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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER
0-12933
___________
LAM RESEARCH CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 94-2634797
(State of other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
4650 CUSHING PARKWAY, 94538
FREMONT, CALIFORNIA (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number, including area code: (510) 659-0200
___________
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.001 PER SHARE
__________
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based on the average of the closing price of the Common Stock on
August 30, 1996, as reported by the Nasdaq National Market was approximately
$604,136,000. Shares of Common Stock held by each officer and director and by
each person who owns 5% or more of the outstanding Common Stock have been
excluded from this computation in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
As of August 30, 1996, the registrant had outstanding 30,298,633 shares of
Common Stock.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the fiscal year ended
June 30, 1996 ("1996 Annual Report to Stockholders"), are incorporated by
reference into Parts I, II and IV of this Report.
Parts of Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on October 31, 1996 are incorporated by reference to
Parts III and IV of this Form 10-K Report. (The Compensation Committee Report
and the stock performance graph of the Registrant's Proxy Statement are
expressly not incorporated by reference herein.)
PART I
ITEM 1. BUSINESS
This Report on Form 10-K contains certain forward looking statements
regarding future events with respect to the Company. Actual events or results
may differ materially as a result of the factors described herein and in the
documents incorporated herein by reference, including, in particular, those
factors described under "Risk Factors." Forward-looking statements are indicated
by an asterisk (*).
THE COMPANY
Lam Research Corporation (Lam) designs, manufactures, markets and
services semiconductor processing equipment used in the fabrication of
integrated circuits. Lam is recognized by its customers worldwide as a leading
supplier of semiconductor production equipment. The Company's products are used
to deposit special films on a silicon wafer (deposition) to selectively etch
away portions of various films (etch) to create an integrated circuit.
Deposition and etch processes, which are repeated numerous times during the
fabrication cycle, are required to manufacture every semiconductor device
produced today.
The Company currently sells a broad range of plasma (dry) etch products
to address specific applications, including the AutoEtch-Registered
Trademark-, Advanced Capabilities Rainbow-TM-, and Transformer Coupled
Plasma-TM-(TCP-TM-) product lines. In the deposition market, Lam offers its
Deep SubMicron-TM- (DSM-TM- 9800) (formerly Integrity-Registered Trademark-)
low pressure (LP) chemical vapor deposition (CVD) system, a fully automated
batch thermal CVD system for pre-metal dielectric applications, and its Deep
SubMicron (DSM 9900) (formerly Epic-TM-) high density plasma (HDP) CVD
system, which addresses advanced intermetal passivation dielectric
applications for logic and microprocessor integrated circuits as well as
shallow trenches for isolation in memory circuits.
PRODUCTS
Semiconductor wafers are subjected to a complex series of process steps
that result in the simultaneous creation of many individual semiconductor
circuits. The basic steps include deposition, photolithography, etching,
assembly and testing. Lam's products are used in the deposition and etch
process steps of semiconductor device manufacturing and are available as
stand-alone systems or on the Company's Advanced Capabilities Alliance
multichamber cluster platform. Lam incorporates its Envision-TM- interactive
control system software for advanced production management on each of its
systems.
ETCH PRODUCTS
The etch process defines line-widths and other micro features on integrated
circuits. Plasma etching, a dry etch technique, was developed to meet the
demand for device geometries with line-widths smaller than three microns.
Plasma etching uses ionized gases that react with exposed portions of the wafer
to produce finely delineated features and patterns of the integrated circuit.
Today manufacturers of advanced integrated circuits require etch systems
that can produce line-widths as small as 0.25 micron (approximately 1/300 the
thickness of a human hair) and in the future are expected to require systems
capable
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of producing devices with feature sizes smaller than 0.1 micron. In
addition, advanced manufacturing facilities are producing integrated circuits on
wafers of 150 or 200 mm (6 or 8 inches) in diameter, and a transition in wafer
diameters is expected to increase to 300 mm (12 inches) starting in 1998. To
accommodate these decreasing line-widths and increasing wafer diameters,
manufacturers increasingly require more precise control over the etching
process.
Lam's family of etch systems incorporates plasma technologies designed to
meet both current and future device requirements. In the fiscal years ended
June 30, 1996, 1995 and 1994, sales of the Company's etch systems contributed
approximately 77%, 77% and 78% of the Company's total revenues, respectively.
AUTOETCH. The AutoEtch family was Lam's initial product line, with the
first AutoEtch etcher sold in January 1982. The AutoEtch product line includes
the 490, 590 and 690 series for etching polysilicon, oxide and aluminum film,
respectively. Although the AutoEtch series is more than fifteen
years old, continued improvements in both reliability and performance have
enabled Lam to continue to offer it as a suitable product for applications
involving line widths of 0.8 micron or greater and wafer sizes of six inches or
smaller. In addition, Lam offers the service of refurbishing or remanufacturing
AutoEtch systems.
RAINBOW. The first Rainbow etch system was introduced in 1987. The
Rainbow series of products addresses processes that utilize wafer sizes up to
200 mm and feature sizes as small as 0.35 micron. The Rainbow product line
also available on the Alliance platform, includes the Rainbow 4400, 4500,
4600 and 4700 series for etching polysilicon, oxide, aluminum and tungsten
films, respectively. These systems are designed to accommodate evolving
customer needs through hardware and process enhancements.
The Rainbow product series incorporates a number of unique features that
offer semiconductor manufacturers improved etch capability, reliability and
performance. These features include a patented wafer handling system, a
proprietary source for generating stable plasma, and an overall product design
for which Lam has received industry awards for quality and reliability. These
and other Rainbow product features enable the semiconductor manufacturer to
reduce wafer particle contamination to a level that exceeds industry
standards, and to improve etch selectivity and uniformity while maintaining
profile control and process flexibility.
TCP. Lam's TCP product line of high density, low pressure etch systems,
which was introduced in late 1992, incorporates the Company's patented
Transformer Coupled Plasma source technology for etching 0.35 micron and
smaller geometries. The Company currently offers the TCP 9600SE for metal
etch applications, the TCP 9400SE for polysilicon and polycide etch
applications and the TCP 9100 for oxide etch applications. These systems
are currently used to produce a broad range of advanced logic and memory devices
and the Company believes these products offer technological capability to enable
manufacturers to produce the next generations of advanced devices. The TCP
series operates at lower pressures for improved pattern transfer control and
higher plasma density for higher etch rates with independent power control to
the lower electrode, which improves etch results across a wider process window.
Lam's TCP systems are designed to offer customers a reliable, lower cost of
ownership solution to their advanced needs. The TCP systems are available as
stand-alone, single wafer tools, or on the Alliance multichamber cluster
platform.
DEPOSITION PRODUCTS
CVD involves the deposition of thin films on a silicon wafer by exposing
the wafer to various reactant gases containing the materials to be deposited.
Insulating films are deposited to form dielectric layers on integrated
circuits. The metal interconnect layer is typically deposited on the wafer
surface by a sputtering process to provide electrical connection between the
various circuit elements. The dielectric layer is deposited over the
interconnects and subsequent layer to provide electrical insulation between
the interconnect layers. To increase circuit functionality, manufacturers
have designed circuits with multilevel interconnections (stacked levels of
wiring separated by insulating dielectric layers) using lower resistivity
materials for improved device performance. Multiple levels of interconnects
allow device manufacturers to increase the density and complexity of the
integrated circuit. Current state-of-the-art devices may have as many as
five interconnect and dielectric layers on the integrated circuit. Lam
currently manufactures two dielectric layer deposition products, the DSM 9800
and DSM 9900, to address advanced device requirements.
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DSM 9800. DSM 9800 LP CVD system for depositing advanced pre-metal
dielectric films. This system utilizes a patented integrated process design
for flowing gases rapidly over the wafer, forming films that are highly
uniform and planar at a lower thermal budget to provide improved device
performance. DSM 9800 has been installed worldwide and is currently being
used for production of semiconductor devices at 0.35 micron and beyond.
DSM 9900. Lam introduced its DSM 9900 HDP CVD system in November 1995.
DSM 9900 represents the next generation in HDP CVD technology first
introduced in the Epic system with the DSM 9900 having a smaller footprint,
high reliability and improved throughput. The DSM 9900 is well suited for the
demanding requirements of high production environments. Like the Epic, the
DSM 9900 makes use of electron cyclotron resonance (ECR) technology to form a
high density, low pressure plasma. ECR enables remote plasma coupling that
minimizes particulate contamination and maximizes throughput while filling
gaps as small as 0.18 microns with aspect ratios as high as 3:1. The
intermetal dielectric films created by simultaneously depositing and etching
are planarized more easily, by chemical mechanical polishing, than films that
are repeatedly deposited and etched by conventional techniques. The DSM 9900
technology, available on Lam's Alliance platform, has been installed at
several customer sites and is being qualified for production of quarter- and
sub-quarter-micron logic, microprocessor, and memory integrated circuits. The
Epic system is still being supported and is used for production of
microprocessors.
Lam, Lam Research, Transformer Coupled Plasma, TCP, Deep SubMicron, DSM,
Rainbow, Continuum, Alliance and Envision are trademarks of Lam Research
Corporation. AutoEtch is a registered trademark of Lam Research Corporation.
THE RESTRUCTURING
In August 1996, the Company announced a restructuring (the restructuring)
of its operations, consolidating its previous business unit structure into
centralized functional organizations. As a result of the restructuring, and in
response to industry conditions, the Company reduced its workforce by
approximately 11%. For the first quarter of fiscal 1997, the Company will record
a restructuring charge of $11.0 to 12.0 million for costs resulting primarily
from severance compensation and consolidation of related facilities.
RESEARCH AND DEVELOPMENT
The market for semiconductor capital equipment is characterized by rapid
technological change. The Company believes that continued and timely
development of new products and enhancements to existing products are necessary
for it to maintain its competitive position. Accordingly, the Company devotes a
significant portion of its personnel and financial resources to research and
development (R&D) programs and seeks to maintain close relationships with its
customers to be responsive to their product needs.
The Company's net R&D expenses during fiscal 1996, 1995 and 1994, were
approximately $173.0 million, $127.8 million and $76.3 million, respectively,
and represented 13.6%, 15.8% and 15.5% of total revenue, respectively. Such R&D
expenses were net of third party funding, from SEMATECH, an industry consortium,
and customers, representing approximately $3.4 million, $2.6 million and $1.8
million during fiscal 1996, 1995 and 1994, respectively. Such expenditures were
used for the development of new products and film applications, and the
continued enhancement of existing products. Current projects include the
development of advanced etch and deposition products.
In June 1994, the Company received a two year contract from the United
States Display Consortium (USDC) for the development of a flat panel display
etch system, based on the Company's TCP technology. The Continuum-TM- etch
system is designed for use in the manufacture of large scale flat panel
displays for several new technologies including active matrix liquid crystal
displays (AMLCDs) and field emission displays (FEDs). Included in the $3.4
million and $2.6 million of third party funded R&D for fiscal 1996 and 1995
was $3.2 million and $1.2 million from USDC.
The Company expects to continue to make substantial investments
in R&D.* The Company also must manage product transitions successfully,
as introductions of new products could adversely affect sales of existing
products. There can be no assurance that future technologies, processes or
product developments will not render the Company's product
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offerings obsolete or that the Company will be able to develop and introduce
new products or enhancements to its existing products and processes in a
timely manner which satisfy customer needs or achieve market acceptance. The
failure to do so could adversely affect the Company's business. Furthermore,
if the Company is not successful in the development of advanced process
equipment for manufacturers with whom it has formed strategic alliances, its
ability to sell its products to those manufacturers would be adversely
affected. In addition, in connection with the development of the Company's
new products, the Company invests in high levels of pre-production inventory,
and the failure to complete development and commercialization of these new
products in a timely manner could result in inventory obsolescence, which
could reduce the Company's financial results.
MARKETING, SALES AND SERVICE
The Company's marketing and sales efforts are focused on building long-term
relationships with its customers. These efforts are supported by a team of
product marketing managers, sales personnel, equipment engineers and process
engineers that works closely with individual customers to find solutions to
their process needs. After-sales support is an essential element of the
Company's marketing and sales program. The Company maintains an ongoing support
relationship with its customers and has an extensive network of field service
personnel in place across the United States, Europe, Japan and Asia Pacific. In
addition, the Company maintains an in-house group of highly skilled application
engineers to respond to customer process needs worldwide when a higher level of
technical expertise is required. The Company believes that its extensive
support programs and close working relationships with its customers give it a
competitive advantage. The Company also believes that, by assisting its
customers in the development of their advanced manufacturing processes, the
customers are less likely to change equipment vendors.
The Company has 40 sales and support centers located throughout the United
States, Europe, Japan, and Asia Pacific, through which direct sales personnel
and independent sales representatives sell and service the Company's products.
The Company has expanded its sales and support offices in Japan to support the
direct sales efforts which began in October 1994. More recently, the Company
has increased that effort by furthering its direct sales and service capability
in Japan to directly market and support its advanced etch products. The Company
now offers its customers a comprehensive, two-year warranty package on all
released products with 24 hour, seven days a week service.
In Japan, the Company has licensing arrangements with Sumitomo Metal
Industries, Ltd. (Sumitomo) and Tokyo Electron Limited (TEL). Sumitomo
manufactures, sells and distributes certain of the Company's Rainbow products to
specific customers in Japan under an exclusive license agreement with Lam. TEL
has a non-exclusive license to sell products incorporating certain features of
Lam's proprietary etch technology. In June 1991, the Company opened the Lam
Technology Center near Tokyo, Japan, to establish a presence in Japan and to
assist Sumitomo in serving Japanese customers. In May 1993, Lam completed its
advanced development and demonstration laboratory in Sagamihara, Japan, which
allows customers to evaluate the Company's recently introduced advanced
technology products. During fiscal 1996, the Company expanded in Japan by
building a third floor on this existing building. In July 1996, the Company
began construction of a second facility in Sagamihara, Japan.
Export sales accounted for approximately 41%, 38% and 40% of net sales in
fiscal 1996, 1995 and 1994, respectively. Export sales consist of sales from
the Company's U.S. operating subsidiary to nonaffiliated customers in foreign
countries. Additionally, the Company expanded its international operations,
including expansion of its Japan operations, the opening of a manufacturing
facility in Korea in July 1995 and the relocation and expansion of the Taiwan
facility to a technology development center. As a result, a
significant portion of the Company's sales and operations will be subject to
certain risks, including tariffs and other barriers, difficulties in staffing
and managing foreign subsidiary and branch operations, difficulties in managing
distributors, potentially adverse tax consequences and the possibility of
difficulty in accounts receivable collection.* There can be no assurance that
any of these factors will not have a material adverse effect on the Company's
business, financial position, results of operations and cash flows.
CUSTOMERS
The Company's customers include most of the leading semiconductor
manufacturers worldwide. In fiscal 1996, no single customer accounted for more
than 10% of Lam's total revenue. Revenue from Intel accounted for 11% and 14% of
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total revenue for the years ended June 30, 1995 and 1994, respectively. Revenue
from Motorola accounted for 10% of total revenue for the year ended June 30,
1995.
The Company's business depends upon the capital expenditures of
semiconductor manufacturers, which in turn depend on the current and anticipated
market demand for integrated circuits and products utilizing integrated
circuits. The semiconductor industry is currently experiencing a slowdown in
terms of product demand and product pricing. This has caused semiconductor
manufacturers to exercise caution in making their capital equipment purchase
decisions and in certain cases customers have either rescheduled or cancelled
capital equipment purchases. In response to market conditions, the Company
announced a restructuring of its operations, consolidating its previous business
unit structure into centralized functional organizations. No assurance can be
given that the Company's revenue and operating results will not be further
adversely affected if downturns in the semiconductor industry occur.
BACKLOG
The Company schedules production of its systems based upon order backlog
and customer commitments. Included in backlog for the Company are
orders for which written authorizations have been accepted
and shipment dates have been assigned. As of June 30, 1996, the Company's order
backlog was approximately $328.0 million. As of June 30, 1995, the Company's
order backlog was approximately $252.6 million. The semiconductor market is
presently experiencing volatility in terms of product demand and product
pricing. This has caused certain semiconductor manufacturers to exercise caution
in making their capital equipment purchase decisions and in certain cases to
reschedule or cancel capital equipment purchases. All orders are subject to
cancellation by the customer with limited penalty. Because some orders are
received for systems to be shipped in the same quarter and possible customer
changes in delivery schedules and cancellations of orders, the Company's backlog
at any particular date is not necessarily indicative of actual sales for any
succeeding period.
MANUFACTURING
The Company maintains U.S. facilities at five locations in Fremont,
California and one location in Wilmington, Massachusetts for the manufacture
of its etch and deposition products. In addition, in July 1995, the Company
completed a manufacturing facility in CheonAn, Korea. The Company's Korean
manufacturing facility may experience difficulties in management,
procurement, production and staffing. There can be no assurances that these
factors will not have an adverse effect on the Company's business, financial
condition and results of operations.
The Company's manufacturing activities consist of assembling and testing
components and subassemblies that are then integrated into finished systems.
Once the manufacturing department has completed final testing of all electronic
and electromechanical subassemblies that make up one of the Company's products,
the completed system is process tested. Stringent cleanliness controls are
present throughout the manufacturing, process and testing areas of these
facilities to reduce particle contamination. Much of the assembly and testing
of the Company's products is conducted in cleanroom environments where personnel
are properly attired to reduce particulate contamination. Prior to shipping a
completed system, the customer's engineers may perform acceptance tests at Lam's
facility, using the customer's own wafers. After passing the acceptance test,
the system is vacuum-bagged in a cleanroom environment and prepared for
shipment.
The Company is subject to a variety of governmental regulations related to
the discharge or disposal of toxic, volatile or otherwise hazardous chemicals
used in the manufacturing process. The Company believes that it is in
compliance with these regulations and that it has obtained all necessary
environmental permits to conduct its business. These permits generally
relate to the disposal of hazardous wastes. Nevertheless, the failure to comply
with present or future regulations could result in fines being imposed on the
Company, suspension of production or cessation of operations. Such regulations
could require the Company to acquire significant equipment or to incur
substantial other expenses to comply with environmental regulations. Any
failure by the Company to control the use of, or adequately restrict the
discharge or disposal of hazardous substances could subject the Company to
future liabilities.
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EMPLOYEES
As of August 30, 1996, the Company had approximately 4,500 full-time
employees. As a result of the restructuring in August 1996, the Company
reduced its workforce by approximately 11%. None of the Company's employees
are represented by a union, and the Company has never experienced a work
stoppage. Management considers its employee relations to be satisfactory.
In addition, each employee of the Company has signed agreements to maintain
the confidentiality of the Company's proprietary information, and most key
employees have stock or stock option arrangements with the Company that
provide for the vesting of their interests over several years.
COMPETITION
The semiconductor processing equipment industry is highly competitive. The
Company faces substantial competition throughout the world. The Company
believes that to remain competitive, it will require significant financial
resources to offer a broad range of products, to maintain customer service and
support centers worldwide and to invest in product and process R&D. Certain of
the Company's existing and potential competitors have substantially greater
financial resources, more extensive engineering, manufacturing, marketing and
customer service and support organizations. The Company expects its competitors
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 the Company's competitors enter into strategic
relationships with leading semiconductor manufacturers covering etch or
deposition products similar to those sold by the Company, its ability to sell
its products to those manufacturers could be adversely affected.* No assurance
can be given that the Company will continue to compete successfully in the
United States or worldwide.
Significant competitive factors in the etch equipment market include etch
quality, repeatability, process capability and flexibility and overall cost of
ownership, including reliability, software automation, throughput, customer
support and system price. Although the Company believes that it competes
favorably with respect to each of these factors, the Company's ability to
compete successfully in this market will depend upon its ability to introduce
product enhancements and new products on a timely basis. There can be no
assurance that the Company will continue to compete successfully in the future.
In the etch equipment market, the Company's primary competitors are Applied
Materials, Inc., TEL, and Hitachi Ltd.
Significant competitive factors in the deposition equipment market include
film quality, flow uniformity, contamination control, temperature control and
overall cost of ownership, including throughput, system reliability, cost of
consumables, system price and customer support. In the deposition equipment
market, the principal suppliers of equipment are Applied Materials, Inc., Canon
Sales Co. Inc., Novellus Systems, Inc. and Watkins-Johnson Company.
PATENTS AND LICENSES
The Company has a policy of seeking patents on inventions governing new
products and processes developed as part of its ongoing research, engineering
and manufacturing activities. The Company holds United States patents and
corresponding foreign patents covering various aspects of its products. The
Company believes that the duration of its patents generally exceeds the life
cycles of the technologies disclosed and claimed therein. The Company believes
that although the patents it holds and may obtain will be of value, they will
not determine the Company's success, which depends principally upon its
engineering, marketing, service and manufacturing skills. However, in the
absence of patent protection, the Company may be vulnerable to competitors who
attempt to imitate the Company's products, manufacturing
techniques and processes. In addition, other companies and inventors may
receive patents that contain claims applicable to the Company's products and
processes. The sale of the Company's products covered by such patents could
require licenses that may not be available on acceptable terms.
From time to time, the Company is notified that it may be in violation of
certain patents. In such cases, the Company's policy is to defend against claims
or negotiate licenses where considered appropriate. However, no assurance can be
given that it will be able to obtain necessary licenses on commercially
reasonable terms. In October 1993, Varian Associates, Inc. (Varian) brought suit
against the Company in the United States District Court, Northern District of
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California, seeking monetary damages and injunctive relief based on the
Company's alleged infringement of certain patents held by Varian. See "Item 3.
Legal Proceedings."
In December 1986, the Company entered into a non-exclusive license
agreement with TEL, licensing the Company's AutoEtch technology and chamber
design. This license expired in December 1991, and, in January 1992, the Company
entered into a new five year license agreement with TEL on substantially similar
terms which was due to expire in December 1996 but has been extended at a
substantially lower royalty.
The Company has two license agreements with Sumitomo. Under one agreement,
Lam granted Sumitomo an exclusive license for the manufacture and sale of
certain Rainbow etch systems in the Japanese market. Under the other agreement,
Sumitomo granted the Company an exclusive license for the manufacture and sale
of Sumitomo's ECR systems in North America and Europe.
RISK FACTORS
CURRENT SLOWDOWN AND VOLATILITY IN THE SEMICONDUCTOR INDUSTRY
The Company's business depends upon the capital equipment expenditures of
semiconductor manufacturers, which in turn depend on the current and anticipated
market demand for integrated circuits and products utilizing integrated
circuits. The semiconductor industry has been cyclical in nature and
historically experienced periodic downturns. The semiconductor industry is
presently experiencing a slowdown in terms of product demand and volatility in
terms of product pricing. This slowdown and volatility has caused the
semiconductor industry to reduce its demand for semiconductor processing
equipment. No assurance can be given that the Company's revenue and operating
results will not be adversely affected during this and possible future downturns
in the semiconductor industry. In addition, the need for continued investments
in research and development, substantial capital equipment requirements and
extensive ongoing worldwide customer service and support capability will limit
the Company's ability to reduce expenses.* Accordingly, there is no assurance
that the Company will be able to remain profitable in the future.
HIGHLY COMPETITIVE INDUSTRY
The semiconductor processing equipment industry is highly competitive. The
Company faces substantial competition throughout the world. The Company
believes that to remain competitive, it 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 addition, the Company intends to continue to
invest substantial resources to increase sales of its systems to Japanese
semiconductor manufacturers, who represent a substantial portion of the
worldwide semiconductor market and whose market is difficult for non-Japanese
equipment companies to penetrate. The Company believes that the semiconductor
equipment industry is becoming increasingly dominated by large manufacturers who
have the resources to support customers on a worldwide basis, and certain of the
Company's competitors have substantially greater financial resources and more
extensive engineering, manufacturing, marketing and customer service and support
capabilities than the Company. In addition, there are smaller emerging
semiconductor equipment companies which provide innovative technology. The
Company expects its competitors 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 the Company's competitors enter into strategic relationships with leading
semiconductor manufacturers covering etch or deposition products similar to
those sold by the Company, its ability to sell its products to those
manufacturers could be adversely affected.* No assurance can be given that the
Company will continue to compete successfully in the United States or worldwide.
DEPENDENCE ON NEW PRODUCTS AND PROCESSES; RAPID TECHNOLOGICAL CHANGE
Semiconductor manufacturing equipment and processes are subject to rapid
technological change. The Company believes that its future success will depend
in part upon its ability to continue to enhance its existing products and their
process capabilities and to develop and manufacture new products with improved
process capabilities. As a result, the Company expects to continue to make
significant investments in research and development.* The Company also must
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manage product transitions successfully, as introductions of new products could
adversely affect sales of existing products. There can be no assurance that
future technologies, processes or product developments will not render the
Company's current product offerings obsolete or that the Company will be able to
develop and introduce new products or enhancements to its existing products and
processes in a timely manner which satisfy customer needs or achieve market
acceptance. The failure to do so could adversely affect the Company's business.
Furthermore, if the Company is not successful in the development of advanced
processes or equipment for manufacturers with whom it has formed strategic
alliances, its ability to sell its products to those manufacturers would be
adversely affected. In addition, in connection with the development of the
Company's new products, the Company invests in high levels of preproduction
inventory, and the failure to complete development and commercialization of
these new products in a timely manner could result in inventory obsolescence,
which could have an adverse effect on the Company's financial results.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's revenue and operating results may fluctuate from quarter to
quarter. The Company derives its revenue primarily from the sale of a
relatively small number of high-priced systems which can range in price from
$300,000 to over $3 million. Some of these systems are ordered and shipped
during the same quarter. The Company's results of operations for a particular
quarter could be adversely affected if anticipated orders for even a small
number of systems were not received in time to enable shipment during the
quarter, if anticipated shipments were delayed or cancelled by one or more
customers or if shipments were delayed due to manufacturing difficulties. In
particular, the Company has experienced certain cases of rescheduling or
cancellation of orders. The Company's revenue and operating results may also
fluctuate due to the mix of products sold, the geographic region or the level of
royalty income from the Company's Japanese licenses. The Company generally
realizes a higher margin on sales of its mature etch products and on revenue
from service and spare parts than on sales of new TCP and Alliance products.
Newer products usually have lower margins in the initial phase of production.
Increases or decreases in royalty income will also have a disproportionate
impact on operating income and will continue to fluctuate on a quarterly basis.
The impact of these and other factors on the Company's revenues and operating
results in any future periods is difficult for the Company to forecast.
DEPENDENCE ON KEY SUPPLIERS
Certain of the components and subassemblies included in the Company's
products are obtained from a single supplier or a limited group of suppliers.
The Company believes that alternative sources could be obtained and qualified to
supply these products. Nevertheless, a prolonged inability to obtain certain
components could have an adverse effect on the Company's operating results and
could result in damage to customer relationships.
ENVIRONMENTAL REGULATIONS
The Company is subject to a variety of governmental regulations related to
the discharge or disposal of toxic, volatile, or otherwise hazardous chemicals
used in the manufacturing process. The Company believes that it is in
compliance with these regulations and that it has obtained all necessary
environmental permits to conduct its business, which permits generally relate to
the disposal of hazardous wastes. Nevertheless, the failure to comply with
present or future regulations could result in fines being imposed on the
Company, suspension of production or cessation of operations. Such regulations
could require the Company to acquire significant equipment or to incur
substantial other expenses to comply with environmental regulations. Any
failure by the Company to control the use of, or adequately restrict the
discharge or disposal of hazardous substances could subject the Company to
future liabilities.
INTERNATIONAL SALES
The Company anticipates that export sales will continue to account for a
significant portion of its net sales.* Additionally, the Company continues to
expand its international operations, including expansion of its facilities in
Asia. As a result, a significant portion of the Company's sales and operations
will be subject to certain risks, including tariffs and other barriers,
difficulties in staffing and managing foreign subsidiary and branch operations,
difficulties in managing distributors, potentially adverse tax consequences and
the possibility of difficulty in accounts receivable
9
<PAGE>
collection. There can be no assurance that any of these factors will not
have a material adverse effect on the Company's business, financial condition
and results of operations.
INTELLECTUAL PROPERTY MATTERS
From time to time, the Company is notified that it may be in violation of
certain patents. In such cases, the Company's policy is to defend against the
claims or negotiate licenses where considered appropriate. However, no
assurance can be given that it will be able to obtain necessary licenses on
commercially reasonable terms, or at all, or any litigation resulting from such
claims could have a material adverse effect on the Company's business and
financial condition.
ITEM 2. PROPERTIES
The Company's executive offices and principal manufacturing, and research
and development facilities are located in eighteen buildings in Fremont,
California, occupying over 1,500,000 square feet under leases expiring from 1998
to 2006. Due to the restructuring, the Company currently has excess capacity
and will consolidate and/or sublease some of its idle
facilities in Fremont, California. The Company also operates a research and
manufacturing facility in Wilmington, Massachusetts.
In addition, the Company leases office space for its service and sales
personnel throughout the United States, Europe, Japan and Asia Pacific. The
Company completed, in July 1995, construction of a manufacturing, sales and
service facility of 40,000 square feet, in CheonAn, South Korea. In fiscal
1996, the Company expanded its current facility in Japan by building a third
floor on an existing building and completed the design for a second facility in
Sagamihara. Construction of the second facility began in July 1996.
The Company's fiscal 1996 rental payments for the facilities occupied as of
June 30, 1996 aggregated approximately $35.3 million and are subject to periodic
increases. The Company believes that its existing facilities are well
maintained and in good operating condition.
ITEM 3. LEGAL PROCEEDINGS
In October 1993, Varian Associates, Inc. (Varian) brought suit against the
Company in the United States District Court, for the Northern District of
California, seeking monetary damages and injunctive relief based on the
Company's alleged infringement of certain patents held by Varian. The lawsuit
is in the late stages of discovery and has recently been reassigned to a new
judge. The Company has asserted defenses of invalidity and unenforceability of
the patents that are the subject of the lawsuit, as well as noninfringement of
such patents by the Company's products. While litigation is subject to inherent
uncertainties and no assurance can be given that the Company will prevail in
such litigation or will obtain a license under such patents on commercially
reasonable terms, or at all, if such patents are held valid and infringed by the
Company's products, the Company believes that the Varian lawsuit will not have a
material adverse effect on the Company's consolidated financial statements.
In addition, the Company is from time to time notified by various parties
that it may be in violation of certain patents. In such cases, it is the
Company's intention to seek negotiated licenses where it is considered
appropriate. The outcome of these matters will not, in management's opinion,
have a material impact on the Company's consolidated financial position,
operating results or cash flow statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
10
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The information required by this Item is incorporated by reference to the
Company's 1996 Annual Report to Stockholders under the heading "Selected
Financial Data" on page 14.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated by reference to the
Company's 1996 Annual Report to Stockholders under the heading "Selected
Financial Data" on page 14.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this Item is incorporated by reference to the
Company's 1996 Annual Report to Stockholders under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 15-19.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements required by this Item are
incorporated by reference to pages 20-32 of the Company's 1996 Annual Report to
Stockholders. The unaudited quarterly results of operations are incorporated by
reference to page 14 of the Company's 1996 Annual Report to Stockholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
11
<PAGE>
PART III
Certain information required by Part III is omitted from this Report in
that the Registrant will file a definitive proxy statement within 120 days after
the end of its fiscal year pursuant to Regulation 14A (the "Proxy Statement")
for its Annual Meeting of Stockholders to be held October 31, 1996 and
certain information included therein is incorporated herein by reference.
(The Compensation Committee Report and the stock performance graph of the
Registrant's Proxy Statement are expressly not incorporated by reference
herein.)
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors required by this Item is
incorporated by reference to "Election of Directors" in the Company's Proxy
Statement.
The executive officers of the Company, who are elected by and serve at the
discretion of the Board of Directors, are as follows:
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
Roger D. Emerick 57 Chairman of the Board and Chief
Executive Officer
Hsui-Sheng (Way) Tu 39 President
Henk J. Evenhuis 53 Executive Vice President, Finance, and
Chief Financial Officer
Alexander M. Voshchenkov 51 Vice President and Chief Technical Officer
Raymond L. Degner 52 Senior Vice President
Thomas O. Yep 57 Senior Vice President
Robert C. Fink 61 Senior Vice President
Rick Friedman 39 Vice President
George R Canavan 49 Vice President
Richard H. Lovgren 42 Vice President, General Counsel and Secretary
Roger D. Emerick joined the Company in 1982 as President, Chief Executive
Officer and a Director. In 1984, he was elected Chairman of the Board of
Directors. Mr. Emerick is currently a director Electroglas, Inc., Brooks
Automation, Inc., Integrated Process Equipment Corp., and Semiconductor
Equipment and Materials International (SEMI). From 1980 to 1982, he was
Senior Vice President of Optical Specialties, Inc. which markets automated
visual wafer inspection equipment for the semiconductor industry.
Hsui-Sheng (Way) Tu joined the Company in 1983 and has held various
positions with the Company. In fiscal 1996, Mr. Tu was named President of Lam
Research Corporation. In 1994, Mr. Tu was named Vice President of the Oxide Etch
Business Unit. In 1992, he was named Vice President of Asian Operations. Before
joining the Company, Mr. Tu was Process Engineering Supervisor for Fairchild
Semiconductor.
Henk J. Evenhuis joined the Company in 1987 as Vice President of Finance
and Administration and Chief Financial Officer and was named Senior Vice
President of Finance in 1988. In fiscal 1996, Mr. Evenhuis was named Executive
Vice President of the Company. Mr. Evenhuis is currently a director of Credence
Systems Corporation, a test equipment manufacturer. Before joining the Company
and since 1986, Mr. Evenhuis was Vice President of Finance and Administration
and Chief Financial Officer for Corvus Systems Inc. He was Vice President of
Finance and Administration and Chief Financial Officer of Trimedia Corporation
from 1985, until Trimedia was acquired by Xidex Corporation in 1986.
Alexander M. Voshchenkov, Ph.D., joined the Company in 1993 as Vice
President and Chief Technical Officer. Before joining the Company and since
1972, Dr. Voshchenkov was a Member of the Technical Staff at AT&T Bell Labs,
12
<PAGE>
serving in various research and managerial positions. His most recent position
was as Supervisor of the High Speed Electronics Department.
Raymond L. Degner, Ph.D., joined the Company in 1984 as Vice President of
Engineering. In August 1996, he was named Senior Vice President of Etch
Products. In January 1992, Dr. Degner was appointed Vice President of the Poly
Etch Business Unit. In 1989 he was named Vice President of Research and
Development. From 1983 to 1984, he served as Director of Development for Silicon
Valley Group, a semiconductor equipment manufacturer.
Thomas O. Yep, Ph.D., joined the Company in 1985 as Director of Process
Technology, and in 1989 was named Vice President of Process Technology. In
August 1996, he was named to Senior Vice President of the CVD Products and
Japan. In February 1992, he was named Vice President of the Metal Etch Business
Unit. Before joining the Company and since 1980, he served as Manager for the
plasma etch and thin film program at Intel Corporation. From 1969 to 1980,
Dr. Yep served as solid-state physicist at Varian Central Research.
Robert C. Fink joined the Company in 1993 as Vice President and Chief
Operating Officer. In August 1996 he was named Senior Vice President of
Corporate Support. In 1995 he was named Senior Vice President of Corporate
Development. Mr. Fink is currently a director of SEMI/SEMATECH and Consilium
Inc. Before joining the Company and since 1988, Mr. Fink served as President of
Drytek, Inc., a former subsidiary of General Signal Corporation. From 1984 to
1988, he was Director of VLSI Operations (North America) for ITT Corporation's
Semiconductor Division. Prior to ITT, Mr. Fink served 12 years with General
Instrument Corporation's Microelectronics Division, serving most recently as
Director of Worldwide Manufacturing Resources.
Rick Friedman joined the Company in 1993 as director of strategic
development in Lam's Wilmington, Massachusetts facility. In February 1996,
he was promoted to Vice President of Worldwide Sales and Service. In 1995, he
was promoted to Vice President of North America Sales and Service. Prior to that
he was Director of Western Region Sales and Service. Before joining Lam he held
various positions at Drytek, Inc. (mid 1980's to 1993). His most recent
position at Drytek, Inc. was North American sales manager.
George Canavan joined the Company in December 1994 as Director of Business
Development for the Oxide Etch Business Unit. In August 1996, he was named to
Vice President of Marketing. In December 1995, he was promoted to Vice President
of Oxide Etch Business Unit. Prior to joining Lam, Mr. Canavan spent three years
at Applied Materials, Inc. as global marketing manager and two years as Vice
President of Sales and Marketing at ADVANTAGE Production Technology Inc.
Prior to that he held various marketing positions at Applied Materials, Inc.,
and engineering and operations positions at Amdahl Corporation and National
Semiconductor Corp.
Richard H. Lovgren joined the Company in 1995 as Vice President, General
Counsel and Corporate Secretary. Before joining the Company and since 1979, Mr.
Lovgren held various legal positions at Advanced Micro Devices, Inc. His most
recent position at Advanced Micro Devices, Inc. was Director and Deputy General
Counsel.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Company's Proxy Statement under the heading "Executive Compensation and Other
Information."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
Company's Proxy Statement under the heading "Election of Directors" and
"Security Ownership of Certain Beneficial Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
Company's Proxy Statement under the heading "Certain Relationships and Related
Transactions."
13
<PAGE>
PART IV
<TABLE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<S> <C>
(a) (1) Financial Statements: See Index to Financial Statements, page 15
(2) Financial Statement Schedules: See Index to Financial Statement Schedules, page 15
(3) Exhibits: See Index to Exhibits, pages 19-21
(b) No reports on Form 8-K were filed during the fiscal year ended June 30, 1996
</TABLE>
14
<PAGE>
LAM RESEARCH CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
PAGE(S)
IN 1996
ANNUAL
REPORT*
<S> <C>
Consolidated Balance Sheets - June 30, 1996 and 1995 ........................................... 20
Consolidated Statements of Income - Years Ended June 30, 1996, 1995 and 1994 ................... 21
Consolidated Statements of Cash Flows - Years Ended June 30, 1996, 1995 and 1994 ............... 22
Consolidated Statements of Stockholders' Equity Years - Ended June 30, 1996, 1995 and 1994 ..... 23
Notes to Consolidated Financial Statements ..................................................... 24
Report of Independent Auditors ................................................................. 32
</TABLE>
INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
PAGE
<S> <C>
Schedule II Valuation and Qualifying Accounts ................................................... 18
</TABLE>
* Incorporated by reference to the Company's 1996 Annual Report to Stockholders.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
LAM RESEARCH CORPORATION
By /s/ ROGER D. EMERICK
Roger D. Emerick,
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE
OFFICER (PRINCIPAL EXECUTIVE OFFICER)
Dated: September 23, 1996
16
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Roger D. Emerick and Henk J. Evenhuis, jointly
and severally, his attorneys-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any amendments to this Report of
Form 10-K, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the date indicated.
<TABLE>
SIGNATURES TITLE DATE
<S> <C> <C>
/s/ ROGER D. EMERICK Chairman of the Board and Chief Executive Officer September 23, 1996
(Principal Executive Officer)
Roger D. Emerick
/s/ HENK J. EVENHUIS Executive Vice President and Chief Financial Officer September 23, 1996
(Principal Financial Officer and Principal
Henk J. Evenhuis Accounting Officer)
/s/ DAVID G. ARSCOTT Director September 23, 1996
David G. Arscott
/s/ JACK R. HARRIS Director September 23, 1996
Jack R. Harris
/s/ GRANT M. INMAN Director September 23, 1996
Grant M. Inman
/s/ OSAMU KANO Director September 23, 1996
Osamu Kano
</TABLE>
17
<PAGE>
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
LAM RESEARCH CORPORATION
ADDITIONS
<TABLE>
<CAPTION>
DESCRIPTION BALANCE AT CHARGED TO COSTS CHARGED TO OTHER DEDUCTIONS - BALANCE AT END OF
---------- BEGINNING OF AND EXPENSES ACCOUNTS - DESCRIBE DESCRIBE PERIOD
PERIOD
COL. A COL. B COL. C COL. D COL. E
------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1996
Deducted from asset accounts:
Allowance for doubtful
accounts...................... $1,189,000 $500,000 $0 $26,000(3) $1,663,000
Product warranty and
improvement reserves (2)........ $40,986,000 $101,743,000 $0 $80,549,000(1) $62,180,000
YEAR ENDED JUNE 30, 1995
Deducted from asset accounts:
Allowance for doubtful
accounts...................... $1,156,000 $217,000 $0 $184,000(3) $1,189,000
Product warranty and
improvement reserves (2)........ $21,609,000 $65,296,000 $0 $45,919,000(1) $40,986,000
YEAR ENDED JUNE 30, 1994
Deducted from asset accounts:
Allowance for doubtful
accounts...................... $485,000 $200,000 $483,000(4) $12,000(3) $1,156,000
Product warranty and
improvement reserves (2)........ $7,549,000 $43,599,000 $0 $29,539,000(1) $21,609,000
</TABLE>
- - -----------
(1) Costs incurred for warranty repair and/or product improvements during this
year.
(2) Included in the Balance Sheet under the caption "Accrued expenses and other
liabilities."
(3) Represents specific customer accounts written off.
(4) Includes $236,000 related to the accounts receivable of Drytek, Inc.
acquired July 1, 1993 and $247,000 reclassification of reserve which was
included in a liability account at June 30, 1993.
18
<PAGE>
LAM RESEARCH CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
EXHIBIT INDEX
EXHIBIT DESCRIPTION
------- -----------
3.1(20) Certificate of Incorporation of the Registrant, as amended.
3.2(1) ByLaws of the Registrant.
4.1(2) Amended 1981 Incentive Stock Option Plan and Forms of Stock Option
Agreements.
4.2(2) Amended 1984 Incentive Stock Option Plan and Forms of Stock Option
Agreements.
4.3(22) Amended 1984 Employee Stock Purchase Plan and Form of Subscription
Agreement.
4.4(22) Amended 1991 Stock Option Plan and Forms of Stock Option
Agreements.
4.5 1996 Performance-Based Restricted Stock Plan
10.1(3) Lease dated November 10, 1986 between the Registrant and Northport
Associates No. 17.
10.2(1) Amendments to lease dated November 10, 1986 between the
Registrant and Northport Associates No. 17.
10.3(4) Form of Indemnification Agreement.
10.4(9) Lease agreements dated January 1, 1990 between the Registrant and
Aetna Life Insurance Company.
10.5(5) Agreements dated July 6, 1988 between the Registrant and Sumitomo
Metal Industries, Ltd.
10.7(5) Roger D. Emerick Promissory Note and Deed of Trust.
10.8(7) Patent Purchase and Sale Agreement dated February 22, 1989
between the Registrant and The Perkin-Elmer Corporation.
10.9(6) Acquisition Agreement dated June 7, 1989 among the Registrant,
Monkowski-Rhine, Incorporated and the shareholders of Monkowski-
Rhine, Incorporated.
10.10(6) Common Stock Purchase Agreement dated May 18, 1989 between the
Registrant and Sumitomo Metal Industries, Ltd.
10.12(8) ECR Technology License Agreement and Rainbow Technology License
Agreement by and between Registrant and Sumitomo Metal
Industries, Ltd.
10.13(10) Amended and Restated Revolving Credit Agreement dated March 28,
1991 between First Interstate Bank, Silicon Valley Bank and Lam
Research Corporation.
10.14(11) Lease agreement dated July 24, 1991 between the Registrant and
Northport Associates No. 18
10.15(12) Technology Licensing Agreement dated October 25, 1991 between the
Registrant and International Business Machines Corporation.
10.16(13) License Agreement effective January 1, 1992 between the
Registrant and Tokyo Electron Limited.
10.18(14) Business Sales Agreement dated June 21, 1993 by and among Lam
Research Corporation, Drytek Incorporated, and General Signal
Corporation.
10.19(15) Deferred Compensation Agreement with Roger D. Emerick.
10.20(17) Credit Agreement dated June 24, 1994 between Lam Research
Corporation and ABN Amro Bank
10.21(17) Credit Agreement dated July 22, 1994 between Lam Research
Corporation and Union Bank
10.22(16) Trust Indenture
10.25(19) Receivables Purchase Agreement between Lam Research Corporation
and ABN-AMRO Bank N.V., Cayman Islands Branch
10.26(20) Amendment to Receivables Purchase Agreement between Lam Research
Corporation and ABN-AMRO Bank N.V., Cayman Islands Branch
10.27(20) Receivables Purchase Agreement between Lam Research Corporation
and ABN-AMRO Bank N.V., Tokyo Branch
10.28(20) Guaranty of Supplemental Receivables Purchase Agreement between
Lam Research Corporation and ABN-AMRO Bank N.V., Tokyo Branch
dated June 28, 1995
10.29(22) Credit Agreement Between Lam Research Corporation and ABN-AMRO
Bank N.V. dated December 20, 1995
10.30(23) Operating Lease Agreement Between Lam Research Corporation and
the Industrial Bank of Japan, Limited dated March 27, 1996
10.31 Term Loan Agreement between The Sakura Bank and Lam Research Co.
Ltd. dated June 26, 1996
19
<PAGE>
10.32 The Continuing Guaranty between The Sakura Bank Ltd. and Lam
Research Corporation dated June 26, 1996
11.1 Computation of Earnings Per Share
13.1 Annual Report to Stockholders for the year ended June 30, 1996
(to be deemed filed only to the extent required by the instruction
to exhibits for reports on Form 10-K
21 Subsidiaries of the Registrant.
23 Consent of Ernst & Young LLP, Independent Auditors.
24 Power of Attorney (see page 17).
27 Financial Data Schedule
- - -------
(1) Incorporated by reference to the Registrant's Registration Statement
on Form 8-B filed with the Securities and Exchange Commission on April 11,
1990.
(2) Incorporated by reference to Post Effective Amendment No. 1 to the
Registrant's Registration Statement on Form S-8 (No. 33-32160) filed with the
Securities and Exchange Commission on May 10, 1990.
(3) Incorporated by reference to Registrant's Quarterly Report on Form
10-Q for the quarter ended December 28, 1986.
(4) Incorporated by reference to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended April 3, 1988.
(5) Incorporated by reference to Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1988.
(6) Incorporated by reference to Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1989.
(7) Incorporated by reference to Registrant's Quarterly Report on Form
10-Q for the quarter ended April 2, 1989.
(8) Incorporated by reference to Registrant's Quarterly Report on Form
10-Q for the quarter ended December 31, 1989.
(9) Incorporated by reference to Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1990.
(10) Incorporated by reference to Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1991.
(11) Incorporated by reference to Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1991.
(12) Incorporated by reference to Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1991.
(13) Incorporated by reference to Registrant's Quarterly Report on Form
10-Q for the quarter ended December 31, 1991.
(14) Incorporated by reference to Registrant's Report on Form 8-K dated
July 1, 1993.
(15) Incorporated by reference to Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1993.
(16) Incorporated by reference to Registrant's Registration Statement on
Form S-3 (No. 33-61726) declared effective by the Securities and Exchange
Commission on May 4, 1993.
(17) Incorporated by reference to Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1994.
(19) Incorporated by reference to Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1995.
(20) Incorporated by reference to Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1995.
20
<PAGE>
(21) Incorporated by reference to Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1995
(22) Incorporated by reference to Registrant's Quarterly Report on Form
10-Q for the quarter ended December 31, 1995.
(23) Incorporated by reference to Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1996.
21
<PAGE>
- - -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
EXHIBITS
TO
FORM 10-K
-----------
LAM RESEARCH CORPORATION
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
22
<PAGE>
Exhibit 4.5
LAM RESEARCH CORPORATION
PERFORMANCE-BASED RESTRICTED STOCK PLAN
(Effective January 1, 1996)
SECTION 1
ESTABLISHMENT AND PURPOSE
1.1 PURPOSE. Lam Research Corporation hereby establishes the Lam Research
Corporation Performance-Based Restricted Stock Plan (the "Plan"). The Plan is
intended to increase shareholder value and advance the success of the Company
by (a) motivating key employees to perform to the best of their abilities, and
(b) increasing the desire of key employees to continue their employment with the
Company. The Plan's goals are to be achieved by providing such employees with
restricted stock awards based on the achievement of goals relating to the
financial performance of the Company. Payments under the Plan are intended to
qualify as performance-based compensation within the meaning of Code
Section 162(m).
1.2 EFFECTIVE DATE. The Plan is effective January 1, 1996, subject to the
approval of a majority of the shares of the Company's common stock which are
present in person or by proxy and entitled to vote at the 1995 Annual Meeting of
Stockholders.
SECTION 2
DEFINITIONS
The following words and phrases shall have the following meanings unless a
different meaning is plainly required by the context:
2.1 "ACTUAL AWARD" means, as to any Performance Period, the cash-
denominated bonus amount which is earned by a Participant for such Performance
Period and which is converted into Restricted Stock pursuant to Section 6.3,
subject to Section 2.13 and the Administrator's authority under Section 5.5 to
reduce the award otherwise determined by the Payout Formula.
2.2 "ADMINISTRATOR" means the Board or any of its Committees as shall be
administering the Plan from time to time pursuant to Section 4 of the Plan.
2.3 "BOARD" means the Company's Board of Directors.
2.4 "CODE" means the Internal Revenue Code of 1986, as amended.
<PAGE>
2.5 "COMMITTEE" means a committee, if any, appointed by the Board in
accordance with Section 4.1 to administer the Plan.
2.6 "COMMON STOCK" means the Common Stock of the Company.
2.7 "COMPANY" means Lam Research Corporation, a Delaware corporation.
2.8 "COVERED EMPLOYEE" means a "covered employee" within the meaning of
Section 162(m).
2.9 "DETERMINATION DATE" means as to any Performance Period, (a) the first
day of the Performance Period, or (b) if later, the latest date possible which
will not jeopardize qualification of payments under the Plan as Performance-
Based Compensation.
2.10 "DISABILITY" means a permanent and total disability determined in
accordance with uniform and nondiscriminatory standards adopted by the Committee
from time to time.
2.11 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
2.12 "FAIR MARKET VALUE" means, as of any date, the value of Common Stock
determined as follows:
(a) If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the Nasdaq National
Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market
Value shall be the closing sales price for such stock (or the closing bid, if no
sales were reported) as quoted on such exchange or system for the last market
trading day prior to the time of determination, as reported in THE WALL STREET
JOURNAL or such other source as the Administrator deems reliable;
(b) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in THE WALL STREET JOURNAL or such other source as
the Administrator deems reliable;
(c) In the absence of an established market for the Common Stock, the
Fair Market Value shall be determined in good faith by the Administrator.
2.13 "MAXIMUM AWARD" means as to any Participant for any Plan Year,
[10,000] Shares, which is the maximum amount of Restricted Stock that may be
awarded to a Participant for any Plan Year (the "Plan").
2.14 "PARTICIPANT" means as to any Performance Period, an employee of the
Company who has been selected by the Committee for participation in the Plan for
that Performance Period.
<PAGE>
2.15 "PAYOUT FORMULA" means as to any Performance Period, the formula or
payout matrix established by the Committee pursuant to Section 5.4 to determine
the Actual Awards (if any) to be paid to Participants. The formula or matrix
may differ from Participant to Participant.
2.16 "PERFORMANCE-BASED COMPENSATION" means compensation that is intended
to qualify as "performance-based compensation" within the meaning of
Section 162(m).
2.17 "PERFORMANCE GOALS" means the Company's financial goal(s) determined
by the Committee to be applicable for a Performance Period, based on earnings,
earnings per share, revenue growth or return on equity.
2.18 "PERFORMANCE PERIOD" means the quarterly, semi-annual or annual fiscal
period of the Company that is established by the Administrator as the period
over which the Company's financial performance is to be measured for purposes of
the Plan.
2.19 "PLAN" means this LAM Research Corporation Performance-Based
Restricted Stock Plan.
2.20 "PLAN YEAR" means the 1995 fiscal year of the Company and each
succeeding fiscal year of the Company.
2.21 "RESTRICTED STOCK" means Shares awarded pursuant to Section 6, and
subject to the Company's reacquisition right as specified in the Restricted
Stock Agreement.
2.22 "RESTRICTED STOCK AGREEMENT" means an agreement in the form approved
by the Administrator setting forth the terms and conditions applicable to the
award of Restricted Stock.
2.23 "RETIREMENT AGE" means the attainment of age 60 and the completion of
seven "years of service," as that term is defined under the Company's Executive
Deferred Compensation Plan, as amended from time to time, or any successor plan
thereto.
2.24 "SECTION 16 OFFICER" means an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
2.25 "SECTION 162(M)" means Section 162(m) of the Code, or any successor to
Section 162(m), as that Section may be interpreted from time to time by the
Internal Revenue Service, whether by regulation, notice or otherwise.
2.26 "SHARE" means a share of the Common Stock, as adjusted in accordance
with Section 3.2 of the Plan.
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2.27 "TARGET AWARD" means the dollar-denominated target award that
establishes a Participant's bonus opportunity under the Plan for a Performance
Period, as determined by the Administrator in accordance with Section 5.3.
SECTION 3
STOCK SUBJECT TO THE PLAN
3.1 NUMBER OF SHARES. Subject to the provisions of Section 3.2 of the
Plan, the maximum aggregate number of Shares that may be issued under the Plan
is 150,000 Shares. The Shares may be authorized, but unissued, or reacquired
Common Stock. If Shares are forfeited to the Company pursuant to a Restricted
Stock Agreement, such Shares, unless the Plan shall have been terminated, shall
be returned to the Plan and shall become available for reissuance under the
Plan; provided, however, that any such Shares shall not return to the Plan if
the Participant to whom they were originally issued received the benefits of
ownership of such Shares (other than voting), as interpreted from time to time
by the Securities and Exchange Commission in the context of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended ("Rule 16b-3").
3.2 ADJUSTMENTS IN AWARDS AND AUTHORIZED SHARES. In the event of any
recapitalization, stock dividend, stock split, reverse stock split, split-up,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company, the Administrator shall adjust the number and
class of Shares that may be delivered under the Plan, the number and class of
Shares subject to outstanding awards, and any applicable numerical Share limits
in such manner as the Administrator in its sole discretion shall determine to be
appropriate to prevent the dilution or diminution of such awards.
SECTION 4
ADMINISTRATION OF THE PLAN
4.1 COMPOSITION OF ADMINISTRATOR. The Board may establish a Committee to
administer the Plan, and may establish different Committees with respect to
(a) Participants who are Section 16 Officers, (b) Participants who are Covered
Employees, and (c) Participants who are neither Section 16 Officers nor Covered
Employees. With respect to participation by Section 16 Officers, the Plan shall
be administered in such a manner as to permit the Plan and awards hereunder to
comply with Rule 16b-3 as it applies to a plan intended to qualify thereunder as
a discretionary grant or award plan. With respect to participants who are
Covered Employees, the Plan shall be administered by two or more "outside
directors" within the meaning of Section 162(m) in such a manner as to permit
payments under the Plan to qualify as Performance-Based Compensation.
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4.2 POWERS OF THE ADMINISTRATOR. Subject to the provisions of the Plan
and, in the case of a Committee, subject to the specific duties delegated by the
Board to such Committee, the Administrator shall have the discretion and
authority necessary or appropriate to administer the Plan and to interpret the
provisions of the Plan, consistent with the requirements of Rule 16b-3, as
applicable, and with the qualification of payments under the Plan as
Performance-Based Compensation with respect to Participants who are Covered
Employees. Any determination, decision or action of the Administrator in
connection with the construction, interpretation, administration or application
of the Plan shall be final, conclusive and binding upon all persons, and shall
be given the maximum deference permitted by law.
SECTION 5
SELECTION OF PARTICIPANTS AND DETERMINATION OF AWARDS
5.1 SELECTION OF PARTICIPANTS. On or prior to the Determination Date, the
Administrator, in its sole discretion, shall select the employees of the Company
who shall be Participants for the Performance Period. In selecting
Participants, the Administrator shall choose employees whose responsibilities
are likely to significantly influence the financial performance of the Company.
No person shall be automatically entitled to participate in the Plan in any
given Performance Period.
5.2 DETERMINATION OF PERFORMANCE GOALS. On or prior to the Determination
Date, the Administrator shall establish WRITTEN Performance Goals for the
Performance Period.
5.3 DETERMINATION OF TARGET AWARDS. On or prior to the Determination
Date, the Administrator shall establish a WRITTEN Target Award for the
Performance Period for each Participant.
5.4 DETERMINATION OF PAYOUT FORMULA OR FORMULAE. On or prior to the
Determination Date, the Administrator shall establish a Payout Formula or
Formulae for purposes of determining the Actual Award, if any, payable to each
Participant. Each Payout Formula shall (a) be in WRITING, (b) be based on a
comparison of actual performance to the Performance Goals, (c) provide for the
payment of a Participant's Target Award if the Performance Goals for the
Performance Period are achieved, and (d) provide for an Actual Award greater
than or less than the Participant's Target Award, depending upon the extent to
which actual performance exceeds or falls below the Performance Goals.
5.5 DETERMINATION OF ACTUAL AWARDS. After the end of each Performance
Period, the Administrator shall certify IN WRITING the extent to which the
Performance Goals applicable to each Participant for the Performance Period were
achieved or exceeded. The Actual Award for each Participant shall be determined
by applying the Payout Formula to the level of actual performance which has been
certified by the Administrator. Notwithstanding any contrary provision of the
Plan: (a) the Administrator, in its sole discretion, may eliminate or reduce the
Actual Award payable to any Participant below that which otherwise would be
payable under the Payout formula; (b) if a
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Participant terminates employment with the Company prior to the end of a
Performance Period, he or she shall not be entitled to the payment of an Actual
Award for the Performance Period; and (c) no Participant's Actual Award under
the Plan may exceed the Maximum Award.
SECTION 6
PAYMENT OF AWARDS
6.1 RIGHT TO RECEIVE PAYMENT. Nothing in this Plan shall be construed to
create a trust or to establish or evidence any Participant's claim of any right
other than as an unsecured general creditor with respect to any payment to which
he or she may be entitled under the Plan.
6.2 TIMING AND PAYMENT OF AWARDS. Payment of each Actual Award shall be
made as soon as practicable after the end of the Performance Period during which
the award was earned.
6.3 FORM OF PAYMENT. Each Actual Award shall be paid in the form of
Restricted Stock. The number of Shares shall be determined by dividing the
cash-denominated value of the Actual Award by the Fair Market Value of a Share
on the last day of the Performance Period, rounded up to the nearest whole
Share. The payment of the Actual Award shall be evidenced by a Notice of Award
of Restricted Stock that, together with a Restricted Stock Agreement, shall
specify the applicable vesting restrictions, the amount of Restricted Stock
awarded, and such other terms and conditions as the Administrator, in its sole
discretion, shall determine.
6.4 TERMINATION OF EMPLOYMENT; ACCELERATION OF VESTING. In the event a
Participant's status as an employee of the Company terminates for any or no
reason, any unvested Restricted Stock previously awarded to the Participant
shall be forfeited to the Company without consideration to the Participant;
provided that, in the event a Participant reaches Retirement Age, the
Participant shall become 100% vested in all of his or her Restricted Stock and
such Shares shall no longer be subject to the Company's reacquisition option
contained in the Restricted Stock Agreement; provided further, that in the event
the Participant's employment with the Company terminates as a result of his or
her death or Disability, the Administrator may, in its sole discretion, vest all
or any portion of any of his or her unvested Restricted Stock. Any Restricted
Stock that is forfeited pursuant to this Section 6.4 shall again become
available for award under this Plan in accordance with Section 3.1.
6.5 STOCK WITHHOLDING TO SATISFY TAX WITHHOLDING OBLIGATIONS. When a
Participant incurs tax liability in connection with the acquisition or vesting
of Shares under the Plan, which tax liability is subject to tax withholding
under applicable tax laws, and the Participant is obligated to pay the Company
an amount required to be withheld under applicable tax laws, the Participant may
satisfy the withholding tax obligation by electing to have the Company withhold,
from the Shares acquired under the Plan that have vested, that number of Shares
having a Fair Market Value equal to the amount required to be withheld. The
Fair Market Value of the Shares to be withheld shall be determined on the date
that the amount of tax to be withheld is to be determined. All elections by a
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Participant to have Shares withheld for this purpose shall be made in writing in
a form acceptable to the Administrator and shall be subject to such uniform and
nondiscriminatory restrictions and limitations as the Administrator may specify.
SECTION 7
GENERAL PROVISIONS
7.1 NONASSIGNABILITY. A Participant shall have no right to assign or
transfer any interest under this Plan.
7.2 NO EFFECT ON EMPLOYMENT. The establishment and subsequent operation
of the Plan, including eligibility as a Participant, shall not be construed as
conferring any legal or other rights upon any Participant for the continuation
of his or her employment for any Performance Period or any other period.
Employment with the Company is on an at will basis only, unless provided
differently in Participant's employment contract, if any, with the Company. The
Company expressly reserves the right, which may be exercised at any time and
without regard to when during a Performance Period such exercise occurs, to
terminate any individual's employment with or without cause, and to treat him or
her without regard to the effect which such treatment might have upon him or her
as a Participant.
7.3 INDEMNIFICATION. Each person who is or shall have been a member of
the Administrator shall be indemnified and held harmless by the Company against
and from (a) any loss, cost, liability, or expense that may be imposed upon or
reasonably incurred by him or her in connection with or resulting from any
claim, action, suit or proceeding to which he or she may be a party or in which
he or she may be involved by reason of any action taken or a failure to act
under the Plan, and (b) from any and all amounts paid by him or her in
settlement thereof, with the Company's approval, or paid by him or her in
satisfaction of any judgment in any such claim, action, suit or proceeding
against him or her, provided he or she shall give the Company an opportunity, at
its own expense, to handle and defend the same before he or she undertakes to
handle and defend it on his or her own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights or indemnification to
which such persons may be entitled under the Company's certificate of
incorporation or bylaws, by contract, as a matter of law, or otherwise, or under
any power that the Company may have to indemnify them and hold them harmless.
7.4 BENEFICIARY DESIGNATIONS. If permitted by the Administrator, a
Participant may name a beneficiary or beneficiaries to whom any vested but
unpaid amount due to Participant under the Plan shall be paid in the event of
the Participant's death. Each such designation shall revoke all prior
designations by the Participant and shall be effective only if given in a form
and manner acceptable to the Administrator. In the absence of any such
designation, any amounts remaining unpaid at the Participant's death shall be
paid to the Participant's estate.
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7.5 SEVERABILITY; GOVERNING LAW. If any provision of the Plan is found to
be invalid or unenforceable, such provision shall not affect the other
provisions of the Plan, and the Plan shall be construed in all respects as if
such invalid provision had been omitted. The provisions of the Plan shall be
governed by and construed in accordance with the laws of the State of
California, with the exception of California's conflict of laws provisions.
7.6 AFFILIATES OF THE COMPANY. Requirements referring to employment with
the Company or payment of awards may, in the Committee's discretion, be
performed through the Company or any affiliate of the Company.
SECTION 8
AMENDMENT AND TERMINATION
8.1 AMENDMENT AND TERMINATION. The Board may at any time amend, alter,
suspend or terminate the Plan, as it may deem advisable; provided that, to the
extent necessary and desirable to comply with Rule 16b-3, Section 162(m), or any
other applicable law, the Company shall obtain shareholder approval of any Plan
amendment in such a manner and to such a degree as is required.
8.2 AFFECT OF AMENDMENT OR TERMINATION. Any such amendment, alteration,
suspension or termination of the Plan shall not impair the rights of any
Participant under any award (or right to receive an award), unless such
Participant consents in writing to such amendment, alteration, suspension or
termination. Such awards shall remain in full force and effect as if this Plan
had not been amended or terminated.
SECTION 9
COMPLIANCE WITH LAWS AND REGULATIONS
Shares shall not be issued with respect to an award hereunder unless the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange or quotation system upon
which the Shares may then be listed or quoted, and shall be further subject to
the approval of counsel for the Company with respect to such compliance.
Inability of the Company to obtain authority from any regulatory body having
jurisdiction, which authority is deemed by the Company's counsel to be necessary
to the lawful issuance and sale of any Shares hereunder, shall relieve the
Company of any liability in respect of the non-issuance or sale of such Shares
as to which such requisite authority shall not have been obtained.
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SECTION 10
SHAREHOLDER APPROVAL
The Plan, the grant of Share awards and the acquisition of Shares shall be
subject to approval by the holders of a majority of the Shares of Common Stock
of the Company represented (in person or by proxy) and voting at a meeting.
Such approval shall be solicited substantially in accordance with Section 14(a)
of the Exchange Act and the rules and regulations promulgated thereunder within
such time as is required by Rule 16b-3, Section 162(m), or other applicable law.
<PAGE>
Exhibit 10.31
TERM LOAN AGREEMENT
This Term Loan Agreement ("Agreement") is entered into as of June 26, 1996
by and between Lam Research Co., Ltd., a Japanese corporation ("Borrower"), and
The Sakura Bank, Limited, a Japanese banking corporation ("Lender"). The
parties hereto hereby agree as follows:
ARTICLE 1.
DEFINITIONS, CONSTRUCTION AND ACCOUNTING TERMS
SECTION 1.1. DEFINED TERMS. As used in this Agreement, the following
terms have the following meanings (terms defined in the singular to have the
same meaning when used in the plural and vice versa):
"Affiliate" means, with respect to any Person (i) each Person that,
directly or indirectly, owns or controls, whether beneficially or as a trustee,
guardian or other fiduciary, ten percent (10%) or more of any class of Equity
Securities of such Person; (ii) each Person that controls, is controlled by or
is under common control with such Person or any Affiliate of such person; or
(iii) each of such Person's officers, directors, joint venturers and partners;
provided, however, that in no case shall Lender be deemed to be an Affiliate of
Borrower, Guarantor or any Guarantor Subsidiary for purposes of this Agreement.
For the purpose of this definition, "control" of a Person shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of its management or policies, whether through the ownership of voting
securities, by contract or otherwise.
"Agreement" means this Term Loan Agreement, as amended, supplemented, or
modified from time to time.
"Business Day" means any day other than a Saturday, Sunday, or other day on
which commercial lenders in Tokyo, Japan, are authorized or required to close.
"Capital Asset" means, with respect to any Person, any tangible fixed or
capital asset owned or leased (in the case of a Capital Lease) by such Person,
or any expense incurred by such Person that is required by GAAP to be reported
as a non-current asset on such Person's balance sheet.
"Capital Expenditures means, with respect to any Person and any period, all
amounts expended and indebtedness incurred or assumed by such Person during such
period for the acquisition of Capital Assets (including all amounts expended and
indebtedness incurred or assumed in connection with Capital Leases).
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"Capital Leases" means any and all lease obligations that, in accordance
with GAAP, are required to be capitalized on the books of a lessee.
"Change of Control" means (i) the acquisition of beneficial ownership by
any "person" or "group" (as defined in Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended, of a direct or indirect interest in
more than thirty-three percent (33%) of the voting power of the then outstanding
capital stock of Guarantor; (ii) a merger or consolidation of Guarantor with any
other Person or the merger of any other Person into Guarantor or any other
transaction, as a result of which the stockholders of Guarantor immediately
prior to such transaction own, in the aggregate, less than a majority of the
voting power of the outstanding capital stock of the surviving or resulting
entity; or (iii) the first day on which a majority of the members of the Board
of Directors of Guarantor are not Continuing Directors. A "Continuing Director"
shall mean any director of the Board of Directors of Guarantor who is either (a)
a member of such Board of Directors on the Closing Date, or (b) nominated or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board of Directors at the time of
such nomination or elections.
"Closing Date" means June 28, 1996 or such other date as may be mutually
agreed to by Lender and Borrower.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and the regulations and published interpretations thereof.
"Commonly Controlled Entity" means an entity, whether or not incorporated,
which is under common control with Guarantor within the meaning of Section
414(b) or 414(c) of the Code.
"Contingent Obligation" means, with respect to any Person, without
duplication (i) any Guaranty Obligation of that Person; and (ii) any direct or
indirect obligation or liability, contingent or otherwise, of that Person (a) in
respect of any letters of credit, acceptances, bank guaranties, surety bonds or
similar instrument issued for the account of that Person or as to which that
Person is otherwise liable for reimbursement of drawings, (b) as a partner or
joint venturer in any partnership or joint venture, or (c) incurred pursuant to
any interest rate swap, currency swap, forward, cap, floor or other similar
contract that is not entered into in connection with a bona fide hedging
operation that provides offsetting benefits to such Person. The amount of any
Contingent Obligation shall (subject, in the case of Guaranty Obligations, to
the last sentence of the definition of "Guaranty Obligation") be deemed equal to
the maximum reasonably anticipated liability in respect thereof.
"Contractual Obligation" of any Person means, any indenture, note, lease,
loan agreement, security, deed of trust, mortgage, security agreement, guaranty,
instrument, contract, agreement or other form of contractual obligation or
undertaking to which such Person is a party or by which such Person or any of
its property is bound.
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"Default" means any of the events specified in Section 7.1, whether or not
any requirement for the giving of notice, the lapse of time, or both, or any
other condition, has been satisfied.
"Dollars" and the sign "$" mean lawful money of the United States of
America.
"Environmental Laws" means all Requirements of Law relating to the
protection of human health and the environment, including, without limitation,
all Requirements of Law, pertaining to reporting, licensing, permitting,
transportation, storage, disposal, investigation, and remediation of emissions,
discharges, releases, or threatened releases of Hazardous Materials, chemical
substances, pollutants, contaminants, or hazardous or toxic substances,
materials or wastes, whether solid, liquid, or gaseous in nature, into the air,
surface water, groundwater, or land, or relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
chemical substances, pollutants, contaminants, or hazardous or toxic substances,
materials, or wastes, whether solid, liquid, or gaseous in nature.
"Equity Securities" means (i) all common stock, preferred stock,
participations, shares, partnership interests or other equity interests in and
of such Person (regardless of how designated and whether or not voting or non-
voting); and (ii) all warrants, options and other rights to acquire any of the
foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations and published interpretations
thereof.
"Event of Default" means any of the events specified in Section 7.1,
provided that any requirement for the giving of notice, the lapse of time, or
both, or any other condition, has been satisfied.
"Financial Statements" mean, with respect to any accounting period for any
Person, statements of income, shareholders' equity and cash flows of such Person
for such period, and a balance sheet of such Person as of the end of such
period, setting forth in each case in comparative form figures for the
corresponding period in the preceding fiscal year if such period is less than a
full fiscal year or, if such period is a full fiscal year, corresponding figures
from the preceding annual audit, all prepared in reasonable detail and in
accordance with GAAP.
"Fixed Rate" means three and one-one hundredth percent (3.01%) per annum.
"Funded Debt" of any Person means, without duplication, all Indebtedness of
such Person as described in clauses (i) -(iv) of the definition of Indebtedness.
"GAAP" means generally accepted accounting principles in the United States;
provided, however, with respect to Borrower "GAAP" means generally accepted
accounting principles in Japan.
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"Governmental Authority" means any domestic or foreign national, state or
local government, any political subdivision thereof, any department, agency,
authority or bureau of any of the foregoing, or any other entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, including, without limitation, any central bank or
comparable authority.
"Governmental Charges" means, with respect to any Person, all levies.
assessments, fees, claims or other charges imposed by any Governmental Authority
upon such Person or any of its property or otherwise payable by such Person.
"Governmental Rule" means any law, rule, regulation, ordinance, order, code
interpretation, judgment, decree, directive, guidelines, policy or similar form
of decision of any Governmental Authority.
"Guarantor" means Lam Research Corporation, a Delaware corporation.
"Guarantor Subsidiary" means any Subsidiary of Guarantor; provided,
however, for purposes of this definition only, Borrower shall not be included
within the definition of Guarantor Subsidiary but Borrower's Subsidiaries shall
be included within such definition.
"Guaranty" means that certain Continuing Guaranty dated as June 26, 1996
executed by Guarantor for the benefit of Lender, as amended from time to time in
accordance with its terms, which shall be satisfactory to Lender in all
respects.
"Guaranty Obligation" means, with respect to any Person, any direct or
indirect liability of that Person with respect to any Indebtedness, lease,
dividend, or other obligation (the "primary obligations") of another Person (the
"primary obligor"), including any obligation of that Person, whether or not
contingent (i) to purchase, repurchase or otherwise acquire such primary
obligations or any property constituting direct or indirect security therefor;
(ii) to advance or provide funds (a) for the payment or discharge of any such
primary obligation, or (b) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency or any
balance sheet item, level of income or financial condition of the primary
obligor; or (iii) to purchase property, securities or services primarily for the
purpose of assuring the owner of any primary obligation of the ability of the
primary obligor to make payment of such primary obligation; or (iv) otherwise to
assure or hold harmless the holder of any such primary obligation against loss
in respect thereof. The amount of any Guaranty Obligation shall be deemed equal
to the stated or determinable amount of the primary obligation in respect of
which such Guaranty Obligation is made or, if not stated or if indeterminable,
the maximum reasonably anticipated liability in respect thereof.
"Indebtedness" of any Person means, without duplication:
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(i) All obligations of such Person evidenced by notes,
bonds, debentures or other similar instruments and all other
obligations of such Person for borrowed money;
(ii) All obligations of such Person for the deferred
purchase price of property or services (including obligations under
credit facilities which secure or finance such purchase price and
obligations under synthetic leases), other than trade payables
incurred by such Person in the ordinary course of its business on
ordinary terms;
(iii) All obligations of such Person under conditional sale or
other title retention agreements with respect to property acquired by
such Person (to the extent of the value of such property if the rights
and remedies of the seller or lender under such agreement in the event
of default are limited solely to repossession or sale of such
property);
(iv) All obligations of such Person as lessee under or with
respect to Capital Leases;
(v) All obligations of such Person with respect to accounts
receivable and related rights and property sold, assigned or
transferred by such Person with recourse to such Person;
(vi) All Contingent Obligations of such Person; and
(vii) All Indebtedness of other Persons of the types described
in clauses (i) - (vi) above to the extent secured by (or for which any
holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien in any property (including
accounts and contract rights) of such Person, even though such Person
has not assumed or become liable for the payment of such Indebtedness.
"Interest Payment Date" means the 28th day of June, September, December and
March commencing with the 28th day of September, 1996; provided, however, if any
Interest Payment Date would end on a day other than a Business Day, such
Interest Payment Date shall be extended to the succeeding Business Day.
"Interest Rate Funding Costs" means, with respect to any prepayment of the
Loan pursuant to Section 2.5, the amount (if any) by which (i) the interest
that would have been payable on the principal amount prepaid had it not been
paid until the applicable Principal Payment Date(s) determined in accordance
with Section 2.5(b) (computing such interest at a rate equal to the Fixed Rate
less seven tenths of one percent per annum); exceeds (ii) the interest that
would have been recoverable by Lender by placing the principal amount prepaid on
deposit in the certificate of deposit market or such other investment market on
which the Fixed Rate was originally determined by Lender (or any comparable
market if such certificate of deposit market or other investment market is no
longer available to Lender), for a period starting on the
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date on which the principal amount was prepaid and ending on the applicable
Principal Payment Date(s) determined in accordance with Section 2.5(b).
"Japan Development Bank Indebtedness" has the meaning set forth in Section
2.8.
"Lending Office" means the Principal Office of Lender or such other office
of Lender (or of an affiliate of Lender) as Lender may from time to time specify
to Borrower as the office at which the Loan is to be made and maintained.
"Lien" means any mortgage, deed of trust, pledge, security interest,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
other), or preference, priority, or other security agreement or preferential
arrangement, charge, or encumbrance of any kind or nature whatsoever (including,
without limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing, and the filing of any financing statement under the Uniform
Commercial Code or comparable law of any jurisdiction to evidence any of the
foregoing).
"Loan" has the meaning set forth in Section 2.1 of this Agreement.
"Loan Document(s)" means this Agreement, the Note, the Guaranty and all
other documents, agreements or instruments executed by Borrower or Guarantor in
connection with this Agreement, the Note or the Loan.
"Loan Fee" has the meaning set forth in Section 2.6 of this Agreement.
"Loan Maturity Date" means June 28, 2001, or if June 28, 2001 is not a
Business Day, the preceding Business Day.
"Material Adverse Effect" means a material adverse effect on (i) the
business, assets, operations or financial condition of Borrower and Guarantor
(determined on a consolidated basis); (ii) the ability of Borrower or Guarantor
to pay or perform any of its obligations under any of the Loan Documents to
which it is a party; or (iii) the rights and remedies of Lender under this
Agreement or any of the other Loan Documents.
"Material Subsidiary" means any Guarantor Subsidiary whose (i) total assets
exceed ten percent (10%) of the consolidated total assets of Guarantor, Borrower
and the Guarantor Subsidiaries at any time; or (ii) gross revenues exceed five
percent (5%) of the consolidated gross revenues of Guarantor, Borrower and the
Guarantor Subsidiaries at any time.
"Multiemployer Plan" means any multiemployer plan within the meaning of
Section 3(37) of ERISA maintained or contributed to by Guarantor or any Commonly
Controlled Entity.
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"Note" means that certain Promissory Note in the principal amount of
Y2,300,000,000 dated June 26, 1996 made by Borrower and payable to the order of
Lender, as amended from time to time in accordance with its terms, which shall
be satisfactory to Lender in all respects.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
Permitted Indebtedness" has the meaning set forth in Section 6.1.
"Permitted Lien" has the meaning set forth in Section 6.2.
"Person" means an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
governmental authority, or other entity of whatever nature.
"Plan" means any employee benefit plan within the meaning of Section 3(3)
of ERISA maintained or contributed to by Guarantor or any Commonly Controlled
Entity, other than a Multiemployer Plan.
"Prime Rate" means that floating rate per annum of interest announced by
Lender from time to time and designated by Lender as its "prime" or "reference"
rate of interest for loans made from its San Francisco, California, Agency. The
Prime Rate is determined by Lender from time to time as a means of pricing
credit extensions to some customers and is neither tied to any external rate of
interest or index nor necessarily the lowest rate of interest charged by Lender
at any given time for any particular class of customers or credit extensions.
"Principal Office" means Lender's office at 1-2 Yurakucho, 1-chome,
Chiyoda-ku, Tokyo, 100, Japan.
"Principal Payment Date" means the 28th day of June, September, December
and March commencing with the 28th day of September, 1997; provided, however, if
any Principal Payment Date would end on a day other than a Business Day, such
Principal Payment Date shall be extended to the succeeding Business Day.
"Prohibited Transaction" means any transaction set forth in Section 406 of
ERISA or Section 4975 of the Code.
"Requirement of Law" applicable to any Person means (i) the Articles or
Certificate of Incorporation and By-laws, Partnership Agreement or other
organizational or governing documents of such Person; (ii) any Governmental Rule
applicable to such Person; (iii) any license, permit, approval, or other
authorization granted by any Governmental Authority to or for the benefit of
such Person; or (iv) any judgment, decision or determination of any Governmental
Authority or arbitrator, in each case applicable to or binding upon such person
or any of its property or to which such Person or any of its property is subject
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"Senior Funded Debt" of any Person means any Funded Debt which is not
Subordinated Debt.
"Senior Indebtedness" of any Person means, without duplication:
(i) all Senior Funded Debt of such Person;
(ii) all Contingent Obligations of such Person;
(iii) all obligations of such Person with respect to any synthetic
leases; and
(iv) all obligations of such Person with respect to any sale,
transfer or assignment of accounts receivable and related rights and
property by such Person with recourse to such Person.
"Subordinated Debt" means any subordinated debt permitted by Section
6.1(xi).
"Subsidiary" of any Person means (i) any corporation of which more than
50% of the issued and outstanding Equity Securities having ordinary voting power
to elect a majority of the Board of Directors of such corporation (irrespective
of whether at the time capital stock of any other class or classes of such
corporation shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned or controlled by such
Person, by such Person and one or more of its other Subsidiaries or by one or
more of such Person's other Subsidiaries; (ii) any partnership, joint venture,
or other association of which more than 50% of the equity interest having the
power to vote, direct or control the management of such partnership, joint
venture or other association is at the time owned and controlled by such Person,
by such Person and one or more of the other Subsidiaries or by one or more of
such Person's other Subsidiaries; or (iii) any other Person included in the
Financial Statements of such Person on a consolidated basis.
"Yen" and the sign "Y" mean lawful money of Japan.
"1995 Guarantor Credit Agreement" means that certain Credit Agreement dated
as of December 20, 1995, by and between Guarantor, the lenders named therein and
ABN AMRO Bank N.V., San Francisco International Branch, as agent for such
lenders, as amended from time to time in accordance with its terms.
SECTION 1.2. CONSTRUCTION. Unless the context of this Agreement or the
other Loan Documents otherwise clearly require, references to the plural include
the singular and the singular the plural. The words "hereof," "herein,"
"hereunder," and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. Article, Section
and Subsection references are to this Agreement unless otherwise specified.
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SECTION 1.3. ACCOUNTING TERMS AND CLASSIFICATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting classifications and determinations hereunder shall be made, all
amounts relevant in determining whether Borrower is complying with the covenants
contained herein shall be calculated, and all financial statements delivered to
Lender hereunder shall be prepared in accordance with GAAP as applied to
corporate accounting. If GAAP changes during the term of this Agreement such
that any covenants contained herein or in the Guaranty would then be calculated
in a different manner or with different components, Borrower, on behalf of
itself and the Guarantor, and Lender agree to negotiate in good faith to amend
this Agreement and the Guaranty in such respects as are necessary to conform
those covenants as criteria for evaluating Borrower's and Guarantor's financial
condition to substantially the same criteria as were effective prior to such
change in GAAP; provided, however, until Borrower, Guarantor and Lender amend
this Agreement and the Guaranty, all such covenants shall be calculated in
accordance with GAAP as in effect immediately prior to such change.
ARTICLE 2.
AMOUNT AND TERMS OF LOAN
SECTION 2.1. TERM LOAN. Subject to the terms and conditions contained in
this Agreement, on the Closing Date Lender agrees to lend to Borrower and
Borrower agrees to borrow from Lender the sum of Two Billion Three Hundred
Million Yen (Y2,300,000,000) ("Loan"). Borrower's obligation to repay the Loan
shall be evidenced by the Note. Lender is hereby authorized by Borrower to (i)
endorse on the Note the amount of each payment by Borrower of principal and
interest; or (ii) enter the amount of such payment in Lender's records,
including, if applicable, Lender's computer records, which endorsement or entry
shall, in the absence of manifest error, be prima facie evidence of the
outstanding balance of the Loan; provided, however, that the failure to make
such endorsement or entry with respect to any payment shall not limit or
otherwise affect the obligations of Borrower under this Agreement or the Note.
SECTION 2.2. INTEREST; DEFAULT RATE. The Loan shall bear interest on
the unpaid principal amount thereof from the Closing Date through maturity
(whether by acceleration or otherwise) at the Fixed Rate. Any amounts not paid
by Borrower when due hereunder, including without limitation, any principal and,
to the extent allowed by applicable law, interest (including principal and
interest coming due by reason of acceleration pursuant to Section 7.2), shall
bear interest from the date on which such payment was due until paid, at a rate
per annum equal to the greater of (i) the Fixed Rate plus two percent (2%); or
(ii) the Prime Rate plus two percent (2%) ("Default Rate"). Interest payable at
the Default Rate shall be immediately due and payable by Borrower without any
notice or demand by Lender. All computations of interest and fees under any
Loan Document shall be calculated by Lender on the basis of a year consisting of
365 days, upon actual days elapsed.
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SECTION 2.3. PAYMENT OF INTEREST. Subject to the provisions of this
Agreement to the contrary, interest shall be due and payable by Borrower on each
Interest Payment Date following the Closing Date until the principal amount of
the Loan is repaid in full.
SECTION 2.4. PAYMENT OF PRINCIPAL.
(a) MANDATORY INSTALLMENT PRINCIPAL PAYMENTS. Installments of
principal in an amount equal to One Hundred Forty Three Million Seven
Hundred Fifty Thousand Yen (Y143,750,000) shall be due and payable by
Borrower on each Principal Payment Date.
(b) LOAN MATURITY PAYMENT. Borrower shall repay the outstanding
principal amount of the Loan together with all accrued but unpaid interest
on the Loan Maturity Date.
SECTION 2.5. PREPAYMENTS.
(a) OPTIONAL PREPAYMENT. Borrower may prepay all or any portion of
the Note; provided, however that any such prepayment of the Note (i) shall
be in a principal amount of not less than Fifty Million Yen (Y50,000,000);
(ii) shall include payment of accrued interest on such prepaid principal;
(iii) shall be made only upon at least ten (10) Business Days prior written
notice to Lender; and (iv) shall include payment by Borrower of any
Interest Rate Funding Costs. Additionally, no partial prepayments shall be
permitted if an Event of Default shall have occurred and be continuing.
Not later than eight (8) Business Days after receipt of Borrower's notice
as required by clause (iii) above, Lender shall deliver to Borrower a
certificate setting forth the amount owed as Interest Rate Funding Costs.
Such certificate shall be accompanied by or include a statement of a
responsible officer of Lender describing in reasonable detail the
calculation thereof and which shall be conclusive and binding upon Borrower
absent manifest error and so long as Lender has acted in good faith.
Borrower shall pay to Lender the amount shown as Interest Rate Funding
Costs on the certificate at the time of its prepayment hereunder, and in
any event, no later than ten (10) days after its receipt of same.
IN CONNECTION WITH THE PRECEDING PARAGRAPH, BORROWER AGREES THAT
FOLLOWING AN EVENT OF DEFAULT BY BORROWER HEREUNDER AND THE ACCELERATION OF
THE MATURITY OF THE LOAN BY LENDER, A TENDER OF PAYMENT OF THE AMOUNT
NECESSARY TO SATISFY THE ENTIRE INDEBTEDNESS OF THE LOAN MADE AT ANY TIME
BY BORROWER OR BY ANYONE ON BEHALF OF BORROWER SHALL BE DEEMED A VOLUNTARY
PREPAYMENT. BORROWER HEREBY EXPRESSLY ACKNOWLEDGES AND UNDERSTANDS THAT
BORROWER SHALL BE LIABLE FOR PAYMENT OF INTEREST RATE FUNDING COSTS SET
FORTH IN THE PRECEDING PARAGRAPH UPON ACCELERATION OF
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THE MATURITY OF THE LOAN, WHETHER SUCH ACCELERATION SHALL BE DUE TO
BORROWER'S DEFAULT OR OTHERWISE.
(b) APPLICATION OF PREPAYMENTS. In the event of any partial
prepayment of the Note, such partial prepayment shall be applied first to
the unamortized portion of the principal due and payable on the Loan
Maturity Date and then to the amortized portion of principal due and
payable in installments as provided herein in reverse chronological order.
SECTION 2.6. LOAN FEE. Borrower shall pay to Lender, on or prior to the
Closing Date, a non-refundable Loan Fee in the amount of Two Million Three
Hundred Thousand Yen (Y2,300,000).
SECTION 2.7. METHOD OF PAYMENT. Borrower shall make each payment under
this Agreement and under the Note not later than 11:00 A.M. (Tokyo time) on the
date when due in lawful money of Japan to Lender at its Principal Office for the
account of the Lending Office in immediately available funds. Borrower hereby
authorizes Lender, if and to the extent payment is not made when due under this
Agreement or under the Note, to charge from time to time against any account of
Borrower with Lender any amount so due.
SECTION 2.8. USE OF PROCEEDS. The proceeds of the Loan shall be used by
Borrower (i) to repay all of the existing indebtedness of Borrower to the Japan
Development Bank ("Japan Development Bank Indebtedness"); (ii) to fund leasehold
improvements to Borrower's facilities; and (iii) for general corporate purposes.
Borrower will not, directly or indirectly, use any part of such proceeds for the
purpose of purchasing or carrying any margin stock within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System or to
extend credit to any Person for the purpose of purchasing or carrying any such
margin stock, or for any purpose which violates, or is inconsistent with,
Regulation X of such Board of Governors.
SECTION 2.9. CHANGE OF LAW. Notwithstanding any other provision herein,
if after the date of this Agreement any change in any applicable Governmental
Rule shall change the basis of taxation (including without limitation the
imposition of any stamp tax or transaction tax) of payments to Lender of the
principal of or interest on the Loan made or any fees or other amounts payable
hereunder (other than changes in respect of taxes imposed on the income of
Lender by the jurisdiction in which Lender is organized or has its principal
office or is operating or doing business or, in either case, by any political
subdivision or taxing authority therein), or shall impose, modify or deem
applicable any reserve, special deposit or similar requirement against assets
of, deposits with or for the account of or credit extended by Lender or shall
impose on Lender or the interbank Euroyen or Eurodollar market any other
condition affecting this Agreement or the Loan, and the result of any of the
foregoing shall be to increase the cost to Lender of making or maintaining the
Loan or to reduce the amount of any sum received or receivable by Lender
hereunder (whether of principal, interest or otherwise) by an amount deemed by
Lender to be material, then Borrower will pay to Lender such
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additional amount or amounts as will compensate Lender for such additional costs
incurred or reduction suffered. Lender will notify Borrower that Lender is
entitled to compensation pursuant to this Section as promptly as practicable
after it determines to request such compensation; provided, however, any request
for compensation shall be made by Lender within 90 days of the later of (i) the
date any of the foregoing changes or events becomes effective; or (ii) the date
Lender knew or reasonably should have learned of such change or event.
SECTION 2.10. CAPITAL ADEQUACY. If Lender shall have determined that the
applicability of any Governmental Rule adopted pursuant to or arising out of the
July 1988 report of the Basel Committee on Banking Regulations and Supervisory
Practices entitled "International Convergence of Capital Measurement and Capital
Standards," or the adoption after the date hereof of any Governmental Rule
regarding capital adequacy, or any change in any of the foregoing or in the
interpretation or administration of any of the foregoing by any Governmental
Authority charged with the interpretation or administration thereof, or
compliance by Lender (or any Lending Office of Lender) with any request or
directive regarding capital adequacy (whether or not having the force of law) of
any such Governmental Authority, has or would have the effect of reducing the
rate of return on Lender's capital as a direct consequence of this Agreement or
the Loan to a level below that which Lender could have achieved but for such
adoption, change or compliance by an amount deemed by Lender to be material,
then from time to time Borrower shall pay to Lender such additional amount or
amounts as will compensate Lender for any such reduction suffered. Allocations
by Lender for purposes of this Section shall be conclusive; provided, that the
principles on which such allocations are made are reasonable and non-
discriminatory, the calculations employed to apply such allocations are
mathematically accurate and Lender has acted in good faith. Lender will notify
Borrower that Lender is entitled to compensation pursuant to this Section as
promptly as practicable after it determines to request such compensation;
provided, however, any request for compensation shall be made by Lender within
90 days of the later of (i) the date any of the foregoing changes or events
becomes effective; or (ii) the date Lender knew or reasonably should have
learned of such change or event.
SECTION 2.11. LENDER'S CERTIFICATE. A certificate of Lender setting forth
such amount or amounts as shall be necessary to compensate Lender as specified
in Sections 2.09 or 2.10 above, as the case may be, shall be delivered to
Borrower and shall be conclusive and binding upon Borrower absent manifest error
and so long as Lender has acted in good faith. Any such certificate shall be
accompanied by or include a statement of a responsible officer of Lender
describing in reasonable detail the calculation thereof and certifying that such
request for compensation is consistent with Lender's treatment generally of
customers similar to Borrower having similar provisions in their agreements with
Lender. Borrower shall pay Lender the amount shown as due on any such
certificate delivered by Lender within ten (10) days after its receipt of the
same. In the event that Lender recovers any such amount from third parties, it
shall refund the same to Borrower. Failure on the part of Lender to demand
compensation for any increased costs or reduction in amounts received or
receivable or
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reduction in return on capital with respect to any period shall not constitute a
waiver of Lender's right to demand compensation with respect to such period or
any other period. The protection of this Section shall be available to Lender
regardless of any possible contention of the invalidity or inapplicability of
the law, rule, regulation, guideline or other change or condition which shall
have occurred or been imposed.
ARTICLE 3.
CONDITIONS PRECEDENT
Lender's obligation to make the Loan and all other obligations of Lender
hereunder are conditioned upon the satisfaction by Borrower of all of the
following conditions:
SECTION 3.1. CLOSING DOCUMENTS. On or before the Closing Date, Lender
shall have received and approved the following documents or materials, each of
which shall be in the form and substance satisfactory to Lender and, where
appropriate, duly executed (and acknowledged where necessary) and delivered by
the appropriate parties thereto:
(a) this Agreement, the Note and the Guaranty;
(b) opinions of counsel for Borrower and Guarantor dated as of
the Closing Date, and addressed to Lender;
(c) a certificate of the President of Borrower certifying (i) a copy
of the Articles of Incorporation and Bylaws of Borrower (or similar
corporate charter documents of Borrower under the laws of Japan), including
any amendments or addendum; (ii) resolutions of the board of directors of
Borrower authorizing the execution, delivery, and performance of this
Agreement and the Note by Borrower; and (iii) the names, corporate office
and true signatures of the officers or directors of Borrower authorized to
sign this Agreement and the Note on behalf of Borrower;
(d) a certificate of the President or Secretary of Guarantor
certifying (i) a copy of the Articles of Incorporation and Bylaws of
Guarantor, including any amendments or addendum thereto, together with a
certificate of status issued by the Delaware Secretary of State with
respect to Guarantor as a domestic Delaware corporation and a certificate
of status issued by the California Secretary of State with respect to
Guarantor as a foreign corporation doing business in California; (ii)
resolutions of Guarantor's board of directors authorizing the execution,
delivery, and performance of the Guaranty by Guarantor; and (iii) the
names, corporate office and true signatures of the officers of Guarantor
authorized to sign the Guaranty on behalf of Guarantor;
(e) the Loan Fee; and
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(f) such other documents, agreements, instruments, certificates
and opinions as Lender may reasonably require.
SECTION 3.2. REPRESENTATIONS CORRECT; NO DEFAULT. On and as of the
Closing Date:
(a) the representations and warranties contained herein and in
each written document executed and delivered by Borrower to Lender in
connection with this Agreement shall be true and correct in all
material respects on and as of the Closing Date to the same extent as
though made on and as of such date; and
(b) no Default or Event of Default shall have occurred and be
continuing.
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ARTICLE 4.
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Lender that:
SECTION 4.1. INCORPORATION, GOOD STANDING, AND DUE QUALIFICATION.
Borrower is a corporation duly incorporated, validly existing, and in good
standing under the laws of the jurisdiction of its incorporation; has the
corporate power and authority to own its assets and to transact the business in
which it is now engaged or proposed to be engaged in; and is duly qualified as a
foreign corporation and in good standing under the laws of each other
jurisdiction in which such qualification is required.
SECTION 4.2. CORPORATE POWER AND AUTHORITY. The execution, delivery, and
performance by Borrower and Guarantor of the Loan Documents to which each is a
party have been duly authorized by all necessary corporate action and do not and
will not (i) require any consent or approval of the stockholders of such
corporation; (ii) contravene such corporation's charter or bylaws; (iii) violate
any provision of any Requirement of Law presently in effect having applicability
to such corporation; (iv) result in a breach of or constitute a default under
any indenture or loan or credit agreement or any other agreement, lease, or
instrument to which such corporation is a party or by which it or its properties
may be bound or affected; (v) result in, or require, the creation or imposition
of any Lien, upon or with respect to any of the properties now owned or
hereafter acquired by such corporation; and (vi) cause such corporation to be in
default under any such law, rule, regulation, order, writ, judgment, injunction,
decree, determination, or award or any such indenture, agreement, lease, or
instrument.
SECTION 4.3. LEGALLY ENFORCEABLE AGREEMENT. This Agreement is, and each
of the other Loan Documents (other than the Guaranty) when delivered under this
Agreement will be, legal, valid, and binding obligations of Borrower enforceable
against Borrower in accordance with their respective terms, except to the extent
that such enforcement may be limited by applicable bankruptcy, insolvency, and
other similar laws affecting creditors' rights generally. The Guaranty, when
delivered by Guarantor to Lender, will be, legal, valid, and binding
obligations of Guarantor enforceable against Guarantor in accordance with its
respective terms, except to the extent that such enforcement may be limited by
applicable bankruptcy, insolvency, and other similar laws affecting creditors'
rights generally.
SECTION 4.4. FINANCIAL STATEMENTS. The Financial Statements of
Guarantor, Borrower and the Guarantor Subsidiaries which have been delivered to
Lender (i) are in accordance with the books and records of Guarantor, Borrower
and Guarantor Subsidiaries, which have been maintained in accordance with good
business practice; (ii) have been prepared in conformity with GAAP; and (iii)
fairly present the financial conditions and results of operations of Guarantor,
Borrower and the Guarantor Subsidiaries as of the date thereof and for the
period covered thereby. Neither Borrower, Guarantor nor any Guarantor
Subsidiary has any contingent obligations, liability for taxes or other
outstanding obligations which are material in the aggregate,
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except as disclosed in the audited Financial Statements of Guarantor, Borrower
and the Guarantor Subsidiaries for the fiscal year ending June 30, 1995, and the
unaudited Financial Statements of Guarantor, Borrower and the Guarantor
Subsidiaries for the fiscal quarter ending March 31, 1996, furnished by Borrower
to Lender prior to the date hereof
SECTION 4.5. OWNERSHIP OF BORROWER. Guarantor directly owns and controls,
free and clear of all Liens, one hundred percent (100%) of the Equity Securities
of Borrower.
SECTION 4.6. LITIGATION. There is no pending or threatened in writing
action or proceeding against or affecting Borrower, Guarantor or any Guarantor
Subsidiaries before any court, governmental agency, arbitrator or other
Governmental Authority which is reasonably likely, in any one case or in the
aggregate, to have a Material Adverse Effect.
SECTION 4.7. NO VIOLATION OR DEFAULT. Neither Borrower, Guarantor nor any
Guarantor Subsidiary is in violation of or in default with respect to (i) any
Requirement of Law applicable to such Person; or (ii) any Contractual Obligation
of such Person, including without limitation, Contractual Obligations arising
from or relating to the 1995 Guarantor Credit Agreement (nor is there any
waiver in effect which, if not in effect, would result in such a violation or
default), which violation or default is reasonably likely to have a Material
Adverse Effect. Without limiting the generality of the foregoing, neither
Borrower, Guarantor nor any Guarantor Subsidiary (i) has violated any
Environmental Laws; (ii) has any liability under any Environmental Laws; or
(iii) has received notice or other communication of an investigation or is under
by any Governmental Authority having authority to enforce Environmental Laws,
where such violation, liability or investigation is reasonably likely to have a
Material Adverse Effect.
SECTION 4.8. TITLE; POSSESSION UNDER LEASES. Borrower, Guarantor and each
Guarantor Subsidiary (i) own and have good and marketable title (without regard
to minor defects of title) to the real property owned by Borrower, Guarantor
and each Guarantor Subsidiary, as reflected in the most recent Financial
Statements of Guarantor delivered to Lender (except those assets and properties
disposed of since the date of such Financial Statements in compliance with the
1995 Guarantor Credit Agreement); (ii) have valid leasehold interests in all
real property leased by Borrower, Guarantor and each Guarantor Subsidiary;
(iii) own and have good title (without regard to minor defects of title) to all
their other respective properties and assets which are material to the business
of Borrower, Guarantor and each Guarantor Subsidiary, as reflected in the most
recent Financial Statements of Guarantor delivered to Lender (except those
assets and properties disposed of since the date of such Financial Statements in
compliance with the 1995 Guarantor Credit Agreement); and (iv) own and have good
title (without regard to minor defects of title) to all respective properties
and assets acquired by Borrower and its Subsidiaries since such date which are
material to the business of Borrower, Guarantor and each Guarantor Subsidiary
(except those assets and properties disposed of in compliance with the 1995
Guarantor Credit Agreement). Such assets and properties are subject to no Lien,
except for Permitted
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Liens. Each of Borrower, Guarantor and the Guarantors Subsidiaries enjoys
peaceful and undisturbed possession under all leases, except for any failure to
enjoy such possession which (alone or in the aggregate with any other such
failures) is not reasonably likely to have a Material Adverse Effect.
SECTION 4.9. NO AGREEMENTS TO SELL ASSETS. Neither Borrower, Guarantor
nor any Guarantor Subsidiary has any legal obligation, absolute or contingent,
to any Person to sell the assets of Borrower, Guarantor or any Guarantor
Subsidiary (other than sales in the ordinary course of business), or to effect
any merger, consolidation or other reorganization of Borrower, Guarantor or any
Guarantor Subsidiary or to enter into any agreement with respect thereto.
SECTION 4.10. PATENT AND OTHER RIGHTS. Borrower, Guarantor and each
Guarantor Subsidiary own or license under validly existing agreements, and have
the full right to license without the consent of any other Person, all patents,
licenses, trademarks, trade names, trade secrets, service marks, copyrights and
all rights with respect thereto, which are required to conduct their businesses
as now conducted.
SECTION 4.11. GOVERNMENTAL CHARGES AND OTHER INDEBTEDNESS. Borrower,
Guarantor and each Guarantor Subsidiary have filed or caused to be filed all tax
returns which are required to be filed by them. Borrower, Guarantor and each
Guarantor Subsidiary have paid, or made provision for the payment of, all taxes
and other Governmental Charges which have or may have become due pursuant to
said returns or otherwise and all other indebtedness, except such Governmental
Charges or indebtedness, if any, which are being contested in good faith and as
to which adequate reserves (determined in accordance with GAAP) have been
provided or which are not reasonably likely to have a Material Adverse Effect if
unpaid.
SECTION 4.12. ERISA. Guarantor and each Commonly Controlled Entity are in
compliance in all material respects with all applicable provisions of ERISA.
Neither a Reportable Event nor a Prohibited Transaction has occurred and is
continuing with respect to any Plan; no notice of intent to terminate a Plan has
been filed nor has any Plan been terminated; no circumstances exist which
constitute grounds entitling the PBGC to institute proceedings to terminate, or
appoint a trustee to administer, a Plan, nor has the PBGC instituted any such
proceedings; neither Guarantor nor any Commonly Controlled Entity contributes to
or has any material contingent liabilities to a Multiemployer Plan; neither
Guarantor nor any Commonly Controlled Entity has incurred any material liability
(including secondary liability) to any Multiemployer Plan as a result of a
complete or partial withdrawal from such Multiemployer Plan; Guarantor and each
Commonly Controlled Entity have met their minimum funding requirements under
ERISA with respect to all of their Plans and the present value of all vested
benefits under each Plan does not exceed the fair market value of all Plan
assets allocable to such benefits, as determined on the most recent valuation
date of the Plan and in accordance with the provisions of ERISA; and neither
Guarantor nor any Commonly Controlled Entity has incurred any liability to the
PBGC under ERISA.
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SECTION 4.13. ACCURACY OF INFORMATION FURNISHED. None of the Loan
Documents and none of the other certificates, statements or information
furnished to Lender by or on behalf of Borrower, Guarantor or any Guarantor
Subsidiary in connection with the Loan Documents or the transactions
contemplated thereby contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
ARTICLE 5.
AFFIRMATIVE COVENANTS
Borrower covenants that, unless otherwise consented to in writing by
Lender, until payment in full of all amounts outstanding under the Loan
Documents and satisfaction of all other obligations of Borrower under the Loan
Documents, Borrower shall comply with, or cause compliance with, each of the
following covenants:
SECTION 5.1. REPORTING REQUIREMENTS. Borrower shall furnish or cause to
be furnished to Lender the following, each in such form and such detail as
Lender shall reasonably request:
(a) QUARTERLY FINANCIAL STATEMENTS. As soon as available and in no
event later than fifty (50) days after the last day of each fiscal quarter
of Guarantor, a copy of the Financial Statements of Guarantor, Borrower and
each of the Guarantor Subsidiaries (prepared on a consolidated basis) for
such quarter and for the fiscal year to date, certified by the president or
chief financial officer of Guarantor to present fairly the financial
condition, results of operations and other information reflected therein
and to have been prepared in accordance with GAAP (subject to normal year-
end audit adjustments).
(b) ANNUAL FINANCIAL STATEMENTS. As soon as available and in no event
later than one hundred (100) days after the close of each fiscal year of
Guarantor, (i) copies of the audited Financial Statements of Guarantor,
Borrower and each of the Guarantor Subsidiaries (prepared on a consolidated
basis) for such year, prepared by independent certified public accountants
of recognized national standing acceptable to Lender; and (ii) copies of
the unqualified opinions (or qualified opinions reasonably acceptable to
Lender) and management letters delivered by such accountants in connection
with all such Financial Statements. Additionally, Borrower shall deliver
to Lender not later than 100 days after the close of each fiscal year of
Borrower, a balance sheet and statement of income for Borrower calculated
on a stand alone basis (which items may be prepared internally by
Borrower), certified by the president or chief financial officer of
Borrower to present fairly the financial condition, results of operations
and other information reflected therein.
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(c) COMPLIANCE CERTIFICATES. Contemporaneously with the quarterly and
year-end Financial Statements required by Sections 5.1(a) and (b): (i) a
compliance certificate of the President of Borrower which states that no
Event of Default and no Default has occurred and is continuing, or, if any
such Event of Default or Default has occurred and is continuing, a
statement as to the nature thereof and what action Borrower proposes to
take with respect thereto; and (ii) a compliance certificate of the
President or Chief Financial Officer of Guarantor which states that (a) no
event of default has occurred and is continuing under the 1995 Guarantor
Credit Agreement or, if any such event of default has occurred and is
continuing, a statement as to the nature thereof and what action Guarantor
proposes to take with respect thereto, and (b) for the quarter or year
covered by such Financial Statements or as of the last day of such quarter
or year (as the case may be), the calculation of the financial ratios and
tests provided in Section 3.1 of the Guaranty.
(d) NOTICE OF LITIGATION, EVENT OF DEFAULT. As soon as possible and in
no event later than five (5) Business Days after any officer or director of
Borrower or Guarantor knows of the occurrence or existence of: (i) any
actual litigation or threatened litigation which has a reasonable
likelihood of leading to actual litigation, suits, claims or disputes
against Guarantor, Borrower or any of the Guarantor Subsidiaries involving
potential monetary damages payable by Guarantor, Borrower or any of the
Guarantor Subsidiaries of $5,000,000 or more alone and/or $10,000,000 or
more in the aggregate; (ii) any other event or condition which is
reasonably likely to have a Material Adverse Effect; or (iii) any Default
or Event of Default; the statement of the president or chief financial
officer of Borrower setting forth details of such event, condition, Default
or Event of Default and the action which Borrower proposes to take with
respect thereto.
(e) ERISA REPORTS. As soon as possible, and in any event within 30
days after Borrower or Guarantor knows or has reason to know that any
circumstances exist that constitute grounds entitling the PBGC to institute
proceedings to terminate a Plan or Multiemployer Plan subject to ERISA with
respect to Guarantor or any Commonly Controlled Entity, and promptly but in
any event within two Business Days of receipt by Borrower, Guarantor or any
Commonly Controlled Entity of notice that the PBGC intends to terminate a
Plan or Multiemployer Plan or appoint a trustee to administer the same, and
promptly but in any event within five Business Days of the receipt of
notice concerning the imposition of withdrawal liability with respect to
Guarantor or any Commonly Controlled Entity, Borrower or Guarantor will
deliver to the Bank a certificate of the chief financial officer of
Guarantor setting forth all relevant details and the action which Guarantor
proposes to take with respect thereto.
(f) REGISTRATION STATEMENTS. As soon as available and in no event
later than five (5) Business Days after they are sent, made available or
filed, copies of (i) all registration statements and reports filed by
Borrower, Guarantor or any of the Guarantor Subsidiaries with any
securities exchange or the Securities and
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Exchange Commission (including, without limitation, all 10-Q, 10-K and 8-Q
reports); (ii) all reports, proxy statements and financial statements sent
or made available by Borrower, Guarantor or any of the Guarantor
Subsidiaries to its security holders; and (C) all press releases and other
similar public concerning any material developments in the business of
Borrower, Guarantor or any of the Guarantor Subsidiaries made available by
Borrower, Guarantor or any of the Guarantor Subsidiaries to the public
generally.
(g) OTHER INFORMATION. Such other instruments, agreements,
certificates, opinions, statements, documents and information relating to
the operations or condition (financial or otherwise) of Borrower, Guarantor
or any of the Guarantor Subsidiaries, and compliance by Borrower and
Guarantor with the terms of the Loan Documents as Lender may from time to
time reasonably request.
SECTION 5.2. BOOKS AND RECORDS. Borrower, Guarantor and each of the
Guarantor Subsidiaries shall at all times keep proper books of record and
account in which full, true and correct entries will be made of their
transactions in accordance with GAAP, or if, with respect to Borrower or any
Guarantor Subsidiary for which United States accounting principles are
inapplicable, generally accepted accounting principles in the jurisdiction in
which Borrower or such Guarantor Subsidiary is organized, as the case may be.
SECTION 5.3. INSPECTIONS. Borrower, Guarantor and each of the Guarantor
Subsidiaries shall permit any Person designated by Lender, upon reasonable
notice and during normal business hours, to visit and inspect any of the
properties and offices of Borrower, Guarantor and any of the Guarantor
Subsidiaries, to examine the books and records of Borrower, Guarantor and the
Guarantor Subsidiaries and make copies thereof and to discuss the affairs,
finances and accounts of Borrower, Guarantor and the Guarantor Subsidiaries
with, and to be advised as to the same by, their officers, auditors and
accountants, all at such times and intervals as Lender may reasonably request.
SECTION 5.4. INSURANCE. Borrower, Guarantor and each of the Guarantor
Subsidiaries shall (i) carry and maintain insurance of the types and in the
amounts customarily carried from time to time during the term of this Agreement
by others engaged in substantially the same business as such Person and
operating in the same geographic area as such Person, including, but not limited
to, fire, public liability, property damage and workers' compensation; and (ii)
deliver to Lender from time to time, as Lender may request, schedules setting
forth all insurance then in effect.
SECTION 5.5. GOVERNMENTAL CHARGES AND OTHER INDEBTEDNESS. Borrower,
Guarantor, and each of the Guarantor Subsidiaries shall promptly pay and
discharge when due (i) all taxes and other Governmental Charges prior to the
date upon which penalties accrue thereon; (ii) all indebtedness which, if
unpaid, could become a Lien upon the property of Borrower, Guarantor or any
Guarantor Subsidiary; and (iii) all other Indebtedness which, if unpaid, is
reasonably likely to have a Material Adverse
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Effect, except such taxes and Indebtedness as may in good faith be contested or
disputed, or for which arrangements for deferred payment have been made,
provided that in each such case appropriate reserves are maintained to the
reasonable satisfaction of Lender.
SECTION 5.6. GENERAL BUSINESS OPERATIONS. Except as permitted in Section
6.4, each of Borrower, Guarantor and each of the Guarantor Subsidiaries shall
(i) preserve and maintain its corporate existence and all of its rights,
privileges and franchises reasonably necessary to the conduct of its business;
provided, however, that from time to time, Guarantor may, in the ordinary course
of business, dissolve any Guarantor Subsidiary which is not a Material
Subsidiary or a Subsidiary of Borrower, so long as both immediately before and
after giving effect to such dissolution, no Default or Event of Default shall
have occurred and be continuing; (ii) conduct its business activities in
compliance with all Requirements of Law and Contractual Obligations applicable
to such Person, the violation of which is reasonably likely to have a Material
Adverse Effect, and (iii) keep all property useful and necessary in its business
in good working order and condition, ordinary wear and tear excepted. Guarantor
shall maintain its chief executive office and principal place of business in the
United States.
SECTION 5.7. MAINTENANCE OF OWNERSHIP OF BORROWER. At all times Guarantor
shall directly own and control, free and clear of all Liens, one hundred percent
(100%) of the Equity Securities of Borrower.
SECTION 5.8. PARI PASSU RANKING. Borrower shall take, or cause to be
taken, all actions necessary to ensure that the obligations of Borrower under
the Loan Documents are and continue to rank at least PARI PASSU in right of
payment with all other unsecured Senior Indebtedness of Borrower.
ARTICLE 6.
NEGATIVE COVENANTS
Borrower covenants that, unless otherwise consented to in writing by
Lender, until payment in full of all amounts outstanding under the Loan
Documents and satisfaction of all other obligations of Borrower under the Loan
Documents, Borrower shall comply with, or cause compliance with, each of the
following covenants:
SECTION 6.1. INDEBTEDNESS. Neither Borrower, Guarantor nor any
Guarantor Subsidiaries shall create, incur, assume or permit to exist any
indebtedness except for the following ("Permitted Indebtedness"):
(i) the obligations of Borrower with respect to the Loan Documents and
the obligations of Guarantor with respect to the 1995 Guarantor Credit
Agreement and related documents;
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(ii) Indebtedness of Borrower, Guarantor and the Guarantor
Subsidiaries listed in Schedule 6.1 attached hereto and existing as of the
date of this Agreement;
(iii) Indebtedness of Borrower, Guarantor and the Guarantor
Subsidiaries arising from the endorsement of instruments for collection in
the ordinary course of Borrower's, Guarantor's or a Guarantor Subsidiary's
business;
(iv) Indebtedness of Borrower, Guarantor and the Guarantor
Subsidiaries for trade accounts payable, provided that (a) such accounts
arise in the ordinary course of business, and (b) no material part of such
account is more than ninety (90) days past due (unless subject to a bona
fide dispute and for which adequate reserves have been established);
(v) Indebtedness of Borrower, Guarantor and the Guarantor
Subsidiaries under interest rate protection, currency swap and foreign
exchange arrangements, provided that all such arrangements are entered into
in connection with bona fide hedging operations and not for speculation;
(vi) Indebtedness of Borrower, Guarantor and the Guarantor
Subsidiaries under purchase money loans (including any synthetic leases)
and Capital Leases incurred by Borrower, Guarantor or any Guarantor
Subsidiaries to finance the acquisition by such Person of real property,
fixtures or equipment provided that in each case (a) such Indebtedness is
incurred by such Person at the time of, or not later than ninety (90) days
after, the acquisition by such Person of the property so financed, and (b)
such Indebtedness does not exceed the purchase price of the property so
financed;
(vii) Indebtedness of Borrower, Guarantor and the Guarantor
Subsidiaries under initial or successive refinancings of any Indebtedness
permitted by clause (i) or (ii) above, provided that (a) the principal
amount of any such refinancing does not exceed the principal amount of the
Indebtedness being refinanced, and (b) the material terms and provisions of
any such refinancing (including maturity, interest rate, redemption,
covenants, events of default and subordination provisions) are no less
favorable to the lenders thereunder than the Indebtedness being refinanced;
(viii) Indebtedness of Borrower, Guarantor and the Guarantor
Subsidiaries with respect to surety, appeal, indemnity, performance or
other similar bonds in the ordinary course of business;
(ix) Guaranty Obligations of Guarantor in respect of Permitted
Indebtedness of Borrower and the Guarantor Subsidiaries;
(x) Indebtedness of Guarantor to Borrower or any Guarantor
Subsidiaries, Indebtedness of Borrower or any Guarantor Subsidiaries to
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Guarantor or Indebtedness of Borrower or any Guarantor Subsidiaries to each
other, provided that any Indebtedness of Guarantor to Borrower or any
Guarantor Subsidiaries and any Indebtedness of Borrower or any Guarantor
Subsidiaries to Guarantor shall be subject to the other provisions of this
Article 6;
(xi) Unsecured Indebtedness of Guarantor which is subordinated to the
obligations of Guarantor under the 1995 Guarantor Credit Agreement,
provided that the payment terms, interest rate and subordination provisions
of such Indebtedness are reasonably acceptable to the Required Lenders (as
defined in the 1995 Guarantor Credit Agreement);
(xii) Indebtedness of Borrower, Guarantor and the Guarantor
Subsidiaries with respect to the sale, transfer of assignment of accounts
receivable of Borrower, Guarantor and the Guarantor Subsidiaries and
certain rights and property related to the collection of or constituting
proceeds of such accounts receivable, provided that such sale, assignment
or transfer is (a) in the ordinary course of business, (b) for cash, (c)
with recourse to Borrower, Guarantor or such Guarantor Subsidiary in an
amount not to exceed the aggregate face amount of the accounts receivable
sold and certain additional interest charges with respect to such
Indebtedness, (d) otherwise permitted under Section 6.3(vii), and (e) both
immediately before and after giving effect to such Indebtedness, no Default
or Event of Default shall have occurred and be continuing; and
(xiii) Other unsecured Senior Indebtedness of Borrower, Guarantor and
the Guarantor Subsidiaries in addition to that otherwise permitted above,
provided that both immediately before incurring and after giving effect to
such unsecured Senior Indebtedness, Guarantor shall be in compliance with
the financial covenants set forth in Section 3.1 of the Guaranty and no
other Default or Event of Default shall have occurred and be continuing.
SECTION 6.2. LIENS. Neither Borrower, Guarantor nor any of the Guarantor
Subsidiaries shall create, incur, assume or permit to exist any Lien on or with
respect to any of its assets or property of any character, whether now owned or
hereafter acquired, except for the following ("Permitted Liens"):
(i) Liens in favor of the agent or any lender under the 1995
Guarantor Credit Agreement securing any of the obligations of Guarantor
under the 1995 Guarantor Credit Agreement; provided, however, no such Lien
shall be permitted with respect to the assets or property of Borrower or
any Subsidiaries of Borrower;
(ii) Liens listed in Schedule 5.02(b) of the 1995 Guarantor Credit
Agreement and existing on the date of such agreement;
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(iii) Liens for taxes or other Governmental Charges not at the time
delinquent or thereafter payable without penalty or being contested in good
faith, provided that adequate reserves for the payment thereof have been
established in accordance with GAAP;
(iv) Liens of carriers, warehousemen, mechanics, materialmen, vendors
and landlords and other similar Liens imposed by law incurred in the
ordinary course of business for sums not overdue or being contested in good
faith, provided that adequate reserves for the payment thereof have been
established in accordance with GAAP;
(v) Deposits under workers' compensation, unemployment insurance and
social security laws or to secure the performance of bids, tenders,
contracts (other than for the repayment of borrower money) or leases, or to
secure statutory obligations of surety or appeal bonds or to secure
indemnity, performance or other similar bonds in the ordinary course of
business;
(vi) Zoning restrictions, easements, rights-of-way, title
irregularities and other similar encumbrances, which alone or in the
aggregate are not substantial in amount and do not materially detract from
the value of the property subject thereto or interfere with the ordinary
conduct of the business of Borrower, Guarantor or any of the Guarantor
Subsidiaries;
(vii) Banker's Liens and similar Liens (including set-off rights) in
respect of bank deposits;
(viii) Liens on property or assets of any corporation which becomes a
Guarantor Subsidiary after the date of this Agreement, provided that (a)
such Liens exist at the time the stock of such corporation is acquired by
Guarantor, and (b) such Liens were not created in contemplation of such
acquisition by Guarantor;
(ix) Judgement Liens, provided that such Liens do not have a value in
excess of $5,000,000 or such Liens are released, stayed, vacated or
otherwise dismissed within sixty (60) days after issue or levy and, if so
stayed, such stay is not thereafter removed;
(x) Rights of vendors or lessors under conditional sale agreements,
Capital Leases or other title retention agreements (including synthetic
leases), provided that, in each case (a) such rights secure or otherwise
relate to Permitted Indebtedness, (b) such rights do not extend to any
property other than property acquired with the proceeds of such Permitted
Indebtedness (other than cash pledged to secure obligations under
synthetic leases in an amount not to exceed, together with any amounts
pledged under clause (xiii), $70,000,000 in the aggregate during the term
of this Agreement provided that both immediately before and after giving
effect to any such cash collateralization, Guarantor shall
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be in compliance with the financial covenants set forth in Section 3.1 of
the Guaranty and no other Default or Event of Default shall have occurred
and be continuing), and (c) such rights do not secure any Indebtedness
other than such Permitted Indebtedness;
(xi) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties and in connection with
the importation of goods in the ordinary course of Borrower's, Guarantor
and the Guarantor Subsidiaries' businesses;
(xii) Liens securing Indebtedness which constitutes Permitted
Indebtedness under clause (vi) of Section 6.1 provided that, in each case,
such Lien (a) covers only those assets, the acquisition of which was
financed by such Permitted Indebtedness, and (a) secures only such
Permitted Indebtedness;
(xiii) Liens securing Indebtedness which constitutes Permitted
Indebtedness under clause (xii) of Section 6.1 provided that, in each case,
such Lien (a) secures only such Permitted Indebtedness, and (b) such Liens
do not extend to any assets or property other than the assets or property
sold (other than cash pledged under certain circumstances to secure such
Permitted Indebtedness in an aggregate amount not to exceed, together with
any amounts pledged under clause (x), $70,000,000 in the aggregate during
the term of this Agreement, provided that both immediately before and after
given effect to any such cash collateralization, Guarantor shall be in
compliance with the financial covenants set forth in Section __ of the
Guaranty and no other Default or Event of Default shall have occurred and
be continuing);
(xiv) Liens on the property or assets of any Guarantor Subsidiary,
other than a Subsidiary of Borrower, in favor of Guarantor, Borrower, or
any Guarantor Subsidiary;
(xv) Liens incurred in connection with the extension, renewal or
refinancing of the Indebtedness secured by the Liens described in clause
(ii) or (xii) above, provided that any extension, renewal or replacement
Lien (a) is limited to the property covered by the existing Lien and (b)
secures Indebtedness which is no greater in amount and has material terms
no less favorable to lenders than the Indebtedness secured by the existing
Lien; and
(xvi) Liens on insurance proceeds in favor of insurance companies
with respect to the financing of insurance premiums.
SECTION 6.3. ASSET DISPOSITIONS. Neither Borrower, Guarantor nor any
Guarantor Subsidiaries shall sell, lease, transfer or otherwise dispose of any
of its assets or property, whether now owned or hereafter acquired, except for
the following:
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(i) Sales of inventory by Borrower, Guarantor and the Guarantor
Subsidiaries in the ordinary course of their businesses;
(ii) Sales of surplus, damaged, worn or obsolete equipment or
inventory for not less than fair market value;
(iii) Sales or other dispositions of Investments permitted by clause
(i) of Section 6.5 for not less than fair market value;
(iv) Sales or assignments of defaulted receivables to a collection
agency in the ordinary course of business;
(v) Licenses by Borrower, Guarantor or any Guarantor Subsidiaries of
its patents, copyrights, trademarks, trade names and service marks in the
ordinary course of its business;
(vi) Sales or other dispositions of assets and property by Guarantor
to Borrower or any Guarantor Subsidiaries or by Borrower or any Guarantor
Subsidiaries to each other or Guarantor, provided that the terms of any
such sales or other dispositions by or to such parties are terms which are
no less favorable to such parties then would prevail in the market for
similar transactions between unaffiliated parties dealing at arm's length;
(vii) Sales, for cash, in the ordinary course of business of (a)
accounts receivable of foreign Guarantor Subsidiaries (other than
Subsidiaries of Borrower) and certain rights and property of foreign
Guarantor Subsidiaries (other than Subsidiaries of Borrower) related to the
collection of or constituting proceeds of such accounts receivable, and (b)
accounts receivable of Guarantor and certain rights and property of
Guarantor related to the collection of or constituting proceeds of such
accounts receivable in an aggregate amount not to exceed at any time
fifteen percent (15%) of Guarantor's aggregate accounts receivable, as
measured at the end of each fiscal quarter of Guarantor, and in each case
with respect to the foregoing clauses (a) and (b), with or without
recourse, at a discount rate not to exceed twenty percent (20%); and
(viii) Other sales, leases, transfers and disposals of assets and
property by Guarantor or any Guarantor Subsidiary (other than sales,
leases, transfers and disposals of accounts receivable and related rights
and property which shall be permitted only as expressly set forth in clause
(vii) above), provided that the aggregate value of all such assets and
property (based upon the greater of the fair market or book value of such
assets and property) so sold, leased, transferred or otherwise disposed of
in any fiscal year on a rolling four quarter basis or does not exceed ten
percent (10%) of Guarantor's Tangible Net Worth (as defined in the
Guaranty) as measured at the end of each fiscal quarter of Guarantor.
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SECTION 6.4. MERGERS AND ACQUISITIONS. Neither Borrower, Guarantor nor
any Guarantor Subsidiaries shall consolidate with or merge into any other Person
or permit any other Person to merge into it, acquire or establish any subsidiary
or acquire all or substantially all of the assets of any other Person, except
for the following:
(i) any wholly owned Guarantor Subsidiary (other than a Subsidiary of
Borrower) may merge into any other wholly owner Guarantor Subsidiary;
(ii) (a) Borrower, Guarantor, or any wholly-owned Guarantor
Subsidiary may acquire all or substantially all of the assets of any
Person, (b) any Person may merge into Borrower, Guarantor or any wholly-
owned Guarantor Subsidiary, and (c) Borrower, Guarantor or any wholly-owned
Guarantor Subsidiary may establish or acquire Subsidiaries, provided that:
(1) in the event of any merger by any Person into Borrower,
Guarantor or any wholly-owned Guarantor Subsidiary, Borrower,
Guarantor or such wholly-owned Guarantor Subsidiary is the surviving
entity; and
(2) both immediately prior to and after giving effect to such
merger, acquisition or establishment of a Subsidiary (y) the aggregate
cost of any such merger, acquisition or establishment of a Subsidiary
shall not exceed the amounts permitted under Section 6.5(ii), and (z)
no Default of Event of Default shall have occurred and be continuing.
SECTION 6.5. INVESTMENTS. Neither Borrower, Guarantor nor any of the
Guarantor Subsidiaries shall make any Investment (as defined in the 1995
Guarantor Credit Agreement) except for Investments in the following:
(i) Investments in accordance with the terms of Borrower's Cash
Investment Guidelines (as defined in the 1995 Guarantor Credit Agreement)
as in effect on the closing date of the transaction contemplated under the
1995 Guarantor Credit Agreement; and
(ii) Other Investments, provided that the aggregate amount of such
other Investments plus the aggregate cost of assets acquired, mergers
consummated and Subsidiaries established or acquired by Borrower, Guarantor
and the Guarantor Subsidiaries pursuant to Section 6.4 does not exceed in
any fiscal year (a) $50,000,000 for any amounts paid in cash, and (b)
$100,000,000 for any amounts paid with shares of common stock of Guarantor
(as determined according to the stock price of such shares on the date of
transfer).
SECTION 6.5. DIVIDENDS AND REDEMPTIONS. Neither Borrower, Guarantor nor
any Guarantor Subsidiaries shall pay any dividends or make any distributions on
its Equity Securities; purchase, redeem, retire, defease or otherwise acquire
for value of any of its Equity Securities; return any capital to any holder of
its Equity Securities as
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such; make any distribution of assets, Equity Securities, obligations or
securities to any holder of its Equity Securities as such; or set apart any sum
for any such purpose; except Borrower may repurchase its Equity Securities from
management pursuant to valid stock repurchase arrangements, provided that the
aggregate amount of such repurchases does not exceed $10,000,000 in any fiscal
year.
SECTION 6.6. CHANGE IN BUSINESS. Neither Borrower, Guarantor nor any
Guarantor Subsidiaries shall engage, either directly or indirectly through
Affiliates, in any business substantially different from its present business;
provided, however, that Guarantor Subsidiaries which are not Material
Subsidiaries may operate as holding companies or special tax purpose entities as
may be necessary for the overall operation of the business of Borrower,
Guarantor and the Guarantor Subsidiaries, so long as the terms of this Agreement
and the other Loan Documents would not otherwise be violated.
SECTION 6.7. INDEBTEDNESS PAYMENTS. Neither Borrower, Guarantor nor any
Guarantor Subsidiaries shall amend, modify or otherwise change any of the
subordination or other provisions of any document, instrument or agreement
evidencing Subordinated Debt in a manner which adversely affects the material
rights of Lender. Neither Borrower, Guarantor nor any Guarantor Subsidiary
shall purchase, redeem or prepay any Subordinated Debt, now or hereafter
outstanding, except for any de minimis redemption required in connection with
the conversion of any class of Subordinated Debt into equity.
SECTION 6.8. ERISA. Neither Guarantor nor any Commonly Controlled Entity
shall (i) adopt or institute any Plan that is an employee pension benefit plan
within the meaning of Section 3(2) of ERISA; (ii) take any action which will
result in the partial or complete withdrawal, within the meanings of sections
4203 and 4205 of ERISA, from a Multiemployer Plan; (iii) engage or permit any
Person to engage in any transaction prohibited by section 406 of ERISA or
section 4975 of the Code involving any Plan or Multiemployer Plan which would
subject either borrower or any ERISA Affiliate to any tax, penalty or other
liability including a liability to indemnify; (iv) incur or allow to exist any
accumulated funding deficiency (within the meaning of section 412 of the Code or
section 302 of ERISA), (v) fail to make full payment when due of all amounts due
as contributions to any Plan or Multiemployer Plan; (vi) fail to comply with the
requirements of section 4980B of the Code or Part 6 of Title I(B) of ERISA; or
(vii) adopt any amendment to any Plan which would require the posting of
security pursuant to section 401(a)(29) of the Code, where singly or
cumulatively, the above would have a Material Adverse Effect.
SECTION 6.9. TRANSACTIONS WITH AFFILIATES. Neither Borrower, Guarantor
nor any Guarantor Subsidiaries shall enter into any Contractual Obligation with
any Affiliate or engage in any other transaction with any Affiliate except upon
terms at least as favorable to Borrower, Guarantor or such Guarantor Subsidiary
as an arms-length transaction with unaffiliated Persons.
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SECTION 6.10. ACCOUNTING CHANGES. Neither Borrower, Guarantor nor any
Guarantor Subsidiaries shall change (i) its fiscal year (currently July 1
through June 30); or (ii) its accounting practices except as required by GAAP.
ARTICLE 7.
EVENTS OF DEFAULT
SECTION 7.1. EVENTS OF DEFAULT. The occurrence of any of the following
events or conditions shall constitute an Events of Default under this Agreement
and any other Loan Documents:
(a) Borrower (i) shall fail to pay when due any principal or interest
on the Loan and such failure shall continue for three (3) Business Days
after such payment was due; or (ii) shall fail to pay when due any other
payment required under the terms of this Agreement or any of the other Loan
Documents and such failure shall continue for five (5) Business Days after
such other payment was due; or
(b) Borrower, Guarantor or any Guarantor Subsidiaries shall fail to
observe or perform any covenant, obligation, condition or agreement set
forth in Section 5.7 or Article 6 hereof or in Section 3.1 of the Guaranty;
or
(c) Borrower, Guarantor or any Guarantor Subsidiaries shall fail to
observe or perform any other covenant, obligation, condition or agreement
contained in this Agreement or the other Loan Documents and such failure
shall continue for fifteen (15) days or, provided that Borrower, Guarantor
or such Guarantor Subsidiary is making good faith efforts to cure such
failure and such failure can be cured within thirty (30) days, such failure
shall continue for thirty (30) days; or
(d) Any representation, warranty, certificate, information or other
statement (financial or otherwise) made or furnished by or on behalf of
Borrower, Guarantor or any Guarantor Subsidiaries to Lender in or in
connection with this Agreement or any of the other Loan Documents, or as an
inducement to Lender to enter into this Agreement, shall be false,
incorrect, incomplete or misleading in any material respect when made or
furnished; or
(e) Borrower, Guarantor or any Guarantor Subsidiaries (i) shall fail
to make any payment when due under the terms of any bond, debenture, note
or other evidence of Indebtedness in an amount of $10,000,000 or more to be
paid by such Person (excluding this Agreement and the other Loan Documents
but including any other evidence of Indebtedness of Guarantor, Borrower of
any Guarantor Subsidiaries to Lender) and such failure shall continue
beyond any period of grace provided with respect thereto, or shall default
in the observance or performance of any other agreement, term or condition
contained in any such
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bond, debenture, note or other evidence of Indebtedness, and the effect of
such failure or default is to cause, or permit the holder or holders
thereof to cause such Indebtedness to become due prior to its stated date
of maturity; (ii) shall fail to pay on its stated date of maturity
Indebtedness in an amount of $10,000,000 or more under any such bond,
debenture, note or other evidence of Indebtedness and such failure shall
continue beyond any period of grace provided with respect thereto; or (iii)
there occurs any termination, liquidation, unwind or similar event under
any agreement or instrument relating to the purchase of receivables of
Borrower, Guarantor or any Guarantor Subsidiary and as a result Borrower,
Guarantor or such Guarantor Subsidiary is required to repurchase sold
receivables in an amount of $10,000,000 or more; or
(f) Borrower, Guarantor or any Guarantor Subsidiaries shall (i) apply
for or consent to the appointment of a receiver, trustee, liquidator or
custodian of itself or of all or a substantial part of its property; (ii)
be unable, or admit in writing its inability, to pay its debts generally as
they mature; (iii) make a general assignment for the benefit of its or any
of its creditors; (iv) be dissolved or liquidated in full or in part; (v)
become insolvent (as such term may be defined or interpreted under any
applicable statute); (vi) commence a voluntary case or other proceeding
seeking liquidation, reorganization or other relief with respect to itself
or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or consent to any such relief or to the appointment of
or taking possession of its property by any official in an involuntary case
or other proceeding commenced against it; or (vii) take any action for the
purpose of effecting any of the foregoing; or
(g) Proceedings for the appointment of a receiver, trustee,
liquidator or custodian of Borrower, Guarantor or any Guarantor
Subsidiaries or of all or a substantial part of the property thereof, or an
involuntary case or other proceedings seeking liquidation, reorganization
or other relief with respect to Borrower, Guarantor or any Guarantor
Subsidiaries or the debts thereof under any bankruptcy, insolvency or other
similar law now or hereafter in effect shall be commenced and an order for
relief entered or such proceeding shall not be dismissed or discharged
within sixty (60) days of commencement; or
(h) (i) A final judgment or order for the payment of money in excess
of $10,000,000 (exclusive of amounts covered by insurance issued by an
insurer not an Affiliate of Guarantor and otherwise satisfying the
requirements set forth in Section 5.4 shall be rendered against Borrower,
Guarantor or any Guarantor Subsidiaries and the same shall remain
undischarged for a period of sixty (60) days during which execution shall
not be effectively stayed or (ii) any judgment, writ, assessment, warrant
of attachment, tax lien or execution or similar process shall be issued or
levied against a substantial part of the property of Borrower, Guarantor
or any Guarantor Subsidiaries and such judgment, writ, or similar process
shall not be released, stayed, vacated or otherwise dismissed within sixty
(60) days after issue or levy; or
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(i) Any Loan Document or any material term thereof shall cease to be,
or be asserted by Borrower, Guarantor or any Guarantor Subsidiaries not to
be, a legal, valid and binding obligation of Borrower, Guarantor or any
Guarantor Subsidiaries enforceable in accordance with its terms; or
(j) Any Reportable Event (as such term is used under ERISA) which
constitutes grounds for the termination of any Plan by the PBGC or for the
appointment of a trustee by the PBGC to administer any Plan shall occur, or
any Plan shall be terminated within the meaning of Title IV of ERISA or a
trustee shall be appointed by the PBGC to administer any Plan; or
(k) A Change of Control shall occur; or
(l) An event of default, or event which with the giving of notice, the
passage of time or both, would become an event of default, shall have
occurred and be continuing under the 1995 Guarantor Credit Agreement; or
(m) Any event(s) or condition(s) which is(are) reasonably likely to
have a Material Adverse Effect shall occur or exist; or
(n) Prior to June 28, 1997, Borrower shall have failed to repay in
full all of the Japan Development Bank Indebtedness.
SECTION 7.2. REMEDIES. Upon the occurrence of any Event of Default,
Lender may, at its option: (i) declare all sums of interest and principal
remaining outstanding on the Loan and all other sums outstanding under or in
respect of this Agreement or any other Loan Document to be immediately due and
payable, without notice of default, presentment, demand, protest, or further
notice of any kind, all of which are hereby expressly waived by Borrower; (ii)
exercise any additional right or remedy which Lender may have under this
Agreement or any other Loan Document; and (iii) exercise any additional right or
remedy which Lender may have at law or in equity. Notwithstanding anything to
the contrary in the preceding sentence, if an Event of Default described in
Section 7.1(f) or Section 7.1(g) above shall occur, all sums of interest and
principal remaining outstanding on the Loan and all other sums outstanding under
or in respect of any Loan Document shall be deemed automatically and immediately
due and payable, without any declaration or other determination by Lender and
without notice of default, presentment, demand, protest, or further notice of
any kind, all of which are hereby expressly waived by Borrower.
ARTICLE 8.
MISCELLANEOUS
SECTION 8.1. AMENDMENTS. No amendment, modification, termination, or
waiver of any provision of any Loan Document to which Borrower is a party, nor
consent to any departure by Borrower from any Loan Document to which it is a
party,
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shall in any event be effective unless the same shall be in writing and signed
by Lender, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
SECTION 8.2. NOTICES. All notices and other communications provided for
under this Agreement shall be in writing and shall be personally delivered or
sent by first class United States mail, by nationally recognized overnight
courier such as Federal Express or
DHL, or by telecopy or by other means of telecommunication, to the following
addresses:
to Borrower: Lam Research Co., Ltd.
1-1-10 Oyama, 2F
Sagamihara-shi, Kanagawa
229 Japan
Attention: Mr. Yasushi Matsunaga
Telephone: 011-81-427-70-0320
Facsimile: 011-81-427-70-0347
copy to: Lam Research Corporation
47300 Bayside Parkway
Fremont, California 94538-6516
Attention: Brian Boldt
Telephone: (510) 572-6910
Facsimile: (510) 572-1586
to Lender: The Sakura Bank, Limited
International Business Promotion Group
Tokyo Main Office, Div 1
1-2, Yurakucho, 1-chome
Chiyoda-ku, Tokyo
100 Japan
Telephone: 011-81-33-595-3781
Facsimile: 011-81-33-501-1219
or, as to each party, at such other address as shall be designated by such party
in a written notice to the other party complying as to delivery with the terms
of this Section. All such notices and communications shall be deemed received
(i) if personally delivered, upon delivery; (ii) if sent by first class mail,
following deposit in the mail with first class postage prepaid, upon receipt;
(iii) if sent by courier service with next Business Day delivery charges
prepaid, upon receipt; and (iv) if sent by telex, telecopy or similar form of
telecommunications, upon receipt. Notwithstanding anything to the contrary
contained herein, Lender shall endeavor to provide a copy of each notice sent
hereunder to the entity requested above by Borrower; provided, however, except
with respect to any notice provided by Lender under Section 7.2 hereof, any
failure by Lender to provide a copy of any notice to such entity shall not
affect the validity of any such notice given by Lender to Borrower as provided
herein.
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<PAGE>
SECTION 8.3. NO WAIVER. No failure or delay on the part of Lender in
exercising any right, power, or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right power, or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power, or remedy hereunder. The rights and remedies provided
herein are cumulative and are not exclusive of any other rights, powers,
privileges, or remedies, now or hereafter existing, at law or in equity or
otherwise.
SECTION 8.4. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of Borrower and Lender and their respective
successors and assigns, except that Borrower may not assign or transfer any of
its rights under any Loan Document without the prior written consent of Lender.
Lender may (i) without the consent of Borrower, grant participations in this
Agreement or in any of its rights under this Agreement; and (ii) with the
consent of Borrower, which consent shall not be unreasonably withheld,
negotiate, pledge or hypothecate this Agreement or in any of its rights under
this Agreement. Borrower shall accord full recognition to any such assignment,
and all rights and remedies of Lender in connection with the interest so
assigned shall be as fully enforceable by such assignee or participant as they
were by Lender before such assignment. In connection with any proposed
assignment or participation, Lender may disclose to the proposed assignee or
participant any information that Borrower is required to deliver to Lender
pursuant to this Agreement provided such disclosure is made subject to the same
confidentiality restrictions, if any, applicable to Lender.
SECTION 8.5. COSTS AND EXPENSES. Borrower agrees to pay promptly upon
demand therefore by Lender all costs and expenses (including, but not limited
to, reasonable attorneys' fees and costs of settlement) incurred by Lender in
enforcing any obligations of or in collecting any payments due from Borrower
under any Loan Document or in connection with any refinancing or restructuring
of the credit arrangements provided under this Agreement in the nature of a
"work-out" or of any insolvency or bankruptcy proceedings.
SECTION 8.6. INTEGRATION. This Agreement and the Loan Documents contain
the entire agreement between the parties relating to the subject matter hereof
and supersede all oral statements and prior writings with respect thereto.
SECTION 8.7. INDEMNIFICATION. Borrower shall indemnify, defend and hold
harmless Lender and each of its shareholders, directors, officers, employees,
successors and assigns (collectively, "Indemnitees") against any and all losses,
liabilities, obligations, damages, claims, assessments, judgments, costs and
expenses (collectively, "Losses") that may be imposed on, incurred by or
asserted against any Indemnitee, including without limitation in each such case,
any Interest Rate Funding Costs resulting from, arising out of or relating to:
(i) any default in payment or any prepayment of the principal
amount of the Loan or any part thereof or interest accrued thereon, as
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and when due and payable (at the due date thereof, by irrevocable notice of
prepayment or otherwise); or
(ii) the occurrence of any Event of Default;
provided, however, that Borrower shall not indemnify, defend and hold harmless
the Indemnitees for any Losses to the extent caused by the negligence or willful
misconduct of any Indemnitee. Any Indemnitee seeking indemnification pursuant
to this Section shall give notice to Borrower within a reasonable time of the
assertion of any claim which could result in a Loss. Borrower, at its expense,
shall have the right to assume the defense of such claim with counsel reasonably
satisfactory to the Indemnitee, including without limitation the right to
compromise or settle such claim so long as no liability is imposed on any
Indemnitee as a result thereof. If Borrower, within a reasonable time after
receipt of the notice of such claim, fails to defend the Indemnitee, then such
Indemnitee shall have the right to undertake the defense, compromise, or
settlement of such claim on its own behalf, and for the account and risk of
Borrower. This indemnity shall survive termination of this Agreement.
SECTION 8.8. APPLICABLE LAW; JURISDICTION. This Agreement shall be
governed by, and construed in accordance with the internal laws of the State of
California. Borrower hereby irrevocably submits to the jurisdiction of any
California state court located in Santa Clara County, or the Federal District
Court of the Northern District of California in any action or proceeding arising
out of or relating to this Agreement, and Borrower hereby irrevocably agrees
that all claims in respect of such action or proceeding may be heard and
determined in such California State or Federal court. Borrower hereby
irrevocably appoints Richard H. Lovgren (the "Process Agent"), with an office on
the date hereof c/o Lam Research Corporation, 47300 Bayside Parkway, Fremont,
California 94538-6516, United States, as its agent to receive, on its behalf of
it and its property, service of copies of the summons and complaint and any
other process which may be served in any such action or proceeding. Such
service may be made by registered or certified mail, return receipt requested,
or by delivering a copy of such process to Borrower in care of the Process Agent
at the Process Agent's above address, and Borrower hereby irrevocably authorizes
and directs the Process Agent to accept such service on his behalf. As an
alternative method of service, Borrower also irrevocably consents to the service
of any and all process in any such action or proceeding by the mailing of copies
of such process to Borrower at the address set forth in Section 8.2 above.
Borrower agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in any other jurisdictions by suit on the
judgment or in any other manner provided by law.
Nothing in this Section 8.8 shall affect the right of Lender to serve legal
process in any other manner permitted by law or affect the right of Lender to
bring any action or proceeding against Borrower or his property in the courts of
any other jurisdiction. To the extent that Borrower has or hereafter may
acquire any immunity from jurisdiction of any court or from any legal process
(whether through service or notice, attachment prior to judgment, attachment in
aid of execution, execution or otherwise) with respect to
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<PAGE>
itself or its property, Borrower hereby irrevocably waives such immunity in
respect of its obligations under this Agreement.
SECTION 8.9. SEVERABILITY OF PROVISIONS. Any provision of any Loan
Document which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of such Loan
Document or affecting the validity or enforceability of such provision in any
other jurisdiction.
SECTION 8.10. HEADINGS. Article and Section headings in the Loan
Documents are included in such Loan Documents for the convenience of reference
only and shall not constitute a part of the applicable Loan Documents for any
other purpose.
SECTION 8.11. JURY TRIAL WAIVER. LENDER AND BORROWER HEREBY WAIVE TRIAL
BY JURY IN ANY ACTION, PROCEEDING, CLAIM, OR COUNTERCLAIM, WHETHER IN CONTRACT
OR TORT, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATED TO THIS
AGREEMENT OR THE LOAN DOCUMENTS. NO OFFICER OF Lender HAS AUTHORITY TO WAIVE,
CONDITION, OR MODIFY THIS PROVISION.
SECTION 8.12. ASSISTANCE OF LENDER'S SAN FRANCISCO AGENCY; DELIVERY OF
LOAN DOCUMENTS. Lender and Borrower acknowledge and agree that (i) Lender's San
Francisco Agency was specifically responsible for the negotiation, documentation
and underwriting of the Loan; (ii) the Loan Agreement was executed and delivered
by Lender to Borrower in San Francisco, California; and (iii) the Loan Documents
were delivered by Borrower to Lender in San Francisco, California.
SECTION 8.13. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to constitute one and the same document.
[SIGNATURES ARE ON FOLLOWING PAGE]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
LENDER:
The Sakura Bank, Limited,
a Japanese banking corporation
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
BORROWER:
Lam Research Co., Ltd.
a Japanese corporation
By:
-------------------------------
Yo Miyazaki, President
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<PAGE>
SCHEDULE 6.1 TO TERM LOAN AGREEMENT
(SECTION 6.1(ii) INDEBTEDNESS)
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<PAGE>
EXHIBIT 10.32
CONTINUING GUARANTY
THIS CONTINUING GUARANTY ("Guaranty") is made and entered into as of June
26, 1996 by LAM RESEARCH CORPORATION, a Delaware corporation ("Guarantor"), in
favor of THE SAKURA BANK, LIMITED, a Japanese banking corporation ("Lender").
RECITALS:
A. Reference is made to that certain Term Loan Agreement of even date
herewith ("Loan Agreement") between Lender and Lam Research Co., Ltd., a
Japanese corporation ("Borrower"). Capitalized terms used herein and not
otherwise defined have the meanings provided therefor in the Loan Agreement.
B. Borrower wishes to borrow up to Two Billion Three Hundred Million Yen
(Y2,300,000,000) ("Loan") from Lender pursuant to the terms and conditions of
the Loan Agreement.
C. The Loan Agreement requires as a condition precedent to the making of
the Loan that Borrower obtain and deliver this Guaranty to Lender.
NOW, THEREFORE, Guarantor, intending to induce Lender to enter into the
Loan Agreement and to make the Loan to Borrower, hereby represents, warrants and
covenants as follows for the benefit of Lender and its successors and assigns.
ARTICLE 1.
REPRESENTATIONS AND WARRANTIES
SECTION 1.1. FINANCIAL BENEFIT. Guarantor hereby acknowledges, warrants
and represents to Lender as of the date hereof and as of the Closing Date that
it has derived or expects to derive a financial advantage from the making of the
Loan by Lender to Borrower and from each and every renewal, extension, release
of collateral or other relinquishment of legal rights made or granted or to be
made or granted by Lender to Borrower in connection with the Obligations (as
hereinafter defined). In connection with the foregoing, Guarantor hereby
warrants and represents to Lender as of the date hereof and as of the Closing
Date that Guarantor currently directly owns and controls, free and clear of all
Liens, all of the Equity Securities of Borrower.
SECTION 1.2. REVIEW OF DOCUMENTS. Guarantor hereby acknowledges and agrees
that Guarantor has copies of and is fully familiar with the Loan Agreement, the
Note and each of the other Loan Documents to be executed and delivered by
Borrower to Lender on the date hereof or on or prior to the Closing Date in
connection with the Loan.
<PAGE>
SECTION 1.3. INCORPORATION, GOOD STANDING, AND DUE QUALIFICATION.
Guarantor hereby warrants and represents to Lender as of the date hereof and as
of the Closing Date that Guarantor is a corporation duly incorporated, validly
existing, and in good standing under the laws of State of Delaware; has the
corporate power and authority to own its assets and to transact the business in
which it is now engaged or proposed to be engaged in; and is duly qualified as a
foreign corporation and in good standing under the laws of each other
jurisdiction in which such qualification is required, including, without
limitation, the State of California.
SECTION 1.4. LOAN AGREEMENT REPRESENTATIONS. Guarantor hereby warrants
and represents to Lender as of the date hereof and as of the Closing Date that
Guarantor has reviewed each of the representations and warranties made by
Borrower and contained in the Loan Agreement. Guarantor hereby warrants and
represents to Lender as of the date hereof and as of the Closing Date that each
such representation and warranty is true and correct.
ARTICLE 2.
GUARANTY
SECTION 2.1. GUARANTY OF THE OBLIGATIONS. Guarantor unconditionally
guarantees and promises to pay to, or cause to be paid to, or to the order of,
Lender, on demand, in lawful money of Japan, any and all of the Obligations of
the Borrower to the Lender. "Obligations" mean any amount due and payable to
Lender (including its successors and assigns) by Borrower (including its
successors and assigns) pursuant to any of the Loan Documents, including,
without limitation, principal and interest payable with respect to the Note,
interest at the Default Rate on late payments, any prepayment charges or
expenses, including Interest Rate Funding Costs and amounts which may become
payable under Section 2.9 (Change in Law), Section 2.10 (Capital Adequacy),
Section 8.5 (Costs and Expenses) and Section 8.7 (Indemnification) of the Loan
Agreement. The unconditional obligations of Guarantor set forth herein
constitute the full recourse obligations of Guarantor enforceable against it to
the full extent of all its assets and properties.
SECTION 2.2. CONTINUING GUARANTY. This is a continuing guaranty of the
Obligations and is a guaranty of payment and performance of the Obligations and
not of collection only.
SECTION 2.3. NATURE OF GUARANTY. The liability of Guarantor hereunder is
independent of the obligations of Borrower and a separate action or separate
actions may be brought and prosecuted against Guarantor whether or not any
action is brought or prosecuted against Borrower or any other person, including
any other guarantor of the Obligations, or whether Borrower or any other person
is joined in any such action or actions. The liability of Guarantor hereunder
is independent of and not in consideration of or contingent upon the liability
of any other person under this or any similar instrument and the release of, or
cancellation by, any signer of this or a similar
<PAGE>
instrument shall not act to release or otherwise affect the liability of
Guarantor hereunder. Guarantor waives the benefit of any statute of limitations
affecting its liability hereunder or the enforcement thereof to the fullest
extent permitted by law.
SECTION 2.4. AUTHORIZATION. Guarantor hereby authorizes Lender, without
notice or demand and without affecting its liability hereunder, from time to
time to:
(a) renew, compromise, extend, accelerate or otherwise change the
time for payment of, or otherwise change the terms of, the Obligations, or
any part thereof, including increasing or decreasing the rate of interest
thereon (but subject to the approval of Borrower to the extent required
under the Loan Documents);
(b) amend with Borrower or waive any provision or provisions of the
Loan Documents including the Note;
(c) take and hold security for the payment of the Obligations and
exchange, enforce, waive or release any such security or any part thereof,
and apply any such security and direct the order or manner of sale thereof
as Lender, in its sole discretion, may determine; and
(d) release or substitute any one or more endorsers, guarantors
and/or other obligors of this Guaranty and of the Obligations.
SECTION 2.5. WAIVERS.
(a) Guarantor waives the right to require Lender to proceed against
or exhaust any security held from Borrower or any other person, or to
pursue any other remedy in Lender's power whatsoever and Guarantor waives
the right to have the property of Borrower first applied to the discharge
of the Obligations. Lender may at its election exercise any right or
remedy it may have against Borrower or any security now or hereafter held
by Lender, including, without limitation, the right to foreclose upon any
such security by judicial or nonjudicial sale, without affecting or
impairing in any way the liability of Guarantor hereunder, except to the
extent the Obligations have been paid. Guarantor understands that the
exercise by Lender of certain rights and remedies contained in the Loan
Documents (including without limitation, non-judicial foreclosure against
any real property security for the Obligations) may affect or eliminate
Guarantor's right of subrogation, contribution or indemnification against
Borrower and that Guarantor may therefore succeed to a partially or totally
nonreimbursable liability hereunder. Nevertheless, Guarantor hereby
authorizes and empowers Lender to exercise, in its sole discretion any
rights and remedies or any combination of rights and remedies that may then
be available, since it is the intent and purpose of Guarantor that the
obligations hereunder shall be absolute, independent and unconditional
under any and all circumstances. Guarantor waives (i) any defense arising
by reason of any disability or other
<PAGE>
defense of Borrower or by reason of the cessation from any cause whatsoever
of the liability, either in whole or in part, of Borrower to Lender for the
Obligations; (ii) any defense based on the discharge of Borrower by
operation of law, notwithstanding any intervention or omission by Lender
and notwithstanding the provisions of section 2825 of the California Civil
Code; (iii) all rights and benefits under section 726 of the California
Code of Civil Procedure; and (iv) any defense based on arising out of the
absence, impairment or loss of any right of reimbursement, contribution or
subrogation or any other right or remedy of Guarantor against Borrower or
any such security, whether resulting from such election by Lender or
otherwise.
(b) Guarantor waives all rights and benefits under (i) section 2822
of the California Civil Code purporting to reduce the obligation of a
surety upon the acceptance by a creditor of anything in partial
satisfaction of an obligation; (ii) section 2819 of the California Civil
Code purporting to exonerate a surety if by any act of the creditor,
without the consent of the surety, the original obligation of the principal
is altered in any respect, or the remedies or rights of the creditor
against the principal, in respect thereto, are in any way impaired or
suspended (it being expressly understood and agreed that Lender may
compromise, settle, alter, extend, waive, amend, suspend or surrender any
Obligation or any right or remedy with respect thereto without notice to or
consent by Guarantor and without affecting Guarantor's obligations
hereunder); and (iii) section 2845 of the California Civil Code purporting
to exonerate the surety to the extent that the creditor does not proceed
against the principal, or pursue any other remedy in the creditor's power
which the surety cannot pursue, and which would lighten the surety's
burden. Guarantor hereby waives, to the fullest extent permitted by law
(a) all rights and benefits under section 2809 of the California Civil Code
purporting to reduce a guarantor's obligations in proportion to the
principal obligation; (b) all rights and benefits under sections 2810, 2899
and 3433 of the California Civil Code; (c) all rights and benefits under
section 580a of the California Code of Civil Procedure; (d) all rights and
benefits under section 580b of the California Code of Civil Procedure
stating that no deficiency may be recovered on a real property purchase
money obligation; and (e) all rights and benefits under section 580d of the
California Code of Civil Procedure stating that no deficiency may be
recovered on a Note secured by a deed of trust on real property in case
such real property is sold under the power of sale contained in such deed
of trust. Guarantor fully understands that, without the waivers set forth
in this Section 2.5, Guarantor would have a defense to a deficiency
judgment under section 580d of the California Code of Civil Procedure
should Lender elect to pursue nonjudicial foreclosure remedies, and
nevertheless Guarantor expressly waives any and all benefits of any such
defense to a deficiency judgment should Lender elect to exercise its
nonjudicial foreclosure remedies (including waiver of Guarantor's defense
under section 580d of the California Code of Civil Procedure).
<PAGE>
(c) Without limiting the application of any of the other waivers
contained herein, Guarantor hereby expressly waives all rights and defenses
arising out of an election of remedies by Lender, even though that election
of remedies, such as a nonjudicial foreclosure with respect to security for
the guaranteed Obligations, has destroyed Guarantor's rights of subrogation
and reimbursement against the principal (I.E., Borrower) by the operation
of Section 580d of the California Code of Civil Procedure or otherwise.
(d) Guarantor understands and agrees that (i) by waiving the
anti-deficiency protections and the subrogation rights and defenses
referred to in this Section 2.5 and in Section 2.6 below, which
protections, rights and defenses might otherwise afford Guarantor with
protection from a deficiency judgment, Guarantor can be held liable for a
deficiency judgment following a judicial or non-judicial foreclosure sale
(including a judicial or non-judicial foreclosure sale of a purchase
money obligation) even if the price paid for the property at the
non-judicial foreclosure sale is less than the fair value of the
property; (ii) Guarantor is waiving its defense that the price paid for
the property at a judicial or non-judicial foreclosure sale may not be
equal to the fair value of the property; and (iii) by Guarantor waiving
its right to a fair value hearing following the foreclosure sale that
Lender can seek a deficiency against Guarantor up to the entire amount of
the indebtedness secured by any real property collateral with interest
and costs of sale less the amount paid for the property at the judicial
or non-judicial foreclosure sale.
SECTION 2.6. ADDITIONAL WAIVERS; NO SUBROGATION. Until all the
Obligations have been fully satisfied, Guarantor waives, to the fullest extent
permitted by law (i) all rights of subrogation, contribution or indemnification
against Borrower or any other right or remedy against Borrower arising from or
relating to this Guaranty; (ii) all rights and benefits under section 2848 of
the California Civil Code and any right to enforce any remedy which Lender now
has or may hereafter have against Borrower in respect of the Obligations; (iii)
any benefit of, and any right to participate in, any security, whether real or
personal property, now or hereafter held by Lender for the Obligations; and (iv)
all rights and benefits under sections 2849 and 2850 of the California Civil
Code. Guarantor waives all presentments, demands for performance, notices of
nonperformance, protests, notices of protest, notices of dishonor and notices of
acceptance of this Guaranty and of the existence, creation or incurring of new
or additional Obligations, whether existing, created or incurred under the Loan
Agreement, any modification thereof or otherwise. Guarantor assumes the
responsibility for being and keeping informed of the financial condition of
Borrower and of all other circumstances bearing upon the risk of nonpayment of
the Obligations which diligent inquiry would reveal, and agrees that Lender
shall have no duty to advise Guarantor of information known to it regarding such
condition or any such circumstances.
SECTION 2.7. BANKRUPTCY NO DISCHARGE; REPAYMENTS. So long as any of the
Obligations remain unpaid and owing to Lender, Guarantor shall not, without the
prior written consent of Lender, commence or join with any other party in
commencing any
<PAGE>
bankruptcy, reorganization or insolvency proceedings of or against Borrower.
Guarantor understands and acknowledges that by virtue of this Guaranty,
Guarantor has specifically assumed any and all risks of a bankruptcy or
reorganization case or proceeding with respect to Borrower. As an example and
not in any way of limitation, a subsequent modification of the Obligations in
any reorganization case concerning Borrower shall not affect the obligation of
Guarantor to pay and perform the Obligations in accordance with their respective
original terms. If claim is ever made upon Lender for repayment of any amount
or amounts received by Lender in payment of the obligations under the Loan
Documents or hereunder (whether or not all or any part of such payment is
invalidated, declared to be fraudulent or preferential, set aside or required to
be repaid by Lender) and Lender repays all or any part of said amount, then,
notwithstanding any revocation or termination of this Guaranty or the
cancellation of the Note or any other instrument evidencing the Loan, Guarantor
shall be and remain liable to Lender for the amount so repaid to the same extent
as if such amount had never originally been received by Lender.
SECTION 2.8. BORROWER. It is not and shall not be necessary for Lender to
inquire into the powers of Borrower or any of their agents acting or purporting
to act on behalf thereof, and any Obligations made or created in reliance upon
the professed exercise of such powers shall be guaranteed hereunder. Guarantor
agrees that Lender's books and records showing the account between Lender and
Borrower shall be admissible in any proceeding or action.
ARTICLE 3.
COVENANTS
SECTION 3.1. CERTAIN FINANCIAL COVENANTS.
3.1.1 DEFINITIONS. For purposes of this Section 3.1, the following
terms shall have the following meanings:
"AFFILIATE" means, with respect to any Person (i) each Person
that, directly or indirectly, owns or controls, whether beneficially
or as a trustee, guardian or other fiduciary, ten percent (10%) or
more of any class of Equity Securities of such Person; (ii) each
Person that controls, is controlled by or is under common control with
such Person or any Affiliate of such person; or (iii) each of such
Person's officers, directors, joint venturers and partners; provided,
however, that in no case shall Lender be deemed to be an Affiliate of
Guarantor or any Subsidiary of Guarantor for purposes of this
Guaranty. For the purpose of this definition, "control" of a Person
shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of its management or policies, whether
through the ownership of voting securities, by contract or otherwise.
<PAGE>
"CAPITAL ASSET" means, with respect to any Person, any tangible
fixed or capital asset owned or leased (in the case of a Capital
Lease) by such Person, or any expense incurred by such Person that is
required by GAAP to be reported as a non-current asset on such
Person's balance sheet.
<PAGE>
"CAPITAL EXPENDITURES" means, with respect to any Person and any
period, all amounts expended and indebtedness incurred or assumed by
such Person during such period for the acquisition of Capital Assets
(including all amounts expended and indebtedness incurred or assumed
in connection with Capital Leases).
"CAPITAL LEASES" means any and all lease obligations that, in
accordance with GAAP, are required to be capitalized on the books of a
lessee.
"CONTINGENT OBLIGATION" means, with respect to any Person,
without duplication (i) any Guaranty Obligation of that Person; and
(ii) any direct or indirect obligation or liability, contingent or
otherwise, of that Person (a) in respect of any letters of credit,
acceptances, bank guaranties, surety bonds or similar instrument
issued for the account of that Person or as to which that Person is
otherwise liable for reimbursement of drawings, (b) as a partner or
joint venturer in any partnership or joint venture, or (c) incurred
pursuant to any interest rate swap, currency swap, forward, cap, floor
or other similar contract that is not entered into in connection with
a bona fide hedging operation that provides offsetting benefits to
such Person. The amount of any Contingent Obligation shall (subject,
in the case of Guaranty Obligations, to the last sentence of the
definition of "Guaranty Obligation") be deemed equal to the maximum
reasonably anticipated liability in respect thereof.
"EBIT" means, with respect to any Person for any period, the sum
of the following, determined on a consolidated basis in accordance
with GAAP where applicable:
(i) the net income or net loss of such Person and its
Subsidiaries for such period before provision for income taxes;
PLUS
(ii) All Interest Expense of such Person and its
Subsidiaries accruing during such period (to the extent deducted
in calculating net income or loss in clause (i) above).
"EQUITY SECURITIES" means (i) all common stock,
preferred stock, participations, shares, partnership interests or
other equity interests in and of such Person (regardless of how
designated and whether or not voting or non-voting); and (ii) all
warrants, options and other rights to acquire any of the foregoing.
<PAGE>
"FUNDED DEBT" of any Person means, without duplication, all
Indebtedness of such Person as described in clauses (i) -(iv) of the
definition of Indebtedness.
"GAAP" means generally accepted accounting principles
in the United States.
"GUARANTY OBLIGATION" means, with respect to any Person, any
direct or indirect liability of that Person with respect to any
Indebtedness, lease, dividend, or other obligation (the "primary
obligations") of another Person (the "primary obligor"), including any
obligation of that Person, whether or not contingent (i) to purchase,
repurchase or otherwise acquire such primary obligations or any
property constituting direct or indirect security therefor; (ii) to
advance or provide funds (a) for the payment or discharge of any such
primary obligation, or (b) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth
or solvency or any balance sheet item, level of income or financial
condition of the primary obligor; or (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner
of any primary obligation of the ability of the primary obligor to
make payment of such primary obligation; or (iv) otherwise to assure
or hold harmless the holder of any such primary obligation against
loss in respect thereof. The amount of any Guaranty Obligation shall
be deemed equal to the stated or determinable amount of the primary
obligation in respect of which such Guaranty Obligation is made or, if
not stated or if indeterminable, the maximum reasonably anticipated
liability in respect thereof.
"INDEBTEDNESS" of any Person means, without duplication:
(i) All obligations of such Person evidenced by
notes, bonds, debentures or other similar instruments and all
other obligations of such Person for borrowed money;
(ii) All obligations of such Person for the
deferred purchase price of property or services (including
obligations under credit facilities which secure or finance such
purchase price and obligations under synthetic leases), other
than trade payables incurred by such Person in the ordinary
course of its business on ordinary terms;
(iii) All obligations of such Person under conditional sale
or other title retention agreements with respect to property
acquired by such Person (to the extent of the value of such
property if the rights and remedies of the seller or lender under
such agreement in the event of default are limited solely to
repossession or sale of such property);
<PAGE>
(iv) All obligations of such Person as lessee under or with
respect to Capital Leases;
(v) All obligations of such Person with respect to accounts
receivable and related rights and property sold, assigned or
transferred by such Person with recourse to such Person;
(vi) All Contingent Obligations of such Person; and
(vii) All Indebtedness of other Persons of the types
described in clauses (i) - (vi) above to the extent secured by
(or for which any holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Lien in any
property (including accounts and contract rights) of such Person,
even though such Person has not assumed or become liable for the
payment of such Indebtedness.
"INTEREST COVERAGE RATIO" means, with respect to any Person for
any period, the ratio, determined on a consolidated basis in
accordance with GAAP where applicable, of:
(i) The remainder of (a) EBIT of such Person and its
Subsidiaries for such period, MINUS (b) all Capital Expenditures
of such Person and its Subsidiaries for such period;
TO
(ii) All Interest Expenses of such Person and its
Subsidiaries for such period.
"INTEREST EXPENSES" means, with respect to any Person for any
period, the sum, determined on a consolidated basis in accordance with
GAAP, of all interest accruing on the indebtedness of such Person
during such period (including interest attributable to Capital
Leases).
"LEVERAGE RATIO" means, with respect to any Person at any time,
the ratio, determined on a consolidated basis in accordance with GAAP,
of:
(i) The Total Liabilities of such Person and its
Subsidiaries at such time;
TO
<PAGE>
(ii) The Tangible Net Worth of such Person and its
Subsidiaries at such time.
"NET PROCEEDS" means, with respect to any sale or issuance of any
Equity Securities by any Person, the aggregate consideration received
by such Person from such sale or issuance LESS the sum of the actual
amount of the reasonable fees and commissions payable to Persons other
than such Person or any Affiliate of such Person, the reasonable legal
expenses and the other reasonable costs and expenses directly related
to such sale or issuance that are to be paid by such Person.
"PERSON" means an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint
venture, governmental authority, or other entity of whatever nature.
"QUICK RATIO" means, with respect to any Person at any time, the
ratio, determined on a consolidated basis in accordance with GAAP, of:
(i) The remainder at such time of (a) the sum of all cash,
cash equivalents (less than ninety (90) days in term), short-term
marketable securities (less than one (1) year in term) and
accounts receivable of such Person and its Subsidiaries (less all
reserves therefor), MINUS (b) the sum of (1) the aggregate amount
of such cash, cash equivalents, short-term marketable securities
and accounts receivable which are subject to any Lien or are
otherwise encumbered or restricted (to the extent such amounts do
not secure a corresponding current liability amount included in
the calculation of subpart (ii) below), and (2) with respect to
any accounts receivable sold, assigned or transferred, to the
extent included under subpart (i) (a) above, the aggregate amount
of any accounts receivable representing the discounted portion of
such accounts receivable so sold, assigned or transferred;
TO
(ii) The sum at such time of (a) the current liabilities of
such Person and its Subsidiaries, (b) the aggregate principal
amounts outstanding under any revolving credit facility
(including, without limitation, in the case of Guarantor, the
aggregate principal amount of all loans then outstanding under
the 1995 Guarantor Credit Agreement), and (c) in the event such
Person or any of its Subsidiaries exercises a purchase option
under a synthetic lease or a purchase payment otherwise becomes
due under a synthetic lease, the portion of any synthetic lease
payment that would be
<PAGE>
utilized to purchase the underlying property within one year of
the date of such exercise or acceleration.
"SENIOR FUNDED DEBT" of any Person means any Funded Debt which is
not Subordinated Debt.
<PAGE>
"SENIOR INDEBTEDNESS" of any Person means, without duplication:
(i) all Senior Funded Debt of such Person;
(ii) all Contingent Obligations of such Person;
(iii) all obligations of such Person with respect to any
synthetic leases; and
(iv) all obligations of such Person with respect to any
sale, transfer or assignment of accounts receivable and related
rights and property by such Person with recourse to such Person.
"SENIOR INDEBTEDNESS RATIO" means, with respect to any Person at
any time, the ratio, determined on a consolidated basis in accordance
with GAAP, of:
(i) The total Senior Indebtedness of such Person and its
Subsidiaries at such time;
TO
(ii) The sum at such time of (a) the total Senior
Indebtedness and Subordinated Debt of such Person and its
Subsidiaries at such time PLUS (b) the total Tangible Net Worth
of such Person and its Subsidiaries at such time.
"SUBORDINATED DEBT" means any subordinated debt permitted by
Section 6.1(xi) of the Loan Agreement.
"SUBSIDIARY" of any Person means (i) any corporation of which
more than 50% of the issued and outstanding Equity Securities having
ordinary voting power to elect a majority of the Board of Directors of
such corporation (irrespective of whether at the time capital stock of
any other class or classes of such corporation shall or might have
voting power upon the occurrence of any contingency) is at the time
directly or indirectly owned or controlled by such Person, by such
Person and one or more of its other Subsidiaries or by one or more of
such Person's other Subsidiaries; (ii) any partnership, joint venture,
or other association of which more than 50% of the equity interest
having the power to vote, direct or control the management of such
partnership, joint venture or other association is at the time owned
and controlled by such Person, by such Person and one or more of the
other Subsidiaries or by one or more of such Person's other
Subsidiaries; or (iii) any other Person included in the Financial
Statements of such Person on a consolidated basis.
<PAGE>
"TANGIBLE NET WORTH" means, with respect to any Person at any
time, the remainder at such time, determined on a consolidated basis
in accordance with GAAP, of (i) the total assets of such Person and
its Subsidiaries MINUS (ii) the sum (without limitation and without
duplication of deductions) of (a) the total liabilities of such Person
and its Subsidiaries, (b) all reserves established by such Person and
its Subsidiaries for anticipated losses and expenses (to the extent
not deducted in calculating total assets in clause (i) above), and (c)
all intangible assets of such Person and its Subsidiaries (to the
extent included in calculating total assets in clause (i) above),
including, without limitation, goodwill (including any amounts,
however designated on the balance sheet, representing the cost of
acquisition of businesses and investments in excess of underlying
tangible assets), trademarks, trademark rights, trade name rights,
copyrights, patents, patent rights, licenses, unamortized debt
discount, marketing expenses, organizational expenses, non-compete
agreements and deferred research and development.
"TOTAL LIABILITIES" of any Person means, without
duplication:
(i) all liabilities of such Person, as determined in
accordance with GAAP;
(ii) all Contingent Obligations of such Person;
(iii) all obligations of such Person with respect to any
synthetic leases; and
(iv) all obligations of such Person with respect to any
sale, assignment or transfer of accounts receivable and related
rights and property by such Person with recourse to such Person.
3.1.2 FINANCIAL COVENANTS. Guarantor covenants that until all
Obligations have been fully and completely satisfied, Guarantor shall
comply with, and cause compliance with, each of the following covenants:
(a) QUICK RATIO. Guarantor shall not permit its Quick Ratio
during any period set forth below to be less than the ratio set forth
opposite such period below:
June 28, 1996 through December 31, 1996 1.05;
Thereafter 1.10.
<PAGE>
(b) INTEREST COVERAGE RATIO. Guarantor shall not permit its
Interest Coverage Ratio for each period set forth below to be
less than the ratio set forth opposite such period below:
Each consecutive four quarter period ending June 30, 1996,
September 30, 1996, and December 31, 1996 5.00;
Each consecutive four quarter period ending on the last day
of each quarter thereafter 6.00.
(c) LEVERAGE RATIO. Guarantor shall not permit its Leverage
Ratio during any period set fort below to be greater than the ratio
set forth opposite such period below:
June 28, 1996 through December 31, 1996 1.20;
January 1, 1997 through December 31, 1997 1.00;
Thereafter 0.85.
(d) SENIOR INDEBTEDNESS RATIO. Guarantor shall not permit its
Senior Indebtedness Ratio during any period set forth below to be
greater than the ratio set forth opposite such period below:
June 28, 1996 through December 31, 1996 0.40;
January 1, 1997 through December 31, 1997 0.37;
Thereafter 0.34.
(e) TANGIBLE NET WORTH. Guarantor shall not permit its Tangible
Net Worth on any date of determination (such date to be referred to
herein as a "determination date") which occurs after June 30, 1995
(such date to be referred to herein as the "base date") to be less
than the sum on such determination date of the following:
(i) $375,000,000;
(ii) Seventy-five percent (75%) of the sum of Guarantor's
consolidated quarterly net income (ignoring any quarterly losses)
for each quarter ending after the base date through and including
the quarter ending immediately prior to the determination date;
(iii) One hundred percent (100%) of the Net Proceeds of all
Equity Securities issued by Guarantor and its Subsidiaries during
the period commencing on the base date and ending on the
determination date; and
<PAGE>
(iv) One hundred percent (100%) of the aggregate decrease
in the total liabilities of Guarantor and its Subsidiaries
resulting from conversions of convertible Subordinated
Indebtedness or other liabilities of Guarantor and its
Subsidiaries into Equity Securities of Guarantor and its
Subsidiaries during the period commencing on the base date and
ending on the determination date.
(f) NET INCOME. Guarantor shall not permit (i) its net income
for more than two quarters in any consecutive four-quarter period to
be a loss; (ii) its net income for any one or two quarters in any
consecutive four-quarter period to be a loss exceeding an aggregate
amount of $15,000,000 for any one or both such quarters together; or
(iii) its cumulative net income for any consecutive four-quarter
period to be a loss.
SECTION 3.2. LOAN AGREEMENT COVENANTS. Guarantor shall comply with, and
cause compliance with, each of the covenants set forth in Articles 5 and 6 of
the Loan Agreement, including, without limitation, the covenants set forth in
Sections 5.1, 5.4, 5.7, 6.1, 6.2, 6.3 and 6.4 of the Loan Agreement.
ARTICLE 4.
MISCELLANEOUS
SECTION 4.1. CURRENCY. Guarantor shall make all payments due hereunder in
Japanese Yen and this obligation shall not be discharged by any tender or
judgment which is expressed in or converted into any currency other than
Japanese Yen, except to the extent resulting in the actual receipt by Lender of
the full amount of Japanese Yen payable hereunder. Such obligation to pay in
Japanese Yen shall be enforceable as an additional cause of action to recover in
Japanese Yen the amount, if any, by which such actual receipt shall fall short
of the full amount of Japanese Yen payable hereunder. If after the occurrence
of any Event of Default, any sum is due from Guarantor under this Guaranty or if
any order or judgment given or made in relation hereto has to be converted from
the currency ( "first currency") in which the same is payable hereunder or under
such order or judgment into another currency ("second currency") for the purpose
of:
(i) making or filing a claim or proof against the Guarantor;
(ii) obtaining an order or judgment in any court or tribunal; or
(iii) enforcing any order or judgment given or made in relation
hereto,
Guarantor shall indemnify and hold harmless Lender from and against any damages
or losses suffered as a result of any discrepancy between (a) the rate of
exchange used for such purpose to convert the sum in question from the first
currency into the second currency, and (b) the rate or rates of exchange at
which Lender may in the ordinary
<PAGE>
course of business purchase the first currency with the second currency in the
Japanese foreign exchange market upon receipt of a sum paid to it in
satisfaction, in whole or in part, of any such order, judgment, claim or proof.
SECTION 4.2. PAYMENTS FREE AND CLEAR OF TAXES.
(a) Any and all payments by Guarantor hereunder shall be made free
and clear of and without deduction for any and all taxes, charges or levies
("Taxes"). If Guarantor shall be required by law to deduct any Taxes from
or in respect of any sum payable hereunder (i) the sum payable shall be
increased as may be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this
Section 4.2) Lender receives an amount equal to the sum it would have
received had no such deductions been made, (ii) Guarantor shall make such
deductions and (iii) Guarantor shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with
applicable law. Notwithstanding anything to the contrary contained in this
Section 4.2, Guarantor shall not be liable for the payment of any income,
gross receipts or franchise taxes or other similar taxes with respect to
any payment made by Guarantor pursuant to this Guaranty which is now or
hereafter imposed on the overall net income of Lender.
(b) In addition, Guarantor agrees to pay any present or future stamp
or documentary taxes, recording or filing fees or any other excise or
property taxes, charges or similar levies which arise from any payment made
hereunder or from the execution or delivery of or otherwise with respect to
this Guaranty.
(c) Within ten (10) days after the date of any payment of Taxes by a
Guarantor, Guarantor will furnish to Lender, at its principal office, the
original or a certified copy of a receipt evidencing payment thereof.
SECTION 4.3. SURVIVAL OF WARRANTIES. All agreements, representations and
warranties made herein shall survive the execution and delivery of this
Guaranty.
SECTION 4.4. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the
part of Lender in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
power, right or privilege preclude any other exercise of such powers, rights or
privileges. The powers, rights and privileges hereunder are cumulative to, and
not exclusive of, any powers, rights or privileges otherwise available.
SECTION 4.5. RIGHTS TO SETOFF AND SUBROGATION. In addition to all liens
upon, and rights to setoff against the moneys, securities or other property of
Guarantor given to Lender by law, Lender shall have a lien upon and a right of
setoff against all moneys, securities and other property of Guarantor now or
hereafter in the possession of or on deposit with Lender, whether held in a
general or special account or deposit, or for safekeeping or otherwise; and
every such lien and right of setoff may be exercised
<PAGE>
without demand upon or notice to Guarantor. No lien or right of setoff shall be
deemed to have been waived by any act or conduct on the part of Lender, or by
any neglect to exercise such right of setoff or to enforce such lien, or by any
delay in so doing; and every right of setoff and lien shall continue in full
force and effect until specifically waived or released by an instrument in
writing executed by Lender.
SECTION 4.6. NOTICES. All notices and other communications provided for
under this Guaranty shall be in writing and shall be personally delivered or
sent by first class United States mail, by nationally recognized overnight
courier such as Federal Express or DHL, or by telecopy or by other means of
telecommunication, to the following addresses:
to Guarantor: Lam Research Corporation
47300 Bayside Parkway
Fremont, California 94538-6516
Telephone: (510) 572-6910
Facsimile: (510) 572-1586
to Lender: The Sakura Bank, Limited
International Business Promotion Group
Tokyo Main Office, Div 1
1-2, Yurakucho, 1-chome
Chiyoda-ku, Tokyo
100 Japan
Telephone: 011-81-33-595-3781
Facsimile: 011-81-33-501-1219
or, as to each party, at such other address as shall be designated by such party
in a written notice to the other party complying as to delivery with the terms
of this Section. All such notices and communications shall be deemed received
(i) if personally delivered, upon delivery; (ii) if sent by first class mail,
following deposit in the mail with first class postage prepaid, upon receipt;
(iii) if sent by courier service with next Business Day delivery charges
prepaid, upon receipt; and (iv) if sent by telex, telecopy or similar form of
telecommunications, upon receipt.
SECTION 4.7. SEVERABILITY. In case any provision of this Guaranty shall
be invalid, illegal or unenforceable, such provisions shall be severable from
the rest of this Guaranty and the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
SECTION 4.8. AMENDMENTS. This Guaranty may only be modified or amended by
an instrument in writing duly executed and delivered by the parties or their
duly authorized representatives.
SECTION 4.9. ENTIRE AGREEMENT. The terms and conditions set forth herein
constitute the complete and exclusive statement of the agreement between Lender
and
<PAGE>
Guarantor relating to the subject matter of this Guaranty, superseding all
previous negotiations and understandings, and may not be contradicted by
evidence of any prior or contemporaneous agreement. The parties further intend
that this Guaranty constitutes the complete and exclusive statement of its terms
and that no extrinsic evidence whatsoever may be introduced in any judicial
proceeding, if any, involving this Guaranty.
SECTION 4.10. APPLICABLE LAW. This Guaranty shall be governed by, and
construed in accordance with the internal laws of the State of California,
without reference to principles of conflicts of law.
SECTION 4.11. JURISDICTION. Guarantor hereby irrevocably submits to the
jurisdiction of any California state court located in Santa Clara County, or the
Federal District Court of the Northern District of California in any action or
proceeding arising out of or relating to this Guaranty, and Guarantor hereby
irrevocably agrees that all claims in respect of such action or proceeding may
be heard and determined in such California State or Federal court. Guarantor
further consents to service of process upon it in such manner as shall be
permitted by the laws of the State of California if litigation or other legal
process is commenced in the courts of the State of California or by applicable
federal law (including reference to state law) if litigation or legal process is
commenced in the United States District Court. Guarantor also irrevocably
consents to the service of any and all process in any such action or proceeding
by the mailing of copies of such process to Guarantor at the address set forth
in Section 4.6 above. Guarantor agrees that a final judgment in any such action
or proceeding shall be conclusive and may be enforced in any other jurisdictions
by suit on the judgment or in any other manner provided by law. Nothing in this
Section 4.11 shall affect the right of the Lender to serve legal process in any
other manner permitted by law or affect the right of the Lender to bring any
action or proceeding against Guarantor or its property in the courts of any
other jurisdiction. To the extent that Guarantor has or hereafter may acquire
any immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property,
Guarantor hereby irrevocably waives such immunity in respect of its obligations
under this Guaranty.
SECTION 4.12. BINDING EFFECT; ASSIGNABILITY. This Guaranty shall be
binding upon Guarantor and its successors, permitted assigns, heirs, executors,
administrators, conservators, representatives, guardians and estates, and shall
inure to the benefit of Lender and its successors, assigns, heirs, executors,
administrators, conservators, representatives, guardians and estates. Lender
may (i) without the consent of Borrower or Guarantor, grant participations in
this Guaranty and the other Loan Documents or in any of its rights under this
Guaranty and the other Loan Documents; and (ii) with the consent of Borrower
(but no consent of Guarantor required), which consent shall not be unreasonably
withheld by Borrower, negotiate, pledge or hypothecate this Guaranty and the
other Loan Documents or in any of its rights under this Guaranty and the other
Loan Documents. Guarantor shall accord full recognition to any such assignment,
and all rights and remedies of Lender in connection with the
<PAGE>
interest so assigned shall be as fully enforceable by such assignee or
participant as they were by Lender before such assignment. In connection with
any proposed assignment or participation, Lender may disclose to the proposed
assignee or participant any information that Guarantor is required to deliver to
Lender pursuant to this Guaranty or any of the other Loan Documents provided
such disclosure is made subject to the same confidentiality restrictions, if
any, applicable to Lender. Guarantor may not assign or otherwise transfer this
Guaranty to any other person without the prior written consent of Lender, which
consent may be withheld in Lender's sole and absolute discretion.
SECTION 4.13. HEADINGS. Headings of the Articles and Sections of this
Guaranty are inserted for convenience only and shall not be deemed to constitute
a part hereof.
SECTION 4.14. EXPENSES AND FEES. Guarantor hereby agrees to be responsible
for and to pay all reasonable costs and expenses, including, without limitation,
attorneys' fees and foreclosure fees, incurred by Lender in connection with the
collection of all the Obligations guaranteed hereunder and the defense or
enforcement of any of Lender's rights hereunder, whether or not suit is filed,
and whether such collection be from Borrower or from Guarantor.
IN WITNESS WHEREOF, the due execution of this Guaranty as of the date first
above written.
GUARANTOR:
LAM RESEARCH CORPORATION,
a Deleware corporation
By:
-------------------------
Name:
-----------------------
Title:
----------------------
<PAGE>
EXHIBIT 11.1
LAM RESEARCH CORPORATION
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FULLY
PRIMARY DILUTED
------- -------
Year-ended June 30, 1996
Net Income . . . . . . . . . . . . . . . . . . . . . . $141,091 $141,091
Add interest expense on convertible subordinated
debentures, net of tax . . . . . . . . . . . . . . . - 3,264
---------------------
$141,091 $144,355
---------------------
---------------------
Average shares outstanding. . . . . . . . . . . . . 27,768 27,768
Net effect of dilutive stock options. . . . . . . . 932 950
Assumed conversion of subordinated debentures . . . - 2,222
---------------------
Common and common equivalent shares used in
computing per share amounts. . . . . . . . . . . . . 28,700 30,940
---------------------
---------------------
Net income per share . . . . . . . . . . . . . . . . . $4.92 $4.67
---------------------
---------------------
Year-ended June 30, 1995
Net Income . . . . . . . . . . . . . . . . . . . . . . $89,211 $89,211
Add interest expense on convertible subordinated
debentures, net of tax . . . . . . . . . . . . . . . - 3,455
---------------------
$89,211 $92,666
---------------------
---------------------
Average shares outstanding. . . . . . . . . . . . . 26,090 26,090
Net effect of dilutive stock options. . . . . . . . 1,210 1,570
Assumed conversion of subordinated debentures . . . - 2,640
---------------------
Common and common equivalent shares used in
computing per share amounts. . . . . . . . . . . . . 27,300 30,300
---------------------
---------------------
Net income per share . . . . . . . . . . . . . . . . . $3.27 $3.06
---------------------
---------------------
Year-ended June 30, 1994
Net Income . . . . . . . . . . . . . . . . . . . . . . $37,756 $37,756
Add interest expense on convertible subordinated
debentures, net of tax. . . . . . . . . . . . . . . - 2,940
---------------------
$37,756 $40,696
---------------------
---------------------
Average shares outstanding . . . . . . . . . . . . 23,389 23,389
Net effect of dilutive stock options . . . . . . . 911 971
Assumed conversion of subordinated debentures. . . - 2,640
---------------------
Common and common equivalent shares used in
computing per share amounts . . . . . . . . . . . . 24,300 27,000
---------------------
---------------------
Net income per share . . . . . . . . . . . . . . . . . $1.55 $1.51
---------------------
---------------------
23
<PAGE>
SELECTED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------------
Year ended June 30, 1996 1995 1994 1993 1992
- - -----------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
<S> <C> <C> <C> <C> <C>
Total revenue $1,276,884 $810,557 $493,695 $265,038 $171,416
Gross profit 613,703 391,739 227,664 125,110 86,192
Operating income 212,935 118,392 60,206 28,153 15,267
Net income 141,091 89,211 37,756 18,907 9,947
Net income per share
Primary $ 4.92 $ 3.27 $ 1.55 $ 0.79 $ 0.49
Fully diluted $ 4.67 $ 3.06 $ 1.51 $ 0.79 $ 0.49
BALANCE SHEET:
Working capital $ 470,192 $337,386 $171,918 $154,723 $ 81,521
Total assets 969,365 682,649 381,497 268,839 156,600
Long-term obligations, less current portion 52,926 95,928 78,843 79,066 13,698
- - -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------
Quarterly 1996 1st 2nd 3rd 4th
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenue $263,244 $290,517 $346,639 $376,484
Gross profit 128,537 142,010 167,970 175,186
Operating income 44,970 50,378 57,755 59,832
Net income 30,467 33,479 38,649 38,496
Net income per share
Primary $ 1.07 $ 1.18 $ 1.37 $ 1.29
Fully diluted $ 1.00 $ 1.12 $ 1.28 $ 1.27
Price range per share $56.75-73.38 $45.38-68.50 $32.00-52.50 $24.50-45.50
- - -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------
Quarterly 1995 1st 2nd 3rd 4th
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenue $161,513 $172,739 $219,014 $257,291
Gross profit 76,823 83,888 106,965 124,063
Operating income 22,380 26,939 35,458 33,615
Net income 15,053 18,931 24,793 30,434
Net income per share
Primary $ 0.61 $ 0.68 $ 0.89 $ 1.07
Fully diluted $ 0.58 $ 0.64 $ 0.83 $ 1.00
Price range per share $25.75-42.50 $35.00-46.75 $35.25-51.50 $42.50-68.50
- - -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Fourth quarter fiscal 1995 net income includes the effect of a $10.4 million
gain on the sale of Brooks Automation Inc. securities.
Stock and Dividend Information: The Company's Common Stock is traded in the
over-the-counter market under the NASDAQ National Market symbol LRCX. The
price range per share is the highest and lowest bid prices as reported by the
National Association of Security Dealers, Inc.
As of June 30, 1996, the Company had 1,192 stockholders of record.
No cash dividends have been declared or are anticipated to be paid by the
Company as all available funds are intended to be employed in the development
of the business, and the Company's bank agreements restrict the payment of
dividends.
LAM RESEARCH CORP. / 14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- - ---------------------
RESULTS OF OPERATIONS
- - ---------------------
The information in this discussion contains forward looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended, and is subject to the safe harbor provisions created by that
statute. Such statements are subject to certain risks and uncertainties,
including those discussed below, that could cause actual results to differ
materially from those projected. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. Forward-looking statements are indicated by an asterisk (*).
The Company undertakes no obligation to publicly release the results of
any revisions to these forward-looking statements, which may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
The following table sets forth, for the fiscal years indicated, certain
income and expense items as a percentage of total revenue:
- - --------------------------------------------------------------------------------
Year ended June 30, 1996 1995 1994
- - --------------------------------------------------------------------------------
Net sales 98.2% 98.5% 98.2%
Royalty income 1.8 1.5 1.8
- - --------------------------------------------------------------------------------
Total revenue 100.0 100.0 100.0
Cost of goods sold 51.9 51.7 53.8
Research and development 13.6 15.8 15.5
Selling, general and administrative 17.8 17.9 18.5
- - --------------------------------------------------------------------------------
Operating income 16.7 14.6 12.2
Other income/(expense) (0.3) 1.1 (0.6)
- - --------------------------------------------------------------------------------
Income before income taxes 16.4 15.7 11.6
Income tax expense 5.3 4.7 3.9
- - --------------------------------------------------------------------------------
Net income 11.1% 11.0% 7.7%
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------
Fiscal 1996 vs. 1995
- - --------------------
Lam's revenue for fiscal year 1996 increased to $1,276.9 million, a 58%
increase from the $810.6 million of revenue in fiscal 1995. The Company's
Transformer Coupled Plasma (TCP) products experienced increased sales in all
regions and accounted for approximately one half of the overall increase in
revenue. Also contributing to the overall increase in revenue for fiscal 1996
were sales of the Company's Rainbow and Alliance products, which when
combined accounted for approximately one third of the increase in revenue.
Alliance revenue was particularly strong in the latter half of fiscal 1996,
as customers took delivery of the Alliance product in larger quantities. Most
of the remainder of the increase in revenue resulted from increased spares
and service revenue, which occurred as a result of the Company's increased
installed machine base. Lam experienced increased revenue in all geographic
regions, with foreign sales increasing to 64% of overall revenue from 54% in
fiscal 1995. The Asia Pacific region, excluding Japan, accounted for slightly
more than one half of the increase in revenue obtained from foreign sources.
Also, the United States, Japan and European regions continued to show
increases in revenue, accounting for, in approximately equal amounts, the
remainder of the increase.
During fiscal 1996, Lam benefited from the expansion of the worldwide
semiconductor market; however, this market is presently experiencing
volatility in terms of product demand and pricing. This condition has caused
some semiconductor manufacturers to exercise caution in making their capital
equipment purchase decisions and has, in certain cases, led to rescheduled or
canceled planned capital equipment purchases. As a result of the
uncertainties of this current market environment, the company anticipates
that its fiscal 1997 revenue could be less than the revenue achieved in
fiscal 1996.*
Royalty income was $22.8 million in fiscal 1996, an 85% increase over
fiscal 1995, due to the increased sales of systems incorporating Lam
technology by Tokyo Electron Limited (TEL) and Sumitomo Metal Industries,
Ltd. (Sumitomo). The current royalty agreement with TEL was due to expire in
december 1996 but has been extended at a substantially lower royalty rate. As
a result, the Company believes that sales of systems incorporating the
Company's technologies to Japanese customers and royalty income derived
therefrom will be substantially lower and continue to fluctuate on a
quarterly and annual basis.*
Gross margins were 48.1% for fiscal 1996 compared with 48.3% for fiscal
1995. The slight decrease in gross margins can be attributed to the product
mix as the Company sold a relatively higher percentage of the lower margin
TCP and Alliance machines and a relatively lower percentage of the higher
margin rainbow machines. The Company anticipates that gross margins may
continue to decline as customers increasingly accept its newer technology and
lower margin Alliance and TCP products. The Company is actively pursuing
margin improvement programs for these products. Fiscal 1997 gross margins
also may be negatively impacted due to overcapacity at the Company's
manufacturing facilities and issues related to the slower industry conditions
noted above.*
LAM RESEARCH CORP. / 15
<PAGE>
Research and development (R&D) dollar spending increased 35.3% in fiscal
1996 over fiscal 1995 and as a percentage of revenues decreased by 2.2% to
13.6% in fiscal 1996. R&D spending increased as the Company continued to
invest in the development of advanced etch applications, chemical vapor
deposition (CVD) technologies, including Deep SubMicron (DSM) 9800 (formerly
Integrity-Registered Trademark-) and Deep SubMicron (DSM) 9900 (formerly
Epic-TM-), continued enhancements to the TCP and Alliance products, and
continued development of the Company's flat panel display technology.
Although the R&D expenditures increased as the Company has added engineering
and scientific headcount, R&D expenditures increased at a rate slightly
slower than revenue increased. During the quarter ended June 30, 1996, the
Company began occupancy of an additional engineering facility at the
Company's Fremont campus, which the Company is utilizing under an operating
lease. The Company operates in a constantly changing and highly competitive
market, and therefore the Company believes it is critical to continue to make
its investment in R&D programs in order to maintain its position as a
technology leader.
Selling, general and administrative (S,G&A) expenses increased by 56.5%
in fiscal 1996 over fiscal 1995 and decreased slightly as a percentage of
sales. During fiscal 1996, the Company added employees in all customer
support, sales and administration areas to accommodate the increased sales
volume. During fiscal 1996, the Company significantly expanded its foreign
facilities: the Company opened a manufacturing facility in Korea, expanded
its facilities in Japan and relocated and began the expansion of its Taiwan
facility, which will include a product demonstration laboratory and a
training facility.
As a result of the recent market conditions noted above, the Company has
implemented a number of expense and capital spending reduction programs to
manage operating costs. Furthermore, in August 1996, the Company announced a
restructuring of its operations which included an approximate 11% reduction
of its workforce. For the first quarter of fiscal 1997, the Company will
record a restructuring charge of $11.0 to $12.0 million for the costs
resulting from severance compensation and consolidation of related
facilities. The Company expects that as a result of these programs and the
restructuring of operations, operating expenses on a dollar basis will be
lower in fiscal 1997 than in 1996 but may increase as a percentage of the
lower expected revenue for the year.*
Interest expense for Lam increased by 17% over the prior fiscal year, due
to additional yen bank borrowings by the Company's Japanese subsidiary,
additional interest expense related to an interest-rate swap described in
Note D to the consolidated financial statements, and the increased
acquisition of equipment and leasehold capital leases. Other income decreased
due to a $10.4 million one time gain recorded in the fourth quarter of fiscal
1995 from the sale of all of the stock held by the Company in Brooks
Automation Inc., a vendor to the Company.
The combined effective tax rate of 32.5% for fiscal 1996 increased over
the prior year's 30%, due primarily to the expiration of federal research and
development tax credits. The Company expects its effective tax rate to
decrease in fiscal 1997 as a result of the recent reinstatement of the
expired federal research and development tax credits. The Company believes
its future income will be sufficient to realize its net deferred tax assets.*
- - --------------------
FISCAL 1995 VS. 1994
- - --------------------
Lam's net sales for fiscal year 1995 increased to $798.2 million, a 65%
increase from the prior year, as the Company continued to participate in the
worldwide expansion of the semiconductor chip market. Approximately
two-thirds of the increase was due to increased unit shipments of the
Company's Rainbow and TCP product lines, with shipments of the more advanced
TCP products rising at a slightly higher rate when compared to the prior
year. Of the remaining increase, approximately one half was due to the first
volume shipments of the Company's Alliance cluster tool, with most of that
product's revenue growth occurring in the last two quarters of the fiscal
year. Increased spares and service revenue, resulting from the Company's
growing installed base, accounted for most of the remainder of the sales
increase, with spares and service revenue representing 20% of the Company's
total revenue. Geographically, for the first time in its history, more than
one half of the Company's revenues came from foreign customers, with foreign
sales representing 54.0% of total revenue, up from 48.4% in the prior year.
During fiscal year 1995, the Company commenced direct sales of its TCP
products to customers in Japan, which accounted for almost 41.5% of the TCP
product lines' growth over the prior year. These sales are Japanese yen
denominated (the only significant sales which are not U.S.
dollar-denominated) and the Company's practice is to enter into yen forward
exchange contracts at or near the date purchase orders for TCP systems are
received from Japanese customers in order to minimize the subsequent foreign
exchange fluctuations. Korea was the Company's largest single foreign market
and accounted for 16.3% and 15.1% of net sales in fiscal 1995 and
LAM RESEARCH CORP. / 16
<PAGE>
1994, respectively, and sales to European customers increased by over 47%
from the prior year. Royalty income increased by 40.3% from fiscal 1994 due
to increased sales of systems incorporating Lam technology by TEL and
Sumitomo.
Gross margin for fiscal 1995 was 48.3% compared to 46.2% for the prior
year. The improvement in gross margin was due in approximately equal measure
to lower unit manufacturing costs and lower installation and warranty costs.
Most of the decrease in unit manufacturing costs was due to reduced average
material costs as a result of higher volume purchasing (material costs
represent a relatively high percentage of total costs). Reductions in
installation and warranty costs were achieved as a result of active cost
reduction programs, increased training of field service and customer
personnel, as well as ongoing system design improvements.
R&D spending dollars increased by 67% in fiscal 1995 over fiscal 1994,
and as a percentage of total revenues, increased slightly to 15.8%, up from
15.5% for the prior fiscal year. During fiscal year 1995, the Company opened
a major new R&D dedicated facility at its Fremont, California campus and
continued to add scientific and engineering personnel to staff its ongoing
development projects, which included improvements to its existing etch
products, continued development of CVD products, and new product development,
including the new release of the Alliance cluster tool (introduced during
fiscal year 1995) and flat panel display.
S,G&A expenses increased by 60% in fiscal 1995 over fiscal 1994, but
continued to decrease as a percentage of total revenue to 17.9% from 18.5%
for the prior fiscal year. The Company added significant facilities and
information technology infrastructure in fiscal 1995 to accommodate the
rapidly expanding growth in its sales, field service, customer support, and
administration areas as a result of the increased sales volume. S,G&A
headcount increased by 57% in fiscal 1995 over fiscal 1994.
Interest expense increased by 30.6% over the prior fiscal year, due to
additional yen bank borrowings by its Japanese subsidiary, additional
interest expense related to an interest rate swap described in Note D to the
consolidated financial statements, and the increased acquisition of equipment
and leasehold capital leases. Interest income increased due to the investment
of the proceeds of a public offering of the Company's common stock completed
in the first quarter of fiscal 1995. Other income included a $10.4 million
gain recorded in the fourth quarter of fiscal 1995 from the sale of stock
held in Brooks Automation, a vendor to the Company. The combined effective
tax rate for fiscal 1995 of 30% decreased over the prior year's 34% due to an
increase in benefits resulting from federal and state research and other tax
credits.
- - -------------------------------
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
Operating activities provided approximately $26.6 million in cash flows
for fiscal 1996. Approximately $174.8 million of net cash was generated from
net income plus non-cash depreciation and amortization, which was offset by
increases in accounts receivable and inventories less increases in trade
accounts payable and accrued expenses, all such increases being due to the
Company's increased sales volume for the fiscal year. During the third
quarter of fiscal 1996, the Company renegotiated a lease agreement related to
one of its R&D buildings and an engineering building and as a result, $25.0
million of previously restricted investments (restricted cash) became
unrestricted and as a result, has been included in short-term investments at
June 30, 1996. During fiscal 1996, the Company entered into an agreement with
a bank which allows the Company to sell up to 6 billion yen of
yen-denominated accounts receivable to the bank. At June 30, 1996, the
equivalent of $82.1 million of receivables had been sold to the bank, with
$49.5 million still uncollected by the bank and subject to recourse
provisions.
Net cash used in investing activities for fiscal 1996 was $47.7 million.
Capital expenditures included acquisition of equipment used in manufacturing
and research and development and construction of demonstration labs and
leasehold improvements for the Company's expansion at the Fremont campus,
Japan facility, Taiwan facility and the new manufacturing facility in Korea
and accounted for $66.6 million of cash use. Offsetting the use of cash for
capital expenditures were proceeds from the sales of short-term investments
totaling $14.8 million (net of purchases). Cash receipts from investing
activities of $12.0 million were provided from the sale of Brooks Automation,
Inc. securities.
Net cash provided by financing activities for fiscal 1996 was $40.3
million. During the fourth quarter of fiscal 1996, the Company primarily
incurred yen-denominated borrowings of $21.9 million.
As of June 30, 1996, the Company had $130.5 million in cash, cash
equivalents and short-term investments compared with $101.0 million at June
30, 1995. The Company has a total of $210.0 million available under a
syndicated bank line of credit, which expires in December 1998 compared to
$50 million in various bank borrowing lines at June 30, 1995. At June 30,
1996,
LAM RESEARCH CORP. / 17
<PAGE>
the Company had borrowed $25.0 million against the line of credit. Borrowings
under the line of credit are unsecured.
The Company's commitments consist primarily of debt obligations and
operating and capital lease commitments for its facilities and equipment.
Based upon current forecasts, the Company's cash, cash equivalents,
short-term investments and available lines of credit at June 30, 1996 should
be sufficient to support anticipated levels of operations and capital
expenditures through at least June 30, 1997.*
- - ------------
RISK FACTORS
- - ------------
- - ----------------------------------------------------
CURRENT SLOWDOWN AND VOLATILITY IN THE SEMICONDUCTOR
INDUSTRY
- - ----------------------------------------------------
The Company's business depends upon the capital equipment expenditures of
semiconductor manufacturers, which in turn depend on the current and
anticipated market demand for integrated circuits and products utilizing
integrated circuits. The semiconductor industry has been cyclical in nature
and historically experienced periodic downturns. The semiconductor industry
is presently experiencing a slowdown in terms of product demand and
volatility in terms of product pricing. This slowdown and volatility has
caused the semiconductor industry to reduce its demand for semiconductor
processing equipment. No assurance can be given that the Company's revenue
and operating results will not be adversely affected during this and possible
future downturns in the semiconductor industry. In addition, the need for
continued investments in research and development, substantial capital
equipment requirements and extensive ongoing worldwide customer service and
support capability will limit the Company's ability to reduce expenses.
Accordingly, there is no assurance that the Company will be able to remain
profitable in the future.
- - ---------------------------
HIGHLY COMPETITIVE INDUSTRY
- - ---------------------------
The semiconductor processing equipment industry is highly competitive.
The Company faces substantial competition throughout the world. The Company
believes that to remain competitive, it 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 addition, the Company intends to continue to
invest substantial resources to increase sales of its systems to Japanese
semiconductor manufacturers, who represent a substantial portion of the
worldwide semiconductor market and whose market is difficult for non-Japanese
equipment companies to penetrate. The Company believes that the semiconductor
equipment industry is becoming increasingly dominated by large manufacturers
who have the resources to support customers on a worldwide basis, and certain
of the Company's competitors have substantially greater financial resources
and more extensive engineering, manufacturing, marketing and customer service
and support capabilities than the Company. In addition, there are smaller
emerging semiconductor equipment companies which provide innovative
technology. The Company expects its competitors 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 the Company's competitors enter into strategic
relationships with leading semiconductor manufacturers covering etch or
deposition products similar to those sold by the Company, its ability to sell
its products to those manufacturers could be adversely affected. No assurance
can be given that the Company will continue to compete successfully in the
United States or worldwide.
- - -----------------------------------------------
DEPENDENCE ON NEW PRODUCTS AND PROCESSES; RAPID
TECHNOLOGICAL CHANGE
- - -----------------------------------------------
Semiconductor manufacturing equipment and processes are subject to rapid
technological change. The Company believes that its future success will
depend in part upon its ability to continue to enhance its existing products
and their process capabilities and to develop and manufacture new products
with improved process capabilities. As a result, the Company expects to
continue to make significant investments in research and development.* The
Company also must manage product transitions successfully, as introductions
of new products could adversely affect sales of existing products. There can
be no assurance that future technologies, processes or product developments
will not render the Company's current product offerings obsolete or that the
Company will be able to develop and introduce new products or enhancements to
its existing products and processes in a timely manner which satisfy customer
needs or achieve market acceptance. The failure to do so could adversely
affect the Company's business. Furthermore, if the Company is not successful
in the development of advanced processes or equipment for manufacturers with
whom it has formed strategic alliances, its ability to sell its products to
those manufacturers would be adversely
LAM RESEARCH CORP. / 18
<PAGE>
affected. In addition, in connection with the development of the Company's
new products, the Company invests in high levels of preproduction inventory,
and the failure to complete development and commercialization of these new
products in a timely manner could result in inventory obsolescence, which
could have an adverse effect on the Company's financial results.
- - -------------------------------------------
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
- - -------------------------------------------
The Company's revenue and operating results may fluctuate from quarter to
quarter. The Company derives its revenue primarily from the sale of a
relatively small number of high-priced systems which can range in price from
$300,000 to over $3 million. Some of these systems are ordered and shipped
during the same quarter. The Company's results of operations for a particular
quarter could be adversely affected if anticipated orders for even a small
number of systems were not received in time to enable shipment during the
quarter, if anticipated shipments were delayed or cancelled by one or more
customers or if shipments were delayed due to manufacturing difficulties. In
particular, the Company has experienced certain cases of rescheduling or
cancellation of orders. The Company's revenue and operating results may also
fluctuate due to the mix of products sold, the geographic region of
distribution or the level of royalty income from the Company's Japanese
licenses. The Company generally realizes a higher margin on sales of its
mature etch products and on revenue from service and spare parts than on
sales of new TCP and Alliance products. Newer products usually have lower
margins in the initial phase of production. Increases or decreases in royalty
income will also have a disproportionate impact on operating income and will
continue to fluctuate on a quarterly basis. The impact of these and other
factors on the Company's revenues and operating results in any future periods
is difficult for the Company to forecast.
- - ---------------------------
DEPENDENCE ON KEY SUPPLIERS
- - ---------------------------
Certain of the components and subassemblies included in the Company's
products are obtained from a single supplier or a limited group of suppliers.
The Company believes that alternative sources could be obtained and qualified
to supply these products. Nevertheless, a prolonged inability to obtain
certain components could have an adverse effect on the Company's operating
results and could result in damage to customer relationships.
- - -------------------------
ENVIRONMENTAL REGULATIONS
- - -------------------------
The Company is subject to a variety of governmental regulations related
to the discharge or disposal of toxic, volatile, or otherwise hazardous
chemicals used in the manufacturing process. The Company believes that it is
in compliance with these regulations and that it has obtained all necessary
environmental permits to conduct its business, which permits generally relate
to the disposal of hazardous wastes. Nevertheless, the failure to comply with
present or future regulations could result in fines being imposed on the
Company, suspension of production or cessation of operations. Such
regulations could require the Company to acquire significant equipment or to
incur substantial other expenses to comply with environmental regulations.
Any failure by the Company to control the use of, or adequately restrict the
discharge or disposal of hazardous substances could subject the Company to
future liabilities.
- - -------------------
INTERNATIONAL SALES
- - -------------------
The Company anticipates that export sales will continue to account for a
significant portion of its net sales.* Additionally, the Company continues to
expand its international operations, including expansion of its facilities in
Asia. As a result, a significant portion of the Company's sales and
operations will be subject to certain risks, including tariffs and other
barriers, difficulties in staffing and managing foreign subsidiary and branch
operations, difficulties in managing distributors, potentially adverse tax
consequences and the possibility of difficulty in accounts receivable
collection. There can be no assurance that any of these factors will not have
a material adverse effect on the Company's business, financial condition and
results of operations.
- - -----------------------------
INTELLECTUAL PROPERTY MATTERS
- - -----------------------------
From time to time, the Company is notified that it may be in violation of
certain patents. In such cases, the Company's policy is to defend against the
claims or negotiate licenses where considered appropriate. However, no
assurance can be given that it will be able to obtain necessary licenses on
commercially reasonable terms or at all. Any failure to obtain such licenses
on commercially reasonable terms, or at all, or any litigation resulting from
such claims could have a material adverse effect on the Company's business
and financial condition.
LAM RESEARCH CORP. / 19
<PAGE>
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
- - --------------------------------------------------------------------------------
June 30, 1996 1995
- - --------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 62,879 $ 43,675
Short-term investments 67,605 57,334
Accounts receivable less allowance for doubtful
accounts of $1,663 in 1996 and $1,189 in 1995 256,767 195,682
Inventories 322,366 171,401
Prepaid expenses and other assets 17,193 25,263
Deferred income taxes 50,035 32,778
- - --------------------------------------------------------------------------------
Total current assets 776,845 526,133
Equipment and leasehold improvements, net 170,839 117,571
Restricted investments -- 25,024
Other assets 21,681 13,921
- - --------------------------------------------------------------------------------
$969,365 $682,649
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Trade accounts payable $112,883 $ 82,542
Accrued expenses and other liabilities 155,874 98,633
Line of credit borrowings 25,000 --
Current portion of long-term debt and capital
lease obligations 12,896 7,572
- - --------------------------------------------------------------------------------
Total current liabilities 306,653 188,747
Long-term debt and capital lease obligations, less
current portion 52,926 95,928
Deferred income taxes -- 2,712
Commitments and contingencies
Preferred Stock; 5,000 shares authorized, none
outstanding -- --
Common stock at par value of $.001 per share
Authorized--90,000 shares; issued and
outstanding--30,266 shares at June 30, 1996
and 27,275 shares at June 30, 1995 30 27
Additional paid-in capital 298,160 224,730
Retained earnings 311,596 170,505
- - --------------------------------------------------------------------------------
Total stockholders' equity 609,786 395,262
- - --------------------------------------------------------------------------------
$969,365 $682,649
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
See notes to consolidated financial statements.
LAM RESEARCH CORP. / 20
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
- - ---------------------------------------------------------------------------------------------
Year ended June 30, 1996 1995 1994
- - ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 1,254,070 $798,209 $484,892
Royalty income 22,814 12,348 8,803
- - ---------------------------------------------------------------------------------------------
Total revenue 1,276,884 810,557 493,695
Costs and expenses:
Cost of goods sold 663,181 418,818 266,031
Research and development 173,013 127,840 76,328
Selling, general and administrative 227,755 145,507 91,130
- - --------------------------------------------------------------------------------------------
1,063,949 692,165 433,489
- - ---------------------------------------------------------------------------------------------
Operating income 212,935 118,392 60,206
- - ---------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------
Other income (expense):
Interest income 5,442 5,138 1,743
Interest expense (7,887) (6,732) (5,155)
Other, net (1,453) 10,646 363
- - ---------------------------------------------------------------------------------------------
(3,898) 9,052 (3,049)
- - ---------------------------------------------------------------------------------------------
Income before income taxes 209,037 127,444 57,157
Income tax expense 67,946 38,233 19,401
- - ---------------------------------------------------------------------------------------------
Net income $ 141,091 $ 89,211 $ 37,756
- - ---------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------
Net income per share
Primary $ 4.92 $ 3.27 $ 1.55
- - ---------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------
Fully diluted $ 4.67 $ 3.06 $ 1.51
- - ---------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------
Number of shares used in per share calculations
Primary 28,700 27,300 24,300
- - ---------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------
Fully diluted 30,940 30,300 27,000
- - ---------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
LAM RESEARCH CORP. / 21
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------------------
Year Ended June 30, 1996 1995 1994
- - ---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $141,091 $ 89,211 $37,756
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 33,756 23,532 18,438
Deferred income taxes (21,519) (12,529) (13,310)
Changes in certain working capital accounts:
Accounts receivable (61,085) (75,356) (50,382)
Inventories (150,965) (55,832) (51,280)
Prepaid expenses and other assets (3,968) (19,240) (2,635)
Trade accounts payable 30,341 16,415 35,289
Accrued expenses and other liabilities 58,960 52,895 32,378
- - ---------------------------------------------------------------------------------------------------------------------------------
Total adjustments (114,480) (70,115) (31,502)
- - ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 26,611 19,096 6,254
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (66,588) (63,405) (18,975)
Purchase of available-for-sale securities (405,819) (348,204) (14,194)
Sale of available-for-sale securities 420,572 289,968 --
Purchase of restricted investments -- -- (9,928)
Proceeds from the sale of securities 12,038 -- --
Acquisition of Drytek, Inc. net of cash acquired -- -- ( 5,785)
Other (7,947) (3,026) (2,102)
- - ---------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (47,744) (124,667) (50,984)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings under line of credit 40,000 -- --
Repayment of borrowings under line of credit (15,000) -- --
Proceeds from issuance of long-term debt 21,873 9,468 5,724
Principal payments on long-term debt and capital lease obligations (13,987) (6,406) (6,843)
Proceeds from issuance of common stock 7,451 122,092 2,688
- - ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 40,337 125,154 1,569
- - ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 19,204 19,583 (43,161)
Cash and cash equivalents at beginning of year 43,675 24,092 67,253
- - ---------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 62,879 $ 43,675 $24,092
- - ---------------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Cash payments for interest $ 8,574 $ 6,614 $ 4,575
- - ---------------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Cash payments for income taxes $ 74,666 $ 31,319 $20,289
- - ---------------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
LAM RESEARCH CORP. / 22
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
- - ----------------------------------------------------------------------------------------------------------------------------------
Common Common Additional
Stock Stock Paid-in Retained
Shares Amount Capital Earnings Total
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1993 23,142 $23 $ 86,709 $ 43,538 $130,270
Sale of Common Stock, net of repurchases 350 1 2,687 -- 2,688
Income tax benefit from stock option transactions -- -- 4,939 -- 4,939
Common Stock issued to acquire Monkowski-Rhine, Inc. 36 -- 1,178 -- 1,178
Net income -- -- -- 37,756 37,756
- - ---------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1994 23,528 24 95,513 81,294 176,831
Sale of Common Stock, net of repurchases 3,747 3 122,089 -- 122,092
Income tax benefit from stock option transactions -- -- 7,128 -- 7,128
Net income -- -- -- 89,211 89,211
- - ----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1995 27,275 27 224,730 170,505 395,262
Sale of Common Stock, net of repurchases 351 -- 7,451 -- 7,451
Income tax benefit from stock option transactions -- 1,719 -- 1,719
Conversion of subordinated debentures 2,640 3 64,260 -- 64,263
Net income -- -- -- 141,091 141,091
- - ----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1996 30,266 $30 $298,160 $311,596 $609,786
- - ----------------------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
LAM RESEARCH CORP. / 23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
- - ----------------------------------------------
A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- - ----------------------------------------------
- - -----------------------------
PRINCIPLES OF CONSOLIDATION
- - -----------------------------
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation.
- - ------------------
CASH EQUIVALENTS
- - ------------------
All highly liquid investments purchased with an original maturity of
three months or less are considered to be cash equivalents.
- - -------------
INVENTORIES
- - -------------
Inventories are stated at the lower of cost (first-in, first-out
method) or market. The Company adjusts the carrying value of excess or
obsolete inventory as appropriate.
- - -------------------------------------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
- - -------------------------------------
Equipment and leasehold improvements are stated at cost. Equipment is
depreciated by the straight-line method over the estimated useful lives of
the assets, generally three to five years. Leasehold improvements are
amortized by the straight-line method over the shorter of the life of the
related asset or the term of the lease. Amortization of equipment under
capital leases is included with depreciation. In 1995, the Financial
Accounting Standards Board released Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of" (FAS 121). FAS 121 requires
recognition of impairment of long-lived assets in the event the net book
value of such assets exceeds the future undiscounted cash flows attributable
to such assets. FAS 121 is effective for fiscal years beginning after
December 15, 1995. Adoption of FAS 121 is not expected to have a material
impact on the Company's financial position or results of operation.
- - ----------------------
REVENUE RECOGNITION
- - ----------------------
Sales of the Company's products are generally recorded upon shipment.
Estimated costs to be incurred by the Company related to product installation
and warranty fulfillment are accrued at the date of shipment.
- - ---------------------
FOREIGN CURRENCY
- - ---------------------
The Company has foreign sales, service and manufacturing operations.
With respect to all foreign subsidiaries excluding Japan, the functional
currency is the U.S. dollar and transaction and translation gains and losses
are included in net income and have not been material in any year presented.
The functional currency of the Company's Japanese subsidiary is the Japanese
yen. Translation gains and losses related to the Japan subsidiary are
included as component of stockholders' equity, but have not been material
through June 30, 1996.
- - ------------------
INCOME PER SHARE
- - ------------------
Income per share computations are based upon the weighted average
number of shares of Common Stock and common stock equivalents outstanding
during the year. The common stock equivalents include shares issuable upon
the assumed exercise of stock options using the treasury stock method. The
convertible subordinated debentures are not deemed to be common stock
equivalents and, accordingly, are excluded from the calculation of primary
income per share. Fully diluted income per share includes the effect of the
convertible subordinated debentures, and net income is adjusted to reflect
the exclusion of net interest expense and net amortization expense of debt
issuance costs related to the debentures, assuming their conversion at the
beginning of the period. Primary income per share, for fiscal 1996,
calculated to reflect the conversion of the convertible subordinated
debentures as if they were converted on July 1, 1995 is $4.67.
- - ---------------------
EMPLOYEE STOCK PLANS
- - ---------------------
The Company accounts for its stock option plans and its employee stock
purchase plan in accordance with the provisions of the Accounting Principles
Board's Opinion No. 25 "Accounting For Stock Issued to Employees" (APB 25).
In October 1995, the Financial Accounting Standards Board released Statement
of Financial Accounting Standard No. 123, "Accounting For Stock-Based
Compensation"( FAS 123). FAS 123 provides an alternative to APB 25 and is
effective for fiscal years beginning after December 15, 1995. The Company
expects to continue to account for its employee stock plans in accordance
with the provisions of APB 25. Accord
LAM RESEARCH CORP. / 24
<PAGE>
ingly, FAS 123 is not expected to have a material impact on the Company's
Financial position or results of operation. Effective with the issuance of
the Company's fiscal year 1997 financial statements, the Company will
disclose proforma net income and net income per share amounts as if FAS 123
were applied.
- - -------------------
USE OF ESTIMATES
- - -------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that could affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from
those estimates.
- - ------------------------------------
B COMPANY AND INDUSTRY INFORMATION
- - -------------------------------------
Lam Research Corporation is a leading supplier of technically complex
thin film processing equipment used in the primary stages of semiconductor
manufacturing. The Company's product offerings include single wafer plasma
etch systems with a wide range of applications and chemical vapor deposition
(CVD) systems. The Company sells its products primarily to large companies
involved in the production of semiconductors in the United States, Europe,
Japan and Asia Pacific. Credit evaluations are performed on all customers,
and the Company usually does not require collateral on sales.
The semiconductor industry has historically been cyclical and has
experienced periodic downturns, which have had a material adverse effect on
the semiconductor industry's demand for semiconductor processing equipment,
including equipment manufactured and marketed by the Company. Certain of the
components and subassemblies included in the Company's products are obtained
from a single supplier or a limited group of suppliers. The Company believes
that alternative sources could be obtained and qualified to supply these
products. Nevertheless, a prolonged inability to obtain certain components
could have a severe near term effect on the Company's operating results and
could result in damage to customer relationships.
The Company entered into agreements totaling approximately 6 billion
yen and 5 billion yen in fiscal 1996 and 1995, respectively, to sell specific
Japanese yen-denominated receivables subject to recourse. At June 30, 1996
and 1995, $82,104,000 and $37,612,000, of these receivables respectively, had
been sold to the bank, of which $49,467,000, at June 30, 1996, remained
uncollected by the bank and subject to recourse provisions.
During fiscal 1996, no individual customer accounted for greater than
10% of sales. One customer accounted for 11% and 14% of sales for fiscal 1995
and 1994, respectively. Another customer accounted for 10% of sales for
fiscal 1994.
The Company operates in four geographic regions, the United States,
Europe, Japan and Asia Pacific. The following is a summary of local
operations by geographic region at June 30:
- - ----------------------------------------------------------------
(in thousands) 1996 1995 1994
- - ----------------------------------------------------------------
Revenue:
United States $1,295,003 $820,418 $491,909
Europe 65,266 38,604 23,776
Japan 150,707 52,923 5,705
Asia Pacific 65,331 38,162 13,522
Elimination (299,423) (139,550) (41,217)
- - ----------------------------------------------------------------
Total $1,276,884 $810,557 $493,695
- - ----------------------------------------------------------------
- - ----------------------------------------------------------------
Operating income/(loss):
United States $ 171,632 $111,284 $ 57,694
Europe 23,717 9,874 7,902
Japan 4,127 520 793
Asia Pacific 16,700 13,199 2,885
Elimination (3,241) (16,485) (9,068)
- - ---------------------------------------------------------------
Total $ 212,935 $118,392 $ 60,206
- - ---------------------------------------------------------------
- - ---------------------------------------------------------------
Identifiable assets:
United States $1,097,246 $772,696 $411,838
Europe 48,458 28,936 26,067
Japan 99,592 64,135 10,993
Asia Pacific 90,561 32,832 15,346
Elimination (366,492) (215,950) (82,747)
- - ---------------------------------------------------------------
Total $ 969,365 $682,649 $381,497
- - ---------------------------------------------------------------
- - ---------------------------------------------------------------
LAM RESEARCH CORP. / 25
<PAGE>
Sales between geographic areas are accounted for at prices that provide
a profit and are in accordance with the rules and regulations of the
respective governing authorities. Total export revenue consisting of sales
from the Company's U.S. operating subsidiary to non-affiliated customers by
geographic region for the years ended June 30 are as follows:
- - --------------------------------------------------------
(in thousands) 1996 1995 1994
- - --------------------------------------------------------
Asia Pacific $334,149 $173,549 $102,763
Europe 172,586 105,349 73,563
Japan 22,936 29,477 19,612
- - --------------------------------------------------------
$529,671 $308,375 $195,938
- - --------------------------------------------------------
- - ------------------------
C FINANCIAL INSTRUMENTS
- - ------------------------
In November 1995, the Financial Accounting Standards Board staff issued
a Special Report, "A Guide to Implementation of Statement 115 on Accounting
for Certain Investments in Debt and Equity Securities". In accordance with
provisions in that Special Report, the Company elected, in December 1995, to
reclassify all of its held-to-maturity securities to available-for-sale. At
the time of transfer, the amortized cost of those securities was $24,099,000
million, which approximated their fair value.
Investments at June 30, 1996 are comprised of the following:
- - ----------------------------------------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Fair
(in thousands) Cost Gains Losses Value
- - ----------------------------------------------------------------------------
Available-for-sale:
Institutional Money
Market Funds $ 5,546 $-- $-- $ 5,546
- - ---------------------------------------------------------------------------
Amounts included in cash
and cash equivalents 5,546 -- -- 5,546
Floating Rate
Municipal Bonds 44,600 -- -- 44,600
U.S. Treasury Notes 23,005 -- -- 23,005
- - ---------------------------------------------------------------------------
Amounts included in
short-term investments 67,605 -- -- 67,605
- - ---------------------------------------------------------------------------
Total Available-for-sale $73,151 $-- $-- $73,151
- - ---------------------------------------------------------------------------
Investments at June 30, 1995 are comprised of the following:
- - ----------------------------------------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Fair
(in thousands) Cost Gains Losses Value
- - ----------------------------------------------------------------------------
Available-for-sale:
Commercial Paper $12,983 $-- $ -- $12,983
Institutional Money
Market Funds 15,050 -- -- 15,050
U.S. Treasury Notes 1,973 -- -- 1,973
- - ---------------------------------------------------------------------------
Amounts included in cash
and cash equivalents 30,006 -- -- 30,006
Floating Rate
Municipal Bonds 50,334 -- -- 50,334
Money Market
Preferred Stock 7,000 -- -- 7,000
- - --------------------------------------------------------------------------
Amounts included in
short-term investments 57,334 -- -- 57,334
- - --------------------------------------------------------------------------
Total Available-for-sale $87,340 $-- $ -- $87,340
- - --------------------------------------------------------------------------
- - --------------------------------------------------------------------------
Held-to-maturity:
U.S. Treasury Notes $25,024 $-- $(509) $24,515
- - --------------------------------------------------------------------------
Amounts included in
restricted cash $25,024 $-- $(509) $24,515
- - --------------------------------------------------------------------------
- - --------------------------------------------------------------------------
The amortized cost and estimated fair value of investments in debt
securities at June 30 by contractual maturities are as follows:
- - ---------------------------------------------------------------------------
1996 1995
------------------------------------------------
Estimated Estimated
Fair Fair
(in thousands) Cost Value Cost Value
- - ---------------------------------------------------------------------------
Due in less than
one year $50,146 $50,146 $ 87,340 $ 87,340
Due after one year
through five years 23,005 23,005 25,024 24,515
- - ---------------------------------------------------------------------------
Total investments in
debt securities $73,151 $73,151 $112,364 $111,855
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
During fiscal 1996, the Company terminated a lease agreement related to
one of its R&D buildings and an engineering building and, as a result, all
previously restricted cash, $25,024,000, at June 30, 1995 became unrestricted.
LAM RESEARCH CORP. / 26
<PAGE>
The carrying and fair values of the Company's other financial
instruments at June 30, are as follows:
- - ---------------------------------------------------------------------------
1996 1995
---------------------------------------------
Estimated Estimated
Carrying Fair Carrying Fair
(in thousands) Value Value Value Value
- - --------------------------------------------------------------------------
Cash & cash
equivalents $62,879 $62,879 $43,675 $ 43,675
Convertible subordinated
debentures $ -- $ -- $66,000 $169,868
Other long-term debt $65,822 $65,591 $37,500 $ 37,200
- - --------------------------------------------------------------------------
- - --------------------------------------------------------------------------
The fair values of the Company's short-term investments, restricted
investments, and convertible subordinated debentures are based on quoted
market prices at June 30, 1996 and 1995. The fair value of the Company's
other long-term debt is estimated based on the current rates offered to the
Company for similar debt instruments of the same remaining maturities.
During the fourth quarter of fiscal 1995, the Company sold all of its
shareholdings of Brooks Automation, Inc., (Brooks) for a net gain of
$10,399,000, which was included as other income. At June 30, 1995, the
receivable related to the sale of these securities was recorded in other
current assets. The shares the Company sold were included as part of the
Brooks public offering of common stock on June 27, 1995. At that time, Roger
Emerick, the Company's Chief Executive Officer, served on the board of
directors of Brooks.
- - -----------------------------------
D DERIVATIVE FINANCIAL INSTRUMENTS
- - ------------------------------------
The Company enters into foreign-currency forward contracts to minimize
the impact of exchange rate fluctuations on the value of yen-denominated
assets and liabilities. A substantial portion of the forward contracts
entered into have a maturity of 90 days or less. The realized and unrealized
gains and losses on these contracts are deferred and offset against realized
and unrealized gains and losses from the settlement of the related yen
receivables. The realized losses on yen-forward contracts during fiscal 1996
were offset by the gains on underlying receivables.
At June 30, 1996, the Company had forward contracts to sell yen worth
$43,632,000. Of the total outstanding contracts, $38,794,000 was hedging yen
receivables and $4,838,000 was hedging firm commitments from customers in
Japan. The unrealized gain on these contracts at June 30, 1996 was $948,000.
At June 30, 1995, the Company had forward contracts to sell $30,701,000
Japanese yen. The unrealized gain on these contracts at June 30, 1995 was
$464,000. The realized losses on yen-forward contracts during fiscal 1995
were offset by underlying realized gains on the receivables.
In May 1993, the Company had entered into a three year interest-rate
swap agreement with a third party which was scheduled to mature in May 1996.
Under the agreement, the third party assumed 4.5% of the 6% fixed interest
rate payments related to the Company's $66,000,000 convertible subordinated
debentures, while the Company assumed variable interest rate
[equal to the six-month London Interbank Offered Rate (LIBOR)] payments of
the third party on a like principal amount. The net amount of interest
payments assumed by the third party and interest payments made by the Company
is included in interest expense. The fair value of the liability related to
the Company's interest rate swap was $1,216,000 at June 30, 1995. In May
1996, the Company's convertible subordinated debentures were converted into
common stock, and in conjunction with the conversion of the convertible
subordinated debentures, the Company terminated the interest-rate swap
agreement and paid a nominal termination fee.
- - ----------------
E INVENTORIES
- - ----------------
Inventories consist of the following at June 30:
- - ----------------------------------------------------
(in thousands) 1996 1995
- - ---------------------------------------------------
Raw materials $167,513 $ 80,910
Work-in-process 122,828 73,183
Finished goods 32,025 17,308
- - --------------------------------------------------
$322,366 $171,401
- - --------------------------------------------------
LAM RESEARCH CORP. / 27
<PAGE>
- - ----------------------------------------
F EQUIPMENT AND LEASEHOLD IMPROVEMENTS
- - ----------------------------------------
Equipment and leasehold improvements consist of the following at June 30:
- - ---------------------------------------------------------
(in thousands) 1996 1995
- - ---------------------------------------------------------
Equipment $120,770 $ 80,910
Furniture and fixtures 45,740 25,372
Leasehold improvements 88,131 64,707
- - ---------------------------------------------------------
254,641 170,989
Less allowance for depreciation
and amortization (83,802) (53,418)
- - --------------------------------------------------------
$170,839 $117,571
- - --------------------------------------------------------
- - --------------------------------------------------------
- - ------------------------------------------
G ACCRUED EXPENSES AND OTHER LIABILITIES
- - ------------------------------------------
The significant components of accrued expenses and other liabilities
consist of the following at June 30:
- - --------------------------------------------------------
(in thousands) 1996 1995
- - --------------------------------------------------------
Warranty, installation, and
product improvement reserves $ 62,180 $40,986
Accrued compensation 27,752 22,260
Income and other taxes payable 45,471 22,546
Other 20,471 12,841
- - --------------------------------------------------------
$155,874 $98,633
- - --------------------------------------------------------
- - --------------------------------------------------------
- - ----------------------------------------------
H LINE OF CREDIT, LONG-TERM DEBT AND CAPITAL
LEASE OBLIGATIONS
- - ----------------------------------------------
Long-term debt and capital lease obligations at June 30 consist of the
following:
- - --------------------------------------------------------------------------------
(in thousands) 1996 1995
- - -------------------------------------------------------------------------------
Japanese yen-denominated bank loans with
fixed interest rates from 3.0% to 4.9%,
principal payable in quarterly and semi-annual
installments from July 1996 to April 2003 $32,724 $16,572
Notes payable to leasing companies with
interest rates from 4.9% to 11.2%, payable
in monthly installments through January 1998 1,121 2,391
Capitalized lease obligations with varying
interest rates from 6.3% to 10.5% 30,043 15,508
6% convertible subordinated debentures
due 2003 -- 66,000
Other 1,934 3,029
- - -------------------------------------------------------------------------------
65,822 103,500
Less current portion (12,896) (7,572)
- - -------------------------------------------------------------------------------
$52,926 $95,928
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
During May 1996, the Company's convertible subordinated debentures were
converted into 2,640,000 shares of the Company's common stock (see Note D).
During the second quarter of fiscal 1996, the Company entered into a
syndicated bank line of credit totaling $210,000,000, on which borrowings
bear interest at the bank's prime rate or 0.7% to 0.9% over LIBOR. This
syndicated bank line of credit expires in December 1998. At June 30, 1996,
the Company had outstanding borrowings of $25,000,000 against the syndicated
bank line of credit. At June 30, 1995, the Company had lines of credit
available with four banks which together totaled $50,000,000. No borrowings
were outstanding at June 30, 1995. The Company's line of credit restrict the
Company from paying dividends.
The notes payable to leasing companies are collateralized by equipment
additions with a cost equal to the original principal amount of the notes.
At June 30, 1996, future maturities of long-term debt and minimum
payments for capital lease obligations are as follows:
- - -------------------------------------------------------------------
Capital
Year ending June 30 Long term Lease
(in thousands) Debt Obligations Total
- - -------------------------------------------------------------------
1997 $ 3,444 $11,495 $14,939
1998 4,286 10,583 14,869
1999 8,006 8,405 16,411
2000 7,784 3,618 11,402
2001 5,916 5,916
Thereafter 6,343 6,343
Less amounts representing
interest -- (4,058) (4,058)
- - -------------------------------------------------------------------
$35,779 $30,043 $65,822
- - -------------------------------------------------------------------
- - -------------------------------------------------------------------
Long-term debt and capital lease obligations are collateralized by
equipment included in equipment and leasehold improvements with a cost and
accumulated depreciation and amortization of $45,484,000 and $(15,309,000),
respectively, at June 30, 1996 and $27,009,000 and $(16,136,000),
respectively, at June 30, 1995.
- - -----------------------------------------------
I INCENTIVE STOCK OPTION PLANS, PERFORMANCE-
BASED STOCK PLAN AND STOCK PURCHASE PLAN
- - ------------------------------------------------
The Company has adopted incentive stock option plans that provide for
the granting to qualified employees of incentive
LAM RESEARCH CORP. / 28
<PAGE>
stock options to purchase shares of Common Stock. In addition, the plans
permit the granting of nonstatutory stock options to paid consultants and
employees and provides for the automatic grant of nonstatutory stock options
to outside directors. The option price is determined by the Board of
Directors, but in no event will it be less than the fair market value on the
date of grant (no less than 85% of the fair market value at the date of grant
in case of nonstatutory options). Options granted under the plans vest over a
period determined by the Board of Directors. Under the automatic grant
program, each outside director receives an option exercisable for 6,000
shares of Common Stock during January of each year with the exercise price
equal to the fair market value on date of grant.
A summary of incentive stock option plan transactions follows:
- - ----------------------------------------------------------------------------
Authorized Outstanding Option Price
- - ----------------------------------------------------------------------------
June 30, 1993 226,119 1,510,512 $ 0.34-20.21
Additional amount
authorized 900,000 -- --
Granted (743,225) 743,225 26.29-35.88
Exercised -- (281,528) 0.34-20.00
Cancelled 100,589 (100,589) 0.34-35.88
Expired (9,767) -- --
- - ---------------------------------------------------------------------------
June 30, 1994 473,716 1,871,620 2.04-35.88
Additional amount
authorized 1,075,000 -- --
Granted (820,600) 820,600 28.00-63.88
Exercised -- (563,965) 2.04-35.88
Cancelled 49,654 (49,654) 1.70-50.63
Expired (5,481) -- --
- - --------------------------------------------------------------------------
June 30, 1995 772,289 2,078,601 2.04- 63.88
Additional amount
authorized 1,000,000 -- --
Granted (1,995,948) 1,995,948 25.94- 68.00
Exercised (156,552) 2.04- 45.13
Cancelled 1,121,602 (1,121,602) 2.04- 68.00
Expired (8,174) -- --
- - --------------------------------------------------------------------------
June 30, 1996 889,769 2,796,395 $ 2.26-62.88
- - --------------------------------------------------------------------------
- - --------------------------------------------------------------------------
At June 30, 1996, 3,686,164 shares of Common Stock were reserved for
future issuance under the stock option plans and options to purchase
1,165,055 shares were exercisable at a range of $2.26-$62.88.
During fiscal 1996, the Company adopted a Performance-Based Restricted
Stock Plan designed to reward executives based upon the achievement of
certain predetermined goals. The grant is based on the fair market value of
the Company's common stock at the end of the quarter, provided the
predetermined goals are met. The Company authorized 150,000 shares to be
reserved for issuance under the Performance-Based Stock Plan. At June 30,
1996 132,802 shares remain available under this plan.
Common Stock is sold to employees under the 1984 Employee Stock
Purchase Plan. During fiscal 1996, the Company authorized an additional
150,000 shares to be reserved for issuance under the 1984 Employee Stock
Purchase Plan. The purchase price per share is the lower of 85% of the fair
market value of the Common Stock on the first or last day of a six-month
offering period. A total of 965,427 shares of the Company's Common Stock were
issued under the Plan through June 30, 1996 at prices ranging from $2.65 to
$43.03 per share. At June 30, 1996, 372,073 shares remain available for sale
under this plan.
- - -----------------------------------------
J PROFIT SHARING PLAN AND BENEFIT PLAN
- - -----------------------------------------
During fiscal 1995, the Company revised the profit sharing plan for its
domestic employees. Distributions to employees by the Company are made
quarterly based upon a percentage of base salary provided that a threshold
level of the Company's financial performance is met. Upon achievement of the
threshold, the profit sharing is awarded based upon performance against
certain corporate financial and operating goals. Prior to fiscal 1995,
distributions to the domestic employees under the profit sharing plan were
made semi-annually based on 5% of pretax income provided certain minimum net
income goals were met. Profit sharing plan expense for fiscal 1996, 1995 and
1994 was $14,438,000, $9,506,000, and $3,008,000.
The Company maintains a 401(k) retirement savings plan for its
full-time domestic employees. Beginning October 1, 1995, each participant in
the plan may elect to contribute 2% to 15% of his or her annual salary to the
plan, subject to statutory limitations. Prior to October 1, 1995 each
participant could elect to contribute 2% to 20% of his or her annual salary
to the plan, subject to statutory limitations. Beginning January 1, 1994, the
LAM RESEARCH CORP. / 29
<PAGE>
Company began to match employee contributions to the plan at the rate of 50%
of the first 6% of salary contributed. The Company match expense for fiscal
1996, 1995 and 1994 was $3,754,000, $2,342,000, and $770,000, respectively.
- - ------------------
K COMMITMENTS
- - -------------------
The Company leases its administrative, research and development, and
manufacturing facilities, regional sales/service offices and certain
equipment under noncancelable operating leases, which expire at various dates
through 2006. All of the Company's facility leases for buildings located at
its Fremont, California headquarters and certain operating leases provide the
Company an option to extend the lease for additional periods. Certain of the
Company's other facility leases provide for periodic rent increases based on
the general rate of inflation.
Future minimum lease payments for the years ended June 30 and in the
aggregate under operating leases consist of the following:
- - -----------------------------------------------------
(in thousands)
- - -----------------------------------------------------
1997 $ 46,028
1998 44,176
1999 36,796
2000 29,057
2001 22,108
Thereafter 127,682
- - ----------------------------------------------------
$305,847
- - ----------------------------------------------------
- - ----------------------------------------------------
During fiscal 1996, the Company entered into a ten year operating lease
agreement for two buildings, an R&D building and an additional engineering
building, which requires the Company to set aside $47,317,000 as lease
collateral five years after lease inception.
Total rental expense for all leases amounted to approximately
$35,303,000, $9,528,000, and $6,173,000, for the years ended June 30, 1996,
1995 and 1994, respectively.
- - --------------------------------
L LICENSING/ROYALTY AGREEMENTS
- - --------------------------------
The Company also receives royalty income from Tokyo Electron, Ltd.
(TEL) under a licensing agreement signed in fiscal 1987 and extended in
fiscal 1992 and 1996. For the years ended June 30, 1996, 1995 and 1994, the
Company earned approximately $20,700,000, $10,500,000, and $7,000,000,
respectively, of royalty income from TEL. The current royalty agreement,
which was due to expire December 31, 1996, has been extended with a new
agreement effective January 1, 1997 which provides for royalties to be paid
by TEL at a much lower rate than the current agreement.
The Company also receives royalty income from Sumitomo Metal, Ltd.
(Sumitomo). Royalty income earned from Sumitomo for fiscal 1996, 1995 and
1994 amounted to approximately $2,100,000, $1,700,000, and $1,800,000,
respectively.
During fiscal 1995, the Company earned $100,000 of royalty income from
other sources.
- - -----------------
M INCOME TAXES
- - -----------------
Income tax expense consists of the following:
- - ---------------------------------------------------------------
(in thousands) 1996 1995 1994
- - ---------------------------------------------------------------
Federal:
Current $61,950 $36,093 $23,544
Deferred (18,397) (10,247) (13,310)
- - ----------------------------------------------------------------
43,553 25,846 10,234
State:
Current 6,746 6,131 3,572
Deferred (1,572) (2,282) --
- - ---------------------------------------------------------------
5,174 3,849 3,572
Foreign:
Current 20,769 8,538 5,595
Deferred (1,550) -- --
- - ---------------------------------------------------------------
19,219 8,538 5,595
$67,946 $38,233 $19,401
- - ---------------------------------------------------------------
- - ---------------------------------------------------------------
Actual current tax liabilities are lower than reflected above for
fiscal years 1996, 1995 and 1994 by $1,719,000, $7,128,000, and $4,939,000,
respectively, for the stock option deduction benefits recorded as a credit to
stockholders' equity.
LAM RESEARCH CORP. / 30
<PAGE>
Under FAS No. 109, deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income
tax purposes. Significant components of the Company's net deferred tax assets
as of June 30, are as follows:
- - ---------------------------------------------------------------
(in thousands) 1996 1995
- - ---------------------------------------------------------------
Deferred tax assets:
Inventory valuation differences $21,696 $15,969
Accounting reserves and accruals
deductible in different periods 24,745 16,809
Net undistributed profits of
foreign subsidiaries 6,753 --
Other 446 --
- - ---------------------------------------------------------------
Total deferred tax assets 53,640 32,778
- - ---------------------------------------------------------------
Deferred tax liabilities:
Other (2,055) (2,712)
- - ---------------------------------------------------------------
- - ---------------------------------------------------------------
Total deferred tax liabilities (2,055) (2,712)
- - ---------------------------------------------------------------
Net deferred tax assets $51,585 $30,066
- - ---------------------------------------------------------------
- - -------------------------------------------------------------
A reconciliation of income tax expense provided at the federal
statutory rate (35% in 1996, 1995 and 1994) to income tax expense follows:
- - -------------------------------------------------------------------
(in thousands) 1996 1995 1994
- - -------------------------------------------------------------------
Income tax expense computed
at federal statutory rate $73,163 $44,605 $20,005
Tax credits -- (2,800) (701)
State income taxes, net of
federal tax benefits 3,363 2,502 2,322
Foreign sales corporation
tax benefits (9,074) (5,250) (2,038)
Other 494 (824) (187)
- - -------------------------------------------------------------------
$67,946 $38,233 $19,401
- - -------------------------------------------------------------------
- - -------------------------------------------------------------------
Income before income taxes from foreign operations for fiscal years
1996, 1995 and 1994 was $42,216,000, $17,830,000, and $12,859,000,
respectively. In addition, the Company received royalty and other income from
foreign sources of $22,814,000, $12,227,000 and $8,803,000, in fiscal years
1996, 1995 and 1994, respectively, which is subject to foreign tax withholding.
- - ---------------------
N LITIGATION
- - --------------------
In October 1993, Varian Associates, Inc. (Varian) brought suit against
the Company in the United States District Court, Northern District of
California, seeking monetary damages and injunctive relief based on the
Company's alleged infringement of certain patents held by Varian. The lawsuit
is in the late stages of discovery and has recently been reassigned to a new
judge. The Company has asserted defenses of invalidity and unenforceability
of the patents that are the subject of the lawsuit, as well as
noninfringement of such patents by the Company's products. While litigation
is subject to inherent uncertainties and no assurance can be given that the
Company will prevail in such litigation or will obtain a license under such
patents on commercially reasonable terms or at all if such patents are held
valid and infringed by the Company's products, the Company believes that the
Varian lawsuit will not have a material adverse effect on the Company's
consolidated financial statements.
In addition, the Company is from time to time notified by various
parties that it may be in violation of certain patents. In such cases, it is
the Company's intention to seek negotiated licenses where it is considered
appropriate. The outcome of these matters will not, in management's opinion,
have a material impact on the Company's consolidated financial position,
operating results or cash flow statements.
- - --------------------------------
O SUBSEQUENT EVENT (UNAUDITED)
- - --------------------------------
In August 1996, the Company announced a restructuring of its
operations, consolidating its previous business unit structure into
centralized functional organizations. As a result of the restructuring, and
in response to industry conditions, the Company reduced its workforce by
approximately 11%. For the first quarter of fiscal 1997, the Company will
record a restructuring charge of $11.0 to $12.0 million for costs resulting
primarily from severance compensation and consolidation of related facilities.
LAM RESEARCH CORP. / 31
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- - ------------------------------------------------------------------------------
Board of Directors
Lam Research Corporation
Fremont, California
We have audited the accompanying consolidated balance sheets of Lam
Research Corporation as of June 30, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for
each of the three years in the period ended June 30, 1996. 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 generally accepted auditing
standards. 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 consolidated financial position of Lam
Research Corporation at June 30, 1996 and 1995, and the consolidated results
of its operations and its cash flows for each of the three years in the
period ended June 30, 1996, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
July 29, 1996
San Jose, California
Design: Heiney & Craig, Inc., San Francisco
LAM RESEARCH CORP. / 32
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
SUBSIDIARY STATE OR OTHER
---------- JURISDICTION OF OPERATION
-------------------------
LAM RESEARCH GMBH GERMANY
LAM RESEARCH CO., LTD. JAPAN (KANAGAWA)
LAM RESEARCH CO., LTD. JAPAN (SAITAMA)
LAM RESEARCH (SHANGHAI) CO., LTD CHINA
LAM RESEARCH LTD. UNITED KINGDOM
LAM RESEARCH SARL FRANCE
LAM RESEARCH SINGAPORE PTE LTD SINGAPORE
LRC INTERNATIONAL FSC CORPORATION BARBADOS
LAM RESEARCH KOREA LIMITED KOREA
LAM RESEARCH S.R.L. ITALY
LAM RESEARCH (ISRAEL) LTD. ISRAEL
LAM RESEARCH CO., LTD. TAIWAN
LAM RESEARCH BV NETHERLANDS
MONKOWSKI-RHINE, INCORPORATED CALIFORNIA
24
<PAGE>
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of Lam Research Corporation of our report dated July 29, 1996, included in
the 1996 Annual Report to Stockholders of Lam Research Corporation.
Our audits also included the financial statement schedule of Lam Research
Corporation listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
We also consent to incorporation by reference in the Registration
Statements (Form S-8 Nos. 33-32166, Amendment No. 1, and 33-43857) of our report
dated July 29, 1996, with respect to the consolidated financial statements
incorporated herein by reference, and our report included in the preceding
paragraph with respect to the financial statement schedules included in this
Annual Report (Form 10-K) of Lam Research Corporation.
Ernst & Young LLP
San Jose, California
September 18, 1996
25
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF OPERATIONS, THE CONSOLIDATED BALANCE SHEET AND THE
ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 62,879
<SECURITIES> 67,605
<RECEIVABLES> 258,430
<ALLOWANCES> 1,663
<INVENTORY> 322,366
<CURRENT-ASSETS> 776,845
<PP&E> 254,641
<DEPRECIATION> 83,802
<TOTAL-ASSETS> 969,365
<CURRENT-LIABILITIES> 306,653
<BONDS> 0
0
0
<COMMON> 30
<OTHER-SE> 609,756
<TOTAL-LIABILITY-AND-EQUITY> 969,365
<SALES> 1,254,070
<TOTAL-REVENUES> 1,276,884
<CGS> 663,181
<TOTAL-COSTS> 663,181
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,887
<INCOME-PRETAX> 209,037
<INCOME-TAX> 67,946
<INCOME-CONTINUING> 141,091
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 141,091
<EPS-PRIMARY> 4.92
<EPS-DILUTED> 4.67
</TABLE>
