| Commitments and Contingencies | COMMITMENTS AND CONTINGENCIES Warranty The warranty offered by us on our system sales is generally twelve months, and excludes certain consumable maintenance items. A provision for the estimated cost of warranty, based on historical costs, is recorded as cost of goods sold when the revenue is recognized. Our warranty obligations require us to repair or replace defective products or parts during the warranty period at no cost to the customer. The actual system performance and/or field warranty expense profiles may differ from historical experience, and in those cases, we adjust our warranty accruals accordingly. The following table summarizes changes in our product warranty accrual for the periods indicated (in thousands): Three Months Ended March 27, March 29, Beginning balance $ 3,040 $ 2,803 Warranties issued in the period 262 872 Costs to service warranties (1,029 ) (982 ) Warranty accrual adjustments 272 650 Ending balance $ 2,545 $ 3,343 Guarantees Standby Letters of Credit In the ordinary course of business, our bank provides standby letters of credit or other guarantee instruments on our behalf to certain parties as required. The standby letters of credit are secured by bank accounts and money market funds, which are classified as restricted cash in the accompanying condensed consolidated balance sheets. We have never recorded any liability in connection with these guarantee arrangements beyond what is required to appropriately account for the underlying transaction being guaranteed. We do not believe, based on historical experience and information currently available, that it is probable that any amounts will be required to be paid under such guarantee arrangements. As of March 27, 2016 , the maximum potential amount that we could be required to pay was $1.7 million , the total amount of outstanding standby letters of credit, which were secured by $1.8 million in bank accounts and money market collateral accounts. This amount was recorded as restricted cash as of March 27, 2016 . Canadian Minister of Industries In connection with our acquisition of Vortek Industries, Ltd. ("Vortek") in 2004, we became party to an agreement between Vortek and the Canadian Minister of Industries (the "Minister") relating to an investment in Vortek by Technology Partnerships Canada. Under the agreement, as amended, we, or Vortek (renamed Mattson Technology, Canada, Inc. ("MTC")) agreed to various terms, including (i) payment by us of a royalty to the Minister of 1.4 percent of net sales from certain Flash RTP products, up to a total of C$14.3 million (approximately $10.8 million based on the applicable exchange rate as of March 27, 2016 ), (ii) MTC maintaining a specified average workforce of employees in Canada, making certain investments and complying with certain manufacturing requirements, each, through October 27, 2009, and (iii) certain other covenants concerning protection of intellectual property rights. Under the provisions of this agreement, if MTC is dissolved, files for bankruptcy or we, or MTC, do not materially satisfy the obligations pursuant to any material terms or conditions, the Minister could demand payment of liquidated damages in the amount of C$14.3 million less any royalties paid to the Minister. As of October 27, 2009, we were no longer subject to covenant (ii), as discussed above but are still subject to the remaining terms and conditions until the earlier of payment of royalty of C$14.3 million less any royalties paid to date, or through December 31, 2020. We have recorded approximately C$0.6 million in cumulative royalty charges to date. The movement of our Canadian operations to Germany did not result in the dissolution of MTC. Indemnification Agreements We are a party to a variety of agreements, pursuant to which we may be obligated to indemnify other parties with respect to certain matters. Typically, these obligations arise in the context of contracts under which we may agree to hold other parties harmless against losses arising from a breach of representations or with respect to certain intellectual property, operations or tax-related matters. Our obligations under these agreements may be limited in terms of time and/or amount, and in some instances, we may have defenses to asserted claims and/or recourse against third parties for payments made. It is not possible to predict the maximum potential amount of future payments under these or similar agreements due to the conditional nature of our obligations and the unique facts and circumstances involved in each particular agreement. Historically, our payments under these agreements have not had a material effect on our financial position, results of operations or cash flows. We believe if we were to incur a loss in any of these matters, such loss would not have a material effect on our financial position, results of operations or cash flows. We indemnify our directors and certain employees as permitted by law, and have entered into indemnification agreements with our directors and certain senior officers. We have not recorded a liability associated with these indemnification agreements, as we historically have not incurred any material costs associated with such indemnification agreements. Costs associated with such indemnification agreements may be mitigated, in whole or only in part, by insurance coverage that we maintain. Litigation Overview In the ordinary course of business, we are subject to claims and litigation, including claims that we infringe third party patents, trademarks and other intellectual property rights. Although we believe that it is unlikely that any current claims or actions will have a material adverse impact on our operating results or our financial position, given the uncertainty of litigation, we cannot be certain of this. The defense of claims or actions against us, even if without merit, could result in the expenditure of significant financial and managerial resources. We record a legal liability when we believe it is both probable that a liability has been incurred, and the amount can be reasonably estimated. We monitor developments in our legal matters that could affect the estimate we have previously accrued. Significant judgment is required to determine both probability and the estimated amount. Class Action Merger Litigation On December 14, 2015, a putative shareholder class action complaint was filed in the Court of Chancery of the State of Delaware against Mattson, Mattson’s Board of Directors, Beijing E-town Dragon Semiconductor Industry Investment Center (“Parent”), and Dragon Acquisition Sub, Inc. (“Merger Sub”), captioned Sally Mogle v. Mattson Technology , Case No. 11807 (Del. Ch.). On December 22, 2015, a second putative shareholder class action complaint was filed in the Court of Chancery of the State of Delaware against Mattson’s Board of Directors, Parent, and Merger Sub, captioned Philip Durgin v. Kannappan , Case No. 11837 (Del. Ch.). The complaints allege, among other things, that the Company’s directors breached their fiduciary duties by approving the Definitive Merger Agreement, dated December 1, 2015, by and among Mattson, Parent, and Merger Sub (“Merger Agreement”), and that Parent, and Merger Sub aided and abetted the alleged breaches of fiduciary duty. The complaints seek, among other things, either to enjoin the proposed transaction or to rescind it should it be consummated, as well as unspecified damages, including attorneys’ and experts’ fees. On January 12, 2016, a putative shareholder class action complaint was filed in the Superior Court of the State of California, Alameda County against Mattson, Mattson’s Board of Directors, Parent, and Merger Sub, captioned Mary Salinas v. Mattson Technology , Case No. RG16799807. The complaint alleges, among other things, that the Company’s directors breached their fiduciary duties by approving the Definitive Merger Agreement, and that Mattson, Parent, and Merger Sub aided and abetted the alleged breaches of fiduciary duty. The complaint seeks, among other things, to enjoin the stockholder vote on the proposed transaction and unspecified damages, including attorneys’ and experts’ fees. On February 11, 2016, Plaintiff filed an Amended Class Action Complaint alleging, among other things, that Mattson’s directors breached their fiduciary duties by approving the Merger Agreement and issuing an incomplete and misleading Preliminary Proxy Statement, and that Mattson, Parent and Merger Sub aided and abetted the alleged breaches of fiduciary duty. The complaint seeks, among other things, either to enjoin the proposed transaction or to rescind it should it be consummated, as well as unspecified damages, including attorneys’ and experts’ fees. On February 22, 2016, a second putative shareholder class action complaint was filed in the Superior Court of the State of California, Alameda County against Mattson, Mattson’s Board of Directors, Parent, and Merger Sub, captioned Darrell Brown v. Mattson Technology , Case No. RG16804802. The complaint alleges, among other things, that Mattson’s directors breached their fiduciary duties by approving the Merger Agreement and issuing an incomplete and misleading Preliminary Proxy Statement, and that Mattson, Parent, and Merger Sub aided and abetted the alleged breaches of fiduciary duty. The complaint seeks, among other things, either to enjoin the proposed transaction or to rescind it should it be consummated, as well as unspecified damages, including attorneys’ and experts’ fees. On February 18, 2016, a putative shareholder class action complaint was filed in the United States District Court for the Northern District of California against the Board, captioned Talbert v. Mattson Technology , No. 8:16-cv-00811-LHK. The complaint alleges, among other things, that Mattson and Mattson’s Board of Directors violated Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 by making materially incomplete and misleading statements and/or omitting material information from the Proxy Statement filed with the SEC on February 17, 2016. The complaint seeks to enjoin the stockholder vote on the proposed transaction, unspecified damages, certain other equitable relief, and attorneys’ fees and costs. On March 14, 2016, Mattson, Mattson’s Board of Directors and Merger Sub entered into a Memorandum of Understanding (the “MOU”) with the plaintiffs in the actions, which sets forth the parties’ agreement in principle to a settlement of these actions. As explained in the MOU, the Company, the members of the Company’s Board of Directors and Merger Sub have agreed to the settlement solely to avoid the expense, disruption, and distraction of further litigation and without admitting any liability or wrongdoing. The MOU contemplates that the parties will seek to enter into a stipulation of settlement providing for the certification of a mandatory non-opt-out class, for settlement purposes only, that includes any and all record and beneficial owners of the Company’s common stock (excluding defendants, their subsidiary companies, affiliates, assigns, and members of their immediate families) during the period beginning on September 15, 2015, through the effective date of the consummation of the merger, including any and all of their respective successors in interest, predecessors, representatives, trustees, executors, administrators, heirs, assigns or transferees, immediate and remote, and any person or entity acting for or on behalf of, or claiming under, any of them, and each of them and a release of certain claims relating to the merger as set forth in the MOU. The claims will not be released until such stipulation of settlement is approved by the California Superior Court in the County of Alameda. There can be no assurance that the parties will ultimately enter into a stipulation of settlement or that the court will approve such settlement even if the parties were to enter into such stipulation |
