-----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, ScvbnouN6gFTwSg1P+f7fRU26CWJM9XTXwEI9lfhJuoIcX1Amp4Qjiyq8sLHsDqX m5zLwRaHqDDyiwR8/C8UfQ== 0000950135-02-005743.txt : 20021230 0000950135-02-005743.hdr.sgml : 20021230 20021230164640 ACCESSION NUMBER: 0000950135-02-005743 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021230 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BROOKS-PRI AUTOMATION INC CENTRAL INDEX KEY: 0000933974 STANDARD INDUSTRIAL CLASSIFICATION: SPECIAL INDUSTRY MACHINERY, NEC [3559] IRS NUMBER: 043040660 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-25434 FILM NUMBER: 02872261 BUSINESS ADDRESS: STREET 1: 15 ELIZABETH DRIVE CITY: CHELMSFORD STATE: MA ZIP: 01824 BUSINESS PHONE: (978) 262-2400 MAIL ADDRESS: STREET 1: 15 ELIZABETH DRIVE CITY: CHELMSFORD STATE: MA ZIP: 01824 FORMER COMPANY: FORMER CONFORMED NAME: BROOKS AUTOMATION INC DATE OF NAME CHANGE: 19941215 10-K 1 b44487bpe10vk.htm BROOKS-PRI AUTOMATION, INC. Brooks-PRI Automation, Inc. on Form 10-K
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-K

     
(Mark One)
   
þ
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
    For fiscal year ended September 30, 2002
 
or
 
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (no fee required)
 
    For the transition period from           to           .

Commission file number: 0-25434

Brooks-PRI Automation, Inc.

(Exact Name of Registrant as Specified in Its Charter)
     
Delaware
  04-3040660
(State or Other Jurisdiction of
Incorporation or Organization)
  (I.R.S. Employer
Identification No.)
 
15 Elizabeth Drive
Chelmsford, Massachusetts
(Address of Principal Executive Offices)
  01824
(Zip Code)

978-262-2400

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.01 par value

Rights to Purchase Common Stock

      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 Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Rule 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 the Form 10-K. o

      The aggregate market value of the registrant’s Common Stock, $0.01 par value, held by nonaffiliates of the registrant as of November 29, 2002, was $420,651,596.68 based on the closing price per share of $14.44 on that date on the Nasdaq Stock Market. As of November 29, 2002, 36,384,753 shares of the registrant’s Common Stock, $0.01 par value, were outstanding.

      DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the registrant’s Proxy Statement involving the election of directors, which is expected to be filed within 120 days after the end of the registrant’s fiscal year, are incorporated by reference in Part III of this Report.




PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Risk Factors Relating to the Company’s Common Stock
Brooks-PRI Automation, Inc.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT ACCOUNTANTS
Item 9. Changes In and Disagreements With Accountants on Financial Accounting and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Controls and Procedures
Item 15. Exhibits
SIGNATURES
Ex-4.15 Agreement and Plan of Merger
Ex-10.8 Agreement to Amend Corporate Noncompetion
Ex-10.20 Employment Agreement for Mitchell Tyson
Ex-10.36 Lease Agreement
Ex-10.37 Lease between the Company and BerCar II
Ex-10.38 Separation Agreement of Ellen Richstone
Ex-12.01 Calculation of Ratio of Earnings
Ex-21.01 Subsidiaries of the Company
Ex-23.01 Consent of PricewaterhouseCoopers LLP
Ex-99.01 Certification


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PART I

 
Item 1.      Business

      Brooks-PRI Automation, Inc. (“Brooks” or the “Company”) is a leading supplier of automation products and solutions for the global semiconductor and related industries such as the data storage, flat panel display and other precision electronics manufacturing industries. Brooks has distinguished itself as a technology and market leader, particularly in the demanding cluster-tool vacuum-processing environment and in integrated factory automation software applications. The Company’s offerings have grown from individual robots used to transfer semiconductor wafers in advanced production equipment to fully integrated automation solutions that control the movement and management of wafers and reticles in the wafer fabrication facility. Through a program of investment and acquisition, Brooks has emerged as one of the leading suppliers of factory and equipment automation solutions for semiconductor manufacturers and original equipment manufacturers (“OEMs”). During fiscal 2002, the Company continued its program of strategic investment and acquisitions designed to broaden the depth and breadth of its offerings and market position.

      The Company’s business is significantly dependent on capital expenditures by semiconductor manufacturers and OEMs, which are, in turn, dependent on the current and anticipated market demand for semiconductors and electronics equipment. The Company’s revenues grew substantially in fiscal 2000 and the first half of fiscal 2001, due in large part to high levels of capital expenditures of semiconductor and electronics manufacturers. Demand for semiconductors is cyclical and has historically experienced periodic downturns. The semiconductor industry is currently experiencing such a downturn, which began to impact the Company in the third quarter of fiscal 2001, and has continued throughout fiscal 2002. The downturn has affected revenues, gross margins and operating results. In response to this prolonged and continuing downturn, the Company has initiated, and continues to implement, cost reduction programs aimed at aligning its ongoing operating costs with its currently expected revenues over the near term. These cost management initiatives have included consolidation of facilities, reductions to headcount, salary and wage reductions and reduced spending.

Industry Background

      Fabrication of semiconductors and flat panel displays requires a large number of complex process steps in which electrically insulating or conductive materials are deposited and etched into patterns on the surface of a substrate or wafer. To become fully processed a bare silicon wafer will pass through as many as 400 or more process steps.

      State-of-the-art semiconductor manufacturing creates on-chip features 1,000 times narrower than a human hair, and it must observe tight control limits for the dimensions of those features. The semiconductor manufacturing process is extremely equipment-intensive with a strong dependence on automation of the material handling and processing. A fabrication facility, or “fab,” contains hundreds of manufacturing tools. Wafer fabs typically process wafers in lots of 25. A flat panel display substrate may contain as few as two laptop computer displays, while a wafer may contain more than 500 semiconductor chips. One manufacturing facility could at any moment be processing wafers that will result in hundreds of different end products. The slightest drift or malfunction in any of the tools at any of the process steps can cause a process deviation. A manufacturing problem or deviation in a wafer fabrication plant can ruin an entire lot of 25 wafers, or multiple lots. One lot of 300mm (i.e. about 12 inches in diameter) wafers can be worth up to $1 million. The majority of wafers today are 200mm in size. As the industry shifts to the larger 300mm wafer sizes, the weight and cost of the carrier requires automated material handling systems.

      Full automation is required to manage automated material movement within a fab, which now includes intrabay (production unit/carrier delivery directly to a manufacturing tool) in addition to the more traditional interbay (material movement between larger manufacturing areas) activities. This dependency on automated material handling to deliver the right wafers to the right tool at the right time with minimal operator intervention greatly increases the scope of automation requirements.

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      As a result, semiconductor manufacturing has become and continues to be increasingly automated. Today, almost every aspect of processing includes automation, from material handling to tracking work-in-process to process control and scheduling. Factory and equipment automation directly impact factory performance. Factory performance, in turn, drives semiconductor manufacturers’ ability to:

  •  get to market first when product profitability is greatest; and
 
  •  drive manufacturing costs down to remain competitive in the face of constant downward price pressure.

      The Company operates in the following three segments:

 
      Equipment Automation

      Equipment Automation includes systems and modules for use within semiconductor process equipment. These products automate the movement of wafers into and out of semiconductor manufacturer process chambers and provide an integration point between factory automation systems and process tools. The primary customers for these products are original equipment manufacturers of process tool equipment. Semiconductor and flat panel display process tools generally use vacuum environments for processes such as deposition and etch, and atmospheric environments for metrology photolithography and other processes. Vacuum equipment is typically designed as cluster tools and atmospheric equipment is typically designed as in-line handling systems.

      Cluster tool handling systems typically link together multiple chambers for processes such as deposition, etch and heating/ cooling of the substrate around a transfer robot located in a central vacuum chamber. In-line handling systems are most often used in the front of process equipment to load the wafers from their carriers into the tool, typically using an atmospheric transfer robot located on a horizontal traverser or multiple axis robots.

      Semiconductor manufacturers with 300mm and advanced 200mm fabs utilize mini-environment technology for their manufacturing. Mini-environment technology permits a factory to cost-effectively maintain the wafers in an enclosed carrier, called a pod, to provide an environment that is 1,000 times cleaner than one that is typically found in a surgical operating room.

      High-end mini-environments, or enclosures, are also used to isolate processing tools from their environment. Equipment Automation includes mini-environments and their transfer modules, called load ports, for handling the wafer in a cleaner environment than the production environment. Equipment Automation also includes high-precision airflow and pressure controls for key semiconductor manufacturing applications such as track, furnace and wet stations.

 
      Factory Automation Hardware

      Factory Automation Hardware systems include automated material handling systems and modules for use within the factory, wafer sorting systems, inspection systems, 200mm SMIF (standard mechanical interface) load port solutions and lithography automation solutions.

      Automated material handling systems automate the entire wafer transport process, enabling semiconductor manufacturers to store, transport and control work-in-process (“WIP”) wafer carriers between process areas of the fab as well as between process and metrology tools and stockers. Unified automated material handling systems can outperform segregated material handling products in 300mm fabs because they are designed to automate wafer transport into one seamless, reliable, highly efficient solution. Material handling automation includes sorters (moving wafers within and between carriers), interbay (moving wafer carriers between manufacturing areas that are typically configured as bays), intrabay (moving wafer carriers from tool to tool within a manufacturing area) and tool-level automation (handling and buffering wafers or carriers).

      Lithography automation includes systems for managing and protecting reticles, reticle inspection systems, reticle stockers for enabling reticle storage and traceability, and automation products for maximizing photolithography efficiency. A reticle is the master template used to define chip patterns on the semiconductor wafer.

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      Factory Automation Software

      Semiconductor, flat panel display, storage device and other precision electronics manufacturers use a variety of software systems to help automate and control their operations. Driven by increased global competition, shorter product lifecycles and downward price pressures, manufacturers are turning their attention to reducing costs by improving the operational efficiencies of their manufacturing processes. To improve efficiency, manufacturers require factory automation systems that document, control and report on the movement of material through the automated factory. This is accomplished through automation components that are highly integrated. For example, the factory systems must simultaneously setup and run processing equipment automatically, route work-in-process dynamically based on the current state of the factory, collect process data, modify process variables, monitor semiconductor processing equipment performance and control the dispatching of work-in-process, to keep the factory at acceptable performance levels. Most fabs apply statistical process control to their processes and equipment.

      Manufacturing execution system (“MES”) applications coordinate and track the activities of manufacturing resources, including equipment, material, operators, engineers and software applications. MES is often viewed as the operating system for the factory CIM (Computer Integrated Manufacturing) system, and is the backbone for integrating other critical applications such as real time dispatching, equipment maintenance, material control and activity management. Many fabs use software applications that collect data and monitor equipment performance, modify process parameters automatically, provide automated notification of out-of-control conditions and supply on-line help for troubleshooting. Capacity planning and scheduling solutions are used to manage the constraints in the factory, from limited resources during shift changes to factors affecting machine efficiency. These solutions help increase throughput, improve utilization of resources and factory performance, and reduce in-process inventory.

Products

 
      Equipment Automation Systems

      Brooks provides vacuum and atmospheric equipment automation systems and modules, tool control software, mini-environment products and high-precision airflow controls for the semiconductor, MEMS (Micro-electronic Machines Systems), opto-electronic, flat panel display and data storage markets. Brooks uses a common architectural foundation in the design and production of systems, robots and modules. Shared technologies and common software controls enable Brooks to respond to changing industry demands, such as processing larger diameter 300mm semiconductor wafers and the larger, fourth and fifth generation flat panel display substrates.

      Customers have the option of either buying individual modules and assembling their own systems, or buying the entire equipment automation system from Brooks.

      Brooks’ Equipment Front-End Modules (“EFEMs”) are typically sold directly to the OEM customers, and consist of compact interface solutions that provide the equipment supplier with an integrated system that includes a mini-environment enclosure for process equipment, load port(s), atmospheric robot(s), tool control and software interface modules.

      The 300mm load ports for Front Opening Unified Pods (“FOUPs”) are required on nearly every piece of process equipment in a 300mm fab, and can be purchased as individual modules or as part of the integrated EFEM.

     Factory Automation Hardware Systems

      Brooks provides an Automated Material Handling System (“AMHS”) to transport and store wafers and reticles for 200mm and 300mm fabs. The Company also offers multi-cassette sorting systems, which, when coupled with macro inspection, help assure the quality of the process tool and the materials used in the fabrication process. Brooks also has advanced lot tracking systems that use either infrared or RF technology to enable semiconductor manufacturers to monitor the exact location of wafers in the factory.

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      Brooks provides products and solutions related to lithography automation for reticle inspection, storage and management, and for enhancing photolithography efficiency.

      Brooks also provides 200mm load ports directly to its factory customers to support the SMIF design of 200mm equipment.

      Brooks believes that its factory automation hardware systems enhance return on investment in new fabs, retrofit projects and process tools, by providing automation solutions to manage the complex logistics of advanced semiconductor factories.

     Factory Automation Software

      Brooks offers integrated CIM systems that incorporate its software on an open architecture to deliver factory automation solutions tailored specifically for customers within the context of their industry. Brooks’ MES software provides decision support and WIP tracking and management, either stand-alone or as part of the CIM solution. Brooks’ equipment integration products connect the manufacturing equipment to the MES, advanced process control, factory automation, and other control applications. The MES performs an important role as a factory-wide operating system to enable the integration of applications for material control and durables management, WIP tracking and process optimization, maintenance management and equipment performance tracking, advanced process control and process optimization, factory scheduling and real-time dispatching, recipe management and engineering data collection, and engineering data analysis and statistical process control. These applications integrate, coordinate and track the activities of manufacturing resources, including equipment, material, operators, engineers and software applications.

      Brooks believes its comprehensive solutions delivery, consulting and post-implementation services offerings empower its customers to realize the capabilities of its products and solutions.

     Other

      Brooks acquired substantially all of the assets of IAS (Intelligent Automation Systems, Inc. and IAS Products, Inc.) on February 15, 2002. IAS provides standard and custom automation technology and products for the semiconductor, telecommunications, photonics, life sciences and certain other industries.

      The following table lists the Company’s product offerings within each of the markets it serves:

       
Segment Product Lines


Equipment Automation
   
 
Vacuum Intra-Tool Automation
  Central Wafer Handling Systems, Transfer Robots, Thermal Conditioning Modules (Cooling), Cassette Elevator Load Locks, Aligners
 
Atmospheric Intra-Tool Automation
  Equipment Front End Modules (“EFEM”), Custom Wafer Handling Systems, Transfer Robots, Traversers, Aligners, 300mm Front Opening Unified Pod (“FOUP”), Load Port Modules
 
Flat Panel Display Products
  Indexers, Substrate Handling Systems, Transfer Robots, Cassette Elevator Load Locks
 
Tool Communications Software
  200mm/300mm Communications Software, 200mm/300mm Test Software, e-Diagnostics Tool Interface Software
 
Tool Automation Software
  Cluster Tool Control Software, EFEM Control Software, Equipment Controllers, Integration and Consulting Solutions

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Segment Product Lines


 
Air Flow Controls
  Atmospheric Furnace Control, Track Exhaust Control, Room Pressurization
 
Mini-environments
  EFEM Enclosures/ Mini-Environments, Fan Filter Units, Equipment Enclosures/ Mini-Environments
 
Factory Automation Hardware
   
 
Automated Material Handling Systems
  Interbay Transport Systems, Intrabay Transport Systems, Wafer Management Systems, Material Control Systems Software
 
Factory Interfaces and Wafer Sorters
  Standard Mechanical Interface (“SMIF”) Loaders, Wafer Sorter, Macro Inspection Systems, Carrier Tracking Systems (RF & IR)
 
Lithography Automation Hardware
  Reticle Inspection Systems — ZARIS, Reticle Storage Systems — Guardian
 
Factory Automation Software
   
 
CIM solutions
  Industry Solutions for 300mm, Foundry, LCD and Backend Assembly/ Test
 
Manufacturing Execution Software (“MES”)
  FACTORYworks, PROMIS
 
Scheduling and Dispatching
  Advanced Productivity Family (“APF”) — Reporter, Real-time Dispatcher, AutoSched AP
 
Lithography Automation Software
  Reticle Management System — iReticles, Station Control — PhotoStation
 
Execution Control
  Activity Manager
 
Factory and Equipment Simulation and Modeling
  AutoMod, ToolSim, Static Capacity Modeler
 
Material Control and Tracking
  CLASS MCS, TransNet
 
Equipment and Cell Control
  STATIONworks, CELLworks, Fabuilder, iAutomate, WinSECS
 
Engineering Data Analysis and Statistical Process Control
  ENGINEERINGworks, FactoryOCAPS, RS/ Series, Cornerstone, SPACE inside Brooks-PRI, FastSPC
 
Maintenance Management
  Xsite
 
Equipment Performance and Monitoring
  SEARAMS, Sentinel
 
Remote Diagnostics
  IConnect
 
Process Development
  Starfire
 
Statistical Process Control
  SPACE inside Brooks
 
Equipment Engineering Solutions for Advanced Process Control
  Fault Detection and Classification software, Run-to- Run control and data visualization
 
Factory Automation Software Implementation services
  Turn-key or consulting implementation services focused on delivering business value

Customers

      Brooks’ equipment automation customers are primarily OEMs and, in some cases semiconductor manufacturers, who develop and manufacture process equipment. The factory automation software and hardware customers are primarily semiconductor manufacturers, along with companies who are in the

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MEMS, opto-electronic, flat panel display, data storage and other similar industries. The Company’s customers are primarily located in the United States, Europe, Japan, Singapore, South Korea and Taiwan. A relatively small number of customers account for a substantial portion of Brooks’ revenues. In fiscal 2002 and 2001, Novellus Systems, Inc. (“Novellus”) was the Company’s largest customer. In fiscal 2000, Lam Research Corporation (“Lam”) was the Company’s largest customer. Sales to the Company’s ten largest customers and to Novellus and Lam as a percentage of total sales, are as follows:
                         
Year Ended
September 30,

2002 2001 2000



Ten largest customers
    33 %     37 %     40 %
Novellus Systems, Inc. 
    6 %     10 %     7 %
Lam Research Corporation
    4 %     7 %     11 %

      A reduction or delay in orders from Novellus, Lam or other significant customers could have a material adverse effect on Brooks’ results of operations. See Note 13, “Segment and Geographic Information,” of Notes to the Consolidated Financial Statements for further discussion of the Company’s sales by geographic region and revenues, income and assets by financial reporting segment.

      Brooks derives a significant amount of its total revenues from direct international sales. Revenues outside the United States were approximately 48%, 50% and 48% of total revenues for the years ended September 30, 2002, 2001 and 2000, respectively.

      The Company expects international revenues to continue to represent a significant percentage of total revenues in the foreseeable future. Brooks cannot guarantee that revenues by geographic region in the foreseeable future will be comparable to those achieved in recent years. Brooks’ international business operations expose it to a number of difficulties in coordinating its activities abroad and in dealing with multiple regulatory environments. See “Factors That May Affect Future Results” set forth in Management’s Discussion and Analysis of Financial Condition and Results of Operations for a discussion of additional factors that could adversely affect foreign revenues.

Sales, Marketing and Customer Support

      Brooks markets and sells its tool and factory automation hardware and software in the United States, Europe, Japan, Singapore, South Korea, Taiwan and China through its direct sales organization. The selling process for Brooks products is often multilevel, involving a team comprised of individuals from sales, marketing, engineering, operations and senior management. Each significant customer is assigned a team that engages the customer at different levels of its organization to facilitate planning, provide product customization where required, and to assure open communication and support. Brooks also utilizes a network of value-added integration partners to provide implementation and integration services for its factory automation software products.

      The Company’s marketing activities include participation in trade shows, delivery of seminars, participation in industry forums, distribution of sales literature, and publication of press releases and articles in business and industry publications. To enhance communication and support, particularly with its international customers, Brooks maintains technology and implementation centers in the United States, Canada, Japan, South Korea, Taiwan, Singapore, Malaysia, the United Kingdom and Germany. These facilities, together with Brooks’ headquarters, maintain demonstration equipment for customers to evaluate. Customers are encouraged to discuss the features and applications of Brooks’ demonstration equipment with Brooks engineers located at these facilities. The Company maintains a number of regional sales and service centers throughout the world.

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      Brooks provides support to its customers including:

  •  Telephone technical support access 24 hours a day, 365 days a year;
 
  •  Direct training programs; and
 
  •  Operating manuals and other technical support information for Brooks’ products.

      The Company maintains spare parts inventories in most of its locations to enable its personnel to serve Brooks customers and repair their Brooks products more efficiently.

Competition

 
Equipment Automation

      The semiconductor and flat panel display process equipment manufacturing industries are highly competitive and characterized by continual changes and improvements in technology. Although other independent companies sell vacuum and atmospheric wafer and flat panel display substrate handling automation systems and vacuum transfer robots to original equipment manufacturers, Brooks believes that its primary competition in this area is from the larger, integrated semiconductor and flat panel display original equipment manufacturers that satisfy their substrate handling needs in-house rather than by purchasing handling systems or modules from an independent source, such as Brooks. These original equipment manufacturers comprise the majority of Brooks’ current and potential customers in this segment. Many of the companies in these industries have significantly greater research and development, clean room manufacturing, marketing and financial resources than Brooks. Applied Materials, Inc., the leading process equipment original equipment manufacturer, develops and manufactures its own central wafer handling systems and modules.

      Brooks’ sales of its products for the flat panel display process equipment market are heavily dependent upon its penetration of the Japanese market. Brooks continues to expand its presence in the Japanese semiconductor process equipment market. In addressing the Japanese markets, Brooks may be at a competitive disadvantage to Japanese suppliers.

 
Factory Automation Hardware

      Brooks believes that the competitive factors for factory interface products in the factory automation hardware market are technical capabilities, reliability, price/performance, ease of integration and global sales and support resources. Brooks believes that its solutions compete favorably with respect to all these factors. In this market, Brooks encounters direct competition from Asyst, Rorze, Fortrend, Newport, TDK, Yasakawa and Hirata. Some of these competitors have substantial financial resources and extensive engineering, manufacturing and marketing capabilities. The Company’s automated material handling systems division in the factory automation hardware segment competes with Daifuku, Murata Machinery, the Asyst-Shinko Electric joint venture and a number of other smaller foreign and domestic manufacturers of automated machinery used in semiconductor fabrication facilities. The primary competitive factors in this market are quality, robustness and performance, price, ease of integration, vendor reputation, financial stability, support and on-time delivery.

 
Factory Automation Software

      Brooks believes that the primary competitive factors in the end-user market for factory automation software are product functionality, degree of integration, price/performance, ease of implementation and installation, hardware and software platform compatibility, costs to support and maintain, vendor reputation and financial stability. Brooks believes its products compete favorably with other systems on the factors listed above. Brooks also believes that the relative importance of these competitive factors may change over time. Brooks experiences direct competition in the factory automation market from various companies, including Applied Materials, Inc., IBM, Si-view, HP/ Compaq, Camstar and numerous small independent software companies. The Company also competes with the in-house software staffs of semiconductor manufacturers

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like NEC, Texas Instruments and Intel. Most of those manufacturers have substantially greater resources than the Company does.

Research and Development

      Brooks’ research and development efforts are focused on developing new products and services for the semiconductor and related industries and further enhancing the functionality, degree of integration, reliability and performance of its existing products. Brooks’ engineering, marketing, operations and management personnel have developed close collaborative relationships with many of their counterparts in customer organizations and have used these relationships to identify market demands and target Brooks’ research and development to meet those demands. Brooks’ current research and development efforts include the continued development and enhancement of Brooks’ semiconductor and flat panel display products. The Company also maintains relationships with integrated circuit manufacturers and equipment suppliers to define hardware and software solutions for equipment front-end automation, contamination control, logistics management, material tracking and equipment integration.

Manufacturing

      Brooks’ manufacturing operations are used for product assembly, integration and testing. Brooks has adopted quality assurance procedures that include standard design practices, component selection procedures, vendor control procedures and comprehensive reliability testing and analysis to assure the performance of its products. The Company’s facilities in Chelmsford, Massachusetts; Jena, Germany; and Kiheung, Korea are ISO 9002 certified.

      Brooks employs a just-in-time manufacturing strategy for a large portion of its manufacturing process. Brooks believes that this strategy, coupled with the outsourcing of non-critical subassemblies, reduces fixed operating costs, improves working capital efficiency, reduces manufacturing cycle times and improves flexibility to rapidly adjust its production capacities. While Brooks often uses single source suppliers for certain key components and common assemblies to achieve quality control and the benefits of economies of scale, it believes that these parts and materials are readily available from other supply sources. Brooks also believes that its software development and manufacturing facilities are adequately staffed and equipped to service foreseeable needs.

Patents and Proprietary Rights

      Brooks relies upon trade secret laws, confidentiality procedures, patents, copyrights, trademarks and licensing agreements to protect its technology. Due to the rapid technological change that characterizes the semiconductor and flat panel display process equipment industries, Brooks believes that the improvement of existing technology, reliance upon trade secrets and unpatented proprietary know-how and the development of new products may be more important than patent protection in establishing and maintaining a competitive advantage. To protect trade secrets and know-how, it is Brooks’ policy to require all technical and management personnel to enter into nondisclosure agreements. Brooks cannot guarantee that these efforts will meaningfully protect its trade secrets.

      Brooks has obtained patents and will continue to make efforts to obtain patents, when available, in connection with its product development program. Brooks cannot guarantee that any patent obtained will provide protection or be of commercial benefit to Brooks, and others may independently develop substantially equivalent proprietary information and techniques. As of September 30, 2002, Brooks had obtained 157 United States patents and had 68 United States patent applications pending on its behalf. In addition, Brooks had obtained 183 foreign patents and had 269 foreign patent applications pending on its behalf. Brooks’ United States patents expire at various times from May 2004 to July 2019. Brooks cannot guarantee that its pending patent applications or any future applications will be approved, or that any patents will not be challenged by third parties. Others may have filed and in the future may file patent applications that are similar or identical to those of Brooks. These patent applications may have priority over patent applications filed by Brooks.

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      There has been substantial litigation regarding patent and other intellectual property rights in the semiconductor related industries. Brooks has in the past been, and may in the future be, notified that it may be infringing intellectual property rights possessed by other third parties. Brooks cannot guarantee that infringement claims by third parties or claims for indemnification by customers or end users of Brooks’ products resulting from infringement claims will not be asserted in the future or that such assertions, if proven to be true, will not materially and adversely affect Brooks’ business, financial condition and results of operations. If any such claims are asserted against Brooks’ intellectual property rights, the Company may seek to enter into a royalty or licensing arrangement. Brooks cannot guarantee, however, that a license will be available on reasonable terms or at all. Brooks could decide in the alternative to resort to litigation to challenge such claims or to design around the patented technology.

      Brooks received notice from General Signal Corporation (“General Signal”) twice in 1992 and once in 1994, alleging infringement of patents then owned by General Signal, relating to cluster tool architecture, by certain of Brooks’ products. The notification advised Brooks that General Signal was attempting to enforce its rights to those patents in litigation against Applied Materials. According to a press release issued by Applied Materials in November 1997, Applied Materials settled its litigation with General Signal by acquiring ownership of five General Signal patents. Although not verified, these five patents would appear to be the patents referred to by General Signal in its prior notice to Brooks. Applied Materials has not contacted Brooks regarding these patents.

      Brooks acquired certain assets, including a transport system known as IridNet, from the Infab division of Jenoptik AG on September 30, 1999. Asyst Technologies, Inc. (“Asyst”) had previously filed suit against Jenoptik AG and other defendants (collectively, the “defendants”) in the Northern District of California charging that products of the defendants, including IridNet, infringe Asyst’s U.S. Patent Nos. 4,974,166 (“the ’166 patent”) and 5,097,421 (“the ’421 patent”). Asyst later withdrew its claims related to the ’166 patent from the case. The case is presently before the District Court for proceedings regarding claim construction, infringement and invalidity of the ‘421 patent.

      Brooks has received notice that Asyst may amend its complaint in this Jenoptik litigation to name Brooks as an additional defendant. Based on Brooks’ investigation of Asyst’s allegations, Brooks does not believe it is infringing any claims of Asyst’s patents. Brooks intends to continue to support Jenoptik to argue vigorously, among other things, the position that the IridNet system does not infringe the Asyst patent. If Asyst prevails in its case, Asyst may seek to prohibit Brooks from developing, marketing and using the IridNet product without a license. Brooks cannot guarantee that a license will be available to it on reasonable terms, if at all. If a license from Asyst is not available Brooks could be forced to incur substantial costs to reengineer the IridNet product, which could diminish its value. In any case, Brooks may face litigation with Asyst. Jenoptik has agreed to indemnify Brooks for losses Brooks may incur in this action.

      In addition, Asyst made assertions in approximately 1995 that certain technology employed in products manufactured and sold by Hermos Informatik GmbH infringed one or more of Asyst’s patents. Hermos was acquired by the Company in July 2002. (See Item 7, “Acquisitions”.) To date Asyst has taken no steps to assert or enforce any such rights against the Company and, to the Company’s knowledge, Asyst never commenced enforcement proceedings against Hermos prior to its acquisition by the Company. Should Asyst seek to pursue any such claims against Hermos or the Company, the Company would be subject to all of the business and litigation risks identified in the preceding paragraph.

Backlog

      Backlog for Brooks’ products as of September 30, 2002, totaled $125.7 million. Backlog consists of purchase orders for which a customer has scheduled delivery within the next 12 months. Backlog for the Company’s equipment automation segment, factory automation hardware segment, factory automation software segment and IAS was $43.8 million, $36.6 million, $41.5 million and $3.8 million, respectively, at September 30, 2002. Orders included in the backlog may be cancelled or rescheduled by customers without significant penalty. Backlog as of any particular date should not be relied upon as indicative of Brooks’

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revenues for any future period. A substantial percentage of current business generates no backlog because the Company delivers its products and services in the same period in which the order is received.

Employees

      At September 30, 2002, Brooks had approximately 3,000 employees. Brooks believes its future success will depend in large part on its ability to attract and retain highly skilled employees. Approximately 140 employees in the Company’s Jena, Germany facility are covered by a collective bargaining agreement. Brooks considers its relationships with its employees to be good. As a result of the restructuring actions announced in the fourth quarter of fiscal 2002 and in December 2002, Brooks anticipates that the number of employees will be further reduced to approximately 2,200 employees by March 2003.

 
Item 2. Properties

      The Company’s corporate headquarters and primary manufacturing/ research and development facilities are currently located in two buildings in Chelmsford, Massachusetts, which the Company purchased in January 2001. The Company is currently renovating a third building which was part of the same purchase and expects to put that building in service in fiscal 2003. The Company has recently leased a fourth building in Chelmsford adjacent to the three that it owns. The leased building is partially subleased. The Company is currently renovating the leased building for its own use and expects to put that building in service in fiscal 2003. In summary, Brooks maintains the following facilities:

                 
Square Footage
Location Functions (approx.) Lease Expiration




Chelmsford, Massachusetts
  Corporate headquarters, training, manufacturing, software R&D   131,000     Owned  
Chelmsford, Massachusetts
  Manufacturing, R&D hardware and software, training   70,000     Owned  
Chelmsford, Massachusetts
  R&D hardware and software, manufacturing, training   94,000     Owned  
Chelmsford, Massachusetts
  Manufacturing, training, warehouse   92,750 (34,000 subleased)     September 2014  
Billerica, Massachusetts
  Manufacturing and warehouse   121,000     October 2010  
Salt Lake City, Utah
  Software development, training,   46,900     September 2006  
Valencia, California
  Manufacturing, sales and support   83,000     February 2003  
Toronto, Canada
  R&D software, sales and support   19,000     December 2006  
Richmond, B.C., Canada
  R&D software manufacturing, training   39,000     October 2007  
Kiheung, South Korea
  Manufacturing, R&D hardware, sales and support   28,400     October 2002  
Jena, Germany
  Manufacturing, R&D hardware sales, support, training (7 buildings)   62,000     November 2004  
Phoenix, Arizona
  Manufacturing, R&D hardware and software   19,500     Owned  
Gilbert, Arizona
  R&D software, sales and support   10,000     March 2008  
Longmont, Colorado
  Manufacturing, R&D hardware, sales and support   32,000     June 2003  
Tagerwilen, Switzerland
  Manufacturing, R&D software, sales and support   18,400     June 2003  
Mountain View, California
  Manufacturing, R&D hardware (2 buildings)   58,400     April 2003  
Mountain View, California
  Sales and support, R&D software   31,000     January 2005  

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      The Company’s equipment automation and factory automation hardware segments utilize the manufacturing facilities in Massachusetts, Arizona, California, Colorado, Germany, Switzerland, Korea and Canada. The Company’s factory automation software segment utilizes the manufacturing facilities in Arizona, Massachusetts and Utah. IAS utilizes the Company’s manufacturing facilities in Massachusetts.

      In addition to the above facilities, there are a number of properties that are owned or leased by the Company that are not used or occupied by the Company at this time. These properties include a total of approximately 148,400 square feet of leased office space and approximately 235,200 square feet of leased manufacturing/ research and development space, as well as a 23,000 square foot building in Bountiful, Utah that the Company owns. Some of these properties are presently either fully or partially subleased. The Company is actively exploring options to market these surplus properties for sublease or sale or to negotiate early termination agreements for the leases in question.

      Brooks maintains additional sales, support, service and training offices in the United States (California, Colorado, New York, North Carolina, Texas, Minnesota, Georgia and Vermont), and overseas in Europe (Belgium, France, Germany, UK and Scotland), as well as in Asia (Japan, China, Malaysia, Singapore, South Korea and Taiwan). These offices serve all of the Company’s segments.

 
Item 3. Legal Proceedings

      Brooks is not a party to any material pending legal proceedings. See “Patents and Proprietary Rights,” in Part I, Item 1, “Business,” for a description of certain potential patent disputes.

 
Item 4. Submission of Matters to a Vote of Security Holders

      During the quarter ended September 30, 2002, no matters were submitted to a vote of security holders through the solicitation of proxies or otherwise.

PART II

Item 5.     Market for Registrant’s Common Equity and Related Stockholder Matters

      The Company’s common stock is traded on the Nasdaq National Market under the symbol “BRKS”. The following table sets forth, for the periods indicated, the high and low close prices per share of the Company’s common stock, as reported by the Nasdaq National Market:

                   
High Low


Fiscal year ended September 30, 2002
               
 
First quarter
  $ 43.24     $ 25.22  
 
Second quarter
  $ 51.21     $ 41.72  
 
Third quarter
  $ 44.70     $ 23.71  
 
Fourth quarter
  $ 25.76     $ 11.22  
 
Fiscal year ended September 30, 2001
               
 
First quarter
  $ 31.25     $ 20.25  
 
Second quarter
  $ 44.39     $ 27.56  
 
Third quarter
  $ 62.61     $ 35.45  
 
Fourth quarter
  $ 52.25     $ 26.59  

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Number of Holders

      As of November 29, 2002, there were 1,084 holders on record of the Company’s Common Stock.

Dividend Policy

      Brooks has never paid or declared any cash dividends on its capital stock and does not plan to pay any cash dividends in the foreseeable future. Brooks’ current policy is to retain all of its earnings to finance future growth.

Issuance of Unregistered Common Stock

      On October 5, 2001, the Company acquired substantially all of the assets of General Precision, Inc. in exchange for 825,000 shares of Company common stock. The common stock issued in this transaction was sold in reliance upon the exemption from registration set forth in Section 4(2) of the Securities Act relating to sales by an issuer not involving any public offering. The shares issued in this transaction have been registered for resale pursuant to an effective registration statement on Form S-3.

      On October 9, 2001, the Company acquired 90% of the capital stock of Tec-Sem A.G. in exchange for cash and 131,750 shares of Company common stock. In March 2002 the Company exercised an option to acquire the remaining 10% of Tec-Sem A.G.’s capital stock in exchange for cash and 23,250 shares of Company common stock. The common stock issued in this transaction was sold in reliance upon the exemptions from registration set forth in Section 4(2) of the Securities Act relating to sales by an issuer not involving any public offering and pursuant to Regulation S under that Act. The shares issued in this transaction have been registered for resale pursuant to an effective registration statement on Form S-3.

      On February 15, 2002, the Company acquired Intelligent Automation Systems, Inc. and IAS Products, Inc. in exchange for cash and 209,573 shares of Company common stock. Under the acquisition agreement, 140,600 of these shares were reserved for issuance over three years. The common stock issued and reserved for issuance in this transaction was sold in reliance upon the exemptions from registration set forth in Section 4(2) of the Securities Act to sales by an issuer not involving any public offering. Of the shares issued in this transaction, 68,973 have been registered for resale pursuant to an effective registration statement on Form S-3.

      On July 3, 2002, the Company acquired Hermos Informatik GmbH in exchange for cash and 1,412,749 shares of Company common stock. The common stock issued in this transaction was sold in reliance upon the exemptions from registration set forth in Section 4(2) of the Securities Act relating to sales by an issuer not involving any public offering and pursuant to Regulation S under that Act. The shares issued in this transaction have been registered for resale pursuant to an effective registration statement on Form S-3.

Item 6.     Selected Financial Data

      The selected consolidated financial data set forth below should be read in conjunction with our consolidated financial statements and notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” appearing elsewhere in this report.

                                         
Year Ended September 30,

2002(2)(6) 2001(5) 2000(1)(3) 1999(1)(4) 1998(1)





(In thousands, except per share data)
Revenues
  $ 304,254     $ 381,716     $ 337,184     $ 122,957     $ 123,459  
Gross profit
  $ 83,044     $ 152,384     $ 160,725     $ 55,152     $ 37,280  
Income (loss) from operations
  $ (627,818 )   $ (43,904 )   $ 20,084     $ (11,822 )   $ (29,190 )
Income (loss) before income taxes and minority interests
  $ (627,412 )   $ (36,523 )   $ 28,444     $ (10,448 )   $ (27,917 )
Net income (loss)
  $ (719,954 )   $ (29,660 )   $ 15,109     $ (9,534 )   $ (23,268 )
Accretion and dividends on preferred stock
  $     $ 90     $ 120     $ 774     $ 1,540  

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Year Ended September 30,

2002(2)(6) 2001(5) 2000(1)(3) 1999(1)(4) 1998(1)





(In thousands, except per share data)
Net income (loss) attributable to common stockholders
  $ (719,954 )   $ (29,750 )   $ 14,989     $ (10,308 )   $ (24,808 )
Basic earnings (loss) per share
  $ (27.90 )   $ (1.65 )   $ 0.96     $ (0.89 )   $ (2.32 )
Diluted earnings (loss) per share
  $ (27.90 )   $ (1.65 )   $ 0.88     $ (0.89 )   $ (2.32 )
Shares used in computing basic earnings (loss) per share
    25,807       18,015       15,661       11,542       10,687  
Shares used in computing diluted earnings (loss) per share
    25,807       18,015       17,192       11,542       10,687  
                                         
As of September 30,

2002 2001 2000(1) 1999(1) 1998(1)





(In thousands, except per share data)
Total assets
  $ 657,497     $ 709,704     $ 519,786     $ 197,300     $ 160,143  
Working capital
  $ 176,338     $ 282,163     $ 306,836     $ 106,803     $ 105,210  
Notes payable and revolving credit facilities
  $     $ 17,122     $ 16,350     $ 6,183     $ 4,717  
Current portion of long-term debt and capital lease obligations
  $ 8     $ 392     $ 524     $ 544     $ 523  
Convertible subordinated notes due 2008
  $ 175,000     $ 175,000     $     $     $  
Long-term debt and capital lease obligations (less current portion) and senior subordinated note
  $ 177     $ 31     $ 332     $ 6,732     $ 9,118  
Redeemable convertible preferred stock
  $     $     $ 2,601     $ 2,481     $ 5,923  
Members’ capital
  $     $     $     $ 930     $ 1,134  
Stockholders’ equity
  $ 308,235     $ 424,169     $ 415,284     $ 137,913     $ 115,794  
                                 
Year Ended September 30, 2002(2)

First Second Third Fourth
Quarter Quarter Quarter Quarter(6)




(In thousands, except per share data)
Revenues
  $ 58,182     $ 57,124     $ 85,762     $ 103,186  
Gross profit
  $ 20,841     $ 18,851     $ 26,672     $ 16,680  
Net loss
  $ (9,885 )   $ (12,576 )   $ (24,197 )   $ (673,296 )
Net loss attributable to common stockholders
  $ (9,885 )   $ (12,576 )   $ (24,197 )   $ (673,296 )
Diluted loss per share
  $ (0.50 )   $ (0.63 )   $ (0.89 )   $ (18.76 )
                                 
Year Ended September 30, 2001(3)

First Second Third Fourth
Quarter(1) Quarter(1) Quarter(1) Quarter(7)




(In thousands, except per share data)
Revenues
  $ 111,391     $ 111,987     $ 96,814     $ 61,524  
Gross profit
  $ 50,619     $ 48,866     $ 45,068     $ 7,831  
Net income (loss)
  $ 5,515     $ (2,592 )   $ 518     $ (33,101 )
Net income (loss) attributable to common stockholders
  $ 5,485     $ (2,622 )   $ 488     $ (33,101 )
Diluted earnings (loss) per share
  $ 0.30     $ (0.15 )   $ 0.03     $ (1.76 )


(1)  Amounts have been restated to reflect the acquisition of Progressive Technologies, Inc. in a pooling of interests transaction effective July 12, 2001.
 
(2)  Amounts include results of operations of Hermos Informatik GmbH (acquired July 3, 2002); PRI Automation, Inc. (acquired May 14, 2002); Intelligent Automation Systems, Inc. and IAS Products, Inc.

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(acquired February 15, 2002); Fab Air Control (acquired December 15, 2001); the Automation Systems Group of Zygo Corporation (acquired December 13, 2001); Tec-Sem A.G. (acquired October 9, 2001) and General Precision, Inc. (acquired October 5, 2001) for the periods subsequent to their respective acquisitions.
 
(3)  Amounts include results of operations of the Infab Division of Jenoptik AG (acquired September 30, 1999); Auto-Soft Corporation and AutoSimulations, Inc. (acquired January 6, 2000) and MiTeX Solutions (acquired June 23, 2000) for the periods subsequent to their respective acquisitions.
 
(4)  Amounts include results of operations of Domain Manufacturing Corporation (acquired June 30, 1999) and Hanyon Technology, Inc. (acquired April 21, 1999) for the periods subsequent to their respective acquisitions.
 
(5)  Amounts include results of operations of SEMY Engineering, Inc. (acquired February 16, 2001), the KLA e-Diagnostics product business (acquired June 26, 2001), CCS Technology, Inc. (acquired June 25, 2001) and SimCon N.V. (acquired May 15, 2001) for the periods subsequent to their respective acquisitions.
 
(6)  Amounts include charges of $24.1 million of acquisition-related and restructuring charges, $479.3 million for asset impairments and $106.7 million for deferred tax write-offs.
 
(7)  Amounts include charges of $7.6 million for acquisition-related and restructuring charges.

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Brooks-PRI Automation, Inc.

 
Item 7.      Management’s Discussion and Analysis of Financial Condition and Results of Operations

      Certain statements in this Annual Report on Form 10-K constitute “forward-looking statements” which involve known risks, uncertainties and other factors which may cause the actual results, performance or achievements of Brooks-PRI Automation, Inc. (“Brooks” or the “Company”) to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include the “Factors That May Affect Future Results” set forth in Management’s Discussion and Analysis of Financial Condition and Results of Operations, which is included in this report. Precautionary statements made herein should be read as being applicable to all related forward-looking statements whenever they appear in this report.

Overview

      Brooks is a leading supplier of integrated tool and factory automation solutions for the global semiconductor and related industries, such as the data storage and flat panel display manufacturing industries and other precision electronics manufacturing industries. Beginning in 1998, the Company began a program to diversify the product portfolio through research and development investment and acquisitions, and in May 2002 acquired PRI Automation, Inc., a significant acquisition for which the results of operations from the acquisition date are included in the Company’s results. The Company’s offerings have grown from individual robots used to transfer semiconductor wafers in advanced production equipment to fully integrated automation solutions that control the movement and management of wafers and reticles in the wafer fabrication factory.

      The Company offers comprehensive and flexible solutions that address a wide range of automation requirements for semiconductor manufacturers and for OEM manufacturers of semiconductor process tools. The Company has distinguished itself as a technology and market leader, particularly in the demanding cluster-tool vacuum-processing environment and in integrated factory automation software applications. The Company’s factory automation systems, software and services help semiconductor manufacturers optimize the flow of material and data throughout the semiconductor fabrication facility (“fab” or “fabs”). They enable customers to respond quickly to changing industry demands and to effectively plan, schedule and optimize their production activity. As a result, Brooks believes its semiconductor manufacturer customers are able to improve productivity and increase their return on investment. Brooks’ customers include many of the world’s leading semiconductor manufacturers and semiconductor capital equipment suppliers.

      The Company’s foreign revenues are generally denominated in United States dollars. Accordingly, foreign currency fluctuations have not had a significant impact on the comparison of the results of operations for the periods presented. The costs and expenses of the Company’s international subsidiaries are generally denominated in currencies other than the United States dollar. However, since the functional currency of the Company’s international subsidiaries is the local currency, foreign currency translation adjustments are reflected as “Accumulated other comprehensive income (loss),” which is a component of stockholders’ equity. To the extent that the Company expands its international operations or changes its pricing practices to denominate prices in foreign currencies, the Company will be exposed to increased risk of currency fluctuation.

      In view of the currently prevailing downturn in the semiconductor industry and the resulting market pressures, the Company is focusing its major efforts in the following areas:

  •  Controlling and reducing costs;
 
  •  Aligning costs and revenues to move to break-even and then profitable levels of operation even if the current downturn continues;
 
  •  Consolidating and integrating the businesses and assets that the Company has acquired in recent years and striving to maximize the profitability of the Company as an integrated whole;
 
  •  Diminishing the Company’s acquisition activities;

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  •  Reducing the number of the Company’s manufacturing sites and consolidating manufacturing;
 
  •  Operating in fewer locations without diminishing the Company’s ability to respond to customer demand, either currently or at such time as market conditions improve;
 
  •  Developing the products and services required for future success in the market; and
 
  •  Improving the efficiency of the Company’s existing internal information systems.

Acquisitions

      On July 3, 2002, the Company acquired Hermos Informatik GmbH (“Hermos”), from its parent, The Hermos Group. Hermos, located in Germany, is a provider of wafer carrier ID readers for the 300mm market. On May 14, 2002, the Company completed the acquisition of PRI Automation, Inc. (“PRI”). PRI, principally located in Billerica, Massachusetts and Mountain View, California, supplies advanced factory automation systems equipment, software and services that optimize the productivity of semiconductor and precision electronics manufacturers, as well as OEM process tool manufacturers. On February 15, 2002, the Company acquired substantially all of the assets of Intelligent Automation Systems, Inc. and IAS Products, Inc. (collectively, “IAS”), two privately held companies affiliated with each other, located in Cambridge, Massachusetts. IAS provides standard and custom automation technology and products for the semiconductor, photonics, life sciences and certain other industries. On December 15, 2001, the Company acquired Fab Air Control (“Fab Air”), a Massachusetts company that develops exhaust control and airflow management systems for the semiconductor industry. On December 13, 2001, the Company acquired the Automation Systems Group of Zygo Corporation (“Zygo”). Zygo, located in Florida, is a manufacturer of reticle automation systems, including reticle sorters, reticle macro inspection systems and reticle handling solutions for the semiconductor industry. On October 9, 2001, the Company acquired 90% of the capital stock of Tec-Sem A.G. (“Tec-Sem”), a Swiss company, and subsequently exercised an option to acquire the remaining 10% of Tec-Sem’s capital stock during March 2002. Tec-Sem is a manufacturer of bare reticle stockers, tool buffers and batch transfer systems for the semiconductor industry. On October 5, 2001, the Company acquired substantially all of the assets of General Precision, Inc. (“GPI”). GPI, located in Valencia, California, is a supplier of high-end environmental solutions for the semiconductor industry. These transactions were recorded using the purchase method of accounting in accordance with Financial Accounting Standards Board Statement No. 141, “Business Combinations” (“FAS 141”). Accordingly, the Company’s Consolidated Statements of Operations and of Cash Flows for the year ended September 30, 2002, include the results of these acquired entities for the periods subsequent to their respective acquisitions.

      On July 12, 2001, the Company acquired Progressive Technologies, Inc. (“PTI”) in a transaction accounted for as a pooling of interests initiated prior to June 30, 2001. Accordingly, the Company’s consolidated financial statements and notes thereto have been restated to include the financial position and results of operations of PTI for all periods prior to the acquisition. PTI is engaged in the development, production and distribution of air-flow regulation systems for clean room and process equipment in the semiconductor industry. Prior to its acquisition by the Company, PTI’s fiscal year-end was December 31. Accordingly, the Company’s Consolidated Statement of Operations for the year ended September 30, 2000 include PTI’s results of operations for the year ended December 31, 2000. As a result of conforming dissimilar year-ends, PTI’s results of operations for the three months ended December 31, 2000, are included in both of the Company’s fiscal years 2001 and 2000. An amount equal to PTI’s net income attributable to common stockholders for the three months ended December 31, 2000 was eliminated from consolidated accumulated deficit for the year ended September 30, 2001. PTI’s revenues, net income and net income attributable to common stockholders for that quarter were $3.8 million, $536,000 and $506,000, respectively.

      On June 26, 2001, the Company completed the purchase of KLA-Tencor, Inc.’s e-Diagnostics product business (“e-Diagnostics”). The e-Diagnostics software programs enable service and support teams to remotely access their tools in customer fabs in real-time to diagnose and resolve problems quickly and cost-effectively. On June 25, 2001, the Company acquired CCS Technology, Inc. (“CCST”), a supplier of 300mm automation test and certification software located in Williston, Vermont. On May 15, 2001, the Company acquired SimCon N.V. (“SimCon”), a value-added reseller for the Company’s simulation, scheduling,

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production analysis and dispatching software headquartered in Belgium. On February 16, 2001, the Company acquired SEMY Engineering, Inc. (“SEMY”), a provider of advanced process and equipment control systems for the semiconductor industry located in Phoenix, Arizona. On December 13, 2000, the Company acquired substantially all of the assets of a scheduling and simulation software and service distributor in Japan. These transactions were recorded using the purchase method of accounting in accordance with Accounting Principles Board Opinion No. 16, “Business Combinations” (“APB 16”). Accordingly, the Company’s Consolidated Statements of Operations and of Cash Flows for the year ended September 30, 2001, include the results of these acquired entities for the periods subsequent to their respective acquisitions.

      On May 5, 2000, the Company completed the acquisition of Irvine Optical Company LLC (“Irvine Optical”) in a transaction accounted for as a pooling of interests. Accordingly, the results of operations and financial position of Irvine Optical are included in the Company’s consolidated results for all periods presented. Prior to its acquisition by the Company, Irvine Optical’s fiscal year-end was December 31. As a result of conforming dissimilar year-ends, Irvine Optical’s results of operations for the three months ended December 31, 1999, are included in both of the Company’s fiscal years 2000 and 1999. An amount equal to Irvine Optical’s net income for the three months ended December 31, 1999, was eliminated from consolidated accumulated deficit for the year ended September 30, 2000. Irvine Optical’s revenues and net income for that quarter were $4.1 million and $0.1 million, respectively.

      The Company completed two acquisitions during fiscal year 2000 which were accounted for using the purchase method of accounting in accordance with APB 16: MiTeX Solutions (“MiTeX”) on June 23, 2000 and Auto-Soft Corporation (“ASC”) and AutoSimulations, Inc. (“ASI”) on January 6, 2000. The Company’s Consolidated Statements of Operations and of Cash Flows include the results of these entities for the periods subsequent to their respective acquisitions.

      In June 1999, the Company formed a joint venture in Korea. This joint venture is 70% owned by the Company and 30% owned by third parties unaffiliated with the Company. The Company consolidates fully the financial position and results of operations of the joint venture and accounts for the minority interest in the consolidated financial statements.

Related Parties

      Kenneth M. Thompson, a member of the Board of Directors, served as president, chief executive officer and a director of AvantCom Network, Inc. (“AvantCom”), a California supplier of Internet-based diagnostics software from April 1999 until August 2001. In March 2002, the Company entered into a non-binding letter of intent with AvantCom relating to a proposed business combination. The letter of intent contemplated the payment by the Company to AvantCom of approximately $14 million in cash and stock and up to 25% of subsequent related billings for the purchase of certain assets related to AvantCom’s proprietary remote diagnostics software product. Upon execution of the letter of intent, the Company advanced AvantCom $2.0 million against the purchase price for working capital purposes. During the subsequent negotiation process, the parties were unable to reach a mutually satisfactory purchase agreement and the parties abandoned the transaction. Pursuant to the terms of the letter of intent, AvantCom was obligated to either return the advance or grant the Company a non-exclusive license to its remote diagnostics software in exchange therefore. AvantCom has elected to grant the Company the license and the Company recorded a charge of $2.0 million in the year related to the unrecovered advance. Mr. Thompson did not participate in any negotiations related to the proposed transaction.

      On June 11, 2001, the Company appointed Joseph R. Martin to its Board of Directors. Mr. Martin is also chief financial officer and a director of Fairchild Semiconductor International, Inc. (“Fairchild”), one of the Company’s customers. Accordingly, Fairchild is considered a related party for the periods subsequent to June 11, 2001. Revenues from Fairchild for the year ended September 30, 2002 were approximately $616,000. Revenues from Fairchild for the period from June 11, 2001 through September 30, 2001 were approximately $32,000. The amounts due from Fairchild included in accounts receivable at September 30, 2002 and 2001 were $68,000 and $32,000, respectively.

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      One of the Company’s directors, Roger D. Emerick, had previously also been a director of Lam Research Corporation (“Lam”), one of the Company’s customers. On January 23, 2001, Mr. Emerick resigned his position with Lam. Accordingly, Lam is not considered a related party in subsequent reporting periods. Revenues recognized from Lam in fiscal year 2001 through January 23, 2001 were $13.9 million. Revenues recognized from Lam in the year ended September 30, 2000 were $36.9 million, or 11.0% of revenues.

Critical Accounting Policies and Estimates

      The preparation of consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to product returns, bad debts, inventories, intangible assets, income taxes, warranty obligations, excess component order cancellation costs, restructuring and contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, including current and anticipated worldwide economic conditions both in general and specifically in relation to the semiconductor industry, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. As discussed under “Restructuring,” “Asset Impairments” and the year over year comparisons below, actual results may differ from these estimates under different assumptions or conditions.

      The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. The Company has reviewed these policies with its Audit Committee.

 
      Revenues

      Revenues from product sales and software licenses are recorded upon transfer of title and risk of loss to the customer provided there is evidence of an arrangement, fees are fixed or determinable, no significant obligations remain, collection of the related receivable is reasonably assured and customer acceptance criteria have been successfully demonstrated. Customer acceptance provisions include final testing and acceptance carried out prior to shipment. These pre-shipment testing and acceptance procedures ensure that the product meets the published specification requirements before the product is shipped. Shipping terms are customarily FOB shipping point. When significant on site customer acceptance provisions are present in the arrangement, revenue is generally recognized upon completion of customer technical acceptance testing.

      The Company enters into two types of significant multi-element arrangements: tailored software arrangements, described below, and software sales with post-contract support. Revenues from fixed fee tailored software consulting contracts and long-term contracts are recognized using one of two methods: (a) the percentage-of-completion method of contract accounting, based on the ratio that costs incurred to date bear to estimated total costs at completion, or (b) the completed contract method where appropriate for complex systems integration projects. When using the percentage of completion method, revisions in revenue and cost estimates are recorded in the periods in which the facts that require such revisions become known and losses, if any, are provided for in the period in which such losses are first identified by management. For tailored software contracts, the Company provides significant consulting services to tailor the software to the customer’s environment. The Company utilizes the percentage-of-completion method due to the significance of the service effort. If the ability of the Company to complete the tailored software is uncertain, completed contract accounting is applied.

      Revenue recognition involves judgments and assessments of expected returns, the likelihood of nonpayment and estimates of expected costs and profits on long-term contracts. The Company analyzes various factors, including a review of specific transactions, historical experience, credit-worthiness of customers and current market and economic conditions in determining when to recognize revenue. Changes in judgments on these factors could impact the timing and amount of revenue recognized with a resulting impact on the timing and amount of associated income.

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      Intangible Assets and Goodwill

      The Company has made a number of acquisitions, and as a result, identified significant intangible assets and generated significant goodwill. Intangible assets are valued based on estimates of future cash flows and amortized over their estimated useful life. Goodwill is subject to annual impairment testing. The carrying value and ultimate realization of these assets is dependent upon estimates of future earnings and benefits that the Company expects to generate from their use. If the Company’s expectations of future results and cash flows change and are significantly diminished, intangible assets and goodwill may be impaired and the resulting charge to operations may be material. When the Company determines that the carrying value of intangible assets, long-lived assets and goodwill may not be recoverable based upon the existence of one or more of the above indicators of impairment, the Company measures impairment based on one of two methods. For assets related to ongoing operations the Company plans to continue, the Company uses a projected undiscounted cash flow method to determine if impairment exists and then measures impairment using discounted cash flows. For assets to be disposed of, the Company assesses the fair value of the asset based on current market condition for similar assets. For goodwill, the Company assesses fair value by measuring discounted cash flows of its reporting units and measures impairment as the difference between the resulting implied fair value of goodwill and the recorded book value.

      The estimates of useful lives and expected cash flows require the Company to make significant judgments regarding future periods that are subject to some factors outside of the Company’s control. Changes in these estimates can result in significant revisions to the carrying value of these assets and may result in material charges to the results of operations.

 
Accounts Receivable

      The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of the Company’s customers were to deteriorate or economic conditions were to further deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required, with a resulting charge to results of operations.

 
Warranty

      The Company provides for the estimated cost of product warranties at the time revenue is recognized. While the Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its component suppliers, the Company’s warranty obligation is affected by product failure rates and material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or service delivery costs differ from the Company’s estimates, revisions to the estimated warranty liability would be required and may result in additional charges to results of operations.

 
Inventory

      The Company provides reserves for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. The Company fully reserves for inventories deemed obsolete. The Company performs periodic reviews of all inventory items to identify excess inventories on hand by comparing on-hand balances to anticipated usage using recent historical activity as well as anticipated or forecasted demand, based upon sales and marketing inputs through its planning systems. If estimates of demand diminish further or actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

 
Deferred Taxes

      The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. While the Company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event the

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Company were to determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, should the Company determine that it would not be able to realize all or part of its net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made.

Restructuring

      The Company’s business is significantly dependent on capital expenditures by semiconductor manufacturers and OEM’s, which are, in turn, dependent on the current and anticipated market demand for semiconductors. The Company’s revenues grew substantially in fiscal 2000 and the first half of fiscal 2001, due in large part to high levels of capital expenditures of semiconductor manufacturers. Demand for semiconductors is cyclical and has historically experienced periodic downturns. The semiconductor industry is currently experiencing such a downturn, which began to impact the Company in the third quarter of fiscal 2001 and has continued throughout fiscal 2002. The downturn has affected revenues, gross margins and operating results. In response to this prolonged and continuing downturn, the Company has initiated, and continues to implement, cost reduction programs aimed at aligning its ongoing operating costs with its currently expected revenues over the near term. These cost management initiatives have included consolidating facilities, reductions to headcount, salary and wage reductions and reduced spending. Although the Company continues to address cost management in response to the downturn, it will continue to invest in those areas which it believes are important to the long-term growth of the Company, including customer support and new products. It is critical that the Company executes restructure actions in a timely basis to achieve the objective of aligning its cost structure. See “Company May Have Difficulty Managing Operations” below for additional discussion of the challenges the Company faces in implementing its restructuring programs.

 
Fiscal 2003 Restructuring

      Based on current estimates of its near term future revenues and operating costs, the Company announced in December 2002 plans to take additional and significant cost reduction actions. These cost reduction programs include, among other things: an additional reduction of approximately 300 employees, a reduction of new hires, consolidation of identified facilities, abandonment of certain information technology projects and an exit from certain product lines. A portion of these actions have been implemented in the first quarter of fiscal 2003. The Company will record charges of $21 million with respect to these activities in the first quarter of fiscal 2003. In addition, the Company will record a charge of approximately $6 million for accelerated depreciation associated with facilities closed and related fixed assets following the September 13, 2002 announcements. The Company will also incur charges totalling approximately $3 million associated with accelerated depreciation related to facility closures announced in the December 2002 restructuring, expected to be completed over the next six months. The Company believes that the cost reduction programs will be implemented and executed on a timely basis and will align costs with revenues. In the event that the Company is unable to achieve this alignment, additional cost cutting programs may be required in the future.

 
Fiscal 2002 Restructuring

      On September 13, 2002, the Company’s chief executive officer approved a formal plan of restructure in response to the ongoing downturn in the semiconductor industry, which continues to exert downward pressure on the Company’s revenues and cost structure. To that effect, the Company recorded restructuring charges of $16.1 million in the fourth quarter of the fiscal year. Of this amount, $9.1 million is related to workforce reductions of approximately 430 employees, and is expected to be paid in fiscal 2003, $6.7 million is for the consolidation of several of the Company’s facilities and $0.3 million is for other restructuring costs. Workforce-related charges, consisting principally of severance costs, were recorded based on specific identification of employees to be terminated, along with their job classifications or functions and their locations. The charges for the Company’s excess facilities were recorded to recognize the remaining lease obligations, net of any sublease rentals. These costs have been estimated from the time when the space is expected to be vacated and there are no plans to utilize the facility in the future. Costs incurred prior to vacating the facilities are being charged to operations.

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      As part of the plan to integrate the PRI acquisition, certain sales, technical support and administrative functions were combined and headcount and related costs reduced. Accordingly, during the third quarter of fiscal 2002, the Company recorded $2.8 million of restructuring charges, comprised of $1.3 million for workforce reduction-related costs for existing Brooks employees, $0.4 million related to excess existing Brooks facilities and $1.1 million of other restructuring costs. The $0.4 million for the Company’s excess facilities was recorded to recognize the remaining lease obligations, net of any sublease rentals. These costs have been estimated from the time these facilities are expected to be vacated and there are no plans to utilize the facility in the future. Costs incurred prior to vacating the facilities are being charged to operations.

      Restructuring costs of $13.5 million for former PRI employees, $11.1 million for PRI facilities and $2.3 million for other costs were accrued as part of the purchase accounting for the PRI acquisition, relating to the consolidation and elimination of certain PRI duplicate facilities and redundant PRI personnel. The Company anticipated headcount reductions of approximately 325 people across all functional areas of the combined company and, as such, included an estimated accrual for workforce reductions of $13.5 million comprised of severance, employee benefits and outplacement support. As of September 30, 2002, 236 of these employees had been terminated, and $9.6 million of severance and other workforce-related costs had been paid. The former chief executive officer of PRI has entered into a non-competition agreement with the Company, which became effective upon completion of the combination and which will require a total payment of $1.1 million over a two-year period, of which $0.6 million was recorded as a long-term liability. The Company has identified redundant facilities consisting of sales and support offices, manufacturing facilities and administrative offices. Accordingly, an accrual of $11.1 million to terminate lease obligations under these agreements was provided. These payments represent the fair value of the minimum rental commitment on facilities with lease terms to 2011. The Company accrued for $1.2 million of amounts to be incurred subsequent to the acquisition related to legal costs to close subsidiaries of PRI.

 
Fiscal 2001 Restructuring

      On September 5, 2001, the Company’s Board of Directors approved a formal plan of restructure in response to the downturn in the semiconductor industry. To that effect, the Company recorded restructuring charges of $5.4 million in the fourth quarter of the fiscal year. Of this amount, $2.0 million was related to workforce reductions of approximately 140 employees, which was paid in fiscal 2002, and $3.4 million was for the consolidation and strategic focus realignment of several facilities, of which $1.9 million was paid through fiscal 2002, $0.5 million is expected to be paid in fiscal 2003 and $1.0 million in the subsequent years. Workforce charges, consisting principally of severance costs, were recorded based on specific identification of employees to be terminated, along with their job classifications or functions and their locations. The charges for the Company’s excess facilities were recorded to recognize the remaining lease obligations, net of any sublease rentals. These costs were estimated from the time the space was expected to be vacated and there are no plans to utilize the facility in the future. Costs incurred prior to vacating the facilities are being charged to operations.

      Periodically, the accruals related to the acquisition-related and restructuring charges are reviewed and compared to their respective cash requirements. As a result of those reviews, the accruals are adjusted for changes in cost and timing assumptions of previously approved and recorded initiatives. During the year ended September 30, 2002, the Company identified excess workforce-related accruals recorded for earlier initiatives of $0.4 million, which were reversed on September 30, 2002.

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      The activity related to the Company’s restructuring accruals described above is summarized below (in thousands):

                                                 
Fiscal 2002 Activity

New Initiatives
Balance
Balance
September 30, Purchase September 30,
2001 Expense Accounting Reversals Utilization 2002






Facilities
  $ 3,309     $ 7,096     $ 11,055     $     $ (2,483 )   $ 18,977  
Workforce-related
    1,952       10,451       13,519       (372 )     (12,070 )     13,480  
Other
          1,467       2,292             (2,430 )     1,329  
     
     
     
     
     
     
 
    $ 5,261     $ 19,014     $ 26,866     $ (372 )   $ (16,983 )   $ 33,786  
     
     
     
     
     
     
 
                                                 
Fiscal 2001 Activity

New Initiatives
Balance
Balance
September 30, Purchase September 30,
2000 Expense Accounting Reversals Utilization 2001






Facilities
  $ 507     $ 3,369     $     $     $ (567 )   $ 3,309  
Workforce-related
    20       2,000                   (68 )     1,952  
Other
    11                         (11 )      
     
     
     
     
     
     
 
    $ 538     $ 5,369     $     $     $ (646 )   $ 5,261  
     
     
     
     
     
     
 

      Given the severity of current market conditions, and the possibility of further declines in revenue beyond what is forecast, however, the Company cannot guarantee that these cost reduction programs will be sufficient to align the Company’s operating expenses with revenues or be sufficient to avoid operating losses, or that additional cost reduction programs will not be necessary in the future.

Asset Impairments

      The prolonged and continuing downturn in the semiconductor industry has negatively impacted the Company’s segments. As in past downturns, the Company is experiencing diminished product demand, excess manufacturing capacity and erosion of selling prices. As a result, in the fourth quarter of fiscal 2002, the Company’s revenues, which included a full quarter of contribution from PRI approximating $32 million, decreased to approximately $103 million. At present, the Company cannot predict the duration or severity of this downturn, but based on the current bookings trends, the Company expects fiscal 2003 revenue to decrease, compared to fiscal 2002. During the fourth quarter of fiscal 2002, the Company began the preparation of its fiscal 2003 plan and reviewed its internal forecasts and external data. The external data available from customer and competitor commentary, as well as industry forecasts of future revenue growth, indicated that the timing and speed of recovery for the sector would be later and slower than previously anticipated. As a result of the declining financial performance in the Company’s segments and resulting reduced expectations for future revenues and earnings, management performed an assessment of the carrying values of long-lived assets within each of its segments.

      The Company performed an assessment of the carrying values of its intangible assets as proscribed by Financial Accounting Standards Board Statement No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of” (“FAS 121”). The impairment testing was based on undiscounted cash flows to determine if an impairment existed. The resulting impairments were measured utilizing discounted cash flow analyses of expectations of future earnings related to existing long-lived assets for each of the reporting units over the remaining estimated useful lives of the primary assets of the reporting unit. This assessment resulted in the impairment of intangible assets in each of the Company’s segments. Accordingly, the Company recorded a charge to operations of $145.1 million for the write-down of intangible assets. This charge is included within “Amortization of acquired intangible assets and asset impairment charges” in the Company’s Consolidated Statement of Operations for the year ended September 30, 2002.

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      The Company elected to early adopt the provisions of FAS 142 effective October 1, 2001. Accordingly, the Company ceased the ratable amortization of goodwill on that date.

      The Company was required to complete the first step of the transitional impairment testing of goodwill as of the date of adoption under the provisions of FAS 142 by March 31, 2002. The Company completed its initial testing as required and determined that there was no impairment as of October 1, 2001.

      In addition to the impairment indicators noted for intangible assets, the Company was also required to perform the annual impairment test of its goodwill under the provisions of FAS 142, as of September 30, 2002. The Company compared the fair value of each reporting unit to its recorded book value. An excess of book value over fair value indicates that an impairment of goodwill exists. The fair value of goodwill is determined on an implied residual basis by deducting the fair value of all assets and liabilities of the reporting unit, including non-acquired intangible assets not recorded, from the total fair value of the reporting unit. Impairment of goodwill is measured as the excess of the recorded value of goodwill over the implied residual value. The impairment testing was based on discounted cash flow analyses of expectations of future earnings for each of the reporting units over the remaining estimated lives of the primary assets of the reporting unit. During this annual impairment test, and primarily as a result of the continuing downturn in the semiconductor industry and uncertainty as to the timing and speed of recovery for the sector, the Company concluded that goodwill related to its equipment automation, factory automation hardware and factory automation software segments was impaired. Accordingly, the Company recorded a charge to operations of $334.2 million for the write-down of goodwill. The write-down of goodwill is included within “Amortization of acquired intangible assets and asset impairment charges” in the Company’s Consolidated Statement of Operations for the year ended September 30, 2002.

Year Ended September 30, 2002, Compared to Year Ended September 30, 2001

      The Company reported a net loss of $720.0 million in the year ended September 30, 2002, compared to a net loss of $29.7 million in the previous year. The results for the year ended September 30, 2002 include charges of $20.3 million for the ratable amortization of acquired intangible assets, $145.1 million for the impairment of identifiable intangible assets and $334.2 million for the impairment of goodwill associated with the Company’s acquisitions, $106.7 million for the write-down of the value of the Company’s net deferred tax asset, $35.0 million of restructuring and acquisition-related charges and $18.7 million of other charges. These other charges include $15.0 million recorded to cost of product revenues, $1.8 million recorded to research and development expense and $1.9 million recorded to selling, general and administrative expense. The charge to cost of product revenues is comprised of $12.8 million for valuation adjustments to inventories, $0.5 million for additional warranty reserves, $0.8 million for loss reserves on acquired contracts, $0.5 million for the write-down of an obsolete tool used in the Company’s manufacturing process and $0.4 million for deferred compensation related to stock options granted to employees of acquired companies. The charge to research and development represents deferred compensation related to stock options granted to employees of acquired companies. The charge to selling, general and administrative expense is comprised of $0.9 million for deferred compensation related to stock options granted to employees of acquired companies and $0.5 million of executive severance accruals.

      The results for the year ended September 30, 2001, included $30.2 million of charges for amortization of acquired intangible assets and goodwill, $9.3 million of restructuring and acquisition-related charges and $17.2 million of other charges. These other charges, recorded in the fourth quarter, include $13.7 million recorded to cost of product revenues, comprised of $13.1 million for valuation adjustments to inventories and $0.6 million for additional warranty reserves, $1.0 million of accelerated amortization of research and development expense and $2.5 million of sales, general and administrative expense for additional accounts receivable allowances.

      Because of the significant decline in revenues in fiscal 2002, and the fourth quarter expectation of a continuation of depressed demand in the first half of fiscal 2003, the Company projected additional shortfalls in the expected usage of certain inventories and recorded the resulting charges in the fourth quarter of fiscal 2002. The reserves for excess and obsolete inventories included $0.1 million and $1.5 million in fiscal 2002 and

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2001, respectively, for non-cancelable purchase order obligations for items deemed excess or obsolete. The inventory affected was across several hardware product lines in the equipment automation and factory automation hardware segments. During this process, the Company reviewed all open purchase orders with the affected vendors across the various segments of the Company and canceled orders where possible. The Company had provided $2.3 million in the first three quarters of both fiscal 2002 and 2001, as a result of the periodic reviews of obsolete and excess inventory performed by the Company.

      During fiscal 2001, the Company experienced a continued deterioration across both its end user and OEM customer base in its receivable aging and a resultant increase in its day sales outstanding, driven by the overall slowdown in the industry. The Company increased its reserves in fiscal 2001 against receivables due to collection issues caused by the slowdown. During fiscal 2002, the Company increased its emphasis on collection efforts, including higher staffing levels for collections, which resulted in a decrease in its day sales outstanding at September 30, 2002. Accordingly, no additional increase to reserves was required.

 
Revenues

      The Company reported revenues of $304.3 million for the year ended September 30, 2002, compared to $381.7 million in the previous year, a 20.3% decrease. The decrease in revenues is principally attributable to the downturn that continues to impact the semiconductor industry, partially offset by approximately $76 million of incremental revenue from acquisitions consummated during fiscal 2002. The Company’s net revenues, excluding the impact of these acquisitions, decreased 40.1% in the year ended September 30, 2002, compared to the prior year.

      The Company’s equipment automation segment reported revenues of $148.6 million in the year ended September 30, 2002, a decrease of 29.6% from the prior year. This decrease is attributable to the continuing downturn in the semiconductor industry, partially offset by approximately $40 million of incremental revenues from fiscal 2002 acquisitions. These incremental revenues were primarily generated by the PRI businesses acquired. Excluding these incremental revenues, the segment’s revenues declined 48.5% from the prior year. The Company’s factory automation hardware segment reported a 16.6% increase, to $67.5 million, in the year ended September 30, 2002, compared to the previous year. The increase is attributable to acquisitions completed during fiscal 2002, which contributed approximately $28 million to the segment’s revenues. Excluding this incremental revenue, the segment’s revenues declined 30.9% from the prior year. The Company’s factory automation software segment reported revenues of $84.5 million, a decrease of 25.0% from the prior year. The decrease resulting from the downturn in the semiconductor industry was partially offset by approximately $5 million of incremental revenues from fiscal 2002 acquisitions. These incremental software revenues were principally generated by the PRI businesses acquired. Excluding these incremental revenues, the segment’s revenues declined 29.1%, compared to the prior year.

      Product revenues decreased $83.1 million, or 28.5%, to $208.7 million, in the year ended September 30, 2002, from $291.7 million in the previous fiscal year. This decrease is attributable to the continuing slowdown in the semiconductor industry, which began to impact the Company during the second half of fiscal 2001. Excluding the impact of acquisitions consummated during fiscal 2002, product revenues decreased 48.6%. Service revenues increased $5.6 million, or 6.2%, to $95.6 million. This increase is primarily attributable to the Company’s fiscal 2002 acquisitions. Excluding the impact of acquisitions consummated during fiscal 2002, service revenues decreased 12.5%.

      Revenues outside the United States were $146.5 million, or 48.2% of revenues, and $191.6 million, or 50.2% of revenues, in the years ended September 30, 2002 and 2001, respectively. The Company expects that foreign revenues will continue to account for a significant portion of total revenues. The current international component of revenues is not indicative of future international revenues.

 
Gross Margin

      Gross margin decreased to 27.3% for the year ended September 30, 2002, compared to 39.9% for the previous year. Excluding other charges detailed above of $15.0 million and $13.7 million in the years ended September 30, 2002 and 2001, respectively, gross margins were 32.2% and 43.5%, respectively. The decrease is

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primarily attributable to lower revenue levels which are a result of the downturn which continues to affect the semiconductor industry, coupled with the historically lower margin rates of several of the Company’s fiscal 2002 acquisitions. Lower revenue levels impact cost absorption due to excess manufacturing capacity exerting downward pressure on gross margins. The Company’s equipment automation segment gross margin decreased to 16.2% in the year ended September 30, 2002, from 29.0% in the prior year. The decrease is primarily the result of product and customer mix, coupled with the effects of the continuing downturn in the semiconductor industry and the resultant impact of excess manufacturing capacity and lower margin rates of the Company’s recently acquired businesses. Gross margin for the Company’s factory automation hardware segment decreased to 15.7% in the year ended September 30, 2002, from 29.5% in the prior year. The decrease is the result of the acquisition of lower margin hardware businesses, coupled with reduced volume within existing business, which led to absorption variances. The Company’s factory automation software segment’s gross margin for the year ended September 30, 2002, decreased to 56.6%, compared to 65.7% in the prior year. The change is primarily due to unfavorable product mix shifts between license and service revenues.

      Gross margin on product revenues was 27.6% for the year ended September 30, 2002, compared to 42.9% for the prior year. Excluding other charges aggregating $15.0 million, gross margin on product revenues was 34.7% for the year ended September 30, 2002. Excluding other charges aggregating $13.7 million, gross margin on product revenues was 47.6% for the year ended September 30, 2001. The decrease in gross margin is primarily attributable to the effects of the continuing downturn in the semiconductor industry, causing lower absorption of manufacturing fixed costs.

      Gross margin on service revenues decreased to 26.7% for the year ended September 30, 2002, from 30.2% in the previous year. The decrease is primarily a result of a change in business mix, combined with the pricing pressure of the end user services business and the effects of the continuing downturn in the semiconductor industry on the Company’s fixed cost absorption.

      The Company performs cycle and year-end inventory counts. As a result of these counts, the Company recorded adjustments of $0.6 million and $2.5 million in the fourth quarter of fiscal 2002 and 2001, respectively, to reduce the carrying value of its inventories. Included in the process of the physical count is the review of the useful life and expected benefits of utilizing demonstration equipment inventory. As a result of this review, the Company recorded an adjustment of $1.2 million for excess and idle demonstration equipment inventory in fiscal 2001. There was no charge for demonstration equipment arising in fiscal 2002.

      The Company accrues for warranty obligations related to its hardware products. Due to increased warranty return repair costs during the second half of the 2001 fiscal year and fiscal year 2002 of certain products under warranty, the Company determined that additional warranty reserves of $0.5 million and $0.6 million were required and recorded in the fourth quarter of fiscal 2002 and 2001, respectively.

      The Company capitalized certain costs related to in-house software development during the first half of fiscal 2001 consistent with Statement of Position 98-1, “Accounting for the Costs of Computer Software Developed for Internal Use” (“SOP 98-1”). Consistent with SOP 98-1, the Company performed a review at fiscal year-end of the projects for which the Company capitalized costs. Based upon this review, the Company determined that the related projects, particularly in considering the industry slowdown in the second half of the year and the expected continuing slowdown, no longer provided the Company with incremental and substantial benefit and cancelled the projects. As a result, $1.0 million of capitalized costs were expensed in the year ended September 30, 2001.

 
Research and Development

      Research and development expenses for the year ended September 30, 2002, were $75.1 million, an increase of $14.2 million, compared to $60.9 million in the previous year. Research and development expenses also increased as a percentage of revenues, to 24.7%, from 16.0% in the prior year. Excluding other charges of $1.8 million, research and development expenses were 24.1% of revenues in fiscal 2002. Excluding other charges of $1.0 million, research and development expenses were 15.7% of revenues in the prior year. The increase in absolute spending is the result of the research and development related to the Company’s recent acquisitions as well as incremental spending associated with the launch of new products. The increase in these

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expenditures as a percentage of revenues is primarily attributable to the downturn that continues to affect the semiconductor industry, which began to impact the Company during the quarterly period ended June 30, 2001. The Company plans to continue to invest in research and development to enhance existing products and develop new tool and factory hardware and software automation solutions for the semiconductor, data storage and flat panel display manufacturing industries although the Company expects expenditure levels in absolute dollars will decrease in fiscal 2003 compared to fiscal 2002.
 
Selling, General and Administrative

      Selling, general and administrative expenses were $101.2 million for the year ended September 30, 2002, an increase of $5.3 million, compared to $95.9 million in the prior year. Selling, general and administrative expenses increased as a percentage of revenues, to 33.3% in the year ended September 30, 2002, from 25.1% in the previous year. Excluding other charges of $1.9 million, selling, general and administrative expenses were 32.6% of revenues in the year ended September 30, 2002. Excluding other charges of $2.5 million, selling, general and administrative expenses were 24.5% of revenues in the year ended September 30, 2001. The increase in absolute spending is the result of expanded sales and marketing activities as well as general and administration support costs associated with the Company’s recently completed acquisitions and infrastructure improvements, while the increase as a percentage of revenues is attributable primarily to the reduction in revenue due to the downturn currently affecting the semiconductor industry. The Company expects that future expenditure levels in absolute dollars will decrease upon completion of the business realignment and downsizing currently in progress, which it expects to be substantially completed by the end of June 2003.

 
      Amortization of Acquired Intangible Assets and Impairment Charges

      Amortization expense and impairment charges for acquired intangible assets and goodwill totaled $499.6 million for the year ended September 30, 2002, and are comprised of $145.1 million and $334.2 million of impairment charges of the Company’s identifiable intangible assets and goodwill, respectively, and $20.3 million of ratable amortization of acquired intangible assets from prior acquisitions. The Company adopted FASB Statement No. 142, “Goodwill and Other Intangibles” (“FAS 142”) on October 1, 2001 and accordingly, it ceased the ratable amortization of goodwill. Amortization expense for goodwill and assembled workforces was $23.8 million in the year ended September 30, 2001. For the years ended September 30, 2002 and 2001, amortization expense for acquired intangible assets was $20.3 million and $6.4 million, respectively, and related to acquisitions prior to and during fiscal 2002 and 2001.

 
      Acquisition-related and Restructuring Costs

      The Company recorded a charge to operations of $35.0 million in the year ended September 30, 2002, of which $16.4 million related to acquisitions and acquisition targets and $18.6 million to restructuring costs as detailed above. The acquisition costs are comprised of $5.9 million related to the vesting by the Company’s chief executive officer in certain incremental retirement benefits upon the closing of the acquisition of PRI on May 14, 2002, $8.5 million to write off loans to acquisition targets that management determined are no longer collectible and $2.0 million of other costs.

      The Company recorded $3.9 million of acquisition-related costs in the year ended September 30, 2001, related primarily to transaction costs incurred during the Company’s acquisition of PTI in July 2001.

 
      Interest Income and Expense

      Interest income decreased by $2.7 million, to $9.8 million, in the year ended September 30, 2002, from $12.5 million the previous year. This decrease is due primarily to lower cash balances available for investment. Interest expense of $10.3 million for the year ended September 30, 2002, relates primarily to the 4.75% Convertible Subordinated Notes, and imputed interest on notes payable related to the e-Diagnostics and SimCon acquisitions. The notes issued for these acquisitions were settled on July 26, 2002 and May 14, 2002, respectively. Interest expense of $4.1 million in the prior year relates primarily to the 4.75% Convertible Subordinated Notes, imputed interest on the notes payable for the e-Diagnostics and SimCon acquisitions and

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the Company’s note payable to Daifuku America in connection with the acquisition of ASC and ASI, which was settled on January 5, 2001.
 
      Income Tax Provision (Benefit)

      The Company recorded a net income tax provision of $92.8 million in the year ended September 30, 2002 and net income tax benefit of $6.4 million in the year ended September 30, 2001. The tax provision recorded in fiscal 2002 is primarily due to the recording of a valuation allowance against deferred tax assets when the Company determined that the tax benefits were not more likely than not to be realizable. The tax benefit recorded in fiscal 2001 is primarily due to anticipated future tax benefit of domestic net operating losses and research and development credits, partially offset by provisions for taxes on overseas earnings.

Year Ended September 30, 2001, Compared to Year Ended September 30, 2000

      The Company adopted the recommendations of Staff Accounting Bulletin 101, “Revenue Recognition in Financial Statements” (“SAB 101”), effective October 1, 2000. The adoption of SAB 101 did not have any impact on the Company results of operations or financial position.

      The Company reported a net loss of $29.7 million for the year ended September 30, 2001, compared to net income of $15.1 million in the previous year. The results for the year ended September 30, 2001, include $30.2 million of amortization of acquired intangible assets, $9.3 million of restructuring and acquisition-related charges and $17.2 million of other charges. These other charges, recorded in the fourth quarter, include $13.7 million recorded to cost of product revenues, comprised of $13.1 million for reserves for excess and obsolete inventories, demonstration equipment removed from service and physical inventory adjustments and $0.6 million of additional warranty reserves, $1.0 million of accelerated amortization of research and development expense and $2.5 million of sales, general and administrative expense for additional accounts receivable allowances.

      The results for the previous year include $18.5 million of amortization of acquired intangible assets and $0.6 million of acquisition-related charges. After accretion and dividends on preferred stock of $0.1 million in each year, the Company reported a net loss attributable to common stockholders of $29.8 million in the year ended September 30, 2001 and net income attributable to common stockholders of $15.0 million in the year ended September 30, 2000.

 
      Revenues

      The Company reported revenues of $381.7 million in the year ended September 30, 2001, compared to $337.2 million in the previous year, a 13.2% increase. The increase in revenues is principally attributable to incremental revenue from acquisitions and the strength in the first half of fiscal 2001 in both the original equipment manufacturer (“OEM”) and end user markets, partially offset by lower revenues in the second half of the fiscal year. The Company’s net revenues, excluding the impact of acquisitions, increased 10.8% in the year ended September 30, 2001, compared to the prior year.

      The Company’s equipment automation segment reported revenues of $211.2 million in the year ended September 30, 2001, an increase of 1.5% from the prior year. This increase is primarily attributable to growth in the vacuum business area earlier in fiscal 2001, partially offset by lower revenues in the last two quarters of fiscal 2001. The Company’s factory automation hardware segment reported an increase of 21.4%, to $57.8 million in the year ended September 30, 2001, compared to the prior year, reflecting in part the strong growth in the Company’s Standard Mechanical Interface Facilities (“SMIF”) and Front Opening Uniform Pod (“FOUP”) product lines, partially offset by lower revenues at PTI. The Company’s fiscal 2001 acquisitions did not materially affect either its equipment automation segment or its factory automation hardware segment. The Company’s factory automation software segment reported revenues of $112.7 million in the year ended September 30, 2001, an increase of 38.4% from the prior year, principally due to internal growth, the acquisition of ASC and ASI on January 6, 2000 and the acquisition of SEMY on February 16, 2001.

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      Product revenues increased $7.4 million, to $291.7 million, in the year ended September 30, 2001, from $284.4 million in the previous fiscal year. This growth is directly attributable to the Company’s recent acquisitions. Excluding acquisitions, combined product revenues remained flat from fiscal 2000 to fiscal 2001, due primarily to the slowdown in the semiconductor industry in the second half of fiscal 2001. Service revenues increased $37.2 million, or 70.4%, to $90.0 million. This increase is primarily attributable to internal growth, the acquisition of ASC and ASI on January 6, 2000, which accounted for approximately $14 million of the increase in service revenues over fiscal year 2000, and increased spare parts sales to both end user and OEM customers.

      Revenues outside the United States were $191.6 million, or 50.2% of revenues, and $161.5 million, or 47.9% of revenues, in the years ended September 30, 2001 and 2000, respectively. The absolute increase in revenues outside the United States is primarily the result of the Company’s expanded global presence from its recent acquisitions, while the increase as a percentage of the Company’s revenues reflects lower sales in the United States, in particular OEM sales in the second half of fiscal 2001, relative to the rest of the world.

 
      Gross Margin

      Gross margin decreased to 39.9% for the year ended September 30, 2001, compared to 47.7% for the previous year. Excluding other charges of $13.7 million referred to above, the Company’s gross margin was 43.5% for the year ended September 30, 2001. This change is primarily a result of increased services revenues, where margins are higher, related to end user sales combined with lower software product revenues and increased unabsorbed manufacturing costs. The Company’s equipment automation segment gross margin decreased to 29.0% in the year ended September 30, 2001, from 41.9% in the prior year. The decrease is primarily the result of product and customer mix, coupled with the effects of the current downturn in the semiconductor industry and the resultant impact of excess manufacturing capacity. Gross margin for the Company’s factory automation hardware segment was 29.5% in the year ended September 30, 2001, a decrease from 35.2% in the prior year. The decrease is primarily due to inefficiencies for new products, combined with excess manufacturing capacity resulting from the current downturn in the semiconductor industry. The Company’s factory automation software segment gross margin for the year ended September 30, 2001, decreased to 65.7%, from 69.6% in the prior year. The decrease is primarily attributable to product and services mix; specifically, a decrease in higher-margin software product license revenues, partially offset by increased lower-margin service revenues.

      Gross margin on product revenues was 42.9% for the year ended September 30, 2001, compared to 50.4% for the prior year. Excluding other charges aggregating $13.7 million, gross margin on product revenues was 47.6% for the year ended September 30, 2001. The decrease is primarily attributable to lower software license product revenues and increased field support personnel associated with end user projects, coupled with the effects of the current downturn in the semiconductor industry, which impact pricing and cause lower absorption of manufacturing fixed costs.

      Gross margin on service revenues decreased to 30.2% for the year ended September 30, 2001, from 33.0% in the previous year. The decrease is primarily a result of business mix, combined with the pricing pressure of the end user services business and the effects of the current downturn in the semiconductor industry on the Company’s fixed cost absorption.

 
      Research and Development

      Research and development expenses for the year ended September 30, 2001, were $60.9 million, an increase of $16.8 million, compared to $44.1 million in the previous year. Research and development expenses also increased as a percentage of revenues, to 16.0%, from 13.1% in the prior year. Excluding other charges of $1.0 million, research and development expenses were 15.7% of revenues in the current year. The increase in absolute spending is the result of the research and development related to the Company’s recent acquisitions as well as incremental spending associated with the launch of new products. The increase in these expenditures as a percentage of revenues is attributable in part to the downturn currently affecting the semiconductor industry, which began to impact the Company during the quarterly period ended March 31, 2001.

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      Selling, General and Administrative

      Selling, general and administrative expenses were $95.9 million for the year ended September 30, 2001, an increase of $18.5 million, compared to $77.4 million in the previous year. Selling, general and administrative expenses increased as a percentage of revenues, to 25.1% in the year ended September 30, 2001, from 23.0% in the previous year. Excluding other charges of $2.5 million, selling, general and administrative expenses were 24.5% of revenues in the year ended September 30, 2001. The increase in absolute spending is the result of expanded sales and marketing activities as well as general and administration support costs associated with the Company’s recently completed acquisitions and infrastructure improvements, while the increase as a percentage of revenues is attributable primarily to the downturn currently affecting the semiconductor industry.

 
      Amortization of Acquired Intangible Assets

      Amortization expense for acquired intangible assets totaled $30.2 million for the year ended September 30, 2001, and relates to acquired intangible assets and goodwill from acquisitions. For the year ended September 30, 2000, amortization expense for acquired intangible assets was $18.5 million.

 
      Acquisition-related and Restructuring Costs

      The Company recorded $9.3 million of acquisition-related and restructuring charges during the year ended September 30, 2001, comprised of $3.9 million of acquisition-related costs and $5.4 million of restructuring charges. The acquisition-related costs relate to transaction costs, principally legal, accounting and investment banking fees incurred for the acquisition of PTI. Acquisition-related charges of $0.6 million in the year ended September 30, 2000, primarily relate to transaction costs in connection with the acquisition of Irvine Optical.

 
      Interest Income and Expense

      Interest income increased by $2.8 million, to $12.5 million, in the year ended September 30, 2001, compared to an increase of $6.6 million to $9.7 million the previous year. This increase is due primarily to higher cash and investment asset balances which resulted from investing the proceeds from the Company’s private placement of $175.0 million aggregate Convertible Subordinated Notes in May 2001 and the public offering of shares of its common stock in March 2000. Interest expense of $4.1 million for the year ended September 30, 2001, relates primarily to the 4.75% Convertible Subordinated Notes, imputed interest on notes payable related to the e-Diagnostics and SimCon acquisitions and the Company’s note payable to Daifuku America in connection with the acquisition of ASC and ASI, which was settled on January 5, 2001. Interest expense in the prior year primarily relates to Irvine Optical’s debt, which was paid by Brooks subsequent to the Company’s acquisition of Irvine Optical, and the note payable to Daifuku America.

 
      Income Tax Provision (Benefit)

      The Company recorded a net income tax benefit of $6.4 million in the year ended September 30, 2001 and net income tax expense of $13.6 million in the year ended September 30, 2000. The tax benefit recorded in fiscal 2001 is primarily due to anticipated future tax benefit of domestic net operating losses and research and development credits, partially offset by provisions for taxes on overseas earnings. The fiscal 2000 tax provision is attributable to federal, state, foreign and withholding taxes. Federal and state taxes have been reduced for net operating losses, research and development tax credits and a foreign sales corporation benefit.

Liquidity and Capital Resources

      The Company has recorded significant losses from operations and has an accumulated deficit of $765.4 million at September 30, 2002. Revenues and operations have decreased substantially and net cash outflows from operations have increased significantly as a result of acquisitions and the current downturn within the semiconductor sector and related industries. Consequently, the Company has undertaken several restructuring programs during the year ended September 30, 2002, to align its cost structures and its revenues.

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Due to the severity of and the continuation of the downturn, the Company announced in December 2002 further cost reductions to be implemented during the course of fiscal 2003. The cyclical nature of the industry, the extended period of the current downturn and the current uncertainty as to the timing and speed of recovery mean that estimates of future revenues, results of revenues, results of operations and net cash flows are inherently difficult.

      At September 30, 2002, the Company had cash, cash equivalents and marketable securities aggregating $245.7 million. This amount was comprised of $125.3 million of cash and cash equivalents, $25.3 million of investments in short-term marketable securities and $95.1 million of investments in long-term marketable securities.

      At September 30, 2001, the Company had cash, cash equivalents and marketable securities aggregating $329.7 million. This amount was comprised of $160.2 million of cash and cash equivalents, $43.6 million of investments in short-term marketable securities and $125.9 million of investments in long-term marketable securities.

      The Company issued 15.9 million shares during fiscal 2002, valued at $519.9 million, based on the average closing price of the Company’s stock for two days before, the day of and two days after the announcement of each transaction, as purchase consideration in the acquisitions of Hermos, PRI, IAS, Tec-Sem and GPI. The Company expects to issue an additional 137,760 shares to the selling stockholders of Hermos upon the satisfaction of certain contingencies. This additional consideration will generate additional goodwill of approximately $2 million, based on the price of the Company’s common stock at September 30, 2002, which may be part of a goodwill impairment charge during fiscal 2003.

      Cash and cash equivalents were $125.3 million at September 30, 2002, a decrease of $34.9 million from September 30, 2001. This decrease in cash and cash equivalents is primarily due to cash used in operations of $55.7 million, capital expenditures of $23.7 million and $55.7 million for the cash consideration element of acquisitions in the year. These amounts were partially offset by $49.0 million of net sales and maturities of marketable securities, $8.0 million of net proceeds from the issuance of common stock and cash acquired totaling $39.5 million, primarily from the PRI acquisition.

      Cash used in operations was $55.7 million for the year ended September 30, 2002, and is primarily attributable to the Company’s net loss of $720.0 million, adjusted for depreciation and amortization of $37.4 million, a charge for the impairment of intangible assets and goodwill totaling $479.3 million, net changes to the Company’s net deferred tax asset aggregating $96.7 million and a decrease in accounts receivable of $40.1 million.

      The Company’s days sales outstanding (“DSO”) decreased to 77 days at September 30, 2002, from 137 days at September 30, 2001. The improvement is primarily attributable to the Company’s increased emphasis on collection efforts, including higher staffing levels for collections.

      Cash provided by investing activities was $10.2 million for the year ended September 30, 2002, and is principally comprised of net proceeds from sale of marketable securities of $49.0 million and $39.5 million of cash acquired with the PRI acquisition, offset by $14.3 million of transaction costs related to the acquisition of PRI, $6.4 million for the acquisition of IAS, $12.4 million for the acquisition of the Zygo Group, $14.3 million for the acquisition of Tec-Sem, net of cash acquired, $5.4 million for the acquisition of Hermos, $2.7 million for other acquisitions, net of cash acquired and $23.7 million used for capital additions.

      Cash provided by financing activities was $7.4 million for the year ended September 30, 2002, and is primarily comprised of $8.0 million from the issuance of stock under the Company’s employee stock purchase plan and the exercise of options to purchase the Company’s common stock, partially offset by $0.6 million for the payment of long-term debt.

      In connection with the acquisition of the e-Diagnostics product business, the Company had issued a $17.0 million one-year note payable to the selling stockholders. This note, payable in cash or common stock, or any combination thereof, at the Company’s discretion, was settled on July 26, 2002 by issuing 935,896 shares of common stock in full settlement of the note. Additional cash payments aggregating a maximum of $8.0 million

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over the next two years could be required for payment of consideration contingent upon meeting certain performance objectives, if the Company elected to settle any or all potential contingent payments in cash.

      In connection with its acquisition of SimCon, the Company had issued a note payable to the selling stockholders for $750,000, payable in one year. This note was settled with 21,645 shares of the Company’s common stock on May 14, 2002.

      On May 23, 2001, the Company completed the private placement of $175.0 million aggregate principal amount of 4.75% Convertible Subordinated Notes due in 2008. Interest on the notes is paid on June 1 and December 1 of each year. The Company made its first interest payment on December 1, 2001. The notes will mature on June 1, 2008. The Company may redeem the notes at stated premiums on or after June 6, 2004, or earlier if the price of the Company’s common stock reaches certain prices. Holders may require the Company to repurchase the notes upon a change in control of the Company in certain circumstances. The notes are convertible at any time prior to maturity, at the option of the holders, into shares of the Company’s common stock, at a conversion price of $70.23 per share, subject to certain adjustments. The notes are subordinated to the Company’s senior indebtedness and structurally subordinated to all indebtedness and other liabilities of the Company’s subsidiaries.

      While the Company has no significant capital commitments, the Company anticipates that it will continue to make capital expenditures to support its business. The Company may also use its resources to acquire companies, technologies or products that complement the business of the Company.

      The Company had a $10.0 million uncommitted demand promissory note facility with ABN AMRO Bank N.V. (“ABN AMRO”), which expired on May 31, 2002. Accordingly, ABN AMRO will not extend loans or issue additional letters of credit. At September 30, 2002, the Company had approximately $1.1 million remaining in outstanding letters of credit under this facility.

      The Company’s contractual obligations and severance-related restructuring commitments consist of the following (in thousands):

                                             
Less than One to Four to
Total One Year Three Years Five Years Thereafter





Contractual obligations
                                       
 
Operating leases — continuing
  $ 44,636     $ 10,199     $ 14,444     $ 9,734     $ 10,259  
 
Operating leases — exited facilities
    18,977       4,089       4,104       2,893       7,891  
 
Debt
    175,185       8       169       8       175,000  
 
Interest on convertible subordinated notes
    49,876       8,313       16,625       16,625       8,313  
     
     
     
     
     
 
   
Total contractual obligations
  $ 288,674     $ 22,609     $ 35,342     $ 29,260     $ 201,463  
     
     
     
     
     
 

      The table above does not include an accrual of $9.6 million related to the projected retirement benefit to be paid to the Company’s Chief Executive Officer under his current employment agreement. The projected amount payable is due immediately upon his retirement; however, his retirement date is not determinable at this time. His current employment agreement will expire on October 1, 2005.

      The Company believes that its existing resources will be adequate to fund the Company’s currently planned working capital and capital expenditure requirements for at least the next twelve months. However, the Company used $55.7 million to fund its operations in fiscal 2002, and the cyclical nature of the semiconductor industry makes it very difficult for the Company to predict future liquidity requirements with certainty. Accordingly, over the longer term it is important that the restructuring programs described above succeed in aligning costs with revenues. In addition, the Company may experience unforeseen capital needs in connection with its recently completed acquisitions. If the Company is unable to generate sufficient cash flows from operations, the Company may need to raise additional funds to develop new or enhanced products, respond to competitive pressures or make acquisitions. The Company may be unable to obtain any required additional financing on terms favorable to it, if at all. If adequate funds are not available on acceptable terms, the Company may be unable to fund its expansion, successfully develop or enhance products, respond to

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competitive pressure or take advantage of acquisition opportunities, any of which could have a material adverse effect on the Company’s business.

Recent Accounting Pronouncements

      In October 2001, the FASB issued Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“FAS 144”). The objectives of FAS 144 are to address significant issues relating to the implementation of FASB Statement No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of” (“FAS 121”) and to develop a single accounting model, based on the framework established in FAS 121, for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired. FAS 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001, and generally, its provisions are to be applied prospectively. The Company adopted this standard effective October 1, 2002.

      In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146, “Accounting for Exit or Disposal Activities” (“FAS 146”). FAS 146 addresses significant issues regarding the recognition, measurement and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for under Emerging Issues Task Force No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)” (“EITF 94-3”). The scope of FAS 146 also includes costs related to terminating a contract that is not a capital lease and termination benefits that employees who are involuntarily terminated receive under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred compensation contract. The Company is required to adopt the provisions of FAS 146 effective for exit or disposal activities initiated after December 31, 2002. The provisions of EITF 94-3 shall continue to apply for any exit activity initiated under an exit plan that met the criteria of EITF 94-3 prior to the adoption of FAS 146. The adoption of FAS 146 will change, on a prospective basis, the timing of recording restructure charges from the commitment date to when the liability is incurred. The adoption of this standard will impact the timing of recording of restructuring activities initiated subsequent to December 31, 2002.

Factors That May Affect Future Results

      You should carefully consider the risks described below and the other information in this report before deciding to invest in shares of our common stock. These are the risks and uncertainties we believe are most important for you to consider. Additional risks and uncertainties not presently known to us, or which we currently deem immaterial, or which are similar to those faced by other companies in our industry or business in general, may also impair our business operations. If any of the following risks or uncertainties actually occur, our business, financial condition and operating results would likely suffer. In that event, the market price of our common stock could decline and you could lose all or part of your investment.

      In this Risk Factors section, references to “Brooks” refer to Brooks Automation, Inc. before its acquisition of PRI Automation, Inc., references to “PRI” refer to that company before its merger into Brooks, and references to “the Company” refer to the combined Brooks-PRI Automation, Inc. after the merger.

Risk Factors Relating to the Company’s Industry

The Cyclical Demand of Semiconductor Manufacturers Affects the Company’s Operating Results and the Ongoing Downturn in the Industry Could Seriously Harm the Company’s Operating Results.

      The Company’s business is significantly dependent on capital expenditures by semiconductor manufacturers. The level of semiconductor manufacturers’ capital expenditures is dependent on the current and anticipated market demand for semiconductors. The semiconductor industry is highly cyclical and is currently experiencing a downturn. The downturn may continue for several more quarters. As a result of cost reductions in response to the decrease in net sales and uncertainty over the timing and extent of any industry recovery, the Company may be unable to continue to invest in marketing, research and development and engineering at the

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levels the Company believes are necessary to maintain its competitive position. The Company’s failure to make these investments could seriously curtail its long-term business prospects. Consistent with its experience in past downturns, the current industry downturn has reduced the Company’s revenues and caused it to incur losses. There can be no guarantee of when this downturn will end or that the Company will return to profitability when the downturn does end.

Industry Consolidation and Outsourcing of the Manufacture of Semiconductors to Foundries Could Reduce the Number of Available Customers.

      The substantial expense of building or expanding a semiconductor fabrication facility is leading increasing numbers of semiconductor companies to contract with foundries, which manufacture semiconductors designed by others. As manufacturing is shifted to foundries, the number of the Company’s potential customers could decrease, which would increase its dependence on its remaining customers. Recently, consolidation within the semiconductor manufacturing industry has increased. If semiconductor manufacturing is consolidated into a small number of foundries and other large companies, the Company’s failure to win any significant bid to supply equipment to those customers could seriously harm its reputation and materially and adversely affect its revenue and operating results.

The Company’s Future Operations Could Be Harmed if the Commercial Adoption of 300mm Wafer Technology Continues to Progress Slowly or is Halted.

      The Company’s future operations depend in part on the adoption of new systems and technologies to automate the processing of 300mm wafers. However, the industry transition from the current, widely used 200mm manufacturing technology to 300mm manufacturing technology is occurring more slowly than originally expected. A significant delay in the adoption of 300mm manufacturing technology, or the failure of the industry to adopt 300mm manufacturing technology, could significantly impair the Company’s operations. Moreover, continued delay in transition to 300mm technology could permit the Company’s competitors to introduce competing or superior 300mm products at more competitive prices. As a result of these factors, competition for 300mm orders could become vigorous and could harm the Company’s results of operations.

      The merger of PRI into Brooks on May 14, 2002 does not reduce this risk. Manufacturers implementing factory automation in 300mm pilot projects typically seek to purchase systems from multiple vendors. Automated material handling systems are a major component of the former PRI’s business. To date, nearly all manufacturers with pilot projects have selected automated material handling systems made by competitors for these projects. Manufacturers’ awards to these competitors of orders for early stage 300mm fabs could make it more difficult for the Company to win orders from those manufacturers for their full-scale 300mm production facilities.

PRI’s Difficulties With Production of the Turbostocker Product Could Adversely Affect the Company’s Ability to Compete in the 300mm Wafer Technology Marketplace.

      During fiscal 2000 and 2001, prior to its acquisition by Brooks, PRI encountered manufacturing and supply chain problems related to its TurboStocker product, which PRI had planned to begin manufacturing in high volume in response to increased customer demand at that time. These problems caused delays in shipments and in customer acceptance of these systems, and in some cases required repair or retrofit of TurboStockers already installed in the field. These manufacturing problems may have undermined potential 300mm customers’ confidence in PRI’s ability to manufacture and deliver complex factory automation systems in a timely manner and at acceptable quality levels. That loss of confidence could continue to adversely affect the competitive position of the Company in the market for that particular product and possibly also for other 300mm products.

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Risk Factors Relating to the Company’s Acquisitions

The Company’s Business Could Be Harmed if the Company Fails to Adequately Integrate the Operations of the Businesses it Has Acquired.

      Over the past several years, the Company has completed a number of acquisitions in a relatively short period of time, including the acquisition of PRI in May 2002. The Company’s management must devote substantial time and resources to the integration of the operations of its acquired businesses with its core business and its other acquired businesses. If the Company fails to accomplish this integration efficiently, the Company may not realize the anticipated benefits of its acquisitions. The Company was required to record impairment charges on acquired intangible assets and goodwill aggregating $479.3 million in fiscal 2002. The Company may be required in the future to record additional significant future impairment costs in the event that the carrying value exceeds the fair value of acquired intangible assets. The process of integrating supply and distribution channels, research and development initiatives, computer and accounting systems and other aspects of the operation of its acquired businesses, presents a significant challenge to the Company’s management. This is compounded by the challenge of simultaneously managing a larger entity. These businesses have operations and personnel located in Asia, Europe and the United States and present a number of difficulties of integration, including:

  •  assimilating products and designs into integrated solutions;
 
  •  informing customers, suppliers and distributors of the effects of the acquisitions and integrating them into the Company’s overall operations;
 
  •  integrating personnel with disparate business backgrounds and cultures;
 
  •  defining and executing a comprehensive product strategy;
 
  •  managing geographically remote units;
 
  •  managing the risks of entering markets or types of businesses in which the Company has limited or no direct experience; and
 
  •  minimizing the loss of key employees of the acquired businesses.

      If the Company delays the integration or fails to integrate an acquired business or experiences other unforeseen difficulties, the integration process may require a disproportionate amount of the Company’s management’s attention and financial and other resources. The Company’s failure to adequately address these difficulties could harm its business and financial results.

The Company’s Business May Be Harmed By Acquisitions the Company Completes in the Future.

      While the Company does not anticipate any significant additional acquisitions while the current economic downturn continues, it may in the future pursue additional acquisitions of related businesses. The Company’s identification of suitable acquisition candidates involves risks inherent in assessing the values, strengths, weaknesses, risks and profitability of acquisition candidates, including the effects of the possible acquisition on the Company’s business, diversion of the Company’s management’s attention and risks associated with unanticipated problems or latent liabilities. If the Company is successful in pursuing future acquisitions, the Company may be required to expend significant funds, incur additional debt or issue additional securities, which may negatively affect the Company’s results of operations and be dilutive to its stockholders. If the Company spends significant funds or incurs additional debt, the Company’s ability to obtain financing for working capital or other purposes could decline, and the Company may be more vulnerable to economic downturns and competitive pressures. The Company cannot guarantee that it will be able to finance additional acquisitions or that it will realize any anticipated benefits from acquisitions that it completes. Should the Company successfully acquire another business, the process of integrating acquired operations into the Company’s existing operations may result in unforeseen operating difficulties and may require significant financial resources that would otherwise be available for the ongoing development or expansion of the Company’s existing business.

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Risk Factors Relating to the Company’s Operations

The Company’s Sales Volume Substantially Depends on the Sales Volume of the Company’s Original Equipment Manufacturer Customers and on Investment in Major Capital Expansion Programs by End-User Semiconductor Manufacturing Companies.

      The Company sells a majority of its tool automation products to original equipment manufacturers that incorporate the Company’s products into their equipment. Therefore, the Company’s revenues depend on the ability of these customers to develop, market and sell their equipment in a timely, cost-effective manner. Approximately 50% and 56% of the Company’s total revenue in fiscal 2002 and fiscal 2001, respectively, came from sales to original equipment manufacturers.

      The Company also generates significant revenues from large orders from semiconductor manufacturing companies that build new plants or invest in major automation retrofits. The Company’s revenues depend, in part, on continued capital investment by semiconductor manufacturing companies. Approximately 50% and 44% of the Company’s total revenue in fiscal 2002 and fiscal 2001, respectively, came from sales to semiconductor manufacturing companies. The percentage of the Company’s total revenue attributable to semiconductor manufacturing companies should rise in fiscal 2003 as a result of the PRI acquisition. The Company’s revenues will be adversely affected if semiconductor manufacturing companies do not invest in capital expansion programs due to the downturn in the semiconductor industry or for other reasons.

Demand For the Company’s Products Fluctuates Rapidly and Unpredictably, Which Makes it Difficult to Manage its Business Efficiently and Can Reduce its Gross Margins and Profitability.

      The Company’s expense levels are based in part on its expectations for future demand. Many expenses, particularly those relating to capital equipment and manufacturing overhead, are relatively fixed. The rapid and unpredictable shifts in demand for the Company’s products make it difficult to plan manufacturing capacity and business operations efficiently. If demand is significantly below expectations, the Company may be unable to rapidly reduce these fixed costs, which can diminish gross margins and cause losses. A sudden downturn may also leave the Company with excess inventory, which may be rendered obsolete as products evolve during the downturn and demand shifts to newer products. For example, as a result of the current industry downturn, the Company recorded inventory adjustments of $12.5 million in the fourth quarter of fiscal 2002 relating to inventory writedowns. The Company’s ability to reduce expenses is further constrained because it must continue to invest in research and development to maintain its competitive position and to maintain service and support for its existing global customer base. Conversely, during periods of increased demand the Company’s ability to satisfy increased customer demand may be constrained by its projections. If the Company’s projections underestimate demand, the Company may have inadequate inventory and may not be able to expand its manufacturing capacity, which could result in delays in shipments and loss of customers and reduced gross margins and profitability. In sudden upturns, the Company sometimes incurs significant expenses to rapidly expedite delivery of components, procure scarce components and outsource additional manufacturing processes. This risk is more acute in fiscal 2003 as the Company consolidates several of its manufacturing locations, making its manufacturing capabilities more vulnerable to sudden demands for production. Even if the Company is able to sufficiently expand its capacity, the Company may not efficiently manage this expansion which would adversely affect the Company’s gross margin and profitability. Any of these results could seriously harm the Company’s business.

The Company Relies on a Relatively Limited Number of Customers for a Large Portion of its Revenues and Business.

      The Company receives a significant portion of its revenues in each fiscal period from a relatively limited number of customers. The loss of one or more of these major customers, or a decrease in orders by one or more customers, could adversely affect the Company’s revenue, business and reputation. In addition, the Company’s customers have in the past sought price concessions from it and may continue to do so in the future, particularly during downturns in the semiconductor market, which could reduce the Company’s

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profitability and gross margins. The Company’s sales to its ten largest customers accounted for approximately 33% of total revenues in fiscal 2002, 37% in fiscal 2001 and 40% in fiscal 2000.

Delays in or Cancellation of Shipments or Customer Acceptance of a Few of the Company’s Large Orders Could Substantially Decrease its Revenues or Reduce its Stock Price.

      Historically, a substantial portion of the Company’s quarterly and annual revenues came from sales of a small number of large orders. Some of the Company’s products have high selling prices compared to the Company’s other products. As a result, the timing of when the Company recognizes revenue from one of these large orders can have a significant impact on its total revenues and operating results for a particular period because its sales in that fiscal period could fall significantly below the expectations of financial analysts and investors. This could cause the value of its common stock to fall. The Company’s operating results could be harmed if a small number of large orders are canceled or rescheduled by customers or cannot be filled due to delays in manufacturing, testing, shipping or product acceptance.

The Company Does Not Have Long-term Contracts With Its Customers and the Company’s Customers May Cease Purchasing the Company’s Products at Any Time.

      The Company generally does not have long-term contracts with its customers. As a result, the Company’s agreements with its customers do not provide any assurance of future sales. Accordingly:

  •  the Company’s customers can cease purchasing its products at any time without penalty;
 
  •  the Company’s customers are free to purchase products from the Company’s competitors;
 
  •  the Company is exposed to competitive price pressure on each order; and
 
  •  the Company’s customers are not required to make minimum purchases.

      Sales typically are made pursuant to individual purchase orders and product delivery often occurs with extremely short lead times. If the Company is unable to fulfill these orders in a timely manner, the Company could lose sales and customers.

The Company’s Systems Integration Services Business Has Grown Significantly Recently and Poor Execution of Those Services Could Adversely Impact the Company’s Operating Results.

      The number of projects the Company is pursuing for its systems integration services business has grown significantly recently. This business consists of integrating combinations of the Company software and hardware products to provide more comprehensive solutions for the Company’s end-user customers. The delivery of these services typically is complex, requiring that the Company coordinate personnel with varying technical backgrounds in performing substantial amounts of services in accordance with timetables. The Company is in the early stages of developing this business and it is subject to the risks attendant to entering a business in which it has limited direct experience. In addition, the Company’s ability to supply these services and increase its revenues is limited by its ability to retain, hire and train systems integration personnel. The Company believes that there is significant competition for personnel with the advanced skills and technical knowledge that it needs. Some of the Company’s competitors may have greater resources to hire personnel with those skills and knowledge. The Company’s operating margins could be adversely impacted if it does not effectively hire and train additional personnel or deliver systems integration services to its customers on a satisfactory and timely basis consistent with its budgets.

The Company’s Lengthy Sales Cycle Requires It to Incur Significant Expenses with No Assurance That It Will Generate Revenue.

      The Company’s tool automation products are generally incorporated into original equipment manufacturer equipment at the design stage. To obtain new business from its original equipment manufacturer customers, the Company must develop products for selection by a potential customer at the design stage. This often requires it to make significant expenditures without any assurance of success. The original equipment

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manufacturer’s design decisions often precede the generation of volume sales, if any, by a year or more. The Company cannot guarantee that the equipment manufactured by its original equipment manufacturing customers will be commercially successful. If the Company or its original equipment manufacturing customers fails to develop and introduce new products successfully and in a timely manner, the Company’s business and financial results will suffer.

      The Company also must complete successfully a costly evaluation and proposal process before it can achieve volume sales of its factory automation hardware and software and systems integration products to customers. These undertakings are major decisions for most prospective customers and typically involve significant capital commitments and lengthy evaluation and approval processes. The Company cannot guarantee that it will continue to satisfy evaluations by its end-user customers.

The Company’s Operating Results Would Be Harmed if One of Its Key Suppliers Fails to Deliver Components for the Company’s Products.

      The Company currently obtains many of its components on an as needed, purchase order basis. Generally, the Company does not have any long-term supply contracts with its vendors and believes many of its vendors have been taking cost containment measures in response to the industry downturn. When demand for semiconductor manufacturing equipment increases, the Company’s suppliers face significant challenges in delivering components on a timely basis. The Company’s inability to obtain components in required quantities or of acceptable quality could result in significant delays or reductions in product shipments. This could create customer dissatisfaction, cause lost revenue and otherwise materially and adversely affect the Company’s operating results. Delays on the Company’s part could also cause it to incur contractual penalties for late delivery.

As a Result of the Acquisition of PRI, the Company is Becoming Increasingly Dependent on Subcontractors and One or a Few Suppliers for Some Components and Manufacturing Processes.

      For some products, or components or specialized processes that PRI used in its products, PRI depended on subcontractors or had available only one or a few suppliers. For example, its TurboStocker, AeroLoader, AeroTrak and Guardian products each include components and assemblies for which PRI had qualified, or for which there existed, only one supplier or a small number of suppliers. As a result of the acquisition of PRI, the Company is dependent on these limited suppliers. In general, the Company does not have long-term agreements with these suppliers, or agreements that obligate them to supply all of the Company’s requirements for such components or assemblies. Also, the Company relies on Shinsung Engineering Co. Ltd. to manufacture its TurboStocker product for delivery in the Asian market and to provide related customer support. The Company has a Master Engineering Services Agreement with Shinsung, which provides the general terms and conditions under which the Company may from time to time request that Shinsung perform engineering projects for the Company. The scope of each project and the related price and other terms are defined in separate statements of work to be agreed upon by the Company and Shinsung. The agreement provides that all intellectual property created by Shinsung in the course of any such project will belong to the Company. The Company also has a Master Manufacturing Services Agreement with Shinsung, which provides the general terms and conditions under which the Company may from time to time request that Shinsung manufacture products for the Company. The specifications for any products to be manufactured, and related price and other terms, are to be defined in one or more separate purchase orders to be issued by the Company to Shinsung. These agreements with Shinsung are non-exclusive, contain customary provisions entitling either party to terminate the agreement in the event of a material breach of the agreement by, or the insolvency of, the other party, and also may be terminated by the Company at any time for its convenience. The agreements both expire in October 2004.

      The Company’s reliance on subcontractors gives the Company less control over the manufacturing process and exposes it to significant risks, especially inadequate capacity, late delivery, substandard quality and high costs. The Company intends to outsource additional aspects of its manufacturing operations to subcontractors and suppliers. The Company could experience disruption in obtaining products or needed components and may be unable to develop alternatives in a timely manner. If the Company is unable to obtain

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adequate deliveries of products or components for an extended period of time, it may have to pay more for inventory, parts and other supplies, seek alternative sources of supply or delay shipping products to its customers. These outcomes could damage the Company’s relationships with customers. Any such increased costs, delays in shipping or damage to customer relationships could seriously harm the Company’s business.

      The Company’s dependence on third-party suppliers could harm its ability to negotiate the terms of its future business relationships with these parties, and the Company may be unable to replace any of them on terms favorable to it. In addition, outsourcing the Company’s manufacturing to third parties may require the Company to share its proprietary information with these suppliers. Although the Company enters into confidentiality agreements with these third parties, these agreements may not adequately protect the Company’s proprietary information.

The Company May Experience Delays and Technical Difficulties in New Product Introductions and Manufacturing, Which Can Adversely Affect Its Revenues, Gross Margins and Net Income.

      Because the Company’s systems are complex, there can be a significant lag between the time it introduces a system and the time it begins to produce that system in volume. As technology in the semiconductor industry becomes more sophisticated, the Company is finding it increasingly difficult to design and integrate complex technologies into its systems, to procure adequate supplies of specialized components, to train its technical and manufacturing personnel and to make timely transitions to high-volume manufacturing. Many customers also require customized systems, which compound these difficulties. The Company sometimes incurs substantial unanticipated costs to ensure that its new products function properly and reliably early in their life cycle. These costs could include greater than expected installation and support costs or increased materials costs as a result of expedited changes. The Company may not be able to pass these costs on to its customers. In addition, the Company has experienced, and may continue to experience, difficulties in both low and high volume manufacturing. Any of these results could seriously harm the Company’s business.

      For example, beginning late in the third quarter of fiscal 2000, PRI encountered manufacturing and supply chain problems relating to its TurboStocker product, which PRI had planned to begin manufacturing in high volume in response to increased customer demand at that time. These problems delayed shipments and customer acceptance, which caused PRI’s revenues for fiscal 2000 and 2001 to be lower than expected and also contributed to its net losses for these periods. From the time since PRI discovered these problems through the end of fiscal 2001 it incurred expenditures of $15.4 million to address them, consisting of approximately $3.4 million for associated engineering costs, $5.7 million of additional warranty costs, and $6.3 million to repair or retrofit TurboStockers already installed in the field where necessary. These costs also contributed to PRI’s losses for these periods. Of these costs, the $6.3 million reserve for repairs and retrofits was recorded as a special charge in the fourth quarter of PRI’s fiscal year 2001. The balance of the costs were recorded in PRI’s results of operations during the period beginning with the fourth quarter of its fiscal year 2000 and ending with the last quarter of its fiscal year 2001. PRI also consolidated its TurboStocker manufacturing operations into a single location, upgraded its enterprise resource planning system and outsourced additional manufacturing of components and subassemblies. PRI’s and the Company’s efforts to date may be insufficient to resolve the manufacturing problems with the TurboStocker, and the Company may encounter similar difficulties and delays in the future.

      Moreover, on occasion the Company has failed to meet its customers’ delivery or performance criteria, and as a result the Company has deferred revenue recognition, incurred late delivery penalties and had higher warranty and service costs. These failures could continue and could also cause the Company to lose business from those customers and suffer long-term damage to its reputation.

The Company May Have Difficulty Managing Operations.

      In September and December 2002, the Company announced restructuring programs to further reduce the Company’s cost structure. The restructuring programs will include, among other things, a reduction in force of approximately 700 employees, abandonment of certain product lines and information technology projects and the consolidation of certain facilities. The Company had also announced a restructuring program in September

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2001. Due in large part to the prolonged downturn in the semiconductor industry, this program was not successful in achieving its aim of aligning the Company’s operating costs with its expected revenues. The Company cannot guarantee that its more recently announced restructuring programs will be successful. The reduction in force could result in a temporary reduction in productivity by the Company’s employees. In addition, the Company’s future operating results will depend on the success of this restructuring program as well as on the Company’s overall ability to manage operations, which includes, among other things:

  •  Retaining and hiring, as required, the appropriate number of qualified employees;
 
  •  Enhancing and expanding, as appropriate, the Company’s infrastructure, including but not limited to, the Company’s information systems and management team;
 
  •  Accurately forecasting revenues;
 
  •  Managing inventory levels to minimize excess and obsolete inventory;
 
  •  Controlling expenses;
 
  •  Managing the Company’s manufacturing capacity, real estate facilities and other assets; and
 
  •  Executing on the Company’s plans.

      An unexpected further decline in revenues without a corresponding and timely reduction in expenses or a failure to manage other aspects of the Company’s operations could have a further material adverse effect on the Company’s business, results of operations or financial condition.

The Company May Be Unable to Retain Necessary Personnel Because of Intense Competition for Highly Skilled Personnel.

      The Company needs to retain a substantial number of employees with technical backgrounds for both its hardware and software engineering, manufacturing, sales and support staffs. The market for these employees is very competitive, and the Company has occasionally experienced delays in hiring qualified personnel. Due to the cyclical nature of the demand for its products and the current prolonged downturn in the semiconductor market, the Company recently has reduced its workforce on several occasions as a cost reduction measure. If the semiconductor market experiences an upturn, the Company may need to rebuild its workforce. Due to the competitive nature of the labor markets in which the Company operates, this type of employment cycle increases the risk of being unable to retain and recruit key personnel. The Company’s inability to recruit, retain and train adequate numbers of qualified personnel on a timely basis could adversely affect its ability to develop, manufacture, install and support its products and may result in lost revenue and market share if customers seek alternative solutions.

The Company’s International Business Operations Expose It to a Number of Difficulties in Coordinating Its Activities Abroad and in Dealing With Multiple Regulatory Environments.

      Sales to customers outside North America accounted for approximately 48% of Brooks’ total revenues in fiscal 2002, 50% in fiscal 2001 and 48% in fiscal 2000. The Company anticipates that international sales will continue to account for a significant portion of its revenues. Many of the Company’s vendors are located in foreign countries. As a result of its international business operations, the Company is subject to various risks, including:

  •  difficulties in staffing and managing operations in multiple locations in many countries;
 
  •  difficulties in managing distributors, representatives and third party systems integrators;
 
  •  challenges presented by collecting trade accounts receivable in foreign jurisdictions;
 
  •  longer sales-cycles;

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  •  possible adverse tax consequences;
 
  •  fewer legal protections for intellectual property;
 
  •  governmental currency controls and restrictions on repatriation of earnings;
 
  •  changes in various regulatory requirements;
 
  •  political and economic changes and disruptions; and
 
  •  export/ import controls and tariff regulations.

      To support its international customers, the Company maintains locations in several countries, including Belgium, Canada, China, France, Germany, Japan, Malaysia, Singapore, South Korea, Switzerland, Taiwan and the United Kingdom. The Company cannot guarantee that it will be able to manage these operations effectively. Nor can it guarantee that its investment in these international operations will enable it to compete successfully in international markets or to meet the service and support needs of its customers, some of whom are located in countries where the Company has no infrastructure.

      Although the Company’s international sales are primarily denominated in U.S. dollars, changes in currency exchange rates can make it more difficult for it to compete with foreign manufacturers on price. If the Company’s international sales increase relative to its total revenues, these factors could have a more pronounced effect on the Company’s operating results.

      In Taiwan, the Company’s business could be impacted by the political, economic and military conditions in that country. China does not recognize Taiwan’s independence and the two countries are continuously engaged in political disputes. Both countries have continued to conduct military exercises in or near the others territorial waters and airspace. These disputes may continue or escalate, resulting in an economic embargo, a disruption in shipping or even military hostilities. The political instability in Taiwan could result in the creation of political or other non-economic barriers to the Company being able to sell its products or create local economic conditions that reduce demand for the Company’s products among the Company’s target markets.

      In both Taiwan and Japan, the Company’s customers are subject to risk of natural disasters, which, if they were to occur, could harm the Company’s revenue. Semiconductor fabrication facilities have in the past experienced major reductions in foundry capacity due to earthquakes in Taiwan and Japan. For example, in 1999, Taiwan experienced several earthquakes which impacted foundries due to power outages, physical damage and employee dislocation. The Company’s business could suffer if a major customer’s manufacturing capacity was adversely affected by a natural disaster such as an earthquake, fire, tornado or flood.

      Any kind of economic instability in Taiwan and Japan or other parts of Asia where the Company does business can have a severe negative impact on the Company’s operating results due to the large concentration of the Company’s sales activities in this region. For example, during 1997 and 1998, several Asian countries, including Taiwan and Japan, experienced severe currency fluctuation and economic deflation, which negatively impacted the Company’s revenues and also negatively impacted the Company’s ability to collect payments from customers. During this period, the lack of capital in the financial sectors of these countries made it difficult for the Company’s customers to open letters of credit or other financial instruments that are guaranteed by foreign banks. The economic situation during this period exacerbated a decline in selling prices for the Company’s products as the Company’s competitors reduced product prices to generate needed cash.

The Company Must Continually Improve Its Technology to Remain Competitive.

      Technology changes rapidly in the semiconductor, data storage and flat panel display manufacturing industries. The Company believes its success depends in part upon its ability to enhance its existing products and to develop and market new products to meet customer needs, even in industry downturns. For example, as the semiconductor industry transitions from 200mm manufacturing technology to 300mm technology, the Company believes it is important to its future success to develop and sell new products that are compatible with 300mm technology. If competitors introduce new technologies or new products, the Company’s sales could decline and its existing products could lose market acceptance. The Company cannot guarantee that it

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will identify and adjust to changing market conditions or succeed in introducing commercially rewarding products or product enhancements. The success of the Company’s product development and introduction depends on a number of factors, including:

  •  accurately identifying and defining new market opportunities and products;
 
  •  completing and introducing new product designs in a timely manner;
 
  •  market acceptance of the Company’s products and its customers’ products;
 
  •  timely and efficient software development, testing and process;
 
  •  timely and efficient implementation of manufacturing and assembly processes;
 
  •  product performance in the field;
 
  •  development of a comprehensive, integrated product strategy; and
 
  •  efficient implementation and installation and technical support services.

      Because the Company must commit resources to product development well in advance of sales, its product development decisions must anticipate technological advances by leading semiconductor manufacturers. The Company may not succeed in that effort. Its inability to select, develop, manufacture and market new products or enhance its existing products could cause it to lose its competitive position and could seriously harm its business.

The Company Faces Significant Competition Which Could Result in Decreased Demand for the Company’s Products or Services.

      The markets for the Company’s products are intensely competitive. The Company may be unable to compete successfully.

      The Company believes the primary competitive factors in the equipment automation segment are throughput, reliability, contamination control, accuracy and price/performance. The Company believes that its primary competition in the equipment automation market is from integrated original equipment manufacturers that satisfy their semiconductor and flat panel display handling needs internally rather than by purchasing systems or modules from an independent supplier like the Company. Many of these original equipment manufacturers have substantially greater resources than the Company does. Applied Materials, Inc., the leading process equipment original equipment manufacturer, develops and manufactures its own central wafer handling systems and modules. The Company may not be successful in selling its products to original equipment manufacturers that internally satisfy their wafer or substrate handling needs, regardless of the performance or the price of the Company products. Moreover, integrated original equipment manufacturers may begin to commercialize their handling capabilities and become the Company’s competitors.

      The Company believes that the primary competitive factors for factory interface products in the factory automation hardware segment are technical and technological capabilities, reliability, price/performance, ease of integration and global sales and support capability. In this market, the Company competes directly with Asyst, Rorze, Fortrend, Newport, TDK, Yasakawa and Hirata. Some of these competitors have substantial financial resources and extensive engineering, manufacturing and marketing capabilities. The Company’s automated material handling systems division in the factory automation hardware segment competes with Daifuku, Murata Machiner, the Asyst-Shinko Electric joint venture and a number of other smaller foreign and domestic manufacturers of automated machinery used in semiconductor fabrication facilities. The primary competitive factors in this market are quality, robustness and performance, price, ease of integration, vendor reputation, financial stability, support and on-time delivery.

      The Company believes that the primary competitive factors in the end-user semiconductor manufacturer market for factory automation software are product functionality, price/performance, ease of use, ease of integration and installation, hardware and software platform compatibility, costs to support and maintain, vendor reputation and financial stability. The relative importance of these competitive factors may change over

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time. The Company directly competes in this market with various competitors, including Applied Materials-Consilium, IBM, Si-view, HP/Compaq, TRW, Camstar and numerous small, independent software companies. The Company also competes with the in-house software staffs of semiconductor manufacturers like NEC, Texas Instruments and Intel. Most of those manufacturers have substantially greater resources than the Company does.

      It is a normal incident of the purchasing process of most of the Company’s existing and potential customers to actively evaluate the product and service offerings of our competitors. In some cases that process involves utilizing the products of competitors on a trial basis at the customer’s site. This is done to allow those customers to identify the product and service offerings that they judge to be of the highest quality and most suited to their needs. Customers also engage in such practices as part of a program to avoid dependence on sole-source suppliers for certain of their needs. The existence of such practices can make it more difficult for the Company both to gain new customers and to win repeat business from existing customers.

      New products developed by the Company’s competitors or more efficient production of their products could increase pricing pressure on our products. In addition, companies in the semiconductor capital equipment industry have been facing pressure to reduce costs. Either of these factors may require the Company to make significant price reductions to avoid losing orders. Further, the Company’s current and prospective customers continuously expert pressure on the Company to lower prices, shorten delivery times and improve the capabilities of the Company’s products. Failure to respond adequately to such pressures could result in a loss of customers or orders.

Much of the Company’s Success and Value Lies in Its Ownership and Use of Intellectual Property, and the Company’s Failure to Protect that Property Could Adversely Affect Its Future Operations.

      The Company’s ability to compete is heavily affected by its ability to protect its intellectual property. The Company relies primarily on trade secret laws, confidentiality procedures, patents, copyrights, trademarks and licensing arrangements to protect its intellectual property. The steps the Company has taken to protect its technology may be inadequate. Existing trade secret, trademark and copyright laws offer only limited protection. The Company’s patents could be invalidated or circumvented. The laws of certain foreign countries in which the Company’s products are or may be developed, manufactured or sold may not fully protect the Company’s products. This may make the possibility of piracy of the Company’s technology and products more likely. The Company cannot guarantee that the steps the Company has taken to protect its intellectual property will be adequate to prevent misappropriation of its technology. Other companies could independently develop similar or superior technology without violating the Company’s proprietary rights. There has been substantial litigation regarding patent and other intellectual property rights in semiconductor-related industries. The Company may engage in litigation to:

  •  enforce its patents;
 
  •  protect its trade secrets or know-how;
 
  •  defend itself against claims alleging it infringes the rights of others; or
 
  •  determine the scope and validity of the patents or intellectual property rights of others.

      Any litigation could result in substantial cost to the Company and divert the attention of the Company’s management, which could harm its operating results and its future operations.

The Company’s Operations Could Infringe on the Intellectual Property Rights of Others.

      Particular aspects of the Company’s technology could be found to infringe on the intellectual property rights or patents of others. Other companies may hold or obtain patents on inventions or may otherwise claim proprietary rights to technology necessary to the Company’s business. The Company cannot predict the extent to which it may be required to seek licenses or alter its products so that they no longer infringe the rights of others. The Company cannot guarantee that the terms of any licenses it may be required to seek will be reasonable. Similarly, changing the Company’s products or processes to avoid infringing the rights of others

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may be costly or impractical or could detract from the value of its products. A party making a claim of infringement could secure a judgment against the Company that requires it to pay substantial damages. A judgment could also include an injunction or other court order that could prevent the Company from selling its products. Any claim of infringement by a third party also could cause the Company to incur substantial costs defending against the claim, even if the claim is invalid, and could distract the attention of the Company’s management. Any of these events could seriously harm the Company’s business.

The Company’s Business May Be Harmed by Infringement Claims of General Signal or Applied Materials.

      Brooks received notice from General Signal Corporation (“General Signal”) alleging certain of Brooks’ tool automation products that the Company sells to semiconductor process tool manufacturers infringed General Signal’s patent rights. The notification advised Brooks that General Signal was attempting to enforce its rights to those patents in litigation against Applied Materials, and that, at the conclusion of that litigation, General Signal intended to enforce its rights against Brooks and others. According to a press release issued by Applied Materials in November 1997, Applied Materials settled its litigation with General Signal by acquiring ownership of five General Signal patents. Although not verified by the Company, these five patents would appear to be the patents referred to by General Signal in its prior notice to Brooks. Applied Materials has not contacted Brooks regarding these patents. The Company cannot guarantee that it would prevail in any litigation by Applied Materials seeking damages or expenses from it or to enjoin it from selling its products on the basis of the alleged patent infringement, or that a license for any of the alleged infringed patents will be available to the Company on reasonable terms, if at all. A substantial portion of Brooks’ revenues for fiscal 2001 derived from the products that are alleged to infringe.

The Company’s Business May Be Harmed by Infringement Claims of Asyst Technologies, Inc.

      Brooks acquired certain assets, including a transport system known as IridNet, from the Infab division of Jenoptik AG on September 30, 1999. Asyst Technologies, Inc. (“Asyst”) had previously filed suit against Jenoptik AG and other defendants, claiming that products of the defendants, including IridNet, infringe Asyst’s patents. This ongoing litigation may ultimately affect certain products sold by the Company. The Company has received notice that Asyst may amend its complaint to name the Company as an additional defendant. Based on the Company’s investigation of Asyst’s allegations, it does not believe it is infringing any claims of Asyst’s patents. The Company intends to continue to support Jenoptik to argue vigorously, among other things, the position that the IridNet system does not infringe the Asyst patents. If Asyst prevails in prosecuting its case, Asyst may seek to prohibit the Company from developing, marketing and using the IridNet product without a license. Because patent litigation can be extremely expensive, time-consuming, and its outcome uncertain, the Company may seek to obtain licenses to the disputed patents. The Company cannot guarantee that licenses will be available to it on reasonable terms, if at all. If a license from Asyst is not available, the Company could be forced to incur substantial costs to reengineer the IridNet system, which could diminish its value. In any case, the Company may face litigation with Asyst. Such litigation could be costly and would divert the Company management’s attention and resources. In addition, even though sales of IridNet comprise a small percentage of the Company’s revenues, if the Company does not prevail in such litigation, the Company could be forced to pay significant damages or amounts in settlement. Jenoptik has agreed to indemnify the Company for losses the Company may incur in this action.

      In addition, Asyst made assertions in approximately 1995 that certain technology employed in products manufactured and sold by Hermos Informatik GmbH infringed one or more of Asyst’s patents. Hermos was acquired by the Company in July 2002. (See Item 7, “Acquisitions”.) To date Asyst has taken no steps to assert or enforce any such rights against the Company and, to the Company’s knowledge, Asyst never commenced enforcement proceedings against Hermos prior to its acquisition by the Company. Should Asyst seek to pursue any such claims against Hermos or the Company, the Company would be subject to all of the business and litigation risks identified in the preceding paragraph.

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The Company’s Software Products May Contain Errors or Defects That Could Result in Lost Revenue, Delayed or Limited Market Acceptance or Product Liability Claims with Substantial Litigation Costs.

      Complex software products like the Company’s can contain errors or defects, particularly when the Company first introduces new products or when it releases new versions or enhancements. Any defects or errors could result in lost revenue or a delay in market acceptance, which would seriously harm the Company’s business and operating results. The Company has occasionally discovered software errors in its new software products and new releases after their introduction, and the Company expects that this will continue. Despite internal testing and testing by current and potential customers, the Company’s current and future products may contain serious defects.

      Because many of the Company’s customers use their products for business-critical applications, any errors, defects or other performance problems could result in financial or other damage to the Company’s customers and could significantly impair their operations. The Company’s customers could seek to recover damages from the Company for losses related to any of these issues. A product liability claim brought against the Company, even if not successful, would likely be time-consuming and costly to defend and could adversely affect the Company’s marketing efforts.

Risk Factors Relating to the Company’s Common Stock

The Company’s Operating Results Fluctuate Significantly, Which Could Negatively Impact Its Business and Its Stock Price.

      The Company’s revenues, margins and other operating results can fluctuate significantly from quarter to quarter depending upon a variety of factors, including:

  •  the level of demand for semiconductors in general;
 
  •  cycles in the market for semiconductor manufacturing equipment and automation software;
 
  •  the timing, rescheduling, cancellation and size of orders from the Company’s customer base;
 
  •  the Company’s ability to manufacture, test and deliver products in a timely and cost-effective manner;
 
  •  the Company’s success in winning competitions for orders;
 
  •  the timing of the Company’s new product announcements and releases and those of its competitors;
 
  •  the mix of products it sells;
 
  •  the timing of any acquisitions and related costs;
 
  •  competitive pricing pressures; and
 
  •  the level of automation required in fab extensions, upgrades and new facilities.

      A portion of the Company’s revenues from the factory automation software business depends on achieving project milestones. As a result, the Company’s revenue from the factory automation software business is subject to fluctuations depending upon a number of factors, including the Company’s ability to achieve project milestones on a timely basis, if at all, as well as the timing and size of projects.

The Company’s Stock Price is Volatile.

      The market price of the Company’s common stock has fluctuated widely. For example, between April 4, 2001 and April 30, 2001, the closing price of Brooks common stock rose from approximately $35.45 to $62.61 per share and between August 28, 2001 and September 28, 2001, the price of the Brooks common stock dropped from approximately $48.15 to $26.59 per share. Consequently, the current market price of the Company common stock may not be indicative of future market prices, and Brooks may be unable to sustain

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or increase the value of an investment in its common stock. Factors affecting the Company’s stock price may include:

  •  variations in operating results from quarter to quarter;
 
  •  changes in earnings estimates by analysts or the Company’s failure to meet analysts’ expectations;
 
  •  changes in the market price per share of the Company’s public company customers;
 
  •  market conditions in the industry;
 
  •  general economic conditions;
 
  •  low trading volume of the Company common stock; and
 
  •  the number of firms making a market in the Company common stock.

      In addition, the stock market has recently experienced extreme price and volume fluctuations. These fluctuations have particularly affected the market prices of the securities of high technology companies like the Company. These market fluctuations could adversely affect the market price of the Company’s common stock.

Provisions of the Company’s Certificate of Incorporation, Bylaws, Contracts and 4.75% Convertible Subordinated Notes Due 2008 May Discourage Takeover Offers and May Limit the Price Investors Would Be Willing to Pay For the Company’s Common Stock.

      The Company’s certificate of incorporation and bylaws contain provisions that may make an acquisition of the Company more difficult and discourage changes in the Company’s management. These provisions could limit the price that investors might be willing to pay for shares of the Company’s common stock. In addition, the Company has adopted a shareholder rights plan. In many potential takeover situations, rights issued under the plan become exercisable to purchase the Company common stock at a price substantially discounted from the then applicable market price of the Company common stock. Because of its possible dilutive effect to a potential acquirer, the rights plan would generally discourage third parties from proposing a merger with or initiating a tender offer for the Company that is not approved by the Company’s board of directors. Accordingly, the rights plan could have an adverse impact on the Company’s stockholders who might want to vote in favor of a merger or participate in a tender offer. In addition, the Company may issue shares of preferred stock upon terms the board of directors deems appropriate without stockholder approval. The Company’s ability to issue preferred stock in such a manner could enable its board of directors to prevent changes in its management or control. Finally, upon a change of control of the Company, the Company may be required to repurchase convertible subordinated notes at a price equal to 100% of the principal outstanding amount thereof, plus accrued and unpaid interest, if any, to the date of the repurchase. Such a repurchase of the notes would represent a substantial cash outflow; accordingly, the repayment of the notes upon a change of control of the Company could discourage third parties from proposing a merger with, initiating a tender offer for or otherwise attempting to gain control of the Company.

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Brooks-PRI Automation, Inc.

 
Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Exposure

      Based on Brooks’ overall interest exposure at September 30, 2002, including its fixed rate $175.0 million convertible notes due in 2008, a 10% change in the effective interest rate percentage would not materially affect the consolidated results of operations or financial position.

Currency Rate Exposure

      Brooks’ foreign revenues are generally denominated in United States dollars. Accordingly, foreign currency fluctuations have not had a significant impact on the comparison of the results of operations for the periods presented. The costs and expenses of Brooks’ international subsidiaries are generally denominated in currencies other than the United States dollar. However, since the functional currency of Brooks’ international subsidiaries is the local currency, foreign currency translation adjustments do not impact operating results, but instead are reflected as a component of stockholders’ equity under the caption “Accumulated other comprehensive income (loss)”. To the extent Brooks expands its international operations or changes its pricing practices to denominate prices in foreign currencies, Brooks will be exposed to increased risk of currency fluctuation.

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Item 8.      Financial Statements and Supplementary Data
           
Report of Independent Accountants
    48  
Consolidated Balance Sheets as of September 30, 2002 and 2001
    49  
Consolidated Statements of Operations for the three years ended September 30, 2002, 2001 and 2000
    50  
Consolidated Statements of Changes in Stockholders’ Equity for the three years ended September 30, 2002, 2001 and 2000
    51  
Consolidated Statements of Cash Flows for the three years ended September 30, 2002, 2001 and 2000
    52  
Notes to Consolidated Financial Statements
    54  
Financial Statement Schedule:
       
 
Schedule II — Valuation and Qualifying Accounts and Reserves
    91  

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REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors of
Brooks-PRI Automation, Inc.:

      In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of Brooks-PRI Automation, Inc. and its subsidiaries at September 30, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2002 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the accompanying financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

  PricewaterhouseCoopers LLP

Boston, Massachusetts

November 18, 2002, except for the second paragraph of Note 1 and the
third paragraph of Note 12, as to which the date is December 20, 2002.

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BROOKS-PRI AUTOMATION, INC.

CONSOLIDATED BALANCE SHEETS

                     
September 30,

2002 2001


(In thousands, except
share and per share
data)
ASSETS
Current assets
               
 
Cash and cash equivalents
  $ 125,297     $ 160,239  
 
Marketable securities
    25,353       43,593  
 
Accounts receivable, net, including related party receivables of $68 and $32, respectively
    89,150       93,565  
 
Inventories
    78,193       49,295  
 
Prepaid expenses and other current assets
    15,560       9,836  
 
Deferred income taxes
          26,608  
     
     
 
   
Total current assets
    333,553       383,136  
Property, plant and equipment
               
 
Buildings and land
    37,259       31,910  
 
Computer equipment and software
    45,558       38,497  
 
Machinery and equipment
    23,658       17,349  
 
Furniture and fixtures
    14,706       11,240  
 
Leasehold improvements
    25,238       10,069  
 
Construction in progress
    13,768       11,026  
     
     
 
      160,187       120,091  
 
Less: Accumulated depreciation and amortization
    (75,395 )     (53,632 )
     
     
 
      84,792       66,459  
Long-term marketable securities
    95,087       125,887  
Goodwill
    104,156       60,128  
Intangible assets, net
    14,648       40,788  
Deferred income taxes
          19,280  
Other assets
    25,261       14,026  
     
     
 
   
Total assets
  $ 657,497     $ 709,704  
     
     
 
 
LIABILITIES, MINORITY INTERESTS AND STOCKHOLDERS’ EQUITY
Current liabilities
               
 
Notes payable
  $     $ 17,122  
 
Current portion of long-term debt
    8       392  
 
Accounts payable
    30,436       18,595  
 
Deferred revenue
    29,032       15,507  
 
Accrued warranty and retrofit costs
    19,011       1,839  
 
Accrued compensation and benefits
    18,171       12,835  
 
Accrued retirement benefit
    9,599       3,661  
 
Accrued restructuring costs
    18,897       3,702  
 
Accrued income taxes payable
    8,488       7,691  
 
Deferred income taxes
          423  
 
Accrued expenses and other current liabilities
    23,573       19,206  
     
     
 
   
Total current liabilities
    157,215       100,973  
Long-term debt
    175,177       175,031  
Deferred income taxes
          6,546  
Accrued long-term restructuring
    14,889       1,559  
Other long-term liabilities
    1,488       664  
     
     
 
   
Total liabilities
    348,769       284,773  
     
     
 
Commitments and contingencies (Note 16)
               
Minority interests
    493       762  
     
     
 
Stockholders’ equity
               
 
Preferred stock, $0.01 par value, 1,000,000 shares authorized, 1 share and no shares issued and outstanding at September 30, 2002 and 2001, respectively
           
 
Common stock, $0.01 par value, 100,000,000 shares and 43,000,000 shares authorized, 36,199,333 and 18,903,165 shares issued and outstanding at September 30, 2002 and 2001, respectively
    362       189  
 
Additional paid-in capital
    1,094,726       471,991  
 
Deferred compensation
    (13,421 )     (5 )
 
Accumulated other comprehensive loss
    (8,058 )     (2,586 )
 
Accumulated deficit
    (765,374 )     (45,420 )
     
     
 
   
Total stockholders’ equity
    308,235       424,169  
     
     
 
   
Total liabilities, minority interests and stockholders’ equity
  $ 657,497     $ 709,704  
     
     
 

The accompanying notes are an integral part of these consolidated financial statements.

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BROOKS-PRI AUTOMATION, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

                             
Year Ended September 30,

2002 2001 2000



(In thousands, except per share data)
Revenues
                       
 
Product, including related party revenues of $616, $13,966 and $36,934, respectively
  $ 208,666     $ 291,727     $ 284,366  
 
Services
    95,588       89,989       52,818  
     
     
     
 
   
Total revenues
    304,254       381,716       337,184  
     
     
     
 
Cost of revenues
                       
 
Product
    151,147       166,471       141,088  
 
Services
    70,063       62,861       35,371  
     
     
     
 
   
Total cost of revenues
    221,210       229,332       176,459  
     
     
     
 
Gross profit
    83,044       152,384       160,725  
     
     
     
 
Operating expenses
                       
 
Research and development
    75,055       60,868       44,147  
 
Selling, general and administrative
    101,205       95,919       77,410  
 
Amortization of acquired intangible assets and asset impairment charges
    499,570       30,187       18,506  
 
Acquisition-related and restructuring charges
    35,032       9,314       578  
     
     
     
 
   
Total operating expenses
    710,862       196,288       140,641  
     
     
     
 
Income (loss) from operations
    (627,818 )     (43,904 )     20,084  
Interest income
    9,840       12,534       9,707  
Interest expense
    10,290       4,063       1,345  
Other (income) expense, net
    856       (1,090 )     (2 )
     
     
     
 
Income (loss) before income taxes and minority interests
    (627,412 )     (36,523 )     28,444  
Income tax provision (benefit)
    92,816       (6,439 )     13,609  
     
     
     
 
Income (loss) before minority interests
    (720,228 )     (30,084 )     14,835  
Minority interests in loss of consolidated subsidiaries
    (274 )     (424 )     (274 )
     
     
     
 
Net income (loss)
    (719,954 )     (29,660 )     15,109  
Accretion and dividends on preferred stock
          (90 )     (120 )
     
     
     
 
Net income (loss) attributable to common stockholders
  $ (719,954 )   $ (29,750 )   $ 14,989  
     
     
     
 
Earnings (loss) per share
                       
 
Basic
  $ (27.90 )   $ (1.65 )   $ 0.96  
 
Diluted
  $ (27.90 )   $ (1.65 )   $ 0.88  
Shares used in computing earnings (loss) per share
                       
 
Basic
    25,807       18,015       15,661  
 
Diluted
    25,807       18,015       17,192  

The accompanying notes are an integral part of these consolidated financial statements.

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BROOKS-PRI AUTOMATION, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

                                                                     
Accumulated
Common Common Additional Other
Stock Stock at Paid-in Deferred Comprehensive Comprehensive Accumulated
Shares Par Value Capital Compensation Income (Loss) Income (Loss) Deficit Total








(In thousands)
Balance September 30, 1999
    13,110,313     $ 131     $ 168,954     $ (65 )           $ (1,093 )   $ (30,014 )   $ 137,913  
Shares issued under stock option and purchase plans
    558,195       6       5,418                                 5,424  
Common stock offering
    3,070,500       31       220,445                                 220,476  
Common stock issued in acquisitions
    849,903       8       21,829                                 21,837  
Amortization of deferred compensation
                        30                           30  
Accretion and dividends on preferred stock
                                            (120 )     (120 )
Income tax benefit from stock options
                  6,738                                 6,738  
Income tax benefit from acquisitions
                  9,865                                 9,865  
Comprehensive income (loss):
                                                               
 
Net income
                            $ 15,109             15,109       15,109  
 
Currency translation adjustments
                              (1,849 )     (1,849 )           (1,849 )
                                     
                         
   
Comprehensive income
                            $ 13,260                      
                                     
                         
Elimination of Irvine Optical net income for the three months ended December 31, 1999
                                            (139 )     (139 )
     
     
     
     
             
     
     
 
Balance September 30, 2000
    17,588,911       176       433,249       (35 )             (2,942 )     (15,164 )     415,284  
Shares issued under stock option and purchase plans
    470,239       5       9,080                                 9,085  
Common stock issued in acquisitions
    844,015       8       25,967                                 25,975  
Amortization of deferred compensation
                        30                           30  
Accretion and dividends on preferred stock
                                            (90 )     (90 )
Income tax benefit from stock options
                  3,695                                 3,695  
Comprehensive income (loss):
                                                               
 
Net loss
                            $ (29,660 )           (29,660 )     (29,660 )
 
Currency translation adjustments
                              356       356             356  
                                     
                         
   
Comprehensive loss
                            $ (29,304 )                    
                                     
                         
Elimination of Progressive Technologies net income for the three months ended December 31, 2000
                                            (506 )     (506 )
     
     
     
     
             
     
     
 
Balance September 30, 2001
    18,903,165       189       471,991       (5 )             (2,586 )     (45,420 )     424,169  
Shares issued under stock option and purchase plans
    429,928       4       8,025                                 8,029  
Common stock issued in acquisitions
    16,866,240       169       537,561                                 537,730  
Stock options converted in acquisitions
                  77,149                                 77,149  
Deferred compensation
                        (15,209 )                         (15,209 )
Amortization of deferred compensation
                        1,793                           1,793  
Comprehensive income (loss):
                                                               
 
Net loss
                            $ (719,954 )           (719,954 )     (719,954 )
 
Currency translation adjustments
                              3,807       3,807             3,807  
 
Unrealized loss on investment in Shinsung
                              (9,279 )     (9,279 )           (9,279 )
                                     
                         
   
Comprehensive loss
                            $ (725,426 )                  
     
     
     
     
     
     
     
     
 
Balance September 30, 2002
    36,199,333     $ 362     $ 1,094,726     $ (13,421 )           $ (8,058 )   $ (765,374 )   $ 308,235  
     
     
     
     
             
     
     
 

The accompanying notes are an integral part of these consolidated financial statements.

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BROOKS-PRI AUTOMATION, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

                               
Year ended September 30,

2002 2001 2000



(In thousands)
Cash flows from operating activities
                       
Net income (loss)
  $ (719,954 )   $ (29,660 )   $ 15,109  
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
                       
 
Depreciation and amortization
    37,402       45,041       30,400  
 
Impairment of intangible assets and goodwill
    479,253              
 
Compensation expense related to common stock options
    1,794       30       30  
 
Provision for losses on accounts receivable
    3,129       4,691       540  
 
Reserves for excess and obsolete inventories
    8,297       15,426       2,611  
 
Deferred income taxes
    96,748       (14,050 )     (8,801 )
 
Amortization of debt discount and issuance costs
    628       214        
 
Minority interests
    (274 )     (424 )     (274 )
 
(Gain) loss on disposal of long-lived assets
    1,720       1,524       (142 )
 
Changes in operating assets and liabilities, net of acquired assets and liabilities:
                       
   
Accounts receivable
    40,112       3,734       (51,195 )
   
Inventories
    8,121       (4,897 )     (30,592 )
   
Prepaid expenses and other current assets
    3,876       (760 )     (7,702 )
   
Accounts payable
    (2,494 )     (5,514 )     12,779  
   
Deferred revenue
    1,928       (3,743 )     8,385  
   
Accrued warranty costs
    7,249       1,020       302  
   
Accrued compensation and benefits
    (4,336 )     (3,318 )     9,684  
   
Accrued acquisition-related and restructuring costs
    (4,469 )     4,723       (680 )
   
Accrued expenses and other current liabilities
    (14,389 )     6,648       8,339  
     
     
     
 
     
Net cash provided by (used in) operating activities
    (55,659 )     20,685       (11,207 )
     
     
     
 
Cash flows from investing activities
                       
Purchases of fixed assets
    (23,660 )     (53,652 )     (13,879 )
Acquisition of businesses, net of cash acquired
    (16,195 )     (33,142 )     (24,399 )
Purchases of marketable securities
    (74,559 )     (181,402 )     (118,034 )
Sale/maturity of marketable securities
    123,599       114,956       15,000  
Proceeds from sale of long-lived assets
    57       224       735  
(Increase)decrease in other assets
    968       (728 )     (1,550 )
     
     
     
 
     
Net cash provided by (used in) investing activities
    10,210       (153,744 )     (142,127 )
     
     
     
 
Cash flows from financing activities
                       
Net repayments of lines of credit and revolving credit facilities
          (350 )     (1 )
Net decrease in short-term borrowings
          (16,000 )     (5,263 )
Proceeds from issuance of convertible notes, net of issuance costs
          169,543        
Payments of long-term debt and capital lease obligations
    (587 )     (490 )     (562 )

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Year ended September 30,

2002 2001 2000



(In thousands)
Proceeds from issuance of common stock, net of issuance costs
    8,029       9,106       225,900  
     
     
     
 
   
Net cash provided by financing activities
    7,442       161,809       220,074  
     
     
     
 
Elimination of net cash activities on pooling of interest transactions
          (1,119 )     14  
     
     
     
 
Effects of exchange rate changes on cash and cash equivalents
    3,065       (1,028 )     (149 )
     
     
     
 
Net increase (decrease) in cash and cash equivalents
    (34,942 )     26,603       66,605  
Cash and cash equivalents, beginning of year
    160,239       133,636       67,031  
     
     
     
 
Cash and cash equivalents, end of year
  $ 125,297     $ 160,239     $ 133,636  
     
     
     
 
Supplemental disclosure of cash flow information
                       
Cash paid during the year for interest
  $ 8,560     $ 193     $ 1,432  
Cash paid (received) during the year for income taxes, net of refunds
  $ (5,339 )   $ 5,876     $ 10,450  
Supplemental disclosure of noncash financing and investing activities
                       
Accretion and dividends on preferred stock
  $     $ 90     $ 120  
Settlement of notes related to acquisitions in exchange for common stock
  $ 17,750     $     $  
  The Company utilized available funds, issued common stock and issued notes in connection with certain business combinations during the years ended September 30, 2002, 2001 and 2000. The fair values of the assets and liabilities of the acquired companies are presented as follows:
 
Assets acquired
  $ 217,537     $ 11,682     $ 14,166  
 
Liabilities assumed
    (98,227 )     (9,585 )     (17,364 )
     
     
     
 
   
Net assets acquired (liabilities assumed)
  $ 119,310     $ 2,097     $ (3,198 )
     
     
     
 
 
The acquisitions were funded as follows:
                       
   
Cash consideration
  $ 38,021     $ 33,274     $ 27,300  
   
Common stock
    519,888       23,363       15,027  
   
Stock options converted
    77,149              
   
Notes issued to sellers
          16,906       16,000  
   
Transaction costs
    17,683       1,665       2,874  
   
Cash acquired
    (39,509 )     (1,797 )     (5,775 )
     
     
     
 
    $ 613,232     $ 73,411     $ 55,426  
     
     
     
 

The accompanying notes are an integral part of these consolidated financial statements.

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BROOKS-PRI AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     Nature of the Business

      Brooks-PRI Automation, Inc. (“Brooks” or the “Company”) is a leading supplier of integrated tool and factory automation solutions for the global semiconductor and related industries, such as the data storage and flat panel display manufacturing industries. Beginning in 1998, the Company began a program of investment and acquisition through which the Company’s offerings have grown from individual robots used to transfer semiconductor wafers in advanced production equipment to fully integrated automation solutions that control the movement and management of wafers and reticles in the wafer fabrication facility.

      The Company has recorded significant losses from operations and has an accumulated deficit of $765.4 million at September 30, 2002. Revenues and operations have decreased substantially and net cash outflows from operations have increased significantly as a result of the current downturn within the semiconductor sector and related industries. Consequently, the Company has undertaken several restructuring programs during the year ended September 30, 2002 (See Note 12) to align its cost structures and its revenues. Due to the severity of and the continuation of the downturn, the Company announced in December 2002 further cost reductions to be implemented during the course of fiscal 2003. The cyclical nature of the industry, the extended period of the current downturn and the current uncertainty as to the timing and speed of recovery mean that estimates of future revenues, results of operations and net cash flows are inherently difficult. At September 30, 2002 the Company had $245.7 million in cash, cash equivalents and marketable securities, primarily a result of the proceeds raised from the May 2001 sale of $175.0 million of convertible notes due in 2008 and the $220.0 million offering of common stock in May of 2000. The Company believes it has adequate existing resources to fund the Company’s currently planned restructuring activities, working capital requirements and capital expenditures, including development of new products and enhancements to existing products, for at least the next twelve months. If the Company is unable to generate sufficient cash flows from operations, the Company may need to raise additional funds to develop new or enhanced products, respond to competitive pressures or make acquisitions. The Company may be unable to obtain any required additional financing on terms favorable to it, if at all. If adequate funds are not available on acceptable terms, the Company may be unable to fund its expansion, successfully develop or enhance products, respond to competitive pressure or take advantage of acquisition opportunities, any of which could have a material adverse effect on the Company’s business.

2.     Summary of Significant Accounting Policies

 
Principles of Consolidation and Basis of Presentation

      The consolidated financial statements include the accounts of the Company and all majority-owned subsidiaries. All significant intercompany accounts and transactions are eliminated.

      On July 3, 2002, the Company acquired Hermos Informatik GmbH (“Hermos”) from its parent, The Hermos Group. Hermos, located in Germany, is a provider of wafer carrier ID readers for the 300mm market. On May 14, 2002, the Company completed the acquisition of PRI Automation, Inc. (“PRI”). PRI, principally located in Billerica, Massachusetts and Mountain View, California, supplies advanced factory automation systems equipment, software and services that optimize the productivity of semiconductor and precision electronics manufacturers, as well as OEM process tool manufacturers. On February 15, 2002, the Company acquired substantially all of the assets of Intelligent Automation Systems, Inc. and IAS Products, Inc. (collectively, “IAS”), two privately held companies affiliated with each other, located in Cambridge, Massachusetts. IAS provides standard and custom automation technology and products for the semiconductor, photonics, life sciences and certain other industries. On December 15, 2001, the Company acquired Fab Air Control (“Fab Air”), a Massachusetts company that develops exhaust control and airflow management systems for the semiconductor industry. On December 13, 2001, the Company acquired the Automation Systems Group of Zygo Corporation (“Zygo”). Zygo, located in Florida, is a manufacturer of reticle automation systems, including reticle sorters, reticle macro inspection systems and reticle handling solutions

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

for the semiconductor industry. On October 9, 2001, the Company acquired 90% of the capital stock of Tec-Sem A.G. (“Tec-Sem”), a Swiss company, and subsequently exercised an option to acquire the remaining 10% of Tec-Sem’s capital stock during March 2002. Tec-Sem is a manufacturer of bare reticle stockers, tool buffers and batch transfer systems for the semiconductor industry. On October 5, 2001, the Company acquired substantially all of the assets of General Precision, Inc. (“GPI”). GPI, located in Valencia, California, is a supplier of high-end environmental solutions for the semiconductor industry. All of these acquisitions were completed to complement the existing product offerings of the Company and to better enable it to provide a more comprehensive set of products and solutions required by existing and potential customers. These transactions were recorded using the purchase method of accounting in accordance with Financial Accounting Standards Board Statement No. 141, “Business Combinations” (“FAS 141”). Accordingly, the Company’s Consolidated Statements of Operations and of Cash Flows for the year ended September 30, 2002, includes the results of these acquired entities for the periods subsequent to their respective acquisitions.

      On July 12, 2001, the Company acquired Progressive Technologies, Inc. (“PTI”) in a transaction accounted for as a pooling of interests initiated prior to June 30, 2001. Accordingly, the Company’s consolidated financial statements and notes thereto have been restated to include the financial position and results of operations of PTI for all periods prior to the acquisition. PTI is engaged in the development, production and distribution of air-flow regulation systems for clean room and process equipment in the semiconductor industry. Prior to its acquisition by the Company, PTI’s fiscal year-end was December 31. Accordingly, the Company’s Consolidated Statement of Operations for the year ended September 30, 2000 include PTI’s results of operations for the year ended December 31, 2000. As a result of conforming dissimilar year-ends, PTI’s results of operations for the three months ended December 31, 2000, are included in both of the Company’s fiscal years 2001 and 2000. An amount equal to PTI’s net income attributable to common stockholders for the three months ended December 31, 2000 was eliminated from consolidated accumulated deficit for the year ended September 30, 2001. PTI’s revenues, net income and net income attributable to common stockholders for that quarter were $3.8 million, $536,000 and $506,000, respectively.

      On June 26, 2001, the Company completed the purchase of KLA-Tencor, Inc.’s e-Diagnostics product business (“e-Diagnostics”). The e-Diagnostics products enable service and support teams to remotely access their tools in customer fabs in real-time to diagnose and resolve problems quickly and cost-effectively. On June 25, 2001, the Company acquired CCS Technology, Inc. (“CCST”), a supplier of 300mm automation test and certification software located in Williston, Vermont. On May 15, 2001, the Company acquired SimCon N.V. (“SimCon”), a value-added reseller for the Company’s simulation, scheduling, production analysis and dispatching software headquartered in Belgium. On February 16, 2001, the Company acquired SEMY Engineering, Inc. (“SEMY”), a provider of advanced process and equipment control systems for the semiconductor industry located in Phoenix, Arizona. On December 13, 2000, the Company acquired substantially all of the assets of a scheduling and simulation software and service distributor in Japan. These transactions were recorded using the purchase method of accounting in accordance with Accounting Principles Board Opinion No. 16, “Business Combinations” (“APB 16”). Accordingly, the Company’s Consolidated Statements of Operations and of Cash Flows for the year ended September 30, 2001, include the results of these acquired entities for the periods subsequent to their respective acquisitions.

      On May 5, 2000, the Company completed the acquisition of Irvine Optical Company LLC (“Irvine Optical”) in a transaction accounted for as a pooling of interests. Accordingly, the results of operations and financial position of Irvine Optical are included in the Company’s consolidated results for all periods presented. Prior to its acquisition by the Company, Irvine Optical’s fiscal year-end was December 31. As a result of conforming dissimilar year-ends, Irvine Optical’s results of operations for the three months ended December 31, 1999, are included in the Company’s fiscal year 2000. An amount equal to Irvine Optical’s net income for the three months ended December 31, 1999, was eliminated from consolidated accumulated deficit for the year ended September 30, 2000. Irvine Optical’s revenues and net income for that quarter were $4.1 million and $0.1 million, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The Company completed two acquisitions during fiscal year 2000 which were accounted for using the purchase method of accounting in accordance with APB 16: MiTeX Solutions (“MiTeX”) on June 23, 2000 and Auto-Soft Corporation (“ASC”) and AutoSimulations, Inc. (“ASI”) on January 6, 2000. The Company’s Consolidated Statements of Operations and of Cash Flows include the results of these entities for the periods subsequent to their respective acquisitions.

      In June 1999, the Company formed a joint venture in Korea. This joint venture is 70% owned by the Company and 30% owned by third parties unaffiliated with the Company. The Company consolidates fully the financial position and results of operations of the joint venture and accounts for the minority interest in the consolidated financial statements.

      Certain amounts in previously issued financial statements have been reclassified to conform to current year presentation.

     Use of Estimates

      The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include revenues and costs under long-term contracts, collectibility of accounts receivable, obsolescence of inventory, cost of product warranties, recoverability of depreciable assets, intangibles and deferred tax assets and the adequacy of acquisition-related and restructuring reserves. Although the Company regularly assesses these estimates, actual results could differ from those estimates. Changes in estimates are recorded in the period in which they become known.

     Foreign Currency Translation

      For non-U.S. subsidiaries, which operate in a local currency environment, assets and liabilities are translated at period-end exchange rates, and income statement items are translated at the average exchange rates for the period. The local currency for all foreign subsidiaries is considered to be the functional currency and accordingly, translation adjustments are reported in “Accumulated other comprehensive income (loss)”. Foreign currency translation adjustments are one of the components added to the Company’s net income (loss) in the calculation of comprehensive net income (loss).

     Cash and Cash Equivalents

      Cash and cash equivalents include cash and highly liquid investments with original maturities of three months or less. At both September 30, 2002 and 2001, all cash equivalents were classified as available-for-sale and held at amortized cost, which approximates fair value.

     Marketable Securities

      The Company invests its excess cash in marketable debt securities and classifies them as available-for-sale. The Company records these securities at fair value in accordance with Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (“FAS 115”). For all periods presented, unrealized gains and losses are immaterial. Marketable securities reported as current assets represent investments that mature within one year. Long-term marketable securities represent investments with maturity dates greater than one year from the balance sheet date. At the time that the maturity dates of these investments become one year or less, the values will be reclassified to current assets. At September 30, 2002, the Company’s marketable securities were comprised of U.S. Government securities aggregating $46.6 million and corporate debt securities aggregating $73.8 million, with maturities to

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

the Company not exceeding twenty-seven years. At September 30, 2001, the Company’s marketable securities were comprised entirely of corporate debt securities aggregating $169.5 million, with maturities to the Company not exceeding three years.

     Concentration of Credit Risk

      Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of trade receivables and temporary and long-term cash investments in treasury bills, certificates of deposit and commercial paper. The Company restricts its investments to repurchase agreements with major banks, U.S. government and corporate securities, and mutual funds that invest in U.S. government securities, which are subject to minimal credit and market risk. The Company’s customers are concentrated in the semiconductor industry, and relatively few customers account for a significant portion of the Company’s revenues. The Company regularly monitors the creditworthiness of its customers and believes that it has adequately provided for exposure to potential credit losses.

     Inventories

      Inventories are stated at the lower of cost or market, cost being determined using the first-in, first-out method. The Company provides inventory reserves for excess, obsolete or damaged inventory based on changes in customer demand, technology and other economic factors.

      While the Company often uses sole source suppliers for certain key components and common assemblies to achieve quality control and the benefits of economies of scale, the Company believes that these parts and materials are readily available from other supply sources.

     Fixed Assets

      Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method. Depreciable lives are summarized below:

         
Buildings
    20 – 40 years  
Computer equipment and software
    2 – 6 years  
Machinery and equipment
    2 – 10 years  
Furniture and fixtures
    3 – 10 years  

      Equipment held under capital leases is recorded at the fair market value of the equipment at the inception of the leases. Leasehold improvements and equipment held under capital leases are amortized over the shorter of their estimated useful lives or the term of the respective leases. Equipment used for demonstrations to customers is included in machinery and equipment and is depreciated over its estimated useful life. Repair and maintenance costs are expensed as incurred.

      The Company periodically evaluates the recoverability of long-lived assets, including its intangible assets, whenever events and changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. When indicators of impairment are present, the carrying values of the asset are evaluated in relation to the operating performance and future undiscounted cash flows of the underlying business. The net book value of the underlying asset is adjusted to fair value if the sum of the expected discounted cash flows is less than book value. Fair values are based on estimates of market prices and assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates, reflecting varying degrees of perceived risk. There was no impairment of tangible long-lived assets for any of the periods presented.

      Upon retirement or sale, the cost of the assets disposed of, and the related accumulated depreciation, are removed from the accounts, and any resulting gain or loss is included in the determination of net income.

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     Intangible Assets and Goodwill

      Patents include capitalized direct costs associated with obtaining patents as well as assets that were acquired as a part of purchase business combinations. Capitalized patent costs are amortized using the straight-line method over the shorter of seven years or the estimated economic life of the patents. The fair values of acquired patents are amortized over three to five years using the straight-line method. As of September 30, 2002 and 2001, the net book values of the Company’s patents were $0.1 million and $2.2 million, respectively.

      Costs incurred in the research and development of the Company’s products are expensed as incurred, except for certain software development costs. Software development costs are expensed prior to establishing technological feasibility and capitalized thereafter until the product is available for general release to customers. Capitalized software development costs are amortized to cost of sales on a product-by-product basis over the estimated lives of the related products, typically three years. At September 30, 2001, the Company’s capitalized software costs had been fully amortized; the Company did not capitalize any such costs during fiscal 2002.

      Goodwill represents the excess of purchase price over the fair value of net tangible and identifiable intangible assets of businesses the Company has acquired and has accounted for under the purchase method in accordance with APB 16 and FAS 141. As of September 30, 2002 and 2001, the values of goodwill were $104.2 million and $60.1 million, respectively.

      Ratable amortization expense (excluding impairment charges of $145.1 million) for intangible assets was $20.8 million, $31.6 million, and $19.6 million for the years ended September 30, 2002, 2001 and 2000, respectively.

      The amortizable lives of intangible assets, including those identified as a result of purchase accounting, are summarized as follows:

         
Patents
    3 – 5 years  
Completed technology
    2 – 10 years  
License agreements
    5 years  
Trademarks and trade names
    3 – 5 years  
Non-competition agreements
    3 – 5 years  
Customer relationships
    4 – 7 years  

      The Company elected to early adopt the provisions of FAS 142 effective October 1, 2001. Accordingly, the Company ceased the ratable amortization of goodwill on that date. The Company performs an annual impairment test of its goodwill as required under the provisions of FAS 142. The Company recorded impairment charges of $145.1 million and $334.2 million for intangible assets and goodwill, respectively, in the year ended September 30, 2002.

     Revenue Recognition

      The Company adopted the recommendations of Staff Accounting Bulletin 101, “Revenue Recognition in Financial Statements” (“SAB 101”) effective October 1, 2000. The adoption of SAB 101 did not have any impact on the Company’s results of operations or financial position.

      Revenue from product sales and software licenses is recorded upon transfer of title and risk of loss to the customer provided there is evidence of an arrangement, fees are fixed or determinable, no significant obligations remain, collection of the related receivable is reasonably assured and customer acceptance criteria have been successfully demonstrated. Customer acceptance provisions include final testing and acceptance carried out prior to shipment. These pre-shipment testing and acceptance procedures ensure that the product

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

meets the published specification requirements before the product is shipped. Shipping terms are customarily FOB shipping point. Costs incurred for shipping and handling are included in cost of sales. A provision for product warranty costs is recorded to estimate costs associated with such warranty liabilities. When significant on site customer acceptance provisions are present in the arrangement, revenue is generally recognized upon completion of customer technical acceptance testing. In the event significant post-shipment obligations or uncertainties remain, revenue is deferred and recognized when such obligations are fulfilled by the Company or the uncertainties are resolved.

      The Company enters into two types of significant multi-element arrangements: tailored software arrangements, described below, and software sales with post-contract support. Revenue for the undelivered support on multi-element software sales with post-contract support is deferred based on vendor specific objective evidence of the value of the support.

      Revenue from services is recognized as the services are rendered. Revenue from fixed fee tailored software consulting contracts and long-term contracts are recognized using the percentage-of-completion method of contract accounting, based on the ratio that costs incurred to date bear to estimated total costs at completion, or the completed contract method. Revisions in revenue and cost estimates are recorded in the periods in which the facts that require such revisions become known. Losses, if any, are provided for in the period in which such losses are first identified by management.

      For tailored software contracts, the Company provides significant consulting services to tailor the software to the customer’s environment. The Company utilizes the percentage-of-completion method due to the significance of the service effort. If the ability of the Company to complete the tailored software is uncertain, completed contract accounting is applied. Generally, the terms of long-term contracts provide for progress billing based on completion of certain phases of work. For maintenance contracts, service revenue is recognized ratably over the term of the maintenance contract. Deferred revenue primarily relates to those services and maintenance agreements.

      In transactions that include multiple products and/or services, the Company allocates the sales value among each of the deliverables based on their relative fair values.

     Stock-Based Compensation

      The Company’s employee stock compensation plans are accounted for in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations. Under this method, no compensation expense is recognized as long as the exercise price equals or exceeds the market price of the underlying stock on the date of the grant. The Company elected the disclosure-only alternative permitted under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“FAS 123”) for fixed stock-based awards to employees. All non-employee stock-based awards are accounted for at fair value and recorded as compensation expense over the period of service in accordance with FAS 123 and related interpretations.

     Income Taxes

      The Company records income taxes using the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, and operating loss and tax credit carryforwards. The Company’s consolidated financial statements contain certain deferred tax assets which have arisen primarily as a result of operating losses, as well as other temporary differences between financial and tax accounting. The Company is required to establish a valuation allowance if the likelihood of realization of the deferred tax assets is reduced based on an evaluation of objective verifiable evidence. Significant management judgment is required in determining the Company’s provision for

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

income taxes, the Company’s deferred tax assets and liabilities and any valuation allowance recorded against those deferred tax assets. The Company evaluates the weight of all available evidence to determine whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. As a result of recognizing a $627.4 million loss before taxes and minority interests during the year ended September 30, 2002, and the continuing uncertainty in the semiconductor sector, management determined that it is more likely than not that the Company’s deferred tax assets will not be realized and, accordingly, recorded a valuation allowance of $219.5 million against the net deferred tax assets. The amount of the deferred tax asset considered realizable is subject to change based on future events, including generating taxable income in future periods. The Company will continue to assess the need for the valuation allowance at each balance sheet date based on all available evidence. If the Company generates sustained future taxable income against which these tax attributes may be applied, some portion or all of the valuation allowance would be reversed and a corresponding increase in net income would be reported in future periods.

     Earnings (Loss) Per Share

      Basic earnings (loss) per share is calculated based on the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is calculated based on the weighted average number of common shares and dilutive common equivalent shares assumed outstanding during the period. Shares used to compute diluted earnings (loss) per share exclude common share equivalents if their inclusion would have an anti-dilutive effect.

     Fair Value of Financial Instruments

      The Company’s financial instruments consist of cash and cash equivalents, investments in long- and short-term debt securities, accounts receivable, accounts payable, accrued expenses and long- and short-term debt. The carrying amounts reported in the balance sheets approximate their fair value at both September 30, 2002 and 2001.

     Recent Accounting Pronouncements

      In October 2001, the FASB issued Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“FAS 144”). The objectives of FAS 144 are to address significant issues relating to the implementation of FASB Statement No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of” (“FAS 121”) and to develop a single accounting model, based on the framework established in FAS 121, for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired. FAS 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001, and generally, its provisions are to be applied prospectively. The Company adopted this standard effective October 1, 2002.

      In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146, “Accounting for Exit or Disposal Activities” (“FAS 146”). FAS 146 addresses significant issues regarding the recognition, measurement and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for under Emerging Issues Task Force No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)” (“EITF 94-3”). The scope of FAS 146 also includes costs related to terminating a contract that is not a capital lease and termination benefits that employees who are involuntarily terminated receive under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred compensation contract. The Company is required to adopt the provisions of FAS 146 effective for exit or disposal activities initiated after December 31, 2002. The provisions of EITF 94-3 shall continue to apply for any exit activity initiated under an exit plan that met the criteria of EITF 94-3 prior to the adoption of FAS 146. The adoption of FAS 146 will change, on a prospective basis, the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

timing of recording restructure charges from the commitment date to when the liability is incurred. The adoption of this standard will impact the timing of recording restructuring activities initiated subsequent to December 31, 2002.

 
3. Business Acquisitions

Pooling of Interests Transactions

     PTI

      On July 12, 2001, Brooks acquired PTI in a transaction accounted for as a pooling of interests initiated prior to June 30, 2001 in exchange for 715,004 shares of the Company’s common stock. The acquisition has been accounted for as a pooling of interests. PTI is engaged in the development, production and distribution of air-flow regulation systems for clean room and process equipment in the semiconductor industry.

      The accompanying consolidated financial statements and notes thereto have been restated to include the financial position and results of operations for PTI for all periods prior to the acquisition. As a result of conforming dissimilar year-ends, PTI’s results of operations for the three months ended December 31, 2000, are included in both of the Company’s fiscal years 2001 and 2000. Accordingly, an amount equal to PTI’s net income for the three months ended December 31, 2000, was eliminated from consolidated accumulated deficit for the year ended September 30, 2001. PTI’s revenues, net income and net income attributable to common stockholders for that quarter were $3.8 million, $536,000 and $506,000, respectively.

     Irvine Optical

      On May 5, 2000, the Company acquired Irvine Optical in exchange for 309,013 shares of Brooks common stock. The acquisition was accounted for as a pooling of interests. Irvine Optical is engaged principally in the design, engineering and manufacturing of wafer handling and inspection equipment for sale primarily to the semiconductor industry. In connection with this acquisition, the Company incurred $0.6 million of costs, consisting primarily of transaction costs to effect the acquisition.

      The accompanying consolidated financial statements and notes thereto have been restated to include the financial position and results of operations for Irvine Optical for all periods prior to the acquisition. As a result of conforming dissimilar year-ends, Irvine Optical’s results of operations for the three months ended December 31, 1999, are included in the Company’s fiscal year 2000. Accordingly, an amount equal to Irvine Optical’s net income for the three months ended December 31, 1999, was eliminated from consolidated accumulated deficit for the year ended September 30, 2000. Irvine Optical’s revenues and net income for that quarter were $4.1 million and $0.1 million, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The results of operations previously reported by the separate companies prior to their respective acquisitions and the combined amounts presented in the accompanying Consolidated Statements of Operations are as follows (in thousands):

                           
(Unaudited) (Unaudited)
Nine Months Ended Six Months Ended Year Ended
June 30, March 31, September 30,
2001 2000 2000



Revenues
                       
 
Brooks-PRI Automation, Inc.
  $ 310,085     $ 123,290     $ 310,436  
 
Irvine Optical LLC
          10,663       10,663  
 
Progressive Technologies, Inc.
    10,107       7,222       16,085  
     
     
     
 
    $ 320,192     $ 141,175     $ 337,184  
     
     
     
 
Net income
                       
 
Brooks-PRI Automation, Inc.
  $ 2,580     $ 4,317     $ 12,193  
 
Irvine Optical LLC
          560       560  
 
Progressive Technologies, Inc.
    861       984       2,356  
     
     
     
 
    $ 3,441     $ 5,861     $ 15,109  
     
     
     
 

Purchase Transactions

     Hermos

      On July 3, 2002, the Company completed the acquisition of all of the outstanding capital stock of Hermos, a privately-held company located in Mistelgau, Germany. Hermos provides wafer carrier ID readers used in the manufacturer of semiconductors. The transaction was accounted for as a purchase in accordance with FAS 141. In consideration, the Company paid the Hermos stockholders $5.1 million in cash and issued 1,274,989 shares of Brooks common stock with a value of $29.7 million, or $23.31 per share, which represents the average closing price of the Company’s stock for two days before, the day of and two days after the acquisition. The Company has reserved an additional 137,760 shares to be issued conditionally upon adjustments for finalization of the net tangible assets acquired from the selling stockholders.

      A portion of the excess of purchase price over fair value of net assets acquired has been allocated to an identifiable intangible asset, which the Company is amortizing over its estimated useful life of three years, using the straight-line method. The balance of the excess purchase price was recorded as goodwill. Pro forma

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

results of operations are not presented as the amounts are not material compared to the Company’s historical results. A summary of the transaction is as follows (in thousands):

             
Consideration:
       
 
Cash, net of cash acquired of $15
  $ 5,065  
 
Common stock issued
    29,716  
 
Transaction costs
    339  
     
 
   
Total consideration
    35,120  
Fair value of net tangible assets acquired
    617  
     
 
Excess of consideration over fair value of net tangible assets acquired
    34,503  
Allocation of excess consideration to identifiable intangible asset:
       
 
Completed technology
    4,600  
     
 
Allocation of excess consideration to goodwill
  $ 29,903  
     
 

     PRI

      On May 14, 2002, the Company completed the acquisition of 100% of the outstanding shares of PRI. PRI, located principally in Billerica, Massachusetts and Mountain View, California, supplies advanced factory automation systems, software and services that optimize the productivity of semiconductor and precision electronics manufacturers, as well as OEM process tool manufacturers. The acquisition of PRI by Brooks provides the Company with entry into the automated material handling systems (“AMHS”) and lithography automation markets by serving semiconductor manufacturers while also significantly expanding its atmospheric product offerings serving the OEM business. Additionally, the Company has increased its software market share through the acquisition. Stockholders of PRI received 0.52 shares of Brooks common stock for each share of PRI common stock held. The Company issued 13,563,207 shares of Brooks common stock to PRI stockholders in the merger. The Company has reserved an additional 3,317,168 shares for issuance upon the exercise of options to purchase PRI common stock, which were assumed by Brooks and converted into options to purchase Brooks common stock, using the same ratio as that used for the common shares.

      In connection with the merger, Brooks changed its name to Brooks-PRI Automation, Inc., and increased the size of its board of directors from five to seven members.

      The merger was structured as a tax-free reorganization, and has been accounted for as a purchase transaction in accordance with FAS 141.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      A portion of the excess of purchase price over fair value of net assets acquired was allocated to identifiable intangible assets, which the Company will amortize over a weighted average useful life of six years, using the straight-line method. The balance of the excess purchase price was recorded as goodwill. A summary of the transaction is as follows (in thousands):

             
Consideration:
       
 
Common stock issued
  $ 455,697  
 
Fair value of employee stock options converted
    76,114  
 
Transaction costs
    14,273  
     
 
   
Total consideration
    546,084  
     
 
Fair value of net assets acquired
    109,835  
Deferred compensation
    14,677  
     
 
      124,512  
     
 
Excess of consideration over fair value of net tangible assets acquired
    421,572  
     
 
Allocation of excess consideration to identifiable intangible assets:
       
 
Completed technology
    80,800  
 
Customer relationships
    28,500  
 
Trademarks and trade names
    3,900  
 
Non-competition agreements
    60  
     
 
      113,260  
     
 
Allocation of excess consideration to goodwill
  $ 308,312  
     
 

      The fair values of identifiable intangible assets are based on estimates of future revenues and earnings to determine a discounted cash flow valuation of identifiable intangible assets that meet the separate recognition criteria of FAS 141.

      The $308.3 million of goodwill arising from the acquisition is not deductible for tax purposes. Of this amount, $179.7 million has been allocated to the Company’s equipment automation segment, $110.1 million to the Company’s factory automation hardware segment and $18.5 million to the Company’s factory automation software segment.

      The fair value of the Company’s common stock per share was calculated as $33.60 per share, which represents the average closing price for two days before, the day of and two days after the announcement of the merger, on October 24, 2001. The Company has calculated the fair value of the options exchanged to be $76.1 million as of the acquisition date using the Black-Scholes option pricing model, a fair value of the Company’s common stock of $33.60 per share, volatility of 100%, an expected option life of four years, zero dividends and a risk-free rate of 4.29%, in accordance with FASB Interpretation No. 44, “Accounting for Certain Transactions Involving Stock Compensation — an interpretation of APB Opinion No. 25” (“FIN 44”). The intrinsic value of the unvested options exchanged in the acquisition has been estimated at $14.7 million and was recorded as deferred compensation. The deferred compensation will be recognized over the remaining vesting periods of the options, which range up to five years. The Company also has accounted for $14.3 million of transaction fees, which includes $6.2 million of legal and accounting fees and $7.2 million of investment banking fees.

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BROOKS-PRI AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following table summarizes the estimated fair values of the tangible assets acquired and liabilities assumed at May 14, 2002, the date of acquisition (in thousands).

         
Cash
  $ 39,271  
Other current assets
    63,852  
Property, plant and equipment
    9,037  
Other assets
    23,154  
Deferred tax assets, net
    56,537  
Current liabilities
    (72,029 )
Long-term liabilities
    (9,987 )
     
 
Net assets acquired
  $ 109,835  
     
 

      The acquisition gave rise to the consolidation and elimination of certain PRI duplicate facilities and redundant PRI personnel and the Company has provided certain balance sheet adjustments in accordance with Emerging Issues Task Force No. 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination.” The Company anticipated headcount reductions of approximately 325 people across all functional areas of the combined company and, accordingly, included an estimated accrual for workforce reductions of $13.5 million comprised of severance, employee benefits and outplacement support. As of September 30, 2002, 236 of these employees had been terminated, and $9.6 million of severance and other workforce-related costs had been paid. The former chief executive officer of PRI has entered into a non-competition agreement with the Company, which became effective upon completion of the combination and which will require a total payment of $1.1 million over a two-year period, of which $0.6 million has been recorded as a long-term liability. The Company has identified redundant facilities consisting of sales and support offices, manufacturing facilities and administrative offices. Accordingly, an accrual of $11.1 million was recorded representing rental commitments on facilities with lease terms to 2011.

      The Company has accrued for $1.2 million of amounts to be incurred subsequent to the acquisition related to legal costs to close legal subsidiaries of PRI. The Company believes the above actions are an integral component of the acquisition plan to enable the benefits of the combined companies to be optimized and the benefits of the acquisition to be realized. The Company expects to complete these restructuring efforts within one year from the acquisition date. Lease payments for restructured facilities due after more than one year are classified as long-term liabilities. The Company also adjusted the fair value of acquired leasehold improvements by $5.1 million for leasehold improvements related to PRI facilities which are being abandoned.

      The Company has recorded adjustments for a deferred tax asset of $101.8 million relating to the taxable losses and other timing differences of PRI acquired based on the then expected synergies and benefits, less $45.3 million of deferred tax liabilities related to the identifiable intangible assets to be acquired, for a net deferred tax asset acquired of $56.5 million. Additionally, the Company recorded adjustments to amounts previously recorded by PRI to eliminate $38.9 million of deferred revenue, $38.8 million of associated deferred inventory costs and $5.2 million of associated deferred installation costs related to contracts where effort was substantially completed prior to the acquisition date but revenue was deferred by PRI until acceptance by the customer. The Company recorded an accrual for estimated warranty expense of $1.2 million for contracts for which deferred revenue has been eliminated but for which there remains a continuing warranty obligation subsequent to the acquisition. The Company has recorded accounts receivable of $9.8 million for amounts due from customers under contracts for which Brooks will not recognize revenue subsequent to the acquisition date.

      The Company also eliminated $1.6 million of intangible assets and $1.4 million of goodwill previously recognized as assets by PRI and $1.8 million of restructuring reserves related to facilities based on PRI estimates which the Company has re-evaluated and recorded a separate accrual.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

     IAS

      On February 15, 2002, the Company acquired IAS, two privately held affiliated companies located in Cambridge, Massachusetts. IAS provides custom automation technology and products for the semiconductor, photonics, life sciences and certain other industries. The transaction was accounted for as a purchase in accordance with FAS 141. As consideration, the Company paid IAS and its stockholders $5.4 million of cash and issued or reserved for issuance 209,573 shares of Brooks common stock with a value of $9.9 million at the time of closing and converted existing IAS stock options into Brooks stock options, using the same ratio as that used for the common shares. The fair value of the common stock was calculated as $47.91 per share, which represents the average closing price for two days before, the day of and two days after the acquisition. Of these shares, 68,973 shares were issued in fiscal 2002 and 140,600 have been reserved for issuance to the sellers over a period of three years in accordance with the terms of the acquisition agreement, subject to adjustment for any indemnification claims that may arise within two years of the acquisition date. Additionally, 103,299 of the 140,600 shares are issuable contingent upon employment obligations to be fulfilled by certain key IAS employees ratably over the three year period subsequent to the acquisition. These shares are being recorded as compensation expense over the period of service.

      The Company has calculated the fair value of the options exchanged in this transaction to be $1.0 million as of the acquisition date using the Black-Scholes option pricing model, a fair value of the Company’s common stock of $47.91 per share, volatility of 100%, an expected option life of four years, zero dividends and a risk-free rate of 3.95%, in accordance with FIN 44. The intrinsic value of the unvested options exchanged in the acquisition is $0.5 million and was recorded as deferred compensation. The deferred compensation will be recognized over the remaining vesting periods of the options, which range up to four years.

      A portion of the excess of purchase price over fair value of net liabilities assumed was allocated to an identifiable intangible asset, which the Company is amortizing with an estimated weighted average useful life of six years, using the straight-line method. The balance of the excess purchase price was recorded as goodwill. Pro forma results of operations are not presented as the amounts are not material compared to the Company’s historical results. A summary of the transaction is as follows (in thousands):

             
Consideration:
       
 
Cash
  $ 5,430  
 
Common stock issued
    3,304  
 
Fair value of employee stock options converted
    1,035  
 
Transaction costs
    1,012  
     
 
   
Total consideration
    10,781  
     
 
Fair value of net liabilities assumed
    2,109  
Deferred compensation
    (532 )
     
 
      1,577  
     
 
Excess of consideration over fair value of net liabilities assumed
    12,358  
Allocation of excess consideration to identifiable intangible asset:
       
 
Completed technology
    5,520  
     
 
Allocation of excess consideration to goodwill
  $ 6,838  
     
 

     Fab Air

      On December 15, 2001, the Company acquired Fab Air, a Massachusetts company that develops exhaust control and airflow management systems for the semiconductor industry. As consideration, the Company paid

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BROOKS-PRI AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

$1.2 million of cash and incurred $0.3 million of transaction costs. The transaction was accounted for as a purchase in accordance with FAS 141. The excess of purchase price over fair value of net tangible assets acquired of $1.5 million has been recorded as completed technology, with an estimated useful life of three years, and will be amortized using the straight-line method. Pro forma results of operations are not presented as the amounts are not material compared to the Company’s historical results.

     Zygo Group

      On December 13, 2001, the Company acquired the Zygo Group, located in Florida. The Zygo Group is a manufacturer of reticle automation systems, including reticle sorters, reticle macro inspection systems, and reticle handling solutions for the semiconductor industry. As consideration, the Company paid $12.2 million of cash. The transaction was accounted for as a purchase in accordance with FAS 141.

      A portion of the excess of purchase price over fair value of net tangible assets acquired was allocated to identifiable intangible assets, which the Company estimates to have a weighted average useful life of five years, which the Company is amortizing using the straight-line method. The balance of the excess purchase price was recorded as goodwill. Pro forma results of operations are not presented as the amounts are not material compared to the Company’s historical results. A summary of the transaction is as follows (in thousands):

             
Consideration:
       
 
Cash
  $ 12,184  
 
Transaction costs
    257  
     
 
   
Total consideration
    12,441  
Fair value of net tangible assets acquired
    3,624  
     
 
Excess of consideration over fair value of net tangible assets acquired
    8,817  
     
 
Allocation of excess consideration to identifiable intangible assets:
       
 
Completed technology
    2,100  
 
Trademarks and trade names
    100  
     
 
      2,200  
     
 
Allocation of excess consideration to goodwill
  $ 6,617  
     
 

     Tec-Sem

      On October 9, 2001, the Company acquired 90% of the outstanding capital stock of Tec-Sem, a leading manufacturer of bare reticle stockers, tool buffers and batch transfer systems for the semiconductor industry. During March 2002, the Company exercised its option to purchase the remaining 10% of the outstanding capital stock. As consideration, the Company paid $13.8 million of cash, net of cash acquired of $223,000, and issued 180,000 shares of Brooks common stock with a market value of $5.7 million at the time of issuance. The shares issued included 25,000 shares of fully issued common stock with a market value of $0.7 million at the time of issuance, to certain key non-owner employees of Tec-Sem, which were accounted for as additional purchase price, since the issuance of the shares is not related to any continuing employee obligations to the Company. The fair value of the shares issued was determined utilizing the average closing price of the Company’s common stock over a period of two days before and the day of the acquisition. The transaction was accounted for as a purchase of assets in accordance with FAS 141.

      A portion of the excess of purchase price over fair value of net tangible assets acquired was allocated to an identifiable intangible asset, with an estimated useful life of five years, which the Company is amortizing using

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BROOKS-PRI AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

the straight-line method. The balance of the excess was recorded as goodwill. Pro forma results of operations are not presented as the amounts are not material compared to the Company’s historical results. A summary of the transaction is as follows (in thousands):

             
Consideration:
       
 
Cash, net of cash acquired of $223
  $ 13,777  
 
Common stock issued
    5,720  
 
Transaction costs
    513  
     
 
   
Total consideration
    20,010  
Fair value of net tangible assets acquired
    1,499  
     
 
Excess of consideration over fair value of net tangible assets acquired
    18,511  
Allocation of excess consideration to identifiable intangible assets:
       
 
Completed technology
    7,200  
     
 
Allocation of excess consideration to goodwill
  $ 11,311  
     
 

     GPI

      On October 5, 2001, the Company acquired substantially all of the assets of GPI in exchange for 825,000 shares of Brooks common stock, with a market value of $25.5 million at the time of issuance, subject to post-closing adjustments, and $0.2 million of cash. In accordance with the procedures defined in the terms of the acquisition agreement, the Company and the selling stockholders completed the post-closing adjustments and analysis related to the net assets of GPI at a point in time prior to the closing compared with the net assets at closing. As a result, on November 19, 2002, the Company issued 15,869 shares of Brooks common stock to the selling stockholders in full settlement of this process. Additionally, the Company made indemnification claims against shares held in escrow in accordance with the acquisition agreement. Accordingly, the Company released 56,200 of the shares held in escrow to the selling stockholders. The remaining 28,800 shares are being held pending final resolution of the indemnification claims. GPI, located in Valencia, California, is a supplier of high-end environmental solutions for the semiconductor industry. The fair value of the shares issued was determined utilizing the average closing price of the Company’s common stock over a period of two days before and the day of the acquisition.

      A portion of the excess of purchase price over fair value of net tangible assets acquired was allocated to identifiable intangible assets, which the Company estimates to have a weighted average useful life of five years, which the Company is amortizing using the straight-line method. The balance of the excess was recorded as goodwill.

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BROOKS-PRI AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      A summary of the transaction is as follows (in thousands):

             
Consideration:
       
 
Common stock issued
  $ 25,451  
 
Cash
    177  
 
Transaction costs
    829  
     
 
   
Total consideration
    26,457  
Fair value of net tangible assets acquired
    5,844  
     
 
Excess of consideration over fair value of net tangible assets acquired
    20,613  
     
 
Allocation of excess consideration to identifiable intangible assets:
       
 
Completed technology
    9,300  
 
Trademarks and trade names
    600  
 
Non-competition agreements
    200  
     
 
      10,100  
     
 
Allocation of excess consideration to goodwill
  $ 10,513  
     
 

     Pro forma results of operations

      The following pro forma results of operations for the year ended September 30, 2002 and 2001 have been prepared as though the acquisitions of PRI, GPI and SEMY had occurred as of October 1, 2000. All other acquisitions made in fiscal 2002 and 2001 are individually insignificant and are not included in the pro forma results of operations below, as their results are not material to the Company’s consolidated results of operations. This pro forma financial information does not purport to be indicative of the results of operations that would have been attained had the acquisitions been made as of October 1, 2000 or of results of operations that may occur in the future (in thousands, except per share data):

                 
Year Ended September 30,

2002 2001


Revenues
  $ 419,795     $ 673,682  
Net loss before cumulative effect of change in accounting principle
  $ (762,833 )   $ (114,096 )
Net loss
  $ (762,833 )   $ (119,794 )
Loss per share (diluted)
  $ (22.25 )   $ (3.69 )

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BROOKS-PRI AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

4.     Goodwill and Intangible Assets

      Components of the Company’s identifiable intangible assets are as follows (in thousands):

                                 
September 30, 2002 September 30, 2001


Accumulated Accumulated
Cost amortization Cost amortization




Patents
  $ 6,793     $ 6,653     $ 4,579     $ 2,422  
Completed technology
    29,913       20,910       31,575       4,081  
License agreements
    305       305       678       170  
Trademarks and trade names
    2,532       1,628       2,426       648  
Non-competition agreements
    1,726       1,219       2,133       591  
Customer relationships
    6,517       2,423       1,305       571  
Assembled workforces
                10,590       4,015  
     
     
     
     
 
    $ 47,786     $ 33,138     $ 53,286     $ 12,498  
     
     
     
     
 

      During fiscal 2002, the Company acquired intangible assets with an aggregate fair value of $518.0 million in connection with completed acquisitions.

      The continuing downturn in the semiconductor industry has adversely impacted the Company through diminished product demand, excess manufacturing capacity and downward pressure on pricing and gross margins. During the fourth quarter of fiscal 2002, the Company began the preparation of its fiscal 2003 plan and reviewed its internal forecasts and external data. The external data available from customer and competitor commentary, as well as industry forecasts of future revenue growth, indicated that the timing and speed of recovery for the sector would be later and slower than previously anticipated. In response, during the fourth quarter of fiscal 2002, the Company performed an assessment of the carrying values of its intangible assets as proscribed by FAS 121. The impairment testing was based on undiscounted cash flows to determine if an impairment existed. The resulting impairments were measured utilizing discounted cash flow analyses of expectations of future earnings for each of the reporting units over the remaining estimated useful lives from existing long-lived assets for each reporting unit. This assessment resulted in the impairment of intangible assets in each of the Company’s segments. Accordingly, the Company recorded a charge to operations of $145.1 million for the write-down of intangible assets. This charge is included within “Amortization of acquired intangible assets and asset impairment charges” in the Company’s Consolidated Statement of Operations for the year ended September 30, 2002.

      The components of the impairment of intangible assets recorded for the year ended September 30, 2002 is as follows (in thousands):

                                         
Factory Factory
Equipment Automation Automation
Automation Hardware Software Other Total





Patents
  $ 2,082     $ 553     $ 142     $     $ 2,777  
Completed technology
    84,331       15,033       9,172       4,888       113,424  
License agreements
          373                   373  
Trademarks and trade names
    546       3,072       922             4,540  
Non-competition agreements
    150             517             667  
Customer relationships
          19,118       4,170             23,288  
     
     
     
     
     
 
    $ 87,109     $ 38,149     $ 14,923     $ 4,888     $ 145,069  
     
     
     
     
     
 

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BROOKS-PRI AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Estimated future amortization expense for the intangible assets recorded by the Company as of September 30, 2002 is as follows (in thousands):

           
Year ended September 30,
       
 
2003
  $ 3,677  
 
2004
  $ 3,677  
 
2005
  $ 3,608  
 
2006
  $ 1,994  
 
2007
  $ 666  
 
Thereafter
  $ 1,026  

      The Company elected to early adopt the provisions of FAS 142 effective October 1, 2001. Accordingly, the Company ceased the ratable amortization of goodwill on that date.

      The Company was required to complete the first step of the transitional impairment testing of goodwill as of the date of adoption under the provisions of FAS 142 by March 31, 2002. The Company completed its initial testing as required and determined that there was no impairment as of October 1, 2001.

      In addition to the impairment indicators noted for intangible assets, the Company was also required to perform the annual impairment test of its goodwill under the provisions of FAS 142, as of September 30, 2002. The Company compared the fair value of each reporting unit to its recorded book value. An excess of book value over fair value indicates that a possible impairment of goodwill exists. The fair value of goodwill is determined on an implied residual basis by deducting the fair value of all assets and liabilities of the reporting unit, including non-acquired intangible assets not recorded, from the total fair value of the reporting unit. Impairment of goodwill is measured as the excess of the recorded value of goodwill over the implied residual value. The impairment testing was based on discounted cash flow analyses of expectations of future earnings for each of the reporting units over the remaining estimated lives of the primary assets of the reporting unit. During this annual impairment test, and primarily as a result of the continuing downturn in the semiconductor industry and uncertainty as to the timing and speed of recovery for the sector, the Company concluded that goodwill related to its equipment automation, factory automation hardware and factory automation software segments was impaired. Accordingly, the Company recorded a charge to operations of $334.2 million for the write-down of goodwill. The write-down of goodwill is included within “Amortization of acquired intangible assets and asset impairment charges” in the Company’s Consolidated Statement of Operations for the year ended September 30, 2002.

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BROOKS-PRI AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The changes in the carrying amount of goodwill by segment for the year ended September 30, 2002 is as follows (in thousands):

                                             
Factory Factory
Equipment Automation Automation
Automation Hardware Software Other Total





Balance at September 30, 2001
  $ 6,538     $ 450     $ 53,140     $     $ 60,128  
Adjustments to goodwill:
                                       
 
Reclassify assembled workforces to goodwill in accordance with FAS 141
    450             6,125             6,575  
 
Acquisitions
    190,258       157,898       18,499       6,838       373,493  
   
Purchase accounting adjustments on prior period acquisitions
    1,803       (20 )     (5,017 )           (3,234 )
 
Impairment
    (174,095 )     (123,808 )     (36,281 )           (334,184 )
   
Foreign currency translation
    10       1,134       234             1,378  
     
     
     
     
     
 
Balance at September 30, 2002
  $ 24,964     $ 35,654     $ 36,700     $ 6,838     $ 104,156  
     
     
     
     
     
 

      Purchase accounting adjustments are comprised of $2.0 million reclassified to deferred compensation with respect to stock awards granted to e-Diagnostics employees at the time of acquisition, and other individually insignificant purchase accounting adjustments aggregating $1.2 million.

      The amortization of goodwill excluded from the Company’s results of operations for the year ended September 30, 2002 as a result of the adoption of FAS 142 totaled $64.3 million.

      The information below gives effect to the adoption of FAS 142 as if its provisions had been adopted as of October 1, 1999. The results for the year ended September 30, 2002 are presented for comparative purposes only, as the effect of the adoption of FAS 142 is reflected in the Company’s actual results of operations for that period (in thousands, except per share data):

                             
Year Ended September 30,

2002 2001 2000



Net income (loss) attributable to common stockholders
  $ (719,954 )   $ (29,750 )   $ 14,989  
 
Add back goodwill and assembled workforces amortization
          23,762       15,893  
     
     
     
 
   
Adjusted net income (loss)
  $ (719,954 )   $ (5,988 )   $ 30,882  
     
     
     
 
Basic earnings (loss) per share
                       
 
Reported earnings (loss) per share
  $ (27.90 )   $ (1.65 )   $ 0.96  
 
Goodwill and assembled workforces amortization
          1.32       1.01  
     
     
     
 
   
Adjusted basic earnings (loss) per share
  $ (27.90 )   $ (0.33 )   $ 1.97  
     
     
     
 
Diluted earnings (loss) per share
                       
 
Reported earnings (loss) per share
  $ (27.90 )   $ (1.65 )   $ 0.88  
 
Goodwill and assembled workforces amortization
          1.32       0.92  
     
     
     
 
   
Adjusted diluted earnings (loss) per share
  $ (27.90 )   $ (0.33 )   $ 1.80  
     
     
     
 

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BROOKS-PRI AUTOMATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

5.     Earnings (Loss) Per Share

      Below is a reconciliation of earnings (loss) per share and weighted average common shares outstanding for purposes of calculating basic and diluted earnings (loss) per share (in thousands, except per share data):

                           
Year Ended September 30,

2002 2001 2000



Basic earnings (loss) per share:
                       
 
Net income (loss)
  $ (719,954 )   $ (29,660 )   $ 15,109  
 
Accretion and dividends on preferred stock
          (90 )     (120 )
     
     
     
 
 
Net income (loss) attributable to common stockholders
  $ (719,954 )   $ (29,750 )   $ 14,989  
     
     
     
 
 
Weighted average common shares outstanding
    25,807       18,015       15,661  
     
     
     
 
 
Basic earnings (loss) per share attributable to common stockholders
  $ (27.90 )   $ (1.65 )   $ 0.96  
     
     
     
 
Diluted earnings (loss) per share:
                       
 
Net income (loss) used to compute diluted earnings (loss) per share
  $ (719,954 )   $ (29,750 )   $ 15,109  
     
     
     
 
 
Weighted average common shares outstanding
    25,807       18,015       15,661  
 
Dilutive stock options, warrants and preferred stock conversions
                1,531  
     
     
     
 
 
Weighted average common shares outstanding for purposes of computing diluted earnings (loss) per share
    25,807       18,015       17,192  
     
     
     
 
 
Diluted earnings (loss) per share
  $ (27.90 )   $ (1.65 )   $ 0.88  
     
     
     
 

      Options to purchase common stock and assumed conversions totaling approximately 8,276,000 and 3,921,000 shares of common stock were excluded from the computation of diluted loss per share attributable to common stockholders for the years ended September 30, 2002 and 2001, respectively, as their effect would be anti-dilutive. Options and warrants to purchase approximately 291,000 shares of common stock were excluded from the computation of diluted earnings per share attributable to common stockholders for the year ended September 30, 2000, as their effect would be anti-dilutive. However, these options, warrants and conversions could become dilutive in future periods.

6.     Investment in Shinsung

      As a result of the acquisition of PRI, the Company acquired PRI’s minority investment in Shinsung Engineering Co., Ltd. (“Shinsung”), a South Korean manufacturer of semiconductor clean room equipment and other industrial systems. PRI had signed a strategic alliance agreement with Shinsung on December 1, 2000, for Shinsung to assemble PRI’s automated storage and retrieval systems. PRI made a minority investment in Shinsung of $11.5 million in exchange for 3,109,091 shares of Shinsung common stock and warrants to purchase an additional 3,866,900 common shares. The common shares, excluding the Company’s warrants to purchase additional shares, represent approximately 9% of the outstanding common shares of Shinsung at September 30, 2002. The fair value of the Shinsung warrants is determined using the Black-Scholes valuation model assuming an exercise price of 3,200 Korean Won, a remaining contractual term of 8.25 years, dividend rate of zero, volatility of 100% and risk-free interest rate of 3.67%. The Company is restricted from selling or transferring the stock upon exercise of the warrants for a period of 33 days after the date of exercise and the warrants may not be transferred or sold to any third party. As such, the warrants are not readily convertible into cash and therefore fall within the scope of FAS 115, pursuant to Emerging Issues Task Force No. 96-11, “Accounting for Forward Contracts and Purchased Options to Acquire Securities Covered by FASB Statement 115.” The unrealized loss of $9.2 million resulting from the change in the fair

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

market values of the common shares and warrants is reported as a component of “Accumulated other comprehensive income (loss)” in the Company’s Consolidated Balance Sheet at September 30, 2002. At the time of the Company’s acquisition of PRI on May 14, 2002, the fair market values of the Shinsung common shares and warrants were $10.7 million and $12.0 million, respectively. At September 30, 2002, the fair market values of the Shinsung common shares and warrants were $6.5 million and $7.0 million, respectively. The fair market value of the Shinsung common shares and warrants, aggregating $13.5 million, is reported in “Other assets” in the Company’s Consolidated Balance Sheet as of September 30, 2002.

7.     Income Taxes

      The components of the income tax provision (benefit) are as follows (in thousands):

                           
Year Ended September 30,

2002 2001 2000



Current:
                       
 
Federal
  $     $     $ 9,685  
 
State
    6       343       1,237  
 
Foreign
    4,769       7,268       7,737  
     
     
     
 
      4,775       7,611       18,659  
     
     
     
 
Deferred:
                       
 
Federal
    69,782       (11,916 )     (5,206 )
 
State
    9,393       (2,134 )     55  
 
Foreign
    8,866             101  
     
     
     
 
      88,041       (14,050 )     (5,050 )
     
     
     
 
    $ 92,816     $ (6,439 )   $ 13,609  
     
     
     
 

      The components of income (loss) before income taxes, but including minority interests, are as follows (in thousands):

                         
Year Ended September 30,

2002 2001 2000



Domestic
  $ (580,359 )   $ (47,342 )   $ 21,930  
Foreign
    (47,053 )     10,819       6,514  
     
     
     
 
    $ (627,412 )   $ (36,523 )   $ 28,444  
     
     
     
 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The significant components of the net deferred tax asset are as follows (in thousands):

                         
Year Ended September 30,

2002 2001 2000



Reserves not currently deductible
  $ 63,276     $ 35,770     $ 20,624  
Federal and state tax credits
    25,719       11,721       8,203  
Capitalized research and development
    901       1,340       1,895  
Depreciation and amortization
    44,043              
Net operating loss carryforwards
    98,447       5,314       6,407  
Other
                 
     
     
     
 
Deferred tax asset
    232,386       54,145       37,129  
     
     
     
 
Depreciation and amortization
          5,780       5,088  
Other
    3,302       1,189       119  
     
     
     
 
Deferred tax liability
    3,302       6,969       5,207  
     
     
     
 
Valuation reserve
    229,084       8,257       5,548  
     
     
     
 
Net deferred tax asset
  $     $ 38,919     $ 26,374  
     
     
     
 

      The differences between the income tax provision (benefit) and income taxes computed using the applicable U.S. statutory federal tax rate are as follows (in thousands):

                         
Year Ended September 30,

2002 2001 2000



Income tax provision (benefit) computed at federal statutory rate
  $ (219,594 )   $ (12,783 )   $ 9,955  
State income taxes, net of federal taxes (benefit)
    (12,478 )     (1,164 )     813  
Research and development tax credits
    (1,004 )     (1,700 )     (1,085 )
Foreign sales corporation tax benefit
    (833 )     (205 )     (582 )
Foreign income taxed at different rates
    16,381       1,910       1,157  
Nondeductible transaction expenses
          1,004       379  
Change in deferred tax asset valuation allowance
    219,553       2,708       (553 )
Permanent differences
    777       86       307  
Nondeductible amortization of goodwill
    93,197       5,057       3,751  
Foreign tax credit carryforwards
          (2,708 )     (2,754 )
Withholding taxes
    1,604       1,207       2,125  
Other
    (4,787 )     149       96  
     
     
     
 
    $ 92,816     $ (6,439 )   $ 13,609  
     
     
     
 

      The Company does not provide for U.S. income taxes applicable to undistributed earnings of its foreign subsidiaries since these earnings are indefinitely reinvested.

      During the fiscal year 2002 the Company recorded a valuation allowance of $219.5 million against all of its United States and foreign net deferred tax assets. FASB Statement of Financial Accounting Standards No. 109 “Accounting for Income Taxes,” requires a valuation allowance to be recorded against deferred tax assets when it is more likely than not that some or all of the deferred tax assets will not be realized. The Company incurred significant and previously unanticipated operating losses in the United States for the year ended September 30, 2002 and the current outlook indicates that significant uncertainty will continue into the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

next fiscal year. These cumulative factors resulted in management’s decision that it is more likely than not that all of its United States deferred tax assets will not be realized. If the Company generates sustained future taxable income against which these tax attributes may be applies, some portion or all of the valuation allowance would be reversed and a corresponding increase in net income would be reported in future periods.

      The valuation allowance also applies to state and foreign net operating loss carryforwards that may not be fully utilized by the Company. The increase in the valuation allowance relates primarily to the charge described above against the Company’s United States net deferred tax assets.

      As of September 30, 2002, the Company had federal, state and foreign net operating loss carryforwards of approximately $421.6 million and federal and state research and development tax credit carryforwards of approximately $12.3 million and foreign tax credit carryforwards of approximately $4.1 million available to reduce future tax liabilities, which expire at various dates through 2022.

8.     Financing Arrangements

      On May 23, 2001, the Company completed the private placement of $175.0 million aggregate principal amount of 4.75% Convertible Subordinated Notes due in 2008. The amount sold includes $25.0 million principal amount of notes purchased by the initial purchaser upon exercise in full of their 30-day option to purchase additional notes. The Company received net proceeds of $169.5 million from the sale. Interest on the notes is paid on June 1 and December 1 of each year; the first interest payment was made on December 1, 2001. The notes will mature on June 1, 2008. The Company may redeem the notes at a premium of 14.2% on or after June 6, 2004, or earlier if the price of the Company’s common stock reaches certain prices. Holders may require the Company to repurchase the notes upon a change in control of the Company in certain circumstances. The notes are convertible at any time prior to maturity, at the option of the holders, into shares of the Company’s common stock, at a conversion price of $70.23 per share, subject to certain adjustments. The notes are subordinated to the Company’s senior indebtedness and structurally subordinated to all indebtedness and other liabilities of the Company’s subsidiaries.

      The Company had a $10.0 million uncommitted demand promissory note credit facility with ABN AMRO, which expired on May 31, 2002. Accordingly, ABN AMRO will not extend loans or issue additional letters of credit under this facility. At September 30, 2002, the Company had $1.1 million of the facility still in use, all of it for letters of credit.

      In connection with the fiscal 2001 acquisition of the e-Diagnostics product line business, the Company issued a $17.0 million one-year note payable to the selling stockholders. The note was payable in cash or common stock, or any combination thereof, at the Company’s discretion. The Company discounted the note payable using an imputed interest rate of 4.75%, to $16.2 million, for accounting purposes, and amortized the resulting discount to interest expense through the note’s maturity date of June 25, 2002. The note was settled on July 26, 2002 by the issuance of 935,896 shares of the Company’s common stock to the selling stockholders, based on the closing price of the stock at that date. No cash was paid to the selling stockholders in settlement of this note.

      In connection with the fiscal 2001 acquisition of SimCon, the Company issued a note payable to the selling stockholders for $750,000, payable in one year. The note became due on May 14, 2002 and was payable in common stock. The Company discounted the note payable using an imputed interest rate of 4.75%, to $714,375, for accounting purposes and amortized the resulting discount to interest expense through the note’s maturity date. The note was settled on May 14, 2002 by the issuance of 21,645 shares of the Company’s common stock to the selling stockholders, based on the closing price of the stock at that date.

      At September 30, 2001, the Company had working capital loans of $0.3 million outstanding, maturing through April 2002. In November 1998, Smart Machines entered into a loan and security agreement with a leasing company. The agreement allowed for working capital borrowings of up to $2.0 million and equipment

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

loans of up to $0.5 million. The ability to borrow against this facility expired on December 31, 1999. The loans were payable in monthly installments of principal and interest, with a 10.0% principal payback due at the time of the final payment. Annual principal payments due uner these notes were $0.3 million in the year ended September 30, 2002; the loans were paid in full as of April 2002. All borrowings were collateralized by Smart Machines’ assets.

      Debt consists of the following (in thousands):

                 
September 30,

2002 2001


Convertible subordinated notes at 4.75%, due on June 1, 2008
  $ 175,000     $ 175,000  
Notes payable
          17,122  
Credit facility for working capital borrowings at 8.92% per annum, collateralized by assets
          325  
Capital lease obligations at rates of 5.0% to 21.0% per annum, collateralized by certain fixed assets, expiring November 15, 2006
    58        
Other
    127       98  
     
     
 
      175,185       192,545  
Less current portion
    8       17,514  
     
     
 
Long-term debt
  $ 175,177     $ 175,031  
     
     
 

      The Company’s debt repayments are due as follows (in thousands):

           
Year ended September 30, 2003
  $ 8  
 
2004
    156  
 
2005
    13  
 
2006
    8  
 
2007
     
 
Thereafter
    175,000  
     
 
    $ 175,185  
     
 

9.     Postretirement Benefits

      The Company sponsors defined contribution plans that meet the requirements of Section 401(k) of the Internal Revenue Code. All United States employees of the Company who meet minimum age and service requirements are eligible to participate in the plan. The plan allows employees to invest, on a pre-tax basis, a percentage of their annual salary subject to statutory limitations.

      As part of its cost reduction initiatives, the Company discontinued its matching contribution to the employee defined contribution plans during fiscal 2001. Accordingly, the Company did not record any expense for worldwide defined contribution plans for the year ended September 30, 2002. The Company’s contribution expense for worldwide defined contribution plans was $2.2 million and $1.1 million in the years ended September 30, 2001 and 2000, respectively.

10.     Stockholders’ Equity and Convertible Redeemable Preferred Stock

 
      Preferred Stock

      At September 30, 2002 and 2001, there were one million shares of preferred stock, $0.01 par value per share authorized; however, one share of preferred stock was issued and outstanding at September 30, 2002 and

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

no shares of preferred stock were issued or outstanding at September 30, 2001. The outstanding share of preferred stock was issued in connection with the Company’s acquisition of PRI and relates to PRI’s former Canadian exchangeable shareholders. Preferred stock may be issued at the discretion of the Board of Directors without stockholder approval with such designations, rights and preferences as the Board of Directors may determine.

 
      PTI Stock

      In connection with the acquisition of PTI by the Company, the Company acquired 9,208 shares of PTI restricted common stock and 90,000 shares of PTI Series A Convertible Redeemable Preferred Stock with a conversion ratio of 1:3.48 PTI preferred shares to Brooks common shares. All of these shares were subsequently converted into Brooks common stock upon acquisition.

 
      Common Stock Offering

      On March 7, 2000, the Company completed a public offering of 3,250,000 shares of its common stock, of which 2,750,000 shares were offered by the Company and 500,000 were offered by selling stockholders. The Company realized proceeds, net of $12.9 million of issuance costs, of $220.5 million on the sale of the initial 2,750,000 shares and the additional 320,500 shares purchased by the underwriters from the Company on March 23, 2000 to cover over-allotments of shares. The Company did not receive any proceeds from the sale of shares by the selling stockholders.

 
      Warrants

      Prior to its acquisition by the Company, PTI had issued warrants to purchase 10,000 shares of PTI common stock at an exercise price of $1.60 per share. These warrants were exercised for shares of PTI common stock on July 12, 2001 immediately prior to the acquisition of PTI by the Company. These shares were then exchanged for approximately 31,000 shares of the Company’s common stock in connection with the acquisition. At September 30, 2002 and 2001, there were no warrants outstanding.

      In connection with debt it had issued prior to its acquisition by the Company, Smart Machines had issued warrants to purchase 10,000 shares of its Series C preferred stock, 57,182 shares of its Series D preferred stock, 961,234 shares of its Series E preferred stock and 42,658 shares of its common stock. These warrants were converted into warrants to purchase the Company’s common stock on August 31, 1999, in conjunction with the acquisition of Smart Machines. The outstanding warrants expired on May 31, 2001. At September 30, 2000, warrants to acquire 84,691 shares of common stock were outstanding, at an exercise price of $25.56 per share.

 
      Rights Distribution

      In July 1997, the Board of Directors declared a dividend of one preferred purchase right (a “right”) for each share of common stock outstanding on August 12, 1997. Each right entitles the registered holder to purchase from the Company, upon certain triggering events, one one-thousandth of a share of Series A Junior Participating Preferred Stock (the “Series A Preferred Shares”), par value $0.01 per share, of the Company, at a purchase price of $135.00 per one one-thousandth of a Series A Preferred Share, subject to adjustment. Redemption of the rights could generally discourage a merger or tender offer involving the securities of the Company that is not approved by the Company’s Board of Directors by increasing the cost of effecting any such transaction and, accordingly, could have an adverse impact on stockholders who might want to vote in favor of such merger or participate in such tender offer. The rights will expire on the earlier of July 31, 2007, or the date on which the rights are redeemed. The terms of the rights may generally be amended by the Board of Directors without the consent of the holders of the rights.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

11.     Stock Plans

 
      2000 Combination Stock Option Plan

      The purposes of the 2000 Combination Stock Option Plan (the “2000 Plan”), adopted by the Board of Directors of the Company in February 2000, are to attract and retain employees and to provide an incentive for them to assist the Company to achieve long-range performance goals and to enable them to participate in the long-term growth of the Company. Under the 2000 Plan the Company may grant (i) incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended; and (ii) options that are not qualified as incentive stock options (“nonqualified stock options”). All employees of the Company or any affiliate of the Company are eligible to participate in the 2000 Plan. Options under the 2000 Plan generally vest over four years and expire seven years from the date of grant. A total of 6,000,000 shares of common stock were reserved for issuance under the 2000 Plan. Of these shares, options to purchase 771,728 shares are outstanding and 5,215,072 shares remain available for grant as of September 30, 2002.

 
      1998 Employee Equity Incentive Plan

      The purposes of the 1998 Employee Equity Incentive Plan (the “1998 Plan”), adopted by the Board of Directors of the Company in April 1998, are to attract and retain employees and provide an incentive for them to assist the Company in achieving long-range performance goals, and to enable them to participate in the long-term growth of the Company. All employees of the Company and contractors, consultants, service providers or others, other than its officers and directors, who are in a position to contribute to the long-term success and growth of the Company, are eligible to participate in the 1998 Plan. A total of 4,825,000 shares of common stock have been reserved for issuance under the 1998 Plan. Of these shares, options on 4,395,329 shares are outstanding and 80,157 shares remain available for grant as of September 30, 2002. Options under the 1998 Plan generally vest over a period of four years and generally expire seven years from the date of grant. In order to align the 1998 Plan with its current practices, in January 2000, the Board of Directors amended the 1998 Plan to eliminate the Company’s ability to award nonqualified stock options with exercise prices at less than fair market value.

 
      1993 Non-Employee Director Stock Option Plan

      The purpose of the 1993 Non-Employee Director Stock Option Plan (the “Directors Plan”) is to attract and retain the services of experienced and knowledgeable independent directors of the Company for the benefit of the Company and its stockholders and to provide additional incentives for such independent directors to continue to work for the best interests of the Company and its stockholders through continuing ownership of its common stock. Each director who is not an employee of the Company or any of its subsidiaries is eligible to receive options under the Directors Plan. Under the Directors Plan, each eligible director receives an automatic grant of an option to purchase 25,000 shares of common stock upon becoming a director of the Company and an option to purchase 10,000 shares on July 1 each year thereafter. Options granted under the Directors Plan generally vest over a period of five years and generally expire ten years from the date of grant. A total of 690,000 shares of common stock have been reserved for issuance under the Directors Plan. Of these shares, options on 231,000 shares are outstanding and 406,000 shares remain available for grant as of September 30, 2002.

 
      1992 Combination Stock Option Plan

      Under the Company’s 1992 Stock Option Plan (the “1992 Plan”), the Company may grant both incentive stock options and nonqualified stock options. The term of the 1992 Plan expired on May 12, 2002, and no further options may be granted. Incentive stock options could only be granted to persons who were employees of the Company at the time of grant, which could include officers and directors who are also employees. Nonqualified stock options could be granted to persons who are officers, directors or employees of

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

or consultants or advisors to the Company or persons who were in a position to contribute to the long-term success and growth of the Company at the time of grant. Options granted under the 1992 Plan generally vest over a period of four years and generally expire ten years from the date of grant. A total of 1,950,000 shares of common stock were reserved for issuance under the 1992 Plan. Of these shares, options on 621,495 shares are outstanding and no shares remain available for grant as of September 30, 2002.

 
      Stock Options Of Acquired Companies

      In connection with the acquisition of PTI, the Company assumed a stock option plan that was adopted by PTI on October 10, 1991. At acquisition, options to purchase 32,018 shares of PTI common stock were outstanding and converted into options to purchase 99,470 shares of the Company’s common stock. There were 31,746 shares outstanding at September 30, 2002. The Company does not intend to issue any additional options under the PTI stock option plan.

      In connection with the acquisition of PRI on May 14, 2002, the Company assumed the outstanding options of multiple stock option plans that were adopted by PRI. At acquisition, options to purchase 6,382,329 shares of PRI common stock were outstanding and converted into options to purchase 3,319,103 shares of the Company’s common stock. There were options to purchase 2,951,048 shares outstanding at September 30, 2002. The Company does not intend to issue any additional options under the PRI stock option plan.

      With the acquisition of IAS on February 15, 2002, the Company assumed outstanding options to purchase 2,176,715 shares of common stock of Intelligent Automation Systems, Inc. The options were converted into options to purchase 26,354 shares of the Company’s common stock. The converted options are included in the 1992 Combination Stock Option Plan and the 1998 Employee Equity Incentive Plan grants made during the year ended September 30, 2002.

 
      Stock Option Activity and Pro Forma Information

      Aggregate stock option activity for all the above plans for the years ended September 30, 2002, 2001 and 2000 is as follows:

                                                 
Year Ended September 30,

2002 2001 2000



Weighted Weighted Weighted
Average Average Average
Shares Price Shares Price Shares Price






Options outstanding at beginning of year
    4,255,528     $ 29.85       3,399,313     $ 27.75       2,057,828     $ 14.77  
Granted
    2,617,358     $ 27.99       1,564,893     $ 31.73       2,094,033     $ 35.61  
Assumed on acquisition
    3,345,457     $ 45.59                          
Exercised
    (316,183 )   $ 15.93       (371,972 )   $ 18.14       (509,010 )   $ 8.52  
Canceled
    (883,138 )   $ 38.08       (336,706 )   $ 30.37       (243,538 )   $ 25.73  
     
             
             
         
Options outstanding at end of year
    9,019,022     $ 34.62       4,255,528     $ 29.85       3,399,313     $ 27.75  
     
             
             
         
Options exercisable at end of year
    3,151,602     $ 38.42       882,651     $ 24.95       425,615     $ 14.00  
     
             
             
         
Weighted average fair value of options granted during the period
          $ 26.64             $ 23.28             $ 25.97  
Options available for future grant
    5,701,229                                          
     
                                         

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following table summarizes information about stock options outstanding at September 30, 2002:

                                         
Options Outstanding

Weighted-
Average Options Exercisable
Remaining
Contractual Weighted- Weighted-
Range of Life Average Average
Exercise Prices Shares (Years) Exercise Price Shares Exercise Price






$  1.6096 - $ 20.3300
    1,291,118       5.32     $ 16.7076       573,489     $ 15.2669  
$ 20.6305 - $ 24.9100
    375,587       6.52     $ 22.8615       143,405     $ 21.9192  
$ 24.9380 - $ 25.2200
    1,839,757       6.09     $ 25.2161       5,350     $ 24.9380  
$ 25.2900 - $ 27.5630
    1,045,711       5.37     $ 27.3997       378,708     $ 27.3144  
$ 27.7500 - $ 30.1250
    913,810       4.98     $ 29.2437       485,875     $ 29.0974  
$ 30.2500 - $ 34.1300
    989,580       4.69     $ 32.7610       451,653     $ 33.1124  
$ 34.2500 - $ 41.6200
    932,529       5.74     $ 38.9581       313,102     $ 39.0456  
$ 42.6700 - $ 61.4375
    939,736       4.60     $ 49.3921       427,212     $ 50.3604  
$ 61.6600 - $157.9300
    685,994       3.33     $ 93.7037       370,208     $ 95.7133  
$164.7600 - $164.7600
    5,200       3.43     $ 164.7600       2,600     $ 164.7600  
     
     
     
     
     
 
$  1.6096 - $164.7600
    9,019,022       5.25     $ 34.6187       3,151,602     $ 38.4158  
     
                     
         

     1995 Employee Stock Purchase Plan

      On February 22, 1996, the stockholders approved the 1995 Employee Stock Purchase Plan (the “1995 Plan”) which enables eligible employees to purchase shares of the Company’s common stock. Under the 1995 Plan, eligible employees may purchase up to an aggregate of 1,500,000 shares during six-month offering periods commencing on January 1 and July 1 of each year at a price per share of 85% of the lower of the fair market value price per share on the first or last day of each six-month offering period. Participating employees may elect to have up to 10% of base pay withheld and applied toward the purchase of such shares. The rights of participating employees under the 1995 Plan terminate upon voluntary withdrawal from the plan at any time or upon termination of employment. As of September 30, 2002, 410,225 shares of common stock have been purchased under the 1995 Plan and 1,089,775 remain available for purchase.

      Pro forma information regarding net income (loss) is required by FAS 123, and has been calculated as if the Company had accounted for its employee stock options and stock purchase plan under the fair value method of that Statement. The fair value of each option grant was estimated on the date of grant; the fair value of each employee stock purchase was estimated on the commencement date of each offering period using the Black-Scholes option-pricing model with the following assumptions:

                         
Year ended September 30,

2002 2001 2000



Risk-free interest rate
    2.2% - 4.9 %     3.2% - 5.95 %     6.3% - 6.6 %
Volatility
    84 %     100 %     103 %
Expected life (years) — options
    4.0       4.0       4.0  
Dividend yield
    0 %     0 %     0 %

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period. The Company’s pro forma information follows (in thousands, except per share information):

                           
Year Ended September 30,

2002 2001 2000



Pro forma net income (loss)
  $ (759,532 )   $ (43,056 )   $ 7,938  
Pro forma net income (loss) per share
                       
 
Basic
  $ (29.43 )   $ (2.39 )   $ 0.51  
 
Diluted
  $ (29.43 )   $ (2.39 )   $ 0.46  

      Because most options vest over several years and additional option grants are expected to be made subsequent to September 30, 2002, the results of applying the fair value method may have a materially different effect on pro forma net income (loss) in future years.

12.     Acquisition-Related and Restructuring Costs and Accruals

     Fiscal 2002 Activities

      The Company recorded a charge to operations of $35.0 million in the year ended September 30, 2002 of which $16.4 million related to acquisitions and aborted acquisitions and $18.6 million to restructuring costs.

     Acquisition-Related Costs

      The $16.4 million related to acquisitions and aborted acquisitions is comprised of $5.9 million related to the vesting by the Company’s Chief Executive Officer in certain incremental retirement benefits upon the closing of the acquisition of PRI on May 14, 2002, $8.5 million to write off loans to acquisition targets that management had determined are no longer collectible and $2.0 million of other costs.

     Restructuring Costs

      Based on current estimates of its near term future revenues and operating costs, the Company announced in December 2002 plans to take additional and significant cost reduction actions. These cost reduction programs include, among other things: an additional reduction of approximately 300 employees, a reduction of new hires, consolidation of identified facilities, abandonment of certain information technology projects and an exit from certain product lines. A portion of these actions have been implemented in the first quarter of fiscal 2003. The Company will record charges of $21 million with respect to these activities in the first quarter of fiscal 2003. In addition, the Company will record a charge of approximately $6 million for accelerated depreciation associated with facilities closed and related fixed assets following the September 13, 2002 announcements. The Company will also incur charges totalling approximately $3 million associated with accelerated depreciation related to facility closures announced in the December 2002 restructuring, expected to be completed over the next six months. The Company believes that the cost reduction programs will be implemented and executed on a timely basis and will align costs with revenues. In the event that the Company is unable to achieve this alignment, additional cost cutting programs may be required in the future.

      On September 13, 2002, the Company’s chief executive officer approved a formal plan of restructure in response to the ongoing downturn in the semiconductor industry, which continues to exert downward pressure on the Company’s revenues and cost structure. To that effect, the Company recorded restructuring charges of $16.1 million in the fourth quarter of the fiscal year. Of this amount, $9.1 million is related to workforce reductions of approximately 430 employees, which is expected to be paid in fiscal 2003, $6.7 million is for the consolidation of several of the Company’s facilities and $0.3 million is for other restructuring costs. These measures are largely intended to further align the Company’s capacity and infrastructure to anticipated

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

customer demand, which has been adversely affected by the continuing downturn in the semiconductor industry. Workforce-related charges, consisting principally of severance costs, were recorded based on specific identification of employees to be terminated, along with their job classifications or functions and their locations. The charges for the Company’s excess facilities were recorded to recognize the amount of the remaining lease obligations, net of any sublease rentals. These costs have been estimated from the time when the space is expected to be vacated and there are no plans to utilize the facility in the future. Costs incurred prior to vacating the facilities are being charged to operations.

      As part of the plan to integrate the PRI acquisition, certain sales, technical support and administrative functions were combined and headcount and related costs reduced. Accordingly, during the third quarter of fiscal 2002, the Company recorded $2.8 million of restructuring charges, comprised of $1.3 million for workforce reduction-related costs, $0.4 million related to excess facilities and $1.1 million for other restructuring costs. The $0.4 million for the Company’s excess facilities was recorded to recognize the amount of the remaining lease obligations, net of any sublease rentals. These costs have been estimated from the time these facilities are expected to be vacated and there are no plans to utilize the facility in the future. Costs incurred prior to vacating the facilities are being charged to operations.

      Restructuring costs of $13.5 million for former PRI employees, $11.1 million for facilities and $2.3 million for other costs were accrued for as part of the purchase accounting for the PRI acquisition (see Note 3).

     Fiscal 2001 Activities

      The Company recorded $9.3 million of acquisition-related and restructuring charges during the year ended September 30, 2001, comprised of $3.9 million of acquisition-related costs and $5.4 million of restructuring charges. The acquisition-related costs primarily relate to transaction costs incurred during the Company’s acquisition of PTI. On September 5, 2001, the Company’s Board of Directors approved a formal plan of restructure in response to the current downturn in the semiconductor industry. To that effect, the Company recorded restructuring charges of $5.4 million in the fourth quarter of the fiscal year. Of this amount, $2.0 million was related to workforce reductions of approximately 140 employees, which was paid in fiscal 2002 and $3.4 million was for the consolidation and strategic focus realignment of several facilities, of which $1.9 million was paid through fiscal 2002, $0.5 million is expected to be paid in fiscal 2003 and $1.0 million in the subsequent years. These measures were largely intended to align the Company’s capacity and infrastructure to anticipated customer demand. Workforce charges, consisting principally of severance costs, were recorded based on specific identification of employees to be terminated, along with their job classifications or functions and their locations. The charges for the Company’s excess facilities were recorded to recognize the amount of the remaining lease obligations, net of any sublease rentals. These costs have been estimated from the time when the space is expected to be vacated and there are no plans to utilize the facility in the future. Costs incurred prior to vacating the facilities are charged to operations.

     Fiscal 2000 Activities

      During the year ended September 30, 2000, the Company recorded acquisition-related costs of $0.6 million, primarily for legal, accounting and other costs associated with acquiring Irvine Optical.

      Periodically, the accruals related to the acquisition-related and restructuring charges are reviewed and compared to their respective cash requirements. As a result of those reviews, the accruals are adjusted for changes in cost and timing assumptions of previously approved and recorded initiatives. During the year ended September 30, 2002, the Company identified excess workforce-related accruals of $0.4 million, which were reversed in September 30, 2002.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The activity related to the Company’s restructuring accruals is below (in thousands):

                                                 
Fiscal 2002 Activity

New Initiatives
Balance
Balance
September 30, Purchase September 30,
2001 Expense Accounting Reversals Utilization 2002






Facilities
  $ 3,309     $ 7,096     $ 11,055     $     $ (2,483 )   $ 18,977  
Workforce-related
    1,952       10,451       13,519       (372 )     (12,070 )     13,480  
Other
          1,467       2,292             (2,430 )     1,329  
     
     
     
     
     
     
 
    $ 5,261     $ 19,014     $ 26,866     $ (372 )   $ (16,983 )   $ 33,786  
     
     
     
     
     
     
 
                                                 
Fiscal 2001 Activity

New Initiatives
Balance
Balance
September 30, Purchase September 30,
2000 Expense Accounting Reversals Utilization 2001






Facilities
  $ 507     $ 3,369     $     $     $ (567 )   $ 3,309  
Workforce-related
    20       2,000                   (68 )     1,952  
Other
    11                         (11 )      
     
     
     
     
     
     
 
    $ 538     $ 5,369     $     $     $ (646 )   $ 5,261  
     
     
     
     
     
     
 
                                                 
Fiscal 2000 Activity

New Initiatives
Balance
Balance
September 30, Purchase September 30,
1999 Expense Accounting Reversals Utilization 2000






Facilities
  $ 1,325     $     $ (450 )   $     $ (368 )   $ 507  
Workforce-related
    2,332             (2,000 )           (312 )     20  
Other
    211       578       (200 )           (578 )     11  
     
     
     
     
     
     
 
    $ 3,868     $ 578     $ (2,650 )   $     $ (1,258 )   $ 538  
     
     
     
     
     
     
 

13.     Segment and Geographic Information

      The Company has three reportable segments: equipment automation, factory automation hardware and factory automation software.

      The equipment automation segment provides automated material handling products and components for use within semiconductor process equipment. These systems automate the movement of wafers into and out of semiconductor manufacturing process chambers and provide an integration point between factory automation systems and process tools. The primary customers for these solutions are manufacturers of process tool equipment. These include vacuum and atmospheric systems and robots and related components.

      The factory automation hardware segment provides automated material management products and components for use within the factory. The Company’s factory automation hardware products include automated storage and retrieval systems and wafer/reticle transport systems based on its proprietary AeroTrak overhead monorail systems and AeroLoader overhead hoist vehicle. They store, transport and manage the movement of work-in-process wafers and lithography reticles throughout the fab. The factory automation hardware segment also provides hardware and software solutions, including mini-environments and other automated transfer mechanisms to isolate the semiconductor wafer from the production environment.

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      The factory automation software segment provides software products for the semiconductor manufacturing execution system (“MES”) market, including consulting and software customization. The Company’s software products enable semiconductor manufacturers to increase their return on investment by maximizing production efficiency, and may be sold as part of an integrated solution or on a stand-alone basis.

      IAS, acquired on February 15, 2002, is the only component of “Other”. IAS provides standard and custom automation technology and products for the semiconductor, photonics, life sciences and certain other industries.

      The Company evaluates performance and allocates resources based on revenues and operating income (loss). Operating income (loss) for each segment includes selling, general and administrative expenses directly attributable to the segment. Amortization of acquired intangible assets, including impairment of these assets and of goodwill, and acquisition-related and restructuring charges are excluded from the segments’ operating income (loss). The Company’s non-allocable overhead costs, which include corporate general and administrative expenses, are allocated between the segments based upon segment revenues. Segment assets exclude deferred tax assets, acquired intangible assets, goodwill, all assets of the Company’s Securities Corporation and the Company’s investment in Shinsung. The Company’s Securities Corporation holds the Company’s investments in marketable securities and is consolidated fully. As a result of the PRI acquisition on May 14, 2002, the Company realigned its segment structure to incorporate the product and service lines acquired from PRI. Accordingly, all prior period segment information has been restated to conform to the new presentation.

      Financial information for the Company’s business segments is as follows (in thousands):

                                             
Factory Factory
Equipment Automation Automation
Automation Hardware Software Other Total





Year ended September 30, 2002
                                       
 
Revenues
                                       
   
Product
  $ 128,719     $ 51,388     $ 24,843     $ 3,716     $ 208,666  
   
Services
    19,882       16,066       59,640             95,588  
     
     
     
     
     
 
    $ 148,601     $ 67,454     $ 84,483     $ 3,716     $ 304,254  
     
     
     
     
     
 
 
Gross profit
  $ 24,066     $ 10,599     $ 47,800     $ 579     $ 83,044  
 
Operating loss
  $ (51,329 )   $ (23,643 )   $ (16,782 )   $ (1,462 )   $ (93,216 )
 
Depreciation
  $ 12,167     $ 2,030     $ 2,139     $ 84     $ 16,420  
 
Assets
  $ 170,101     $ 126,267     $ 35,684     $ 1,184     $ 333,236  
Year ended September 30, 2001
                                       
 
Revenues
                                       
   
Product
  $ 192,389     $ 53,917     $ 45,421     $     $ 291,727  
   
Services
    18,790       3,926       67,273             89,989  
     
     
     
     
     
 
    $ 211,179     $ 57,843     $ 112,694     $     $ 381,716  
     
     
     
     
     
 
 
Gross profit
  $ 61,259     $ 17,038     $ 74,087     $     $ 152,384  
 
Operating income (loss)
  $ (14,904 )   $ 2,182     $ 8,319     $     $ (4,403 )
 
Depreciation
  $ 10,414     $ 587     $ 2,418     $     $ 13,419  
 
Assets
  $ 185,381     $ 53,099     $ 48,132     $     $ 286,612  

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

                                             
Factory Factory
Equipment Automation Automation
Automation Hardware Software Other Total





Year ended September 30, 2000
                                       
 
Revenues
                                       
   
Product
  $ 193,849     $ 47,392     $ 43,125     $     $ 284,366  
   
Services
    14,292       238       38,288             52,818  
     
     
     
     
     
 
    $ 208,141     $ 47,630     $ 81,413     $     $ 337,184  
     
     
     
     
     
 
 
Gross profit
  $ 87,290     $ 16,781     $ 56,654     $     $ 160,725  
 
Operating income
  $ 22,013     $ 4,535     $ 12,620     $     $ 39,168  
 
Depreciation
  $ 8,546     $ 62     $ 2,210     $     $ 10,818  
 
Assets
  $ 179,642     $ 23,211     $ 18,613     $     $ 221,466  

      A reconciliation of the Company’s reportable segment operating income(loss) and segment assets to the corresponding consolidated amounts as of and for the year ended September 30, 2002, 2001 and 2000 is as follows (in thousands):

                           
As of and For the Year
Ended September 30,

2002 2001 2000



Segment operating income (loss)
  $ (93,216 )   $ (4,403 )   $ 39,168  
Amortization of acquired intangibles
    499,570       30,187       18,506  
Acquisition-related and restructuring costs
    35,032       9,314       578  
     
     
     
 
 
Total operating income (loss)
  $ (627,818 )   $ (43,904 )   $ 20,084  
     
     
     
 
Segment assets
  $ 333,236     $ 286,612     $ 221,466  
Deferred tax asset
          45,888       31,581  
Goodwill
    104,156       60,128        
Acquired intangible assets
    14,648       38,928       58,405  
Investment in Shinsung
    13,475              
Securities Corporation assets
    191,982       278,148       208,334  
     
     
     
 
 
Total assets
  $ 657,497     $ 709,704     $ 519,786  
     
     
     
 

      Net revenues by geographic area are as follows (in thousands):

                         
Year Ended September 30,

2002 2001 2000



North America
  $ 158,091     $ 191,992     $ 175,874  
Asia/ Pacific
    78,019       122,000       114,302  
Europe
    68,144       67,724       47,008  
     
     
     
 
    $ 304,254     $ 381,716     $ 337,184  
     
     
     
 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Long-lived assets, including property, plant and equipment, intangible assets and goodwill by geographic area are as follows (in thousands):

                         
September 30,

2002 2001 2000



North America
  $ 187,256     $ 158,086     $ 74,569  
Asia/ Pacific
    3,476       5,052       4,948  
Europe
    12,864       4,237       5,970  
     
     
     
 
    $ 203,596     $ 167,375     $ 85,487  
     
     
     
 

14.     Significant Customers and Related Party Information

      A member of the Board of Directors served as president, chief executive officer and a director of AvantCom Network, Inc. (“AvantCom”), a California supplier of Internet-based diagnostics software from April 1999 to August 2001. In March 2002, the Company entered into a non-binding letter of intent with AvantCom relating to a proposed business combination. The letter of intent contemplated the payment by the Company to AvantCom of approximately $14 million in cash and stock and up to 25% of subsequent related billings for the purchase of certain assets related to AvantCom’s proprietary remote diagnostics software product. Upon execution of the letter of intent, the Company advanced AvantCom $2.0 million against the purchase price for working capital purposes. During the subsequent negotiation process, the parties were unable to reach a mutually satisfactory purchase agreement and the parties abandoned the transaction. Pursuant to the terms of the letter of intent, AvantCom was obligated to either return the advance or grant the Company a non-exclusive license to its remote diagnostics software in exchange therefore. AvantCom has elected to grant the Company the license and the Company recorded a charge of $2.0 million in the year related to the unrecovered advance. This Board member did not participate in the negotiations related to the proposed transaction.

      On June 11, 2001, the Company appointed a new member to its Board of Directors. This individual is also a director of one of the Company’s customers. Accordingly, this customer is considered a related party for the period subsequent to June 11, 2001. Revenues from this customer for the year ended September 30, 2002 were approximately $616,000. Revenues from this customer for the period from June 11, 2001 through September 30, 2001 were approximately $32,000. The amounts due from this customer included in accounts receivable at September 30, 2002 and 2001 were $68,000 and $32,000, respectively.

      One of the Company’s directors had previously also been a director of one of the Company’s customers. On January 23, 2001, this individual resigned his position with the Company’s customer. Accordingly, this customer is not considered a related party in subsequent reporting periods. Revenues recognized from this customer in fiscal year 2001 through January 23, 2001 were $13.9 million. Revenues recognized from this customer in the year ended September 30, 2000 were $36.9 million, or 11.0% of revenues.

      The Company had no customer that accounted for more than 10% of revenues in the years ended September 30, 2002 and 2001. The Company had no customer that accounted for more than 10% of revenues in the year ended September 30, 2000 excluding the previously related party described above. The Company had no customers that accounted for more than 10% of its accounts receivable balance at either September 30, 2002 or 2001.

      Related party transactions and amounts included in accounts receivable are on standard pricing and contractual terms and manner of settlement for products and services of similar types and at comparable volumes.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

15.     Other Balance Sheet Information

      Components of other selected captions in the Consolidated Balance Sheets follow (in thousands):

                   
September 30,

2002 2001


Accounts receivable
  $ 95,127     $ 99,679  
Less allowances
    5,977       6,114  
     
     
 
    $ 89,150     $ 93,565  
     
     
 
Inventories
               
 
Raw materials and purchased parts
  $ 56,050     $ 35,021  
 
Work-in-process
    15,334       12,099  
 
Finished goods
    6,809       2,175  
     
     
 
    $ 78,193     $ 49,295  
     
     
 

      Because of the significant decline in revenues in fiscal 2002, and the expected continuation of depressed demand in the first half of fiscal 2003, the Company projected shortfalls in usage and recorded the resulting charges in the fourth quarters of fiscal 2002 and 2001. The reserves for excess and obsolete inventories included $0.1 million and $1.5 million in fiscal 2002 and 2001, respectively, for non-cancelable purchase order obligations for items deemed excess or obsolete. The inventory affected was across several hardware product lines in the equipment automation and factory automation hardware segments. During this process, the Company reviewed all open purchase orders with the affected vendors across the various segments of the Company and canceled orders where possible. The Company had written off $2.3 million in the first three quarters of both fiscal 2002 and 2001, as a result of the periodic reviews of obsolete and excess inventory performed by the Company.

      The fixed asset balance includes computer equipment and software and machinery and equipment aggregating $2.9 million at September 30, 2001 acquired under capital leases. These fixed assets were fully amortized at September 30, 2001. No amortization expense was recorded in the year ended September 30, 2001. Amortization expense for fixed assets under capital leases was $0.1 million for the year ended September 30, 2000. Depreciation expense was $16.4 million, $13.4 million and $10.8 million for the years ended September 30, 2002, 2001 and 2000, respectively. As of September 30, 2002, the Company did not have any capital lease obligations.

16.     Commitments and Contingencies

 
Lease Commitments

      The Company leases manufacturing and office facilities and certain equipment under operating leases that expire through 2013. Rental expense under operating leases for the years ended September 30, 2002, 2001

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

and 2000 was $8.2 million, $4.8 million and $5.8 million, respectively. Future minimum lease commitments on non-cancelable operating leases, lease income and sublease income are as follows (in thousands):

                     
Lease and
Operating sublease
Leases income


Year ended September 30,
               
 
2003
  $ 14,288     $ 264  
 
2004
    10,170        
 
2005
    8,378        
 
2006
    6,846        
 
2007
    5,780        
 
Thereafter
    18,151        
     
     
 
   
Total minimum lease payments
  $ 63,613     $ 264  
     
     
 

      These future minimum lease commitments include approximately $19 million related to facilities the Company has elected to abandon in connection with its restructuring and acquisition-related initiatives.

      On January 29, 2001 the Company purchased three buildings, two of which are used as Brooks’ corporate headquarters and primary manufacturing facility, and the third of which was leased to an unrelated party. The term of that lease concluded in November 2002.

      As of September 30, 2002, the Company did not have any capital lease obligations.

 
Contingencies

      There has been substantial litigation regarding patent and other intellectual property rights in the semiconductor related industries. Brooks has in the past been, and may in the future be, notified that it may be infringing intellectual property rights possessed by other third parties. Brooks cannot guarantee that infringement claims by third parties or other claims for indemnification by customers or end users of Brooks’ products resulting from infringement claims will not be asserted in the future or that such assertions, if proven to be true, will not materially and adversely affect Brooks’ business, financial condition and results of operations. If any such claims are asserted against Brooks’ intellectual property rights, the Company may seek to enter into a royalty or licensing arrangement. Brooks cannot guarantee, however, that a license will be available on reasonable terms or at all. Brooks could decide in the alternative to resort to litigation to challenge such claims or to design around the patented technology.

      Brooks received notice from General Signal Corporation (“General Signal”) twice in 1992 and once in 1994, alleging infringement of patents then owned by General Signal, relating to cluster tool architecture, by certain of Brooks’ products. The notification advised Brooks that General Signal was attempting to enforce its rights to those patents in litigation against Applied Materials. According to a press release issued by Applied Materials in November 1997, Applied Materials settled its litigation with General Signal by acquiring ownership of five General Signal patents. Although not verified, these five patents would appear to be the patents referred to by General Signal in its prior notice to Brooks. Applied Materials has not contacted Brooks regarding these patents.

      Brooks acquired certain assets, including a transport system known as IridNet, from the Infab division of Jenoptik AG on September 30, 1999. Asyst Technologies, Inc. (“Asyst”) had previously filed suit against Jenoptik AG and other defendants (collectively, the “defendants”) in the Northern District of California charging that products of the defendants, including IridNet, infringe Asyst’s U.S. Patent Nos. 4,974,166 (“the ‘166 patent”) and 5,097,421 (“the ‘421 patent”). Asyst later withdrew its claims related to the ‘166 patent

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from the case. The case is presently before the District Court for proceedings regarding claim construction, infringement and invalidity of the ‘421 patent.

      Brooks has received notice that Asyst may amend its complaint in this Jenoptik litigation to name Brooks as an additional defendant. Based on Brooks’ investigation of Asyst’s allegations, Brookes does not believe it is infringing any claims of Asyst’s patents. Brooks intends to continue to support Jenoptik to argue vigorously, among other things, the position that the IridNet system does not infringe the Asyst patent. If Asyst prevails in its case, Asyst may seek to prohibit Brooks from developing, marketing and using the IridNet product without a license. Brooks cannot guarantee that a license will be available to it on reasonable terms, if at all. If a license from Asyst is not available Brooks could be forced to incur substantial costs to reengineer the IridNet product, which could diminish its value. In any case, Brooks may face litigation with Asyst. Jenoptik has agreed to indemnify Brooks for losses Brooks may incur in this action.

      In addition, Asyst made assertions in approximately 1995 that certain technology employed in products manufactured and sold by Hermos Informatik GmbH infringed one or more of Asyst’s patents. Hermos was acquired by the Company in July 2002 (see Note 3). To date Asyst has taken no steps to assert or enforce any such rights against the Company and, to the Company’s knowledge, Asyst never commenced enforcement proceedings against Hermos prior to its acquisition by the Company. Should Asyst seek to pursue any such claims against Hermos or the Company, the Company would be subject to all of the business and litigation risks identified in the preceding paragraph.

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SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

(Dollars in thousands)
                                             
Additions

Balance at Charged to Charged to Deductions Balance at
Beginning Costs and Other and End of
of Year Expenses Accounts Write-offs Year





Allowance for doubtful accounts
                                       
 
Year ended September 30,
                                       
   
2002
  $ 6,114     $ 3,129     $ 85     $ (3,351 )   $ 5,977  
   
2001
  $ 1,989     $ 4,691     $ 6     $ (572 )   $ 6,114  
   
2000
  $ 1,785     $ 540     $ 256     $ (592 )   $ 1,989  
Reserves for excess and obsolete inventories
                                       
 
Year ended September 30,
                                       
   
2002
  $ 16,963     $ 8,297     $     $ (3,940 )   $ 21,320  
   
2001
  $ 8,311     $ 15,426     $ 246     $ (7,020 )   $ 16,963  
   
2000
  $ 7,740     $ 2,611     $ (567 )   $ (1,473 )   $ 8,311  
Deferred tax asset valuation allowance
                                       
 
Year ended September 30,
                                       
   
2002
  $ 8,257     $ 88,041     $ 132,786     $     $ 229,084  
   
2001
  $ 5,548     $ 3,603     $     $ (894 )   $ 8,257  
   
2000
  $ 11,297     $ 2,754     $ 1,242     $ (9,745 )   $ 5,548  

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Item 9.     Changes In and Disagreements With Accountants on Financial Accounting and Financial Disclosure

      Not applicable.

PART III

Item 10.     Directors and Executive Officers of the Registrant

      The information required by this Item 10 is hereby incorporated by reference to the Company’s definitive proxy statement to be filed by the Company within 120 days after the close of its fiscal year.

Item 11.     Executive Compensation

      The information required by this Item 11 is hereby incorporated by reference to the Company’s definitive proxy statement to be filed by the Company within 120 days after the close of its fiscal year.

Item 12.     Security Ownership of Certain Beneficial Owners and Management

      The information required by this Item 12 is hereby incorporated by reference to the Company’s definitive proxy statement to be filed by the Company within 120 days after the close of its fiscal year.

Item 13.     Certain Relationships and Related Transactions

      The information required by this Item 13 is hereby incorporated by reference to the Company’s definitive proxy statement to be filed by the Company within 120 days after the close of its fiscal year.

PART IV

Item 14.     Controls and Procedures

      a) Evaluation of Disclosure Controls and Procedures. Within the 90 day period preceding the filing of this Report, and pursuant to Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, the Company’s chief executive officer (“CEO”) and chief financial officer (“CFO”) have concluded, subject to the limitations inherent in such controls noted below, that the Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time specified in the SEC’s rules and forms and are operating in an effective manner.

      b) Limitations Inherent in All Controls. The Company’s management, including the CEO and CFO, recognizes that our disclosure controls and our internal controls (discussed below) cannot prevent all error or all attempts at fraud. Any controls system, no matter how well crafted and operated, can only provide reasonable, and not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints that affect the operation of any such system and that the benefits of controls must be considered relative to their costs. Because of the inherent limitations in any control system, no evaluation or implementation of a control system can provide complete assurance that all control issues and all possible instances of fraud have been or will be detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.

      c) Change in Internal Controls. In July 2002, concerns were raised that the Company’s internal processes may not have identified in timely fashion a customer communication affecting the Company’s ability to continue to recognize revenue from a particular transaction. Actions were then implemented beginning in August 2002 to improve the Company’s internal controls regarding customer communications. These included the Company’s former CFO holding meetings with senior management to ensure that they understood the importance of immediately communicating, either in writing or verbally, all material issues or concerns that

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could affect revenue recognition to appropriate financial and legal representatives inside the Company. Additionally, meetings and presentations were prepared and delivered to the Company’s sales personnel in October and November 2002 to educate these employees concerning the importance of bringing all such matters to the immediate attention of the Company’s senior cross-functional management team. Further, the Company has initiated actions to implement a senior cross-functional project review process designed to ensure that all elements of customer programs, including revenue recognition issues, are regularly reviewed at senior levels.

      The transaction described above was reported by the Company’s independent auditors to management and the Audit Committee of the Company’s Board of Directors as a material control weakness at the Audit Committee’s meeting held on November 18, 2002.

 
Item 15.     Exhibits

      (a) 1. and 2. Financial Statements and Financial Statement Schedule

      The consolidated financial statements of the Company and Schedule II Valuation and Qualifying Accounts and Reserves of the Company are listed in the index under Part II, Item 8, in this Form 10-K.

      Other financial statement schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the supplementary consolidated financial statements or notes thereto.

      (a) 3. Exhibits

             
Exhibit No. Description Reference



  2.01     Agreement and Plan of Merger dated September 21, 1998 relating to the combination of FASTech Integration, Inc. with the Company.   A**
  2.02     Stock for Cash Purchase Agreement dated March 31, 1999 relating to the acquisition of Hanyon Tech. Co., Ltd. by the Company.   B**
  2.03     Assets for Cash Purchase Agreement dated June 23, 1999 relating to the acquisition of substantially all the assets of Domain Manufacturing Corporation and its Subsidiary Domain Manufacturing SARL by the Company.   C**
  2.04     Agreement and Plan of Merger dated July 7, 1999 relating to the combination of Smart Machines Inc. with the Company.   D**
  2.05     Master Purchase Agreement dated September 9, 1999 relating to the acquisition of substantially all of the assets of the Infab Division of Jenoptik by the Company.   E**
  2.06     Agreement and Plan of Merger dated January 6, 2000 relating to the combination of AutoSimulations, Inc. and Auto-Soft Corporation with the Company.   F**
  2.07     Interests for Stock Purchase Agreement dated May 5, 2000 relating to the acquisition of Irvine Optical Company LLC by the Company, as amended.   G**
  2.08     Stock Purchase Agreement dated as of February 16, 2001 relating to the acquisition of SEMY Engineering, Inc. by the Company.   H**
  2.09     Asset Purchase Agreement dated June 26, 2001 relating to the acquisition of assets of the e-diagnostic infrastructure of KLA-Tencor Corporation and its subsidiary KLA-Tencor Technologies Corporation.   I**
  2.10     Agreement and Plan of Merger dated June 27, 2001 relating to the combination of Progressive Technologies Inc. with the Company.   J**
  2.11     Asset Purchase Agreement dated October 5, 2001 relating to the acquisition of substantially all of the assets of General Precision, Inc. and GPI-Mostek, Inc. by the Company.   K**
  2.12     Share Purchase Agreement dated October 9, 2001 relating to the acquisition of Tec-Sem AG by the Company.   L**

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Exhibit No. Description Reference



  2.13     Amended and Restated Agreement and Plan of Merger relating to the acquisition of PRI Automation, Inc. by the Company.   M**
  2.14     Combination Agreement dated as of November 24, 1998 between PRI Automation, Inc., 1325949 Ontario Inc. and Promis Systems Corporation Ltd.   N**
  2.15     Share Sale-, Purchase- and Transfer Agreement dated July 3, 2002 relating to the acquisition of Hermos Informatik GmbH.   O**
  3.01     Certificate of Incorporation, as amended, of the Company.   P**
  3.02     Bylaws of the Company.   Q**
  3.03     Certificate of Designation of Series A Junior Participating Preferred Stock.   R**
  3.04     Form of Certificate of Designations, Preferences, Rights and Limitations of Special Voting Preferred Stock of the Company   S**
  4.01     Specimen Certificate for shares of the Company’s common stock.   T**
  4.02     Description of Capital Stock (contained in the Certificate of Incorporation of the Company).   P**
  4.03     Rights Agreement dated July 23, 1997.   U**
  4.04     Amendment No. 1 to Rights Agreement between the Company and Bank Boston, N.A. as Rights Agent.   V**
  4.05     Registration Rights Agreement dated January 6, 2000.   V**
  4.06     Shareholder Agreement dated January 6, 2000 by and among the Company, Daifuku America Corporation and Daifuku Co., Ltd. relating to the acquisition of the businesses of Auto-Soft Corporation and AutoSimulations, Inc. from Daifuku America Corporation by the Company.   F**
  4.07     Stockholder Agreement dated September 30, 1999 by and among the Company, Jenoptik AG, M+W Zander Holding GmbH and Robert J. Therrien relating to the acquisition of substantially all of the assets of the Infab Division of Jenoptik AG by the Company.   E**
  4.08     Indenture dated as of May 23, 2001 between the Company and State Street Bank and Trust Company (as Trustee).   W**
  4.09     Registration Rights Agreement dated May 23, 2001 among the Company and Credit Suisse First Boston Corporation and SG Cowen Securities Corporation (as representatives of several purchasers).   W**
  4.10     Form of 4.75% Convertible Subordinated Note of the Company in the principal amount of $175,000,000 dated as of May 23, 2001.   W**
  4.11     Stock Purchase Agreement dated June 20, 2001 relating to the acquisition of CCS Technology, Inc. by the Company.   X**
  4.12     Asset Purchase Agreement dated February 15, 2002 relating to the Agreement dated February 15, 2002 relating to the acquisition of substantially all of the assets of Intelligent Automation Systems, Inc. and IAS Products, Inc. by the Company.   Y**
  4.13     Amendment No. 2 to Rights Agreement between the Company and EquiServe Trust Company, N.A., as Rights Agent.   Z**
  4.14     Asset Purchase Agreement by and among Brooks Automation, Inc., NexStar Corporation and Zygo Corporation dated December 13, 2001.   AA**
  4.15     Agreement and Plan of Merger dated September 20, 2002 among the Company, MTI Acquisitions Corp. and MicroTool, Inc.   Filed herewith
  9.1     Form of Voting and Exchange Trust Agreement among PRI Automation, Inc., 1325949 Ontario Inc., Promis Systems Corporation Ltd. And Montreal Trust Company of Canada, as trustee.   N**

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Exhibit No. Description Reference



  9.2     Form of Supplement to Voting and Exchange Trust Agreement among the Company, 1325949 Ontario Inc., Brooks-PRI Automation (Canada), Inc. and Montreal Trust Company of Canada, trustee.   S**
  9.3     Form of Support Agreement among PRI Automation, Inc., 1325949 Ontario Inc., and Promis Systems Corporation Ltd.   N**
  9.4     Form of Supplement to Support Agreement among the Company, 1325949 Ontario Inc., and Brooks-PRI Automation (Canada), Inc.   Z**
  10.01     Employment Agreement between the Company and Robert J. Therrien dated as of September 30, 2001.   AA* **
  10.02     Form of Indemnification Agreement for directors and officers of the Company.   Q* **
  10.03     Employment Agreement between the Company and Ellen B. Richstone.   BB* **
  10.04     Form of Agreement between Executive Officers and the Company Relating to Change of Control.   CC* **
  10.05     Agreement dated November 11, 1999 between Ellen B. Richstone and the Company Relating to Change of Control.   CC* **
  10.06     Transitional Services Agreement dated September 30, 1999 between the Company and Jenoptik AG relating to the Company’s German manufacturing facility.   CC**
  10.07     Corporate Noncompetition and Proprietary Information Agreement dated January 6, 2000 by and among the Company, Daifuku America Corporation and Daifuku Co., Ltd. relating to the acquisition of the businesses of Auto-Soft Corporation and AutoSimulations, Inc. from Daifuku America Corporation by the Company.   F**
  10.8     Agreement to Amend Corporate Noncompetition and Proprietary Information Agreement by and among the Company, Daifuku America Corporation and Daifuku Co., Ltd. dated April 2002.   Filed herewith
  10.9     Demand Promissory Note Agreement dated as of May 2, 2000, between the Company and ABN AMRO Bank N.V.   P**
  10.10     Purchase Agreement for the Company’s headquarters dated January 17, 2001.   DD**
  10.11     Lease between the Company and the Nasr Family Trust for 25000 Avenue Stanford, Valencia, California.   K**
  10.12     1993 Nonemployee Director Stock Option Plan.   EE* **
  10.13     1992 Combination Stock Option Plan.   FF* **
  10.14     1995 Employee Stock Purchase Plan, as amended.   P* **
  10.15     1998 Employee Equity Incentive Option Plan.   P* **
  10.16     2000 Combination Stock Option Plan.   P* **
  10.17     2001 Restricted Stock Purchase Plan for KLA Product Line Acquisition.   GG* **
  10.18     Progressive Technologies Inc. 1991 Stock Option and Stock Purchase Plan.   HH* **
  10.19     Lease between Bentall Properties LTD and Westminster Management Corporation and Brooks Automation (Canada) Corp. for Crestwood Corporate Centre, Richmond, B.C. for 13777 Commerce Parkway, Richmond, B.C.   AA**
  10.20     Employment Agreement for Mitchell G. Tyson dated October 23, 2001.   Filed herewith*
  10.21     Management Agreement dated as of November 20, 2000 between the Company and Wan Keun Lee, as the majority shareholder of Shinsung Eng. Co. Ltd.   II**
  10.22     Joint Venture Agreement between the Company, Chung Song Systems Co., Ltd. And Shinsung Eng. Co. Ltd.   JJ**

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Exhibit No. Description Reference



  10.23     Master Manufacturing Services Agreement dated as of October 26, 1999 by and between the Company and Shinsung Eng. Co. Ltd.   KK**
  10.24     Master Engineering Services Agreement dated as of October 26, 1999 by and between the Company and Shinsung Eng. Co. Ltd.   KK**
  10.25     PRI Automation, Inc. 2000 Stock Option Plan.   LL* **
  10.26     PRI Automation, Inc. 1997 Non-Incentive Stock Option Plan.   II* **
  10.27     PRI Automation, Inc. 1994 Incentive and Non-Qualified Stock Option Plan.   MM* **
  10.28     Commotion Technology, Inc. 2000 Flexible Stock Incentive Plan.   NN* **
  10.29     Promis Systems Corporation Ltd Amended and Restated Stock Option Plan.   OO* **
  10.30     Nonqualified Stock Option granted by PRI Automation, Inc. to Mark Johnston.   PP* **
  10.31     Equipe Technologies Non-Statutory Stock Options.   QQ* **
  10.32     Lease Agreement dated as of May 5, 1994 between the Company and The Prudential Insurance Company of America for 805 Middlesex Turnpike, Billerica, MA.   RR**
  10.33     Amendment to Lease dated as of July 24, 2000 between the Company and BCIA New England Holdings LLC (successor in interest to The Prudential Insurance Company of America) for 805 Middlesex Turnpike, Billerica, MA.   SS**
  10.34     Lease Agreement dated as of October 12, 2000 between the Company and Progress Road LLC for 17 Progress Road, Billerica, MA.   SS**
  10.35     First Amendment to Lease dated as of March 21, 2000 between the Company and Progress Road LLC for 17 Progress Road, Billerica, MA.   SS**
  10.36     Lease between the Company and BerCar II, LLC for 12 Elizabeth Drive, Chelmsford, Massachusetts dated October 23, 2002.   Filed herewith
  10.37     First Amendment to Lease between the Company and BerCar II, LLC for 12 Elizabeth Drive, Chelmsford, Massachusetts dated November 1, 2002.   Filed herewith
  10.38     Separation Agreement for Ellen B. Richstone dated October 31, 2002.   Filed herewith*
  12.01     Calculation of Ratio of Earnings to Fixed Charges.   Filed herewith
  21.01     Subsidiaries of the Company.   Filed herewith
  23.01     Consent of PricewaterhouseCoopers LLP (Independent accountants for the Company).   Filed herewith
  99.01     Certification of Chief Executive Officer and Corporate Controller, Principal Accounting Officer and Acting Principal Financial Officer.   Filed herewith


 
A. Incorporated by reference to the Company’s registration statement on Form S-4 (Registration No. 333-64037) filed on September 23, 1998.
 
B. Incorporated by reference to the Company’s current report on Form 8-K filed on May 6, 1999.
 
C. Incorporated by reference to the Company’s current report on Form 8-K filed on July 14, 1999.
 
D. Incorporated by reference to the Company’s current report on Form 8-K filed on September 15, 1999, and amended on September 29, 2000.
 
E. Incorporated by reference to the Company’s current report on Form 8-K filed on October 15, 1999.
 
F. Incorporated by reference to the Company’s current report on Form 8-K filed on January 19, 2000 and amended on February 14, 2000.
 
G. Incorporated by reference to the Company’s registration statement on Form S-3 (Registration No. 333-42620) filed on July 31, 2000.
 
H. Incorporated by reference to the Company’s current report on Form 8-K filed on March 1, 2001.

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I. Incorporated by reference to the Company’s current report on Form 8-K filed on July 9, 2001.
 
J. Incorporated by reference to the Company’s current report on Form 8-K filed on July 24, 2001.
 
K. Incorporated by reference to the Company’s current report on Form 8-K filed on October 19, 2001 as amended on April 4, 2002.
 
L. Incorporated by reference to the Company’s current report on Form 8-K filed on October 22, 2001.
 
M. Incorporated by reference to the Company’s registration statement on Form S-4 (Registration No. 333-75490, filed on April 4, 2002.
 
N. Incorporated by reference to PRI Automation, Inc.’s registration statement on Form S-3 (Registration No. 333-69721) filed on December 24, 1998.
 
O. Incorporated by reference to Company’s current reports on Form 8-K filed on July 30, 2002.
 
P. Incorporated by reference to the Company’s quarterly report on Form 10-Q filed on May 15, 2000 for the quarterly period ended March 31, 2000.
 
Q. Incorporated by reference to the Company’s registration statement on Form S-1 (Registration No. 33-87296) filed on December 13, 1994.
 
R. Incorporated by reference to the Company’s registration statement on Form S-3 (Registration No. 333-34487) filed on August 27, 1997.
 
S. Incorporated by reference to the Company’s registration statement on Form S-3 (Registration No. 333-87194) filed April 29, 2002, as amended May 13, 2002.
 
T. Incorporated by reference to the Company’s registration statement on Form S-3 (Registration No. 333-88320) filed May 15, 2002.
 
U. Incorporated by reference to the Company’s current report on Form 8-K filed on August 7, 1997.
 
V. Incorporated by reference to the Company’s registration statement on Form 10-K filed for the annual period ended September 30, 2001.
 
W. Incorporated by reference to the Company’s current report on Form 8-K filed on May 29, 2001.
 
X. Incorporated by reference to the Company’s registration statement on Form S-8 (Registration No. 333-67432) filed on August 13, 2001.
 
Y. Incorporated by reference to the Company’s current report on Form 8-K filed on March 1, 2002.
 
Z. Incorporated by reference to the Company’s registration statement on Form 8-A/ A filed on June 4, 2002.
 
AA. Incorporated by reference to the Company’s annual report on Form 10-K filed December 13, 2001 for the annual period ended September 30, 2001, as amended on April 2002.
 
BB. Incorporated by reference to the Company’s annual report on Form 10-K filed on December 30, 1998 for the year ended September 30, 1998.
 
CC. Incorporated by reference to the Company’s annual report on Form 10-K filed on December 29, 1999 for the annual period ended September 30, 1999.
 
DD. Incorporated by reference to the Company’s quarterly report on Form 10-Q filed on May 11, 2001 for the quarterly period ended March 31, 2001.
 
EE. Incorporated by reference to the Company’s registration statement on Form S-8 (Registration No. 333-22717) filed on March 4, 1997.
 
FF. Incorporated by reference to the Company’s registration statement on Form S-8 (Registration No. 333-07313) filed on July 1, 1996.
 
GG. Incorporated by reference to the Company’s registration statement on Form S-8 (Registration No. 333-61928) filed on May 30, 2001.
 
HH. Incorporated by reference to the Company’s registration statement on Form S-8 (Registration No. 333-67482 filed on August 13, 2001.
 
II. Incorporated by reference to PRI Automation, Inc.’s annual report on Form 10-K filed on December 21, 2000 for the annual period ended September 30, 2000.
 
JJ. Incorporated by reference to PRI Automation, Inc.’s quarterly report on Form 10-Q for the quarter ended June 28, 1998.

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KK. Incorporated by reference to PRI Automation, Inc.’s amendment No. 1 to annual report on Form 10-K/ A filed April 4, 2002 for the annual period ended September 30, 2002.
 
LL. Incorporated by reference to PRI Automation, Inc.’s Registration Statement on Form S-8 (Registration No. 333-33894).
 
MM. Incorporated by reference to PRI Automation, Inc.’s Registration Statement on Form S-8 (Registration No. 333-25217).
 
NN. Incorporated by reference to PRI Automation, Inc.’s Registration Statement on Form S-8 (Registration No. 333-49822).
 
OO. Incorporated by reference to PRI Automation, Inc.’s Registration Statement on Form S-8 (Registration No. 333-74141).
 
PP. Incorporated by reference to PRI Automation, Inc.’s Registration Statement on Form S-8 (Registration No. 333-41067).
 
QQ. Incorporated by reference to PRI Automation, Inc.’s Registration Statement on Form S-8 (Registration No. 333-45063).
 
RR. Incorporated by reference to PRI Automation, Inc.’s Registration Statement on Form S-1 (Registration No. 33-81836).
 
SS. Incorporated by reference to PRI Automation, Inc.’s annual report on Form 10-K filed on December 7, 2001 for the annual period ended September 30, 2001, as amended in April 2002.


  *  Management contract or compensatory plan or arrangement.

**  In accordance with Rule 12b-32 under the Securities Exchange Act of 1934, as amended, reference is made to the documents previously filed with the Securities and Exchange Commission, which documents are hereby incorporated by reference.

      (b) Reports on Form 8-K

      The following reports on Form 8-K were filed during the quarterly period ended September 30, 2002:

        (1) Current Report on Form 8-K filed on July 30, 2002, relating to the Company’s acquisition of Hermos Informatik GmbH.
 
        (2) Current Report on Form 8-K filed on August 15, 2002, relating to the Company’s acquisition of PRI Automation, Inc. As a result of the acquisition of PRI, the Company realigned its segment structure to incorporate the product and service lines acquired from PRI. The following audited financial statements, reflecting the realigned segment structure of the Company, were filed with the Form 8-K.

  •  Report of Independent Accountants
 
  •  Report of Independent Auditors
 
  •  Consolidated Balance Sheets as of September 30, 2001 and 2002
 
  •  Consolidated Statements of Operations for the three years ended September 30, 2001, 2000 and 1999
 
  •  Consolidated Statements of Changes in Stockholders’ Equity for the three years ended September 30, 2001, 2000 and 1999
 
  •  Consolidated Statements of Cash Flows for the three years ended September 30, 2001, 2000 and 1999
 
  •  Notes to Consolidated Financial Statements

        (3) Current Report on Form 8-K/ A Amendment No. 2 to Form 8-K filed on August 28, 2002, relating to the Company’s acquisition of PRI Automation, Inc.

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        (i) The following audited financial statements of PRI Automation, Inc. were filed with the Form 8-K/ A:

  •  Report of Independent Accountants
 
  •  Audited Consolidated Balance Sheets as of September 30, 2001 and 2000
 
  •  Audited Consolidated Statements of Operations for the years ended September 30, 2001, 2000 and 1999
 
  •  Audited Consolidated Statements of Stockholder’s Equity for the years ended September 30, 2001, 2000 and 1999
 
  •  Audited Consolidated Statements of Cash Flows for the years ended September 30, 2001, 2000 and 1999
 
  •  Notes to Audited Consolidated Financial Statements

        (ii) The following unaudited pro forma financial information giving effect to the acquisition of PRI Automation, Inc. as if the transaction had occurred on October 1, 2000 for purposes of the statement of operations was filed with the Form 8-K/ A:

  •  Pro Forma Combined Condensed Statement of Operations for the year ended September 30, 2001
 
  •  Pro Forma Combined Condensed Statement of Operations for the nine months ended June 30, 2002
 
  •  Notes to Unaudited Pro Forma Combined Condensed Financial Statements

        (4) Current Report on Form 8-K filed on August 28, 2002, relating to the Company’s acquisition of PRI Automation, Inc. The following unaudited financial statements of PRI Automation, Inc. were filed with the Form 8-K:

  •  Condensed Consolidated Balance Sheets as of March 31, 2002 and September 30, 2001
 
  •  Condensed Consolidated Statements of Operations for the six months ended March 31, 2002 and the six months ended April 1, 2001
 
  •  Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2002 and April 1, 2001
 
  •  Notes to the Consolidated Financial Statements

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SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

  BROOKS-PRI AUTOMATION, INC.

  By:  /s/ ROBERT J. THERRIEN
 
  Robert J. Therrien,
  President

Date: December 27, 2002

      Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

             
Signature Title Date



 
/s/ ROBERT J. THERRIEN

Robert J. Therrien
  Director and President
(Principal Executive Officer)
  December 27, 2002
 
/s/ STEVEN E. HEBERT

Steven E. Hebert
  Corporate Controller, Principal Accounting Officer and Acting Principal Financial Officer   December 27, 2002
 
/s/ ROGER D. EMERICK

Roger D. Emerick
  Director   December 27, 2002
 
/s/ AMIN J. KHOURY

Amin J. Khoury
  Director   December 27, 2002
 
/s/ JUERGEN GIESSMANN

Juergen Giessmann
  Director   December 27, 2002
 
/s/ JOSEPH R. MARTIN

Joseph R. Martin
  Director   December 27, 2002
 
/s/ MITCHELL G. TYSON

Mitchell G. Tyson
  Director   December 27, 2002
 
/s/ KENNETH M. THOMPSON

Kenneth M. Thompson
  Director   December 27, 2002

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CERTIFICATIONS

I, Robert J. Therrien, do certify that:

      1. I have reviewed this annual report on Form 10-K of Brooks-PRI Automation, Inc.;

      2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

      3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

      4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

        a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
 
        b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
 
        c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

      5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

        a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
 
        b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

      6. The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

  /s/ ROBERT J. THERRIEN
 
  Robert J. Therrien
  President and Principal Executive Officer

Date: December 27, 2002

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I, Steven E. Hebert, do certify that:

      1. I have reviewed this annual report on Form 10-K of Brooks-PRI Automation, Inc.;

      2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

      3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

      4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

        a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
 
        b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
 
        c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

      5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

        a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
 
        b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

      6. The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

  /s/ STEVEN E. HEBERT
 
  Steven E. Hebert
  Corporate Controller, Principal Accounting Officer and Acting Principal Financial Officer

Date: December 27, 2002

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Exhibit Index

             
Exhibit No. Description Reference



  2.01     Agreement and Plan of Merger dated September 21, 1998 relating to the combination of FASTech Integration, Inc. with the Company.   A**
  2.02     Stock for Cash Purchase Agreement dated March 31, 1999 relating to the acquisition of Hanyon Tech. Co., Ltd. by the Company.   B**
  2.03     Assets for Cash Purchase Agreement dated June 23, 1999 relating to the acquisition of substantially all the assets of Domain Manufacturing Corporation and its Subsidiary Domain Manufacturing SARL by the Company.   C**
  2.04     Agreement and Plan of Merger dated July 7, 1999 relating to the combination of Smart Machines Inc. with the Company.   D**
  2.05     Master Purchase Agreement dated September 9, 1999 relating to the acquisition of substantially all of the assets of the Infab Division of Jenoptik by the Company.   E**
  2.06     Agreement and Plan of Merger dated January 6, 2000 relating to the combination of AutoSimulations, Inc. and Auto-Soft Corporation with the Company.   F**
  2.07     Interests for Stock Purchase Agreement dated May 5, 2000 relating to the acquisition of Irvine Optical Company LLC by the Company, as amended.   G**
  2.08     Stock Purchase Agreement dated as of February 16, 2001 relating to the acquisition of SEMY Engineering, Inc. by the Company.   H**
  2.09     Asset Purchase Agreement dated June 26, 2001 relating to the acquisition of assets of the e-diagnostic infrastructure of KLA-Tencor Corporation and its subsidiary KLA-Tencor Technologies Corporation.   I**
  2.10     Agreement and Plan of Merger dated June 27, 2001 relating to the combination of Progressive Technologies Inc. with the Company.   J**
  2.11     Asset Purchase Agreement dated October 5, 2001 relating to the acquisition of substantially all of the assets of General Precision, Inc. and GPI-Mostek, Inc. by the Company.   K**
  2.12     Share Purchase Agreement dated October 9, 2001 relating to the acquisition of Tec-Sem AG by the Company.   L**
  2.13     Amended and Restated Agreement and Plan of Merger relating to the acquisition of PRI Automation, Inc. by the Company.   M**
  2.14     Combination Agreement dated as of November 24, 1998 between PRI Automation, Inc., 1325949 Ontario Inc. and Promis Systems Corporation Ltd.   N**
  2.15     Share Sale-, Purchase- and Transfer Agreement dated July 3, 2002 relating to the acquisition of Hermos Informatik GmbH.   O**
  3.01     Certificate of Incorporation, as amended, of the Company.   P**
  3.02     Bylaws of the Company.   Q**
  3.03     Certificate of Designation of Series A Junior Participating Preferred Stock.   R**
  3.04     Form of Certificate of Designations, Preferences, Rights and Limitations of Special Voting Preferred Stock of the Company   S**
  4.01     Specimen Certificate for shares of the Company’s common stock.   T**
  4.02     Description of Capital Stock (contained in the Certificate of Incorporation of the Company).   P**
  4.03     Rights Agreement dated July 23, 1997.   U**
  4.04     Amendment No. 1 to Rights Agreement between the Company and Bank Boston, N.A. as Rights Agent.   V**


Table of Contents

             
Exhibit No. Description Reference



  4.05     Registration Rights Agreement dated January 6, 2000.   V**
  4.06     Shareholder Agreement dated January 6, 2000 by and among the Company, Daifuku America Corporation and Daifuku Co., Ltd. relating to the acquisition of the businesses of Auto-Soft Corporation and AutoSimulations, Inc. from Daifuku America Corporation by the Company.   F**
  4.07     Stockholder Agreement dated September 30, 1999 by and among the Company, Jenoptik AG, M+W Zander Holding GmbH and Robert J. Therrien relating to the acquisition of substantially all of the assets of the Infab Division of Jenoptik AG by the Company.   E**
  4.08     Indenture dated as of May 23, 2001 between the Company and State Street Bank and Trust Company (as Trustee).   W**
  4.09     Registration Rights Agreement dated May 23, 2001 among the Company and Credit Suisse First Boston Corporation and SG Cowen Securities Corporation (as representatives of several purchasers).   W**
  4.10     Form of 4.75% Convertible Subordinated Note of the Company in the principal amount of $175,000,000 dated as of May 23, 2001.   W**
  4.11     Stock Purchase Agreement dated June 20, 2001 relating to the acquisition of CCS Technology, Inc. by the Company.   X**
  4.12     Asset Purchase Agreement dated February 15, 2002 relating to the Agreement dated February 15, 2002 relating to the acquisition of substantially all of the assets of Intelligent Automation Systems, Inc. and IAS Products, Inc. by the Company.   Y**
  4.13     Amendment No. 2 to Rights Agreement between the Company and EquiServe Trust Company, N.A., as Rights Agent.   Z**
  4.14     Asset Purchase Agreement by and among Brooks Automation, Inc., NexStar Corporation and Zygo Corporation dated December 13, 2001.   AA**
  4.15     Agreement and Plan of Merger dated September 20, 2002 among the Company, MTI Acquisitions Corp. and MicroTool, Inc.   Filed herewith
  9.1     Form of Voting and Exchange Trust Agreement among PRI Automation, Inc., 1325949 Ontario Inc., Promis Systems Corporation Ltd. And Montreal Trust Company of Canada, as trustee.   N**
  9.2     Form of Supplement to Voting and Exchange Trust Agreement among the Company, 1325949 Ontario Inc., Brooks-PRI Automation (Canada), Inc. and Montreal Trust Company of Canada, trustee.   S**
  9.3     Form of Support Agreement among PRI Automation, Inc., 1325949 Ontario Inc., and Promis Systems Corporation Ltd.   N**
  9.4     Form of Supplement to Support Agreement among the Company, 1325949 Ontario Inc., and Brooks-PRI Automation (Canada), Inc.   Z**
  10.01     Employment Agreement between the Company and Robert J. Therrien dated as of September 30, 2001.   AA* **
  10.02     Form of Indemnification Agreement for directors and officers of the Company.   Q* **
  10.03     Employment Agreement between the Company and Ellen B. Richstone.   BB* **
  10.04     Form of Agreement between Executive Officers and the Company Relating to Change of Control.   CC* **
  10.05     Agreement dated November 11, 1999 between Ellen B. Richstone and the Company Relating to Change of Control.   CC* **
  10.06     Transitional Services Agreement dated September 30, 1999 between the Company and Jenoptik AG relating to the Company’s German manufacturing facility.   CC**


Table of Contents

             
Exhibit No. Description Reference



  10.07     Corporate Noncompetition and Proprietary Information Agreement dated January 6, 2000 by and among the Company, Daifuku America Corporation and Daifuku Co., Ltd. relating to the acquisition of the businesses of Auto-Soft Corporation and AutoSimulations, Inc. from Daifuku America Corporation by the Company.   F**
  10.8     Agreement to Amend Corporate Noncompetition and Proprietary Information Agreement by and among the Company, Daifuku America Corporation and Daifuku Co., Ltd. dated April 2002.   Filed herewith
  10.9     Demand Promissory Note Agreement dated as of May 2, 2000, between the Company and ABN AMRO Bank N.V.   P**
  10.10     Purchase Agreement for the Company’s headquarters dated January 17, 2001.   DD**
  10.11     Lease between the Company and the Nasr Family Trust for 25000 Avenue Stanford, Valencia, California.   K**
  10.12     1993 Nonemployee Director Stock Option Plan.   EE* **
  10.13     1992 Combination Stock Option Plan.   FF* **
  10.14     1995 Employee Stock Purchase Plan, as amended.   P* **
  10.15     1998 Employee Equity Incentive Option Plan.   P* **
  10.16     2000 Combination Stock Option Plan.   P* **
  10.17     2001 Restricted Stock Purchase Plan for KLA Product Line Acquisition.   GG* **
  10.18     Progressive Technologies Inc. 1991 Stock Option and Stock Purchase Plan.   HH* **
  10.19     Lease between Bentall Properties LTD and Westminster Management Corporation and Brooks Automation (Canada) Corp. for Crestwood Corporate Centre, Richmond, B.C. for 13777 Commerce Parkway, Richmond, B.C.   AA**
  10.20     Employment Agreement for Mitchell G. Tyson dated October 23, 2001.   Filed herewith*
  10.21     Management Agreement dated as of November 20, 2000 between the Company and Wan Keun Lee, as the majority shareholder of Shinsung Eng. Co. Ltd.   II**
  10.22     Joint Venture Agreement between the Company, Chung Song Systems Co., Ltd. And Shinsung Eng. Co. Ltd.   JJ**
  10.23     Master Manufacturing Services Agreement dated as of October 26, 1999 by and between the Company and Shinsung Eng. Co. Ltd.   KK**
  10.24     Master Engineering Services Agreement dated as of October 26, 1999 by and between the Company and Shinsung Eng. Co. Ltd.   KK**
  10.25     PRI Automation, Inc. 2000 Stock Option Plan.   LL* **
  10.26     PRI Automation, Inc. 1997 Non-Incentive Stock Option Plan.   II* **
  10.27     PRI Automation, Inc. 1994 Incentive and Non-Qualified Stock Option Plan.   MM* **
  10.28     Commotion Technology, Inc. 2000 Flexible Stock Incentive Plan.   NN* **
  10.29     Promis Systems Corporation Ltd Amended and Restated Stock Option Plan.   OO* **
  10.30     Nonqualified Stock Option granted by PRI Automation, Inc. to Mark Johnston.   PP* **
  10.31     Equipe Technologies Non-Statutory Stock Options.   QQ* **
  10.32     Lease Agreement dated as of May 5, 1994 between the Company and The Prudential Insurance Company of America for 805 Middlesex Turnpike, Billerica, MA.   RR**


Table of Contents

             
Exhibit No. Description Reference



  10.33     Amendment to Lease dated as of July 24, 2000 between the Company and BCIA New England Holdings LLC (successor in interest to The Prudential Insurance Company of America) for 805 Middlesex Turnpike, Billerica, MA.   SS**
  10.34     Lease Agreement dated as of October 12, 2000 between the Company and Progress Road LLC for 17 Progress Road, Billerica, MA.   SS**
  10.35     First Amendment to Lease dated as of March 21, 2000 between the Company and Progress Road LLC for 17 Progress Road, Billerica, MA.   SS**
  10.36     Lease between the Company and BerCar II, LLC for 12 Elizabeth Drive, Chelmsford, Massachusetts dated October 23, 2002.   Filed herewith
  10.37     First Amendment to Lease between the Company and BerCar II, LLC for 12 Elizabeth Drive, Chelmsford, Massachusetts dated November 1, 2002.   Filed herewith
  10.38     Separation Agreement for Ellen B. Richstone dated October 31, 2002.   Filed herewith*
  12.01     Calculation of Ratio of Earnings to Fixed Charges.   Filed herewith
  21.01     Subsidiaries of the Company.   Filed herewith
  23.01     Consent of PricewaterhouseCoopers LLP (Independent accountants for the Company).   Filed herewith
  99.01     Certification of Chief Executive Officer and Corporate Controller, Principal Accounting Officer and Acting Principal Financial Officer.   Filed herewith


 
A. Incorporated by reference to the Company’s registration statement on Form S-4 (Registration No. 333-64037) filed on September 23, 1998.
 
B. Incorporated by reference to the Company’s current report on Form 8-K filed on May 6, 1999.
 
C. Incorporated by reference to the Company’s current report on Form 8-K filed on July 14, 1999.
 
D. Incorporated by reference to the Company’s current report on Form 8-K filed on September 15, 1999, and amended on September 29, 2000.
 
E. Incorporated by reference to the Company’s current report on Form 8-K filed on October 15, 1999.
 
F. Incorporated by reference to the Company’s current report on Form 8-K filed on January 19, 2000 and amended on February 14, 2000.
 
G. Incorporated by reference to the Company’s registration statement on Form S-3 (Registration No. 333-42620) filed on July 31, 2000.
 
H. Incorporated by reference to the Company’s current report on Form 8-K filed on March 1, 2001.
 
I. Incorporated by reference to the Company’s current report on Form 8-K filed on July 9, 2001.
 
J. Incorporated by reference to the Company’s current report on Form 8-K filed on July 24, 2001.
 
K. Incorporated by reference to the Company’s current report on Form 8-K filed on October 19, 2001 as amended on April 4, 2002.
 
L. Incorporated by reference to the Company’s current report on Form 8-K filed on October 22, 2001.
 
M. Incorporated by reference to the Company’s registration statement on Form S-4 (Registration No. 333-75490, filed on April 4, 2002.
 
N. Incorporated by reference to PRI Automation, Inc.’s registration statement on Form S-3 (Registration No. 333-69721) filed on December 24, 1998.
 
O. Incorporated by reference to Company’s current reports on Form 8-K filed on July 30, 2002.
 
P. Incorporated by reference to the Company’s quarterly report on Form 10-Q filed on May 15, 2000 for the quarterly period ended March 31, 2000.
 
Q. Incorporated by reference to the Company’s registration statement on Form S-1 (Registration No. 33-87296) filed on December 13, 1994.
 
R. Incorporated by reference to the Company’s registration statement on Form S-3 (Registration No. 333-34487) filed on August 27, 1997.


Table of Contents

 
S. Incorporated by reference to the Company’s registration statement on Form S-3 (Registration No. 333-87194) filed April 29, 2002, as amended May 13, 2002.
 
T. Incorporated by reference to the Company’s registration statement on Form S-3 (Registration No. 333-88320) filed May 15, 2002.
 
U. Incorporated by reference to the Company’s current report on Form 8-K filed on August 7, 1997.
 
V. Incorporated by reference to the Company’s registration statement on Form 10-K filed for the annual period ended September 30, 2001.
 
W. Incorporated by reference to the Company’s current report on Form 8-K filed on May 29, 2001.
 
X. Incorporated by reference to the Company’s registration statement on Form S-8 (Registration No. 333-67432) filed on August 13, 2001.
 
Y. Incorporated by reference to the Company’s current report on Form 8-K filed on March 1, 2002.
 
Z. Incorporated by reference to the Company’s registration statement on Form 8-A/ A filed on June 4, 2002.
 
AA. Incorporated by reference to the Company’s annual report on Form 10-K filed December 13, 2001 for the annual period ended September 30, 2001, as amended on April 2002.
 
BB. Incorporated by reference to the Company’s annual report on Form 10-K filed on December 30, 1998 for the year ended September 30, 1998.
 
CC. Incorporated by reference to the Company’s annual report on Form 10-K filed on December 29, 1999 for the annual period ended September 30, 1999.
 
DD. Incorporated by reference to the Company’s quarterly report on Form 10-Q filed on May 11, 2001 for the quarterly period ended March 31, 2001.
 
EE. Incorporated by reference to the Company’s registration statement on Form S-8 (Registration No. 333-22717) filed on March 4, 1997.
 
FF. Incorporated by reference to the Company’s registration statement on Form S-8 (Registration No. 333-07313) filed on July 1, 1996.
 
GG. Incorporated by reference to the Company’s registration statement on Form S-8 (Registration No. 333-61928) filed on May 30, 2001.
 
HH. Incorporated by reference to the Company’s registration statement on Form S-8 (Registration No. 333-67482 filed on August 13, 2001.
 
II. Incorporated by reference to PRI Automation, Inc.’s annual report on Form 10-K filed on December 21, 2000 for the annual period ended September 30, 2000.
 
JJ. Incorporated by reference to PRI Automation, Inc.’s quarterly report on Form 10-Q for the quarter ended June 28, 1998.
 
KK. Incorporated by reference to PRI Automation, Inc.’s amendment No. 1 to annual report on Form 10-K/ A filed April 4, 2002 for the annual period ended September 30, 2002.
 
LL. Incorporated by reference to PRI Automation, Inc.’s Registration Statement on Form S-8 (Registration No. 333-33894).
 
MM. Incorporated by reference to PRI Automation, Inc.’s Registration Statement on Form S-8 (Registration No. 333-25217).
 
NN. Incorporated by reference to PRI Automation, Inc.’s Registration Statement on Form S-8 (Registration No. 333-49822).
 
OO. Incorporated by reference to PRI Automation, Inc.’s Registration Statement on Form S-8 (Registration No. 333-74141).
 
PP. Incorporated by reference to PRI Automation, Inc.’s Registration Statement on Form S-8 (Registration No. 333-41067).
 
QQ. Incorporated by reference to PRI Automation, Inc.’s Registration Statement on Form S-8 (Registration No. 333-45063).
 
RR. Incorporated by reference to PRI Automation, Inc.’s Registration Statement on Form S-1 (Registration No. 33-81836).


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SS. Incorporated by reference to PRI Automation, Inc.’s annual report on Form 10-K filed on December 7, 2001 for the annual period ended September 30, 2001, as amended in April 2002.


  *  Management contract or compensatory plan or arrangement.

**  In accordance with Rule 12b-32 under the Securities Exchange Act of 1934, as amended, reference is made to the documents previously filed with the Securities and Exchange Commission, which documents are hereby incorporated by reference.
EX-4.15 3 b44487bpexv4w15.txt EX-4.15 AGREEMENT AND PLAN OF MERGER Exhibit 4.15 AGREEMENT AND PLAN OF MERGER AMONG BROOKS-PRI AUTOMATION, INC. MTI ACQUISITION CORP., AND MICROTOOL, INC. DATED: September 20, 2002 AGREEMENT AND PLAN OF MERGER - EXECUTION COPY MICROTOCOL, INC TABLE OF CONTENTS 1. DEFINITIONS................................................................................................ 1 2. THE MERGER................................................................................................. 9 2.1 PROCEDURE FOR THE MERGERS............................................................................. 9 2.2 FIRST SURVIVING CORPORATION........................................................................... 10 2.3 SECOND SURVIVING CORPORATION.......................................................................... 10 2.4 TIME AND PLACE OF CLOSING............................................................................. 10 2.5 EFFECTIVE TIME........................................................................................ 10 2.6 ARTICLES OF INCORPORATION, BYLAWS AND OFFICERS AND DIRECTORS OF THE FIRST SURVIVING CORPORATION.................................................................................................. 11 2.7 CERTIFICATE OF INCORPORATION, BYLAWS AND OFFICERS AND DIRECTORS OF THE SECOND SURVIVING CORPORATION........................................................................................ 11 2.8 RESERVATION OF RIGHT TO REVISE TRANSACTION............................................................ 12 2.9 EFFECT OF FIRST MERGER ON CAPITAL STOCK............................................................... 12 2.10 PAYMENT OF MERGER CONSIDERATION....................................................................... 13 2.11 DISSENTING SHARES..................................................................................... 13 2.12 DETERMINATION OF CLOSING NET ASSETS; ADJUSTMENT OF THE MERGER CONSIDERATION........................... 14 2.13 DELIVERY OF COMPANY SHARES............................................................................ 16 2.14 FURTHER ASSURANCES.................................................................................... 16 2.15 SHAREHOLDER REPRESENTATIVE............................................................................ 16 2.16 RESTRICTED SECURITIES................................................................................. 18 2.17 LEGEND ON CERTIFICATE................................................................................. 18 3. REPRESENTATIONS AND WARRANTIES OF COMPANY.................................................................. 18 3.1 ORGANIZATION, QUALIFICATION AND GOOD STANDING......................................................... 18 3.2 AUTHORITY; NO CONFLICT................................................................................ 19 3.3 CAPITALIZATION........................................................................................ 20 3.4 BOOKS, RECORDS AND ACCOUNTS........................................................................... 21 3.5 FINANCIAL STATEMENTS.................................................................................. 22 3.6 NO UNDISCLOSED LIABILITIES............................................................................ 22 3.7 NO MATERIAL ADVERSE CHANGE............................................................................ 22 3.8 TAXES................................................................................................. 23 3.9 ACCOUNTS RECEIVABLE................................................................................... 24 3.10 TITLE TO PROPERTIES; ENCUMBRANCES..................................................................... 24 3.11 CONDITION AND SUFFICIENCY OF ASSETS................................................................... 26 3.12 COMPLIANCE WITH LAWS; GOVERNMENTAL AUTHORIZATIONS..................................................... 26 3.13 LEGAL PROCEEDINGS..................................................................................... 26 3.14 ABSENCE OF CERTAIN CHANGES AND EVENTS................................................................. 26 3.15 CONTRACTS; NO DEFAULTS................................................................................ 29 3.16 INSURANCE............................................................................................. 32 3.17 ENVIRONMENTAL MATTERS................................................................................. 32 3.18 EMPLOYEES............................................................................................. 33 3.19 EMPLOYEE BENEFITS..................................................................................... 34 3.20 LABOR RELATIONS....................................................................................... 37 3.21 INTELLECTUAL PROPERTY................................................................................. 38 3.22 CERTAIN PAYMENTS...................................................................................... 40 3.23 RELATIONSHIPS WITH RELATED PERSONS.................................................................... 40 3.24 BROKERS OR FINDERS.................................................................................... 41 3.25 CUSTOMER RELATIONSHIPS................................................................................ 41
AGREEMENT AND PLAN OF MERGER - EXECUTION COPY MICROTOCOL, INC 3.26 OUTSTANDING INDEBTEDNESS.............................................................................. 41 3.27 SUPPLIERS; RAW MATERIALS CONTRACTORS.................................................................. 41 3.28 INVENTORIES........................................................................................... 42 3.29 CUSTOMERS............................................................................................. 42 3.30 PAYABLES.............................................................................................. 42 3.31 PRODUCT WARRANTIES; PRODUCT LIABILITY................................................................. 42 3.32 FINANCIAL SERVICE RELATIONS AND POWERS OF ATTORNEY.................................................... 43 3.33 REGULATORY CORRESPONDENCE............................................................................. 43 3.34 DISCLOSURE............................................................................................ 43 3.35 INVESTMENT MATTERS.................................................................................... 43 4. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.................................................... 44 4.1 ORGANIZATION AND GOOD STANDING........................................................................ 44 4.2 AUTHORITY; NO CONFLICT................................................................................ 44 4.3 CAPITALIZATION; PARENT SHARES; MERGER SUB SHARES...................................................... 45 4.4 FILINGS WITH THE COMMISSION........................................................................... 46 4.5 LEGAL PROCEEDINGS..................................................................................... 46 4.6 BROKERS OR FINDERS.................................................................................... 46 4.7 DISCLOSURE............................................................................................ 47 4.8 CURRENT CLAIMS........................................................................................ 47 5. COVENANTS.................................................................................................. 47 5.1 NORMAL COURSE......................................................................................... 47 5.2 CONDUCT OF BUSINESS................................................................................... 47 5.3 CERTAIN FILINGS....................................................................................... 49 5.4 NOTIFICATION OF CERTAIN MATTERS....................................................................... 49 5.5 NO SOLICITATION....................................................................................... 50 5.6 ACCESS TO INFORMATION; CONFIDENTIALITY................................................................ 50 5.7 REASONABLE BEST EFFORTS; FURTHER ACTION............................................................... 51 5.8 RESTRICTION ON DISPOSITION OF BROOKS SHARES........................................................... 51 5.9 TAX RETURNS FOR YEARS ENDING ON OR PRIOR TO THE CLOSING DATE.......................................... 52 6. ADDITIONAL COVENANTS OF PARENT AND MERGER SUB.............................................................. 52 6.1 CERTAIN FILINGS....................................................................................... 52 6.2 NOTIFICATION OF CERTAIN MATTERS....................................................................... 52 6.3 REGISTRATION.......................................................................................... 53 6.4 NASDAQ NATIONAL MARKET LISTING........................................................................ 55 7. CONDITIONS TO OBLIGATIONS OF PARENT........................................................................ 55 7.1 REPRESENTATIONS AND WARRANTIES........................................................................ 55 7.2 PERFORMANCE OF COVENANTS.............................................................................. 55 7.3 UPDATE CERTIFICATE.................................................................................... 56 7.4 NO GOVERNMENTAL OR OTHER PROCEEDING; ILLEGALITY....................................................... 56 7.5 APPROVALS AND CONSENTS................................................................................ 56 7.6 APPROVAL OF BOARD OF DIRECTORS........................................................................ 56 7.7 OPINION OF COUNSEL.................................................................................... 57 7.8 ESCROW AGREEMENT...................................................................................... 57 7.9 CONFIDENTIALITY, NONSOLICITATION, NONCOMPETITION AND INTELLECTUAL PROPERTY AGREEMENTS................. 57 7.10 [RESERVED]............................................................................................ 57 7.11 TERMINATION OF RIGHTS AND VOTING AGREEMENTS........................................................... 57 7.12 RESIGNATION........................................................................................... 57 7.13 RIGHTS TO CONVERSION.................................................................................. 57 7.14 SECRETARY'S CERTIFICATE............................................................................... 58 7.15 OTHER DOCUMENTS....................................................................................... 58
AGREEMENT AND PLAN OF MERGER - EXECUTION COPY ii MICROTOCOL, INC 7.16 KEY EMPLOYEES......................................................................................... 58 7.17 DUE DILIGENCE REVIEW.................................................................................. 58 7.18 RESULTS............................................................................................... 58 7.19 NO MATERIAL ADVERSE EFFECT............................................................................ 58 7.20 APPROVAL OF PARENT'S COUNSEL.......................................................................... 58 7.21 DISSENTING SHARES..................................................................................... 59 7.22 FIRPTA................................................................................................ 59 7.23 SALES TAX............................................................................................. 59 7.24 EXHIBIT A............................................................................................. 59 8. CONDITIONS TO OBLIGATIONS OF THE COMPANY................................................................... 59 8.1 REPRESENTATIONS AND WARRANTIES........................................................................ 59 8.2 PERFORMANCE OF COVENANTS.............................................................................. 59 8.3 UPDATE CERTIFICATE.................................................................................... 59 8.4 NO GOVERNMENTAL OR OTHER PROCEEDING; ILLEGALITY....................................................... 60 8.5 OFFICER'S CERTIFICATE................................................................................. 60 8.6 ADJUSTMENTS........................................................................................... 60 8.7 TAX-FREE MERGER....................................................................................... 60 9. INDEMNIFICATION............................................................................................ 60 9.1 SURVIVAL.............................................................................................. 60 9.2 INDEMNIFICATION BY THE COMPANY SHAREHOLDERS........................................................... 60 9.3 INDEMNIFICATION BY PARENT............................................................................. 62 9.4 DEFENSE OF THIRD PARTY ACTIONS........................................................................ 63 9.5 MISCELLANEOUS......................................................................................... 63 9.6 PAYMENT OF INDEMNIFICATION............................................................................ 64 10. TERMINATION OF AGREEMENT................................................................................... 64 10.1 TERMINATION........................................................................................... 64 10.2 TERMINATION BY PARENT................................................................................. 65 10.3 TERMINATION BY THE COMPANY............................................................................ 65 10.4 PROCEDURE FOR TERMINATION............................................................................. 65 10.5 EFFECT OF TERMINATION................................................................................. 65 10.6 RIGHT TO PROCEED...................................................................................... 66 11. GENERAL PROVISIONS......................................................................................... 66 11.1 EXPENSES.............................................................................................. 66 11.2 PUBLIC ANNOUNCEMENTS.................................................................................. 66 11.3 NOTICES............................................................................................... 67 11.4 JURISDICTION; SERVICE OF PROCESS...................................................................... 68 11.5 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE................................................. 68 11.6 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS.................................................... 68 11.7 SEVERABILITY.......................................................................................... 68 11.8 GOVERNING LAW......................................................................................... 69 11.9 COUNTERPARTS.......................................................................................... 69 11.10 ENTIRE AGREEMENT AND MODIFICATION..................................................................... 69
AGREEMENT AND PLAN OF MERGER - EXECUTION COPY iii MICROTOCOL, INC AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER ("AGREEMENT") entered into as of September 20, 2002, by and among Brooks-PRI Automation, Inc., a Delaware corporation ("PARENT"), MTI Acquisition Corp., a Colorado corporation and a wholly-owned subsidiary of the Parent (the "MERGER SUB"), and MicroTool, Inc., a Colorado corporation ("COMPANY"). RECITALS WHEREAS, Parent, Merger Sub and the Company desire to effectuate a business combination of Parent and the Company using a two-step approach as further described in this Agreement; WHEREAS, to effectuate this combination, Merger Sub will be merged with and into the Company (the "FIRST MERGER") and the Company will immediately thereafter (and in any event no later than the time the Secretary of State of the State of Colorado shall close for business on the day the First Merger shall be consummated) be merged with and into Parent (the "SECOND MERGER", and together with the First Merger, the "MERGERS") and the shareholders of the Company will receive Parent Common Stock upon the terms and subject to the conditions set forth in this Agreement and in accordance with the provisions of the CBCA and the DGCL; WHEREAS, the respective Boards of Directors of Parent, Merger Sub and the Company have approved the Mergers, upon the terms and subject to the conditions set forth in this Agreement; WHEREAS, it is intended that, for federal income tax purposes, the Mergers shall qualify as a single reorganization transaction under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder (the "CODE"), and this Agreement shall constitute, and is hereby adopted as, a "plan of reorganization" for purposes of Section 368 of the Code. NOW, THEREFORE, in consideration for the mutual agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. DEFINITIONS For purposes of this Agreement, the following terms have the meanings specified or referred to in this Section 1: "ACCOUNTS RECEIVABLE" - is defined in Section 3.9. "ADJUSTMENT AMOUNT" - the amount, if any, by which the Merger Consideration is to be reduced pursuant to Section 2.12. AGREEMENT AND PLAN OF MERGER - EXECUTION COPY MICROTOCOL, INC "ADJUSTMENT DATE" - is defined in Section 2.12(c). "AGREEMENT" - this Agreement, including the Schedules and Exhibits hereto. "ANCILLARY AGREEMENTS" - are the other agreements to be executed and delivered pursuant to and in connection with the Agreement. "ALTERNATIVE ACQUISITION" - is defined in Section 5.5. "BASE BALANCE SHEET" - is defined in Section 3.5(a). "BASE BALANCE SHEET DATE" - is defined in Section 3.5(a). "BASE NET ASSETS" - is defined in Section 2.12(a). "CLOSING" - is defined in Section 2.4 "CLOSING DATE" - is defined in Section 2.4. "CLOSING NET ASSETS" - is defined in Section 2.12(a). "CLOSING STATEMENT" - is defined in Section 2.12(a). "CODE" - is defined in the Recitals of this Agreement. "CBCA" - Colorado Business Corporation Act. "COMMISSION" - is the United States Securities and Exchange Commission. "COMPANY" - is defined in the first paragraph of this Agreement. "COMPANY COMMON STOCK" - the common stock, $0.01 par value, of the Company. "COMPANY OPTIONS" - all options, whether vested or not, to purchase shares of Company Common Stock. "COMPANY SHAREHOLDERS" - the holders of the Company Shares listed on Exhibit A. "COMPANY SHARES" - all of the issued and outstanding shares of the Company's capital stock which includes Company Common Stock and Company Preferred Stock and all of which is owned by the Company Shareholders. "COMPANY PREFERRED STOCK" - the Series A Preferred Stock, $0.01 par value, of the Company. "COMPANY SHAREHOLDERS' INDEMNIFIED PERSONS" - means the Company, its directors, officers, employees, and agents, and the Company Shareholders. AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 2 MICROTOCOL, INC "CONFIDENTIALITY AGREEMENT" - Confidentiality and Nondisclosure Agreement between Parent and Company, dated April 12, 2002. "CONSTITUENT CORPORATIONS" - the Parent, Merger Sub and the Company. "CONTRACT" - any agreement, contract, obligation, promise, commitment or undertaking (whether written or oral and whether express or implied), other than those that have been terminated. "COPYRIGHTS" - " means all copyrights in both published works and unpublished works, including training manuals, marketing and promotional materials, internal reports, websites, business plans, mask works, software, programs and related documentation, and videos and any other expressions, whether registered or unregistered, and all registrations or applications in connection therewith. "CUSTOMERS" - is defined in Section 3.29. "DGCL" - the Delaware General Corporation Law, as amended. "DISCLOSURE SCHEDULE" - the disclosure schedules delivered by the Company and the Parent concurrently with the execution and delivery of this Agreement and any supplements thereto. "DISSENTING SHARES" - is defined in Section 2.11. "EFFECTIVE TIME" - is defined in Section 2.5(a). "EMPLOYEE BENEFIT PLAN" - is defined in Section 3.19(a). "ENCUMBRANCE" - means any mortgage, deed of trust, charge, claim, lease, community property interest, equitable interest, lien, option, hypothecation, pledge, covenant, condition, security interest, title defect, right of first refusal, restriction of any kind (including any restriction on use, voting, transfer, receipt of income or exercise of any other attribute of ownership), easement, any filing of any financing statement as debtor under the Uniform Commercial Code or comparable law of any jurisdiction, any other restriction or limitation whatsoever and any agreement to give or make any of the foregoing; and the verb "Encumber" shall be construed accordingly. "ENVIRONMENTAL CLAIM" - any accusation, allegation, notice of violation, action, claim, Encumbrance, Lien, demand, abatement or other Order or direction (conditional or otherwise) by any Governmental Authority or any Person for personal injury (including sickness, disease or death), tangible or intangible property damage, damage to the environment, nuisance, pollution, contamination or other adverse effects on the environment, or for fines, penalties or restrictions resulting from or based upon (i) the existence, or the continuation of the existence, of a Release (including, AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 3 MICROTOCOL, INC without limitation, sudden or non-sudden accidental or non-accidental Releases) of, or exposure to, any Hazardous Material or other substance, chemical, material, pollutant, contaminant, odor, audible noise, or other Release in, into or onto the environment (including, without limitation, the air soil, soil, surface water or groundwater) at, in, by, from or related to the Facilities or any activities conducted thereon; (ii) the environmental aspects of the transportation, storage, treatment or disposal of Hazardous Materials in connection with the operation of the Facilities; or (iii) the violation, or alleged violation, of any Environmental Laws, Orders or Governmental Permits of or from any Governmental Authority relating to environmental matters connected with the Facilities. "ENVIRONMENTAL, HEALTH AND SAFETY LIABILITIES" - any cost, damage, expense, liability, obligation or other responsibility arising from or under any Environmental Law or Occupational Safety and Health Law and consisting of or relating to: (a) any environmental, health or safety matter or condition (including on-site or off-site contamination, generation, handling and disposal of Hazardous Materials, occupational safety and health, and regulation of chemical and Hazardous Materials); (b) fines, penalties, judgments, awards, settlements, legal or administrative proceedings, damages, losses, litigation, including civil and criminal claims, demands and responses, investigative, remedial, response or inspection costs and expenses arising under Environmental Law or Occupational Safety and Health Law; (c) financial responsibility under Environmental Law or Occupational Safety and Health Law for cleanup costs or corrective action, including any investigation, cleanup, removal, containment or other remediation or response actions required by applicable Environmental Law or Occupational Safety and Health Law and for any natural resource damages; or (d) any other compliance, corrective, investigative or remedial measures required under Environmental Law or Occupational Safety and Health Law. The terms "removal," "remedial," and "response action," include the types of activities covered by the United States Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. Section 9601 et seq., as amended ("CERCLA"). "ENVIRONMENTAL LAW" - means Laws, Orders and Governmental Permits concerning the environment, or activities that might threaten or result in damage to the environment or human health, or any Laws, Orders and Governmental Permits that are concerned, in whole or in part, with: (1) the environment and with protecting or improving the quality of the environment and human and employee health and safety issues; or (2) the management of pollution or Hazardous Materials, (including, but not limited to, in the case of the United States of America, the following federal laws: (a) CERCLA; (b) Resource Conservation and Recovery Act ("RCRA"); (c) Clean Air Act; (d) Clean Water Act; (e) Toxic Substances Control Act; (f) Emergency Planning and Community Right-to-Know Act of 1986; (g) Hazardous Materials Transportation Act; (h) Federal Water Pollution Control Act; (i) the Federal Insecticide, Fungicide and Rodenticide Act ("FIFRA"), and (j) Occupational Safety and Health Act ("OSHA"), as such laws have been amended or supplemented, and the regulations promulgated pursuant thereto). "ERISA" - the Employee Retirement Income Security Act of 1974, as amended, or any successor law. "ERISA AFFILIATE" - is defined in Section 3.19(b). "ESCROW AGENT" - is defined in Section 2.10(d). AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 4 MICROTOCOL, INC "ESCROW AGREEMENT" - is defined in Section 2.10(d). "ESCROW SHARES" - is defined in Section 2.10(d). "EXCHANGE ACT" - the Securities Exchange Act of 1934, as amended, or any successor law. "EXCHANGE PRICE" - the average closing price of a share of Parent Common Stock for the 20 consecutive Trading Days ending on the Trading Day that is two Trading Days immediately prior to the Closing Date, as reported on the Nasdaq National Market (subject to appropriate adjustment for any stock split, reverse split, stock dividend, reorganization, recapitalization or other like change with respect to the Parent Common Stock). "FACILITIES" - any real property, leaseholds or other interests currently or formerly owned or operated by the Company and any buildings, plants, structures or equipment (including motor vehicles) currently or formerly owned or operated by the Company. "FINANCIAL STATEMENTS" - is defined in Section 3.5(a). "FIRST MERGER" - is defined in the Recitals of this Agreement. "GAAP" - United States generally accepted accounting principles, practices and methods. "GOVERNMENTAL AUTHORITY" - any court, tribunal, authority, agency, commission, bureau, department, official or other instrumentality of the United States, any foreign country or any domestic, foreign, state, local, county, city or other political subdivision. "GOVERNMENTAL PERMIT" - means any license, permit, order, franchise agreement, concession, grant, authorization, consent or approval from a Government Authority. "HAZARDOUS MATERIALS" - any substance, material or waste which is regulated by Environmental Law, including, without limitation, any material or substance which is defined as a "hazardous waste," "hazardous material," "hazardous substance," "extremely hazardous waste," "restricted hazardous waste," "subject waste," "contaminant," "toxic waste" or "toxic substance" under any provision of Environmental Law, including but not limited to, petroleum products, asbestos and polychlorinated biphenyls. "HOLDBACK SHARES" - is defined in Section 2.10(c). "INDEMNIFIED PERSON" - is defined in Section 9.4(d). "INDEMNIFYING PERSON" - is defined in Section 9.4(a). "INDEPENDENT CPA" - is defined in Section 2.12(d). "INDEPENDENT TAX AUDITOR" - is defined in Section 5.9(b). AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 5 MICROTOCOL, INC "INTERIM BALANCE SHEET" - is defined in Section 3.5(a) "INTERIM BALANCE SHEET DATE" - is defined in Section 3.5(a). "INTELLECTUAL PROPERTY ASSETS" - means Licensed Intellectual Property Assets and Owned Intellectual Property Assets. "INTERIM FINANCIAL STATEMENTS" - is defined in Section 3.5(a). "ISO" - is defined in Section 3.19(i). "KEY EMPLOYEES" - Gordon Beckhart, Patrick Conarro, Kamran Sadri, Kevin Harrell, Matt Brown, Patrick Fisher, Tillman Turley and John Jenkins. "KNOWLEDGE" - Except as specified otherwise in this Agreement, any reference to the knowledge of any Person shall mean to the actual knowledge of such Person and, with respect to an entity, includes the actual knowledge of all directors and officers of the Person. "LAW" - any federal, state, local or foreign law (including common law), statute, code, ordinance, rule, regulation or other requirement or guideline. "LICENSED INTELLECTUAL PROPERTY ASSETS" - means all of the intellectual property rights of the Company including without limitation Marks, Patents, Copyrights and Trade Secrets in every jurisdiction which are licensed to Company. "LOSSES" - means all losses, damages (including, without limitation, punitive and consequential damages actually paid by the Indemnified Person to third parties), fines, penalties, payments, obligations and all liabilities and all expenses related thereto incurred by an Indemnified Person. Losses shall include any reasonable legal fees and costs incurred by any of the Indemnified Persons subsequent to the Closing in defense of or in connection with any alleged or asserted liability, payment or obligation, whether or not any liability or payment, obligation or judgment is ultimately imposed against the Indemnified Persons and whether or not the Indemnified Persons are made or become parties to any such action. "MARKS" - " means all trademarks, service marks, trade names, common law trademarks, business names, Internet domain names and addresses, trade dress, slogans, and all registrations or applications therefor, and the goodwill associated therewith . "MATERIAL ADVERSE EFFECT" - " means, when used in connection with the Company or Parent, any change, circumstance or effect which, individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect on or cause a material adverse change in, the assets, liabilities, financial condition or results of operations of such party or on the ability of such party to execute, deliver and perform this Agreement, any Ancillary Agreements and the transactions contemplated hereby and thereby. "MATERIAL PERSONAL PROPERTY" - as defined in Section 3.10. AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 6 MICROTOCOL, INC "MERGERS" - is defined in the Recitals of this Agreement. "MERGER CONSIDERATION" - is defined in Section 2.9(b). "MERGER SUB" - is defined in the first paragraph of this Agreement. "OCCUPATIONAL SAFETY AND HEALTH LAW" - any legal or governmental requirement or obligation relating to safe and healthful working conditions or to reduce occupational safety and health hazards, and any program, whether governmental or private (including those promulgated or sponsored by industry associations and insurance companies issuing insurance policies to a party to this Agreement), designed to provide safe and healthful working conditions. "ORDER" - any order, consent, consent order, injunction, judgment, decree, consent decree, ruling, writ, assessment or arbitration award. "ORGANIZATIONAL DOCUMENTS" - (a) the articles or certificate of incorporation and the bylaws or code of regulations of a corporation; (b) the partnership agreement and any statement of partnership of a general partnership; (c) the limited partnership agreement and the certificate of limited partnership of a limited partnership; (d) the articles or certificate of formation and operating agreement of a limited liability company; (e) any charter, trust certificate or document or similar document adopted or filed in connection with the creation, formation or organization of a Person; and (e) any and all currently effective amendments to any of the foregoing. "OWNED INTELLECTUAL PROPERTY ASSETS" - means all intellectual property rights including without limitation Marks, Patents, Copyrights and Trade Secrets in every jurisdiction which are owned by the Company. "PARENT" - is defined in the first paragraph of this Agreement. "PARENT COMMON STOCK" - the Common Stock, $0.01 par value per share, of Parent. "PARENT SEC REPORTS" - is defined in Section 4.4. "PARENT SHARES" - the shares of Parent Common Stock to be issued to the Company Shareholders in connection with the transactions contemplated hereunder. "PARENT'S INDEMNIFIED PERSONS" - means the Parent, its subsidiary and affiliated corporations, their respective directors, officers, employees, stockholders and agents, the Company after the Closing, and any person serving as a director, officer, employee or agent of the Company at Parent's request after the Closing. "PATENTS" - means all patents, patent applications and inventions and discoveries that may be patentable, including any patents issuing therefrom, and any reissues, reexaminations, divisions, continuations in whole or in part, extensions and foreign counterparts thereof. "PENSION PLAN" - as defined in Section 3.19(f). AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 7 MICROTOCOL, INC "PERSON" - any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, labor union or other entity or governmental body or Governmental Authority. "PROCEEDING" - any pending claim, action, formal or informal investigation, arbitration, litigation or other judicial, regulatory or administrative proceeding. "REGISTRATION STATEMENT" - the registration statement on Form S-3 to be filed by Parent with the SEC pursuant to Section 6.4. "RELATED PERSON" - is defined in Section 3.23. "RELEASE" - any release, spill, effluent, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching, or migration into the indoor or outdoor environment of any Hazardous Material through or in the air, soil, surface water or groundwater. "REMEDIAL ACTION" - all actions, including, without limitation, any expenditures, required or voluntarily undertaken to (i) clean up, remove, treat, or in any other way address any Hazardous Material or other substance in the indoor or outdoor environment; (ii) prevent the Release or threat of Release, or minimize the further Release of any Hazardous Material or other substance so it does not migrate or endanger or threaten to endanger public health or welfare of the indoor or outdoor environment; (iii) perform pre-remedial studies and investigations or post-remedial monitoring and care; or (iv) bring any Facility into compliance with all Environmental Laws and Environmental Permits. "REQUIRED SHAREHOLDER VOTE" - a majority of the outstanding Company Shares. "RESOLUTION PERIOD" - is defined in Section 2.12(d). "RESTRICTED PARENT SHARES" - is defined in Section 5.8(a). "REVIEW PERIOD" - is defined in Section 2.12(b). "SECOND MERGER" - is defined in the recitals of the Agreement. "SECURITIES ACT" - the Securities Act of 1933, as amended, or any successor law. "SHAREHOLDER REPRESENTATIVE" - as defined in Section 2.15(a). "SUBSIDIARY" - with respect to any Person, any corporation, joint venture, limited liability company, partnership, association or other business entity of which more than 50% of the total voting power of stock or other equity entitled to vote generally in the election of directors or managers or equivalent persons thereof is owned or controlled, directly or indirectly, by such Person. "TAX AUTHORITY" - is defined in Section 3.8(a). AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 8 MICROTOCOL, INC "TAX RESOLUTION PERIOD" - is defined in Section 5.9(b). "TAX RETURNS" - means all foreign, federal, state or local, government income, excise, gross receipts and franchise tax returns, real estate and personal property tax returns, reports and declarations, including valid extension therefore, or estimated taxes required to be filed by the Company with respect to all applicable taxes. "TAXES" - is defined in Section 3.8(a). "THIRD PARTY ACTION" - means any written assertion of a claim, or the commencement of any action, suit, or proceeding, by a third party as to which any person believes it may be an Indemnified Person under Article 9. "TRADE SECRETS" - means all trade secrets, know-how, confidential information, customer lists, technical information, proprietary information, technologies, processes and formulae, source code, algorithms, architecture, structure, display screens and development tools, data, plans, drawings and blue prints, whether tangible or intangible and whether stored, compiled, or memorialized physically, electronically, photographically, or otherwise . "TRADING DAY" - any day on which the Nasdaq National Market is open for business. "UNRESTRICTED PARENT SHARES" - is defined in Section 5.8(a). "VOTING AGREEMENT" - the voting agreement in the form of Exhibit F pursuant to which certain holders of Company Shares have agreed to vote all Company Shares held by them in favor of approval and adoption of this Agreement and the Merger. "WARN" - is defined in Section 3.18(d). 2. THE MERGER 2.1 PROCEDURE FOR THE MERGERS (a) First Merger. Upon the terms and subject to the conditions set forth in this Agreement, Merger Sub shall be merged, in accordance with the CBCA, with and into the Company. The First Merger shall be effected by filing articles of merger with the Secretary of State of the State of Colorado in accordance with the CBCA. (b) Second Merger. Upon the terms and subject to the conditions set forth in this Agreement, immediately after the First Merger (and in any event no later than the time the Secretary of State of the State of Colorado shall close for business on the day the First Merger shall be consummated), the Company shall be merged, in accordance with the CBCA and the DGCL, with and into Parent. The Second Merger shall be effected by filing articles of merger with the Secretary of State of the State of Colorado in accordance with the CBCA and filing a certificate of ownership and merger with the Secretary of State of the State of Delaware in accordance with the DGCL. AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 9 MICROTOCOL, INC 2.2 FIRST SURVIVING CORPORATION Following the First Merger, the separate corporate existence of Merger Sub shall cease, and the Company shall continue as the surviving corporation (the "First Surviving Corporation"). The name of the First Surviving Corporation shall be MicroTool, Inc. 2.3 SECOND SURVIVING CORPORATION Following the Second Merger, the separate corporate existence of the Company shall cease, and Parent shall continue as the surviving corporation (the "Second Surviving Corporation"). 2.4 TIME AND PLACE OF CLOSING The closing of the Merger provided for in this Agreement ( the "CLOSING") shall be held at the law offices of Brown Rudnick Berlack Israels LLP, One Financial Center, Boston, Massachusetts, within three (3) business days of the satisfaction or waiver of all conditions to the obligations of the parties to consummate the transactions contemplated hereby (other than conditions with respect to action that will be taken at the Closing itself), or at such other place, date or time as may be fixed by mutual agreement of the parties (the "CLOSING DATE"); provided, however, that in no event shall the Closing Date be extended beyond November 30, 2002. Each of the parties agrees to use its reasonable best efforts to close the Merger by October 15, 2002. 2.5 EFFECTIVE TIME (a) Subject to the provisions of this Agreement, as soon as practicable after the Closing Date, the parties shall cause the First Merger contemplated by this Agreement to be consummated by the filing of articles of merger with the Secretary of State of the State of Colorado executed in accordance with the relevant provisions of the CBCA, and the parties shall make all other filings or recordings required under the CBCA. The First Merger shall become effective at such time as the articles of merger has been duly filed with the Secretary of State of the State of Colorado, or at such subsequent date or time as the parties shall agree and specify in the articles of merger (the time the First Merger becomes effective being hereinafter referred to as the "EFFECTIVE TIME"). (b) Immediately after receiving confirmation from the Secretary of State of the State of Colorado that the First Merger has been consummated (and in any event no later than the time the Secretary of State of the State of Colorado shall close for business on the day the First Merger shall be consummated), Parent and the First Surviving Corporation shall cause the Second Merger contemplated by this Agreement to be consummated by the filing of a certificate of ownership with the Secretary of State of the State of Colorado executed in accordance with the relevant provisions of the CBCA and the filing of a certificate of ownership and merger with the Secretary of State of the State of Delaware executed in accordance with the relevant provisions of the DGCL, and Parent and the First Surviving Corporation shall make all other filings or recordings required under the CBCA and the DGCL. The Second Merger shall become effective at the later of the filing of the certificate of ownership with the Secretary of State of the State of AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 10 MICROTOCOL, INC Colorado or the filing of the certificate of ownership and merger with the Secretary of State of the State of Delaware, or at such subsequent date or time as the parties shall agree and specify in such filings. (c) The effectiveness of the Second Merger shall be as provided in this Agreement and the applicable provisions of the CBCA and the DGCL. Without limiting the generality of the foregoing, and subject thereto, all the property, rights, privileges, powers and franchises of First Surviving Corporation shall vest in the Parent, and all debts, liabilities and duties of the First Surviving Corporation shall become the debts, liabilities and duties of the Parent. 2.6 ARTICLES OF INCORPORATION, BYLAWS AND OFFICERS AND DIRECTORS OF THE FIRST SURVIVING CORPORATION (a) Articles. Unless otherwise determined by Parent in its sole discretion prior to the Effective Time, at the Effective Time, the articles of incorporation of Merger Sub, as in effect immediately prior to the Effective Time, shall be the articles of incorporation of the First Surviving Corporation, unless and until thereafter changed or amended in accordance with applicable law. (b) Bylaws. Unless otherwise determined by Parent in its sole discretion prior to the Effective Time, at the Effective Time, the bylaws of Merger Sub, as in effect immediately prior to the Effective Time, shall be the bylaws of the First Surviving Corporation, unless and until thereafter changed or amended in accordance with applicable law. (c) Officers And Directors. The officers of Merger Sub immediately prior to the Effective Time shall be the initial officers of the First Surviving Corporation, in each case until the earliest of their resignation or removal from office or their otherwise ceasing to be officers or until their respective successors are duly elected and qualified. The directors of Merger Sub immediately prior to the Effective Time shall be the initial directors of the First Surviving Corporation, each to hold office in accordance with the certificate of incorporation and bylaws of the First Surviving Corporation. 2.7 CERTIFICATE OF INCORPORATION, BYLAWS AND OFFICERS AND DIRECTORS OF THE SECOND SURVIVING CORPORATION (a) Certificate. Unless otherwise determined by Parent in its sole discretion prior to the Second Merger, the certificate of incorporation of Parent, as in effect immediately prior to the Second Merger, shall be the certificate of incorporation of the Second Surviving Corporation until thereafter changed or amended as provided therein or by applicable law. (b) Bylaws. Unless otherwise determined by Parent in its sole discretion prior to the Second Merger, the bylaws of Parent, as in effect immediately prior to the Second Merger, shall be the bylaws of the Second Surviving Corporation until thereafter changed or amended as provided therein or by applicable law. (c) Officers And Directors. Unless otherwise determined by Parent prior to the Second Merger, the officers of Parent immediately prior to the Second Merger shall be the initial AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 11 MICROTOCOL, INC officers of the Second Surviving Corporation, in each case until the earliest of their resignation or removal from office or their otherwise ceasing to be officers or until their respective successors are duly elected and qualified. The directors of Parent immediately prior to the Second Merger shall be the initial directors of the Second Surviving Corporation, each to hold office in accordance with the certificate of incorporation and bylaws of the Second Surviving Corporation. 2.8 RESERVATION OF RIGHT TO REVISE TRANSACTION Not later than the date the Company obtains the Required Shareholder Vote, Parent (with the consent of the Company, not to be unreasonably withheld) may change the method of effecting the business combination of Parent and the Company, and each party shall cooperate in such efforts, including to provide for (a) a merger of the Company with and into Parent, (b) a merger of the Company with and into a Subsidiary of Parent , or (c) some other substantially similar structure; provided, however, that no such change shall (i) alter or change the amount or kind of consideration to be issued to Company Shareholders as provided for in this Agreement, (ii) result in the transaction being a taxable transaction for the Company, Parent or either of their stockholders, (iii) materially delay receipt of any approval required for the consummation of the transaction contemplated by this Agreement, (iv) require the Company to obtain the agreement, consent or approval of any person whose agreement, consent or approval is not required in connection with the Merger described herein (unless Parent shall waive the requirement to obtain such agreement, consent or approval in a manner reasonably satisfactory to the Company), (v) impair or delay the consummation of the Merger or any other transaction contemplated hereby or the ability of any party hereto to perform its obligations hereunder by more than fifteen calendar days or beyond November 30, 2002, or (vi) cause the Company to breach any representation, warranty, covenant or agreement (unless Parent shall waive compliance with such representation, warranty, covenant or agreement in a manner reasonably satisfactory to the Company). 2.9 EFFECT OF FIRST MERGER ON CAPITAL STOCK As of the Effective Time, by virtue of the First Merger and without any action on the part of any of the Constituent Corporations or the holders of any securities of the Constituent Corporations: (a) At the Effective Time, the effect of the First Merger shall be as provided in this Agreement and the applicable provisions of the CBCA. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the property, rights, privileges, powers and franchises of Merger Sub and the Company shall vest in the First Surviving Corporation, and all debts, liabilities and duties of Merger Sub and the Company shall become the debts, liabilities and duties of the First Surviving Corporation. (b) Company Shares. At the Effective Time, by virtue of the Merger and without any action on the part of Merger Sub, the Company or the Company Shareholders, the Company Shares (excluding the Treasury Shares and the Dissenting Shares) shall be converted into the right to receive and be exchangeable for the number of shares of Parent Common Stock and the amount of cash set forth next to such Company Shareholder's name on Exhibit A (an aggregate AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 12 MICROTOCOL, INC purchase price of $500,000 in cash and 190,000 shares of Parent Common Stock) subject to adjustment as provided in Section 2.12 hereof (the "MERGER CONSIDERATION"). (c) Cancellation of Certificates. At the Effective Time, all Company Common Shares shall cease to be outstanding, shall be canceled and retired and shall cease to exist, and each certificate (a "Certificate") formerly representing a Company Share (other than a Treasury Share) shall thereafter cease to have any rights with respect to the Company Shares, except as provided herein or by law. (d) Treasury Stock. Each Company Share owned by the Company ("TREASURY SHARES") shall automatically be canceled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor. (e) Company Options. Prior to the Closing Date, each Company Option shall be fully accelerated as to all unvested shares so as to give the holder thereof the opportunity to exercise such Company Option. Exhibit A shall be amended prior to the Closing Date to reflect any such option exercise. At the Effective Time, without any action on the part of any holder of Company Options or the Company, all remaining unexercised Company Options will terminate. 2.10 PAYMENT OF MERGER CONSIDERATION The Merger Consideration shall be paid as follows: (a) at the Closing, the aggregate sum of $500,000 shall be paid to the Company Shareholders in cash by paying to each Company Shareholder by certified or bank check or by wire transfer of funds to an account specified by such Company Shareholder in writing at least three days prior to the Closing Date the cash amount set forth next to his name under the heading "Cash Payment at Closing" on Exhibit A hereto, as amended; (b) at the Closing, an aggregate of 125,000 shares of Parent Common Stock shall be issued to the Company Shareholders, by issuing to each Company Shareholder the number of Parent Shares set forth next to his name under the heading "Parent Shares issued at Closing" on Exhibit A hereto, as amended; (c) 20,000 Parent Shares (the "HOLDBACK SHARES") shall be reserved for issuance by the Parent pending adjustment of the Merger Consideration in accordance with Section 2.12 below; and (d) at the Closing, the Parent shall deliver to State Street Bank and Trust Company or any successor escrow agent (the "ESCROW AGENT") appointed pursuant to the escrow agreement (the "ESCROW AGREEMENT"), 45,000 Parent Shares (the "ESCROW SHARES") to be held in escrow for two years in accordance with the terms of the Escrow Agreement substantially in the form attached hereto as Exhibit B. 2.11 DISSENTING SHARES AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 13 MICROTOCOL, INC Notwithstanding anything in this Agreement to the contrary, any Company Shares held by a holder who exercised his or her "appraisal rights" as defined in the CBCA ("DISSENTING SHARES") shall not be converted as provided in Section 2.9 hereof unless and until such shares cease to be Dissenting Shares. If, after the Effective Time, any such shares cease to be Dissenting Shares, they shall thereupon be treated as if they had been converted as of the Effective Time into the right to receive the Merger Consideration as provided in Section 2.10 hereof, without interest thereon. The Company shall give Parent prompt notice of any demands received by the Company from any holder of Company Shares for the purchase of such stock, and, at all times, Parent shall have the right to participate in all negotiations and proceedings with respect to such demands. The Company shall not, except with the prior written consent of Parent, make any payment with respect to, or offer to settle, any such demands. 2.12 DETERMINATION OF CLOSING NET ASSETS; ADJUSTMENT OF THE MERGER CONSIDERATION (a) Not later than twenty (20) days after the Closing Date, the Shareholder Representative shall deliver to the Parent: (i) a balance sheet (the "CLOSING BALANCE SHEET") which shall reflect the book value of both the Company's assets and the Company's liabilities as of the Closing Date; and (ii) a statement (the "CLOSING STATEMENT") reflecting the difference of (A) the difference of the aggregate value of the Company's assets (excluding any Tax assets) minus the aggregate value of the Company's liabilities as of the Closing Date as reflected on the Closing Balance Sheet, including without limitation all deferred revenue (the "CLOSING NET ASSETS") minus (B) the difference of the aggregate value of the Company's assets (excluding any Tax assets) minus the aggregate value of the Company's liabilities as of the Base Balance Sheet Date as reflected on the Base Balance Sheet, including without limitation all deferred revenue (the "BASE NET ASSETS"). The Closing Balance Sheet shall be paid for by the Company Shareholders and prepared and reviewed, on an unaudited basis, by Osborne, Parsons & Rosacker, LLP, the accountants of the Company on a basis consistent with the preparation of the Interim Balance Sheet and in accordance with GAAP, but without footnotes. The Closing Balance Sheet shall also be accompanied by all necessary and appropriate supporting work papers and materials. Inventory shall be valued as provided in Section 3.28 hereof as of the close of business on the Closing Date based on a physical count undertaken on a mutually agreed upon date that is on or near the Closing Date at which Parent and Shareholder Representative or their representatives may be present to observe. If the Closing Net Assets are less than the Base Net Assets by more than $200,000, then the Adjustment Amount shall equal the difference of the Base Net Assets minus the sum of the Closing Net Assets plus $200,000. If the Closing Net Assets are greater than or equal to the Base Net Assets minus $200,000, the Adjustment Amount shall equal zero. (b) Following receipt of the Closing Balance Sheet, the Parent and the Parent's accountants will have a period of forty-five (45) calendar days (the "REVIEW PERIOD") to review, at the Parent's cost, the Closing Balance Sheet. During such Review Period, the Parent and the Parent's accountant will be given reasonable access to any of the Company's employees involved in the preparation of the Closing Balance Sheet and the records, work papers, trial balances and similar materials prepared by the Company or their accountants in connection with the preparation of the Closing Balance Sheet. At or before the end of the Review Period, the Parent AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 14 MICROTOCOL, INC will either: (i) accept the Closing Balance Sheet and the Closing Statement in their entirety, in which case the Closing Net Assets will be deemed to be as set forth on the Closing Statement, and the Closing Balance Sheet and the Closing Statement shall become final, binding and conclusive on the Company Shareholders and the Parent; or (ii) deliver to the Shareholder Representative a written notice in accordance with paragraph (d) of this Section 2.12 disputing the Closing Balance Sheet or the Closing Statement. If the Parent fails to provide the notice set forth in (ii) above within the Review Period, it shall be deemed acceptance of the Closing Balance Sheet and the Closing Statement. (c) Within twenty (20) days following the later of: (x) the date the Closing Balance Sheet and the Closing Statement is accepted by Parent; or (y) the final, binding and conclusive determination of any dispute with respect to the Closing Balance Sheet or the Closing Statement as provided in paragraph (d) of this Section 2.12 (the "ADJUSTMENT DATE"), in either case: (i) if the Adjustment Amount is zero, then the Parent shall issue to the Company Shareholders the Holdback Shares by issuing to each Company Shareholder the number of Holdback Shares indicated next to his name on Exhibit A under the heading "Holdback Shares"; or (ii) if the Adjustment Amount is greater than zero but equal to or less than the value of the Holdback Shares, then the Parent shall issue to the Company Shareholders the Holdback Shares less that number of Holdback Shares with a value equal to the Adjustment Amount pro rata based on the percentage that each Company Shareholder's Holdback Shares represent of the aggregate Holdback Shares (the Holdback Shares that are not issued shall be restored to the status of authorized but unissued shares of Parent Common Stock); or (iii) if the Adjustment Amount is greater than the value of the Holdback Shares, then the Holdback Shares shall be restored to the status of authorized but unissued shares of Parent Common Stock and each Company Shareholder shall transfer to the Parent such Company Shareholder's pro rata share of the Merger Consideration first from such Company Shareholder's Parent Shares issued at Closing, second from such Company Shareholder's Cash amount at Closing and third from such Company Shareholder's Escrow Shares. For the purposes of this Section 2.12 the value of the Holdback Shares and the other Parent Shares shall be determined based on the Exchange Price. (d) In the event that any dispute shall arise as to the manner of preparation or the accuracy of the Closing Balance Sheet or Closing Statement prior to the expiration of the Review Period, the Parent shall provide the Shareholder Representative with written notice of each disputed item. In the event of such a dispute, the Parent and the Shareholder Representative shall attempt to reconcile in good faith their differences as to such items within twenty (20) calendar days (the "RESOLUTION PERIOD") of the Shareholder Representative's receipt of such notice, and any resolution by them as to any disputed items shall be final, binding and conclusive on the Company Shareholders and the Parent. If the Parent and the Shareholder Representative are AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 15 MICROTOCOL, INC unable to reach a resolution within the Resolution Period, the Parent and the Shareholder Representative shall submit the dispute to Deloitte & Touche (the "INDEPENDENT CPA"). The determination of such dispute by the Independent CPA shall be final, binding and conclusive on the parties. The fees and expenses of the Independent CPA shall be assessed by the Independent CPA fifty percent (50%) against the Company Shareholders, jointly and severally, and fifty percent (50%) against the Parent, and shall be paid by each of them in those proportions; provided, however, that the prevailing party shall not be responsible for any portion of the fees and expenses of the Independent CPA if the Independent CPA's decision causes the Adjustment Amount determined pursuant to this paragraph (d) to be less than 90% of the Adjustment Amount determined pursuant to paragraph (b) of this Section 2.12, in the case of the Parent, or not less than 90% of the Adjustment Amount determined pursuant to paragraph (b) of this Section 2.12, in the case of the Company Shareholders. 2.13 DELIVERY OF COMPANY SHARES At the Closing, the Company Shareholders shall deliver or cause to be delivered to Parent, among other things: (a) certificates for all the Company Shares owned by each Company Shareholder, duly endorsed in blank for transfer, or with stock powers attached duly executed in blank, with all signatures notarized or, at the election of the Parent, medallion guaranteed; (b) such other documents as may be required to effect a valid transfer of the Company Shares by the Company Shareholders, free and clear of any and all Encumbrances including, without limitation, any Encumbrances or other claims under Article 8 of the Uniform Commercial Code, provided that Parent and Merger Sub qualify as Protected Purchasers under Article 8 of the Uniform Commercial Code to the extent that the Company's representations in Section 3.3 are accurate; (c) general releases in substantially the form of Exhibit C by all officers, directors and stockholders of the Company releasing any liability of the Company to them, or any claim that they may have against the Company; and (d) such other documents as may be required elsewhere in this Agreement or may be reasonably requested by counsel to the Parent. 2.14 FURTHER ASSURANCES The Company Shareholders from time to time after the Closing, at the request of the Parent and without further consideration, shall execute and deliver further instruments of transfer and assignment (in addition to those delivered under Section 2.14) and take such other action as the Parent may reasonably require to more effectively convert the Company Shares to Parent Shares. 2.15 SHAREHOLDER REPRESENTATIVE AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 16 MICROTOCOL, INC (a) Each Company Shareholder will be deemed to have irrevocably constituted and appointed, effective as of the Closing, Patrick R. Conarro (together with his permitted successors, the "SHAREHOLDER REPRESENTATIVE"), as his true and lawful agent and attorney-in-fact to enter into any agreement in connection with the transactions contemplated by this Agreement and any transactions contemplated by the Escrow Agreement, to exercise all or any of the powers, authority and discretion conferred on him under any such agreement, to waive any terms and conditions of any such agreement (other than the payment of cash and the issuance of the Parent Shares issuable in accordance with Section 2.10), to give and receive notices on his behalf and to be his exclusive representative with respect to any matter, suit, claim, action or Proceeding arising with respect to any transaction contemplated by any such agreement, including, without limitation, the defense, settlement or compromise of any claim, action or proceeding for which Parent or, following the Closing, Company may be entitled to indemnification and the Shareholder Representative agrees to act as, and to undertake the duties and responsibilities of, such agent and attorney-in-fact. This power of attorney is coupled with an interest and is irrevocable. (b) The Shareholder Representative shall not be liable to anyone for any action taken or not taken by him in good faith or for any mistake of fact or law for anything that he may do or refrain from doing in connection with his obligations under this Agreement (i) with the consent of stockholders who, as of the date of this Agreement, owned a majority in number of the outstanding Company Shares or (ii) in the absence of his own gross negligence or willful misconduct. Any action taken or not taken pursuant to the advice of counsel shall be conclusive evidence of such good faith. The Company Shareholders shall, jointly and severally, indemnify and hold the Shareholder Representative, and each successor thereof, harmless from any and all liability and expenses (including, without limitation, counsel fees) that may arise out of any action taken or omitted by him as Shareholder Representative in accordance with this Agreement, as the same may be amended, modified or supplemented, except such liability and expense as may result from the gross negligence or willful misconduct of the Shareholder Representative. (c) The Shareholder Representative may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed to be genuine and to have been signed or presented by the proper party or parties. The Shareholder Representative shall not be liable for other parties' forgeries, fraud or false presentations. (d) The Shareholder Representative shall have reasonable access to information about the Company and the reasonable assistance of the Company's officers and employees for purposes of performing his duties and exercising his rights hereunder, provided that the Shareholder Representative shall treat confidentially and not disclose any nonpublic information from or about the Company to anyone (except on a need to know basis to individuals who agree to treat such information confidentially). (e) If the Shareholder Representative shall be unable or unwilling to serve in such capacity, his successor shall be named by those persons holding a majority of the shares of Company Shares outstanding immediately prior to the Closing, and such successor(s) shall serve and exercise the powers of the Shareholder Representative hereunder. AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 17 MICROTOCOL, INC 2.16 RESTRICTED SECURITIES Each Company Shareholder understands that the Parent Shares have not been registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of each Company Shareholder's investment intent as expressed below. Each Company Shareholder acknowledges that the Parent Shares, when received, must be held indefinitely until it is registered under the Securities Act or an exemption from such registration is available. 2.17 LEGEND ON CERTIFICATE Each Company Shareholder hereby consents to the imposition of a legend substantially similar to the following on each certificate for the Parent Shares and each Company Shareholder agrees to abide by the restrictions contained therein until such time that the Parent Shares are registered and authorized for issuance in accordance with Sections 6.3 and 6.4: "The shares represented by this certificate have not been registered under the Securities Act and may not be sold, transferred or assigned unless registered under the Securities Act or an opinion of counsel, satisfactory to the corporation, is obtained to the effect that such sale, transfer or assignment is exempt from the registration requirements of the Securities Act." 3. REPRESENTATIONS AND WARRANTIES OF COMPANY The Company hereby represents and warrants to Parent that, except as set forth on the disclosure schedule attached hereto and made a part of this Agreement identifying the relevant Section and paragraph hereof (the "DISCLOSURE SCHEDULE"), the statements contained in this Section 3 are true and correct. The Company has used its best efforts to reference the appropriate paragraph and Section number on the Disclosure Schedule; however, the failure to properly reference such Section and paragraph number shall not be a breach of a representation or warranty if Parent could reasonably ascertain the effect of the disclosure on the other representations and warranties. 3.1 ORGANIZATION, QUALIFICATION AND GOOD STANDING (a) Section 3.1(a) of the Disclosure Schedule contains a complete and accurate list of the jurisdictions in which the Company is authorized to do business. The Company is a corporation duly organized, validly existing and in good standing under the laws of Colorado, with full corporate power and authority to conduct its business as it is now being conducted and where it is now being conducted and to own or use the assets and properties that it purports to own or use. The Company is not qualified to do business as a foreign corporation under the Laws of any jurisdiction and is not required to be licensed or qualified in any other state or jurisdiction by either its ownership or use of assets or properties, or the nature of the activities conducted by it, except where the failure to be so qualified could not reasonably be expected to have a Material Adverse Effect on the Company taken as a whole. The Company does not have, and has never had, any Subsidiaries. AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 18 MICROTOCOL, INC (b) The Company has attached as Section 3.1(b) of the Disclosure Schedule correct and complete copies of the Organizational Documents of the Company. (c) The Board of Directors of the Company, at a meeting duly called and held, or through an action by written consent, unanimously has (i) determined that the Mergers are fair and in the best interests of the Company and its stockholders, (ii) approved the First Merger in accordance with the provisions of the CBCA, (iii) approved this Agreement, the Mergers and the other transactions contemplated hereby, (iv) authorized the execution and delivery of this Agreement and the other transaction documents, (v) directed that this Agreement and the Merger be submitted to the Company Shareholders for their approval and (vi) resolved to recommend that the Company Shareholders vote in favor of the approval of this Agreement and the Mergers. (d) The Company has obtained and delivered to the Parent the Voting Agreement of the Company Shareholders that hold sufficient Company Shares to provide the Required Shareholder Vote. Pursuant to such Voting Agreements among other things each such Company Shareholder has agreed to vote all Company Shares owned by him or over which he has voting control, in favor of the Mergers and this Agreement and irrevocably granted a proxy, coupled with an interest, to the Parent or its designee to vote such Company Shares in favor of this Agreement and the Mergers. 3.2 AUTHORITY; NO CONFLICT (a) The Company has the full corporate power and authority to execute, deliver and perform this Agreement and the Ancillary Agreements; to perform its obligations hereunder and thereunder, and to carry out the transactions contemplated hereby and thereby. All necessary action, corporate or otherwise, has been taken by the Company to authorize the execution, delivery and performance of this Agreement and each of the Ancillary Agreements and the transactions contemplated hereby and thereby. This Agreement has been, and each Ancillary Agreement will be at the Closing, duly executed and delivered by the Company and this Agreement and each Ancillary Agreement is, or upon the Closing will be, the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with their terms, except (i) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally, and (ii) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefore may be brought. (b) Except as set forth in Section 3.2(b) to the Disclosure Schedule, neither the execution and delivery of this Agreement or any Ancillary Agreement nor the performance of the transactions contemplated hereby or thereby will, directly or indirectly (with or without notice or lapse of time or both): (i) contravene, conflict with or result in a violation or breach of (A) any provision of the Organizational Documents of the Company, (B) any resolution adopted by the board of directors or the shareholders of the Company, (C) any legal requirement or any Order, award, decision, settlement or process to which the Company AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 19 MICROTOCOL, INC or any of the assets or properties owned or used by the Company may be subject, or (D) any Governmental Permit, which is held or used by the Company excluding from clauses (C) and (D) any contravention, conflict, violation or breach that would not, either individually or in the aggregate have a Material Adverse Effect on the Company taken as a whole; (ii) result in a breach of or constitute a default, give rise to a right of termination, cancellation or acceleration, create any entitlement to any payment or benefit, or require the consent, authorization or approval of or any notice to or filing with any third Person under any Contract or any debt instrument to which the Company is a party or to which its assets or properties are bound, or require the consent, authorization or approval of or any notice to or filing with any Governmental Authority to which the Company or its assets or properties is subject except for any breaches, defaults, rights of termination, cancellation or acceleration, entitlements, consents, approvals, notices or filings that would not, either individually or in the aggregate, have a Material Adverse Effect on the Company taken as a whole; or (iii) result in the imposition or creation of any Encumbrance upon or with respect to the Company Shares or to any of the assets or properties owned or used by the Company. 3.3 CAPITALIZATION (a) The authorized equity securities of the Company consist of: (i) 10,000,000 shares of Common Stock, $0.01 par value per share; and (ii) 3,000,000 shares of Series A Preferred Stock, $0.01 par value per share. As of the date hereof, 5,544,270 shares of Common Stock and 750,000 shares of Preferred Stock were issued and outstanding, and following the event specified in Section 2.9(e), the right to purchase 1,002,416 shares of Common Stock will be fully vested and exercisable pursuant to Company Options issued and outstanding prior to the Effective Time. Section 3.3(a) of the Disclosure Schedule contains a complete and accurate list of all issued and outstanding options, warrants or other rights to acquire Company capital stock including the name of the holder, the issue date, the exercise price, the amount and type of security underlying such right and the expiration date. (b) No equity securities of the Company are held in the treasury of the Company. All of the outstanding equity securities of the Company have been duly authorized and validly issued and are fully paid and nonassessable. Section 3.3(b) of the Disclosure Schedule sets forth a complete and correct list of all of the Company Shareholders and the number of shares of each type of capital stock of the Company owned, of record and beneficially, by each such Company Shareholder. Except as set forth on said Schedule 3.3(b) of the Disclosure Schedule, no Company Shareholder owns of record or beneficially any other shares of capital stock of the Company, or any rights, options, or warrants with respect thereto. The Company Shares to be delivered by the Company Shareholders to the Parent hereunder will be, when delivered pursuant to the terms of this Agreement and upon payment therefor, duly authorized, validly issued, fully paid and nonassessable, and will be free of any adverse claim, lien or restriction including, without limitation, any preemptive rights. Except as set forth in Section 3.3(b) to the Disclosure AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 20 MICROTOCOL, INC Schedule, the Company is subject to no liability on account of the issuance or sale of any securities including, without limitation, all outstanding Company Shares. Section 3.3(b) of the Disclosure Schedule sets forth all outstanding securities of the Company, including but not limited to securities reserved for any purpose, all debt and equity securities and Company Shares. Except as set forth on Schedule 3.3(a) of the Disclosure Schedule there are no (i) outstanding or authorized subscriptions, warrants, options or other rights granted by the Company or binding upon the Company to purchase or acquire, or preemptive rights with respect to the issuance or sale of, the capital stock of the Company or which obligate or may obligate the Company to issue any additional shares of its capital stock or any securities convertible into or evidencing the right to subscribe for any shares of its capital stock, (ii) other securities of the Company directly or indirectly convertible into or exchangeable for shares of capital stock of the Company, (iii) restrictions on the transfer of the Company's capital stock (other than restrictions under the Securities Act and state securities laws), (iv) voting rights with respect to the capital stock of the Company or (v) stock appreciation, phantom stock or similar rights with respect to the Company. Except as set forth on Section 3.3(b) of the Disclosure Schedule none of the securities of the Company are subject to "antidilution" or similar provisions. Except as set forth on Section 3.3(b) of the Disclosure Schedule there are no voting trusts or other Contracts or understandings to which the Company or any Company Shareholder is a party with respect to the transfer, voting or registration of the capital stock of the Company. Except as set forth on Section 3.3(b) of the Disclosure Schedule there are no Contracts relating to the sale or transfer of any equity securities or other securities of the Company. Except as set forth on Section 3.3(b) of the Disclosure Schedule the Company does not own, nor does it have any Contract to acquire any equity securities or other securities of any Person or any direct or indirect equity or ownership interest in any other business. Except as set forth on Section 3.3(b) of the Disclosure Schedule no Person has any preemptive rights with respect to any security of the Company or any of its subsidiaries. 3.4 BOOKS, RECORDS AND ACCOUNTS (a) The books of account and other records of the Company, all of which have been made available to Parent, are true, complete and correct in all material respects. The minute books of the Company contain true, accurate and complete records of all meetings held of, and corporate action taken by, the shareholders, the board of directors, and committees of the board of directors of the Company. The stock books of the Company are true, complete and correct. (b) Except as disclosed in Section 3.4(b) of the Disclosure Schedule, the Company's books, records and accounts fairly and accurately reflect transactions and dispositions of assets by the Company, and the system of internal accounting controls of the Company is sufficient to assure that: (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (c) At the Closing, all of such books, records and accounts will be in the possession of the Company. AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 21 MICROTOCOL, INC 3.5 FINANCIAL STATEMENTS (a) For purposes of this Agreement: "FINANCIAL STATEMENTS" shall mean (i) the unaudited balance sheet of the Company as of December 31, 2000, (ii) the unaudited balance sheet of the Company (the "BASE BALANCE SHEET") as of December 31, 2001 (the "BASE BALANCE SHEET DATE"), and (iii) the related income statements and statements of cash flows for the two years ended December 31, 2000, and December 31, 2001. The "INTERIM FINANCIAL STATEMENTS" shall mean the audited balance sheet of the Company (the "INTERIM BALANCE SHEET") as of June 30, 2002 (the "INTERIM BASE BALANCE SHEET DATE"), and the related unaudited income statement and statement of cash flows for the six months ended on such date. True and complete copies of such Financial Statements and Interim Financial Statements are attached as Section 3.5(a) to the Disclosure Schedule. (b) The Financial Statements and the Interim Financial Statements (i) have been prepared from the books and records of the Company and, in the case of the Interim Financial Statements, in accordance with GAAP consistently applied during the periods covered thereby, (ii) fully reflect all liabilities and contingent liabilities of the Company required to be reflected therein as at the date thereof, and (iii) fairly present the financial position of the Company as of the date of the balance sheet included in the Interim Financial Statements and the results of its operations for the period indicated; provided, however, (x) the Financial Statements do not include footnotes, and (y) the Financial Statements have neither been reviewed nor audited. The Company has provided all management letters delivered to the Company from its auditors over the last two years. 3.6 NO UNDISCLOSED LIABILITIES The Company does not have any material liabilities or obligations of any nature (whether known or unknown, absolute, accrued, contingent or otherwise, and whether due or to become due), except for (i) liabilities or obligations reflected or reserved against in the Interim Financial Statements; (ii) current liabilities incurred in the ordinary course of business since the date of the Interim Financial Statements, consistent with past practices, (none of which is a claim for breach of contract, breach of duty, breach of warranty, tort or infringement of an intellectual property right), which liabilities, to the extent outstanding on the Closing Date will be reflected on the Closing Balance Sheet; or (iii) liabilities disclosed on Section 3.6 to the Disclosure Schedule hereto. There is no event or circumstance that currently has a Material Adverse Effect, or, to the Knowledge of the Company, in the future (so far as can now be actually foreseen) may have a Material Adverse Effect, on the Company that has not been specifically disclosed herein or in the Disclosure Schedule 3.7 NO MATERIAL ADVERSE CHANGE Except as disclosed in Section 3.7 of the Disclosure Schedule, since the Interim Balance Sheet Date, there has not been any event or circumstance which has had a Material Adverse Effect on the Company, and, to the Knowledge of the Company, no event has occurred or circumstance exists that could reasonably be expected to result in a Material Adverse Effect on the Company. To the Knowledge of the Company, there is no event or circumstance that would AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 22 MICROTOCOL, INC be reasonably likely to result in a Material Adverse Effect on the Company that has not been specifically disclosed herein or in the Disclosure Schedule. 3.8 TAXES (a) "TAXES" shall mean all taxes, charges, fees, Encumbrances, customs, duties or other assessments, however denominated, including any interest, penalties, additions to tax or additional taxes that may become payable in respect thereof, imposed by the United States government, any state, local or foreign government, or any agency or political subdivision of any such government (a "TAX AUTHORITY"), which taxes shall include, without limiting the generality of the foregoing, all income taxes, payroll and employee withholding taxes, unemployment insurance, social security, sales and use taxes, excise taxes, capital taxes, franchise taxes, gross receipt taxes, occupation taxes, real and personal property taxes, value added taxes, stamp taxes, transfer taxes, workers' compensation taxes, taxes relating to benefit plans and other obligations of the same or similar nature. (b) (i) Except as disclosed in Section 3.8(b)(i) of the Disclosure Schedule, the Company has filed or caused to be filed with the appropriate Taxing Authorities in a timely manner all Tax Returns, required to be filed by them; (ii) the information on such Tax Returns is complete and accurate in all material respects; (iii) the Company has paid in full on a timely basis all Taxes or made adequate provision in the Interim Financial Statements for all Taxes (whether or not shown on any Tax Return) required to be paid by it; (iv) there are no Encumbrances for Taxes upon the assets or properties of the Company other than for Taxes not yet due and payable; and (v) no deficiencies for Taxes have been claimed, proposed, or assessed by any Tax Authority or other Governmental Authority with respect to the Company, and there are no pending or, to the Company's Knowledge, threatened audits, investigations or claims for or relating to any liability in respect of Taxes of the Company. (c) There are no outstanding Contracts or waivers with respect to the Company extending the statutory period of limitation applicable to any Taxes, and the Company has not requested any extension of time within which to file any Tax Return that has not yet been filed. (d) (i) Except as disclosed in Section 3.8(d) of the Disclosure Schedule, the Company has made provision for all Taxes payable by it and such provision is reflected on the Base Balance Sheet and the Interim Financial Statements with respect to any period covered thereby as to Taxes in such Period that are not payable prior to the date of such Base Balance Sheet or Interim Financial Statements; (ii) the provisions for Taxes with respect to the Company (on a consolidated basis) on the Interim Financial Statements for any period ending on or prior to the date of the Interim Financial Statements (excluding any reserve for deferred Taxes established to reflect timing differences between book and Tax income) are adequate to cover all Taxes with respect to such periods, after adjusted in the ordinary course of business and in accordance with the past practices of the Company through the Closing Date, are adequate to cover all Taxes through the Closing Date; (iii) the Company has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, shareholder or other third Person; (iv) all material elections with respect to Taxes made by the Company as of the date hereof are set forth in Section 3.8 of the Disclosure AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 23 MICROTOCOL, INC Schedule; (v) there are no private letter rulings in respect of any Tax pending between the Company and any Tax Authority; (vi) the Company has never been a member of an affiliated group within the meaning of Section 1504 of the Code, or filed or been included in a combined, consolidated or unitary return of any Person (other than with respect to the Company and any of its subsidiaries); (vii) the Company is not liable for Taxes of any other Person except with respect to liability for sales taxes imposed by Law, and the Company is not currently under any contractual obligation to indemnify any Person with respect to Taxes, or a party to any tax sharing agreement or any other agreement providing for payments by the Company with respect to Taxes; (viii) the Company is not, nor has it been, a United States real property holding corporation (as defined in Section 897(c)(2) of the Code), during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code; (ix) the Company is not a "collapsible corporation" under Section 341 of the Code; (x) the Company is not a personal holding company within the meaning of Section 542 of the Code; (xi) the Company is not a party to any joint venture, partnership or other arrangement or Contract that could be treated as a partnership for Tax purposes; (xii) the Company has not agreed to nor is it required, as a result of a change in method of accounting or otherwise, to include any adjustment under Section 481 of the Code (or any corresponding provision of state, local or foreign Law) in taxable income; (xiii) the Company is not a party to any Contract, arrangement or plan that could result (taking into account the transactions contemplated by this Agreement), separately or in the aggregate, in the payment of any "excess parachute payments" within the meaning of Section 280G or Section 4999 of the Code; (xiv) neither the Company nor any of its subsidiaries has distributed stock of another Person, or has had its stock distributed by another Person, in a transaction that was purported or intended to be governed in whole or in part by Section 355 or Section 361 of the Code; and (xiv) Section 3.8 of the Disclosure Schedule contains a list of all jurisdictions to which any Tax is properly payable or in which any Tax Return is required to be filed by the Company, and no written claim has ever been made by any Tax Authority in any other jurisdiction that the Company is subject to taxation in such jurisdiction. 3.9 ACCOUNTS RECEIVABLE All accounts receivable, notes receivable, contracts receivable, unbilled invoices and other receivables of the Company that are reflected on the Financial Statements or on the accounts receivable ledger of the Company as of the Closing Date (collectively, the "ACCOUNTS RECEIVABLE") represent or will represent valid and enforceable obligations (i) arising from sales actually made or services actually performed in the ordinary course of business, (ii) arising out of transactions with unaffiliated parties and (iii) subject to no setoff, defense or counterclaim. All of the Accounts Receivable are or will be collectible at the full recorded amount thereof within one hundred twenty (120) days of invoice date through normal means of collection, less any applicable reserves established in accordance with GAAP. An accurate summary of the aging of the Accounts Receivable on the Interim Balance Sheet Date is attached as Section 3.9 to the Disclosure Schedule. Since January 1, 2002, there has not been a material change in the Company's receivables aging practice. 3.10 TITLE TO PROPERTIES; ENCUMBRANCES AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 24 MICROTOCOL, INC (a) The Company does not now own, nor has it ever owned, any real property. Section 3.10(a) of the Disclosure Schedule contains a complete and accurate list of all leaseholds or other interests in real property held by the Company. Section 3.10(a) of the Disclosure Schedule sets forth for each such property, the owner thereof, a brief description thereof (including approximate square footage), the use made of such property and the approximate annual costs, fees and Taxes associated with such property. The Company has delivered or made available to Parent true, correct and complete copies of the real property leases to which the Company is party or pursuant to which it uses or occupies any real property. (b) Set forth on Section 3.10(b) of the Disclosure Schedule is a listing of the machinery, equipment and other tangible personal property with an original cost in excess of $25,000 used or owned by the Company and a listing of all leases under which the Company leases any personal property as of the Closing Date requiring annual rental payments in excess of $10,000, together with a description of such property (collectively, the "MATERIAL PERSONAL PROPERTY"). All Material Personal Property is located at 824 South Tejon Street, Colorado Springs, Colorado 80903. Except as set forth on Section 3.10(b) of the Disclosure Schedule, all of the assets and properties of the Company are reflected on the Interim Financial Statements (except to the extent not required to be so reflected by GAAP). The only intangible assets and properties owned by the Company or used in the conduct of its business are the Intellectual Property Assets. (c) All of the foregoing agreements set forth on Sections 3.10(a) and 3.10(b) of the Disclosure Schedule are valid, subsisting and enforceable in accordance with their terms against the parties thereto. The Company is in material compliance with all terms and conditions of such agreements and no event has occurred nor does any circumstance exist that (with or without notice or the passage of time or both) would constitute a material violation or default under any such agreements and the Company has neither given nor received written notice of any alleged violation or of any default under any such agreement. (d) The Company has good and marketable title to all of the assets and properties, real and personal, tangible and intangible, it owns or purports to own, or uses in its business, including those reflected on its books and records and in the Interim Financial Statements (except for accounts receivable collected and inventories, materials and supplies disposed of in the ordinary course of business consistent with past practice after the date of the Interim Financial Statements). Except as set forth on Section 3.10(d) of the Disclosure Schedule, all assets and properties owned, leased or used by the Company are free and clear of all Encumbrances and other adverse claims or charges or interests of any kind, except for (a) liens for current Taxes not yet due, (b) workmen's, common carrier and other similar liens arising in the ordinary course of business, none of which materially detracts from the value or impairs the use of the asset or property subject thereto, or impairs the operations of the Company, and (c) Encumbrances disclosed in the Interim Financial Statements. (e) There are no condemnation, environmental, zoning or other land use regulation proceedings, either instituted or to the Company's Knowledge, planned to be instituted, that would detrimentally affect the use and operation of the Company's leased real property for its intended purpose. AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 25 MICROTOCOL, INC 3.11 CONDITION AND SUFFICIENCY OF ASSETS Except as disclosed in Section 3.11 of the Disclosure Schedule, the Facilities and other assets and property owned or used by the Company are structurally sound, are in working condition and repair (normal wear and tear excepted), and are adequate for the uses to which they are being put, and none of such Facilities or other property and assets owned or used by the Company is in need of maintenance or repairs except for ordinary, routine maintenance and repairs that are not material in nature or cost. The Facilities and other assets and property owned or used by the Company are sufficient for the continued conduct of its business after the Closing in substantially the same manner as conducted prior to the Closing. 3.12 COMPLIANCE WITH LAWS; GOVERNMENTAL AUTHORIZATIONS (a) The Company is in compliance in all material respects with all Laws, licenses and Orders affecting the assets or properties owned or used by the Company or the business or operations of the Company including federal, state, local and foreign Laws, licenses and Orders. The Company has not been charged with violating nor, to the Knowledge of the Company, has it been threatened with a charge of violating, nor, to the Knowledge of the Company, is the Company under investigation with respect to a possible violation of, any provision of any federal, state, local or foreign Law, Order or administrative ruling or license relating to any of its assets or properties or any aspect of its business. (b) Section 3.12 of the Disclosure Schedule contains a complete and accurate list of each Governmental Permit that is held by the Company or that otherwise relates to the business of, or to any of the assets or properties owned or used by, the Company. Each Governmental Permit listed or required to be listed in Section 3.12 of the Disclosure Schedule is valid and in full force and effect and is not subject to any Proceedings for suspension, modification or revocation. 3.13 LEGAL PROCEEDINGS (a) The Company has not received notice of, nor to the Knowledge of the Company does there exist, any Proceeding that has been commenced by or against the Company, or any of the officers, directors, former officers or directors, employees, shareholders or agents of the Company (in their capacities as such) or that otherwise relates to the business of, or any of the assets or properties owned or used by, the Company. (b) There is no Proceeding that challenges, or that may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the transactions contemplated hereby. (c) To the Knowledge of the Company, no Proceeding has been threatened. 3.14 ABSENCE OF CERTAIN CHANGES AND EVENTS AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 26 MICROTOCOL, INC Except as set forth in Section 3.14 of the Disclosure Schedule, since the Interim Balance Sheet Date, the Company has conducted its business only in the ordinary course, consistent with past practice, and there has not been any: (a) contingent liability incurred by the Company as guarantor or otherwise with respect to the obligations of others; (b) declaration, setting aside, making or payment of any dividend or other distribution or repurchase or payment in respect of shares of capital stock of the Company; (c) issuance, sale, disposition or Encumbrance of, or authorization for issuance, sale, disposition or Encumbrance of, or grant or issue of any options, warrants or rights to acquire with respect to, any shares of its capital stock or any other of its securities or any security convertible or exercisable into or exchangeable for any such shares or securities, or any change in its outstanding securities or shares of capital stock or its capitalization, whether by reason of a reclassification, recapitalization, stock split, combination, exchange or readjustment of shares, stock dividend or otherwise; (d) obligation or liability incurred by the Company other than obligations and liabilities incurred in the ordinary course of business consistent with past practice (none of which is a claim for breach of contract, breach of duty, breach of warranty, tort or infringement of an intellectual property right); (e) Encumbrance of its assets or properties; (f) change in the payment of any bonuses, salaries or other compensation to any shareholder, director, officer, consultant, agent or sales representative or employee, or entry into or variation of any employment, severance or similar Contract with any director, officer or employee; (g) adoption of, or increase in the payments to or benefits under, any profit sharing, bonus, deferred compensation, savings, insurance, pension, retirement or other employee benefit plan for or with any employees; (h) damage to or destruction of any asset or property, whether or not covered by insurance, or loss of any Customer, which could reasonably be expected to have a Material Adverse Effect on the Company, taken as a whole; (i) entry into, termination of, or receipt of notice of termination of any Contract or transaction involving a total remaining commitment by or to the Company of at least $25,000 including the entry into (i) any document evidencing any indebtedness; (ii) any capital or other lease; or (iii) any guaranty; (j) sale, lease or other disposition (other than in the ordinary course of business consistent with past practice) of any asset or property; AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 27 MICROTOCOL, INC (k) cancellation, compromise, release or waiver of any debt, claim or right with a value to the Company in excess of $10,000; (l) creation, incurrence or assumption of any indebtedness for borrowed money or guarantee of any obligation in an aggregate amount in excess of $10,000, except for endorsements of negotiable instruments for collection in the ordinary course of business; (m) discharge or satisfaction of any Encumbrance other than those which are required to be discharged or satisfied during such period in accordance with their original terms; (n) payment, discharge or satisfaction of any material obligation or liability, absolute, accrued, contingent or otherwise, whether due or to become due, except for any current liabilities, and the current portion of any long term liabilities, shown on the Interim Financial Statements (or not required as of the date thereof to be shown thereon in accordance with GAAP) or incurred since the date of the most recent balance sheet in the ordinary course of business consistent with past practice; (o) loan or advance to any Person other than travel and other similar routine advances in the ordinary course of business consistent with past practice, or acquisition of any capital stock or other securities of or any ownership interest in, or a significant portion of the assets of, any other business enterprise; (p) capital investment or capital expenditure or capital improvement, addition or betterment in amounts that exceed $10,000 in the aggregate or lease or agreement to lease assets with an annual rental that exceeds $10,000 in the aggregate; (q) institution or settlement of any Proceeding before any Governmental Authority relating to it or its assets or properties; (r) except in the ordinary course of business consistent with past practice, commitment to provide services or goods for an indefinite period or a period of more than three (3) months; (s) change in the method of accounting or the accounting principles or practices used by the Company in the preparation of the Financial Statements except as required by GAAP; (t) entry into other Contracts, except Contracts made in the ordinary course of business consistent with past practice; (u) amendment or other modification of any of the Organizational Documents of the Company; (v) transfer or grant of any rights or licenses under, or entry into any settlement regarding the infringement of, any Intellectual Property Assets, or entry into any licensing or similar agreements or arrangements; (w) agreement, whether oral or written, by the Company to do any of the foregoing; AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 28 MICROTOCOL, INC (x) change in the management or supervisory personnel of the Company; or (y) labor trouble or claim of unfair labor practices involving the Company. 3.15 CONTRACTS; NO DEFAULTS (a) Section 3.15(a) of the Disclosure Schedule contains a complete and accurate list, and the Company has delivered to Parent true, correct and complete copies, of the following Contracts and related documents: (i) each Contract involving payments of at least $10,000 that involves performance of services or delivery of goods or materials by the Company; (ii) each Contract involving payments of at least $10,000 that involves performance of services or delivery of goods or materials to the Company; (iii) each Contract providing for the purchase of all or substantially all of its requirements of a particular product from a supplier; (iv) each Contract or plan, including, without limitation, any stock option plan, stock appreciation right plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement and the Ancillary Agreements or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement; (v) each Contract for joint marketing, teaming or development; (vi) each Contract with any dealer, franchiser, original equipment manufacturer, value-added reseller, or manufacturer's representative; (vii) each Contract pertaining to the Company's maintenance or support of its products, services or supplies that varies substantially from the Company's standard contract which is attached as Section 3.15(a)(vii); (viii) each Contract for the sale of its products not made in the ordinary course of business ; (ix) each Contract with any sales agent or distributor of products of the Company; (x) each Contract for a license (other than off-the-shelf, fully paid up, shrink wrap software licenses) or franchise (as licensor or licensee or franchisor or franchisee) that varies substantially from the Company's standard contract which is attached as Section 3.15(a)(x); AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 29 MICROTOCOL, INC (xi) each Contract involving any arrangement or obligation with respect to the return of products other than on account of a defect in condition, or failure to conform to the applicable Contract; (xii) each Contract with the United States government; (xiii) each Contract that is material to the assets or business of the Company; (xiv) each lease, license and other Contract affecting any leasehold or other interest in any real or personal property to which the Company is a party; (xv) each licensing agreement or other Contract to which the Company is a party with respect to patents, trademarks, copyrights, trade secrets or other intellectual property, including agreements with current or former employees, consultants or contractors regarding the use or disclosure of any intellectual property; (xvi) each collective bargaining agreement and other Contract to or with any labor union or other employee representative of a group of employees involving or affecting the Company; (xvii) each joint venture, partnership and other Contract involving a sharing of profits, losses, costs or liabilities by the Company with any other Person or requiring the Company to make a capital contribution; (xviii) each Contract to which the Company is a party containing covenants that in any way purport to restrict the business activity of the Company or any of the employees of the Company or limit the freedom of the Company or any of the employees to engage in any line of business or to compete with any Person or hire any Person; (xix) each employment or consulting agreement between the Company and its employees and consultants (other than agreements that are terminable on 30 days notice or less without penalty); (xx) each agreement between the Company and an officer or director of the Company or any affiliate of any of the foregoing; (xxi) each power of attorney granted by the Company that is currently effective and outstanding; (xxii) each Contract for capital expenditures by the Company in excess of $10,000; (xxiii) each agreement of the Company under which any money has been or may be borrowed or loaned or any note, bond, factoring agreement, indenture or other evidence of indebtedness that has been issued or assumed (other than those under which AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 30 MICROTOCOL, INC there remain no ongoing obligations of the Company), and each guaranty by the Company of any evidence of indebtedness or other obligation, or of the net worth, of any Person (other than endorsements for the purpose of collection in the ordinary course of business); (xxiv) each agreement of the Company containing restrictions with respect to the payment of dividends or other distributions in respect of its capital stock; (xxv) each stock purchase, merger or other agreement pursuant to which the Company acquired any material amount of assets (other than capital expenditures), and all relevant documents and agreements delivered in connection therewith; (xxvi) each material agreement to which the Company is a party containing a change of control provision applicable to this Agreement, any Ancillary Agreements or any transaction contemplated hereby or thereby; (xxvii) each other agreement to which the Company is a party having an indefinite term or a fixed term of more than one (1) year (other than those that are terminable at will or upon not more than thirty (30) days' notice by the Company without penalty) or requiring payments by the Company of more than $25,000 per year; and (xxviii) each standard form of agreement pursuant to which the Company provides services or goods to customers. (b) Each Contract identified or required to be identified in Section 3.15(a) of the Disclosure Schedule is in full force and effect and is valid and enforceable by the Company and, to the Knowledge of the Company, against the other parties thereto, other than the Company, in accordance with its terms; (c) The Company is in full compliance in all material respects with all applicable terms and requirements of each Contract under which the Company has any obligation or liability or by which the Company or any of the assets or properties owned or used by the Company is bound; (d) To the Knowledge of the Company, each other Person that has any obligation or liability under any Contract under which the Company has any rights is in full compliance with all applicable terms and requirements of such Contract; (e) To the Knowledge of the Company, no event has occurred and no circumstance exists that (with or without notice or lapse of time or both) is likely to result in a violation or breach of any Contract; (f) Except as described in Section 3.15(f) of the Disclosure Schedule, the Company has not received prepayments of any kind on any Contract; (g) Except as set forth in Section 3.15(g) of the Disclosure Schedule, the Company is not a party to any Contract or order for the sale of goods or the performance of services which, if AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 31 MICROTOCOL, INC performed by the Company in accordance with its terms, could only be performed with a negative gross profit margin or which has no reasonable likelihood of being performed within the time limits provided in such Contract. 3.16 INSURANCE (a) Section 3.16(a) of the Disclosure Schedule sets forth the premium payments and describes all the insurance policies of the Company (except policies relating to Employee Benefit Plans listed on Section 3.19 of the Disclosure Schedule), which policies are now in full force and effect in accordance with their terms and expire on the dates shown on Section 3.16(a) of the Disclosure Schedule. There has been no default in the payment of premiums on any of such policies that has not been cured, and to the Knowledge of the Company, there is no ground for cancellation or avoidance of any such policies, or any increase in the premiums thereof, or for reduction of the coverage provided thereby. Such policies shall continue in full force and effect up to the expiration dates shown in Section 3.16(a) of the Disclosure Schedule. True, correct and complete copies of all insurance policies listed in Section 3.16(a) of the Disclosure Schedule have been previously furnished to Parent. (b) The policies listed on Section 3.16(a) of the Disclosure Schedule (i) are sufficient to enable the Company to comply with all requirements of Laws and all agreements to which it is subject, (ii) will remain in full force and effect through the respective expiration dates of such policies without payment of additional premiums, and (iii) will not be adversely affected by, or terminate or lapse by reason of, the transactions contemplated by this Agreement or any Ancillary Agreement. Section 3.16(b) of the Disclosure Schedule also sets forth all other insurance policies in effect at any time prior to the Closing Date under which the Company currently may be entitled to give notice or otherwise assert a claim. (c) Except for amounts deductible under the policies of insurance described on Section 3.16 of the Disclosure Schedule or with respect to risks assumed as a self-insurer and described on such Section, the Company is not, nor has the Company at any time been, subject to any liability as a self-insurer of the business or assets of the Company. (d) Except as set forth on Section 3.16(d) of the Disclosure Schedule, there are no claims, by or with respect to the Company, pending under any of said policies, or disputes with insurers. No notice of cancellation or termination has been received with respect to any such policy. The Company has not been refused any insurance with respect to assets or operations, nor has its coverage been limited by any insurance carrier with which it has applied for any such insurance or with which it has carried insurance. The Company has no knowledge of any insurance carrier's insolvency or inability to perform its obligations or pay any claims pursuant to any of the insurance policies maintained by the Company. (e) Except as set forth on Section 3.16(e) of the Disclosure Schedule, the Company has no current or prior insurance policy that remains subject to a retrospective adjustment of the premiums payable thereunder. 3.17 ENVIRONMENTAL MATTERS AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 32 MICROTOCOL, INC (a) The Company is in compliance in all material respects with all applicable Environmental Laws, which compliance includes, but is not limited to, the possession by the Company of all Governmental Permits required under applicable Environmental Laws and compliance with the terms and conditions thereof. The Company has not received notice of, nor is the Company, nor any predecessor of it, the subject of any Environmental Claim or Remedial Action. The Company has no Environmental, Health and Safety Liabilities. To the Knowledge of the Company, there are no circumstances or conditions related to the Company, the Company's operations or any of the Company's Facilities that are reasonably likely to prevent or interfere with such compliance or give rise to an Environmental Claim or Remedial Action in the future. (b) There are no Environmental Claims that are pending or, to the Knowledge of the Company, threatened against the Company, the Company's Facilities or against any Person whose liability for any Environmental Claim the Company has retained or assumed either contractually or by operation of Law. (c) The Company, and any other Person acting on behalf of the Company has not (i) disposed of, transported, stored, or arranged for the disposal of any Hazardous Materials to, at or upon: (A) any location other than a site lawfully permitted to receive such Hazardous Materials, (B) any Facilities, or (C) any site which, pursuant to CERCLA or any similar state Law, has been placed on the National Priorities List, CERCLIS or their state equivalents, and (ii) there has not occurred during the period the Company operated or possessed any Facility or is presently occurring a Release, or threatened Release, of any Hazardous Materials on, into or beneath the surface of, or adjacent to, any Facilities. 3.18 EMPLOYEES (a) Section 3.18 of the Disclosure Schedule contains a complete and accurate list of the following information for each employee of the Company: name; job title; bonus; vacation accrued; and service credited for purposes of vesting and eligibility to participate under any employee benefit plan of any nature. True and correct information representing each employee's base salary has previously been delivered to Parent, in form and substance reasonably satisfactory to Parent. (b) To the Knowledge of the Company, no officer or employee of the Company is a party to, or is otherwise bound by, any agreement or arrangement, including any confidentiality, noncompetition, or proprietary rights agreement, between such officer or employee and any other Person that could adversely affect (i) the performance of his or her duties as an officer or employee of the Company, or (ii) the ability of the Company to conduct its business. (c) To the Knowledge of the Company, no employee of the Company is bound by any agreement with any other Person that is violated or breached by such employee performing the services he or she is performing for the Company. AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 33 MICROTOCOL, INC (d) The Company has not had a "Plant Closing" or a "Mass Layoff" within the meaning of the federal Workers Adjustment and Retraining Notification Act of 1988 ("WARN"). (e) The Company has delivered to Parent or its counsel prior to the date hereof true and complete copies of any employment agreements and any procedures and policies relating to the employment of employees of the Company and the use of temporary employees and independent contractors by the Company (including summaries of any procedures and policies that are unwritten). 3.19 EMPLOYEE BENEFITS (a) Except for the Employee Benefit Plans listed on Section 3.19(a) of the Disclosure Schedule, the Company does not maintain, have an obligation to contribute to or have any actual or contingent liability with respect to any Employee Benefit Plan. "EMPLOYEE BENEFIT PLAN" means any "EMPLOYEE BENEFIT PLAN" as defined in Section 3(3) of ERISA and any other plan, policy, program, practice, agreement, understanding or arrangement (whether written or oral) providing compensation or other benefits (other than ordinary cash compensation) to any current or former director, officer, employee or consultant (or to any dependent or beneficiary thereof), of the Company, which are now, or were within the past five years, maintained by the Company, or under which the Company has or could have any obligation or liability, whether actual or contingent, including, without limitation, all incentive, bonus, deferred compensation, vacation, holiday, cafeteria, medical, disability, stock purchase, stock option, stock appreciation, phantom stock, restricted stock or other stock-based compensation plans, policies, programs, practices or arrangements. The Company has delivered to Parent or its counsel prior to the date hereof true and complete copies of (i) plan instruments and amendments thereto for all Employee Benefit Plans (or written summaries of any Employee Benefit Plans that are unwritten) and related trust agreements, insurance and other contracts, summary plan descriptions, and summaries of material modifications, and material communications distributed to the participants of each Plan, (ii) to the extent annual reports on Form 5500 are required with respect to any Employee Benefit Plan, the two most recent annual reports and attached schedules for each Employee Benefit Plan as to which such report is required to be filed, and (iii) where applicable, the most recent (A) opinion, notification and determination letters, (B) audited financial statements, (C) actuarial valuation reports, and (D) nondiscrimination tests performed under the Code (including 401(k) and 401(m) tests) for each Employee Benefit Plan. (b) The Company does not have and has never had an ERISA Affiliate. "ERISA AFFILIATE" means any entity (whether or not incorporated) other than the Company that, together with the Company is a member of (i) a controlled group of corporations within the meaning of Section 414(b) of the Code; (ii) a group of trades or businesses under common control within the meaning of Section 414(c) of the Code; or (iii) an affiliated service group within the meaning of Section 414(m) of the Code. (c) The Company does not maintain and has never maintained, nor does it contribute to or has it ever contributed to, an Employee Benefit Plan subject to Title IV of ERISA AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 34 MICROTOCOL, INC (including a multiemployer plan) and, to the Knowledge of the Company, no facts exist under which the Company could incur any liability under Title IV of ERISA. (d) With respect to each Employee Benefit Plan, (i) no party in interest or disqualified person (as defined in Section 3(14) of ERISA and Section 4975 of the Code, respectively) has at any time engaged in a transaction that could subject Parent or the Company directly or indirectly to a Tax, penalty or liability for prohibited transactions imposed by ERISA or the Code and (ii) no fiduciary (as defined in Section 3(21) of ERISA) with respect to any Employee Benefit Plan, for whose conduct the Company could have any liability (by reason of indemnities or otherwise), has breached any of the responsibilities or obligations imposed upon the fiduciary under Title I of ERISA. (e) Each Employee Benefit Plan that is a "welfare plan" within the meaning of Section 3(1) of ERISA and that provides health, disability or death benefits is fully insured; the Company is not obligated to directly pay any such benefits or to reimburse any third Person payor for the payment of such benefits. (f) Each Employee Benefit Plan that is an "employee pension benefit plan" within the meaning of Section 3(2) of ERISA (a "PENSION PLAN") and that is subject to Sections 201, 301 or 401 of ERISA has received a favorable determination letter from the Internal Revenue Service covering all amendments required by the Tax Reform Act of 1986 and prior legislation and there are no circumstances that are likely to result in revocation of any such favorable determination letter. Except as noted on Section 3.19(f) of the Disclosure Schedule, no Pension Plan has assets other than securities listed on a public exchange, mutual fund shares registered under federal law, publicly traded debt or government debt instruments, or participant loans extended in accordance with Plan Terms. Each Employee Benefit Plan is and has been operated in material compliance with its terms and all applicable Laws, Orders or governmental rules and regulations currently in effect with respect thereto, and by its terms can be amended and/or terminated at any time. As of and including the Closing Date, the Company (i) shall have performed all material obligations required to be performed by it under, and shall not be in material default under or in material violation of any Employee Benefit Plan and (ii) shall have made all contributions or payments required to be made by it up to and including the Closing Date with respect to each Employee Benefit Plan, or adequate accruals (including accruals for 401(k) match, if any) therefor will have been provided for and will be reflected on the Interim Financial Statements provided to Parent by the Company. All notices, filings and disclosures required by ERISA or the Code (including notices under Section 4980B of the Code and certifications under the Health Insurance Portability and Accountability Act) have been timely made. (g) The Company has not received nor is it aware of any Proceeding (other than routine claims for benefits) pending or, to the Knowledge of the Company, threatened with respect to any Employee Benefit Plan or against any fiduciary of any Employee Benefit Plan, and to the Knowledge of the Company, there are no facts that could give rise to any such Proceeding. To the Knowledge of the Company, there has not occurred any circumstances by reason of which the Company may be liable for an act, or a failure to act, by a fiduciary with respect to any Employee Benefit Plan. AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 35 MICROTOCOL, INC (h) There are no complaints, charges or claims against the Company pending or, to the Company's Knowledge, threatened to be brought by or filed with any Governmental Authority and no facts exist as a result of which the Company could have any liability based on, arising out of, in connection with or otherwise relating to the classification of any individual by the Company as an independent contractor or "leased employee" (within the meaning of Section 414(n) of the Code) rather than as an employee. (i) Section 3.19(i) of the Disclosure Schedule sets forth a true and complete list of each current or former employee, officer or director of the Company who holds (i) any option to purchase Company Shares, together with the number of shares of Company Shares subject to such option, the option price of such option (to the extent determinable), whether such option is intended to qualify as an incentive stock option within the meaning of Section 422(b) of the Code (an "ISO"), and the expiration date of such option; (ii) any Company Shares that are restricted as a result of an agreement with the Company or the stock plan of the Company; and (iii) any other right, directly or indirectly, to receive Company Shares or any other compensation based in whole or in part on the value of Company Shares, together with the number of Company Shares subject to such right. (j) Section 3.19(j) of the Disclosure Schedule sets forth a true and complete list of (i) all agreements with consultants who are individuals obligating the Company to make annual cash payments in an amount exceeding $25,000; and (ii) all agreements with respect to the services of independent contractors or leased employees who are individuals or individuals doing business in a corporate form whether or not they participate in any of the Employee Benefit Plans. (k) (i) No Employee Benefit Plan is an employee stock ownership plan (within the meaning of Section 4975(e)(7) of the Code) or otherwise invests in Company Shares; and (ii) the consummation of the transactions contemplated by this Agreement will not, alone or together with any other event, (A) entitle any employee or former employee of the Company to any payment, (B) result in an increase in the amount of compensation or benefits or accelerate the vesting or timing of payment of any benefits or compensation payable in respect of any employee or former employee, or (C) result in any parachute payment under Section 280G of the Code, whether or not such payment is considered reasonable compensation for services rendered. The Company will take all actions within its control to ensure that all actions required to be taken by a fiduciary of any Employee Benefit Plan in order to effectuate the transaction contemplated by this Agreement shall comply with the terms of such Plan, ERISA and other applicable Laws. (l) No Employee Benefit Plan provides benefits, including, without limitation, death or medical benefits (through insurance or otherwise) with respect to any employee or former employee of the Company beyond their retirement or other termination of service other than (i) coverage mandated by applicable Law, (ii) retirement or death benefits under any Pension Plan, (iii) disability benefits under any welfare plan that have been fully provided for by insurance or otherwise, (iv) deferred compensation benefits accrued as liabilities on the consolidated books of the Company, or (v) benefits in the nature of severance pay. (m) No Employee Benefit Plan is a "multiple employer plan" as described in Section 3(40) of ERISA or Section 413(c) of the Code. AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 36 MICROTOCOL, INC (n) No Employee Benefit Plan, other than a Pension Plan, is funded through a trust intended to be exempt from tax pursuant to Section 501 of the Code. (o) The Company has not proposed, agreed nor announced any changes to any Employee Benefit Plan that would cause an increase in benefits under any such Employee Benefit Plan (or the creation of new benefits or plans) or to change any employee coverage that would cause an increase in the expense of maintaining any such plan. 3.20 LABOR RELATIONS (a) No condition or state of facts or circumstances exists that could materially adversely affect the Company's relations with its employees, including the consummation of the transactions contemplated by this Agreement. (b) The Company is in compliance in all material respects with all applicable Laws respecting employment and employment practices, terms and conditions of employment and wages and hours and is not engaged in any unfair labor practice. (c) No collective bargaining agreement with respect to the business of the Company is currently in effect or being negotiated. The Company has not encountered any labor union or collective bargaining organizing activity with respect to its employees. The Company has no obligation to negotiate any such collective bargaining agreement, and, to the Knowledge of the Company, there is no indication that the employees of the Company desire to be covered by a collective bargaining agreement. (d) There are no strikes, slowdowns, work stoppages or other labor trouble pending or, to the Knowledge of the Company, threatened with respect to the employees of the Company, nor has any of the above occurred or, to the Knowledge of the Company, been threatened. (e) There is no representation claim or petition pending before the National Labor Relations Board or any state or local labor agency and, to the Knowledge of the Company, no question concerning representation has been raised or threatened respecting the employees of the Company. (f) There are no complaints or charges against the Company pending before the National Labor Relations Board or any state or local labor agency and, to the Knowledge of the Company, no complaints or charges have been filed or threatened to be filed against the Company with any such board or agency. (g) To the Knowledge of the Company, no charges with respect to or relating to the business of the Company are pending before the Equal Employment Opportunity Commission or any state or local agency responsible for the prevention of unlawful employment practices. (h) Section 3.20(h) of the Disclosure Schedule accurately sets forth all unpaid severance that, as of the date hereof, is due or claimed, in writing, to be due from the Company to any Person whose employment with the Company was terminated. AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 37 MICROTOCOL, INC (i) The Company has not received notice of the intent of any government body or Governmental Authority responsible for the enforcement of labor or employment Laws to conduct an investigation of the Company and to its Knowledge no such investigation is in progress. (j) The Company is not and, to the Knowledge of the Company, no employee of the Company is, in violation in any material respect of any employment agreement, non-disclosure agreement, non-compete agreement nor any other agreement regarding an employee's employment with the Company. (k) Except as set forth in Section 3.20(k) to the Disclosure Schedule, the Company has paid or accrued all wages that are due and payable to each of its employees and each of its independent contractors. (l) Except as set forth in Section 3.20(l) to the Disclosure Schedule, the Company does not have and will not have at the Closing Date any contingent liabilities for sick leave, vacation, holiday pay, severance pay, accrued pay or similar items not set forth in the Interim Financial Statements except for such obligations incurred in the ordinary course of business and consistent with past practices. (m) The execution, delivery and performance of this Agreement and the Ancillary Agreements and the consummation of the transactions contemplated hereby and thereby will not trigger any severance pay obligation of the Company under any Contract. 3.21 INTELLECTUAL PROPERTY (a) Except as disclosed in Section 3.21(a) of the Disclosure Schedule, the Company: (i) owns all right, title and interest in and to the Owned Intellectual Property Assets, free and clear of all Encumbrances; and (ii) licenses or otherwise possesses legally valid and enforceable rights to use, the Licensed Intellectual Property Assets, and, in each case of clause (i) or (ii), the Company may transfer such rights as contemplated by this Agreement. The Company has made all filings and recordations which are commercially reasonable to protect and maintain its interest in the Intellectual Property Assets. The Intellectual Property Assets include all the intellectual property rights necessary for Parent to (i) operate the Company's business as currently conducted or proposed to be conducted; and (ii) deliver existing products and services and the products and services under development, free of Encumbrances (b) Schedule 3.21(b) hereto contains a true, correct and complete list of all Patents which are Owned Intellectual Property. All such Patents which are issued patents and patent applications are valid and subsisting and all maintenance fees, annuities and the like have been paid. None of such Patents is infringed or has been challenged or threatened in any way by any Person. (c) Schedule 3.21(c) hereto contains a true, correct and complete list of all Marks which are Owned Intellectual Property. Except as set forth in Section 3.21(c) to the Disclosure Schedule and to the Knowledge of the Company, all such Marks are valid and subsisting; and all AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 38 MICROTOCOL, INC renewal fees and the like have been paid. None of such Marks is infringed or diluted; and none of such Marks has been challenged or threatened in any way by any Person, and no claims are pending or threatened against the use by the Company of such Marks in the Company's business as currently conducted or proposed to be conducted. All uses of such Marks are in conformance with applicable statutory and common law; and all materials encompassed by such Marks have been marked with appropriate trademark, service mark, and registration notices. (d) Schedule 3.21(d) hereto contains a true, correct and complete list of all registered Copyrights which are Owned Intellectual Property. All Copyrights are valid and enforceable; and except as set forth in Section 3.21(d) to the Disclosure Schedule and to the Company's Knowledge, none of such Copyrights is infringed or has been challenged or threatened in any way. No claims are pending or threatened against the use by the Company of any writings or other expressions used in the Company's business as currently conducted or as proposed to be conducted. All works encompassed by the Copyrights have been marked with appropriate copyright notices. (e) The Company has taken precautions to protect the confidentiality and value of its Trade Secrets, including executing confidentiality agreements with Persons who are provided access to the Trade Secrets. The Trade Secrets have not been used, divulged or appropriated either for the benefit of any Person or to the detriment of the Company. None of the Trade Secrets is subject to any material adverse claim or, to the Knowledge of the Company, has been challenged or threatened in any way. (f) Schedule 3.21(f) hereto contains a true, correct and complete list of all contracts, licenses, agreements or understandings relating to the Intellectual Property Assets (including without limitation, Licensed Intellectual Property Assets) to which the Company is a party or by which the Company is bound. The Company is not and will not be in breach or violation of any agreement listed on Schedule 3.21(f) as a result of the execution and delivery of this Agreement or the performance of its obligations hereunder. Each license of Intellectual Property Assets listed in Schedule 3.21(f) is valid, subsisting, and enforceable, and, subject to possible application of bankruptcy law, shall continue in effect on its current terms upon consummation of the transactions contemplated by this Agreement. (g) None of the services, products or technology used, sold, offered for sale or licensed or proposed for use, sale, offer for sale or license by the Company, including those products and services under development set forth under Schedule 3.21(g) hereto, infringes any intellectual property or proprietary rights owned or possessed by any Person nor is any claim pending or threatened alleging such infringement. (h) No Intellectual Property Asset is subject to any outstanding Court Order, Proceeding (other than pending applications for patent, trademark registration or copyright registration) or stipulation restricting in any manner the licensing thereof by the Company. Except as set forth on Schedule 3.21(h), the Company has not entered into any agreement to indemnify any other person against any charge of infringement of any Intellectual Property Asset. AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 39 MICROTOCOL, INC (i) Except as set forth on Schedule 3.21(i), all employees, contractors, agents and consultants of the Company have executed a confidentiality and assignment of inventions agreement substantially in the form attached to Schedule 3.21(i) hereto to protect the confidentiality and to vest in the Company exclusive authorship and ownership of such Intellectual Property Assets. Except as set forth on Schedule 3.21(i), to the Knowledge of the Company, no employee, former employee, contractor, agent or consultant of the Company has unlawfully used any Trade Secrets or other confidential information of any other Person in the course of their work for the Company. (j) To the Knowledge of the Company, no officer, employee, contractor, agent or consultant of the Company is, or is now expected to be, in violation of any term of any employment contract, patent disclosure agreement, proprietary information agreement, noncompetition agreement, nonsolicitation agreement, confidentiality agreement, or any other similar contract or agreement or any restrictive covenant relating to the right of any such officer, employee, contractor, agent or consultant to be employed or engaged by the Company because of the nature of the Company's business conducted or proposed to be conducted by the Company or relating to the use of Trade Secrets or proprietary information of others, and the continued employment or retention of its officers, employees, contractors, agents or consultants does not subject the Company to any liability with respect to any of the foregoing matters in connection with the Company's business as currently conducted or proposed to be conducted. (k) Except as set forth on Schedule 3.21(k), the Company has not deposited, or is obligated to deposit, any source code regarding its services or products into any source code escrows or similar arrangements and the Company is not under any contractual or other obligation to disclose the source code or any other material proprietary information included in or relating to its products. 3.22 CERTAIN PAYMENTS Neither the Company nor any shareholder, director, officer, agent or employee of the Company nor, to the Knowledge of the Company, any other Person associated with or acting for or on behalf of the Company, has directly or indirectly (i) made any contribution, gift, bribe, rebate, payoff, influence payment, kickback or other payment to any Person, private or public, regardless of form, whether in money, property or services in violation of the Foreign Corrupt Practices Act or any similar Law (A) to obtain favorable treatment in securing business, (B) to pay for favorable treatment for business secured, or (C) to obtain special concessions, or for special concessions already obtained, for or in respect of the Company or any affiliate of the Company, or (ii) established or maintained any fund or asset of the Company that has not been recorded in the consolidated books and records of the Company. 3.23 RELATIONSHIPS WITH RELATED PERSONS No shareholder, affiliate, officer, director or employee of the Company, nor any spouse or child of any of them or any Person associated with any of them ("RELATED PERSON"), has any interest in any assets or properties used in or pertaining to the business of the Company. Except as set forth in Section 3.23 to the Disclosure Schedule, none of the shareholders, affiliates, AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 40 MICROTOCOL, INC officers, directors or employees of the Company nor any Related Person owns or has owned, directly or indirectly, and whether on an individual, joint or other basis, any equity interest or any other financial or profit interest in a Person (other than less than two percent (2%) of the outstanding capital stock of a Person subject to the reporting requirements of the Exchange Act) that has (i) had business dealings with the Company, or (ii) engaged in competition with the Company. Except as set forth in Section 3.23 to the Disclosure Schedule, no shareholder, affiliate, officer, director or employee of the Company nor the Related Person is a party to any Contract with, or has any claim or right against, or owes any amounts to, the Company. 3.24 BROKERS OR FINDERS Except as set forth in Section 3.24 to the Disclosure Schedule, neither the Company nor its agents have incurred any obligation or liability, contingent or otherwise, for brokerage or finders' fees or agents' commissions or financial advisory services or other similar payment in connection with this Agreement or the Ancillary Agreements or the transactions contemplated hereby or thereby. 3.25 CUSTOMER RELATIONSHIPS Except as set forth in Section 3.25 to the Disclosure Schedule, to the Knowledge of the Company, there are no facts or circumstances, including the consummation of the transactions contemplated by this Agreement and the Ancillary Agreements, that are reasonably likely to result in the loss of any material customer of the Company or a material change in the relationship of the Company with such a customer. 3.26 OUTSTANDING INDEBTEDNESS Section 3.26 of the Disclosure Schedule sets forth as of the Interim Balance Sheet Date (i) the amount of all indebtedness for borrowed money of the Company then outstanding (including (A) the interest rate applicable thereto, (B) any Encumbrances that relate to such indebtedness, and (C) the name of the lender or the other payee of each such indebtedness), (ii) the amount of all lending and commitments to lend, and (iii) the amount of all guarantees or sureties of the Company with respect to the obligations of any Person. 3.27 SUPPLIERS; RAW MATERIALS CONTRACTORS Section 3.27 of the Disclosure Schedule sets forth for the year ended December 31, 2001, and the six months ended June 30, 2002, (i) the names and addresses of the ten (10) largest suppliers, contractors and subcontractors of the Company based on the aggregate value of raw materials, supplies, merchandise and other goods and services ordered by the Company from such suppliers, contractors and subcontractors during such period, and (ii) the amount for which each such supplier, contractor or subcontractor invoiced the Company during such period. The Company has received no notice and has no reason to believe that there has been any material adverse change in the price of such raw materials, supplies, merchandise or other goods or services, or that any such supplier, contractor or subcontractor will not sell raw materials, supplies, merchandise and other goods and services to the Company at any time after the Closing AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 41 MICROTOCOL, INC Date on terms and conditions substantially the same as those used in its current sales to the Company, subject to general and customary price increases. 3.28 INVENTORIES (a) All inventories of finished goods and raw materials of the Company reflected on the Base Balance Sheet or to be reflected on the Closing Balance Sheet and existing on the date of Closing are, will be of a quantity and quality normally salable in the ordinary course of business at commercially reasonable prices consistent with the Company's prior experience, except to the extent of the obsolete inventory reserve in the amount shown on the Interim Balance Sheet or to be shown on the Closing Balance Sheet. All such inventories are valued on a lower of cost or market basis and in accordance with the Company's normal valuation methods and policies, consistently applied. Purchase commitments for raw materials and parts are not in excess of normal requirements and none are at prices in excess of current market prices. Except as shown in Section 3.28 of the Disclosure Schedule, since the Interim Balance Sheet Date, no inventory items have been sold or disposed of except through sales in the ordinary course of business at prices no less than prevailing market prices. All of the foregoing shall be effected in accordance with GAAP. (b) The value of the finished goods inventory of the Company on the Interim Balance Sheet and the value to be shown on the Closing Balance Sheet, does not and will not, when added to the cost of the variable expenses of freight, commissions and discounts, exceed the market price. Except for the items listed on Section 3.28(b) of the Disclosure Schedule, all inventories of finished goods existing on the Interim Balance Sheet Date, and at the Closing and shown on the Closing Balance Sheet will be salable on or before 180 days from the Closing Date through the Company's normal and ordinary course of business and consistent with the past practices of the Company. 3.29 CUSTOMERS Section 3.29 of the Disclosure Schedule sets forth a true, complete and correct listing of the twenty (20) largest customers (the "CUSTOMERS") of the Company (based upon the amounts for which each such Customer was invoiced during the year ended December 31, 2001, and the six months ended June 30, 2002. 3.30 PAYABLES There has been no material adverse change since the date of the Interim Financial Statements in the amount or delinquency of accounts payable by the Company (either individually or in the aggregate). 3.31 PRODUCT WARRANTIES; PRODUCT LIABILITY Attached to Section 3.31 of the Disclosure Schedule are complete and correct copies of the standard terms and conditions of sale, license or lease for each of the products or services of the Company (containing applicable guaranty, warranty and indemnity provisions). Except as required by Law or as set forth in such standard terms and conditions, no product manufactured, AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 42 MICROTOCOL, INC sold, licensed, leased, or delivered by, or service rendered by or on behalf of, the Company is subject to any guaranty, warranty or other indemnity, express or implied, beyond such standard terms and conditions. Section 3.31 of the Disclosure Schedule sets forth the aggregate expenses incurred by the Company's customer support and service center in fulfilling its obligations under its guaranty, warranty and right of return provisions during the periods covered by the Financial Statements and the Company has no Knowledge of any reason why such expenses should materially increase as a percentage of sales in the future. Except as set forth in Section 3.31 of the Disclosure Schedule, there are no existing or, to the Knowledge of the Company threatened claims, against the Company for services or merchandise that are defective or fail to meet any service or product warranties other than in the ordinary course of business consistent with past experience. Except as set forth in Section 3.31 of the Disclosure Schedule, no claim has been asserted against the Company since its formation for renegotiation or price redetermination of any completed business transaction. To the Knowledge of the Company, the Company's products are free from significant defects and, to the Knowledge of the Company, conform in all material respects to the specifications, documentation and sample demonstration furnished to the Company's customers and made available to Parent. 3.32 FINANCIAL SERVICE RELATIONS AND POWERS OF ATTORNEY All of the arrangements that the Company has with any bank depository institution or other financial services entity, whether or not in the Company's name, are completely and accurately described on Section 3.32 of the Disclosure Schedule, indicating with respect to each of such arrangements the type of arrangement maintained (such as checking account, borrowing arrangements, safe deposit box, etc.) and the current balance as of the date reported, banking institution and person or persons authorized as signatories in respect thereof. The Company has no outstanding written powers of attorney. 3.33 REGULATORY CORRESPONDENCE The Company has made available to the Parent true and correct copies of any and all material correspondence from and to any Governmental Authority. 3.34 DISCLOSURE Neither this Agreement nor any Ancillary Agreement, nor the financial statements (including the footnotes thereto), nor any Disclosure Schedule, any exhibit, document or certificate delivered by or on behalf of the Company pursuant hereto, contains any untrue statement of a material fact, or omits to state a material fact necessary to make the statements herein or therein not misleading. To the Knowledge of the Company there is no fact which has had or may in the future have a Material Adverse Effect on the Company taken as a whole. 3.35 INVESTMENT MATTERS (a) The Company represents that each Company Shareholder has had the opportunity to ask questions of the officers of Parent on any matter material to his or her decision to purchase Parent Shares hereunder and all such questions were answered to his or her satisfaction. AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 43 MICROTOCOL, INC (b) On or before the Closing Date, the Company will deliver to Parent certain representations and warranties of each of the Company Shareholders regarding investment matters as follows: (i) that the Company Shareholder is acquiring the Parent Shares for his own account and not with a view to distribution within the meaning of Section 2(11) of the Securities Act; (ii) that the Company Shareholder acknowledges that the Parent Shares may not be sold, transferred or otherwise disposed of in the United States unless in compliance with the Securities Act and any applicable U.S. state securities laws; and (iii) that the Company Shareholder alone or with his purchaser representative has such knowledge and experience in financial and business matters that he is capable of evaluating the risks and merits inherent in the purchase of Parent Shares contemplated by this Agreement. 4. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB Parent and Merger Sub hereby jointly and severally represent and warrant to the Company and Company Shareholders as follows: 4.1 ORGANIZATION AND GOOD STANDING Each of Parent and Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Each of Parent and Merger Sub has full corporate power and authority to conduct its business as it is now being conducted and to own or use the assets and properties that it purports to own or use. Each of Parent and Merger Sub is duly qualified to do business as a foreign corporation and is in good standing under the Laws of each state or other jurisdiction in which either the ownership or use of the assets or properties owned or used by it, or the nature of the activities conducted by it, requires such qualification, except where the failure to be so qualified could not reasonably be expected to have a Material Adverse Effect on Parent and its Subsidiaries, taken as a whole. 4.2 AUTHORITY; NO CONFLICT (a) Merger Sub is a wholly-owned subsidiary of Parent, and Parent shall cause Merger Sub to perform as provided in this Agreement. Each of Parent and Merger Sub has the right, power, authority and capacity to execute and deliver this Agreement and the Ancillary Agreements to which each of them is a party, to consummate the transactions contemplated hereby and thereby and to perform their obligations under this Agreement and the Ancillary Agreements to which each is a party. This Agreement has been duly authorized and approved, executed and delivered by each of Parent and Merger Sub and constitutes the legal, valid and binding obligation of each of Parent and Merger Sub, enforceable against each of them in accordance with its terms, except (i) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally, and (ii) that the AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 44 MICROTOCOL, INC remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. Upon the execution and delivery by each of Parent and Merger Sub of the Ancillary Agreements to which each of them is a party, such Ancillary Agreements will constitute the legal, valid and binding obligations of each of Parent and Merger Sub, enforceable against each of them in accordance with their respective terms, except (i) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally, and (ii) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. (b) Neither the execution and delivery of this Agreement nor any Ancillary Agreement by each of Parent and Merger Sub nor the consummation or performance by each of Parent and Merger Sub of the transactions contemplated hereby or thereby, including issuance of the Parent Shares pursuant to this Agreement, will, directly or indirectly (with or without notice or lapse of time or both): (i) contravene, conflict with, or result in a violation or breach of (A) any provision of the Organizational Documents of each of Parent and Merger Sub, (B) any resolution adopted by the board of directors or the shareholders of each of Parent and Merger Sub, (C) any legal requirement or any Order, award, decision, settlement or process to which Parent or Merger Sub or any of the assets or properties owned or used by each of them may be subject, or (D) any Governmental Permit held by Parent or Merger Sub, excluding from clauses (C) and (D) any contravention, conflict, violation or breach that would not, either individually or in the aggregate, have a Material Adverse Effect on Parent and its Subsidiaries taken as a whole; (ii) result in a breach of or constitute a default, give rise to a right of termination, cancellation or acceleration, create any entitlement to any payment or benefit, or require the consent or approval of or any notice to or filing with any third Person, under any material Contract to which Parent or Merger Sub is a party or by which their assets or properties are bound, or require the consent or approval of or any notice to or filing with any Governmental Authority to which either Parent or its assets or properties are subject or either Merger Sub or its assets or properties are subject, except for any breaches, defaults, rights of termination, cancellation or acceleration, entitlements, consents, approvals, notices or filings that would not, either individually or in the aggregate, have a Material Adverse Effect on Parent and its Subsidiaries taken as a whole; or (iii) result in the imposition or creation of any Encumbrance upon or with respect to any of the assets or properties owned or used by Parent or Merger Sub except for any imposition or creation that would not, either individually or in the aggregate, have a Material Adverse Effect on Parent and its Subsidiaries taken as a whole. 4.3 CAPITALIZATION; PARENT SHARES; MERGER SUB SHARES AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 45 MICROTOCOL, INC (a) The authorized capital stock of Parent consists of 1,000,000 shares of preferred stock, $.01 par value per share, of which as of the date of this Agreement no shares are issued or outstanding, and 100,000,000 shares of Parent Common Stock, of which as of September 17, 2002, 36,099,077 shares were issued and outstanding. (b) The Parent Shares issuable as a result of this Agreement have been duly authorized and, upon consummation of the transactions contemplated hereby will be duly and validly issued, fully paid and nonassessable and approved for listing on the Nasdaq National Market. Assuming the accuracy of the Company Shareholders' representations referenced in Section 3.35 hereof, the Parent Shares will be issued pursuant to an exemption from registration under the Securities Act. (c) The authorized capital stock of Merger Sub consists of 1,000 shares of common stock, $.01 par value per share. 4.4 FILINGS WITH THE COMMISSION (a) Parent has delivered or made available to the Company a true, correct and complete copies, as amended of its Annual Report on Form 10-K for the year ended September 30, 2001 and Quarterly Reports on Form 10-Q for the quarters ended December 31, 2001, March 31, 2002, and June 30, 2002 (collectively, the "PARENT SEC REPORTS"). The Parent SEC Reports have been timely filed pursuant to the Exchange Act. (b) Except as set forth in Section 4.4 of the Disclosure Schedules, the Parent SEC Reports complied as to form in all material respects with the requirements of the Exchange Act in effect on the date thereof. Except as set forth in Section 4.4 of the Disclosure Schedules, the Parent SEC Reports, when filed pursuant to the Exchange Act, did not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. (c) Except as set forth in Section 4.4 of the Disclosure Schedules, each of the Parent financial statements (including the related notes) included in the Parent SEC Reports presents fairly, in all material respects, the consolidated financial position and consolidated results of operations and cash flows of Parent as of the respective dates or for the respective periods set forth therein, all in conformity with GAAP consistently applied during the periods involved except as otherwise noted therein, and subject, in the case of any unaudited interim financial statements included therein, to normal year-end adjustments and to the absence of complete footnotes. 4.5 LEGAL PROCEEDINGS There is no pending Proceeding against Parent that challenges, or that may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the transactions contemplated hereby. To the Knowledge of Parent, no such Proceeding has been threatened. 4.6 BROKERS OR FINDERS AGREEMENT AND PLAN OF MERGER - EXECUTION COPY PAGE 46 MICROTOCOL, INC Neither Parent nor any of its agents has incurred any obligation or liability, contingent or otherwise, for brokerage or finders' fees or agents' commissions or financial advisory services or other similar payment in connection with this Agreement or the Ancillary Agreements or the transactions contemplated hereby or thereby. 4.7 DISCLOSURE Except as set forth in Section 4.7 of the Disclosure Schedules, neither this Agreement nor any Ancillary Agreement, nor the financial statements (including the footnotes thereto), nor any exhibit, document or certificate delivered by or on behalf of the Parent pursuant hereto, contains any untrue statement of a material fact, or omits to state a material fact necessary to make the statements herein or therein not misleading. To the Knowledge of the Parent there is no fact which has had or may in the future have a Material Adverse Effect on the Parent and its Subsidiaries, taken as a whole. 4.8 CURRENT CLAIMS As of the Closing Date, Parent has no Knowledge of any fact or circumstance that it believes gives rise to a claim of indemnification under Section 9 against Company by Parent. 5. COVENANTS The parties, as applicable, hereby covenant and agree as follows: 5.1 NORMAL COURSE From the date hereof until the Closing Date, the Company shall: (i) maintain its corporate existence in good standing; (ii) maintain the general character of its business; (iii) maintain in effect all of its presently existing insurance coverage (or substantially equivalent insurance coverage); (iv) preserve intact in all material respects its business organization, preserve its goodwill and the confidentiality of its business know-how, exercise its best efforts to keep available to the Company the services of its current officers and employees and preserve its present material business relationships with its collaborators, licensors, customers, suppliers and other Persons with which the Company has material business relations; and (v) in all respects conduct its business only in the usual and ordinary manner consistent with past practice and perform all Contracts. 5.2 CONDUCT OF BUSINESS From the date hereof until the Closing Date, except as set forth in Section 5.2 to the Disclosure Schedule, the Company shall not and the Company Shareholders shall not permit the Company to, directly or indirectly do, or propose to do, any of the following without the prior written consent of Parent, which consent shall not be unreasonably withheld: (a) amend or otherwise modify its Organizational Documents; AGREEMENT AND PLAN OF MERGER-EXECUTION COPY PAGE 47 MICROTOOL, INC. (b) issue, sell, dispose of or Encumber or authorize the issuance, sale, disposition or Encumbrance of, or grant or issue any option, warrant or other right to acquire or make any agreement of the type referred to in Section 3.3 with respect to any shares of its capital stock or any of its other securities or any security convertible or exercisable into or exchangeable for any such shares or securities, or alter any term of any of its outstanding securities or make any change in its outstanding shares of capital stock or its capitalization, whether by reason of a reclassification, recapitalization, stock split, combination, exchange or readjustment of shares, stock dividend or otherwise; (c) encumber any material assets or properties of the Company; (d) declare, set aside, make or pay any dividend or other distribution to any shareholder with respect to its capital stock; (e) redeem, purchase or otherwise acquire any capital stock or other securities of the Company; (f) increase the compensation or other remuneration or benefits payable or to become payable to any director or officer of the Company, or increase the compensation or other remuneration or benefits payable or to become payable to any of its other employees or agents, exclusive of the Company option acceleration referenced in Section 2.9(e); (g) adopt or (except as otherwise required by law) amend or make any unscheduled contribution to any Employee Benefit Plan for or with employees, or enter into any collective bargaining agreement; (h) terminate or modify any Contract requiring future payments to or from the Company, individually or in the aggregate, in excess of $10,000, except for termination of Contracts upon their natural expiration during such period in accordance with their terms; (i) create, incur, assume or otherwise become liable for any indebtedness in an aggregate amount in excess of $10,000, or guarantee or endorse any obligation or the net worth of any Person, except for endorsements of negotiable instruments for collection in the ordinary course of business; (j) pay, discharge or satisfy any obligation or liability, absolute, accrued, contingent or otherwise, whether due or to become due, in an aggregate amount in excess of $10,000, except for liabilities incurred in the ordinary course of business prior to the date hereof; (k) sell, transfer, lease or otherwise dispose of any of its assets or properties, except in the ordinary course of business consistent with past practice and for a cash consideration equal to the fair value thereof at the time of such sale, transfer, lease or other disposition; (l) cancel, compromise, release or waive any material debt, claim or right; (m) make any loan or advance to any Person other than travel and other similar routine advances in the ordinary course of business consistent with past practice, or acquire any capital AGREEMENT AND PLAN OF MERGER-EXECUTION COPY PAGE 48 MICROTOOL, INC. stock or other securities or any ownership interest in, or substantially all of the assets of, any other business enterprise; (n) make any material capital investment or expenditure or capital improvement, addition or betterment; (o) change its method of accounting or the accounting principles or practices utilized in the preparation of the Financial Statements, other than as required by GAAP; (p) institute or settle any Proceeding before any Governmental Authority relating to it or its assets or properties; (q) adopt a plan of dissolution or liquidation with respect to the Company; (r) enter into any Contract, except Contracts made in the ordinary course of business consistent with past practice; (s) make any new election with respect to Taxes or any change in current elections with respect to Taxes, or settle or compromise any federal, state, local or foreign Tax liability or agree to an extension of a statute of limitations; (t) take or omit to take any action that would constitute a material violation of or material default under, or waive any rights under, any material Contract; (u) enter into any commitment to do any of the foregoing, or any action that would make any of the representations or warranties of the Company contained in this Agreement untrue or incorrect in any material respect (subject to the knowledge and materiality limitations set forth therein) or cause any covenant, condition or agreement of the Company in this Agreement not to be complied with or satisfied in any material respect; or (v) enter into any contracts or other agreements of any nature whatsoever that are not by their express terms freely transferable and assignable to Parent. 5.3 CERTAIN FILINGS The Company shall cooperate with Parent with respect to all filings with Governmental Authorities that are required to be made by the Company to carry out the transactions contemplated by this Agreement. The Company shall assist Parent in making all such filings, applications and notices as may be necessary or desirable in order to obtain the authorization, approval or consent of any Governmental Authority that may be reasonably required or which Parent may reasonably request in connection with the consummation of the transactions contemplated hereby. 5.4 NOTIFICATION OF CERTAIN MATTERS The Company and/or each of the Company Shareholders shall promptly notify Parent of (i) the occurrence or non-occurrence of any fact or event of which the Company and/or each of AGREEMENT AND PLAN OF MERGER-EXECUTION COPY PAGE 49 MICROTOOL, INC. the Company Shareholders has knowledge that would be reasonably likely (A) to cause any representation or warranty of the Company and/or each of the Company Shareholders contained in this Agreement or any Ancillary Agreements to be untrue or incorrect in any material respect at any time from the date hereof to the Closing Date or (B) to cause any covenant, condition or agreement of the Company and/or each of the Company Shareholders in this Agreement or any Ancillary Agreements not to be complied with or satisfied in any material respect and (ii) any failure of the Company and/or each of the Company Shareholders to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder or thereunder in any material respect; provided, however, that no such notification shall affect the representations or warranties of the Company and/or each of the Company Shareholders, or the right of Parent to rely thereon, or the conditions to the obligations of Parent, or the remedies available hereunder or thereunder to Parent. The Company and/or each of the Company Shareholders shall give prompt notice to Parent of any notice or other communication from any third Person alleging that the consent of such third Person is or may be required in connection with the transactions contemplated by this Agreement or any Ancillary Agreement. 5.5 NO SOLICITATION From the date hereof until the earlier of (i) October 15, 2002, or (ii) termination of this Agreement by Parent, the Company and the Company Shareholders shall not, and shall not permit any, officer, director, shareholder, employee, investment banker or other agent of the Company to, directly or indirectly, (A) solicit, engage in discussions or negotiate with any Person (whether or not such discussions or negotiations are initiated by the Company), or take any other action intended or designed to facilitate the efforts of any Person, other than Parent, relating to the possible acquisition of the Company (whether by way of merger, purchase of capital stock, purchase of assets or otherwise) or any significant portion of its capital stock or assets (with any such efforts by any such Person to make such an acquisition referred to as an "ALTERNATIVE ACQUISITION"), (B) provide information with respect to the Company to any Person, other than Parent, relating to a possible Alternative Acquisition by any Person, other than Parent, (C) enter into an agreement with any Person, other than Parent, providing for a possible Alternative Acquisition, or (D) make or authorize any statement, recommendation or solicitation in support of any possible Alternative Acquisition by any Person, other than by Parent. 5.6 ACCESS TO INFORMATION; CONFIDENTIALITY Upon reasonable written notice, the Company shall permit representatives of the Parent to have access (at all reasonable times and in a manner so as not to interfere with the normal business operations of the other party) to all premises, properties, financial and accounting records, Contracts, other records and documents, and personnel of or pertaining to the Company, all in accordance with the terms of the Confidentiality Agreement. No investigation or examination by Parent shall diminish, obviate or constitute a waiver of the enforcement of any of the representations, warranties, covenants or agreements of the Company or the Company Shareholders under this Agreement except to the extent that such investigation or examination results in the Company acquiring specific Knowledge of the existence and magnitude of claim for indemnification pursuant to Section 9 prior to the Closing Date. AGREEMENT AND PLAN OF MERGER-EXECUTION COPY PAGE 50 MICROTOOL, INC. 5.7 REASONABLE BEST EFFORTS; FURTHER ACTION (a) Upon the terms and subject to the conditions hereof, each of the parties hereto shall use its reasonable best efforts (exercised diligently and in good faith) to take, or cause to be taken, all actions and to do, or cause to be done, all other things reasonably necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement, to obtain in a timely manner all necessary waivers, consents, authorizations and approvals and to effect all necessary registrations and filings, and otherwise to satisfy or cause to be satisfied all conditions precedent to its obligations under this Agreement. (b) Notwithstanding any provision of this Agreement to the contrary, Parent shall not be obligated to divest, abandon, license, dispose of, hold separate or take similar action with respect to any portion of the business, assets or properties (tangible or intangible) of Parent, any of its Subsidiaries or the Company in connection with seeking to obtain or obtaining any waiver, consent, authorization or approval of any Person associated with the consummation of the transactions contemplated hereby or otherwise. (c) If, at any time after the Closing Date, any such further action is necessary or desirable to carry out the purposes of this Agreement or any Ancillary Agreements, each of the Company Shareholders and the officers and directors of the Company and Parent are fully authorized in the name of their respective corporations or otherwise to take, and will take, all such lawful and necessary or desirable action. 5.8 RESTRICTION ON DISPOSITION OF BROOKS SHARES Each Company Shareholder agrees, without regard to the existence or absence of any securities law restrictions, not to offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any Parent Shares, enter into a transaction which would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of the Parent Shares, whether any such aforementioned transaction is to be settled by delivery of the Parent Shares, in cash or otherwise, or publicly disclose the intention to make any such offer, sale, pledge or disposition, or enter into any such transaction, swap, hedge or other arrangement, except as follows: (a) the restriction of this Section shall not apply to 50% of the aggregate number of Parent Shares issuable to each Company Shareholder under this Agreement (the "UNRESTRICTED PARENT SHARES"); and (b) the restrictions on the remaining Parent Shares issuable to each Company Shareholder under this Agreement (the "RESTRICTED PARENT SHARES") shall lapse with respect to one-half of such Parent Shares on each of the first and second anniversary dates of the Closing Date. For the purpose of this Section 5.8, the number of Parent Shares delivered by Brooks to the Escrow Agent pursuant to this Agreement, shall be counted as Restricted Parent Shares with AGREEMENT AND PLAN OF MERGER-EXECUTION COPY PAGE 51 MICROTOOL, INC. respect to which the restrictions of this Section 5.8 shall lapse on the second anniversary date of the Closing Date. 5.9 TAX RETURNS FOR YEARS ENDING ON OR PRIOR TO THE CLOSING DATE (a) The Shareholder Representative will cause all Tax Returns for the Company for Company tax years ending on or prior to the Closing Date to be prepared and will provide such Tax Returns to Parent at least 90 days prior to the deadline for filing such Tax Returns and no later than one year after the Closing Date. Parent shall cooperate with the Shareholder Representative to provide such information as may be reasonably necessary to permit the Shareholder Representative to cause such Tax Returns to be prepared. Parent shall be entitled to review, make changes to, and approve any such Tax Return. Upon Parent's approval of such a Tax Return or the final, binding and conclusive determination of any dispute with respect to any such Tax Return, Parent shall cause such Tax Return or application to be properly signed and submitted to the appropriate Tax Authority. (b) In the event that any dispute shall arise as to the manner of preparation or the accuracy of any Tax Return submitted by the Shareholder Representative, Parent shall provide the Shareholder Representative with written notice of each disputed item. In the event of such a dispute, Parent and the Shareholder Representative shall attempt to reconcile in good faith their differences as to such items within twenty (20) calendar days (the "TAX RESOLUTION PERIOD") of the Shareholder Representative's receipt of such notice, and any resolution by them as to any disputed items shall be final, binding and conclusive on the Company Shareholders and Parent. If Parent and the Shareholder Representative are unable to reach a resolution with such effect within the Tax Resolution Period, Parent and the Company Shareholders shall submit the dispute to Deloitte & Touche (the "INDEPENDENT TAX AUDITOR"). The determination of such dispute by the Independent Tax Auditor shall be final, binding and conclusive on the Company Shareholders and Parent. The fees and expenses of the Independent Tax Auditor shall be assessed by the Independent Tax Auditor fifty percent (50%) against the Company Shareholders and fifty percent (50%) against Parent, and shall be paid by each of them in those proportions. This section and any resolution hereunder shall not affect the Company Shareholders' indemnification obligations for Taxes under this Agreement. 6. ADDITIONAL COVENANTS OF PARENT AND MERGER SUB Parent hereby covenants and agrees as follows: 6.1 CERTAIN FILINGS Parent agrees to make or cause to be made all filings with Governmental Authorities that are required to be made by Parent to carry out the transactions contemplated by this Agreement and the Ancillary Agreements. 6.2 NOTIFICATION OF CERTAIN MATTERS AGREEMENT AND PLAN OF MERGER-EXECUTION COPY PAGE 52 MICROTOOL, INC. Parent shall promptly notify the Company of (i) the occurrence or non-occurrence of any fact or event of which Parent has Knowledge which would be reasonably likely (A) to cause any representation or warranty of Parent contained in this Agreement and/or the Ancillary Agreements to be untrue or incorrect in any material respect at any time from the date hereof to the Closing Date or (B) to cause any covenant, condition or agreement of Parent in this Agreement and/or the Ancillary Agreements not to be complied with or satisfied in any material respect and (ii) any failure of Parent to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder in any material respect; provided, however, that no such notification shall affect the representations or warranties of Parent, or the right of the Company to rely thereon, or the conditions to the obligations of the Company, or the remedies available hereunder to the Company. Parent shall give prompt notice to the Company of any notice or other communication from any third Person alleging that the consent of such third Person is or may be required in connection with the transactions contemplated by this Agreement. 6.3 REGISTRATION (a) Not later than 90 calendar days after the Closing Date, Parent shall file with the SEC, the Registration Statement (or any successor short form registration involving a similar amount of disclosure) for a public offering of all the Parent Shares then outstanding, including the Parent Shares held by the Escrow Agent, to be made on a continuous basis pursuant to Rule 415 of the Securities Act and will use its commercially reasonable efforts to cause such registration statement to become effective (subject to review of such Registration Statement by the SEC) and remain continuously effective until the earlier of (i) two (2) years from the Closing Date or (ii) such time as all of the Parent Shares may be sold pursuant to Rule 144 promulgated under the Securities Act on a single day. The Parent may, upon written notice to the selling shareholders listed therein, suspend use of the Registration Statement for a reasonable period if the Parent in its reasonable judgment believes it may possess material nonpublic information the disclosure of which at that point in time in its reasonable judgment would have a Material Adverse Effect on the Parent and its Subsidiaries taken as a whole. (b) The Company and each of the Company Shareholders covenant and agree that they shall provide to Parent on a timely basis such consents, representations and information and execute such documents as may reasonably be required by Parent in connection with such Registration Statement. (c) Parent shall pay all expenses of registration of the Parent Shares pursuant to Section 6.3(a), except brokerage commissions, legal expenses and such other expenses as may be required by law to be paid by the Company Shareholders. (d) To the extent permitted by law, the Parent will indemnify and hold harmless each of the Company Shareholders, their respective officers and directors and each person, if any, who controls the Company Shareholders within the meaning of the Securities Act, against any costs or expenses (including attorney's fees), judgments, fines, losses, claims, damages, liabilities or amounts paid in settlement, joint or several, to which any of them may become subject under the Securities Act or otherwise, insofar as such costs or expenses (including attorney's fees), AGREEMENT AND PLAN OF MERGER-EXECUTION COPY PAGE 53 MICROTOOL, INC. judgments, fines, losses, claims, damages liabilities or amounts paid in settlement (or actions in respect thereof) arise out of or are based upon any untrue or alleged untrue statement of any material fact contained or expressly incorporated by reference in any such Registration Statement, including any preliminary prospectus or final prospectus contained therein or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each of the Company Shareholders and their respective officers and directors and each such controlling person for any legal or other expenses reasonably incurred by any of them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 6.3(d) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Parent (which consent shall not be unreasonably withheld) nor shall the Parent be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in connection with such Registration Statement, preliminary prospectus, final prospectus or amendment or supplement thereto in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by the Company Shareholders or any person controlling the Company Shareholders. (e) To the extent permitted by law, the Company Shareholders will, severally and not jointly, indemnify and hold harmless Parent, its directors, its officers who have signed such Registration Statement and each person, if any, who controls the Parent within the meaning of the Securities Act against any losses, claims, damages or liabilities to which the Parent or any such director, officer or controlling person may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any untrue or alleged untrue statement of any material fact contained or expressly incorporated by reference in such Registration Statement, including any preliminary prospectus or final prospectus contained therein or any amendment or supplement thereto, or arise out of or based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in such Registration Statement, preliminary prospectus, final prospectus or amendments or supplements thereto, in reliance upon and in conformity with written information furnished by the Company Shareholders expressly for use in connection with such registration; and the Company Shareholders will reimburse any legal or other expenses reasonably incurred by the Parent or any such director, officer and controlling person in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 6.3(e) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the indemnifying party (which consent shall not be unreasonably withheld), nor shall the Company Shareholders be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in connection with such Registration Statement, preliminary prospectus, final prospectus or amendment or AGREEMENT AND PLAN OF MERGER-EXECUTION COPY PAGE 54 MICROTOOL, INC. supplement thereto in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by the Parent or any person controlling the Parent. (f) Promptly after receipt by a party indemnified under this Section 6.3 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 6.3, notify the indemnifying party in writing of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however that if the defendants in any such action include both the indemnified party and the indemnifying party and, under applicable standards of professional conduct, a conflict on any significant issue between the positions of the indemnified party and the indemnifying party exists, the indemnified party or parties shall have the right to select one separate law firm, at the indemnifying party's or parties' expense, to assume such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party or parties. The failure to notify any indemnifying party promptly of the commencement of any such action, shall not relieve such indemnifying party of any liability to the indemnified party under this Section 6.3, except to the extent that such indemnifying party is actually prejudiced thereby. 6.4 NASDAQ NATIONAL MARKET LISTING Parent agrees to authorize for listing on the Nasdaq National Market the Parent Shares issuable, and those required to be reserved for issuance, in connection with the transactions contemplated hereby, upon official notice of issuance. 7. CONDITIONS TO OBLIGATIONS OF PARENT The obligations of Parent under this Agreement and the Ancillary Agreements to consummate the transactions contemplated hereby and thereby shall be subject to the satisfaction, at or prior to the Closing Date, of each of the following conditions: 7.1 REPRESENTATIONS AND WARRANTIES The representations and warranties of the Company and each of the Company Shareholders contained in this Agreement or in the Disclosure Schedule or any certificate delivered pursuant hereto shall be complete and correct as of the date when made, shall be deemed repeated at and as of the Closing Date as if made on the Closing Date, and shall then be complete and correct. 7.2 PERFORMANCE OF COVENANTS The Company and each of the Company Shareholders shall have taken all necessary corporate or other actions to consummate the transactions contemplated hereby and shall have performed and complied in all respects with each covenant, agreement and condition required by AGREEMENT AND PLAN OF MERGER-EXECUTION COPY PAGE 55 MICROTOOL, INC. this Agreement and the Ancillary Agreements to be performed or complied with by them at or prior to the Closing Date. 7.3 UPDATE CERTIFICATE Parent shall have received a certificate or certificates, dated the Closing Date, signed by the Company and each of the Company Shareholders as to the matters set forth in Sections 7.1 and 7.2. 7.4 NO GOVERNMENTAL OR OTHER PROCEEDING; ILLEGALITY No Order of any Governmental Authority shall be in effect that restrains or prohibits any transaction contemplated hereby or that would limit or affect Parent's ownership or operation of the business or assets of the Company; no suit, action, investigation, inquiry or Proceeding by any Governmental Authority shall be pending or threatened against Parent or the Company or any director or officer of either, as such, that challenges the validity or legality, or that restrains or seeks to restrain the consummation, of the transactions contemplated hereby, or that limits or otherwise affects or seeks to limit or otherwise affect Parent's right to own or operate the business or assets of the Company or that compels or seeks to compel Parent or any of its Subsidiaries to divest, abandon, license, dispose of, hold separate or take similar action with respect to any portion of the business, assets or properties (tangible or intangible) of Parent or any of its Subsidiaries or the Company; and no written advice shall have been received by Parent or the Company or by any of their respective counsel from any Governmental Authority, and remain in effect, stating that an action or Proceeding will, if the transactions contemplated hereby are consummated or sought to be consummated, be filed seeking to invalidate or restrain any such transaction or limit or otherwise affect Parent's ownership or operation of the business or assets of the Company. No Law or Order shall be enacted, entered, enforced or deemed applicable to the transactions contemplated hereby that makes the consummation of any such transaction illegal. 7.5 APPROVALS AND CONSENTS All material waivers, approvals, authorizations or Orders required to be obtained, and all filings required to be made by the Company for the authorization, execution and delivery of this Agreement, the consummation by it of the transactions contemplated hereby and the continuation in full force and effect of any and all material rights, documents, instruments or Contracts of the Company shall have been obtained and made, including without limitation all consents or approvals of any Person that may be required under any lease for real property to which the Company is a party or which are required to be disclosed in Section 3.2 to the Disclosure Schedule. The Company shall use commercially reasonable efforts to obtain landlord consents and estoppel certificates reasonably satisfactory in form and substance to Parent from the lessors/owners of the real property leased by the Company in Colorado Springs, Colorado. 7.6 APPROVAL OF BOARD OF DIRECTORS AGREEMENT AND PLAN OF MERGER-EXECUTION COPY PAGE 56 MICROTOOL, INC. This Agreement and the transactions contemplated hereby shall have been approved by the Board of Directors of each of Parent and Merger Sub in accordance with the DGCL. 7.7 OPINION OF COUNSEL The Company shall have delivered to Parent an opinion of Sparks Willson Borges Brandt & Johnson, P.C., dated the Closing Date and addressed to Parent, as to the matters set forth on Exhibit D hereto. 7.8 ESCROW AGREEMENT There shall have been executed and delivered to Parent the Escrow Agreement with such modifications thereto as may be required by the Escrow Agent and agreed to by the parties hereto. 7.9 CONFIDENTIALITY, NONSOLICITATION, NONCOMPETITION AND INTELLECTUAL PROPERTY AGREEMENTS Parent shall have received executed Confidentiality, Nonsolicitation, Noncompetition and Intellectual Property Agreements substantially in the form of Exhibit E from each of the Key Employees. 7.10 [RESERVED] 7.11 TERMINATION OF RIGHTS AND VOTING AGREEMENTS All agreements among the Company and any of its security holders, or among any of the Company security holders, providing for registration rights, rights of first refusal, rights of co-sale, relating to the voting of the Company securities or requiring the Company to obtain the consent or approval of any such security holders prior to taking or failing to take any action, shall have been, as of or prior to the Closing Date, terminated in their entirety. 7.12 RESIGNATION Parent shall have received the written resignations, dated as of the Closing Date, of each of the directors and corporate and executive officers of Company. 7.13 RIGHTS TO CONVERSION Parent shall have received evidence that any and all options, warrants or rights of the Company Shareholders and any other Persons, outstanding prior to Closing, to acquire the Company's capital stock, whether by contract, law or otherwise, including but not limited to (i) any anti-dilution rights and (ii) any rights to convert the right to receive unpaid wages into shares of the Company's capital stock have, prior to Closing, been waived, extinguished, or duly exercised or converted as the case may be, such that at the Closing Date no such options, warrants or rights whatsoever shall be exercisable by any Person or outstanding in any form. Such evidence shall be in form and substance reasonably satisfactory to Parent. AGREEMENT AND PLAN OF MERGER-EXECUTION COPY PAGE 57 MICROTOOL, INC. 7.14 SECRETARY'S CERTIFICATE On the date hereof, Parent shall receive from the Company a Secretary's or an Assistant Secretary's Certificate certifying (i) the bylaws of the Company, (ii) incumbency of the officers of the Company, (iii) resolutions of the Board of Directors of the Company approving the transactions contemplated hereby; and (iv) those documents referenced in the Disclosure Schedule. Such Certificate shall be in form and substance reasonably satisfactory to Parent. 7.15 OTHER DOCUMENTS At the Closing, Parent shall receive such other certificates and documents as the Parent shall have reasonably requested. 7.16 KEY EMPLOYEES The Key Employees shall have agreed to accept employment with the Parent. 7.17 DUE DILIGENCE REVIEW Parent shall have completed a review of the assets and business of the Company which is satisfactory to the Parent in its sole discretion in all respects. Such review shall include a review of all of the Schedules of the Company to this Agreement delivered to the Parent on the date hereof and a review of the financial files and records of the Company, including, without limitation, review of the financial budget of the Company for the next two fiscal years of the Company, the business and legal records and files of the Company, including customer files, correspondence, invoices, licenses and permits (provided that Parent shall refrain from contacting any customers or suppliers of the Company without the prior approval of the Company), full access to the Company's physical properties and appropriate personnel of the Company, and all patents and written materials related to the Company's trade secrets and proprietary systems, all of which shall be made available to Parent. 7.18 RESULTS The Company shall have gross revenues for the quarter ending September 30, 2002 of at least the amount set forth in Section 7.18 of the Disclosure Schedule. 7.19 NO MATERIAL ADVERSE EFFECT There shall have been no Material Adverse Effect upon the Company since the date of this Agreement, including, but not limited to, there being no material change in the net tangible asset value of the Company. 7.20 APPROVAL OF parent'S COUNSEL All actions, proceedings, instruments and documents required to carry out this Agreement and all related legal matters contemplated by this Agreement, including, without limitation, AGREEMENT AND PLAN OF MERGER-EXECUTION COPY PAGE 58 MICROTOOL, INC. opinions of counsel, shall have been approved by counsel for the Parent, provided that the approval of such counsel shall not be unreasonably withheld or conditioned. 7.21 DISSENTING SHARES Not more than 2% of the Company Shares shall be Dissenting Shares. 7.22 FIRPTA. The Company shall have delivered to Parent statements meeting the requirements of Sections 1.1445-2(b)(2), 1.1445-2(c)(3) and 1.897-2(h) of the Treasury Regulations promulgated under the Code. 7.23 SALES TAX. Prior to or concurrent with the Closing, the Company shall have filed all Tax Returns (if any) and remitted all Taxes (if any) relating to amounts received for taxes by the Company in connection with the sale of its products prior to the Closing to the appropriate Tax Authority and shall have provided Parent with copies of such Tax Returns or shall have otherwise addressed the potential liability identified in Section 3.6 of the Disclosure Schedule in a manner reasonably satisfactory to the Parent. 7.24 EXHIBIT A. Company shall deliver a completed Exhibit A in form and substance reasonably satisfactory to Parent. 8. CONDITIONS TO OBLIGATIONS OF THE COMPANY The obligations of the Company and the Company Shareholders, as applicable, under this Agreement to consummate the transactions contemplated hereby shall be subject to the satisfaction, at or prior to the Closing Date, of each of the following conditions: 8.1 REPRESENTATIONS AND WARRANTIES The representations and warranties of Parent and Merger Sub contained in this Agreement or in the Disclosure Schedule or any certificate delivered pursuant hereto shall be complete and correct as of the date when made, shall be deemed repeated at and as of the Closing Date as if made on the Closing Date, and shall then be complete and correct. 8.2 PERFORMANCE OF COVENANTS Each of Parent and Merger Sub shall have taken all necessary corporate actions to consummate the transactions contemplated hereby and shall have performed and complied in all respects with each covenant, agreement and condition required by this Agreement to be performed or complied with by it at or prior to the Closing Date. 8.3 UPDATE CERTIFICATE AGREEMENT AND PLAN OF MERGER-EXECUTION COPY PAGE 59 MICROTOOL, INC. The Company and the Company Shareholders shall have received a certificate or certificates, dated the Closing Date, signed by each of Parent and Merger Sub as to the matters set forth in Sections 8.1 and 8.2. 8.4 NO GOVERNMENTAL OR OTHER PROCEEDING; ILLEGALITY No Order of any Governmental Authority shall be in effect that restrains or prohibits any transaction contemplated hereby; and no written advice shall have been received by Parent, Merger Sub, Company or by any of their respective counsel from any Governmental Authority, and remain in effect, stating that an action or Proceeding will, if the transactions contemplated hereby are consummated or sought to be consummated, be filed seeking to invalidate or restrain any such transaction. No Law or Order shall be enacted, entered, enforced or deemed applicable to the transactions contemplated hereby that makes the consummation of any such transaction illegal. 8.5 OFFICER'S CERTIFICATE At the Closing, Company shall receive from each of Parent and Merger Sub an Officer's Certificate certifying (i) the bylaws of Parent and Merger Sub, respectively, (ii) incumbency of the officers of Parent and Merger Sub, respectively, and (iii) resolutions of the Board of Directors of Parent and Merger Sub, respectively, approving the transactions contemplated hereby. Such Certificate shall be in form and substance reasonably satisfactory to the Company. 8.6 ADJUSTMENTS The Merger Consideration shall be adjusted to reflect appropriately the effect of any stock split, reverse stock split, stock dividend, reorganization, recapitalization, reclassification or other like change with respect to Parent Common Stock payable on or after the date hereof and prior to the Effective Time. 8.7 TAX-FREE MERGER The Merger shall remain eligible for qualification as a tax-free reorganization under Section 368(a) of the Code. The Company acknowledges that an adjustment to the Merger Consideration pursuant to Section 2.12 of a sufficient magnitude may cause the Mergers to be taxable. 9. INDEMNIFICATION. 9.1 SURVIVAL The representations and warranties made by the parties in or pursuant to this Agreement shall survive the Closing for the period specified in Section 9.2(b)(i). 9.2 INDEMNIFICATION BY THE COMPANY SHAREHOLDERs AGREEMENT AND PLAN OF MERGER-EXECUTION COPY PAGE 60 MICROTOOL, INC. (a) Subject to the limitations in paragraph (b) below, the Company Shareholders, jointly and severally, shall defend, indemnify and hold harmless the Parent's Indemnified Persons from and against all Losses directly or indirectly incurred by or sought to be imposed upon any of them and whether or not caused by negligence or willful act: (i) resulting from or arising out of any breach of any of the representations or warranties (other than those in Sections 3.1, 3.2, 3.3, 3.8, 3.9, 3.10, 3.13, 3.17, 3.21 and 3.28) made by the Company or the Company Shareholders in or pursuant to this Agreement or any Ancillary Agreement; (ii) resulting from or arising out of any breach of any of the representations or warranties made by the Company Shareholders or the Company pursuant to Section 3.10; (iii) resulting from or arising out of any breach of any of the representations and warranties made by the Company Shareholders or the Company pursuant to Sections 3.9 and 3.28; (iv) resulting from or arising out of any breach of any covenant or agreement made by the Company Shareholders or the Company in or pursuant to this Agreement or any Ancillary Agreement; (v) resulting from or arising out of any breach of any of the representations and warranties made by the Company Shareholders or the Company pursuant to Section 3.8 or any liability, payment or obligation in respect of any Taxes owing by the Company or the Parent, as successor to the Company, of any kind or description (including interest and penalties with respect thereto) for all periods, or portions thereof, up to and ending on the Closing Date; (vi) resulting from or arising out of (A) any breach of any of the representations and warranties made by the Company Shareholders or the Company pursuant to Section 3.17, or (B) any Third Party Action, whether by a Governmental Authority or other third party for damages, including fines or penalties, or clean-up costs or other compliance costs under any Environmental Law or from the violation of any Environmental Law arising out of the acts or omissions of the Company on or before the Closing Date; (vii) resulting from or arising out of any breach of any of the representations and warranties made by the Company Shareholders or the Company pursuant to Section 3.21; or (viii) resulting from or arising out of any breach of any of the representations or warranties made by the Company Shareholders or the Company pursuant to Sections 3.1, 3.2, 3.3 and 3.13. (b) The Parent's right to indemnification under paragraph (a) is subject to the following limitations: AGREEMENT AND PLAN OF MERGER-EXECUTION COPY PAGE 61 MICROTOOL, INC. (i) The Company Shareholders shall have no liability under paragraph (a) unless one or more of the Parent's Indemnified Persons gives written notice to the Company Shareholders asserting a claim for Losses, including reasonably detailed facts and circumstances pertaining thereto, before the expiration of the period set forth below: a. for claims under clauses (i), (iii), (iv), (vii) and (viii) of paragraph (a) above, a period of two (2) years from the Closing Date; and b. for claims under clauses (ii), (v) and (vi) of paragraph (a) above, for so long as any claim may be made in respect of such matters under any applicable statute of limitations, as it may be extended. (ii) For the purpose of this Section 9.2, any qualification of any representations and warranties by reference to the materiality of matters stated therein, and any limitations of any representations and warranties in Sections 3.13, 3.17, 3.18, 3.20 (j), 3.21 or 3.31 as being "to the Knowledge of" or "known to" or words of similar effect, shall be disregarded in determining any breach thereof or any Losses. (iii) Indemnification for claims under paragraph (a) shall be payable by Company Shareholders only if the aggregate amount of indemnifiable Losses for all claims under this Section 9.2 is in excess $50,000, at which point the Company Shareholders shall be responsible only for such excess. (iv) The Company Shareholders aggregate liability for claims made under paragraph (a) shall not exceed the amount set forth below: a. for claims under clauses (i), (iii), (iv) and (vii) of paragraph (a), an amount equal to 50% of the Merger Consideration; b. for claims under clauses (ii), (v), (vi) and (viii) of paragraph (a), an amount equal to 100% of the Merger Consideration; and c. for claims arising from the Company Shareholders' fraud or willful misconduct or the fraud or willful misconduct of the Company, without limit as to amount. 9.3 INDEMNIFICATION BY parent Subject to the limitations of this Section 9.3, for a period of one (1) year after the Closing Date, Parent shall defend, indemnify and hold harmless the Company Shareholders' Indemnified Persons from and against all Losses directly or indirectly incurred by or sought to be imposed upon any of them and whether or not caused by negligence or willful act resulting from or arising out of any breach of any of the representations or warranties made by Parent or the Merger Sub in or pursuant to this Agreement or any Ancillary Agreement. Indemnification for claims under this AGREEMENT AND PLAN OF MERGER-EXECUTION COPY PAGE 62 MICROTOOL, INC. Section 9.3 shall be payable by Parent only if the aggregate amount of indemnifiable Losses for all claims under this Section 9.3 is in excess $50,000, at which point the Parent shall be responsible only for such excess. The Parent's aggregate liability for all claims made under this Section 9.3 shall not exceed an amount equal to the Merger Consideration. 9.4 DEFENSE OF THIRD PARTY ACTIONS (a) Promptly after receipt of notice of any Third Party Action, any person who believes he, she or it may be an indemnified person (the "INDEMNIFIED PERSON") will give notice to the potential Indemnifying Person (the "INDEMNIFYING PERSON") of such action. The omission to give such notice to the Indemnifying Person will not relieve the Indemnifying Person of any liability hereunder unless it was prejudiced thereby, nor will it relieve it of any liability which it may have other than under this Article 9. (b) Upon receipt of a notice of a Third Party Action, the Indemnifying Person shall have the right, at its option and at its own expense, to participate in and be present at the defense of such Third Party Action, but not to control the defense, negotiation or settlement thereof, which control shall remain with the Indemnified Person, unless the Indemnifying Person makes the election provided in paragraph (c) below. (c) By written notice within forty-five (45) days after receipt of a notice of a Third Party Action, an Indemnifying Person may elect to assume control of the defense, negotiation and settlement thereof, with counsel reasonably satisfactory to the Indemnified Person; provided, however, that the Indemnifying Person agrees (i) to promptly indemnify the Indemnified Person for its expenses to date, and (ii) to hold the Indemnified Person harmless from and against any and all Losses caused by or arising out of any settlement of the Third Party Action approved by the Indemnifying Person or any judgment in connection with that Third Party Action. The Indemnifying Person shall not in the defense of the Third Party Action enter into any settlement that does not include as a term thereof the giving by the third party claimant of an unconditional release of the Indemnified Person, or consent to entry of any judgment except with the consent of the Indemnified Person. (d) Upon assumption of control of the defense of a Third Party Action under paragraph (c) above, the Indemnifying Person will not be liable to the Indemnified Person hereunder for any legal or other expenses subsequently incurred in connection with the defense of the Third Party Action, other than reasonable expenses of investigation. (e) If the Indemnifying Person does not elect to control the defense of a Third Party Action under paragraph (c), the Indemnifying Person shall promptly reimburse the Indemnified Person for expenses incurred by the Indemnified Person in connection with defense of such Third Party Action, as and when the same shall be incurred by the Indemnified Person. (f) Any person who has not assumed control of the defense of any Third Party Action shall have the duty to cooperate with the party that assumed such defense. 9.5 MISCELLANEOUS AGREEMENT AND PLAN OF MERGER-EXECUTION COPY PAGE 63 MICROTOOL, INC. (a) Parent's Indemnified Persons shall be entitled to indemnification under Section 9.2(a) regardless of whether the matter giving rise to the applicable liability, payment, obligation or expense may have been previously disclosed to any such person, unless disclosed in the Disclosure Schedule. (b) If any Loss is recoverable under more than one provision hereof, the Indemnified Person shall be entitled to assert a claim for such Loss until the expiration of the longest period of time within which to assert a claim for Loss under any of the provisions which are applicable. (c) Parent may, at its option, recover any amount owing by the Company Shareholders for indemnification hereunder by setoff against any amounts that may otherwise be due from the Parent or the Company to the Company Shareholders, or any of them, whether hereunder or otherwise; provided that Parent shall not be required to recover such claims in such manner and may proceed against the Indemnified Party at an y time or times for recovery of indemnification claims as provided herein. 9.6 PAYMENT OF INDEMNIFICATION Claims for indemnification under this Article 9 shall be paid or otherwise satisfied by Indemnifying Persons within thirty (30) days after notice thereof is given by the Indemnified Person. Any amount which may become due and payable to any of the Parent's Indemnified Persons under Section 9.2(a) shall first be paid or otherwise satisfied out of the Escrow Shares until the same has been exhausted. Any claims in excess of the Escrow Shares may be satisfied by whatever remedy is available at law or equity. 10. TERMINATION OF AGREEMENT 10.1 TERMINATION This Agreement shall not be terminated, except in accordance with the provisions of this Article 10, strictly construed against the party seeking such termination. This Agreement may be terminated any time prior to the Closing Date: (a) by mutual written consent of the parties; (b) by either the Parent or the Shareholder Representative, if, without fault of such terminating party, the transactions contemplated by this Agreement shall not have been consummated on or before November 30, 2002 unless such failure shall be due to a material breach of any representation or warranty, or the nonfulfillment in a material respect, and failure to cure such nonfulfillment, of any covenant or agreement contained herein on the part of the party or parties seeking to terminate; and (c) by Parent or the Shareholder Representative if a Governmental Authority shall have issued a nonappealable final Order or taken any other action having the effect of permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement (provided that the right to terminate this Agreement under this Section 10.1 shall not be available to any party who has not complied with its obligations under this Agreement if such AGREEMENT AND PLAN OF MERGER-EXECUTION COPY PAGE 64 MICROTOOL, INC. noncompliance materially contributed to the issuance of any such Order or the taking of such action). 10.2 TERMINATION BY PARENT This Agreement may be terminated by Parent, at any time prior to the Closing Date, if: (a) the Company or the Company Shareholders shall have failed to comply with any of the covenants or agreements contained in this Agreement such that the closing condition set forth in Section 7.2 would not be satisfied; provided, however, that if such breach or breaches are capable of being cured prior to the Closing Date, such breach or breaches shall not have been cured within 15 days of delivery to the Company or the Company Shareholders of written notice of such breach; (b) there exists a breach of any representation or warranty of the Company or the Company Shareholders contained in this Agreement such that the closing condition set forth in Section 7.1 would not be satisfied; provided, however, that if such failure or failures are capable of being cured prior to the Closing Date, such failure or failures shall not have been cured within 15 days of delivery to the Company or the Company Shareholders of written notice of such failure; or (c) the Company or the Company Shareholders engage in any conduct or take any action concerning an Alternative Acquisition as provided in Section 5.5 hereof. 10.3 TERMINATION BY THE COMPANY This Agreement may be terminated at any time prior to the Closing Date by action of the Shareholder Representative, if: (a) the Parent shall have failed to comply with any of the covenants or agreements contained in this Agreement such that the closing condition set forth in Section 8.2 would not be satisfied; provided however, that if such failure or failures are capable of being cured prior to the Closing Date, such failure or failures shall not have been cured within 15 days of delivery to the Parent of written notice of such failure; or (b) there exists a breach or breaches of any representation or warranty of the Parent contained in this Agreement such that the closing condition set forth in Section 8.1 would not be satisfied; provided however, that if such breach or breaches are capable of being cured prior to the Closing Date, such breach or breaches shall not have been cured within 15 days of delivery to the Parent of written notice of such breach. 10.4 PROCEDURE FOR TERMINATION In the event of termination by the Parent or the Shareholder Representative pursuant to this Article 10, written notice thereof shall forthwith be given to the other party. 10.5 EFFECT OF TERMINATION AGREEMENT AND PLAN OF MERGER-EXECUTION COPY PAGE 65 MICROTOOL, INC. In the event of termination of this Agreement in accordance with the provisions of this Article 10, this Agreement shall forthwith become void and no party to this Agreement shall have any liability or further obligation to any other party, except as provided in the Confidentiality Agreement and in Sections 11.1 and 11.2 of this Agreement, which provisions shall survive such termination, and except that nothing herein shall relieve any party from liability for any breach of this Agreement. 10.6 RIGHT TO PROCEED Anything in this Agreement to the contrary notwithstanding, if any of the conditions specified in Article 7 hereof have not been satisfied, Parent shall have the right to waive the satisfaction of any such condition as provided in Article 7 and to proceed with the transactions contemplated hereby, however, it shall be deemed to have waived any claim for indemnification arising out of any condition which has been so waived. If any of the conditions specified in Article 8 hereof has not been satisfied, the Shareholder Representative shall have the right to waive the satisfaction of any such condition as provided in Article 8 and to proceed with the transactions contemplated hereby. 11. GENERAL PROVISIONS 11.1 EXPENSES Unless as otherwise set forth herein, the Company Shareholders will pay their own and the Company's legal, accounting, investment, banking, financial advisory and other expenses in connection with the negotiation and the consummation of the transactions contemplated by this Agreement. The Company Shareholders shall bear such expenses in such proportions as they may agree. No expenses of the Company Shareholders or the Company relating in any way to the purchase and sale of the Company Shares hereunder shall be included in any account of the Company as of the Closing or shall be charged to or paid by Parent. Parent will pay its own legal, accounting, investment, banking, financial advisory and other expenses incurred in connection with the negotiation and consummation of the transactions contemplated by this Agreement. 11.2 PUBLIC ANNOUNCEMENTS Unless required by law, any public announcement or similar publicity with respect to this Agreement, the Closing, or the other transactions contemplated hereby will be issued, if at all, at such time and in such manner as Parent determines with the concurrence of the Company, which concurrence shall not be unreasonably withheld or delayed by the Company. Unless disclosure is consented to by Parent in advance or required by law or disclosure has otherwise already been made, the Company and the Company Shareholders shall keep this Agreement and the transactions contemplated hereby strictly confidential and may not make any disclosure of this Agreement or such transactions to any Person other than its or their directors, officers, employees or agents who need to know such information to enable the Company to comply with this Agreement, provided that each such director, officer, employee or agent shall agree, for the benefit of Parent, to maintain the confidentiality of such information as provided in this AGREEMENT AND PLAN OF MERGER-EXECUTION COPY PAGE 66 MICROTOOL, INC. Section 11.2. The Company, the Shareholders Representative and Parent will consult with each other concerning the means by which the Company's employees, customers and suppliers and other Persons having dealings with the Company will be informed of this Agreement, the Closing, and the other transactions contemplated hereby, and representatives of Parent may at its option be present for any such communication. 11.3 NOTICES All notices, consents, waivers, and other communications under this Agreement must be in writing and will be deemed to have been duly given when (a) delivered by hand (with written confirmation of receipt), (b) sent by fax (with written confirmation of receipt), provided that a copy is mailed by registered mail, return receipt requested, or (c) when received by the addressee, if sent by a nationally recognized overnight delivery service (receipt requested), in each case to the appropriate addresses or fax numbers set forth below (or to such other address, person's attention or fax number as a party may designate by notice to the other parties given in accordance with this Section 11.3): (a) If to Parent: Brooks-PRI Automation, Inc. 15 Elizabeth Drive Chelmsford, MA 01824 Telecopier No.: (617) 262-2500 Telephone No.: (617) 262-2600 Attention: Ellen B. Richstone With a copy to: Brown Rudnick Berlack Israels LLP One Financial Center Boston, MA 02111 Telecopier No.: (617) 856-8201 Telephone No.: (617) 856-8200 Attention: Samuel P. Williams, Esquire (b) If to the Company: MicroTool, Inc 824 South Tejon Street Colorado Springs, CO 80903 With a copy to: Sparks Willson Borges Brandt & Johnson, P.C. 24 S. Weber, Suite 400 AGREEMENT AND PLAN OF MERGER-EXECUTION COPY PAGE 67 MICROTOOL, INC. P.O. Box 1678 Colorado Springs, CO 80903 Telephone No.: 719-475-0097 Attention: David Steigerwald, Esquire (c) If to the Company Shareholders: Patrick R. Conarro, as Shareholder Representative 824 South Tejon Street Colorado Springs, CO 80903 11.4 JURISDICTION; SERVICE OF PROCESS Any Proceeding seeking to enforce any provision of, or based on any right arising out of, this Agreement may be brought against any of the parties in the courts of The Commonwealth of Massachusetts or any United States District Court of The Commonwealth of Massachusetts, and each of the parties consents to the jurisdiction of such courts (and of the appropriate appellate courts) in any such Proceeding and waives any objection to venue laid therein. 11.5 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE No failure or delay on the part of any party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty, covenant or agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available. 11.6 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS No party may assign any of its rights under this Agreement without the prior written consent of the other parties except that Parent may assign any of its rights, but not its obligations, under this Agreement to any direct wholly-owned Subsidiary of Parent. Subject to the preceding sentence, this Agreement will apply to, be binding in all respects upon, and inure to the benefit of the successors and permitted assigns of the parties. Nothing expressed or referred to in this Agreement will be construed to give any Person other than the parties to this Agreement any legal or equitable right, remedy or claim under or with respect to this Agreement or any provision of this Agreement. 11.7 SEVERABILITY If any provision of this Agreement or the application of any such provision to any party or circumstances shall be determined by any court of competent jurisdiction to be invalid or unenforceable to any extent, the remainder of this Agreement, or the application of such provision to such party or circumstances other than those to which it is so determined to be invalid or unenforceable, shall not be affected thereby, and each provision hereof shall be AGREEMENT AND PLAN OF MERGER-EXECUTION COPY PAGE 68 MICROTOOL, INC. enforced to the fullest extent permitted by law. If the final judgment of a court of competent jurisdiction declares that any item or provision hereof is invalid or unenforceable, the parties hereto agree that the court making the determination of invalidity or unenforceability shall have the power, to reduce the scope, duration or area of the term or provision, to delete specific words or phrases and to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified. 11.8 GOVERNING LAW This Agreement will be governed by the internal laws of The Commonwealth of Massachusetts without regard to principles of conflict of laws. 11.9 COUNTERPARTS This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. 11.10 ENTIRE AGREEMENT AND MODIFICATION This Agreement supersedes all prior agreements (other than the Confidentiality Agreement), whether written or oral, between or among the parties with respect to its subject matter and constitutes (along with the documents referred to in this Agreement) the entire agreement among the parties with respect to its subject matter. This Agreement may not be amended except by a written agreement executed by each party hereto. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] AGREEMENT AND PLAN OF MERGER-EXECUTION COPY PAGE 69 MICROTOOL, INC. IN WITNESS WHEREOF, a duly authorized representative of the parties has executed and delivered this Agreement as of the date first written above. BUYER: BROOKS-PRI AUTOMATION, INC. By: /s/ Ellen B. Richstone - ---------------------------------------------- Name: Ellen B. Richstone Title: Senior Vice President, Finance & Administration, Chief Financial Officer MERGER SUB: MTI ACQUISITION CORP. By: /s/ Ellen B. Richstone - ---------------------------------------------- Name: Ellen B. Richstone Title: Senior Vice President, Finance & Administration, Chief Financial Officer COMPANY: MICROTOOL, INC. By: /s/ Gordon H. Beckhart - ---------------------------------------------- Name: Gordon H. Beckhart Title: President STOCK PURCHASE AGREEMENT-EXECUTION COPY PAGE 70 MICROTOOL, INC. LIST OF EXHIBITS Exhibit A List of Company Shareholders Exhibit B Escrow Agreement Exhibit C Release Exhibit D Form of Company's Counsel's Legal Opinion Exhibit E Form of Confidentiality, Nonsolicitation, Noncompetition and Intellectual Property Agreement Exhibit F Form of Voting Agreement
AGREEMENT AND PLAN OF MERGER - EXECUTION Copy Page 71 MICROTOOL, INC.
EX-10.8 4 b44487bpexv10w8.txt EX-10.8 AGREEMENT TO AMEND CORPORATE NONCOMPETION Exhibit 10.8 AGREEMENT TO AMEND NONCOMPETITION AND PROPRIETARY INFORMATION AGREEMENT AGREEMENT TO AMEND NONCOMPETITION AND PROPRIETARY INFORMATION AGREEMENT ("Agreement") entered into as of this ___ day of April 2002, by and among Brooks Automation, Inc., a Delaware corporation ("BAI"), Daifuku Co., Ltd., a Japanese company ("Daifuku Japan"), and Daifuku America Corporation, an Illinois corporation and wholly-owned subsidiary of Daifuku Japan ("DAC"). WITNESSETH: WHEREAS, BAI acquired Auto-Soft Corporation and AutoSimulations, Inc., two Utah corporations, from DAC pursuant to a certain Agreement and Plan of Merger dated as of January 6, 2000 ("Merger Agreement") among BAI, DAC and Daifuku Japan. WHEREAS, in connection with the Merger Agreement, BAI, Daifuku Japan and DAC entered into a Noncompetition and Proprietary Information Agreement as of January 6, 2000 ("Noncompetition Agreement") to set forth certain noncompetition and proprietary arrangements effective after the closing of the Merger Agreement; WHEREAS, contemporaneously with this Agreement, BAI and Daifuku Japan will enter into a certain License Agreement, dated as of the date hereof, which grants certain licenses from BAI to Daifuku Japan ("License Agreement") with respect to a certain material control system software product, including for use in semiconductor wafer fabrication facilities, known as CLASS MCS ("CLASS MCS"). WHEREAS, in order to enhance competition in the MCS and related markets after the proposed merger of BAI and PRI Automation, Inc., BAI, Daifuku Japan and DAC desire to modify the Noncompetition Agreement to delete all noncompetition and non-solicitation arrangements; NOW THEREFORE, in consideration of the agreements, terms and conditions herein and referenced above, and the consideration received under the License Agreement, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound, it is hereby agreed by and among the parties as follows: 1. CONTRACTUAL TERMINATION AND RELEASE. In accordance with Section 12 (Modifications) of the Noncompetition Agreement, as of the date of this Agreement, Section 2 (Covenant Not To Compete) and Section 3 (Non-Solicitation/Interference) of the Noncompetition Agreement are hereby deleted and rendered null and void. The remainder of the Noncompetition Agreement shall remain in full force, except that any references to the deleted Sections shall be ignored. 2. CLAIM RELEASE. Brooks, on behalf of its parents, Affiliates, stockholders, directors, officers, employees and agents, hereby releases, waives, and covenants not to sue with respect to, any and all claims, liabilities and obligations arising prior to the date of this Agreement it has, had or may have against Daifuku Japan and DAC, and their parents, Affiliates, stockholders, directors, officers, employees and agents, to the extent arising pursuant to Section 2 and/or Section 3 of the Noncompetition Agreement. 3. DEFINITIONS. Capitalized terms not defined herein shall have the meanings set forth in the Noncompetition Agreement. 4. SUCCESSORS. This Agreement shall inure to the benefit of and be enforceable by successors or assigns. 5. MODIFICATIONS. No modifications of any provisions of this Agreement shall be made unless made in writing and signed by the parties hereto. 6. GOVERNING LAW. This agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware. 7. COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 8. HEADINGS. The headings of sections and paragraphs herein are included solely for convenience of reference and shall not affect the meaning or construction of any of the provisions hereof. [signature page follows] 2 IN WITNESS WHEREOF, the parties hereto, or their duly authorized representatives, have signed and delivered this Agreement effective as of the day and year first above written. BROOKS AUTOMATION, INC. By: /s/ Ellen B. Richstone ----------------------------------------- Name: Ellen B. Richstone Title: Senior Vice President, Finance & Administration Chief Financial Officer DAIFUKU CO., LTD. By: /s/ Masaki Shimono ----------------------------------------- Name: Masaki Shimono Title: Managing Director DAIFUKU AMERICA CORPORATION By: /s/ Natsuo Makino ---------------------------------------- Name: Natsuo Makino Title: Senior Vice President 3 EX-10.20 5 b44487bpexv10w20.txt EX-10.20 EMPLOYMENT AGREEMENT FOR MITCHELL TYSON Exhibit 10.20 EMPLOYMENT AGREEMENT This Employment Agreement is dated as of October 23, 2001 (the "Agreement"), and is by and among Mitchell G. Tyson ("Executive"), PRI Automation, Inc., a Massachusetts corporation ("PRI,") and Brooks Automation, Inc., a Delaware corporation ("Brooks"). WHEREAS, Executive presently serves as President and Chief Executive Officer of PRI, and Executive and PRI have entered into a Retention Agreement dated as of October 23, 2000 (the "Retention Agreement"), a Confidentiality, Non-Competition and Assignment of Inventions Agreement dated as of May 6, 1996 (the "Non-Competition Agreement") and an Indemnification Agreement dated as of November 30, 2000 (the "Indemnification Agreement"); WHEREAS, pursuant to an Agreement and Plan of Merger (the "Merger Agreement") dated of even date herewith by and among PRI, Brooks and PRI Acquisition Corp. ("Brooks Merger Sub"), PRI will be merged into Brooks Merger Sub (the "Merger") and become a wholly-owned subsidiary of Brooks (the "Company"); WHEREAS, the Company wishes to retain the services of Executive during the six-month period following the Merger (the "Transition Period") and to confer other benefits to Executive as set forth herein; WHEREAS, the Executive wishes to accept such employment with the Company during the Transition Period pursuant to the terms of the Agreement and, in connection therewith, agrees to release all rights and benefits he is entitled to under the terms of the Retention Agreement and Non-Competition Agreement; WHEREAS, Executive, as a director and chief executive officer of PRI, has highly valuable and confidential knowledge of the business and affairs of PRI and has developed relationships with PRI's customers, suppliers and others upon whom the business conducted by PRI is dependent; and WHEREAS, Executive is willing to refrain from competing with the Company on the terms and conditions hereof; NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto agree as follows: 1. EFFECTIVENESS OF THIS AGREEMENT. This Agreement shall become effective as of the "Effective Time," as defined in the Merger Agreement (such date referred to herein as the "Effective Date"). When this Agreement becomes effective pursuant to this Section 1, this Agreement shall supersede each of the Retention Agreement and the Non-Competition Agreement but not the Indemnification Agreement or any stock option agreements between the Executive and PRI. 2. EMPLOYMENT. Executive shall serve as Special Assistant to the Chief Executive Officer of Brooks, advising said President regarding strategic opportunities available to Brooks and otherwise engaging in such activities as are assigned by the President and are otherwise compatible with the duties and responsibilities ordinarily attendant to a senior executive position, or in such other capacity and under such other title as the parties may agree, to serve in such capacity through the Transition Period. It is further understood and agreed that Executive shall not be required to perform such services at any location that is more than 25 miles from PRI's existing offices in Billerica, Massachusetts. 3. COMPENSATION AND BENEFITS 3.1 Base Salary. Executive shall be paid a base salary of $182,000 during the Transition Period, payable in accordance with the payroll practices of the Company for its executives generally. 3.2 Benefits. Executive shall retain all current fringe benefits and perquisites during the Transition Period, including without limitation vacation and participation in 401(k) and employee stock purchase plans, and shall be eligible to participate in all insurance or other benefit programs for the Company's employees, on the same basis as other employees of similar status and compensation but in any case on terms at least as favorable to Executive as the terms of his present benefits package. 3.3 Retention Bonus. Executive shall be paid a bonus in the amount of $364,000 (the "Retention Bonus") if employed on the last day of the Transition Period or if Executive's employment terminates in accordance with Section 6.1 herein; provided, however, no Retention Bonus shall be paid if the Executive's employment terminates in accordance with Section 6.2 or 6.3 herein. 3.4 Business Expenses. The Company shall pay or reimburse Executive during the Transition Period for all reasonable business expenses incurred or paid by him in the performance of his services, subject to reasonable substantiation and documentation. 3.5 Executive Assistant. Executive's current executive assistant shall continue to be assigned in such capacity during the Transition Period, and shall not be terminated by the Company during the Transition Period except for cause in accordance with the Company's employment policies. 4. ACCELERATION OF OPTIONS. On the Effective Date the terms of each option granted on or prior to October 8, 2001 shall be modified so that (a) it shall thereafter be exercisable in full regardless of any vesting provisions in any agreement relating to such option; (b) such option shall be exercisable for a period ending on the earlier of (i) three years from the Effective Date, or (ii) its originally scheduled expiration date. 5. SECTION 280G GROSS-UP. In the event that any payment or benefit received or to be received by Executive, whether in connection with Executive's employment or the termination of Executive's employment and whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company or any affiliate, parent or subsidiary of the Company (all such payments and/or benefits, including the payments and benefits, if any, under this Agreement, being hereinafter referred to as the "Payments") would be subject to the -2- excise tax imposed by Section 4999 of the Internal Revenue Code or any interest or penalties are incurred by Executive with respect to such Section 4999 excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Company shall pay to Executive an additional payment (a "Gross-Up Payment") in an amount such that, after payment by Executive of all taxes, including without limitation, any federal or state income, employment and excise taxes imposed upon the Gross-Up Payment (including any interest or penalties imposed with respect to such taxes), Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. In the event of any controversy with the Internal Revenue Service (or other taxing authority) with regard to the Excise Tax, the Executive shall permit the Company to control issues related to the Excise Tax. 6. TERM AND TERMINATION OF EMPLOYMENT. The term of Executive's employment under this Agreement shall begin on the Effective Date and shall continue until and terminate at the end of the Transition Period, unless earlier terminated in accordance with the provisions of this Section 6. Executive's employment may be terminated in accordance with this Section 6 by (a) Executive's death or Disability, (b) the Company, for Cause, or (c) Executive, as set forth below. 6.1 Termination for Death or Disability. Executive's employment hereunder shall terminate upon Executive's death automatically or upon his Disability (as defined below) as provided herein. If Executive (or any personal representative of Executive) determines in good faith that the Disability of Executive has occurred, Executive (or such representative) may terminate his employment with the Company immediately by giving written notice of such termination to the Company. If the Board of Directors of the Company determines in good faith that the Disability of Executive has occurred, the Company may give Executive written notice of its intention to terminate Executive's employment hereunder. In such event, Executive's employment with the Company shall terminate as of the 30th day after the date on which Executive shall receive such written notice from the Company, but only if Executive shall not have returned to full-time performance of his duties hereunder within such thirty (30) day period. Until such termination for Disability, Executive shall continue to receive his salary and benefits as provided herein. For purposes of this Agreement, "Disability" shall mean that Executive has been unable to perform his duties as a full-time employee of the Company as the result of incapacity due to physical or mental illness, and, at least 26 weeks after its commencement, such inability is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to Executive or his legal representative (such agreement as to acceptability not to be unreasonably withheld). 6.2 Termination by the Company for Cause. The Company may terminate Executive's employment hereunder for Cause at any time upon written notice to Executive setting forth in reasonable detail the nature of such Cause. For purposes hereof, "Cause" shall mean (i) the conviction of Executive of a felony involving moral turpitude, (ii) conduct of Executive involving any immoral acts which would impair the reputation of Executive or the Company, (iii) fraud or embezzlement committed by Executive against the Company, or (iv) habitual neglect by Executive of his duties assigned to him hereunder, which has not been remedied after there has been delivered to him at least thirty (30) days prior thereto a written -3- demand for performance from the Company which describes the basis for the belief by the Company that Executive has not performed his duties. 6.3 Termination by Executive. Executive may terminate his employment hereunder at any time upon thirty (30) days written notice to the Company in accordance with Section 14 herein. 7. EFFECTS OF TERMINATION. In the event of termination of Executive's employment for any reason, Executive shall be entitled to receive any and all salary, bonus, expenses, perquisites or fringe benefits, earned but not yet paid, provided, however, that regardless of the foregoing clause any payment of the Retention Bonus shall be solely as provided in Section 3.3. With respect to any amount payable periodically, Executive shall be deemed to have earned a portion of such amount equal to the portion of the period that shall have elapsed at the date of termination, and such amount shall be paid at the time it would be normally paid. In addition, neither the Company nor Executive shall make any public statement pertaining to the termination of Executive's employment other than a statement agreed upon by the Company and Executive; provided, however, that Brooks may make public statements as are necessary to comply with the law. 8. PROPRIETARY RIGHTS AND NONCOMPETITION. Executive acknowledges that the Company is engaged in a continuous program of research, development and production in connection with its business, present and future, and hereby covenants as follows: 8.1. Confidentiality. Executive will maintain in confidence and will not disclose or use, either during or after the term of this Agreement, any proprietary or confidential information, trade secrets or know-how belonging to the Company ("Proprietary Information"), whether or not in written form, except to the extent required to perform duties on behalf of the Company. For purposes of this Agreement, "Proprietary Information" shall mean any information, not generally known in the relevant trade or industry, which was obtained from the Company, or which was learned, discovered, developed, conceived, originated or prepared by Executive in connection with this Agreement. Such Proprietary Information includes, without limitation, software, technical and business information relating to the Company's inventions or products, research and development, production processes, manufacturing and engineering processes, machines and equipment, finances, customer lists and potential customer lists, marketing and production and future business plans, information belonging to customers or suppliers of the Company disclosed incidental to Executive's performance under this Agreement, and any other information which is identified as confidential by the Company, but only so long as the same is not generally known in the relevant trade or industry. 8.2. Inventions. For purposes of this Agreement, "Inventions" shall mean any new or useful art, discovery, contribution, finding or improvement, whether or not patentable, and all related know-how. Inventions shall include, without limitation, all designs, discoveries, formulae, processes, manufacturing techniques, semiconductor designs, computer software, inventions, improvements and ideas. Executive will promptly disclose and describe to the Company all Inventions which he may solely or jointly conceive, develop or reduce to practice during the term of his employment -4- (i) which relate at the time of conception, development, or reduction to practice of the Invention to the Company's current business or actual or demonstrably anticipated research or development, (ii) which were developed, in whole or in part, on the Company's time or with the use of any of the Company's equipment, supplies, facilities or trade secret information, or (iii) which resulted from any work performed by Executive for the Company (collectively, the "the Company Inventions"). Executive hereby assigns all of his right, title and interest worldwide in the Company Inventions and in all intellectual property rights based upon the Company Inventions. 8.3. Documents and Materials. Upon termination of this Agreement or at any other time upon the Company's request, Executive will promptly deliver to the Company, without retaining any copies, all documents and other materials furnished to him by the Company, prepared by him for the Company or otherwise relating to the Company's business, including, without limitation, all written and tangible material in his possession incorporating any Proprietary Information. 8.4. Competitive Employment. For a period of two (2) years beginning on the date on which Executive's employment with the Company is terminated for any reason (the "Non-Competition Term"), Executive agrees that Executive, directly or indirectly, shall not, whether as an employee, owner, partner, shareholder, investor, director, consultant, agent, lender, guarantor, surety or otherwise, or through any person or third party: (x) engage or attempt to engage in any employment, consulting or other activity or otherwise aid or assist, directly or indirectly, any person or entity, anywhere in the world, which competes with the Company's (for purposes of Section 8, "Company" shall include Brooks Automation, Inc. and all of its current subsidiaries and affiliates and including PRI and its affiliates as of the Effective Date and after giving effect to the Merger) Product Line (as defined below); or (y) engage or attempt to engage in any employment, consulting or other activity or otherwise aid or assist, directly or indirectly, any person or entity, anywhere in the world, which competes with the Company's business as of the Effective Date after giving effect to the Merger. For purposes of this Agreement, the term: (A) "employment" shall include the retention or engagement of Executive as an employee, consultant, agent, independent contractor or otherwise; and (B) "Product Line" shall mean all of the Company's products developed or under development as of the date of the termination of Executive's employment (together with all technology, "know-how" and proprietary information related thereto) regardless of whether such products are manufactured, operated, distributed or used by the Company or a successor business unit of the Company or any other business unit of the Company. Executive acknowledges that Executive's participation in the conduct of any such business alone or with any person other than the Company will materially impair the business and prospects of the Company. Nothing in this Section 8 shall preclude Executive from (i) making investments as a passive investor of less than three percent (3%) of the capital stock or publicly traded notes or debentures of a publicly held company or (ii) making passive investments in the securities of any business enterprise that is not competitive with the Company or, if the proposed investment is in a business enterprise that is competitive with the Company, then after written disclosure to and approval by the Board of Directors of the Company. 8.5. Nonsolicitation. During the Non-Competition Term, Executive agrees that he shall not knowingly attempt to or assist any other person, directly or indirectly, in attempting to do any of the following: (i) encourage any customer, client, supplier or other business -5- relationship of the Company or any subsidiary or affiliate to terminate or alter such relationship, whether contractual or otherwise, to the disadvantage of the Company or any subsidiary or affiliate; as the case may be; (ii) encourage any prospective customer or supplier not to enter into a business relationship with the Company or any subsidiary or affiliate; (iii) impair or attempt to impair any relationship, contractual or otherwise, written or oral, between the Company or any subsidiary or affiliate and any customer, supplier or other business relationship of the Company or any subsidiary or affiliate; or (iv) attempt to or assist any other person in attempting to solicit any director, officer, employee, or agent of the Company or any subsidiary or affiliate, or encourage any such person to terminate such relationship with the Company from the date of this Agreement until the end of the Non-Competition Term; provided, however, that this restriction shall not apply to, and Executive shall be entitled to offer employment to and to employ, Executive's current executive assistant; provided further, that all references in this Section 8.5 to the Company shall refer to the Company and all affiliates as defined in Section 8.4. 8.6. Acts to Secure Proprietary Rights 8.6.1 Further Acts. Executive agrees to perform, during and after the term hereof, all acts deemed necessary or desirable by the Company to permit and assist it, at its expense, in perfecting and enforcing the full benefits, enjoyment, rights and title throughout the world in the Company Inventions. Such acts may include, without limitation, execution of documents and assistance or cooperation in the registration and enforcement of applicable patents and copyrights or other legal proceedings. 8.7 Consideration for Non-Competition, etc. 8.7.2. Payment. As consideration for Executive's agreements contained in this Section 8, during the Non-Competition Term the Company shall pay to Executive $546,000 each year, paid in equal monthly installments of $45,500, in arrears. 8.7.2. Benefits. During the Non-Competition Term, Executive shall be eligible, to the fullest extent possible, to participate in all insurance or other benefit programs for employees on the same basis as other employees of similar status and compensation, and in any case on the same basis as he was eligible to participate during his employment. Notwithstanding the foregoing, if Executive is ineligible to participate in any insurance or other benefit program to the extent provided herein by reason of his age or employment status or for any other reason, then Employer shall instead promptly pay Executive such amounts in cash as are sufficient (after payment of federal, state and local income taxes, if any) to enable him to procure substantially equivalent benefits on an individual basis. Notwithstanding the foregoing, Executive shall not be eligible to receive benefits as provided in this Section 8.7.2 if Executive's employment is terminated for "Cause" as defined in Section 6.2 above. 8.8. No Conflicting Obligations. Executive's performance of this Agreement does not breach and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by him. 8.9. Specific Performance. Executive acknowledges and agrees that the provisions set forth in this Section 8 are reasonable to protect the Company's legitimate business -6- interests. Executive further agrees that a breach of any of the promises or agreements contained in this Section 8 could result in irreparable and continuing damage to the Company for which it would have no adequate remedy at law. Executive therefore agrees that the Company shall be entitled to seek injunctive relief and/or a decree for specific performance, and such other equitable relief as may be proper. The prevailing party in such legal action will also be entitled to monetary damages and reasonable costs and attorney fees. 9. WITHHOLDING. All payments made by the Company under this Agreement shall be reduced by any tax or other amounts required to be withheld by the Company under applicable law. 10. ASSIGNMENT. Neither the Company nor Executive may assign this Agreement or any interest herein, by operation of law or otherwise, without the prior written consent of the other party; provided, however, that the Company may assign its rights and obligations under this Agreement without the consent of Executive to any Successor of the Company. A "Successor" of the Company shall mean any entity with which the Company may merge, consolidate or otherwise combine or to which the Company may sell or otherwise transfer all or substantially all of its assets. This Agreement shall inure to the benefit of and be binding upon the Company , Executive and their respective successors, executors, administrators, heirs and permitted assigns. 11. INDEMNIFICATION. To the maximum extent permitted under Delaware law, as from time to time in effect, the Company hereby agrees to indemnify Executive and hold him harmless from, against and in respect of any and all damages, deficiencies, actions, suits, proceedings, demands, assessments, judgments, claims, losses, costs, expenses, obligations and liabilities arising from or related to the performance by Executive of his duties hereunder. The Company agrees that Executive also shall be entitled to the benefit of the Indemnification Agreement and any provision of its by-laws or certificate of incorporation as now in effect, notwithstanding any subsequent modification thereof, to the extent that any such benefit is superior to the first sentence hereof. 12. WAIVER. The waiver by any party hereto of a breach of any provision of this Agreement by any other party will not operate or be construed as a waiver of any other or subsequent breach by such other party. 13. SEVERABILITY. If any part of this Agreement is found invalid or unenforceable, that part will be deemed amended to achieve as nearly as possible the same economic effect as the original provision, and the remainder of this Agreement will remain in full force. 14. NOTICES. Any notice or other communication in connection with this Agreement shall be deemed to be delivered if in writing, addressed as provided below and actually delivered at said address: If to Executive, to him at the following address: Mitchell G. Tyson c/o PRI Automation, Inc. 840 Middlesex Turnpike Billerica, MA 01821 -7- With a copy to: Goulston & Storrs 400 Atlantic Avenue Boston, MA 02110-3333 Attn: Jack A. Eiferman, Esq. If to Brooks, to it at the following address: Brooks Automation, Inc. 15 Elizabeth Drive Chelmsford, MA 01824 Attn: President With a copy to: Brown, Rudnick Freed & Gesmer One Financial Center Boston, Massachusetts 02111 Attn: David Murphree, Esq. If to PRI, to it at the following address: PRI Automation, Inc. 840 Middlesex Turnpike Billerica, MA 01821 Attention: President With a copy to: Foley, Hoag & Eliot LLP One Post Office Square Boston, MA 02109 Attention: Robert L. Birnbaum, Esq. or to such other person or address as to which any party may notify the other in accordance with this Section 14. 15. ARBITRATION. In the event of a dispute between the parties as to the meaning or interpretation of this Agreement, or the performance of either party hereunder, either party may submit the dispute for arbitration in Boston, Massachusetts, to the American Arbitration Association, which is expressly permitted and required hereby, to include the reasonable costs of arbitration, including attorneys' fees, of the prevailing party, in its decision. If the nonprevailing -8- party should then fail to comply with such decision, the nonprevailing party shall then pay the reasonable coats of enforcement, including attorneys' fees, to the prevailing party. Such costs shall specifically include any judicial proceeding to confirm such decision. 16. FAILURE OF CONDITION. If for any reason the Merger does not become effective on or before July 31, 2002, then this Agreement shall not become effective pursuant to Section 1 above, but instead shall become void and shall be of no further force or effect whatsoever. 17. MISCELLANEOUS. Subject to Section 1 above, this Agreement constitutes the entire understanding of the parties with respect to the subject matter hereof and supersedes all prior and current understandings and agreements, whether written or oral. This Agreement may be amended or modified only by a written instrument signed by Executive and a duly authorized representative of each of PRI and Buick. This Agreement may be executed in any number of counterparts, which together shall constitute one instrument and shall be governed by and construed and enforced in accordance with the laws (other than the conflicts of law rules) of The Commonwealth of Massachusetts. If any part of this Agreement is found invalid or unenforceable, that part will be amended to achieve as nearly as possible the same economic effect as the original provision, and the remainder of this Agreement will remain in full force. * * * -9- Execution Copy IN WITNESS WHEREOF, the parties hereto have hereunto set their hands, as of the date first above written. /s/ Mitchell G. Tyson ---------------------------------------- MITCHELL G. TYSON PRI AUTOMATION, INC. By: /s/ PRI Automation, Inc. ------------------------------------- Name: Title: BROOKS AUTOMATION, INC. By: /s/ Ellen B. Richstone ------------------------------------- Name: Ellen B. Richstone Title: Senior Vice President, Finance & Administration Chief Financial Officer EX-10.36 6 b44487bpexv10w36.txt EX-10.36 LEASE AGREEMENT Exhibit 10.36 LEASE AGREEMENT LANDLORD: BerCar II, LLC, a Massachusetts Limited Liability Company TENANT: Brooks-PRI Automation, Inc., a Delaware corporation PREMISES: 12 Elizabeth Drive Chelmsford, Massachusetts DATE: October 23, 2002 TABLE OF CONTENTS
ARTICLE I. Demised Premises and Term .......................................... 1 ARTICLE I. Demised Premises and Term .......................................... 1 1.1 Demised Premises and Term ............................................... 1 1.2 Existing Lease .......................................................... 1 1.3 Condition of the Premises/Maintenance ................................... 1 1.4 Early Occupancy ......................................................... 1 1.5 Extension Option ........................................................ 1 1.5.1 First Extension Term .......................................... 1 1.5.2 Second Extension Term ......................................... 2 1.6 Conditions of Option to Extend .......................................... 2 ARTICLE II. Fixed Rent ......................................................... 2 ARTICLE II. Fixed Rent ......................................................... 2 2.1 Fixed Rent .............................................................. 2 2.2 First Extension Term Rent ............................................... 3 2.3 Second Extension Term Rent .............................................. 3 2.4 Fair Market Rent Arbitration ............................................ 3 2.5 General Provisions for Rent Payments .................................... 3 ARTICLE III. Additional Rent .................................................... 4 ARTICLE III. Additional Rent .................................................... 4 3.1 Additional Rent ......................................................... 4 3.2 Public Requirements ..................................................... 4 3.3 Contests by Tenant ...................................................... 4 ARTICLE IV. Control ............................................................ 5 ARTICLE IV. Control ............................................................ 5 4.1 Control ................................................................. 5 4.1.1 Encumbrances by Landlord ...................................... 5 4.1.2 Encumbrances by Tenant ........................................ 5 4.2 Indemnity ............................................................... 5 4.3 Insurance ............................................................... 6 ARTICLE V. Landlord's Representations ......................................... 6 ARTICLE V. Landlord's Representations ......................................... 6 5.1 Landlord's Representations .............................................. 6 ARTICLE VI. Assignment ......................................................... 6 ARTICLE VI. Assignment ......................................................... 6 6.1 Assignment .............................................................. 6 6.2 Non-Disturbance of Sublessees ........................................... 7 ARTICLE VII. Alterations and Improvements ....................................... 7 ARTICLE VII. Alterations and Improvements ....................................... 7 7.1 Alterations and Improvements ............................................ 8 7.1.1 Approval of Initial Renovations ............................... 8 7.1.2 Approval of Subsequent Renovations ............................ 8 7.2 Certain Liens ........................................................... 9 7.3 Tenant's Permits ........................................................ 9 7.4 Repairs by Landlord ..................................................... 9 ARTICLE VIII. Notices ............................................................ 9 ARTICLE VIII. Notices ............................................................ 9 8.1 Notices ................................................................. 9 ARTICLE IX. Subordination to Mortgages ......................................... 10 ARTICLE IX. Subordination to Mortgages ......................................... 10 9.1 Mortgage Holder's Election .............................................. 10 9.2 Non-Disturbance Agreement ............................................... 10 9.2.1 Non-Disturbance of Tenant ..................................... 10 9.2.2 Liability of Mortgagee/Successor .............................. 11 9.2.3 Recognition of Purchase Option ................................ 11
i 9.2.4 Intervening Liens.................................... 11 9.3 Notice for Mortgagee.......................................... 11 9.4 Mortgagee Consent............................................. 11 ARTICLE X. Fire and Casualty and Restoration........................ 12 ARTICLE X. Fire and Casualty and Restoration........................ 12 10.1 Fire and Casualty and Restoration............................. 12 10.2 Tenant's Election to Restore.................................. 12 10.3 Landlord's Approval of Reconstruction......................... 12 10.4 Tenant's Election to Delay Reconstruction..................... 12 10.5 Proceeds Paid to Landlord..................................... 12 ARTICLE XI. Right of Entry........................................... 13 ARTICLE XI. Right of Entry........................................... 13 11.1 Right of Entry................................................ 13 ARTICLE XII. Default.................................................. 13 ARTICLE XII. Default.................................................. 13 12.1 Default....................................................... 13 12.2 Tenant's Default.............................................. 13 ARTICLE XIII. Eminent Domain........................................... 14 ARTICLE XIII. Eminent Domain........................................... 14 13.1 Eminent Domain................................................ 14 13.2 Partial Condemnation.......................................... 14 13.3 Condemnation Award............................................ 14 13.4 Condemnation/Personal Property................................ 15 ARTICLE XIV. Force Majeure............................................ 15 ARTICLE XIV. Force Majeure............................................ 15 14.1 Force Majeure................................................. 15 ARTICLE XV. Saving Clause............................................ 15 ARTICLE XV. Saving Clause............................................ 15 15.1 Saving Clause................................................. 15 ARTICLE XVI. Right to Purchase........................................ 15 ARTICLE XVI. Right to Purchase........................................ 15 16.1 Right to Purchase............................................. 15 16.2 Closing of the Purchase Option................................ 16 16.3 Landlord's Put................................................ 16 ARTICLE XVII. Notice of Lease.......................................... 16 ARTICLE XVII. Notice of Lease.......................................... 16 17.1 Notice of Lease............................................... 16 ARTICLE XVIII. Definitions and Interpretations.......................... 16 ARTICLE XVIII. Definitions and Interpretations.......................... 16 18.1 Definitions and Interpretations............................... 16 18.2 Exculpation................................................... 16 ARTICLE XIX. Hazardous Material....................................... 16 ARTICLE XIX. Hazardous Material....................................... 16 19.1 Hazardous Material............................................ 17 ARTICLE XX. Effectiveness of Lease................................... 17 ARTICLE XX. Effectiveness of Lease................................... 17 20.1 Effectiveness of Lease........................................ 17 ARTICLE XXI. Brokers.................................................. 17 ARTICLE XXI. Brokers.................................................. 17 ARTICLE XXII. Representatives.......................................... 17 ARTICLE XXII. Representatives.......................................... 17 22.1 Representatives............................................... 17
ii List of Schedules and Exhibits Schedule A Legal Description of Lot Schedule B Landlord's Representations and Warranties Exhibit A Form of Assignment and Assumption of Lease Agreement Exhibit B Form of Tenant Estoppel of Hitite Microwave Corporation Exhibit C Title Commitment Exhibit D Purchase Option Closing Procedures Exhibit E Form of Notice of Lease Exhibit F List of Environmental Reports
iii LEASE dated October 23, 2002 (the "Lease"), between BerCar II, LLC, a Massachusetts limited liability company (hereinafter referred to as "Landlord") and Brooks-PRI Automation, Inc., a Delaware corporation (hereinafter referred to as "Tenant"). ARTICLE 1. Demised Premises and Term 1.1 Demised Premises and Term: In consideration of the rents reserved herein and in consideration of the agreements and conditions herein contained on the part of Tenant to be performed and observed, Landlord does hereby demise and lease to Tenant, and Tenant does hereby hire from Landlord, the premises described in Schedule A of this Lease (hereinafter referred to as "demised premises"), for the original term of twelve (12) years commencing upon October 1, 2002 (the "Rent Day") and expiring upon September 30, 2014 (the "Original Term"). 1.2 Existing Lease: Tenant acknowledges that approximately 34,000 square feet of floor area within the building comprising a portion of the demised premises is presently leased to Hittite Microwave Corporation by lease dated July 6, 1999, as amended by Amendment A dated as of August 15, 1999 (the "Existing Lease"). Contemporaneously with Landlord's execution of this Lease, Landlord shall execute and deliver to Tenant an assignment of Landlord's interest in the Existing Lease with an effective date as of the Rent Day, and Tenant shall assume the obligations of Landlord under the Existing Lease with an effective date as of the Rent Day by entering into an assignment and assumption agreement in the form of Exhibit A attached. The form of tenant estoppel certificate to be delivered by the tenant under the Existing Lease is attached as Exhibit B. 1.3 Condition of the Premises/Maintenance: Tenant acknowledges that it has inspected the demised premises, and it is understood and agreed that Tenant will accept the demised premises in their existing physical condition, and Landlord shall be under no obligation to make any repairs, alterations or improvements to the demised premises prior to or at the commencement of the term hereof or at any time thereafter, except as herein specifically provided otherwise. Tenant shall perform, at its own cost and expense, any work required to prepare the demised premises for Tenant's occupancy. 1.4 Early Occupancy: During the time period commencing upon the execution and delivery of this Lease, and ending upon the commencement of the term of this Lease (the "Early Occupancy Period"), Tenant shall comply with all of the provisions of this Lease as if said period were part of the term of this Lease, except that no rent shall be payable for said period. Tenant shall have full access, use and occupancy of the demised premises during the Early Occupancy Period under the terms of the Lease. 1.5 Extension Option: 1.5.1 First Extension Term: Tenant shall have the right, at its election, to extend the Original Term of this Lease for an additional period of ten (10) years commencing upon October 1, 2014 and expiring upon September 30, 2004 (the "First Extension Term"). Tenant shall exercise its option to extend the term for the First Extension Term by giving Landlord written notice of its election no earlier than April 1, 2013, and no later than the later to occur of either (a) September 20, 2013, or (b) the date which is ten (10) business days after the receipt by Tenant of a written reminder notice from Landlord to Tenant (the "First Option Reminder Notice") which expressly (i) refers to the option to extend the term for the First Extension Term, and (ii) states that the option to extend the term for the First Extension Term shall expire on the later of September 30, 2013 or ten (10) business days after the date of receipt of the First Option Reminder Notice. The First Option Reminder Notice shall be delivered no earlier than April 1, 2013. 1.5.2 Second Extension Term: Tenant shall have the right, at its election, to extend the Original Term of this Lease as previously extended by the First Extension Term for an additional period of ten (10) years commencing upon October 1, 2024 and expiring upon September 30, 2034 (the "Second Extension Term"). Tenant shall exercise its option to extend the term for the Second Extension Term by giving Landlord written notice of its election no earlier than April 1, 2023, and no later than the later to occur of either (a) September 30, 2023, or (b) the date which is ten (10) business days after the receipt by Tenant of a written reminder notice from Landlord to Tenant (the "Second Option Reminder Notice") which expressly (a) refers to the option to extend the term for the Second Extension Term, and (b) states that the option to extend the term for the Second Extension Term shall expire on the later of either September 30, 2023, or ten (10) business days after the date of receipt of the Second Option Reminder Notice. The Second Option Reminder Notice shall be delivered no earlier than April 1, 2023. 1.6 Conditions of Option to Extend: The expression "the Original Term" means the period of twelve (12) years referred to in the first paragraph of this Article. Prior to the exercise by Tenant of any of said elections to extend the Original Term, the expression "the term of this Lease" or any equivalent expression, shall mean the Original Term; after the exercise by Tenant of any of the aforesaid elections, the expression "the term of this Lease" or any equivalent expression shall mean the Original Term as it may have been then extended. Except as expressly otherwise provided in this Lease, all the agreements and conditions in this Lease contained shall apply to the additional period or periods to which the Original Term shall be extended as aforesaid. If Tenant shall not give Landlord notice of Tenant's decision to exercise the next ensuing election in the manner and within the time provided aforesaid (i.e. by the later of the specified date or within ten (10) business days of the receipt of a reminder notice from Landlord as provided above), then, the term shall end upon the expiration of the term (as it may have theretofore been extended), and Tenant shall have no further right to extend the term of this Lease. ARTICLE II. Fixed Rent 2.1 Fixed Rent: Tenant agrees to pay to Landlord a fixed rent ("Fixed Rent") at the following annual rates:
- ------------------------------------------------------------------------------------- Lease Years Effective Dates Annual Rent Rate Monthly Payment - ------------------------------------------------------------------------------------- 1-2 10/1/02 to 9/30/04 $556,500.00 $46,375.00 - ------------------------------------------------------------------------------------- 3-5 10/1/04 to 9/30/07 $695,625.00 $57,968.75 - ------------------------------------------------------------------------------------- 6-10 10/1/07 to 9/30/12 $788,375.00 $65,697.92 - ------------------------------------------------------------------------------------- 11-12 (or Purchase 10/1/12 to 9/30/14 $881,125.00 $73,427.08 Date) (or Purchase Date) - -------------------------------------------------------------------------------------
2 2.2 First Extension Term Rent: During the First Extension Term for which the Original Term of this Lease may be extended as set forth in Section 1.2 above the fixed rent payable hereunder shall be adjusted so as to equal the greater of (a) $1,576,750.00 per annum; or (b) ninety five percent (95%) of the "fair market rent" as mutually determined by Landlord and Tenant through the process of negotiation or as otherwise herein set forth; and 2.3 Second Extension Term Rent: During the Second Extension Term for which the Original Term of this Lease as previously extended may be further extended as set forth in Section 1.2 above, the fixed rent payable hereunder shall be adjusted so as to equal the greater of (a) $2,040,500.00 per annum; or (b) ninety-five percent (95%) of the "fair market rent" as mutually determined by Landlord and Tenant through the process of negotiation or as otherwise herein set forth. 2.4 Fair Market Rent Arbitration: Notwithstanding anything to the contrary contained herein, however, if for any reason whatsoever Landlord and Tenant shall not agree in writing upon the "fair market rent" for any additional period at least six (6) months prior to the commencement of the additional period in question, then the fair market rent for the additional period in question for premises of the size and nature of the demised premises shall be determined by licensed real estate appraisers having at least five (5) years' experience in the appraisal of commercial real estate in the Metro-North / Boston, Massachusetts market, one such appraiser to be designated by each of Landlord and Tenant. If either party shall fail to designate its appraiser by giving notice of the name of such appraiser to the other party within fifteen (15) days after receiving notice of the name of the other party's appraiser, then the appraiser chosen by the other party shall determine the fair market rent and his determination shall be final and conclusive. If the appraisers designated by Landlord and Tenant shall disagree as to the fair market rent, but if the difference between their estimates of fair market rent shall be five percent (5%) or less of the greater of the estimates, then the average of their estimates shall be the fair market rent for purposes hereof. If the appraisers designated by Landlord and Tenant shall disagree as to the amount of fair market rent, and if their estimates of fair market rent shall vary by more than five percent (5%) of the greater of said estimates, then they shall jointly select a third appraiser meeting the qualifications set forth above, and his estimate of fair market rent shall be the fair market rent for purposes hereof if it is not greater than the greater of the other two estimates and not less than the lesser of the other two estimates. If said third appraiser's estimate is greater than the greater of the other two estimates, then the greater of the other two estimates shall be the fair market rent for purposes hereof; and if the estimate of the third appraiser shall be less than the lesser of the other two estimates, then the lesser of the other two estimates shall be the fair market rent for purposes hereof. Each of Landlord and Tenant shall pay for the services of its appraiser, and if a third appraiser shall be chosen, then each of Landlord and Tenant shall pay for one-half of the services of the third appraiser. 2.5 General Provisions for Rent Payments: Rent Day shall be October 1, 2002. Fixed Rent and any additional rent payable to Landlord shall be paid to Landlord at the address provided for in Article 8, or to such other legal entity or to such other address as Landlord shall designate by notice to Tenant. Fixed Rent shall be paid to Landlord without notice or demand and without abatement, deduction, counterclaim or set off except only as expressly otherwise herein provided. 3 ARTICLE III. Additional Rent 3.1 Additional Rent: Tenant agrees to pay every "Imposition" (hereinafter defined), before the same becomes delinquent, payable for any period between Rent Day and the expiration of the term of this Lease. Every Imposition payable for a period beginning before the Rent Day and ending after Rent Day or for a period beginning before the expiration of the term of this Lease and ending after the expiration of the term shall be apportioned and adjusted between Landlord and Tenant. Upon demand from time to time Tenant will furnish to Landlord evidence of payments of Impositions. "Impositions" shall mean real estate taxes, betterments assessments (special or general, ordinary or extraordinary), water and sewer taxes and any other ad valorem charges made by any public authority (consistent with the current system of real estate taxes, betterments assessments (special or general, ordinary or extraordinary), water and sewer taxes) which upon assessment or upon failure of payment become a lien upon the demised premises. If any betterments assessments may be payable by law in installments, at Tenant's election said betterments assessments shall be deemed payable not for the period in which the same are assessed but in installments for the periods in which the installments thereof are payable. If Landlord shall have the right to elect the period over which any such assessment may be paid, at Tenant's election, Landlord agrees to elect the longest period available to Landlord. Impositions shall not include any franchise, estate, inheritance, succession, capital levy or transfer tax of Landlord, or any income tax of Landlord or tax upon rents payable by Tenant. 3.2 Public Requirements: Tenant agrees to comply during the term of this Lease with all "Public Requirements" (hereinafter defined) applicable to the demised premises and to the public ways adjacent to the demised premises. "Public Requirements" mean laws, ordinances, by-laws, regulations and orders of all public authorities having jurisdiction, compliance with which shall by law be the obligation of the owner or occupant of the demised premises. 3.3. Contests by Tenant: Tenant shall have the right to contest in good faith any Imposition or Public Requirement in the manner provided by law for contesting the same, provided that if payment of any Imposition or if compliance with any Public Requirement shall be deferred pending such contest, such deferment of payment or deferment of compliance shall not jeopardize Landlord's interest in the demised premises. Such contest shall be in the name of Tenant or in the name of Landlord or in the names of both. At the request of Tenant and without cost or expense to Landlord, Landlord will join in any contest and execute any and all documents in connection therewith as Tenant may reasonably request. Tenant shall indemnify Landlord against, and save Landlord harmless from, any and all loss, damage, claims, liabilities, judgments, costs and expenses (including the cost and expense of defending any claim), arising out of any such contest or out of any deferring of payment of any Imposition or any deferring of compliance with any Public Requirement. Until such time as an abatement or refund shall be obtained, an Imposition shall be deemed the amount assessed; after an abatement or refund shall be obtained, the Imposition shall be deemed the amount assessed less the net abatement or refund. 4 ARTICLE IV. Control 4.1 Control: Except as otherwise set forth in the Existing Lease, Tenant shall have exclusive possession and control of, and responsibility for, the demised premises and the public ways adjacent to the demised premises to the extent that possession or control of, or responsibility for such ways is the obligation of the property owner and not public authority. 4.1.1 Encumbrances by Landlord: Landlord hereby covenants to Tenant that Landlord shall not voluntarily create or permit to be created any, liens, easements, restrictions or encumbrances of any nature whatsoever or otherwise modify any items disclosed in the commitment for title insurance (the "Title Commitment") attached as Exhibit C with respect to the demised premises after the date hereof without the prior written consent of Tenant, such consent not to be unreasonably withheld or delayed. In addition, Landlord hereby covenants to Tenant that Landlord shall not (i) enter into any leases, tenancies or other agreements affording a right of occupancy of the demised premises, enter into any management, leasing, brokerage, purchase or maintenance contracts which shall be binding on Tenant or the demised premises, or grant any rights or options to purchase the demised premises except any which shall be subordinate to this Lease, or (ii) initiate or participate in any modifications to the existing buildings and zoning laws of the Town of Chelmsford, or any other governmental authority, relating to the use or occupancy of the demised premises after the date hereof without the prior written consent of Tenant, such consent with respect to the matters in clause (ii) only not to be unreasonably withheld or delayed. 4.1.2 Encumbrances by Tenant: Subject to the conditions and limitations in this Subsection 4.1.2, Landlord shall cooperate and join in any agreement, grant or covenant relating to the demised premises and Tenant's use and occupancy thereof requested by Tenant for the benefit of a third party subject to the review and approval of Landlord and its counsel on the standards set forth below. Landlord shall not unreasonably withhold, condition or delay its approval of: (a) the grant of an easement for sidewalks to the Town of Chelmsford in connection with the renovation of the demised premises, or (b) any encumbrance which by its terms automatically expires at the expiration of the term of this Lease and if Tenant fails to purchase the demised premises. With respect to any such encumbrance presented for Landlord's approval which is not specified for reasonable approval above, Landlord's approval shall be given or withheld and conditions shall be imposed in Landlord's sole discretion, but Landlord shall not unreasonably delay its response to a request for approval of any such encumbrance. In the event that during the Original Term Landlord has withheld its consent to any such encumbrance requested by Tenant (either by the reasonable approval or sole discretion standard), then Tenant may elect to proceed and require Landlord to cooperate and join in such encumbrance on the condition that then Landlord shall have the right to "put" the demised premises to Tenant at the Purchase Price referred to in Article 16 below and Tenant shall be obligated to purchase the demised premises at the Purchase Price pursuant to the process provided in Section 16.3 below for the Put Option. 4.2 Indemnity: To the full extent allowed by applicable law (i.e. subject to the limitations of Mass. Gen. Laws ch. 186 Section 15), Tenant shall indemnify Landlord against, and save Landlord harmless from, any and all loss, damage, claims, liabilities, judgments, costs and expenses (including the cost and expense of defending any claim), arising during the term of this 5 Lease out of any condition existing upon the demised premises, any act occurring upon the demised premises (other than acts of Landlord and its agents), any use made of the demised premises, or any omission or failure to act upon the demised premises; provided that in the event of any claim made against Landlord, Landlord shall give Tenant reasonably prompt notice of such claim. 4.3 Insurance: Tenant shall maintain with respect to the demised premises during the term of this Lease a policy of commercial general liability insurance and if necessary commercial umbrella insurance in insurance companies authorized to do business in the Commonwealth of Massachusetts and with a rating of not lower than "A-" as ranked by A.M. Best (or an equivalent rating by an alternate service if the A.M. Best rating service is no longer available in the future) in amounts not less than Three Million Dollars ($3,000,000.00). Lessee agrees to provide fire damage legal liability with a limit of not less than $500,000.00. These insurance policies of Tenant shall cover bodily injury, personal injury and property damage liability from the demised premises and obligations assumed under this Lease. Tenant will furnish the Landlord and Landlord's mortgagee with a certificate or certificates of such insurance at the inception of this Lease and at the renewal date of such policies thereafter. Such certificate[s] will name Landlord and Landlord's mortgagee as an additional insured on all such policies. Such certificate[s] shall provide that the policies in question shall not be cancelled without 15 days prior notice to the certificate holder. Such insurance may be maintained under a blanket policy or policies affecting the demised premises and other premises. ARTICLE V. Landlord's Representations 5.1 Landlord's Representations: Landlord makes the representations, warranties and agreements set forth in Schedule B of this Lease. ARTICLE VI. Assignment 6.1 Assignment: Except as hereinafter set forth, Tenant shall not without the prior written consent of Landlord assign, hypothecate, pledge or otherwise encumber this Lease, make any sublease or permit occupancy of the demised premises or any part thereof by anyone other than Tenant or the tenant under the Existing Lease. Landlord hereby agrees however that Tenant may, without Landlord's consent, assign its interest in this Lease or sublet the whole or any part of the demised premises to (a) an entity which owns all of the outstanding equity in Tenant ("Tenant's Parent"); (b) an entity wholly owned by Tenant or by Tenant's Parent ("a Subsidiary"); (c) an entity resulting from the consolidation or merger of Tenant with any other entity; or (d) an entity which shall acquire all or substantially all of the assets or equity of Tenant. Landlord agrees, further, that Landlord shall not unreasonably withhold, condition or delay its consent for a request by Tenant to assign this Lease or sublet the whole or any part of the demised premises to any other unrelated entities provided, however, if Tenant subleases any portion of the demised premises not occupied pursuant to the Existing Lease (excluding any Permitted Transfer), Tenant shall pay to Landlord the first Six Hundred Thousand Dollars ($600,000.00) received by Tenant pursuant to any such subletting at a rate per square foot in excess of the fixed rental rate per square foot payable by Tenant as set forth in Article 2, provided, however, before calculating any net profit of subleasing or assignment, Tenant may deduct the reasonable expenses of any such subletting (including the cost of tenant 6 improvements to the demised premises made by Tenant which have not previously been amortized and which are properly allocated to the space to be sublet or assigned), the reasonable cost of tenant improvements or allowances for tenant improvements provided for the subtenant or assignee in question, reasonable legal expenses and leasing commissions. Each request by Tenant for permission to assign this Lease or to sublet the whole or any part of the demised premises shall be accompanied by a warranty by Tenant as to the amount of rent to be paid to Tenant by the proposed assignee or sublessee and a statement of expenses to be deducted in calculating the net proceeds of subleasing or assignment. For purposes of this paragraph, the term "rent" shall mean all fixed rent, additional rent or other payments and/or consideration payable by one party to another for the use and occupancy of premises (and shall exclude, for example, payments for support or services provided to the subtenant by Tenant beyond usual landlord services, payments made to Tenant for the sale of its business or sale or lease of its equipment to the subtenant in the normal course of Tenant's business at a commercially reasonable price in an arm's length transaction). Tenant further agrees that any sublease, license, concession or agreement for use, occupancy or utilization of space in the demised premises entered into by it or by anyone claiming under it shall contain the provisions set forth in the immediately preceding sentence. If there shall be any assignment or subletting by Tenant pursuant to the provisions of this paragraph, Tenant shall remain primarily liable for the performance and observance of the covenants and agreements herein contained on the part of Tenant to be performed and observed, such liability to be (in the case of any assignment) joint and several with that of such assignee. It is expressly understood and agreed that no assignment of Tenant's interest in this Lease shall be effective until such time as Tenant shall deliver to Landlord an agreement from the assignee, which agreement shall be reasonably satisfactory to Landlord in form and substance and shall provide that the assignee agrees with Landlord to be primarily liable for the performance and observance of the covenants and agreements herein contained on the part of Tenant to be performed and observed, such liability to be joint and several with that of Tenant. 6.2 Non-Disturbance of Sublessees: Any sublease or subleases that may be given by Tenant of all or part of the demised premises may contain provisions whereby the sublessee shall not be disturbed in its possession in accordance with the terms and conditions of its sublease except for such cause as would entitle the sublessor thereunder (Tenant hereunder) to terminate such sublease (such provisions being sometimes referred to as "non-disturbance" clauses). Accordingly, it is understood and agreed between the parties that if prior to the expiration of the term of this Lease Landlord shall have the right to possession of the demised premises or the portion thereof subject to such sublease (whether or not this Lease shall be terminated), then in such event, Landlord covenants and agrees that the sublessee thereunder shall not be disturbed in its possession in accordance with the terms and conditions of such sublease, except for such cause as would entitle the sublessor under such sublease to terminate such sublease; and if the sublessee will agree in writing to recognize Landlord as its landlord under the terms of such sublease, then Landlord will agree with such sublessee to perform and observe all of the obligations imposed by such sublease upon the landlord therein. Landlord agrees, in confirmation thereof, to deliver such instruments or documents duly executed for recordation that may be required by the sublessee to effectuate the foregoing. ARTICLE VII. Alterations and Improvements 7 7.1 Alterations and Improvements: Subject to the terms of the Existing Lease referred to in Section 1.2 above and subject to the last two (2) sentences of this Section 7.1, Tenant shall have the right, without obtaining any consent from Landlord therefore, from time to time during the term of this Lease, to erect any lawful building or buildings or other lawful improvements upon the demised premises of any kind, nature or description, as it deems desirable, and to make repairs, changes, alterations, additions and other improvements thereto, structural or otherwise, and to demolish and remove any of the same, as Tenant may from time to time deem necessary or desirable provided, however, that no such alteration, demolition or addition shall diminish the value of the demised premises when considering the aggregate effect of alterations, demolition or additions made by Tenant to the demised premises. Also, subject to the Existing Lease and the terms of any other leases or subleases entered into by Tenant for any portion of the demised premises, Tenant shall have the right at any time during the term of this Lease, or at the expiration of the term, as Tenant shall see fit, to remove any and all improvements erected, installed or placed on the demised premises prior to or during the term hereof by Tenant, notwithstanding the fact that any such improvements may be deemed part of the realty, and notwithstanding any rule, regulation or statute to the contrary. In the event Landlord has approved the specific structural alteration or demolition, Tenant shall have no obligation to restore the demised premises except as otherwise set forth in the Existing Lease or as set forth in any other leases or subleases entered into by Tenant for any portion of the demised premises. In the event Landlord has not approved specific structural alterations or demolition in advance, then Tenant shall either restore the building and the demised premises with respect to such unapproved structural alteration or demolition upon the termination of this Lease, or, if this Lease is to expire at the end of the Original Term, and if Tenant does not so restore the demised premises and the building, then Landlord shall have the right to "put" the demised premises to Tenant at the Purchase Price referred to in Article 16 below and Tenant shall be obligated to purchase the demised premises at the Purchase Price pursuant to the process provided in Section 16.3 below for the Put Option. 7.1.1 Approval of Initial Renovations: Tenant shall submit to Landlord plans and drawings for the construction of the initial renovations and additions that Tenant will construct to the demised premises for review and approval of the structural elements thereof by Landlord in its discretion (the "Initial TI Plans"). Landlord shall promptly, and in no event later than 15 days after the receipt of the Initial TI Plans, (or within 5 days after the receipt of any revision thereof submitted in response to Landlord's disapproval of a prior submission of the Initial TI Plans), respond in writing to communicate Landlord's approval or disapproval of specific structural elements of the Initial TI Plans. Landlord's response shall include a reasonably detailed breakdown of any specific structural elements that Landlord disapproves. Tenant shall have the election to either (a) revise the Initial TI Plans and resubmit them for reconsideration by Landlord, or (b) to proceed with the renovations or additions in question without Landlord's approval (and subject to the provisions of Section 7.1 above). 7.1.2 Approval of Subsequent Renovations: With respect to any structural alterations or additions to the demised premises done after the initial renovations and alterations of the demised premises, Tenant may at its election submit to Landlord plans and drawings for the construction of such structural alterations or additions for review and approval of the structural elements thereof by Landlord in its discretion (the "TI Plans"). Landlord shall promptly, and in no event later than 30 days after the receipt of any TI Plans, (or within 10 days after the receipt 8 of any revision thereof submitted in response to Landlord's disapproval of a prior submission of the TI Plans in question), respond in writing to communicate Landlord's approval or disapproval of specific structural elements of the TI Plans in question. Landlord's response shall include a reasonably detailed breakdown of any specific structural elements that Landlord disapproves. Tenant shall have the election to either (a) revise the TI Plans in question and resubmit them for reconsideration by Landlord, or (b) to proceed with the renovations or additions in question without Landlord's approval (and subject to the provisions of Section 7.1 above). 7.2 Certain Liens: Tenant will cause to be paid all charges for all work done (labor and materials) upon the demised premises during the term of this Lease and will not suffer or permit any mechanics' or similar liens for labor or materials furnished to the demised premises during the term of this Lease to remain as a lien against the demised premises or any part thereof; and if any such lien shall be filed, Tenant will either pay the same or procure the discharge thereof by bonding, giving security or in such other manner as may be required or permitted by law. Tenant shall have the right, however, in its name or in the name of Landlord or in the name of both, to contest any such lien, provided that the existence of such lien pending such contest shall not jeopardize Landlord's interest in the demised premises. Tenant shall indemnify Landlord against, and save Landlord harmless from any and all loss, damage, claims, liabilities, judgments, costs and expenses arising out of the filing of any such lien. Notice is hereby given that Landlord shall not, under any circumstances, be liable to pay for any work, labor or services rendered or materials furnished to Tenant or any of its subtenants upon credit. 7.3 Tenant's Permits: Landlord agrees upon request by Tenant to execute or join in the execution of any application for any permits or licenses (including without limitation, zoning changes) which may be necessary in connection with the construction of any buildings or other improvements on the demised premises or the making of any alterations, additions and repairs thereto. All such permits and licenses shall be applied for and secured at Tenant's expense in Tenant's name alone unless Landlord's name is also required in connection therewith by such governmental authority. In addition, Landlord agrees to cooperate fully with Tenant, without cost or expense to Landlord, in connection with the exercise by Tenant of any of its rights under this Lease. In particular, and without limitation, Landlord agrees to execute utility easements and such other documents as Tenant may reasonably request. 7.4 Repairs by Landlord: Landlord shall have no obligation to make any repairs or alterations to the demised premises or any part thereof. ARTICLE VIII. Notices 8.1 Notices: All notices sent or required to be sent hereunder shall be sent by registered or certified mail, return receipt requested, postage prepaid; if sent to Landlord, the same shall be addressed to Landlord c/o Altid Enterprises, LLC, 17 Monsignor O'Brien Highway, P.O. Box 410207, Cambridge, Massachusetts 02141-0002 or to such other person or address as Landlord may hereafter designate by notice to Tenant; if sent to Tenant, the same shall be addressed to Tenant at 15 Elizabeth Drive, Chelmsford, Massachusetts 01824 Attn: Jeffrey J. Myrdek, Global Facilities Manager, and with a copy to Brown Rudnick Berlack Israels LLP, One Financial Center, Boston, Massachusetts 02111, Attn: David H. Murphree, Esq., or to such other person or address as Tenant may hereafter designate by notice to Landlord. If Tenant 9 has given notice to Landlord of the name and address of any mortgagee of the demised premises, a duplicate copy of every notice to Tenant shall be given to said mortgagee at said address by registered or certified mail, return receipt requested, postage prepaid. Such mortgagee shall have the same rights as Tenant, and a reasonable period of time after receipt by it of notice of a failure of Tenant, to correct any failure of Tenant. ARTICLE IX. Subordination to Mortgages 9.1 Mortgage Holder's Election: Subject to the requirement that any such first mortgagee must first enter into a Non-Disturbance Agreement (as defined below) as a precondition to subordination, it is agreed that the right and interest of Tenant under this Lease shall be: (i) subject and subordinate to the lien of any present or future first mortgage (and to any and all advances to be made thereunder, and to the interest thereon) upon the demised premises or any property of which the demised premises are a part, if the holder of such mortgage shall elect, by notice to Tenant, to subject and subordinate the right and interest of Tenant under this Lease to the lien of its mortgage; or (ii) prior to the lien of any present or future first mortgage if the holder of such mortgage shall elect, by notice to Tenant, to give the right and interest of Tenant under this Lease priority to the lien of its mortgage. It is understood and agreed that the holder of such mortgage may also elect, by notice to Tenant, to make some provisions hereof subject and subordinate to the lien of its mortgage while granting other provisions hereof priority to the lien of its mortgage. In the event of any of such elections, and upon notification by the holder of such mortgage to that effect, the right and interest of Tenant under this Lease shall be deemed to be subordinate to, or to have priority over, as the case may be, the lien of said mortgage, irrespective of the time of execution or time of recording of any such mortgage. Tenant agrees that it will, upon request of Landlord, execute, acknowledge and deliver any and all instruments deemed by Landlord necessary or desirable to evidence or to give notice of such subordination or priority in a commercially reasonable form consistent with the provisions of this Lease and as approved by Tenant and its counsel. The word "mortgage" as used herein includes mortgages, deeds of trust or other similar instruments and modifications, consolidations, extensions, renewals, replacements and substitutes thereof. 9.2 Non-Disturbance Agreement: Notwithstanding anything to the contrary contained in this Article 9, Tenant shall not be required to subordinate this Lease and the lien hereof to the lien of any future mortgage unless the holder of such mortgage shall enter into an agreement with Tenant, recordable in form (a "Non-Disturbance Agreement"), in a commercially reasonable form consistent with the provisions of this Lease and as approved by Tenant and its counsel, and to the effect of the following listed provisions in Sub-paragraphs 9.2.1 through 9.2.4. Upon request of Tenant, each holder of a mortgage on the demised premises (including without implied limitation that holder of any mortgage in place as of the time of execution of this Lease) shall enter into a Non-Disturbance Agreement (whether or not such mortgage holder has elected to subordinate Tenant's interest). 9.2.1 Non-Disturbance of Tenant: In the event of foreclosure of, or transfer by deed in lieu of foreclosure, or similar action taken under, such mortgage, Tenant's possession of the demised premises shall not be terminated or disturbed by such mortgage holder or anyone claiming under such mortgage holder so long as Tenant shall not be in default of any material provision under this Lease beyond any applicable notice and cure periods. 10 9.2.2 Liability of Mortgagee/Successor: In the event that the holder of a mortgage shall succeed to Landlord's right, title and interest in this Lease, it is expressly understood and agreed that such mortgage holder shall not be liable for the performance of any of Landlord's obligations hereunder, except for the performance of those obligations which arise or continue during the period of time that such mortgage holder holds Landlord's right, title and interest in this Lease. For purposes of this paragraph, such mortgage holder shall not be deemed to hold Landlord's right, title and interest by virtue of any type of collateral assignment of this Lease to it; it being understood that said holder shall only be deemed to hold Landlord's right, title and interest if it shall foreclose its mortgage or take a deed in lieu of foreclosure. 9.2.3 Recognition of Purchase Option: Any such mortgage holder must expressly recognize and confirm the effect and enforceability of and acknowledge that its interest is subject to Tenant's Purchase Option under Article 16 below and that Tenant's Purchase Option shall continue in full force and effect after any foreclosure of such mortgage or deed given in lieu of foreclosure, or after any subsequent transfer to anyone claiming under such mortgage holder. 9.2.4 Intervening Liens: Any Non-Disturbance Agreement shall be solely for the benefit of the mortgage holder that is party to such agreement, and its successors in interest in the mortgage or in the demised premises, as the case may be, and shall not be enforceable for the benefit of the holder or any intervening lien to which the mortgage holder is subordinate (either by priority or through the effect of subordination). 9.3 Notice for Mortgagee: After receiving notice from Landlord or from any person, firm or other entity that such person, firm or other entity holds a mortgage, as hereinbefore defined, which includes the demised premises as all or as part of the mortgaged premises, no notice from Tenant to Landlord shall be effective unless and until a copy of the same is given by certified or registered mail to such holder, and the curing of any of Landlord's defaults by such holder shall be treated as performance by Landlord. Tenant agrees that if Landlord does not cure any default specified in a notice of default given by Tenant to Landlord within fifteen (15) calendar days after Landlord's receipt thereof, then Tenant shall give further notice of that fact to such mortgage holder, and such mortgage holder shall thereupon, if it shall so elect, have the right, but not the obligation, to cure the default of Landlord within twenty (20) calendar days after its receipt of such further notice from Tenant, and in case of a default which cannot, with due diligence, be cured within said twenty (20) days, then the twenty (20) days shall be extended for such period as may be necessary to complete the curing of the same with all due diligence and continuity. This paragraph 9.3 benefits the holder of any mortgage entitled to notices and shall not affect the rights of Tenant against the Landlord absent prejudice to such mortgage holder. 9.4 Mortgagee Consent: Finally, Tenant agrees that so long as any present or future first mortgage shall remain in effect Tenant shall not alter, modify, amend, change, surrender or cancel this Lease nor pay the rent due hereunder in advance for more than thirty (30) days, except as may be required herein, within the prior written consent of the holder thereof, and Tenant will not seek to be made an adverse or defendant party in any action or proceeding brought to enforce or foreclose such mortgage. Tenant further agrees that it shall not subordinate its interest in this Lease to the lien of any junior mortgage, security agreement or lease affecting the demised premises, unless the holder of the first mortgage shall consent thereto. 11 ' ARTICLE X. Fire and Casualty and Restoration 10.1 Fire and Casualty and Restoration: If any of the buildings or other improvements on the demised premises shall be damaged or destroyed or rendered untenantable, in whole or in part, by fire, the elements or any other cause, such damage or destruction or conditions rendering said premises untenantable shall not operate to terminate this Lease, but this Lease shall continue in full force and effect, and without any reduction or abatement of rent of any kind whatsoever. Neither Landlord nor Tenant shall be obligated to repair or restore the demised premises or any portions thereof to the condition preceding such damage or destruction or rendering untenantable or any other condition. 10.2 Tenant's Election to Restore: In the event that Tenant elects to restore the demised premises after any casualty, then Tenant shall be permitted to retain all proceeds of insurance from such casualty, provided that Tenant shall restore the structure and base building improvements of the demised premises (i.e. that portion of the demised premises equivalent to the demised premises as delivered to Tenant at the outset of the term of this Lease before the construction of Tenant's improvements and alterations) (the "Base Building") to a value equivalent to the value of the demised premises as delivered at the outset of the term of this Lease. 10.3 Landlord's Approval of Reconstruction: The design of the Base Building to be reconstructed following casualty shall be subject to the approval of Landlord, not to be unreasonably withheld, conditioned or delayed. Tenant shall submit plans for the reconstruction of the demised premises for Landlord's approval consistent with the process provided in Paragraph 7.1.1 above. During the Original Term, Tenant may elect to proceed with reconstruction of the demised premises following casualty without the approval of the Landlord of the design of the Base Building, provided that to the extent the Landlord has not approved the design of the structural elements of the demised premises as reconstructed, then Landlord shall have the right to "put" the demised premises to Tenant at the Purchase Price referred to in Article 16 below and Tenant shall be obligated to purchase the demised premises at the Purchase Price pursuant to the process provided in Section 16.3 below for the Put Option. 10.4 Tenant's Election to Delay Reconstruction: To the extent that Tenant intends that it may undertake reconstruction of the demised premises following a casualty, but Tenant has elected to delay such reconstruction, Tenant may retain the proceeds of insurance from such casualty in a segregated account subject to escrow arrangements reasonably satisfactory to Landlord and Landlord's mortgagee. In the event that Tenant exercises its Purchase Option, Tenant may retain the proceeds of insurance from such casualty regardless of Tenant's intent to restore the demised premises. 10.5 Proceeds Paid to Landlord: At any point, if Tenant elects finally and irrevocably not to restore the demised premises following a casualty, and if Tenant has declined to exercise its Purchase Option, the insurance proceeds from such casualty shall be paid to Landlord to the extent of the value of the demised premises as delivered to Tenant at the outset of the term of this Lease before the construction of Tenant's improvements and alterations, provided that if Landlord receives the insurance proceeds from such a casualty, then the Landlord's Put Option shall be of no further force and effect. 12 ARTICLE XI. Right of Entry 11.1 Right of Entry: Landlord shall have the right at all reasonable times during the term of this Lease to enter upon the demised premises for the purpose of inspecting the same, and, if Tenant has not exercised its Purchase Option, during the six (6) month period prior to the expiration of the term, Tenant will permit Landlord to enter upon the demised premises at reasonable times for the purpose of showing the same to prospective tenants. Any entry by Landlord shall be made after reasonable prior notice to Tenant (and in the case of entry to premises subleased by Tenant to a sublessee, notice to Tenant and such sublessee). Except in the case of emergency, reasonable prior notice shall include at a minimum written notice of (a) the proposed time of entry, (b) the individuals or parties proposed to enter the property, and (c) a contact person representing the Landlord for coordination, and shall be given at lease one full business day prior to the proposed time of entry. In case of emergency, prior notice shall be limited or waived as is reasonable in the circumstances. Any such entry shall be made without unreasonable interference with Tenant (or, if applicable such sublessee's business), and such right of entry shall be subject to any security measures adopted by Tenant (or, if applicable, such sublessee). ARTICLE XII. Default 12.1 Landlord's Self-Help: If Tenant shall default in the performance or observance of any agreement or condition in this Lease contained on its part to be performed or observed other than an obligation to pay money to Landlord, and shall not cure such default within thirty (30) days after notice from Landlord specifying the default (or shall not within said period commence to cure such default and thereafter prosecute the curing of such default to completion with due diligence), Landlord may, at its option, without waiving any claim for damages for breach of agreement, at any time thereafter cure such default for the account of Tenant, and any amount paid or any contractual liability incurred by Landlord in so doing shall be deemed paid or incurred for the account of Tenant, and Tenant agrees to reimburse Landlord therefore or save Landlord harmless therefrom; provided that Landlord may cure any such default as aforesaid prior to the expiration of said waiting period but after notice to Tenant, if the curing of such default prior to the expiration of said waiting period is reasonably necessary to protect the real estate or Landlord's interest therein, or to prevent injury or damage to persons or property. If Tenant shall fail to reimburse Landlord upon demand for any amount paid for the account of Tenant hereunder, said amount shall be added to and become due as a part of the next payment of rent due hereunder. 12.2 Tenant's Default: (1) If rent or any other payment required to be made hereunder shall not be paid for more than ten (10) days after Tenant shall have received notice from Landlord of the failure of payment hereof; or (2) if there shall be a failure in the performance or observance of any other agreement or condition contained herein on the part of Tenant to be performed or observed and such failure shall not be corrected within thirty (30) days after Tenant shall receive notice from Landlord of such failure (or such longer period as may be required to correct such failure if within said thirty (30) day period Tenant shall commence to correct the same and thereafter diligently pursue the correction thereof), then Landlord shall have the right, at its election, to terminate the term of this Lease by giving notice to Tenant of the exercise of said election, and in the event of Landlord's giving such notice of election to terminate, the term 13 of this Lease shall terminate on the date designated therefore in said notice, which date shall be not less than three (3) days after the receipt of such notice by Tenant, and thereupon, or at any time thereafter, and without any further notice or demand, Landlord may re-enter the demised premises in the manner prescribed by law. In case of any such termination, Tenant will indemnify Landlord against all loss of rent and other payments provided herein to be paid by Tenant to Landlord between the time of termination and the expiration of the term of this Lease as then constituted. It is understood and agreed that at the time of the termination or at any time thereafter Landlord may rent the demised premises, and for a term which may expire after the expiration of the term of this Lease, without releasing Tenant from any liability whatsoever, that Tenant shall be liable for any expenses incurred by Landlord in connection with obtaining possession of the demised premises and in connection with any reletting, including, but, without limitation, reasonable attorney's fees and reasonable brokers' fees, and that any monies collected from any reletting shall be applied first to the foregoing expenses and then to payment of rent and all other payments due from Tenant to Landlord. Landlord shall use commercially reasonable efforts to mitigate its damages arising from Tenant's default or termination of this Lease in case of Tenant's default. It is expressly understood and agreed that no action or proceeding to oust Tenant from possession or to terminate the term of this Lease shall be taken or brought by Landlord unless the notices herein specified be first given and the times to cure defaults hereinabove specified have expired without such defaults having been cured. ARTICLE XIII. Eminent Domain 13.1 Eminent Domain: If the whole of the demised premises shall be taken by right of eminent domain, this Lease shall be terminated as of the time of the taking and rent shall be apportioned and adjusted as of said time. 13.2 Partial Condemnation: If a part of the demised premises shall be taken by right of eminent domain, this Lease shall not be terminated but Fixed Rent shall thereafter abate in proportion to the area of the demised premises so taken, except that if at such time there shall be a sublease or subleases in existence on portions of the demised premises, the Fixed Rent shall thereafter abate in the same proportion as the annual rent under said sublease or subleases shall be abated on account of such taking. 13.3 Condemnation Award: Landlord and Tenant shall jointly prosecute and settle the proceedings for the determination and payment of the award payable on account of any such taking, and the cost of such proceedings shall be a first charge against the award received. The net award shall be divided between Landlord and Tenant as follows: first, Landlord shall be entitled to so much of the net award as is fairly allocable to the reversionary value of the land taken; and second, Tenant shall be entitled to so much of the net award as is fairly allocable to the leasehold value of the land taken and to so much of the award as is fairly allocable to the improvements taken; it being intended that the net award shall be fairly allocated, first between land taken and improvements taken, and then that the portion so allocated to land taken shall be further fairly allocated between (i) reversionary value and (ii) leasehold value. Notwithstanding the foregoing, out of the net award and before any division between Landlord and Tenant as 14 provided above there shall be paid to the holders of the mortgages placed on the demised premises, or any part or parts thereof, by Tenant or by Landlord at Tenant's request pursuant to the provisions of Article 12, either the balance unpaid on said mortgages together with interest to date of payment if this Lease be terminated as aforesaid or the requirements of the holders of said mortgages if this Lease not be so terminated; and if this Lease shall not be terminated by reason of said taking subject to Article 9 above, there shall be paid to Tenant the cost of repairing and restoring the improvements which remain upon the demised premises after said taking. 13.4 Condemnation/Personal Property: Tenant's right and the right of subtenants of Tenant to receive compensation or damages for its fixtures or personal property shall not be affected in any manner by any provision in this Article 13 contained. ARTICLE XIV. Force Majeure 14.1 Force Majeure: In any case where either party hereto is required to do any act (other than make a payment of money) delays caused by or resulting from Act of God, war, civil commotion, fire or other casualty, labor difficulties, general shortages of labor, materials or equipment, government regulations or other causes beyond such party's reasonable control shall not be counted in determining the time when the performance of such act must be completed, whether such time be designated by a fixed time, a fixed period of time or "a reasonable time". ARTICLE XV. Saving Clause 15.1 Saving Clause: It is agreed that if any provision of this Lease shall be determined to be void by any court of competent jurisdiction, then such determination shall not affect any other provision of this Lease, all of which other provisions shall remain in full force and effect; and it is the intention of the parties hereto that if any provision of this Lease is capable of two constructions, one of which would render the provision void and the other of which would render the provision valid, then the provision shall have the meaning which renders it valid. The failure of Landlord or Tenant to insist upon a strict performance of any of the terms, conditions and covenants herein shall not be deemed a waiver of any subsequent breach of any of the terms, covenants and conditions herein contained. ARTICLE XVI. Right to Purchase 16.1 Right to Purchase: Tenant shall have a one time right to purchase the entire demised premises at its election (the "Purchase Option") for a purchase price of $8,400,000.00 (the "Purchase Price"). Tenant shall exercise the Purchase Option by giving Landlord written notice of its election no earlier than October 1, 2012, and no later than the later to occur of either (a) September 30, 2013 or (b) the date which is ten (10) business days after the receipt by Tenant of a written reminder notice from Landlord to Tenant (the "Purchase Option Reminder Notice") which expressly (a) refers to the Purchase Option, and (b) states that the Purchase Option shall expire on the later of September 30, 2013, or ten (10) business days after the date of receipt of the Purchase Option Reminder Notice. The Purchase Option Reminder Notice shall be delivered no earlier than October 1, 2012. 15 16.2 Closing of the Purchase Option: The closing of the purchase of the demised premises pursuant to the Purchase Option shall be carried out under the terms and conditions set forth in Exhibit D attached. 16.3 Landlord's Put: In the event that Landlord has the right to "put" the demised premises to Tenant (the "Put Option") pursuant to Paragraph 4.1.2, Paragraph 7.1 or Paragraph 10.3, then Landlord may exercise the Put Option by giving written notice of Landlord's election to Tenant during a period of sixty (60) days beginning on the later of either October 1, 2013, or ten (10) business days after the date of receipt of the Purchase Option Reminder Notice. If Landlord elects to exercise its Put Option to force Tenant to purchase the demised premises, then Landlord and Tenant shall proceed to close the purchase of the demised premises pursuant to the provisions for the closing on the Purchase Option as if Tenant had timely elected to purchase the demised premises pursuant to its Purchase Option. ARTICLE XVII. Notice of Lease 17.1 Notice of Lease: At the request of either party Landlord and Tenant will execute a short form lease or a notice of lease, recordable in form, as may be required by the laws of the state in which the demised premises are located so that notice of this Lease may be on record. The form of Notice of Lease is attached as Exhibit E. ARTICLE XVIII. Definitions and Interpretations 18.1 Definitions and Interpretations: The words "Landlord" and "Tenant" and the pronouns referring thereto, as used in this Lease, shall mean, where the context requires or admits, the persons named herein as Landlord and as Tenant, respectively, and their respective heirs, legal representatives, successors and assigns, irrespective of whether singular or plural, masculine, feminine or neuter. This Lease shall bind and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns. In the event of a transfer by any holder of Tenant's interest in this Lease, such holder shall thereupon be relieved of all obligations of Tenant thereafter accruing under this Lease and it shall be deemed that the transferee has assumed and agreed to carry out all of the obligations of Tenant under this Lease during such transferee's ownership. If Landlord shall be more than one person, the obligations of Landlord shall be joint and several. 18.2 Exculpation: If all or any part of Landlord's interest in this Lease shall be held by a trust, no trustee, shareholder or beneficiary of said trust shall be personally liable for any of the covenants, or agreements, express or implied, hereunder. The covenants and agreements of such party shall be binding upon the trustees of said trust as trustees as aforesaid and not individually and upon the trust estate. Without limiting the generality of the foregoing, and whether or not Landlord's interest in this Lease shall be held by a trust, Tenant specifically agrees to look solely to the Landlord's interest in the demised premises (or the proceeds of sale, condemnation or insurance) for recovery of any judgment from Landlord. The parties acknowledge that the provisions of this Paragraph 18.2 are subject to the limitations of applicable law (i.e. Mass. Gen. Laws ch. 186, section 15). ARTICLE XIX. Hazardous Material 16 19.1 Hazardous Material: Tenant shall not (either with or without negligence) cause or permit the escape, disposal or release of any biologically or chemically active or other hazardous substances, or materials. Tenant shall not allow the storage or use of such substances or materials in any manner not sanctioned by law or by the highest standards prevailing in the industry for the storage and use of such substances or materials, nor allow to be brought into the Lot any such materials or substances except to use in the ordinary course of Tenant's business, and then only after written notice is given to Landlord of the identity of such substances or materials (collectively "Hazardous Materials"). Without limitation, hazardous substances and materials shall include those described in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et seq., the Resource Conservation and Recovery Act, as amended, 42 U.S.C. Section 6901 et seq., any applicable state or local laws and the regulations adopted under these acts. If any lender or governmental agency shall ever require testing to ascertain whether or not there has been any release of hazardous materials caused by Tenant or persons acting under Tenant, then the reasonable costs thereof shall be reimbursed by Tenant to Landlord upon demand as additional rent if such requirement applies to the demised premises. In addition, Tenant shall execute affidavits, representations and the like from time to time at Landlord's request concerning Tenant's best knowledge and belief regarding the presence of hazardous substances or materials on the demised premises. In all events, Tenant shall indemnify Landlord in the manner elsewhere provided in this Lease from any release of hazardous materials on the demised premises occurring while Tenant is in possession, or elsewhere if caused by Tenant or persons acting under Tenant. The within covenants shall survive the expiration or earlier termination of the term of this Lease. ARTICLE XX. Effectiveness of Lease 20.1 Effectiveness of Lease: Upon execution of this Lease Landlord shall deliver possession of the demised premises to Tenant, and during the period between such delivery of possession and the commencement of the term of this Lease all of the provisions of this Lease, except those relating to the payment of rent (Fixed and additional), shall apply, to the extent that said provisions may be made applicable to said period, it being expressly understood that Tenant shall have the right and privilege prior to the commencement of the term, and subject to the terms of the Existing Lease of entering the demised premises for the purpose of commencing construction thereon without any liability to Landlord for rent or other payments. ARTICLE XXI. Brokers 21.1 Brokers: Tenant warrants that it has dealt with no brokers in connection with obtaining this Lease except for Barry Joyce & Partners and CRESA Partners ("the Brokers"). Landlord shall, by separate agreement, pay all fees and commissions due the Brokers for bringing about the execution and delivery of this Lease, and agrees to defend, indemnify and save Tenant harmless from any and all claims from any broker other than the Brokers. ARTICLE XXII. Representatives 22.1 Representatives: From time to time during the term of this Lease, the Tenant and the Landlord shall each appoint an individual representative, respectively "Tenant's 17 Representative" and "Landlord's Representative" who shall be empowered to receive communications and have the authority to deal with matters of the day to day administration of this Lease. Initially Tenant's Representative shall be Jeffrey J. Myrdek, Global Facilities Manager, and Landlord's Representative shall be Edward F. Carye. IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be executed as a sealed instrument as of the day and year first above written. LANDLORD: BerCar II LLC, BY ITS MANAGERS: ALTID ENTERPRISES, LLC By: /s/ Raymond F. Carye ____________________________ Raymond F. Carye, Manager By: /s/ Barbara F. Carye ____________________________ Barbara F. Carye, Manager SENNEN REALTY TRUST /s/ Edward F. Carye _______________________________ Edward F. Carye, Trustee /s/ Barbara J. Hausman _______________________________ Barbara J. Hausman, Trustee TENANT: BROOKS-PRI AUTOMATION, INC. By /s/ Ellen B. Richstone ______________________ Name: Ellen B. Richstone Title: SR. VP of Finance & ADM, CFO ATTEST: By /s/ Collette R. Piche _______________________ Name: Collette R. Piche Title: Executive Assistant 18 SCHEDULE A LEGAL DESCRIPTION OF LOT A certain parcel of land, with the building thereon, situated in Chelmsford, Middlesex County, Massachusetts, being shown as Lot 2 on a plan entitled "Subdivision Plan of Land in Chelmsford, Mass., as drawn for Raymond A. and Barbara F. Carye," dated October 24, 1979, recorded in the Middlesex County, North District, Registry of Deeds in Plan Book 130 as Plan 159, and being more particularly bounded and described as follows: NORTHWESTERLY by Elizabeth Drive, by two lines measuring one hundred twenty-nine and 01/100 (129.01) feet and two hundred thirty and 21/100 (230.21) feet, respectively; NORTHEASTERLY by Lot B, as shown on said plan, two hundred forty-two and 86/100 (242.86) feet; NORTHWESTERLY again, by said Lot B, by two lines measuring four hundred forty-five (445) feet and two hundred sixteen and 61/100 (216.61) feet, respectively; EASTERLY by Lot A, as shown on said plan, one hundred sixty-five and 80/100 (165.80) feet; SOUTHEASTERLY by land n/f of Graham and Stella Penny, two hundred sixty-seven and 95/100 (267.95) feet; EASTERLY again, by said land of Penny, two hundred ninety-two and 96/100 (292.96) feet; SOUTHEASTERLY by land n/f of Barnard and Evelyn George, n/f of Otis and Florence Walker, n/f of Earle and Barbara Bomeage and n/f of William and Fran Harris, three hundred (300) feet to an iron pin; SOUTHWESTERLY by land n/f of Alpa Wrecking Co., one hundred ninety-three (193) feet; SOUTHERLY by land n/f of said Alpa Wrecking Co., three hundred twenty-nine and 59/100 (329.59) feet; and WESTERLY by Lot 1, as shown on said plan, by two lines measuring two hundred sixty-six (266) feet and one hundred thirty-four and 02/100 (134.02) feet, respectively. SCHEDULE B Landlord's Representations and Warranties (A) Landlord is the owner in fee simple of the demised premises and has full right, power and authority to execute and perform this Lease and to grant the estate herein demised. (B) The demised premises are subject to no mortgages, leases, easements, restrictions, encroachments, liens, agreements, claims or other encumbrances (collectively called "Encumbrances") except as may be expressly set forth on Schedule A. Tenant shall within one thirty (30) days after the execution and delivery of this Lease obtain a Title Binder of a title insurance company acceptable to Tenant, dated as of a time subsequent to the recording of this Lease, or a short form thereof, committing the title insurance company to insure to Tenant the leasehold interest of Tenant, upon payment of the title insurance company's regular premium therefore, subject only to such Encumbrances as shall be set forth in such Title Binder. If such Title Binder shall show Encumbrances in addition to the Encumbrances set forth in Schedule A, Tenant shall have the right at its election, exercised by Tenant's giving notice to Landlord within fifteen (15) days thereafter, to terminate this Lease or to cause said additional Encumbrances to be removed as exceptions to title. If this Lease shall be terminated as aforesaid, this Lease shall become void and neither Landlord nor Tenant shall have any claim against the other under this Lease or on account of the termination hereof. If Tenant shall cause any of said Encumbrances to be removed as exceptions, Landlord shall reimburse Tenant for the reasonable cost to Tenant thereof, and the amount of such cost not so reimbursed shall be deducted by Tenant from Fixed Rent. (C) The demised premises contains parking for 5.8 cars per 1,000 square feet of Rentable Floor Area as of the date of this Lease. (D) Tenant, on paying the rent herein reserved and performing and observing the agreements and conditions in this Lease contained on the part of Tenant to be performed and observed, shall subject to the Existing Lease, peaceably and quietly have, hold and enjoy the demised premises during the full term of this Lease, free from molestation by any party whatsoever. (E) Landlord has no knowledge of the presence or release of any Hazardous Materials at the demised premises except as disclosed in the environmental reports listed in attached Exhibit F. (F) The copy of the Existing Lease of Hittite Microwave Corporation separately provided to Tenant is correct and complete and includes all amendments thereto. The estoppel certificate of Hittite Microwave Corporation delivered under separate cover to Tenant (in the form of Exhibit B) is correct and complete as of the date of this Lease. (G) The schedule of encumbrances listed on the Title Commitment is correct and complete as of the date of this Lease. (H) To Landlord's knowledge, the demised premises is not affected by or subject to any pending or threatened (x) condemnation suits or similar proceedings, (y) claims, charges, complaints, petitions or unsatisfied orders by or before any administrative agency or court, or (z) litigation, claims, actions, complaints, petitions or unsatisfied order by or in favor of any party whatsoever, including without limitation any mechanics' or materialmen's liens which, with respect to any of the foregoing, are reasonably expected to have a material and adverse effect on the demised premises; and (I) To Landlord's knowledge, Landlord has not received from any governmental authority having jurisdiction over the demised premises any notice alleging any material violation by the demised premises of any law or any ordinance, order or regulation of any governmental authority, including, but not limited to, building, zoning, fire, disability, safety and health ordinances, statues, regulations and requirements. EXHIBIT A FORM OF ASSIGNMENT AND ASSUMPTION OF LEASE AGREEMENT ASSIGNMENT AND ASSUMPTION OF LEASE AGREEMENT This Assignment and Assumption of Leases (this "Agreement") is made and entered into as of the ___ day of __________, 2002 by and between BerCar II, LLC, a Massachusetts Limited Liability Company ("Assignor"), and Brooks-PRI Automation, Inc., a Delaware corporation ("Assignee"). WITNESSETH: WHEREAS, concurrently with the execution and delivery of this Agreement, Assignor is leasing to Assignee, by a Lease Agreement dated as of ________, 2002 by and between Assignor, as Landlord, and Assignee, as Tenant (the "Master Lease"), that certain real property legally described in Exhibit A attached hereto and made a part hereof for all purposes (the "Property"); WHEREAS, Assignor has agreed to assign to Assignee a certain lease as hereinafter set forth; NOW, THEREFORE, in consideration of the receipt of Ten Dollars ($10.00), the assumptions by Assignee hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Assignor and Assignee agree as follows: 1. Assignor does hereby ASSIGN, SET OVER and DELIVER to Assignee, its successors and assigns, all of landlord's/lessor's right, title and interest in that certain Lease dated July 6, 1999, as amended by Amendment A dated as of August 15, 1999 by and between Assignor, as landlord, and Hittite Microwave Corporation ("Hittite"), as tenant (the "Hittite Lease"), together with any and all refundable tenant security and other refundable deposits in landlord's/ lessor's possession with respect to said Hittite Lease as of the date of this Agreement (collectively, the "Deposits"). A schedule of such Deposits is attached as Exhibit B. 2. Assignee hereby assumes and hereby covenants and agrees to fully and faithfully perform, observe and comply with all of the covenants, agreements, conditions and other terms and provisions stated in the Hittite Lease which, under the terms of the Hittite Lease, are to be performed, observed, and complied with by the landlord from and after the date of this Agreement. Assignee acknowledges that Assignee shall become solely responsible and liable on the Hittite Lease as landlord thereunder from and after the date hereof and Assignee hereby agrees to indemnify, release and hold Assignor harmless from and against any and all claims pertaining to the Hittite Lease, arising from events occurring from and after the date of this Agreement, including, without limitation, claims made by Hittite with respect to the Deposit to the extent paid or assigned to Assignee or for which Assignee received a credit at Closing. 3. This Assignment is made in connection with the Master Lease and on the condition that in the event of any reversion of the Assignee's interest as "Tenant" under the Master Lease to Assignor as "Landlord" under the Master Lease, or its successor as the owner of the Property, then this Assignment shall be of no further force or effect thereafter, and the Hittite Lease shall be automatically deemed reassigned to Assignor. The Assignee shall cooperate in executing any reasonable agreement or instrument confirming the effect of such reassignment. No such reassignment shall relieve Assignee from its liabilities and obligations as the holder of the interest of the landlord named under the Hittite Lease that arise during or with respect to the period that Assignee holds such interest. 4. This Assignment shall inure to the benefit of, and be binding upon, the successors, executors, administrators, legal representatives and assigns of the parties hereto. 5. This Assignment shall be construed under and enforced in accordance with the laws of the Commonwealth of Massachusetts. 6. This Assignment may be executed in two or more counterparts, and it shall not be necessary that any one of the counterparts be executed by all of the parties hereto. Each fully or partially executed counterpart shall be deemed an original, but all of such counterparts taken together shall constitute one and the same instrument. [SIGNATURE PAGE ON FOLLOWING PAGE] EXECUTED effective as of the date first above written. ASSIGNOR: BERCAR II, LLC, by its Managers: ALTID ENTERPRISES, LLC By: ----------------------------- Raymond F. Carye, Manager By: ----------------------------- Barbara F. Carye, Manager SENNEN REALTY TRUST By: ----------------------------- Edward F. Carye, Trustee By: ----------------------------- Barbara J. Hausman, Trustee ASSIGNEE: BROOKS-PRI AUTOMATION, INC. By: ----------------------------- Name: Title: Exhibit A ----------- [Description of Real Property] Exhibit B ------------ Deposits EXHIBIT B FORM OF TENANT ESTOPPEL OF HITITE MICROWAVE CORPORATION TENANT ESTOPPEL --------------- To: Brooks-PRI Automation, Inc. 15 Elizabeth Drive Chelmsford, MA 01824 Attn: Jeffrey J. Myrdek, Global Facilities Manager Re: Lease dated July 6, 1999, as amended by Amendment A dated as of August 15, 1999 (collectively, the "LEASE") by and between BerCar II, LLC, as landlord (the "MASTER LANDLORD"), and Hittite Microwave Corporation, as tenant (the "TENANT"), with respect to the premises described in the Lease as approximately 34,000 square feet (the "PREMISES") and which are a part of the property located at 12 Elizabeth Drive, Chelmsford, MA 01824 (the "PROPERTY"). Ladies and Gentlemen: The undersigned Tenant understands that Brooks-PRI Automation, Inc. (the "SUB-LANDLORD") and Master Landlord have or will be entering into a lease agreement ("MASTER LEASE") whereby Sub-Landlord will be leasing the entire Property (including the Premises) from Master Landlord. In connection with the Master Lease, Master Landlord and Sub-Landlord have or will enter into an Assignment and Assumption of Lease Agreement under which Master Landlord will assign to Sub-Landlord and Sub-Landlord will assume from Master Landlord, Master Landlord's interest in the Lease. Tenant understands that Sub-Landlord will rely upon the information and matters set forth below in entering into the Master Lease. For purposes of this certificate the Master Landlord and the Sub-Landlord are referred to collectively as "LANDLORD". The Tenant, for the benefit of Sub-Landlord, its successors and assigns, hereby certifies, represents, warrants, agrees and acknowledges that: 1. The Lease has not been assigned, amended or modified in any way, nor have the Premises been sublet in whole or in part, except for the following [if no exceptions are stated, there are NONE]: ------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------. 2. A true and complete copy of the Lease, including, if any, all amendments and modifications, is attached hereto as Exhibit A. There are no side letters or other arrangements relating to the Premises or the Property. 3. The Lease is presently in full force and effect according to its terms and is the valid and binding obligation of Tenant. -1- 4. Neither Tenant nor Landlord is in default under the Lease nor does any state of facts exist which with the passage of time or the giving of notice, or both, could constitute a default under the Lease. 5. All conditions under the Lease to be satisfied by Landlord as of the date hereof (including, without limitation, all work, if any, to be performed by Landlord in the Premises or the Property) have been satisfied, and all contributions, if any, required to be paid by Landlord under the Lease to date for improvements to the Premises have been paid, except as hereafter stated [if no exceptions are stated, there are NONE]: ------------------------------------ - ------------------------------------------------------------------------------. 6. Tenant is in possession of the Premises and is fully obligated to pay and is paying the rent and other charges due under the Lease and is fully obligated to perform and is performing all of the other obligations of Tenant under the Lease, except as hereafter stated [if no exceptions are stated, there are NONE]: --------------------------------------------------------------------- - ------------------------------------------------------------------------------. 7. The term of the Lease commenced on , , and expires on ---------- ---- , . - ---------- ---- 8. The Lease does not provide for any payments (including, without limitation, rent credits) by Landlord to Tenant which are presently due and payable, or which are due and payable in the future, except as hereafter stated [if no such payments or credits are stated, there are NONE]: ------------------- - ------------------------------------------------------------------------------. 9. On this date, to the best of Tenant's knowledge, there are no existing defenses, set-offs or counterclaims which Tenant has against the enforcement of the Lease by Landlord, except as hereafter stated [if no exceptions are stated, there are NONE]: --------------------------------------------------------------- - ------------------------------------------------------------------------------. 10. The base rent being paid under the Lease is $ per month ------------- ($ per annum). The base rent has been paid for the Premises up to and -------- including , 2002, and the next rental payment is due on , ---------- ----------- 200 . The monthly common area charges are $ per month ($ per - ------ ------- annum). The monthly real estate charges are $ per month ($ per --------- ------- annum). Except as hereafter stated, no rent has been paid more than one (1) month in advance of the due date [if no advance rents are stated, there are NONE]: ------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------. 11. Tenant shall not make any prepayment of rent under the Lease more than one (1) month in advance of the due date thereunder. - 2 - 12. The security deposit is $45,837.00 (the "SECURITY DEPOSIT"). 13. Except as hereafter stated, the Tenant has no options or rights to renew, extend, amend, modify, or change the term of the Lease [if no such options or rights are stated, there are NONE]: One (1) option to extend for five (5) years pursuant to Article 13 of the Lease. 14. Except as hereafter stated, the Tenant has no options or rights of expansion, purchase or first refusal concerning the Lease, Premises or the building of which Premises are a part [if no such options or rights are stated, there are NONE]: NONE. 15. Tenant does not have any rights to terminate the Lease other than those contained in the Lease and any termination rights which may be available to Tenant upon the occurrence of an event of default by Landlord under the Lease. 16. There are no actions, whether voluntary or otherwise, pending or threatened against the Tenant, or any guarantor of the Tenant's obligations under the Lease, pursuant to the bankruptcy or insolvency laws of the United States or any similar state laws, and there are no claims or actions pending against Tenant which if decided against Tenant would materially and adversely affect Tenant's financial condition or Tenant's ability to perform Tenant's obligations under the Lease. 17. Tenant has no actual or constructive knowledge of the presence of, or any processing, use, storage, disposal, release or treatment of any hazardous or toxic materials or substances at, on or beneath the Premises. 18. A [Notice] [Memorandum] of Lease has been field or recorded at ___________ _____________________________________.] 19. This Agreement shall be binding upon Tenant and Tenant's successors and permitted assigns. [The balance of this page is intentionally left blank] -3- DATED: as of __________ __, 2002 and executed as an instrument under seal at ______________, _________________. TENANT: HITTITE MICROWAVE CORPORATION By: _____________________________ Name: _______________________ Its: _______________________ Hereunto Duly Authorized Date executed by Tenant: _________ -4- COMMONWEALTH OF MASSACHUSETTS ______________________, ss. ___________________________, 2002 Then personally appeared before me _______________________________, the _____________________________ of Hittite Microwave Corporation, and acknowledged the foregoing to be such person's free act and deed, as the ____________________ of Hittite Microwave Corporation and the free act and deed of said corporation and made oath that the facts therein stated are true, accurate and complete. ________________________________________ , Notary Public My commission expires: - 5 - EXHIBIT A Copy of Lease (including all amendments) -6- EXHIBIT C TITLE COMMITMENT COMMITMENT FOR TITLE INSURANCE ISSUED BY FIRST AMERICAN TITLE INSURANCE COMPANY NATIONAL COMMERCIAL DIVISION PRUDENTIAL CENTER - 101 HUNTINGTON AVENUE BOSTON, MASSACHUSETTS 02199 ALTA COMMITMENT NO. 32160 PROPERTY ADDRESS: 12 ELIZABETH DRIVE, CHELMSFORD, MASSACHUSETTS FIRST AMERICAN TITLE INSURANCE COMPANY, herein called the Company, for valuable consideration, hereby commits to issue its policy or policies of title insurance as identified in Schedule A, in favor of the proposed insured named in Schedule A, as owner or mortgagee of real estate or interest covered hereby in the land described or referred to in Schedule A, upon payment of the premiums and charges therefor; all subject to the provisions of Schedules A and B and to the Conditions and Stipulations hereof. This Commitment shall be effective only when the identity of the proposed insured and the amount of the policy or policies committed for have been inserted in Schedule A hereof by the Company, either at the time of the issuance of this Commitment or by subsequent endorsement. This Commitment is preliminary to the issuance of such policy or policies of title insurance and all liability and obligations hereunder shall cease and terminate six (6) months after the effective date hereof or when the policy or policies committed for shall issue, whichever first occurs, provided that the failure to issue such policy or policies is not the fault of the Company. This Commitment shall not be valid or binding until countersigned by an authorized officer or agent of the Company. CONDITIONS AND STIPULATIONS 1. The term "mortgage", when used herein, shall include deed of trust, trust deed or other security instrument. 2. If the proposed insured has or acquires knowledge of any defect, lien, encumbrance, adverse claim or other matter affecting the estate or interest or mortgage thereon covered by this Commitment other than those shown in Schedule B hereof, and shall fail to disclose such knowledge to the Company in writing, the Company shall be relieved from liability for any loss or damage resulting from any act of reliance hereon to the extent the Company is prejudiced by failure to so disclose such knowledge. If the proposed insured shall disclose such knowledge to the Company, or if the Company otherwise acquires, actual knowledge of any such defect, lien, encumbrance, adverse claim or other matter, the Company at its option may amend Schedule B of this Commitment accordingly, but such amendment shall not relieve the Company from liability previously incurred pursuant to paragraph 3 of these Conditions and Stipulations. 3. Liability of the Company under this Commitment shall be only to the named proposed insured and such parties included under the definition of Insured in the form of policy or policies committed for and only for actual loss incurred in reliance hereon in undertaking in good faith (a) to comply with the requirements hereof, or (b) to eliminate exceptions shown in Schedule B, or (c) to acquire or create the estate or interest or mortgage thereon covered by this Commitment. In no event shall such liability exceed the amount stated in Schedule A for the policy or policies committed for and such liability is subject to the insuring provisions, exclusions from coverage, and the conditions and stipulations of the form of policy or policies committed for in favor of the proposed insured which are hereby incorporated by reference and are made a part of this commitment except as expressly modified herein. 4. Any claim of loss or damage, whether or not based on negligence, and which arises out of the status of the title to the estate or interest or the lien of the insured mortgage covered hereby or any action asserting such claim, shall be restricted to the provisions and conditions and stipulations of this Commitment. IN WITNESS WHEREOF, the Commitment has caused this Commitment to be signed and sealed, to become valid when countersigned by an authorized officer or agent of the Company, all in accordance with its By-Laws. This Commitment is effective as of the date shown in Schedule A as "Effective Date". FIRST AMERICAN TITLE INSURANCE COMPANY /s/ Annette M. Labrecque - --------------------------------------- Annette M. Labrecque, Vice President FIRST AMERICAN TITLE INSURANCE COMPANY National Commercial Division 101 Huntington Avenue - Prudential Center Boston, Massachusetts 02199 Tel: (617)772-9219 y (888)505-8558 y Fax: (617)247-8643 COMMITMENT FOR TITLE INSURANCE SCHEDULE A Commitment Number: 32160 1. EFFECTIVE DATE: August 16, 2002 2. POLICY OR POLICIES TO BE ISSUED: AMOUNT OF INSURANCE -------------------------------- ------------------- (A) ALTA 1992 LOAN POLICY $ TO BE DETERMINED PROPOSED INSURED: TO BE DETERMINED (B) ALTA 1992 LEASEHOLD OWNER'S POLICY $ TO BE DETERMINED PROPOSED INSURED: BROOKS-PRI AUTOMATION, INC. 3. THE ESTATE OR INTEREST IN THE LAND DESCRIBED OR REFERRED TO IN THIS COMMITMENT AND COVERED HEREIN IS FEE SIMPLE AND TITLE HERETO IS AT THE EFFECTIVE DATE HEREOF VESTED IN: BerCar II, LLC, a Massachusetts Limited Liability Company, by virtue of a Deed from BerCar LLC, dated April 15, 1998, recorded with the Middlesex North Registry of Deeds, Book 9206, Page 185. 4. THE LAND REFERRED TO IN THIS COMMITMENT IS DESCRIBED AS SET FORTH ON THE ATTACHED EXHIBIT A: PROPERTY ADDRESS: 12 ELIZABETH DRIVE CITY, STATE: CHELMSFORD, MASSACHUSETTS COUNTY: MIDDLESEX, NORTH FIRST AMERICAN TITLE INSURANCE COMPANY NATIONAL COMMERCIAL DIVISION 101 HUNTINGTON AVENUE BOSTON, MASSACHUSETTS 02199 By: /s/ HG Stoddard -------------------- Authorized Signatory EXHIBIT A LEGAL DESCRIPTION Commitment No. 32160 A certain parcel of land situated on the Southeasterly side of Elizabeth Drive located in the Town of Chelmsford, Middlesex County, Commonwealth of Massachusetts, shown as Lot 2 on a plan titled, "Subdivision Plan of Land in Chelmsford, Massachusetts, as drawn for Raymond A. and Barbara F. Carye, October 24, 1979, scale 1" - 100', revised February 11, 1980," as prepared by Merrimack Engineering Services, Inc., 66 Main Street -- Suite 13, Andover, Massachusetts 01810, recorded in the Middlesex North District, Registry of Deeds Plan Book 130, Plan 159, bounded and described as follows: Beginning at a point in the Easterly line of Elizabeth Drive, at the Eastern corner of said Lot 2 at Land of Raymond and Barbara Carye, shown as Lot 3 on said plan; Thence R = 375.0' Length = 230.21 along Elizabeth Drive to the point of curvature of the roadway marked by a nail set in the driveway; Thence S 44 degrees-14'-16" W 129.01' along Elizabeth Drive to a point at land now or formerly of Raymond A. and Barbara F. Carye, shown as Lot #1 on the referenced plan, then turning and running S 07 degrees-01'-06" E 400.02' along lands now or formerly of Raymond A. and Barbara F. Carye, to a point at land of Alpa Wrecking Company, thence turning and running N 82 degrees'-38'-54" E 329.59' along lands now or formerly of Alpa Wrecking Company, to a point, thence turning and running S 58 degrees-06'-44" E 193.00' along lands now or formerly of Alpha Wrecking Company, to a point at land now or formerly of Earle and Barbara Bomenge, thence turning and running N 51 degrees-36-'45" E 300.00' along lands now or formerly of Earle and Barbara Bomenge, Otis and Florence Walker, Barnard and Evelyn George, to a point at land of Barnard and Evelyn George, thence turning and running N 04 degrees-57'-08" E 292.96' along lands now or formerly of Barnard and Evelyn George, and Graham and Stella Penny, to a point at land now or formerly of Graham and Stella Penny, thence turning and running N 58 degrees-31'-30" E 267.95' along lands now or formerly of Graham and Stella Penny to a point at land now or formerly of Raymond A. and Barbara F. Carye, known as Lot A, thence turning and running N 11 degrees-45'-44" W 165.80' along lands now or formerly of Raymond A. and Barbara P. Carye, to other lands now or formerly of Raymond A. and Barbara F. Carye, known as Lot B on the S 62 degrees-13'-17" W 216.61' along Lot B, now or formerly of Raymond A. and Barbara F. Carye to a point, thence turning and running S 78 degrees-14'-16" W 445.00' along Lot B, now or formerly of Raymond A. and Barbara F. Carye, to a point, thence turning and running N 46 degrees-45'-44" W 242.86' along Lot B, now or formerly of Raymond A. and Barbara F. Carye, to a point, at Elizabeth Drive, being the point of beginning. The above described parcel of Land contains an area of 10.625 Acres as shown on the above referenced plan. Property Address: 12 Elizabeth Drive, Chelmsford, Massachusetts SCHEDULE B - Section 1 COMMITMENT NO. 32160 REQUIREMENTS THE FOLLOWING ARE THE REQUIREMENTS TO BE COMPLIED WITH: ITEM A) Payment to or for the account of the grantors or mortgagors of the full consideration for the estate or interest to be insured. ITEM B) Payment of the premiums, fees and charges for the policy. ITEM C) Payment of all taxes, charges, assessments, levied and assessed against the subject premises, which are due and payable. ITEM D) Proper instrument(s) creating the estate or interest to be insured must be Executed and duly filed for record, to wit: a) Lease from BerCar II, LLC to Brooks-PRI Automation, Inc. to be insured. b) Mortgage from proposed Owner to proposed Lender to be insured. c) Certificate of Municipal Liens. d) Release, Termination, Discharge of the following matters which appear of public record: See Schedule B items 7, 8, 15, 16 & 17 ITEM E) Satisfactory completion of a standard Mechanic Lien/Parties in Possession Affidavit and Indemnity Form alleging that any improvements and/or repairs or alterations thereto are completed, that contractor, sub-contractors, labor and materialmen are all paid and have released of record all liens or notice of intent to perfect a lien for labor or material, plus identification of parties in possession, including rent roll, if appropriate. ITEM F) Full on ground Title Insurance Survey and standard surveyor report which locates and defines all recorded exceptions noted in Schedule B, section 2 and reflecting issues which are satisfactory in the Company's sole discretion. ITEM G) The Company may make other requirements or exceptions upon its review of the proposed documents creating the estate or interest to be insured, or otherwise ascertaining details of the transaction. ITEM H) Authority documents for all parties executing documents. NOTE: THIS COMPANY RESERVES THE RIGHT TO MAKE ADDITIONAL REQUIREMENTS AND/OR EXCEPTIONS UPON REVIEW OF SAID DOCUMENTS. SCHEDULE B - SECTION 2 COMMITMENT NO. 32160 EXCEPTIONS The policy or policies to be issued will contain exceptions to the following unless the same are disposed of to the satisfaction of the Company. 1. Any facts, rights, interests, or claims which are not shown by the public records but which would be ascertained by an inspection of said land or by making inquiry of persons in possession thereof. 2. Discrepancies, conflicts in boundary lines, shortage in area, encroachments, or any other facts which a correct survey would disclose, and which are not shown by public records. 3. Any lien, or right to a lien, for services, labor or material heretofore or hereafter furnished, imposed by law and not shown by the public records. 4. Real estate taxes and municipal charges which constitute liens. 5. Title to and rights of the public and others entitled thereto in and to those portions of the insured premises lying within the bounds of adjacent streets, roads and ways. 6. Easements granted by Raymond A. Carye and Barbara F. Carye to Chelmsford Water District dated June 17, 1980, and recorded in Book 2425, Page 129, as affected by a Revised Easement dated October 16, 1981, and recorded in Book 2506, Page 621. 7. Easements granted by Raymond A. Carye and Barbara F. Carye to Massachusetts Electric Company and New England Telephone and Telegraph Company dated June 18, 1980, and recorded in Book 2425, Page 127, as affected by revised easement dated October 15, 1981, and recorded in Book 2510, Page 591. 8. Drainage easements granted by Raymond A. Carye and Barbara F. Carye dated November 28, 1983, and recorded in Book 2682, Page 636. 9. Declaration of Common Easement by Raymond A. Carye and Barbara F. Carye dated June 23, 1981, recorded in Book 2485, page 445. 13. Easement Agreement by Raymond A. Carye and Barbara F. Carye, as Trustees of 12 Elizabeth Drive Realty Trust, dated November 19, 1984, recorded in Book 2909, page 21. 15. Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing from BerCar II, LLC to Archon Financial, L.P., dated April 16, 1998, recorded with said Deeds, Book 9212, page 38. 16. Assignment of Leases and Rents from BerCar II, LLC to Archon Financial, L.P., dated April 16, 1998, recorded with said Deeds, Book 9212, Page 87. 17. UCC Financing Statement from BerCarr II, LLC to Archon Financial, L.P., recorded with said Deeds, Book 9212, Page 101, as assigned to LaSalle National Bank Association, as Trustee for the GS Mortgage Securities Corporation II, Commercial Pass-Through Certificates, Series 1998-C1, recorded with said Deeds, Book 12990, page 102. END OF SCHEDULE /s/ illegible signature - ----------------------------- Authorized Signature Exhibit D Purchase Option Closing Procedures Closing Date: The date (the "Closing Date") when the deed to the demised premises shall be delivered and the Purchase Price shall be paid (the "Closing") shall be the date elected by Tenant by written notice given not less than 30 days prior, and shall be no earlier than January 2, 2015, and no later than September 30, 2015. The Closing shall take place at 10:00 a.m. on the Closing Date at the demised premises or at such other location as the parties shall agree in writing. Seller's Deliveries: At the Closing, Landlord shall deliver to Tenant or its nominee or assignee (i) a fully executed and acknowledged quitclaim deed transferring fee simple title (which shall be a one hundred percent (100%) ownership interest) in and to the demised premises, free and clear of all encumbrances other than Approved Exceptions, as hereinafter defined, (ii) an affidavit or certificate satisfying the requirements of Section 1445 of the Internal Revenue Code of 1986, as amended (the "FIRPTA Certificate"), (iii) such certificates or other instruments (including but without limitation (x) an affidavit that there are no tenants or other parties in possession of the demised premises (other than Tenant and any parties claiming under Tenant) and that Landlord has no knowledge of any work having been done at the demised premises (other than by Tenant or any parties claiming under Tenant) which would entitle anyone now or hereafter to claim a mechanics' or materialmen's lien on the demised premises and (y) evidence of Landlord's authority as may be reasonably required by Tenant) which are customary in like transactions in the greater Boston area (including, if and to the extent applicable, an assignment without warranty or representation of any other property rights of Landlord with respect to the demised premises) and (iv) a 1099 tax reporting form. Purchase Price: The "Purchase Price" for the demised premises shall be paid to the Landlord at the Closing in cash or by wire transfer or certified funds check. Title: At the Closing, Landlord shall deliver to Tenant or, if Tenant so directs by notice to Landlord at least three (3) days prior to Closing, to Tenant's nominee or assignee, a good and sufficient quitclaim deed to the demised premises, which shall convey good, record and marketable title to the demised premises free and clear of all liens, municipal betterments, assessments, easements, restrictions and encumbrances of any nature or description whatsoever, except the following (the "Approved Exceptions"): i. provisions of applicable building codes and zoning laws; ii. liens for municipal betterments; iii. rights, easements, restrictions and other title matters of record which are set forth in the Title Commitment, and such other title matters arising after the date hereof which are consented to in writing by Tenant, created by Tenant or result from Tenant's failure to act; and iv. the Lease (and the notice of lease with respect thereto) and parties in possession thereunder (i.e., only Tenant or any party claiming under Tenant). Registered Title. In addition to the foregoing, if the title to the demises premises or any portion thereof is registered, the deed shall be in form sufficient to entitle Tenant to a Certificate of Title for the demised premises, and Landlord shall deliver with said deed all instruments, if any, necessary to enable Tenant to obtain such Certificate of Title. Lease: The Original Term of the Lease shall be extended beyond September 30, 2014 to the Closing Date and shall terminate as of the Closing, subject to any undischarged obligation of either party thereunder which is by the terms thereof to survive the termination thereof. Use of Purchase Money to Clear Title: In order to enable Landlord to make conveyance as herein provided, Landlord may, at Closing, use the Purchase Price or any portion thereof to clear title of any or all encumbrances or adverse interests, and all instruments required therefore shall be procured and recorded simultaneously with the recording of Landlord's deed of the Property or thereafter, provided other reasonably satisfactory arrangements for the procuring and recording of such instruments are made at Closing. Adjustments: The Purchase Price shall not be subject to any adjustment. Closing Costs: Tenant shall pay all premiums for any and all title insurance policies it may obtain with respect to the Property. All real estate transfer taxes shall be borne by Landlord. All other costs and expenses, if any, shall be borne by the respective parties in accordance with standard conveyancing practices in the greater Boston area prevailing on the Closing Date for similar transactions. Remedies: If Landlord fails to fulfill obligation to convey the demised premises to Tenant pursuant to the Purchase Option as provided in the Lease and this Exhibit D, Tenant shall have the following rights and remedies, all of which shall be cumulative except to the extent otherwise provided by applicable law (it being understood that Tenant's right to obtain the remedy of specific performance is conditioned upon payment in full to Landlord of the Purchase Price hereunder): (A) Seek specific performance of the Purchase Option (Landlord hereby acknowledging that the demised premises are unique and, for that reason, among others, Tenant will be irreparably damaged if the Purchase Option is not specifically enforced. Accordingly, in the event of any breach or default of the Purchase Option by Landlord, Landlord hereby irrevocably stipulates that Tenant shall have, without prejudice to any right or remedy otherwise available at law or in equity, the right to demand and have specific performance of the Purchase Option); (B) Seek actual damages provided that such damages shall not exceed One Million and 00/100 Dollars ($1,000,000); or (C) Seek a restraining order and/or injunction to prevent Landlord from selling or encumbering or otherwise transferring the Property to any other party. In the event of Landlord's default of its obligations under the Purchase Option, Tenant at all times shall have the right to continue its use and occupancy of the Property pursuant to the Lease until resolution of Landlord's default. EXHIBIT E FORM OF NOTICE OF LEASE NOTICE OF LEASE Notice is hereby given pursuant to Chapter 183, Section 4 of the General Laws, of a lease upon the following terms: Landlord: BerCar II, LLC, a Massachusetts limited liability company Tenant: Brooks-PRI Automation, Inc. a Delaware corporation Date of Lease _________________, 2002 Execution: Demised Premises: A certain parcel of land, with the building thereon, situated at 12 Elizabeth Drive, Chelmsford, Massachusetts, as more particularly described on Exhibit A attached hereto and incorporated herein. Term and Approximately twelve (12) years, commencing on or about Commencement Date: October 1, 2002 and expiring on September 30, 2014. Extension Options: Two (2) extension options of ten (10) years each pursuant to and subject to the terms and provisions of Sections 1.5 and 1.6 of the Lease. Right to Purchase: Tenant, at its election, has a one (1) time right to purchase the entire Premises pursuant to and subject to the terms and provisions of Article 16 of the Lease.
Executed as an instrument under seal this ____day of ________, 2002. LANDLORD: TENANT: BerCarII, LLC Brooks-PRI Automation, Inc. By: By: __________________________ __________________________ Name: Name: Title: Title: COMMONWEALTH OF MASSACHUSETTS _________, ss. ____________, 2002 Then personally appeared the above-named ____________ as ____________ of ____________, a _____________, on behalf of the _________ (in its capacity as ________ of ________), and acknowledged the foregoing instrument to be his/her free act and deed in said capacity and the free act and deed of said __________ (in its capacity as __________ of said _________), before me, _______________________________ , Notary Public My Commission Expires: COMMONWEALTH OF MASSACHUSETTS _________, ss. ____________, 2002 Then personally appeared the above-named ____________ as ____________ of ____________, a _____________, and acknowledged the foregoing instrument to be his/her free act and deed in said capacity and the free act and deed of said __________, before me, _______________________________ , Notary Public My Commission Expires: EXHIBIT A LEGAL DESCRIPTION EXHIBIT F LIST OF ENVIRONMENTAL REPORTS (1) Phase I Environmental Site Assessment, 12 Elizabeth Drive, Chelmsford, MA, by Hopkins Environmental Management, Inc., dated March 22, 1996. (2) Phase I Environmental Site Assessment, 12 Elizabeth Drive, Chelmsford, Massachusetts, by ENSR, 155 Otis Street, Northborough, Massachusetts, dated March 1998. (3) Phase I Environmental Site Assessment, 12 Elizabeth Drive, Chelmsford, Massachusetts, by JM Coull, Inc., [draft dated, September 6, 2002].
EX-10.37 7 b44487bpexv10w37.txt EX-10.37 LEASE BETWEEN THE COMPANY AND BERCAR II Exhibit 10.37 FIRST AMENDMENT TO LEASE This First Amendment to Lease (this "FIRST AMENDMENT") is made as of the 1st day of November, 2002 by and between BerCar II, LLC ("LANDLORD"), and Brooks-PRI Automation, Inc. ("TENANT"). 1. Reference Information. 1.1. Landlord and Tenant entered into that certain Lease Agreement dated as of October 23, 2002 (the "LEASE"), pursuant to which Landlord is leasing to Tenant the land and improvements thereon known as 12 Elizabeth Drive, Chelmsford, MA, as more particularly described in the Lease. 1.2. Landlord and Tenant intend to confirm the commencement of the term of the Lease and to make other revisions set forth more particularly below. In consideration of the covenants herein reserved and contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows: 2. Incorporation; Capitalized Terms. The foregoing Reference Information hereby incorporated in this First Amendment and made part hereof for all purposes. All capitalized terms used in this First Amendment and not otherwise defined shall have the meanings given in the Lease. 3. Commencement Date. The Original Term of the Lease shall be deemed to commence on November 1, 2002, which date shall be the "Rent Day" as referred to in the Lease. Except to the extent directly affected by the foregoing change in the commencement of the term and the "Rent Day", all other dates and time periods in the Lease remain unaltered. 4. Approval of Alterations. Landlord shall not unreasonably withhold, condition or delay its approval of any alterations to the demised premises submitted by Tenant as provided in Sections 7.1.1 and 7.1.2 of the Lease or otherwise. In the event that Landlord fails to respond to a request for approval within the time frames provided in Sections 7.1.1 or 7.1.2, then Tenant may give Landlord a notice (an "ALTERATIONS REMINDER NOTICE") that a request for approval is pending and the deadline for response has passed. If Landlord fails to respond within five (5) business days of the receipt of an Alterations Reminder Notice, then Landlord shall be deemed to have approved the request that was the subject of such Alterations Reminder Notice. 5. Insurance Provisions. The first sentence of Section 4.3 of the Lease is hereby deemed deleted and replaced with the following: "Tenant shall maintain with respect to the demised premises during the term of this Lease a policy of commercial general liability insurance and if necessary commercial umbrella insurance in insurance companies authorized to do business in the Commonwealth of Massachusetts and with a financial capacity to be approved by Landlord in its commercially reasonable discretion and in amounts not less than Three Million Dollars ($3,000,000.00)." 6. Tax Payments: Notwithstanding anything in the Lease to the contrary, so long as Landlord is required to escrow and pay real estate taxes by any mortgagee holding an interest in the demised premises, then in lieu of direct payment of real estate taxes by the Tenant as provided in the Lease, Tenant shall pay to Landlord along with the monthly payment of Fixed Rent an estimated payment in the amount of 1/12 of the annual real estate taxes for the demised premises with respect to any tax fiscal year (or portion thereof) which falls within the term of the Lease (the "MONTHLY ESTIMATED TAX PAYMENT"). Landlord shall from time to time render to Tenant a statement calculating the Monthly Estimated Tax Payment based on the estimated amount of real estate taxes payable by Landlord during the tax fiscal year in question, and shall adjust the Monthly Estimated Tax Payment (a) within 30 days of the receipt by Landlord of the quarterly real estate tax bill which sets the final assessment and final tax rate for the demised premises for the tax fiscal year in question, and (b) promptly if at any time Landlord determines that the Monthly Estimated Tax Payment is in excess or less than 1/12 of the annual amount of real estate taxes payable by Landlord. Promptly after any real estate tax payment made by or on behalf of Landlord, Landlord shall render a statement to Tenant summarizing the actual amounts of real estate taxes paid by Landlord and provide documentation confirming payment to the taxing authority. Within 30 days of the end of each tax fiscal year during the term of the Lease (and within 30 days of the earlier of either the end of the term of the Lease or the determination of the final assessment and final tax rate for the demised premises for the tax fiscal year during which the end of the term of the Lease falls), Landlord shall issue to Tenant a final statement of taxes for the tax fiscal year in question stating the total amount of real estate taxes payable by Tenant, the total amount of the Monthly Estimated Tax Payments paid by Tenant, and any excess or deficiency between those two amounts, and within 30 days of such final determination, either, (y) Landlord shall refund any excess payment of Monthly Estimated Tax Payments to Tenant, or (z) Tenant shall pay any deficiency in the Monthly Estimated Tax Payments to Landlord. 7. Ratification. Except as amended hereby, the terms and conditions of the Lease shall remain unaffected. From and after the date hereof, all references to the Lease shall mean the Lease as amended hereby. Additionally, Landlord and Tenant each confirms and ratifies that, as of the date hereof and to its actual knowledge, (a) the Lease is and remains in good standing and in full force and effect, and (b) neither party has any claims, counterclaims, set-offs or defenses against the other party arising out of the Lease or the demised premises or in any way relating thereto or arising out of any other transaction between Landlord and Tenant. 8. General Provisions. 8.1 Applicable Law. This First Amendment shall be deemed to have been executed and delivered within the Commonwealth of Massachusetts, and the rights and obligations of Landlord and Tenant hereunder shall be construed and enforced in accordance with, and governed by, the laws of the Commonwealth of Massachusetts without regard to the laws governing conflicts of laws. 8.2 Severability. If any term of this First Amendment or the application thereof to any person or circumstances shall be invalid and unenforceable, the remaining provisions of this First Amendment, the application or such term to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected. 8.3 Successors and Assigns. This First Amendment is binding upon and shall inure to the benefit of Landlord and Tenant, their respective agents, employees, representatives, officers, directors, divisions, subsidiaries, affiliates, assigns, heirs, successors-in-interest and shareholders. 8.4 Interpretation. Each party has cooperated in the drafting and preparation of this First Amendment and, therefore, in any construction to be made of this First Amendment, the same shall not be construed against either party. In the event of litigation relating to this First Amendment, the prevailing party shall be entitled to reimbursement from the other party of its reasonable attorneys' fees and costs. 8.5. Entire Agreement. This First Amendment constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous oral and written agreements and discussions, and may not be amended, waived, discharged or terminated except by a written instrument signed by all of the parties hereto. [signatures on following page] IN WITNESS WHEREOF, Landlord and Tenant have caused this First Amendment to be executed as a sealed instrument as of the day and year first above written. LANDLORD: BerCar II LLC, BY ITS MANAGERS: ALTID ENTERPRISES, LLC By: /s/ Raymond F. Carye ----------------------------- Raymond F. Carye, Manager By: /s/ Barbara F. Carye ----------------------------- Barbara F. Carye, Manager SENNEN REALTY TRUST /s/ Edward F. Carye -------------------------------- Edward F. Carye, Trustee /s/ Barbara J. Hausman -------------------------------- Barbara J. Hausman, Trustee TENANT: BROOKS-PRI AUTOMATION, INC. By /s/ Robert J. Therrien ---------------------------- Name: Robert J. Therrien Title: President & CEO ATTEST: By /s/ Jeffrey J. Myrdek ------------------------------------ Name: Jeffrey J. Myrdek Title: Director of Global Facilities EX-10.38 8 b44487bpexv10w38.txt EX-10.38 SEPARATION AGREEMENT OF ELLEN RICHSTONE Exhibit 10.38 SEPARATION AGREEMENT This Agreement (the "Separation Agreement") effective as of this 31st day of October, 2002 (the "Effective Date") by and between Brooks-PRI Automation, Inc., 15 Elizabeth Drive, Chelmsford, Massachusetts 01824 (the "Company"), and Ellen B. Richstone, of 67 Bullard Road, Weston, Massachusetts 02493 (the "Executive"). WITNESSETH: WHEREAS, Executive has been employed by the Company since October 19, 1998 as Senior Vice President Finance and Administration and Chief Financial Officer, pursuant to certain terms as described in an offer letter of the same date by and between the Company and Executive (the "Offer Letter"); WHEREAS, the Company and Executive entered into an Indemnification Agreement (the "Indemnification Agreement") on or about February 11, 2000; WHEREAS, the Executive desires to resign her duties as an officer of the Company on the earlier of (i) the date the Executive elects to resign all of her positions as an employee, officer or director of the Company or with any of its affiliates and subsidiaries, including without limitation her position as Senior Vice President Finance and Administration and Chief Financial Officer or (ii) November 30, 2002 (the "Resignation Date"); and WHEREAS, the parties wish to establish the terms of a Separation Agreement incident to the termination of Executive's employment with the Company and to resolve all matters between them. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein it is hereby agreed by and between the Company and Executive as follows: 1. Employment Relationship. The Executive agrees that she shall resign all of her positions as an employee, officer or director of the Company or with any of its affiliates and subsidiaries, including without limitation her position as Senior Vice President Finance and Administration and Chief Financial Officer, effective as of the Resignation Date. Prior to the Resignation Date, Executive shall work with such person or persons and at such Company location in Chelmsford, Massachusetts as designated by the Chief Executive Officer of the Company to transition her duties and responsibilities. Executive shall continue to be paid her current base salary until the Resignation Date. It is expressly understood and acknowledged by Executive that this Separation Agreement provides her with substantial payments above and beyond that to which she would be otherwise entitled from the Company. 2. Severance. The Company shall pay the Executive total severance of Four Hundred Twenty Thousand Dollars ($420,000) (the "Severance"). Following the Resignation Date, the Severance shall be paid in 12 equal, monthly installments beginning on the first day of the month immediately following the Resignation Date and continuing on the first day of the next eleven (11) months thereafter. Further, the Company shall pay Executive all accrued and unpaid vacation upon the Resignation Date. - -------------------------------------------------------------------------------- EXECUTION COPY 1 3. Other Benefits. (a) Benefit Plans. Following the Resignation Date, the Company will pay health and dental premiums on behalf of Executive in accordance with her rights under the Consolidated Omnibus Reconciliation Act of 1986 ("COBRA") until the date which is twelve (12) months following the Resignation Date. (b) Perquisites. The Company will permit the Executive to retain her laptop computer following the Resignation Date. (c) Bonus. If and to the extent the Company pays bonuses to its executive officers for the fiscal year ended September 30, 2002, the Company agrees to pay the Executive a pro rata portion of her bonus for that period, at the same time the Company pays such bonuses to its actively employed executive officers. 4. Outplacement Benefits. The Company agrees to provide Executive with no more than Thirty Thousand Dollars ($30,000) worth of executive outplacement services with an outplacement firm selected by the Executive. 5. [RESERVED] 6. Confidentiality. By employment with the Company, Executive has had, or will have, contact with and gain knowledge of certain confidential and proprietary information and trade secrets, including without limitation, analyses of the Company's prospects and opportunities; programs (including advertising); direct mail and telephone lists, customer lists and potential customer lists; the Company's plans for present and future developments; marketing information including strategies, tactics, methods, customer's market research data; financial information, including reports, records, costs, and performance data, debt arrangements, holdings, income statements, annual and/or quarterly statements and accounting records and/or tax returns; operational information, including operating procedures, products, methods, service techniques, "know-how", tooling, plans, concepts, designs, specifications, trade secrets, processes, methods and suppliers; technical information, including computer software programs; research and development projects; product formulae, processes, inventions, designs, or discoveries, which information the Company treats as confidential. Executive agrees that Executive will not communicate or disclose to any third party or use for Executive's own account, without the written consent of the Company, any of the aforementioned information or material, except as required by law, unless and until such information or material becomes generally available to the public through sources other than Executive. Executive will deliver to the Company all property, documents, or materials in her possession or custody, of any nature belonging to the Company whether in original form or copies of any kind, including any trade secrets and proprietary information upon the Resignation Date. 7. Public Statements. - -------------------------------------------------------------------------------- EXECUTION COPY 2 (a) Press Release. On or before October 31, 2002, the Company shall issue a press release in substantially the form attached as Exhibit A. (b) Reference. The Company will provide the Executive with a letter of reference in the form attached as Exhibit B. The Executive may advise any prospective employer that desires an oral reference to contact Robert J. Therrien and/or Steven Wentzell, who shall respond in conformity with Exhibit B. The Executive and the Company acknowledge and agree that Messrs. Therrien and Wentzell are the only representatives of the Company authorized to provide oral references on behalf of the Executive. (c) Non-Disparagement. For so long as the Executive is engaged by the Company under this Separation Agreement, and at all times thereafter, the Executive shall support the Company in public statements and in all dealings with third parties, and will refrain from making any derogatory or false statements with respect to the Company or any of its officers, directors, employees, advisors, customers or other related or affiliated parties. For so long as the Executive is engaged by the Company under this Separation Agreement, and at all times thereafter, the Company will refrain from making any derogatory or false statements with respect to the Executive. 8. Stock Options. The parties agree and acknowledge that in accordance with the terms of the Offer Letter all options granted to Executive, including but not limited to options granted pursuant to option agreements dated November 19, 1998; October 1, 2001; January 5, 2000; May 31, 2000; and January 2, 2001 (collectively the "Option Agreements"), shall be fully vested on the Resignation Date. The options shall remain exercisable following the Resignation Date in accordance with the terms of the applicable Option Agreement. 9. Indemnification. The Company agrees to continue to indemnify the Executive for a period of 10 years from the Resignation Date in accordance with the terms and conditions set forth in the Indemnification Agreement. 10. Remedies. Any breach or threatened breach by the Executive of the provisions of this Separation Agreement could result in irreparable and continuing damage to the Company for which there is no adequate remedy at law. In such event, the Company shall be entitled to injunctive relief and/or specific performance, and such other relief that may be proper (including monetary damages, if proper). Any breach or threatened breach by the Company of the provisions of this Separation Agreement could result in irreparable and continuing damage to the Executive for which there is no adequate remedy at law. In such event, the Executive shall be entitled to injunctive relief and/or specific performance, and such other relief that may be proper (including monetary damages, if proper). 11. [RESERVED] - -------------------------------------------------------------------------------- EXECUTION COPY 3 12. Release. Except for Executive's rights arising under this Separation Agreement, Executive specifically releases, remises and forever discharges the Company and its officers, directors and employees, acting in their capacity as such, from all claims of any nature which Executive now has or ever had arising from her employment with the Company, whether common law claims or statutory claims, including but not limited to: (a) Claims under any state or federal discrimination, fair employment practices or other employment related statute, or regulation (as they may have been amended through the date of this Separation Agreement) prohibiting discrimination or harassment based upon any protected status including, without limitation, race, color, religion, national origin, age, gender, marital status, disability, handicap, veteran status or sexual orientation. Without limitation, specifically included in this paragraph are any claims arising under the Federal Rehabilitation Act of 1973, Age Discrimination in Employment Act of 1967, as amended, the Older Workers Benefit Protection Act, Title VII of the Civil Rights Act of 1964 as amended by the Civil Rights Act of 1991, the Equal Pay Act, the Americans With Disabilities Act and any similar Massachusetts or other state or local statute or ordinance; (b) Claims under any other state or federal employment related statute, or regulation (as they may have been amended through the date of this Agreement) relating to wages, hours or any other terms and conditions of employment. Without limitation, specifically included in this paragraph are any claims arising under the Fair Labor Standards Act, the Family and Medical Leave Act of 1993, the National Labor Relations Act, the Employee Retirement Income Security Act of 1974, the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) and any similar Massachusetts or other state or local statute or ordinance; (c) Claims under any state or federal common law theory including, without limitation, wrongful discharge, breach of express or implied contract, promissory estoppel, unjust enrichment, breach of a covenant of good faith and fair dealing, violation of public policy, defamation, interference with contractual relations, intentional or negligent infliction of emotional distress, invasion of privacy, misrepresentation, deceit, fraud or negligence; and (d) Any other claim arising under state or federal law. (e) Notwithstanding the foregoing, this release shall exclude (a) Executive's rights to defense and indemnification from the Company for actions taken in the course and scope of her employment with the Company and its subsidiaries and affiliates; and (b) claims to enforce this Agreement. 13. Older Workers Benefit Protection Act of 1990. This paragraph is intended to comply with the Older Workers Benefit Protection Act of 1990 ("OWBPA") with regard to Executive's waiver of rights under the Age Discrimination in Employment Act of 1967 ("ADEA"): (a) Executive is specifically waiving rights and claims under ADEA; (b) The waiver of rights under ADEA does not extend to any rights or claims arising after the date this Separation Agreement is signed by Executive; - -------------------------------------------------------------------------------- EXECUTION COPY 4 (c) Executive acknowledges receiving consideration for this waiver; (d) Executive acknowledges that she has been advised to consult with an attorney before signing this Separation Agreement; and (e) Executive acknowledges that after receiving a copy of this Separation Agreement, Executive had the right to take up to 21 days to consider her decision to sign the Separation Agreement; the parties agree that changes, whether material or immaterial, do not restart the running of the 21 day period. This Separation Agreement does not become effective for a period of seven days after Executive signs it. Executive has the right to revoke this Separation Agreement during the seven day period. Revocation must be made in writing, signed by Executive and delivered to the Company during the seven day period. If Executive revokes this Separation Agreement, the entire Separation Agreement shall be null and void. 14. Miscellaneous. (a) Entire Agreement. This Separation Agreement constitutes the entire agreement and understanding of the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and undertakings, both written and oral, including without limitation the Offer Letter and the change of control agreement entered into by and between the Company and the Executive, dated as of November 11, 1999. (b) Release. Executive agrees to execute another release in substantially the same form as set forth in Sections 12 and 13 herein upon the Resignation Date to release any claims arising between the Effective Date and the Resignation Date. (c) Severability. In the event that any court having jurisdiction shall determine that any covenant or other provision contained in this Separation Agreement shall be unreasonable or unenforceable in any respect, then such covenant or other provision shall be deemed limited to the extent that such court deems it reasonable and enforceable, and as so limited shall remain in full force and effect. In the event that such court shall deem any covenant or provision wholly unenforceable, the remaining covenants and provisions of this Separation Agreement shall nevertheless remain in full force and effect. (d) Assignment. This Separation Agreement shall not be assigned by operation of law or otherwise without the prior written consent of the other party hereto. (e) Notices. All notices and other communications given or made pursuant hereto shall be in writing (including telecopier or facsimile or similar writing) and shall be deemed to have been duly given or made as of the date delivered, mailed or sent if delivered personally, mailed by registered or certified mail (postage prepaid, return receipt requested) or sent by telecopier to the parties at the following addresses or telecopier numbers (or at such other address or telecopier number for a party as shall be specified by like notice, except that notices of changes of address or telecopier numbers shall be effective only upon receipt): - -------------------------------------------------------------------------------- EXECUTION COPY 5 If to the Company: Brooks-PRI Automation, Inc. 15 Elizabeth Drive Chelmsford, MA 01824 Attn: Vice President, Human Resources If to the Executive: Ellen B. Richstone 67 Bullard Road Weston, MA 02493 (f) Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the Commonwealth of Massachusetts, without giving effect to the conflicts of law principles thereof. Each of the parties agrees that any action brought to enforce the rights or obligations of any party under this agreement shall be commenced and maintained in the United States District Court for the District of Massachusetts or the Trial Court of the Commonwealth of Massachusetts, Middlesex Superior Court. Each of the parties further agrees that process may be served upon it by overnight courier or by certified mail, return receipt requested, and consents to the exercise of jurisdiction over it and its properties with respect to any action, suit, or proceeding arising out of or in connection with this Agreement. (g) Amendment. This Separation Agreement may not be amended or modified except by an instrument in writing signed by the parties hereto. (h) Interpretation. The parties hereto acknowledge and agree that: (i) each party and its counsel reviewed and negotiated the terms and provisions of this Separation Agreement and have contributed to its revision, (ii) the rule of construction to the effect that any ambiguities are resolved against the drafting party shall not be employed in the interpretation of this Separation Agreement, and (iii) the terms and provisions of this Separation Agreement shall be construed fairly as to all parties hereto and not in favor of or against any party, regardless of which party was generally responsible for the preparation of this Separation Agreement. (i) Compliance. The failure of any party hereto to insist upon strict compliance with any of the terms, covenants or conditions hereof shall not be deemed a waiver of such terms, covenants or conditions, nor shall any waiver or relinquishment of any right or power hereunder at any one or more times be deemed a waiver or relinquishment of such power or right at any other time or times. (j) Headings. The headings contained in this Separation Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Separation Agreement. (k) Counterparts. This Separation Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one - -------------------------------------------------------------------------------- EXECUTION COPY 6 and the same agreement. (l) Absence of Duress. Executive acknowledges that she has been afforded sufficient time to understand the terms and effects of this Separation Agreement, and that the agreements and obligations herein are made voluntarily, knowingly and without duress, and that neither the Company nor its agents or representatives have made any representations inconsistent with the provisions of this Separation Agreement. [SIGNATURE PAGE FOLLOWS] - -------------------------------------------------------------------------------- EXECUTION COPY 7 IN WITNESS WHEREOF, Executive and the Company's duly authorized representative have caused this Separation Agreement to be executed under seal as of the day and year first above written, to become effective seven days after Executive signs as provided in Paragraph 13. BROOKS-PRI AUTOMATION, INC. By: /s/ Robert J. Therrien ---------------------------------- EXECUTIVE: /s/ Ellen B. Richstone -------------------------------------- Ellen B. Richstone I, Ellen B. Richstone, represent and agree that I have carefully read this Separation Agreement; that I have been given ample opportunity to consult with my legal counsel or any other party to the extent, if any, that I desire; and that I am voluntarily signing by my own free act. This Separation Agreement constitutes a voluntary and knowing waiver of rights under the laws and statutes referenced above. Dated: October 31, 2002 /s/ Ellen B. Richstone -------------------------------------- Ellen B. Richstone - -------------------------------------------------------------------------------- EXECUTION COPY 8 EX-12.01 9 b44487bpexv12w01.txt EX-12.01 CALCULATION OF RATIO OF EARNINGS Exhibit 12.01 BROOKS-PRI AUTOMATION, INC. CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS AND ACCRETION (DOLLARS IN THOUSANDS EXCEPT RATIOS)
Year ended September 30, ------------------------------------------------------------------------- 2002 2001 2000 1999 1998 --------- --------- --------- --------- --------- FIXED CHARGES Interest expense $ 10,290 $ 4,063 $ 1,345 $ 1,553 $ 2,347 Portion of rent expense representative of interest 2,733 1,600 1,933 1,633 1,781 --------- --------- --------- --------- --------- 13,023 5,663 3,278 3,186 4,128 Preferred dividend and accretion requirement -- 145 194 1,248 2,484 --------- --------- --------- --------- --------- Combined fixed charges and preferred dividends and accretion $ 13,023 $ 5,808 $ 3,472 $ 4,434 $ 6,612 ========= ========= ========= ========= ========= EARNINGS Income (loss) before income taxes and minority interests $(627,412) $ (36,523) $ 28,444 $ (10,448) $ (27,917) Fixed charges per above 13,023 5,808 3,472 4,434 6,612 --------- --------- --------- --------- --------- $(614,389) $ (30,715) $ 31,916 $ (6,014) $ (21,305) ========= ========= ========= ========= ========= Ratio of earnings to combined fixed charges and preferred dividends and accretion -- -- 9.2 -- -- ========= ========= ========= ========= ========= Coverage deficiency $(627,412) $ (36,523) $ 28,444 $ (10,448) $ (27,917) ========= ========= ========= ========= =========
EX-21.01 10 b44487bpexv21w01.txt EX-21.01 SUBSIDIARIES OF THE COMPANY Exhibit 21.01 BROOKS-PRI AUTOMATION, INC. Subsidiaries of the Registrant
Name Jurisdiction - ---- ------------ AutoSimulations Asia Pacific Pte Ltd. Singapore AutoSimulations Ltd. United Kingdom Auto-Soft Ltd. Scotland Brooks-PRI Automation (Switzerland) GmbH Switzerland Brooks-PRI Automation Asia Ltd. Korea Brooks-PRI Automation (Germany) GmbH Germany Brooks-PRI Automation Holding (Belgium) BV B.A. Belgium Brooks-PRI Automation Holding (Germany) GmbH Germany Brooks Automation International, Inc. Barbados Brooks-PRI Automation (Japan) K.K. Japan Brooks- PRI Automation Korea, Ltd. Korea Brooks-PRI Automation (UK) Ltd. United Kingdom Brooks-PRI Automation Luxembourg S.A.R.L. Luxembourg Brooks Automation Massachusetts Securities Corporation Massachusetts Brooks-PRI Automation (Belgium) NV Belgium Brooks Automation Offshore International Caymans Brooks-PRI Automation (Singapore) Pte Ltd. Singapore Brooks-PRI Automation (France) SAS France Brooks-PRI Automation (Malaysia) SDN. BHD. Malaysia Brooks Automation Software Corporation Canada Brooks-PRI Automation (Taiwan) Company Ltd. Taiwan Brooks-PRI Automation (The Netherlands) B.V. The Netherlands Brooks-PRI Automation (Ireland) Ltd. Ireland Hermos Informatik GmbH Germany PRI Automation SDN. BHD. Malaysia PRI Automation Taiwan Ltd. Taiwan PRI Automation GmbH Germany PRI Automation Israel, Inc. Israel PRI Automation Singapore Pte. Ltd. Singapore PRI Korea Ltd. Korea PRI Automation Ltd. Ireland Interval Logic Corporation Massachusetts 1325949 Ontario Inc. Canada Brooks-PRI Automation (Canada), Inc. Canada Promis Systems Corp.Ltd. Hong Kong Promis Systems Corp. GmbH Germany Promis Systems Corp. Pte. Ltd. Singapore PRI Holdings, Inc. Massachusetts PRI International Holdings, Inc. Massachusetts PRI Switzerland, Inc. Massachusetts PRI Automation Switzerland AG Switzerland
EX-23.01 11 b44487bpexv23w01.txt EX-23.01 CONSENT OF PRICEWATERHOUSECOOPERS LLP Exhibit 23.01 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-88190, 333-88160, 333-88154, 333-88158, 333-87764, 333-73682, 333-67432, 333-61928, 333-40848, 333-40842, 333-66457, 333-66455 and 333-66429) and Form S-3 (Nos. 333-98849, 333-88320, 333-87194, 333-82562, 333-70122, 333-68060, 333-68062, 333-56642 and 333-42620) of Brooks-PRI Automation, Inc. of our report dated November 18, 2002, except for the second paragraph of Note 1 and the third paragraph of Note 12, as to which the date is December 20, 2002, relating to the financial statements and financial statement schedule, which appears in this Form 10-K. PricewaterhouseCoopers LLP Boston, Massachusetts December 24, 2002 EX-99.01 12 b44487bpexv99w01.txt EX-99.01 CERTIFICATION Exhibit 99.01 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of Brooks-PRI Automation, Inc., a Delaware corporation (the "Company"), does hereby certify, to the best of such officer's knowledge and belief, that: (1) The Annual Report on Form 10-K for the year ended September 30, 2002 (the "Form 10-K") of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Form 10-K fairly presents, in all materials respects, the financial condition and results of operations of the Company. Dated: December 27, 2002 /s/ Robert J. Therrien ------------------------------------ Name: Robert J. Therrien President and Principal Executive Officer Dated: December 27, 2002 /s/ Steven E. Hebert ------------------------------------ Name: Steven E. Hebert Corporate Controller, Principal Accounting Officer and Acting Principal Financial Officer 10-K 13 b44487bpe10vkxpdfy.pdf PDF COPY OF FORM 10-K FOR PRINTING begin 644 b44487bpe10vkxpdfy.pdf M)5!$1BTQ+C(-)>+CS],-"C,X,"`P(&]B:@T\/"`-+TQI;F5A7!E M("]#871A;&]G(`TO4&%G97,@,S8W(#`@4B`-+T]U=&QI;F5S(#,X-"`P(%(@ M#2].86UEV38I-9J?A*Y*;0?6EU\2[V')FKBO&*PO+%SECQD$*80KOT6=FW\A]E+,\EZ2VV5$U`J M%=LH/(OM"),(UV*Y;<(1LI^%U`3ORLE%@JQ2I[3EY?\+R`)-\OL0CY M?"E/"0-!&1X9J2"!XV(O9>_P_1:?*?]">)Z4AER21*U8NU2'G))TFV2GB(K4 M7Z%"J6`N'[;9$E>$;_`;\!4*W!$3%@S@S.(](KA:<#;?"WX3WG7"8J+O&!C. 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