<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 4, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AXCELIS TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3559 34-1818596
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
55 CHERRY HILL DRIVE
BEVERLY, MA 01915
(978) 232-4000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
BRIAN R. BACHMAN
AXCELIS TECHNOLOGIES, INC.
55 CHERRY HILL DRIVE
BEVERLY, MA 01915
(978) 232-4000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
MICHAEL C. MCLEAN J. ROBERT HORST JONATHAN JEWETT
KIRKPATRICK & LOCKHART LLP EATON CORPORATION SHEARMAN & STERLING
HENRY W. OLIVER BUILDING 1111 SUPERIOR AVENUE 599 LEXINGTON AVENUE
535 SMITHFIELD STREET CLEVELAND, OHIO 44114 NEW YORK, NEW YORK 10022
PITTSBURGH, PENNSYLVANIA 15222-2312
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE (1) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------
COMMON STOCK, PAR VALUE $0.001 PER SHARE.................... $500,000,000 $132,000
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY
BE CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES
IT SEEK AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE
OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION. DATED MAY 4, 2000.
Shares
AXCELIS TECHNOLOGIES, INC.
Common Stock
----------------------
This is an initial public offering of shares of common stock of Axcelis
Technologies, Inc. All of the shares of common stock are being sold by
Axcelis.
Prior to this offering, there has been no public market for the common
stock. It is currently estimated that the initial public offering price per
share will be between $ and $ . Axcelis intends to have the common
stock approved for quotation on the Nasdaq National Market under the symbol
"ACLS".
See "Risk Factors" beginning on page 9 to read about factors you should
consider before buying shares of the common stock.
----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------------
<TABLE>
<CAPTION>
Per Share Total
--------- ------------
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Axcelis....................... $ $
</TABLE>
To the extent that the underwriters sell more than shares of the common
stock, the underwriters have the option to purchase up to an additional
shares from Axcelis at the initial public offering price less the
underwriting discount.
----------------------
Goldman, Sachs & Co. expects to deliver the shares against payment in New
York, New York on , 2000.
GOLDMAN, SACHS & CO. MORGAN STANLEY DEAN WITTER
----------------------
Prospectus dated , 2000.
<PAGE> 3
INSIDE FRONT COVER
<PAGE> 4
PROSPECTUS SUMMARY
This summary does not contain all of the information that you should
consider before investing in our common stock. You should read the entire
prospectus carefully, especially "Risk Factors" beginning on page 9.
AXCELIS
We are a leading producer of ion implantation equipment used in the
fabrication of semiconductors and, together with our Japanese joint venture,
were ranked number one in the world in this category for 1999 by Dataquest Inc.
The ion implantation process provides a means for introducing charged ions into
the surface of a silicon wafer in order to form the active components of a
semiconductor. We also produce dry strip, photostabilization and rapid thermal
processing equipment, which is used in semiconductor manufacturing primarily
before and after the ion implantation process. In addition, we provide extensive
aftermarket service and support, including spare parts, equipment upgrades,
maintenance services and customer training. We are a 50-50 joint venture partner
in Japan with Sumitomo Heavy Industries, Ltd. This joint venture, which is known
as SEN, licenses our technology and is the leading producer of ion implantation
equipment in Japan.
Our customers are located in North America, Europe and Asia Pacific. We and
SEN serve 19 of the 20 largest semiconductor manufacturers in the world. We
believe that more than 3,200 of our products, including products shipped by SEN,
are in use worldwide. We manufacture our equipment at three locations in the
United States, and we support customers in 19 countries through 49 support
locations in nine countries. SEN manufactures equipment at its Toyo, Japan
facility.
We have been at the forefront of technological innovation in the ion
implant sector. We developed the first high current ion implantation system in
the late 1970s and the first high energy ion implantation system in the 1980s.
In 1999, we installed the first 300 millimeter high energy ion implantation
system, which we believe will be the next generation of ion implant products. In
addition, we pioneered the development of photostabilization in 1983, and we
have developed the only 300 millimeter production photostabilizer in the
industry.
The semiconductor industry is continuing to experience growth in demand for
semiconductors, or chips, for use in personal computers, telecommunication
equipment, digital consumer electronics, wireless communication products and
other applications. According to industry sources, worldwide sales of
semiconductors were $149 billion in 1999. While the semiconductor industry has
been highly cyclical, the semiconductor market, as measured by total sales, grew
at an average annual compound rate of 14.5% in the period from 1989 through
1999. World Semiconductor Trade Statistics, an industry trade association,
projects continued growth at similar rates for the next two or three years.
Sales of high energy ion implanters, our largest product line, have grown
substantially faster than semiconductors over this period.
The increasing demand for semiconductors has required manufacturers to
increase chip production. Manufacturers have primarily increased production
through efficiency improvements, the addition of manufacturing equipment in
existing fabrication facilities and the construction of new fabrication
facilities. Efficiency improvements have been derived largely from increased
equipment utilization and higher manufacturing yields. In recent years, however,
the ability to make significant efficiency gains has diminished. For that
reason, as market conditions have improved since early 1999, semiconductor
manufacturers have been meeting the increased demand for chips mostly by
building new fabrication facilities and by making additional equipment purchases
to expand existing fabrication facilities.
Our objective is to enhance our position as a leading producer of ion
implantation equipment and to offer on an integrated basis a broad array of
products and services used primarily in the front-end of the chip fabrication
process. Key elements of our strategy to achieve our objective include:
3
<PAGE> 5
- increase ion implantation market penetration;
- maintain strong commitment to research and development;
- capitalize on broad product lines to provide an integrated range of
front-end equipment;
- provide lowest cost of ownership;
- provide superior customer service; and
- reduce cycle times in our businesses.
OUR RELATIONSHIP WITH EATON CORPORATION
We are currently a wholly owned subsidiary of Eaton Corporation. On April
26, 2000, Eaton announced its plan to reorganize its semiconductor equipment
operations into an independent, publicly held company. Prior to the completion
of this offering, Eaton will substantially complete the transfer to us of all of
the assets of its semiconductor equipment operations that are not currently
owned by us, and we will assume the related liabilities. In connection with the
reorganization, we changed our name from Eaton Semiconductor Equipment Inc. to
Axcelis Technologies, Inc. After completion of this offering, Eaton will own
approximately % of our outstanding common stock, or % if the
underwriters fully exercise their option to purchase additional shares.
Eaton currently plans to complete the divestiture of our company
approximately six months following the completion of this offering by
distributing all of its shares of our common stock on a tax-free basis to Eaton
shareholders. Eaton may accomplish this divestiture through a split-off, a
spin-off or some combination of both transactions. Eaton will, in its sole
discretion, determine the timing, structure and terms of the divestiture of the
remaining shares of our common stock that it owns. The planned divestiture by
Eaton is subject to receiving a private letter ruling from the Internal Revenue
Service that the divestiture will be tax-free to Eaton and its shareholders and
that our separation from Eaton qualifies as a tax-free reorganization for U.S.
federal income tax purposes. Eaton is not, however, obligated to complete the
divestiture, and we cannot assure you whether or when it will occur.
On May 3, 2000, our Board of Directors declared a dividend of $300 million
payable to Eaton. We have the option of paying this dividend in either cash or
notes or in a combination thereof. Any notes issued would bear interest and
would have a maturity not to exceed two years. We presently expect to pay all of
this dividend in cash out of the net proceeds of this offering.
We will enter into agreements with Eaton providing for the substantial
completion of the reorganization of Eaton's semiconductor equipment operations
and the separation of our business operations from Eaton prior to the completion
of this offering. These agreements will provide for, among other things:
- the transfer from Eaton to us of assets and the assumption by us of
liabilities relating to our business, and
- various interim and ongoing relationships with Eaton.
The agreements regarding the separation of our business operations from
Eaton are described more fully in the section entitled "Arrangements With Eaton"
included elsewhere in this prospectus. The terms of these agreements, which are
made in the context of a parent-subsidiary relationship, may be more or less
favorable to us than if they had been negotiated with unaffiliated third
parties. See "Risk Factors -- Risks Related To Our Separation From Eaton". Our
assets and liabilities are described more fully in our combined financial
statements and notes to those statements that are included elsewhere in this
prospectus.
4
<PAGE> 6
THE OFFERING
<TABLE>
<S> <C>
Common stock offered.................................... shares
Common stock to be outstanding immediately after this
offering.............................................. shares
Common stock to be held by Eaton immediately after this
offering.............................................. shares
Use of proceeds......................................... We intend to use the estimated net proceeds
of $ million from this offering for the
payment of a previously declared dividend
payable to Eaton of $300 million and for
general corporate purposes
Proposed Nasdaq Stock Market symbol..................... "ACLS"
</TABLE>
----------------------
Unless we specifically state otherwise, the information in this prospectus
gives effect to a -for-1 stock split that will be effected prior to the
completion of this offering and does not take into account the issuance of up to
shares of common stock that the underwriters have the option to
purchase. If the underwriters exercise in full their option to purchase
additional shares, shares of common stock will be outstanding
immediately after this offering.
The information above does not take into account shares of
our common stock reserved for issuance under our stock plans, of which options
to purchase shares have been granted as of , 2000. In
addition, we may assume substantially all of the Eaton stock options held by our
employees on the date Eaton completes its divestiture of our company. If the
divestiture had been completed on , 2000, these options to purchase Eaton
common shares would have converted into options to purchase shares of our
common stock on that date, based on an assumed initial public offering price of
$ per share and the closing price of $ per Eaton common share on
, 2000.
Our principal executive offices are located at 55 Cherry Hill Drive,
Beverly, Massachusetts 01915, and our telephone number is (978) 232-4000. Our
website is located at http://www.semiconductor.eaton.com. The information on our
website is not a part of this prospectus.
In this prospectus, "Axcelis," "we," "us" and "our" each refers to Axcelis
Technologies, Inc., its subsidiaries and its predecessors, after giving effect
to the reorganization and separation of our business operations from Eaton, and
not to the underwriters or Eaton. Unless the context otherwise requires, "Eaton"
refers to Eaton Corporation and its subsidiaries other than us, "Fusion" refers
to Fusion Systems Corporation, a wholly owned subsidiary of our company,
"Sumitomo" refers to Sumitomo Heavy Industries Inc. and its subsidiaries and
"SEN" refers to Sumitomo Eaton Nova Corporation, our joint venture with
Sumitomo.
Eaton has authorized us to use "Eaton" as a trademark. We own the symbolic
replicas of our product lines and the following trademarks: Gemini(TM), Fusion
200(TM), Fusion 300(TM) and Summit 300(TM). All other trademarks or trade names
referred to in this prospectus are the property of their respective owners.
5
<PAGE> 7
SUMMARY HISTORICAL COMBINED FINANCIAL DATA
The following tables present our summary historical combined financial
data. The information set forth below should be read together with "Management's
Discussion and Analysis" and our historical combined financial statements and
notes to those statements included elsewhere in this prospectus. Our statements
of combined operations data set forth below for the years ended December 31,
1997, 1998 and 1999 and the combined balance sheet data as of December 31, 1998
and 1999 are derived from our audited combined financial statements included in
this prospectus which have been audited by Ernst & Young LLP, independent
auditors, whose report is also included in this prospectus.
The statements of combined operations data for the years ended December 31,
1995 and 1996 and the combined balance sheet data as of December 31, 1995, 1996
and 1997 are derived from our unaudited combined financial statements that are
not included in this prospectus. The statements of combined operations data for
the three months ended March 31, 1999 and 2000 and the combined balance sheet
data as of March 31, 2000 are derived from unaudited combined financial
statements included in this prospectus and, in the opinion of management,
include all adjustments, consisting only of normal recurring accruals, that are
necessary for a fair presentation of our financial position and operating
results for these periods. The historical financial information may not be
indicative of our future performance and does not reflect what our financial
position and operating results would have been had we operated as a separate,
stand-alone entity during the periods presented.
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<PAGE> 8
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------ -------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- --------- --------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF COMBINED
OPERATIONS DATA (1)
Net sales....................... $385,080 $448,663 $ 460,010 $ 265,709 $397,267 $ 59,124 $143,051
Gross profit (2)................ 138,335 157,246 172,802 64,229 157,082 20,768 61,474
Other costs & expenses:
Selling....................... 34,375 45,600 47,148 42,134 37,946 9,087 11,598
General & administrative...... 23,326 33,437 38,287 47,075 45,925 9,612 13,030
Research & development........ 21,802 35,107 70,466 78,656 51,599 12,183 16,125
Amortization of goodwill &
intangible assets........... 100 3,936 9,279 9,279 2,320 2,320
Restructuring charges (2)..... 24,994
Write-off of in-process
research & development
(1)......................... 85,000
-------- -------- --------- --------- -------- -------- --------
Income (loss) from operations... 58,832 43,002 (72,035) (137,909) 12,333 (12,434) 18,401
Other income (expense):
Royalty income................ 8,273 9,590 6,265 7,949 5,854 965 3,823
Equity income (loss) of SEN... 7,044 10,148 3,283 (2,132) 1,338 (2,447) 3,340
Other income (expense)-net.... (163) (1,837) 1,123 (1,045) 28 (145) 1,549
-------- -------- --------- --------- -------- -------- --------
Income (loss) before income
taxes......................... 73,986 60,903 (61,364) (133,137) 19,553 (14,061) 27,113
Income taxes (credit)........... 25,365 14,599 103 (51,090) 5,125 (3,686) 8,251
-------- -------- --------- --------- -------- -------- --------
Net income (loss)............... $ 48,621 $ 46,304 $ (61,467) $ (82,047) $ 14,428 $(10,375) $ 18,862
======== ======== ========= ========= ======== ======== ========
Earnings (loss) per common
share:
Basic and diluted net income
(loss) per share.......... $ $ $ $ $ $ $
======== ======== ========= ========= ======== ======== ========
Shares used in computing
basic and diluted net
income (loss) per share...
======== ======== ========= ========= ======== ======== ========
Unaudited pro forma basic
and diluted net income per
share (3)................. $ $
======== ========
Shares used in computing
unaudited pro forma basic
and diluted net income per
share (3).................
======== ========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 2000
DECEMBER 31, -------------------------
---------------------------------------------------- PRO FORMA AS
1995 1996 1997 1998 1999 ACTUAL ADJUSTED(4)
-------- -------- -------- -------- -------- -------- --------------
(UNAUDITED) (IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED BALANCE SHEET DATA
Cash & short-term investments..... $ 1,662 $ 2,159 $ 3,479 $ 3,338 $ 3,530 $ 2,803
Working capital................... 102,578 112,092 149,041 91,028 169,759 198,255
Total assets...................... 213,659 279,189 457,567 341,121 422,835 457,583
Stockholder's net investment...... 151,112 190,429 349,192 269,161 342,296 371,718
</TABLE>
(footnotes on following page)
7
<PAGE> 9
- ---------------
NOTES:
(1) On August 4, 1997, we acquired Fusion, a developer and manufacturer of
dry strip and photostabilization systems for use in the semiconductor
manufacturing process. The acquisition was accounted for under the
purchase method of accounting and, accordingly, our combined financial
statements include Fusion's results of operations beginning August 4,
1997. Net income in 1997 was reduced by an $85.0 million write-off of
purchased in-process research and development related to the
acquisition of Fusion, with no income tax benefit.
(2) Net income in 1998 was reduced by a restructuring charge of $42.4
million ($27.5 million aftertax) of which $17.4 million related to
inventory write-downs and reduced gross profit and $25.0 million
related to workforce reductions and other restructuring actions and was
recorded in operating expenses.
(3) Pro forma basic and diluted net income per share amounts are calculated
based on million shares of our common stock outstanding that are
owned by Eaton prior to this offering plus .
(4) Pro forma as adjusted amounts give effect to the following actions as
though these actions had been taken as of March 31, 2000:
- our sale of shares of common stock in this offering
at an assumed initial public offering price of $ per share
resulting in net proceeds of $ million after deducting an
assumed underwriting discount and estimated offering expenses
payable by us;
- payment of a previously declared dividend to Eaton of $300 million;
and
- payment of an intercompany receivable to us from Eaton, which was
approximately $16.5 million at March 31, 2000 and related to Eaton's
management of substantially all of our cash and other items.
8
<PAGE> 10
RISK FACTORS
Investing in our common stock involves a high degree of risk and
uncertainty. You should carefully consider the risks and uncertainties described
below before purchasing our common stock. If any of the following risks actually
occur, our business, financial condition or results of operations could be
harmed. In that case, the trading price of our common stock could decline, and
you could lose all or part of your investment.
RISKS RELATING TO OUR BUSINESS
DOWNTURNS IN THE SEMICONDUCTOR INDUSTRY HAVE HAD IN THE PAST AND MAY HAVE IN THE
FUTURE A SEVERE ADVERSE EFFECT ON OUR SALES AND PROFITABILITY.
Our business depends in significant part upon capital expenditures by
semiconductor manufacturers, especially manufacturers that are opening new or
expanding existing fabrication facilities. The level of capital expenditures by
these manufacturers depends upon the current and anticipated market demand for
semiconductors and the products utilizing them, the available manufacturing
capacity in manufacturers' fabrication facilities, and the ability of
manufacturers to increase productivity in existing facilities without incurring
additional capital expenditures.
The semiconductor industry is highly cyclical and has experienced periodic
downturns that have had a severe adverse impact on the semiconductor industry
and on suppliers to the semiconductor industry, including us. The semiconductor
industry has in the past experienced, and will likely experience in the future,
periods of oversupply that result in significantly reduced demand for capital
equipment, including our systems. When these periods occur, we will be adversely
affected. For instance, semiconductor equipment manufacturers were affected by a
severe downturn in the semiconductor industry in 1998 during which our net sales
declined by $194.3 million, or 42.2%, from the prior year.
We anticipate that a significant portion of new orders will depend upon
demand from semiconductor manufacturers who build or expand large fabrication
facilities. If existing fabrication facilities are not expanded or new
facilities are not built as rapidly as anticipated, demand for our systems may
decline, and we may be unable to generate significant new orders for our
systems, which would adversely affect our sales levels. In addition, the
continued requirements for investments in engineering, research and development
and marketing necessary to develop new products and to maintain extensive
customer service and support capabilities limit our ability to reduce expenses
during downturns in proportion to sales declines. Any future downturns or
slowdowns in the semiconductor industry may materially and adversely affect us.
IF WE FAIL TO DEVELOP AND INTRODUCE NEW OR ENHANCED PRODUCTS AND SERVICES FOR
SEMICONDUCTOR MANUFACTURERS, WE WILL NOT BE ABLE TO COMPETE EFFECTIVELY AND OUR
BUSINESS WILL SUFFER.
Rapid technological changes in semiconductor manufacturing processes
require the semiconductor equipment industry to respond quickly to changing
customer requirements. We believe that our future success will depend in part
upon our ability to develop, manufacture and successfully introduce new systems
and product lines with improved capabilities and to continue to enhance existing
products, including products that process 300 millimeter wafers. Our ability to
successfully develop, introduce and sell new and enhanced systems depends upon a
variety of factors, including new product selection, timely and efficient
completion of product design and development, timely and efficient
implementation of manufacturing and assembly processes, product performance in
the field and effective sales and marketing. We cannot assure you that we will
be successful in selecting, developing, manufacturing and marketing new products
or in enhancing our existing products.
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<PAGE> 11
Due to the risks inherent in transitioning to new products, we will need to
accurately forecast demand for new products while managing the transition from
older products. Our inability to develop or meet the technical specifications of
any of our new systems or enhancements or to manufacture and ship these systems
or enhancements in volume in a timely manner could materially and adversely
affect us.
If new products have reliability or quality problems, we may experience
reduced orders, higher manufacturing costs, delays in acceptance of and payment
for new products, and additional service and warranty expense. In the past, we
have experienced some delays as well as reliability and quality problems in
connection with new product introductions, resulting in some of these
consequences. We cannot assure you that we will successfully develop and
manufacture new products or that our new products will be accepted in the
marketplace. A failure to successfully introduce new products will have a
material adverse effect on us.
We expect to continue to make significant investments in research and
development. Future technologies, processes or product developments may render
our current product offerings obsolete or we may not be able to develop and
introduce new products or enhancements to existing products that satisfy
customer needs in a timely manner or achieve market acceptance. The failure to
do so could adversely affect us. If we are not successful in marketing and
selling advanced processes or equipment to customers with whom we have formed
long-term relationships, sales of our products to those customers could be
adversely affected.
OUR BUSINESS WILL SUFFER IF WE FAIL TO COMPETE SUCCESSFULLY IN THE HIGHLY
COMPETITIVE SEMICONDUCTOR EQUIPMENT INDUSTRY.
The market for semiconductor manufacturing equipment is highly competitive.
We believe that, to remain competitive, we will require significant financial
resources in order to offer a broad range of products, to maintain customer
service and support centers worldwide and to invest in product and process
research and development.
In the ion implantation market, we compete with a relatively small number
of competitors. An acquisition of, or by, one of our competitors in the ion
implant sector may result in a substantially strengthened competitor with
greater financial, engineering, manufacturing, marketing and customer service
and support resources. Competitors with substantially greater financial
resources than we may be better positioned to successfully compete in the
industry. In addition, there are smaller, emerging semiconductor equipment
companies that provide innovative technology that may have performance
advantages over our systems.
Competitors are expected to continue to improve the design and performance
of their current products and processes and to introduce new products and
processes with improved price and performance characteristics. If competitors
enter into strategic relationships with leading semiconductor manufacturers
covering products similar to those sold or being developed by us, our ability to
sell products to those manufacturers may be adversely affected. We cannot assure
you that we will be able to compete successfully with our existing competitors
or with new competitors.
WE HAVE BEEN DEPENDENT ON SALES TO A LIMITED NUMBER OF LARGE CUSTOMERS, THE LOSS
OF ANY OF WHICH, OR ANY REDUCTION IN ORDERS FROM SUCH CUSTOMERS, COULD
MATERIALLY AFFECT OUR SALES.
Historically, we have sold a significant proportion of our products and
services to a limited number of fabricators of semiconductor products. For
example, in 1999, three of our customers accounted for 37.0% of our net sales
and our ten largest customers accounted for 59.1%. None of our customers has
entered into a long-term agreement requiring it to purchase our products.
Product sales to certain of our customers may decrease in the near future as
those customers complete current purchasing requirements for new or expanded
fabrication facilities. Although the composition of the group comprising our
largest customers has varied from year to year, the loss
10
<PAGE> 12
of a significant customer or any reduction or delays in orders from any
significant customer, including reductions or delays due to customer departures
from recent buying patterns, market, economic or competitive conditions in the
semiconductor industry, could adversely affect us. The ongoing consolidation of
semiconductor manufacturers may increase the adverse effect of losing a
significant customer.
ANY DELAY IN GENERATING OR RECOGNIZING REVENUES IN A PARTICULAR QUARTER COULD
CAUSE OUR RESULTS TO BE BELOW EXPECTATIONS, WHICH COULD CAUSE OUR STOCK PRICE TO
DECLINE.
Any delay in generating or recognizing revenues could cause our operating
results to be below the expectations of stock market analysts or investors. We
derive most of our revenues from the sale of a relatively small number of
expensive products to a small number of customers. The list prices on these
products range from $150,000 to over $4.0 million. At our current sales level,
each sale, or failure to make a sale, could have a material effect on us in a
particular quarter. Our lengthy sales and installation cycle, coupled with
customers' competing capital budget considerations, make the timing of customer
orders uneven and difficult to predict. In addition, our backlog at the
beginning of a quarter typically does not include all orders required to achieve
our sales objectives for that quarter and is not a reliable indicator of our
future sales. As a result, our net sales and operating results for a quarter
depend on our shipping and installing orders as scheduled during that quarter as
well as obtaining new orders for products to be shipped in that same quarter.
Any delay in scheduled shipments or in shipments from new orders could
materially and adversely affect us, which could cause our stock price to decline
significantly.
In addition, the Securities and Exchange Commission's staff has issued
Staff Accounting Bulletin No. 101 (SAB 101) that may require a change in revenue
recognition policies by companies, including our company, whose products require
installation and customer acceptance. We must ensure that we are in compliance
with the revenue recognition criteria as defined in SAB 101 by the end of the
second quarter of 2000. We are currently reviewing our revenue recognition
policy to determine if any change is required to ensure compliance with SAB 101.
OUR QUARTERLY FINANCIAL RESULTS MAY FLUCTUATE SIGNIFICANTLY AND MAY FALL SHORT
OF ANTICIPATED LEVELS, WHICH COULD CAUSE OUR STOCK PRICE TO DECLINE.
Our quarterly revenue and operating results have varied significantly in
the past and may vary significantly in the future due to a number of factors,
including:
- market acceptance of our products and the products of our customers;
- substantial changes in sales to significant customers;
- delays or cancellation of scheduled orders by customers;
- cyclicality in the businesses of significant customers;
- timing of announcement and introduction of new products by us and by our
competitors;
- sudden changes in component prices or availability;
- changes in product mix;
- delays in orders or payments due to customer financial difficulties;
- delays in shipment and installation;
- changes in the geographic mix of sales;
- increased fixed expenses per unit due to reductions in the number of
products manufactured;
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- manufacturing inefficiencies caused by uneven or unpredictable order
patterns, reducing our gross margins; and
- higher fixed costs due to increased levels of research and development
and expansion of our worldwide sales and marketing organization.
Due to the foregoing factors, we believe that period-to-period comparisons
of our operating results should not be relied upon as an indicator of our future
performance.
WE ARE DEPENDENT UPON OUR JAPANESE JOINT VENTURE AND SUMITOMO FOR ACCESS TO THE
JAPANESE SEMICONDUCTOR EQUIPMENT MARKET.
In 1982, we established our SEN joint venture with Sumitomo to provide us
with additional manufacturing capacity for our ion implantation products and
local access to the Japanese semiconductor equipment market. Under our
arrangements with Sumitomo, our ion implantation products may be sold in Japan
only through the joint venture. We receive our 50% proportionate share of the
equity income from SEN. As part of the joint venture arrangement, we have
entered into a separate license agreement with SEN, last renewed in 1996, under
which SEN is entitled to use our ion implantation technology in sales of ion
implanters to semiconductor manufacturers in Japan. We receive substantial
income from this license agreement. The license agreement expires on December
31, 2004 and is automatically renewable for successive five-year periods unless
either party has provided one year's prior notice of termination. A substantial
decline in SEN's sales and income from operations could have a material adverse
effect on our net income.
We also have an arrangement with Sumitomo, outside the SEN joint venture,
under which it is the exclusive distributor of our dry strip, photostabilization
and rapid thermal processing products to semiconductor manufacturers in Japan.
This distribution arrangement expires in 2002 and thereafter is renewable from
year to year unless either party has given the other party six months prior
written notice.
A DECLINE IN OUR INTERNATIONAL SALES COULD HARM OUR BUSINESS.
Sales of our products and services to customers outside the United States,
including exports from our U.S. facilities, accounted for approximately 49.5%
and 53.5% of our net sales in 1998 and 1999, respectively. We anticipate that
international sales will continue to account for a significant portion of our
net sales. Because of our dependence upon international sales, we are subject to
a number of factors, including:
- unexpected changes in laws or regulations resulting in more burdensome
governmental controls, tariffs, restrictions, embargoes or export license
requirements;
- difficulties in obtaining required export licenses;
- volatility in currency exchange rates;
- political and economic instability, particularly in Asia;
- difficulties in accounts receivable collections;
- extended payment terms beyond those customarily used in the United
States;
- difficulties in managing distributors or representatives outside the
United States;
- difficulties in staffing and managing foreign subsidiary operations; and
- potentially adverse tax consequences.
Substantially all of our sales to date have been denominated in U.S. dollars.
Our products become less price competitive in countries with currencies that are
declining in value in comparison to the dollar. This could cause us to lose
sales or force us to lower our prices, which
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would reduce our gross margins. If it becomes necessary for us to make sales
denominated in foreign currencies, we will become more exposed to the risk of
currency fluctuations. Our equity income and royalty income from SEN are
denominated in Japanese yen.
WE MAY NOT BE ABLE TO MAINTAIN AND EXPAND OUR BUSINESS IF WE ARE NOT ABLE TO
RETAIN, HIRE AND INTEGRATE ADDITIONAL QUALIFIED PERSONNEL.
Our business depends on our ability to attract and retain qualified,
experienced employees. There is substantial competition for experienced
engineering, technical, financial, sales and marketing personnel in our
industry. In particular, we must attract and retain highly skilled design and
process engineers. Competition for such personnel is intense, particularly in
the areas where we are based, including the Boston metropolitan area and the
Rockville, Maryland area, as well as in Taiwan and Singapore. If we are unable
to retain our existing key personnel, or attract and retain additional qualified
personnel, we may from time to time experience inadequate levels of staffing to
develop, manufacture and market our products and perform services for our
customers. As a result, our growth could be limited due to our lack of capacity
to develop and market our products to our customers, or we could fail to meet
our delivery commitments or experience deterioration in service levels or
decreased customer satisfaction, all of which could adversely affect us.
OUR DEPENDENCE UPON A LIMITED NUMBER OF SUPPLIERS FOR MANY COMPONENTS AND SUB-
ASSEMBLIES COULD RESULT IN INCREASED COSTS OR DELAYS IN MANUFACTURE AND SALES OF
OUR PRODUCTS.
We rely to a substantial extent on outside vendors to manufacture many of
the components and subassemblies of our products. We obtain many of these
components and subassemblies from either a sole source or a limited group of
suppliers. Because of our reliance on outside vendors generally, and on a
limited group of suppliers in particular, we may be unable to obtain an adequate
supply of required components on a timely basis, on price and other terms
acceptable to us, or at all.
In addition, we often quote prices to our customers and accept customer
orders for our products prior to purchasing components and subassemblies from
our suppliers. If our suppliers increase the cost of components or
subassemblies, we may not have alternative sources of supply and may not be able
to raise the price of our products to cover all or part of the increased cost of
components.
The manufacture of some of these components and subassemblies is an
extremely complex process and requires long lead times. As a result, we have in
the past and may in the future experience delays or shortages. If we are unable
to obtain adequate and timely deliveries of our required components or
subassemblies, we may have to seek alternative sources of supply or manufacture
these components internally. This could delay our ability to manufacture or
timely ship our systems, causing us to lose sales, incur additional costs, delay
new product introductions and suffer harm to our reputation.
WE MAY INCUR COSTLY LITIGATION TO PROTECT OUR PROPRIETARY TECHNOLOGY, AND IF
UNSUCCESSFUL, WE MAY LOSE A VALUABLE ASSET, OR EXPERIENCE REDUCED MARKET SHARE.
We rely on a combination of patents, copyrights, trademark and trade secret
laws, non-disclosure agreements and other intellectual property protection
methods to protect our proprietary technology. Despite our efforts to protect
our intellectual property, our competitors may be able to legitimately ascertain
the non-patented proprietary technology embedded in our systems. If this occurs,
we may not be able to prevent their use of this technology. Our means of
protecting our proprietary rights may not be adequate and our patents may not be
sufficiently broad to protect our technology. In addition, any patents issued to
us might be challenged,
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invalidated or circumvented and any rights granted under our patents may not
provide adequate protection to us. Our competitors may independently develop
similar technology, duplicate features of our products or design around patents
that may be issued to us. In addition, the laws of some foreign countries may
not protect our proprietary rights to as great an extent as do the laws of the
United States and it may be more difficult to monitor the use of our products.
As a result of these threats to our proprietary technology, we may have to
resort to costly litigation to enforce our intellectual property rights.
WE MIGHT FACE INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS OR PATENT DISPUTES THAT
MAY BE COSTLY TO RESOLVE AND, IF RESOLVED AGAINST US, COULD BE VERY COSTLY TO US
AND PREVENT US FROM MAKING AND SELLING OUR SYSTEMS.
From time to time, claims and proceedings have been or may be asserted
against us relative to patent validity or infringement matters. Our involvement
in any patent dispute or other intellectual property dispute or action to
protect trade secrets, even if the claims are without merit, could be very
expensive to defend and could divert the attention of our management. Adverse
determinations in any litigation could subject us to significant liabilities to
third parties, require us to seek costly licenses from third parties and prevent
us from manufacturing and selling our systems. Any of these situations could
have a material adverse effect on us.
OUR FAILURE TO COMPLY WITH ENVIRONMENTAL REGULATIONS COULD RESULT IN SUBSTANTIAL
LIABILITY TO US.
We are subject to a variety of foreign, federal, state and local laws,
rules, regulations and ordinances relating to environmental protection. These
laws, rules, regulations and ordinances govern, among other things, air
emissions, water discharges, the generation, use, storage, transportation,
handling and disposal of solid and hazardous wastes produced by our
manufacturing, research and development and sales activities. These laws have
the effect of increasing costs and potential liabilities associated with our
operations. If we fail to comply with present or future laws, rules, regulations
and ordinances, we could be subject to substantial liability for clean-up
efforts, personal injury, property damages, administrative orders, penalties and
fines, or under a worst case scenario suspension or cessation of our operations.
Moreover, restrictions on our ability to expand or continue to operate our
present locations could be imposed upon us or we could be required to acquire
costly remediation equipment or incur other significant expenses.
RISKS RELATING TO OUR SEPARATION FROM EATON
WE CURRENTLY USE EATON'S OPERATIONAL AND ADMINISTRATIVE INFRASTRUCTURE, AND OUR
ABILITY TO SATISFY OUR CUSTOMERS AND OPERATE OUR BUSINESS WILL SUFFER IF WE DO
NOT DEVELOP OUR OWN INFRASTRUCTURE QUICKLY AND COST-EFFECTIVELY.
We currently use Eaton's services and systems to support our operations,
including services and systems associated with voice and data transmission and
other data-related operations, accounts receivable, accounts payable, fixed
assets, payroll, general accounting, financial accounting consolidation, cash
management, human resources, tax, legal and real estate. Certain of these
systems are proprietary to Eaton and are very complex. Some of these services
and systems are being modified to enable us to separately monitor, process,
support and record information important to our business. These modifications,
however, may result in unexpected system failures or the loss or corruption of
data.
We are in the process of creating or acquiring our own processes, services
and systems to replace some of the services and systems provided to us by Eaton.
We may be delayed or we may not be successful in implementing these systems and
transitioning from Eaton's systems to ours.
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Any failure or significant downtime in Eaton's or our own information
systems could prevent us from taking customer orders, shipping products or
billing customers and could harm our business. In addition, Eaton's and our
information systems require the services of employees with extensive knowledge
of these information systems and the business environment in which we operate.
In order to successfully implement and operate our systems, we must be able to
attract and retain a significant number of highly skilled employees or our
business could suffer.
IF EATON DOES NOT COMPLETE ITS DIVESTITURE OF OUR COMPANY, WE WILL NOT BE ABLE
TO OPERATE OUR BUSINESS WITHOUT EATON'S CONTROL AND OUR STOCK PRICE MAY DECLINE.
Eaton currently intends to complete its divestiture of our company
approximately six months after this offering. However, it will not be obligated
to do so, and we cannot assure you as to whether or when the divestiture will
occur. Any divestiture of the shares of our common stock by Eaton will be
subject, among other factors, to obtaining approval by the Eaton board of
directors and a ruling from the Internal Revenue Service that the divestiture
will be tax-free to Eaton and its stockholders and that our separation from
Eaton qualifies as a tax-free reorganization. At the time of this offering, we
will not know what the ruling from the Internal Revenue Service regarding the
tax treatment of the separation and the divestiture will be. If Eaton does not
receive a favorable tax ruling, it is not likely to make the divestiture in the
expected time frame or at all.
In addition, until this divestiture occurs, the risks discussed below
relating to Eaton's control of us and the potential business conflicts of
interest between Eaton and us will continue to be relevant to our stockholders.
If Eaton does not distribute its shares of our common stock, we might face
significant difficulty hiring and retaining key personnel, many of whom are
attracted by the potential of operating our business as a fully independent
entity.
If the divestiture is delayed or not completed at all, the liquidity of our
shares in the market will be severely constrained unless and until Eaton elects
to sell some of its significant ownership. There are no limits on these sales
except for limits under the Securities Act of 1933, as amended, and the sale or
potential sale by Eaton could adversely affect market prices for our common
stock. In addition, because of the limited liquidity until the divestiture of
its shares of our common stock by Eaton occurs, relatively small trades of our
stock could have a disproportionate effect on our stock price.
WE WILL BE CONTROLLED BY EATON AS LONG AS IT OWNS A MAJORITY OF OUR COMMON
STOCK, AND OUR OTHER STOCKHOLDERS WILL BE UNABLE TO AFFECT THE OUTCOME OF
STOCKHOLDER VOTING DURING THAT TIME.
After the completion of this offering, Eaton will own approximately %
of our outstanding common stock, or approximately % if the underwriters
exercise in full their option to purchase additional shares. As long as Eaton
owns a majority of our outstanding common stock, Eaton will continue to be able
to elect our entire board of directors and to remove any director, with or
without cause, without calling a special meeting. Investors in this offering
will not be able to affect the outcome of any stockholder vote prior to the
planned distribution of our stock to Eaton shareholders. As a result, Eaton will
control all matters affecting us, including:
- the composition of our board of directors and, through it, any
determination with respect to our business direction and policies,
including the appointment and removal of officers;
- the allocation of business opportunities that may be suitable for us and
Eaton;
- any determinations with respect to mergers or other business
combinations;
- our acquisition or disposition of assets;
- our financing;
- changes to the agreements providing for our separation from Eaton;
- the payment of dividends on our common stock; and
- determinations with respect to our tax returns.
Eaton is not prohibited at any time from selling a controlling interest in
us to a third party.
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OUR HISTORICAL FINANCIAL INFORMATION MAY NOT BE REPRESENTATIVE OF OUR RESULTS AS
A SEPARATE COMPANY.
Our combined financial statements have been carved out from the
consolidated financial statements of Eaton using the historical bases of assets,
liabilities and operating results of the Eaton semiconductor equipment
operations business that we comprise. Accordingly, the historical financial
information we have included in this prospectus does not necessarily reflect
what our financial position, operating results and cash flows would have been
had we been a separate, stand-alone entity during the periods presented. Eaton
did not operate or account for us as a separate, stand-alone entity for the
periods presented. Our costs and expenses include direct charges and an
allocation from Eaton for centralized corporate services and infrastructure
costs including, for example, services and systems associated with voice and
data transmission and other data-related operations, accounts receivable,
accounts payable, fixed assets, payroll, general accounting, financial
accounting consolidation, cash management, human resources, legal and real
estate as well as other functions associated with Eaton's corporate governance
and operations support.
This allocation is based on Eaton's internal expense allocation methodology
which charges these expenses to operating locations based both on net working
capital, excluding short-term investments and short-term debt, and on property,
plant and equipment - net. While we believe this allocation methodology is
reasonable and allocated costs are representative of the operating expenses that
would have been incurred had we operated on a stand-alone basis, the historical
financial information is not necessarily indicative of what our financial
position, operating results and cash flows will be in the future. We have not
made adjustments to our historical financial information to reflect any
significant changes that may occur in our cost structure and operations as a
result of our separation from Eaton, including increased costs associated with
being a publicly traded, stand-alone company.
WE WILL NOT BE ABLE TO RELY ON EATON TO FUND OUR FUTURE CAPITAL REQUIREMENTS,
AND FINANCING FROM OTHER SOURCES MAY NOT BE AVAILABLE ON AS FAVORABLE TERMS AS
EATON COULD OBTAIN.
In the past, our capital needs have been satisfied by Eaton. However,
following our separation, Eaton will no longer provide funds to finance our
working capital or other cash requirements. We cannot assure you that financing
from other sources, if needed, will be available on favorable terms.
We believe our capital requirements will vary greatly from quarter to
quarter, depending on, among other things, capital expenditures, fluctuations in
our operating results, financing activities, acquisitions and investments and
inventory and receivables management. We believe that the portion of the
proceeds from this offering that we will retain, along with our future cash flow
from operations, will be sufficient to satisfy our working capital, capital
expenditure and research and development requirements for the foreseeable
future. We cannot assure you, however, that the underlying assumed levels of
sales and expenses will prove to be accurate. In addition, in the future, we may
require or choose to obtain additional debt or equity financing in order to
finance acquisitions or other investments in our business. Future equity
financings would be dilutive to the existing holders of our common stock. We do
not intend to raise additional equity capital prior to the divestiture of our
company by Eaton through the distribution of our common stock to Eaton
shareholders, and following any divestiture, we would be restricted in raising
substantial amounts of equity capital under our tax sharing and indemnification
agreement with Eaton, as well as by market conditions. Future debt financings
could involve restrictive covenants that may limit the manner in which we
conduct our business. In addition, we will likely not be able to obtain debt
financing with interest rates as favorable as those that Eaton could obtain.
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WE MAY HAVE POTENTIAL BUSINESS CONFLICTS OF INTEREST WITH EATON WITH RESPECT TO
OUR PAST AND ONGOING RELATIONSHIPS AND, BECAUSE OF EATON'S CONTROLLING
OWNERSHIP, WE MAY NOT RESOLVE THESE CONFLICTS ON THE MOST FAVORABLE TERMS TO US.
Conflicts of interest may arise between Eaton and us in a number of areas
relating to our past and ongoing relationships, including:
- sales or distributions by Eaton of all or any portion of our common stock
owned by Eaton;
- agreements between Eaton and us associated with the divestiture,
including under the trademark license agreement and the master separation
and distribution agreement;
- labor, tax, employee benefit, indemnification and other matters arising
from our separation from Eaton;
- employee retention and recruiting;
- the nature, quality and pricing of transitional services Eaton has agreed
to provide us; and
- business opportunities that may be attractive to both Eaton and us.
Nothing restricts Eaton from competing with us.
We may not be able to resolve any potential conflicts and, even if we do,
the resolution may be less favorable than if we were dealing with an
unaffiliated party. The agreements we have entered into with Eaton may be
amended upon agreement between the parties. While we are controlled by Eaton,
Eaton may be able to require us to agree to amendments to these agreements that
may be less favorable to us than the current terms of the agreements.
OUR DIRECTORS AND EXECUTIVE OFFICERS MAY HAVE CONFLICTS OF INTEREST BECAUSE OF
THEIR OWNERSHIP OF EATON COMMON STOCK AND EATON STOCK OPTIONS AND BECAUSE SOME
ALSO ARE DIRECTORS OR EXECUTIVE OFFICERS OF EATON.
Some of our directors and executive officers have a substantial amount of
their personal financial portfolios in Eaton common stock and options to
purchase Eaton common stock. Their options to purchase Eaton common stock may
not convert into options to purchase our common stock if the distribution does
not occur or for other reasons. Ownership of Eaton common stock and options by
our directors and officers after our separation from Eaton could create, or
appear to create, potential conflicts of interest when directors and officers
are faced with decisions that could have different implications for Eaton and
us.
Our directors who are also directors or executive officers of Eaton will
have obligations to both companies and may have conflicts of interest with
respect to matters potentially or actually involving or affecting us. We
anticipate that immediately after the offering four of our directors will also
be directors of Eaton and that two of these persons will be executive officers
of Eaton, although at the time of any divestiture of Eaton's ownership interest
in our company no more than three of our directors will be directors of Eaton.
IF THE TRANSITIONAL SERVICES BEING PROVIDED TO US BY EATON ARE NOT SUFFICIENT TO
MEET OUR NEEDS, OR IF WE ARE NOT ABLE TO REPLACE THESE SERVICES AFTER OUR
AGREEMENTS WITH EATON EXPIRE, WE MAY BE UNABLE TO MANAGE CRITICAL OPERATIONAL
FUNCTIONS OF OUR BUSINESS.
Eaton has agreed to provide transitional services to us, including services
related to:
- voice and data transmission and other data related operations;
- accounts receivable, accounts payable, fixed assets, payroll, general
accounting, financial accounting consolidation;
- cash management;
- human resources;
- tax;
- legal; and
- real estate.
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Although Eaton is contractually obligated to provide us with these
services, these services may not be provided at the same level as when we were
part of Eaton, and we may not be able to obtain the same benefits. The
transition periods covered by these agreements vary but are generally less than
two years. After the expiration of these various arrangements, we may not be
able to replace the transitional services or enter into appropriate leases in a
timely manner or on terms and conditions, including cost, as favorable as those
we will receive from Eaton.
These agreements were developed in the context of a parent-subsidiary
relationship. The prices charged to us under these agreements may be lower than
the prices that we may be required to pay third parties for similar services or
the costs of similar services if we undertake them ourselves.
RISKS RELATED TO THE SECURITIES MARKETS AND OWNERSHIP OF OUR COMMON STOCK
SUBSTANTIAL SALES OF OUR COMMON STOCK MAY OCCUR IN CONNECTION WITH THE
DISTRIBUTION, WHICH COULD CAUSE OUR STOCK PRICE TO DECLINE.
If Eaton distributes all of the shares of our common stock it owns to Eaton
shareholders after this offering, substantially all of these shares will be
eligible for immediate resale in the public market. We are unable to predict
whether significant amounts of common stock will be sold in the open market in
anticipation of, or following, this distribution, or by Eaton if the
distribution does not occur. We are also unable to predict whether a sufficient
number of buyers will be in the market at that time. Any sales of substantial
amounts of common stock in the public market, or the perception that such sales
might occur, whether as a result of this distribution or otherwise, could harm
the market price of our common stock. Eaton has the sole discretion to determine
the timing, structure and terms of its distribution of our common stock, all of
which may also affect the level of market transactions in our common stock.
OUR SECURITIES HAVE NO PRIOR MARKET, AND WE CANNOT ASSURE YOU THAT OUR STOCK
PRICE WILL NOT DECLINE AFTER THE OFFERING.
Before this offering, there has not been a public market for our common
stock, and an active public market for our common stock may not develop or be
sustained after this offering. The market price of our common stock could be
subject to significant fluctuations after this offering. Among the factors that
could affect our stock price are:
- quarterly variations in our operating results;
- changes in revenue or earnings estimates or publication of research
reports by analysts;
- speculation in the press or investment community;
- strategic actions by us or our competitors, such as acquisitions or
restructurings;
- actions by institutional stockholders or by Eaton prior to its
distribution of our stock;
- general market conditions; and
- domestic and international economic factors unrelated to our performance.
The stock markets in general, and the markets for high technology stocks in
particular, have experienced extreme volatility that has often been unrelated to
the operating performance of particular companies. Moreover, in recent years the
stock prices of many companies in the semiconductor industry have been volatile
and have declined substantially due to the worldwide semiconductor downturn.
These broad market fluctuations may adversely affect the trading price of our
common stock. In particular, we cannot assure you that you will be able to
resell your shares at or above the initial public offering price, which will be
determined by negotiations between the representatives of the underwriters and
us.
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PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW AND THE TERMS OF THE TAX
SHARING AND INDEMNIFICATION AGREEMENT BETWEEN US AND EATON MAY DELAY OR PREVENT
AN ACQUISITION OF US, WHICH COULD DECREASE THE VALUE OF YOUR SHARES.
Our certificate of incorporation, bylaws and our shareholder rights plan
contain provisions that could make it harder for a third party to acquire us
without the consent of our board of directors, although these provisions have
little significance while we are controlled by Eaton. These provisions include a
classified board of directors and limitations on actions by our stockholders by
written consent. In addition, our board of directors has the right to issue
preferred stock without stockholder approval, which could be used to dilute the
stock ownership of a potential hostile acquirer. Delaware law also imposes some
restrictions on mergers and other business combinations between us and any
holder of 15% or more of our outstanding common stock. Although we believe these
provisions provide an opportunity to receive a higher bid by requiring any
potential acquirers to negotiate with our board of directors, these provisions
apply even if the offer may be considered beneficial by some stockholders.
If Eaton decides to distribute its remaining ownership in us after the
offering and receives a private letter ruling from the Internal Revenue Service
to the effect that such a distribution will be tax-free, we may be limited in
our ability to merge or consolidate with any other person or enter into any
transaction or to issue equity securities that would result in one or more
persons acquiring a 50% or greater interest in us during the two year period
following any such distribution under the terms of our tax sharing and
indemnification agreement with Eaton.
PURCHASERS IN THIS OFFERING WILL EXPERIENCE IMMEDIATE DILUTION IN NET TANGIBLE
BOOK VALUE PER SHARE.
Purchasers of our common stock in this offering will experience immediate
dilution of $ in net tangible book value per share.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
You should not rely on forward-looking statements in this prospectus. This
prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipates," "believes," "plans,"
"expects," "future," "intends," "may," "will," "should," "estimates,"
"predicts," "potential," "continue" and similar expressions to identify these
forward-looking statements. Our actual results could differ materially from the
results contemplated by these forward-looking statements due to a number of
factors, including those discussed in "Risk Factors," "Management's Discussion
and Analysis" and elsewhere in this prospectus. This prospectus also contains
forward-looking statements attributed to third parties relating to their
estimates regarding the growth of our markets. Forward-looking statements are
subject to known and unknown risks, uncertainties and other factors that may
cause our actual results, as well as those of the markets we serve, levels of
activity, performance, achievements and prospects to be materially different
from those expressed or implied by the forward-looking statements. We do not
have any intention or obligation to update forward-looking statements, even if
new information, future events or other circumstances make them incorrect or
misleading.
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OUR SEPARATION FROM EATON
OVERVIEW
We are currently a wholly owned subsidiary of Eaton. On April 26, 2000,
Eaton announced a plan to reorganize its semiconductor equipment operations into
an independent, publicly held company. Prior to the completion of this offering,
Eaton will substantially complete the transfer to us of all of the assets of its
semiconductor equipment operations that are not currently owned by us and we
will assume the related liabilities. In connection with the reorganization, we
changed our name from Eaton Semiconductor Equipment Inc. to Axcelis
Technologies, Inc. After the completion of the offering, Eaton will own
approximately % of our outstanding common stock, or % if the
underwriters fully exercise their option to purchase additional shares.
HISTORY OF OUR BUSINESS
Our ion implantation products were initially developed and offered by Eaton
in 1980 and constitute our principal product offering. In 1982, we entered into
our SEN joint venture to provide us with additional manufacturing capacity for
our ion implantation products and local access for these products to the
Japanese semiconductor equipment market. Our semiconductor equipment products
also include dry strip, photostabilization and rapid thermal processing
products. We introduced our rapid thermal processing products in 1996 and we
entered the photoresist removal and photostabilization product market through
our acquisition of Fusion in August 1997. Fusion pioneered the development of
photostabilization in 1983.
BENEFITS OF THE SEPARATION
We believe that we will realize benefits from Eaton's reorganization of its
semiconductor equipment operations and our complete separation from Eaton,
including the following:
GREATER STRATEGIC FOCUS. In addition to our semiconductor equipment
manufacturing business, Eaton generates significant revenue from its other
business segments, including electrical power distribution and control
equipment, truck transmissions and clutches, engine components, hydraulic
products and a wide variety of controls. Our focus will be solely on
developing businesses and strategic opportunities for the semiconductor
equipment business. This effort will be supported by our own board of
directors, management team and employees.
INCREASED SPEED AND RESPONSIVENESS. As a smaller company than Eaton we
will focus on one line of business, and we expect to make decisions more
quickly, deploy resources more rapidly and efficiently and operate with
more agility than we could as a part of a larger organization. We expect to
be more responsive to our customers and suppliers.
BETTER INCENTIVES FOR EMPLOYEES AND GREATER ACCOUNTABILITY. We expect
the motivation of our employees and the focus of our management to be
strengthened by incentive compensation programs tied to the market
performance of our common stock. The separation will enable us to offer our
employees compensation directly linked to the performance of our business,
which we expect to enhance our ability to attract and retain qualified
personnel.
MORE CAPITAL PLANNING FLEXIBILITY. As a separate company, we will have
enhanced capital planning flexibility. We will be able to have direct
access to the capital markets to issue debt or equity securities and to use
our own stock to facilitate growth through acquisitions and will no longer
have to compete with other business units of Eaton for funding from Eaton.
SEPARATION AND TRANSITIONAL ARRANGEMENTS
In May 2000, our Board of Directors declared a dividend of $300 million
payable to Eaton. We have the option of paying this dividend in either cash or
notes or in a combination thereof.
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Any notes issued would bear interest and would have a maturity not to exceed two
years. We presently expect to pay all of this dividend in cash out of the net
proceeds of this offering.
We will enter into agreements with Eaton providing for the completion of
the reorganization of Eaton's semiconductor equipment operations and the
separation of our business from Eaton prior to the initial public offering.
These agreements generally will provide for, among other things:
- the transfer from Eaton to us of assets and the assumption by us of
liabilities relating to our business; and
- various interim and ongoing relationships between us and Eaton.
THE DIVESTITURE BY EATON OF OUR COMMON STOCK
After completion of this offering, Eaton will own approximately % of
the outstanding shares of our common stock, or approximately % if the
underwriters fully exercise their option to purchase additional shares. Eaton
currently plans to complete its divestiture of us approximately six months after
this offering by distributing all of its shares of our common stock in a
tax-free transaction to Eaton shareholders. Eaton may accomplish this through a
split-off, a spin-off or some combination of both transactions. Eaton is not,
however, obligated to complete the distribution, and we cannot assure you as to
whether or when it will occur.
Eaton has advised us that it has not yet determined definitively either
when it expects to complete the divestiture or the structure or terms on which
it would accomplish the divestiture of its shares of our common stock. Eaton has
advised us that it would not complete the divestiture if its board of directors
determines that a complete separation is no longer in the best interest of Eaton
and its shareholders. Eaton has further advised us that it currently expects
that the principal factors that it would consider in determining whether and
when to complete the divestiture include:
- the relative market prices of our common stock and Eaton's common stock;
- the issuance by the Internal Revenue Service of a ruling that the
divestiture will be tax-free to Eaton and its shareholders and that the
separation will qualify as a tax-free reorganization for U.S. federal
income tax purposes;
- the absence of any court orders or regulations prohibiting or restricting
the completion of the distribution;
- other conditions affecting our business or Eaton's business; and
- the relative advantages of retaining its ownership or completing the
divestiture in some other manner.
Eaton is not obligated to complete this divestiture and we cannot advise you as
to whether or when it will occur. See "Risks Factors -- Risks Relating to our
Separation from Eaton".
21
<PAGE> 23
USE OF PROCEEDS
We estimate that our net proceeds from this offering will be approximately
$ million, or $ million if the underwriters exercise their option to
purchase additional shares, based on an assumed initial public offering price of
$ per share and after deducting an assumed underwriting discount and
estimated offering expenses payable by us. We intend to use a portion of the
proceeds of this offering to pay all of the previously declared $300 million
dividend to Eaton in cash.
We expect to use the balance of the net proceeds from this offering
(estimated at $ million) for general corporate purposes, including funding
our capital expenditure program, our working capital requirements and other
liabilities. We have budgeted our capital expenditures for the last three
quarters of 2000 at approximately $24.0 million. We expect to use a significant
portion of these budgeted capital expenditures to construct an advanced
demonstration and application development center at our Beverly, Massachusetts
facility and to expand our manufacturing and research facilities in Rockville,
Maryland.
Pending these uses, the net proceeds of this offering will be invested in
short-term, interest-bearing government or investment grade securities.
DIVIDEND POLICY
After completion of this offering, we currently intend to retain any future
earnings to fund the development and growth of our business. Therefore, we do
not anticipate paying any cash dividends in the foreseeable future, other than
the previously declared dividend to Eaton described under "Use of Proceeds".
22
<PAGE> 24
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2000. Our
capitalization is presented:
- on an actual basis;
- on a pro forma basis to give effect to the previously declared dividend
to Eaton of $300 million; and
- on a pro forma as adjusted basis to reflect our receipt of the estimated
net proceeds from the sale of shares of our common stock in this offering
and the payment of the previously declared $300 million dividend to
Eaton.
You should read the information set forth below together with "Selected
Historical Combined Financial Data", our historical combined financial
statements and the notes to those statements and "Management's Discussion and
Analysis" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 2000
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
Cash & short-term investments.......................... $ 2,803 $ 2,803 $
======== ======== ========
Payable to Eaton (1)................................... $ $300,000 $
Stockholder's net investment:
Preferred stock, par value $.001; 30,000,000 shares
authorized, no shares issued and outstanding......
Common stock, par value $.001; 300,000,000 shares
authorized, shares issued and outstanding
(actual), shares issued and outstanding (as
adjusted).........................................
Additional paid-in capital...........................
Parent company investment (1)........................ 377,725 77,725
Accumulated other comprehensive income (loss)........ (6,007) (6,007)
-------- -------- --------
Total stockholder's net investment................ 371,718 71,718
-------- -------- --------
Total capitalization......................... $371,718 $371,718 $
======== ======== ========
</TABLE>
- ---------------
NOTES:
(1) On May 3, 2000, our Board of Directors declared a dividend of $300 million
payable to Eaton. We have the option of paying this dividend in either cash
or notes or in a combination thereof. We presently expect to pay all of this
dividend in cash out of the net proceeds of this offering.
23
<PAGE> 25
DILUTION
Our net tangible book value at March 31, 2000 was approximately $300.8
million, or $ per share. Pro forma net tangible book value per share is
determined by dividing our pro forma net tangible book value, which is total
tangible assets less total liabilities after giving effect to the payment of a
previously declared $300 million dividend to Eaton, and repayment of the $
receivable from Eaton to us, by the number of shares of common stock
outstanding immediately before this offering. Dilution in pro forma net tangible
book value per share represents the difference between the amount per share paid
by purchasers of shares of our common stock in this offering and the pro forma
net tangible book value per share of our common stock immediately afterwards.
After giving effect to our sale of shares of common stock in this
offering at an assumed initial public offering price of $ per share and
after deducting an assumed underwriting discount and estimated offering expenses
payable by us, our pro forma as adjusted net tangible book value at March 31,
2000 would have been approximately $ million, or $ per share.
This represents an immediate increase in pro forma net tangible book value of
$ per share to our existing stockholder and an immediate dilution in pro
forma net tangible book value of $ per share to new investors purchasing
shares of our common stock in this offering. The following table illustrates
this dilution per share:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of March
31, 2000............................................... $
Increase in pro forma net tangible book value per share
attributable to new investors..........................
-----
Pro forma, as adjusted, net tangible book value per share
after this offering.......................................
------
Dilution in pro forma net tangible book value per share to
new investors............................................. $
======
</TABLE>
The discussion and table above assume no issuance of shares reserved for
future issuance under our 2000 Employee Stock Purchase Plan. As of March 31,
2000, there were no options outstanding to purchase shares of our common stock.
To the extent that any options are granted and exercised, there will be further
dilution to new investors. In addition, we may assume substantially all of the
Eaton stock options held by our employees on the date Eaton completes its
divestiture of our company. If the divestiture had been completed on
, 2000, these options to purchase Eaton common shares would have
been converted into options to purchase shares of our common stock, based
on an assumed initial public offering price of $
per share and on the closing price of $ per Eaton common share on
, 2000.
24
<PAGE> 26
SELECTED HISTORICAL COMBINED FINANCIAL DATA
The following tables present our selected historical combined financial
data. The information set forth below should be read together with "Management's
Discussion and Analysis" and our historical combined financial statements and
notes to those statements included elsewhere in this prospectus. Our combined
statements of operations data set forth below for the years ended December 31,
1997, 1998 and 1999 and the combined balance sheet data as of December 31, 1998
and 1999 are derived from our audited combined financial statements included in
this prospectus which have been audited by Ernst & Young LLP, independent
auditors, whose report is also included in this prospectus.
The combined statements of operations data for the years ended December 31,
1995 and 1996 and the combined balance sheet data as of December 31, 1995, 1996
and 1997 are derived from our unaudited combined financial statements that are
not included in this prospectus. The combined statements of operations data for
the three months ended March 31, 1999 and 2000 and the combined balance sheet
data as of March 31, 2000 are derived from unaudited combined financial
statements included in this prospectus and, in the opinion of management,
include all adjustments, consisting only of normal recurring accruals, that are
necessary for a fair presentation of our financial position and operating
results for these periods. The historical financial information may not be
indicative of our future performance and does not reflect what our financial
position and operating results would have been had we operated as a separate,
stand-alone entity during the periods presented.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF COMBINED OPERATIONS
DATA(1)
Net sales......................... $385,080 $448,663 $460,010 $ 265,709 $397,267 $ 59,124 $143,051
Gross profit (2).................. 138,335 157,246 172,802 64,229 157,082 20,768 61,474
Other costs & expenses:
Selling......................... 34,375 45,600 47,148 42,134 37,946 9,087 11,598
General & administrative........ 23,326 33,437 38,287 47,075 45,925 9,612 13,030
Research & development.......... 21,802 35,107 70,466 78,656 51,599 12,183 16,125
Amortization of goodwill &
intangible assets............. 100 3,936 9,279 9,279 2,320 2,320
Restructuring charges (2)....... 24,994
Write-off of in-process research
& development (1)............. 85,000
-------- -------- -------- --------- -------- -------- --------
Income (loss) from operations..... 58,832 43,002 (72,035) (137,909) 12,333 (12,434) 18,401
Other income (expense):
Royalty income.................. 8,273 9,590 6,265 7,949 5,854 965 3,823
Equity income (loss) of SEN..... 7,044 10,148 3,283 (2,132) 1,338 (2,447) 3,340
Other income (expense)-net...... (163) (1,837) 1,123 (1,045) 28 (145) 1,549
-------- -------- -------- --------- -------- -------- --------
Income (loss) before income
taxes........................... 73,986 60,903 (61,364) (133,137) 19,553 (14,061) 27,113
Income taxes (credit)............. 25,365 14,599 103 (51,090) 5,125 (3,686) 8,251
-------- -------- -------- --------- -------- -------- --------
Net income (loss)................. $ 48,621 $ 46,304 $(61,467) $ (82,047) $ 14,428 $(10,375) $ 18,862
======== ======== ======== ========= ======== ======== ========
</TABLE>
25
<PAGE> 27
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings (loss) per common share:
Basic and diluted net income
(loss) per share............ $ $ $ $ $ $ $
======== ======== ======== ========= ======== ======== ========
Shares used in computing basic
and diluted net income
(loss) per share............
======== ======== ======== ========= ======== ======== ========
Unaudited pro forma basic and
diluted net income per share
(3)......................... $ $
======== ========
Shares used in computing
unaudited pro forma basic
and diluted net income per
share (3)...................
======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------- MARCH 31,
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- -----------
(IN THOUSANDS)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
COMBINED BALANCE SHEET DATA
Cash & short-term investments............... $ 1,662 $ 2,159 $ 3,479 $ 3,338 $ 3,530 $ 2,803
Working capital............................. 102,578 112,092 149,041 91,028 169,759 198,255
Total assets................................ 213,659 279,189 457,567 341,121 422,835 457,583
Stockholder's net investment................ 151,112 190,429 349,192 269,161 342,296 371,718
</TABLE>
- ---------------
NOTES:
(1) On August 4, 1997, we acquired Fusion, a developer and manufacturer of dry
strip and photostabilization systems for use in semiconductor manufacturing
processes. The acquisition was accounted for under the purchase method of
accounting and, accordingly, our combined financial statements include
Fusion's results of operations beginning August 4, 1997. Net income in 1997
was reduced by an $85.0 million write-off of purchased in-process research
and development related to the acquisition of Fusion, with no income tax
benefit.
(2) Net income in 1998 was reduced by a restructuring charge of $42.4 million
($27.5 million aftertax) of which $17.4 million related to inventory
write-downs and reduced gross profit and $25.0 million related to workforce
reductions and other restructuring actions and was recorded in operating
expenses.
(3) Pro forma basic and diluted net income per share amounts are calculated
based on million shares of our common stock outstanding that are owned by
Eaton prior to this offering, plus .
26
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion of our financial condition and results of
operations should be read together with our combined financial statements and
notes to those statements included elsewhere in this prospectus.
OVERVIEW
We are a leading producer of ion implantation equipment used in the
fabrication of semiconductors and, together with our Japanese joint venture,
were ranked number one in the world in this category for 1999 by Dataquest Inc.,
an independent market research firm. The ion implantation process provides a
means for introducing charged ions into the surface of a silicon wafer in order
to form the active components of a semiconductor. We also produce dry strip,
photostabilization and rapid thermal processing equipment, which is used in
semiconductor manufacturing primarily before and after the ion implantation
process. In addition, we provide extensive aftermarket service and support,
including spare parts, equipment upgrades, maintenance services and customer
training. We are a 50-50 joint venture partner in Japan with Sumitomo. This
joint venture, which is known as SEN, licenses our technology and is the leading
producer of ion implantation equipment in Japan.
Our customers are located in North America, Europe and Asia Pacific. We and
SEN serve 19 of the 20 largest semiconductor manufacturers in the world. We
believe that more than 3,200 of our products, including products shipped by SEN,
are in use worldwide. We manufacture our equipment at three locations in the
United States, and we support customers in 19 countries through 49 support
locations in nine countries. SEN manufactures equipment under a license from us
at its Toyo, Japan facility.
SEPARATION FROM EATON
We are currently a wholly owned subsidiary of Eaton. On April 26, 2000,
Eaton announced its plan to reorganize its semiconductor equipment operations
into an independent, publicly held company. Prior to the completion of this
offering, Eaton will substantially complete the transfer to us of all of the
assets of its semiconductor equipment operations that are not currently owned by
us, and we will assume the related liabilities. Upon the completion of the
offering, Eaton will own approximately % of our outstanding common stock,
or % if the underwriters fully exercise their option to purchase additional
shares.
In May 2000, our Board of Directors declared a dividend of $300 million
payable to Eaton. We have the option of paying this dividend in either cash or
notes or in a combination thereof. Any notes issued would bear interest and
would have a maturity not to exceed two years. We presently expect to pay all of
this dividend in cash out of the net proceeds of this offering.
Eaton currently plans to complete its divestiture of our company
approximately six months following the completion of this offering by
distributing all of its shares of our common stock on a tax-free basis to Eaton
shareholders. Eaton may accomplish this distribution through a split-off, a
spin-off or some combination of both transactions. Eaton will, in its sole
discretion, determine the timing, structure and terms of its divestiture of its
remaining shares of our common stock that it owns. The planned divestiture is
subject to receiving a private letter ruling from the Internal Revenue Service
that the divestiture will be tax-free to Eaton and its shareholders and that our
separation from Eaton qualifies as a tax-free reorganization for U.S. federal
income tax purposes. Eaton is not, however, obligated to complete any such
divestiture, and we cannot assure you whether or when it will occur.
Eaton and our company will enter into a Master Separation and Distribution
Agreement under which Eaton will transfer all of its semiconductor equipment
operation assets and liabilities not owned by us into our company. We will also
enter into various other agreements with Eaton
27
<PAGE> 29
which provide for transitional services and support, including those associated
with voice and data transmissions and other data-related operations, accounts
receivable, accounts payable, fixed assets, payroll, general accounting,
financial accounting consolidation, cash management, human resources, tax, legal
and real estate. Under these agreements, we will reimburse Eaton for its direct
and indirect costs of providing these services plus an additional fee. The
transition periods covered by these agreements vary, but are generally less than
two years from the date of the completion of this offering. The agreements do
not necessarily reflect the costs of obtaining these services from unrelated
third parties or of providing the applicable services in-house. However,
management believes that purchasing these services from Eaton provides an
efficient means of obtaining these services during the transition period. We
must also negotiate new agreements with various third parties as a separate,
stand-alone entity. There can be no assurance that the terms we will be able to
negotiate for these agreements will be as favorable as those we enjoy as part of
Eaton. See "Arrangements with Eaton" for a more detailed discussion of the
agreements entered into between our company and Eaton.
OUR BUSINESS
Our business depends in significant part upon capital expenditures by
semiconductor manufacturers, especially manufacturers that are opening new
fabrication facilities or expanding existing facilities. These expenditure
patterns are based on many factors, including anticipated market demand for
semiconductors, the development of new technologies and global economic
conditions. We have benefited from the recent growth of the global semiconductor
industry, and we expect it to continue to expand over the long term. Although
our business is not seasonal, we operate in a cyclical industry. We expect the
industry to continue its historically cyclical nature.
The cyclicality in the semiconductor capital equipment market over the last
several years resulted in a decline in net sales beginning in late 1997 and
continuing through late 1998, with orders and backlog under continuous pressure.
This situation was the combined result of an oversupply of memory chips, a
decline in personal computer demand and the effects of the Asian financial
crisis. Typical of our industry, we have relatively high fixed costs, and our
ongoing need to make investments in engineering, marketing, and research and
development limit our ability to reduce expenses during downturns. As a result,
a decline in our sales, whether attributable to a downturn in the semiconductor
industry or otherwise, could have a disproportionate effect on our business.
In response to the severe downturn in the semiconductor industry that began
in late 1997, we undertook a restructuring in the third quarter of 1998 and
incurred a related charge of $42.4 million. Key elements of this restructuring
included the closure of our Austin, Texas manufacturing facility, workforce
reductions involving 475 employees, almost half of whom were employed in Austin,
the relocation of ion implantation production and engineering from Austin to our
Beverly, Massachusetts facility and a charge for asset write-downs, primarily
inventory, to estimated market value. We are currently negotiating the sale of
the Austin facility and expect to sell it for a price that approximates book
value. See Notes 5 and 8 to our combined financial statements.
We derive a substantial majority of our net sales from the sale of ion
implantation systems. These sales accounted for more than 80.0% of our net sales
for each of the three years ended December 31, 1999 and for the three months
ended March 31, 2000.
In August 1997, we acquired Fusion, which develops and manufactures dry
strip and photostabilization products for use within the semiconductor
manufacturing process. This acquisition was accounted for using the purchase
method of accounting, under which goodwill of $49.8 million, which is being
amortized over 15 years with no tax benefit, was recorded. Our combined
statements of operations include the results of Fusion beginning in August 1997.
The acquisition of Fusion also included $85.0 million allocable to in-process
research and
28
<PAGE> 30
development. This amount was expensed at the date of acquisition, with no tax
benefit, because the technological feasibility of certain projects had not been
established and no alternative commercial use had been identified.
We have a 50% interest in SEN, our joint venture with Sumitomo. This joint
venture manufactures ion implantation equipment under license from us for sale
to semiconductor manufacturers in Japan. We account for the results of this
joint venture based on the equity method of accounting, which means that we
record our pro rata share of the joint venture's earnings or losses in our
statement of combined operations under "Other income (expense)." We also receive
royalty income from the joint venture based on a percentage of sales of specific
products sold by SEN. Summary financial information for SEN is presented in Note
17 to our combined financial statements.
Historically we have sold a significant proportion of our products and
services to a limited number of fabricators of semiconductor products. In 1999,
three of our customers accounted for 37.0% of our net sales. Also, we derive
most of our revenues from the sale of a relatively small number of expensive
products to our customers. The list prices on our principal products range from
$150,000 to over $4.0 million. Our lengthy sales and installation cycle, coupled
with customers' competing capital budget considerations, make timing of customer
orders uneven and difficult to predict. As a result, our net sales and operating
results for any given period will depend on our shipment and installation of
orders as scheduled during that period as well as obtaining new orders for
products to be shipped in that same period.
For sales of systems, sales are recognized upon shipment to the customer
and the costs of installation at the customer's site are accrued at the time of
shipment. See Note 3 to our combined financial statements. In December 1999, the
Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No.
101, "Revenue Recognition". SAB No. 101, which was subsequently amended by Staff
Accounting Bulletin No. 101A (collectively referred to as SAB 101), articulates
certain of the SEC staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements. Under SAB 101, we may
be required to change our revenue recognition policies by the end of the second
quarter of 2000 and are currently reviewing the impact of adoption.
BASIS OF PRESENTATION
The combined financial statements include our assets, liabilities, revenues
and expenses based on Eaton's historical amounts. Since December 31, 1999, our
cash receipts and disbursements processed through Eaton's centralized cash
management system have been recorded as a receivable from or payable to Eaton.
Prior to January 1, 2000, substantially all of these amounts were recorded in
Parent Company investment. As of March 31, 2000, a net amount of $7.3 million
was due from Eaton for these transactions and is included in "Receivables From
Eaton Corporation" in the accompanying combined balance sheet. We expect to
continue to record our cash receipts and disbursements as a receivable from or
payable to Eaton until the closing of this offering, at which time we estimate
that a net amount of $ million will be due us from Eaton. We expect to
settle the receivable in cash at or shortly after the closing.
Our combined statements of operations include those expenses originally
recorded by us or directly charged to us by Eaton. Further, the statements
include an allocation of Eaton's general corporate expenses to reflect the
services provided or benefits received by us. This allocation is based on
Eaton's internal expense allocation methodology which charges these expenses to
operating locations based both on net working capital, excluding short-term
investments and short-term debt, and on property, plant, and equipment-net. We
believe that this is a reasonable method of allocating these expenses.
In the opinion of management, all adjustments necessary for a fair
presentation of combined financial position, operating results and cash flows
for the stated periods have been made.
29
<PAGE> 31
However, Eaton did not operate or account for us as a separate, stand-alone
entity for the periods presented and, as a result, the financial information
included herein may not reflect our combined financial position, operating
results and cash flows as they would have been reported if we had been a
separate, stand-alone entity during the periods presented or in the future. The
financial information presented in this prospectus does not reflect any
significant changes that may occur in our operations as a result of our becoming
a stand-alone entity and this offering.
RESULTS OF OPERATIONS
The following table sets forth combined statements of operations data
expressed as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- --------------
1997 1998 1999 1999 2000
----- ----- ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales...................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit................................... 37.6 24.2 39.5 35.1 43.0
Other costs & expenses:
Selling...................................... 10.3 15.9 9.5 15.4 8.1
General & administrative..................... 8.3 17.7 11.6 16.2 9.1
Research & development....................... 15.3 29.6 13.0 20.6 11.3
Amortization of goodwill & intangible
assets.................................... 0.9 3.5 2.3 3.9 1.6
Restructuring charges........................ 9.4
Write-off of in-process research &
development............................... 18.5
----- ----- ----- ----- -----
Income (loss) from operations.................. (15.7) (51.9) 3.1 (21.0) 12.9
Other income (expense):
Royalty income............................... 1.4 3.0 1.5 1.6 2.7
Equity income (loss) of SEN.................. 0.7 (0.8) 0.3 (4.1) 2.3
Other income (expense)-net................... 0.2 (0.4) (0.3) 1.1
----- ----- ----- ----- -----
Income (loss) before income taxes.............. (13.4) (50.1) 4.9 (23.8) 19.0
Income taxes (credit).......................... (19.2) 1.3 (6.3) 5.8
----- ----- ----- ----- -----
Net income (loss).............................. (13.4)% (30.9)% 3.6% (17.5)% 13.2%
===== ===== ===== ===== =====
</TABLE>
FIRST QUARTER 2000 COMPARED TO FIRST QUARTER 1999 (UNAUDITED)
NET SALES
Net sales were $143.1 million in the first quarter of 2000, an increase of
$84.0 million, or 142.0%, as compared to net sales of $59.1 million in the first
quarter of 1999. The increase in net sales was attributable to continued high
levels of capital spending by our semiconductor manufacturing customers,
resulting in increased demand for our products and services.
Sales of ion implant products and services accounted for $115.8 million in
total sales in the first quarter of 2000, an increase of $68.8 million, or
146.4%, as compared to $47.0 million in the first quarter of 1999. Sales of
other products and services, including dry strip products, photostabilization
products and rapid thermal processing systems accounted for $27.3 million in
total sales in the first quarter of 2000, an increase of $15.2 million, or
125.6%, as compared to $12.1 million in the first quarter of 1999.
GROSS PROFIT
Gross profit was $61.5 million in the first quarter of 2000, an increase of
$40.7 million, or 196.0%, as compared to gross profit of $20.8 million in the
first quarter of 1999. The increase in gross profit was primarily attributable
to increased products and services sales volume. The
30
<PAGE> 32
increase in gross profit as a percentage of net sales to 43.0% in the first
quarter of 2000 from 35.1% in the first quarter of 1999 was due to improved
capacity utilization as a result of higher sales volume as well as a more
favorable product mix of ion implant sales.
SELLING
Selling expense was $11.6 million in the first quarter of 2000, an increase
of $2.5 million, or 27.6%, as compared to $9.1 million in the first quarter of
1999. The increase in selling expense was primarily due to higher commissions
and increased headcount associated with increased net sales. As a percentage of
net sales, selling expense decreased to 8.1% in the first quarter of 2000 as
compared to 15.4% in the first quarter of 1999, as costs were spread over a
higher revenue base.
GENERAL AND ADMINISTRATIVE
General and administrative expense, including the allocation of Eaton
general corporate expenses to our business, was $13.0 million in the first
quarter of 2000, an increase of $3.4 million, or 35.6%, as compared with $9.6
million in the first quarter of 1999. The increase in general and administrative
expense was primarily attributable to increased personnel costs associated with
a greater number of employees. As a percentage of net sales, general and
administrative expense decreased to 9.1% in the first quarter of 2000 as
compared with 16.2% in the first quarter of 1999 as these costs were spread over
a higher revenue base. The allocation of Eaton general corporate expense was
$4.0 million in the first quarter of 2000 as compared to $3.2 million in the
first quarter of 1999. Following the separation, Eaton will provide transitional
services under the terms of a transitional services agreement described under
"Arrangements with Eaton".
RESEARCH AND DEVELOPMENT
Research and development expense was $16.1 million in the first quarter of
2000, an increase of $3.9 million, or 32.4%, as compared to $12.2 million in the
first quarter of 1999. As a percentage of net sales, research and development
expense decreased to 11.3% in the first quarter of 2000 from 20.6% in the first
quarter of 1999, as costs were spread over a higher revenue base. We continue to
invest significantly in both current product enhancements and new product
development.
AMORTIZATION OF GOODWILL AND INTANGIBLE ASSETS
Amortization of goodwill and intangible assets was $2.3 million in the
first quarter of 2000, consistent with the first quarter of 1999.
INCOME FROM OPERATIONS
Income from operations was $18.4 million in the first quarter of 2000 as
compared to a loss from operations of $12.4 million in the first quarter of
1999, primarily as a result of the factors described above.
OTHER INCOME (EXPENSE)
Total other income-net was $8.7 million in the first quarter of 2000 as
compared to expense of $1.6 million in the first quarter of 1999. Other income
consists primarily of royalty income and equity income from SEN. Royalty income,
primarily from SEN, was $3.8 million in the first quarter of 2000 as compared to
$1.0 million in the first quarter of 1999. Equity income attributable to SEN was
$3.3 million in the first quarter of 2000 compared to a loss of $2.4 million in
the first quarter of 1999. Both increases in 2000 were due to increased SEN
sales volume due primarily to the recovery in the Japanese semiconductor market,
which began in late 1999.
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<PAGE> 33
INCOME TAXES (CREDIT)
Income taxes were $8.3 million in the first quarter of 2000 as compared
with an income tax credit of $3.7 million in the first quarter of 1999. Our
effective income tax rate was 30.4% in the first quarter of 2000 as compared to
26.2% in the first quarter of 1999. The 1999 rate was lower than the U.S.
federal statutory rate primarily because of benefits associated with research
and development credits taken in that year. See Note 13 to our combined
financial statements.
NET INCOME (LOSS)
Net income increased to $18.9 million in the first quarter of 2000 as
compared to a loss of $10.4 million in the first quarter of 1999, principally as
a result of the factors discussed above.
1999 COMPARED TO 1998
NET SALES
Net sales in 1999 were $397.3 million, an increase of $131.6 million, or
49.5%, as compared to net sales of $265.7 million in 1998. The increase in net
sales was attributable to the increased demand for our principal products and
services resulting from the semiconductor industry's recovery, which began in
the second half of 1999. Our third quarter 1999 net sales increased 125.4% over
the third quarter of 1998, and fourth quarter 1999 net sales increased 193.7%
over the fourth quarter of 1998.
Sales of our ion implant systems and services accounted for $322.0 million
in total sales in 1999 as compared to $219.9 million in 1998, an increase of
46.4% over 1998. Sales of other products and services, including dry strip
products, photostabilization products and rapid thermal processing systems,
increased by 64.4% in 1999 over 1998.
International sales, including exports from our three United States
manufacturing facilities to customers in Europe and Asia Pacific and the sale of
products and services directly by our foreign branches, totalled $212.4 million
in 1999, an increase of $81.1 million, or 61.8%, as compared to $131.3 million
in 1998. Excluding export sales from the United States, our sales in Europe were
$35.5 million, a decrease of 11.9% from 1998 reflecting a lower volume of sales
of service contracts, spares and upgrades. Sales in Asia Pacific were $18.4
million, an increase of 63.5% over 1998, primarily as a result of the economic
recovery in Asia and increased sales of our products in Taiwan, Singapore and
South Korea.
GROSS PROFIT
Gross profit was $157.1 million in 1999, an increase of $92.9 million, or
144.6%, as compared with gross profit of $64.2 million in 1998, primarily as a
result of increased sales and improved capacity utilization resulting from
higher product sales volume offset in part by increases in manufacturing labor
and material costs. The increase in gross profit as a percentage of net sales to
39.5% in 1999 from 24.2% in 1998 was due to changes in product mix, as well as
the absence of $17.4 million of restructuring charges for inventory writedowns
that were recorded in 1998.
SELLING
Selling expense was $37.9 million in 1999, a decline of $4.2 million, or
9.9%, as compared to $42.1 million in 1998. The reduction in selling expense
between years was driven principally by headcount savings attributable to our
cost reduction strategy that was initiated in the second quarter of 1998 and
continued into the second quarter of 1999. As a percentage of net sales, selling
expense decreased to 9.5% in 1999 as compared to 15.9% in 1998.
GENERAL AND ADMINISTRATIVE
General and administrative expense, including the allocation of Eaton
general corporate expenses to our business, was $45.9 million in 1999, a
decrease of $1.2 million, or 2.4%, as
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<PAGE> 34
compared with $47.1 million in 1998. As a percentage of net sales, general and
administrative expense decreased to 11.6% in 1999 as compared with 17.7% in 1998
as these costs were spread over a higher revenue base. The allocation of Eaton
general corporate expense was $15.0 million in 1999 as compared to $14.8 million
in 1998.
RESEARCH AND DEVELOPMENT
Research and development expense was $51.6 million in 1999, a decrease of
$27.1 million, or 34.4%, as compared to $78.7 million in 1998. As a percentage
of net sales, research and development expense was 13.0% in 1999 and 29.6% in
1998. The decrease was attributable primarily to synergy savings associated with
the closing of our Austin, Texas facility and the subsequent transfer of
Austin's ion implant manufacturing and engineering activities to our Beverly,
Massachusetts facility, a reallocation of our research and development efforts
following our 1998 restructuring and the completion of certain research
projects.
AMORTIZATION OF GOODWILL AND INTANGIBLE ASSETS
Amortization of goodwill and intangible assets was $9.3 million in 1999
consistent with 1998.
INCOME FROM OPERATIONS
Income from operations was $12.3 million in 1999 as compared to a loss from
operations of $137.9 million in 1998, primarily as a result of the factors
described above.
OTHER INCOME (EXPENSE)
Total other income-net was $7.2 million in 1999, an increase of $2.4
million, or 51.3%, as compared to $4.8 million in 1998. Other income primarily
consisted of royalty income and equity income from SEN. Royalty income, more
than half of which was from SEN, was $5.9 million in 1999, as compared to $7.9
million in 1998, or a decrease of 26.3%. The decrease in 1999 was due to income
in 1998 from a large one-time royalty payment from another party. Equity income
attributable to SEN was $1.3 million in 1999 as compared to a loss of $2.1
million in 1998. This increase primarily reflects a 19.4% increase in SEN sales
volume in 1999 as compared to 1998 as a result of the improvements in the
Japanese semiconductor market.
INCOME TAXES (CREDIT)
Income tax expense was $5.1 million in 1999 as compared with an income tax
credit of $51.1 million in 1998, which was generated by our loss from operations
in that year. The effective tax rate for 1999 was 26.2% and included a credit
for research activities, as compared to an effective tax rate of 38.4% in 1998.
See Note 13 to the combined financial statements.
NET INCOME (LOSS)
Net income increased to $14.4 million in 1999 as compared to a loss of
$82.0 million in 1998, principally as a result of the factors discussed above.
1998 COMPARED TO 1997
NET SALES
Net sales in 1998 were $265.7 million, a decline of $194.3 million, or
42.2%, as compared with net sales of $460.0 million in 1997. The decrease in net
sales was largely attributable to the severe worldwide downturn in the
semiconductor industry that began in late 1997.
Sales of our ion implant systems and services accounted for $219.9 million
of total sales in 1998, a decrease of $195.3 million, or 47.0%, as compared to
$415.2 million in 1997, caused mainly by decreasing demand for semiconductors
which led to excess capacity at manufacturers of semiconductors and lower
capital spending. Sales of other products and services, including dry strip
products, photostabilization products and rapid thermal processing systems,
increased
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<PAGE> 35
by 2.1% in 1998 compared to 1997 due to the inclusion of a full year of sales
from Fusion in 1998 as compared to less than a half year of sales in 1997.
International sales, including exports from our United States facilities to
customers in Europe and Asia Pacific and the sale of products and manufacturing
services directly by our foreign operations totaled $131.3 million in 1998, a
decrease of 48.4% as compared to 1997. Excluding export sales from the United
States, our sales in Europe were $40.3 million, an increase of 16.4% as compared
to 1997 reflecting a higher volume of sales of service contracts, spares and
upgrades. Sales in Asia Pacific were $11.3 million, a decrease of 29.6% from
1997, primarily as a result of the economic crisis in Asia.
GROSS PROFIT
Gross profit was $64.2 million in 1998, a decrease of $108.6 million, or
62.8%, as compared to $172.8 million in 1997 primarily as a result of a reduced
volume of product sales, competitive pricing pressures and excess capacity costs
associated with the semiconductor industry downturn. Gross profit was also
affected by restructuring charges of $17.4 million in 1998 related to the
writedown of inventory as described in Note 5 to our combined financial
statements. As a percentage of net sales, gross profit decreased to 24.2% in
1998 from 37.6% in 1997, primarily due to the $17.4 million restructuring
charges and the downturn in the semiconductor industry.
SELLING
Selling expense was $42.1 million in 1998, a decline of $5.0 million, or
10.6%, as compared to $47.1 million in 1997, primarily as a result of product
volume decreases offset in part by the full year impact in 1998 of the
acquisition of Fusion in August 1997. As a percentage of net sales, selling
expense increased to 15.9% in 1998 from 10.3% in 1997.
GENERAL AND ADMINISTRATIVE
General and administrative expense, including the allocation of Eaton
general corporate expenses to our business, was $47.1 million in 1998, an
increase of $8.8 million, or 23.0%, as compared with $38.3 million in 1997,
primarily as a result of the full year impact of the Fusion acquisition. As a
percentage of net sales, general and administrative expense increased to 17.7%
in 1998 compared with 8.3% in 1997, primarily due to spreading fixed costs over
a smaller sales base. The allocation of Eaton general corporate expense was
$14.8 million in 1998 as compared to $11.8 million in 1997, with the increase
principally reflecting an increased asset base associated with the acquisition
of Fusion.
RESEARCH AND DEVELOPMENT
Research and development expense was $78.7 million in 1998, an increase of
$8.2 million, or 11.6%, as compared to $70.5 million in 1997. As a percentage of
net sales, research and development expense was 29.6% in 1998 as compared to
15.3% in 1997, primarily resulting from a significant decrease in sales in 1998.
The increase reflected our continued commitment to new product development and
the enhancement of existing product capabilities, notwithstanding the downturn
in sales volume in 1998.
AMORTIZATION OF GOODWILL AND INTANGIBLE ASSETS
Amortization of goodwill and intangible assets increased to $9.3 million in
1998 as compared to $3.9 million in 1997. This increase reflected a full year of
amortization resulting from the acquisition of Fusion in August 1997.
RESTRUCTURING CHARGES
Restructuring charges of $25.0 million in 1998, not including the $17.4
million related to inventory writedowns, which was included in cost of products
sold, related primarily to workforce reductions non-cash asset writedowns, and
other restructuring actions. The charge for workforce
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<PAGE> 36
reductions of $7.1 million included the termination of approximately 475
employees, primarily manufacturing personnel. As of December 31, 1998,
approximately 300 employees had been terminated in this program. In addition,
the ion implant equipment manufacturing facility in Austin, Texas was closed and
production was transferred to Beverly, Massachusetts. The writedown of this
plant to estimated selling price represented approximately $2.1 million of asset
writedowns. The phase-out of this plant was concluded in the first quarter of
1999. See Notes 5 and 8 to our combined financial statements.
WRITE-OFF OF IN-PROCESS RESEARCH AND DEVELOPMENT
Results for 1997 included an $85.0 million write-off of purchased
in-process research and development, with no tax benefit, related to the
acquisition of Fusion. This amount was expensed at the date of acquisition
because technological feasibility of certain projects had not been established
and no alternative commercial use had been identified. See Note 4 to combined
financial statements.
LOSS FROM OPERATIONS
Loss from operations was $137.9 million in 1998 as compared to a loss from
operations of $72.0 million in 1997, primarily as a result of the factors
described above.
OTHER INCOME (EXPENSE)
Total other income-net was $4.8 million in 1998 as compared to $10.7
million in 1997, a decrease of 55.3%, and consists primarily of royalty and
equity income (loss) from SEN. Royalty income, primarily from SEN, was $7.9
million in 1998, as compared to $6.3 million in 1997. We also benefited from a
one-time royalty payment from an unrelated party in 1998. We recorded an equity
loss of $2.1 million in 1998 attributable to SEN as compared to income of $3.3
million in 1997, which primarily reflected lower SEN sales and earnings in 1998
as a result of the downturn in the Japanese semiconductor market.
INCOME TAXES (CREDIT)
Income tax credit was $51.1 million in 1998 as compared with income tax
expense of $0.1 million in 1997. The effective income tax rate for 1998 was
38.4% as compared to 0.2% in 1997. The pretax loss in 1997 included a
nondeductible charge of $85.0 million in connection with the write-off of
acquired in-process research and development costs resulting from the
acquisition of Fusion. See Notes 4 and 13 to our combined financial statements.
NET LOSS
We reported a net loss of $82.0 million in 1998 as compared to a net loss
of $61.5 in 1997, reflecting the factors described above.
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QUARTERLY RESULTS OF OPERATIONS
The following tables present our combined operating results for each of the
four quarters in 1998 and 1999 and for the first quarter in 2000, in dollars and
as a percentage of net sales. The information for each of these quarters is
unaudited and has been prepared on the same basis as the audited combined
financial statements included in this prospectus. In the opinion of management,
all necessary adjustments, consisting only of normal recurring accruals, have
been included to fairly present the unaudited quarterly results. This data
should be read together with our combined financial statements and the notes to
those statements included in this prospectus.
The historical financial information may not be indicative of our future
performance and does not necessarily reflect what our financial position and
results of operations would have been had we operated as a separate, stand-alone
entity during the periods presented.
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1998 1998 1998 1998 1999 1999 1999 1999 2000
--------- -------- --------- -------- --------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMBINED STATEMENTS OF
OPERATIONS DATA
Net sales................. $ 79,178 $ 93,829 $ 48,217 $ 44,485 $ 59,124 $98,814 $108,658 $130,671 $143,051
Gross profit (1).......... 25,979 33,878 (4,346) 8,718 20,768 41,512 42,260 52,542 61,474
Other costs & expenses:
Selling.................. 11,216 11,577 10,589 8,752 9,087 8,485 10,085 10,289 11,598
General &
administrative......... 11,025 12,388 11,069 12,593 9,612 9,751 10,608 15,954 13,030
Research & development... 22,205 19,670 18,997 17,784 12,183 12,549 12,347 14,520 16,125
Amortization of goodwill
& intangible assets.... 2,319 2,320 2,320 2,320 2,320 2,320 2,320 2,319 2,320
Restructuring
charges (1)............ 25,529 (535)
-------- -------- -------- -------- -------- ------- -------- -------- --------
Income (loss) from
operations............... (20,786) (12,077) (72,850) (32,196) (12,434) 8,407 6,900 9,460 18,401
Other income (expense):
Royalty income........... 5,022 1,341 292 1,294 965 1,760 1,455 1,674 3,823
Equity income (loss) of
SEN.................... (1,071) 468 (1,627) 98 (2,447) (1,302) 4,981 106 3,340
Other income
(expense)-net.......... (131) (132) 1,136 (1,918) (145) (447) (259) 879 1,549
-------- -------- -------- -------- -------- ------- -------- -------- --------
Income (loss) before
income taxes............. (16,966) (10,400) (73,049) (32,722) (14,061) 8,418 13,077 12,119 27,113
Income taxes (credit)..... (6,510) (3,991) (28,032) (12,557) (3,686) 2,206 3,428 3,177 8,251
-------- -------- -------- -------- -------- ------- -------- -------- --------
Net income (loss) (1)..... $(10,456) $ (6,409) $(45,017) $(20,165) $(10,375) $ 6,212 $ 9,649 $ 8,942 $ 18,862
======== ======== ======== ======== ======== ======= ======== ======== ========
AS A PERCENTAGE OF NET
SALES
Net sales................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit (1).......... 32.8 36.1 (9.0) 19.6 35.1 42.0 38.9 40.2 43.0
Other costs & expenses:
Selling.................. 14.2 12.3 22.0 19.6 15.4 8.6 9.3 7.9 8.1
General &
administrative......... 13.9 13.2 23.0 28.3 16.2 9.9 9.8 12.2 9.1
Research & development... 28.0 21.0 39.4 40.0 20.6 12.7 11.3 11.1 11.3
Amortization of goodwill
& intangible assets.... 2.9 2.5 4.8 5.2 3.9 2.3 2.1 1.8 1.6
Restructuring
charges (1)............ 53.0 (1.2)
-------- -------- -------- -------- -------- ------- -------- -------- --------
Income (loss) from
operations............... (26.2) (12.9) (151.2) (72.3) (21.0) 8.5 6.4 7.2 12.9
Other income (expense):
Royalty income........... 6.3 1.4 0.6 2.9 1.6 1.8 1.3 1.3 2.7
Equity income (loss) of
SEN.................... (1.3) 0.5 (3.3) 0.2 (4.1) (1.3) 4.6 0.1 2.3
Other income
(expense)-net.......... (0.2) (0.1) 2.4 (4.3) (0.3) (0.5) (0.2) 0.6 1.1
-------- -------- -------- -------- -------- ------- -------- -------- --------
Income (loss) before
income taxes............. (21.4) (11.1) (151.5) (73.5) (23.8) 8.5 12.1 9.2 19.0
Income taxes (credit)..... (8.2) (4.3) (58.1) (28.2) (6.3) 2.2 3.2 2.4 5.8
-------- -------- -------- -------- -------- ------- -------- -------- --------
Net income (loss) (1)..... (13.2)% (6.8)% (93.4)% (45.3)% (17.5)% 6.3% 8.9% 6.8% 13.2%
======== ======== ======== ======== ======== ======= ======== ======== ========
</TABLE>
- ---------------
(1) Net loss in the third quarter of 1998 reflects a restructuring charge of
$42.9 million ($27.9 million aftertax) of which $17.4 million related to
inventory writedowns and reduced gross profit and $25.5 million related to
workforce reductions and other restructuring actions and was recorded in
operating expenses.
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LIQUIDITY AND CAPITAL RESOURCES
Historically, Eaton has managed substantially all of our cash on a
centralized basis. Cash receipts associated with our business have been
transferred to Eaton on a periodic basis and Eaton has provided funds to cover
our disbursements. Accordingly, the cash and short-term investment balances
presented in the accompanying combined balance sheets do not represent balances
required or generated by our operations; rather they primarily relate to cash
and highly liquid short-term investments maintained for working capital
purposes, primarily at international locations.
Since December 31, 1999, our cash receipts and disbursements processed
through Eaton's centralized cash management system have been recorded as a
receivable from or payable to Eaton. Prior to January 1, 2000, substantially all
of these amounts were recorded in Parent Company investment. As of March 31,
2000, a net amount of $7.3 million was due from Eaton for these transactions and
is included in "Receivables From Eaton Corporation" in the accompanying combined
balance sheets. We expect to continue to record our cash receipts and
disbursements as a receivable from or payable to Eaton until the closing of this
offering, at which time we estimate that a net amount of $ million will be
due us from Eaton. We expect to settle the receivable in cash at or shortly
after the closing.
We expect to retain net proceeds from the offering of at least $
million for working capital and other corporate purposes, after paying to Eaton
a dividend in the amount of $300 million. See "Use of Proceeds".
Net working capital was $198.3 million at March 31, 2000 as compared to
$169.8 million at December 31, 1999, $91.0 million at December 31, 1998 and
$149.0 million at December 31, 1997. The current ratio at those dates was 3.7 as
compared to 3.6, 2.6, and 2.7, respectively. The increase in accounts receivable
and inventory was the primary cause of the increase in working capital at March
31, 2000 as a result of increasing sales volume and higher levels of production
beginning in the second half of 1999 and continuing into the first quarter of
2000.
Cash (used in) provided by operating activities was ($11.1 million) for the
three months ended March 31, 2000 as compared to ($39.1 million) in 1999, $12.2
million in 1998 and ($6.7 million) in 1997. The cash used in operating
activities in 1999 and the first quarter of 2000 was primarily the result of
increased accounts receivable and the build-up of inventory balances by period
end, resulting from expanding sales volume partially offset by higher accounts
payable and improved earnings performance.
Budgeted capital expenditures for the year 2000 are $24.1 million, a
significant portion of which will be used to build a 140,000 square foot
expansion of our Beverly, Massachusetts facility to house an advanced process
development, product demonstration and customer training center for all the
equipment we produce, and an expansion of our Rockville, Maryland manufacturing
and research facilities. We had capital expenditures of $0.3 million in the
first quarter of 2000, $16.9 million in 1999, $15.0 million in 1998 and $14.2
million in 1997. The amount of our future capital requirements will depend on a
number of factors, including the timing and rate of the expansion of our
business. We anticipate increased capital expenditures to support anticipated
worldwide sales growth.
Our joint venture arrangements provide that any SEN financing must be
approved by Sumitomo and us. In recent years, SEN has satisfied its capital
needs with unsecured short-term bank financing. Following the transfer of
Eaton's interest in SEN to us and our separation from Eaton, lenders to SEN may
in the future require our guarantee or impose other terms and conditions less
favorable to SEN than in the past.
We currently believe that our cash and short-term investments, the
receivable due from Eaton and the portion of the net proceeds from this offering
being retained by us will provide sufficient capital to fund our operations for
at least the next 18 months. We cannot assure you,
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<PAGE> 39
however, that the underlying assumed levels of sales and expenses will prove to
be accurate. We may need to raise additional funds through public or private
financings or other arrangements in order to:
- support more rapid expansion of our business than we anticipate;
- develop and introduce new or enhanced products or services;
- respond to competitive pressures;
- invest in or acquire businesses or technologies; or
- respond to unanticipated requirements or developments.
We cannot be certain that financing on favorable terms will be available to
us when we need it. We do not intend to raise additional equity capital prior to
the complete divestiture by Eaton of our common stock to Eaton shareholders. If
additional funds are raised through the issuance of equity securities, dilution
to existing stockholders may result. Future debt financings could involve
restrictive covenants that may limit the manner in which we conduct our
business. If sufficient funds are not available, we may not be able to introduce
new products and services, expand the development of our product platform or
compete effectively in any of our markets, any of which could materially harm
our business, financial condition and operating results.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK DISCLOSURE
We are subject to various inherent financial risks attributable to
operating in a global economy.
INTEREST RATE SENSITIVITY
As of December 31, 1999 and March 31, 2000, we had cash and short-term
investments of $3.5 million and $2.8 million, respectively. After completion of
the offering, we expect to have cash and short-term investments in excess of $
.
FOREIGN CURRENCY EXCHANGE RISK
Historically, our exposure to foreign exchange rate risk has been managed
on an enterprise-wide basis as part of Eaton's risk management strategy.
Substantially all of our sales are billed in U.S. dollars, thereby reducing the
impact of fluctuations in foreign exchange rates on our results. Our investment
in SEN and our royalty and equity income from SEN are subject to foreign
currency exchange risks. We are currently evaluating our exchange rate risk
management strategy.
EQUITY SECURITY PRICE RISK
We do not own any equity security investments which are subject to price
risk and, therefore, we do not currently have any direct equity price risk.
EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
In 1998, Statement of Financial Accounting Standard No. 133, "Accounting
for Derivative Instruments and Hedging Activities", was issued. This Statement
requires all derivatives to be recognized on the balance sheet at fair value. We
must adopt the standard by the first quarter of 2001. We expect that the
adoption of the standard will have an immaterial effect on earnings and
financial position, if any.
In December 1999, the SEC issued SAB 101, "Revenue Recognition". SAB 101
may require a change in revenue recognition policies by companies, including our
company, whose products
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<PAGE> 40
require installation and customer acceptance. We must ensure that we are in
compliance with the revenue recognition criteria as defined in SAB 101 by the
end of the second quarter of 2000. We are currently reviewing our revenue
recognition policy to determine if any change is required to ensure compliance
with SAB 101.
YEAR 2000
We were included in Eaton's Year 2000 compliance program under which it
incurred substantial program costs. We believe that our significant vendors and
service providers are year 2000 compliant and have not, to date, been made aware
that any of them have experienced year 2000 disruptions in their systems.
Accordingly, we do not anticipate incurring material expenses or experiencing
any material operational disruptions as a result of any year 2000 problems.
Based on operations since January 1, 2000, we have not experienced any
significant business disruptions related to the Year 2000 issue.
39
<PAGE> 41
BUSINESS
OVERVIEW OF OUR BUSINESS
We are a leading producer of ion implantation equipment used in the
fabrication of semi-conductors and, together with our Japanese joint venture,
were ranked number one in the world in this category for 1999 by Dataquest Inc.
The ion implantation process provides a means for introducing charged ions into
the surface of a silicon wafer in order to form the active components of a
semiconductor. We also produce dry strip, photostabilization and rapid thermal
processing equipment, which is used in semiconductor manufacturing primarily
before and after the ion implantation process. In addition, we provide extensive
aftermarket service and support, including spare parts, equipment upgrades,
maintenance services and customer training. We are a 50-50 joint venture partner
with Sumitomo. This joint venture, which is known as SEN, licenses our
technology and is the leading producer of ion implantation equipment in Japan.
Our customers are located in North America, Europe and Asia Pacific. We and
SEN serve 19 of the 20 largest semiconductor manufacturers in the world. We
believe that more than 3,200 of our products, including products shipped by SEN,
are in use worldwide. We manufacture our equipment at three locations in the
United States, and we support customers in 19 countries through 49 support
locations in nine countries. SEN manufactures ion implant equipment under
license from us at its Toyo, Japan facility.
INDUSTRY OVERVIEW
The semiconductor industry is continuing to experience growth in demand for
semiconductors, or chips, for use in personal computers, telecommunication
equipment, digital consumer electronics, wireless communication products and
other applications. Semiconductors are tiny silicon slivers that contain
complete electronic circuits. Most semiconductors are built on a base of
silicon, called a wafer, and consist of two main structures. The lower structure
is made up of the active components, typically transistors or capacitors, and
the upper structure consists of the circuitry that connects the active
components.
According to industry sources, total worldwide sales of semiconductors were
$149 billion in 1999. While the semiconductor industry has been highly cyclical,
the worldwide semiconductor market, as measured by total sales, grew at an
average annual compound rate of 14.5% in the period from 1989 through 1999.
World Semiconductor Trade Statistics, an industry trade association, projects
continued growth at similar rates for the next two or three years. A significant
factor in the growth in demand for semiconductors has been the continuous
technological innovation in chip design and manufacture, which has enabled
semiconductor manufacturers to produce chips with greater functionality at a
lower cost per function. For example, the semiconductor industry historically
has been able to double the number of transistors on a given space of silicon
every 18 to 24 months.
The increasing demand for semiconductors has required manufacturers to
increase chip production. Manufacturers have primarily increased production
through efficiency improvements, the addition of manufacturing equipment in
existing fabrication facilities and the construction of new fabrication
facilities. Efficiency improvements have been derived largely from increased
equipment utilization and higher manufacturing yields. In recent years, however,
their ability to make significant efficiency gains has diminished. For that
reason, as market conditions have improved since early 1999, semiconductor
manufacturers have been meeting the increased demand for chips mostly by
building new fabrication facilities, which usually cost $1.0 billion or more,
and by making additional equipment purchases to expand existing fabrication
facilities.
When new fabrication facilities are built, customers have an opportunity to
increase the size of the wafer. By increasing the wafer size, semiconductor
manufacturers can produce more chips per wafer, thus reducing the overall
manufacturing cost per chip. The more advanced wafer
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<PAGE> 42
fabrication facilities are currently using circular wafers with a diameter of
200 millimeters, up from the 100 millimeter diameter wafers used 10 to 15 years
ago. Currently, some semiconductor manufacturers are commencing pilot production
lines using 300 millimeter wafers. It is anticipated that additional
manufacturers will add 300 millimeter production capabilities within the next
two to five years, which will lead to demand for equipment with 300 millimeter
capability.
During the period 1992 through 1998, the most recent semiconductor
equipment cycle, growth in sales of high current and high tilt/medium current
ion implantation equipment has been lower than the growth in chip sales, while
the growth in sales of high energy implanters has been substantially higher. See
"Products and Services". Over the past ten years, based on Dataquest data, sales
of ion equipment as a whole have grown faster during periods of high capital
spending by semiconductor manufacturers, particularly spending for new
fabrication facilities.
Given the magnitude of the investment needed to build a new fabrication
facility, independent semiconductor manufacturers, or foundries, have emerged to
serve semiconductor producers who design but do not manufacture chips. In
addition, foundries manufacture semiconductors for producers who choose to
outsource part of their demand. Foundries, which are predominantly located in
Taiwan and Singapore, have become significant purchasers of semiconductor
equipment.
OUR BUSINESS STRATEGY
Our objective is to enhance our position as a leading producer of ion
implantation equipment and to offer on an integrated basis a broad array of
products and services used primarily in the front-end of the chip fabrication
process. Key elements of our strategy to achieve our objective include:
INCREASE ION IMPLANTATION MARKET PENETRATION. We seek to increase our
share of the ion implantation market by leveraging our competitive strengths in
advanced ion implant technology and by capitalizing on key trends toward
smaller, faster, more complex chips, such as those used in personal computers,
cellular phones and other electronic products. As the market leader in high
energy, the fastest growing ion implant sector, we intend to continue to broaden
the applications served by our high energy products to capture a greater
percentage of the total ion implantation market. We also have broadened our high
current product line to include ultra low energy implantation to capitalize on
the trend towards faster chips. In addition, we intend to continue to invest in
our high tilt/medium current products in order to offer the complete range of
ion implantation products.
MAINTAIN STRONG COMMITMENT TO RESEARCH AND DEVELOPMENT. Semiconductor
manufacturing processes continue to undergo rapid technological change. As a
result, we believe that we must continue to be at the forefront of technological
innovation in the ion implant sector. We developed the first high current ion
implantation system in the late 1970s and the first high energy ion implantation
system in the 1980s. In 1999, we installed the first 300 millimeter high energy
ion implantation system, which we believe will be the next generation of ion
implant products. We also plan to continue to devote substantial research and
development resources to our dry strip, photostabilization and rapid thermal
processing systems. We pioneered the development of photostabilization in 1983,
and we have developed the only 300 millimeter production photostabilizer in the
industry. SEN devotes substantial resources to research and development and we
receive a royalty-free license for the ion implant technology developed by SEN.
CAPITALIZE ON BROAD PRODUCT LINES TO PROVIDE AN INTEGRATED RANGE OF
FRONT-END EQUIPMENT. In addition to our broad offering of ion implantation
systems, we offer a range of products utilized in semiconductor manufacturing
primarily before and after the ion implantation process. The high degree of
interaction among these individual process steps affects overall process
quality, throughput and cost. We believe that semiconductor manufacturers will
increasingly seek
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<PAGE> 43
integrated solutions from their equipment suppliers and we intend to highlight
the productivity, high degree of interaction and cost advantages of our broad
product line.
PROVIDE LOWEST COST OF OWNERSHIP. Total cost of ownership is an important
criterion customers apply when selecting semiconductor capital equipment. In
order to provide the lowest cost of ownership, we seek to develop products with
the best combination of reliability, advanced technology, high throughput and
high yield. For example, we have expanded the range of steps that our most
capable high energy machines can perform and, at the same time, we have
developed a lower cost high energy machine for those customers with limited need
for the broad functionality of our most capable machines. All of our ion
implantation systems are designed on a common platform, utilizing the same wafer
handling robot, ion source, vacuum system and operator interface. Our dry strip
and photostabilization equipment also share the same wafer handling platform.
These common platforms reduce our design and production time and costs, and
overall cost of ownership for our customers by minimizing training, spare parts
inventory and maintenance.
PROVIDE SUPERIOR CUSTOMER SERVICE. Prompt and effective field support is
critical to our sales efforts, due to the complexity of our machines and the
substantial operational and financial commitments made by our customers when
they purchase our equipment. We intend to increase our sales and customer
support infrastructure in all our markets, particularly in Taiwan, Singapore and
South Korea, to capitalize on growth opportunities. Furthermore, we continually
seek to improve our responsiveness to customer needs. For example, our SMART
internet-based parts supply system streamlines the replenishment of customers'
inventory, and we are expanding our Beverly, Massachusetts facility to provide
training and education to our customers on advanced processes for all our
products.
REDUCE CYCLE TIMES IN OUR BUSINESS. We seek to improve our operating
efficiencies by, among other things, reducing cycle times across our business.
For example, we recently adopted modular testing of our ion implantation
products, which avoids the need to assemble, test and disassemble a complete
unit prior to shipment. This "ship from cell" process has enabled us to cut
approximately four weeks from the average period from receipt of an order to
shipment of the product. We have also sought to reduce the development cycle for
new products through a collaborative process whereby our engineering,
manufacturing and marketing personnel work closely together with one another and
with our customers at an earlier stage in the development process.
PRODUCTS AND SERVICES
We are a leading producer of ion implantation equipment. We also offer
other products and services, including dry strip, photostabilization and rapid
thermal processing products used to produce semiconductor devices. We provide
extensive aftermarket service and support to our customers, including spare
parts, equipment upgrades, maintenance services and customer training.
The dollar amount (in millions) and percentage of our net sales
attributable to ion implantation systems and services and to other products and
services were as follows for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
----------------------------------------------- -----------------------------
1997 1998 1999 1999 2000
------------- ------------- ------------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ion implantation systems
and services................ $415.2 90.3% $219.9 82.8% $322.0 81.0% $47.0 79.5% $115.8 80.9%
Other products and
services.................... 44.8 9.7 45.8 17.2 75.3 19.0 12.1 20.5 27.3 19.1
------ ---- ------ ---- ------ ---- ----- ---- ------ ----
Total................... $460.0 100% $265.7 100% $397.3 100% $59.1 100% $143.1 100%
====== ==== ====== ==== ====== ==== ===== ==== ====== ====
</TABLE>
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<PAGE> 44
ION IMPLANTATION SYSTEMS
Ion implantation is a principal step in the manufacturing process for
semiconductors. An ion implanter is a large, technically advanced machine that
injects charged ions, or dopants, such as arsenic, boron or phosphorus, into a
silicon wafer through an accurately controlled electric field, with a precisely
defined amount of energy ranging between several hundred and three million
volts. Certain areas of the silicon wafer are blocked off by a material known as
photoresist so that the dopants will only enter the wafer where needed. The
dopants change the electrical properties of the silicon wafer to create the
active components of a chip. The amount of energy determines the depth to which
the dopant penetrates the wafer, and the amount of dopant or dose determines how
much the electrical properties of the silicon wafer are changed.
There are three types of ion implantation machines: high energy, high
current and high tilt/medium current. Each type of machine produces chips with
varying degrees of computing speed, miniaturization and power consumption. Most
complex chips require implant steps from each type of machine and the
manufacturer determines the optimal combination of machines based on the
performance requirements of the chips being produced. We have designed our
products to enhance the manufacturers' flexibility in combining machines during
the implant process.
A high energy implanter is typically used to implant dopant deep in the
wafer, which allows improved isolation of adjoining circuits on the same chip.
High energy implanters enable a closer stacking of circuits, which results in
more functionality for the consumer. As a result, in recent years the use of
high energy implanters has expanded into the manufacture of virtually all types
of chips. They are used in the manufacture of smaller, more complex chips, such
as those used in cellular phones and other hand held devices because they enable
more functionality with less power consumption. They are also increasingly used
in the manufacture of chips that are used in personal computers because they
permit greater computing power from a chip of a given size.
For implants that require high dose and medium to very shallow depth, a
high current implanter is most often used. In some applications, very shallow,
high-dose implants result in faster chips, an important feature for
microprocessors, digital signal processors and other chips.
Most ion implant steps occur with the ion beam perpendicular to the wafer.
A high tilt/medium current implanter, however, is primarily used for the implant
step that requires the ion beam to be positioned at an angle to the wafer to
implant dopants below preexisting features. The use of the high tilt/medium
current implanter extends into some high energy applications to allow customers
greater flexibility in selecting the most optimal combination of implanters for
their needs.
The following table shows the 1999 estimated overall market size for high
energy, high current and high tilt/medium current implanter machines (excluding
aftermarket sales and service revenues), the estimated annual compound growth
rate for each of these markets from 1992 to 1998, the 1999 estimated combined
market share for our sales and SEN's sales of each product line and the 1999
estimated average selling price for industry sales of each product line. All
data in the table has been supplied by Dataquest.
<TABLE>
<CAPTION>
TYPES OF ION IMPLANTERS
HIGH TILT/
HIGH ENERGY HIGH CURRENT MEDIUM CURRENT
------------------ ------------ -------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
1999 Overall market size.............. $187 $287 $174
1992-1998 Annual compound growth
rate................................ 39.2% 4.6% 12.6%
1999 Axcelis/SEN market share......... 87.7% 41.5% 9.4%
1999 Industry average selling price... $3.5-4.0 $2.5-3.5 $2.0-3.0
</TABLE>
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<PAGE> 45
We manufacture a complete line of high energy, high current and high
tilt/medium current implanters which is broader than our competitors. The
following chart lists our principal products:
<TABLE>
<CAPTION>
TYPE OF ION
IMPLANTER CORE PRODUCTS RECENTLY INTRODUCED PRODUCTS
----------- ----------------------------------------- -------------------------------------
<S> <C> <C> <C> <C>
HIGH ENERGY GSD/HE HE(MC)
- Permits multiple implant steps - Lower cost alternative to GSD/HE
in one process, or chaining, thus
increasing throughput HE3
- More than 80% of our GSD/HE - For use with 300 millimeter
customers use it for one or more wafers
medium current applications
- Broadest application coverage
GSD/VHE
- Highest energy range available
- Also used by customers
for R&D
HIGH CURRENT GSD/200E(2) LED
- High dose implants - Increased performance at low
energy
- High productivity at low cost ULE2
- Ultra-low energy
HIGH TILT/ 8250HT MC3
MEDIUM CURRENT - Energy purity - For use with 300 millimeter
- Process flexibility wafers
</TABLE>
Our implanters have been designed with a process overlap that allows
customers to tailor the combination of high energy, high current and high
tilt/medium current implanters to their specific needs. High energy and high
current implanters can be used to cover most high tilt/medium current
applications, and the high tilt/medium current implanter can be used for some
high energy applications. All of our ion implantation systems share certain of
the same modular subsystems for efficiency and convenience. The subsystems for
wafer handling robot, ion source, vacuum system and operator interface are
common among our three implanters. This common platform reduces our design and
production time and costs, and overall cost of ownership for our customers by
minimizing training, spare parts inventory and maintenance.
All our high energy and high current machines process wafers in batches of
13 to 25 wafers, while, as is common in the industry, our high tilt/medium
current machines process one wafer at a time. In addition, our high energy
implanters can perform several implants without reloading the wafers, a process
known as chaining. We believe that the ability of our high energy machines to
process wafers in batches and to chain has contributed to the high growth of
that product line.
We intend to continue to broaden the applications served by our high energy
products and have recently introduced our HE(MC) implanter to provide a lower
cost alternative for those customers with a limited need for the broad
functionality of our most capable high energy machines. We also recently
introduced our next generation HE3 implanter designed specifically to process
300 millimeter wafers. Two HE3 machines have been installed in 300 millimeter
wafer pilot production lines. Our GSD/HE product is the industry's only ion
implantation product to be rated "best product" among semiconductor capital
equipment products, an award sponsored by Semiconductor International, an
industry publication.
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We developed the first high current ion implantation system and were ranked
number one in this product sector in 1999, according to Dataquest. We have
recently introduced our LED implanter, which extends the energy range of our
GSD/200E(2) implanter to lower energies than can be achieved with traditional
high current implanters. The ULE2 is an ultra low energy, high current
implanter. These machines respond to the demand for high dose, ultra shallow
implants that increase chip speed at acceptable machine throughput rates.
Our high tilt/medium current ion implanter complements our high energy and
high current implanters. Our 8250HT targets high tilt applications that cannot
be performed with high energy or high current implanters and extends into some
high energy applications to allow customers a flexible combination of
implanters. We target our 8250HT high tilt/medium current machine for the
relatively few steps that our high energy and high current machines cannot
complete. The most important step is an angular implant designed to insert
dopants below preexisting features on the wafer. Our recently introduced MC3
high tilt/medium current implanter is designed to process 300 millimeter wafers.
During the past three years, we have also produced a small number of ion
implanters used in the production of laptop computer screens and other flat
panel displays. We also continue to service the machines that have been
installed. Our net sales from the sale and service of these implanters were
approximately 1% or less of net sales in each of the last three years.
OTHER PRODUCTS
We also produce dry strip, photostabilization and rapid thermal processing
equipment, which is used in semiconductor manufacturing primarily before and
after the ion implantation process. We introduced our rapid thermal processing
products in 1996 and we entered the dry strip and photostabilization product
markets through our acquisition of Fusion in August 1997. Fusion pioneered the
development of photostabilization in 1983.
We estimate that, in 1999, the market for photostabilizer equipment was $18
million and our market share was approximately 75%. Dataquest reports that, in
1999, the market for dry strip equipment was $227 million and our market share
was 14% and that the market for rapid thermal processing equipment was $331
million and our market share was 2%.
DRY STRIP AND PHOTOSTABILIZATION SYSTEMS. In the process steps prior to ion
implantation, certain areas of the silicon wafer are blocked off to ensure that
only defined areas of the wafer are processed. First, a light sensitive,
polymer-based liquid, called photoresist, is spread in a uniformly thin film on
the wafer. After baking to solidify the liquid, light is passed through a
stencil, which projects an image on the photoresist by means of a lithographic
tool. Thereafter, photostabilization uses ultraviolet light to harden the
photoresist in order to provide better performance for the subsequent implant
step. After the implant step, the used photoresist must be removed. The primary
means of removing excess photoresist and residue is called dry strip. Our dry
strip machines, often called ashers, use microwave energy to turn process gases
into plasma, which then acts on the surface of the wafer to remove the
photoresist and unwanted residue. Dry strip and photostabilization are also used
in conjunction with several other steps in the manufacturing process.
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The following chart lists our principal products in each category:
<TABLE>
<CAPTION>
PRODUCT LINE CORE PRODUCTS RECENTLY INTRODUCED PRODUCTS
- ------------ ------------------------------------------- ---------------------------------------------
<S> <C> <C> <C> <C>
DRY STRIP FUSIONGEMINI PLASMA ASHER FUSION ES3
- High ash rates with low damage - Comprehensive dry strip and
FUSIONGEMINI PLASMA ASHER ES residue removal with
- Adds additional capability for 300 millimeter capability
dry residue removal
PHOTOSTABILIZERS FUSIONGEMINI PHOTOSTABILIZER FUSION PS3
- Propriety ultraviolet light - Industry's only 300 millimeter
source; high throughput production-ready photostabilizer
</TABLE>
Our FusionGemini dual chamber platform is the foundation for both our dry
strip and our photostabilizer products. Fusion pioneered photostabilization
technology, and we believe that our products remain the industry standard. Our
dry strip tools are capable of removing bulk photoresist from the wafer, as well
as the residue left behind after bulk strip. This reduces or eliminates the need
for further wet chemical stripping by eliminating the use of hazardous chemicals
traditionally used for this step. Manufacturing cost is further reduced by the
fact that our ashers do not require side access, conserving expensive cleanroom
space. Our Fusion ES3 dry strip product was the first 300 millimeter dry strip
machine qualified by Sematech, an industry association of semiconductor
manufacturers.
Our photostabilizers are used by a majority of integrated circuit
manufacturers worldwide because of our proprietary ultraviolet light source and
the high throughput of the FusionGemini dual chamber platform. Our recently
introduced Fusion PS3 machine has 300 millimeter wafer capability and is the
only 300 millimeter production-ready photostabilizer available on the market. It
has been installed in 300 millimeter pilot production facilities.
RAPID THERMAL PROCESSING SYSTEMS. At a number of points during the
manufacturing process, silicon wafers need to be heated rapidly, often to 900
degrees centigrade or higher, in order to complete chemical or electronic
reactions. For example, high temperature treatment is needed after all the
dopants have been implanted in the wafer so that the dopants will settle into
the correct atomic state. This heating process is referred to as rapid thermal
processing, or RTP.
Our RTP machine employs a patented design to process a single wafer in a
hot wall vertical reactor. The reactor has three zones that are heated by
heating coils, as well as an actively cooled base, which create a uniform
temperature gradient from top to bottom. The resulting stable temperature
profile is inherently repeatable, accurate and reliable. Rapid heating and
cooling of the wafer is achieved by simply adjusting the vertical position of
the wafer within the reactor. Most other RTP equipment manufacturers use more
expensive lamp-based RTP systems, which require frequent lamp replacement and
require expensive control systems. For this reason, we believe our RTP machines
have lower overall operating costs than these lamp-based systems.
The following chart lists our principal RTP products:
<TABLE>
<CAPTION>
PRODUCT LINE CORE PRODUCTS RECENTLY INTRODUCED PRODUCTS
- ------------ -------------------------------------- ---------------------------------------------
<S> <C> <C> <C> <C>
RTP SYSTEMS SUMMIT SUMMIT 300
- Accommodates 0.18M devices - 300 millimeter capability
- Repeatable, accurate temperature
gradient
</TABLE>
Our Summit series of RTP systems has a flexible design, offering both
single and dual chamber systems. Its engineering incorporates recent
developments in furnace design,
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<PAGE> 48
temperature measurement, emission correction techniques and wafer handling. Our
recently introduced Summit 300 has 300 millimeter wafer capability.
AFTERMARKET SUPPORT AND SERVICES
We offer our customers extensive aftermarket service and support throughout
the lifecycle of the equipment we manufacture. We believe that more than 3,200
of our products, including products shipped by SEN, are in use worldwide. The
service and support that we provide include spare parts, equipment upgrades,
maintenance services and customer training. At March 31, 2000, we offered
aftermarket service at 49 locations in nine countries; 13 of these were combined
sales and service offices, and the balance were service-only offices, mostly
located in our principal customers' fabrication facilities.
Our customer support network includes approximately 500 sales and marketing
personnel and service engineers, including field service engineers, spare parts
support staff and applications engineers. An additional 300 persons located at
our three manufacturing facilities work with our customers to provide advanced
equipment support, applications support, customer training and documentation.
Most of our customers maintain spare parts inventories for our machines. In
1997, we launched a web-based spare parts management and replenishment tracking
program, or SMART, to facilitate internet communication with our customers. The
implementation of our SMART program has helped us to achieve reduced order
fulfillment costs and cycle times.
Our process technology center in Beverly, Massachusetts is available to
customers for developing and testing advanced ion implantation and RTP
processes, and our process technology center in Rockville, Maryland is available
to customers for developing and testing dry strip and photostabilization
processes. At these facilities, we also make available to our customers advanced
testing and analysis equipment. In addition, we are constructing a 140,000
square foot addition to the Beverly facility, which will house an advanced
process development, product demonstration and customer training center for all
of the equipment we produce.
The ability to provide prompt and effective field support is critical to
our sales efforts, due to the substantial operational and financial commitments
made by customers that purchase our systems. Our customer support programs,
combined with our research and development efforts, have served to encourage use
of our systems in production applications and have accelerated penetration of
certain key accounts.
SALES AND MARKETING
We primarily sell our equipment and services through our direct sales
force. At March 31, 2000, we had 13 sales offices in seven countries.
Aftermarket service and support is also offered at all of these offices. In the
United States, we conducted sales and marketing activities from seven locations.
Outside of the United States, our sales offices are located in Taiwan, South
Korea, Germany, Singapore, Italy and France. At March 31, 2000, we had
approximately 500 sales and marketing personnel and service engineers. Our sales
objective is to work closely with customers to secure purchase orders for
multiple systems as they expand existing facilities and build new wafer
facilities. We believe that our marketing efforts are enhanced by the technical
expertise of our research and development personnel. At March 31, 2000, over 44%
of our workforce consisted of engineers, scientists and technical personnel.
We sell our photostabilizers, dry strip and rapid thermal processing
products to semiconductor fabricators in Japan through a distribution agreement
with Sumitomo entered into in 1999. The agreement also provides for the parties
to discuss the manufacture and sale of these products through SEN if sales
volumes in the future meet agreed levels. The distribution
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<PAGE> 49
arrangement expires in 2002 and thereafter is renewable from year to year,
unless either party has given the other party six months prior written notice.
In addition, isolated sales are made in smaller markets through
distributors and manufacturers representatives. SEN sells its machines and
services directly to semiconductor fabricators in Japan.
The semiconductor fabrication industry is currently experiencing
significant growth in Asia, particularly in Taiwan, Singapore and South Korea.
As a result, we have also increased our focus on markets in Asia outside of
Japan by increasing our sales and customer support personnel focused on those
countries. We intend to make additional investments in this region over the next
few years.
International sales, including export sales from our U.S. manufacturing
facilities to foreign customers and sales by our foreign subsidiaries and
branches, accounted for 53.5% of total net sales in 1999, and 49.5% in 1998. We
expect that international sales will continue to account for a significant
portion of our net sales. International sales are subject to various risks that
are described under "Risk Factors--Risks Relating to Our Business--A Decline In
Our International Sales Could Harm Our Business". Substantially all of our sales
are denominated in U.S. dollars. SEN's sales are denominated in Japanese yen.
CUSTOMERS
In 1999, the top 20 semiconductor manufacturers accounted for approximately
75% of total semiconductor capital spending. These manufacturers are from the
four largest semiconductor manufacturing regions in the world: the United
States, Asia Pacific (Taiwan, South Korea and Singapore), Japan and Europe. We
and SEN serve 19 of these 20 largest semiconductor manufacturers. We believe
that more than 3,200 of our products, including products shipped by SEN, are in
use worldwide.
Net sales to our ten largest customers accounted for 48.7%, 37.6% and 59.1%
of net sales, respectively, in 1997, 1998 and 1999. We expect that sales of our
products to relatively few customers will continue to account for a high
percentage of net sales for the foreseeable future. In 1999, net sales to SGS
Thompson Microelectronics, Motorola and Texas Instruments accounted for 15.9%,
10.6% and 10.5%, respectively, of our net sales. No other customer accounted for
as much as 10% of our net sales in 1999. In 1997 and 1998, no single customer
accounted for as much as 9.0% of our net sales.
SEN JOINT VENTURE
In 1982, we established our SEN joint venture with Sumitomo to provide us
with additional manufacturing capacity for our ion implant products and local
access to the Japanese semiconductor equipment market. Under our arrangements
with Sumitomo, our ion implant products may be sold in Japan only through the
joint venture. SEN may sell its products outside Japan only with our consent and
through us as exclusive distributor. There are isolated sales of our equipment
into Japan to our non-Japanese customers and isolated sales of SEN equipment
outside of Japan primarily to its Japanese customers and their joint ventures.
SEN manufactures ion implantation equipment at its Toyo, Japan location under
the license from us described below. From time to time, we sell ion implantation
equipment and other products to SEN. In 1999, our net sales of products to SEN
amounted to $6.7 million.
As part of the joint venture arrangement, we have entered into a separate
license agreement with SEN, last renewed in 1996, under which SEN is entitled to
use our ion implantation technology and improvements to this technology that we
develop. SEN is entitled to use this technology solely in sales of ion
implanters to semiconductor manufacturers located in Japan. We received royalty
income from SEN under the license agreement of $6.2 million in 1997, $4.0
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<PAGE> 50
million in 1998 and $3.8 million in 1999. The license agreement expires on
December 31, 2004 and is automatically renewable for successive five-year
periods unless either party has provided one year's prior notice of termination.
SEN has the right to use the name "EATON" as part of its corporate name
under an agreement with Eaton that has no fixed expiration date. Eaton has the
right, however, to terminate that agreement at any time upon 60 days notice. SEN
also has the right to use in Japan the trademarks "EATON" and "NOVA" on its ion
implant products. SEN does not, however, have the right to use EATON in logo
format. This agreement requires SEN to pay us semiannual royalties equal to 0.5%
of net sales. SEN must maintain quality and reliability standards, and Eaton is
entitled to terminate the trademark agreement at any time for cause.
RESEARCH AND DEVELOPMENT
Our industry continues to experience rapid technological change, requiring
us to frequently introduce new products and enhancements. Our ability to remain
competitive in this market will depend in part upon our ability to develop new
and enhanced systems and to introduce these systems at competitive prices and on
a timely and cost effective basis.
We devote a significant portion of our personnel and financial resources to
research and development programs and seek to maintain close relationships with
our customers to remain responsive to their product needs. We have also sought
to reduce the development cycle for new products through a collaborative process
whereby our engineering, manufacturing and marketing personnel work closely
together with one another and with our customers at an earlier stage in the
process. We also use 3D, computer-aided design, finite element analysis and
other computer-based modeling methods to test new designs. We conduct our
research and development programs at our facilities in Beverly and Peabody,
Massachusetts and in Rockville, Maryland. SEN also conducts research and
development in Toyo, Japan.
Our product development efforts have led to numerous industry
breakthroughs, including the first production high current implantation system,
the first production high energy implanter and the first photostabilizer.
An important focus of our current research and development efforts is
directed at machines capable of processing 300 millimeter wafers. Our 300
millimeter high energy ion implanter, the HE3 and our 300 millimeter
photostabilizer, the PS3, were installed by Semiconductor 300 in 1999 in its
Dresden, Germany pilot production facility.
Our expenditures for research and development during 1997, 1998 and 1999
were $70.5 million, $78.7 million and $51.6 million, respectively, or 15.3%,
29.6% and 13.0% of net sales, respectively. Our budgeted research and
development expenditures for 2000 are approximately $69 million, of which $16.1
million was spent in the first quarter of 2000. We expect in future years that
research and development expenditures will continue to represent a substantial
percentage of net sales.
MANUFACTURING
We manufacture our products at facilities in Beverly and Peabody,
Massachusetts and in Rockville, Maryland. In addition, SEN manufactures products
at its facility in Toyo, Japan.
Our Beverly, Massachusetts facility manufactures our high energy, high
current and high tilt/medium current ion implantation systems. In 1999, we
completed an 80,000 square foot expansion of this facility.
We manufacture photoresist removal and curing systems in our Rockville,
Maryland facility, including our photostabilizer and dry strip product lines. We
currently manufacture our rapid
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<PAGE> 51
thermal processing products in our Peabody, Massachusetts facility, but we are
considering relocating the Peabody facility to our Beverly plant.
Our manufacturing facilities employ advanced manufacturing methods and
technologies, including lean manufacturing, Six Sigma controls and processes and
web-enabled inventory purchase systems. We manufacture our products in cleanroom
environments that are similar to the cleanrooms used by semiconductor
manufacturers for wafer fabrication. This procedure is intended to reduce
installation and production qualification times and the amount of particulates
and other contaminants in the assembled system, which in turn improves yield and
reduces downtime for the customer. After testing, the system is disassembled and
packaged to maintain cleanroom standards during shipment. We recently adopted
modular testing of our ion implantation products, which avoids the need to
assemble, test and disassemble a complete unit prior to shipment. This "ship
from cell" process has enabled us to cut approximately four weeks from the
average period from receipt of an order to shipment of the product.
We purchase materials, components and sub-assemblies, such as pumps,
machine components, power supplies and other electrical components, from various
suppliers. These items are either standard products or built to our
specifications. Some of the components and subassemblies included in our
products are obtained either from a sole source or a limited group of suppliers,
which could result in disruptions to our operations. We have installed a
web-based supply chain system in order to increase efficiency and cut costs
associated with obtaining materials and components. This system electronically
exchanges information with our vendors as to purchase orders, forecasts and
automatic delivery updates.
COMPETITION
The semiconductor equipment market is highly competitive and is
characterized by a small number of large participants. We compete in four
principal product markets primarily at the front-end of the semiconductor
manufacturing process: ion implantation, dry strip, photostabilization and rapid
thermal processing.
A substantial investment is required by customers to install and integrate
capital equipment into a semiconductor production line. As a result, once a
semiconductor manufacturer has selected a particular vendor's capital equipment
for a production line, we believe that most manufacturers continue to rely
heavily on the incumbent supplier's equipment for that production line. However,
we believe that, although the existing suppliers have some advantage in
supplying a new fabrication facility for the same manufacturer, the manufacturer
will also take into account technological advances and other competitive factors
in deciding from whom to buy.
In addition to the importance of preexisting relationships, significant
competitive factors in the semiconductor equipment market include price/cost of
ownership, performance, customer support, breadth of product line, distribution
and financial viability. Price wars have not been common in our industry.
ION IMPLANTATION
We are a leading producer of ion implantation equipment used in the
fabrication of integrated circuits and, together with our Japanese joint
venture, were ranked number one in the world in this category for 1999 by
Dataquest. In high energy equipment, where we have a commanding market position,
our principal competitor is Varian. In high current products, we and Applied
Materials have substantial market shares and Varian has a smaller share. In high
tilt/medium current equipment, where we have a small market share, Varian has a
commanding market position. SEN is the largest manufacturer of ion implantation
equipment in Japan and competes with Nissin, Varian, Ulvac and Applied Materials
for sales in that market.
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<PAGE> 52
DRY STRIP, PHOTOSTABILIZATION AND RAPID THERMAL PROCESSING
Our principal competitors in the dry strip product market are GaSonics
International, Mattson Technology, KEM and Canon, and our principal competitor
in photostabilization is Ushio. Our chief competitors in the rapid thermal
processing equipment market are Applied Materials, Steag and DaiNippon Screen.
INTELLECTUAL PROPERTY
We rely on patent, copyright, trademark and trade secret protection, as
well as contractual restrictions, in the United States and in other countries to
protect our proprietary rights in our products and our business. At March 31,
2000, we had 134 patents in the United States and 232 patents in other
countries, as well as 416 patent applications (63 in the United States and 353
in other countries) on file with various patent agencies worldwide. We intend to
file additional patent applications as appropriate. Although patents are
important to our business, we do not believe that we are substantially dependent
on any single patent or any group of patents.
We have trademarks, both registered and unregistered, that are maintained
to provide customer recognition for our products in the marketplace. We have a
license from Eaton to use the Eaton name and logo in connection with the sale of
semiconductor manufacturing equipment.
We have agreements with third parties, mostly as licensor, that provide for
licensing of patented or proprietary technology. These agreements include
royalty-bearing licenses and technology cross-licenses. Our license agreement
with SEN is described above under "SEN Joint Venture". No other license is
material to us.
There has been substantial litigation regarding patent and other
intellectual property rights in semiconductor-related industries. We can give no
assurance that we, our licensors, licensees, customers or suppliers will not be
subject to claims of patent infringement, and that any such claim will not be
successful and require us to pay substantial damages or delete certain features
from our products or both.
BACKLOG
As of March 31, 2000, our backlog was $166.1 million, as compared to $93.8
million, $27.8 million and $67.1 million, respectively, for year end 1999, 1998
and 1997. Our policy is to include in backlog only those orders for which we
have accepted purchase orders. All orders are subject to cancellations or
rescheduling by customers with limited or no penalties. Due to possible changes
in system delivery schedules, cancellations of orders and delays in systems
shipments, our backlog at any particular date is not necessarily indicative of
our actual sales for any succeeding period. In addition, our backlog at the
beginning of a quarter typically does not include all orders required to achieve
our sales objectives for that quarter and is not a reliable indicator of our
future sales.
PROPERTIES
We have a total of 35 properties, of which 26 are located in the United
States and the remainder are located in Asia and Europe, including offices in
Taiwan, Singapore, South Korea, Italy, Germany, France and the United Kingdom.
Of these properties, two are owned and 33 are leased. We own our 54,600 square
foot corporate headquarters in Beverly, Massachusetts located adjacent to our
Beverly manufacturing facility.
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<PAGE> 53
Our manufacturing facilities are listed below:
<TABLE>
<CAPTION>
SQUARE FOOTAGE
FACILITY LOCATION PRINCIPAL USE (OWNED/LEASED)
- ----------------- ------------------------------------- --------------
<S> <C> <C>
Beverly, Massachusetts Manufacturing of ion implantation 310,200 (owned)
products and research and development
Peabody, Massachusetts Manufacturing of rapid thermal 20,000 (leased)
processing products
Rockville, Maryland Manufacturing of photoresist and 151,000)
photostabilization products (leased
</TABLE>
Our Japanese joint venture manufactures ion implantation products in a
300,300 square foot owned facility located in Toyo, Japan.
The Beverly facility includes an 11,000 square foot demonstration line,
which is used to develop next-generation application solutions for specific
customers, as well as to demonstrate the full range of our integrated process
equipment. We also have a process technology center in Rockville, Maryland that
is available to customers for developing and testing dry strip and
photostabilization processes.
We are building a 140,000 square foot facility in Beverly, Massachusetts
which will house an advanced process development, product demonstration and
customer training center with all of the equipment we produce. In 1998, as part
of our restructuring, we closed our Austin, Texas ion implant manufacturing
facility and transferred production to our Beverly, Massachusetts facility. We
are currently negotiating the sale of the Austin property and expect to sell it
for a price that approximates book value.
We do not believe there is any material, long-term, excess capacity in our
facilities, although utilization is subject to change based on customer demand.
We believe that our manufacturing facilities and equipment generally are
well-maintained, in good operating condition, suitable for our purposes, and
adequate for our present operations. Our Beverly, Massachusetts and Rockville,
Maryland facilities are ISO 9001 certified.
EMPLOYEES
As of March 31, 2000, we had 1,717 full-time and 165 temporary employees
worldwide, of which 1,663 were employed in North America, 119 in Asia and 100 in
Western Europe. At that date, more than 44% of our workforce consisted of
scientists, engineers and technicians. All of our employees have entered into
confidentiality and noncompetition agreements with us. At that date, none of our
employees based in the United States was represented by a union, and we have
never experienced a work stoppage, slowdown or strike. Our employees based in
Germany are subject to collective bargaining agreements. We consider our
relationship with our employees to be good.
ENVIRONMENTAL
We are subject to environmental laws and regulations in the countries in
which we operate that regulate, among other things: air emissions; water
discharges; the generation, use, storage, transportation, handling and disposal
of solid and hazardous wastes produced by our manufacturing, research and
development and sales activities. As with other companies engaged in like
businesses, the nature of our operations exposes us to the risk of environmental
liabilities, claims, penalties and orders. We believe, however, that our
operations are in substantial compliance with applicable environmental laws and
regulations and that there are no pending environmental matters that would have
a material impact on our business.
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<PAGE> 54
LEGAL PROCEEDINGS
From time to time, a number of lawsuits, claims and proceedings have been
or may be asserted against us relating to the conduct of our business, including
those pertaining to patent validity or infringement, commercial, employment and
employee benefits matters. While the outcome of litigation cannot be predicted
with certainty, and some of these lawsuits, claims or proceedings may be
determined adversely to us, we do not believe that the disposition of any such
pending matters is likely to materially affect us.
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<PAGE> 55
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The names, ages at May 1, 2000 and positions of our directors, nominees for
director, executive officers and key employees to serve after the completion of
the offering are set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
Brian R. Bachman 55 Chief Executive Officer and Vice Chairman of the Board
Mary G. Puma 42 President and Chief Operating Officer, Director
Stephen R. Hardis 64 Chairman of the Board
Alexander M. Cutler 48 Director
Ned C. Lautenbach 56 Director
Philip S. Paul 61 Director
Naoki Takahashi 54 Director
Gary L. Tooker 60 Director
KEY EMPLOYEES:
Michael J. Luttati 45 General Manager -- Implant Systems Division and
Director of Worldwide Sales
Robert A. Mionis 37 Director of Worldwide Operations
Ted S. Miller 42 Director of Global Customer Services
Kevin M. Bisson 39 Director of Finance
Jan-Paul van Maaren 38 Director of Business Development
Michael Davies 54 Director of Human Resources
Craig Halterman 37 Director of Information Technology
John Poate 58 Chief Technology Officer
</TABLE>
Set forth is certain biographical information about our directors and
executive officers and key employees:
BRIAN R. BACHMAN has been our Chief Executive Officer and Vice Chairman
since April 2000, and a director of our company since May 2000. He is also
Senior Vice President and Group Executive-Hydraulics, Semiconductor Equipment
and Specialty Controls of Eaton, a position that he has held since December
1995. Mr. Bachman will resign as an officer of Eaton effective at the time of
this offering. From 1991 to 1995, he was vice president and general manager for
the Standard Products Business Group of Philips Semiconductor. Prior to joining
Philips, Mr. Bachman held positions with FMC Corporation, General Electric
Company and TRW Inc. and was president of General Semiconductor Industries, a
subsidiary of Square D Corporation and a group General Manager with ITT
Corporation. He is a member of the Board of Directors of Keithley Instruments,
Inc., the Board of Governors of Electronic Industries Association and the Board
of the Vocational Guidance Services. He also serves on Northwestern University's
Kellogg McCormick Master of Management in Manufacturing Program Advisory Board.
MARY G. PUMA has been our President and Chief Operating Officer since May
2000 and is a nominee for director of our company. Prior to her current
position, she also served as our Vice President from February 1999 to May 2000.
In 1998, she became General Manager and Vice President of our implant systems
division. In May 1996, she joined Eaton as General Manager of
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<PAGE> 56
the commercial controls division. Prior to joining Eaton, Ms. Puma spent 15
years in various marketing and general management positions for General Electric
Company.
STEPHEN R. HARDIS is our Chairman of the Board and is also Chairman and
Chief Executive Officer of Eaton. He will retire as Chairman and Chief Executive
Officer of Eaton effective July 31, 2000. He became Eaton's Chairman in January
1996 and its Chief Executive Officer in September 1995. Prior to that, Mr.
Hardis served as Eaton's Vice Chairman from 1986 and its Executive Vice
President -- Finance and Administration from 1979. Mr. Hardis is a director of
American Greetings Corporation, Lexmark International Group, Inc., Marsh &
McLennan Companies, Inc., Nordson Corporation and Progressive Corporation.
ALEXANDER M. CUTLER is a director of our company and he also has served as
President and Chief Operating Officer of Eaton since 1995. He will become
Chairman and Chief Executive Officer of Eaton effective August 1, 2000. Mr.
Cutler served as Eaton's Executive Vice President and Chief Operating
Officer -- Controls from 1993 to 1995 and as its Executive Vice President --
Operations from 1991 and President of its Industrial Group from 1986. He is also
a director of Eaton and KeyCorp.
NED C. LAUTENBACH is a nominee for director of our company and is a partner
of Clayton, Dubilier & Rice, Inc., an investment firm specializing in
structuring leveraged buyouts. Before joining CD&R, Mr. Lautenbach was employed
by IBM from 1968 until his retirement in 1998. At IBM, he held several executive
positions, including Vice President, President of IBM Asia Pacific, Senior Vice
President, Chairman of IBM World Trade Corporation, Senior Vice President and
Group Executive, Sales and Distribution, and was a member of IBM's Corporate
Executive Committee. He is a director of Eaton, ChoicePoint, Inc., Dynatech
Corp., Fidelity Mutual Funds and Fairfield University.
PHILIP S. PAUL is a nominee for director of our company. He has been
Chairman of Paul Capital Partners., L.L.C., a registered investment advisor,
since 1991.
NAOKI TAKAHASHI is a nominee for director of our company. In April 2000, he
became Director, Senior Vice President and General Manager of the Precision
Products Division of Sumitomo. Prior to that, Mr. Takahashi held a number of
senior level positions in the Corporate Technology Operations Group of Sumitomo.
GARY L. TOOKER is a nominee for director of our company. Mr. Tooker is the
former Chairman and Chief Executive Officer of Motorola, Inc. Mr. Tooker served
as Vice Chairman of Motorola, Inc., a manufacturer of electronics equipment,
since 1999. Prior to that, he was Motorola's Chairman from 1997, Vice Chairman
and Chief Executive Officer from 1993, President from 1990, Chief Operating
Officer from 1988, Senior Executive Vice President and Chief Corporate Staff
Officer from 1986 and in other capacities from 1962. Mr. Tooker is a director of
the Atlantic Richfield Company, Eaton and Motorola.
MICHAEL J. LUTTATI has been our General Manager of implant systems since
1999. Prior to joining our company, Mr. Luttati served as Vice President, North
America Sales Operations of Teradyne Inc. from 1996 to 1998 and, from 1981 to
1996, he held several other sales and marketing positions with Teradyne.
ROBERT A. MIONIS has served as our Director of Worldwide Operations since
March 1999 and was our Global Operations Director for our implant systems
operations from April 1998. Prior to joining our company, Mr. Mionis served
AlliedSignal Corporation as Director of Operations and GE Aerospace in various
management positions.
TED S. MILLER has been our Director of Global Customer Service since the
beginning of 2000. Prior to joining our company, Mr. Miller most recently served
as Division Marketing Manager, Global Customer Service at Teradyne, Inc. and
since 1980, he held various other marketing and
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<PAGE> 57
other positions at Teradyne, including ten years experience in the semiconductor
service segment.
KEVIN M. BISSON has been our Director of Finance since January 2000. Prior
to joining our company, Mr. Bisson was Director of Finance for Hamilton
Sundstrand Corporation, a subsidiary of United Technologies Corporation, from
1999 and he held various other financial management positions at UTC since 1989.
JAN-PAUL VAN MAAREN has served as our Director of Business Development
since May 1999, and he previously served as our Director of Global Customer
Service and as our Director of Technology and Business Development since joining
our company in October 1997. Mr. van Maaren was employed by Honeywell
Corporation from 1992 to 1997 in various senior marketing management positions
with Honeywell's Home and Building Controls Division. Mr. van Maaren also worked
as a senior scientist for the Institute for Atomic and Molecular Physics in the
Netherlands from 1985 to 1990.
MICHAEL DAVIES has been our Director of Worldwide Human Resources since
1998. Prior to joining our company, Mr. Davies was employed by Analog Devices
Inc., most recently serving as Director of Human Resources for Analog's Global
Field Organizations from 1995 to 1998. Mr. Davies held various other senior
human resources positions with Analog from 1983 to 1995.
CRAIG HALTERMAN has been our Director of Information Technology since the
beginning of 2000. Prior to joining our company, Mr. Halterman was Information
Technology Director at Honeywell/Allied Signal in its space and defense systems
business since 1997. Prior to that, Mr. Halterman held various information
technology positions at Dow Chemical, Thomson Consumer Electronics, General
Electric Company and RCA Consumer Electronics.
JOHN POATE will be our Chief Technology Officer effective June 19, 2000.
Prior to joining us, Dr. Poate was Dean of the College of Science and Technology
of the New Jersey Institute of Technology, and of Liberal Arts since 1997. From
1971 to 1997, he held several senior research positions, including head of
silicon processing research, with Bell Laboratories
BOARD STRUCTURE AND COMPENSATION
Our board of directors will be divided into three classes serving staggered
three year terms following the completion of this offering. 's and
's initial terms will expire in 2001. 's and 's
initial terms will expire in 2002. 's and 's initial terms
will expire in 2003.
Employee directors will not be paid compensation as directors. Non-employee
directors will receive a option grant under the 2000 Stock Plan or a combination
of an annual retainer and a stock option grant. We intend to adopt a Director
plan under which non-employee directors entitled to compensation can elect not
to receive cash compensation but instead to receive a grant of a number of
additional options to purchase shares of our common stock with a value equal to
the dollar amount foregone.
AUDIT COMMITTEE
Messrs. , and will be members of our audit
committee following completion of this offering. Our audit committee reviews our
auditing, accounting, financial reporting and internal control functions and
makes recommendations to the board of directors for the selection of independent
accountants. In addition, the committee will monitor the quality of our
accounting principles and financial reporting, our compliance with our
prescribed fiscal
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<PAGE> 58
procedures and codes of conduct as well as the independence of and the non-audit
services provided by our independent accountants. In discharging its duties, the
audit committee:
- assists directors in fulfilling the Board's responsibility for the
quality of financial reporting;
- reviews and approves the scope of the annual audit and the independent
accountant's fees;
- reviews the annual audit and financial statements;
- meets independently with our internal auditing personnel, our independent
accountants and our senior management; and
- reviews the general scope of our accounting, financial reporting, annual
audit and internal audit programs, matters relating to internal control
systems as well as the results of the annual audit.
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
All of our common stock is currently owned by Eaton, and thus none of our
officers, directors or director nominees own any of our common stock. To the
extent our directors and officers own shares of Eaton common stock at the time
of the divestiture, they will participate in the divestiture on the same terms
as other holders of Eaton common stock.
The following table sets forth the number of shares of Eaton common stock
beneficially owned on December 31, 1999 by each director, each of the executive
officers named in the Summary Compensation Table in the "Executive Compensation"
section below, and all of our directors, director nominees and executive
officers as a group. Except as otherwise noted, the individual directors,
executive officers or their family members had sole voting and investment power
with respect to such securities. The total number of shares of Eaton common
stock outstanding as of December 31, 1999 was 72,862,147.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF EATON
BENEFICIALLY OWNED(1,2) TOTAL NUMBER OF
NAME OF BENEFICIAL ----------------------- DEFERRED SHARES AND
OWNER NUMBER PERCENTAGE SHARE UNITS(4) DEFERRED SHARE UNITS
- ------------------ -------- ----------- -------------- --------------------
<S> <C> <C> <C> <C>
B. R. Bachman..................... 77,993(5) -- 6,354 84,347
M. G. Puma........................ 27,712 -- 0 27,712
A. M. Cutler...................... 289,899(5,6) -- 46,907 336,806
S. R. Hardis...................... 386,543(5) -- 182,877 569,420
N. C. Lautenbach.................. 9,662 -- 1,794 11,456
P. S. Paul........................ 0 -- 0 0
N. Takahashi...................... 0 -- 0 0
G. L. Tooker...................... 12,662(6) -- 1,063 13,725
All directors and executive
officers as a group (eight
persons)........................ 804,471 238,995 1,037,466
</TABLE>
- ---------------
* Represents holdings of less than one percent.
(1) Each person has sole voting and investment power with respect to the shares
listed, unless otherwise indicated.
(2) Includes shares which the person has the right to acquire within 60 days of
March 31, 2000 upon the exercise of outstanding options as follows: B.R.
Bachman, 75,950; A.M. Cutler, 264,676; S.R. Hardis, 328,386; M.G. Puma,
21,440; and all directors and executive officers as a group, .
(3) Each of the individuals listed holds less than 1% of outstanding Eaton
common stock.
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<PAGE> 59
(4) The Eaton director plan and the Eaton Long Term Incentive Plan permits
directors and officers, respectively, to defer receipt of a portion of cash
compensation otherwise due them. At least 50% of deferred amounts due to be
paid after retirement are converted to Eaton share units and earn Eaton
share price appreciation and dividend equivalents.
(5) Includes shares held under the Eaton Share Purchase and Investment Plan as
of January 31, 2000.
(6) Includes shares held jointly or in other capacities, such as by a trust.
EXECUTIVE COMPENSATION
The following table sets forth compensation information for our chief
executive officer and our other executive officers who, based on salary and
bonus compensation from Eaton and its subsidiaries, were the most highly
compensated in 1999. All information set forth in this table reflects
compensation earned by these individuals for services with Eaton and its
subsidiaries in 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL -----------------------
COMPENSATION AWARDS PAYOUTS
--------------------- ---------- ---------
SECURITIES LONG-TERM
NAME AND PRINCIPAL UNDERLYING INCENTIVE ALL OTHER
POSITION SALARY($) BONUS($) OPTIONS(#) PAYOUTS COMPENSATION($)(1)
- ------------------ --------- -------- ---------- --------- ------------------
<S> <C> <C> <C> <C> <C>
B. R. Bachman........ $380,040 $364,656 35,000 $414,037 $14,560
M. G. Puma........... 224,700 264,839 21,000 81,700 $12,522
</TABLE>
- ---------------
(1) All Other Compensation contains several components. The Eaton Corporation
Share Purchase and Investment Plan permits an employee to contribute from 1%
to 6% of salary to the matching portion of the plan. Eaton makes a matching
contribution which, except in special circumstances, ranges between $0.25
and $1.00 for each dollar contributed by the participating employee, as
determined under a formula designed to reflect Eaton's quarterly earnings
per share. The amount contributed during 1999 for each named executive
officer was as follows: B.R. Bachman, $4,392 and M.G. Puma, $4,357. Eaton
maintains plans under which compensation may be deferred. Earnings on such
deferrals are reported in this table to the extent those earnings are in
excess of rates established by the Internal Revenue Service. Those earnings
during 1999 for each of the named executive officers were as follows: B.R.
Bachman, $0 and M.G. Puma, $0. Under an Eaton program, certain officers may
acquire an automobile. Under this program for 1999, the approximate cost to
Eaton for each named executive officer was: B.R. Bachman, $9,486 and M.G.
Puma, $7,459. Eaton provides certain executives, including the named
executive officers, with the opportunity to acquire individual whole-life
insurance. The annual premiums paid by Eaton during 1999 for each of the
named executive officers were as follows: B.R. Bachman, $4,093 and M.G.
Puma, $706.
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<PAGE> 60
GRANTS OF STOCK OPTIONS
The following table shows all grants of options to acquire shares of Eaton
common stock to the executive officers named in the Summary Compensation Table
in 1999.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
NUMBER OF % OF TOTAL OPTIONS APPRECIATION FOR
SECURITIES GRANTED TO EATON EXERCISE OR OPTION TERM(1)
UNDERLYING OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -----------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ---- ------------------ ------------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
B. R. Bachman 35,000 1.62 $71.41 1/26/09 $1,574,591 $3,973,697
M.G. Puma 21,000 0.97 71.41 1/26/09 943,097 2,389,992
</TABLE>
(1) Potential realizable values are net of exercise price, but before deduction
for taxes associated with exercise. These amounts represent certain assumed
rates of appreciation only, based on Securities and Exchange Commission
rules, and do not represent our estimate of future stock prices. No gain to
an optionee is possible without an increase in stock price, which will
benefit all stockholders commensurately. A zero percent gain in stock price
will result in zero dollars for the optionee. Actual realizable values, if
any, on stock option exercises are dependent on the future performance of
our common stock, overall market conditions and the option holders'
continued employment through the vesting period.
EXERCISES OF STOCK OPTIONS
The following table shows aggregate exercises of options to purchase Eaton
common stock in 1999 by the executive officers named in the Summary Compensation
Table in the "--Executive Compensation" section above.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS AT FISCAL YEAR-END THE-MONEY OPTIONS AT
SHARES (#) FISCAL YEAR-END ($) (1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
B.R. Bachman 0 0 64,400 97,000 $429,475 $94,200
M.G. Puma 0 0 15,995 39,005 104,499 36,971
</TABLE>
- ---------------
(1) Based on fair market value of $72.625 per share as of December 31, 1999, the
closing sale price of Eaton's common stock on that date as reported on the
New York Stock Exchange.
EMPLOYMENT ARRANGEMENTS
We intend to enter into employment agreements with Mr. Bachman and Ms. Puma
effective as of the date of this offering. Each agreement provides for a
three-year term of employment. Mr. Bachman's agreement can be extended by mutual
consent of the parties; Ms. Puma's is self-extending unless one party notifies
the other that the agreement will not be extended. The agreements provide that
neither employee may compete with us for a period of two years after termination
of their active employment and neither may reveal confidential information for a
specified period of time. In the event the agreement and the employee's
employment is terminated prior to the end of the term for reasons other than
cause, death, disability or voluntary resignation, the employee is entitled to
receive all compensation accrued to date, acceleration of vesting of options and
other equity rights and base compensation and target bonus, for Mr. Bachman, for
the greater of 12 months or the then remaining term or, for Ms. Puma, two years,
in each case from the date of termination of employment.
Mr. Bachman's starting base salary will be $600,000 per year and he will
have an annual target incentive compensation of 50% of that amount. Ms. Puma
will receive $380,000 in initial
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<PAGE> 61
base salary and will have an annual target incentive compensation opportunity of
45% of base salary. Base salary and incentive opportunities can be increased by
the Board. The agreements provide that both executives will also participate in
all employee pension and welfare benefit plans which we sponsor. In addition,
the agreements provide that the employees will each be entitled to participate
in the 2000 Stock Plan. At the time of the offering, Mr. Bachman will be granted
options under that Plan to purchase shares of our common stock at the initial
public offering price and Ms. Puma will be granted options to purchase shares of
our common stock at the initial public offering price.
Ms. Puma has been granted a credit line by Eaton in the maximum amount of
$500,000. The outstanding balance on that line as of May 1, 2000 was $175,000.
We intend to make comparable credit line arrangements for Ms. Puma and to assume
the outstanding balance on that line.
We also intend to enter into change in control agreements with several of
our senior officers, including Mr. Bachman and Ms. Puma. These agreements would
provide that in the event there was both a change in control and a termination
of employment within three years of that change in control for reasons other
than voluntary resignation, cause, death or disability, the covered employee
would be entitled to severance compensation. Under the change in control
agreement, a resignation by a covered employee for reasons of a demotion or
reduction in compensation, benefits or position is a termination by us and is
not a voluntary resignation. If severance compensation is payable, severance
consists of (i) a cash payment equal to the sum of (a) incentive compensation
for the completed portion of the incentive period and (b) the amount determined
by multiplying the employee's then salary and average bonus by three and (ii)
continuation of our medical, life and other welfare benefits for three years. We
will also reimburse the employee for the effects, including federal, state and
local income tax consequences, of any excise tax due on severance compensation.
TREATMENT OF EATON OPTIONS
As of March 31, 2000, our employees held options to purchase 579,286 shares
of Eaton common stock at a weighted average exercise price per share of $72.88.
The price of Eaton common stock on that date was $78.00.
If Eaton completes its divestiture of our shares of common stock by means
of a spin-off to its shareholders, we intend to assume substantially all of the
Eaton options held by our employees on the date of the divestiture. These
assumed options would convert at the date of the spin-off by our granting
options to our employees to purchase our common stock and cancellation of their
rights to acquire Eaton shares. The conversion would be done in such a manner
that (1) the aggregate intrinsic value of the options immediately before and
after the exchange are the same, (2) the ratio of the exercise price per option
to the market value per share is not reduced, and (3) the vesting provisions and
option period of the Axcelis options do not accelerate or extend the original
vesting terms and option period of the Eaton options. Performance vesting
provisions would change, as appropriate, to focus on our performance, as opposed
to Eaton's performance. No option will be exercisable, however, if the effect of
that exercise would prevent us from filing a consolidated federal income tax
return with Eaton. If we do not assume substantially all of the Eaton options
held by our employees on the date of the divestiture, we intend to make
equitable arrangements to preserve the economic value of substantially all Eaton
options held by our employees, if the financial reporting consequences are not
materially adverse.
INCENTIVE PLANS
2000 STOCK PLAN
Our board of directors adopted the 2000 Stock Plan, referred to as the
"2000 Plan," in , 2000, and our stockholder initially approved our 2000
Plan in , 2000. Our
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2000 Plan provides for the grant of incentive stock options to our employees,
and for the grant of nonstatutory stock options, restricted stock, stock
purchase rights, performance units and other equity-based awards to our
employees, directors and consultants.
Number of Shares of Common Stock Available under the 2000 Plan. As of June
, 2000, a total of shares of our common stock was reserved for issuance
pursuant to the 2000 Plan. No options to acquire shares of our common stock were
issued and outstanding as of that date. Our 2000 Plan provides for annual
increases in the number of shares available for issuance on the first day of
each fiscal year, beginning with our 2001 fiscal year, equal to the lesser of 5%
of our outstanding shares of common stock on that date, shares or
a lesser amount determined by our board. No awards under the Plan will become
exercisable or otherwise convertible into securities of the Company if the
effect of that exercise or conversion is to cause Company and Eaton to be
ineligible to file a consolidated federal income tax return.
Administration of the 2000 Plan. Our board of directors or a committee of
our board administers the 2000 Plan. In the case of options intended to qualify
as "performance-based compensation" within the meaning of Section 162(m) of the
Internal Revenue Code, the committee will consist of two or more "outside
directors" within the meaning of Section 162(m) of the Internal Revenue Code.
The administrator has the power to determine the terms of the options or stock
purchase rights granted, including the exercise price, the number of shares
subject to each option or stock purchase right, the exercisability of the
options and the form of consideration payable upon exercise.
It is intended that non-employee directors will each receive an annual
grant of nonstatutory options under the 2000 Plan pursuant to a formula which
has not yet been determined. All such options will be granted with exercise
prices equal to fair market value, have a term of ten years and other terms to
come.
Options. The administrator determines the exercise price of options granted
under the 2000 Plan, but with respect to nonstatutory stock options intended to
qualify as "performance-based compensation" within the meaning of Section 162(m)
of the Code and all incentive stock options, the exercise price must at least be
equal to the fair market value of our common stock on the grant date. The term
of an incentive stock option may not exceed ten years, except that with respect
to any participant who owns 10% of the voting power of all classes of our
outstanding capital stock, the term must not exceed five years and the exercise
price must at least equal 100% of the fair market value on the grant date. The
administrator determines the term of all other options.
No optionee may be granted an option to purchase more than shares in
any fiscal year, except that in connection with his or her initial service, an
optionee may be granted an additional option to purchase up to shares.
After termination of an option holder, he or she may exercise his or her
option for the period of time stated in the option agreement. Generally, if
termination is due to death or disability, the option will remain exercisable
for months. If the termination is due to resignation of the optionee or
termination by our company, the option will expire immediately upon that event.
In all other cases, the option will generally remain exercisable for months.
However, an option may never be exercised later than the expiration of its term.
Restricted Stock. The 2000 Plan permits the administrator to grant
restricted shares of common stock to eligible employees. The stock will be
subject to such restrictions as the administrator determines appropriate,
including lapse of restrictions over time or lapse of restrictions based on
attainment of predetermined goals. The administrator may, but is not required
to, grant stock purchase rights to participants who receive a grant of
restricted stock and timely notify the administrator of his or her electing
immediate federal income tax treatment on that grant. The administrator
determines the exercise price of stock purchase rights granted
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under our 2000 Plan. Unless the administrator determines otherwise, the
restricted stock purchase agreement will grant us a repurchase option that we
may exercise upon the voluntary or involuntary termination of the participant's
service with us for any reason, including death or disability. The purchase
price for shares we repurchase will generally be the original price paid by the
participant and may be paid by cancellation of any indebtedness of the
participant to us. The administrator determines the date at which our repurchase
option will lapse.
Performance Units. The administrator may grant performance units to
employees, directors or consultants. Performance units are the right to receive
a designated number of shares of common stock and/or cash if performance goals
set at the time of the grant of the performance units are actually achieved.
Other Awards. The administrator may grant other awards as the administrator
determines appropriate in its discretion.
Transferability of Options and Stock Purchase Rights. Our 2000 Plan
generally prohibits transfer of options or stock purchase rights and only the
optionee may exercise an option or stock purchase right during his or her
lifetime. The administrator may, but is not required to, permit options to be
transferred at the time an option is granted. Performance units and other awards
are not transferable.
Adjustments upon Merger or Asset Sale. Our 2000 Plan provides that in the
event of our merger with or into another corporation or a sale of substantially
all of our assets, the successor corporation will assume or substitute an
equivalent award for each option, stock purchase right, performance unit or
other award. If following such an assumption or substitution, the holder of an
option, stock purchase right, performance unit or other award is terminated
without cause within 12 months following a change of control, then the vesting
and exercisability of 100% of the then unvested shares subject to his or her
option or stock purchase right or the value of the performance unit or other
award shall accelerate. Performance units and/or other awards are deemed owned
and are then payable. If the outstanding options or stock purchase rights are
not assumed or substituted for in connection with a merger or sale of assets,
the administrator will provide notice to the optionee that he or she has the
right to exercise the option or stock purchase right as to all of the shares
subject to the option or stock purchase right, including shares which would not
otherwise be exercisable, for a period of 15 days from the date of the notice.
The option or stock purchase right will terminate upon the expiration of the
15-day period.
Amendment and Termination of our 2000 Plan. Our 2000 Plan will
automatically terminate in 2010, unless we terminate it sooner. In addition, our
board of directors has the authority to amend, suspend or terminate the 2000
Plan, provided such action does not adversely affect any option previously
granted under our 2000 Plan.
2000 EMPLOYEE STOCK PURCHASE PLAN
Within one year of the offering, we intend to establish an Employee Stock
Purchase Plan, referred to as the "Purchase Plan."
Number of Shares of Common Stock Available under the Purchase Plan. A total
of shares of our common stock will be made available for sale. In
addition, our Purchase Plan will provides for annual increases in the number of
shares available for issuance on the first day of each fiscal year, beginning
with our 2001 fiscal year, equal to the lesser of 2% of the outstanding shares
of our common stock on the first day of the fiscal year, shares, or a
lesser amount as may be determined by our board of directors.
Administration of the Purchase Plan. Our board of directors or a committee
of our board administers the Purchase Plan. Our board of directors or its
committee has full and exclusive authority to interpret the terms of the
Purchase Plan and determine eligibility.
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Eligibility to Participate. All of our employees are eligible to
participate if we or any authorized and participating subsidiary customarily
employ them on a regular schedule. However, an employee may not be granted the
right to purchase stock under the Purchase Plan if:
- immediately after grant the employee owns stock possessing 5% or more of
the total combined voting power or value of all classes of our capital
stock; or
- the employee's rights to purchase stock under all of our employee stock
purchase plans accrues at a rate that exceeds $25,000 worth of stock for
each calendar year.
Offering Periods and Contributions. Our Purchase Plan is intended to
qualify under Section 423 of the Code and contains 24-month offering periods.
Each offering period includes four six-month purchase periods. The offering
periods generally start on the first trading day on or after April 1 and October
1 of each year, except for the first such offering period which will commence on
the first trading day on or after the effective date of this offering and will
end on the last trading day on or before , 2003.
Our Purchase Plan permits participants to purchase common stock through
payroll deductions of up to % of their eligible compensation, which includes a
participant's base salary and commission but excludes all other compensation
paid to the participant. A participant may purchase a maximum of
shares during a six-month purchase period.
Purchase of Shares. Amounts deducted and accumulated by the participant are
used to purchase shares of our common stock at the end of each six-month
purchase period. The price is 85% of the lower of the fair market value of our
common stock at either the beginning or end of an offering period. If the fair
market value at the end of a purchase period is less than the fair market value
at the beginning of the offering period, participants will be withdrawn from the
current offering period following their purchase of shares on the purchase date
and will be automatically re-enrolled in a new offering period. Participants may
end their participation at any time during an offering period and any payroll
deductions from their checks through that date will be repaid to them in cash.
Participation ends automatically upon termination of employment with us.
Transferability of Rights. A participant may not transfer rights granted
under the Purchase Plan other than by will, the laws of descent and distribution
or designation of a beneficiary as provided under the Purchase Plan.
Adjustments upon Merger or Asset Sale. In the event of our merger with or
into another corporation or a sale of all or substantially all of our assets, a
successor corporation may assume or substitute for each outstanding purchase
authorizations. If the successor corporation refused to assume or substitute for
the outstanding purchase authorizations, the offering periods then in progress
will be shortened, and a new purchase date will be set prior to the merger or
sale of assets.
Amendment and Termination of the Purchase Plan. Our Purchase Plan will
terminate in 2010. However, our board of directors has the authority to amend or
earlier terminate our Purchase Plan, except that, subject to exceptions
described in the Purchase Plan, no such action may adversely affect any
outstanding rights to purchase stock under our Purchase Plan.
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ARRANGEMENTS WITH EATON
We have provided below a summary description of the master separation
and distribution agreement along with the key related agreements. This
description, which summarizes the material terms of the agreements, is not
complete. You should read the full text of these agreements, which will be filed
with the Securities and Exchange Commission as exhibits to the registration
statement of which this prospectus is a part.
MASTER SEPARATION AND DISTRIBUTION AGREEMENT
The master separation and distribution agreement contains the key
provisions relating to our separation from Eaton, this offering and the possible
distribution of our shares to Eaton stockholders.
THE SEPARATION. The separation agreement provides for the transfer to us of
the business, assets and liabilities from Eaton related to our business as
described in this prospectus not now owned by us, effective on May 3, 2000. The
various ancillary agreements that are exhibits to the separation agreement and
which detail the separation and various interim and ongoing relationships
between Eaton and us following the separation date include:
- a general assignment and assumption agreement;
- a trademark license agreement;
- an employee matters agreement;
- a tax sharing and indemnification agreement;
- a transitional services agreement;
- a real estate matters agreement; and
- an indemnification and insurance matters agreement.
To the extent that the terms of any of these ancillary agreements conflict with
the separation agreement, the terms of these agreements will govern. These
agreements are described more fully below.
THE INITIAL PUBLIC OFFERING. Under the terms of the separation agreement,
Eaton will continue to own at least 80.1% of our outstanding common stock
following this offering. We are obligated to use our reasonable commercial
efforts to satisfy the following conditions to the consummation of this
offering, any of which may be waived by Eaton:
- the registration statement containing this prospectus must be effective;
- U.S. securities and blue sky laws must be satisfied;
- our common stock must have been approved for quotation on the Nasdaq
Stock Market;
- all our obligations under the underwriting agreement must be met or
waived by the underwriters;
- Eaton must own at least 80.1% of our outstanding common stock and must be
satisfied that the any divestiture or distribution of all the shares of
our common stock will be tax-free to its U.S. shareholders;
- no legal restraints must exist preventing the separation or this
offering;
- the separation must have occurred; and
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- the separation agreement must not have been terminated.
THE DIVESTITURE. Following consummation of this offering, Eaton may divest
itself of the remaining shares of our common stock through a distribution to
Eaton shareholders in a tax-free transaction. Eaton is not obligated to complete
the distribution and may, in its sole discretion, determine the structure or
terms on which it would accomplish the divestiture of its shares of our common
stock and whether and when it expects to complete the distribution. Eaton
intends to consummate the divestiture only if the following conditions are met,
any of which may be waived by Eaton:
- the Internal Revenue Service must issue a ruling that the divestiture of
Eaton's shares of our common stock will be tax-free to Eaton and its
shareholders and that the separation will qualify as a tax-free
reorganization for U.S. federal income tax purposes;
- all required government approvals must be in effect;
- no legal restraints must exist preventing this distribution; and
- nothing must have happened in the intervening time between this offering
and the distribution that would make the distribution harmful to, or no
longer in the best interests of, Eaton or its shareholders.
COVENANTS WITH EATON. In addition to signing documents that transfer
control and ownership of various assets and liabilities of Eaton relating to our
business, we have agreed with Eaton to enter into additional transitional
service agreements, exchange information, engage in auditing practices and
resolve disputes in particular ways.
INFORMATION EXCHANGE. Both Eaton and we have agreed to share information
relating to governmental, accounting, contractual and other similar requirements
of our ongoing businesses, unless the sharing would be commercially detrimental.
In furtherance of this, both Eaton and we have agreed as follows:
- each party will maintain adequate internal accounting to allow the other
party to satisfy its reporting obligations and prepare its financial
statements;
- each party will retain records beneficial to the other party for a
specified period of time. If the records are going to be destroyed, the
destroying party will give the other party an opportunity to retrieve all
relevant information from the records, unless the records are destroyed
in accordance with adopted record retention policies; and
- each party will use commercially reasonable efforts to provide the other
party with directors, officers, employees, other personnel and agents who
may be used as witnesses, and books, records and other documents which
may reasonably be required, in connection with legal, administrative or
other proceedings.
ACCOUNTING AND AUDITING PRACTICES. As long as Eaton is required to
consolidate and report on our results of operations and financial position, we
and Eaton have agreed that:
- we will not change any accounting policy or principle without obtaining
the advance approval of Eaton;
- Eaton will inform us of any planned or anticipated changes in accounting
policy or principle that may impact us, before the changes are
implemented;
- we will comply with all Eaton financial reporting requirements, policies,
and accounting and reporting deadlines;
- we will provide any supplemental information required by Eaton for
external financial reporting or compliance due to our status as a
majority-owned subsidiary of Eaton, and
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Eaton will provide any supplemental information required by us for
external financial reporting or compliance;
- we will not select a different independent accounting firm from that used
by Eaton without Eaton's consent;
- we will use all reasonable commercial efforts to enable our auditors to
date their opinion on our audited financial statements on the same date
as Eaton's auditors date their opinion on Eaton's financial statements;
and
- we will grant each other's internal and external auditors and appropriate
administrative, financial or accounting personnel access to each other's
records as necessary.
DISPUTE RESOLUTION. If problems arise between us and Eaton, we have agreed
to the following procedures:
- the parties will make a good faith effort to first resolve the dispute
through negotiation,
- if negotiations fail, the parties will attempt to resolve the dispute
through non-binding mediation; and
- if mediation fails, the parties can resort to binding arbitration.
In addition, nothing prevents either party acting in good faith from
initiating litigation at any time if failure to do so would cause serious and
irreparable injury to one of the parties or to others.
NO REPRESENTATIONS AND WARRANTIES. Neither party is making any promises to
the other regarding:
- the value of any asset that Eaton is transferring;
- whether there is a lien or encumbrance on any asset Eaton is
transferring; or
- the legal sufficiency of any conveyance of title to any asset Eaton is
transferring.
NO SOLICITATION. Each party has agreed not to directly solicit or recruit
employees of the other party without the other party's consent for two years
after the distribution date. However, this prohibition does not apply to general
recruitment efforts carried out through public or general solicitation or where
the solicitation is employee-initiated.
EXPENSES. It is anticipated that we will bear the costs and expenses
associated with the reorganization transaction and associated with this offering
and Eaton will bear the costs and expenses associated with the distribution. We
will each bear our own internal costs incurred in consummating these
transactions.
TERMINATION OF THE SEPARATION AGREEMENT. Eaton, in its sole discretion, can
terminate the separation agreement and all ancillary agreements at any time
prior to the completion of this offering. Both Eaton and we must agree to any
early termination of the separation agreement and all ancillary agreements at
any time between the completion of this offering and the divestiture.
GENERAL ASSIGNMENT AND ASSUMPTION AGREEMENT
The general assignment and assumption agreement identifies the assets Eaton
will transfer to us and the liabilities we will assume from Eaton in the
separation. The agreement also describes when and how these transfers and
assumptions will occur.
ASSET TRANSFER. Effective on the separation date, Eaton transferred
inventory to us that it holds related to our business, to the extent that the
inventory was, prior to the separation date, an Eaton asset.
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CASH. We will be entitled to retain the cash and short-term investments
maintained by us for working capital purposes, primarily at international
locations. Cash and short-term investments totalled $2.8 million at March 31,
2000. Since December 31, 1999, our cash receipts and disbursements processed
through Eaton's centralized cash management system have been recorded as a
receivable from or payable to Eaton. Prior to January 1, 2000, substantially all
of these amounts were recorded in Parent Company investment. As of March 31,
2000, a net amount of $7.3 million was due from Eaton for these transactions and
is included in Receivables From Eaton Corporation in the accompanying combined
balance sheets. We expect to continue to record our cash receipts and
disbursements as a receivable from or payable to Eaton until the closing of this
offering, at which time we estimate that a net amount of $ million will be
due us from Eaton. We expect to settle the receivable in cash at or shortly
after the closing.
ASSUMPTION OF LIABILITIES. Effective on the separation date, we assumed the
actual and contingent liabilities from Eaton which are liabilities related to
our business, except as specifically provided to the contrary in an ancillary or
other agreement.
EXCLUDED LIABILITIES. The general assignment and assumption agreement also
provides that we will not assume specified liabilities, including:
- except for policy deductibles or retention amounts, any liabilities that
would otherwise be allocated to us but which are covered by Eaton's
insurance policies, unless we are a named insured under such policies;
and
- other specified liabilities.
NON-UNITED STATES ASSETS. The transfer of international assets and
assumption of international liabilities will be accomplished through agreements
entered into between international subsidiaries. The agreement acknowledges that
circumstances in various jurisdictions outside of the United States may require
the timing of portions of the international separation to be delayed past the
separation date. If it is not practicable to transfer specified assets and
liabilities on the separation date, the agreement provides that these assets and
liabilities will be transferred after the separation date.
TERMS OF ANCILLARY AGREEMENTS GOVERN. If another ancillary agreement
expressly provides for the transfer of an asset or an assumption of a liability,
the terms of the other ancillary agreement will determine the manner of the
transfer and assumption.
OBTAINING APPROVALS AND CONSENTS. The parties agree to use all reasonable
efforts to obtain any required consents, substitutions or amendments required to
novate or assign all rights and obligations under any contracts that will be
transferred in the separation.
NONRECURRING COSTS AND EXPENSES. Any nonrecurring costs and expenses that
are not allocated in the separation agreement or any other ancillary agreement
shall be the responsibility of the party that incurs the costs and expenses.
TRADEMARK LICENSE AGREEMENT
The trademark license agreement governs our use of "EATON" as a trademark.
We are allowed to use, on a worldwide basis, the Eaton logo or "EATON" as a
trademark for photostabilizers and ion implantation equipment. The license is
royalty free. We are required to allow Eaton, upon request and at its expense,
to inspect the quality of the goods with the Eaton trademark to ensure
conformity with quality standards. We are not allowed to use any confusingly
similar trademarks. The license is for a period of two years and thereafter for
an indefinite period, but is terminable after the two year period at will by
Eaton with six months prior notice to us, or immediately for cause. We are
obligated to notify Eaton of any alleged infringement and will indemnify Eaton
for our use. The agreement is assignable only with the express permission of
Eaton.
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EMPLOYEE MATTERS AGREEMENT
We have entered into an employee matters agreement with Eaton to allocate
assets, liabilities and responsibilities relating to our current and former
employees and their participation in the benefit plans, including stock plans,
that Eaton currently sponsors and maintains for our eligible employees.
All of our eligible employees will continue to participate in such Eaton
benefit plans on comparable terms and conditions to those provided to such
employees prior to the offering until the distribution date or until we
establish benefit plans for our employees, or elect not to establish comparable
plans, if it is not legally or financially practical or competitively advisable.
Once we establish our own benefit plans, we may modify or terminate each
plan in accordance with the terms of that plan and our policies. None of our
benefit plans will pay benefits that duplicate payments already made under the
corresponding Eaton benefit plan at the time of the distribution. Each of our
benefit plans will provide that all service, compensation and other benefit
determinations that, as of the distribution, were recognized under the
corresponding Eaton benefits plan will be taken into account under our
corresponding benefit plan.
The assets relating to Eaton's qualified employee benefit plans will be
transferred to our related plans.
OPTIONS. We will establish a replacement stock plan for our eligible
employees on or before the completion of this offering. Upon the divestiture, we
will assume all Eaton options held by our employees. These options then will be
converted into options to purchase our common stock. The number of shares and
the exercise price of Eaton options that convert into our options will be
adjusted using a conversion formula. The conversion formula will be based on the
opening per share price of our common stock on the first trading day after the
distribution relative to the closing per share price of Eaton common stock on
the last trading day before the divestiture. The resulting Axcelis options will
maintain vesting provisions and option periods substantially similar to those of
the initial grant.
TAX SHARING AND INDEMNIFICATION AGREEMENT
We have entered into a tax sharing and indemnification agreement with Eaton
that will allocate responsibilities and liabilities for tax matters between us
and Eaton. The agreement requires us to pay Eaton for our allocable share of any
taxes due with respect to consolidated, combined or unitary tax returns that we
file with Eaton for all periods beginning after December 31, 1999, prior to the
divestiture date. The agreement will also provide for compensation or
reimbursement as the case may be, to reflect redeterminations of our tax
liability for periods beginning after December 31, 1999 during which we joined
in filing consolidated, combined or unitary tax returns.
The tax sharing and indemnification agreement also requires us to indemnify
Eaton for certain taxes (including interest and penalties), including:
- any taxes imposed on Eaton that would not have been payable but for the
breach by us of any representation, warranty or obligation under the tax
sharing and indemnification agreement, the tax ruling request or other
agreements; and
- the additional taxes that would result if any acquisition of our stock
after the distribution causes the distribution not to qualify for
tax-free treatment to Eaton and/or its shareholders.
The tax sharing and indemnification agreement provides that for a period of
two years after the divestiture, we will not, without Eaton's prior written
consent, liquidate, merge or consolidate with any other person, or enter into
any transaction or make any change in our equity structure
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that may cause the distribution to be treated as part of a plan pursuant to
which one or more persons acquire a 50-percent or greater interest in our stock.
Each member of a consolidated group for United States federal income tax
purposes is jointly and severally liable for the group's federal income tax
liability, and the tax sharing and indemnification agreement does not change
this result. Accordingly, we could be required to pay a deficiency in the
group's federal income tax liability for a period during which we were a member
of the group even if the tax sharing and indemnification agreement allocates
that liability to Eaton or another member.
The tax sharing and indemnification agreement also assigns responsibilities
for administrative matters, such as the filing of returns, payment of taxes due,
retention of records, and conduct of audits, examinations or similar
proceedings.
TRANSITIONAL SERVICES AGREEMENT
The transitional services agreement governs providing transitional services
by Eaton and us to each other, on an interim basis, generally for one year or
less after the distribution date, unless extended for specific services or
otherwise indicated in the agreement. The agreement provides for transitional
services, systems and support to our operations, including those associated with
voice and data transmissions and other data-related operations, accounts
receivables, accounts payable, fixed assets, payroll, general accounting,
financial accounting consolidations, cash management, human resources, legal and
real estate. Services are generally priced at cost prior to the divestiture and
thereafter at fair market rates. The transitional services agreement also covers
the provision of additional transitional services identified from time to time
after the separation date that were inadvertently or unintentionally omitted
from the specified services, or that are essential to effectuate an orderly
transition under the separation agreement, so long as the provision of such
services would not significantly disrupt Eaton's operations or significantly
increase the scope of its responsibility under the agreement.
REAL ESTATE MATTERS AGREEMENT
The real estate matters agreement addresses real estate matters relating to
the Eaton leased and owned properties that Eaton will transfer to or share with
us. The agreement describes the manner in which Eaton will transfer to or share
with us various leased and owned properties, including the following types of
transactions:
- leases to us of specified properties or portions thereof that Eaton owns;
- assignments to us of Eaton's leases for specified leased properties;
- subleases to us of specified properties or portions thereof leased by
Eaton; and
- short term licenses between Eaton and us permitting short term occupancy
of selected leased, subleased and owned sites.
The real estate matters agreement includes a description of each property
to be transferred to or shared with us for each type of transaction. The
standard forms of the proposed transfer documents, such as lease, assignment,
sublease and license, are contained in schedules.
The real estate matters agreement also requires both parties to use
reasonable efforts to obtain any landlord consents required for the proposed
transfers of leased sites, including paying commercially reasonable consent
fees, if required by the landlords, and us agreeing to provide the security
required under the applicable leases.
The real estate matters agreement further provides that we will be required
to accept the transfer of all sites allocated to us, even if a site has been
damaged by a casualty before the separation date. Transfers with respect to
leased sites where the underlying lease is terminated
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due to casualty or action by the landlord prior to the separation date will not
be made, and neither party will have any liability related thereto.
The real estate matters agreement also gives the parties the right to
change the allocation and terms of specified sites by mutual agreement based on
changes in the requirements of the parties. The real estate matters agreement
provides that all reasonable costs required to effect the transfers, including
landlord consent fees and landlord attorneys' fees, will be shared equally by
Eaton and us.
INDEMNIFICATION AND INSURANCE MATTERS AGREEMENT
GENERAL RELEASE OF PRE-SEPARATION CLAIMS. Effective as of the separation
date, subject to specified exceptions, we will release Eaton and its affiliates,
agents, successors and assigns, and Eaton will release us, and our affiliates,
agents, successors and assigns, from any liabilities arising from events
occurring on or before the separation date, including events occurring in
connection with the activities to implement the separation, this offering and
the distribution. This provision will not impair a party from enforcing the
separation agreement, any ancillary agreement or any arrangement specified in
any of these agreements.
INDEMNIFICATION. The indemnification and insurance matters agreement also
contains provisions governing indemnification. In general, we have agreed to
indemnify Eaton and its affiliates, agents, successors and assigns from all
liabilities arising from:
- our business, any of our liabilities or any of our contracts; and
- any breach by us of the separation agreement or any ancillary agreement.
Eaton has agreed to indemnify us and our affiliates, agents, successors and
assigns from all liabilities arising from:
- Eaton's business other than our business; and
- any breach by Eaton of the separation agreement or any ancillary
agreement.
These indemnification provisions do not apply to any liabilities which have
been satisfied from insurance collection. The agreement also contains provisions
governing notice and indemnification procedures.
LIABILITY ARISING FROM THIS PROSPECTUS. We will bear any liability arising
from any untrue statement of a material fact or any omission of a material fact
in this prospectus.
INSURANCE MATTERS. The agreement also contains provisions governing our
insurance coverage from the separation date until the distribution date. In
general, we agree to reimburse Eaton for premium expenses related to insurance
coverage during this period. Prior to the distribution, Eaton will maintain
insurance policies on our behalf. We will work with Eaton to secure additional
insurance if desired and cost effective.
ENVIRONMENTAL MATTERS. We have agreed to indemnify Eaton and its
affiliates, agents, successors and assigns from all liabilities arising from
environmental conditions occurring, present at, caused by or related to any of
our properties or operations before the separation date as to any of the
facilities transferred to us, and arising from environmental conditions
occurring, present at, caused by or related to any of our properties or
operations on or after the separation date.
ASSIGNMENT. The indemnification and insurance matters agreement is not
assignable by either party without the prior written consent of the other party,
which will not be unreasonably withheld.
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<PAGE> 72
PRINCIPAL STOCKHOLDER
Prior to this offering, all of the outstanding shares of our common stock
will be owned by Eaton. After this offering, Eaton will own about %, or
about %, of our outstanding common stock, if the underwriters fully
exercise their option to purchase additional shares of our outstanding common
stock. Except for Eaton, we are not aware of any person or group that will
beneficially own more than 5% of the outstanding shares of our common stock
following this offering. None of our executive officers, directors or director
nominees currently owns any shares of our common stock, and those who own shares
of Eaton common stock will be treated on the same terms as other holders of
Eaton stock in any distribution by Eaton. Our executive officers, however, will
be granted options to purchase our common stock at the initial public offering
price. See "Management -- Stock Ownership of Directors and Executive Officers"
for a description of the ownership of Eaton stock by our directors and executive
officers.
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<PAGE> 73
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the completion of this offering, we will be authorized to issue
300,000,000 shares of common stock, $.001 par value, and 30,000,000 shares of
undesignated preferred stock, $.001 par value. The following description of our
capital stock is subject to our certificate of incorporation and bylaws, which
are included as exhibits to the registration statement of which this prospectus
forms a part, and to the provisions of applicable Delaware law.
COMMON STOCK
The holders of our common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of our common stock
are entitled to receive ratably such dividends, if any, as our board of
directors may declare from time to time out of funds legally available for that
purpose. See "Dividend Policy". In the event of our liquidation, dissolution or
winding up, the holders of our common stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to the priority of
preferred stock, if any, then outstanding. The holders of our common stock have
no preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to our common stock.
PREFERRED STOCK
Our board of directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, which may be
greater than the rights of our common stock. It is not possible to state the
actual effect of the issuance of any shares of preferred stock upon the rights
of holders of our common stock until our board of directors determines the
specific rights of the holders of the preferred stock. However, the effects
might include, among other things:
- restricting dividends on our common stock;
- diluting the voting power of our common stock;
- impairing the liquidation rights of our common stock; or
- delaying or preventing a change in control of us without further action
by the stockholders.
At the closing of this offering, no shares of preferred stock will be
outstanding, and we have no present plans to issue any shares of preferred
stock.
ANTI-TAKEOVER EFFECTS OF OUR CERTIFICATE AND BYLAWS AND DELAWARE LAW
Some provisions of Delaware law and our certificate of incorporation and
bylaws could make the following more difficult:
- acquisition of us by means of a tender offer;
- acquisition of us by means of a proxy contest or otherwise; or
- removal of our incumbent officers and directors.
These provisions, summarized below, are expected to discourage coercive
takeover practices and inadequate takeover bids. These provisions are also
designed to encourage persons seeking to acquire control of us to first
negotiate with our board of directors. We believe that the benefits of increased
protection give us the potential ability to negotiate with the proponent of an
unfriendly or unsolicited proposal to acquire or restructure us and outweigh the
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<PAGE> 74
disadvantages of discouraging those proposals because negotiation of those
proposals could result in an improvement of their terms.
ELECTION AND REMOVAL OF DIRECTORS. Our board of directors is divided into
three classes. The directors in each class will serve for a three-year term, one
class being elected each year by our stockholders. See "Management-Directors and
Executive Officers". This system of electing directors may discourage a third
party from making a tender offer or otherwise attempting to obtain control of us
because it generally makes it more difficult for stockholders to replace a
majority of the directors. Under the terms of our bylaws, this provision cannot
be changed without a supermajority vote of our stockholders.
STOCKHOLDER MEETINGS. Under our bylaws, only our board of directors, the
chairman of our board of directors, and until Eaton owns less than 50% of our
common stock, Eaton, may call special meetings of stockholders.
REQUIREMENTS FOR ADVANCE NOTIFICATION OF STOCKHOLDER NOMINATIONS AND
PROPOSALS. Our bylaws establish advance notice procedures with respect to
stockholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of our board of
directors or a committee of our board of directors. Under the terms of our
bylaws, this provision cannot be changed without a supermajority vote of our
stockholders.
DELAWARE ANTI-TAKEOVER LAW. We are subject to Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, Section 203 prohibits
a publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years following the date
the person became an interested stockholder, unless the "business combination"
or the transaction in which the person became an interested stockholder is
approved in a prescribed manner. Generally, a "business combination" includes a
merger, asset or stock sale, or other transaction resulting in a financial
benefit to the interested stockholder. Generally, an "interested stockholder" is
a person who, together with affiliates and associates, owns or within three
years prior to the determination of interested stockholder status, did own, 15%
or more of a corporation's voting stock. The existence of this provision may
have an anti-takeover effect with respect to transactions not approved in
advance by our board of directors, including discouraging attempts that might
result in a premium over the market price for the outstanding shares of our
common stock. Eaton is an "interested stockholder" for this purpose.
ELIMINATION OF STOCKHOLDER ACTION BY WRITTEN CONSENT. Our certificate of
incorporation eliminates the right of stockholders other than Eaton to act by
written consent without a meeting. Eaton will lose this right once it owns less
than 50% of our common stock.
ELIMINATION OF CUMULATIVE VOTING. Our certificate of incorporation and
bylaws do not provide for cumulative voting in the election of directors.
UNDESIGNATED PREFERRED STOCK. The authorization of undesignated preferred
stock makes it possible for our board of directors to issue preferred stock with
voting or other rights or preferences that could impede the success of any
attempt to change control of us. These and other provisions may have the effect
of deferring hostile takeovers or delaying changes in control or management of
us.
AMENDMENT OF CHARTER PROVISIONS. The amendment of any of the above
provisions would require approval by holders of at least 75% of our outstanding
common stock.
RIGHTS PLAN
Our rights plan may have the effect of delaying or preventing a change in
control of our company. This plan attaches to each common share one right that,
when exercisable, entitles the holder of a right to purchase one one-hundredth
of a share of Preferred Stock at a purchase
73
<PAGE> 75
price of $ , subject to adjustment. If certain takeover events occur,
exercise of the rights would entitle the holders thereof (other than the
acquiring person or group) to receive common shares or common stock of a
surviving corporation, or cash, property or other securities, with a market
value equal to twice the purchase price. These takeover events include a person
or group becoming the owner of 20% or more of the common shares or the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 20% or more of our outstanding common shares.
Accordingly, exercise of the rights may cause substantial dilution to a person
who attempts to acquire our company.
The Rights automatically attach to each outstanding common share. There is
no monetary value presently assigned to the rights, and they will not trade
separately from the common shares unless and until they become exercisable. The
rights, which expire on , , may be redeemed, at the option
of our Board of Directors, at a price of $.001 per right at any time prior to a
group or person acquiring ownership of 20% or more of the outstanding common
shares. The rights agreement may have certain antitakeover effects, although it
is not intended to preclude any acquisition or business combination that is at a
fair price and otherwise in the best interests of our company and our
shareholders as determined by our Board of Directors. However, a shareholder
could potentially disagree with the Board's determination of what constitutes a
fair price or the best interests of our company and our shareholders.
The description and terms of the rights are set forth in a rights amendment
between us and , as rights agent. We will file a copy of the
rights agreement as an exhibit to the registration statement of which this
prospectus forms a part. The above description of the rights is a summary of the
material terms of the rights, does not purport to be complete and is qualified
in its entirety by reference to the rights agreement.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock will be Equiserve.
SHARES ELIGIBLE FOR FUTURE SALE
All of the shares of our common stock sold in this offering will be freely
tradable without restriction under the Securities Act, except for any shares
which may be acquired by an affiliate of ours, as that term is defined in Rule
144 under the Securities Act. Persons who may be deemed to be affiliates
generally include individuals or entities that control, are controlled by, or
are under common control with, us and may include our directors and officers as
well as our significant stockholders, if any.
Eaton currently plans to complete its divestiture of all of its shares of
our common stock approximately six months following this offering by
distributing all of its shares of our common stock to Eaton shareholders. Any
shares of our common stock distributed to Eaton shareholders in the distribution
generally will be freely transferable, except for shares of common stock
received by persons who may be deemed to be our affiliates. Persons who are
affiliates will be permitted to sell the shares of common stock that are issued
in this offering or that they receive in the distribution only through
registration under the Securities Act, or under an exemption from registration,
such as the one provided by Rule 144. Generally, Rule 144, as presently in
effect, provides that an affiliate who has owned shares of our common stock for
at least one year is entitled to sell in the open market in broker's
transactions, within any three-month period, a number of shares that does not
exceed the greater of:
- one percent of the then outstanding shares of our common stock, which
will equal approximately shares immediately after this
offering; and
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<PAGE> 76
- the average weekly trading volume of our common stock during the four
calendar weeks preceding the sale.
Sales under Rule 144 are also subject to additional restrictions relating
to the manner of sale and the availability of current public information about
our company.
The shares of our common stock held by Eaton before the distribution are
deemed "restricted securities" as defined in Rule 144, and may not be sold other
than through registration under the Securities Act or under an exemption from
registration, such as the one provided by Rule 144. Eaton, our directors and
officers and we have agreed not to offer, sell or otherwise dispose of any
shares of our common stock, subject to exceptions, for a period of 180 days
after the date of this prospectus, without the prior written consent of Goldman,
Sachs & Co. This agreement does not apply to the divestiture of our common stock
owned by Eaton to its shareholders on or after November 1, 2000, any sale by
Eaton of its shares of our common stock to a purchaser who offers to buy all
other outstanding shares of our common stock at the same price, any grants under
our existing employee benefit plans or transactions in Eaton common shares. See
"Underwriting".
If Eaton distributes all of the shares of our common stock it owns to Eaton
shareholders after this offering, substantially all of these shares will be
eligible for immediate resale in the public market. We are unable to predict
whether significant amounts of common stock will be sold in the open market in
anticipation of, or following, this distribution, or by Eaton if the
distribution does not occur. We are also unable to predict whether a sufficient
number of buyers will be in the market at that time. Any sales of substantial
amounts of common stock in the public market, or the perception that such sales
might occur, whether as a result of this distribution or otherwise, could harm
the market price of our common stock. Eaton has the sole discretion to determine
the timing, structure and all terms of its distribution of our common stock, all
of which may also affect the level of market transactions in our common stock.
We will grant shares of our common stock pursuant to the 2000 Stock Plan
subject to restrictions. See "Management -- Incentive Plans -- 2000 Stock Plan."
We currently expect to file a registration statement under the Securities Act to
register shares reserved for issuance under the 2000 Stock Plan and the 2000
Employee Stock Purchase Plan. Shares issued pursuant to awards after the date of
this prospectus, other than shares issued to affiliates, generally will be
freely tradable without further registration under the Securities Act. Shares
issued pursuant to any vested and exercisable options of Eaton converted into
our options will also be freely tradable without registration under the
Securities Act after the date of this prospectus. See "Management -- Treatment
of Eaton Options".
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<PAGE> 77
UNDERWRITING
Axcelis and the underwriters named below have entered into an underwriting
agreement with respect to the shares being offered. Subject to certain
conditions, each underwriter has severally agreed to purchase the number of
shares indicated in the following table. Goldman, Sachs & Co. and Morgan Stanley
& Co. Incorporated are the representatives of the underwriters.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Goldman, Sachs & Co.........................................
Morgan Stanley & Co. Incorporated...........................
--------
Total..................................................
========
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional
shares from Axcelis to cover such sales. They may exercise that
option for 30 days. If any shares are purchased pursuant to this option, the
underwriters will severally purchase shares in approximately the same proportion
as set forth in the table above.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by Axcelis. Such amounts are
shown assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
<TABLE>
<CAPTION>
Paid by Axcelis
----------------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share................................................... $ $
Total.................................................. $ $
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any such
securities dealers may resell any shares purchased from the underwriters to
certain other brokers or dealers at a discount of up to $ per share from the
initial public offering price. If all the shares are not sold at the initial
offering price, the representatives may change the offering price and the other
selling terms.
Axcelis and our directors and officers, and Eaton have agreed with the
underwriters not to dispose of or hedge any of Axcelis' common stock or
securities convertible into or exchangeable for shares of Axcelis' common stock
during the period from the date of this prospectus continuing through the date
180 days after the date of this prospectus, except with the prior written
consent of Goldman, Sachs & Co. This agreement does not apply to the divestiture
of shares of Axcelis' common stock owned by Eaton to its shareholders on or
after November 1, 2000, any sale by Eaton of its shares of our common stock to a
purchaser who offers to buy all other outstanding shares of our common stock at
the same price, any grants under Axcelis' existing employee benefit plans or
transactions in Eaton common shares. See "Shares Eligible For Future Sale" for a
discussion of transfer restrictions.
Prior to the offering, there has been no public market for the shares. The
initial public offering price will be negotiated between Axcelis and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be Axcelis' historical performance, estimates of Axcelis'
business potential
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<PAGE> 78
and earnings prospects, an assessment of Axcelis' management and the
consideration of the above factors in relation to market valuation of companies
in related businesses.
Axcelis has applied to have its common stock quoted on the Nasdaq National
Market under the symbol "ACLS".
In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the common stock while
the offering is in progress.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
Axcelis estimates that its share of the total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately
$ .
Axcelis and Eaton agreed to indemnify the several underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
Goldman, Sachs & Co. has been engaged by Eaton to provide financial
advisory services relating to our separation from Eaton and the distribution of
shares of our common stock to Eaton shareholders, for which it will be paid a
fee upon completion of the divestiture. Goldman, Sachs & Co. has from time to
time performed various investment banking services for Eaton in the past, and it
may from time to time in the future perform investment banking services for
Eaton and us for which it has received and will receive customary fees.
VALIDITY OF COMMON STOCK
The validity of the common stock offered hereby will be passed upon for us
by Kirkpatrick & Lockhart LLP, Pittsburgh, Pennsylvania and for the underwriters
by Shearman & Sterling, New York, New York.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our combined
financial statements at December 31, 1998 and 1999, and for each of the three
years in the period ended December 31, 1999, as set forth in their report. We
have included our financial statements in this prospectus in reliance on Ernst &
Young LLP's report, given on their authority as experts in accounting and
auditing.
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<PAGE> 79
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, a registration statement on Form S-1 under the Securities Act with
respect to the common stock offered hereby. This prospectus does not contain all
of the information set forth in the registration statement and the exhibits and
schedules to the registration statement. Some items are omitted in accordance
with the rules and regulations of the SEC. For further information about us and
our common stock, reference is made to the registration statement and the
exhibits and any schedules to the registration statement. Statements contained
in this prospectus as to the contents of any contract or other document referred
to are not necessarily complete and in each instance, if the contract or
document is filed as an exhibit, reference is made to the copy of the contract
or other documents filed as an exhibit to the registration statement, each
statement being qualified in all respects by such reference. A copy of the
registration statement, including the exhibits and schedules to the registration
statement, may be read and copied at the SEC's Public Reference Room at 450
Fifth Street, N.W., Washington, D.C. 20549. Information on the operation of the
Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In
addition, the SEC maintains an Internet site at http://www.sec.gov, from which
interested persons can electronically access the registration statement,
including the exhibits and any schedules to the registration statement.
As a result of this offering, we will become subject to the full
informational requirements of the Securities Exchange Act of 1934, as amended.
We will fulfill our obligations with respect to those requirements by filing
periodic reports and other information with the SEC. We intend to furnish our
stockholders with annual reports containing combined financial statements
certified by an independent public accounting firm. We also maintain an Internet
site at http://www.semiconductor.eaton.com. Our website and the information
contained therein or connected thereto shall not be deemed to be incorporated
into this prospectus or the registration statement of which it forms a part.
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<PAGE> 80
AXCELIS TECHNOLOGIES, INC.
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Combined Balance Sheets at December 31, 1998 and 1999
(audited), March 31, 2000 (unaudited) and pro forma at
March 31, 2000 (unaudited)................................ F-3
Statements of Combined Operations for the Years Ended
December 31, 1997, 1998 and 1999 (audited) and Three
Months Ended March 31, 1999 and 2000 (unaudited).......... F-4
Statements of Combined Cash Flows for the Years Ended
December 31, 1997, 1998 and 1999 (audited) and Three
Months Ended March 31, 1999 and 2000 (unaudited).......... F-5
Statements of Combined Stockholder's Net Investment for the
Years Ended December 31, 1997, 1998 and 1999 (audited) and
Three Months ended March 31, 2000 (unaudited)............. F-6
Notes to Combined Financial Statements...................... F-8
</TABLE>
F-1
<PAGE> 81
REPORT OF INDEPENDENT AUDITORS
To the Stockholder of
Axcelis Technologies, Inc.
We have audited the combined balance sheets of Axcelis Technologies, Inc.
as of December 31, 1998 and 1999, and the related statements of combined
operations, cash flows and stockholder's net investment for each of the three
years in the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Axcelis
Technologies, Inc. at December 31, 1998 and 1999, and the combined results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
Cleveland, Ohio
May 3, 2000
F-2
<PAGE> 82
AXCELIS TECHNOLOGIES, INC.
(WHOLLY-OWNED SUBSIDIARY OF EATON CORPORATION)
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
-------------------- MARCH 31, MARCH 31,
1998 1999 2000 2000
-------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash & short-term investments........... $ 3,338 $ 3,530 $ 2,803 $ 2,803
Accounts receivable..................... 42,534 101,335 117,295 117,295
Receivables from Eaton Corporation...... 11,241 16,537 16,537
Inventories............................. 66,786 83,326 97,872 97,872
Deferred income taxes................... 30,817 33,036 32,762 32,762
Prepaid expenses........................ 4,836 3,024 3,219 3,219
-------- -------- -------- --------
Total current assets............ 148,311 235,492 270,488 270,488
Property, plant & equipment............. 64,563 73,809 72,221 72,221
Investment in Sumitomo Eaton Nova
Corporation.......................... 20,058 22,210 25,679 25,679
Goodwill................................ 50,570 47,006 46,114 46,114
Intangible assets....................... 31,905 26,190 24,762 24,762
Other assets............................ 25,714 18,128 18,319 18,319
-------- -------- -------- --------
Total assets.................... $341,121 $422,835 $457,583 $457,583
======== ======== ======== ========
LIABILITIES & STOCKHOLDER'S NET INVESTMENT
Current liabilities:
Accounts payable........................ $ 6,173 $ 24,579 $ 31,878 $ 31,878
Payables to Eaton Corporation........... 5,011 300,000
Restructuring liabilities............... 7,060
Accrued compensation.................... 9,645 8,984 6,606 6,606
Warranty reserve........................ 16,055 18,568 20,836 20,836
Other current liabilities............... 13,339 13,602 12,913 12,913
-------- -------- -------- --------
Total current liabilities....... 57,283 65,733 72,233 372,233
Deferred income taxes..................... 10,777 10,238 9,891 9,891
Pension & other employee benefit
liabilities............................. 3,900 4,568 3,741 3,741
Stockholder's net investment:
Preferred stock.........................
Common stock............................
Parent Company investment............... 274,981 347,825 377,725 77,725
Accumulated other comprehensive income
(loss)............................... (5,820) (5,529) (6,007) (6,007)
-------- -------- -------- --------
Total stockholder's net
investment...................... 269,161 342,296 371,718 71,718
-------- -------- -------- --------
Total liabilities &
stockholder's net
investment................. $341,121 $422,835 $457,583 $457,583
======== ======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-3
<PAGE> 83
AXCELIS TECHNOLOGIES, INC.
(WHOLLY-OWNED SUBSIDIARY OF EATON CORPORATION)
STATEMENTS OF COMBINED OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- -------------------
1997 1998 1999 1999 2000
-------- --------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................ $460,010 $ 265,709 $397,267 $ 59,124 $143,051
Cost of products sold................ 287,208 184,122 240,185 38,356 81,577
Cost of products sold --
restructuring charges.............. 17,358
-------- --------- -------- -------- --------
Gross profit.................... 172,802 64,229 157,082 20,768 61,474
Other costs & expenses:
Selling............................ 47,148 42,134 37,946 9,087 11,598
General & administrative........... 38,287 47,075 45,925 9,612 13,030
Research & development............. 70,466 78,656 51,599 12,183 16,125
Amortization of goodwill &
intangible assets............... 3,936 9,279 9,279 2,320 2,320
Restructuring charges.............. 24,994
Write-off of in-process research
& development................. 85,000
-------- --------- -------- -------- --------
Income (loss) from
operations............... (72,035) (137,909) 12,333 (12,434) 18,401
Other income (expense):
Royalty income..................... 6,265 7,949 5,854 965 3,823
Equity income (loss) of Sumitomo
Eaton Nova Corporation.......... 3,283 (2,132) 1,338 (2,447) 3,340
Other income (expense) -- net...... 1,123 (1,045) 28 (145) 1,549
-------- --------- -------- -------- --------
Total other income (expense).. 10,671 4,772 7,220 (1,627) 8,712
-------- --------- -------- -------- --------
Income (loss) before income taxes.... (61,364) (133,137) 19,553 (14,061) 27,113
Income taxes (credit)................ 103 (51,090) 5,125 (3,686) 8,251
-------- --------- -------- -------- --------
Net income (loss).................... $(61,467) $ (82,047) $ 14,428 $(10,375) $ 18,862
======== ========= ======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-4
<PAGE> 84
AXCELIS TECHNOLOGIES, INC.
(WHOLLY-OWNED SUBSIDIARY OF EATON CORPORATION)
STATEMENTS OF COMBINED CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------- --------------------
1997 1998 1999 1999 2000
--------- --------- --------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss)........................... $ (61,467) $ (82,047) $ 14,428 $(10,375) $ 18,862
Adjustments to reconcile to net cash
provided (used) by operating activities:
Depreciation............................ 6,766 10,548 9,803 2,567 2,332
Amortization of goodwill & intangible
assets............................... 3,936 9,279 9,279 2,320 2,320
Deferred income taxes................... 2,510 (12,065) (2,758) 1,927 (72)
Undistributed (income) loss of Sumitomo
Eaton Nova Corporation............... (1,554) 2,890 (1,347) 2,426 (3,340)
Deferred royalty income from Sumitomo
Eaton Nova Corporation............... (6,583) (3,249) (2,286) (876)
Restructuring charges................... 37,347 (6,358) (1,411)
Write-off of in-process research &
development.......................... 85,000
Changes in operating assets &
liabilities, excluding acquisition of
a business & non-cash
restructuring charges:
Accounts receivable................ 9,930 57,465 (71,918) (20,123) (22,088)
Inventories........................ (21,961) 27,936 (16,989) (5,300) (14,477)
Accounts payable & other current
liabilities...................... (1,844) (39,920) 18,481 4,365 7,200
Other assets....................... (15,774) (616) 7,604 1,815 (181)
Other-net.......................... (5,654) 4,638 2,956 (247) (1,705)
--------- --------- --------- -------- ---------
Net cash provided (used) by
operating activities........... (6,695) 12,206 (39,105) (22,912) (11,149)
Investing activities:
Expenditures for property, plant &
equipment................................. (14,161) (14,988) (16,914) (4,966) (299)
Acquisition of Fusion Systems Corporation... (201,552)
Other-net................................... (1,179) 1,722 (2,205) (935) (317)
--------- --------- --------- -------- ---------
Net cash used by investing
activities..................... (216,892) (13,266) (19,119) (5,901) (616)
Financing activities:
Transfers from (to) Parent Company
relating to:
Accounts receivable..................... (474,843) (320,289) (327,225) (40,355) (121,794)
Inventories & operating expenses........ 466,420 328,941 386,485 68,388 137,078
Expenditures for property, plant &
equipment............................ 14,161 14,988 16,914 4,966 299
Acquisition of Fusion Systems
Corporation.......................... 201,552
Other-net............................... 17,617 (22,721) (17,758) (4,925) (4,545)
--------- --------- --------- -------- ---------
Net cash provided by financing
activities..................... 224,907 919 58,416 28,074 11,038
--------- --------- --------- -------- ---------
Net increase (decrease) in cash & short-term
investments................................. 1,320 (141) 192 (739) (727)
Cash & short-term investments at beginning of
period...................................... 2,159 3,479 3,338 3,338 3,530
--------- --------- --------- -------- ---------
Cash & short-term investments at end
of period................................... $ 3,479 $ 3,338 $ 3,530 $ 2,599 $ 2,803
========= ========= ========= ======== =========
</TABLE>
See accompanying notes to combined financial statements.
F-5
<PAGE> 85
AXCELIS TECHNOLOGIES, INC.
(WHOLLY-OWNED SUBSIDIARY OF EATON CORPORATION)
STATEMENTS OF COMBINED STOCKHOLDER'S NET INVESTMENT
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
PARENT OTHER TOTAL
COMPANY COMPREHENSIVE STOCKHOLDER'S
INVESTMENT INCOME (LOSS) NET INVESTMENT
---------- ------------- --------------
<S> <C> <C> <C>
Balance at January 1, 1997............................ $ 192,669 $(2,240) $ 190,429
Net loss.............................................. (61,467) (61,467)
Foreign currency translation adjustments.............. (4,677) (4,677)
---------
Total comprehensive (loss)............................ (66,144)
Transfers from (to) Parent Company relating to:
Accounts receivable................................. (474,843) (474,843)
Inventories & operating expenses.................... 466,420 466,420
Expenditures for property, plant & equipment........ 14,161 14,161
Acquisition of Fusion Systems Corporation........... 201,552 201,552
Other-net........................................... 17,617 17,617
--------- ---------
Net transfers from Parent Company.............. 224,907 224,907
--------- ------- ---------
Balance at December 31, 1997.......................... 356,109 (6,917) 349,192
--------- ------- ---------
Net loss.............................................. (82,047) (82,047)
Foreign currency translation adjustments.............. 1,097 1,097
---------
Total comprehensive (loss)............................ (80,950)
Transfers from (to) Parent Company relating to:
Accounts receivable................................. (320,289) (320,289)
Inventories & operating expenses.................... 328,941 328,941
Expenditures for property, plant & equipment........ 14,988 14,988
Other-net........................................... (22,721) (22,721)
--------- ---------
Net transfers from Parent Company................ 919 919
--------- ------- ---------
Balance at December 31, 1998.......................... 274,981 (5,820) 269,161
--------- ------- ---------
Net income............................................ 14,428 14,428
Foreign currency translation adjustments.............. 291 291
---------
Total comprehensive income............................ 14,719
Transfers from (to) Parent Company relating to:
Accounts receivable................................. (327,225) (327,225)
Inventories & operating expenses.................... 386,485 386,485
Expenditures for property, plant & equipment........ 16,914 16,914
Other-net........................................... (17,758) (17,758)
--------- ---------
Net transfers from Parent Company................ 58,416 58,416
--------- ------- ---------
Balance at December 31, 1999.......................... $ 347,825 $(5,529) $ 342,296
</TABLE>
F-6
<PAGE> 86
AXCELIS TECHNOLOGIES, INC.
(WHOLLY-OWNED SUBSIDIARY OF EATON CORPORATION)
STATEMENT OF COMBINED STOCKHOLDER'S NET INVESTMENT -- (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
PARENT OTHER TOTAL
COMPANY COMPREHENSIVE STOCKHOLDER'S
INVESTMENT INCOME (LOSS) NET INVESTMENT
---------- ------------- --------------
<S> <C> <C> <C>
Balance at December 31, 1999.......................... $ 347,825 $(5,529) $ 342,296
Net income*........................................... 18,862 18,862
Foreign currency translation adjustments*............. (478) (478)
---------
Total comprehensive income*........................... 18,384
Transfers from (to) Parent Company relating to:
Accounts receivable*................................ (121,794) (121,794)
Inventories & operating expenses*................... 137,078 137,078
Expenditures for property, plant & equipment*....... 299 299
Other-net*.......................................... (4,545) (4,545)
--------- ---------
Net transfers from Parent Company*............... 11,038 11,038
--------- ------- ---------
Balance at March 31, 2000*............................ $ 377,725 $(6,007) $ 371,718
========= ======= =========
</TABLE>
- ---------------
* unaudited
See accompanying notes to combined financial statements.
F-7
<PAGE> 87
AXCELIS TECHNOLOGIES, INC.
(WHOLLY-OWNED SUBSIDIARY OF EATON CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (AUDITED) AND
THREE MONTHS ENDED MARCH 31, 1999 AND 2000 (UNAUDITED)
1. THE COMPANY
On April 26, 2000, Eaton Corporation (Eaton or Parent Company) announced
its plan to restructure its semiconductor equipment operations into an
independent publicly-traded company, Axcelis Technologies, Inc. (Axcelis).
Eaton's semiconductor equipment operations are currently conducted principally
through its direct and indirect wholly-owned subsidiaries, Axcelis Technologies,
Inc. and subsidiaries, Fusion Systems Corporation and High Temperature
Engineering Corporation, Eaton's 50% interest in Sumitomo Eaton Nova
Corporation, a joint venture in Japan with Sumitomo Heavy Industries, Inc., and
various foreign branches and divisions of other Eaton subsidiaries. Through a
reorganization transaction, Eaton intends to transfer to Axcelis all of the
assets and liabilities of its semiconductor equipment operations not owned by
Axcelis. After completion of the initial public offering, Eaton will own at
least 80.1% of Axcelis' outstanding common stock. Eaton currently plans to
complete the divestiture of Axcelis approximately six months following the
completion of the initial public offering by distributing all of its shares of
the common stock on a tax-free basis to Eaton shareholders (the distribution
date).
Axcelis includes all of Eaton's operations that manufacture, sell and
service capital equipment used in the production of semiconductors, including
high- and medium- current implanters and high-energy implanters, and other
products, including photostabilizers, ozone and plasma ashers and thermal
processing systems. At the end of 1999, it had approximately 1,800 employees
including 200 temporary employees, primarily located at manufacturing sites in
Beverly and Peabody, Massachusetts and Rockville, Maryland. Eaton Semiconductor
also has sales and service locations in Germany, the United Kingdom, Taiwan,
Singapore, South Korea, Italy and France. Additionally, it has a 50% ownership
interest in Sumitomo Eaton Nova Corporation (SEN), a joint venture in Japan
engaged in the design, manufacture, sale and service of ion implantation
equipment in Japan.
2. BASIS OF PRESENTATION
The combined financial statements include the assets, liabilities, revenues
and expenses of Eaton's semiconductor operations to be included in Axcelis after
the reorganization transaction, based on Eaton's historical amounts. Parent
Company investment represents Eaton's investment in Axcelis.
The statements of combined operations include those expenses originally
recorded by Axcelis or directly charged to it by Eaton. Further, the statements
include an allocation of Eaton's general corporate expenses to reflect the
services provided or benefits received by Axcelis. This allocation is based on
Eaton's internal expense allocation methodology which charges these expenses to
operating locations based both on net working capital, excluding short-term
investments and short-term debt, and on property, plant and equipment -- net.
Management believes this is a reasonable method of allocating these expenses and
is representative of the operating expenses that would have been incurred had
Axcelis operated on a stand-alone basis.
In the opinion of management, all adjustments necessary for a fair
presentation of combined financial position, operating results and cash flows
for the stated periods have been made. However, Eaton did not account for or
operate Axcelis as a separate, stand-alone entity for the periods presented and,
as a result, the financial information included herein may not reflect the
F-8
<PAGE> 88
AXCELIS TECHNOLOGIES, INC.
(WHOLLY-OWNED SUBSIDIARY OF EATON CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
combined financial position, operating results and cash flows of Axcelis if it
had been a separate, stand-alone entity during the periods presented or in the
future.
3. ACCOUNTING POLICIES
COMBINATION
The combined financial statements include the accounts of Axcelis, which
includes all of Eaton's semiconductor equipment operations. All significant
intercompany and interunit accounts and transactions have been eliminated. The
equity method is used to account for the 50% investment in SEN.
FOREIGN CURRENCY TRANSLATION
The functional currency for all operations outside the United States is the
local currency. Financial statements for these operations are translated into
United States dollars at year-end exchange rates as to assets and liabilities
and weighted-average exchange rates as to revenues and expenses. The resulting
translation adjustments are recorded in stockholder's net investment in
accumulated other comprehensive income (loss).
CASH AND SHORT-TERM INVESTMENTS
Axcelis participates in Eaton's centralized cash management system. Under
this system, cash receipts are transferred to Eaton and Eaton funds cash
disbursements. Accordingly, the cash and short-term investment balances
presented in the accompanying combined balance sheets do not represent balances
required or generated by operations. The amounts for cash and short-term
investments presented in the combined balance sheet substantially relate to cash
and highly liquid short-term investments maintained for working capital
purposes, primarily at international locations.
For purposes of classification in the statement of combined cash flows, all
short-term investments are considered cash equivalents.
The carrying values of cash and short-term investments in the combined
balance sheets approximated their estimated fair values. The estimated fair
value of these financial instruments was principally based on quoted market
prices.
INVENTORIES
Inventories are carried at lower of cost, determined using the first-in,
first-out (FIFO) method, or market.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization are computed by the straight-line method for
financial statement purposes. The historical cost of buildings is depreciated
over forty years and machinery and equipment principally over three to ten
years. Substantially all goodwill is amortized over fifteen years. Intangible
assets, consisting of developed technology, are amortized over seven years.
Goodwill and other long-lived assets are reviewed for impairment losses
whenever events or changes in circumstances indicate the carrying amount may not
be recoverable. Events or circumstances that would result in an impairment
review primarily include operations reporting
F-9
<PAGE> 89
AXCELIS TECHNOLOGIES, INC.
(WHOLLY-OWNED SUBSIDIARY OF EATON CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
losses or a significant change in the use of an asset. The asset would be
considered impaired when the future net undiscounted cash flows generated by the
asset are less than its carrying value. An impairment loss would be recognized
based on the amount by which the carrying value of the asset exceeds its fair
value.
FINANCIAL INSTRUMENTS
Axcelis has no material financial instruments outstanding at December 31,
1999 used to manage foreign exchange or interest rate risk. In 1998, Statement
of Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities", was issued. This Statement requires all derivatives to
be recognized on the balance sheet at fair value. Axcelis must adopt the
standard by the first quarter of 2001. It expects that the adoption of the
standard will have an immaterial effect on financial position and operating
results, if any.
REVENUE RECOGNITION
Axcelis recognizes sales at the time of shipment of the system to the
customer. The costs of installation at the customer's site are accrued at the
time of shipment. The majority of Axcelis' systems are designed and tailored to
meet the customer's specifications as outlined in the contract between the
customer and Axcelis. To ensure that the customer's specifications are
satisfied, per contract terms, the systems are tested and approved at Axcelis'
facilities prior to shipment, normally with the customer present. There is a
demonstrated history of customer acceptance subsequent to shipment and
installation of these systems.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition". SAB No. 101, which was
subsequently amended by Staff Accounting Bulletin No. 101A (collectively
referred to as SAB 101), articulates certain of the SEC staff's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. Axcelis must ensure that it is in compliance with the
revenue recognition criteria as defined in SAB 101 by the end of the second
quarter of 2000. Axcelis is currently reviewing its revenue recognition policy
to determine if any change is required to ensure compliance with SAB 101.
INTEREST EXPENSE
The statements of combined operations do not include an allocation of
interest expense related to Eaton's debt obligations, consistent with Eaton's
internal expense allocation methodology.
INCOME TAXES
Eaton accounts and pays for all United States income taxes. Axcelis'
taxable income (loss) related to its United States operations is included in
Eaton's consolidated income tax returns. Consistent with the terms of the tax
sharing agreement with Eaton, the statements of combined operations include an
allocation of Eaton's United States income taxes (credit) in amounts generally
equivalent to the provisions which would have resulted had it filed separate
income tax returns for the years presented. It has also been allocated United
States deferred income taxes based on the estimated differences between the book
and tax basis of its assets and liabilities.
Several of Axcelis' operations outside the United States account and pay
for income taxes related to their operations. For those operations which have
not accounted and paid for income
F-10
<PAGE> 90
AXCELIS TECHNOLOGIES, INC.
(WHOLLY-OWNED SUBSIDIARY OF EATON CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
taxes related to their operations, the statements of combined operations include
an allocation of Eaton's foreign income taxes in amounts generally equivalent to
the provisions which would have resulted had Axcelis filed separate income tax
returns for the years presented. These operations have also been allocated
foreign deferred income taxes based on the estimated differences between the
book and tax basis of their assets and liabilities.
STOCK OPTIONS FOR COMMON SHARES HELD BY AXCELIS EMPLOYEES
Axcelis applies the intrinsic value based method described in Accounting
Principles Board Opinion (APB) No. 25 to account for stock options granted to
employees. Under this method, no compensation expense is recognized on the grant
date, since on that date the option price equals the market price of the
underlying common shares.
UNAUDITED PRO FORMA BALANCE SHEET
The unaudited pro forma balance sheet as of March 31, 2000 gives effect to
the $300 million dividend declared on May 3, 2000 to be paid by Axcelis to
Eaton, as though it had been declared and payable as of March 31, 2000.
ESTIMATES
Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions in
certain circumstances that affect amounts reported in the accompanying combined
financial statements and notes. Actual results could differ from these
estimates.
INTERIM FINANCIAL INFORMATION
The financial information as of March 31, 2000 and for the three months
ended March 31, 1999 and 2000 is unaudited and includes all adjustments,
consisting only of normal and recurring accruals, that management considers
necessary for a fair presentation of combined financial position, operating
results and cash flows. Results for the three months ended March 31, 1999 and
2000 are not necessarily indicative of results to be expected for full year 2000
or for any future period.
Subsequent to December 31, 1999, Axcelis' cash receipts and disbursements
processed through Eaton's centralized cash management system are being recorded
as a receivable from or payable to Eaton. Prior to January 1, 2000, the majority
of these amounts were recorded in Parent Company investment. As of March 31,
2000, a net amount of $7.3 million was due from Eaton for these transactions and
is included in "Receivables From Eaton Corporation" in the Combined Balance
Sheet.
4. ACQUISITION OF FUSION SYSTEMS CORPORATION
On August 4, 1997, Fusion Systems Corporation (Fusion) was acquired.
Fusion, which had $85 million of sales in 1996, develops and manufactures dry
strip and photostabilization systems for use within the semiconductor
manufacturing process.
The acquisition was accounted for by the purchase method of accounting and,
accordingly, Axcelis' combined financial statements include the results of
Fusion beginning August 4, 1997. A
F-11
<PAGE> 91
AXCELIS TECHNOLOGIES, INC.
(WHOLLY-OWNED SUBSIDIARY OF EATON CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
summary of the estimated fair values of the assets acquired and liabilities
assumed in the acquisition follows (in thousands):
<TABLE>
<S> <C>
Assets acquired............................................. $ 57,172
Liabilities assumed......................................... (30,433)
Intangible assets........................................... 40,000
Goodwill.................................................... 49,813
In-process research & development........................... 85,000
--------
$201,552
========
</TABLE>
Goodwill and intangible assets, consisting of developed technology, are
being amortized by the straight-line method for financial statement purposes
over a useful life of fifteen and seven years, respectively.
The purchase price allocation included $85 million for purchased in-process
research and development. This amount was expensed at the date of acquisition
because technological feasibility had not been established and no alternative
commercial use had been identified. Therefore, 1997 results include a write-off
of $85 million for purchased in-process research and development, with no income
tax benefit.
Eaton's management was primarily responsible for estimating the fair value
of the purchased in-process research and development. The purchased in-process
research and development was determined based on the income method using a risk
adjusted discount rate of 31% applied to project cash flows. Three groups of
projects comprised over 95% of the total value of purchased in-process research
and development, and are described in more detail below. The nature of the
efforts required to develop the purchased in-process technology into
commercially viable products principally related to the completion of all
planning, designing and testing activities that were necessary to establish that
these products could be produced to meet their design requirements, including
functions, features and technical performance requirements.
Gemini Photostabilizer (GPS) -- This project involved the development of a
300 millimeter photostabilizer and was valued at $22.4 million. This product was
scaled for 300 millimeter wafers and included functions new to photostabilizing.
In order to realize this new technology, product designs had to be configured
and scaled for the larger wafers. At the acquisition date, the greatest risk of
potential failure associated with this project was that it could not be
accomplished given technical and economic constraints. Product completion was
originally expected in late 1998 with an undiscounted cost of completion of
$13.2 million. Development was ultimately completed in the first quarter of 1999
at a cost approximating the estimate, resulting in the sale of the first
prototype.
Gemini Enhanced Strip (GES) -- These projects involved the development of
the next generation enhanced strip products for both 200 millimeter and 300
millimeter wafers and together were valued at $37.4 million. These new products
incorporated various new functions, including targeting applications for 0.25
micron and 0.18 micron geometries. Areas requiring design were the same as those
in the GPS project, with corresponding risks of failure. Product development was
ultimately completed in mid-1999 at an undiscounted cost of completion of $8.5
million, which approximated the original cost estimate.
Gemini Microwave Plasma Asher (GPL) -- These projects involved the
development of the next generation of plasma ashers for 200 millimeter and 300
millimeter wafers and together were valued at $22.8 million. These new products
incorporated substantial changes to enable targeting
F-12
<PAGE> 92
AXCELIS TECHNOLOGIES, INC.
(WHOLLY-OWNED SUBSIDIARY OF EATON CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
applications for 0.25 micron and 0.18 micron geometries. The primary risk
related to these projects involved the achievement of tightly controlled process
parameters, which was considered difficult due to the smaller line widths
targeted with these projects. Product development was originally planned for
mid-1998, and was completed by the fourth quarter of 1998 at an undiscounted
cost of completion of $2.5 million, which approximated the original cost
estimate.
5. RESTRUCTURING CHARGES
Due to the decline of the semiconductor capital equipment market in 1998,
Axcelis took actions in the third quarter of 1998 to restructure its business
and recorded restructuring charges of $42.4 million ($27.5 million aftertax).
Several specific actions comprised the overall restructuring efforts,
including workforce reductions, asset write-downs and other restructuring
actions. The charge for workforce reductions, primarily severance and other
related employee benefits, included the termination of approximately 475
employees, primarily manufacturing personnel. Approximately half of the
workforce reductions related to the closing of the Austin, Texas plant. The
charge for asset write-downs included $17.4 million for inventory, which was
written down to estimated market value, and is included in cost of products
sold. The ion implantation equipment manufacturing facility in Austin, Texas was
closed and production was transferred to Beverly, Massachusetts. The write-down
of this plant to estimated selling price represented approximately $2.1 million
of the restructuring charge. The phase-out of production was concluded in the
first quarter of 1999. Further, the Thermal Processing Systems product line,
located in Peabody, Massachusetts, was merged into the Fusion Systems division
in Rockville, Maryland, and the Flat Panel Equipment product line was merged
into the Implant Systems division in Beverly, Massachusetts.
A summary of the various components of the restructuring liabilities
follows (in thousands of dollars):
<TABLE>
<CAPTION>
INVENTORY &
WORKFORCE REDUCTIONS OTHER ASSET PLANT
--------------------- WRITE- CONSOLIDATION
EMPLOYEES DOLLARS DOWNS & OTHER TOTAL
---------- -------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C>
1998 charges.................... 475 $ 7,054 $ 30,296 $ 5,002 $ 42,352
Utilized in 1998................ (300) (3,493) (30,296) (1,503) (35,292)
---- ------- -------- ------- --------
Balance remaining at
December 31, 1998............. 175 3,561 0 3,499 7,060
Utilized in 1999................ (175) (3,561) (3,499) (7,060)
---- ------- -------- ------- --------
Balance remaining at
December 31, 1999............. 0 $ 0 $ 0 $ 0 $ 0
==== ======= ======== ======= ========
</TABLE>
F-13
<PAGE> 93
AXCELIS TECHNOLOGIES, INC.
(WHOLLY-OWNED SUBSIDIARY OF EATON CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. ACCOUNTS RECEIVABLE
The components of accounts receivable follow (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1998 1999 2000
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Trade.......................................... $ 41,204 $100,137 $114,512
Sumitomo Eaton Nova Corporation................ 3,358 3,246 4,949
-------- -------- --------
44,562 103,383 119,461
Allowance for doubtful accounts................ (2,028) (2,048) (2,166)
-------- -------- --------
$ 42,534 $101,335 $117,295
======== ======== ========
</TABLE>
7. INVENTORIES
The components of inventories follow (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1998 1999 2000
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials.................................. $ 47,104 $ 54,146 $ 61,220
Work in process................................ 9,876 19,229 25,473
Finished goods................................. 20,470 20,800 22,853
-------- -------- --------
77,450 94,175 109,546
Inventory allowances........................... (10,664) (10,849) (11,674)
-------- -------- --------
$ 66,786 $ 83,326 $ 97,872
======== ======== ========
</TABLE>
8. PROPERTY, PLANT & EQUIPMENT
The components of property, plant and equipment follow (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1998 1999 2000
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Land & buildings............................... $ 52,524 $ 59,862 $ 60,871
Machinery & equipment.......................... 42,441 48,914 52,395
Construction in process........................ 8,625 9,662 6,055
-------- -------- --------
103,590 118,438 119,321
Accumulated depreciation....................... (39,027) (44,629) (47,100)
-------- -------- --------
$ 64,563 $ 73,809 $ 72,221
======== ======== ========
</TABLE>
Property, plant and equipment includes a plant in Austin, Texas which
became idle at the end of the first quarter of 1999 due to the restructuring of
Axcelis initiated in 1998. This plant is recorded at the estimated selling price
after a $2.1 million writedown.
F-14
<PAGE> 94
AXCELIS TECHNOLOGIES, INC.
(WHOLLY-OWNED SUBSIDIARY OF EATON CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. GOODWILL & OTHER INTANGIBLE ASSETS
The components of goodwill and intangible assets follow (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1998 1999 2000
------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Goodwill........................................ $55,904 $ 55,904 $ 55,904
Accumulated amortization........................ (5,334) (8,898) (9,790)
------- -------- --------
$50,570 $ 47,006 $ 46,114
======= ======== ========
Intangible assets............................... $40,000 $ 40,000 $ 40,000
Accumulated amortization........................ (8,095) (13,810) (15,238)
------- -------- --------
$31,905 $ 26,190 $ 24,762
======= ======== ========
</TABLE>
10. RETIREMENT BENEFIT PLANS
The components of recorded liabilities for pension and other employee
benefits at December 31 follow (in thousands):
<TABLE>
<CAPTION>
1998 1999
------ ------
<S> <C> <C>
Pensions:
United States........................................ $ 444 $ 648
Foreign.............................................. 2,341 2,563
Postretirement benefits other than pensions............ 1,115 1,357
------ ------
$3,900 $4,568
====== ======
</TABLE>
Eaton sponsors a Share Purchase and Investment Plan (401k plan) for its
United States operations under which eligible participating employees may choose
to contribute up to 17% of their eligible compensation to the Plan. Eaton
matches employee contributions up to 6% of the participant's eligible
compensation as limited by United States income tax regulations. The matching
contribution percentage, which is determined each quarter based on net income
per Eaton Common Share -- basic, ranges from 25% to 100% of a participant's
contribution and is invested in Eaton Common Shares. Expense related to the 401k
plan match (in millions) was $2.5 in 1997, $3.6 in 1998 and $2.0 in 1999. After
the initial public offering, Axcelis intends to establish a separate 401k plan
for its employees.
Beginning in 1997, the majority of Axcelis' United States employees have
been covered by a non-contributory defined benefit pension plan of Eaton. The
plan provides a benefit that is based on an employee's accumulated pay, as
defined in the plan. Eaton's policy is to fund at least the minimum required by
applicable regulations. Expense for participation in the pension plan (in
millions) was $2.4 in 1997 and 1998 and $2.2 in 1999.
Certain of Axcelis' employees at foreign operations, primarily Germany, are
covered by non-contributory defined benefit pension plans of Eaton. Expense for
participation in these plans (in millions) was $0.3 in 1997, $0.6 in 1998 and
$0.5 in 1999.
After the initial public offering, Axcelis intends to establish separate
pension plans for its employees.
F-15
<PAGE> 95
AXCELIS TECHNOLOGIES, INC.
(WHOLLY-OWNED SUBSIDIARY OF EATON CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Axcelis also provides postretirement benefits other than pensions,
primarily long-term disability benefits, to a limited number of its United
States employees. Expense related to these benefits (in millions) was $0.3 in
1997 and 1998 and $0.4 in 1999.
11. EQUITY
Axcelis has authorized common stock of 1,000 shares with a par value of
$1.00 per share; 100 shares are outstanding and owned by Eaton.
12. STOCK OPTIONS FOR EATON COMMON SHARES HELD BY AXCELIS EMPLOYEES
Eaton has stock option plans under which Axcelis employees have been
granted options to purchase Eaton Common Shares at prices equal to fair market
value as of date of grant.
A summary of Eaton stock option activity for options held by Axcelis
employees follows:
<TABLE>
<CAPTION>
1997 1998 1999
------------------- ------------------- -------------------
AVERAGE AVERAGE AVERAGE
PRICE PER PRICE PER PRICE PER
SHARE SHARES SHARE SHARES SHARE SHARES
--------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, January 1........ $53.07 65,050 $67.21 192,451 $74.03 305,093
Granted....................... 73.31 132,850 84.76 115,941 71.41 162,625
Exercised..................... 46.98 5,449 53.44 3,299 56.60 8,211
------- ------- -------
Outstanding, December 31...... $67.21 192,451 $74.03 305,093 $73.41 459,507
======= ======= =======
Exercisable, December 31...... $51.21 38,730 $63.08 104,104 $65.06 116,710
</TABLE>
Historically, the majority of these options vest ratably during the
three-year period following the date of grant and expire ten years from the date
of grant. Stock options granted in 1997 and 1998 included 105,000 and 34,000,
respectively, of special performance-vested options in lieu of the more standard
options. These options become exercisable when Eaton achieves certain net income
and Eaton Common Share price targets. If these targets are not achieved, these
options become exercisable ten days before the expiration of their ten-year
term. Half of the options granted in 1997 became exercisable during 1997 when
the initial Eaton Common Share price target of $85 was achieved.
The following table summarizes information about Eaton stock options held
by Axcelis employees outstanding at December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
RANGE OF EXERCISE NUMBER REMAINING CONTRACTUAL EXERCISE PRICE
PRICE PER SHARE OUTSTANDING LIFE (YEARS) PER SHARE
----------------- ----------- --------------------- ----------------
<S> <C> <C> <C>
$31.50 -- $49.99......................... 8,500 3.8 $43.27
$50.00 -- $59.99......................... 31,183 5.8 53.63
$60.00 -- $79.99......................... 314,883 8.2 71.16
$80.00 -- $89.91......................... 104,941 8.1 88.50
</TABLE>
F-16
<PAGE> 96
AXCELIS TECHNOLOGIES, INC.
(WHOLLY-OWNED SUBSIDIARY OF EATON CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about Eaton stock options held
by Axcelis employees that are exercisable at December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
RANGE OF EXERCISE NUMBER EXERCISE PRICE
PRICE PER SHARE EXERCISABLE PER SHARE
----------------- ----------- ----------------
<S> <C> <C>
$31.50 -- $49.99............................................ 8,500 $43.27
$50.00 -- $59.99............................................ 31,183 53.63
$60.00 -- $79.99............................................ 70,069 70.44
$80.00 -- $89.91............................................ 6,958 88.62
</TABLE>
If the financial reporting consequences are not materially adverse, Axcelis
intends to make equitable arrangements with its employees regarding the value of
its Eaton options if and when Eaton disposes of substantially all of its
interest in Axcelis. If Eaton disposes of its interest in a distribution of
shares to Eaton shareholders, Axcelis intends to assume substantially all of the
Eaton options held by Axcelis employees on the date of the distribution. These
assumed options will convert at the distribution by our granting options to
Axcelis employees to purchase Axcelis common stock and cancelation of their
rights to acquire Eaton shares. The conversion is expected to be done in such a
manner that (1) the aggregate intrinsic value of the options immediately before
and after the exchange are the same, (2) the ratio of the exercise price per
option to the market value per share is not reduced, and (3) the vesting
provisions and option period of the replacement Axcelis options do not
accelerate or extend the original vesting terms and option period of the Eaton
options. Performance vesting provisions will change to focus on our performance,
as opposed to Eaton's performance. No option will be exercisable, however, if
the effect of that exercise would prevent us from filing a consolidated federal
income tax return with Eaton. If Eaton disposes of its interest in any other
transaction, Axcelis intends to make equitable arrangements to preserve the
economic value of substantially all Eaton options held by Axcelis employees.
As permitted under Statement of Financial Accounting Standard (SFAS) No.
123, Accounting for Stock-Based Compensation, Axcelis has elected to follow
Accounting Principles Board Opinion (APB) No. 25 and related interpretations in
accounting for stock-based awards to employees. Under APB No. 25, it recognizes
no compensation expense with respect to such awards, since on the date the
options were granted, the option price equaled the market value of Eaton Common
Shares.
Pro forma information regarding net income (loss) is required by SFAS No.
123. This information is required to be determined as if Axcelis had accounted
for stock-based awards to its employees granted subsequent to 1995 under the
fair value method of that Statement. The fair value of the options granted has
been estimated at the date of grant using the Black-Scholes option pricing model
with Eaton's input assumptions as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------------- ------------- -------------
<S> <C> <C> <C>
Dividend yield.......................... 3% 3% 3%
Expected volatility..................... 22% 22% 21%
Risk-free interest rate................. 6.1% to 6.3% 4.7% to 5.7% 4.7%
Expected option life in years........... 4, 5 or 6 4, 5 or 6 4 or 5
Weighted average fair value per share of
options granted during the year....... $17.16 $17.57 $12.56
</TABLE>
F-17
<PAGE> 97
AXCELIS TECHNOLOGIES, INC.
(WHOLLY-OWNED SUBSIDIARY OF EATON CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
For purposes of pro forma disclosures under SFAS No. 123, the estimated
fair value of the options is assumed to be amortized to expense over the
options' vesting period. Pro forma information related to the Eaton options held
by Axcelis employees follows (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- -------
<S> <C> <C> <C>
Net income (loss)
As reported........................................ $(61,467) $(82,047) $14,428
Assuming fair value method......................... (62,383) (82,665) 13,473
</TABLE>
13. INCOME TAXES
Income (loss) before income taxes for the years ended December 31 follows
(in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
-------- --------- -------
<S> <C> <C> <C>
United States...................................... $(68,784) $(132,446) $12,999
Foreign............................................ 4,137 1,441 5,216
Equity income (loss) of Sumitomo Eaton Nova
Corporation...................................... 3,283 (2,132) 1,338
-------- --------- -------
$(61,364) $(133,137) $19,553
======== ========= =======
</TABLE>
Income taxes (credit) for the years ended December 31 follows (in
thousands):
<TABLE>
<CAPTION>
1997 1998 1999
------- -------- -------
<S> <C> <C> <C>
Current:
United States
Federal......................................... $(3,298) $(34,469) $ 4,150
State........................................... (1,277) (5,809) 1,883
Foreign............................................ 2,168 1,253 1,850
------- -------- -------
(2,407) (39,025) 7,883
Deferred:
United States...................................... 2,607 (11,910) (2,211)
Foreign............................................ (97) (155) (547)
------- -------- -------
2,510 (12,065) (2,758)
------- -------- -------
$ 103 $(51,090) $ 5,125
======= ======== =======
</TABLE>
F-18
<PAGE> 98
AXCELIS TECHNOLOGIES, INC.
(WHOLLY-OWNED SUBSIDIARY OF EATON CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Reconciliations of income taxes (credit) at the United States Federal
statutory rate to the effective income tax rate for the years ended December 31
follow (in thousands):
<TABLE>
<CAPTION>
1999
1997 1998 ----------------
RATE RATE AMOUNT RATE
---- ---- ------ ----
<S> <C> <C> <C> <C>
Income taxes (credit) at the United States
statutory rate............................... (35.0)% (35.0)% $ 6,843 35.0%
Write-off of purchased in-process research &
development.................................. 48.5
State taxes, net of federal income tax
benefit...................................... (1.4) (2.9) 1,224 6.3
Amortization of goodwill....................... 0.9 1.0 1,248 6.4
Current and prior years' foreign sales
corporation benefit.......................... (8.8) (0.2) (300) (1.5)
Current and prior years' credit for increasing
research activities.......................... (2.7) (2.8) (3,100) (15.9)
Foreign income tax rate differentials.......... 1.0 0.4 (522) (2.7)
Foreign tax credit............................. (3.9) (30) (0.2)
Income tax rate differential related to
Sumitomo Eaton Nova Corporation.............. (1.9) 0.6 (468) (2.4)
Other - net.................................... 3.5 0.5 230 1.2
----- ----- ------- -----
0.2% (38.4)% $ 5,125 26.2%
===== ===== ======= =====
</TABLE>
Significant components of current and long-term deferred income taxes at
December 31 follow (in thousands):
<TABLE>
<CAPTION>
CURRENT LONG-TERM
ASSETS LIABILITIES
------- -----------
<S> <C> <C>
1998
Inventories............................................ $18,094
Accrued warranty....................................... 4,791
Accrued vacation....................................... 1,201
Restructuring accruals................................. 2,471
Depreciation of property, plant & equipment............ $ (2,168)
Amortization of intangible assets...................... (11,167)
Other items............................................ 4,260 2,558
------- --------
$30,817 $(10,777)
======= ========
1999
Inventories............................................ $25,048
Accrued warranty....................................... 5,267
Accrued vacation....................................... 1,061
Depreciation of property, plant & equipment............ $ (3,229)
Amortization of intangible assets...................... (9,167)
Other items............................................ 1,660 2,158
------- --------
$33,036 $(10,238)
======= ========
</TABLE>
F-19
<PAGE> 99
AXCELIS TECHNOLOGIES, INC.
(WHOLLY-OWNED SUBSIDIARY OF EATON CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
No provision has been made for income taxes on undistributed earnings of
operations outside the United States of $32.5 million at December 31, 1999,
which includes $23.2 million for Sumitomo Eaton Nova Corporation, since the
earnings retained have been reinvested by the operations. If distributed, such
remitted earnings would be subject to withholding taxes but substantially free
of United States income taxes.
14. LEASE COMMITMENTS
Minimum rental commitments for 2000 under noncancelable operating leases,
which expire at various dates and in most cases contain renewal options, are
$9.6 million and decline substantially thereafter.
Rental expense in 1997, 1998 and 1999 (in millions) was $3.4, $5.6 and
$4.8, respectively.
15. BUSINESS SEGMENT AND GEOGRAPHIC REGION INFORMATION
Axcelis operates in only one business segment, which is the manufacture of
capital equipment for the semiconductor manufacturing industry. The principal
market for semiconductor manufacturing equipment is semiconductor manufacturers.
Substantially all sales are made directly by Axcelis to customers located in
North America, Europe and Asia Pacific.
Axcelis' ion implantation systems product line includes high- and
medium-current implanters and high energy implanters and services. Other
products include photostabilizers, ozone and plasma ashers, thermal processing
systems and other products and services. Net sales by product line follow (in
thousands):
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Ion implantation systems & services............ $415,164 $219,927 $322,002
Other products & services...................... 44,846 45,782 75,265
-------- -------- --------
$460,010 $265,709 $397,267
======== ======== ========
</TABLE>
F-20
<PAGE> 100
AXCELIS TECHNOLOGIES, INC.
(WHOLLY-OWNED SUBSIDIARY OF EATON CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Net sales and long-lived assets by geographic region based on the physical
location of the operation recording the sale or the asset, follow (in
thousands):
<TABLE>
<CAPTION>
NET LONG-LIVED
SALES ASSETS*
-------- ----------
<S> <C> <C>
1997
United States.......................................... $409,405 $64,202
Europe................................................. 34,581 1,436
Asia Pacific........................................... 16,024 1,132
-------- -------
$460,010 $66,770
======== =======
1998
United States.......................................... $214,174 $62,321
Europe................................................. 40,254 1,192
Asia Pacific........................................... 11,281 1,050
-------- -------
$265,709 $64,563
======== =======
1999
United States.......................................... $343,345 $71,740
Europe................................................. 35,482 752
Asia Pacific........................................... 18,440 1,317
-------- -------
$397,267 $73,809
======== =======
</TABLE>
- ---------------
* Long-lived assets consist of property, plant, and equipment -- net.
Sales from United States operations to customers in foreign countries (in
thousands) were $204,034 in 1997, $79,791 in 1998 and $158,523 in 1999 (44.4% of
net sales in 1997, 30.0% in 1998 and 39.9% in 1999).
16. SIGNIFICANT CUSTOMERS
No single customer represented more than 10% of net sales in 1997 or 1998.
Three customers individually accounted for 15.9%, 10.6% and 10.5% of net sales
in 1999.
17. SUMITOMO EATON NOVA CORPORATION
Sumitomo Eaton Nova Corporation (SEN) was established in 1982 under the
Commercial Code of Japan and is owned equally by Sumitomo Heavy Industries,
Inc., a Japanese corporation, and Axcelis. SEN designs, manufactures, sells and
services ion implantation equipment in Japan under a license agreement with
Axcelis Technologies. Summary financial information follows (in thousands):
F-21
<PAGE> 101
AXCELIS TECHNOLOGIES, INC.
(WHOLLY-OWNED SUBSIDIARY OF EATON CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Twelve months ended November 30:
Net sales.............................................. 119,130 92,740 110,722
Income from operations................................. 14,314 (5,581) 5,005
Net income............................................. 6,566 (4,264) 2,676
November 30:
Current assets......................................... 89,426 157,591
Total assets........................................... 149,139 211,390
Current liabilities.................................... 102,085 150,087
Shareholders' equity................................... 46,676 60,873
</TABLE>
The fiscal year end for SEN is March 31; the information above has been
presented as of and for the twelve months ended November 30 to conform to
Axcelis' equity accounting for SEN.
A summary of Axcelis' transactions with SEN follows (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
------ ------- ------
<S> <C> <C> <C>
Net sales to SEN....................................... $9,512 $ 6,401 $6,660
Royalty income from SEN................................ 6,215 4,036 3,838
Dividends received..................................... 1,729 720
Axcelis' equity in income (loss) of SEN................ 3,283 (2,132) 1,338
Accounts receivable at December 31 from SEN............ 5,364 3,358 3,246
</TABLE>
18. TRANSACTIONS WITH EATON CORPORATION
The statements of combined operations include those expenses originally
recorded by Axcelis or directly charged to Axcelis by Eaton. Further, the
statements include an allocation of Eaton's general corporate expenses to
reflect the services provided or benefits received by Axcelis. Such allocated
expenses were (in millions) $11.8 in 1997, $14.8 in 1998 and $15.0 in 1999 and
are included in "General & Administrative Expense" in the Statements of Combined
Operations. This allocation is based on Eaton's internal expense allocation
methodology which charges these expenses to operating locations based both on
net working capital, excluding short-term investments and short-term debt, and
on property, plant, and equipment - net. Management believes this is a
reasonable method of allocating these expenses, and are representative of the
operating expenses that would have been incurred had Axcelis operated as a
stand-alone basis.
Prior to the initial public offering, Axcelis will enter into agreements
with Eaton providing for the reorganization of Eaton's semiconductor equipment
operations and separation of this business from Eaton. These agreements
generally will provide for, among other things, the transfer from Eaton to
Axcelis of assets and liabilities relating to this business, and various interim
and ongoing relationships between Axcelis and Eaton.
F-22
<PAGE> 102
- ------------------------------------------------------
- ------------------------------------------------------
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the shares offered hereby, but only under circumstances
and in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 9
Special Note Regarding Forward-
Looking Statements.................. 19
Our Separation from Eaton............. 20
Use of Proceeds....................... 22
Dividend Policy....................... 22
Capitalization........................ 23
Dilution.............................. 24
Selected Historical Combined Financial
Data................................ 25
Management's Discussion and Analysis.. 27
Business.............................. 40
Management............................ 54
Arrangements with Eaton............... 64
Principal Stockholder................. 71
Description of Capital Stock.......... 72
Shares Eligible for Future Sale....... 74
Underwriting.......................... 76
Validity of Common Stock.............. 77
Experts............................... 77
Where You Can Find More Information... 78
Index to Combined Financial
Statements.......................... F-1
</TABLE>
-------------------------
Through and including , 2000 (the 25th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a prospectus
when acting as an underwriter and with respect to an unsold allotment or
subscription.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
Shares
AXCELIS TECHNOLOGIES, INC.
Common Stock
GOLDMAN, SACHS & CO.
MORGAN STANLEY DEAN WITTER
Representatives of the Underwriters
------------------------------------------------------
------------------------------------------------------
<PAGE> 103
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale and
distribution of the securities being registered. All amounts are estimated
except the Securities and Exchange Commission registration fee and the NASD
registration fee. We have agreed to pay these costs and expenses.
<TABLE>
<CAPTION>
ITEM AMOUNT
---- ------
<S> <C>
Securities and Exchange Commission registration fee......... $132,000
NASD registration fee....................................... 30,500
Nasdaq Stock Market original and continued listing fees..... *
Blue Sky qualification fees and expenses.................... *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Transfer agent and registrar fees........................... *
Printing and engraving expenses............................. *
--------
Total.................................................. *
========
</TABLE>
- ---------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
We are incorporated under the laws of the State of Delaware. Section 145
("Section 145") of the General Corporation Law of the State of Delaware, as the
same exists or may hereafter be amended (the "General Corporation Law"), inter
alia, provides that a Delaware corporation may indemnify any persons who were,
are or are threatened to be made, parties to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation), by
reason of the fact that such person is or was an officer, director, employee or
agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation or
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding, provided such
person acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that his
conduct was illegal.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him and incurred by him in any such
capacity, arising out of his status as such, whether or not the corporation
would otherwise have the power to indemnify him under Section 145.
Our Amended and Restated Certificate of Incorporation and Bylaws, as
amended, provide for the indemnification of officers and directors to the
fullest extent permitted by the General Corporation Law.
All of our directors and officers will be covered by insurance policies
maintained by us against specified liabilities for actions taken in their
capacities as such, including liabilities under the Securities Act of 1933, as
amended. In addition, we have entered into indemnity agreements with our
directors and executive officers (a form of which is filed as Exhibit 10.3 to
this
II-1
<PAGE> 104
Registration Statement) that obligate us to indemnify such directors and
executive officers to the fullest extent permitted by the General Corporation
Law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
The following exhibits are filed as part of this registration statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
1.1* Underwriting Agreement
2.1* Master Separation and Distribution Agreement between Eaton
Corporation and the registrant
2.2* General Assignment and Assumption Agreement between Eaton
Corporation and the registrant
2.3* Trademark License Agreement between Eaton Corporation and
the registrant
2.4* Employee Matters Agreement between Eaton Corporation and the
registrant
2.5* Tax Sharing and Indemnification Agreement between Eaton
Corporation and the registrant
2.6* Transitional Services Agreement between Eaton Corporation
and the registrant
2.7* Real Estate Matters Agreement between Eaton Corporation and
the registrant
2.8* Indemnification and Insurance Matters Agreement between
Eaton Corporation and the registrant
2.9* Purchase and Sale Agreement dated December 29, 1995 by and
between Eaton Corporation and Eaton Semiconductor Equipment,
Inc.
2.10* Agreement and Plan of Merger dated as of June 30, 1997 among
Eaton Corporation, ETN Acquisition Corp., a wholly-owned
subsidiary of Eaton and Fusion Systems Corporation
3.1* Amended and Restated Certificate of Incorporation of the
registrant
3.2* Bylaws of the registrant, as amended
4.1* Specimen Stock Certificate
4.2* Rights Agreement between the registrant and the rights agent
named therein
5.1* Opinion of Kirkpatrick & Lockhart LLP
10.1* 2000 Stock Plan
10.2* 2000 Director Plan
10.3* Form of Indemnification Agreement entered into by the
registrant with each of its directors and executive officers
10.4* Form of Change in Control Agreement between the registrant
and certain of its executive officers
10.5* Employment Agreement between the registrant and Brian R.
Bachman
10.6* Employment Agreement between the registrant and Mary G. Puma
10.7* Organization Agreement dated December 3, 1982 between Eaton
Corporation and Sumitomo Heavy Industries, Ltd relating to
Sumitomo Eaton Novo Corporation, as amended
10.8* Master License Agreement dated January 16, 1996 between
Eaton Corporation and Sumitomo Eaton Novo Corporation
21.1* Subsidiaries of the registrant
</TABLE>
II-2
<PAGE> 105
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
23.1 Consent of Ernst & Young LLP
23.2* Consent of Kirkpatrick & Lockhart LLP (included in Exhibit
5.1)
23.3 Consent of Mary G. Puma
23.4 Consent of Ned C. Lautenbach
23.5 Consent of Philip S. Paul
23.6 Consent of Naoki Takahashi
23.7 Consent of Gary L. Tooker
24.1 Power of Attorney
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
** The registrant hereby agrees to furnish supplementally to the Commission,
upon request, a copy of any omitted schedule to any of the agreements
contained herein.
(b) Financial Statement Schedules.
Financial statement schedules have been omitted because they are
inapplicable, are not required under applicable provisions of Regulation S-X, or
the information that would otherwise be included in such schedules in contained
is the registrant's financial statements or accompanying notes.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide the Underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as the indemnification for liabilities arising under the Securities
Act of 1933 may be permitted as to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payments by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) for purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective; and
(2) for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and this offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 106
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cleveland, State of Ohio,
on May 4, 2000.
AXCELIS TECHNOLOGIES, INC.
By: /s/ BRIAN R. BACHMAN
------------------------------------
Title: Vice Chairman and Chief
Executive Officer
-----------------------------------
<TABLE>
<CAPTION>
TITLE
-----
<S> <C> <C>
*BRIAN R. BACHMAN Principal Executive Officer May 4, 2000
*KEVIN M. BISSON Principal Financial and Accounting Officer May 4, 2000
*STEPHEN R. HARDIS Director, Chairman May 4, 2000
*ALEXANDER M. CUTLER Director May 4, 2000
*By: /s/ J. ROBERT HORST
---------------------------------------
Pursuant to Power of Attorney
</TABLE>
II-4
<PAGE> 1
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated May 3, 2000, in the Registration Statement (Form S-1)
and related Prospectus of Axcelis Technologies, Inc. dated May 4, 2000 for the
registration of shares of its common stock.
Cleveland, Ohio
May 3, 2000 /s/ Ernst & Young LLP
<PAGE> 1
Exhibit 23.3
May 4, 2000
Axcelis Technologies, Inc. (formerly known as Eaton Semiconductor
Equipment Inc.)
55 Cherry Hill Drive
Beverly, Massachusetts 01915
Dear Sir or Madam:
In conformity with Regulation Section 230.438 of the Securities Act of 1933, I
hereby consent to be named a director of Axcelis Technologies, Inc. (formerly
known as Eaton Semiconductor Equipment Inc.) in its registration statement on
Form S-1 and related documents. I understand and consent to the filing of these
documents with the United States Securities and Exchange Commission.
Sincerely,
/s/ Mary G. Puma
- ---------------------------------------
Name: Mary G. Puma
----------------------------------
Title: Officer and Nominee for Director
---------------------------------
Date: 5/4/2000
----------------------------------
<PAGE> 1
Exhibit 23.4
May 4, 2000
Axcelis Technologies, Inc. (formerly known as Eaton Semiconductor
Equipment Inc.)
55 Cherry Hill Drive
Beverly, Massachusetts 01915
Dear Sir or Madam:
In conformity with Regulation Section 230.438 of the Securities Act of 1933, I
hereby consent to be named a director of Axcelis Technologies, Inc. (formerly
known as Eaton Semiconductor Equipment Inc.) in its registration statement on
Form S-1 and related documents. I understand and consent to the filing of these
documents with the United States Securities and Exchange Commission.
Sincerely,
/s/ Ned C. Lautenbach
- ---------------------------------------
Name: Ned C. Lautenbach
----------------------------------
Title: Nominee for Director
---------------------------------
Date: 5/4/2000
----------------------------------
<PAGE> 1
Exhibit 23.5
May 4, 2000
Axcelis Technologies, Inc. (formerly known as Eaton Semiconductor
Equipment Inc.)
55 Cherry Hill Drive
Beverly, Massachusetts 01915
Dear Sir or Madam:
In conformity with Regulation Section 230.438 of the Securities Act of 1933, I
hereby consent to be named a director of Axcelis Technologies, Inc. (formerly
known as Eaton Semiconductor Equipment Inc.) in its registration statement on
Form S-1 and related documents. I understand and consent to the filing of these
documents with the United States Securities and Exchange Commission.
Sincerely,
/s/ Philip S. Paul
- ---------------------------------------
Name: Philip S. Paul
----------------------------------
Title: Nominee for Director
---------------------------------
Date: 5/4/2000
----------------------------------
<PAGE> 1
Exhibit 23.6
May 4, 2000
Axcelis Technologies, Inc. (formerly known as Eaton Semiconductor
Equipment Inc.)
55 Cherry Hill Drive
Beverly, Massachusetts 01915
Dear Sir or Madam:
In conformity with Regulation Section 230.438 of the Securities Act of 1933, I
hereby consent to be named a director of Axcelis Technologies, Inc. (formerly
known as Eaton Semiconductor Equipment Inc.) in its registration statement on
Form S-1 and related documents. I understand and consent to the filing of these
documents with the United States Securities and Exchange Commission.
Sincerely,
/s/ Naoki Takahashi
- ---------------------------------------
Name: Naoki Takahashi
----------------------------------
Title: Nominee for Director
---------------------------------
Date: 5/4/2000
----------------------------------
<PAGE> 1
Exhibit 23.7
May 4, 2000
Axcelis Technologies, Inc. (formerly known as Eaton Semiconductor
Equipment Inc.)
55 Cherry Hill Drive
Beverly, Massachusetts 01915
Dear Sir or Madam:
In conformity with Regulation Section 230.438 of the Securities Act of 1933, I
hereby consent to be named a director of Axcelis Technologies, Inc. (formerly
known as Eaton Semiconductor Equipment Inc.) in its registration statement on
Form S-1 and related documents. I understand and consent to the filing of these
documents with the United States Securities and Exchange Commission.
Sincerely,
/s/ Gary L. Tooker
- ---------------------------------------
Name: Gary L. Tooker
----------------------------------
Title: Nominee for Director
---------------------------------
Date: 5/4/2000
----------------------------------
<PAGE> 1
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS: That each person whose name is signed
hereto has made, constituted and appointed, and does hereby make, constitute and
appoint, J. ROBERT HORST, EARL R. FRANKLIN, MARK HENNESSEY or MICHAEL C. MCLEAN
his or her true and lawful attorney, for him or her and in his or her name,
place and stead to affix, as attorney-in-fact, his or her signature as director
or officer or both, as the case may be, of Axcelis Technologies, Inc., formerly
known as Eaton Semiconductor Equipment Inc., a Delaware corporation, (the
"Corporation"), to any and all registration statements and amendments filed with
the Securities and Exchange Commission with respect to an aggregate amount of up
to 20% of the Company's outstanding equity, giving and granting unto each such
attorney-in-fact full power and authority to do and perform, every act and thing
whatsoever necessary to be done in the premises, as fully as he or she might or
could do if personally present, hereby ratifying and confirming all that each
such attorney-in-fact shall lawfully do or cause to be done by virtue hereof.
This Power of Attorney shall not apply to any registration statement or
amendment filed after February 28, 2001.
IN WITNESS WHEREOF, this Power of Attorney has been signed at
Cleveland, Ohio, this 4th day of May, 2000.
/s/ Brian R. Bachman
- ---------------------------------
Brian R. Bachman, Vice Chairman
and Chief Executive Officer;
Principal Executive Officer;
Director
/s/ Alexander M. Cutler
- ---------------------------------
Alexander M. Cutler, Director
/s/ Stephen R. Hardis
- ---------------------------------
Stephen R. Hardis, Director
/s/ Kevin M. Bisson
- ---------------------------------
Kevin M. Bisson,
Principal Financial and
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Combined Balance Sheets and the Statements of Combined Operations and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-2000
<PERIOD-END> DEC-31-1999 MAR-31-2000
<CASH> 3,530 2,803
<SECURITIES> 0 0
<RECEIVABLES> 103,383 119,461
<ALLOWANCES> 2,048 2,166
<INVENTORY> 83,326 97,872
<CURRENT-ASSETS> 235,492 270,488
<PP&E> 118,438 119,321
<DEPRECIATION> 44,629 47,100
<TOTAL-ASSETS> 422,835 457,583
<CURRENT-LIABILITIES> 65,733 72,233
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 342,296 371,718
<TOTAL-LIABILITY-AND-EQUITY> 422,385 457,583
<SALES> 397,267 143,051
<TOTAL-REVENUES> 397,267 143,051
<CGS> 240,185 81,577
<TOTAL-COSTS> 384,934 124,650
<OTHER-EXPENSES> (7,220) (8,712)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 19,553 27,113
<INCOME-TAX> 5,125 8,251
<INCOME-CONTINUING> 14,428 18,862
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 14,428 18,862
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
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