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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, 1997 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 01960-7990
PEABODY, MASSACHUSETTS (Zip Code)
(Address of principal executive offices)
(978) 538-6700
(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
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The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant was $93,983,985 as of September 19, 1997.
The number of shares of the registrant's Common Stock outstanding as of
September 19, 1997 was 4,050,791.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Stockholders for the fiscal year
ended June 30, 1997 (the "1997 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 3, 1997 (the "Proxy
Statement") are incorporated by reference in Part III.
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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(R) 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 the time needed to get new products 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 MicroMillTM HT and 9500HT FIB systems, 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 equipment manufacturers to produce 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 and 1997, the MicroMill HT and 9500HT FIB
systems were introduced to help meet the need of producing smaller, more precise
magnetic heads.
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
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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 (lithography) 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 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
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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.
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 reveal 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.
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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
attributes of substrate handling are accurate x/y navigation and the ability to
tilt 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. A product development program is currently underway to
design and produce FIB systems that will accommodate the next generation of
silicon wafers, which are 12" in diameter.
The Micrion 9000EX Series adds a state-of-the-art field emission SEM
column to 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 9000IL Series is specifically designed for use in-line in a
semiconductor fabrication facility. Unlike most FIB systems, which are used in
laboratory-like environments, the 9500IL is intended for use in a clean room
production environment. Accordingly, the 9500IL is equipped with a stainless
steel exterior and features an automatic cassette-to-cassette wafer handling
system. An FIB system in-line permits the semiconductor manufacturer to get
answers to process problems more quickly, resulting in increased yields.
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
fact, 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 9800 FlipChipTM system is specifically designed to facilitate
the circuit modification or probing of ICs that are packaged using the
increasingly popular flip-chip packaging technology. In a flip-chip package, the
IC is mounted upside down and bonded directly to the package, burying the active
circuitry under a thick layer of bulk silicon. Micrion's 9800 FlipChip system
incorporates a high current column, laser interferometer stage, in-situ
optical/IR microscope, and a proprietary enhanced gas etching technology to
quickly and precisely access exactly the right location, then perform the
microsurgery necessary for probing or circuit modification.
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 Micrion 9500HT system combines the flexibility of the basic 9500
system with some of the sophisticated machine vision and software features of
the MicroMill HT system, resulting in a tool that is ideally suited for process
monitoring, failure analysis and pilot production of new magnetic head designs.
All head trimming parameters developed on the 9500HT are readily transferable to
the MicroMill HT for high-volume production.
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.
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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 used primarily to prepare samples for viewing in transmission
electron microscopes.
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 found within both
the semiconductor industry and the data storage industry. At this time, the
largest market segment of the semiconductor industry market consists of failure
analysis laboratories where FIB systems are used for circuit modification,
failure analysis and process control in support of both semiconductor design and
wafer fabrication groups. The need for FIB systems by semiconductor design
groups will be driven by the growing number of new designs introduced each year
and the increasing complexity of these designs. The need for FIB systems by
wafer fabrication groups will be driven by the increasing complexity of the
semiconductor products being produced and the need for fast, thorough answers to
process problems which may affect manufacturing yields. The urgency of solving
yield-threatening problems in the fabs appears to be creating a new market
segment within the semiconductor industry for FIB systems to be used in-line in
the fabs, in addition to being used in the failure analysis laboratories.
Another market segment within the semiconductor industry, mask repair,
includes both 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 market for Micrion FIB systems within the data storage industry
consists of the manufacturers of magnetic read/write heads used in computer disk
drives. Disk drive manufacturers compete to achieve the highest data storage
capacity at the lowest cost. Data storage capacity depends on many factors
including the size and performance of the magnetic 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. The need for FIB systems by magnetic head manufacturers will be driven by
the ability of FIB systems to produce smaller heads, cost effectively.
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 Feldkirchen, Germany, employs two sales engineers
for Europe and Western Asia. The Company's sales engineers are supported by
management personnel.
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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, 1997, 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, 1997,
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 marketing manager,
one technical manager, four service engineers and one administrator.
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, 1997, ETEC maintained a
staff of one salesman and seven service engineers in support of Micrion's FIB
products.
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.
Micrion has entered into an arrangement with ZMC Technologies, Ltd. (ZMC),
to provide 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, 1997, ZMC maintained a staff of ten 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, 1997, consisted of 28 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.
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As of June 30, 1997, the field service group consisted of 33 field
engineers stationed around the world near the Company's installed systems. 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.
In 1997, the Company established a new customer support "call center" to
help customers with the answers, technical assistance and support they need. In
addition, the "help desk" operation of the call center provides greater support
and direction for the Company's field service representatives.
RESEARCH AND DEVELOPMENT
As of June 30, 1997, the Company's research and development effort
employed 54 scientists and engineers, 20 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 1997, 1996 and 1995, the Company spent $5.8 million, $4.2
million and $2.9 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 1997, 1996
and 1995, the Company received research and development revenues of $1.2
million, $1.2 million and $2.4 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 1997,
1996 or 1995. 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
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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.
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 number of patents in 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 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.
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EMPLOYEES
As of June 30, 1997, the company had a total of 253 full-time employees,
consisting of 56 in research, development and engineering, 145 in manufacturing,
customer support and quality assurance, 35 in sales and marketing and 17 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 53,000 square
feet under a lease that expires in February 2005. The Company leases an
additional 38,000 square feet at Ten Technology Drive, Peabody, Massachusetts,
under a lease that expires in July 2001; the space is 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; Feldkirchen, 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 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. On December 6, 1996, the plaintiffs in
both actions filed an amended consolidated complaint. The consolidated complaint
does not contain a claim against Billy W. Ward. The consolidated complaint
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. It 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. The Company filed a motion to dismiss the
consolidated complaint for failure to state a claim. This motion was denied on
April 30, 1997. The Company believes the consolidated complaint 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 this lawsuit 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, 1997.
10
<PAGE> 11
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.
<TABLE>
<CAPTION>
NAME AGE POSITION AND BUSINESS EXPERIENCE
- ---- --- --------------------------------
<S> <C> <C>
Nicholas P. Economou...... 48 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........... 53 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.......... 52 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........... 51 Senior Vice President, Marketing.
Mr. Doherty has been Senior Vice
President, Marketing, since January 1997
and was Vice President, Marketing, from
1983 to January 1997, and a Director of
the Company from 1983 to 1988, from 1991
to 1993 and from 1994 until 1996.
Billy W. Ward............. 44 Senior Vice President, Chief Engineer.
Mr. Ward has been Senior Vice President
and Chief Engineer, 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, from 1993 to 1994 and since
November 1996.
Robert K. McMenamin....... 55 Vice President, Sales.
Mr. McMenamin has been Vice President, Sales, since
1990. Mr. McMenamin joined the Company in 1988 as
Sales Manager.
Frank Frontiero........... 43 Vice President, Manufacturing.
Mr. Frontiero has been Vice President, Manufacturing,
since November 1996. Prior to that time, he served in
various capacities since joining the Company in 1984
and was Director of Manufacturing, from January 1994
to November 1996.
</TABLE>
11
<PAGE> 12
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 19, 1997, there were approximately 133
holders of record and approximately 4,000 holders in street name 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.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1997
First Quarter.................................$14 1/2 $ 8 3/4
Second Quarter................................ 22 3/4 10 3/8
Third Quarter................................. 28 1/4 12 1/4
Fourth Quarter................................ 19 11 1/2
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
</TABLE>
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.
12
<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
For the years ended June 30,
----------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Amounts in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Total revenue $55,979 $39,536 $28,768 $20,011 $11,871
Income from operations 5,009 3,611 2,666 1,966 355
Net income 3,049 *2,004 3,217 1,717 200
Income from operations per share 1.19 .89 .75 .97 .19
Net income per share .72 *.49 .91 .85 .11
At year end:
Total assets $54,384 $41,571 $30,486 $14,144 $ 9,612
Long-term capital lease obligations 1,355 779 26 68 425
Total stockholders' equity 32,448 29,257 24,637 10,269 3,719
</TABLE>
- ------------------------
* 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 1997 Annual Report on
pages 12 through 15 and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item appears in the 1997 Annual Report on
pages 16 through 30 and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
13
<PAGE> 14
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 2
and 3 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 13 and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required is contained in the Proxy Statement on pages 8
and 9 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 1 and 2 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.
14
<PAGE> 15
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, 1997 and June 30, 1996
Consolidated Statements of Income for the years ended June 30, 1997
June 30, 1996 and June 30, 1995
Consolidated Statements of Stockholders' Equity for the years ended
June 30, 1997, June 30, 1996 and June 30, 1995
Consolidated Statements of Cash Flows for the years ended June 30,
1997, June 30, 1996 and June 30, 1995
(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 NUMBER DESCRIPTION OF DOCUMENT
- -------------- -----------------------
*3.1 Restated Articles of Organization of the Registrant.
3.2 Amended and Restated By-laws of the Registrant (as amended
March 28, 1997).
+4.1 Specimen Stock Certificate. (treb clef)
4.2 Rights Agreement dated July 30, 1997 between the Company as
Rights Agent (including exhibits thereto).
X+10.1 Registrant's Incentive Stock Plan, as amended
(the "1986 Plan").
X+10.2 Form of Stock Restriction Agreement under the 1986 Plan.
X+10.3 Registrant's 1990 Nonqualified Stock Option Plan, as amended
(the "1990 Option Plan").
X+10.4 Form of Stock Option Agreement under the 1990 Option Plan.
X+10.5 Registrant's 1993 Common Stock Incentive Plan, as amended (the
"1993 Plan").
X+10.6 Form of Stock Restriction Agreement under the 1993 Plan,
together with vesting schedule for executive officers.
10.7 Registrant's 1994 Amended and Restated Omnibus Stock Plan.
X+10.8 Registrant's 1994 Stock Purchase Plan.
X#10.8.1 Registrant's 1994 Non-Employee Director Stock Option Plan.
15
<PAGE> 16
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
+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.
+10.10 Development Agreement, dated as of June 10, 1993, by and
between the Registrant and SEMATECH, Inc.
+10.11 Agreement dated as of May 6, 1993, by and between the
Registrant and U.S. Army Research Laboratory, as amended.
+10.12 Distributor Agreement between the Registrant and Tokyo Electron
Limited, dated as of March 1, 1988.
+10.23 Form of Employee Agreement.
*10.25 Common Stock Purchase Warrants issued to RvR Securities Corp.
and Fechtor, Detwiler & Co., Inc., in connection with
Registrant's initial public offering.
10.31 Letter Agreement, dated July 31, 1997, by and between the
Registrant and Fleet National Bank ("Fleet").
10.32 Promissory (Term) Note of the Registrant in favor of Fleet,
dated July 31, 1997.
10.33 Promissory (Revolving) Note of the Registrant in favor of
Fleet, dated July 31, 1997.
10.34 Inventory, Accounts Receivable and Intangibles Security
Agreement from the Registrant to Fleet.
10.35 Supplemental Security Agreement from the Registrant to Fleet.
10.36 Security Agreement (Patents) from the Registrant to Fleet.
10.37 Security Agreement (Trademarks) from the Registrant to Fleet.
11.1 Statement of Computation of Per Share Earnings.
13.1 Management's Discussion and Analysis of Financial Condition and
Results of Operations from 1997 Annual Report to Stockholders.
13.2 Consolidated Financial Statements and Notes thereto from 1997
Annual Report to Stockholders.
@21.1 Subsidiaries of Registrant.
23.1 Consent of KPMG Peat Marwick LLP.
27.1 Financial Data Schedule.
99.1 Cautionary Statement for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act of
1995.
- -------------------------------
+ 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.
X Management contract or compensatory plan or arrangement.
16
<PAGE> 17
* Incorporated by reference to the same exhibit number to the
Registrant's 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.
(treb clef) Incorporated by reference from the Company's Registration
Statement on Form 8-A filed with the Commission on July 30, 1997.
(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, 1997.
17
<PAGE> 18
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, 1997 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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Nicholas P. Economou President, Chief Executive Officer September 26, 1997
- -------------------------- and Director (Principal Executive
Nicholas P. Economou Officer)
/s/ David M. Hunter Vice President, Finance and September 26, 1997
- -------------------------- Administration (Principal
David M. Hunter Financial and Accounting Officer)
/s/ Billy W. Ward Senior Vice President, Chief September 26, 1997
- -------------------------- Engineer and Director
Billy W. Ward
/s/ Charles M. McKenna Director September 26, 1997
- --------------------------
Charles M. McKenna
/s/ Louis P. Valente Director September 26, 1997
- --------------------------
Louis P. Valente
/s/ Thomas W. Folger Director September 26, 1997
- --------------------------
Thomas W. Folger
</TABLE>
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED BY-LAWS
OF
MICRION CORPORATION
ARTICLE I
STOCKHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of the stockholders shall be
held within six months after the end of the corporation's fiscal year on such
date, and at such place and time, as may be determined each year by the board of
directors. If in any year the annual meeting is not held within the period
specified above, a special meeting in lieu thereof may be held at a later time
and any elections held or business transacted at such meeting shall have the
same force and effect as if held or transacted at the annual meeting.
SECTION 2. SPECIAL MEETINGS. Special meetings of the stockholders may be
called at any time by the president or by the board of directors and shall be
called by the clerk, or in case of the death, absence, incapacity or refusal of
the clerk, by any other officer, upon written application of one or more
stockholders who hold at least 40% in interest of the capital stock entitled to
vote thereat. Such application shall specify the purposes for which the meeting
is to be called and may designate the date, hour and place of such meeting,
provided, however, that no such application shall designate a date not a full
business day or an hour not within normal business hours as the date or hour of
such meeting without the approval of the president or the board of directors.
SECTION 3. PLACE OF MEETINGS. Meetings of the stockholders may be held any
where within, but not without, the United States.
SECTION 4. NOTICE. Except as hereinafter provided, a written or printed
notice of every meeting of stockholders stating the place, date, hour and
purposes thereof shall be given by the clerk or an assistant clerk (or by any
other officer in the case of an annual meeting or by the person or persons
calling the meeting in the case of a special meeting) at least seven (7) days
before the meeting to each stockholder entitled to vote thereat and to each
stockholder who, by law, by the articles of organization or by these by-laws, is
entitled to such notice, by leaving such notice with him or at his residence or
usual place of business or by mailing it, postage prepaid, addressed to him at
his address as it appears upon the records of the corporation. No notice of the
place, date, hour or purposes of any annual or special meeting of stockholders
need be given to a stockholder if a written waiver of such notice, executed
before or after the
<PAGE> 2
meeting by such stockholder or his attorney thereunto authorized, is filed with
the records of the meeting.
SECTION 5. ACTION AT A MEETING. Except as otherwise provided by the
articles of organization, at any meeting of the stockholders a majority of all
shares of stock then issued, outstanding and entitled to vote (including shares
as to which a nominee has no voting authority as to certain matters brought
before the meeting) shall constitute a quorum for the transaction of business.
Though less than a quorum be present, any meeting may without further notice be
adjourned to a subsequent date or until a quorum be had, and at any such
adjourned meeting any business may be transacted which might have been
transacted which might have been transacted at the original meeting.
When a quorum is present at any meeting, the affirmative vote of a
majority of the shares of stock present or represented and entitled to vote
shall be necessary and sufficient to the determination of such question, unless
a larger vote is required by law, by the articles of organization or by these
by-laws; provided, however, that any election by stockholders shall be
determined by a plurality of the votes cast by the stockholders entitled to vote
in such election. Shares as to which a nominee has no voting authority as to a
particular question or questions brought before the meeting will not be deemed
to be cast with respect to such question or questions.
Except as otherwise provided by law or by the articles of organization or
by these by-laws, each holder of record of shares of stock entitled to vote on
any matter shall have one vote for each such share held of record by him and a
proportionate vote for any fractional shares so held by him. Stockholders may
vote either in person or by proxy. No proxy dated more than six months before
the meeting named therein shall be valid and no proxy shall be valid after the
final adjournment of such meeting. A proxy with respect to stock held in the
name of two or more persons shall be valid if executed by any one of them unless
at or prior to the exercise of the proxy the corporation receives a specific
written notice to the contrary from any one of them. A proxy purporting to be
executed by or on behalf of a stockholder shall be deemed valid unless
challenged at or prior to its exercise and the burden of proving its invalidity
shall rest on the challenger.
Any election by stockholders and the determination of any other questions
to come before a meeting of the stockholders shall be by ballot if so requested
by any stockholder entitled to vote thereon but need not be otherwise.
SECTION 6. ACTION WITHOUT A MEETING. Any action required or permitted to
be taken at any meeting of the stockholders may be taken without a meeting if
all stockholders entitled to vote
2
<PAGE> 3
on the matter consent to the action in writing and the written consents are
filed with the records of the meetings of stockholders. Such consents shall be
treated for all purposes as a vote at a meeting.
ARTICLE II
DIRECTORS
SECTION 1. NUMBER AND ELECTION. Except as otherwise provided by law or by
the articles of organization, the number of directors for the ensuing year shall
be determined from time to time by the board of directors and shall be elected
at the annual meeting of the stockholders by such stockholders as have the right
to vote thereon. No decrease in the number of directors constituting the board
of directors shall shorten the term of any incumbent director.
SECTION 2. TERM. The provisions of Chapter 156B, Section 50A of the
Massachusetts General Laws with respect to staggered terms for directors shall
apply to this corporation. Commencing with the first annual meeting of the
stockholders following June 30, 1997 (the "Commencement Meeting"), the directors
of this corporation shall be classified, with respect to the time for which they
severally hold office, into three classes, as nearly equal in number as
possible; the term of office of those of the first class ("Class I Directors")
to continue until the first annual meeting of stockholders following the
Commencement Meeting and until their successors are duly elected and qualified;
the term of office of those of the second class ("Class II Directors") to
continue until the second annual meeting of stockholders following the
Commencement Meeting and until their successors are duly elected and qualified;
and the term of office of those of the third class ("Class III Directors") to
continue until the third annual meeting of stockholders following the
Commencement Meeting and until their successors are duly elected and qualified.
At each annual meeting of stockholders, the successors to the class of directors
whose term expires at that meeting shall be elected to hold office for a term
continuing until the annual meeting held in the third year following the year of
their election and until their successors are duly elected and qualified.
SECTION 3. RESIGNATIONS. Any director may resign by delivering his or her
written resignation to the corporation at its principal office or to the
president or clerk or, if there be one, to the secretary. Such resignation shall
become effective at the time or upon the happening of the condition, if any,
specified therein or, if no such time or condition is specified, upon its
receipt.
3
<PAGE> 4
SECTION 4. REMOVAL. At any meeting of the stockholders called for the
purpose, any director may be removed from office only for cause (as defined in
Section 50A of Chapter 156B of the Massachusetts General Laws) by the
affirmative vote of a majority of the shares issued, outstanding and entitled to
vote in the election of directors. At any meeting of the board of directors, any
director may be removed from office for cause by vote of a majority of the
directors then in office.
SECTION 5. VACANCIES. Vacancies and newly created directorships, whether
resulting from an increase in the size of the board of directors, from the
death, resignation, disqualification or removal of a director or otherwise,
shall be filled solely by the affirmative vote of a majority of directors then
in office, even though less than a quorum of the board of directors. Any
director elected in accordance with this Section 5 shall hold office for the
remainder of the full term of the class of directors in which the vacancy
occurred or the new directorship was created and until such director's successor
shall have been elected and qualified.
SECTION 6. REGULAR MEETINGS. Regular meetings of the board of directors
may be held at such times and places within or without The Commonwealth of
Massachusetts as the board of directors may fix from time to time and, when so
fixed, no notice thereof need be given. The first meeting of the board of
directors following the annual meeting of the stockholders shall be held without
notice immediately after and at the same place as the annual meeting of the
stockholders or the special meeting held in lieu thereof. If in any year a
meeting of the board of directors is not held at such time and place, any
elections to be held or business to be transacted at such meeting may be held or
transacted at any later meeting of the board of directors with the same force
and effect as if held or transacted at such meeting.
SECTION 7. SPECIAL MEETINGS. Special meetings of the board of directors
may be called at any time by the president or secretary (or, if there be no
secretary, the clerk) or by any director. Such special meetings may be held
anywhere within or without The Commonwealth of Massachusetts. A written, printed
or telegraphic notice stating the place, date and hour (but not necessarily the
purposes) of the meeting shall be given by the secretary or an assistant
secretary (or, if there be no secretary or assistant secretary, the clerk or an
assistant clerk) or by the officer or director calling the meeting at least
forty-eight (48) hours before such meeting to each director by leaving such
notice with him or at his residence or usual place of business or by mailing it,
postage prepaid, or sending it by prepaid telegram, addressed to him at his last
known address. No notice of the place, date or hour of any meeting of the board
of directors need be given to any director if a written waiver of
4
<PAGE> 5
such notice, executed by him before or after the meeting, is filed with the
records of the meeting, or to any director who attends the meeting without
protesting prior thereto or at its commencement the lack of notice to him.
SECTION 8. ACTION AT A MEETING. At any meeting of the board of directors,
a majority of the directors then in office shall constitute a quorum. Though
less than a quorum be present, any meeting may without further notice be
adjourned to a subsequent date or until a quorum be had. When a quorum is
present at any meeting a majority of the directors present may take any action
on behalf of the board except to the extent that a larger number is required by
law, by the articles of organization or by these by-laws.
SECTION 9. ACTION WITHOUT A MEETING. Any action required or permitted to
be taken at any meeting of the directors may be taken without a meeting if all
the directors consent to the action in writing and the written consents are
filed with the records of the meetings of the directors. Such consents shall be
treated for all purposes as a vote at a meeting.
SECTION 10. POWERS. The board of directors shall have and may exercise all
the powers of the corporation, except such as by law, by the articles of
organization or by these by-laws are conferred upon or reserved to the
stockholders. In the event of any vacancy in the board of directors, the
remaining directors then in office, except as otherwise provided by law, shall
have and may exercise all of the powers of the board of directors until the
vacancy is filled.
SECTION 11. COMMITTEES. The board of directors may elect from the board an
executive committee or one or more other committees and may delegate to any such
committee or committees any or all of the powers of the board except those which
by law, by the articles of organization or by these by-laws may not be so
delegated. Such committees shall serve at the pleasure of the board of
directors. Except as the board of directors may otherwise determine, each such
committee may make rules for the conduct of its business, but, unless otherwise
determined by the board or in such rules, its business shall be conducted as
nearly as may be as is provided in these by-laws for the conduct of the business
of the board of directors.
SECTION 12. MEETING BY TELECOMMUNICATIONS. Members of the board of
directors or any committee elected thereby may participate in a meeting of such
board or committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in a meeting can hear each
other at the same time and participation by such means shall constitute presence
in person at the meeting.
5
<PAGE> 6
ARTICLE III
OFFICERS
SECTION 1. ENUMERATION. The officers of the corporation shall consist of a
president, a treasurer and a clerk and such other officers, including without
limitation a chairman of the board of directors, a secretary and one or more
vice presidents, assistant treasurers, assistant clerks and assistant
secretaries, as the board of directors may from time to time determine.
SECTION 2. QUALIFICATIONS. No officer need be a stockholder or a director.
The same person may hold at the same time one or more offices unless otherwise
provided by law. The clerk shall be a resident of Massachusetts unless the
corporation shall have a resident agent. Any officer may be required by the
board of directors to give a bond for the faithful performance of his duties in
such form and with such sureties as the board may determine.
SECTION 3. ELECTIONS. The president, treasurer and clerk shall be elected
annually by the board of directors at its first meeting following the annual
meeting of the stockholders. All other officers shall be chosen or appointed by
the board of directors.
SECTION 4. TERM. Except as otherwise provided by law, by the articles of
organization or by these by-laws, the president, treasurer and clerk shall hold
office until the first meeting of the board of directors following the next
annual meeting of the stockholders and until their respective successors are
chosen and qualified. All other officers shall hold office until the first
meeting of the board of directors following the next annual meeting of the
stockholders, unless a shorter time is specified in the vote choosing or
appointing such officer or officers.
SECTION 5. RESIGNATIONS. Any officer may resign by delivering his written
resignation to the corporation at its principal office or to the president or
clerk, or, if there be one, to the secretary. Such resignation shall be
effective at the time or upon the happening of the condition, if any, specified
therein or, if no such time or condition is specified, upon its receipt.
SECTION 6. REMOVAL. Any officer may be removed from office with or without
cause by vote of a majority of the directors then in office. An officer may be
removed for cause only after a reasonable notice and opportunity to be heard
before the board of directors.
SECTION 7. VACANCIES. Vacancies in any office may be filled by the board
of directors.
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SECTION 8. CERTAIN DUTIES AND POWERS. The officers designated below,
subject at all times to these by-laws and to the direction and control of the
board of directors, shall have and may exercise the respective duties and powers
set forth below:
THE CHAIRMAN OF THE BOARD OF DIRECTORS. The chairman of the board of
directors, if there be one, shall, when present, preside at all meetings
of the board of directors.
THE PRESIDENT. The president shall be the chief executive officer of
the corporation and shall have general operating charge of its business.
Unless otherwise prescribed by the board of directors, he shall, when
present, preside at all meetings of the stockholders, and, if a director,
at all meetings of the board of directors unless there be a chairman of
the board of directors who is present at the meeting.
THE TREASURER. The treasurer shall be the chief financial officer
of the corporation and shall cause to be kept accurate books of account.
THE CLERK. The clerk shall keep a record of all proceedings of the
stockholders and, if there be no secretary, shall also keep a record of
all proceedings of the board of directors. In the absence of the clerk
from any meeting of the stockholders or, if there be no secretary, from
any meeting of the board of directors, an assistant clerk, if there be
one, otherwise a clerk pro tempore designated by the person presiding at
the meeting, shall perform the duties of the clerk at such meeting.
THE SECRETARY. The secretary, if there be one, shall keep a record
of all proceedings of the board of directors. In the absence of the
secretary, if there be one, from any meeting of the board of directors, an
assistant secretary, if there be one, otherwise a secretary pro tempore
designated by the person presiding at the meeting, shall perform the
duties of the secretary at such meeting.
SECTION 9. OTHER DUTIES AND POWERS. Each officer, subject at all times to
these by-laws and to the direction and control of the board of directors, shall
have and may exercise, in addition to the duties and powers specifically set
forth in these by-laws, such duties and powers as are prescribed by law, such
duties and powers as are commonly incident to his office and such duties and
powers as the board of directors may from time to time prescribe.
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ARTICLE IV
CAPITAL STOCK
SECTION 1. AMOUNT AND ISSUANCE. The total number of shares and the par
value, if any, of each class of stock which the corporation is authorized to
issue shall be stated in the articles of organization. The directors may at any
time issue all or from time to time any part of the unissued capital stock of
the corporation from time to time authorized under the articles of organization,
and may determine, subject to any requirements of law, the consideration for
which stock is to be issued and the manner of allocating such consideration
between capital and surplus.
SECTION 2. CERTIFICATES. Each stockholder shall be entitled to a
certificate or certificates stating the number and the class and the designation
of the series, if any, of the shares held by him, and otherwise in form approved
by the board of directors. Such certificate or certificates shall be signed by
the president or a vice president and by the treasurer or an assistant
treasurer. Such signatures may be facsimiles if the certificate is signed by a
transfer agent, or by a registrar, other than a director, officer or employee of
the corporation. In case any officer who has signed or whose facsimile signature
has been placed on such certificate shall have ceased to be such officer before
such certificate is issued, it may be issued by the corporation with the same
effect as if he were such officer at the time of its issue.
Every certificate issued for shares of stock at a time when such shares
are subject to any restriction on transfer pursuant to the articles of
organization, these by-laws or any agreement to which the corporation is a party
shall have the restriction noted conspicuously on the certificate and shall also
set forth on the face or back of the certificate either (i) the full text of the
restriction or (ii) a statement of the existence of such restriction and a
statement that the corporation will furnish a copy thereof to the holder of such
certificate upon written request and without charge.
Every certificate issued for shares of stock at a time when the
corporation is authorized to issue more than one class or series of stock shall
set forth on the face or back of the certificate either (i) the full text of the
preferences, voting powers, qualifications and special and relative rights of
the shares of each class and series, if any, authorized to be issued, as set
forth in the articles of organization or (ii) a statement of the existence of
such preferences, powers, qualifications and rights and a statement that the
corporation will furnish a copy thereof to the holder of such certificate upon
written request and without charge.
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SECTION 3. TRANSFERS. The board of directors may make such rules and
regulations not inconsistent with the law, with the articles of organization or
with these by-laws as it deems expedient relative to the issue, transfer and
registration of stock certificates. The board of directors may appoint a
transfer agent and a registrar of transfers or either and require all stock
certificates to bear their signatures. Except as otherwise provided by law, by
the articles of organization or by these by-laws, the corporation shall be
entitled to treat the record holder of any shares of stock as shown on the books
of the corporation as the holder of such shares for all purposes, including the
right to receive notice of and to vote at any meeting of stockholders and the
right to receive any dividend or other distribution in respect of such shares.
SECTION 4. RECORD DATE. The board of directors may fix in advance a time,
which shall be not more than sixty (60) days before the date of any meeting of
stockholders or the date for the payment of any dividend or the making of any
distribution to stockholders or the last day on which the consent or dissent of
stockholders may be effectively expressed for any purpose, as the record date
for determining the stockholders having the right to notice of and to vote at
such meeting and any adjournment thereof or the right to receive such dividend
or distribution or the right to give such consent or dissent, and in such case
only stockholders of record on such record date shall have such right,
notwithstanding any transfer of stock on the books of the corporation after the
record date; or without fixing such record date the directors may for any of
such purposes close the transfer books for all or any part of such period.
SECTION 5. LOST CERTIFICATES. The board of directors may, except as
otherwise provided by law, determine the conditions upon which a new certificate
of stock may be issued in place of any certificate alleged to have been lost,
mutilated or destroyed.
ARTICLE V
MISCELLANEOUS PROVISIONS
SECTION 1. FISCAL YEAR. The fiscal year of the corporation shall begin on
the first day of July in each year and end on the last day of June next
following.
SECTION 2. CORPORATE SEAL. The seal of the corporation shall be in such
form as shall be determined from time to time by the board of directors.
SECTION 3. CORPORATION RECORDS. The original, or attested copies, of the
articles of organization, by-laws and records of
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all meetings of the incorporators and stockholders, and the stock and transfer
records, which shall contain the names of all stockholders and the record
address and the amount of stock held by each, shall be kept in The Commonwealth
of Massachusetts at the principal office of the corporation in said Commonwealth
or at an office of the transfer agent or of its clerk or of its resident agent,
if any. Said copies and records need not all be kept in the same office. They
shall be available at all reasonable times to inspection by any stockholder for
any proper purpose but not if the purpose for which such inspection is sought is
to secure a list of stockholders or other information for the purpose of selling
said list or information or copies thereof or of using the same for a purpose
other than the interest of the applicant, as a stockholder, relative to the
affairs of the corporation.
SECTION 4. VOTING OF SECURITIES. Except as the board of directors may
otherwise prescribe, the president or the treasurer shall have full power and
authority in the name and on behalf of the corporation, subject to the
instructions of the board of directors, to waive notice of, to attend, act and
vote at, and to appoint any person or persons to act as proxy or attorney in
fact for this corporation (with or without power of substitution) at any meeting
of stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation.
ARTICLE VI
AMENDMENTS
These by-laws may be amended or repealed at any annual or special meeting
of the stockholders by the affirmative vote of a majority of the shares of
capital stock then issued, outstanding and entitled to vote provided notice of
the proposed amendment or repeal is given in the notice of the meeting.
If authorized by the articles or organization, these by-laws may also be
amended or repealed in whole or in part, or new by-laws made, by the board of
directors except with respect to any provision hereof which by law, the articles
of organization or these by-laws requires action by the stockholders. Not later
than the time of giving notice of the meeting of stockholders next following the
making, amendment or repeal by the directors of any by-laws, notice thereof
stating the substance of such change shall be given to all stockholders entitled
to vote on amending the by-laws. Any by-law to be made, amended or repealed by
the directors may be amended or repealed by the stockholders.
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Exhibit 10.7
MICRION CORPORATION
AMENDED AND RESTATED
1994 OMNIBUS STOCK PLAN
--------------
1. Purpose. This Micrion Corporation Amended and Restated 1994 Omnibus
Stock Plan (the "Plan") is intended to provide incentives (a) to the officers
and other employees of Micrion Corporation (the "Company"), its parent (if any)
and any present or future subsidiaries of the Company (collectively, "Related
Corporations") by providing them with opportunities to purchase stock in the
Company pursuant to options which qualify as "incentive stock options" under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
granted hereunder ("ISO" or "ISOs"); (b) to directors, officers, employees and
consultants of the Company and Related Corporations by providing them with
opportunities to purchase stock in the Company pursuant to options granted
hereunder which do not qualify as ISOs ("Non-Qualified Option" or "Non-Qualified
Options"); and (c) to directors, officers, employees and consultants of the
Company and Related Corporations by providing them with opportunities to make
direct purchases of restricted stock in the Company ("Restricted Stock"). Both
ISOs and Non-Qualified Options are referred to hereafter individually as an
"Option" and collectively as "Options." As used herein, the terms "parent" and
"subsidiary" mean "parent corporation" and "subsidiary corporation" as those
terms are defined in Section 424 of the Code.
2. Administration of the Plan. (a) The Plan shall be administered by
the Board of Directors of the Company (the "Board"). The Board may appoint a
Compensation Committee (the "Committee") of two or more of its members to
administer the Plan. In the event the Company registers any class of any equity
security pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), each member of the Committee shall be a
"non-employee director" as defined in Rule 16b-3 under the Exchange Act. Subject
to ratification of the grant of each Option or Restricted Stock by the Board (if
so required by applicable state law), and subject to the terms of the Plan, the
Committee, if so appointed, shall have the authority to (i) determine the
employees of the Company and Related Corporations (from among the class of
employees eligible under paragraph 3 to receive ISOs) to whom ISOs may be
granted, and to determine (from among the class of individuals and entities
eligible under paragraph 3 to receive Non- Qualified Options and Restricted
Stock) to whom Non-Qualified Options or Restricted Stock may be granted; (ii)
determine the time or times at which Options or Restricted Stock may be granted;
(iii) determine the option price of shares subject to each Option, which
<PAGE> 2
price with respect to ISOs shall not be less than the minimum specified in
paragraph 6, and the purchase price of Restricted Stock; (iv) determine whether
each Option granted shall be an ISO or a Non-Qualified Option; (v) determine
(subject to paragraph 7) the time or times when each Option shall become
exercisable and the duration of the exercise period; (vi) determine whether
restrictions such as repurchase options are to be imposed on shares subject to
Options and to Restricted Stock, and the nature of such restrictions, if any;
and (vii) interpret the Plan and prescribe and rescind rules and regulations
relating to it. If the Committee determines to issue a Non-Qualified Option, it
shall take whatever actions it deems necessary, under Section 422 of the Code
and the regulations promulgated thereunder, to ensure that such Option is not
treated as an ISO. The interpretation and construction by the Committee of any
provisions of the Plan or of any Option or authorization or agreement for
Restricted Stock granted under it shall be final unless otherwise determined by
the Board. The Committee may from time to time adopt such rules and regulations
for carrying out the Plan as it may deem best. No member of the Board or the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Option or Restricted Stock granted under it.
(b) The Committee may select one of its members as its chairman, and
shall hold meetings at such time and places as it may determine. Acts by a
majority of the Committee, or acts reduced to or approved in writing by a
majority of the members of the Committee, shall be the valid acts of the
Committee. All references in the Plan to the Committee shall mean the Board if
there is no Committee so appointed. From time to time the Board may increase the
size of the Committee and appoint additional members thereof, remove members
(with or without cause), and appoint new members in substitution therefor, fill
vacancies however caused, or remove all members of the Committee and thereafter
directly administer the Plan.
3. Eligible Employees and Others. ISOs may be granted to any officer
or other employee of the Company or any Related Corporation. Those directors of
the Company who are not employees may not be granted ISOs under the Plan.
Non-Qualified Options and Restricted Stock may be granted to any director
(whether or not an employee), officer, employee or consultant of the Company or
any Related Corporation. The Committee may take into consideration an optionee's
individual circumstances in determining whether to grant an ISO or a
Non-Qualified Option or Restricted Stock. Granting of any Option or Restricted
Stock to any individual or entity shall neither entitle that individual or
entity to, nor disqualify him from, participation in any other grant of Options
or Restricted Stock.
4. Stock. The stock subject to Options and Restricted Stock shall be
authorized but unissued shares of Common Stock of the Company, no par value per
share (the "Common Stock"), or shares of
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Common Stock re-acquired by the Company in any manner. The aggregate number of
shares which may be issued pursuant to the Plan is 1,000,000, subject to
adjustment as provided in paragraph 13. Any such shares may be issued as ISOs,
Non-Qualified Options or Restricted Stock so long as the aggregate number of
shares so issued does not exceed such number, as adjusted. If any Option
granted under the Plan shall expire or terminate for any reason without having
been exercised in full or shall cease for any reason to be exercisable in whole
or in part, or if any Restricted Stock shall be reacquired by the Company by
exercise of its repurchase option, the shares subject to such expired or
terminated Option and reacquired shares of Restricted Stock shall again be
available for grants of Options or Restricted Stock under the Plan.
5. Grants Under the Plan. Options or Restricted Stock may be granted
under the Plan at any time prior to September 5, 2007. Any such grants of ISOs
shall be subject to the receipt, within 12 months of September 5, 1997, of the
approval of Stockholders as provided in paragraph 17. The date of grant of an
Option under the Plan will be the date specified by the Committee at the time
it awards the Option; provided, however, that such date shall not be prior to
the date of award. The Committee shall have the right, with the consent of the
optionee, to convert an ISO granted under the Plan to a Non-Qualified Option
pursuant to paragraph 15.
6. Minimum Option Price. (a) The price per share specified in the
agreement relating to each ISO granted under the Plan shall not be less than the
fair market value per share of Common Stock on the date of such grant. In the
case of an ISO to be granted to an employee owning stock possessing more than
ten percent of the total combined voting power of all classes of stock of the
Company or any Related Corporation, the price per share specified in the
agreement relating to such ISO shall not be less than 110 percent of the fair
market value of Common Stock on the date of grant.
(b) In no event shall the aggregate fair market value (determined at
the time the option is granted) of Common Stock for which ISOs granted to any
employee are exercisable for the first time by such employee during any calendar
year (under all stock option plans of the Company and any Related Corporation)
exceed $100,000.
(c) The price per share specified in the agreement related to each
Non-Qualified Option granted under the Plan shall not be less than eighty-five
percent (85%) of the fair market value of a share of Common Stock on the date of
such grant.
(d) If, at the time an Option is granted under the Plan, the Company's
Common Stock is publicly traded, "fair market value" shall be determined as of
the last business day for which the prices or quotes discussed in this sentence
are available prior to the date such Option is granted and shall mean (i) the
average (on that date) of the high and low prices of the Common Stock on the
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principal national securities exchange on which the Common Stock is traded, if
such stock is then traded on a national securities exchange; or (ii) the last
reported sale price (on that date) of the Common Stock on the NASDAQ National
Market System, if the Common Stock is not then traded on a national securities
exchange; or (iii) the closing bid price (or average of bid prices) last quoted
(on that date) by an established quotation service for over-the-counter
securities, if the Common Stock is not reported on the NASDAQ National Market
System or on a national securities exchange. However, if the Common Stock is not
publicly traded at the time an Option is granted under the Plan, "fair market
value" shall be deemed to be the fair value of the Common Stock as determined by
the Committee after taking into consideration all factors which it deems
appropriate, including, without limitation, recent sale and offer prices of the
Common Stock in private transactions negotiated at arm's length.
7. Option Duration. Subject to earlier termination as provided in
paragraphs 9 and 10, each Option shall expire on the date specified by the
Committee, but not more than ten years from the date of grant or, in the case of
ISOs granted to an employee owning stock possessing more than ten percent of the
total combined voting power of all classes of stock of the Company or any
Related Corporation, not more than five years from date of grant. Subject to
earlier termination as provided in paragraphs 9 and 10, the term of each ISO
shall be the term set forth in the original instrument granting such ISO, except
with respect to any part of such ISO that is converted into a Non-Qualified
Option pursuant to paragraph 15.
8. Exercise of Option. Subject to the provisions of paragraphs 9
through 12, each Option granted under the Plan shall be exercisable as follows:
(a) The Option shall either be fully exercisable on the date of grant
or shall become exercisable thereafter in such installments as the Committee may
specify.
(b) Once an installment becomes exercisable it shall remain
exercisable until expiration or termination of the Option, unless otherwise
specified by the Committee.
(c) Each Option or installment may be exercised at any time or from
time to time, in whole or in part, for up to the total number of shares with
respect to which it is then exercisable.
(d) The Committee shall have the right to accelerate the date of
exercise of any installment; provided that the Committee shall not accelerate
the exercise date of any installment of any Option granted to any employee as an
ISO (and not previously converted into a Non-Qualified Option pursuant to
paragraph 15) if such acceleration would violate the annual vesting limitation
contained in Section 422(d) of the Code which provides generally that the
aggregate fair market value (determined at the time the option is
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granted) of the stock with respect to which ISOs granted to any employee are
exercisable for the first time by such employee during any calendar year (under
all plans of the Company and any Related Corporation) shall not exceed $100,000.
9. Termination of Employment. If an ISO optionee ceases to be employed
by the Company or any Related Corporation other than by reason of death or
disability as provided in paragraph 10, no further installments of his ISOs
shall become exercisable, and his ISOs shall terminate after the passage of 60
days from the date of termination of his employment, but in no event later than
on their specified expiration dates except to the extent that such ISOs (or
unexercised installments thereof) have been converted into Non-Qualified
Options pursuant to paragraph 15. Leave of absence with the written approval of
the Committee shall not be considered an interruption of employment under the
Plan, provided that such written approval contractually obligates the Company or
any Related Corporation to continue the employment of the employee after the
approved period of absence. Employment shall also be considered as continuing
uninterrupted during any other bona fide leave of absence (such as those
attributable to illness, military obligations or governmental service) provided
that the period of such leave does not exceed 90 days or, if longer, any period
during which such optionee's right to reemployment is guaranteed by statute.
Nothing in the Plan shall be deemed to give any grantee of any Option or
Restricted Stock the right to be retained in employment or other service by the
Company or any Related Corporation for any period of time. ISOs granted under
the Plan shall not be affected by any change of employment within or among the
Company and Related Corporations, so long as the optionee continues to be an
employee of the Company or any Related Corporation. In granting any
Non-Qualified Option, the Committee may specify that such Non-Qualified Option
shall be subject to the restrictions set forth herein with respect to ISOs, or
to such other termination or cancellation provisions as the Committee may
determine.
10. Death; Disability; Dissolution. If an optionee ceases to be
employed by the Company and all Related Corporations by reason of his death, any
Option of his may be exercised, to the extent of the number of shares with
respect to which he could have exercised it on the date of his death, by his
estate, personal representative or beneficiary who has acquired the Option by
will or by the laws of descent and distribution, at any time prior to the
earlier of the Option's specified expiration date or 180 days from the date of
the optionee's death.
If an optionee ceases to be employed by the Company and all Related
Corporations by reason of his disability, he shall have the right to exercise
any Option held by him on the date of termination of employment, to the extent
of the number of shares with respect to which he could have exercised it on that
date, at any time prior to the earlier of the Option's specified expiration date
or 180
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days from the date of the termination of the optionee's employment. For the
purposes of the Plan, the term "disability" shall have the meaning assigned to
it in Section 22(e)(3) of the Code or any successor statute.
In the case of a partnership, corporation or other entity holding a
Non-Qualified Option, if such entity is dissolved, liquidated, becomes insolvent
or enters into a merger or acquisition with respect to which such optionee is
not the surviving entity, such Option shall terminate immediately.
11. Assignability. Subject to the provisions of this Section 11, (a) no
Option shall be transferable otherwise than by will, by the laws of descent and
distribution, or by operation of a "qualified domestic relations order," as that
term is defined in the Code, and (b) during the lifetime of the Optionee, rights
under the Option may be exercised only by the Optionee, the Optionee's guardian
or legal representative, or by the assignee of the Option under such a
"qualified domestic relations order." Notwithstanding the foregoing, the
Committee may provide for greater transferability in the case of any Option
including, without limitation, transfer to one or more members of the Optionee's
family. Unless otherwise provided by the Committee, the conditions and criteria
governing the exercise or payment of such an Option (by way of example
accelerated vesting upon death or disability or the attainment of performance
goals applicable to the Optionee) shall, following any permitted transfer,
continue to be determined by reference to the Optionee and not the transferee.
In no event shall ISOs awarded under the Plan be transferable other than as
permitted under the rules prescribed in or under the Code for incentive stock
options. An award that is intended to be exempt under Rule 16b-3 under the
Exchange Act or any successor rule, or that is intended to qualify for the
performance-based exception under Section 162(m) of the Code, shall be
transferable only to the extent consistent with such exemption or qualification.
12. Terms and Conditions of Options. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including transfer and repurchase restrictions applicable to
shares of Common Stock issuable upon exercise of Options. The Committee may from
time to time confer authority and responsibility on one or more of its own
members and/or one or more officers of the Company to execute and deliver such
instruments. The proper officers of the Company are authorized and directed to
take any and all action necessary or advisable from time to time to carry out
the terms of such instruments.
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13. Adjustments. Upon the happening of any of the following described
events, an optionee's rights with respect to Options granted to him hereunder
shall be adjusted as hereinafter provided:
(a) In the event shares of Common Stock shall be sub-divided or
combined into a greater or smaller number of shares or if, upon a merger,
consolidation, reorganization, split-up, liquidation, combination,
recapitalization or the like of the Company, the shares of Common Stock shall be
exchanged for other securities of the Company or of another corporation, each
optionee shall be entitled, subject to the conditions herein stated, to purchase
such number of shares of common stock or amount of other securities of the
Company or such other corporation as were exchangeable for the number of shares
of Common Stock which such optionee would have been entitled to purchase except
for such action, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination, or exchange.
(b) In the event the Company shall issue any of its shares as a stock
dividend upon or with respect to the shares of stock of the class which shall at
the time be subject to option hereunder, each optionee upon exercising an Option
shall be entitled to receive (for the purchase price paid upon such exercise)
the shares as to which he is exercising his Option and, in addition thereto (at
no additional cost), such number of shares of the class or classes in which such
stock dividend or dividends were declared or paid, and such amount of cash in
lieu of fractional shares, as he would have received if he had been the holder
of the shares as to which he is exercising his Option at all times between the
date of grant of such Option and the date of its exercise.
(c) Notwithstanding the foregoing, any adjustments made pursuant to
subparagraph (a) or (b) shall be made only after the Committee, after consulting
with counsel for the Company, determines whether such adjustments with respect
to ISOs will constitute a "modification" of such ISOs as that term is defined in
Section 424 of the Code, or cause any adverse tax consequences for the holders
of such ISOs. No adjustments shall be made for dividends paid in cash or in
property other than securities of the Company.
(d) No fractional shares shall actually be issued under the Plan. Any
fractional shares which, but for this subparagraph (d), would have been issued
to an optionee pursuant to an Option, shall be deemed to have been issued and
immediately sold to the Company for their fair market value, and the optionee
shall receive from the Company cash in lieu of such fractional shares.
(e) Upon the happening of any of the foregoing events described in
subparagraphs (a) or (b) above, the class and aggregate number of shares set
forth in paragraph 4 hereof which are subject to Options which previously have
been or subsequently may be granted under the Plan shall also be appropriately
adjusted
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to reflect the events specified in such subparagraphs. The Committee shall
determine the specific adjustments to be made under this paragraph 13, and
subject to paragraph 2, its determination shall be conclusive.
14. Means of Exercising Options. An Option (or any part or installment
thereof) shall be exercised by giving written notice to the Company at its
principal office address. Such notice shall identify the Option being exercised
and specify the number of shares as to which such Option is being exercised,
accompanied by full payment of the purchase price therefor either (i) in United
States dollars in cash or by check, or (ii) at the discretion of the Committee,
through delivery of shares of Common Stock having fair market value equal as of
the date of the exercise to the cash exercise price of the Option, or (iii) at
the discretion of the Committee, by delivery of the optionee's personal recourse
note bearing interest payable not less than annually at no less than 100% of the
lowest applicable Federal rate, as defined in Section 1274(d) of the Code, or
(iv) at the discretion of the Committee, by any combination of (i), (ii) and
(iii) above. If the Committee exercises its discretion to permit payment of the
exercise price of an ISO by means of the methods set forth in clauses (ii) or
(iii) of the preceding sentence, such discretion shall be exercised in writing
at the time of the grant of the ISO in question. The holder of an Option shall
not have the rights of a shareholder with respect to the shares covered by his
Option until the date of issuance of a stock certificate to him for such shares.
Except as expressly provided above in paragraph 13 with respect to change in
capitalization and stock dividends, no adjustment shall be made for dividends or
similar rights for which the record date is before the date such stock
certificates are issued.
15. Conversion of ISOs into Non-Qualified Options: Termination of ISOs.
The Committee, at the written request of any optionee, may in its discretion
take such actions as may be necessary to convert such optionee's ISOs (or any
installments or portions of installments thereof) that have not been exercised
on the date of conversion into Non-Qualified Options at any time prior to the
expiration of such ISOs, regardless of whether the optionee is an employee of
the Company or a Related Corporation at the time of such conversion. Such
actions may include, but not be limited to, extending the exercise period or
reducing the exercise price of the appropriate installments of such Options. At
the time of such conversion, the Committee (with the consent of the optionee)
may impose such conditions on the exercise of the resulting Non-Qualified
Options as the Committee in its discretion may determine, provided that such
conditions shall not be inconsistent with the Plan. Nothing in the Plan shall be
deemed to give any optionee the right to have such optionee's ISOs converted
into Non-Qualified Options, and no such conversion shall occur until and unless
the Committee takes appropriate action. The Committee, with the consent of the
optionee, may also terminate any portion of any ISO that has not been exercised
at the time of such termination.
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<PAGE> 9
16. Restricted Stock. Each grant of Restricted Stock under the Plan
shall be evidenced by an instrument (a "Restricted Stock Agreement") in such
form as the Committee shall prescribe from time to time in accordance with the
Plan and shall comply with the following terms and conditions, and with such
other terms and conditions as the Committee, in its discretion, shall establish:
(a) The Committee shall determine the number of shares of Common Stock
to be issued to an eligible person pursuant to the grant of Restricted Stock,
and the extent, if any, to which they shall be issued in exchange for cash,
other consideration, or both.
(b) Shares issued pursuant to a grant of Restricted Stock may not be
sold, assigned, transferred, pledged or otherwise disposed of, except by will or
the laws of descent and distribution, or as otherwise determined by the
Committee in the Restricted Stock Agreement, for such period as the Committee
shall determine, from the date on which the Restricted Stock is granted (the
"Restricted Period"). The Company will have the option to repurchase the Common
Stock at such price as the Committee shall have fixed in the Restricted Stock
Agreement which option will be exercisable (i) if the participant's continuous
employment or performance of services for the Company and the Related
Corporations shall terminate prior to the expiration of the Restricted Period,
(ii) if, on or prior to the expiration of the Restricted Period or the earlier
lapse of such repurchase option, the participant has not paid to the Company an
amount equal to any federal, state, local or foreign income or other taxes which
the Company determines is required to be withheld in respect of such Restricted
Stock, or (iii) under such other circumstances as determined by the Committee in
its discretion. Such repurchase option shall be exercisable on such terms, in
such manner and during such period as shall be determined by the Committee in
the Restricted Stock Agreement. Each certificate for shares issued as Restricted
Stock shall bear an appropriate legend referring to the foregoing repurchase
option and other restrictions; shall be deposited by the stockholder with the
Company, together with a stock power endorsed in blank; or shall be evidenced in
such other manner permitted by applicable law as determined by the Committee in
its discretion. Any attempt to dispose of any such shares in contravention of
the foregoing repurchase option and other restrictions shall be null and void
and without effect. If shares issued as Restricted Stock shall be repurchased
pursuant to the repurchase option described above, the stockholder, or in the
event of his death, his estate, personal representative, or beneficiary who has
acquired the Option by will or by the laws of descent and distribution, shall
forthwith deliver to the Secretary of the Company the certificates for the
shares, accompanied by such instrument of transfer, if any, as may reasonably be
required by the Secretary of the Company. If the repurchase option described
above is not exercised by the Company, such repurchase option and the
restrictions imposed pursuant to the first sentence of this subparagraph (b)
shall terminate and be of no further force and effect.
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<PAGE> 10
(c) If a person who has been in continuous employment or performance
of services for the Company or a Related Corporation since the date on which
Restricted Stock was granted to him shall, while in such employment or
performance of services, die, or terminate such employment or performance of
services by reason of disability or by reason of early, normal or deferred
retirement under an approved retirement program of the Company or a Related
Corporation (or such other plan or arrangement as may be approved by the
Committee in its discretion, for this purpose) and any of such events shall
occur after the date on which the Restricted Stock was granted to him and prior
to the end of the Restricted Period, the Committee may determine to cancel the
repurchase option (and any and all other restrictions) on any or all of the
shares of Restricted Stock; and the repurchase option shall become exercisable
at such time as to the remaining shares, if any.
17. Term and Amendment of Plan. This Plan shall expire on September 5,
2007 (except as to Options and Restricted Stock outstanding on that date). The
Board may terminate or amend the Plan in any respect at any time. No amendment
of the Plan shall adversely affect in a material manner any right of any
Optionee or purchaser of Restricted Stock without his written consent, under any
Option or Restricted Stock previously granted to him.
18. Application of Funds. The proceeds received by the Company from the
sale of shares pursuant to Options and Restricted Stock authorized under the
Plan shall be used for general corporate purposes.
19. Governmental Regulation. The Company's obligation to sell and
deliver shares of the Common Stock under this Plan is subject to the approval of
any governmental authority required in connection with the authorization,
issuance or sale of such shares.
20. Withholding of Additional Income Taxes. The Company, in accordance
with the Code, may, upon exercise of a Non-Qualified Option or the purchase of
Common Stock for less than its fair market value or the lapse of restrictions on
Restricted Stock or the making of a Disqualifying Disposition (as defined in
paragraph 21) require the employee to pay additional withholding taxes in
respect of the amount that is considered compensation includible in such
person's gross income.
21. Notice to Company of Disqualifying Disposition. Each employee who
receives ISOs shall agree to notify the Company in writing immediately after the
employee makes a disqualifying disposition of any Common Stock received pursuant
to the exercise of an ISO (a "Disqualifying Disposition"). Disqualifying
Disposition means any disposition (including any sale) of such stock before the
later of (a) two years after the employee was granted the ISO under which he
acquired such stock, or (b) one year after the employee acquired such stock by
exercising such ISO. If the employee has died before such stock is sold, these
holding
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<PAGE> 11
period requirements do not apply and no Disqualifying Disposition will
thereafter occur.
22. Governing Laws; Construction. The validity and construction of the
Plan and the instruments evidencing Options and Restricted Stock shall be
governed by the laws of The Commonwealth of Massachusetts. In construing this
Plan, the singular shall include the plural and the masculine gender shall
include the feminine and neuter, unless the context otherwise requires.
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<PAGE> 1
Exhibit 10.31
MICRION CORPORATION
One Corporation Way
Peabody, MA 01960
July 31, 1997
Fleet National Bank
75 State Street
Boston, MA 02109
Gentlemen:
This letter agreement will set forth certain understandings between
Micrion Corporation, a Massachusetts corporation (the "Borrower") and Fleet
National Bank (the "Bank") with respect to Revolving Loans and the Term Loan
(each as hereinafter defined) to be made by the Bank to the Borrower and with
respect to letters of credit which may hereafter be issued by the Bank for the
account of the Borrower. In consideration of the mutual promises contained
herein and in the other documents referred to below, and for other good and
valuable consideration, receipt and sufficiency of which are hereby
acknowledged, the Borrower and the Bank agree as follows:
I. AMOUNTS AND TERMS
1.1. Reference to Documents. Reference is made to (i) that certain
$10,000,000 face principal amount revolving promissory note (the "Revolving
Note") of even date herewith made by the Borrower and payable to the order of
the Bank, (ii) that certain original $8,000,000 original principal amount term
promissory note (the "Term Note") of even date herewith made by the Borrower and
payable to the order of the Bank, (iii) that certain Inventory, Accounts
Receivable and Intangibles Security Agreement and that certain Supplementary
Security Agreement - Security Interest in Goods and Chattels, each of even date
herewith, from the Borrower to the Bank (collectively, the "Security
Agreement"), and (iv) assignments and notices of assignment (collectively, the
"Intellectual Property Assignments") from the Borrower to the Bank relating to
the Borrower's registered trademarks, patents and copyrights, if any.
1.2. Revolving Loans; Revolving Note. Subject to the terms and
conditions hereinafter set forth, the Bank will make loans ("Revolving Loans")
to the Borrower, in such amounts as the Borrower may request, on any Business
Day prior to the first to occur of (i) the Expiration Date, or (ii) the earlier
termination of the within-described revolving financing arrangements pursuant to
Section5.2 or Section6.7; provided, however, that (1) the aggregate principal
amount of Revolving Loans outstanding shall at no time exceed the Maximum
Revolving Amount (hereinafter defined) and (2) the Aggregate Revolving Bank
Liabilities (hereinafter defined) shall at no time exceed the Borrowing Base
(hereinafter defined). Within such limits, and subject to the terms and
conditions hereof, the Borrower may obtain Revolving Loans, repay
<PAGE> 2
Revolving Loans and obtain Revolving Loans again on one or more occasions. The
Revolving Loans shall be evidenced by the Revolving Note and interest thereon
shall be payable at the times and at the rate provided for in the Revolving
Note. Overdue principal of the Revolving Loans 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 the Revolving Note (but in no
event in excess of the maximum rate from time to time permitted by then
applicable law), compounded monthly and payable on demand. The Borrower hereby
irrevocably authorizes the Bank to make or cause to be made, on a schedule
attached to the Revolving Note or on the books of the Bank, at or following the
time of making each Revolving Loan and of receiving any payment of principal, an
appropriate notation reflecting such transaction and the then aggregate unpaid
principal balance of the Revolving Loans. The amount so noted shall constitute
presumptive evidence as to the amount owed by the Borrower with respect to
principal of the Revolving Loans. Failure of the Bank to make any such notation
shall not, however, affect any obligation of the Borrower or any right of the
Bank hereunder or under the Revolving Note.
This letter agreement amends and restates in its entirety the Prior
Loan Agreement (hereinafter defined). The Bank has no further commitment to make
any loan or to provide any other credit to or for the benefit of the Borrower
pursuant to the Prior Loan Agreement. The Revolving Note is being issued in
replacement of the outstanding $10,000,000 promissory note of the Borrower dated
May 16, 1996 (the "1996 Revolving Note") heretofore issued to the Bank Upon the
execution and delivery of the Revolving Note under this letter agreement and the
payment of all fees and interest due under the 1996 Revolving Note and/or the
Prior Loan Agreement accrued through the date of this letter agreement, the Bank
will cancel the 1996 Revolving Note and return same to the Borrower.
1.3. Repayment; Renewal of Revolving Loan Facility. The Borrower shall
repay in full all Revolving Loans and all interest thereon upon the first to
occur of: (i) the Expiration Date, or (ii) an acceleration under Section5.2(a)
following an Event of Default. The Borrower may repay at any time, without
penalty or premium, the whole or any portion of any Revolving Loan. In addition,
if at any time the Borrowing Base is in an amount which is less than the then
outstanding Aggregate Revolving Bank Liabilities, the Borrower will forthwith
prepay so much of the Revolving Loans as may be required (or arrange for
termination of such letters of credit as may be required) so that the Aggregate
Revolving Bank Liabilities will not exceed the Borrowing Base. The Bank may, at
its sole discretion, renew the revolving financing arrangements described in
this letter agreement by extending the Expiration Date in a writing signed by
the Bank and accepted by the Borrower. Neither the inclusion in this letter
agreement or elsewhere of covenants relating to periods of time after the
Expiration Date, nor any other provision hereof, nor any action (except a
written extension pursuant to the immediately preceding sentence), non-action or
course of dealing on the part of the Bank will be deemed an extension of, or
agreement on the part of the Bank to extend, the Expiration Date.
1.4. Term Loan; Term Note. In addition to the foregoing, at the date
hereof the Bank is making a loan (the "Term Loan") to the Borrower in the
original principal amount of $8,000,000. The Term Loan is evidenced by the Term
Note. Interest on the Term Loan shall be
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<PAGE> 3
payable at the times and at the rate provided for in the Term Note. Overdue
principal of the Term Loan 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 the Term Note (but in no event in excess of the maximum
rate from time to time permitted by then applicable law), compounded monthly and
payable on demand. The Borrower hereby irrevocably authorizes the Bank to make
or cause to be made, on a schedule attached to the Term Note or on the books of
the Bank, at or following the date of receiving any payment of principal of the
Term Loan, an appropriate notation reflecting such transaction and the then
aggregate unpaid principal balance of the Term Loan. The amount so noted shall
constitute presumptive evidence as to the amount owed by the Borrower with
respect to principal of the Term Loan. Failure of the Bank to make any such
notation shall not, however, affect any obligation of the Borrower or any right
of the Bank hereunder or under the Term Note.
1.5. Principal Repayment of Term Loan. The Borrower shall repay
principal of the Term Loan in 8 quarterly installments, each in the amount of
$1,000,000, an installment in such amount being due on each of September 30,
1998, December 31, 1998, March 31, 1999, June 30, 1999, September 30, 1999,
December 31, 1999, March 31, 2000 and June 30, 2000, with the then outstanding
principal balance of the Term Loan and all interest then accrued but unpaid
thereon being due and payable in full in any event on June 30, 2000. The
Borrower may prepay, at any time or from time to time the whole or any portion
of the Term Loan; provided that (i) each such principal prepayment shall be
accompanied by payment of all interest under the Term Note accrued but unpaid to
the date of payment and (ii) if the Term Loan is prepaid in whole or in part for
any reason (whether voluntarily or involuntarily, due to acceleration or
otherwise) prior to July 31, 1999, the Borrower will pay an additional amount in
compensation for the Bank's time and efforts in arranging for the Term Loan,
calculated as follows: $80,000 if such prepayment occurs prior to July 31, 1998
and $40,000 if such prepayment occurs on or after July 31, 1998 but prior to
July 31, 1999. Any partial prepayment of principal of the Term Loan will be
applied to installments of principal of the Term Loan thereafter coming due in
inverse order of normal maturity. Principal amounts of the Term Loan paid or
prepaid are not available for reborrowing.
1.6. Advances and Payments. The proceeds of all Loans shall be credited
by the Bank to a general deposit account maintained by the Borrower with the
Bank. The proceeds of each Loan will be used by the Borrower solely for
repayment of loans made under the Prior Loan Agreement and for working capital
purposes.
The Bank may charge any general deposit account of the Borrower at the
Bank with the amount of all payments of interest, principal and other sums when
same are due, from time to time, under this letter agreement and/or any Note
and/or with respect to any letter of credit; and will thereafter notify the
Borrower of the amount so charged. The failure of the Bank so to charge any
account or to give any such notice shall not affect the obligation of the
Borrower to pay interest, principal or other sums as provided herein or in any
Note or with respect to any letter of credit.
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<PAGE> 4
Whenever any payment to be made to the Bank hereunder or under any Note
or with respect to any letter of credit shall be stated to be due on a day which
is not a Business Day, such payment may be made on the next succeeding Business
Day, and interest payable on each such date shall include the amount thereof
which shall accrue during the period of such extension of time. All payments by
the Borrower hereunder and/or in respect of any Note and/or with respect to any
letter of credit shall be made net of any impositions or taxes and without
deduction, set-off or counterclaim, notwithstanding any claim which the Borrower
may now or at any time hereafter have against the Bank. All payments of
interest, principal and any other sum payable hereunder and/or under any Note
and/or with respect to any letter of credit shall be made to the Bank, in
immediately available funds, at its office at 75 State Street, Boston, MA 02109
or at such other address as the Bank may from time to time direct. All payments
received by the Bank after 2:00 p.m. on any day shall be deemed received as of
the next succeeding Business Day. All monies received by the Bank shall be
applied first to fees, charges, costs and expenses payable to the Bank under
this letter agreement, any Note and/or any of the other Loan Documents and/or
with respect to any letter of credit, next to interest then accrued on account
of any Loans or letter of credit reimbursement obligations and only thereafter
to principal of the Loans and letter of credit reimbursement obligations, being
applied against the Loans and/or such obligations in such order as the Borrower
may designate (and, failing such designation, being applied first against the
letter of credit reimbursement obligations, next against the Revolving Loans and
thereafter against installments of the Term Loan in inverse order of normal
maturity). All interest and fees payable hereunder and/or under any Note shall
be calculated on the basis of a 360-day year for the actual number of days
elapsed.
1.7. Letters of Credit. At the Borrower's request, the Bank may, from
time to time, in its sole discretion issue one or more letters of credit for the
account of the Borrower; provided that at the time of such issuance and after
giving effect thereto the Aggregate Revolving Bank Liabilities will in no event
exceed the lesser of (i) $10,000,000 or (ii) the then effective Borrowing Base.
Any such letter of credit will be issued for such fee and upon such terms and
conditions as may be agreed to by the Bank and the Borrower at the time of
issuance. The Borrower hereby authorizes the Bank, without further request from
the Borrower, to cause the Borrower's liability to the Bank for reimbursement of
funds drawn under any such letter of credit to be repaid from the proceeds of a
Revolving Loan to be made hereunder. The Borrower hereby irrevocably requests
that such Revolving Loans be made.
1.8. Conditions to Advance. Prior to the making of the initial Loan
hereunder or the issuance of any letter of credit hereunder, the Borrower shall
deliver to the Bank duly executed copies of this letter agreement, the Security
Agreement, the Intellectual Property Assignments, the Revolving Note, the Term
Note and the documents and other items listed on the Closing Agenda delivered
herewith by the Bank to the Borrower, all of which, as well as all legal matters
incident to the transactions contemplated hereby, shall be satisfactory in form
and substance to the Bank and its counsel.
Without limiting the foregoing, any Loan or letter of credit issuance
(including the initial Loan or letter of credit issuance) is subject to the
further conditions precedent that on the date on which such Loan is made or such
letter of credit is issued (and after giving effect thereto):
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<PAGE> 5
(a) All statements, representations and warranties of the Borrower
made in this letter agreement and/or the Security Agreement shall continue to be
correct in all material respects as of the date of such Loan or issuance of such
letter of credit, as the case may be, excluding representations which are stated
herein as being made as of a specific date and excluding representations of
existing circumstances to the extent that Articles III and IV of this letter
agreement contemplate that such circumstances may change without breach of this
letter agreement.
(b) All covenants and agreements of the Borrower contained herein
and/or in any of the other Loan Documents shall have been complied with in all
material respects on and as of the date of such Loan or issuance of such letter
of credit, as the case may be.
(c) No event which constitutes, or which with notice or lapse of time
or both could constitute, an Event of Default shall have occurred and be
continuing.
(d) No material adverse change shall have occurred in the financial
condition of the Borrower from that disclosed in the financial statements then
most recently furnished to the Bank.
Each request by the Borrower for any Loan or for the issuance of a
letter of credit, and each acceptance by the Borrower of the proceeds of any
Loan or delivery of a letter of credit, will be deemed a representation and
warranty by the Borrower that at the date of such Loan or letter of credit
issuance, as the case may be, and after giving effect thereto all of the
conditions set forth in the foregoing clauses (a)-(d) of this Section 1.8 will
be satisfied. Each request for a Revolving Loan or letter of credit issuance
will be accompanied by a borrowing base certificate on a form satisfactory to
the Bank, executed by the chief financial officer of the Borrower, unless such a
certificate shall have been previously furnished setting forth the Borrowing
Base as at a date not more than 30 days prior to the date of the requested
borrowing or the requested letter of credit issuance, as the case may be.
II. REPRESENTATIONS AND WARRANTIES
2.1. Representations and Warranties. In order to induce the Bank to
enter into this letter agreement and to make Loans hereunder and/or issue
letters of credit hereunder, the Borrower warrants and represents to the Bank as
follows:
(a) The Borrower is a corporation duly organized, validly existing and
in good standing under the laws of Massachusetts. The Borrower has full
corporate power to own its property and conduct its business as now conducted
and as contemplated to be conducted, to grant the security interests
contemplated by the Security Agreement and the Intellectual Property Assignments
and to enter into and perform this letter agreement and the other Loan
Documents. The Borrower is duly qualified to do business and in good standing in
each other jurisdiction in which the Borrower maintains any facility, sales
office or warehouse and in each other jurisdiction where the failure so to
qualify could (singly or in the aggregate with all other such
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<PAGE> 6
failures) have a material adverse effect on the financial condition, business or
prospects of the Borrower, all such jurisdictions, as at the date of this letter
agreement, being listed on item 2.1(a) of the attached Disclosure Schedule. At
the date hereof, the Borrower has no Subsidiaries, except as shown on said item
2.1(a). The Borrower is not a member of any partnership or joint venture.
(b) At the date of this letter agreement, except as set forth on
item 2.1(b) of the attached Disclosure Schedule, no Person (nor any "group" as
defined in the Securities Exchange Act of 1934, as amended, and the regulations
thereunder) is known by the Borrower to own, of record and/or beneficially, 5%
or more of any class of equity securities of the Borrower. The Borrower owns
100% of the outstanding capital stock of each Subsidiary.
(c) The execution, delivery and performance by the Borrower of
this letter agreement and each of the other Loan Documents have been duly
authorized by all necessary corporate and other action and do not and will not:
(i) violate any provision of, or require any filings
(other than filings under the Uniform Commercial Code and filings under
applicable securities laws which the Borrower may be required to make
after the date hereof, provided that the failure of the Borrower to
make any such filing under securities laws will not affect the
enforceability of any of the Loan Documents), registration, consent or
approval under, any law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award presently in effect having
applicability to the Borrower;
(ii) violate any provision of the charter or by-laws of
the Borrower, or result in a breach of or constitute a default or
require any waiver or consent under any indenture or loan or credit
agreement or any other material agreement, lease or instrument to which
the Borrower is a party or by which the Borrower or any of its
properties may be bound or affected or require any other consent of any
Person; or
(iii) result in, or require, the creation or imposition of
any lien, security interest or other encumbrance (other than in favor
of the Bank), upon or with respect to any of the properties now owned
or hereafter acquired by the Borrower.
(d) This letter agreement and each of the other Loan Documents has
been duly executed and delivered by the Borrower and each is a legal, valid and
binding obligation of the Borrower, enforceable against the Borrower in
accordance with its respective terms.
(e) Except as described on item 2.1(e) of the attached Disclosure
Schedule, there are no actions, suits, proceedings or investigations pending or,
to the knowledge of the Borrower, threatened by or against the Borrower or any
Subsidiary of the Borrower before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, which
could hinder or prevent the consummation of the transactions contemplated hereby
or call into question the validity of this letter agreement or any of the other
Loan Documents or any other instrument provided for or contemplated by this
letter agreement or any
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<PAGE> 7
of the other Loan Documents or any action taken or to be taken in connection
with the transactions contemplated hereby or thereby or which in any single case
or in the aggregate might result in any material adverse change in the business,
prospects, condition, affairs or operations of the Borrower or any such
Subsidiary.
(f) The Borrower is not in violation of any term of its charter or
by-laws as now in effect. Neither the Borrower nor any Subsidiary is in material
violation of any term of any mortgage, indenture or judgment, decree or order,
or any other instrument, contract or agreement to which it is a party or by
which any of its property is bound.
(g) The Borrower has filed (and has caused each Subsidiary of the
Borrower to file) all federal, foreign, state and local tax returns, reports and
estimates required to be filed by the Borrower. All such filed returns, reports
and estimates are proper and accurate and the Borrower (or the Subsidiary
concerned, as the case may be) has paid all taxes, assessments, impositions,
fees and other governmental charges required to be paid in respect of the
periods covered by such returns, reports or estimates. No deficiencies for any
tax, assessment or governmental charge have been asserted or assessed, and the
Borrower knows of no material tax liability or basis therefor.
(h) The Borrower is in compliance with (and each Subsidiary of the
Borrower is in compliance with) all requirements of law, federal, state and
local, and all requirements of all governmental bodies or agencies having
jurisdiction over it, the conduct of its business, the use of its properties and
assets, and all premises occupied by it, failure to comply with which could
(singly or in the aggregate with all other such failures) have a material
adverse effect upon the assets, business, financial condition or prospects of
the Borrower or any such Subsidiary. Without limiting the foregoing, the
Borrower has all the franchises, licenses, leases, permits, certificates and
authorizations needed for the conduct of its business and the use of its
properties and all premises occupied by it, as now conducted, owned and used and
as proposed to be conducted, owned and used.
(i) The audited financial statements of the Borrower as at June 30,
1996 and the management-generated financial statements of the Borrower as at
March 31, 1997, each heretofore delivered to the Bank, are complete and accurate
and fairly present the financial condition of the Borrower as at the date
thereof and for the period covered thereby, except that the management-generated
statements do not have footnotes and thus do not present the information which
would normally be contained in footnotes to financial statements and are subject
to normal year-end adjustments. The Borrower has no liability, contingent or
otherwise, not disclosed in the aforesaid June 30, 1996 financial statements
that could materially affect the financial condition of the Borrower. Since June
30, 1996, there has been no material adverse development in the business or
condition of the Borrower, and the Borrower has not entered into any transaction
other than in the ordinary course.
(j) The principal place of business and chief executive offices of the
Borrower are located at One Corporation Way, Peabody, MA 01960. All of the books
and records of the Borrower are located at said chief executive offices. Item
2.1(j) of the attached Disclosure
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<PAGE> 8
Schedule sets forth the addresses of all premises owned, leased or occupied by
the Borrower (collectively, the "Premises"). Except as set forth on said item
2.1(j), no assets of the Borrower are located at any other address. Said item
2.1(j) of the attached Disclosure Schedule also sets forth the names and
addresses of all record owners of any of the Premises.
(k) The Borrower owns or has a valid right to use all of the patents,
licenses, copyrights, trademarks, trade names and franchises ("Intellectual
Property") now being used or necessary to conduct its business, all of which are
described on item 2.1(k) of the attached Disclosure Schedule. None of the
Intellectual Property owned by the Borrower is represented by a registered
copyright, trademark, patent or other federal or state registration, except as
shown on said item 2.1(k). The conduct of the Borrower's business as now
operated does not conflict with valid patents, licenses, copyrights, trademarks,
trade names or franchises of others in any manner that could materially
adversely affect the business or assets or condition, financial or otherwise, of
the Borrower.
(l) None of the executive officers or key employees of the Borrower is
subject to any agreement in favor of anyone other than the Borrower which limits
or restricts that person's right to engage in the type of business activity
conducted or proposed to be conducted by the Borrower or which grants to anyone
other than the Borrower any rights in any inventions or other ideas susceptible
to legal protection developed or conceived by any such officer or key employee.
(m) The Borrower is not a party to any contract or agreement which now
has or, as far as can be foreseen by the Borrower at the date hereof, may have a
material adverse effect on the financial condition, business, prospects or
properties of the Borrower.
III. AFFIRMATIVE COVENANTS AND REPORTING REQUIREMENTS
Without limitation of any covenants and agreements contained in the
Security Agreement or elsewhere, the Borrower agrees that so long as the
financing arrangements contemplated hereby are in effect or any Revolving Loan
or all or any portion of the Term Loan or any of the other Obligations shall be
outstanding or any letter of credit issued hereunder shall be outstanding:
3.1. Legal Existence; Qualification; Compliance. The Borrower will
maintain (and will cause each Subsidiary of the Borrower to maintain) its
corporate existence and good standing in the jurisdiction of its incorporation.
The Borrower will qualify to do business and remain qualified and in good
standing (and will cause each Subsidiary of the Borrower to qualify and remain
qualified and in good standing) in each other jurisdiction where it maintains
any facility, sales office, warehouse or other location and in each other
jurisdiction in which the failure so to qualify could (singly or in the
aggregate with all other such failures) have a material adverse effect on the
financial condition, business or prospects of the Borrower or any such
Subsidiary. The Borrower will comply (and will cause each Subsidiary of the
Borrower to comply) with its charter documents and by-laws. The Borrower will
comply with (and will cause each Subsidiary of the Borrower to comply with) all
applicable laws, rules and regulations (including, without limitation, ERISA and
those relating to environmental protection) other than
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<PAGE> 9
(i) laws, rules or regulations the validity or applicability of which the
Borrower or such Subsidiary shall be contesting in good faith by proceedings
which serve as a matter of law to stay the enforcement thereof and (ii) those
laws, rules and regulations the failure to comply with any of which could not
(singly or in the aggregate) have a material adverse effect on the financial
condition, business or prospects of the Borrower or any such Subsidiary.
3.2. Maintenance of Property; Insurance. The Borrower will maintain and
preserve (and will cause each Subsidiary of the Borrower to maintain and
preserve) all of its properties in good working order and condition, making all
necessary repairs thereto and replacements thereof. The Borrower will maintain
all such insurance as may be required under the Security Agreement and will also
maintain, with financially sound and reputable insurers, insurance with respect
to its property and business against such liabilities, casualties and
contingencies and of such types and in such amounts as shall be reasonably
satisfactory to the Bank from time to time and in any event all such insurance
as may from time to time be customary for companies conducting a business
similar to that of the Borrower in similar locales.
3.3. Payment of Taxes and Charges. The Borrower will pay and discharge
(and will cause each Subsidiary of the Borrower to pay and discharge) all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or property, including, without limitation, taxes, assessments, charges
or levies relating to real and personal property, franchises, income,
unemployment, old age benefits, withholding, or sales or use, prior to the date
on which penalties would attach thereto, and all lawful claims (whether for any
of the foregoing or otherwise) which, if unpaid, might give rise to a lien upon
any property of the Borrower or any such Subsidiary, except any of the foregoing
which is being contested in good faith and by appropriate proceedings which
serve as a matter of law to stay the enforcement thereof and for which the
Borrower has established and is maintaining adequate reserves. The Borrower will
pay, and will cause each of its Subsidiaries to pay, in a timely manner, all
material lease obligations, all material trade debt, material purchase money
obligations, material equipment lease obligations and all of its other material
Indebtedness; provided that the Borrower need not pay any of the foregoing which
is being contested in good faith without jeopardy to any property or rights
material to the business of the Borrower and as to which appropriate reserves
are maintained. The Borrower will perform and fulfill all material covenants and
agreements under any material leases of real estate, material agreements
relating to purchase money debt, material equipment leases and other material
contracts; provided that the Borrower need not perform or fulfill any of the
foregoing which is being contested in good faith without jeopardy to any
property or rights material to the business of the Borrower and as to which
appropriate reserves are maintained. The Borrower will maintain in full force
and effect, and comply with the terms and conditions of, all permits,
permissions and licenses necessary or desirable for its business.
3.4. Accounts. The Borrower will maintain its principal depository and
operating accounts with the Bank.
3.5. Conduct of Business. The Borrower will conduct, in the ordinary
course, the business in which it is presently engaged. The Borrower will not,
without the prior written
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<PAGE> 10
consent of the Bank (which will not be unreasonably withheld), directly or
indirectly (itself or through any Subsidiary), enter into any other lines of
business, businesses or ventures.
3.6. Reporting Requirements. The Borrower will furnish to the Bank:
(i) Within 90 days after the end of each fiscal year of the
Borrower, a copy of the annual audit report for such fiscal year for
the Borrower, including therein consolidated and consolidating balance
sheets of the Borrower and Subsidiaries as at the end of such fiscal
year and related consolidated and consolidating statements of income,
stockholders' equity and cash flow for the fiscal year then ended. The
annual consolidated financial statements shall be certified by
independent public accountants selected by the Borrower and reasonably
acceptable to the Bank, such certification to be in such form as is
generally recognized as "unqualified".
(ii) Within 45 days after the end of each fiscal quarter of
the Borrower, consolidated and consolidating balance sheets of the
Borrower and its Subsidiaries and related consolidated and
consolidating statements of income and cash flow, unaudited but
complete and accurate and prepared in accordance with generally
accepted accounting principles fairly presenting the financial
condition of the Borrower as at the dates thereof and for the periods
covered thereby (except that such quarterly statements need not contain
footnotes) and certified as accurate (subject to normal year-end audit
adjustments, which shall not be material) by the chief financial
officer of the Borrower, such balance sheets to be as at the end of
each such fiscal quarter and such statements of income and cash flow to
be for such fiscal quarter and for the year to date, in each case
together with a comparison to budget.
(iii) At the time of delivery of each annual or quarterly
statement of the Borrower, a certificate executed by the chief
financial officer of the Borrower stating that he or she has reviewed
this letter agreement and the other Loan Documents and has no knowledge
of any default by the Borrower in the performance or observance of any
of the provisions of this letter agreement or of any of the other Loan
Documents or, if he or she has such knowledge, specifying each such
default and the nature thereof. Each such certificate given as at the
end of any fiscal quarter shall also set forth the calculations
necessary to evidence compliance with Sections 3.7-3.12.
(iv) Monthly, within 15 days after the end of each month, (A)
an aging report in form satisfactory to the Bank covering all
Receivables of the Borrower outstanding as at the end of such month and
(B) a certificate of the chief financial officer of the Borrower
setting forth the Borrowing Base as at the end of such month, all in
form reasonably satisfactory to the Bank.
(v) Promptly after receipt, a copy of all audits or reports
submitted to the Borrower by independent public accountants in
connection with any annual, special or interim audits of the books of
the Borrower and any "management letter" prepared by the Borrower's
accountants.
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<PAGE> 11
(vi) As long as any securities of the Borrower are publicly
traded or if registration of any such securities is being sought, the
Borrower will furnish to the Bank, promptly upon same becoming
available, one copy of each financial statement, report, notice or
proxy statement sent by the Borrower to stockholders or the holders of
debt securities generally, and of each regular or periodic report and
any registration statement, prospectus or listing application filed by
the Borrower with the NASDAQ market system, any securities exchange or
the Securities and Exchange Commission or any successor agency.
(vii) As soon as possible and in any event within five days
after the Borrower becomes aware of (or reasonably should have become
aware of) the occurrence of any Event of Default or any event which,
with the giving of notice or passage of time or both, would constitute
an Event of Default, the statement of the Borrower setting forth
details of such Event of Default or event and the action which the
Borrower proposes to take with respect thereto.
(viii) Promptly after the commencement thereof, notice of all
actions, suits and proceedings before any court or governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign, to which the Borrower or any Subsidiary of the
Borrower is a party and which, if determined adversely to the Borrower
or any such Subsidiary, would have a material adverse effect on the
business, properties, prospects or condition of the Borrower or any
such Subsidiary.
(ix) Promptly upon applying for, or being granted, a federal
or state registration for any copyright, trademark or patent or
purchasing any registered copyright, trademark or patent, written
notice to the Bank describing same, together with all such documents as
may be required in order to give the Bank a fully perfected first
priority security interest in each such copyright, trademark or patent.
(x) Promptly after the Borrower has knowledge thereof,
written notice of any development or circumstance which may reasonably
be expected to have a material adverse effect on the Borrower or its
business, properties, assets, Subsidiaries or condition, financial or
otherwise.
(xi) Promptly upon request, such other information
respecting the financial condition, operations, Receivables, inventory,
machinery or equipment of the Borrower or any Subsidiary as the Bank
may from time to time reasonably request.
3.7. Debt to Worth. The Borrower will maintain as at the end of
each fiscal quarter of the Borrower (commencing with its results as at June 30,
1997) on a consolidated basis a Leverage Ratio of not more than 1.25 to 1. As
used herein, "Leverage Ratio" means the ratio of (x) outstanding consolidated
Indebtedness of the Borrower and/or its Subsidiaries to (y) the consolidated
Tangible Net Worth of the Borrower.
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<PAGE> 12
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 June 30, 1997)
a consolidated Tangible Net Worth which shall not be less than the
then-effective TNW Requirement. As used herein, the "TNW Requirement" will be
deemed to have been $27,500,000 as at June 30, 1997; and as at the last day of
each fiscal quarter thereafter beginning with September 30, 1997 (each, a
"Determination Date") the TNW Requirement will be deemed to become an amount
equal to the sum of: (i) that TNW Requirement which had been 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 during the fiscal
quarter ending at such Determination Date.
3.9. Liquidity. The Borrower will maintain as at the end of each
fiscal quarter of the Borrower (commencing with its results as at June 30, 1997)
a ratio of Net Quick Assets to Current Liabilities, which ratio shall be not
less than 1.25 to 1.
3.10. Profitability. The Borrower will achieve consolidated Net Income
of: not less than $2,500,000 for the 12-month period ending September 30, 1997;
not less than $2,250,000 for the 12-month period ending December 31, 1997; not
less than $2,500,000 for the 12-month period ending March 31, 1998; and not less
than $3,000,000 for the 12-month period ending at each subsequent fiscal
quarter-end.
3.11. Cash Flow. The Borrower will maintain, as at the end of each
fiscal quarter of the Borrower (commencing with the Borrower's results as at
June 30, 1997 and for the 12-month period then ended), a Cash Flow Leverage
Ratio of not more than 3.0 to 1. The "Cash Flow Leverage Ratio", as determined
at each fiscal quarter-end of the Borrower, will be deemed to be the ratio of
(x) consolidated Funded Debt outstanding at such fiscal quarter-end to (y) the
consolidated EBITDA earned for the 12-month period then ended.
3.12. Debt Service. The Borrower will maintain, as at the end of each
fiscal quarter of the Borrower (commencing with the Borrower's results as at
June 30, 1997) a Debt Service Coverage Ratio of not less than 1.25 to 1. The
"Debt Service Coverage Ratio", as determined at each fiscal quarter-end of the
Borrower, will be deemed to be a ratio of (x) Cash Available for the 12-month
period ending at such fiscal quarter-end to (y) the sum of (i) all interest on
Indebtedness paid or accrued by the Borrower and/or any of its Subsidiaries
during such 12-month period plus (ii) all principal of Indebtedness paid or
required to be paid by the Borrower and/or any of its Subsidiaries during such
12-month period.
3.13. Books and Records. The Borrower will maintain (and cause each of
its Subsidiaries to maintain) complete and accurate books, records and accounts
which will at all times accurately and fairly reflect all of its transactions in
accordance with generally accepted accounting principles consistently applied.
The Borrower will, at any reasonable time and from time to time upon reasonable
notice and during normal business hours (and at any time and without any
necessity for notice following the occurrence of an Event of Default), permit
the
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<PAGE> 13
Bank, and any agents or representatives thereof, to examine and make copies
of and take abstracts from the records and books of account of, and visit the
properties of the Borrower and any of its Subsidiaries, and to discuss its
affairs, finances and accounts with its managers, officers or directors and
independent accountants, all of whom are hereby authorized and directed to
cooperate with the Bank in carrying out the intent of this Section 3.13. Each
financial statement of the Borrower hereafter delivered pursuant to this letter
agreement will be complete and accurate and will fairly present the financial
condition of the Borrower as at the date thereof and for the periods covered
thereby.
3.14. Landlord's Waiver. Prior to the making of the first Loan the
Borrower will obtain, and will thereafter maintain in effect at all times,
waivers from the owners of all premises in which any material amount of
Collateral is located, such waivers to be in form and substance satisfactory to
the Bank.
IV. NEGATIVE COVENANTS
Without limitation of any covenants and agreements contained in the
Security Agreement or elsewhere, the Borrower agrees that so long as the
financing arrangements contemplated hereby are in effect or any Revolving Loan
or all or any portion of the Term Loan or any of the other Obligations shall be
outstanding or any letter of credit issued hereunder shall be outstanding:
4.1. Indebtedness. The Borrower will not create, incur, assume or
suffer to exist any Indebtedness (nor allow any of its Subsidiaries to create,
incur, assume or suffer to exist any Indebtedness), except for:
(i) Indebtedness owed to the Bank, including, without
limitation, the Indebtedness represented by the Notes and any
Indebtedness in respect of letters of credit issued by the Bank;
(ii) Indebtedness of the Borrower or any Subsidiary for
taxes, assessments and governmental charges or levies not yet due and
payable;
(iii) unsecured current liabilities of the Borrower or any
Subsidiary (other than for money borrowed or for purchase money
Indebtedness with respect to fixed assets) incurred upon customary
terms in the ordinary course of business;
(iv) Indebtedness with respect of any sale-leaseback
transaction undertaken by the Borrower; provided that the sum of (1)
the value of all assets so sold and leased back by the Borrower, taken
in the aggregate as to all such transactions outstanding at any one
time, plus (2) all purchase money Indebtedness (including, without
limitation, Indebtedness as to capital leases permitted by clause (v)
and/or clause (vi) below) does not exceed $5,000,000 in the aggregate
as to all such transactions outstanding at any one time;
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<PAGE> 14
(v) purchase money Indebtedness (including, without
limitation, Indebtedness in respect of capitalized equipment leases)
owed to equipment vendors and/or lessors for equipment purchased or
leased by the Borrower for use in the Borrower's business; provided
that the total of the Indebtedness permitted under this clause (v) plus
the presently-existing equipment financing permitted under clause (vi)
of this Section 4.1 plus Indebtedness in respect of sale-leaseback
transactions permitted under clause (iv) of this Section 4.1 will not
exceed $5,000,000 in the aggregate outstanding at any one time;
(vi) other Indebtedness existing at the date hereof, but
only to the extent set forth on item 4.1 of the attached Disclosure
Schedule; and
(vii) any guaranties or other contingent liabilities
expressly permitted pursuant to Section 4.3.
4.2. Liens. The Borrower will not create, incur, assume or suffer
to exist (nor allow any of its Subsidiaries to create, incur, assume or suffer
to exist) any mortgage, deed of trust, pledge, lien, security interest, or other
charge or encumbrance (including the lien or retained security title of a
conditional vendor) of any nature (collectively, "Liens") upon or with respect
to any of its property or assets, now owned or hereafter acquired, except:
(i) Liens for taxes, assessments or governmental charges
or levies on property of the Borrower or any of its Subsidiaries if the
same shall not at the time be delinquent or thereafter can be paid
without interest or penalty;
(ii) Liens imposed by law, such as carriers',
warehousemen's and mechanics' liens and other similar Liens arising in
the ordinary course of business for sums not yet due or which are being
contested in good faith and by appropriate proceedings which serve as a
matter of law to stay the enforcement thereof and as to which adequate
reserves have been made;
(iii) pledges or deposits under workmen's compensation
laws, unemployment insurance, social security, retirement benefits or
similar legislation;
(iv) Liens in favor of the Bank;
(v) Liens in favor of equipment vendors and/or lessors
securing purchase money Indebtedness to the extent permitted by clauses
(iv) and (v) of Section 4.1; provided that no such Lien will extend to
any property of the Borrower or any Subsidiary other than the specific
items of equipment financed; or
(vi) other Liens existing at the date hereof, but only to
the extent and with the relative priorities set forth on item 4.2 of
the attached Disclosure Schedule.
4.3. Guaranties. The Borrower will not, without the prior written
consent of the Bank, assume, guarantee, endorse or otherwise become directly or
contingently liable (including,
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<PAGE> 15
without limitation, liable by way of agreement, contingent or otherwise, to
purchase, to provide funds for payment, to supply funds to or otherwise invest
in any debtor or otherwise to assure any creditor against loss) (and will not
permit any of its Subsidiaries so to assume, guaranty or become directly or
contingently liable) in connection with any indebtedness of any other Person,
except (i) guaranties by endorsement for deposit or collection in the ordinary
course of business, and (ii) currently existing guaranties described on item 4.3
of the attached Disclosure Schedule.
4.4. Dividends. The Borrower will not, without the prior written
consent of the Bank, make any distributions to its shareholders, pay any
dividends (other than dividends payable solely in capital stock of the Borrower)
or redeem, purchase or otherwise acquire, directly or indirectly any of its
capital stock, except that the Borrower may without such consent repurchase, for
an aggregate consideration not in excess of $50,000 per year, shares of its
common stock issued under its restrictive stock plan, such repurchases to be
made from individuals who leave the employ of the Borrower.
4.5. Loans and Advances. The Borrower will not make any loans or
advances (and will not permit any of its Subsidiaries to make any loans or
advances) to any Person, including, without limitation, the Borrower's
directors, officers and employees, except advances to directors, officers or
employees with respect to expenses incurred by them in the ordinary course of
their duties and advances against salary, all of which will not exceed, in the
aggregate, $250,000 outstanding at any one time.
4.6. Investments. The Borrower will not, without the Bank's prior
written consent, invest in, hold or purchase any stock or securities of any
Person (nor will the Borrower permit any of its Subsidiaries to invest in,
purchase or hold any such stock or securities) except (i) readily marketable
direct obligations of, or obligations guaranteed by, the United States of
America or any agency thereof, (ii) other investment grade debt securities,
(iii) mutual funds, the assets of which are primarily invested in items of the
kind described in the foregoing clauses (i) and (ii) of this Section 4.6, (iv)
deposits with or certificates of deposit issued by the Bank and any other
obligations of the Bank or the Bank's parent, (v) deposits with or certificates
of deposit issued by any United States commercial bank having more than
$100,000,000 in capital, and (vi) investments in any Subsidiaries now existing
or hereafter created by the Borrower pursuant to Section 4.7 below; provided
that in any event the Tangible Net Worth of the Borrower alone (exclusive of its
investment in Subsidiaries and any debt owed by any Subsidiary to the Borrower)
will not be less than 90% of the consolidated Tangible Net Worth of the Borrower
and Subsidiaries.
4.7. Subsidiaries; Acquisitions. The Borrower will not, without the
prior written consent of the Bank, form or acquire any Subsidiary or make any
other acquisition of the stock of any Person or of all or substantially all of
the assets of any other Person, except that (with prior written notice to the
Bank) the Borrower may form additional Subsidiaries and may make contributions
to the capital of any Subsidiary within the limit established by the proviso
contained in clause (vi) of Section 4.6 above. The Borrower will not become a
partner in any partnership.
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<PAGE> 16
4.8. Merger. The Borrower will not, without the prior written consent
of the Bank, merge or consolidate with any Person or sell, lease, transfer or
otherwise dispose of any material portion of its assets (whether in one or more
transactions), other than sale of inventory in the ordinary course; provided
that nothing in this Section 4.8 will be deemed to prohibit any sale-leaseback
transaction within the limit prescribed by clause (iv) of Section 4.1 above.
4.9. Affiliate Transactions. The Borrower will not, without the prior
written consent of the Bank, enter into any transaction, including, without
limitation, the purchase, sale or exchange of any property or the rendering of
any service, with any affiliate of the Borrower, except in the ordinary course
of and pursuant to the reasonable requirements of the Borrower's business and
upon fair and reasonable terms no less favorable to the Borrower than would be
obtained in a comparable arms'-length transaction with any Person not an
affiliate; provided that nothing in this Section 4.9 shall be deemed to prohibit
the payment of salary or other similar payments to any officer or director of
the Borrower at a level consistent with the salary and other payments being paid
at the date of this letter agreement and heretofore disclosed in writing to the
Bank, nor to prevent the hiring of additional officers at a salary level
consistent with industry practice, nor to prevent reasonable periodic increases
in salary. For the purposes of this letter agreement, "affiliate" means any
Person which, directly or indirectly, controls or is controlled by or is under
common control with the Borrower; any officer or director or former officer or
director of the Borrower; any Person owning of record or beneficially, directly
or indirectly, 5% or more of any class of capital stock of the Borrower or 5% or
more of any class of capital stock or other equity interest having voting power
(under ordinary circumstances) of any of the other Persons described above; and
any member of the immediate family of any of the foregoing. "Control" means
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of any Person, whether through ownership
of voting equity, by contract or otherwise.
4.10. Change of Address, etc. The Borrower will not change its name or
legal structure, nor will the Borrower move its chief executive offices or
principal place of business from the address described in the first sentence of
Section 2.1(j) above, nor will the Borrower remove any books or records from
such address, nor will the Borrower keep any Collateral at any location other
than the Premises without, in each instance, giving the Bank at least 30 days'
prior written notice and providing all such financing statements, certificates
and other documentation as the Bank may request in order to maintain the
perfection and priority of the security interests granted or intended to be
granted pursuant to the Security Agreement. The Borrower will not change its
fiscal year or methods of financial reporting unless, in each instance, prior
written notice of such change is given to the Bank and prior to such change the
Borrower enters into amendments to this letter agreement in form and substance
satisfactory to the Bank in order to preserve unimpaired the rights of the Bank
and the obligations of the Borrower hereunder.
4.11. Hazardous Waste. Except as provided below, the Borrower will not
dispose of or suffer or permit to exist any hazardous material or oil on any
site or vessel owned, occupied or operated by the Borrower or any Subsidiary of
the Borrower, nor shall the Borrower store (or permit any Subsidiary to store)
on any site or vessel owned, occupied or operated by the Borrower or any such
Subsidiary, or transport or arrange the transport of, any hazardous material
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<PAGE> 17
or oil (the terms "hazardous material", "oil", "site" and "vessel",
respectively, being used herein with the meanings given those terms in Mass.
Gen. Laws, Ch. 21E or any comparable terms in any comparable statute in effect
in any other relevant jurisdiction). The Borrower shall provide the Bank with
written notice of (i) the intended storage or transport of any hazardous
material or oil by the Borrower or any Subsidiary of the Borrower, (ii) any
potential or known release or threat of release of any hazardous material or oil
at or from any site or vessel owned, occupied or operated by the Borrower or any
Subsidiary of the Borrower, and (iii) any incurrence of any expense or loss by
any government or governmental authority in connection with the assessment,
containment or removal of any hazardous material or oil for which expense or
loss the Borrower or any Subsidiary of the Borrower may be liable.
Notwithstanding the foregoing, the Borrower and its Subsidiaries may use, store
and transport, and need not notify the Bank of the use, storage or
transportation of, (x) oil in reasonable quantities, as fuel for heating of
their respective facilities or for vehicles or machinery used in the ordinary
course of their respective businesses and (y) hazardous materials that are
solvents, cleaning agents or other materials used in the ordinary course of the
respective business operations of the Borrower and its Subsidiaries, in
reasonable quantities, as long as in any case the Borrower or the Subsidiary
concerned (as the case may be) has obtained and maintains in effect any
necessary governmental permits, licenses and approvals, complies with all
requirements of applicable federal, state and local law relating to such use,
storage or transportation, follows the protective and safety procedures that a
prudent businessperson conducting a business the same as or similar to that of
the Borrower or such Subsidiary (as the case may be) would follow, and disposes
of such materials (not consumed in the ordinary course) only through licensed
providers of hazardous waste removal services.
4.12. No Margin Stock. No proceeds of any Loan shall be used directly
or indirectly to purchase or carry any margin security.
V. DEFAULT AND REMEDIES
5.1. Events of Default. The occurrence of any one of the following
events shall constitute an Event of Default hereunder:
(a) The Borrower shall fail to make any payment of principal of or
interest on the Revolving Note or the Term Note on or before the date when due;
or the Borrower shall fail to pay when due any amount owed to the Bank with
respect to any letter of credit now or hereafter issued by the Bank; or
(b) Any representation or warranty of the Borrower contained herein
shall at any time prove to have been incorrect in any material respect when made
or any representation or warranty made by the Borrower in connection with any
Loan or letter of credit shall at any time prove to have been incorrect in any
material respect when made; or
(c) The Borrower shall default in the performance or observance of
any agreement or obligation under any of Sections 3.6, 3.7, 3.8, 3.9, 3.10,
3.11 or 3.12 or Article IV; or
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<PAGE> 18
(d) The Borrower shall default in the performance or observance of any
agreement or obligation under Section 3.1 and/or Section 3.3 and such default
shall continue unremedied for 15 days after the date on which the Borrower has
knowledge of (or reasonably should have had knowledge of) such default; or
(e) The Borrower shall default in the performance of any other term,
covenant or agreement contained in this letter agreement and such default shall
continue unremedied for 30 days after notice thereof shall have been given to
the Borrower; provided that if such default is of such nature that it cannot
reasonably be cured within said 30-day period, then there shall not be deemed to
be a default under this clause (e) so long as the Borrower commences such cure
within such 30-day period and thereafter diligently prosecutes such cure to
completion, with such completion occurring, in any event, within 75 days after
the aforesaid notice to the Borrower; or
(f) Any default on the part of the Borrower or any Subsidiary of the
Borrower shall exist, and shall remain unwaived or uncured beyond the expiration
of any applicable notice and/or grace period, under any other contract,
agreement or undertaking now existing or hereafter entered into with or for the
benefit of the Bank (or any affiliate of the Bank); or
(g) Any default shall exist and remain unwaived or uncured with respect
to any Indebtedness of the Borrower or any Subsidiary of the Borrower in excess
of $50,000 in aggregate principal amount or with respect to any instrument
evidencing, guaranteeing, securing or otherwise relating to any such
Indebtedness, or any such Indebtedness in excess of $50,000 in aggregate
principal amount shall not have been paid when due, whether by acceleration or
otherwise, or shall have been declared to be due and payable prior to its stated
maturity, or any event or circumstance shall occur which permits, or with the
lapse of time or the giving of notice or both would permit, the acceleration of
the maturity of any such Indebtedness by the holder or holders thereof; or
(h) The Borrower shall be dissolved, or the Borrower or any Subsidiary
of the Borrower shall become insolvent or bankrupt or shall cease paying its
debts as they mature or shall make an assignment for the benefit of creditors,
or a trustee, receiver or liquidator shall be appointed for the Borrower or any
Subsidiary of the Borrower or for a substantial part of the property of the
Borrower or any such Subsidiary, or bankruptcy, reorganization, arrangement,
insolvency or similar proceedings shall be instituted by or against the Borrower
or any such Subsidiary under the laws of any jurisdiction (except for an
involuntary proceeding filed against the Borrower or any Subsidiary of the
Borrower which is dismissed within 60 days following the institution thereof);
or
(i) Any attachment, execution or similar process shall be issued or
levied against any of the property of the Borrower or any Subsidiary and such
attachment, execution or similar process shall not be paid, stayed, released,
vacated or fully bonded within 30 days after its issue or levy; or
(j) Any final uninsured judgment in excess of $50,000 shall be entered
against the Borrower or any Subsidiary of the Borrower by any court of competent
jurisdiction, unless such
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<PAGE> 19
judgment is paid, vacated, bonded or stayed within 30 days following the entry
thereof (and if bonded or stayed, such bond or stay shall remain in effect until
the judgment is paid or vacated); or
(k) The Borrower or any Subsidiary of the Borrower shall fail to meet
its minimum funding requirements under ERISA with respect to any employee
benefit plan (or other class of benefit which the PBGC has elected to insure) or
any such plan shall be the subject of termination proceedings (whether voluntary
or involuntary) and there shall result from such termination proceedings a
liability of the Borrower or any Subsidiary of the Borrower to the PBGC which in
the reasonable opinion of the Bank may have a material adverse effect upon the
financial condition of the Borrower or any such Subsidiary; or
(l) The Security Agreement or any other Loan Document shall for any
reason (other than due to payment in full of all amounts secured or evidenced
thereby or due to discharge in writing by the Bank) not remain in full force and
effect; or
(m) The security interests and liens of the Bank in and on any of the
Collateral covered or intended to be covered by the Security Agreement shall for
any reason (other than written release by the Bank) not be fully perfected liens
and security interests; or
(n) If, at any time, more than 50% of any class of equity securities
of the Borrower shall be held, of record and/or beneficially, by any Person or
by any "group" (as defined in the Securities Exchange Act of 1934, as amended,
and the regulations thereunder) other than by a Person who is a stockholder of
the Borrower at the date hereof or a group consisting solely of such Persons; or
(o) There shall occur any other material adverse change in the
condition (financial or otherwise), operations, properties, assets, liabilities
or earnings of the Borrower.
5.2. Rights and Remedies on Default. Upon the occurrence of any Event
of Default, in addition to any other rights and remedies available to the Bank
hereunder or otherwise, the Bank may exercise any one or more of the following
rights and remedies (all of which shall be cumulative):
(a) Declare the entire unpaid principal amounts of the Revolving Note
and the Term Note then outstanding, all interest accrued and unpaid thereon and
all other amounts payable under this letter agreement and all other Indebtedness
of the Borrower to the Bank to be forthwith due and payable, whereupon the same
shall become forthwith due and payable, without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived by the Borrower.
(b) Terminate the revolving financing arrangements provided for by
this letter agreement.
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<PAGE> 20
(c) Exercise all rights and remedies hereunder, under the Revolving
Note, under the Term Note, under the Security Agreement, under the Intellectual
Property Assignments and under each and any other agreement with the Bank; and
exercise all other rights and remedies which the Bank may have under applicable
law.
5.3. Set-off. In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of any such rights, upon the
occurrence of any Event of Default, the Bank is hereby authorized at any time or
from time to time, without presentment, demand, protest or other notice of any
kind to the Borrower or to any other Person, all of which are hereby expressly
waived, to set off and to appropriate and apply any and all deposits and any
other Indebtedness at any time held or owing by the Bank or any affiliate
thereof to or for the credit or the account of the Borrower against and on
account of the obligations and liabilities of the Borrower to the Bank under
this letter agreement or otherwise, irrespective of whether or not the Bank
shall have made any demand hereunder and although said obligations, liabilities
or claims, or any of them, may then be contingent or unmatured and without
regard for the availability or adequacy of other collateral. As further security
for the Obligations, the Borrower also grants to the Bank a security interest
with respect to all its deposits and all securities or other property in the
possession of the Bank or any affiliate of the Bank from time to time, and, upon
the occurrence of any Event of Default, the Bank may exercise all rights and
remedies of a secured party under the Uniform Commercial Code.
5.4. Letters of Credit. Without limitation of any other right or remedy
of the Bank, (i) if an Event of Default shall have occurred and the Bank shall
have accelerated the Revolving Loans or (ii) if this letter agreement and/or the
revolving financing arrangements described herein shall have expired or shall
have been earlier terminated by either the Bank or the Borrower for any reason,
the Borrower will forthwith deposit with the Bank in cash a sum equal to the
total of all then undrawn amounts of all outstanding letters of credit issued by
the Bank for the account of the Borrower.
VI. MISCELLANEOUS
6.1. Costs and Expenses. The Borrower agrees to pay on demand all costs
and expenses (including, without limitation, reasonable legal fees) of the Bank
in connection with the preparation, execution and delivery of this letter
agreement, the Security Agreement, the Revolving Note, the Term Note and all
other instruments and documents to be delivered in connection with any Loan or
letter of credit issued hereunder and any amendments or modifications of any of
the foregoing, as well as the costs and expenses (including, without limitation,
the reasonable fees and expenses of legal counsel) incurred by the Bank in
connection with preserving, enforcing or exercising, upon default, any rights or
remedies under this letter agreement, the Security Agreement, the Revolving
Note, the Term Note and all other instruments and documents delivered or to be
delivered hereunder or in connection herewith, all whether or not legal action
is instituted. In addition, the Borrower shall be obligated to pay any and all
stamp and other taxes payable or determined to be payable in connection with the
execution and delivery of this letter agreement, the Security Agreement, the
Revolving Note, the Term Note and all other instruments and documents to be
delivered in connection with any Obligation. Any
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<PAGE> 21
fees, expenses or other charges which the Bank is entitled to receive from the
Borrower under this Section shall bear interest from the date of any demand
therefor until the date when paid at a rate per annum equal to the sum of (i)
two (2%) percent plus (ii) the per annum rate otherwise payable under the
Revolving Note (but in no event in excess of the maximum rate permitted by then
applicable law).
6.2. Capital Adequacy. If the Bank shall have determined that the
adoption or phase-in after the date hereof of any applicable law, rule or
regulation regarding capital requirements for banks or bank holding companies,
or any change therein after the date hereof, or any change in the interpretation
or administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by the Bank with any request or directive of such entity regarding
capital adequacy (whether or not having the force of law) has or would have the
effect of reducing the return on the Bank's capital with respect to the
Revolving Loans, the Term Loan and/or the within-described loan facilities
and/or letters of credit issued for the account of the Borrower to a level below
that which the Bank could have achieved (taking into consideration the Bank's
policies with respect to capital adequacy immediately before such adoption,
phase-in, change or compliance and assuming that the Bank's capital was then
fully utilized) but for such adoption, phase-in, change or compliance by any
amount deemed by the Bank to be material: (i) the Bank shall promptly after its
determination of such occurrence give notice thereof to the Borrower; and (ii)
the Borrower shall pay forthwith to the Bank as an additional fee such amount as
the Bank certifies to be the amount that will compensate it for such reduction
with respect to the Revolving Loans, the Term Loan, the within-described loan
facilities and/or such letters of credit.
A certificate of the Bank claiming compensation under this Section
shall be conclusive in the absence of manifest error. Such certificate shall set
forth the nature of the occurrence giving rise to such compensation, the
additional amount or amounts to be paid to it hereunder and the method by which
such amounts were determined. In determining such amounts, the Bank may use any
reasonable averaging and attribution methods. No failure on the part of the Bank
to demand compensation on any one occasion shall constitute a waiver of its
right to demand such compensation on any other occasion and no failure on the
part of the Bank to deliver any certificate in a timely manner shall reduce any
obligation of the Borrower to the Bank under this Section.
6.3. Facility Fees. With respect to the Term Loan, the Borrower is
paying to the Bank, at the date of execution and delivery of this letter
agreement a non-refundable facility fee in the amount of $40,000. The Borrower
will also pay to the Bank on the date of execution of this letter agreement and
on the first day of each calendar quarter thereafter, as long as the
within-described revolving loan arrangements are in effect, a non-refundable
quarterly facility fee payable in advance in the amount of $12,500 per quarter
(appropriately pro-rated for any partial calendar quarter, with the $12,500
facility fee paid on or about July 1, 1997 under the Prior Loan Agreement being
pro-rated as follows: one-third of such payment will represent the final payment
of facility fees under the Prior Loan Agreement and two-thirds of such payment
will be applied to the initial payment due under this sentence). In addition, if
the within-described
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<PAGE> 22
revolving financing arrangements are terminated by the Borrower for any reason
or by the Bank as the result of the Borrower's default, the Borrower shall
forthwith upon such termination pay to the Bank a sum equal to all of the fees
which would have become due pursuant to the immediately preceding sentence from
the date of such termination through the Expiration Date. Fees described in this
Section are in addition to any balances and fees required by the Bank or any of
its affiliates in connection with any other services now or hereafter made
available to the Borrower.
6.4. Other Agreements. The provisions of this letter agreement are not
in derogation or limitation of any obligations, liabilities or duties of the
Borrower under any of the other Loan Documents or any other agreement with or
for the benefit of the Bank. No inconsistency in default provisions between this
letter agreement and any of the other Loan Documents or any such other agreement
will be deemed to create any additional grace period or otherwise derogate from
the express terms of each such default provision. No covenant, agreement or
obligation of the Borrower contained herein, nor any right or remedy of the Bank
contained herein, shall in any respect be limited by or be deemed in limitation
of any inconsistent or additional provisions contained in any of the other Loan
Documents or any such other agreement.
6.5. Governing Law. This letter agreement and the Notes shall be
governed by, and construed and enforced in accordance with, the laws of The
Commonwealth of Massachusetts.
6.6. Addresses for Notices, etc. All notices, requests, demands and
other communications provided for hereunder shall be in writing and shall be
mailed or delivered to the applicable party at the address indicated below:
If to the Borrower:
Micrion Corporation
One Corporation Way
Peabody, MA 01960
Attention: David M. Hunter, Vice President, Finance and
Administration
If to the Bank:
Fleet National Bank
High Technology Group
75 State Street
Boston, MA 02109
Attention: Thomas W. Davies, Senior Vice President
or, as to each of the foregoing, at such other address as shall be designated by
such Person in a written notice to the other party complying as to delivery with
the terms of this Section. All such notices, requests, demands and other
communications shall be effective two (2) days after deposit in the United
States mails, if sent postage prepaid, certified or registered mail, return
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<PAGE> 23
receipt requested, addressed as aforesaid. If any such notice, request, demand
or other communication is hand delivered, same shall be effective upon receipted
delivery.
6.7. Binding Effect; Assignment; Termination. This letter agreement
shall be binding upon the Borrower, its successors and assigns and shall inure
to the benefit of the Borrower and the Bank and their respective permitted
successors and assigns. The Borrower may not assign this letter agreement or any
rights hereunder without the express written consent of the Bank. The Bank may,
in accordance with applicable law, from time to time assign or grant
participations in this letter agreement, the Loans, the Notes and/or any letters
of credit issued hereunder. The Borrower may terminate this letter agreement and
the financing arrangements made herein by giving written notice of such
termination to the Bank, together with the payment described in the third
sentence of Section 6.3; provided that no such termination will release or waive
any of the Bank's rights or remedies or any of the Borrower's obligations under
this letter agreement or any of the other Loan Documents unless and until the
Borrower has paid in full all Loans and all interest thereon and all fees and
charges payable in connection therewith and all letters of credit issued
hereunder have been terminated.
6.8. Consent to Jurisdiction. The Borrower irrevocably submits to the
non-exclusive jurisdiction of any Massachusetts court or any federal court
sitting within The Commonwealth of Massachusetts over any suit, action or
proceeding arising out of or relating to this letter agreement and/or any Note.
The Borrower irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of venue of any such
suit, action or proceeding brought in such a court and any claim that any such
suit, action or proceeding has been brought in an inconvenient forum. The
Borrower agrees that final judgment in any such suit, action or proceeding
brought in such a court shall be enforced in any court of proper jurisdiction by
a suit upon such judgment, provided that service of process in such action, suit
or proceeding shall have been effected upon the Borrower in one of the manners
specified in the following paragraph of this Section 6.8 or as otherwise
permitted by law.
The Borrower hereby consents to process being served in any suit,
action or proceeding of the nature referred to in the preceding paragraph of
this Section 6.8 either (i) by mailing a copy thereof by registered or certified
mail, postage prepaid, return receipt requested, to it at its address set forth
in Section 6.6 or (ii) by serving a copy thereof upon it at its address set
forth in Section 6.6.
6.9. Severability. In the event that any provision of this letter
agreement or the application thereof to any Person, property or circumstances
shall be held to any extent to be invalid or unenforceable, the remainder of
this letter agreement, and the application of such provision to Persons,
properties or circumstances other than those as to which it has been held
invalid and unenforceable, shall not be affected thereby, and each provision of
this letter agreement shall be valid and enforced to the fullest extent
permitted by law.
VII. DEFINED TERMS
7.1. Definitions. In addition to terms defined elsewhere in this
letter agreement, as used in this letter agreement, the following terms have the
following respective meanings:
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<PAGE> 24
"Aggregate Revolving Bank Liabilities" - At any time, the sum of (i)
the principal amount of all Revolving Loans then outstanding, plus (ii) all then
undrawn amounts of letters of credit issued by the Bank for the account of the
Borrower, plus (iii) all amounts then drawn on any such letter of credit which
at said date shall not have been reimbursed to the Bank by the Borrower.
"Borrowing Base" - At any time, the result of: (1) 80% of the aggregate
principal amount of the Qualified Receivables of the Borrower then outstanding,
plus (2) 25% of the then aggregate value of the Qualified Inventory of the
Borrower; provided that the amount contributed to Borrowing Base pursuant to
this clause (2) shall never exceed $2,000,000. For the purposes of this
definition, Qualified Inventory will be valued at the lower of market or cost,
determined on a first in, first out basis.
"Business Day" - Any day which is not a Saturday, nor a Sunday nor a
public holiday under the laws of the United States of America or The
Commonwealth of Massachusetts applicable to a national bank.
"Capital Expenditures" - All acquisitions of machinery, equipment,
land, leaseholds, buildings, leasehold improvements and all other expenditures
for purposes which are considered to be fixed assets under generally accepted
accounting principles consistently applied. Where a fixed asset is acquired by a
lease which is required to be capitalized pursuant to generally accepted
accounting principles, the amount so required to be capitalized shall be
considered to be an expenditure in the year such asset is first leased.
"Cash Available" - As determined for any fiscal period, the result of:
(i) the consolidated EDITDA of the Borrower and Subsidiaries for such fiscal
period, minus (ii) the aggregate amount of Capital Expenditures incurred by the
Borrower and/or its Subsidiaries during such fiscal period, minus (iii) all
taxes paid or payable by the Borrower and/or its Subsidiaries during such fiscal
period.
"Collateral" - All property now or hereafter owned by the Borrower or
in which the Borrower now or hereafter has any interest which is described as
"Collateral" in the Security Agreement or in Subsection 7.2(b) below.
"Current Liabilities" - All liabilities of the Borrower and/or any
Subsidiary which are properly shown as current liabilities on a consolidated
balance sheet of the Borrower prepared in accordance with generally accepted
accounting principles consistently applied, including, without limitation, all
capitalized lease payments and fixed payments and prepayments of, and sinking
fund payments with respect to, Indebtedness required to be made within one year
from the date of determination. In addition, "Current Liabilities" will in any
event be deemed to include the Revolving Loans.
"EBITDA" - For any fiscal period, the consolidated Net Income (or, if
applicable, the consolidated Net Loss, expressed as a negative number) of the
Borrower and Subsidiaries for
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<PAGE> 25
such fiscal period, plus, without duplication of any item (i) all interest paid
or accrued by the Borrower and/or any of its Subsidiaries with respect to such
period and actually deduced on the consolidated books of the Borrower for the
purposes of computation of its consolidated Net Income (or consolidated Net
Loss, as the case may be) for the fiscal period involved, (ii) all federal and
state income taxes (but not taxes in the nature of an ad valorem property tax or
a sales or excise tax) paid or accrued with respect to such fiscal period and
actually deducted on the consolidated books of the Borrower for the purposes of
computation of its consolidated Net Income (or consolidated Net Loss, as the
case may be) for the fiscal period involved, and (iii) the amount of the
provision for depreciation and/or amortization recognized by the Borrower and
actually deducted on the consolidated books of the Borrower for the purposes of
computation of consolidated Net Income (or consolidated Net Loss, as the case
may be) for the fiscal period involved.
"ERISA" - The Employee Retirement Income Security Act of 1974, as
amended.
"Expiration Date" - December 1, 1998, unless extended by the Bank,
which extension may be given or withheld by the Bank in its sole discretion.
"Funded Debt" - As determined at any time, the principal amount of all
long-term debt of the Borrower and/or any of its Subsidiaries outstanding at
such time, plus the outstanding principal amount of all other Indebtedness for
borrowed money of the Borrower and/or any of its Subsidiaries.
"Indebtedness" - The total of all obligations of a Person, whether
current or long-term, senior or subordinated, which in accordance with generally
accepted accounting principles would be included as liabilities upon such
Person's balance sheet at the date as of which Indebtedness is to be determined,
and shall also include guaranties, endorsements (other than for collection in
the ordinary course of business) or other arrangements whereby responsibility is
assumed for the obligations of others, whether by agreement to purchase or
otherwise acquire the obligations of others, including any agreement, contingent
or otherwise, to furnish funds through the purchase of goods, supplies or
services for the purpose of payment of the obligations of others.
"Loan" - Any Revolving Loan or the Term Loan.
"Loan Documents" - Each of this letter agreement, the Revolving Note,
the Term Note, the Security Agreement, the Intellectual Property Assignments and
each other instrument, document or agreement evidencing, securing, guaranteeing
or relating in any way to any of the Loans or to any of the letters of credit
issued hereunder, all whether now existing or hereafter arising or entered into.
"Maximum Revolving Amount" - At any date as of which same is to be
determined, the amount by which (x) $10,000,000 exceeds (y) the sum of (i) all
then undrawn amounts of letters of credit issued by the Bank for the account of
the Borrower plus (ii) all amounts then drawn on any such letter of credit which
at said date shall not have been reimbursed to the Bank by the Borrower.
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<PAGE> 26
"Net Income" (or "Net Loss") - The book net income (or book net loss,
as the case may be) of a Person for any period, after all taxes actually paid or
accrued and all expenses and other charges determined in accordance with
generally accepted accounting principles consistently applied.
"Net Quick Assets" - Such current assets of the Borrower as consist of
cash, cash-equivalents and Receivables (less an allowance for bad debt
consistent with the Borrower's prior experience).
"Notes" - Collectively, the Revolving Note and the Term Note.
"Obligations" - All Indebtedness, covenants, agreements, liabilities
and obligations, now existing or hereafter arising, made by the Borrower with or
for the benefit of the Bank or owed by the Borrower to the Bank in any capacity.
"PBGC" - The Pension Benefit Guaranty Corporation or any successor
thereto.
"Person" - An individual, corporation, company, partnership, limited
liability company, joint venture, trust, or unincorporated organization, or a
government or any agency or political subdivision thereof.
"Premises" - As defined in Subsection 2.1(j) above.
"Prior Loan Agreement" - That certain letter agreement dated October
21, 1994 between the Borrower and Fleet Bank of Massachusetts, N.A., as amended,
the Bank having succeeded by merger to the rights and obligations of Fleet Bank
of Massachusetts, N.A. thereunder.
"Qualified Inventory" - All inventory from time to time owned by the
Borrower which is located within the United States, excluding (i) any obsolete
or damaged items, (ii) any returned items, (iii) any inventory in which the Bank
does not have a fully perfected first priority security interest, and (iv) any
other inventory which the Bank, in its reasonable judgment, determines not to be
suitable as a basis for borrowing under this letter agreement. Demonstration
equipment used by the Borrower in its business shall in any event be included
within "Qualified Inventory."
"Qualified Receivables" - Only those Receivables of the Borrower which
arise out of bona fide sales made to customers of the Borrower (which customers
are located in the United States and are unrelated to the Borrower) in the
ordinary course of the Borrower's business and which remain unpaid no more than
90 days past the respective invoice dates of such Receivables, the payment of
which is not in dispute. Unless the Bank in its sole discretion otherwise
determines with respect to any Receivable, a Receivable which would otherwise be
a Qualified Receivable shall be deemed not to be a Qualified Receivable (i) if
the Bank does not have a fully perfected first priority security interest in
such Receivable; (ii) if such Receivable is not free and clear of all adverse
interests in favor of any other Person; (iii) if such Receivable is subject to
any deduction, off-set, contra account, counterclaim or condition (except that
if such a counterclaim
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<PAGE> 27
or condition involves 10% or less of the principal amount of such Receivable,
then only the amount subject to such counterclaim or condition will be deemed
pursuant to this clause (iii) to be excluded from Qualified Receivables); (iv)
if a field examination made by the Bank fails to confirm that such Receivable
exists and satisfies all of the criteria set forth herein to be a Qualified
Receivable; (v) if such Receivable is not properly invoiced at the date of sale;
(vi) if the customer or account debtor has disputed liability or made any claim
with respect to the Receivable or the merchandise covered thereby (except that
if the dispute involves 10% or less of the principal amount of such Receivable,
then only the disputed amount will be deemed pursuant to this clause (vi) to be
excluded from Qualified Receivables); (vii) if the customer or account debtor
has filed a petition for bankruptcy or any other application for relief under
the Bankruptcy Code or has effected an assignment for the benefit of creditors,
or if any petition or any other application for relief under the Bankruptcy Code
has been filed against said customer or account debtor, or if the customer or
account debtor has suspended business, become insolvent, ceased to pay its debts
as they become due, or had or suffered a receiver or trustee to be appointed for
any of its assets or affairs; (viii) if the customer or account debtor has
failed to pay other Receivables so that an aggregate of 25% of the total
Receivables owing to the Borrower by such customer or account debtor has been
outstanding for more than 90 days; or (ix) if the Bank reasonably believes that
collection of such Receivable is insecure or that it may not be paid by reason
of financial inability to pay or otherwise, or that such Receivable is not for
any reason suitable for use as a basis for borrowing hereunder.
"Receivables" - All of the Borrower's present and future accounts,
accounts receivable and notes, drafts, acceptances and other instruments
representing or evidencing a right to payment for goods sold or for services
rendered.
"Subsidiary" - Any corporation or other entity of which the Borrower
and/or any of its Subsidiaries, directly or indirectly, owns, or has the right
to control or direct the voting of, fifty (50%) percent or more of the
outstanding capital stock or other ownership interest having general voting
power (under ordinary circumstances).
"Tangible Net Worth" - An amount equal to the total assets of any
Person (excluding (i) the total intangible assets of such Person and (ii) any
assets representing amounts due from any officer, employee or other affiliate of
such Person) minus the total liabilities of such Person. Total intangible assets
shall be deemed to include, but shall not be limited to, the excess of cost over
book value of acquired businesses accounted for by the purchase method,
formulae, trademarks, trade names, patents, patent rights and deferred expenses
(including, but not limited to, unamortized debt discount and expense,
organizational expense, capitalized software costs and experimental and
development expenses).
Any defined term used in the plural preceded by the definite article
shall be taken to encompass all members of the relevant class. Any defined term
used in the singular preceded by "any" shall be taken to indicate any number of
the members of the relevant class.
7.2. Security Agreement. (a) The Borrower acknowledges and agrees that
the "Obligations" described in and secured by the Security Agreement include,
without limitation,
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<PAGE> 28
all of the obligations of the Borrower under the Revolving Note, the Term Note
and/or this letter agreement.
(b) The Security Agreement is hereby modified to provide as
follows:
(i) That the "Collateral" subject thereto includes, without
limitation and in addition to the Collateral described therein, all of the
Borrower's files, books and records (including, without limitation, all
electronically recorded data) all whether now owned or existing or hereafter
acquired, created or arising. The Borrower hereby grants to the Bank a security
interest in all such Collateral in order to secure the full and prompt payment
and performance of all of the Obligations.
(ii) That, upon the occurrence of any Event of Default (as
defined in Section 5.1 of this letter agreement), the Bank may, at any time,
without further notice to the Borrower, notify account debtors that the
Collateral has been assigned to the Bank and that payments by such account
debtors shall be made directly to the Bank. At any time after the occurrence of
an Event of Default, the Bank may collect the Borrower's Receivables, or any of
same, directly from account debtors and may charge the collection costs and
expenses to the Borrower.
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<PAGE> 29
This letter agreement is executed, as an instrument under seal, as of
the day and year first above written.
Very truly yours,
MICRION CORPORATION
By: /s/ David M. Hunter
---------------------------
Name: David M. Hunter
Title: Vice President, Finance
and Administration
Accepted and agreed:
FLEET NATIONAL BANK
By: /s/ Thomas W. Davies
------------------------------
Its Senior Vice President
By: /s/ Kimberly Malta
------------------------------
Its Vice President
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<PAGE> 30
DISCLOSURE SCHEDULE
Item 2.1(a) Jurisdictions in which Borrower is qualified; Subsidiaries
Item 2.1(b) Stock ownership
Item 2.1(e) Litigation
Item 2.1(j) Record owner of Premises
Item 2.1(k) Intellectual Property
Item 4.1 Existing Indebtedness
Item 4.2 Existing Liens
Item 4.3 Existing Guaranties
<PAGE> 1
Exhibit 10.32
PROMISSORY NOTE
$8,000,000.00
Boston, Massachusetts
July 31, 1997
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 Eight Million and
00/100 ($8,000,000.00) Dollars ("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. As
used herein, the "Letter Agreement" will be deemed to mean that certain Letter
Agreement of even date herewith between the Bank and the Borrower, as same may
be from time to time amended.
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 date hereof and continuing hereof and 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 sum of (i) one and one-half percent (1.5%) per annum plus (ii) 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), with a change in the aforesaid rate of
interest to 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 with respect to the
Principal which is overdue (or as to which such interest is overdue) (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.
All outstanding Principal shall be repaid by the Borrower to the Bank
in 8 equal consecutive quarterly installments (each in the amount of
$1,000,000), such an installment to be paid on each of September 30, 1998,
December 31, 1998, March 31, 1999, June 30, 1999, September 30, 1999, December
31, 1999, March 31, 2000 and June 30, 2000, with the then remaining balance of
Principal and all interest accrued but unpaid thereon being due and payable in
full in any event on June 30, 2000. The Borrower may at any time and from time
to time prepay all or any portion of any Term Loan (as defined in the Letter
Agreement), but only in the manner, and (under certain circumstances) with the
additional payments, provided for in the Letter Agreement. Each Principal
prepayment shall be accompanied by payment of all interest
<PAGE> 2
on this note accrued but unpaid to the date of payment. Any partial prepayment
of Principal will be applied against Principal installments in inverse order of
normal maturity.
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 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 amount 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 unpaid principal amount of the Term Loan.
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, to the extent permitted by law, 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 Term Note referred to in the Letter Agreement and is
entitled to the benefits of the Security Agreement (as defined in the Letter
Agreement). This note is subject to prepayment as set forth in the Letter
Agreement (which may require the making of certain additional payments, as
provided for 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/ N.P. Economou By: /s/ David M. Hunter
- ---------------------------- -----------------------------
President & C.E.O Name: David M. Hunter
Title: Vice President, Finance
and Administration
- 2 -
<PAGE> 1
Exhibit 10.33
PROMISSORY NOTE
$10,000,000.00 Boston, Massachusetts
July 31, 1997
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 may be advanced by
the Bank pursuant to Section 1.2 of that certain letter agreement of even date
herewith between the Bank and the Borrower (the "Letter Agreement") 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, 1998. 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.
<PAGE> 2
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 amount 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, to the extent permitted by law, 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 the Letter Agreement.
This note is secured by, and is entitled to the benefit of, the Security
Agreement (as defined in 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/ N.P. Economou By: /s/ David M. Hunter
- ---------------------------- -----------------------------
President & C.E.O Name: David M. Hunter
Title: Vice President, Finance
and Administration
-2-
<PAGE> 1
Exhibit 10.34
INVENTORY, ACCOUNTS RECEIVABLE
AND
INTANGIBLES SECURITY AGREEMENT
July 31, 1997
--------------------------------
DATE
To secure the due payment and performance of all of the liabilities and
obligations hereunder of the undersigned, herein called "Borrower", to: Fleet
National Bank, hereinafter called "Bank", and all other liabilities and
obligations of Borrower to Bank of every name and nature whatsoever, direct or
indirect, absolute or contingent, now existing or hereafter arising or acquired,
including without limitation, the due payment and performance of all liabilities
and obligations under any and all notes, all hereinafter called "Obligations",
the Borrower hereby grants to Bank a continuing security interest in:
(a) All accounts, contracts, contract rights, notes, bills, drafts,
acceptances, general intangibles, choses in action, and all other debts,
obligations and liabilities, in whatever form, owing to Borrower from any
person, firm or corporation, or any other legal entity, whether now existing or
hereafter arising, now or hereafter received by or belonging or owing to
Borrower, for goods sold by it or for services rendered by it or however
otherwise same may have been established or created, all guarantees and
securities therefor, all right, title and interest of Borrower in the
merchandise or services which gave rise thereto, including the rights of
reclamation and stoppage in transit, all rights of an unpaid seller of
merchandise or services, and in the proceeds thereof, including, without
limitation, all proceeds of credit, fire or other insurance, and any tax
refunds.
(b) All goods, merchandise, raw materials, goods and work in process,
finished goods and other tangible personal property, now owned or hereafter
acquired and held for sale or lease, or furnished or to be furnished under
contract of service, or used or consumed in Borrower's business and in the
products and proceeds thereof, including, without limitation, all proceeds of
fire or other insurance. This portion of the collateral being sometimes referred
to as "inventory".
All of the accounts and other property as set forth in (a) above and
inventory as set forth in (b) above and the other property described in the
Rider attached hereto are hereinafter referred to collectively as "Collateral".
The Collateral and all proceeds and products thereof shall be security
for all Obligations. Until all Obligations have been fully satisfied, Bank's
security interest in the Collateral and all proceeds and products thereof, shall
continue in full force and effect and Bank will at all times after the
occurrence and during the continuance of an Event of Default (as defined in the
Letter Agreement of even date between Bank and Borrower) have the right to take
physical possession of the Inventory and to maintain such possession on
Borrower's premises or to remove the
<PAGE> 2
inventory or any part thereof to such other places as Bank may desire. If Bank
exercises Bank's right to take possession of the Inventory, Borrower shall, upon
Bank's demand, assemble the Inventory and make it available to Bank at a place
reasonably convenient to Bank.
If Borrower shall fail to pay, when due, any of the Obligations or
shall fail to observe or perform any of the provisions of this Agreement or any
other agreement now or hereafter entered into between Bank and Borrower,
Borrower shall be in default hereunder. In the event of such default all
Obligations of Borrower to Bank shall, at the option of the Bank, and without
notice to or demand upon Borrower become and be immediately due and payable and
thereupon Bank may exercise any and all rights and remedies of a secured party
available under the Uniform Commercial Code and all other applicable law.
Borrower represents, warrants and covenants that all inventory is and
will be owned by Borrower, free of all other liens and encumbrances, and shall
be kept by Borrower at One Corporation Way, Peabody, MA 01960 and the other
locations listed on Exhibit A hereto and that Borrower shall not (without Bank's
prior written approval) remove the Inventory therefrom except for the purposes
of sale in the ordinary course of business, and temporary removal for
demonstration and customer approval purposes.
Except for sales made in the ordinary course of business, Borrower
shall not sell, encumber, grant a security interest in or dispose of or permit
the sale, encumbrance or disposal of any Collateral without Bank's prior written
consent. A sale in the ordinary course of business shall not include a transfer
in total or partial satisfaction of a debt.
Borrower shall perform any and all steps requested by Bank to perfect
Bank's security interest in the Collateral, such as leasing warehouse to Bank or
its designee, placing and maintaining signs, appointing custodians, executing
and filing financing or continuation statements in form and substance
satisfactory to Bank. If any Inventory is in the possession or control of any of
Borrower's agents or processors, Borrower shall notify such agents or processors
of Bank's interest therein, and upon request instruct them to hold all such
Inventory for Bank's account and subject to Bank's instructions. A physical
listing of all Inventory, wherever located, shall be taken by Borrower whenever
requested by Bank, and a copy of each such physical listing shall be supplied to
Bank, Bank may examine and inspect the Inventory at any time.
Borrower agrees to keep all the Inventory insured with coverage and
amounts not less than that usually carried by one engaged in a like business and
in any event not less than that required by Bank with loss payable to the Bank
and Borrower, as their interests may appear, hereby appointing Bank as attorney
for Borrower effective only upon the occurrence and during the continuance of an
Event of Default under the Letter Agreement in obtaining, adjusting, settling
and cancelling such insurance and endorsing any drafts. All premiums on such
insurance shall be paid by Borrower and the policies delivered to Bank. If
Borrower fails to do so, Bank may procure such insurance and charge the cost to
Borrower's loan account. As further assurance for the payment and performance of
the Obligations, Borrower hereby assigns to Bank
2
<PAGE> 3
all sums including returned or unearned premiums, which may become payable under
any policy of insurance on the Collateral and Borrower hereby directs each
insurance company issuing any such policy to make payment of such sums directly
to Bank.
In the event of the same of the Collateral the proceeds thereof are
insufficient to pay all amounts to which Bank is legally entitled, Borrower will
be liable for the deficiency, together with interest thereon and the reasonable
fees of any attorney employed by Bank to collect such deficiency.
Bank shall have the right to enforce any remedies hereunder
alternatively, successively or concurrently. A waiver of any default of Borrower
shall not be a waiver of any subsequent, similar or other default. No delay in
the exercise of any of Bank's rights or remedies hereunder shall constitute a
waiver of such right or remedy or of any other right or remedy.
This Agreement shall not be construed to be in limitation of or in
substitution for any other grant of security interest from Borrower to Bank made
prior to or contemporaneously herewith, and no other such grant of a security
interest made subsequent to or contemporaneously herewith shall be construed to
be in limitation of or in substitution for this Agreement unless expressly and
specifically provided therein.
This Agreement shall take effect as a sealed instrument, shall be
governed by and construed according to the laws of the Commonwealth of
Massachusetts, shall be binding upon the heirs, executors, administrators,
successors and assigns of Borrower and shall inure to the benefit of the
successors and assigns of Bank
FLEET NATIONAL BANK MICRION CORPORATION
By: Thomas W. Davies By: David M. Hunter
----------------------------- ---------------------------
Its SVP Its Vice President, Finance
and Administration
Address: One Corporation Way
Peabody, MA 01960
3
<PAGE> 1
Exhibit 10.35
SUPPLEMENTARY SECURITY AGREEMENT
SECURITY INTEREST IN GOODS AND CHATTELS
JULY 31, 1997
-------------------------------
DATE
TO: FLEET NATIONAL BANK
Gentlemen:
This is a supplement to our Inventory Accounts Receivable and
Intangibles Security Agreement (the "Agreement") with you bearing the effective
date of even date herewith. It is hereby incorporated into said Agreement, shall
have a term concurrent therewith and is part thereof.
1. In addition to your other security, we hereby grant you a
continuing security interest in all machinery, equipment and other goods (as
defined in Article 9 of the Uniform Commercial Code) whether now owned or
hereafter acquired by us and wherever located, all replacements and
substitutions therefor or accessions thereto and all proceeds thereof (all
herein referred to collectively as "Collateral") and including, also without
limitation, all proceeds of fire or other insurance covering the aforesaid
property.
2. The Collateral shall be security for all Obligations (as defined in
the Agreement). Until all obligations have been fully satisfied your security
interest in the Collateral shall continue in full force and effect and you will
at all times after the occurrence of any Event of Default under the letter
agreement described below have the right to the physical possession of the
Collateral and to maintain such possession on our premises or to remove the
Collateral or any part thereof to such other places as you may desire. If you
exercise your right to take possession of the Collateral, we shall, upon your
demand, assemble the Collateral and make it available to you at a place
reasonably convenient to you. In addition, with respect to all Collateral, you
shall have all of the rights and remedies set forth in the Agreement and all of
the rights and remedies provided in the Uniform Commercial Code.
3. We represent, warrant the covenant that (a) the Collateral is in
our possession at One Corporation Way, Peabody, County of Essex , Commonwealth
of Massachusetts and the other locations located on Exhibit A hereto; (b) we are
the lawful owners of the Collateral and have the sole right and lawful authority
to deliver this instrument; (c) the Collateral and every part thereof is and
will be free and clear of all security interests, liens and encumbrances of
every kind, nature and description except as follows: and we will warrant and
defend the Collateral against the claims and demands of all persons; (d) we will
keep the Collateral free and clear of all attachments, levies, taxes, liens,
security interests and encumbrances of every kind and nature, except as listed
above, and we will at our owns cost and expense, keep the Collateral in a good
state of repair and will not waste or destroy the same or any part thereof
except for items disposed of in the ordinary course to the extent expressly
permitted by the aforesaid letter agreement and will not be negligent in the
case and use thereof; (e) we will not without your prior written consent, sell,
assign, mortgage, lease or otherwise dispose of the Collateral except
<PAGE> 2
for obsolete or worn out items disposed of in the ordinary course and except for
liens permitted by the aforesaid letter agreement; (f) we will insure the
Collateral in your name against loss or damage by fire, theft, burglary,
pilferage, loss in transit and such other hazards as you shall specify, in
amounts and under policies by insurers acceptable to you, and if we fail to do
so, you may procure such insurance and charge the cost to our loan account; (g)
as further assurance for the payment and performance of the Obligations, we
hereby assign to you all sums, including returned or unearned premiums, which
may become payable under any policy of insurance on the Collateral and we hereby
direct each insurance company issuing any such policy to make payment of such
sums directly to you; (h) except for items disposed of in the ordinary course to
the extent expressly permitted by the aforesaid letter agreement we will not
remove the Collateral from its present location except to another location
described herein without your prior written consent and we will at all times,
allow you or your representatives free access to and right of inspection of the
Collateral; (i) we will comply with the terms and conditions of any leases
covering the premises wherein the Collateral is located and any orders,
ordinances, laws or statutes of any city, state or other governmental department
having jurisdiction with respect to such premises or the conduct of business
thereon, and, when requested by you, we will execute any written instruments and
do any other acts necessary to effectuate more fully the purposes and provisions
of the Agreement; (j) we will indemnify and save you harmless from all loss,
cost, damage, liability or expenses including attorneys' fees that you may
sustain or incur by reason of defending or protecting your security interest or
the priority thereof or enforcing the Obligations, or in the prosecution or
defense of any action or proceeding concerning any matter growing out of or
connected with the Agreement, the Obligations or the Collateral.
4. You may, at your option, discharge any taxes, liens, security
interests or other encumbrances at any time levied or placed on the Collateral
and not permitted by the letter agreement and you may pay for the maintenance
and preservation of the Collateral and we will reimburse you on demand for any
payment made or any expense incurred by you pursuant to the foregoing authority,
with interest at the rate provided in this Agreement.
Very truly yours,
Witnessed by: MICRION CORPORATION
-----------------------------------------
Borrower
Patricia V. Rozumek By: David M. Hunter
- ----------------------------- --------------------------------------
Its Vice President, Finance and
Administration
Accepted at Boston, Massachusetts 8/1/97
By: Thomas W. Davies
--------------------------------------
Its SVP
2
<PAGE> 1
Exhibit 10.36
SECURITY AGREEMENT (PATENTS)
WHEREAS, MICRION CORPORATION, a Massachusetts corporation, with a
principal place of business at One Corporation Way, Peabody, MA 01960 (the
"Company") and FLEET NATIONAL BANK, with a place of business at 75 State Street,
Boston, Massachusetts 02109 (the "Bank") have entered into an Inventory,
Accounts Receivable and Intangibles Security Agreement dated as of July 31, 1997
(the "Security Agreement") and are also parties to a related letter agreement
(the "Letter Agreement") between the Bank and the Company; and
WHEREAS, the Company is the owner and user of the United States Patents
and Patent Applications listed on Schedule A hereto and identified in said
Security Agreement (collectively, the "U.S. Patents"); and
WHEREAS, among the security interests granted by the Company to the
Bank pursuant to the Security Agreement is a security interest in the U.S.
Patents listed on Schedule A hereto; and
WHEREAS, the parties to the Security Agreement contemplate and intend
that, if an Event of Default (as defined in the Letter Agreement) shall occur
and be continuing, the Bank shall have all rights of a foreclosing secured party
in and to the U.S. Patents and any proceeds thereof, including, without
limitation, t he right, following such foreclosure, to transfer to a purchaser
all of the Company's right, title and interest in and to the U.S. Patents;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties reconfirm the terms of
the Security Agreement, as if set forth fully herein, and acknowledge that the
Bank has a security interest in the U.S. Patents listed on Schedule A hereto; as
security for the Obligations (as defined in the Security Agreement) the Company
hereby collaterally assigns to the Bank, and grants a security interest to the
Bank in and to, all of the Company's right, title and interest in and to said
U.S. Patents; the Company agrees that it will not sell or assign any of the U.S.
Patents without the prior written consent of the Bank; and the Company and the
Bank request that the Commissioner of Patents and Trademarks record this
document with respect to the U.S. Patents.
The Company hereby appoints the Bank as the Company's attorney-in-fact
(with full power of substitution and resubstitution) with the power and
authority, after the occurrence and during the continuance of any Event of
Default (as defined in the Letter Agreement), to execute and deliver, in the
name and on behalf of the Company, and to cause the recording of all such
further assignments and other instruments as the Bank may deem necessary or
desirable in order to carry out the intent of the Security Agreement and this
Security Agreement (Patents). The Company agrees that all third parties may
conclusively rely on any such further assignment or other instrument, so
executed, delivered and recorded by the Bank (or the Bank's designee in
accordance with the terms hereof) and on the statements made therein.
<PAGE> 2
MICRION CORPORATION FLEET NATIONAL BANK
By: David M. Hunter By: Thomas W. Davies
Name: David M. Hunter Its SVP
Title: Vice President, Finance
and Administration
COMMONWEALTH OF MASSACHUSETTS )
) SS.
COUNTY OF ESSEX )
Then personally appeared before me the above-named David M. Hunter, the
Vice President, Finance and Administration of Micrion Corporation, and stated
that he/she executed the foregoing instrument under the authority of said
corporation's Board of Directors and acknowledged the foregoing instrument to be
the free act and deed of said corporation.
WITNESS my hand and seal this 31st day of July, 1997.
Patricia V. Rozumek
Notary Public
My commission expires: 4/23/04
2
<PAGE> 1
Exhibit 10.37
SECURITY AGREEMENT (TRADEMARKS)
WHEREAS, MICRION CORPORATION, a Massachusetts corporation, with a
principal place of business at One Corporation Way, Peabody, MA 01960 (the
"Company") and FLEET NATIONAL BANK, with a place of business at 75 State Street,
Boston, Massachusetts 02109 (the "Bank") have entered into an Inventory,
Accounts Receivable and Intangibles Security Agreement dated as of July 31, 1997
(the "Security Agreement") and are also parties to a related letter agreement
(the "Letter Agreement") between the Bank and the Company; and
WHEREAS, the Company is the owner and user of the trademarks listed on
Schedule A hereto and identified in said Security Agreement (the "Trademarks");
and
WHEREAS, among the security interests granted by the Company to the
Bank pursuant to the Security Agreement is a security interest in the Trademarks
listed on Schedule A hereto, together with the goodwill of the business
associated with and symbolized by such Trademarks; and
WHEREAS, the parties to the Security Agreement contemplate and intend
that, if an Event of Default (as defined in the Letter Agreement) shall occur
and be continuing, the Bank shall have all rights of the Company in and to the
Trademarks and the goodwill of the business of the Company associated with and
symbolized by the Trademarks as may be necessary or proper in order to enable
the Bank, as foreclosing secured party, to continue such business of the Company
or, following such foreclosure, to transfer to a purchaser all such rights as
may be necessary or proper to enable such purchaser to continue such business of
the Company;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties reconfirm the terms of
the Security Agreement, as if set forth fully herein, and acknowledge that the
Bank has a security interest in the Trademarks listed on Schedule A hereto,
together with the goodwill of the business associated with and symbolized by
such Trademarks; as security for the Obligations (as defined in the Security
Agreement), the Company hereby collaterally assigns to the Bank, and grants a
security interest to the Bank in and to, all of the Company's right, title and
interest in and to said Trademarks and the goodwill of the business associated
therewith; the Company agrees that it will not sell or assign any of the
Trademarks without the prior written consent of the Bank; and the Company and
the Bank request that the Commissioner of Patents and Trademarks record this
document with respect to the Trademarks.
The Company hereby appoints the Bank as the Company's attorney-in-fact
(with full power of substitution and resubstitution) with the power and
authority, after the occurrence and during the continuance of any Event of
Default (as defined in the Letter Agreement), to execute and deliver, in the
name and on behalf of the Company, and to cause the recording of all such
further assignments and other instruments as the Bank may deem necessary or
desirable in order to carry out the intent of the Security Agreement and this
Security Agreement (Trademarks).
<PAGE> 2
The Company agrees that all third parties may conclusively rely on any such
further assignment or other instrument, so executed, delivered and recorded by
the Bank (or the Bank's designee in accordance with the terms hereof) and on the
statements made therein.
MICRION CORPORATION FLEET NATIONAL BANK
By: David M. Hunter By: Thomas W. Davies
------------------------------- --------------------------
Name: David M. Hunter Its: SVP
Title: Vice President, Finance
and Administration
COMMONWEALTH OF MASSACHUSETTS )
) SS.
COUNTY OF ESSEX )
Then personally appeared before me the above-named David M. Hunter, the
Vice President, Finance and Administration of Micrion Corporation, and stated
that he/she executed the foregoing instrument under the authority of said
corporation's Board of Directors and acknowledged the foregoing instrument to be
the free act and deed of said corporation.
WITNESS my hand and seal this 31st day of July, 1997.
Patricia V. Rozumek
Notary Public
My commission expires: 4/23/04
2
<PAGE> 1
EXHIBIT 11.1
MICRION CORPORATION AND SUBSIDIARIES
Statement of Computation of Primary Earnings Per Share
<TABLE>
<CAPTION>
For the year ended June 30,
--------------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net Income ..................... $3,049,200 $2,004,100 $3,216,500
(a) Computation of Primary
Earnings Per Share
Weighted average common
equivalent shares outstanding:
Common stock ................... 4,036,418 3,923,588 3,427,437
Common stock equivalents:
Warrants (1).................... 54,681 55,150 100,488
Options (2)..................... 127,710 98,483 7,065
----------- ---------- ----------
182,391 153,633 107,553
Weighted average common and
common equivalent shares
outstanding..................... 4,218,809 4,077,221 3,534,990
=========== ========== ==========
Primary Earnings Per Share ..... $0.72 $0.49 $0.91
=========== ========== ==========
</TABLE>
(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, 11/95, 12/95, 1/96, 7/96, 11/96 and
2/97 under plan, less shares reacquired under the treasury stock
method.
Page 1
<PAGE> 2
MICRION CORPORATION AND SUBSIDIARIES
Statement of Computation of Fully Diluted Earnings Per Share
<TABLE>
<CAPTION>
For the year ended June 30,
------------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net income .......................................... $3,049,200 $2,004,100 $3,216,500
(b) Computation of Fully Diluted Earnings
Per Share:
Weighted average common equivalent
shares outstanding:
Common stock ...................................... 4,036,418 3,923,588 3,427,437
Common stock equivalents:
Warrants(1) ......................................... 61,176 60,667 110,159
Options(2) .......................................... 175,417 212,655 29,630
---------- ---------- ----------
236,593 273,332 139,789
Weighted average and fully diluted common
and common equivalent shares
outstanding ......................................... 4,273,011 4,196,920 3,567,226
========== ========== ==========
Fully Diluted Earnings Per Share .................... $0.71 $0.48 $0.90
========== ========== ==========
</TABLE>
(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, 11/95, 12/95, 1/96, 7/96, 11/96 and
2/97 under plan, less shares reacquired under the treasury stock method.
Page 2
<PAGE> 1
Exhibit 13.1
MANAGEMENT'S DISCUSSION AND ANALYSIS of Financial Condition and Results of
Operations
Results of Operations
For the year ended June 30, 1997, 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
42% and income from operations increased 39% as compared to the year ended June
30, 1996.
The following table summarizes the Company's historical results of operations as
a percentage of total sales for fiscal 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Total revenue 100% 100% 100%
Gross profit 38 38 37
Selling, general and administrative 19 18 18
Research and development 10 11 10
--- --- ---
Total operating expenses 29 29 28
Income from operations 9 9 9
Other (expense) income, net (1) (6) 1
Income tax (expense) benefit (3) 2 1
--- --- ---
Net income 5% 5% 11%
=== === ===
</TABLE>
Fiscal 1997 Compared to Fiscal 1996
Revenues. Total revenues increased by 42% to $56.0 million for the year ended
June 30, 1997 from $39.5 million for the same period ended June 30, 1996. 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 43% to $54.8 million for the year ended June 30, 1997 as
compared to $38.3 million for the same period ended June 30, 1996. 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 and the FlipChip FIB systems used by semiconductor
manufacturers.
Contract revenues decreased 7% to $1.16 million for the year ended June 30, 1997
from $1.25 million for the same period ended June 30, 1996. The decrease was due
to the reduction of spending on a government contract during fiscal 1997. 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.
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
Gross Profit. Total gross profit increased 41% to $21.2 million for the year
ended June 30, 1997 from $15.0 million for the same period ended June 30, 1996.
This increase was primarily due to an increased number of shipments of FIB
systems during fiscal 1997.
The Company's gross margin varies due to the product mix, distribution channels
and geographical location of customers. Gross profit on product revenues
increased 40% to $21.0 million for the year ended June 30, 1997 from $15.0
million for the same period ended June 30, 1996. The increase was primarily due
to the higher number of FIB system sales. The gross margin on product revenues
decreased to 38% for the year ended June 30, 1997 from 39% for the year ended
June 30, 1996.
Gross profit on contract revenues increased to $.19 million for the year ended
June 30, 1997 as compared to $.005 million for the same period ended June 30,
1996. The increase is due to a higher mix of commercial contract revenues during
the period, which generally yield a higher profit margin. The Company's gross
margin on contract revenues increased to 17% for the year ended June 30, 1997
from .4% for the year ended June 30, 1996. The increase was due to a higher mix
of contract revenues from commercial entities during the period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 46% to $10.5 million for the year ended June
30, 1997 from $7.2 million for the same period ended June 30, 1996. The increase
is primarily attributable to additional personnel in sales, applications
support, customer support for an expanded installed base of FIB systems, and
field service for expanded operations in Japan and Europe, and to the
installation of a customer call center.
Research and Development Expense. The Company's research and development expense
increased 36% to $5.8 million for the year ended June 30, 1997 from $4.2 million
for the same period ended June 30, 1996. 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 decreased to
10% for the year ended June 30, 1997 from 11% for the same period ended June 30,
1996.
Other Income and Expense. Other income and expense for the year ended June 30,
1997 consists primarily of interest expense on the bank line of credit and
capital lease borrowings. Also, interest income decreased to $.16 million for
the period ended June 30, 1997 from $.22 million for the same period ended June
30, 1996. The decrease is primarily due to a lower average cash position during
the period.
Income Tax Expense. The Company's effective tax rate for fiscal 1997 was 35%.
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.
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS
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.
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 Expense. 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 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.
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS
Liquidity and Capital Resources
The Company had $2.7 million in cash and cash equivalents at June 30, 1997, an
increase of $.6 million from June 30, 1996.
In fiscal 1997, net cash used by operating activities amounted to $3.0 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 1997 used $3.0 million, consisting primarily of
capital expenditures related to customer support, research and development,
manufacturing, administrative functions and a new demonstration facility for the
Company's products.
Net cash provided by financing activities in fiscal 1997 was $6.6 million and
consisted primarily of proceeds from net borrowings from the Company's bank line
of credit and the lease line of credit used to fund capital purchases. At June
30, 1997, the Company had total debt outstanding of $8.9 million which is
comprised of $6.9 million related to the bank line of credit and $2.0 million
related to capitalized lease obligations.
The Company's existing bank line of credit provides for borrowings of up to
$10.0 million. The bank line of credit expires on December 1, 1997 and is
unsecured. See Note 16 of the Notes to Consolidated Financial Statements.
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
1998.
Other
At June 30, 1997, the Company had available for financial statement and federal
income tax purposes tax credit carryforwards of approximately $485,000. The tax
credit carryforwards expire in varying amounts in the years 2002 through 2007.
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.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share." SFAS
128 establishes a different method of computing earnings per share than is
currently required under the provisions of Accounting Principles Board Opinion
No. 15. Under SFAS 128, the Company will be required to present both basic
earnings per share and diluted earnings per share. Basic earnings per share is
expected to be higher than the currently presented earnings per share as the
effect of dilutive stock options will not be considered in computing basic
earnings per share. The Company plans to adopt SFAS 128 in its fiscal quarter
ending December 31, 1997 and at that time all historical earnings per share data
presented will be restated to conform to the provisions of SFAS 128.
In June 1997, the Financial Accounting Standards Board issued Statement 130
(SFAS 130), "Reporting Comprehensive Income," which establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. Under this concept, all revenues,
expenses, gains and losses recognized during the period are included in income,
regardless of whether they are considered to be results of operations of the
period. SFAS 130, which becomes effective for the Company in its fiscal year
ending June 30, 1999, is not expected to have a material impact on the
consolidated financial statements of the Company.
<PAGE> 1
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, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the years in the three-year period ended June 30, 1997. 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 1997, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
July 30, 1997
<PAGE> 2
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
----------------------------
1997 1996
----------- ------------
<S> <C> <C>
ASSETS (note 16)
Current assets:
Cash and cash equivalents $ 2,676,500 $ 2,081,200
Accounts receivable (notes 3, 9 and 10) 18,755,200 11,105,500
Inventories (note 4) 24,986,200 22,481,400
Prepaid expenses and other current assets 668,200 627,100
Net deferred income taxes (note 11) 1,367,200 1,816,200
----------- ------------
Total current assets 48,453,300 38,111,400
----------- ------------
Property and equipment, net (notes 5 and 7) 5,821,000 3,234,600
Other assets, net 109,500 224,800
----------- ------------
Total assets $54,383,800 $ 41,570,800
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 7,029,900 6,472,700
Accrued expenses 4,575,100 2,834,900
Accrued warranty expenses 1,211,600 1,253,000
Current installments of obligations under capital leases (note 7) 658,700 245,100
Note payable to bank (notes 6 and 16) 6,855,000 340,000
Customer deposits and deferred income 251,000 389,200
----------- ------------
Total current liabilities 20,581,300 11,534,900
----------- ------------
Obligations under capital leases, net of current installments (note 7) 1,354,600 779,100
Commitments and contingencies (notes 7 and 14)
Stockholders' equity (notes 8 and 16):
Preferred stock, no par value; authorized 5,000,000 shares -- --
Common stock, no par value; authorized 12,300,000 shares 31,551,000 31,426,800
Retained earnings (accumulated deficit) 876,600 (2,172,600)
Other equity 20,300 2,600
----------- ------------
Total stockholders' equity 32,447,900 29,256,800
----------- ------------
Total liabilities and stockholders' equity $54,383,800 $ 41,570,800
=========== ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 3
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the years ended June 30,
------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Product revenues (notes 9 and 10) $ 54,822,700 $ 38,290,000 $ 26,396,600
Contract revenues 1,156,600 1,246,200 2,371,600
------------ ------------ ------------
Total revenues 55,979,300 39,536,200 28,768,200
------------ ------------ ------------
Cost of revenues:
Cost of product revenues 33,782,700 23,270,100 16,036,300
Cost of contract revenues 962,400 1,241,700 2,006,200
------------ ------------ ------------
Total cost of revenues 34,745,100 24,511,800 18,042,500
------------ ------------ ------------
Gross profit 21,234,200 15,024,400 10,725,700
Operating expenses:
Selling, general and administrative expenses 10,449,500 7,179,000 5,134,100
Research and development expenses 5,775,800 4,234,500 2,925,300
------------ ------------ ------------
Total operating expenses 16,225,300 11,413,500 8,059,400
------------ ------------ ------------
Income from operations 5,008,900 3,610,900 2,666,300
Other (expense) income:
Litigation settlement expense (note 13) -- (2,684,500) --
Interest income 158,000 223,300 388,000
Interest expense (471,600) (93,300) (21,800)
Other 2,500 70,400 (30,300)
------------ ------------ ------------
Total other (expense) income (311,100) (2,484,100) 335,900
------------ ------------ ------------
Income before (provision) benefit for income taxes 4,697,800 1,126,800 3,002,200
(Provision) benefit for income taxes (note 11) (1,648,600) 877,300 214,300
------------ ------------ ------------
Net income $ 3,049,200 $ 2,004,100 $ 3,216,500
============ ============ ============
Earnings per share: $ .72 $ .49 $ .91
============ ============ ============
Weighted average common and
common equivalent shares outstanding 4,218,800 4,077,200 3,535,000
============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE> 4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Retained
Common stock earnings Other Total
--------------------------- (accumulated equity stockholders'
Shares Amount deficit) (deficit) equity
--------- ------------ ------------ --------- -------------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1994 2,764,708 $ 17,760,300 $(7,393,200) $(98,200) $ 10,268,900
Issuance of common stock
pursuant to follow-on
offering, net of costs 1,000,000 11,054,900 -- -- 11,054,900
Repurchase of common stock (3,382) (800) -- -- (800)
Conversion of warrants to
common stock 140,000 -- -- -- --
Effect of foreign currency
translation -- -- -- 36,700 36,700
Decrease in loans to
shareholders -- -- -- 19,000 19,000
Amortization of unearned
compensation (note 8) -- -- -- 41,800 41,800
Net income -- -- 3,216,500 -- 3,216,500
--------- ------------ ----------- -------- ------------
Balance, June 30, 1995 3,901,326 28,814,400 (4,176,700) (700) 24,637,000
Issuance of common stock
pursuant to employee
stock purchase plan 6,536 58,800 -- -- 58,800
Issuance of common stock
pursuant to employee
stock option plan 1,750 19,100 -- -- 19,100
Issuance of common stock
pursuant to settlement
of litigation (note 13) 119,202 2,534,500 -- -- 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 (note 8) -- -- -- 15,800 15,800
Net income -- -- 2,004,100 -- 2,004,100
--------- ------------ ----------- -------- ------------
Balance, June 30, 1996 4,028,814 31,426,800 (2,172,600) 2,600 29,256,800
Issuance of common stock
pursuant to employee
stock purchase plan 10,217 107,400 -- -- 107,400
Issuance of common stock
pursuant to employee
stock option plan 1,531 16,800 -- -- 16,800
Effect of foreign currency
translation -- -- -- 13,700 13,700
Amortization of unearned
compensation (note 8) -- -- -- 4,000 4,000
Net income -- -- 3,049,200 -- 3,049,200
--------- ------------ ----------- -------- ------------
Balance, June 30, 1997 4,040,562 $ 31,551,000 $ 876,600 $ 20,300 $ 32,447,900
========= ============ =========== ======== ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended June 30,
-----------------------------------------------
1997 1996 1995
----------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,049,200 $ 2,004,100 $ 3,216,500
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation and amortization 1,596,400 795,800 555,800
Unearned compensation 4,000 15,800 41,800
Decrease (increase) in deferred income taxes 448,800 (1,346,400) (469,800)
Litigation settlement -- 2,534,500 --
Changes in operating assets and liabilities:
Accounts receivable (7,653,800) (1,380,500) (6,256,400)
Inventories (2,505,200) (11,908,000) (5,584,300)
Prepaid expenses and other current assets (41,900) (361,600) (133,400)
Accounts payable 557,200 3,198,000 1,691,100
Accrued expenses 1,679,000 1,233,100 46,900
Accrued warranty expenses (34,500) 717,600 84,100
Customer deposits and deferred income (138,000) 33,500 177,500
----------- ------------ ------------
Net cash used by operating activities (3,038,800) (4,464,100) (6,630,200)
----------- ------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (2,914,900) (1,705,000) (769,200)
Increase in other assets (42,000) (1,100) (35,600)
----------- ------------ ------------
Net cash used by investing activities (2,956,900) (1,706,100) (804,800)
----------- ------------ ------------
Cash flows from financing activities:
Proceeds from capital lease obligations 494,400 1,106,600 --
Repayments of capital lease obligations (564,000) (147,700) (39,300)
Net borrowings from line of credit 6,515,000 340,000 --
Proceeds from sale of common stock, net 124,000 77,900 11,054,900
Repurchase of common stock, net -- -- (800)
----------- ------------ ------------
Net cash provided by financing activities 6,569,400 1,376,800 11,014,800
----------- ------------ ------------
Effect of exchange rate changes on cash 21,600 23,500 33,200
----------- ------------ ------------
Increase (decrease) in cash and cash equivalents 595,300 (4,769,900) 3,613,000
----------- ------------ ------------
Cash and cash equivalents, beginning of year 2,081,200 6,851,100 3,238,100
----------- ------------ ------------
Cash and cash equivalents, end of year $ 2,676,500 $ 2,081,200 $ 6,851,100
=========== ============ ============
Summary of noncash financing transactions:
Fixed assets acquired under capital lease $ 1,058,500 $ 689,300 $ --
=========== ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 440,000 $ 56,400 $ 19,400
=========== ============ ============
Income taxes $ 953,000 $ 154,100 $ 239,700
=========== ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1997 and 1996
1) Nature of Business
Micrion Corporation (the 'Company') and its subsidiaries 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 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> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2) Summary of Significant Accounting Policies (continued)
(e) New Accounting Pronouncement
In 1997, the Company adopted Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS 123), which established
financial accounting and reporting standards for stock-based employee
compensation plans. As permitted by SFAS 123, the Company measures compensation
cost in accordance with Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees." Therefore, the adoption of SFAS 123 was not
material to the Company's financial condition or results of operations. However,
the pro forma impact on net income has been disclosed in the Notes to
Consolidated Financial Statements as required by SFAS 123.
(f) Research and Development
Expenditures for research and development are charged against operations as
incurred. For the years ended June 30, 1997, 1996 and 1995, aggregate research
and development costs were $6,439,300, $5,132,100 and $4,531,700, respectively,
including $663,500, $897,600 and $1,606,400, 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 within other equity on
the consolidated balance sheets. Transaction gains and losses are reflected in
the consolidated statements of operations and are immaterial.
(i) Earnings per Share
Earnings 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 earnings per share is not significantly different from primary earnings
per share amounts. In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings
per Share." SFAS 128 establishes a different method of computing earnings per
share than is currently required under the provisions of Accounting Principles
Board Opinion No. 15. Under SFAS 128, the Company will be required to present
both basic earnings per share and diluted earnings per share. Basic earnings per
share is expected to be higher than the currently presented earnings per share
as the effect of dilutive stock options will not be considered in computing
basic earnings per share. The Company plans to adopt SFAS 128 in its fiscal
quarter ending December 31, 1997 and at that time all historical earnings per
share data presented will be restated to conform to the provisions of SFAS 128.
(j) Cash Equivalents
Cash equivalents consist of short-term investments with original maturities of
three months or less.
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2) Summary of Significant Accounting Policies (continued)
(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 consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
3) Accounts Receivable
Accounts receivable consist of:
<TABLE>
<CAPTION>
June 30,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
Trade accounts $15,655,400 $ 9,787,600
Billed:
Product revenues with significant engineering costs -- 180,500
Research and development contracts in progress 190,700 86,100
Unbilled:
Product revenues with significant engineering costs 2,791,000 936,400
Research and development contracts in progress 118,100 114,900
----------- -----------
Total receivables $18,755,200 $11,105,500
=========== ===========
</TABLE>
4) Inventories
Inventories consist of:
<TABLE>
<CAPTION>
JUNE 30,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Raw materials and manufactured parts, net $14,429,800 $10,081,800
Work in process 8,863,600 11,157,900
Finished goods 1,692,800 1,241,700
----------- -----------
Total inventories $24,986,200 $22,481,400
=========== ===========
</TABLE>
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5) Property and Equipment
Property and equipment consists of:
<TABLE>
<CAPTION>
June 30,
-----------------------------
1997 1996
------------ -----------
<S> <C> <C>
Furniture and fixtures $ 708,400 $ 623,300
Computer, engineering and production equipment 5,872,400 3,822,500
Sales demonstration systems 345,200 345,200
Leasehold improvements 536,900 242,800
Property under capital lease 3,473,300 1,884,300
------------ -----------
10,936,200 6,918,100
Accumulated depreciation and amortization (5,115,200) (3,683,500)
------------ -----------
Net property and equipment $ 5,821,000 $ 3,234,600
============ ===========
</TABLE>
At June 30, 1997 and 1996, accumulated amortization for property under capital
lease was $1,494,100 and $878,500 respectively.
6) Indebtedness
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. 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 (8.5% at June 30, 1997). The line of credit expires on
December 1, 1997 (See Note 16 of the Notes to Consolidated Financial
Statements). At June 30, 1997 and 1996, $6,855,000 and $340,000, respectively,
were outstanding against the line of credit.
7) Leases
The Company occupies facilities under operating leases. During fiscal 1995, the
Company's headquarters lease was renegotiated with the expiration date extended
to February 2005. During fiscal 1997, the Company entered into a second
operating lease, expiring in July 2001, to expand its manufacturing capacity.
Rent expense was approximately $832,500, $592,900 and $347,000 for the years
ended June 30, 1997, 1996 and 1995, respectively. Capital lease obligations
consist of amounts due under equipment leases expiring in fiscal 2001. Property
under capital lease consists primarily of computers, engineering equipment,
marketing demonstration systems and related software.
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7) Leases (continued)
At June 30, 1997, future minimum lease payments under these noncancelable
agreements are as follows:
<TABLE>
<CAPTION>
Capital Operating
Year ending June 30: lease leases
- -------------------- ----------- ----------
<S> <C> <C>
1998 $ 770,600 $ 803,400
1999 731,800 775,500
2000 583,100 775,500
2001 116,300 531,100
2002-2005 -- 1,846,000
----------- ----------
Minimum future lease payments 2,201,800 $4,731,500
Less amounts representing interest (188,500) ==========
-----------
Present value of minimum future lease payments 2,013,300
Less current installments (658,700)
-----------
Obligations under capital lease, net of current installments $ 1,354,600
===========
</TABLE>
In addition, the Company is responsible for additional operating expenses
incurred by the lessor under the operating lease. Such expenses are
approximately $185,000, annually.
8) Stockholders' Equity
(a) Preferred Stock
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, 1997.
(b) Common Stock
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, 1997, 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, 1997, 1996 and 1995, the Company recorded $4,000, $15,800 and
$41,800 respectively, as compensation expense in connection with this award.
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 (485) shares of common stock are reserved for issuance
under this plan. At June 30, 1997, 390 options to purchase common stock at $30
per share were outstanding, all of which are exercisable. There has been no
activity under the plan in fiscal 1997, 1996 and 1995.
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8) Stockholders' Equity (continued)
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.
Stock option transactions for the Omnibus Stock Plan were as follows:
<TABLE>
<CAPTION>
Weighted average
Shares of exercise price of
common stock shares under plan
------------ -----------------
<S> <C> <C>
Outstanding at June 30, 1994 390 $ 30.00
------- --------
Granted 163,000 11.05
Exercised -- --
Canceled -- --
------- --------
Outstanding at June 30, 1995 163,390 11.09
------- --------
Granted 240,000 10.65
Exercised (1,750) 10.91
Canceled (875) 10.75
------- --------
Outstanding at June 30, 1996 400,765 10.83
------- --------
Granted 63,000 10.00
Exercised (1,531) 10.95
Canceled (1,219) 10.93
------- --------
Outstanding at June 30, 1997 461,015 $ 9.35
------- --------
</TABLE>
The following statement summarizes information concerning currently outstanding
and exercisable options as of June 30, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ----------------------------------------------------------------- ----------------------------
Weighted average
remaining Weighted Weighted
Range of Number contractual life average Number average
exercise prices outstanding (years) exercise price exercisable exercise price
- --------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$09.50-$10.75 295,875 8.55 $ 10.42 115,375 $ 10.51
$10.76-$20.00 164,750 7.52 11.19 110,125 11.07
$20.01-$30.00 390 2.80 30.00 390 30.00
------- -------
461,015 225,890
------- -------
</TABLE>
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, 1997, 30,000 options have been granted under this plan at a
weighted average exercise price of $14.46 per share, of which 18,125 shares were
exercisable and none of which have been exercised.
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" and related interpretations in accounting for its
stock option and employee stock purchase plans. Accordingly, no compensation
expense has been recognized in the consolidated financial statements for such
plans. Had compensation cost for the Company's stock option plans been
determined based upon the fair value at the grant date for awards under these
plans consistent with the methodology prescribed under SFAS 123, "Accounting for
Stock-based Compensation," the Company's net income would have been reduced to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Net income:
As reported $3,049,200 $2,004,100
Pro forma 2,571,900 1,712,500
</TABLE>
The following assumptions were used in the calculation of these values for
fiscal 1997 and 1996: volatility of 177.3%, risk free interest rate of 5.89% and
expected life of 4.0 years. The effect of applying SFAS 123 as shown in the
above pro forma disclosure is not representative of the pro forma effect on net
income in future years because it does not take into consideration pro forma
compensation expense related to grants made prior to fiscal 1996.
(d) Warrants
The following is a summary of all outstanding warrants to purchase common stock
at June 30, 1997:
<TABLE>
<CAPTION>
Allowable shares Price Expiration
under warrants per share Date
---------------- ---------- -------------
<S> <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, 1997, 1996
and 1995, sales of $8,321,500, $8,044,700 and $7,010,600, respectively, were
made to TEL. At June 30, 1997 and 1996, receivables of $2,151,000 and $818,100,
respectively, were due.
10) Geographic and Customer Information
The following summarizes the geographic distribution of the Company's revenues:
<TABLE>
<CAPTION>
For the years ended June 30,
---------------------------------------------
TOTAL REVENUE: 1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
North America $20,363,600 $12,402,200 $10,731,900
Far East exports 29,158,300 23,260,800 16,215,700
Other foreign exports 6,457,400 3,873,200 1,820,600
----------- ----------- -----------
Total revenues $55,979,300 $39,536,200 $28,768,200
=========== =========== ===========
</TABLE>
For the years ended June 30, 1997, 1996 and 1995, three, two and three
customers, respectively, accounted for 50%, 55% and 55%, respectively, of total
revenues. At June 30, 1997, the three customers accounted for 31% of total
accounts receivable.
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11) Income Taxes
The components of the net deferred tax assets recognized in the consolidated
balance sheets are as follows:
<TABLE>
<CAPTION>
June 30,
------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax assets $ 1,583,300 $ 1,834,500
Deferred tax liabilities (216,100) (18,300)
----------- -----------
Net deferred tax assets $ 1,367,200 $ 1,816,200
=========== ===========
</TABLE>
The approximate tax effect of temporary differences and tax credit carryforwards
is as follows:
<TABLE>
<CAPTION>
June 30,
-----------------------------
DEFERRED TAX ASSETS 1997 1996
---------- ----------
<S> <C> <C>
Net operating loss carryforwards $ -- $ 218,700
Reserves 1,098,600 1,063,500
Tax credit carryforwards 484,700 552,300
---------- ----------
Deferred tax assets $1,583,300 $1,834,500
========== ==========
</TABLE>
The deferred tax liabilities relate to property, plant and equipment,
principally the difference between book and tax depreciation expense.
The amount recorded as net deferred tax assets as of June 30, 1997 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 asset of $1,367,200 at June 30,
1997 will more likely than not be realized in the carryforward period using
anticipated results from operations. The Company continually re-evaluates the
recoverability of deferred tax assets.
The components of the (provision) benefit for income taxes are as follows:
<TABLE>
<CAPTION>
For the years ended June 30,
-------------------------------------------
1997 1996 1995
----------- ----------- ---------
<S> <C> <C> <C>
Federal:
Current $(1,065,000) $ (360,700) $ (68,100)
Deferred (266,700) 1,067,800 469,800
State:
Current (120,000) (74,900) (180,000)
Deferred (182,300) 278,600 --
Foreign:
Current (14,600) (33,500) (7,400)
Deferred -- -- --
----------- ----------- ---------
(Provision) benefit for income taxes $(1,648,600) $ 877,300 $ 214,300
=========== =========== =========
</TABLE>
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11) Income Taxes (continued)
The actual income tax (provision) benefit differs from the "expected" income tax
expense computed by applying the U.S. Federal corporate tax rate of 34% to
income before (provision) benefit for income taxes as follows:
<TABLE>
<CAPTION>
For the years ended June 30,
---------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Computed "expected" income tax expense $(1,597,300) $ (383,100) $(1,020,800)
(Increase) reduction in income taxes resulting from:
State taxes, net of federal income tax benefit (153,800) (46,200) (114,700)
Foreign taxes (16,400) (66,900) (7,400)
Foreign sales corporation benefit 298,500 204,900 --
Litigation settlement -- (861,800) --
Other (179,600) 174,000 278,900
Change in valuation allowance -- 1,856,400 1,078,300
----------- ----------- -----------
(Provision) benefit for income taxes $(1,648,600) $ 877,300 $ 214,300
=========== =========== ===========
</TABLE>
For income tax purposes, the Company has tax credit carryforwards of
approximately $485,000 at June 30, 1997. The tax credit carryforwards expire in
varying amounts in the years 2002 through 2007. The Company expects to utilize
the full amount of its tax credit carryforwards.
12) Employee Benefit Plan
The Company has 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 1997 and 1996, the Company made matching contributions
of $272,000 and $102,800, respectively, 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> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14) Litigation
During fiscal 1997, two complaints were filed in the U.S. District Court for the
District of Massachusetts against the Company and certain of its officers, which
complaints were subsequently amended and consolidated. The consolidated
complaint 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. It 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. The Company filed a motion to dismiss
the consolidated complaint for failure to state a claim. This motion was denied
on April 30, 1997. The Company believes the consolidated complaint to be without
merit and intends vigorously to defend itself against the claims. There can be
no assurance, however, that the Company will be successful in defending this
lawsuit or that money damages, if awarded, would not have a material adverse
effect on the Company.
15) Unaudited Interim Financial Information
Quarterly financial information is as follows:
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the quarters ended September 30, December 31, March 31, June 30,
- ---------------------- ------------- ------------ --------- --------
<S> <C> <C> <C> <C>
Year ended June 30, 1997
Revenues $13,241 $13,394 $14,123 $15,221
Gross profit 5,269 5,550 5,217 5,198
Net income 982 993 542 532
Net income per share .24 .24 .13 .13
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 486 580 446 492
Net income per share .12 .15 .11 .11
</TABLE>
Note: Due to rounding, some totals may not add.
16) Subsequent Events
In July 1997, the Company entered into a secured long-term debt loan agreement
with Fleet Bank, N.A. for $8,000,000. The loan is secured by the Company's
assets and intellectual property. The term loan bears interest at the bank's
prime rate plus 1.5% (10% at June 30, 1997). The agreement with the bank calls
for eight quarterly payments of $1,000,000 starting in the quarter ended
September 30, 1998 through the quarter ended June 30, 2000. The proceeds were
used to pay down a portion of the then outstanding balance on the line of
credit. Also, the bank extended the expiration of the current line of credit to
December 1, 1998.
On July 23, 1997, the Company's Board of Directors adopted a Shareholders Rights
Plan which is intended to protect shareholders against abusive or coercive
tactics, such as partial tender offers and acquisition of control without paying
all shareholders a fair value for their shares. The adoption of this plan was
not a response by the Company to any takeover offer, either real or anticipated.
<PAGE> 1
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
July 30, 1997, with respect to the consolidated financial statements of Micrion
Corporation for the year ended June 30, 1997, which report appears in the June
30, 1997 Annual Report on Form 10-K of Micrion Corporation.
KPMG Peat Marwick LLP
Boston, Massachusetts
September 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,677
<SECURITIES> 0
<RECEIVABLES> 18,755
<ALLOWANCES> 0
<INVENTORY> 24,986
<CURRENT-ASSETS> 48,453
<PP&E> 10,936
<DEPRECIATION> (5,115)
<TOTAL-ASSETS> 54,384
<CURRENT-LIABILITIES> 20,581
<BONDS> 0
0
0
<COMMON> 31,551
<OTHER-SE> 897
<TOTAL-LIABILITY-AND-EQUITY> 54,384
<SALES> 54,823
<TOTAL-REVENUES> 55,979
<CGS> 33,783
<TOTAL-COSTS> 34,745
<OTHER-EXPENSES> 311
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 472
<INCOME-PRETAX> 0
<INCOME-TAX> (1,649)
<INCOME-CONTINUING> 4,698
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,049
<EPS-PRIMARY> .72
<EPS-DILUTED> .71
</TABLE>
<PAGE> 1
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
"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 and data storage
industries, which are highly cyclical, or particular segments within those
industries.
A variety of factors which vary substantially over time, including:
conditions in the semiconductor and data storage industries; 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
<PAGE> 2
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, 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.
