese market, the principal market for volume production
of flat panel displays, because that market is dominated by competitors such
as Nikon and Canon. Additionally, due to a number of unforeseen market and
economic conditions, there has been little or no competitive pressure for
manufacturers to increase display sizes or resolution which are the Company's
competitive advantages. Therefore, the market for volume production of FPDs
has not expanded beyond Japan or into technology where the Company expected it
would have the ability to effectively compete. As a result of these
circumstances, in late fiscal 1997 and early fiscal 1998, the Company reduced
its workforce, implemented cost reduction programs and directed its efforts to
the Asian market where the vast majority of worldwide production of desktop
PCs, including those with FPDs, occurred. The Asian economic crisis, which
began in the Company's fiscal 1998 caused a substantial decline in the growth
of the PC market and further reduced the Company's sales through fiscal 1998.
As a result of the Company's declining sales, the Company continued to
experience significant losses from operations and negative cash flows and have
defaulted on debt covenants during fiscal 1998.
During the fourth quarter of fiscal 1998, the Company identified a potential
new market opportunity for the Company's large area photolithography
technology, the high density interconnect (HDI) market. HDI manufacturers are
faced with a demand to produce printed wiring boards (PWB) with increasing
complexity and component density. Growth in portable consumer products (cell
phones, PDAs, etc.) as well as a number of high speed data applications is
creating a requirement for new manufacturing technologies. Leading the
increased density demand is an area of integrated circuit packaging referred
to as chip carriers. High numbers of input and output signals must be routed
through the PWB in a limited area, requiring tight circuit dimensions and
precise layer to layer interconnect registration. The Company's technology is
uniquely suited to meet these requirements. See also "Business" . The Company
believes that its existing products are uniquely well suited for the needs of
the HDI market and, therefore has refocused its marketing efforts from the
flat panel display industry to the HDI market. As a result of this refocus,
the Company received its first HDI purchase order for a Model 5200
PanelPrinter in April 1998.
Although the Company received its first HDI purchase in April 1998, the HDI
market is an emerging market which is currently represented by a limited
number of customers. Most of these customers are in the process of evaluating
new lithography methods in anticipation of expected significant growth in high
performance chip carrier production. The Company believes that its
lithography tool and related technology are best suited to meet the needs of
these customers. However, there are a number of risks associated with the
Company's transition to the HDI market including, but not limited to the
Company's ability to obtain sufficient financing to continue to fund its
operations and its research and development efforts. Though the technology
foundation is in place, a considerable effort is required to develop new
technologies which will meet the needs of the HDI market in the longer-term.
Further, the ability of the Company to develop strategic partnerships with
HDI manufacturers to gain acceptance of its products and technology, the risks
attendant to an emerging market including its actual potential size and
success, and the market's acceptance of the Company's product as the, or one
of the, methods for future fabrication are also potential risk.
Historically, the Company has required significant working capital to support
its research and development efforts and to meet its ongoing production,
selling and general and administrative costs. Additionally, the Company's
transition to a new market will require substantial investments to develop new
technologies specifically for this new market as well as substantial funding
for its ongoing operations until such time as orders from this new market are
sufficient to meet its working capital needs. In addition, historically, the
Company has funded a substantial portion of its aggregate research and
development costs through contracts with the U.S. government and other
contracts. However, the Company does not expect to continue to fund its
research and development efforts through similar contracts in the future.
The Company's ability to develop new technologies is dependent upon its
ability to fund research and development through working capital and/or other
financing alternatives.
In the past, the Company has been able to meet its working capital
requirements through its existing cash balances and amounts available under
its line of credit. However, as a result of its significant net loss in
fiscal 1998, the Company was not in compliance with a financially restrictive
debt covenant, minimum tangible net worth, as of March 31, 1998. The Company
has received a waiver of the covenant default for the period of March 31, 1998
through June 30, 1998. However, it is probable that the Company will not be
in compliance with this covenant for the remainder of fiscal 1999.
Management's Plans in Regard to These Circumstances
In the fourth quarter of fiscal 1998, the Company hired a new chief executive
officer with extensive experience in the high technology industry. Under the
direction of the new chief executive, the Company refocused its marketing
efforts toward a new market which the Company believes provides significant
opportunity in the future. The Company is actively seeking strategic
relationships with customers in the new market in order to gain new orders for
its products, in the short-term, and market acceptance of its technology in
the longer-term. Additionally, the Company is in the process of renegotiating
its line of credit agreement to less restrictive covenants and is seeking
potential additional financing through private equity offerings.
There is no assurance that the Company will be successful in obtaining
sufficient financing to fund its operations and research and development
efforts or to renegotiate the terms of its line of credit on terms acceptable
to the Company. Additionally, there is no assurance that the Company will be
successful in attracting new customers in the HDI market, or that its products
and technologies will be accepted by the new market. These circumstances
raise substantial doubt as to the Company's ability to continue as a going
concern.
In addition to the risks and uncertainties discussed above, 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, 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.
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.
PanelPrinters and optional equipment generally have ranged in price from $1.2
to $2.7 million. 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 and annual
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.
B. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The most significant
estimates relate to the effects of the Company's ability to continue as a
going concern.
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.
Financial Instruments
Financial instruments which potentially expose the Company to concentrations
of credit risk include cash, cash equivalents and accounts receivable. The
Company's cash and cash equivalents are invested in accounts at high quality
institutions. The Company's accounts receivables are generally due from
large, well established companies. Therefore, in management's opinion, no
significant concentration of credit risk exists for the Company.
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. In situations where the
Company enters into a contract to perform research and development or to
develop and manufacture a product over a long-term period, the Company records
revenue under such contracts under the percentage-of-completion method of
accounting, whereby revenue and profit, if any, under the contract are
recognized throughout the contract. Costs under contracts for the long-term
development and manufacture of a product include direct labor and materials.
Costs under research and development contracts with the U.S. government
include direct labor and other direct costs as well as allocated research and
development overhead and general and administrative costs. Estimates of costs
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. There were no U.S. government contracts in fiscal 1998.
The Company recognizes post-contract customer support revenue as the services
are performed on a time and material basis.
Warranty and Installation
The Company warrants its products for a period of 12 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. Aggregate research and
development costs are as follows (000's):
<TABLE>
<CAPTION>
Year ended March 31,
1998 1997 1996
<S> <C> <C> <C>
Research and development expenses $2,237 $3,042 $2,279
Contract-related research and
development costs 0 488 2,664
Product development related research
and development costs 1,115 0 0
Aggregate research and
development costs $3,352 $3,530 $4,943
</TABLE>
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
charged to operations in the period the impairment is determined.
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.
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 in results of operations 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, 1998 or 1997. The effect of exchange gains and
losses, which may 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 1998, 1997 or 1996.
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 evaluates the
possible impairment of long-lived assets whenever events or circumstances
indicate that the carrying value of the assets may be impaired. The Company
made an evaluation of such impairment in connection with its transition to a
new market and no writedown of long-term assets was deemed necessary assuming
the Company continues as a going concern.
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.
<TABLE>
<CAPTION>
Net Loss Per Common Share
Net loss per share is calculated as follows:
(In thousands, except per share amounts) Year ended March 31,
1998 1997 1996
<S> <C> <C> <C>
Net loss ($5,143) ($3,131) ($9,941)
Basic and Diluted
Weighted-average common
shares outstanding 6,814 6,717 6,550
Net loss per common share ($0.75) ($0.47) ($1.52)
</TABLE>
Stock options to purchase 1,457,608, 914,203 and 966,765 shares of common
stock were outstanding during the years ended March 31, 1998, 1997 and 1996,
respectively, but were not included in the calculations of diluted EPS because
their effect would be antidilutive. Although these options were antidilutive
in 1998, 1997 and 1996, because they were still outstanding, they may be
dilutive in future years' calculations should the Company be profitable in
those years.
Reclassifications
Certain prior year balances have been reclassified to conform to the current
year's presentation.
<TABLE>
<CAPTION>
C. Inventories
Inventories consist of the following (000's):
March 31,
1998 1997
<S> <C> <C>
Finished goods $ 0 $ 726
Work in process 4,585 5,647
Purchased parts 1,058 941
$5,643 $7,314
</TABLE>
<TABLE>
<CAPTION>
D. Property and Equipment
Property and equipment consist of the following (000's):
March 31,
1998 1997
<S> <C> <C>
Equipment $2,765 $2,792
Software 375 375
Leasehold improvements 582 582
Furniture and fixtures 172 172
3,894 3,921
Less: accumulated depreciation and amortization (3,717) (3,388)
$ 177 $ 533
</TABLE>
E. Commitments and Contingencies
Leasing Arrangements
The Company leases its principal office and manufacturing facility and certain
other facilities under operating leases. In fiscal years ended March 31,
1998, 1997 and 1996, rental expense under such operating leases was
approximately $193,146, $173,367, and $249,502, respectively. The lease terms
expire at various dates through January 2001. The terms require future
minimum base rent payments under noncancellable leases of $259,343 in each of
the fiscal years ending March 31, 1999, 2000 and 2001. The Company is
obligated to pay additional rent comprised of property taxes, utilities, and
facility operating expenses.
Litigation
On January 24, 1997, Micron Display Technology ("Micron Display") brought suit
in Idaho 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 alleged
Micron Display purchased from the Company in 1996. On January 30, 1997, the
Company filed an action in Massachusetts 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.
The parties disputed which documents constituted the contract between them.
Further, Micron Display alleged, among other things, that the PanelPrinter
failed to meet certain performance specifications contained in what it
contended constituted the contract, and that, as a consequence, it was
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. The Company maintained that other documents constituted the
contract, pursuant to which there was no right to convert the relationship to
a lease, and further denied that the PanelPrinter failed to meet
specifications set forth in the document cited by Micron Display. The Company
sought approximately $1.4 million as the balance of the unpaid contract price,
and additional remedies under the Massachusetts Unfair Business Practices Act.
On July 23, 1997, the parties executed a Settlement Agreement resolving their
disputes and releasing all claims against each other. Both lawsuits have now
been dismissed. While the specific terms of the Settlement Agreement are
confidential, the settlement generally provided for a lump sum payment to be
made by Micron Display to the Company at the time the Settlement Agreement was
executed, and further monthly installment payments to be made thereafter.
These payments, together with Micron Display's initial deposit, constitute
payment in full for the PanelPrinter. The Company in turn has agreed to
provide Micron Display with an extended warranty with respect to the
PanelPrinter, as well as technical assistance and certain modifications to the
PanelPrinter. No significant amounts due to or from Micron remain outstanding
at March 31, 1998.
<TABLE>
<CAPTION>
F. Accrued Expenses
Accrued expenses consist of the following (000's):
March 31,
1998 1997
<S> <C> <C>
Payroll and related costs $ 641 $376
Professional fees 83 132
Warranty 104 124
Other 360 181
$1,188 $813
</TABLE>
<TABLE>
<CAPTION>
G. Income Taxes
No provision for income taxes was recorded in fiscal 1998, 1997, or 1996 due
to taxable losses in those years.
A reconciliation of the provision for income taxes at the federal statutory
rate is as follows:
March 31,
1998 1997 1996
<S> <C> <C> <C>
Provision for income taxes at the
federal statutory rate (34.0%) (34.0%) (34.0%)
Net operating loss carryforward 34.0 34.0 34.0
Provision for income taxes 0.0% 0.0% 0.0%
</TABLE>
<TABLE>
<CAPTION>
The components of the deferred tax assets and the related valuation allowance
are as follows (000's):
March 31,
1998 1997
<S> <C> <C>
Net operating loss and credit carryforwards $ 9,902 $ 9,715
Capitalized research and development expenses 2,370 1,789
Inventory reserves 1,102 690
Depreciation and other reserves 286 180
Total deferred tax assets $ 13,660 $ 12,374
Valuation allowance ($13,660) ($12,374)
Net deferred tax assets $ 0 $ 0
</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
full valuation allowance against its net deferred tax asset.
At March 31, 1998, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $23,600,000 which will expire
from 2003 to 2013. Approximately $1,510,000 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 $513,000
rather than a reduction in the current tax provision. At March 31, 1998,
federal and state research and development credit carryforwards were
approximately $1,338,000 which will expire from 2002 to 2013. 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 its
annual limits are in effect.
H. Investment in Business Alliance
In October 1994, the Company entered into a strategic partnership with
Integrated Circuits Testing, GmbH ("ICT") to develop and introduce an
electrical test system for AMLCD's. In addition, in fiscal 1995 the Company
acquired a 10% equity interest in ICT.
During fiscal 1997, a portion of ICT was spun-off to Electron-Beam Technology
GmbH (EBETECH), a separate corporation owned by the Company, 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.
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 $292,000. The amount of potential
escrow decreases quarterly through the indemnification period which ends in
September 1998.
I. Stockholders' Equity
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". Compensation cost of $50,000 was recognized in fiscal 1998. No
compensation cost was recognized in fiscal 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 1998, 1997 and 1996,
respectively: a risk-free interest rate of 6.2%, 6.4% and 6.3%, and an
expected life of 6 years, expected volatility of 90% and no expected dividends
for each of the three years in the period ended March 31, 1998.
<TABLE>
<CAPTION>
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):
Year Ended March 31,
1998 1997 1996
<S> <C> <C> <C> <C>
Net loss As reported (5,143) (3,131) (9,941)
Pro forma (5,430) (4,115) (10,726)
Basic net loss per share As reported ($0.75) ($0.47) ($1.52)
Pro forma ($0.80) ($0.61) ($1.64)
Diluted net loss per share As reported ($0.75) ($0.47) ($1.52)
Pro forma ($0.80) ($0.61) ($1.64)
</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. As
of March 31, 1998 there are 123,010 options outstanding.
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. Stock
options usually vest 25% on each of the first four anniversary dates.
The Company has reserved 1,500,000 shares of Common Stock for issuance
pursuant to the 1986 and 1993 Plans. At March 31, 1998, 134,834 shares were
available for option grants and options for 412,161 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, 1998, 2,084 shares were
available for option grant and options for 80,833 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.
<TABLE>
<CAPTION>
The following table summarizes the Company's stock option plans at March 31:
1998 1997 1996
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 914,203 $2.0628 1,004,043 $4.5960 887,327 $4.9424
Granted 692,666 $1.0524 1,017,127 $2.1838 611,843 $5.3925
Exercised (17,014) $0.8483 (77,458) $0.9303 (129,814) $0.9036
Forfeited (132,247) $2.4606 (1,029,509) $4.7382 (365,313) $8.0835
Outstanding at
end of year 1,457,608 $1.5607 914,203 $2.0628 1,004,043 $4.5960
Options exercisable
at yearend 492,994 379,836 415,202
</TABLE>
<TABLE>
<CAPTION>
March 31,
1998 1997 1996
<S> <C> <C> <C>
Weighted-average grant-date fair value
of options granted during the year $0.7281 $0.9779 $3.9338
</TABLE>
<TABLE>
<CAPTION>
The following table summarizes information about stock options outstanding at
March 31, 1998.
Options Outstanding
Weighted
Average Weighted
Remaining Average
Range of Number Contractual Exercise
Exercise Price Outstanding Life (In Years) Price
<S> <C> <C> <C> <C>
$0.6000 $0.9000 96,814 2.13 $0.8992
0.9690 0.9690 467,500 8.54 0.9690
1.0000 1.1250 32,916 9.59 1.0556
1.2500 1.2500 154,750 9.29 1.2500
1.5000 1.5000 29,696 5.33 1.5000
1.6250 1.6250 570,266 7.54 1.6250
2.5000 5.7500 60,000 8.22 3.4063
7.1250 7.1250 40,000 6.33 7.1250
7.2000 7.2000 666 4.95 7.2000
8.2500 8.2500 5,000 6.49 8.2500
$0.6000 $8.2500 1,457,608 7.67 $1.5607
</TABLE>
<TABLE>
<CAPTION>
The following table summarizes information about stock options outstanding at
March 31, 1998
Options Exercisable
Weighted
Average
Range of Number Exercise
Exercise Price Exercisable Price
<S> <C> <C> <C>
$0.6000 $0.9000 96,814 $0.8992
0.9690 0.9690 0 0.0000
1.0000 1.1250 10,833 1.0868
1.2500 1.2500 0 0.0000
1.5000 1.5000 26,196 1.5000
1.6250 1.6250 280,985 1.6250
2.5000 5.7500 32,500 4.1154
7.1250 7.1250 40,000 7.1250
7.2000 7.2000 666 7.2000
8.2500 8.2500 5,000 8.2500
$0.6000 $8.2500 492,994 $2.1491
</TABLE>
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, 1998, 106,529 shares have been issued and 93,471 shares
were available for future participants. Shares purchased under the Employee
Stock Purchase Plan total 44,796 in fiscal 1998, 24,577 in fiscal 1997 and
21,866 in fiscal 1996. Weighted average grant date fair value of shares
purchased under the Employee Stock Purchase Plan was $0.592 in fiscal 1998,
$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 1998, 1997 and
1996, respectively: a risk-free interest rate of 5.56%, 5.33% and 5.64%, and
an expected life of 6 months, expected volatility of 90% and no expected
dividends for each of the three years in the period ended March 31, 1998.
J. Accounts Receivable
The Company had approximately $83,000 of unbilled receivables included in the
accounts receivable at March 31, 1998 and March 31, 1997. This balance
relates to amounts due under contracts with DARPA and is subject to the final
closing of the contract by a government administrative agency.
K. 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 first year and
is collateralized by a first priority lien on all assets of the Company.
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. Under the line of credit, the Company is required to maintain
tangible net worth of at least $6 million. At March 31, 1998, the Company was
in default of this covenant. The Company has obtained a waiver of the default
as of March 31 through June 30, 1998. However, it is probable that the
Company will not meet the covenant in fiscal 1999. Therefore, the debt has
been classified as short-term on March 31, 1998.
L. Export Sales
Export sales have been made to Japan, Korea, Taiwan, Europe and Canada. For
the years ended March 31, 1998, 1997 and 1996, export sales accounted for
approximately $0, $1,000,000, and $4,700,000, respectively of total revenues.
M. Significant Customers
During the fiscal years ended March 31, 1998, 1997 and 1996, the Company's
product revenue included sales to three customers of $1.4 million, $1.7
million and $1.8 million, sales to three customers of $0.8 million, $1.3
million and $2.7 million, and sales to three customers of $2.0 million, $2.1
million and $2.4 million, respectively. Additionally, contract research
revenues from an agency of the U. S. government for the years ended March 31,
1998, 1997, and 1996 accounted for approximately $0, $579,000, and $2,858,000
of total revenues, respectively.
N. 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, 1998, 1997
and 1996.
<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, 1998
Total revenues $ 418 $3,215 $2,328 $1,187 $7,148
Gross margin (127) 806 620 (1,809) (510)
Net loss (1,131) (384) (339) (3,290) (5,143)
Net loss per share - Basic (0.17) (0.06) (0.05) (0.48) (0.75)
Year ended March 31, 1997
Total revenues $1,711 $3,487 $1,588 $355 $7,141
Gross margin 216 786 150 (115) 1,037
Net income (loss) (1,280) (595) (1,374) 118 (3,131)
Net income (loss) per share -
Basic (0.19) (0.09) (0.20) 0.02 (0.47)
</TABLE>
ITEM 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
<TABLE>
<CAPTION>
ITEM 10. Directors and Executive Officers of the Registrant
(Executive Officers listed in Part I)
(a) Directors
Director Position with Director Term of Office
Name Since the Company Class will expire
<S> <C> <C> <C> <C>
Ronald K. Haigh 1994 Director III 1998
Paul Wiefels 1998 Director III 1998
Pierre Fougere 1998 Director I 1999
Robert P. Schechter 1988 Director I 1999
Carl P. Herrmann 1997 President, CEO, II 2000
& Chairman
</TABLE>
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.
Paul Wiefels, Director. Mr. Wiefels has been a partner with The Chasm Group, a
consulting firm focused on helping technology companies achieve market
leadership positions, since 1992. He provides counsel ranging from strategy
development and marketing communications planning to market research and
product planning. Prior to joining the The Chasm Group, he served as director
of marketing consulting with Landor Associates, an international branding and
identity consultancy. Prior to joining Landor, he was a worldwide director of
product marketing for Ingres Corporation (now a division of Computer
Associates). Mr. Wiefels began his high tech career with Apple Computer,
where he served in marketing management positions with Apple's U.S. and
international operations.
Pierre Fougere, Director. Mr. Fougere's career spans more than thirty years
of international management expertise in electronics and high technology
components and systems. Prior to establishing his own consulting business in
1989, Mr. Fougere held several positions within the MATRA Group, most recently
as Executive Vice President, Chairman and CEO of Matra Datavision (CAD/CAM
software). Mr. Fougere currently serves on several other boards and is the
Chairman of the Board of Financiere Saint Florentin, Chateau Lilian Ladouys
and Matra Datavision Inc.
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.
Carl P. Herrmann, has been President, CEO and Chairman of the Board since
February 1998. Mr. Herrmann has been serving on the Board of Directors of MRS
since May of 1997. Prior to joining MRS' Board of Directors he has been an
independent management and international marketing consultant since December
1994. From July 1991 to November 1994, he was at Solbourne Computer, Inc.
from April 1992 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 1983 to
September 1984 he was the Tokyo-based Vice President of TEL-GenRad, KK, a
joint venture developing and manufacturing PC board and semiconductor test
systems. Mr. Herrmann received a BA from the University of Pennsylvania and
an MBA from the Wharton School.
(b) Reports of Beneficial Ownership.
See the information under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance" on page 13 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 6 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 theProxy Statement, which
information is incorporated by reference.
ITEM 13. Certain Relationships and Related Transactions
See the information under the caption "Compensation Committee Interlocks and
Insider Participation" on page 11 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 on
Page 23.
All schedules are omitted as the required information is not applicable or the
information is presented in the Consolidated Financial Statements or Notes
thereto.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed and no matters submitted to a vote of
security holders during the fourth quarter of fiscal 1998.
<TABLE>
<CAPTION>
(c) Exhibits
Exhibit Description Page
<S> <C> <C> <C>
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 ofOrganization B
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
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,F
10.16 1993 Stock Option Plan C,F
10.17 DARPA Modification B
10.18 Lease relating to Company's Headquarters -
Third Amendment B
10.22 1994 Employee Stock Purchase Plan
10.23 Stock Option Plan for Non-Employee Directors
10.25 Lease relating to Company's Headquarters
Fourth Amendment Dated February 1, 1995 D
10.27 DARPA Modification - SPIN #P0004 D
10.28 DAPRA Modification - SPIN #P0005 D
10.29 DAPRA Modification - SPIN #P0006 D
10.30 DAPRA Modification - SPIN #P0007 D
10.31 DAPRA Modification - SPIN #P0008 D
10.32 October 19, 1994 Business Agreement with
ICT Integrated Circuit Testing GmbH D
10.33 October 19, 1994 First Amendment to
Business Agreement with ICT D
10.34 November 17, 1994 Subscription Agreement
with Warranty and Shareholder Agreement (ICT) D
10.35 Common Stock Purchase Warrant dated October 19,
1994 and delivered November 17, 1994. D
10.36 Statement of Takeover Pursuant toLimited Liability
Company Act Section 55(1) dated February 16, 1995. D
10.37 Acceleration of ICT Part III Agreement E
10.39 DARPA Modification E
10.42 Employment Agreement Letters E
10.43 Share Purchase Agreement ETEC/EBETECH F
10.44 Employment Agreement Letter F
10.45 Employment Agreement G
10.46 Consulting Agreement G
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.
</TABLE>
A Incorporated by reference from Registration Statement on Form S-1
(Commission File No. 33-64220).
These contracts relate to Executive Compensation.
B Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ending March 31, 1994.
C Incorporated by reference to the Company's Proxy Statement for the
Annual Meeting of Stockholders held on July 28, 1994.
D Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ending March 31, 1995.
E Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ending March 31, 1996.
F Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ending March 31, 1997.
G Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ending March 31, 1998.
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)
By: /s/ Carl P. Herrmann
President and Chief Executive Officer
Date: 6/5/98
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.
Signature Title Date
(1) Principal Executive Officer:
/s/ Carl P. Herrmann President and Chief Executive Officer 6/5/98
(2) Principal Financial Officer:
/s/ Patricia F. DiIanni Chief Financial Officer 6/5/98
(3) A majority of the Board of Directors:
/s/ Carl P. Herrmann Chairman of the Board 6/5/98
/s/ Ronald K. Haigh Director 6/5/98
/s/ Pierre Fougere Director 6/5/98
/s/ Paul Wiefels Director 6/5/98
/s/ Robert P. Schechter Director 6/5/98
June 12, 1998
Securities and Exchange Commission
Washington, DC 20549
Gentlemen:
Pursuant to the requirements of the Securities Exchange Act of 1934, we are
transmitting herewith the attached Form 10-K.
Sincerely,
MRS Technology, Inc.
/s/Patricia F.DiIanni
Vice President and
Chief Financial Officer
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 5, 1998 on our audits of the consolidated financial
statements of MRS Technology, Inc. as of March 31, 1998 and 1997, and for each
of the three years in the period ended March 31, 1998, which report is
included in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts
June 11, 1998
<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, 1998.
</LEGEND>
<CIK> 0000906768
<NAME> MRS TECHNOLOGY, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 1,094,636
<SECURITIES> 0
<RECEIVABLES> 883,200
<ALLOWANCES> 21,045
<INVENTORY> 5,643,432
<CURRENT-ASSETS> 7,677,288
<PP&E> 3,893,884
<DEPRECIATION> 3,716,914
<TOTAL-ASSETS> 7,884,222
<CURRENT-LIABILITIES> 3,051,930
<BONDS> 0
0
0
<COMMON> 68,381
<OTHER-SE> 4,763,911
<TOTAL-LIABILITY-AND-EQUITY> 7,884,222
<SALES> 5,265,075
<TOTAL-REVENUES> 7,148,110
<CGS> 6,275,561
<TOTAL-COSTS> 7,657,818
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 109,345
<INCOME-PRETAX> (5,142,940)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,142,940)
<EPS-PRIMARY> (0.75)
<EPS-DILUTED> (0.75)
</TABLE>
EXHIBIT 10.45
MRS TECHNOLOGY, INC.
EMPLOYMENT AGREEMENT
AGREEMENT dated as of February 13, 1998 between MRS Technology, Inc., a
Massachusetts corporation with its principal place of business at 10 Elizabeth
Drive, Chelmsford, Massachusetts 01824-4112 (the "Company"), and Carl P.
Herrmann, an individual residing at 8380 Greenwood Drive, Niwot, Colorado
80503 (the "Executive").
1. FREEDOM TO CONTRACT. The Executive represents that he is free to enter
into this Agreement, that he has not made and will not make any agreements in
conflict with this Agreement, and that he will not disclose to the Company, or
use for the Company's benefit, any trade secrets or confidential information
which is the property of any other party.
2. EMPLOYMENT. The Company agrees to employ the Executive as Chief Executive
Officer of the Company and Chairman of the Company's Board of Directors. The
Executive agrees, while employed hereunder, to perform his duties faithfully
and to the best of his ability. The Executive shall have all of the authority
and responsibility customarily accorded to his titles. The Executive shall
work out of the Company's offices in Colorado.
3. TERM. The employment of the Executive hereunder shall begin on the date
hereof and shall continue through the occurrence of a Termination Date, as
defined in Section 6 (the "Term").
4. COMPENSATION
4.1 Base Salary. As compensation for the Executive's services during the
Term, the Company shall pay the Executive an annual Base Salary at the rate of
$190,000 per year, payable with the same frequency as salaries paid to other
senior executive officers. Prior to each December 31 during the Term,
beginning December 31, 1998, the Compensation Committee of the Board of
Directors (the "Committee") shall undertake an evaluation of the services of
the Executive during the year then ended. The Committee shall consider the
performance of the Executive, his contribution to the success of the Company,
and other factors and shall fix an annual Base Salary to be paid to the
Executive during the ensuing year.
4.2 Incentive Compensation. For each year, the Committee will establish an
incentive compensation program.
For the year ending December 31, 1998, incentive compensation will be based on
the raising of not less that $4,000,000 in cash for the Company (including
without limitation equity, debt, sales revenue derived from the sales of
existing inventory and licensing revenue other than that associated with the
sales and service of Panel Printers). The Executive shall be entitled to
incentive compensation equal to 40% of his Base Salary if and only if the
target is reached or exceeded.
For the year 1999 and each subsequent year, incentive compensation will be
based on the achievement of performance criteria determined by the Committee
after discussion with the Executive. Within a reasonable period after
operating results have been determined for each year, payment of the incentive
compensation for the immediately preceding year shall be made in cash, subject
to applicable employment and withholding taxes, promptly after calculation.
However, no bonus shall be paid to the Executive where the Executive has been
terminated as a result of a Discharge for Cause prior to the date of payment.
If the Executive's termination is other than as a result of a Discharge for
Cause, the Executive shall be paid a prorata portion of his bonus.
4.3. Disability. If the Executive is prevented by disability, for a period
of six consecutive months, from continuing fully to perform his obligations
hereunder, the Executive shall perform his obligations hereunder to the extent
he is able and the Company may reduce his annual base salary to reflect the
extent of the disability; provided that in no event may such rate, when added
to payments received by him under any disability or qualified retirement or
pension plan to which the Company contributes or has contributed, be less than
one-half of the annual base salary in effect at the Executive's disability,
disability shall be determined by the Board of Directors of the Company based
upon a report from a physician who shall have examined the Executive. If the
Executive claims disability, the Executive agrees to submit to a physical
examination at any reasonable time or times by a qualified physician
designated by the Company and reasonably acceptable to the Executive.
5. EQUITY. As of the date of this Agreement, the Company will grant to the
Executive, as an incentive for joining the Company as an employee and his
entering into this Agreement, options to purchase 400,000 shares of the
Company's common stock. These stock options will be issued with an exercise
price equal to the fair market value of the Company's common stock on February
13, 1998, and will vest 50,000 shares on August 13, 1998, with 10,000 shares
vesting per month for the 35 consecutive months thereafter; provided, however,
that in the event the Executive's employment with the Company is terminated at
any time after the first anniversary of the date of grant or award, on the
date of termination of the Executive's employment he shall immediately be
vested in that number of stock options as equal to the unvested portion of
such stock options that would otherwise vest on the next scheduled monthly
vesting date [plus the unvested portion of such stock options that would have
vested during the term of any severance or similar payment arrangements if the
Executive were still employed by the Company during the period of time while
severance payments, if any, are being made to the Executive.] Stock options
granted under this Section 5 shall be subject to the same risks as those
facing other shareholders of the Company, including without limitation, the
possibility of dilution in the event that the Company issues additional shares
of common stock. The terms of the Executive's stock options shall provide
that they will vest immediately in the event of either a change in control of
the Company or the attainment of a $10.00 per share or higher closing price
for the Company's common stock for a period of 60 consecutive trading days.
The Executive shall also be eligible for future grants of options and/or
restricted stock, as a member of the Company's executive management team.
6. EMPLOYEE BENEFITS. The Executive shall participate in all "employee
pension benefit plans" and in all "employee welfare benefit plans" (each as
defined in the Employee Retirement Income Security Act of 1974) and all other
benefits plans available to any of the Company's officers maintained by the
Company, on a basis no less advantageous to the Executive than the basis on
which similarly situated executives participate (collectively, "Benefits").
Without limiting the generality of the foregoing, the Executive shall be
entitled to the following Benefits:
6.1 Medical Insurance. The Executive and the Executive's dependents shall be
covered by medical insurance comparable in scope to the coverage afforded on
the date hereof, with only such contribution by the Executive toward the cost
of such insurance as may be required from time to time from other similarly
situated executive employees.
6.2 Expenses. The Company shall reimburse the Executive from time to time
for the reasonable expenses incurred by the Executive in connection with the
performance of his obligations hereunder, subject to compliance with
reasonable documentation procedures.
6.3 Holidays and Vacations. The Executive shall be entitled to legal
holidays and to annual paid vacation of up to four weeks, all in accordance
with the Company's holiday and vacation policy.
6.4 Pension Plans. The Executive shall participate in such pension and
retirement plans as are made available by the Company to any of its
management.
6.5 Legal Fees. The Company shall reimburse the Executive for legal fees and
expenses he incurs in negotiating and documenting his employment and equity
arrangement with the Company in the amount of the first $3,000 for such fees
and expenses, plus 50% of the amount in excess of $3,000, subject to a maximum
reimbursement of $5,000.
6.6 Relocation. The Company shall not require the Executive to relocate from
the Company's offices in Niwot, Colorado. In the event that the Executive
does relocate (for example, to the Company's offices in Massachusetts), the
Company shall reimburse the Executive for reasonable relocation expenses, and,
where necessary, will gross up the Executive's compensation to account for
taxes payable by him with respect to the reasonable relocation expenses paid
by the Company.
6.7 Travel. The Company acknowledges and agrees that the Executive may
determine the class of airline and hotel which all members of management,
including the Executive, shall use while on Company business.
7. TERMINATION DATE; CONSEQUENCES FOR COMPENSATION AND BENEFITS.
7.1 Definition of Termination Date. The first to occur of the following
shall be the Termination Date:
7.1.1. The date on which the Executive becomes entitled to receive long-term
or short-term disability payments by reason of total and permanent disability;
7.1.2. The Executive's death;
7.1.3. Voluntary resignation after one of the following events shall have
occurred, which event shall be specified to the Company by the Executive at
the time of resignation: (1) any change which limits or reduces the
responsibility, authority, title, power or duty of the Executive; (2) any
reduction in Executive's Base Salary without the Executive's prior written
consent; (3) any relocation of the Executive from the Company's offices in
Niwot, Colorado mandated by the Company's Board of Directors; (4) any failure
by the Company to continue in effect any Benefit, or any action by the Company
which would adversely affect the Executive's participation in or reduce the
Executive's benefit under any Benefit, without the Executive's prior written
consent; or (5) any other material breach by the Company of any provision of
this Agreement resulting from action by the Board of Directors, which breach
continues for 10 business days following notice by the Executive to the
Company setting forth the nature of the breach ("Resignation with Reason");
7.1.4. Voluntary resignation by the Executive which does not constitute
Resignation with Reason as defined in Section 7.1.3 ("General Resignation");
7.1.5. Discharge of the Executive by the Company after one of the following
events shall have occurred, which event shall be specified to the Executive by
the Company at the time of discharge: a material act by the Executive against
the Company involving moral turpitude; material willful misconduct in the
discharge of his duties; conviction of the Executive or the entry of a plea of
guilty or nolo contendere by the Executive to any crime involving moral
turpitude; or any material breach of any term of this Agreement by the
Executive which is not cured within 30 days after written notice from the
Board of Directors of the Company to the Executive setting forth the nature of
the breach ("Discharge for Cause");
7.1.6. Discharge of the Executive by the Company not accompanied by a notice
of cause described in Section 7.1.5 ("General Discharge").
7.2. Consequences for Compensation and Benefits. If the Termination Date
occurs by reason of disability, death, General Resignation or Discharge for
Cause, the Company shall pay compensation to the Executive through the
Termination Date (including accrued vacation and a prorated portion of the
Executive's accrued bonus and incentive compensation) and shall pay to the
Executive all Benefits accrued through the Termination Date, payable in
accordance with the respective terms of the plans, practices and arrangements
under which the Benefits were accrued.
If the Termination Date occurs by reason of General Discharge or Resignation
with Reason, the Company shall pay to the Executive, in addition to the
amounts described in the preceding paragraph, an amount equal to one times the
Executive's annual Base Salary and Benefits; such amount shall not be reduced
by the receipt of Earned Income through subsequent employment and shall be
paid in two equal installments. The first installment shall be paid
immediately and the second installment shall be paid six months thereafter.
Receipt of Earned Income means receipt of wages or self-employment income,
whether from consulting or otherwise, from any source.
8. INDEMNIFICATION. The Company shall indemnify the Executive against all
loss, cost, liability and expense arising from the Executive's service to the
Company, whether as officer, director, employee, fiduciary of any employee
benefit plan or otherwise, upon terms at least as favorable to the Executive
as those provided by the Articles of Organization and By-laws of the Company
on the date hereof.
9. AGREEMENT NOT TO COMPETE. The Executive agrees that, while serving as an
Executive of the Company, he will not serve as an employee or director of any
business entity other than the Company, but may serve as a director of a
reasonable number of not-for-profit corporations and may devote a reasonable
amount of time to charitable and community service. For the period beginning
on the Termination Date and continuing for six months, the Executive shall not
directly or indirectly, engage in, or enter into or participate in, at any
place within the rest of the United States any Competitive Business (as
defined below), either as an individual for his own account, or as a partner
or a joint venture, or as an officer, director, independent contractor or
holder of more than a 1% equity interest in any other person, firm,
partnership or corporation, or as an employee, agent or salesperson for any
person.
For purposes of this Section 9: the term "Competitive Business" shall mean any
business or commercial activity that directly competes with or is reasonably
likely to directly compete with or adversely affect any part or area of the
Company's current business or any proposed business relating to
microlithography which has been actively considered, and not rejected by, the
Company's Board of Directors at any time throughout the entire period of the
Executive's employment by the Company.
10. AGREEMENT NOT TO SOLICIT OR INTERFERE.
(a) During the Executive's employment by the Company, the Executive will
comply with all policies and rules that may from time to time be established
by the Company, and will not engage directly or indirectly in any business or
enterprise which in any way is competitive or conflicting with the interests
or business of the Company.
(b) During the six-month period after termination of employment by the
Company, regardless of the reason or absence of reason for termination of
employment (such period not to include any period(s) of violation of this
Section 10(b) or period(s) of time required for litigation to enforce it
provisions), the Executive shall not, directly or indirectly: (i) solicit,
service, accept orders from, or otherwise have business contact with any
person or entity who has, within the three-year period immediately prior to
such termination of Executive's employment, been a customer (including,
without limitation, a reseller and/or end user of products) of the Company, if
such contact could directly or indirectly divert business from or adversely
affect the business of the Company; (ii) interfere with the contractual
relations between the Company and any of its employees; or (iii) employ or
cause to be employed in any capacity, or retain or cause to be retained as a
consultant, any person who was employed by the Company at any time during the
six-month period ended on the date of termination of the Executive's
employment.
(c) If at any time any of the provisions of this Section 10 shall be deemed
invalid or unenforceable or are prohibited by the laws of the state or place
where they are to be performed or enforced, by reason of being vague or
unreasonable as to duration or geographic scope or scope of activities
restricted, or for any other reason, such provisions shall be considered
divisible and shall become and be immediately amended to include only such
restrictions and to such extent as shall be deemed to be reasonable and
enforceable by the court or other body having jurisdiction over this
Agreement; and the Company and the Executive agree that the provisions of this
Section 10, as so amended, shall be valid and binding as though any invalid or
unenforceable provision had not been included herein.
11. CONFIDENTIAL INFORMATION.
(a) The Executive recognizes and acknowledges that during the course of his
employment, he may have exposure to and develop special knowledge and skills
concerning certain of the Company's Confidential Information (as defined
below) vital to the Company's ability to compete successfully in its business.
The Executive further acknowledges that it is vital to the Company's
legitimate business interests that the confidentiality of such Confidential
Information be preserved, and that use or reliance on such Confidential
Information by or on behalf of any other business or commercial activity in
competition with the Company could result in irreparable harm to the Company.
The Executive further acknowledges that the Confidential Information is a
valuable, special and unique asset of the Company's business, and that the
Confidential Information is and shall remain the exclusive property of the
Company and nothing in this Agreement shall be construed as a grant to the
Executive of any rights, title or interest in the Confidential Information.
(b) Without the prior written consent of the Company, the Executive shall
not, at any time either during or subsequent to his employment by the Company,
use any Confidential Information (as defined below) for the benefit of anyone
other than the Company, or disclose any Confidential Information to any person
or party; the Executive may, however, use or disclose Confidential Information
as required by his obligations to the Company or as necessary or desirable
(and for the benefit of the Company) in connection with the Company's business
(but all such permitted uses and disclosures shall be made under circumstances
and conditions reasonably appropriate to preserve the Confidential Information
as the Company's confidential property). In particular, without limiting the
generality of the foregoing, the Executive shall not remove any Confidential
Information, however embodied, from the Company's premises, facilities or
place of business, except as required in the course of employment by the
Company.
(c) After the term of the Executive's employment with the Company, the
foregoing restrictions shall not apply to Confidential Information which the
Executive can establish by competent written proof:
(i) was known, other than under binder of secrecy, to the Executive prior to
his employment by the Company; or
(ii) was subsequently obtained by the Executive, other than under binder of
secrecy, from a third party not acquiring the information under an obligation
of confidentiality from the disclosing party.
(d) The term "Confidential Information" includes all confidential or trade
secret proprietary information which is acquired by the Executive from the
Company, its other employees, its suppliers or customers, its agents or
consultants, or others, during his employment by the Company, and which
relates to the present or potential businesses and products of the Company, as
well as any other information as may be designated by the Company as
confidential. The term Confidential Information may relate, for example, to
Inventions (as defined below), trade secrets, computer software, research,
development, design, engineering, manufacturing, purchasing, supplier lists,
customer lists, price lists, accounting, profit margins, marketing or sales
volume information or strategic plans; may include information contained, for
example, in drawings, models, data, specifications, reports, compilations or
computer programs; and may be in the nature of unwritten knowledge or
technical or manufacturing know-how; but shall not in any event include any
information which becomes generally known or available to persons in the
business or industry of the Company other than as a result of acts or
omissions attributable to the Executive.
12. ARBITRATION. In the event that any party hereto has any claim under this
Agreement or other issues relating to the Executive's employment by the
Company, the party shall promptly notify each other party of such claim. If
within 30 days of the receipt of such notice of claim, the parties cannot
agree on a resolution of such claim, the parties agree to submit such dispute
to binding arbitration to be held in Boston, Massachusetts if initiated by the
Company and in Boulder, Colorado if initiated by the Executive under the rules
of the American Arbitration Association. Any such arbitration shall be
conducted by three arbitrators, one of whom shall be selected by the
Executive, one of whom shall be selected by the Company and one of whom shall
be selected by the arbitrators so selected. The expenses of any such
arbitration, including legal fees of the prevailing party, shall be paid by
the non-prevailing party, as determined by the final order of the arbitrators.
13. SPECIFIC ENFORCEMENT. Notwithstanding the provisions of Section 12, the
parties acknowledge that the Executive's breach of the provisions of Section
9, 10 or 11 of this Agreement will cause irreparable harm to the Company; it
is agreed and acknowledged that the remedy of damages will not be adequate for
the enforcement of such provisions and that such provisions may be enforced by
equitable relief, including injunctive relief or specific performance, which
relief shall be cumulative and in addition to any other relief to which the
Company may be entitled.
14. GOVERNING LAW. This Agreement shall be deemed a contract made and
performed in The Commonwealth of Massachusetts and shall be governed by the
laws of The Commonwealth of Massachusetts.
15. ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the entire
agreement of the parties and may be altered or amended or any provision hereof
waived only by an agreement in writing signed by the party against whom
enforcement of any alteration, amendment, or waiver is sought. No waiver by
any party of any breach of this Agreement shall be considered as a waiver of
any subsequent breach.
16. BINDING OBLIGATIONS. This Agreement shall be binding upon and inure to
the benefit of the Company and its successors and assigns and the Executive
and his personal representatives.
17. ASSIGNABILITY. Neither this Agreement nor any benefits payable to the
Executive hereunder shall be assigned, pledged, anticipated, or otherwise
alienated by the Executive, or subject to attachment or other legal process by
any creditor of the Executive, and notwithstanding any attempted assignment,
pledge, anticipation, alienation, attachment, or other legal process, any
benefit payable to the Executive hereunder shall be paid only to the Executive
or his estate.
IN WITNESS WHEREOF, the Company, by its officer hereunto duly authorized, and
the Executive have signed and sealed this Agreement as of the date first
written above.
MRS TECHNOLOGY, INC.
By: Robert P. Schechter
CARL P. HERRMANN
MRS TECHNOLOGY, INC.
NON-PLAN STOCK OPTION AGREEMENT
This Stock Option Agreement (this "Agreement") dated as of February 13, 1998
(the "Grant Date"), is by and between MRS Technology, Inc. (the "Company"), a
Massachusetts corporation and Carl P. Herrmann (the "Optionee"), an individual
presently residing at 8380 Greenwood Drive, Niwot, Colorado 80503.
1. Optioned Shares. Subject to the terms and conditions set forth herein, the
Company hereby grants to the Optionee an option (the "Option") to purchase
from the Company all or any part of a total of 400,000 shares (the "Optioned
Shares") of the Company's Common Stock, $0.01 par value per share ("Common
Stock"). For purposes of the restrictions on transfer and repurchase rights
set forth herein, the term "Optioned Shares" shall include any securities
issued in respect of, in lieu of, or in exchange for the securities originally
covered by the Option.
2. Price. The per share purchase price payable for the Optioned Shares upon
exercise of the Option is $0.96875, which is, in accordance with the Company's
policy, the price of the Company's Common Stock at the close of the market on
the date prior to the grant.
3. Termination of Option. The Option shall terminate on the earlier of (a)
the 10th anniversary of the Grant Date and (b) if the Optionee's employment
ends for any reason, or the Optionee's employer is no longer the Company or a
subsidiary (as defined in Section 424 of the Internal Revenue Code of 1986
(the "Code")), the applicable date determined from the following table:
Event Causing Termination Date
(i) death of employee one year thereafter
(ii) total and permanent disability of employee within the meaning ofone year
thereafter Section 22(e)(3) of the Code
(iii) termination of employment other 10th anniversary of the than by reason
of (i) or (ii) above Grant Date
Military or sick leave shall not be deemed a termination of employment
provided that it does not exceed the longer of 90 days or the period during
which the absent employee's reemployment rights are guaranteed by statute or
by contract.
4. Exercise of Option
4.1 Subject to Section 4.2 hereof, 50,000 shares of the Optioned Shares will
vest on August 13, 1998, with 10,000 shares of the remaining Optioned Shares
vesting per month for the 35 consecutive months thereafter.
4.2 In the event the Optionee's employment with the Company is terminated at
any time after the first anniversary of the Grant Date, on the date of
termination of the Optionee's employment he shall immediately be vested in
that number of Optioned Shares as equal to the unvested portion of such
Optioned Shares that would vest on the next scheduled monthly vesting date
[plus the unvested portion of such stock options that would have vested during
the term of any severance or similar payment arrangements if the Executive
were still employed by the Company during the period of time while severance
payments, if any, are being made to the Executive.] Further, the Optionee
shall be immediately vested in the event of either a change in control of the
Company or the attainment of a $10.00 per share or higher closing price for
the Company's common stock for a period of 60 consecutive trading days.
4.3. The Option may be exercised by the Optionee (or, in the event of the
Optionee's death, and to the extent described in this Section 4 and Section 3
above, by the Optionee's executor or administrator or any person or persons to
whom the Option may have been transferred by will or by the laws of descent
and distribution) as of the date first above written by giving written notice,
in the manner provided in Section 13, specifying the number of shares as to
which the Option is being exercised, accompanied by full payment for such
shares in the form of a certified or bank check payable to the Company, in an
amount equal to the option price of the shares to be purchased. Receipt by
the Company of such notice and payment shall constitute the exercise of the
Option or a part of it. Within 20 days, the Company shall deliver or cause to
be delivered to the Optionee a certificate or certificates for the number of
shares then being purchased by him or her. Such shares shall be fully paid
and nonassessable. The minimum number of shares with respect to which an
Option may be exercised, in whole or in part, at any time shall be the lesser
of 500 shares or the maximum number of shares available for purchase under the
Option at the time of exercise. If any law or applicable regulation of the
Securities and Exchange Commission or other public regulatory authority shall
require the Company or the Optionee to register or qualify under the
Securities Act of 1933, as amended (the "Securities Act"), any similar federal
statute then in force or any state law regulating the sale of securities, any
such shares with respect to which notice of intent to exercise shall have been
delivered to the Company or to take any other action in connection with such
shares, the delivery of the certificate or certificates for such shares shall
be postponed until completion of the necessary action, which the Company shall
take in good faith, without any delay and at its own expense.
4.4. Upon each exercise of the Option prior to the registration contemplated
by Section 6 hereof, the Optionee will be required to give a representation in
form satisfactory to counsel for the Company that the shares are being
purchased for investment and not with a view to distribution and that the
Optionee will make no transfers of the shares in violation of the Securities
Laws. The Company may, at its discretion, make a notation on any certificate
delivered upon exercise of the Option to the effect that the shares are
subject to any restrictions contained in this Plan and the shares represented
by the certificate may not be transferred except in accordance with any
transfer restrictions contained in the Company's Articles of Organization and
after receipt by the Company of an opinion of counsel satisfactory to it to
the effect that such transfer will not violate the Securities Laws, and may
issue "stop transfer" instructions to its transfer agent, if any, and make a
"stop transfer" notation on its books, as appropriate. Notwithstanding the
foregoing, the Company may release the Optionee from the investment
representation if the shares of the Stock subject to the Option have been
registered with the Securities and Exchange Commission.
5. Restrictions on Issue of Shares. Notwithstanding any other provision of
this Agreement, if, at any time, in the reasonable opinion of the Company the
issuance of shares of Stock covered by the exercise of any Option may
constitute a violation of law, then the Company may delay such issuance and
the delivery of a certificate for such shares until (i) approval shall have
been obtained from such governmental agencies, other than the Securities and
Exchange Commission, as may be required under any applicable law, rule, or
regulation; and (ii) in the case where such issuance would constitute a
violation of a law administered by or a regulation of the Securities and
Exchange Commission, one of the following conditions shall have been
satisfied:
(a) the shares with respect to which such Option has been exercised are at the
time of the issue of such shares effectively registered under the Securities
Act; or
(b) a no action letter in form and substance reasonably satisfactory to the
Company with respect to the issuance of such shares shall have been obtained
by the Company from the Securities Exchange Commission.
The Company shall make all reasonable efforts to bring about the occurrence of
said events.
6. Registration. The Company shall register under the Securities Act or other
applicable statutes the Optioned Shares no later than six months from the
Grant Date. The Company shall take such action at its own expense. The
Company may require from each Option holder, or each holder of shares of Stock
acquired pursuant to the Plan, such information in writing for use in any
registration statement, prospectus, preliminary prospectus or offering
circular as is reasonably necessary for such purpose and may require
reasonable indemnity to the Company and its officers and directors from such
holder against all losses, claims, damage and liabilities arising from such
use of the information so furnished caused by any untrue statement of any
material fact therein or caused by the omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made.
7. Restriction Against Transfer of Option. During the lifetime of the
Optionee, the Option may be exercised only by the Optionee (or, in the event
of legal incapacity or incompetency, the Optionee's guardian or legal
representative). The Option and all rights and privileges conferred hereby
may not be transferred, assigned, pledged, or hypothecated (whether by
operation of law or otherwise) except by will or by the laws of descent and
distribution, and shall not be subject to execution, attachment, or similar
process. Upon any attempt to transfer, assign, pledge, hypothecate, or
otherwise dispose of the Option or any right or privilege conferred hereby,
contrary to the foregoing, or upon the sale or levy or any attachment or
similar process upon the rights and privileges conferred hereby, the Option
shall thereupon terminate and become null and void.
8. Capital Changes
8.1 If the Company effects a subdivision or consolidation of shares or other
capital readjustment, the payment of a stock dividend, or other increase or
reduction of the number of shares of the Common Stock outstanding, without
receiving compensation therefor in money, services, or property, then the
number, class, and per-share price of shares of stock subject to the Option
shall be appropriately adjusted in such a manner as to entitle the Optionee to
receive upon exercise of the Option, for the same aggregate cash
consideration, the same total number and class of shares that the owner of an
equal number of outstanding shares of Common Stock would own as a result of
the event requiring the adjustment.
8.2. Adjustments other than under Section 8.4 of this Agreement shall be
determined by the Board or the Committee and such determinations shall be
conclusive. The Board and the Committee shall have the discretion and power
in any such event to determine and to make effective provision for
acceleration of the time or times at which the Option or any portion thereof
shall become exercisable. No fractional shares of Common Stock shall be
issued on account of any adjustment specified above.
8.3. The issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, or upon the exercise of rights
or warrants to subscribe therefore, or upon conversion of shares or
obligations of the Company convertible into such shares or other securities,
or other increase or decrease in such shares affected without receipt of
consideration by the Company, shall affect, and an adjustment by reason
thereof shall be made with respect to, the number or price of shares of Common
Stock then subject to the Option.
8.4. If the Company is a party to a reorganization or merger with one or more
other corporations and the Company is the surviving or resulting corporation,
after the effective time of such transaction the Option shall remain
outstanding, and upon exercise in accordance with its terms, the Optionee
shall be entitled to receive, instead of the shares of Common Stock otherwise
deliverable upon such exercise, shares of stock or other securities equivalent
in value to those that the Optionee would have received if the Option had been
so exercised prior to such transaction and no disposition thereof had
subsequently been made. If the Company consolidates with or into one or more
other corporations, or if the Company is liquidated or sells or otherwise
disposes of substantially all of its assets to another corporation
(individually or collectively, as the case may be, a "Transaction"), in any
such event while the Option is outstanding, then the Optionee shall be
immediately and 100% vested in any and all unexercised Optioned Shares and
shall have the right to exercise the Option, notwithstanding any other
provision of this Agreement to the contrary. The Optionee shall be provided
with 30 days written notice of such Transaction.
9. Reservation of Shares. The Company shall at all times during the term of
this Agreement reserve and keep available such number of shares of the Common
Stock as will be sufficient to satisfy the requirements of this Agreement and
shall pay all fees and expenses necessarily incurred by the Company in
connection therewith.
10. Limitation of Rights in Option Shares. The Optionee shall not be deemed
for any purpose to be a stockholder of the Company with respect to any of the
Option Shares, except to the extent that the Option shall have been exercised
with respect thereto and in addition thereto a stock certificate shall have
been issued therefor and delivered to the Optionee. Any stock issued pursuant
to the Option shall be subject to all restrictions upon the transfer thereof
that may now or hereafter be imposed by the Articles of Organization, and the
By-laws of the Company.
11. Power of Company. The existence of the Option shall not affect in any way
the right or power of the Company or its stockholders to make or authorize any
or all adjustments, recapitalizations, reorganizations, or other changes in
the Company's capital structure or its business, or any merger or
consolidation of the Company, or any issue of Common Stock, or any issue of
bonds debentures, or preferred or prior preference stock ahead of or affecting
the Common Stock or the rights thereof, or dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its assets or business,
or any other corporate act or proceeding, whether of a similar character or
otherwise.
12. Withholding. The Company's obligation to deliver shares upon the exercise
of any Option shall be subject to the Optionee's satisfaction of all
applicable tax withholding requirements.
13. Notices and Other Communications. Except as otherwise provided herein,
any communication or notice required or permitted to be given under this
Agreement shall be effective if in writing and if delivered or sent by
certified or registered mail, return receipt requested, (a) if to the Company,
at 10 Elizabeth Drive, Chelmsford, Massachusetts 01824 marked "Attention
Secretary" or to such other person as the Company may specify, and (b) if to
the Optionee, to the address set forth on the first page of this Agreement or
such other address, in each case, as the addressee shall last have furnished
to the communicating party.
14. Characterization of Option for Tax Purposes. The Option is intended to be
treated as a "nonqualified stock option" rather than an "incentive stock
option" under the Internal Revenue Code of 1986, as amended and is not issued
under any stock option plan of the Company.
15. Disclaimer of Rights. No provision in this Agreement shall be construed
to confer upon the Optionee the right to remain in the employ of the Company,
interfere in any way with the right and authority of the Company either to
increase or decrease the compensation of the Optionee at any time, or to
terminate the employment or any other relationship between the Optionee and
the Company.
16. Governing Law. This Agreement shall be governed by and interpreted and
construed in accordance with the internal laws of the Commonwealth of
Massachusetts (without reference to principles of conflicts or choice of law).
IN WITNESS WHEREOF, the parties have executed this agreement as of the date
first above written.
MRS TECHNOLOGY, INC.
By: Robert P. Schechter
By: Carl P. Herrmann, Optionee
EXHIBIT 10.46
MRS TECHNOLOGY, INC.
CONSULTING AGREEMENT
AGREEMENT, dated February 13, 1998, between MRS Technology, Inc., a
Massachusetts corporation with its principal place of business at 10 Elizabeth
Drive, Chelmsford, MA 01824-4112 (the "Company"), and Griffith L. Resor III,
an individual residing at 5 Proctor Street, Acton, MA 01720 (the
"Consultant").
1. FREEDOM TO CONTRACT; INDEPENDENT CONTRACTOR. The Consultant represents
that he is free to enter into this Agreement, that he has not made and will
not make any agreements in conflict with this Agreement, and will not disclose
to the Company, or use for the Company's benefit, any trade secrets or
confidential information now or hereafter in the Consultant's possession which
is the property of any other party.
This Agreement shall be construed as an independent contractor's agreement for
all purposes, and Consultant shall be independent and not an employee of the
Company or any affiliate of the Company. Consultant and the Company are not
partners or joint venturers with each other with respect to the matters
subject to this Agreement and nothing herein shall be construed so as to make
them such partners or joint venturers or to impose any liability as such on
them.
2. CONSULTING SERVICES. Subject to the general direction of the Board of
Directors of the Company, the Consultant shall act as an advisor and
consultant to the Company and Consultant hereby accepts such engagement upon
the terms and conditions set forth herein. The Consultant shall report to the
Chief Executive Officer of the Company.
3. TERM
3.1. General. This Agreement shall take effect as of the date hereof and
shall remain in effect through the 14th day of August, 1998, or until earlier
terminated under the provisions of this Section 3. This Agreement may be
renewed by mutual written agreement of the parties.
3.2. Survival of Certain Provisions. The provisions of Sections 3.3, 4, 5,
6, 7, and 8 shall survive the termination of this Agreement.
3.3. Termination. The Company shall have the right upon thirty (30) days
notice to terminate this Agreement without cause, and immediately upon notice
to terminate this Agreement with cause (as defined below), with no
compensation to accrue or to be owing in respect of any period after the
effective date of such termination and no liability of any kind to accrue on
account of such termination. The term "cause" shall mean termination due to
breach of this Agreement or to an act or acts by the Consultant in willful
contravention of the directions of the Chief Executive Officer or Board of
Directors of the Company.
4. COMPENSATION, EXPENSES AND TAXES.
4.1. Compensation and Expenses. For the term of this Agreement, the
Consultant shall be paid at a rate of One Hundred Sixty Eight Thousand Dollars
($168,000) per year, in consideration for the Consultant's availability for
consulting services to the Company. The Consultant's compensation shall be
payable on a bi-weekly basis in accordance with the Company's customary
payroll practices.
Consultant is entitled to continuation of health insurance coverage under the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA").
If the Consultant elects continuation coverage under COBRA, the Company will
pay any required premium contributions on behalf of the Consultant until the
earlier to occur of: (i) the termination of this Agreement, or (ii) the
Consultant's eligibility for coverage under a health insurance plan maintained
by a subsequent employer of the Consultant.
The Consultant currently has vested but unexercised options to purchase
seventy seven thousand seven hundred forty eight (77,748) shares of the
Company's Common Stock. In accordance with the terms of the MRS Technology,
Inc. 1993 Stock Option Plan, Consultant may exercise such options, in whole or
in part, at any time within three (3) months after termination of this
Agreement unless such options are earlier terminated by their terms.
In addition, the Consultant is hereby granted an option (the "Option") to
purchase sixty seven thousand five hundred (67,500) shares of the Company's
Common Stock.
4.2. Terms of the Option. The Option shall (i) be a nonstatutory option,
(ii) granted as of the date hereof, (iii) have an exercise price equal to the
average of the bid and asked price of the Company's Common Stock on the
business day first preceding the date hereof, (iv) vest in all events on the
termination of this agreement, (v) to the extent vested, be exercisable for a
period of three (3) months following termination of this Agreement, and (vi)
be subject to the terms and conditions of the Company's Stock Option Plan and
the Option Agreement representing the Option.
4.3 Responsibility for Taxes. All compensation to be paid to Consultant
hereunder shall be paid without deduction or withholding of any federal,
state, local or foreign taxes, and Consultant shall be solely responsible for
and pay all federal, state, local and foreign taxes due with respect thereto.
Consultant agrees to indemnify the Company and hold it harmless from and
against any liability, cost or expense (including, without limitation, court
costs and attorney's fees) resulting from Consultant's breach of his
obligations under this paragraph. The Company shall have the right to set off
against any payments owing to Consultant any amounts owed to the Company by
the Consultant as a result of any breach of the Consultant's obligations under
this paragraph.
5. AGREEMENT NOT TO COMPETE. This Section 5 is effective during the term of
this Agreement and shall continue in effect for the period beginning on the
date of termination of this Agreement and continuing for: (i) one (1) year;
or (ii) in the event of termination of this Agreement prior to the 14th day of
August, 1998, six (6) months. During such time, the Consultant shall not
directly or indirectly, engage in, or enter into or participate in, at any
place within the rest of the United States any Competitive Business (as
defined below), either as an individual for his own account, or as a partner
or a joint venture, or as an officer, independent contractor or holder of more
than a five percent (5%) equity interest in any other person, firm,
partnership or corporation, or as an employee, agent or salesperson for any
person.
For purposes of this Section 5, the term "Competitive Business" shall mean
stitching step and repeat lithography tools for FPD (flat panel display) R&D
and/or production, or for HDI (High Density Interconnect) R&D and/or
production. In the event that the Company no longer has an interest one of
the industries described in the foregoing sentence, such industry shall no
longer be considered a Competitive Business and the terms of this Section 5
shall no longer apply solely with respect to that industry.
6. CONFIDENTIAL INFORMATION.
(a) The Consultant recognizes and acknowledges that he may have exposure to
and develop special knowledge and skills concerning certain of the Company's
Confidential Information (as defined below) vital to the Company's ability to
compete successfully in its business. The Consultant further acknowledges
that it is vital to the Company's legitimate business interests that the
confidentiality of such Confidential Information be preserved, and that use or
reliance on such Confidential Information by or on behalf of any other
business or commercial activity in competition with the Company could result
in irreparable harm to the Company. The Consultant further acknowledges that
the Confidential Information is a valuable, special and unique asset of the
Company's business, and that the Confidential Information is and shall remain
the exclusive property of the Company and nothing in this Agreement shall be
construed as a grant to the Consultant of any rights, title or interest in the
Confidential Information.
(b) The Company and the Consultant understand that, prior to the effective
date of this Agreement, the Consultant received and generated Confidential
Information which may or may not have been documented as such. After the
effective date of this Agreement, all "new" Confidential Information, e.g.
Confidential Information disclosed after such effective date, will be
identified: (i) in writing on such documents or, (ii) if disclosed orally, by
an oral caution that the Consultant is being given Confidential Information,
with written confirmation of the oral notice within two (2) weeks of such
disclosure.
(c) Without the prior written consent of the Company, the Consultant shall
not, at any time either during or subsequent to his consulting relationship
with the Company, use any Confidential Information (as defined below) for the
benefit of anyone other than the Company, or disclose any Confidential
Information to any person or party; the Consultant may, however, use or
disclose Confidential Information as required by his obligations to the
Company or as necessary or desirable (and for the benefit of the Company) in
connection with the Company's business (but all such permitted uses and
disclosures shall be made under circumstances and conditions reasonably
appropriate to preserve the Confidential Information as the Company's
confidential property). The Company will give due consideration to any
request by the Consultant to use or disclose such Confidential Information.
(d) After the term of the Consultant's consulting relationship with the
Company, the foregoing restrictions shall not apply to Confidential
Information which the Consultant can establish by competent written proof:
(i) was known, other than under binder of secrecy, to the Consultant prior to
his employment by the Company; or (ii) was subsequently obtained by the
Consultant, other than under binder of secrecy, from a third party not
acquiring the information under an obligation of confidentiality from the
disclosing party.
(e) The term "Confidential Information" includes all information acquired by
the Consultant from the Company, its other employees, its suppliers or
customers, its agents or consultants, or other, during his relationship with
the Company, and which relates to the present or potential businesses and
products of the Company, as well as any other information designated by the
Company as confidential. The term Confidential Information may relate, for
example, to inventions, trade secrets, computer software, research,
development, design, engineering, manufacturing, purchasing, supplier lists,
customer lists, price lists, accounting, profit margins, marketing or sales
volume information or strategic plans; may include information contained, for
example, in drawings, models, data, specifications, reports, compilations or
computer programs; and may be in the nature of unwritten knowledge or
technical or manufacturing know-how; but shall not in any event include any
information which becomes generally known or available to persons in the
business or industry of the Company other than as a result of acts or
omissions attributable to the Consultant.
7. STANDARD OF CONDUCT. The Consultant shall act at all times in the best
interest of the Company as determined from time to time by the Company in its
sole discretion, acting through its Board of Directors and/or its Chief
Executive Officer. The Consultant shall promote the policies and practices of
the Company, as adopted and interpreted form time to time by the Company in
its sole discretion, acting through its Board of Directors and/or its Chief
Executive Officer.
8. ARBITRATION. In the event that any party hereto has any claim under this
Agreement or other issues relating to the Consultant's consulting relationship
with the Company, the party shall promptly notify each other party of such
claim. If within 30 days of the receipt of such notice of claim, the parties
cannot agree on a resolution of such claim, the parties agree to submit such
dispute to binding arbitration to be held in Boston, Massachusetts under the
rules of the American Arbitration Association. Any such arbitration shall be
conducted by three arbitrators, one of whom shall be selected by the
Consultant, one of whom shall be selected by the Company and one of whom shall
be selected by the arbitrators so selected. The expenses of any such
arbitration shall be paid by the non-prevailing party, as determined by the
final order of the arbitrators.
9. SPECIFIC ENFORCEMENT. Notwithstanding the provisions of Section 8, the
parties acknowledge that the Consultant's breach of Sections 5, 6 and 7 of
this Agreement will cause irreparable harm to the Company; it is agreed and
acknowledged that the remedy of damages will not be adequate for the
enforcement of such provisions and that such provisions may be enforced by
equitable relief, including injunctive relief or specific performance, which
relief shall be cumulative and in addition to any other relief to which the
Company may be entitled.
10. GOVERNING LAW. This Agreement shall be deemed a contract made and
performed in the Commonwealth of Massachusetts and shall be governed by the
laws of the Commonwealth of Massachusetts.
11. ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the entire
agreement of the parties and may be altered or amended or any provision hereof
waived only by an agreement in writing signed by the party against whom
enforcement of any alteration, amendment, or waiver is sought. No waiver by
any party of any breach of this Agreement shall be considered as a waiver of
any subsequent breach.
12. BINDING OBLIGATIONS. This Agreement shall be binding upon and inure to
the benefit of the Company and its successors and assigns and the Consultant
and his personal representatives.
13. ASSIGNABILITY. Neither this Agreement nor any benefits payable to the
Consultant hereunder shall be assigned, pledged, anticipated, or otherwise
alienated by the Consultant, or subject to attachment or other legal process
by any creditor of the Consultant, and notwithstanding any attempted
assignment, pledge, anticipation, alienation, attachment, or other legal
process, any benefit payable to the Consultant hereunder shall be paid only to
the Consultant or his estate.
IN WITNESS WHEREOF, the Company, by its officer hereunto duly authorized, and
the Consultant have signed and sealed this Agreement as of the date first
written above.
MRS TECHNOLOGY, INC.
By:Carl P. Herrmann
Chief Executive Officer
Griffith L. Resor III
