APPLIED SCIENCE & TECHNOLOGY INC, S-3/A, 1999-02-09

APPLIED SCIENCE & TECHNOLOGY INC
S-3/A, 1999-02-09
SPECIAL INDUSTRY MACHINERY, NEC

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<PAGE>

As filed with the Securities and Exchange Commission on February 9, 1999.

Registration No. 333-71467
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3

AMENDMENT NO. 1 TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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APPLIED SCIENCE AND TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)

Delaware 04-2962110
(I.R.S. Employer Identification Number)
(State or other jurisdiction of
incorporation or organization)

35 Cabot Road
Woburn, Massachusetts 01801-1053
(781) 933-5560
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

Richard S. Post, Ph.D.
Chairman of the Board of Directors, Chief Executive Officer and President
Applied Science and Technology, Inc.
35 Cabot Road
Woburn, Massachusetts 01801-1053
(781) 933-5560
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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With copies to:
William C. Rogers, Esquire Neil H. Aronson, Esquire
Choate, Hall & Stewart Michael L. Fantozzi, Esquire
Exchange Place Mintz, Levin, Cohn, Ferris, Glovsky
53 State Street and Popeo, P.C.
Boston, Massachusetts 02109 One Financial Center
(617) 248-5000 Boston, Massachusetts 02111
(617) 542-6000
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Approximate date of commencement of proposed sale to the public: As soon as
practical after this registration statement becomes effective.

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 other than securities offered only in connection with dividend or interest
reinvestment, check the following box. [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed Maximum
Title of Each Class of Amount to be Proposed Maximum Aggregate Offering Amount of
Securities to be Registered Registered(1) Offering Price per Share(2) Price(2) Registration Fee(3)
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<S> <C> <C> <C> <C>
Common Stock, $.01 par
value................. 2,875,000 $12.50 $34,500,000 $10,310.33
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</TABLE>

(1) Includes up to 375,000 shares of common stock that the underwriters have an
option to purchase pursuant to a 30-day over-allotment option.
(2) Estimated solely for purposes of calculating the amount of the registration
fee paid pursuant to Rule 457(c) under the Securities Act of 1933, as
amended. Based on the average of the high and low prices of the common
stock as reported on the Nasdaq National Market on January 27, 1999.

(3) The registrant previously filed this registration statement on January 29,
1999, registering 2,300,000 shares of its common stock. Pursuant to this
Amendment No. 1, the registrant is registering an additional 575,000 shares
of its common stock, with the fee for these additional shares of $1,998.13
based on the average of the high and low prices of the common stock of
$12.50 per share as reported on the Nasdaq national Market on February 5,
1999 as determined in accordance with Rule 457(c).
--------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

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<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

SUBJECT TO COMPLETION, DATED FEBRUARY 9, 1999

PROSPECTUS

2,500,000 Shares

Logo of Astex

Common Stock

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We are offering and selling 2,500,000 shares of common stock with this
prospectus. Our shares are traded on the Nasdaq National Market under the
symbol "ASTX." On February 8, 1999, the last reported sale price of our common
stock on the Nasdaq National Market was $12.75 per share.

------------

Investing in the common stock involves risks. See "Risk Factors" beginning on
page 6.

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<TABLE>
<CAPTION>
Per Share Total
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<S> <C> <C>
Public Price.................................................... $ $
Underwriting Discounts.......................................... $ $
Proceeds, before expenses, to ASTeX............................. $ $
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</TABLE>
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The underwriters may also purchase up to an additional 375,000 shares from us
at the public offering price, less the underwriting discounts, within 30 days
from the date of this prospectus, to cover over-allotments.

The Securities and Exchange Commission and state securities regulators have
not approved or disapproved of these securities, or determined if this
prospectus is truthful or complete. It is illegal for any person to tell you
otherwise.

------------

Needham & Company, Inc.
SoundView Technology Group
Advest, Inc.

The date of this prospectus is , 1999.
<PAGE>

[Graphic depiction of reactive and excited gas process]

ASTeX products provide reactive gas solutions

[List of ASTeX core competencies]
Power Sources: Microwave, Radio Frequency, and Direct Current
Energized Gas Physics
Vacuum and Materials Technology
Reactive Gas Chemistry and Processes
System Integration

[Graphic depiction of ASTeX product lines]

ASTeX products encompass components (power sources and reactive gas sources),
integrated subsystems, and complete process systems

[Graphic depiction of ASTeX markets]

ASTeX products serve electronics, medical, and industrial markets
<PAGE>

Electronics Applications

[Photo of Astron]
ASTRON(TM), a fully-integrated atomic fluorine source, provides highly
efficient chamber cleaning and exhaust gas abatement.

[Photo of Liquozon]
Liquozon(TM), a complete ozonated water delivery subsystem, reduces the cost
of cleaning wafers in wet semiconductor manufacturing processes.

[Photo of Semozon]
Semozon(TM), a complete solution manufactured by ASTeX, is our integrated
ozone delivery subsystem that helps OEM customers implement lean manufacturing
practices.

[Graphic depiction of the semiconductor process steps supplied by ASTeX
reactive gas solutions]

Leading semiconductor equipment manufacturers choose ASTeX Reactive Gas
Solutions for many critical process steps.
Metal Layer Fabrication
Insulating Layer Fabrication
Metal Deposition
Lithography

Metal Etch

Strip

Wet Clean
Dielectric Deposition
Lithography

Dielectric Etch
Strip

Wet Clean

[Photo of SmartSet]
SmartSet(TM), a microwave power source combined with a reactive gas source,
provides flexibility of packaging and integration to OEMs who buy their
reactive gas solutions as components.

[Photo of CPS]
CPS, a fully-integrated source for various reactive gases, reduces time-to-
market for OEM customers.

[Photo of Gladiator]
Gladiator(TM), a four-channel microwave and radio frequency power source,
reduces costs by completely integrating all power requirements for advanced
process chambers in a single subsystem.

ASTeX Complete Process Systems for Magnetic Disk Heads and Advanced
Electronic Packaging

[Photo of PQ Series III]

PQ Series III uses a patented, large-area scalable reactive gas source to
achieve high-rate uniform cost-effective etching for magnetic disk head
production.

[Photo of Series V]

Specialized electronic packaging applications require the unique thermal and
electrical properties of CVD diamond, which is produced in our Series V systems
that have advanced microwave-powered reactive gas sources.
<PAGE>

[4/c description for Edgar filing here]
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Where You Can Find More Information...................................... iv
Incorporation of Certain Documents by Reference.......................... iv
Prospectus Summary....................................................... 1
Special Note Regarding Forward-Looking Statements........................ 4
Risk Factors............................................................. 4
Use of Proceeds.......................................................... 10
Capitalization........................................................... 10
Price Range of Common Stock.............................................. 11
Dividend Policy.......................................................... 11
Selected Consolidated Financial Data..................................... 12
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 13
Business................................................................. 22
Management............................................................... 34
Principal Stockholders................................................... 37
Underwriting............................................................. 39
Experts.................................................................. 40
Legal Matters............................................................ 40
Index to Consolidated Financial Statements and Financial Statement
Schedule................................................................ F-1
</TABLE>

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You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted.

The information in this prospectus may not contain all of the information
that may be important to you. You should read the entire prospectus, as well as
the documents incorporated by reference in the prospectus, before making an
investment decision. All references to "we," "us," "our," "ASTeX" or "the
Company" in this prospectus mean Applied Science and Technology, Inc. and all
entities owned or controlled by Applied Science and Technology, Inc., except
where it is made clear that the term means only the parent company.

iii
<PAGE>

WHERE YOU CAN FIND MORE INFORMATION

We are a public company and file annual, quarterly and special reports,
proxy statements and other information with the Securities and Exchange
Commission. You may read and copy any document we file at the SEC's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
request copies of these documents by writing to the SEC and paying a fee for
the copying cost. Please call the SEC at 1-800-SEC-0330 for more information
about the operation of the public reference room. Our SEC filings are also
available to the public at the SEC's web site at "http://www.sec.gov." In
addition, you can read and copy our SEC filings at the office of the National
Association of Securities Dealers, Inc. at 1735 K Street, Washington, DC,
20006.

This prospectus is only part of a Registration Statement on Form S-3 that we
have filed with the SEC under the Securities Act of 1933 and therefore omits
certain information contained in the Registration Statement. We have also filed
exhibits and schedules with the Registration Statement that are excluded from
this prospectus, and you should refer to the applicable exhibit or schedule for
a complete description of any statement referring to any contract or other
document. You may:

. inspect a copy of the Registration Statement, including the exhibits and
schedules, without charge at the public reference room or

. obtain a copy from the SEC upon payment of the fees prescribed by the
SEC

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The SEC allows us to incorporate by reference the information we file with
it, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is considered
to be part of this prospectus and information we file later with the SEC will
automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings made with the SEC
under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934
until all of the shares of common stock that are part of this offering are
sold. The documents we are incorporating by reference are:

. our Annual Report on Form 10-K for the year ended June 27, 1998, filed
on September 25, 1998, and amended on October 19, 1998

. our Proxy Statement, filed on October 19, 1998

. our Quarterly Report on Form 10-Q for the quarter ended September 26,
1998, filed on November 12, 1998, and amended and filed on November 12,
1998

. the description of our common stock contained in our Registration
Statement on Form SB-2 (Registration No. 33-96098-B) declared effective
by the SEC on November 9, 1993, including any amendments or reports
filed for the purpose of updating such description

You may request a copy of these filings at no cost by writing or telephoning
our Chief Financial Officer at the following address and number:

Applied Science and Technology, Inc.
35 Cabot Road
Woburn, Massachusetts 01801-1053
(781) 933-5560

This prospectus is part of a Registration Statement that we filed with the
SEC. You should rely only on the information incorporated by reference in or
provided in this prospectus and the Registration Statement. We have authorized
no one to provide you with different information. We are not making an offer of
these securities in any state where the offer is not permitted. You should not
assume that the information in this prospectus is accurate as of any date other
than the date on the front of this document.

iv
<PAGE>

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
It is not complete and may not contain all of the information that you should
consider before investing in the common stock. You should read the entire
prospectus carefully, including the "Risk Factors" section and the financial
statements and the notes to those statements.

ASTeX

We supply precision reactive gas processing solutions and specialty power
sources to the semiconductor, electronics, medical and industrial markets. Our
broad product line is based on one or more of our core technologies including
reactive gas processing, power sources and system integration. Depending on our
customers' needs, we provide varying levels of integration--from components to
integrated subsystems to complete process systems. Our reactive gas solutions
give our customers a competitive advantage by improving their time to market
with lower costs and less complexity.

The electronics revolution could not have taken place without the advent of
reactive gas processing methods for production of semiconductors. A reactive
gas, created when energy breaks apart the molecules in a stable gas, allows
rapid chemical reactions to occur at relatively low temperatures, essential for
manufacturing advanced electronic devices. The semiconductor industry is the
largest user of precision reactive gas processing because of its extraordinary
demand for ultra-pure, high-yield and fine-geometry processes.

We sell an extensive line of integrated subsystems and components to leading
semiconductor equipment manufacturers, such as Applied Materials, who
incorporate our products into the equipment they sell to semiconductor
manufacturers. Semiconductor technology advances, particularly shrinking line
widths, are driving the need for more sophisticated manufacturing processes
which increasingly involve the use of reactive gases. Many essential steps in
the manufacture of semiconductors use reactive gas processes including
photoresist stripping, etching, thin-film deposition, surface and chamber
cleaning and abatement of toxic exhaust gases. As equipment companies seek to
improve the efficiency of their development and manufacturing processes, they
are working more closely with critical suppliers who can provide integrated
subsystems. We deliver fully-integrated reactive gas solutions that address
this opportunity.

Precision reactive gas technologies are increasingly being used in other
sectors of electronics including magnetic disk heads and advanced electronics
packaging. For these applications, we sell complete process systems which
incorporate our reactive gas solutions combined with a fully-integrated
platform that includes substrate handling and a production process.

We sell power source and reactive gas products for medical equipment and a
variety of industrial applications. Our power sources are used in magnetic
resonance imaging (MRI), medical lasers and medical apparatus sterilization.
Industrial applications include power sources for laser markers and high
intensity lamps and reactive gas sources for thin-film optical coating, polymer
surface modification and removal of trace carcinogens from groundwater.

Our objective is to expand our leadership position in advanced reactive gas
processing solutions by:

. broadening our line of integrated subsystems and complete process systems
for semiconductor and electronics manufacturing

. expanding into new market segments that leverage our core technologies

. strengthening our global sales and service organization

. accelerating our expansion in target markets through strategic
acquisitions

. continuing to build collaborative development relationships with key
customers

We believe our ability to address the difficult challenges associated with
precision reactive gas processing-- with our power delivery, system integration
and process expertise--provides us with a competitive advantage.

Our principal executive offices are located at 35 Cabot Road, Woburn,
Massachusetts 01801-1053 and our telephone number is (781) 933-5560. Our
corporate web site is www.astex.com.

1
<PAGE>

The Offering

Except as otherwise indicated, all information in this prospectus reflects a
3-for-2 stock split of the common stock effected as of December 12, 1997 and
assumes no exercise of the underwriters' over-allotment option.

<TABLE>
<C> <S>
Common stock offered by ASTeX.............. 2,500,000 shares
Common stock outstanding after the offering 11,169,309 shares(1)
..........................................
Dividend policy............................ We do not plan to pay cash
dividends in the foreseeable
future. See "Dividend Policy" on
page 11.
Use of proceeds............................ We expect to use the proceeds of
this offering for general working
capital purposes, including
expansion of sales and marketing
activities, new product
development, and purchases of
laboratory and manufacturing
equipment, and potential
acquisitions and joint ventures.
Risk factors............................... An investment in the common stock
involves risks. See "Risk
Factors" on page 4 to read about
the risks you should consider
before buying shares of the
common stock.
Nasdaq National Market symbol.............. ASTX
</TABLE>
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(1) The common stock outstanding after the offering does not include up to
2,274,321 shares of common stock issuable upon exercise of options
previously awarded or which may be awarded in the future. Currently,
options to purchase 1,569,799 shares (exercisable at a weighted-average
exercise price of $6.59) are outstanding. For more information about these
potential future issuances of shares of common stock, see "Risk Factors--
Your Investment May Be Subject to Dilution."

2
<PAGE>

Summary Consolidated Financial Data
(in thousands, except per share data)

<TABLE>
<CAPTION>
Fiscal Year Ended Six Months Ended
------------------------------------------- -----------------
July 2, July 1, June 29, June 28, June 27, Dec. 27, Dec. 26,
1994 1995 1996 1997 1998 1997 1998
------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:(1)
Total revenue........... $13,357 $20,005 $39,135 $47,967 $83,436 $39,861 $28,954
Total cost of sales and
revenue................ 7,248 11,813 23,364 30,557 54,987 25,157 23,280
------- ------- ------- ------- ------- ------- -------
Gross profit............ 6,109 8,192 15,772 17,410 28,449 14,704 5,674
Operating expenses:
Selling, general and
administrative
expenses............. 3,317 4,553 7,105 6,908 11,075 5,305 6,048
Research and
development expenses,
net.................. 2,434 2,840 5,043 7,343 11,253 5,411 4,568
Other operating
expenses(2).......... -- -- 9,701 1,500 212 212 1,497
------- ------- ------- ------- ------- ------- -------
Total operating
expenses............... 5,751 7,393 21,849 15,751 22,540 10,928 12,113
------- ------- ------- ------- ------- ------- -------
Earnings (loss) from
operations............. 358 799 (6,078) 1,659 5,909 3,776 (6,439)
Net earnings (loss)..... $ 518 $ 1,128 $(7,297) $ 938 $ 4,021 $ 2,430 $(3,918)
======= ======= ======= ======= ======= ======= =======
Earnings (loss) per
share:
Basic................. $ 0.10 $ 0.19 $ (1.16) $ 0.14 $ 0.50 $ 0.32 $ (0.46)
======= ======= ======= ======= ======= ======= =======
Diluted............... $ 0.10 $ 0.19 $ (1.16) $ 0.14 $ 0.47 $ 0.30 $ (0.46)
======= ======= ======= ======= ======= ======= =======
Weighted average common
shares:
Basic................. 5,139 5,834 6,307 6,686 8,053 7,570 8,594
======= ======= ======= ======= ======= ======= =======
Diluted............... 5,151 5,988 6,307 6,777 8,529 8,002 8,594
======= ======= ======= ======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
December 26, 1998
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Actual As Adjusted(3)
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<S> <C> <C>
Consolidated Balance Sheet Data:
Working capital.......................................... $22,994 $51,859
Total assets............................................. 48,007 76,872
Long-term debt, excluding current maturities............. -- --
Total liabilities........................................ 7,976 7,976
Stockholders' equity..................................... 40,031 68,896
</TABLE>
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(1) The consolidated statement of operations data includes the results of
operations of each of the acquired companies since the date of its
acquisition. See note 12 of notes to consolidated financial statements.
(2) Other operating expenses include acquisition-related expenses, write-off of
goodwill and a restructuring charge. See notes 12, 15 and 18 of notes to
consolidated financial statements.

(3) Adjusted to reflect the sales of 2,500,000 shares of Common Stock offered
by us in this prospectus at an estimated offering price of $12.50 per share
and after deducting the underwriting discounts and estimated offering
expenses. See "Capitalization."

ASTeX(R), Plasma Dome(R) and Applied Science and Technology, Inc.(R) are
trademarks of ASTeX that have been registered with the United States Patent and
Trademark Office. ASTRON(TM), CPS(TM), Gladiator(TM), Liquozon(TM), PQ Series
III(TM), Semozon(TM), Series V(TM), SmartPower(TM) and SmartSet(TM) are our
trademarks or service marks. All other trademarks or trade names referred to in
this prospectus are the property of their respective owners.

3
<PAGE>

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus and the documents incorporated by reference contain forward-
looking statements including, without limitation, statements concerning the
future of the industry, product development, business strategy (including the
possibility of future acquisitions), continued acceptance and growth of our
products and dependence on significant customers. These statements can be
identified by the use of forward-looking terminology such as "may," "will,"
"expect," "anticipate," "estimate," "continue" or other similar words. These
statements discuss future expectations, contain projections of results of
operations or of financial condition or state other forward-looking
information. When considering forward-looking statements, you should keep in
mind the risk factors and other cautionary statements in this prospectus. The
risk factors noted below and other factors noted throughout this prospectus
could cause our actual results to differ significantly from those contained in
any forward-looking statement.

RISK FACTORS

Before you invest in our common stock, you should be aware that there are
risks, including those described below. You should consider carefully these
risk factors together with all of the other information included in this
prospectus before you decide to purchase shares of our common stock.

Semiconductor Industry Business Cycles Have a Large Effect on Our Operating
Results

Our business depends heavily upon capital expenditures by manufacturers of
semiconductors. The semiconductor industry is highly cyclical, with periods of
capacity shortage and periods of excess capacity. In periods of excess
capacity, the industry sharply cuts purchases of capital equipment, including
our products. Thus a semiconductor industry downturn or slowdown substantially
reduces our revenues and operating results and could hurt our financial
condition.

In the past several quarters, excess capacity in the semiconductor industry
has caused semiconductor manufacturers to sharply cut their capital spending.
The current excess supply was caused primarily by a period of over-investment
in the industry, as well as by cyclical demand factors. The recent shift in
demand to low-priced personal computers and currency devaluations in Asia have
further reduced profits of semiconductor manufacturers. The downturn in capital
spending reduced our sales over the past four quarters and we expect that it
will continue to affect our sales for a period of time which we cannot predict.

Our Operating Results Often Have Large Changes from Quarter to Quarter

The most important cause of changes in our quarter-to-quarter results is
sharp swings in demand from our customers. Our customers keep inventories of
our products and may stop buying from us during periods of weak demand for
their products until they have reduced their inventories.

In addition to these inventory swings, other factors which cause changes in
our quarter-to-quarter results include:

. changes in our customers' product plans and programs

. changes in the mix of products that we sell with differing gross margins

. delays by us in the development, introduction and production of our
products

. new product introductions by competitors and competitive pricing
pressures

. the time required for us to adjust our operating expenses to respond to
changes in sales

. the timing of our acquisitions and their effect on our financial results

4
<PAGE>

Our Stock Price Is Volatile

Our market segment seems particularly vulnerable to abrupt changes in
investor sentiment. Stock prices of companies in the semiconductor equipment
industry, including ours, can swing dramatically with little relationship to
operating performance. However, we believe that objective factors (both within
and outside our control) which could cause our stock price to change sharply
include:

. changes in our quarterly operating results for the reasons set out in the
previous risk factor

. research analysts may change expectations for us or our industry or we
may not meet research analysts' estimates

. general economic conditions may change or developments occur in the
personal computer, data storage or semiconductor industry which affect
investor confidence

. we or our competitors may make announcements of technological innovations
or new or enhanced products

. the daily trading in our stock tends to be limited and one large purchase
or sale can affect price greater than it would a more widely traded stock

We Depend on a Few Customers

A few customers account for a large part of our revenues. Sales to our ten
largest customers accounted for 72% of revenues in fiscal year 1998, 76% of
revenues in fiscal year 1997, and 77% of revenues in fiscal year 1996. Sales to
our largest customer, Applied Materials, accounted for approximately 40% of
revenues in fiscal year 1998, 38% of revenues in fiscal year 1997 and 45% of
revenues in fiscal year 1996.

We expect that sales to Applied Materials will continue to be a large part
of our revenues in the future. Our customers may cancel orders with few
penalties even though several have entered into long-term supply agreements
with us. If Applied Materials or another major customer reduces orders for any
reason, our revenues, operating results, and financial condition will be hurt.

Rapid Technology Change May Make Our Products Obsolete

Technology changes rapidly in the markets we serve. Our success will depend
upon our ability to anticipate these changes, enhance our existing products and
develop new products to meet customer requirements and achieve market
acceptance. We may not be able to do those things correctly or soon enough. If
we fail in these efforts, our products will become obsolete which may hurt our
operating results and financial position.

Our Acquisition and Joint Venture Strategy Involves Financial and Management
Risk

We actively seek to acquire businesses, products and technologies that
complement or expand our business. We also consider joint ventures and other
collaborative projects. We may not be able to (i) identify appropriate
acquisition or joint venture candidates, (ii) successfully negotiate, finance
or integrate any businesses, products or technologies that we acquire, or (iii)
successfully manage any joint ventures or collaborations. Furthermore, the
integration of any acquisition or joint venture may divert management time and
resources. If we fail to manage these acquisitions or joint ventures
effectively we could use up the proceeds of this offering faster than planned,
have to issue potentially dilutive securities or incur debts or other
liabilities or costs.

We May Have Difficulty Managing Cycles of Growth and Downturns

We have recently had a cycle of rapid growth followed by a downturn. Our
success will depend upon our ability to attract and retain highly qualified
scientists and managers. Competition for such specialized personnel is intense
and it may become more difficult for us to hire them. Our severe business
cycles only increase this problem. Our recent lay-offs responding to the
current industry downturn make it more difficult for us to hire and retain such
personnel. These expansions and contractions strain our management,
manufacturing, financial

5
<PAGE>

and other resources. In an expansion, our systems, procedures, controls and
existing space may not be adequate. If we fail to manage growth or downturns
effectively, our future financial condition, revenues and operating results
could be hurt.

Our Markets Are Very Competitive

The markets for our products are very competitive and technological change
is rapid. Our current and potential competitors have much greater resources
than we have. We may not be successful in selling our products to our
customers, regardless of the performance or the price of our products. Our
competitors may develop superior or lower priced products. Moreover, our
customers' own markets are highly competitive. Since our customers buy our
products only when they are successful in selling their own products, if our
customers fail to compete effectively, our sales could be hurt.

Economic Problems in Asia May Hurt Our Sales

Asia is an important region for the markets we serve and has accounted for a
large part of our revenues. In recent months, Asia has had serious economic
problems including currency devaluations, debt defaults, lack of liquidity and
recessions. Our revenues depend upon the capital expenditures of semiconductor
manufacturers, many of whom have operations and customers in Asia. If the
economies in Asia do not improve, recovery in the semiconductor equipment
industry may be delayed or reduced in scale. The economic difficulties of these
countries could also damage the economies of the U.S. and Europe and ultimately
the domestic demand for our products. Therefore, if conditions in Asia do not
improve, our future financial condition, revenues and operating results could
be hurt.

Our Dependence upon International Sales and Non-U.S. Suppliers Involves
Significant Risk

We do business worldwide, both directly and through sales to United States-
based original equipment manufacturers, or OEMs, who sell their products
internationally. International sales accounted for 23% of our revenues in
fiscal year 1998, 21% of our revenues in fiscal year 1997 and 19% of our
revenues in fiscal year 1996. International sales will continue to be a
significant percentage of our revenues. In addition, we rely upon non-U.S.
suppliers for certain components. As a result, a major part of our revenues and
operating results is subject to the risks associated with international sales.
International sales and our relationships with suppliers may be hurt by many
factors, including:

. policy changes or changes in applicable U.S. or foreign laws which
result in burdensome government controls, tariffs, restrictions,
embargoes or export license requirements

. political and economic instability in our target international markets

. difficulties of staffing and managing our international operations or
representatives

. shipping delays

. less favorable foreign intellectual property laws making it harder to
protect our technology from appropriation by competitors

. longer payment cycles common in foreign markets

. difficulties collecting our accounts receivable because of the distance
and different legal rules

. potential additional U.S. and foreign taxes which increase the amount of
taxes we have to pay

Moreover, our foreign sales are typically made in U.S. dollars. A
strengthening in the dollar relative to the currencies of those countries where
we do business would increase the prices of our products as stated in those
currencies and hurt our sales in those countries. If we lower our prices to
reflect a change in exchange rates, our profitability in those markets will go
down. In the past, there have been significant fluctuations in the exchange
rates between the dollar and the currencies in those countries in which we do
business.

6
<PAGE>

We Are Subject to Lengthy Sales and Product Acceptance Cycles

We sell our products to OEMs that then incorporate our products into the
equipment that they sell. OEMs consider using our products when their products
are being developed. We must make a significant capital investment to develop
products for our OEM customers well before their products are introduced and
before we can be sure that we will recover our capital investment through sales
to the OEMs in significant volume. We are also at risk during the development
phase that our product may fail to meet our customers' technical or cost
requirements and may be replaced by a competitive product or alternate
technology solution. If that happens, we may be unable to recover our
development costs. If our customers fail to introduce their products in a
timely manner or the market does not accept their products, our business and
our financial results would be hurt.

Patents and Proprietary Information May Not Be Adequate to Protect Our Business

We rely on our patent and trade secret rights to protect our proprietary
technology. We currently own 18 U.S. patents and one Canadian patent, and have
two pending U.S. patents and seven pending foreign applications in various
stages of prosecution. The earliest of our key patents expires in 2007. We own
the commercial rights to proprietary technology developed under various U.S.
government contracts and grants, including federally funded research contracts.
We also have joint development agreements with industrial and commercial
partners which will result in sole or joint ownership rights to proprietary
technology developed under those agreements. However, we cannot be sure that
additional patents will be issued to us or that any of our patents will
withstand challenges by others. Our patents may not provide us with meaningful
protection from competitors, including those who may pursue patents which may
block our use of our proprietary technology. In addition, we rely upon
unpatented trade secrets and seek to protect them, in part, through
confidentiality agreements with employees, consultants and our customers and
potential customers. If these agreements are breached, we may not have adequate
remedies for such breach or the fact that our trade secrets become known to or
independently developed by competitors.

If a competitor's products infringed our patents, we would sue to enforce
our rights in an infringement action. These suits are costly and would divert
funds and management and technical resources from our operations. Furthermore,
we cannot be certain that our products or processes will not infringe any
patents or other intellectual property rights of others. If they do infringe
the rights of others, we may not be able to obtain a license from the
intellectual property owner on commercially reasonable terms or at all.

Our Management Has Significant Influence Over Stockholder Decisions

Our officers and directors will control the vote of approximately 14% of the
outstanding shares of common stock prior to the exercise of any outstanding
options. As a result, they may be able to significantly influence all matters
requiring approval by our stockholders, including the election of directors.

Our Anti-Takeover Measures May Affect the Value of our Stock

We, as a Delaware corporation, are subject to the General Corporation Law of
the State of Delaware, including Section 203, an anti-takeover law enacted in
1988. In general, Section 203 restricts the ability of a public Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder. As a result of the
application of Section 203 and certain provisions in our certificate of
incorporation and bylaws, potential acquirors may be discouraged from
attempting to acquire us, thereby possibly depriving our stockholders of
acquisition opportunities to sell or otherwise dispose our stock at above-
market prices typical of such acquisitions.

We have also adopted a shareholder rights plan which gives holders of common
stock the right to purchase shares of our Series A Junior Participating
Preferred Stock if a potential acquiror purchases or plans to make a tender
offer to purchase 15% or more of our outstanding common stock. The existence of
this plan may make it more difficult for a third party to acquire control of
ASTeX.

7
<PAGE>

Our Board of Directors is divided into three classes of directors with
staggered terms. Directors are elected to three-year terms and the term of one
class of directors expires each year. The existence of a classified board is
designed to provide continuity and stability to our management and to render
certain hostile takeovers more difficult. The existence of a classified board
may therefore have the effect of making it more difficult for a third party to
acquire control of ASTeX in certain instances, thereby delaying, deferring or
preventing a change of control that a stockholder might consider would result
in a premium for its stock. Further, if stockholders are dissatisfied with the
policies and/or decisions of the Board of Directors, the existence of a
classified board will make it more difficult for the stockholders to change the
composition (and therefore the policies) of the Board of Directors in a
relatively short period of time.

We are authorized to issue up to 1,000,000 shares of preferred stock, $.01
par value per share and to determine the price, privileges and other terms of
such shares. The issuance of any preferred stock with superior rights to the
common stocks could reduce the value of the common stock. In particular,
specific rights granted to future holders of preferred stock could be used to
restrict our ability to merge with or sell our assets to a third party, thereby
preserving control of ASTeX by present owners and management and preventing our
holders of common stock from realizing a premium on their shares.

Your Investment May Be Subject to Dilution

The market price of the common stock could drop as a result of sales of a
large number of shares of common stock in the market after the offering, or the
price remain lower because of the belief that such sales could occur. These
factors also could make it more difficult for us to raise funds through future
offerings of common stock.

As of February 8, 1999 we had 8,669,309 shares of common stock outstanding,
of which 7,137,094 shares are freely tradeable and 1,532,215 shares of which
are owned by certain of our executive officers and directors and are currently
eligible for sale under Rule 144 of the Securities Act of 1933. The 1,532,215
shares of common stock owned by certain of our executive officers and directors
are subject to the volume trading limitations under Rule 144. In connection
with the offering, our executive officers and directors have agreed that, with
exceptions, they will not sell any shares of common stock without the consent
of Needham & Company, Inc. for a period of 90 days after the date of this
prospectus.

In addition, we have reserved an aggregate of 2,819,895 shares of common
stock for issuance to employees, officers, directors and consultants pursuant
to our 1987 Stock Option Plan, 1993 Stock Option Plan and 1994 Formula Stock
Option Plan. To date, options to purchase 2,917,941 shares have been granted
under these option plans, of which 545,574 have been exercised, 804,568 have
been canceled and 1,567,799 are currently outstanding. All shares of common
stock underlying our option plans are registered and, upon exercise, are freely
tradable subject to volume trading limitations under Rule 144. These options
entitle the holders to purchase shares of common stock at prices per share that
are less than the current market price per share of our common stock. The
holders of these options will usually exercise them at a time when the market
price of our common stock is greater than the exercise price of the options.
The exercise of options and subsequent sale of common stock could reduce the
market price for our common stock and result in dilution to our then
stockholders.

Our Business Is Exposed to the Risk of System Failure from the Year 2000
Problem

Many currently installed computer systems and software products are coded to
accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and/or software used by many companies and governmental agencies may
need to be upgraded to comply with such Year 2000 requirements or risk system
failure or miscalculations causing disruptions of normal business activities.

We use computer software programs in our internal operations, such as for
enterprise resource planning, in performing administrative functions, in our
financial and business systems, for database management, in our network
operating systems, and for our internal telecommunications and security
equipment. Although we

8
<PAGE>

believe these programs will be upgraded to make them Year 2000 compliant by
October 1999, our failure to make the required modifications could result in
systems interruptions or failures that could hurt our business. As of December
26, 1998, we have spent approximately $1.5 million to upgrade our systems, and
we expect to spend approximately an additional $100,000 during the next several
months to make our systems Year 2000 compliant. However, we may incur
unanticipated costs to make our systems Year 2000 compliant. These additional
costs could hurt our operating results. In addition, we are questioning our
significant suppliers to identify those critical suppliers whose failure to
make their systems Year 2000 compliant could seriously disrupt our business
operations. Based on the responses, we will seek new suppliers where necessary
but have not yet developed a formal contingency plan. The failure of our
critical suppliers to make their systems Year 2000 compliant could also hurt
our operations.

Based on our on-going review of our products in operation at customer sites,
we believe that a number of our complete process systems are not Year 2000
compliant. Over the next several months we plan to identify those customers
having non-compliant products and offer all modifications necessary to make
them compliant. Currently we believe the costs of making these systems Year
2000 compliant will be immaterial. However, if these costs are significant,
they could hurt our operating results. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000
Disclosure."

9
<PAGE>

USE OF PROCEEDS

The net proceeds to us from the sale of the 2,500,000 shares of common stock
offered with this prospectus are estimated to be approximately $28,865,000,
assuming a public offering price of $12.50 per share and after deduction of the
estimated underwriting discounts and commissions and estimated offering
expenses to be paid by us. See "Underwriting."

We expect to use the net proceeds for working capital and general corporate
purposes, including new product development, and sales and marketing expansion.
We intend to use a portion of the proceeds to expand our global sales and
service activities, for sales and product development joint ventures, and
expansion of our product development activities for new markets, including
electronic packaging and pollution abatement and remediation applications. We
are undertaking the offering in part because we believe that the availability
of adequate financial resources is a substantial competitive factor. We may use
a portion of the net proceeds for strategic acquisitions of businesses,
products or technologies complementary to our business. We do not have any
material commitments to make any strategic acquisition at this time. Prior to
using the proceeds in the manner described above, we plan to invest the net
proceeds of this offering in short-term, interest-bearing investment-grade
securities.

CAPITALIZATION

The following table sets forth our capitalization at December 26, 1998, and
as adjusted to give effect to the sale of the 2,500,000 shares of common stock
offered in this offering at an assumed public offering price of $12.50 per
share and after deducting underwriting discounts and commissions and estimated
offering expenses to be paid by us:

<TABLE>
<CAPTION>
December 26, 1998
--------------------
Actual As Adjusted
------- -----------
(in thousands)
<S> <C> <C>
Short-term debt: $ -- $ --
Current maturities of long-term debt.................. -- --
Long-term debt:
Long-term debt, excluding current maturities.......... -- --
Stockholders equity:
Preferred stock, $.01 par value; 1,000,000 shares
authorized; issued and outstanding: none actual; none
pro forma............................................ -- --
Common stock, $.01 par value; 30,000,000 shares
authorized; issued and outstanding: 8,649,732 actual;
11,149,732 as adjusted............................... 86 111
Additional paid-in capital............................ 44,200 73,040
Accumulated deficit................................... (4,165) (4,165)
Cumulative translation adjustment..................... 58 58
Notes receivable for common stock purchases........... (148) (148)
------- -------
Total stockholders' equity........................... $40,031 $68,896
------- -------
Total capitalization................................. $40,031 $68,896
======= =======
</TABLE>
- --------
(1) Excludes outstanding options to purchase 1,567,799 shares of common stock
at a weighted-average exercise price per share of $6.59.

10
<PAGE>

PRICE RANGE OF COMMON STOCK

Our common stock is traded on the Nasdaq National Market under the symbol
"ASTX." The following table sets forth, for the periods indicated, the high and
low closing sale prices per share of our common stock, as reported by the
Nasdaq National Market.

<TABLE>
<CAPTION>
High Low
------- -------
<S> <C> <C>
Fiscal Year Ended June 28, 1997
First Quarter................................................ $ 8.417 $ 5.500
Second Quarter............................................... 8.500 4.500
Third Quarter................................................ 9.750 5.833
Fourth Quarter............................................... 11.333 6.083
Fiscal Year Ended June 27, 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
Fiscal Year Ending June 26, 1999
First Quarter................................................ $ 8.125 $ 3.875
Second Quarter............................................... 11.000 3.125
Third Quarter (through February 8, 1999)..................... 14.375 9.875
</TABLE>

On February 8, 1999, the closing bid and ask prices for our common stock as
reported on the Nasdaq National Market were $12.625 and $12.875, respectively.
As of January 15, 1999, we had 181 holders of record of our common stock. There
are approximately 2,100 beneficial owners of our common stock.

DIVIDEND POLICY

We have never declared or paid cash dividends on our common stock and do not
plan to pay any cash dividends in the foreseeable future. Our current credit
facility arrangements restrict our ability to declare cash dividends without
the lender's prior written consent. Our current policy is to retain all
earnings to finance future growth.

11
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The following table contains our selected consolidated financial data and is
qualified by the more detailed Consolidated Financial Statements and Notes
thereto included elsewhere in this prospectus. The consolidated statement of
operations data for the fiscal years ended June 27, 1998, June 28, 1997 and
June 29, 1996 have been derived from Consolidated Financial Statements, which
statements have been audited by KPMG Peat Marwick LLP, independent public
accountants, and are included elsewhere in this prospectus. The consolidated
statement of operations data for the fiscal years ended July 1, 1995 and July
2, 1994 have been derived from our consolidated financial statements, which
have been audited by KPMG Peat Marwick LLP and are not included in this
prospectus. Data as of December 26, 1998 and December 27, 1997 and for the six
months ended December 26, 1998 have been derived from unaudited Consolidated
Financial Statements included elsewhere in this prospectus and, in our opinion,
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the results of operations for the periods
presented. Results for the six months ended December 26, 1998 are not
necessarily indicative of the results to be expected for the full year. This
data should be read in conjunction with the Consolidated Financial Statements
and Notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" appearing elsewhere herein.

<TABLE>
<CAPTION>
Fiscal Year Ended Six Months Ended
--------------------------------------------- ------------------
July 2, July 1, June 29, June 28, June 27, Dec. 27, Dec. 26,
1994 1995 1996 1997 1998 1997 1998
------- ------- -------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data(1):
Total revenue........... $13,357 $20,005 $39,136 $47,967 $83,436 $39,861 $28,954
Total cost of sales and
revenue................ 7,248 11,813 23,364 30,557 54,987 25,157 23,280
------- ------- ------- ------- ------- ------- -------
Gross profit............ 6,109 8,192 15,772 17,410 28,449 14,704 5,674
Operating Expenses:
Selling expenses....... 1,569 1,992 3,298 2,950 4,427 2,017 2,375
General and
administrative
expenses.............. 1,748 2,561 3,807 3,958 6,648 3,288 3,673
Research and
development expenses,
net................... 2,434 2,840 5,043 7,343 11,253 5,411 4,568
Acquisition-related
expenses.............. -- -- 2,888 1,500 212 212 --
Write-off of goodwill.. -- -- 6,814 -- -- -- --
Restructuring charge... -- -- -- -- -- -- 1,497
------- ------- ------- ------- ------- ------- -------
Total operating
expenses............... 5,751 7,393 21,850 15,751 22,540 10,928 12,113
------- ------- ------- ------- ------- ------- -------
Earnings (loss) from
operations............. 358 799 (6,078) 1,659 5,909 3,776 (6,439)
Total other expense
(income)............... (317) (730) (322) 171 (578) (243) (236)
------- ------- ------- ------- ------- ------- -------
Earnings (loss) before
income taxes........... 675 1,529 (5,756) 1,488 6,487 4,019 (6,203)
Income tax expense
(benefit).............. 157 401 1,541 550 2,466 1,589 (2,285)
------- ------- ------- ------- ------- ------- -------
Net earnings (loss)..... $ 518 $ 1,128 $(7,297) $ 938 $ 4,021 $ 2,430 $(3,918)
======= ======= ======= ======= ======= ======= =======
Earnings (loss) per
share:
Basic.................. $ 0.10 $ 0.19 $ (1.16) $ 0.14 $ 0.50 $ 0.32 $ (0.46)
======= ======= ======= ======= ======= ======= =======
Diluted................ $ 0.10 $ 0.19 $ (1.16) $ 0.14 $ 0.47 $ 0.30 $ (0.46)
======= ======= ======= ======= ======= ======= =======
Weighted average common
shares:
Basic.................. 5,139 5,834 6,307 6,686 8,053 7,570 8,594
======= ======= ======= ======= ======= ======= =======
Diluted................ 5,151 5,988 6,307 6,777 8,529 8,002 8,594
======= ======= ======= ======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
December 26, 1998
----------------------
Actual As Adjusted(2)
------- --------------
<S> <C> <C>
Consolidated Balance Sheet Data:
Working capital.......................................... $22,994 $51,859
Total assets............................................. 48,007 76,872
Long-term debt, excluding current maturities............. -- --
Total liabilities........................................ 7,976 7,976
Stockholders' equity..................................... $40,031 $68,896
</TABLE>
- --------
(1) The consolidated statement of operations data includes the results of
operations of each of the acquired companies since the date of its
acquisition. Other operating expenses include acquisition-related expenses,
write-off of goodwill and restructuring charge. See notes 12, 15 and 18 of
notes to consolidated financial statements.

(2) Adjusted to reflect the sales of 2,500,000 shares of common stock offered
by us in this prospectus at an estimated offering price of $12.50 per share
and after deducting the underwriting discounts and estimated offering
expenses. See "Capitalization."

12
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

Overview

Applied Science and Technology, Inc. develops, manufactures and sells
precision reactive gas technology products used in the manufacture of
semiconductors. Our power supplies are also used in medical lasers and MRI
equipment. We have recently expanded into selling products used in magnetic
disk heads and advanced electronic packaging. During the past five years, we
have grown rapidly, both through internal growth as well as by acquisitions. In
January 1996, we acquired Erhorn Technological Operations, Inc., a manufacturer
of RF power sources. In May 1997, we acquired Converter Power, Inc. (ASTeX
CPI), a manufacturer of direct current power sources. In October 1997, we
acquired Sorbios GmbH (ASTeX Sorbios), a manufacturer of ozone sources and in
November 1998 we acquired PlasmaQuest, Inc. (ASTeX PlasmaQuest), a manufacturer
of reactive gas sources and systems used for magnetic disk head processing and
advanced electronic packaging applications. The results of operations for each
period presented include the results of operations of each of the acquired
companies since the date of its acquisition.

Results of Operations

The following table sets forth selected financial data for the periods
indicated expressed as a percentage of total revenue.

<TABLE>
<CAPTION>
Year Ended Six Months Ended
--------------------------- -----------------
June 29, June 28, June 27, Dec. 27, Dec. 26,
1996 1997 1998 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total revenue..................... 100.0% 100.0% 100.0% 100.0% 100.0%
Total cost of sales and revenue... 59.7 63.7 65.9 63.1 80.4
----- ----- ----- ----- -----
Gross profit...................... 40.3 36.3 34.1 36.9 19.6
Operating expenses:
Selling expenses................ 8.4 6.2 5.3 5.1 8.2
General and administrative
expenses....................... 9.7 8.2 8.0 8.2 12.7
Research and development
expenses, net.................. 12.9 15.3 13.5 13.6 15.8
Acquisition-related expenses.... 7.4 3.1 0.2 0.5 --
Write-off of goodwill........... 17.4 -- -- -- --
Restructuring charge............ -- -- -- -- 5.1
----- ----- ----- ----- -----
Total operating expenses.......... 55.8 32.8 27.0 27.4 41.8
----- ----- ----- ----- -----
Earnings (loss) from operations... (15.5) 3.5 7.1 9.5 (22.2)
Total other expense (income)...... (0.8) 0.4 (0.7) (0.6) (0.8)
----- ----- ----- ----- -----
Earnings (loss) before income
taxes............................ (14.7) 3.1 7.8 10.1 (21.4)
Income tax expense (benefit)...... 3.9 1.1 3.0 4.0 (7.9)
----- ----- ----- ----- -----
Net earnings (loss)............... (18.6)% 2.0% 4.8% 6.1% (13.5)%
===== ===== ===== ===== =====
</TABLE>

Six Months Ended December 26, 1998 Compared to Six Months Ended December 27,
1997

Revenues. Total revenue declined 27% to $29.0 million for the six months
ended December 26, 1998 from $39.9 million for the six months ended December
27, 1997. This decline was primarily the result of the severe downturn in the
semiconductor capital equipment industry, leading to a 33% decline in sales to
semiconductor capital equipment customers in the six months ended December 26,
1998 compared to the six months ended December 27, 1997. Other revenue
consisting of service, spare parts and repairs was flat at approximately $2.1
million in both periods.

13
<PAGE>

Gross Profit. Gross profit decreased 61% to $5.7 million in the six months
ended December 26, 1998 from $14.7 million in the six months ended December 27,
1997. Gross profit as a percent of total revenue decreased to 20% in the six
months ended December 26, 1998 from 37% in the six months ended December 27,
1997. These declines resulted from reduced manufacturing volumes, a less
favorable product mix and an inventory write down of $1.1 million, primarily
due to the unexpected severity of the downturn in the semiconductor equipment
industry and customer-specific product terminations.

We continue to seek to develop and introduce products having higher gross
profit margins. In addition, we continue to improve manufacturing efficiencies
and methods for all products to reduce cost. During the six months ended
December 26, 1998, we consolidated our Modesto, California facility into our
Woburn, Massachusetts and Colorado Springs, Colorado sites and our Beverly,
Massachusetts facility into Woburn in order to reduce our fixed costs and
improve gross profit margins.

Selling, General and Administrative Expenses. Selling expenses increased 18%
to $2.4 million in the six months ended December 26, 1998 from $2.0 million in
the six months ended December 27, 1997 as a result of the establishment of the
Global Customer Operations organization and increased staffing to strengthen
our global marketing, sales, service and product management infrastructure.
General and administrative expenses increased 12% to $3.7 million in the six
months ended December 26, 1998 from $3.3 million in the six months ended
December 27, 1997 due to costs associated with a management change in Europe,
higher information systems costs due to implementation of a new company-wide
Enterprise Resource Planning (ERP) system, increased goodwill amortization, and
general and administrative expenses associated with new acquisitions.

As a result of the consolidation of two facilities in the six months ended
December 26, 1998, we recorded a restructuring charge of $1.5 million. The
restructuring charge consisted of severance relating to the termination of 70
full-time employees, abandonment of leasehold improvements and fixed assets,
and facility costs, primarily future lease payments relating to abandoned
facilities. At December 26, 1998, all restructuring costs have been paid out
except for approximately $331,000, primarily for abandoned facility costs
expected to be paid over the next 15 months. In addition to the $1.5 million
restructuring charge, we incurred $393,000 of other transition costs related to
the consolidations for moving inventory and equipment and training personnel.
The total expense relating to restructuring, inventory write-down and
transition inventory and equipment costs was $3.0 million. These consolidations
are estimated to reduce our fixed and administrative costs approximately $2.0
million per year.

Research and Development Expenses. Net research and development expenses
decreased 16% to $4.6 million in the six months ended December 26, 1998 as we
reduced our overall level of investment in response to the decline in revenue
levels. Gross spending (total research and development spending, including
funded joint development and the direct costs of research contracts) decreased
18% in the six months ended December 26, 1998.

There were no acquisition-related charges in the six months ended December
26, 1998. As a part of the acquisition of ASTeX Sorbios in October 1997, we
incurred an acquisition-related expense of $212,000 for the fair value of
acquired in-process research and development projects.

Operating Income. We had an operating loss of $6.4 million in the six months
ended December 26, 1998 compared to operating income of $3.8 million in the six
months ended December 27, 1997. The operating loss in the six months ended
December 26, 1998 resulted from: the $2.8 million charge relating to
restructuring, inventory write-down and transition costs; the reduced gross
margin related to the decline in revenue; and the increased operating expenses
as a percentage of total revenue.

Other Income and Income Taxes. Total other income was flat at approximately
$240,000 in both periods. A decline in interest expense in the six months ended
December 26, 1998, resulting from repayment of bank debt, was offset by a
reduction in other income in the six months ended December 26, 1998 due to the
sale of an investment in another company in the six months ended December 27,
1997 which resulted in a one-time gain of $250,000.

14
<PAGE>

We had an income tax benefit of $2.3 million in the six months ended
December 26, 1998 in contrast to income tax expense of $1.6 million in the six
months ended December 27, 1997.

Fiscal Year Ended June 27, 1998 as Compared to Fiscal Year Ended June 26, 1997

Revenues. Total revenue increased 74% to $83.4 million for the fiscal year
ended June 27, 1998 from $48.0 million for the fiscal year ended June 26, 1997.
This growth was primarily the result of increased revenues from the
acquisitions of ASTeX CPI in May 1997 and ASTeX Sorbios in October 1997,
increased sales to semiconductor capital equipment customers, and increased
sales of specialty power sources. Semiconductor related revenues, including
revenues from ASTeX CPI and ASTeX Sorbios, increased 72% or $22.1 million in
the fiscal year ended June 27, 1998 compared to the fiscal year ended June 26,
1997 with the biggest increase coming from sales of RF power sources. Specialty
power source revenues, including revenues from ASTeX CPI, increased 104% or
$13.6 million in the fiscal year ended June 27, 1998 compared to the fiscal
year ended June 26, 1997 with most of the growth due to the revenues from ASTeX
CPI. The ASTeX CPI and ASTeX Sorbios acquisitions added incremental sales of
$12.7 million and $3.5 million respectively compared to the fiscal year ended
June 26, 1997, or 19% of total revenue. Without these acquisitions, revenues
increased 42% to $65.0 million from $45.7 million. Other revenue consisting of
service, spare parts and repairs was approximately 6% of total revenue in each
of the fiscal years ended June 27, 1998 and June 26, 1997.

Gross Profit. Gross profit increased 63% to $28.5 million in the fiscal year
ended June 27, 1998 from $17.4 million in the fiscal year ended June 26, 1997.
Gross profit as a percent of total revenue decreased to 34% in the fiscal year
ended June 27, 1998 from 36% in the fiscal year ended June 26, 1997, primarily
due to the acquisition of ASTeX CPI whose products have a lower gross margin
than other products sold by us. In addition, gross profit margins were impacted
by volume declines in the fourth quarter of the fiscal year ended June 27,
1998, resulting in unabsorbed manufacturing costs.

Selling, General and Administrative Expenses. Selling expenses increased 50%
to $4.4 million in the fiscal year ended June 27, 1998, but decreased as a
percent of revenue to 5% from 6% in the fiscal year ended June 26, 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 our total general and administrative
expenses increased 68% to $6.6 million compared to the fiscal year ended June
26, 1997, primarily due to acquisitions.

Research and Development Expenses. Net research and development expenses
decreased as a percent of sales to 14% in the fiscal year ended June 27, 1998
from 15% in the fiscal year ended June 26, 1997. Net research and development
expenses increased 53% to $11.3 million. Gross spending (total research and
development spending including funded joint development and the direct costs of
research contracts) increased 42% to $11.6 million. These funds were used to
develop and introduce a number of new products including ASTRON for chemical
vapor deposition (CVD) chamber cleaning, Liquozon for wafer cleaning, RF power
sources for etch and deposition and new laser power sources for medical
applications.

As a part of the acquisition of ASTeX Sorbios in the fiscal year ended June
27, 1998, we incurred an acquisition-related expense of $212,000 for the fair
value of acquired in-process research and development projects. This compares
with acquisition-related expenses of $1.5 million incurred with the acquisition
of ASTeX CPI in the fiscal year ended June 26, 1997.

Operating Income. Operating income increased 256% to $5.9 million or 7% of
revenues in the fiscal year ended June 27, 1998 compared to the fiscal year
ended June 26, 1997. Excluding one-time charges for acquisition-related
expenses in both years, operating income increased 94% or $3.0 million. The
increase in operating income is a result of increased sales and lower expenses
as a percent of revenue.

Other Income/Expense and Income Taxes. Interest expense decreased 66% to
$196,000 in the fiscal year ended June 27, 1998 compared to the fiscal year
ended June 26, 1997, while interest income increased

15
<PAGE>

30% to $514,000 in the fiscal year ended June 27, 1998 compared to the fiscal
year ended June 26, 1997. The decrease in interest expense and the increase in
interest income are the result of exercise of warrants issued in connection
with our IPO in November 1993. Other income increased $241,000 in the fiscal
year ended June 27, 1998 compared to the fiscal year ended June 26, 1997 due to
the sale of an investment in a company which resulted in a one-time gain of
$250,000.

Income tax expense increased to $2.5 million in the fiscal year ended June
27, 1998 from $550,000 in the fiscal year ended June 26, 1997.

Fiscal Year Ended June 26, 1997 Compared to Fiscal Year Ended June 29, 1996

Revenues. Total revenue increased 23% to $48.0 million for the fiscal year
ended June 26, 1997 compared to the fiscal year ended June 29, 1996. This
growth was the result of acquisitions while revenues from existing
semiconductor equipment customers were flat due to an industry downturn during
the first three quarters of the fiscal year ended June 26, 1997. ASTeX ETO,
acquired on January 2, 1996, provided most of the growth. Sales of specialty RF
power sources for medical applications increased $7.3 million in the fiscal
year ended June 26, 1997. The acquisition of ASTeX CPI added $2.3 million of
revenue in the fiscal year ended June 26, 1997. Other revenue consisting of
service, spare parts and repairs increased 48% to $3.1 million in the fiscal
year ended June 26, 1997 compared to the fiscal year ended June 29, 1996,
primarily due to ASTeX ETO which obtains a larger fraction of its total
revenues from this category.

Gross Profit. Gross profit increased 10% to $17.4 million in the fiscal year
ended June 26, 1997 from $15.8 million in the fiscal year ended June 29, 1996.
Gross profit as a percent of total revenue decreased to 36% in the fiscal year
ended June 26, 1997 from 40% in the fiscal year ended June 29, 1996, primarily
due to the acquisitions of ASTeX ETO and ASTeX CPI whose products have lower
gross margins than our other product lines. In addition, gross margins were
negatively impacted by manufacturing costs for new product introductions,
reduced sales volumes on existing products, and increased inventory reserves.

Selling, General and Administrative Expenses. Selling expenses decreased 11%
to $3.0 million in the fiscal year ended June 26, 1997 compared to the fiscal
year ended June 29, 1996. Selling expenses decreased due to the consolidation
of our semiconductor sales activities and a reduction in headcount, promotional
costs, and travel expenses. General and administrative expenses increased 4% to
$4.0 million in the fiscal year ended June 26, 1997 but decreased as a percent
of revenue compared to the fiscal year ended June 29, 1996. During the fiscal
year ended June 26, 1997, there were an additional six months of ASTeX ETO and
two months of ASTeX CPI general and administrative expenses compared to fiscal
year ended June 29, 1996. Cost reductions reduced the overall level of the
increase.

Research and Development Expenses. Net research and development expenses
increased 46% to $7.3 million in the fiscal year ended June 26, 1997 compared
to the fiscal year ended June 29, 1996. Gross spending (total research and
development spending including funded joint development and the direct costs of
research contracts) increased 27% to $8.7 million in the fiscal year ended June
26, 1997 compared to the fiscal year ended June 29, 1996.

As part of the acquisition of ASTeX CPI in the fiscal year ended June 26,
1997, we incurred an acquisition-related expense of $1.5 million for the fair
value of acquired in-process research and development projects. This compares
to acquisition-related expenses of $2.9 million incurred in the fiscal year
ended June 29, 1996.

Operating Income. Operating income was $1.7 million in the fiscal year ended
June 26, 1997 compared to a loss of $6.1 million in the fiscal year ended June
29, 1996. In the fourth quarter of the fiscal year ended June 29, 1996, we
recorded an impairment of goodwill of $6.8 million associated with the ASTeX
ETO acquisition. Excluding one-time charges for acquisition-related expenses
and the write-off of goodwill, operating income in the fiscal year ended June
26, 1997 would have been $3.2 million or 7% of total revenue compared to $3.6
million or 9% of total revenue in the fiscal year ended June 29, 1996. The
decrease in

16
<PAGE>

adjusted operating income was primarily due to the increased research and
development expenses and lower gross margins in the fiscal year ended June 26,
1997.

Other Income/Expense and Income Taxes. Interest expense in the fiscal year
ended June 26, 1997 increased 81% to $585,000 from $324,000 in the fiscal year
ended June 29, 1996, while interest income in the fiscal year ended June 26,
1997 decreased 40% to $396,000 from $659,000 in the fiscal year ended June 29,
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 decreased to $550,000 in the fiscal year ended June 26,
1997 from $1.5 million in the fiscal year ended June 29, 1996. In the fiscal
year ended June 29, 1996, income tax expense of $1.5 million resulted from one-
time charges of goodwill amortization and write-off and acquisition-related
expenses which were not tax deductible. There were no comparable non-deductible
costs in the fiscal year ended June 26, 1997.

Foreign Currency Fluctuations. Our foreign revenues are generally payable in
U.S. dollars. The acquisition of ASTeX Sorbios increased the risk of foreign
currency fluctuations, although significant ASTeX Sorbios business is conducted
with U.S. companies in dollars. Foreign currency fluctuations have not had a
significant impact on the comparison of the results of operations for the
periods presented. Over time, as we seek to expand our operations in Europe and
Asia, more revenues may be payable in foreign currencies, increasing our risk.

Quarterly Results of Operations

The following tables set forth selected unaudited quarterly statement of
operations data for the ten quarters ended December 26, 1998, as well as such
data expressed as a percentage of our total revenue for the periods indicated.
We believe this unaudited information has been prepared substantially on the
same basis as the annual audited financial statements and all necessary
adjustments, consisting of only normal recurring adjustments, have been
included in the amounts stated below to present fairly our unaudited financial
statements. The operating results for any quarter are not necessarily
indicative of the operating results for any future period.

17
<PAGE>

Consolidated Statement of Operations Data:
(in thousands, except per share amounts)

<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------------------------------------------
Sept. 28, Dec. 28, Mar. 29, June 28, Sept. 27, Dec. 27, Mar. 28, June 27, Sept. 26, Dec. 26,
1996 1996 1997 1997 1997 1997 1998 1998 1998 1998
--------- -------- -------- -------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue........... $9,860 9,293 11,013 17,801 17,421 22,440 23,462 20,113 12,100 16,854
Total cost of sales and
revenue................ 6,047 5,897 7,126 11,487 10,947 14,210 15,254 14,576 10,925 12,355
------ ----- ------ ------ ------ ------ ------ ------ ------ ------
Gross profit............ 3,813 3,396 3,887 6,314 6,474 8,230 8,208 5,537 1,175 4,499
Operating expenses:
Selling expenses....... 766 633 606 945 835 1,183 1,145 1,264 1,202 1,173
General and
administrative
expenses.............. 842 892 887 1,337 1,401 1,886 1,792 1,569 1,865 1,808
Research and
development expenses,
net................... 1,669 1,410 1,735 2,529 2,561 2,850 3,019 2,823 2,324 2,244
Acquisition-related
expenses.............. -- -- -- 1,500 -- 212 -- -- -- --
Restructuring charge... -- -- -- -- -- -- -- -- 1,497 --
------ ----- ------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses............... 3,277 2,935 3,228 6,311 4,797 6,131 5,956 5,656 6,888 5,225
------ ----- ------ ------ ------ ------ ------ ------ ------ ------
Earnings (loss) from
operations............. 536 461 659 3 1,677 2,099 2,252 (119) (5,713) (726)
Total other expense
(income)............... 41 17 38 75 (156) (87) (195) (140) (104) (132)
------ ----- ------ ------ ------ ------ ------ ------ ------ ------
Earnings (loss) before
income taxes........... 495 444 621 (72) 1,833 2,186 2,447 21 (5,609) (594)
Income tax expense
(benefit).............. 183 164 230 (27) 678 911 869 8 (2,128) (157)
------ ----- ------ ------ ------ ------ ------ ------ ------ ------
Net earnings (loss)..... $ 312 280 391 (45) 1,155 1,275 1,578 13 (3,481) (437)
====== ===== ====== ====== ====== ====== ====== ====== ====== ======
Earnings (loss) per
share:
Basic.................. $ 0.05 $0.04 $ 0.06 $(0.01) $ 0.17 $ 0.15 $ 0.19 $ 0.00 $(0.41) $(0.05)
====== ===== ====== ====== ====== ====== ====== ====== ====== ======
Diluted................ $ 0.05 $0.04 $ 0.06 $(0.01) $ 0.14 $ 0.15 $ 0.18 $ 0.00 $(0.41) $(0.05)
====== ===== ====== ====== ====== ====== ====== ====== ====== ======
Weighted average common
shares
Basic.................. 6,673 6,666 6,672 6,730 6,828 8,310 8,488 8,588 8,585 8,603
====== ===== ====== ====== ====== ====== ====== ====== ====== ======
Diluted................ 6,781 6,721 6,793 6,730 7,971 8,779 8,922 8,912 8,585 8,603
====== ===== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>

18
<PAGE>

<TABLE>
<CAPTION>
Percentage of Total Revenue
---------------------------------------------------------------------------------------------
Sept. 28, Dec. 28, Mar. 29, June 28, Sept. 27, Dec. 27, Mar. 28, June 27, Sept. 26, Dec. 26,
1996 1996 1997 1997 1997 1997 1998 1998 1998 1998
--------- -------- -------- -------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue........... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Total cost of sales and
revenue................ 61.3 63.5 64.7 64.5 62.8 63.3 65.0 72.5 90.3 73.3
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Gross profit............ 38.7 36.5 35.3 35.5 37.2 36.7 35.0 27.5 9.7 26.7
Operating expenses:
Selling expenses....... 7.8 6.8 5.5 5.3 4.8 5.3 4.9 6.3 9.9 7.0
General and
administrative
expenses.............. 8.5 9.6 8.1 7.5 8.1 8.4 7.6 7.8 15.4 10.7
Research and
development expenses,
net................... 16.9 15.1 15.7 14.3 14.7 12.7 12.9 14.0 19.2 13.3
Acquisition-related
expenses.............. -- -- -- 8.4 -- 0.9 -- -- -- --
Restructuring charge... -- -- -- -- -- -- -- -- 12.4 --
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total operating
expenses............... 33.2 31.5 29.3 35.5 27.6 27.3 25.4 28.1 56.9 31.0
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Earnings (loss) from
operations............. 5.5 5.0 6.0 -- 9.6 9.4 9.6 (0.6) (47.2) (4.3)
Total other expense
(income)............... 0.4 0.2 0.3 0.4 (0.9) (0.3) (0.8) (0.7) (0.8) (0.8)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Earnings (loss) before
income taxes........... 5.1 4.8 5.7 (0.4) 10.5 9.7 10.4 0.1 (46.4) (3.5)
Income tax expense
(benefit).............. 1.9 1.8 2.1 (0.1) 3.9 4.1 3.7 -- (17.6) (0.9)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net earnings (loss)..... 3.2% 3.0% 3.6% (0.3)% 6.6% 5.6% 6.7% 0.1% (28.8)% (2.6)%
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>

Liquidity and Capital Resources

At December 26, 1998, we had cash and short-term investments of $2.2 million
with working capital of $23.0 million compared to December 27, 1997, when we
had cash and short-term investments of $11.1 million and working capital of
$26.9 million.

During the six months ended December 26, 1998, our cash position decreased
from $7.7 million to $2.2 million. The $5.5 million decrease resulted from cash
used for operating activities of $3.0 million, cash used for investing
activities of $2.6 million and cash used for financing activities of $26,000.
Cash of $3.0 million used for operating activities consisted of the $3.9
million net loss and $1.4 million used for net changes in operating assets,
including deferred income taxes. These sums were offset by noncash depreciation
and amortization of $1.7 million and a noncash loss on disposal of assets of
$625,000. Net cash used for investing activities of $2.6 million was comprised
of $1.0 million in additions to property and equipment and $1.6 million in
acquisition-related receivables. Net cash used for financing activities of
$26,000 resulted primarily from repayments of notes payable of $206,000 offset
by net borrowings under the bank line of credit of $173,000.

During the fiscal year ended June 27, 1998, we generated $2.5 million in
cash from operating activities and used $4.9 million for investing activities.
Cash used for investing activities consisted of $3.7 million for the
acquisition of ASTeX Sorbios, $3.0 million for additions to property,
equipment, and patents, offset by sales of $1.3 million in investments
(primarily commercial paper and government treasury bills) and $500,000 from
the sale of our investment in a company. Cash flows from financing activities
consisted primarily of repayment of $9.2 million bank debt offset by $16.1
million in proceeds from the issuance of common stock which was primarily from
the exercise of warrants and stock options by employees.

During the fiscal year ended June 26, 1997, we generated $4.4 million in
cash from operating activities and used $7.0 million for investing activities.
Cash used for investing activities consisted of $6.5 million for the
acquisition of ASTeX CPI, $1.1 million for additions to property, equipment,
and patents, and $1.3 million for the purchase of investments, offset by $2.0
million from sales of investments. Investments were primarily commercial paper
and government treasury bills. Cash flows from financing activities consisted
primarily of $5.0 million in proceeds from notes payable offset by note
repayments of $4.6 million and proceeds of $290,000 from issuance of common
stock which was primarily due to exercise of employee stock options.

19
<PAGE>

During the fiscal year ended June 29, 1996, we generated $719,000 in cash
from operating activities and used $7.2 million for investing activities. Net
cash used for investing activities consisted of $12.3 million for the
acquisition of ASTeX ETO, $2.9 million for additions to property, equipment,
and patents, $250,000 for an equity investment in a company, and $3.0 million
for the purchase of investments, offset by sales of $11.2 million in
investments. Investments were primarily commercial paper and government
treasury bills. Cash flows from financing activities consisted primarily of
proceeds of $8.0 million from two notes payable used in the acquisition of
ASTeX ETO and $2.0 million 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.

We have a credit facility with State Street Bank and Trust Company which
consists of an $8.0 million unsecured demand line of credit with interest at
the bank's prime rate 7.75% at January 27, 1999. This facility is subject to
our meeting certain financial covenants which are tested quarterly. We are
currently in compliance with all covenants. As of December 26, 1998, we had
borrowings against the line of credit of $647,000 and an additional
availability of $7.4 million. The line of credit expires in May 2000.

We continue to use cash resources for developing new products, expanding
sales and marketing, performing collaborative product development projects, and
for general working capital. We seek joint ventures and/or acquisitions that
will enhance our position in our markets with the potential to increase revenue
and profitability.

We believe that existing cash resources and funds from this offering,
anticipated cash flows from operations and our credit facility will be
sufficient to meet planned operating expenses and working capital requirements
for a period of at least the next 12 months.

Effects of Inflation

We believe that, over the past three years, inflation has not had a
significant impact on our revenues or operating results.

Year 2000 Disclosure

Many currently installed computer systems and software products are
dependent upon internal calendars coded to accept only two digit entries in the
date code field. These date code fields will need to accept four digit entries
to distinguish 21st century dates from 20th century dates. As a result,
computer systems and software used by many companies may need to be upgraded to
comply with Year 2000 requirements.

We believe that our financial reporting and enterprise resource planning
(ERP) systems will be Year 2000 compliant by April 1999 except for the recently
acquired ASTeX PlasmaQuest operation which is not currently a material
component of our business. We are currently in the process of updating our
financial reporting and ERP systems with SAP R/3, which has been represented as
being Year 2000 compliant by its producer. We are currently using SAP R/3 in
our facility in Woburn, MA. The current ERP software packages used by ASTeX
ETO, are represented as being Year 2000 compliant. The current software package
used by ASTeX Sorbios is not Year 2000 compliant. We intend to purchase an
upgrade that is represented as being Year 2000 compliant and will implement
this software by April 1999. We plan to upgrade the ASTeX PlasmaQuest system to
be Year 2000 compliant before October 1999. Our other software is generally
certified by the vendor as Year 2000 compliant or is not considered critical to
our operations.

We have spent approximately $1.5 million through December 26, 1998 on SAP
R/3 software, hardware and consultants. We plan future SAP R/3 implementation
expenditures of approximately $300,000. Although we believe future SAP R/3
implementation cost estimates to be accurate, we can not provide any assurance
that these costs will not increase or that the implementations will occur by
the dates estimated. We have conducted a review of our manufacturing equipment
and facilities to ensure Year 2000 compliance. Based on our assessment, we do
not anticipate that a material Year 2000 issue will be discovered in this area.

20
<PAGE>

We have addressed the Year 2000 preparedness of our critical suppliers and
our major customers and related electronic data interfaces with these third
parties. During the coming year we will contact critical suppliers and major
customers to determine whether they are, or will be, compliant by the Year
2000. We expect to complete this assessment in the next few months. Based upon
this evaluation, we will seek new vendors where necessary and formulate
contingency plans to resolve customer-related issues that may arise. At this
time we cannot estimate the impact that noncompliant suppliers and customers
may have on us or our level of operations in the Year 2000. At present, we have
not developed contingency plans, but we will determine whether to develop such
plans when our assessment is completed.

Although we have not completed a systematic review of our products in
operation at customer locations, we believe that a number of diamond deposition
systems may not be Year 2000 compliant. Over the next several months, we plan
to identify noncompliant products and offer 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,
we are 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.

21
<PAGE>

BUSINESS

Introduction

The electronics revolution could not have taken place without the advent of
reactive gas processing methods for production of semiconductors. A reactive
gas, created when energy breaks apart the molecules in a stable gas, allows
rapid chemical reactions to occur at relatively low temperatures, essential for
manufacturing advanced electronic devices. The semiconductor industry is the
largest user of precision reactive gas processing because of its extraordinary
demands for ultra-pure, high-yield and fine-geometry processes.

Precision Reactive Gas Processing

A reactive gas is created by adding energy to a stable gas to break apart
its molecules. The resulting dissociated gas produces rapid chemical reactions
when it comes into contact with other matter.

Reactive gas processes have important advantages relative to other types of
chemical processes. Relative to wet chemical processes, which typically involve
acids, reactive gas processes do not have acid disposal costs. In contrast to
many other types of chemical processes, which often require high temperatures
to sustain reactions, reactive gas processes take place at relatively low
temperatures. Low temperatures avoid heat damage to materials involved in the
process. Furthermore, reactions that take place in a gaseous state can be
applied to precision processing for ultra-fine geometries. Thus for many
applications in semiconductor processing and other precise chemical processing,
dry processes using reactive gases are increasingly displacing other types of
chemical processes.

In the semiconductor industry, reactive gas processes are used in process
steps that remove material (etch, strip or clean) or deposit material
(deposition). Reactive gases that are frequently used in the semiconductor

22
<PAGE>

industry to remove material or perform cleaning operations include oxygen,
fluorine, fluorocarbons, chlorine and ozone. Precision reactive gas etch and
deposition processes are emerging in other sectors of electronics such as
magnetic disk heads and advanced electronics packaging.

Precision reactive gases are used in a wide variety of industrial processes
that require high purity or very precise specifications for the end-product.
Reactive gas sources are used in deposition for many applications such as
ultra-thin, precise optical films and diamond-like coatings for precision wear
surfaces. Ozone, or reactive oxygen, is used to modify surfaces of polymers, to
destroy carcinogens found in groundwater and to destroy bacteria and viruses
such as in the medical and pharmaceutical industry where sterilization is
critical.

Designing equipment for producing high-purity reactive gases presents
formidable engineering challenges requiring comprehensive mastery of a range of
complex technologies. In making a reactive gas, a large amount of power,
typically thousands of watts, must be delivered to the gas without damaging the
chamber walls. Reactive gases are so highly corrosive that it is extremely
difficult to contain these gases at high purity without contamination from
corrosion of chamber walls. Thermal management of the chamber materials and
temperature variations within the gas chamber is vital. Pressure management is
also critical and must be integrated with power source characteristics and gas
composition. As can be seen from the foregoing, successful design of reliable
reactive gas source equipment involves a complex set of variables with many
critical interactions and trade-offs.

ASTeX's Reactive Gas Solutions

We have continually provided innovative solutions that address the need for
purity, precision, uniformity, reliability and efficiency in reactive gas
processes. Our engineers are experienced in addressing the difficult challenges
associated with designing reactive gas equipment and have developed a breadth
of solutions that meet our customers' exacting requirements. Drawing on our
backgrounds in fusion energy research--which deals with the controlled heating
of gases to ultra-high temperatures, demanding materials issues, high-energy
power sources and reactive gas chemistry--and combined with our engineering
talent from the semiconductor industry, we have a unique capability to deliver
superior reactive gas solutions to all of our customers.

To our customers in the semiconductor equipment market, we sell reactive gas
subsystems that may be incorporated with their process chambers to add, for
example, photoresist strip capability to a dry etch chamber or chamber clean
capability to a deposition chamber. We sell our reactive gas sources (such as
ozone) to suppliers of deposition and wet bench cleaning equipment. Our most
integrated products provide magnetic disk head and electronics packaging
manufacturers with complete process solutions. We also sell specialty power
sources for medical and industrial applications. Every one of these solutions
leverages our core competencies in reactive gas and power source engineering
and addresses our customers' specific integration requirements.

Strategy

Our objective is to expand our leadership position in advanced reactive gas
processing solutions. Key elements of our strategy include:

Leverage Core Technologies in the Semiconductor Processing Market. We seek
to increase our penetration of the semiconductor market by expanding our
customer base and by using our core technologies to introduce new integrated
reactive gas subsystems and innovative power sources. Over the past two years,
we have introduced five new integrated subsystem products that provide
significant benefits to our customers. Such benefits include greater
efficiency, reduced cost, increased integration for lean manufacturing and
improved environmental performance.

Extend Technology Leadership into New Market Segments. We intend to use our
technology to address reactive gas and power source applications in new market
segments. Exhaust gas abatement, manufacture of

23
<PAGE>

magnetic disk heads and advanced electronics packaging and groundwater
remediation are among the new opportunities that we are addressing.

Expand Global Sales and Service. We are strengthening our global sales and
service through increased staffing and an expanding infrastructure. During
1999, we intend to expand our sales and service activities in Asia and Europe
by adding direct personnel, independent representatives and joint ventures. In
addition, we plan to develop end-user sales for existing products.

Accelerate Growth through Strategic Acquisitions. Over the past three years,
we have acquired four companies, extending our technology and broadening our
markets. We intend to continue to evaluate strategic acquisitions, particularly
those with closely-related technologies that serve applications beyond the
semiconductor industry.

Continue to Build Collaborative Development Relationships with Key
Customers. We work closely with our customers to anticipate and provide
solutions that meet specific performance, reliability, cost and integration
requirements. By working closely with us, customers can outsource key
subsystems and concentrate on their core competencies while adopting lean
organizational practices.

Markets and Applications

Our core competencies enable us to deliver precision reactive gas solutions
that serve a variety of applications within the electronics, medical and
industrial markets.

Electronics

Semiconductor Processing. Our reactive gas systems, subsystems and
components are used in semiconductor manufacturing equipment. The world market
for silicon wafer processing equipment was $17 billion in 1998. The component
and subsystem segments of this market, which are available to us, are estimated
by management to be approximately $500 million per year. We believe that the
total available market for us in this industry can be expanded significantly
both through anticipated growth in the overall semiconductor equipment
manufacturing market and the development or acquisition of complementary
product lines.

A number of factors are driving demand for more advanced semiconductor
manufacturing equipment. A primary factor is the increased demand for
semiconductors in a number of consumer (e.g., portable telecommunications,
paging and computing devices), automotive, medical and industrial markets.
Also, new semiconductor capabilities have resulted in increasingly
sophisticated semiconductors manufactured in increasingly complex processes.
Semiconductor manufacturers have also developed new manufacturing processes
that improve yields in a more automated environment, thereby reducing costs.

Many essential process steps in the manufacture of semiconductors use
reactive gas processes including photoresist stripping, etching, thin film
deposition, surface and chamber cleaning and abatement of toxic exhaust gases.
Semiconductor technology advances, particularly shrinking line widths, are
driving the need for more sophisticated semiconductor manufacturing processes
which increasingly involve the use of reactive gases.

Technology advances within the industry, such as the transition to finer
line widths, provide new opportunities for us. As geometries continue to
shrink, next generation devices require new dielectric materials that must be
created with advanced processes requiring new reactive gas solutions. The finer
line widths are also driving a shift to copper interconnect for high speed
logic devices. Copper damascene technology necessitates changes in the etch and
deposition processes of both insulating and metal layers, creating new
opportunities for reactive gas applications.

24
<PAGE>

As the semiconductor manufacturing industry grows and matures, many of the
large semiconductor equipment manufacturers are working more directly with
companies like us 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 approach offers advantages of
reduced cycle times, reduced fixed costs, and a reduced number of suppliers
with the overall result of improved efficiency. We have been able to take
advantage of this transition by working with our customers to develop and
deliver integrated solutions.

We also have the opportunity to sell retrofittable subsystems, both to
semiconductor equipment manufacturers and directly to semiconductor
fabricators. This may provide for a further expansion of our existing product
revenues. Semiconductor fabricators have demonstrated interest in upgrading
older equipment to improve performance, reduce costs and reduce greenhouse gas
emissions, without bearing the cost of a complete new system. Upgrades are
possible for a variety of components and subsystems such as ozone delivery and
other reactive gas sources, exhaust gas abatement systems and more efficient
chamber clean systems.

Data Storage. Through the acquisition of PlasmaQuest, we have entered the
magnetic disk head production equipment market. Magnetic disk heads record and
read data on the magnetic disk. Shrinking feature sizes on magnetic disk heads
allow higher capacity on data storage devices.

The magnetic disk head market is driven by the reduction of cost per bit.
New magnetic sensor technologies, magneto-resistive (MR) and giant magneto-
resistive (GMR) heads, enable disk drive manufacturers to offer increasingly
higher storage capacity. MR heads are predicted to offer storage of up to 5
gigabytes per square inch while GMR heads are expected to offer up to 50
gigabytes per square inch by 2005. Low temperature etch and CVD equipment that
incorporates new technology is required for the production of GMR heads.

The transition to GMR head technology is expected to drive the expansion of
the GMR head market from 1999 through 2001. GMR head production is projected to
increase to nearly 100 million units in 1999 and to over 775 million units in
2001 while the MR market is expected to remain relatively unchanged. Total
magnetic head production is expected to increase from an estimated 955 million
units in 1998 to an estimated 1.7 billion units in 2001. We intend to expand
the number of magnetic disk head processes available to our customers.

Advanced Electronics Packaging. We currently sell a reactive gas cleaning
system for oxide removal in the production of ball grid array and flip chip
circuit assemblies. We are evaluating further applications for emerging
advanced electronics packaging and may develop further products for this market
that could be sold to OEMs as subsystems or directly to end users as complete
systems.

We are a leading supplier of systems that produce diamond substrates using a
reactive gas CVD process. CVD diamond is used as an electronic packaging
material for laser diodes and filters for very high frequency telecommunication
applications. Diamond is used in these applications because it is the best
thermal conductor and is also an excellent electrical insulator. However,
because of its high cost, CVD diamond has been confined to specialized high-
value markets. We believe that the development of a larger market in CVD
diamond depends on future cost reductions of the process and the development of
new applications.

Medical and Industrial

We sell our products for a variety of applications in advanced medical and
industrial processes.

Medical Equipment Power Sources. We supply RF power sources for magnetic
resonance imaging (MRI) and medical equipment sterilization applications, and
DC power sources for medical lasers.

We are a leading supplier of RF power sources to the MRI equipment market.
MRI is a diagnostic imaging instrument that uses RF energy to excite the body's
hydrogen molecules in a strong magnetic field.

25
<PAGE>

The excited molecules produce a radio signal that can be translated into
images. MRI is especially effective in imaging soft tissue and tissue
surrounded by bone.

We also provide RF power sources used in medical equipment sterilization
systems. Reactive gas removes contaminants and sterilizes medical instruments
and material without leaving toxic residue. This method, which competes with
high-temperature steam sterilization and low-temperature chemical baths,
significantly reduces instrument wear caused by the steam process and toxic
chemicals used in chemical baths.

We provide a broad line of DC power sources for medical lasers and
endoscopic systems. These power sources feature compact size and low noise, and
meet the challenging requirements of laser systems. In the medical laser
market, growth is being driven by increasing demand for laser-based non-
invasive medical devices for surgery and for a variety of cosmetic and
dermatological procedures including treatment of varicose veins and other
benign vascular lesions, hair removal, skin rejuvenation and skin cancer
treatment. Another growing application is laser vision correction. Surgical
laser systems also are used in a wide variety of other applications.

Industrial Applications. We are a leader in DC power sources for lasers used
in an increasing number of industrial marking applications. Date or product
code marking of food and pharmaceutical packaging with a laser has replaced ink
for many products. Automotive parts are marked to reduce auto theft. In
addition, metal, plastic and paper products use marking lasers for serial
numbers to reduce cost and increase throughput.

Our reliable, high-pressure ozone generators have been incorporated in a
pilot program for a new process technology that removes MTBE and other
carcinogens from groundwater. MTBE, a gasoline additive, has contaminated many
of the aquifers in the Los Angeles basin. This pilot program has been
implemented by Applied Process Technology and has been successfully used for
the past two years, meeting initial performance specifications. We believe this
application could turn into a larger market opportunity if groundwater
remediation to remove MTBE becomes mandated and this technology is selected.

We also provide our power sources and reactive gas sources to a number of
leading chemical and materials companies. Typical applications include electro-
optics, polymer processing, optical thin-film coating and industrial CVD
processes.

Products

We supply a broad range of components, integrated subsystems and complete
process systems for precision reactive gas processing applications. The
broadest group of applications is in electronics, primarily the semiconductor
industry. In addition, our products are used in medical equipment and a variety
of industrial applications.

Electronics

The table below sets forth the range and types of significant products and
applications that we supply to the electronics market. All of our power source,
reactive gas source and integrated subsystem products sold to the electronics
market are used in the semiconductor industry. All of our complete process
systems are used in either magnetic disk head manufacturing or advanced
electronics packaging.

In electronics applications, the selling prices of our products have wide
ranges depending on the level of integration (sources, integrated subsystems or
complete process systems), the quantity ordered, the extent of customized
features and the application served. Typical selling prices range from $1,000
to $25,000 for our power sources and from $15,000 to $50,000 for our reactive
gas sources. Our integrated subsystems typically range in price from $18,000 to
as much as $175,000. The highest priced subsystems are those that combine

26
<PAGE>

multiple reactive gas sources in one integrated subsystem. Our complete process
systems typically range in price from $100,000 for laboratory systems up to
$1.0 million for production systems.

Products for Electronics Applications

<TABLE>
<CAPTION>
Trade Year
Product Category Products Name Introduced Applications
<S> <C> <C> <C> <C>
Power Sources Microwave 1988 Semiconductor etch and strip;
advanced packaging

1993 Primarily used internally in
ASTeX's subsystems and systems

Microwave with Self- SmartPower 1998 Semiconductor etch and strip;
Diagnostics advanced packaging
------------------------------------------------------------------------------------
Radio Frequency 1996/1/ Primarily used internally in
ASTeX's subsystems
------------------------------------------------------------------------------------
DC/Low Frequency 1997/2/ Primarily used internally in
most ASTeX products
- --------------------------------------------------------------------------------------------------
Reactive Gas Component General SmartSet 1988 Semiconductor etch, strip
Sources Reactive Gas Source deposition and chamber clean;
advanced packaging

1996 Primarily used internally in
ASTeX's subsystems
------------------------------------------------------------------------------------
Component Ozone Semozon 1995 Primarily used internally in
Source ASTeX's Liquozon and Semozon
subsystems

1995 Semiconductor deposition and
wet bench wafer cleaning
- --------------------------------------------------------------------------------------------------
Integrated Integrated Ozone Semozon 1996 and Semiconductor deposition and
Subsystems Sources 1998/3/ wet bench wafer cleaning
------------------------------------------------------------------------------------
Integrated General CPS 1997 Semiconductor strip
Reactive Gas Source
------------------------------------------------------------------------------------
Multi-Channel DC, RF Gladiator 1997 Semiconductor deposition and
and Microwave Power etch
Source
------------------------------------------------------------------------------------
Atomic Fluorine ASTRON 1998 Semiconductor chamber clean
Subsystem and exhaust gas abatement
------------------------------------------------------------------------------------
Ozonated Water Liquozon 1998 Wet bench semiconductor wafer
Delivery Subsystem cleaning
- --------------------------------------------------------------------------------------------------
Complete CVD Diamond Series V 1988 Diamond materials research
Process Systems Laboratory Systems
------------------------------------------------------------------------------------
CVD Diamond Series V 1993 CVD diamond production and
Production Systems specialized electronics
packaging
------------------------------------------------------------------------------------
Single Chamber Etch PQ Series III 1998/4/ MR and GMR magnetic disk heads
------------------------------------------------------------------------------------
Batch Reactor Etch PQ Series III 1998/4/ Cleaning of ball grid arrays
</TABLE>
- --------------------------------------------------------------------------------

/1/Derived from the acquisition of ETO in January 1996.
/2/Derived from the acquisition of Converter Power in May 1997.
/3/Derived from the acquisition of Sorbios in October 1997.
/4/Derived from the acquisition of PlasmaQuest in November 1998.

As shown in the table, we began selling reactive gas sources and microwave
power sources in volume to the semiconductor equipment market in 1993. Over the
past three years, all of our products introduced for the semiconductor
equipment market have been more fully-integrated subsystems. As semiconductor
equipment manufacturers implement lean manufacturing practices and move towards
the outsourcing of more fully-integrated subsystems, we have an opportunity to
further extend our subsystems product lines sold to these customers.

27
<PAGE>

Our reactive gas solutions can be incorporated into complete process systems
on a fully-integrated platform that includes substrate handling and a
production process. Expanding beyond our CVD diamond processing systems, we
have targeted two high growth areas for supplying complete systems that do not
compete with our semiconductor equipment customers. The two applications are
the manufacture of magnetic disk heads and advanced electronics packaging,
which we now serve with the recently-acquired PlasmaQuest product line.

Power Sources, Reactive Gas Sources and Integrated Subsystems for
Semiconductor Processing.

Power Sources. We are a leading supplier of microwave power sources used for
semiconductor etch and strip applications. We first introduced this product
family into the semiconductor equipment market in 1993. We introduced
SmartPower microwave power sources in 1998. SmartPower sources offer lower cost
of ownership and are designed for maximum up-time and process consistency. We
have taken our first volume production order for SmartPower and began shipping
this product in January 1999.

Reactive Gas Sources. We supply a series of configurations of component
microwave power sources combined with a reactive gas source but without
integrated gas handling or controls. The SmartSet series provides flexibility
of configuration and integration for semiconductor equipment customers who buy
their reactive gas solutions as components.

Integrated Subsystems. Our Semozon product series consists of both component
and integrated ozone sources used in semiconductor deposition and wet bench
wafer cleaning applications. Our subsystems incorporate our reactive gas
sources and power sources integrated with controls and gas handling. The ozone
cleaning method substantially reduces chemical consumption relative to
traditional cleaning methods. Patented high-efficiency ozone generation
technology, acquired as part of ASTeX Sorbios, is also used in our ultra-pure
ozone source subsystems.

In 1998, we introduced ASTRON, an atomic fluorine source for chamber clean
and exhaust gas abatement applications. A complete solution, ASTRON integrates
a reactive gas source, a power source and controls into a compact subsystem.
ASTRON produces a high flow rate of atomic fluorine which supports rapid
processing, while its compact design permits easy integration with
semiconductor production tools. For chamber clean of deposition tools, ASTRON
generates atomic fluorine that reacts with waste deposits in the chamber,
generating gases that are easily scrubbed to form benign salts for disposal. In
oxide etch tools, ASTRON is used to abate hazardous exhaust creating substances
which are easily scrubbed from the exhaust. ASTRON addresses the need to reduce
greenhouse gases while, simultaneously, significantly lowers the cost of
cleaning semiconductor process modules. ASTRON has been shipped to beta
customers and we expect volume shipments in 1999.

In 1997, we introduced our CPS integrated general reactive gas sources for
photoresist strip and other applications that reduce time-to-market for
advanced etch systems. CPS has been accepted under a volume supply agreement
for integration into a new generation of etch equipment.

In 1997, we also introduced our Gladiator family of three-channel and four-
channel combined RF and microwave power sources, integrated with control
systems, for oxide etch and insulator deposition applications. This product
family reduces costs by integrating all power requirements for advanced process
chambers in a single subsystem. We began selling these products in volume in
1997 and they have been accepted under a volume supply agreement.

In 1998, we introduced Liquozon, an integrated subsystem that dissolves
ozone into de-ionized water for direct injection onto wafers being cleaned at
multiple production stages. Liquozon provides high concentrations of ozone in
de-ionized water, providing an efficient cleaning method, eliminating the use
of acids and associated handling costs. We expect Liquozon to become widely
adopted in the wet bench cleaning market because it provides an integrated
ozone solution which can be rapidly and easily implemented by its customers.
Many leading wet bench companies are either already shipping our ozone
solutions to customers or are in various stages of introducing wet ozone into
their manufacturing process.

28
<PAGE>

Complete Process Systems for Other Electronics Applications.

Our Series V diamond deposition products serve both the laboratory and
production markets. We have been a leader in the commercialization of this
technology over the past decade, and have a leading share of this market.
Prices of the products range from approximately $100,000 for research systems
to $1.0 million for a high volume production system.

We supply single chamber etch systems for magnetic disk head fabrication.
These systems are also under evaluation for other fabrication steps. The
average selling price for these systems is approximately $800,000.

We sell batch etch systems for cleaning during the manufacture of ball grid
arrays and flip chip circuits. The average selling price for these systems is
approximately $200,000.

Our PQ Series III systems for magnetic disk head and advanced packaging
applications use a patented new design for large-area, scalable, microwave-
driven reactive gas sources. These systems are currently used in high-rate etch
processes and are now being extended into low temperature deposition processes.
We intend to expand the number of magnetic disk head and advanced packaging
processes offered by these systems.

Medical and Industrial Applications

We use our power source and reactive gas source capabilities to provide a
broad range of specialized products, primarily for medical equipment and
medical lasers, as well as for industrial lasers and industrial CVD. These
products are set forth in the table below.

Products for Medical and Industrial Applications

<TABLE>
<CAPTION>
Year
Product Category Products Introduced Applications
<S> <C> <C> <C>
Power Sources Microwave 1993 Polymer processing
---------------------------------------------------------------------
Radio Frequency 1996/1/ Magnetic resonance imaging
equipment

1996/1/ Medical sterilization
---------------------------------------------------------------------
DC/Low Frequency 1997/2/ Medical and industrial lasers
- -----------------------------------------------------------------------------------
Reactive Gas General Reactive Gas 1995 Industrial deposition and
Sources Sources optical thin-film coating
---------------------------------------------------------------------
Component Ozone 1996 Water remediation
Source
1998 Polymer and surface treatment
- -----------------------------------------------------------------------------------
Integrated Integrated Ozone 1998 Water remediation
Subsystems Sources
</TABLE>
- --------------------------------------------------------------------------------

/1/Derived from the acquisition of ETO in January 1996.
/2/Derived from the acquisition of Converter Power in May 1997.

In medical and industrial applications, the selling prices of our products
have wide ranges depending on the amount of reactive gas or power delivered,
the level of integration (sources or integrated subsystems), the quantity
ordered and the application served. Our power sources typically range in price
from $1,500 to $36,000. Our reactive gas sources typically range in price from
$15,000 to $50,000. Our integrated subsystems typically range in price from
$18,000 to $175,000.

Medical Equipment Power Sources. We supply RF power sources used in MRI
systems and in medical equipment sterilization systems. In addition, in 1997,
we introduced DC switching power sources that offer excellent price/performance
for medical applications. These products will be widely offered internationally
to customers beginning in 1999.

29
<PAGE>

Industrial Power Sources and Reactive Gas Sources. We supply power sources
for industrial lasers and electro-optic applications. For the emerging water
remediation market, we supply ozone source components and subsystems integrated
with gas handling and controls. These subsystems can be configured to provide
sufficient high-pressured ozone to process up to 2,000 gallons of water per
minute.

Research and Development

Our research and development activities emphasize process and application
development in collaboration with key customers, supported by engineering teams
with electrical, mechanical and software expertise. We have two applications
development laboratories in the United States and an applications development
group in Germany. The senior engineering staff with advanced degrees spend a
substantial fraction of their time visiting customers and exploring new
applications requiring solutions. Our research and development staff totals 81
people, of whom 21 have advanced degrees including 13 Ph.D.s.

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 in fiscal 1998, $8.7 million in
fiscal 1997 and $6.9 million in fiscal 1996, or 14% of revenues in fiscal 1998,
18% of revenues in fiscal 1997 and 18% of revenues in fiscal 1996. We also
receive funding which is used to partially offset these research and
development expenses. Internally funded research and development expenditures,
net of funding received, were approximately $11.3 million during fiscal 1998,
$7.3 million during fiscal 1997, and $5.0 million during fiscal 1996. Total
research and development expense for the six months ended December 26, 1998 and
December 27, 1997 were approximately $4.8 million and $5.8 million,
respectively, or 16.5% and 14.4% of revenues for the six months ended December
26, 1998 and December 27, 1997, respectively. Internally funded research and
development expenditures, net of funding received, were approximately $4.6
million and $5.4 million, respectively, or 15.8% and 13.6% of revenues for the
six months ended December 26, 1998 and December 27, 1997, respectively.

Because of the highly technical nature of our business, our rapidly
expanding markets, and new technologies we are developing, we expect to
continue to spend heavily in future years on research and development
activities. We expect to continue to fund approximately 10% of our research and
development expenses through customer development contracts and government-
funded research. We have received development contracts directly from our
semiconductor equipment customers for products specific to their applications,
but which also have other market potential. We use such funding as a means of
accelerating our product development and are generally not restricted from
selling developed products widely.

Significant Customers and Contracts

During fiscal 1998, 1997, and 1996, Applied Materials accounted for
approximately 40%, 38%, and 45% of our consolidated total revenue, and 36% for
the six months ended December 26, 1998. Philips Medical Systems accounted for
approximately 6% of our total revenue in fiscal 1998, 10% in fiscal 1997 and
10% for the six months ended December 26, 1998. If we lose Applied Materials or
Philips Medical Systems or if they significantly reduce orders, our revenues,
operating results and financial condition will be hurt. No other customer
accounted for more than 5% of total revenue in fiscal 1998. While sales to
Applied Materials represent a large portion of our total revenue, Applied
Materials is the world's largest semiconductor equipment manufacturer.

In the semiconductor equipment market, our customers include Applied
Materials, GaSonics, Quester Technology, Ulvac, Varian, Watkins-Johnson and
others. We have signed multi-year supply contracts with some of these customers
which typically provide for cancellation or modification with little or no
penalty. In addition, we have multi-year supply agreements with medical
customers on substantially similar terms. Generally, customers may push out
deliveries, put firm orders on hold, or cancel existing firm orders with little
or no penalty.

30
<PAGE>

Marketing, Sales and Services

In order to sell and service our products more aggressively in the global
market, we formed a Global Customer Operations organization in the last quarter
of fiscal 1998. This organization presents one face to the customer worldwide
and comprises our entire marketing, sales, service, and product management
group. The organization is structured around regional offices worldwide,
supporting direct marketing, sales, and service activities, and provides more
control over independent sales and distribution representatives. During 1998,
the Global Customer Operations organization established regional headquarters
for the western U.S. (Santa Clara, CA), central U.S. (Austin, TX), eastern U.S.
(Woburn, MA), and Europe (Berlin, Germany).

We have entered into a strategic alliance in Taiwan, Power Alliance Taiwan,
and are negotiating other strategic alliances in other parts of Asia. These
alliances contemplate the sharing of office and infrastructure support and
providing sales and support for a combined suite of products in a given area.
We intend to establish other direct sales and service offices in Asia and
Europe during the remainder of 1999.

Manufacturing and Suppliers

Our products are manufactured in facilities at Woburn and Newton,
Massachusetts; Colorado Springs, Colorado; Dallas, Texas; and Berlin, Germany.
During the past six months, we consolidated our Beverly, Massachusetts and
Modesto, California facilities, primarily into the Woburn facility and
secondarily into the Colorado facility.

We perform final assembly, integration, testing, and quality assurance at
our facilities. We obtain many components and ship many of our products under
"just-in-time" arrangements.

Most of the components for our products are manufactured by a number of
suppliers. However, we have several significant sole source suppliers. We
believe that these components could be obtained elsewhere if needed or that our
products could be redesigned to use alternative suppliers' products. However,
other supply sources might not be available without significant delay or
increased cost.

Competition

We compete on the basis of our technical expertise, core competencies,
manufacturing capabilities, high quality and reliability, performance,
established reputation and customer relationships. Many of our technical
personnel have recognized experience in the fields of power and reactive gas
source technology, systems integration and advanced process technology. We
compete in a number of markets by providing a broad array of products,
engineering and service support. We believe that this range of products and
capabilities provide us with a significant competitive advantage. No other
company competes across all of these markets and product lines.

We believe that we are the largest provider of microwave power sources and
microwave-powered reactive gas sources in the world, facing competition
primarily from Muegge in Germany and Daihen in Japan. In the ozone source
market, we compete primarily with Sumitomo Precision Products and Ebara. We
believe our major competitors for RF power sources and amplifiers are ENI, a
subsidiary of Astec (BSR) Plc; Advanced Energy Industries; Comdel; and
Analogic. We believe our major competitors for DC power sources are ALE
Systems, Analog Modules, and Kaiser Systems for laser applications, and Buhl,
Tectrol, and Walker Power for electro-optics.

Many of our customers have large in-house equipment development programs.
These in-house programs often attempt to develop equipment which may compete
with or replace the products purchased from us. We typically have been able to
meet the purity, controllability and reliability requirements of our customers
in a cost effective and timely manner. However, many of these companies have
substantial financial and technical resources and our customers could cease or
reduce their purchases of our products if they develop competitive

31
<PAGE>

equipment internally. These customers or other firms could develop new or
enhanced products which are more effective than those offered by us.

We believe that many factors will affect our competitive position in the
future, including our ability to:

. develop and manufacture new products that meet the needs of our markets

. respond to competitive developments and technological changes

. manufacture our products at low cost

. retain a highly qualified scientific and engineering staff

. provide sales and service to a worldwide customer base

We must continue to develop and enhance our technology and products to keep
pace with technological changes in production equipment and advanced materials
processes.

Patents and Proprietary Information

We currently own 18 U.S. patents and one Canadian patent, and have two
pending U.S. patents and seven pending foreign applications in various stages
of prosecution. All pending and issued patents pertain to reactive gas sources
and microwave-powered reactive gas sources and processes. The earliest of the
issued patents considered material to our business expires in 2007. As a
qualifying small business, we have retained commercial ownership rights to
proprietary technology developed under various U.S. and government contracts
and grants, including SBIR contracts. We also have joint development
agreements with industrial and commercial partners which may result in sole or
joint ownership rights to proprietary technology developed under those
agreements.

There is no single patent which we believe is critical to our business. Our
success depends principally on the technical expertise and product development
capabilities of our engineering and manufacturing teams and the sales and
marketing skills of our Global Customer Operations group.

In addition to our patent rights, we rely upon trade secrets and
confidentiality agreements, which all employees are required to execute,
assigning all patent rights and technical or other information developed by
employees during their employment to us. Our employees, consultants,
customers, and potential customers have agreed not to disclose any trade
secret or confidential information without prior written consent.
Notwithstanding these confidentiality agreements, other companies could
acquire information which we consider proprietary. Moreover, while we have
successfully enforced one of our patents and intend to continue to vigorously
enforce our patents against infringement by third parties, we might not be
able to enforce our patents or obtain meaningful protection from competitors,
or receive patents from our pending patent applications. Even if a
competitor's products were to infringe our patents, enforcing our rights would
be very expensive and would divert funds and resources which otherwise could
be used in our operations. We might not be successful in enforcing our rights
and a court could find that our products infringe a third party's rights. If
we are not successful in a suit involving patents or other intellectual
property rights of a third party, a license might not be available on
commercially reasonable terms.

Backlog

Our backlog consists of purchase orders for standard products and contracts
for research and development. At December 26, 1998 our backlog was
approximately $12.9 million of which $12.0 million was for standard products
and $907,000 was for research contracts. The backlog at December 27, 1997 was
approximately $21.8 million of which $20.9 million was for standard products
and $901,000 was for research contracts. We expect 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
certain just-in-time 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,

32
<PAGE>

customers may push out deliveries, put firm orders on hold, or cancel existing
firm orders with little or no penalty.

Employees

As of December 26, 1998, we employed 405 persons on a full-time basis,
including 35 temporary employees. We employ 50 persons in administration, 40 in
sales and marketing, 81 in research and development, and 234 in manufacturing.
We believe that our relations with our employees are satisfactory.

33
<PAGE>

MANAGEMENT

The directors, executive officers, officers and certain other key employees
of ASTeX, and their ages and positions as of January 29, 1999, are as follows:

<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Richard S. Post, Ph.D... 55 President, Chief Executive Officer and Chairman of the Board of Directors

John M. Tarrh........... 51 Senior Vice President, Finance, Secretary, Treasurer and Director

Donald K. Smith, Ph.D... 46 Senior Vice President, Advanced Technology and Director

Brian R. Chisholm....... 51 Senior Vice President and Chief Operating Officer

Avishay Katz, Ph.D...... 40 Senior Vice President, Global Customer Operations

Stanley Burg............ 58 Senior Vice President, Business Development

Jill E. Maunder......... 42 Vice President, Human Resources

Michael C. DeLuca....... 41 Vice President, Manufacturing Operations

Robert E. Bettilyon..... 50 Corporate Controller

Robert R. Anderson...... 61 Director

Michel de Beaumont...... 56 Director

John R. Bertucci........ 57 Director

Hans-Jochen Kahl........ 59 Director
</TABLE>

Richard S. Post, Ph.D. has served as ASTeX's President, Chief Executive
Officer and Chairman of the Board since its inception in 1987. Prior to
founding ASTeX, Dr. Post served at the Massachusetts Institute of Technology
(MIT) from 1981 to 1987. At MIT, Dr. Post served as a Senior Research
Scientist, in the position of Head of the Mirror Confinement Division of the
Plasma Fusion Center. Dr. Post earned his Ph.D. in Plasma Physics from Columbia
University and his Bachelor of Science degree from the University of California
at Berkeley. He also completed the Owner/President Management Program at
Harvard Business School.

Mr. John M. Tarrh has served as ASTeX's Senior Vice President, Finance,
Treasurer and Secretary, and as a director since its inception in 1987. Mr.
Tarrh became the Manager of the Mirror Confinement Division of MIT's Plasma
Fusion Center in 1986 where he was responsible for financial management,
project management and administration. Prior to joining the research staff of
MIT in 1978, he was the Executive Vice President--Operations of Magnetic
Engineering Associates, a privately held, high technology company in Cambridge,
Massachusetts which was owned by Sala Magnetics. Mr. Tarrh presently serves as
a director for QC Optics, Inc., a publicly held designer of laser-based defect
detection systems. Mr. Tarrh received his Master of Science degree in
Electrical Engineering from MIT, and he earned his Bachelor of Science degree
in Electrical Engineering from Virginia Polytechnic Institute and State
University.

Donald K. Smith, Ph.D. has served as ASTeX's Senior Vice President, Advanced
Technology, and as a director since its inception in 1987. He joined MIT as a
Research Scientist in 1981 and was a Group Leader as well as a member of the
management team on several projects. Dr. Smith earned his Master of Science
degree and Ph.D. in Electrical Engineering from the University of Wisconsin,
Madison, and his Bachelor of Science degree from Davidson College.

Mr. Brian R. Chisholm has been ASTeX's Chief Operating Officer and Senior
Vice President since May 1998. From November 1996 to May 1998, he was ASTeX's
Senior Vice President of Operations. From 1994 to August 1996, Mr. Chisholm was
the Research and Development Manager--Thin Film Systems for Varian Associates,
a developer and producer of automated systems for depositing thin films, where
he was responsible for advanced development, engineering and support of all
thin film products. Previously, Mr. Chisholm was the

<PAGE>

Vice President, Engineering and Product Management for IRT Corporation, a
publicly held company that provides machine vision based x-ray inspection
systems and radiation processing services. Mr. Chisholm received a Master of
Business Administration degree from Northeastern University, a Master of
Science degree in Physics from Virginia Polytechnic Institute and a Bachelor of
Arts degree in Physics from Northeastern University.

Avishay Katz, Ph.D. has been ASTeX's Senior Vice President, Global Customer
Operations since May 1998. From 1997 to 1998, Dr. Katz was Vice President of
Strategic Marketing and Chief Technical Officer of Watkins-Johnson Company, a
manufacturer of thin film deposition capital equipment for the semiconductor
industry. From 1996 to 1997, Dr. Katz was manager of Power Electronics
Technology at EPRI--The Electric Power Research Institute, where he was in
charge of designing the power electronic device and system strategy for the
electrical industry. Previously, since 1988, Dr. Katz was a member of the
technical staff and team leader for the AT&T Bell Laboratories, where he
performed research and development of metal, dielectric and semiconductor thin
film technology for microelectronics and optoelectronics applications. Dr. Katz
received a Ph.D. degree in Materials Science and Engineering and a Bachelor of
Science degree in Engineering from the Technion--Israel Institute of
Technology.

Mr. Stanley Burg has been ASTeX's Senior Vice President, Business
Development since December 1998. From July 1995 to November 1998, he was Chief
Executive Officer of Sputtered Films, Inc., a privately-owned company involved
in the design and manufacture of high performance sputtering equipment for the
semiconductor and magnetic storage industries. From 1991 to 1995, Mr. Burg was
Group Vice President of Implex PLC, a U.K. holding company comprised of wholly-
owned subsidiaries in the semiconductor and memory products business.

Ms. Jill E. Maunder has been ASTeX's Vice President of Human Resources since
February 1998. From February 1996 to February 1998, Ms. Maunder was the
President for Outsourcing Solutions, Inc., a human resources consulting firm.
From September 1993 to January 1996, Ms. Maunder was Vice President, Human
Resources Consulting for Strategic Outsourcing, Inc., a human resources
outsourcing practice. Prior to that Ms. Maunder was Director, Human Resources
for Bull HN Worldwide Information Services. Ms. Maunder holds a Bachelor of
Arts degree in Social Service from the University of New Hampshire.

Mr. Michael C. DeLuca has been ASTeX's Vice President of Manufacturing since
May 1997. From 1995 to 1997, Mr. DeLuca was the Director of Operations for
Applied Fiberoptics, Inc., a fiberoptics manufacturing company where he was
responsible for all aspects of manufacturing. From 1993 to 1995, Mr. DeLuca was
Pharmaceutical Operations Manager for Millipore Corporation, a manufacturer of
high technology filtration devices. Previously, he was the Plant Manager for
Veratec, a manufacturer of components for the computer diskette industry. Mr.
DeLuca received a Master of Business Administration degree from Babson Graduate
School of Business, and a Bachelor of Arts degree in Physics from the College
of The Holy Cross.

Mr. Robert E. Bettilyon has been ASTeX's Director, Corporate Controller from
August 1993 to September 1998. From 1983 to 1993, Mr. Bettilyon was Controller
at Coherent General, Inc., a private manufacturer of industrial lasers and
laser systems for materials processing and medical applications, and has served
at each of its Massachusetts, Tokyo and Munich facilities. Mr. Bettilyon
previously served as a Senior Financial Planning Analyst at Standard Oil of
Ohio from 1980 to 1983, and as an Audit Senior at Touche Ross (now Deloitte and
Touche) from 1977 to 1980. Mr. Bettilyon holds a Bachelor of Science degree in
Accounting from the University of Utah and is a Certified Public Accountant.

Mr. Robert R. Anderson has served as a director of ASTeX since October 1995.
Previously, Mr. Anderson co-founded in 1975 and served as Chairman of the Board
of Directors, Chief Financial Officer and Chief Operating Officer of KLA
Instruments Corporation (now KLA-Tencor), the leading manufacturer of yield
monitoring and process control systems for the semiconductor manufacturing
industry, from which he retired in 1994. Mr. Anderson is Chairman of Silicon
Valley Research, Inc. (Silicon Valley), a manufacturer of EDA software for
integrated circuit design and manufacture. From 1996 to 1998, Mr. Anderson
served as the Chief

35
<PAGE>

Executive Officer of Silicon Valley. From 1970 to 1975, Mr. Anderson was Chief
Financial Officer of Computervision Corporation, which developed and marketed
software for design automation and product data management. Mr. Anderson is
presently the Chief Executive Officer and Chairman of the Board of Directors of
Integral Domain Technologies, Inc., a manufacturer of yield management
software. Mr. Anderson attended Bentley College.

Mr. Michel de Beaumont has served as a director of ASTeX since January 1993.
Since 1981, Mr. de Beaumont has served as a co-founder and director of American
Equities Overseas (U.K.) Ltd. of London, England, a wholly owned subsidiary of
American Equities Overseas Inc. (American Equities), a private securities
brokerage and corporate finance firm. From 1978 to 1981, Mr. de Beaumont served
as a Vice President in the London, England Office of American Securities Corp.,
which subsequently was the clearing house for American Equities until 1993. Mr.
de Beaumont has also previously served as a Vice President at Smith Barney
Harris Upham and Oppenheimer & Co. Mr. de Beaumont holds degrees in Advanced
Mathematics, Physics and Chemistry from the Universities of Poitiers and Paris,
and a degree in Business Administration from the University of Paris.

Mr. John R. Bertucci has served as a director of ASTeX since September 1994.
Mr. Bertucci has been Chairman, President, Chief Executive Officer and a
director of MKS Instruments, Inc. (MKS), a privately held manufacturer and
seller of pressure control instruments for vacuum processes, since 1974. Since
October 1998, Mr. Bertucci has served as a director of IntelliSense
Corporation, a privately-owned designer and manufacturer of micro-electronic
machined structures. Mr. Bertucci received a Master of Science degree in
Industrial Administration and a Bachelor of Science degree in Metallurgical
Engineering from Carnegie-Mellon University.

Mr. Hans-Jochen Kahl has served as a director of ASTeX since October 1995.
From June 1994 through September 1996, Mr. Kahl served as a consultant to
Ebara, a Japanese manufacturer of industrial water pumps and vacuum process
equipment for the semiconductor industry. Mr. Kahl was employed by Leybold AG,
formerly Leybold-Heraeus GmbH (Leybold), a leading international manufacturer
of vacuum pumps and other vacuum process equipment for the semiconductor
industry, from July 1983 to March 1992, Mr. Kahl served as a managing director
of Leybold, where he was primarily responsible for sales, marketing and
strategic planning. Mr. Kahl was appointed to the Board of Directors of Leybold
in 1987, and since November 1996, he has served as a director of Solid State
Measurement, a privately held manufacturer of high precision measurement tools.

36
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information known to ASTeX regarding
the beneficial ownership of common stock as of February 8, 1999, and as
adjusted to reflect the sale of shares offered hereby, by (i) each director of
ASTeX, (ii) the named executive officers, (iii) all directors and executive
officers of ASTeX as a group, and (iv) each person known to ASTeX to be the
beneficial owner of more than 5% of its outstanding shares of common stock.

<TABLE>
<CAPTION>
Shares Beneficially
Owned(1)
---------------------------
Percentage
Owned(2)
-----------------
Before After
Number Offering Offering
--------- -------- --------
<S> <C> <C> <C>
Executive Officers and Directors
Richard S. Post, Ph.D.(3)......................... 642,102 7.3% 5.7%
Donald K. Smith, Ph.D.(4)......................... 468,478 5.4% 4.2%
John M. Tarrh(5).................................. 417,936 4.8% 3.7%
Brian R. Chisholm(6).............................. 49,900 * *
Robert R. Anderson(7)............................. 109,000 1.3% 1.0%
Michel de Beaumont(8)............................. 87,730 1.0% *
John Bertucci(9).................................. 107,500 1.2% 1.0%
Hans-Jochen Kahl(10).............................. 28,500 * *
All Officers and Directors as a Group (12
Persons)(11)..................................... 1,949,746 21.6% 16.9%

Five Percent Stockholder
Kopp Investment Advisors, Inc.(12)................ 1,362,199 15.7% 12.2%
7701 France Avenue South, Suite 500
Edina, Minnesota 55435
</TABLE>
- --------
* Less than one percent (1%)

(1) Shares of common stock that an individual or group has the right to
acquire within 60 days of February 8, 1999, pursuant to the exercise of
options or warrants are deemed to be outstanding for the purposes of
computing the percentage ownership of such individual or group, but are
not deemed to be outstanding for the purpose of computing the percentage
ownership of any other person shown in the table. Except as indicated in
footnotes to this table, ASTeX believes that the stockholders named in
this table have sole voting and investment power with respect to all
shares of common stock shown to be beneficially owned by them based on
information provided to ASTeX by such stockholders.

(2) Percentage of ownership is based on 8,669,309 shares of common stock
outstanding on February 8, 1999 and 11,169,309 shares of common stock
outstanding after the completion of this Offering.
(3) Includes 15,650 shares of common stock owned by Dr. Post's wife, and
83,900 shares of common stock subject to currently exercisable options
held by Dr. Post.
(4) Includes 47,800 shares of common stock subject to currently exercisable
options held by Dr. Smith.
(5) Includes an aggregate of 1,313 shares of common stock owned by Mr. Tarrh's
wife and minor son and 24,800 shares of common stock subject to currently
exercisable options held by Mr. Tarrh.
(6) Includes 49,900 shares of common stock subject to currently exercisable
options held by Mr. Chisholm.
(7) Includes 67,500 share of common stock held in a family trust of which Mr.
Anderson is the trustee, 15,000 shares of common stock held in trust for
the benefit of a child of Mr. Anderson, of which Mr. Anderson is the
trustee and 26,500 shares of common stock subject to currently exercisable
options held by Mr. Anderson.
(8) Includes 55,230 shares of common stock held by various trust arrangements,
of which Mr. de Beaumont is a beneficiary and 32,500 shares of common
stock subject to currently exercisable options held by Mr. de Beaumont.

37
<PAGE>

(9) Includes 52,500 shares of common stock held by MKS Instruments, Inc., of
which Mr. Bertucci is the majority shareholder and 32,500 shares of common
stock subject to currently exercisable options held by Mr. Bertucci.
(10) Includes 28,500 shares of common stock subject to currently exercisable
options held by Mr. Kahl.

(11) Includes 14,000 shares of common stock subject to currently exercisable
options held by Michael C. DeLuca, ASTeX's Vice President of
Manufacturing, 14,000 shares of common stock subject to currently
exercisable options held by Dr. Avishay Katz, ASTeX's Senior Vice
President of Global Customer Operations and 600 shares of common stock
owned and 10,000 shares of common stock subject to currently exercisable
options held by Jill E. Maunder, ASTeX's Vice President of Human
Resources. Excludes shares of common stock subject to options held by
Stanley Burg, ASTeX's Senior Vice President of Business Development, none
of which options are currently execisable. See also footnotes 3 through 10
above.
(12) Based solely upon a Schedule 13G filed on January 28, 1999 by Kopp
Investment Advisors, Inc. (KIA) on behalf of KIA, Kopp Holding Company and
Leroy C. Kopp. KIA is an investment adviser that is wholly-owned by Kopp
Holding Company, which is wholly-owned by Leroy C. Kopp. KIA has sole
voting power as to 463,325 of such shares and sole dispositive power as to
334,575 of such shares. Leroy C. Kopp has sole voting and dispositive
power as to 15,000 of such shares.

38
<PAGE>

UNDERWRITING

The underwriters named below, represented by Needham & Company, Inc.,
SoundView Technology Group, Inc. and Advest, Inc. (the Representatives), have
severally agreed, subject to the terms and conditions set forth in the
Underwriting Agreement, to purchase from us the number of shares of common
stock indicated below opposite their respective names at the public offering
price less the underwriting discount set forth on the cover page of this
prospectus. The Underwriting Agreement provides that the obligations of the
underwriters to pay for and accept delivery of such shares are subject to
certain conditions precedent, and that the underwriters are committed to
purchase all of such shares, if any are purchased.

<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Needham & Company, Inc....................................
SoundView Technology Group, Inc...........................
Advest, Inc...............................................
Total................................................... 2,500,000
</TABLE>

The Representatives have advised us that the underwriters initially propose
to offer the shares of common stock to the public on the terms set forth on the
cover page of this prospectus. The underwriters may allow to selected dealers a
concession of not more than $ per share, and the underwriters may allow, and
such dealers may reallow, a concession of not more than $ per share to
certain other dealers. After this offering, the offering price and other
selling terms may be changed by the Representatives. We estimate that the total
offering expenses, other than underwriting discounts and commissions, will be
$ .

We have granted an option to the underwriters, exercisable during the 30-day
period after the date of this prospectus, to purchase up to 375,000 additional
shares of common stock at the same price per share as the initial 2,500,000
shares to be purchased by the underwriters. To the extent that the underwriters
exercise this option, each of the underwriters will be committed, subject to
certain conditions, to purchase such additional shares in approximately the
same proportion as set forth in the above table, and we will be obligated to
sell such shares to the underwriters. The underwriters may purchase such shares
only to cover over-allotments made in connection with this offering. If
purchased, the underwriters will offer such additional shares on the same terms
as those on which the 2,500,000 shares are being offered.

Our directors and officers, holding in the aggregate 1,532,215 shares of
common stock after this offering, have agreed that, for a period of 90 days
after the date of this prospectus, they will not, without the prior written
consent of Needham & Company, Inc., directly or indirectly sell, offer to sell
or otherwise dispose of any such shares of common stock or any right to acquire
such shares. In addition, we have agreed that, for a period of 90 days after
the date of this prospectus, we will not, without the prior written consent of
Needham & Company, Inc., issue, offer, sell, grant options to purchase or
otherwise dispose of any of our equity securities or any other securities
convertible into or exchangeable for the common stock or other equity security,
other than the grant of options to purchase common stock or the issuance of
shares of common stock under our stock option and stock purchase plans and the
issuance of shares of common stock pursuant to the exercise of outstanding
options and warrants.

The Underwriting Agreement provides that we indemnify the several
underwriters against certain liabilities, including civil liabilities under the
Securities Act of 1933, or will contribute to payments the underwriters may be
required to make arising from these types of liabilities.

In connection with this offering, certain underwriters and selling group
members (if any) or their respective affiliates who are qualifying registered
market makers on the Nasdaq National Market may engage

39
<PAGE>

in passive market making transactions in our common stock on the Nasdaq
National Market in accordance with Rule 10b-6A under the Securities Exchange
Act of 1934 during the two business day period before commencement of offers or
sales of the common stock offered hereby. The passive market making
transactions must comply with applicable volume and price limits and be
identified as such. In general, a passive market maker may display its bid at a
price not in excess of the highest independent bid for the security; if all
independent bids are lowered below the passive market maker's bid, however,
such bid must then be lowered when certain purchase limits are exceeded.

EXPERTS

The consolidated financial statements of Applied Science and Technology,
Inc. and subsidiaries as of June 27, 1998 and June 28, 1997 and for each of the
years in the three-year period ended June 27, 1998, have been included herein
and in the registration statement in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.

LEGAL MATTERS

The validity of the common stock offered with this prospectus has been
passed upon for ASTeX by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.,
Boston, Massachusetts. Certain legal matters in connection with the common
stock offered with this prospectus will be passed upon for the underwriters by
Choate, Hall & Stewart, Boston, Massachusetts.

40
<PAGE>

APPLIED SCIENCE AND TECHNOLOGY, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets at June 28, 1997, June 27, 1998, and December
26, 1998 (unaudited)..................................................... F-3
Consolidated Statements of Operations for the Years Ended June 29, 1996,
June 28, 1997 and June 27, 1998 and for the six months ended December 27,
1997 and December 26, 1998 (unaudited)................................... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended June
29, 1996, June 28, 1997 and June 27, 1998 and for the six months ended
December 26, 1998 (unaudited)............................................ F-5
Consolidated Statement of Cash Flows for the Years Ended June 29, 1996,
June 28, 1997 and June 27, 1998 and for the six months ended December 27,
1997 and December 26, 1998 (unaudited)................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>

F-1
<PAGE>

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>

APPLIED SCIENCE AND TECHNOLOGY, INC.

CONSOLIDATED BALANCE SHEETS
(in thousands)

<TABLE>
<CAPTION>
June June
28, 27, December 26,
1997 1998 1998
------- ------- ------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents..................... $ 3,246 $ 7,687 $ 2,171
Trade receivables, net (notes 2, 3 and 9)..... 11,916 12,734 13,063
Other receivables............................. -- -- 906
Inventories (note 4).......................... 10,013 13,737 12,733
Prepaid expenses and other assets............. 278 549 583
Deferred income taxes (note 7)................ 895 1,356 1,514
------- ------- -------
Total current assets........................ 26,348 36,063 30,970
------- ------- -------
Property and Equipment:
Land.......................................... 473 473 473
Building...................................... 1,621 1,643 1,643
Equipment..................................... 7,872 11,108 11,804
Furniture and fixtures........................ 741 1,032 1,055
Leasehold improvements........................ 1,947 2,228 1,807
------- ------- -------
12,654 16,484 16,782
Less accumulated depreciation and
amortization............................... (5,151) (7,960) (8,359)
------- ------- -------
Net property and equipment.................. 7,503 8,524 8,423
------- ------- -------
Other Assets:
Patents, net.................................. 149 1,095 1,028
Goodwill, net of accumulated amortization of
$55 and $471 in 1997 and 1998, respectively,
and $700 at December 26, 1998 (note 12)...... 3,262 4,042 4,207
Long-term investments......................... 1,299 -- --
Deferred income taxes (note 7)................ -- 1,100 3,228
Notes receivable, less current maturities
(notes 3 and 13)............................. 383 469 138
Other, net.................................... 383 -- 13
------- ------- -------
Total other assets.......................... 5,476 6,706 8,614
------- ------- -------
$39,327 $51,293 $48,007
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Note payable to bank (note 10)................ $ -- $ -- $ 647
Current maturities of long-term debt (note
11).......................................... 1,824 -- --
Accounts payable.............................. 3,869 3,012 1,929
Accrued expenses.............................. 1,375 1,935 3,099
Accrued compensation expense and related
costs........................................ 1,449 1,993 1,644
Accrued income taxes.......................... 647 293 57
Commissions payable and customer advances..... 227 259 600
------- ------- -------
Total current liabilities................... 9,391 7,492 7,976
------- ------- -------
Long-term debt, less current maturities (note
11)............................................ 6,369 -- --
Deferred income taxes (note 7).................. 78 -- --
------- ------- -------
Total liabilities........................... 15,838 7,492 7,976
------- ------- -------
Commitments and contingencies (notes 5, 10 and
18)
Stockholders' Equity (notes 6 and 12):
Common stock.................................. 68 86 86
Additional paid-in capital.................... 27,837 44,193 44,200
Accumulated deficit........................... (4,268) (247) (4,165)
Accumulated other comprehensive income
(loss)....................................... -- (83) 58
Less: Notes receivable for common stock
purchases.................................... (148) (148) (148)
------- ------- -------
Total stockholders' equity.................. 23,489 43,801 40,031
------- ------- -------
$39,327 $51,293 $48,007
======= ======= =======
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE>

APPLIED SCIENCE AND TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)

<TABLE>
<CAPTION>
Years Ended Six Months Ended
------------------------------- -------------------------
June 29, June 28, June 27, December 27, December 26,
1996 1997 1998 1997 1998
--------- --------- --------- ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Product sales, net...... $ 36,175 $ 43,935 $ 77,958 $ 37,311 $ 26,573
Research contract
revenue................ 895 982 786 400 236
Other revenue........... 2,066 3,050 4,692 2,150 2,145
--------- --------- --------- --------- ---------
Total revenue (note
9)................. 39,136 47,967 83,436 39,861 28,954
--------- --------- --------- --------- ---------
Cost of sales and
revenue:
Product sales and
other revenues....... 22,924 30,053 54,564 25,034 23,145
Research contracts.... 440 504 423 123 135
--------- --------- --------- --------- ---------
Total cost of sales
and revenue........ 23,364 30,557 54,987 25,157 23,280
--------- --------- --------- --------- ---------
Gross profit........ 15,772 17,410 28,449 14,704 5,674
--------- --------- --------- --------- ---------
Operating expenses:
Selling expenses...... 3,298 2,950 4,427 2,017 2,375
General and
administrative
expenses............. 3,807 3,958 6,648 3,288 3,673
Research and
development expenses,
net (note 1)......... 5,043 7,343 11,253 5,411 4,568
Acquisition-related
expenses (note 12)... 2,888 1,500 212 212 --
Write-off of goodwill
(note 15)............ 6,814 -- -- -- --
Restructuring charge.. -- -- -- -- 1,497
--------- --------- --------- --------- ---------
Total operating
expenses........... 21,850 15,751 22,540 10,928 12,113
--------- --------- --------- --------- ---------
Earnings (loss) from
operations......... (6,078) 1,659 5,909 3,776 (6,439)
--------- --------- --------- --------- ---------
Other expense (income):
Interest expense...... 323 585 196 196 20
Interest income....... (659) (396) (514) (224) (187)
Other expense
(income)............. 14 (18) (260) (215) (69)
--------- --------- --------- --------- ---------
Total other expense
(income)........... (322) 171 (578) (243) (236)
--------- --------- --------- --------- ---------
Earnings (loss)
before income
taxes.............. (5,756) 1,488 6,487 4,019 (6,203)
Income tax expense
(benefit) (note 7)..... 1,541 550 2,466 1,589 (2,285)
--------- --------- --------- --------- ---------
Net earnings
(loss)............. $ (7,297) $ 938 $ 4,021 $ 2,430 $ (3,918)
========= ========= ========= ========= =========
Earnings (loss) per
share:
Basic................. $ (1.16) $ 0.14 $ 0.50 $ 0.32 $ (0.46)
========= ========= ========= ========= =========
Diluted............... $ (1.16) $ 0.14 $ 0.47 $ 0.30 $ (0.46)
========= ========= ========= ========= =========
Weighted average common
shares:
Basic................. 6,307,146 6,686,253 8,052,926 7,570,134 8,593,863
========= ========= ========= ========= =========
Diluted............... 6,307,146 6,777,440 8,528,947 8,002,489 8,593,863
========= ========= ========= ========= =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>

APPLIED SCIENCE AND TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)

<TABLE>
<CAPTION>
Notes
Receivable
Preferred Retained for Total
Stock Common Stock Additional Earnings Treasury Stock Common Cumulative Stock-
------------- ----------------- Paid-in (Accumulated -------------- Stock Translation holders'
Shares Amount Shares Amount Capital Deficit) Shares Amount Purchases Adjustment Equity
------ ------ --------- ------ ---------- ------------ ------ ------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at July
1, 1995........ -- $-- 6,545,591 $65 $21,258 $ 2,091 760 $(1,447) $ (74) $-- $21,893
Retirement of
treasury
stock.......... -- -- (760,460) (8) (1,439) -- (760) 1,447 -- -- --
Repayment of
notes
receivable..... -- -- -- -- -- -- -- -- 78 -- 78
Issuance of
notes
receivable..... -- -- 27,000 -- 237 -- -- -- (237) -- --
Exercise of
stock options
and warrants... -- -- 350,381 4 1,995 -- -- -- -- -- 1,999
Tax benefit of
stock options
exercised...... -- -- -- -- 284 -- -- -- -- -- 284
Stock issue in
connection with
acquisition
(note 12)...... -- -- 510,051 5 4,333 -- -- -- -- -- 4,338
Net loss........ -- -- -- -- -- (7,297) -- -- -- -- (7,297)
--- ---- --------- --- ------- ------- ---- ------- ----- ---- -------
Balance at July
29, 1996....... -- -- 6,672,563 66 26,668 (5,206) -- -- (233) -- 21,295
Repayment of
notes
receivable..... -- -- -- -- -- -- -- -- 7 -- 7
Canceled stock
in exchange for
cancellation of
note
receivable..... -- -- (7,500) -- (78) -- -- -- 78 -- --
Exercise of
stock options.. -- -- 52,964 1 289 -- -- -- -- -- 290
Tax benefit of
stock options
exercised...... -- -- -- -- 63 -- -- -- -- -- 63
Stock issued in
connection with
acquisition
(note 12)...... -- -- 60,482 1 895 -- -- -- -- -- 896
Net earnings.... -- -- -- -- -- 938 -- -- -- -- 938
--- ---- --------- --- ------- ------- ---- ------- ----- ---- -------
Balance at June
28, 1997....... -- -- 6,778,509 68 27,837 (4,268) -- -- (148) -- 23,489
Exercise of
stock options
and warrants
(note 6)....... -- -- 1,827,954 18 16,080 -- -- -- -- -- 16,098
Tax benefit of
stock options
exercised...... -- -- -- -- 276 -- -- -- -- -- 276
Cumulative
translation
adjustment..... -- -- -- -- -- -- -- -- -- (83) (83)
Net earnings.... -- -- -- -- -- 4,021 -- -- -- -- 4,021
--- ---- --------- --- ------- ------- ---- ------- ----- ---- -------
Balance at June
27, 1998....... -- -- 8,606,463 86 44,193 (247) -- -- (148) (83) 43,801
Exercise of
stock options
and warrants... -- -- 65,209 -- 202 -- -- -- -- -- 202
Cancellation of
escrowed
shares......... -- -- (21,940) -- (195) -- -- -- -- -- (195)
Cumulative
translation
adjustment..... -- -- -- -- -- -- -- -- -- 141 141
Net loss........ -- -- -- -- -- (3,918) -- -- -- -- (3,918)
--- ---- --------- --- ------- ------- ---- ------- ----- ---- -------
Balance at
December 26,
1998
(unaudited).... -- $-- 8,649,732 $86 $44,200 $(4,165) -- $ -- $(148) $ 58 $40,031
=== ==== ========= === ======= ======= ==== ======= ===== ==== =======
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>

APPLIED SCIENCE AND TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

<TABLE>
<CAPTION>
Years Ended Six Months Ended
---------------------------- -------------------------
June 29, June 28, June 27, December 27, December 26,
1996 1997 1998 1997 1998
-------- -------- -------- ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net earnings (loss)..... $ (7,297) $ 938 $ 4,021 $ 2,430 $(3,918)
Adjustments to reconcile
net earnings (loss) to
net cash provided by
(used for) operating
activities:
Depreciation........... 1,336 1,825 2,194 1,044 1,412
Amortization and
goodwill write-off.... 7,129 117 548 247 306
Acquisition-related
expenses.............. 2,203 1,500 212 212 --
Deferred income taxes.. (143) (439) 37 -- (2,286)
(Gain) loss on disposal
of assets............. -- -- (192) (250) 625
Equipment transferred
to inventories........ -- 114 -- -- --
Changes in assets and
liabilities:
Trade receivables...... (1,112) (1,739) 44 727 685
Inventories............ (1,117) 146 (2,754) (2,353) 1,302
Prepaid expenses and
other assets.......... 474 42 (272) 31 28
Notes receivable....... 155 373 232 8 233
Accounts payable....... (77) 785 (1,897) 178 (1,600)
Accrued expenses....... (1,060) 188 410 2,052 (45)
Accrued income taxes... 228 536 (77) -- 236
-------- ------- ------- ------- -------
Net cash provided by
(used for) operating
activities........... 719 4,386 2,506 4,326 (3,022)
-------- ------- ------- ------- -------
Cash flows from
investing activities:
Acquisitions of
subsidiaries, less cash
acquired............... (12,318) (6,483) (3,683) (3,653) (23)
Acquisition related
receivable............. -- -- -- -- (806)
Advances to subsidiary
prior to acquisition... -- -- -- -- (800)
Purchases of
investments............ (3,006) (1,299) -- -- --
Proceeds from sales of
investments............ 11,242 1,991 1,800 500 --
Additions to property
and equipment.......... (2,814) (1,030) (2,999) (741) (1,010)
Patent costs............ (82) (57) (25) (23) (10)
Investment in other
assets................. (250) (140) -- -- 40
-------- ------- ------- ------- -------
Net cash used for
investing
activities........... (7,228) (7,018) (4,907) (3,917) (2,609)
-------- ------- ------- ------- -------
Cash flows from
financing activities:
Net borrowings under
note payable to bank... -- -- -- -- 173
Proceeds from notes
payable................ 8,000 4,983 -- -- --
Repayments of notes
payable................ (689) (4,584) (9,173) (9,173) (206)
Repayment of notes
receivable for common
stock purchases........ 78 7 -- -- --
Net proceeds from
issuance of common
stock.................. 1,999 290 16,098 15,351 7
-------- ------- ------- ------- -------
Net cash provided by
(used for) financing
activities........... 9,388 696 6,925 6,178 (26)
-------- ------- ------- ------- -------
Effect of exchange rates
on cash................ -- -- (83) (49) 141
-------- ------- ------- ------- -------
Net increase (decrease)
in cash and cash
equivalents............ 2,879 (1,936) 4,441 6,538 (5,516)
Cash and cash
equivalents at
beginning of period.... 2,303 5,182 3,246 3,246 7,687
-------- ------- ------- ------- -------
Cash and cash
equivalents at end of
period................. $ 5,182 $ 3,246 $ 7,687 $ 9,784 $ 2,171
======== ======= ======= ======= =======
Supplemental disclosures
of cash flow
information:
Cash paid during the
period for:
Interest............... $ 276 $ 539 $ 249 $ 249 $ 21
======== ======= ======= ======= =======
Income taxes........... $ 1,471 $ 454 $ 2,521 $ 621 $ 236
======== ======= ======= ======= =======
Acquisitions:
Assets acquired......... $ 12,146 $ 4,074 $ 4,701 $ 4,671 $ 2,579
Acquisition related
expenses, net of tax
benefit................ 2,203 945 212 212 --
Goodwill and other
intangible assets...... 7,049 3,317 2,177 2,177 393
Liabilities assumed..... (4,460) (957) (3,407) (3,407) (2,025)
Common stock issued..... (4,338) (896) -- -- --
-------- ------- ------- ------- -------
Cash paid............ 12,600 6,483 3,683 3,653 947
Less cash acquired and
pre-acquisition
advances to
subsidiary............. (282) -- -- -- (924)
-------- ------- ------- ------- -------
Net cash paid for
acquisitions........ $ 12,318 $ 6,483 $ 3,683 $ 3,653 $ 23
======== ======= ======= ======= =======
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>

APPLIED SCIENCE AND TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

(1) Nature of Business and Summary of Significant Accounting Policies

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.

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.

Interim Financial Statements

The interim financial statements as of December 26, 1998, and for the six
months ended December 27, 1997 and December 26, 1998 are unaudited. In the
opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of the financial position and
results of operations have been included in such unaudited financial
statements. The results of operations for the six months ended December 26,
1998 are not necessarily indicative of the results to be expected for the
entire year.

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.

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.

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.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method.

F-7
<PAGE>

APPLIED SCIENCE AND TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)

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:

<TABLE>
<S> <C>
Building.............................................. 25 to 31 1/2 years
Equipment, furniture and fixtures..................... 3 1/2 to 7 years
Leasehold improvements................................ Remaining lease term
</TABLE>

Patents

Patent costs are amortized over their estimated useful life of five years.

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, $6.8 million of goodwill was written off (see note 15).

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.

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
------------------------- Six months
June ended
June 29, June 28, 27, December 26,
1996 1997 1998 1998
-------- -------- ------- ------------
(unaudited)
<S> <C> <C> <C> <C>
Research and development costs...... $6,429 $8,195 $11,605 $4,646
Less funding........................ 1,386 852 352 78
------ ------ ------- ------
Net research and development
expenses........................... $5,043 $7,343 $11,253 $4,568
====== ====== ======= ======
</TABLE>

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.

F-8
<PAGE>

APPLIED SCIENCE AND TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)

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.

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 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.

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.

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

F-9
<PAGE>

APPLIED SCIENCE AND TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)

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.

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.

(2) Trade and Notes Receivable

Trade and notes receivable consist of the following:

<TABLE>
<CAPTION>
June June
28, 29,
1997 1998
------- -------
<S> <C> <C>
Trade receivables.......................................... $11,857 $13,044
Notes receivable, current portion (see note 3)............. 385 67
Allowance for doubtful accounts............................ (326) (377)
------- -------
$11,916 $12,734
======= =======
</TABLE>

(3) Notes Receivable

Notes receivable consist of the following:

<TABLE>
<CAPTION>
June 28, June 27,
1997 1998
-------- --------
<S> <C> <C>
Note receivable from stockholder with interest at 8% per
annum, payable in principal installments of $60 due
through June, 1999 with the remaining balance of $229
due in August, 1999. The note is secured by
certificates of deposit................................ $565 $288
Note receivable with interest at 8% per annum, payable
in monthly installments of $2, including interest, with
any remaining balance due on December 2, 2002. The note
is secured by real estate.............................. 160 148
Unsecured note receivable paid in 1998.................. 43 --
Unsecured note receivable with interest at 10%.......... -- 100
---- ----
768 536
Less current maturities............................... 385 67
---- ----
Long-term notes receivable............................ $383 $469
==== ====
</TABLE>

Current maturities of notes receivable have been included in trade
receivables.

F-10
<PAGE>

APPLIED SCIENCE AND TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)

(4) Inventories

Inventories consist of the following:

<TABLE>
<CAPTION>
December 26,
June 28, June 27, 1998
1997 1998 (unaudited)
-------- -------- ------------
<S> <C> <C> <C>
Raw materials................................. $ 6,567 $ 8,990 $ 7,766
Work in process............................... 2,534 3,210 3,791
Finished goods................................ 912 1,537 1,176
------- ------- -------
$10,013 $13,737 $12,733
======= ======= =======
</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:

<TABLE>
<S> <C>
Year ending June 30:
1999................................................................ $1,132
2000................................................................ 982
2001................................................................ 285
------
$2,399
======
</TABLE>

Rent expense totaled $916, $762 and $548 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 28, June 27,
Authorized 1997 1998
---------- ----------- -----------
<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 6,778,509 8,606,463
---------- ----------- -----------
Total common stock.................... 30,000,000 6,778,509 8,606,463
---------- ----------- -----------
Total capital stock................... 31,000,000 6,778,509 8,606,463
========== =========== ===========
</TABLE>

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

F-11
<PAGE>

APPLIED SCIENCE AND TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)

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.

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.

F-12
<PAGE>

APPLIED SCIENCE AND TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)

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 $15.2 million. 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.

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 No. 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 29, June 28, June 27,
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Net earnings (loss) as reported.............. $(7,297) $ 938 $4,021
======= ===== ======
Pro forma net earnings (loss)................ $(7,841) $ 226 $2,118
======= ===== ======
Basic net earnings (loss) per share as
reported.................................... $ (1.16) $0.14 $ 0.50
======= ===== ======
Pro forma basic net earnings (loss) per
share....................................... $ (1.24) $0.03 $ 0.26
======= ===== ======
Diluted net earnings (loss) per share as
reported.................................... $ (1.16) $0.14 $ 0.47
======= ===== ======
Pro forma diluted net earnings (loss) per
share....................................... $ (1.24) $0.03 $ 0.22
======= ===== ======
</TABLE>

The effect of applying Statement No. 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.

F-13
<PAGE>

APPLIED SCIENCE AND TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)

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.

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.

<TABLE>
<CAPTION>
Employee stock options
-------------------------------------
Option Weighted
shares Options average
available outstanding exercise price
--------- ----------- --------------
<S> <C> <C> <C>
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
========= =========
</TABLE>

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>

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.

F-14
<PAGE>

APPLIED SCIENCE AND TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)

(7) Income Taxes

Income tax expense (benefit) consists of the following:

<TABLE>
<CAPTION>
Years ended
--------------------------
June 29, June 28, June 27,
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal......................................... $1,500 $ 775 $2,141
State........................................... 184 214 288
------ ----- ------
Total current................................. 1,684 989 2,429
------ ----- ------
Deferred:
Federal......................................... (123) (294) (267)
State........................................... (20) (145) 304
------ ----- ------
Total deferred................................ (143) (439) 37
------ ----- ------
$1,541 $ 550 $2,466
====== ===== ======
</TABLE>

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
29, June 28, June 27,
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit)....... $(1,957) $506 $2,205
Increase (reduction) in income taxes resulting
from:
State taxes, net of federal benefit........... 109 45 391
Goodwill amortization and write-off........... 2,396 -- 47
Acquisition related expenses.................. 982 -- --
Research and experimentation tax credit....... (133) (44) (87)
Valuation reserve movement.................... -- -- (171)
Other......................................... 144 43 81
------- ---- ------
$ 1,541 $550 $2,466
======= ==== ======
</TABLE>

Total income tax expense was allocated as follows:

<TABLE>
<CAPTION>
Years ended
--------------------------
June 29, June 28, June 27,
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Income from operations........................... $1,541 $550 $2,466
Stockholders' equity, for compensation expense
for tax purposes in excess of amounts recognized
for financial statement purposes................ (284) (62) (276)
------ ---- ------
$1,257 $488 $2,190
====== ==== ======
</TABLE>

F-15
<PAGE>

APPLIED SCIENCE AND TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)

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 28, June 27,
1997 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards....................... $ 881 $2,164
Accrued liabilities.................................... 272 283
Inventory reserves..................................... 548 613
Accounts receivable, principally due to allowance for
doubtful accounts..................................... 128 118
------ ------
Total deferred tax assets............................ 1,829 3,178
Less: valuation allowance ............................. (270) (99)
------ ------
Deferred tax assets.................................. 1,559 3,079
Deferred tax liabilities:
Property and equipment, principally due to differences
in depreciation methods............................... 742 623
------ ------
Net deferred tax assets.............................. $ 817 $2,456
====== ======
</TABLE>

The net change in the total valuation allowance for the year ended June 27,
1998 was $171. 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.

At June 27, 1998, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $800 which are available to offset
future taxable income through 2010. The Company also has foreign operating loss
carryforwards of approximately $2.2 million 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.

F-16
<PAGE>

APPLIED SCIENCE AND TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)

(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 Six Months ended
----------------------------- -------------------------
June 29, June 28, June 27, December 27, December 26,
1996 1997 1998 1997 1998
--------- --------- --------- ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Weighted average common
shares outstanding
during the year....... 6,307,146 6,686,253 8,052,926 7,570,134 8,593,863
Weighted average common
equivalent shares due
to stock options and
warrants.............. -- 91,187 476,021 432,355 --
--------- --------- --------- --------- ---------
6,307,146 6,777,440 8,528,947 8,002,489 8,593,863
========= ========= ========= ========= =========
</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 $1.8 million, $900 and $700,
respectively, and $258 for the six month period end December 26, 1998. At both
June 27, 1998 and June 28, 1997, accounts receivable from these customers
totaled $600.

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,
and 36% for the six months ended December 26, 1998. At June 27, 1998 and June
28, 1997, accounts receivable from this customer totaled $3.3 million and $3.9
million, respectively. A second customer accounted for approximately 10% of
total revenue in 1997 and for the six months ended December 26, 1998.

Sales to customers in foreign countries for the years ended June 27, 1998,
June 28, 1997 and June 29, 1996 were $18.9 million, $10.1 million and $7.3
million, respectively, and $6.8 million for the six months ended December 26,
1998. At June 27, 1998 and June 28, 1997, accounts receivable from these
customers totaled $8.3 million and $1.8 million, respectively.

(10) Commitments

The Company may borrow up to $8 million 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.

F-17
<PAGE>

APPLIED SCIENCE AND TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)

(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 $3.7 million. The purchase price was paid in cash, from the Company's
cash balances. Costs associated with the fair value of acquired in-process
research and development projects 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.

The Company acquired the net assets, exclusive of certain liabilities of
Converter Power, Inc. for a total purchase price of $7.4 million. The purchase
price included $6.5 million in cash, of which $4.4 million was provided from
the Company's current cash balances while $2.1 million was provided from
increased bank borrowings, and 60,482 shares of ASTeX common stock valued at
$900 were issued to the prior owners of CPI. Costs associated with the fair
value of acquired in-process research and development projects 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 $900 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
$16.7 million. The purchase price included $12.6 million in cash, of which $4.6
million was provided from the Company's current cash balances while the
remaining $8 million was provided from two unsecured notes from a bank, and
492,993 shares of common stock valued at $4.1 million were issued to the former
shareholders of ETO. Costs associated with the fair value of acquired in-
process research and development projects were charged to expense.

On November 21, 1995, the Company completed its acquisition of 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 $200 to
the former shareholder of NES.

F-18
<PAGE>

APPLIED SCIENCE AND TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)

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 29, June 28, June 27,
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Consideration paid:
Cash......................................... $12,600 $6,483 $ 3,683
Common stock (60,482 shares in 1997 and
510,051 shares in 1996)..................... 4,338 896 --
------- ------ -------
Total consideration paid................... $16,938 $7,379 $ 3,683
======= ====== =======
Allocation of purchase price:
Accounts receivable.......................... $ 3,171 $1,255 $ 1,180
Inventories.................................. 3,438 2,050 970
Property and equipment and other assets...... 5,537 769 2,551
Liabilities assumed.......................... (4,460) (957) (3,407)
Acquisition related expenses, net of tax
benefits where applicable................... 2,203 945 212
Goodwill and other intangible assets......... 7,049 3,317 2,177
------- ------ -------
Total purchase price....................... $16,938 $7,379 $ 3,683
======= ====== =======
</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.

<TABLE>
<CAPTION>
Years ended
-----------------------------
June 29, June 28, June 27,
1996 1997 1998
--------- --------- ---------
(Unaudited)
<S> <C> <C> <C>
Pro forma total revenue....................... $60,577 $59,458 $84,414
========= ========= =========
Pro forma net earnings........................ $ 3,085 $ 1,143 $ 4,877
========= ========= =========
Pro forma basic earnings per share:
Basic....................................... $ 0.47 $ 0.17 $ 0.61
========= ========= =========
Diluted..................................... $ 0.45 $ 0.17 $ 0.57
========= ========= =========
Pro forma weighted average common shares:
Basic....................................... 6,620,778 6,738,411 8,052,926
========= ========= =========
Diluted..................................... 6,830,469 6,827,199 8,528,947
========= ========= =========
</TABLE>

F-19
<PAGE>

APPLIED SCIENCE AND TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)

(13) Transaction with Stockholder

In 1997, the Company sold the net assets of ETO's Alpha product line with a
cost of $600, 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 $900 and $4.3 million,
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 $200.

In connection with the exercise of stock options, a tax benefit of $300,
$100 and $300 was recorded as additional paid-in capital for the years ended
June 27, 1998, June 28, 1997 and June 29, 1996, respectively.

(15) Goodwill Write-Off

In connection with its acquisition of ETO, the Company recorded goodwill of
$7 million 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 $6.8 million, 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 $300, $100 and $100 for the years ended June 27, 1998, June 28,
1997 and June 29, 1996, respectively.

F-20
<PAGE>

APPLIED SCIENCE AND TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)

(17) New Accounting Pronouncements

SFAS 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.

SFAS 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. 131, 133 and SOP 98-
1.

(18) Subsequent Events (Unaudited)

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 $1.6 million which will be expensed during
fiscal 1999.

Effective August 26, 1998 the Company repriced all stock options which had
been granted since June 29, 1997 to $6.00 per share, the closing price of its
common stock on that date. Options for directors were not repriced.

In November 1998, the Company acquired certain assets and assumed certain
liabilities of PlasmaQuest, Inc. for approximately $23 subject to adjustment.
The acquisition is not significant in relation to the Company's financial
position.

F-21
<PAGE>

APPLIED SCIENCE AND TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)

(19) Quarterly Financial Data (Unaudited)

<TABLE>
<CAPTION>
Diluted
Net
Earnings Net Earnings
Total Gross (Loss) From Earnings (Loss)
Revenue Profit Operations (Loss) Per Share
------- ------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
1997
First Quarter................. $ 9,860 $ 3,813 $ 536 $ 312 $0.05
Second Quarter................ 9,293 3,396 461 280 0.04
Third Quarter................. 11,013 3,887 659 390 0.06
Fourth Quarter................ 17,801 6,314 3 (44) (0.01)
------- ------- ------ ------ -----
Year ended June 28............ $47,967 $17,410 $1,659 $ 938 $0.14
======= ======= ====== ====== =====
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 5,538 (119) 14 --
------- ------- ------ ------ -----
Year ended June 27............ $83,436 $28,449 $5,909 $4,021 $0.47
======= ======= ====== ====== =====
</TABLE>

(20) Comprehensive Income (unaudited)

The Company adopted the provisions of SFAS No. 130, Reporting Comprehensive
Income, in fiscal 1999. Comprehensive income is defined as the change in equity
of a business enterprise during a period from transactions and other events and
circumstances from nonowner sources. It includes all changes in equity during a
period except those resulting from investments by owners and distributions to
owners. This pronouncement requires that the accumulated total of other
comprehensive income be shown as a separate component of stockholders' equity
with additional disclosure of accumulated balances for each classification
within other comprehensive income in addition to the reporting of total
comprehensive income. Accumulated other comprehensive income, a component of
stockholders' equity previously titled "cumulative translation adjustment,"
consists solely of foreign currency translation. The components of total
comprehensive loss for the six months ended December 26, 1998 and December 27,
1997 are as follows:

<TABLE>
<CAPTION>
Six Months Ended
-----------------------
December 27 December 26
1997 1998
----------- -----------
<S> <C> <C>
Net earnings (loss).................................. $2,430 $(3,918)
Other comprehensive income (loss).................... (49) 141
------ -------
Comprehensive income (loss).......................... $2,381 $(3,777)
====== =======
</TABLE>

F-22
<PAGE>

Leading medical and industrial equipment manufacturers choose ASTeX power
source and reactive gas solutions

[Photo of a laser for dermatology applications]

Leading manufacturers of medical lasers for surgical, cosmetic, dermatology
and vision correction procedures choose ASTeX direct current power sources for
reliability and performance.

[Photo of a laser marking system]

A growing application served by ASTeX power sources is laser marking of a
wide variety of products, such as electronic and automotive parts, and
packaging for foods, beverages, and pharmaceuticals.

[Photo of a person on the bed of an MRI machine with an operator next to the
machine]

Reliability and precision of ASTeX radio frequency power sources enable
magnetic resonance imaging (MRI) systems to produce high-resolution images.

[Photo of a person next to a sterilizer]

ASTeX radio frequency sources power reactive gas systems that sterilize
surgical and diagnostic instruments and avoid damage caused by traditional
sterilization methods.

[Photo of three of our ozone systems]
[Photo of a person next to pipes]
ASTeX's integrated high-pressure ozone delivery systems are used in
groundwater remediation installations which destroy trace carcinogens that
contaminate municipal water supplies.
<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Logo of Astex

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

PART II. INFORMATION NOT REQUIRED IN PROSPECTUS

Item 14. Other Expenses of Issuance and Distribution

The following table sets forth the Company's estimates (other than the SEC
and Nasdaq registration fees) of the expenses in connection with the issuance
and distribution of the shares of common stock being registered.

<TABLE>
<CAPTION>
Item Amount
---- -----------
<S> <C>
SEC Registration Fee............................................ $ 10,310.33
Nasdaq Listing Fee.............................................. 17,500.00
Legal Fees and Expenses......................................... 225,000.00
Blue Sky Fees and Expenses...................................... 7,500.00
Accounting Fees and Expenses.................................... 125,000.00
Printing and Engraving.......................................... 75,000.00
Miscellaneous Fees and Expenses................................. 49,689.67
-----------
Total......................................................... $510,000.00
===========
</TABLE>

Item 15. Indemnification of Directors and Officers.

Section 145(a) of the General Corporation Law of the State of Delaware
provides that a Delaware corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation)
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
if he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no cause to believe his conduct was
unlawful.

Section 145(b) provides that a Delaware corporation may indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that such person acted in
any of the capacities set forth above, against expenses actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted under similar standards, except that no indemnification may be
made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the court in which such action or suit was brought shall determine
that despite the adjudication of liability, such person is fairly and
reasonably entitled to be indemnified for such expenses which the court shall
deem proper.

Section 145 further provides that to the extent a director or officer of a
corporation has been successful in the defense of any action, suit or
proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue or matter therein, he shall be indemnified against expenses
actually and reasonably incurred by him in connection therewith; that
indemnification provided for by Section 145 shall not be deemed exclusive of
any other rights to which the indemnified party may be entitled; and that the
corporation may purchase and maintain insurance on behalf of a director or
officer of the corporation against any liability asserted against him or
incurred by him in any such capacity or arising out of his status as such
whether or not the corporation would have the power to indemnify him against
such liabilities under such Section 145.

The Certificate of Incorporation, as amended, and Bylaws of the Company
provide for indemnification of the Company's directors and officers to the
fullest extent permitted by law. The Bylaws also permit the Board of Directors
to authorize the Company to purchase and maintain insurance against any
liability asserted against

II-1
<PAGE>

any director, officer, employee or agent of the Company arising out of his
capacity as such. Insofar as indemnification for liabilities under the
Securities Act may be permitted to directors, officers, or controlling persons
of the Company pursuant to the Company's Certificate of Incorporation, as
amended, its Bylaws and the Delaware General Corporation Law, the Company has
been informed that in the opinion of the Commission such indemnification is
against public policy as expressed in such Act and is therefore unenforceable.

As permitted by Section 102(b)(7) of the Delaware General Corporation Law,
the Company's Certificate of Incorporation, as amended, provides that directors
of the Company shall not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the Company or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law, relating to
prohibited dividends or distributions or the repurchase or redemption of stock
or (iv) for any transaction from which the director derives an improper
personal benefit. As a result of this provision, the Company and its
stockholders may be unable to obtain monetary damages from a director for
breach of his or her duty of care.

Item 16. Exhibits and Financial Statement Schedules

(a) Exhibits.

<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
*1.1 --Form of Underwriting Agreement (as amended).

***4.1 --Certificate of Incorporation, as amended, dated July 1, 1992.

***4.2 --Certificate of Amendment of Certificate of Incorporation, dated
September 1, 1993.

***4.3 --Bylaws, as amended.

****4.4 --Form of Certificate of Designation for the Series A Junior
Participating Preferred Stock.

***4.5 --Specimen Common Stock Certificate.

*5.1 --Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. with
respect to the legality of securities being registered (as amended).

**10.1 --Key Employee Agreement for Stanley Burg, dated as of December 11,
1998

*23.1 --Consent of KPMG Peat Marwick LLP.

*23.2 --Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (see
Exhibit 5.1).

**24.1 --Power of Attorney.

**27.1 --Financial Data Schedule.
</TABLE>
- --------

* Filed herewith.

** Previously filed as an exhibit to the Company's Registration Statement on
Form S-3 (Registration No. 333-71467) filed with the Commission on January
29, 1999, and incorporated herein by reference.

*** Previously filed as an exhibit to the Company's Registration Statement on
Form SB-2 (Registration No. 33-69098-B) declared effective on November 9,
1993, and incorporated herein by reference.

**** Previously filed as an exhibit to the Company's Current Report on Form 8-K
filed with the Commission on March 5, 1998 in connection with the
Company's adoption of a Shareholder Rights Plan, and incorporated herein
by reference (Commission File No. 0-22646).

II-2
<PAGE>

Item 17. Undertakings

(a) The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or any decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low end or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and

(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;

provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.

(c) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

II-3
<PAGE>

(d) The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.

II-4
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
Registration Statement on Form S-3 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Woburn, Commonwealth of
Massachusetts on the 9th day of February, 1999.

Applied Science and Technology, inc.

/s/ Richard S. Post
By: _________________________________
Richard S. Post
President

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement on Form S-3 has been signed below by the
following persons in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----

<S> <C> <C>
/s/ Richard S. Post Chairman of the Board, February 9, 1999
______________________________________ Chief Executive Officer
Richard S. Post and President (principal
executive officer)

/s/ John M. Tarrh Chief Financial Officer, February 9, 1999
______________________________________ Senior Vice President of
John M. Tarrh Finance (principal
financial and accounting
officer) and Director

/s/ Donald K. Smith Director February 9, 1999
______________________________________
Donald K. Smith

/s/ John R. Bertucci Director February 9, 1999
______________________________________
John R. Bertucci
</TABLE>

II-5
<PAGE>

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----

<S> <C> <C>
/s/ Michael de Beaumont Director February 9, 1999
______________________________________
Michael de Beaumont

/s/ Robert R. Anderson Director February 9, 1999
______________________________________
Robert R. Anderson

/s/ Hans-Jochen Kahl Director February 9, 1999
______________________________________
Hans-Jochen Kahl
</TABLE>

II-6
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
*1.1 --Form of Underwriting Agreement (as amended).
***4.1 --Certificate of Incorporation, as amended, dated July 1, 1992.
***4.2 --Certificate of Amendment of Certificate of Incorporation, dated
September 1, 1993.
***4.3 --Bylaws, as amended.
****4.4 --Form of Certificate of Designation for the Series A Junior
Participating Preferred Stock.
***4.5 --Specimen Common Stock Certificate.
*5.1 --Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. with
respect to the legality of securities being registered (as amended).
**10.1 --Key Employee Agreement for Stanley Burg, dated as of December 11,
1998
*23.1 --Consent of KPMG Peat Marwick LLP.
*23.2 --Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (see
Exhibit 5.1).
**24.1 --Power of Attorney.
**27.1 --Financial Data Schedule.
</TABLE>
- --------

* Filed herewith.

** Previously filed as an exhibit to the Company's Registration Statement on
Form S-3 (Registration No. 333-71467) filed with the Commission on January
29, 1999, and incorporated herein by reference.

*** Previously filed as an exhibit to the Company's Registration Statement on
Form SB-2 (Registration No. 33-69098-B) declared effective on November 9,
1993, and incorporated herein by reference.

<PAGE>

EXHIBIT 1.1

2,500,000 Shares*

APPLIED SCIENCE AND TECHNOLOGY, INC.

Common Stock

UNDERWRITING AGREEMENT
----------------------

February __, 1999

NEEDHAM & COMPANY, INC.
SOUNDVIEW TECHNOLOGY GROUP, INC.
ADVEST GROUP, INC.
As Representatives of the several Underwriters
c/o Needham & Company, Inc.
445 Park Avenue
New York, New York 10022

Ladies and Gentlemen:

Applied Science and Technology, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell 2,500,000 shares (the "Firm Shares") of
the Company's Common Stock, $0.01 par value per share (the "Common Stock"), to
you and to the several other Underwriters named in Schedule I hereto
(collectively, the "Underwriters"), for whom you are acting as representatives
(the "Representatives"). The Company has also agreed to grant to you and the
other Underwriters an option (the "Option") to purchase up to an additional
375,000 shares (the "Option Shares"), respectively, on the terms and for the
purposes set forth in Section 1(b). The Firm Shares and the Option Shares are
referred to collectively herein as the "Shares."

The Company confirms as follows its agreement with the Representatives and
the several other Underwriters.

1. Agreement to Sell and Purchase.

(a) On the basis of the representations, warranties and agreements of the
Company herein contained and subject to all the terms and conditions of this
Agreement, (i) the Company agrees to issue and sell the Firm Shares to the
several Underwriters, and (ii) each of the Underwriters, severally and not
jointly, agrees to purchase from the Company the respective number of Firm
Shares set forth opposite that Underwriter's name in Schedule I hereto, at the
purchase price of $____ for each Firm Share.

- --------
* Plus an option to purchase up to an additional 375,000 shares to cover
over-allotments.
<PAGE>

(b) Subject to all the terms and conditions of this Agreement, the Company
grants the Option to the several Underwriters to purchase, severally and not
jointly, up to the maximum number of Option Shares set forth in the first
paragraph hereof, at the same price per share as the Underwriters shall pay for
the Firm Shares. The Option may be exercised only to cover over-allotments in
the sale of the Firm Shares by the Underwriters and may be exercised in whole or
in part at any time (but not more than once) on or before the 30th day after the
date of this Agreement upon written or telegraphic notice (the "Option Shares
Notice") by the Representatives to the Company no later than 12:00 noon, New
York City time, at least two and no more than five business days before the date
specified for closing in the Option Shares Notice (the "Option Closing Date"),
setting forth the aggregate number of Option Shares to be purchased and the time
and date for such purchase. On the Option Closing Date, the Company will sell to
the Underwriters the number of Option Shares set forth in the Option Shares
Notice, and each Underwriter will purchase such percentage of the Option Shares
as is equal to the percentage of Firm Shares that such Underwriter is
purchasing, as adjusted by the Representatives in such manner as they deem
advisable to avoid fractional shares.

2. Delivery and Payment. Delivery of the Firm Shares shall be made to the
Representatives for the accounts of the Underwriters against payment of the
purchase price by certified or official bank checks or by wire transfers payable
in same-day funds to the order of the Company at the office of Needham &
Company, Inc., 445 Park Avenue, New York, New York 10022, at 10:00 a.m., New
York City time, on the third (or, if the purchase price set forth in Section
1(a) hereof is determined after 4:30 p.m., Washington D.C. time, the fourth)
business day following the commencement of the offering contemplated by this
Agreement, or at such time on such other date, not later than seven business
days after the date of this Agreement, as may be agreed upon by the Company and
the Representatives (such date is hereinafter referred to as the "Closing
Date").

To the extent the Option is exercised, delivery of the Option Shares
against payment by the Underwriters to the Company in the manner specified above
will take place at the offices specified above for the Closing Date at the time
and date (which may be the Closing Date) specified in the Option Shares Notice.

Certificates evidencing the Shares shall be in definitive form and shall be
registered in such names and in such denominations as the Representatives shall
request at least two business days prior to the Closing Date or the Option
Closing Date, as the case may be, by written notice to the Company. For the
purpose of expediting the checking and packaging of certificates for the Shares,
the Company agrees to make such certificates available for inspection at least
24 hours prior to the Closing Date or the Option Closing Date, as the case may
be.

The cost of original issue tax stamps, if any, in connection with the
issuance and delivery of the Firm Shares and Option Shares to the respective
Underwriters shall be borne by the Company. The Company will pay and save each
Underwriter and any subsequent holder of the Shares harmless from any and all
liabilities with respect to or resulting from any failure or delay in paying
federal and state stamp and other transfer taxes, if any, which may be payable
or determined to be payable in connection with the original issuance or sale to
such Underwriter of the Shares.

2
<PAGE>

3. Representations and Warranties of the Company. The Company represents,
warrants and covenants to each Underwriter that:

(a) The Company meets the requirements for use of Form S-3 and a
registration statement (Registration No. 333-71467) on Form S-3 relating to the
Shares, including a preliminary prospectus and such amendments to such
registration statement as may have been required to the date of this Agreement,
has been prepared by the Company under the provisions of the Securities Act of
1933, as amended (the "Act"), and the rules and regulations (collectively
referred to as the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") promulgated thereunder, and has been filed with
the Commission. The term "preliminary prospectus" as used herein means a
preliminary prospectus, including the documents incorporated by reference
therein, as contemplated by Rule 430 or Rule 430A of the Rules and Regulations
included at any time as part of the registration statement. Copies of such
registration statement and amendments and of each related preliminary prospectus
have been delivered to the Representatives. If such registration statement has
not become effective, a further amendment to such registration statement,
including a form of final prospectus, necessary to permit such registration
statement to become effective will be filed promptly by the Company with the
Commission. If such registration statement has become effective, a final
prospectus containing information permitted to be omitted at the time of
effectiveness by Rule 430A of the Rules and Regulations will be filed promptly
by the Company with the Commission in accordance with Rule 424(b) of the Rules
and Regulations. The term "Registration Statement" means the registration
statement as amended at the time it becomes or became effective (the "Effective
Date"), including all documents incorporated by reference therein, financial
statements and all exhibits and any information deemed to be included by Rule
430A, and includes any registration statement relating to the offering
contemplated by this Agreement and filed pursuant to Rule 462(b) of the Rules
and Regulations. The term "Prospectus" means the prospectus, including the
documents incorporated by reference therein, as first filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations or, if no such filing is
required, the form of final prospectus, including the documents incorporated by
reference therein, included in the Registration Statement at the Effective Date.
Any reference herein to the terms "amend," "amendment" or "supplement" with
respect to the Registration Statement, any preliminary prospectus or the
Prospectus shall be deemed to refer to and include the filing of any document
under the Securities Exchange Act of 1934, as amended (the "Exchange Act") after
the Effective Date, the date of any preliminary prospectus or the date of the
Prospectus, as the case may be, and deemed to be incorporated therein by
reference.

(b) No order preventing or suspending the use of any preliminary prospectus
has been issued by the Commission and no stop order suspending the effectiveness
of the Registration Statement or any post-effective amendment thereto has been
issued and no proceeding for that purpose has been initiated or threatened by
the Commission. On the Effective Date, the date the Prospectus is first filed
with the Commission pursuant to Rule 424(b) (if required), at all times
subsequent to and including the Closing Date and, if later, the Option Closing
Date and when any post-effective amendment to the Registration Statement becomes
effective or any amendment or supplement to the Prospectus is filed with the
Commission, the Registration Statement and the Prospectus (as amended or as
supplemented if the Company shall have filed with the Commission any amendment
or supplement thereto), including the financial statements included in the
Prospectus, did and will comply with all applicable provisions of the Act, the
Exchange Act, the rules and regulations under the Exchange Act (the "Exchange
Act Rules and Regulations"), and

3
<PAGE>

the Rules and Regulations and will contain all statements required to be stated
therein in accordance with the Act, the Exchange Act, the Exchange Act Rules and
Regulations, and the Rules and Regulations. On the Effective Date and when any
post-effective amendment to the Registration Statement becomes effective, no
part of the Registration Statement, the Prospectus or any such amendment or
supplement thereto did or will contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading. At the Effective Date, the
date the Prospectus or any amendment or supplement to the Prospectus is filed
with the Commission and at the Closing Date and, if later, the Option Closing
Date, the Prospectus did not and will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The foregoing representations and warranties in this Section 3(b) do
not apply to any statements or omissions made in reliance on and in conformity
with information relating to any Underwriter furnished in writing to the Company
by the Representatives specifically for inclusion in the Registration Statement
or Prospectus or any amendment or supplement thereto. The Company acknowledges
that the statements set forth under the heading "Underwriting" in the Prospectus
constitute the only information relating to any Underwriter furnished in writing
to the Company by the Representatives specifically for inclusion in the
Registration Statement.

(c) The documents that are incorporated by reference in the preliminary
prospectus and the Prospectus or from which information is so incorporated by
reference, when they became or become effective or were or are filed with the
Commission, as the case may be, complied or will comply in all material respects
with the requirements of the Act or the Exchange Act, as applicable, and the
Rules and Regulations or the Exchange Act Rules and Regulations, as applicable;
and any documents so filed and incorporated by reference subsequent to the
Effective Date shall, when they are filed with the Commission, comply in all
material respects with the requirements of the Act or the Exchange Act, as
applicable, and the Rules and Regulations or the Exchange Act Rules and
Regulations, as applicable.

(d) The Company does not own, and at the Closing Date and, if later, the
Option Closing Date, will not own, directly or indirectly, any shares of stock
or any other equity or long-term debt securities of any corporation or have any
equity interest in any corporation, firm, partnership, joint venture,
association or other entity, other than the subsidiaries listed in Company's
Annual Report on Form 10-K for the fiscal year ended June 27, 1998 (the
"Subsidiaries"). The Company and each of its Subsidiaries is, and at the Closing
Date and, if later, the Option Closing Date, will be, a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation. The Company and each of its Subsidiaries has, and
at the Closing Date and, if later, the Option Closing Date, will have, full
power and authority to conduct all the activities conducted by it, to own or
lease all the assets owned or leased by it and to conduct its business as
described in the Registration Statement and the Prospectus. The Company and each
of its Subsidiaries is, and at the Closing Date and, if later, the Option
Closing Date, will be, duly licensed or qualified to do business and in good
standing as a foreign corporation in all jurisdictions in which the nature of
the activities conducted by it or the character of the assets owned or leased by
it makes such license or qualification necessary, except to the extent that the
failure to be so qualified or be in good standing would not materially and
adversely affect the Company, any of its Subsidiaries, or its business,
properties, business prospects, condition (financial or other) or results of
operations. All of the outstanding shares of

4
<PAGE>

capital stock of each Subsidiary have been duly authorized and validly issued
and are fully paid and nonassessable, and owned by the Company free and clear of
all claims, liens, charges and encumbrances; there are no securities outstanding
that are convertible into or exercisable or exchangeable for capital stock of
any Subsidiary. The Company is not, and at the Closing Date and, if later, the
Option Closing Date, will not be, engaged in any discussions or a party to any
agreement or understanding, written or oral, regarding the acquisition of an
interest in any corporation, firm, partnership, joint venture, association or
other entity where such discussions, agreements or understandings would require
amendment to the Registration Statement pursuant to applicable securities laws.
Complete and correct copies of the certificate of incorporation and the by-laws
of the Company and each of its Subsidiaries and all amendments thereto have been
delivered to the Representatives, and no changes therein will be made subsequent
to the date hereof and prior to the Closing Date or, if later, the Option
Closing Date.

(e) All of the outstanding shares of capital stock of the Company have
been duly authorized, validly issued and are fully paid and nonassessable and
were issued in compliance with all applicable state and federal securities laws;
the Firm Shares and the Option Shares issued by the Company (if any) have been
duly authorized and when issued and paid for as contemplated herein will be
validly issued, fully paid and nonassessable; and no preemptive or similar
rights exist with respect to any of the Shares or the issue and sale thereof.
The Underwriters will receive good and valid title to the Shares purchased from
the Company, free and clear of all liens, claims, security interests, pledges,
charges, encumbrances, preemptive rights, stockholders' agreements, voting
trusts or other defects in title. The description of the capital stock of the
Company in the Registration Statement and the Prospectus is, and at the Closing
Date and, if later, the Option Closing Date, will be, complete and accurate in
all respects. Except as set forth in the Prospectus, the Company does not have
outstanding, and at the Closing Date and, if later, the Option Closing Date,
will not have outstanding, any options to purchase, or any rights or warrants to
subscribe for, or any securities or obligations convertible into, or any
contracts or commitments to issue or sell, any shares of capital stock, or any
such warrants, convertible securities or obligations. No further approval or
authority of stockholders or the Board of Directors of the Company will be
required for the issuance and sale of the Firm Shares and the Option Shares as
contemplated herein.

(f) The financial statements and schedules included or incorporated by
reference in the Registration Statement or the Prospectus present fairly the
financial condition of the Company and its consolidated Subsidiaries as of the
respective dates thereof and the results of operations and cash flows of the
Company and its consolidated Subsidiaries for the respective periods covered
thereby, all in conformity with generally accepted accounting principles applied
on a consistent basis throughout the entire period involved, except as otherwise
disclosed in the Prospectus. No other financial statements or schedules of the
Company are required by the Act, the Exchange Act, the Exchange Act Rules and
Regulations or the Rules and Regulations to be included in the Registration
Statement or the Prospectus. KPMG Peat Marwick LLP (the "Accountants"), who have
reported on such financial statements and schedules, are independent accountants
with respect to the Company as required by the Act and the Rules and
Regulations. The summary consolidated financial and statistical data included in
the Registration Statement present fairly the information shown therein and have
been compiled on a basis consistent with the financial statements presented
therein.

5
<PAGE>

(g) Subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus and prior to the Closing Date
and, if later, the Option Closing Date, except as set forth in or contemplated
by the Registration Statement and the Prospectus, (i) there has not been and
will not have been any change in the capitalization of the Company (other than
in connection with the exercise of options to purchase the Company's Common
Stock granted pursuant to the Company's stock option plans from the shares
reserved therefor as described in the Registration Statement), or any material
adverse change in the business, properties, business prospects, condition
(financial or otherwise) or results of operations of the Company or any of its
Subsidiaries, arising for any reason whatsoever, (ii) neither the Company nor
any of its Subsidiaries has incurred nor will any of them incur, except in the
ordinary course of business as described in the Prospectus, any material
liabilities or obligations, direct or contingent, nor has the Company or any of
its Subsidiaries entered into nor will it enter into, except in the ordinary
course of business as described in the Prospectus, any material transactions
other than pursuant to this Agreement and the transactions referred to herein
and (iii) the Company has not and will not have paid or declared any dividends
or other distributions of any kind on any class of its capital stock.

(h) The Company is not, will not become as a result of the transactions
contemplated hereby, and does not intend to conduct its business in a manner
that would cause it to become, an "investment company" or an "affiliated person"
of, or "promoter" or "principal underwriter" for, an "investment company," as
such terms are defined in the Investment Company Act of 1940, as amended.

(i) Except as set forth in the Registration Statement and the
Prospectus, there are no actions, suits or proceedings pending or, to the
knowledge of the Company, threatened against or affecting the Company, its
Subsidiaries or any of their officers in their capacity as such, nor any basis
therefor, before or by any Federal or state court, commission, regulatory body,
administrative agency or other governmental body, domestic or foreign, wherein
an unfavorable ruling, decision or finding might reasonably be expected to
materially and adversely affect the Company, any of its Subsidiaries or the
business, properties, business prospects, condition (financial or otherwise) or
results of operations of the Company or any of its Subsidiaries.

(j) The Company and each Subsidiary has, and at the Closing Date and, if
later, the Option Closing Date, will have, performed all the obligations
required to be performed by it, and is not, and at the Closing Date, and, if
later, the Option Closing Date, will not be, in default, under any contract or
other instrument to which it is a party or by which its property is bound or
affected, which default might reasonably be expected to materially and adversely
affect the Company, any of its Subsidiaries, or the business, properties,
business prospects, condition (financial or other) or results of operations of
the Company or any of its Subsidiaries. To the best knowledge of the Company, no
other party under any contract or other instrument to which it or any of its
Subsidiaries is a party is in default in any respect thereunder, which default
might reasonably be expected to materially and adversely affect the Company, any
of its Subsidiaries or the business, properties, business prospects, condition
(financial or other) or results of operations of the Company or any of its
Subsidiaries. Neither the Company nor any of its Subsidiaries is, and at the
Closing Date and, if later, the Option Closing Date, will be, in violation of
any provision of its certificate of incorporation or by-laws or other
organizational documents.

6
<PAGE>

(k) No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required for the
consummation by the Company of the transactions on its part contemplated herein,
except such as have been obtained under the Act or the Rules and Regulations and
such as may be required under state securities or Blue Sky laws or the by-laws
and rules of the National Association of Securities Dealers, Inc. (the "NASD")
----
in connection with the purchase and distribution by the Underwriters of the
Shares.

(l) The Company has full corporate power and authority to enter into
this Agreement. This Agreement has been duly authorized, executed and delivered
by the Company and constitutes a valid and binding agreement of the Company,
enforceable against the Company in accordance with the terms hereof. The
performance of this Agreement and the consummation of the transactions
contemplated hereby will not result in the creation or imposition of any lien,
charge or encumbrance upon any of the assets of the Company pursuant to the
terms or provisions of, or result in a breach or violation of any of the terms
or provisions of, or constitute a default under, or give any party a right to
terminate any of its obligations under, or result in the acceleration of any
obligation under, the certificate of incorporation or by-laws of the Company or
any of its Subsidiaries, any indenture, mortgage, deed of trust, voting trust
agreement, loan agreement, bond, debenture, note agreement or other evidence of
indebtedness, lease, contract or other agreement or instrument to which the
Company or any of its Subsidiaries is a party or by which the Company, any of
its Subsidiaries or any of their properties is bound or affected, or violate or
conflict with any judgment, ruling, decree, order, statute, rule or regulation
of any court or other governmental agency or body applicable to the business or
properties of the Company or any of its Subsidiaries.

(m) The Company or one of its Subsidiaries has good and marketable title
to all properties and assets described in the Prospectus as owned by them, free
and clear of all liens, charges, encumbrances or restrictions, except such as
are described in the Prospectus or are not material to the business of the
Company or its Subsidiaries. The Company or its Subsidiaries has valid,
subsisting and enforceable leases for the properties described in the Prospectus
as leased by them. The Company or one of its Subsidiaries owns or leases all
such properties as are necessary to its operations as now conducted or as
proposed to be conducted, except where the failure to so own or lease would not
materially and adversely affect the business, properties, business prospects,
condition (financial or otherwise) or results of operations of the Company or
its Subsidiaries.

(n) There is no document, contract, agreement, instrument, lease,
license, certificate, permit or other arrangement, whether written or oral, of a
character required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement which is
not described or filed as required. All such contracts to which the Company or
any of its Subsidiaries is a party have been duly authorized, executed and
delivered by the Company or such Subsidiary, constitute valid and binding
agreements of the Company or such Subsidiary and are enforceable against and by
the Company or such Subsidiary in accordance with the terms thereof.

(o) No statement, representation, warranty or covenant made by the
Company in this Agreement or made in any certificate or document required by
Section 6 of this Agreement to be delivered to the Representatives was or will
be, when made, inaccurate, untrue or incorrect.

7
<PAGE>

(p) Neither the Company nor any of its directors, officers or
controlling persons has taken, directly or indirectly, any action designed, or
which might reasonably be expected, to cause or result, under the Act or
otherwise, in, or which has constituted, stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Shares.

(q) No holder of securities of the Company has rights to the
registration of any securities of the Company because of the filing of the
Registration Statement, which rights have not been waived by the holder thereof
as of the date hereof.

(r) The Company has filed an application to list the Shares to be sold
by the Company hereunder on the Nasdaq National Market ("NNM"), and has received
notification that the listing has been approved, subject to notice of issuance
of such Shares.

(s) Except as disclosed in or specifically contemplated by the
Prospectus (i) the Company and its Subsidiaries own or have adequate rights to
use sufficient trademarks, trade names, patent rights, copyrights, licenses,
approvals and governmental authorizations to conduct their businesses as now
conducted and as presently proposed to be conducted, (ii) to the best of the
Company's knowledge, none of the patent rights owned or licensed by the Company
is unenforceable or invalid, (iii) the Company has no knowledge of any
infringement by it or any of its Subsidiaries of trademarks, trade name rights,
patent rights, copyrights, licenses, trade secrets or other similar rights of
others, where such infringement might reasonably be expected to have a material
and adverse effect on the Company, any of its Subsidiaries or the business,
properties, business prospects, condition (financial or otherwise) or results of
operations of the Company or any of its Subsidiaries, and (iv) there is no claim
being made against the Company or any of its Subsidiaries, or to the best of the
Company's knowledge, any employee of the Company or any of its Subsidiaries,
regarding trademark, trade name, patent, copyright, license, trade secret or
other infringement which might reasonably be expected to have a material and
adverse effect on the Company, any of its Subsidiaries or the business,
properties, business prospects, condition (financial or otherwise) or results of
operations of the Company or any of its Subsidiaries.

(t) The Company and each of its Subsidiaries has filed all federal,
state, local and foreign income tax returns which have been required to be filed
and has paid all taxes and assessments received by it to the extent that such
taxes or assessments have become due. Neither the Company nor any of its
Subsidiaries has any tax deficiency which has been or, to the best knowledge of
the Company, might be asserted or threatened against it which might reasonably
be expected to have a material and adverse effect on the business, properties,
business prospects, condition (financial or otherwise) or results of operations
of the Company or its Subsidiaries.

(u) The pro forma financial information set forth in the Registration
Statement reflects, subject to the limitations set forth in the Registration
Statement as to such pro forma financial information, the results of operations
of the Company and its consolidated Subsidiaries purported to be shown thereby
for the periods indicated and conforms to the requirements of Regulation S-X of
the Rules and Regulations and management of the Company believes (i) the
assumptions underlying the pro forma adjustments are reasonable, (ii) that such
adjustments have been properly applied to the historical amounts in the
compilation of such statements, and (iii) that such statements present fairly,
with respect to the Company and its consolidated Subsidiaries, the

8
<PAGE>

pro forma financial position and results of operations and the other information
purported to be shown therein at the respective dates or for the respective
periods therein specified.

(v) The Company or its Subsidiaries owns or possesses all
authorizations, approvals, orders, licenses, registrations, other certificates
and permits of and from all governmental regulatory officials and bodies,
necessary to conduct their respective businesses as contemplated in the
Prospectus, except where the failure to own or possess all such authorizations,
approvals, orders, licenses, registrations, other certificates and permits would
not materially and adversely affect the Company, any of its Subsidiaries or the
business, properties, business prospects, condition (financial or otherwise) or
results of operations of the Company or any of its Subsidiaries. There is no
proceeding pending or threatened (or any basis therefor known to the Company)
which may cause any such authorization, approval, order, license, registration,
certificate or permit to be revoked, withdrawn, cancelled, suspended or not
renewed; and the Company and each of its Subsidiaries is conducting its business
in compliance with all laws, rules and regulations applicable thereto
(including, without limitation, all applicable federal, state and local
environmental laws and regulations) except where such noncompliance would not
materially and adversely affect the Company, any of its Subsidiaries or the
business, properties, business prospects, condition (financial or otherwise) or
results of operations of the Company or any of its Subsidiaries.

(w) The Company and each of its Subsidiaries maintains insurance of the
types and in the amounts generally deemed adequate for its business, including,
but not limited to, insurance covering real and personal property owned or
leased by the Company and its Subsidiaries against theft, damage, destruction,
acts of vandalism and all other risks customarily insured against, all of which
insurance is in full force and effect.

(x) Neither the Company nor any of its Subsidiaries has nor, to the best
of the Company's knowledge, any of their respective employees or agents at any
time during the last five years (i) made any unlawful contribution to any
candidate for foreign office, or failed to disclose fully any contribution in
violation of law, or (ii) made any payment to any federal or state governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments required or permitted by the laws of the United
States or any jurisdiction thereof.

(y) The Company has not distributed and will not distribute any
prospectus or other offering material in connection with the offer and sale of
the Shares, other than the preliminary prospectus or the Prospectus or other
offering materials permitted by the Act and the Rules and Regulations to be
distributed.

4. Agreements of the Company. The Company covenants and agrees with the
several Underwriters as follows:

(a) The Company will not, either prior to the Effective Date or
thereafter during such period as the Prospectus is required by law to be
delivered in connection with sales of the Shares by an Underwriter or dealer,
file any amendment or supplement to the Registration Statement or the
Prospectus, unless a copy thereof shall first have been submitted to the
Representatives within

9
<PAGE>

a reasonable period of time prior to the filing thereof and the Representatives
shall not have objected thereto in good faith.

(b) The Company will use its best efforts to cause the Registration
Statement to become effective, and will notify the Representatives promptly, and
will confirm such advice in writing, (i) when the Registration Statement has
become effective and when any post-effective amendment thereto becomes
effective, (ii) of any request by the Commission for amendments or supplements
to the Registration Statement or the Prospectus or for additional information,
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any proceedings
for that purpose or the threat thereof, (iv) of the happening of any event
during the period mentioned in the second sentence of Section 4(e) that in the
judgment of the Company makes any statement made in the Registration Statement
or the Prospectus untrue or that requires the making of any changes in the
Registration Statement or the Prospectus in order to make the statements
therein, in the light of the circumstances in which they are made, not
misleading and (v) of receipt by the Company or any representative or attorney
of the Company of any other communication from the Commission relating to the
Company, the Registration Statement, any preliminary prospectus or the
Prospectus. If at any time the Commission shall issue any order suspending the
effectiveness of the Registration Statement, the Company will make every
reasonable effort to obtain the withdrawal of such order at the earliest
possible moment. If the Company has omitted any information from the
Registration Statement pursuant to Rule 430A of the Rules and Regulations, the
Company will comply with the provisions of and make all requisite filings with
the Commission pursuant to said Rule 430A and notify the Representatives
promptly of all such filings.

(c) The Company will furnish to each Representative, without charge, one
signed copy of the Registration Statement and of any post-effective amendment
thereto, including financial statements and schedules, and all exhibits thereto
and will furnish to the Representatives, without charge, for transmittal to each
of the other Underwriters, a copy of the Registration Statement and any
post-effective amendment thereto, including financial statements and schedules
but without exhibits.

(d) The Company will comply with all the provisions of any undertakings
contained in the Registration Statement.

(e) On the Effective Date, and thereafter from time to time, the Company
will deliver to each of the Underwriters, without charge, as many copies of the
Prospectus or any amendment or supplement thereto as the Representatives may
reasonably request. The Company consents to the use of the Prospectus or any
amendment or supplement thereto by the several Underwriters and by all dealers
to whom the Shares may be sold, both in connection with the offering or sale of
the Shares and for any period of time thereafter during which the Prospectus is
required by law to be delivered in connection therewith. If during such period
of time any event shall occur which in the judgment of the Company or counsel to
the Underwriters should be set forth in the Prospectus in order to make any
statement therein, in the light of the circumstances under which it was made,
not misleading, or if it is necessary to supplement or amend the Prospectus to
comply with law, the Company will forthwith prepare and duly file with the
Commission an appropriate supplement or amendment thereto, and will deliver to
each of the Underwriters, without charge, such number of copies of such
supplement or amendment to the Prospectus as the Representatives may reasonably

10
<PAGE>

request. The Company will not file any document under the Exchange Act or the
Exchange Act Rules and Regulations before the termination of the offering of the
Shares by the Underwriters, if such document would be deemed to be incorporated
by reference into the Prospectus, that is not approved by the Representatives
after reasonable notice thereof.

(f) Prior to any public offering of the Shares, the Company will
cooperate with the Representatives and counsel to the Underwriters in connection
with the registration or qualification of the Shares for offer and sale under
the securities or Blue Sky laws of such jurisdictions as the Representatives may
request; provided, that in no event shall the Company be obligated to qualify to
do business in any jurisdiction where it is not now so qualified or to take any
action which would subject it to general service of process in any jurisdiction
where it is not now so subject.

(g) The Company will, so long as required under the Rules and
Regulations, furnish to its stockholders as soon as practicable after the end of
each fiscal year an annual report (including a balance sheet and statements of
income, stockholders' equity and cash flow of the Company and its consolidated
Subsidiaries, if any, certified by independent public accountants) and, as soon
as practicable after the end of each of the first three quarters of each fiscal
year (beginning with the fiscal quarter ending after the effective date of the
Registration Statement), consolidated summary financial information of the
Company and its Subsidiaries, if any, for such quarter in reasonable detail.

(h) During the period of five years commencing on the Effective Date,
the Company will furnish to the Representatives and each other Underwriter who
may so request copies of such financial statements and other periodic and
special reports as the Company may from time to time distribute generally to the
holders of any class of its capital stock, and will furnish to the
Representatives and each other Underwriter who may so request a copy of each
annual or other report it shall be required to file with the Commission.

(i) The Company will make generally available to holders of its
securities as soon as may be practicable but in no event later than the last day
of the fifteenth full calendar month following the calendar quarter in which the
Effective Date falls, an earnings statement (which need not be audited but shall
be in reasonable detail) for a period of 12 months ended commencing after the
Effective Date, and satisfying the provisions of Section 11(a) of the Act
(including Rule 158 of the Rules and Regulations).

(j) Whether or not the transactions contemplated by this Agreement are
consummated or this Agreement is terminated, the Company will pay or reimburse,
if paid by the Representatives, all costs and expenses incident to the
performance of the obligations of the Company under this Agreement and in
connection with the transactions contemplated hereby, including but not limited
to costs and expenses of or relating to (i) the preparation, printing and filing
of the Registration Statement and exhibits to it, each preliminary prospectus,
Prospectus and any amendment or supplement to the Registration Statement or
Prospectus, (ii) the preparation and delivery of certificates representing the
Shares, (iii) the printing of this Agreement, the Agreement Among Underwriters,
any Selected Dealer Agreements, any Underwriters' Questionnaires, any
Underwriters' Powers of Attorney, and any invitation letters to prospective
Underwriters, (iv) furnishing (including costs of shipping and mailing) such
copies of the Registration Statement, the Prospectus and any preliminary
prospectus, and all amendments and supplements thereto, as

11
<PAGE>

may be requested for use in connection with the offering and sale of the Shares
by the Underwriters or by dealers to whom Shares may be sold, (v) the listing of
the Shares on the NNM, (vi) any filings required to be made by the Underwriters
with the NASD, and the fees, disbursements and other charges of counsel for the
Underwriters in connection therewith, (vii) the registration or qualification of
the Shares for offer and sale under the securities or Blue Sky laws of such
jurisdictions designated pursuant to Section 4(f), including the fees,
disbursements and other charges of counsel to the Underwriters in connection
therewith, and the preparation and printing of preliminary, supplemental and
final Blue Sky memoranda, (viii) fees, disbursements and other charges of
counsel to the Company (but not those of counsel for the Underwriters, except as
otherwise provided herein) and (ix) the transfer agent for the Shares.

(k) The Company will not at any time, directly or indirectly, take any
action designed or which might reasonably be expected to cause or result in, or
which will constitute, stabilization of the price of the shares of Common Stock
to facilitate the sale or resale of any of the Shares.

(l) The Company will apply the net proceeds from the offering and sale
of the Shares to be sold by the Company in the manner set forth in the
Prospectus under "Use of Proceeds".

(m) During the period beginning from the date hereof and continuing to
and including the date 90 days after the date of the Prospectus, without the
prior written consent of Needham & Company, Inc., the Company will not offer,
sell, contract to sell, grant options to purchase or otherwise dispose of any of
the Company's equity securities of the Company or any other securities
convertible into or exchangeable with its Common Stock or other equity security
(other than pursuant to employee stock option plans or the conversion of
convertible securities or the exercise of warrants outstanding on the date of
this Agreement).

(n) During the period of 90 days after the date of the Prospectus, the
Company will not, without the prior written consent of Needham & Company, Inc.,
grant options to purchase shares of Common Stock at a price less than the
initial public offering price. During the period of 90 days after the date of
the Prospectus, the Company will not file with the Commission or cause to become
effective any registration statement relating to any securities of the Company
without the prior written consent of Needham & Company, Inc.

(o) The Company will cause each of its officers and directors to enter
into lock-up agreements with the Representatives to the effect that they will
not, without the prior written consent of Needham & Company, Inc., sell,
contract to sell or otherwise dispose of any shares of Common Stock or rights to
acquire such shares according to the terms set forth in Schedule III hereto.

5. Conditions of the Obligations of the Underwriters. The obligations
of each Underwriter hereunder are subject to the following conditions:

(a) Notification that the Registration Statement has become effective
shall be received by the Representatives not later than 5:00 p.m., New York City
time, on the date of this Agreement or at such later date and time as shall be
consented to in writing by the Representatives

12
<PAGE>

and all filings required by Rule 424 and Rule 430A of the Rules and Regulations
shall have been made.

(b) (i) No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall be
pending or threatened by the Commission, (ii) no order suspending the
effectiveness of the Registration Statement or the qualification or registration
of the Shares under the securities or Blue Sky laws of any jurisdiction shall be
in effect and no proceeding for such purpose shall be pending before or
threatened or contemplated by the Commission or the authorities of any such
jurisdiction, (iii) any request for additional information on the part of the
staff of the Commission or any such authorities shall have been complied with to
the satisfaction of the staff of the Commission or such authorities and (iv)
after the date hereof no amendment or supplement to the Registration Statement
or the Prospectus shall have been filed unless a copy thereof was first
submitted to the Representatives and the Representatives do not object thereto
in good faith, and the Representatives shall have received certificates, dated
the Closing Date and, if later, the Option Closing Date and signed by the
President and Treasurer of the Company (who may, as to proceedings threatened,
rely upon the best of their information and belief), to the effect of clauses
(i), (ii) and (iii) of this paragraph.

(c) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, (i) there shall not have been a
material adverse change in the general affairs, business, business prospects,
properties, management, condition (financial or otherwise) or results of
operations of the Company or any of its Subsidiaries, whether or not arising
from transactions in the ordinary course of business, in each case other than as
described in or contemplated by the Registration Statement and the Prospectus,
and (ii) the Company shall not have sustained any material loss or interference
with its business or properties from fire, explosion, flood or other casualty,
whether or not covered by insurance, or from any labor dispute or any court or
legislative or other governmental action, order or decree, which is not
described in the Registration Statement and the Prospectus, if in the judgment
of the Representatives any such development makes it impracticable or
inadvisable to consummate the sale and delivery of the Shares by the
Underwriters at the public offering price.

(d) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there shall have been no litigation
or other proceeding instituted against the Company, any of its Subsidiaries, or
any of their officers or directors in their capacities as such, before or by any
Federal, state or local court, commission, regulatory body, administrative
agency or other governmental body, domestic or foreign, in which litigation or
proceeding an unfavorable ruling, decision or finding might reasonably be
expected to materially and adversely affect the business, properties, business
prospects, condition (financial or otherwise) or results of operations of the
Company or any of its Subsidiaries.

(e) Each of the representations and warranties of the Company contained
herein shall be true and correct in all material respects at the Closing Date
and, with respect to the Option Shares, at the Option Closing Date, and all
covenants and agreements contained herein to be performed on the part of the
Company and all conditions contained herein to be fulfilled or complied with by
the Company at or prior to the Closing Date and, with respect to the Option
Shares, at or prior to the Option Closing Date, shall have been duly performed,
fulfilled or complied with.

13
<PAGE>

(f) The Representatives shall have received an opinion, dated the Closing
Date and, with respect to the Option Shares, the Option Closing Date,
satisfactory in form and substance to the Representatives and counsel for the
Underwriters from Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C., counsel to
the Company, with respect to the following matters:

(i) Each of the Company and its Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation; has full corporate power and authority to
conduct all the activities conducted by it, to own or lease all the assets
owed or leased by it and to conduct its business as described in the
Registration Statement and Prospectus; and is duly licensed or qualified to
do business and is in good standing as a foreign corporation in all
jurisdictions in which the nature of the activities conducted by it or the
character of the assets owned or leased by it makes such license or
qualification necessary and where the failure to be licensed or qualified
would have a material and adverse effect on the business or financial
condition of the Company.

(ii) All of the outstanding shares of capital stock of the Company
have been duly authorized, validly issued and are fully paid and
nonassessable, to such counsel's knowledge, were issued pursuant to
exemptions from the registration and qualification requirements of federal
and applicable state securities laws, and were not issued in violation of
or subject to any preemptive or, to such counsel's knowledge, similar
rights;

(iii) The specimen certificate evidencing the Common Stock
incorporated by reference into the Registration Statement is in due and
proper form under Delaware law, the Shares to be sold by the Company
hereunder have been duly authorized and, when issued and paid for as
contemplated by this Agreement, will be validly issued, fully paid and
nonassessable; and no preemptive or similar rights exist with respect to
any of the Shares or the issue and sale thereof.

(iv) To such counsel's knowledge, the Company does not own or
control, directly or indirectly, any shares of stock or any other equity or
long-term debt securities of any corporation or have any equity interest in
any corporation, firm, partnership, joint venture, association or other
entity, other than the Subsidiaries. All of the outstanding shares of
capital stock of each Subsidiary have been duly authorized and validly
issued and are fully paid and nonassessable, and owned by the Company free
and clear of all claims, liens, charges and encumbrances; to such counsel's
knowledge, there are no securities outstanding that are convertible into or
exercisable or exchangeable for capital stock of any Subsidiary.

(v) The authorized and outstanding capital stock of the Company is
as set forth in the Registration Statement and the Prospectus in the column
entitled "Actual" under the caption "Capitalization" (except for subsequent
issuances, if any, pursuant to this Agreement or pursuant to reservations,
agreements, employee benefit plans or the exercise of convertible
securities, options or warrants referred to in the Prospectus). To such
counsel's knowledge, except as disclosed in or specifically contemplated by

14
<PAGE>

the Prospectus, there are no outstanding options, warrants of other rights
calling for the issuance of, and no commitments, plans or arrangements to
issue, any shares of capital stock of the Company or any security
convertible into or exchangeable or exercisable for capital stock of the
Company. The description of the capital stock of the Company in the
Registration Statement and the Prospectus conforms in all material respects
to the terms thereof.

(vi) To such counsel's knowledge, there are no legal or governmental
proceedings pending or threatened to which the Company or any of its
Subsidiaries is a party or to which any of their respective properties is
subject that are required to be described in the Registration Statement or
the Prospectus but are not so described.

(vii) No consent, approval, authorization or order of, or any filing
or declaration with, any court or governmental agency or body is required
for the consummation by the Company of the transactions on its part
contemplated under this Agreement, except such as have been obtained or
made under the Act or the Rules and Regulations and such as may be required
under state securities or Blue Sky laws or the by-laws and rules of the
NASD in connection with the purchase and distribution by the Underwriters
of the Shares.

(viii) The Company has full corporate power and authority to enter
into this Agreement. This Agreement has been duly authorized, executed and
delivered by the Company.

(ix) The execution and delivery of this Agreement, the compliance by
the Company with all of the terms hereof and the consummation of the
transactions contemplated hereby does not contravene any provision of
applicable law or the certificate of incorporation or by-laws of the
Company or any of its Subsidiaries, and to the best of such counsel's
knowledge will not result in the creation or imposition of any lien, charge
or encumbrance upon any of the assets of the Company or any of its
Subsidiaries pursuant to the terms and provisions of, result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, or give any party a right to terminate any of its obligations under,
or result in the acceleration of any obligation under, any indenture,
mortgage, deed of trust, voting trust agreement, loan agreement, bond,
debenture, note agreement or other evidence of indebtedness, lease,
contract or other agreement or instrument known to such counsel to which
the Company or any of its Subsidiaries is a party or by which the Company,
any of its Subsidiaries, or any of their respective properties is bound or
affected, or violate or conflict with (i) any judgment, ruling, decree or
order known to such counsel or (ii) any statute, rule or regulation of any
court or other governmental agency or body applicable to the business or
properties of the Company or any of its Subsidiaries.

(x) To such counsel's knowledge, there is no document or contract
of a character required to be described in the Registration Statement or
the Prospectus or to be filed as an exhibit to the Registration Statement
which is not described or filed or incorporated by reference as required,
and each description of such contracts and documents that is contained in
the Registration Statement and Prospectus fairly

15
<PAGE>

presents in all material respects the information required under the Act
and the Rules and Regulations.

(xi) The statements under the captions "Risk Factors -- Your
Investment May Be Subject to Dilution," and "Risk Factors -- Our Anti-
Takeover Measures May Affect the Value of Our Stock"; in the Prospectus,
insofar as the statements constitute a summary of documents referred to
therein or matters of law, are accurate summaries and fairly and correctly
present, in all material respects, the information called for with respect
to such documents and matters (provided, however, that such counsel may
rely on representations of the Company with respect to the factual matters
contained in such statements, and provided further that such counsel shall
state that nothing has come to the attention of such counsel which leads
them to believe that such representations are not true and correct in all
material respects).

(xii) The Company is not an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company," as such terms are defined in the Investment Company Act of 1940,
as amended.

(xiii) The Shares to be issued by the Company have been duly
authorized for listing on the NNM, subject to notice of issuance.

(xiv) To such counsel's knowledge, no holder of securities of the
Company has rights, which have not been waived, to require the register
with the Commission shares of Common Stock or other securities, as part of
the offering contemplated hereby.

(xv) The Registration Statement has become effective under the Act,
and to the best of such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceeding for that purpose has been instituted or is pending, threatened
or contemplated.

(xvi) The Registration Statement and the Prospectus comply as to
form in all material respects with the requirement of the Act and the Rules
and Regulations (other than the financial statements, schedules and other
financial data contained or incorporated by reference in the Registration
Statement or the Prospectus, as to which such counsel need express no
opinion).

(xvii) Such counsel has participated in the preparation of the
Registration Statement and Prospectus and has no reason to believe that, as
of the Effective Date the Registration Statement, or any amendment or
supplement thereto, (other than the financial statements, schedules and
other financial data contained or incorporated by reference therein, as to
which such counsel need express no opinion) contained any untrue statement
of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading
or that the Prospectus, or any amendment or supplement thereto, as of its
date and the Closing Date and, if later, the Option Closing Date, contained
or contains any untrue statement of a material fact or omitted or omits to
state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not

16
<PAGE>

misleading (other than the financial statements, schedules and other
financial data contained or incorporated by reference therein, as to which
such counsel need express no opinion).

(xviii) The documents incorporated by reference in the Prospectus
(other than the financial statements, schedules and other financial data
contained therein, as to which such counsel need express no opinion), when
they were filed with the Commission, complied as to form in all material
respects with the requirements of the Exchange Act and the Exchange Act
Rules and Regulations.

In rendering such opinion, such counsel may rely upon as to matters of
local law on opinions of counsel satisfactory in form and substance to the
Representatives and counsel for the Underwriters, provided that the opinion of
counsel to the Company shall state that they are doing so, that they have no
reason to believe that they and the Underwriters are not entitled to rely on
such opinions and that copies of such opinions are to be attached to the
opinion.

(g) The Representatives shall have received an opinion, dated the Closing
Date and the Option Closing Date, from Choate, Hall & Stewart, counsel to the
Underwriters, with respect to the Registration Statement, the Prospectus and
this Agreement, which opinion shall be satisfactory in all respects to the
Representatives.

(h) Concurrently with the execution and delivery of this Agreement, the
Accountants shall have furnished to the Representatives a letter, dated the date
of its delivery, addressed to the Representatives and in form and substance
satisfactory to the Representatives, confirming that they are independent
accountants with respect to the Company and its Subsidiaries as required by the
Act and the Exchange Act and the Rules and Regulations and with respect to
certain financial and other statistical and numerical information contained or
incorporated by reference in the Registration Statement. At the Closing Date
and, as to the Option Shares, the Option Closing Date, the Accountants shall
have furnished to the Representatives a letter, dated the date of its delivery,
which shall confirm, on the basis of a review in accordance with the procedures
set forth in the letter from the Accountants, that nothing has come to their
attention during the period from the date of the letter referred to in the prior
sentence to a date (specified in the letter) not more than five days prior to
the Closing Date and the Option Closing Date, as the case may be, which would
require any change in their letter dated the date hereof if it were required to
be dated and delivered at the Closing Date and the Option Closing Date.

(i) Concurrently with the execution and delivery of this Agreement and at
the Closing Date and, as to the Option Shares, the Option Closing Date, there
shall be furnished to the Representatives a certificate, dated the date of its
delivery, signed by each of the President and Treasurer of the Company, in form
and substance satisfactory to the Representatives, to the effect that:

(i) Each signer of such certificate has carefully examined the
Registration Statement and the Prospectus (including any documents filed
under the Exchange Act and deemed to be incorporated by reference into the
Prospectus) as of the date of such certificate, and (A) such documents are
true and correct in all material respects and do not omit to state a
material fact required to be stated therein or necessary in order to

17
<PAGE>

make the statements therein not untrue or misleading and (B) in the case of
the certificate delivered at the Closing Date and the Option Closing Date,
since the Effective Date no event has occurred as a result of which it is
necessary to amend or supplement the Prospectus in order to make the
statements therein not untrue or misleading.

(ii) Each of the representations and warranties of the Company
contained in this Agreement were, when originally made, and are, at the
time such certificate is delivered, true and correct.

(iii) Each of the covenants required to be performed by the Company
herein on or prior to the date of such certificate has been duly, timely
and fully performed and each condition herein required to be satisfied or
fulfilled on or prior to the date of such certificate has been duly, timely
and fully satisfied or fulfilled.

(j) On or prior to the Closing Date, the Representatives shall have
received the executed agreements referred to in Section 4(o).

(k) The Shares shall be qualified for sale in such jurisdictions as the
Representatives may reasonably request and each such qualification shall be in
effect and not subject to any stop order or other proceeding on the Closing Date
or the Option Closing Date.

(l) Prior to the Closing Date, the Shares shall have been duly authorized
for listing on the NNM upon official notice of issuance.

(m) The Company shall have furnished to the Representatives such
certificates, in addition to those specifically mentioned herein, as the
Representatives may have reasonably requested as to the accuracy and
completeness at the Closing Date and the Option Closing Date of any statement in
the Registration Statement or the Prospectus, as to the accuracy at the Closing
Date and the Option Closing Date of the representations and warranties of the
Company herein, as to the performance by the Company of its obligations
hereunder, or as to the fulfillment of the conditions concurrent and precedent
to the obligations hereunder of the Representatives.

6. Indemnification.

(a) The Company will indemnify and hold harmless each Underwriter, the
directors, officers, employees and agents of each Underwriter and each person,
if any, who controls each Underwriter within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act, from and against any and all losses,
claims, liabilities, expenses and damages (including any and all investigative,
legal and other expenses reasonably incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any claim asserted), to
which they, or any of them, may become subject under the Act, the Exchange Act
or other Federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, liabilities, expenses or damages
arise out of or are based on any untrue statement or alleged untrue statement of
a material fact contained in any preliminary prospectus, the Registration
Statement or the Prospectus or any amendment or supplement to the Registration
Statement or the Prospectus, or the omission or alleged omission to state in
such document a material fact required to be stated in it or necessary

18
<PAGE>

to make the statements in it not misleading in the light of the circumstances in
which they were made, or arise out of or are based in whole or in part on any
inaccuracy in the representations and warranties of the Company contained herein
or any failure of the Company to perform its obligations hereunder or under law
in connection with the transactions contemplated hereby; provided, however, that
(i) the Company will not be liable to the extent that such loss, claim,
liability, expense or damage arises from the sale of the Shares in the public
offering to any person by an Underwriter and is based on an untrue statement or
omission or alleged untrue statement or omission made in reliance on and in
conformity with information relating to any Underwriter furnished in writing to
the Company by the Representatives, on behalf of any Underwriter, expressly for
inclusion in the Registration Statement, the preliminary prospectus or the
Prospectus and (ii) the Company will not be liable to any Underwriter, the
directors, officers, employees or agents of such Underwriter or any person
controlling such Underwriter with respect to any loss, claim, liability,
expense, or damage arising out of or based on any untrue statement or omission
or alleged untrue statement or omission or alleged omission to state a material
fact in the preliminary prospectus which is corrected in the Prospectus if the
person asserting any such loss, claim, liability, charge or damage purchased
Shares from such Underwriter but was not sent or given a copy of the Prospectus
at or prior to the written confirmation of the sale of such Shares to such
person and if copies of the Prospectus were timely delivered to such Underwriter
pursuant to Section 4 hereof. The Company acknowledges that the statements set
forth under the heading "Underwriting" in the preliminary prospectus and the
Prospectus constitute the only information relating to any Underwriter furnished
in writing to the Company by the Representatives on behalf of the Underwriters
expressly for inclusion in the Registration Statement, the preliminary
prospectus or the Prospectus. This indemnity agreement will be in addition to
any liability that the Company might otherwise have.

(b) Each Underwriter will indemnify and hold harmless the Company, each
director of the Company, each officer of the Company who signs the Registration
Statement, each person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, to the same extent as
the foregoing indemnity from the Company to each Underwriter, as set forth in
Section 6(a), but only insofar as losses, claims, liabilities, expenses or
damages arise out of or are based on any untrue statement or omission or alleged
untrue statement or omission made in reliance on and in conformity with
information relating to any Underwriter furnished in writing to the Company by
the Representatives, on behalf of such Underwriter, expressly for use in the
Registration Statement, the preliminary prospectus or the Prospectus. The
Company acknowledges that the statements set forth under the heading
"Underwriting" in the preliminary prospectus and the Prospectus constitute the
only information relating to any Underwriter furnished in writing to the Company
by the Representatives on behalf of the Underwriters expressly for inclusion in
the Registration Statement, the preliminary prospectus or the Prospectus. This
indemnity will be in addition to any liability that each Underwriter might
otherwise have.

(c) Any party that proposes to assert the right to be indemnified under
this Section 6 shall, promptly after receipt of notice of commencement of any
action against such party in respect of which a claim is to be made against an
indemnifying party or parties under this Section 6, notify each such
indemnifying party in writing of the commencement of such action, enclosing with
such notice a copy of all papers served, but the omission so to notify such
indemnifying party will not relieve it from any liability that it may have to
any indemnified party under the foregoing

19
<PAGE>

provisions of this Section 6 unless, and only to the extent that, such omission
results in the loss of substantive rights or defenses by the indemnifying party.
If any such action is brought against any indemnified party and it notifies the
indemnifying party of its commencement, the indemnifying party will be entitled
to participate in and, to the extent that it elects by delivering written notice
to the indemnified party promptly after receiving notice of the commencement of
the action from the indemnified party, jointly with any other indemnifying party
similarly notified, to assume the defense of the action, with counsel reasonably
satisfactory to the indemnified party. After notice from the indemnifying party
to the indemnified party of its election to assume the defense, the indemnifying
party will not be liable to the indemnified party for any legal or other
expenses except as provided below and except for the reasonable costs of
investigation subsequently incurred by the indemnified party in connection with
the defense. The indemnified party will have the right to employ its own counsel
in any such action, but the fees, expenses and other charges of such counsel
will be at the expense of such indemnified party unless (i) the employment of
counsel by the indemnified party has been authorized in writing by the
indemnifying party, (ii) the indemnified party has reasonably concluded (based
on advice of counsel) that there may be legal defenses available to it or other
indemnified parties that are different from or in addition to those available to
the indemnifying party, (iii) a conflict or potential conflict exists (based on
advice of counsel to the indemnified party) between the indemnified party and
the indemnifying party (in which case the indemnifying party will not have the
right to direct the defense of such action on behalf of the indemnified party)
or (iv) the indemnifying party has not in fact employed counsel to assume the
defense of such action within a reasonable time after receiving notice of the
commencement of the action, in each of which cases the reasonable fees,
disbursements and other charges of counsel will be at the expense of the
indemnifying party or parties. It is understood that the indemnifying party or
parties shall not, in connection with any proceeding or related proceedings in
the same jurisdiction, be liable for the reasonable fees, disbursements and
other charges of more than one separate firm admitted to practice in such
jurisdiction at any one time for all such indemnified party or parties. All such
fees, disbursements and other charges will be reimbursed by the indemnifying
party promptly as they are incurred. Any indemnifying party will not be liable
for any settlement of any action or claim effected without its written consent
(which consent will not be unreasonably withheld).

(d) If the indemnification provided for in this Section 6 is applicable
in accordance with its terms but for any reason is held to be unavailable to or
insufficient to hold harmless an indemnified party under paragraphs (a), (b) and
(c) of this Section 6 in respect of any losses, claims, liabilities, expenses
and damages referred to therein, then each applicable indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable (including any investigative, legal and other expenses reasonably
incurred in connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claim asserted, but after deducting any contribution
received by the Company from persons other than the Underwriters, such as
persons who control the Company within the meaning of the Act, officers of the
Company who signed the Registration Statement and directors of the Company, who
also may be liable for contribution) by such indemnified party as a result of
such losses, claims, liabilities, expenses and damages in such proportion as
shall be appropriate to reflect the relative benefits received by the Company,
on the one hand, and the Underwriters, on the other hand. The relative benefits
received by the Company, on the one hand, and the Underwriters, on the other
hand, shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company bear to
the total underwriting discounts and

20
<PAGE>

commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus. If, but only if, the allocation provided by
the foregoing sentence is not permitted by applicable law, the allocation of
contribution shall be made in such proportion as is appropriate to reflect not
only the relative benefits referred to in the foregoing sentence but also the
relative fault of the Company, on the one and, and the Underwriters, on the
other hand, with respect to the statements or omissions which resulted in such
loss, claim, liability, expense or damage, or action in respect thereof, as well
as any other relevant equitable considerations with respect to such offering.
Such relative fault shall be determined by reference to whether the untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by the Company or the
Representatives on behalf of the Underwriters, the intent of the parties and
their relative knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Underwriters agree that
it would not be just and equitable if contributions pursuant to this Section
6(d) were to be determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take into account the equitable considerations referred to
herein. The amount paid or payable by an indemnified party as a result of the
loss claim, liability, expense or damage, or action in respect thereof, referred
to above in this Section 6(d) shall be deemed to include, for purposes of this
Section 6(d), any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 6(d), no Underwriter
shall be required to contribute any amount in excess of the underwriting
discounts received by it and no person found guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) will be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute as provided in
this Section 6(d) are several in proportion to their respective underwriting
obligations and not joint. or purposes of this Section 6(d), any person who
controls a party to this Agreement within the meaning of the Act will have the
same rights to contribution as that party, and each officer of the Company who
signed the Registration Statement will have the same rights to contribution as
the Company, subject in each case to the provisions hereof. Any party entitled
to contribution, promptly after receipt of notice of commencement of any action
against any such party in respect of which a claim for contribution may be made
under this Section 6(d), will notify any such party or parties from whom
contribution may be sought, but the omission so to notify will not relieve the
party or parties from whom contribution may be sought from any other obligation
it or they may have under this Section 6(d). No party will be liable for
contribution with respect to any action or claim settled without its written
consent (which consent will not be unreasonably withheld).

(e) The indemnity and contribution agreements contained in this Section
6 and the representations and warranties of the Company contained in this
Agreement shall remain operative and in full force and effect regardless of (i)
any investigation made by or on behalf of the Underwriters, (ii) acceptance of
any of the Shares and payment therefor or (iii) any termination of this
Agreement.

7. Reimbursement of Certain Expenses. In addition to its other
obligations under Section 6(a) of this Agreement, the Company hereby agrees to
reimburse on a quarterly basis the Underwriters for all reasonable legal and
other expenses incurred in connection with investigating or defending any claim,
action, investigation, inquiry or other proceeding arising out of or based upon,
in whole or in part, any statement or omission or alleged statement or omission,
or any

21
<PAGE>

inaccuracy in the representations and warranties of the Company contained herein
or failure of the Company to perform its or their respective obligations
hereunder or under law, all as described in Section 6(a), notwithstanding the
absence of a judicial determination as to the propriety and enforceability of
the obligations under this Section 7 and the possibility that such payment might
later be held to be improper; provided, however, that, to the extent any such
payment is ultimately held to be improper, the persons receiving such payments
shall promptly refund them.

8. Termination. The obligations of the several Underwriters under this
Agreement may be terminated at any time on or prior to the Closing Date (or,
with respect to the Option Shares, on or prior to the Option Closing Date), by
notice to the Company from the Representatives, without liability on the part of
any Underwriter to the Company if, prior to delivery and payment for the Firm
Shares or Option Shares, as the case may be, in the sole judgment of the
Representatives, (i) trading in any of the equity securities of the Company
shall have been suspended by the Commission or by The Nasdaq National Market,
(ii) trading in securities generally on the New York Stock Exchange or The
Nasdaq National Market shall have been suspended or limited or minimum or
maximum prices shall have been generally established on such exchange, or
additional material governmental restrictions, not in force on the date of this
Agreement, shall have been imposed upon trading in securities generally by such
exchange, by order of the Commission or any court or other governmental
authority, or by The Nasdaq National Market, (iii) a general banking moratorium
shall have been declared by either federal or Commonwealth of Massachusetts
authorities or (iv) any material adverse change in the financial or securities
markets in the United States or in political, financial or economic conditions
in the United States or any outbreak or material escalation of hostilities or
other calamity or crisis shall have occurred, the effect of which is such as to
make it, in the sole judgment of the Representatives, impracticable or
inadvisable to proceed with completion of the public offering or the delivery of
and payment for the Shares.

If this Agreement is terminated pursuant to Section 8 or 9 hereof, the
Company shall not be under any liability to any Underwriter except as provided
in Sections 4(j), 6 and 7 hereof; but, if for any other reason the purchase of
the Shares by the Underwriters is not consummated or if for any reason the
Company shall be unable to perform its obligations hereunder, the Company will
reimburse the several Underwriters for all out-of-pocket expenses (including the
fees, disbursements and other charges of counsel to the Underwriters) incurred
by them in connection with the offering of the Shares.

9. Substitution of Underwriters. If any one or more of the Underwriters
shall fail or refuse to purchase any of the Firm Shares which it or they have
agreed to purchase hereunder, and the aggregate number of Firm Shares which such
defaulting Underwriter or Underwriters agreed but failed or refused to purchase
is not more than one-tenth of the aggregate number of Firm Shares, the other
Underwriters shall be obligated, severally, to purchase the Firm Shares which
such defaulting Underwriter or Underwriters agreed but failed or refused to
purchase, in the proportions which the number of Firm Shares which they have
respectively agreed to purchase pursuant to Section 1 bears to the aggregate
number of Firm Shares which all such non-defaulting Underwriters have so agreed
to purchase, or in such other proportions as the Representatives may specify;
provided that in no event shall the maximum number of Firm Shares which any
Underwriter has become obligated to purchase pursuant to Section 1 be increased
pursuant to this Section 9 by more than one-ninth of such number of Firm Shares
without the prior written consent

22
<PAGE>

of such Underwriter. If any Underwriter or Underwriters shall fail or refuse to
purchase any Firm Shares and the aggregate number of Firm Shares which such
defaulting Underwriter or Underwriters agreed but failed or refused to purchase
exceeds one-tenth of the aggregate number of the Firm Shares and arrangements
satisfactory to the Representatives and the Company for the purchase of such
Firm Shares are not made within 48 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter, the
Company for the purchase or sale of any Shares under this Agreement. In any such
case either the Representatives or the Company shall have the right to postpone
the Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and the Prospectus or in
any other documents or arrangements may be effected. Any action taken pursuant
to this Section 10 shall not relieve any defaulting Underwriter from liability
in respect of any default of such Underwriter under this Agreement.

10. Miscellaneous. Notice given pursuant to any of the provisions of
this Agreement shall be in writing and, unless otherwise specified, shall be
sent by certified or registered mail, return receipt requested, or by nationally
recognized overnight courier, (a) if to the Company, at the office of the
Company, Applied Science and Technology, Inc., 35 Cabot Road, Woburn, MA 01801,
Attention: Chief Executive Officer, with a copy to Neil H. Aronson, Esq., Mintz,
Levin, Cohn, Ferris, Glovsky & Popeo, P.C., One Financial Center, Boston, MA
02111, or (b) if to the Underwriters, to the Representatives at the offices of
Needham & Company, Inc., 445 Park Avenue, New York, New York 10022, Attention:
Corporate Finance Department, with a copy to William C. Rogers, Esq., Choate,
Hall & Stewart, Exchange Place, 53 State Street, Boston, MA 02109. Any such
notice shall be effective only upon receipt. Any notice under such Section 8 or
9 may be made by telex or telephone, but if so made shall be subsequently
confirmed in writing.

This Agreement has been and is made solely for the benefit of the
several Underwriters, the Company and the controlling persons, directors and
officers referred to in Section 6, and their respective successors and assigns,
and no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" as used in this Agreement shall not
include a purchaser, as such purchaser, of Shares from any of the several
Underwriters.

Any action required or permitted to be made by the Representatives under
this Agreement may be taken by them jointly or by Needham & Company, Inc.

This Agreement shall be governed by and construed in accordance with the
laws of the State of New York applicable to contracts made and to be performed
entirely within such State.

This Agreement may be signed in two or more counterparts with the same
effect as if the signatures thereto and hereto were upon the same instrument.

In case any provision in this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.

The Company and the Underwriters each hereby waive any right they may
have to a trial by jury in respect of any claim based upon or arising out of
this Agreement or the transactions contemplated hereby.

23
<PAGE>

Please confirm that the foregoing correctly sets forth the agreement
among the Company and the several Underwriters.

Very truly yours,

APPLIED SCIENCE
AND TECHNOLOGY, INC.

By:
-------------------------------------
Title:

Confirmed as of the date first
above mentioned:

NEEDHAM & COMPANY, INC.
SOUNDVIEW TECHNOLOGY GROUP, INC.
ADVEST GROUP, INC.
Acting on behalf of themselves
and as the Representatives of
the other several Underwriters
named in Schedule I hereto.

By: NEEDHAM & COMPANY, INC.

By:
-----------------------------
Title:

24
<PAGE>

SCHEDULE I

UNDERWRITERS

Number of
Firm
Shares
Underwriters to be Purchased
- ------------ ---------------

Needham & Company, Inc......................................
SoundView Technology Group, Inc.............................
Advest Group, Inc...........................................

---------
Total............................................ 2,000,000

25
<PAGE>

SCHEDULE II

Total Number Total Number of
of Firm Shares Option Shares
to be Sold to be Sold
---------- ----------

Applied Science and Technology, Inc. ....

26
<PAGE>

SCHEDULE III

FORM OF LOCK-UP AGREEMENT

The undersigned, a holder of securities of Applied Science and
Technology, Inc., a Delaware corporation (the "Company"), is entering into this
-------
agreement (the "Lock-Up Agreement") to facilitate the public offering of shares
-----------------
of Common Stock (the "Common Stock") of the Company (the "Offering"). In
------------ --------
connection with the Offering, the Company will enter into an Underwriting
Agreement with the several Underwriters listed on Schedule I to the Underwriting
Agreement (the "Underwriters"), for whom you are acting as representatives (the
------------
"Representatives").
---------------

In consideration of your entering into the Underwriting Agreement and
in order to induce you to act as Representatives in connection with the
Offering, the undersigned hereby agrees that he or she will not, without the
prior written approval of Needham & Company, Inc., acting on its own behalf
and/or on behalf of other Representatives of the Underwriters, directly or
indirectly, sell, contract to sell, make any short sale, pledge, or otherwise
dispose of, or enter into any hedging transaction that is likely to result in a
transfer of, any shares of Common Stock, options to acquire shares of Common
Stock or securities exchangeable for or convertible into shares of Common Stock
of the Company which he or she may own, for a period commencing as of the date
hereof and ending on the date which is ninety (90) days after the date of the
final Prospectus relating to the Offering.

The undersigned acknowledges the sufficiency of the consideration for
this Lock-Up Agreement. The undersigned confirms that he or she understands that
the Underwriters and the Company will rely upon the representations set forth in
this Lock-Up Agreement in proceeding with the Offering. The undersigned further
confirms that the agreements of the undersigned are irrevocable and shall be
binding upon the undersigned's heirs, legal representatives, successors and
assigns. The undersigned agrees and consents to the entry of stop transfer
instructions with the Company's transfer agent against the transfer of
securities held by the undersigned except in compliance with this Lock-Up
Agreement.

This Lock-Up Agreement shall be binding on the undersigned and his or
her respective successors, heirs, personal representatives and assigns.

Very truly yours,

Date:____________, 1999 ______________________

<PAGE>

[LETTERHEAD OF MINTZ, LEVIN, COHN, FERRIS, GLOVSKY AND POPEO, P.C. APPEARS HERE]

February 9, 1999

Applied Science and Technology, Inc.
35 Cabot Road
Woburn, Massachusetts 01801

Ladies and Gentlemen:

We have acted as counsel to Applied Science and Technology, Inc., a
Delaware corporation (the "Company"), in connection with the preparation and
filing with the Securities and Exchange Commission of a Registration Statement
on Form S-3 (the "Registration Statement"), pursuant to which the Company is
registering under the Securities Act of 1933, as amended, a total of 2,875,000
shares (the "Shares") of its common stock, $.01 par value per share (the "Common
Stock"), for sale to the public. This opinion is being rendered in connection
with the filing of the Registration Statement.

In connection with this opinion, we have examined the Company's Certificate
of Incorporation and By-Laws, both as currently in effect; such other records of
the corporate proceedings of the Company and certificates of the Company's
officers as we have deemed relevant; and the Registration Statement and the
exhibits thereto.

In our examination, we have assumed the genuineness of all signatures, the
legal capacity of natural persons, the authenticity of all documents submitted
to us as originals, the conformity to original documents of all documents
submitted to us as certified or photostatic copies and the authenticity of the
originals of such copies.

Based upon the foregoing, we are of the opinion that (i) the Shares have
been duly and validly authorized by the Company and (ii) the Shares, when sold,
will have been duly and validly issued, fully paid and non-assessable shares of
the Common Stock, free of preemptive rights.
<PAGE>

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

Applied Science and Technology, Inc.
February 9, 1999
Page 2

Our opinion is limited to the federal securities laws of the United States,
the laws of the Commonwealth of Massachusetts and the corporate laws of the
State of Delaware, and we express no opinion with respect to the laws of any
other jurisdiction. No opinion is expressed herein with respect to the
qualification of the Shares under the securities or blue sky laws of any state
or any foreign jurisdiction.

We understand that you wish to file this opinion as an exhibit to the
Registration Statement, and we hereby consent thereto. We hereby further consent
to the reference to us under the caption "Legal Matters" in the prospectus
included in the Registration Statement.

Very truly yours,

/s/ MINTZ, LEVIN, COHN, FERRIS,
GLOVSKY and POPEO, P.C.

<PAGE>

EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

The Board Of Directors
Applied Science And Technology, Inc.:

We consent to the inclusion of our report dated July 25, 1998, with respect
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
this Registration Statement, and to the reference to our firm under the heading
"Experts" in this Registration Statement.

/s/ KPMG Peat Marwick LLP

Boston, Massachusetts

February 9, 1999