Insystems looks for investor or buyer

Electronic News, March 16, 1992 by Daniel Holden

SAN JOSE, Calif. -- Executives at Insystems Inc. are diligently hunting for an investor to supply the manufacturer of holographic systems for wafer inspection with much-needed cash, or for an acquirer to buy the company.

Insystems needs $8 million to $10 million to stay afloat, said sources, who asked to remain unnamed.

The company has taken drastic measures to avoid collapse, enacting what it termed a "furlough" of nearly two dozen of its 53 employees, most from manufacturing, as well as several key managers. The affected employees were given no vacation or severance pay, said sources.

Vice president of marketing Peter Fletcher said the move was intended "to stretch (Insystems') cash position while completing negotiations for investment," a process which he said could be completed in "the next couple of weeks."

Earlier, sources said Insystems president Robert Chamberlain had tendered his resignation, and that the company's board had convinced him to stay on to help search for an investor (EN, Antenna, March 9). Mr. Chamberlain, who joined the company last summer from Novellus Systems Inc., would not return phone calls for comment.

Mr. Fletcher said Mr. Chamberlain is still president of the company and that there has been "no announcement of his leaving or intent to leave."

Insystems' customer service and R&D personnel remain as sources of cash flow and new product development. But the cash-poor company has already been cut off by several suppliers, and sources said Insystems has sent letters to its customers asking them to make all payments immediately.

Mr. Fletcher said the company is searching for "a strategic partnership with another company which would invest in a minority position with Insystems," preferably "a Japanese company interested in expanding its business in the liquid crystal display inspection area."

Insystems has been working on development of an optical LCD inspection tool, the IQ 200, for several years but has not yet produced a working prototype. "We have a pretty firm set of specs, and we have done the required preliminary technical development," said Mr. Fletcher, who added that the final system should be able to detect 1-micron defects on a 350-millimeter by 350mm panel, comprising two 10-inch LCD screens, in one minute.

In 1990, Insystems entered into a partnership with Japan Synthetic Rubber Co. which closely resembles the type of relationship the company is searching for today.

Insiders said JSR had signed a distribution agreement in exchange for a down payment on three of the LCD inspection systems. But the LCD inspection system project ran out of money and was put on hold indefinitely, said insiders, adding that they believe JSR has "written off the deal as a total loss." Mr. Fletcher disagreed, saying the company's relationship with JSR is still good.

Insystems received a $3 million round of private financing in late 1990, about the time James B. Downey, previously president and chief executive of Read-Rite Corp., took over the company as acting president. Mr. Downey remains chairman of the executive committee of Insystems' board.

Insiders said Mr. Downey represents the majority shareholder in Insystems, a Monte Carlo resident named Cyrus Samrad. Mr. Samrad is also said to be the lead investor in a company called Plaser Corp., which manufactures selective tungsten equipment.