-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UIJJzRrIfIpwueVZWu3nVgMYAXKViFiHs3ATOoEQcl+ZdCESacAblqYA7MjWzLUt e3PB2OO1e/ww56Isvvrg9g== 0000906768-97-000007.txt : 19970618 0000906768-97-000007.hdr.sgml : 19970618 ACCESSION NUMBER: 0000906768-97-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970617 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MRS TECHNOLOGY INC CENTRAL INDEX KEY: 0000906768 STANDARD INDUSTRIAL CLASSIFICATION: SPECIAL INDUSTRY MACHINERY, NEC [3559] IRS NUMBER: 042904966 STATE OF INCORPORATION: MA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-21908 FILM NUMBER: 97625129 BUSINESS ADDRESS: STREET 1: 10 ELIZABETH DRIVE CITY: CHELMSFORD STATE: MA ZIP: 01824-4112 BUSINESS PHONE: 5082500450 MAIL ADDRESS: STREET 1: 10 ELIZABETH DRIVE CITY: CHELMSFORD STATE: MA ZIP: 01824 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 For the Fiscal Year Ended March 31, 1997 Commission File Number 0-21908 MRS Technology, Inc. (exact name of registrant as specified in its charter) Massachusetts (State or other jurisdiction of incorporation or organization) 04-2904966 (I.R.S. Employer Identification No.) 10 Elizabeth Drive, Chelmsford, MA 01824-4112 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (508) 250-0450 Effective September 1, 1997 area code will change to: (978) Securities registered pursuant to Section 12(b) of the Act: None Exchange on which securities are registered: NASDAQ Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes __ 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. [ ] As of June 2, 1997, the aggregate market value of outstanding shares of the voting stock held by non-affiliates was $6,607,252. As of June 2, 1997, 6,792,728 shares of the registrant's Common Stock, par value $.01 per share, were issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement relating to the Annual Meeting of Shareholders to be held on July 30, 1997 are incorporated by reference into Part III of this Report. PART I ITEM 1. BUSINESS General The Company manufactures and sells large-area, high-resolution photolithographic equipment for the production of giant integrated circuits or electronic devices, such as those used for active matrix liquid crystal displays (AMLCDs) and field emission displays (FEDs), two types of high-information content flat panel displays. The Company's innovative photolithographic system, the PanelPrinter (Trademark) (the PanelPrinter), is a "stitching-aligner" which images active circuit patterns and other microstructures, a critical step in both the AMLCD and FED production processes. The Company is one of three manufacturers of large-area, high-resolution, projection photolithographic systems for AMLCD production,and is the first such manufacturer for FED production. AMLCD is the flat panel display (FPD) technology currently in commercial production which best combines rapid response rate, low power consumption, wide viewing angle and long lifetime while providing contrast, resolution and color quality that generally rivals the best cathode ray tubes (CRTs) and surpasses passive matrix displays. AMLCDs are now used in most color laptop and notebook computers, camcorder viewfinders and miniature color televisions. FED is an FPD technology currently in development that has attracted the most investment as an alternative to AMLCD technology. Management believes that, as the cost of manufacturing FPDs decreases, their performance advantages should result in their replacing passive matrix displays in many existing applications, such as laptop and notebook computers and hand-held video games, and should lead to the use of FPDs in new applications, such as video telephones, car navigation devices and hand-held computers. Management also believes that FPDs may ultimately replace CRTs in such products as personal computers, workstations and televisions. The Company's PanelPrinter was specifically designed for the volume production of large-area, interconnected microstructures, such as giant integrated circuits or electronic devices. Through a variety of innovative motions and imaging technologies, controlled and integrated by the Company's proprietary software, the Company has addressed the production challenges of AMLCDs, the first high-volume application for large-area electronic devices. The PanelPrinter images highly accurate circuit patterns over large surface areas and aligns the patterns on successive layers at high productivity rates which enables volume production. The PanelPrinter's distinguishing features include a scaling capability, which detects, measures and compensates for substrate distortion, and an alignment capability which, using proprietary technology, stitches and overlays circuit images with submicron accuracy. In addition, to minimize downtime and enhance throughput, the PanelPrinter offers ease-of-use features, such as set-up, self-calibration and user interface software, and employs frictionless motions systems and advanced diagnostics systems. From inception through March 31, 1997, the Company sold more than 25 PanelPrinters. Customers include AT&T, the Sarnoff Corporation, EG&G, Electronics Research & Service Organization (funded by Taiwan government), Hitachi, Hosiden, IBM, Image Quest Technologies, Litton Systems Canada, OIS Optical Imaging Systems, Inc., PixTech, Inc. (previously Pixel International), Ricoh, Sony, Xerox, the University of Stuttgart and certain entities in Japan, Korea and the United States who have asked not to be identified. In addition, the Company has developed relationships with U.S. governmental agencies that have declared the strategic importance of developing FPD manufacturing technology. From 1990 through March 31, 1997, the Company had received a total of $19.6 million in funding from the U.S. government through two contracts with Defense Advanced Research Projects Agency (DARPA) to develop a next-generation, large-area photolithographic system, as part of an ongoing program through which DARPA was fostering the commercial development in the United States of critical aspects of AMLCD manufacturing technology. The funding for this program was fully utilized in fiscal 1997. The development effort for the product contemplated by these contracts is incomplete, but certain parts of the technology developed are now being integrated into the company's existing product line. The result of this will be a machine architecture significantly easier to scale up to meet the demands for increasingly larger substrates and machine productivity. The Company was incorporated under the laws of the Commonwealth of Massachusetts in February 1986. Its executive offices are located at 10 Elizabeth Drive, Chelmsford, Massachusetts 01824 and its telephone number is (508) 250-0450. (Effective September 1, 1997 area code will change to 978.) Flat Panel Displays Although CRTs remain the dominant visual display screen technology, FPDs have emerged as an attractive alternative. Because of differences in design and construction, FPDs offer certain advantages over CRTs, including minimal screen depth, lower power consumption, lighter weight and lower radiation emissions. A typical 14-inch color CRT monitor is approximately 12 inches deep and weighs approximately 20 pounds; a typical 15-inch FPD is less than one inch deep and weighs four to five pounds. There are a number of FPD technologies, including AMLCDs, passive matrix LCDs, displays based on crystalline silicon devices, "passive-active" devices, thin-film electroluminescent displays, plasma displays, FEDs (also known as microtip fluorescent displays) and a number of experimental technologies. To date, AMLCD is the FPD technology which has attracted the largest amount of capital invested in manufacturing capacity. Although AMLCDs are currently more expensive than comparably sized CRTs and current passive matrix displays, AMLCD manufacturing costs have declined steadily in recent years. AMLCD Technology An AMLCD screen is a "sandwich" consisting of, from front to back, a polarizer, color filters, liquid crystal solution, a circuit plate, a second polarizer and a light source. The circuit plate is a critical component of an AMLCD. It is a matrix of rows and columns of circuit lines the intersections of which create picture elements or "pixels". Each pixel is actively controlled by its own thin film transistor -- hence, an "active matrix". To produce an image, ordinary white light from the screen's light source passes through a polarizing filter, then through the pixels in the circuit plate. Each pixel is positioned under a red, green or blue color filter. Pixels and their corresponding filters are typically grouped in triads of red, green and blue, producing a vivid and clear display with a broad range of colors. FED Technology Instead of transistors, FEDs require a different microstructure, microtips, which emit electrons to excite a phosphor material, generating light and, with controllable driver circuitry, viewable images. The basic steps in microtip construction are as follows. Microscopic holes are precisely imaged on the top layer of material on a glass substrate. These holes allow the controlled etching of cavities or wells in the material beneath the top layer. The etching leaves circular patterns on the surface of the third layer of materials. These circles become the bases of cones grown inside the wells by a process of metal deposition. When electrically charged, the tips of the cones emit electrons which strike a phospor material deposited on a separate glass substrate. A single pixel or subpixel in a display may consist of several hundred such microtip structures. Manufacturing Technology In the context of electronics manufacturing, photolithography provides accurate and precise imaging by replicating detailed patterns from master artwork sources onto successive layers of conductive, semiconductive and insulating materials to form microstructures, such as transistors, diodes, resistors, connecting lines and holes, all intended to result in a product which performs specific functions, most often involving the sensing, storing, transmitting, processing or displaying of information. This multi-layer production process is used to manufacture integrated circuits which contain large numbers of microstructures and the patterns which connect them. The layers are built up one by one on a substrate base. For AMLCDs the first layer, a material such as indium tin oxide, a transparent metal, is applied to the substrate. Next, a coating of light-sensitive photoresist chemical is applied. A series of master patterns is then successively imaged onto the photoresist by a photolithography system, using a projection lens and an illuminator. Each pattern exposed onto the photoresist is then developed and etched. Developing removes the exposed photoresist pattern, while unexposed photoresist remains. Through a chemical process, etching then removes the metal layer in the exposed area, leaving the pattern replicated from the master artwork. For the second layer, an insulating material, such as silicon nitride, is applied on top of the previous layer. Again, a coating of photoresist is added and the plate is exposed, developed and etched. These steps are typically repeated several times, or as many times as there are layers in the process. The size, shape and electrical property of each material remnant, and the order in which they have been layered into the microstructure, determine the functionality of the microstructure. If the structure is a transistor (the most common structure in ICs), it functions by responding to signals from the display driver circuitry. In AMLCDs, the transistor is a switch which controls the amount of light coming through a specific pixel or subpixel in a display. For each layer in the process, the substrate moves through a production line, with each item of equipment in the line performing one or more of the fabrication steps. A typical line includes deposition equipment to apply thin-film layers, photoresist equipment to apply coatings of photoresist, a photolithographic system to image patterns in each layer of material and other equipment to perform the development, etching and inspection steps. In a single production line, the substrate must pass through all production steps as many times as there are layers. For volume production, one production line, including one photolithographic system, is dedicated to each layer. A manufacturing facility could thus require a total of five to seven production lines, each including a photolithographic system. At present, prices of photolithographic systems generally range from $2.0 to $4.0 million and each production line is likely to cost $10 to $15 million, in addition to the expense of building a fabrication facility to specification with required clean rooms. There are two principal methods that large-area photolithography systems use to create microscopic images. One method, used by systems such as the Company's PanelPrinter, is called "stitching". Systems using this method are called "stitching aligners". In the stitching process, the substrate is placed upon a stage or platform in the machine. Using a master pattern placed on quartz, called a reticle, within the system's camera, a circuit or other pattern is printed photographically onto a small section of substrate. The system then "steps" to an adjacent area of the substrate and prints another image. The images must be accurately aligned so that they are "stitched" together without visible seams. The other method of creating large-area microscopic images, in which the image is continuously scanned across a substrate, is called "scanning". Largely because of technical difficulties in focusing a large image, scanning does not at present produce high quality display screens as large as those produced by stitching technology. Precise coordination of machine systems is necessary to achieve the accuracy required to stitch adjacent images and overlay the various layers of a large area integrated circuit. Stitching alignment, the alignment of adjacent images on a single circuit layer, requires printing accuracy to three-quarters of a micron while overlay alignment, the alignment of images on successive layers, requires accuracy to one-half to one-tenth of a micron. The technological challenges of stitching alignment and overlay alignment are made even more complicated by the distortion in substrate shape that can occur as a result of temperature changes during the production process. In addition, photolithographic systems must operate with sufficient speed to make volume production of FPDs possible. The Company's Technology Since its organization in 1986, the Company has devoted its capital and research and development resources to the design and manufacture of a photolithographic system that meets the technological challenges faced by FPD manufacturers. Management believes that the PanelPrinter's innovative motions, scaling and software capabilities are technologically more advanced than those of any other photolithographic system now available for the manufacture of FPDs. The Company focuses on the following system features: * Alignment -- Using an innovative combination of a Company-designed vision system with proprietary algorithms and proprietary motions software, the PanelPrinter stitches and overlays circuit plate images with sub-micron accuracy. * Scalability -- By detecting and measuring microscopic distortion in substrate shape, the Company's system compensates for distortion by adjusting the image projected on the circuit plate. * Ease of Use and Flexibility -- By employing proprietary set-up, self-calibration and user interface software, the PanelPrinter simplifies the set-up, testing, imaging and resetting processes thereby improving productivity. * Reliability/Ease of Maintenance -- Designed to employ low-friction air bearings and advanced diagnostic capabilities -- both on-site and from remote locations -- the Company's system minimizes downtime and enhances throughput capability. Alignment. Accurate measurement is critical to precise image stitching -- the side-by-side positioning of images on a layer -- and overlay -- the accurate superimposition of images on successive layers. The PanelPrinter uses laser interferometry to accurately measure and control the position of the substrate, and a Company-designed vision system with proprietary algorithms to precisely measure the location of alignment mark images on the substrate. The PanelPrinter's job execution software compares the location of the measured marks to reference marks stored in the system computer. The results are then translated by the software and used to correct the position of the stage and camera hardware to bring the substrate into accurate "alignment" with the system. Scalability. Substrates tend to distort when subjected to high temperatures used during the FPD production process. The Company's system addresses the need to compensate for such distortion by employing a scalability feature. Measurement data taken during the alignment process is used to determine the substrate shape changes. The PanelPrinter's job execution software compensates for these changes by "scaling" the stepping motions of the stage, and by adjusting the magnification of the projected image. These corrections optimize the size, shape and position accuracy of the projected image over the underlying, previously exposed image. Ease of Use and Flexibility. The complexity inherent in operating a photolithographic system makes ease of use and flexibility particularly desirable to customers. The PanelPrinter's software incorporates advanced computer graphics and flexible, simple user interfaces to set up and carry out machine instructions. The software facilitates the production of a variety of AMLCD types and sizes and is intended to improve productivity. The system's measurements and correction software provides rapid set-up and self-calibration routines. A number of tests, including statistical analyses, can be run to verify system performance. This software, among other functions, calibrates the position of one lens relative to another and enables automatic adjustment of image positioning. This self-calibration routine eliminates the need to expose and develop test substrates and reduces setup time from the hours generally required by mechanical means to under ten minutes. The Company's PanelCAD (Trademark) software leads the user through a graphical, step-by-step process of electing patterns and their appropriate printing sequence. Once a job execution program is entered into the system, it can be initiated with a single touch-panel command. The PanelPrinter also provides its operator with access to extensive, on-line interactive manuals, which are customized for specific machine configurations and periodically updated. Moreover, multiple users can access the PanelPrinter from remote terminals outside the clean room in which the system is located. Reliability/Ease of Maintenance. The Company's PanelPrinter was designed for long production runs with minimal downtime. Using air bearings and linear motors, the PanelPrinter's technological innovations significantly diminish friction and wear. Moreover, the Company's system provides users with on-line diagnostics for continuous monitoring of system conditions. The system's diagnostic capability is enhanced through video tutorials used to isolate and analyze production anomalies. In addition, the Company's engineers can access data from remote locations. Customers can also access the PanelPrinter for service from remote locations, including from outside the clean room. For example, a customer in Japan experiencing difficulty in aligning a new process layer would be able to interface with the Company's technical staff via modem to access real-time support. Company technicians could then direct the system to transmit circuit plate images, and analyze them to provide a quick solution. The electronic imaging display industry is characterized by rapid and significant technological advances. The Company's success is therefore dependent upon its ability to maintain the PanelPrinter's technological competitiveness and to respond to changes in customer requirements. There can be no assurance that the Company's direct or indirect competitors will not succeed in developing new technologies or improvements to existing technologies which could render the Company's technology or the PanelPrinter less competitive or obsolete. Customers and Marketing Customers use photolithographic systems such as the Company's PanelPrinter for commercial and research purposes. Commercial customers include manufacturers of electronic products that incorporate FPDs. For a variety of reasons, including quality control and a desire to insure uninterrupted supply, these manufacturers have sought to develop in-house FPD manufacturing capability. Commercial customers also include OEMs that seek to manufacture and sell FPDs as individual components. The Company is focusing its marketing efforts on companies that make or use most FPDs today: computer and workstation manufacturers, telecommunications companies and manufacturers of electronic toys and games. The Company believes that these users, in order to ensure that their own FPD needs are fulfilled, may build manufacturing facilities, separately or through the formation of alliances or consortiums with other users. The establishment of an FPD production facility requires significant capital investment and entails lead times of two years or more. A single-line factory to manufacture AMLCDs on a commercial basis would likely require a capital investment of approximately $100 million, and a multiple-line AMLCD factory would likely require a capital investment of approximately $250 to $600 million. Because of the capital and technological requirements for entering the FPD market, there are a limited number of potential customers for the Company's PanelPrinter. As a result, the decision by any potential customer not to purchase a PanelPrinter would increase the likelihood of an adverse effect on the Company's results of operations. Of the limited number of potential customers, the majority are located outside the United States, principally in Japan and Korea. The Company's ability to compete effectively in the Japanese and Korean markets may be limited by its small size, its geographic location and its selection of regional representatives. The Company's results of operations may be adversely affected by difficult economic and market conditions in these regions. The Company's international activities are also subject to risks common to foreign activities, such as governmental regulation, political and economic instability and trade barriers. Failure of the Company to compete effectively in Japan or Korea would have a material adverse effect on the Company. In North America, the Company sells directly to customers through the efforts of its marketing and sales staff and through relationships that its management have with customers throughout the industry. Overseas, in addition to its efforts to sell directly, the Company uses distributors and foreign sales representatives to sell its product. The Company's current distributor and representative relationships for major markets are as follows: Taesan Engineering Co., Ltd. (Korea); Ampoc Far East Co., Ltd. (Taiwan); ANERIC Enterprise PTE. LTD., (Singapore); A.V.B.A. Engineers, Ltd.,(Israel); Fougere Conseil, (France). The Company remains involved in the marketing process by providing executive direction and technical assistance. The Company believes that cooperation with the U.S. government is an important factor in achieving technological leadership in the FPD manufacturing equipment industry. The U.S. government has declared the strategic importance of developing display technologies, and in particular, AMLCD and FED technology. In 1990, the Company obtained a $1.0 million research contract from ARPA to determine the feasibility of constructing a photolithographic system with enhanced throughput for manufacturing FPDs. Upon the conclusion of that contract in 1992, the Company was awarded a further ARPA contract to construct a prototype of a next-generation photolithographic system (the Contract) which could provide up to $19.2 million, subject to annual renewals and funds allocation, over a five-year period. Under the Contract, the U.S. government generally has limited rights to use certain critical technical data and computer software developed by the Company and has broader, generally unlimited rights to use certain other technical data and computer software. Certain amendments and extensions of the Contract have been negotiated, but ARPA retains the right to terminate the Contract for convenience and the agencies of the U.S. government could reduce or eliminate its support for these technologies. Products The PanelPrinter features an optical projection system, a high-speed, laser-metered substrate stage, an automated reticle handler and a sophisticated substrate alignment system, all integrated with the Company's proprietary software. For certain applications, the PanelPrinter currently is capable of an hourly throughput rate of up to 80 large-area substrates. The Company offers both single and dual camera optical systems with several projection lens options. In the Company's patented dual camera system, each camera lens offers 2X reduction and an 80 millimeter image field, insuring equally sharp detail at the edges of the image as in the center of the lens field. Two cameras increase throughput by simultaneously exposing two images on the substrate. The PanelPrinter includes as a standard feature a reticle library, with storage for 38 reticles, reducing the time required in changing reticle patterns for exposure. The Company's high-speed substrate handling system moves the substrate through the PanelPrinter. One available option is an automatic substrate loading and unloading system. The substrate handler is designed for maximum flexibility, by accommodating many different substrate sizes and thicknesses. Linear induction motors, controlled by laser measurement systems, effect highly accurate stage movement. Substrate handler pre-alignment and movement throughout the photolithography process is made more accurate through the use of air bearings, as well as a vibration isolation and dampening system supporting a solid granite base. The substrate handling system also permits easy interface to other production line equipment. A Class 10 environmental enclosure chamber controls temperature and reduces particulate contamination, thereby increasing production yields. The Company's software enhances productivity. The Company's job setup software -- PanelCAD(Trademark) -- uses a graphical interface rather than complicated programming language, to set up and edit jobs. PanelCAL (Trademark) -- the Company's automatic calibration software -- allows the user to constantly monitor imaging performance without the need for test substrates, off-line measurements or manual mechanical adjustments. The Company's PanelSCALE (Trademark) software allows for automatic adjustment for process-induced substrate distortions. The PanelPrinter's automatic measurement and topography software adjusts stage and camera positioning to maximize stitching and overlay accuracy. During fiscal 1997, the Company's installed base increased and customers which were no longer under warranty arrangements increased. Therefore, the Company began to focus its efforts on increasing its service capabilities to its installed base. As a result, the Company has increased its service revenues and is working to further develop this business to generate additional profits in the future. Operations The Company operates primarily as an assembly, test and systems integration company. Almost all components of the PanelPrinter are either manufactured by others as custom components or are standard electronic components purchased from major manufacturers or distributors. The Company generally builds PanelPrinters to order and lead times can be up to nine months. The manufacturing process for the PanelPrinter has two stages. The first stage is assembly. Because the Company purchases most of the system components, the Company performs little processing of raw materials. The major components that make up the assembly of a PanelPrinter are the main projection lens, illuminator, environmental chamber, granite base, stage, air bearings, laser systems, boards and plate handlers. Following assembly, testing and integration of the system, the second stage of the process begins. At this point, the system software is installed and trial panels are manufactured to ensure that lens assembly and stage motions are coordinated. The Company generally orders individual components from a single or a limited group of suppliers in order to assure quality and obtain quantity discounts. The Company believes that, with the possible exception of the main projection lens, it could find alternate sources for all components and subassemblies of the PanelPrinter without significant disruption in its production schedule. The lead times for major components range from three to four months for the stage and up to nine months for the lenses. Without incurring significant additional cost, the Company has been able to shorten the lead time for lenses to three months by pre-ordering the glass used to make the lenses. To date, the Company has not experienced any material delays in production due to component unavailability or delay. Nonetheless, termination or disruption of supplies from these sources could result in production delays, reductions in PanelPrinter shipments or increased costs that would have an adverse effect on the Company's operations. While the Company is exploring ways to reduce its dependence on these sole and limited-source suppliers, there can be no assurance that the Company will be successful in doing so. While many of the components of the PanelPrinter are available from a variety of outside vendors, the main projection lens is available only from a limited number of sources. Management believes that a total of four or five companies worldwide have the ability to manufacture lenses of the quality used in the PanelPrinter. Two of these manufacturers, Nikon and Canon, are direct competitors of the Company. To date, substantially all of the Company's lenses have been provided by Tropel, a precision optics and metrology products manufacturer. Although an alternative source for PanelPrinter lenses would likely require at least 24 months to produce a lens to the Company's specifications, the Company has established relationships with other lens manufacturers. Management believes that it has on hand or on order sufficient lenses to meet the Company's projected requirements through fiscal 1998. The Company continues to investigate other potential sources of lenses. Competition The PanelPrinter's market is intensely competitive and subject to rapid technological change. The Company competes directly with two other major manufacturers of large-area projection photolithographic systems, Nikon and Canon. The Company also faces indirect competition because AMLCD and FED technologies have actual and potential competitors in other display technologies. There are a number of bases on which manufacturers of photolithographic systems compete. The relative importance of these varies depending on whether the system is being purchased for use in a research environment or for use in a volume production environment. In the research environment, the most important competitive factors are technical performance (including the size of screen produced and its quality), reliability and technical features (including scaling, motions technology and systems integration). In the volume production environment, the critical competitive factors are throughput, reliability, long-term relationship with the manufacturer, technical performance and the manufacturer's reputation and financial stability. While precise statistics are not available, the Company believes that Nikon is the industry's market leader, with the largest installed base of large-area photolithographic machines used in the manufacture of AMLCDs. At present, most AMLCD production takes place in Japan, and Nikon is the primary source for photolithographic systems in the Japanese market. Nikon regularly announces new features for its line of photolithography machines. The Company's other major competitor is Canon. Both Nikon and Canon have much greater financial resources, broader product lines and greater customer service capability than the Company. Additionally, they are located in a major market area and have larger, more established customer bases. It is possible that, in addition to Nikon and Canon, other manufacturers of photolithographic systems for large-area AMLCDs will emerge. However, the combination of optical, mechanical, electrical and software engineering skills required to produce photolithographic systems, and the time required to develop and produce a commercially viable system, have limited the number of companies committed to developing such systems. The Company also expects that other FPD technologies will emerge to compete with AMLCDs. These technologies may or may not require large-area, high-resolution photolithographic systems such as the PanelPrinter. In addition, the Company expects to see further developments in existing display technologies such as CRTs and passive matrix displays, which also compete with AMLCDs. Research and Development Photolithographic equipment design requires the cooperation and management of four distinct engineering disciplines: electrical, mechanical, optical and software. As of March 31, 1997, of the Company's 15 engineers, 3 are administrative, 2 are electrical engineers, 4 opto-mechanical, 6 software. The Company's primary research focus is the design and development of enhancements to its PanelPrinter. In the fiscal years ended March 31, 1995, 1996 and 1997, the Company incurred aggregate research and development costs of $6.2 million, $4.9 million and $3.5 million, respectively. Those costs include $4.3 million, $2.6 million and $0.5 million, respectively, allocable to research contracts in these periods. See "Management's Discussion and Analysis of Financial Condition and Results of Operations". Intellectual Property and Proprietary Technology The Company believes that it would be difficult to reproduce the accumulated know-how embodied in the PanelPrinter and that this is its primary source of protection. The Company believes that copying the basic motions system of the PanelPrinter would involve a considerable amount of research into the use of air bearings and linear motors. Similarly, the Company believes that its software, which is central to both its motions and throughput technology, would be difficult to duplicate without access to the source code. However, there can be no assurance that the Company's accumulated know-how could not be reproduced, or that its intellectual property and proprietary rights are adequately protected or can be adequately policed. There may also be pending or issued patents of which the Company is not aware which the Company might be required to license or to challenge at possible considerable expense to the Company. There can be no assurance that any such license would be available on acceptable terms, if at all, or that the Company would prevail in any such challenge. The Company also relies on a combination of patents and confidentiality agreements. The Company holds four patents in the United States relating to optical alignment within the photolithographic and precision motion systems. The Company currently has a total of seven patent applications pending, five in the United States and two overseas. Employees As of March 31, 1997, the Company had 48 employees, of whom 15 are employed primarily in research and development, 18 are employed in manufacturing and customer support, 4 are employed in sales and marketing, and 11 are employed in general and administrative functions. The Company has historically not encountered difficulties with its employees and turnover has primarily been associated with workforce reductions taken by the Company. The Company is highly dependent on certain management and technical employees in such critical areas as the development of hardware, software and motions and imaging technology. The loss of any such personnel could have a material adverse effect on the operations of the Company, and there is no assurance that the Company will be able to retain such personnel. Backlog Backlog at March 31, 1997 was $1.5 million as compared with $2.2 million at March 31, 1996. The Company includes in backlog only those orders for product shipments and contract billings for which a confirmed order has been received at the date at which the backlog is computed. Backlog for which delivery had been specified within twelve months at March 31, 1997 and March 31, 1996 was $1.5 million and $2.1 million. Because of the possibility of customer changes in delivery schedules, cancellation of orders and potential delays in product shipments and contract performance, the Company's backlog as of any particular date may not be representative of revenues for any succeeding period. ITEM 2. PROPERTIES The Company leases 45,319 square feet of space in its sole manufacturing and research facility, located at 10 Elizabeth Drive in Chelmsford, Massachusetts. The Chelmsford facility is also the Company's headquarters. Management believes that existing space, space under option and space otherwise available is adequate to support Company operations through fiscal 1998. ITEM 3. LEGAL PROCEEDINGS On January 24, 1997, Micron Display Technology, Inc. ("Micron Display") brought suit against the Company in state court in Ada County, Idaho, alleging in five counts breach of contract, breach of implied warranties, and breach of express warranties, in connection with a Model 5200 PanelPrinter (the "PanelPrinter") which the Company alleges Micron Display purchased from the Company in 1996. On January 30, 1997, the Company filed an action against Micron Display in the United States District Court for the District of Massachusetts, alleging in two counts breach of contract and violation of M.G.L. c.93A, in connection with Micron Display's nonpayment for the PanelPrinter. On February 14, 1997, the Company removed the action filed by Micron Display from the Idaho state court to the United States District Court for the District of Idaho, sitting in Boise, Idaho, answered Micron Display's complaint, counterclaimed for breach of contract and violation of M.G.L. c. 93A, and moved to transfer venue to Massachusetts. On March 11, 1997, Micron Display filed a motion to dismiss the Massachusetts action, or in the alternative, to transfer venue therein to Idaho. On April 17, 1997, the Company filed a motion in the Idaho action seeking a preliminary injunction that would prohibit Micron Display from interfering with the Company's efforts to repossess the PanelPrinter and offer it for sale to another customer, with the proceeds of such sale to be placed in an escrow account pending resolution of the lawsuit. The Idaho court held a hearing on the Company's motions to transfer venue and for preliminary injunction on May 23, 1997. The court indicated that the Company's motions to transfer would be denied, and took the motion for preliminary injunction under advisement. The Massachusetts court has not yet ruled on Micron Display's motion to dismiss or transfer the Company's Massachusetts case. It is expected that the Massachusetts action will be dismissed following the entry of the Idaho court's written order denying transfer of that case to Massachusetts. The parties dispute which documents constitute the contract between them. Further, Micron Display alleges, among other things, that the PanelPrinter failed to meet certain performance specifications contained in what it contends constituted the contract, and that, as a consequence, it is entitled to the return of its $1.0 million deposit, and the conversion of the parties relationship to a lease of the PanelPrinter, or a PanelPrinter of like quality. MRS maintains that other documents constitute the contract, pursuant to which there was no right to convert the relationship to a lease, and further denies that the PanelPrinter failed to meet specifications set forth in the document cited by Micron Display. MRS seeks approximately $1.4 million as the unpaid balance of the contract price, and further remedies under the Massachusetts Unfair Business Practices Act. No court has as yet ruled on the substantive merits of the claims asserted by the parties. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of fiscal 1997.
Executive Officers of the Registrant Name Age Position with the Company - ---------------------- --- ------------------------- Griffith L. Resor, III 56 President and Director Patricia F. DiIanni 53 Chief Financial Officer John L. Steele, Jr. 55 Vice President, Secretary and General Counsel
Executive officers of the Company are elected by the Board of Directors on an annual basis and serve at the discretion of the Board of Directors or until their successors are duly elected and qualified. There are no family relationships among any of the directors or executive officers of the Company. GRIFFITH L. RESOR III, President and Director. Mr. Resor, a founder of the Company, has served as President and a director of the Company since its organization in February 1986. Prior to the Company's formation, Mr. Resor was Vice President and General Manager for new products at GCA Corporation, a manufacturer of photolithographic equipment for the integrated circuit industry. Mr. Resor received a B.S. in physics from Yale University and a M.B.A. from Harvard University. PATRICIA F. DIIANNI, Chief Financial Officer. Ms. DiIanni has served as Chief Financial Officer since July, 1996 and prior to that as Controller of the Company from June, 1993. From November of 1991 to May 1993, Ms. DiIanni was employed by Symbolics, Inc., a manufacturer of computers and software for artificial intelligence, most recently as Manager, Treasury and Financial Planning and Analysis. From 1961 to November 1991, Ms. DiIanni was employed by GenRad, Inc., a manufacturer of automatic testing equipment, where she held a variety of financial positions, including Manager, Worldwide Planning and Analysis from 1990 to November 1991. JOHN L. STEELE, JR., Vice President, Secretary and General Counsel. Mr. Steele, a founder of the Company, has served as Vice President, Secretary and General Counsel since March 1993. Prior to March 1993, he had served as Vice President, Administration since the Company's organization in February 1986. Prior to the Company's formation, Mr. Steele was the Secretary and General Counsel of GenRad, Inc., a manufacturer of automatic testing equipment. Mr. Steele received an A.B. from Dartmouth College and a J.D. from Suffolk University. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDERS MATTERS Stock Market Information The Company's Common Stock began trading on the NASDAQ National Market System on July 23, 1993. The following table sets forth the high and low closing prices per share of Common Stock as reported on the NASDAQ National Market System for the periods indicated.
Fiscal Year 1996 Fiscal Year 1997 ---------------- ---------------- High Low High Low ---- --- ---- --- First Quarter $7.000 $4.750 $6.000 $3.563 Second Quarter $6.625 $4.875 $3.875 $2.375 Third Quarter $5.000 $2.875 $3.250 $1.813 Fourth Quarter $6.000 $3.000 $3.000 $1.250
Holders As of June 2, 1997, there were 124 stockholders of record of the Company's Common Stock, and the estimated number of beneficial owners of such stock on such date was 2,500. Dividends The Company has never paid dividends on its Common Stock and has no present plans to do so. (b) Supplementary Data
Quarterly Financial Information (Unaudited) (In thousands, except per share amounts) First Second Third Fourth Year ----- ------ ----- ------ ---- Year ended March 31, 1997 Total revenues $1,711 $3,487 $1,588 $ 355 $7,141 Gross profit 216 786 150 (115) 1,037 Net income (loss) (1,280) (595) (1,374) 118 (3,131) Net income (loss) per share (0.19) (0.09) (0.20) 0.02 (0.47) Year ended March 31, 1996 Total revenues $5,273 $2,290 $1,727 $1,267 $10,557 Gross profit 1,856 34 149 (1,762) 277 Net income (loss) 335 (1,267) (1,264) (7,745) (9,941) Net income (loss) per share 0.05 (0.19) (0.19) (1.19) (1.52)
ITEM 6. SELECTED CONSOLIDATED FINANCIAL INFORMATION The following table contains certain selected consolidated financial information and is qualified by reference to and should be read in conjunction with the Consolidated Financial Statements and related Notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere herein.
Year ended March 31, 1993 1994 1995 1996 1997 ---- ---- ---- ---- ---- Statement of Operations Data: Revenues Product $ 7,838 $ 7,607 $16,897 $ 7,699 $6,562 Contract Research 3,731 7,586 5,501 2,858 579 ------- ------- ------- ------- ------ Total revenues 11,569 15,193 22,398 10,557 7,141 Cost of revenues Product 5,961 4,496 10,893 7,389 5,525 Contract Research 3,118 7,171 5,337 2,891 579 ------- ------- ------- ------- ------ Total cost of revenues 9,079 11,667 16,230 10,280 6,104 Gross profit 2,490 3,526 6,168 277 1,037 Operating expenses Research and development(1) 528 727 1,945 2,279 3,042 Selling, general and administrative 801 1,379 2,862 3,715 2,944 Other charges - - - 4,469 - ------- ------- ------- ------- ------ Income (loss) from operations 1,161 1,420 1,361 (10,186) (4,949) Other income (expense), net (16) 228 347 245 1,819 Income before provision for income taxes 1,145 1,648 1,708 (9,941) (3,130) Provision for income taxes - 62 72 - - ------ ------ ------ ------- ------- Net income (loss) $ 1,145 $ 1,586 $ 1,636 ($ 9,941) ($3,130) ======= ======= ======= ======== ======== Net income (loss) per share (2) $0.28 $0.26 $0.24 ($1.52) ($0.47) Weighted average common and common equivalent shares outstanding 4,133 6,146 6,952 6,550 6,717
Balance Sheet Data: 1993 1994 1995 1996 1997 ---- ---- ---- ---- ---- Cash and cash equivalents $ 493 $12,147 $ 8,340 $ 4,218 $ 3,291 Working capital 2,338 18,776 18,174 10,097 10,130 Total assets 6,703 24,104 26,993 16,301 13,428 Long-term debt 122 17 15 11 1,000 Stockholders' equity 4,662 20,788 22,600 12,864 9,870
(1) Net of R&D spending allocated to cost of contract research. (2) Net income (loss) per share for fiscal 1993 was calculated in accordance with the Securities and Exchange Commissions Staff Accounting Bulletin (SAB No. 83). ITEM 7. MANAGEMENT'S DISSCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Private Securities Litigation Reform Act of 1995 ("the Act") provides a "safe harbor" for forward-looking statements so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those discussed in the statement. The Company desires to take advantage of the "safe harbor" provisions of the Act. Certain information contained herein, particularly the information appearing under the headings "Business Development," "Results of Operations," "Liquidity and Capital Resources" and "Factors Affecting Future Results" are forward-looking. Information regarding certain important factors that could cause actual results of operations or outcomes of other events to differ materially from any such forward-looking statement appear together with such statement, and/or elsewhere herein. The Company assumes no obligation to update the information contained herein. Business Development During fiscal 1997, demand for the Company's products continued to decline due to over capacity in certain active matrix liquid crystal display (AMLCD) markets. The Company still, at the start of fiscal 1997, expected a slight improvement in product sales as the Company had prospects principally in Asia, and to a lesser extent the U.S., that planned to purchase tools for R&D and pilot AMLCD lines. Existing orders were shipped as planned, however, the collapse of the dynamic random access memory (DRAM) prices in the Company's second fiscal quarter of fiscal 1997 resulted in customers and prospects in Asia delaying upgrades and the purchase of new machines. During the third quarter of fiscal 1997 the Company shipped a PanelPrinter, however, customer acceptance has not been completed and, as a result, the Company did not recognize revenue on the system in fiscal 1997. Subsequently the customer commenced legal action against the Company which has resulted in a delay in revenue recognition and remaining payments for the system shipped. See Item 3. Legal Proceedings and Note F to the Consolidated Financial Statements. In January of 1997 the Company determined that it could no longer sustain its current level of expenses and that it would need to take aggressive actions to preserve its ability to operate successfully in the near-term. The Company terminated 35% of its employees and terminated or deferred long term research projects so that it could refocus on its core PanelPrinter business. During the third and fourth quarter, respectively, of fiscal 1997 the Company sold its interests in Integrated Circuit Testing GmbH (ICT) and EBETECH Electron-Beam Technology GmbH (EBETECH) as a part of this refocusing resulting in additional liquidity and other income for fiscal 1997. RESULTS OF OPERATIONS FISCAL YEARS 1997 AND 1996 Product revenues decreased 33% from $7.7 million in fiscal 1996 to $5.2 million in fiscal 1997. This decrease is attributable to the sale of two new PanelPrinters in fiscal 1996 versus the sale of one new PanelPrinter in fiscal 1997. Fiscal 1996 also had significant product revenues from a substantial amount of work to rebuild and re-validate PanelPrinters previously sold to one customer as a result of fire damage in their facility compared to fiscal 1997 which included a lens upgrade and the sale of a PanelPrinter previously held for lease which reflected lower selling prices. Service and support revenues grew during fiscal 1997 to $1.4 million or 19% of total revenues from approximately 8% of total revenues in fiscal 1996 and 2% of total revenues in fiscal 1995. As the number of machines in the field now off warranty increased the need for both service contracts and replacement, spare and consumable parts has grown significantly making this business a growing part of the Company's total revenues. Contract research revenues decreased 80% from $2.9 million in fiscal 1996 to $0.6 million in fiscal 1997 due to the Company reaching the end of its contract with DARPA during the year. The current year activity with DARPA was recognized under the final phase of a $19.2 million contract which was originally awarded in February of 1992. This contract was converted during fiscal 1996 to a fixed price contract with no additional fee to be billed. Cost of product revenues decreased 46% from $7.4 million in fiscal 1996 to $4.0 million in fiscal 1997. The decrease was due to charges taken in fiscal 1996 to reduce the value of inventory as a result of the decline in revenue and backlog offset by higher under absorption of manufacturing costs in fiscal 1997 resulting from lower production levels. Cost of service revenue is made up of the service departments expenses, both locally and in Japan material costs and travel expenses. Cost of contract research revenue decreased 80% from $2.9 million in fiscal 1996 to $0.6 million in fiscal 1997 due to the decrease in revenue. Product gross profit increased 267% from $0.3 million in fiscal 1996 to $1.1 million in fiscal 1997. The increase is due to the inventory charges taken in fiscal 1996, offset by underabsorption in fiscal 1997. In addition, the fiscal 1996 costs reflected costs of full systems and low margin revenues associated with revalidating damaged customer owned PanelPrinters compared to higher margin upgrades and previously leased equipment. Contract research gross profit was relatively flat in fiscal 1997 compared to fiscal 1996 due to the change to a fixed price no fee contract early fiscal 1996. Research and development expenses increased from $2.3 million in fiscal 1996 to $3.0 million in fiscal 1997 or 34%. This increase is due to the decreased work on the DARPA contract resulting in a lower absorption of labor and overhead costs. Costs before the absorption of DARPA costs dropped from $4.9 million in fiscal 1996 to $3.5 million in fiscal 1997 or 29% as a result of lower costs across all expense categories resulting from employment actions taken in January 1997. Selling, general and administrative expenses (net of allocation to cost of contract research) decreased $0.8 million from $3.7 million in fiscal 1996 to $2.9 million in fiscal 1997 or 22%. This reduction in expense levels is the result of generally lower expenses across all expense categories in both Administration and Sales and Marketing being partially offset by higher patent cost activity and consulting expenses. Other income for fiscal 1997 reflects a gain on the sale of the Company's interests in ICT. During fiscal 1997, a portion of ICT business was spun-off to form EBETECH, a separate corporation owned by MRS, Siemens AG (Siemens) and a group of other investors. ICT was sold to Opal in October, 1996, and EBETECH was sold to Etec Systems, Inc. (ETEC) in March, 1997. MRS received $2.5 million from these sales resulting in a gain of $1.7 million. Under the terms of the sale of MRS' interest in EBETECH, MRS may receive an additional $175,000 upon the conclusion of an indemnification period which ends in December 1997. The gain does not reflect this amount. See Note I in Notes to the Consolidated Financial Statements. RESULTS OF OPERATIONS FISCAL YEARS 1996 AND 1995 Product revenues decreased 54% from $16.9 million in fiscal 1995 to $7.7 million in fiscal 1996. This decrease resulted from the sale of eight PanelPrinters in fiscal 1995 versus the sale of two PanelPrinters in fiscal 1996. Twenty-seven percent of fiscal 1996 product revenues represented revenues derived from a substantial amount of work to rebuild and re-validate PanelPrinters previously sold to one customer, as a result of fire damage in their facility. In fiscal 1996, many prospective customers, especially those who primarily produce semiconductors, deferred PanelPrinter purchasing decisions. Contract research revenues decreased 48% from $5.5 million in fiscal 1995 to $2.9 million in fiscal 1996 due to reduced efforts on the DARPA project with most of the material having already been purchased. The activity with DARPA was recognized under the final phase of a $19.2 million contract which was originally awarded in February 1992 and most recently increased by a contract modification of $1.6 million in August of 1995, which extended through October, 1996. This contract was converted during fiscal 1996 to a fixed price contract with no additional fee to be billed. Cost of product revenues decreased 32% from $10.9 million in fiscal 1995 to $7.4 million in fiscal 1996. This decrease was attributable to the lower volume of PanelPrinter sales in fiscal 1996 versus fiscal 1995. This decrease was partially offset by additional charges taken to reduce the value of inventory as a result of the decline in revenue and backlog at March 31, 1996. Cost of contract research revenue decreased 45% from $5.3 million in fiscal 1995 to $2.9 million in fiscal 1996 due to the decrease in revenue. Product gross profit decreased 95% from 35.5% of product revenues in fiscal 1995 to 4% in fiscal 1996 due to the significantly lower gross margin on the revenue received for the product rework done during the year and inventory provisions of $2.5 million. Product gross margin was flat at 36% before the inventory provisions taken to reduce inventory value as a result of the circumstances stated above. Contract research gross margin was negative for fiscal 1996 due to the cancellation of two tasks from the contract with associated fees that were reversed. Research and development expenses increased from $1.9 million in fiscal 1995 to $2.3 million in fiscal 1996, or 17%. This increase was mainly due to the decreased work on the DARPA contract resulting in a lower absorption of labor and overhead costs. Selling, general, and administrative expenses (net of allocation to cost of contract research) increased $0.9 million or 30% from $2.9 million in fiscal 1995 to $3.7 million in fiscal 1996. The increase year-to-year is mainly the result of decreased activity under the DARPA contract resulting in lower allocation of costs to contract activity and the efforts during fiscal 1996 to strengthen the Company's sales and marketing organization. Other charges for fiscal 1996 of $4.5 million are the direct result of strategic and resource allocation decisions made by the Company in the fourth quarter of fiscal 1996 which eliminated or de-emphasized certain project and business ventures which the Company did not have the resources to fund adequately. Included in other charges are amounts totaling $2.0 million which relates to the write-down of deposits and other assets as a result of the Company's termination of its strategic partnership agreements for the distribution of a laser imaging tool for the printed circuit board industry and for a special projection lens development effort. Also included in the $4.5 million of other charges are amounts totaling $2.1 million which relate primarily to the write-down of the Company's investment in ICT GmbH and its rights to distribute and manufacture the LCD test system previously being developed by the Company and ICT included in other assets. Seasonality and Inflation The Company's business is not seasonal in nature. The Company does not believe that its operations have been materially affected by inflationary forces during its three most recent fiscal years. Liquidity and Capital Resources The Company had cash and cash equivalents at March 31, 1997 of $3.3 million, a decrease of $0.9 million from March 31, 1996. This decrease was mainly the result of cash used in operations and the purchase of capital equipment, offset by the proceeds from the sale of the Company's investments in ICT and EBETECH, and cash provided by borrowings under the Company's line of credit. In March 1997, the Company entered into a three year asset-based revolving line of credit agreement which provides for borrowings of up to $4.0 million based on accounts receivable and inventory balances. The line of credit requires a minimum outstanding balance of $1.0 million for the fiscal year and as of March 31, 1997 the Company had an outstanding balance of $1.0 million. Under the terms of the Company's sale of its ownership interest in EBETECH, the Company is jointly and severally liable for any claims under an indemnification clause up to a maximum of $875,000. If certain assets of the Company, net of certain liabilities, fall below a minimum amount, the Company is required to place in escrow an amount up to the maximum liability under the indemnification clause. The amount of potential escrow decreases quarterly through the indemnification period which ends in September, 1998. The Company requires significant working capital to support its research and development efforts and to meet its ongoing production, selling and general and administrative costs. In addition, the Company is subject to contingent future obligations related to the sale of one of its PanelPrinters and its investment in a business alliance which may result in additional liquidity requirements, the timing of which is uncertain (See Notes F and I in Notes to Consolidated Financial Statements). Historically, the Company has been able to meet its working capital requirements through its existing cash balances and amounts available under its line of credit; as of May 15, 1997, $600,000 was available under the line of credit. Subsequent to March 31, 1997, the Company obtained approval for funding under a research and development contract. The Company also has a letter of intent from a customer which the Company expects will become a firm order as a result of the successful funding of this project. The Company believes these resources are sufficient to meet its working capital needs and future obligations through fiscal 1998. The Company continues to actively pursue potential customer orders for its existing products. Additionally, the Company is actively seeking strategic relationships with companies which would enhance its ability to commercialize the technology it has developed, strengthen its balance sheet and maximize its long-term success. The specific types of relationships under consideration include equity investments (minority or controlling), debt facilities, research contracts, equipment purchase commitments, or any combination thereof. Factors Affecting Future Results The ability of the Company to attain the financial or other results that may be planned, forecasted or projected from time to time is subject to a number of factors, including the ability to obtain new orders and the timing of recording the related revenue, the ability to develop and manufacture new products, the ability to respond to competitive technology and pricing pressures, adequate availability of major components, and the ability to maintain key employees for hardware, software, motions and imaging technicians. In addition, the Company has historically been dependent upon a limited number of markets and geographic areas to sell its product, the PanelPrinter, therefore the Companys financial position and results of operations may be impacted by economic and market conditions in the markets and regions into which it sells its products. PanelPrinters and optional equipment generally have ranged in price from $1.8 to $2.7 million and any delay in revenue recognition or cancellation of an order would adversely affect the Company's results of operations, cash flows, or both. Fluctuations in product revenues, and consequently quarterly net income or loss, are largely related to revenue recognition on sales of PanelPrinter units. In addition, the process for turning prospects into firm purchasing commitments, and subsequently selling the systems is often lengthy. Historically a significant portion of the Company's revenue was derived from research and development contracts. The most significant funding source has been DARPA. Additionally, a significant portion of the Company's historical research and development efforts and development of new technologies to enhance its products have been funded by these contracts. The Company's ability to continue to develop new technologies is dependent upon the Company's ability to internally fund its research and development efforts or to enter into research and development arrangements funded by third parties. New Accounting Pronouncements In February 1997, the Financial Accounting Standards Board issued Statement No. 128 ("SFAS 128"), "Earnings per Share," which is effective for fiscal years ending after December 15, 1997, including interim periods. SFAS 128 requires the presentation of basic and diluted earnings per share (EPS). Basic EPS, which replaces primary EPS, excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Diluted EPS is computed similarly to fully diluted EPS under the existing rules. SFAS 128 requires restatement of all prior period earnings per share data presented after the effective date. The Company will adopt and disclose the impact of SFAS 128 in 1997. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (a)Financial Statements INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Consolidated Financial Statements Page No. Report of Independent Accountants 24 Consolidated Balance Sheets at March 31, 1996 and 1997 25 Consolidated Statements of Operations, Years ended 26 March 31, 1995, 1996 and 1997 Consolidated Statements of Stockholders' Equity, Years 27 ended March 31, 1995, 1996 and 1997 Consolidated Statements of Cash Flows, Years ended 28 March 31, 1995, 1996 and 1997 Notes to Consolidated Financial Statements 29 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of MRS Technology, Inc.: We have audited the accompanying consolidated balance sheets of MRS Technology, Inc. and subsidiaries as of March 31, 1996 and 1997 and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three fiscal years in the period ended March 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of MRS Technology, Inc. and subsidiaries as of March 31, 1996 and 1997 and the consolidated results of its operations and its cash flows for each of the three fiscal years in the period ended March 31, 1997, in conformity with generally accepted accounting principles. Boston, Massachusetts /s/ COOPERS & LYBRAND L.L.P. May 23, 1997 COOPERS & LYBRAND L.L.P.
Consolidated Balance Sheets March 31, Assets ------------------------------- Current assets 1996 1997 Cash and cash equivalents $ 4,217,880 $ 3,290,982 Accounts receivable, net of allowance for doubtful accounts of $25,000 and $21,000, respectively 1,116,981 1,978,994 Inventories 8,093,014 7,313,982 Deposits 1,024,551 169,730 Other current assets 95,634 102,605 - -------------------------------------------------------------------- Total current assets 14,548,060 12,856,293 Property and equipment, net 1,017,266 533,244 Assets held for lease, net 696,808 - Other assets 38,948 37,979 - ------------------------------------------------------------------- Total assets $16,301,082 $13,427,516 =================================================================== Liabilities and Stockholders' Equity Current liabilities Accounts payable $ 1,867,756 $ 370,644 Accrued expenses 1,456,975 813,224 Current portion of obligations under capital leases 3,839 11,096 Customer deposits - 1,312,389 Other current liabilities 97,524 49,746 - ------------------------------------------------------------------ Total current liabilities 3,426,094 2,557,099 Long-term debt - 1,000,000 Long-term portion of obligations under capital leases 11,165 - - ------------------------------------------------------------------ Total liabilities 3,437,259 3,557,099 Commitments and contingencies (Notes F, I and M) Stockholders' equity Common stock, $.01 par value; authorized, 20,000,000 shares; issued and outstanding 6,674,320 and 6,776,355 shares respectively 66,743 67,763 Additional paid-in capital 36,246,889 36,383,258 Accumulated deficit (23,449,809) (26,580,604) - ------------------------------------------------------------------- Total stockholders' equity 12,863,823 9,870,417 - ------------------------------------------------------------------- Total liabilities and stockholders' equity $16,301,082 $13,427,516 ================================================================== The accompanying notes are an integral part of the consolidated financial statements.
Consolidated Statements of Operations Years ended March 31, ------------------------------ Revenues 1995 1996 1997 ---- ---- ---- Product $16,896,756 $ 7,699,267 $5,173,273 Service - - 1,388,941 Contract research 5,501,407 2,857,927 578,483 ---------- ----------- ---------- Total revenues 22,398,163 10,557,194 7,140,697 Cost of revenues Product 10,892,811 7,389,402 4,040,747 Service - - 1,484,554 Contract research 5,337,269 2,890,661 578,483 ---------- ---------- --------- Total cost of revenues 16,230,080 10,280,063 6,103,784 Gross profit 6,168,083 277,131 1,036,913 Operating expenses: Research and development 1,944,538 2,279,383 3,042,186 Selling, general and administrative 2,862,484 3,714,918 2,944,188 Other charges - 4,469,120 - ---------- ---------- --------- Income (loss) from operations 1,361,061 (10,186,290) (4,949,461) Interest income 339,665 335,803 112,566 Interest expense 33,939 4,906 653 Other income (expense), net 41,175 (85,333) 1,706,753 ---------- --------- ---------- Income (loss) before provision for income taxes 1,707,962 (9,940,726) (3,130,795) Provision for income taxes 72,000 - - - ------------------------------------------------------------------------ Net income (loss) $1,635,962 ($9,940,726)($3,130,795) ======================================================================== Net income (loss) per share $0.24 ($1.52) ($0.47) Weighted average number of common shares outstanding 6,952,424 6,549,672 6,717,000
[FN] The accompanying notes are an integral part of the consolidated financial statements.
Consolidated Statement of Changes in Stockholders' Equity for the years ended March 31, 1995, 1996 and 1997 Class A Commmon Stock ------------------ Additional Total Stock- $.01 par Paid-In- Accumulated holders' Shares Value Capital Deficit Equity -------------------------------------------------------- Balance 3/31/94 6,321,678 $63,217 $35,869,557 ($15,145,045) $20,787,729 Issuance of common shares in connection with employee stock purchase plan 15,290 153 77,827 77,980 Issuance of common shares in connection with employee stock option plan 117,227 1,172 96,271 97,443 Issuance of common shares in connection with warrant exercise 1,536 15 1,367 1,382 Net income 1,635,962 1,635,962 -------------------------------------------------------- Balance 3/31/95 6,455,731 64,557 36,045,022 (13,509,083) 22,600,496 Issuance of common shares in connection with employee stock purchase plan 21,866 219 86,533 86,752 Issuance of common shares in connection with employee stock option plan 129,814 1,298 116,003 117,301 Issuance of common shares in connection with warrant exercise 66,909 669 (669) - Net income (loss) (9,940,726) (9,940,726) --------------------------------------------------------- Balance 3/31/96 6,674,320 66,743 36,246,889 (23,449,809) 12,863,823 Issuance of common shares in connection with employee stock purchase plan 24,577 245 65,087 65,332 Issuance of common shares in connection with employee stock option plan 77,458 775 71,282 72,057 Net income (loss) (3,130,795) (3,130,795) -------------------------------------------------------- Balance 3/31/97 6,776,355 $67,763 $36,383,258 ($26,580,604) $9,870,417
The accompanying notes are an integral part of the consolidated financial statements.
Consolidated Statements of Cash Flows Years ended March 31, Cash flows from operating activities 1995 1996 1997 Net income (loss) $1,635,962 ($9,940,726) ($3,130,795) Adjustments to reconcile net income (loss) to net cash used in operating activities: Gain on sale of investment in business alliance - - (1,717,032) Other charges - 4,468,879 - Inventory provisions - 2,493,232 - Depreciation 367,006 795,286 643,554 Amortization 155,488 66,667 2,232 Changes in assets and liabilities: Accounts receivable (1,110,912) 4,454,018 (862,013) Inventories (3,099,479) (4,591,902) 779,032 Other assets (1,091,745) (437,430) 663,327 Accounts payable (55,003) (370,771) (1,497,112) Accrued expenses 641,466 27,100 (643,753) Other current liabilities - 97,524 (47,778) Customer deposits from related parties (223,200) - - Customer deposits from other 840,000 (840,000) 1,312,389 - ------------------------------------------------------------------------- Net cash used in operating activities (1,940,417) (3,778,123) (4,497,949) Cash flows from investing activities Purchases of property and equipment (896,540) (531,795) (79,463) Investment in business alliance (1,000,000) - - Proceeds from sales of short-term investments 2,432,220 - - Proceeds from sale of investment in business alliance - - 2,517,033 - ------------------------------------------------------------------------- Net cash provided by (used in) investing activities 535,680 (531,795) 2,437,570 Cash flows from financing activities Proceeds from stock purchases under employee stock purchase plan 77,980 86,752 65,332 Proceeds from employee stock option exercises 97,443 117,301 72,057 Proceeds from warrant exercises 1,382 - - Net borrowings under line of credit - - 1,000,000 Principal payments under capital lease obligations (146,629) (16,421) (3,908) - ------------------------------------------------------------------------- Net cash provided by financing activities 30,176 187,632 1,133,481 Net decrease in cash & equivalents (1,374,561)(4,122,286) (926,898) Cash and cash equivalents at beginning of year 9,714,727 8,340,166 4,217,880 Cash and cash equivalents at ----------- --------- --------- end of year $ 8,340,166 $4,217,880 $3,290,982 ========================================================================= Supplemental cash flow information Interest paid $33,939 $4,906 $653 Income taxes paid $2,489 $27,120 - Supplemental disclosure of non-cash investing and financing activities Equipment acquired under capital leases $20,320 - -
The accompanying notes are an integral part of the consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. Nature of Business and Basis of Presentation MRS Technology, Inc. (the "Company") was founded in 1986 and operates in one market segment, the design, development and manufacture of advanced systems necessary for production of flat panel active matrix displays, field emission displays and other large area, microlithography-based electronics products. Overview and Management Action Plan During fiscal 1997, demand for the Company's products continued to decline due to over capacity in certain active matrix liquid crystal display (AMLCD) markets. The Company still, at the start of fiscal 1997, expected a slight improvement in product sales as the Company had prospects principally in Asia, and to a lesser extent the U.S., that planned to purchase tools for R&D and pilot AMLCD lines. Existing orders were shipped as planned, however, the collapse of the dynamic random access memory (DRAM) prices in the Company's second fiscal quarter of fiscal 1997 resulted in customers and prospects in Asia delaying upgrades and the purchase of new machines. During the third quarter of fiscal 1997 the Company shipped a PanelPrinter, however, customer acceptance has not been completed and, as a result, the Company did not recognize revenue on the system in fiscal 1997. Subsequently the customer commenced legal action against the Company which has resulted in a delay in revenue recognition and remaining payments for the system shipped. See Item 3. Legal Proceedings and Note F in Notes to Consolidated Financial Statements. In January of 1997 the Company determined that it could no longer sustain its current level of expenses and that it would need to take aggressive actions to preserve its ability to operate successfully in the near-term. The Company terminated 35% of its employees and terminated or deferred long term research projects so that it could refocus on its core PanelPrinter business. During the third and fourth quarter, respectively, of fiscal 1997 the Company sold its interests in Integrated Circuit Testing GmbH (ICT) and EBETECH Electron-Beam Technology GmbH (EBETECH) as a part of this refocusing resulting in additional liquidity and other income for fiscal 1997. Risks and Uncertainties The ability of the Company to attain the financial or other results that may be planned, forecasted or projected from time to time is subject to a number of factors, including the ability to obtain new orders and the timing of recording the related revenue, the ability to develop and manufacture new products, the ability to respond to competitive technology and pricing pressures, adequate availability of major components, and the ability to maintain key employees for hardware, software, motions and imaging technicians. In addition, the Company has historically been dependent upon a limited number of markets and geographic areas to sell its product, the PanelPrinter, therefore, the Company's financial position and results of operations may be impacted by economic and market conditions in the markets and regions into which it sells its products. PanelPrinters and optional equipment generally have ranged in price from $1.8 to $2.7 million and any delay in revenue recognition or cancellation of an order would adversely affect the Company's results of operations, cash flows, or both. Fluctuations in product revenues, and consequently quarterly net income or loss, are largely related to revenue recognition on sales of PanelPrinter units. In addition, the process for turning prospects into firm purchasing commitments, and subsequently selling the systems is often lengthy. Historically a significant portion of the Company's revenue was derived from research and development contracts. The most significant funding source has been Defense Advanced Research Projects Agency (DARPA). Additionally, a significant portion of the Company's historical research and development efforts and development of new technologies to enhance its products have been funded by these contracts. The Company's ability to continue to develop new technologies is dependent upon the Company's ability to internally fund its research and development efforts or to enter into research and development arrangements funded by third parties. B. Summary of Significant Accounting Policies Use of Estimates The preparation of financial statement in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principles of Consolidation The consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiaries, MRS Securities Corporation and MRS Asia, Inc. Intercompany accounts and transactions have been eliminated in consolidation. Cash and Cash Equivalents Cash equivalents are highly-liquid securities which include certificates of deposit, money market funds, or other securities having a maturity of three months or less at date of acquisition. Cash equivalents are stated at cost plus accrued interest which approximates market value. Revenue Recognition The Company generally records product revenues upon completion of all significant contractual obligations and product shipment. In certain situations, where the Company has met all significant obligations and the customer requests that shipment be delayed for certain post-contract activity, such as the integration of third party equipment with the PanelPrinter, revenue is recognized upon customer acceptance at the Company's facility. Advance payments are recorded as customer deposits. The Company has entered into research and development contracts with an agency of the United States government as well as certain third-party customers. The contracts are generally fixed price or cost-plus fixed fee arrangements accounted for under the percentage-of-completion method, whereby revenue and profit are recognized throughout the contract. Government contract costs include direct labor and other direct costs related to research and development contracts as well as allocated engineering overhead and general and administrative costs. Government contract costs are reviewed periodically and are adjusted to reflect expected reimbursable costs. The costs and related revenue adjustments are recorded in the period in which changes in estimates are determined. Estimates of cost to complete are reviewed periodically, and adjustments to profit resulting from any revisions are recorded in the accounting period in which the revisions are made. Losses on contracts are recorded in full when they become evident. All existing government contracts concluded in fiscal 1997. The Company generally recognizes post-contract customer support revenue as the services are performed on a time and material basis. Warranty and Installation The Company generally warrants its products for a period of 12 to 24 months from delivery to an end user. A provision for the estimated future cost of system installation and warranty is included in cost of sales at the time the associated revenue is recognized. Research and Development Research and development costs for internal products are charged to expense when incurred until technological feasibility has been established for the product. Thereafter, all software costs are capitalized until the product is available for general release to customers. The cost of purchased software is capitalized for products determined to have reached technological feasibility, otherwise the cost is charge to expense. Capitalized software costs are amortized using the straight line method over the economic life of the product or based upon the anticipated revenues of the product. The financial statements do not contain any capitalized software development costs as either the requirements for capitalization have not been met or the impact of capitalization was insignificant.
Year ended March 31, ------------------------------- 1995 1996 1997 ---- ---- ---- (In thousands) Research and development expenses $1,945 $2,279 $3,042 Contract-related research and development costs (1) 4,277 2,664 488 ------ ------ ------ Aggregate research and development costs $6,222 $4,943 $3,530 ====== ====== ======
(1) The balance of Cost of Contract Research consists of general and administrative costs. Inventories Inventories are stated at the lower of cost or market, determined on a first-in, first-out (FIFO) method. This method requires the periodic assessment of net realizable value. The difference between cost and market is charge to income in the period the impairment is determined. Foreign Currency For foreign operations, the U.S. dollar has been determined to be the functional currency. Monetary assets and liabilities are translated at rates of exchange in effect at the end of the fiscal year, while non-monetary items are translated at historical rates. Income and expense items are translated at average exchange rates prevailing during the year, except that inventories charged to cost of sales and depreciation are translated at historical rates. The effect of exchange gains and losses, which include transactions denominated in a foreign currency as well as hedges, is included in the results of operations. No significant gains or losses were recorded in fiscal 1995, 1996 or 1997. Additionally, the Company may hedge certain portions of its exposure to foreign currency fluctuations through the purchase of forward exchange contracts. Gains and losses associated with currency rate changes on forward contracts are recorded currently in income unless the contract hedges a firm commitment, in which case any gains and losses are deferred and included as a component of the related transaction. No forward exchange contracts were outstanding at March 31, 1996 or 1997. Long Lived Assets Long lived assets are stated at cost and amortized using the straight-line method over the assets' estimated useful lives. The Company will evaluate the possible impairment of long-lived assets whenever events or circumstances indicate that the carrying value of the assets may be impaired. Property and Equipment Property and equipment are stated at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the related assets as follows: Equipment and software 3-5 years Furniture and fixtures 3-5 years Leased equipment 2-5 years Leasehold improvements are amortized over the lesser of the life of the lease or the estimated useful life of the improvement. Cost of additions and improvements are capitalized while expenditures for maintenance and repairs are charged to expense as incurred. When assets are retired, the related cost and accumulated allowances are removed from the accounts, and any gain or loss is reflected in income. Income Taxes Income taxes are accounted for under the liability method. Under this method deferred tax assets and liabilities are recorded based on temporary differences between the financial statement amounts and tax bases of assets and liabilities measured using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company periodically evaluates the realizability of its net deferred tax asset. A valuation allowance against the net deferred tax asset is established if, based upon the available evidence, it is more likely than not that some or all of the deferred tax asset will not be realized. Net Income (Loss) Per Common Share Net income per common share for fiscal 1995 was computed based upon the weighted average number of common shares and common share equivalents outstanding using the treasury stock method. Primary and fully diluted per share information are not separately stated as such information is substantially the same. Net loss per common share for fiscal 1996 and 1997 was computed based upon the weighted average number of common shares outstanding. Common equivalent shares are not included in loss periods as their effect would be anti-dilutive. In February 1997, the Financial Accounting Standards Board issued Statement No. 128 ("SFAS 128"), "Earnings per Share," which is effective for fiscal years ending after December 15, 1997, including interim periods. SFAS 128 requires the presentation of basic and diluted earnings per share (EPS). Basic EPS, which replaces primary EPS, excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Diluted EPS is computed similarly to fully diluted EPS under the existing rules. SFAS 128 requires restatement of all prior period earnings per share data presented after the effective date. The Company will adopt and disclose the impact of SFAS 128 in 1997. Reclassifications Certain prior year balances have been reclassified to conform to the current year's presentation. C. Inventories Inventories consist of the following ($ in 000's):
March 31, ------------------- 1996 1997 ---- ---- Finished goods $ - $ 726 Work in process 7,622 5,647 Purchased parts 471 941 ------ ------ $8,093 $7,314 ====== ======
D. Property and Equipment Property and equipment consist of the following ($ in 000's):
March 31, ----------------- 1996 1997 ---- ---- Equipment $ 2,718 $2,792 Software 370 375 Leasehold improvements 582 582 Furniture and fixtures 172 172 Asset held for lease 957 - ------- ------ 4,799 3,921 Less: Accumulated depreciation and amortization (3,085) (3,388) ------- ------- $ 1,714 $ 533 ======= ======
E. Capital Leases Future minimum lease payments under capital leases and their related present value at March 31, 1997 are as follows ($ in 000's):
Fiscal year ending March 31: 1998 $11 Total future minimum lease payments 11 Amount representing interest - --- Present value of future minimum lease payments 11 Current portion 11 --- Long-term portion of obligations under capital leases $ - ===
Equipment under capital leases is as follows ($ in 000's):
March 31, -------------- 1996 1997 ---- ---- Equipment $466 $466 Less: accumulated amortization (466) (466) ----- ----- $ - $ - ===== =====
F. Commitments and Contingencies Leasing Arrangements The Company leases its principal office and manufacturing facility and certain other facilities under operating leases. In fiscal years ending March 31, 1995, 1996 and 1997, rental expense under such operating leases was approximately $335,600, $249,502 and $173,367, respectively. The lease terms expire at various dates through February 1998. The terms include one, three-year renewal option and require future minimum base rent payments under noncancellable leases of $145,398 in the fiscal year ending March 31, 1998. The Company is obligated to pay additional rent comprised of property taxes, utilities, and facility operating expenses. Purchase Commitments At March 31, 1997, the Company has inventory purchase commitments with one large vendor for specialized components and equipment manufactured for resale. Outstanding commitments for these purchases approximated $660,000. Litigation On January 24, 1997, Micron Display Technology, Inc. ("Micron Display") brought suit against the Company alleging in five counts breach of contract, breach of implied warranties, and breach of express warranties, in connection with a Model 5200 PanelPrinter (the "PanelPrinter") which the Company alleges Micron Display purchased from the Company in 1996. On January 30, 1997, the Company filed an action against Micron Display alleging in two counts breach of contract and violation of M.G.L. c.93A, in connection with Micron Display's nonpayment for the PanelPrinter. On April 17, 1997, the Company filed a motion in the Idaho action seeking a preliminary injunction that would prohibit Micron Display from interfering with the Company's efforts to repossess the PanelPrinter and offer it for sale to another customer, with the proceeds of such sale to be placed in an escrow account pending resolution of the lawsuit. The Idaho court held a hearing on the Company's motions to transfer venue and for preliminary injunction on May 23, 1997. The court indicated that the Company's motions to transfer would be denied, and took the motion for preliminary injunction under advisement. The Massachusetts court has not yet ruled on Micron Display's motion to dismiss or transfer the Company's Massachusetts case. It is expected that the Massachusetts action will be dismissed following the entry of the Idaho court's written order denying transfer of that case to Massachusetts. The parties dispute which documents constitute the contract between them. Further, Micron Display alleges, among other things, that the PanelPrinter failed to meet certain performance specifications contained in what it contends constituted the contract, and that, as a consequence, it is entitled to the return of its $1.0 million deposit and the conversion of the parties relationship to a lease of the PanelPrinter, or a PanelPrinter of like quality. MRS maintains that other documents constitute the contract, pursuant to which there was no right to convert the relationship to a lease, and further denies that the PanelPrinter failed to meet specifications set forth in the document cited by Micron Display. MRS seeks approximately $1.4 million as the unpaid balance of the contract price, and further remedies under the Massachusetts Unfair Business Practices Act. No court has as yet ruled on the substantive merits of the claims asserted by the parties. Although the Company expects that the potential return of the deposit will not have a significant impact on results of operations, it may have a negative impact on liquidity. G. Accrued Expenses
Accrued expenses consist of the following ($ in 000's): March 31, ----------------- 1996 1997 ---- ---- Payroll and related costs $ 438 $376 Professional fees 131 132 Warranty 420 124 Accrued machine costs 326 - Other 142 151 ------ ---- $1,457 $783 ====== ====
H. Income Taxes The Company reported a provision for income taxes for federal and state tax purposes of $72,000 in fiscal 1995. No provision for income taxes was recorded in fiscal 1996 or 1997 due to taxable losses in those years. A reconciliation of the provision for income taxes at the federal statutory rate is as follows:
March 31, ----------------------- 1995 1996 1997 ---- ---- ---- Provision for income taxes at the federal statutory rate 34.0% (34.0)% (34.0)% State income taxes, net of federal benefit 6.0 - - Utilization of net operating loss carryforwards (35.8) - - Net loss without tax benefit - 34.0 34.0 ---- ---- ---- Provision for income taxes 4.2% 0.0% 0.0% ==== ==== ====
The components of the deferred taxes are as follows ($ in 000's): March 31, -------------------- 1996 1997 ------- -------- Deferred tax assets $11,593 $ 12,374 Deferred tax liabilities - - Valuation allowance (11,593) (12,374) -------- -------- $ - $ - ======= ========
The approximate tax of the temporary differences and carryforwards before allocation of the valuation allowance is as follows ($ in 000's): March 31, --------------------- Deferred tax assets (liabilities): 1996 1997 ------- ------- Net operating loss and credit carryforwards $10,586 $11,504 Depreciation and reserves 1,007 870 ------- ------- Net deferred tax asset $11,593 $12,374 ======= =======
Due to the uncertainty surrounding the timing of realizing the benefits of its favorable tax attributes in future tax returns, the Company has established a 100% valuation allowance against its net deferred tax asset. At March 31, 1997, the Company had net operating loss carryforwards for federal income tax purposes of approximately $26,017,000 which will expire from 2003 to 2012. Approximately $1,505,000 of the net operating loss carryforward relates to option related deductions which, when benefited will result in a credit to Additional Paid in Capital of approximately $176,887 rather than a reduction in the current tax provision. At March 31, 1997, federal and state research and development credit carryforwards were approximately $1,097,000 which will expire from 2002 to 2012. In general, such carryforwards may be used to reduce future taxable income or reduce future taxes. However, certain provisions of the Internal Revenue Code could potentially limit annual utilization of the operating loss and research and development tax credit carryforwards if there has been a fifty percent ownership change within the prior three year period. As a result of the Company's initial public offering, the Company believes that certain of it's annual limits are in effect. I. Investment in Business Alliance On October 21, 1994, the Company entered into a strategic partnership with ICT to develop and introduce an electrical test system for AMLCD's. In connection with this strategic partnership, the Company entered into agreements under which the Company would purchase electrical test systems, would develop material handling systems and high-level user interfaces for the electrical testers, and would acquire distribution and commercialization rights in all areas of the world except Europe. The Company made payments of $1,000,000 in each of fiscal 1995 and 1996 related to these agreements. In addition, in fiscal 1995 the Company acquired a 10% equity interest in ICT for $1,000,000 which was accounted for under the cost method. In connection with the equity investment, the Company issued warrants to ICT (see Note J). During fiscal 1996, ICT began discussions with other companies regarding being acquired which indicated an impairment in the Company's investment. As a result, the Company recorded other charges of $2,134,000 to reduce its investment in ICT and the related tester product and commercialization and distribution rights to their estimated realizable value. During fiscal 1997, a portion of ICT was spun-off from EBETECH, a separate corporation owned by MRS, Seimens AG (Seimens) and a group of other investors. ICT was sold to Opal in October, 1996 and EBETECH was sold to ETEC Systems Inc. (ETEC) in March 1997. MRS received $2.5 million. Under the terms of the Company's sale of its ownership interest in EBETECH, the Company is jointly and severally liable for any claims under an indemnification clause up to a maximum of $875,000. In relation to this should certain assets of the Company, net of certain liabilities, fall below a minimum amount, the Company is required to place in escrow an amount up to the maximum liability under the indemnification clause. The amount of potential escrow decreases quarterly through the indemnification period which ends in September, 1998. In December 1992, the Company and JENOPTIK entered into agreements for the development of a special lens system and in March 1993 the Company executed agreements with JENOPTIK which granted to JENOPTIK the exclusive right to distribute and service the Company's products in Europe and the Commonwealth of Independent States, and in turn the Company was granted exclusive rights to distribute and service certain of JENOPTIK's products in the United States, Canada, and Mexico. On March 7, 1996, the Company and JENOPTIK agreed to terminate the lens system development agreement and the distribution agreements. As a result of the termination agreement, the Company recorded other charges of $2,036,000 to write-down deposits, for the lens and payment made in connection with the Company's distribution rights associated with JENOPTIK's products. J. Stockholders' Equity Stock Warrants In connection with certain lease agreements entered into by the Company as described in Note E, the Company entered into Warrant Purchase Agreements whereby the lessors were issued warrants to purchase shares of stock. In fiscal 1994, the remaining warrants to purchase 7,633 shares were exercised in a cashless transaction into 1,729 shares of Common Stock. In fiscal 1993, the Company issued warrants to a leasing agent providing for the purchase of up to 8,080 shares by the lessor at $9.28 per share at any time in a period of five years from the time of issuance. At March 31, 1997, these warrants remain exercisable. In connection with a series of agreements for a strategic partnership with ICT (see Note I), on October 19, 1994, the Company issued a warrant to purchase 100,000 shares of Common Stock at $7.625 per share. This warrant was canceled on September 30, 1996. In connection with short-term financing received in fiscal 1993, the Company issued warrants to purchase 9,940 shares of Common Stock which were exercisable at $.90 per share at any time prior to June 17, 1997. Prior to March 31, 1997, warrants remain exercisable for an aggregate of 4,714 shares of Common Stock. In connection with the issuance of Class B Preferred Stock in fiscal 1993, the Company issued a warrant for the purchase of 80,000 shares of Common Stock at $.90 per share. The warrant became exercisable on July 23, 1993. On March 22, 1996, this warrant was exercised on a net-spread basis for 66,909 shares, with the balance of 13,091 shares being canceled by this exercise. Stock-Based Compensation Plans The Company has adopted the disclosure requirements of Statement of Financial Accounting Standard (SFAS) No. 123, "Accounting for Stock-Based Compensation", for stock options granted in fiscal 1996 and 1997. The company continues to recognize compensation costs using the intrinsic value based method described in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." No compensation cost were recognized in 1997 and 1996. For the purpose of providing pro forma disclosures, the fair values of options granted were estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1997 and 1996, respectively: a risk-free interest rate of 6.2% and 6.4%, and an expected life of 6 years, expected volatility of 90% and no expected dividends. Net loss and net loss per share as reported in these consolidated financial statements and on a pro forma basis, as if the fair value based method described in SFAS No. 123 had been adopted, are as follows (in thousands, except per share amounts):
Year Ended March 31, ---------------------- 1996 1997 ------- ------- Net loss As reported ( 9,941) (3,131) Pro forma (10,726) (4,115) Primary net loss per share As reported ($1.52) ($0.47) Pro forma ($1.64) ($0.61) Fully diluted net loss per share As reported ($1.52) ($0.47) Pro forma ($1.64) ($0.61)
The effects of applying SFAS No. 123 for the purpose of providing pro forma disclosures may not be indicative of the effects on reported net income and net income per share for future years, as the pro forma disclosures include the effects of only those awards granted after April 1, 1995. Stock Option Plans In July 1986, the Company adopted the 1986 Stock Option Plan (the "1986 Plan"). The 1986 Plan provides for the granting of incentive stock options (within the meaning of Section 422A of the Internal Revenue Code) and nonstatutory options to key employees and consultants to purchase shares of the Company's Common Stock at not less than fair market value at the date of grant. Options granted pursuant to the plan are exercisable for a period of ten years from grant and typically vest over four years beginning on the first anniversary of the grant. The 1986 Plan was terminated on March 29, 1993. In March 1993, the Company adopted the 1993 Stock Option Plan (the "1993 Plan") which has substantially the same terms as the 1986 Plan and which provides for the granting of incentive stock options (within the meaning of Section 422A of the Internal Revenue Code) and nonstatutory options to key employees, directors, and consultants. In July 1994, the Stockholders approved a Stock Option Plan for non-employee directors. Options are granted according to a formula based on term of office and are exercisable for a period of ten years from date of grant. Additionally in July 1994 Stockholders approved an amendment to increase the number of shares reserved for the 1993 Stock Option Plan. The Company has reserved 1,500,000 shares of Common Stock for issuance pursuant to the 1986 and 1993 Plans. At March 31, 1997, 272,337 shares were available for option grants and options for 314,836 shares were exercisable. The Company has reserved 100,000 shares of Common Stock for issuance pursuant to the 1994 Non-Employee Director Plan. At March 31, 1997, 25,000 shares were available for option grant and options for 65,000 shares were exercisable. On August 21, 1995, the Company granted 199,643 options at the current fair market value with similar terms and conditions to previously issued but unexercised grants. In exchange for the new grant, employees agreed to a cancellation of the prior options. On February 12, 1997 the Company granted 548,027 options at the current fair market value with similar terms and conditions to previously issued but unexercised grants. In exchange for the new grant, employees agreed to a three for four cancellation of the prior options.
The following table summarizes the Company's stock option plans at March 31: 1995 1996 1997 ----------------- ----------------- ----------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------- -------- ------ ------- ------- -------- Outstanding at beginning of year 788,268 $3.9069 887,327 $4.9424 1,004,043 $4.5960 Granted 311,280 $7.0576 611,843 $5.3925 1,017,127 $2.1838 Exercised (117,227) $0.8312 (129,814)$0.9036 (77,458) $0.9303 Forfeited (94,994) $8.3543 (365,313)$8.0835 (1,029,509) $4.7382 Outstanding at end of year 887,327 $4.9424 1,004,043 $4.5960 914,203 $2.0628 Options exercisable at year-end 466,294 415,202 379,836 1996 1997 ---- ---- Weighted-average grant-date fair value of options granted during the year $5.3925 $2.1838
The following table summarizes information about stock options outstanding at March 31, 1997. Options Outstanding Options Exercisable ---------------------------------- -------------------- Weighted Average Remaining Weighted Weighted Contractual Average Average Range of Number Life Exercise Number Exercise Exercise Prices Outstanding (In Years) Price Exercisable Price - --------------- ----------- ---------- -------- ----------- -------- $0.6000 $0.9000 117,124 3.16 $0.8918 117,124 $0.8918 1.5000 1.6250 654,365 8.45 1.6196 164,998 1.6036 2.5000 3.2500 45,825 9.50 2.6363 5,825 2.9281 4.2000 5.7500 39,166 7.24 4.9229 34,166 4.8018 6.3750 8.2500 57,723 7.18 7.0667 57,723 7.0667 ------ ------ ------- ---- ------- ------- ------- $0.6000 $8.2500 914,203 7.69 $2.0628 379,836 $2.5223 ======= ======= ======= ==== ======= ======= =======
Employee Stock Purchase Plan Under the 1994 Employee Stock Purchase Plan employees are entitled to purchase shares of Common Stock through payroll deductions of up to 10% of their compensation. The price paid for the Common Stock is equal to 85% of the lower of the fair market value of the Company's Common Stock on either the first or last day of the offering period. The offering is a six month period starting each May and November 1st. The Company has reserved 200,000 shares of Common Stock for issuance pursuant to the 1994 Employee Stock Purchase Plan. At March 31, 1997, 61,733 shares have been issued and 138,267 shares were available for future participants. Shares purchased under the Employee Stock Purchase Plan total 15,290 in fiscal 1995, 21,866 in fiscal 1996 and 24,577 in fiscal 1997. Weighted average grant date fair value of shares purchased under the Employee Stock Purchase Plan was $1.83 in fiscal 1997 and $1.52 in fiscal 1996. For the purpose of providing pro forma disclosures, the fair values of shares purchased were estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions used for purchases in 1997 and 1996, respectively: a risk-free interest rate of 5.33% and 5.64%, an expected life of 6 months, expected volatility of 90% and no expected dividends. K. Accounts Receivable The Company had approximately $125,000 and $83,000 of unbilled receivables included in the accounts receivable balances at March 31, 1996 and March 31, 1997, respectively. The fiscal 1996 and 1997 balances are mainly due under the DARPA contract. The amounts billed in connection with DARPA are subject to audit by a government administrative agency. The Company's accounts receivable are due from large, well established companies. Consequently, in management's opinion, no significant concentration of credit risk exists for the Company. L. Long-term Debt In March 1997, the Company entered into a three year asset-based revolving line of credit agreement which provides for borrowings of up to $4.0 million based on accounts receivable and inventory balances. The line of credit requires a minimum outstanding balance of $1.0 million for the first year. At March 31, 1997 the Company had $0.7 available under the line of credit. The line of credit bears an interest rate charged on the outstanding balance of the prime rate plus 2.25% but in no event less than 9% per annum. The borrowing base for accounts receivable is up to 80% of the Company's eligible receivables and the inventory borrowing base is up to 30% of the Company's eligible inventory. The line is subject to the Company's compliance with certain financial covenants the most restrictive of which relates to tangible net worth. This line requires that the loan be secured by a first priority lien on all assets of the Company. M. Export Sales Export sales have been made to Japan, Korea, Taiwan, Europe and Canada. For the years ended March 31, 1995, 1996 and 1997, export sales accounted for approximately $5,716,000, $4,700,000 and $1,000,000, respectively of total revenues. N. Significant Customers During the fiscal years ended March 31, 1995, 1996 and 1997, the Company's product revenue included sales to five customers of $8.4 million, $2.6 million, $2.0 million, $1.9 million and $1.7 million, sales to three customers of $2.4 million, $2.1 million and $2.0 million and sales to three customers of $2.7 million, $1.3 million and $0.8 million, respectively. Additionally, contract research revenues from an agency of the U. S. government for the years ended March 31, 1995, 1996, and 1997 accounted for approximately $5,501,000, $2,858,000 and $579,000 of total revenues, respectively. O. 401(k) Savings Plan Effective April 1, 1993, the Company established the MRS Technology, Inc. 401(k) Savings Plan (the "Plan"). The Plan is a defined contribution plan which covers substantially all of the Company's employees. Participants may make voluntary contributions of 1% to 15% of their annual compensation. Contributions by the Company are discretionary. The Company made no contributions to the Plan during the fiscal years ended March 31, 1995, 1996 and 1997. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCE DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS OF THE REGISTRANT (Executive Officers listed in Part I)
(a) Directors Position Term Director with the Director of Office Name Age Since Company Class will expire - --------------------- --- ----- -------- ------ ------------ Carl P. Herrmann (49) 1997 Director II 1997 Bennett F. Moore (46) 1994 Director II 1997 Ronald K. Haigh (62) 1994 Director III 1998 Griffith L. Resor III (56) 1986 Director III 1998 Robert P. Schechter (48) 1988 Director I 1999
Carl P. Herrmann, Director. Mr. Herrmann has been an independent management and international marketing consultant since December 1994. From July 1991 to November 1994, he was at Solbourne Computer, Inc. most recently as President and Chief Executive Officer. From May 1989 to November 1990 he was the Hong Kong-based Director of Asia/Pacific Operations for Amphenol Corp. From October 1984 to April 1989 he was Managing Director of GenRad Inc.'s regional operations based in Singapore. From August 1993 to September 1994 he was the Tokyo-based Vice President of TEL-GenRad, KK, a joint venture developing and manufacturing PC board and semiconductor test systems. Bennett F, Moore, Director. Mr. Moore has been President of Meggitt USA, Inc., a subsidiary of Meggitt PLC of the UK, since March 1993. He joined Meggitt in 1986 and has held several positions in the UK and USA, most recently until March 1993 as Managing Director of Meggitt's US Aerospace division. Ronald K. Haigh, Director. Mr. Haigh has been an independent manufacturing technology consultant since July 1994. From 1988 to June 1994, he was at Summit Technology, a manufacturer of laser-based ophthalmic surgery systems, most recently as Vice President, Manufacturing. Prior to that he had significant semiconductor equipment manufacturing experience at Eaton Corporation. Griffith L. Resor III, President and Director. Mr. Resor, a founder of the Company, has served as President and a director of the Company since its organization in February 1986. Prior to the Company's formation, Mr. Resor was Vice President and General Manager for new products at GCA Corporation, a manufacturer of photolithographic equipment for the integrated circuit industry. Mr. Resor received a B.S, in physics from Yale University and a M.B.A. from Harvard University. Robert P. Schechter, Director. Mr. Schechter joined Natural MicroSystems Corporation as President and Chief Executive Officer in April, 1995 and in May 1996 was also elected Chairman of the Board. From 1987 to December, 1994 he was at Lotus Development Corporation, most recently as Senior Vice President, International Business Group. From 1973 and until he joined Lotus, Mr. Schechter was associated with Coopers & Lybrand, most recently as a Partner and Northeast Regional Chairman of Coopers & Lybrand's High Technology Industry Group. Mr. Schechter is a director of Raptor Systems, Inc. and Natural MicroSystems Corporation. (b) Reports of Beneficial Ownership. See the information under the caption "Compliance with Section 16(a) of the Exchange Act" on page 2 of the Proxy Statement, which information is incorporated by reference. ITEM 11. EXECUTIVE COMPENSATION See the information under the caption "Executive Compensation" beginning on page 7 of the Proxy Statement, which information is incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT See the information under the caption "Share Ownership of Principal Stockholders and Management" beginning on page 2 of the Proxy Statement, which information is incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS See the information under the caption "Certain Transactions" on page 13 of the Proxy Statement, which information is incorporated by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1 (a).Financial Statements See Index to Consolidated Financial Statements Page 23 1 (b).Supplementary Data See Page 16. All schedules are omitted as the required information is not applicable or the information is presented in the Consolidated Financial Statements or Notes thereto. (b) Reports on Form 8-K. No reports on Form 8-K were filed and no matters submitted to vote of security holders during the fourth quarter of the fiscal 1997. (c)Exhibits Exhibit Description Reference - ------- ------------------------------------- --------- 3.0 Articles of Incorporation and Bylaws 3.1 Restated Articles of Organization (A) 3.2 Amended and Restated By-Laws (A) 3.3 Articles of Amendment to the Articles of Organization (C) 4.0 Instruments defining the rights of security holders, including indentures: 4.0 Specimen Certificate of Common Stock (A) 10.0 Material Contracts 10.1 DARPA Contact (A) 10.12 CRADA Agreement for Development of Illumination System (A) 10.13 CRADA Agreement for Development of a High Accuracy Transport System (A) 10.14 Lease relating to Company's Headquarters (A) 10.15 1986 Stock Option Plan (A)(B) 10.16 1993 Stock Option Plan (B)(D) 10.17 DARPA Modification (C) 10.18 Lease relating to Company's Headquarters-Third Amendment (C) 10.22 1994 Employee Stock Purchase Plan (B)(D) 10.23 Stock Option Plan for Non-Employee Directors (B)(D) 10.25 Lease relating to Company's Headquarters-Fourth Amendment (E) Dated February 1, 1995 10.27 DARPA Modification - SPIN #P0004 (E) 10.28 DAPRA Modification - SPIN #P0005 (E) 10.29 DAPRA Modification - SPIN #P0006 (E) 10.30 DAPRA Modification - SPIN #P0007 (E) 10.31 DAPRA Modification - SPIN #P0008 (E) 10.32 October 19, 1994 Business Agreement with ICT Integrated (E) Circuit Testing GmbH 10.33 October 19, 1994 First Amendment to Business Agreement (E) with ICT 10.34 November 17, 1994 Subscription Agreement with Warranty (E) and Shareholder Agreement (ICT) 10.35 Common Stock Purchase Warrant dated October 19, 1994 (E) and delivered November 17, 1994. 10.36 Statement of Takeover Pursuant to Limited Liability (E) Company Act Section 55(1) dated February 16, 1995. 10.37 Acceleration of ICT Part III Agreement (F) 10.39 DARPA Modification (F) 10.42 Employment Agreement Letters (F) 10.43 Share Purchase Agreement ETEC/EBETECH 10.44 Employment Agreement Letter 11.0 Statement Re: Computation of Earnings (Loss) Per Share 11.0 Statement 21.0 Subsidiaries of the Registrant 21.0. Subsidiaries (A) 23.0 Consents of Experts and Counsel 23.1 Consent of Coopers & Lybrand L.L.P. (A) Incorporated by reference from Registration Statement on Form S-1 (Commission File No. 33-64220). (B) These contracts relate to Executive Compensation. (C) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ending March 31, 1994. (D) Incorporated by reference to the Company's Proxy Statement for the Annual Meeting of Stockholders held on July 28, 1994. (E) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ending March 31, 1995. (F) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ending March 31, 1996. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, authorized officers. MRS Technology, Inc. (Registrant) /s/ Griffith L. Resor III President and Chief Executive Officer 5/29/97 Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date (1) Principal executive officer: /s/Griffith L. Resor III President & Chief Executive Officer 5/29/97 (2) Principal financial officer: /s/Patricia F. DiIanni Chief Financial Officer 5/29/97 (3) A majority of the Board of Directors: /s/Ronald K. Haigh Director 5/27/97 /s/Bennett F. Moore Director 5/30/97 /s/Griffith L. Resor III Director 5/29/97 /s/Robert P. Schechter Director 5/29/97
EX-27 2
5 These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Form 10-K for the fiscal year ended March 31, 1996. 0000906768 MRS TECHNOLOGY, INC. YEAR MAR-31-1997 APR-01-1996 MAR-31-1997 3,290,982 0 1,999,994 0 7,313,982 12,856,293 3,921,482 3,388,238 13,427,516 2,557,099 0 0 0 67,763 9,802,654 13,427,516 5,173,273 7,140,697 4,040,747 6,103,784 0 0 653 (3,130,795) 0 0 0 0 0 (3,130,795) (0.47) (0.47)
EX-10 3 EXHIBIT 10.43 SHARE PURCHASE AGREEMENT Among ETEC SYSTEMS Inc., SXR-2 Vermogensverwaltungsgesellschaft mbH, Ebetech Electron Beam Technology Vertriebs GmbH and THE SELLING SHAREHOLDERS NAMED HEREIN March 13/14, 1997 INHALTSVERZEICHNIS ARTICLE 1 PURCHASE AND SALE 1 1.1 Purchase and Sale of Shares 1 ARTICLE 2 CLOSING 2 2.1 Closing Date 2 2.2 Transfer of Shares and Term Debt 2 2.3 Additional Payment 2 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLERS 2 3.1 Organization 3 3.2 Authority 3 3.3 Capital Structure 3 3.4 Financial Statements 4 3.5 Business Changes 5 3.6 Properties 6 3.7 Accounts Receivable; Notes Receivable 7 3.8 Taxes 7 3.9 Compliance with Law 8 3.10 Litigation 8 3.11 Contracts 9 3.12 Operating Leases 10 3.13 No Default 10 3.14 Business and Customers 10 3.15 Inventories and Work in Progress 10 3.16 Proprietary Rights 11 3.17 CE Mark Certification 12 3.18 Insurance 12 3.19 Bank Accounts 13 3.20 Brokers or Finders 13 3.21 Related Parties 13 3.22 Certain Advances 13 3.23 Employee Benefit Plans 14 3.24 Underlying Documents 14 3.25 Full Disclosure 14 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF ETEC AND ETEC SUB 14 4.1 Organization 14 4.2 Authority 14 4.3 Brokers or Finders 15 4.4 Full Disclosure 15 ARTICLE 5 COVENANTS RELATING TO CONDUCT OF BUSINESS 16 5.1 Conduct of Business in Normal Course 16 5.2 Preservation of Business and Relationships 16 5.3 Maintenance of Insurance 16 5.4 Employees and Compensation 16 5.5 Dividends; Changes in Stock 16 5.6 Issuance of Securities 17 5.7 Governing Documents 17 5.8 No Other Bids 17 5.9 No Acquisitions 17 5.10 No Dispositions 17 5.11 Indebtedness 17 ARTICLE 6 ADDITIONAL AGREEMENTS 17 6.1 Access to Information 17 6.2 Legal Conditions 18 6.3 Good Faith 18 ARTICLE 7 CONDITIONS PRECEDENT 18 7.1 Conditions to Obligations of Etec, Etec Sub and Sellers 18 (a) Government Approvals 18 (b) Third-Party Approvals 18 (c) Legal Action 19 7.2 Conditions to Obligations of Etec and Etec Sub 19 (a) Representations and Warranties 19 (b) Performance of Obligations 19 (c) No Material Adverse Change 19 (d) Patents 19 7.3 Conditions to Obligations of Sellers 19 (a) Representations and Warranties 19 (b) Performance of Obligations of Etec and Etec Sub 20 ARTICLE 8 INDEMNIFICATION 20 8.1 Indemnification by Sellers 20 8.4 Indemnification by Etec 21 ARTICLE 9 PAYMENT OF EXPENSES 22 ARTICLE 10 TERMINATION, AMENDMENT AND WAIVER 22 10.1 Termination 22 10.2 Amendment 22 10.3 Extension; Waiver 22 ARTICLE 11 GENERAL 23 11.1 Notices 23 11.2 Announcements 23 11.3 Headings 23 11.4 Counterparts 23 11.5 Binding Nature 24 11.6 Schedules 24 11.7 Applicable Law 24 SHARE PURCHASE AGREEMENT THIS SHARE PURCHASE AGREEMENT (this "Agreement") is made and entered into as of the 14th day of March, 1997, by and among ETEC SYSTEMS, INC., a Nevada corporation ("Etec") and SXR-2 Vermogensverwaltungsgesellschaft mbH, a wholly-owned subsidiary of Etec, (in the future: ETEC SYSTEMS EUROPE (GmbH), a company organized under the laws of the Federal Republic of Germany ("Etec Sub"), on the one hand, and VCB VENTURE CAPITAL BETEILIGUNGSGESELLSCHAFT mbH, MUNICH, a corporation organized under the laws of the Federal Republic of Germany ("VCB"), MRS TECHNOLOGY INC., a Massachusetts corporation ("MRS"), URSULA FAZEKAS, an individual, DR. MATTHIAS BRUNNER, an individual, DR.. RALF SCHMID, an individual, THOMAS SCHWEDES, an individual, VOLKER DAIKER, an individual, (each individually a "Seller" and collectively "Sellers"), and, as to the provisions of Articles 5 and 6 hereof only, EBETECH ELECTRON BEAM TECHNOLOGY VERTRIEBS GmbH, a corporation organized under the laws of the Federal Republic of Germany ("Ebetech"), on the other hand. Whereas Etec, either directly or through Etec Sub desires to acquire all of the issued and outstanding shares (the "Shares") of share capital of Ebetech as listed in Schedule 3.3.(d) in consideration of certain cash payments as herein provided, all in accordance with the terms hereof. NOW, THEREFORE, in consideration of the premises and of the mutual provisions, agreements and covenants herein contained, Etec, Etec Sub Sellers and Ebetech agree as follows: ARTICLE 1 PURCHASE AND SALE 1.1 Purchase and Sale of Shares. (a) Subject to the terms and conditions set forth in this Agreement, Etec and Etec Sub hereby agree to purchase from Sellers and Sellers hereby agree to sell, convey, transfer and assign to Etec or Etec Sub, all of the Shares and all claims of Sellers towards Ebetech in a total amount of DM 1,694,900 (hereinafter referred to as "Term Debt") as listed in Schedule 3.3 (d). The Shares shall be sold and conveyed to Etec or Etec Sub free and clear of all mortgages, liens, pledges, charges, encumbrances, equities, claims, covenants, conditions or restrictions. (b) As payment for the transfer of the Shares and the Term Debt to Etec or Etec Sub, subject to and in accordance with Article 2, Etec or Etec Sub shall pay to Sellers cash in the sum of Five Million dollars (US$5,000,000) (hereinafter referred to as "Purchase Price") being allocated as follows: aa) US$ 4,008,483.50 for the purchase of the Shares and bb) US$ 991,516.50 for the purchase of the Term Debt which shall be paid in accordance with Sections 2.2 and 2.3. ARTICLE 2 CLOSING 2.1 Closing Date. The Closing under this Agreement (the "Closing") shall be held on March 14, 1997, unless any condition to Closing has not been satisfied or waived, in which event the Closing shall be on a date agreed by the parties as soon as reasonably practicable thereafter. The date on which the Closing is to be held is herein referred to as the "Closing Date." The Closing shall be held at LeopoldstraBe 28a, Munich at the offices of the Notary Public Dr.. Karl, at 01.00 P.M. on such date, or at such other time and place as Etec, Ebetech and Sellers may agree upon in writing. 2.2 Transfer of Shares and Term Debt. Sellers hereby transfer and assign and Etec Sub hereby accepts such transfer and assignment of the Term Debt. At the Closing, Sellers shall transfer and assign the Shares to Etec Sub by notarial deed. Etec shall at Closing pay cash to Sellers in the amount of the Purchase Price less Five Hundred Thousand U.S. dollars (US$500,000) being allocated to Sellers as shown in Schedule 2.2. Such payments shall be made by wire transfer to any account or accounts which Sellers have designated in Schedule 2.2. 2.3 Additional Payment. On December 15, 1997, Etec shall pay cash to Sellers in the amount of Five Hundred Thousand U.S. dollars (US$500,000) (the "Holdback Amount"), less any amounts which may then be due to any Etec Indemnitee pursuant to Article 8 hereof. If on said date there is pending any unliquidated claim of Etec or Etec Sub under Article 8, Etec shall make such payment, less a reasonable estimate of the liquidated amount of such claim, and, upon resolution of such claim, any net balance due Sellers shall be promptly paid by Etec. All payments made under this section shall be allocated to Sellers in a pro rata portion (% ownership in Ebetech) as shown in Schedule 3.3 (d) and shall be made by any method which Sellers may designate in writing. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLERS Sellers hereby each separately represent and warrant to Etec and Etec Sub as of the date hereof as follows: 3.1 Organization. Ebetech is a corporation duly organized, validly existing and in good standing under the laws of the Federal Republic of Germany, and is presently not required to be qualified to conduct business in any other jurisdiction. Ebetech has all requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted. 3.2 Authority. Sellers have all requisite power and authority to enter into this Agreement and, subject to satisfaction of the conditions set forth herein, to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate or other action (including spousal consents), where applicable, on the part of Sellers. This Agreement has been duly executed and delivered by Sellers, and constitutes the valid and binding obligation of Sellers, enforceable in accordance with its terms, subject to the effect of applicable bankruptcy, insolvency, reorganization or other similar laws affecting the rights of creditors and the effect or availability of rules of law governing specific performance, injunctive relief or other equitable remedies. Provided the conditions set forth in Article 7 are satisfied, the execution and delivery of this Agreement do not or will not, and the consummation of the transactions contemplated hereby will not, conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation under (a) any provision of the Articles of Incorporation or Bylaws of Ebetech or any corporate Seller or (b) any material agreement or instrument, permit, franchise, license, judgment or order, applicable to Ebetech or its respective properties or assets. No consent, approval, order or authorization of, or registration, declaration or filing with, any court, administrative agency or commission or other governmental authority, is required by or with respect to Ebetech or any Seller in connection with the execution and delivery of this Agreement by Ebetech or Sellers or the consummation by Ebetech or Sellers of the transactions contemplated hereby or thereby, except for such consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state securities laws and the laws of any foreign country. All consents of parties to agreements or contracts with Ebetech required for the transfer of such contracts or agreements are listed on Schedule 3.2 hereto. 3.3 Capital Structure. (a) The authorized capital of Ebetech is DM 50,000, which consists of seven (7) shares with the nominal values set forth in Schedule 3.3(d) hereto. (b) Other than as described in paragraph (a) above, there are no other outstanding shares or other equity securities of Ebetech and no other options, warrants, calls, conversion rights, commitments or agreements of any character to which Ebetech is a party or by which Ebetech may be bound that do or may obligate Ebetech to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of Ebetech's share capital or securities convertible into or exchangeable for Ebetech's share capital or that do or may obligate Ebetech to grant, extend or enter into any such option, warrant, call, conversion right, commitment or agreement. (c) Except under the Bylaws, none of the issued and outstanding Shares are subject to repurchase or redemption. All outstanding shares of Ebetech are validly issued, fully paid and not subject to preemptive rights of third parties created by statute or any agreement to which Ebetech is a party or by which Ebetech may be bound. All outstanding shares of Ebetech have been issued in compliance with applicable laws. (d) Schedule 3.3(d) contains complete and accurate lists of, and the number of shares owned of record by, the holders of outstanding Shares, including in each case the addresses of such holders and the breakdown of the Term Debt owned by each Seller. Schedule 3.3(d) is complete and accurate on Closing Date. Schedule 3.3(d) identifies the vesting schedule, applicable legends, and repurchase rights or other risks of forfeiture of any outstanding security of Ebetech. (e) Schedule 3.3(e) contains a complete and accurate list of each stock option plan, stock appreciation rights or other equity-related stock incentive plan of Ebetech. (f) Except for any restrictions imposed by applicable laws or the Bylaws or Articles of Association of Ebetech, there is no right of first refusal, co-sale right, right of participation, right of first offer, option or other restriction on transfer applicable to any shares of Ebetech. (g) Except for the Bylaws of Ebetech, neither Ebetech nor Sellers are a party or subject to any agreement or understanding or voting trust, proxy, or other agreement or understanding between or among any persons that affects or relates to the voting or giving of written consent with respect to any outstanding security of Ebetech, the election of directors, the appointment of officers or other actions of Ebetech's Board of Directors or the management of Ebetech. 3.4 Financial Statements. Sellers have furnished to Etec an unaudited statement of income for the five months period ended February 28, 1997 and an unaudited balance sheet of Ebetech as of February 28, 1997 as shown in Schedule 3.4. The balance sheet at February 28, 1997 is hereinafter referred to as the "Ebetech Balance Sheet," and all said financial statements are hereinafter referred to collectively as the "Ebetech Financial Statements." The Ebetech Financial Statements have been and will be complete, true and accurate in all material respects and have been prepared in accordance with German law and generally accepted accounting principles in Germany ("GAAP") applied on a consistent basis during the periods involved, and are and will be in accordance with Ebetech's books and records, and fairly present the financial position of Ebetech and the results of its operations as of the date and for the periods indicated thereon, subject in the case of the unaudited portion of the Ebetech Financial Statements to normal year-end audit adjustments which will not be material and the absence of certain footnote disclosures. At the date of the Ebetech Balance Sheet (the "Ebetech Balance Sheet Date") and as of the Closing Date, Ebetech had and will have no liabilities or obligations, secured or unsecured (whether accrued, absolute, contingent or otherwise) not reflected on the Ebetech Balance Sheet or the accompanying notes thereto except for liabilities and obligations as may have arisen in the ordinary course of business prior to the date of said Balance Sheet and which, under GAAP, would not have been required to be reflected on such Balance Sheet and except for liabilities incurred in the ordinary course of business since the date of said Balance Sheet which are usual and normal in amount. Since February 28, 1997, there has been no change in Ebetech's accounting policies and there has been no change in Ebetech's estimates of contingent liabilities. 3.5 Business Changes. Since February 28, 1997, except as disclosed in Schedule 3.5, Ebetech has conducted its business only in the ordinary and usual course and, without limiting the generality of the foregoing: (a) There have been no changes in the condition (financial or otherwise), business, net worth, assets, prospects, properties, employees, operations, obligations or liabilities of Ebetech which, in the aggregate, have had or may be reasonably expected to have a materially adverse effect on the condition, business, net worth, assets, prospects, properties or operations of Ebetech. (b) Except for purchase orders for assets, Ebetech has not incurred additional debt for borrowed money nor incurred any obligation or liability except in the ordinary and usual course of business and in any event not in excess of US$15,000 in total. (c) Ebetech has not declared or made any dividend, payment or other distribution on or with respect to any share of capital stock of Ebetech. (d) Ebetech has not sold, assigned, transferred or conveyed, or committed itself to sell, assign, transfer or convey, any Proprietary Rights (as defined in Section 3.18). (e) Ebetech has not adopted or amended any bonus, incentive, profit-sharing, stock option, stock purchase, pension, retirement, deferred-compensation, severance, life insurance, medical or other benefit plan, agreement, trust, fund or arrangement for the benefit of employees of any kind whatsoever, nor entered into or amended any agreement relating to employment, services as an independent contractor or consultant, or severance or termination pay, nor agreed to do any of the foregoing. 3.6 Properties. (a) The Ebetech Balance Sheet reflects all of the real and personal property used by Ebetech in its business or otherwise held by Ebetech, except for (I) property acquired or disposed of in the ordinary and usual course of the business of Ebetech since the date of such balance sheet, and (ii) real and personal property not required under GAAP to be reflected thereon. Except as reflected in the notes to the Ebetech Balance Sheet, Ebetech has good and marketable title to all assets and properties listed on the Ebetech Balance Sheet and thereafter acquired, free and clear of any imperfections of title, lien, claim, encumbrance, restriction, charge or equity of any nature whatsoever, except for the lien of current taxes not yet delinquent. The fixed assets described in Schedule 3.6(a) constitute all tangible personal property (other than inventory) currently used in the business. All of the fixed assets and properties reflected on the Ebetech Balance Sheet or thereafter acquired are in sufficient condition and repair for the requirements of the business as presently conducted by Ebetech. (b) Schedule 3.6(b) hereto lists of all real property leased by Ebetech or under option to purchase by Ebetech. All such property leased by Ebetech is held under valid, sub-sisting and enforceable leases. To the best knowledge of Sellers after due inquiry of management of Ebetech, neither real property leased by Ebetech nor the operations of Ebetech thereon, violate any applicable material building code, zoning requirement or classification, or pollution control ordinance or statute relating to the property or to such operations. (c) To the best knowledge of Sellers after due inquiry of management of Ebetech, (I) there are no Hazardous Substances in, under or about the soil, sediment, surface water or groundwater on, under or around any properties at any time owned, leased or occupied by Ebetech, (ii) Ebetech has not disposed of any Hazardous Substances on or about such property, and (iii) Ebetech has not disposed of any materials at any site being investigated or remediated for contamination or possible contamination of the environment. "Hazardous Substances" shall mean any substance regulated or prohibited by any law or designated by any governmental agency to be hazardous, toxic, radioactive, regulated medical waste or otherwise a danger to health or the environment. (d) To the best knowledge of Sellers after due inquiry of the management of Ebetech, Ebetech has conducted its business in accordance with all applicable material laws, regulations, orders and other requirements of governmental authorities relating to Hazardous Substances and the use, storage, treatment, disposal, transport, generation, release and exposure of others to Hazardous Substances. Ebetech has not received any notice of any investigation, claim or proceeding against Ebetech relating to Hazardous Substances and Sellers after due inquiry of management of Ebetech are not aware of any fact or circumstance which could involve Ebetech in any environmental litigation, proceeding, investigation or claim or impose any environmental liability upon Ebetech. 3.7 Accounts Receivable; Notes Receivable. Schedule 3.7 contains a summary of the accounts receivable of Ebetech as of February 28, 1997, together with an accurate aging of such accounts receivable. The accounts receivable arose out of the bona fide furnishing of goods and services, each in the operation of the business of Ebetech, and require no additional performance by Ebetech to render them valid. Except as set forth on Schedule 3.7, the notes receivable are obligations of current customers of Ebetech, whether on an open account or cash on delivery basis, and there are no disputes between Ebetech and any obligor under such note receivable with respect to the amount owing or the payment terms thereunder. Sellers have provided Etec with accurate information concerning amounts and aging of accounts receivable and with an accurate customer list of Ebetech. Sellers have no knowledge of any non-collect ability of such amounts at present. 3.8 Taxes. (a) The Ebetech Balance Sheet contains sufficient reserves for all tax obligations of Ebetech at February 28, 1997, independent of whether the obligations are existent or known at the date of the preparation of the balance sheet. Tax returns other than Corporate, Trade and Net Asset Tax, have been properly made and filed on time. Ebetech effected no hidden profit distribution prior to the Closing Date. (b) Additional tax payments and tax refunds relating to the period before the Closing Date which arise ex post facto (e.g. after a tax audit), will belong to the Sellers and Sellers shall indemnify Etec Sub for any such tax payments. To the extent that reserves for such tax payments are shown in the Ebetech Balance Sheet or as long as they are based on a mere time displacement, or if the Ebetech Balance Sheet shows unused reserves, such tax payments will not cause an obligation for indemnification. Sellers shall indemnify Etec Sub for all disadvantages resulting from the fact that, contrary to Section 3.8 (a), tax returns of Ebetech have not properly been made and filed on time. Furthermore, Sellers shall indemnify Etec Sub for all additional taxes (eg corporate, trade and capital with- holding tax) resulting from a hidden profit distribution contrary to Section 3.8 (a). Etec Sub will ensure that Ebetech, and Ebetech itself assures that it will give Sellers and their advisers, being obliged to secrecy according to professional rules, the opportunity to participate in tax field audits which covers the term prior to the Closing Date. Etec Sub and Ebetech ensure that Sellers will be informed immediately about the announcement or the beginning of such tax field audits. Failing an agreement on the results of the tax field audit, Etec Sub assures that Ebetech will enter an appeal against the respective tax assessment and, if necessary, will take court actions according to the directives of Sellers. Costs of such appeals and court actions will be borne by Sellers, if the case is lost by Ebetech. Indemnification obligations of Sellers under this Section 3.8 arise only if Etec Sub and Ebetech have fulfilled their obligations under Section 3.8 (b). Schedule 3.8 (statement of KPMG Deutsche Treuhand-Gesellschaft dated March 7, 1997) contains further information on Ebetech's tax situation. 3.9 Compliance with Law. According to the best knowledge of Sellers after due inquiry of the management of Ebetech, all material licenses, franchises, permits, clearances, consents, certificates and other evidences of authority of Ebetech which are necessary to the conduct of Ebetech's business ("Permits") are in full force and effect and Ebetech is not in violation of any Permit in any material respect. Except for possible exceptions, the curing or non-curing of which would not have a material adverse effect on the condition (financial or otherwise), business, net worth, assets, prospects, properties or operations of Ebetech, the business of Ebetech has been conducted in accordance with all applicable laws, regulations, orders and other requirements of governmental authorities. 3.10 Litigation. Except as disclosed in Schedule 3.10, there is no claim, dispute, action, proceeding, notice, order, suit, appeal or investigation, at law or in equity, pending against Ebetech, or involving any of its assets or properties, before any court, agency, authority, arbitration panel or other tribunal (other than those, if any, with respect to which service of process or similar notice has not yet been made on Ebetech), and to the best knowledge of Sellers after due inquiry of management of Ebetech, none have been threatened. Sellers after due inquiry of management of Ebetech are not aware of any facts which, if known to shareholders, customers, governmental authorities or other persons, would result in any such claim, dispute, action, proceeding, suit or appeal or investigation which would have a material adverse effect on the condition (financial or otherwise), business, net worth, assets, prospects, properties or operations of Ebetech. Ebetech is not subject to any order, writ, injunction or decree of any court, agency, authority, arbitration panel or other tribunal, nor is it in default with respect to any notice, order, writ, injunction or decree. 3.11 Contracts. Schedule 3.11 hereto lists each executory contract and agreement in the following categories to which Ebetech is a party, or by which it is bound in any respect, (a) agreements for the purchase, sale, lease or other disposition of equipment, goods, materials, research and development, supplies, studies or capital assets, or for the performance of services, not in the ordinary course of business; (b) contracts or agreements for the joint per-formance of work or services, and all other joint venture agreements; (c) management or employment contracts, consulting contracts, collective bargaining contracts, termination and severance agreements, including the terms of any oral agreements with employees; (d) notes, mortgages, deeds of trust, loan agreements, security guarantees, debentures, indentures, credit agreements and other evidences of indebtedness; (e) pension, retirement, profit-sharing, deferred compensation, bonus, incentive, life insurance, hospitalization or other employee benefit plans or arrangements (including, without limitation, any contracts or agreements with trustees, insurance companies or others relating to any such employee benefit plan or arrangement); (f) stock option, stock purchase, warrant, repurchase or other contracts or agreements relating to any share capital of Ebetech; (g) contracts or agreements with agents, brokers, consignees, sale representatives or distributors; (h) contracts or agreements with any director, officer, employee, consultant or shareholder; (I) powers of attorney or similar authorizations granted by Ebetech to third parties; (j) licenses, sublicenses, royalty agreements and other contracts or agreements to which Ebetech is a party, or otherwise subject, relating to technical assistance or to Proprietary Rights as defined below; and (k) other material contracts. Ebetech has not entered into any contract or agreement containing covenants limiting the right of Ebetech to conduct or carry out any business or any line of business in any part of the world or to compete in any business or with any person. As used in this Agreement, the terms "contract" and "agreement" include every contract, agreement, commitment, understanding and promise, whether written or oral. 3.12 Operating Leases. Schedule 3.12 lists each operating lease under which Ebetech leases assets. 3.13 No Default. (a) Each of the contracts, agreements or other instruments referred to in Sections 3.11 and 3.12 of this Agreement and each of the standard customer agreements or contracts of Ebetech is a legal, binding and enforceable obligation by or against Ebetech, subject to the effect of applicable bankruptcy, insolvency, reorganization, moratorium or other similar applicable laws affecting the rights of creditors and the effect or availability of rules of law governing specific performance, injunctive relief or other equitable remedies (regardless of whether any such remedy is considered in a proceeding at law or in equity). To the best knowledge of Sellers, no party with whom Ebetech has an agreement or contract is in default thereunder or has breached any terms or provisions thereof which is material to the conduct of Ebetech's business. (b) Ebetech has performed, or is now performing, the obligations of, and Ebetech is not in material default (or would by the lapse of time and/or the giving of notice be in material default) in respect of, any contract, agreement or commitment binding upon it or its assets or properties and material to the conduct of its business. No third party has raised any claim, dispute or controversy with respect to any of the executory contracts of Ebetech, nor has Ebetech received notice or warning of alleged nonperformance, delay in delivery or other noncompliance by Ebetech with respect to its obligations under any of those contracts, nor are there any facts which exist indicating that any of those contracts may be totally or partially terminated or suspended by the other parties thereto. 3.14 Business and Customers. Schedule 3.14 hereto lists of all Ebetech's customers from whom more than US$10,000 in revenues were received in the period of five months ended February 28, 1997. Sellers after due inquiry of management of Ebetech do not have knowledge of any circumstances likely to result in termination or failure to renew customer contracts or the return of equipment sold, the loss of which in the aggregate would have a material adverse effect on the revenues or business of Ebetech. 3.15 Inventories and Work in Progress. The inventories (including work in progress) of Ebetech consist of items of a quality and quantity usable and salable in the normal course of the business. A summary of inventory on hand as of February 28, 1997 is attached hereto as Schedule 3.15. All items included in such inventories are owned by Ebetech unless bought under usual retention of title clauses or security provisions. No items included in the inventories have been pledged as collateral or are held by Ebetech on consignment from others. All the inventories reflected on the balance sheets included in the Ebetech Financial Statements and on the books of Ebetech are based on quantities determined as of February 28, 1997 based on cycle counts, and are valued in the Ebetech Financial Statements at the lower of average cost or market and on a basis consistent with that of prior periods. 3.16 Proprietary Rights. (a) Schedule 3.16(a) hereto is a complete list of all computer software, software programs, patents and applications for patents, trademarks, trade names, service marks, and copyrights, and applications therefor, owned or used by Ebetech or in which it has any rights or licenses, except for software used by Ebetech and generally available on the commercial market. Sellers have provided Etec with a complete and accurate description of all agreements of Ebetech with each officer, employee or consultant of Ebetech providing Ebetech with title and ownership to patents, patent applications, trade secrets and inventions developed or used by Ebetech in its business. All of such agreements so described are valid, enforceable and legally binding, subject to the effect or availability of rules of law governing specific performance, injunctive relief or other equitable remedies (regardless of whether any such remedy is considered in a proceeding at law or in equity). (b) Ebetech owns or possesses licenses or other rights to use all computer software, software programs, patents, patent applications, trademarks, trademark applications, trade secrets, service marks, trade names, copyrights, inventions, drawings, designs, customer lists, proprietary know-how or information, or other rights with respect thereto (collectively referred to as "Proprietary Rights"), used in the business of Ebetech, including, but not limited to all patents necessary to the design and development of the electronic beam based electrical test systems for active matrix liquid crystal displays and other flat panel displays. (c) To the best knowledge of the Sellers after due inquiry of the management of Ebetech, the operations of Ebetech do not conflict with or infringe, and no one has asserted to Ebetech that such operations conflict with or infringe on any Proprietary Rights, owned, possessed or used by any third party. There are no claims, disputes, actions, proceedings, suits or appeals pending against Ebetech with respect to any Proprietary Rights (other than those, if any, with respect to which service of process or similar notice may not yet have been made on Ebetech), and to the best knowledge of Sellers, Ebetech and the management of Ebetech none has been threatened against Ebetech. To the best knowledge of Sellers after due inquiry of the management of Ebetech there are no facts or alleged facts which would reasonably serve as a basis for any claim that Ebetech does not have the right to use, free of any rights or claims of others, all Proprietary Rights in the development, manufacture, use, sale or other disposition of any or all products or services presently being used, furnished or sold in the conduct of the business of Ebetech as it has been and is now being conducted. (d) Schedule 3.16(d) contains a complete and accurate list of any proceedings before any patent or trademark authority to which Ebetech is a party, a description of the subject matter of each proceeding, and the current status of each proceeding, including, without limitation, interferences, priority contests, opposition, and protests. Such list includes any pending applications for reissue or reexamination of a patent and any pending transfer of a patent. Ebetech has the exclusive right to file, prosecute and maintain any such applications for patents, copyrights or trademarks and the patents and registrations that issue therefrom. (e) To the best knowledge of Sellers after due inquiry of the management of Ebetech, all patents and registered trademarks, service marks, and other company, product or service identifiers and registered copyrights held by Ebetech are valid and enforceable. (f) Ebetech has taken all reasonable measures to maintain the confidentiality of the Proprietary Rights. (g) To the best of Sellers' knowledge after due inquiry of management, no employee of Ebetech is in violation of any term of any employment contract, proprietary information and inventions agreement, non-competition agreement, or any other contract or agreement relating to the relationship of any such employee with Ebetech or any previous employer. 3.17 CE Mark Certification. All Ebetech products currently comply with the European Union regulations relating to electromagmetic fields, electrical power and human exposure to laser certification that became effective in January 1997 and all Ebetech products carry the Certificate Europa mark certification. 3.18 Insurance. Schedule 3.18 hereto lists all policies of insurance to which Ebetech is a party or is a beneficiary or named insured. Ebetech has in full force and effect, with all premiums due thereon paid, the policies of insurance set forth therein. All the insurable properties of Ebetech are insured in amounts and coverage and against risks and losses which are adequate and usually insured against by persons holding or operating similar properties in similar businesses. There were no claims in excess of US$5,000 asserted under any of the insurance policies of Ebetech in respect of all motor vehicle, general liability, professional liability, errors and omissions, and worker's compensation, and medical claims for the period from September 1, 1996 to the date of this Agreement. Sellers advise Etec and Etec Sub that insurance policies might be terminated with reasonable notice by insurance companies of Ebetech due to the fact that the Shares are sold and transferred to Etec Sub. 3.19 Bank Accounts. Sellers and Ebetech have furnished to Etec a true and correct list setting forth the names and addresses of all banks, other institutions and state governmental departments at which Ebetech has accounts, deposits or safety deposit boxes, or special deposits required to be held by such state governmental departments with the nature of such account and the names of all persons authorized to draw on or give instructions with respect to such accounts or deposits, or to have access thereto, and the names and addresses of all persons, if any, holding a power-of-attorney on behalf of Ebetech. All cash in such accounts is held in demand or short term time deposits and is not subject to any restriction or limitation as to withdrawal. On the Closing Date, Ebetech has an aggregate cash balance in excess of its liabilities (other than the Term Debt) by at least DM 350,000. 3.20 Brokers or Finders. Except for Pierre Fougere of Fougere Conseil, Sellers have not, and Ebetech has not dealt with any broker or finder in connection with the transactions contemplated by this Agreement. Except for obligations to Pierre Fougere of Fougere Conseil, Sellers have not incurred, and Ebetech has not incurred, and neither shall incur, directly or indirectly, any liability for any brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby. All fees and expenses of Pierre Fougere of Fougere Conseil are obligations of the Sellers and not of Ebetech or Etec or Etec Sub. 3.21 Related Parties. Except as previously disclosed in writing to Etec and Etec Sub, no officer or director of Ebetech, or any affiliate of any such person, has, either directly or indirectly, (l) an interest in any corporation, partnership, firm or other person or entity which furnishes or sells services or products which are similar to those furnished or sold by Ebetech, or (m) a beneficial interest in any contract or agreement to which Ebetech is a party or by which Ebetech may be bound. For purposes of this Section 3.21, there shall be disregarded any interest which arose solely from the ownership of less than a two percent (2%) equity interest in a corporation whose stock is regularly traded on any national securities exchange or in the over-the-counter market. 3.22 Certain Advances. There are no receivables of Ebetech owing from directors, officers, employees, consultants or shareholders of Ebetech, or owing by any affiliate of any director or officer of Ebetech, other than advances in the ordinary and usual course of business to officers and employees for reimbursable business expenses which are not in excess of US$2,500 for any one individual. 3.23 Employee Benefit Plans. Ebetech does not maintain any employee pension or welfare benefit plans or any other employee benefit plans of any type other than required by German law and accrued for in the Financial Statements. Ebetech is not obligated to make any contributions to any such plans and does not make any such contributions. Ebetech does not participate in any multiemployer plans and is not obligated to contribute to any such plans. Ebetech has no obligations of any type to its employees after their retirement. 3.24 Underlying Documents. Copies of any underlying documents listed or described as having been disclosed to Etec and Etec Sub pursuant to this Agreement, if requested by Etec or Etec Sub, have been furnished to Etec. All such documents furnished to Etec and Etec Sub are true and correct copies, and there are no amendments or modifications thereto, that have not been disclosed to Etec and Etec Sub. The minutes of Ebetech contain complete and accurate records of all meetings and other corporate actions taken by the shareholders of Ebetech. 3.25 Full Disclosure. Any information furnished by or on behalf of Ebetech to Etec and Etec Sub in writing pursuant to this Agreement (including the Schedules hereto), at any time prior to the Closing Date, does not and will not contain any untrue statement of a material fact and does not and will not omit to state any material fact necessary to make any statement, in light of the circumstances under which such statement is made, not misleading. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF ETEC AND ETEC SUB Except as contemplated by this Agreement, Etec and Etec Sub represent and warrant to Sellers as of the date hereof as follows: 4.1 Organization. Etec is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Nevada, United States. Etec is duly qualified to do business and is in good standing in its state of incorporation and in each other jurisdiction in which it owns or leases property or conducts business, except where the failure to be so qualified would not have a material adverse effect on the business of Etec. Etec has all requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted, and possesses all licenses, franchises, rights and privileges material to the conduct of its business. 4.2 Authority. Etec has all requisite corporate power and authority to enter into this Agreement and the related agreements contemplated herein, and, subject to satisfaction of the conditions set forth herein, to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Etec. This Agreement has been duly executed and delivered by Etec and constitutes the valid and binding obligation of Etec enforceable in accordance with its terms, subject to the effect of applicable bankruptcy, insolvency, reorganization or other similar federal or state laws affecting the rights of creditors and the effect or availability of rules of law governing specific performance, injunctive relief or other equitable remedies. Provided the conditions set forth in Article 7 are satisfied, the execution and delivery of this Agreement do not, and the consummation of the transactions contemplated hereby will not, conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation under (a) any provision of the corporate charter or Bylaws of Etec, or (b) any material agreement or instrument, permit, license, judgment, order, statute, law, ordinance, rule or regulation applicable to Etec or its properties or assets, other than any such conflicts, violations, defaults, terminations, cancellations or accelerations which individually or in the aggregate would not have a material adverse effect on Etec. No consent, approval, order or authorization of, or registration, declaration or filing with, any governmental authority is required by or with respect to Etec in connection with the execution and delivery of this Agreement by Etec or the consummation by Etec of the transactions contemplated hereby or thereby. 4.3 Brokers or Finders. Neither Etec nor Etec Sub has dealt with any broker or finder in connection with the transactions contemplated by this Agreement. Neither Etec nor Etec Sub has incurred, and neither shall incur, directly or indirectly, any liability for any brokerage or finders' fees or agents commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby. 4.4 Full Disclosure. Any information furnished by or on behalf of Etec or Etec Sub to Ebetech in writing pursuant to this Agreement (including the Schedules hereto), at any time prior to the Closing Date, does not and will not contain any untrue statement of a material fact and does not and will not omit to state any material fact necessary to make any statement, in light of the circumstances under which such statement is made, not misleading. 4.5 Confirmation. Etec and Etec Sub hereby confirm receipt of all documents requested by Etec or its advisors. At present, Etec or Etec Sub do not have knowledge of any facts or circumstances that might give rise to a claim of Etec or Etec Sub under this Agreement. ARTICLE 5 COVENANTS RELATING TO CONDUCT OF BUSINESS During the period from March 12, 1997 and continuing until the Closing Date, Ebetech and Sellers (except as expressly contemplated by this Agreement or to the extent that Etec and Etec Sub shall otherwise consent in writing) covenant, and agree with Etec and Etec Sub that: 5.1 Conduct of Business in Normal Course. Ebetech shall carry on the business and its activities diligently and in the ordinary course and shall not make or institute any unusual or novel methods of purchase, sale, lease, management, accounting or operation that will vary materially from the methods used by Ebetech as of March 12, 1997. Ebetech shall maintain the nature and quantities of inventories for the business in a normal and customary manner consistent with prior practice. 5.2 Preservation of Business and Relationships. Ebetech shall use its best efforts, without making any commitments on behalf of Etec and Etec Sub, to preserve its business organization intact, to keep available its present employees, and to preserve its present relationships with suppliers, customers and others having business relationships with it. 5.3 Maintenance of Insurance. Prior to the Closing, Ebetech shall maintain in effect all insurance covering the business. If the Closing shall occur after a renewal date for any such insurance, Ebetech shall renew the insurance on the same or substantially similar terms, limits of liability and other conditions. 5.4 Employees and Compensation. Ebetech shall not do, or agree to do, any of the following acts: (a) grant any increase in salaries payable or to become payable to any employee, sales agent or representative; or (b) increase benefits payable to any employee, sales agent or representative under any executive compensation, bonus, pension, profit-sharing, retirement, deferred compensation, severance, employee stock option or stock purchase, group life, health and other employee benefit plans, arrangements, practices or commitments. Ebetech shall provide Etec and Etec Sub with reasonable access to its employees during normal business hours. 5.5 Dividends; Changes in Stock. Ebetech shall not and shall not propose to (a) declare or pay any dividends on or make other distributions in respect of any of its capital stock, (b) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of capital stock of Ebetech, or (c) repurchase or otherwise acquire any shares of its capital stock or rights to acquire any shares of its capital stock. 5.6 Issuance of Securities. Ebetech shall not issue, deliver, or sell or authorize or propose the issuance, delivery or sale of, or purchase or propose the purchase of, any shares of its capital stock of any class or securities convertible into, or rights, warrants or options to acquire, any such shares or other convertible securities. 5.7 Governing Documents. Ebetech shall not amend its corporate charter or Bylaws. 5.8 No Other Bids. Neither Sellers, nor Ebetech nor any of their respective directors, officers or agents, will, directly or indirectly, solicit or initiate or encourage any discussions or negotiations with, or participate in any negotiations with or provide any information to or otherwise cooperate in any other way with any corporation, partnership, person or other entity or group (other than Etec and Etec Sub) concerning any merger, sale of substantial assets, sale of shares of capital stock or any division of Ebetech or control thereof. Etec and Etec Sub shall be promptly notified in writing by Sellers and Ebetech of any of the events referred to in this Section 5.8 including a summary of the material terms of any other bid. 5.9 No Acquisitions. Ebetech shall not (a) acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof or (b) otherwise acquire or agree to acquire any assets which are material, individually or in the aggregate, to Ebetech except in the ordinary course of business consistent with prior practice. 5.10 No Dispositions. Ebetech shall not lease or otherwise dispose of any of its assets, individually or in the aggregate, except in the ordinary course of business consistent with prior practice and in any event not in excess of US$5,000 for any single item or more than US$50,000 in the aggregate. 5.11 Indebtedness. Ebetech shall not incur any indebtedness for borrowed money or guarantee any such indebtedness or issue or sell any debt securities of Ebetech or guarantee any debt securities of others. ARTICLE 6 ADDITIONAL AGREEMENTS 6.1 Access to Information. Sellers and Ebetech shall afford to Etec and Etec Sub and shall cause Ebetech's independent accountants to afford to Etec and Etec Sub, and their accountants, counsel and other representatives, reasonable access during normal business hours during the period prior to the Closing Date to Ebetech's properties, books, contracts, commitments and records and to the independent accountants reasonable access to the audit work papers and other records of Ebetech's accountants. During such period, Sellers and Ebetech shall use reasonable efforts to furnish promptly to Etec and Etec Sub all information concerning the business, properties and personnel of Ebetech as Etec and Etec Sub may reasonably request. Etec and Etec Sub will not use such information for purposes other than this Agreement and will otherwise hold such information in confidence (and Etec and Etec Sub will cause their consultants and advisors also to hold such information in confidence). 6.2 Legal Conditions. Each party will take all reasonable actions necessary to comply promptly with all legal requirements which may be imposed on such party with respect to this Agreement and will promptly cooperate with and furnish information to the other party in connection with any such requirements imposed upon such other party in connection with this Agreement. Each party will take all reasonable actions to obtain (and to cooperate with the other party in obtaining) any consent, authorization, order or approval of, or any exemption by, any governmental authority, or other third party, required to be obtained or made by such party (or by the other party) in connection with this Agreement or the taking of any action contemplated thereby. 6.3 Good Faith. Each party shall act in good faith in an attempt to cause to be satisfied all the conditions precedent to its obligations and those of the other parties to this Agreement over which it has control or influence. Each party will act in good faith and take all reasonable action within its capability necessary to render accurate as of the Closing Date its representations and warranties contained in this Agreement. ARTICLE 7 CONDITIONS PRECEDENT 7.1 Conditions to Obligations of Etec, Etec Sub and Sellers. The obligations of Etec, Etec Sub and Sellers to consummate this Agreement shall be subject to the satisfaction on or prior to the Closing Date of the following conditions unless waived by Etec, Etec Sub and Sellers: (a) Government Approvals. All authorizations, consents, orders or approvals of, or declarations or filings with, or expiration of waiting periods imposed by, any governmental authority necessary for the consummation of the transactions contemplated by this Agreement. (b) Third-Party Approvals. Any and all consents or approvals required from third parties relating to contracts, agreements, licenses, leases and other instruments, material to the respective businesses of Etec, Etec Sub and Ebetech shall have been obtained. (c) Legal Action. No temporary restraining order, preliminary injunction or permanent injunction or other order preventing the consummation of this Agreement shall have been issued by any federal, state or foreign court and remain in effect, and no litigation seeking the issuance of such an order or injunction, shall be pending which, in the good faith judgment of Sellers, Etec or Etec Sub has a reasonable probability of resulting in such order, injunction or damages. 7.2 Conditions to Obligations of Etec and Etec Sub. The obligations of Etec or Etec Sub to consummate this Agreement are subject to the satisfaction on or prior to the Closing Date of the following conditions, unless waived by Etec: (a) Representations and Warranties. The representations and warranties of Sellers and covenants of Ebetech set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and as if made at and as of the Closing Date, except as otherwise contemplated by this Agreement. (b) Performance of Obligations. Sellers and Ebetech shall have performed in all material respects all obligations required to be performed by each, respectively, under this Agreement prior to the Closing Date. (c) No Material Adverse Change. Since February 28, 1997, there shall have been no changes in the condition (financial or otherwise), business, prospects, employees, operations, obligations or liabilities of Ebetech which, in the aggregate, have had or may be reasonably expected to have a materially adverse effect on the financial condition, business, or operations of Ebetech. (d) Patents. All patents now owned by Ebetech, including those which were transferred by ICT to Ebetech have been registered in the name of Ebetech. 7.3 Conditions to Obligations of Sellers. The obligations of Sellers to consummate the transactions contemplated hereby are subject to the satisfaction on or prior to the Closing Date of the following additional conditions unless waived by Sellers: (a) Representations and Warranties. The representations and warranties of Etec and Etec Sub set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and as if made at and as of the Closing Date, except as otherwise contemplated by this Agreement. (b) Performance of Obligations of Etec and Etec Sub. Etec and Etec Sub shall have performed in all material respects all obligations required to be performed by each, respectively, under this Agreement prior to the Closing Date. ARTICLE 8 INDEMNIFICATION 8.1 Indemnification by Sellers. Sellers agree to defend and indemnify Etec, Etec Sub and their respective affiliates, directors, officers and shareholders, and their respective successors and assigns (collectively, "Etec Indemnitees"), against and hold each of them harmless from any and all losses, liabilities, taxes, claims, suits, proceedings, demands, judgments, damages, expenses and costs, including, without limitation, reasonable counsel fees, costs and expenses incurred in the investigation, defense or settlement of any claims covered by this indemnity (in this Section 8.1 collectively, the "Indemnifiable Damages") which any such indemnified person may suffer or incur by reason of (I) the inaccuracy or breach of any of the representations, warranties and covenants of Sellers contained in this Agreement or any documents, certificate or agreement delivered pursuant hereto; (ii) any claim asserted by and granted to any person relating to or arising out of transactions, events, acts or omissions of or by Sellers or Ebetech, prior to the Closing Date; (iii) any liabilities of Ebetech (excluding expenses incurred in the ordinary course of business, including but not limited to purchase orders) not disclosed to Etec or Etec Sub, whether or not known to Sellers, which were incurred prior to the Closing Date; (iv) the absence of intellectual property essential to the business of Ebetech as it is currently conducted (not including costs of applying for and perfecting known patents); or (v) the absence of appropriate accruals in the Ebetech Balance Sheet. Notwithstanding anything herein to the contrary, Sellers' liability under this Share Purchase Agreement shall be limited to the following amounts: a) Holdback Amount shared by all Sellers $ 500,000 b) VCB Venture Capital Beteiligungsgesellschaft mbH $ 1,000,000 in addition to its pro-rata share of the Holdback Amount c) MRS Technology (see 8.2), Inc. $ 875,000 in addition to its pro-rata share of the Holdback Amount Any claims by Etec Indemnitees shall be applied first against the Holdback Amount, and then pro rata against VCB and MRS; provided however, that if either VCB or MRS are unable to pay their pro rata share of the claim, the other shall be liable for the full amount of the claim to the extent of such party's liability set forth above. No claims shall be payable by Sellers until the aggregate amount of Indemnifiable Damages exceeds US $ 5,000. Once the aggregate amount of Indemnifiable Damages exceed US $ 5,000, all claims shall be payable. Any liability of Sellers under this Share Purchase Agreement applies only to claims for Indemnifiable Damages being asserted against Sellers in writing prior to September 15, 1998. 8.2 Collateral MRS Recognizing that MRS is of limited financial resources, MRS agrees to the following: Should MRS's net ready assets (defined as cash plus accounts receivable, and less accounts payable, accrued liabilities and other current liabilities) decline to US $ 1,000,000 at any time during the imdemnification period, Etec shall have the right to demand that MRS escrow funds or provide a performance bond in the amount set forth on the following schedule: 3/15/97 - 6/15/97 US $ 875,000 6/16/97 - 9/15/97 729,167 9/16/97 - 12/15/97 583,333 12/16/97 - 3/15/98 437,500 3/16/98 - 6/15/98 291,667 6/16/98 - 9/15/98 145,833 The obligations of MRS pursuant to this Section 8.2 shall expire on September 15, 1998. 8.3 Notification Etec and Etec Sub shall use their best efforts to notify Sellers of any claims for Indemnifiable Damages as soon as practicable after Etec or Etec Sub become aware of such a claim, and shall permit Sellers to assist in reducing or settling any such claim. 8.4 Indemnification by Etec. After the Closing Date, Etec and Etec Sub shall, as to those representations, warranties, covenants and agreements which are herein made or agreed to by Etec and Etec Sub, respectively, indemnify and hold harmless Sellers and their heirs and assigns ("Seller Indemnitees") against and in respect of: (I) any damage, deficiency, losses or costs incurred by a Seller Indemnitee resulting from any misrepresentation or breach of warranty or any nonfulfillment of any covenant or agreement on the part of Etec or Etec Sub under this Agreement; (ii) any claim made by any person relating to or arising out of transactions, events, acts or omissions of or by Ebetech after the Closing; and (iii) any claim, action, suit, proceeding, demand, judgment, assessment, cost and expense, including reasonable counsel fees, incident to any of the foregoing. ARTICLE 9 PAYMENT OF EXPENSES Etec, Etec Sub and Sellers shall each pay their own fees and expenses incurred incident to the preparation and carrying out of the transactions herein contemplated. Notarial fees will be split half and half between Etec/Etec Sub and Sellers. Sellers shall pay all sales and use taxes arising out of the transfer of Shares and related to the sale of the Shares. Etec and Etec Sub shall not be responsible for any business occupation, withholding, or similar tax, or any taxes of any kind related to any period before the Closing Date. ARTICLE 10 TERMINATION, AMENDMENT AND WAIVER 10.1 Termination. This Agreement may be terminated at any time prior to the Closing Date: (a) by mutual written consent of Sellers and Etec; (b) by either Etec or Sellers if there has been a material breach of any representation, warranty, covenant or agreement contained in this Agreement on the part of any party set forth in this Agreement and, if such breach is curable, such breach has not been promptly cured after written notice of such breach; (c) by either Etec or Sellers if there shall be a final nonappealable order of a federal or state court in effect preventing consummation of this Agreement; 10.2 Amendment. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. 10.3 Extension; Waiver. At any time prior to the Closing, Etec, Etec Sub or Sellers may (I) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (ii) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto and (iii) waive compliance with any of the agreements or conditions for the benefit thereof contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid if set forth in an instrument in writing signed on behalf of such party. ARTICLE 11 GENERAL 11.1 Notices. Any notice, request, instruction or other document to be given hereunder by any party to the other shall be in writing and delivered personally or sent by certified mail, postage prepaid by facsimile, or by courier service, as follows: To Etec: Etec Systems, Inc. 24640 Corporate Avenue Hayward, CA 94545 Facsimile: (510) 780-3845 Attn: Mr. Stephen E. Cooper with a copy to: Pillsbury Madison & Sutro LLP 235 Montgomery Street San Francisco, CA 94104 Facsimile: (415) 983-1200 Attn: Richard S. Grey, Esq. To Sellers: Matthias Brunner and Richard L. Haas Managing Directors Ebetech Electron-Beam Technology Vertriebs GmbH Klausnerring 1a D-85551 Heimstetten bei Munchen Germany Facsimile: 49-89-90-9994-81 with a copy to: Christian Roschmann Oppenhoff & Radler Prinzregentenplatz 10 81675 Munchen Germany Facsimile: 49-89-41808-343 or to such other persons as may be designated in writing by the parties, by a notice given as aforesaid. 11.2 Announcements. Except for disclosures required by law, any public announcements by Sellers, Ebetech or Etec shall be subject to the prior written consent of both Sellers and Etec, which consent shall not be reasonably withheld or delayed. 11.3 Headings. The headings of the several sections of this Agreement are inserted for convenience of reference only and are not intended to affect the meaning or interpretation of this Agreement. 11.4 Counterparts. This Agreement may be executed in counterparts, and when so executed each counterpart shall be deemed to be an original, and said counterparts together shall constitute one and the same instrument. 11.5 Binding Nature. This Agreement shall be binding upon and inure to the benefit of the parties hereto. No party may assign or transfer any rights under this Agreement. 11.6 Schedules. Any document included on a Schedule to this Agreement shall be deemed to have been referred to in any other schedule or section of this Agreement, as appropriate. 11.7 Applicable Law. This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of California. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed, all as of the date first above written. ETEC SYSTEMS, INC., a Nevada corporation By Philip Koen Title Vice President & CFO SELLERS VCB VENTURE CAPITAL BETEILIGUNGSGESELLSCHAFT mbH, MUNICH, a corporation organized under the laws of the Federal Republic of Germany By Guntersdorfer Title Managing Director By Bewerunge Title Managing Director MRS TECHNOLOGY INC., a Massachusetts corporation By John L.Steele, Jr. Title Vice President Ursula Fazekas represented by power of attorney by her husband Mr. Peter Fazekas Dr. Matthias Brunner Dr. Ralf Schmid Thomas Schwedes Volker Daiker As to the provisions of Articles 5 and 6 only: EBETECH ELECTRON BEAM TECHNOLOGY VERTRIEBS GmbH, a German corporation By Matthias Brunner Title Managing Director By Richard Haas Title Managing Director EX-10 4 Exhibit 10.44 January 10, 1997 Mr. Raymond Benson MRS Technology, Inc. 10 Elizabeth Drive Chelmsford, MA 01824 Dear Ray: You expressed concern at the time of your hire that your position as V.P. of Sales may be eliminated if MRS was purchased by another company or if another company made a substantial investment in MRS. This letter confirms our earlier verbal commitment to provide a severance package in such event. Beginning at the closing date of any such merger or change of control, your base salary will be continued at 90% of your salary on 1/10/97 until you find other employment in a comparable position or at a comparable rate, up to 36 weeks from the date of such closing. You will be paid biweekly (or in lump sum, at the company's option). Your group medical, group term life insurance, and group dental plans will be continued for the same time, and under the same conditions. If at the time of closing an interim period of employment has been agreed upon, the 36 week period will begin at the end of such interim period. This agreement will remain in force so long as you are available to consult with the surviving company on matters that related to your work at MRS, and so long as you are not assisting any competitor of the surviving company. Should MRS be the surviving company, your MRS options will fully vest at the date of closing, and you will be granted a period of up to 4 years to exercise these options. If another company purchases MRS, the terms of such a purchase will prevail. Note, if within the surviving company a job is found that is acceptable to you, your salary and option packages will be determined during such negotiations and this agreement will be superseded. These arrangements are, of course, contingent upon your continued employment at MRS through such closing. Your continued loyalty, support and business advice is much appreciated. Sincerely yours, /s/Griff Resor III, President EX-11 5 Exhibit 11.0 Statement re: Computation of Earnings (Loss) Per Share
Primary Fully Diluted --------- ------------- For the fiscal year ended March 31, 1995: Weighted average number of Common Shares outstanding 6,479,596 6,479,596 Dilutive effect of Common Stock equivalents 472,828 472,468 --------- --------- 6,952,424 6,952,064 For the fiscal year ended March 31, 1996: Weighted average number of Common Shares outstanding 6,549,672 6,549,672 --------- --------- 6,549,672 6,549,672 For the fiscal year ended March 31, 1997: Weighted average number of Common Shares outstanding 6,717,142 6,717,142 --------- --------- 6,717,142 6,717,142
EX-23 6 Exhibit 23.1 Consent of Independent Accountants We consent to the incorporation by reference in the registration statements of MRS Technology, Inc. on Form S-8 (File Nos. 33-79476, 33-85148, 33-85262) of our report dated May 23, 1997 on our audits of the consolidated financial statements of MRS Technology, Inc. as of March 31, 1997 and 1996, and for each of the three years in the period ended March 31, 1997, which report is included in this Annual Report on Form 10-K. /s/ Coopers & Lybrand L.L.P. Boston, Massachusetts June 13, 1997 -----END PRIVACY-ENHANCED MESSAGE-----