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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 EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 27, 1998
COMMISSION FILE NUMBER 0-22646
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APPLIED SCIENCE AND TECHNOLOGY, INC.
(Name of Issuer in its Charter)
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DELAWARE 04-2962110
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
35 CABOT ROAD, WOBURN, MASSACHUSETTS 01801-1053
(Address of Principal Executive Offices) (Zip Code)
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(781) 933-5560
(Registrant's Telephone Number, Including Area Code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Title of Class
COMMON STOCK, $0.1 PAR VALUE
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INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE 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
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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 .
The aggregate market value of the shares of Common Stock, held by non
affiliates, based upon the average of the closing bid and asked prices for such
stock on September 18, 1998 was approximately $32,360,000. As of September 18,
1998, 8,606,763 shares of Common Stock, $.01 par value per share, were issued
and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Company's Annual Meeting of
Stockholders to be held on November 19, 1998, are incorporated by reference into
Part III of this Form 10-K.
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ITEM 1. BUSINESS
INTRODUCTION
Applied Science and Technology, Inc. (the "Company" or "ASTeX") is a leading
provider of innovative production technology for the manufacture of advanced
semiconductor devices. The Company's products are typically used in plasma
production techniques in which gases are heated to form a plasma which
chemically interacts with a substrate material, as well as in microwave, radio
frequency ("RF"), and direct current ("DC") power generation techniques. Based
on its estimates of the market, management believes that the Company is the
leading worldwide supplier of plasma equipment to its markets.
The Company provides patented and proprietary components and subsystems, as well
as engineering and scientific expertise, to semiconductor capital equipment
manufacturers ("SCEMs") for semiconductor production, as well as to advanced
medical capital equipment manufacturers ("MCEMs"). The SCEM equipment performs
essential process steps and includes plasma sources and subsystems and specialty
power sources and subsystems for photoresist stripping, passivation, etching,
thin film deposition and surface cleaning; and ozone generators and subsystems
for low-temperature deposition of insulating layers in integrated circuits.
ASTeX's major customers include Applied Materials, Inc. ("Applied Materials"),
GaSonics International, Inc. ("GaSonics"), Lam Research Corporation ("Lam
Research"), and Watkins-Johnson Company ("Watkins-Johnson"). Their customers
(IBM, Intel, Motorola, et al.) use ASTeX equipment to manufacture the latest
generation of advanced memory devices and microprocessors such as Pentium and
PowerPC chips.
ASTeX markets the same underlying core technology for medical, electro-optic and
synthetic diamond applications. Products include specialty power sources
covering the power delivery spectrum including DC, RF, and microwave generators.
Medical applications include magnetic resonance imaging ("MRI"), medical
equipment sterilization, and medical lasers for dermatology. The Company also
provides specialty DC power supplies for digital projection applications in the
electro-optics market, and for laser marking.
Outside of the semiconductor market, the Company's plasma processing equipment
is used to produce synthetic diamond using a chemical vapor deposition ("CVD")
process. Diamond is an ideal material for a wide variety of uses because of its
extreme hardness, excellent thermal conductivity, and other unique properties.
Based on its estimates, management believes that the Company continues to be the
leading commercial equipment supplier to this market.
An M.I.T. spin-off founded in January 1987, the Company has achieved
profitability in 10 of the last 12 years and year-to-year revenue growth in 11
of the last 12 years. The Company completed an initial public offering in
November 1993 which raised net proceeds of approximately $15.9 million to fund
R&D activities, expand manufacturing facilities, fund increased sales and
marketing efforts, fund increased inventory and accounts receivable, fund the
acquisition of complementary businesses and provide general working capital. The
Company's balance sheet at June 27, 1998 includes $7.7 million of cash and
investments, $28.6 million of working capital, tangible net worth of $38.7
million, a current ratio of 4.8 to 1 and no long-term debt.
For the fiscal year ending June 27, 1998 ("Fiscal 1998"), the Company achieved
record revenues for the year of $83 million, a 74% increase over the $48 million
reported in the prior fiscal year ending June 28, 1997 ("Fiscal 1997"). Net
earnings for the year were $4.0 million, or $0.47 per share diluted, including
an in-process research and development ("R&D") write-off of $212,000 associated
with the acquisition of ASTeX Sorbios GmbH in the second quarter. This
performance occurred during a severe downturn in the semiconductor capital
equipment industry during the last half of Fiscal 1998.
The Company continued to invest heavily in R&D during Fiscal 1998, leading to a
series of new product introductions and design wins. During the year, the
Company continued to strengthen its overall capability both through additions to
the senior management team and through the acquisition of ASTeX
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Sorbios. Management believes that ASTeX is well positioned as an enabling
supplier of advanced technology solutions.
MARKETS
The Company's primary market consists of subsystems for semiconductor
processing, sold to SCEMs. The Company markets its specialty power supplies to
MCEMs for diagnostic imaging, medical equipment sterilization, and dermatology
and to other OEMs for industrial lasers and electro-optic applications. The
Company markets its plasma equipment outside the semiconductor industry to end
users for producing CVD diamond and for other industrial applications.
SUBSYSTEMS FOR SEMICONDUCTOR PROCESSING
The Company's power supply, plasma and ozone production technologies are used in
semiconductor manufacturing equipment. According to DataQuest, Inc.
("DataQuest"), a market research and consulting firm, the world market for
silicon wafer processing equipment is expected to increase from $22 billion in
1996 to $38 billion in the year 2000. However, DataQuest predicts a decline of
at least 15% in 1998, to $18 billion. The component and subsystem segments of
this market, which are available to ASTeX, are estimated by management to be
approximately $500 million per year and projected to grow to more than $1
billion over the next five years. Management believes that the total available
market for ASTeX in this industry can be expanded significantly through the
development or acquisition of complementary product lines.
Segments of the market, particularly the plasma etch and deposition segments
currently served by the Company are expected to grow at a rate faster than the
overall market. According to DataQuest, critical market needs include
high-density plasmas for dry etch processes for fabricating dynamic random
access memory ("DRAM") and logic devices, as well as high-density plasma
deposition sources for premetal and intermetal dielectric, as well as
metallization for fabricating advanced microprocessors. The fabrication of these
newer, more complex devices employs the microwave and RF plasma and ozone
production technologies offered by the Company. Moreover, with the ongoing trend
of reduced cost of ownership of manufacturing tools, more efficient cleaning
processes, such as the fluorine process that is offered by the Company, become
more crucial.
Management believes these increases in plasma-related segments represent a
significant opportunity for the Company. Much of this increase is due to more
complex semiconductor products that are required for use in lap-top and other
personal computers, portable communications and application-specific consumer
electronics. The extension of the market for these devices beyond the
traditional personal computer market is also considered by many to imply
longer-term stability and less volatility in the growth of the market, as the
products in which the devices are used become more diverse and targeted at a
larger segment of the population.
Technology shifts within the industry also provide significant new opportunities
for the Company. In particular, the transition to finer line widths (e.g. 0.25
micron and below) provide opportunity for customers to adopt the Company's
products which enable these transitions to take place.
Another factor affecting the Company's growth has been the structural changes in
the SCEM market. As this industry grows and matures, many of the large SCEMs are
working more directly with companies such as ASTeX in order to implement the
concept of lean manufacturing. Under this concept, suppliers provide a more
fully integrated, complete subsystem solution rather than supplying individual
components. This offers advantages of reduced cycle times, reduced fixed costs,
and a reduced number of suppliers with the overall result of improved efficiency
for the SCEM. ASTeX has been able to take advantage of this transition by
working with its customers to develop and deliver integrated solutions and
through this process to establish its strategic position as a leading supplier
of advanced technologies to the semiconductor capital equipment industry.
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ASTeX also has the opportunity to sell retrofittable subsystems, both to the
SCEMs and directly to the semiconductor fabricators. This may provide for a
further expansion of the Company's existing product revenues.
SPECIALTY POWER SUPPLIES
The Company supplies critical RF power subsystems for diagnostic imaging and
medical equipment sterilization applications, and DC switching power supplies
for medical and industrial lasers and electro-optics.
MRI is a diagnostic imaging modality which uses RF energy to excite the body's
hydrogen molecules in a strong magnetic field. The excited molecules produce a
radio signal that can be translated into images. MRI competes with x-ray and CT
(computed tomography) imaging systems. MRI is especially effective in imaging
soft tissue (brain) and tissue surrounded by bone (spinal cord).
The MRI market experienced significant growth in the late 1980s due to the rapid
expansion of the installed base in the U.S. Currently, the worldwide growth rate
is estimated between 5 and 10% annually. ASTeX is a leading supplier of RF
linear amplifiers to the MRI equipment market. Management estimates that the
total available MRI market for products currently offered by the Company is
approximately $25 million.
ASTeX provides RF power subsystems to a manufacturer of a medical equipment
sterilization system which received FDA approval in late 1993. This system uses
an RF-excited plasma to remove contaminants and sterilize medical instruments
and material without leaving toxic residue. The system has been well received in
the market worldwide. The plasma-based method competes with high temperature
steam autoclaves and low temperature chemical baths. The plasma-based method
significantly reduces instrument wear caused by the steam autoclave and
eliminates the handling of toxic chemicals inherent with the chemical baths.
Management anticipates that sales of these systems could grow significantly over
the next several years.
The Company provides a complete line of DC switching power supplies to a number
of medical manufacturers. These supplies feature outstanding quality and exhibit
excellent field operation characteristics, in particular, mean time between
failure ("MTBF") numbers in excess of 100,000 hours. In the medical laser
market, strong growth is being driven by increasing demand following FDA
approval for dermatology procedures, including hair and wrinkle removal. Use in
urology and arthroscopic applications is growing at a moderate pace.
Use of continuous wave ("CW") YAG lasers for marking is a rapidly growing market
with many new applications. Date or product code marking of food and medical
packaging with a laser has replaced ink in many products. Metal, plastic and
paper products use marking lasers for serial numbers to reduce cost and increase
throughput.
In the electro-optics market, the Company provides DC switching power supplies
for digital projection applications and medical endoscopy.
The Company's focus on specialty power supplies is driven by the technological
synergies with, and need for, these types of products in the semiconductor and
medical markets, and by the desire to balance the cyclical nature of the
semiconductor industry by commercializing this common technology in areas
outside of semiconductor processing.
PLASMA PROCESSING
The largest opportunity for the Company's plasma processing equipment outside of
the semiconductor industry is currently microwave plasma CVD of diamond and
diamond-like carbon ("DLC") films. Diamond has a unique combination of physical
characteristics that are not found in other materials. Diamond is the hardest
material available, can be highly transparent, and at room temperature is the
best thermal conductor (conducting heat five times better than copper). In
addition, diamond is an excellent
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electrical insulator and, conversely, when controlled quantities of impurities
are introduced, becomes a semiconductor. Diamond is also resistant to most
chemicals and to radiation and, when polished, is almost frictionless.
Because of its outstanding properties, CVD diamond has found commercial use in a
broad range of applications, including wear coatings to greatly extend the lives
of cutting tools and machine components; electronic packaging materials to
reduce the operating temperature and thereby improve the output, reliability,
and lifetime of electronic components; transparent windows for infrared sensors
in aggressive chemical environments, microelectro-mechanical devices for
electrodes and detectors, and as field emitters for next-generation flat panel
display devices.
As the leading equipment supplier to the CVD diamond market, one of ASTeX's key
goals is to drive down the cost of CVD diamond deposition, in order to enable a
wider range of cost effective applications, and thus expand the market for ASTeX
deposition systems. In addition, ASTeX partners with its customers in the
product development process in an effort to reduce the time to market for new
CVD diamond applications.
The Company also sells its plasma processing products for advanced industrial
processes for a variety of applications.
CURRENT PRODUCTS
Virtually all of the Company's products including its ozone generators and
systems are based on DC, RF, microwave or plasma technologies. These
technologies represent the confluence of the Company's core technical
competencies in plasma physics and chemistry, high-voltage switching power
supplies, RF and microwave engineering, and integrated systems engineering. The
Company's products range from fully integrated turnkey systems for ozone
delivery or CVD diamond production to DC, RF, microwave, plasma and ozone
components designed for high-volume original equipment manufacturers.
The Company produces a broad range of products: plasma systems for chamber clean
and photoresist strip, combined RF/microwave power and control systems,
microwave plasma sources, DC, RF and microwave power generators, turnkey ozone
supply systems for deposition and wet bench applications, and ozone generators
that are sold to OEMs and end-users along with the Company's engineering and
technical support. In addition, the Company sells a large selection of auxiliary
components and spare parts often combining or integrating these components to
meet a customer's specific configuration requirements.
The RF and microwave generators range in price from $7,500 to $40,000 and are
used to provide precise stable energy to plasma sources utilized for etch, strip
and CVD applications. Plasma systems and combined RF/microwave power and control
systems offer integrated solutions to etch, strip and CVD applications that
provide the Company's technology expertise and support, reduced cost and
improved time to market for SCEMs. The Company's systems range in price from
$20,000 to $75,000. Microwave plasma sources generally range in price from
$17,500 to $125,000 and are used for the same applications but are typically
fully integrated onto the customer's machines by ASTeX. Ozone generators and
turnkey ozone systems generally range in price from $12,500 to $140,000 and are
used to deliver high-purity ozone for film deposition and wafer cleaning
applications. Typical products manufactured with all of these devices include
advanced microprocessors and DRAMs. Each of these products can be used to
perform several steps of the manufacturing processes for these devices. Ozone
generators and delivery systems are also widely sold for "wet phase"
applications, in which ozone is mixed into water systems used by SCEMs to
achieve improved cleaning performance.
RF amplifiers used in magnetic resonance imaging ("MRI") systems range in price
from $18,600 to $36,000. RF generators used in medical equipment sterilization
systems are priced between $2,900 and $3,500. The Company offers a range of DC
switching power supplies for medical and industrial lasers and electro-optic
applications which range in price from $300 to $7,100, with an average selling
price of approximately $3,000.
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The most exciting products are the microwave and fluorine generators and
delivery systems for SCEM processing chamber cleaning, which are installed and
retrofit by both OEMs and end users. In particular, the Company has developed an
atomic fluorine generator, ASTRON(TM), for chamber clean applications. Producing
a high flux of atomic fluorine allows for high-rate processing while a compact,
integrated design allows for easy integration with semiconductor production
tools. The Company offered initial shipments in limited quantities during Fiscal
1998 and is preparing for volume production ramping during Fiscal 1999.
During Fiscal 1997, the Company completed the development of its Chemical Plasma
Source ("CPS") that is an integrated solution for photoresist strip
applications. The product has been accepted under a volume supply agreement for
integration into a new generation of etch equipment and shipments increased in
Fiscal 1998, and are expected to increase further in Fiscal 1999 as the new
equipment is accepted in the market place.
During Fiscal 1997, the Company also completed development and introduction of
three-channel and four-channel combined RF/microwave power and control systems
for oxide etch and insulator deposition. These products were accepted under a
volume supply agreement and production was ramped during the year. Revenues from
these products increased significantly in Fiscal 1998, as the new tool was
accepted in the market place, and are expected to increase further during Fiscal
1999 as major semiconductor manufacturers have selected this tool to be the
standard deposition system for their leading-edge devices.
The Company's diamond deposition products serve both the university and
industrial R&D market as well as industrial manufacturing. Prices on the
products range from under $100,000 for basic research systems to over $500,000
for highly automated production systems.
The Company manufactures electron cyclotron resonance ("ECR") sources used to
provide high quality thin films without the high temperatures required in
conventional CVD processing. Low temperature operation expands the range of
materials for which the Company's components can be used. Typical materials
include temperature sensitive indium phosphide laser diodes, gallium arsenide
semiconductor devices, and DLC films. ECR plasma sources can be used in a
variety of applications such as plasma etching, low temperature plasma enhanced
deposition, and surface cleaning. Prices for these products currently range from
approximately $30,000 to $60,000.
The Company completed the development of high performance RF linear amplifiers
for advanced MRI applications during Fiscal 1998. In addition, new RF generator
technology has been developed for use in medical equipment sterilization
systems. The Company has developed several new DC switching power supplies for
medical applications to offer improved price/performance. These went into
production during Fiscal 1998, and will be widely offered to customers and
installed during Fiscal 1999.
PRODUCTS UNDER DEVELOPMENT
The Company is developing a new line of intelligent microwave power supplies,
SmartPower(TM), primarily for use in the semiconductor industry. These
generators were introduced in July 1998 and offer lower cost of ownership with
the inclusion of advanced self-diagnostics for maximum uptime and precision
power measurement capability for process repeatability. These generators are
expected to go into production during Fiscal 1999.
The Company has continued development of multiple models of a turnkey ozone
delivery system which incorporates the Company's plasma, power supply and
systems engineering expertise. These products are based on the ASTeX modular
platform which is then customized to meet a particular customer's requirements.
These systems are now in volume production for the Company's SCEM customers.
The Company has just completed the development and release of a new ozone
generator product, SOLO3(TM). The product is an extension of the patented, high
performance, reliable ASTeX AX8000 ozone generator technology, offering
no-dopant ozone generation and lower cost of ownership. The Company plans to
offer the product to existing customers as well as pursue a new product
application,
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wet bench cleaning, where ozonated fluids (de-ionized water, sulfuric acid and
HCl) offer lower cost and/or more environmentally acceptable solutions for a
wide range of cleaning applications.
During Fiscal 1998, the Company initiated the development of a new line of ozone
delivery systems for wet chemistry applications, mainly for injection of ozone
into DI water systems of wet benches. The Company completed the development of
the prototypes which have been installed during the last quarter of Fiscal 1998.
This technology will be further developed and widely offered in the marketplace
for use by OEMs as well as end users.
The Company continues to improve the capability and performance of its high
power production diamond deposition system, the AX6600. This system is now being
productized in anticipation of initial orders for this product from key CVD
diamond customers in Fiscal 1999.
RESEARCH AND DEVELOPMENT
The Company's research and development strategy is focused on deep involvement
in understanding the unique technical problems faced by those in the industries
it serves and, in particular, its current customer base, and end users of its
products.
During Fiscal 1998, 1997, and 1996, total research and development expenses
(including expenses attributable to certain research contracts which are
expensed as incurred and included in cost of revenue) were approximately $12.0
million, $8.7 million, and $6.9 million, or 14%, 18%, and 18% of the Company's
revenues, respectively. The Company also receives funding for certain research
and development costs which is used to offset these research and development
expenses. Internally funded research and development expenditures, net of
funding received, were approximately $11.3 million, $7.3 million, and $5.0
million during Fiscal 1998, 1997, and 1996, respectively. Due to the highly
technical nature of the Company's business, rapidly expanding markets, and new
technologies under development, management expects to continue to expend
significant funds in future years on research and development activities.
Management expects that it will continue to fund a significant portion of its
research and development expenses through customer development contracts,
government funded research, and cash flows from operations. The Company intends
to supplement these available cash resources by using possible future joint
ventures or collaborative research with other manufacturers and government
laboratories to develop new products and processes.
The Company has received development contracts directly from its SCEM customers
for products specific to their applications, but which also have other market
potential. These include agreements for the development of next-generation
microwave generators and advanced plasma sources. ASTeX uses such funding as a
means of accelerating its product development and is generally not restricted
from selling developed products widely in the SCEM marketplace.
In any particular case, exclusivity is negotiated based on the scope of the
required development program, the technical risk, and the overall market
potential. Frequently, the Company funds the entire development program
internally and exclusivity is not an issue. In some cases, the product may be
needed by a particular customer who might fund the development simply to ensure
its availability in the marketplace. In other cases, the development program may
entail a high degree of technical risk, may require a significant investment
beyond what the Company would fund on its own, and may require the participation
of ASTeX's customer's customer through the need to process device wafers. In
this case, the Company may grant exclusivity to its customer for its specific
market in exchange for program funding, with the goal of manufacturing the new
product in the event the development program is successful.
In conjunction with CVD diamond equipment development, the Company is working to
develop diamond growth processes which will allow its production equipment to
produce diamond at reduced cost and thereby expand its commercial applications.
The Company has developed modeling codes and process technologies for optical,
thermal, and material removal (cutting tool) applications. Researchers are
examining additional applications using microwaves and plasmas for other
manufacturing processes. The Company is currently collaborating with several
major firms and anticipates awards or continuation
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of awards with a number of partners for additional government funding for
diamond and specialty materials development, as well as partnerships with major
diamond growth commercial companies overseas.
Supporting the Company's research and development group are nine Ph.D.s as well
as 22 engineers and scientists holding masters degrees. A number of other
electrical, mechanical and process engineers as well as external consultants and
designers support the Company's research and development programs. Management
believes that these individuals constitute one of the largest groups of
engineers and scientists assembled in these fields in a commercial enterprise.
SIGNIFICANT CUSTOMERS AND CONTRACTS
During Fiscal 1998, 1997, and 1996, Applied Materials accounted for
approximately 40%, 38%, and 45% of the Company's consolidated total revenue.
Phillips Medical Systems accounted for approximately 6% of the Company's total
revenue in Fiscal 1998 and 10% in Fiscal 1997. The loss of Applied Materials or
Phillips Medical Systems would have a materially adverse effect on the Company.
No other customer accounted for more than 5% of total revenue in Fiscal 1998.
While sales to Applied Materials represent a large fraction of the Company's
total revenues, Applied Materials is the world's leading SCEM and it typically
dominates the market areas it serves. Therefore, the Company's sales to Applied
Materials are consistent with Applied Materials' market share. The Company's
strategy for reducing the total percentage of revenues due to Applied Materials
is to increase product revenues from other major SCEMs by increasing the range
of products offered by the Company and by expanding the range of semiconductor
process applications for which the Company's products can be used. The Company
is also exploring the opportunity of acquiring complementary businesses with
established sales organizations and complementary product lines and customers.
As part of the SCEM "food chain," the Company is restructuring to be better
positioned in view of the slowdown in this industry, which is projected to
continue through Fiscal 1999. The Company will also explore other new
applications in specific markets that are projected to grow rapidly.
In the semiconductor market, the Company sells DC, RF, microwave, and fluorine
generators and subsystems, microwave plasma sources and subsystems, and ozone
generators and subsystems to Applied Materials, GaSonics, Lam Research,
Novellus, Quester Technology, Ulvac, Varian, Watkins-Johnson and a number of
others. During Fiscal 1997, the Company received new supply agreements and
additions to existing supply agreements from major semiconductor capital
equipment manufacturers totaling $46,000,000. These multi-year supply agreements
typically provide for cancellation or modification with little or no penalty. In
addition, customers may push out deliveries, put firm orders on hold, or cancel
existing firm orders with little or no penalty.
The largest ever contract for the Company's DC power supplies for medical lasers
was signed recently with an overseas customer. This contract anticipates volumes
of as much as 6% of the Company's projected total revenue during Fiscal 1999.
The Company is the leading worldwide supplier of diamond deposition systems and
components to companies producing CVD diamond and products incorporating CVD
diamond, and to researchers exploring the use of CVD diamond. The Company
estimates it has an installed base of reactors and systems for diamond
production and development in excess of 200 units worldwide. Diamond and ECR
customers in Fiscal 1998 include major U.S.-based industrial and research firms,
European commercial and governmental R&D organizations and many others
worldwide. During Fiscal 1998, the Company continued its penetration of the
Japanese market with sales of several of its diamond deposition sources and
systems. Customers in Japan include major industrial companies as well as
universities and research institutions.
MARKETING AND SALES
In order to introduce the Company's products aggressively to global markets, a
Global Customer Operations ("GCO") organization was established during the last
quarter of Fiscal 1998. This
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organization, presenting "one face to the customer worldwide," comprises the
entire marketing, sales, service, and product management group of the Company.
The organization is structured around regional offices worldwide, allowing
direct marketing, sales, and service activities, and more controlled activities
of its independent sales and distribution representatives. During Fiscal 1998,
the GCO organization established regional operation headquarters for the western
U.S. region (Santa Clara, CA), central U.S. region (Austin, TX), eastern U.S.
region (Woburn, MA), and Europe (Berlin, Germany). During Fiscal 1999, the GCO
will establish further direct sales and service offices in the Far East (mainly
in Korea, Taiwan, and Japan), and more locations in Europe. The GCO also manages
the functional infrastructure to provide excellence in the main areas of
activity, namely, sales, service, marketing, and product management.
MANUFACTURING AND SUPPLIES
The Company's products are manufactured in facilities at Beverly, Newton, and
Woburn, Massachusetts, Colorado Springs, Colorado and Modesto, California. Many
of the components for the Company's products are manufactured by a number of
suppliers, and final assembly, integration, testing, and quality assurance are
then performed by Company personnel at the Company's facilities. The Company
typically provides one-year warranties for its products. The Company obtains
many components and ships many of its products under "just-in-time"
arrangements. The Company relies on certain (fewer than 5) foreign manufacturers
for certain components but believes that these components could be obtained
elsewhere if needed or that the Company's products could be redesigned to use
alternative suppliers' products. However, no assurance can be given that other
supply sources would be available without significant delay or increased cost.
During Fiscal 1999, the Company's Beverly, Massachusetts and Modesto, California
facilities will be consolidated, primarily into the Woburn, Massachusetts
facility and secondarily into the Colorado facility.
COMPETITION
The Company believes that it is the largest provider of microwave plasma sources
and microwave power supplies in the world, facing competition from providers
such as Muegge in Germany and Daihen in Japan. The Company also believes that it
possesses a significant share of the SCEM ozone generator market. The Company
competes in a number of markets with companies which provide competition in
certain market niches. In the ozone generator market the Company competes with
companies such as Sumitomo Precision Products and Ebara. With the acquisition of
Sorbios, a major competitor was eliminated. In addition, the Company also
competes with others who supply various stand-alone components in the
semiconductor equipment market (e.g. power supplies or plasma sources) such as
Daihen in Japan. Many SCEM customers develop equipment similar to the equipment
ASTeX provides through their proprietary in-house equipment development
programs. No assurance can be given that these or other firms will not develop
new or enhanced products which are more effective than those offered by the
Company.
The Company believes its major competitors for RF generators and amplifiers to
be ENI, a subsidiary of Astec (BSR) Plc, Advanced Energy Industries, Inc., RF
Power Products, Inc., Comdel, Erbtec Engineering, and Analogic. The Company
believes its major competitors for DC switching power supplies to be ALE
Systems, Analog Modules, and Kaiser Systems for laser applications, and Buhl,
Tectrol, and Walker Power for electro-optics.
The Company's strategy is to compete on the basis of its technical expertise,
core competencies, high quality and reliability, established reputation and
customer relationships, its sponsor base which provides funding for research and
development of products, and its key personnel, many of whom are recognized
experts in the fields of microwave plasma technology, semiconductor processing
technology, and diamond production. The Company expects plasma processing to
continue to develop. The Company's success will depend upon its ability to
maintain a competitive position for its products in the marketplace. To do so,
the Company must develop and enhance its technology and products to keep pace
with technological changes in production equipment and advanced materials
processes. In addition,
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the Company must have world-class manufacturing capabilities in order to meet
the needs of its customers. Moreover, the Company intends to diversify its field
of served industrial customers to leverage more of its capabilities in the
medical equipment industry and in other industrial applications.
The Company believes that a number of factors will affect its competitive
position in the future, including its ability to develop and manufacture new
products that meet the needs of its markets and respond to competitive
developments and technological changes; its ability to manufacture its products
on a cost effective basis; continued market acceptance; its ability to retain a
highly qualified scientific and engineering staff; general domestic and
international economic conditions and exchange rates; its ability to reach out
directly for sales and service to a large customer base worldwide; and its
ability to diversify to other industries.
The Company believes that it is the leading worldwide supplier of CVD diamond
production systems and sources. Nonetheless, many companies and academic
institutions have developed and are capable of developing competing products
based on technologies similar to the Company's or on other technologies. A
number of organizations, including Crystallume, DeBeers, Diamonex, Inc. (a
division of Monsanto Corporation), General Electric, and Norton Corporation are
developing new diamond coating technologies, although most are not currently
involved in the sales of diamond production equipment. Several companies make
CVD diamond equipment for internal use only and not for sale. No assurance can
be given that these companies will not sell CVD diamond equipment to outside
customers. Existing customers may also seek to develop proprietary equipment and
processes, which could adversely impact the Company's business. Several
companies, including SI Diamond, are seeking to develop new methods for
manufacturing diamond, utilizing different techniques, which may become
competitive with the Company's equipment. There are additional competitors in
the diamond market in Europe and Japan, several of which are seeking to sell
their products in other countries. Many of these potential competitors are well
established, and several have substantially greater financial resources than the
Company and have established success in the development, sale and service of
competitive products. No assurance can be given that these or other firms will
not develop new or enhanced products which are more effective than any that have
been developed by the Company.
PATENTS AND PROPRIETARY INFORMATION
The Company currently owns 20 U.S. patents and one Canadian patent, and has two
applications in various stages of preparation and filing. All pertain to
microwave plasma processes and devices or reactive gas generation devices. The
earliest of the issued patents considered material to the Company's business
expires in 2004. As a qualifying small business, the Company has retained
commercial ownership rights to proprietary technology developed under various
U.S. and government contracts and grants, including SBIR contracts. The Company
also has joint development agreements with industrial and commercial partners
which may result in sole or joint ownership rights to proprietary technology
developed under those agreements. The Company has three U.S. registered
trademarks: (1) ASTeX(R) (stylized letters), (2) Plasma Dome(R) and (3) Applied
Science and Technology, Inc(R).
During Fiscal 1998, ASTeX registered one new trademark and received four new
patents. In October 1997, the Company acquired ASTeX Sorbios and, as a part of
this acquisition, acquired three U.S. patents. Of these, two are related to
ozone, and one is related to air ionizers. In November 1997, ASTeX obtain a
patent on a microwave plasma sputter source.
In addition to its patent rights and with regard to its trade secrets, the
Company relies upon trade secrets and confidentiality agreements, which all of
its employees are required to execute, assigning to the Company all patent
rights and technical or other information developed by the employees during
their employment with the Company. The Company's employees, consultants,
customers, and potential customers have agreed not to disclose any trade secret
or confidential information without the prior written consent of the Company.
Notwithstanding these confidentiality agreements, no assurance can be given that
other companies will not acquire information which the Company considers to be
proprietary. Moreover, while the Company has successfully enforced one of its
patents and intends to continue to vigorously enforce its patents against
infringement by third parties, no assurance can be given that the
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<PAGE> 11
Company's patents will be enforceable or provide the Company with meaningful
protection from competitors, or that patent applications will be allowed. Even
if a competitor's products were to infringe patents owned by the Company, it
would be very costly for the Company to enforce its rights in an enforcement
action, which would also divert funds and resources which otherwise could be
used in the Company's operations. No assurance can be given that the Company
would be successful in enforcing such rights, that the Company's products or
processes do not infringe the patent or intellectual property rights of a third
party, or if the Company is not successful in a suit involving patents or other
intellectual property rights of a third party, that a license for such
technology would be available, if at all, on commercially reasonable terms.
GOVERNMENT REGULATION
The Company has entered into certain U.S. government contracts which require
compliance with applicable government regulations. The Company's contracts with
the U.S. government consist primarily of research and development contracts,
many of which are awarded under the SBIR program or through DARPA. Research and
development contracts are generally subject to competitive bidding and extensive
regulation and are generally subject to cancellation at the U.S. government's
sole discretion. The Company is required to obtain approval from the Department
of Commerce for the export of certain equipment.
BACKLOG
The Company's backlog consists of purchase orders for standard products and
contracts for research and development. At June 27, 1998 the Company's backlog
was approximately $11,763,000 of which $11,247,000 was for standard products and
$516,000 was for research contracts. The backlog at June 28, 1997 was
approximately $13,754,000 of which $13,340,000 was for standard products and
$414,000 was for research contracts. The Company expects to complete all
standard product backlog during the next six months and all research contract
backlog during the next twelve months. The backlog figures exclude orders under
three supply agreements with major semiconductor capital equipment
manufacturers. These multi-year supply agreements, as well as certain government
contracts, typically provide for cancellation or modification with little or no
penalty. In addition, customers may push out deliveries, put firm orders on
hold, or cancel existing firm orders with little or no penalty.
EMPLOYEES
As of June 27, 1998, the Company employed 416 persons on a full-time, permanent
basis, and an additional 60 temporary employees. The Company employs 56 persons
in administration, 28 in sales and marketing, 77 in research and development and
255 in manufacturing. The Company believes that its relations with its employees
are satisfactory.
ITEM 2. FACILITIES
The Company occupies approximately 60,000 square feet of leased space in Woburn,
Massachusetts for its principal executive offices, research and development
center and manufacturing activities. This lease, amended to terminate on
June 30, 2000, contains further extension provisions allowing expansion up to
120,000 square feet in the Woburn area during the term of the lease. The current
rent for this facility is $45,279 per month, subject to increase as space is
added at the then current lease rate for the existing space and also subject to
annual adjustment for certain increases in the Consumer Price Index. ASTeX CPI
occupies approximately 31,000 square feet of leased space in Beverly,
Massachusetts. The Company has a five year lease on this facility which expires
in September, 2000, and which can be extended for an additional five years. The
current rent for this facility is $18,324 per month. The Company owns the 25,000
square feet of office, lab and manufacturing space of its ETO subsidiary located
in Colorado Springs, Colorado. The Company maintains office and manufacturing
facilities in Newton, Massachusetts in approximately 3,500 square feet of leased
space. This lease expires on June 30, 1999. The rent for this facility is $4,431
per month. The Company maintains office and manufacturing facilities in Modesto,
California in approximately 11,500 square feet of leased space. This lease will
be terminated effective November 9, 1998. The Company maintains a sales and
service office in 6,400 square feet of leased space in Santa Clara, California.
The rent for this space is $10,988 per month and the lease expires on December
1, 2000. The Company also leases approximately 9,700 square feet in Berlin,
Germany for $7,386 per month through March 31, 2001.
During Fiscal 1999, the Company's Beverly, Massachusetts and Modesto, California
facilities will be consolidated, primarily into the Woburn, Massachusetts
facility and secondarily into the Colorado facility.
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<PAGE> 12
ITEM 3. LITIGATION
The Company is not involved in any litigation of a material nature.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of Fiscal 1998 through the solicitation of proxies of otherwise.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Corporation's Common Stock is traded on the National Association of
Securities Dealers Automated Quotation System - National Market System
("NASDAQ/NMS") under the symbol "ASTX." On November 26, 1997, the Company
announced a 3-for-2 split of its Common Stock, which was distributed to
shareholders in the form of a stock dividend on December 12, 1997. All prior
period share amounts have been adjusted to reflect the stock split. On
September 22, 1998, the closing bid and ask prices for the Corporation's common
Stock as reported by NASDAQ/NMS were $4 1/2 and $4 5/8, respectively. As of
September 23, 1998, the Corporation had 179 holders of record on its Common
Stock. Management believes that there are approximately 2,100 beneficial owners
of its Common Stock.
For the periods indicated, the following table sets forth the high and low
closing sale prices for the Common Stock as reported by NASDAQ/NMS for July 1,
1996 through September 22, 1998. Such quotations represent interdealer
quotations without adjustment for retail markups, markdowns, or commissions and
may not represent actual transactions.
Sale
------------------
High Low
------- -------
1997
First Quarter $ 8.417 $ 5.167
Second Quarter 8.500 4.500
Third Quarter 9.750 5.833
Fourth Quarter 11.333 6.083
1998
First Quarter $15.583 $10.417
Second Quarter 18.333 9.750
Third Quarter 16.000 10.125
Fourth Quarter 17.250 7.625
1999
First Quarter (through September 22, 1998) $ 8.000 $ 3.938
11
<PAGE> 13
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
----------------------------------------------------------------------
YEARS ENDED 1998 1997 1996 1995 1994
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fiscal Year(1)
OPERATIONS:
Total revenue $83,436,135 $47,967,138 $ 39,135,596 $20,004,853 $13,357,471
Gross profit 28,449,528 17,409,904 15,771,626 8,191,621 6,109,033
Operating income (loss) 5,909,039 1,658,805 (6,077,763) 798,955 358,110
Net income (loss) 4,020,604 937,759 (7,296,775) 1,127,748 518,041
Diluted earnings (loss) per share $ 0.47 $ 0.14 $ (1.16) $ 0.19 $ 0.10
Weighted average common
shares outstanding 8,528,947 6,777,440 6,307,146 5,988,150 5,150,700
BALANCE SHEET:
Working Capital $28,570,499 $16,956,302 $ 19,216,542 $17,671,056 $19,697,944
Total assets 51,293,306 39,327,211 34,361,426 25,077,534 24,569,572
Total long-term debt - 6,368,913 6,169,517 - -
Total liabilities 7,492,652 15,838,211 13,065,618 3,183,770 2,465,829
Stockholders' equity $43,800,654 $23,489,010 $ 21,295,808 $21,893,764 $22,103,743
</TABLE>
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
---------------------------------------------------------
<S> <C> <C> <C> <C>
QUARTERLY 1998:
Total revenue $17,421,302 $22,439,794 $23,461,836 $20,113,203
Gross profit 6,474,017 8,229,818 8,207,417 5,538,276
Acquisition-related expenses - 212,423 - -
Operating income (loss) 1,677,048 2,098,987 2,251,572 (118,568)
Net income (loss) 1,154,950 1,274,835 1,577,521 13,298
Diluted earnings per share $ 0.14 $ 0.15 $ 0.18 $ -
QUARTERLY 1997:
Total revenue $ 9,860,340 $ 9,292,777 $11,012,532 $17,801,489
Gross profit 3,813,414 3,395,395 3,886,336 6,314,759
Acquisition-related expenses - - - 1,500,000
Operating income 535,696 461,072 658,483 3,554
Net income (loss) 311,916 279,588 390,399 (44,144)
Diluted earnings (loss) per share $ 0.05 $ 0.04 $ 0.06 $ (0.01)
</TABLE>
(1) The fiscal year ends for the periods presented are: June 27, 1998;
June 28, 1997; June 29, 1996; July 1, 1995; and July 2, 1994.
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<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table contains income and expenses from the consolidated
statements of operations for Fiscal 1998, 1997, and 1996 expressed as a
percentage of total revenue.
<TABLE>
<CAPTION>
Fiscal Year 1998 1997 1996
-------------------------------
<S> <C> <C> <C>
Total revenue 100.0% 100.0% 100.0%
Total cost of sales and revenue 65.9 63.7 59.7
-------------------------------
Gross profit margin 34.1 36.3 40.3
-------------------------------
Selling expenses 5.3 6.2 8.4
General and administrative expenses 8.0 8.2 9.7
Research and development expenses, net 13.5 15.3 12.9
Acquisition-related expenses 0.2 3.1 7.4
Write-off of goodwill 0.0 0.0 17.4
-------------------------------
Total operating expenses 27.0 32.8 55.8
-------------------------------
Earnings (loss) from operations 7.1 3.5 (15.5)
-------------------------------
Total other expense (income) (0.7) 0.4 (0.8)
-------------------------------
Earnings (loss) before income taxes 7.8 3.1 (14.7)
Income tax expense 3.0 1.1 3.9
-------------------------------
Net earnings (loss) 4.8% 2.0% (18.6)%
===============================
</TABLE>
FISCAL YEAR 1998 COMPARED TO FISCAL YEAR 1997
REVENUES
Total revenue increased by 74% for Fiscal 1998 to $83,436,000 compared to Fiscal
1997. This growth was a result of increased revenues from the acquisitions of
Converter Power, Inc. ("ASTeX CPI") in May 1997 and Sorbios GmbH ("ASTeX
Sorbios") in October 1997, increased sales to semiconductor capital equipment
customers, and increased sales of specialty power supplies. Semiconductor
related revenues, including revenues from ASTeX CPI and ASTeX Sorbios, increased
by $22,066,000 or 72% for Fiscal 1998 compared to Fiscal 1997 with the biggest
increase coming from sales of RF generators. Specialty power supply revenues,
including revenues from ASTeX CPI, increased by $13,587,000 or 104% for Fiscal
1998 compared to Fiscal 1997 with most of the growth due to the revenues from
ASTeX CPI. The ASTeX CPI and ASTeX Sorbios acquisitions added incremental sales
of $12,686,000 and $3,487,000 respectively compared to Fiscal 1997, or 19% of
total revenue. Without these acquisitions, revenues increased to $65,006,000
from $45,710,000, an increase of 42%.
Research contract revenue declined by $197,000 compared to Fiscal 1997. Other
revenue consisting of service, spare parts and repairs were approximately 6% of
total revenue in Fiscal 1998 and Fiscal 1997.
GROSS PROFIT
Gross profit increased by 63% to $28,450,000 in Fiscal 1998 compared to Fiscal
1997. Gross profit as a percent of total revenue decreased to 34% in Fiscal 1998
compared to 36% in Fiscal 1997, primarily due to the acquisition of ASTeX CPI
whose products have a lower gross margin than other products sold by the
Company. In addition, gross profit margins were impacted by volume declines in
the fourth quarter of Fiscal 1998, resulting in unabsorbed manufacturing costs.
The Company is consolidating
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<PAGE> 15
several manufacturing facilities in order to improve gross margins and reduce
fixed costs. In the first half of Fiscal 1999, the Company plans to consolidate
its Modesto, California facility into its Woburn, Massachusetts and Colorado
Springs, Colorado sites and its Beverly, Massachusetts facility into Woburn. The
Company expects to record one-time costs for these consolidations in the first
quarter of Fiscal 1999 of up to $1.6 million. The Company continues to seek to
develop and introduce products having higher gross margins and to focus on
improving manufacturing efficiencies and methods to improve gross profit
margins.
SELLING, GENERAL AND ADMINISTRATIVE
Selling expenses increased by 50% to $4,427,000 in Fiscal 1998, but decreased as
a percent of revenue to 5% from 6% in Fiscal 1997. Increased selling expenses
were primarily a result of the acquisitions of ASTeX CPI and ASTeX Sorbios.
General and administrative expenses were flat as a percent of revenue at 8%,
although total general and administrative expenses increased by 68% to
$6,648,000 compared to Fiscal 1997, primarily due to acquisitions.
RESEARCH AND DEVELOPMENT
Net research and development expenses decreased as a percent of sales to 14% in
Fiscal 1998 from 15% in Fiscal 1997. Net research and development expenses
increased by 53% to $11,253,000. Gross spending (total research and development
spending including funded joint development and the direct costs of research
contracts) increased by 42% to $11,605,000. ASTeX has developed and introduced a
number of new technology products including ASTRON for CVD chamber cleaning,
Liquozon for wafer cleaning, RF for HDP-CVD and new laser power supplies for
medical applications. The Company is committed to continued investments in
research and development in order to advance its position as a market and
technological leader.
As a part of the acquisition of ASTeX Sorbios in Fiscal 1998, a valuation
process was performed to establish the fair values of the assets acquired and
liabilities assumed. As part of this process, the Company incurred an expense of
$212,000 for in-process research and development. This compares with
acquisition-related expenses of $1,500,000 incurred with the acquisition of
ASTeX CPI in Fiscal 1997.
OPERATING INCOME
Operating income increased 256% to $5,909,000 or 7% of revenues in Fiscal 1998
compared to Fiscal 1997. Excluding one-time charges for acquisition-related
expenses in both years, operating income increased by $2,963,000 or 94%. The
increase in operating income is a result of increased sales and lower expenses
as a percent of revenue.
OTHER EXPENSES AND INCOME TAXES
Interest expense decreased 66% to $196,000 in Fiscal 1998 compared to Fiscal
1997, while interest income increased by 30% to $514,000 in Fiscal 1998 compared
to Fiscal 1997. The decrease in interest expense and the increase in interest
income is a result of conversion of warrants issued in connection with the
Company's IPO in November 1993. See Footnotes 6 and 11 of the Notes to
Consolidated Financial Statements. Other income increased by $241,000 in Fiscal
1998 compared to Fiscal 1997 due to the sale of an investment in Low Entropy
Systems, Inc., which resulted in a one-time gain of $250,000.
Income tax expense increased to $2,466,000 in Fiscal 1998 compared to $550,000
in Fiscal 1997.
FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996
REVENUES
14
<PAGE> 16
Total revenue increased by 23% for Fiscal 1997 to $47,967,000 compared to Fiscal
1996. This growth was the result of acquisitions as total sales to semiconductor
capital equipment customers were flat due to an industry downturn during the
first three quarters of Fiscal 1997. ASTeX ETO, acquired half-way though Fiscal
1996, provided most of the growth. Sales of specialty RF power sources for
medical applications increased by $7,300,000 in Fiscal 1997 over 1996. The
acquisition of ASTeX CPI, Inc. completed on May 9, 1997 added $2,257,000 of
revenue in Fiscal 1997.
Research contract revenue was approximately 2% of total revenue in both Fiscal
1997 and 1996. Other revenue consisting of service, spare parts and repairs
increased by 48% to $3,050,000 in Fiscal 1997, primarily due to ASTeX ETO which
obtains a larger fraction of its total revenues from this category.
GROSS PROFIT
Gross profit increased by $1,638,000 or 10% in Fiscal 1997 compared to Fiscal
1996. Gross profit as a percent of total revenue decreased from 40% in Fiscal
1996 to 36% in Fiscal 1997, primarily due to the acquisitions of ASTeX ETO and
ASTeX CPI whose products have lower gross margins than other product lines in
the Company. In addition, gross margins were negatively impacted by new product
introduction ramp-up costs, reduced volumes on existing products, and increased
inventory reserves.
SELLING, GENERAL AND ADMINISTRATIVE
Selling expenses decreased by 11% to $2,950,000 in Fiscal 1997 compared to
Fiscal 1996. Selling expenses decreased due to the consolidation of the
Company's semiconductor sales activities and a reduction in headcount,
promotional costs, and travel expenses compared to Fiscal 1996. General and
administrative expenses increased by 4% to $3,958,000 in Fiscal 1997 but
decreased as a percent of sales compared to Fiscal 1996. During Fiscal 1977
there was an additional six months of ASTeX ETO and two months of ASTeX CPI
general and administrative expenses compared to Fiscal 1996. Despite these
additions, cost reductions reduced the overall level of the increase.
RESEARCH AND DEVELOPMENT
Net research and development expenses increased by 46% to $7,343,000 in Fiscal
1997 compared to Fiscal 1996. Gross spending (total research and development
spending including funded joint development and the direct costs of research
contracts) increased by 27% to $8,700,000 in Fiscal 1997 compared to Fiscal
1996. The increased gross spending resulted in significant design wins during
the year and the introduction of three new products at year end.
A valuation process was performed in Fiscal 1997 in order to establish the fair
values of the CPI assets acquired and liabilities assumed. As part of this
process, the Company incurred an expense of $1,500,000 for in-process research
and development. This compares to acquisition-related expenses of $2,888,000
incurred in Fiscal 1996.
OPERATING INCOME
Operating income was $1,659,000 in Fiscal 1997 compared to a loss of $6,078,000
in Fiscal 1996. In the fourth quarter of Fiscal 1996, the Company recorded an
impairment of goodwill in the amount of $6,814,000 associated with the ASTeX ETO
acquisition. See Footnote 15 of the Notes to Consolidated Financial Statements.
Excluding one-time charges for acquisition-related expenses and the write-off of
goodwill, operating income in Fiscal 1997 would have been $3,159,000 or 7% of
total revenue compared to $3,624,000 or 9% of total revenue in Fiscal 1996. The
decrease in adjusted operating income is primarily due to the increased R&D
investment and lower gross margins in Fiscal 1997.
OTHER EXPENSE AND INCOME TAXES
Interest expense in Fiscal 1997 increased by 81% to $585,000 compared to
$324,000 in Fiscal 1996, while interest income in Fiscal 1997 decreased by 40%
to $396,000 compared to $659,000 in Fiscal
15
<PAGE> 17
1996. These changes were the result of the use of cash for the acquisitions of
ASTeX ETO and ASTeX CPI, and increased borrowings to fund these acquisitions.
Income tax expense was $550,000 in Fiscal 1997 compared to $1,541,000 in Fiscal
1996. In Fiscal 1996 the "expected" tax computed by applying the U.S. Federal
corporate income tax rate of 34% to earnings (loss) before income taxes was
increased by $3,378,000 due to one-time charges of goodwill amortization and
write-off and acquisition-related expenses which were not tax deductible. There
were no comparable costs in Fiscal 1997.
FOREIGN CURRENCY FLUCTUATIONS
The Company's foreign revenues are generally denominated in U.S. dollars. The
acquisition of ASTeX Sorbios GmbH increased the risk of foreign currency
fluctuations; however, significant ASTeX Sorbios business is conducted with U.S.
companies in dollars which reduces the foreign exchange fluctuation risk.
Foreign currency fluctuations have not had a significant impact on the
comparison of the results of operations for the periods presented. Over time, as
the Company seeks to expand its operations in Europe and the Far East, more
revenues may be denominated in foreign currencies, increasing the risks
associated with foreign currency fluctuations.
LIQUIDITY AND CAPITAL RESOURCES
At June 27, 1998, the Company had cash and short-term investments of $7,687,000
with working capital of $28,570,000 compared to June 28, 1997, when the company
had cash and long-term investments of $4,546,000 and working capital of
$16,956,000.
Footnote 12 of the Notes to Consolidated Financial Statements contains a summary
of recent acquisitions completed by the Company. These include Sorbios GmbH in
October 1997; CPI in May, 1997; ETO in January 1996; and NES in November 1995.
In November 1993, the Company completed an IPO and received net proceeds of
$15,920,000 through the sale of 2,550,075 shares of common stock at $7.17 per
share and 1,955,000 five-year redeemable warrants at $0.10 per warrant. On
September 3, 1997 the Company announced that it had met the requirements for the
redemption of its redeemable warrants and called the warrants for redemption.
Net proceeds to the Company as a result of the conversion of warrants to common
stock were $15,234,000. The proceeds were used to repay all bank debt, to
complete the ASTeX Sorbios acquisition, and increase working capital. See
Footnote 6 of the Notes to Consolidated Financial Statements.
In October 1995 the Company purchased $250,000 of Series A Convertible Preferred
Stock of Low Entropy Systems, Inc. ("LES"). In August, 1997, the Company sold
all of its shares of LES to Balzers and Leybold U.S. Holding, Inc. for $500,000.
During Fiscal 1998, the Company generated $2,506,000 in net cash flows from
operating activities and used a net $4,908,000 for investing activities. Cash
used for investing activities consisted of $3,683,000 for the acquisition of
Sorbios GmbH, $3,024,000 for additions to property, equipment, and patents,
offset by sales of $1,299,000 in investments (primarily commercial paper and
government treasury bills) and $500,000 from the sale of the Company's
investment in LES. The Company's cash flows from financing activities consisted
primarily of repayment of bank debt for $9,173,000 and proceeds from issuance of
common stock for $16,098,000 which was primarily from the redemption of warrants
and exercise of stock options by employees.
During Fiscal 1997, the Company generated $4,386,000 in net cash flows from
operating activities and used a net $7,018,000 for investing activities. Cash
used for investing activities consisted of $6,483,000 for the acquisition of
ASTeX CPI, $1,087,000 for additions to property, equipment, and patents, and
$1,299,000 for the purchase of investments, offset by $1,991,000 from sales of
investments. Investments are primarily commercial paper and government treasury
bills. The Company's cash flows from financing activities consisted primarily of
proceeds from notes payable of $4,983,000 offset by note repayments of
$4,584,000 and proceeds of $290,000 from issuance of common stock which was
16
<PAGE> 18
primarily due to exercise of employee stock options. The proceeds from notes
payable resulted from additional borrowings for the acquisition of ASTeX CPI,
while the repayments were primarily a result of debt restructuring for the
acquisition.
During Fiscal 1996, the Company generated $719,000 in net cash flows from
operating activities and used a net $7,228,000 for investing activities. Cash
used for investing activities consisted of $12,318,000 for the acquisition of
ASTeX ETO less cash acquired with the acquisitions of ASTeX ETO and ASTeX NES,
$2,895,000 for additions to property, equipment, and patents, $250,000 for the
purchase of an equity investment in LES, and $3,006,000 for the purchase of
investments, offset by sales of $11,242,000 in investments. Investments were
primarily commercial paper and government treasury bills. The Company's cash
flows from financing activities consisted primarily of proceeds from two notes
payable for $8,000,000 used in the acquisition of ASTeX ETO and $1,999,000 from
issuance of common stock which was primarily due to exercise of investor
warrants and exercise of employee stock options, offset by $689,000 of note
repayments.
The Company has a credit facility with State Street Bank and Trust Company which
consists of an $8,000,000 unsecured demand line of credit with interest at the
bank's prime rate. See Footnote 10 of the Notes to Consolidated Financial
Statements. This facility is subject to the Company meeting certain financial
covenants which are tested quarterly. The Company is currently in compliance
with all covenants. There were no outstanding borrowings as of the date of this
report, and as of June 27, 1998 and June 28, 1997. The line of credit expires in
May 2000.
The Company continues to use its cash resources for developing new products,
expanding sales and marketing, performing collaborative product development
projects, and for general working capital. The Company continues to seek joint
ventures and/or acquisitions that will enhance the Company's position in its
markets with the potential to increase revenue growth and profitability. The
Company has issued a letter of intent to acquire certain assets and assume
certain liabilities of a U.S. technology company for approximately $1,800,000 to
be paid in a combination of cash and/or ASTeX stock. This transaction is subject
to adjustment and is expected to be completed in late 1998. The Company has
adequate financial resources to complete this acquisition within its existing
credit facility. See Footnote 17 of the Notes to Consolidated Financial
Statements.
Management believes that existing cash resources, investments, anticipated cash
flows from operations and its credit facility will be sufficient to meet planned
operating expenses and working capital requirements for a period of at least the
next 12 months. The Company may seek to raise additional capital for
acquisitions and for other corporate purposes, although no specific financing is
planned at this time.
NEW ACCOUNTING PRONOUNCEMENTS
In Fiscal 1999 and 2000, the Company will be required to adopt several new
accounting pronouncements. See Footnote 19 of the Notes to Consolidated
Financial Statements.
FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by the Company or statements made by its
employees may contain "forward-looking" information which involve risks and
uncertainties. In particular, statements contained in the Management's
Discussion and Analysis of Financial Condition and Results of Operations which
are not historical facts (including, but not limited to, statements concerning
anticipated operating expense levels, gross margin estimates and the
availability of funds to meet cash requirements) may be "forward-looking"
statements. The Company's actual future results may differ significantly from
those stated in any forward-looking statements. Factors that may cause such
differences include, but are not limited to, the factors discussed below and the
accuracy of the Company's internal estimates of revenue and operating expense
levels.
17
<PAGE> 19
CUSTOMER CONCENTRATION
Relatively few customers account for a substantial portion of the Company's
revenues. Sales to the Company's ten largest customers in Fiscal Years 1998,
1997, 1996 accounted for 72%, 76%, and 77% of revenues, respectively. In Fiscal
Years 1998, 1997, 1996, sales to Applied Materials, the Company's largest
customer in each of these periods, accounted for approximately 40%, 38% and 45%
of the Company's revenues, respectively. The Company expects that sales to
Applied Materials will continue to represent a significant portion of the
Company's revenues for the foreseeable future, although the acquisitions of
ASTeX Sorbios and ASTeX CPI are expected to provide some reduction on the
reliance on Applied Materials. Although a number of the Company's customers do
enter into long-term supply agreements, these agreements typically allow the
customer to cancel orders with limited penalties. A reduction or delay in orders
from Applied Materials or other significant customers, including reductions or
delays due to market, economic or competitive conditions in the semiconductor
industry, could have a material adverse effect on the Company's future financial
condition, revenues and operating results.
DEPENDENCE ON CYCLICAL INDUSTRIES
The Company's business is significantly dependent on capital expenditures by
manufacturers of semiconductors. The semiconductor industry is highly cyclical
and historically has experienced periods of oversupply, resulting in
significantly reduced demands for capital equipment, including the products
manufactured and marketed by the Company. The Company's future financial
condition, revenues and operating results may be materially adversely affected
by semiconductor industry downturns or slowdowns. The semiconductor industry
currently has excess capacity for most types of devices, which has caused
semiconductor manufacturers to significantly decrease their levels of capital
spending. In the personal computer market, a shift in demand from more
expensive, high performance computers to lower-priced models has resulted in
reduced profitability for semiconductor manufacturers, resulting in delays and
further decreases in capital spending. The Company anticipates that at least the
first half of Fiscal 1999 will be adversely affected by the current
semiconductor capital equipment downturn as a result of these factors. The
Company is restructuring its operations, reducing its workforce and
consolidating several facilities to reduce its fixed costs, and will incur
consolidation costs as discussed above under the gross profit comparison of
Fiscal 1998 to 1997. Continued overcapacity in the semiconductor industry and
strengthening demand for lower-priced computers could cause continued weakness
in demand for the Company's products.
RELIANCE ON OEM CUSTOMERS; LENGTHY SALES CYCLE
The Company's products are primarily sold to OEMs which incorporate the
Company's products into their equipment. Due to the significant capital
commitments usually incurred by semiconductor manufacturers in their purchase of
the OEM's equipment, these manufacturers demand highly reliable products which
require as long as several years for OEMs to develop. The Company's revenues are
therefore primarily dependent upon the timing and effectiveness of the efforts
of its OEM customers in developing and marketing equipment incorporating the
Company's products. There can be no assurance that any equipment incorporating
the Company's products will be marketed successfully by the Company's customers.
ASIAN ECONOMIES
Asian countries are having economic difficulties that are causing economic
slowdowns or recessions in those countries. The region does not appear to be
responding to efforts to stimulate its economies. Asia has historically been an
important region for the semiconductor capital equipment industry. If these
economies do not recover in the near future, the recovery in the semiconductor
capital equipment industry may be extended in time or reduced in scale. The
economic difficulties of these countries could also have a negative impact on
the economies of the U.S. and Europe, leading to further declines in demand for
the Company's products.
JAPANESE MARKET
The Japanese semiconductor equipment markets are large and difficult for foreign
companies to penetrate. The Company believes that increasing its penetration of
the Japanese market is important to its
18
<PAGE> 20
business, and that it is currently at a competitive disadvantage to Japanese
suppliers, many of which have long-standing collaborative relationships with
Japanese semiconductor process equipment manufactures. Moreover, the Company's
ability to compete effectively in the Japanese markets may be limited by the
Company's size and its geographic location. Although the Company intends to
expand its direct presence in Japan, there can be no assurance that the Company
will be able to achieve significant sales to, or compete successfully in, Japan.
FOREIGN REVENUES
The Company does business worldwide, both directly and via sales to United
States-based OEMs who sell such products internationally. In Fiscal Years 1998,
1997, and 1996, foreign revenues accounted for 23%, 21% and 19%, respectively,
of the Company's revenues. The Company anticipates that foreign revenues will
continue to account for a significant percentage of revenues, which will result
in a significant portion of the Company's revenues and operating results being
subject to risks associated with foreign revenues, including United States and
foreign regulatory and policy changes, political and economic instability,
difficulties in accounts receivable collection, difficulties in managing
representatives, and foreign currency fluctuations.
HIGHLY COMPETITIVE INDUSTRY
The markets for the Company's products are highly competitive and subject to
rapid technological changes. A number of the Company's current and potential
competitors have substantially greater resources than the Company. There can be
no assurance that the Company will be successful in selling its products to
OEMs, regardless of the performance or the price of the Company's products.
Competitors may develop superior products or products of similar quality at the
same or lower prices. Other technical innovations may impair the Company's
ability to market its products. There can be no assurance that the Company will
be able to compete successfully.
NEW PRODUCTS AND TECHNOLOGICAL CHANGE
The semiconductor manufacturing industry has been characterized by rapid
technological change and evolving industry requirements and standards. The
Company believes that these trends will continue into the foreseeable future.
The Company's success will depend upon its ability to enhance its existing
products and to develop new products that meet customer requirements and achieve
market acceptance. There can be no assurance that the Company will be successful
in introducing products or product enhancements on a timely basis, if at all, or
that the Company will be able to market successfully these products and product
enhancements once developed. Further, there can be no assurance that the
Company's products will not be rendered obsolete by new industry standards or
changing technology.
MANAGEMENT OF GROWTH AND CONSOLIDATION
The Company has recently gone though a period of rapid growth and is now going
through a period of consolidation. Due to the level of technical and marketing
expertise necessary to support its existing and new customers, the Company must
attract and retain highly qualified and well-trained personnel. There can be
only a limited number of persons with the requisite skills to serve in these
positions and it may become increasingly difficult for the Company to hire and
retain such personnel. The Company's expansion and contraction may also
significantly strain the Company's management, manufacturing, financial and
other resources. There can be no assurance that the Company's systems,
procedures, controls and existing space will be adequate to support the
Company's operations. Failure to manage the Company's growth properly could have
a material adverse effect on the Company's future financial condition, revenues
and operating results.
QUARTERLY FLUCTUATIONS IN OPERATING RESULTS AND MARKET PRICE OF SECURITIES
The Company's quarterly operating results may vary significantly from quarter to
quarter depending on factors such as economic conditions in the semiconductor
industry, the timing of significant orders and shipments of its products,
changes and delays in product development, new product introductions by the
19
<PAGE> 21
Company and its competitors, the mix of products sold by the Company and
competitive pricing pressures. Additionally, a number of the Company's microwave
plasma processing and diamond deposition systems have high selling prices. As a
result, quarterly variations in systems sales could significantly affect the
Company's operating results. Moreover, customers may cancel or reschedule
shipments and production difficulties could delay shipments. These factors could
have a material adverse effect on the Company's future financial condition,
revenues and operating results.
The marketing price of the Company's securities could also be subject to wide
fluctuations in response to quarter-to-quarter variations in operating results,
changes in earnings estimates by analysts, market conditions in the
semiconductor industry, as well as general economic conditions and other factors
external to the Company.
EFFECTS OF INFLATION
The Company believes that, over the past three years, inflation has not had a
significant impact on the Company's revenues or operating results.
YEAR 2000 DISCLOSURE
The Company believes that its financial reporting and enterprise resource
planning ("ERP") systems will be Year 2000 compliant by December 1998. The
Company is currently in the process of updating its financial reporting and ERP
systems with SAP R/3, which has been represented as being Year 2000 compliant by
its producer. ASTeX is currently using SAP R/3 in its major facility in Woburn,
MA. The consolidations of AGL and ASTeX CPI into Woburn will remove the
requirement for these locations to implement new software packages. The current
ERP software packages used by ASTeX ETO, Solomon and MAX, are represented as
being Year 2000 compliant. The current software package used by ASTeX Sorbios is
not Year 2000 compliant. The Company intends to purchase an upgrade that is
represented as being Year 2000 compliant and will implement this by December
1998. Other software used by the Company is generally certified by the vendor as
Year 2000 compliant or is not considered critical to the operations of the
Company.
The Company has spent approximately $1,059,000 in Fiscal 1998 on SAP R/3
software, hardware, consultants and internal costs. The Company plans future SAP
R/3 implementation expenditures of approximately $300,000 during the next one to
two years. Although the Company believes its future SAP R/3 implementation cost
estimates to be accurate, the Company can not provide any assurance that these
costs will not increase or that the implementations will occur by the dates
estimated. The source of funds for the Fiscal 1998 expenditures was current
operating cash flows and the Company expects that future operating cash flows
will be the source of funds for these expenditures in the future.
The Company has not yet addressed the Year 2000 preparedness of its critical
suppliers and its major customers and related electronic data interfaces with
these third parties. During the coming year the Company will contact critical
suppliers and major customers to determine whether they are, or will be,
compliant by the Year 2000. The Company expects to complete its assessment by
the end of Fiscal 1999. Based upon this evaluation, the Company will seek new
vendors where necessary and formulate contingency plans to resolve
customer-related issues that may arise. At this time the Company can not
estimate the impact that noncompliant suppliers and customers may have on the
Company or its level of operations in the Year 2000.
Although the Company has not made a systematic review of its products in
operation at customer locations, it believes that a number of diamond deposition
systems may not be Year 2000 compliant. Over the coming year, the Company plans
to identify noncompliant product and offer to make all necessary modifications
to make them compliant. Additional noncompliant products could be identified
during this process. Because a formal identification program has not been
completed, the Company is unable to estimate the cost that will be incurred to
remediate Year 2000 problems related to noncompliant products that are in
operations at customer locations.
20
<PAGE> 22
During the current year the Company will also conduct a review of its
manufacturing equipment and facilities to ensure Year 2000 compliance. Based on
its initial assessment, the Company does not anticipate that a material Year
2000 issue will be discovered in this area.
The Company will also formulate testing and contingency plans that will enable
it to detect and effectively deal with problems that may arise as a result of
Year 2000 noncompliance. Because these reviews and testing have not been
completed, the Company is unable to estimate the total cost associated with
addressing the Year 2000, nor what its liabilities to third parties may be as a
result of Year 2000 issues.
At this time, the Company cannot give any assurance that it will be successful
in completing its planned actions to become Year 2000 compliant on or before the
Year 2000. Additionally, no assurance can be given that instances of
noncompliance which could have a material adverse effect on the Company's
operations or financial condition will be identified; that the systems of other
companies with which the Company transacts business will be corrected on a
timely basis; that a failure by such entities to correct a Year 2000 problem or
a conversion which is incompatible with the Company's systems would not have a
material adverse effect on the Company's operations or financial condition; or
that even if all planned actions are completed, the Company will not experience
some adverse effects from Year 2000 related issues.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
ITEM 8. FINANCIAL STATEMENTS
The following financial statements are filed as part of this report:
PAGE
Independent Auditors' Report F-2
Consolidated Balance Sheets as of June 27, 1998 and June 28, 1997 F-3
Consolidated Statements of Operations for the Years Ended
June 27, 1998, June 28, 1997, and June 29, 1996 F-4
Consolidated Statements of Stockholders' Equity for the Years Ended
June 27, 1998, June 28, 1997, and June 29, 1996 F-5
Consolidated Statements of Cash Flows for the Years Ended
June 27, 1998, June 28, 1997, and June 29, 1996 F-6
Notes on Consolidated Financial Statements F-8
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not Applicable
21
<PAGE> 23
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
The response to this item is incorporated by reference from the
discussion responsive thereto under the captions "Election of Directors" and
"Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the
Company's Proxy Statement for the 1998 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The response to this item is incorporated by reference from the
discussion responsive thereto under the caption "Executive Compensation" in
the Company's Proxy Statement for the 1998 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this item is incorporated by reference from the
discussion responsive thereto under the caption "Beneficial Ownership of
Common Stock" in the Company's Proxy Statement for the 1998 Annual Meeting of
Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) FINANCIAL STATEMENTS:
The list of financial statements required by this item is set forth in
Item 8 "Consolidated Financial Statements and Supplementary Data" and
is incorporated herein by reference.
(2) FINANCIAL STATEMENT SCHEDULE:
All schedules are omitted because they are inapplicable, not required,
or the information is included elsewhere in the Consolidated Financial
Statements or Notes thereto.
(3) EXHIBITS
(i) The following exhibits are filed herewith or incorporated by
reference as indicated below:
EXHIBIT
NO. TITLE
- ------- -----
10a Key Employee Agreement for Jill Maunder, dated as of February 2, 1998.
10b Key Employee Agreement for Avishay Katz, dated as of May 14, 1998.
21 Revised List of Subsidiaries.
23 Consent of KPMG Peat Marwick LLP.
27 Financial Data Schedule.
(ii) The following exhibits were filed as part of the Company's Annual
Report on Form 10-K for the year ended June 28, 1997, filed with the Commission
on September 26, 1997, and are incorporated herein by reference:
EXHIBIT
NO. TITLE
- ------- -----
10a** 1993 Stock Option Plan, as amended.
10b** Form of Amended Key Employee Agreement for Dr. Richard S. Post, dated
as of July 1, 1996.
10c** Form of Amended Key Employee Agreement for Dr. Donald K. Smith, dated
as of July 1, 1996.
10d** Form of Amended Key Employee Agreement for John M. Tarrh, dated as of
July 1, 1996.
10e** Form of Key Employee Agreement for Brian R. Chisholm, dated November
26, 1996.
10f** Form of Key Employee Agreement for Michael DeLuca, dated May 1, 1997.
(iii) The following exhibits were filed as part of the Company's
Current Report on Form 8-K filed with the Commission on May 23, 1997, reporting
that the Company acquired substantially all of the assets of Converter Power,
Inc. and are incorporated herein by reference:
22
<PAGE> 24
EXHIBIT
NO. TITLE
- ------- -----
10a Asset Purchase Agreement, dated as of May 9, 1997 by and among the
Company, ASTeX/CPI Acquisition Corp., Converter Power, Inc. and ILC
Technology, Inc.
10b Assignment and Assumption Agreement, dated as of May 9, 1997, by and
among ILC Technology, Inc. and ASTeX/CPI Acquisition Corp.
10c Warranty Bill of Sale dated as of May 9, 1997.
10d $8,000,000 Unsecured Committed Revolver Loan Agreement between the
Company and State Street Bank and Trust Company.
10e $8,000,000 Unsecured Committed Revolver Promissory Note from the
Company to State Street Bank and Trust Company.
10f Term Loan Agreement ($4,983,051).
10g Term Loan Agreement ($4,983,051).
(iv) The following exhibits were filed as part of the Company's Current
Report on Form 8-K filed with the Commission on December 29, 1995 in connection
with the acquisition of Ehrhorn Technological Operations, Inc., and are
incorporated herein by reference:
EXHIBIT
NO. TITLE
- ------- -----
2 Agreement and Plan of Merger by and among Applied Science and
Technology, Inc., ASTeX/ETO Acquisition Corp., and Ehrhorn
Technological Operations, Inc., dated December 29, 1995.
10a Escrow Agreement among Richard W. Ehrhorn, Tony Christianson, James
L. Marvin, Applied Science and Technology, Inc., and State Street
Bank and Trust Company, dated December 29, 1995.
10c Supplemental Indemnification Agreement by and among Applied Science
and Technology, Inc. and Certain Principal Stockholders of Ehrhorn
Technological Operations, Inc., dated December 29, 1995.
(v) The following exhibit was filed as part of the Company's Annual
Report on Form 10-K for the year ended July 1, 1995, filed with the Commission
on September 28, 1995, and is incorporated herein by reference:
EXHIBIT
NO. TITLE
- ------- -----
10l(3) Extension to the Massachusetts lease, dated June 23, 1995.
(vi) The following exhibits were filed as part of the Company's
Form SB-2 Registration Statement (Number 33-69098-B) declared effective by the
Commission on November 9, 1993, and are incorporated by reference herein:
23
<PAGE> 25
EXHIBIT
NO. TITLE
- ------- -----
3a Certificate of Incorporation, as amended, dated July 1, 1992.
3b Certificate of Amendment of Certificate of Incorporation, dated
September 1, 1993.
3c Bylaws, as amended.
4a Specimen Common Stock Certificate.
4b Form of Warrant Agreement, including Form of Warrant Certificate.
4c Form of Representative's Warrant Agreement, including Form of
Representative's Warrant Certificate.
+10a Master Purchase Order and Sales Agreement between the Company and
Applied Materials, Inc., dated May 28, 1993, (the "Applied
Agreement"). Attached as Appendix A to the Applied Agreement is an
Intellectual Property Agreement by and between the Company and
Applied Materials, Inc.
10f Form of Consulting Agreement between the Company and Outside
Consultants.
10g Form of Employee Agreement between the Company and Non-executive
Employees.
10h Form of Employment Agreement between ASTeX/Gerling and Non-executive
Employees.
10k Form of Confidentiality Agreement between the Company and Customers,
Suppliers and Vendors.
101(1) Lease for premises at 35 Cabot Road, Woburn, Massachusetts, dated
February 10, 1989, (the "Massachusetts Lease").
10m Lease for the premises at 1132 Doker Drive, Modesto, California,
dated January 31, 1992.
10n** 1987 Stock Option Plan.
+10t Purchase Agreement by and between the Company and GaSonics
Corporation, dated September 24, 1993.
- ------------------------
+ Certain information withheld and filed separately with the Commission
pursuant to a request for confidential treatment.
** These exhibits relate to executive compensation plans and arrangements
required to be filed as an exhibit to this form pursuant to Item 14(c) of
Form 10-K.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the last
quarter of the fiscal year ended June 27, 1998.
(c) Exhibits. The Company hereby files as exhibits to this Annual Report on
Form 10-K those exhibits listed in Item 14(a)(3) above.
(d) Financial Statement Schedules. See Item 14(a)(2) above.
24
<PAGE> 26
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
APPLIED SCIENCE AND TECHNOLOGY, INC.
Date: September 25, 1998 By: /s/ Richard S. Post
--------------------------------
Richard S. Post
President
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Name Capacity Date
- ---- -------- ----
/s/ Richard S. Post Chairman of the Board, Chief September 25, 1998
- ------------------------ Executive Officer and President
Richard S. Post (principal executive officer)
/s/ John M. Tarrh Chief Financial Officer, Senior September 25, 1998
- ------------------------ Vice President of Finance
John M. Tarrh (principal financial and accounting
officer) and Director
/s/ Donald K. Smith Director September 25, 1998
- ------------------------
Donald K. Smith
/s/ John R. Bertucci Director September 25, 1998
- ------------------------
John R. Bertucci
/s/ Michel de Beaumont Director September 25, 1998
- ------------------------
Michel de Beaumont
/s/ Robert R. Anderson Director September 25, 1998
- ------------------------
Robert R. Anderson
/s/ Hans-Jochen Kahl Director September 25, 1998
- ------------------------
Hans-Jochen Kahl
25
<PAGE> 27
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Financial Statements
June 27, 1998 and June 28, 1997
(With Independent Auditors' Report Thereon)
F-1
<PAGE> 28
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Applied Science and Technology, Inc.:
We have audited the accompanying consolidated balance sheets of Applied Science
and Technology, Inc. and subsidiaries as of June 27, 1998 and June 28, 1997, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended June 27, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Applied Science and
Technology, Inc. and subsidiaries as of June 27, 1998 and June 28, 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended June 27, 1998, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
July 25, 1998
F-2
<PAGE> 29
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
JUNE 27, JUNE 28,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,686,805 $ 3,246,337
Trade receivables, net (notes 2, 3 and 9) 12,734,381 11,915,919
Inventories (note 4) 13,737,212 10,013,422
Prepaid expenses and other assets 548,709 276,682
Deferred income taxes (note 7) 1,356,044 895,237
------------ ------------
Total current assets 36,063,151 26,347,597
------------ ------------
Property and equipment:
Land 473,000 473,000
Building 1,643,072 1,621,469
Equipment 11,107,731 7,871,718
Furniture and fixtures 1,032,497 741,143
Leasehold improvements 2,228,246 1,946,800
------------ ------------
16,484,546 12,654,130
Less accumulated depreciation and amortization (7,960,282) (5,150,881)
------------ ------------
Net property and equipment 8,524,264 7,503,249
------------ ------------
Other assets:
Patents, net 1,095,090 148,794
Goodwill, net of accumulated amortization of
$471,252 and $55,282 in 1998 and 1997,
respectively (notes 12 and 15) 4,042,031 3,261,652
Long-term investments -- 1,299,545
Deferred income taxes (note 7) 1,099,998 --
Notes receivable, less current maturities
(notes 3 and 13) 468,772 383,080
Other, net -- 383,304
------------ ------------
Total other assets 6,705,891 5,476,375
------------ ------------
$ 51,293,306 $ 39,327,221
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt (note 11) $ -- $ 1,824,397
Accounts payable 3,011,798 3,869,521
Accrued expenses 1,935,229 1,374,635
Accrued compensation expense and related costs 1,993,027 1,448,928
Accrued income taxes 293,444 647,142
Commissions payable and customer advances 259,154 226,672
------------ ------------
Total current liabilities 7,492,652 9,391,295
------------ ------------
Long-term debt, less current maturities (note 11) -- 6,368,913
Deferred income taxes (note 7) -- 78,003
------------ ------------
Total liabilities 7,492,652 15,838,211
------------ ------------
Commitments and contingencies (notes 5, 10 and 17)
Stockholders' equity (notes 6 and 12):
Common stock 86,065 67,785
Additional paid-in capital 44,193,116 27,837,250
Accumulated deficit (247,095) (4,267,699)
Less: Notes receivable for common stock purchases (148,326) (148,326)
Cumulative translation adjustment (83,106) --
------------ ------------
Total stockholders' equity 43,800,654 23,489,010
------------ ------------
$ 51,293,306 $ 39,327,221
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 30
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------------
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Product sales, net $77,958,080 $43,934,476 $36,175,388
Research contract revenue 785,607 982,383 894,517
Other revenue 4,692,448 3,050,279 2,065,691
----------- ----------- -----------
Total revenue (note 9) 83,436,135 47,967,138 39,135,596
----------- ----------- -----------
Cost of sales and revenue:
Product sales and other revenues 54,563,883 30,052,877 22,924,311
Research contracts 422,724 504,357 439,659
----------- ----------- -----------
Total cost of sales and revenue 54,986,607 30,557,234 23,363,970
----------- ----------- -----------
Gross profit 28,449,528 17,409,904 15,771,626
----------- ----------- -----------
Operating expenses:
Selling expenses 4,426,521 2,950,117 3,297,664
General and administrative expenses 6,648,055 3,957,792 3,807,327
Research and development expenses, net (note 1) 11,253,490 7,343,190 5,043,189
Acquisition-related expenses (note 12) 212,423 1,500,000 2,887,647
Write-off of goodwill (note 15) -- -- 6,813,562
----------- ----------- -----------
Total operating expenses 22,540,489 15,751,099 21,849,389
----------- ----------- -----------
Earnings (loss) from operations 5,909,039 1,658,805 (6,077,763)
----------- ----------- -----------
Other expense (income):
Interest expense 196,392 585,462 323,510
Interest income (514,363) (396,114) (659,066)
Other expense (income) (259,594) (18,302) 13,568
----------- ----------- -----------
Total other expense (income) (577,565) 171,046 (321,988)
----------- ----------- -----------
Earnings (loss) before income taxes 6,486,604 1,487,759 (5,755,775)
Income tax expense (note 7) 2,466,000 550,000 1,541,000
----------- ----------- -----------
Net earnings (loss) $ 4,020,604 $ 937,759 $(7,296,775)
=========== =========== ===========
Basic earnings (loss) per share $ 0.50 $ 0.14 $ (1.16)
=========== =========== ===========
Diluted earnings (loss) per share $ 0.47 $ 0.14 $ (1.16)
=========== =========== ===========
Weighted average common shares outstanding used to
calculate basic earnings (loss) per share 8,052,926 6,686,253 6,307,146
=========== =========== ===========
Weighted average common shares outstanding used to
calculate fully diluted earnings (loss) per share 8,528,947 6,777,440 6,307,146
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 31
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended June 27, 1998, June 28, 1997 and June 29, 1996
<TABLE>
<CAPTION>
RETAINED
PREFERRED STOCK COMMON STOCK ADDITIONAL EARNINGS
--------------- -------------------- PAID-IN (ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT)
------ ------ ---------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at July 1, 1995 -- $ -- 6,545,591 $65,456 $21,258,110 $ 2,091,317
Retirement of treasury stock -- -- (760,460) (7,604) (1,439,015) --
Repayment of notes receivable -- -- -- -- -- --
Issuance of notes receivable -- -- 27,000 270 236,480 --
Exercise of stock options and warrants -- -- 350,381 3,504 1,995,229 --
Tax benefit of stock options exercised -- -- -- -- 284,101 --
Stock issued in connection with
acquisitions (note 12) -- -- 510,051 5,100 4,332,961 --
Net loss -- -- -- -- -- (7,296,775)
------ ------ --------- ------- ----------- -----------
Balance at June 29, 1996 -- -- 6,672,563 66,726 26,667,866 (5,205,458)
Repayment of notes receivable -- -- -- -- -- --
Canceled stock in exchange for
cancelation of note receivable -- -- (7,500) (75) (77,425) --
Exercise of stock options -- -- 52,964 530 289,146 --
Tax benefit of stock options exercised -- -- -- -- 62,242 --
Stock issued in connection with
acquisition (note 12) -- -- 60,482 604 895,421 --
Net earnings -- -- -- -- -- 937,759
------ ------ --------- ------- ----------- -----------
Balance at June 28, 1997 -- -- 6,778,509 67,785 27,837,250 (4,267,699)
Exercise of stock options and warrants (note 6) -- -- 1,827,954 18,280 16,079,566 --
Tax benefit of stock options exercised -- -- -- -- 276,300 --
Cumulative translation adjustment -- -- -- -- -- --
Net earnings -- -- -- -- -- 4,020,604
------ ------ --------- ------- ----------- -----------
Balance at June 27, 1998 -- $ -- 8,606,463 $86,065 $44,193,116 $ (247,095)
====== ====== ========= ======= =========== ===========
NOTES
TREASURY STOCK RECEIVABLE FOR CUMULATIVE TOTAL
------------------------ COMMON STOCK TRANSLATION STOCKHOLDERS'
SHARES AMOUNT PURCHASES ADJUSTMENT EQUITY
--------- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at July 1, 1995 760,460 $(1,446,619) $ (74,500) $ -- $21,893,764
Retirement of treasury stock (760,460) 1,446,619 -- -- --
Repayment of notes receivable -- -- 77,924 -- 77,924
Issuance of notes receivable -- -- (236,750) -- --
Exercise of stock options and warrants -- -- -- -- 1,998,733
Tax benefit of stock options exercised -- -- -- -- 284,101
Stock issued in connection with
acquisitions (note 12) -- -- -- -- 4,338,061
Net loss -- -- -- -- (7,296,775)
-------- ----------- ------------ -------- -----------
Balance at June 29, 1996 -- -- (233,326) -- 21,295,808
Repayment of notes receivable -- -- 7,500 -- 7,500
Canceled stock in exchange for
cancelation of note receivable -- -- 77,500 -- --
Exercise of stock options -- -- -- -- 289,676
Tax benefit of stock options exercised -- -- -- -- 62,242
Stock issued in connection with
acquisition (note 12) -- -- -- -- 896,025
Net earnings -- -- -- -- 937,759
-------- ----------- ------------ -------- -----------
Balance at June 28, 1997 -- -- (148,326) -- 23,489,010
Exercise of stock options and warrants (note 6) -- -- -- -- 16,097,846
Tax benefit of stock options exercised -- -- -- -- 276,300
Cumulative translation adjustment -- -- -- (83,106) (83,106)
Net earnings -- -- -- -- 4,020,604
-------- ----------- ------------ -------- -----------
Balance at June 27, 1998 -- $ -- $(148,326) $(83,106) $43,800,654
======== =========== ============ ======== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 32
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------------
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
------------ ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 4,020,604 $ 937,759 $ (7,296,775)
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation 2,194,319 1,824,739 1,335,634
Amortization and goodwill write-off 548,390 117,164 7,129,418
Acquisition-related expenses 212,423 1,500,000 2,203,000
Deferred income taxes 37,000 (439,000) (143,000)
Gain on sale of assets (191,842) -- --
Equipment transferred to inventories -- 114,419 --
Changes in assets and liabilities:
Trade receivables 44,702 (1,739,367) (1,112,739)
Inventories (2,754,271) 146,391 (1,117,125)
Prepaid expenses and other assets (271,853) 41,036 474,325
Notes receivable 231,617 373,304 154,524
Accounts payable (1,896,906) 785,299 (76,810)
Accrued expenses 409,675 188,022 (1,060,162)
Accrued income taxes (77,398) 536,205 228,445
------------ ----------- ------------
Net cash provided by operating activities 2,506,460 4,385,971 718,735
------------ ----------- ------------
Cash flows from investing activities:
Acquisitions of subsidiaries, less cash acquired (3,682,639) (6,482,933) (12,318,331)
Purchases of investments (339) (1,299,102) (3,006,211)
Proceeds from sales of investments 1,799,545 1,990,519 11,241,904
Additions to property and equipment (2,999,148) (1,029,908) (2,812,968)
Patent costs (24,943) (57,005) (81,974)
Investment in other assets -- (139,827) (250,000)
------------ ----------- ------------
Net cash used for investing activities (4,907,524) (7,018,256) (7,227,580)
------------ ----------- ------------
Cash flows from financing activities:
Proceeds from notes payable -- 4,983,050 8,000,000
Repayments of notes payable (9,173,208) (4,583,898) (689,163)
Repayment of notes receivable for common
stock purchases -- 7,500 77,924
Net proceeds from issuance of common stock 16,097,846 289,676 1,998,733
------------ ----------- ------------
Net cash provided by financing activities 6,924,638 696,328 9,387,494
------------ ----------- ------------
Effect of exchange rates on cash (83,106) -- --
------------ ----------- ------------
Net increase (decrease) in cash and cash equivalents 4,440,468 (1,935,957) 2,878,649
Cash and cash equivalents at beginning of year 3,246,337 5,182,294 2,303,645
------------ ----------- ------------
Cash and cash equivalents at end of year $ 7,686,805 $ 3,246,337 $ 5,182,294
============ =========== ============
</TABLE>
(Continued)
F-6
<PAGE> 33
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------------
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
------------ ----------- ------------
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 249,044 $ 538,893 $ 276,347
============ =========== ============
Income taxes $ 2,520,921 $ 453,567 $ 1,470,555
============ =========== ============
Acquisitions:
Assets acquired 4,700,575 4,074,488 12,145,829
Acquisition related expenses, net of
tax benefit 212,423 945,000 2,203,000
Goodwill and other intangible assets 2,177,479 3,316,934 7,048,512
Liabilities assumed (3,407,838) (957,464) (4,459,280)
Common stock issued -- (896,025) (4,338,061)
------------ ----------- ------------
Cash paid 3,682,639 6,482,933 12,600,000
Less cash acquired -- -- (281,669)
------------ ----------- ------------
Net cash paid for acquisitions $ 3,682,639 $ 6,482,933 $ 12,318,331
============ =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 34
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 27, 1998 and June 28, 1997
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) NATURE OF BUSINESS
Applied Science and Technology, Inc. (the "Company") develops
and manufactures equipment using plasma and power generation
technologies for semiconductor, medical and industrial
production applications. The Company commenced operations in
January 1987.
(b) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries: Applied Science
and Technology ("ASTeX"), GmbH, ASTeX/Gerling Laboratories,
Inc., ETO, Inc. ("ETO"), ASTeX CPI, Inc. ("CPI"), Newton
Engineering Service, Inc. ("NES") and ASTeX Sorbios GmbH. All
significant intercompany balances and transactions have been
eliminated in consolidation.
(c) REVENUE RECOGNITION
The Company recognizes revenue on product sales and other sales
when the related products are shipped or the related services
are rendered. The Company periodically enters into research
contracts which generally provide for nonrefundable payments.
Research contract revenue is recognized based on the proportion
of costs incurred to total estimated costs using the percentage
of completion method. At the time a loss on a contract becomes
known, the entire amount of the estimated loss is recognized.
(d) CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the
Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
(e) INVESTMENTS
Cash equivalents and long-term investments consist of U.S.
treasury notes and money market funds at June 27, 1998 and June
28, 1997. The Company uses an investment firm to manage its
investment portfolio.
The Company classifies its securities as held-to-maturity.
Held-to-maturity securities are those investments in which the
Company has the ability and intent to hold the security until
maturity. Held-to-maturity securities are recorded at amortized
cost, which approximates market value.
Dividend and interest income is recognized in the period earned.
Realized gains and losses for held-to-maturity securities are
included in earnings and are derived using the specific
identification method for determining the cost of securities
sold.
F-8
<PAGE> 35
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 27, 1998 and June 28, 1997
(f) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.
(g) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using
the straight-line method over the estimated useful lives of the
assets for financial statement purposes and accelerated methods
for income tax purposes. The estimated useful lives of fixed
assets are as follows:
Building 25 to 31-1/2 years
Equipment, furniture and fixtures 3-1/2 to 7 years
Leasehold improvements Remaining lease term
(h) PATENTS
Patent costs are amortized over their estimated useful life of
five years.
(i) GOODWILL
Goodwill is amortized over 10 years. The Company continually
evaluates whether events or circumstances have occurred that
indicate that the remaining useful life of goodwill may warrant
revision or that the remaining balance may not be recoverable.
When factors indicate that goodwill should be evaluated for
possible impairment, the Company estimates the undiscounted cash
flow of the business segment, net of tax, over the remaining
life of the asset in determining whether the asset is
recoverable. Charges for impairment of goodwill would be
recorded to the extent unamortized book value exceeds the
related future discounted cash flow, net of tax. The discount
factor to be used would be the long-term debt rate currently
obtainable by the Company. During fiscal 1996, $6,813,562 of
goodwill was written off (see note 15).
(j) RESEARCH AND DEVELOPMENT COSTS
All research and development costs are expensed as incurred.
Research and development expenses attributable to research
contracts are included in costs of sales and revenue.
F-9
<PAGE> 36
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 27, 1998 and June 28, 1997
The Company also receives funding for certain research and
development costs which is used to offset its research and
development expenses. The Company incurred research and
development expenses, net of funding received, as follows:
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Research and development costs $11,605,103 $8,195,367 $6,429,083
Less funding 351,613 852,177 1,385,894
----------- ---------- ----------
Net research and development
expenses $11,253,490 $7,343,190 $5,043,189
=========== ========== ==========
</TABLE>
(k) INCOME TAXES
The Company's income taxes are accounted for under the asset and
liability method. Under this method, deferred tax assets and
liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for
the year in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
(l) EARNINGS (LOSS) PER SHARE
In June 1998, the Company adopted Financial Accounting Standards
Board Statement No. 128, Earnings Per Share ("SFAS 128"). All
Previously reported earnings per share have been restated to
reflect the provisions of SFAS 128.
(m) USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions that affect the reported amounts of assets and
liabilities and the 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 significant estimates included in the consolidated financial
statements relate to the determination of the carrying value of
goodwill and reserves for excess inventories. Management
determined the 1996 impairment of goodwill based upon the
expected future cash flows of ETO and the terminal value of ETO
at the end of the remaining useful life of the goodwill.
Management estimated expected future cash flows of ETO through
the use of sales projections and estimated operating and capital
expenditures over the remaining useful
F-10
<PAGE> 37
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 27, 1998 and June 28, 1997
life of the goodwill. Management establishes its reserves for
excess inventories based upon expected future usage and sales of
inventories in the normal course of business as adjusted for
anticipated changes in market demand. Certain of the Company's
inventories are product specific and may not be readily salable
in the open market. The possible loss of sales to certain
customers could result in the need for further adjustment to the
carrying value of the Company's inventories.
(n) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures
about Fair Value of Financial Instruments, defines the fair
value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between
willing parties.
The carrying amounts of cash and cash equivalents, trade
receivables, prepaid expenses and other assets, accounts
payable, and accrued expenses approximate fair value because of
the short maturity of those instruments.
The carrying amounts of long-term investments approximate fair
value based on quoted market prices.
The carrying amounts of notes receivable and long-term debt
approximate fair value as the rates of interest on these
instruments approximate current market rates of interest for
similar instruments with comparable maturities.
(o) ACCOUNTING FOR STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued
Statement No. 123, Accounting for Stock-Based Compensation
("Statement 123") which established a fair-value based method of
accounting for stock-based compensation plans. Prior to its
adoption of Statement 123, the Company accounted for employee
stock options under APB Opinion No. 25, Accounting for Stock
Issued to Employees, which required the use of an
intrinsic-value method of accounting for stock options.
Statement 123 allows the continued use of the intrinsic-value
method of accounting prescribed by APB Opinion No. 25 as long as
pro forma disclosures of net earnings (loss) and net earnings
(loss) per share, as if the fair-value method of accounting for
stock options were applied, are presented.
The Company has adopted Statement 123 and has elected to
continue to account for stock options using the methodology
prescribed by APB Opinion No. 25. Accordingly, pro forma
disclosures of net earnings (loss) and net earnings (loss) per
share as if the fair-value method of accounting for stock
options were applied are presented in note 6.
(p) FOREIGN CURRENCY TRANSLATION
All assets and liabilities of the Company's foreign operations
are translated into U.S. dollars using year-end exchange rates.
All revenue and expense items are translated using
weighted-average exchange rates for the year. Translation gains
and losses are included as a separate component of stockholders'
equity.
F-11
<PAGE> 38
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 27, 1998 and June 28, 1997
(2) TRADE AND NOTES RECEIVABLE
Trade and notes receivable consist of the following:
<TABLE>
<CAPTION>
JUNE 27, JUNE 28,
1998 1997
------------ -----------
<S> <C> <C>
Trade receivables $13,044,466 $11,857,598
Notes receivable, current portion (see note 3) 67,354 384,663
Allowance for doubtful accounts (377,439) (326,342)
---------- -----------
$12,734,381 $11,915,919
========== ===========
</TABLE>
(3) NOTES RECEIVABLE
Notes receivable consist of the following:
<TABLE>
<CAPTION>
JUNE 27, JUNE 28,
1998 1997
------------ -----------
<S> <C> <C>
Note receivable from stockholder with interest
at 8% per annum, payable in principal
installments of $59,651 due through June,
1999 with the remaining balance of $228,684
due in August, 1999. The note is secured by
certificates of deposit. $ 288,335 $ 565,022
Notereceivable with interest at 8% per annum,
payable in monthly installments of $2,327,
including interest, with any remaining
balance due on December 2, 2002. The note is
secured by real estate. 147,791 160,181
Unsecured note receivable paid in 1998 -- 42,540
Unsecured note receivable with interest at 10% 100,000 --
---------- -----------
536,126 767,743
Less current maturities 67,354 384,663
---------- -----------
Long-term notes receivable $ 468,772 $ 383,080
========== ===========
</TABLE>
Current maturities of notes receivable have been included in trade
receivables.
F-12
<PAGE> 39
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 27, 1998 and June 28, 1997
(4) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 27, JUNE 28,
1998 1997
------------ ------------
<S> <C> <C>
Raw materials $ 8,990,201 $ 6,566,718
Work in process 3,210,131 2,534,245
Finished goods 1,536,880 912,459
----------- -----------
$13,737,212 $10,013,422
=========== ===========
</TABLE>
(5) LEASES
The Company leases office, research and manufacturing facilities under
operating leases which expire through June, 2001. Future minimum lease
payments under operating leases are as follows:
Year ending June 30:
1999 $1,131,933
2000 982,285
2001 285,253
----------
$2,399,471
==========
Rent expense totaled $916,155, $761,710 and $548,259 for the years
ended June 27, 1998, June 28, 1997 and June 29, 1996, respectively.
(6) STOCKHOLDERS' EQUITY
Capital stock consists of the following at June 27, 1998 and June 28,
1997:
<TABLE>
<CAPTION>
NUMBER OF SHARES
ISSUED AND OUTSTANDING
-----------------------
JUNE 27, JUNE 28,
AUTHORIZED 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Preferred stock:
Preferred stock, $.01 par value $ 1,000,000 $ -- $ --
----------- ---------- ----------
Total preferred stock 1,000,000 -- --
----------- ---------- ----------
Common stock:
Common stock, $.01 par value 30,000,000 8,606,463 6,778,509
----------- ---------- ----------
Total common stock 30,000,000 8,606,463 6,778,509
----------- ---------- ----------
Total capital stock $31,000,000 $8,606,463 $6,778,509
=========== ========== ==========
</TABLE>
F-13
<PAGE> 40
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 27, 1998 and June 28, 1997
The holders of common stock are entitled to one vote for each share of
record held on each matter submitted to a vote of stockholders. There is
no cumulative voting for election of directors. Subject to the prior
rights of any series of preferred stock which may from time to time be
outstanding, holders of common stock are entitled to receive ratably
such dividends as may be declared by the board of directors out of funds
legally available therefrom, and, upon the liquidation, dissolution or
winding up of the Company, are entitled to share ratably in all assets
remaining after payment of liabilities and payment of accrued dividends
and liquidation preference on the preferred stock, if any. Holders of
common stock have no preemptive rights and have no rights to convert
their common stock into any other securities. The outstanding common
stock is validly issued and nonassessable.
On November 26, 1997, the Company announced a 3 for 2 stock split of its
common stock, which was distributed to stockholders in the form of a
stock dividend on December 12, 1997. All prior-year stock amounts have
been adjusted to reflect the stock split.
On February 19, 1998, the Company declared a dividend of one preferred
share purchase right (a "right") for each outstanding share of common
stock outstanding on March 2, 1998 (the "record date") to stockholders
of record on that date. Each right entitles the registered holder to
purchase one one-thousandth of a share of Series A Junior Participating
Preferred Stock, par value $0.01 per share ("junior preferred shares"),
of the Company at $70 per one one-thousandth of a junior preferred
share, subject to adjustment in the event of a stock split of the common
shares or a stock dividend on the common shares payable in common shares
or subdivisions, consolidations or combinations of the common shares
occurring prior to the distribution date, defined below.
Until the earlier of (i) 10 days following a public announcement that a
person or group of affiliated or associated persons has acquired a
beneficial ownership of 15% or more of the outstanding common shares or
(ii) 10 business days following the commencement of, or announcement of
an intention to make, a tender offer or exchange offer the consummation
of which would result in the beneficial ownership by a person or group
of 15% or more of such outstanding common shares (the earlier of such
dates being the "distribution date"), the rights will be evidenced, with
respect to any of the common share certificates outstanding as of the
record date.
Until the distribution date, the rights will be transferred with and
only with the common shares. Until the distribution date (or earlier
redemption or expiration of the rights), new common share certificates
issued after the record date will contain a notation incorporating the
rights agreement by reference.
Preferred shares purchased upon exercise of the rights are not
redeemable and are entitled to quarterly dividend payments of 1000 times
dividends declared on common shares, 1000 votes, voting together with
common shares, and 1000 times the aggregate payment made to common
shareholders in the event of liquidation.
The rights are not exercisable until the distribution date and expire on
December 31, 2007, unless extended or redeemed by the Company.
F-14
<PAGE> 41
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 27, 1998 and June 28, 1997
The preferred stock may be issued in one or more series, the terms of
which may be determined at the time of issuance by the board of
directors, without further action by stockholders, and may include
voting rights (including the right to vote as a series on particular
matters), preferences as to dividends and liquidation, conversion,
redemption rights and sinking fund provisions.
The future issuance of preferred stock could reduce the rights,
including voting rights, of the holders of common stock, and, therefore,
reduce the value of the common stock. In particular, specific rights
granted to future holders of preferred stock could be used to restrict
the Company's ability to merge with or sell its assets to a third party,
thereby preserving control of the Company by existing management.
In November 1993, the Company completed an initial public offering
(IPO), whereby the Company issued 2,550,075 shares of common stock at
$7.17 per share and 1,955,000 redeemable warrants at $.10 per warrant.
Two redeemable warrants entitled the holder to purchase 1.5 shares of
common stock at $10.03 through November 9, 1998, subject to adjustment
in accordance with anti-dilution provisions. The redeemable warrants
were subject to redemption at $.10 per warrant on 30 days' prior notice,
provided that the average closing price of the Company's common stock
equaled or exceeded $12.90 for 20 consecutive trading days through
November 9, 1998.
The Company also issued to the underwriter of the IPO, for nominal
consideration, warrants to purchase 255,000 shares of common stock and
170,000 redeemable warrants (the "Representative's warrants"). The
Representative's warrants were initially exercisable at $10.39 per share
of common stock and $.15 per redeemable warrant for a period of four
years commencing November 10, 1994.
On September 3, 1997, the Company announced that it had met the
requirements for the redemption of its redeemable warrants issued in
connection with the Company's IPO and called the warrants for
redemption. 2,082,451 redeemable warrants and 133,088 underwriter
warrants were converted into 1,691,416 shares of common stock. The net
proceeds were $15,234,000. The proceeds were used to repay all bank
debt, to complete the acquisition of ASTeX Sorbios GmbH and increase the
Company's working capital.
In connection with the issuance of preferred stock in 1992, the Company
issued warrants to purchase 290,045 shares of common stock. During
fiscal 1996, 238,856 warrants were exercised at $6.40 per share. The
remaining warrants expired in November 1996.
The Company adopted the 1993 Stock Option Plan in fiscal 1994 and in
fiscal 1995, adopted the 1994 Formula Stock Option Plan to award
non-employee directors of the Company stock options. The Plans are
administered by the Company's board of directors which has the authority
to determine the recipients, number of shares, and the related terms and
provisions of the options which may be granted.
F-15
<PAGE> 42
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 27, 1998 and June 28, 1997
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its stock option plans. Accordingly, no compensation cost
has been recognized in connection with these plans. Had compensation
cost for the Company's stock option plans been determined consistent
with Statement 123, the Company's net earnings (loss) and net earnings
(loss) per share would have been reduced to the following pro forma
amounts.
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
---------- -------- -----------
<S> <C> <C> <C>
Net earnings (loss) as reported $4,020,604 $937,759 $(7,296,775)
========== ======== ===========
Pro forma net earnings (loss) $2,118,435 $225,740 $(7,841,368)
========== ======== ===========
Basic net earnings (loss)
per share as reported $ 0.50 $ 0.14 $ (1.16)
========== ======== ===========
Pro forma basic net earnings
(loss) per share $ 0.26 $ 0.03 $ (1.24)
========== ======== ===========
Diluted net earnings (loss)
per share as reported $ 0.47 $ 0.14 $ (1.16)
========== ======== ===========
Pro forma diluted net earnings
(loss) per share $ 0.22 $ 0.03 $ (1.24)
========== ======== ===========
</TABLE>
The effect of applying Statement 123 as shown in the above pro forma
disclosures is not representative of the pro forma effect on net
earnings in future years because it does not take into consideration pro
forma compensation expenses related to stock options granted prior to
fiscal 1996.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants issued in fiscal 1998, 1997
and 1996: no dividend yield for all years; expected volatility of 75%
for all years; risk-free interest rates of 5.8% for 1998 grants and 6%
for 1997 and 1996 grants; and expected lives of 4 years for 1998 grants
and 4 to 8 years for 1997 and 1996 grants.
F-16
<PAGE> 43
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 27, 1998 and June 28, 1997
The following is a summary of stock option activity. All share and
exercise price amounts have been adjusted to reflect the 3 for 2 split
of common stock.
EMPLOYEE STOCK OPTIONS
-----------------------------------------
OPTION WEIGHTED
SHARES OPTIONS AVERAGE
AVAILABLE OUTSTANDING EXERCISE PRICE
---------- ----------- --------------
Balance at July 1, 1995 480,773 292,545 $ 4.21
Options added 742,500 -- --
Options granted (546,075) 546,075 8.51
Options exercised -- (111,525) 4.23
Options expired 11,025 (11,025) 5.65
--------- ---------
Balance at June 29, 1996 688,223 716,070 7.39
Options granted (349,088) 349,088 6.46
Options exercised -- (52,964) 5.47
Options expired 48,769 (48,769) 7.13
--------- ---------
Balance at June 28, 1997 387,904 963,425 7.17
Options added 1,132,500 -- --
Options granted (465,579) 465,579 11.61
Options exercised -- (136,538) 6.08
Options expired 101,800 (101,800) 9.61
--------- ---------
Balance at June 27, 1998 1,156,625 1,190,666 8.84
========= =========
The weighted-average fair value of options granted during fiscal 1998,
1997 and 1996 was $6.98, $3.83 and $5.50, respectively. As of June 27,
1998, 538,158 of the outstanding options were exercisable.
The following is a summary of information relating to stock options
outstanding at June 27, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- ----------------------
NUMBER WEIGHTED- NUMBER WEIGHTED-
OUTSTANDING WEIGHTED- AVERAGE EXERCISABLE AVERAGE
RANGE OF AT JUNE 27, AVERAGE REMAINING EXERCISE AT JUNE 27, EXERCISE
EXERCISE PRICES 1998 CONTRACTUAL LIFE PRICE 1998 PRICE
--------------- ----------- ----------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 3.83- 5.33 91,690 2.4 years $ 4.63 77,140 $ 4.64
6.00- 9.00 593,600 2.7 7.35 289,483 7.49
10.00-13.92 499,776 4.6 11.29 170,335 11.10
16.25-16.50 5,600 4.3 16.34 1,200 16.34
--------- ------- ------
1,190,666 3.5 8.84 538,158 8.24
========= =======
</TABLE>
F-17
<PAGE> 44
`1 APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 27, 1998 and June 28, 1997
Notes receivable for common stock purchases are due through October 2000
or upon termination of employment with the Company, if earlier. Interest
accrues at 6.28% per annum.
(7) INCOME TAXES
Income tax expense (benefit) consists of the following:
YEARS ENDED
-----------------------------------
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
---------- ---------- ----------
Current:
Federal $2,141,000 $ 775,000 $1,500,000
State 288,000 214,000 184,000
---------- --------- ----------
Total current 2,429,000 989,000 1,684,000
---------- --------- ----------
Deferred:
Federal (267,000) (294,000) (123,000)
State 304,000 (145,000) (20,000)
---------- --------- ----------
Total deferred 37,000 (439,000) (143,000)
---------- --------- ----------
$2,466,000 $ 550,000 $1,541,000
========== ========= ==========
The actual tax expense differs from the "expected" tax expense (benefit)
(computed by applying the U.S. federal corporate income tax rate of 34%
to earnings (loss) before income taxes) as follows:
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
---------- -------- ------------
<S> <C> <C> <C>
Computed "expected" tax expense
(benefit) $2,205,446 $505,838 $(1,956,964)
Increase (reduction) in income
taxes resulting from:
State taxes, net of federal benefit 390,720 45,540 108,783
Goodwill amortization and write-off 46,569 -- 2,396,649
Acquisition related expenses -- -- 981,800
Research and experimentation tax credit (87,248) (44,000) (133,000)
Valuation reserve movement (171,000) -- --
Other 81,513 42,622 143,732
---------- -------- -----------
$2,466,000 $550,000 $ 1,541,000
========== ======== ===========
</TABLE>
F-18
<PAGE> 45
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 27, 1998 and June 28, 1997
Total income tax expense was allocated as follows:
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Income from operations $2,466,000 $550,000 $1,541,000
Stockholders' equity, for
compensation expense for tax
purposes in excess of amounts
recognized for financial
statement purposes. (276,300) (62,242) (284,101)
---------- -------- ----------
$2,189,700 $487,758 $1,256,899
========== ======== ==========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as
follows:
<TABLE>
<CAPTION>
JUNE 27, JUNE 28,
1998 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $2,163,978 $ 881,558
Accrued liabilities 283,178 271,797
Inventory reserves 613,176 547,934
Accounts receivable, principally due to
allowance for doubtful accounts 118,138 128,249
---------- ----------
Total deferred tax assets 3,178,470 1,829,538
Less: valuation allowance (99,000) (270,000)
---------- ----------
Deferred tax assets 3,079,470 1,559,538
Deferred tax liabilities:
Property and equipment, principally due
to differences in depreciation methods 623,428 742,304
---------- ----------
Net deferred tax assets $2,456,042 $ 817,234
========== ==========
</TABLE>
The net change in the total valuation allowance for the year ended
June 27, 1998 was $171,000. There was no change in the valuation
allowance for the year ended June 28, 1997. The valuation allowance is
principally attributable to state operating loss carryforwards.
F-19
<PAGE> 46
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 27, 1998 and June 28, 1997
At June 27, 1998, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $800,000 which are
available to offset future taxable income through 2010. The Company also
has foreign operating loss carryforwards of approximately $2,200,000
related to its foreign subsidiary which are available indefinitely to
offset future taxable income of the subsidiary.
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Based upon the level of
historical taxable income and projections for future taxable income over
the periods during which deferred tax assets are deductible, management
believes it is more likely than not the Company will realize the
benefits of these deductible differences.
(8) EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is based upon the weighted average
common shares outstanding during each year. Diluted earnings (loss) per
share is based upon the weighted average of common shares and dilutive
common stock equivalent shares outstanding during each year. The
weighted average number of shares used to compute diluted earnings
(loss) per share consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Weighted average common shares
outstanding during the year 8,052,926 6,686,253 6,307,146
Weighted average common equivalent
shares due to stock options
and warrants 476,021 91,187 --
--------- --------- ---------
8,528,947 6,777,440 6,307,146
========= ========= =========
</TABLE>
(9) SALES AND REVENUE
Total revenue consists of product sales, research contract revenue and
other revenue. Other revenue includes revenues from service and repair
activities and consulting. Sales and revenue to government agencies for
the years ended June 27, 1998, June 28, 1997 and June 29, 1996 were
$1,757,496, $876,636 and $662,471, respectively. At June 27, 1998 and
June 28, 1997, accounts receivable from these customers totaled $550,596
and $581,027, respectively.
One commercial customer accounted for 40%, 38% and 45% of total revenue
for the years ended June 27, 1998, June 28, 1997 and June 29, 1996,
respectively. At June 27, 1998 and June 28, 1997, accounts receivable
from this customer totaled $3,307,984 and $3,919,586, respectively. In
1997, a second customer accounted for approximately 10% of total
revenue.
F-20
<PAGE> 47
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 27, 1998 and June 28, 1997
Sales to customers in foreign countries for the years ended June 27,
1998, June 28, 1997 and June 29, 1996 were $18,923,069, $10,082,704 and
$7,328,015, respectively. At June 27, 1998 and June 28, 1997, accounts
receivable from these customers totaled $8,297,593 and $1,764,059,
respectively.
(10) COMMITMENTS
The Company may borrow up to $8,000,000 from a bank under an unsecured
demand line of credit with interest at the bank's prime rate (8.5% at
June 27, 1998). Borrowings under the line are limited to 100% of the
Company's cash balance plus 80% of domestic accounts receivable under 90
days outstanding. The Company may fix a portion or all of the
outstanding balances under the line for periods up to the remaining term
of the line. The line may be used for standby letters of credit.
There are fees of 1.5% for any standby letters of credit and 0.25% on
the unused portion of the line. There were no outstanding borrowings at
June 27, 1998 and June 28, 1997. The line of credit expires in May 2000.
No security pledges of assets can be granted nor dividends paid without
the approval of the bank that issued the unsecured line of credit.
(11) LONG-TERM DEBT
The Company repaid all of its long-term debt during the second quarter
of Fiscal 1998. An unsecured note payable, with interest at 7.19%,
payable in monthly principal installments was subject to a prepayment
penalty equal to the lender's lost net interest income resulting from
any prepayment. This prepayment penalty was waived by the lender.
(12) ACQUISITIONS
On October 1, 1997, the Company completed the acquisition of Sorbios
GmbH, renamed ASTeX Sorbios GmbH, a manufacturer of ozone generators and
air ionizers for semiconductor production.
The Company acquired all of the stock of Sorbios GmbH for a total
purchase price of $3,682,639. The purchase price was paid in cash, from
the Company's cash balances. Costs associated with the acquired
in-process research and development expenses were charged to expense.
On May 9, 1997, the Company completed its acquisition of the net assets
of Converter Power, Inc., a manufacturer of high efficiency, small form
factor power sources used in semiconductor, medical, scientific and
industrial applications. At the acquisition date, the net assets
acquired were transferred to a newly established subsidiary corporation,
ASTeX CPI, Inc.
F-21
<PAGE> 48
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 27, 1998 and June 28, 1997
The Company acquired the net assets, exclusive of certain liabilities of
Converter Power, Inc. for a total purchase price of $7,378,958. The
purchase price included $6,482,933 in cash, of which $4,415,137 was
provided from the Company's current cash balances while $2,067,796 was
provided from increased bank borrowings, and 60,482 shares of ASTeX
common stock valued at $896,025 were issued to the prior owners of CPI.
Costs associated with the acquired in-process research and development
were charged to expense.
The value of the ASTeX shares issued in connection with the acquisition
of CPI was guaranteed by ASTeX to be at least $896,025 on May 8, 1998,
subject to certain adjustments as provided for in the purchase and sales
agreement. This minimum valuation requirement was satisfied.
Accordingly, no further payment to the former CPI shareholders was
required.
On January 2, 1996 the Company completed its acquisition of Ehrhorn
Technological Operations, Inc., a manufacturer of radio frequency (RF)
generators used in semiconductor, medical imaging, medical sterilization
and amateur radio communications applications. At the acquisition date,
Ehrhorn Technological Operations, Inc.'s name was changed to ETO, Inc.
The Company acquired all of the stock of ETO for a total purchase price
of $16,749,358. The purchase price included $12,600,000 in cash, of
which $4,600,000 was provided from the Company's current cash balances
while the remaining $8,000,000 was provided from two unsecured notes
from a bank, and 492,993 shares of common stock valued at $4,149,358
were issued to the former shareholders of ETO. Costs associated with
acquired in-process research and development were charged to expense.
On November 21, 1995, the Company completed its acquisition of Newton
Engineering Service, Inc. ("NES") and acquired all of the outstanding
shares of NES. In connection with the acquisition the Company issued
17,058 shares of common stock valued at $188,703 to the former
shareholder of NES.
F-22
<PAGE> 49
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 27, 1998 and June 28, 1997
All acquisitions have been accounted for by the purchase method of
accounting and, accordingly, the purchase prices have been allocated to
the assets acquired and the liabilities assumed based on their fair
values at the acquisition dates. The consideration paid and the fair
value of the assets acquired and the liabilities assumed at the
acquisition dates are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
----------- ---------- -----------
<S> <C> <C> <C>
Consideration paid:
Cash $ 3,682,639 $6,482,933 $12,600,000
Common stock (60,482 shares
in 1997 and 510,051 shares
in 1996) -- 896,025 4,338,061
----------- ---------- -----------
Total consideration paid $ 3,682,639 $7,378,958 $16,938,061
=========== ========== ===========
Allocation of purchase price:
Accounts receivable $ 1,180,473 $1,254,662 $ 3,171,403
Inventories 969,519 2,051,237 3,437,633
Property and equipment and
other assets 2,550,583 768,589 5,536,793
Liabilities assumed (3,407,838) (957,464) (4,459,280)
Acquisition related expenses,
net of tax benefits where
applicable 212,423 945,000 2,203,000
Goodwill and other intangible
assets 2,177,479 3,316,934 7,048,512
----------- ---------- -----------
Total purchase price $ 3,682,639 $7,378,958 $16,938,061
=========== ========== ===========
</TABLE>
The following unaudited pro forma results of operations give effect to
the acquisitions as if the Sorbios acquisition had occurred at the
beginning of fiscal 1997 and the CPI, ETO and NES acquisitions had
occurred at the beginning of fiscal 1996. Such pro forma information
reflects certain adjustments including amortization of goodwill,
interest expense, interest income, income tax effect and an increase in
the number of weighted average shares outstanding. This pro forma
information does not necessarily reflect the results of operations that
would have occurred had the acquisitions taken place as described and is
not necessarily indicative of results that may be obtained in the
future.
F-23
<PAGE> 50
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 27, 1998 and June 28, 1997
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Pro forma total revenue $84,414,488 $59,457,723 $60,577,113
=========== =========== ===========
Pro forma net earnings $ 4,877,294 $ 1,142,994 $ 3,084,909
=========== =========== ===========
Pro forma net basic earnings per share $ 0.61 $ 0.17 $ 0.47
=========== =========== ===========
Pro forma net diluted earnings per share $ 0.57 $ 0.17 $ 0.45
=========== =========== ===========
Pro forma weighted average common
shares outstanding used to calculate
pro forma basic earnings per share 8,052,926 6,738,411 6,620,778
=========== =========== ===========
Pro forma weighted average common
shares outstanding used to calculate
pro forma diluted earnings per share 8,528,947 6,827,199 6,830,469
=========== =========== ===========
</TABLE>
(13) TRANSACTION WITH STOCKHOLDER
In 1997, the Company sold the net assets of ETO's Alpha product line
with a cost of $565,022, to Alpha/Power, Inc. ("API") in exchange for a
note receivable in an equal amount that is to be repaid in installments
in 1998 and 1999. A majority of API is owned by a former owner of ETO
who is currently an ASTeX stockholder. In connection with this sale, API
agreed to assume and indemnify ETO against all obligations to provide
warranty for Alpha products sold prior to the sale. There was no gain or
loss associated with the sale.
(14) NONCASH FINANCING AND INVESTING ACTIVITIES
During the years ended June 28, 1997 and June 29, 1996, the Company
issued 60,482 and 510,051 shares of common stock valued at $896,025 and
$4,338,061, respectively, in connection with acquisitions.
During the year ended June 29, 1996, the Company issued 27,000 shares of
common stock in exchange for notes receivable from employees totaling
$236,750.
In connection with the exercise of stock options, a tax benefit of
$276,300, $62,242 and $284,101 was recorded as additional paid-in
capital for the years ended June 27, 1998, June 28, 1997 and June 29,
1996, respectively.
F-24
<PAGE> 51
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 27, 1998 and June 28, 1997
(15) GOODWILL WRITE-OFF
In connection with its acquisition of ETO, the Company recorded goodwill
of $7,048,512 which represented the excess of the purchase price over
the fair value of ETO's net assets acquired and in process research and
development. The goodwill was to be amortized over 15 years. Between the
acquisition date and June 27, 1996 there was a precipitous decline in
sales to one of ETO's major customers. In management's judgment, this
decline in revenues was a permanent impairment of ETO's prospects. Based
on this significant change, management made a reassessment of its
remaining goodwill and recorded an impairment of goodwill in the amount
of $6,813,562, which represented the goodwill balance at the
reassessment date.
In determining the impairment, management estimated ETO's cash flows
over 14-1/2 years which represented the remaining business life cycle of
ETO's existing technology. The cash flow analysis included an estimate
of ETO's terminal value at the end of this period. The operating cash
flow projections were based on ETO's estimated after-tax operating
results less estimated capital expenditures. The undiscounted cash flows
were assumed to be realized in installments over the 14-1/2 years.
Because the undiscounted cash flow was less than the Company's carrying
value of ETO, a charge for impairment of goodwill was recorded to the
extent unamortized book value exceeded the related discounted cash flow.
The cash flow was discounted using a weighted average borrowing cost of
7.7%, which was comparable to rates available to the Company as of the
reassessment date.
(16) RETIREMENT PLANS
Prior to January 1, 1997, the Company sponsored two defined contribution
401(k) retirement plans covering substantially all employees of the
Company. The Company contributed 20% of employee voluntary contributions
up to 5% of eligible wages for the plan covering employees of ASTeX,
ASTeX/Gerling Laboratories, and Newton Engineering Service, Inc. The
Company contributed 50% of employee voluntary contributions up to 6% of
eligible wages for the plan covering employees of ETO. Beginning January
1, 1997, the Company merged the plans and under the new plan contributes
50% of employee voluntary contributions up to 6% of eligible wages.
Total expense under the plans amounted to $324,128, $110,214 and $72,547
for the years ended June 27, 1998, June 28, 1997 and June 29, 1996,
respectively.
(17) SUBSEQUENT EVENTS (UNAUDITED)
In July 1998, the Company signed a letter of intent to acquire certain
assets and assume certain liabilities of a U.S. technology company for
approximately $1,800,000 to be paid in a combination of cash and/or
ASTeX stock. The transaction is expected to be completed late in 1998.
During the first quarter of fiscal 1999, the Company commenced the
consolidation of certain operating facilities which included significant
employee terminations. The restructuring of the Company's operations is
expected to allow the Company to more quickly respond to market changes
through the elimination of fixed facility costs and the ability to
better utilize its work force. The Company anticipates that costs
incurred in the restructuring could amount to $1,600,000 which will be
expensed during fiscal 1999.
F-25
<PAGE> 52
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 27, 1998 and June 28, 1997
(18) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT PER SHARE DATA)
--------------------------------------------------
DILUTED
NET
EARNINGS NET EARNINGS
TOTAL GROSS (LOSS) FROM EARNINGS (LOSS)
REVENUE PROFIT OPERATIONS (LOSS) PER SHARE
------- ------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
1998
----
First Quarter $17,421 $ 6,474 $1,677 $1,155 $ 0.14
Second Quarter 22,440 8,230 2,099 1,275 0.15
Third Quarter 23,461 8,207 2,252 1,577 0.18
Fourth Quarter 20,114 5,539 (119) 14 --
------- ------- ------ ------ ------
Year ended June 27 $83,436 $28,450 $5,909 $4,021 $ 0.47
======= ======= ====== ====== ======
1997
----
First Quarter $ 9,860 3,813 536 312 0.05
Second Quarter 9,293 3,395 461 280 0.04
Third Quarter 11,013 3,886 658 390 0.06
Fourth Quarter 17,801 6,316 3 (44) (0.01)
------- ------- ------ ------ ------
Year ended June 28 $47,967 $17,410 $1,658 $ 938 $ 0.14
======= ======= ====== ====== ======
</TABLE>
(19) NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards (SFAS) Statement No. 130,
Reporting Comprehensive Income, will become effective during fiscal year
1999. Under the provisions of this Statement, the Company will be
required to report all components of comprehensive income in a financial
statement that is displayed with the same prominence as other financial
statements. In addition to the net earnings or loss presently displayed
in the consolidated statement of operations, the consolidated statement
of comprehensive income will display items considered to be other
comprehensive income. Such other comprehensive income will include
foreign currency translation adjustments, which are presently displayed
in the consolidated statement of stockholders' equity. The Company will
also be required to display the accumulated balance of other
comprehensive income separately from retained earnings and additional
paid-in capital in the consolidated balance sheet. The effect of this
standard is not expected to be material.
SFAS Statement No. 131, Disclosures about Segments of an Enterprise and
Related Information, will become effective during fiscal year 1999. At
that time, the Company will be required to report financial and
descriptive information about any reportable operating segments.
Reportable operating segments are defined in Statement No. 131 as
components of an enterprise for which separate financial information is
available that is evaluated by senior management to allocate resources
and assess performance.
F-26
<PAGE> 53
APPLIED SCIENCE AND TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 27, 1998 and June 28, 1997
SFAS Statement No. 133, Accounting for Derivative Instruments and
Hedging Activities, will become effective during fiscal year 2000.
Statement No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments
embedded in other contracts, (collectively referred to as derivatives)
and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated
as (a) hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a
hedge of the exposure to variable cash flows of a forecasted
transaction, or (c) a hedge of the foreign currency exposure of a net
investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated
forecasted transaction.
The accounting for changes in the fair value of a derivative (that is,
gains and losses) depends on the intended use of the derivative and the
resulting designation.
Under this Statement, an entity that elects to apply hedge accounting is
required to establish at the inception of the hedge the method it will
use for assessing the effectiveness of the hedging derivative and the
measurement approach for determining the ineffective aspect of the
hedge. These methods must be consistent with the entity's approach to
managing risk.
Statement of Position (SOP) 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use, will become effective
in fiscal year 2000. SOP 98-1 requires that certain internal and
external costs be expensed or capitalized when incurred to develop or
obtain software for internal use. Generally, costs incurred during the
preliminary project and post-implementation/operation stages, as well as
conversion and general and administrative costs are to be expensed as
incurred. Certain costs incurred during the application and development
stage are to be capitalized.
The Company is evaluating the impact of Statement Nos. 130, 131, 133 and
SOP 98-1.
F-27
<PAGE> 1
Exhibit 10a
----------------------
KEY EMPLOYEE AGREEMENT
----------------------
To: Jill Maunder As of February 2, 1998
The undersigned, Applied Science and Technology, Inc., a Delaware
corporation, as well as its successors and assigns (hereinafter collectively
referred to as the "Company"), hereby agree with you as follows:
l. POSITION AND RESPONSIBILITIES.
1.1 You shall serve as Vice President of Human Resources of the Company
(or in such other capacity as shall be designated by the President or Board of
Directors and reasonably acceptable to you). You will, to the best of your
ability, devote your full time and best efforts to the performance of your
duties hereunder and the business and affairs of the Company and perform such
duties as may be assigned to you by or on authority of the Company's President
from time to time and the duties customarily associated with such capacity from
time to time and at such place or places as the Company shall designate are
appropriate and necessary in connection with such employment.
1.2 You will duly, punctually and faithfully perform and observe any
and all rules and regulations which the Company may now or shall hereafter
establish governing the conduct of its business.
1.3 You will report directly to the Company's President and will be
based out of the Company's Massachusetts corporate office.
2. TERM OF EMPLOYMENT.
2.1 The initial term of this Agreement shall be for the period set forth
on EXHIBIT A annexed hereto commencing with the date hereof. Thereafter, this
Agreement shall be automatically renewed for successive periods of one year,
unless you or the Company shall give the other party not less than thirty (30)
days written notice of non-renewal. Your employment with the Company may be
terminated as provided in Section 2.2 .
-1-
<PAGE> 2
2.2 The Company shall have the right, upon written notice to you, to
terminate your employment:
(a) immediately at any time for "Cause" (as defined
herein subject to your right of cure and right to dispute as provided
in Section 2.3 herein); or
(b) at any time, without "Cause," provided that the
Company shall be obligated to pay to you the Severance Benefits set
forth in Sections 6 or 7, as applicable, of EXHIBIT A, plus any sums
then due to you, including those expenses as are provided for in
Section 4 of EXHIBIT A, less (i) applicable taxes and other required
withholdings, and (ii) any amounts you may owe to the Company. Payments
under this Section 2.2 (b) shall not be due or payable if you are
terminated at any time for "Cause" or if you voluntarily resign from
your employment, except as set forth in Section 7 of EXHIBIT A.
2.3 For purposes of Section 2.2, the term "Cause" shall mean (a) gross
negligence or willful misconduct in the performance of assigned duties; (b)
material and repetitive refusal to perform or discharge the duties or
responsibilities assigned by the President of the Company provided the same are
not illegal, unethical or inconsistent with the position of Vice President of
Human Resources of a corporation and the failure to correct such refusal and
perform such duties or responsibilities within a reasonable period of time (but
in any event no less than seven (7) calendar days after written notice of such
failure); (c) conviction of a felony or misdemeanor involving moral turpitude;
(d) willful or prolonged absence from work not excused by a bona fide medical
disability as reasonably determined by a qualified physician mutually acceptable
to both you and the Company or other good cause as reasonably determined by the
Board of Directors; and (e) falseness of any warranty or representation by you
herein or the breach of your obligations under this Agreement to the material
detriment of the Company.
2.4 In the event of the Involuntary Termination (as hereinafter defined)
of your employment with the Company at any time, the Company hereby agrees to
provide you with Severance Benefits as defined in Section 6 of EXHIBIT A hereto
or payments in the event of a "Change in Control" as defined in Section 7 of
EXHIBIT A. In this regard, the phrase "Involuntary Termination" shall mean (a)
any termination of your employment by the Company other than for "cause," as
defined in Section 2.3, (b) any notice by the Company not to renew this
Agreement pursuant to Section 2.1, or (c) for purposes of Section 7 of EXHIBIT A
(but not Section 6 of EXHIBIT A) any termination of your employment by you due
to any of the following circumstances: (i) a reduction in your Base Salary or
Company-paid benefits, (ii) a reduction in your eligibility for any Company
bonus or other benefit program, or (iii) a material or substantial change in
your title, position, authority or duties.
2.5 You shall have the right to terminate this Agreement upon not less
than thirty (30) days prior written notice to the Company.
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<PAGE> 3
3. COMPENSATION. You shall receive the compensation and benefits set forth
on EXHIBIT A ("Compensation") for all services to be rendered by you hereunder
and for your transfer of property rights pursuant to an agreement relating to
proprietary information and inventions of even date herewith attached hereto as
Exhibit C between you and the Company (the "Proprietary Information and
Inventions Agreement").
4. OTHER ACTIVITIES DURING EMPLOYMENT.
4.1 Except for any outside employments and directorships currently held
by you as listed on EXHIBIT B, and except with the prior written consent of the
Company's President, you will not during the term of this Agreement undertake or
engage in any other employment, occupation or business enterprise other than one
in which you are an inactive investor.
4.2 You hereby agree that, except as disclosed on EXHIBIT B hereto,
during your employment hereunder, you will not, directly or indirectly, engage
(a) individually, (b) as an officer, (c) as a director, (d) as an employee, (e)
as a consultant, (f) as an advisor, (g) as an agent (whether a salesperson or
otherwise), (h) as a broker, or (i) as a partner, coventurer, stockholder or
other proprietor owning directly or indirectly more than two percent (2%)
interest, in any firm, corporation, partnership, trust, association, or other
organization which is engaged in the research, development, production,
manufacture or marketing of equipment or processes in direct competition with
the Company or any other line of business engaged in or under demonstrable
development by the Company (such firm, corporation, partnership, trust,
association, or other organization being hereinafter referred to as a
"Prohibited Enterprise"). Except as may be shown on EXHIBIT B, you hereby
represent that you are not engaged in any of the foregoing capacities (a)
through (i) in any Prohibited Enterprise.
5. FORMER EMPLOYERS.
5.1 You represent and warrant that your employment by the Company will
not conflict with and will not be constrained by any prior or current
employment, consulting agreement or relationship whether oral or written. You
represent and warrant that you do not possess confidential information arising
out of any such employment, consulting agreement or relationship which, in your
best judgment, would be utilized in connection with your employment by the
Company in the absence of Section 5.2.
5.2 If, in spite of the second sentence of Section 5.1, you should find
that confidential information belonging to any other person or entity might be
usable in connection with the Company's business, you will not disclose to the
Company or use on behalf of the Company any confidential information belonging
to any of your former employers; but during your employment by the Company you
will use in the performance of your duties all information
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<PAGE> 4
which is generally known and used by persons with training and experience
comparable to your own which is common knowledge in the industry or otherwise
legally in the public domain.
6. PROPRIETARY INFORMATION AND INVENTIONS. You agree to execute, deliver
and be bound by the provisions of the Proprietary Information and Inventions
Agreement.
7. POST-EMPLOYMENT ACTIVITIES.
7.1 For a period of two (2) years (or for a lesser period should the
Company so determine) after the termination or expiration, for any reason, of
your employment with the Company hereunder, absent the Company's prior written
approval, you will not directly or indirectly engage in activities similar or
reasonably related to those in which you shall have engaged hereunder during the
two years immediately preceding termination or expiration for, nor render
services similar or reasonably related to those which you shall have rendered
hereunder during such two years to, any person or entity whether now existing or
hereafter established which directly competes with (or proposes or plans to
directly compete with) the Company ("Direct Competitor") in any line of business
engaged in or under development by the Company. Nor shall you entice, induce or
encourage any of the Company's other employees to engage in any activity which,
were it done by you, would violate any provision of the Proprietary Information
and Inventions Agreement or this Section 7 or to work with you in any other
organization. As used in this Section 7.1, the term "any line of business
engaged in or under development by the Company" shall be applied as at the date
of termination of your employment, or, if later, as at the date of termination
of any post-employment consultation.
7.2 For a period of two (2) years after the termination of your
employment with the Company, the provisions of Section 4.2 shall be applicable
to you and you shall comply therewith. As applied to such two (2) year
post-employment period, the term "any other line of business engaged in or under
development by the Company," as used in Section 4.2, shall be applied as at the
date of termination of your employment with the Company or, if later, as at the
date of termination of any post-employment consultation with the Company.
7.3 No provision of this Agreement shall be construed to preclude you
from performing the same services which the Company hereby retains you to
perform for any person or entity which is not a Direct Competitor of the Company
upon the expiration or termination of your employment (or any post-employment
consultation) so long as you do not thereby violate any term of the Proprietary
Information and Inventions Agreement.
8. REMEDIES. Your obligations under the Proprietary Information and
Inventions Agreement and the provisions of Sections 4, 6, 7, 8, and 9 of this
Agreement (as modified by Section 10, if applicable) shall survive the
expiration or termination of your employment (whether through your resignation
or otherwise) with the Company. You acknowledge that a remedy at law for any
breach or threatened breach by you of the provisions of the Proprietary
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<PAGE> 5
Information and Inventions Agreement or Section 7 hereof would be inadequate and
you therefore agree that the Company shall be entitled to such injunctive or
other equitable relief in case of any such breach or threatened breach.
9. ASSIGNMENT. This Agreement and the rights and obligations of the parties
hereto shall bind and inure to the benefit of any successor or successors of the
Company by reorganization, merger or consolidation and any assignee of all or
substantially all of its business and properties, but, except as to any such
successor or assignee of the Company, neither this Agreement nor any rights or
benefits hereunder may be assigned by the Company or by you, except by operation
of law. The Company's obligations and those of any successors or assignees of
the Company under this Agreement, including but not limited to the severance
provisions and other compensation and benefits due to you pursuant to EXHIBIT A
hereto, will be a condition of and are to remain those of any successor or
assignee.
10. INTERPRETATION. IT IS THE INTENT OF THE PARTIES THAT in case any one or
more of the provisions contained in this Agreement shall, for any reason, be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT in case any one or more of the provisions contained
in this Agreement shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, such provision shall be
construed by limiting and reducing it as determined by a court of competent
jurisdiction, so as to be enforceable to the extent compatible with applicable
law.
11. NOTICES. Any notice which the Company is required to or may desire to
give you shall be given by personal delivery or registered or certified mail,
return receipt requested, addressed to you at your address of record with the
Company, or at such other place as you may from time to time designate in
writing. Any notice which you are required or may desire to give to the Company
hereunder shall be given by personal delivery or by registered or certified
mail, return receipt requested, addressed to the Company at its principal
office, or at such other office as the Company may from time to time designate
in writing. The date of personal delivery or the date of mailing any notice
under this Section shall be deemed to be the date of delivery thereof.
12. WAIVERS. If either party should waive any breach of any provision of
this Agreement, such party shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
13. COMPLETE AGREEMENT; AMENDMENTS. The foregoing including Exhibits A, B,
C and D hereto, is the entire agreement of the parties with respect to the
subject matter hereof, superseding any previous oral or written communications,
representations, understandings, or agreements with the Company or any officer
or representative thereof. Any amendment to this
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<PAGE> 6
Agreement or waiver by the Company of any right hereunder shall be effective
only if evidenced by a written instrument executed by the parties hereto, upon
authorization of the Company's Board of Directors.
14. HEADINGS. The headings of the Sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning of this Agreement.
15. COUNTERPARTS. This Agreement may be signed in two counterparts, each of
which shall be deemed an original and both of which shall together constitute
one agreement.
16. GOVERNING LAW; VENUE. This Agreement shall be governed by and construed
under Massachusetts law. The exclusive venue for any dispute regarding the
subject matter of this Agreement shall be the Trial Department of the Middlesex
Superior Court in the Commonwealth of Massachusetts.
17. ADVICE OF SEPARATE COUNSEL. You acknowledge that you have been advised
to review this Agreement with your own legal counsel and other advisors of your
choosing and that prior to entering into this Agreement, you have had the
opportunity to review this Agreement with your attorney and other advisors and
have not asked (or relied upon) Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C. to represent you in this matter.
If you are in agreement with the foregoing, please sign your name below and
also at the bottom of the Proprietary Information and Inventions Agreement and
Stock Option Grant Letter, whereupon this Agreement shall become binding in
accordance with its terms. Please then return this Agreement to the Company.
(You may retain for your records the accompanying counterpart of this Agreement
enclosed herewith).
Very truly yours,
ACCEPTED AND AGREED: APPLIED SCIENCE AND
TECHNOLOGY, INC.
/s/ JILL MAUNDER By:/s/ RICHARD S. POST
- --------------------------- ------------------------------------
Jill Maunder Dr. Richard S. Post, President
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<PAGE> 7
EXHIBIT A
EMPLOYMENT TERM, COMPENSATION AND BENEFITS
OF JILL MAUNDER
l. TERM. The term of the Agreement to which this Exhibit A is attached and
made a part shall be for a period from the date of this Agreement ---- through
January 31, 1999.
2. COMPENSATION.
(a) BASE SALARY. Your base salary ("Base Salary") shall be $5,000.00
payable on a bi-weekly basis ($130,000.00 on an annualized basis) through
January 31, 1999, payable in accordance with the Company's payroll policies.
Commencing February 1, 1999, your base salary shall be established by the Board
of Directors' Compensation Committee.
(b) BONUSES. The Company shall establish appropriate incentive
compensation plans ("Bonuses") for you for each fiscal year that you are
employed hereunder, commencing with Fiscal 1999 which commences on June 28,
1998, under which you shall be entitled to a bonus of up to 25% of your then
current Base Salary based on the Company attaining certain financial and other
results and also based upon individual goals to be established for you. [For
information purposes, a copy of the Company's Fiscal 1998 Plan has been provided
to you under separate cover]. Such Bonuses shall be properly approved by the
Board of Directors or the Compensation Committee of the Board of Directors.
3. VACATION, INSURANCE AND BENEFITS; EXPENSES. You shall be entitled to all
legal holidays recognized by the Company, and three weeks paid vacation per
annum. Any unused vacation may be accrued or used in accordance with Company
policy. You shall be eligible for participation in any health, dental, and other
group insurance plans which may be established and maintained by the Company for
all full-time employees or which the Company is required to maintain by law. You
shall also be entitled to participate in any employee benefit programs which the
Company's Board of Directors may establish for Company employees generally,
including, but not limited to, bonuses and stock purchase or option plans. You
will be eligible to participate in the Company's 401(k) Plan. The Company shall
reimburse you for all usual and ordinary business expenses incurred by you in
the scope of your employment hereunder in accordance with the Company's expense
reimbursement policy.
4. STOCK OPTIONS. You shall be entitled to receive stock options to
purchase up to an aggregate of 20,000 shares of common stock of the Company.
Such options shall be priced on the closing price of the Company's Common Stock
as reported by NASDAQ on the date you commence employment with the Company and
shall vest as follows: 20% vesting immediately and the remaining 80% vesting in
four equal annual installments on the anniversary date of such grant. A copy of
the form of option grant letter is attached hereto as EXHIBIT D. Notwithstanding
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the foregoing, in the event of a Change of Control (as defined in Section 7
herein), an additional 20% of such option shall vest upon the Change of Control
(but in any event not to exceed 100% of the original option grant).
You shall be entitled to additional stock options as determined by the
Board of Directors' Compensation Committee in its sole discretion.
5. RELOCATION BONUS. You shall be entitled to a one-time bonus of $30,000
if you move your permanent residence to within a twenty (20) minute automobile
commute of the Corporation's principal corporate offices on or before February
1, 1999.
6. SEVERANCE BENEFITS.
(a) When provided for in this Agreement, you shall be entitled to
"Severance Benefits." When used in this Agreement, the term "Severance Benefits"
shall mean a total amount equal to (i) fifty percent (50%) of your then current
annual Base Salary, plus (ii) 50% of your Bonuses earned for the Company's most
recent fiscal year. If the Company's fiscal year is changed, the Bonuses shall
be based upon your bonuses received during the Company's most recent fiscal
year. The Severance Benefits shall be paid via check to you in six (6) equal
monthly installments commencing within ten (10) days after the date of your
termination of employment with the Company.
(b) In addition, the term "Severance Benefits" shall include the
continuation for you and your family, during the Severance Period, as defined
below, of all of the other benefits which are provided or available to you on
the last day of your actual service with the Company. For purposes of this
Agreement, the term "Severance Period" means the period of six (6) months
beginning on the Date of Termination. Notwithstanding the foregoing, such
Severance Benefits shall be reduced by any compensation you receive as an
employee or consultant from any third party during such Severance Period.
(c) The Severance Benefits referred to above will be in addition to, and
not in substitution for, any accrued and unpaid salary, vacation, pension or
other similar retirement benefits, and unreimbursed expenses to which you may be
otherwise entitled.
7. CHANGE IN CONTROL.
(a) For purposes of this Agreement, "Change in Control" means and shall
be deemed to occur if any of the following occurs: (i) the acquisition by an
individual, entity or group, as defined in Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), of beneficial
ownership, as defined in Rule 13d-3 promulgated under the Exchange Act, of 50%
or more of either (A) the outstanding shares of common stock, $.01 par value per
share, of the Company (the "Common Stock"), or (B) the combined voting
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power of the voting securities of the Company entitled to vote generally in the
election of directors (the "Voting Securities"); or (ii) individuals who, on
November 21, 1997, constituted the Board of Directors of the Company (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board of Directors of the Company; PROVIDED, HOWEVER, that any individual
becoming a director subsequent to February 2, 1998, whose election, or
nomination for election by the Company's shareholders, was approved by a vote of
at least a majority of the directors then serving and comprising the Incumbent
Board shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents; or (iii) approval by the Board of Directors
or the shareholders of the Company of a (A) tender offer to acquire any of the
Common Stock or voting securities, (B) reorganization, (C) merger or (D)
consolidation, other than a reorganization, merger or consolidation with respect
to which all or substantially all of the individuals and entities who were the
beneficial owners, immediately prior to such reorganization, merger or
consolidation, of the Common Stock and voting securities beneficially own,
directly or indirectly, immediately after such reorganization, merger or
consolidation, more than 80% of the then outstanding common stock and voting
securities (entitled to vote generally in the election of directors) of the
Company resulting from such reorganization, merger or consolidation in
substantially the same proportions as their respective ownership, immediately
prior to such reorganization, merger or consolidation, of the Common Stock and
the voting securities; or (iv) Approval by the Board of Directors or the
shareholders of the Company of (A) a complete or substantial liquidation or
dissolution of the Company, or (B) the sale or other disposition of all or
substantially all of the assets of the Company, excluding a reorganization of
the Corporation under the corporate laws of Delaware.
(b) In the event of your actual termination of employment
contemporaneous with or following a Change in Control, except (x) because of
your death, (y) by the Company for Cause or Disability (as hereinafter defined)
or (z) by you other than for Good Reason (as hereinafter defined): (i) you shall
be entitled to receive, in lieu of the sums described in Section 6, an amount
equal to 100% of the Severance Benefits due and determined as if payable under
Section 6 above, to be paid in accordance with the terms of this Agreement; and
(ii) the following additional provisions shall apply (which provisions shall
supersede any other provisions of the Agreement, including but not limited to
Section 2 of the Agreement, to the extent such provisions are inconsistent with
the following provisions):
(1) DISABILITY. For purposes of this Section 7(b), termination by
the Company of your employment based on "Disability" shall mean termination
because of your absence from your duties with the Company on a full time basis
for one hundred eighty (180) consecutive days as a result of your incapacity due
to physical or mental illness, unless within thirty (30) days after Notice of
Termination (as hereinafter defined) is given to you following such absence, you
shall have returned to the full time performance of your duties.
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(2) GOOD REASON. Termination by you of your employment for
"Good Reason" shall mean termination based on:
(A) a determination that there has been a material adverse
change in your status or position(s) as an executive officer of the Company as
in effect immediately prior to the Change in Control, including, without
limitation, a material adverse change in your status or position as a result of
a diminution in your duties or responsibilities (other than, if applicable, any
such change directly attributable to the fact that the Company is no longer
publicly owned) or the assignment to you of any duties or responsibilities which
are inconsistent with such status or position(s), or any removal of you from, or
any failure to reappoint or reelect you to, such position(s) (except in
connection with the termination of your employment for Cause or Disability or as
a result of your death or by you other than for Good Reason) and further
provided that you have given the Company notice of this material adverse change
and the Company has failed to correct such material adverse change within a
reasonable period of time (but at least 14 days after written notice from you);
(B) a reduction by the Company (within two years following the
Change of Control) in your Base Salary as in effect immediately prior to the
Change in Control, other than a reduction in salaries generally for officers of
the Company;
(C) the failure by the Company (within two years following the
Change of Control) to continue in effect any Plan (as hereinafter defined) in
which you are participating at the time of the Change in Control of the Company
(or Plans providing you with at least substantially similar benefits) other than
as a result of the normal expiration of any such Plan in accordance with its
terms as in effect at the time of the Change in Control, or the taking of any
action, or the failure to act, by the Company which would adversely affect your
continued participation in any of such Plans on at least as favorable a basis to
you as is the case on the date of the Change in Control or which would
materially reduce your benefits in the future under any of such Plans or deprive
you of any material benefit enjoyed by you at the time of the Change in Control;
(D) the failure by the Company to provide and credit you with
the number of paid vacation days to which you are then entitled in accordance
with the Company's normal vacation policy as in effect immediately prior to the
Change in Control;
(E) the failure by the Company to obtain from any Successor (as
hereinafter defined) the assent to this Agreement contemplated by Section
7(b)(7) hereof; or
(F) any purported termination by the Company of your employment
which is not effected pursuant to a Notice of Termination satisfying the
requirements of Section 7(b)(3) below (and, if applicable, Section 7(b)(1)
above); and for
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purposes of this Agreement, no such purported termination shall be effective.
For purposes of this Agreement, "Plan" shall mean any compensation plan or
any employee benefit plan such as a thrift, pension, profit sharing, medical,
disability, accident, life insurance plan or a relocation plan or policy or any
other plan, program or policy of the Company intended to benefit employees.
(3) NOTICE OF TERMINATION. Any purported termination by the
Company or by you following a Change in Control shall be communicated by written
notice to the other party hereto which indicates the specific termination
provision in this Agreement relied upon (the "Notice of Termination").
(4) DATE OF TERMINATION. "Date of Termination" following a
Change in Control shall mean (A) if your employment is to be terminated for
Disability, thirty (30) days after Notice of Termination is given (provided that
you shall not have returned to the performance of your duties on a full-time
basis during such thirty (30) day period), (B) if your employment is to be
terminated by the Company for any reason other than death or Disability or by
you pursuant to Sections 7(b)(2)(F) or 7(b)(6) hereof or for any other Good
Reason, the date specified in the Notice of Termination, or (C) if your
employment is terminated on account of your death, the day after your death.
(5) COMPENSATION UPON TERMINATION OR DURING DISABILITY; OTHER
AGREEMENTS.
(A) During any period following a Change in Control of the
Company that you fail to perform your duties as a result of incapacity due to
physical or mental illness, you shall continue to receive your Base Salary at
the rate then in effect and any benefits or awards under any Plan shall continue
to accrue during such period, to the extent not inconsistent with such Plans,
until and unless your employment is terminated pursuant to and in accordance
with this Section 7(b). Thereafter, your benefits shall be determined in
accordance with the Plans then in effect.
(B) If your employment is terminated for Cause following a
Change in Control of the Company, the Company shall pay to you your Base Salary
through the Date of Termination at the rate in effect just prior to the time a
Notice of Termination is given plus any benefits or awards (including both the
cash and stock components) which pursuant to the terms of any Plans have been
earned or become payable, but which have not yet been paid to you. Thereupon,
the Company shall have no further obligations to you under this Agreement.
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(6) SUCCESSORS, BINDING AGREEMENT.
(A) The Company will seek, by request at least five (5)
business days prior to the time a Person becomes a Successor (as hereinafter
defined), to have such Person, by agreement in form and substance satisfactory
to you, assent to the Company's obligations under this Agreement. Failure of
such Person to furnish such assent by the later of (i) three (3) business days
prior to the time such Person becomes a Successor or (ii) two (2) business days
after such Person receives a written request to so assent shall constitute Good
Reason for termination by you of your employment if a Change in Control of the
Company occurs or has occurred. For purposes of this Section, "Successor" shall
mean any person that succeeds to, or has the ability to control, the Company's
business directly, by merger or consolidation, or indirectly, by purchase of the
Company's securities eligible to vote for the election of directors.
(B) This Agreement shall inure to the benefit of and be
enforceable by your personal legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If you should die while
any amount would still be payable to you hereunder if you had continued to live,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to your devisee, legatee or other designee or,
if no such designee exists, to your estate.
(C) For purposes of Section 7, the "Company" shall include
any subsidiaries of the Company and any corporation or other entity which is the
surviving or continuing entity in respect of any merger, consolidation or form
of business combination in which the Company ceases to exist; provided, however,
for purposes of determining whether a Change in Control has occurred herein, the
term "Company" shall refer to Applied Science and Technology, Inc. or its
Successor(s).
(7) FEES AND EXPENSES; MITIGATION.
(A) The Company shall reimburse you, on a current basis, for
all reasonable legal fees and related expenses incurred by you in connection
with the Agreement following a Change in Control of the Company, including
without limitation, (i) all such fees and expenses, if any, incurred in
contesting or disputing any termination of your employment or (ii) your seeking
to obtain or enforce any right or benefit provided by this Agreement, in each
case, regardless of whether or not your claim is upheld by a court of competent
jurisdiction; provided, however, you shall be required to repay any such amounts
to the Company to the extent that a court issues a final and non-appealable
order setting forth the determination that the position taken by you was
frivolous or advanced by you in bad faith.
(B) You shall not be required to mitigate the amount of any
payment the Company becomes obligated to make to you in connection with this
Agreement, by seeking other employment or otherwise.
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(8) TAXES. All payments to be made to you under this Agreement
will be subject to required withholding of federal, state and local income and
employment taxes.
(c) Notwithstanding any other provision of this Agreement, in the event
that any payment or benefit received or to be received by you as a result of or
in connection with a Change in Control, whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Company (all such
payment and benefits being hereinafter called the "Total Payments") would
subject you to the excise tax (the "Excise Tax") imposed under Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), then, to the extent
necessary to eliminate any such imposition of the Excise Tax (after taking into
account any reduction in the Total Payments in accordance with the provisions of
any other plan, arrangement or agreement, if any), (a) any non-cash severance
payments otherwise payable to you shall first be reduced (if necessary, to
zero), and (b) any cash severance payment otherwise payable to you shall next be
reduced. For purposes of the immediately preceding sentence, (i) no portion of
the Total Payments the receipt or enjoyment of which you shall have effectively
waived in writing shall be taken into account, (ii) no portion of the Total
Payment shall be taken into account which in the opinion of
nationally-recognized certified public accountants (in each case as mutually
selected by you and the Company) does not constitute a "parachute payment"
within the meaning of Section 280G of the Code, including, without limitation,
by reason of Section 280G(b)(2) or (b)(4)(A) of the Code, (iii) any payments to
you shall be reduced only to the extent necessary so that the Total Payments
[other than those referred to in clauses (i) and (ii)] in their entirety
constitute reasonable compensation for services actually rendered within the
meaning of Section 280G(4)(B) of the Code or are otherwise not subject to
disallowance as deductions, in the opinion of the tax counsel or the accountants
referred to in clause (ii); and (iv) the value of any non-cash benefit or any
deferred payment or benefit included in the Total Payments shall be determined
by such accountants in accordance with the requirements of section 280G(d)(3)
and (4) of the Code (and such determination shall be reviewed by such tax
counsel).
[THIS SPACE INTENTIONALLY LEFT BLANK]
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EXHIBIT B
OUTSIDE EMPLOYMENTS AND DIRECTORSHIPS OF
JILL MAUNDER
None
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<PAGE> 15
EXHIBIT C
-------------------------------------------------
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
-------------------------------------------------
To: Applied Science and Technology, Inc.
35 Cabot Road
Woburn, Massachusetts 01801
As of February 2, 1998
The undersigned, in consideration of and as a condition of my employment or
continued employment by you and/or by companies which you own, control, or are
affiliated with or their successors in business (collectively, the "Company"),
hereby agrees as follows:
1. CONFIDENTIALITY. I agree to keep confidential, except as the Company may
otherwise consent in writing, and, except for the Company's benefit, not to
disclose or make any use of at any time either during or subsequent to my
employment, any Inventions (as hereinafter defined), trade secrets, confidential
information, knowledge, data or other information of the Company relating to
products, processes, know-how, designs, formulas, test data, customer lists,
business plans, marketing plans and strategies, pricing strategies, or other
subject matter pertaining to any business of the Company or any of its
affiliates, which I may produce, obtain, or otherwise acquire during the course
of my employment, except as herein provided. I further agree not to deliver,
reproduce or in any way allow any such trade secrets, confidential information,
knowledge, data or other information, or any documentation relating thereto, to
be delivered to or used by any third parties without specific direction or
consent of a duly authorized representative of the Company.
2. CONFLICTING EMPLOYMENT; RETURN OF CONFIDENTIAL MATERIAL. I agree that
during my employment with the Company I will not engage in any other employment,
occupation, consulting or other activity relating to the business in which the
Company is now or may hereafter become engaged, or which would otherwise
conflict with my obligations to the Company. In the event my employment with the
Company terminates for any reason whatsoever, I agree to promptly surrender and
deliver to the Company all records, materials, equipment, drawings, documents
and data of which I may obtain or produce during the course of my employment,
and I will not take with me any description containing or pertaining to any
confidential information, knowledge or data of the Company which I may produce
or obtain during the course of my employment.
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3. ASSIGNMENT OF INVENTIONS.
3.1 I hereby acknowledge and agree that the Company is the owner of all
Inventions. In order to protect the Company's rights to such Inventions, by
executing this Agreement I hereby irrevocably assign to the Company all my
right, title and interest in and to all Inventions to the Company.
3.2 For purposes of this Agreement, "Inventions" shall mean all
discoveries, processes, designs, technologies, devices, or improvements in any
of the foregoing or other ideas, whether or not patentable and whether or not
reduced to practice, made or conceived by me (whether solely or jointly with
others) during the period of my employment with the Company which relate in any
manner to the actual or demonstrably anticipated business, work, or research and
development of the Company, or result from or are suggested by any task assigned
to me or any work performed by me for or on behalf of the Company.
3.3 Any discovery, process, design, technology, device, or improvement
in any of the foregoing or other ideas, whether or not patentable and whether or
not reduced to practice, made or conceived by me (whether solely or jointly with
others) which I develop entirely on my own time not using any of the Company's
equipment, supplies, facilities, or trade secret information ("Personal
Invention") is excluded from this Agreement provided such Personal Invention (a)
does not relate to the actual or demonstrably anticipated business, research and
development of the Company, and (b) does not result, directly or indirectly,
from any work performed by me for the Company.
4. DISCLOSURE OF INVENTIONS. I agree that in connection with any Invention,
I will promptly disclose such Invention to my immediate superior at the Company
in order to permit the Company to enforce its property rights to such Invention
in accordance with this Agreement. My disclosure shall be received in confidence
by the Company.
5. PATENTS AND COPYRIGHTS; EXECUTION OF DOCUMENTS.
5.1 Upon request, I agree to assist the Company or its nominee
(at its expense) during and at any time subsequent to my employment in every
reasonable way to obtain for its own benefit patents and copyrights for
Inventions in any and all countries. Such patents and copyrights shall be and
remain the sole and exclusive property of the Company or its nominee. I agree to
perform such lawful acts as the Company deems to be necessary to allow it to
exercise all right, title and interest in and to such patents and copyrights.
5.2 In connection with this Agreement, I agree to execute, acknowledge
and deliver to the Company or its nominee upon request and at its expense all
documents, including assignments of title, patent or copyright applications,
assignments of such applications, assignments of patents or copyrights upon
issuance, as the Company may determine necessary or desirable to protect the
Company's or its nominee's interest in Inventions, and/or to use in
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obtaining patents or copyrights in any and all countries and to vest title
thereto in the Company or its nominee to any of the foregoing.
6. MAINTENANCE OF RECORDS. I agree to keep and maintain adequate and
current written records of all Inventions made by me (in the form of notes,
sketches, drawings and other records as may be specified by the Company), which
records shall be available to and remain the sole property of the Company at all
times.
7. PRIOR INVENTIONS. It is understood that all Personal Inventions, if any,
whether patented or unpatented, which I made prior to my employment by the
Company, are excluded from this Agreement. To preclude any possible uncertainty,
I have set forth on Schedule A attached hereto a complete list of all of my
prior Personal Inventions, including numbers of all patents and patent
applications and a brief description of all unpatented Personal Inventions which
are not the property of a previous employer. I represent and covenant that the
list is complete and that, if no items are on the list, I have no such prior
Personal Inventions. I agree to notify the Company in writing before I make any
disclosure or perform any work on behalf of the Company which appears to
threaten or conflict with proprietary rights I claim in any Personal Invention.
In the event of my failure to give such notice, I agree that I will make no
claim against the Company with respect to any such Personal Invention.
8. OTHER OBLIGATIONS. I acknowledge that the Company from time to time may
have agreements with other persons or with the U.S. Government or agencies
thereof, which impose obligations or restrictions on the Company regarding
Inventions made during the course of work thereunder or regarding the
confidential nature of such work. I agree to be bound by all such obligations
and restrictions and to take all action necessary to discharge the Company's
obligations.
9. TRADE SECRETS OF OTHERS. I represent that my performance of all the
terms of this Agreement and as an employee of the Company does not and will not
breach any agreement to keep confidential proprietary information, knowledge or
data acquired by me in confidence or in trust prior to my employment with the
Company, and I will not disclose to the Company, or induce the Company to use,
any confidential or proprietary information or material belonging to any
previous employer or others. I agree not to enter into any agreement either
written or oral in conflict herewith.
10. MODIFICATION. I agree that any subsequent change or changes in my
employment duties, salary or compensation or, if applicable, in any Employment
Agreement between the Company and me, shall not affect the validity or scope of
this Agreement.
11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon my heirs,
executors, administrators or other legal representatives and is for the benefit
of the Company, its successors and assigns.
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12. INTERPRETATION. IT IS THE INTENT OF THE PARTIES THAT in case any one or
more of the provisions contained in this Agreement shall, for any reason, be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT in case any one or more of the provisions contained
in this Agreement shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, such provision shall be
construed by limiting and reducing it in accordance with a judgment of a court
of competent jurisdiction, so as to be enforceable to the extent compatible with
applicable law.
13. WAIVERS. If either party should waive any breach of any provision of
this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
14. COMPLETE AGREEMENT, AMENDMENTS. I acknowledge receipt of this
Agreement, and agree that with respect to the subject matter thereof the
provisions of this Key Employee Agreement of which this Exhibit C is one part,
is my entire agreement with the Company, superseding any previous oral or
written communications, representations, understandings, or agreements with the
Company or any officer or representative thereof. Any amendment to this
Agreement or waiver by either party of any right hereunder shall be effective
only if evidenced by a written instrument executed by the parties hereto, and,
in the case of the Company, upon written authorization of the Company's Board of
Directors.
15. HEADINGS. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor
to affect the meaning thereof.
16. COUNTERPARTS. This Agreement may be signed in two counterparts, each of
which shall be deemed an original and both of which shall together constitute
one agreement.
17. GOVERNING LAW. This Agreement shall be governed by and construed under
Massachusetts law.
18 EMPLOYMENT STATUS. Nothing in this Agreement shall affect in any manner
whatsoever the right or power of the Company to terminate the employment of the
Employee.
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<PAGE> 19
IN WITNESS WHEREOF, the parties have executed this Proprietary Information
and Inventions Agreement as of the date first written above.
EMPLOYEE
/s/ JILL MAUNDER
---------------------------------
Jill Maunder
Accepted and Agreed:
APPLIED SCIENCE AND TECHNOLOGY, INC.
By:/s/ RICHARD S. POST
- -------------------------------------
Dr. Richard S. Post, President
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SCHEDULE A
LIST OF PRIOR INVENTIONS
OF JILL MAUNDER
Identifying Number or
Title Date Brief Description
- ----- ---- ---------------------
NONE
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EXHIBIT D (INCENTIVE STOCK OPTION)
APPLIED SCIENCE AND TECHNOLOGY, INC.
35 Cabot Road
Woburn, Massachusetts 01801
February 2, 1998
Jill Maunder
[Address]
Dear Jill:
I am pleased to advise you that APPLIED SCIENCE AND TECHNOLOGY, INC. (the
"Company") has, pursuant to its 1993 Stock Option Plan (the "1993 Plan"),
awarded you an incentive stock option to twenty thousand (20,000) shares of the
Common Stock, $.01 par value per share, of the Company at an exercise price of $
per share, for a total exercise price of $ . The Company is making this offer to
"share the business" with valued employees such as yourself. We hope that by
owning a piece of the Company you will continue your efforts towards helping the
Company grow and succeed.
The following terms and conditions are applicable with respect to this
option, and your signature below shall constitute your acknowledgment and
acceptance of same:
(a) This option shall not be transferable under any circumstances
except by operation of law. During your lifetime, this option is
only exercisable by you, and after your death, is only
exercisable by your estate.
(c) The price at which this option may be exercised shall be $ per
share, for a total exercise price of $ .00.
(d) This option is exercisable commencing immediately and at any time
hereafter through ten years from today's grant date, subject to
the following terms:
(1) In the event of termination of your employment with the
Company (or a parent or subsidiary of the Company) for any
reason other than death or disability as defined in Internal
Revenue Code Section 22(e)(3), as amended (the "Code"), all
unexercised options shall terminate immediately.
(2) In the event of termination of your employment as a result
of your death, the outstanding options exercisable by you at
the date of your death may
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<PAGE> 22
be exercised by your estate until one (1) year from the date
of your death, but in any event no later than January 31,
2008.
(3) In the event of termination of your employment as a result
of your disability, as above defined, or in the event of a
disability that lasts for more than ninety (90) days, all
outstanding options exercisable by you at the date of such
termination shall terminate one (1) year from the date your
employment terminates, but in any event no later than
January 31, 2008.
(4) Notwithstanding anything herein to the contrary, the maximum
extent to which this option may be exercised is as follows:
DATES UP TO
----- ------
2/2/98 - 1/31/99 20%
2/1/99 - 1/31/00 40%
2/1/00 - 1/31/01 60%
2/1/01 - 1/31/02 80%
2/1/02 - 1/31/08 100%
(e) This option may not be exercised as to less than one hundred
(100) shares at any one time unless it is being exercised in
full and the balance of the shares subject to this option is
less than one hundred (100).
(f) The shares of Common Stock underlying this option and the
exercise price therefore shall be appropriately adjusted
from time to time for stock splits, reverse splits, stock
dividends and reclassifications of shares.
(g) In the event of a sale or acquisition of substantially all
of the stock or assets of the Company, the Company shall
give at least thirty (30) days' notice of such an event to
you and you may exercise up to 100% of the vested portion of
this option; if you do not exercise the option within thirty
(30) days of such notice, all unexercised portions of this
option shall terminate and be of no further force or effect.
Notwithstanding the foregoing, additional shares underlying
this option grant may vest in accordance with the provisions
of Exhibit A of your Employment Agreement of even date with
the Company.
This opportunity to purchase stock in the Company is being offered because
of the Company's desire to reward continuing loyal service. Exercising options
may not be a prudent business decision for some employees. Therefore, we urge
you to review this opportunity carefully and make a decision to exercise options
only if your personal financial situation makes this a wise choice.
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<PAGE> 23
When you wish to exercise this stock option, please refer to the provisions
of this letter and then correspond in writing with the Secretary of the Company.
Further, please indicate your acknowledgment and acceptance of this option by
signing the enclosed copy of this letter and returning it to the undersigned.
Very truly yours,
APPLIED SCIENCE AND TECHNOLOGY, INC.
By:_____________________________________
John M. Tarrh, Senior Vice President
ACKNOWLEDGMENT AND ACCEPTANCE:
- --------------------------------------
Jill Maunder
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<PAGE> 1
EXHIBIT 10b
----------------------
KEY EMPLOYEE AGREEMENT
----------------------
To: Dr. Avishay Katz As of May 14, 1998
The undersigned, Applied Science and Technology, Inc., a Delaware
corporation, as well as its successors and assigns (hereinafter collectively
referred to as the "Company"), hereby agree with you as follows:
l. POSITION AND RESPONSIBILITIES.
1.1 You shall serve as Senior Vice President, Global Customer
Operations of the Company (or in such other capacity as shall be designated by
the President or Board of Directors and reasonably acceptable to you). You will,
to the best of your ability, devote your full time and best efforts to the
performance of your duties hereunder and the business and affairs of the Company
and perform such duties as may be assigned to you by or on authority of the
Company's President from time to time and the duties customarily associated with
such capacity from time to time and at such place or places as the Company shall
designate are appropriate and necessary in connection with such employment.
1.2 You will duly, punctually and faithfully perform and
observe any and all rules and regulations which the Company may now or shall
hereafter establish governing the conduct of its business.
1.3 You will report directly to the Company's President and
will be based out of the Company's Santa Clara, California office.
2. TERM OF EMPLOYMENT.
2.1 The initial term of this Agreement shall be for the period
set forth on EXHIBIT A annexed hereto commencing with the date hereof.
Thereafter, this Agreement shall be automatically renewed for successive periods
of one year, unless you or the Company shall give the other party not less than
thirty (30) days written notice of non-renewal. Your employment with the Company
may be terminated as provided in Section 2.2.
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<PAGE> 2
2.2 The Company shall have the right, upon written notice to
you, to terminate your employment:
(a) immediately at any time for "Cause" (as defined
herein subject to your right of cure and right to dispute as provided
in Section 2.3 herein); or
(b) at any time, without "Cause," provided that the
Company shall be obligated to pay to you the Severance Benefits set
forth in Sections 6 or 7, as applicable, of EXHIBIT A, plus any sums
then due to you, including those expenses as are provided for in
Section 4 of EXHIBIT A, less (i) applicable taxes and other required
withholdings, and (ii) any amounts you may owe to the Company. Payments
under this Section 2.2 (b) shall not be due or payable if you are
terminated at any time for "Cause" or if you voluntarily resign from
your employment, except as set forth in Section 7 of EXHIBIT A.
2.3 For purposes of Section 2.2, the term "Cause" shall mean
(a) gross negligence or willful misconduct in the performance of assigned
duties; (b) material and repetitive refusal to perform or discharge the duties
or responsibilities assigned by the President of the Company provided the same
are not illegal, unethical or inconsistent with the position of Senior Vice
President, Global Operations of a corporation and the failure to correct such
refusal and perform such duties or responsibilities within a reasonable period
of time (but in any event no less than seven (7) calendar days after written
notice of such failure); (c) conviction of a felony or misdemeanor involving
moral turpitude; (d) willful or prolonged absence from work not excused by a
bona fide medical disability as reasonably determined by a qualified physician
mutually acceptable to both you and the Company or other good cause as
reasonably determined by the Board of Directors; and (e) falseness of any
warranty or representation by you herein or the breach of your obligations under
this Agreement to the material detriment of the Company.
2.4 In the event of the Involuntary Termination (as
hereinafter defined) of your employment with the Company at any time, the
Company hereby agrees to provide you with Severance Benefits as defined in
Section 6 of EXHIBIT A hereto or payments in the event of a "Change in Control"
as defined in Section 7 of EXHIBIT A. In this regard, the phrase "Involuntary
Termination" shall mean (a) any termination of your employment by the Company
other than for "cause," as defined in Section 2.3, (b) any notice by the Company
not to renew this Agreement pursuant to Section 2.1, or (c) for purposes of
Section 7 of EXHIBIT A (but not Section 6 of EXHIBIT A) any termination of your
employment by you due to any of the following circumstances: (i) a reduction in
your Base Salary or Company-paid benefits, (ii) a reduction in your eligibility
for any Company bonus or other benefit program, or (iii) a material or
substantial change in your title, position, authority or duties.
2.5 You shall have the right to terminate this Agreement upon
not less than thirty (30) days prior written notice to the Company.
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<PAGE> 3
3. COMPENSATION. You shall receive the compensation and benefits set
forth on EXHIBIT A ("Compensation") for all services to be rendered by you
hereunder and for your transfer of property rights pursuant to an agreement
relating to proprietary information and inventions of even date herewith
attached hereto as Exhibit C between you and the Company (the "Proprietary
Information and Inventions Agreement").
4. OTHER ACTIVITIES DURING EMPLOYMENT.
4.1 Except for any outside employments and directorships
currently held by you as listed on EXHIBIT B, and except with the prior written
consent of the Company's President, you will not during the term of this
Agreement undertake or engage in any other employment, occupation or business
enterprise other than one in which you are an inactive investor.
4.2 You hereby agree that, except as disclosed on EXHIBIT B
hereto, during your employment hereunder, you will not, directly or indirectly,
engage (a) individually, (b) as an officer, (c) as a director, (d) as an
employee, (e) as a consultant, (f) as an advisor, (g) as an agent (whether a
salesperson or otherwise), (h) as a broker, or (i) as a partner, coventurer,
stockholder or other proprietor owning directly or indirectly more than two
percent (2%) interest, in any firm, corporation, partnership, trust,
association, or other organization which is engaged in the research,
development, production, manufacture or marketing of equipment or processes in
direct competition with the Company or any other line of business engaged in or
under demonstrable development by the Company (such firm, corporation,
partnership, trust, association, or other organization being hereinafter
referred to as a "Prohibited Enterprise"). Except as may be shown on EXHIBIT B,
you hereby represent that you are not engaged in any of the foregoing capacities
(a) through (i) in any Prohibited Enterprise.
5. FORMER EMPLOYERS.
5.1 You represent and warrant that your employment by the
Company will not conflict with and will not be constrained by any prior or
current employment, consulting agreement or relationship whether oral or
written. You represent and warrant that you do not possess confidential
information arising out of any such employment, consulting agreement or
relationship which, in your best judgment, would be utilized in connection with
your employment by the Company in the absence of Section 5.2.
5.2 If, in spite of the second sentence of Section 5.1, you
should find that confidential information belonging to any other person or
entity might be usable in connection with the Company's business, you will not
intentionally disclose to the Company or use on behalf of the Company any
confidential information belonging to any of your former employers; but during
your employment by the Company you will use in the performance of your duties
all information which is generally known and used by persons with training and
experience comparable to your own all information which is common knowledge in
the industry or other-
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<PAGE> 4
wise legally in the public domain.
6. PROPRIETARY INFORMATION AND INVENTIONS. You agree to execute,
deliver and be bound by the provisions of the Proprietary Information and
Inventions Agreement.
7. REMEDIES. Your obligations under the Proprietary Information and
Inventions Agreement and the provisions of Sections 4, 6, and 8 of this
Agreement (as modified by Section 9, if applicable) shall survive the expiration
or termination of your employment (whether through your resignation or
otherwise) with the Company. You acknowledge that a remedy at law for any breach
or threatened breach by you of the provisions of the Proprietary Information and
Inventions Agreement would be inadequate and you therefore agree that the
Company shall be entitled to such injunctive or other equitable relief in case
of any such breach or threatened breach.
8. ASSIGNMENT. This Agreement and the rights and obligations of the
parties hereto shall bind and inure to the benefit of any successor or
successors of the Company by reorganization, merger or consolidation and any
assignee of all or substantially all of its business and properties, but, except
as to any such successor or assignee of the Company, neither this Agreement nor
any rights or benefits hereunder may be assigned by the Company or by you,
except by operation of law. The Company's obligations and those of any
successors or assignees of the Company under this Agreement, including but not
limited to the severance provisions and other compensation and benefits due to
you pursuant to EXHIBIT A hereto, will be a condition of and are to remain those
of any successor or assignee.
9. INTERPRETATION. IT IS THE INTENT OF THE PARTIES THAT in case any one
or more of the provisions contained in this Agreement shall, for any reason, be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT in case any one or more of the provisions contained
in this Agreement shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, such provision shall be
construed by limiting and reducing it as determined by a court of competent
jurisdiction, so as to be enforceable to the extent compatible with applicable
law.
10. NOTICES. Any notice which the Company is required to or may desire
to give you shall be given by personal delivery or registered or certified mail,
return receipt requested, addressed to you at your address of record with the
Company, or at such other place as you may from time to time designate in
writing. Any notice which you are required or may desire to give to the Company
hereunder shall be given by personal delivery or by registered or certified
mail, return receipt requested, addressed to the Company at its principal
office, or at such other office as the Company may from time to time designate
in writing. The date of personal delivery or the
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<PAGE> 5
date of mailing any notice under this Section 10 shall be deemed to be the date
of delivery thereof.
11. WAIVERS. If either party should waive any breach of any provision
of this Agreement, such party shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
12. COMPLETE AGREEMENT; AMENDMENTS. The foregoing including Exhibits A,
B, C and D hereto, is the entire agreement of the parties with respect to the
subject matter hereof, superseding any previous oral or written communications,
representations, understandings, or agreements with the Company or any officer
or representative thereof. Any amendment to this Agreement or waiver by the
Company of any right hereunder shall be effective only if evidenced by a written
instrument executed by the parties hereto, upon authorization of the Company's
Board of Directors.
13. HEADINGS. The headings of the Sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning of this Agreement.
14. COUNTERPARTS. This Agreement may be signed in two counterparts,
each of which shall be deemed an original and both of which shall together
constitute one agreement.
15. GOVERNING LAW; VENUE. This Agreement shall be governed by and
construed under Massachusetts law.
16. ADVICE OF SEPARATE COUNSEL. You acknowledge that you have been
advised to review this Agreement with your own legal counsel and other advisors
of your choosing and that prior to entering into this Agreement, you have had
the opportunity to review this Agreement with your attorney and other advisors
and have not asked (or relied upon) Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C. to represent you in this matter.
If you are in agreement with the foregoing, please sign your name below
and also at the bottom of the Proprietary Information and Inventions Agreement
and Stock Option Grant Letter, whereupon this Agreement shall become binding in
accordance with its terms. Please then return this Agreement to the Company.
(You may retain for your records the accompanying counterpart of this Agreement
enclosed herewith).
ACCEPTED AND AGREED: APPLIED SCIENCE AND
TECHNOLOGY, INC.
/s/ Avishay Katz By: /s/ Richard S. Post
- ---------------------------------- ----------------------------------
Dr.Avishay Katz Dr. Richard S. Post, President
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<PAGE> 6
EXHIBIT A
EMPLOYMENT TERM, COMPENSATION AND BENEFITS
OF DR. AVISHAY KATZ
l. TERM. The term of the Agreement to which this Exhibit A is attached
and made a part shall be for a period from the date of this Agreement through
June 30, 1999.
2. COMPENSATION.
(a) BASE SALARY. Your base salary ("Base Salary") shall be
$6,538.46 payable on a bi-weekly basis ($170,000.00 on an annualized basis)
through June 30, 1999, payable in accordance with the Company's payroll
policies. Commencing July 1, 1999, your base salary shall be established by the
Board of Directors' Compensation Committee.
(b) BONUSES. The Company shall establish appropriate incentive
compensation plans ("Bonuses") for you for each fiscal year that you are
employed hereunder, commencing with Fiscal 1999 which commences on June 28,
1998, under which you shall be entitled to a bonus of up to 40% of your then
current Base Salary based on the Company attaining certain financial and other
results and also based upon individual goals to be established for you. [For
information purposes, a copy of the Company's Fiscal 1998 Plan has been provided
to you under separate cover]. Such Bonuses shall be properly approved by the
Board of Directors or the Compensation Committee of the Board of Directors.
3. VACATION, INSURANCE AND BENEFITS; EXPENSES. You shall be entitled to
all legal holidays recognized by the Company, and 18 days paid vacation per
annum. Any unused vacation may be accrued or used in accordance with Company
policy. You shall be eligible for participation in any health, dental, and other
group insurance plans which may be established and maintained by the Company for
all full-time employees or which the Company is required to maintain by law. You
shall also be entitled to participate in any employee benefit programs which the
Company's Board of Directors may establish for Company employees generally,
including, but not limited to, bonuses and stock purchase or option plans. You
will be eligible to participate in the Company's 401(k) Plan. The Company shall
reimburse you for all usual and ordinary business expenses incurred by you in
the scope of your employment hereunder in accordance with the Company's expense
reimbursement policy.
4. INITIAL STOCK OPTIONS. You shall be entitled to receive stock
options to purchase up to an aggregate of 45,000 shares of common stock of the
Company. Such options shall be priced on the closing price of the Company's
Common Stock as reported by NASDAQ on the date you commence employment with the
Company and shall vest as follows: 20% vesting immediately and the remaining 80%
vesting in four equal annual installments on the anniversary date of such grant.
A copy of the forms of option grant letters are attached hereto as EXHIBITS D
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<PAGE> 7
AND E. Notwithstanding the foregoing, in the event of a Change of Control (as
defined in Section 7 herein), an additional 20% of such option shall vest upon
the Change of Control (but in any event not to exceed 100% of the original
option grant).
5. SUBSEQUENT STOCK OPTIONS. In addition, upon the six month
anniversary date of your date of employment, you shall be eligible to receive a
stock option to purchase up to an additional 15,000 shares of the Company's
Common Stock based upon a review of your performance against mutually agreed
upon goals. In addition, upon your next review on or about July 1, 1999, you
shall be eligible to receive a stock option to purchase up to an additional
15,000 shares of the Company's Common Stock based upon a review of your
performance against mutually agreed upon goals. Such options shall be priced
based on the closing price of the Company's Common Stock as reported by NASDAQ
on the date of grant and shall vest as follows: 20% vesting immediately and the
remaining 80% vesting in four equal annual installments on the anniversary date
of such grant. Notwithstanding the foregoing, in the event of a Change of
Control (as defined in Section 7 herein), an additional 20% of such option shall
vest upon the Change of Control (but in any event not to exceed 100% of the
original option grant).
6. SEVERANCE BENEFITS.
(a) When provided for in this Agreement, you shall be entitled
to "Severance Benefits." When used in this Agreement, the term "Severance
Benefits" shall mean a total amount equal to (i) fifty percent (50%) of your
then current annual Base Salary, plus (ii) 50% of your Bonuses earned for the
Company's most recent fiscal year. If the Company's fiscal year is changed, the
Bonuses shall be based upon your bonuses received during the Company's most
recent fiscal year. The Severance Benefits shall be paid via check to you in six
(6) equal monthly installments commencing within ten (10) days after the date of
your termination of employment with the Company.
(b) In addition, the term "Severance Benefits" shall include
the continuation for you and your family, during the Severance Period, as
defined below, of all of the other benefits which are provided or available to
you on the last day of your actual service with the Company. For purposes of
this Agreement, the term "Severance Period" means the period of six (6) months
beginning on the Date of Termination.
(c) The Severance Benefits referred to above will be in
addition to, and not in substitution for, any accrued and unpaid salary,
vacation, pension or other similar retirement benefits, and unreimbursed
expenses to which you may be otherwise entitled.
7. CHANGE IN CONTROL.
(a) For purposes of this Agreement, "Change in Control" means
and shall be deemed to occur if any of the following occurs: (i) the acquisition
by an individual, entity or
A-2
<PAGE> 8
group, as defined in Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), of beneficial ownership, as defined in
Rule 13d-3 promulgated under the Exchange Act, of 50% or more of either (A) the
outstanding shares of common stock, $.01 par value per share, of the Company
(the "Common Stock"), or (B) the combined voting power of the voting securities
of the Company entitled to vote generally in the election of directors (the
"Voting Securities"); or (ii) individuals who, on November 21, 1997, constituted
the Board of Directors of the Company (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board of Directors of the
Company; PROVIDED, HOWEVER, that any individual becoming a director subsequent
to November 21, 1997, whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority of the
directors then serving and comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or
other actual or threatened solicitation of proxies or consents; or (iii)
approval by the Board of Directors or the shareholders of the Company of a (A)
tender offer to acquire any of the Common Stock or voting securities, (B)
reorganization, (C) merger or (D) consolidation, other than a reorganization,
merger or consolidation with respect to which all or substantially all of the
individuals and entities who were the beneficial owners, immediately prior to
such reorganization, merger or consolidation, of the Common Stock and voting
securities beneficially own, directly or indirectly, immediately after such
reorganization, merger or consolidation, more than 80% of the then outstanding
common stock and voting securities (entitled to vote generally in the election
of directors) of the Company resulting from such reorganization, merger or
consolidation in substantially the same proportions as their respective
ownership, immediately prior to such reorganization, merger or consolidation, of
the Common Stock and the voting securities; or (iv) Approval by the Board of
Directors or the shareholders of the Company of (A) a complete or substantial
liquidation or dissolution of the Company, or (B) the sale or other disposition
of all or substantially all of the assets of the Company, excluding a
reorganization of the Corporation under the corporate laws of Delaware.
(b) In the event of your actual termination of employment
contemporaneous with or following a Change in Control, except (x) because of
your death, (y) by the Company for Cause or Disability (as hereinafter defined)
or (z) by you other than for Good Reason (as hereinafter defined): (i) you shall
be entitled to receive, in lieu of the sums described in Section 6, an amount
equal to 100% of the Severance Benefits due and determined as if payable under
Section 6 above, for each full year or portion thereof you have been employed by
the Company, up to a maximum of 100% of the Severance Benefits mentioned in
Section 6 above, to be paid in accordance with the terms of this Agreement; and
(ii) the following additional provisions shall apply (which provisions shall
supersede any other provisions of the Agreement, including but not limited to
Section 2 of the Agreement, to the extent such provisions are inconsistent with
the following provisions):
A-3
<PAGE> 9
(1) DISABILITY. For purposes of this Section 7(b),
termination by the Company of your employment based on "Disability" shall mean
termination because of your absence from your duties with the Company on a full
time basis for one hundred eighty (180) consecutive days as a result of your
incapacity due to physical or mental illness, unless within thirty (30) days
after Notice of Termination (as hereinafter defined) is given to you following
such absence, you shall have returned to the full time performance of your
duties.
(2) GOOD REASON. Termination by you of your
employment for "Good Reason" shall mean termination based on:
(A) a determination that there has been a
material adverse change in your status or position(s) as an executive officer of
the Company as in effect immediately prior to the Change in Control, including,
without limitation, a material adverse change in your status or position as a
result of a diminution in your duties or responsibilities (other than, if
applicable, any such change directly attributable to the fact that the Company
is no longer publicly owned) or the assignment to you of any duties or
responsibilities which are inconsistent with such status or position(s), or any
removal of you from, or any failure to reappoint or reelect you to, such
position(s) (except in connection with the termination of your employment for
Cause or Disability or as a result of your death or by you other than for Good
Reason) and further provided that you have given the Company notice of this
material adverse change and the Company has failed to correct such material
adverse change within a reasonable period of time (but at least 14 days after
written notice from you);
(B) a reduction by the Company (within two
years following the Change of Control) in your Base Salary as in effect
immediately prior to the Change in Control, other than a reduction in salaries
generally for officers of the Company;
(C) the failure by the Company (within two
years following the Change of Control) to continue in effect any Plan (as
hereinafter defined) in which you are participating at the time of the Change in
Control of the Company (or Plans providing you with at least substantially
similar benefits) other than as a result of the normal expiration of any such
Plan in accordance with its terms as in effect at the time of the Change in
Control, or the taking of any action, or the failure to act, by the Company
which would adversely affect your continued participation in any of such Plans
on at least as favorable a basis to you as is the case on the date of the Change
in Control or which would materially reduce your benefits in the future under
any of such Plans or deprive you of any material benefit enjoyed by you at the
time of the Change in Control;
(D) the failure by the Company to provide
and credit you with the number of paid vacation days to which you are then
entitled in accordance with the Company's normal vacation policy as in effect
immediately prior to the Change in Control;
A-4
<PAGE> 10
(E) the failure by the Company to obtain
from any Successor (as hereinafter defined) the assent to this Agreement
contemplated by Section 7(b)(7) hereof; or
(F) any purported termination by the Company
of your employment which is not effected pursuant to a Notice of Termination
satisfying the requirements of Section 7(b)(3) below (and, if applicable,
Section 7(b)(1) above); and for purposes of this Agreement, no such purported
termination shall be effective.
For purposes of this Agreement, "Plan" shall mean any compensation plan
or any employee benefit plan such as a thrift, pension, profit sharing, medical,
disability, accident, life insurance plan or a relocation plan or policy or any
other plan, program or policy of the Company intended to benefit employees.
(3) NOTICE OF TERMINATION. Any purported termination
by the Company or by you following a Change in Control shall be communicated by
written notice to the other party hereto which indicates the specific
termination provision in this Agreement relied upon (the "Notice of
Termination").
(4) DATE OF TERMINATION. "Date of Termination"
following a Change in Control shall mean (A) if your employment is to be
terminated for Disability, thirty (30) days after Notice of Termination is given
(provided that you shall not have returned to the performance of your duties on
a full-time basis during such thirty (30) day period), (B) if your employment is
to be terminated by the Company for any reason other than death or Disability or
by you pursuant to Sections 7(b)(2)(F) or 7(b)(6) hereof or for any other Good
Reason, the date specified in the Notice of Termination, or (C) if your
employment is terminated on account of your death, the day after your death.
(5) COMPENSATION UPON TERMINATION OR DURING
DISABILITY; OTHER AGREEMENTS.
(A) During any period following a Change in
Control of the Company that you fail to perform your duties as a result of
incapacity due to physical or mental illness, you shall continue to receive your
Base Salary at the rate then in effect and any benefits or awards under any Plan
shall continue to accrue during such period, to the extent not inconsistent with
such Plans, until and unless your employment is terminated pursuant to and in
accordance with this Section 7(b). Thereafter, your benefits shall be determined
in accordance with the Plans then in effect.
(B) If your employment is terminated for
Cause following a Change in Control of the Company, the Company shall pay to you
your Base Salary through the Date of Termination at the rate in effect just
prior to the time a Notice of Termination is given plus any benefits or awards
(including both the cash and stock components) which pursuant to
A-5
<PAGE> 11
the terms of any Plans have been earned or become payable, but which have not
yet been paid to you. Thereupon, the Company shall have no further obligations
to you under this Agreement.
(6) SUCCESSORS, BINDING AGREEMENT.
(A) The Company will seek, by written
request at least five (5) business days prior to the time a Person becomes a
Successor (as hereinafter defined), to have such Person, by agreement in form
and substance satisfactory to you, assent to the fulfillment of the Company's
obligations under this Agreement. Failure of such Person to furnish such assent
by the later of (i) three (3) business days prior to the time such Person
becomes a Successor or (ii) two (2) business days after such Person receives a
written request to so assent shall constitute Good Reason for termination by you
of your employment if a Change in Control of the Company occurs or has occurred.
For purposes of Section 7, "Successor" shall mean any person that succeeds to,
or has the practical ability to control, the Company's business directly, by
merger or consolidation, or indirectly, by purchase of the Company's securities
eligible to vote for the election of directors, or otherwise.
(B) This Agreement shall inure to the
benefit of and be enforceable by your personal legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
should die while any amount would still be payable to you hereunder if you had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to your devisee, legatee or
other designee or, if no such designee exists, to your estate.
(C) For purposes of Section 7, the "Company"
shall include any subsidiaries of the Company and any corporation or other
entity which is the surviving or continuing entity in respect of any merger,
consolidation or form of business combination in which the Company ceases to
exist; provided, however, for purposes of determining whether a Change in
Control has occurred herein, the term "Company" shall refer to Applied Science
and Technology, Inc. or its Successor(s).
(7) FEES AND EXPENSES; MITIGATION.
(A) The Company shall reimburse you, on a
current basis, for all reasonable legal fees and related expenses incurred by
you in connection with the Agreement following a Change in Control of the
Company, including without limitation, (i) all such fees and expenses, if any,
incurred in contesting or disputing any termination of your employment or (ii)
your seeking to obtain or enforce any right or benefit provided by this
Agreement, in each case, regardless of whether or not your claim is upheld by a
court of competent jurisdiction; provided, however, you shall be required to
repay any such amounts to the Company to the extent that a court issues a final
and non-appealable order setting forth the determination that the position taken
by you was frivolous or advanced by you in bad faith.
A-6
<PAGE> 12
(B) You shall not be required to mitigate
the amount of any payment the Company becomes obligated to make to you in
connection with this Agreement, by seeking other employment or otherwise.
(8) TAXES. All payments to be made to you under this
Agreement will be subject to required withholding of federal, state and local
income and employment taxes.
(c) Notwithstanding any other provision of this Agreement, in
the event that any payment or benefit received or to be received by you as a
result of or in connection with a Change in Control, whether pursuant to the
terms of this Agreement or any other plan, arrangement or agreement with the
Company (all such payment and benefits being hereinafter called the "Total
Payments") would subject you to the excise tax (the "Excise Tax") imposed under
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"),
then, to the extent necessary to eliminate any such imposition of the Excise Tax
(after taking into account any reduction in the Total Payments in accordance
with the provisions of any other plan, arrangement or agreement, if any), (a)
any non-cash severance payments otherwise payable to you shall first be reduced
(if necessary, to zero), and (b) any cash severance payment otherwise payable to
you shall next be reduced. For purposes of the immediately preceding sentence,
(i) no portion of the Total Payments the receipt or enjoyment of which you shall
have effectively waived in writing shall be taken into account, (ii) no portion
of the Total Payment shall be taken into account which in the opinion of
nationally-recognized certified public accountants (in each case as mutually
selected by you and the Company) does not constitute a "parachute payment"
within the meaning of Section 280G of the Code, including, without limitation,
by reason of Section 280G(b)(2) or (b)(4)(A) of the Code, (iii) any payments to
you shall be reduced only to the extent necessary so that the Total Payments
[other than those referred to in clauses (i) and (ii)] in their entirety
constitute reasonable compensation for services actually rendered within the
meaning of Section 280G(4)(B) of the Code or are otherwise not subject to
disallowance as deductions, in the opinion of the tax counsel or the accountants
referred to in clause (ii); and (iv) the value of any non-cash benefit or any
deferred payment or benefit included in the Total Payments shall be determined
by such accountants in accordance with the requirements of section 280G(d)(3)
and (4) of the Code (and such determination shall be reviewed by such tax
counsel).
[THIS SPACE INTENTIONALLY LEFT BLANK]
A-7
<PAGE> 13
EXHIBIT B
OUTSIDE EMPLOYMENTS AND DIRECTORSHIPS OF
DR. AVISHAY KATZ
None
B-1
<PAGE> 14
EXHIBIT C
------------------------------------------------
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
------------------------------------------------
To: Applied Science and Technology, Inc.
35 Cabot Road
Woburn, Massachusetts 01801
As of May 14,1998
The undersigned, in consideration of and as a condition of my
employment or continued employment by you and/or by companies which you own,
control, or are affiliated with or their successors in business (collectively,
the "Company"), hereby agrees as follows:
1. CONFIDENTIALITY. I agree to keep confidential, except as the Company
may otherwise consent in writing, and, except for the Company's benefit, not to
disclose or make any use of at any time either during or subsequent to my
employment, any Inventions (as hereinafter defined), trade secrets, confidential
information, knowledge, data or other information of the Company relating to
products, processes, know-how, designs, formulas, test data, customer lists,
business plans, marketing plans and strategies, pricing strategies, or other
subject matter pertaining to any business of the Company or any of its
affiliates, which I may produce, obtain, or otherwise acquire during the course
of my employment, except as herein provided. I further agree not to deliver,
reproduce or in any way allow any such trade secrets, confidential information,
knowledge, data or other information, or any documentation relating thereto, to
be delivered to or used by any third parties without specific direction or
consent of a duly authorized representative of the Company.
2. CONFLICTING EMPLOYMENT; RETURN OF CONFIDENTIAL MATERIAL. I agree
that during my employment with the Company I will not engage in any other
employment, occupation, consulting or other activity relating to the business in
which the Company is now or may hereafter become engaged, or which would
otherwise conflict with my obligations to the Company. In the event my
employment with the Company terminates for any reason whatsoever, I agree to
promptly surrender and deliver to the Company all records, materials, equipment,
drawings, documents and data of which I may obtain or produce during the course
of my employment, and I will not take with me any description containing or
pertaining to any confidential information, knowledge or data of the Company
which I may produce or obtain during the course of my employment.
C-1
<PAGE> 15
3. ASSIGNMENT OF INVENTIONS.
3.1 I hereby acknowledge and agree that the Company is the
owner of all Inventions. In order to protect the Company's rights to such
Inventions, by executing this Agreement I hereby irrevocably assign to the
Company all my right, title and interest in and to all Inventions to the
Company.
3.2 For purposes of this Agreement, "Inventions" shall mean
all discoveries, processes, designs, technologies, devices, or improvements in
any of the foregoing or other ideas, whether or not patentable and whether or
not reduced to practice, made or conceived by me (whether solely or jointly with
others) during the period of my employment with the Company which relate in any
manner to the actual or demonstrably anticipated business, work, or research and
development of the Company, or result from or are suggested by any task assigned
to me or any work performed by me for or on behalf of the Company.
3.3 Any discovery, process, design, technology, device, or
improvement in any of the foregoing or other ideas, whether or not patentable
and whether or not reduced to practice, made or conceived by me (whether solely
or jointly with others) which I develop entirely on my own time not using any of
the Company's equipment, supplies, facilities, or trade secret information
("Personal Invention") is excluded from this Agreement provided such Personal
Invention (a) does not relate to the actual or demonstrably anticipated
business, research and development of the Company, and (b) does not result,
directly or indirectly, from any work performed by me for the Company.
4. DISCLOSURE OF INVENTIONS. I agree that in connection with any
Invention, I will promptly disclose such Invention to my immediate superior at
the Company in order to permit the Company to enforce its property rights to
such Invention in accordance with this Agreement. My disclosure shall be
received in confidence by the Company.
5. PATENTS AND COPYRIGHTS; EXECUTION OF DOCUMENTS.
5.1 Upon request, I agree to assist the Company or its nominee
(at its expense) during and at any time subsequent to my employment in every
reasonable way to obtain for its own benefit patents and copyrights for
Inventions in any and all countries. Such patents and copyrights shall be and
remain the sole and exclusive property of the Company or its nominee. I agree to
perform such lawful acts as the Company deems to be necessary to allow it to
exercise all right, title and interest in and to such patents and copyrights.
5.2 In connection with this Agreement, I agree to execute,
acknowledge and deliver to the Company or its nominee upon request and at its
expense all documents, including assignments of title, patent or copyright
applications, assignments of such applications, assignments of patents or
copyrights upon issuance, as the Company may determine necessary or desirable to
protect the Company's or its nominee's interest in Inventions, and/or to use in
C-2
<PAGE> 16
obtaining patents or copyrights in any and all countries and to vest title
thereto in the Company or its nominee to any of the foregoing.
6. MAINTENANCE OF RECORDS. I agree to keep and maintain adequate and
current written records of all Inventions made by me (in the form of notes,
sketches, drawings and other records as may be specified by the Company), which
records shall be available to and remain the sole property of the Company at all
times.
7. PRIOR INVENTIONS. It is understood that all Personal Inventions, if
any, whether patented or unpatented, which I made prior to my employment by the
Company, are excluded from this Agreement. To preclude any possible uncertainty,
I have set forth on Schedule A attached hereto a complete list of all of my
prior Personal Inventions, including numbers of all patents and patent
applications and a brief description of all unpatented Personal Inventions which
are not the property of a previous employer. I represent and covenant that the
list is complete and that, if no items are on the list, I have no such prior
Personal Inventions. I agree to notify the Company in writing before I make any
disclosure or perform any work on behalf of the Company which appears to
threaten or conflict with proprietary rights I claim in any Personal Invention.
In the event of my failure to give such notice, I agree that I will make no
claim against the Company with respect to any such Personal Invention.
8. OTHER OBLIGATIONS. I acknowledge that the Company from time to time
may have agreements with other persons or with the U.S. Government or agencies
thereof, which impose obligations or restrictions on the Company regarding
Inventions made during the course of work thereunder or regarding the
confidential nature of such work. I agree to be bound by all such obligations
and restrictions and to take all action necessary to discharge the Company's
obligations.
9. TRADE SECRETS OF OTHERS. I represent that my performance of all the
terms of this Agreement and as an employee of the Company does not and will not
breach any agreement to keep confidential proprietary information, knowledge or
data acquired by me in confidence or in trust prior to my employment with the
Company, and I will not disclose to the Company, or induce the Company to use,
any confidential or proprietary information or material belonging to any
previous employer or others. I agree not to enter into any agreement either
written or oral in conflict herewith.
10. MODIFICATION. I agree that any subsequent change or changes in my
employment duties, salary or compensation or, if applicable, in any Employment
Agreement between the Company and me, shall not affect the validity or scope of
this Agreement.
11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon my
heirs, executors, administrators or other legal representatives and is for the
benefit of the Company, its successors and assigns.
C-3
<PAGE> 17
12. INTERPRETATION. IT IS THE INTENT OF THE PARTIES THAT in case any
one or more of the provisions contained in this Agreement shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT in case any one or more of the provisions contained
in this Agreement shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, such provision shall be
construed by limiting and reducing it in accordance with a judgment of a court
of competent jurisdiction, so as to be enforceable to the extent compatible with
applicable law.
13. WAIVERS. If either party should waive any breach of any provision
of this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
14. COMPLETE AGREEMENT, AMENDMENTS. I acknowledge receipt of this
Agreement, and agree that with respect to the subject matter thereof the
provisions of this Key Employee Agreement of which this Exhibit C is one part,
is my entire agreement with the Company, superseding any previous oral or
written communications, representations, understandings, or agreements with the
Company or any officer or representative thereof. Any amendment to this
Agreement or waiver by either party of any right hereunder shall be effective
only if evidenced by a written instrument executed by the parties hereto, and,
in the case of the Company, upon written authorization of the Company's Board of
Directors.
15. HEADINGS. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
16. COUNTERPARTS. This Agreement may be signed in two counterparts,
each of which shall be deemed an original and both of which shall together
constitute one agreement.
17. GOVERNING LAW. This Agreement shall be governed by and construed
under Massachusetts law.
C-4
<PAGE> 18
18. EMPLOYMENT STATUS. Nothing in this Agreement shall affect in any
manner whatsoever the right or power of the Company to terminate the employment
of the Employee.
EMPLOYEE
/s/ Avishay Katz
--------------------------------------
Dr. Avishay Katz
Accepted and Agreed:
APPLIED SCIENCE AND TECHNOLOGY, INC.
By: /s/ Richard S. Post
-----------------------------------
Dr. Richard S. Post, President
C-5
<PAGE> 19
SCHEDULE A
LIST OF PRIOR INVENTIONS
OF DR. AVISHAY KATZ
<TABLE>
<CAPTION>
Identifying Number or
Title Date Brief Description
- ----- ---- -----------------
<S> <C> <C>
NONE
</TABLE>
C-6
<PAGE> 20
EXHIBIT D-1 (INCENTIVE STOCK OPTION)
APPLIED SCIENCE AND TECHNOLOGY, INC.
35 Cabot Road
Woburn, Massachusetts 01801
May , 1998
Dr. Avishay Katz
Dear Avishay:
I am pleased to advise you that APPLIED SCIENCE AND TECHNOLOGY, INC.
(the "Company") has, pursuant to its 1993 Stock Option Plan (the "1993 Plan"),
awarded you an incentive stock option to purchase [NOTE: THE TOTAL GRANT OF
45,000 SHARES WILL BE DIVIDED BETWEEN INCENTIVE STOCK OPTIONS AND NON-QUALIFIED
OPTIONS. THE INCENTIVE STOCK OPTIONS WILL EQUAL (a) THE NUMBER OF OPTION SHARES
NOT TO EXCEED $100,000 IN VALUE BASED ON EXERCISE PRICE VESTING IN ANY SINGLE
CALENDAR YEAR, MULTIPLIED BY (b) FIVE (THE FIVE CALENDAR YEARS OVER WHICH THE
OPTION VESTS). THE REMAINING OPTIONS WILL BE ISSUED UNDER A NON-QUALIFIED STOCK
OPTION - SEE ATTACHED] ( ) shares of the Common Stock, $.01 par value per share,
of the Company at an exercise price of $ per share, for a total exercise price
of $ . The Company is making this offer to "share the business" with valued
employees such as yourself. We hope that by owning a piece of the Company you
will continue your efforts towards helping the Company grow and succeed.
The following terms and conditions are applicable with respect to this
option, and your signature below shall constitute your acknowledgment and
acceptance of same:
(a) This option shall not be transferable under any circumstances
except by operation of law. During your lifetime, this option
is only exercisable by you, and after your death, is only
exercisable by your estate.
(c) The price at which this option may be exercised shall be $ per
share, for a total exercise price of $ .00.
(d) This option is exercisable commencing immediately and at any
time hereafter through [five years from today's grant date],
subject to the following terms:
D-1
<PAGE> 21
(1) In the event of termination of your employment with
the Company (or a parent or subsidiary of the
Company) for any reason other than death or
disability as defined in Internal Revenue Code
Section 22(e)(3), as amended (the "Code"), all
unexercised options shall terminate immediately.
(2) In the event of termination of your employment as a
result of your death, the outstanding options
exercisable by you at the date of your death may be
exercised by your estate until one (1) year from the
date of your death, but in any event no later than
[option termination date].
(3) In the event of termination of your employment as a
result of your disability, as above defined, or in
the event of a disability that lasts for more than
ninety (90) days, all outstanding options exercisable
by you at the date of such termination shall
terminate one (1) year from the date your employment
terminates, but in any event no later than [option
termination date].
(4) Notwithstanding anything herein to the contrary, the
maximum extent to which this option may be exercised
is as follows:
<TABLE>
<CAPTION>
Dates Up to
----- -----
<S> <C>
/ /98 - / /99 20%
/ /99 - / /00 40%
/ /00 - / /01 60%
/ /01 - / /02 80%
/ /02 - / /03 100%
</TABLE>
(e) This option may not be exercised as to less than one hundred
(100) shares at any one time unless it is being exercised in
full and the balance of the shares subject to this option is
less than one hundred (100).
(f) The shares of Common Stock underlying this option and the
exercise price therefore shall be appropriately adjusted from
time to time for stock splits, reverse splits, stock dividends
and reclassifications of shares.
(g) In the event of a sale or acquisition of substantially all of
the stock or assets of the Company, the Company shall give at
least thirty (30) days' notice of such an event to you and you
may exercise up to 100% of the vested portion of this option;
if you do not exercise the option within thirty (30) days of
such notice, all unexercised portions of this option shall
terminate and be of no further force or effect.
Notwithstanding the foregoing, additional shares underlying
this option
D-2
<PAGE> 22
grant may vest in accordance with the provisions
of Exhibit A of your Employment Agreement of even date with
the Company.
This opportunity to purchase stock in the Company is being offered
because of the Company's desire to reward continuing loyal service. Exercising
options may not be a prudent business decision for some employees. Therefore, we
urge you to review this opportunity carefully and make a decision to exercise
options only if your personal financial situation makes this a wise choice.
When you wish to exercise this stock option, please refer to the
provisions of this letter and then correspond in writing with the Secretary of
the Company. Further, please indicate your acknowledgment and acceptance of this
option by signing the enclosed copy of this letter and returning it to the
undersigned.
Very truly yours,
APPLIED SCIENCE AND TECHNOLOGY, INC.
By:_____________________________________
John M. Tarrh, Senior Vice President
ACKNOWLEDGMENT AND ACCEPTANCE:
__________________________________
Dr. Avishay Katz
D-3
<PAGE> 23
EXHIBIT E (NON-QUALIFIED OPTION)
APPLIED SCIENCE AND TECHNOLOGY, INC.
35 Cabot Road
Woburn, Massachusetts 01801
May , 1998
Dr. Avishay Katz
Dear Avishay:
I am pleased to advise you that APPLIED SCIENCE AND TECHNOLOGY, INC.
(the "Company") has, pursuant to its 1993 Stock Option Plan (the "1993 Plan"),
awarded you a non-qualified stock option to purchase [NOTE: REMAINDER OF 45,000
OPTION GRANT NOT QUALIFYING FOR INCENTIVE STOCK OPTION TREATMENT] ( ) shares
of the Common Stock, $.01 par value per share, of the Company at an exercise
price of $ per share, for a total exercise price of $ . The Company is making
this offer to "share the business" with valued employees such as yourself. We
hope that by owning a piece of the Company you will continue your efforts
towards helping the Company grow and succeed.
The following terms and conditions are applicable with respect to this
option, and your signature below shall constitute your acknowledgment and
acceptance of same:
(a) This option shall not be transferable under any circumstances
except by operation of law. During your lifetime, this option
is only exercisable by you, and after your death, is only
exercisable by your estate.
(c) The price at which this option may be exercised shall be
$ per share, for a total exercise price of $ .00.
(d) This option is exercisable commencing immediately and at any
time hereafter through [five years from today's grant date],
subject to the following terms:
(1) In the event of termination of your employment with
the Company (or a parent or subsidiary of the
Company) for any reason other than death or
disability as defined in Internal Revenue Code
Section 22(e)(3), as amended (the "Code"), all
unexercised options shall terminate immediately.
E-1
<PAGE> 24
(2) In the event of termination of your employment as a
result of your death, the outstanding options
exercisable by you at the date of your death may be
exercised by your estate until one (1) year from the
date of your death, but in any event no later than
[option termination date].
(3) In the event of termination of your employment as a
result of your disability, as above defined, or in
the event of a disability that lasts for more than
ninety (90) days, all outstanding options exercisable
by you at the date of such termination shall
terminate one (1) year from the date your employment
terminates, but in any event no later than [option
termination date].
(4) Notwithstanding anything herein to the contrary, the
maximum extent to which this option may be exercised
is as follows:
<TABLE>
<CAPTION>
Dates Up to
----- -----
<S> <C>
/ /98 - / /99 20%
/ /99 - / /00 40%
/ /00 - / /01 60%
/ /01 - / /02 80%
/ /02 - / /03 100%
</TABLE>
(e) This option may not be exercised as to less than one hundred
(100) shares at any one time unless it is being exercised in
full and the balance of the shares subject to this option is
less than one hundred (100).
(f) The shares of Common Stock underlying this option and the
exercise price therefore shall be appropriately adjusted from
time to time for stock splits, reverse splits, stock dividends
and reclassifications of shares.
(g) In the event of a sale or acquisition of substantially all of
the stock or assets of the Company, the Company shall give at
least thirty (30) days' notice of such an event to you and you
may exercise up to 100% of the vested portion of this option;
if you do not exercise the option within thirty (30) days of
such notice, all unexercised portions of this option shall
terminate and be of no further force or effect.
Notwithstanding the foregoing, additional shares underlying
this option grant may vest in accordance with the provisions
of Exhibit A of your Employment Agreement of even date with
the Company.
E-2
<PAGE> 25
This opportunity to purchase stock in the Company is being offered
because of the Company's desire to reward continuing loyal service. Exercising
options may not be a prudent business decision for some employees. Therefore, we
urge you to review this opportunity carefully and make a decision to exercise
options only if your personal financial situation makes this a wise choice.
When you wish to exercise this stock option, please refer to the
provisions of this letter and then correspond in writing with the Secretary of
the Company. Further, please indicate your acknowledgment and acceptance of this
option by signing the enclosed copy of this letter and returning it to the
undersigned.
Very truly yours,
APPLIED SCIENCE AND TECHNOLOGY, INC.
By:_____________________________________
John M. Tarrh, Senior Vice President
ACKNOWLEDGMENT AND ACCEPTANCE:
______________________________________
Dr. Avishay Katz
TRADOCS: 1091310.3 (n#2603!.doc)
E-3
<PAGE> 1
EXHIBIT 21. LIST OF SUBSIDIARIES
ASTeX CPI, Inc.
ETO, Inc.
Newton Engineering Service, Inc.
Applied Science and Technology, GmbH
ASTeX/Gerling Laboratories, Inc.
ASTeX Sorbios GmbH
<PAGE> 1
EXHIBIT 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-3 No. 33-80135 and Form S-8 No. 33-97566) of Applied Science and
Technology, Inc. of our report dated July 25, 1998 relating to the consolidated
balance sheets of Applied Science and Technology, Inc. and subsidiaries as of
June 27, 1998 and June 28, 1997, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the years in the
three-year period ended June 27, 1998 which report appears in the June 27, 1998,
annual report on Form 10-K of Applied Science and Technology, Inc.
/s/ KPMG Peat Marwick LLP
Boston, Massachusetts
September 25, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
APPENDIX A TO ITEM 601(C) OF REGULATION S-K
(ARTICLE 5 OF REGULATION S-X COMMERCIAL AND INDUSTRIAL COMPANIES)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-27-1998
<PERIOD-END> JUN-27-1998
<CASH> 7,686,805
<SECURITIES> 0
<RECEIVABLES> 12,734,381
<ALLOWANCES> 377,439
<INVENTORY> 13,737,212
<CURRENT-ASSETS> 36,063,151
<PP&E> 16,484,546
<DEPRECIATION> (7,960,282)
<TOTAL-ASSETS> 51,293,306
<CURRENT-LIABILITIES> 7,492,652
<BONDS> 0
0
0
<COMMON> 86,065
<OTHER-SE> 43,714,589
<TOTAL-LIABILITY-AND-EQUITY> 51,293,306
<SALES> 82,650,528
<TOTAL-REVENUES> 83,436,135
<CGS> 54,563,883
<TOTAL-COSTS> 54,986,607
<OTHER-EXPENSES> 22,540,489
<LOSS-PROVISION> (51,097)
<INTEREST-EXPENSE> 196,392
<INCOME-PRETAX> 6,486,604
<INCOME-TAX> 2,466,000
<INCOME-CONTINUING> 6,486,604
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,020,604
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.47
</TABLE>
