**UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549**

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**FORM 10-K**

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(Mark One)

**[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934**

**FOR THE FISCAL YEAR ENDED JULY 31, 1999**

**OR**

**[   ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934**

**For the transition period from _______ to _________**

**Commission File Number: 0-26968**

**ETEC SYSTEMS, INC.**
(Exact name of registrant as specified in its charter)



|**Nevada**                                                     | **94-3094580**                         
|-------------------------------------------------------------- | ---------------------------------------
|(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number)

**26460 Corporate Avenue, Hayward, California 94545**
(Address and Zip Code of Principal Executive Offices)

**Registrant's telephone number, including area code: (510)783-9210**




**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**




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 [X] NO  [   ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

The aggregate market value of the Registrant's Common Stock held by
nonaffiliates on October 6, 1999 (based upon the average of the high and low
sales prices of such stock as of such date) was approximately $613,035,614.
For purposes of this disclosure, Common Stock held by persons who hold
more than 5% of the outstanding voting shares and Common Stock held by
executive officers and directors of the Registrant have been excluded in that
such persons may be deemed to be "affiliates" as that term is defined under
the rules and regulations promulgated under the Securities and Exchange Act of
1933. This determination is not necessarily conclusive.

As of October 6, 1999, 21,585,516 shares of the Registrant's Common Stock
were outstanding.

**DOCUMENTS INCORPORATED BY REFERENCE**

The Registrant's definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on December 14, 1999 (the "Proxy Statement") is
incorporated by reference in Part III of this Form 10-K to the extent stated
herein.







**ETEC SYSTEMS, INC.
                        FOR THE YEAR ENDED JULY 31, 1999**

**PART I**

Item 1. Business

Item 2. Properties

Item 3. Legal Proceedings

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

          Executive Officers of the Registrant

**PART II**

Item 5. Market for Registrant's Common Stock and Related Stockholder Matters

Item 6.Selected Consolidated Financial Data

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

Item 7A.Quantitative and Qualitative Disclosure about Market Risk

Item 8. Financial Statements and Supplementary Data

Item 9.Changes in and Disagreements with Accountants on 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.Exhibits, Financial Statement Schedules, and Reports on Form 8-K

ALTA, CORE, Etec, and MEBES are registered trademarks and DigiRite
and the Etec logo are trademarks of Etec Systems, Inc. This Annual Report
on Form 10-K405 also includes trademarks and trade names of other companies.

**PART I**

**Item 1.  Business**

This item
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results may differ significantly from the results discussed in
the forward-looking statements. In addition to other risks and uncertainties
described in this document, certain risks and uncertainties that could affect
the Company's financial results include the following: potential delays in
shipments; cyclicality of the maskmaking and semiconductor equipment industries;
the capital spending decisions of customers and potential customers; the
development, market acceptance, and successful production of new products and
enhancements; competitors' product introductions and enhancements; risks
associated with acquisitions, including the Company's ability to successfully
integrate acquired businesses, products, or technologies; risks associated with
stock market volatility; risks associated with a reduction in cooperative
development funding; and risks associated with foreign operations, such as
foreign exchange risk, import-export controls, and political risks.   See
Management's Discussion and Analysis of Financial Condition and Results of
Operations ( "MD&A ") - - Other Factors Affecting Company
Results.

Etec Systems, Inc. ("Etec" or the
"Company") is a world leader in patterning solutions for the
semiconductor and electronics industries. Etec designs, develops, manufactures,
and markets electron and laser beam systems that produce high-precision masks,
which are used to print circuit patterns onto semiconductor wafers. Etec was
incorporated in 1989 under the laws of Nevada to affect a leveraged buyout in
1990 of the former Electron Beam Technology Division of The Perkin-Elmer
Corporation, which was itself the continuation of a business commenced in
1970.

Products and Services



Etec's products consist of electron beam and laser beam
lithography systems. The Company sells these maskmaking systems through its
Semiconductor Products Group ("SPG"), offers its direct imaging
systems to Printed Circuit Board ("PCB") manufacturers through its
Interconnect Products Group ("IPG"), and has begun marketing its
flat panel display testing product through its Display Products Group
("DPG"). The Company's systems are designed to provide a low
cost of production for the customer through high performance, reliability, and
ease of maintenance.

The Company is the only maskmaking equipment manufacturer
currently offering both electron beam and laser beam systems. The different
characteristics of electron beam and laser beam systems address different
segments of the mask pattern generation market.   Electron beam systems have a
much smaller beam spot size than laser beam systems and are best suited for
leading-edge market segments that require the highest resolution and accuracy.
The primary advantage of laser beam systems is their relative simplicity and
higher throughput compared to electron beam systems.



MEBES® Electron Beam Systems.
The MEBES electron beam products are designed to meet the most
technically demanding, leading-edge requirements of our customers. Over 175
MEBES systems have been produced, of which at least 120 remain in service as of
July 31, 1999. MEBES systems currently sell for approximately $6 million to $13
million. Etec's latest electron beam system, the MEBES 5500 system, was
introduced in July 1999.   This system delivers higher productivity for 0.18
micron device masks than previous MEBES models, and enables mask development for
the 0.13 micron generation. No MEBES 5500 systems shipped in fiscal 1999. The
previous generation MEBES 5000 first shipped in June 1998. The 5000 system
allows pilot production of complex masks for 0.18 micron devices.   The
throughput of the MEBES 5000 is as much as eight times faster than its
predecessor, the MEBES 4500.



ALTA® Laser Beam Systems. Etec
currently offers a family of scanned laser beam maskmaking systems. Compared to
MEBES products, the ALTA line of products offers lower cost for higher
production volume with less technically demanding specifications.   The Company
commenced shipment of the ALTA 3500 system in October 1997.   The ALTA 3500 is
designed for the production of masks for the 0.25-micron generation of
semiconductor devices. It is capable of writing Phase Shift Masks
( "PSM ") and Optical Proximity Correction masks, as well as large-
format masks, and currently sells for approximately $10 million.



Upgrades and Accessories. Etec sells a variety
of hardware and software packages that are designed to enhance previously
installed systems. These include packages that improve performance, and add new
features such as PSM capability and increased throughput.   Upgrades typically
range in price from approximately $1 million to approximately $7 million, and
accessories are typically priced at less than $1 million. From time to time, the
Company also repurchases, refurbishes, and resells a limited number of systems.

New Product Areas. Etec is in the initial
stages of establishing its IPG product in the PCB industry. The
DigiRiteTMTM 2000 system, which first shipped in March 1998, allows a PCB
manufacturer to transfer computer-generated patterns directly to printed circuit
boards, significantly reducing the intermediate steps associated with printing
patterns on masks. This allows the manufacturer to print more complex patterns,
eliminate set-up time, and reduce cost for low- volume, high-complexity
advanced PCB products.   In fiscal 1999, revenue from IPG products was less than
$3 million.   Etec also is developing focused electron-beam test systems for
flat panel displays through its Display Products Group. These products are
currently in the development stage. There can be no assurance that the Company
will be able to introduce them successfully into the market
(See MD&A -- Other Factors  Affecting Company Results - Successful Integration
of Acquired  Businessses).

The Company's warranty obligations for its SPG systems
generally cover a 12-month period beginning upon final customer acceptance.
However, most customers have requested service and support beyond the warranty
period, and Etec has historically derived significant revenues from annual
service and maintenance for its installed base of systems. Approximately 180 of
the Company's systems are currently serviced under one-year contracts with
Etec. Most customers request a package of service and support that includes a
variety of spare parts and support from an on-site Etec field engineer. Service
revenues were approximately $43.1 million, $37.2 million, and $34.4 million, in
fiscal 1999, 1998, and 1997, respectively.

Customers

The Company's SPG customers include both captive and
commercial (or  "merchant ") mask shops. Semiconductor manufacturers
employ their captive capabilities largely to supply portions of their own
requirements for masks, while merchant mask shops sell masks to a variety of
semiconductor device manufacturers. We derive most of our annual revenue from
the sale of a small number of systems and upgrades. The price of our systems
currently ranges from approximately $6 million to approximately $13 million for
MEBES and ALTA systems, and from approximately $1 million to approximately $7
million for upgrades. In fiscal 1999, we sold a total of 17 new systems and one
upgrade to eight8 customers. In each of the last three3 fiscal years, at least
one 1 customer has accounted for more than 10% of our revenue for the fiscal
year. We expect that sales to relatively few customers will continue to account
for a high percentage of our revenues in any accounting period in the
foreseeable future.



There are a relatively small number of potential customers
worldwide for mask production systems. Sales to our ten10 largest customers
accounted for approximately 75%, 79%, and 73% of our revenue in fiscal 1999,
1998, and 1997, respectively.   Historically, Etec has sold a significant
proportion of its systems to a limited number of customers.   In fiscal 1999,
sales to Photronics, Inc. accounted for approximately 17% of total revenues and
sales to DuPont Photomask, Inc. accounted for approximately 15% of total
revenues.   In fiscal 1998, sales to one customer, Dai Nippon Printing Company
Limited, accounted for approximately 17% of total revenues. In fiscal 1997,
sales to DuPont Photomask, Inc. accounted for approximately 16% of total
revenues, and sales to Photronics, Inc. accounted for approximately 14% of total
revenues. If we lose a customer's business due to customer dissatisfaction or
competition, it is difficult to replace the revenue that had previously come
from that customer, particularly in light of the long lead time required to
obtain an order.   The failure to replace such sales with sales to other
customers in succeeding periods would have a material adverse effect on our
business. Additionally, a reduction in orders from any one customer or the
cancellation or delay of any significant order could have a material adverse
effect on the Company's business, financial condition, and results of
operations.

Sales and Marketing

Etec markets and distributes its products directly
into its primary geographic markets, which consist of North America, Japan,
South Korea, Taiwan, and Europe. The Company maintains sales offices in Arizona,
California, Japan, Germany, South Korea, and Taiwan. The Company also uses sales
representatives for certain products in Taiwan and Europe. The Company's
agreements with its sales representatives are generally terminable upon 90
days'  notice by either party.

Because of the significant investment required to purchase
Etec's systems and their highly technical nature, the sales cycle is complex,
requiring interaction with several levels of the customer's organization and
extensive technical exchanges, product demonstrations, and commercial
negotiations. As a result, the sales cycle can be as long as 12 to 18 months.
Installing and integrating maskmaking equipment requires a substantial
investment by a customer. Purchase decisions are generally made at a high level
within the customer's organization, and the sales process involves broad
participation across the Etec organization, from the Chief Executive Officer to
the engineers who designed the product.



Backlog

The Company's backlog for products was approximately
$77.0 million, $128.8 million, and $158.6 million, at July 31, 1999, 1998, and
1997, respectively. Etec defines backlog to include only those systems,
accessories, and upgrades with respect to which a written purchase order or
agreement has been received and a delivery date within the next 12 months has
been specified. Backlog is not necessarily representative of actual future sales
in any given period, because customers have historically been able to reschedule
shipments.

Development of New Technology, Products, and Enhancements

Our business is characterized by rapid technological
change and evolving industry standards. As a result, we must enhance our
existing products and develop, manufacture, and successfully introduce new
products and upgrades with improved capabilities. Etec is currently developing
new electron and laser beam platforms to address 0.13 micron device masks and
mask development for the 0.10 micron generation. The Company is also developing
technologies to address later nodes of the semiconductor industry roadmap, the
0.07 micron device and mask development in the 0.05 micron generation. To make
these developments, we must make substantial investments in research and
development. Research and development expenses, net of funding under cooperative
development agreements, were $58.3 million, $53.4 million, and $34.4 million in
fiscal 1999, 1998, and 1997, respectively, representing 25%, 19%, and 14% of
revenues, respectively.   Any significant delay in the development, manufacture,
or market acceptance of new products, or in the enhancement of existing
products, would materially adversely affect our business. Our Interconnect
Product GroupIPG's DigiRite 2000 has not yet achieved market acceptance and
that business continues to generate a loss. Our flat panel display testing
product is still in the development stage. There can be no assurance that we
will be successful in selecting, developing, manufacturing, and marketing new
technology, products, or enhancements of our existing products.



Changes in mask or semiconductor manufacturing processes
could also adversely affect our business. We anticipate continued development of
product or process technologies that extend the useful lives of previously sold
maskmaking tools. For example, Etec's sales were materially adversely affected
for several years from the mid-1980s to the early 1990s due to the introduction
of semiconductor manufacturing equipment that allowed semiconductor companies to
manufacture several generations of smaller chips with older technology masks,
thereby eliminating the need for new generations of masks. We could also lose
business if a direct write technology is perfected that is not bound by the
current limitations of that technology. There can be no assurance that we will
be able to develop, manufacture and sell products that respond adequately to
such changes. In addition, the Company may incur substantial unanticipated costs
to ensure the functionality and reliability of its future product introductions
early in the product's life cycle. If new products have reliability or quality
problems, reduced orders, or higher manufacturing costs, delays in collecting
accounts receivable and additional service and warranty expenses may result.



Etec obtains research and development funding from
governmental agencies and private consortia such as the Department of Defense
Advanced Research Projects Agency ( "DARPA ") and International
SEMATECH for certain projects. Aggregate funding from all such sources amounted
to approximately $8.7 million, $6.1 million, and $2.0 million in fiscal 1999,
1998, and 1997, respectively. These cooperative development contracts set
technology milestones that we must meet by specified dates   to receive the
funding. If we are unable to meet the technology milestones necessary to secure
funding under such contracts, our research and development expenses in fiscal
2000 will be higher than currently expected. This, in turn, would materially
adversely affect our financial results.

Manufacturing

Etec has historically manufactured its electron beam
systems in a design and manufacturing facility located on its Hayward,
California campus. A new addition was occupied during fiscal 1999, bringing the
Hayward manufacturing facility to a total of 285,000 square feet. Etec has
historically produced its laser beam systems in two facilities located in
Beaverton, Oregon. During fiscal 1999, Etec constructed a new 177,000 square
foot facility in Hillsboro, Oregon and moved its laser manufacturing operations
to that new facility. The Beaverton site was vacated by the end of May 1999. The
additional cost of these new facilities increased our manufacturing costs
beginning in the fourth quarter of fiscal 1999. The production capacities of
these two facilities are not fully utilized. Accordingly, the fixed costs of the
excess capacity are expected to adversely impact gross margins in fiscal 2000.
There can be no assurance that the capacity utilization will ever be adequate to
offset these costs.

Although the Company manufactures some of the components and
subassemblies used in its systems, many of the components and subassemblies used
in Etec's systems are purchased from subcontractors. None of our suppliers is
obligated to provide us with any specific quantity of components or
subassemblies over any specific period. Most of the components and subassemblies
included in our products are obtained from a single supplier or a limited group
of suppliers. In particular, we rely on sole-source suppliers for electron beam
sources for our MEBES systems, high-voltage power supplies, certain lasers,
lenses, and other critical components. We have generally been able to obtain
adequate, timely delivery of critical subassemblies and components, although we
have experienced occasional delays.   Any inability to obtain adequate, timely
deliveries of subassemblies and components could prevent us from meeting
scheduled shipment dates. This could damage relationships with our current and
prospective customers and, as a result, materially adversely affect our
business.

Competition

The maskmaking equipment industry is highly
competitive. We believe that the principal competitive factors in our industry
are product performance, service, technical support, system price, speed,
reliability, ease of upgrade, and the customer's cost of ownership and
production. To remain competitive, we believe that we must invest significant
financial resources in new product development and in customer service and
support centers worldwide.



Etec currently competes worldwide with a number of U.S. and
foreign manufacturers, including Hitachi, Ltd., Japan Electron Optical
Laboratory, Ltd. ("JEOL"), Ltd., Toshiba Corp., and Leica
Microsystems, AG. Some of these competitors have substantially greater
financial, manufacturing, marketing, and customer service and support
capabilities than we do. In addition, some competitors have entered into
strategic relationships or alliances with leading semiconductor manufacturers.
In particular, we believe that Japanese competitors such as Hitachi and JEOL
have long-standing collaborative relationships with Japanese and other Asian
semiconductor manufacturers. Because of the significant investment required to
install and integrate maskmaking equipment, we also believe that, at any
particular site, a customer may rely upon a single maskmaking equipment vendor
for multiple generations of equipment. This makes it difficult to achieve
significant sales into that particular site once a competitor's system has been
selected.



We have felt some pricing pressures from our customers from
time to time. These pressures will intensify if our competitors are successful
in introducing systems with improved performance over their current product
offerings. Competitors may develop future generations of products that are
superior in features, cost, or other factors to our product offerings.
Development of a clearly superior competitive product for mask pattern
generation   would materially adversely affect our business. In addition,
potential customers who may not need all of the functionality and technical
capability of Etec's systems may instead purchase lower priced systems from our
competitors.

Patents and Other Proprietary Rights

Etec holds over 60 United States patents expiring on
various dates from 2001 through 2016, with corresponding patents and patent
applications claiming prior right from U.S. patent applications for many of such
patents in Japan, South Korea, the European Community, and Canada. In the field
of electron beam lithography, Etec owns patents directed to electron guns,
precision stages, particle beam systems, deflection assemblies, calibration and
measurement processes, and addressing and writing schemes. In the field of laser
beam lithography, Etec owns patents directed to scanning optics, laser pattern
generation, and rasterization schemes. Etec also has a number of pending U.S.
and foreign patent applications. There can be no assurance that any of these
applications will be allowed or that any of the allowed applications will be
issued as patents. The Company's SPG systems also incorporate software and
hardware technology licensed from third parties.

Etec has five registered U.S. trademarks. In addition to
patent and trademark protection, the Company relies on the laws of unfair
competition, copyright, and trade secrets to protect its proprietary rights. The
Company has entered into confidentiality and invention assignment agreements
with its employees and consultants that are designed to limit access to, and
disclosure or use of, the Company's proprietary information.

Semiconductor-related industries have experienced substantial
litigation regarding patent and other intellectual property rights. As is
typical in the industry, Etec has from time to time received, and may in the
future receive, communications from third parties alleging infringements of
patents and other intellectual property rights. In the future, protracted
litigation may be necessary to defend us against alleged infringement of
others' ' rights. Any such litigation, even if we are ultimately successful in
our defense, could result in substantial cost and diversion of time and effort
by management. This in and of itself could have a material adverse effect on our
business, financial condition, and results of operations. Further, adverse
determinations in such litigation could result in our loss of proprietary
rights, subject Etec to significant liabilities (including treble damages under
certain circumstances), require us to seek licenses from third parties, or
prevent us from manufacturing or selling our systems.



The Lemelson Foundation has filed a suit against numerous
semiconductor manufacturers, claiming patent infringement of a number of basic
U.S. patents granted to Jerome Lemelson over many years. Some of these
semiconductor companies, and the attorneys for the Lemelson Foundation, have
also contacted semiconductor equipment companies and commercial maskmaking
companies, claiming potential liability for infringement of these same patents.
We, in turn, have been contacted by two of our customers, notifying us of the
fact that they have received claims and claiming that we may have responsibility
for indemnifying them under the terms of our sales contracts. We have reached a
settlement with one customer, and we believe that we will be able to settle with
the other customer on reasonable terms, without any material adverse effect on
our business. However, there can be no assurance that we will be able to do so,
and the costs of a lengthy litigation, or a judgment in which we are found
liable, could have a material adverse effect on our business. In addition, we
may receive similar claims for indemnity from other U.S. customers who are
pursued by the Lemelson Foundation.

Governmental Regulations and Industry Standards

Etec is subject to a variety of governmental
regulations relating to the use, storage, discharge, handling, emission,
generation, manufacture, and disposal of toxic or other hazardous substances. In
addition, we are subject to certain packaging and take-back packaging
requirements in Europe. We believe that we are currently in compliance in all
material respects with such regulations and that we have obtained or will obtain
all material environmental permits necessary to conduct our business.
Nevertheless, if we fail to comply with current or future regulations,
substantial fines could be imposed on Etec. We also might be forced to suspend
production, to alter our manufacturing process or to cease operations. Such
regulations could also require us to acquire expensive remediation or abatement
equipment or incur substantial expenses to comply with environmental
regulations. Any failure by us to control the use, disposal, or storage of, or
adequately restrict the discharge of, hazardous or toxic substances could
subject Etec to significant liabilities.



Our products and worldwide operations are also subject to
numerous governmental regulations designed to protect the health and safety of
operators of manufacturing equipment. We believe that our products currently
comply with all material governmental health and safety regulations and with the
voluntary industry standards currently in effect.   In part because the scope of
future regulations and standards cannot be predicted, there can be no assurance
that we will be able to comply with any future regulations or industry
standards. Noncompliance could result in governmental restrictions on sales or
reductions in customer acceptance of Etec products. Compliance may also require
significant product modifications, potentially resulting in increased costs and
impaired product performance.

Employees

As of July 31, 1999, Etec had1,076 full-
time employees. None of the U.S. employees is governed by a collective
bargaining agreement. The Company's financial performance will depend
significantly upon the continued contributions of its officers and key
management, and technical, sales, and support personnel, many of whom would be
difficult to replace. There can be no assurance that the Company will be
successful in attracting or retaining qualified personnel.

Financial Iinformation Aabout Iindustry Ssegments

Financial information about industry segments is set
forth in Note 9 to the Consolidated Financial Statements titled  "Operating
Segment and Geographic Information " in Part II, Item 8, which information
is incorporated by reference into this Part I, Item 1.

Financial Iinformation about About foreign Foreign and domestic
Domestic operations Operations and export Export salesSales

Financial information regarding geographic operations
is set forth in Note 9 to the Consolidated Financial Statements titled
 "Operating Segment and Geographic Information " in Part II, Item 8,
which information is incorporated by reference into this Part I, Item 1.
Discussion concerning risks attendant to foreign operations is set forth in the
MD&A -- Other Factors Affecting Company Results in Part II, Item 7, which
information is incorporated by reference into this Part I, Item 1.

Item 2.	PROPERTIES

`Approximate
                         Square
      Location          Footage                       Use
---------------------  ----------  ------------------------------------------
Hayward, California..    340,000   Design, development, and manufacture of
                                   electron beam systems, and the Company's
                                   corporate offices.
Hillsboro, Oregon....    177,000   Design, development, and manufacture of laser
                                   systems.
Tucson, Arizona......     39,000   Design, development and manufacture of  laser
                                   direct imaging systems.
Munich, Germany......     16,000   Office, warehouse, and manufacturing space
                                   for Etec EBT GmbH (development of electron
                                   beam test systems) and offices for sales and
                                   service operations of Etec Systems GmbH.`

The Company also leases sales and service offices in Japan,
South Korea, and Taiwan. The Company's facilities in California and Oregon are
not fully utilized.   The Company believes its existing facilities provide
adequate capacity to meet its current and projected business activities.

ITEM 3.	 Item 3. Legal Proceedings

The Company is not
currently involved in any material legal proceedings.

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

No matters were
submitted to a vote of security holders during the fourth quarter of fiscal
1999.



EXECUTIVE OFFICERS OF THE REGISTRANT

The following table lists the names, ages, and positions held with the
Company of all executive officers of the Company. There are no family
relationships between any director or executive officer and any other director
or executive officer of the Company.

The executive officers of the Company, who are elected by and serve at the
discretion of the Board of Directors are as follows:

`Name           Age                      Position
----------------------  ----  -----------------------------------------------
Stephen E. Cooper.....   53   Chairman of the Board, President and Chief
                              Executive Officer
Paul A. Warkentin.....   46   Senior Vice President, Advanced Reticle
                              Solution Center
William D. Snyder.....   55   Vice President, Chief Financial Officer
William D. Cole.......   44   Vice President, Worldwide Sales
Trisha A. Dohren......   53   Senior Vice President, Corporate Services
                              and Quality
Mark A. Gesley........   44   Vice President, Technology Development
Leslie Polgar.........   56   Vice President and General Manager, SPG
William Ryan..........   60   Director of Etec, and Vice President
                              and General Manager, IPG
W. Russell Wayman.....   55   Vice President, General Counsel and Secretary`

Mr. Cooper joined Etec as President and Chief Operating
Officer in January 1993 and was named Chief Executive Officer in July 1993. He
was initially appointed to the Board of Directors in March 1993 and became
Chairman of the Board in April 1995. Mr. Cooper is also a director of Vivid
Semiconductor.

Dr. Warkentin was appointed Senior Vice President, Advanced
Reticle Solutions Center, in March 1999.   He served as Vice President, Chief
Operating Officer, from September 1997 to March 1999 and Vice President,
Marketing from July 1995 to August 1997.   From 1993 to 1995, Dr. Warkentin was
Beaverton site manager.

Mr. Snyder was appointed Vice President, Chief Financial
Officer when he joined Etec in August 1997.   From 1990 to 1997, Mr. Snyder was
Chief Financial Officer of Integrated Device Technology, a semiconductor
manufacturing company. Mr. Snyder is also a director of Peak, International
Ltd.

Mr. Cole, Vice President, Worldwide Sales, joined Etec as
Vice President, Sales and Customer Support in August 1996. From 1993 to 1996 Mr.
Cole served as Vice President, Sales for Genus, Inc., a manufacturer of ion
implementation and chemical vapor deposition systems.

Ms. Dohren was appointed Senior Vice President, Corporate
Services and Quality, in August 1999.   She was Vice President, Corporate
Services from September 1997 to July 1999.   Prior to that, she served as Vice
President, Human Resources and Administration from August 1993 to September
1997.

Dr. Gesley was appointed Vice President, Technology
Development in 1996. Prior to that he held the position of Vice President,
Engineering from 1995 to 1996.   He previously held a variety of engineering
management roles at Etec directing special development teams and other projects.

Dr. Polgar was appointed Vice President and General Manager
of Etec's Semiconductor Products Group in June 1999. He joined Etec from
private consulting and Air Liquide America Corporation, an industrial gas
company, where he served as Vice President and General Manager of their
Electronics Division from 1995 to 1998. From 1988 to 1994, he was President and
held several other senior management roles at Bertram Laboratories, a
semiconductor manufacturing company.

Mr. Ryan was appointed Vice President and General Manager of
Etec's Interconnect Products Group in February 1999.   He has been a member of
the Company's Board of Directors since December 1997.   Prior to joining Etec
as an employee, Mr. Ryan served as Executive Vice President with Angstrom
Technologies, a chemical company. From 1992 to 1994, he was Vice President of
Operations at SVG Lithography Systems, Inc., a semiconductor equipment
company.

Mr. Wayman, Vice President, General Counsel and Secretary,
joined Etec in June 1998. From 1990 to 1998, Mr. Wayman served as Vice
President, General Counsel, and Secretary of Storage Technology Corporation, a
computer storage equipment manufacturing company.



PART II

Item 5.   Market for Registrant's Common Stock and Related
Stockholder Matters

PRICE RANGE
OF COMMON STOCK



The Company's Common Stock has been traded on the NASDAQ
National Market under the symbol  "ETEC " since October 24, 1995. As
of October 6, 1999, there were 218 holders of record of the Company's
outstanding Common Stock. The following table sets forth the range of quarterly
high and low closing sale prices of the Common Stock as reported on the NASDAQ
National Market.

`High       Low
                                                       --------- ---------
Fiscal 1999:
    First Quarter...............................         $34.75    $15.81
    Second Quarter..............................          53.69     28.06
    Third Quarter...............................          53.88     21.88
    Fourth Quarter..............................          41.44     25.63

Fiscal 1998:
    First Quarter...............................         $67.13    $41.50
    Second Quarter..............................          51.25     35.88
    Third Quarter...............................          61.38     42.38
    Fourth Quarter..............................          49.38     29.25`

DIVIDEND POLICY



The Company has never declared or paid dividends on its
capital stock and does not anticipate paying any dividends in the foreseeable
future. The Company currently intends to retain its earnings, if any, for the
development of its business. Currently, the Company and its subsidiaries are
prohibited from paying dividends under the terms of its $50.0 million financing
facility. In addition, the lease of the Company's Hayward, California property
restricts the Company from paying cash dividends under certain conditions.



**Item 6. Selected Financial Data.**

`Fiscal Year Ended July 31,
                                     -------------------------------------------------
                                       1999      1998      1997      1996      1995
                                     --------- --------- --------- --------- ---------
                                        (in thousands, except per share amounts)

Revenue............................  $237,166  $288,327  $240,914  $145,645   $82,916
Research, development and
  engineering expenses.............   $58,317   $53,439   $34,373   $17,402   $10,497
Income before extraordinary items..    $1,026   $46,767   $34,439   $37,791    $4,524
Net income ........................    $1,026   $46,767   $34,439   $36,861    $9,936
Net income per share-basic.........     $0.05     $2.13     $1.66     $2.22    $11.84
Net income per share-diluted.......     $0.05     $2.05     $1.57     $2.02     $0.68
Shares used in per-share
  calculation-basic................    21,431    21,922    20,746    16,575       839
Shares used in per-share
  calculation-diluted..............    21,952    22,789    22,003    18,296    14,594

Total assets.......................  $308,006  $358,514  $284,543  $208,871   $85,984
Working capital....................  $188,155  $195,112  $156,303  $111,199   $23,215
Mandatorily redeemable convertible
   preferred stock.................     $  --     $  --     $  --     $  --   $76,397
Long-term debt, including capital
   lease obligations...............     $  --     $  --     $  --    $6,939   $16,866
Stockholders' equity(deficit)......  $238,656  $246,669  $197,461  $115,877  ($67,415)`

Factors Affecting Comparability

Fiscal 1999 net income reflects:

- the inclusion of $12.2 million of restructuring and
other charges, comprising $8.3 million of additional inventory reserves,   $2.5
million of restructuring charges, and   $1.4 million of other
charges.

Fiscal 1997 net income reflects:

- the inclusion of a $1.2 million discrete release of a
valuation allowance previously recorded against deferred tax
assets.



- the write-off of $3.9 million of acquired in-process
technology related to the Company's acquisition of Ebetech Electron Beam
Technology GmbH ( "Etetech ").   The Company is continuing its
research and development efforts and has not derived any revenue from products
related to the acquisition of Ebetech.

Fiscal 1996 net income reflects:



- the inclusion of an extraordinary loss of $0.9 million
recorded as a result of the early extinguishment of $18.7 million of senior
secured notes.



- the write-off of $6.3 million of acquired in-process
technology related to the acquisition of substantially all of the assets and
certain specified liabilities of Polyscan, Inc.   The Company is in the initial
product introduction state with this technology and has not derived any
substantial revenue from products related to the acquisition of Polyscan, Inc.



- a $23.0 million tax benefit realized as a result of the
discrete release of a portion of the valuation allowance previously   recorded
against deferred tax assets.





Fiscal 1995 net income reflects:

- the inclusion of an extraordinary gain of $5.4 million recorded as a
result of the early extinguishment of $19.7 million of subordinated notes
payable and accrued interest.



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

Except
for the historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties. The
Company's future results could differ materially from those discussed here. The
following is qualified in its entirety by the more detailed information and
financial statements, including the notes thereto, appearing elsewhere in this
Form 10-K, including information set forth under the heading "Other
Factors Affecting Company Results" as well as the other risks detailed in
this section.

Overview of 1999

Fiscal 1999 was a challenging year for Etec. A number
of industry changes combined to create a year characterized by uncertainty and
reduced expectations. At the same time, however, many positive developments
occurred, which have implications toward our future growth.



Fiscal 1999 began as one of the worst downturns in the
history of the semiconductor industry was coming to a close. In 1999, Etec's
total number of customers shrank. We saw the first divestiture of a captive
Japanese mask shop, and a number of other captive shops worldwide were also
absorbed by merchant shops. In addition, excess capacity in Taiwan and other
regions, partly a result of overly aggressive purchasing in the prior year, led
to an estimated 25% decline in worldwide mask pattern generation unit demand.
Etec took a number of actions to mitigate the effects of these events, including
controlling expenses, reducing headcount by approximately 100 employees, and
consolidating our European offices. In May, Etec completed two new facilities
for our Semiconductor Products Group ("SPG "), in Hayward, California
and Hillsboro, Oregon.



In our Interconnect Products Group ("IPG"), we
are bringing semiconductor technology to the printed circuit board industry. The
ramp of our DigiRite 2000 product has been slower than originally expected, but
a focus on leading printed circuit board manufacturers is yielding success,
particularly in Europe and North America. We remain convinced that uUltraviolet
laser direct imaging will lead to a profound change in the way printed circuit
boards are manufactured. As maskmaking becomes more complex, it is important for
Etec to understand how our customers use our systems in a production
environment. In March 1999, we announced the creation of the Advanced Reticle
Solutions Center ( "ARSC "). The ARSC is a development and validation
center for advanced reticle solutions and provides applications support to
improve return on investment for our customers. In the center, we are developing
equipment and processes in partnership with our customers, suppliers, and other
key partners. In July, Etec introduced the MEBES 5500 system, a high-throughput,
180-nanometer system capable of early development of 130-nanometer masks.



Etec shipped a milestone 50th ALTA laser pattern generation
system during the year. The ALTA 3500 is on its way to becoming the most popular
Etec product in the Company's history. Research and development investment is
critical to Etec's continued success; this investment reached a record level of
$58 million in fiscal 1999. External funding, including International SEMATECH,
and government funding through the Defense Advanced Research Project Agency
(DARPA), continue to bolster Etec's substantial internal investment.



Etec believes it is well positioned with new facilities, an
excellent product portfolio, and a superior employee team to deliver steady
growth when the market environment improves. Demand for deep ultraviolet (deep
UV) steppers and other equipment indicates the industry is rapidly moving into
the realms of subwavelength lithography. As production of 180-nanometer devices
and development of 130-nanometer devices grow, we should see increasing demand
for masks and maskmaking equipment.

Results of Operations

Years Ended July 31, 1999 and July 31, 1998

Revenue. Revenues comprise primarily sales of the
Company's MEBES (R)
, CORE (R)
, and ALTA (R)
 mask pattern generation systems, accessories, and upgrades, and the provision
of technical support, maintenance, and other services on such products. Product
sales, as a percentage of total revenue, decreased from 87% in fiscal 1998 to
82% in fiscal 1999, while service revenues increased from 13% to 18% of total
revenue over the same period. This change in revenue mix is due to the combined
effect of lower product revenue and higher service revenue due to an increased
installed base. The Company derives most of its revenues from the sale of a
small number of systems and upgrades. As such, any delay in the recognition of
revenue for a single system or upgrade can have a material adverse effect on the
Company's consolidated results of operations in a particular period.

Product revenue decreased 23% to $194.1
million from $251.2 million for the years ended July 31, 1999 and 1998,
respectively. This decrease primarily reflects a softening of demand for mask
pattern generation systems. The Company's fiscal 1999 revenue included 18 mask
pattern generation systems, down from 33 in the prior year.   This decrease in
SPG shipments was partially mitigated by the achievement of higher average sales
prices and by increased IPG shipments, up from one system in fiscal 1998 to four
in fiscal 1999.



Service revenue increased 16% to $43.1 million from $37.2
million for the years ended July 31, 1999 and 1998, respectively, due primarily
to an increase in the number of systems under service contracts.

Gross Profit. The Company's gross profit on
product revenue decreased 37% to $91.2 million from $144.6 million for the years
ended July 31, 1999 and 1998, respectively. The reduction results from a
decrease in product revenue and the lower product gross margin, which decreased
to 47% from 58% for the years ended July 31, 1999 and 1998, respectively. The
decrease in product gross margin is primarily attributable to excess capacity
variances arising from the lower than expected volume, coupled with costs
associated with new manufacturing facilities and additional inventory reserves
and other charges taken in the third quarter of fiscal 1999. Margins could be
adversely affected in future periods by product mix skewing toward older, less
expensive mask pattern generation equipment; continued low volume of SPG
products, resulting in significant higher fixed costs per unit; or lower than
anticipated margins in IPG where the Company does not have significant past
experience. Additional pressure on margins could come from continued weakness of
Asian currencies relative to the dollar, which would increase the effective cost
of the Company's products to its customers in that region. A combination of
some or all of these factors may have a material adverse effect on margins in
fiscal 2000.



The Company's gross profit on service revenue decreased 28%
to $6.2 million from $8.6 million for the years ended July 31, 1999 and 1998,
respectively. Gross margin on service revenue was 14% and 23% for the years
ended July 31, 1999 and 1998, respectively. The reduced gross profit and gross
margin reflect higher costs due to increased personnel required to service the
growing installed base, increased amortization costs associated with service
spares, the initiation of a field service organization for IPG, and the lower
level of installation activity.



Research, Development and Engineering. The
Company's research, development and engineering expenses continue to reflect
its commitment to product development. These expenses, net of third-party
funding under cooperative development agreements, increased to $58.3 million,
representing 25% of revenue, from $53.4 million, representing 19% of revenue,
for the years ended July 31, 1999 and 1998, respectively. The increase is
primarily due to expenses incurred in the development of future generation ALTA
and MEBES systems.    Funding received under cooperative development contracts
was $8.7 million and $6.1 million for the years ended July 31, 1999 and 1998,
respectively. The increase is primarily attributable to additional funding
received under the 1998 cost reimbursement agreement with the Defense Advanced
Research Projects Agency (DARPA) and the Naval Air Systems Command (NAVAIR) to
develop advanced multiple electron beam microcolumns for nanolithography.
Research and development expense in fiscal 2000 could be higher than expected to
the extent that the Company is unable to meet milestones necessary to secure
funding under its cooperative development contracts.



Selling, General and Administrative. Selling,
general and administrative expenses increased 14% to $37.3 million, representing
16% of revenue, from $32.6 million, representing 11% of revenue, for the years
ended July 31, 1999 and 1998, respectively. The increase in selling, general and
administrative expenses was primarily due to higher average headcount, higher
costs incurred to support the Company's IPG operations, and increased bad debt
reserves. For fiscal 2000 selling, general and administrative expenses can be
expected to increase due to a number of factors, including higher distribution
overhead for the laser direct imaging products. The extent of this additional
cost is not certain due to the Company's limited   experience in this product
group.



Restructuring Charges

Interest Expense. Interest expense for the
years ended July 31, 1999 and 1998 was $0.5 million and $0.8 million,
respectively. The decrease in interest expense is mainly attributable to reduced
third party financing on international sales.

Interest Income and Other, Net. Interest and
other income was $2.8 million for the year ended July 31, 1999, compared with
$4.5 million in the year ended July 31, 1998. This includes $2.5 million of
interest income generated by the Company's investment portfolio for the year
ended July 31, 1999, compared with $4.3 million for the year ended July 31,
1998.   The decrease in interest income is due to the reduction of the
Company's investment portfolio and lower average interest rates.

Income Tax Provision. The Company recorded
provisions for income taxes for the years ended July 31, 1999 and 1998 of $0.5
million and $24.1 million, respectively.   The Company's effective tax rate was
stable at 34% in both fiscal 1998 and 1999 due to continued research and
development tax credits and benefits from the use of a foreign sales
corporation.

Years Ended July 31, 1998 and July 31, 1997

Revenue. Product sales, as a percentage of total
revenue, increased from 86% in fiscal 1997 to 87% in fiscal 1998, while service
revenues decreased from 14% to 13% of total revenue over the same period.
Service revenue did not increase at the same rate as product revenue, because
average sales prices for the Company's product offering rose faster than the
prices that the Company was able to negotiate on service contracts. Moreover,
revenue from service contracts does not begin until after the expiration of the
product warranty period, which is typically one year.

Product revenue increased 22% to $251.2
million from $206.6 million for the years ended July 31, 1998 and 1997,
respectively. This increase primarily reflected a change in mix towards new
products, which have higher selling prices because of the significant
improvements that they offer.



Service revenue increased 8% to $37.2 million from $34.4
million for the years ended July 31, 1998 and 1997, respectively, due primarily
to an increase in the number of systems under service contracts.

Gross Profit. The Company's gross profit on
product revenue increased 34% to $144.6 million from $108.1 million for the
years ended July 31, 1998 and 1997, respectively. The increase resulted from an
increase in product revenue and the higher product gross margin, which increased
to 58% from 52% for the years ended July 31, 1998 and 1997, respectively. The
increase in product gross margin was primarily attributable to changes in
product mix towards the Company's newer products, which generally have higher
gross margins than older products.



The Company's gross profit on service revenue increased 1%
to $8.6 million from $8.5 million for the years ended July 31, 1998 and 1997,
respectively. Gross margin on service revenue was 23% and 25% for the years
ended July 31, 1998 and 1997, respectively. The static gross profit and
decreased gross margin reflected higher revenues from an increase in the number
of systems under service contracts, offset by higher costs due to increased
personnel required to service the growing installed base and to improve customer
satisfaction.



Research, Development and Engineering. The
Company's research, development and engineering expenses continued to reflect
its commitment to high levels of product development effort. These expenses, net
of third-party funding under cooperative development agreements, increased to
$53.4 million, representing 19% of revenue, from $34.4 million, representing 14%
of revenue, for the years ended July 31, 1998 and 1997, respectively. The
increase was primarily due to expenses incurred in the development of future
generation ALTA and MEBES systems, together with costs associated with preparing
the initial  "beta " versions of the Company's new DigiRite (R)
 2000 laser direct imaging system for shipment from IPG. Funding received under
cooperative development contracts was $5.6 million and $2.0 million for the
years ended July 31, 1998 and 1997, respectively. The increase was primarily
attributable to the achievement of milestones under the 1997 cost reimbursement
agreement with a private consortium, International SEMATECH. In July 1998, the
Company was awarded a new four-year contract to develop advanced multiple
electron beam microcolumns for nanolithography. This award, from the Defense
Advanced Research Projects Agency (DARPA) and the Naval Air Systems Command
(NAVAIR), amounted to approximately $4 million.



Selling, General and Administrative. Selling,
general and administrative expenses increased 17% to $32.6 million, representing
11% of revenue, from $27.9 million, representing 12% of revenue, for the years
ended July 31, 1998 and 1997, respectively. Fluctuations in selling, general and
administrative expenses were primarily due to increased headcount, offset by
reduced sales commissions payable on sales into Asia due to the expiration of
certain agreements during fiscal 1998.



Interest Expense. Interest expense for the
years ended July 31, 1998 and 1997 was $0.8 million and $1.0 million,
respectively. The decrease in interest expense is attributable to the repayment
of term debt during fiscal year 1997.

Interest Income and Other, Net. Interest and
other income was $4.5 million for the year ended July 31, 1998, compared with
$3.8 million in the year ended July 31, 1997. This includes $4.3 million of
interest income generated by the Company's investment portfolio for the year
ended July 31, 1998, compared with $3.3 million for the year ended July 31,
1997.   This increase is due to the growth of the Company's investment
portfolio and to the achievement of higher average interest rates.

Income Tax Provision. The Company recorded
provisions for income taxes for the years ended July 31, 1998 and 1997 of $24.1
million and $18.8 million, respectively.   The Company's effective tax rate
decreased from 35.5% in fiscal 1997 to 34% in fiscal 1998 primarily due to
increased research and development tax credits and increased benefits from the
use of a foreign sales corporation.



Liquidity and Capital Resources



In fiscal 1996 and fiscal 1997, the Company raised
approximately $108.0 million from sales of its common stock in an initial public
offering, two additional public offerings, and a private placement. In fiscal
1997, the Company received $5.0 million from the sale and leaseback of its
headquarters campus.



In fiscal 1998, the Company entered into the following
agreements with its landlords under which they agreed to make investments of up
to $121.0 million for the construction of additional manufacturing facilities
under operating lease arrangements:



In November 1997, the Company completed the purchase of
approximately 15.2 acres of land in Hillsboro, Oregon, at a cost of
approximately $2.4 million on which a new facility was constructed. In December
1997, the Company entered into an agreement to lease the facility. The lessor of
the buildings committed to spend up to $60 million for construction and the
Company has acted as construction agent for the lessor. The Company started to
occupy the premises in May 1999, under an interim financing facility that will
later convert to a lease.   The lease term is expected to begin by the end of
calendar year 1999 and end in November 2004.

In February 1998, the Company entered into an agreement to
amend the existing lease on its facilities in Hayward, California, to
accommodate a $50.0 million planned expansion of production, research, and
development facilities and renovation of existing production facilities via
construction lease allowances. The lease amendment also included the leaseback
of an additional $11.0 million of building improvements on existing facilities
sold to the lessor via the lease amendment. The initial term of the lease
expires in May 2014, and, if not cancelled by the Company, will be automatically
extended for three five-year renewal periods and one additional eight-month
renewal period.



The Company has used approximately $104.0 million of the
$121.0 million total in fiscal 1998 and 1999.



The Company has spent approximately $15.7 million for net
capital expenditures in fiscal 1999, primarily to purchase testing and process
equipment. The Company has budgeted capital expenditures of approximately $29.0
million for fiscal 2000, some of which may be financed.



As of July 31, 1999, the Company had cash, cash equivalents,
and marketable securities of $58.9 million, as compared to $100.3 million at
July 31, 1998. The decrease in cash and cash equivalents is primarily due to the
sharp drop in net income. The Company believes that existing cash balances
(including cash equivalents and marketable securities), together with other
sources of liquidity, including cash flows from operating activities and amounts
available under the existing $50.0 million revolving line of credit (all of
which was available at July 31, 1999), will provide adequate cash to fund its
operations for at least the next twelve months. To the extent that such cash
resources are insufficient to fund our activities, we would need to raise
additional funds. There can be no assurance that we could obtain additional
financing on reasonable terms or at all. If additional capital is raised through
the sale of equity or debt securities, dilution to our stockholders could
occur.

Cash Flows from Operations

Net cash used in operations for the fiscal year ended
July 31, 1999 was $2.5 million. Net cash provided by operations for the fiscal
years ended July 31, 1998 and 1997 was $13.5 million and $19.0 million,
respectively.

Cash flows from operating activities in fiscal 1999 reflected
net income of $1.0 million, depreciation and amortization of $13.0 million, and
a decrease in assets of $10.5 million and liabilities of $27.1 million,
including decreases in accruals and other liabilities of $20.3 million.

Cash flows from operating activities in fiscal 1998 primarily
reflected net income of $46.8 million, depreciation and amortization of $9.0
million, and deferred taxes of $5.1 million, offset by increases in accounts
receivable of $39.6 million, increases in factored accounts receivable of $11.4
million, increases in inventory of $18.9 million, and increases in other assets
of $13.3 million.

Cash flows from operations in fiscal 1997 primarily reflected
net income of $34.4 million, decreased by noncash items (which include $2.1
million of deferred taxes, the write-off of in-process technology acquired of
$3.9 million, and depreciation and amortization of $4.6 million); increases in
accounts receivable of $18.5 million and inventory of $14.9 million; and
increases in accounts payable and accrued and other liabilities of $9.5
million.

Fluctuations in accounts receivable, inventory, and current
liabilities for all of the above periods were caused primarily by the timing of
system orders, the timing of revenue recognition, fluctuations in unit
shipments, and the timing of payments to vendors.   In fiscal 2000, there is
risk that receivables could increase disproportionately to revenue, as well as
adverse credit and collection experience for sales of laser direct imaging
products, which is a new business for the Company. Inventories in fiscal 2000
could be adversely affected by the inability of the Company to achieve its
expected unit sale volume, due to the same factors discussed under Revenue,
above, coupled with the inability to cancel or delay orders for raw
materials.



Prior to the shipment of a system, the Company generally
receives payment for a portion of the system sales price. Such payments are
generally received when the Company accepts an order and at various points while
the system is being installed and thereafter. Therefore, the amount of customer
advances at each reporting period fluctuates based on the number of systems that
are on order, the timing of order acceptance, and the status of each system
within the manufacturing cycle. Advances from customers decreased to $6.3
million at July 31, 1999 from $10.3 million at July 31, 1998. The backlog for
products decreased to $77.0 million at July 31, 1999, from $128.8 million at
July 31, 1998.

Cash Flows from Investing Activities

Net cash provided by investing activities for the fiscal
year ended July 31, 1999 was $6.9 million. Net cash used in investing activities
for the fiscal years ended July 31, 1998 and 1997 was $18.2 million and $40.4
million, respectively.

Cash flows from investing activities for fiscal 1999
consisted of net sales of marketable securities of $22.6 million and net capital
expenditures of $15.7 million. The capital expenditures primarily related to the
purchase of equipment and machinery.

Cash flows from investing activities in fiscal 1998 comprised
net purchases of marketable securities of $2.4 million and net capital
expenditures of $26.8 million, offset by cash received from the sale of $11.0
million of building improvements, which were leased back.



Cash flows from investing activities for fiscal 1997
primarily comprised net capital expenditures of $27.1 million and net purchases
of marketable securities of $10.1 million, offset by proceeds from the sale and
leaseback of a new administrative building for $5.0 million. The Company sold
the building to its existing landlord and entered into a 15-year lease that is
subject to rental adjustments every three years.

Cash Flows from Financing Activities

Net cash used in financing activities for the fiscal year
ended July 31, 1999 was $23.3 million. Net cash provided by financing activities
for the fiscal years ended July 31, 1998 and 1997 was $12.9 million and $33.5
million, respectively.



Cash flows from financing activities for fiscal 1999
primarily reflected payments of $11.4 million to a third-party financing
intermediary and open market purchases of the Company's stock totaling $19.8
million, offset by proceeds from the issuance of Common Stock of $8.0 million.



Cash flows from financing activities for fiscal 1998
primarily reflected receipts of $10.3 million from a third-party financing
intermediary and proceeds from the issuance of Common Stock of $8.2 million,
offset by open market purchases of the Company's stock totaling $5.6
million.



Cash flows from financing activities for fiscal 1997
primarily reflected proceeds from issuance of common stock of $42.2 million,
offset by repayments of debt and capital leases of $10.2 million.

During fiscal 1997, the Company repaid its outstanding term
debt. In April 1997, the Company entered into an amendment to its existing
credit agreement with ABN-AMRO Bank, N.V. to expand its $20.0 million revolving
credit line expiring May 31, 1998 to a $50.0 million line of credit expiring May
31, 1999.   In April 1998, the term of this credit line was extended to November
1999, and the covenants were revised to be substantially the same as those under
the Hillsboro, Oregon lease agreement (see Note 8 to the Consolidated Financial
Statements). In September 1998, the term of this credit line was further
extended to November 2000. Indebtedness under the revolving credit facility and
term note is unsecured and bears interest at the London Interbank Offered Rate
(5.18% on July 31, 1999) plus 1.25%. The terms of the financing facility require
the Company to comply with certain financial and restrictive covenants,
including maintenance of certain financial ratios and minimum net worth
criteria, restrictions on incurring indebtedness, maintenance of minimum cash
balances, and certain dividend restrictions.  These covenants are substantially
the same as those under the Hillsboro, Oregon lease agreement. On May 31, 1996,
the Company drew down the $10.0 million term note to repay in full its senior
secured notes, and in May 1997 repaid its term note in full. No prepayment
penalties or debt issuance costs were incurred. No amounts have been drawn under
the revolving credit facility. As of July 31, 1999, the Company was not in
compliance with certain financial ratio covenants under its $50.0 million
revolving credit line. The Company obtained a waiver letter from the lessor and
lender for these covenants. In September 1999, the terms of the credit line and
the lease facility were further amended to revise the affected covenants such
that the Company is in compliance. The revised terms included an increase in the
interest rate.

Other Factors Affecting Company Results

Fluctuations in Operating Results

Etec's operating results have historically fluctuated
significantly from quarter to quarter and year to year. Our revenues in any
quarter are highly dependent on a relatively small number of unit sales
occurring during that quarter at relatively high prices. This causes unevenness
in results of operations from quarter to quarter. For example, two system
shipments planned for the second and third quarters of fiscal 1998 were delayed
due to the failure of a critical subassembly and to a problem in meeting a
specification. We instead shipped one of the systems in the third quarter and
another system in the fourth quarter of fiscal 1998. These delays caused us to
miss our revenue and earnings plan for the second quarter of fiscal 1998.



Installing and integrating maskmaking equipment requires a
substantial investment by a customer. In addition, our systems typically have a
lengthy sales cycle. Customers often require a significant number of product
presentations and demonstrations. Substantial interaction with Etec's senior
management is also required before reaching a sufficient level of confidence in
a system's performance characteristics and compatibility with the customer's
target applications to place an order. During the entire sales cycle, we may
expend substantial funds and management time and effort with no assurance that a
sale will result.



Based on our past experience, we believe that the following
are among the principal factors that may cause fluctuations:



- the timing of significant orders



- order cancellations and shipment reschedulings

- unanticipated delays in design, engineering, or production or in customer
acceptance of product shipments

- the cyclicality of the maskmaking and semiconductor industries

- the lengthy sales and production cycle for our products

- the mix of systems sold and the relative proportions of product revenues and
service revenues

Other factors that could cause fluctuations include patterns
of capital spending by our customers, pricing changes, the timing of product
announcements or introductions by us or our competitors, the availability of
components and subassemblies, expenses associated with acquisitions, disruption
in operations due to an earthquake or other natural disaster, and exchange rate
fluctuations.

It generally takes us about six months to manufacture a
system. Because our backlog has decreased significantly from the end of fiscal
1998 to the end of the   fiscal 1999, we may start manufacturing a system before
we have a firm order for that system. If the anticipated order does not
materialize and we have no other customer who wants that system, we have
inventory exposure. This risk is of particular concern to us due to the lengthy
sales cycle required to obtain an order for a system and the costs already
expended to manufacture each system.

Given the extreme sensitivity of the securities markets to deviations from
expected quarterly results, fluctuations in quarterly results such as those
described above can result in high volatility of our stock price.

Cyclicality of the Maskmaking and Semiconductor
Industries and Dependence on the Capital Spending Decisions of Customers

The Company's operating results depend on capital
expenditures by maskmakers, which in turn depend on the current and anticipated
demand for masks, integrated circuits made from masks, and products that use
such integrated circuits. The overall semiconductor industry has been, and is
likely to continue to be, cyclical with periods of oversupply. The Company
experienced a significant downturn in demand for its products in fiscal 1999.
Although the Company is optimistic that demand will improve as the semiconductor
business improves, it is not certain that the level of demand will materially
improve in fiscal 2000. Continual low demand for the Company's SPG product will
materially adversely affect the Company's business, financial condition, and
results of operations, and future downturns may have similar material adverse
effects. In addition, due to changes in semiconductor manufacturing technology,
the demand for maskmaking equipment has at times been depressed while the demand
for semiconductor devices has remained strong. A downturn in demand for
maskmaking equipment would have a material adverse effect on the Company's
business, financial condition, and results of operations.

Damage to Manufacturing Facilities

The Company conducts all of its manufacturing activities
for its core products at its leased facilities in Hayward, California and
Hillsboro, Oregon. The Company's Hayward campus, which includes the corporate
headquarters, is located in a seismically active area. Although the Company
maintains business interruption insurance, a major catastrophe (such as an
earthquake or other natural disaster) at the Hayward or Hillsboro sites could
result in a prolonged interruption of the Company's business. All of the
Company's MEBES electron-beam systems are produced in Hayward, and all of its
ALTA laser-beam systems are produced in Hillsboro. Through the completion of the
facilities expansions in Oregon and California, the Company is now capable of
producing MEBES and ALTA systems in either location. However, such a change in
production would cause delays and higher manufacturing costs.

Successful Integration of Acquired Businesses

The Company's business strategy includes expanding its
product lines and markets through acquisitions. Any acquisition may result in
potentially dilutive issuances of equity securities, the incurrence of debt and
contingent liabilities, potential reductions in income due to losses incurred by
the acquired business, and amortization expense related to intangible assets
acquired, any of which could materially adversely affect the Company's
financial condition and results of operations.

In March 1997, the Company acquired Ebetech Electron Beam
Technology GmbH, renamed Etec EBT. This subsidiary (which is part of Display
Products Group) is engaged in the development of focused electron-beam test
systems for flat panel displays. These products are currently in the preliminary
development and marketing stage, and there can be no assurance that the Company
will be able to introduce them successfully into the market.

In February 1996, the Company acquired Polyscan, Inc., a
development-stage company based in Tucson, Arizona, that designs and develops
laser direct imaging systems for printed circuit boards. Polyscan, Inc. has
subsequently been merged into the Company's operations and has become the
Company's Interconnect Products Group ( IPG ). IPG   recognized
revenue on one system in fiscal 1998 and four systems in fiscal 1999, and this
unit has incurred losses since its inception. The Company expects that IPG will
continue to incur losses for the foreseeable future. The Company has never
operated in the market segments targeted by IPG.

There can be no assurance that the Company will be able to
integrate IPG successfully into its current business operations or will be able
to integrate the   technology into the Company's product development strategy
or to manufacture, market, and sell its products successfully, or that its
business will ever become profitable. There can be no assurance of the effect of
any future acquisition on the Company's business or operating results.

International Sales and Operations

Sales to our customers in countries other than the United States
accounted for 62%, 74%, and 72% of revenues in fiscal 1999, 1998, and 1997,
respectively. We anticipate that international sales will continue to account
for a significant portion of our revenues for the foreseeable future. Sales and
operations outside of the United States are subject to certain inherent risks.
These risks include:

- fluctuations in the value of the U.S. dollar relative to foreign
currencies

- longer accounts receivable collection cycles

- tariffs, quotas, taxes, and other market barriers

- political and economic instability

- restrictions on the export or import of technology

- potentially limited intellectual property protection

- difficulties in staffing and managing international operations

- potentially adverse tax consequences

Any of these factors could adversely affect our business. In particular,
although our international sales are primarily denominated in U.S. dollars,
currency exchange fluctuations in countries where we do business, such as those
experienced recently in certain Asian countries, could materially adversely
affect our business.

Some of our products may not be sold outside of the United
States except pursuant to an export license from the United States Department of
Commerce. We have not experienced significant delays in obtaining such licenses,
but future sales could be subject to delay due to export license or other
regulatory requirements.

Year 2000 Readiness Disclosure

Computer programs and systems that make use of dates
represented by only two digits (for example, 98 rather than 1998) may not
operate properly after the year 2000. Two digit fields can cause problems with
sorting, mathematical calculations, and comparisons when working with years
outside the range of 1900 through 1999. The problem also potentially extends to
any systems or devices that include embedded technology, such as microchips.

The Company has established a formal project with a project
office and project team to address this issue and achieve Year 2000 (Y2K)
Readiness. The Company has chosen the U.S. Government Accounting Office (GAO)
Program Management Model, as modified, to manage and measure its progress. The
project focuses on four key readiness areas: 1) Product readiness, addressing
product functionality; 2) Supplier readiness, addressing the preparedness of our
suppliers; 3) Internal infrastructure readiness, addressing mission-critical
internal information technology (IT) and non-IT systems; 4) Customer readiness,
addressing customer preparedness and the Company's customer support.   For each
readiness area, the Company is systematically performing an enterprise wide risk
assessment, implementing the GAO Program Management Model as a project, and
developing contingency plans to mitigate unknown risk. The Company is also
communicating with its customers, suppliers, employees, and other third party
business partners to reinforce awareness and to inform them of its progress
toward Year 2000 Readiness. The Company is doing this through a variety of
media. Etec's Y2K web site provides a comprehensive report on its efforts, the
status of product testing and validation, and field implementation. As defined
by Etec's Y2K Project, the Awareness and Assessment phases, representing 40% of
the project effort, have been completed and the Renovation phase, representing
10% of the project effort, is now over 95% complete. The implementation phase is
on schedule.   The Company engaged a third party who assessed the
comprehensiveness of the Company's Y2K effort and schedule.

Product Readiness.: A comprehensive set of
tests was used to test all of Etec's products. This process provides a complete
assessment of potential Y2K impacts and precludes inefficient use of resources
that would result from the performance of individual customer test suites. Etec
has performed its testing in accordance with International SEMATECH Year 2000
Test Scenarios guidelines. All of the Company's products have completed the
renovation and validation phases. Field upgrades have already been released or
are on schedule to be released through the period ending July 31, 1999. The
Company is installing these upgrades in its customers'  systems through its
standard Service Update Plan Process. The upgrade schedule is determined by
customer requirements. Approximately 90% of the required upgrades have been
installed, validated, and tested, and the systems have received a Y2K readiness
certification from Etec. The Company will offer all of its customers the
opportunity to install this upgrade for any problems through the first calendar
quarter of 2000.

Supplier Readiness.: This aspect of the program
is focused on minimizing risk associated with the Company's suppliers in two
areas: first, the supplier's capability to provide Y2K compliant products and
second, the supplier's business capability to continue to provide the required
products and services. We are using the International SEMATECH Year 2000
Readiness Supplier Questionnaire as an aid in assessing risk. A supplier action
list and contingency plans have been developed based upon this assessment.

Internal Infrastructure Readiness.: The
Company has completed an assessment of its IT and non-IT applications and its
business processes. All applications and processes have already been made Y2K
compliant.

The Company estimated that the total Y2K project costs would
range from $5 to $8 million. Approximately 90% of these costs have been
incurred, with the remainder expected to be spent over the next three fiscal
quarters. The Company is continuing its assessment and developing alternatives,
which will result in a further refinement of this estimate over time. There can
be no assurance that this estimate will be sufficient or that actual costs will
not differ materially from the current estimate.

Etec believes that its most reasonably likely worst case
scenario would be the failure of services, supplies, or products provided by
third parties.   As the Company has little or no control over remediating the
Y2K problems of third parties such as utilities, telecommunication providers,
computer system and software suppliers, the risks are relatively more difficult
to assess than with the Company's internal systems or its products. Third party
failures could disrupt the Company's operations and could have a material
adverse effect on its financial condition. Etec is not in a position to identify
all possible scenarios, nor can it estimate the impact of such disruptions.

Various disclosures and announcements of the Company
concerning its products and Y2K Readiness Program are intended to constitute
 "Year 2000 Readiness Disclosures " as defined in the Year 2000
Information and Readiness Disclosure Act.





Volatility of Stock Price

Since Etec's initial public offering in October 1995, the
price of Etec Common Stock has fluctuated widely, with closing sales prices on
the NASDAQ Stock Market ranging from $8.00 to $67.125. We believe that factors
such as the risks described herein or other factors could cause the price of our
Common Stock to fluctuate, perhaps substantially. In addition, in recent years
the stock market in general, and the market for high technology stocks in
particular, has experienced extreme price fluctuations, which have often been
unrelated to the operating performance of affected companies. Such fluctuations
could adversely affect the market price of our Common Stock

Effects of Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 133,  "Accounting
for Derivative Instruments and Hedging Activities " (SFAS 133). SFAS 133
establishes a new model for accounting for derivatives and hedging activities
and supersedes and amends a number of existing accounting standards. SFAS 133
requires that all derivatives be recognized in the balance sheet at their fair
market value,   and the corresponding gains or losses be either reported in the
statement of operations or as a deferred item depending on the type of hedge
relationship that exists with respect to such derivative. SFAS No. 137,
 "Accounting for Derivative Instruments and Hedging Activities--Deferral of
Effective Date of FASB Statement No. 133, " is effective for all fiscal
quarters and years beginning after June 15, 2000. The Company has not yet
determined the effect of adopting SFAS 133, which will be effective for the
Company's fiscal year 2001.

Item 7A.



Interest Rate Risk.

Foreign Currency Exchange Risk. The majority of
the Company's sales are denominated in U.S. dollars and as a result, the
Company has relatively little exposure to foreign currency exchange risk.
However, the Company enters into forward exchange contracts to hedge certain
intercompany exposures and other transactions denominated in foreign currencies.
These forward exchange contracts are denominated in the same currency as the
underlying transaction. The Company does not use derivative financial
instruments for trading or speculative purposes. The effect of an immediate 10%
change in exchange rates on the forward contracts would not have a material
impact on the Company's future operating results or cash flows.



Item 8.
Financial Statements and Supplementary Data

ETEC SYSTEMS, INC.



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                   | Page
|-------------------------------------------------------------------------------------------------- | ----
|ETEC SYSTEMS, INC.                                                                                 |     
|                                                                                                   |     
|Report of
Independent Accountants.................................                                 |     
|                                                                                                   |     
|Consolidated Balance Sheets at July
31, 1999 and 1998                                              |     
|                                                                                                   |     
|Consolidated Statements of Income
for the years ended July 31, 1999, 1998, and 1997                |     
|                                                                                                   |     
|Consolidated Statements of
Stockholders'  Equity for the years ended July 31, 1999, 1998, and
1997 |     
|                                                                                                   |     
|Consolidated Statements of Cash
Flows for the years ended July 31, 1999, 1998, and 1997            |     
|                                                                                                   |     
|Notes to Consolidated Financial
Statements                                                         |     
|                                                                                                   |     



Financial statement schedules are omitted because they are not required, are
not applicable, or the information is included in the financial statements or
notes thereto.

---





REPORT OF INDEPENDENT ACCOUNTANTS



To the Board of Directors and Stockholders of Etec Systems, Inc.

In our opinion, the consolidated financial statements listed
in the Index appearing under Item 14(a)1 on page 3841 present fairly, in all
material respects, the financial position of Etec Systems, Inc. and its
subsidiaries at July 31, 1999 and 1998, and the results of their operations and
their cash flows for each of the three years in the period ended July 31, 1999,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards, 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 the
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.



/s/   PRICEWATERHOUSECOOPERS LLP





PricewaterhouseCoopers LLP



San Jose, California

August 24, 1999

---

**ETEC SYSTEMS, INC.
                          CONSOLIDATED BALANCE SHEETS(In thousands, except share and per share amounts)**

`July 31,
                                                         ----------------------
                                                            1999        1998
                                                         ----------  ----------
ASSETS
Current assets:
  Cash and cash equivalents...........................     $44,849     $63,600
  Marketable securities...............................      14,075      36,689
  Accounts receivable, less allowance for
   doubtful accounts of $2,279 and $1,226.............      70,077      84,529
  Inventory...........................................      94,390      86,512
  Deferred tax assets.................................      17,644      17,902
  Other current assets................................       9,224      11,322
                                                         ----------  ----------
    Total current assets..............................     250,259     300,554
Property, plant, and equipment, net...................      50,532      48,970
Other assets..........................................       7,215       8,990
                                                         ----------  ----------
                                                          $308,006    $358,514
                                                         ==========  ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable....................................     $19,736     $26,506
  Accrued and other liabilities.......................      34,176      60,804
  Taxes payable.......................................       8,192      18,132
                                                         ----------  ----------
    Total current liabilities.........................      62,104     105,442

Deferred gain on sale of asset........................       2,472       2,649
Other liabilities.....................................       4,774       3,754
                                                         ----------  ----------
    Total liabilities.................................      69,350     111,845
                                                         ----------  ----------
Commitments and Contingencies
Stockholders' equity:
  Preferred Stock, par value $0.01 per share;
   10,000,000 shares authorized; none
   outstanding........................................        --          --
  Common Stock, par value $0.01 per share;
   60,000,000 shares authorized;
   21,488,267 and 21,977,070 issued and outstanding...         215         220
  Warrants............................................         600         600
  Additional paid-in capital..........................     189,501     201,327
  Accumulated other comprehensive income..............       1,592      (1,200)
  Retained earnings...................................      46,748      45,722
                                                         ----------  ----------
    Total stockholders' equity........................     238,656     246,669
                                                         ----------  ----------
                                                          $308,006    $358,514
                                                         ==========  ==========`

See
the accompanying notes to these consolidated financial statements.

---

**ETEC SYSTEMS, INC.
                       CONSOLIDATED STATEMENTS OF INCOME(In thousands, except per share amounts)**

`Year Ended July 31,
                                                  -------------------------------
                                                    1999       1998       1997
                                                  ---------  ---------  ---------
Revenue:
  Products......................................  $194,050   $251,154   $206,561
  Services......................................    43,116     37,173     34,353
                                                  ---------  ---------  ---------
                                                   237,166    288,327    240,914
                                                  ---------  ---------  ---------
Cost of revenue:
  Cost of products..............................   102,884    106,585     98,416
  Cost of services..............................    36,906     28,585     25,871
                                                  ---------  ---------  ---------
                                                   139,790    135,170    124,287
                                                  ---------  ---------  ---------
Gross profit....................................    97,376    153,157    116,627
                                                  ---------  ---------  ---------
Operating expenses:
  Research, development, and engineering........    58,317     53,439     34,373
  Selling, general, and administrative..........    37,311     32,596     27,939
  Write-off of in-process technology acquired...        --         --      3,874
  Restructuring charges.........................     2,515         --         --
                                                  ---------  ---------  ---------
                                                    98,143     86,035     66,186
                                                  ---------  ---------  ---------
(Loss)/income from operations...................      (767)    67,122     50,441
Interest expense................................      (473)      (765)      (988)
Interest income and other, net..................     2,794      4,503      3,821
                                                  ---------  ---------  ---------
Income before income tax provision .............     1,554     70,860     53,274
Income tax provision ...........................       528     24,093     18,835
                                                  ---------  ---------  ---------
Net income......................................    $1,026    $46,767    $34,439
                                                  =========  =========  =========

Net income per share - basic ...................     $0.05      $2.13      $1.66
                                                  =========  =========  =========

Shares used in per-share calculation-basic......    21,431     21,922     20,746
                                                  =========  =========  =========

Net income per share - diluted .................     $0.05      $2.05      $1.57
                                                  =========  =========  =========

Shares used in per-share calculation-diluted....    21,952     22,789     22,003
                                                  =========  =========  =========`

See
the accompanying notes to these consolidated financial statements.

---

**ETEC SYSTEMS, INC.
            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)(In thousands, except share amounts)**

`Retained
                                                                             Accumulated  Earnings
                              Common Stock             Additional               Other     (Accumu-
                          ------------------            Paid-in     Notes    Comprehensive  lated
                            Shares    Amount Warrants   Capital   Receivable   Income     Deficit)    Total
                          ----------- ------ --------- ---------- ---------- ----------- ---------- ---------
Balance at July 31,
 1996...................  19,610,964   $196    $1,096   $149,875       ($17)       $211   ($35,484) $115,877
Stock offering..........   1,254,487     13       --      39,264        --          --          --    39,277
Payments on notes
 receivable.............        --       --       --         --         116         --          --       116
Issuance of notes
 receivable.............        --       --       --         --        (300)        --          --      (300)
Issuance under stock
 plans..................     633,921      6       --       2,908        --          --          --     2,914
Exercise of warrants....     180,264      2      (465)       683        --          --          --       220
Tax benefit of stock
 option transactions....        --       --       --       6,028        --          --          --     6,028
Components of comprehensive
income:
Cumulative translation
 adjustments............        --       --       --         --         --         (930)        --      (930)
Net income..............        --       --       --         --         --          --      34,439    34,439
                                                                                                    ---------
Total comprehensive income      --       --       --         --         --          --         --     33,509
                          ----------- ------ --------- ---------- ---------- ----------- ---------- ---------
Balance at July 31,
 1997...................  21,679,636    217       631    198,758       (201)       (719)    (1,045)  197,641
Payments on notes
 receivable.............        --       --       --         --         201         --          --       201
Issuance under stock
 plans..................     389,743      4       --       5,859        --          --          --     5,863
Exercise of warrants....      72,691      1       (31)        30        --          --          --       --
Shares repurchased......    (165,000)    (2)      --      (5,581)                                     (5,583)
Tax benefit of stock
 option transactions....        --       --       --       2,261        --          --          --     2,261
Components of comprehensive
income:
Cumulative translation
 adjustments............        --       --       --         --         --         (481)        --      (481)
Net income..............        --       --       --         --         --          --      46,767    46,767
                                                                                                    ---------
Total comprehensive income      --       --       --         --         --          --         --     46,286
                          ----------- ------ --------- ---------- ---------- ----------- ---------- ---------
Balance at July 31,
 1998...................  21,977,070    220       600    201,327        --       (1,200)    45,722   246,669
Issuance under stock
 plans..................     351,197      3       --       6,542        --          --          --     6,545
Shares repurchased......    (840,000)    (8)      --     (19,815)                                    (19,823)
Tax benefit of stock
 option transactions....        --       --       --       1,447        --          --          --     1,447
Components of comprehensive
income:
Cumulative translation
 adjustments............        --       --       --         --         --        2,792         --     2,792
Net income..............        --       --       --         --         --          --       1,026     1,026
                                                                                                    ---------
Total comprehensive income      --       --       --         --         --          --         --      3,818
                          ----------- ------ --------- ---------- ---------- ----------- ---------- ---------
Balance at July 31,
 1999...................  21,488,267   $215      $600   $189,501     $  --       $1,592    $46,748  $238,656
                          =========== ====== ========= ========== ========== =========== ========== =========`

See
the accompanying notes to these consolidated financial statements.

---

**ETEC SYSTEMS, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)**

`Year Ended July 31,
                                                  -----------------------------
                                                    1999      1998      1997
                                                  --------- --------- ---------
Cash flows from operating activities:
  Net income.....................................   $1,026   $46,767   $34,439
  Adjustments to reconcile net income to net
   cash (used in) provided by operating activities:
    Write-off of in-process technology acquired..      --        --      3,874
    Depreciation and amortization................   13,045     8,999     4,632
    Deferred taxes...............................      258     5,058     2,103
    Changes in assets and liabilities:
      Accounts receivable........................    6,012   (39,625)  (18,502)
      Factoring of accounts receivable ..........    8,440    11,400       --
      Inventory..................................   (7,878)  (18,928)  (14,911)
      Other assets...............................    3,696   (13,335)   (2,139)
      Accounts payable...........................   (6,770)    5,676     6,772
      Accrued and other liabilities..............  (20,317)    7,512     2,712
                                                  --------- --------- ---------
  Net cash (used in) provided by operating activit  (2,488)   13,524    18,980
                                                  --------- --------- ---------
Cash flows from investing activities:
  Capital expenditures for property and
   equipment, net................................  (15,677)  (26,765)  (27,075)
  New building construction costs................      --        --     (3,555)
  Sale/(purchase) of marketable securities, net..   22,614    (2,427)  (10,109)
  Payment for purchase of Ebetech, net of cash
   acquired......................................      --        --     (4,682)
  Proceeds from sale of facilities...............      --     11,000     5,000
                                                  --------- --------- ---------
  Net cash provided by (used in) investing
   activities....................................    6,937   (18,192)  (40,421)
                                                  --------- --------- ---------
Cash flows from financing activities:
  Repayment of debt and capital leases...........     (130)     (132)  (10,171)
  Net(repayment to)/financing from intermediary..  (11,380)   10,260     3,796
  Repurchase of warrants in connection with
   building financing............................      --        (31)   (2,633)
  Issuance of notes payable......................      --        --        500
  Issuance (payment) of notes receivable to
    stockholders.................................      --        201      (184)
  Repurchase of Common Stock                       (19,823)   (5,583)      --
  Proceeds from issuance of Common Stock.........    7,992     8,155    42,171
                                                  --------- --------- ---------
  Net cash (used in) provided by financing activit (23,341)   12,870    33,479
                                                  --------- --------- ---------
  Effect of exchange rate changes on cash........      141      (577)     (535)
                                                  --------- --------- ---------

  Net change in cash and cash equivalents........  (18,751)    7,625    11,503
  Cash and cash equivalents at beginning of
   the year......................................   63,600    55,975    44,472
                                                  --------- --------- ---------
  Cash and cash equivalents at the end of
   the year......................................  $44,849   $63,600   $55,975
                                                  ========= ========= =========
Supplemental disclosures of cash flow
  information:
  Cash paid during the period for interest.......     $520      $697      $982
                                                  ========= ========= =========
  Cash paid during the period for income taxes...  $10,550    $5,263    $8,229
                                                  ========= ========= =========`

See
the accompanying notes to these consolidated financial statements.

---

ETEC
SYSTEMS, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE 1-THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES



Etec Systems, Inc. (the  "Company ") designs, develops,
manufactures, markets, and services electron-beam and laser-beam pattern
generation equipment for the semiconductor and printed circuit board industries.
The Company has operations in the United States, Japan, Korea, Taiwan, and
Germany.

Basis of Presentation

The consolidated financial statements include the
accounts of the Company and all of its subsidiaries. Intercompany transactions
and balances are eliminated in consolidation. Accounts denominated in foreign
currencies are translated using the foreign currencies as the functional
currencies. Assets and liabilities of foreign operations are translated to U.S.
dollars at current rates of exchange; revenues and expenses are translated using
weighted average rates. Gains and losses from foreign currency translation are
included as a separate component of stockholders'  equity. Foreign currency
transaction gains and losses are included as a component of other income
(expense), net.

Management 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, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting periods. Actual results could vary materially from those
estimates.

Revenue Recognition

Product revenue is generally recognized upon
shipment. Billing takes place in accordance with the contract terms. Typically a
portion of the total equipment sales price is billable at the time of taking the
order, on customer's acceptance at the company's manufacturing facility, and
on final acceptance at the customer's facility. A provision for installation
costs and estimated future warranty costs is recorded at the time revenue is
recognized. Revenue associated with retrofitting certain models is recognized
upon completion of the retrofit. Service revenue is deferred and is recognized
on a straight-line basis over the period of service.

Inventories

Inventories are stated at the lower of cost or
market, with cost being determined under the first-in, first-out method.

Property and Equipment

Property, plant and equipment are stated at cost less
accumulated depreciation. Depreciation is calculated using the straight-line
method over the estimated useful lives of the assets, which range from  3
to 10 years for machinery and equipment. Assets held under capital leases are
amortized using the straight-line method over the shorter of the lease term or
the estimated useful lives of the assets of three to five years. Leasehold
improvements are amortized using the straight-line method over the shorter of
the lease term or the estimated useful life of the improvement.

Capitalization of Internal Use Software

The Company capitalizes certain costs related to the
purchase and implementation of software for internal use, which include
purchased software, consulting fees, and the use of certain specified Company
resources. As of July 31, 1999 and 1998, $9.1 and $10.6 million of such costs,
respectively, had been capitalized, net of accumulated depreciation.

Research, Development and Engineering

Research, development and engineering costs are
expensed as incurred.   The Company is party to certain contracts that provide
for partial funding of certain research, development and engineering costs.
Amounts funded under these contracts are recognized as costs are incurred. These
expenses, net of third -party funding under cooperative development agreements,
were $58.3 million, $53.4 million, and $34.4 million   for the years ended July
31, 1999, 1998, and 1997, respectively. Funding received under cooperative
development contracts was $8.7 million,   $6.1 million, and $2.0 million for the
years ended July 31, 1999, 1998, and 1997, respectively.



Off-Balance Sheet Risk and Concentrations of Credit Risk

Financial instruments that potentially subject the
Company to concentrations of credit risk consist principally of temporary cash
investments, marketable securities, and accounts receivable. The Company places
its temporary cash investments and marketable securities with financial
institutions and other creditworthy issuers, and it limits the amount of credit
exposure to any one party.

Occasionally the Company is exposed to credit-related losses
if factored receivables become uncollectible; however, collectibility issues are
not expected with any outstanding factored customer balances because factoring
is on a non-recourse basis. At July 31, 1999, no receivables were factored.

The Company's accounts receivable are derived primarily from
sales to customers located in the United States, Europe, and Asia. The Company
performs ongoing credit evaluations of its customers. Additionally, prior to
shipment of systems, the Company generally receives payment for a portion of the
system sales price. Write-offs during the periods presented have been
insignificant.

At July 31, 1999, receivables from four customers represented
23%, 15%, 14%, and 12%, respectively, of the Company's accounts receivable. At
July 31, 1998, outstanding receivables from one customer represented 15% of the
Company's accounts receivable.

Stock-Based Compensation

The Company has elected to follow the Accounting
Principles Board's Opinion No. 25,  "Accounting for Stock Issued to
Employees " (APB 25) and related interpretations in accounting for its
employee stock options and stock purchase plan. Pro forma information regarding
net income and net income per share is disclosed as required by the Statement of
Financial Accounting Standards Statement No. 123,  "Accounting for Stock-
Based Compensation " (SFAS 123), which also requires that the information
be determined as if the Company accounted for its stock-based compensation
subsequent to July 31, 1995 under the fair value method of that statement.

Net Income Per Share

Basic net income per share has been computed using
the weighted average number of common shares outstanding during the period.
Diluted net income per share has been computed using the weighted average number
of common shares and equivalents (representing the dilutive effect of stock
options) outstanding during the period. Net income has not been adjusted for any
period presented for purposes of computing basic and diluted net income per
share.

For purposes of computing diluted net income per share,
weighted average potential common shares do not include stock options with an
exercise price that exceeds the average fair market value of the Company's
common stock for the period. The number of shares excluded from the computation
for fiscal 1999, 1998, and 1997 were 1,161,993,   262,700, and 702,060 at an
average price of $35.26, $47.75, and $35.38, respectively.

Recent Accounting Pronouncements



In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133,  "Accounting for
Derivative Instruments and Hedging Activities " (SFAS 133). SFAS 133
establishes a new model for accounting for derivatives and hedging activities
and supersedes and amends a number of existing accounting standards. SFAS 133
requires that all derivatives be recognized in the balance sheet at their fair
market value,   and the corresponding gains or losses be either reported in the
statement of operations or as a deferred item depending on the type of hedge
relationship that exists with respect to such derivative. SFAS No. 137,
 "Accounting for Derivative Instruments and Hedging Activities--Deferral of
Effective Date of FASB Statement No. 133, " is effective for all fiscal
quarters and years beginning after June 15, 2000. The Company has not yet
determined the effect of adopting SFAS 133, which will be effective for the
Company's fiscal year 2001.

NOTE 2- - CASH EQUIVALENTS AND MARKETABLE SECURITIES

The Company considers all highly liquid debt instruments
having a maturity of three months or less on the date of purchase to be cash
equivalents.

The Company has classified all investments as available for
sale. Investments classified as available for sale are recorded at fair value
and any temporary difference between an investment's cost and fair value is
recorded as a separate component of stockholders'  equity. Temporary differences
between cost and fair value for the years ended July 31, 1999 and July 31, 1998
were not material.



Information about the types of cash equivalents and
marketable securities held is as follows:

`Year Ended July 31,
                                             -------------------
                                               1999      1998
                                             --------- ---------
                                                 (in thousands)
Cash and cash equivalents:
  Cash ....................................   $11,853    $6,966
  Money market funds ......................    22,005    38,683
  Municipal obligations ...................    10,991    17,951
                                             --------- ---------
                                               44,849    63,600
                                             ========= =========
Marketable securities:
  Municipal obligations ...................    12,049    30,565
  Obligations of U.S. government agencies..     --        2,043
  Corporate debt securities ...............     2,026     4,081
                                             --------- ---------
                                               14,075    36,689
                                             ========= =========
                                              $58,924  $100,289
                                             ========= =========`

Information about the contractual maturities of marketable
securities at July 31, 1999 is as follows:

`Due after
                                              Due in   one year
                                             one year   through
                                              or less  five years
                                             --------- ---------
                                                 (in thousands)

  Municipal obligations ...................    $5,801    $6,248
  Corporate debt securities ...............     2,026      --
                                             --------- ---------
                                               $7,827    $6,248
                                             ========= =========`

NOTE 3-CERTAIN BALANCE SHEET COMPONENTS

`Year Ended July 31,
                                             -------------------
                                               1999      1998
                                             --------- ---------
                                                 (in thousands)
Inventory:
  Purchased parts........................     $21,208   $30,407
  Work-in-process........................      44,641    35,554
  Spares.................................      28,541    20,551
                                             --------- ---------
                                              $94,390   $86,512
                                             ========= =========
Property, plant, and equipment:
  Land and buildings.....................      $8,979    $9,882
  Machinery and equipment................      74,283    62,624
                                             --------- ---------
                                               83,262    72,506
Less accumulated depreciation............     (32,730)  (23,536)
                                             --------- ---------
                                              $50,532   $48,970
                                             ========= =========
Accrued and other liabilities:
  Customer advances......................      $6,299   $10,268
  Accrued employee costs.................       7,405    10,973
  Accrued warranty and installation......       7,380    11,220
  Payable to financing intermediary......       4,686    18,718
  Other accrued liabilities..............       8,406     9,625
                                             --------- ---------
                                              $34,176   $60,804
                                             ========= =========`

NOTE 4-LONG-TERM DEBT

During fiscal 1997, the Company repaid its outstanding
term debt. In April 1997, the Company entered into an amendment to its existing
credit agreement with ABN-AMRO Bank, N.V. to expand its $20.0 million revolving
credit line expiring May 31, 1998 to a $50.0 million line of credit expiring May
31, 1999.   In April 1998, the term of this credit line was extended to November
1999, and the covenants were revised to be substantially the same as those under
the Hillsboro, Oregon lease agreement (see Note 8). In September 1998, the term
of this credit line was further extended to November 2000. Indebtedness under
the revolving credit facility is unsecured and bears interest at the London
Interbank Offered Rate (5.18% on July 31, 1999) plus 1.25%. The terms of the
financing facility require the Company to comply with certain financial and
restrictive covenants, including maintenance of certain financial ratios and
minimum net worth criteria, restrictions on incurring indebtedness, and certain
dividend restrictions. On May 31, 1996, the Company drew down the $10.0 million
term note to repay in full its senior secured notes, and in May 1997 repaid its
term note in full. No prepayment penalties or debt issuance costs were incurred.
No amounts have been drawn under the revolving credit facility. At July 31,
1999, the Company was not in compliance with certain financial ratio covenants
under its $50.0 million revolving credit line. The Company obtained a waiver
letter from the lessor and lender for these covenants. In September 1999, the
terms of the credit line and the lease facility were further amended to revise
the affected covenants such that the Company is in compliance.   The revised
terms included an increase in the interest rate to the amount stated above.



NOTE 5-STOCKHOLDERS' EQUITY

Common and Preferred Stock

In December 1996, the Company completed a public
offering of 5,029,916 shares of Common Stock, of which 500,000 shares were
issued and sold by the Company and 4,529,916 shares were sold by stockholders.
In December 1996, the underwriters of the public offering exercised their option
to purchase an additional 754,487 shares of Common Stock from the Company. All
of these shares were sold at $33.25 per share before deducting underwriting
discounts and commissions. Net proceeds to the Company from the offering totaled
approximately $39.3 million after deducting underwriting discounts and offering
expenses.

In January 1997, the Board of Directors adopted a shareholder
rights plan. Under the plan, the Board of Directors issued rights to acquire
Series A Participating Preferred Stock. The number of shares constituting such
series is equal to the number of shares of authorized Common Stock divided by
100. The holders of the Series A Participating Preferred Stock would have 100
votes for each share held by them. Holders of the Series A Participating
Preferred Stock would be entitled to receive, when and as declared by the Board
of Directors of the Registrant, commencing after the close of business on
January 31, 1997, a dividend of $1,600 per share. No shares of Series A
Participating Preferred Stock have yet been issued, as the conditions necessary
for the exercise of rights have not yet occurred.

The Company's Articles of Incorporation were amended on
January 30, 1997 to increase the authorized stock to 50,000,000 shares. Such
shares include 40,000,000 shares of Common Stock with a par value of $0.01 per
share and 10,000,000 shares of Preferred Stock with a par value of $0.01 per
share.

The Company's Articles of Incorporation were further amended on December 30,
1997 to increase the number of authorized shares of Common Stock to 60,000,000
shares with a par value of $0.01 per share.

In June 1998, the Board of Directors authorized the
repurchase of up to $30 million of Common Stock. Shares may be repurchased at
prevailing market prices from time to time. In fiscal 1998, the Company
repurchased 165,000 shares of Common Stock for approximately $5.6 million at an
average price of $33.84 per share. In fiscal 1999, the Company repurchased
840,000 shares of Common Stock for approximately $19.8 million at an average
price of $23.57 per share.

NOTE 6-INCOME TAXES

The components of income before income tax provision and extraordinary
items are as follows:

`Year Ended July 31,
                                             -----------------------------
                                               1999      1998      1997
                                             --------- --------- ---------
                                                      (in thousands)
Domestic.................................     ($7,490)  $62,793   $49,604
Foreign..................................       9,044     8,067     3,670
                                             --------- --------- ---------
                                               $1,554   $70,860   $53,274
                                             ========= ========= =========`

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

`Year Ended July 31,
                                             -----------------------------
                                               1999      1998      1997
                                             --------- --------- ---------
                                                      (in thousands)
Current:
  Federal..................................   ($3,146)  $12,660    $9,906
  State....................................        45     1,248     1,869
  Foreign..................................     3,371     5,127     4,957
                                             --------- --------- ---------
                                                  270    19,035    16,732
                                             --------- --------- ---------
Deferred:
  Federal..................................       195     5,090     2,441
  State....................................      (627)      464       267
  Foreign..................................       690      (496)     (605)
                                             --------- --------- ---------
                                                  258     5,058     2,103
                                             --------- --------- ---------
Income tax provision.......................      $528   $24,093   $18,835
                                             ========= ========= =========`

The income tax provision differs from the amount computed by applying the
statutory U.S. federal income tax rate as follows:

`Year Ended July 31,
                                             -----------------------------
                                               1999      1998      1997
                                             --------- --------- ---------
                                                      (in thousands)
Income tax provision at U.S. statutory rate.     $544   $24,800   $18,646
State income taxes, net of federal income
 tax benefit................................       45     2,036     1,389
Credits ....................................   (1,094)   (4,762)     --
Purchase accounting non-taxable write-offs..     --        --       2,014
Foreign earnings taxed at higher rates......      969       720     2,349
Foreign sales corporation...................     --      (3,089)   (1,370)
Change in valuation allowance...........          372     3,034    (3,921)
Other.......................................     (308)    1,354      (272)
                                             --------- --------- ---------
  Total.....................................     $528   $24,093   $18,835
                                             ========= ========= =========`

The components of deferred taxes are as follows:

`Year Ended July 31,
                                                       -------------------
                                                         1999      1998
                                                       --------- ---------
                                                         (in thousands)
Current:
  Nondeductible accruals and reserves.............       $8,636   $14,656
  Uniform capitalization adjustment to inventory..          822     1,121
  Revenue recognized for tax return purposes and
   deferred for financial statements..............        1,022       806
  Net operating loss carryforwards................        3,333      --
  Other...........................................        4,979     2,390
  Valuation allowance.............................       (1,148)   (1,071)
                                                       --------- ---------
  Net current deferred tax asset..................       17,644    17,902
                                                       --------- ---------
Noncurrent:
  Deferred gain on sale of asset..................        1,234     1,129
  Other...........................................        2,237     2,047
  Valuation allowance.............................       (3,471)   (3,176)
                                                       --------- ---------
  Net noncurrent deferred tax asset...............         --        --
                                                       --------- ---------
  Net deferred tax asset..........................      $17,644   $17,902
                                                       ========= =========`

The Company has included in its deferred tax assets a
valuation allowance for the years ended July 31, 1999 and 1998 of $4.6 million
and $4.2 million, respectively. The valuation allowance has been recorded
against certain foreign deferred tax assets and certain noncurrent tax assets as
the realizability is not assured at the balance sheet date.

NOTE 7-BENEFIT PLANS

Stock Option Plans

The Company grants options to employees and non- employee
directors to purchase shares of its Common Stock. In December 1998, the Board of
Directors and the shareholders approved 1,000,000 additional shares of common
stock for issuance under the 1995 Omnibus Incentive Plan. As of July 31, 1999,
the Company had an aggregate of 5,996,836 common shares reserved for issuance
under its employee equity plans (Employee Plans). There were 578,847 shares
available for grant under the Employee Plans as of July 31, 1999. Currently the
only plan under which the Company grants options to employees is the 1995
Omnibus Incentive Plan. Options to non- employee directors are granted under the
1995 Directors'  Plan (the Directors'  Plan). As of July 31, 1999, the company
had 150,000 shares of Common Stock reserved for issuance under the Directors'
Plan, of which 40,000 shares were available for grant. All options granted under
any of the plans have been for a term of 10ten years, with an exercise price
equal to the fair market value of the shares on the date of grant of the option.
For grants to employees, the vesting period has generally been 25% per year over
the 4four years following the date of grant. Grants to directors vest over a
period of between one and two years after the date of grant.

Following is a summary of the activities in the Employee and
Directors'  Plans for the past three years:

`Weighted
                                                             Average
                                                Options     Exercise
                                              Outstanding     Price
                                              -----------  -----------
      Outstanding, July 31, 1996............   1,720,210        $7.71
        Granted.............................     888,964       $38.61
        Canceled............................    (148,637)       $9.15
        Exercised...........................    (565,854)       $2.59
                                              -----------
      Outstanding, July 31, 1997............   1,894,683       $23.30
        Granted.............................   1,134,116       $41.25
        Canceled............................     (55,935)      $29.31
        Exercised...........................    (289,188)       $9.32
                                              -----------
      Outstanding, July 31, 1998............   2,683,676       $32.26
        Granted.............................   1,188,560       $31.60
        Canceled............................    (235,452)      $40.76
        Exercised...........................    (221,101)      $12.08
                                              -----------
      Outstanding, July 31, 1999............   3,415,683       $33.04
                                              ===========`



At July 31, 1999, 1998, and 1997, options were exercisable for 1,021,498
shares, 589,927 shares, and 345,773 shares, respectively.

Significant option groups outstanding at July 31, 1999, related weighted average
exercise price per share of options granted, and contractual life information
are as follows:

`Options Outstanding             Options Exercisable
                  -----------------------------------  -----------------------
                   Weighted-
                    Average                 Weighted                 Weighted
                   Remaining                Average                  Average
Range of Exercise Contractual               Exercise                 Exercise
Prices per share  Life (Years)   Shares      Price        Shares      Price
----------------- ------------ ----------- ----------  ------------ ----------
$  0.01 -  $ 28.88       6.96     699,294     $16.62       399,991     $11.67
$ 29.00 -  $ 31.00       9.76     820,250     $29.57        14,676     $30.32
$ 31.07 -  $ 36.00       8.70     769,034     $34.29       196,975     $34.55
$ 36.25 -  $ 42.50       7.95     677,605     $41.20       306,047     $41.18
$ 42.75 -  $ 67.13       8.65     449,500     $50.50       103,809     $51.16
                               -----------             ------------

Total                           3,415,683                1,021,498
                               ===========             ============`

As described in Note 1, the Company has adopted the
disclosure provisions as required by SFAS 123. Accordingly, no compensation cost
has been recognized in the Company's statements of operations, as all options
were granted at an exercise price per share equal to the market value of the
Company's common stock on the date of grant.

As required by SFAS 123 for pro forma disclosure purposes
only, the Company has calculated the estimated grant date fair value using the
Black-Scholes model. The Black-Scholes model, as well as other currently
accepted option valuation models, was developed to estimate the fair value of
freely tradable, fully transferable options without vesting restrictions, which
significantly differ from the Company's stock option awards. These models also
require highly subjective assumptions, including future stock price volatility
and expected time until exercise, which greatly affect the calculated grant date
fair value.

The following weighted average assumptions are included in
the estimated grant date fair value calculations for the Company's stock option
awards:

The following weighted average assumptions are included in the estimated
grant date fair value calculations for the Company's stock option awards:

`Year ended July 31,
                                             -----------------------------
                                               1999      1998      1997
                                             --------- --------- ---------

      Expected life.........................  5 years   5 years   5 years
      Risk-free interest rate...............      5.0%      5.6%      6.4%
      Volatility............................       60%       56%       53%
      Dividend yield........................      --        --        --`

The weighted average estimated grant date fair value, as
defined by SFAS 123, for options granted during 1999, 1998, and 1997 was $15.73,
$19.37, and $17.44 per share subject to option, respectively.

Employee Stock Purchase Plan

Since July 1995, the Company has offered an Employee
Stock Purchase Plan (ESPP) under which rights are granted to purchase shares of
Common Stock at 85% of the lesser of the market value of such shares at the
beginning of an eighteen18-month offering period or at the end of each six6-
month segment within the offering period. Under the ESPP, the Company is
authorized to grant options to purchase up to 500,000 shares of the Company's
Common Stock. During fiscal 1999, 1998, and 1997, 130,311; 100,555; and 68,067
shares, respectively, were purchased at prices ranging from $8.57 to $34.21 per
share. Shares available for future purchase under the ESPP totaled 163,325 at
July 31, 1999.

The following weighted average assumptions are included in
the estimated grant date fair value calculations under the ESPP:

`Year ended July 31,
                                             -----------------------------
                                               1999      1998      1997
                                             --------- --------- ---------
      Expected life......................... 0.5 years 0.5 years 0.5 years
      Risk-free interest rate...............      5.0%      5.6%      6.4%
      Volatility............................       60%       56%       53%
      Dividend yield........................      --        --        --`

Compensation cost (included in pro forma net income and net
income per share amounts only) for the grant date fair value, as defined by SFAS
123, of the purchase rights granted under the ESPP was calculated using the
Black-Scholes model. Included in the pro forma net income for fiscal 1999, 1998,
and 1997 is compensation expense related to purchase rights granted during
fiscal 1999. The weighted average estimated grant date fair value per share for
rights granted under the ESPP, as defined by SFAS 123, for stock purchased under
the ESPP during fiscal 1999, 1998, and 1997 was $10.87, $10.66, and $6.07 per
share, respectively.

Pro Forma Results

Had the Company recorded compensation costs based on
the estimated grant date fair value (as defined by SFAS 123) for awards granted
under its stock option plans and employee stock purchase plan, the pro forma
effect on net income and net income per share would be as set forth below. These
pro forma statements take into consideration pro forma compensation related only
to grants made after December 15, 1995. Consequently, the pro forma effect on
net income and net income per share for fiscal 1999, 1998, and 1997 is not
necessarily representative of the pro forma effect on net income in future
years.

Pro forma results for fiscal 1999, 1998, and 1997 are as
follows:

`Year ended July 31,
                                             -----------------------------
                                               1999      1998      1997
                                             --------- --------- ---------
  (in thousands, except per share amounts)
  Pro forma net (loss) income................ ($9,803)  $38,403   $31,447
  Pro forma net (loss) income per share-basic  ($0.46)    $1.75     $1.52
  Pro forma net (loss) income per share-diluted($0.46)    $1.72     $1.49`



401(k) Plan

On June 15, 1990, the Company adopted a 401(k)
savings plan that covers all eligible employees.    The Company contributed
approximately $0.7 million, $0.5 million, and $0.4 million to the plan during
the years ended July 31, 1999, 1998, and 1997, respectively.

NOTE 8-COMMITMENTS AND CONTINGENCIES

Leases

In November 1997, the Company completed the purchase
of approximately 15.2 acres of land in Hillsboro, Oregon at a cost of
approximately $2.4 million on which a new facility  would be constructed.
In December 1997, the Company entered into an agreement to lease the facility.
The lessor of the buildings has committed to spend up to $60 million for
construction and the Company will would act as construction agent for the
lessor. As of July 31, 1999, the lessor of the buildings has spent $45.6 million
for construction. The Company started to occupy the premises in May 1999, under
an interim financing facility that will later convert to a lease.   The lease
term is expected to begin by   the end of calendar year 1999 and end in November
2004. With the approval of the lessor, the Company may extend the lease term for
up to three one-year periods. The Company has the option to purchase the
facility at any time during the lease term at the lessor's capitalized cost. If
the Company does not elect to purchase the property at the end of the lease
term, the Company is required to guarantee the minimum residual value, not to
exceed $49.8 million. Management believes that the contingent liability relating
to this residual value guarantee does not currently have a material adverse
effect on the Company's financial position or results of operations. The
agreement also requires the Company to comply with certain financial covenants.
At July 31, 1999, the Company was not in compliance with certain financial ratio
covenants under this leasing agreement. The Company obtained a waiver letter
from the lessor and lender for these covenants. In September 1999, the terms of
the credit line and the lease facility were further amended to revise the
affected covenants such that the Company is in compliance.



In February 1998, the Company entered into an agreement to
amend the existing lease on its Hayward facilities to accommodate an   expansion
of production and research and development facilities and renovation of existing
production facilities via construction lease allowances. As of July 31, 1999,
the lessor of the facilities has spent $58.1 million on this expansion and
renovation project. The lease amendment also included the leaseback of $11.0
million of building improvements on existing facilities sold to the lessor via
the lease amendment. The initial term of the lease expires in May 2014 and, if
not canceled by the Company, will be automatically extended for three five-year
renewal periods and one additional eight-month renewal period. The agreement
requires the Company to comply with certain financial covenants. As of July 31,
1999, the Company was in compliance with these covenants.

In addition to the leases discussed above, the Company leases
certain other facilities and equipment under operating lease agreements. Rent
expense under all operating leases for the years ended July 31, 1999, 1998, and
1997, was $11.4 million, $8.6   million, and $5.5   million, respectively.
Future minimum lease commitments, excluding property taxes, maintenance, and
insurance, under leases having initial or remaining terms in excess of one year
are as follows (in thousands) for the fiscal years ending July 31:

`2000........................................      $18,424
      2001........................................       18,566
      2002........................................       16,232
      2003........................................       14,877
      2004........................................       14,168
      Thereafter..................................       88,781
                                                       ---------
                                                       $171,048
                                                       =========`



Forward Exchange Contracts

The Company conducts business on a global basis in
several major international currencies.   As such, it is exposed to adverse
movements in foreign currency exchange rates.   The Company enters into forward
foreign exchange contracts to reduce certain currency exposures.   These
contracts hedge exposures associated with nonfunctional currency transactions,
primarily denominated in Japanese currency.   The Company does not enter into
forward exchange contracts for trading purposes.   Forward exchange contracts
outstanding and their unrealized gains and losses as of July 31, 1999 are as
follows:

`Notional  Notional  Unrealized
                                               value     value     gain/
                                             purchased   sold     (Loss)
                                             ------------------------------
                                                       (in thousands)
Japanese Yen................................. $16,815   ($3,887)    ($488)
German Deutsche Mark..........................          ($4,348)       $3
                                             ------------------------------
Total........................................ $16,815   ($8,235)    ($485)
                                             ========= ========= =========`



NOTE 9-OPERATING SEGMENT AND GEOGRAPHIC INFORMATION

Etec adopted SFAS No. 131,  "Disclosures about
Segments of an Enterprise and Related Information, " in   fiscal year 1999.
SFAS No. 131 establishes standards for reporting information about operating
segments and related disclosures about products, geographic information, and
major customers. Operating segment information for 1998 and 1997 is also
presented in accordance with SFAS No. 131.



Etec designs, develops, manufactures, and markets patterning
solutions that enable the production of semiconductor chips and printed circuit
boards worldwide. Its products include electron- and laser-beam systems that
produce high-precision masks, which are used to print circuit patterns onto
semiconductor wafers, and laser direct imaging systems, which directly image
patterns on printed circuit boards. Etec is organized into three product line
operating segments: the Semiconductor Products Group, the Interconnect Products
Group, and the Display Products Group.



The Semiconductor Products Group's products include
MEBES electron beam systems and ALTA  and CORE  laser beam systems.
Sales of Semiconductor Product Group products represented a majority of Etec's
1999 revenue and gross margin. The Interconnect Product Group makes and sells
DigiRiteTM 2000 laser direct imaging systems. The Display Product
Group is an emerging business, that does not currently generate any revenue.
Their products are currently in the development stage, and there can be no
assurance that the company will be able to introduce them successfully into the
market.

Segment operating expenses and assets include those items
that can be specifically identified with or reasonably allocated to a particular
segment. Operating segments do not sell products to each other, and accordingly,
there are no intersegment revenues to be reported.

Information on reportable segments for the three years ended
July 31, 1999, 1998, and 1997 is as follows:

`SPG       IPG       DPG      TOTAL
                                      --------- --------- --------- ---------
                                                (in thousands)
Year Ended July 31, 1999
-------------------------
Revenue                               $234,316    $2,850     $--    $237,166
                                      ========= ========= ========= =========
Operating income (loss)                $15,851  ($13,044)  ($3,574)    ($767)
                                      ========= ========= ========= =========
Assets                                $293,170    $9,034    $5,802  $308,006
                                      ========= ========= ========= =========
Year Ended July 31, 1998
-------------------------
Revenue                               $287,627      $700     $--    $288,327
                                      ========= ========= ========= =========
Operating income (loss)                $81,654  ($12,528)  ($2,004)  $67,122
                                      ========= ========= ========= =========
Assets                                $349,344    $7,103    $2,067  $358,514
                                      ========= ========= ========= =========
Year Ended July 31, 1997
-------------------------
Revenue                               $240,914     $--       $--    $240,914
                                      ========= ========= ========= =========
Operating income (loss)                $62,266   ($7,414)  ($4,411)  $50,441
                                      ========= ========= ========= =========
Assets                                $273,778    $9,144    $1,621  $284,543
                                      ========= ========= ========= =========`





The following is a summary of the Company's geographic
operations:

`United               Other
                                       States     Japan     Asia     Europe     Total
                                      --------- --------- --------- --------- ---------
                                                         (in thousands)
Net revenues to unaffiliated
customers for the year ended:

  July 31, 1999 ..................     $89,610   $57,410   $53,697   $36,449  $237,166
                                      ========= ========= ========= ========= =========
  July 31, 1998 ..................     $74,565  $104,391   $65,286   $44,085  $288,327
                                      ========= ========= ========= ========= =========
  July 31, 1997 ..................     $67,991   $79,761   $52,507   $40,655  $240,914
                                      ========= ========= ========= ========= =========

Operating income(loss)for the
 year ended:

  July 31, 1999 ..................     ($9,962)   $7,526    $2,282     ($613)    ($767)
                                      ========= ========= ========= ========= =========
  July 31, 1998 ..................     $59,014    $6,422    $1,687       ($1)  $67,122
                                      ========= ========= ========= ========= =========
  July 31, 1997 ..................     $45,430    $6,087    $1,560   ($2,636)  $50,441
                                      ========= ========= ========= ========= =========

Identifiable assets at:

  July 31, 1999 ..................    $262,299   $35,475    $5,400    $4,832  $308,006
                                      ========= ========= ========= ========= =========
  July 31, 1998 ..................    $312,978   $40,965    $4,245      $326  $358,514
                                      ========= ========= ========= ========= =========`

Export sales of products shipped from the United States,
which are included in the revenues of the Japan, Other Asia, and Europe segments
shown above, were $91.1 million, $176.2 million, and $138.5 million for the
years ended July 31, 1999, 1998, and 1997, respectively.

`Year Ended July 31,
                                      -----------------------------
                                        1999      1998      1997
                                      --------- --------- ---------
 Customers comprising 10% or more
  of the Company's total revenue
  for the periods indicated:
  DuPont Photomask, Inc...............      15%        7%       16%
  Dai Nippon Printing Company Limited.       4%       17%        6%
  Photronics Inc......................      17%        6%       14%`







NOTE 10-ACQUISITION



Ebetech

In the third quarter of fiscal 1997, the Company's
wholly owned subsidiary, Etec Systems GmbH, acquired substantially all of the
assets, properties, and business of Ebetech Electron Beam Technology GmbH
("Ebetech," which was subsequently renamed  "Etec EBT"
and is part of the Company's Display Products Group) from VCB (the Venture
Capital Company of Siemens AG), MRS Technology, Inc., and a group of founding
employees in exchange for $4.7 million, net of cash acquired, and the issuance
of a note payable of $0.5 million. The allocation of the Company's purchase
price to tangible and identifiable intangible assets and liabilities assumed was
as follows (in thousands):

`Inventory.....................................                    $368
      Other current assets..........................                     328
      Other assets..................................                     674
      In-process technology.........................                   3,874
      Accounts payable and accrued expenses.........                    (128)
                                                                    ---------
                                                                      $5,116
                                                                    =========`

Management's
estimate of the value of the in-process technology and the existing technology
was prepared using an income approach methodology that considered the present
value of the cash flows expected to be generated over the estimated useful life
of the technology. Approximately $3.9 million of the excess of the purchase
price over the fair value of the net assets acquired was allocated to in-process
technology acquired and written off in the third quarter of fiscal 1997 because
of the uncertainty as to realization.

Pro Forma Results of the Acquisition

The operating results of the acquisition of Ebetech
is included in the Company's consolidated results of operations from the date
of acquisition. The following unaudited pro forma summary presents the
consolidated results of operations as if the Ebetech acquisition had occurred at
the beginning of fiscal 1997, after giving effect to certain adjustments.
Additionally, the fiscal 1997 pro forma information excludes the $3.9 million
write-offs of in-process technology acquired. Ebetech results of operations
included in the pro forma presentation for fiscal 1997 are for July 31, 1996 to
July 31, 1997. These pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of what would have occurred
had the acquisitions taken place at the beginning of the periods presented or of
the results that may occur in the future.

`Year
                                                  Ended
                                                July 31,
                                                  1997
                                                ---------
                                                (Unaudited)

  Net income(in thousands) .............         $38,171
  Net income per share-basic............           $1.84
  Net income per share-diluted..........           $1.73`

NOTE 11-RESTRUCTURING AND OTHER CHARGES

During fiscal year 1999, management implemented a plan to
respond to the industry downturn adversely affecting the Company's business by
restructuring certain operating activities. Accordingly, the Company recorded
pretax restructuring and other charges of $12.2 million.   The components of
these charges are as follows:

`Year Ended
                                      07/31/99
                                      ---------
                                      (in thousands)
  Inventory reserves........            $8,272
  Restructuring.............             2,515
  Other.....................             1,415
                                      ---------
  Total.....................           $12,202
                                      =========`

Inventory Reserves

The Company's policy is to reserve against inventory
in excess of that needed over a period deemed short enough to assure management
that the inventory is usable and not obsolete. During fiscal year 1999, the
Company recorded additional provisions for inventory reserves of $8.3 million
primarily as a result of shorter manufacturing cycle times, decreased order
visibility, and a reduced planning horizon caused by reduced backlog.   Each of
these factors either shortened the period over which the Company feels confident
that inventory will be usable, or reduced the amount of inventory that the
Company forecasts as needed over the period. The charges for additional
inventory reserves are included in cost of sales.

Restructuring

The Company recorded restructuring charges totaling
$2.5 million in the quarter ended April 30, 1999. The restructuring charges
comprised mainly   severance costs related to the involuntary termination of 91
employees, of whom 73 were based in Hayward, 12 in Oregon, and 6 in France.
These charges also include facility costs arising from the consolidation of the
Company's European and Oregon operations.

The following table shows the components of the restructuring charge recorded
in the year ended July 31, 1999:

`Year Ended
                                        July 31, 1999     Balance at
                                      --------------------   July 31,
                                      Provision  Incurred   1999
                                      --------- --------- ----------
                                                (in thousands)

  Severance and benefits..............  $1,593    $1,189      $404
  Facilities closure costs and other..     922       460       462
                                      ------------------------------
  Total...............................  $2,515    $1,649      $866
                                      ========= ========= =========`

Cash outlays were primarily made
for severance and benefit costs.   The Company expects to incur approximately
$0.9 million of cash expenditures during the next twelve 12 months.   The
balance due for severance and benefits at July 31, 1999 primarily relates to
amounts due to French employees.

Other

Other charges of $1.4 million principally consist of
additional reserves taken against accounts receivable, arising from
management's assessment of the collectability of all outstanding balances in
the context of the general industry downturn. This charge was included in
selling, general and administrative expenses.









UNAUDITED
QUARTERLY CONSOLIDATED FINANCIAL DATA

`JULY      APRIL     JAN.      OCT.      JULY      APRIL     JAN.      OCT.
                       31,       30,       31,       31,       31,       30,       31,       31,
                      1999      1999      1999      1998      1998      1998      1998      1997
                    --------- --------- --------- --------- --------- --------- --------- ---------
                                                (in thousands, except per share amounts)

Revenue............. $48,047   $57,185   $53,036   $78,898   $87,766   $70,028   $62,168   $68,365
Gross profit........ $15,576   $17,055   $25,048   $39,697   $50,196   $35,750   $33,677   $33,534
(Loss)/income
 from operatons..... ($6,578) ($10,050)   $2,286   $13,575   $26,284   $15,332   $12,026   $13,480
Net (loss)/income... ($3,936)  ($6,160)   $1,673    $9,449   $18,214   $10,674    $8,651    $9,228
Net (loss)/income
 per share - basic..  ($0.18)   ($0.29)    $0.08     $0.44     $0.83     $0.49     $0.39     $0.42
Net (loss)/income
 per share - diluted  ($0.18)   ($0.29)    $0.08     $0.43     $0.80     $0.47     $0.38     $0.41`

Fiscal 1999 Results

Third quarter fiscal 1999 net loss reflects the inclusion of $12.2
million of restructuring and other charges, comprising $8.3 million of
additional inventory reserves, $2.5 million of restructuring charges, and $1.4
million of other charges.









Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.

None.



PART
III



Certain information required by Part III is incorporated by reference
from the Company's definitive Proxy Statement, to be filed with the Securities
and Exchange Commission in connection with the solicitation of proxies for the
Company's 1999 Annual Meeting of Stockholders (the  "Proxy
Statement") within 120 days of fiscal 1999 year end.

Item 10.Directors
and Executive Officers of the Registrant.

Information relating to Directors required by this section is
incorporated by reference from the information in the section entitled,
 "Election of Directors-Nominees " in the Proxy Statement.
Information with respect to executive officers of the Company is contained in
the section entitled  "Executive Officers of the Registrant" in Part
I of this Form 10-K, which information is incorporated by reference into this
Part III, Item 10.

Item 405 of Regulation S-K calls for disclosure of any known
failure to file or late filing by an insider of a report required by Section 16
of the Securities Exchange Act of 1934. This disclosure is contained in the
section entitled  "Section 16(a) Beneficial Ownership Reporting
Compliance " in the Proxy Statement and is incorporated herein by
reference.

Item 11. Executive
Compensation.

The information required
by this section is incorporated herein by reference from the information in the
sections entitled  "Election of Directors- - Directors'
Compensation " and  "Executive Compensation " in the Proxy
Statement.



Item 12. Security
Ownership of Certain Beneficial Owners and Management.

The information required by this section is incorporated by reference
from the information in the section entitled    "Security Ownership of
Certain Beneficial Owners and Management " in the Proxy Statement.



Item 13. Certain
Relationships and Related Transactions.

The information required by this section is incorporated by reference
from the information in the section entitled    "Certain
Transactions " in the Proxy Statement.



PART
IV



Item 14. Exhibits, Financial
Statement Schedules, and Reports on Form 8-K.

> (a) The following documents are filed as part of this report:
> 
> 1.	Financial Statements-See Index to Consolidated Financial
> Statements at page 20 of this Form 10-K.
> 2.	Financial Statement Schedules-All schedules are omitted because
> they are not required, are not applicable, or the information is included in the
> financial statements or notes thereto.
> 3.	Exhibits-See Index to Exhibits at page 43 of this Form 10-
> K.
> 
> (b) Reports on Form 8-K-No reports on Form 8-K have been filed during
> the fourth quarter of fiscal 1999.

**INDEX TO EXHIBITS**

`Exhibit
Number                                  Description
------- --------  -------------------------------------------------------
 2.1      (5)     Share Purchase Agreement dated March 13/14, 1997 by and
                  between Registrant, SXR-2 Vermogensverwaltungsgesellschaft
                  GmbH, Ebetech Electron-Beam Technology Vertiebs GmbH and
                  the Selling Shareholders named therein.

 3.1      (4)     Eighth Amended and Restated Articles of Incorporation.

 3.2      (6)     Certificate of Amendment to Articles of Incorporation filed
                  with the Registrant 10Q for the quarter ended January 31,
                  1998, dated December 2, 1997.

 3.3      (9)     Amended and Restated By-Laws of the Registrant dated
                  September 9, 1998

 4.1      (1)     Series C Shareholders' Rights Agreement by and among the
                  Registrant and Certain Former Holders of Capital Stock of
                  ATEQ Corporation and Warrants to Purchase Capital Stock of
                  ATEQ Corporation dated as of November 8, 1991, as amended
                  December 1991 and January 14, 1994.

 4.2      (3)     Investor Agreement dated June 28, 1996 by and among the
                  Registrant and Intel Corporation.

 4.3      (4)     Rights Agreement, dated as of January 15, 1997, by and
                  between Registrant and Bank of Boston, Rights Agent.

 10.1     (1),+   1990 Stock Plan of Registrant

 10.2     (1),+   1990 Executive Stock Plan of Registrant

 10.3     (1),+   1994 Employee Stock Option Plan of Registrant

 10.4     (1),+   1995 Employee Stock Purchase Plan of Registrant

 10.5     (1),+   1995 Directors' Stock Option Plan of Registrant

 10.6     (1),*   MEBES Information Agreement dated October 1, 1975 between
                  Western Electric Company, Inc. and the Registrant, as amended
                  April 1, 1976, August 3, 1976, July 1, 1980, November 22, 1983
                  and December 20, 1983.

 10.7     (1)     Consent to Assignment by AT&T to assignment by Perkin-Elmer
                  to Etec of the EBES Information Agreement dated October 1,
                  1975 between Western Electric Company, Inc. and the Registrant.

 10.8     (1),+   Agreement on Officer's Retirement between the Registrant
                  and John Suzuki dated as of January 25, 1994.

 10.9     (1),+   Form of Indemnity Agreements

 10.10    (2)     Credit Agreement among Registrant and the Lenders named
                  therein and ABN-AMRO Bank, N.V. as agent for Lenders, dated
                  May 24, 1996.

 10.11    (1)     Amendment and Assumption Agreement dated May 14, 1992 by
                  and between the Registrant, SEMATECH, INC. and ATEQ
                  Corporation.

 10.12    (4)     Amended and Restated Lease Agreement, dated January 31,
                  1997, by and between Registrant and ESI(CA) QRS 12-6, Inc.

 10.13    (5)     First Amendment to Credit Agreement dated April 23, 1997 by
                  and between Registrant, the Lenders named therein, and
                  ABN-AMRO Bank, N.V. amending Credit Agreement dated May 24,
                  1996.

 10.14    (6)     Lease Agreement by and between Registrant and Lease Plan
                  North America and the Participants Named Therein and ABN
                  Amro N.V. dated December 5, 1997.

 10.15    (6)     Participation Agreement by and between the Registrant
                  and Lease Plan North America, Inc. and the Participants
                  named herein and ABN Amro Bank N.V., as Agent for the
                  Participants dated December 5, 1997.

 10.16    (7)     Second Amended and Restated Lease Agreement by and between
                  ET LLC, a Delaware limited liability company d/b/a ET QRS
                  LLC as Landlord and the Registrant as Tenant of  the Hayward,
                  California premises dated February 2, 1998.

 10.17    (7)     First Amendment to Second Amended and Restated Lease
                  Agreement by and between ET LLC, a Delaware limited
                  liability company d/b/a ET QRS LLC as Landlord and
                  the Registrant, as Tenant of the Hayward, California
                  premises dated March 31, 1998.

 10.18    (7)     Second Amendment to Second Amended and Restated Lease
                  Agreement by and between ET LLC, a Delaware limited
                  liability company d/b/a ET QRS LLC as Landlord and the
                  Registrant, as Tenant of the Hayward, California premises
                  dated May 8, 1998.

 10.19    (7)     Second Amendment to Credit Agreement between the Registrant
                  each of the financial institutions currently a party
                  to the Credit Agreement, and ABN Amro Bank N.V.

 10.20    (8),+   Employment Agreement between Registrant and Stephen E. Cooper
                  dated December 3, 1992.

 10.21    (8),+   Employment Agreement between Registrant and Trisha Dohren
                  dated August 8, 1993.

 10.22    (9)     Amendment dated September 29, 1998 to Participation Agreement
                  (Tranche A) by and between the Registrant, and Lease Plan North
                  America, Inc. and the Participants named herein and ABN Amro
                  Bank N.V., as Agent for the Participants dated December 5,
                  1997.

 10.23    (9)     Amendment dated September 29, 1998 to Credit Agreement
                  among Registrant, and the Lender named therein and ABN AMRO
                  Bank N.V., as Agent for Lenders, dated May 24, 1996.

 10.24            Fourth Amendment to Credit Agreement dated September 30, 1999
                  by and between Registrant, the Lenders named therein, and ABN
                  AMRO Bank N.V., as agent for the Lenders, the Credit Agreement
                  dated May 24, 1996.

 10.25            Fifth Amendment to Participation Agreement dated September 30,
                  1999 by and between Registrant, and Lease Plan North America,
                  Inc. and the Participants named therein and ABN AMRO Bank N.V.,
                  as agent for the Participants, Participation Agreement dated
                  December 5, 1997.

 10.26            1995 Omnibus Incentive Plan of Registrant as amended and restated
                  effective December 8, 1998.

 10.27            Third Amendment to Second Amended and Restated Lease Agreement by
                  and between ET LLC, a Delaware limited liability company d/b/a ET
                  QRS LLC as landlord and the Registrant, as Tenant of the Hayward,
                  California premises dated February, 1999.

 10.28            Fourth Amendment to second Amended and Restated Lease Agreement by
                  and between ET LLC. a Delaware limited liability company d/b/a ET
                  QRS LLC as landlord and the Registrant, as Tenant of the Hayward,
                  California premises dated September 23, 1999.

    21            List of Subsidiaries

    23            Consent of PricewaterhouseCoopers LLP

    24            Power of Attorney

    27            Financial Data Schedule

---------
(1)  Incorporated herein by reference to Registrant's Registration Statement
     on Form S-1(File No. 33-95648).
(2)  Incorporated herein by reference to Registrant's Registration Statement
     on Form S-1 (File No. 333-04363).
(3)  Incorporated herein by reference to exhibit filed with
     Registrant's Annual Report on Form 10-K for the year ended July 31, 1996.
(4)  Incorporated herein by reference to exhibits filed with Registrant's
     Quarterly Report on Form 10-Q for the quarter ended January 31, 1997.
(5)  Incorporated herein by reference to exhibits filed with
     Registrant's Quarterly Report on Form 10-Q for the quarter ended
     May 2, 1997.
(6)  Incorporated herein by reference to exhibits filed with Registrant's
     Quarterly Report on Form 10-Q for the quarter ended January 31, 1998.
(7)  Incorporated herein by reference to exhibits filed with Registrant's
     Quarterly Report on Form 10-Q for the quarter ended April 30, 1998.
(8)  Incorporated herein by reference to exhibits filed with Registrant's
     Annual Report on  Form 10-K for the year  ended July  31, 1998.
(9)  Incorporated herein by reference to exhibits filed with Registrant's
     Quarterly Report on  Form 10-Q for the quarter  ended October 31, 1998.




 *   Confidential treatment has been previously granted.
 +   Denotes a management contract or compensatory plan or arrangement.`

---