UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR
ENDED JUNE 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR
THE TRANSITION PERIOD FROM ___________ TO ____________.
Commission File Number: 0-23840
MICRION CORPORATION
(Name of registrant as specified in its charter)
Massachusetts 04-2892070
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Corporation Way 01960
Peabody, Massachusetts (Zip Code)
(Address of principal executive offices)
(508) 531-6464
(Registrant's telephone number, including area code)
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act: Common Stock, no par
value
Indicate by check mark whether the registrant (1) filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
The aggregate market value of the registrant's voting stock held by non-
affiliates of the registrant was $42,038,296 as of September 24, 1996.
The number of shares of the registrant's Common Stock outstanding as of
September 24, 1996 was 4,033,363.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Stockholders for the fiscal year
ended June 30, 1996 (the "1996 Annual Report") are incorporated by reference
in Part II, and portions of the registrant's definitive Proxy Statement for
its Annual Meeting of Stockholders to be held November 14, 1996 (the "Proxy
Statement") are incorporated by reference in Part III.
PART I
Item 1. BUSINESS.
Introduction
Micrion Corporation (the "Company" or "Micrion") is a leader in the
design, development, manufacture and marketing of focused-ion-beam (FIB)
systems. Micrion's FIB systems are used in the design, fabrication and
testing of semiconductor integrated circuits (ICs) and other high technology
devices. FIB technology provides a unique combination of capabilities to
image, analyze and perform "microsurgery" on ICs and other high technology
devices. Semiconductor integrated circuit and other high technology
manufacturers use Micrion's FIB systems to reduce time to market and/or to
achieve and maintain acceptable manufacturing yields more quickly and cost
effectively. The Company introduced the world's first FIB system specifically
designed for use in the manufacturing process of ICs in 1985 and since then
has introduced new products incorporating a variety of technological advances,
including the MicroMill HT FIB system in fiscal 1996, specifically designed
for magnetic head manufacturing applications.
Technology and Market Trends
Integrated circuits are critical components of a wide variety of
products such as computers, telephones, televisions, automobiles and aircraft.
As applications for ICs continue to expand, the trend in the industry is to
put more functionality on a single chip. To increase functionality,
semiconductor manufacturers are producing larger chips with more layers
utilizing smaller feature sizes. Improvements in lithography technology have
allowed the printing of progressively smaller features on progressively larger
wafers. Minimum feature sizes in advanced ICs are now less than 0.5 microns,
or one one-hundredth the diameter of a human hair. The density of components
on the most advanced ICs has approximately doubled every two years. At the
same time, the market price per functional element on a chip has decreased and
product cycles have shortened. The combination of technology and market
forces has put enormous pressure on semiconductor manufacturing tools with
increased capabilities. FIB systems, such as those manufactured by Micrion,
have been developed to meet this need.
Disk drive manufacturers are constantly striving to achieve higher
densities of data on a disk because higher densities generally permit greater
storage capacities at lower costs in smaller packages. One of the primary
factors that determines data density is the size and performance of the
magnetic "read/write" heads. Smaller heads can record and retrieve data from
narrower tracks, thus providing increased data density on a given disk size.
Therefore, disk drive manufacturers desire to produce increasingly smaller
read/write heads. However, the current photolithographic technology used to
manufacture such heads seems to be reaching a barrier beyond which smaller
heads cannot be reliably produced. In fiscal 1996, the MicroMill HT FIB
system was introduced to help meet the need of producing smaller, more precise
magnetic heads.
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Integrated Circuit Manufacturing Process and Problems
The integrated circuit manufacturing process consists of three major
phases: design, fabrication and test.
The design phase begins with the specification of the desired
functionality and architecture of the IC and ends with a fully operational,
mass-producible IC. Depending on the complexity of the IC, the average design
phase often can last from several months to several years. The design phase
involves many iterations of design, test, analysis and redesign. A key step
is the computer aided design of a circuit layout that defines the physical
locations of the circuit elements. The IC manufacturer analyzes the layout
using design verification software and makes necessary modifications.
Although design verification software is effective, the manufacturer must
produce working sample chips before beginning volume production. To
accomplish this, a set of master patterns or masks must be generated and used
to fabricate sample chips. Identifying and correcting design problems exposed
in the test of initial sample chips presents one of the most difficult, costly
and potentially time consuming tasks in the IC design phase. This task has
traditionally been done using an iterative design modification cycle
consisting of sample chip fabrication, sample chip test, data analysis, design
change, new design verification, new mask set generation and new sample chip
fabrication. This cycle takes from several weeks to several months and may
have to be repeated numerous times to arrive at a final proven design. The
amount of time spent in the design modification cycle has a significant impact
on when a new product can be introduced to the marketplace.
The fabrication phase can begin once sample chips have been manufactured
and the design is deemed to be functional. The first critical step in the
fabrication phase is to generate a production mask set with as few defects as
possible, as mask defects result in circuit failures and manufacturing yield
loss. Following mask generation, multiple ICs are fabricated on a wafer by
performing in sequence a large number of complex processing steps including
film deposition, mask pattern printing (lithograph) and film etch. In this
manner, the circuit is built up layer by layer into a complex three-
dimensional structure. Since wafer fabrication is very costly, it is critical
to know that each process step is being performed correctly. Expensive,
specialized equipment is used to obtain data from the wafers as they progress
through the fabrication sequence. Information is relatively easy to gather
for each individual step by making observations during or immediately after
the step is completed; however, information on how various steps or layers
relate to each other is much more difficult and costly to gather using
traditional methods since previous layers are covered by subsequent layers.
Traditionally, three-dimensional information has been obtained by the costly
and wasteful procedure of cutting or breaking a wafer and analyzing its cross-
section with a high resolution scanning electron microscope (SEM).
During the test phase, completed wafers undergo a rigorous test
procedure and are then cut into individual chips and packaged. Chips that
fail their initial tests or subsequently fail after some period of use often
undergo failure analysis by semiconductor manufacturers to determine and
correct the cause of the failure. Failure analysis is a difficult procedure
3
as faults are often embedded within the layers of the IC. In order to assess
accurately the cause of failure, the manufacturer must be able to locate,
expose and analyze the faulty area without destroying the surrounding areas or
losing the information at the site of the fault. Shrinking geometries,
increased complexity and more three-dimensional chip structures have created a
need for instruments with higher resolution, more accurate navigation (ability
to locate specific areas and features on a chip or wafer) and increased
analytical capability.
Micrion's FIB systems permit semiconductor manufacturers more quickly
and effectively to view, analyze and modify ICs and mask sets during the
design, fabrication and test phases. The Company's FIB systems use a highly
focused beam of ions to create high resolution images of a portion of an IC or
workpiece to locate specific areas where work is necessary. Once located,
Micrion's systems can remove or add material to modify the circuit or analyze
the area of the circuit to determine construction and composition. This
combination of capabilities is unique to FIB systems and allows IC
manufacturers to use one system to perform many analysis and circuit
modification tasks with accuracy, precision and speed that previously were not
possible.
Magnetic Head Trimming Process and Problems
The magnetic head manufacturing process is driven by the need to produce
smaller read/write heads that can record and retrieve data accurately at a
lower effective overall cost. The existing photolithographic process
technology seems to be approaching size limit barriers that may make the
process less able to produce increasingly smaller heads. Currently, the heads
are manufactured using a stepper process, similar to that used in integrated
circuit manufacturing, to produce row bars containing thousands of magnetic
heads that are then introduced to an ion etch process to remove excess
material and to achieve the proper head size.
Micrion's MicroMill HT FIB system overcomes certain of the technical
limitations of head manufacturing, using a combination of a highly focused ion
beam and sophisticated automation. Precisely positioning and imaging heads,
the MicroMill HT FIB system automatically defines and performs the necessary
micromachining to the manufacturer's specification.
FIB Systems Applications
There are four principal applications of FIB systems in the
semiconductor manufacturing process: circuit modification, mask repair,
process control and failure analysis. Each is used in one or more phases of
IC manufacturing. There is one principal application in the disk drive
production process: magnetic head trimming.
Circuit Modification. The wiring of a chip can be modified using
Micrion's FIB systems by removing and adding metal connections without
damaging any of the circuitry in the intervening layers. Wiring can be
modified on even the most advanced ICs containing as many as five metal layers
sandwiched between multiple layers of insulating materials.
4
Mask Repair. Mask quality has a major impact on IC yield during the
manufacturing process. Defects are usually the result of contamination during
mask fabrication. The Company's FIB systems can be used to make repairs on a
mask by removing unwanted material and replacing missing material. It is
possible to repair defects with a precision that is not attainable by any
other technique, often making the repaired site indistinguishable from non-
defective areas.
Process Control. Semiconductor manufacturers use Micrion's FIB systems
to prepare and view a cross-section of an in-process wafer to provide vital
information about the three-dimensional structure of the circuit. The systems
can determine layer-to-layer alignment, layer thickness, etch profiles, step
coverage and metal grain structure. In addition, particle contamination can
be analyzed to determine its origin.
Failure Analysis. The combined features of the Company's FIB systems
can permit semiconductor manufacturers to dissect and analyze defective
circuits more precisely than is possible by any other technique. A defective
area can be exposed one segment at a time in increments of a small fraction of
a micron. Each slice can be sequentially imaged and analyzed to obtain a
complete understanding of the defect, helping to determine its cause.
Magnetic Head Trimming. The features of the MicroMill HT FIB system
allow it to position precisely and image magnetic read/write heads and perform
the necessary micromachining to produce smaller heads. This allows for
narrower tracks and greater data storage density on a disk drive.
Micrion Products
FIB Systems
Micrion FIB systems consist of a number of modular subsystems, including
the ion column and source, the control computer, the control electronics, the
substrate handling mechanism and the vacuum system. The Company's systems
incorporate proprietary software through a graphical user interface similar to
those used on personal computers. Micrion's proprietary software controls the
electronics used throughout the FIB systems, manipulates the ion beam, moves
the workpiece, collects imaging data and performs other system functions.
To minimize the design cycle and inventory costs of new systems, the
Company utilizes its modular subsystems and components wherever suitable. For
example, the high resolution ion column used in all of Micrion's current FIB
products was originally developed for application to x-ray mask repair and is
now used for other FIB applications such as circuit modification, process
control and failure analysis. Much of the electronics and software used in
Micrion FIB systems are common to all of Micrion's FIB products. The price of
Micrion FIB systems generally ranges from $400,000 to $2,500,000, depending on
the features selected.
The Micrion 9000 Series is used primarily for circuit modification and
cross-sectional imaging and is the largest unit volume product of Micrion's
family of FIB systems. In cross-sectional imaging applications, the important
5
attributes of substrate handling are accurate x/y navigation and the ability
to tile large work pieces, such as 8" silicon wafers, to angles up to 60
degrees. The Micrion 9000 Series incorporates a fully automated computer-
controlled 8" stage that can accommodate the largest silicon wafers used in
semiconductor manufacturing today. Substrates are loaded on specially
designed holders that can be inserted onto the Micrion 9000 Series stage with
the simple selection of an icon on the control computer screen.
The Micrion 9000EX Series incorporates a state of the art field emission
SEM column in the basic Micrion 9000 Series platform to provide high
resolution SEM images in addition to the features offered by FIB technologies.
The combination of SEM and FIB technologies permits increased resolution of a
cross-sectional image without breaking the wafer or tilting the workpiece. An
available option for the Micrion 9000EX Series is an x-ray spectrometer that
detects x-rays whose characteristic wavelength can be used to determine the
elements comprising the area being analyzed.
The Micrion 9800 is used primarily for circuit modification and is
differentiated from the 9000 Series principally by its substrate handling
capabilities. In automated circuit modification applications, x/y navigation
is required to be more accurate but the workpiece does not need to be tilted.
In circuit modification, however, navigation on a substrate to an accuracy of
better than 0.25 microns is desired. To achieve this higher accuracy, Micrion
equips such systems with x/y stages in which stage position is monitored by a
laser interferometer. This type of measurement technique is the most accurate
available and at the present time only Micrion FIB systems offer this feature.
The handling and positioning capability of the Micrion 9800 is valuable since
it permits a large number of complex modifications to be programmed and
automated, eliminating operator error in making the modifications.
The Micrion MicroMill HT FIB system is used primarily for magnetic head
trimming by disk drive component manufacturers. It utilizes parts of the
Micrion 9800 platform and incorporates sophisticated imaging software to
analyze the read/write heads and to determine which areas to micromachine in a
completely automated process. The system is designed to run automatically for
extended periods of time. The initial shipments of the Micrion MicroMill HT
system were made in the first half of calendar 1996.
The Micrion 8000 is similar in hardware configuration to the Micrion
9800 but is used for the repair of masks, including phase shifting masks and
x-ray masks. The Micrion 8000 comes equipped with a number of specialized
etching and deposition processes customized for mask repair applications.
The Micrion 2000 Series system is designed for use by customers who do
not require the large substrate size handling possible with the Micrion 9000
Series and who are willing to accept a less automated instrument in return for
reduced cost. Many of the features of the Micrion 9000 Series are maintained
in the Micrion 2000 Series. This series includes the Micrion JFIB-2100
Specimen Preparation System for use in connection with transmission electron
microscopes.
6
Laser Systems
Micrion also manufactures and sells a focused laser beam system, the
Micrion L2, to perform cut and deposition operations on substrates. The
primary applications of the Micrion L2 system are the repair of liquid crystal
display (LCD) substrates used in laptop computers and plasma panels used for
flat display television systems. As these applications do not require
resolutions as high as FIB applications, the Micrion L2 uses high speed laser
cutting and laser-induced metal deposition to achieve higher throughput for
production repairs. The Micrion L2 uses a proprietary miniature vacuum
chamber to deliver the process gases to the vicinity of the substrate needing
repair without the time consuming necessity of transferring the large LCD
panel into a vacuum chamber.
Markets
The primary current markets for Micrion FIB systems are segmented among
the five principal applications: circuit modification, mask repair, process
control, failure analysis, and disk drive head trimming. The primary
customers for circuit modification, process control and failure analysis are
the failure analysis groups within semiconductor manufacturing companies.
These groups provide technical support to design groups and wafer fabrication
groups. At the present time, the market is beginning to segment within
semiconductor companies, between design applications and fabrication support
applications. As these markets segment, the Company expects each to grow
independently. The need for FIB systems by semiconductor design groups will
be driven by the number of new designs introduced each year and the complexity
of these designs. As cross-sectional imaging becomes more widely integrated
into wafer fabrication lines, the market is expected to grow as semiconductor
manufacturers enhance the capabilities of existing wafer fabrication lines and
install new fabrication lines.
The mask repair market comprises semiconductor manufacturers and
commercial suppliers of masks to the semiconductor industry. Larger
manufacturers, such as IBM, Motorola, Intel, Hitachi, Fujitsu and Samsung,
generally maintain their own in-house mask making capability. Smaller
semiconductor companies typically buy from commercial mask suppliers,
including DuPont, Dai Nippon Printing, Toppan, Photronics and Hoya. While the
Company believes that the market for mask repair applications will increase,
sales of FIB mask repair tools by the Company are not expected to represent a
substantial portion of the Company's sales in the foreseeable future.
The primary customers for disk drive head trimming are manufacturers of
computer disk drives and related components. Disk drive manufacturers compete
to achieve the highest data storage capacity at the lowest cost. The ability
to increase data density depends on the size and performance of read/write
heads. With current production techniques reaching practical limits,
manufacturers are considering the use of FIB technology to assist in the
production of smaller heads.
7
Sales and Marketing
Micrion utilizes a network of direct sales engineers, distributors and
representatives to sell the Company's products to customers in the United
States, Europe, Japan and certain of the Pacific Rim countries. In the United
States, the Company has four sales engineers. Micrion's wholly-owned
subsidiary, Micrion GmbH, headquartered in Munich, employs one sales engineer
for Europe and Western Asia. The Company's sales engineers are supported by
management personnel.
In Japan, the Company uses Tokyo Electron Limited (TEL) as its exclusive
distributor of semiconductor manufacturing equipment in Japan. TEL buys
equipment at negotiated prices from Micrion and resells the equipment to end
users in Japan. The Company entered into an initial distribution agreement
with TEL in 1986. The distribution agreement is cancelable with 60 days'
notice to either party. At the present time, TEL maintains demonstration
equipment inventory and sufficient spare parts to service the installed base.
Typically, TEL does not purchase equipment from the Company until it has
received an order from a customer. As of June 30, 1996, TEL maintained a full
time staff of one sales manager, three salesmen and seven service engineers
dedicated solely to Micrion's FIB products.
The Company also uses JEOL, Ltd. ("JEOL") for the exclusive distribution
of the Micrion JFIB-2100 Specimen Preparation System in Japan. These systems
are sold in conjunction with JEOL's sales of their line of transmission and
scanning electron microscopes. The Company entered into this distribution
agreement in May 1995 and began shipments of the Micrion JFIB-2100 systems to
JEOL's customers in fiscal 1996. The distribution agreement is automatically
renewable annually unless terminated by either party by 90 days' written
notice prior to the end of any annual term. In fiscal 1996, the Company
consigned a JFIB-2100 system to JEOL for sales demonstrations. JEOL is solely
responsible for sales distribution of this product in Japan, while the Company
maintains installation and service responsibility. Typically, JEOL does not
purchase equipment from the Company until it has received an order from a
customer. As of June 30, 1996, JEOL's sales staff offers Micrion's JFIB-2100
system as part of their product offerings.
Micrion has established a wholly-owned subsidiary in Japan, Micrion
Japan Corporation KK, to provide technical sales and service support to TEL
and JEOL, and to provide information to the Company about the needs of the
Japanese market. Currently Micrion Japan Corporation KK employs one sales
engineer and one service engineer.
In South Korea, the Company uses ETEC Systems Korea Corporation (ETEC)
as its sales and service representative. ETEC is compensated on a commission
basis and is paid after the product is delivered. ETEC also provides warranty
service after the installation and customer acceptance of FIB systems in South
Korea. It receives an additional commission after the inception of the
warranty period, which generally extends for one year. As of June 30, 1996,
ETEC maintained a staff of one salesman and seven service engineers in support
of Micrion's FIB products.
8
In each of the two other Pacific Rim countries where the Company's FIB
products are marketed, Taiwan and Singapore, the Company uses a local
representative compensated on a straight sales commission basis and paid only
when a product is delivered. In Taiwan, the Company has established a branch
office, which is staffed by one sales engineer, to work with the local
representative.
Micrion has entered into an arrangement with ZMC Technologies, Ltd.
(ZMC), which provides technical contract labor to the Company to support the
installation of the Company's MicroMill HT FIB systems at a customer site in
Thailand. As of June 30, 1996, ZMC maintained a staff of seven service
engineers to support the Micrion installed systems
Customer Support and Service
The Company maintains separate customer support and field service
organizations that work closely together to promote customer satisfaction.
The Company's customer support and field service personnel do not perform
sales and marketing functions. The customer support organization is a group
of engineers, resident at the Company's factory, dedicated to technical and
logistical support of the field engineers on a worldwide basis. The customer
support group, as of June 30, 1996, consisted of 24 employees, and has ready
access to in-house engineering, manufacturing and final test personnel to
provide rapid and knowledgeable support for the engineers maintaining customer
equipment in the field.
As of June 30, 1996, the field service group consisted of 35 field
engineers stationed around the world near the Company's installed systems.
The field service group consists of employees of Micrion and its distributors
and representatives. Each engineer is assigned to specific customer sites.
Service is provided at the customer's discretion either under full service
contracts where Micrion receives monthly revenue and provides all the labor
and spare parts necessary to maintain system performance, or as on-call
service where the customer is billed on a time and materials basis for service
work performed at the customer's site. A small number of customers contract
with the Company for telephone support of the customers' system operation
staff.
Research and Development
As of June 30, 1996, the Company's research and development effort
employed 43 scientists and engineers, 19 of whom have advanced technical
degrees. Both short- and long-term programs are underway to enhance existing
products and develop new products and technology. Current short-term research
and development programs include work to improve source lifetime, develop
improved columns that can produce smaller spots, expand the applicability of
ion-assisted chemical processes and enhance the materials analysis
capabilities of systems. Long-term research programs are underway to explore
areas such as advanced ion sources, beam focusing techniques and system
architectures that could lead to significant improvements in the capabilities
of future FIB systems. In fiscal 1996, 1995 and 1994 the Company spent $4.2
9
million, $2.9 million and $1.9 million, respectively, on research and
development.
Research and development activities are enhanced by funded contracts and
strategic alliances with government agencies, major semiconductor
manufacturers and universities. Funded programs help provide support and
leverage for the Company's research and development efforts, allowing a larger
and more complete overall program than would be possible with internal funding
alone. Contracts are chosen in areas that are closely related to Micrion's
main business activities. The Company is currently involved in a funded
program with ARPA. Under this program, the Company is developing gas field
ion source (GFIS) technology. This technology has the potential to produce
significant performance improvements in future FIB systems. Although the
United States government retains a license to use the technology developed
under funded contracts for its own internal purposes, the Company retains the
exclusive right for commercial development of the technology. In some cases,
the funding of research by ARPA is based upon needs identified by the
semiconductor industry. In fiscal 1996, 1995 and 1994, the Company received
research and development revenues of $1.2 million, $2.4 million and $4.4
million, respectively. Due to pressures on US government budgets, funds
available for research and development programs have been reduced, and no new
contracts were issued to the Company in fiscal 1995 or 1996. The Company
expects external research and development funding to decrease in the future.
Technology licensing agreements are in effect with the Max Planck
Institut in Germany and certain large industrial companies. Cooperative
development programs are underway with the Department of Energy and a large
domestic semiconductor manufacturer. The Company believes that these
arrangements accelerate technology development and guide the directions the
Company takes in research and development toward those that are responsive to
current and future customer requirements. They also provide valuable insight
into the feasibility and market potential of long-range technology
developments.
Manufacturing
Manufacturing of all Micrion products is done at the Company's facility
in Peabody, Massachusetts. FIB system manufacturing entails fabrication,
assembly, integration and test of components and subassemblies made by the
Company or purchased from suppliers. Key components such as ion sources and
ion focusing columns are designed and assembled in-house using parts
fabricated both internally and by outside suppliers. Other components and
subassemblies are either fabricated in-house or purchased if readily
available. Most purchased parts and assemblies are standard products.
Although certain components and subassemblies used in the Company's products
are made to the Company's specifications, some components and subassembly
items, such as high voltage power supplies, are obtained or are available from
a limited number of suppliers. Although the Company believes that it could
develop alternative sources of supply for all of the parts included in its
systems, the Company could experience significant delays in the shipment of
its products if key suppliers were unable to deliver product to the Company in
a timely way.
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The typical manufacturing cycle takes between four and six months
depending on the type and complexity of the system. The manufacturing
operation utilizes up-to-date techniques such as computerized materials
release and just-in-time delivery.
Competition
Competition in the FIB market is intense. There are a limited number of
FIB technology suppliers worldwide. A number of these suppliers have greater
financial and technological resources or have greater strengths in certain
technical or other areas compared with Micrion. There can be no assurance
that Micrion can maintain competitiveness in the market for FIB systems and
technology. Current principal competitors are Seiko, primarily in Japan, and
FEI Company, principally in the United States and Europe. The Company
believes that other suppliers of semiconductor capital equipment which have
introduced FIB products, including Hitachi, JEOL and Schlumberger, may become
significant competitors in the future. Individual competitors have strength
in different areas, including system features, geographic market presence,
customer service and support, breadth of applications and price. While the
Company competes effectively in the market for high-end, sophisticated
systems, others of its competitors compete on the basis of lower price for
less complex and less flexible systems. In addition, at any point in time, a
particular FIB manufacturer may achieve technological advances which provide a
competitive advantage over others in the industry.
Intellectual Property
The Company believes that the success of its business depends more on
its technical innovation, marketing abilities and responsiveness to customer
requirements, than on patents, trademarks, copyrights and other intellectual
property rights. Nevertheless, the Company has a policy of seeking to protect
its intellectual property through patents, license agreements, confidential
disclosure agreements and trade secrets. The Company currently holds eleven
U.S. patents and a patent in five foreign countries covering aspects of its
technology. The earliest any of these patents expires is 2004. Confidential
disclosure agreements are in place with the customers and other parties who
have a need or desire to exchange proprietary information with the Company.
In addition, the Company generally enters into confidentiality agreements with
its employees and limits access to its proprietary information. Despite these
precautions, it may be possible for unauthorized third parties to copy aspects
of the Company's FIB systems or to obtain information that the Company regards
as proprietary. The laws of some foreign countries in which the Company sells
or may sell its products do not protect the Company's proprietary rights in
the products to the same extent as do the laws of the United States.
Licensing agreements are in effect with the Max Planck Institut
(Germany) and certain large commercial enterprises which give the Company
rights to use aspects of the technology of those organizations. Certain of
these arrangements are non-exclusive and terminable, and there can be no
assurance that the Company will be able to maintain these relationships or to
initiate similar relationships. The Company is not dependent on any licensed
11
technology for its present FIB systems and has developed alternative
technological solutions to those offered by the licensed technologies.
Various competitors of Micrion hold patents in FIB and related
technologies. From time to time, the Company has notified others that their
products may be infringing the patents of the Company.
Employees
As of June 30, 1996, the company had a total of 211 full-time employees,
including 51 in research, development and engineering, 128 in manufacturing,
customer support and quality assurance, 18 in sales and marketing and 14 in
general management, administration and finance. None of the Company's
employees is represented by a labor union and the Company has never
experienced a work stoppage, slowdown or strike. Management considers its
relationship with its employees to be excellent and employee turnover to be
low.
The success of the Company's future operations depends in large part on
the Company's ability to attract and retain highly skilled technical,
marketing and management personnel. Certain of such personnel are in limited
supply and are difficult to attract and retain.
Item 2. PROPERTIES.
The Company's corporate headquarters and manufacturing and research and
development facility are located at One Corporation Way, Centennial Park,
Peabody, Massachusetts, where the Company occupies approximately 52,996 square
feet under a lease that expires in February 2005. The Company entered into an
arrangement to lease an additional 38,000 square feet effective August 1,
1996, at Ten Technology Drive, Peabody, Massachusetts, under a lease that
expires in July 2001; the space will be used as a warehouse for inventory and
spare parts in support of the Company's manufacturing and field service
operations, to support an expanded customer service organization, and to
provide future expansion for manufacturing production. The Company also
leases field service and/or sales offices in Austin, Texas; San Jose,
California; Colorado Springs, Colorado; Munich, Germany; and Tachikawa, Japan.
The Company believes that its existing facilities are adequate to meet
its requirements for at least the next twelve months.
Item 3. LEGAL PROCEEDINGS.
On May 7, 1996, the Company and KLA Instruments Corporation ("KLA"), a
stockholder of the Company, entered into a Settlement Agreement resolving
certain litigation brought by KLA against the Company and certain other named
defendants in the Superior Court of Essex County, Massachusetts, alleging that
(a) the Company failed to abide by requirements of its Articles of
Organization and the Massachusetts Business Corporation Law in connection with
the refinancing of the Company that occurred during the period from July
through August 1993 and (b) the other defendants breached their fiduciary
duties to KLA in connection with the refinancing. Pursuant to the Settlement
12
Agreement, the Company issued 119,202 shares of the Company's Common Stock to
KLA and another defendant transferred 95,798 shares of the Company's Common
Stock to KLA. The shares issued and transferred to KLA are subject to a proxy
in favor of Nicholas P. Economou, the President of the Company, which entitles
Dr. Economou to vote such shares so long as they are held by KLA or its
affiliates. The lawsuit was dismissed with prejudice.
On August 2, 1996, an action was filed in the U.S. District Court for
the District of Massachusetts against the Company, Nicholas P. Economou, a
director and officer of the Company, and David M. Hunter and Robert K.
McMenamin, officers of the Company. On September 9, 1996, another action was
filed in the same court against the Company, Dr. Economou, Messrs. Hunter and
McMenamin and Billy W. Ward, an officer of the Company. Each of the
complaints purports to be brought on behalf of a class of purchasers of the
Company's common stock from April 26, 1996 through June 21, 1996. Each of the
complaints asserts claims for violations under the federal securities laws,
alleging that the Company made false and misleading statements to the public
concerning the nature of its sales agreement with a customer. No responsive
pleading to either complaint is yet due, but the Company believes the
complaints to be without merit and intends vigorously to defend the claims.
There can be no assurance, however, that the Company will be successful in
defending these lawsuits or that money damages, if awarded, would not have a
material adverse effect on the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year ended June 30, 1996.
13
Executive Officers of the Registrant
The following are the names, ages, positions with the Company and a
brief description of the business experience during the last five years of the
executive officers of the Company.
Name Age Position and Business Experience
Nicholas P. Economou . . 47 President and Chief Executive
Officer.
Dr. Economou has been President and a
Director of the Company since
February 1990 and Chief Executive
Officer since August 1993.
Dr. Economou joined the Company in
1984 as the Director of Engineering
and was subsequently promoted to Vice
President, Engineering, prior to
becoming President.
David M. Hunter . . . . 52 Vice President, Finance and
Administration, Chief Financial
Officer and Treasurer.
Mr. Hunter has been Vice President,
Finance and Administration, since
January 1993. Mr. Hunter joined the
Company in 1984 as Treasurer.
Charles J. Libby . . . 51 Vice President, Engineering.
Mr. Libby has been Vice President,
Engineering, since August 1993.
Mr. Libby joined the Company in 1989
as Director of Software Engineering
and was subsequently promoted to
Director of Engineering prior to
becoming Vice President, Engineering.
John A. Doherty . . . . 50 Vice President, Marketing.
Mr. Doherty has been Vice President,
Marketing, since 1983 and a Director
of the Company from 1983 to 1988,
from 1991 to 1993 and has been a
Director since November 1994.
Billy W. Ward . . . . . 43 Senior Vice President.
Mr. Ward has been Senior Vice
President since January 1996 and was
Vice President and Chief Engineer
from 1983 to January 1996 and a
Director of the Company from 1983 to
1984, from 1988 to 1991, and from
1993 to 1994.
14
Robert K. McMenamin . . 54 Vice President, Sales.
Mr. McMenamin has been Vice
President, Sales, since 1990.
Mr. McMenamin joined the Company in
1988 as Sales Manager.
15
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's Common Stock is traded on the Nasdaq National Market
System under the symbol "MICN." As of September 18, 1996, there were
approximately 2,500 holders of record of the Company's Common Stock. The
following table sets forth, for the periods indicated, the high and low bid
prices of the Common Stock, as reported by Nasdaq. The bid prices quotations
reflect interdealer prices, without retail mark-up, mark-down or commission
and may not represent actual transactions.
High Low
1995
First Quarter . . . . . . . . . . . . . . . 17-1/2 6-1/4
Second Quarter . . . . . . . . . . . . . . 21-1/4 10-3/4
Third Quarter . . . . . . . . . . . . . . . 12-1/8 9-1/8
Fourth Quarter . . . . . . . . . . . . . . 15-7/8 10-1/8
1996
First Quarter . . . . . . . . . . . . . . . 16-1/2 11
Second Quarter . . . . . . . . . . . . . . 16-1/4 9-1/2
Third Quarter . . . . . . . . . . . . . . . 20-1/2 9-3/4
Fourth Quarter . . . . . . . . . . . . . . 40-1/4 10-3/4
Dividend Policy
The Company has not declared or paid cash dividends on its Common Stock,
presently intends to retain earnings for use in its business and does not
anticipate paying cash dividends in the foreseeable future. The Company's
current bank line of credit prohibits the payment of dividends, in cash or in
kind, without the bank's consent.
16
Item 6. SELECTED FINANCIAL DATA.
For the years ended June 30,
1996 1995 1994 1993 1992
(Amounts in thousands, except per share data)
Total revenue $39,536 $28,768 $20,011 $11,871 $9,842
Income (loss) from 3,611 2,666 1,966 355 (689)
operations
Net income (loss) *2,004 3,217 1,717 200 (897)
Income (loss) from
operations per share .89 .75 .97 .19 (.37)
Income (loss) per share *.49 .91 .85 .11 (.48)
At year end:
Total assets $41,571 $30,486 $14,144 $9,612 $6,518
Long-term obligations 779 26 68 425 917
Total stockholders'
equity 29,257 24,637 10,269 3,719 1,527
* Includes a one-time litigation settlement charge of $2,685 during the fourth
quarter of fiscal 1996. See note 13 in Notes to Consolidated Financial
Statements
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The information required by this item appears in the 1996 Annual Report
on pages 11 through 14 and is incorporated herein by reference.
17
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item appears in the 1996 Annual Report
on pages 15 through 30 and is incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
18
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required regarding the Executive Officers of Micrion
Corporation is included in Part I in the unnumbered item captioned "Executive
Officers of the Registrant." Certain other information required regarding the
Directors of Micrion Corporation is contained in the Proxy Statement on pages
3 and 4 and is incorporated herein by reference.
Certain information regarding reports required to be filed pursuant to
Section 16(a) of the Securities Exchange Act of 1934 by directors, officers
and beneficial owners of 10% or more of the Company's Common Stock is
contained in the Proxy Statement on page 9 and is incorporated herein by
reference.
Item 11. EXECUTIVE COMPENSATION.
The information required is contained in the Proxy Statement on pages 7
and 8 and is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required with respect to security ownership of certain
beneficial owners and management of Micrion Corporation is contained in the
Proxy Statement on pages 2 and 3 under the heading "Stock Ownership of
Directors, Nominees, Executive Officers and Principal Stockholders" and is
incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
19
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements
The following consolidated financial statements are incorporated by
reference in Item 8:
Consolidated Balance Sheets as of June 30, 1996 and June 30, 1995
Consolidated Statements of Operations for the years ended June 30,
1996, June 30, 1995 and June 30, 1994
Consolidated Statements of Stockholders' Equity for the years
ended June 30, 1996, June 30, 1995 and June 30, 1994
Consolidated Statements of Cash Flows for the years ended June 30,
1996, June 30, 1995 and June 30, 1994
(a) 2. Financial Statement Schedules
All schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements or the notes thereto.
(a) 3. Listing of Exhibits
The exhibit numbers in the following list correspond to the numbers
assigned to such exhibit in the Exhibit Table of Item 601 of Regulation S-K.
The Company will furnish to any stockholder, upon written request, any exhibit
listed below upon payment by such stockholder to the Company of the Company's
reasonable expense in furnishing such exhibit.
Exhibit Description of Document
Number
*3.1 Restated Articles of Organization of the Registrant.
@3.2 Amended and Restated By-laws of the Registrant (as amended
September 8, 1995).
A 4.1 Specimen Stock Certificate.
A+ 10.1 Registrant's Incentive Stock Plan, as amended (the "1986
Plan").
A+ 10.2 Form of Stock Restriction Agreement under the 1986 Plan.
A+ 10.3 Registrant's 1990 Nonqualified Stock Option Plan, as amended
(the "1990 Option Plan").
20
Exhibit
Number Description of Document
A+ 10.4 Form of Stock Option Agreement under the 1990 Option Plan.
A+ 10.5 Registrant's 1993 Common Stock Incentive Plan, as amended (the
"1993 Plan").
A+ 10.6 Form of Stock Restriction Agreement under the 1993 Plan,
together with vesting schedule for executive officers.
[email protected] Registrant's 1994 Omnibus Stock Plan (as amended and restated
September 5, 1995).
A+ 10.8 Registrant's 1994 Stock Purchase Plan.
+#10.8.1 Registrant's 1994 Non-Employee Director Stock Option Plan.
A 10.9 Lease dated as of December 21, 1987 between the Registrant and
Centennial Park Associates Limited Partnership I (the "Lease").
@10.9.1 Second Amendment to the Lease, dated as of March 1, 1995.
A 10.10 Development Agreement, dated as of June 10, 1993, by and
between the Registrant and SEMATECH, Inc.
A 10.11 Agreement dated as of May 6, 1993, by and between the
Registrant and U.S. Army Research Laboratory, as amended.
A 10.12 Distributor Agreement between the Registrant and Tokyo Electron
Limited, dated as of March 1, 1988.
A 10.21 Promissory Note of John A. Doherty in favor of Registrant,
dated as of December 15, 1985, in the original principal amount
of $19,000.
A 10.22 Promissory Note of Billy W. Ward in favor of Registrant, dated
as of December 15, 1985, in the original principal amount of
$19,000.
A 10.23 Form of Employee Agreement.
B 10.25 Common Stock Purchase Warrants issued to RvR Securities Corp.
and Fechtor, Detwiler & Co., Inc., in connection with
Registrant's initial public offering.
B 10.27 Letter Agreement, dated October 21, 1994, by and between the
Registrant and Fleet Bank of Massachusetts, N.A. ("Fleet").
10.28 Loan Modification Agreement by and between the Registrant and
Fleet dated December 1, 1995.
10.29 Second Loan Modification Agreement by and between the
Registrant and Fleet dated May 16, 1996.
21
Exhibit
Number Description of Document
10.30 Promissory Note of the Registrant in favor of Fleet dated May
16, 1996.
11.1 Statement of Computation of Per Share Earnings.
13.1 Management's Discussion and Analysis of Financial Condition and
Results of Operations from 1996 Annual Report to Stockholders.
13.2 Consolidated Financial Statements and Notes thereto from 1996
Annual Report to Stockholders.
@21.1 Subsidiaries of Registrant.
23.1 Consent of KPMG Peat Marwick LLP.
27.1 Financial Data Schedule.
22
Exhibit
Number Description of Document
99.1 Cautionary Statement for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act of
1995.
_______________________________
A Incorporated by reference to the same exhibit number to the Registrant's
Registration Statement on Form SB-2 (Registration No. 33-75784) or an
amendment thereto.
* Incorporated by reference to the same exhibit number to the Registrant's
Report on Form 10-QSB filed on June 24, 1994.
# Incorporated by reference to the same exhibit number to the Registrant's
Report on Form 10-KSB filed on September 29, 1994.
+ Management contract or compensatory plan or arrangement.
Incorporated by reference to the same exhibit number to the Registrant's
B Registration Statement on Form SB-2 (Registration No. 33-86008) or an
amendment thereto.
@ Incorporated by reference to the same exhibit number to the Registrant's
Report on Form 10-KSB filed on September 29, 1995.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K with the Securities and
Exchange Commission during the fiscal quarter ended June 30, 1996.
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
MICRION CORPORATION
Date: September 26, 1996 By: /s/ Nicholas P. Economou
Nicholas P. Economou
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Nicholas P. Economou President, Chief September 26, 1996
Nicholas P. Economou Executive Officer and
Director (Principal
Executive Officer)
/s/ David M. Hunter Vice President, Finance September 26, 1996
David M. Hunter and Administration
(Principal Financial
and Accounting Officer)
/s/ John A. Doherty Vice President, September 26, 1996
John A. Doherty Marketing and Director
/s/ Charles M. McKenna Director September 26, 1996
Charles M. McKenna
/s/ Louis P. Valente Director September 26, 1996
Louis P. Valente
/s/ Thomas W. Folger Director September 26, 1996
Thomas W. Folger
ds1-288223
Exhibit 10.28
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement (the "Agreement") is made as of
December 1, 1995 between Micrion Corporation, a Massachusetts corporation (the
"Borrower") and Fleet Bank of Massachusetts, N.A. (the "Bank"). For good and
valuable consideration, receipt and sufficiency of which are hereby
acknowledged, the Borrower and the Bank act and agree as follows:
1. Reference is made to (i) that certain letter agreement dated October
21, 1994 (the "Letter Agreement") between the Borrower and the Bank; (ii) that
certain $3,000,000 face amount promissory note dated October 21, 1994 (the "1994
Revolving Note") made by the Borrower and payable to the order of the Bank; and
(iii) that certain $5,000,000 face amount promissory note of even date herewith
(the "1995 Revolving Note") made by the Borrower and payable to the order of the
Bank. The Letter Agreement and the 1995 Revolving Note are hereinafter
collectively referred to as the "Financing Documents".
2. The Letter Agreement is hereby amended, effective as of the date
hereof:
a. By deleting in its entirety the third sentence of
Section 1.1 of the Letter Agreement and by substituting in its stead the
following:
"The Revolving Loans shall be evidenced by a
$5,000,000 face amount promissory note (the
'Revolving Note') dated December 1, 1995 made by the
Borrower and payable to the order of the
Bank."
As a result, all references in the Letter Agreement to a "Revolving Note" will
be deemed to refer to the 1995 Revolving Note.
b. By deleting from the first sentence of Section 1.4 of the Letter
Agreement the amount "$3,000,000" and by substituting in its stead the
following:
"$5,000,000"
c. By deleting in its entirety the last sentence of Section 3.10 of
the Letter Agreement and by substituting in its stead the following:
"As at the end of each fiscal quarter of the Borrower
(each, a 'Determination Date') commencing with
December 31, 1995, the Borrower will achieve Net
Income of at least
$1,500,000 for the twelve months
ending at such Determination Date."
d. By deleting from clause (v) of Section 4.1 of the Letter
Agreement the amount "$1,000,000" and by substituting in its stead the
following:
"$1,500,000"
e. By deleting the period at the end of the first sentence of
Section 6.3 of the Letter Agreement and by substituting in its stead the
following:
"; provided that commencing with the quarterly
payment of facility fees due January 1, 1996 and for
each quarterly payment thereafter the nonrefundable
quarterly facility fee will be $6,250 per quarter,
and the Borrower will also pay on December 1, 1995 an
additional fee of $833, representing the increase in
facility fees for the period December 1-31, 1995."
f. By deleting the proviso contained in clause (2) of the
definition of "Borrowing Base" appearing in Section 7.1 of the Letter Agreement
and by substituting in its stead the following:
"; provided that the amount contributed to Borrowing
Base pursuant to this clause (2) shall never exceed
$2,000,000,"
g. By deleting from the definition of "Expiration Date"
appearing in Section 7.1 of the Letter Agreement the date "December 1, 1995" and
by substituting in its stead the following:
"December 1, 1996"
As a result, from and after the date hereof, for the purposes of the Letter
Agreement, the "Expiration Date" will be deemed to be December 1, 1996.
h. By deleting from the definition of "Maximum Revolving
Amount" appearing in Section 7.1 of the Letter Agreement the amount "$3,000,000"
and by substituting in its stead the following:
"$5,000,000"
2
3. Wherever in any Financing Document, or in any certificate or
opinion to be delivered in connection therewith, reference is made to a
"letter agreement" or to the "Letter Agreement", from and after the date
hereof same will be deemed to refer to the Letter Agreement, as hereby amended.
4. Simultaneously with the execution and delivery of this Agreement,
the Borrower is executing and delivering to the Bank the 1995 Revolving Note, in
substitution for the 1994 Revolving Note. The 1995 Revolving Note is a
$5,000,000 promissory note of the Borrower, substantially in the form attached
hereto as Exhibit 1. Wherever in the Letter Agreement, or in any certificate or
opinion to be delivered in connection therewith, reference is made to the
"Revolving Note", from and after the date hereof same will be deemed to refer to
the 1995 Revolving Note.
5. In order to induce the Bank to enter into this Agreement, the
Borrower further represents and warrants to the Bank as follows:
a. The execution, delivery and performance of this Agreement
and the 1995 Revolving Note have been duly authorized by the Borrower by all
necessary corporate and other action, will not require the consent of any third
party and will not conflict with, violate the provisions of, or cause a default
or constitute an event which, with the passage of time or the giving of notice
or both, could cause a default on the part of the Borrower under its charter
documents or by-laws or under any contract, agreement, law, rule, order,
ordinance, franchise, instrument or other document, or result in the imposition
of any lien or encumbrance on any property or assets of the Borrower.
b. The Borrower has duly executed and delivered to the Bank each of
this Agreement and the 1995 Revolving Note.
c. Each of this Agreement and the 1995 Revolving Note is the
legal, valid and binding obligation of the Borrower, enforceable against the
Borrower in accordance with its respective terms.
d. The representations and warranties of the Borrower made in
the Letter Agreement continue to be correct as of the date hereof, except
as supplemented and/or modified on the attached Supplemental Disclosure
Schedule.
e. The covenants and agreements of the Borrower contained in
the Letter Agreement continue to be correct as of the date hereof, except as
supplemented and/or modified on the attached Supplemental Disclosure Schedule.
f. No event which constitutes or which, with notice or lapse
of time, or both, could constitute, an Event of Default (as defined in the
Letter Agreement) has occurred and is continuing.
3
g. No material adverse change has occurred in the financial
condition of the Borrower from that disclosed in the financial statements of the
Borrower as at June 30, 1995.
6. Except as expressly affected hereby, the Letter Agreement remains
in full force and effect as heretofore.
7. Nothing contained herein will be deemed to constitute a waiver or a
release of any provision of any of the Financing Documents. Nothing contained
herein will in any event be deemed to constitute an agreement to give a waiver
or release or to agree to any amendment or modification of any provision of any
of the Financing Documents on any other or future occasion.
Executed as an instrument under seal, as of the day and year first
above written.
MICRION CORPORATION
By: /s/ David M. Hunter
____________________
David M. Hunter
Vice President, Finance
and Administration
Accepted and agreed:
FLEET BANK OF MASSACHUSETTS, N.A.
By: /s/ Thomas W. Davies
_________________________
Thomas W. Davies
Vice President
DS1-293273
4
Exhibit 10.29
SECOND LOAN MODIFICATION AGREEMENT
This Second Loan Modification Agreement ("this Agreement") is made as
of May 16, 1996 between Micrion Corporation, a Massachusetts corporation (the
"Borrower") and Fleet National Bank (successor by merger to Fleet Bank of
Massachusetts, N.A.) (the "Bank"). For good and valuable consideration, receipt
and sufficiency of which are hereby acknowledged, the Borrower and the Bank act
and agree as follows:
1. Reference is made to (i) that certain letter agreement dated October
21, 1994 between the Borrower and Fleet Bank of Massachusetts, N.A., as amended
by Loan Modification Agreement dated as of December 1, 1995 (as so amended, the
"Letter Agreement") the Bank having succeeded to the rights of Fleet Bank of
Massachusetts, N.A. thereunder); (ii) that certain $5,000,000 face principal
amount promissory note dated December 1, 1995 (the "1995 Revolving Note") made
by the Borrower and payable to the order of Fleet Bank of Massachusetts, N.A.;
and (iii) that certain $10,000,000 face principal amount promissory note of even
date herewith (the "1996 Revolving Note") made by the Borrower and payable to
the order of the Bank. The Letter Agreement and the 1996 Revolving Note are
hereinafter collectively referred to as the "Financing Documents". The aforesaid
December 1, 1995 Loan Modification Agreement is hereinafter referred to as the
"1995 Modification".
2. The Letter Agreement is hereby amended, effective as of the
date hereof:
a. By deleting in its entirety the third sentence of
Section 1.1 of the Letter Agreement and by substituting in its stead the
following:
"The Revolving Loans shall be evidenced by that
certain $10,000,000 face principal amount promissory
note (the 'Revolving Note') dated May 16, 1996 made
by the Borrower and payable to the order of the
Bank."
As a result, all references in the Letter Agreement to a "Revolving Note" will
be deemed to refer to the 1996 Revolving Note.
b. By deleting from the first sentence of Section 1.4 of the
Letter Agreement the amount "$5,000,000" (which amount was inserted by the 1995
Modification) and by substituting in its stead the following:
"$10,000,000"
c. By deleting in their entireties Sections 3.8 - 3.10, inclusive,
of the Letter Agreement and by substituting in their stead the following:
"3.8. Net Worth. The Borrower will maintain as at the
end of each fiscal quarter of the Borrower
(commencing with its results as at March 31, 1996) a
consolidated Tangible Net Worth which shall be not
less than the then-effective TNW Requirement. As used
herein, the 'TNW Requirement' will be deemed to have
been $22,500,000 as at December 31, 1995; and as at
the last day of each fiscal quarter thereafter
beginning with March 31, 1996 (each, a 'Determination
Date') the TNW Requirement will be deemed to become
an amount equal to the sum of: (i) that TNW
Requirement in effect on the last day of the
immediately preceding fiscal quarter, plus (ii) 80%
of the consolidated Net Income of the Borrower and
Subsidiaries during the fiscal quarter ending at such
Determination Date (but without giving effect to any
Net Income which is less than zero for any fiscal
quarter), plus (iii) 80% of the net proceeds of any
equity securities sold by the Borrower (other than
stock issued in connection with the KLA Settlement,
as defined below) during the fiscal quarter ending at
such Determination Date.
3.9. Current Radio. The Borrower will maintain as at
the end of each fiscal quarter of the Borrower
(commencing with its result as at March 31, 1996) a
ratio of consolidated Current Assets to consolidated
Current Liabilities, which ratio shall be not less
than 1.75 to 1.
3.10. Profitability. The Borrower will achieve
quarterly consolidated Adjusted Net Income of at
least $1.00 for each fiscal quarter, commencing with
its results for the fiscal quarter ending March 31,
1996. For each 12-month period ending on a
Determination Date (as defined above), commencing
with the 12-month period ending June 30, 1996, the
Borrower will achieve consolidated Adjusted Net
Income of not less than the following: not less than
$2,000,000 for the 12- month period ending September
30, 1996; not less than $4,000,000 for the 12-month
period ending December 31, 1996; and not less than
2
$5,000,000 for the 12-month period ending March 31,
1997 and for each 12-month period ending on each
subsequent Determination Date."
d. By deleting from clause (v) of Section 4.1 of the
Letter Agreement the amount "$1,500,000" and by substituting in its stead the
following:
"$5,000,000"
e. By deleting the period at the end of the first sentence of
Section 6.3 of the Letter Agreement (as amended by the 1995 Modification) and
by substituting in its stead the following:
"; provided further that commencing with the
quarterly payment of facility fees due July 1, 1996
and for each quarterly payment thereafter the
non-refundable quarterly facility fee will be $12,500
per fiscal quarter and the Borrower will also pay on
May 16, 1996 an additional $3,194.44, representing
the increase in facility fees for the period May 16,
1996 through June 30, 1996."
f. By inserting into Section 7.1 of the Letter Agreement,
immediately before the definition of "Aggregate Bank Liabilities", the
following:
"'Adjusted Net Income' (or 'Adjusted Net Loss') -
For any fiscal period, the sum of (i) the
Borrower's consolidated Net Income (or consolidated
Net Loss, expressed as a negative number) for such
fiscal period, plus (ii) the amount of any one-time
charge recognized by the Borrower during such fiscal
period arising from the KLA Settlement (but only to
the extent that same results from the issuance of
Common Stock pursuant to the KLA Settlement or from
certain one-time cash charges relating to the KLA
Settlement; provided that such cash charges shall not
exceed $250,000 in the aggregate) and actually
deducted on the books of the Borrower for the purpose
of determining the Borrower's consolidated Net Income
(or consolidated Net Loss, as the case may be) for
such fiscal period."
3
g. By deleting from the definition of "Expiration Date"
appearing in Section 7.1 of the Letter Agreement the date "December 1, 1996"
(such date having been inserted by the 1995 Modification) and by substituting in
its stead the following:
"December 1, 1997"
As a result, from and after the date hereof, for the purposes of the Letter
Agreement and the other Financing Documents, the "Expiration Date" will be
deemed to be December 1, 1997.
h. By inserting into Section 7.1 of the Letter Agreement,
immediately after the definition of "Indebtedness", the following:
"'KLA Settlement' - The settlement of certain
litigation filed against the Company on December 22,
1993 by KLA Instruments Corporation, as heretofore
disclosed by the Borrower to the Bank."
i. By deleting from the definition of "Maximum Revolving
Amount" appearing in Section 7.1 of the Letter Agreement the amount "$5,000,000"
(such amount having been inserted by the 1995 Modification) and by substituting
in its stead the following:
"$10,000,000"
3. Wherever in any Financing Document, or in any certificate or opinion
to be delivered in connection therewith, reference is made to a "letter
agreement" or to the "Letter Agreement", from and after the date hereof same
will be deemed to refer to the Letter Agreement, as hereby amended.
4. Simultaneously with the execution and delivery of this Agreement,
the Borrower is executing and delivering to the Bank the 1996 Revolving Note, in
substitution for the 1995 Revolving Note. The 1996 Revolving Note is a
$10,000,000 promissory note of the Borrower, substantially in the form attached
hereto as Exhibit 1. Wherever in any of the Financing Documents or in any
certificate or opinion to be delivered in connection therewith, reference is
made to a "Revolving Note", from and after the date hereof same will be deemed
to refer to the 1996 Revolving Note.
5. In order to induce the Bank to enter into this Agreement, the
Borrower further represents and warrants as follows:
a. The execution, delivery and performance of this Agreement
and the 1996 Revolving Note have been duly authorized by the Borrower by all
necessary corporate
4
and other action, will not require the consent of any third party and will not
conflict with, violate the provisions of, or cause a default or constitute an
event which, with the passage of time or the giving of notice or both, could
cause a default on the part of the Borrower under its charter documents or
by-laws or under any contract, agreement, law, rule, order, ordinance,
franchise, instrument or other document, or result in the imposition
of any lien or encumbrance on any property or assets of the Borrower.
b. The Borrower has duly executed and delivered each of this
Agreement and the 1996 Revolving Note.
c. Each of this Agreement and the 1996 Revolving Note is the
legal, valid and binding obligation of the Borrower, enforceable against the
Borrower in accordance with its respective terms.
d. The statements, representations and warranties made in the
Letter Agreement continue to be correct as of the date hereof; except as
amended, updated and/or supplemented by the attached Supplemental Disclosure
Schedule.
e. The covenants and agreements of the Borrower contained in the
Letter Agreement have been complied with on and as of the date hereof.
f. No event which constitutes or which, with notice or lapse
of time, or both, could constitute, an Event of Default (as defined in the
Letter Agreement) has occurred and is continuing.
g. Except as heretofore disclosed in writing to the Bank, no
material adverse change has occurred in the financial condition of the Borrower
from that disclosed in the annual financial statements of the Borrower dated
June 30, 1995, heretofore furnished to the Bank.
6. Except as expressly affected hereby, the Letter Agreement and each
of the other Financing Documents remains in full force and effect as heretofore.
7. Nothing contained herein will be deemed to constitute a waiver or a
release of any provision of any of the Financing Documents. Nothing contained
herein will in any event be deemed to constitute an agreement to give a waiver
or release or to agree to any amendment or modification of any provision of any
of the Financing Documents on any other or future occasion.
5
Executed, as an instrument under seal, as of the day and year first
above written.
MICRION CORPORATION
By: /s/ David M. Hunter
David M. Hunter
Vice President, Finance
and Administration
Accepted and agreed:
FLEET NATIONAL BANK
By: /s/ Thomas W. Davies
Thomas W. Davies
Vice President
1-292225
6
Exhibit 10.30
PROMISSORY NOTE
$10,000,000.00 Boston, Massachusetts
May 16, 1996
FOR VALUE RECEIVED, the undersigned Micrion Corporation, a
Massachusetts corporation (the "Borrower") hereby promises to pay to the order
of FLEET NATIONAL BANK (the "Bank") the principal amount of Ten Million and
00/100 ($10,000,000.00) Dollars or such portion thereof as has been advanced or
hereafter may be advanced by the Bank and/or its corporate predecessor pursuant
to ss.1.1 of that certain letter agreement between the Borrower and Fleet Bank
of Massachusetts, N.A. dated October 21, 1994, as amended (as so amended, the
"Letter Agreement") (the Bank having succeeded to the rights of Fleet Bank of
Massachusetts, N.A. thereunder) and remains outstanding from time to time
hereunder ("Principal"), with interest, at the rate hereinafter set forth, on
the daily balance of all unpaid Principal, from the date hereof until payment in
full of all Principal and interest hereunder.
Interest on all unpaid Principal shall be due and payable monthly in
arrears, on the first day of each month, commencing on the first such date after
the advance of any Principal and continuing on the first day of each month
thereafter and on the date of payment of this note in full, at a fluctuating
rate per annum (computed on the basis of a year of three hundred sixty (360)
days for the actual number of days elapsed) which shall at all times be equal to
the Prime Rate, as in effect from time to time (but in no event in excess of the
maximum rate permitted by then applicable law). A change in the aforesaid rate
of interest shall become effective on the same day on which any change in the
Prime Rate is effective. Overdue Principal and, to the extent permitted by law,
overdue interest shall bear interest at a fluctuating rate per annum which at
all times shall be equal to the sum of (i) two (2%) percent per annum plus (ii)
the per annum rate otherwise payable under this note (but in no event in excess
of the maximum rate permitted by then applicable law), compounded monthly and
payable on demand. As used herein, "Prime Rate" means that rate of interest per
annum announced by the Bank from time to time as its prime rate, it being
understood that such rate is merely a reference rate, not necessarily the
lowest, which serves as the basis upon which effective rates of interest are
calculated for obligations making reference thereto. If the entire amount of any
required Principal and/or interest is not paid within ten (10) days after the
same is due, the Borrower shall pay to the Bank a late fee equal to five percent
(5%) of the required payment, provided that such late fee shall be reduced to
three percent (3%) of any required Principal and interest that is not paid
within fifteen (15) days of the date it is due if this note is secured by a
mortgage on an owner-occupied residence of 1-4 units.
All outstanding Principal and all interest accrued thereon shall be due
and payable in full on the first to occur of: (i) an acceleration under Section
5.2 of the Letter Agreement or (ii) December 1, 1997. The Borrower may at any
time and from time to time prepay all or any
Portion of said Principal, without premium or penalty. Under certain
circumstances set forth in the Letter Agreement, prepayments of Principal may be
required.
Payments of both Principal and interest shall be made, in immediately
available funds, at the office of the Bank located at 75 State Street, Boston,
Massachusetts 02109, or at such other address as the Bank may from time to time
designate.
The undersigned Borrower irrevocably authorizes the Bank to make or
cause to be made, on a schedule attached to this note or on the books of the
Bank, at or following the time of making any Revolving Loan (as defined in the
Letter Agreement) and of receiving any payment of Principal, an appropriate
notation reflecting such transaction and the then aggregate unpaid balance of
Principal. Failure of the Bank to make any such notation shall not, however,
affect any obligation of the Borrower hereunder or under the Letter Agreement.
The unpaid Principal balance of this note, as recorded by the Bank from time to
time on such schedule or on such books, shall constitute presumptive evidence of
the aggregate unpaid principal amount of the Revolving Loans.
The Borrower hereby (a) waives notice of and consents to any and all
advances, settlements, compromises, favors and indulgences (including, without
limitation, any extension or postponement of the time for payment), any and all
receipts, substitutions, additions, exchanges and releases of collateral, and
any and all additions, substitutions and releases of any person primarily or
secondarily liable, (b) waives presentment, demand, notice, protest and all
other demands and notices generally in connection with the delivery, acceptance,
performance, default or enforcement of or under this note, and (c) agrees to pay
all costs and expenses, including, without limitation, reasonable attorneys'
fees, incurred or paid by the Bank in enforcing this note and any collateral or
security therefor, all whether or not litigation is commenced.
This note is the Revolving Note referred to in, and is entitled in the
benefit of, the Letter Agreement. This note is subject to prepayment as set
forth in the Letter Agreement. The maturity of this note may be accelerated upon
the occurrence of an Event of Default, as provided in the Letter Agreement.
Executed, as an instrument under seal, as of the day and year first
above written.
CORPORATE SEAL MICRION CORPORATION
ATTEST:
/s/ Roslyn G. Daum By: /s/ David M. Hunter
Clerk Name: David M. Hunter
Title: Chief Financial Officer
DS1-293274
2
Exhibit 11.1
MICRION CORPORATION AND SUBSIDIARIES
<TABLE>
Statement of Computation of Per Share Earnings
<CAPTION>
For the years ended June 30,
------------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net income ........................................... $2,004,100 $3,216,500 $1,716,800
(a) Computation of Primary Earnings
Per Share:
Weighted average common equivalent
shares outstanding:
Common stock ................................ 3,923,588 3,427,437 572,712
Conversion of preferred stock to
common stock ................................ - - 1,335,010
Common stock equivalents:
Warrants (1) .............................. 55,150 100,488 117,346
Options (2) ............................... 98,483 7,065 -
---------- ---------- ----------
Weighted average common and common
equivalent shares outstanding ........................ 4,077,221 3,534,990 2,025,068
========== ========== ==========
Primary net income per share ......................... .49 .91 .85
========== ========== ==========
(b) Computation of Fully Diluted Earnings
Per Share:
Weighted average common equivalent
shares outstanding:
Common stock ................................ 3,923,588 3,427,437 572,712
Conversion of preferred stock to
common stock ................................ - - 1,335,010
Common stock equivalents:
Warrants (1) ................................ 60,677 110,159 120,816
Options (2) ................................. 212,655 29,630 -
---------- ---------- ----------
Weighted average common and common
equivalent shares outstanding ............... 4,196,920 3,567,226 2,028,538
========== ========== ==========
Fully diluted net income per share ................... .48 .90 .85
========== ========== ==========
<FN>
(1) Warrants issued 7/93 for 160,000 shares and 5/94 for 100,000 shares, less
shares reacquired under the treasury stock method.
(2) Options granted 11/94, 12/94, 5/95, 1/96 and 4/96 under option plan, less
shares required under the treasury stock method.
</TABLE>
EXHIBIT 13.1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
For the year ended June 30, 1996, the Company reported record revenues and
income from operations, reflecting the continued increase in the acceptance of
Focused Ion Beam ("FIB") systems by semiconductor manufacturers and other
manufacturers outside of the semiconductor industry. Total revenues increased
37% and income from operations increased 35% as compared to the year ended June
30, 1995.
<TABLE>
The following table summarizes the Company's historical results of operations as
a percentage of total sales for fiscal 1996, 1995 and 1994:
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Total revenue 100% 100% 100%
Gross profit 38 37 39
Selling, general and administrative 18 18 20
Research and development 11 10 9
- --------------------------------------------------------------------------------
Total operating expenses 29 28 29
Income from operations 9 9 10
Other (expense) income, net (6) 1 --
Income tax benefit (expense) 2 1 (1)
- --------------------------------------------------------------------------------
Net income 5% 11% 9%
- --------------------------------------------------------------------------------
</TABLE>
Fiscal 1996 Compared to Fiscal 1995
Revenues. Total revenues increased by 37% to $39.5 million for the year ended
June 30, 1996 from $28.8 million for the same period ended June 30, 1995. The
increase was primarily due to increased product revenues as a result of
increased sales of FIB systems.
Product revenues consist of revenues from the sale of systems, spare and
replacement parts and services provided with respect to systems. Product
revenues increased 45% to $38.3 million for the year ended June 30, 1996 as
compared to $26.4 million for the same period ended June 30, 1995. The increase
was due to increased sales of FIB systems resulting from increased spending by
semiconductor manufacturing companies and continued market acceptance of
Micrion's FIB products, particularly the MicroMill HT head trimming systems used
by disk drive manufacturers.
Contract revenues decreased 47% to $1.2 million for the year ended June 30, 1996
from $2.4 million for the same period ended June 30, 1995. The decrease was due
to the completion of a commercial contract during fiscal 1996. The Company
expects research and development contract revenue to decrease in the future and
not be a significant part of total revenues. Also, the Company expects a higher
proportion of contract revenues to be derived from government contracts in the
future, which will yield a lower gross margin.
Gross Profit. Total gross profit increased 40% to $15.0 million for the year
ended June 30, 1996 from $10.7 million for the same period ended June 30, 1995.
This increase was primarily due to an increased number of shipments of FIB
systems during fiscal 1996.
The Company's gross margin varies due to the product mix, distribution channels
and geographical location of customers. Gross profit on product revenues
increased 45% to $15.0 million for the year ended June 30, 1996 from $10.4
million for the same period ended June 30, 1995. The increase was primarily due
to the higher number of FIB system sales. The gross margin on product revenues
remained the same at 39.2% for the years ended June 30, 1996 and June 30, 1995.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Gross profit on contract revenues decreased 99% to $.005 million for the year
ended June 30, 1996 as compared to $.37 million for the same period ended June
30, 1995. The decrease is due to a higher mix of government contract revenues
during the period, which generally yield a lower profit margin, and completion
of a commercial contract which had additional costs related to that contract
which were not anticipated during the period. The Company had anticipated the
decrease in total contract revenues, primarily due to reductions in U.S.
Government funding availability for research and development type contracts. The
Company's gross margin on contract revenues decreased to .4% for the year ended
June 30, 1996 from 15.4% for the year ended June 30, 1995. The decrease was due
to a higher mix of contract revenues from government entities during the period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 40% to $7.2 million for the year ended June
30, 1996 from $5.1 million for the same period ended June 30, 1995. The increase
is primarily attributable to the ramp-up of the Company's infrastructure in
order to produce the FIB systems for a new application. Also, the increase is
due to increases in sales and marketing expenses associated with the addition of
personnel in applications support, sales and advertising, the expansion of
product advertising and trade show presence, additional administrative
personnel, increases in compensation levels and litigation costs. The Company
also increased customer support personnel, especially in the Pacific Rim, to
support the disk drive head trimming systems located in that geographic area.
Research and Development Expenses. The Company's research and development
expense increased 45% to $4.2 million for the year ended June 30, 1996 from $2.9
million for the same period ended June 30, 1995. This increase was due to the
Company's additional development activity for new products and enhancements and
an increase in the number of engineering and research employees during the year.
Research and development expense as a percentage of total revenues increased to
11% for the year ended June 30, 1996 from 10% for the same period ended June 30,
1995.
Other Income and Expense. Other income and expense for the year ended June 30,
1996 consists primarily of a one-time litigation settlement charge of $2.7
million relating to the negotiated settlement with KLA Instruments Corporation.
Under the terms of the non-cash settlement, the Company issued 119,202 shares of
Micrion common stock for dismissal of all claims filed in the litigation. Also,
interest income decreased to $.22 million for the period ended June 30, 1996
from $.39 million for the same period ended June 30, 1995. The decrease is
primarily due to a lower cash position during the period.
Income Tax Benefit. Income tax benefit in fiscal 1996 reflects the reduction in
the valuation reserve for deferred tax assets. The reduction in the valuation
reserve resulted in the recognition of net deferred tax assets of $1,346,400
during the fourth quarter of fiscal 1996. The Company continuously re-evaluates
the recoverability of deferred tax assets.
Fiscal 1995 Compared to Fiscal 1994
Revenues. Total revenues increased by 44% to $28.8 million for the year ended
June 30, 1995 from $20.0 million for the same period ended June 30, 1994. The
increase was primarily due to increased product revenues as a result of
increased sales of FIB systems.
Product revenues increased 69% to $26.4 million for the year ended June 30, 1995
as compared to $15.6 million for the same period ended June 30, 1994. The
increase was due to increased sales of FIB systems resulting from increased
spending by semiconductor manufacturing companies and continued market
acceptance of Micrion's FIB products, particularly the 9100 series of products.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Contract revenues decreased 46% to $2.4 million for the year ended June 30, 1995
from $4.4 million for the same period ended June 30, 1994. The decrease was due
to the completion of certain government and commercial contracts during fiscal
1995. In part, as a result of U.S. Government reductions in availability of
research and development contracts, no additional contracts were awarded to the
Company in the year ended June 30, 1995.
Gross Profit. Total gross profit increased 37% to $10.7 million for the year
ended June 30, 1995 from $7.8 million for the same period ended June 30, 1994.
This increase was primarily due to an increased number of shipments of FIB
systems during fiscal 1995.
Gross profit on product revenues increased 47% to $10.4 million for the year
ended June 30, 1995 from $7.1 million for the same period ended June 30, 1994.
The increase was primarily due to the higher number of FIB system sales.
However, the gross margin on product revenues decreased to 39.2% for the year
ended June 30, 1995 from 45.1% for the year ended June 30, 1994. The percentage
decrease was due to changes in the mix of product shipments and the predominance
of foreign shipments, which generally yield lower gross margins than domestic
sales. In addition, the Company penetrated the South Korean market with its
first FIB shipments to that geographical region during the year ended June 30,
1995 and was able to attain a dominant market share in that country, which is
deemed crucial for future sales growth. Margins for product sales into South
Korea were less due to the distribution channels required to attain the
significant market share. Also, an adjustment during the fourth quarter in the
level of accruals needed in connection with a royalty arrangement had a slight
positive effect on the gross margin related to product revenues.
Gross profit on contract revenues decreased 52% to $.37 million for the year
ended June 30, 1995 as compared to $.76 million for the same period ended June
30, 1994. The decrease is due to a higher mix of government contract revenues
during the period, which generally yield a lower profit margin, and completion
of certain government and commercial contracts that were not replaced with new
contracts. The Company had anticipated the decrease in total contract revenues,
primarily due to reductions in U.S. Government funding availability for research
and development type contracts. The Company's gross margin on contract revenues
decreased to 15.4% for the year ended June 30, 1995 from 17.4% for the year
ended June 30, 1994. The decrease was due to a higher mix of contract revenues
from government entities during the period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 29% to $5.1 million for the year ended June
30, 1995 from $4.0 million for the same period ended June 30, 1994. The increase
is due to increases in sales and marketing expenses associated with the addition
of personnel in applications support, sales and advertising, the expansion of
product advertising and trade show presence, additional administrative and
customer support personnel, increases in compensation levels, litigation costs
and increased costs associated with being a public company. A renegotiation and
extension of the Company's lease for its primary facility resulted in less rent
expense during fiscal 1995. Total selling, general and administrative expenses
as a percentage of total revenues decreased to 18% for the year ended June 30,
1995 from 20% for the same period ended June 30, 1994 due to the significantly
increased revenues for that fiscal period.
Research and Development Expenses. The Company's research and development
expense increased 57% to $2.9 million for the year ended June 30, 1995 from $1.9
million for the same period ended June 30, 1994. This increase was due to the
Company's additional development activity for new products and enhancements and
an increase in the number of engineering and research employees during the year.
Research and development expense as a percentage of total revenues increased to
10% for the year ended June 30, 1995 from 9% for the same period ended June 30,
1994.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Other Income and Expense. Other income, primarily interest income, increased to
$.34 million for the period ended June 30, 1995 from $.06 million expense for
the same period ended June 30, 1994. The increase is primarily due to investment
interest earned on proceeds from the Company's IPO and follow-on offering of
Common Stock and retirement of nearly all of the Company's outstanding debt.
Income Tax Benefit. Income tax benefit in fiscal 1995 reflects the reduction in
the valuation reserve for deferred tax assets. The reduction in the valuation
reserve resulted in recognizing net deferred tax assets of $469,801 during the
fourth quarter of fiscal 1995.
Liquidity and Capital Resources
The Company had $2.1 million in cash and cash equivalents at June 30, 1996, a
decrease of $4.8 million from June 30, 1995.
In fiscal 1996, net cash used by operating activities amounted to $4.5 million,
primarily to fund increases in accounts receivable and inventories due to
increased revenues and customer demand for the Company's FIB systems. The
increase in accounts receivable and inventories was partially offset by
increases in accounts payable and accrued expenses.
Investment activities in fiscal 1996 used $2.4 million, consisting primarily of
capital expenditures related to customer support, research and development,
manufacturing, administrative functions and facilities related improvements.
Net cash provided by financing activities in fiscal 1996 was $1.4 million and
consisted primarily of proceeds from a lease line of credit used to fund capital
purchases. At June 30, 1996, the Company had debt outstanding of $1.0 million
related to capitalized lease obligations.
The Company's existing bank line of credit provides for borrowings of up to
$10.0 million. The line of credit expires on December 1, 1997 and is unsecured.
At June 30, 1996, $340,000 was outstanding under the line of credit.
The Company believes that existing cash balances, together with its available
and expected lines of credit, will be sufficient to finance the Company's
operations and meet its foreseeable cash requirements at least through fiscal
1997.
Other
At June 30, 1996, the Company had available for financial statement and federal
income tax purposes a net operating loss carryforward of approximately $650,000
and tax credit carryforwards of approximately $500,000. The operating loss and
tax credit carryforwards expire in varying amounts in the years 2002 through
2007. Due to a change in ownership, substantially all of the net operating loss
utilization is subject to limitation under Internal Revenue Code Section 382.
See Note 11 of the Notes to Consolidated Financial Statements.
A significant portion of the Company's revenues are subject to the risks
associated with international sales. Although the Company's prices are generally
denominated in United States currency, customers in foreign countries usually
evaluate purchases of the Company's products on the purchase price expressed in
the customers' currency. Therefore, changes in foreign currency exchange rates
may adversely affect the sale of the Company's products.
<PAGE>
Exhibit 13.2
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Micrion Corporation:
We have audited the accompanying consolidated balance sheets of Micrion
Corporation and subsidiaries as of June 30, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended June 30, 1996. 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 Micrion
Corporation and subsidiaries as of June 30, 1996 and 1995, and the results of
their operations and their cash flows for each of the years in the three-year
period ended June 30, 1996, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
Boston, Massachusetts
August 1, 1996
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30,
----------------------------
1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,081,200 $ 6,851,100
Accounts receivable (notes 3, 9 and 10) 11,105,500 9,771,400
Inventories (note 4) 22,481,400 11,262,700
Prepaid expenses and other current assets 627,100 271,100
Net deferred tax assets (note 11) 1,816,200 469,800
- ---------------------------------------------------------------------------------------------------
Total current assets 38,111,400 28,626,100
- ---------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, net (notes 5 and 7) 3,234,600 1,561,700
OTHER ASSETS, net 224,800 298,000
- ---------------------------------------------------------------------------------------------------
Total assets $41,570,800 $30,485,800
- ---------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 6,472,700 3,262,100
Accrued expenses 2,834,900 1,624,700
Accrued warranty expenses 1,253,000 541,000
Current installments of obligations under
capital leases (note 7) 245,100 39,800
Note payable to bank (note 6) 340,000 --
Customer deposits and deferred income 389,200 355,700
- ---------------------------------------------------------------------------------------------------
Total current liabilities 11,534,900 5,823,300
- ---------------------------------------------------------------------------------------------------
OBLIGATIONS UNDER CAPITAL LEASES, net of
current installments (note 7) 779,100 25,500
COMMITMENTS AND CONTINGENCIES (note 7)
STOCKHOLDERS' EQUITY (note 8):
Preferred stock, no par value; authorized 5,000,000 shares -- --
Common stock, no par value; authorized 12,300,000 shares 31,426,800 28,814,400
Accumulated deficit (2,172,600) (4,176,700)
Other equity (deficit) 2,600 (700)
- ---------------------------------------------------------------------------------------------------
Total stockholders' equity 29,256,800 24,637,000
- ---------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $41,570,800 $30,485,800
- ---------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
For the years ended June 30,
-------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Product revenues (notes 9 and 10) $38,290,000 $26,396,600 $15,643,100
Contract revenues (note 10) 1,246,200 2,371,600 4,368,300
- -------------------------------------------------------------------------------------------------------
Total revenues 39,536,200 28,768,200 20,011,400
- -------------------------------------------------------------------------------------------------------
COST OF REVENUES:
Cost of product revenues 23,270,100 16,036,300 8,586,500
Cost of contract revenues 1,241,700 2,006,200 3,610,300
- -------------------------------------------------------------------------------------------------------
Total cost of revenues 24,511,800 18,042,500 12,196,800
- -------------------------------------------------------------------------------------------------------
Gross profit 15,024,400 10,725,700 7,814,600
OPERATING EXPENSES:
Selling, general and
administrative expenses 7,179,000 5,134,100 3,983,500
Research and development expenses 4,234,500 2,925,300 1,864,800
- -------------------------------------------------------------------------------------------------------
Total operating expenses 11,413,500 8,059,400 5,848,300
- -------------------------------------------------------------------------------------------------------
Income from operations 3,610,900 2,666,300 1,966,300
OTHER (EXPENSE) INCOME:
Litigation settlement (note 13) (2,684,500) -- --
Interest income 223,300 388,000 17,400
Interest expense (93,300) (21,800) (74,700)
Other 70,400 (30,300) (5,200)
- -------------------------------------------------------------------------------------------------------
Total other (expense) income (2,484,100) 335,900 (62,500)
- -------------------------------------------------------------------------------------------------------
Income before benefit
(provision) for income taxes 1,126,800 3,002,200 1,903,800
BENEFIT (PROVISION) FOR INCOME TAXES (note 11) 877,300 214,300 (187,000)
- -------------------------------------------------------------------------------------------------------
Net income $ 2,004,100 $ 3,216,500 $ 1,716,800
- -------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE $ .49 $ .91 $ .85
- -------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 4,077,200 3,535,000 2,025,000
- -------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
Convertible preferred stock Common stock
--------------------------- ------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, June 30, 1993 -- $ -- 1,335,010 $ 6,700
Conversion of common stock to
preferred stock at stated
liquidation preference 1,335,010 4,005,000 (1,335,010) (6,700)
Issuance of common stock -- -- 434,142 214,900
Repurchase of common stock -- -- (4,444) (700)
Conversion of preferred stock
to common stock pursuant to
initial public offering (1,335,010) (4,005,000) 1,335,010 12,866,700
Issuance of common stock
pursuant to initial public
offering, net of costs -- -- 1,000,000 4,679,400
Effect of foreign currency
translation -- -- -- --
Amortization of unearned
compensation -- -- -- --
Net income -- -- -- --
- ------------------------------------------------------------------------------------------
BALANCE, June 30, 1994 -- -- 2,764,708 17,760,300
Issuance of common stock
pursuant to follow-on
offering, net of costs -- -- 1,000,000 11,054,900
Repurchase of common stock -- -- (3,382) (800)
Conversion of warrants to
common stock -- -- 140,000 --
Effect of foreign currency
translation -- -- -- --
Decrease in loans to
shareholders -- -- -- --
Amortization of unearned
compensation -- -- -- --
Net income -- -- -- --
- ------------------------------------------------------------------------------------------
BALANCE, June 30, 1995 -- -- 3,901,326 28,814,400
Issuance of common stock
pursuant to employee stock
purchase plan -- -- 6,536 58,800
Issuance of common stock
pursuant to employee stock
option plan -- -- 1,750 19,100
Issuance of common stock
pursuant to settlement of
litigation (note 13) -- -- 119,202 2,534,500
Effect of foreign currency
translation -- -- -- --
Decrease in loans to
shareholders -- -- -- --
Amortization of unearned
compensation -- -- -- --
Net income -- -- -- --
- ------------------------------------------------------------------------------------------
BALANCE, June 30, 1996 -- $ -- 4,028,814 $31,426,800
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Additional Other Total
paid-in Accumulated equity stockholders'
capital deficit (deficit) equity
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, June 30, 1993 $12,860,000 $(9,110,000) $(37,500) $ 3,719,200
Conversion of common stock to
preferred stock at stated
liquidation preference (3,998,300) -- -- --
Issuance of common stock -- -- (87,700) 127,200
Repurchase of common stock -- -- -- (700)
Conversion of preferred stock
to common stock pursuant to
initial public offering (8,861,700) -- -- --
Issuance of common stock
pursuant to initial public
offering, net of costs -- -- -- 4,679,400
Effect of foreign currency
translation -- -- 800 800
Amortization of unearned
compensation -- -- 26,200 26,200
Net income -- 1,716,800 -- 1,716,800
- ---------------------------------------------------------------------------------------------------------
BALANCE, June 30, 1994 -- (7,393,200) (98,200) 10,268,900
Issuance of common stock
pursuant to follow-on
offering, net of costs -- -- -- 11,054,900
Repurchase of common stock -- -- -- (800)
Conversion of warrants to
common stock -- -- -- --
Effect of foreign currency
translation -- -- 36,700 36,700
Decrease in loans to
shareholders -- -- 19,000 19,000
Amortization of unearned
compensation -- -- 41,800 41,800
Net income -- 3,216,500 -- 3,216,500
- ---------------------------------------------------------------------------------------------------------
BALANCE, June 30, 1995 -- (4,176,700) (700) 24,637,000
Issuance of common stock
pursuant to employee stock
purchase plan -- -- -- 58,800
Issuance of common stock
pursuant to employee stock
option plan -- -- -- 19,100
Issuance of common stock
pursuant to settlement of
litigation (note 13) -- -- -- 2,534,500
Effect of foreign currency
translation -- -- (45,500) (45,500)
Decrease in loans to
shareholders -- -- 33,000 33,000
Amortization of unearned
compensation -- -- 15,800 15,800
Net income -- 2,004,100 -- 2,004,100
- ---------------------------------------------------------------------------------------------------------
BALANCE, June 30, 1996 $ -- $(2,172,600) $ 2,600 $29,256,800
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For the years ended June 30,
--------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,004,100 $ 3,216,500 $ 1,716,800
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation and amortization 795,800 555,800 387,900
Unearned compensation 15,800 41,800 153,400
Increase in deferred tax benefit (1,346,400) (469,800) --
Litigation settlement 2,534,500 -- --
Changes in assets and liabilities:
Accounts receivable (1,380,500) (6,256,400) (1,433,700)
Inventories (11,908,000) (5,584,300) (1,390,100)
Prepaid expenses and other current assets (361,600) (133,400) (46,600)
Accounts payable 3,198,000 1,691,100 (115,500)
Accrued expenses 1,233,100 46,900 627,900
Accrued warranty expenses 717,600 84,100 59,900
Customer deposits and deferred income 33,500 177,500 (785,900)
- -------------------------------------------------------------------------------------------------------------------
Net cash used by operating activities (4,464,100) (6,630,200) (825,900)
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,705,000) (769,200) (1,108,500)
Increase in other assets (1,100) (35,600) (216,000)
- -------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (1,706,100) (804,800) (1,324,500)
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from capital lease obligations 1,106,600 -- --
Repayments of capital lease obligations (147,700) (39,300) (33,300)
Net borrowings from line of credit 340,000 -- --
Repayments of notes payable -- -- (1,844,600)
Proceeds from sale of common stock, net 77,900 11,054,900 4,679,400
Repurchase of common stock, net -- (800) (700)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,376,800 11,014,800 2,800,800
- -------------------------------------------------------------------------------------------------------------------
Exchange rate changes on cash 23,500 33,200 (3,000)
- -------------------------------------------------------------------------------------------------------------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (4,769,900) 3,613,000 647,400
CASH AND CASH EQUIVALENTS, beginning of year 6,851,100 3,238,100 2,590,700
- -------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of year $ 2,081,200 $ 6,851,100 $ 3,238,100
- -------------------------------------------------------------------------------------------------------------------
SUMMARY OF NONCASH FINANCIAL TRANSACTIONS:
Fixed assets acquired under capital lease $ 689,300 $ -- $ 65,900
- -------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 56,400 $ 19,400 $ 86,500
- -------------------------------------------------------------------------------------------------------------------
Income taxes $ 154,100 $ 239,700 $ 54,200
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1996, 1995 and 1994
(1) NATURE OF BUSINESS
Micrion Corporation and its subsidiaries (the "Company") are engaged in the
development, production and marketing of capital equipment used in the
manufacturing and processing of semiconductor and other high technology devices.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The consolidated financial statements include the accounts of Micrion
Corporation and its wholly owned subsidiaries, Micrion Japan Corporation KK,
Micrion GmbH and Micrion Foreign Sales Corporation. All significant intercompany
balances and transactions have been eliminated in consolidation.
(b) Inventories
Inventories are stated at the lower of cost or market (net realizable value).
Cost is determined using the first-in, first-out (FIFO) method.
(c) Revenue Recognition
Product revenues are recorded at the time of factory acceptance by the customer,
with the exception of certain systems with significant engineering costs, which
are accounted for under the percentage of completion accounting method. Sales of
spare parts are recorded at the time of shipment and maintenance service
revenues are billed in advance as deferred revenue and are recognized as the
service is performed.
Contract revenues are accounted for under the percentage of completion
accounting method. Losses are recognized in full when they become known.
(d) Property and Equipment
Property and equipment is stated at cost. Depreciation and amortization of
property and equipment, leasehold improvements and assets under capital leases
are provided by straight-line or accelerated methods over the estimated useful
lives of the respective assets as follows:
Furniture and fixtures 7-10 years
Computer, engineering and production equipment 3-7 years
Sales demonstration systems 5 years
Leasehold improvements 5-10 years
Property under capital leases 3-5 years
License fees, which are included in other assets, are amortized using the
straight-line method over their estimated useful life, generally five years.
In accordance with Financial Accounting Standards Board Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," the Company reviews its long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. If it is determined that the carrying amount of
an asset cannot be fully recovered, an impairment loss is recognized.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued)
(e) New Accounting Pronouncement
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123
"Accounting for Stock-Based Compensation," which established financial
accounting and reporting standards for stock-based employee compensation plans.
Companies that do not adopt this new method will be required to make pro forma
footnote disclosures of net income as if the fair value-based method of
accounting required by SFAS No. 123 had been applied. The Company is required to
adopt SFAS No. 123 beginning in fiscal 1997. Adoption of this pronouncement is
not expected to have a material impact on the Company's financial position or
results of operations because the Company intends to make pro forma footnote
disclosures instead of adopting the new accounting method.
(f) Research and Development
Expenditures for research and development are charged against operations as
incurred. For the years ended June 30, 1996, 1995 and 1994, aggregate research
and development costs were $5,132,100, $4,531,700 and $4,659,300, respectively,
including $897,600, $1,606,400 and $2,794,500, respectively, of costs recovered
under research and development contracts.
(g) Income Taxes
The Company accounts for income taxes under the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years 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.
(h) Foreign Currency Translation
Assets and liabilities of the Company's foreign operations are translated into
U.S. dollars at the exchange rate in effect at the balance sheet date, and
revenue and expenses are translated at average rates in effect during the
period. The resulting translation adjustment is reflected as a separate
component of equity on the consolidated balance sheets. Transaction gains and
losses are reflected in the consolidated statements of operations and are
immaterial.
(i) Net Income per Share
Net income per share is computed based on the weighted average number of
equivalent shares of the Company's common stock outstanding during each period,
giving effect to stock options and warrants considered to be dilutive. Fully
diluted net income per share is not significantly different from primary net
income per share amounts.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued)
(j) Cash Equivalents
Cash equivalents consist of short-term investments with original maturities of
three months or less.
(k) Fair Value of Financial Instruments
The carrying value for cash and cash equivalents, accounts receivable, accounts
payable, capital lease obligations and short-term debt approximates fair value
because of the short maturity of these instruments.
(l) Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of
credit risk consist primarily of temporary cash and cash equivalents and
accounts receivable. The Company invests its excess cash primarily in high
quality securities of short duration and limits the amount of credit exposure to
any one financial institution. The Company also provides credit, in the normal
course of business, primarily to large multinational corporations. Credit risk
on trade receivables is minimized as the result of the strong financial position
of the Company's customer base.
(m) Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
<TABLE>
(3) ACCOUNTS RECEIVABLE
Accounts receivable consist of:
<CAPTION>
June 30,
----------------------------
1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Trade accounts $ 9,787,600 $ 8,018,200
Billed:
Product revenues with significant engineering costs 180,500 586,600
Research and development contracts in progress 86,100 200,000
Unbilled:
Product revenues with significant engineering costs 936,400 592,900
Research and development contracts in progress 114,900 373,700
- ---------------------------------------------------------------------------------------------
Total receivables $11,105,500 $ 9,771,400
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
(4) INVENTORIES
Inventories consist of:
<CAPTION>
June 30,
----------------------------
1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials and manufactured parts, net $10,081,800 $ 5,992,800
Work in process 11,157,900 4,816,900
Finished goods 1,241,700 453,000
- ---------------------------------------------------------------------------------------------
Total inventories $22,481,400 $11,262,700
- ---------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
(5) PROPERTY AND EQUIPMENT
Property and equipment consist of:
<CAPTION>
June 30,
------------------------------
1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C>
Furniture and fixtures $ 623,300 $ 471,300
Computer, engineering and production equipment 3,822,500 2,736,700
Sales demonstration systems 345,200 345,200
Leasehold improvements 242,800 193,200
Property under capital lease 1,884,300 777,700
- ------------------------------------------------------------------------------------
6,918,100 4,524,100
Accumulated depreciation and amortization (3,683,500) (2,962,400)
- ------------------------------------------------------------------------------------
Net property and equipment $ 3,234,600 $ 1,561,700
- ------------------------------------------------------------------------------------
</TABLE>
At June 30, 1996 and 1995, accumulated amortization for property under capital
lease was $878,500 and $742,600, respectively.
(6) INDEBTEDNESS
On July 2, 1993, the Company entered into a working capital line of credit
agreement with the Bank of Boston for borrowings up to $2,300,000, of which the
first $1,800,000 of borrowings were guaranteed by certain stockholders of the
Company. Amounts borrowed under this guaranteed portion bore interest at the
bank's prime rate plus 1% and any additional borrowings bore interest at the
bank's prime rate plus 1.5%. In consideration of the guarantee, the Company
issued to the guarantors, warrants to purchase 160,000 shares of common stock at
an exercise price of $1.50 per share (note 8). The agreement restricted the
Company from paying dividends in cash or shares to stockholders.
The agreement with the bank expired on September 30, 1994.
On October 21, 1994, the Company entered into a line of credit agreement with
Fleet Bank, N.A. which provided for borrowings up to $3.0 million. Amounts
borrowed bore interest at the bank's prime rate (9.0% at June 30, 1995). On
November 17, 1995, the Company modified the line of credit to provide borrowings
up to $5.0 million. Amounts borrowed bore interest at the bank's prime rate. On
May 16, 1996, the Company entered into a second modification of the line of
credit agreement to provide borrowings up to $10.0 million. Amounts borrowed
bear interest at the bank's prime rate (8.25% at June 30, 1996). The line of
credit expires on December 1, 1997. At June 30, 1996, $340,000 was outstanding
against the line of credit.
(7) LEASES
The Company occupies facilities under an operating lease. During fiscal 1995,
the lease was renegotiated and extended to an expiration date of February 2005.
Rent expense was approximately $592,900, $347,000 and $607,000 for the years
ended June 30, 1996, 1995 and 1994, respectively. Capital lease obligations
consist of amounts due under equipment leases expiring in December 2001.
Property under capital lease consists primarily of computers, engineering
equipment and related software.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
(7) LEASES (continued)
At June 30, 1996, future minimum lease payments under these noncancelable
agreements are as follows:
<CAPTION>
Capital Operating
Year ending June 30: Lease Lease
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
1997 $ 314,500 $ 553,500
1998 284,900 517,800
1999 246,100 509,500
2000 218,400 515,500
2001-2005 91,000 2,360,500
- ------------------------------------------------------------------------------------------------
Minimum future lease payments $1,154,900 $4,456,800
----------
Less amounts representing interest (130,700)
----------
Present value of future minimum lease payments 1,024,200
Less current installments (245,100)
----------
Obligations under capital lease, net of current installments $ 779,100
----------
</TABLE>
In addition, the Company is responsible for additional operating expenses
incurred by the lessor under the operating lease. Such expenses are
approximately $175,000, annually.
(8) STOCKHOLDERS' EQUITY
(a) Preferred Stock
On August 31, 1993, the Company was authorized to issue up to 5,000,000 shares
of preferred stock at no par value ("1993 Preferred Stock") and 1,335,010
outstanding shares of common stock were converted into the same number of shares
of 1993 Preferred Stock with a liquidation preference of $3.00 per share.
Effective May 11, 1994, the holders of a sufficient number of shares of the
Company's preferred stock elected, in accordance with the Company's Articles of
Organization, to convert all outstanding shares of preferred stock into the same
number of shares of common stock. In addition, on March 31, 1994, the
stockholders approved the creation of a new undesignated class of preferred
stock consisting of 5,000,000 shares, no par value. No shares of this class of
preferred stock have been issued as of June 30, 1996.
(b) Common Stock
On August 31, 1993, the Company's stockholders approved a reduction in the
authorized number of shares to 12,300,000 common shares at no par value. In
August 1993, the Board of Directors voted to adopt the 1993 Common Stock
Incentive Plan which provides for the award of up to 500,000 shares of common
stock to key employees and consultants. As of June 30, 1996, 429,698 shares of
stock have been awarded. The shares vest over a period of two to five years
depending on the employee's years of service with the Company. For the years
ended June 30, 1996 and 1995, the Company recorded $15,800 and $41,800,
respectively, as compensation expense in connection with this award.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) STOCKHOLDERS' EQUITY (continued)
On May 18, 1994, the Company completed its initial public offering ("IPO") by
issuing 1,000,000 shares of common stock at $5.50 per share, and proceeds, net
of underwriters' commissions and other expenses, amounted to $4,679,400. In
conjunction with the IPO, the Company issued warrants to the underwriters for
the purchase of an aggregate of 100,000 shares of common stock at a price of
$6.60 per share.
The warrants are exercisable beginning May 10, 1995 through May 10, 1999.
On December 7, 1994, the Company completed a follow-on public offering of
1,000,000 shares of common stock at $12.00 per share, and proceeds, net of
underwriters' commissions and other expenses, amounted to $11,054,900.
Concurrent with completion of this offering, 160,000 warrants issued in July
1993 were exercised on a net issue basis.
(c) Stock Options
On May 8, 1990, the Company adopted the 1990 Nonqualified Stock Option Plan.
Four hundred eighty-five shares of common stock are reserved for issuance under
this plan. At June 30, 1996, 390 options to purchase common stock at $30 per
share were outstanding, of which all options are exercisable. No activity under
this plan has occurred for the period from June 30, 1993 through June 30, 1996.
On March 31, 1994, the Company's stockholders approved the 1994 Omnibus Stock
Plan which initially provided for the issuance of up to 200,000 shares of common
stock pursuant to the grant of incentive stock options to employees and the
grant of nonqualified options or restricted stock to employees, consultants,
directors and officers of the Company. The stockholders also approved the 1994
Employee Stock Purchase Plan which provides for the sale of up to 100,000 shares
of common stock to eligible employees at a price at the lesser of 85% of fair
market value at either the date of grant or the date of exercise. On November 3,
1995, the Company's shareholders approved an amendment to the Company's 1994
Omnibus Stock Plan increasing the aggregate number of shares issuable under such
plan from 200,000 to 500,000 shares. As of June 30, 1996, 402,125 incentive
stock options have been issued at exercise prices ranging from $10.25 to $13.625
per share, of which 111,773 were exercisable and 1,750 have been exercised. As
of June 30, 1996, 6,536 shares have been issued under the 1994 Employee Stock
Purchase Plan.
On November 17, 1994, the Company's stockholders approved the 1994 Non-Employee
Director Stock Option Plan (the "Director Plan"). The Director Plan provides for
the issuance of a maximum amount of 50,000 shares of common stock pursuant to
the grant of stock options to eligible directors of the Company at an exercise
price equal to the fair market value of the common stock on the date of grant.
As of June 30, 1996, 30,000 shares have been granted under this plan at exercise
prices ranging from $13.375 to $15.00 per share, of which 10,625 shares were
exercisable and none of which have been exercised.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) STOCKHOLDERS' EQUITY (continued)
(d) Warrants
<TABLE>
The following is a summary of all outstanding warrants to purchase common stock
at June 30, 1996:
<CAPTION>
Allowable shares Price Expiration
under warrants per share Date
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
83 $9,000.00 June 30, 1998
100,000 $ 6.60 May 10, 1999
</TABLE>
(9) MARKETING AGREEMENT
In March 1988, the Company entered into a marketing agreement with a Japanese
distributor, Tokyo Electron Limited ("TEL"). The agreement grants TEL the right
to market, distribute, sell and service in Japan the Company's focused ion beam
wafer modification equipment and flat panel display laser repair equipment. The
agreement will remain in force unless terminated by mutual written agreement or
60 days written notice by either party. For the years ended June 30, 1996, 1995
and 1994, sales of $8,004,600, $8,044,700 and $7,010,600, respectively, were
made to TEL. At June 30, 1996 and 1995, receivables of $818,100 and $3,163,800,
respectively, were due.
(10) GEOGRAPHIC AND CUSTOMER INFORMATION
<TABLE>
The following summarizes the geographic distribution of the Company's revenues:
<CAPTION>
For the years ended June 30,
---------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Total revenue:
North America $12,402,200 $10,731,900 $11,336,000
Far East exports 23,260,800 16,215,700 7,010,600
Other foreign exports 3,873,200 1,820,600 1,664,800
- --------------------------------------------------------------------------------
Total revenues $39,536,200 $28,768,200 $20,011,400
- --------------------------------------------------------------------------------
</TABLE>
For the years ended June 30, 1996, 1995 and 1994, the U.S. Government accounted
for 3%, 6% and 13%, respectively, of total revenues. For the years ended June
30, 1996, 1995 and 1994, two, three and one customer(s), respectively, other
than the U.S. Government, accounted for 55%, 55% and 35%, respectively, of total
revenues. At June 30, 1996, the two customers accounted for 51% of total
accounts receivable.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) INCOME TAXES
<TABLE>
The components of the net deferred tax assets recognized in the consolidated
balance sheets are as follows:
<CAPTION>
June 30,
-------------------------------
1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets $1,834,500 $ 2,447,700
Deferred tax liabilities (18,300) (121,500)
Valuation allowance -- (1,856,400)
- -------------------------------------------------------------------------------
Net deferred tax assets $1,816,200 $ 469,800
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
The approximate tax effect of each type of temporary difference and tax credit
carryforwards before allocation of the valuation allowance is as follows:
<CAPTION>
June 30,
---------------------------
Deferred tax assets: 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Net operating loss carryforwards $ 218,700 $1,219,000
Reserves 1,063,500 697,600
Tax credit carryforwards 552,300 531,100
- --------------------------------------------------------------------------------
Deferred tax assets $1,834,500 $2,447,700
- --------------------------------------------------------------------------------
</TABLE>
The amount recorded as net deferred tax assets as of June 30, 1996 represents
the amount of tax benefits of existing deductible temporary differences or
carryforwards that are more likely than not to be realized through the
generation of sufficient future taxable income within the carryforward period.
The Company believes that the net deferred tax assets of $1,816,200 at June 30,
1996 will more likely than not be realized in the carryforward period using
anticipated results from operations. As of June 30, 1996, based on the Company's
level of net income and projected earnings, the Company reduced the valuation
allowance by $1,856,400. During the fourth quarter of fiscal 1996, the Company
recorded a tax benefit of $1,687,300 due to the reduction of the valuation
allowance. The Company's taxable income before net operating loss carryforwards
was $1,426,600 and $2,978,300 for the years ended June 30, 1995 and 1994,
respectively. The Company continuously re-evaluates the recoverability of
deferred tax assets.
<TABLE>
The components of the benefit (provision) for income taxes are as follows:
<CAPTION>
For the years ended June 30,
------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal:
Current $ (360,700) $ (68,100) $ (58,600)
Deferred 1,067,800 469,800 --
State:
Current (74,900) (180,000) (123,000)
Deferred 278,600 -- --
Foreign:
Current (33,500) (7,400) (5,400)
Deferred -- -- --
- -------------------------------------------------------------------------------
Benefit (provision) for income taxes $ 877,300 $ 214,300 $(187,000)
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) INCOME TAXES (continued)
<TABLE>
The actual income tax benefit (provision) differs from the "expected" tax
computed by applying the U.S. Federal corporate tax rate of 34% to income before
provision for income taxes as follows:
<CAPTION>
For the years ended June 30,
--------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected" tax provision $ (383,100) $(1,020,800) $(647,300)
(Increase) reduction in income taxes
resulting from:
State taxes, net of federal
income tax benefit (46,200) (114,700) (81,200)
Foreign taxes (66,900) (7,400) (5,400)
Foreign sales corporation benefit 204,900 -- --
Litigation settlement (861,800) -- --
Other 174,000 278,900 (1,000)
Change in valuation allowance 1,856,400 1,078,300 547,900
- -------------------------------------------------------------------------------------
Benefit (provision) for income taxes $ 877,300 $ 214,300 $(187,000)
- -------------------------------------------------------------------------------------
</TABLE>
For income tax purposes at June 30, 1996, the Company has net operating loss
carryforwards available to reduce future income of approximately $650,000 and
tax credit carryforwards of approximately $500,000. The net operating loss and
tax credit carryforwards expire in varying amounts in the years 2002 through
2007. The net operating losses are subject to limitations under section 382 of
the Internal Revenue Code. This limitation requires that the net operating loss
be absorbed gradually over the period 1996 through 1998. The Company expects to
utilize the full amount of its net operating loss and credit carryforwards.
(12) EMPLOYEE BENEFIT PLAN
In July 1987, the Company adopted a tax-qualified employee savings and
retirement plan under Internal Revenue Code Section 401(k) ("Plan"), covering
all of the Company's employees following three months of service and attainment
of the age of 18. Participants may elect to contribute to the Plan up to the
lesser of the statutorily prescribed annual limit or 20% of their pre-tax
compensation. The Plan permits, but does not require, additional matching
contributions by the Company on behalf of all participants in the Plan.
Effective January 1, 1996 the Company began matching one half of each employee's
contribution up to 3% of their salary. For fiscal 1996, the Company made
matching contributions of $102,800 to the Plan.
(13) SETTLEMENT OF LITIGATION
On May 7, 1996, the Company reached settlement with KLA Instruments Corporation
of litigation initiated by KLA in December, 1993, which alleged that the Company
had failed to abide with the Massachusetts Business Corporation Law and its
Articles of Organization in connection with the refinancing and recapitalization
of the Company during the period June through August 1993. Under the terms of
the noncash settlement, the Company issued 119,202 shares of Micrion common
stock in exchange for the release of all claims in the litigation, and recorded
the related expense of $2,684,500 in the fiscal 1996 fourth quarter.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(14) UNAUDITED INTERIM FINANCIAL INFORMATION
<TABLE>
Quarterly financial information is as follows:
(in thousands, except per share data)
<CAPTION>
For the quarters ended September 30, December 31, March 31, June 30,
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended June 30, 1996
Revenues $ 8,570 $ 8,872 $ 9,715 $12,379
Gross profit 2,904 3,291 3,679 5,150
Net income 486 580 446 491
Net income per share .12 .15 .11 .11
Year ended June 30, 1995
Revenues $ 6,088 $ 6,549 $ 7,925 $ 8,206
Gross profit 2,363 2,469 2,664 3,230
Net income 571 576 710 1,362
Net income per share .19 .17 .18 .34
- --------------------------------------------------------------------------------------------
<FN>
Note: Due to rounding, some totals may not add.
</TABLE>
(15) SUBSEQUENT EVENT
Subsequent to June 30, 1996, two actions were filed against the Company and
certain of its officers and directors. Each suit purports to be brought on
behalf of a class of purchasers of the Company's common stock from April 26,
1996 through June 21, 1996. The complaints assert claims under the federal
securities laws. The litigation is at the preliminary stage, and discovery has
not commenced. While the ultimate outcome of these actions is uncertain, it is
the opinion of management that the claims are wholly without merit and the
Company will vigorously defend these actions.
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-99850 and 33-87928) of Micrion Corporation of
our report dated August 1, 1996, with respect to the consolidated financial
statements of Micrion Corporation for the year ended June 30, 1996, which
report appears in the June 30, 1996 Annual Report on Form 10-K of Micrion
Corporation.
KPMG Peat Marwick LLP
Boston, Massachusetts
September 26, 1996
DS1-293270
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRCTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,081
<SECURITIES> 0
<RECEIVABLES> 11,106
<ALLOWANCES> 0
<INVENTORY> 22,481
<CURRENT-ASSETS> 38,111
<PP&E> 3,235
<DEPRECIATION> 796
<TOTAL-ASSETS> 41,571
<CURRENT-LIABILITIES> 11,535
<BONDS> 0
0
0
<COMMON> 31,427
<OTHER-SE> (2,170)
<TOTAL-LIABILITY-AND-EQUITY> 29,257
<SALES> 38,290
<TOTAL-REVENUES> 39,536
<CGS> 23,270
<TOTAL-COSTS> 24,512
<OTHER-EXPENSES> 2,484
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 93
<INCOME-PRETAX> 3,611
<INCOME-TAX> (877)
<INCOME-CONTINUING> 1,127
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,004
<EPS-PRIMARY> .49
<EPS-DILUTED> .48
</TABLE>
Exhibit 99.1
CAUTIONARY STATEMENT FOR PURPOSES OF THE
"SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Micrion Corporation (the "Company") desires to take advantage of the
new "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995 and is including this Exhibit 99.1 in its Form 10-K in order to do so.
The Company wishes to caution readers that the following important
factors, among others, in some cases have affected, and in the future could
affect, the Company's actual results and could cause the Company's actual
consolidated results for the Company's current quarter and beyond, to differ
materially from those expressed in any forward-looking statements made by, or on
behalf of, the Company:
The exercise of cancellation or termination provisions contained in the
Company's multiple-system purchase agreement with Read-Rite Corporation,
including provisions that entitle the customer to cancel issued purchase orders
or to terminate the agreement for convenience.
The inability of the Company to make deliveries required under the
multiple-system purchase agreement referenced in the preceding paragraph or any
other purchase orders as a result of a lack of production capacity, manpower,
inability to acquire necessary materials for manufacturing, or otherwise.
Difficulties associated with the use of the Company's machines for
production applications, which are new applications of the Company's equipment,
by the customer who is a party to the multiple-system purchase agreement
referenced in the preceding paragraph or by any other customers similarly using
the Company's machines, and the warranty, service and other costs that might
result in connection with such difficulties.
Any factor adversely affecting the semiconductor industry, which is
highly cyclical, or particular segments within the semiconductor industry.
A variety of factors which vary substantially over time, including:
conditions in the semiconductor industry; competitive pricing pressures; the
timing of orders from customers; the timing of new product introductions by the
Company and competitors; customer acceleration, cancellation or delay of
shipments; changes in the mix of types of systems sold; changes in the mix of
systems, service and parts revenues; the length of sales cycles; the relative
proportions of domestic and foreign shipments; the mix of product and contract
revenues; the mix and timing of government and commercial contracts activity;
the level and timing of selling, general and administrative expenses and
research and development expenses; specific feature needs of customers, some of
which may be available in competitors' systems but not in the Company's systems;
production delays; and currency exchange rate fluctuations.
The timing of recognition of revenue from a single system order, either
pursuant to customer acceptance of a system or percentage of completion contract
accounting; announcements by the Company or its competitors of new products and
technologies; the deferral or loss of an anticipated order could have a material
adverse effect on the Company's results of operations.
Difficulties in developing and introducing new products and
enhancements on a timely and cost effective basis or in product selection,
timely and efficient completion of product design, implementation of
manufacturing and assembly processes and effective sales and marketing;
reliability or quality problems with new products.
Inability to anticipate both future demand and the availability of
technology to satisfy that demand in the development of new products.
Factors in connection with the facts that certain of the Company's
competitors and potential competitors have substantially greater financial,
marketing, technological and production resources than the Company and that
certain of these competitors are themselves semiconductor manufacturers, and,
therefore, familiar with semiconductor manufacturing.
Inability of the Company to manage growth in production and in its
employee base, which has placed, and will continue to place, a significant
strain on the Company's management, financial and operating resources, and to
expand its customer services and support, increase personnel throughout the
Company, expand operational and financial systems and implement new control
procedures; inability to attract qualified personnel or successfully manage
expanded operations; inability to deal with constraints that might adversely
affect its ability to satisfy customer demand in a timely fashion or to provide
consistent levels of support to existing customers.
Factors inherent in international operations, including changes in
demand resulting from fluctuations in exchange rates, the risk of government
financed or subsidized competition, changes in trade policies and tariff
regulations, difficulties in obtaining U.S. export licenses and geopolitical
risks, and fluctuations in foreign currencies that might impact the prices
quoted by the Company to prospective customers and thereby affect the Company's
ability to obtain orders from such foreign customers.
Factors related to the fact that the Company markets and sells its
products through independent sales representatives and a Japanese distributor,
which results in lower gross profit margins on sales to foreign customers and
the fact that an increase in the proportion of international sales could
negatively affect the Company's gross profit margins.
A lack of success, or associated costs, in defending pending lawsuits
brought by certain stockholders of the Company, each of which purports to be
brought on behalf of a class of purchasers of the Company's common stock from
April 26, 1996 through June 21, 1996,
2
alleging that the Company made false and misleading statements to the public
concerning the nature of its sales agreement with Read-Rite Corporation.
The loss of one or more significant customers or the inability of the
Company to attract new customers to replace these customers.
Risks associated with the expenditures of substantial funds and
management effort in anticipation of a sale even though a sale may not result
from the effort, as a result of lengthy sales cycles.
The risk of significant delays or interruptions in the delivery of
components or parts, such as high voltage power suppliers, from current
suppliers, receipt of defective components or parts, as well as difficulties or
delays in shifting manufacturing capacity to new suppliers.
Inability to attract and retain certain qualified employees, such as
key scientific, marketing and management personnel, who are in limited supply
and are difficult to attract and retain.
Difficulties in protecting the Company's technology or in responding to
the development of similar technology by others.
Interruption by fire, earthquakes or other catastrophic events, power
failures, work stoppages, regulatory actions or other causes to either of the
Company's production facilities, where the Company's manufacturing inventory is
maintained.
1-293271
3
